Part 10 of 12 - Pages 7006 To 7966 PDF

Vision 2025: Education Excellence and Management of Innovations through Sustainable Economic Competitive Advantage
Digital Competence, General Data Protection

Regulation and University Responsibility
Velga VEVERE
EKA University of Applied Sciences, Riga, Latvia
velga.vevere@gmail.com
Ilona LEJNIECE
EKA University of Applied Sciences, Riga, Latvia
lejniece.ilona@gmail.com
Iveta LININA
Turiba University, Riga, Latvia
iveta.linina@turiba.lv
Abstract
The purpose of the research is to investigate business students’ perception of the General Data
Protection Regulation within the context of digitalization and university responsibility. Design /
Methodology / Approach. Considering the specifics of the research subject and the aim set a
qualitative research using focus group interview was performed. Altogether there were organized six
focus groups of students representing two private business schools in Riga. The method of data
processing – content analysis (concept map). Findings. The main findings of the research depict
business students attitude to internet privacy issues in their private, professional lives, as well as
during the study process. Originality / Value / Practical implications. During recent years, digital
competence has become a key concept in the discussion in the field of higher education, it is
recognized as one of the key competences for the 21st century. The practical value of the current
research lies with the fact that it identified problems students had faced regarding minding their data
privacy in the digital environment, as well as with the fact that article proposes some practical
problem solutions.
Keywords: General Data Protection Regulation; digital competence; internet privacy issues;
university social responsibility
Introduction
On June 7, 2010 Günter Verheugen, the Vice-President of the European Commission
responsible for Enterprise and Industry, delivered his speech “E-skills for the 21st century:
fostering competitiveness, growth and jobs”. (Verheugen, 2010) In his speech he outlined the basic
skills and competences vital for survival in the digitalized economic environment. They are not just
pure technical skills: successful innovation in ICT requires also cross-disciplinary, cognitive and
problem-solving skills as well as an understanding of the fundamentals of business. He pinpointed
three key messages regarding the subject: first, it is essential to adopt a long-term and consistent e-
skills agenda; second, co-operation between the public and private sectors must be improved in order
to link effectively basic e-skills training, higher education and professional development; third,
industry and policy makers should act more decisively and consistently regarding their strategies to
promote the attractiveness of ICT education, jobs and careers. In relation to our current investigation
the second statement is of a special importance, since it places a part of responsibility for digital
competences upon the higher education institutions. The digital competence, in its turn, involves the
aspects of internet security and safety, as well as privacy concerns. The year of 2018 is historical in
the sense that it marks the coming into power of the General Data Protection Regulation (GDPR).
(COM, 2016) The regulation consists of seven main principles: (1) lawfulness, fairness and
transparency; (2) purpose limitation; (3) data minimization; (4) accuracy; (5) storage limitations; (6)
integrity and confidentiality (handling the personal data); and (7) accountability. There is no doubt
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that these provisions has a serious impact upon data handling in business (for example, data base
marketing) and in private lives. Since the focus of our interest is students’ knowledge about the
GDPR and its practical consequences, it is necessary to speak about the university responsibility in
educating them regarding this matter. Researchers have summarized the desired outcomes of USR,
such as, (1) community of learners and scholars who value the pursuit of new knowledge in a society
of learning and are valued members and leaders of society, and global citizens effective in diverse
setting; (2) graduates who have well-balanced knowledge and wisdom, and good character;
intelligent, think rationally, behave morally and ethically; possess life and leadership skills; conscious
of public and common good; practice good governance and are socially responsible, able to compete
in an international job market, socially responsible global leader. (Knowledge Societies: Universities
and their Social Responsibilities, 2011) A. Esfijani and others (2013) have identified seven main
elements of USR that are important to attempt any research in the field, they are engagement,
education, research, service, ethics, transparency, stakeholders. In our opinion, one university social
responsibility should include such aspect as developing students’ digital competencies. These three
(i.e., digital skills/competences, General Data Protection Regulation, and University Social
Responsibility) comprise the theoretical framework of the current investigation. The aim of the
research is to investigate business students’ perception of the GDPR within the context of
digitalization and university responsibility.
Literature Review
The Internet and new media communication technologies with their interactive and increasingly
individualized digital services change people’s habits and behavior, building new value models and
vital cues. They are becoming an irreplaceable source of education and self-education and important
tool for the development of new literacy. (Shopova, 2014) A Digital Agenda for Europe (DAE)
(COM, 2010) pays a special attention to the development of new digital and media literacy skills for
learning, creating, participating, and discerning use of digital media in order to meet the challenge of
the global competitiveness. Digital competence is determined by the European Union as one of the
eight key competences for lifelong learning, which due to its versatility allows it to acquire other key
skills (e.g, mathematics, learning how to learn, creativity) and ensures active participation in society
and economy. (COM, 2006) The main competences as recommended by the Reference Framework
are the following: communication in the mother tongue; communication in foreign languages;
mathematical competence and basic competences in science and technology; digital competence;
learning to learn; social and civic competences; sense of initiative and entrepreneurship; and cultural
awareness and expression. Many of the competences overlap, and they have common denominators,
that is, development of critical thinking, creativity, initiative, problem solving, risk assessment,
decision taking, and constructive management of feelings. The document (COM, 2006) defines the
digital competence as involving the confident and critical use of Information Society Technology
(IST) for work, leisure and communication. It is underpinned by basic skills in ICT: the use of
computers to retrieve, assess, store, produce, present and exchange information, and to communicate
and participate in collaborative networks via the Internet. In addition, it includes an understanding of
the opportunities and potential risks of the Internet and communication via electronic media (e-mail,
network tools) for work, leisure, information sharing and collaborative networking, learning and
research. The theme of digital competences has been expanded in another document of the European
Commission, namely in the “Digital Competence Framework for Citizens.” (Ferrari, 2013) In
defining the framework of digital competence it came to the belief that it is not sufficient to be
claimed that digital literacy includes all the skills and competencies required for Internet literacy, ICT
literacy, information literacy and media literacy. There are other components that come into the
picture of digital literacy and build a framework: personal data protection (using and sharing the
personally identifiable information while being able to protect oneself and others from damages);
managing one or multiple digital identities, to be able to protect one's own reputation, to deal with the
data that one produces through several digital tools, environments and services; netiquette (to be
aware of behavioral norms and know-how while using digital technologies and interacting in digital
environments, to adapt communication strategies to the specific audience and to be aware of cultural
and generational diversity in digital environments), etc. Janssen and others (2013) conclude that
digital competence is a conglomerate of knowledge, skills, and attitudes connected to various
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purposes (communication, creative expression, information management, personal development,

etc.), domains (daily life, work, privacy & security, legal aspects), and levels. Digital Competence
clearly involves more than knowing how to use devices and applications – which is intricately
connected with skills to communicate using ICT as well as information management skills. In
addition, it includes also legal and ethical aspects, and privacy and security issues. Ananiadou and
Claro (2009) provide a typology of the digital competencies in three different levels: first,
information and communication technologies level, that includes competences relevant to mastering
the use of different ICT applications; second level - competences for learning, that combine both
cognitive abilities with functional competences for the use and management of ICT applications;
third one - twenty-first century competences which bring together skills considered necessary in the
knowledge society. The report on the Digital Economy and Society Index (DESI) (2019) discerns
four competence dimensions – information, communication, problem solving and software for
content manipulation. Evaluating the current state of each dimension the report states that across the
competence dimensions, the largest skills deficit relates to the use of software for content
manipulation, almost one third of population has no skills in this area. Noteworthy is that Latvia is
among the EU member states, along with Bulgaria and Romania, that exhibit comparatively low
competence level in software manipulation as opposed to, for instance, to Luxembourg and UK.
Since our investigative interest lies with digital skills and the university we have gathered
information about the digital skills of the Latvian youth. (Central Statistical Bureau Data Base)
According to statistics, the skill level almost in all positions within time period of three years has
dropped, except installing software and writing code in the programming language, the biggest drop
can be seen in the field of using software for photo, video or audio editing (from 71% to 40,9%
among the target population). . Still, this does not provide information about young people’s the
privacy and internet security issues. Some insight in this matter can be gained if we refer to the
survey carried out in 2017 in Latvia among young people aged between 14 and 17 (n=616).
(European Youth Portal) The survey results exposed some potential risks. Thus, although young
people declare their awareness of the security measures, more than a half of respondents publish
personal information in social media – date of birth, family members, school and other data. Almost
50% admit that they have published embarrassing photo and video materials, and more than one third
of respondents have confirmed friendship with unknown people. In short, the researchers admitted
that young people’s digital skills have somewhat “stuck” in the entertainment sphere. So there arises
an inevitable question who is responsible for instilling the rules of behavior into young generation
and enhance their digital skills and knowledge in the General Data Protection Regulation. The first
obvious answer could be the family and the school, but at the same time the higher education
institution has to play a part as well to prepare students for their future professional lives. New
innovative concepts like the right to data portability, standardized privacy icons and data protection
by design and default are opening wide opportunities to foster innovation and competition. The risk
based approach ensures the effective protection of the fundamental right to data protection in the
digital ecosphere of tomorrow. (Albrecht, 2016) Regarding the implementation of the GDPR in the
higher education establishments, there are particular aspects to be taken into account: personal data
processing (grades, performance, salaries, private information, etc.), conflict management (resource
conflicts, i.e., budgets, priorities, staff; service composition on the “web”), security requirements,
privacy design strategies (access control; unobservability; unlinkability; transparency; multi-party
policy enforcement and logging of transactions; ”logging” of all transactions on personal data),
managing consent and policies in research (data collection, processing, storing), intervenability (data
subject can request insight, update or deletion; data subject can revoke consent to data processing or
restrict it at any time), audit readiness (reporting routines; awareness of risk; ability to communicate
with affected data subjects). (Fritsch, 2017)
Method
During April 2019 six focus group discussions were prepared and organized to generate a discussion
on business students’ knowledge of the European Commission General Data Protection Regulation
(GPDR) and its impact on their digital behavior within and outside university. Considering the
specifics of the research subject and the aim set a qualitative research using focus group interview
was performed. As emphasized by Langford and McDonagh (2003), the main strength of the
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approach is its ability to provide in-depth understanding of the research topic. Focus group provides
the unique opportunity to obtain data not only from the interaction between the researcher and
individuals but also from the interaction between different participating individuals. Preparation for
the focus group included defining the focus group subject, aim and setup. In order to stimulate
discussion authors were prepared with, according to Puchter and Potter (2004), real questions instead
of exam questions and the moderator of the discussion was involved in the discussion giving
questions with clear indication of no correct or wrong answers. Discussion questions were stimulated
asking participants to express their opinion on prepared statements and citations from the GDPR.
Apart from that, steering questions were prepared. The discussion time was set from 45 minutes to 1
hour. The number of participants varied between 5 and 10 students in each group. Altogether six
focus group discussions were organized; participants - bachelor program students from two private
business schools in Riga (see Table 1).
Table 1: Focus Groups’ composition
Nr. Study program Number of Language of Study year

participants instruction
1. Marketing and sales 8 Latvian 3
management
2. International finance 5 Latvian 2
management
3. Business administration 10 English 2
4. Business administration 6 Latvian 3
5. Business administration 9 Latvian 2
with specialization in
culture management
6. Business administration 6 English 3
The indicators of gender, study year and instruction language were not taken into account in the
current investigation. The purposive non-probability sampling method was used. Following the
discussion, the authors of the present article, analysing the content of the discussion found that the
sense of the discussion has been expressed throughout the interaction between the members of the
discussion and proceeded with conversation analysis. The results are depicted in the form of a
concept map. Data reduction is the key to the analytical stage; summarizing a one to two hour
discussion into manageable concepts that would facilitate the report development. One method to do
this is to create a concept map. (Nagle & Williams) The map shows the question topic and the themes
that emerged for the concept. Thus, the report of the current focus group meeting consists of textual
fragments segmented according to the main concepts that have emerged during the discussion. Data
obtained during the focus group discussion was analysed in several stages: (1) transcripts were read
while listening to the tapes; the aim was to check carefully if transcripts were correctly; (2) the main
concepts were established and formulated; (3) the concepts were thematized and ordered; (4) the
results were evaluated and checked against the original transcripts; (5) conclusions were made.
(Easterby-Smith, 2002)
Main questions posed for the participants of the discussion in the beginning were the following:
- Are the students familiar with the General Data Protection Regulation by the European Commission
and its main provisions?
- Have these provisions had an impact on their social media usage patterns?
- How do they feel regarding data privacy using university information system?
- What are university responsibilities in digital competence and privacy training?
Research and Discussion
Familiarity with the GDPR and impact upon social media using patterns. Privacy management is a
process that administers data use, risk assessment, and the use of technical and non-technical controls
that fulfill regulation, requirements and expectation. With respect to familiarity with the text and
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essence of the GDPR participants of all focus groups exhibited at least some knowledge of the data
protection principles and provisions, although within each group there was rather pronounced
demarcation among three groups – those who have read and are able to apply the provisions, those
who are aware on the medium level and those who have heard, but have never put any thought in it.
The difference can be explained by the participants work experience, that is, working years and field
of activities (industry). More precisely, those students who are engaged in marketing, human resource
management, advertising, etc. are aware of all restriction due to their job responsibilities. For
example, not asking for customers’/clients’/potential employees’ personal information more than it is
necessary, not keeping private data/erasing it. To illustrate such position, let us mention a few
students’ expressions: “If a client sends more information than he have been asked, we do not store
data, but rather ask to in send information anew”; “During the recruitment process we require
applicants’ CVs without a photography and person’s code” and so on. It has to be noted that students
with high awareness of provisions of the regulation are serious about maintaining privacy of their
personal data also outside the job related activities. The group with high awareness stressed the
positive impact of the regulation, in general. The second group consisted of those students who heard
about the regulation, but were not familiar with it in details, they admitted that they had rather been
using some logic or just the common sense. If, on hand, such approach entails not particular
immediate endangerment to the students’ present state of safety and security (they have been careful
enough up to this moment), then, on the other hand - as budding businessmen and businesswomen
they have to be able to calculate possible negative consequences of their digital incompetence. The
third group of students exhibited demonstrated somewhat reckless attitude to the matters of private
data protection and unawareness of possible dare consequences of their actions or the lack of actions
in the digital environment. The typical answers were such: “I don’t see any difference in using social
media and other internet sites before and after May, 2018”; “There is just a small inconvenience in
clicking I agree every time I want to find something, but I do that anyway and don’t care”; “Site
moderators should be responsible for the safety management”, etc. Interestingly that in the course of
focus group discussions this nihilistic view exhibited a tendency to change in the direction of more
thoughtful judgements, and in some cases students ended up ready to discuss these questions further
on more serious level.
Data privacy within university and responsibility for digital competence training. Participants of all
focus groups overall agreed that school’s (university’s) information systems are secure, since they
require logging in with personal passwords are safe for using. Their personal information are
available only to site administrators, faculty administration and lecturers (only those who teach
according subjects). Although respondents’ opinion varied slightly depending upon information
system the school were using. Two business, two information systems were the focus of the current
research – one mostly for posting information without real interactivity options (learning materials,
study programs, additional reading for students, space for grade entering for lecturers), another –
interactive one (video lecture, video chat options, online tests, exercises, etc.). Some concern was
expressed by the focus group participants involved with the interactive information system due to
higher private information leakage possibilities (in students’ opinion), for example, posting marks on
open forums in a few occasions and alike. Another concern was the lack of information about their
possibilities to revoke consent to data processing or restrict it at any time. Some of the focus group
members also voiced their uneasiness of their names being seen by everybody when they were
online. Regarding the university (business school) responsibility in privacy training students’
opinions were rather diverse – ranging from the statements that it should be the secondary school
responsibility to the statements that universities (business schools) have to ensure a special student
training program. The interesting unexpected question the moderator faced was if the lecturers felt
okay about their e-mail and possibly also their phone number had being published in the university
homepage. Asked about prospective forms of training, students mentioned – special lectures in the
form of insertion modules, practical training sessions, 2-3 lectures within courses in digital
marketing, human resource management, business ethics, corporate social responsibility and many
others. The main conclusion drawn from the latter part of focus discussions was about necessity to
coordinate training activities as part of university (business schools) social responsibility strategy.
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Conclusions
The purpose of the current investigation was to research business students attitudes towards the
General Data Protection Regulation in relation to development of students’ digital competences
including the private data minding one. The qualitative research design (focus group interview) was
chosen for the current project. Altogether 6 focus groups were set for the research (participant
number ranging from 5-10, representing two private business schools in Riga). The results were
processed by the means of content analysis (concept map), based on main discussion themes (topics).
The main results of the group discussion were the following:
1.The General Data Protection Regulation is a significant tool to ensure data security in the digital
business and social environment, so the knowledge of its main provisions is of a high importance for
future business persons. Students’ opinion, in general fell in three main categories as to their
awareness level – high, medium or low. The fact of low of awareness calls into attention necessity of
development of students’ digital skills private data minding being among one of those.
2.According to students’ interviewed, there are some aspects they believe could be threatening their
sense of data privacy in the digital environment at the university – possible leakage of information
about grades, success or failure; the lack of information about their access revoking possibilities; and
that their logging into a system were visible to everybody being online at the moment.
3.There are several ways to develop students’ digital competence in relation to privacy settings and
internet security issues, such as insert modules, practical training, theme inclusion in the related
classes within study curriculum.
References
Albrecht, JP. (2016) ‘How the GDPR Will Change the World. European Data Protection Law
Review,’ 2 (3), 287 – 289.
Ananiadou, K., Claro, M. (2009), 21st century skills and competences for new millennium learners in
OECD countries [Online] [Retrieved 21.08.2019]
http://repositorio.minedu.gob.pe/handle/123456789/2529
Central Statistical Bureau Data Base [Online] [Retrieved 30.08.2019]

https://data1.csb.gov.lv/pxweb/en/zin/zin__05ikt_drosiba__iedz/ITMG171.px/
COM. (2006), Recommendation of the European Parliament and of the Council on Key Competences
for Lifelong Learning [Online] [Retrieved 17.09.2019] https://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2006:394:0010:0018:en:PDF
COM. (2010), А Digital Agenda for Europe (DAE). [Online] [Retrieved 12.07.2019] https://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2010:0245:FIN:EN:PDF
COM. (2016), General Data Protection Regulation. [Online] [Retrieved 12.09.2019] https://eur-
lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32016R0679
COM. (2019), The Digital Economy and Society Index (DESI). Human Capital. Digital Inclusion and
skills [Online] [Retrieved 01.08.2019] https://ec.europa.eu/digital-single-market/en/desi
Easterby-Smith, M., Thorpe, R. and Lowe, A. (2002) Management Research - An Introduction, Sage,
London
Esfijani, A., Hussain, FK. and Chang, E. (2013) ‘University Social Responsibility Ontology,’
Engineering Intelligent Systems, 21 (4), 271–281.
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European Youth Portal. (2017), Survey “Samsung School for Future” [Online] [Retrieved
30.08.2019] https://europa.eu/youth/node/45902_en
Ferrari, A. (2013) DIGCOMP: A Framework for Developing and Understanding Digital Competence
in Europe, European Commission, Joint Research Centre, Seville.
Fritsch, L. (2017), Implementing GDPR - The impact of GDPR in Higher Education. [Online]
[Retrieved 12.08.2019]
https://www.researchgate.net/publication/317777738_Implementing_GDPR_-
_The_impact_of_GDPR_in_Higher_Education
Janssen, J., Stoyanov, S., Ferrari, A., Punie, Y., Pannekeet, K. and Sloep, P. (2013) ‘Experts' views
on digital competence: Commonalities and differences,’ Computers & Education, 68, 473-481.
Knowledge Societies: Universities and their Social Responsibilities. (2011). Asia-Europe Foundation,
Singapore.
Knutsson, O., Blåsjö, M. and Hållsten, S. (2012) ‘Identifying different registers of digital literacy in
virtual learning environments,’ The Internet and Higher Education, 15, 237–246.
Langford, J., McDonagh, D. (2003) ‘Focus Group Tools’, Focus Groups. Supporting Effective
Product Development, Taylor & Francis, London, 116-218.
Nagle, B., Williams, N. ‘Methodology Brief: Introduction to Focus Groups’ [Online] [Retrieved
20.08.2019] http://www.uncfsp.org/projects/userfiles/File/FocusGroupBrief.pdf
Puchter, C., Potter, J. (2004) Focus Group Practice, Sage Publications, London.
Shopova T. (2014) ‘Digital Literacy of Students and Its Improvement at the University,’ Journal on
Effciency and Responsibility in Education and Science, 7 (2), 26-32.
Verheugen, G. (2007), E-skills for the 21st century: fostering competitiveness, growth and jobs
[Online] [Retrieved 21.08.2019] http://uploadi.www.ris.org/editor/1225209549SPEECH-07-
373_EN.pdf
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Digitalization in Real Estate: Case of Latvia
Tatjana TAMBOVCEVA
Riga Technical University, Riga, Latvia
tatjana.tambovceva@rtu.lv
Renate MUSKATE
renate.muskate@gmail.com
Nikolajs RAUZA
nikolajs@adarbnica.lv
Abstract
The paper describes the aspects of digitalization and makes sense of existing practices that change business
and everyday life. The goal of the research is to study the regulatory and programmatic prerequisites for
digital transformations of the real estate sector. The following methods were used: study of scientific
literature; and in-depth interviews and expert evaluations. The scale of the introduction of digital
technologies in the real estate market at the local level is examined using the examples from all around the
world and also Latvia. The study of the introduction of digital technologies in the real estate market was
carried out using several methods. Based on the results of the interview, collection of expert assessments
and field studies of participants in the real estate market of Latvia, the authors presented the results on the
degree of introduction of digital technologies in the field of real estate market. The overall result of the
study is that almost all stages of the life cycle of a real estate object are currently targeted by information
technology and create a new ecosystem of the real estate market.
Keywords: Digitalization, Digital Transformation, Information Technologies (IT), Real Estate.
Introduction
Digitalization is one of megatrends, processes that change the face of the modern world. This happens
against the background of the penetration of technology into everyday life and the formation of a new
economic reality, in which previous profitability indicators become a historical fact. Digital technology is
associated with innovation. But the construction and real estate sectors are generally conservative and
traditional. How is the development of digital technologies in real estate and what is the speed of penetration
of these technologies in this area?
The topicality of the research is also determined by the fact that digitalization in the construction industry
is included as one of the key priorities in «Latvian Construction Sector Development Strategy 2017 - 2024».
The purpose of the research is to study the regulatory and programmatic prerequisites for digital
transformations of the real estate sector. To achieve the research goal, it is necessary to identify areas of
development of digital technologies, which are used to varying degrees by practitioners of the construction
industry. The authors used following methods of research: study of scientific literature; and in-depth
interviews and expert evaluations.
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The scale of the introduction of digital technologies in the real estate market at the local level is examined
using the examples from all around the world and also Latvia. Based on the results of the interview,
collection of expert assessments and field studies of participants in the real estate market of Latvia, the
authors presented the results on the degree of introduction of digital technologies in the field of real estate
market. The overall result of the study is that almost all stages of the life cycle of a real estate object are
currently targeted by information technology and create a new ecosystem of the real estate market.
Literature Review
The concept of “digital” changes over time. If information technology used to be a synonym for the concept
of “digital”, now these are all activities related to technological innovation. Digital technologies enable
rapid, flexible forms of project organizing, but also request managing change. Considering the global scale
of this sector and the high speed of the spread of digital technologies, the development of digital
technologies in Latvia is considered not as an in-country process, but as a global one, which is affected by
the development of member states of the European Union and other countries of the World.
Different sources and authors provide different definitions of the digitalization term. The most suitable for
our study presented below.
Digitalization is the use of digital technologies to change a business model and provide new revenue and
value-producing opportunities; it is the process of moving to a digital business (Gardner glossary, 2018).
Digitalization means the use of digital technologies and of data (digitized and natively digital) in order to
create revenue, improve business, replace/transform business processes (not simply digitizing them) and
create an environment for digital business, whereby digital information is at the core (i-Scoop, 2019).
Digitization (i.e., the process of converting analogue data into digital data sets) is the framework for
digitalization, which is defined as the exploitation of digital opportunities. Digitalization by means of
combining different technologies (e.g., cloud technologies, sensors, big data, 3D printing) opens unforeseen
possibilities and offers the potential to create radically new products, services and BM (Rachinger et al.,
2018).
PricewaterhouseCoopers (PwC) conducted a survey on how to define the concepts of "digital" (Fig.1.).
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Digital refers to all data and analytics activities

5%
Digital goes beyond technology alone to reflect a mindset that

embraces constant innovation, flat decision-making, and the 6%
integration of technology into all phases of the business
Digital refers to all the investments we are making to integrate
technology into all parts of our business 14%
Digital refers to all customer-facing technology activities

14%
Digital is synonymous with IT

29%
Digital refers to all technology innovation-related activities

32%
0% 10% 20% 30% 40%
Fig. 1: The changing definition of digital. How does your organization define digital? (Source:
created by authors based on PwC, 2018)
Verina and Titko (2019) in their research analyzed the concept of digital transformation, and yielded three
categories of digital transformation in business, i.e. technologies, processes and management, people.
Based on the research results, they created the conceptual model of digital transformation.
The World Development Report Digital Dividents (2016), prepared by the World Bank, provides examples
of digital technologies that are used daily on the planet, for example, the intercorporate trading portal
AliExpress, the digital payment system M-Pesa. Each digitalization product works on the basis of three
mechanisms: “strengthening integration, increasing efficiency and introducing innovations”, which,
ultimately, creates benefits for people: strengthening communications, change the labour market etc.
Obviously, those benefits can be enjoyed by those who have access to the Internet and are able to fulfil
certain, any significant roles in the digital economy. At the same time, risks arise: the labour market is
polarized due to the fact that new technologies supplement qualified labour and completely replace standard
labour operations (Siniak, 2019).
Digitalization affects not only companies initially focused on technology, such companies as Google, but
also companies from the traditional sphere, such as, for example, construction. At each stage of the life
cycle of the construction object, the integration of traditional approaches with new technologies takes place,
approaches to the implementation of work and project management are adjusted (Whyte, Stasis, and
Lindkvist, 2016). Given the specifics of the industry and the presence of a large number of regulatory
factors, the digitalization of the construction sector, the real estate sector does not happen as fast as in
digital-type companies. Nevertheless, it should be recognized that digital technologies are becoming a new
reality in the real estate sector and its future depends on how quickly the industry and its participants adapt
to the new reality (Bilal et al., 2016).
The interest of academics and practitioners in real estate digitization is increasing every year, especially in
the last 5 years. To illustrate this claim, the authors analyzed statistics generated by the academic databases
Scopus, Thomson Reuters Web of Science, and EBSCOhost Academic Search Complete. The authors
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searched for the number of published works in each given year over the 10 years (2009-2019), searching
for the keywords "digitalization" or “digital” and "real estate". The results shown in Figure 2.
80
70
60
50
40
30
20
10
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Scopus Thomson Reuters Web of Science Ebsco
Fig. 2: Search for “Digitalization” or ”Digital” and “Real estate” in Academic Data Base
Source: Authors’ compilation based on data from Scopus, WoS, EBSCOhost
It should be noted that SpringerLink data is very different from other databases and is considered from 270
publications in 2009 up to 1080 in 2019.
Heiskanen (2018) described five projects developed in Finland and connected with the construction
process, starting with the use of artificial intelligence in the design of a power station.
Ullah, Sepasgozar and Wang (2018) investigated the potential of different disruptive technologies in the
real estate sector. The review was based on 213 published articles. The authors found out the state of each
technology’s practice and usage in real estate.
Individual authors investigated digitalization in particular real estate topic. For example, BIM
implementation (Volk, Stengel, and Schultmann, 2014), facility management (Koch and Hansen, 2019;
Wills and Diaz, 2017) or necessity and efficiency of digitalization in real estate (Höjer and Mjörnell, 2018).
Maalsen (2018) investigated housing sharing and digitalized geographies of shared housing.
Wills and Diaz (2017) did the research of how computers used in facility management, i.e. Computer Aided
Facility Management (CAFM) and note that using real-time data systems can help to decline lifecycle costs
while the whole life period of the building will increase, and safety for users will improve.
BIM Solutions (2019), together with the Ministry of Economics and SJSC “State Real Estate”, the State
Audit Office of Construction and JSC “RB Rail” organized an electronic survey on the digitization of the
construction market in Latvia, which was conducted from December 28, 2018 to March 28, 2019. 435
respondents participated in it. The research results show, that on average, only 17.3% of respondents
believe that the latest IT capabilities in the construction industry in Latvia are being used to a sufficient
extent. Respondents to the question hindering digitalisation in the construction industry mentioned three
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main issues: lack of competence of the existing workforce (17%), lack of awareness of benefits (14%) and
lack of resources (12%). When looking directly at the benefits of the BIM process, most survey respondents
identified errors in a timely manner, which is also most often reported as a benefit of the BIM system, as
well as financial and time savings.
Digitization is more than just converting paper documents into digital format. It means conceptual
abandonment of paper documents and a complete transition to electronic document circulation and e-mail.
In various countries, the priority areas of state support are those related to the creation of conditions for the
development of the digital economy: legal regulation, human resources and education, support for
specialized research and technology, as well as the development of the basic infrastructure elements of the
digital economy. The following 8 basic digital technologies are considered to be the main ones:
• big data;
• neurotechnology and artificial intelligence;
• distributed registry system (blockchain);
• quantum technology;
• new production technologies;
• industrial internet;
• components of robotics and sensors;
• wireless technology;
• virtual and augmented reality technologies
These technologies can be divided into three subgroups depending on the main functions: input data
(Internet of things, Unmanned aerial vehicles (drones), Geographic Information Systems (GIS)); data
processing (artificial intelligence (AI), blockchain, smart home and smart city); output data (augmented
and virtual reality (AR and VR), robotics, 3D printers etc.).
The development of digital technologies is envisaged in various sectors of the economy, especially in the
areas of healthcare, urban development - the creation of “smart cities”, and government. To implement
plans for the development of digital technologies and the creation of a digital economy, close interaction
between the state, business and science is needed, developing “cross-cutting” technologies in global
markets and managing digital platforms.
The use of digital technologies in everyday life is becoming the norm, creating new expectations for society
to exchange information, transform data into ideas and new products, services and types of interaction.
Initially, technologies were developed and used to increase productivity. Information technology and
business were fragmented, now information technology is part of the business strategy and operational
activities of companies in various sectors of the economy (Parida, Sjödin and Reim, 2019). These changes
entail the need to have a sufficient level of competence in the application of technologies, in particular the
use of specialized equipment (personal computers, smartphones) and the Internet. However, digital skills
at the household level vary significantly between different population groups, which is caused by limited
access to new technologies and the Internet.
Latvia ranks 17th out of the 28 EU Member States in the European Commission Digital Economy and
Society Index (DESI) 2019 (Fig. 3).
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Fig.3: Digital Economy and Society Index (DESI) 2019 ranking (Source: DESI, 2019)
The current Latvian Digital Agenda Strategy dates from 2013, when the Latvian government approved the
Information Society Development Guidelines for 2014-2020 (2013) , which cover: ICT education and
skills; internet access; modern and efficient public administration; e-services and digital content for society;
cross-border cooperation for the digital single market; ICT research and innovation; and trust and security.
Further measures are also included in the Education Development Guidelines 2014–2020 (2013); in the
Latvia’s Cyber Security Strategy (2013), which should be updated as of 2019-; in the National Industry
Policy guidelines for 2014-2020 (2018); and, finally, in the Science, Technology Development and
Innovation Framework for 2014-2020 (2013) .
In the state plans for the development of the digital economy until 2020, 5 basic fields are identified, which
are “analogue supplements” to the digital transformation:
• public awareness and readiness to use e-Opportunities;

• development of inhabitant and entrepreneur e-skills;
• increase of public administration ICT competences;
• preparation of ICT practitioners and professionals according to requirements of labour market;
• increasing the proportion of algorithmic thinking and information literacy in educational
programs.
Methodology
The study of the introduction of digital technologies in the real estate market was carried out using several
methods. For various tasks in accordance with the stages of the life cycle of real estate objects, the following
methods were used: 1) study of scientific literature allowed the authors to determine the prerequisites for
the introduction of digital technology in real estate and to find out different aspects of real estate industry
digitalization; 2) in-depth interviews and expert evaluations. Representatives of the Latvian real estate
market were selected for interviews. Using the “mystery shopper” method, information was obtained on
the implementation of virtual (VR) and augmented reality (AR), mobile applications with projects of
residential complexes and the procedure for interacting with a client (CRM system).
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The study was conducted during the period from July to September 2019 among the participants in the
Latvian real estate market, i.e. developers, real estate agents, real estate evaluators, facility managers,
engineers, constructors etc.
Results
According to the results of a study by specialists of the Latvian real estate market, the authors obtained
results that allow us to characterize the digitalization of the real estate sector as quite dynamic.
Active digitalisation of construction is taking place in Latvia. The Ministry of Economics, together with
partners from the construction industry, educational institutions, customer representatives, is developing a
road map with feasible measures to implement BIM in public construction procurement by 2025. The road
map includes measures to raise education and competences, to develop the necessary standards and
guidelines, and to promote good practice.
Real cases of market participants reflect significant efforts to implement the most advanced technological
solutions. All stages of the life cycle of real estate are under the scrutiny of specialists.
The most popular topics of digital real estate presented in Table 1.
Table 1: Topics of digital real estate

(Source: Authors’ created based on Sittler, 2017)
Globalization
Flexibility
Transparency
Mobility
Home office
Bring your own device (BYOD)
Changing of working
Crowdsourcing
environment
Customer focus
Shared Economy
Open data
Gamification
Digital competence
Smart city
Smart buildings
Smart homes
Ambient assisted living (AAL)
Smart grid
Smart real estate
Smart meter
Broadband supply
Traffic
City development
Internet of Things (IoT)
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Real estate platform

Multiply listing systems (MLS)
Virtual reality (VR)
Augmented reality (AR)
Digital real estate marketing 3D printing
Electronic customer relationship management (eCRM)
Broker software
Chatbots
Social housing
Communities
Electronic customer relationship management (eCRM)
Real estate software
Real estate management
Automated contract analysis
Real estate “as a service”
Chatbots
Digital bulletin boards
Digital construction
Building Information Modelling (BIM)
Energy efficiency
Construction/ Planning
3D printing
Community architecture
Ecommerce
Facility management (FM)
Building diagnostic
Building data monitoring
Building / Facility management
3D printing
Augmented reality (AR)
Drones
Hedonic models
Valuation / Asset management Automated data analysis
Virtual data rooms
PropTechs
Digital strategies
New business models
Ew business areas
Block chain
To promote the project of a new residential complex, developers use complex visualization in augmented
reality format. Web pages and mobile applications are being developed in augmented reality format. This
allows a potential client to quickly evaluate all the benefits and literally "feel" the atmosphere of the house,
which is under construction. The application can be used anywhere - in shopping centers, in sales offices,
at home, at the construction site, while the creation of traditional architectural layouts is not required.
Moreover, to decide on a purchase has not yet the client will be able to see the existing apartment:
• view of the house and its facades;

• the location of the selected house in the residential complex, access roads, public areas and the
level of illumination (including insolation);
• view from the window, which will remove from the client worries about the future view;
• environment of the residential complex, neighboring territories.
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In general, modern virtual reality technology allows you to see the future today. Virtual tours successfully
complement real excursions to showrooms at sites and allow you to make the right choice. But for the client
it is still necessary to compete. Developers, organizing their marketing strategies, divide their customers
into three categories:
• a real client who will buy an apartment from the developer and for him advertising is not needed;
• those who do not buy an apartment and for them the advertisement will not work;
• potential client, for whom advertising is needed and for whom it is necessary to “fight”.
In the practice of various markets, CRM systems (CRM - customer relationship management) are used to
organize high-quality interaction with a potential client.
An important trend of the last 5–10 years is that large developers independently operate the constructed
housing stock. Often comes to the fore the desire to ensure the highest quality operation of the housing
stock (because it is necessary to provide a guarantee with minimum expenses) and to receive image
dividends from operating residential complexes. In addition, feedback from residents allows you to identify
the most successful architectural, planning and design solutions and implement them in future projects.
The following practices were identified during the operational phase: 1) the scope of maintenance has
transformed from simple “plumbers” to multi-part “facility management”; 2) service companies offer a
wide range of services aimed at creating comfortable living conditions for people.
Of course, digitalization has not bypassed this stage either. For systematic work with residents, personal
dashboards have been created on company websites and mobile applications are offered. The range of
services that is available to citizens is plumbing services, repair and decoration, electrical services,
coordination and paperwork, property insurance, glazing, furniture, parking services, and garbage removal.
In general, these services significantly reduce possible tension in such a sensitive area as utilities.
The results of the introduction of digital technologies in the residential real estate market are presented in
Table 2.
Table 2: Examples of the introduction of digital technologies in the residential real estate market
(Source: Authors’ created based on interviews)
Residential real estate market segment

Primary Residential Property Resale Property Land market and
low-rise housing
Market Publicly available geographic Publicly accessible geographic
Residential Property Lifecycle
research and information systems are used to information systems and aggregators are
segment select a land plot and assess the used for listing real estate and assessing
identification investment attractiveness of the the development of infrastructure in the
plot (layers 2 GIS, Google) area
Stage
Feasibility Software tools are used to provide Not necessary Used in commercial
study a calculation of the economic projects
efficiency of the project
Development Software is used to develop a Not necessary software is used to
of project project in 3D format (REVIT and develop a project in
documentation others) and Building Information 3D format (REVIT
Modelling (BIM) and others)
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Construction Introduced highly specialized Not necessary 3D printing is being

work products (MS Project), as well as tested in the
integrated programs that combine construction of
the stage of pricing and project individual houses
management (Quintet).
Unmanned aerial vehicles are
used to control operations.
Sale of real In order to accompany customers Services are being developed aimed at
estate and increase their loyalty improving the security of transactions,
CRM systems are used. Virtual accelerating their implementation,
(VR) and augmented reality (AR) reducing costs (introducing blockchain
projects are being introduced. technology in the system
Smart contracts are being registration).
considered. Artificial intelligence (AI) is tested in the
market and cadastral valuation of
objects.
Operation Smart home system development, Applications for feedback from
phase i.e. different IT tools, sensors, residents: payment of bills, submission
smart cards of meter readings and requests for
repairs, etc.
Internet of things and services offering
the creation of a 3D model
houses.
Forecasting Smart city system development Artificial Intelligence (AI) Services
and project Developed and machine learning to
concept optimize work with large
data. 3D designers are used to design the
home
Discussion
Digitalisation has created an economic and social revolution worldwide and is the only logical path for the
development of the construction industry in Latvia. The development of digital technologies in the real
estate sector takes place in three areas: the integration of market participants, increasing efficiency and
introducing innovations. Of course, each of these areas requires access to the Internet and mobile
communications of all market participants, and therefore, quick access to information about real estate and
their status as a subject of the transaction.
Information about the objects exhibited is posted on electronic platforms - online message boards.
Information on the legal status of an object can be obtained from an extract from a single register of real
estate without the need to visit many instances, online and in a short time. Online tools hypothetically allow
you to select a property, pre-examine its history.
At the same time, digital technologies deprive one of the structural players in the real estate market - real
estate agencies of the main advantage - the monopoly on information. Thus, we can already talk about the
possibility of replacing some of the functions that are performed by the main market participants (banks,
developers, real estate agencies), with digital technologies.
What will be the path of real estate in the digital age? What important skills will be required everyone
involved in this area?
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First of all, this is the so-called ability of an organization, an individual, to evaluate and realize their abilities
“to put technology at their service and make profit from it”. Secondly (but not in importance), it is necessary
to rethink the choice and implementation of digital initiatives, the practical embodiment of a culture of
technological innovation. Without the formation of a better user experience (including the experience of
customers and employees), it is impossible to increase the Digital IQ index. High quality custom experience
cannot be formed without special skills.
Another important component is the possession and use of information about your market position and
customer information. One of the most important tasks is becoming finding the answer to the question: who
are our customers? How to work with client requests?
The main driving force behind the development of market relations, including in the real estate sector, is
interaction, not automation or productivity. New technologies are not a substitute for building personal
relationships, but are an important addition to personal contacts. This is the answer to the question of why,
for more than 10 years of development of digital technologies in real estate, they transformed, but did not
replace, market participants. Using the capabilities of collecting and processing information using new
technologies makes it possible to analyze data and obtain knowledge on the basis of the behaviour of buyers
and other participants in the real estate industry to build personalized relationships with them.
It is important to note that digital technology is currently not able to replace the personal qualities
characteristic of human interaction and emotional intelligence. Existing technologies provided the
consumer with advanced tools for finding real estate, but he still does not know exactly what he needs. And
at this stage, adequate employee competencies are required.
For further transformations of the real estate sector using digital technologies, investments in digital
technologies are needed. The motivation for investing in digital technology is the expectation of digital
dividends - the benefits for business and the need for innovation - the opening of new opportunities and
tools. In the real estate market, the introduction of digital technologies is most appropriate for the field of
customer experience and the formation of a corporate culture focused on technological innovation. It is
advisable to search and test the latest developments not only in collaboration with technology providers
and consulting firms, but also on new resources (incubators, start-ups, crowdsourcing, manufacturing
companies, open source software environments, university laboratories).
When working with new technologies, it is also necessary to take into account ethical components. It is
important to consider how these new technologies change the order of interaction between man and
machine, participate in resolving conflicts and creating new roles. In order to effectively introduce
technologies and avoid a situation where the company’s team resists their introduction, it is necessary to
upgrade the digital skills of specialists and be prepared to change roles in the industry.
Already, there is a shift in the field of brokers' core competencies from knowledge about the property to
the examination of objects and the examination of consumer preferences. We become witnesses that a
realtor from a competitor becomes a consultant for a developer.
Thus, digital technologies can become a tool stimulating the transformation of the real estate sector and
cause serious concerns for its participants. To maintain the relevance of their activities, participants in the
real estate sector, in order to constantly benefit from investments in digital technologies in an environment
where the world is rapidly advancing, should focus on user experience. To create a common understanding
of how technologies will be used, to change the approaches that are used in carrying out their work or
creating business benefits. Digital priorities must be set in order to understand how technologies can help
or harm businesses, including how they can affect the experience of employees or customers.
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Conclusions
The aim stated by the authors within the current research was to get an insight of digital transformation or
real estate.
Today, in the real estate sector, as in any other industry, there are a number of operations and processes
that can be optimized and transformed using digital technologies to increase productivity and profit.
Recently, the behavior of developers, real estate agents, sellers, buyers and tenants is changing, which are
becoming more open to the use of digital technology through the value chain. The basis of this
transformation is the flow of data that is now being collected and used directly from construction and
purchase to property management. All this data helps agents better understand customers and sell, help
customers conduct extensive and in-depth research and make the right decisions, and improve their overall
life experience. Due to this, the quality of services and processes improves markedly.
Obviously, the key drivers of digital transformation are efficient processes and adherence to rules and
regulations, as well as good customer experience. Buying experience is especially important, whether it is
commercial or residential, because buyers want a hassle-free experience, starting with the opening of the
facility and ending with after-sale service. There is also a need for transparency, accountability and honesty
in all operations and business operations, such as contracts, paperwork, etc., in relation to the size of
financial transactions. The introduction of digital technology can help alleviate all these problems.
As a result of the study, the authors obtained the following main results.
• Digitalization has a growing importance in real estate industry;

• the labor market is polarized due to the fact that new technologies complement qualified labor and
completely replace standard labor operations;
• it is necessary to rethink the choice and implementation of digital initiatives, the practical
embodiment of a culture of technological innovation;
• new technologies do not replace building personal relationships, but are an important addition to
personal contacts;
• using the capabilities of collecting and processing information using new technologies makes it
possible to analyze data and obtain knowledge on the basis of the behavior of buyers and other
participants in the real estate sector to build personalized relationships with them.
The following factors can be noted as constraints: lack of personnel, insufficient level of specialist training,
insufficient number of studies, etc.
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Evolution of the Innovation Research in the

Context of Sustainable Business Development
Andreea MAIER
Technical University of Cluj - Napoca, Romania
andreeaelenamaier@gmail.com
Sorina CIPLEA
Technical University of Cluj-Napoca, Romania
sorina.ciplea@ccm.utcluj.ro
Dorina SUCALĂ
Technical University of Cluj-Napoca Romania
dorina.sucala@ccm.utcluj.ro
Dana MORAR
dana.morar@ccm.utcluj.ro
Abstract
We are living in an accelerated transition period, marked by complex and profound transformations in
all areas of activity. The concept of innovation defines synthetically the introduction of the new. The
finding and introducing the new represent the main factors that have determined the evolution of
humanity throughout its existence. The importance and volume of these activities grew up with the
evolution of society. In recent decades, there has been a phenomenal increase in interest in innovation
to achieve sustainable economic growth of organizations and society. The purpose of this paper is to
study the evolution of the research related to innovation in the context of sustainability requirements.
The methodological approach used was a systematic analysis of the literature based on the bibliometric
theory and the analysis of the indexed articles in the main international databases.
Keywords: innovation, sustainability, business success, sustainable development
Introduction
The global economy undoubtedly creates profound and significant for organizations worldwide. The
market is changing ever more rapidly, evolving technologies and the only thing that seems to be truer
now than ever, it is changing. Innovative performance is a critical dimension in assessing
competitiveness and national progress and innovation is crucial in approaching global challenges, such
as climate change and sustainable development (Olaru, 2013). Innovation is not only the path to success
in business environment, but also an essential condition for maintaining in a highly competitive market
(Maier, 2018). Customer satisfaction is one of the main components of management systems, so
companies that implement them must be innovative in developing and launching new products or
services to match the customers’ needs and requirements (Simon, 2012).
The significance of innovation is reflected primarily in the high rate of development new products and
technologies, but the changes are not just about tangible things. Within organizations, innovation
actions are increasingly oriented towards management methods, organization and business
configuration, which contribute to sustainable competitive advantage. At the same time, innovation is
manifested in society in general, materializing in new strategies, concepts, ideas and organizations
addressing social needs - from the labor market and working conditions to education, health and
community development. Organizations may increase the performance of their innovation processes
by focusing on capitalization of external innovation resources and adopting innovation principles
(Olaru, 2015).
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Considering more and more restrictive regulations and given the increasingly importance of
sanogenetic and environmental criteria in a highly dynamic and complex competition, many
organizations are concerned to improve the performance results in relation to society as a whole, with
certain focus on promoting sustainable development principles (Olaru, 2010).
According to the vision of sustainable development, progress integrates immediate and long-term
goals, local and global action, economic and environmental issues, all inseparable. Sustainable
development pursues and strives to find a stable theoretical framework for decision-making in any
situation where a human / environmental report is found, whether it be environmental, economic or
social. Sustainable development is defined as being the way of development that, for now, does not
jeopardize the chances of development for future generations. As a structure, it includes the energy, the
environment and the human resources components.
A sudden change in the current business era calls for sustainable business models. Therefore, the
concept of sustainability has become essential to help firms achieve their performance targets. High
sustainability helps firms to improve different processes which make them outperform competitors in
the long run. Moreover, Alonso-Almeida et al., suggested that sustainability practices spur a firm’s
performance in a difficult time. Hence, managers are strongly recommended to enhance sustainability
as it can significantly contribute to firm performance.
In this context the research presented in this paper seeks to answer questions such as how to manage
innovation considering the sustainability requirements? What is sustainable development and what are
the long-term development? Is there some connection between the concept of innovation and the
concept of sustainability? IN order to find the answer to this question we performed a search in the ISI
Web of Science database using search criteria. The results obtained are presented in the research result
part of the paper.
Methodology and objectives
The research methodology used to achieve the proposed objectives is a systematic literature review. In
this systematic review, transparent and reusable procedures were followed for each step of the research
(Littell et al, 2008). The systematization of the research was done in three steps: data collection, data
analysis and data synthesis (Tranfield et al, 2003).
Considering the objective of this research we have conducted a bibliometric and content analyses for
the collected data. The data used in this research was obtained between May and June 2019 and it
involved a multiple criterion search in ISI Web of Science database. The identified articles that didn`t
match (this research topic was excluded from the study. After examining the articles, the step of data
analysis, bibliometric merging and content analysis were performed.
For the search criteria of this study we used first the concept of “innovation” then the one of
“sustainability”. as detailed in Table 1. The following filters were used: document type and Web of
Science Category. Only articles with peer-review were considered.
Table 1: Search criteria
Topic ”innovation” 243604
Title ”innovation” 8128
Web of Science Category Business, management, economics
Document type article 50340
Research years Until 2018
Topic ”sustainability” 130425

Topic ”sustainability” 1250
Document type article 12772
7028
Research Results
Initially, descriptive statistics were analyzed to show a model considering the major journals, the
evolution of publications, and articles with the most citations along with their authors. The next step
was to build a network between the items studied and the references used to identify a connection
between the concepts used. Finally, we analyzed content to identify the principal
article's contribution as well as potential future research directions.
The evolution in time of articles having the topic “innovation” and the article having the topic
“sustainability” can be seen in Figure 2. In view of the large number of articles published in recent
years, we have grouped the years of publication of articles over several decade. Thus, the decades
considered were: articles published until 1990, between 1991 and 2000, between 2001 and 2010, and
after 2010 until 2019.
32450
35000 innovation
30000
25000
20000 12535
15000
10000 4266
5000 1089
0
9835
10000
sustainability
8000
6000
4000 2313
2000 33 591
0
Figure 2: The evolution in time of the number of published articles having the topic innovation
respectively sustainability
By analyzing the data from figure 2 it is clear that innovation and sustainability gain a major importance
over the years. The trend of articles on innovation is increasing in every decade even one can see a
pattern in which the number of items in each decade doubles compared to the previous decade. Even
more if we look at the effective number of articles we can see that since 2010 a number of 17890
articles in the topic of innovation were published and in the period of 2011 and 2018 a number of 32450
articles on innovation were published. Therefore, we can approximate that in the last ten years the
volume of published articles on innovation doubled the total number of articles published in 35 years
and we can conclude, even if it is a little shallow, that the volume of information on innovation doubled
in the last ten years.
7029
There is obvious that the volume of articles on sustainability is much lower than the one of the articles
on innovation but the increasing trend of importance can be observed also in case of the sustainability
concept. In the analysis of the effective number of published articles we can observe very big difference
between the studied decades. In the first period from 1975 to 1990 we found a number of 33 published
articles then in the second period from 1991 to 2000 the number of articles on sustainability increased
very much reaching a number of 591 articles. In the next decade from 2001 to 2010 a number of 2313
articles were published thus registering five times as many items as in the previous decade. The increase
numbers of articles continued also in the last period when from 2011 and 2018 a number of 9835
articles have been published. Therefore, if we maintain the same principle as in the case of published
articles on innovation, we can conclude that the volume of information on sustainability increase five
times in the last ten years compared with the previous 35 years.
Is it clear that in case of both concepts of innovation and sustainability the last ten years were very
productive for the published number of articles, therefore, in this context, for a better outline of the
evolution in time of the articles in figure 3 we have analyzed this articles.
6000
Innovation
5000
4000
3000
2000
1000
0
2500
Sustainability
2000
1500
1000
500
Figure 3: The evolution in time of the number of published articles having the topic innovation
respectively sustainability in the period of 2008 and 2018
There is clearly an upward trend in the number of publications on innovation and sustainability during
the period 2008-2018. The evolution in time of the number of articles for the two concepts is very
similar, the analyze of the effective numbers reveal that the number of articles published in 2018 on
innovation are 5621 almost four times the number of 1589 articles published in 2008. In case of
sustainability the number of published articles is much lower than the ones on innovation, but the
growth is much higher thus in 2018 a number of 1997 of articles were published more than six time the
number of 323 articles published in 2008.
Another interesting aspect in the evolution of the number of published articles for the two concepts is
that the number of articles from 2008 until 2010 had a sustained upward trend and then in the period
of 2011 up to 2014 the upward trend contracted, more in case of sustainability the trend slightly
7030
decrease. The next year, in 2015, in case of the both concepts, a big jump appeared in the number of
articles published and then the trend is steadily increasing.
Discussions
From the above research results it can be seen that both innovation and sustainability are concepts that
increased very much in importance in the last period of time.
In 1999, the concept of “sustainable development” was articulated in other scientific papers as “a
discourse of ethics, which specifies human conduct with regard to good and evil”. (Haughton, 1999)
summarized the ideas of sustainable development in “five principles based on equity: futurity – inter-
generational equity; social justice – intra-generational equity; trans frontier responsibility –
geographical equity; procedural equity – people treated openly and fairly; and interspecies equity –
importance of biodiversity” (Maier, 2018 d; Maier 2018e; Maier 2018f). These discussions led to the
conclusion that “the conceptual basis of sustainable development has been weak from the start”(Olaru,
2016).
In 2000, the state-of-the-art of the sustainable development process was summed up as: “three elements
to be sustained (Nature, Life Support, and Community) and three elements to be developed (People,
Economy and Society)”. In 2001, “one of the few agreements within the sustainable development
debate was that there is no clear agreement on what the term means”. Research continued as the
sustainability question became more and more important because of global warming and calculations
of fossil fuels reserves. Workshops were organized, but it was concluded that sustainability is “laden
with so many definitions that it risks plunging into meaninglessness, at best, and becoming a
catchphrase for demagogy, at worst” (Sodano, 2019; Bodemann, 2015; Sandru, 2014; Boons, 2013;
Stock, 2017).
The term “innovation” is apparently derived, from the Latin “novus”, which means new or young or
novel. Unfortunately, there is no single, accepted definition of the term “innovation”. Historically,
innovation was defined as the introduction of new elements or a new combination of old elements in
industrial organizations (Schumpeter, 1934). Later, defined innovation as the process of bringing any
new, problem-solving idea into use. In our times, the terms “Innovation” and “Sustainability”, have
both become buzzwords, with no single definition (Maier, 2018a, Maier, 2018b; Olaru, 2016). In
general, “Innovation” is a positively loaded term that brings hope in difficult times for actors in the
private sector, the public sector, the idealistic (non-profit) sector, as well as for whole economies.
However, it is seldom explained in terms of how to create successful innovation. Even more unclear is
how to develop “Sustainable Innovations” although we might have an intuitive feeling that the
expression refers to the development of something good (Stig Ottosson, 2016).
Innovation in general is distinguished in the existing literature from invention by its successful market
introduction, embracing of new ideas, behaviors, products and processes. The same is true for
sustainable innovation, however this is only a necessary condition. For sustainable innovation there
must also be parallel environmental and social improvement in the form of lower pollution impact,
more efficient exhaustible resource utilization and higher social cohesion. Additional special
characteristic of sustainable innovation is the fact, that it must also have economic dimension,
providing measurable additional economic value. There are several parallels between sustainable
innovation and eco-innovation. For instance, each eco-innovation is connected with new or modified
process, technology and products, which are eco-friendlier and enable the company to avoid or mitigate
environmental damage (Maier, 2018c). Furthermore, environmental innovations usually should also
enable the implementing company to attract additional green rents on the market or achieve other
financial benefits in the form of cost reductions (Wojciech Przychodzen, 2018; Anthony, S.,
Christensen, 2005; Garcia, R., Calantone, 2002)
Innovation is the successful exploitation and commercialization of new ideas. It is far more than the
common perception that innovation is only about new ideas or research and development (R&D).
Innovation can (Kasper, 2008; Kotelnikov, 2015; Matias, 2006; Mckeown, 2008; Oster, 2010; Wu,
2008).
7031
Cover all processes, technological, organizational and marketing, in the development and
commercialization of novel products and services providing value to customers
- Occur at four main tiers or levels
o technologies/products/services
o process
o organizational
o business
- Include, but is not restricted to the ideas and research stages of the innovation cycle, or to
novel technology alone, although these are core elements of innovation
- Include ‘low tech’ and is not restricted to ‘high tech’ technologies.
However, they are usually defined in the narrow sense, concentrating heavily or solely on
environmental dimensions in the form of risks, burdens, damage and usage of natural resources. For
innovation to be understood as sustainable, it must also encompass additional social and economic
dimensions on the equally important terms. In that sense, SIs are clearly connected to holistic, future-
oriented and long-term perspective of sustainable development. Furthermore, they also focus more on
user-driven, network oriented activities especially that fulfillment of stakeholders’ expectations is
mentioned as one of the most important success factors for sustainable innovation. Capability to
eliminate cultural barriers and develop proper environmental and social competencies within the
organization is also of utmost importance. For the purposes of this research, we defined sustainable
innovation as an introduction of a new or modified solution (either product/service or process), which
creates both environmental and social value added parallel to increased economic profit for the
initiating company (Hernandez-Vivanco, 2018; Aka, 2019; Przychodzen, 2018).
Conclusions
Innovation, in the current highly dynamic and competitive business environment, is the best solution
for organizations to improve their performance and ensure their competitiveness and success. The
demand for products continues to increase but in the same time, the environmental factors are more
and more present in the organization policies, in these conditions, the sustainability aspects related to
the product developments are becoming a competitive advantage. The renewal of the products and
markets to which they are distributed is not enough; we need to change the technological processes,
the working methods, the working relations, the relations of a company both public and private with
its outside, especially with the shareholders, the financiers, the suppliers and, finally, the clients.
Organizations can innovate to address environmental and social problems — but they need to build the
right culture. It’s no surprise that many large multinational corporations are paying increased attention
to sustainability-oriented innovation. A company should be aware that in innovation processes
management may occur certain risks and cause failure of the potential innovation projects. If the
company can identify, assess and address these risks, it will significantly enhance the success and
effectiveness of innovation processes management in the company.
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7034
Importance of Sustainable Innovation in the

Current Economic Environment
Andreea MAIER
andreeaelenamaier@gmail.com
Sorina CIPLEA
sorina.ciplea@ccm.utcluj.ro
Dorina SUCALĂ
dorina.sucala@ccm.utcluj.ro
Dana MORAR
dana.morar@ccm.utcluj.ro
Abstract
In the current economic environment, businesses must differentiate themselves from competition
through a continuous and consistent concern to increase the prosperity of the organization and all the
key actors involved in its work, to create a high competitiveness. Innovation and sustainability are two
important concepts of impactful programs of research. While at first glance these concepts and
approaches may seem at odds, they are synergistic. Sustainable innovations are of growing interest to
both managers and researchers. Managers want to understand how to develop these innovations.
However, researchers have extensively focused on this question by analyzing the determinants of
sustainable innovation development. The purpose of this paper is to determine the importance of
sustainable innovation in the context of the new challenges of the globalized economy. In this sense
we performed a bibliometric and content analyses of the published articles on sustainable innovation.
Keywords: innovation, sustainability, sustainable innovation, business performance

Introduction
Sustainable development or sustainability is defined as: “meeting the needs of the present generation
without compromising the ability of future generations to meet their needs”. In manufacturing systems,
sustainable product and process innovations, as well as system innovation play an important role to
meet the responsibilities to the environment and society. It is hard to define and measure even
conventional innovation in manufacturing organizations, let alone sustainable innovation. There are
some different terminologies and concepts for sustainable innovation in literature, such as
‘sustainability-oriented innovation’ and ‘sustainability related innovation’. We prefer the term
‘sustainable innovation’ in this study. Sustainable innovation can reasonably be defined as “the
development of new products, processes, services and technologies that contribute to the development
and well-being of human needs and institutions while respecting the worlds’ natural resources and
regenerative capacity” (Kadia, 2019).
According to the vision of sustainable development, progress integrates immediate and long-term
goals, local and global action, economic and environmental issues, all inseparable. Sustainable
development pursues and strives to find a stable theoretical framework for decision-making in any
situation where a human / environmental report is found, whether it be environmental, economic or
social (Olaru, 2016).
7035
Sustainable development is defined as being the way of development that, for now, does not jeopardize
the chances of development for future generations. As a structure, it includes the energy, the
environment and the human resources components. Initially, sustainable development was intended to
be a solution to the ecological crisis caused by the intense industrial exploitation of resources and the
continued degradation of the environment, and primarily seeks to preserve the quality of the
environment (Olaru, 2015). The concept has now expanded on the quality of life in its complexity, both
economically and socially. To better align cleaner production within business and society,
organizations can enable sustainability activities as a catalyst for change (Scroufe, 2017)
We cannot talk about development without innovation, because innovation is the basis for sustainable
development in any field. If we had no ideas, we have nothing to develop! (Vasile, n.d.). An effective
implementation of innovation by the organizations is essential in adding value so that its remain
competitive and also developments in current economic climate. There is some resistance in an
effective innovation management system implementation, but good communication with staff and
external partners, as well a leadership focused on competence and awareness could reduce it.
Methodology and objectives
The research methodology used to achieve the proposed objectives is a systematic literature review. In
this systematic review, transparent and reusable procedures were followed for each step of the research
(Littell et al, 2008). The systematization of the research was done in three steps: data collection, data
analysis and data synthesis (Tranfield et al, 2003).
Considering the objective of this research we have conducted a bibliometric and content analyses for
the collected data. The data used in this research was obtained between May and June 2019 and it
involved a multiple criterion search in ISI Web of Science database. The identified articles that didn`t
match to this research topic were excluded from the study. After examining the articles, the step of data
analysis, bibliometric merging and content analysis were performed.
For the search criteria of this study we used the concept of “sustainable innovation” as detailed in Table
1. The following filters were used: document type and Web of Science Category. Only articles with
peer-review were considered.
Table 1: Search criteria
Topic ” sustainable innovation” 13850
Title ” sustainable innovation” 1228
Document type Article, review 2466
Research Results
It is clear that the concepts of innovation and sustainability are some of the most studied concepts today
and it was just a matter of time until the evolution of the innovation research came across the concept
of sustainability and thus the two concepts were combined in a single concept of “sustainable
innovation”. The evolution in time of the number of articles having this topic is presented in Figure 4.
7036
Sustainable innovation 1779

2000
1500
1000
425
500
0 70
0
1975-1990 1991-2000 2001-2010 2011-2018
Figure 4: The evolution in time of the number of published articles having the topic sustainable
innovation
The number of articles having the topic sustainable innovation increase very much in the last period.
In the first studied period from 1975 to 1990 no published articles have been recorded, the first record
of an article having this topic was in the decade 1991-2000, more precisely in 1993 when 3 articles
were published, thus in this decade a number of 70 articles were published. In the next period the
number of articles increased six time reaching 425 articles. The interest for this topic continued the
upward trend also after 2011 when the number of articles increased 4 times to 1770 compared to the
previous period. If we maintain the same logic as in case of published articles on innovation and on
sustainability, we can observe that in the last ten years the volume of information on sustainable
innovation increase eight time compared to the whole period before 2008.
As in the case of the initial concepts of innovation and sustainability, the idea of sustainable innovation
gained a lot of interest in the last ten years, for this the evolution of the number of published articles
from 2008 to 2018 is presented in Figure 5.
450
400
350
300
250
200
150
100
50
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Figure 5: The evolution in time of the number of published articles having the topic sustainable
innovation in the period of 2008 and 2018
7037
The analysis of the effective number of published articles on sustainable innovation reveal that before
2008 a number of 269 articles were published and from 2008 to 2018 a number of 2005 of articles were
published. This evolution can be observed also in the graph from figure 5, if in 2008 were published
52 articles in 2018 the published articles reached 392 articles. The general evolution in time of the
number of published articles on sustainable innovation is similar to the evolution of the two initial
concepts. We can see a slight increase in 2009 compared to 2008, then a first jump in 2010 when the
number of items almost doubled compared to 2009. The rising trend remained after 2010, registering
small increases until 2014, with the same year, 2012, when there was a slight decrease in the number
of published articles. A second jump in the evolution of published articles is noted in 2015 when were
published more than nearly 100 articles compare to the year 2014. from 2015 the trend continued with
a significant increase until 2018.
The increase importance of the sustainable innovation topic can be seen also in the number of citations
of the published articles. In Figure 6 is presented the evolution of the number of citations of the articles
on sustainable innovation.
Figure 6: The evolution of the number of citations of articles on sustainable innovation
The trend of the number of citations is obviously increasing, but what is interesting is the evolution of
the effective number of citations, in 1993 there were only 2 citation recorded, then the number of
citations gradually increased exceeding 100 citations in 2000. The number of citations increased and
in 2008 there were over 1100 citations and reaching 10236 citations in 2018. If we keep the same
division of the period in two parts before 2008 and after 2008, we can see that the number of citations
in the last 10 years exceeded 16 times the number of citations before 2008.
It is obvious that there is an increasing interest in the concept of sustainable innovation in recent years,
so that every year more and more articles are published on this topic. From the point of view of the
journal in which articles on this topic are published in Table 2 we presented the first 20 journals
according to the number of published articles.
7038
Table 2: Top 10 journals according to the number of articles published on "sustainable

innovation" topic
Nr.crt Journal Name Article no.

1 Sustainability 58
2 Journal of Cleaner Production 56
3 Business Strategy and the Environment 12
4 Managing Environmentally Sustainable Innovation Insights 10
From The Construction Industry
5 Ecological Economics 59
6 International Journal of Technology Management 40
7 Futures 39
8 Technology Analysis Strategic Management 39
9 Research Policy 37
10 Journal of Business Ethics 30
The Journal with the most published articles having sustainable innovation topic is the journal
Sustainability, which is an international, cross-disciplinary, scholarly, peer-reviewed and open access
journal of environmental, cultural, economic, and social sustainability of human beings. Sustainability
provides an advanced forum for studies related to sustainability and sustainable development (***,
2019 a). The second journal that published more than 100 papers on sustainable innovation topic is
Journal of Cleaner Production, which is an international, transdisciplinary journal focusing on Cleaner
Production, Environmental, and Sustainability research and practice. The journal serves as a platform
for addressing and discussing theoretical and practical cleaner production, encompassing
environmental, and sustainability issues in corporations, governments, education institutions, regions,
and societies (***, 2019b).
If we analyze only the articles that contain in the title the word sustainable innovation the top of the
most cited articles are presented in table 4
Table 4: Top articles on "sustainable innovation title" based on the number of citations
Nr. Citations
Article title Authors
crt. no.
Strategic niche management and sustainable innovation Schot Johan and Geels
1 540
journeys: theory, findings, research agenda, and policy Frank W
Grassroots innovations for sustainable development: Towards Seyfang Gill and Smith
2 495
a new research and policy agenda Adrian
Business models for sustainable innovation: state-of-the-art Boons, Frank; Luedeke-
3 465
and steps towards a research agenda Freund, Florian
Sustainable Entrepreneurship and Sustainability Innovation: Schaltegger, Stefan;
4 347
Categories and Interactions Wagner, Marcus
Growing grassroots innovations: exploring the role of
Seyfang, Gill; Haxeltine,
5 community-based initiatives in governing sustainable energy 295
Alex
transitions
A strategic design approach to develop sustainable product
6 service systems: examples taken from the 'environmentally Manzini, E; Vezzoli, C 272
friendly innovation' Italian prize
Sustainable innovation, business models and economic Boons F., Montalvo C.,
7 246
performance: an overview Quist J., and Wagner M.
7039
Building capacity and sustainable prevention innovations: a Johnson K., Hays C.,
8 212
sustainability planning model Center H., and Daley C.
Functions of innovation systems as a framework to understand
Hekkert, Marko P.; Negro,
9 sustainable technological change: Empirical evidence for 163
Simona O.
earlier claims
Evolutionary approaches for sustainable innovation policies:
10 Nill, Jan; Kemp, Rene 160
From niche to paradigm?
The most cited article, 540 citations, written by Schot Johan and Geels Frank W entitled "Strategic
niche management and sustainable innovation journeys: theory, findings, research agenda, and policy"
was published in 2001 in the journal of the Technology Analysis & Strategic Management (Johan,
2008). The second most cited paper, with almost 495 citations, is “Grassroots innovations for
sustainable development: Towards a new research and policy agenda” written by Seyfang Gill and
Smith Adrian and it was published by Environmental Policy journal (Seyfang, 2007).
Definition and Importance of Sustainable Innovation
The global concern about environmental care, social awareness and sustainability has increasingly
caught the attention of practitioners and researchers. Considering the current business situation,
sustainable development emerged as a new competitive advantage, including sustainable initiatives and
a wider perspective of profitability that involves environmental and social values (Maier, 2018c). The
inclusion of these parameters within the strategic management of organizations poses the basis for
sustainability. To this end, companies are required to innovate, change their organizational structure
and integrate their strategies to overcome barriers and become more sustainability-oriented (Hernandez-
Vivanco, 2018).
Carrillo-Hermosilla et al. (2010), sustainable innovation could be defined as “innovation that improves
sustainability performance”, where such performance includes ecological, economic, and social
criteria. As such criteria differ as a result of spatial, temporal and cultural embeddedness, sustainable
innovation will have different meanings and characteristics in different contexts (Frank Boons, 2013).
There is no precise or established definition for sustainable innovation, reflecting the more general
difficulty in defining the concepts of sustainability and sustainable development. Arthur D. Little
(2004) defined ‘sustainability-driven’ innovation as ‘the creation of new market space, products and
services or processes driven by social, environmental or sustainability issues.’ As with general
innovation, there is an emerging recognition that sustainable innovation is not just about new concepts
but is about commercialization of technologies, products and services, and about entrepreneurship
(Maier, 2018f).
Sustainability is about expanding the financial bottom line into a triple bottom line, which includes
environmental and social aspects of corporate performance. Hence, sustainability should not be
restricted to only environment practices to gain environmental objectives but it can also facilitate other
advantages (e.g., gaining long-term survival and profitability) in a turbulent market when successfully
achieved. In this study, sustainability is considered an essential practice of a firm that provides
environmental, social and economic benefits to configure the firms’ sustainable competitive position.
For instance, Nidumolu et al.(2009) described that sustainable development is the only way available
for enterprises’ growth, decreasing production costs and generating additional revenues from novel
offerings or business expansion (Stig Ottosson, 2016).
Their empirical study found that “sustainability is a mother lode of organizational and technological
innovations that yield both bottom-line and top-line returns.” However, organization performance
demonstrates firm objectives to gain high profits, high sales growth and top market share.
Sustainable development or sustainability is defined as meeting the needs of the present generation
without compromising the ability of future generations to meet their needs. In manufacturing systems,
sustainable product and process innovations, as well as system innovation play an important role to
meet the responsibilities to the environment and society. It is hard to define and measure even
conventional innovation in manufacturing organizations, let alone sustainable innovation. There are
7040
some different terminologies and definitions for sustainable innovation in literature, such as
‘sustainability-oriented innovation’ and ‘sustainability related innovation’. We prefer the term
‘sustainable innovation’ in this study. Sustainable innovation can reasonably be defined as “the
development of new products, processes, services and technologies that contribute to the development
and well-being of human needs and institutions while respecting the worlds’ natural resources and
regenerative capacity” (Hernandez-Vivanco, 2018).
Bos-Brouwersdefines sustainable innovation as “innovations in which the renewal or improvement of
products, services, technological or organizational processes not only delivers an improved economic
performance, but also an enhanced environmental and social performance, both in the short and long
term have the capacity to generate positive social and environmental impacts.” Another definition is “a
process where sustainability considerations (environmental, social, and financial) are integrated into
company systems from idea generation through to research and development (R&D) and
commercialization”. This applies to products, services and technologies, as well as to new business and
organizational models. We define sustainable innovation as “any new or significant improvement of
products, services, technological or organizational processes, commercialized or internally
implemented, that not only provide economic benefits but also generate positive social and
environmental impacts” (Tim Stock, 2017).
The discussion about Sustainable Development also requires a closer look at the question of how to
achieve this massive transition towards a new global paradigm. As mentioned, the world and our global
society require a shift towards a more responsible treatment of environmental, social, and economic
capital. For this reason, new ideas and innovations must be created.
The concept of innovation in our present understanding is represented as society’s "engine of growth",
illustrating the strong economic orientation of the concept of innovation (Maier, 2018b). This
characteristic has been solidified notably by the treatises of Joseph Schumpeter at the beginning of the
last century, who defined innovation as “realisation of new combinations” and that this is “the
overwhelming fact in the economic history of the capitalist society“. Since then, the concept of
innovation had led to a variety of possible definitions. For instance, Edison et al. identified 41 possible
definitions for this term (Maier, 2018c).
Nevertheless, the core characteristic of the term of innovation can be seen in the origin of the Latin
verb of “innovare”, which can be translated as “renew” (Maier, 2018d). Thus, innovation can be
understood as “renewal”. Renewals are mandatory not only to drive the engine of our economy, but
rather to keep the engine of our planet running. Therefore, the combination of sustainability and
innovation is indispensable to realize new combinations, which can lead to an innovation process
tackling the current sustainability challenges. Nidumolu et al. (2009) described sustainability as the
relevant key driver for innovation in the 21st century.
The expressions for combining innovation and sustainability include sustainable innovation,
sustainability-driven innovation and eco-innovation. The concept of eco-innovation was firstly defined
by James as "new products and processes which provide customer and business value but significantly
decrease environmental impact".
Sustainability driven innovation is defined according to a report from Arthur D. Littles (2004) as “the
creation of new market space, products and services or processes driven by social, environmental or
sustainability issues.". The term sustainable innovation was defined by Horbach in the context of
Sustainable Development as following: ”Sustainable innovations not only comprise the environmental
dimension but also economic, social and institutional aspects. They improve the realization of the aims
of a sustainable development and represent a subset of all innovations." In conclusion, the mentioned
terms are strongly based on the same understanding and are focused on a holistic view of sustainability.
The innovation process itself can be divided into several phases, including sub-processes, from the
generation of ideas, to developing the invention, and up to the diffusion process (Maier, 2018e). It can
be described by a multitude of different process models. Cooper describes the innovation process with
his commonly used Stage Gate Model covering five stages. This model is determined as a sequential
process chain with precise milestones for the innovation process marked by so-called gates (Tim Stock,
2017).
7041
There is no precise or established definition for sustainable innovation, reflecting the more general
difficulty in defining the concepts of sustainability and sustainable development.
Arthur D. Little (2004) defined ‘sustainability-driven’ innovation as ‘the creation of new market space,
products and services or processes driven by social, environmental or sustainability issues.’ As with
general innovation, there is an emerging recognition that sustainable innovation is not just about new
concepts but is about commercialization of technologies, products and services and about
entrepreneurship.
It can also be about the adoption of new processes and systems at societal level. Sustainable innovation
is a process where sustainability considerations (environmental, social, financial) are integrated into
company systems from idea generation through to research and development (R&D) and
commercialization. This applies to products, services and technologies, as well as new business and
organization models.
To describe what a sustainable innovation is and how it is developed, the following definitions are
proposed: a sustainable solution is a solution that has been developed to be a long –lasting,
environmentally responsible solution for the provider (the business), the society and also the users; an
innovation is a new solution that has been “sold” and is used by more than one user, or that is used in
at least one use-situation; the innovation process, done as an innovation project, contains all of the
stages from idea generation, development (R&D) and commercialization, to an implemented solution
on the market.
Conclusions
The pressing need to equip managers with the tools for innovative solutions to sustainability challenges
coupled with the diversity and fragmentation of the academic literature have made this review
necessary. From small to large companies, from traditional to high-tech companies, increasing
innovation performance depends primarily on their capacity of understanding and finding the best
solutions in addressing their innovation limits.
In this research we started from the hypothesis that all changes in society influence the subjects studied
by the researchers and so we studied the evolution of the articles indexed in the ISI Web of Science
database, one of the most important scientific databases in the world, having the topic of sustainable
innovation. We can observe very clearly that the concept of sustainable innovation became more
intense studied in the last ten years when the number of articles exceeded almost 10 times the number
of articles published before 2008. So, we can say that in the last ten years the knowledge related the
concept of sustainable innovation has grown very much.
An organization focused on streamlining and optimizing processes and resource utilization has high
chances of becoming competitive in a highly competitive environment. The more organizations are
competitive, the more the regional, even the national, the business environment becomes more
competitive, ultimately increasing the economic competitiveness
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7044
The State of Fisheries and Aquaculture in Republic of Moldova.

Evolution and Prospects
Mihaela MUNTEANU PILA1, Silvius STANCIU2

1,2
„Dunărea de Jos” University of Galați, Romania,
1
mihaela_pila@yahoo.com; 2sstanciu@ugal.ro
Abstract
The paper proposes an analysis of the fisheries sector for the period 1988-2018, regarding the evolution,
the fishing potential during its development on the territory of the Republic of Moldova. Moldovan
aquaculture is based on the method of pond fish polyculture. Until 1990, using intensive technology, the
total volume of fish production was of about 10 thousand tonnes per year. The transition to a market
economy, the difficulties that have arisen due to the destruction of the existing system of organisation of
the food industry have led to a sharp decrease of the pond fish production. In 1994, its volume was of only
1,042 tonnes, until in 2002 when it increased slightly, reaching only 1,643 tonnes. The growth of fish
farming in the Republic of Moldova is a developing branch. Currently, most of the natural aquatic basins
are degraded, since no maintenance measures have been taken.
However, the conservation of the diversity of the fish fauna of the natural aquatic basins, the structural-
functional improvement of the fish stocks for fishing, the restoration of breeding lots and the improvement
of the favourable conditions of natural reproduction must be priorities of the fisheries sector.
Keywords: Fish farming, fishing potential, evolution

Introduction
Aquaculture in the Republic of Moldova was initiated in 1945. In the following period, about 30 thousand
hectares were created from different reservoirs of fishing ponds, of which 12 thousand hectares were pools.
As a result, fish farming has become one of the most important forms of aquaculture in the Republic of
Moldova. By 1957, 168 tons of fish were growing in the pond farms and, as a result, the state fish farming
sector was created. In 1964, the volumes of catches from inland waters rose sharply, to 1500 tons. In 1970,
the central authority of the fishing industry in the Republic of Moldova was managed by the Department
of Fisheries under the Council of Ministers of the SSRM. In order to carry out scientific research and
experimental work, a new fishing research station was created called “The Fisheries Research Station of
Moldova”. During this period, part of the collective basins and state farms, which were not used for fish
farming, were transferred to the State Fisheries Directorate, resulting in the creation of other 14 new fish
farms. Due to the development of fish farming in the Republic of Moldova, in 1970, the fish production in
the pond was of 1983 tons, in 1975 it increased to 4570, and in 1980 - up to 6500 tons. Thus, fish
productivity reached 1.5 tonnes / ha. Together with the intensive fish farming in ponds, the fishing of
complex reservoirs (small reservoirs), also managed by the State Fisheries Directorate, developed, too. The
use of an extended technology in these reservoirs allowed until 1985 the increase of fish catches by 852
tonnes, with a fish productivity of 603 kg / ha. In 1985, fish catches from ponds and small tanks amounted
to 8539 tonnes and by 1990 they increased to 9053 tonnes, with an average fish productivity of 1 t / ha.
According to FAO data, the volume of production amounted to 7141 tonnes. FAO data also indicate that
the development of fish farming reached a major growth rate between 1968 and 1987. When the carp was
raised in the accumulation ponds of GRES Moldavskaya (Kuchurgan reservoir), the fish production rose
to 189 kg / m3. In 1968, 5 tons of commercial carp were grown on the production sites of the Slobodzey
fish factory, in 1971 the production increased to 22 tons, and in 1987 to 44 tons of fish. At the end of the
80's, on the banks of the Kuchurgan reservoir, a basin farm was created having a capacity of 1 thousand
tonnes, with a system of fish breeding in cages, which, while developing was to reach a capacity of 500
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thousands of tons. Until the transition of Moldova to the market economy in 1990, no such basin was built
and fish farming ceased to develop and continued only in the cage fish farming system.
After 1990, ponds belonging to collective farms and state farms were no longer used for fish farming.
However, in the early 2000s, the ponds were used by farmers, who produced around 615 tons of fish in that
period in 2002 and 985 tons of fish in 2003. Estimating the number of fish produced by farmers is
incomplete, because accounting covers no more than 50% of the existing fish farms in the country. The
current stage of development of fish farming in the pond is characterized by a sharp decrease in fish
production from 9053 in 1996 to 1042 tonnes in 2006. Fish production in the former fish farms increased
slightly from 1996 to 2002 and reached 1643 tons, but by 2004, it had dropped to 1130 tons.
Short literature review
In 1961, fish larvae from China were introduced to Moldova. After that, the silver carp
(Hypophthalmichthys molitrix), the bighead carp (Hypophthalmichthys nobilis) and the grass carp
(Ctenopharyngodon idellus) became important items of aquaculture, and in the 80s of the past century,
herbivorous fish became the main aquaculture objects in volume (FAO, 2018). Due to the intensive feeding
of fish with compound fodder under the current conditions of the intensive fish farming, the grass carp,
which had been quite rare in catches, increases its share in the total volume of the aquaculture industry by
10%. (FAO, 2018). In order to develop fish farming, through the approval of the Government, the central
public authority for agriculture, jointly with the Moldovan Academy of Sciences and with the institutions
of the Republic of Moldova, develops strategies for the development of fish farming, and undertakes actions
to stimulate the creation of specialised fisheries facilities in the breeding and growth of fish and other
aquatic organisms (LAW no. 149, 2006).
Every year in the Republic of Moldova there are populating activities in different rivers with potential for
major development, the target being the efficient management of natural resources and the protection of
aquatic biological resources (Ministry of Agriculture, Regional Development and Environment, 2018). The
zander (Sander lucioperca) is used as a biological enhancer in the aquaculture of Moldova. Its reproduction
(up to 50 million larvae) is organized in the Victoria incubator in Edinets. Due to the use of the zander, the
productivity of the ponds increases up to 100 kg / ha. (FAO, 2018).
Production of aquaculture during the period 1988-2017
In the Republic of Moldova, the main method of growing freshwater fish is the pond method. The entire
volume of fish production is obtained in the feed tanks, which mainly use the technology of continuous fish
farming. According to government statistics, the production of aquaculture in 1988 was of 7146 tonnes,
and in 2002 it decreased to 2335 tonnes, due to the transition of the Republic of Moldova to the market
economy and, consequently, the construction of fish breeding systems and their development stopped. The
Ministry of Agriculture approved the Programme for the development of the aquaculture sector in Moldova
for 2002 - 2010, according to which the fish production should have been of 7,600 tonnes by 2010, while
the former fish farms should have produced 5,600 tonnes. Farms involved in fish farming showed promising
results - in 2004 they produced 1,500 tons of fish. Following that in 2010 an increase of fish production by
farmers was planned to rise up to 5000 tons and the increase of the total volume of fish produced in the
Republic of Moldova had to reach 10600 tons. This allows us to report until 2019, essential increases in the
total volume of fish in the country's natural basins. Thus, the representatives of the State Fisheries Service
act annually with improvement measures of populating the natural aquatic basins with several species of
fish such as the carp, the bighead carp, the silver carp, the grass carp, supplying valuable fish species that
7046
are endangered and in danger of extinction. At the same time, the Ministry of the Republic of Moldova
together with the State Fisheries Service undertakes several actions to maintain the potential and the aquatic
biological diversity, to develop the fishery in the natural aquatic objectives on the territory of the country.
14000
12000
tonnes
10000
8000
6000
4000
2000
0
1990 1995 2000 2005 2010 2015
Fig 1. The total volume of Aquaculture production in Moldova 1988-2017

Source: Data processed from FAO databases, 2018.
The national situation of aquaculture regarding the potential for fish and the
development of the fisheries sector
In 2002, the statistical data indicate that in the Republic of Moldova, 21 fish farming businesses were active,
9 businesses under the division of the Piscicola Association and 139 fish farms. The basins are located
mainly on the streams and small rivers, the tributaries of the Dniester River (19 rivers), the Prut River (9
rivers) and in the Dniester-Danube interfluvial area. Most fish farms are located in the north of Moldova,
accounting for ¼ of the total fish production. In addition, the main fish breeding companies are located in
the central part of the Republic (the “V” fish breeding area). In total, over 3450 ponds and 80 tanks were
created in the Republic of Moldova. Almost half of these reservoirs are located in the Dniester basin (1856
reservoirs), 1310 reservoirs are located in the Prut river basin and 364 reservoirs are located on other rivers.
The total area of the artificial tanks is of 27,000 hectares with a water volume of 1800 million m3. The
sources of water supply for the main natural aquatic basins of the country are: the effluents of the Dniester
and the Prut account for 7.5%, flows and precipitations 52.9%, 26.8% are from springs, 12.8% are only
rainfall.
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rainfall effluents
13% 7%
natural springs
27%
flows and
precipitation
53%
Fig 2. Water supply sources of natural aquatic basins, within the boundaries of the Republic of
Moldova
Source: Data processed from FAO databases, 2018.
The composition of the ichthyofauna of the main ecosystems of the Republic of

Moldova
Analysing the dynamics of the ichthyofauna diversity during the years 1877-2018, it can be seen that the
number of species in the Dniester river ecosystem has not undergone substantial changes (not as regards
the qualitative aspect), the taxonomic diversity of fish being largely maintained through active processes
of anthropogenic translocation and self-expansion of non-native fish species.
fish species by referenxces
100 87
80 75 72 75
60
60 53 49 53
40
20
0
Кеssler К.F Berg L.S Burcasev Earosenco Popa L.L Dolcișe V.N Usatîi M. Bulat D.
1877 1949 М.S 1954 М.F 1957 1977 1993 2004 2006-2018
Fig 3. Taxonomic diversity of fish in the Dniester River (within the limits of the Republic of
Moldova), over the period 1877-2018
Source: Authors, by using Ministry of Agriculture, Regional Development and Environment, 2019
According to the data of the Laboratory of Ichthyology and Aquaculture of the Institute of Zoology of the
Ministry of Education, Culture and Research (MECC), succession ally, during the years 1877-2018 the
ichthio-faunistic diversity of the Dniester river showed fluctuating values, in most scientific sources,
appearing between 46 and 94 species of fish. Also, in the period 2006-2018, investigations were carried out
on the Dniester river, which revealed 75 taxa belonging to 11 orders and 18 families. The investigations in
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the Prut river basin were carried out only during the period 2010-2018, which revealed an ichthiofaunistic
diversity represented by 56 fish species, attributed to 10 orders and 15 families (figure 4).
40
Fish species
35
30 Prut Dniester
25
20
15
10
5
0
Petromyzontiformes
Acipenseriformes
Clupeiformes
Esociformes
Cypriniformes
Nemacheilidae
Cobitidae
Siluriformes
Gadiformes
Gasterosteiformes
Sygnathiformes
Perciformes
Gobiidae
Centrarchidae
Odontobutidae
Lotidae
Atherinidae
Cottidae
Umbridae
Fig 4. Fish species in Prut and Dniester Rivers (bay families)
Source Author, by using Laboratory of Ichthyology and Aquaculture data (2019)
Thus, in the Prut river basin, within the limits of the Republic of Moldova, 56 fish species were identified,
thus: 45 fish species in Beleu Lake, 39 fish species Manta marshes and 31 fish species in Costești-Stânca
water storage (Figure 5).
60 56
50 45
39
40
fish species
31
30
20
10
0
The Prut River Beleu lake Manta Pools Costești-Stânca
basin water storage
Fig 5. Evaluation of the ichthyofaunistic diversity in different aquatic ecosystems from the Prut
river basin.
Source: Data processed from the Ministry of Agriculture, Regional Development and Environment, 2019
Following the major floods that occurred in 2008 and 2010, significant amounts of Asian cyprinids (the
bighead carp, the silver carp, the grass carp) have entered the ecosystem of the Prut River. Also, the floods
7049
that took place during that period caused the partial inter-penetration of the fishing areas and the
decolmatisation of surface wells, favouring the upstream penetration of the reophil fish species such as: the
common barbel, the chub, the common nase, the vimba bream, the Sabanejewia balcanica, especially
abundant in autumn and downstream the pumpkinseed, the Amur sleeper, the Danube ruffe, the gudgeon,
the black-striped pipefish, the bighead goby expanded their area which had a positive effect on the
ecosystem.
Conclusions
Most of the fishery basins have a relatively long history and they fit very well into the country's territorial
landscape, playing an important role in strengthening the ecological balance and in maintaining large areas
of wetlands. In order to preserve the diversity of the fish fauna in the natural aquatic basins of the Republic
of Moldova, it is necessary, in conjunction with the Institute of Zoology of the MECC, to develop a series
of measures to improve the fisheries (basic principles for the years 2019-2030), to preserve the genetic
backgrounds of valuable and endangered fish species, to continue the structural-functional improvement of
the fish populations for fishing, to perform the restoration of breeding lots and the improvement of the
favourable conditions of natural reproduction. The lack of a national strategy for the development of fish
farming and insufficient investment projects shall slow the development of this sector.
Acknowledgment
„This work is supported by the project ANTREPRENORDOC, in the framework of Human Resources
Development Operational Programme 2014-2020, financed from the European Social Fund under the
contract number 36355/23.05.2019 HRD OP /380/6/13 – SMIS Code: 123847.”
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Gender Inequality Among Older Adults in Russia
Veronika MALANINA
Tomsk Polytechnic University, Tomsk, Russia
milanskaya@mail.ru
Elena FROLOVA
Tomsk State University, Tomsk, Russia
frolova_ea@mail.tsu.ru
Elmira KASHAPOVA
elmira6280@yandex.ru
Fabio CASATI
casati@tpu.ru
Abstract
The article reveals the parameters of gender inequality among older people in the regions of the Siberia
(Russia). We have identified the domains of active ageing contributing to gender gap, namely,
employment and independent and secure living, as well as domains with virtually no gender gap, namely,
participation in society and enabling environment for active ageing. The results provide insights on the
potential of bridging the gender gap between older adults.
Keywords: older adults, inequality, ageing, Active Ageing Index.
Introduction
In the context of growing average life expectancy, issues of ensuring active ageing are becoming
increasingly relevant. The concept of active and productive ageing explores the idea of transferring the
responsibility to the older generation to preserve and maintain their own well-being. At the same time, the
responsibility of the family, society and the state for caring for older people who are not able to make
decisions on their own due to their state of health remains.
Factors influencing the individual tracks of active ageing are complex. Older men and women’s potentials
can vary significantly due to personality traits along with institutional conditions that can contribute to
and inhibit active longevity. International studies of inequality among the elderly are concentrated mainly
in the field of physical and psychological health, which is a determining factor in quality of life and active
ageing. The defining aspects of the quality of life in old age can embrace severe disabilities, loss of
mobility or chronic diseases. Medical workers, gerontologists, and sociologists are actively exploring the
correlations between quality of life and tooth loss, decreased visual acuity, smoking, alcohol
consumption, and obesity among older people. Access to medical and dental services, the quality of the
neighborhood in terms of accessible and safe environment, informal community support also contribute
to the physical and mental health of the older people.
Nevertheless, the state of health is not the only parameter that provides ground for the inequality in the
ageing process. Issues of gender inequality are relevant in modern demographic and sociological studies.
Despite the significant success of certain countries in aligning the legal status of sexes and providing
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equal opportunities in employment, career growth, political representation, in practice gender inequality
persists. As the society age, it seems important to determine whether age is becoming a factor aligning the
social and economic situation of men and women and whether there are gender differences in the ageing
process.
Parameters of Gender Inequality in Russia

Gender inequality in active ageing is becoming the subject of scientific research in different countries.
The inequality revealed is often rooted in the national mentality regarding the social roles of men and
women and the pension schemes design that rarely consider any gender characteristics of life course. Jang
and Kawachi (2019) show that older women are more likely to receive assistance, including financial,
from their adult children than older men. In many developing countries, gender inequality influences
women throughout their lives, and the gap in socioeconomic status compared with men becomes critical
in old age, when it is too late to bridge or narrow the gap. For example, in India, the quality of life of
older women is significantly lower, since they are more susceptible to chronic diseases, more often men
are illiterate and, as a result, have a low income, as suggested by Singh et al. (2019). Similar results are
demonstrated by Serrano-Alarcon and Perelman (2017) for countries of Southern Europe, where older
women, earlier and in more serious forms than men, face functional limitations of health and mobility,
which reduces employment opportunities and lowers their income, thus increasing the poverty risk. In the
countries of the European Union, as Vlachantoni (2012) posits 6% of older man and 23% of older women
live below poverty line, which is still explained primarily by the women's interrupted employment due to
the birth of children and childcare (known as motherhood penalty).
The design of modern pension systems in some countries is gradually changing towards recognizing
periods of childcare as time considered as work experience or equivalent to it. Craciun and Flick (2016)
express concerns about material well-being and stability of pension payments affect the psychological
health of older women more than older men. Respondents of both sexes unanimously consider the risk of
autonomy loss to be the most serious outcome of ageing. The need to care for children and the elderly,
although considered a factor of active ageing, may as well adversely affect the quality of life of
caregivers, representing an “overburden” risk. In developing countries, it is in the field of informal care
for other people that gender imbalance is most pronounced - men are employed in the labor market,
women are primarily engaged in unpaid housework, as Faur and Pereyra (2019) suggest. De Lima et al.
(2018) basing on an almost fifty-thousand sample of respondents from 17 European countries have
confirmed that the gender gap in the socio-economic position leads to physical activity gap between older
men and women in men’s favor. Large-scale studies of age cohorts (50-96 years old, over 24,000
participants) in fourteen countries of Europe have confirmed that socio-economic misfortune in childhood
correlates with the poor health of older women, while men manage to compensate for the effects of
poverty in childhood during life by continuous labor activity, as shown by Landos et al. (2019).
Undoubtedly, there are universally beneficial strategies that provide positive effects for both men and
women, namely, actions to prepare for old age, including the formation of a financial safety cushion,
investment in improving housing conditions, and life-long learning, as Pothisiri and Quashie (2018)
revealed.
For the purpose of this study, we used the Active Ageing Index methodology, which implies the usage of
22 wellbeing indicators, tailored to measure the quality of life of older adults. Those indicators are
grouped in four domains (spheres of activity or capacity). The first domain “Employment” includes the
level of employment of older adults in different age groups (55-59 years old; 60-64 years old; 65-69 years
old and 70-74 years old). The second domain, “Participation in Society,” includes an assessment of
involvement in the activities of volunteer organizations, caring for children, grandchildren, and other
elderly or disabled people and various forms of participation in political activities (from participating in
protests to meetings with government officials). The third domain, “Independent, healthy, and secure
living”, provides quantitative assessments of physical activity, access to medical and dental services,
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independent living of senior citizens over 75, relative median disposable income, lack of poverty risk,
lack of serious material deprivation, physical security and lifelong learning. The fourth domain,
“Capacity and enabling environment for active and healthy ageing,” includes indicators of relative life
expectancy at the age of 55, the share of healthy life at the age of 55, mental well-being, the use of
information and communication technologies, social interactions, and educational attainment. Each
indicator in the domain has its own weight; the total values of all indicators are summed up into the
integrated value of the Active Ageing Index for a region or a country.
Not only AAI aims to measure the potential of older adults to age actively, but to identify the gender gap
in order to narrow it. Application of the Active Ageing Index methodology in European countries in 2008
made it possible to prove the existence of a gender gap in favor of men in the ageing process, even for
countries with a high standard of living, show Barslund et al. (2019). European Commission report noted
in 2018 that the average gender gap across EU countries over the past ten years has narrowed from 4.6
percentage points up to 3 percentage points. Nevertheless, in six European countries out of 28, namely,
Luxembourg, Hungary, Malta, the Netherlands, Austria and Portugal, the gender gap has widened due to
the fact that with a general increase in AAI values, opportunities for active ageing expanded for men
more rapidly than for women. Accordingly, in order to bridge the gender gap in active ageing, it is
necessary to create institutional conditions for the outstripping growth of ageing indicators for women.
The European Union has already made significant progress in aligning the level of education and income
of both sexes. The assessments of AAI indicators for Siberian older adults are presented in Table 1.
Table 1: Indicators of active ageing for older adults in Siberia (Russia) by gender
Indicators men women

Employment 25.89 19.24
1.1 Employment rate 55-59 59.2 39.78
1.2 Employment rate 60-64 24.63 22.08
1.3 Employment rate 65-69 15.79 10.62
1.4 Employment rate 70-74 3.95 4.48
Participation in society 15.59 16.92
2.1 Voluntary activities 1.01 1.94
2.2 Care to children, grandchildren 42.69 44.17
2.3 Care to older adults 5.16 6.7
2.4 Political participation 0 0
Independent and secure living 62.43 53.4
3.1 Physical exercise 8.54 6.47
3.2 No unmet needs of health and dental care 66.19 63.31
3.3 Independent living arrangements 33.3 23.08
3.4 Relative median income 85.93 76.34
3.5 No poverty risk 90.96 69.72
3.6 No material deprivation 89.9 92.2
3.7 Physical safety 87.15 77.2
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3.8 Lifelong learning 0 0

Capacity and enabling environment for active ageing 50.74 53.23
4.1 RLE achievement of 50 years at age 55 50.26 50.26
4.2 Share of healthy life years in the RLE at age 55 95.59 93.67
4.3 Mental well-being 28.95 27.96
4.4 Use of ICT 18.07 21.53
4.5 Social connectedness 7.9 24.7
4.6 Educational attainment 76.3 74.02
Overall AAI 30.79 28.67
The calculations of AAI for older adult living in Siberian regions of Russia shown that the most sensitive,
yet tackable domain of gender imbalance is employment. The employment gap between the younger old
(55-59 years) is equals two times in favour of men. In older ages this gap becomes almost indiscernible.
The fact that Russian women are leaving the labour market earlier, right after the official retirement age
as it was in 2016, is in line with the global trend of women’s higher rate of disengagement. This
imbalance has various reasons ranging from health issues to discrimination, since older men in Russia
successfully enter the domains, previously regarded to be hiring predominantly women. Services and
trade spheres welcome older men, thus older women are being squeezed out to a certain degree. The
second domain of active ageing - participation in society - demonstrated the higher level of older
women’s involvement. Although this trade-off is similar to European countries, we found that the gap in
some indicators is not as big as one can expect it to be, considering the perception of Russia as a
familialistic country. Siberian older men spend less time on care provision to children, grandchildren and
disabled, but the difference amounts only to 2-3 percentage points depending on the region. Thus, older
women disengaged from formal labour market turn to informal care provision, but their potential remain
untapped, since often both activities are not available.
Paid and unpaid employment are both considered to be components of active ageing, quantitatively
describing the level of activity of an elderly person. The relationship between quality of life and
employment does not necessarily demonstrate a positive correlation. Employment can be forced,
unwanted and low paid in the absence of sufficient pension provision. Respectively, a significant
proportion of working older adults does not necessarily indicate a comfortable ageing process for them.
Caring for other adults can equally increase or decrease the level of wellbeing of a caregiver, since it
implies at least time and psychological costs.
Conclusion
The results show that older adults in Siberian regions do age unequally, and that there is a gender gap in
favor of men, which coincides with the global trend. The use of the Active Ageing Index methodology
allowed us to identify specific domains and indicators that contribute to this gap. In the field of
employment and independent and secure living, older men are significantly ahead of women, but women
lead in the field of participation in society. At the same time, there is no serious gender gap in the sphere
of capacity for active ageing. Accordingly, there is no evidence that regions of the Siberian Federal
District are characterized by deep, insurmountable gender inequality among older people. The gender gap
in the regions of the Siberian Federal District is on average smaller (slightly exceeding 2 percentage
points) than in the countries of the European Union (3 percentage points). However, active ageing in the
regions of Siberia still bears the imprint of the existing social roles of men and women. The results of the
study revealed specific indicators according to which women are at risk in the process of active ageing
7055
due to lower incomes and employment compared with men. From the regional and national policy
perspective, these areas are quite institutionally manageable.
Acknowledgment
The study was supported by the Russian Science Foundation (project №19-18-00282 “Developing a
comprehensive system for assessing the inequality of the older adults and designing tools to strengthen
their resilience”).
References
1. Barslund M., Von Werder M, and Zaidi A. (2019), ‘Inequality in active ageing: evidence from a
new individual-level index for European countries’, Ageing & Society, № 39(3), 541-567.
2. Craciun, C. and Flick, U. (2016), ‘Aging in precarious times: Exploring the role of gender in
shaping views on aging’, Journal of Women & Aging, 28(6), 530-539.
3. De Lima, A.L.B., Espelt, A., de Lima, K.C., and Bosque-Prous, M. (2018), ‘Activity limitation
in elderly people in the European context of gender inequality: a multilevel approach’, Ciencia & saude
coletiva, 23(9), 2991-3000.
4. Faur, E., and Pereyra, F. (2019), ‘Caring for children and the elderly in Argentina: A grammar of
class and gender inequalities’, Womens Studies International Forum, 7, 25-31.
5. Jang, SN. and Kawachi, I. (2019), ‘Care inequality: care received according to gender, marital
status, and socioeconomic status among Korean older adults with disability’, International Journal for
Equity in Health, 18(1): 105.
6. Landos, A., von Arx, M., Cheval, B., Sieber, S., Kliegel, M., Gabriel, R., Orsholits, D., van der
Linden, B., Linden, B., Blane, D., and Boisgontier, M. (2019), ‘Childhood socioeconomic circumstances
and disability trajectories in older men and women: a European cohort study’, European Journal of
Public Health, 29(1), 50-58.
7. Pothisiri, W., and Quashie, N.T. (2018), ‘Preparations for Old Age and Well-Being in Later Life
in Thailand: Gender Matters?’ Journal of Applied Gerontology, 37(6), 783-810.
8. Serrano-Alarcon, M, and Perelman, J. (2017), ‘Ageing under unequal circumstances: a cross-
sectional analysis of the gender and socioeconomic patterning of functional limitations among the
Southern European elderly’, International Journal for Equity in Health, 16: 175.
9. Singh, L., Goel, R., Rai, R.K., and Singh, P.K. (2019), ‘Socioeconomic inequality in functional
deficiencies and chronic diseases among older Indian adults: a sex-stratified cross-sectional
decomposition analysis’, BMJ OPEN, 9(2): e022787.
10. Vlachantoni, A. (2012), ‘Financial inequality and gender in older people’, Maturitas, 72(2), 104-
107.
7056
Research on the Optimization of the Storage

Conditions for Seed Grains
Iuliana Manuela DUMITRIU (ION)

”Dunărea de Jos” University of Galaţi, Romania
iuliana.ion12@yahoo.com
Cristina STOICA (DINCĂ)

”Dunărea de Jos” University of Galaţi, Galati Romania
dincacristina2007@yahoo.com
Marius Daniel NICULA

”Dunărea de Jos” University of Galaţi, Galaţi, Romania
marius_nicula89@yahoo.com
Mihaela Daniela URSAN (DINCĂ)

University of Agronomic Sciences and Veterinary Medicine of
Bucharest USAMV, București, Romania
mihaella.dinca@yahoo.com
Silvius STANCIU
”Dunărea de Jos” University of Galaţi, Galati, Romania
sstanciu@ugal.ro
Abstract
Production and storage of grain seeds is an important activities to ensure good agricultural production. The
preservation of the seed material should be performed properly to ensure the continuous supply of quality
raw materials throughout the year. Maintaining the physical properties of long-term grain seeds is a
challenge for all farmers and owners of storage spaces. The article proposes an analysis of the storage
process from the perspective of the qualitative indices specific to the grain seeds stored in the specialized
units in Galați County. The objectives of the research aim to optimize the process of storing the grain seeds
intended for sowing agricultural surfaces in the SE Region of Romania. The results obtained are useful to
farmers, units specialized in the storage of seed material and are integrated in the national strategy for
sustainable development of agriculture.
Keyword: areas, yields, seeds, quantity

Jel code: Q1
Introduction
Seed production is an important activity, with a direct influence on the level of agricultural crops, which
require proper qualification and specialization, as well as the existence of an organizational and legal
framework that coordinates all the specific sequences from production to placing on the market. In order
to achieve the proposed objectives as a member country of the European Community, Romania has acted
for the elaboration and implementation of a system of normative acts, in the field of seeds, which transposes
the rules and norms existing at European level and to ensure a coherent system of production and
certification of seeds in order to stop the decline, to gradual recovery and re-launchof agriculture, the food
industry and forestry, in accordance with the advantages induced by the natural, economic and human
potential.
7057
Materials and Methods
Elements of analysis, synthesis, comparison were used to elaborate the paper. The information regarding
the characteristics of the grains, the influence of the storage mode, the obtained yields were selected from
the databases of the Territorial Inspectorate for the Quality of Seeds and Planting Material Galati
(ITCSMS), the National Institute of Statistics, the Ministry of Agriculture and Rural Development. In some
cases, the mass-mediainformation from specialized magazines was used. The national legislative
regulations (normative acts, rules and technical regulations in force) have been taken from the Government
database.
Results and Discussions
The success of any agricultural crop is conditioned, primarily, by seed, by the identity and quality of the
seeds used in sowing, as well as by their area of provenance, which induces in their genetic load the ability
to adapt to the pedoclimatic conditions specific to a particular area, a fact explained by the dedicated
specialists in the field of Phytotechnics and the sciences adjacent to it.Seed production is also a process of
cyclical and continuous improvement, with the general objective of maintaining the varietal purity of the
cultivated varieties as well as of the technological and productivity performances. The process approach of
seed production highlights the fact that this is the essential objective of the plant improvement activity,
representing, at the same time, the final result of the same improvement activity, making available to the
end users the seed that satisfies their demands regarding identity, varietal purity, physical characteristics
and physiological properties, end users always being able to identify, choose, retain and then multiply,
which best responded to their desires and ideals related to the general appearance of the plant, precocity,
productivity, chemical composition, resistance to harmful organisms, all of which are synthetically
expressed by the notion of quality.Grain crops production is a priority for the Romanian agriculture due to
their importance for the economy, the large areas cultivated throughout the country, but especially through
the significant contribution of the crops for the food of people and certain animals. In order to obtain
efficient and profitable crops, agricultural professionals know that, beyond the technology used, the
determining factor is given by the quality of the seeds used in the crops, the genetics and the productive
genetic potential of the chosen variety. (Figure 1)
8 Common wheat Barley autumn Barley spring Triticale

7
Thousands
6
5
4
3
2
1
0
Ha To Ha To Ha To Ha To
Sur.. Prod. Sur. Prod. Sur. Prod. Sur.. Prod.
2015 2016 2017 2018
The evolution of the areas registred for multiplication in the period 2015-2018
Fig. 1: Production of grain seeds

Source: Authors based on NIS 2018 data
Wheat is considered the agricultural cropwith the largest area cultivated worldwide. In Romania, the area
cultivated with wheat occupies about 25 % of the arable area and 40 % of the area sown with cereals,
according to statistical data (table 1).
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Table 1: Evolution of the areas and cereal production in Romania
Year Wheat Barley / Two-row barley

Area Average Production Area Average Production
(thou. ha) production (thou. /tons) (thou. ha) production (thou. /tons)
(kg/ha) (kg/ha)
2009 1975.0 1541 3044.5 363.8 1461 531.4
2010 2110.3 3403 7181.0 394.0 3069 1209.4
2011 2148.8 2421 5202.5 517.5 2284 1182.1
2012 2162.4 2688 5811.8 515.8 2542 1311.0
2013 1947.0 3663 7131.6 419.5 3170 1329.7
2014 1997.6 2652 5297.7 424.2 2325 986.4
2015 2104.0 3468 7296.4 495.7 3250.5 1542.2
2016 2112.9 3590 7584.8 516.0 3319 1712.5
2017 2106.6 3780 7962.4 462.0 3424 1582
2018 2112.0 3920 8281.0 487.0 3726 1815
Source: NIS data, Statistical Yearbook of Romania, 2009-2018:
Grain crops are ones of the safest agricultural crops because they are genetically engineered to withstand
the low temperatures in winter. But, like all other cereal crops, it requires due attention both in terms of
land preparation and compliance with all technological links, in order to be able to talk about a quality crop,
a crop that generates profit. Seed production is also a process of cyclical and continuous improvement, with
the general objective of maintaining the varietal purity of the cultivated varieties as well as of the
technological and productivity performances. Considering the biological peculiarities of agricultural
production, as well as the seasonal character of the harvesting of agricultural products induced by the
continental temperate climate, it appears necessary to keep them for a longer or shorter period of time, so
that the initial physical, chemical, biological and organoleptic properties, of them to be kept unchanged and
even improved, by constantly optimizing the keeping / storage systems.Seed production is also a process
of continuous cyclic improvement, with the general objective of maintaining the varietal purity of the
cultivated varieties as well as of the technological and productivity performances, structured on sequences
that are not necessarily separated, they having areas where they are intertwined and completed to confirm
the value of the obtained results, such as: knowledge of the biology and genetics of the species; specifying
the improvement objectives; establishing methods of improvement; extraction and analysis of elites; the
actual production of the seeds.
Preparation of Seeds for Storage
During storage, the aim is to maintain both the quantitative value and the initial qualitative value, and why
not, even improving the quality of the material for sowing. The stored seeds must be well dried and contain
a small as possible percentage of foreign bodies. For proper preservation we must take into account
humidity, ventilation, temperature and the prevention of damage caused by pests.By preserving the seeds,
the aim is to keep unchanged and even improve the physical, chemical and biological properties. In the
seeds intended for consumption, the quality must be maintained and improved during storage, and in the
case of the sowing material, the sowing properties (germination capacity) must be maintained. Prior to
recovery, the grain cereals are subjected to operations of cleaning of foreign bodies, and of conditioning,
etc. The conditioning operations of cereal for various destinations are not standard, they can be chosen
according to their type and quality, the technical equipment available, the type of product to be obtained,
the production capacities of the installations. The main objective of the experimental research within this
paper is the study of the working process, on the qualitative indices of the conditioning of wheat and barley
and the optimization of the storage process without affecting the quality of cereals.The essential condition
7059
for the proper storage of seeds is that the seed comes from a crop officially controlled in the field and
declared admitted by the inspectors of the official authority, with the decision "culture allowed". The seed
must be harvested and transported under the responsibility of the registered economic operator for the seed
production activity. The storage areas should be clean, disinfected and provide the specific environmental
requirements of the species. The seed stored must be marked for identification with a label to be inscribed:
the producer, the party's identification number, the species, the variety, the category, specifying that the
storage must be performed on species, varieties, categories, provenances, quantities, so that to exclude any
possibility of subsequent mechanical impurification, of the stored seed.For the storage, a special importance
is presented by the specific physical and physiological characteristics: physical purity, botanical
composition, moisture of seeds, germinating faculty, germinating energy, health status. The experimental
part of the work was carried out within the Agrosem Tecuci Complex, intended exclusively for retainingand
storing seeds for sowing. The experiment started in 2018 and four batches of wheat seeds were studied,
from the Glosa variety, the Basic and Certified categories (C1), from the Agrosem Tecuci Complex,
respectively, four batches of autumn two-row barley seeds, from Nectaria variety, Basic and Certified
categories (C1), from SC Păunul AN SNC SA.Considering that the storage areas of the Agrosem Tecuci
Complex and of SC Păunul AN SNC SA are open spaces, which ensure, only partially, the control /
monitoring of environmental factors, during seed storage, the experimental factors were chosen as follows:
• Factor A - storage conditions:

- A1 - open space, in which wheat / barley seed is stored, Basic category;
- A2 - open space, in which wheat / barley seed is stored, Certified category;
- Factor B - batches / varieties of wheat / barley (homogeneous batches in terms of physical
qualities, with the initial humidity of 12% and corresponding health status):
- B1 - batches / varieties of wheat;
- B2 - batches / varieties of barley.
- Factor C - effective keeping time, with graduations:
- C1 - (the seed from the 2015 yield, prepared for the sowing campaign of the autumn2015), respectively,
the time when the research was initiated;
- C2 - after 12 months (stock declaration from 30.06.2016 - sowing campaign in autumn 2016);
- C3 - after 24 months (stock declaration from 30.06.2017 - sowing campaign in autumn 2017);
- C4 - after 36 months (stock declaration from 30.06.2018 - sowing campaign in autumn 2018).
The laboratory part of the work was carried out within the Territorial Inspectorate for the Quality of Seeds
and Planting Material (ITCSMS) Galați, the laboratory determinations being made based on the samples
taken by officially accredited personnel of ITCSMS Galati.Given that the experiment was conducted under
laboratory conditions, and the variants benefited from homogeneous conditions, practically without sources
of heterogeneity, a completely randomized model (CRD- Completely Randomized Design) was adopted,
which compares the values of a response variable, based on the different levels of the primary factor, which
are randomly distributed, thus analyzing the physical purity, germination, health status, thus studying
whether the conditions in the warehouse could affect the quality or viability of the seeds. The result obtained
are graphically represented in figure no.2.
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5TL0211-5GL03 5TL0211-5GL04 5TL0211-5GL05 5GL0171-5GL01

100
80
60
40
20
0
(%) (%) (%) (%) (%) (%) (%) (%) (%) (%)
P G U SS P G U SS P G U SS P G U SS
(%) (%)
Fig. 2: Seed samples for laboratory analyzes

Source: Authors based on NIS 2018 data
Where,
P–physical purity, represented by the percentage content of pure seed of the respective species relative to
the total mass of the analyzed sample and, by extension, the lot that it represents.
G germination energy, expressing the germination rate of the seeds under optimal conditions in which the
germinating faculty in the laboratory is determined. Usually, the counting of the germinated seeds for
establishing the germination energy is done on a date which represents 1 / 2-1 / 3 of the term at which the
measurement for establishing the germinating faculty is made.
U – seed umidity. For a good preservation, the seeds must have a water content below a critical level. It is
determined by species, being determined by the chemical composition of the seeds: lower in seeds with
high oil content, higher in those with higher content of hydrocarbon substances. For long-term storage or
in tightly sealed packages lower humidity rates are established.
SS - health status from the point of view of the contamination of the seeds with diseases or infestations
with pests, represents one of the quality indices that are placing a special emphasis more and more. The
presence of phytosanitary quarantine objects and certain pests is strictly forbidden and the presence of
certain diseases considered to affect the productivity of the resulting crop or the neighboring crops is limited
in the chain or seed lot. For some plant species, the standards provide for the proper treatment of the seeds
before sowing. From the research, it turns out that the analyzed seed lot corresponds to the specialized
standards so it is free from any infestation with live pests. It can be observed that data recorded after a
certain storage period show insignificant reductions in germination values in the case of wheat varieties
Glosa Baza and Glosa C1. These results, which show that after a certain storage period respectively after a
period of 12, 24, 36 and 48 months, the viability of the seeds belonging to the analyzed batches are
considerably reduced, are of great utility. Data recorded after a storage period of 36 and 48 months
respectively, show that the process of seeds aging, resulting from the decline of enzymatic activity and the
degradation of proteins is slow. At the end of this study on seed conservation, it can be said that the studied
hybrids prove a different behavior in terms of duration and storage condition. Evolution of the quality
characteristics of the wheat seeds Glosa C1 - 2015-2018 is presented in figure 3, and for Nectaria in figure
4.
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5BN0501-5GL05-08 5BN0501-5GL13-16 5VN0501-5GL01-04 5VN0501-5GL05-08

100
50
0
(%) (%) (%) (%) (%) (%) (%) (%) (%) (%)
P G U SS P G U SS P G U SS P (%) G U SS
(%)
2015 2016 2017 2018
Figure 3: Quality of seed samples, from own laboratory analyzes

Source: ITCSMS Galati, 2015 –2018
5BN0501-5GL05-08 5BN0501-5GL13-16 5VN0501-5GL01-04 5VN0501-5GL05-08

100
80
60
40
20
0
(%) (%) (%) (%) (%) (%) (%) (%) (%) (%)
P G U SS P G U SS P G U SS P (%) G U SS
(%)
2015 2016 2017 2018
Fig. 4: Quality indices of seed samples, from own laboratory analyzes
Source: ITCSMS Galati, 2015 –2018
The research carried out shows the longevity of the seeds, respectively the duration in which they maintain
their vitality, quantified, as a rule, in years or months. Since in practice they operate with seed batches, so
with populations of individuals whose characteristics vary more or less around average values, it may be
argued that the life span of seeds should be expressed as average longevity, which expresses time after
which 50% of the seeds have lost their germination capacity.
Conclusions
From the research carried out, during the preservation, the physical purity of the stored seed batches
remained the same, being an indicator that does not change over time. The paper carried out an analysis of
the factors involved in sizing the keeping of grain seeds for sowing and identifying the concrete ways of
extending the time interval after which the germination of the seed batches reaches the minimum accepted
value for the seeds intended for sowing. Four batches of certified wheat and barley seeds were analyzed,
being tracked: the species, the variety, the biological category, respectively, the status of the seed mass,
expressed by quality indices that attest the physiological properties of the monitored seed batches. The
analyzed seed batches were not subjected to thermal, chemical, phytosanitary treatments.). The
experimental resultsobtained demonstrate the potential to prolong, under controlled conditions, the viability
7062
of seeds and other high quality characteristics by reducing the batch's moisture and optimizing the thermal
parameters specific to the storage process. The results obtained can be a basis for future research on the
identification of viable models for optimizing the conditions for storing the grain cereal seeds intended for
sowing. Using the experimental methods of maintaining the storage temperature at the level of 5oC, indices
for humidity (U%), germination (G%) and health status (SS%) the presence of live pests, of the seed lots,
had values corresponding to the quality standard with small deviations as follows: The humidity of the seed
lots decreased, as a result of the specific conditioning procedures, after which, during the storage period, it
decreased year by year, as a consequence of the suitability for storage of storage spaces, which maintained
adequate conditions of the external humidity. the germination of the analyzed seed lots was maintained at
appropriate values, specifying that a slight annual decrease was observed, which, however, did not impair
their seeding qualities, the presence of live pests, in the analyzed seed lots, was kept to zero, throughout
storage, by maintaining the maximum storage temperature at 5 degrees C and the purity remained
unchanged due to the fact that the seed was packaged and sold.
Acknowledgment
„This work is supported by the project ANTREPRENORDOC, in the framework of Human Resources
Development Operational Programme 2014-2020, financed from the European Social Fund under the
contract number 36355/23.05.2019 HRD OP /380/6/13 – SMIS Code: 123847.”
References
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Axinte M., Roman, Gh.V., Borcean, I., Muntean, L.S., 2006, Fitotehnie, “Ion Ionescu de la Brad”
Publishing House, Iaşi, Romania.
Banu C., 1998, Manualul inginerului din industria alimentară, vol. I, Editura Tehnică Bucureşti.
Bâlteanu, Gh, 2003, Fitotehnie, vol. I, Editura Ceres, București.
Bâlteanu, Gh, Bârnaure, V., 1989, Fitotehnie, vol.1, Editura Ceres, București.
Bâlteanu Gh., 1998, Fitotehnie, Cereale şi leguminoase pentru boabe, Ediţia II, Editura Ceres, Bucureşti;
Mureşan T., Sipoş, Gh., Paulian, F., Moga, I., 1973, Cultura porumbului. Editura Ceres, Bucureşti;
Oancea, I., 1994, Agricultură generală, Editura Ceres, Bucureşti;
Petcu Gh., Petcu, E., 2008, Ghid tehnologic pentru grâu, porumb, floarea-soarelui, Editura Domino,
București;
Popescu, N. I., 2005, Agricultura românească după integrarea în UE, Tribuna economică, nr. 30/2005;
Roman Gh.V., Ion, V., Epure, L.I., 2006, Fitotehnie.Cereale şi leguminoase pentru boabe. Editura Ceres,
Bucureşti.
Thierer V., 1971, Determinarea calităţii produselor agricole vegetale. Editura „Ceres”, Bucureşti;
Tianu, Al., Bude, Al., 1985, Orzul, Editura Ceres, Bucureşti;
Institutul de Stat pentru Testarea şi Înregistrarea Soiurilor, Bucureşti, 2010 – 2016, Catalogul oficial al
soiurilor de plante de cultură din România,
Institutul National de Statistica NIS, 2012 – 2015, Anuarul statistic al României, online, available at
insse.ro, accessed July 12, 2019.
Ministerul Agriculturii și Dezvoltării Rurale, 2003, Norma tehnică privind determinarea și aplicarea
scăzămintelor și perisabilităților pentru semințele de consum depozitate din 12.06.2003, online, available at
www.madr.ro, accessed July 25, 2019.
7063
Considerations Regarding the Restrictive Factors on the Cultivation

of Seed Maize in the North Bărăgan Plain
Cristina STOICA (DINCĂ)
"Dunărea de Jos" University of Galaţi, Galați, Romania,
dincacristina2007@yahoo.com
Iuliana Manuela DUMITRIU (ION)

"Dunărea de Jos" University of Galaţi, Galați Romania
iuliana.ion12@yahoo.com.
Bogdan Dumitrache BRATOVEANU

“Dunărea de Jos" University of Galaţi, Galați Romania,
bogdan.bratoveanu@ugal.ro
Mihaela MUNTEANU PILA

“Dunărea de Jos" University of Galaţi, Galați Romania
mihaela_pila@yahoo.com
Mihaela Daniela URSAN (DINCĂ)

”
University of Agronomic Sciences and Veterinary
Medicine of Bucharest”, București, Romania
mihaella.dinca@yahoo.com
Silvius STANCIU
"Dunărea de Jos" University of Galaţi, Romania,
sstanciu@ugal.ro.
Abstract
In recent years, at a global level, traditional agriculture has been gradually replaced by intensive
agriculture, in which, through high-performance agricultural technologies, the plants are provided
with the optimum water, nutrients, air and carbon dioxide, light, heat, density - space for nutrition,
factors that have a direct impact on production. Corn cultivation occupies the third position
worldwide after that of wheat and rice, having a special importance in providing raw materials for the
food industry and adjacent fields, animal feed or food for the population. In Romania, maize is the
second agricultural plant as a cultivated area, assuring the domestic producers the first position as a
surface and total maize production at European level in recent years. The research carried out
concerned an analysis of the production capacity of the specialized agricultural areas in the North
Bărăgan Plain in the production of maize seeds. The cultivated agricultural areas and the agricultural
technologies used were evaluated, with emphasis on irrigated areas, respectively types and quantities
of fertilizers and pesticides used, the influence of climatic and pedological factors on the agricultural
yields. Following the research, the authors highlighted the presence of high agricultural potential in
the North of the Bărăgan Plain and the existence of specialized producers in obtaining certified maize
seeds, but the local production capacity is limited by the action of restrictive factors, especially in the
sphere of climate change, the absence of an efficient irrigation system, the fragmentation of
agricultural land and the lack of specialized labour force. The results of the research are useful to the
farmers from Brăila county, the academic environment and the officials and can be the basis for
developing local and national strategies in the agricultural sector.
Keywords: Seed maize, agriculture, Bărăgan Area, Romania
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Introduction
Maize (Zea mays L) is one of the most important agricultural plants grown worldwide, due to its high
productivity and multiple uses in the human food, livestock and processing industry. Although corn
cultivation has special requirements related to the temperature and humidity regime, which can
decisively affect the level of production obtained, the vegetation factors are important regardless of
the quantitative ratio in which each one intervenes in the process of growth and development of the
plants, and neglecting these aspects. it can have negative consequences on the production obtained
(Pandrea, 2012). The law of hierarchy of limiting factors of production and the priority of
intervention in case of restriction of some of the factors of vegetation, stated by Davidescu and
Davidescu (1992) represents a new concept regarding the conditions of intensive agriculture. When
the culture technology does not provide a plant community with the requirements related to the
environmental factors included in the genetic code (water supply, food, air, carbon dioxide, light,
heat, density, nutrition space), then the plants notice the conditions available through natural factors
or through the applied culture technology, and self-regulate the growth, development, photosynthesis,
sweating, leaf index, harvesting, under existing conditions so as to ensure the perpetuation of the
species, even if it produces only one crop. In the situation of the restrictions applied to vegetation
factors (water, food, light, temperature, etc.), a certain hierarchy of their importance is created for the
growth and development of the plants, according to the phylogenetic evolution and the environmental
conditions. According to the Code of good agricultural practices elaborated by the National
Meteorological Administration of Romania (2014), the changes in the climatic regime are in the
global context, but with the particularities of the geographical region in which our country is located.
It is noted that in Romania drought is the limiting factor that is manifested on the largest agricultural
area, especially in the Romanian Plain, South-East Moldova and Dobrogea. In normal years, in which
climatic factors are favourable, with precipitation within normal limits, maize hybrids have the
capacity to produce maximum yields. Even in the presence of stress factors, maize has the capacity to
react, through different biochemical mechanisms, and to generate important yields, so that there are
no significant losses in the obtained harvests. Corn crops can also be affected by a number of
pathogens, which have appeared and spread along with plants. Generally, the crop plants are more
sensitive than the wild ones, being forced to develop under conditions that differ from the natural
ones, from the areas of origin. The exchange of plant products, including planting material, favoured
the spread of pathogens from one geographical area to another (Ion, 2010).
The methods used for the elaboration of the paper were analysis, synthesis and comparison. The data
regarding the agricultural areas cultivated with maize and the production obtained were selected from
the data of the National Institute of Statistics NIS and from the Statistical Yearbook of Romania
(2018), Eurostat, the National Inspection for the Quality of Seeds INCS, the General Directorate of
Research Services of the European Parliament. Where necessary, data from specialized scientific
articles or specialized journals of agricultural associations in Romania were selected and used, with
an appropriate citation. The collected information was analysed, statistically processed and
graphically represented. When interpreting the results, the conclusions were correlated, where
appropriate, with specialized research in the literature.
At the European Union level, Romania ranks first as the area cultivated with maize, owning almost
30% of a total of 8.6 million hectares registered by the Member States in 2018 (Eurostat, 2019).
According to the Ministry of Agriculture, in 2018, maize production was around 15 million tonnes,
(Olescu, E. 2018,). In Romania maize can be grown with good results in almost all regions, finding
favourable climate and soil conditions on approximately 92% of the arable area. (Figure 1).
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Figure 1: The area seeded with corn at European level (2018)

Source: Authors based on Eurostat, 2019
Research by the National Institute for Agricultural Development Research Fundulea, quoted by
Timac Agro Romania, (2019) showed that maize has an increased sensitivity to drought starting from
the phase of formation of the reproductive organs and until after fertilization, especially when
forming the egg, the embryonic sack to the macro - sporulation. Resistance to drought in maize plants
is given, among others by the ability of carbohydrate synthesis, the intensity of sweating, the osmotic
pressure values of the cell juice, the section strength, the accumulation of amino acids. Depending on
the nature of the hybrid, the influence of drought is manifested by a series of qualitative changes in
the grain level, such as changes in total nitrogen content and in certain protein fractions. Research has
cited quotations from the source that showed that the reduction of leaf surface and height were more
evident than when drought and heat have acted concurrently maize plants, while the chlorophyll
content has been progressively reduced as the duration of the thermal stress increases. Romania's
National Strategy for Climate Change for 2013-2020 specifies that areas affected by frequent drought
at national level have expanded in recent decades, reaching 7.1 million ha in recent years. The south
and south-east of Romania are the agricultural areas considered the most vulnerable to the drought
(figure no.2).
Figure 2: Drought affected agricultural areas in Romania

Source: Timac Agro Romania, 2019
The analysis of climate change that has taken place in the last 20 years has highlighted extreme
phenomena, such as prolonged and severe droughts, with very high temperatures on the surface of the
soil and with hot winds, which intensively reduce the humidity in the soil. The phenomenon of global
warming in recent years is manifesting even in the short term, in recent years an increase in average
monthly temperatures has been noted (Figure 3).
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.
Figure 3: Average monthly temperatures registered in the North Bărăgan Plain (0 Celsius)
Source Authors based on SCDA data Braila, 2019
Over the last 30 years throughout the country, the effects of frequent and extended droughts,
considered by specialists as the effects of climate change, are felt. The first restrictive factor of
production in intensive agriculture (Davidescu and Davidescu, 1992) is water, when the temperature
and light intensity are ignored. In case of water shortage, the other vegetation factors, which can be
optimal, do not work. In Braila county, the water deficit has been frequently reported in recent years,
and the distribution of precipitations by months has undergone changes, having long periods without
precipitation followed by abundant precipitation in a short period of time (Stanciu et al., 2019)
(Figure no.4).
Figure 4: Average monthly rainfall in North Bărăgan Plain (litter/sqm)

Source: Authors based on SCDA Braila, 2019
This fact has made irrigation systems in this area expand, covering increasingly important
agricultural areas. In Braila county, according to the INS, in 2018 the area set up for irrigation is 377
077 ha and the on which at least one watering has been applied is 138,844 ha. From this it appears
that there are still large areas in this area that are dependent on natural precipitation and the
production is unfortunately quite limited (Figure no.5).
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Figure 5: Areas irrigated in the North Bărăgan Plain (%)

Source: Authors based on NIS, 2019
According to the National Agency for Land Improvements, 660,000 hectares were irrigated in
Romania in 2019, the largest areas being found in the counties of Braila (250,766 hectares), Ialomița
(82,675 hectares), Dolj (70,925 ha), Galaţi (53,549 ha). and Tulcea (31,745 ha) (Figure no. 6).
Figure 6: Top irrigated agricultural areas in Romania, by counties
Source Authors based on data taken from the National Agency for Land Improvements, 2019
Irrigation infrastructure is a vital component for a modern and competitive agriculture. At the level of
Braila county from the total of the irrigated area of 250 766 ha the crop with the largest irrigated area
was corn with 123 865 ha (Figure no. 7).
Figure 7: The share of maize crops, irrigated at Braila county level

Source: Authors based on data from the National Agency for Land Improvement, 2019
Another restrictive factor of maize production are the nutrients that the plant takes from the soil or
from the administered chemical fertilizers. (Davidescu and Davidescu, 1992) If the plant has
sufficient quantities of water, but it does not have the necessary nutritional resources, then it adapts,
without reaching the genetic production potential. In order to cover the needs of the agricultural crops
of nutritious substances, in the county of Brăila we can observe an increase of the quantities of
fertilizers administered in the agricultural crops in the last years (figure 8).
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Figure 8: Chemical fertilizers applied in the North Bărăgan Plain (tonnes/ha)

Source: Authors based on NIS, 2019
A third factor considered restrictive for the optimization of maize production are the physical and
hydro physical properties of the soil. A hard, compact, non-aerated soil cannot properly use the other
factors and the results are not satisfactory. In the northern Bărăgan area the soils are very fertile,
having a predominantly chernozemic soil-rich composition, with a high humus content. In Braila
county, the soils of the good and very good classes (Class I, II.) are predominant, but 11% are less
good soils that are affected by various degradation processes, which limit the maize crop production
(Stanciu et al., 2019) (figure no 9).
Figure 9: The production potential of the area, by soil quality

Source Authors based on ProBraila, 2014
The fourth restrictive factor, according to Davidescu and Davidescu V., (1992), is the production
potential of the variety, which represents the ability of the hybrid / variety to produce large yields.
According to Mihai (2016) the stability of a hybrid, which is the most important technological link,
means its ability to adapt in different areas of culture, high tolerance to various stress factors
(climatic, biological, anthropogenic, etc.), the possibility to adapt to different biochemical processes
to achieve performance. This means that in normal years, without major problems related to
environmental factors, hybrids are capable of large yields, but especially have the ability to react
through biochemical mechanisms in the presence of stress factors and to be able to generate
important yields, thus so that there are no high fluctuations in productivity. Multinational companies
produce seed in Braila county to ensure a seed base adapted to Romania's climatic conditions and to
ensure the need for a seed with high biological and cultural value for agricultural producers. In the
year 2018 in the Braila county an amount of 91,876 tonnes of maize was produced, representing over
50% of the total seeds produced at national level by the multinational companies Monsanto and
Pioneer (figure.10).
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Figure 10: Distribution of quantities of maize seed produced in Brăila County,

Source: Authors based on INCS, 2019
The fifth restrictive factor for corn cultivation is the control of weeds, diseases and pests. Drought
conditions greatly emphasize the favourable factors for the development of harmful insects specific to
the arid area. Tanymecus dilaticollis ladybug is a polyphagous insect, affecting over 30 species of
spontaneous and cultivated plants. The insect attacks both in the larval and adult stages, but the
greatest damage is caused by adults. The specimens of this species attack the seeds from the soil,
buds and stem, frequently exactly on the surface of the soil. In the case of the massive occurrence of
pests, the areas cultivated with maize are significantly affected, and if no timely measures are taken
to combat them, the crops are completely destroyed and their re-sowing or ploughing is required.
Corn crops have a strong and diverse infestation with annual and perennial mono and dicotyledonous
weeds. Analysing the consumption of pesticides over a period of 3 years in the county of Braila we
can see a significant increase in the consumption of these agricultural treatments, especially for
herbicides and fungicides. These developments are due to the mechanization of the works within the
farms and the reduction / lack of labour force engaged in agriculture (Stanciu et al., 2018) (Figure no.
11).
Figure 11: Pesticide consumption in Braila County

Source: Authors based on INS data, 2019
Conclusions
In order to ensure an adequate and plentiful production, the vegetation factors must contribute
equally, regardless of the quantitative ratio with which each contributes to the process of plant growth
and development, and neglecting one of them may have negative consequences on the crop, as well
as final harvests. The culture technology must also ensure the other factors such as light, water, heat,
etc. Providing nutrients can be done more easily compared to other vegetation factors, but that does
not mean that proper nutrition can be sufficient for plant growth and development. In the farms of
Brăila county, we can see an increase in the quantities of fertilizers in the last three years, as well as
of the quantities of pesticides used, especially herbicides and fungicides, used due to the intensive
mechanization and cultivation and the reduction of the labor force in agriculture. In the North
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Bărăgan Plain there are large areas, where due to the lack of irrigation systems the drought
phenomenon cannot be controlled, and this is one of the factors that can compromise the entire crop.
of Human Resources Development Operational Programme 2014-2020, financed from the European
Social Fund under the contract number 36355/23.05.2019 HRD OP /380/6/13 – SMIS Code:
123847.”
Acknowledgments: „This work is supported by the project ANTREPRENORDOC, in the framework
of Human Resources Development Operational Programme 2014-2020, financed from the European
Social Fund under the contract number 36355/23.05.2019 HRD OP /380/6/13 – SMIS Code:
123847.”
Acknowledgments
This work is supported by the Project ANTREPRENORDOC, in the framework of Human Resources
Development Operational Programme 2014-2020, financed from the European Social Fund under
the contract number 36355/23.05.2019 HRD OP /380/6/13 – SMIS Code: 123847.
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schimbărilor climatice actuale și previzibile, (online), available at https://www.icpa.ro/
documente/CodBPA_SchClimatice_ADER111.pdf, accessed September 25, 2019.
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https://www.anif.ro/comunicare/informatii/irigatii, accessed September 20, 2019.
Agrointeligenta, 2019, Topul județelor unde se irigă cele mai mari suprafețe de teren agricol,
(online), available at https://agrointel.ro/122237/topul-judetelor-unde-se-iriga-cele-mai-mari-
suprafete-de-teren-agricol, accessed September 22, 2019.
Davidescu D., Davidescu V., 1992, Protecția chimică în agricultură, Academia Romana Publishing
House, București.
Eurostat, 2019, Green maize by area, production and humidity, (online), available at
https://ec.europa.eu/eurostat/web/products-datasets/-/tag00101, accessed September 21, 2019.
Guvernul României, 2013, Strategia Națională a României privind Schimbările Climatice pentru
perioada 2013-2020, aprobată prin H.G. nr. 529/2013, (online), available at http:// mmediu.ro/app/
webroot/uploads/files/ Strategia-Nationala-pe-Schimbari-Climatice-2013-2020. pdf, September 25,
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http://statistici.insse.ro:8077/tempo-online/#/pages/tables/insse-table, accesed September 30, 2019.
Ion, V., 2010, Fitotehnie, online, available at http://www.horticultura-bucuresti.ro /images/pdf/

Fitotehnie.pdf, accessed September 29, 2019.
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Romania/Catalog_Pioneer_2016.pdf
Olescu, E., 2018, Cel mai bun an agricol din istoria noastră. România -campioană europeană la
porumb, Bursa.ro (Octomber 31, 2018), (online), available at https://www.bursa.ro/cel-mai-bun-an-
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7072
Religion, Gender and Political Choice of Novice Voters

in Simultaneous General Election
Suryan A JAMRAH,
Religious Studies, Faculty of Ushuluddin,
State Islamic University of Sultan Syarif Kasim Riau, Pekanbaru, Indonesia
Email: suryan.jamrah@uin-suska.ac.id;
Ahmad JAMAAN
International Relations, Faculty of Social and Political Sciences,
University of Riau, Pekanbaru, Indonesia
ahmadjamaan@gmail.com
Abstract
This paper aims to see what and who influences the choice of novice voters and who the president of their
choice is in simultaneous election. In this paper, it also reveals how their attitude towards the election of
legislators. Based on data from 311 respondents aged 17-21 years with different sex and religion
backgrounds, women showed a significant influence on the vote acquisition of presidential candidate
Prabowo Subianto-Sandiaga Uno, especially those who were Muslim. While political parties do not have
a strong influence on the choice of novice voters in electing either president or legislative members.
Parents are also able to play a role in influencing their children's choices, especially in choosing members
of parliament. This study also found apathetic attitudes of novice voters in the election of legislative
members on the grounds that in religion there was no guidance in this regard.
Keywords: religion, gender, political choice, novice voters, simultaneous general elections
Introduction
The holding of simultaneous general elections for the first time has left much controversy. Starting from
the organizers, the manipulation of the calculation system, the calculation that has not done yet when the
final results are announced by the General Elections Commisions or KPU, the deaths of hundreds of The
Voting Organizing Group (KPPS) officers to the lawsuit regarding the election results to the
Constitutional Court. Simultaneous General Elections were held for the first time in Indonesia on April
17, 2019. Based on Law No. 7 of 2017 stipulates that the holding of general elections for members of the
DPR, DPD, DPRD and the president will be held at the same time.
The General Election Commission (KPU) 2019 noted that there were at least 192.83 million people
included in the Second Results of the Permanent Results Voter Register (DPTHP-2). As for the number
of novice voters, no exact figure is found, but it is estimated at 14 million. Even in the 2014 election
socialization in Pekanbaru, the KPU itself stated that the novice voters reached 20-30 percent of the total
voters. No wonder then that those who are often referred to as Z generation have become one of the
intense target groups to be influenced by political contestants. Novice voters can generally be interpreted
as a group of people who already have a minimum age and are entitled to vote for the first time in general
elections whether president, legislative or regional head. That right is proven by the ownership of an
identity card in the form of an Identity Card (KTP) or ever or already married even though has not 17
years old yet. Besides included in this group are new retired military / police, but it is not part of this
study.
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They or the novice voters are at a young productive age between 17 to 21 years, educated because most of
the high school and students, familiar with the internet and social media. As an educated young
generation, novice voters have a strong idealism and critical attitude in which this becomes their initial
phase to determine the future of state administration. This group is often involved as a mobilizer in
providing education, understanding, and advocating for the General Election for the community members
in their environment. Their role is primarily to explain that their voting rights can be distributed critically,
intelligently, and with quality.
The critical, intelligent and quality levels of novice voters are usually generated from political education
socialized by election organizers, political parties, youth and community groups, government agencies
and local or international nongovernmental organizations. It's just that with easier access to information
technology, internet networks supported by a variety of social media, it is increasingly easy for novice
voter groups to gain knowledge and criticize the conditions that occur in the field. This condition opens
up opportunities for them to seek information independently from various sources of referrals and then
make their own decisions on the summary of information they get.
A number of studies on the elections of novice beginners can be seen from various topics such as political
knowledge and the choice of women in parliament (Prihatini, 2018), the use of social media as a media
campaign against novice voters (Abdillah, 2014), (Saraswati, 2018), apathy of young people towards
Elections (Yew-foong, 2019). While voters themselves have special preferences for their choices (Toplak,
2017), (Liddle and Mujani, 2007), and also how voters behave (Strachan, 2014), (Higashikata and
Kawamura, 2015).
Basic Theory
Many things affect and determine why someone makes his choice. Some are influenced by the mass
media or are caused by factors of closeness, popularity, physical, relatives' recommendations,
advertisements, background, parties, vision and mission (Emula et al., 2009). However, it turns out they
did not understand politics well enough. For this young generation, media such as television, newspapers
and online media are important means of socialization that they use as beginner voters in obtaining
information and forms of political communication (Adi Soeprapto, Susilasti DN, 2015).
As a group that has influence in determining the outcome of choices in general elections, novice voters
have a way to understand and access information so that they make their choices on certain choices.
According to Lau and Redlawsk, the decision-making model is to understand how voters obtain
information and use that information in making decisions where the process of making these choices can
lead them to good or bad decisions. There are four models of decision making, namely rational choice,
early socialization and cognitive consintency, fast and frugal decision making and bounded rationality
and intuitive decision making (Lau, Richard R and Redlwsk, 1966).
A person's attitude to a condition, event or object is also influenced by one's perception. Thus the
perception gives a big influence on the choice in the general election which will be decided by the voters
(Addasuqi, 2015). Perception can be a manifestation of a real condition which is then reinforced by
human sensory stimuli such as sight, hearing, speech, touch, smell, or physical processes.
In the Indonesian dictionary it is stated that perception is a direct response (acceptance) of something,
also the process of a person knowing things through his five senses. Perception is a process that starts
from vision to form responses that occur in individuals so that individuals are aware of everything in their
environment through their senses (Hikmah, 2013).
The way a person sees, translates, gives meaning, abstracts and responds to certain objects that are
obtained through sensing, processing, and interpreting them can also be called perception. Perception can
also be called as any translation of the five senses to the object in a conscious state even though it gives
7074
different results. In the psychological approach, perception has two concepts namely when there is a
process of stimulus or stimulation that is received by the senses and there is a transformation from this
low level of information into information to a higher level. For example, recognize the object by looking
at its shape. Second, when the process of information related to one's concepts and expectations is based
on prior knowledge and selective mechanisms or attention that fills perceptions.
Prior Research
The study, titled "Political Participation and Voter Behavior in the 2014 Election", revealed that voters
who adhere to worship according to their religion do not always have an influence on the choice of
political parties, even though their religious backgrounds influence voter choice. Likewise, the promise of
material assistance does not affect the choice of voters except those with low education. Researcher also
revealed that the people closest to his group had an influence on what he would choose, especially those
who lived in rural areas. Political discussion in the family as well as information from television influence
voter choice. Finally, low loyalty to parties makes it easy for voters to move to other parties (Emilia and
Ichwanuddin, 2015).
While Agung Suprojo in his research concluded that the level of voter turnout in the 2014 election did not
show satisfaction standards because the sensitivity and understanding of the parties participating in the
election were not understood. The reasons for this include their higher apathy as a result of political
reporting highlighting more cases of violations of the political elite on ethical and legal provisions. The
second cause is because novice voters are not interested in political information via television and the
internet). Third, novice voters have never received political education or outreach regarding election
implementation (Suprojo, 2014).
Yusa Djunaidi examined the effectiveness of the 2014 Election Political Socialization by the KPU, which
revealed the importance of political socialization to support the successful implementation of the
elections. Socialization will suppress the number of apathetic groups or white groups (abstentions),
provide inclusion of social values or norms and minimize black campaigns. The political socialization
process of the legislative election by the KPU to a number of campuses, schools, and community groups
was considered effective because it was able to suppress the number of abstentions (Djuyandi, 2014).
However, there are a number of barriers to socialization to increase voter participation such as funding
that is contaminated with political interests, limited outreach, lack of participation of social organizations,
and inaccurate voter data (Muslimah, 2016).
In another study it was found that the perception of novice voters on the presidential and vice presidential
political campaign advertisements on television was influenced by the vision and mission and background
of the candidate figure. There are two political advertisements, one of which is negative advertisement
which is attacking political opponents and positive advertisement. The existence of negative ads makes
the perception of the novice voter more rational than positive advertising. Aspects of the background of
the performance of candidates are prioritized by the voters and not only passively accept the advantages
of the candidates as presented in positive advertising. Positive advertising is also more accepted by voters
than negative advertising (Triastari, 2011).
There are several factors supporting the political participation of novice voters in elections. First factor is
with regard to the reception of political stimuli, especially from the mass media or electronics. The
second concerns the political system and the party system in which an individual lives. The conditions of
the regions are safe and conducive, encouraging their participation in elections, of their own free will
without the direction of other parties. Here, their participation was hampered due to busy daily activities,
feelings of inadequacy, and prohibitions on the part of the family (Sukma and Wardhani, 2018).
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Other research results indicate the popularity of the candidate can influence the choice of novice voters.
The higher the popularity of an object the tendency for beginner voters to choose it is also higher,
although at a sufficient level (not too influential) because many other factors can influence voter behavior
(Rubyanti, 2009). In this study, it was also revealed that the environment influences novice voters in their
choice. While the main reason they chose was the vision and mission of the supporting political parties.
The candidate's personal background also determines the candidate's victory.
On the contrary, M Daud assessed that the tendency of voter behavior reflects the existence of rational
choice patterns towards lottery objects, namely political parties, presidential candidates, candidates for
governors, parliamentary candidates, and mayors / regents. This tendency even leads to the pattern of
political transactions because the choice of certain objects is made when voters get economic benefits for
individuals, groups, and the environment (M. Daud, 2015).
The last one is research on traits with quantitative analysis shows that there are no personal traits that are
able to distinguish between voters of presidential candidates so that they cannot be used to point out
differences in the behavior of novice voters (Priandari, 2015).
Method
In this research, a quantitative approach was used. Data was collected through the use of questionnaires
with simple random sampling method. Novice voters who serve as respondents were focused specifically
on college students regardless of their university background, the field of science they are taking, the
semester or faculty in which they are studying. Their origin and background in the economic condition of
their families were also not used as a basis for selecting them as respondents. However, respondents were
specifically represented by those from two state universities in Riau, namely Riau University and State
Islamic University of Sultan Syarif Kasim Riau. Respondents were also not determined based on their
specific religion or beliefs. However, they were grouped according to religion (Muslim and non-Muslim)
and gender. This paper does not specify the number of respondents who are Muslim or non-Muslim
specifically, neither does their gender. The number of those gathered based on gender and religious
background was more emphasized to those who are willing to fill out the questionnaire. Those who are
non-Muslims all come from Riau University.
The data was primary which obtained through the use of questionnaire distributed to 311 first-time voter
respondents before the implementation of the first simultaneous election in Indonesia by focusing on the
tendency of novice voter choices which were then differentiated based on two categories namely gender-
based preference and trends based on their religious identity and beliefs (Muslim and non-Muslim). The
selection of these two indicators was carried out on the basis of a focus group discussion (FGD) approach
by presenting a number of academics in the fields of government, politics, young generation observers
and researchers on general elections.
Result and Discussion

After the simultaneous elections were announced, four months after the KPU it turned out that they were
not able to complete the recapitulation of the polling station results (TPS). The legislative or DPRD
election results are still lacking from the C1 of 50 thousand polling stations. While the Presidential
Election still lacks C1 data of 5 thousand polling stations. This condition was also affected by the massive
loss of life of around 700 Election organizers, especially at the KPPS level and the dismissal of a number
of Election organizers and supervisors.
Related to the inauguration also left a legal problem that resulted in the loss of the legitimacy of the
president and vice president of the Constitutional Court's decision. After the 1945 Constitution, Article
6A paragraph 3 clearly states that the inauguration of the inaugurated presidential and vice presidential
7076
pairs must get more than fifty percent of the votes in the general election with at least twenty percent of
votes in each province. While the results of the couple's vote were announced by KPU as the largest vote
collector, there were two provinces, Aceh and West Sumatra, whose votes did not reach 20%. Even
though the inauguration becomes an issue, whether the pair of candidates who have been sued but
declared victorious by the KPU can be inaugurated or not, in fact at this time, Joko Widodo-Muhammad
Makruf has been sworn in.
This study revealed the diversity of age, origin, religion, parents 'occupation and also their parents'
income. From the age aspect, it was found that novice voters had an age range between 17 to 22 years.
Based on gender, novice voters were dominated by 218 women or 70% and 93 men or 30%. Of these, the
total number of Muslim female novice voters is 191 people or 61.5% and non-Muslim women 27 people
or 0.86%. While Muslim men were represented by 79 people or 25.4%, while non-Muslim men were 14
people or 0.45%.
Table 1: Characteristics of Novice Voters n = 311
Characteristics of n % Muslim % Non Muslim %

Respondents
Male 93 30 79 25.4 14 0.45
Female 218 70 191 61.5 27 0.86
Total 311 100 270 86.9 41 13.1
In accordance with their gender, the majority of novice voters are women. This condition illustrates that
the active role of women is very significant in the success of the implementation of simultaneous
elections, especially aspects of active participation. Besides they are a highly educated intelligent group
that actually has a sensitivity and concern for the conditions of democracy. Based on BPS's report on the
population of Indonesia in 2018, the number of Indonesian women is smaller than that of men. The
composition of women to men is 49.76% compared to 50.24% (BPS, 2018).
Even so, the composition of novice voters has given an information that young women are more
numerous than men as active voters in simultaneous elections. There are several factors that determine
and influence the choice of president and parliamentarians by novice voters including the media,
campaigns, parents, and the election itself. There are two sources that dominantly influence the choice of
novice voters, namely their own knowledge and the media. Own awareness and knowledge are the most
influencing factors for novice voters to determine who the president and vice president they want with a
total of 65% or 201 novice voters. The media factor apparently only affected 63 novice voters by 20%, as
presented in table 2.
While political parties supporting each of the two presidential candidates do not have much influence on
the choice of young people. Only 18 of the respondents or 6% are affected by the campaign of the party
supporting the pair of candidates for president and vice president. It is not much different from the 17
other novice voters or as much as 5% who are more influenced by their parents to choose a particular
partner. Thus the effectiveness of the role of political parties in carrying out the function of socialization
of the presidential candidate pair of their support to the public becomes questionable. Although friends
also give influence but the amount is not significant.
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Table 2: Factors which are more influential on the choice of novice voters in the
Presidential Election
Female Male
Choice of
Total % Muslim % Non % Muslim % Non %
Respondent
Muslim Muslim
Media 63 20 43 20 3 11 16 20 1 7
Political
Campaign 18 6 15 6 1 4 2 2 - -
Party
Parents 17 5 11 5 1 4 5 6 - -
Friends 6 2 2 2 - - 2 3 2 14
Own choice 201 65 118 65 22 81 51 65 10 72
Others 6 2 2 2 - - 3 4 1 7
As shown in table 2, novice voters have their own preferences over who will be their choice. Gender and
religious background have no major influence on the choices because the apparent tendency is more
evenly similar. The dominance of choosing on their own preferences is quite relevant to the next question
related to what influences their choices as presented in table 3. Novice voters are interested in the track
record and vision and mission that the pair of candidates for president and vice president have made
compared to party factors and commitment the candidates. There were 117 novice voters or 38% who
expressed interest because of the candidate's track record. It is not much different from 107 or 34% of
other beginner voters who are influenced by vision and mission. While only 48 people or 15% made the
ideology factor and the party supporting them influence their choices and 37 respondents said they were
influenced by clear commitments. The ideology of the bearer party and the commitment of the candidate
pairs only affects Muslim novice voters, both men and women. None of them are under pressure from
their families to choose or not choose a particular partner.
When it is examined further, none of the non-Muslim novice voters who were influenced by the bearer
party in the presidential election. They are more likely to be influenced by the track record which
represented by 32 respondents and the vision of the candidates which represented by 9 respondents.
While the existence of supporting political parties apparently did not have a major influence on non-
Muslim voters to determine the choice of president and presidential candidates. This is reasonable
considering the coalition of parties supporting the presidential and vice presidential candidates is flexible
and can switch quickly. No coalition of bearers survived permanently.
Table 3: Factors influencing the choice of novice voters
Female Male
Choice of
Respondent
Muslim Muslim
Vission and
107 34 68 36 4 15 30 38 5 36
Mission
Commitment 37 12 24 12 - - 13 16 - -
Track
117 38 63 33 23 85 22 28 9 64
Record
Family
- - - - - - - - - -
Pressure
Idelogy and
48 15 34 18 - - 14 18 - -
The bearer
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Party
Others 2 1 2 1 - - - - - -
The majority of Muslim women tend to choose the Prabowo-Sandi couple over the majority of Muslim
men and the majority of non-Muslims. Table 4 reveals that the pair of president and presidential
candidates chosen by the novice voters are more dominated by the Prabowo Subianto-Sandiaga Uno than
Joko Widodo-Makruf Amin. There are 164 or 54% of the voters of this couple are represented by 154
Muslim women. There are three non-Muslim women, as many as six novice male Muslim voters and a
non-Muslim male who makes the same choice. The majority of non-Muslim voters made their choice on
the Joko Widodo-Makruf Amien pair. There is a strong tendency seen in the novice voters from among
Muslim men. The majority of them dropped their choice on the incummbent couple who were carried by
the ruling party that are PDIP, Golkar, PKB, PPP, Nasdem, Hanura. Some of the novice voters, as many
as 11%, are reluctant to mention who their preferred president and vice presidential partner is.
Table 4: Preferred President Candidate Pair
Female Male
Choice of
Respondent
Muslim Muslim
Joko
Widodo-
111 36 21 11 21 78 61 77 8 57
Makruf
Amin
Prabowo
Subianto-
164 53 154 81 3 11 6 8 1 7
Sandiaga
Uno
Do not want
36 11 16 8 3 11 12 15 5 36
to mention
In table 5 it is revealed that there are different actors who influence the choice of novice voters in the
election of DPR / DPD and DPRD members with their choice of presidential and vice presidential
candidates. Actors who influence them become more varied. Parents have a significant role in influencing
their children's choices, just like the social organizations they are affiliated with. Conversely, political
parties still do not have as much influence as in electing presidential candidates. There are as many as
36% or 111 novice voters who claim their parents give a role in determining the choice of their
candidates. It's just as many as 47 or 15% of Muslim voters say that media influences their choice of
parliamenters. There are 64 voters or 21% who are consistent that the choice they made in the legislative
election is based on their own knowledge preferences. Friends also give influence, although not too
significant, but its position exceeds the influence of political parties.
Table 5: Factors influencing the choice on legislative candidates
Female Male
Choice of
Respondent
Muslim Muslim
Media 47 15 31 16 - - 16 20 - -
Political
23 7 21 11 - - 1 1 1 7
Campaign
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Party
Parents 111 36 37 19 20 74 45 57 9 65
Friends 26 8 4 2 6 22 14 18 2 14
Own Choice 64 21 62 33 - - - - 2 14
Mass
16 5 16 8 - - - - - -
Organizations
Others 24 8 20 11 1 - 3 4 - -
However, there are inconsistencies between who influences and the factors that influence the choices of
novice voters. If a political party does not become the dominant actor in influencing the choice of novice
voters in the presidential and legislative elections, the party's ideology, track record, party's vision and
mission as well as party commitments will instead become their majority choice. It can be emphasized
that the information obtained by the novice voters on political parties tends to be influenced by their own
thoughts, knowledge and perceptions of the parties that compete for the legislative seats.
In table 6, party ideology is used as the knowledge base for voting, represented by 137 beginner voters or
44%. All novice voters groups whether Muslim or non-Muslim, male or female agree that party ideology
is a factor influencing what party will be chosen with each different level of percentage. The different
thing about the election of presidential candidates is the presence of family pressure to choose certain
parties. This was experienced by 13 female Muslim novice voters or 4%, as many as 6 Muslim women
and men and a non-Muslim man. While non-Muslim women do not get pressure from their families. This
condition emphasizes the influence of the closest people will more or less affect the choices available.
Table 6: Factors influence choice
Female Male
Choice of
Respondent
Muslim Muslim
Vission and
42 14 28 15 4 15 10 13 - -
Mission
Commitment 29 9 22 11 3 11 4 5 - -
Track Record 57 18 38 20 8 29 9 11 2 14
Family
13 4 6 3 - - 6 8 1 7
Pressure
Party Ideology 137 44 82 43 8 30 38 48 9 65
Others 33 11 15 8 4 15 12 15 2 14
Although novice voters state the factors for voting in legislative elections are influenced by party
ideology, it turns out they have other reasons not to vote for legislative candidates. Religion is the reason
why they do not vote for political parties. A number of novice voters from all four groups said they did
not vote for parliamenters because their religion did not provide guidance for choosing parties. Yet when
the presidential and vice presidential elections they expressed the attitude to vote. Only 32% represented
by 100 novice voters said they voted for the legislature, the remaining 55% or 171 people did not vote at
all and 40 people or 13% did not express their attitude. There were 94 (30%) voters who stated that the
legislative election had no religious guidance so there was no need to vote to be quite surprising. The
reason is in table 6, the influence of party ideology is a very dominant influence in determining the choice
of novice voters. Even as many as 77 people (25%) thought they would not vote for members of
parliament because they did not meet their expectations. Both Muslim and non-Muslim groups, men or
women, some of them behave like this. Whether those who are Muslim or not, make the argument for the
absence of religious guidance to elect members of political parties as their representatives in parliament
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as a basis for them to be reluctant to elect legislative members. Here there is ambiguity in the attitude of
the novice voter.
Table 7: Selecting Legislative Candidates
Female Male
Choice of
Respondent
Muslim Muslim
Choosing
and Keeping 81 26 51 27 6 22 24 30 - -
the Choices
Choosing
and mention 19 6 10 5 1 4 6 8 2 14
the choices
Not choosing
because the
choices are 77 25 49 26 9 33 16 20 3 22
not fit with
her/him
Not choosing
because
there is no 94 30 59 31 7 26 25 32 3 21
religious
guidance
Others 40 13 22 11 4 15 8 10 6 43
Conclusion
The first simultaneous elections in Indonesia have resulted in the inauguration of Joko Widodo and HM
Makruf Amin as president and vice president. This pair has also arranged a cabinet member to include
Prabowo Subianto as Coordinating Minister for Political, Legal and Security Affairs. If looking back,
Prabowo himself was previously their rival in the simultaneous Election. Novice voters are potential
generations who have a role in determining the direction of leadership in Indonesia. This paper proves
that novice voter groups are difficult to be influenced by other parties in determining their choices. The
mass media, political party campaigns, the intervention of parents or friends did not have a big influence
on their choice of presidential pairs compared to their own choices. Both Muslim and non-Muslim
women or Muslim and non-Muslim men tend to make choices of their own choice.
Muslim female novice voters have a tendency to make choices to the presidential and vice-presidential
candidate pair Prabowo Subianto-Sandiaga Uno. While the majority of non-Muslim women and male and
Muslim groups are more dominant in the choice of the pair number 01.
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E-Learning Adoption in the UAE:

A Case Study of the Higher College of Technology
Saeed Alblooshi
Faculty of Technology Management and Business

Universiti Tun Hussein Onn Malaysia
86400 Parit Raja, Batu Pahat, Johor.
sayeedalblooshi6@gmail.com
Nor Aziati Binti Abdul Hamid
Faculty of Technology Management and Business

Department of Manufacturing and Operating Management
Universiti Tun Hussein Onn Malaysia
86400 Parit Raja, Batu Pahat, Johor.
azati@uthm.edu.my
Abstract
Electronic learning is fast becoming a crucial aspect of learning in higher institutions of learning. Just
as in any other technology, there are important factors that affect users’ behavioural intention to
adopt e-learning. The unified theory of acceptance and use of technology (UTAUT) identified
performance expectancy, effort expectancy, social influence and facilitating conditions as some of the
factors that may influence the behavioural intention and actual use of a technology. Therefore, the
purpose of this study was to examine the direct and indirect effects of the four determinants of
technology adoption on student’s behavioural intention and actual use of e-learning in HEIs in the
UAE. Using a quantitative approach and a survey research design, data was obtained from a sample
of 406 students selected from the Higher Colleges of Technology in the UAE. Data was analysed
using the partial least squares structural equation modelling. Findings from the study revealed that
performance expectancy, effort expectancy, social influence, and facilitating conditions positively
influence student’s behavioural intention to use e-learning. Furthermore, student’s behavioural
intention to use e-learning mediates the relationship between the four dimensions of technology
acceptance and student’s actual use of e-learning. Interestingly, facilitating conditions negatively
influenced students’ actual use of e-learning. This implies the provision of the operational and
technical resources including the required knowledge and skills needed to use a system successfully,
does not directly translate into the actual use of the system especially if these resources are not
specifically tailored to the age and previous experience of the students. Consequently, the study has
contributed to supporting the propositions of the UTAUT model in the context of higher education
and in the UAE.
Keywords: E-Learning; Unified Theory of Acceptance and Use of Technology (UTAUT); UAE
Introduction
Technology adoption has become a crucial aspect of the integration of educational institutions. The
rapid increase in the adoption of information and communication technologies by educational
institutions is an indication of the perceived benefits educational institutions have of these resources
in aiding them to carry out academic and administrative roles (Yakubu & Dasuki, 2019). However,
there continues to be a growing interest on how to improve the adoption and application of these
technologies for teaching and learning (Suki & Suki, 2017). Traditional teaching approaches such as
lecturing, tutorials and mentoring are some of the principal approaches used for teaching and learning
in universities. However, more universities are now investing massively in developing learning
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technologies (Mahdizadeh, Biemans, & Mulder, 2008). Personal computers, the internet as well as
other technology-based learning tools are now common resources used in the universities, as
academics and students continue to use them to communicate, collaborate, and carry out research in a
system generally referred to as computer-assisted learning, virtual learning, electronic or e-learning
(Ozkan, Koseler, & Baykal, 2009). E-learning has become a necessity to meet the challenges posed
by the development of information technology and the propensity for increased access to knowledge.
There is much examination of the effects of communication and information technology (IT) on
learning. Creative and innovative strategies are now being sought for in a bid to enhance a higher rate
of learner’s success and achievement in higher institutions of learning.as well as the goal of creating
a tailored learning environment wherein learners are able to pursue continuous learning, in a
motivated manner, with the use of various technology tools.
Venkatesh et al. (2003) proposed the Unified Theory of Acceptance and Use of Technology
(UTAUT) to explain the usage and the behavioural intention to use technology. In the model, they
proposed and identified four direct determinants of behavioural intention and use of technology, i.e.
performance expectancy, effort expectancy, social influence, and facilitating conditions. Suki and
Suki (2017) reports that the model has been scrutinized in wide-ranging educational environments
such as virtual learning technologies (Šumak, Polancic, & Hericko, 2010), cloud-based virtual
learning environments (Hew & Kadir, 2016), desktop web-conferencing (Lakhal & Khechine, 2016)
and interactive whiteboards (Šumak & Šorgo, 2016; Tosuntaş, Karadağ, & Orhan, 2015), classroom
instruction (Ifenthaler & Schweinbenz, 2013) and Moodle learning management system (Hsu, 2012;
Tarhini et al., 2017). Although previous studies have documented the factors that stimulate and
impede students from reaping the benefits of e-learning, there is little known about the factors that
influence the adoption of e-learning in HEIs in developing countries especially from a student
perspective, It is, therefore, important to note that many of these studies have focused on developed
country context, while the few that have been centred on developing countries have concentrated on
the provision of the infrastructure and not how the technology has been adopted (Macharia, 2011).
Hence, examining e-learning adoption becomes a critical priority for HEIs. Thus, the propositions of
the Unified theory of Acceptance and Use of Technology UTAUT model have been severally tested
in western and developed nation context, but there exist inadequate empirical validations of the
propositions of the UTAUT model in non-western context as well as in countries categorized as
developing nations. Therefore, this study would determine the direct effects of the four determinants
of e-learning adoption on the behavioural intention to use e-learning from a students’ perspectives.
Furthermore, the study would also examine the mediating effect of students’ behavioural intention to
use e-learning in the relationship between the four determinant of e-learning adoption and the actual
use of e-learning.
Literature Review
The Unified Theory of Acceptance and Use of Technology Model (UTAUT)

Unified Theory of Acceptance and Use of Technology (UTAUT) concept attempts to clarify the
intention of using information systems follow-up use behaviour. The theory believes that the
performance of key structures expected value, expected workload; social inspiration and favourable
environments are all through to the elements of purpose and use performance of information systems
(Venkatesh et.al. 2003). Venkatesh et al. (2003) proposed sex, age, involvement and age voluntary
procedure mitigates the influence of the four key structures on use intentions and performance.
Performance expectancy according to Venkatesh et al. (2003) is defined as “the degree to which an
individual believes that using the system will help him or her to attain gains in job performance” (p.
447). Venkatesh et al. (2003) asserts that performance expectancy is the strongest predictor of
behavioural intention. Several scholars have found this to be valid in certain research context, while
others have also found other constructs to be the strongest determinants of behavioural intention in
other context. For example, Šumak and Šorgo (2016) reported that performance expectancy has a
positive and significant effect towards the behavioural intentions of teachers to use interactive
7085
whiteboards. Alternatively, Raman et al. (2014) reported that effort expectancy the strongest
predictor of behavioural intention.
Effort expectancy is defined as the ease associated with the use of a system (Venkatesh et al., 2003).
It is also a strong predictor of behavioural intention at the initial stage of using the system. According
to Yakubu and Dasuki (2019) effort expectancy becomes less significant with increased use of the
system as the users will have been better accustomed to using the system. Prior studies have shown
that effort expectancy positively affects the behavioural intentions to use a system as well as the
actual usage of a system or technology (Suki & Suki, 2017; Šumak et al., 2010; Tosuntaş et al., 2015;
Venkatesh et al., 2003; Yakubu & Dasuki, 2019).
Social influence is described as an individual’s perception that those who are important to him/her
believe that he/she should use the system (Venkatesh et al., 2003). In other words, social influence is
the extent to which an individual perceives that important social groups or elements believes that
such individual should use the new system. In this study, social influence refers to the influence and
support from people such as friends, peers, social cycle, educators, management of universities as
well as academic administrators to use e-learning as part of their learning tools. Yakubu and Dasuki
(2019) assert that social influence had a direct effect on students’ behavioural intentions with
voluntariness of use moderating the relationship between social influence and behavioural intention
to use the system.
Facilitating conditions: is defined as the degree to which an individual believes that organizational
and technical infrastructure exist to support the use of a system (Venkatesh et al., 2003). Hence, in
this study facilitating conditions is regarded as the accessibility of an appropriate learning
environment and infrastructure within the university that can foster the use of the technologies being
considered. Such conditions include individuals' knowledge and skills, and an environment that
stimulates and supports students' willingness to use e-learning. In the original UTAUT model,
Venkatesh et al. (2003) reports that facilitating conditions was one of the major determinants of
behavioural intentions.
The UTAUT framework postulates that performance expectancy, effort expectancy, social influence
and facilitating conditions influences individual’s behavioural intentions to use a technology
(Venkatesh et al., 2003). According to Venkatesh et al. (2003) behavioural intention is described as
an individual’s likelihood to participate in a specific behaviour. In other words it is a person’s
subjective probability that he or she will perform the behaviour in question (Venkatesh et al., 2003).
In the context of this study, behavioural intention was conceptualized as the subjective probability
that students will use e-learning as part of their learning. Yakubu and Dasuki (2019) opine that
behavioural intention gauges the strength of an individual’s commitment to engage in a particular
behaviour.
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Framework of the study
Performance
expectancy
H1
Effort H2
expectancy Behavioural H6-H9 Actual use of
H3 intention e-learning
Social H4
influence
H5
Facilitating
conditions
Figure 1: Framework of the study
H1: performance expectancy has a positive effect on student’s behavioural intention to use
e-learning.
H2: effort expectancy has a positive effect on student’s behavioural intention to use e-
learning.
H3: Social influence has a positive effect on student’s behavioural intention to use e-
learning.
H4: facilitating conditions has a positive effect on student’s behavioural intention to use e-
learning.
H5: facilitating conditions has a negative effect on student’s actual usage of e-learning, if
age and experience are not moderated.
H7: behavioural intention mediates the relationship between Performance expectancy and
actual use of e-learning.
H7: behavioural intention mediates the relationship between effort expectancy and actual
use of e-learning.
H8: behavioural intention mediates the relationship between social influence and actual use
of e-learning.
H9: behavioural intention mediates the relationship between facilitating conditions and
actual use of e-learning
Methodology
The propositions of the UTAUT model have been severally tested in western and developed nation
context (Salloum & Shaalan, 2018; Suwaidi, 2019). However, there exist inadequate empirical
validations of the propositions of the UTAUT model in non-western context as well as in countries
categorized as developing nations. Hence, the purpose of this study was to examine the direct and
indirect effects of the four determinants of technology adoption on student’s behavioural intention
and actual use of e-learning in HEIs in the UAE. Using a quantitative approach and a survey research
design, data was obtained from a sample of 406 students selected from the Higher colleges of
technology in the UAE. Therefore, SmartPLS 3.0 Structural Equation Modelling software was used
to explore statistical relationships among the items of each factor and between the factors of
independent and dependent variables
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Results
Convergent Validity and Reliability

Convergent validity is the degree to which the indicators of a specific construct converge or share a
high proportion of the variance for that construct (Hair, Ringle, & Sarstedt, 2011). In other words, it
refers to the level by which a measure relates positively with other measures within the same
construct, i.e. the degree to which a latent construct explains the variance of its indicators. According
to Hair et al. (2014a), convergent validity can be assessed using the factor loadings, composite
reliability (CR) and the Average Variance Extracted (AVE). To achieve convergent validity, each
construct should have an AVE of ≥ 0.50, and the factor loadings should be preferably greater than
0.70. Although Byrne (2013) suggest that factor loadings of 0.50 are acceptable if the summations of
the loading results in high loading scores contributing to AVE scores of 0.50 or greater. Table 4.13
shows the factor loadings and AVE of each of the constructs in the study. All measured constructed
had AVE scores greater than the threshold value of 0.50 and factor loadings ranging from 0.565 to
0.875 consecutively, indicating that convergent validity had been established (Byrne, 2013; Gefen,
Straub, & Boudreau, 2000).
Table 1: Convergent Validity and Reliability
Cronbach’s
Construct Items Loadings AVE CR
alpha
PE1 0.813
PE2 0.653
Performance expectancy PE3 0.751 0.546 0.855 0.788
PE4 0.863
PE5 0.575
EE1 0.820
EE2 0.648
Effort expectancy EE3 0.829 0.552 0.859 0.795
EE4 0.686
EE5 0.713
SI1 0.730
SI2 0.619
Social influence SI3 0.776 0.514 0.840 0.798
SI4 0.751
SI5 0.699
FC1 0.648
FC2 0.694
Facilitating conditions FC3 0.786 0.505 0.859 0.774
FC4 0.655
FC5 0.754
BI1 0.813
BI2 0.753
Behavioural intention BI3 0.828 0.532 0.849 0.776
BI4 0.614
BI5 0.613
AU1 0.565
AU2 0.875
Actual use of e-learning AU3 0.676 0.54 0.852 0.791
AU4 0.809
AU5 0.710
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Reliability is the extent to which an instrument is free from random errors and the extent to which
such instrument produces consistent results if repeated in other settings or context (David & Sutton,
2011; Pallant, 2011b). This implies that reliability and error are related, in the sense that the higher
the error, the less reliable an instrument is and vice versa. In this study, the internal consistency
reliability test and composite reliability were used to determine the reliability of the scales. Table 1
shows the composite reliability scores and Cronbach alpha values for each of the measured variables.
All constructs had composite reliability ranging from 0.840 to 0.859 and Cronbach alpha values
ranging from 0.774 to 0.798, respectively. According to George and Mallery (2003), scales with
Cronbach’s Alpha value are considered poor when the alpha value is < 0.60, fairly reliable when the
alpha value is between 0.60 to 0.69, good when it falls between 0.70 to 0.79 and excellent when the
value is 0.80 and above. While composite reliability scores of 0.6 and above is considered acceptable,
especially (Bagozzi & Yi, 1988; Hair et al., 2014b). Hence, given that the Cronbach alpha reliability
scores and composite reliability scores exceeded the minimum threshold values as reported by
experts in the field, then reliability of the scales have been established.
Discriminant Validity
Discriminant validity, according to Ramayah et al. (2016) is the degree to which indicators
differentiate across constructs or measures distinct concepts by examining the correlations between
the measures of potentially overlapping constructs. The significance of conducting a discriminant
validity test is to assess whether the constructs are distinct from others in the structural models. Gefen
et al. (2000) and Fornell and Larcker (1981) explained that discriminant validity is assessed by
examining the correlation between the construct. Discriminant validity is traditionally assessed using
three known criteria namely: Fornell and Larker criterion and the cross-loadings criterion and the
Heterotrait Monotrait ratio (Hair et al., 2014a; Ramayah et al., 2016). Hence discriminant validity in
this study was assessed using all three criteria. Hence Discriminant validity is established from the
Fornell and Lacker Criterion since the square root of the AVEs for the constructs actual use,
behavioural intention, effort expectancy, facilitating conditions, performance expectancy and social
influence is higher than their respective highest correlation as shown in each column in Table 2
below.
Table 2: Discriminant validity using Fornell and Lacker Criterion
Actual use of Behavioural Effort Facilitating Performance Social

E-learning Intention Expectancy Conditions Expectancy Influence
Actual use of
0.735
E-learning
Behavioural
0.708 0.730
Intention
Effort
0.580 0.507 0.743
Expectancy
Facilitating
0.217 0.422 0.148 0.711
Conditions
Performance
0.164 0.542 0.244 0.337 0.739
Expectancy
Social
0.293 0.363 0.186 0.477 0.183 0.717
Influence
Similarly, the factor loading criterion was also used to assess discriminant validity. Table 2 shows
that all indicator loadings loaded highly on their own respective constructs (as indicated by bold text)
compared to other constructs, indicating that there was no issue of high cross-loading between the
one another. Hence, discriminant validity is established.
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Table 3: Discriminant validity using the HTMT ratio criterion
Actual use of Behavioural Effort Facilitating Performance Social

E-learning Intention Expectancy Conditions Expectancy Influence
Actual use of E-learning
Behavioural
0.785
Intention
Effort
0.716 0.595
Expectancy
Facilitating
0.227 0.482 0.187
Conditions
Performance
0.228 0.698 0.285 0.433
Expectancy
Social
0.250 0.367 0.197 0.568 0.257
Influence
Lastly, the Heterotrait Monotrait ratio criterion was also used to establish discriminant validity. Table
3 shows the HTMT ratios for the constructs. The highest HTMT ratio was between behavioural
intention and actual use of e-learning with a value of 0.785. Discriminant validity is established since
all the ratios were below the threshold values of HTMT.85 and HTMT .90 as indicated by (Kline,
2015) and (Gold, Malhotra, & Segars, 2001) respectively.
Figure 2: Research structural model
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Table 4: Significance test for the Structural model path coefficient, t-value and p-values
Std t p
Paths Std β Decision
Error Statistic Value
Direct effects
Behavioural Intention -> Actual use of E-
0.750 0.027 27.446 0.000 Supported
learning
Effort Expectancy -> Behavioural Intention 0.365 0.036 10.131 0.000 Supported
Facilitating Conditions -> Actual use of E-
-0.099 0.045 2.199 0.014 Supported
learning
Facilitating Conditions -> Behavioural Intention 0.176 0.047 3.752 0.000 Supported
Performance Expectancy -> Behavioural
0.367 0.046 7.943 0.000 Supported
Intention
Social Influence -> Behavioural Intention 0.145 0.037 3.911 0.000 Supported
Specific Indirect effects
Effort Expectancy -> Behavioural Intention ->
0.274 0.03 9.041 0.000 Supported
Facilitating Conditions -> Behavioural Intention
0.132 0.036 3.643 0.000 Supported
-> Actual use of E-learning
Performance Expectancy -> Behavioural
0.275 0.032 8.598 0.000 Supported
Intention -> Actual use of E-learning
Social Influence -> Behavioural Intention ->
0.108 0.029 3.743 0.000 Supported
From Table 4, it can be seen that there are six direct path coefficients of which all were significant
with t-values exceeding the t-critical value of 1.96 and p-values value less than 0.05. Three of the
direct effect had a strong positive relationship with the exception of the relationship between
facilitating conditions and actual use of e-learning, which had a negative relationship. This may be
due to the exclusion of the moderating variables age and experience from the original UTAUT model
in this study. Detailed discussions regarding this will be provided in a subsequent section. Similarly,
there were four indirect effects (i.e. mediation) that were tested in the study. All four mediation
analyses were significant, implying that the quality of the structural model is good.
Discussion and Conclusions

Findings from the analysis revealed that performance expectancy (β = 0.367, p <0.05) had a positive
effect on HCT’s students’ behavioural intention to use e-learning. Venkatesh et al. (2003) described
performance expectancy as the extent to which an individual believes that using a system will help
him or her attains gains in job performance. In the context of this study, performance expectancy was
described as a student’s belief that using e-learning will be beneficial and interesting in achieving
high performance in learning. Since findings from the data analysis in this study revealed that
performance expectancy was positively correlated with the behavioural intention to use e-learning as
evident in the strong positive path coefficient, it then implies that as students perceive that using e-
learning will help improve their performances in learning, the more students intend to adopt it.
Therefore, positive perceptions of the gains of e-learning will ultimately result in the intention to
adopt it, whereas a negative perception of the gains of e-learning will result in student’s intent to
reject it as part of their learning activities. Thus, this finding is consistent with those reported in the
extant literature (Alsumait & Al-Musawi, 2013; Chauhan & Jaiswal, 2016; Lowe & Boucheix, 2016;
Luzón & Letón, 2015; Stebner et al., 2017; Suki & Suki, 2010, 2017; Tosuntaş et al., 2015).
Interestingly, in the adapted UTAUT model utilized in this study, the role of moderating variables
such as age, gender, experience, and voluntariness of use was not examined. However, a significant
and positive effect between performance expectancy and student’s behavioural intention to use e-
learning was still obtained. This therefore implies that in as much as age and gender moderates the
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relationship between performance expectancy and behavioural intention in the original UTAUT
model, in an e-learning context an unmoderated relationship between the latent variable (performance
expectancy) and students’ behavioural intention to use e-learning is still supported as evident in the
results of this study. Hence, the hypothesis H1 was supported.
Likewise, (H2) effort expectancy has a positive effect on student’s behavioural intention to use e-
learning. The hypothesis was centred on testing student’s perception of how easy it was to use e-
learning technology and how this perception influenced their behavioural intention to use the
technology. Findings from the study revealed that there was a positive linkage between effort
expectancy (β = 0.365, p <0.05) and student’s behavioural intention to use e-learning. Venkatesh et
al. (2003) described effort expectancy as the “degree of ease” associated with the use of a system. In
this study, effort expectancy was conceptualized as students’ belief that using e-learning in
facilitating their learning will be easy for them, i.e. it will require little effort. This, therefore,
indicates that effort expectancy is a strong determinant of the behavioural intention to adopt or reject
e-learning. In addition, (H3) Social influence has a positive effect on student’s behavioural intention
to use e-learning. This hypothesis was concerned with the impact of the social influence on students’
behavioural intention to adopt e-learning. Social influence is a non-system specific behaviour.
Findings from the data analysis revealed that there was a positive correlation between social
influence (β = 0.145, p <0.05) and student’s behavioural intention to use e-learning. Venkatesh et al.
(2003) described social influence as the degree to which individuals believe that significant others
expect the individual to use the system.
Hypothesis (H4) is focused on testing whether the provision of an appropriate learning environment,
as well as e-learning knowledge and skills, would influence students’ behavioural intention to use e-
learning. Findings from the data analysis revealed that there was a positive association between
facilitating conditions (β = 0.176, p <0.05) and student’s behavioural intention to use e-learning,
although to a lesser degree than performance expectancy and effort expectancy as evident in the path
coefficient obtained. Additionally, an (H5) facilitating condition has a negative effect on student’s
actual usage of e-learning if age and experience are not moderated. Given that in the original UTAUT
model, facilitating conditions through the moderating role of age and experience had a positive and
significant effect on the use of a system, the researchers thus hypothesized that if the provided
resources, earning environment and support is not specifically tailored to the actual age and
experience of learners, then it may deter their actual use of the system. This implies that if age and
experience are not moderated, then there may be a negative effect of facilitating condition on actual
use of e-learning. Findings from the analysis revealed that behavioural intention mediates the
relationship between performance expectancy (β = 0.275, p < 0.05) and actual use of e-learning,
effort expectancy (β = 0.274, p < 0.05) and actual use of e-learning, social influence (β = 0.108, p <
0.05) and actual use of e-learning, facilitating conditions (β = 0.132, p < 0.05) and e-learning.
Together all the latent variables explained about 50.5% of the variance in behavioural intention with
the adjusted R2 = 0.505, while behavioural intention explained about 50.7% of the variance in actual
use with the adjusted R2 = 0.507. This implies that hypotheses H6-H9 were supported by the data.
This finding is consistent with the findings of several studies reported in the literature (Chauhan &
Jaiswal, 2016; Isaac et al., 2019; Suki & Suki, 2017; Tosuntaş et al., 2015; Yakubu & Dasuki, 2019).
Therefore, it can be concluded that performance expectancy, effort expectancy, social influence and
facilitating conditions influence students’ behavioural intention to use e-learning as these four
dimensions explain 50.5% of the variance in behavioural intention to use e-learning. Student’s
behavioural intention to use learning, in turn, influences students’ actual use of e-learning as 50.7%
of the variance in actual use was explained by behavioural intention to use e-learning. Hence, in the
context of this stud, both the direct and indirect relationships hypothesized were supported by the
data.
Conclusion
In conclusion, this study has addressed a significant gap in e-learning system adoption the in UAE.
This is achieved by examining the direct and mediating effects of performance expectancy, effort
expectancy, social influence, facilitating conditions, behavioural intentions and actual use. Nine
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research hypotheses were tested in a cross-sectional survey to help provide insights regarding the
measured variables of the study. As a researcher, the findings of this study have increased my
understanding of the nature of e-leading adoption in a developing country context. As a teacher, the
findings of this study will help shape my practice in terms of integrating e-learning into my teaching
and learning activities, since the study has revealed the major determinants of e-learning adoption
from a student perspective. It hence concluded that in higher education context, performance
expectancy, effort expectancy, social influence and facilitating conditions all have a positive effect
towards student’s behavioural intention to use e-learning which in turn affects their actual use of e-
learning. Furthermore, the facilitation conditions (i.e. technical and operational support provided
must be specifically tailored to the age and experience of students to have a positive effect on
students’ actual use of the technology, otherwise if the support provided is not considered relevant
and suited to student’s age and experience, then students would be deterred from using the
technology.
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Analysis of Tax Compliance:

Evidence from an Emerging Country
Ulfa RAHMAH
Universitas Indonesia, Depok, Indonesia
Siti NURYANAH
siti.nuryanah@ui.ac.id
Dwi MARTANI
Abstract
This study aims to examine the nature of tax disputes and the characteristics of companies experiencing
tax disputes. An emerging country i.e. Indonesia is chosen as the case study due to its uniqueness in
regards to tax reform programs. Sample of the study is public listed companies in 2015, period of the
latest tax amnesty program was enacted. This study shows that firstly majority of listed companies in
Indonesia, specifically companies in Trade, Service and Investment Sector, experiencing tax disputes;
secondly, tax income is the type of tax being mostly disputed; and 2012 is the fiscal period that tax
disputes mostly occurred. This study also found that tax management strategy taken by most
noncompliant companies are accepting the decision mentioned in Tax Assessment Notice; the companies
did not take any further law actions such as tax objection or tax appeal. This study also presents specific
characteristics of tax dispute companies which are related to firm age, external auditors, firm size,
company’s liquidity and profitability, and foreign ownership. This research extends tax literature by
providing new insight in examining non-compliance of taxpayers and new proxy for tax incompliance.
The research provides practical contribution to tax authority to develop better tax assessment strategy.
Keywords: Book-tax gap, tax dispute, tax avoidance
Introduction
Taxation has a very important role as source of financing for all countries around the world. Tax-to-GDP
ratios across 80 countries range from 10.8% to 45.9% (OECD 2018). In most countries, this ratio has an
increasing trend as for example in OECD countries the average tax-to-GDP ratio increased to 34.2%2 in
2017 from 34.0% in 2016 and 33.7% in 2015. In many Asian economies, the increasing of tax revenues
ranging from 0.5% to 1.5% in 2017 from the previous year. Despite an increasing trend of tax ratio, an
emerging economy i.e. Indonesia still experiences lower tax ratio to GDP compared to the other
developing economies. In 2017, Indonesia’s tax-to-GDP ratios is only 11.5%, while the neighbors can
achieve up to 13.6% (Singapore), 14.1% (Malaysia), 17.5% (Philippines) and 17.6% (Thailand). While
Indonesia is one of big populous countries, having lower tax ratio to GDP, therefore, it is interesting to
examine further the tax compliance problem in Indonesia, as also previously confirmed by
Le Borgne et al. (2008) that Indonesian has low rate of tax compliance. If disobedience of taxpayers is
accumulated, it will become a serious problem for state revenue. This happens because the state revenue
from the tax sector is the highest proportion compared to other financing sources. This suggests that tax
reformation through shifting to self-assessment system did not give the high significant alteration to
improve the rate of compliance even though the reformation already took part for a long time ago.
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Another justification that this developing country i.e. Indonesia is chosen as a case study is because this
country has a specific characteristics related to tax reform as for example tax amnesty programs in 1964,
1984 and currently in 2016, besides sunset policies and changing in tax rate.
One of the tax compliance problems in Indonesia is the tax dispute case. Tax disputes arise due to, among
others, non-tax compliance by the taxpayer (Graetze et al., 1986). This results in differences in
calculations between taxpayers and Directorate General of Taxation (Dwiputri and Pradiptyo, 2011).
While many previous studies are empirical studies examining factors that influence tax avoidance –as the
proxy used for tax incompliance-, this current study will analyze the nature of tax disputes and the
characteristics of corporate taxpayers that usually have tax disputes with the tax authority represented by
Directorate General of Taxation (DGT). This study contributes to academic literature by providing
evidence of typical corporate taxpayers experiencing tax disputes. The results of the study bring practical
implications to tax policy maker in regards to the tax audit process.
The structure of the paper is as follows. Following the introduction, previous literature is critically
reviewed. Then, the third section presents research method and data analysis, followed by results of the
study and discussions. The last section is conclusion of this research.
Literature Review
Tax Compliance
Tax compliance is defined as filing all required tax returns timely and accurately in accordance with the
tax code, regulations and court decisions applicable at the time the return is filed (Roth et al., 1989). In
the case of Indonesia self-assessment system, the taxpayers should be active and honest in fulfilling their
tax liabilities precisely and on time. Hence, tax non-compliance can be defined as the failure of taxpayer
to meet tax obligations whether the act is done intentionally or unintentionally (Kirchler, 2007). The non-
compliance occurs when taxpayers fail to file tax return, under-report income, over-state deductions and
fail to pay the correct amount of tax (Allingham and Sandmo, 1972). It is related to tax gap as according
to Plumley (2005), there are three components that can cause the tax gap such as on-filing gap is the
difference for the taxpayer to report or not report any income at all, the difference for their errors in tax
reporting and the difference as the payment is not timely.
In regards to tax disputes and tax compliance, Indonesian Tax Law defines tax dispute as follows.
“Tax Dispute is a dispute arising in the field of taxation between the taxpayer and Directorate
General of Taxation as a result of the issuance of a decision that can be filed or sued to the tax
court under the tax laws and regulations.”
The definition explains that the tax dispute started from the decision on the issuance of a tax
assessment letter issued by the Directorate General of Taxation. Tax dispute resolution can be
settled at Directorate General of Taxation level such as correction of tax assessment, reduction or
elimination, administrative sanction, deduction or cancellation of tax assessment and objection.
Previous Studies on Profiling of Tax Dispute Companies
There are some studies that examines the characteristics of companies experiencing tax compliance audit
by the tax authorities. Putri (2015) found that corporate profiling is related to size attributes, leverage,
financial performance (ROA), and the external auditor. Hanlon and Slemrod (2009) concluded that
manufacturing, trade, transportation, warehouse, education and healthcare were less compliant than other.
While, Juahir et al. (2010) found that the construction sector is associated with fraudulent financial
reporting. Previous research provides different findings regarding to the firm age. Some researchers have
found a negative relationship between firm age and tax non-compliance (Wärneryd & Walerud, 1982;
Wahlund, 1992; Wearing and Headey, 1997). Tittle (1980) suggests that the negative relationship
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between firm age and non-compliance is attributable to both lifecycle variations and generation
differences. Chalmers and Godfrey (2004) mentioned that in order to maintain a reputation and avoid
costs due to declining reputation, The Big Four requires the company audited to perform high levels of
disclosure. In contrast, Kourdoumpalou and Karagiorgos (2012) found that the type of external auditor
has an effect on tax evasion. They found that the company audited by The Big Four had a greater tax
evasion rate amongst others. Juahir et al. (2010), Tedds (2010), and Abidin et al. (2010) found that
company size is negatively associated with tax non-compliance. Hani & Lubis (2016) also did a research
in Indonesia and found that size of the company has no effect on tax compliance. Rohaya et al. (2009)
found low working capital ratio is associated with tax evasion. They agreed with Spathis (2002) that also
found companies with low financial liquidity are more likely to falsify their financial statement either to
improve the financial position’s appearance. Tax compliance is influenced by economic factors such as
income before tax (Allingham & Sandmo, 1972). Abidin et al. (2010) did not find any statistical evidence
on the influence of foreign ownership to taxpayer compliance, but they did suggest that foreign
ownership may influence non-compliance behavior. Further, Glaum and Street (2003) show that cross-
listed companies have higher levels of compliance in order to seek foreign investors. Because there are
still a few studies about corporate tax compliance in Indonesia, the author interested to study about this
topic to contribute into literature.
Research Methodology
Population and Sample
Population in this study is Indonesian public listed companies. The criterias used in selecting the samples
are companies listed in Indonesia Stock Exchange in period of 2015 excluding banking and financing
companies. Year 2015 is chosen since it is the year of enactment of tax amnesty program. The sample is
chosen based on stratified proportional random sampling method.
Operationalization
Tax incompliance companies in this study is defined as companies that experienced tax disputes. Tax
dispute is assessed by Tax Assessment Notice received by companies as disclosed in notes to financial
statements. Tax Assessment Notice issued by tax authority informs the compliance of the corporate
taxpayers whether the tax payment calculated by the taxpayers (as a consequence of self-assessment tax
system) differs to the calculation of the tax authorities (official tax assessment). Hence, it is the
assessment of the tax authorities on whether taxpayers comply to the tax law when fulfill their tax
obligations.
Characteristics of tax dispute companies that are analyzed are based on previous studies (Putri, 2015;
Nuryanah, 2004) i.e. firm age, types of sector, tax preparers, profitability, company size, liquidity and
foreign ownership.
Nature of Tax Disputes
Table 1 (see appendix for the tables) shows that majority of Indonesian listed companies did not comply
as they experiencing tax disputes as 73.17% of the companies received Tax Assessment Notice related to
their tax non-compliance. Companies in Trade, Service and Investment Sector are identified as the most
“tax rule breaker” as 20.73% of the companies experiencing tax disputes. Table 2 shows further that
48.78% of samples having disputes on Corporate Income Tax. Based on the Financial Memorandum and
the Draft State Budget of Indonesia, it is income tax especially income tax article 25/29 and value added
tax that provide the largest proportion of state revenue. Because of the big amount of this type of tax, the
companies potentially do the tax planning to minimize the tax amount. Table 3 depicts that the fiscal
periods of most of tax dispute occurred is year 2012 that 26.30% of 308 tax dispute cases came from the
2012 tax return. This is in line with the statement released by the tax authority “Settlement of Criminal
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Cases in the Field of Taxation” which mentioned that the tax criminal cases in the period 2009-2012 was
increased from year to year. Cases of criminal offenses in the field of taxation were dominated by
fictitious data cases. Next, Table 4 suggests that majority of the non-compliant tax companies (71.1%)
“admitted” their illegal activities as they chose to accept the result of tax assessment notice. This result
can be also interpreted as tax management strategy; that is majority companies took “accepting tax
notice” strategy as they argue that this strategy is much cheaper compared to taking file tax objection.
Characteristics of Companies Having Disputes

According to Table 5, sector that has the highest number of tax dispute is property, real estate & building
construction since 91% of total sample for this category are identified have tax disputes related to tax
avoidance and or tax evasion, while the agricultural sector has the smallest number of companies which
have had their tax returns audited. It has only 25% of total sample for its category. This finding confirms
Juahir et al. (2010) that the construction sector is associated with fraudulent financial reporting; That
suggests that construction sector is less compliant compared to other industries.
In regards to the existence of independent auditors, Figure 1 shows that majority of tax dispute companies
(51.67%) using non big four external auditors. Then, Figure 2 depicts that 56.67% of 60 tax dispute
companies has run their business for 26-50 years. Companies at this age are categorized as mature stage
which is well-established in its industry, with a well-known product and loyal customer following with
average growth. This findings suggests that the mature stage companies already have a lot of experience
in business so that companies indicated loopholes in tax laws so they can do tax planning to minimize
taxes.
Figure 1: External Auditor Characteristic
Figure 2: Firm Age Characteristic
Then Figure 3 presents that 56.67% of tax dispute companies has size between Rp1 Trillion until Rp5
Trillion. This results suggests that the assets they have is enough to do the tax planning. On the other
hand, they still want to continue expanding their business with the assets they have. So they try to
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minimize the amount of tax paid to allocate these funds for other purposes. That result is following by
25% companies with size between 5 Trillion rupiahs and 10 Trillion rupiahs, 11.67% companies with size
less than 1 Trillion rupiahs, and the rest is 6.67% companies more than 10 Trillion rupiahs. Companies
with large assets (more than 10 trillion rupiahs) are prioritized by the authority to be supervised and
audited because of the large tax potential. So they choose to abide by the existing tax rules.
Figure 3: Size Characteristic
According to the Figure 4, there are 41.67% of tax dispute companies has liquidity more than 0.2.
Followed by 31.67% companies with liquidity less than 0, and the rest is 26.67% of companies have
liquidity between 0 and 0.2. This finding however contradicts to previous studies (Abidin et al., 2010;
Rohaya et al., 2009) that suggests low financial liquidity companies tend to evade taxes.
Figure 4: Liquidity Characteristic
In regards to profitability characteristics, Figure 5 shows that majority of the tax dispute companies
(75%) have profit more 0 until Rp1 Million (low profitability). This finding confirms Allingham &
Sandmo (1972) that general companies that have large profits tend to report taxes more honestly. Finally,
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Figure 6 that depicts 46.67% of tax dispute companies has low foreign ownership. The data also shows
that highest foreign ownership companies (more than 80% ownership) tends to comply as only 10% of
tax dispute companies having this characteristic. Hence, the more proportion of foreign ownership, the
lesser is number of companies having disputes. As found by Glaum and Street (2003), companies having
more foreign ownership have higher levels of compliance because to attract foreign investor, companies
should provide an incentive for greater compliance in order to improve the transparency and credibility
financial report and make it comparable. This research believes that companies with minimal foreign
equity potentially do the tax fraud. The reason is they can easily handle technical and complexity issues.
6.67%
18.33% Less than 1 M

1-5M
75.00%
More than 5 M
Figure 5: Profitability Characteristic
Figure 6: Foreign Ownership Characteristic
Implications of the study

The results of the study bring implications to academic literature on tax compliance by providing specific
information of the characteristics of the tax dispute companies by exploring the disclosure of financial
statements. The proxy of tax incompliance which is Tax Assessment Notice issued by the tax authority
enrich the tax compliance literature as previous studies mostly used tax avoidance such as ETR (effective
tax rate) as a proxy of tax incompliance.
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The study also brings practical contributions to the tax authority by providing profile of non-compliant
companies so that the tax authority, having limited tax auditors and tax officers compared to the number
of taxpayers, can develop better strategy in conducting tax assessment by considering the characteristics
of tax dispute companies found in this study.
Conclusion and Suggestions for Future Studies

Objective of this study is to analyze the nature of tax disputes and the characteristics of companies
experiencing tax disputes. Indonesia is chosen as the case study as its tax reform program specifically tax
amnesty in 2015. This study found that majority of listed companies in Indonesia, specifically companies
in Trade, Service and Investment Sector, are not comply to tax regulation. Secondly, this study reveals
that tax income is the type of tax being mostly disputed. Fiscal year 2012 is the period that tax disputes
mostly occurred. This study found that tax management strategy taken by most noncompliant companies
are accepting the Tax Assessment Notice. That is the companies did not take any further law actions such
as tax objection or tax appeal. This study finally presents specific characteristics of tax dispute companies
which are related to firm age, external auditors, firm size, company’s liquidity and profitability, and
foreign ownership.
This studies can be extended by for example taking an empirical research that find relationship between
tax dispute companies and their specific characteristics. The proxy of Tax Assessment Notice as issued
by tax authorities can be tested also whether relates to other tax avoidance proxies such as ETR that
actually is based on book-tax gap calculation.
Acknowledgment
This authors acknowledge the research funding from Hibah PDUPT Universitas Indonesia.
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Appendix
Table 1: Statistic of Companies in Tax Dispute Cases
Company Category
Sectors Companies Total
Companies having
not having
dispute
dispute
3 1 4
Agriculture
3.66% 1.22% 4.88%
4 8 12
Basic Industry & Chemicals
4.88% 9.76% 14.63%
1 6 7
Consumer Goods
1.22% 7.32% 8.54%
Infrastructure, Utilities & 3 7 10
Transportation 3.66% 8.54% 12.20%
4 4 8
Mining
4.88% 4.88% 9.76%
1 7 8
Miscellaneous
1.22% 8.54% 9.76%
Trade, Services & 5 17 22
Investment 6.10% 20.73% 26.83%
Property, Real Estate & 1 10 11
Building Construction 1.22% 12.20% 13.41%
Total 22 60 82
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Table 2: Total Number of Disputes for Each Type of Tax

Number of Disputes
No Types of TaxNo dispute Have disputes
1 2 3 4 5 6 7 8
48 15 11 4 1 1 1 1 0 34
1 VAT
58.54% 18.29% 13.41% 4.88% 1.22% 1.22% 1.22% 1.22% 0% 41.46%
Corp. 42 20 11 5 3 0 0 0 1 40
2 Income
Tax 51.22% 24.39% 13.41% 6.10% 3.66% 0 0 0 1.22% 48.78%
Tax on 81 0 0 1 0 0 0 0 0 1
3
Land 98.78% 0 0 1.22% 0 0 0 0 0 1.22%
Sales Tax 80 2 0 0 0 0 0 0 0 2
4 on Luxury
Goods 97.56% 2.44% 0 0 0 0 0 0 0 2.44%
81 0 1 0 0 0 0 0 0 1
5 Excises
98.78% 0 1.22% 0 0 0 0 0 0 1.22%
70 2 5 5 0 0 0 0 0 12
6 Art 4(2)
85.37% 2.44% 6.10% 6.10% 0 0 0 0 0 14.64%
80 1 1 0 0 0 0 0 0 2
7 Art 15
97.56% 1.22% 1.22% 0 0 0 0 0 0 2.44%
68 7 4 2 0 1 0 0 0 14
8 Art 26
82.93% 8.54% 4.88% 2.44% 0 1.22% 0 0 0 17.08%
66 7 3 5 0 1 0 0 0 16
9 Art 23
80.49% 8.54% 3.66% 6.10% 0 1.22% 0 0 0 19.52%
78 2 2 0 0 0 0 0 0 4
10 Art 25
95.12% 2.44% 2.44% 0 0 0 0 0 0 4.88%
77 1 3 1 0 0 0 0 0 5
11 Art 29
93.90% 1.22% 3.66% 1.22% 0 0 0 0 0 6.10%
68 5 4 4 0 0 1 0 0 14
12 Art 21
82.93% 6.10% 4.88% 4.88% 0 0 1.22% 0 0 17.08%
Income
Tax (Not 75 3 2 1 0 0 0 1 0 7
13
Explained
The Art) 91.46% 3.66% 2.44% 1.22% 0 0 0 1.22% 0 8.54%
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Table 3: Year of Tax Return

Year of
No Tax 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 Total
Return
8 10 21 14 9 5 2 0 1 1 71
1 VAT
11.27% 14.08% 29.58% 19.72% 12.68% 7.04% 2.82% 0 1.41% 1.41% 100%
Corporate 9 18 17 14 8 4 2 2 1 2 77
2 Income
Tax 11.69% 23.38% 22.08% 18.18% 10.39% 5.19% 2.60% 2.60% 1.30% 2.60% 100%
Tax on 3 0 0 0 0 0 0 0 0 0 3
3
Land 100% 0 0 0 0 0 0 0 0 0 100%
Sales Tax 1 0 0 0 1 0 0 0 0 0 2
4 on Luxury
Goods 50% 0 0 0 50% 0 0 0 0 0 100%
0 0 0 0 2 0 0 0 0 0 2
5 Excises
0 0 0 0 100 0 0 0 0 0 100%
4 4 6 7 2 1 1 0 1 1 27
6 Art 4 (2)
14.81% 14.81% 22.22% 25.93% 7.41% 3.70% 3.70% 3.70% 3.70% 100%
0 0 1 2 0 0 0 0 0 0 3
7 Art 15
0 0 33.33% 66.67% 0 0 0 0 0 0 100%
2 3 8 5 1 2 2 0 1 2 26
8 Art 26
7.69% 11.54% 30.77% 19.23% 3.85% 7.69% 7.69% 0 3.85% 7.69% 100%
6 5 9 7 2 1 1 0 1 1 33
9 Art 23
18.18% 15.15% 27.27% 21.21% 6.06% 3.03% 3.03% 0 3.03% 3.03% 100%
3 0 2 1 0 0 0 0 0 0 6
10 Art 25
50% 0 33.33% 16.67% 0 0 0 0 0 0 100%
1 1 4 4 0 0 0 0 0 0 10
11 Art 29
10% 10% 40% 40% 0 0 0 0 0 0 100%
3 2 3 2 4 3 0 0 0 0 17
12 Art 21
17.65% 11.76% 17.65% 11.76% 23.53% 17.65% 0 0 0 0 100%
Income
Tax (Not 5 3 10 8 1 1 1 0 1 1 31
13
Explain
The Art) 16.13% 9.68% 32.26% 25.81% 3.23% 3.23% 3.23% 0 3.23% 3.23% 100%
Total 45 46 81 64 30 17 9 2 6 7 308
% 14.61 14.94 26.3 20.78 9.74 5.52 2.92 0.65 1.95 2.27 100
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Table 4: Status of Tax Disputes

Rejected Rejected
Accepted Wait Revised
Status of Rejected by DGT & by DGT & Wait from
No by Result Tax Total
Dispute by DGT Wait from Accepted SC
Company from DGT Return
TC by TC
44 10 0 14 3 0 0 71
1 VAT
61.97% 14.08% 0 19.72% 4.23% 0 0 100%
Corp
47 3 2 12 4 5 4 77
2 Income
Tax 61.04% 3.90% 2.60% 15.58% 5.19% 6.49% 5.19% 100%
Tax on 0 0 0 3 0 0 0 3
3
Land 0 0 0 100% 0 0 0 100%
Sales Tax
0 0 0 1 0 0 1 2
4 on Luxury
Goods 0 0 0 50% 0 0 50% 100%
0 0 0 2 0 0 0 2
5 Exices
0 0 0 100% 0 0 0 100%
25 0 0 2 0 0 0 27
6 Art 4 (2)
92.59% 0 0 7.41% 0 0 0 100%
3 0 0 0 0 0 0 3
7 Art 15
100% 0 0 0 0 0 0 100%
18 3 1 1 0 0 3 26
8 Art 26
69.23% 11.54% 3.85% 3.85% 0 0 11.54% 100%
30 0 1 2 0 0 0 33
9 Art 23
90.91% 0 3.03% 6.06% 0 0 0 100%
6 0 0 0 0 0 0 6
10 Art 25
100% 0 0 0 0 0 0 100%
10 0 0 0 0 0 0 10
11 Art 29
100% 0 0 0 0 0 0 100%
6 10 0 1 0 0 0 17
12 Art 21
35.29% 58.82% 0 5.88% 0 0 0 100%
Income
Tax (Not 30 1 0 0 0 0 0 31
13
Explained
The Art) 96.77% 3.23% 0 0 0 0 0 100%
Total 219 27 4 38 7 5 8 308
% 71.1 8.77 1.3 12.34 2.27 1.62 2.6 100
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Table 5: Sector Characteristic of Tax Dispute Companies

Sector Companies Having Disputes Total Sample % Companies Having Disputes
Agriculture 1 4 25
Basic Industry & Chemicals 8 12 67
Consumer Goods 6 7 86
Infrastructure, Utilities &
7 10 70
Transportation
Mining 4 8 50
Miscellaneous 7 8 88
Trade Services Investment 17 22 77
Property, Real-Estate &
10 11 91
Building Construction
TOTAL 60 82
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GGFS-Template: Integrating A User Interface to Transform Textual

Requirements into Many UML Diagrams
Mariem ABDOULI
RIADI laboratory, ENSI, Manouba University, Tunisia
mariem.abdouli@rnu.tn
Wahiba BA. KARAA

RIADI laboratory, ENSI, Taif University, KSA, United States
wahiba.abdessalem@isg.rnu.tn
Henda H. BEN GHEZALA

RIADI laboratory, ENSI, Manouba University, Tunisia
henda.bg@cck.rnu.tn
Abstract
Automatically extracting diagrams from natural language requirements is the challenge of all researchers
in the field of Requirements Engineering (RE). Since software engineering projects are becoming more
complex and stokeholders are more demanding, the need for modeling is obvious. In the context of
requirements engineering, we need to model textual requirements. However, there are several gaps in
existing approaches, which reduce their effectiveness. In this paper, we will discuss all the drawbacks of
existing approaches and we will focus on reducing the gap between unstructured natural language
requirements and formal representations, particularly representation with Unified Modeling Language
(UML) diagrams. With our proposed solution, we aim to improve the quality of the treated requirement,
because it strongly affects the quality of generated diagrams. We will develop a requirement processing
based on two steps: i) A classic Natural Language Processing (NLP) combined with syntactic rules; ii) A
deep processing that generates a unified textual representation based on a sentence template named GGFS
template (Generic Grammatical Form Sentence template) and heuristic rules. The unified requirement is a
set of sentences having the same grammatical form inspired by the user stories format. It has the role of a
user-interface, which facilitates the intervention of stokeholders to validate the obtained requirements.
We expect to have a smooth and effective transformation of requirements into UML diagrams using
unified requirements.
Keywords: Requirement Engineering, Natural Language Processing, UML diagram, user stories
Introduction
Software development should provide a system that meets the needs of stakeholders. Obtaining a system
according to user specifications is achieved within several steps and processes. The first and most
important step of any software system is the analysis. In the context of software development oriented
requirements, this step is called the requirements engineering (Maya, 2014).
In fact, requirements engineering takes unrefined requirements as input to improve them and make them
ready for modeling. The changes made on requirements during this process are very delicate because the
quality of the result depends on the quality of the obtained requirements. Generally, the requirements are
in the textual form written in natural language. They describe a service expected by the user. The
conditions of drafting or collecting requirements can lead to natural language specifications with bad
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qualities: unstructured, includes noise, ambiguous and incorrect sentences. To overcome this
disadvantage, it is necessary to go through a Natural Language Processing (NLP) and then a formal
representation.
The NLP, as presented by Chowdhury in 2003, is the ability of a machine to understand human language.
It is an important field that covers many research disciplines such as computer science, machine learning
and artificial intelligence. Topics tackled using NLP are natural language understanding, translation,
speech detection, sentiment recognition and many others. The importance of NLP manifests on the
capacity of dealing with large volumes of textual data and structuring unstructured data in order to
transform unstructured and voluminous data into a valuable document ready for the next desired
treatment as Anne and Steve described (2007).
NLP is a difficult task of how to teach computers to understand our language. Thus, the challenge of
understanding natural language is insured by several tasks and techniques: sentences splitting,
tokenization, Part Of Speech tagging, semantic relationships, etc. Using the appropriate tasks allows
reaching the overarching goal, which is to transform or extract pertinent information for modeling.
UML, such as defined by OMG members (2009), Unified Modeling Language is the ideal tool for
presenting textual requirements into diagrams. It is the most used for modeling textual requirements.
UML 2.0 has 14 diagrams to represent structure and behavior of a system, diagrams are complementary.
Each diagram represents the system from a point of view and provides specific information. To transform
requirements into a complete formal representation, we have to choose the UML diagrams according to
their importance for developers. We can divide UML diagrams into two groups: the implementation
UML diagrams, they describe the architecture and the software details of the system, such as package,
profile, component, composite and deployment diagrams. The second group gathered the UML design
diagrams such as use-case, class, sequence, activity, state, object, interaction, collaboration, and timing
diagrams.
In this paper, a new approach of generating designs UML diagrams (Use-case, sequence, activity, class,
object and collaboration diagrams) is proposed. It includes an adequate interface for stokeholders to
validate requirements improving.
State of The Art

Several approaches exist in the context of modeling requirements written in natural language. This field
of research is very active and it is growing quickly, yet, it is very difficult. In our over view, presented by
Mariem et al (2016), we presented all approaches that have treated natural language requirements written
in English, to transform them into a UML diagram, a model, a code, an XML document, etc. In this work,
we will discuss only approaches that transform textual requirements into UML diagrams.
Indeed, requirements modeling was introduced by Hein (1990). Nevertheless, UML is standardized only
in 1997. Thus, we cannot talk about the association between UML and engineering requirements until
1997. The first works, such as Scott et al (2001) (LIDA) and Kalaivani (2004), used Rational Rose and
Visual Paradigm as a tool to draw UML diagrams. Thus, their approaches contain several manual steps.
The LIDA approach requires the intervention of the user and the analyst quite a few times to make
decisions, so the quality of the result depends on their experiences. The time lost is high. These two
approaches can only generate a class diagram. The first approaches as well as the approaches that
followed such as Imran et al (2009), Andres et al (2015), Wahiba et al (2016) and Priyanka and Rashmi
(2012), could only generate the class diagram. This is due to the process followed from the beginning. All
of these approaches have adopted a requirements processing step based on the extraction of classes,
attributes, and relationships. Then, a second step consists of generating the class diagram. Consequently,
the steps followed by all of these approaches are based on the UML diagram that they want to generate.
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Accordingly, other information in the textual requirements that allows generating other diagrams will be
discarded. This procedure is no different for approaches that generate more than one UML diagram.
These approaches presented by Deva et al (2019), Sarita et al (2016) and Mathias et al (2014) have the
same procedure of the approaches mentioned before. The architecture of their processes comprises two
blocks: the first block concerns the processing of requirements and the second block concerns the
generation of targeted UML diagrams. The output of the first block will be a processed text. Then a
natural language proceeding NLP technique will be applied according to the targeted UML diagrams.
Several techniques are used by the mentioned approaches such as NLP heuristics, NLP rules, Ontology,
etc. In the same context of transforming textual requirements into UML diagrams, Benoît et al (2018)
proposed a different process based on processing textual requirement in parallel with viewing graphical
feature. However, the input of their approach is a textual DSLs and the output are only three UML
diagrams, which are use-case diagram, sequence diagram and class diagram.
As a summary, requirements processing procedure used to generate UML diagrams involve, nearly, the
same steps for all existing approaches. The requirements processing is influenced from the beginning by
the type of UML diagram to generate. The following figure (Fig 1) summarizes the process architecture
followed by most of the cited approaches Imran et al (2009), Andres et al (2015), Wahiba et al (2016),
Deva et al (2009), Sarita et al (2016), Mathias et al (2014) and Priyanka et al (2012). We can describe it
by block architecture. A block for the processing of requirements and a block for the development of
UML diagrams compose this later. The output of the first block is an improved text. In addition, the
output of the second block is one, two or three UML diagrams (depending on the approach).
Fig. 1: Block architecture
However, the industrial process is different: it includes an additional step. Considering that the cost
constraint is very important, industrial developers make sure that the requirements, which they will
model, meet user's expectations. Therefore, they determine a format and a questionnaire to write
requirement with the desired way, in a strict format. However, the weakness of this method is that we
cannot apply it on already written requirements. It is a very severe constraint.
Problems and Objectives
According to the related works, no approach can generate all of the UML diagrams from existing
requirements. Their weakness is illustrated on how they treated requirement. In fact, treated requirements
must contain all-important data that allows generating all useful diagrams. UML diagrams have a
characteristic: each diagram represents a well-defined aspect of the system. Thus, being able to represent
the textual requirements with many UML diagrams will be a complete presentation of all aspects of the
system. Consequently, the software development process will have a complete view of the system.
On the other hand, UML diagrams are not exploited with the same frequency by industrial and
researchers. In this context, recently, two studies by Madanayake et al (2017) and Omer et al (2017)
presented an interesting questionnaire about requirement management tools, modeling methods and the
most used UML diagrams. The authors found that UML is the most known and used formal method in the
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process of modeling requirements according to the researchers and industrial. Based on the results of the
two studies, we identified the most important UML diagrams. The obtained results are summarized in
(Fig 2).
As follows, researchers found that the most interesting and useful diagrams are use-case, class, object,
sequence, activity and state diagrams. The implementation UML diagrams are the least used and do not
interest the majority of respondents. Those results influence our orientation. Thus, according to the need
of researches, we will focus, in our approach, on generating all UML diagrams except the implementation
diagrams.
Fig. 2: Percentage of use of UML diagrams
To achieve this goal, we have to handle the requirements intelligently. Especially, we do not impose the
desired UML diagrams from the beginning of the requirement analysis. Moreover, the researcher
presented by Mathias et al (2014) confirms that before drawing any UML diagram, we have to develop
textual descriptions relating to all the target diagrams from improved requirements.
Our goal: Our essential prerequisite is to be able to automatically transform unstructured requirements to
all possible and useful UML diagrams without losing important data and while providing a human-
machine interface. This imposes a new approach which will be detailed in the following section.
Proposed Solution
The proposed solution is shown in Fig 3. We aim to improve the requirements in two steps. The first step
consists of using a classic requirement processing along with syntactic rules. The proposed syntactic rules
have the role of splitting sentences based on coordinating conjunction and subordinating conjunction. The
obtained requirements are formed with simple sentences. This criterion will simplify the extraction of
knowledge to create structured and annotated requirements. The second step includes heuristic rules to
rewrite structured requirement into a unique grammatical form according to our proposed GGFS-
Template.
Transforming requirements into the same grammatical form facilitate the extraction of concepts related to
UML diagrams.
Knowing that many concepts are shared between UML diagrams, except that the naming are different.
We proposed a hierarchic tree to deduct UML diagrams from others based on shared concepts and using
proposed crossing rules.
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Fig. 3: Our proposed approach
Short example of applying the first step of our proposed method, which is the requirement analysis phase
composed with two steps: sentences splitting using syntactic rules and generating unified requirements
based on GGFS-template and our proposed heuristic rules.
Given the following requirements:
"The user enters his name and his e-mail. He selects the movie before he books
ticket, so he can watch it. The user clicks on order and the system allocate the
ticket."
The output requirements after applying the existing NLP task (Sentences splitting) is as follow:
"The user enters his name and his e-mail.

He selects the movie before he books ticket, so he can watch it.
The user clicks on order and the system allocate the ticket."
The output requirements after applying our proposed syntactic rules based on conjunction are the
following:

The user clicks on order.
The system allocates the ticket."
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The first sentence contains a coordinating conjunction "and", but it was not divided. The word "and"
connects two groups of words that do not contain a verb, so, no splitting to apply.
The second sentence contains two conjunctions words; they define chronological order and purpose. So
no splitting is needed.
The third sentence contains a coordinating conjunction that connects two phrases. The sentence will be
divided into two simple sentences.
The second step permits to reach a unified requirements form. For this purpose, classic NLP tasks are
performed. Then, a method for generating Generic Grammatical Form Sentence template named GGFS
template is proposed. The suggested GGFS template is a grammatical form of a sentence, into which each
sentence has to be transformed. This template is inspired by the user stories form, yet, improved to cover
all existing data in a sentence as Fabian and Calum (2018). The template of user stories is like so: As a
<user>, I want to <goal> so that <reason>. It is a high-level representation of requirements, but, does not
cover all of the requirement details and constraints given by the stokeholders. Our proposed template
covers all the possible data, conditions, criteria, etc of existing requirements. The drawback of having to
rewrite manually all of the existing requirements into a format proposed by the developers is now
exceeded. Transforming improved requirements using the GGFS template will allow obtaining a unified
text that contains all existing data in the input requirements to generate all possible UML diagrams easily.
The GGFS template is structured as follow:
As a <user>, I am identified by <identification-data> <values>, I <intention>

so that <reason>, before <b-event> after <a-event> if <condion-1> or/and
<condition-n>, then <result-1> or/and <result-n>, location <l-data>, time <t-
data>, duration <d-data>
In fact, the GGFS rules are based on the output after applying the POS tagging and the chunker tasks
from OpenNLP as explined by the admin (2019). For each sentence, we will test the chunk-ID and the
POS of a token. For example: the noun in the first chunk is always a "user". In addition, the second
element of the GGFS template, which is "identification-data", will be determined according to the verb
that precedes it. In fact, the elements that follow "user" are determined by exploring the nature of the
verb. If the verb belongs to the identification set, then, each noun after the verb is considered as an
identification-data. The identification set is reached with the use of WordNet defined by Fellbaum (2005),
which is an ontology-based dictionary.
Each element of the GGFS template refers to an element of UML diagrams. For example <user> is an
actor in the use-case diagram.
The input requirements contain data that does not appears in the GGFS template, we suggest to name
them "hidden data". UML-cards are proposed for each diagram to register the hidden data. Hidden data
can be multiplicity data, partner user (a second user that interact with the principal user in an event), notes
and a repeat loop.
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Applying the GGFS template on the previous example:

The user clicks on order.
The system allocates the ticket."
The corresponding output:
As a <user>, I m identified by <name, e-mail>

As a <user>, I<select movie> before <book ticket>, so that <watch it>
As a <user>, I <click on order>
As a <system>, I <allocate the ticket>
As we know, several data are shared and overlapped in divers UML diagrams. So, to minimize NLP steps
we suggest, in the third step, a method to deduct UML diagrams from others. This way, the process of
transforming treated requirements (unified requirements) into UML diagrams will be cut down. In Fig 4,
we exposed the hierarchy tree that we established for the deduction of UML diagrams from others, based
on proposed crossing rules and shared concept such as actors, attributes, roles, messages, etc. Some
diagrams may need concepts and data that do not exist in the upper diagram. Therefore, it is mandatory to
browse the unified text to extract the needed data. To avoid the return to the unified text several times for
one diagram, we proposed to reuse UML-cards. UML-cards will contain all supplementary data for the
desired diagram, which are not represented in the upper diagram. For example:
As a <person>, I am identified by <name, age> <Mark, 20>
The knowledge "values" cannot be presented in the class diagram; however, it is a main element for
object diagram. So, the knowledge "values" will be save in the object-card. The use case diagram is the
most similar to a textual representation. Consequently, generating a use-case diagram from unified text is
obvious.
The transition from the unified text to UML diagrams is based on the extraction of data from the unified
text. For example, all users are actors in the use-case diagrams. All "intention" and "reason" are use-cases
represented by an oval. The relationship between "intention" and "reason" is an "include" dependency.
However, the relationship between "intension" and "a-event" is an "extend" dependency. Also,
"condition" and "result" are connected by a generalization relationship.
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Fig. 4: Hierarchy tree: deduct UML diagrams from others
Conclusion
To the best of our knowledge, there is no completed process to generate all UML diagrams from natural
language specifications. The novelty of the proposed approach manifests in the existence of two levels in
the processing of requirements. The first level will prepare requirements while splitting targeted
sentences into simple sentences. Then, transforming them into a grammatical form sentence according to
GGFS template to get unified requirements. The unified requirements allow the stokeolders to check
improved requirements before modeling. This makes the user's interaction with the computer workable
and any modifications suggested will be welcome. Because the modeling task is an expensive task. Thus,
any modification done before the modeling step will decrease the cost. The unified requirement is a
unified human-machine interface (HMI) for users. Because UML representation is an unfamiliar
representation for non-computer scientist users. This is the first work that highlights the importance of
stokeholders verification of requirements. Stokeholders may express their needs in an incomprehensible
and ambiguous way. Thus, the requirement processing delivers a wrong sentence that does not meet what
stokeolders want to express. The unified form requirement gives them a chance to edit the wrong
sentence before modeling.
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7119
Research of Wellbeing on The Working Place and Engagement of

Staff in The Small Metal Trade Company: Case of Russia
Elena LYSENKO
Ural Federal University named after the first President of Russia B.N.Yeltsin, Yekaterinburg,
Russian Federation
e.v.lysenko@urfu.ru
Mario AGUILERA CABALIERO
Universidad Popular Autónoma del Estado de Puebla, Puebla, Mexico

konf-upip-urfu@yandex.ru
Abstract
Every company that wants to win the competition must take care of the well-being of employees in
the workplace. The study presented in the article was commissioned by the owner, top Manager of
the company selling metal in the small business, operating in the market of the Ural Federal district
and was aimed at analyzing the welfare of employees in the workplace in order to improve it. The
results of a qualitative study using Happiness Pemberton Index to evaluate remembered and
experienced being and Utrecht Work Engagement Scale for evaluating the engagement experienced
by each particular worker showed no correlation between these phenomena. The authors propose
strategies for improving the organizational environment in order to improve the indicators of well-
being on the working place and engagement.
Keywords: human resources management, work place, well-being, engagement
Introduction
Globalization implies a scenario in which competitiveness is not only important, but has become an
immediate necessity (Oyola, & Padilla 2012). One of the main strategic approaches to compete in
this globalized environment, is to firmly believe that people are one of the most important and
fundamental resources to achieve a competitive advantage in the market (Ongel 2014).
Globalization generates pressure in organizations, which is transferred to workers, fostering work

stress, which impacts on their psychological well-being and quality of life. Since the competitiveness,
working conditions, and environment, and the quality of life of the worker advance at the same time,
it is difficult to maintain a company in the market if the work processes deteriorate the health of the
workers and generate conflicts (Durán 2010).
Despite the fact that globalization is increasingly demanding of people, companies and nations, it
should not be forgotten that workers are the most important element for every organization since they
ensure the well-being and happiness of the workplace (Palmer, 2014).
Different organizations, investors and academics are paying more attention to the impact that well-
being can have on people, companies, the economy and society; for some time it has been shown, in
different researches, that organizations with effective well-being programs outperform the market. It
is necessary to mention that companies where the organizational culture is deficient or conflictive are
more likely to present low levels of well-being, thus, in order to obtain the best performance from
well-being programs, a strong organizational culture needs to be promoted (Great Place to Work UK,
2016).
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The workplace is a context that is constantly changing and, at the same time, it is a place to which
people must adapt as soon as possible. On the other hand, it is very common to hear the word stress
when the demands of this environment surpass the capacity that people must face. For this reason, to
minimize adverse effects, employers must implement preventive activities to optimize the interaction
between employees and their psychosocial, organizational and physical environment. (Baumann,
Muijen&Gaebel 2010).
Engagement should be understood as the result of a healthy organizational culture, and at the same
time it can be deduced that organizations with strong cultures have highly engaged staff (Denison
2010). If the organizational culture promotes motivating resources, such as the opportunity to be
autonomous or to be innovative and if it also promotes an environment of work well-being,
appreciation and innovation, the organization helps to generate employee engagement
(Suharti&Suliyanto 2012).
Organizations often strive to maintain a productive and efficient workforce, but sometimes forget that
their employees have their own problems both on and off work, and that these problems can affect
their performance and morale in the company (Dueñas, 2015).
Companies, in their quest to obtain the best profits, demand a certain level of commitment from their
employees. However, before asking employees for committed, it is important to value and maintain
the labor welfare within the company.
Nowadays, there is a large number of companies that generate strategies to achieve labor welfare and
thus promote employees' commitment to the company and its activities.
These companies are not just being generous. Over the years researches and consulting firms like
Great Place to Work, and many other scholars have consistently found that the workplaces that score
high on metrics of trustworthiness also finish first in terms of unprofitability, revenue growth, stock
performance, an do the key business measures (Bush, et al., 2017).
The Latin phrase “curapersonalis”, that means “care of the entire person,” covers the need to attend to
one’s mind, body, spirit and emotions. That’s why leaders are currently trying to help workers
improve their overall quality of life. But the relationship between organizations and their workers
may be shifting, as leaders become aware that their workers need time to unplug to be effective
(Waters, 2017).
To speak of well-being, we must return to the classic origin of happiness, which is related to the idea
of hedonism. The hedonism in ancient times was divided into physical and spiritual pleasure, and
happiness was related mainly to the maximization of pleasure from an individual point of view. The
theme of happiness has been of interest for many centuries, it can be said that from the period of
ancient Greek philosophy, to Western European moral philosophy and later through the
Enlightenment, to our present. It cannot be ignored that the social, political and economic sciences
have carried out welfare research. Nowadays, happiness as a concept seems to be easily accepted by
the majority beyond the pursuit of money, moral goodness or the idea of going to heaven
(Barendregt, et al. 2016; Currie, 2015).
However, the term "wellbeing" is not a historical concept, it is understood as a social ideology that
has recently appeared and that emphasizes the health of people. This last element is a key to well-
being (Jones, 1994).
Workplace well-being has captured the interest of the scientific and professional community due to
the costs associated with its deterioration or lack. According to the carried out studies, 31% of
workers state that their health is worsening as a result of their occupation (Infocop, 2009). Thus,
workplace well-being can be considered when a worker is satisfied with his work and for this reason
he frequently experiences positive emotions such as joy and happiness (Bakker & Oerlemans, 2011).
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It must be noted that everyone is affected in a different way, since there are certain personal
characteristics that make workers more sensitive to stress at work or in daily life. In addition, the
workplace well-being is affected by the demands of the work that are perceived as high in
comparison with the own resources of the worker (Vega, 2017).
Well-being requires harmony between mind and body, and when it is achieved, we have the feeling
that we control our work and even our destiny in life (Holmes, 2014). When psychosocial well-being
is altered, it can cause psychological illnesses, which significantly affect productivity. Therefore, the
exercise, sports and relaxation programs should be procured, aiming to reinforce the motor skills and
the regeneration capacity (Carazo, 2017).
The study of well-being arises from the need to explore the way to potentiate the qualities and virtues
that can have a positive impact on the quality of life of people (Deaton & Stone, 2015) and
incorporate these potentialities towards joint development as States and nations beyond economic
indices (Chacón, 2015).
The well-being perceived as happiness is very important for people. Because of this, well-being in
people's lives should measure human feelings, psychological capacities, and integral models of
psychological health. For this reason, it is important to implement valid welfare measures that
evaluate general, hedonic, eudemonic and social well-being (Hervás&Vázquez, 2013).
Table 1: Well-being dimensions
Well-being Dimensions
General General experiences on the mood and esteem of people.
Hedonic It refers to the life satisfaction and the affective components of the people
Eudemonic It is the optimal psychological functioning, which depends on personal fulfillment

and includes the concepts of personal growth, purpose in life and sense of autonomy
among others
Social Goes beyond interpersonal relationships

Source: Hervás&Vázquez, 2013
The term “well-being” is used for both the condition of an individual and a group. When welfare is
presented at a high level, it means that the condition of the individual or group is positive. Its
importance lies first, in that well-being covers material and psychological aspects; secondly, it is
more closely related to the positive and balanced living conditions of individuals and groups. In
addition, it emphasizes the balanced and objective aspects of life. Finally, it also refers to the levels
of life of people in terms of subjective and objective aspects and also with physical and psychological
aspects (Young, et al. 2017).
Work commitment is an emerging concept of positive organizational psychology. In recent years it

has received important attention in numerous studies in the field of human service, without exception
of professions (Moreno-Jiménez, et al., 2010). Also, a potential factor of performance represents at
work but little is known in developing countries (Glélé, 2014).
Positive psychology presents work engagement as a motivational construct that relates to work in a
positive way; where an individual experiences high levels of energy and mental endurance
(Lorente&Vera, 2010; Seligman&Csikszentmihalyi, 2000).
An engagement is a positive, satisfactory and work-related mental state, characterized by vigor,

dedication and absorption. More than a specific and momentary state, engagement refers to an
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affective-cognitive state that is more persistent and influential, that is not focused on an object, event,
individual or behavior in particular (Wilmar&Bakker, 2003).
The rules of engagement for the new generations are very changeable and they detect critical signs of
disengagement and discrepancy in the expectation generated between the employer and the
employee, as well as the need to generate innovative ways to improve commitment along with the
need to best industrial practices and contemporary ways of measuring employee engagement
(Chada& Kumar, 2018).
However, no studies have systematically analyzed the influence of background variables on work
engagement, and, specifically, it is unclear how particular primary variables such as sex and the level
of teaching might be related to engagement in teachers (Rey, Extremera&Pena, 2012).
The vigor is characterized by a great will to dedicate the effort to work and persistence in the face of
difficulties. Dedication refers to being strongly involved in the work and makes a person experience a
sense of enthusiasm, inspiration, pride, challenge and meaning. The absorption is characterized by
being totally concentrated and happily immersed in the work. This way the time passes quickly, and
you experience distaste for having to leave the job (Wilmar & Bakker, 2003).
Methods
As the base of the research a trade company Ltd. E-l, located and operating on the market of
Yekaterinburg, Russian Federation, was chosen by order of owner/top-manager of Company.
Initially, the company specialized in the sales of ferrous and stainless metal, and also provided
services of cutting and delivery; now Ltd. E-l - is a dynamically developing company (in 2010) in the
metal and engineering market. According to the value and the role of the International division of
labor, it is categorized as a "Small business".
Participants of research were employees on the job position “sales managers” from which most of all
competitiveness of company depends on. (Table 2)
Table 2: Socio-demographic data of participants
Age Single Married Higher Secondary Manager Em- Years in

education school ployee company
Male 24-39 67% 33% 100% 30% 1–4
Female 23-35 30% 70% 60% 40% 30% 70% 1–7
Source: own research, 2018
The study is of a quantitative, explanatory type and focuses on explaining the relationship between
work well-being and employee engagement of the E-l company.
We choose quantitative instruments, such as:
1) The Happiness Pemberton Index which is made up of 21 items, which in turn are divided into two
parts.
Part “A” Integrates remembered well-being
a) Remembered well-being. This part consists in 11 items from the initial pool of 21, includes four
domains of remembered well-being (general, eudemonic, hedonic, and social well-being). Each
domain or subdomain consisted of at least two items.
Participants were asked to rate each of the 11 statements in part “A” using a scale from 0 (fully
disagree) to 10 (fully agree).
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Table 3: Domains and subdomains of well-being
Domains and Subdomains Reference scales Mean

correlation
General well-being SWLS; SHS; SWDL .69 (Item r1)

.48 (Item r2)
Eudemonic well-being
Life Meaning SPWB: Purpose in life .60 (Item r3)
Self-acceptance SPWB: Self-acceptance .67 (Item r4)
Personal growth SPWB: Personal growth .50 (Item r5)
Relatedness SPWB: Positive relationships .48 (Item r6)
Competence SPWB: Environmental control .57 (Item r7)
Autonomy SPWB: Autonomy .41 (Item r8)
Hedonic well-being
Positive affect PANAS: Positive affect .50 (Item r9)
Negative affect PANAS: Negative affect .47 (Item r10)
Social well-being SWDL: Satisfaction with .42 (Item r11)

country; SWLS; SHS
Part “B” Integrates Experienced well-being
b) Experienced well-being. It is constructed by 10 items related to specific experiences. Participants

were presented with five common positive events and five negative ones (“I had an argument with
someone”) that can be experienced by virtually anyone on a given day in different cultures.
According to the validation of the Happiness Pemberton Index, carried out by Hervás and Vázquez,
2013 for Russia, it is important to present the following data in the Table 4.
Table 4: Russian PHI
n Remembered well-being Experienced well-being
M SD M SD
Russia 402 6.53 1.83 6.38 2.05

To locate the level of well-being and happiness that the workers experience, the result of each one
must be located in the next table of values that the instrument proposes for a better analysis.
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Table 5: PHI values
Pemberton Happiness Index
0 - 1.99 Very unhappy
2 - 3.99 Unhappy
4 - 5.99 More or less happy
6 - 7.99 Happy
8 - 10 Very happy
2) The instrument is Utrecht Work Engagement Scale-17 which is made up of items, and just by one
part. It was used with the scope to study and analyze the engagement experienced by each
particular worker.
According to its three-dimensional definition, the measure of work commitment was divided into
three subscales: a psychometric instrument called Utrecht Work Engagement Scale (UWES), a self-
report instrument that includes the dimensions of vigor, dedication and absorption (with six, five and
six items, respectively).
This instrument was made by Wilmar Schaufeli & Arnold Bakker 2003 and the international
validation was done in 2009, where Russia was included for its application.
To determine the level of engagement that the workers experience, the result of each one must be
included in the following table (see Table 6) of values that the instrument proposes for a better
analysis.
Table 6: UWES values
How often workers experienced engagement
0 - 0.99 Several times per year
1 - 1.99 Once per month
2 - 2.99 A couple of times per month
3 - 3.99 Once per week
4 - 4.99 A couple of times per week
5-6 Everyday
Source: Schaufeli & Bakker, 2003
Results and Discussion

1) Well-being: The results that the Happiness Pemberton Index instrument shed on this research are
presented below.
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Table 7: HPI results: Remembered well-being
Dimensions Items M SD Total
General well-being r1 6.69 7.12

r2 7.54
Eudemonic well-being 7.74

Life meaning
r3 7.92
Self-acceptance
r4 6.69
Personal growth
r5 8.23
Relatedness
r6 7
Perceived control
r7 8.38
Autonomy
r8 8.23
Hedonic well-being 7.04

Positive affect
r9 6.46
Negative affect
r10 7.62
Social well-being r11 6.54 6.54

From the point of view of the sub dimensions of well-being, the results are situated in an average that
goes from 6.4 the lowest (positive affect), to 8.3 the highest (personal growth), while from the
general view of the central dimensions, the results go from 6.5 the lowest (social welfare) to 7.7 the
highest (eudemonic well-being).
The survey consists of two parts; thus, the results of the latter can be observed below.
Table 8: Positive and negative answers: experienced being
Items Positive Negative Percent of workers

answers answers
r12 Something I did made me proud 6 7 53% were not proud
r13At times, I felt overwhelmed 4 9 69%felt relaxed
r14 I did something fun with someone 8 5 61% did have fun
r15 I was bored for a lot of the time 13 0 100% were bored
r16 I did something I really enjoy doing 12 1 92% enjoyed something
r17 I was worried about personal matters 3 10 77% were worried
r18 I learned something interesting 8 5 61% learned something new
r19 I gave myself a treat 9 4 69% gave themselves a

reward
r20 Things happened that made me angry 7 6 53% Felt really angry
r21 I felt disrespected by someone 11 2 85% were treated rudely

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To obtain the final result of well-being, the average of the previous results was obtained. It showed
that nine of the workers present a well-being that varies between 6 and 7.99, which is translated
according to the table of values as “happy”. Two of the employees presented an average of well-
being between 8 and 9.8, which places them in the “Very happy” category. While two others
obtained an average of 5, which places them at a level called “more or less happy”.
Experienced well-being
16%
More or less happy
15%
69% Very happy
Happy
Fig. 1: Experienced well-being (Source: own research, 2018)
As it can be seen in the graph number 4, 69% of employees are happy in their workplace, while 16%
are more or less happy with working conditions and 15% fully enjoy everything that the organization
offers to them.
2) Engagement: results that the Happiness Permberton Index instrument shed on this research is
shown below.
Experienced Engagement
31%
Once per week
69% Sometimes per month
Fig. 2: Experienced engagement (Source: own research, 2018)
Within the E-l company, 31% of workers experience Engagement once a week, while 69% only feel
it a couple of times per month, according to the barometric table of the Happiness Pemberton Index.
Although the company does not present an absence of engagement, most workers do not usually
commit more than necessary.
3) Well-being and Engagement correlation

Once the results of each instrument had been analyzed, the relationship between the two variables
was analyzed. The following graph shows the dispersion of the data in the Cartesian plane.
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Fig. 3: Well-being and Engagement correlation (Source: own research, 2018)
To know the relationship between the level of well-being of the workers and their levels of
engagement, the Pearson correlation was applied. It provided a negative result of -0.208.
Table 9: Well-being and Engagement correlations
Correlations
Well-being of workers Engagement of

workers
Well-being of Pearson Correlation 1 -.208

workers
Sig. (bilateral) -.496
Sum of squares and vector 17.594 -.941

products
Covariance 1.466 -.078
N 13 13
Engagement Pearson Correlation -.208 1

of workers
Sig. (bilateral) -.496
Sum of squares and vector -.941 1/169

products
Covariance -.078 .097
N 13 13
This negative value, same that can be observed in the table 12, means that the relationship between
the two variables is weak. So, perhaps, the more Happiness workers feel the engagement they
experience.
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However, by the dispersion of the data shown in the figure 1, it may be suggested that there are other
external and internal factors affecting the workers' engagement.
There is another interesting data to analyze and cross in the results of each instrument. The graphs
show that 69% of workers are happy with their work but at the same time, this same percentage of
employees do not obtain a good level of engagement, since they only experience it twice a month. At
the same time, 31% of employees experience engagement once a week, or up to four times per
month, although this percentage is divided into 16% of workers that are more or less happy and 15%
of them are very happy workers.
These latest data support the hypothesis that there is no strong relationship or influence of labor
welfare on workers' engagement.
According to the results of the applied instruments, E-l’s workers do not have an acceptable level of
happiness and well-being, as well as engagement.
So below are presented strategies and tips that can be put into practice so that the levels of these
variables increase within the organizational culture.
The action plan is carried out separately for each variable, since the correlation between both
variables is weak.
To reach the improvement of the psychosocial environment at work and the organization of work in
order to improve the mental health and well-being of employees, it is necessary to have some
instruments that measures organizational climate and apply it every six months, to have the best
background of the behavior of the employees and to realize what if possibly affecting their
performance, well-being and engagement.
The measurement of the organizational climate through instruments is oriented towards the
identification and analysis of internal aspects of a formal and informal nature that affect behavior of
employees (García, 2009).
Recommendations
According to the engagement results, E-l’s workers have middle levels. However, the relationship
that this variable has with workplace well-being is not strong. This means that there are other
elements within the corporate culture that are affecting engagement, decreasing their levels in
workers.
Working in motivating work environments and facilitating the development of people improve the
degree of commitment and, ultimately, the results of the companies. But each person lives a different
experience and understands those experiences in a different way (Capital Humano, 2017).
For this reason, it is convenient to have meetings with the workers, where the opinions of each one
regarding their well-being within the company are considered. This level of participation not only
improves the effectiveness of interventions but also builds a sense of shared ownership in the
management of a healthy environment that guarantees the sustainability of the program
(IBERMUTUAMUR, 2014).
There are many ways to achieve commitment and motivation within the organization, but, according
with Dueñas (2015), for a small or medium company the three best strategies to do so are:
communication, empowerment and recognition.
Dueñas assures that after putting them into practice, employees will feel that their concerns and
problems are considered in the company and will have clear responsibilities and the appropriate
mechanisms to achieve individual and global objectives.
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a) Communication
Internal communication is a key to engage collaborators. Active listening to the opinions of

employees, finding solutions to problems and providing feedback whenever necessary generates
confidence so that people feel identified with the company and its objectives.
Leaders who communicate effectively with their team do not boast their knowledge, on the contrary,
they think about human talent and understand it as the most important capital of any organization,
they know what they need to hear, they worry about how to deliver those messages in the best way
and communicate what is important, even if it is bad news.
b) Recognition
The recognition of the effort for the achieved goals is a key to make the employees feel satisfied and
motivated with their work. The economic aspect is not the only one that retains and motivates
employees; the emotional salary is an added value that strengthens the connection between the
organization and the employee, which guarantees the commitment of the latter.
There is no reason to wait for a long period of time to recognize the success of an employees,
recognize and praise good work of the team whenever necessary. A day of rest, a flexible schedule or
a bonus is small ways to recognize the effort of your human talent.
c) Empowerment
Trust in employees and give them an opportunity to demonstrate the value of their work and their
ability to achieve the proposed objectives. This requires patience and support during the whole
process, but in the end, a wise executive will realize that it is possible to assign responsibilities to the
team and obtain the expected results.
Empowering the employees will strengthen their skills, confidence in their work, understand the
mission they must fulfill. It facilitates the process of acquiring a greater commitment and a leading
role in everyday company functioning of a company. This will encourage positive changes in work
dynamics and generate more inclusive participation in the decisions and solutions that must be found
to overcome the challenges and achieve the goals.
Conclusion
The performance of a company depends to a large extent on employee engagement. The leadership
that is exercised and the type of people that are hired determine that level of commitment and
appropriation of the good practices and values that the organization must promote to achieve its
objectives.
Employees committed to their work are more productive, friendlier and support their colleagues to
create a positive and collaborative work environment in which everyone is aware of their contribution
to meeting the group's goals, can achieve their own objectives and develop their professional career.
Acknowledgement
The work was supported by Act 211 Government of the Russian Federation, contract №
02.A03.21.0006. Russian Foundation for Basic Research (RFBR) under Grant № 19-010-
00705 ‘Development of tools for assessing the impact of social pollution of labor relations on the
employees' well-being in a digital economy’.
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Research of Psychological Well-being on the Work Place and

Emotional Burnout in the Small Trade Company: Case of Russia
Elena V. LYSENKO
Ural Federal University named after the first President of Russia B.N.Yeltsin, Yekaterinburg,
Russian Federation
e.v.lysenko@urfu.ru
Maria Guadalupe PEREZ LOPEZ
Universidad Popular Autónoma del Estado de Puebla,

Puebla, Mexico,
konf-upip-urfu@yandex.ru
Abstract
Currently, the problem of well-being in the workplace, especially in psychological aspects such as
stress and burnout are becoming more relevant due to the increasing complexity, intensity and
uncertainty of work. The article is devoted to the study of these phenomena in the organizational
environment of the company selling metal in the small business operating in the market of the Ural
Federal district, Russian Federation. The study was commissioned by the owner/top Manager of the
company in order to improve the organizational climate and is based on such tools as General Labor
Well-Being: Structure and Psychometric Properties by Josep M. Blanch, Miguel Sahagún, Leonor
Cantera and Genís Cervantes of the Autonomous University of Barcelona and Confirmatory Study of
occupational Burnout by Uribe Prado. It has been shown that despite the relatively stable indicators
of well-being in the workplace, some employees experience emotional burnout of varying severity.
Recommendations to overcome professional deformation and improve the organizational
environment involve individual, cognitive and behavioral strategies.
Keywords: organizational environment, work place, well-being, burnout syndrome
Introduction: Well-being labor, stress and burnout

The work environment is one of the main influences to determine an optimal or dysfunctional
organizational climate. As mentioned by Peiró, Prieto and Roe (1996), is part of an elementary aspect
in the work because it is the way in which the person interacts with the social environment that
surrounds him, is perceived in a subjective way by the workers, and its importance lies in the
influence it has on the collective and individual behavior of the members of the organization.
Within the work environment micro and macro realities are contemplated, the micro include the
conditions of the workplace such as noise, vibrations, temperature, lighting and humidity that
intervene at the time of work (Neffa, 1988) as well as the very nature of the position and the
organization of work, the conditions of development of the work career, the sources of stress, the
person-position adjustment, the organizational characteristics, the structure and design of collective
work units. These conditions have a strong influence on the worker's physical and mental well-being.
(Fedorova at al., 2018, 2019) "The permanent or stable nature of the job or, on the contrary, its
temporary nature, precarious, unstable, insecure or seasonal, is part of the working conditions and has
direct or indirect repercussions not only on the other risk factors present in the environment of work
and working conditions, but also on the general conditions of life "(Neffa, 1988, p. 86).
On the macro side, the economic-labor conditions of a given country intervene, availability of
employment, competitiveness, the structure of occupations and the labor market. These factors act on
the person and the situation, determining in a positive or negative way their performance and the way
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they perceive their work. "Situations related to the intensity and rhythm of work (simple jobs, of short
and repetitive cycles, with high rates and remuneration according to performance) or with the
duration and configuration of working time (rotating shift work, overtime) with over time, they cause
upheavals "(Neffa, 2015, p. 38) Working conditions derive more and more from greater cognitive and
emotional demands. The days of intense work, the remunerations and the unfair contracts affect that
the health and well-being of the people generating a wear and tear.
Work is a fundamental part of our lives, because "it is not only a source of material wealth, but also
spiritual, because it is a very important part of the sense that individuals assign to their own lives"
(Rocha, 2006, p.56). On the other hand, work is also considered one of the main sources of stress and
illness; it encompasses both objective and subjective reality, because the factors that influence its
meaning are created by what each person attributes to it. Throughout history, work has acquired
different meanings, since it is a striking and fruitful topic. Various psychologists, philosophers and
sociologists seek to synthesize it based on the diverse connotations of it.
"The work also implies a mobilization of the psychic and mental resources of the worker, because to
generate the good or the service requires its motivation or involvement, both at the individual and
collective level" (Neffa, 2015, p.19). Highlighting the positive character in terms of the impact that
work generates on people, it can be highlighted that it generates status and social prestige, the fact of
belonging to an organization creates a personal identity because without a job many people come to
feel lost and aimless fixed in life; it provides an economic function that, in addition to helping to
acquire what is necessary to survive, allows to generate independence and greater control in life;
structure the time since based on this, important events of life are organized and planned, work
regulates holiday times, rest days, family gatherings, and so on.
It also allows us to discover personal skills and abilities, when the entrusted activities are carried out,
intelligence, creativity and innovation are provided by the person, who progressively develops and
refines these skills to finally create a positive personal experience. However, it can be dysfunctional,
when all the skills and abilities are suppressed when performing the work in a repetitive,
dehumanizing, monotonous way that suppresses the autonomy of the person who performs it.
"Work stress is a complicated process that involves aspects that promote in the worker the idea or
belief of not being up to the daily work circumstances, so he feels anxious, tense, frustrated and
angry, this causes low performance, conflicts and sometimes, illnesses and accidents " (Gutiérrez,
Ángeles, 2012, p. 66). Stress is conceived from a constructive point of view called “positive stress”,
since it allows encouraging and motivating people reaching high levels of performance; there are
those who require a dose of stress to float their response capacities and positively meet the challenges
and challenges that are presented. This type of stress is considered a positive response to threatening
events.
On the other hand, is the dysfunctional stress called distress, has a negative connotation that
influences psychological, physiological, emotional and behavioral deviations that interrupt the
optimal and healthy functioning of the individual. This type of dysfunctional stress causes illnesses
and feelings of dissatisfaction that because low motivation, apathy, exhaustion and other sensations
those cause adverse consequences both in the personal and in the workplace.
Gil-Monte and Peiró (2009) indicate that burnout or "burn-by-work syndrome" is a response to
chronic work stress that generates negative feelings towards colleagues and the same work role.
According to these authors, there are two perspectives with which the concept, the clinical and the
psychosocial are studied; the clinic identifies it as a state in which emotional and mental physical
fatigue intervenes that creates demotivation. The psychosocial, defines it as a process of adaptation to
situations of work stress. The variables are considered influential in the manifestation of the
syndrome; these are considered as social, organizational, personal relationships and characteristics of
the individual.
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The occupational burnout syndrome according to Maslach and Jackson (1981), is characterized by
depersonalization (negative feelings towards people with whom one works), emotional exhaustion
and low personal fulfillment at work. Several authors such as Gil-Monte and Peiró (2009), consider
that the people most likely to develop the syndrome are those whose work involves direct contact
with people, for example nurses, doctors, teachers and policemen to name a few.
Methods
Methodology of this research is based on the three-factor model of burnout, by K. Maslach and S.
Jackson. Burnout syndrome is a three-dimensional construct involving emotional exhaustion,
depersonalization, and the reduction of personal achievement.
Emotional exhaustion is considered as the main component of burnout and manifests itself in a
reduced emotional background, indifference or emotional oversaturation. Emotional exhaustion
measures feelings of being emotionally overextended and exhausted by one’s work.
The second component (depersonalization) affects the deformation of relationships with other people.
In some cases, it may be an increase in dependence on others. In others-the strengthening of
negativity, cynicism attitudes and feelings towards recipients: patients, clients, etc. Depersonalization
measures an unfeeling and impersonal response toward recipients of one’s service, care treatment, or
instruction
The third component of burnout-reduction of personal achievements-can be manifested either in the

tendency to negatively assess themselves, underestimate their professional achievements and
successes, negativism in relation to the service merits and opportunities or in the understatement of
their own dignity, limiting their opportunities, responsibilities towards others. Personal
accomplishment measures feelings of competence and successful achievement in one’s work
The Maslach Burnout Inventory (MBI) has been recognized for more than a decade as the leading
measure of burnout, incorporating the extensive research that has been conducted in the more than 25
years since its initial publication.
The Maslach Burnout Inventory (MBI) is an introspective psychological inventory consisting of 22

items pertaining to occupational burnout. The original form of the MBI was constructed with the goal
to assess an individual's experience of burnout. The MBI can be administered to individuals or
groups.
All MBI items are scored using a 7 level frequency scale from "never" to "daily", including "a few
times a year or less"; "once a month or less"; "a few times a month"; "once a week"; "a few times a
week" as well.
Each scale measures its own unique dimension of burnout in 3 key components: emotional
exhaustion (9 items), depersonalization (5 items) and personal achievement (8 items). It is
considered, that MBI scales have strong reliability.
For the quantitative research we choose instruments which can help to indicate the syndrome of
burnout and its level:
1) The questionnaire of General Labor Well-Being: Structure and Psychometric Properties by Josep
M. Blanch, Miguel Sahagún, Leonor Cantera and Genís Cervantes of the Autonomous University
of Barcelona. The questionnaire measures two main dimensions and in turn these are made up of
by six scales; the first dimension is psychosocial well-being that includes affections,
competencies and expectations; and the second one measures collateral effects, conformed by
somatization, burnout and alienation.
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2) The Confirmatory Study of the Mexican scale of occupational Burnout (EMEDO): A Burnout
instrument for Mexicans of Uribe Prado. This instrument measures three factors of occupational
burnout: a) exhaustion, b) depersonalization, and c) dissatisfaction.
As the base of the research a trade company Ltd. E-l, located and operated on the market of
Yekaterinburg, Russian Federation since 2010, was chosen. Initially the company specialized in the
sales of ferrous and stainless metal, and also provided services of cutting and delivery; now Ltd. E-l -
is dynamically developing company (in 2010) in the metal and engineering market. According to the
value and the role of the International division of labor, it is categorized as a "Small business".
The purpose of research, initiated by order of owner/top-manager of Company was to analyze well
being on the work place, to indicate level of emotional burnout of employees and to give
recommendations how to overcome it improving conditions of working place.
Participants of research were employees on the job position “sales managers” which are most at risk
of burnout (Table 1)
Table 1: Socio-demographic data of participants
Age Single Married Higher Secon- Heads Sales Work

education dary mana experience
school -gers in the
company
Male 24-39 67% 33% 100% 30% 1–4

Female 23-35 30% 70% 60% 40% 30% 70% 1–7
Results
The results of the survey showed the following results:
1) By the first part of questionnaire of the General Labor Well-Being where psychosocial well-
being is measured the average value of indicators for the company is higher of the average level
(the maximum possible value-7) (Table 2)
Table 2: Average value of psychological well-being of employees
Scales Factorial Puntuation (Average)

Affects 6
Competences 5.48
Expectations 5.5
However, individually at least 45 % of employees feel themselves not enough satisfied in the aspect
of psychological welfare (5 point and less).
2) By the second part of questionnaire of the General Labor Well-Being where collateral effects is
measured the average value of indicators for the company is lower of the average level (the
maximum possible value-7) (Table 3)
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Table 3: Average value of psychological well-being

Scales Factorial Puntuation (Average)
Somatization 2.58
Wear 3.38
Alienation 2.34
However, individually at least 45 % of employees feel themselves not enough satisfied in the aspect
of collateral effects (5 point and more).
3) By the Confirmatory Study of occupational Burnout (EMEDO) it can be identify the presence of
signs of emotional burnout of varying severity.
For identification of phases of emotional burnout the model of Leiter and Maslach (1988) is used.
The average value of indicators of emotional burnout for the company on the base of the model of
Leiter and Maslach is presented in the Table 4.
Table 4: The average value of indicators of emotional burnout
Factors Factorial
Puntuation
(Average)
Exhaustion 2
Despersonalization 4
Unsatisfied 1
Individual results of employees show that 45 % of employees experience emotional burnout of

varying degrees of severity. (Table 5)
Table 5: Individual results of employees based on the model of Leiter and Maslach
Exhaustion Despersonalization Insatisfaction Phase

Employee 1 high high low -
Employee 2 low low high -
Employee 3 high high high phase 4
Employee 4 low low low phase 1
Employee 5 high high low -
Employee 6 low low low phase 1
Employee 7 low high high -
Employee 8 high high high phase 4
Employee 10 low high low phase 2
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Thus, we can state that despite the average uncritical values of the general labor well-being
assessment, the company “E-l” has significant deviations in the field of professional deformations of
employees. This fact is essential for decision-making in the field of improving well-being in the
workplace and requires the development of special programs to overcome the emotional burnout of
employees.
Recommendations
It is important to mention that burnout generates losses for the company on a personal and
organizational level as it decreases the capacities of the employees. However, there are strategies that
the company can use to stop the syndrome.
There are three types of strategies that allow you to overcome burnout:
1) the individual which relate to personality and psychological abilities;

2) the cognitive one that allows to understand the problem solving it with the most apt resources;
3) the behavioral one, that part of the own will to be able to control itself and to act with emotional
intelligence. (Dominguez, E. 2015)
We propose to impact in the activity of “E-l” company some directions. (Table 6)
Table 6: Directions of improving of psychological well-being in the E-l Company
Proposals Description Strategy

Physical Is the most effective tool to Giving employees discount cards for gym
Exercise combat stress as it regulates registrations is a very good technique to
blood pressure, releases encourage exercise. Allowing schedule
endorphins that allows you to feel flexibility to attend classes in the same way
happiness is another technique
Relaxation This type of breathing allows Providing employees with a rest space are
Techniques oxygen to reach the entire body in important, to clear their mind and get away
an appropriate manner and from the tension that can sometimes be
generate a decrease in anxiety. generated. This space seeks to be a place of
comfort and meditation
Encourage Good social relationships at work Celebrate the birthdays of employees,
Companionship are a key factor in generating a celebrate commemorative dates either
good work environment outside or inside the company
Do not prohibit Although this can mean a waste If you want to attract young talent, you can
employees of time for the company, many even motivate and encourage the team to
from reviewing times the visit to these networks write and publish on positive issues or laugh
social networks can help to reduce the levels of at situations that generate stress in the
stress especially if you work with company
millennials. This restriction today
is not innovative.
Flexible The fixed schedule is not efficient Employees can set their schedules according
Schedules since it promotes traffic in big to their needs, the Human Resources area
cities. Having flexible schedules, must coordinate this program and implement
it is easier to have balance in it not necessarily every day, you can even
terms of family and work life choose the days when there may be
flexibility of schedule according to the
demands of the company
Good Nutrition The food influences our behavior It is very common that because of the rapid
in the same way in our health. way of life, the food in the employees is not
adequate and affects their health and
productivity. The service of a nutritionist in
the enterprise as a compensation who can
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provide important information or take the

diet of some employees, will generate a
sense of engagement on their part.
Emotional According to Daniel Goleman, An emotional intelligence workshop given
intelligence emotional intelligence is a set of by the company as training will help to
workshop skills, attitudes, abilities and prevent or counteract this syndrome.
competences which determine
our behavior.
Conclusion
This study actually represents a cut of the cash situation on psychological well-being and, in
particular, diagnostics of emotional burnout of employees on the job position "sales Manager", where
the risks of professional deformation as a result of burnout and consequently reducing of
psychological well-being of employees is particularly high. Meanwhile, an important issue is also the
study of the causes that led to the emergence of such phenomena, in order to prevent such
development of professional deformities in the future. In this sense, it would be important to consider
the issues of work-life balance, management decision-making in the field of creating programs to
support and promote the well-being of workers in the workplace, prevention of negative phenomena
in the field of building social and labor relations between employers and employees, etc. This is the
task of future studies.
Acknowledgement
The work was supported by Act 211 Government of the Russian Federation, contract №
02.A03.21.0006. Russian Foundation for Basic Research (RFBR) under Grant № 19-010-
00705 ‘Development of tools for assessing the impact of social pollution of labor relations on the
employees' well-being in a digital economy’.
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An Examination of the Delivery of Sports Taekwondo Referee and

Coach Education with Emphasis Towards the Oceania Region
Rene LEVEAUX
University of Technology, Sydney, Australia
rene.leveaux@uts.edu.au
Kyeong KANG
University of Technology, Sydney, Australia
kyeong.kang@uts.edu.au
Abstract
The sport of Taekwondo has been going through considerable transformation since becoming an
Olympic sport, resulting in an almost continual series of changes to the sport’s rules and
subsequently interpretations of those rules. The purpose of this work is to examine the problems
facing the sport’s stakeholders in the education of the coaches and referees specifically in relation
to the Oceania Region, and to provide some guidelines to a more effective mode of the sport’s
education. Through a qualitative case study using phenomenological interviews the current
educational offerings provided at the global and regional levels were examined to identify factors
impacting on providing a consistent education platform. Drawing on the results and on the
literature, recommendations are made for further work to provide directions to future work to
address the educational issues and problems in the Oceania region.
Keywords: Sports Education, Blended Learning, Culture, Oceania Region
Introduction
Taekwondo is a Korean martial art that has gone through many transformations. While the origins of
Taekwondo can be traced back to over 2000 years, Taekwondo was developed formally into a martial
art during the late 1940s and 1950s, where in 1959 the first Taekwondo governing body, the Korean
Taekwondo Association (KTA) was formed (Madis, 2003). Following, in 1966, the International
Taekwondo Federation (ITF) was formed, and primarily due to political reasons, a separate body, the
World Taekwondo Federation (WTF) was established in 1973 (IOC, 2019; Kang and Lee 1999;
Southwick, 1998). The WTF rebadged itself to World Taekwondo (WT) in 2017.
The functions of both the ITF and WT include various competitions on differing aspects of the martial
art, education, establishment and maintenance of standards in the martial art and collaborating with
affiliated member organizations and relevant sporting organizations, such as the International Olympic
Committee, etc.
While the martial art of Taekwondo with its broad range of skills and techniques continues, sports
Taekwondo has evolved into a multi-million dollar global sport, where practitioners hone on a limited,
but specific set of Taekwondo skills for competition.
The WT comprises of five continental union governing bodies. World Taekwondo Oceania, World
Taekwondo Asia, World Taekwondo Africa, World Taekwondo Europe and World Taekwondo an
America. The WT, in total, currently comprises of 206 member countries and an excess of 70 million
practitioners in the sport.
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World Taekwondo held its first World Championships in Seoul, Korea in 1973, and the sport has been
contested every two years since. At the first World Championships, the sport was contested by 19
nations over three days. At the last World Championships in 2017, the sport was contested by 183
nations plus 1 refugee team with a total of 945 athletes participating in the world championships
conducted over a seven-day period (WTF, 2017).
Since being recognized by the International Olympic Committee in 1980 followed by its appearances
at the Seoul Olympics in 1988 and Barcelona Olympics in 1992, (IOC, 2019) the sport of Taekwondo
continues to evolve, such that the sport of today is quite different to that of its first Olympic appearance.
The sport became a full medal sport in the Olympics in 2000 at the Sydney Olympic Games, and is
continually undergone dramatic changes to ensure safety of the athletes, and transparency and fairness
in decision making through the applications of technologies – both in the athlete’s competition
equipment as well as decision making technologies for the referees (Leveaux 2012).
The international competition rules were first enacted in May 1973 and had been amended on twelve
(12) occasions to February 2009 – a period of nearly 36 years. However, in the nine year period from
March 2010 to May 2019, the competition rules have been amended no less that thirteen (13) times;
and during this period on four occasions the rules have changed twice in the same year (WTF, 2019).
This excludes the continual variations to the interpretations and applications of the rules as well as the
processes surrounding general competition, such as match management by the referees and coaches.
The sport is participated throughout the Oceania region, with 19 member countries participating in the
Olympic Games, World Championships, Pacific Games and Oceania Championships. At the recent
2016 Rio Olympics the region was represented with a full quota of athletes made up of 4 athletes from
Australia, 1 from New Zealand, 2 from Papua New Guinea and 1 from Tonga. (WTF, 2016)
As the sport of Taekwondo is changing dynamically, with the interpretations of competition rules
varying from one major event to another, it is becoming increasingly difficult for stakeholders in the
sport to keep abreast of these changes, and in the applications of these changes in competition and their
implication in competition preparation.
This paper reports on an examination of the existing educational offerings and educationally related
issues in the sport for both coaches and referees, with focus on the Oceania region. Through a series of
interviews with relevant stakeholders in the sport, this work looks at the current and differing
educational programs being conducted nationally and internationally, and presents a pathway to
progress in the enhancement of educational offerings primarily in the within the Oceania region and
subsequently improve the educational standards of the sports practitioners.
Literature Review
Pittaway (2012) suggests a key in enabling professionals to become highly effective is in the taking of
professional learning opportunities. While this is aimed at the workplace, it would equally apply to
coaches and referees in the sporting area, especially at the elite and professional levels. To ensure the
acquisition of the relevant skills on completion of a course, Higgs et al (2012, p 101) indicates the
“provision of practice based (e.g. workplace) experiences is now almost a universal requirement for
students”. Through the involvement in activities that maximize learning allows participants to grasp
not only intended outcomes but also the underlying context on which the activity was based. Learning
then becomes an experience and provides participants with the knowledge to perform effectively.
Maznevski (1996) notes that by having participants actively involved in the learning process increases
what is remembered, how well it is assimilated and how it is applied to the new situations. Active
involvement in learning increases what is remembered, how well it is assimilated by the student and
how it is applied to new situations. This is, in part, because the participants need to think about what
they are doing.
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Context is important in learning, and the concept of situated learning (Lave, 1996) is a key element in
engaging course participants. To maximize the quality of participant’s learning outcomes, learning
environments should be constructed to ensure participants are exposed to different situations and / or
contexts. Through aligning learning outcomes and possible assessment tasks, it is possible to provide
participants with the opportunity to demonstrate a deeper engagement with their learning in a variety
of situations (Meyers & Nulty, 2009).
‘High quality’ learning outcomes result from the interplay between the learning efforts of the
participants and the methods employed in the delivery (Meyers & Nulty, 2009). When participants
engage with the context associated with the subject matter to be delivered they are more likely to achieve
better outcomes, keep their attention levels high and improve their understanding of the content
delivered. Engaging participants in the learning process is particularly relevant when subject content
is authentic and aligned to situations participants may encounter in their involvement and role(s) in the
sport.
To effectively educate participants, research suggests the educational style and content must be adapted to
participants of various ages, various levels of experience and potentially in some cases to address differing
cultures. As such, the learning requires to accommodate the varying participant cohort. In many educational
sectors, this has led to a more interactive, experiential learning approach across a wide range of disciplines
such as medicine, education, business and management. For example, as improvements to higher education
continue and the effectiveness experiential learning becomes more evident so does the need for innovative
ways to incorporate this ‘experience’ into the classroom (Boggs et al 2007).
Effective learning requires participants to be actively involved with the learning experience and then
have time to reflect on that experience. Active or experiential learning is one approach to engage
participants in the learning experience and is gaining prominence through increased adoption in the
classroom (Sojka & Fish 2008). Active or experiential learning involves all participants and the
learning activity corresponds in some way to the world outside the classroom. As experience suggests
“not all problems have single, correct answers” (Eisner 1992 p75-76 cited in Boggs et al 2007) and as
such the learner has control over their own learning experience.
Two well-known techniques – role play and simulation – are well suited to the active or experiential
learning paradigm. A role play focuses on unstructured situations where participants improvise their
role within a given boundary. In contrast simulations are defined more precisely than role plays and
include guiding principles and specific rules. However, both techniques require extensive preparation
and development to ensure suitable participant learning outcomes. Both role play and simulation enable
participants to put themselves in situations they have never experienced (Joyner & Young 2006) and
assist participants to see multiple perspectives of the same problem or the different issues confronting
the same problem as both techniques focus on learning by doing (Doorn and Kroesen 2013). Hence
these techniques are deemed very effective in promoting participant competencies as they provide the
opportunity for rapid and timely feedback to reinforce understanding for both role players and
observers (Joyner & Young 2006).
Effective role plays and simulations can stimulate participant interest in content areas and also enable
the consolidation of previous learning through ‘practical application’ of knowledge gained (De Neve
& Heppner, 1997). As such, they can be thought of as ‘a continuous, interactive, dynamic teaching
approach [to engage] participants in meaningful learning’ (Joyner & Young 2006 p 229). The
collaboration that takes place within an active or experiential learning environment is of benefit to all
participants. For example, less experienced participants benefit from the expertise of fellow participants,
while those participants who possess expertise in the area will strengthen their knowledge and skills
through sharing that expertise (Murphy & Gazi 2001).
A key element in the learning outcomes from both role play and simulation is that of reflection. Nestel
& Tierne (2007) refer to ‘reflection-on-action’ or ‘retrospective thinking’ as a means of consolidating
learning outcomes. This reflection is twofold as learners reflect ‘in’ (those with parts in the role play
or simulation) and ‘on’ (those who are observers).
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The research methodology followed an interpretive case study approach using a phenomenological
methodology to gain internal (organization) and external (course participants) perspectives of the
educational program needs of the organization, and participants in the sport within the Oceania region.
Phenomenological interviews were used so as to capture privileged knowledge of those who are or
were involved with this research issue in relation to their differing cultures, history and experiences.
The goal, by using phenomenological interviews was to analyze, address experiential gaps, and make
precise meanings of those experiences for the development of a suitable model or framework for the
delivery of sports taekwondo education in the Oceania region.
A case study is an investigation of a contemporary phenomenon within its real-life context providing
rich contextual data obtained from an organizational setting, A single case study has the ability to
increase our understanding of a particular situation (Yin 2003). It has been argued that a single case
study, while not generalizable, has the ability to provide a valuable insight into a known context (Duhan
et al 2001) and that the findings may be appropriate for someone in similar circumstances (Cousin,
2005).
Interviews
Interviews were used to provide the opportunity to draw on both the past and the present so as the
extract a deeper understanding of issues compared to a simple survey type enquiry (McCracken, 1998).
As indicated by Earlandson (1993), the use of interviews provides the investigator the avenue to ask
respondents for facts as well as gathering opinions.
All the participants were or had been involved in the sport in either a coaching and / or refereeing at a
senior level – national through to World Championship level, and in the majority had been involved
with the sport for more than fifteen years.
Chain sampling was used to solicit participants who are “information-rich” as Patton (1990) indicated
are good examples and good interview subjects. The 11 participants were chosen base on the
individual’s availability, and experience in the sport. This technique of purposeful sampling was
employed due to the concerns in the study to maximize discovery of the problem and the heterogeneous
patterns occurring with the framework of the study, which is supported by Erlandson (1993).
The interviews were of a semi-structured format using probing style questions. All 11 interviews were
recorded using a voice recorder and then transcribed. Additional field notes were taken on the time of
each interview. The majority of the interviews were of 30 to 45 minutes duration, with the one of
approximately 20 minutes.
All participants in the study participated voluntarily and were informed, if they wished to do so, they
were able to withdraw from the study without the need to provide reason or justification.
The project was assessed by the University of Technology Sydney Ethics committee as not being high
risk and UTS ethics approval (UTS HREC ETH17-1287) was granted on 1 May 2017.
Each interview commenced the following open question: "In relation to your Taekwondo referee (or
coach) education, what is the most memorable experience you have had?”; this was then followed by
further probing questions. The questions focused on experienced phenomena, and were concerned with
drawing out each person's subjective interpretation of their experiences in the sport and their
recollections. The questions were open, empathetic and not leading, with the focus on encouraging the
participant to explore his or her experience(s) and interpretations of the many potentially differing
aspects of the phenomenon. Questions implying any expectation or considered to be leading were
avoided, as Goulding (2005) suggests it is necessary that the subject's responses and reflections are not
influenced, swayed or led by the interviewer’s style. The interviews additionally explored cultural and
relationship issues to provide rich, significant experiential material.
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As the participants came from differing countries and cultures, it was important to conduct interviews
in environments suitable to the participant. All interviews were at relevant locations to suit the
interviewees at the time, e.g., attending a World Championship or other international event, with as
little intrusion and disruption to the participants as possible. All participants already had considerable
exposure to and been accustomed to the environments where the research was being conducted and
was not foreign to them. Due to the nature of the sport and the individual’s level of participation in the
sport, they were very familiar with communicating with and talking to people from other countries and
cultures; and through their involvement in the sport could be considered as "global citizens in the sport”.
No individually identifiable data was required for this work and as such all interviews were de-
identified and the transcripts sanitized to remove trace(s) of personal or organizational elements
ensuring that there is no tracing back to single contributions, and no one can be identified with the
processed data is processed. Only general themes were identified. The collected date was only used by
the researcher and was not given to the organization(s).
There exists a variety of qualitative data analysis methods including content analysis, constant
comparison and pattern matching. It is the intention to ensure the data collection and analysis of the
data is explicit to “encourage theory development or progress current knowledge and understanding”
(Shaw, 1999), and through the data analysis interpret the phenomena in the terms the interviewee place
on them (Creswell & Creswell 2017). Using an interpretivist approach, data was analyzed so as to
provide a deep understanding of issues relevant to the sport’s education in the region. Emerging
conclusions made from the study provided a sound understanding of the research situation and provides
a grounded basis for developing theories and framework for the delivery of the education process.
Cope (2005) describes four levels of analysis, which will be employed in this research when analyzing
the interview data.
Findings and Results

There were considerable references to the differences in the educational materials provided and, in the
medium(s), depth in the explanation of rule interpretations, duration and extent of education sessions.
This subsequently creates levels inconsistencies in rule interpretations and their application. Athletes,
coaches and referees were found to have differing understandings of the application of any particular
rule at a given time, and in some cases, this variation in the rule interpretation would be from one event
to another, or even between referees and coaches at the same event.
While coaches and referees generally had sound, basic understandings of the actual competition rules,
the real problem area lay in the deeper understandings of the competition rules, the interpretation and
the application of that interpretation in a given competition. Problems were identified to stem from
variations in an interpretation for a particular event, and this information not being disseminated to
coaches and referees for subsequent events. In situations where a new interpretation was being made
of a rule, only those attending that particular event would be aware of the new interpretation and how
it was being applied. The dissemination of a new interpretation to other stakeholder is totally reliant on
those who attend the event to ideally distribute the changes or updates, as no official correspondence
comes from the world body.
Within the Oceania Region this is even more problematic due to not all stakeholders having access to
major events due to financial constraints (personal, national and regional), various cultural issues (e.g.,
language, religious, educational, etc) and time commitment. In addition, many of the national bodies
within the region do not have suitably experienced educators in the sport and are reliant on the regional
governing body to fill in this shortfall.
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Global Education Avenues – Referee and Coach Seminars
Education in the sport for coaches and referees generally falls under two categories. These being formal
seminars conducted by the world governing body, the regional bodies and in some cases the relevant
national body, and pre-event event training seminars for those referees who are officiating at that event
and in separate coaching debriefs held immediately prior to a particular event.
Currently there is no formal requirement or syllabus provided by the world governing body to regional
bodies or national associations for their referee and coach education. In general, each regional and in
the cases where a national body is providing its own education program, which is independently
developed by that body. As such, there exists multiple education programs with different structures and
different levels of content in relation to the interpretations and with the competition rules.
It is not uncommon that at any one time there are differing interpretations off the same rule being
delivered in educational programs across differing cohorts. Content for the regional and national
programs is not provided by the world governing body. Regional and national bodies develop their own
educational programs by sourcing content through interested individuals within their organization who
attend international events and/or international training programs run by the world body and then pass
on this information onto their regional and/or national body.
Global Education Avenues – Pre-Competition
Prior to all competitions at the international and regional levels, a referee meeting and a coach/manager
debrief are conducted. The latter often referred to as the Head of Teams Meeting.
The referee meetings, while addressing logistical issues and event management relating to the referees,
also doubles up for pre-event education or refreshing of rules and interpretations to be applied at that
particular event.
The Head of Teams meetings address matters related to the competition draw, competition logistics
from the coach and athlete perspective; and provide a debrief of the rules and interpretation for the
event. This is normally is conducted by the referee chairperson for that event.
There is no formal pre-event education information, with respect to rule interpretation, provide to either
the coaches or referees prior to either the competition’s Head of Team meeting or Referee Meeting at
the event.
Global Referee and Coach Education – Competition Onsite
Educational seminars for coaches and referees vary from event to event at the international level.
Head of Team Meetings – Coaches
The Head of Teams meetings are usually attended by the Head of Team and one of the team’s coaches
for each team at that competition. The Head of Teams meetings at World Championship and regional
level are quite detailed and may run up to several hours. At other international events, such as Open
championships usually run for around an hour plus, with regional championship Head of Team
meetings running for an hour or two. However, at all international events sanctioned by the World
Taekwondo, coaches are required to hold a current regional coach license to have access to the
competition area This accreditation is usually conducted as part of the region’s formal referee and
coach education programs. At some open events the respective regional body may also run coaching
license/accreditation courses which are run usually over a three or four hour period. These courses are
an abridged version of the formal coaching course specifically designed to enable coaches to gain their
coaching license accreditation for the event.
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In general, all of these follow a similar format where content is presented either as simply as a verbal
presentation or verbally and supported with a PowerPoint presentation, with both providing Q and A.
Referees
The structure of the pre-event referee meeting varies from an hour briefing for an open event up to a
compulsory 3-day training program prior to a major event such as World Championships or Grand
Prix, etc.
At these major events and at some, but few, Open events the referee education program consists of
verbal presentation supported with PowerPoint presentation, familiarization with the competition
equipment, and match practice, where the referee practice hand signals and match management with
simulated matches.
Generally, at Open events the Referee meetings are quite brief and consist of addressing logistical
matters and a debrief over the rules and interpretations. On some occasions this is presented via
PowerPoint and followed by some discussion.
Oceania Region Referee and Coach Seminars Structure
The Oceania region differs somewhat from the other regions and the world body offerings in so much
that the education program for coaches and referees is conducted in the one seminar to both cohorts
and offers regional accreditation for coaches and referees at the same seminar.
Coaches and Referee Seminars
The Oceania region governing body for the sport provides a standard education package for all member
countries in the region. This package is designed such that coaches and referees attend the same
program so ensure both groups of stakeholders are receiving the same content, whereas with some of
the other regions’ coach and referee education is conducted separately. The program is delivered by
presenters certified by the World Taekwondo Oceania (WTO - regional governing body). Currently
there is five presenters in the region – three in Australia, one in New Zealand and one in New Caledonia.
A member country, state or province, or a club in a member country may request for a seminar to be
conducted. Once approved by the WTO, a presenter will be appointed and to deliver the standard
package for coaches and referees to ensure consistency of education across the region. However, issues
arise due to availability of local funding to hold seminars, availability of presenters, and there is no
obligation by a country to use the regional body’s educational program. Additionally, some of the
member countries in WTO have elected to deliver their own educational program. The only
commitment to using the regional program is when a coach is seeking the necessary accreditation to
officiate at an event sanctioned by the world and / or regional body.
Oceania Education – Pre-Competition
At most, if not all domestic, national or regional events in the region, there is no pre-event
dissemination of updated rule interpretations. Within the 19 member countries, only Australia, New
Zealand and New Caledonia have international qualified referees (IR) which further limits the
likelihood of stakeholders being up to date. The access to current rule interpretations is further impacted
with the region’s IRs only coming from three countries and appointments to international are usually
made by the world body without input from either the regional body or the national body, thus there is
no guarantee that each of the three countries is represented at each international event. With any event,
sanctioned by the world body, only international referees licensed by the world body may be appointed
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to officiate and national referees cannot officiate. This limits the opportunity for national referees to
gain match-time experience and attend the pre-competition referee training.
Oceania Education – Competition Onsite
The referee training and coach debrief for an event at the regional level usually consists of a joint
meeting, held for approximately one hour, where at the Head of Team meeting, both referees and team
officials meet for a debrief of the competition logistics and application of rule interpretations for the
event. This meeting is chaired by the Competition Manager, for the matters related to the running of
the competition, and the Referee Chairperson for the event, who would cover matters related to rules
and their application. Due to the nature of the region, certain concessions need to be made to
accommodate coaches and player while still maintaining compliance to the world body’s competition
rules and regulations.
The referee would follow on from the Head of Teams meeting with a more specific session with a more
in-depth discussion on rule interpretations and their applications and, at some events, a familiarisation
with the competition’s electronic scoring and video review systems. These sessions are usually run
over a one to two hour period.
Discussion
Changes are not being disseminated to either regional or national bodies by the world governing body
(WT). To acquire current information necessitates a country to either have its international referees
attend a five-day education seminar, usually requiring international travel or in the hope they be
appointed by the world body to officiate at a major world event and attend the event and the pre-event
training. The travel and course costs, which are usually in the vicinity of three to four thousand dollars,
are often borne by the individual. There is no funding from the world body and the regional and many
of the national federations do not have the financial resources to support the travel. It is then necessary
for this information to be disseminated to the local referee and coaching corps via some domestic
process, which in most cases does not occur.
This form of unstructured information dissemination, due to the lack of processes and time, often leads
to the relevant stakeholders at the domestic, national and in some cases regional levels having differing
levels of currency with interpretations, understandings and applications of competition rules and
regulations. This irregularity impacts not only on the competition(s), but also has considerable bearing
on the game management and training of the athlete in competition and those officiating in competition.
Educational courses for referees and coaches, in general, are run infrequently. In some countries,
courses may only be offered once a year, and even less with the smaller countries in the region. Due to
the earlier mentioned rate of changes in competition rules and interpretations, this infrequency and lack
of ability to gain up-to-date information critically disadvantages the greater majority of countries in the
Oceania region.
Currently, educational programs for referees and coaches, conducted by the world and regional bodies
are delivered in a traditional classroom format employing everyday educational tools, e.g., PowerPoint
presentations. The hosting by a regional or national body of an international referee course, delivered
by the world body, will incur costs of upwards of twenty to thirty thousand dollars with little or no
financial return to the host organization.
In addition to the delivery of course content, the coach and referee accreditation assessment processes
in the regional and global offerings takes little advantage, if any, of modern technologies and, with the
exception of pass or fail result, does not provide any assessment specific or formative feedback for the
participant. In addition to the lack of feedback, the processing of the results may take upwards of several
months for the candidate to receive results. In some cases the results are not distributed to the candidates
but rather to he respective national body.
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This work examines the gap in the current provision of educational offerings for Taekwondo coaches
and referees in the Oceania Region. The findings highlighted key focus areas which may be succinctly
summarize key issues for the region as a lacking in:
• Availability of skilled educators

• Access to suitable educational programs
• Access to current interpretations and application of the sport’s rules and regulations
In addition to the above, three additional factors impact on the current environment:
• Differing cultural issues within the region
• Lack of available financial resources; and
• Organizational and infrastructure issues within the region
The Oceania region differs considerably from the other four global regions in the sport (Pan-American,
European, African and Asian regions), which, due to differing but unique factors, significantly impacts
the area of referee and coach education in the region. These factors include differing socio-economic
environments in and between the region’s countries, accessibility to technologies, cultures including
religious beliefs and differing languages and dialects, educational standards, and available disposable
income costs. This work will assist in the development of the sport's educational programs to provide
a more innovative program delivery, subsequently leading to a n increase in the standards of officiating
and coaching, and increased participation in officiating and coaching in the sport in Oceania.
Conclusion and Future Research

The role of education in the sport of Taekwondo in the Oceania Region is a complex problem. The
Oceania region consists of 19 member countries with differing languages, educational backgrounds
and standards, available technologies, financial access – organizationally (both with the regional body
and individual country’s associations) and individually with participants. Additionally, the sport is
continuing to undergo considerable changes, such that, rule modifications, interpretations and
applications are being made on a frequent basis. To ensure that the sport continues to be contested at
the highest levels, it is imperative that a suitable and current educational program be available to all
participants in the sport.
An understanding of the issues related to the delivery of the sports education in the Oceania region to
enable the development of a framework for the management and delivery of an educational program
using the principles of blended learning within a region of differing cultures and socio-economic
environments.
This work lays the platform for the development of an educational model based on the principles of
eLearning and Blended Learning to address the needs of the sport in the Oceania Region. Such a model
would be a component of a more complete educational framework which would also be expected to
not only provide an educational program and structure, but also address the management of the sport’s
educational program taking into consideration the various cultural issues and challenges the region
provides.
While the benefits of an educational program designed using the concepts of eLearning and blended
learning are apparent, the challenge is to ensure all stakeholders within the region to see and accept the
value and benefits of the program, and subsequently adopt the program. It appears, through the author’s
earlier work, that this may be possible with the improvement of educational methods and training for
end users. Such an educational program needs to be accessible across the regions.
Significance of this work is in the examination of the educational needs for sports taekwondo coaches,
referees and other competition stakeholders within the Oceania region. Depending upon the success
and uptake of the model, the model could then be applied to other sports within the region and used in
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other regional Taekwondo sports education programs for referees and coaches, and potentially for
adoption by the world governing body - World Taekwondo.
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Village Fund and Local Public Finance Governance:

Exploring the Antecedents
Wahyu Ario PRATOMO

Faculty Economics and Business, University of Sumatera Utara
wahyuario@gmail.com
SIROJUZILAM
sirohasyim@gmail.com
RUJIMAN
rujiman@usu.ac.id
BADARUDDIN
badaruddin@usu.ac.id
Ari WAROKKA
Centro Internacional “Carlos V” – Universidad Autonoma de Madrid
ari.warokka@gmail.com
Abstract
This study aims to explore the influencing factors of village fund effectiveness to accelerate local
economic development. It examined 24 adopted-public finance determinants of village fund governance
to determine the influencing variables. The research analyzed 400 respondents located at four districts in
North Sumatera province (i.e., Langkat, Deli Serdang, Asahan, and Mandailing Natal districts), which
were the most active regions in absorbing the fund. It employed a factor analysis to extract the constructs.
It found four extracted-factors, indicating the antecedents of reliable local public finance administration
to govern village fund: management, planning, rural people participation, and local development
resources. The results revealed that village fund management was the most influencing factor, implying
the core challenge of local public finance governance. The villagers perceived that village administrators
were not capable enough to review the village’s needs and yet equipped with the necessary skills to
manage the village funds.
Keywords: Village fund, economic development, local public finance
Background
Decentralization, which is the way of expanding the local governments’ policy authorities and
responsibilities, requires a nondiscriminatory and transparent administrative service (Nasution, 2016),
specifically in the context of local financial management practices (Crook, 2003) to achieve cost-
effectiveness and optimum income distribution and social equity. The empirical findings reveal that the
poor management of local government finance results in significant leakages of local public resources
(Liscow, 2017; Reinikka & Svenson, 2004), such as the fund for pro-poor public services (e.g., primary
education or essential health services), decreases general confidence in the public sector and weaken the
support for decentralization reforms (de Renzio et al., 2011; Hiskey & Seligson, 2003). Meanwhile,
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public financial management system demands an effective and efficient governance of resource
generation, resource allocation, and expenditure management to resolve the problems inherent in
government activity (OECD, 2003). In the other words, identifying and managing the key factors of good
local public finance management becomes a vital phase for local government to setup the control,
monitoring, and evaluation mechanism of its public funds (Allas et al., 2018).
In the context of Indonesian public finance management, the Dana Desa (village fund) program, which is
the part of the government’s large-scale decentralization initiative to alleviate economic inequality and
poverty, becomes interesting discourse topics nowadays. This program, which covers over 74,000
villages and provides Rp 20.7 trillion (US$ 1.4 billion) grants, will be the accelerated fund to spur the
local welfare and develop the necessary infrastructure, including agricultural needs. Nevertheless, despite
the potential of future wealth for villages, some experts concern the village administrator’s limited
capabilities and experiences to manage the fund that can lead to multiple problems, such as a mismatch
between the real needs and the resource allocation, corruption, and power abuse (Lewis, 2015; Martinez-
Bravo, 2014; Prabowo, 2015; Vel & Bedner, 2015).
The study of Corruption Eradication Commission (KPK) on village financial management practices
revealed four-weaknesses aspects to be immediately attended: regulatory and institution, governance,
monitoring, and village human resources (KPK, 2015). On the first issue, the study found the three most
significant problems. Those issues were the uncompleted regulatory and technical guidance to implement
the village financial management, the nontransparent village funds allocation, and inefficient reporting
procedures due to overlapping regulations. On the governance aspect, there were five critical issues, such
as the fixed budget-disbursement period covered by the report, the unavailability village budget’s
transparency and accountability plan, and the misuse village-fund allocation since not all community
executives have sufficient management skills, specifically in public financial management and priority
governance. For example, Village A, whose limited infrastructures and low-level income people,
prioritizes the fund to renovate village office rather than to fix up an important bridge connecting the
village with the nearest market. On the third aspect, the study highlighted the potential monitoring
problems: the low-effectiveness of the regional inspectorate in supervising the village financial
management, the ineffective public complaint management, and the unclear supervision and control by
the higher administrator (i.e. camat – sub-district head). Finally, on the human resource aspect, the
possible problem stems from the experts’ power abuse. Those officials are the experts expected to
provide technical assistance and project management supervision to community and village
administrators, which in many prior cases, they were involved in the village fund’s corruption and fraud.
Referring to the findings, KPK argues that the village fund good governance should advance and
empower rural communities.
The other studies show similar results, such as the enormous increase in funding for village budgets may
well strain the capacity of current public financial management (PFM) systems (DFAT & World Bank,
2014; SMERU, 2008; Venning, 2009). The global village PFM processes have settled over the course of
many years in the context of quite limited service responsibilities and moderately small amounts of
funding (DFAT & World Bank, 2014). In this regard, village procurement is a particular concern. The
report of DFAT and Word Bank (2014) apparently claims that village procurement procedures are not
clearly set out in regulation and the practices tend to be ad-hoc and nontransparent. Also, the minimal
levels of open bidding in tendering processes are less assured (Ashcroft & Cavanough, 2008; DFAT and
World Bank, 2014).
As the regulator and the chief controller of the program, the government enacted the Regulation of
Minister of Villages, Disadvantaged Regions and Transmigration Number 21 of 2015 concerning the
Stipulation of Priorities for Village Fund. The rule determined the fund 2016 should be used to finance
programs and local-scale activities concerning village development and people empowerment
(Kemenkeu, 2016). The regulation is one of the efforts to deal with uncertain service obligations, fast
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increasing and relatively massive budgets (Lewis, 2015), poor public financial management procedures,
and doubtful control and accountability mechanisms cause specific worry about the potential for
corruption at the village level (Shahrir et al., 2014). Corruption has been a substantive matter among
Indonesian local governments since decentralization began in 2001 (Henderson & Kuncoro, 2004;
Henderson & Kuncoro, 2011).
Even though the study of village fund effectiveness is one of the most intensive discourses in the field of
local decentralization, there are still facets, aspects, and consequences to be explored and discussed
scientifically (Anggraini, 2016; Asni et al., 2013; Saito, 2003; Saputro, 2015). The study focuses on two
research questions: (1) Which are the influencing factors of the village fund’s good governance? (2) What
are the antecedents of village fund management to meet the local people’s expectation on the village’s
good governance? Therefore, the study of village fund effectiveness’ antecedents will contribute, at least,
at two critical aspects. First, it will provide an objective evaluation of village fund effectiveness’
influencing factors to develop infrastructures, such as rural roads, agriculture irrigations, simple bridges,
and river wall, enabling more economic activities, related to local public finance. Second, it will construct
reliable variables of the village fund proper management according to the villagers’ expectation and
create referred determinants to analyze whether the village administrators apply good governance or not
in the context of proper planning, implementation, monitoring, and transparency aspects.
The paper is organized as follows. First, some background material on village fund and village
governance structure in Indonesia is provided. Second, the literature review of village governance and
decentralization are described. Third, a factor analysis is used to determine village fund effectiveness’
variables. Fourth, it discusses the findings and its implications. The final section of the article summarizes
the main results and draws conclusions.
Literature Review
Prior studies on village fund programs revealed that the main challenges were the fund allocation
effectiveness, the conformity between the necessary needs and the implemented programs, local
empowerment through village resources management, and effective mechanisms for village fund’s
transparency and accountability (Boonperm et al., 2007; Davis et al., 1994; Dennison et al., 1992; Jarvis,
2002; Kaboski & Townsend, 2006; Matheson, 2002; Rambe & Johnsen, 2013; Sharman & Chaikin,
2009).
Village Fund Effectiveness
The studies of village fund effectiveness in some countries provide inconclusive findings. Menkhof and
Rungruxsirivorn (2011) reported that village fund was successful in reaching and improving the welfare
level of lower income households in Thailand rural areas. The work of Boonperm et al. (2013) supported
the finding, which village fund has a stronger effect on local people income than on expenditure.
Meanwhile, other studies in different countries (Bardhan & Udry, 1999; Chandoevwit & Ashakul, 2008;
Coleman; 2006; McKenzie & Woodruff, 2008) reported the adverse results. In Indonesia, the majority
findings showed that the fund effectiveness was the main concern (Botes & Rensburg, 2000; Harrison &
Sayogo, 2014; Hermansyah, 2015; Husin, 2016; Siagian et al., 2016). The scholars identified three main
problems, namely, (1) the insufficient knowledge of village executives about what they should do with
the village funds, (2) the inappropriate-lead-to-imbalance formulation of allocating the funds, and (3) the
common finding of many village funds are simply deposited into rural development banks (Asni, 2013;
Cimpoeru & Cimpoeru, 2015; Renzio & Masud, 2011). Several key factors, such as population size,
poverty levels, and unfavorable and uphill geographic conditions become the sources of imbalanced
village fund allocation. There is only 10 percent of village fund allocated by considering those factors.
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Meanwhile, the remaining funds are allocated pro rata per village. Therefore, it is not surprising, which
most of the funds are not effective to run the wheels of the local economy.
To optimize the utilization of village fund in improving the local people’s welfare, Barrios (2007) argues
that the development intervention be critical, specifically to finance infrastructures and community
empowerment. The study also claims that the strategic management of natural resources in which rural
community actively participates is indispensable for ecological integrity and to support sustainable rural
development (Barrios, 2007). The study of Cook (2011) reported that a strong relationship between
infrastructures, economic growth and economic development, which led to the rural prosperity. Cook
(2011) illustrates the findings by showing the nexus of electrification and local community’s
entrepreneurial activities. Even the study of Estache and Fay (2007) affirmed that the failure to invest
sufficiently in infrastructure is the most reasonable explanation of the differences in growth between the
successful East Asian economies and other parts of the developing world. Also, the research of Fan and
Zhang (2004) in China revealed some significant findings on the effects of infrastructures and education
on rural economic sectors’ productivity (i.e., agricultural and non-agricultural sectors). It means that any
aid funds or grants for rural economic development are subject to infrastructures and education
development. However, Fan and Zhang (2004) also emphasized the critical participation of rural people
to be involved actively in the aid funds or grant management process (i.e., planning, implementing,
controlling, and monitoring activities). Wong et al. (2013) affirmed this argument by testing the cost
efficiency of rural infrastructures development in China. They found 101 projects of rural roads were
more efficient when local community managed and participated actively in overseeing it. Those prior
findings demonstrated the importance of villagers’ involvement in running the village fund to accelerate
the regional economic development and assure its effectiveness through rural infrastructures
improvement.
Village Fund Management – Meeting the Expectation
Village fund scheme is a decentralization platform to make more equitable economic development and
professional public service for local regions. Prior findings showed that decentralized-development at the
local level could elevate public service quality, community participation, local wisdom-based policy, and
local institutions’ representativeness (Antwi-Boasiako, 2010; Jones et al., 2007; Ribot, 2002). However,
those findings are still inconclusive due to some reported adverse effects, such as conflicts between the
regional government and local people, corruption and power domination by local ‘elite’ officers
(Pattenden, 2011; Nijenhuis, 2003; Bierschenk & Olivier de Sardan, 2003). Moreover, it coupled with
low public management capacity, leading to poor public services’ performance (Fisman & Gatti, 2002).
The main challenges of Law 6/2014 effective implementation are inadequate village administrators’
governance capacity, lack of assistant support from provincial and district governments, and low quality
of rural development planning (Hermansyah, 2015). This fact is similar to the findings of Dragoş &
Neamţu (2007) in Romania, which points out the process of decentralization is closely interwoven with
the development of the administrative capacity of the local units. Meanwhile, referring to the Karanikolas
and Hatzipanteli’s (2010) finding on the decentralization programs in Greece, the village fund
management effectiveness depends on the role of community participation due to the local people’s
knowledge or understanding of the environment. This community engagement is essential in identifying
the development projects, helping to minimize the inefficient resource allocation, and allowing resources
to be allocated efficiently for the most needed projects. In other words, to be effective village fund
management, it needs a proper delegation of competencies and resources to the actors involved at all local
administrative levels, coupled with a renewed awareness of integrated community participation policies.
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Village Fund Management – Managing the Resources
The village fund, which is one of intergovernmental fiscal transfers to the village level, has also the
potential to promote the usage of local resources aimed at promoting sustainable rural development at the
local level (Rambe & Johnsen, 2013). In this context, the transfer serves dual functions: (1) bridging
financing gaps (Pirard 2012) and (2) providing direct incentives for environmentally sustainable practices
(Gneezy et al. 2011; Muradian and Rival 2012; Pirard 2012). In developing countries, the village fund
management functions as the resources’ monitoring and enforcement mechanism (Dennison et al., 1992)
and also as a movement to implement more inclusive natural resources and land management policies,
including communal forestry (Djamhuri 2008), community farming and fisheries (Maryudi et al. 2012)
and village forests (Santika et al. 2017). The village fund has given greater roles to local communities and
village administrations across Indonesia to manage the local resources effectively and efficiently (Fauzan,
2017), which the decision to prioritize and spend village-level budget appropriations is directly in the
hands of the village assemblies (Musyarawarah Desa).
The village’s resources management also reflects the way of local community governing the human
resource diversity and representativeness of its people, such as marginalized people, women’s groups,
religious leaders and informal labors, in which assistance provided by village facilitators, socialization,
and training are critical to building up the necessary skills and ethical practices at the village level
(Constantino et al., 2012; Rijsoort & Jinfeng. 2005). Prior findings revealed that resources monitoring
improved local participation and empowerment as more communities were involved in decentralizing
resource management (Lawrence 2006; Garnett et al., 2009, Danielsen et al., 2010; United Nations
Environment Program, 2001). Therefore, the village fund management is seeking strategies to include
more local empowerment (Brown, 2002), provide more resources and autonomy to the village. While it
also enhances the proper local governance measures to diminish the potential misuse of funds,
misalignment of priority development needs between village government and the community at large, and
the increased exclusion of sidelined groups from development processes.
Village Fund Management – Managing the Transparency and Accountability
One of the inconclusive impacts of the studied-village fund information availability was the transparency
did not lead to broader demand for more-involved participation or robust engagement and less-oversight
(Khagram et al., 2013). Prior studies revealed that the improved transparency of local public fund has
relatively small effect on local organizations and individuals using the information to take part in local
budget decision-making process and even in increased public accountability (Carlitz, 2010; Fölscher,
2010; Shah, 2007). In the other side, there are some important benefits of having effective mechanisms
for village fund’s transparency, accountability and participation: (1) creating right programs, (2)
discouraging cronyism and misuse of entrusted power for private gain, (3) contributing to program
credibility, and (7) enabling more effective program to the villagers (Gamba, 2016; Bassett & Blanco,
2011).
The village fund transparency requires the disclosure of all relevant village fund information in a timely
and systematic manner (Matheson, 2002). It will help the villagers to enhance their village governance
and solve their problems, specifically, the local government corruption (Sharman & Chaikin, 2009). The
study of Matheson and Kwon (2003) shows that the village fund’s inadequate compliance with
accounting and reporting rules, a lack of accounting, as well as of reporting, standards, and compliance
leads to the higher risk of corruption, which is the most important financial problem in most emerging
economies and the most significant challenge to economic development. Therefore, village fund
transparency is an essential issue to prevent corruption and enhance public accountability (Hood, 2001;
Fozzard & Foster, 2001; Tanzi, 1998).
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Village Fund Governance – The Proposed Constructs
Hypothetically, well-administered, and good village governance practices lead to improved village
financial management outcomes. However, the fact shows that some factors, which are beyond the
immediate control of local village officials, may affect the village financial management performance,
such as local community’s socioeconomics characteristics (Andrews et al., 2005) and other exogenous
factors (Coggburn & Schneider, 2001; Dennis, 2004). At the same time, prior findings found limited
empirical evidence about the factors affecting the local finance governance in the emerging countries
compared to the business sectors (Dennis, 2004; Jones & Walker, 2007), including those in Indonesia,
which the discourse of local public finance management emerged intensively in the 1980s (Kloha et al.,
2005). While the research of business sector’s financial conditions commenced 20 years earlier (Altman,
1968; Beaver, 1966), which lead to the development of the seminal model to assess the firm’s financial
performance, at the other side, local government executives and legislators were still in difficulties in
making effective policy responses whenever financial conditions of local public finance performance
became worsened. It was due to the limited studies to explain the local government’s financial condition,
which prior research did not indicate what theory the researchers used to explain the variation of local
government's financial condition (Carmeli & Cohen, 2001; Casal & Gomez, 2011; Honadle et al., 2004;
Jones & Walker, 2007; Zafra-Gomez et al., 2009).
Therefore, determining the relevant factors of good local financial governance for village fund becomes
an essential objective for village authorities to measure the fund management performance and improve
its local government service delivery, especially to the poor. As such, the current study considers that
local management practices —in combination with the accessibility of local financial resources—are
critical factors of the quality of village government service delivery. It means that local government
characteristics play an essential role on the quality of local government service delivery, such as
including local management practices; local financial management performance; and the social,
economic, and political conditions of the local government.
In the context of village fund management, the passage of Law 6/2014 on Villages (Village Law) offers
the chances of improving village governance in Indonesia by: [1] integrating sound governance principles
of community participation, transparency, and downward accountability, and [2] giving more resources
and autonomy to villages. The Village Law constitutes multiple accountability mechanisms, such as the
controlling power at the village council (Badan Permusyawaratan Desa, BPD) as community
representatives, establishing village assembly forum (Musyawarah Desa, Musdes) to increase villagers’
participation and provide transparency on local governance operations, and reporting to the district
government. However, there are still concerns on potential misuse of funds, asymmetric priority
development needs between village government and the villagers, and increased exclusion of
marginalized groups from development processes, due to the limited village officials and representatives’
capabilities and competencies in village governance.
This study proposes 24 considered-relevant factors of village fund management by extracting from the
main elements of local public finance governance (Table 1) to form influencing variables of village fund
management.
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Table 1: The Proposed Factors of Village Fund Management
Factor Statement Source

X1 The village fund plan is well formulated Asni (2013); Cimpoeru & Cimpoeru (2015)
X2 The village budget is well formulated Asni (2013); Cimpoeru & Cimpoeru (2015)
X3 The village fund is planned to develop the local economic Asni (2013); Cimpoeru & Cimpoeru (2015)
agency
X4 The village fund plan is formulated according to the rural Rambe & Johnsen (2013); Pirard (2012)
needs’ priority
X5 The village fund plan is formulated by considering the Dennison et al. (1992); Fauzan (2017)
village’s resources and potencies
X6 The village fund plan is formulated according to the Dennison et al. (1992); Fauzan (2017)
village’s needs
X7 The village fund plan is synchronized with the village’s Garnett et al. (2009); Danielsen et al. (2010)
needs priority, resources, and potencies.
X8 The village fund plan is formulated through an agreement Fan & Zhang (2004); Wong et al. (2013)
with the villagers
X9 The villagers are involved in the village fund plan Fan & Zhang (2004); Wong et al. (2013)
formulation
X10 The village government has capability in formulating the Carlitz (2010); Fölscher (2010)
village fund plan.
X11 Government agencies have coached and mentored the Carlitz (2010); Fölscher (2010)
village fund plan
X12 The village fund expenditures employ local natural Barrios (2007); Lawrence (2006)
resources.
X13 The village fund expenditures absorb local labors Constantino et al. (2012); Rijsoort & Jinfeng
(2005)
X14 The village fund expenditures are used to empower the Ansell & Gash (2017); Choi & Robertson
villagers. (2012)
X15 The village fund realization is reported timely Matheson (2002); Shah (2007)
X16 The village fund realization is informed to the villagers Ansell & Gash (2017), Choi & Robertson
through deliberation and consensus meeting. (2012)
X17 The village fund realization is informed through local OECD (2002) Matheson (2002)
information media
X18 The village fund could increase the village’s agriculture Djamhuri (2008); Maryudi et al. (2012)
production and income
X19 The village fund is disbursed efficiently Gamba (2016); Bassett & Blanco (2011)
X20 The village fund is able to increase the villagers’ welfare Gamba (2016); Bassett & Blanco (2011)
X21 The village fund has created income distribution among Gamba (2016); Bassett & Blanco (2011)
the villagers
X22 The village fund has been utilized effectively according to Gamba (2016); Bassett & Blanco (2011)
the villagers’ expectation
X23 The village fund is utilized with well-due accountability Hood (2001); Tanzi (1998)
X24 The village fund has elevated the village’s infrastructures. Fan & Zhang (2004); Cook (2011)
Source: Authors’ elaborated literature data
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Research Methods
This research was exploratory in nature as there is little empirical evidence with respect to the influencing
factors of local public finance management or its relationship to village fund governance. This research
examined 24 considered-relevant factors or constructs of village fund effectiveness in 4 (four) districts
(i.e., Langkat, Deli Serdang, Asahan, and Mandailing Natal districts). Those communities were located
in remote areas, populated with low-income people, and bordered to other provinces. The study employed
a survey of 400 respondents, which represented three related groups in village fund management (i.e.
headmen, village council members, ordinary villagers).
Statistical Analysis
This study used exploratory factor analysis (EFA) to analyze the construct validity of the proposed factors
(Nakhaee, 2013) in which the correlation matrix of each pair of variables was checked before conducting
factor analysis. This research employed Bartlett’s test of sphericity and Kaiser-Meyer-Olkin (KMO)
statistic to assess the factorability. For EFA, it used extraction principal axis factoring and varimax
rotation (Osborne & Costello, 2009). To determine the number of factors, it exercised total variance
explained in which the initial eigenvalues higher than 1.0 was the cut-off (Osborne & Costello, 2009).
The items with a loading factor of higher than 0.32 were kept in the questionnaire (Osborne & Costello,
2009). This study used two methods to analyze reliability. Primarily, Cronbach’s alpha of the factors
constituting the questionnaire was calculated. Also, Cronbach's alpha if an item deleted, was measured for
each item. In the second method, it applied the corrected item scale correlation to calculate the items’
coefficient, and a coefficient higher than 0.2 was considered as an indication that each item in the scale is
adequately associated with the total score (Nakhaee, 2013).
This study used the opinions of experts and village officials (i.e. content and face validity) to assess the
24 considered-relevant items, respectively. According to the correlation matrix, there was no
multicollinearity between the items (i.e., all coefficients were lower than ±0.90). Kaiser-Meyer- Olkin
(KMO) measure of adequacy of samples was 0.898. P-value of the Bartlett’s test of Sphericity was <
0.000 (Table 2). Using principal axis factoring and varimax rotation, the study found four extracted-
factors (the loading factor of each item is shown in Table 3). The four factors were: [1] village fund
management, [2] village fund planning, [3] rural people participation, and [4] local development
resources. They explained 67.288% of the variance (41.842%, 13.459%, 7.151% and 4.837% for each
factor, respectively). The extraction sums of squared loadings (Table 3) confirmed the four-factor nature
of the questionnaire. According to the loading factor (Table 4), questions 19, 20, 22, 18, 23, 15, 21, 16,
17, and 24 were placed in the village fund management factor, while questions 2, 1, 7, 5, 4, 6, and 3 were
grouped into the village fund planning factor, questions 9 and 8 were clustered into the rural people
participation factor, and the rest of the questions (i.e. 12, 13, and 14) were placed in the local
development resources factor. The residual correlation in all items was less than 0.1, indicating that the
items were independent of one another and did not measure one thing. The results of the analysis of
“Cronbach's alpha and corrected item-scale correlation” are shown in Table 2. Corrected item-scale
correlation in all items was higher than 0.2. Cronbach's alpha of four factors: [1] village fund
management, [2] village fund planning, [3] rural people participation, and [4] local development
resources, was 0.875, 0.876, 0.901, and 0.879, respectively
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Table 2: Results of the Reliability Analysis, KMO and Bartlett's Test, and Communalities
Corrected Cronbach's Communalities

Item Statement Item-Total Alpha if Item
Correlation Deleted Initial Extraction
X1 The village fund plan is well formulated 0.475 0.879 1.000 0.598
X2 The village budget is well formulated 0.536 0.878 1.000 0.669
X3 The village fund is planned to develop the local 0.553 0.876 1.000 0.636
economic agency
X4 The village fund plan is formulated according to 0.630 0.876 1.000 0.683
the rural needs’ priority
X5 The village fund plan is formulated by considering 0.680 0.874 1.000 0.804
the village’s resources and potencies
X6 The village fund plan is formulated according to 0.643 0.875 1.000 0.793
the village’s needs
X7 The village fund plan is synchronized with the 0.488 0.879 1.000 0.563
village’s needs priority, resources, and potencies.
X8 The village fund plan is formulated through an 0.590 0.876 1.000 0.784
agreement with the villagers
X9 The villagers are involved in the village fund plan 0.549 0.877 1.000 0.827
formulation
X10 The village government has the capability in 0.025 0.926
formulating the village fund plan
X11 Government agencies have coached and mentored -0.002 0.888
the village fund plan
X12 The village fund expenditures employ local 0.510 0.878 1.000 0.767
natural resources
X13 The village fund expenditures absorb local labors 0.399 0.881 1.000 0.634
X14 The village fund expenditures are used to 0.500 0.878 1.000 0.595
empower the villagers.
X15 The village fund realization is reported timely 0.518 0.878 1.000 0.611
X16 The village fund realization is informed to the 0.653 0.874 1.000 0.599
villagers through deliberation and consensus
meeting.
X17 The village fund realization is informed through 0.665 0.874 1.000 0.614
local information media
X18 The village fund could increase the village’s 0.660 0.874 1.000 0.721
agriculture production and income
X19 The village fund is disbursed efficiently 0.653 0.875 1.000 0.748
X20 The village fund is able to increase the villagers’ 0.554 0.877 1.000 0.667
welfare
X21 The village fund has created income distribution 0.663 0.873 1.000 0.653
among the villagers
X22 The village fund has been utilized effectively 0.629 0.876 1.000 0.667
according to the villagers’ expectation
X23 The village fund is utilized with well-due 0.631 0.874 1.000 0.667
accountability
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X24 The village fund has elevated the village’s 0.615 0.875 1.000 0.503
infrastructures.
Cronbach's Alpha: 0.883 N of Items: 24
KMO and Bartlett's Test
Kaiser-Meyer-Olkin Measure of Sampling Adequacy. 0.898
Bartlett's Test of Sphericity Approx. Chi-Square 4735.818
Df 376
Sig. 0.000
Communalities inform the variance of each variable explained by the factors formed. The value of
communalities explained all the factors formed, the higher the value of communalities is the closer the
correlation between variables and the factors formed. The variable that has the highest correlation with
the formed factor is the question (item) 5, which is the village fund plan is formulated by considering the
village’s resources and potencies, while the lowest correlation is the question (item) 24, which is the
village fund has elevated the village’s infrastructures.
Table 3: Total Variance Explained

Component Initial Eigenvalues Extraction Sums of Squared Loadings
Total % of Variance Cumulative % Total % of Variance Cumulative %
1 9.205 41.842 41.842 9.205 41.842 41.842
2 2.961 13.459 55.301 2.961 13.459 55.301
3 1.573 7.151 62.451 1.573 7.151 62.451
4 1.064 4.837 67.288 1.064 4.837 67.288
5 .892 4.056 71.345
6 .728 3.309 74.653
7 .667 3.032 77.686
8 .566 2.573 80.259
9 .549 2.496 82.755
10 .480 2.182 84.937
11 .454 2.062 86.999
dimension
12 .429 1.952 88.951
13 .391 1.775 90.726
14 .353 1.604 92.330
15 .325 1.479 93.809
16 .290 1.318 95.127
17 .272 1.237 96.363
18 .269 1.224 97.587
19 .187 .849 98.435
20 .133 .603 99.039
21 .117 .534 99.572
22 .094 .428 100.000
Extraction Method: Principal Component Analysis.
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The total variance explained (Table 3) informs the number of formed-factors from the 22 components
(questions/items). There were four formed-factors according to the values of initial eigenvalue, which
were higher than 1. Factor 1 (village fund management) has a total initial eigenvalue of 9.205 or
41.842%; it means that factor 1 can explain 41.84% of the total factors that will determine the village
funds governance’s effectiveness. It is also the most significant influencing factor. Meanwhile, factor 2
(village fund planning) has a total initial eigenvalue of 2.961 or 13.459%; it means that factor 2 can
explain 13.459% of the total factors that will form the village funds governance’s effectiveness. Finally,
factor 3 (rural people participation) and factor 4 (local development resources) have total eigenvalues of
1.573 (7.151%) and 1.064 (4.837%), respectively, which each factor contributes 7.151% and 4.837%,
respectively, to the formation of village fund governance’s effectiveness.
Table 4: Rotated Component Matrixa

Component
Item
1 2 3 4
X19 0.803 0.070 0.289 0.125
X20 0.798 -0.012 0.168 0.041
X22 0.794 0.155 0.093 0.061
X18 0.781 0.088 0.272 0.174
X23 0.778 0.228 -0.027 0.090
X15 0.734 0.234 -0.133 -0.026
X21 0.726 0.179 0.113 0.284
X16 0.715 0.197 0.083 0.202
X17 0.635 0.421 -0.044 0.178
X24 0.594 0.191 0.197 0.274
X2 0.165 0.782 0.169 0.038
X1 0.158 0.752 0.084 0.009
X7 0.187 0.709 0.157 -0.014
X5 0.194 0.704 0.480 0.198
X4 0.179 0.704 0.293 0.263
X6 0.198 0.654 0.562 0.102
X3 0.167 0.646 0.031 0.435
X9 0.124 0.397 0.793 0.159
X8 0.178 0.369 0.763 0.186
X12 0.172 0.208 0.024 0.833
X13 0.172 0.040 0.125 0.766
X14 0.228 0.073 0.400 0.615
Extraction Method: Principal Component Analysis.
Rotation Method: Varimax with Kaiser Normalization.
a. Rotation converged in 6 iterations.
Table 3 shows the grouped-items according to the value of the loading factor of each variable. Variables
with a loading factor> 0.5 on certain factors will be clustered into one most-correlated factor. Variables
with a loading factor value <0.5 will be excluded, and a repeat factor rotation will be performed. There
were two questions/items excluded from the grouped-items because of their loading factor values were
less than 0.5, namely question 10 (the village government has the capability in formulating the village
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fund plan) and question 11 (government agencies have coached and mentored the village fund plan). In
factor 1, item 19 (the village fund is disbursed efficiently) had the highest loading factor, 0.803, meaning
that the question of efficiency became the most correlated factor of village fund management.
Meanwhile, in factor 2, item 2 (the village budget is well formulated) was the most significant loading
factor, 0.782, indicating that the question of the well-formulated budget was the most correlated factor of
village fund planning. Furthermore, in factor 3, item 9 (the villagers are involved in the village fund plan
formulation) had the most significant loading factor, 0.793, showing that the question of villagers’
involvement in plan formulation was the main component of rural people participation. Finally, in factor
4, item 12 (the village fund expenditures employ local natural resources) was the highest loading factor,
0.833, revealing that optimal usage of local natural resources became a critical issue of local development
resources.
The four-factors formation shows the most relevant variables of village fund and its relationship to the
local public finance governance explicitly. Factor 1 (village fund management) represents the fiscal
federalism theory in which the budget efficiency and effectiveness become the main objective of fiscal
decentralization through the village fund (Shin, 2001). The proper implementation of sound public
finance governance would increase the village fund’s efficiency and effectiveness of public procurement
spending (Barankay & Lockwood, 2007), leading to the stable local governance system development,
which can serve the villagers optimally and efficiently.
Meanwhile, factor 2 (village fund planning) reflects accountability, which is a crucial driver and
fundamental principle in the quest to deliver effective development outcomes. To achieve the village fund
objectives effectively, having popular participation and accountability in local governance is the way for
the government at the village level will become more responsive to the villagers’ desires and more
effective in service delivery (Blair, 2000). A well-formulated village fund budget, which is a joint-work
of village officials and village council, becomes a reflection of accountable participation of both parties
(i.e., village governance and local communities).
Factor 3 (rural people participation) affirms the goal-setting theory, which explains the relation between
village government and local communities, aiming to synchronize the shared mission, vision, and
objectives among the village fund stakeholders, where villagers are actively involved in the local public
finance governance (i.e., village fund management). The rural people participation becomes vital due to
four reasons (Khrisna & Lovell, 1985): [1] it is to improve the overall program development plans and
priorities, [2] it is to align the needs of stakeholders with the program implementation, [3] it is to ensure
the stakeholders’ support on the program continuity, and [4] it is to enhance the equality among
stakeholders. Therefore, the rural people participation is a mechanism for the village fund’s beneficiaries
to provide wider opportunities and powers to the local communities to jointly manage the fund.
Finally, factor 4 (local development resources) symbolizes the community empowerment and local
resource management (Lawrence, 2006), in which village fund management should support the
conditions for environmental conservation and community economic development. The local
development resources root on four aspects in the community development process, namely community
recovery, capacity building, local resource management, and network development, where those aspects
should function simultaneously. The key indicators of successful local resource management are: [1]
village fund can satisfy the needs of individuals, families, and communities, [2] village fund can improve
the local environment, and [3] village fund can provide benefits for the local economy.
Therefore, the village fund becomes a strategic platform for local public finance governance to increase
prosperity and reduce poverty in the village, which the principal fund disbursements are at infrastructures
development, such as rural roads, irrigation, roads, sanitation, and others that it will have an impact on the
economic recovery of the village. It also utilizes labor-intensive scheme, as a part of optimizing local
7162
resources, to strengthen the economy, enable the local private sector to flourish, generate higher incomes
and living standards for the villagers, ensure security, and social cohesion.
Conclusion and Theoretical Implication
This study explores the 24 adopted-public finance factors of village fund governance to form the
influencing variables. By applying factor analysis, it found four assumed-determinants of effective village
fund implementation: [1] village fund management, [2] village fund planning, [3] rural people
participation, and [4] local development resources. Those influencing factors reflect some relevant
theories or principles of local public finance management, such as the fiscal federalism theory, the
accountability principle, the goal-setting theory, and the principle of the community empowerment and
local resource management.
The proposed-antecedents of village fund governance rooted on some facts of village fund program
executions, such as the problem of village fund effectiveness, how to meet the stakeholders’ expectation,
managing the resources, and galvanizing transparency and accountability. It derives from the real-
problems of practical village fund implementation in which the villagers face and deal with it daily.
Therefore, it offers more relevant estimations and solutions on village fund governance’s challenges, such
enhancing efficiency in disbursing the fund, stimulating a well-formulated village fund budget, increasing
the villagers’ participation in programs’ formulation, and managing local resources effectively. In other
words, it lends more practicability and robustness in determining the village fund’s research framework.
Even though, it has some limitations, this current study can be also a start to explore more relevant
antecedents, such as adopting more theories or principles of public finance administration, using more
respondents from multi-group strata, applying matrix decomposition factor analysis to form more robust
determinants, treating an experimental research of comparing the effect of pre and post-village fund
executions, and combining the analysis methods (e.g., integrating Data Envelopment Analysis as the
measure of village fund effectiveness). Those recommendations will expand the further studies of village
fund and its relationship to local public finance governance.
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Les Écosystèmes d’Affaires Revisités au Moyen d’un Blueprint
Mostafa ABAKOUY, Enseignant-chercheur

Ecole Nationale de Commerce et de Gestion de Tanger (Université Abdelmalek Essaâdi).
Tanger, Maroc.
mabakouy@yahoo.fr
Hamid HOUSNI, Enseignant-chercheur

Tanger, Maroc.
housni64@outlook.com
Ibtissam SLIMANI, Doctorante

Tanger, Maroc.
ibtissam.slimani@yahoo.com
Résumé
Dans sa bataille pour équilibrer son poids théorique avec sa pratique faisant écho dans le cosmos
managérial, l’écosystème d’affaires rivalise sa jeunesse pour répondre sans relâche aux exigences
présentes et futures d’un monde d’affaires inconstant et incertain. D’ailleurs, entre ne pas devancer
ses origines d’hier et rester ad-hoc aux exigences d’aujourd’hui, se trouve une ligne fine. Le défi
devient sans conteste celui d’une compréhension renforcée de l’objet de recherche impliquant une
application raffinée par les hommes orchestres du monde des affaires. Cet article ambitionne de
mesurer la pertinence du blueprint pour mieux appréhender les écosystèmes d’affaires.
Retraçant finement l’historique de la notion d’écosystème, et au moyen d’une démarche
métaphorique, nous nous apercevons bel et bien que le blueprint sert d’une vraie source inspiratrice
pour la compréhension des écosystèmes d’affaires.
Mots-clés : Ecosystème, Ecosystème d’affaires, Métaphore, Blueprint.
Abstract
While in battle to balance its theoretical weight with its practice echoing in the managerial cosmos,
the business ecosystem rivals its early beginnings to continually meet the present and future demands
of an inconstant and uncertain business world. Moreover, between not being ahead of its origins and
remaining ad-hoc to today's requirements, lays a fine line. Thus, the challenge becomes
unquestionably that of a reinforced understanding of the subject of research implying a refined
application by the orchestra leaders of the business world.This article aims to measure the relevance
of a blueprint to better comprehend what business ecosystems are. By delineating the history of the
ecosystem concept, using a metaphorical approach, we realize that the blueprint serves as a veritable
source of inspiration when it comes to understanding business ecosystems.
Keywords: Ecosystem, Business ecosystem, Metaphor, Blueprint.
Introduction
Si l’univers des tendances et des derniers cris de mode ne cesse de charmer notre vie quotidienne, il
nous semble captivant d’admettre qu’il existe des tendances d’ordre terminologique faisant des
entreprises des boites noires, et de leurs coalitions des écosystèmes d’affaires. Il est à partir de
métaphores pareilles, et de leur usage profus que nous nous interrogeons sur la beauté d’un emprunt
terminologique, mais aussi sur sa pertinence sous l’ombre d’un maniement abandon et sous réserve
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d’une fidélité à l’origine du terme écosystème d’affaires. Alias, elle nous est intéressante cette
question de la pertinence de l’image véhiculée par un tel vocable et supra tout, celle de
l’opportunisme de l’usage ad-hoc du concept de l’écosystème d’affaires.
Entre diligence et célérité de propagande, nous choisissons de sortir des sentiers battus, pour songer à
cette évolution à rythme hâtif, rendant difficile une compréhension explicite de ce qu’est un
écosystème d’affaires. Il est à chaque fois que nous nous croyons à deux pas de l’assimilation du
terme, que son évolution frappe plus fort puis déstabilise nombreuses tentatives scientifiques de
familiarisation avec le concept.
De plus, il apparait que faire connaissance avec ce fameux écosystème d’affaires semble être une
tâche de plus en plus défiante, éminemment avec le support d’une infécondité d’écrits en littérature.
D’ailleurs quoique le terme soit familier entre hommes orchestres dans le monde d’affaires, chez les
managers, les décideurs, voire même entre Etats, il n’a pas encore eu autant de reconnaissance
théorique que son existence le mérite. Cela revient à encourager la théorisation d’un sujet pareil ainsi
que la stimulation de débats théoriques fructueux autour de son canevas. L’objectif étant de suivre le
rythme de la pratique qui l’accompagne, et qui fait amplement écho dans le monde des affaires.
Si nous venons de justifier le sujet par le travers des contextes terminologique, pratique, théorique et
scientifique sus traités, il est temps que nous osons faire un pas en avant vers le positionnement de
l’écosystème d’affaires. Autrement dit, nous nous intéresseront à cet écart qui nous éloigne de la
compréhension propre du sujet, l’écart entre ce que son canevas de départ dicte au monde et ce
qu’exigent ses utilisateurs en réalité quant aux marges de manœuvres. Sans plus tarder, notre question
de recherche se présente comme suit : Quelle pertinence de l’image du blueprint pour décrire et
appréhender les écosystèmes d’affaires ? Afin d’y répondre, il nous est indispensable de trouver
d’abord des éléments de réponse à quelques questions sous-jacentes : Qu’est-ce qu’un blueprint ?
Que doit-on saisir du vocable écosystème d’affaires ? De quel livrable s’agit-il quand nous associons
les deux termes ?
D’abord, imaginons une première version photographique d’une maison de rêves, un plan qui
consiste en une conception précoce de cet édifice idyllique. Maintenant, imaginons-le en lignes
blanches sur un fond bleu : c’est notre blueprint dans son sens originaire de méthode d’impression en
blanc sur bleu, inventé en 1842. A partir de son incorporation exhaustive de détails, le blueprint est
devenu non seulement une méthode d’impression, mais aussi une métaphore empruntée pour se
référer à tout processus minutieux et particularisé dont l’utilisateur devient contraint lors de la
réalisation de ses tâches et activités. Nous trouverons ainsi et à titre d’exemple, des blueprints sous
forme de scripts en centres d’appels, et d’autres en tant que modèles de conception d’avions.
De son côté, la notion de l’écosystème d’affaires, sujette de cette image, est le fruit d’une conception
managériale bâtie sur une métaphore biologique dans l’objectif de mettre à la disposition des
décideurs et des managers un canevas qui bouleversera leur perception du réseau, des alliances
stratégiques et de la concurrence. Cette genèse dont la vision revient au consultant James Moore
(1993) invite à appréhender la firme comme faisant partie d’une organisation réticulaire d’acteurs,
orchestrée par un keystone et conduite par une vision partagée à la quête de la survie, la création et le
partage de la valeur.
Bien que les deux concepts semblent diverger sur le plan sémantique, nous vous invitons à penser
l’écosystème d’affaires de son origine ancrée dans la biologie, jusqu’à son intégration courante dans
le langage managérial passant par toutes ses particularités que semble nous dicter Moore au travers sa
vision écosystémique. Pensons-le en blanc sur fond bleu, sous forme de processus allant des premiers
piliers de création d’un écosystème d’affaires (naitre), passant par la possession de ses propres traits
d’existence (grandir) et finissant par être comparé avec ses versions précédentes (throwback aux
origines). La métaphore semble-t-elle laisser place à une marge de manœuvre au profit des
décideurs ?
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L’approche dont nous avons choisi d’imaginer puis de traiter de ce tandem blueprint-écosystème
d’affaires est intégralement théorique. Une réflexion que nous jugeons primordiale à la réussite de
nos recherches futures. D’où la promesse que nous attachons étroitement à cet article.
Pour l’instant, lisons le blueprint de l’écosystème d’affaires avant d’en juger la pertinence. Pour ce
faire, nous envisageons en trois stations un voyage vers la compréhension de ce qu’est un écosystème
d’affaires. Dans un premier temps, nous illustrerons son ancrage dans la biologie par respect à la
phase de naissance que personne ne peut dénuder d’importance. Nous y éclaircirons des notions pré-
écosystème avant de présenter le contexte d’apparition de sa théorie quantitative. Nous approchant de
la deuxième station, nous atterrirons sur la piste du management, et nous ne pouvons que visualiser
sur notre chemin des manifestations d’organisations réticulaires pré-écosystèmes d’affaires. Une fois
arrivés, l’identité du concept de plus en plus claire, nous nous tarderons sur ses particularités et sa
catégorisation. Une troisième et dernière partie du présent article se focalisera sur la métaphore « tel
père tel fils » pour cadrer la comparaison qui opposera écosystème biologique à l’écosystème
d’affaires. L’objectif étant de mettre sous lumière les différentes critiques résultantes de l’usage de la
métaphore biologique.
Ancrage de l’écosystème dans la biologie : Naitre

Dans cette première partie, nous faisons un retour en arrière aux premières étincelles fomentant la
naissance du concept d’écosystème, mettant en relief quelques contributions théoriques qui semblent,
à chaque attentat, graviter autour des liens entre homme et nature, entre unité et multiplicité, mais
aussi entre vivant et non vivant. Ainsi, attacherons-nous le fœtus à sa mère par une brève présentation
de l’écosystème, tel qu’apparait en biologie, avant d’en citer les trais les plus marquants.
L’écosystème Dans Son Etat Embryonnaire

Le phénomène dont nous essayons de rappeler les premières allures semble outrepasser le rituel des
emprunts de concepts, des emprunts directs d’ordre terminologique aux sciences voisines et qui se
manifestent amplement quand il est question de la quête des origines. Alias, le surgissement du
concept ecosystem à la première main fut dans un contexte exclusivement écologique et y a constitué
un concept caractéristique.
Quant à sa domiciliation, l’origine du vocable ecosystem remonte aux États-Unis avec les travaux de
George Arthur Tansley (1935). Seulement, nous ne pouvons méconnaitre l’existence de travaux
relatifs ayant lieu peu ou prou simultanément dans plusieurs pays. Il est de ce fait à la faveur de ces
recherches et écrits menés en Europe et aux Etats Unis à la fois, que sont apparus les concepts
écosystème et ecosystem. Une naissance battue bel à bien en amont et moyennant l’usage du concept
d’écosystème dans son état de germe.
D’ailleurs, les années 1920 ont témoigné l’usage régulier du terme composé « complexe organisme-
milieu » dans les écrits français de l’écologie. Ledit terme a servi de descriptif des rapports entretenus
entre un organisme et le milieu qu’il occupe. Il est à informer qu’un essai de modification graphique
du terme en « complexe organismes-milieu » a fait naufrage en 1934 malgré les tentatives de
souligner la nécessité d’envisager une variété des ensembles au détriment d’une isolation en face à
face d’un seul être vivant avec son milieu physique. Les deux notions ont été enterrées en écologie et
remplacées par l’écosystème.
Aux Etats Unis, l’histoire de l’ecosystem, compte tenu de ses termes précurseurs, remonte aux années
1887 lorsque l’américain Forbes a traité le concept de microcosm dans son article « The lake as a
microcosm ». L’auteur y a mené une étude portant sur les interdépendances et les interrelations entre
les habitants du lac et a considéré ce dernier comme étant un microcosme. A l’œil contemporain, ce
concept semble être une version embryonnaire de l’écosystème.
Suivant les traces de Forbes, d’autres auteurs ont essayé d’enrichir la terminologie écologique en
créant des concepts renvoyant presque au même sens que celui suggéré par l’écosystème. Il s’agit de
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termes que nous trouvons chez Clements dès 1916 tel que community, biotic community et
superorganism qui désigne l’ensemble des plantes faisant partie de la même communauté biotique.
Ou encore parlons-nous de Naturokomplekse, apparu dans la langue allemande. Nous trouvons
également le terme holocen avant que Tansley (1935) ne vienne refuter le concept de Clements et
proposer comme substitut le vocable quasi-organisme.
Il faut dire qu’outre leur appartenance à la même science, ces concepts partagent un autre facteur
commun, en l’occurrence la disparition au profit du concept ecosystem proposé par Tansley en 1935
et résultant de la contraction du syntagme ecological system. Or, ce foisonnement terminologique
n’avait pas encore marqué le début d’une ère de théorisation quantitative du concept.
Vers Une Théorie Quantitative De L’écosystème

Etant de naissance récente, le terme ecosystem a dû s’affronter au spectre de la notoriété minime qui
longeait à ses alentours. D’ailleurs en 1939, est apparu un concept concurrent : le biosystem, un terme
qui fait référence à la sommation de la biocénose avec son complément le biotope (Dury, 1999). Or
biosystem a vite fait naufrage au sein de l’océan de la terminologie écologique.
Ce n’est qu’en 1941 qu’est venu un jeune écologiste américain affiner le concept ecosystem. Et ce, en
parlant d’un ensemble d’éléments biotiques (êtres vivants) et abiotiques (êtres morts). De telles
terminologies sont à l’origine de l’arrivée traditionnelle au monde d’une théorie quantitative des
écosystèmes. Raymond Laurel Lindeman (1942), lui, a rassemblé la partie la plus importante des
acquis du domaine accumulés dans les années 1930 pour produire « The trophic dynamic aspect of
ecology ». L’écosystème pour Lindeman, comme chez Forbes (1887), traduit un ensemble structuré
et organisé d’éléments en interdépendance. Seulement, il semblait que les deux auteurs ne s’adonnent
pas aux mêmes composants (Drouin, 1987).
Aussi, Lindeman considère-t-il un écosystème lacustre comme étant un cycle parcouru par des flux
d’énergie et de matière. Il le qualifie de trophique, en référence métaphorique à la nutrition des
organes et des tissus. Pour lui, le lac-sujet de son étude est un organisme qui subit une croissance,
atteint sa maturité et arrive à son vieillissement, à l’image de la mort d’un lac donnant naissance à
une forêt.
La logique analytique de Lindeman (1942) s’oppose à celle pratiquée par Forbes avant lui, dans le
sens où la première met le concept d’écosystème au centre et cœur de l’analyse, tandis que la seconde
ne le perçoit que comme étant un référent, un cadre au sein duquel existent les interrelations entre
espèces. Ces dernières pour Forbes (1887), sont celles qui méritent d’être mises au centre de
l’analyse.
A ce stade de l’évolution du concept d’écosystème, une chose est certaine : le terme suit des courants
de pensée non figés et ceci lui accorde le privilège de se faire un sujet à degré décent d’agilité.
Ainsi, nous intéressons-nous aux questions de la taille et de la frontière quant aux écosystèmes, en
vue de les appréhender davantage. Il est à noter à ce titre que nous avons croisé le terme écosphère en
référence à la planète, soit le plus grand écosystème existant, en opposition au terme synusie,
renvoyant à un écosystème de vie courte et de petite superficie. Il existe deux autres termes relevant
de la famille des écosystèmes, et traitant de leurs frontières : écotone, décrivant la zone transitoire
entre deux écosystèmes de petite taille, et écotope, admettant et décrivant les subdivisions existantes
au sein d’un écosystème à taille significativement grande.
Une autre façon d’approcher le concept d’écosystème consiste à emprunter la logique de Frontier
(1977), selon laquelle un écosystème est un système dissipatif caractérisé par l’incorporation d’un
flux d’énergie et d’un cyclage de la matière. A ceci, ajoute-t-on que Frontier admet les écosystèmes
en tant que réseaux d’interrelations et d’interactions réciproques entre populations, mais aussi entre
ces dernières et le milieu qu’elles occupent.
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De par cette définition, que quelques propriétés de départ se manifestent, on parle d’abord du
fonctionnement des éléments d’un même écosystème, qui s’avère être tributaire de leurs
interdépendances : ce caractère dissymétriquement mutuel garantit le fonctionnement à deux sens au
sein d’une forme d’interactions réticulaire. Ce type d’organisation en réseau se présente, par ailleurs,
chez Frontier (1977) comme étant de nature hiérarchique dans le sens où ces éléments compositeurs
soient eux-mêmes des systèmes à tout niveau.
Atterrissage de l’écosystème dans le management : grandir

Dans cette deuxième partie, nous nous intéressons à mettre l’accent sur le processus de cristallisation
du concept d’écosystème en celui d’écosystème d’affaires. Pour ce faire, nous parlerons de quelques
notions relatives à l’ère pré-écosystème d’affaires, avant d’en projeter les particularités.
Sur Le Chemin Vers Un Ecosystème D’affaires
Une Organisation Réticulaire Pré-Ecosystème D’affaires

Au fil du temps, plusieurs termes ont été mobilisés pour se référer à des groupements à identités
repérées sur un même territoire. La liste est longue, mais nous en citons clusters, districts industriels,
districts technologiques, grappes technologiques, milieux innovateurs, pôles d’excellence, pôles de
compétitivité, systèmes productifs locaux et système territorial de production. Nous nous
intéresserons dans cette partie à appréhender l’évolution des deux premiers termes dans un objectif de
mieux comprendre ce que n’est pas l’organisation en écosystèmes d’affaires.
D’abord, et selon la vision marshallienne du district, les formes d’organisation réticulaires peuvent
trouver origine. Remontant au début du XXème siècle, la théorisation du district fait appel à des aires
d’entreprises industrielles regroupées. En 1978, Bécattini non seulement reprend la conception
marshallienne du district, mais vient également souligner les mécanismes piliers d’une coordination
des activités de production.
Dans les années qui suivent, la notion du district industriel va témoigner d’une évolution forte. A la
suite de cette réalité et dans les années quatre-vingt, on admet l’existence de concentrations
géographiques et économiques avec interactions fortes entre acteurs à objectifs communs ou
complémentaires. Ces derniers peuvent être d’ordre public, privé ou institutionnel, et ce, en lien avec
un certain type d’activité. Il s’agit des clusters dont les définitions jouissent d’une certaine diversité,
mais maintiennent quelques caractéristiques communes (Daidj, 2011) :
• Il s’agit de regroupements d’institutions (telles les universités) et d’entreprises dans une région
précise, tout en s’inscrivant dans un secteur ou industrie(s) spécifiques.
• Les acteurs d’un cluster entretiennent des relations de natures horizontale et verticale leur
garantissant des liens étroits. Malgré cela, une forme de coopération systématique n’y existe pas
à elle seule.
• Les domaines d’activités des entreprises du même cluster sont similaires. Résultat : les acteurs
sont susceptibles d’y partager des compétences ainsi que d’y produire des biens
complémentaires.
Business Ecosystem : Une Première En Management

Si Tansley, en 1935, se réfère à l’écosystème pour qualifier l'unité écologique d’assise bâtie sur un
milieu (biotope) et des organismes (biocénose) qui y vivent, Moore vient en 1993 reprendre le terme
et l’utiliser dans un langage managérial pour baptiser des systèmes à composantes liées par le travers
de la coévolution. Il s’agit du business ecosystem traduit en écosystème d’affaires.
D’ailleurs, « Predators and Prey : A new ecology of competition » fut le premier écrit de James F.
Moore, paru en 1993, et témoignant de la naissance du terme écosystème d’affaires.
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Moore, lui, semble venir dénuder l’écosystème de son appartenance exclusivement écologique, et en
lui rattachant le qualificatif d’affaires, il marque l’introduction de première main d’un tel concept en
langage managérial. L’auteur, à qui l’histoire du business ecosystem accorde la paternité, ne rate
guerre l’occasion de bâtir sa vision, explicitement, sur les acquis de l’écologie. Il souligne à ce titre
qu’à l’instar de sa « contrepartie biologique », l’écosystème d’affaires se transforme de manière
progressive en une communauté structurée davantage, à partir d’un ensemble d’éléments qu’il
qualifie d’aléatoire. Outre cette référence initiale à la biologie, Moore résume le surgissement des
écosystèmes d’affaires dans le capital, l’intérêt client et le talent généré par une innovation nouvelle,
en analogie avec le succès des espèces provenant de la lumière du soleil, de l’eau, ainsi que des
nutriments du sol.
De surcroit, Moore (1993) se sert de quatre étapes essentielles (Birth, expansion, leadership et self-
renewal or death) pour tracer la trajectoire de vie et de survie d’un écosystème d’affaires. Il s’agit
de :
• La naissance : la première phase dans le processus de création d’un écosystème d’affaires. A ce

niveau entrepreneurs et managers sont invités à simuler ce que la clientèle cherche. Autrement
dit, la naissance de l’écosystème traduit à la fois une proposition de la valeur client et la forme
optimale dont elle sera délivrée. Le scénario le plus productif en phase de naissance sera celui
dont les acteurs se servent de la coopération et de la collaboration en tant que monnaie
principale.
• L’expansion : après avoir existé, un écosystème d’affaires procèdera à s’élargir, à conquérir de

nouveaux territoires. Cette quête requiert être armé d’un concept auquel le client attachera une
valeur, et d’un potentiel pour pouvoir le fortifier, dans l’objectif d’atteindre un marché plus
significatif. Le défi à relever est celui de la stimulation de la demande dans la limite de pouvoir
la satisfaire.
• Le leadership ou la domination : dans cette phase, les acteurs d’un écosystème d’affaires se
trouvent en querelle quant à l’acquisition de la place du leader. Cette concurrence intra
écosystémique est à degrés différents dépendamment du niveau de croissance et de profitabilité
de l’écosystème. D’ailleurs la portée d’un keystone au sein d’un écosystème d’affaires peut être
explicative de sa robustesse, sa santé, ainsi que de sa productivité. Raison pour laquelle le
leadership de type keystone s’avère défendu par des auteurs tels Lansiti et Levien (2004) qui
vont jusqu’à la prédiction d’un effondrement catastrophique de l’écosystème d’affaires entier
faute de sa firme keystone.
• Le renouveau ou mort : la dernière phase du cycle de vie d’un écosystème d’affaires prend lieu
lorsque ce dernier se voit menacé par la montée de nouvelles innovations et/ou écosystèmes
d’affaires (concurrence inter écosystémique).
Il est à noter que les quatre étapes sus mentionnées peuvent varier en passant d’un écosystème
d’affaires à un autre. La partie figée réside dans le processus de coévolution.
Sur L’identité Des Ecosystèmes D’affaires
Un Canevas A Particularités
A ce stade, nous portons intérêt à une définition de l’écosystème d’affaires, inspirée des travaux de
James Moore et selon laquelle il s’agira d’une : « coalition hétérogène d’entreprises relevant de
secteurs différents et formant une communauté stratégique d’intérêts ou de valeurs structurée en
réseau autour d’un leader qui arrive à imposer ou à faire partager sa conception concurrentielle ou
son standard technologique » (Torrès-Blay, 2000).
En étalant cette définition de l’écosystème d’affaires, des particularités de son canevas semblent se
dégager :
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• D’abord, l’écosystème d’affaires représente un point de convergence d’une diversité en forme et

en nature d’acteurs. Cette rencontre fera disparaitre ainsi la notion d’une seule industrie ou filière
au sein du même écosystème, une entité qualifiée de relationnelle et qui peut être fruit
d’alliances, de lobbies, de groupes de pression, de partenariats, d’accords de commercialisation
ou de contrats de cotraitance parmi d’autres formes.
• L’hétérogénéité des acteurs qui fait référence à la coexistence d’entreprises, d’institutions, de

syndicats et de toute autre forme d’organisation ayant fait le choix d’appartenir à l’écosystème
d’affaires, une appartenance qui n’est pas, à notre connaissance, conditionnée par une forme
quelconque d’exclusivité.
• Comme le révèle la définition susmentionnée, un autre trait caractéristique de l’écosystème

d’affaires réside en la réunion d’acteurs issus d’industries différentes et organisés en une
communauté de destin stratégique (Gueguen et Torrès, 2004) autour d’un leader, qui est
considéré comme une firme pivot invitée à s’approprier le rôle de coordinateur-arbitre du jeu à
l’intérieur de son écosystème. Les autres membres sont amenés, bon gré mal gré, à suivre le
chemin que trace cette firme pivot.
• Le standard, une sorte de noyau de l’écosystème d’affaires, savoir-faire, norme ou innovation qui
développent une ou plusieurs compétences centrales. A l’usage de ces dernières, les acteurs
adhèrent au processus de coévolution tout en alternant coopération et compétition (Moore, 1993).
Nous rappelons que l’imposition du standard est l’apanage du leader, et que l’assurance de sa
continuité et la veille sur son développement relèvent des compétences unies des acteurs
orchestrés par la firme pivot, et ce, en veillant sur le nouement d’alliances de types différents et
avec des parties prenantes différentes y compris les concurrents directs, ainsi que les fournisseurs
des produits dits complémentaires pour garantir l’obtention de l’exclusivité (Calcei, M’Chirgui et
Ohana, 2009).
In fine, si pour des auteurs, la communauté de destin stratégique représente un trait définitoire de
l’écosystème d’affaires, pour d’autres, il s’agira plutôt d’un type de business ecosystem parmi
d’autres.
L’écosystème D’affaires, Sa Catégorisation

Se servant de deux critères, Koenig (2012) propose une typologie d’écosystèmes d’affaires en
soulignant qu’il ne pouvait exister une seule forme type incorporant toutes les particularités possibles.
Il distingue ainsi le système d’offres, la plateforme, la communauté de destin et la communauté de
foisonnement dépendamment du degré de contrôle des ressources clés et du régime pratiqué quant
aux interdépendances prenant lieu dans un écosystème d’affaires.
Primo, les systèmes d’offres selon Koenig (2012) représentent une intersection entre la
décentralisation du contrôle des ressources clés avec la réciprocité des interdépendances au sein de
l’écosystème d’affaires : le scénario à promouvoir est celui d’un mandant qui confère des tâches à ses
mandataires leur autorisant une contribution de nature complémentaire. La dénomination « système »
sert à rappeler la firme focale de la partie des ressources dont elle n’est pas propriétaire, d’où la
décentralisation du contrôle quant aux ressources clés partagées.
Secundo, Les plateformes, en revanche, n’incorporent point la question des ordres discernés aux
acteurs membres, ni celle de leurs contributions. Elles mettent l’accent sur les règles qui régissent le
jeu et situent ainsi le contributeur dans une obligation de les considérer. Le défi à relever à ce niveau
par le propriétaire de la plateforme est celui de son maintien en étant en garde avant à la conservation
du contrôle.
Tertio, Koenig distingue les communautés de destin des communautés de foisonnement. Les
premières renvoient à l’hétérogénéité d’acteurs la plus grande en comparaison avec les plateformes et
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les systèmes d’offre. Ces acteurs disposeront d’une solidarité qualifiée d’existentielle, qui remplacera
le poids lourd d’une firme focale à ressource clé, et fera de leurs interdépendances l’expression
explicite d’une volonté ; les communautés de foisonnement quant à elles, se qualifient d’un régime
d’interdépendances de type pool où chaque acteur contribue de façon isolée et distincte. Une
communauté de foisonnement témoigne d’un contrôle décentralisé des ressources clés à l’encontre
des plateformes.
Throwback Aux Origines : Talis Pater, Talis Filus

Partant de leurs particularités, il semble que les écosystèmes d’affaires renvoient à des logiques qui
dominent à leur intérieur, et qui font sujet d’analyses et de commentaires, supra tout d’ordre
comparatif vis-à-vis des traits définitoires d’un écosystème tout court comme paru en écologie il y a
plus de 80 ans. Il s’agit de comparaisons mettant en cause la métaphore biologique sur la base de
laquelle Moore a construit son business ecosystem. Nous récapitulons dans cette dernière partie les
logiques dominantes au sein de l’écosystème d’affaires en un premier temps, pour exposer ensuite,
les critiques suscitées à l’occasion de la prise en compte des origines écologiques du terme.
Ecosystème D’affaires : Récapitulatif Des Logiques Reines

Il va sans dire que la question de frontières que posent les interdépendances entre membres du même
écosystème d’affaires persiste toujours. Cette convergence d’industries suppose un partage de
compétences et du savoir grâce aux rapprochements et, partant, aux propositions de valeur au sein
d’un même écosystème d’affaires. A cette idée s’attache celle du principe de coévolution proposé
dans l’article fondateur publié dans la Harvard Business Review en 1993. Il faut rappeler que Moore
s’inspire des travaux de l’anthropologue Gregory Bateson sur la coévolution pour décrire la nature
des rapports et liens entre l’ensemble des membres composants. En langage managérial, cela renvoie
à une forte coopération inter écosystémique. La permanence de ce type d’alternance entre
coopération et concurrence est censée tisser une dynamique permanente au sein de l’écosystème
d’affaires (Edouard et Gratacap, 2010). Une telle dynamique est apte à garantir un partage vif de
compétences et de savoir-faire sans pour autant annihiler les liens compétitifs entre firmes
composantes quant aux services et biens.
Par ailleurs, il s’avère que la mouvance du courant des écosystèmes d’affaires a fait naitre la notion
de coopétition (Nalebuff et Brandenburger, 1996) suite à celle de la coévolution de Moore (1993). Il
s’agit d’un néologisme qui est venu populariser et décrire le jeu de rôles entre acteurs de
l’écosystème d’affaires : ces derniers, adeptes d’un comportement dual, alternent donc carte de
partenaire et carte de concurrent à leur guise, selon les conditions de leur environnement et à la quête
d’un avantage éventuel étant celui d’accéder « … à des ressources rares et complémentaires »
(Dagnino, Le Roy et Yami, 2007). Il est pourtant avantageux de garder à l’esprit le contexte selon
lequel les firmes évoluent. A ce titre, Pellegrin-Boucher et Gueguen (2005) soulignent qu’un
environnement excessivement collectif pourra repousser et rejeter une telle stratégie tandis qu’un
autre trop hostile pourrait se qualifier de dangereux pour la considération d’une stratégie de
coopétition.
Une autre logique s’attache, elle aussi, à la théorie des écosystèmes d’affaires : le leadership ou la
domination. D’abord, il s’agit d’une explication de la forme organisée dont est vêtu l’écosystème. De
plus, la notion chasse toute forme d’autorité et ou de commandement au profit d’une conduite
harmonieuse des évolutions ainsi que d’une certaine capacité à influencer. Le futur leader, à ce titre,
est contraint d’attribuer tant d’attention que nécessaire aux acteurs clés, tout en fortifiant ses alliances
avec le reste du tissu dans l’objectif de ne rater aucune possibilité de contributions futures. Une fois
le trône décroché, la firme focale ajustera ses manœuvres dépendamment du stade de développement
de son écosystème d’affaires. L’existence du leadership dans un écosystème d’affaires favorise la
communauté de destin à prendre lieu et forme. Comme mentionné précédemment, le leader est
amené à tracer une trajectoire vers la satisfaction des clients, de lui-même, mais aussi de celle des
autres membres de l’écosystème d’affaires. Alias, la compréhension des évolutions individuelles
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devient tributaire de l’évolution du reste de l’écosystème et le partage des savoirs et connaissances

dans le cadre des coévolutions devient accepté plus que subi.
Entre écosystème et écosystème d’affaires de l’ancre continue à couler …

Dès la fin des années 1990 et avec l’introduction de l’écosystème d’affaires dans le monde du
management, les discussions autour de la notion n’ont cessé d’apparaitre ni les débats de se
déclencher. Il semble que les motifs diffèrent mais gravitent tous autour de la métaphore biologique
rédactrice du scénario managérial. En effet, si Moore construit sa vision de l’écosystème d’affaires
sur une inspiration écologique (principes de la coévolution et de l’équilibre ponctué), d’autres auteurs
attachent cette analogie à une fertilité de critiques. Ils explicitent ainsi leurs interrogations de façon à
mettre en cause la pertinence entière de cette métaphore, et les raisons en sont multiples.
La Quête D’un Biotope

Quoique la convergence des définitions de l’écosystème en biologie invite au tandem biotope/
biocénose, il apparait que la conception de Moore (2006) reste discrète quant au premier élément,
c’est-à-dire le milieu – aussi baptisé « espace blanc », « espace de marché » ou encore « espace
d’opportunité ». En admettant que dans un écosystème d’affaires les acteurs constituent la biocénose
par équivalence aux êtres vivants d’un écosystème biologique, les questions se déclenchent sur la
considération d’un milieu où se produiront leurs interactions : sera-t-il le marché ? Le contexte
réglementaire ? Les clients ? Une seule chose est sûre : ce « territoire » que Moore invite à dominer
est toujours énigmatique (Koenig, 2012 ; Fréry, Gratacap et Isckia, 2012).
La Concurrence Inter Ecosystèmes

En biologie, les êtres vivants peuvent se concurrencer pour occuper un territoire, pour accéder à des
ressources ou pour des raisons de reproduction et de prédation. Dans un écosystème d’affaires, la
concurrence se focalise, selon Moore sur l’opposition à un ou plusieurs autres écosystèmes. En
effet, cette rivalité inter écosystémique fonde la pierre angulaire de la logique de convergence
d’industries susmentionnée. Or, semble-t-il que cette inspiration biologique ne trouve pas
d’exactitude en réalité.
L’extinction
C’est dans le sens où Moore (1993) lie la survie d’un écosystème d’affaires à sa capacité de mettre en
marge ses concurrents que va naitre une autre contradiction. Il s’agit de la question de l’extinction : si
Moore annonce le déclin d’un écosystème d’affaires par défaite à l’émergence d’un autre plus
puissant, il nous est toujours difficile de visualiser l’analogie faite par rapport à la biologie. En effet,
un écosystème en cette dernière cesse d’exister à cause de l’occurrence de catastrophes naturelles à
l’instar d’éruptions volcaniques ou chutes de météore. Mais en aucun cas, le triomphe d’un
écosystème ne mettra fin à l’existence d’un autre.
L’intention
D’abord, la question de l’appartenance à un écosystème d’affaires par choix et volonté réfléchis
(Isckia, 2011) a déclenché des commentaires selon lesquels l’intention de créer comme celle de
quitter un écosystème dans le monde animal n’a pas d’existence (Fréry, Gratacap et Isckia, 2012).
Ayant pour objectif de prescrire une formule magique aux managers, Moore s’est tardé sur le
comment de la création, gestion, étendue ainsi que de la protection d’un écosystème d’affaires tout en
accordant à l’intentionnalité des décideurs la place du chef d’orchestre. Néanmoins, l’indispensabilité
de cette volonté ne trouve encore pas d’équivalent en biologie. En effet, aucune espèce ne semble-t-
elle avoir la capacité de créer son propre écosystème, exception faite peut-être de l’espèce humaine
qui ne fait pas monnaie courante dans la fameuse analogie sujette de l’écosystème entre biologie et
management.
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La Prédation
Imaginons maintenant un écosystème d’affaires où les acteurs se distinguent les uns des autres par le
travers de deux étiquettes : proies et prédateurs. Ne sera-t-il pas un confond profond avec un
écosystème de la savane où lions et antilopes se jouent la prédation quant à leur guerre de territoire ?
Certes, il s’agit d’une notion clé dans l’univers biologique avec l’existence d’une chaine alimentaire
régulatrice des liens entre espèces. Néanmoins, cette dernière souffre de la quête de son équivalent
dans le langage managérial, faisant de la prédation un modèle douteux lors de son application à
l’économie humaine.
Pour faire bref, la légitimation de ces interrogations associées écosystèmes d’affaires prouve qu’ils
ont d’ores et déjà des particularités communes avec les écosystèmes biologiques. Reste à savoir
adapter leurs divergences au profit des manœuvres des décideurs en management. C’est à ce niveau
que nous estimons utiles et fertiles les critiques attaquant le recours à la métaphore biologique, dans
le sens où elles permettent aux décideurs une marge de créativité quant à la façon dont ils perçoivent
leurs écosystèmes d’affaires dès la création.
Conclusion
Etant plus qu’un buzz word à phonétique impressionnante et supra tout plus qu’un terme « fourre-
tout », la notion d’écosystème d’affaires a su voir au-delà de sa jeunesse et fraicheur, pour se donner
chair et s’approprier de facettes sujettes d’analyse en littérature. Lors de notre première réflexion,
nous nous sommes interrogés sur les spécificités réelles de cette forme d’organisation réticulaire, et
sommes tentés par le halo d’ambiguïté souvent associé à la seule dimension symbolique d’un tel
concept. Chemin faisant, nous percevons l’écosystème d’affaires comme étant un objet de recherche
suscitant des pistes d’investigation opportunes et nous nous efforçons, au travers de la présente
réflexion théorique, de le comprendre dès son origine jusqu’à son état existant moyennant la
métaphore du blueprint.
Désireux d’être fidèles à la métaphore fixée, nous ne pouvons dénuder le concept d’écosystème
d’affaires de son origine quoi qu’il s’agisse d’un terme baptisé écosystème par Tansley en 1935 pour
se référer à l’unité écologique de base, qui subsume le milieu et les organismes qui y vivent. Moore
(1993), lui-même, reconnaît sa dette libellée inspiration envers des auteurs pionniers de l’écologie.
Or, l’introduction de la notion d’écosystème d’affaires en management a buté sur de nombreuses

critiques, dans la mesure où Moore, bon gré mal gré, s’écarte significativement des sentiers
écologiques à maintes reprises, faisant de ladite analogie une mine de critiques. En effet, il n’est, à
cause de la distance remarquée entre les spécificités d’un écosystème biologique et celles de
l’écosystème d’affaires, qu’une sorte de confusion, venant semer le doute sur la pertinence de
l’apport de valeur écosystémique. Néanmoins, ceci ne la discrédite en aucun cas ; la preuve étant
l’écho de la notion, entendu dans le monde managérial depuis son avènement.
En effet, un écosystème d’affaires peut être défini comme une forme d’organisation en réseaux
enrobant des firmes issues d’industries différentes. Lesdites composantes interagissent entre elles afin
de profiter de façon collective des changements d’environnements. En outre, on ne saurait parler d’un
écosystème d’affaires sans évoquer la firme leader qui arrive à imposer son standard et veille sur le
dessin d’une trajectoire menant le système entier vers la création et le partage de la valeur tout en
bâtissant le sentier collectif le plus productif que possible. Aussi, sont-elles liées à cette notion
émergente, des logiques reines ravivant les mécanismes fondamentaux du cosmos managérial. En vue
de monter le puzzle que constitue un écosystème, il a fallu croiser les notions de coévolution,
coopétition, leadership, standard et innovation qui couronnent l’organisation en écosystème.
Cependant, le débat est loin d’être unanimement tranché sur la compréhension des écosystèmes
d’affaires, de leurs composantes ainsi que des logiques qui y dominent comme viennent de l’attester
les différentes contributions d’ordre académique citées ci-haut. Une chose est certaine : l’ambigüité
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du concept fait de lui un sujet à interprétations multiples. D’ailleurs bien qu’il reste toujours
primordial de mieux délimiter et définir la puissance d’un écosystème d’affaires, nous pouvons
avancer en présumant qu’il s’agit bel et bien d’un jeu de géants, amalgamant temps passé traduit en
comportements maléfiques de certains acteurs, et temps présent avec temps futur renvoyant tous les
deux aux notions de coévolution et de leadership. Cette dernière a pour vocation de décrypter
l’aptitude des firmes à saisir les différentes opportunités naissantes d’un environnement inconstant,
mais aussi elle traduit leur capacité de créer cette instabilité.
Eu égard à l’image de blueprint, de par l’ambiguïté qui marque un écosystème, il appert primordial
de représenter son fonctionnement en le conjuguant dans les trois temps (passé, présent et futur).
Mais aussi de décliner sa dynamique en multipliant les points de vue, d’en saisir la vue de face et de
sculpter ses faces cachées pratiquement à l’image du blueprint qui pour une représentation fidèle
d’un phénomène essaie de mobiliser la vue de face, de derrière, de gauche, de droite, de dessus et de
dessous.
Toutefois, les investigations que nous avons menées jusqu’à présent ne sont pas suffisantes. Nous
nous engagerons à les approfondir, essentiellement en associant la notion d’écosystème aux pratiques
marketing. Dans ce sens, le contexte marocain demeure un terrain fertile nous invitant à élaborer de
nouvelles questions de recherche.
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A Two-Level Architecture for Data Warehousing and

OLAP Over Big Data
Asma DHAOUADI
Université de Tunis El Manar, Faculté des Sciences de Tunis, LR99ES26 RIADI, Tunis, Tunisie
asma.dhaouadi@fst.utm.tn
Mohamed Mohsen GAMMOUDI

Université de la Manouba, Institut Supérieur des Arts Multimédia de la Manouba, LR99ES26 RIADI, La
Manouba, Tunisie gammoudimomo@gmail.com
Slimane HAMMOUDI
Groupe ESEO, Grande Ecole d'Ingénieurs Généraliste, ERIS, Angers, France
slimane.hammoudi@eseo.fr
Abstract
During the last two decades, architecture of traditional Data Warehouses (DW) have played a key role in
decision support system. A typical architecture of traditional DW involves source systems, components
implementing data collection process, stores (a central repository and data marts), as well as consumers:
reporting and analytic applications. However, the emergence of several new Internet services, Mobile
applications, Web applications, Social media (Facebook, Twitter, and Instagram, so on), Devices, and
Sensors, requires new Data warehousing systems and suitable architectures: large volume and format of
collected datasets, data source variety, streaming, integration of unstructured data and powerful analytical
processing. In this paper, we propose a two level architecture for Data warehousing and OLAP over Big
Data. The first level Platform Independent Architecture (PIA) allows identifying and specifying the main
components of the architecture to collect, store, transform and process the different kind of data. This
level is technology independent and focuses only on the requirements of the data features and the
processes needed to design a Data warehousing and OLAP over Big Data. The second level Platform
Specific Architecture (PSA) allows specifying the platforms and technologies that would be used to
achieve the different steps from the collection of data until the reporting and analytic applications.
Keywords: Storage Data ; Big Data ; Data Warehouse ; Platform Independent Architecture ; Platform
Specific Architecture ; Big Data Technologies.
Introduction
In all companies, data is at the heart of information technology (IT) systems. These data are undoubtedly
their strongest link, on which the success or failure of the enterprise depends. Data is always and will
remain indispensable regardless of the field of application: marketing, pricing, fraud detection, the
healthcare field, natural disasters prevention, so on. For example in marketing, by exploiting the
navigation data of a customer looking for a new accommodation, such as his web browsing traces
(cookies, history ...), it becomes possible for an estate agency to detect immediately the preferences of
this client and act accordingly. She recommends an offer adapted to her needs, in a fast time. And finally,
the customer is satisfied by the fast service and the personalized offer and the estate agency increases its
profits. Therefore, the success of this type of companies relies mainly on the importance of advanced
data-driven analysis. In recent years, with the emergence of several new Internet services, mobile
applications, Web applications, social media (Facebook, Twitter, Instagram, so on), massive databases
have emerged, we talk about "Big Data". Among the statistics given by Shelley and Cutting (2014) on the
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growth of social data, 30 billion pieces of content shared on Facebook on a monthly basis. Obviously,
behavior analysis, social media conversation analysis, product feedbacks, and many others, are advanced
data analyzes that can be performed from a massive stock of data ready to be used. Consequently, thanks
to this digital revolution, the deep analysis of these data has become more and more beneficial.
Nevertheless, Big Data faces several difficulties: the huge quantity of data gathered by a company
"Volume", the heterogeneity of these data, which can be structured as well as unstructured "Variety", and
the necessary treatment time "Velocity". They are the main "3V's" as defined by Doug Laney (2001). On
the other side, since the emergence of the DW, the architecture deployed in the Business Intelligence
projects, is mainly composed of four parts: (i) Data sources part, (ii) Data preparation part, (iii) Data
storage part, and finally (iv) Data access and analysis part. In a traditional decision-making environment,
data sources rely on enterprise database management systems (DBMS), and/or composed of files in
simple formats. These DBMS manage relational databases and Online Transaction Processing (OLTP)
systems. In the data preparation area as known by the "Data Staging Area" (DSA), the data extracted
from the data sources part undergoes transformations so that they are adapted to a database dedicated to
the processing of decision-making applications. Next, these prepared data will be loaded into the final
target, which is a DW. Data extraction from the sources, transforming it and driving it to the final target,
are steps ensured by the "Extract-Transform-Load" (ETL) process. Finally, the access to aggregated data
for visualization, reporting, analysis and decision-making purposes is provided at the level of Data access
and analysis part. In this context, with the emergence of Big Data and its previously mentioned
challenges, the classic architecture of a DW will no longer be able to meet the specific needs of the new
generation of data. To fill this gap, there were some works proposing solutions for massive data storage
He et al (2018), Pal et al (2018), Munschi and Mohamed (2018), Salinas and Lemus (2017), and so on. In
this article, we propose a two level architecture for Data warehousing and OLAP over Big Data, called
"SpaLam". A Platform Independent Architecture (PIA) for the first level, allowing to identify and specify
the different elements of an architecture that contribute to the successful routing of data from the source
to the access and analysis phase. This totally technology-independent architecture focuses only on the
requirements of the data features and the processes needed to design a Data warehousing and OLAP over
Big Data. For the second level, it refers to an Platform Specific Architecture (PSA), allowing to specify
the platforms and technologies that are suitable for use at each stage of data warehousing. Compared to
previous work, the originality of this proposal stems from the ability to deploy the PIA by different
technological environments, which is relevant and beneficial to the context of the scalability and
portability of architectures for data warehousing and OLAP over Big Data. Furthermore, this proposal
allows the ability to derive different alternative PSAs from the same PIA. The choice of technologies
deployed by PSA is specific to the requirements of the data features and the specificities of the user's
needs. And thus, take advantage of the continuous evolution of technologies and harness them to serve
the user's needs.
The rest of this article is organized as follows: In Section 2, we discuss the evolution of data warehousing
from traditional environment to Big Data context, we give an overview of the Big Data technologies, and
we define briefly the Lambda Architecture. The our two level architecture: PIA and PSA are detailed in
Section 3. Section 4 is dedicated to present the related work. In Section 5, we conclude and we present
the future work.
Data Warehouse: From Databases to Big Data
Data Warehousing in The Data Base World

Usually the DW gathers the structured data from the enterprise DBMS and structured file formats. After
the extraction and transformation of these operational data by cleaning and aggregation, they will be
loaded into the DW. These data are organized according to a model called "multidimensional model".
This model can take one of the following forms: the star schema, snowflake schema, constellation
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schema, and OLAP cube. For the data processing the business process is supported by an OLTP systems
and the data are managed through SQL language. Finally, the data analysis is the exploitation of the
historical data to provide OLAP analysis, reporting, and Business Intelligence. After a brief introduction
of the DW from the point of view of the supported data types, the storage, processing and analysis of
data. We confirm that the traditional DWs will no longer be able to meet certain criteria of the Big Data
requirements, such as:
- Massive volumes of source data;

- Semi-structured and unstructured data;
- Complex data processing;
- Fast decision making;
- The quality of data delivered.
Data warehousing in the Big Data context

In DW, the data are extracted and loaded in a periodic and programmed manner, whereas in the context
of Big Data, the arrival of information is often streaming (web servers, devices sensors, ..). On the other
hand, the DW and Big Data architectures have common components: Data Sources, ETL process, while,
for Storage: the DSA in the case of a DW and Distributed File Systems in the case of Big Data, for
Processing: is transactional for the DW and parallel-distributed in the case of Big Data, and finally Data
Mining, exploring, visualizing, OLAP Analysis and Reporting, in the case of a DW, and advanced, In-
Memory analytics in the case of Big Data. Thereby, the way data storage and processing differs in both
architectures. Data warehousing in the Big Data context is based mainly on a distributed architecture.
Facing a large volume of data, data distribution and parallelization of processing are the two solutions
proposed and agreed by the communities Salinas and Lemus (2017), Russom (2014), Inmon et al (2008),
and YiChuan and Yao (2012). Moreover, the Big Data technologies come as a solution to the problems of
storage, processing and analysis of massive data. In our PSA architecture, we position the various
existing Big Data technologies according to the type of processing which they perform (Section 3.2).
Big Data Technologies
To extract knowledge from Big Data, manage, process, represent and analyze these knowledge, there are
several technologies and platforms. Using an extensive memory, data distribution and processing
parallelization, are the guidelines of these technologies. They exist many survey on recent technologies
developed for Big Data Oussous et al (2018), Rao et al (2018), Chang et al (2018), and Singh et al (2018).
Hadoop ecosystem, MapReduce, NoSQL databases and others complementary technologies will be
detailed hereafter.
Apache Hadoop. It is a software framework developed for reliable, scalable, distributed computing. It
allows for the distributed processing of large data sets across clusters of computers using simple
programming models (Apache Hadoop Offcial, 2019).
Hadoop ecosystem. It is an environment integrated with several required data processing tools which
provide services for storage, access mechanism, and data management depending on the requirements of
the vendors, Chen et al (2011).
MapReduce. Hadoop MapReduce is a software framework for easily writing applications which process
vast amounts of data (multi-terabyte data-sets) in-parallel on large clusters (thousands of nodes) of
commodity hardware in a reliable, fault-tolerant manner (MapReduce 2018).
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HDFS. Hadoop Distributed File System is a distributed file system that provides high-throughput access
to application data (Apache Hadoop Offcial, 2019).
NoSQL Databases. They are known as "schema-less or schema-free, because they allow users to store
documents of different structures in the same collection" Bruchez (2015).
NewSQL Databases. They are a new approach to relational databases combining the relational model and
the transactional ACID (Atomicity, Consistency, Isolation, Durability) guarantees.
Apache Spark. It is a unified analytics engine for large-scale data processing. Over time, Apache Spark
achieved high performance for both batch and streaming data (Apache Spark 2019).
Overview of Lambda Architecture
Lambda Architecture is a data processing architecture developed by Nathan Marz designed to handle
massive quantities of data by taking advantage of both batch and stream processing methods, Marz and
Warren (2015) .This architecture has three layers; a Batch Layer where the storage is immutable of all the
data, a Serving Layer indexes the batch view and a Speed Layer contains recent data.
A Two-Level Architecture for Data Warehousing and OLAP Over Big Data
The TDWI survey interviewing DW professionals led to deduce "DW architecture is a critical foundation
for structure, performance, future expansion, business alignment, and user value" Russom (2014). Indeed,
among the 538 interviewed persons, the vast majority (98\%) consider DW architecture to be extremely
or moderately important for success, while (2\%) of respondents think that it is not important. However,
as detailed previously, traditional DWs will no longer be able to satisfy the Big Data requirements. In this
article, our main goal is to meet the growing needs of real-time and data volumes plus better exploitation
of internal data in correlation with the new. The suggested idea is to evolve the classical data
warehousing architecture to support the new data wave, by involving new Big Data technologies. This
evolution will be advantageous; maintain the benefits of traditional warehousing, for example the OLAP
analytics, and take advantage of recent technologies from the point of view; storage capacity, data
distribution, processing parallelization, advanced analysis, and so on. The new proposed SpaLam
architecture address to exploration, discovery, and deep analysis of large volumes of multi-structured and
streaming data. Inspired by model engineering field, this SpaLam two level architecture consists of two
levels.
- PIA is a totally technology-independent architecture. It is hybrid, combining the classic DW

and the specificities of Big Data to identify and specify the main components of the
architecture to collect, store, transform and process different types of data.
- PSA is a combination of different platforms and technologies leading to the successful
processing of Big Data in accordance with the first architectural modeling: PIA.
SpaLamPIA Platform Independent Architecture
Based on the Lambda architecture allowing to combine more than one type of data processing; Batch and
Real-time Processing, SpaLamPIA the first level of the proposed architecture consists of four stages as
follows (see Figure 1):
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Fig. 1: SpaLamPIA Platform Independent Architecture for Data warehousing and OLAP
over Big Data
Data gathering. With the emergence of Big Data, the data are assumed gathered from different sources.
These sources consist of different types of data such as structured, semi-structured, and unstructured data.
Structured data such as relational data from the entreprise DBMS and tabular data. Semi-structured data
such as HTML, Json, Bson, XML and CSV files. Finally, Log file, Excel files, audio, video, blogs, data
from Smartphone are considered unstructured data. The routing of incoming data from different sources
is the crucial task of the ETL process. This ETL process extracts data, transforms them so that they are
adapted to a database dedicated to the processing of decision-making applications, and finally, loads them
into the target storage databases, ie a DW. In our architecture, structured data are processed by a classical
ETL. That means after the extraction, they will be stored in the DSA for preparation, then into the DW.
While, for semi-structured and unstructured data often arriving in streaming will be stored in a storage
area called "Dynamic Storage Area". In this zone, these raw data are stored keeping their native formats.
This phase is ensured by Extract-Load Engine "EL Engine". In the Big Data era, this concept is known as
"Data Lake". However, among the techniques mentioned in Langseth (2019) for real-time data
warehousing: the data storage in an external Real Time Data Cache (RTDC), outside DW. This old
technique allows fast response of queries accessing real-time data. After a decade, the principle remains
the same, except that in the presence of the data streams are characterized by volume, variety and
velocity, the technologies to be deployed will have to respond to these features.
Data Storage and Processing. As shown in Figure 1, this area is divided in two, and these components
have an overlap with those of the Lambda architecture: the Batch Layer and the Speed Layer. The
structured data stored in the DSA are for the Batch Layer. While, the others data stored in the Dynamic
Storage Area are for the speed layer. In this phase, relying on the Lambda architecture, we benefit from
the Batch Processing for a global view, but is deferred processing, and on Stream Processing for
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immediate results. And we will show how our architecture allows to achieve real-time loading of
continuous data.
- The batch layer. this layers based on three functions: (i) Preparation and cleaning of data: The data
stored in the DSA undergo a sequence of transformation operations such as: cleaning, filtering,
conversion, ..and so on. After these transformations, they will definitively be loaded in an
organized way into multidimensional models: dimensions and aggregate facts in the DW. (ii)
Managing the DW: This immutable core component contains all data. The new data is received in
the DW episodically (early or monthly), or periodically (every night or every one or two hours).
(iii) Precomputing the batch views for resolving queries. Processing the entire dataset introduces
high latency. At this point, we have prepared the data by normalization, aggregation (Applying
Rules, Union, Join, Count, Sum, Max,..) and precalculated the batch views by making use of batch
computation. This step is accounted by providing access to the contents of the low latency view.
- The Speed layer accommodates all requests that are subject to low latency requirements such as
the fraud detection. However, in this layer, the Dynamic Storage Area previously stored all raw
data. This means that instantly available data will not be able to respond to user requests in real
time or near real time. At this stage, we proposed to add an Engine for the real time data filtering.
It is a sequence of operations for the cleaning, avoid missing value, eliminate inconsistency and
reduce duplications, in order to remove the irrelevant data and validate the data to be stored later
in the Real Time Data Storage Area. In this storage area, where the streaming data can be used
immediately for a number of speed layer features such as instantaneous request response. In
addition, at this stage the speed layer can store the real time views and processes the incoming data
stream so as to update those views. Then, the Real Time Data Storage Area data undergo
aggregation and normalization operations to be archived. Finally, the DSA receives these data to
create a harmonious interaction with historical data in the DW.
Data querying. The serving layer indexes the batch views and the Real Time views so that they can be
queried in low latency, ad-hoc way. When new data is available, an update of the batch views is
necessary. There are two strategies: a Recomputation Algorithm and an Incremental Algorithm, Marz et
Warren (2015). Ad hoc queries can then be satisfied, by processing over all data from the serving layer
views and the speed layer views, and merging the results. As mentioned in Marz et Warren (2015): Query
= function (over all data). The advantage of this layer is to provide an integrated data view on the full
dataset unlike in traditional architectures, where there are often multiple data view, which is not easy to
use and to manage.
Data analysis. All previous stages of data preparation and processing lead to better querying, access, and
a deep analysis of data. In certain cases, the analyzing of data needs to happen in real time. It is either a
direct inquiry of the Real Time Data Storage Area, the Real Time views or an immediate exploitation of
the Serving Layer. For example, the prevention interventions by alert the users using an e-mail,
smartphone, tablets, when the situation requires it. Unlike data stored in the DW, they are only queried
for in periodic scans for reporting or statistical purposes.
To conclude this part, the PIA level of SpaLam architecture mainly allows:
- The management of huge volume of data, at the batch layer.
- The management of data flows, filtering data and load them in Real Time Data Storage
Area, at the speed layer.
- The merging views of two types: batch and Real Time, at the Serving layer.
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- The allowing access to data and analyze them.
SpaLamPSA Platform Specific Architecture

In the Big Data panorama, there are several technologies and platforms. Through this architecture, we opt
to provide an overview of solutions, platforms and technologies adapted to each layer of the PIA
architecture. In our context, we are only interested in open source solutions, technologies and platforms.
Certainly every Big Data technology has its advantages and disadvantages. In this article we do not
compare them, but rather our goal is to position them in the different layers of SpaLam and help to better
understand the links between them. However, they exist survey which detail more these Big Data
technologies Oussous et al (2018), Rao et al (2018), and Chang et al (2018).
The PSA will need to be scalable and elastic so that it can easily evolve over time to easily meet the
increased demands imposed by Big Data in terms of volume, velocity, variety, etc. In accordance with the
PIA architecture, the PSA architecture is also organized as follows (see Figure 2):
Fig. 2: SpaLamPSA Platform Specific Architecture for Data warehousing and OLAP over Big Data
Data gathering. Technologies for data collection and gathering are evolving rapidly, particularly those
for Big Data: semi-structured and unstructured data. Among the oldest platforms for data integration,
there are Talend and Pentaho. And more recently, others have appeared for building real-time data
pipelines and streaming apps, such as the Kafka, Flume apaches and the Spark Streaming.
Data Storage and Processing. The data storage and processing stage acts as a mediator between the data
gathering stage and the data querying stage. Since data warehousing, processing, resource and data
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management take place in this stage, it can be considered as the engine of the proposed architecture. For
structured data, they are prepared in the DSA and then aggregated and stored according to a predefined
model in the final target: a DW. The storage for this type of data in both phases is a relational database.
Among the most reputable relational DBMS: Oracle Database, SQL Server, PostgreSQL. The new
applications of Internet of Think (IoT), Social media, Devices, and Sensors produce a large and varied
data sets. At speed layer level, for these semi-structured and unstructured data and for incoming data
streams, in accordance with the PIA architecture, the loading of these data is achieved. These raw data are
stored in the native format in a Dynamic Storage Area. This Storage Area is centered on NoSQL DBMS
such as mongoDB, neo4j, CouchDB or Cassandra or a NewSQL DBMS such as NuoDB and VoltDB.
These stored raw data, which are collected as fast as possible undergo a set of operations of filtering as
and when they arrive. For this reason, a real-time filtering engine is proposed. This engine makes it
possible to offer good quality data. These data will be served to satisfy instant requests. Among the
existing techniques for real-time data filtering, there are Kalman filtering for real-time applications, Chui
et al (2017). As a result of this step, the filtered data is stored in the Real Time Data Storage Area, which
is also usually a NoSQL database. This Storage Area allows the analysis of data that is not yet available
in the DW.
For processing of massive volumes of data, the processing differs according to the type of data. When it
comes to the batch layer, the tasks of preparation and cleaning of data and the precomputing of the batch
views for resolving queries are based on parallel and distributed processing. This is the principle on
which the new generation of Big Data processing and management tools are based. The most popular Big
Data technology is Apache Hadoop. Hadoop's fast data processing is based on its parallel clusters and
distributed file system (HDFS). MapReduce and YARN constitute two options to carry out data
processing on Hadoop, Oussous et al (2018). MapReduce is the most popular framework enabling to
write programs supporting parallel processing. Although it has been very successful in parallel data
processing, its use is not effective when the data arrives in streaming. To address this gap, other
technologies have emerged such as Apache Spark and Storm for handling real time data processing. The
use of these technologies is essential for the speed layer of the proposed architecture. Indeed, they allow
to accommodate all requests that are subject to low latency requirements. At this level, in addition to
HDFS, there is the HBase which is a distributed non-relational database built on the top of HDFS, Prasad
et Agrawal (2016). Storm and Spark Stream can rely on HDFS or HBase storage for the calculation of
low-latency real time views. In addition to that, there are several others open-source stream-processing
frameworks such as Apache Flink, Mesos for resource management and other technologies for
coordination such as Apache Zookeper and Apache Oozie.
Data querying. As detailed in the PIA level, the data querying relies on the serving layer indexes the
batch views and the Real Time views so that they can be queried in low latency. For the data
interrogation, there are several languages and interactive query processing tools, such as: Spark SQL,
Apache Hive, Apache Pig, Apache Impala.
Data analysis. The common objective of all Business Intelligence projects, and newly Big Data projects,
is the decision-making support. Depending on the nature of the data (historical, Near real-time, real-time),
the role of the end-user (Data Mining Experts, Data Scientist, Data Analyst, Data Statistician, Business
Analyst), there was a rapidly growing number of platforms and technologies to satisfy different types of
needs. Among the most famous platforms: for visualization they exist Tableau and Charito, for data
analytic they exist Pentaho, for statistic they exist R, for the machine learning and the deep learning there
are Weka, Mlib, and Mahout, for the search they exist Solr, Elasticserach, and several others platforms
for different purposes.
In parallel with these technologies, to simplify the use of different components of Hadoop in the same
platform, and to ensure compatibility, there are IT Vendors such us IBM, Cloudera, MapR and
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Hortonworks which have developed their own packaged modules, Oussous et al (2018). These integrated
solutions called Distribution. Finally, for the security, there are Knox, Apache Ranger, Sentry and others.
At the end of this section, it is important to highlighting two points: (i) The choice of the appropriate
technology should best meet the requirements. (ii) The framework to be developed based on the proposed
PSA combining batch and speed processing, does not necessarily implement all available technologies in
the same layer.
The "PIA / PSA" duality makes this work an originality in the field of architectural modeling of data
warehousing and in particular in the Big Data context. Indeed, to propose a totally technology-
independent architecture for the implementation of the architectural model: (i) gives it the advantage of
being deployed by different technological environments, (ii) gives us the ability to derive different
alternative PSAs from the same PIA. Each PSA is based on a technological environment enabling data
collection, extraction, management, processing, storage and analysis according to the requirements of the
data features and the specificities of the user's needs. The separation of PIA from PSA gives the SpaLam
architecture an evolutionary aspect in line with the requirements of the modern digital revolution. Thus,
the contribution presented in this article takes place in the context of the scalability and portability of
architectures for data warehousing and OLAP over Big Data, in the presence of an exponential
technological revolution.
Related Work
Since the appearance of the DW, there are several methodologies for modeling and simplification of
storage and data processing in an architectural model DW, Inmon et al (2008) and Kimball (2011). All
efforts and results achieved in this area have made it a mature technology. However, for Big Data, the
community is always looking for a solid development methodology. Among the works proposing
architectural solutions to deal with Big Data data, there are the works of Salinas and Lemus (2017), in
which the authors proposed a Multilayer Staggered Architecture Model for Big Data (MSAM-BD). The
proposed model consists of three layers: First, the data upload layer, in which the structured data are pre-
processed and stored in relational databases, while the unstructured data are stored raw and free of
context into distributed NoSQL databases. Second, in the data processing and storage layer, structured
data are aggregated, while unstructured ones requires a categorization and filtering process. Third, the
data analysis layer, in which the analysis is done according to the longevity of data. A statistical analysis,
OLAP analysis and Business Intelligence for the historical data and immediate analyzes for the most
recent data and data of average longevity.
In Bala et al (2015) and (2016), the authors proposed a parallel and distributed ETL platform for the
integration of massive data based on the MapReduce. This platform is organized into five modules viz: 1-
Extracting data from sources and loading them into the HDFS. 2-Partitioning consists of distribute the
data to enable parallelizing / distributing the ETL process on a cluster of computers. 3-Transforming by
the Map function for data normalization. 4-Reducing for merging and aggregating the prepared data.
Finally, 5-Loading the merged and aggregated data. However, from the detailed results in these works,
we noted that the use of MapReduce will not be effective when the data arrive in streaming. Indeed, at a
certain moment, the number of MapReduce tasks to be executed increases, the processing time reduces
remarkably, but not as at the beginning. In order to fill this gap, we think that from the new Big Data
technologies, there are Apache Spark as a solution for treating data more fast.
In the context of smart cities, He et al (2018) proposed a novel Big Data architecture to improve
satisfactory quality of experience (QoE) for the end users. The proposed architecture includes three
planes: A data storage plane in which they adopted both MongoDB and HDFS to storage the raw data
collected by sensor. A data processing plane in which the storage is facilitated by HDFS, the execution is
done by MapReduce, and MLlib to conduct the analysis and mining of Big Data. Furthermore, HBASE is
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used for real-time lookups, and Hive for querying. Finally, a data application plane in which the
execution of the events is done.
In Xiao et al (2019), a real time distributed data processing architecture is designed. This architecture for
fraud detection, based on spark and structured streaming, it consists of three modules: (i) The data source
collection module, where they used Logstash. (ii) The message queue, which use Kafka as data bus to
store streaming data. (iii) The third module present the real-time machine learning system, in which
Spark, ElasticSerach, Spark ML, and Logistic Regression Algorithm are used.
The proposal in YiChuan and Yao (2012), is being undertaken in the context of real-time DW. The authors
proposed a DW architecture design whose sub-system is separated into real-time ETL and periodic ETL.
Periodic ETL refers to periodic batch import of data in data sources and loading them into the DW.
However, for real-time ETL, Change Data Capture (CDC) tools directly and automatically capture
change data from the data source, which is then loaded into the real-time storage area. After the execution
of queries in this storage area, the data will be loaded into the DW in batches. In these works, the authors
proposed a replication mechanism based on double mirror partition in the real time storage area to solve
the conflict between update and query.
The proposals based on Lambda architecture
Otherwise, among the proposals based on Lambda architecture combining the batch and the speed
processing, there are the proposed work by Villari et al (2014), in which the authors face up the smart
environments in the IoT field. They proposed an architecture integrating AllJoyn with MongoDB for the
massively storage, and processing of batch data, and Storm for the processing of real-time data. The
objective of proposed software prototype is to manage embedded devices in a smart fashion processing
both batch and real-time data in the context of a "smart home".
In Munshi et Mohamed (2018), the authors presented a smart grid Big Data eco-system based on the
Lambda architecture to deal data from collecting to analytics, with visualization and feedback loop
capabilities. The proposed architecture is decomposed into five subsequent stages: Smart grid data
generation, collecting, storing and processing, querying, and finally data analytics.
In the e-commerce domain, the authors of Pal et al (2018) proposed an intelligent blend of historical
batch data with a real-time stream. This Multi-Agent Lambda Architecture (MALA) is composed of four
layers: ingestion, processing, storage, and visualization. The real-time data processing is done by Spark
DStreams, while the data for the simultaneous batch processing are stored in the HDFS, and finally
Cassandra stores the combined view from batch and stream.
For the convergence of the High Performance Computing (HPC) and Big Data Analytics areas at data
processing level, the authors in Antoniu et al (2018) proposed to combine the Sigma architecture and a
HPC-inspired extension of the Lambda architecture. The proposed architecture relies on Lambda
architecture correlating the historical data (past) and the data generated in real time (present) with Sigma
architecture for the use of future (simulated) data to predict the future evolution of the systems and enable
decision making.
Conclusion and Prospects
The technological revolution, the emergence of new Internet services, mobile applications, and social
media, imposed several challenges for the research community, viz: collect a variety of data, store an
huge volume of data, process the data arrives in streaming, and respond to real-time needs. Due to all
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these challenges, advanced real-time data analysis is not possible with a decision-making system driven
by a traditional architecture for data warehousing. Facing the difficulties encountered by companies for
storing Big Data type data, there were some commercialized solutions implemented by various IT
vendors. However, these solutions are not always within the reach of the purchasing power of these
companies, moreover there is not yet a universal Big Data solution. For these raisons, these companies
opt to deploy an ad-hoc platform, based on a combination of open source technological solutions, and at
the same time meeting their specific needs in terms of analysis and business intelligence. On the other
hand , we have noticed that a large amount of research focuses mainly on the volume of Big Data, while
the variety, velocity and veracity of the data are also important for good and fast decision making. For
this reason, in this article, we have attempted to meet the challenges of Big Data as much as possible, and
to propose an architecture for Data warehousing and OLAP over Big Data, called "SpaLam". This
SpaLam allows to couple two type of data processing: batch processing and stream processing. These
data can be structured, semi-structured or unstructured. Inspired by Lambda Architecture, SpaLam
architecture combines the streaming data with the historical data to meet advanced analytical needs. The
originality of the SpaLam architecture stems from the fact that it consists of two levels: a platform
independent architecture (PIA) and a platform specific architecture (PSA). The PIA focuses only on the
requirements of the data features and the processes needed to design a Data warehousing. And a PSA
supporting Big Data technologies and sharing innovations in this field. Despite the efforts of the research
community in this area, to the best of our knowledge, to this day, it is the first architectural proposal for
data storage, respecting the specificities of Big Data and proposing two levels: one level independent of
technologies and the other is specific to implementation platforms.
As future work, we intend to develop the necessary experiments that would allow us to examine the
efficiency of our SpaLam Architecture. At least one of the PSA architecture will be implemented, to meet
a real business need, through a complete case study.
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Financial Distress of Agricultural Industry:

Evidence from Emerging Market Economy
Siti NURYANAH
Universitas Indonesia, Indonesia
siti.nuryanah@ui.ac.id
Dahlia SARI
dahlia-s@ui.ac.id
Ancella HERMAWAN
ancella.hermawan@gmail.com
Abstract
The aim of this study is to examine Indonesia agricultural sector performance by studying bankruptcy
risks of the public listed companies. This research also attempts to examine the influence of some
companies’ characteristics such as cost efficiency, firm size, leverage, capital intensity, firm age, and
independent auditor on the bankruptcy risks. Indonesia is taken as a sample since its background as a big
populous country where the national program of strategy food security is then even more important than
non-big populous country. Taking long horizon periods of 2003-2017, this study provides a more
thorough analysis. The results show that most Indonesia listed agricultural companies are in a grey zone.
The study also found that if companies’ sale is high and the companies’ can maintain cost efficiency, the
companies will be in a good financial health. The findings bring implications on urgent actions that can
improve the performance of the agricultural companies including an evaluation of economic reform on
agricultural sector.
Keywords: Bankruptcy risk, Altman Z-Score, food security.
Introduction
An emerging economy which is also a big populous country namely Indonesia has a quite long history of
the the structural reform in the agricultural sector. Since the Asian financial crisis and Indonesia
reformation era in 1998, the impact of economic reform on agricultural sector development has been
analyzed thoroughly. It was argued that economic reform through deregulation via the market-based
approach would largely benefit the agricultural sector (Tambunan, 1998). Similarly, monetary policy
instruments, such as money supply and exchange rate, and the growth of economy gave positive effects
on the agricultural sector share in Gross Domestic Product (GDP). Indeed, the previous study (Tambunan,
1998) argued that shifting from import substitution to export promotion industrialization strategy would
provide a conducive environment for agriculture development. In addition to this policy, removal of
subsidies and deregulating agricultural sector price found effectively strengthening efforts to increase
production and income. Overall the economic reform which caused shifting from the tightly-protected to
market-based approach, strengthens the agricultural sector.
In spite of a favourable impact of the early stages of economic reform in agricultural industry, statistics
shows that crisis on agricultural sector threatening food security as well as environment sustainability is
still exist (Erwidodo, Wittwer, & Stringer, 2009). Moreover, the contribution of agricultural sector on
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Indonesia GDP in 2013 decreased for about 5% compared to the contribution in 1990 (Sudaryanto, 2015).
The declining agricultural sector contribution brings consecutive impacts to other sectors for example
declining employment rate in the industry as well as unachievable food self-sufficiency. Therefore,
further evaluation is important to be undertaken as for example by taking micro level evaluation on the
companies in the industry to compliment the macro analysis.
This study conducts a micro analysis of agricultural sector performance by examining bankruptcy risks of
the public listed companies. Moreover, this research attempts to study the influence of some companies’
characteristics such as cost efficiency, firm size, leverage, capital intensity, firm age, and independent
auditor on the bankruptcy risks. Compared to previous studies which took 4-5 study periods, this research
takes long horizon periods of 2003-2017 so that it has a more thorough analysis. This study takes
Indonesia as a sample since its background as a big populous country where the national program of
strategy food security is very crucial for this country.
Having discussed the background of the study, the literature review and hypotheses development are then
presented, followed by research methodology, results and discussions. The conclusions and suggestions
for future research are presented at the end of the paper.
Literature Review and Hypothesis Development

Previous Studies on Financial Distress of Agricultural Companies
Previous studies around the globe found that majority agricultural companies experiencing financial
distress. Indonesian studies such as Fadillah (2017) examining financial condition of Indonesia listed
agricultural sector company for periods 2013-2015 using Altman Z Score model found that in average 8%
company in healthy zone, 31% in grey zone and 62% in distressed zone. Examining factors determining
financial distress by taking agricultural companies listed in indonesia stock exchange from 2012 to 2014,
Yadiati (2017) initially hypothesized that profitability is one of the factors but the results cannot find this
relationship. Similar to the the other Indonesian studies, Fakhran and Hendratno (2018) found that many
Indonesia agricultural companies have a decreasing financial performance.
In addition to Indonesian studies, study across countries also found similar results showing that
agricultural industry suffers financial problems. Stojanović & Drinić (2017) conducting a research in a
developing country i.e. Republic of Srpska found that, based on Altman Z Score, the sample companies
were in the critical zone which are supposed to go bankrupt in the near future. Kakati and Roy (2017),
studying farmer producer companies in one of populous countries i.e. India, found that the companies
experienced poor financial performance in terms of solvency, efficiency and profitability over the three
years under study. Their study showed further that only the companies’ liquidity ratio is at marginal level
while other financial ratios are in the poor category. In addition to these mentioned studies, indeed,
research in agricultural sector found almost conclusive results that agricultural industry performs poor
financial conditions even using other financial indicators than the ones mentioned before, for example
rates of assets efficiency, and leverage (Hardesty & Salgia, 2004; Piterkova, Bielikova & Banyiova,
2013). Only few studies show a favorable results of financial performance of agricultural companies as
found by Sikuka (2010), Katchova & Enlow (2013).
Altman Z Score for Financial Distress Measurement

While there are some financial distress measurements, Altman Z-Score is used because it has been widely
used in studies on bankruptcy risks across countries including Indonesia, industries including agricultural
industry, and over the years (Meilia and Adnan, 2017; Nugroho and Firmansyah, 2017; Kiaupaite-
Grushniene 2016). This model incorporates the financial ratios of the company as it is considered to
reflect the company's financial condition so it can be a determinant of the size of the bankruptcy risk of
the company.
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Table 1 shows the selection of companies sampled in this study which is based on purposive sampling
method.
Table 1: Sample Selection Process
No Sampling Selection Criteria Total

1 Total agricultural public companies listed on the Indonesia Stock Exchange 223
over periods 2003-2017 in Thomson Reuters with all financial information is
available (firms-years; unbalanced data)
2 Observation that the data for market capitalization are not available (9)
3 Observation having negative equity (4)
4 Observation having negative COGS (7)
5 Outliers (9)
- 3 Outlier MBV
- 4 Outlier ROE
- 1 Outlier Capint
- 1 Outlier Leverage
6 Total final observations for periods 2003-2017: 194
Research Model and Variable Operationalization

Independent Variable
Following previous studies (Stojanović & Drinić, 2017), this research measured bankruptcy risks using
modified Z-score models as follows (Altman, 1968; Altman, 2004):
Z1 = 0.717 X1 + 0.847 X2 + 3.107 X3 + 0.42 X4 + 0.998 X5
where:
Z1 : Altman Z-Score;
X1 : Working capital divided by total asset;
X2 : Retained Earnings divided by total asset;
X3 : EBIT divided by total asset;
X4 : Sales divided by total asset.
The higher the Z-score, the lower is the bankruptcy risk of a company.
Z above 2.9 – safe zone, 1.23≤Z ≤ 2.9 – grey zone, Z ≤ 1.23 – distress zone
Dependent Variable
Firm size (SIZE) is measured by calculating the natural logarithm of the company's total asset. Firm’s
leverage (LEV) is measured by dividing the company's long-term debt by the company's total assets at the
beginning of the year. Company’s capital intensity (CAPINT) is measured by dividing the company's
Property, Plant, and Equipment (PPE) by its total asset.
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Descriptive Statistics
Table 2: Descriptive Statistics
Zone Z1 (2003-2017)
Safe Zone 23.71% 46
Grey Zone 46.39% 90
Distress Zone 29.90% 58
TOTAL Σ 194
Table 2 shows that over the research periods (2003-2017) majority of companies are in the grey zone
while almost 30% are in distress zone. It is only about 24% of companies are in good financial health.
Table 3: Descriptive Statistics (cont.)
Variable | Obs Mean Std. Dev. Min Max

-------------+---------------------------------------------------------
Z1 | 194 3.367257 9.893734 -.651108 94.92563
-------------+---------------------------------------------------------
EV | 194 12.19163 .7406665 10.112 13.55907
COGS | 194 12.05788 .71644 10.19168 13.51762
SGA | 194 11.24803 .6519607 8.934327 12.33276
SIZE | 194 12.50227 .5919165 10.75443 13.52968
-------------+---------------------------------------------------------
LEV | 194 1.273815 1.228268 .0044327 8.133923
CAPINT | 194 3.514969 5.134506 .5061741 41.22827
AGE | 194 33.48454 24.58004 4 104
BIG4 | 194 .3556701 .4799545 0 1
SUBS | 194 .3298969 .4713919 0 1
.
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Regression Results
Table 4: Regression Results
Z2 | Coef. Std. Err. t P>|t| [95% Conf. Interval]

-------------+----------------------------------------------------------------
MBV | -1.149463 .5676811 -2.02 0.045** -2.270524 -.0284016
ROE | 3.020037 6.645817 0.45 0.650 -10.10418 16.14425
ROA | -1.669826 20.73122 -0.08 0.936 -42.61001 39.27036
SIZE | -8.14027 6.999156 -1.16 0.247 -21.96226 5.68172
REV | 27.10536 15.60319 1.74 0.084** -3.707945 57.91867
COGS | -23.56479 11.14856 -2.11 0.036** -45.58106 -1.548528
SGA | 11.50572 4.700742 2.45 0.015*** 2.222661 20.78879
LEV | .1487525 .6873586 0.22 0.829 -1.208649 1.506154
CAPINT | 1.510103 .3947433 3.83 0.000*** .7305612 2.289646
AGE | -.3554691 .290123 -1.23 0.222 -.9284064 .2174681
BIG4 | 1.273002 4.960138 0.26 0.798 -8.522318 11.06832
SUBS | 0 (omitted)
_cons | -62.77917 50.32422 -1.25 0.214 -162.1599 36.60151
-------------+----------------------------------------------------------------
* Significant at the level of 10%
** significant at the level of 5%
*** significant at the level of 1%
Tabel 4 shows that REV, SGA, and CAPINT are found to have significant positive effects on bankruptcy
risks. This means that the higher the income, sales, general and administrative (SGA) expenses, and
capital investment, the higher Z Score meaning that the lower bankruptcy risks and therefore the healthier
a company will be (not included in the classification of bankrupt companies).
Table 4 also presents that MBV and COGS have significant negative effects on bankruptcy risks. MBV
score suggests that the greater the market value of the company, the lower Z Score meaning that the
higher bankruptcy risks. The COGS variable shows a negative effect, meaning that the greater the cost of
goods sold, the lower Z Score (included in the classification of bankrupt companies).
Some results above i.e. REV, CAPINT and COGS provide some logic justifications that if companies’
sale is high and the companies’ maintain good cost efficiency, the companies will not be in financial
distress, in fact they are financially healthy. However, the results suggest that for Indonesian case, the
market performance and a higher SGA expenses shows non-favorable impacts on financial performance
of the companies. This needs to be explored further by conducting further research. The findings bring
implications on urgent actions that can improve the performance of the agricultural companies including
an evaluation of economic reform on agricultural sector.
Conclusion and Suggestion for Future Studies
The study examines Indonesia agricultural sector performance by studying bankruptcy risks of the public
listed companies. It also attempts to analyze the influence of some characteristics of the companies such
as cost efficiency, firm size, leverage, capital intensity, firm age, and independent auditor on the
bankruptcy risks. The results show that most Indonesia listed agricultural companies are in a grey zone.
The study also found that if companies’ sale is high and the companies’ can maintain cost efficiency, the
companies will be in a good financial health. The findings bring implications on urgent actions that can
improve the performance of the agricultural companies including an evaluation of economic reform on
7199
agricultural sector. By taking long horizon research periods of 2003-2017, this study contributes to
previous literature by providing a more thorough analysis. Nonetheless, there are many ways that can
improve this current paper as for example by extending the paper by analyzing the other independent
variables such as good corporate governance practice, climate change, on farm and off-farm performance.
Acknowledgment
This authors acknowledge the research funding from research grant: PTUPT Universitas Indonesia.
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Companies Listed In Indonesia Stock Exchange. International Journal of Scientific & Technology
Research, 6(11), pp.233-237.
7201
What Does a Life Course Perspective Add to Our Understanding of

Changing Financial Resources on the Older People Inequality?
Lubov IVANKINA
ivankina@tpu.ru
Ekaterina ANIKINA
anikinaea@tpu.ru
Ekaterina A. TARAN
ektaran@tpu.ru
Abstract
Under the global aging of population, the challenge of researching the specifics of this process is
becoming increasingly important. In the latter half of the XX century scientists started researching the
paradigm Life Course Perspective. It brought together interdisciplinary researches in the field of
philosophy, sociology, psychology, anthropology, history, ethnography, demography, and other sciences.
In this article we will examine how the emergence of this theory influenced the understanding of changes
in the material resources in general, and will try to analyze financial resources of older adults in particular
on the example of Russia.
Keywords: financial resources, older adults, inequality, life course.
Introduction
So, what is a Life Course Perspective? According to Christina Victor "life course consists of a series of
stages (or social roles) which all individuals pass through as they are" (Victor, 2005, cited in The Social
Context of Ageing: A Textbook of Gerontology et al, p. 37). At the same time, the authors of the book
"Key Concepts in Social Gerontology" understand under the Life Course Perspective "a dynamic and
process-based approach to understanding ageing by examining how human lives are socially organized
and evolve over time" (Phillips, Ajrouch and Hillcoat-Nalletamby, 2010, cited in the Key Concepts in
Social Gerontology et al, p. 240.). From there, the Life Course Perspective means studying individual
human behavior in dynamics and how the events (past experience) affect the future life. The problematic
of life course is the result of changes in understanding and studying human life. One of the first in the
direction of their theoretical study was carried out by Glen Elder Jr. (Hutchison, 2010, cited in the
Dimension of Human Behavior: the Changing Life Coursea et al, p. 10) In the book "Children of Great
Depression" he singled out five key principles of Life Course Perspective, which we reviewed in detail as
a part of our lecture course. To reveal the given issue, we would like to highlight one of the principles
more thoroughly. All the events, which happened in the past, shape our future. That is, the events and
situations happened in the early life influence our well-being in old age. Studying the literature on the
subject, we have found that the question of financial resources influences on the life course of people is
not studied enough. Therefore, it was decided to pay greater attention to this aspect in the article. For the
benefit of this study it is necessary to note that the pioneer researches giving birth to the Life Course
Perspective were based on the analysis of economic changes happened after the Great Depression. In
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addition, a Professor of Social Policy and Social Gerontology Alan Walker in his work «Ageing and
Quality of life in Europe» denoted the new line of this research: «new knowledge is required on how the
income needs of older people change as they age their perceptions of income, and how these change over
time» (Walker, 1997, cited in Dannefer and Phillipson et al, p.580). The author focused on the lack of
reliable data, that is why he suggested this line of the research as a new one. Now it can be seen that,
under the material resources we understand an economic well-being. Financial resources are used in the
narrow sense as a restricted notion, which is a part of material resources. The financial resources include:
savings, pensions and property (Vincent, Phillipson and Dawns, 2006, cited in The Futures of Old Age. et
al, p. 41). From our point of view, the financial resources are an integral part of the social, psychological
and physiological resources. The results of the study made by the World Health Organization can be used
as proof points. The influence of the presence (absence) of the financial resources on surrounding
condition is shown in the table below (Table 1).
Table 1: The influence of the presence (absence) of the financial resources on surrounding condition
Financial Characteristic Financial resources

resources in limited
supply
favorable Psycholgical conditions stress, low self-esteem
qualitative food in Food security limited low quality product
good supply
comfortable, Living conditions bad, without special amenities
enhanced
in a norm Sanitary conditions insanitary conditions
available Medical services limited access
Moreover, it is necessary to draw attention to the fact that the change of financial resources can happen
under the influence of the factors at the macro-level as well as at the micro-level. At the macro level the
state performs its social and economic functions. These functions include reducing population
differentiation, food and environmental safety, providing health services and education. Speaking about
the micro level, we suppose the impact of a person or his/her family on the financial situation. Here, such
factors as the financial wellbeing of the previous generations, the level of family income, the level of
education play a main role as well as the cultural and traditional factors, they should also be taken into
consideration. At the same time, the social and economic factors affecting the human life course often
depend on the national and economic development. They are out of a particular person control. It should
be noted that the phenomenon of poverty causes the shorter life expectancy, poor health in old age.
Moreover, this tendency can be seen both in developed countries and in developing ones. Of course, a
lack of material resources leads to the fact that people in meeting their needs make their choice in favor of
lower-quality goods and services. And this in turn leads to the health deterioration and reduction in life
expectancy. The studying of the changes in financial resources involves me to study the following
questions: gender changes in working life, changes of working time (continuous or discontinuous),
changes in the pension system of the country, retirement, employment in later life and etc.
What concerns the situation in Russia, in contrast to the Western researchers where the life course is
already established paradigm, not so many scientists in the national scientific community are engaged in
this scientific problem. In particular, the studies of the following Russian scientists as A.A. Matulionis,
N.F. Naumova, Y.M. Reznick, M.L. Rutkevich, E.A. Saar, M.H. Titma, G.A. Cherednichenko, V.N.
Shubkin were close to these directions. The Russian scientists V.V. Solodnikov and I.V. Solodnikova
carried out the study on middle age in the context of the walk of life, in which the authors tried to find out
how the social and economic changes influence the life values of people. In this study the respondents
divided their life into segments. For instance in childhood biologically conditioned factors are the most
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important, in youth cohort differences reach their peak, contrary, in the central stages of life the meaning
of this factor is minimal, and at the end of the life, it increases again however, does not reach the initial
values. At the same time in Russia as well as in global world there is a tendency of increasing life
expectancy. The figure 1 shows the dynamic changes in life expectancy in Russia over the last 9 years
taking into account gender. From this graph it is clear that the tendencies occurring in Russia are the same
as global. In particular, we can see an increase in life expectancy, women live longer than men.
Fig. 1: Life expectancy in Russian, by gender
Nowadays, one of the serious social and political issues in Russia is steady increasing of economic
stratification of the population and, as a consequence, the growth of both the relative and the absolute
poverty of its significant part. The problem is particularly acute for the most socially vulnerable
population category - for pensioners. The population in Russia has a steady tendency to ageing. Indeed,
since 1991, the proportion of people older than working-age population has increased by 4.08 p. and has
reached 23.09 %. The number of people of working age has also increased. However, in 2007, growth has
been changed by the fall. The number of people younger than working age has decreased as well. All
these facts demonstrate that Russia is in the “"demographic hole” (Fig 2)
Fig. 2: Russia’s population by the degree of ability to work
7204
In total, the aging of the population amplifies social strain, enlarge the load on the economy of the
country, its pension system, health care system and social security, making the problem of funding,
pensions and benefits. Moreover, the decline of economically active population share makes severe
shortage of work-force. The main and the and often the only source of income for an absolute majority of
this population category is their pension, which varies in types: labour pension (old-age retirement
pension, disability pension, loss-of-breadwinner pension) and state-provided pension. The structure of the
retirement income is presented in the table 2.
Table 2: The level and the structure of income households of pensioners in Russia
households, consisting of pensioners

(only)
household household member
average, average, per month,
per month, roubles
roubles
Money income – in total 24488,2 17132,6
Employment income – in total 7216,5 5048,8
Payment for labour 6242,2 4367,2
Independent employment income 818,7 572,8
Other labour activity income 155,6 108,9
Property income – in total 171,7 120,1
among them rentroll income 113,8 79,6
Transfers – in total 17100,0 11963,6
Welfare payments 16509,4 11550,4
including
Pension income 13746,9 9617,7
benefits, aids, compensations and other social
payments 2762,5 1932,7
Incoming receivables from individuals and
organizations, excepting social welfare bodies 590,6 413,2
among them maintenance payments and other
equivalent to them payments 6,3 4,4
According to the carried out analysis, the conclusion should be drawn that the distinctive feature of
modern Russians is their willingness to take risks associated with changing the career trajectory. This
readiness varies considerably depending on gender, age, education, professional experience and human
health and largely determined internally, made earlier by personal choices. However, representatives of
different professional groups face discrimination based on gender and age, displayed outerly - by the
professional requirements and by an employer. In that connection, this tendency lasts then in old age,
which is clearly seen in Figure 3. The level of pensions for men during the shown time period exceeds the
level of pensions for women.
7205
Fig. 3: Average pension in Russian, by gender
In summary, the carried out research help us to draw a conclusion that with appearing the Life Course
Perspectives our understanding of the material resources, in particular financial resources, has been
changed. The financial resources play a significant role in wellbeing latter life of people. Therefore our
health, physical, psychological wellbeing and material welfare in old age depend more on how we use our
financial resources in the prime of our life.
Acknowledgment
The study was supported by the Russian Science Foundation (project №19-18-00282).
References
1. Dannefer, D. and Phillipson, C. (2013) The Sage Handbook of Social Gerontology. London: Sage.
2. Hutchison, E. (2010) Dimension of Human Behavior: the Changing Life Coursea [online] Available
from: http://www.sagepub.com/upm-data/36521_CLC_Chapter1.pdf [Date accessed: 15th September
2015].
3. Phillips, J., Ajrouch, K. and Hillcoat-Nalletamby, S. (2010) Key Concepts in Social Gerontology,
London: Sage.
4. Stein, C. and Moritz, I. (1999) A Life Course perspective of maintaining independence in older age
[online] Available from: http://whqlibdoc.who.int/hq/1999/WHO_HSC_AHE_99.2_life.pdf [Date
accessed: 1th September 2019].
5. Victor, C. (2005) The Social Context of Ageing: A Textbook of Gerontology. London, Routledge.
6. Vincent, J. Phillipson, C. and Dawns, M. (2006) The Futures of Old Age. London: Sage.
7. Солодников В.В., Солодникова И.В. ЗРЕЛЫЙ ВОЗРАСТ В КОНТЕКСТЕ ЖИЗНЕННОГО
ПУТИ // Мониторинг общественного мнения: экономические и социальные перемены. 2009. № 2
(90). С. 199-220.
7206
Migration and Changes to the Socioeconomic Behavior of Local

Communities: A Lesson from an Emerging Local Industrial Estate
Jhon SIMON
Faculty of Economics and Business, University of Sumatera Utara – Indonesia
jhon.simon@gmail.com
Suwardi LUBIS
Faculty of Politics and Social Sciences, University of Sumatera Utara – Indonesia
suwardi.lubis@usu.ac.id
SIROJUZILAM
sirohasyim@gmail.com
Hasan Basri TARMIZI

hb.tarmizi@yahoo.com
Ari WAROKKA
Abstract
This migration study aims to examine the effect of migrants’ socioeconomic behavior on the region
of origin and region of destination. It analyzed the impact of migrants’ presence on the region’s social
and economic aspects. In a migration, one will move from one area which he/she comes from to a
destination in which he/she brings not only his/her capitals, but also his/her way of life. The
destination area to be discussed in this research is the Perawang industrial estate, which becomes one
of the biggest migrants-receiving regions in Indonesia. It aims to find out about the driving factors for
one to migrate, whether they be push factors, pull factors, or accessibility. Migration led to an
increase in population in the Perawang industrial estate as well as social interactions between
newcomers (migrants) and local people (non-migrants). Such influx of newcomers eventually
induced changes in the socioeconomic behavior of the local people.
Keywords: migration, social interaction, socioeconomic behavior
Introduction
A company’s presence in a region carries a vast array of implications (Merli et al., 2018). In the
context of this study in particular, the implications are visible in local people’s socioeconomic lives
(Choudhury, 1999; Primawati, 2011). PT. Indah Kiat, established in 1989, is a relatively large
company in the study area, Perawang region. This company’s presence creates an attraction of job
opportunities for migrants as an incentive to migrate for job seeking purpose. This migration further
raises demands due to the embedment of newcomers (migrants) in the existing population of the
industrial area of Perawang (Winter, 2009). The urgency to fulfill such demands in turn open yet
other job opportunities.
New opportunities result from the multiplier effect of the industrial activities underway in the
Perawang area (Aleksandrova & Tojsheva, 2017; Grossman & Hart, 1986), for example, the activities
in marketplaces, shop-houses, hospitals, mosques, churches, schools, hotels, and so forth.
7207
In the Perawang industrial estate, the people can be classified into two groups: newcomers (migrants)
and locals (non-migrants). Migrants bring with them socioeconomic behavior incompatible to that of
local people (Tabili, 2011), in which case migrants in general work for companies or run their own
enterprises, while locals work as fishermen or farmers. Such disparity leads to the following research
problems: [1] What prompts migrants to migrate to Tualang Perawang? And [2] Does migrants’
presence cause changes to the socioeconomic behavior of the local people?
Research Methods
This research was conducted in Tualang Perawang District, Siak Regency. The objects of this
research were newcomers (migrants) and local people (non-migrants). This research employed
qualitative and quantitative methods. The qualitative method was applied by providing a comparative
description of the socioeconomic behavior exhibited by the local people before and after migrants’
introduction to the area. Meanwhile, the quantitative method was employed through a tabulation
analysis of whether migration affects the regional development ongoing in the Perawang industrial
estate. Truly valid data were obtained through in-depth interviews with key informants and
respondents (n = 130, including 90 migrants and 40 locals), all of whom were selected through
proportional random sampling. Snowball sampling, also named chain-referral sampling, was then
used to enroll respondents with genuine knowledge of the communities in the Perawang industrial
estate.
Findings and Discussion
Migration and Migrants’ Socioeconomic Behavior
Migration is one’s displacement from place of origin to place of destination. Similarly, Munir (1981),
defines migration as one’s movement from one place to another beyond political (interstate) or
administrative (within-state) borders with the intent of settlement. According to Horton and Hunt’s
theory (Levine, 1965) on which this migration study was founded, migration can be initiated by
several factors: [1] push factors, which are related to unsatisfactory (negative) conditions of the origin
region; [2] pull factors, which are related to attractive (positive) conditions of the destination region;
and [3] facility factors (accessibility), which are related to availability of facilities for accessing the
destination region.
The migrant inflow to Perawang was driven by a pull factor, namely the job opportunities offered by
a number of major companies in the region, including PT. Indah Kiat Pulp & Paper, PT. Surya Dumai
Veneer, PT. Kulim, among others. According to the census data by the Village Administration Office
of Tualang Perawang, the region’s population in 2003 was composed of 56,001 people from a total of
12,298 households. Back in 2003, the research region covered an area of 10,450 Ha. In 2001, the
region of Tualang underwent an administrative status change from village to district. This change of
status brought alterations to the region’s governance and policies as well, and accordingly, the
socioeconomic dynamics were also affected.
For comparison, the population size of Tualang Perawang District in 2019 soared to 113,960, and the
number of households to 30,078. The region area also expanded into 373.75 km2. Such swelling of
population in the research location opened up a myriad of new business opportunities in the region. It
was beyond question migrants would introduce novelty to the existing culture and jobs in the region.
They were typically employed by companies or engaged in trading and enterprises, while the locals
in fishery or agriculture. They were workers or employers of productive ages (20–44 years of age), a
great majority of whom were within the 20–34-year-old age group (84%). When it comes down to
migration motives, 80% of the migrants reportedly migrated to the Tualang Perawang region for
economic purposes. The incentives for the migrants’ motivation are detailed in the table below.
7208
Table 1: Distribution of Migrants to Perawang Tualang District by Motive
No Migration Motive Number Percentage

(People) (%)
1 Employment with companies 45 50
2 Higher pay/wage 9 10
3 Business expansion 18 20
4 Experience seeking 13 15
5 Assignment 5 5
Total 90 100
Source: Field data, 2019
Noteworthy is that over 20% of the migrants came to Tualang Perawang for business expansion
reason. Such migrant typology certainly had special significance to the region’s development as
migrants would bring along with them the capital for opening all possible job opportunities (Schnell
et al., 2015; Setiawan et al., 2016). Such a large number of migrants to Tualang Perawang laid an
objective condition for investments from Pekanbaru and Medan as well as for construction of housing
for the migrants and shophouses at km 4 and along the Pekanbaru-Siak highway. It was thus only
natural for the Tualang Perawang region to grow to meet the people’s need.
Table 1 showed the migration of the 80% of the migrants was prompted by economic factors. After
migration, 83.3% of respondents would move jobs (job mobility), meaning that the migrants tended
to change their jobs upon their arrival in a new place (Liu & Shen, 2014). As a consequence, job
varieties were generated in Tualang Perawang. Migrants’ job preferences in a place of destination are
usually closely linked to their level of education and duration of their domicile there
(Shirmohammadi, 2019). In this study’s context, the migrants entered the job market in Tualang
Perawang with adequate education (73.3% had high school education or higher education, university
level).
It appeared that the job diversity arising in the Tualang Perawang region has been growing steadily
within the last 10 to 15 years. Such increase has to do with the growth in the size and demands of the
region’s population. The fastest development has been spotted in Perawang km 4, which has
transformed into the economy and business center of the region. This is evidenced by market
expansion, construction of shop-houses as trading venues, emergence of hotels and lodgings, to name
a few.
Triggered by economic motives, migrants would have their income level influenced by the jobs they
preferred. In turn, their income level influenced their socioeconomic behavior (Wang & Chen, 2014),
for instance, in saving money. It was worth a special note too that migrants also developed a
relational pattern with their home regions through remittances. Eighty-three point three percent of
migrants admitted to set aside some of their income in the host region to be sent back to where they
originated. The purpose was to provide families in their places of origin with financial assistance.
This research’s field finding on why migrants chose Tualang Perawang as a migration destination are
outlined in the table below.
7209
Table 2: Distribution of Migrants to Tualang Perawang by Migration Reason
No Reason for Preferring Perawang as a Number (People) Percentage (%)

Destination
1 Job opportunities granted by companies existing 42 46.7
there
2 The region’s advancement 30 33.3
3 Easy accessibility 12 13.3
4 Other reasons 6 6.7
Total 90 100
Caldwell and Goldscheider (1985) stated that migration flow is rendered by rapid economic
development and growth in a region, generally leading to local labor supply’s failure to satisfy the
labor demand. In this instance, such dearth is filled by migrants. This was clearly the case in Tualang
Perawang. The rapid economic development and growth arising with the erection of some companies
were marked with the need for labor in a massive amount to propel the industry. However, local labor
alone was insufficient, allowing a room for migrants to fill.
Besides the abovementioned, smooth transportation provides an access for migrants to migrate to an
area. In Tualang Perawang, two modes of transportation were in place, namely land and river
transportation. The fairly convenient access to Perawang smoothened goods and services distribution
especially for supporting the industrial estate development. It was this transport ease that incentivized
the migrants to migrate to the region. Eighty-three point three percent of the migrants revealed that
part of Perawang’s attraction as a migration destination was its accessibility.
Migration and Changes in the Socioeconomic Behavior of the Locals (Non-

Migrants)
Belonging to the local (non-migrant) category in this study were those born in Tualang Perawang or
permanently domiciled there for a minimum of 25 years. Hence, those falling to this category were
fully aware of Tualang Perawang’s conditions before and after the industrial introduction. The other
category of people living in Tualang Perawang was migrants.
Between migrants and non-migrants will assuredly develop social interactions, in which each party
interprets the behavior of the other, involving an element of judgment that ultimately ends in the good
or bad and the harmony or disharmony of the relationships established within a social system (Lam &
Dickerson, 2013). In a social interaction, two individuals are influencing, changing, or correcting
each other. It is stated by Gerungan (1991) that the acts performed in an interaction process are
broken down into four: [1] imitation; [2] suggestion; [3] identification; and [4] sympathizing. These
acts are bound to be reflected in the behavior of individuals in a group when a social interaction is in
progress. For further description of the social interaction between the migrants and the locals in this
study, see the table below.
7210
Table 3: Interaction between Migrants and Locals (Non-Migrants) in Tualang Perawang
No Migrant-Local Social Interaction Migrant Non-Migrant

(%) (%)
1 Good 83.0 90.0
(75) (36)
2 Poor - 7.5
(3)
3 Neither good nor poor 16.7 2.5
(15) (1)
Total 100 100
(90) (40)
The data in Table 3 revealed that the overall interaction between migrants and locals (non-migrants)
was good. This was because in their social interactions, the two groups were helpful to one another,
were harmonious as neighbors, and were cooperative in all social activities. Such condition reflected
that the locals (non-migrants) were accepting of the migrants’ presence, while the migrants were able
to adapt to the social situation with which they got involved (Oishi, 2002).
Based on this research’s results, the migrants and the locals (non-migrants) were not concerned only
with their respective groups. They were able to co-mingle and interact with each other. This was as
stated by the migrants that their interactions with the local people (non-migrants) were without
problems (83.0%). In the same vein, the locals described their interactions with the migrants as good
(90%). As evidence, the level of conflict between both groups were low. Ten percent of the migrants
reported conflicts with the locals related to debt, fight, and land dispute (Dadashpoor & Ahani, 2019).
A higher percentage of locals (26.7%) admitted to have been in conflicts with the migrants. The
conflicts were the same, except the locals added a conflict regarding prostitution localization
establishment to the three (Shafiyev, 2018).
The good relationship established between the newcomers and the natives was also reflected in their
daily shopping (Illingworth & Parmet, 2017). None of them discriminated from whom they purchase
goods. In other words, they did not fulfil their life needs only from their respective groups. It could be
concluded that the social interactions between both groups were good.
Meanwhile, socioeconomic behavior changes in the local people (non-migrants) were marked by job
mobility and high rate of newcomer influx in the region post companies’ emergence in 1980 (Grunow
& Leth-Sørensen, 2006). In that year, the establishment of some corporations in Tualang Perawang
had invited a throng of incomers into the region. The dominant professions of the locals before the
income of congregating migrants (pre-1980) were shifting cultivation farming, rubber cultivation,
rubber tapping, fishery, and trading. After a plenty of migrants came in (post-1980), signs of job
changes, or job mobility, started to show in them. The job mobility that occurred was horizontal and
vertical in nature.
According to the present study’s findings, 90% of the locals (non-migrants) engaged in job mobility
past 1980 when Tualang Perawang housed more companies and migrants. This means the professions
of the locals (non-migrants) before and after that point in time were not the same. Many of the locals
switched into trading and employment with companies (45%). Some started to engage in the services
sectors, for example, freight service, public transportation, motor vehicle servicing, tailoring, fuel
retailing, and other social works (27.5%). A few others run businesses and worked as teachers (17.5),
while the rest continued their pre-1980 works.
High rates of job mobility in the local people (non-migrants) after the influx of migrants (after 1980)
into Tualang Perawang were due to a number of factors: [1] The high number of migrants to
Perawang opened up business opportunities for non-migrants, [2] The many migrants coming to
Tualang Perawang and the establishments of a couple of large companies drove up the selling prices
7211
of the people’s land. As a result, many of the non-migrants sold their land, from which the proceeds
were used to fund their start-ups. The third factor is non-migrants benefited from the job mobility,
especially with regard to increased income (Constant, 2014). This provided an explanation to a
compelling phenomenon captured from the research, that is, a growing portion of the local people
(non-migrants) took on side jobs as a complement to their main livelihoods (82.5%). Non-migrants
typically took on more than one side job, causing an overlap of jobs that they did (Phillips &
Wharton, 2015).
Job mobility or socioeconomic behavior shifts in the local people (Schneider & Collet, 2010), from
which job diversity arose, as revealed by the research findings, were enabled by social interactions
between migrants and non-migrants. Hunt (2004) argues that the social interactions took the form of
imitation, identification, and sympathizing by non-migrants of what is carried and done by migrants
(migrants’ socioeconomic behavior).
The research results indicated that the rate of imitation of migrants’ ways of life by non-migrants was
very high (80.0%). It was the socioeconomic behavior that the local people imitated, in which case
there was a tendency of them modeling their businesses or professions after those of migrants (van
Noort, 2018). Imitation took place when something (socioeconomic behavior) having little in
common with what was existing in the local people, and of higher quality in the local people’s eye in
that, was carried by newcomers. The reason was that migrants had higher education than non-
migrants (Hunt, 2004). Those of higher value would be emulated by those of the lesser one. A case in
point in this research was that when the Perawang km 4 marketplace was inaugurated, only a few of
the locals (non-migrants) took interest in starting businesses there although they were given the
occupation priority. Only after the space allocation for opening businesses in the marketplace was
handed to newcomers (migrants), and success was achieved from such businesses (Fairlie & Robb,
2008), were they attracted to start their own enterprise there. In this case, locals imitated migrants.
This was also the case in the transport sector. At first, it was the migrants who engaged in the sector.
After this endeavor generated success, locals started to follow in their footsteps.
Following the imitation stage was the identification process, in which non-migrants identified
themselves with the socioeconomic behavior of migrants. Then, they entered the sympathy stage,
which was marked by non-migrants’ interest in the socioeconomic behavior and the overall ways of
life of the migrants and considered them as part of their own. It was found through this study in
Tualang Perawang that the socioeconomic behavior changes, in this case job mobility, occurring in
the local people (non-migrants) were a result from the interactions in the form of imitation,
identification, and sympathizing between them and migrants (Teernstra, 2014).
Conclusions
Based on the research results and discussion, the following conclusions were drawn. First, the factors
driving migrants’ migration to Tualang Perawang consisted of push factors, pull factors, and
accessibility. The push factor reported by 80% of the migrants was economic interest, while the pull
factors included employment opportunity with companies, the advancements taking place in the
destination, and the destination’s state of being easy to reach (93.3%). Accessibility was related to the
availability of transport facility for the migrants to access the destination (83.3%). Second, a
difference in the socioeconomic behavior of the locals (non-migrants) before and after the inflow of
migrants and the setting up of companies in Tualang Perawang (before and after 1980) was observed.
The locals (non-migrants) engaged in different professions prior to and beyond 1980 (86.7%) as a
result of social interactions with migrants in the form of imitation, identification, and sympathizing
(90.0%).
7212
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7215
Millennials’ Financial Literacy and Demographic Characteristics:

Lessons from Public Urban Universities
ASMALIDAR
Politeknik Negeri Medan
asmalidar72@gmail.com
Wahyu Ario PRATOMO

Faculty of Economics and Business, University of Sumatera Utara
wahyuario@gmail.com
Ari WAROKKA
Abstract
This study aims to examine the effect of demographic characteristics on business students’ financial
literacy levels in public urban universities. It used 200 public university students as the sample and
employed a probit regression analysis to see the impact of demographic factors on students’ financial
literacy level. The study revealed that age and GPA had a positive and significant influence on the level
of financial literacy. The higher the age and GPA of students were, the better their levels of financial
literacy became. Students’ place of residence and their home-campus also affected the level of financial
literacy and level of financial knowledge. Meanwhile, gender, length of study, and parents' income did
not affect the level of student financial literacy. It implies that some demographic and academic factors
play an essential role in business students’ financial literacy, which indicates a need for comprehensive
personal finance course
Keywords: financial literacy, curriculum change, personal finance

Introduction
Financial literacy is the ability or level of understanding of a person or society about how money works.
The role of financial literacy becomes very important because the development of the financial services
industry is increasing and becoming increasingly complex so that the conditions of the financial markets
change (Mandell, 2006) and require the people of Indonesia to have better basic financial knowledge.
Financial literacy includes knowledge related to financial matters, such as introduction to financial
service institutions, types of financial products and services, features inherent in financial products and
services, benefits and risks of financial products and services, and rights and responsibilities of
consumers of financial service (Zokaityte, 2017).
The National Financial Survey conducted by the Financial Services Authority (OJK) in 2013 showed that
Indonesia's financial literacy rate was reasonably low, at only 21.84 percent, which meant that only 21.84
percent of Indonesia's population understood rights, responsibilities, risk costs, and benefits of financial
products and services. According to a World Bank survey in 2011, the level of usage of formal financial
products or services of Indonesian people over the age of 15 was only 19.58 percent. In 2014, Indonesia
experienced an increase of 16.36 percent in three years so that the level of usage of formal financial
products and/or services was 35.94 percent, indicating that the Indonesian people began to understand the
formal financial products and/or services, even though the level of usage was still somewhat lower than
Malaysia and Thailand of which the levels of usage of formal financial products and/or services were
80.67 percent 78.13 percent, respectively.
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In several studies, various factors determine the level of financial literacy of an individual. According to
Monticone (2010), factors that can determine the level of financial literacy include [1] demographic
characteristics, such as gender, ethnicity, education, and cognitive abilities; [2] family background; [3]
wealth; and [4] time preferences. Meanwhile, Capuano and Ramsay (2011) explained that personal
factors such as intelligence and cognitive abilities, social factors, and economic factors could determine
the level of financial literacy of an individual.
Another study conducted by Mahdzan and Tabiani (2013) found that demographic factors that influenced
the decision of an individual to save money were factors of age, gender, education level, number of
children, marital status, and work experience. Scheresberg (2013) found that the levels of financial
literacy of women were lower than those of men. However, the study of Bank Indonesia (2012) revealed
a different finding, in which women had a higher level of financial literacy than men.
University students are one component of society that plays a vital role as an agent of change. Therefore,
the role of higher education institutions in shaping financial literacy among students is significant.
Compared to other countries in the world, especially ASEAN countries, Indonesia is more fall behind in
terms of financial literacy, and this condition requires special attention. College students in Indonesia
must be equipped with qualified knowledge and abilities to develop the financial sector in Indonesia.
Lusardi (2010) stated that students, as young leaders would not only face the increasing complexity of
financial products/services and financial markets. Very tight competition for human resources in the
future encourages universities to be able to create graduates who have expertise in the financial sector to
encourage better economic growth in the future. Based on the description above, it is necessary to
conduct a study of the influencing factors of the financial literacy level among university students.
Specifically, those are major in business or economics.
Literature Review
Financial literacy covers several financial dimensions to be mastered. Chen and Volpe (1998) mentioned
several dimensions of financial literacy, including general knowledge of finance, savings and loans,
insurance, and investment. The level of financial literacy of each person is different. The different level of
financial literacy causes significant differences between one individual with another in collecting assets,
both short-term and long-term assets. Huston (2010) explained that factors, such as habits, cognition,
economics, family, peers, communities, and institutions, can have an impact on financial behavior.
Several studies of financial literacy have been conducted to measure the level of financial literacy of
people in a country. Chen and Volpe (1998) conducted a study of financial literacy with 924 students as
respondents and found that the level of financial literacy was in a low category. The results showed that
students answered 53% of the questions correctly.
In the context of Indonesia, there are some studies explicitly focusing on the university students’ financial
literacy level, such as the study of Nababan and Sadalia (2012), which studied 97 respondents. Samples
were active undergraduate students of the Faculty of Economics and Business, University of Sumatera
Utara, from the classes of 2008 to 2011. The study found that the level of financial literacy among
students was 56.61%, which indicated that the level of financial literacy was in a low category.
Nidar and Bestari (2012), in their study on 400 active students at Padjajaran University in Bandung,
found that the level of financial literacy was in a low category. In their study, students were suggested to
increase knowledge in the fields of investment, debt, and insurance. Indicators of the questions in the
study were necessary personal finance, income and spending, credit and debt, saving and investment, and
insurance.
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Meanwhile, in other countries, Bhushan and Medury (2013) explained that the level of financial literacy
among working individuals who already earned income was 58.30%. Ibrahim and Alqaydi (2013)
conducted a study of people in the UAE and found that the average financial literacy was 43.33%.
Chen and Volpe (1998), in their study, explained that men understood financial literacy better than
women. They surveyed at the university with 924 students as samples. Krishna et al. (2010), in their
study, found that women understood financial literacy better than men. The study examined 100 active
students from the classes of 2006 to 2008. Bhushan and Medury (2013) conducted a study on 516
respondents in India. Their study found that there were significant differences between the financial
literacy levels of male and female respondents who already earned a salary.
Chen and Volpe (1998) found low levels of financial literacy in participants aged 18-22 years old. The
reason for the low level of financial knowledge could be attributed to the young participants aged 18 to
22 years old, or under 30 years old, as the majority of them were in the very early stages of their financial
lives. During this stage, participants had several financial problems related to general knowledge about
finance, savings and loans, and insurance.
Taft, Hosein, and Mehrizi (2013) found a positive relationship between age and financial literacy. Shaari,
Hasan, Mohamed, and Sabri (2013), in their research conducted on 384 college students in Malaysia,
found that there was a negative relationship between financial literacy among students and age. Ansong
and Gyensare (2012) found that age had a relationship with financial literacy among students. Chen and
Volpe (1998) found that more senior students had higher levels of financial literacy than junior students
did. Shaari, Hasan, Mohamed, and Sabri (2013) found that the year of entry had a positive relationship
with financial literacy. This finding explained that in higher education institutions, junior students tended
to have lower financial literacy level than senior students did.
Cude et al. (2006) explained that college students who had a high GPA had better levels of financial
literacy. Sabri et al. (2008) said that students who had a high GPA had fewer financial problems than
students who had a low GPA. Krishna et al. (2010) found that students whose GPAs were under 3.0 had a
higher level of financial literacy than students whose GPAs were higher than 3.0. Their research stated
that the intellectual ability was not the determinant of financial literacy level, which was represented by
GPA but rather determined by financial literacy that they learned at educational institutions.
Another factor that influenced an individual's level of financial literacy is independence. Keown (2011)
found that people who lived alone had a higher level of personal financial literacy than those who lived
with partners or parents. This fact is because people living alone had responsibility for their daily
financial transactions and other financial decisions.
Nidar and Bestari (2012) found that parents’ income was a significant factor in the level of financial
literacy among students of West Java (Indonesia). Keown (2011) explained that there was a relationship
between parents' income and financial knowledge. This finding showed that parents with higher incomes
tended to have higher levels of financial literacy because they used financial instruments and services
more often.
Research Methods
The population of respondents in this study was business and economics students at Medan State
Polytechnic and the University of North Sumatra. The population of students in Medan State Polytechnic
was students majoring in accounting and finance-banking. The number of students in both majors was
2,098 (in 2016), while the population of students in the Faculty of Economics and Business, University of
Sumatera Utara, was 3,062 (in 2016). Based on the sample calculation using Slovin’s formula, the total
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sample of this study was 200 people, consisting of 100 students of Faculty of Economics and Business,
University of North Sumatra, and 100 students of Medan State Polytechnic.
Measurement Parameters
The variables examined in this study consisted of the independent variables and the dependent variable.
The dependent variable in this study was the level of financial literacy. This variable was measured by
categorizing the level of understanding of financial literacy that referred to the data interval method
below:
ℎ −
=
100 − 0
= = 50
2
The level of financial literacy was categorized into two categories, namely a high level of financial
literacy and a low level of financial literacy. Thus, the assessment of dependent variable of the level of
financial literacy was categorical data, which were quantified into number 0 for the category of low
literacy level (score of literacy between 0 and 50) and number 1 for the category of high literacy level
(score of literacy between 51 and 100).
The independent variables in this study were gender, age, year of entry, Grade Point Average (GPA),
place of residence, student independence, parents’ income, and home-university. The size of each
variable is as follows: [1] Gender variable in this study was categorical data, quantified into number 1 for
male gender and 0 for female gender. [2] Age variable was ratio data that showed the ages of the
respondents when the data were collected. [3] Study period variable was ratio data that showed how long
the respondents had been students in higher education institutions. [4] GPA variable was ordinal data.
The GPAs ranging from 2.00 - 2.75 were included in category 1, GPAs ranging from 2.76 - 3.50 were
included in category 2, and GPAs ranging from 3.51 - 4.00 were included in category 3. [5] Place of
residence variable was categorical data, quantified into number 1 for college students who did not stay
with parents and 0 for students who lived with parents. [6] Parents’ income variable was designed by
making the variable an ordinal data based on the calculation of single tuition. The income up to IDR 1.0
million per month was included in category 1; income ranging from IDR 1.01 million - IDR 3.0 million
per month was in category 2; income ranging from IDR 3.01 million - IDR 5.0 million per month was in
category 3; income ranging from IDR 5.01 million - IDR 7.0 million per month was in category 4;
income higher than IDR 7 million a month was in category 5. [7] Home-university variable was
categorical data, quantified into number 1 for students of Medan State Polytechnic and 0 for students of
the University of North Sumatra.
Research Model
To analyze the factors that influence the level of financial literacy with various types of diversity of data
on each variable, the analytical model used in this study was the Probit model. This model is a regression
model for analyzing the dependent variables that have binary numbers 0 and 1. The Probit model
equation from this study is presented as follows:
( )$ = %& + %! () + %* +, + %- ., + %/ 0) + %1 22 + %3 04 + %5 60 + 7 ... (2)

!"
Annotation:
p = probability of students to have a higher level of financial literacy
7219
1-p = probability of students who have lower levels of financial literacy

β0 = constant
β1 ... β7 = coefficients of the independent variables
JK = gender (1 for men and 0 for women)
US = students’ age (year)
MS = length of study in college (year)
IPK = GPA of students (1 for GPA 2.00 - 2.75; 2 for GPA 2.76 - 3.50; and 3 for GPA 3.51 - 4.00)
TT = place of residence of the respondent (1 for students who did not live with parents and 0 for students
who lived with parents)
AP = home–university (1 for students of Medan State Polytechnic and 0 for students of the University of
North Sumatra)
ε = variabel error
Findings and Discussion
In individuals, financial literacy is the ability to make personal financial decisions. Thus, financial
literacy becomes one of the important aspects in an individual's daily life in using financial instruments
and products and making the right financial decisions (Worthington, 2016). For students, especially
economics students, financial literacy is one of the important skills that have to be mastered in order to
encourage the development of financial understanding for themselves and the society and in order to
increase the role of the financial sector in economic development (Njoku, 2011).
This study conducted some tests to measure students' financial literacy, by evaluating their
comprehension of financial products and markets, such as savings or deposits, calculation of interest, the
value of money, and prices of financial products. For financial literacy level indicators, this study refers
to research conducted by Definit (2013).
To measure the level of financial literacy of economics students at Medan State Polytechnic and the
Faculty of Economics and Business, University of North Sumatra, students’ understanding of the process
of opening a saving account was measured at an early stage. The measurement was conducted by
considering that students generally already had savings accounts and interacted with banks when they
paid tuition and saved and withdrew money.
7220
1.5
20.5 21.5
98.5
79.5 78.5
Administrative Initial deposit of Minimum balances

requirements saving accounts
Literate Illiterate
Figure 1: Students' Understanding of Saving Account Opening
(Source: Author’s Elaborated Data)
To open a savings account, a person must complete the administrative requirement by showing the
Resident's Identity Card (KTP) or Driving License (SIM). The results of the study showed that students
generally understood this administrative requirement. About 98.5% of students knew that prospective
bank customers must have the Resident's Identity Card (KTP) or Driving License (SIM) to open a bank
account. Only a few students (1.5%) did not know that the resident's identity card or driving license
became the essential administrative requirement to open a bank account.
After opening an account, a bank customer must prepare funds for the initial deposit of the account. The
results of the study found that 79.5% of students knew that there were minimum limits when a person
opens a saving account, and 20.5% of students did not know that there was such provision. The initial
deposit at the time of opening a bank account varies in each bank. However, for the TABUNGANKU
product feature, Bank Indonesia has settled that the initial deposit for opening the TABUNGANKU
account is IDR 20,000 in commercial banks and IDR 10,000 in Rural Banks and Islamic Banks. For the
next deposit, a minimum of IDR 10,000 is set at a commercial bank, and there are no limits on rural
banks and Islamic banks.
Financial understanding related to other requirements of saving accounts was the minimum balance.
Related to the minimum balance that must be available in the account, around 78.5% of students
understood this requirement, and around 21.5% of students did not. The minimum balance of saving also
varies in each bank. However, for the TABUNGANKU product feature, Bank Indonesia has set a
minimum balance of IDR 20,000 at Commercial Banks and IDR 10,000 at Rural Banks and Islamic
Banks.
The second aspect of measuring the level of student financial literacy was deposit insurance. This aspect
aimed to measure the level of understanding of the rules and institutions that guarantee customer deposits
in banking.
7221
39.5
61.0
93.4
60.5
39.0
6.6
Existence of deposit Limit on maximu m The existence of
insurance deposit guaranteed IDIC
Literate Illiterate
Figure 2: Students’ Knowledge about Deposit Insurance
(Source: Primary Data)
The first indicator that was measured related to the deposit insurance aspect was students’ understanding
of the existence of deposit insurance when the bank where they were saving money went bankrupt. The
results showed that most students understood this condition. About 60.5% of students knew that their
savings were guaranteed if the bank where they saved money went bankrupt. Meanwhile, 39.5% of other
students did not know if government institutions guaranteed their savings.
The institution designated by the government as a deposit guarantor in Indonesia is the Indonesia Deposit
Insurance Corporation (IDIC). The IDIC is a refinement of the insurance program of blanket guarantee
that was in effect from 1998 to 2005. Blanket guarantee policy, on the one hand, could increase public
confidence in banks, but on the other hand, the policy had burdened state finances and could create moral
hazard for banking actors and customers. By considering the negative impact and taking into account the
improving banking conditions, the blanket guarantee policy was terminated in 2005. However, the
government considered that deposit insurance was still needed to maintain public confidence in the
banking industry and to minimize risks that burden the state budget or risks that create moral hazard.
Under the law concerning Indonesia Deposit Insurance Corporation, deposits of bank customers are
guaranteed by IDIC.
The maximum deposits guaranteed by the IDIC have limits. Since October 13, 2008, the guaranteed
deposit per bank customer has changed from a maximum of IDR100 million to IDR 2 billion. The results
of this study indicated that only 6.6% of students understood that there was a limit on the maximum
deposits that are guaranteed by the IDIC. Meanwhile, 93.4% of students did not know that there was a
limit on the maximum deposits guaranteed by the IDIC. The lack of knowledge related to the maximum
guaranteed by the IDIC illustrated that the IDIC is less successful in introducing deposit insurance.
The third indicator measuring the aspect of deposit insurance was the institution that guarantees customer
deposits. Indonesia Deposit Insurance Corporation (IDIC) is an institution that guarantees customer
deposits. The results of the study found that there were still quite a lot of students who did not know that
the IDIC is an institution that guarantees deposits. Around 61.0% of students did not know that the IDIC
guarantees customer deposits when a bank goes bankrupt. They still thought that the institution that
guarantees customer deposits was Bank Indonesia or Financial Services Authority (OJK), and there were
even students who did not know at all about the institution that guarantees deposits.
The next aspect measured to determine the level of financial literacy among students was the calculation
related to deposit and loan interest. The aim was to analyze the rationality of students related to the value
7222
of savings and the amount of coverage to the responsibilities that must be met when applying for a loan
from the bank.
100%
24.5
80% 34.0
60%
40% 75.5
66.0
20%
0%
Saving interest Loan interest
Literate Illiterate
Figure 3: Students' Understanding of Saving Interest and Loan Calculation

In this aspect, students' understanding of savings and loan interest was measured. For savings interest,
students were expected to know the growth of savings after earning interest for one year. The results
showed that 66.0% of students understood the calculation of deposit interest in banks. Meanwhile, 34.0%
of students did not understand the mechanism of interest rates calculation.
In terms of loan costs, this study found that around 75.5% of students understood the loan interest rate
when they took out a loan. Meanwhile, 24.5% did not understand the calculation of loan interest set by
banks.
In terms of analyzing financial literacy among students, this study also measured students' understanding
of the value of money and the illusion of money. The purpose of this analysis was to measure how
students understand the real value of an item or the value of one's wealth due to the impact of price
changes or inflation.
The first indicator of this aspect was the level of students’ understandings regarding the purchasing power
of money. In this indicator, students’ understandings were measured by the number of goods or services
that one unit of money can buy after the money has increased due to interest rates and inflation. The
results of the study found that around 60.0% of students understood how to measure the purchasing
power correctly. Meanwhile, 40.0% of students still did not understand how to measure purchasing
power.
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40.0 35.8
60.0 64.3
Value of money Money illusion
Literate Illiterate
Figure 4: Students' Understanding of the Value of Money and the Illusion of Money
The second indicator of this aspect was the level of students’ understanding related to the illusion of
money. Students were expected to understand the real value of money in the present time compared to the
value of money in the future. The results of the study found that 64.3% of students understood that the
value of one unit of money at present would be different in the future.
The level of financial literacy was also measured by understanding about the financial market and the
products in the financial market. In this study, the level of financial literacy in terms of financial market
and products was measured through several indicators, namely capital market functions, bond prices,
comparison of financial market products such as stocks and bonds, risk of financial products (portfolio),
stock ownership, bond ownership, bond trading, bond returns, portfolio price volatility, and portfolio
diversification.
100%
27.0
18.5
38.0
43.0
80%
62.0
68.5
71.5
76.0
77.5
77.5
60%
81.5
73.0
40%
62.0
57.0
38.0
31.5
Price of bonds 28.5
Portfolio sales 24.0
20%
Portfolio risk 22.5
Bond ownership 22.5
0%
Stock ownership
Portfolio return
diversification
Capital market
stocks and bonds
Portfolio price
Comparison of
Portfolio
volatility
function
Literate Illiterate
Figure 5: Students' Understanding of Markets and Financial Products

The first indicator of the financial market and products' aspect was the function of the capital market.
This indicator aimed to measure the level of students’ understanding of the primary function of the capital
7224
market as a place for interaction between groups that have excess funds to buy stocks with groups that
lack funds and offer their stocks. The results of the study found that 73% of students understood the
primary function of the capital market, while 27.0% of other students still did not understand the primary
function of the capital market.
The second indicator of the financial market and products' aspect was the bond price. This indicator
aimed to measure the level of students’ understanding of changes in bond prices about changes in interest
rates. The results of the study found that most students (71.5%) did not understand the effect of changes
in interest rates on bond prices, and only about 28.5% of students understood.
The third indicator of the financial market and products' aspect was the comparison of stocks and bonds.
Using this indicator, students' understanding about the portfolio of stocks and bonds was measured. The
results of the study showed that the majority of students (62.0%) did not clearly understand financial
products such as stocks and bonds. Only about 38.0% of students could understand correctly.
Furthermore, this study also measured the portfolio risk of stocks and bonds. The results of the study
found that only about 22.5% of students knew correctly about the risks of stocks and bonds. Meanwhile,
77.5% of students did not know that stocks are riskier than bonds. This finding was in line with students'
misunderstanding about stock and bond products.
The next indicator in terms of the financial market and products was the purpose of stock ownership. The
purpose of measuring this indicator was to find out students' understanding of the underlying meaning of
owning stocks in a company. In general, 81.5% of students have understood the meaning of having stocks
in a company.
The sixth indicator of the financial market and products' aspect was the meaning of bond ownership. The
purpose of this indicator was to measure the level of student understanding of the meaning of owning
bonds in a company. The study found that only 22.5% of students understood bond ownership, and the
majority of students (77.5%) did not understand that by buying bonds, it meant investors lend money to
bond issuing companies.
In measuring financial literacy from the other financial markets and products' aspects, this study
measured students' understanding of portfolio sales such as bond sales. The results of the study showed
that most students (76.0%) did not know that bonds can be sold at any time, even though they are not due.
Only around 24.0% of students knew how to sell bonds that are not yet due.
Portfolios purchased by investors will provide a return for them. The next indicator in this study was the
level of students’ understanding of the return ratio of types of portfolios, such as savings, bonds, and
stocks. The results of the study found that most students (62.0%) knew that the type of portfolio that can
provide the highest return is stocks, while 38.0% of students said that types of portfolios such as savings
or bonds provided higher returns than stocks.
The ninth indicator of the financial market and products' aspect was portfolio price volatility. The purpose
of this indicator was to measure the comparison of the price fluctuations of each portfolio. The study
found that around 57.0% of students understood that stock prices fluctuate more than portfolio prices.
Meanwhile, 43.0% of students still did not know about it.
The last indicator of the financial market and products' aspect was students' understanding of the
diversification of assets owned by investors. The purpose of measuring this indicator was to determine
the level of understanding of students to reduce losses from portfolio ownership in the financial markets.
The results of the study found that around 31.5% of students understood that by diversifying portfolios,
the risk borne by investors would be lower than if they did not do so.
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From all financial literacy indicators measured in this study, information obtained was that around 124
students (62.0%) had a desirable level of financial literacy, while 76 students (38.0%) did not have the
desired level of financial literacy.
Poor
Literate
38.0%
Well
Literate
62.0%
Figure 6: Financial Literacy Level of Economics Students of

Medan State Polytechnic and the University of North Sumatra
This study used the Probit regression model to analyze the factors that influence the increase in financial
literacy among students. From the estimation results, the following equation is obtained:
9
8 : 1,972 ' 0,210() ' 0,493+, 0,111 ) ' 0,404 0) 0,70622 ' 0,04804
(1 9#
' 1,174602
(-2,586) (0,947) (2,876) (-0,823) (2,968) (-3,340) (0,522)
(4,596)
Estimation results show that the US (Age), IPK (GPA), TT (Independence), and APT (Home College)
variables significantly influenced Lit (Level of Financial Literacy). Meanwhile, the JK (Gender), LK
(Length of Study), and PO (Parents’ Income) variables did not significantly influence the level of
financial literacy among students.
From the analysis, the estimation results obtained were that variables of age, GPA, place of residence,
and home college significantly influenced the level of financial literacy. The coefficient number of age
variable was 0.493. This result indicated that each 1-level increase in the age variable, the probability of
increasing student financial literacy was 49.3%. The older the students became, the more they had
experience and knowledge related to financial literacy.
The variable coefficient for GPA was 0.404, which meant that for every 1-level increase in GPA, the
probability of increasing student financial literacy was 40.4%. This result indicated that the more
7226
intelligent the students were, marked by an increase in their GPA, the higher their understandings of
financial products became.
Variables of TT and APT were dummy variables (0 and 1), so it can be interpreted that there were
differences in conditions of the level of financial literacy among students. In this study, the variable of the
place of residence (TT) was a condition where students lived with parents or lived at the boarding house.
The results of the study showed that there were significant differences in the level of financial literacy of
students who lived with parents and students who lived alone. Students who lived with parents had higher
financial literacy than students who lived alone at boarding houses. It was suspected that students who
lived with parents in Medan obtained more information about financial products than students who came
from outside Medan.
The coefficient of APT was a dummy variable, and the result obtained was a significant coefficient. Thus,
the result indicated that there were significant differences between the level of financial literacy of
students of Medan State Polytechnic and students of the Faculty of Economics and Business, University
of Sumatera Utara.
Conclusions and Implications
This study concludes that the level of financial literacy of economics students at public urban universities
was quite good. Around 62.0% of students with economics education backgrounds understood financial
literacy well, but around 38.0% of students still had a reduced level of financial literacy. It also finds that
age and GPA had positive and significant influences on the level of financial literacy. The higher the age
and GPA of students were, the better the level of financial literacy became. Place of residence and home-
university also influenced the level of financial literacy. Different place of residence and home college
caused differences in the ability to understand finance. Meanwhile, gender, length of study and parents'
income did not affect the level of student financial literacy. There was no difference in the level of
financial literacy according to gender, length of study, and parents’ income. The level of financial literacy
of economics students differed significantly according to the GPA, place of residence, and home-
university.
It implies that the level of understanding of students about finance needs to be improved by providing
education related to personal finance. Thus, students can manage their finances well, have enough
knowledge to manage their money, and develop entrepreneurial skills. Higher education institutions are
expected to be able to evaluate lecture material related to the level of financial literacy among students.
Study material standardization is an essential agenda in order to provide equal understanding to
economics students from various higher education institutions in urban area. Curriculum changes in
higher education institutions can become one of the critical points in increasing the financial literacy of
economics students of public urban universities. Providing personal finance courses can be an alternative
to encourage the level of financial literacy among students.
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Ethical Culture Development in Family Owned Businesses
Rahatullah MUHAMMAD KHAN
Effat University, Jeddah, Saudi Arabia

mkhan@effatuniversity.edu.sa
Abstract
Building an ethical culture is challenging and a basic requirement of the companies to embed
transparency in their systems, creating a positive image; serving the internal and external communities.
This paper based on detailed interviews of 12 family owned businesses over a period of 16 months
explores how these companies build the ethical culture, identifying the ethical culture sustainability
triggers, challenges and role of religion in such practices. The values, culture, community and social
norms are identified as major ingredients of a sustainable ethical culture development and implementation
of the ethical policies and procedures require institutional and structural mechanisms for effectiveness in
family owned businesses. The findings at numerous occasions are in contrast to the literature, whereas, in
other instances are similar. The religion, society, family image, entrepreneurs themselves and their family
members play a vital role. Non-interference in private matters of the employees, whistle blowing, code of
ethics, training and awareness creation and other factors play a role in ethical culture development.
Keywords: Family Owned Business, Ethical Practices, Formal and Informal Practices
Introduction
Ethics is an important commonly used term. The ethics and morals that we were taught or learned in our
lives, shapes our behavior personally as well as professionally. Ethics is derived from the Greek work
“ethos”, which means habit or custom whereas the word “moral” comes from the Latin word “moralis”,
meaning mores of customs. Ethics is defined from several perspectives. According to Treviño and
Nelson (1995) ethics can be defined as a set of moral principle or values portraying ethics as highly
personal matter. Organization ethics, on the other hand, describes what constitutes right and wrong or
good and bad, in human conduct in the context of an organization” Mellahi et. al. 2010. This paper
studies family businesses in Saudi Arabia and presents data on ethical culture development.
The diagram 1 summarizes the literature. In a business, ethical policies and procedures are practiced
when controversial issues arise in corporate governance, like, insider trading, bribery, discrimination, and
business social responsibility and fiduciary responsibilities. Business ethics is applied to businesses in
order to ensure a certain level of trust required between consumers and businesses. Ethics in a business
refer to the equity and morality of employees to help avoid discrimination in the organization and thus
getting closer to achieving the organization goal (Mellahi, Morrell, & Wood, 2010). Loughran & Russell,
2002 suggested that morality plays an important part in businesses by shaping the employees' behavior.
They opined its importance that business leader demonstrates as a moralist, where he instills ethics and
morality in the organization with not only his words but actions as well.
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organization. The informal mechanisms could be implied discussions, the stakeholder balance, being the
The literature identifies ‘formal’ and ‘informal’ mechanisms that help implement the ethical culture in an
role model and the social norms that restrict an unethical behavior display by employees. On the other
Ethical Culture in Organizations

Mechanisms to develop, implement and maintain ethical culture in organizations
hand the formal mechanisms are more related to institution and have structural nature.
Challenges in developing,
Informal Mechanisms implementing and maintaining Formal Mechanisms
ethical culture in FOBs
Ethical Practices: Mechanisms to Develop and Implement
Gaps Gaps
Diagram 1: Summary of the literature
Difference in ethical policies in

Functional Areas - Reasons
Elicitors of Ethical Culture Institutional Structural
Implied Stakeholder Social Ethics Tools of Training & Process
Role Model Leadership
discussions balance Norms Officers Enforcement Courses Integrity
The following diagram describes the literature summary.
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Reward and Codes &
Preventive Support Reporting Check & Balance
Penalty System Procedures
Rights and Spirituality in
Responsibilities Workplace
Humanistic
Enterprise Ethical Preferred Non Credible Credible
Stratagies &
Behavior Future Behavior Behavior Behavior
Practices
Fundamental to
Right & Wrong
Business daily Routine
Ethics
Core Values
Moral Decisions Meta Ethics create
Optimal Credible
Ethical Theories Applied Ethics
Enviornment Functions
Normal Life Normative
Concept Ethics
The above summary and literature is based on the work of numerous scholars.
Murphy 1998; Trevino et al., 1999, 2000; Laufer and Robertson, 1997; Thommen 2003; Thommen 2003;
Sajjad et.al 2013; Kobayachi et.al. 2017; Morris et al. 2002; Morris et al., 2002; Casell et al. 1997; Adam
and Moore 2004; Trevino et. al. 1995; Cavanagh and Moberg, 1999; Gebler 2006 recognized that this is a
significant problem, especially in start-up enterprises. Trevino 1990; Trevino and Nelson, 1999; Ardihvili
et al. 2009; Naranjo-Valencia et.al. 2011; Iivari & Iivari, 2011; Prajogo, & McDermott, 2011; Gebler,
2006 Nguyen & Mohamed, 2011; Van Zyl, 2012; Adams et. al. (2004).
Gaps and Questions
The rich body of literature amply discusses the ethical culture development, however, it is important to
know the following.
The ‘formal’ and ‘informal’ mechanisms that help implement the ethical culture in an organization are
identified in the litertaure. The informal mechanisms could be implied discussions, the stakeholder
balance, being the role model and the social norms that restrict an unethical behavior display by
employees. On the other hand the formal mechanisms are more related to institution and have structural
nature. Some organizations even have ethics officers who implement the policies with the help of certain
tools available to them including the training courses. These institutional mechanisms help prevent
unethical practices, encourage and support ethical behavior at the workplace. It leads to identifying core
values of the organization to develop credible functions, optimize and build ethical environment. The
structural mechanisms are implemented by the organization leadership to bring in integrity. This brings in
checks and balances processes and procedures that are guided by a code of ethics and reporting policies.
The scholarly contributions opine that the prevalence of ethical policies and procedures in the business
are pivotal to business brand building, gaining trust of stakeholders and brining in transparency. These
policies would affect each functional area of the business and there can be difference of the policies from
one business function to another and from within the same categories of jobs. Literature identified that
there exist numerous challenges to meaning full implementation of the ethical policies and procedure.
1. If the measures are value driven 2. What are the challenges in

implementing an ethical culture,
3. How are ethical policies developed in relation 4. What is the implementation process
to functions of the business
This study attempts to answer the above questions and add to the knowledge in terms of the family
businesses in particular and traditional businesses in general. The particular family businesses have been
selected because of several reasons as shown below.
1. The knowledge gained from family businesses will contribute and add another dimension to
existing literature.
2. It will help identify if there are any differences between the family business and traditional
businesses when it is related to the ethical culture. It will add interest to the study because of the
unique nature of the family businesses.
3. The context of the Saudi Arabia and family business would provide a unique blend and the
information so gained might be able to provide a different perspective to the ethical culture
development.
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The Thommen’s (2003) model of credibility strategy implementation, developmental frameworks and
studies of ethical structures proposed by Morris et al. 2002; Belak 2009; Murphy, 1995, 1998 and Laufer
and Robertson, 1997, presents the foundation for the empirical part of this research.
Methodology
One of the major reasons for doing qualitative research is to become more experienced with the
phenomenon of interest. The data are normally "raw" and not pre-categorized (Alkhateeb 2018).
Whereas, Sorsa et.a al. (2015) state that qualitative methods provide distinctive value to investigate
complex and sensitive issues. The data can be recorded using any of the number of options available from
stenography, audio recording, video recording or written notes.
Formal interviews were conducted and the literature on qualitative research is ripe with works such as
King and Horrocks, 2010, Sapir 1947; Burr 1995; Mikene 2013; Patton, 2002; Creswell, 2009; Billing
1987; Weiss, 1994; Nielsen 2007; Corbon and Morse 2003; Chan et. al. 2013; Talmy 2010. These
scholars discuss the importance and role of interviews from different perspectives including their ability
to explore a phenomenon in detail and in depth.
Personal interviews were conducted in this research with the representatives / employees of the family
businesses. In all requests for interviews were sent to 37 family businesses known to researcher and his
circle of associates. Twelve granted interviews and it took 16 months of work to realize the interviews
starting October 2016 to April 2018. The context of study had been family businesses in Saudi Arabia.
The reason for this was that these companies were accessible. On the basis of the gaps and potential
research areas identified, the open ended questionnaire was developed with 31 questions.
The dependability in the study was assured by developing a questionnaire and asking the same questions
from each responded the contextual ascertainment and gaining dependability. The interviews conducted
in this research take ‘an action oriented position’ where these interviews are viewed as an action context
and the focus is on insights secured from experts/family members of the business.
Response summaries and classification
The interviews were recorded and notes were also taken with the help of research colleagues. After the
interviews were completed the responses were summarized into six categories shown below.
1. The Importance the family businesses attach to ethics and ethical policies and procedures.
2. The challenges faced in implementing the ethical policies and procedures.
3. Alignment of ethical policies and procedures to company CSR practices and society.
4. The value provision of these policies and procedures
5. The implementation modus operandi and
6. Role of ethics in functional areas of the business.
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Table 2 : Interview summaries – Community and Society and Values
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Table 3: Response summaries – Implementation Modus operandi and Challenges
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Table 4 : Interview summaries – Functional Areas and Importance
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Formal and Informal Measures and Structures of Ethical Practices

Implementation
In order to understand the formal and informal measures and structures of ethical practices
implementation the responses of the companies have been divided into 6 main categories. These are same
categories developed after the response collection and identified in section ‘Response summaries and
classification’ above.
This study attempts to provide an insight into an ethical, moral and administrative dilemma of developing
and then implementing the formal and informal systems, procedures and processes that help stimulate a
sustainable ethical culture.
Importance and Benefits of Ethical Policies
The first question in the structured formal interview questionnaire was to know the importance attached
to ethical policies by the businesses and steps taken to develop an ethical culture. Among the most
important factor in developing, implementing and maintaining ethical systems, policies and procedures is
that such policies help build brand, image and trust of stakeholders.
Family businesses such as Trans Desert, Al Jomaih and Bin Mahfouz, suggest that the ethical policies are
very important and these are the foundation of the business and its culture development. The ethical
policies build organization norms and human relations suggested AlBaik. Firms such as Al Baghdadi,
Batterjee, Al Kabeer and Al Bander opine that the customer including collective, individual and
stakeholder relations are built on ethics. Al Olayan on the other hand sight rights issue and asserted that
ethics help develop' human and work place rights; however, employees may perform comparatively more
efficiently and produce quality output while working in an ethical environment suggest the Bin Zagr.
The companies like Batterjee and AlBaik identified a number of benefits in implementing and following
ethical policies. Major findings related to benefits include the development of trust components. It was
also envisaged by Rahatullah 2009. The study elaborated that once the trust components like, credibility,
integrity and benevolence prevail, securing the partner / stakeholder commitment becomes easier and
leads to competitive advantage. It is interesting to note that the companies find achieving these
components as important benefit for their firms.
Implementation of Ethical Policies
The literature identifies that the businesses take certain measures to help the employees follow ethical
practices. The studies of (Phillips, 2011) and (Taylor & Simpson, 2013) identified a number of measures
taken by the companies to disseminate the information to their employees. The responding family owned
businesses identify for steps to help everyone follow ethical norms. These included regular training and
awareness, a manual or a code of conduct. Engaging employees in discussions, reflection and reporting
and the managers acting as role models to follow ethics.
Companies such as Al-Marai, Unilver and AlBaik help open discussions on Ethics and ethical practices
through communications in routine. Family businesses including Bin Mahfooz regularly communicate
organization’s values, industry ethical code and expectations with internal and external stakeholders.
7237
Three roles of Government identified in implantation of the ethical policies and procedures in the
business community by the respondents. Pepsico and Omnat suggested to involve the shura council
(Consultative assembly for the king) in order to bring in uniformity. Whereas, AlBaik and BinMahfouz
suggest involving the business community by the government to conduct audits and reviews to produce
reports and implement. The other family enterprises suggested that the business community has little
understanding on the ethical policies and systems.
Ethical Policies and Systems in Functional Areas of the Business
Companies like, Unliver and suggest that the practices in recruiting at times may need adjustments
especially when it comes to mandatory requirement by the government to employ a set number of Saudi
citizens and when the jobs are gender specific as stated by Al Jomaih, Bin Mahfooz and Al Baik.
Otherwise, the companies don’t discriminate in hiring the workforce.
The benefits and compensation packages are related to achievements like in Kadi and Ramadi, whereas, it
is related to performance in Trans Desert and Pepsico, on the other hand Unilever KSA relates it to the
experience and responsibility levels and little distinction is made in this matter. At times companies pay
more salary to Saudis then non-Saudis as in some companies.
Training and development policies impact a great deal on employee job satisfaction, morale and
motivation as suggested by Sajajd et.al. 2013 and Kobayachi 2017. Responses seem to be corresponding
to the literature and suggest companies do not make any differences in the choice of employee for
training and training choice is built on need (Coca Cola). Ethics in Finance and Accounting play a vital
role in implementing the ethical practices and it determines the reputation of a company a great deal. The
Saudi FOB’s seem to be aware of this fact and businesses such as Coca Cola cite legal issues as well if
they do not comply with the ethical problems in finance and accounting. However, a specific policy is to
be implemented regarding the finance and accounts should be led by a Saudi national for legal purposes.
Ethical Core values
The exploratory questions on ethical core values included equality, gender specific policies, nepotism,
monitoring emails and website browsing, transparency, whistle blowing and attendance. Beschorner and
Hajduk 2017 argue that responsible practices are culturally embedded and transparency is major dynamic
in identifying, developing or implementing the ethical values. The entrepreneurs running family
companies in Saudi Arabia contend three major ways to bring transparency. The companies like Coca
Cola bottlers, Nestle water, Kadi and Ramadi, Pepsico, McDonalds, Bin Mahfouz etc. bring in
transparency through the direct, internal or through open doors communications.
The companies assist and encourage employees to perform ethically at personal levels, as being practiced
at Trans Desert who provide incentives for good attitude by the employees. Whereas, Coca Cola and
Nestle water promote ethical vision and values among their organizations. Some companies encourage
and safeguard the whistle blowing by providing safety and anonymity to talk about wrong doings etc.
Some companies such Kadi and Ramadi and Bin Mahfouz assert that this is great tool as it discourages ill
practices. The Pepsico keeps the whistle blower information classified.
According to Sipior and Burk (1995) monitoring employee email or internet browsing is ethically
incorrect. They considered it as intrusion; intrusion into private affairs of the employees and regarded it
as highly offensive. The study found similar answers and the family businesses in Saudi Arabia also hold
such views and overwhelmingly regarded it as the employee private affair and inappropriate for the
employers to monitor emails of their employees. The responses are mixed on both the employee internet
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browsing and email monitoring policy and at times remain in contrast and at other instances in
accordance with the literature.
Ethical Policies and Society / Community
The responses of the companies related to their ethical policy alignment to social priorities and
community were very interesting. The three factors emanating from the responses are creation of public
awareness, offering healthier choices and effective contribution to the environment. Most of the
companies align their policies by offering safe and secure environment for shoppers, they contribute to
the environment through their CSR programs that include generating public awareness and offering the
customers and consumers healthier alternatives.
The companies were asked about their opinion on ‘How trust and ethics play part in the businesses. The
findings are revealing. This satisfies the Rahatullah and Raeside 2015 study where the authors relate
commitment with the trust manifestation and business success. The findings show that the companies
believe that once the trust components prevail, the commitment from relationships is secured and that
leads to business success.
Al Olayan and Trans Desert Transport operates community uplift programs and assist the groups of
people in guidance on religious principles and beliefs. Similarly, Child labor awareness campaigns are
run by Olayan, Kadi and Ramady, BinMahfouz and Albaik. Majority of the businesses also seem to imply
that the religion and ethics are interdependent and interlinked. Ommat opined that they provide the
community with as much assistance they can as they create wealth from these communities.
Challenges in implementing the Ethical Policies and Developing Culture
The family businesses identified following major challenges in development and implementation of
ethical norms and principles in organizations.
a) Lack of transparency in certain systems at the national levels. However, the government has
introduced a number of measures including the digitalization of the governmental procedures. The
governmental services are now accessed through internet and the businesses need not to make any
personal contact the offices.
b) Import and export may be harmed as ethical policies are not same across the world.
c) Saudization. It is the new law in the Kingdom which makes it mandatory for the businesses to
maintain certain percentage of Saudi nationals as employees due to high unemployment rates in the
Kingdom.
d) Human Relations and Psychological barriers leading to difficulties in following and adapting by
certain employees
e) Access to correct information and implementation policies sometimes are the major obstacle and
challenge to implement.
f) Developing criteria for compensation employees in a multicultural organization
g) Providing all categories in each function of the business receive similar opportunities for
development and training.
Conclusions
This study has contributed to the knowledge by responding to particular questions unanswered in the
literature. The above findings help conclude that values, culture, community and social norms are major
7239
elicits of sustainable ethical culture development and implementation of the ethical policies and
procedures require institutional and structural mechanisms for effectiveness in family owned businesses.
This research has identified that the importance of informal measures such as being a role model and
adhering to social norms develops a stakeholder balance and delivers value. This is similar to the findings
of the work of Ardihvili et. al. 2009 and Moore 2004 where the scholar identified the significance of
informal measures. However, even though the above would also deliver leadership effectiveness but
study shows that among benefits of an ethical culture there would also be a buildup of credibility and
increase the level of effectiveness standards. Credibility is an important component of trust (Rahatullah
and Raeside 2015). It shows that the family businesses attach importance to trust enhancing measures in
their organizations. There was unanimity among respondents regarding the usefulness and effectiveness
of the ethical policies and procedures, especially when it comes to stakeholder relationship management.
Communications has been considered as key to bring in transparency in a business. Trust between
business and its employees is identified as key to effective outcome of an ethical culture. The ethical
culture value is also recognized as gender equality and the family businesses consider that the gender
equality in operations of the business is of significance. However, there is a difference of opinion on this
equality when it comes to work distribution and compensation. This seems to be universally the case as
well. Organizations increasingly are becoming tolerant and encourage whistle blowing.
The family owned firms seem to be implementing the ethical policies, procedures and systems in
cognizance with and in similar manner as non-family businesses. The firms adopt both the institutional
and structural measures (Thommen 2003 and Kobayachi et. al. 2017. The family businesses also seem to
further authenticate the findings of Morris et. al. 2002 by endorsing the fact that the ethical cultures
emanate from ethical values that the organizations set up. However, the role of senior employees like
CEO and managers has been highlighted as important in executing the structural or institutional policies.
The government plays significant part in developing national level laws and policies that are adhered in
the whole country.
Study can be used as basis for future research to understand the relationship of ethics and culture from a
social context perspective by carrying out a study in different countries with religious diversity that may
reveal sustainability issues in a different context.
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Public Policies on Taxation – Romania’s and Germany’s case
Olivia Florentina BALU

Associate Professor PhD, University of Geneva, Switzerland
oliviabalu@yahoo.ch
Zvetlana GOMBOS
PhD. Student. Bucharest University of Economic Studies
z.gombos@yahoo.com
Victor DUMITRACHE
victor.dumitrache@gmail.com
Evelina Petronela BALU

baluevelina@yahoo.com
Ghenadie CIOBANU
Ph.D., INCSMPS, Bucharest, Romania
gciobanu01@gmail.com
Abstract
In the present paper we present for the definitions of public policy and taxation, some key concepts, their
typologies and their characteristics. Afterwards we analyzed the taxation and public policies on taxation
by making a comparison between Romania and Germany. The main idea in the analysis of the two
countries relates to the main taxes they are taxing and at the same time the related values, and this
concept represent the core of this paper.
Keywords: public policy, taxation, development.
Introduction
By policy is meant a formal decision (law, administrative act) of a legitimate elected authority, which is
adopted in a formal framework according to a previously established procedure (Rădulescu, C.V. et al.,
2018a,b). From an analytical point of view, politics is also defined from other perspectives, which are to
incorporate other elements into this definition (Ioniţă, F. et al., 2009a,b). From a behavioral point of view,
"a policy is a decision that is characterized by actions and conduct of those" (Jones, 1984).
Policy analysis is a pragmatic orientation that identifies policy with an action program of public
authorities in a determined field of activity (Burlacu, S. et al., 2018, 2019). Different authors have used
the term of public policy according to the aspects or elements they wanted to highlight, so the public
policy concept means the following: a field of public activities (economic, sanitary, educational), the
product or the output of governmental activity (building a number of dwellings as a product of social
welfare policy), a group of objectives and programs run by the government at a given moment (literacy
7243
policy, anti-smoking policy, etc.), legislation or a package of norms approved in relation to a certain issue
(tax, energy, environment, urban.) (Profiroiu, A. et al., 2019).
In all these meanings of the public policy term there are common elements that allow their reordering, as
follows:
1. Firstly, politics tends to be more than a formal decision, it is a group of decisions;

2. Secondly, a public policy is adopted by political and administrative institutions and it depends
on the government guarantee. The policy can be presented in several forms: legal regulation,
political discourse, a form of public service restructuring;
3. Third, a policy mobilizes resources to generate certain products in society;
4. Fourthly, it is presumed that this activity pursues a more general or more specific purpose or
goal, which is generally aimed at satisfying certain interests and is the carrier of certain values.
5. The concept of politics is essential to understanding how it is governed (eg, the impact of
governance on citizens' welfare is associated with the term social policy.)
Typology of Public Policies

All levels of central and local public administration are increasingly involved in promoting public
policies. Public policies have developed both in traditional areas of government intervention such as
foreign policy, transport, education, social protection, respect for the law, regulation of trade and labor
relations, international relations as well as in areas such as economic stability, environmental protection ,
equal opportunities, health care, nuclear energy and consumer protection (Jianu, I. et al., 2019).
Public policies are classified into:
1. Substantial public policies, they incorporate what the government is planning to do in areas such
as: construction of buildings, the payment of social benefits, banning the sale of alcohol. Noun type
policies directly confer benefits and disadvantages, benefits and costs to beneficiaries;
2. Procedural policies are defined as a policy category including laws on the constitution and
operation of administrative agencies, laws defining the tasks and jurisdiction of the various agencies,
the procedures set up to run their own programs, and the control of operations carried out by they;
3. Distributive policies, these involve allocating resources and services to different segments of the
population (individuals, groups, communities);
4. Regulatory policies, limiting or restricting the behavior of individuals or groups, thereby
reducing the freedom of action of subjects (eg traders);
5. Self-regulatory policies, these are similar to regulatory policies in that they also restrict or
control a particular group or aspects. The difference between regulatory policies and self-regulatory
policies is that they are promoted directly by the beneficiary groups as a means of protecting the
interests of its members;
6. Redistributive policies involve transfers of wealth, income, property or rights between groups or
segments of the population as a result of the concerted action of the government.
The Concept of Taxation

Taxes are the main source of revenue for the state budget and the financing of public expenditures. It is
an increasing function of income at a given tax rate, it increases when income increases.
Tax is a mandatory levy made by the state on individual and collective assets and resources and is paid in
cash. It generates a source of financing for general government and local government expenditure, which
is an instrument of economic policy, whereby part of the revenue can be used to motivate investments
and refresh economic conglomeration.
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Types of Taxes
From an economic point of view, taxes are classified into two broad categories: direct and
indirect.
Direct taxes:
1. Income Tax;
2. Income Tax of Individuals;
3. income tax deducted at source;
4. wage tax;
5. Income Tax on Intellectual Property Rights;
6. income tax on the sale of goods under consignment;
7. Income tax on activities carried out on the basis of agency contracts, commission or commercial
mandate;
8. income tax on activities carried out on the basis of civil contracts / conventions concluded under
the Civil Code;
9. tax on income from the activity of accounting and technical expertise, judiciary and
extrajudicial;
10. tax on income earned by a natural person in an association with a taxpayer, which does not
generate a legal person;
11. the total income tax;
12. Tax on income of legal entities;
13. profit tax;
14. tax on micro-enterprise income;
15. dividend tax;
16. income tax on the sale of assets;
17. Tax on wealth.
18. Indirect taxes:
19. consumption taxes (excise duties);
20. Value Added Tax (T.V.A.)
21. customs duties;
22. tax monopolies;
23. registration and stamp duties.
Taxes in Romania
Income tax for individuals: The current tax rate is 16% in 2019 and may reach 14%. The single rate of tax
applies to income from independent activities, movable and immovable property, interest and capital
gains. Income tax is 10%. At a salary of 2500 lei gross (526 euro), the state collects a total of 1059 lei.
VAT and excises: The standard VAT rate is 19%. Also, a reduced rate of 9% applies to: supply of
orthopedic products, medicines for human and veterinary use, water supply and sewerage services. A 5%
quota is applied for: school textbooks, magazines, restaurant and catering services, etc.
Compulsory social contributions: State social security contributions are paid by both the employer and
the employee (Bran, F. et al., 2018a). Employees and employers also contribute to the health insurance
fund (10.7%) and to the unemployment fund (1%). The employer must pay additional contributions to the
Occupational Injuries and Occupational Diseases Fund and to the Debt Guarantee Fund. General
Directorate of Macroeconomic Analysis and Financial Policies.
7245
Taxes in Germany
VAT and excises: The standard VAT rate is 19%. The reduced rate of VAT is 7% and is applied for
medical care, books, magazines, hotel accommodation, funeral services, etc. A 0% quota is granted for
domestic and international transport.
Tax on personal income: salary tax is calculated according to the size of the salary and the employee's
familiarity. It is calculated in relation to gross income, increasing progressively from 14% to 45%.
Annual revenues below 7664 euros are not taxed. However, a solidarity fee is payable and a fee is
charged to the church to which the recipient of the income is affiliated.
Compulsory social contributions: Contribution to sickness insurance is between 12-15% of income. The
social security contribution is 1.7%. The radio-tv tax is 17.50 euro per month irrespective of the number
of televisions, radio or computers.
After analyzing the tax on production and import, we observe that Romania does not have much big
differences compared to Germany.
Map: Romania vs. Germany

Source: Eurostat, 2019
Fig. 1: Taxes on production and imports (as % of GDP)
Table 1: Taxes on production and imports (as % of GDP)

Romania vs. Germany
Impozite pe producție și importuri (% din PIB)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
12 11,3 10,3 11,8 13 13,1 12,7 12,7 13,2 11,3 10,3
10,7 10,7 11,2 10,8 10,9 10,9 10,8 10,7 10,7 10,6 10,5
However, in the actions of the environmental and labor impediment in the total tax revenues, we notice
that in the period 2007-2009 Romania compared to Germany had small differences, after 2010 some
slightly higher differences were observed.
7246
Map: Romania vs. Germany

Fig. 2: Actions of environmental and labor taxes in all fiscal income (as % of total taxes)
Conclusions
From the presented paper we first learn general aspects of the key words that led to the paper, namely
public policy and tax.
We can say, then, that public policy is only a relative term that can be adapted to every aspect to which it
refers. This type of policy varies from country to country, and it is obvious that countries with a high
degree of development have a much greater applicability to them, to countries with a lower degree of
development, where the emphasis is more on the basic things in society.
On the other hand, we can state that it is one of the most important aspects of a country, whether
developed or not. The combination of these two issues helps the Government to develop a broader control
of this primary mode of public revenue formation, namely tax. It goes without saying that wider control
will cause citizens to no longer deviate from this important rule while understanding the importance of
complying with it.
We chose these two countries, Romania and Germany, to see how the tax is in a developing country and a
country in Europe's leading places. We see from the analysis that the difference between the value of the
tax in Romania and the value of the German tax is not so great. This is possible because GDP, the
indicator at which tax is reported, cannot be compared between the two countries, because the difference
would be far too high.
So, we are easily aware of the difference between how public tax policy is applied in Romania and how it
is applied in Germany. The rules and laws imposed by the state are, in our opinion, a very important
factor in the way this policy is implemented, and then the value of collecting all the taxes, which goes
further to the level of state investments in that country, and finally, to its degree of development.
7247
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7249
Population and Food in Globalization Context

Oana Matilda SABIE
PhD lecturer, Bucharest University of Economic Studies, Bucharest, Romania

oana.sabie@amp.ase.ro
Mihai DINU
PhD lecturer, Bucharest University of Economic Studies, Bucharest, Romania

dinu.mihai@eam.ase.ro
Ovidiu Andrei Cristian BUZOIANU
PhD., National College “ I.L. Caragiale”, Bucharest, Romania

buzoianuovidiu@yahoo.com
Ciprian ROTARU
PhD candidate, Bucharest University of Economic Studies, Bucharest, Romania,

rotaru.ciprian84@yahoo.com
Petrică Sorin ANGHELUTA
PhD, Bucharest University of Economic Studies, Bucharest, Romania

sorin.angheluta@gmail.com
Alexandru Gabriel POSTOLACHE
PhD. Candidate, Bucharest University of Economic Studies, Bucharest, Romania

Alexandru.Postolache@bancpost.ro
Abstract
This article brings together some of the most common problems of the 21st century, namely the alarming
rise of population and food situation in this context. Various scenarios on the food situation in the context
of globalization have been drafted in the chosen topic, the impact of highly developed countries
influencing the underdeveloped or developing countries Globalization, as a world movement, seeks to
improve the physical boundaries between people, seeking to cover their needs, which can only be met
with the help of the outside of the state. The main objective of this paper is to know the problems of
overpopulation of the Terra Planet, focusing on the situation of the survival mode, so that various
scenarios of the future can be developed that contain relevant solutions to this problem. In order to
analyze the proposed topic, various aspects that influence the global population at global level have been
investigated and are found to be closely linked to natality, mortality and natural balance. The importance
of these issues lies in the need to know the problem of overcrowding the planet to find the most prolific
living solutions. It is known that there are major differences between countries in the world about food,
access to decent living or even huge differences in survival rates While some are happy to live in some
parts of the world, people are struggling to keep their live.
Keywords: population, food, globalization, resources
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Introduction
Population can be defined as the total of individuals who occupy a certain area or geographical area,
forming a whole regardless of gender, age, race or ethnicity (Bran, F et al., 2018). Population dynamics
represents the total number of changes that determine the population, the structure and the dissemination
of the population of a territory over a period of time, as a result of births, deaths (natural movement),
immigration and migration (migration movement). Source: (Erdeli & Dumitrache, 2009).
According to the chart depicted in Fig. no. 1, it can be seen that the world population is growing. Thus in
2018 the population of the world was 7.632.819.325 inhabitants, increasing compared to 2017, which
registered a value of 7,550,262,101 inhabitants; 2017 also records a value over 2016, with 7,298,453,033
inhabitants, followed by 2015 with 7,383,008,820 inhabitants and 2014 with 7,466,964,280 inhabitants.
The difference between 2018 and 2014 is a significant one of 334,366,292 inhabitants. According to
expert estimates, 2023 will see an increase of 399,668,150 inhabitants compared to 2018, exceeding the
threshold of 8 billion inhabitants. (Department of Economic and Social Affairs, 2019).
This demographic explosion is due to the improvement of the quality of life, namely living standards and
medical standards that record high values, compared to previous centuries, with people living longer
(Fogel, R., 1994).
Fig.1: The world population over the last 5 years

Source: World Population by Year, https://www.worldometers.info/world-population/world-population-by-year/
The evolution of the population at the global level is mainly influenced by the intensity of natality and
mortality and the natural increase in each state in the world (Marsden T. 2000).
Globalization is a complex and multicultural phenomenon that has been felt along with the
industrialization of society as a boom in the European continent after the fall of communism (Burlacu, S
et al., 2018). First of all, globalization is an economic process involving the exchange of information,
goods and services, facilitating the elimination of physical barriers between individuals (Bran, F et al.,
2011).
Regarding the sources of food a people have globalization has succeeded in multiplying them, supporting
free trade, helped by international transport routes (Jianu, I et al., 2019). With the arrival of steam
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locomotives at the beginning of the nineteenth century and replacing them with diesel engines and vessels
destined for this transport, food trade exploded, so people could cover the lack of food from domestic
sources in the country with food imported from external sources (Radulescu, CV et al., 2018). An
important example for Europe is the import of potatoes and grains from the American continent that has
led to a drastic drop in their prices, and people have improved their living standards (Popkin, B. M.,
Linda S., Shu W., 2012).
Globalization occurs when the population wants to cover needs that they can’t satisfy in their own
country or when they want to build prolific relations with other state (Atanasiu, I., 2011). The causes that
have led to the emergence of the concept of globalization are numerous, including: (Pettinger, 2017)
- Improving transport, which has pursued the development of world travel;

- Digitization of communications, which leads to cost savings and facilitating information
channels. The Internet is an indisputable proof, becoming indispensable for any age or
organization. For example, in the virtual world there are websites that gather service providers
and contact them with potential customers so the latter can opt for the cheapest price;
- Increasing multinational companies with a global presence in many different economies;
• Increase global trade blocks that have reduced national barriers. (e.g. the European Union,
ASEAN, NAFTA);
- Low tariff barriers have encouraged world trade. Often this has happened with the support of the
World Trade Organization;
- Achieving a global cycle. This means that the world's states are increasingly interconnected;
- he financial system has become global;
- Increased mobility of the workforce.
The presence of the causes of globalization leads to the immediate occurrence of positive and negative
effects such as (Woods J., Williams A., Hughes J. K., Black M., Murphy R., 2010):
- By improving transport, there has been a rapid increase in air travel, which has allowed greater
circulation of people and goods across the globe. Another improved aspect is the transport of
perishable goods, which arrive in a much shorter time at destination and can be consumed by
the widest possible population (Bran, F. & Ildiko, I., 2009). A negative effect of global
transport improvement is the emergence of high-priced food at low prices, thus destroying small
businesses of local suppliers who can’t compete with big companies (Smil, V., 2002).
- The interconnection of countries creates a dependency of the least developed countries on the
developed ones (Burlacu, S et al., 2018, 2019). For example, an increase in resources that fuel
the energy sector from the Russian Federation strongly affects importing countries in the
European and Asian region.
- Globalization of the financial system has highlighted the idea of a common economy leading to
the growth of the economy of the already developed countries and a stagnation of
underdeveloped states (Profiroiu, A et al., 2019. An example of a negative effect was when US
banks suffered losses due to the mortgage crisis, affecting all major banks in other countries that
bought money from US banks and mortgage companies, leading to major economic crises.
- By increasing labor mobility, people are more willing to move between different countries to get
a net income higher than what they get in their home country. (Pettinger, 2017)
The intensity of globalization is measured by the KOF index. The calculation method of the KOF
globalization indicator is:
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Σ_ (i = 1) ^ nwW_i | (V_i-V_min) / (V_max-V_min) | ∙ 10,
where i is the time period, and the weights of each component index, Vi, Vmin, Vmax are the normal,
minimum and maximum index variables, respectively.
The KOF Globalization Index measures the economic, social and political dimensions of globalization.
Globalization in the economic, social and political fields has increased since the 1970s, receiving a
special impetus after the end of the Cold War.
Globalization globally continues to develop in a uniform way (Radulescu, CV et al., 2018a). The
flattening in globalization that began in 2015 continues. In 2018, Switzerland was the most globalized
country in the world, followed by the Netherlands and Belgium. Sweden, Great Britain, Denmark,
Germany, France, Finland and Norway are in the following places. The first non-European countries are
Canada 16th, Singapore 20th and United States 23rd. At the bottom of the list are Eritrea, Central African
Republic, Comoros, Afghanistan and Guinea-Bissau.
In the KOF index, smaller countries tend to be positioned in the first part of the index, contrary to larger
countries, and large national economies around the world are in the mid-range. Source: (KOF Swiss
Economic Institute, 2019).
Table 1: The KOF globalization index
Year 2016 2017 2018

Rank Countries Value Countries Value Countries Value
1 Belgium 90.47 Netherlands 90,97 Switzerland 91,17
2 Netherlands 90.24 Switzerland 90,82 Netherlands 90,97
3 Switzerland 89.7 Belgium 90,46 Belgium 90,50
4 Sweden 88.05 Sweden 90,21 Sweden 89,88
5 Austria 87.91 United Kingdom 89,08 United Kingdom 89,35
6 Denmark 87.85 Denmark 88,99 Denmark 89,14
7 France 87.34 Austria 88,78 Austria 88,95
8 United Kingdom 87.23 Germany 87,57 Germany 88,17
9 Germany 86.89 France 87,33 France 87,20
10 Finland 85.98 Finland 87,01 Finland 86,99
11 Norway 85.81 Norway 86,57 Norway 86,40
12 Hungary 84.2 Ireland 85,30 Spain 85,30
13 Ireland 83.53 Hungary 85,12 Czech Republic 85,19
14 Canada 83.45 Czech Republic 85,12 Hungary 85,13
15 Czech Republic 83.41 Spain 85,01 Ireland 84,64
16 Spain 83.31 Canada 84,12 Canada 84,38
17 Portugal 82.21 Luxembourg 83,81 Luxembourg 83,73
18 Italy 82.15 Estonia 83,62 Estonia 83,60
19 Luxembourg 82 Slovak Republic 83,09 Portugal 83,52
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20 Estonia 81.97 Portugal 83,06 Singapore 83,38

21 North America 81.7 Singapore 82,91 Slovak Republic 82,89
22 Slovak Republic 80.74 Italy 82,40 Italy 82,59
23 Greece 80.31 United States 81,66 United States 82,10
24 Singapore 80.01 Poland 81,14 Australia 81,58
25 United States 79.95 Malaysia 81,13 Slovenia 81,28
26 Slovenia 79.76 Slovenia 80,94 Poland 81,20
27 Bulgaria 79.52 Australia 80,84 Malaysia 81,14
28 Australia 79.29 Greece 80,76 Croatia 80,90
29 Malaysia 79.28 Lithuania 80,30 Lithuania 80,84
30 Croatia 79.04 Bulgaria 80,13 Greece 80,75
31 Lithuania 78.78 Croatia 80,06 Bulgaria 80,24
32 Poland 78.72 Romania 79,24 Latvia 79,85
33 Romania 77.88 Korea, Rep. 78,95 România 79,36
Source: KOF Swiss Economic Institute, 2019. Forecast & Indicators, KOF Globalisation Index.
Scenarios to Ensure Global Nutrition

Ensuring nutrition at the global level is a problem of high concern because the world's population is
steadily growing, thus requiring a greater amount of food the Earth has to offer Radulescu, CV et al.,
2018b).
Global food security experts have identified four food scenarios for the world's population:
1. Irregular consumption
2. Sustainability of Open Sources
3. Survival of the richest
4. Local consumption, new world order
- Irregular consumption
In this scenario, there is a close link between the intensity of resource consumption and the market, which
has serious consequences. Technology has stimulated efficiency in food, production and distribution, with
performance improvements as the top priority. Obesity and health costs increase dramatically due to the
consumption of many calories and the lack of a diet based on nutrients.
Also under the first scenario, food feed becomes a natural resource, including water, biodiversity and
land, which slowly begin to deplete, and key ecosystem elements such as fisheries and drylands are
beginning to collapse, increasing the costs of purification of water and increasing the impact in other
regions where consumers are looking for alternative sources of food. Increasing demand for food
contributes to stimulating the climate, whose average temperature has reached a worrying rise of 2 ° C,
causing global warming. The reasons why irregular consumption arose are due to uninspired government
choices and lack of empathy for the environment.
For example, governments have allowed market forces to overcome sustainable resource management,
covering their lack of wealthy countries with investment in underdeveloped countries, causing aggressive
search for resources.
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A concrete case of the first scenario is increasing medical assistance. In the US, combined costs for
treatment of diets and non-transmissible diseases exceed an annual $ 48 billion. As a result of animal
protein demand trends, the livestock industry has experienced a "boom", creating degradation of natural
resources and increasing emissions from the agro-food sector. Because of the degradation of the soil and
the greenhouse effect, as gas emissions continue to increase, a biodiversity crisis will be created.
- Sustainability of Open Resources
In the open source sustainability scenario, a combination of efficient resource consumption and highly
connected markets allow increased business transparency (Ionita, F et al., 2009a). The commodity
markets have been tested for stress to reduce the risk of an accident. There is a multiplication of food
resources, which reduces the dependence on the meal, improving the resilience of food systems.
An increasingly interconnected trading system leaves room for susceptibility to the effects of extreme
weather events and other economic phenomena and political shocks (Ionita, F et al 2009b).
There is an increased trust in the interdependence of trade between governments. Governments support
commitments on climate change agreements, but in any case, unavoidable volatile weather events
continue. A rural transformation attracts young people to data-based agriculture, but older farmers are
struggling to keep up.
This future has a relatively high percentage of winners. For farmers, there is greater, more accessible
availability and the adoption of technologies that increase productivity, reduce the costs of access to key
information and services. For companies, although such control has generated costly and difficult changes
in the short term, they benefit from improved productivity and a more reliable supply. Governments
benefit from collaborative trade, agreements and access to data effectively informing the political scene.
While this future may be luminous for some, there are stakeholders that are relatively out of the question.
Increasing open source information creates a long-term deterrent effect in research and development
among companies; this is associated with a changing investment of continually developing. More
generally, consumers can be winners or losers, and this means that food would become more expensive to
cover the cost of its production.
- Surviving the richest
Under the third scenario, irregular consumption creates shocks among the world's states, ending in
dismantling markets. Rich countries will be able to produce and innovate to meet their needs, while poor
countries will face an intensification of hunger and poverty. Multilateral trade agreements will become
less and less trade barriers will slow global economic growth. Also in this scenario, the price of products
will increase significantly, which will lead to increased conflicts and intensification of the migration
phenomenon.
There are many negative effects in this scenario. For example, life for the small farmer will become risky
and uncertain than ever: difficult economic conditions, limited access to natural resources (especially
water) and extreme weather conditions will force tens of millions of farmers to look for other sources to
come to feed themselves and their families. At the same time, export enterprises will suffer from trade
barriers, with access to raw materials becoming more and more difficult. In the long run, future
generations will also suffer irreversible damage to the environment and a poor global economy.
Also in the third scenario, most people will have unhealthy food, people becoming more and more
overweight or obese because of the calories consumed, while few rich people will enjoy a meal healthy.
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- Consumption at the local level, the new world order
In the fourth scenario, efficient resource consumption and low connectivity between markets has led to
fragmentation of food systems, and nations rely heavily on self-sufficiency. There is an increase in local
food movements, seeking to focus on the consumption of sustainable local products.
However, at macro level, the comparative advantages between food producing regions are lost. Nations
without good agricultural land struggle to meet demand and hunger.
In this future, clear winners are countries that can gain self-confidence through natural, human resources
and available capital. The nations succeed in rebalancing production towards greater diversity, with
producers satisfying local demand. In addition, a focus on local assets and community building
connections unlocks a strong entrepreneurial spirit for food production - including through urban and
vertical farming - along the value chain.
In this world, import-dependent countries and mega-cities, such as Lagos, are struggling to feed a
growing population, confronted with increasing malnutrition. This deficit causes disturbances and
migration. Others defeated in this scenario are industrial farmers who are unable to withstand the
rebalancing of crop production as demand is directed towards a larger variety of crops. Local food
movements could also have a negative impact on the sales of food manufacturers and traders.
The implications of this world for nutrition are mixed: consumers in high production regions enjoy a
healthy diet, but a disconnected market could limit this access for others.
Each of these scenarios is possible: consumption - as modeled by the context - will or will destroy the
globalization of health and sustainability, the degradation of climate change and natural resources will
affect all future scenarios and urgent action will be needed, the need for restructuring the food production
system will need to be implemented as soon as possible, and a new industrial revolution, through new
technologies and other innovations, has the potential to revolutionize food systems, introducing new
challenges. Without special attention in the future, power systems can create great inequalities between
nations, but also within them, our choices choosing the path we will be addressing.
Conclusion
At the conclusion of this paper, we would like to recall the issues that we have addressed and which are
very important for our research. These are the dynamics of the population at global level with emphasis
on the problems of birth, mortality and natural growth. These three aspects vary from one country to
another, with an increase in birth rates in the underdeveloped countries, perhaps due to lack of sex
education, religious indoctrination or the perpetuation of a cultural ideology.
At the opposite end, heavily developed countries have a negative natural spurt, the causes being women's
empowerment, changing mentality, accepting same-sex couples, or choosing careers to the detriment of
the family. This also applies to developing countries, a specific case being Romania, whose populations
prefer to conceive a single child, being worried about the financial situation or the lack of opportunities
for the future.
The paper describes the situation of food in the context of globalization, following four scenarios for its
assurance. Population growth has the effect of increasing the amount of food the Earth has to make
available, and researchers have found that one of the scenarios on this issue is irregular food
consumption. There are great differences between countries in the world, so if people in some areas
struggle to survive, the main cause of death being malnutrition, in some parts of the planet people are
facing obesity caused by excessive food consumption. As a result of irregular consumption, nature
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suffered, with the average temperature increasing by 2 ° C, affecting the unfolding of the trophic chain,
leading to the disappearance of fauna and flora species, the occurrence of a biodiversity crisis.
The second scenario refers to the sustainability of open sources, with an improvement in the business
environment in the agricultural sector due to the increasing demand for food, but also the possibility of
better documentation of the list of food contents. The penultimate scenario is worrying that in the future
the rich will be the ones who will survive. This is due to the increasing access of middle class man to
unhealthy and inexpensive fast-food, which inevitably leads to obesity, while wealthy people will
consume only healthy food.
The latest scenario, which is the most promising, tells us about trying to implement local consumption,
people being forced to consume food from indigenous producers, use their own resources, or adopt a
healthy lifestyle. Governments in the world take important steps towards this idea, facilitating the
consumption of food produced by small local traders, supporting them with money and access to special
courses in agriculture.
This theme aims to analyze, raise awareness and provide solutions for global population growth. It is
considered to have applicability in the field of public administration as this science comes in direct
contact with people.
If we keep the current state of indifference, a continued population growth will prove to be damaging to
our planet, the food is shrinking, and the environment degraded. There are great hopes from future
generations, with everyday solutions being rescued for this crisis.
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Manifestations of International Terrorism in the

Xinjiang Uyghur Autonomous Region (China)
Irina V. MINAKOVA
Southwest State University, Kursk, Russia
irene19752000@mail.ru
Tatyana N. BUKREEVA
tnbinchina@yandex.ru
Aleksey A. GOLOVIN
dr.golovin2013@yandex.ru
Ekaterina I. BYKOVSKAYA
ekaterina.bykovskaya@inbox.ru.
Abstract
Terrorism has already become one of the most relevant problems in the modern world, and most countries
in the world have, in some form faced terrorism. The common threat of terrorism and Islamic extremism
has united countries to develop counter-terrorism cooperation. The paper reveals the experience of China
in the fight of terrorism in Xinjiang and determines the peculiarities of China’s strategy to counter
terrorism and extremism in the north-west of the country. The research concludes that international
cooperation is a key factor to achieve success to counter terrorist groups.
Keywords: international terrorism, counter-terrorism cooperation, Xinjiang, the Uyghur, terrorist

organization, East Turkestan Islamic Movement.
Problem Statement
Nowadays modern society faces many problems, one of them is terrorism. Recently, terrorism has been
rated as one of the manifestations of globalization. Today many scientists agree on the direct connection
between globalization and an increasing terrorist threat. R. Kh. Makuev highlights, among the negative
aspects of globalization, the many existing terrorist threats and the growing danger of high-tech terrorist
acts. D.N. Baryshnikov considers international terrorism as a derivative of globalization. M.Z. Shkundin
believes that high level of globalization has led to disharmony of world development and created such a
threat as terrorism. N.Ya. Lepeshkin writes that international terrorism is an instrument of combating
globalization, which erases traditional values and symbols (Chernyadieva, 2019). Thus, globalization and
terrorism are closely interconnected; the dynamics of one inevitably entails a new round of development
of the other.
Since the events of 2001, every year hundreds of people suffer from terrorist attacks. In 2001, 2,996
people were killed in the 9/11 attacks in the USA; 12.10.2002 - explosions killed 202 people in Indonesia;
11.03.2004 - bombings of trains in Madrid (Spain) killed 191 people and injured more than 1,800;
01.09.2004 – the Beslan (Russia) school siege ended with the death of 335 people, 958 were injured;
07.07.2005 - a series of suicide attacks on London's public transport network killed 52 people and injured
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700; 26.11.2008 - a series of terrorist attacks in Mumbai (India) killed 385 and injured 300; 22.07.2008 -
a right-wing extremist shot 77 people in Oslo (Norway); 21.09.2013 – 67 people were killed at Nairobi's
Westgate Shopping Mall by Al-Shabaab group; 01.03.2014 - a group of knife-wielding terrorists at the
Kunming railway station (China) killed 31 people and injured 143; 31.10.2015 - a homemade bomb
brought down the Metrojet airliner of Russian airline over Egypt's Sinai desert and killed 224 people;
13.11.2015 – 132 people were killed and 300 injured in a series of terrorist attacks in Paris; 22.03.2016 –
32 civilians were killed and more than 300 injured by three suicide bombings in Brussels; 19.12.2016 - a
lorry attack in Berlin killed 12 and injured 49; 01.01.2017 - 39 people were killed and 69 wounded in an
attack on a nightclub in Istanbul; 03.04.2017 – a terrorist attack on the Saint Petersburg Metro killed 16
people and injured 64; 22.05.2017 - the Manchester Arena bombing killed 22 and injured more than 139
people, most of them were children; 21-22.04.2019 – 253 people were killed and more than 500 injured
by a series of coordinated bombings in Sri Lanka. The statistics of terrorist attacks is not limited to the
data given above. If one were to identify terrorists by their ethnicity and religious beliefs, it becomes
apparent that contemporary terrorism has an international status.
A.E. Mikhailov (2019) reveals the following characteristics of international terrorism:
- targets declared by terrorists affect several countries;

- attacks begin in one country, continue and end in other countries;
- financial resources of certain terrorist organization come from another countries;
- citizens of various countries become victims of terrorist attacks;
- losses caused by terrorist acts affect several countries or international organizations.
The purpose of the Research

The purpose of the research is to consider the vectors of China’s international cooperation in combating
terrorism, analyse the experience of China in the fight of terrorism in Xinjiang, determine the main
features of the Chinese strategy to counter terrorism and extremism in the north-west of the country and
identify the main measures taken by China to solve the problem of national security in Xinjiang
Research Results
In the last 40 years, Islamic terrorism attained the most radical features, based on a certain interpretation
of the meaning of religion. Ultimately, the common threat of terrorism and Islamic extremism has united
countries to combat these threats. The above-mentioned problems are very relevant in the North Caucasus,
Central Asia and certain regions in China, especially in the Xinjiang Uyghur Autonomous Region
(XUAR).
Xinjiang is located in the north-west of China and is inhabited by representatives of 53 nationalities; the
most numerous of them are the Uyghur (religion - Islam). According to the 2014 Census, the total
population of Xinjiang is 22.98 million including 10.744 million Uyghur which is about 46.7% of the
entire population of the region. The most widespread religion in Xinjiang is Islam; it is professed by 10
ethnic groups: the Uyghur, the Kazakh, the Hui minority, the Kyrgyz, the Tajik, the Tatar, the Uzbek, the
Salar, the Dongxiang and the Bonan people. The number of adherents of Islam is 60% of the total Muslim
population in China and about 50% of the entire population of Xinjiang (Liu Xianghui, 2015). Xinjiang
has 25,000 venues for religious events such as mosques, churches and temples, including 24,400 mosques
and 8 religious institutions. Most of the religious institutions and adherents of Islam are concentrated in
South Xinjiang; in some areas the number of adherents reaches 95%. In the early 2000s, the number of
Islamic clergy in Xinjiang reached thirty thousand, among them 2185 imams and akhoonds, which is 3/4
of the Islamic clergy in the entire country (about 40 thousand) and 1/10 of the total number of the clergy
in China (300 thousand people) (Zhang Lijuan, 2011).
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Instability in neighbouring regions, encouragement of Islamic fundamentalism and terrorism by some

countries together with the religious activity of the Xinjiang population have provided a fertile ground for
the emergence of extremist-minded adherents, the rise of separatist ideas among the ethnic groups and the
penetration of terrorist groups.
According to the Chinese authorities, today there are several separatist groups in Xinjiang associated with
the global Islamic terrorist network actively helping to fuel conflicts in China. It is known that many
Uyghur are fighting in Syria on the side of terrorist groups.
On December 15, 2003, the PRC Ministry of Public Security for the first time published a list of terrorist
organizations and terrorists of ‘Eastern Turkistan’.
Four ‘Eastern Turkestan’ terrorist organizations were identified, they are: the Eastern Turkestan Islamic
Movement, the Eastern Turkestan Islamic Liberation Organization, the World Uyghur Youth Congress
and the Eastern Turkestan Information Centre (Centrasia, 2003).
One year before, in February 2002, the US president paid an official visit to China dedicated the 30th
anniversary of the signing of the first Sino-U.S. joint communiqué. During this visit, George W. Bush
stated that the fight against international terrorism is an area of common interests to China and the United
States. In November 2002, at the 16th National Congress of the Communist Party of China the PRC's
strategic course was strengthened to develop China-U.S. cooperation in the fight against international
terrorism. That same summer US Deputy Secretary of State R. Armitage, for the first time, officially
announced that the US State Department considered the separatist East Turkestan Islamic Movement
(ETIM) in Xinjiang to be terrorist organization (Areshidze, 2007).
The evolution of the ideology of the ETIM has developed from Uyghur nationalism and the struggle for
an independent Uyghurstan to calls for jihad as the only way of salvation for the Muslim peoples of East
Turkestan. This ideology underwent a number of significant changes as a result of the rapprochement of
the movement with other radical organizations in the late 1990s and mid-2000s. The Islamic Movement
of Uzbekistan (IMU) played a special role in this process. The IMU has strengthened the Pan-Turkism
component in the ETIM’s ideology, which ultimately led to renaming the organization as the Turkestan
Islamic Party (Nadtochey, 2014).
Chinese media regularly reports about Uyghur ties to ISIS. ‘They not only learn to carry out terrorist
attacks, but also expand their ties with international terrorist organizations,’- the Chinese newspaper
Global Times wrote. The Chinese newspaper ‘The People's Daily’ referring to ‘sources in Syria's
intelligence services’ has estimated that at least 300 Chinese citizens fight on the side of terrorists
(Kommersant, 2015).
The following terrorist attacks committed on the territory of Xinjiang are associated with the activities of
the Eastern Turkestan Islamic Movement: 30-31.07.2011 - 15 people were killed and dozens wounded by
armed attacks on city's residents in Kashgar; 22.05.2014 – 31 people died and 94 were injured by car
explosions on one of the markets in Urumqi; 21.06.2014 - a group of unknown assailants attacked a
police station in Kargilik County of Kashgar and detonated an explosive device; 12.01.2015 - an attempt
to actuate an explosive mechanism in Kashgar Yengixahar County was prevented; 28.12.2016 - in the
district of Karakash (Moyu) County in southern Xinjiang, four men drove into the courtyard of the district
office of the Communist Party and detonated an ‘explosive device’, after which they were shot.
As a member of the international community, the Government of China actively supports the United
Nations in activities aimed to combat terrorism, obeys the UN Charter and other principles of
international law, supports the series of counter-terrorism resolutions adopted by the UN Security Council,
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and actively promotes the UN. China has acceded to the majority of international counter-terrorism
conventions, which include: International Convention for the Suppression of Terrorist Bombings
(adopted by the General Assembly in resolution 52/164 of 15 December 1997, signed by the PRC on
October 27, 2001), International Convention for the Suppression of the Financing of Terrorism (adopted
by the General Assembly in resolution 54/109 of 9 December 1999, signed by the PRC on November 14,
2001), International Convention for the Suppression of Acts of Nuclear Terrorism (adopted by the
General Assembly in resolution 59/290 of 13 April 2005, signed by the PRC on September 14, 2005),
International Convention Against the Taking of Hostages (adopted by the General Assembly in resolution
34/146 of 17 December 1979, signed by the PRC on December 28, 1992). Within the framework of the
Shanghai Cooperation Organization (SCO), China and the respective countries have signed the Shanghai
Convention on Combating Terrorism, Separatism and Extremism (Shanghai, 15.06.2001), The Concept
of Cooperation between SCO Member States on Combating Terrorism, Separatism and Extremism
(adopted by the Resolution No. 1 of 5 June 2005 of the Council of Heads of SCO Member States); The
Plan of Action of the SCO Member States and the Islamic Republic of Afghanistan on Combating
Terrorism, Illicit Drug Trafficking and Organized Crime (Moscow, 27.03.2009), The SCO Convention
against terrorism (Yekaterinburg, 16.06.2009), The SCO Convention on Countering Extremism (Astana,
09.06.2017), the Program on Cooperation in Combating Terrorism, Separatism and Extremism for 2019–
2021 (Qingdao, 10.06.2019) (The Fight Against Terrorism and Extremism and Human Rights Protection
in Xinjiang, 2019).
Features of the Chinese strategy in countering international terrorism and

extremism in Xinjiang
In addition to international activities, China is determined to prevent all attempts to destabilize the
situation in the autonomous region. Firstly, it forced the authorities to review the national policy toward
ethnic minorities and determine a further model of ethnic development: to adhere to the Soviet model of
multiculturalism or turn to the American model of a ‘melting pot’. Hu Angang (2012) and Hu Lianhe
(2012) are the ideologists of the ‘second generation of ethnic policy’ advocating the national integration
in China, but this model does not find full support from the Chinese leadership.
In August 2016, to maintain a stable situation in the north-western region Chen Quanguo was appointed
Secretary of the Party Committee of the Xinjiang Uyghur Autonomous Region and the political
commissar of the Xinjiang Production and Construction Corps Party Committee, he had a positive
experience in managing the ‘turbulent’ Tibet Autonomous Region. After national designation, Chen put
forward the slogan of managing the region: «In Xinjiang, if there is no stability then all our effort is for
nothing».
In 2014, the PRC government, based on world experience in the fight against terrorism, established
vocational training centres for developing professional skills among the population of Xinjiang. The aim
of the Programme ‘Mastering Three - Getting Rid of One’ is to learn the Standard Chinese language, laws
and professional skills, and get rid of radicalization and extremist ideas. The peak of development of such
centres was in 2017. At the end of August 2018, experts from the UN Committee on the Elimination of
Racial Discrimination in a published report said that up to one million ethnic Uyghur could be held in ‘re-
education camps’ in Xinjiang. In response to repeated accusations of depriving the Uyghur of their
national identity, on August 16, 2019, the Chinese authorities released a white paper on vocational
education and training in Xinjiang, which described the basic principles of these centres, the results of
their activities, and stated that ‘a prosperous and stable Xinjiang will be a resounding reply to the false
claims made by people who have ill intentions towards China’ (CGTN, 2019).
On March 8, 2019, the State Council Information Office of the PRC issued the white paper, titled ‘The
Fight against Terrorism and Extremism and Human Rights Protection in Xinjiang’. The document
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consists of 7 main sections. The last section is devoted to international counter-terrorism exchanges and
cooperation of China in the field of combating terrorism and extremism. The document declares that
‘China opposes any form of terrorism and extremism, opposes the connection of terrorism and extremism
with some countries, nations and religions and does not accept ‘double standards’ in the fight against
terrorism; follows a comprehensive policy, aims to eliminate both the symptoms and the root causes of
terrorism. The activities are also aimed at stamping out poverty and eradicating the soil that engenders
terrorism, and advocates for the strengthening of international counter-terrorism and pragmatic
cooperation based on mutual respect and equal consultations.
Conclusion
China, like most countries in the world, has been the target of attacks by the international terrorist
movement under the religious factor. The experience of the PRC in the fight against extremism and
terrorism is quite wide, but in order to increase the effectiveness of the struggle it is necessary to expand
international cooperation. It is especially important to develop international cooperation both in the vector
of international organizations (primarily the UN, the FATF, etc.) and with groups of countries and
individual states in the framework of countering specific terrorist threats (for example, China, Russia,
Central Asian countries (former Soviet Republics), Afghanistan, Pakistan and Turkey) - against Islamic
terrorist and separatist movements; cooperation of China with international organizations in the
framework of resolving the situation in Hong Kong. Joint efforts are the key factor of success; it will
deprive international terrorist organizations of the opportunity to deploy and provide training, as well as
receive financial support of other countries.
References
Areshidze, L.G. (2007), International Relations in Eastern Asia. Threats and Hopes. Moscow:
International Relations.
Buyarov, D.V. (2015), National policy of the PRC. Modern China: social-economic development,
national policy, ethnic psychology. Moscow, URSS, 139-177.
Chernyadieva, N.A. (2019), International terrorism: origin, evolution, current issues of legal countering.
Moscow: Prospekt.
Clarke, M. (2018), Terrorism and Counter-Terrorism in China: Domestic and Foreign Policy Dimensions.
Oxford University Press.
Korostikov, M. (14.07.2015). The Uyghur jihad. [Retrieved August 30, 2019], http://
https://www.kommersant.ru/doc/2768223
Liu, Xianghui (2015), 60 years of Xinagjiang’s history: facts and numbers. 1955-2015. Intercontinental
Publishing House of China.
Mikhailov, A.E. (2019), Problems of comprehension of international terrorism: a general theoretical

aspect. Moscow: Prometei.
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Gvardia.
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[Retrieved August 16, 2019], http://
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http://www.scio.gov.cn/zfbps/ndhf/39911/Document/1649848/1649848.htm
White paper on Xinjiang exposes the West's false claims. (17.08.2019). [Retrieved August 26, 2019],
http://news.cgtn.com/news/2019-08-17/White-paper-on-Xinjiang-exposes-the-West-s-false-claims-
JepgyFogZG/index.html
Hu Angang and Hu Lianhe. (2012), The Second Generation of National Policy: Promoting the Integration
and Prosperity of National Integration. [Retrieved August 18, 2019], http://
http://www.aisixiang.com/thinktank/huangang.html
The PRC Ministry of Public Security for the first time published a list of terrorist organizations and
terrorists of ‘Eastern Turkistan’. (16.12.2003). [Retrieved August 18, 2019], http://
centrasia.org/newsA.php?st=1071526080
Nadtochey, I.V. (2014), Islamic movement of Eastern Turkestan: history, evolution, dynamics of terrorist
activity. [Retrieved August 26, 2019], http://
www.imemo.ru/files/File/magazines/puty_miru/2014/December/05Nadtochey1.pdf
7264
On Inequality of the Older Adults in Russia
Ekaterina A. TARAN
ektaran@tpu.ru
Elena FROLOVA
Tomsk State University, Tomsk, Russia
frolova_ea@mail.tsu.ru
Ekaterina ANIKINA
anikinaea@tpu.ru
Lubov IVANKINA
ivankina@tpu.ru
Elena KLEMASHEVA
klemaha@mail.ru
Fabio KASATI
casati@tpu.ru
Abstract
The article is aimed to solve the problem of inequality, which has a theoretical, methodological and
practical importance. The scale and complexity of this task is due to the complexity and
multidimensionality of the research object, as well as the use of new scientific methods. We aim to
identify general and nation-specific factors contributing to inequality among older adults in Russia.
Keywords: Inequality, Older Adults, well-being
Introduction
The relevance of the study is due to the resilient global trends in the population ageing, which is a
consequence of objective processes of the birth rate reducing and life expectancy increasing, which, in
turn, is a consequence of the positive trend of quality of life increasing. However, the consequences of
population ageing, including a reduction in the working-age population, a growing burden on pension
systems, the health care and social services, make us consider the tools that would allow not only
preserving, but also improving the wellbeing of every older adult without adding up problems in
intergenerational relationships and difficulties caused by a decrease in economic activity.
Older people are considered as a homogeneous social group with similar features and needs, which is
further implemented in standardization and unification of state and corporate social policy approaches
aimed at improving the quality of life and increasing subjective well-being. Current trends in the global
development demonstrate the resilience of the population ageing. At the same time, society faces
7265
inequality between older people of the same generation. According to the United Nations, by 2050 the
average life expectancy at birth will increase to 77 years, (76 years in Russia). The UN emphasizes that
the rate of ageing of the population grows faster than rate of the younger age groups (on average, the
proportion of the older people grows by 3 percent per year). It is expected that by 2030 the total number
of 60+ individuals will reach 1.4 billion people, and by 2050 it will exceed 2 billion people [1]. Inequality
is increasing among older adults. World Bank experts have noted a steady upward trend in social
inequality in developed and developing countries as each new generation enters its third age [2].
As a result, conflicting points of view are often spreading in mass media and in scientific publications
about socioeconomic status of older people. In particular, according to the Sberbank analytical report [3],
the average income of working pensioners in Russia is about 46 thousand rubles, which is 6 thousand
rubles higher than the average salary of the working age population, according to Rosstat (39,167 rubles
on average in 2017) [4]. Thus, experts often conclude that there is no poverty among older people in
Russia. However, general public, as well as representatives of the legislative and executive authorities
tend to believe that most Russian pensioners barely make “both ends meet”.
In our opinion, such contradictions are due to the lack of attention to the inequality issues. If in case of
the working-age population, economics, sociology and psychology jointly developed sufficiently
adequate methodological approaches and tools for assessing the differentiation of individual groups and
the main reasons that cause it, in the case of older people, inequality remains beyond most scientific
research, political discourse and public comments. Older people are considered as a homogeneous social
group with similar features and needs, which is further implemented in standardization and unification of
state and corporate social policy approaches aimed at improving the quality of life and increasing
subjective well-being.
Unfortunately, such ideas often differ from the reality. Therefore, scientific approaches to assessing the
inequality and designing tools are dual. On the one hand, it is equalizing the chances and opportunities for
older people to live a decent and active life based on comprehensive use of the potential of each person.
On the other hand, it is smoothing the consequences of inequality for the vulnerable older people. As well
as for the working-age population, among retirees we should consider several groups according to the
income criteria, to identify the factors of their success/failure, to design institutions/tools for transferring
successful practices to the working-age population and mechanisms to mitigate inequality for the
vulnerable older people. Additionally, the increasing share of pensioners in the total population in Russia
to 25.4 % in 2018 [4] forces the authorities to use tools for social expenses optimization. At the state,
subnational and local levels, scientifically-based criteria for assessing the living standards of older people
should be taking into account as a set of individual and social factors, with the aim of developing and
implementing personal strategies to enhance resilience of older adults.
The ageing of the population as an objective global trend makes viable the concept of active ageing,
involving the provision of autonomy for the older generation in terms of financial support, independent
living, and an active role in social participation [5-6]. Health is a determining factor in preserving and
maintaining the activity and employment of older adults; accordingly, considerable attention is paid by
international organizations to studying inequalities in access to health services [7-8]. The Center for
Ageing Better offers to look for sources of inequality in old age in 6 main areas: subjective well-being,
physical and mental health, life expectancy and healthy life expectancy, financial security, social relations
and living conditions. Considerable attention is paid by researchers to the gender dimension of inequality
among older adults. Research [9] showed that women in both developed and developing countries are
more prone to poverty, the main triggers of which are lower pension payments and loss of a spouse.
International organizations, in particular, the OECD come to similar conclusions regarding the causes of
inequality, adding to the list of significant variables also the level of education. Analysis of various
cohorts suggests that inequality and poverty in old age are the result of the whole set of events of the
7266
individual’s life trajectory, which in turn is determined by access to education and advanced opportunities
in the labor market for those who receive it [2].
Poverty as a relative phenomenon began to be analyzed by A. Sen, arguing that any ways to overcome
poverty should provide recipients with not even new resources, but a new use of existing resources
(capability approach). The causes of poverty and inequality in old age may differ significantly for
developed countries, where, according to some studies [10], there is an inverse correlation between age
and poverty; and developing countries, where the income level of the population has peak values at
working age, and then decreases, and social and pension benefits are insufficient to maintain the standard
of living [11-12]. In the field of well-being and quality of life research, the scientific community comes to
a consensus that the quality of life of an individual is determined not only by the absolute parameters of
income, age, presence or absence of employment, but also by relative parameters, which include
inequality. Inequality in older age has its own specifics due to the objectively limited possibilities of its
smoothing compared to other age groups. The inequality of older adults is reflected in foreign studies in
the context of ethnic segregation [13], for the countries of the European Union the issues of ensuring the
well-being of elderly migrants and the indigenous population are of particular importance. In Russian
studies, the inequality of older people is practically uncovered. Studies in inequality and poverty as a
subjective assessment of the position of the individual in society are closely related to the concept of
resilience. Research groups of older people in difficult socio-economic conditions, reveal new and
confirm the previously known causes of vitality, such as social ties, self-development, the ability to
psychologically adapt to the difficulties of life.
In order to implement practical steps aimed at improving the quality of life of the older adults during the
study, new impact tools based on traditional methods and new information technologies is developed to
overcome the vulnerability of the target group. Thus, the significance of this study is in the use of an
integrated interdisciplinary approach to solving a pressing scientific and methodological problem, which
has not only theoretical but also practical significance. In particular, this study contributes to the
development of ideas about the parameters of socio-economic differentiation, needs and preferences of
older adults, as well as the resource of older adults not only in Russia, but also in the world, which allow
to form a scientifically based idea about economically and socially effective instruments of state and
corporate policies aimed at improving the quality of life and well-being of the older adults. On the other
hand, designing, validating and testing new tools for research on the sample of a specific topic contribute
to the development of an economic methodology, to strengthening the reliability of the results and
increase the predictive power of theoretical economic models.
Acknowledgment
The study was supported by the Russian Science Foundation (project №19-18-00282)
References
1. United Nations, Department of Economic and Social Affairs, Population Division (2017). World
Population Prospects: The 2017 Revision, Key Findings and Advance Tables. Working Paper No.
ESA/P/WP/248 [Online], [Retrieved October 20, 2019],
https://population.un.org/Wpp/Publications/Files/WPP2017_KeyFindings.pdf
2. Preventing Ageing Unequally, 2017 [Online], [Retrieved October 20, 2019], https://read.oecd-
ilibrary.org/employment/preventing-ageing-unequally_9789264279087-en#page1
3. Sberbank, press release, 08.10.2018 [Online], [Retrieved October 20, 2018],

https://www.sberbank.ru/en/press_center/all
7267
4. Federal State Statistics Service, 2019 [Online], [Retrieved October 20, 2019], https://eng.gks.ru/
5. Morrow-Howell, N., Proctor, E., Rozario, P. (2001) ‘How much is enough? Perspectives of care
recipients and professionals on the sufficiency of in-home care,’ Gerontologist, 41, 723-732.
6. Zaidi, S. and Xaher, G. (2012) ‘NPO Performance in Reproductive Health Sector of Low and Middle
Income Countries: What is the Influence of the Wider Policy Context?,’ International Journal of
Developing Societies, 4, 141-148.
7. 10. Eurostat Database [Online], [Retrieved October 20, 2019],

https://ec.europa.eu/eurostat/data/database
8. Borsch-Supan, A. and Weiss, M. (2016) ‘Productivity and age: Evidence from work teams at the
assembly line,’ Journal of the Economics of Ageing, 7, 30-42.
9. Dreze, J. and and Srinivasan, P.V. (1997) Drèze J. and P.V. Srinivasan. ‘Widowhood and Poverty in
Rural India,’ Journal of Development Economics.
10. Fouarge, D. and Layte, R. (2005) ‘Welfare regimes and poverty dynamics: The duration and
recurrence of poverty spells in Europe,’ Journal of Social Policy, 34, 407-426.
11. Lloyd-Sherlock, P. (2000) ‘Population ageing in developed and developing regions: Implications for
health policy,’ Social Science and Medicine, 51, 887-895.
12. Ferrer-I-Carbonell, A. and Van Praag, B.M.S. (2002) ‘The subjective costs of health losses due to
chronic diseases. An alternative model for monetary appraisal,‘ Health Economics, 11, 709-722.
13. Evandrou, M., Falkingham, J., Feng, Z., Vlachantoni, A. (2016) ‘Ethnic inequalities in limiting
health and self-reported health in later life revisited,’ Journal of Epidemiology and Community Health,
70, 653-662.
7268
Catastrophic Expenditure on Medicines: An Analysis Based on the

Portuguese Household Budget Survey 2015/2016
Carlota QUINTAL
CEBER, University of Coimbra, Coimbra, Portugal
qcarlota@feuc.uc.pt
José LOPES
CICF - IPCA, Polytechnic Institute of Bragança (IPB), Bragança, Portugal
jlopes@ipb.pt
Abstract
Financial protection is a core dimension of health system evaluation and several works on catastrophic
health expenditure (CHE) have been developed. There are however some gaps in the literature, hence,
this work aims to look at CHE from a different angle, following the money spent by households. The
objectives are to identify how many and which health services are driving CHE and analyse the profile
of households with CHE. Data come from the Portuguese Household Budget Survey 2015/2016 and
the study includes 11,398 observations. WHO methodology for CHE identification was adopted. Over
a fifth of households incurring CHE spent only on medicines and this item presented by far the highest
expenditures. All families with CHE spent on medicines and about two thirds spent on up to three
items. Expenditures on medical devices and hospital services were low. Dental care expenditures
tended to assume extreme values. Although primary care services are spread across the country,
expenditures on GP services were not at all negligible. The typical household with CHE consists of an
old poor person living alone. Exempting these people from medicine co-payments is crucial to prevent
catastrophic expenditure.
Keywords: Catastrophic health expenditure, financial protection, Portugal
Introduction
Financial protection was recognised by the World Health Organisation (WHO) as a core dimension for
the evaluation of health system performance almost two decades ago (World Health Organisation,
2000). Later, WHO reinforced the relevance of ensuring that everyone is able to access health services
and not be subject to financial hardship in doing so (World Health Organisation, 2010a). In this line,
the framework used by WHO to continuously monitor progresses towards universal health coverage
builds on two main indicators, one of which is the financial protection dimension. The financial
protection dimension, in turn, has been evaluated through the analysis of catastrophic health
expenditure (CHE) and impoverishing spending on health. The focus of this paper is on CHE, which
is out-of-pocket expenditure (OOP) exceeding a given threshold of a household’s resources (Wagstaff,
2002; World Health Organisation and The World Bank, 2017).
Despite the relevance of this topic, a recently published systematic review of literature (Yerramilli et
al., 2018) identified several gaps, concluding that there is scarcity of up-to-date analysis and no studies
drawing on data beyond 2011. These authors also point out that identifying the groups who experience
financial hardship, while breaking down catastrophic out-of-pocket payments by health service is a
useful starting point for exploring the health system factors that lead to financial hardship. The need to
address gaps in geographical coverage is also mentioned. The literature further shows a bias towards
middle-income countries but, although it is acceptable to prioritise monitoring in countries with weak
financial protection, attention should also focus on high income countries. This is so because in some
7269
cases the financing of health systems relies to a considerable extent on direct payments, putting at risk
some vulnerable groups of the population, and even countries with strong financial protection should
be studied in order to identify good practice and highlight transferable lessons for policy (Yerramilli et
al., 2018).
One of the limitations of the CHE approach is that some people might not be exposed to catastrophic
expenditure simply because they are not getting the care they need either because they cannot access it
or because they cannot afford it (Yerramilli et al., 2018). Hence, the recommendation by World Health
Organisation and The World Bank (2017) that financial protection always needs to be jointly monitored
with service coverage.
Portugal is an interesting case in the context of this work because it is considered a high income country
but the share of OOP in total health expenditure is among the highest in OECD and EU countries. In
2016, OOP represented 28% of total health expenditure in Portugal, which compares to 18% in the
EU28 (OECD/EU, 2018). Additionally, the country has a National Health Service (NHS), which is
universal, comprehensive and almost free at point of delivery (according to the Portuguese
Constitution, Article 64) but there are shortcomings in provision. The NHS predominantly provides
primary care and specialized hospital care. Dental consultations, diagnostic services, renal dialysis and
rehabilitation are more commonly provided in the private sector (Simões et al., 2017). Typically, the
latter three services are carried out under contractual arrangements with the NHS. However the NHS
does not cover dental care (it is neither provided nor funded by the NHS). Most dental care is paid by
OOP, as are many specialist consultations in private ambulatory care (Thomson et al., 2009; Simões et
al., 2017). Regarding pharmaceutical expenditure, there are cost-sharing schemes, however, in 2016,
45% of the expenditure on retail pharmaceuticals was financed by OOP, compared to 34% in the EU28
(OECD/EU, 2018).
Our objectives are therefore to contribute to the financial protection literature by centring the analysis
on the types of health care which are absorbing people’s money alongside the analysis of the types of
health care people are not spending money on. Although these aspects have been absent from previous
works, they provide relevant information, namely how many and which items are driving CHE. We
also aim to contribute to the literature on financial protection by analysing recent data from a high
income country and exploring in more detail the profile of households incurring CHE. At the same
time, we provide evidence that might be used to monitor the financial protection of Portuguese families.
Methods
Data were taken from the 2015/2016 wave of the Portuguese Household Budget Survey. This survey
contains data from a representative stratified clustered sample of households living in non-collective
dwellings across the country. It was carried out by Statistics Portugal. Data were collected in the
mainland and islands (Azores and Madeira) between 16 March 2015 and 13 March 2016 (INE, 2017).
This study includes 11,398 observations.
The variables directly extracted from the database were: total expenditure, food expenditure, out-of-
pocket health care payments (total and for different types of health care considered separately:
medicines; other pharmaceutical products, including contraception; glasses and contact lenses; hearing
devices; other medical devices; visits to general practitioners; visits to specialists; dental care;
diagnostic tests; paramedic services, including ambulance services; hospital services), equivalent
household size (OECD scale), type of household (one non-elder adult, one elder adult, two or more
non-elder adults, two or more adults with at least one elder individual and no children, one adult with
children, two or more adults with one child, two or more adults with two or more children), and region
of residence (as in Figure 2 – Panel 2c).
To identify households with CHE, we adopted the methodology proposed by WHO researchers (Xu et
al., 2003; Xu, 2005) and followed by several authors (see e.g. Yerramilli et al., 2018 for various
examples). In this case, a household is said to have incurred catastrophic expenditure if its OOP are
equal to, or higher than, 40% of its capacity to pay. Capacity to pay corresponds to a household’s
nonsubsistence spending. Subsistence spending is the amount each household is expected to spend on
food taking into account its equivalent size and the amount spent by the household on the sample
median food share of total expenditure.
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In a second step, we defined binary variables to identify null expenditures (variables assume the value
1 if expenditures are null). Then we considered only households with CHE, identifying on how many
and on which items they spent their money as well as expenditure levels. We further analysed the
composition of this group in terms of expenditure quintiles, household types and region of residence.
All the analyses were carried out in SPSS 25.0 and sample weights provided in the database were used.
Results
Considering the whole sample, there were 0.46% of households incurring catastrophic health
expenditure. The prevalence of CHE among the poorest (first expenditure quintile) was 1.96%, while
it was 0.26% in the second expenditure quintile and basically null in the remainder quintiles. In terms
of null expenditures, more than 80% of families in the whole sample did not spend money on visits to
specialists, exams, dentists, glasses/lenses and hospital services. More than 90% of all families reported
no expenditure on other medical devices and paramedic services. Regarding GP visits, the percentage
of families with no expenditures was about 75%. The lowest percentage was found for medicines in
which case only 16% of households in the whole sample did not spend on this item. The percentage of
families reporting null expenditures continuously decreases from the first to the fifth expenditure
quintiles for all types of health services. In the case of specialist consultations, the percentage decreases
from 94% to 61%, in the case of dental care it decreases from 93.5% to 65.5% and for glasses/lenses it
decreases from 93% to 71.5%.
Table 1: Destination of payments of households with catastrophic health expenditure
Number of items†
(% of households)
1 2 3 4 5 6
(21.5%) (11.1%) (35.6%) (13.6%) (10.9%) (7.3%)
Null expenditures (mean) ‡
Medicines 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
Pharmaceutical products§ 1.0000 0.9304 0.8549 0.9657 0.7254 0.1245
Glasses & lenses 1.0000 1.0000 0.6347 0.8360 1.0000 1.0000
Hearing devices 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
Other medical devices 1.0000 1.0000 0.9159 0.7967 0.3051 0.1245
Visits to GP 1.0000 0.4709 0.7023 0.1295 0.9694 0.0000
Visits to specialists 1.0000 0.6909 0.7587 0.2338 0.0306 0.0000
Dental care 1.0000 0.9779 0.5598 0.9378 0.2746 1.0000
Diagnostic tests 1.0000 1.0000 0.8263 0.2998 0.3642 0.8755
Paramedics 1.0000 0.9298 0.7067 0.2325 0.3642 0.0000
Hospital services 1.0000 1.0000 0.8669 0.9385 0.3307 0.8755

†
Number of items on which households with CHE spend their money
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‡
Binary variables for null expenditures: = 1 if household reports no expenditures
§
Excluding medicines
White cells indicate that no family reported expenditures on this item; dark grey cells represent items on
which at least a quarter of families (in the respective column) spent money on
Now, focusing on families with CHE (Table 1) and taking into account where they spent their money
(for health care), we observe that over a fifth of these households incurred catastrophic expenditure by
spending on medicines alone. The majority (68.5%) spent on up to three items and no family with CHE
spent on more than six types of health services (from the list presented in section 2). Looking at Table
1, we further observe that all families with CHE spent on medicines and none spent on hearing devices.
Few families with CHE spent on glasses/lenses as well as on hospital services and paramedics.
Differently, expenditures on GP and specialists consultations were more frequently reported.
A large percentage of households reporting expenditures on a given item does not necessarily mean
that it is greatly relevant in terms of the financial burden imposed on families, hence, the information
presented in Figure 1 complements the previous analysis.
Figure 1: Average annual expenditures of households with catastrophic health expenditure,

according to the number of items on which they spent money
As observed in Figure 1, expenditures on medicines not only were reported by all families with CHE
but also presented the highest average value (with the exception of families spending on 6 items).
Although to a lesser extent, specialist and GP consultations also attracted important shares of families’
resources. In the case of dental care, expenditures tended to be more extreme (either very low or quite
high).
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Figure 2: Profile of households (HH) with catastrophic health expenditure (CHE) according to
household composition (Panel 2a), expenditure quintile (Panel 2b) and region of residence
(Panel 2c)
The profile in Figure 2 suggests that households with catastrophic expenditure were mainly poor elder
people living alone in the Centre of the country. Still, about a quarter of households with CHE included
two or more adults of which at least one wass an elder person and 20% of households with CHE lived
in the North.
Discussion
In this study we found that 0.46% of Portuguese families incurred catastrophic health payments in the
period 2015/2016. Compared to 2010/2011, this result represents an improvement in financial
protection as this percentage was then 2.1% (Quintal and Lopes, 2016). Considering the poorest
families (first expenditure quintile), there was still an improvement but less pronounced (in this case,
the percentage of families with CHE decreased from 4.1% to 1.96%). The value of 0.46% also means
that Portugal is now aligned with the best performing countries (World Health Organisation, 2010b;
Yerramilli et al., 2018). Nonetheless, these results should be interpreted with caution taking into
account that, where the NHS fails to provide health care, the absence of spending may represent unmet
health care needs. The pattern of null expenditures, with always higher prevalence among the poorer
groups, supports these concerns.
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A worrying result is the fact that over 20% of families with CHE spent on a single item: medicines.
Moreover, the average expenditure on medicines among families with CHE surpasses 1,400€ reaching
a maximum of 4,675€. Average expenditures (among families with CHE) for other relevant items such
as GP and specialist consultations and dental care were between 250€ and 350€. Some results are
understandable given the characteristics of the Portuguese health system. For example, most hospital
care is provided within the public sector and we observe that mean expenditures for this service was
low, both in the whole sample and among families with CHE (the maximum value in the whole sample
is however much higher). The impact of specialist consultations and dental care was also
comprehensible as they are mainly financed by out-of-pocket payments. However, results regarding
expenditures on GP visits are rather surprising. Primary care services are spread across the country thus
individuals with low resources should not feel the need (or should not be impelled to) use private care.
Although the global level of CHE obtained in this study is low, the risk among poor families should
raise concerns. Authorities have implemented some protective measures regarding pharmaceutical
expenditure (Simões et al., 2017) but they seem to be failing when it comes to poor old people living
alone and to some extent to poor families with elderly members. Moreover, because there are
households incurring CHE with few health care services, this means that these expenditures might be
jeopardising not only the access to other goods and services but also the access to needed health care
services which are not provided by the NHS. Actually, the maximum expenditure on dental care in the
whole sample (15,900€) is found precisely within the group of families with CHE. This is unexpected
given the profile of these families. Finally, Portuguese health authorities in the Centre region should
be particularly attentive to the situation of poor old people.
References
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Household Budget Survey 2010/2011. Health Economics, Policy and Law, 11(3), 233-252.
Simões, J., Augusto, G. F., Fronteira, I. & Hernández-Quevedo, C. (2017). Portugal: Health system
review. Health Systems in Transition, 19(2), 1–184.
Thomson, S., Foubister, T. & Mossialos, E. (2009). Financing health care in the European Union –
Challenges and policy responses. Copenhagen: World Health Organization.
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80 (2), 97-105.
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performance. Geneva: World Health Organization.
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catastrophic health expenditure: a multicountry analysis. The Lancet, 362(9378), 111–117.
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Yerramilli, P., Fernández, Ó. & Thomson, S. (2018). Financial protection in Europe: a systematic
review of the literature and mapping of data availability. Health Policy, 122, 493–508.
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Methods for Assessing and Forecasting

the Resource Supply of Tourist Clusters in the Regions of the Central
Black Earth Economic Region of the Russian Federation
Raisa IVANOVA
Department of Tourism and Hospitality, Bunin Yelets State University, Yelets, Russia,
ivanova.bysu@yandex.ru
Olga SKROBOTOVA
Department of Tourism and Hospitality, Bunin Yelets State University, Yelets, Russia
skrobotova.bysu@bk.ru
Irina POLYAKOVA
polyakova.bysu@yandex.ru
Galina KARASEVA
karaseva.bysu@yandex.ru
Nataliya ZAITSEVA
Department of Hospitality, Tourism, and Sports, Plekhanov Russian University, Moscow, Russia
zaitseva.bysu@yandex.ru
Abstract
The relevance of the research topic is determined by the importance of obtaining an objective assessment and
forecasting of the resource supply of tourist clusters in the regions, including in the Central Black Earth Economic
Region of the Russian Federation. Scientifically-based tourism development plans can be developed in the regions
based on such estimates. In this regard, the purpose of this article is to determine methodological approaches to the
study of the assessment and forecasting of the resource supply of tourist clusters in the regions of the Central Black
Earth Economic Region of the Russian Federation. The leading scientific research methods were theoretical and
empirical methods, methods of quantitative and qualitative analysis, methods of data aggregation, factorial and
structural-functional analysis, expert assessment, classification and structuring of information, reference and
statistical data, and a comparison method. Studies in the theory of cluster development, cluster processes in tourism,
and the internationalization of cluster initiatives have become the basis for the formation of the methodology. As a
result of the study, a scientific base has been developed, which allows assessing and predicting the resource
provision of tourist clusters of the Central black earth economic region both in terms of the state of the geographical
framework of the territories, and in terms of identifying cooperation in the use of tourism resources in the
production of tourist products and services. The materials of the article can be used at the level of regional
authorities engaged in regional tourism.
Keywords: tourism, tourist cluster, Central black earth economic region, tourist resources, tourist
and recreational system.
Introduction
In the last decade, the formation of the tourism sector in the regions of the Russian Federation is
largely determined by the strategy formulated in the Federal Target Program “Development of
Domestic and Inbound Tourism in the Russian Federation (2011 - 2018)” (hereinafter referred to as
the Program), which was continued in the Concept of the federal target program “Development
domestic and inbound tourism in the Russian Federation (2019 - 2025).” One of the foundations of
this strategy is a cluster approach to the development of tourism in the regions of Russia. The regions
that can be attributed to regions with dimly expressed tourism resources (no sea, mountains,
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UNESCO monuments, etc.) take an active part in the implementation of FTP programs. This is due to
increased competition between regions. At the same time, the development of tourism at the regional
level is considered as one of the ways to overcome the negative consequences of interregional
competition. There are hopes for improving the economic situation with the development of tourism
as a self-investing industry, and government participation in the creation of tourism infrastructure can
increase the level of regional infrastructure development.
The subject of our research is the resource support of cluster development of tourism in the regions of
the Central Black Earth Economic Region of Russia - Belgorod, Voronezh, Kursk, Lipetsk, Tambov
regions. All these regions are interested in the development of tourism and form a system of regional
tourism management. The Lipetsk region, under the Program, implemented projects of the
Zadonshchina autotourism cluster and the Yelets tourist and recreational cluster. Currently, the
results of cluster development are only generalized.
In many respects, the success of new cluster projects depends on approaches to understanding the
resource support of cluster development of tourism in the regions. The process of creating clusters
depends on many factors, including the strategy for the use and development of resources, which are
considered as the basis for creating a tourist cluster. Therefore, this area of research is extremely
relevant and has practical significance for the development of tourism in the Russian regions.
Methods and Materials

It should be noted that there are no unified theoretical and methodological approaches to the
assessment and forecasting of the resource provision of tourist clusters. This follows from the nature
of cluster processes. Consideration of issues of resource support for the development of tourism
clusters is possible only taking into account the experience and results of the study of clusters in the
world and Russian practice. In determining the research methodology, works on the theory of cluster
development by M. Porter (1993), Karen G. Mills, Andrew Reamer, and Elisabeth B. Reynolds
(2008), etc. are of particular importance. Traditionally, the study of cluster processes in the economy
is focused on the processes of integration, the study of their nature and mechanisms. Recently, there
has been interest in the role of clusters in the regional economy in studies on cluster development
(2018). The mechanisms of cluster integration are considered in the works of Frank E. (2016),
Zedgenizova I. (2017) and others. Problems of managing cluster processes are addressed in the works
of Islankina E., Thurner T. W. (2018), several works address the issues of cluster development
resources (Korolev et al; 2018; Litvinenko et al; 2018).
The subject of research on the development of tourism clusters, including in the Russian Federation,
is very broad and diverse: trends in cluster processes in tourism (Korolev et al; 2018);
internationalization of cluster initiatives (Islankina et al; 2018; Cluster policies and cluster initiatives:
theory, methodology, practice: Kol. Monograph; 2013); various aspects of managing cluster
processes (Kim et al, 2019; Kirilenko et al, 2019; Oborin et al; 2018; Runaev; 2016). The study of the
role and importance of clusters for the development of tourism is of interest both in terms of
summarizing the European and Russian experience (Gurieva et al; 2009; Ivanova et al; 2018;
Krajňáková; 2018; Larionova et al; 2017; Veretekhina; 2017; Zedgenizova et al; 2017; Lebedinskaya
et al; 2015). In this context, a high interest in regional tourist clusters can be noted. Also, it is of
interest to study the features of creating and promoting clusters from the point of view of tourism
development, (Afanasyev; 2016; Kruzhalin et al; 2018; Shabalina; 2018; Tulskaya; 2012).
We consider tourist clusters in the development system of regional tourist and recreational complexes
and systems, and in this context, the theoretical and methodological works of Kruzhalin V.I. (2018);
Locust M.A. (2011); Sevastyanova (2005; 2015); Danilenko N.N. and Rubtsovoi N.V. (2013),
Kropinova E.G. and Mitrofanova A.V. (2011), Gurieva L.K. and Sozieva Z.I. (2009), Park E., Choi
B.-K., Lee T.J. (2009), et al. are of particular interest to us;
The research methodology for cluster development resource provision within the region is closely
related to the approach to understanding the tourism cluster. Currently, there are many definitions of
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a cluster, the definition of M. Porter is one of the most well-established: "A cluster is a group of
geographically neighboring interconnected companies and related organizations of a certain sphere,
characterized by common activities and complementing each other" (Porter; 1993). There are also
many definitions of a tourist cluster. Their typology is quite fully reflected in the work of Danilenko
N.N., Rubtsova N.V. The authors identify the most typical approaches: "1) the tourism cluster as an
effective territorial form of increasing the competitive advantages of tourism enterprises; 2) the
tourist cluster as a modern institution, combining a system of formalized and informal relations of its
participants between themselves and the external environment; 3) a tourist cluster as a population of a
certain type of economic object having a certain distribution area in the territory; 4) the tourism
cluster as a regional management mechanism aimed at strengthening the interests of the region, its
independence, competitiveness, and sustainable development; 5) the tourist cluster as a regional
tourist-recreational system "( Danilenko et al, 2013). The definitions of a tourist cluster are based on
the selection of a list of "sufficient characteristics (attributes)" that allow defining a tourist cluster as a
specific type of cluster in comparison with other industry clusters.
Gurieva L.K. and Sozieva Z.I. consider that the main characteristics of a cluster are structure,
geographical boundaries, type of geographical framework (Gurieva et al; 2009). In the opinion of the
above authors, two additional features related to the list of sufficient characteristics (features) are key
to determining the essence of a tourist cluster: ‘the availability of tourist resources in the geographical
territory of localization of the inter-organizational network; 2) the presence of consumers of tourism
products in the cluster’ (Gurieva et al; 2009). At present, when studying clusters (in a strict sense), it
is customary to talk about economic agglomeration, a protocluster (potential cluster) and a cluster.
Concerning tourism clusters, it is also customary to talk about the stages of their life cycle. So,
Kropinova E.G. and Mitrofanova A.V. (2011) distinguish "pre-cluster (the formation of a regional
tourism market; developing cluster; mature cluster. From our point of view, it is advisable to combine
the stages of the life cycle of a tourist cluster during the study of tourist clusters as follows:
protocluster (precluster, nascent cluster, developing cluster, fading cluster) and cluster (mature
cluster) (Ivanova; 2018).
Tourism resources as “a combination of climatic, sociocultural and infrastructural factors used in the
production of tourism products to meet human needs in the process and for tourism” (Danilenko;
2013) should be considered as the main condition for the formation of a tourist cluster. In our
opinion, tourism resources determine the institutional characteristics of the tourism cluster.
Quantitative and qualitative indicators of the state of tourist resources affect the formation of a model
of a tourist cluster and the features of its development. In the framework of our study, special
attention should be paid to the methods of studying the socio-economic resources of tourism
development, which make it possible to identify the resources that determine the formation of the
core of the cluster and can affect the processes of cooperation in the cluster.
When studying the resource support of cluster tourism development in the regions of the Central
black earth economic region, we adhere to the principle of allocation of necessary and sufficient
characteristics of tourist resources. We consider the geographical administrative division of regions
(hereinafter referred to as GAD) as organizational territorial units of cluster localization.
Understanding of the resource support for cluster development of tourism in the regions is extremely
important for understanding the initial positions of the emergence of clusters, forecasting and
stimulating the development of clusters, cluster development processes. It is resources that can set the
boundaries of a cluster.
The formation of groups of methods aimed at studying the resource potential of cluster development
of tourism in the regions, it is advisable to start with a study of the geographical framework, creating
the conditions for the development of tourism in the region. The emergence and development of
tourism clusters are directly related to the development of the tourism framework of the territories.
The study of the tourist resources volumes in our studies is based on determining the quantitative
characteristics of tourist resources of various types (natural, cultural, historical, socio-economic). The
quantitative characteristics of tourist resources are based on mathematical statistics methods, based
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on which GAD data are processed. As a result, we obtain data for comparing the structure and
properties of GAD tourism resources, which will allow ranking GADs according to the volume of
tourism resources, including by types of resources.
We use groups of methods in our study that allow us to study the geographical framework of GADs
as a basis for the cluster development of tourism. These methods are presented in Table 1.
Table 1: The methodology for identifying the necessary and sufficient characteristics of tourism
resources as a base for cluster development of tourism in the GAD
Stages Method Principle of method Expected result

1 Cartographic A series of maps with the Obtaining new visual data on
method application of objects that form the localization of the elements
the tourist frame of the region. It that form the territorial tourism
is used at all stages of the study framework of the region.
to update and analyze the data. Data acquisition for further
mathematically formalized
conjugate map analysis (for
example, taxonomic models).
2. Mathematical and Grouping of indicators; creation This method makes it possible
mathematical- of a mathematical model; to carry out a factor analysis of
statistical identification of key factors; indicators of tourism
assessment of interpretation of factors development in the GAD
tourist resources region. It also allows
of the region. substantiating approaches to
Factor analysis determining the specialization
of probable tourist clusters in
the GAD.
3. Expert assessment Development of rating scales; GAD ranking in terms of

of the regions determining the circle of sufficiency of resource support
tourist resources respondents in the region, for cluster development of
conducting a survey; the tourism
processing of survey results and
obtaining estimates; analysis of
the results. Delphi Method.
Tourism product as a result of economic interaction and the nature of tourist flows are important for
understanding the structure of the tourism cluster and the characteristics of intra-cluster cooperation.
Therefore, the analysis of the use of resources of various types for the production of the tourism
product of the territory, on the one hand, makes it possible to determine the geographical
concentration of resources that form the cluster. On the other hand, the interaction in the production
of tourism products makes it possible to further study the features of cooperation in the tourism
cluster.
A significant role in the formation of tourist areas is played by the presence of objects with a high
level of attractiveness for tourists. Various terms are used to designate objects of this kind: "objects
of tourist interest", "objects of tourist attraction", "attractions". For all the similarities, these concepts
are not identical. S.A. Sevastyanova (2005) suggests distinguishing between the concepts of
"attraction" and "attractors." The author understands tourist attractors as a complex of objects located
in a certain territory, possessing various properties that are of interest to tourists and on this basic
form the goals of visiting attractive objects. Whereas "attractions" are understood as entertainments
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that are an important element of a tourist product (events, sightseeing and animation programs, etc.).
"Attractions contribute to the development of consumer interest in a particular tourist center and are
one of the main sources of income".
Attractors and attractions can be considered as an element of the structure of the tourist cluster and as
a factor in the formation of tourist territories, providing not only attractiveness for tourists, but also
forming the motivation for cooperation in the production of tourist services and goods in the territory
attractive to tourists. However, it is necessary to understand here that we attribute attractors to
material tourist resources and attractions to tourist products. We can refer attractors to unique natural
objects, material cultural and historical objects (monuments of architecture, memorial places, etc.),
and also objects of infrastructure (amusement parks, unique hotels, museums, etc.). Attractions
develop on the basis of intangible cultural and historical resources. We can consider them as a form
of updating cultural values, based on which not only the content of the tourist product is formed, but
also the image of the tourist territory is determined. The issue of analyzing resources that are
perspective from the point of view of creating attractions may be important for the formation of a
further strategy for the development of tourism clusters in terms of determining the image attractive
to certain segments of consumers, branding and further branding of territories.
Research methods for the tourist product, tourist flows and tourist attractors in the resource support
system for the development of cluster processes and the formation of preclusters are presented in
Table 2.
Table 2: Methodology for identifying territories with high potential for cluster development
(preclusters)
Stages Method Principle of method Expected result

1. Analysis of the role Comparative analysis of Identification of areas with the
of tourism in the the economic role of most developed tourism industry
development of GAD tourism in the GAD
2. Mathematical and The study of the structure Identification
mathematical- of the tourism product as a − of the degree of inclusion
statistical evaluation result of the use of tourist of GAD tourism resources in the
of the use of tourist resources of GAD and the tourism sector;
resources of GAD in way of interaction of − of signs of cooperation
the production of the producers of tourist when using GAD tourism
tourism product. services and goods. resources.
3. The method of Identification of the Identification of areas with high
forming spatial system of attractors, potential for cluster development
models subjects of economic (pre-clusters).
activity, relations, channels Identification of possible cluster
and nodes of concentration models, core structure, and cluster
of tourist activity in the specialization.
region.
The methods we offer allow us to evaluate and predict the resource supply of tourist clusters of the
Central Black Earth Economic Region both in terms of the state of the geographical framework of the
territories and in terms of identifying cooperation in the use of tourism resources in the production of
tourist products and services. Methods should be consistently used in several stages.
Results
Currently, we are ready to present the results of research in the Lipetsk region. Studies were
conducted in all administrative-territorial units of the region (18 municipal districts and 2 urban
districts). Analysis of the results was carried out taking into account the fact that three recreational
areas are distinguished in the territory of the Lipetsk region: Western (Eletsko-Zadonsky), Eastern
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(Lipetsk), Northern (Lebedyansky). In the course of the research, the methods were tested and the
results that are presented in this section were obtained.
Based on the consistent application of methodological groups, the tourism potential of the region was
studied, the GAD rating was compiled according to the level of tourism potential development, and
the presence of elements capable of forming nuclear structures of tourist clusters were revealed. The
subject of analysis was indicators of the state of natural resources, cultural and historical resources,
and socioeconomic resources. At the first stage, we ranked the GAD of the region (districts and urban
districts) by the volume of tourist potential based on the application of the cartographic method in
combination with mathematical and statistical methods.
Based on the processing of the obtained data, we conducted a GAD rating in accordance with three
levels of tourist potential development: low level 0 - 0.9; average level 1 - 2, high level - above 2.
The GAD rating was carried out both within the entire region and for each recreational area.
The GAD rating of the Lipetsk region in terms of tourism potential is presented in Figure 1.
3.5
3
2.5
2
1.5
1
0.5
0
Lebedyansky Recreation Area Lipetsk Recreational Area Yelets Recreation Area
Figure 1:GAD rating of the Lipetsk region in terms of tourism potential
Thus, based on the processing of quantitative indicators of tourist resources of various types, the
GAD group with high tourist potential included the city of Lipetsk (3.3), the city of Yelets (2.4); the
GAD group with an average level of tourist potential included the Zadonsky district (1.1); all other
areas (Volovsky, Dolgorukovsky, Yeletsky, Izmalkovsky, Krasninsky, Stanovlyansky, Terbunsky,
Khlevensky, Gryazinsky, Lipetsk, Dobrinsky, Dobrovsky, Usmansky, Dankovsky, Lebedyansky,
Lev-Tolstovsky, Chaplyginsky) were included in the GAD group with low tourist potential.
However, quantitative indicators do not give a complete picture of the tourist potential and are not
equal to the actual attractiveness of territory for tourists. At the third stage of the study, one of the
main goals was to determine the objects with the greatest attraction. The objectives of the study were
to identify up to ten objects with the highest level of attraction in each GAD at the time of the study.
Attraction facilities were determined based on surveys conducted outside the region, as well as on the
basis of the analysis of tours for organized clients, including visits to facilities in the Lipetsk region
(both display facilities and service facilities), regardless of the region in which the overnight stop is
spent. Also, an expert assessment was applied at this stage. An additional coefficient was introduced,
which was determined depending on the number of objects with a high level of attractiveness in the
territory of the GAD. Taking into account the additional coefficient, the rating scale has the following
parameters: the low level - 0 - 2.9; the average level is 3–5.9, the high level is 6 or more. The GAD
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rating was carried out both within the entire region and for each recreational area. Processing of the
collected data significantly affected the rating of GAD. The results are shown in Figure 2.
12
10
Lebedyansky Recreation Area Lipetsk Recreational Area Yelets Recreation Area
Figure 2: Rating of tourist potential GAD of the Lipetsk region, taking into account the
attractiveness
GAD group with a high level of tourist potential included Yelets (10.2), Zadonsky district (7.9),
Lipetsk (6.2); the group with an average level of tourist potential included: Stanovlyansky district
(4.3), Lebedyansky district (3.7), Yelets district (3.4); the group with a low level of tourist potential
(0 - 2.9) included: Volovsky, Gryazinsky, Dankovsky, Dobrinsky, Dobrovsky, Dolgorukovsky,
Izmalkovsky, Krasninsky, Lev-Tolstovsky, Lipetsk, Terbunsky, Usmansky, Khlevensky,
Chaplyginsky districts. From the point of view of determining the tourist potential of the recreational
areas of the Lipetsk region, it is important that there are GADs with high-level indicators in the Elets
and Lipetsk, and only GADs with medium and low-level indicators in Lebedyansky.
The available data array and the selected methods for its processing make it possible to determine the
presence of structures capable of forming the nuclei of the cluster development of tourism in the
recreational areas of the Lipetsk region. The data are given in Table 3.
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Table 3: The presence of structures capable of forming the cluster tourism development core in
recreational areas of the Lipetsk region
Yeletsk-Zadonsky Recreation
area
Lebedyansky Recreation Area

recreational
Area (Western)
(North)
Lipetsk
(East)
Tour operator companies - + -
The presence of departments or specialists in the structure of local + + +
administrations responsible for monitoring and coordinating activities in
the field of tourism
Educational organizations providing training for the tourism sector + + +
Organizations conducting research in the field of tourism + + -
Tourist information centers + + +
The available data indicate that the best conditions for the formation of the core of the tourist cluster
are in the Lipetsk recreational area (Vostochny).
The data obtained characterizing the resource support of tourist clusters in the Lipetsk region suggest
that it is most likely that cluster processes in the tourism sector are possible in the Yelets-Zadonsky
and Lipetsk recreational areas, with the least probability - in the Lebedyansky recreational region.
Also, the obtained data and results enable a more detailed study of recreational areas of the region in
order to identify the state of cluster processes and determine the possible cluster specialization.
Conclusion
The methods formed by us based on the chosen methods tested on the example of the Lipetsk region,
make it possible to obtain the necessary results. The combination of different methods (cartographic,
mathematical-statistical, sociological) makes it possible to collect and analyze a large array of data
and ensure the reliability of the results. The results of our study are aimed at improving the efficiency
of decisions taken by public authorities in the field of evaluation and forecasting of cluster
development of tourism and can be used by all stakeholders in the cluster development of tourism.
The materials of this study can be used: at the level of regional management – for monitoring,
development of management decisions on the adjustment of regional tourism development programs;
in the expert-analytical and scientific community – for the analysis and development of forecasts,
further development of methodological and methodological approaches on the subject of work.
Acknowledgment
The article was made with the financial support of the Russian Foundation for basic research in the
framework of the project 18-010-00950 A.
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Women Entrepreneurship & Development

The Case of Egypt
Hend HASSAN
The Bucharest University of Economic Studies – Bucharest, Romania
Email: hend.elsaiid@gmail.com
Abstract
This paper has three main aims: (i) to portray the role entrepreneurship plays in endorsing economic growth
and development in developing countries like Egypt (ii) to shed light on the importance of including women
as valid partakers in all entrepreneurial realms to achieve the desired acceleration of the development
process; (iii) to reveal the challenges deterring Egyptian women from achieving this goal. The theoretical
rational rests on the assumption that entrepreneurship is at the essence of development since manifests a
driving force for economic growth. In countries like Egypt entrepreneurship helps transform economies
from their low-income status to a high income one. It’s important to note here that latterly women
entrepreneurship has been given considerable recognition as a catalyst for accelerating this process. The
paper analyzes the distinctive characteristics of the Egyptian economy relating to entrepreneurship and
demonstrates the importance of enhancing women participation in economic activity, specifically through
small and medium enterprises. The findings of this paper reveal that the Egyptian economy is wrapped in
informality with the majority of female entrepreneurs categorized as ‘necessity entrepreneurs’. Egypt
numbers for SMEs ranks among the lowest relative to other developing countries especially for women.
the paper concludes that altering this situation requires evident restructuring of policies and strategies
associated with gender profiling. Despite the Egyptian government exertions to support women
entrepreneurs they are still inhibited by numerous obstacles. These conclusions may help decision-makers
to implement proper public policies in order to improve women participation in economic activity and
hence development.
Keywords: Development, Entrepreneurship, Women Entrepreneurship, Women Empowerment,

Informal Market.
JEL Classification: B54, F63, J19, L26

Introduction
Entrepreneurship has been defined in the literature as “the catalytic agent in society which sets into motion
new enterprises, new combinations of production and exchange” (Collins and Moore, 1970, cited in
Mathew, 2010, P.2). Numerous researchers and scholars have demarcated entrepreneurship in the
literature. Ronstad’s stipulates that:
“Entrepreneurship is the dynamic process of creating incremental wealth. This wealth created by
individuals who assume the major risks in terms of equity, time, and/or career commitment of
providing value for some product or service” (Mathew, 2010, P.2).
“Entrepreneurs, therefore, is the structural transformation of countries from low income, primary-sector
based societies into high income service and technology-based societies” (Naude, 2008, P.1)
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Promoting entrepreneurship in developing countries is likely to reduce the overdependence on imports to

satisfy the needs of these countries. However, in order for women entrepreneurship -in the form of women
owned enterprises- to partake in economic growth in developing countries -in general- and Egypt -in
specific-, profound exertions from all the key players involved need to diligently work toward this end.
This is including policymakers, financial establishments, the media, the market and the society as a whole.
This paper aims at portraying the essential role entrepreneurship plays in endorsing economic growth and
development in a developing country like Egypt. The paper also aims at shedding light on the importance
of including women as valid partakers in entrepreneurial realms in order to achieve the desired acceleration
of the development process. To achieve the mentioned objectives the paper commences with a literature
review depicting the impact of entrepreneurship on development attainment. This is through examining
first, the link between entrepreneurship, economic development and women empowerment. Second,
amplifying the role of women entrepreneurship plays in developing countries and finally the factors
influencing the decision of entrepreneurship.
The paper thereafter, proceeds to the context of women entrepreneurship in Egypt through depicting the
informal nature of the Egyptian market, the state’s altered prospective on informal economic activities, and
how this impacts the prospects of entrepreneurship in general and women entrepreneurs in specific. Also,
a display of how gender disparity poses evident detriment to female entrepreneurs and the opportunities
available to their enterprises is manifested.
The paper concludes that in order for developing countries to achieve their desired goals in terms of
economic growth and development, the governments of these countries need to modify and restructure the
policies and strategies associated with gender stereotypes (Mathew, 2010) limiting women and labeling
them as incapable of partaking in entrepreneurial opportunities and therefore, hindering their participation
in economic activity.
The Link between Entrepreneurship, Economic development and Women

Empowerment
Economic development is the progression via which the economy structurally converses towards
modernism and prosperity through manufacturing and the provision of services (Naude, 2008). This
transformation process entails ‘qualitative’ alterations to the nature of the economy as well as ‘quantitative’
ones in term of the level of output productivity per individual. The outcome of this transformation process
is only deemed as economic development if it results into an improvement in the general welfare (Naude,
2008) of the society in general not only for specific groups of people at the expense of others. In this
context, entrepreneurship has been found to positively correlate with economic development as it helps
generate jobs, lessen the fiscal burden, enhance competition. Entrepreneurship not only aids in accelerating
economic development -through novelty- under ordinary conditions but can also aid economies struggling
through stagnation during times of economic or political turbulence and conflict (Naude, 2008).
Empowering women through investing in them is instrumental in accomplishing justice and equality as
well as endorsing comprehensive and ‘sustainable’ economic growth and development. This is since
women entrepreneurship is eminent for contributing to gender equality, generating employment
opportunities, improving human capital, and reducing poverty especially through marginalized groups.
Regrettably, evident gender disparity remains to be observed in business management, ownership, and in
entrepreneurial operations in general. The matter that deters economic growth and pose eminent obstacles
to attaining sustainable development.
Women Entrepreneurship
The importance of women entrepreneurship in enhancing and accelerating economic development has been
acknowledged since the 1990s in numerous parts of the world (Mathew, 2010). This is in addition to
recognizing their role in fostering and endorsing globalization and liberalization. Moreover, by starting
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their businesses in both rural and urban regions women entrepreneurship help maintain a balance in the
countries’ regional development. This is in addition to their capital formation contribution to the economy
enhancing and accelerating economic growth and development (Susruthan & Priyadharshany, 2018).
Feminist economists, however, are less expectant of the market capability to deliver an adequate allocation
of resources and gender equality at the same time (Razavi & Miller, 1995). According to Diane Elson,
markets are not merely ‘abstract cash nexuses’ but rather social establishments where the process of buying
and selling tend to function disproportionally in favor of some of the partakers compared to others, this is
as they are contingent on social norms (Elson, 1993, cited in Razavi & Miller, 1995). Unfortunately, this
translates into the discriminatory terms of trade facing women. Despite the harsh constrains women
entrepreneurs face, however, they still exert enormous efforts to sustain their enterprises and manage them
efficiently. This is of course is more evident in developing countries, Egypt being one of which.
Consequently, it is immanent to streamline market relationships through political exertions in a manner that
disputes the existing social norms pertaining to gender. This is in order to establish new market structures
endorsing better gender equality and paving the way to higher bargaining and negotiation power for women
through enhanced women networks and collective action (Razavi & Miller, 1995).
Factors Influencing the Decision of Entrepreneurship

It is of vital importance here to make a distinction between the different driving incentives behind
entrepreneurship. This is since not all entrepreneurs are self-employed by mere of choice but rather owing
to inevitability. The literature, therefore, makes the distinction between those who are ‘opportunity
entrepreneurs’ as opposed to those who are ‘necessity entrepreneurs’. While the first makes the decision
to become an entrepreneur to claim a foreseeable opportunity, the other one is self-employed because of
the lack of a paid employment option (Naude, 2008). Manifestly, those who make a choice to become
entrepreneurs are basically making a career choice between paid-employment and self-employment.
The exertions mandated in founding an enterprise have an evident impact on starting a business regardless
of its size. The required efforts to deal with the regulations of starting a business and the initial start-up
costs needed can motivate an individual to become an entrepreneur or can make him refrain entirely from
taking this step. Naturally, the required instigations vary in complexity, content and interval from one
country to the other. However, they normally include financial costs of establishing a business, legal
procedures and permits, regulations the entrepreneur must abide by regarding labor, organizational and
production standards (Fonseca et al. 2001, cited in Naude, 2008). Evidently, the higher the start-up costs,
the more complicated the procedures, the stricter the regulations and the longer the duration needed to finish
the initiation process, the less encouraged a person will be to opt for adopting entrepreneurial activity.
Re-thinking the Informal Market in Egypt
Detecting the case of Egypt reveals that the Egyptian economy is predominantly ‘trapped in informality’,
where 98% of businesses are micro-enterprises with humble value-added input to the economic activity of
the country. A closer look to the statistics of businesses -by size of enterprise- indicates a palpable trough
in the middle of the spectrum as a very limited percentage of firms can be categorized as small or medium
sized. Data shows the count of SMEs in Egypt to be one per 2000 residents, signifying evident below
averages rates compared to other countries in the region or even compared to similar ‘middle-income
countries’ in general (ILO, 2018). Chart 3-4 clearly show Egypt’s minimal position -compared to other
countries- with regards to numbers of SMEs.
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Fig. 1: Number of SMEs Per 1000 Inhabitants
Source: ILO elaboration; data from IFC, CAPMAS and other not statistical organizations.
The structural reform programs characterizing the 1980s and carried out through the 1990s -in Egypt-
altered the discernment to the significance of the self-employed labor in the informal segment of the
economy, viewing it rather as a natural response (Robinson, 2001, cited in Dorlet, 2005) to the subsequent
hardship and the retreat of the state from its previous role of the chief provider of employment and primary
supplier of essential goods and services. Consequently, many politicians and officials have started to
reconsider their attitude towards ‘informal enterprises’, perceiving them rather as a resolution to existing
problems and apprehensions resulting from the current poverty and gigantic immigration from the rural
areas of Egypt to the urban cities (Dorlet, 2005). This is specially as these immigrating workers lack
essential skills required by the formal market making them unemployable by the public or private sector.
Bearing the above in mind policy makers have started considering the necessity of improving the
legitimacy, security and the proper financing of ‘informal economic activities. Small entrepreneurs always
find themselves under the threat of removal from their business sites, seizure of their goods, having to pay
bribes to be allowed to conduct their business, and different hardships that can reach the stage of detention.
By eliminating these threats however, micro entrepreneurs will have the security, confidence and means to
invest in enlarging their businesses and therefore increasing their income and also creating employment for
others (Robenson, 2001, cited in Dorlet, 2005).
It’s important to note that there is evidence in various research of women founding small-scale businesses
especially in agriculture, micro manufacturing, simple services as well as modest size trade, which further
asserts the notion that the smaller the size and scale of enterprise the higher the likelihood that it’s owned
and managed by women (Rahman, 1999, cited in Dorlet, 2005). Women entrepreneurs have a higher
tendency to provide employment opportunities to other women in particular and the frail unemployed in
general (Susruthan & Priyadharshany, 2018). Subsequently, the lack of accessibility of financial resources
to poor women posses evident constrains (Rahman, 1999, cited in Dorlet, 2005) to women empowerment
and hence to development.
It is therefore, of great importance for policy makers to realize that self-employment in the informal
segment of the economy is of considerable size, it provides employment and absorbs labor that is otherwise
unemployable, it’s likely to sustain because it’s needed, and it adds to the growth of the economy
(Versluyen, 1999, cited, Dorlet, 2005). Subsequent to this realization, efforts need to be exerted to better
regulate such enterprises through eliminating legal and financial impediments.
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Women Entrepreneurship in Egypt
Women economic empowerment as a goal is a matter of precedence for the Egyptian government, national
non-governmental organization as well as the international community at large. The Egyptian legislation
endorse gender equality and ratify women participation in the workforce. Yet, in spite of the efforts exerted
by the state in terms of laws and regulations, women are still under-represented in the labor market and
their employment ratios remain manifestly low. The matter that is in inconsistent with the country’s social
and economic vision for 2030, that prioritize women’s participation in the economic activity (ILO, 2016
B) especially through the encouragement of small and medium enterprise entrepreneurship. Towards this
end Egypt has consented -in 1981- to the stipulations of the ‘Convention of Elimination of All kinds of
Discrimination against Women’ (CEDAW). This is in addition to sanctioning the ‘Promotion of Equal
Remuneration Convention’, 1951 and the ‘Discrimination (Employment and Occupation)
Convention’,1958. Both conventions aim at promoting gender equality and endorsing women rights in the
form of equitable ‘opportunity and treatment’. The conventions also distillate their efforts on eradicating
all types of discernment constructed on the basis of ‘race’, ‘color’, ‘sex’, ‘religion’, ‘political opinion’,
‘national extraction’ and ‘social origin’ (ILO, 2016).
Despite the exertions of the various participants however, Egyptian women still lack equitable
representation in the labor force and in the business environment in general. Women in Egypt, therefore,
are still unable to claim their just position in the economy as equal partners, especially in the rural regions
of Egypt where women entrepreneurs find themselves restricted to informal businesses and micro
enterprises (ILO, 2016 B) due to various social and financial barriers.
Hattab -in 2012- instates that evidence indicates Egypt to have the widest gender gap relative to other
MENA countries in the region (ILO, 2016). Furthermore, according to the International Labor
Organization (ILO) report in 2014, the number of female entrepreneurs in Egypt is 613,000 -including the
self-employed- compared to six million male entrepreneurs (JICA, 2018). The 613,000 female
entrepreneurs’ amount to about 9 % of the total number of the self-employed/business owners in Egypt
(ILO, 2016 B), the highest percentage of which operate within the informal economy mostly involved in
minor home industries and agricultural activities (JICA, 2018). The preceding data indicate a substantial
gender gap relative to the global statistics pertaining to women self-employment manifesting more than
30% (ILO, 2016).
The vast majority of women entrepreneurs in Egypt fall under the category of ‘necessity entrepreneurs’,
obligated to opt for this career choice subsequent to the absence of wage employment possibilities (UN
Women, 2018). This is as women tend to make the majority of those who are likely to be unemployed,
underemployed, to exit the workforce -based on discouragement- and to be among the marginalized social
groups. Female unemployment -in Egypt- hovers around 21.4% (Al-Masry Al-Youm, 2019).
Also, an evident percentage of these women resort to starting up their own small business -either alone,
with relatives or acquaintances- so that they can fulfill both their productive and reproductive roles as
household caretakers. The majority of women entrepreneurs -operating within the formal framework or
the informal one- predominantly conduct business in either the services sector or trade (Nassar, 2009).
Enterprises owned by women are typically ‘micro-enterprises’ yielding sustenance proceeds (UN Women,
2018) merely to satisfy basic survival needs. Generally, female entrepreneurs struggle with the restricted
access to business support services in terms of finance, information and networks. This is despite the fact
that they legally have the right to bank loans as well as all forms of financial credit without the consent of
any guardian or male figure (UNICEF, 2011).
Only a meek 3% of the self-employed women -comprising 18% of the entire employed female count-
partake in the small and medium enterprise segment. Furthermore, only one out of four enterprises are
initiated by a woman while only 17% of all the functioning enterprises are owned by women (UN Women,
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2018). Data displays that only 6.8% of the self-employed women are able to hire the services of other
workers while 25% of self-employed men can afford that (ILO, 2016 B). A report by the Japan International
Cooperation Agency also asserts that the middle and small enterprises (MSEs) owned by female
entrepreneurs are run by one operative -the entrepreneur herself- comprise 47.7%, the ones operated by two
workers comprise 31.7% while the ones encompassing 10-49 comprise only 0.7% (JICA, 2018). This is
since the majority of female entrepreneurs designate that they are unable to provide the cost for hiring
workers in addition to all the other non-wage costs of founding and maintaining their businesses (ILO, 2016
B). The depicted numbers, therefore, as indicated by chart 3-1 clearly show that the female owned MSEs
are of micro to small size. Obviously enough, micro-businesses are not gaining the required growth power
to promote into small or medium size enterprises capable to generate new jobs and hence economic growth
and development (ILO, 2018).
Fig.2: Percentage of Female-Owned MSEs by Number of Worker
：
Source Compiled based on ILO, 2017, Women’s Entrepreneurship Development Assessment: Egypt
This is in addition to the fact that most of these businesses are functioning informally without legal
licensing, proper bookkeeping or employment insurance schemes. Although these issues face both men
and women in the self-employed market, they tend to be harsher for women, particularly as far as accessing
capital and financial resources are concerned. Provision of bank loans and other forms of credit is more
challenging for women since the vast majority don’t own property or adequate collateral, don’t have bank
accounts (less than 7% of Egyptian women possess formal bank accounts) to their names -therefore- do not
have credit history, are overwhelmed by the unfitting loan sizes and interest rate schemes, as well as the
lengthy complex administrative requirements (UN, Women, 2018). Consequently, women entrepreneurs
are forced to resort to informal financial establishments subjecting themselves to adverse terms for
borrowing and financing, hence less chance of sustaining a successful business.
Data shows that 33% of men in the labor market are self-employed as opposed to 12.2% for women (ILO,
2016 B). Taking a closer look on the employers and self-employed entrepreneurs in both the formal and
informal sectors, statistics -as indicated by table 3-1- show the ratio of women employers in the formal
sector to be 0.6% in addition to 0.8% for ‘own-account workers (enterprises operated by one worker; the
owner). These percentages are manifestly low compared to those for men as depicted by the table (JICA,
2018). The evident gender gap in the formal sector percentages signposts that males are more equipped in
terms of knowledge, skills and ability to confirm with laws and regulations -entailed by the formal sector-
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in comparison to women who are commonly less qualified and less knowledgeable of government or private
sector employment regulations (ILO, 2016 B).
Fig. 3: Distribution of Formal Employment by public and private sectors in 2014
Source: Calculations based on CAPMAS statistics (2014). “Annual bulletin for labour force survey 2014”
Additionally, even though percentages of female entrepreneurs operating in the informal sector of the
economy are relatively higher than those of the formal sector, the vast majority of these enterprises are
‘own-account workers’ accounting for 25% of the total numbers (JICA, 2018). These women run small
businesses with no workers other than themselves and lack the essential tools for expanding their business.
Table 1: Distribution of Self-Employment/Employers in Formal and Informal Sectors (2015)
Formal Sector Informal Sector

Status Female Male Total Female Male Total
Employees (paid workers) 98.4 90.4 92.4 25.6 60.7 55.7
Employers (hiring
employees) 0.6 5.8 4.5 6.8 17.7 16.2
Own-account workers
(no workers hired) 0.8 3.5 2.8 25 14.6 16.1
family worker (unpaid
worker) 0.2 0.3 0.3 40.8 7 12
Total 100 100 100 100 100 100
：
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Owing to the substantial regulatory requirement costs such as registration costs, social security costs and
taxes many businesses are demotivated to formally employ workers. Consequently, the percentage of
MSEs operating in the informal economy exceeds 80%. This is in addition to 70% employees informally
hired by the private sector without any protection in terms social security, tenure or benefits (ILO, 2016 B).
However, it’s fair to note here that -in reference to a focus group employed by an ILO study- many women
entrepreneurs hire informal workers upon their own request. Many workers have a preference of informal
employment to evade taxes or in fear of loosing their existing government job or pension, specially that in
many cases they are hired by women owned enterprises on part time bases (ILO, 2016 B).
The percentage of women opting for entrepreneurship as an alternative -in Egypt- vary significantly based
on geographic location and type of activity. Geographically, the governorates exhibiting the biggest
numbers of female entrepreneurs are Beheira (39 %) followed by Dakahlia (9 %), Minya (9 %), Monufia
(6 %), and Sharqia (5 %), signifying that the majority of women entrepreneurs reside in the Lower Egypt
region. As far as the variation in female representation in the different sectors, women entrepreneurial
activity displays a 58% in agriculture, fishery, and forestry; 32% in wholesale and retails; and 3% in
industry. Yet again, the vast majority of these women are operating small-sized home-based agricultural
industries (JICA, 2008).
The distribution of women owned enterprises by type of economic activity -as shown in chart 3-2- depicts
an evident variance in percentages. Data illustrates that the highest percentage of women entrepreneurs are
located in the agriculture sector followed by the wholesale and retail trading sector while the manufacturing
sector attracts a meek 3% only of female entrepreneurs (ILO, 2016 B). The logical explanation behind the
mentioned statistics is the immense funding -typically unavailable for women- the manufacturing sector
requires for start-up or for maintaining and expanding. This is coupled by the fact that women involved in
agricultural activities tend to struggle with harsher apprehensions to access financial resources, markets as
well as information and technical support results in diminished productivity in this sector and in the total
output of the country at large. Consequently, deterring the role of women from reaching its potential and
adversely impacting both economic and social development.
Fig.4: Women Entrepreneurs by Sector of Economic Activity
Source: Calculations based on CAPMAS statistics. 2014. “Annual bulletin for labour force survey 2014”.
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Following on these findings, it’s important to note here that women entrepreneurs are primarily
concentrated in the rural areas of Egypt, statistics indicates that 82% of female business owners are located
in rural regions whereas only 18% are conducting their business in the urban parts of Egypt (UN Women,
2018). The mentioned manifestation is attributed to the constantly diminishing labor opportunities that are
being offered by the public sector -conventionally a chief employer of women- consequential to the
economic reforms and privatization strategies adopted by the Egyptian government since the 1990s. This
is coupled with the declining ability of the private sector to fill this employment gap, especially as the
female labor force keeps mounting (JICA, 2018). This is while corresponding statistics specify that male
business owners display more adjusted distribution, with 62% of their enterprises situated in rural areas
versus 38% in urban regions (UN Women, 2018).
Fig.5: Number of Entrepreneurs by Sex and Area (2014)
：
Despite their vast concentration in rural regions -as depicted by chart 3-2- women entrepreneurs in rural
Egypt struggle with a host of hindrances, the matter that constrain their capacity to establish sustainable
enterprises and deters their expansion possibilities. Such hindrances comprise low literacy levels, lack of
disposable time due to household obligations coupled with curtailed public mobility, lack of adequate
training and proper business management education tools. This is in addition to restricted access to
‘Business Development Services’ and proper networks (UN Woman, 2018).
Furthermore, rural women entrepreneurs have limited access to ICT compared to their urban counterparts.
A survey on women entrepreneurs designates that only 2.5% of female entrepreneurs operating in rural
areas have access to smart phone whereas 78% female entrepreneurs in Greater Cairo (Cairo and its
outskirts) have this access. Moreover, only 1.6% of women entrepreneurs in rural areas use desktop
computer; 2.5% use laptop computers; 2.5% have access to fixed cable internet and 3.3% mobile internet
subscription. This is in comparison to 75% of female entrepreneurs in Greater Cairo having stable access
to mobile internet services. Additionally, subsequent to the lack proper information on investment
prospects female rural entrepreneurs end up opting for ‘marginal retail micro-trade’ opportunities or
inconsequential service activities (UN Woman, 2018).
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Conclusion
Entrepreneurship is deemed vital to the efficient functioning of the contemporary market economy, this is
as the wider entrance of new enterprises into the market is known to enhance competition, increase
productivity and hence accelerate economic growth and development. To reach that end new market
structures endorsing better gender equality and paving the way to higher bargaining and negotiation power
for women need to be established.
The Egyptian state is undergoing intensive efforts to enhance Micro, Small and Medium Enterprises
(MSMEs) in Egypt, these efforts, however, lack the gender perspective. This is as women still struggle
with a host of constraints, namely: the challenge of managing their entrepreneurial activities while fulfilling
their household responsibilities at the same time (the production and reproduction roles), limited access to
financial as well as non-financial service, lack of access to markets and business networks, limited
technology tools, as well as frail voice in the policy making realm. As such, it’s empirical to employ
inclusive and systematic strategies to promote for women entrepreneurship in the country (ILO, 2016 B).
Egypt posses a prodigious opportunity to expand the percentage of women entrepreneurs as an important
segment in the economy comprising the self-employed, the matter that will yield job creation opportunities
and hence accelerate economic growth and development.
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file:///C:/Users/User/Desktop/women%20and%20development/arab%20women.pdf.
Miller & Razvani (1995). From WID to GAD: Conceptual Shifts in the Women and Development Discourse
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http://www.unrisd.org/80256B3C005BCCF9/(httpPublications)/D9C3FCA78D3DB32E80256B67005B6
AB5 [Accessed 11 May 2019].
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Nassar, H. (2009). The impact of economic crisis on women in Egypt. [online] Www1.aucegypt.edu.
Available at: http://www1.aucegypt.edu/src/wsite1/impact.htm [Accessed 25 May 2019].
Naude, W. (2008). Entrepreneurship in Economic Development. [online] Econstor.eu. Available at:
https://www.econstor.eu/bitstream/10419/63572/1/560604459.pdf [Accessed 11 May 2019].
Susruthan, Priyadharshany (2018). Role of Women Entrepreneurship. [online] Acadpubl.eu. Available at:
https://acadpubl.eu/hub/2018-120-5/4/349.pdf [Accessed 11 May 2019].
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https://www.unicef.org/gender/files/Egypt-Gender-Eqaulity-Profile-2011.pdf.
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Automated Management System of Technological

and Production Processes of the Civil Aviation Air Enterprise
Known as ‘The Custom Module “The Operator”’
Gennady E. GLUKHOV
The State Scientific Research Institute of Civil Aviation, Moscow, Russian Federation,
E-mail: glukhov.srica@mail.ru
Pavel E. CHERNIKOV
E-mail: chernikov.srica@bk.ru
Arman G. KARAPETYAN
E-mail: karapetyan.srica@ro.ru
Alexander Yu. KONKOV

E-mail: konkov.srica@ro.ru
Andrei N. SHARYPOV
E-mail: sharypov.srica@ro.ru
Abstract
The article is devoted to the capabilities description of the custom module called “The Operator”. The
custom module “The Operator” is an automated control system for the technological and production
processes of the civil aviation enterprise. The functional capabilities and features of the information
system software components for collecting, processing and information reliability control of aircraft
technical and resource state were scrutinized. A number of economic effects achieved through the “The
Operator” deployment at the airline were noted as well. In addition, the information system features
are considered in terms of operational and technical documentation management, evaluating the
authenticity of aircraft components and applying control algorithms to the information completeness
and reliability. In conclusion, it is believed to be advisable to use “The Operator” as a tool for a labor
productivity increase at the airline supporting the technical operation of an aircraft.
Keywords: automated system, aeronautical engineering, information system, common information

space, operational documentation.
Introduction
In 2001, the information and analytical system for monitoring the aircraft airworthiness was devised
and commissioned at the Federal State Unitary Enterprise State Research Institute of Civil Aviation.
The system operator is the Federal State Unitary Enterprise State Research Institute of Civil Aviation.
The system development is based on the common information space principles in civil aviation and the
aviation industry. It embraces all entities for the aircraft maintenance and its airworthiness control, i.e.
developers, manufacturers, aviation enterprises operating aviation equipment or operators, aircraft
maintenance organizations and repair, national aviation administration, as well as other entities
involved in aircraft technical operation support processes (Ruzina et al., 2007 ).
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When creating information and analytical system for monitoring the aircraft airworthiness the
developers were guided by the conditions, which ensure the system functioning in accordance with the
above principles (Glukhov et al., 2017):
− the system must adapt to the specific conditions of the each aircraft life cycle stage, while
simultaneously having the ability to centrally maintain operational documentation at the industry
level;
− the system should maintain the possibility to develop continuously by involving subject specialists
participate in its modernization (i.e., each subject should be able to upgrade the system software
components while being controlled.
The information purpose and analytical system for monitoring the aircraft airworthiness is to provide
information on aircraft technical operation and monitoring its airworthiness.
Based on system subjects’ functional tasks, there have been elaborated user modules with local
databases.
Historically, the first and basic part of the information and analytical system for monitoring the aircraft
airworthiness is the custom module named “The Operator”, which is an automated control system of
technological and production processes of aviation engineering service at the airline and aircraft
maintenance organizations and repair.
The Custom Module Named “The Operator” as a Single Information Space

Element of Information and Analytical System for Monitoring the Aircraft
Airworthiness
“The Operator” designing was based on covering the maximum possible number of automated
functions for recording and monitoring the operational parameters of aircraft and their components, as
well as continuous monitoring of the aircraft technical state at the airline based on production
information.
The implementation of these principles determined the “The operator” custom module’s software part
architecture as the set of software complexes interacting at the data level that implement the tasks of
individual airline divisions (Fig. 1).
The automatization of typical production procedures at the airline in the custom module “The
Operator”, which are connected with the aircraft maintenance, allowed achieving the following
economic effects:
− enhanced forecasting for failures and aircraft components malfunctions helped minimize the costs
and aircraft component parts rental;
− rapid identification of non-authentic aircraft components and cost reduction connected with the
urgent removal of non-authentic products from operation. It should be noted that in case of non-
authentic aircraft products detection on the aircraft being in operation, the airline could lose up to
millions of rubles per day. Therefore, there is the need to terminate flights and wait for the
component to be replaced, however, if such components are identified during the planned aircraft
maintenance and repair work, the costs are minimalized or do not arise at all while the service can
be continued;
− increasing the speed of aircraft maintenance and repair due to the use of modern software tools
that provide automatic informational interaction of operational, technical, regulatory and reference
documentation;
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Fig. 1: “The Operator” custom module structure in information and analytical

system for monitoring the aircraft airworthiness
− reducing the human factor influence when making decisions regarding the list and sequence of
procedures performed on the aircraft during the scheduled maintenance. The custom module “The
Operator” software tools provide the operational lists for aircraft maintenance in the correct
(rational) technological sequence, which ensures minimizing the working time costs.
The custom module “The Operator” has automatized a number of functions:
− accounting for the resource and technical condition, and components of aircraft;
− planning the enterprise production processes and planning the aircraft use;
− automatized aircraft maintenance and repair operational documentation;
− electronic documentation;
− technological support for aircraft maintenance and repair, including updating electronic
operational documentation of an aircraft;
− automated production and technical documentation generation (production tasks, selective

operational statements and other documents);
− accounting for aircraft component malfunctions causes and methods of their elimination. Data
analysis;
− information support for the aircraft technical operation;
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− production preparation;
− logistics;
− full range automated generation of reporting documents to ensure their own activities and for
submission;
− interaction with the central database of information and analytical system for monitoring the
aircraft airworthiness;
− in order to obtain up-to-date information on the state of aircraft and operational documentation;
− automatic exchange files generation for the authenticity assessment and monitoring the
airworthiness of aircraft.
“The Operator” usage by airlines within a single information space gives each of them a number of
advantages:
− ensuring compliance with certification requirements;
− operational documentation;
− and reducing operating costs for maintaining documentation in working condition;
− increasing confidence and completeness of aircraft maintenance and repair and other work;
− more quality taken decisions in professional activity;
− reducing the aircraft operating costs by preventing irrational losses of material and other
resources.
“The Operator” software provides the airline units task automation. This is all because of the data
automatic interaction from the on-line documentation of aircraft components, operational and technical
documentation and regulatory and reference documentation, labor costs associated with monitoring the
technical condition an aircraft are reduced (Klimenko et al., 1999) (Fig. 2).
The custom module “The Operator” is quite flexible and is open to be modernized anytime so that it
could quickly reflect changes in international or national air law and the changing needs of each airline.
At the same time, there is a possibility of “The Operator”s’ improvements and modernization by the
enterprise based on its own production tasks. Changes made are analyzed by the information and
analytical system for monitoring the aircraft airworthiness and they can be extended to the entire system
to be accessible to other entities (Brusnikin, Glukhov and Garanin, 2017).
The custom module’s advantages are as follows:
− centralized electronic operational documentation;
− authenticity assessment materials preparation. Aircraft components assessment is based on

constantly updated production information on the actual technical condition of aircraft
components;
− continuous monitoring of information completeness and reliability. The information is introduced

into the module database based on data processing algorithms and their assessment of compliance
with established requirements.
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Fig. 2: Tasks distribution solved by a custom module “The Operator”
The Advantages of the Custom Module “the Operator” in Automating the

Production Processes of Civil Aviation Enterprises
Centralized management of aircraft documentation in “The Operator”

Operators and aircraft maintenance and repair organizations are required to have and maintain
operational documentation, production and technical documentation and other working documentation
by operating regulatory documents.
However, the evidence that the operators exercise the established requirements, involves submitting
the documentation during the certification period or during the inspection issuing or renewing a
certificate.
Since the certificate is issued for a certain period, it is therefore sufficient for operators to present
documentation to inspectors by the required date. At the same time, the documentation is not monitored
during the cross-inspection period. Seeing this, the airline operational documentation during this
period, as well as, its correct application in aircraft maintenance and repair cannot be controlled. The
peculiarity of the operational documentation in “The Operator” control system is due to the
significantly expanded amount of information exchanged between information and analytical system
for monitoring the aircraft airworthiness compared to the data set regulated by foreign specifications
and standards (Brusnikin, 2018). Federal standard R 54080-2010 defines the minimum requirements
that determine the information systems composition of the information space participants in the
information and analytical system for monitoring the aircraft airworthiness. These data cover the
following arrays of airline production information:
− aircraft current state;
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− engines current state;
− aircraft components state, i.e. aggregates and components;
− the use of aircraft;
− history of engines motion;
− work done on aircraft;
− flight hours;
− engine operating time;
− electronic operational documentation (regulations or maintenance work program).
Based on these data, the so-called adaptive maintenance schedule for each aircraft, the information
appears in the system, is automatically generated in the “The Operator” database.
The adaptive regulation of an aircraft maintenance work is an electronic operational documentation

adapted to the particular operator conditions and to the operator’s aircraft individual characteristics.
The adaptive aircraft maintenance work regulation includes operational documentation for a specific
operator in a formalized form.
The purpose of the adaptive aircraft maintenance work regulation is to create a load of work to be done
on an aircraft. Moreover, creating a set of requirements for performing this work with the fullest
possible consideration of the actual aircraft operating conditions, time characteristics and individual
aircraft characteristics.
To achieve this goal, the operational documentation provided by the aircraft developer is used, as well
as the production and technical documentation of the aircraft maintenance work done by the explant to
maintain the airworthiness of the aircraft operated. These documents must be recorded in the database
of the user module installed by the operator. This is the input to the adaptive regulation management
process.
The result of managing the adaptive regulations of the aircraft maintenance work is a production task
for the aircraft maintenance work, in the form of a selective operational list. The adaptive regulation of
aircraft maintenance work in coordination with the aircraft use plan ensures the selective production
program development for the operator (Alekeanyan, 2011).
A selective statement and a selective operation program are types of production and technical
documentation generated as a result of electronic documentation automatic interaction, adaptive
regulations and reference information of a specific aircraft.
While the user module is operating, the information and analytical system for monitoring the aircraft
airworthiness are constantly adjusted to the input data. For this reason, the principle of feedback is
used.
The feedback principle provides the following sequence of procedures:
− non-stop monitoring of aircraft status information;
− received information processing in accordance with established algorithms;
− control impact elaboration.
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For example, the control action in case of changes in the operating conditions and / or the actual
resource state of the aircraft can be a change in the set of work during the next aircraft maintenance
work or their technological sequence.
When the next task for aircraft maintenance work is produced, the results of the adaptive regulation of
aircraft maintenance work, including all changes are made. Thus, the stability of aircraft compliance
with the airworthiness standards is ensured.
The custom module “The Operator” material preparation for the aircraft
authenticity assessment
The requirement to ensure the authenticity of aircraft components is due to the reliability requirements
established by the design documentation of the aircraft developer, as well as the requirements for
maintaining the airworthiness of an aircraft during its life cycle, established by the regulatory
documents of aircraft registration states.
The procedure’s normative and methodological basis for assessing aircraft components authenticity is
established by Federal standard R 55256-2012.
The aircraft components authenticity is determined by the authenticity assessment results carried out
by the information and analytical system for monitoring the aircraft airworthiness operator. The
purpose of aircraft components authenticity establishment is to confirm the reliability of information
on the life cycle of these components and their documentation (Shapkin et al., 2018). Accordingly,
unauthentic or unapproved ones should include aircraft components with dubious data or
documentation, as well as aircraft components, which revealed inaccurate information or traces of
intentional changes in information about the stages of their life cycle.
The custom module “The Operator” allows to automatize the data preparation process for aircraft
components authenticity assessment. The material preparation process is carried out in a fully
automatic mode due to production information, which is constantly introduced into the custom module
database by the aircraft operator. The accumulated data can be automatically transferred to the
information and analytical system for monitoring the aircraft airworthiness operator, according to a
pre-agreed schedule for data exchange.
The frequency of assessing the aircraft components authenticity is determined by the need to confirm
the technical condition of the particular aircraft, when the documents and materials received at the
process output are used by interested organizations as part of evidence and other necessary
documentation (Sharypov et al., 2018).
Features of data control algorithms introduced by users of custom module “The

Operator” into the database
In order to exclude incorrect information being introduced into the database and the correct operation
of the “The Operator” custom module, its software automatically monitors information using the built-
in input control system. The database contains information that passed control (Sudov et al., 2006).
The previously introduced and stored information in the database is automatically checked by the
logical control system, which compares the data in the database with the established requirements and
criteria.
The information, which passed control, is available in unified formats at any operator’s workstation
connected to the database.
If information inconsistency is detected, the input control system or the logical control system gives an
error message, which the user must correct in the established way to continue working.
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Information interaction with related systems is carried out by sending electronic information in
exchange files via available communication channels having acceptable bandwidth.
Between the operator and the information and analytical system for monitoring the aircraft
airworthiness operator, the operating procedure should be agreed, including the synchronization
method, information content, formats, frequency and data transmission channels which help exchange
information.
The information received is analyzed and verified by the information and analytical system for
monitoring the aircraft airworthiness operator. Information that has been verified, as well as updated
information, is placed by the operator information and analytical system for monitoring the aircraft
airworthiness in a central database.
Examples of functional diagrams of data processing algorithms in the custom module “The Operator”
are given below (Fig. 3).
A fragment of the operator’s production and technical documentation management scheme for
organizing and performing aircraft maintenance and repair is shown in Fig. 4.
The types of operator’s operational documentation are as follows:
− aircraft planning documentation, i.e. airworthiness directives, service bulletins, various regulations
(aircraft downtime for maintenance, component consumption, materials, spare parts, etc.), aircraft
flight schedule, maintenance regulations, technical and resource status data aircraft, information
on the availability and condition of components, materials, spare parts in warehouses and other
storage places, data on the availability and qualifications of engineering personnel;
− aircraft maintenance and repair documentation, i.e. information about the air fleet, dispatch
schedule, reports on aircraft maintenance and repair (including a schedule for maintenance);
− aircraft work documentation, i.e. production tasks for maintenance and other works, other
production and technical documentation, regulatory requirements for the organization and
implementation of aircraft maintenance and repair.
The result of aircraft maintenance and repair is production-related information:
− dispatch schedule;
− documents on aircraft fleet condition.
− The (Control, C) process elements are as follows:
− model regulations (programs) of aircraft maintenance, airworthiness directives of aircraft,

standards, specifications, etc.
− regulatory requirements for the organization and implementation of aircraft maintenance and
repair (federal aviation regulations, manuals, instructions, etc.).
Resource support for the (Mechanisms, M) process includes:
− resource information and analytical system for monitoring the aircraft airworthiness;
− operator personnel (i.e. aircraft maintenance and repair organizations);
− other types of resources needed for production.
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Fig. 3. Algorithm for managing production and technical documentation of the operator.
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Fig. 4. Aircraft maintenance and repair documentation algorithm
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The process functioning.
Data introduced into the database of the custom module is processed according to a special algorithm
with consideration for the changing input data.
The results of sub-process A2 are as follows.
The A1 sub-process results in production task generation, which then goes to the A2 sub-process and
later it appears to be the control action for the A3 sub-process.
− resources availability data, a declared components receipt including materials, spare parts,
equipment, tools, etc. These data as a negative feedback have a corrective effect on the sub-process
A1, and as a result, the input process A3 receives selective operational statements, including only
resources provided works;
− purchase requests for components, materials, spare parts, equipment, tools, etc.
The result of sub-process A3 is as follows:
− progress records and implementation results of a given amount of work on the aircraft for the
production task;
− the aircraft state data being serviced in a specific unit of time, progress data and results of aircraft
maintenance and repair. This information, arriving at the inputs of sub-processes A1 and A2,
respectively, as negative feedback, leads to their adjustments, which improves the output.
The general process functions similarly, in cases of changes or additions to regulatory documents, when
processing a newly received order for additional air transportation, etc.
The output documents analysis (i.e. dispatch schedule, documents on aircraft serviceability), helps
make decisions about the aircraft use as a part of the flight schedule, the additional air transportation
organization (i.e. charter flights), the aircraft maintenance and repair improvement, etc.
In addition, an individual process could be divided into stages or sub-processes. Such a division is
possible even up to individual technological operations, if it is advisable.
Input data, results, tools and mechanisms are similar to those shown in Fig. 4.Therefore any additional
explanations are not required.
Conclusion
Despite numerous attempts to create and implement systems of after-sales support for the aircraft
maintenance from the aviation industry, at the moment, civil aviation aircraft operators remain the main
source of information about the real technical aircraft condition. At the same time, the competitive
environment calls upon the operating aviation companies to progress constantly in accelerating
production processes related to the tasks of aircraft technical support in order to minimize aircraft
downtime and increase flight operation time during which the company makes a profit. In this regard,
the development, implementation and modernization of automated control systems for the production
and technological processes of civil aviation enterprises is the most promising area of work to reduce
time and production costs when performing aircraft maintenance work.
The time and labor costs of an aircraft operating enterprise within the framework of strict state
requirements for ensuring airworthiness can be minimized by automating the information interaction
of services and units of the enterprise that provide technical support for the aircraft maintenance.
Automatization of these processes allows to increase labor productivity when performing aircraft
maintenance and repair and, as a result, to minimize aircraft downtime.
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The custom module “The Operator” is a fully-functional automated control system of technological
and production processes of civil aviation enterprises and allows you to automate the production
processes of the civil aviation aircraft operator associated with the aircraft maintenance.
The functioning of the custom module in a single info space provides the possibility of centralized
electronic operational documentation maintenance, thereby increasing the efficiency of maintenance
and repair work of operating equipment.
In addition, the module’s functionality includes procedures for preparing and sending to the operator
the necessary and sufficient information to perform work on assessing the authenticity of aircraft
components.
These procedures can be performed automatically without additional burden on users of the custom
module based on production data arising in the airline during the aircraft maintenance.
The information completeness and correctness control entered by users is ensured by means of
appropriate algorithms for monitoring user actions, which in turn ensures the accuracy of the entered
information about the real technical and resource state of the aircraft used. It also reduces labor costs
for further information processing.
Now, the custom module “The Operator” is implemented and used in 35 civil aviation enterprises of
the Russian Federation and other countries (e.g. Kazakhstan, Cuba).
In addition, the custom module “The Operator” invariance as well as the information and analytical
system for monitoring the aircraft airworthiness for the aircraft types and its operational strategies
should be noted. The system easily adapts to aircraft maintenance and service support programs for
running domestic and foreign aircraft.
The development and modernization of the custom module “The Operator” and other similar
information systems is caused by the constantly growing requirements of the aviation administrations,
i.e. ICAO (International Civil Aviation Organization) for organizations operating aviation equipment
in terms of data collection for the flight safety level (International Civil Aviation Organization, 2018).
This assessment requires the constant data availability on the operating aircraft state.
References
Alekeanyan, A. R. (2011), ‘Planning flight readiness procedures using information technologies of
network planning,’ Scientific Bulletin of MSTU GA, 173 (11), 65-69.
Brusnikin, V. Y., Glukhov, G. E. and Garanin, S. A. (2017), ‘Optimization of information exchange

process between airlines within the framework of a single information space,’ Scientific Herald of the
State Research Institute of Civil Aviation, 17, 27-33.
Brusnikin, V. Y., Gubanov, O. V., Karapetyan, A.G. and Sharypov, A. N. (2018), ‘Operational
documentation. Actualization and maintenance, ’ Scientific Herald of the State Research Institute of
Civil Aviation, 20, 30-39.
Glukhov, G., Kirpichev, I., Nikonov, V., Maslennikova, G. and Konyaev, E. (2017), ‘Creation of a
state system for continuous monitoring of aviation security in compliance with the international
requirements,’ International Journal of Civil Engineering and Technology, 8 (11), 695-713.
International Civil Aviation Organization (2018), ICAO 9859: Safety Management Manual, 4th ed.
[Online], [Retrieved October 24, 2019],
https://www.icao.int/safety/SafetyManagement/Documents/SMM%204th%20edition%20highlights.p
df
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Klimenko, S. V., Krokhin, I. V., Kushch, V. M. and Lagutin, Yu. L. (1999), Electronic Documents in
Intranet, Ankei-Ecotrends, Moscow.
Ruzina, E. A., Palkin, I. Y., Plastinin, V. G. and Tsygankova, A. E. (2007), ‘Creation of ACS TPP as
a unified information work environment for specialists involved in technological preparation of
production at the enterprise,’ Scientific and Technical Center of the Defense Complex “Compass”, 4,
91-93.
Shapkin, V. S., Brusnikin, V. Y., Glukhov, G. E., Chernikov, P. E., Garanin, S. A. and Kamzolov, S.
K. (2018), ‘Modern approaches to the problems of protecting aircraft products from falsification and
counteracting the illegal circulation of aircraft industry products,’ Scientific Herald of the State
Research Institute of Civil Aviation, 22, 59-68.
Sharypov, A., Brusnikin, V., Koval, S., Glukhov, G. and Gubanov, O. (2018), ‘Aircraft components
life cycle monitoring as a tool for identifying inauthentic aviation equipment items,’ International
Journal of Mechanical Engineering and Technology, 9 (7), 612-620.
Sudov, E. V., Levin, A. I., Petrov, A. V. and Chubarova, E. V. (2006), Technologies for integrated
logistics support for engineering products, LLC Publishing House “Inform Bureau”, Moscow.
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Digital Transformation of Production Systems

Within the Concept «Industry 4.0»
Sergey TINKOV
Plekhanov Russian University of Economics, Moscow, Russia
E-mail: ser-tinkov@yandex.ru
Inna BABENKO
E-mail: babenkoinny@gmail.com
Elena TINKOVA
Moscow state pedagogical University, Moscow, Russia
E-mail: ser-tinkov@yandex.ru
Abstract
The relevance of the research topic is conditioned by the fact that the process of the transition of
traditional industrial production to the modern concentration "Industry 4.0" will allow the functioning of
intelligent interconnected production systems optimizing the whole chain of added value in order to
reduce costs, time to enter the market and, as a result, increase the competitiveness of production. The
article is devoted to the urgent problem of transforming traditional industrial systems into intelligent
production systems. The purpose of the study is to identify tools for digital transformation. On the basis
of the conducted research, the main directions of the transformation of the production systems necessary
for the transition to the concept "Industry 4.0" were identified in the work.
Keyword: digital transformation "Industry 4.0", cyberphysical systems, intellectual factory
Introduction
In recent years, the introduction of digital technology in industry has paved the way for the evolution of
traditional industrial systems towards the concept of intelligent production. Radical changes that were
expected from the development of innovative technologies ultimately contributed to the idea of the fourth
industrial revolution, the so-called Industry 4.0, which was presented by the German government as a
strategic project for the implementation of intelligent factories in which interconnected systems are
integrated and interact via the Internet in purpose of adaptation and quick response to changes that occur
both within and outside the production process. In Russia, the prospects for the development of industry
as a whole are determined by the Information Society Development Strategy and the state program
Digital Economy of the Russian Federation. The growing digitalization of the economy has a great
potential for transforming Russian industry, traditionally considered quite conservative in the use of
digital technologies. However, in the process of implementation, industrial enterprises face a number of
problems, such as creating a digital economy infrastructure, improving education and human resources,
ensuring digital security, transforming physical assets and integrating them into a digital ecosystem.
The Actuality of The Research Topic

In Russia, the automation of industry, which began at the end of the 20th century, was mostly of a local
nature, each enterprise or unit within one enterprise formed its own networks and used its own control
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system that was incompatible with other systems. The development of the Internet, infocommunication
technologies, sustainable communication channels, cloud technologies and digital platforms has caused
principled new methods of obtaining and disseminating information. This contributed to the emergence
of new technologies in management and management decisions. Numerous scientific works have been
devoted to the research of the issues of the formation and development of the digital economy in Russia
and in the world in the last few years, among which are the works of Prokhorov A. (2016), Kitova O.V.
(2017), Zubareva A.E. (2017), Grebenik V.V., Vorotnikova I.V. (2018), Andreeva G.N., Badaliantz S.V.
(2018), Zvyagintseva O.P. (2018), et al. who disclosed various theoretical and practical aspects of the
digital economy. In 2017, the Government of the Russian Federation developed and approved a program
to create conditions for the country's transition to a digital economy, within the framework of which the
goals, tasks, directions and timelines for implementing public policy measures to create the necessary
legal, technical, organizational and financial conditions for the development of the digital economy in
Russia and its integration into the space of the world digital system. In the foreign literature, modern
industrial modeling systems for "Industry 4.0" are presented in the works of such authors as A.
Wortmann, B. Kombemali, O. Bareys (2017), H.D. Lee (2015).
The urgency of the formation of open information systems and global industrial networks interacting with
each other is due primarily to their transformative impact on all sectors of the economy. The use of
modern digital technologies will make it possible to solve a number of practical issues of enterprises in
the field of planning and regulating the timing of preparation of production, the uninterrupted operation
of equipment and reducing downtimes due to predictive maintenance, reducing the production cycle of
output, improving the quality of products, and, as a result, increasing the competitiveness of domestic
production.
According to the Strategy for the Development of the Information Society in the Russian Federation for
2017-2030, the digital transformation of the industry is aimed at the formation of digital data, their
processing and use in large volumes, including directly at the time of their formation, which, in
comparison with traditional forms of management, efficiency, quality and productivity in various types
of production, technologies, equipment, storage, sale, delivery and consumption of goods and services.
The concept "Industry 4.0" provides for end-to-end digitalization of all assets and their integration into
the digital ecosystem together with enterprises participating in the value chain. It corresponds to new
digital technologies - cloud services, mobile devices, augmented reality, "Internet of things", geolocation,
improved interfaces for human-computer interaction, artificial intelligence technologies, analysis of large
data and advanced algorithms, personification by client profile. In fact, the models presented in the
literature mainly deal with the technological aspects of implementing intelligent systems, although they
do not consider the aspect of business transformation necessary to achieve a complex vision of an
intelligent factory. Realization of the concept "Industry 4.0" requires the use of fundamentally new
technologies that change standard business processes and allow for a digital transformation of industrial
processes of industrial enterprises.
Directions of Digital Transformation of Production Systems

The concept "Industry 4.0" represents a new generation of production based on robotics, automation and
new trends in ICT, it was first presented at the Hanover Fair in 2011, as one of the 10 "Future Projects" in
Germany.
Following the experience of Germany, world industrial companies have moved to the path of digital
transformation: enterprises digitize internal production processes, sales channels. In addition, they
expand the range of products through digital functions and implement innovative services based on the
analysis of large data.
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The concept of "Industry 4.0" is based on the use of Cyber-Physical Systems (CPS), the Internet of things
and the technology of "big data". Within the framework of this concept, the production process is a
decentralized model in real time, in which machines can independently adjust, characterize, evaluate,
control and regulate the production process.
Cyberphysical production systems will fundamentally change the traditional logic of production, since
each working object will determine itself what kind of work must be done for production. This
completely new architecture of industrial systems can be implemented gradually through the digital
modernization of existing production facilities. And this means that this concept can be realized not only
at absolutely new enterprises, but also in stages at the existing enterprises in the process of evolutionary
development.
In order to approach the above-mentioned revolutionary heights, it is necessary to carry out a so-called
digital transformation at the enterprise, which allows supporting the operational modernization of
business models. Digital transformation implies a radical increase in productivity, competitiveness of
enterprises by using the whole complex of modern technologies with parallel digitalization of business
processes, their fundamental reengineering throughout the value chain.
Within the framework of the "Industry 4.0" concept, production equipment and products will become
active system components that manage their production and logistics processes, based on the functioning
of cyberphysical systems linking the virtual space of the Internet with the real physical world. In this
case, intellectual production will differ from existing mechatronic systems by the ability to interact with
its environment, plan and adapt its own functioning in accordance with environmental conditions, adapt
to new models and lines of behavior, and, accordingly, be self-optimizing.
An important factor in the success of "Industry 4.0" is the intellectual interpretation of information about
the environment. Accordingly, the software plays an important role here. It should not only register the
data received from the sensors, and transmit them in the form of a binary sequence, but also have an idea
of the content of these processes. For this purpose, software in smart factories will also be endowed with
a system of concepts that provide a clear description of the functions of system components, production
tasks, states and events. Thus, "Industry 4.0" will promote the development of high-quality semantic
interaction, which will be understood not only by the employees of the enterprise, but also by the
equipment. The combination of the virtual and physical world with the help of information technology
and advanced data management due to the technologies of processing of large data and cloud computing
will allow the functioning of "Intellectual production". Processes in such production are controlled by
cyber-physical connections, which allows you to make decisions in real time and have a feedback
between planning and actual production.
An important role in the formation of "Intellectual production" is the change in the very model of
management of the operational process. The digital operational model involves the introduction of digital
capabilities at organizational levels of management, processes, data management, productivity and
information technology. This model allows to provide the required levels of integration and
standardization of processes. The components of the digital operating model are generally divided into
three categories (Figure 1).
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Elements of the digital operating model
1. Automation of business 2 Formation of flexible 3 Digital management

organizational structures of corporate assets
processes
Integration of business
processes Introduction of Digital model:
innovations into - processes;
business processes - product lines;
Modeling of business - consumers
processes
Combining global
and local processes Integration
Modeling of CP - financial and operational
(suppliers-consumers) key indicators;
Implementation of - internal and market data
Optimization of new business

analytics models
Fig. 1: Elements of the formation of the digital operating model of the enterprise
Automation is one of the defining characteristics, it causes the possibility of a significant increase in
quality and time indicators, as well as a reduction in the cost of resources and cost compared to the
classical production systems. The main purpose of designing an automated process is direct processing,
complete execution of the end-to-end process without the need for repeated manipulation or manual
intervention. Flexible organizational structures will allow enterprises to respond quickly to changes in
environmental requirements through the formation of development scenarios.
Digital management of corporate assets involves the creation of a digital model of production processes,
the movement of products from suppliers to consumers, which will ensure the transparency of business
processes. The main advantage of the digital operating model is the integration of operational and
financial data (which today are often divided into responsibility centers). Integration and coordination of
all processes in the supply chain is critical to meeting supply and demand.
Digital transformation penetrates into all links of the production chain of value added, from logistics and
production to customer service. The availability of digital data, the automation of production processes,
the interconnection of the value chain and the creation of digital client interfaces transform business
models and reorganize entire industries.
The starting point of digital transformation is the digital business strategy, which is an organizational
strategy aimed at creating values through the use of digital technologies.
Digital transformation of production systems is realized through the following technologies (Figure 2):
- a vertical network of intelligent production systems, such as intelligent factories and intelligent
products, as well as networks of intelligent logistics, production and marketing services focused on the
needs of individual and specialized production activities;
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Digital transformation tools
Connectivity Digital data Automation Digital Client
Vertical network of intelligent End-to-end engineering of DZS

production systems
Exponential technologies Horizontal integration of global

networks
Cyberphysical production systems

Remote maintenance
Predictive maintenance
Smart factory
Robotics
Large data
Cloud Computing
4pl-Logistics Database Marshalling
Internet of things
Figure 2: Tools for digital transformation of production systems
- horizontal integration with the help of a new generation of global value creation networks,
including the integration of partners and customers, as well as new business models and cooperation
between countries.
- through engineering based on the formation of a complete value chain, including not only the
production process, but also the service of the end product, that is, the entire life cycle of the product;
- exponential technologies, allowing to significantly increase the computing power.
In industrial production, most attention today is paid to improving the management of electronic orders,
the availability of the enterprise in the global network, as well as a faster and more flexible response to
various customer requirements. For these purposes, technologies such as large and intelligent data, cloud
and analytical materials are widely used. At the same time, in the high-tech industry, most attention is
paid to supply chain simplification, standardization and process automation based on the use of an
integrated supply chain platform supported by large data, as well as predictive analytics.
The main technology for the implementation of the digital industry is a vertical network of intelligent
production systems in intelligent enterprises. The vertical network uses the cyber-physical production
systems (CPPS), which underlie the formation of intelligent factories and allow enterprises to react
quickly to changing environmental parameters. Intellectual factories independently organize their
activities and allow the production of products focused on the customer based on the use of integrated
data through the use of intelligent sensors to monitor activities.
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The functioning of the "intellectual factory" occurs in real time mode directly connecting with the
technologies of cloud computing, large data and the Internet.
2. Horizontal integration using the generation of next-generation global networks
New value networks represent networks with real-time optimization, provide integrated transparency,
offer a high level of flexibility, allowing faster response to the problems of the production process, which
contributes to global optimization.
Like network production systems, these (local and global) networks provide network interaction, from
inbound logistics through warehousing, production, marketing and sales to outbound logistics and
services. Each stage of production and movement of the product is recorded, which allows you to have
information about the movement of the product at any time, providing constant monitoring ("product
memory"). This creates transparency and flexibility of all processes - from purchase or production to
sales. At the same time, customers can make various changes to the product not only in the production
process, but also in the process of developing, ordering, planning, allowing them to dynamically process
factors such as quality, time, risk, price and environmental sustainability in real time and at all stages
value chains.
Such horizontal integration of both clients and business partners can generate completely new business
models and new models of cooperation for all stakeholders.
3. End-to-end engineering through the formation of a complete value chain.
The third basic technology of digital transformation is the through engineering in the whole value chain,
throughout the life cycle of the product. Ensuring the interconnection of the processes of development,
production of new products and production systems with the life cycle of products makes it possible to
improve the level of customer service, the synchronization of the production process and the processes of
selling the product.
The use of end-to-end engineering technologies will ensure the availability of product information at all
stages of the product life cycle, which will allow us to define new, more flexible production processes by
modeling prototypes during the product creation phase
4. Application of exponential technologies.
The fourth main tool for the transition to the concept of "Industry 4.0" is the use of exponential
technologies as an accelerator or catalyst that allows to provide individual solutions, flexibility and cost
savings in industrial processes.
"Industry 4.0" requires that automation processes be cognitive and highly autonomous. The use of such
exponential technologies as Artificial Intelligence (AI), advanced robotics and sensor technology
contribute to the achievement of autonomy and individualization and flexibility of production.
AI can more flexibly plan routes without a driver, save time and costs in supply chain management
(SCM), improve production reliability, analyze large data, and find new solutions for designing and
improving collaboration between people and machines. Functional nanomaterials and nanosensors can
also be used in production control functions, to improve the effectiveness of quality management.
Thus, the modern concept "Industry 4.0" is a vision of production in which intelligent interconnected
production systems optimize a whole chain of added value to reduce costs and time to market using
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intelligent digital technologies. This concept is based on a smart factory of the future, the successful
deployment of which requires solving problems from many fields of science.
The use of the basic technologies of digital transformation of industry allows to form a model of digital
transformation of the enterprise (Figure 3).
Cyberphysical production systems Exponential technologies
End-to-end engineering Global networks
Instruments of digital transformation of industry
Value chain
Development Production Marketing and Sales
Inbound logistics Outbound logistics

Service
The Intelligence Factory
4pl-Logistics Remote maintenance
Predictive maintenance Internet of things
Figure 3: The model of digital transformation of an enterprise
This model includes the following main areas of digital transformation: remote maintenance, predictive
maintenance, 4PL-logistics and the Internet of things. Using 4PL-Logistics will allow to integrate and
coordinate the logistics resources, capacities and technology of enterprises throughout the value chain.
Remote maintenance will ensure the operation of the enterprise in real time on the basis of the
interconnection of cloud computing technologies, large data and the Internet.
Digital transformation of the industry requires changing the activities of each enterprise, by including it in
the digital industrial environment. This process involves the implementation of a digital transformation
plan, which includes three main stages:
1. Analysis of the impact of digital technology on industry and a specific enterprise

- what possible scenarios of the future are possible?
- where the value chain is changing?
- where there are new, scalable platforms?
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- what are the key technologies?

- on which market participants are affected (suppliers, competitors, customers)?
2. Analysis of the place of the enterprise in the digital environment.
- where there are new opportunities and risks for business?
- which products, customers, and regions will be affected by digital technologies?
- what digital opportunities can be used (staff, partnership)?
- what products, processes and infrastructures are at risk from cyber attacks?
3. Development of a strategy implementation map
- what skills are needed to create (data processing, automation, connection, user interface)?
- with which market participants the enterprise should unite forces (strategic partnerships,
«cooperation»)?
- which platforms / processes of standardization should play an active part in the formation of?
Digital transformation of the industry leads to significant changes in all areas of value creation, which
leads to more efficient production processes, stronger customer focus and new marketing and business
models.
Conclusions
Throughout the world, industry is experiencing a digital transformation that is accelerating exponentially
growing technologies. Enterprises and their production processes must adapt to these rapid changes,
since digital transformation not only affects competitiveness and opens new opportunities, but also allows
to highlight resource problems, identify key future opportunities for individual business segments and
new production technologies.
References
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7318
Modeling of Options of Providing Entrepreneurship Entities

Competitiveness on The Basis of Innovation Clusters Development
Nellі HEORHIADI
Lviv Polytechnic National University, Lviv, Ukraine, 79013,
E-mail: nelli.heorhiadi@gmail.com
Oleхandra FARAT
E-mail: farat_o@ukr.net
Iryna KAZYMYRA
E-mail: iryna.y.kazymyra@lpnu.ua
Olena PAVLENKO
Odessa State Environmental University, Odesa, Ukraine, 65016,
E-mail: pavlenkoep@ukr.net
Lesia GNYLIANSKA
E-mail: Lgnylianska@gmail.com
Lesia SAI
E-mail: sayko.say2017@gmail.com
Svitlana MOROZ
Poltava State Agrarian Academy, Poltava, Ukraine, 36003,
E-mail: smor@meta.ua
Olena KALASHNYK
Poltava State Agrarian Academy, Poltava, Ukraine, 36003,
E-mail: kalashnik1968@meta.ua
Ruslan SKRYNKOVSKYY
Lviv University of Business and Law, Lviv, Ukraine, 79021,
E-mail: uan_lviv@ukr.net
Abstract
On the basis of application of mathematical methods modeling of options of providing of innovation

cluster development, which is based on decision making between absolutely alternative options of
realization of strategy of development of innovation clusters is carried out in the work. The root tree
of alternatives implementation at each stage of substantiation of the strategy of innovation clusters
development is presented.
Keywords: innovation cluster, modeling, choice options, mathematical methods.
Introduction
Formation of innovation clusters is a difficult task because it requires large investments in a certain
region, involvement of an institute of education and science, and formation of a zone of fiscal and
7319
accounting preferences. The main purpose of creating clusters is to reformat existing material flows
and create the conditions for successful business. Therefore, financial problems, accounting issues
and taxes remain a problem which, in a context of legislative instability, begins to adversely affect
the results of their activities.
Thus, cluster support can be based on the use of direct and indirect factors. In either the first or the
second case, a particular region or group of companies receives economic preferences that require
analytical justification. Therefore, it is advisable to formulate a system for tracking the results of
cluster participants and to draw conclusions about possible changes in their support strategy. Given
this, it is relevant to develop tools for modeling options to support the development of innovation
clusters.
The purpose of the Research
Based on the application of mathematical methods to perform modeling of options for providing the
innovation cluster development, based on the decision between absolutely alternatives for the
implementation of the strategy for the innovation clusters development.
Modeling of Options for Providing of Innovation Cluster Development
Achieving this goal can be based on the use of subjective or mathematical approaches. The first one
involves a group of methods based on a survey of experts, leading experts, scientists on the choice of
strategy steps to support a particular cluster, as well as the formation of options for tactical solutions
for solving certain problems that may arise during the implementation stages of the planned strategy.
The implementation of this approach can occur without forming a specific theoretical basis, since its
main idea is to create a new innovation cluster by using the experience of third parties. The
disadvantage of this approach is its cost and duration, and experts may not agree on a strategy, which
will mean continuing to poll and attract more respondents.
Another group of approaches to developing tools for modeling innovation clusters support options is
mathematical statistics and discrete mathematics. Its advantage is the objectivity of the results,
because it uses only abstract tools, which, when properly formulated the task always allows to obtain
unambiguous and reasonable results. The disadvantage is that in the formation of a mathematical
problem important details can be omitted, which under certain conditions can be significant. In
addition, the results of the mathematical solution are based on retrospective data that are no longer
relevant at the time of implementation of the innovation cluster support strategy, and therefore the
application of mathematical methods is based on a certain error, which must be taken into account in
the formation of strategic, tactical and operational decisions.
Considering the pros and cons of the above, this research will be of greater scientific importance if
the solution to the problem of modeling clusters of innovation cluster development is based on the
use of mathematical methods that have not yet been used to simulate cluster support options and the
use of which can have significant applied value, since their implementation is significantly cheaper
and shorter in time.
We begin describing the proposed solution by presenting the output of the mathematical problem.
The key issue with this problem is choosing a particular option. Based on the general scientific
principles, it can be assumed that under any circumstances, the entrepreneur has a certain set of
solutions, all of which are characterized by two definite and one indeterminate parameter.
Determinate parameters can be attributed to time and cost, and undetermined - the result of costs
incurred, which can be measured by profit, sales, or taking into account the problem, the number of
business entities in a particular region, the level of wages ect. This parameter should be considered
indeterminate because at the time of planning it is not known yet, but it can be predicted with some
accuracy.
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Based on the above assumptions, the options available at some stage in the implementation of the
cluster support strategy can be presented in the form of vectors:
 с1   t1   r1 
с  t  r 
С =  2  ;T =  2  ; R =  2  ,
 ...   ...   ... 
     
 сN  t N   rN  (1)
Where С,T, R respectively, are the vectors of the input values of the parameters of cost, time and
result.
The values of vectors (1) will change at each stage of strategy implementation. All of these options
are alternative because they are just about supporting an innovation cluster. Provided that it is
advisable to implement measures from several options, a separate tactical plan can be created that
will include the implementation of several measures, of course, if the specifics of their
implementation allow it.
The «result» parameter can be described on a number of indicators, since usually when designing an
innovation cluster support strategy, the aim is to increase the competitiveness of its participants,
which can be described by the use of many indicators. It is advisable to select one or more indicators
to describe the result based on the situational approach and taking into account the features of the
cluster and the region where it is located. Based on the logic of the task, it can be described based on
the following expression:
R = f (C,T ).
(2)
As can be seen from expression (2), the result should always be considered as a function of the time
and money spent, written in vector form. Since during the implementation of any action plan, its
result is always influenced by certain factors that may not be taken into account in the modeling
stage, then the function (1) is correct only with regard to the error. Thus, the algebraic function (2),
during the implementation of a certain stage of the innovation cluster support strategy, can be
represented as follows:
ri = f ( сi , ti ) ,
(3)
where i - the index of the selected option at a certain stage of implementation of the strategy support
of innovation cluster development.
Functional congruence (3) describes a generalized way of solving a particular scientific problem only
approximately. The kind of functional congruence depends on the nature of the relationship between
the studied values. However, since these are economic systems whose elements are thinking entities
and which behavior is often irrational, it can be assumed that it is more appropriate to use nonlinear
models when modeling the behavior of economic systems. Among the broad range of possible
mathematical functions that can be taken as a basis, should be selected those that meet the following
requirements: a function suitable for describing accelerated or delayed changes in time; the values of
the function are defined on a plane from zero to infinity; the function is easy to put into practice.
Let’s consider a simulation method based on deciding between completely alternative options for
implementing an innovation cluster development strategy. In this case, at each stage, the decision will
be made to choose from several alternatives that are not planned to be implemented in parallel. This
leads to the fact that the process of implementing a complete strategy at the stage of its development
can be described in the form of a certain «tree» known in the theory of discrete mathematics as a
graph. An example is shown in Fig. 1.
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Fig. 1: An example of a graph of implementation of alternative options at each stage of

implementation of the innovation clusters development strategy
The type of graphs shown in Fig. 1 is known in the theory of discrete mathematics as the root tree.
Such a graph always has one root, or vertex, from which all «branches» emerge. Deciding which
option «A» or «B» is the best is based on taking into account up-to-date information and identifying
which option is cheaper and shorter in time. In order to avoid the two-sided conclusions that arise
when the cheapening of one of the options leads to an increase in the duration of its implementation
in practice, a functional congruence (3) should be applied, on the basis of which one can conclude
which option is more optimal. Moreover, at each of the stages of the passage of the graph, it is
advisable to take into account all future steps. Although there is at least one optimal path for the
graph to pass, it is not necessary to state that the future strategy is determined, since it is advisable to
take into account new relevant information and adjust the equation to obtain more accurate
information about determining the optimal variant at each of the stages of the graph.
Let’s write the optimization problem at each stage of decision making as follows:
r = f ( с, t ) , с ∈ C ; t ∈ T ;
 
r → min(max).
r = a0 c a1 t a2 , с ∈ C ; t ∈ T ;

r → min(max), (4)
a0 a1 a2
where , , - power coefficients, part. units C - the vector of values of the implementation
cost of each of the options at a certain stage of the graph; T - vector of values of the realization
duration of each of options at a certain stage r - an indicator on the basis of which the result of
passing a certain stage is measured.
Thus, the choice between individual options for implementing the strategy of innovation cluster
development at each stage of substantiation of this strategy can be described on the basis of a graph
with an unlimited number of ways to achieve an acceptable result, and based on mathematical
modeling it is possible to make a decision on the choice of one or the other option on a particular
during the passage of the graph. This process should take place with constant updating of information
and restructuring of the power equation, which will increase its accuracy and statistical significance.
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As a result, it is possible to achieve the optimum result in the implementation of the innovation
cluster development strategy based on this approach.
References
1. Dubas, R.G., Serdyuk, V. P. and Serdyuk, Ye.V. (2017) ‘Economic-legal and financial
aspects of the development of the national economy of Ukraine management of efficiency
and effectiveness’ Financial and credit activities: problems of theory and practice. No. 23,
Vol. 2, 43–55.
2. Karpenko, O., (2013) ‘Aspects of effect of clusters functioning in the context of increasing
the competitiveness of the national economy’ Problems of economy, No.1, pp.73-80.
3. Farat, Olexandra and Lyvdar, Marta (2019) ‘Elaboration of technology for implementing
of organizational solutions on the innovative clusters development’ Baltic Journal of
Economic Studies, Vol. 5, No. 3, pp. 207-212.
4. Sheremet, T. (2015) ‘The role of innovation potential in enhancing the competitiveness of
national economies’ Economic Bulletin of NTUU "KPI", No. 12. DOI:
https://doi.org/10/20535/2307-5651.12.2015.45145
5. Kniaz, S. (2015) ‘Transfer potential for innovative development of industrial and trade
organizations’, Actual Problems of Economics , Issue 7, 57–64.
7323
The Use of Crowdsourcing Technologies in

Socio-Economic Integration
Galina BARYSHEVA
National Research Tomsk Polytechnic University, 634050 Lenin Avenue, 30, Tomsk, Russia,
Email: ganb@tpu.ru
Elena ROZHDESTVENSKAIA
National Research Tomsk State University, 634050 Lenin Avenue, 36, Tomsk, Russia,
Email: elena.rojdestvenskaya@gmail.com*
*Corresponding author
Abstract
Modern technologies enable to solve various socio-economic issues with older adults’ participation more
effectively. With this in mind, the Laboratory for the Improvement of Wellbeing Technologies of Older
Adults of TPU conducted the series of sociological surveys addressing 1500 respondents in Tomsk
region. The recent study based on these surveys is aimed at characterization of crowdsourcing
technologies as a tool for involving older people into the socio-economic processes as active actors. The
research is focused on the material, economic, social and emotional aspects of aging as against
physiological ones. The study applies the original Story gram-platform method which is invented
especially for the purpose of interviewing senior adults with the use of the artifacts of their life such as
photos, letters and other memorabilia. Data shows there is deficiency of technologies corresponding to
the interests and capacities of the elderly. We formulated the following directions of technologies to
develop well-being: (1) improvement of quality of life (2) increase of social activity (3) involvement in
key social and economic processes (4) attraction of atypical investors (5) communication technologies (6)
adaptation of information technologies to special needs (7) adaptation of educational technologies to
special requests (8) multi-subject investments. We clarified crowdsourcing effectively using (1) to form
elderly support funds (2) to implement a socially active role (3) to assess social services and health care
system (4) to promote high-technology (5) to share information (6) to develop golden volunteering (7) to
create a mentoring ground (8) to crowdfund socially significant projects.
Keywords: crowdsourcing, intergeneration relationship, resources, institutions
Introduction
In 2003, Luis von Ahn [1], together with his colleagues, first proposed the notion of “human
computation” [2], which operates with human capabilities for performing computational tasks that are
beyond the computer control. The notion of “human computation” has spawned its own academic field.
But did Mr von Ahn really set out to generate useful results from mundane tasks, or did he stumble on the
concept with CAPTCHA and then apply it in other domains? “It is a combination of both,” he says. He
recently came across a plan, devised when he was 13 and saved by his mother, for a power company that
would operate a free gym and generate electricity from people lifting weights, cycling and so forth. This
was, he now realises, a precursor of his computer-science work, which does the same for mental activity.
Later in 2006, the term “crowdsourcing” was formulated by the editor of “Wired” magazine Jeff Howe in
an article entitled “The Rise of Crowdsourcing” [3]. In 2008 his book was published “Why the Power of
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the Crowd Is Driving the Future of Business” [4]. Since then, a huge amount of work has been done and
not one hundred works (including dissertations) have been published that study various aspects of
crowdsourcing, the scope of its applicability and economic efficiency.
The First AAAI Conference on Human Computation and Crowdsourcing (HCOMP-2013) was held in
November 6-9, 2013 in Palm Springs, California, USA [5]. The following year, the first conference was
held on the best results in the field of crowdsourcing solutions [6]. HCOMP is aimed at promoting the
scientific exchange of advances in human computation and crowdsourcing among researchers, engineers,
and practitioners across a spectrum of disciplines. The conference was created by researchers from
diverse fields to serve as a key focal point and scholarly venue for the review and presentation of the
highest quality work on principles, studies, and applications of human computation. The meeting seeks
and embraces work on human computation and crowdsourcing in multiple fields, including human-
computer interaction, cognitive psychology, economics, information retrieval, economics, databases,
systems, optimization, and multiple sub-disciplines of artificial intelligence, such as vision, speech,
robotics, machine learning, and planning. HCOMP 2013 builds on a series of four successful earlier
workshops (2009, 2010, 2011, 2012). All full papers accepted at this first conference will be published as
AAAI archival proceedings in the AAAI digital library. Now there are plenty of conferences like
“Crowdsourcing week”, which are held annually: in 2014, 2015, 2016, 2017 [6].
Crowdsourcing is an increasingly popular model of procurement in today’s online marketplaces [7]. A

principal seeks completion of a task, posts an open call for submissions, and allows multiple agents
(workers) to simultaneously submit solutions, awarding a prize to the participant with the best solution.
The number and size of online crowdsourcing marketplaces has grown markedly in recent years; notable
examples include Taskcn, Topcoder, 99designs and Crowd- Flower [8]. Crowdsourced tasks resemble
contests in that many agents simultaneously exert effort in an attempt to win a prize, where the results are
determined based on relative performance. The process of selecting a winner based on submission quality
and awarding her a lump sum prize constitutes a particular class of contest mechanisms, which we term
winner-take-all.
Today, technology allows you to conduct in the format of crowdsourcing almost everything that is
required. Even a literature review can be conducted using crowdsourcing technology [9]. Crowdsourcing
today is an effective model for solving problems that face both business and society as a whole. The
essence of this model is that the practical solution is delegated to a distributed and very large group of
people, due to what the cost and time of achieving the result are radically reduced. Crowdsourcing is a
way of mobilizing people's resources through various technologies and approaches to accomplish tasks
that an individual, business, society or state may need. There are many points of view on how to manage
the creativity of the crowd, but on the face of the lack of systematization of approaches’ variety.
We analyze literature in the family relationships between generations is devoted to the study of the
relationship of grandparents. Older people not only receive joy, love, affinity and company from their
grandchildren [10], but the expression of attachment to grandchildren is associated with psychological
well-being (eg, loneliness, stress and general mental well-being) [11]. For young people, interaction with
grandparents is due to the majority of intergenerational interactions [12]. Grandsons benefit from these
relationships affectively, cognitively and financially [10]. Grandparents are a source of social support,
family history, personality and development [13].
We (1) interview in total 1500 respondents in the Tomsk region for the period from 2014-2017 (2) hold
scientific and expert seminars in 2016-2017 with the participation of elderly people and social workers
(3) carry out a complex of sociological researches with respondents at the age of 55-60, 61-65, 66-70, 71-
75, 78-80, 81+.
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We conducted the following qualified research: 2014 - Pilot study "Well-being of elderly people" - 562
people. (55-64, 65-74, 75+); 2015 - Sociological research - "Well-being of elderly people in the Tomsk
region" - 400 people. and "Subjective satisfaction with the lives of older people" - 600 people. (55-60, 61-
65, 66-70, 71-75, 78-80, 81+); 2016 - Monitoring the well-being of elderly people in the Tomsk region -
850 people. (55+); 2017 - Evaluation of loneliness and social isolation of older people in the Tomsk
region - 400 people. (55-60, 61-65, 66-70, 71-75, 78-80, 81+).
We prove the OECD experts (Better life Index for Russia) hypothesis of the main wellbeing factors:
health and family. Significant result is to identify weak correlation between the computer technology use
and loneliness. Minim technologies take in account elderly interests and capacities, while crowdsourcing
requires using human capabilities to accomplish micro-tasks by golden volunteers with unique
competencies. The main challenge is to provide grandparents with new opportunities to learn more about
the grandchildren and to force social activity.
We pose the following research questions:
RQ 1 Does sharing old pictures (from grandparents) with the young relatives increase their sense of
closeness and relational quality?
RQ 2 Does sharing old pictures (from grandparents) with the young relatives provide them with more
conversational resources?
RQ 3 Does crowdsourcing technologies improve well-being of older adults?
Investigations of intergenerational communication are becoming popular in all regions of the world [14-
16]. But mainly such research is aimed at studying intergenerational educational technologies and their
effectiveness. However, there is a need to carry out qualitative studies of the impact of crowdsourcing
technologies on social integration, including the intergenerational ties of the grandparents and
grandchildren.
The Use of Crowdsourcing Technologies in Socio-Economic Integration
Hypothesis and Methods of Analysis
According to the sociological survey data, we are possible to make a portrait of a lonely person. The most
lamentable destiny refers non-working pensioners, women aged 76-80 years living separately from their
relatives in the city with incompleted higher education and low income.
We find out about 88.5% have a mobile phone, 6% have a smartphone, 27% have a personal computer. In
group 75+ - 75% of respondents do not know how and do not want to use ICT. Only 8% of the total
number of respondents would like to learn something new. 62% of respondents spend most of their time
with TV (men prefer this way of spending time). In second place - communication with relatives and
friends. Only 32% read books and about 21% - engaged in domestic and seasonal matters.
Things can't be all that bad. Only 12.8% of respondents consider themselves lonely and about 67.5% of
them think not being alone. 69% of respondents are optimistic about their lives, only 9% are pessimistic.
We have stressed out significant correlation between the emotional reflection of loneliness and the
optimism of the person. We have also noticed that people considering themselves lonely do not typically
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to strive learning something new. We have revealed the relationship between the emotional reflection of
this phenomenon, and the lack of job offers for people on the retirement age, and "external" assessment of
personal relevance.
As a matter of interest, we have revealed a weak statistically significant relationship between loneliness
and communication via the Internet in social networks in this region, characterized by a high level of
education and well-developed scientific and educational complex. Elderly residents of the region are not
particularly interested in the development of computer technology to overcome loneliness.
The study focuses on intergenerational relationships between grandchildren (GC) and grandparents (GP)
using crowdsourcing technology called as Storygram, which based on Russian popular social network
VK.COM.
We used IOS scale (Fig. 1) and NRI-RQV to measure relationship of GP and GC to measure degree of
closeness [17].
Fig. 1: IOS scale to measure closeness of intergeneration relationship
The NRI-RQV is a combination of the Network of Relationships Inventory and a family relationship
measure developed by Buhrmester and Furman (2008) [18]. This 30-item survey has ten scales with 3
items per scale. It assesses 5 positive features, including companionship, disclosure, emotional support,
approval, and satisfaction, and 5 negative relationship features including, conflict, criticism, pressure,
exclusion and dominance. In this study, we will use 5 positive features of NRI-RQV since this is also a
measure of closeness. The original questions are modified by replacing the pronouns into grandparent.
Furthermore, we changed “how much” question to “how often” in the approval scale of the NRI-RQV in
order to measure intensity more than the frequency. At the end of this section, we added a question to
measure level of grandchild’s proud about his/her grandparent.
NRI-RQV scales are scored by averaging the 3 items and high scores represents the higher
levels of each scale. Mean of the companionship, disclosure, emotional support, approval, and
satisfaction scales represents the closeness score.
We analyze relational quality with repeated-measures of variance (ANOVA), with group

(control, intervention) as between-subject factor and time (pre- and post-measurements) as
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within-subject factor. We computed the main effect for time, and the interaction between time
and group. The period of experiment is 2 month.
Storygram-Based Crowdsourcing Solution in Socio-Economic Integration
The procedure of the study is logic. We try to recruit participants and make visits until we have 60 GP-
GC pairs conforming with the inclusion criteria that accepted to participate (Table 1).
Table 1: Main criteria of participants
Criteria GC GP
Age 18-30 years old 60+ years old (but including
also some that are 70+ in our
sample)
Use of social Regular users of the Don’t have any account on
networks Russian social network social networks
VK 1
Occupation Student/worker Retired
Family Live separately from With at least one grandchild
composition their grandparents (not in
the same apartment or
building)
Family pictures Willing to achieve the With at least 15 available
photos with the family pictures about their life -
on the social network ideally pictures should be
VK including extra “diverse”, and include:
family story or Relevant life events, birth,
interesting facts marriages, work,....
Pictures the grandparents like,
find funny, or interesting, or
that they feel proud about
Pictures that include children
Pictures that include
grandchildren
Pictures that are very old and
some more recent
Willing to share the photos
with the family on the social
network VK.
Frequency of Meeting with their Meeting with their
meeting grandparents not more grandchildren not more than
than once a week on once a week on average
average
The fundamentals of the analysis are laid down by the leading scientist of the laboratory and his scientific
team Fabio Casati [19]. The whole procedure of the research is quite simple and logical. There are three
1
We define as regular users those who check their accounts frequently - every 2-3 days or more often
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main stages: finding pairs according to established sampling criteria (Table 1), measuring relationships
GC-GP before using crowdsourcing technologies of communication and after (Fig. 2).
Before the start of the intervention, the research team create a VK account for each the GP, which
managed by the team during the study(or at least be granted posting permissions). In order to ensure
privacy, the sharing settings limited to the close contacts approved by the family. For the sharing to work,
GC and GP need to become “friends” on VK, task that managed by the research team and coordinated
with the GC.
The pictures composed as VK posts and shared on the profile of the GPs, along with short stories and
relevant hashtags. Pictures posted every 4-6 days at different times during the day.
Pictures, ideally, should be either particularly “interesting” or about significant points in time (e.g.,
wedding, birth). In order to do that, pictures posted based on two criteria: half of the pictures are
randomly selected, half are selected by the researcher based on their own considerations of whether that is
interesting or not. We do this because at the start we didn’t know which pictures would be considered
“interesting” by the GC.
Participants in the control condition only participate in the pre- and post-measurements sessions.
Fig. 2: Overview the procedure of Storygram study
In the daily life of older people, the types of activity associated with communication dominate. The
tendency to increase the focus on social interaction (broad communication, utility to society) is a key
activity for this age group. Correlation of the frequency of communication with the quality of mood was
revealed. The more pronounced negative emotions, the older the person needs to communicate.
The low economic activity of the elderly and the average degree of interest in working life are revealed.
Only 37% of working pensioners would like to work further. The desire to engage in business is only 2%.
The older generation does not participate actively in public activities. However, he willingly helps others
on the basis of personal initiative.
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Intergeneration communication could be improved using crowdsourcing platforms such as popular

networks to inspire the GP-GC relationship
Summary
We formulated the following directions of technologies to develop well-being: (1) improvement of

quality of life (2) increase of social activity (3) involvement in key social and economic processes (4)
attraction of atypical investors (5) communication technologies (6) adaptation of information
technologies to special needs (7) adaptation of educational technologies to special requests (8) multi-
subject investments. We clarified crowdsourcing effectively using (1) to form elderly support funds (2) to
implement a socially active role (3) to assess social services and health care system (4) to promote high-
technology (5) to share information (6) to develop golden volunteering (7) to create a mentoring ground
(8) to crowdfund socially significant projects. As a result, we confirmed hypothesis crowdsourcing
technologies inspired intergeneration relationship that has a great social consequence. Storygram platform
allow to provide GP-GC conversation with a new topic that improve the closeness of the current
relationship. Sharing family photos boast the GC to participate in the life of GP. Crowdsourcing platform
form a new knowledge among GC about pat time from the view of their GP.
As a great result, Storygram could prevent GP from dementia by pulling the memories of a past life.
Acknowledgment
The study was supported by the Russian Science Foundation (project №19-18-00300)
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Does A “One-Formula-Fits-All” Approach Work for

Students and Course Surveys?
Maurice Abi-Raad
Rabdan Academy, PO Box: 114646, Abu Dhabi, United Arab Emirates
mabiraad@ra.ac.ae
Abstract
In higher education, student course surveys/evaluations have become a widespread strategy to assess
teacher and course effectiveness in higher education institutions. Standardized surveying remains a
preferred form to obtain student feedback on their teachers and courses. Even though student course
evaluations are considered useful to improving course quality and to strengthen student-instructor
relationships, having one standard survey fitting all programs is an questionable option. This paper
proposes that evaluation surveys should be tailored to the specific learning outcomes in different
courses. Therefore, understanding a customized approach is essential to improving the validity of the
results produced from student course evaluations.
Keywords: Student course evaluations, academic course surveys, faculty student evaluations,
standardized academic evaluations.
Introduction
Higher education institutions follow different delivery models, ranging from semester-based, trimester-
based, and 5-week courses, to distance learning and online modes. With the centralization of the data
analysis unit, most higher education institutions use one standard student and/or course evaluation
survey for all academic programs (Groen and Herry 2017). While this greatly facilitates the
synthetization task for senior management reporting, a question that emerges is whether the “one-
formula-fits-all” approach works (Klimova 2014).
The standard course evaluation survey form appears insufficient to suit students’ diverse learning
needs. Therefore, practitioners in the education field have started questioning the validity and reliability
of the course evaluation survey tool (Love and Kotchen 2010). The data obtained through such a
standardized survey might provide an inadequate representation of teacher effectiveness. Student
evaluations of teacher quality appear rather controversial and have been extensively debated (Zohrabi
2011).
There have been substantial problems related to student and course evaluations. Such problems are
usually associated with bias and statistical reliability (Linse 2017). Another issue that has been
observed is that the feedback obtained through such evaluations might not contribute to effective and
meaningful changes in faculty behavior (Groen and Herry 2017). Thus, various attempts have been
made to alter the standard survey approach. The objective of this paper is to explore the implications
of student course evaluations, stating that the respective method does not fit all programs and interests
in the education field (Carrell and West 2010).
The Survey Process Used in Student Course Evaluations
Research indicates that specific elements commonly appear on course evaluation surveys (Linse 2017).
These are questions about course content, the instructor’s communication skills, the student–teacher
relationship, course difficulty, as well as various assessment practices and student self-assessment
questions. The various components of course evaluations are derived from extensive research on
student learning practices and teacher effectiveness (Love and Kotchen 2010). It has been illustrated
7332
that teacher effectiveness is commonly perceived as multidimensional. From this perspective, it is

important to note that instructors might be quite effective in certain aspects of teaching, but they might
follow inappropriate and ineffective strategies in other areas.
One of the common evaluation tools that is used in student course evaluations is identified as the
Student Evaluations of Education Quality (SEEQ) instrument, which is represented by different
categories of questions pertaining to teaching behavior and effectiveness (Groen and Herry 2017).
Some of these categories refer to the overall value of learning, instructor enthusiasm to teach new
concepts, organization of the entire teaching process, and individual rapport (Carrell and West 2010).
Other important elements that should be considered are associated with group interaction, examinations
administered to students, and specific assignments or readings (Linse 2017).
Researchers in the education field have explored the common uses of course evaluation data obtained
through such surveys (Groen and Herry 2017). One important use is identified as teaching
improvement. In this way, the entire teaching and learning process can be improved significantly.
However, it has been argued that course evaluation data alone might not serve as a relevant tool for
adequate changes to teaching behaviors, since some teachers lack appropriate training in data analysis
(Keane and Labhrainn 2005). This means that those teachers would find it challenging to interpret their
ratings accordingly. In this context, it also should be noted that some teachers might not be provided
the opportunity to discuss their results with other stakeholders from the department. Making important
changes based on student feedback appears difficult in teaching practice.
Research on the survey process used in student course evaluations shows that when faculty are provided
sufficient training and guidance they are most likely to make significant changes to their teaching
behaviors (Linse 2017). Open communication across different departments at higher education
institutions is often cited as imperative when encouraging change in teaching behaviors (Berk 2013).
Teachers should be assisted in how to interpret the results from student course evaluations. In order to
achieve greater effectiveness of the mentioned evaluation method, it is relevant to consider additional
sources of information related to teacher effectiveness (Groen and Herry 2017). All stakeholders in the
education field should be adequately aware of the need for supplemental information that can be
utilized to support teaching behaviors.
Furthermore, the use of course evaluations, particularly for summative decisions, has been persistently
questioned in research. The major concern emerging in this context is related to the belief that ratings
information is not used effectively (Keane and Labhrainn 2005). Even though some administrators
consider course evaluation information useful for assessing individual teaching, there are insignificant
insights into overall curriculum planning and teacher effectiveness (Linse 2017). This means that
course evaluation data should not be used in isolation; in fact, it is only one relevant indicator that can
be utilized to assess teaching.
Different Aspects in the Interpretation of Student Course Evaluation
Information
Information obtained through student course evaluations is useful for specific issues, particularly those
related to instructors’ organizational skills, communication skills, and workload (Groen and Herry
2017). The reliability of such results is confirmed by the scores that represent averages of evaluations
gathered from a particular number of students. In exploring the literature on teacher evaluation by
students, the complexity of the teaching process has been taken into consideration, along with the
specificity of the academic context itself (Hajdin and Pazur 2012).
It is apparent that higher education is progressing into a rather complex field considering the numerous
pressures surrounding the teaching and learning process. It appears that some of this is attributed to
extensive measurement. Therefore, key performance indicators have been adequately explored in this
field (Phillips et al. 2014). Yet, teacher experience is relatively easily recorded, and most countries
have a particular form or method of research measurement. The emphasis is upon measuring teaching
in an optimal manner, as emphasized in the efforts of policymakers and higher education institutions’
administrators (Linse 2017). Even though student evaluations are widely considered to be a relevant
method to determine the quality of teaching, certain alternatives should be further explored to present
more comprehensive results. For instance, the potential of teaching portfolios should be considered in
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this process (Hajdin and Pazur 2012). What makes any evaluation in this field more complex is that
the relationship between student course evaluations and reflective teaching is not necessarily described
as two-way communication.
It appears that teachers usually perceive student course evaluations to be reflective in nature, which
means that relevant insights can be obtained about the quality parameters of the teaching process (Love
and Kotchen 2010). There is also substantial research on the relationship between expected and actual
grades as well as student evaluations of teachers. A sizeable part of this work is concerned with
variables controlling for student, teacher, course, and department differences (Groen and Herry 2017).
The impact of diverse evaluation processes on grade inflation is also adequately considered.
Existing literature in the field presents information on the adjustment of final scores of evaluations,
particularly for factors such as course difficulty, class size, and communication between teachers and
students (Linse 2017). In this context, it has been argued that student course evaluations are already
being utilized as an essential management tool, where a specific form of comparability between
teachers and departments is required (MacMillan et al. 2011). The approach adopted in similar cases
is mostly based on developing and reinforcing the aspect of collegiality (Phillips et al. 2014). This
means that enrolment management issues are ignored as part of the interpretation of data obtained from
student course evaluations.
It is expected that different higher education institutions will present different results regarding student
course evaluations. From this perspective, it is important to consider student evaluation policies that
could provide a relevant foundation for performing a reliable and valid data analysis (Linse 2017). The
usefulness and constructiveness parameters of the evaluation process imply that different factors might
impact student course evaluations as a whole. Therefore, the analysis should be conducted with a fairly
open framework that provides sufficient room for understanding and interpreting the multiple
dimensions of teacher effectiveness (Love and Kotchen 2010).
Higher education institutions that differentiate themselves on the parameter of quality teaching tend to
emphasize the relevance of diverse responses across different courses (Hajdin and Pazur 2012). From
a professional development perspective, teachers are expected to respond critically and
comprehensively to such evaluations (Phillips et al. 2014). The results of these evaluations are properly
documented in a report, which means that different stakeholders can access those results and interpret
them accordingly.
The Impact of Student Course Evaluations
It is important to note that student course evaluations reflect the integrity of education and its multiple
dimensions. Properly conducted evaluations tend to contribute to improved education. In this context,
evaluation standards play a fundamental role in ensuring the quality of student course evaluations
(Linse 2017). Transparent evaluations are at the core of solid and effective educational programs.
Evaluation emerges as an essential tool for guiding student development across diverse academic
disciplines. Relevant student course evaluations serve a variety of information needs, particularly in
making employment decisions, developing school programs, and ensuring a high level of public
accountability (Phillips et al. 2014). Yet, inappropriate student evaluations can have significant
consequences with the potential to develop ineffective educational programs.
Questions included in student course evaluation surveys are adequately consistent with the policies and
practices of the respective higher education institution. They provide relevant information about
teacher effectiveness and, thus, such information is usually considered when improving teaching
quality (Love and Kotchen 2010). It is important to identify what students think of their instructors and
departments. Providing transparent feedback on teaching practices can help other stakeholders in the
education field to determine further steps to improve teaching quality (MacMillan et al. 2011). For
example, these evaluations might produce results indicating that the development of teaching teams
can enhance teacher cooperation and teamwork (Linse 2017). This means that teaching teams tend to
deliver positive results over time, especially when it comes to course organization and course
continuity. However, these teams should be managed effectively in order to deliver the intended results.
7334
Specific operational constraints in the educational environment should be adequately considered to

avoid additional complications that might impact the quality of teaching practices.
While initiating the data analysis process related to student course evaluations of teachers it is important
to consider certain standardized questions that can be included in the evaluation sheet (Fike et al. 2010).
Standard evaluation questions should not be excluded, as the answers to such questions can provide
relevant insights into teacher practices across different higher education institutions and faculties
(Phillips et al. 2014). It can be observed that, in the process of evaluating their instructors, some
students might indicate the approachability of teachers as an important indicator of teaching quality.
Other aspects that could be cited by students while conducting their evaluations refer to teacher
organization and preparation. This means that adequately prepared teachers are most likely to have a
positive impact on students (Linse 2017). The teacher’s enthusiasm also emerges as an additional factor
that motivates most students to learn and retain their knowledge in different circumstances.
The questions included in the course evaluation sheet are diverse and aim to elicit as-comprehensive-
as-possible information from students. The reason why students are provided such an opportunity to
evaluate their instructors is that learners are direct participants in the teaching and learning process
(Phillips et al. 2014). This means that students can share their learning experiences first-hand, which is
valuable in collecting and interpreting extensive information pertaining to teaching quality and
practices in higher education institutions (Hajdin and Pazur 2012). In this context, the use of various
hypothetical examples additionally facilitates the evaluation process, since students have an
opportunity to discuss different aspects and factors that impact their evaluation decisions.
It has been observed that hypothetical examples are considered a relevant source for identifying
constructive and effective professional development opportunities for teachers. The use of student
course evaluations is often considered in ways in which teachers’ individual strengths can be identified
(Love and Kotchen 2010). As a result, effective leadership roles within the department can be
developed, as this aspect would positively impact not only students but also other stakeholders, such
as educators and administrators (Elstad et al. 2017). Providing teaching support might be another option
available to higher educational departments to improve teaching quality, both internally and externally
(Linse 2017).
The approaches emerging from extensive student course evaluations indicate an effective management
method that produces reliable results that can be adequately considered to improve teaching quality in
different higher education institutions. Therefore, it is important to recognize how student course
evaluations are valued and interpreted across departments (Phillips et al. 2014). This requires a further
discussion of the peer-review model, with a focus on quality teaching practices by management on a
regular basis. The respective peer-review model is based on extensive peer support, building effective
teaching teams, and enhancing collegiality.
In higher education institutions with a formal structure involving formal mentors provided to new
teaching staff, the focus is on collegiality as a way to facilitate the teaching process. In this context,
more-experienced teachers are expected to provide relevant support to new teachers as an integral part
of a new teacher orientation program, which is commonly included in such institutions (Linse 2017).
These higher education institutions usually have a solid moderation policy that requires extensive
involvement of both students and teachers during course completion (Pakkies and Mtshali 2016). In
conducting student course evaluations in the respective institutions, the emphasis is upon aligning these
evaluations with specific learning objectives and teaching time specified for different topics (Stark
2014). Similar aspects are involved in developing a distinct culture, based on the principles of shared
values, collegiality, and teaching support.
At the same time, it should be noted that there are other higher education institutions that place
importance on academic freedom. In fact, such an emphasis on freedom emerges as the prevailing
philosophy of these institutions. As a result, peer review is mostly considered for research purposes
rather than teaching (Linse 2017). It has become important to consider the implications of teaching
quality and how students can reflect upon it critically when completing their evaluations (Pakkies and
Mtshali 2016). This means that the recognizing critical reflection plays an important role in determining
the impact of student course evaluations in institutions that highly value academic freedom (Stark
2014).
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The use of an innovative framework is beneficial to understanding the implications of student course
evaluations, particularly their impact on different stakeholders in the field of higher education. It has
been argued in the literature that students commonly perceive such evaluations as a process that yields
no significant return for their efforts (Love and Kotchen 2010). At the same time, faculty frequently
question the validity of the results produced from such evaluations. The major reason why faculty have
such views on student course evaluations is that rates of return are quite inconsistent and student
comments can be inappropriate (Stark 2014). Nonetheless, school administrators focus on collecting
and using student course evaluation data as a measure for program accreditation across higher
education institutions.
It has been pointed out that the overall process of student course evaluations is post hoc, which means
that the focus is on applying results to courses after students have moved to other courses (Pakkies and
Mtshali 2016). Each of the primary stakeholders, particularly students, teachers and administrators,
recognize the challenges associated with developing efficient and reliable evaluation systems (Phillips
et al. 2014). At the same time, these stakeholders tend to perceive the value attached to effective and
transparent feedback provided by students.
From a student’s perspective, efficient student course feedback implies a significant opportunity to
communicate with faculty, even though this takes place anonymously. Most students take their
evaluative role quite seriously, as they consider the relevant impact of their feedback (Linse 2017). The
common belief that students demonstrate is that they can differentiate effective models of teaching
from ineffective ones. During this evaluation process students are most likely to seek assistance and
reassurance from administrators.
In this context, it has been observed that in their role of evaluators students frequently use the results
generated from previous student course evaluations. In this way, students have a distinct opportunity
to compare and contrast their findings with those generated previously (Phillips et al. 2014). Therefore,
more conclusive and comprehensive results can be expected from student course evaluations.
From the perspective of faculty, it appears that effective student feedback is fundamental to improving
the overall teaching process. At the same time, information obtained through student course evaluations
is used to build solid evidence for retention and promotion purposes (Stark 2014). This means that once
they gain relevant insights, instructors are most likely to modify their instruction methods in a positive
manner. The alignment of student feedback with teacher development opportunities is extensively
valued in higher education institutions. As a result, a significant improvement in student ratings can be
observed over time.
Administrators also view effective student course feedback as important to maintaining a high level of
institutional integrity. This can be explained with the fact that such feedback is usually required for
accreditation. Therefore, student feedback serves an essential audit function that has been properly
recognized by administrators (Love and Kotchen 2010). In different higher education institutions,
student course evaluations are scheduled to take place at regular intervals. In this context,
administrators commonly perceive the results from student course evaluations as ratings of teaching
qualities and abilities.
Advantages of Student Course Evaluations
In general, student course evaluations should be anonymous, which is an important factor to help
students feel motivated and confident while completing the questions on the respective assessment
forms (NSTA Reports 2015). Students are usually reassured that their responses will remain
confidential. In this way, learners do not have to worry that their responses will be associated directly
with them (Meddour 2015). The requirement for anonymity basically means that students are provided
a distinct opportunity to share their insights about teachers and courses (Hurney et al. 2014).
Another advantage of student course evaluations is that such assessments allow students and faculty to
reach their complete potential. On one hand, these evaluations tend to improve student engagement
(McDonnell and Dodd 2017). This means that students feel that their feedback is highly valued. Based
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on the insights students provide about their teachers and courses, it can be expected that students can
improve their learning considering the course modifications their instructors are supposed to make after
reading the feedback (NSTA Reports 2015).
It is also believed that the results from student course evaluations can be used to improve course quality.
Instructors are constantly concerned about the quality of their courses and whether the material being
taught corresponds to students’ skills, learning styles, and expectations (McDonnell and Dodd 2017).
Thus, the feedback teachers receive through such evaluation forms is a useful means of self-
improvement. In this way, it would be possible to achieve the specific objectives of instructional
materials (Meddour 2015).
Student course evaluations play an important role in strengthening the relationship between students
and instructors. There is an emphasis on transparency and flexibility during student course evaluations
(Chae et al. 2017). Students are encouraged to be as transparent as possible on providing their feedback
about teachers and courses (Nakada 2017). Such openness is reflected positively in the interaction
between teachers and learners, as both sides feel empowered to discuss different ideas and perspectives
related to the teaching and learning process (McDonnell and Dodd 2017). Strong student–instructor
relationships imply extensive motivation on the students’ behalf to engage more deeply with the
respective material taught in the classroom. In other words, there is a possibility for students to become
better lifelong learners, who recognize the importance of learning in all of its forms and contexts.
Problems Related to Student Course Evaluations
It has been illustrated that the major benefit educators seek from student course evaluations is to gain
insightful student feedback that could be incorporated into future instruction in order to make it more
effective and student-centered (Chae et al. 2017). However, it appears that most instruments pertaining
to such evaluations produce vague and unjustified student feedback. Quantitative questions presented
to students are usually focused on teacher preparation issues and fairness in grading (Hurney et al.
2014). Qualitative questions are mostly related to aspects that instructors should include or eliminate
from particular courses so that the respective material can be adapted to students’ academic needs and
expectations (Kostic et al. 2015). Even though most students list these items during course evaluations,
learners fail to provide a rationale for their answers. This makes student course evaluations ambiguous
and irrelevant at times.
Another significant problem related to student course evaluations is inaccessibility. The process of
administering paper-based teacher evaluations in the classroom might exclude some students from
participating in these surveys (Chae et al. 2017). For example, these could be students who are absent
from class or students with learning disabilities. This means that it is virtually impossible to
accommodate the needs and demands of all students during student course evaluations (Anderson et
al. 2005). As a result, the feedback provided by students is often considered incomplete and irrelevant,
having a quite narrow viewpoint (Turner et al. 2018).
The issue of low-quality data, which is related to student course evaluations, has emerged as a
substantial challenge to stakeholders in the education field. Different factors usually affect the quality
of the data produced by students throughout this process (Hurney et al. 2014). For instance, some
students might feel that their anonymity is compromised, which would obviously result in inaccurate
feedback (Nakada 2017). This implies that students might be less open and honest while presenting
their answers. Other factors contributing to low-quality data include peer pressure and in-class
evaluation time limits (Turner et al. 2018).
Moreover, the problem of limited flexibility should be discussed when considering the impact of
student course evaluations. The use of standardized questions is not always helpful; providing students
with greater flexibility would result in better outcomes over time (Phillips et al. 2014). However,
considering the substantial number of standardized questions on student course evaluation forms, this
is not the case most of the time. Standard reports generated from such evaluations indicate that results
cannot be presented differently (Chae et al. 2017). It has also been challenging to show results obtained
across multiple courses.
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The lengthy process associated with student course evaluations is also considered quite problematic. It
has been observed that it might take a few months to complete paper-based teacher assessments
(Nowell 2011). This includes the entire process, from administering the respective forms to gathering
and interpreting results. In addition, the results obtained from such evaluations should be shared
through detailed reports. Since teachers cannot receive the results from the evaluations quickly, they
are prevented from the opportunity to respond to students’ concerns in a rapid and effective manner
(Chae et al. 2017). In other words, the use of these standard forms of teacher evaluation means that
valuable time is lost. As a result, the implementation of required course changes is significantly
impeded.
One of the major disadvantages related to student course assessments, particularly paper-based ones,
is the high cost associated with the entire process. For example, the number of employees who need to
be recruited to administer these assessments is high, which means extensive costs are involved
(Anderson et al. 2005). Moving to an online system of teacher evaluation could be a better option that
higher education institutions should consider (Francis 2011). The decision to shift to online student
course evaluations would practically mean a cost reduction of approximately 50% (Hajdin and Pazur
2012). It is clear that such an investment in an online assessment system is strategically justified. Based
on the information explored above, it can be pointed out that student course evaluations are associated
with more disadvantages than benefits.
Strategies to Improve the Student Course Evaluation Process
It is important for instructors to add value to student feedback obtained through such evaluations. One
way to do so it to utilize the three-option feedback framework, which is user-friendly and targets
student learning outcomes (Anderson et al. 2005). In this way, learners are encouraged to focus and
critically reflect on different components of their courses. For example, such components usually refer
to the books needed to complete a particular assignment (Carrell and West 2010). Instead of simply
replying in an affirmative or negative way, students should be asked to provide more detailed answers,
emphasizing their evaluative decisions about the courses they attended.
The three-option feedback form should start with specific instructions that provide students with
comprehensive directions. It should be clarified that learners are expected to answer anonymously and
as comprehensively as possible (Benton 2011). In this way, the emphasis is upon students’ importance
as active agents of change in the education field (Hurney et al. 2014). There are different course
components that can be included in the three-option feedback form. This means that students can be
asked to carefully assess each component and determine whether it should be kept, modified, or
removed from the course (Berk 2013). After selecting their answer, students are asked to justify their
opinion. In other words, learners need to be fully engaged with their answer in the sense of showing
solid determination to provide insightful feedback (Chae et al. 2017).
It is believed that student course evaluations can improve over time, especially if both instructors and
students demonstrate sufficient efforts to enhance the entire evaluative process. Teachers need to keep
in mind that being more organized could be rated positively by students on course evaluations forms
(Anderson et al. 2005). This means that having a clear and specific agenda for the semester is important.
Instructors should always have clear expectations of students. In other words, a properly organized
syllabus serves as a precondition for positive student course evaluations (Hurney et al. 2014).
Another characteristic appreciated by students is their instructor’s enthusiasm. When teachers are
passionate about their subject, they tend to present information in an effective and engaging manner
(Groen and Herry 2017). As a result, students are most likely to rate such instructors high during course
evaluations. The most important aspect to remember is that teachers should aim to instill a warm and
friendly environment so that students can respond positively to different prompts (Hurney et al. 2014).
Understanding and accepting today’s students is an inseparable part of the process of improving student
course evaluations. It is apparent that students want their instructors to know who they are in order to
build positive, long-lasting relationships that can positively impact their lives (Anderson et al. 2005).
At the same time, students should have a clear understanding of why the material taught by instructors
is relevant to their lives. Once learners gain such understanding, they are most likely to interact freely
and positively with their instructors, sharing important insights and suggestions about the teaching and
7338
learning process (Hurney et al. 2014). Finding more motivation to study is crucial to today’s students
as they need to succeed in the competitive marketplace of the 21st century. Therefore, instructors can
play the important role of facilitators, and this would reflect positively in the overall process of student
course evaluations (Francis 2011).
Furthermore, establishing clear criteria for grading is another way to improve student course
evaluations. It is apparent that all students expect to have good grades. Yet, it should be noted that
students should be provided with adequate knowledge of how to receive those grades (Ndandala 2016).
Instructors should be transparent enough to show students where they stand during the semester. In this
way, students will demonstrate the necessary effort to achieve the expected learning outcomes (Nakada
2017). All these factors tend to play an important role in determining the results of student course
evaluations.
It is also essential to note that obtaining formative feedback early in the teaching and learning process
is crucial to having better student course evaluations at the end of the semester (Hurney et al. 2014). It
has been illustrated that such evaluations are mostly summative in nature. Even though the outcomes
of this process are used to inform and improve future academic courses, such information is insufficient
for instructors to address the specific needs of students currently enrolled in a course (Ndandala 2016).
Thus, a proper strategy to address this problem during student course evaluations is to collect formative
feedback early in the course (Anderson et al. 2005).
Instructors should ask students to respond to various questions pertaining to exams and the actual
process of studying (Terry et al. 2017). For example, one such question could be formulated as, “How
long have you been studying for this exam?” Another relevant question could be related to finding out
information about the precise class activities that have helped students master particular material
(Hurney et al. 2014). Asking questions about improvement goals could also be relevant. Yet, it should
be noted that students are not qualified to provide comprehensive answers about all components of
instruction (Babcock 2010). As this is an emerging disadvantage of student course evaluations,
students’ abilities to rate their feelings about the classroom climate and environment should be noted.
In this context, it appears that students have good evaluative skills when it comes to specifying the
factors facilitating or limiting their learning (Anderson et al. 2005).
Conclusion
This paper has investigated the widespread strategy of using student course evaluations to assess
teacher effectiveness and courses in higher education institutions. Evidence obtained from research on
the topic has revealed that standardized surveying is a preferred format to obtain student feedback on
teachers and courses (Hurney et al. 2014). Even though student course evaluations are considered
useful in improving course quality and strengthening student–instructor relationships, having one
standard survey fitting all programs is an inappropriate option. It can be concluded that student course
evaluations should not be standardized (Benton 2011). These assessment forms should be tailored to
the specific learning outcomes in different courses. Therefore, understanding a customized approach is
essential to improving the validity of the results produced from student course evaluations.
This paper has also explored the common practice among universities to use standard forms of student
course evaluations in the hope of obtaining significant insights about teacher effectiveness and the
overall impact of different courses (Fike et al. 2010). Yet, it should be noted that students are not
competent enough to provide detailed and research-supported feedback on all components of the
syllabus. In fact, some students might experience challenges in attempting to achieve their specific
learning outcomes (Hurney et al. 2014). This is reflected in the feedback they provide to their teachers.
The use of one standard survey to fit all programs is inappropriate. Higher education institutions should
either avoid using student course evaluations or they should modify them by tailoring them to the actual
structure of the course itself (Anderson et al. 2005). In this context, it can be noted that the extensive
use of student course evaluations turns college teaching into a contest for popularity, in which it is
possible that good professors receive negative ratings and vice versa (Hajdin and Pazur 2012).
Therefore, the major argument why standardized student course evaluations do not lead to positive
7339
outcomes is that the ratings provided by students may not reflect the actual situation in higher education
institutions.
There is an emerging issue that should be considered in relation to the perceived impact of student
course evaluations: such assessments usually produce substantial anxiety and stress among faculty
(Hurney et al. 2014). As a result, educators tend to use only proven methods and strategies of teaching.
This prevents them from experimenting with more innovative approaches to the teaching and learning
process. Undoubtedly, a similar situation would negatively affect the instructor–student relationship as
a whole. Thus, using student course evaluations is considered unnecessary (Linse 2017). Higher
education institutions should reconsider their approach to faculty evaluation. Relying on student
feedback is not the only option that should be consulted while making important course-related
decisions.
In conclusion, the discussion surrounding student course evaluations has been quite extensive in recent
years (Nakada 2017). It is important for educators and other stakeholders in the field of education to
improve the entire assessment process in order to attain optimal results pertaining to teacher
effectiveness and student engagement in the learning process.
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Evaluation of the Effectiveness of Engineering and Technological

Solutions in the Enterprise Management System
Nellі HEORHIADI,
E-mail: nelli.heorhiadi@gmail.com
Irina YEMCHENKO,
Lviv Trade and Economic University, Lviv, Ukraine 79005,
E-mail: irina_vladi@ukr.net
Tetyana DANKO,
E-mail: tanyadanko@ukr.net
Vasylyna MATSUK,
E-mail: coolwhitev_1989_@ukr.net
Olena GONCHARENKO,
Odessa National University of Economics, Odesa, Ukraine, 65014,
E-mail: engoncharenko@ukr.net
Volodymyr HLADUN,
Lviv University of Business and Law, Lvіv, Ukraine, 79021,
E-mail: hladunv@gmail.com
Roksolana VILHUTSKA,
E-mail: roksoliana.b.vilhutska@lpnu.ua
Halyna LUCHKO,
E-mail: hluchko@gmail.com
Abstract
The engineering-technological solution, from the point of view of the system-process approach, is the
final stage of the management process, and from the position of the functional approach - the
generalizing function of management. The purpose of their adoption and implementation is to
achieve specific results of the implementation of plans for engineering and technological support for
the implementation of production programs. Production programs are implemented in the condition
of unpredictable changes in market conditions, it is also possible irrational processes and phenomena
in the internal environment of enterprises. Engineering solutions are aimed at smoothing or
eliminating these negative circumstances. It should be recognized that engineering and technological
decisions are made scientifically and individually or collectively. The article reveals the
methodological aspects of scientifically grounded selection and evaluation of the effectiveness of
engineering and technological solutions, as well as specifying those aspects of the selection and
evaluation of solutions requiring subjective, collegial processing of objective analytical data. It is
substantiated that it is advisable to carry out the evaluation of the effectiveness of engineering and
technological solutions based on the criterion of changes in the volume of implementation of the
production program of the enterprise. It is also advisable that the assessment takes into account the
time factor, and the level of expected income, the riskiness of the decision made and changes in the
overall state of the enterprise’s development for the future. The proposed toolkit for scientifically-
based selection and evaluation of the effectiveness of engineering and technological solutions is
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suitable to automate it. This can significantly rationalize management processes and reduce the time
for making engineering and technological decisions.
Keywords: engineering and technological solutions, state of the enterprise, market conditions,
capital investments, performance
Introduction
In the context of continuous changes in the external macro and micro environment, in order to
maintain competitive positions, enterprises must be characterized by a certain level of flexibility and
specialization. The irrational nature of the adoption of engineering and technological decisions, the
inaccessibility of complete and relevant information and other factors lead to the fact that the
dynamics of production and business processes can be non-linear with respect to time and resources
expended. Therefore, when constructing mathematical models describing empirical observations of
production and technological processes, it is necessary to use non-linear mathematical dependencies.
To make an unambiguous engineering and technological decision, it is necessary to study not only
the dynamics of indicators of the implementation of the company's production program and changes
in product quality and safety. The condition for their adoption is also forecasting the impact of these
decisions on the overall state of the enterprise’s development and its riskiness.
The aim of research is development of a method for evaluating engineering and technological
solutions based on constructing a functional dependence of the change in the income of an
enterprise under the influence of implemented engineering and technological solutions related to the
provision of specific parameters of quality and safety of finished products.
To achieve this aim it is necessary to perform the following tasks: to build a functional equation that
reflects the performance of engineering and technological solutions; to reveal the essence of the
methodological and applied toolkit to substantiate engineering and technological solutions and
assess their effectiveness.
Construction of functional equation, which reflects the efficiency of engineering

and technological solutions
The change in income associated with the implementation of a specific engineering and technological
solutions can be calculated by the formula:
 1 K  1
∆Rt =  ∆N t × P −   ∆N t− j × Pt − j   × , (1)
 K j =1   1 + i
where ∆Rt – the change in gross income for the period following in comparison with the
implementation period of the engineering and technological solution, UAH; t is the index of the time
period; ∆Nt – change in demand in the period following in comparison with the period of
implementation of engineering and technological solutions, pieces; Р – price of the product after the
implementation of engineering and technological solutions, UAH; К – the total number of past
1 K 
periods;   ∆N t − j × Pt − j  – arithmetic average of changes in gross income for previous periods,
 K j =1 
UAH; j – index of past time periods; i – rate of inflation in the period following in comparison with
the period of implementation of engineering and technological solutions, part unit.
Equation (1) is not regression, therefore, the use of statistical conditions to bring its adequacy is not
appropriate. Based on formula (1), it is possible to measure the real change in income compared to its
change in retrospective periods prior to the implementation of the engineering and technological
solution, as well as taking into account the depreciation of money associated with inflationary
7343
processes. The resulting income change specifies the effectiveness of the decision. This indicator is
absolute and characterizes the profitability of capital investments. The profitability of capital
investments from the implementation of a specific engineering and technological solutions can be
calculated as follows:
∆Rt (2)
r= ,
I
where r – profitability of capital investments, measured on the basis of changes in demand for
specific parameters of quality and safety of the finished product, part of unit; I – capital investments
associated with the implementation of a specific engineering and technological solutions, UAH.
Profitability is often calculated in part. units, including when calculating the structure of the optimal
investment portfolio by the Markowitz method. The change in income expresses the result of the
influence of the engineering solution on the activity of the enterprise, the enterprise invests in the
formation and implementation of this decision and accordingly receives a certain result that can be
measured in the change in income, therefore this formula is the return on investment in a certain
engineering solution. Gross income everywhere in the article is measured only in hryvnias, so in the
formula (2) hryvnias are divided into hryvnias, as a result we get unit shares.
By using formula (2), the relative effectiveness of the solution can be measured. This indicator can be
used to estimate the payback period of costs associated with the implementation of engineering and
technological solutions:
1
TBI = , (3)
r
where TBI – the number of time periods required for the full recoupment of capital costs associated
with the implementation of engineering and technological solutions, time periods.
Changes in demand for specific parameters of quality and safety of finished products can be
significantly greater than its average value for previous periods. Given this, for a correct assessment
of the effectiveness of a solution, its market position should be investigated by taking into account the
market share of the enterprise. The growth of this indicator is a weighty argument in support of the
assumption that it was a specific engineering and technological solution that allowed increasing the
level of market diversification of the company's products. Then the relative increase in market share
associated with the implementation of a specific engineering and technological solutions can be
calculated by the formula:
K ∆Ft (4)
Wt = K
,
 ∆F
j =1
t− j
where Wt – ratio of the relative change in the market share in the period following in comparison with
the implementation period of a specific engineering and technological solution,%; ∆Ft – change in
market share in the period following in comparison with the implementation period of a specific
engineering and technological solution,%; Ft-j – change in market share for the period t - j.
Based on formula (4), it is possible to calculate the ratio of the relative change in market share
associated with the implementation of a specific engineering and technological solution. For a more
in-depth analysis, it is necessary to apply a prospective study of the effectiveness of engineering and
technological solutions in the future, measuring future risks, and determining the dependence of the
current dynamics of enterprise performance indicators on external and internal environment factors.
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Methodical and applied tools for justification of engineering and technological

solutions and evaluation of their efficiency
Let’s consider quantities whose dynamic behavior can be described as stochastic. It is possible to
assume their chaotic nature. This allows to base conclusions on the basis of the design of the most
adverse turn of events, occurs when the dynamics of phenomena and processes can’t be accurately
predicted. A mathematical model that allows to propose a criterion for measuring the "turning point"
in the dynamics of dispersion should be based on recurrent functional dependencies, or the already
mentioned lag regression equations. Known logistic equation:
xn+1 = rxn (1 − xn ) , (5)
where xn+1, xn – respectively the next and previous value of the investigated random variable; r – the
growth coefficient of the density cluster.
For a broader description of Ferhulst mathematical ideas, and the justification of their role in solving
scientific problems, it is advisable to graphically demonstrate the dynamics that his logistic equation
describes in different conditions. Fig. 1, 2 show the dynamics of the values of the Ferhulst equation
under various conditions.
Fig. 1: The dynamics of the values of the Ferhulst function in terms of its representation
with respect to a monotonically increasing series of values and the value of r = 2
Fig. 2: The dynamics of the values of the Verhulst function with respect to a
monotonically increasing series of values and the value of r = 3.57
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As can be seen from Fig. 1, 2, the dynamics of the function significantly changes its character
depending on the value of the linear coefficient of the “density cluster”. The transitional moment is
the value of this parameter, equal to 3.57, at which the value of the dependency under study can still
be subjected to a logical explanation, but a transition to higher values leads to a significant increase in
the instability of the function values. So, Fig. 3 shows the values of the Ferhulst function, with the
value of the “density cluster” coefficient equal to 4. Thus, on the basis of Fig. 3, it is possible to see
that the Ferhulst function has acquired a chaotic form, its value is imitated by the behavior of a
stochastic quantity. This can be used as a basis for measuring the transition point of a system from a
balanced state to a state of instability. To confirm this assumption in Fig. 4 shows the values of the
logistic equation are reflected as shown in the equation itself, that is, the value of the x-axis
corresponds to the current data, and the ordinates correspond to future data depending on the current
ones.
Fig. 3: The dynamics of the values of the Verhulst function with respect to a
monotonically increasing series of values and the value of r = 4
Вased on a comparison of the variances of the values of this dependence, it is possible to establish its
criterion values, which give an answer to the question under which conditions the state of the
enterprise is unstable. Fig. 4 reflects the relationship between perspective and current data, which,
when graphically reflected, simulates the chaotic process of the stochastic and reflexive value
dynamics. Using this equation gives reason to form a criteria basis for measuring the degree of
proximity of the system to its bifurcation point. So, the mathematical justification for such a solution
of this scientific problem has enough grounds to be considered fair.
Fig. 4: Dependence between the recurrent data of the Verhulst equation (r = 4)
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It is advisable to apply the logistic equation by measuring the value of the dispersion of the Verhulst
system in a stable, transient and unstable state, and use them as criteria for making decisions about
the level of "distance" of the enterprise from the bifurcation. Based on the observation of the dynamic
series formed using the logistic equation, the variance value was calculated for three states. So, if the
variance of the studied indicator approaches 13.6%, then this indicates that the process under study is
close to the bifurcation point. The obtained values of the variance are based on a certain number of
observations, and therefore can be considered in a certain range. By generalization, it can be assumed
that if the dispersion is less than 5% the process is stable, 5–15% of the process under study or a
phenomenon at a transitional stage, provided that the dispersion value is above 15%, there is reason
to say that the dynamics of the magnitude is characterized by a high level of instability. With this
criterion, it is also necessary to take into account that in case of large data arrays it is advisable to
take into account the “n-sigma” rule, then the value of the criterion will be multiplied by the
corresponding value “n”. On the basis of the derived parameter, it is possible to calculate the
indicator of the level of risk for the implementation of a specific engineering and technological
solution. The formula for the calculation can be represented as follows:
δC
b= , (6)
nδ P
where δc – the actually observed value of the variance; δp – the criteria value of the variance (15%); n
– the order of the number of measurement.
Thus, based on the calculations, it is possible to determine the level of future instability of the
enterprise. Despite this, this information does not give grounds to say that the analysis is exhaustive.
It is necessary to clarify the predictive dynamics of the indicators of its activity and determine their
interdependence on the factors of the external and internal environment. For this purpose, besides the
analysis of variance, it is also necessary to apply regression analysis. Based on the use of regression
equations, it is possible to track the change in its coefficients, it gives rise to conclusions for changing
the direction and nature of the influence of certain factors. Based on this analysis, it is possible to
investigate a promising state of interaction between factors of the internal and external environment.
Based on these assumptions, let's present the following model:
f ( x, y,..., z ) = a0 xu1(t ) yu2 (t ) ...zun (t ) , (7)
where u1(t), u2(t),…, un(t) – functional dependences of power coefficients on time (trend line).
The dependences u1(t), u2(t),…, un(t) allow to solve two scientific problems: 1) to form conclusions
about the perspective change in the direction and strength of the influence of factors of the internal
and external environment on the dynamics of the phenomenon or process being studied; 2) to build a
model of the future change of the resulting parameter.The study of the functions u1(t), u2(t),…, un(t)
can give an answer about the prospect of changing the significance of the studied factors. So, if the
function is increasing at a certain retrospective time interval, then there is reason to believe that the
importance of a certain factor will increase in the future and appropriate management decisions
should be made. The power dependence corresponds to the requirements of the nonlinearity of the
dynamics of phenomena and processes; however, its use requires a logarithm of the input data, which
complicates the calculations. Given the purpose of obtaining these functional dependencies, can be
calculated as linear equations. In support of this assumption, it is possible to add that to obtain the
functions u1(t), u2(t),…, un(t), let’s will use indices of time periods, which are the numbers of the
natural series, therefore the relationship between the regressors and the resulting parameter in the
equations is bored. This proves that a change in dependency does not improve the statistical
significance of the model. Before proceeding to the demonstration of the overall change in the trend
under the influence of the factors under study, let’s write down the functions under study in order to
visually justify a formalized record of the proposed indicator. Let’s suppose three condition factors
are investigated. Then the system of functional dependences u1(t), u2(t),…, un(t) can be represented as
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follows:
u1(t) = a0 + a1t,

u2 (t) = b0 + bt
1 , (8)
u (t) = c + c t,
3 0 1
t ∈ N,
where a0, b0, c0 – zero coefficients of the linear dependences u1(t), u2(t) u3(t);
a1, b1, c1 – linear dependency coefficients.

So, on the basis of the coefficients a1, b1, c1, it is possible to determine the general trend of
changes in the influence of the factors under consideration. On the basis of this, let’s conclude that
the indicator, which should reflect the integral perspective change of the influence of the studied
factors, can be written as follows:
I = ω1a1 + ω2b1 + ω3c1 , (9)
where ω1, ω2, ω3 – weighting factors of the studied factors are formed by experts.
Based on the formula (4), the generalized expression for calculating the integral indicator of the
perspective change of the influence of the studied factors can be written as follows:
K
I = ωivi , (10)
i =1
where vi – the linear coefficient of change in the influence of the i-th factor; K– the number of
investigated factors.
Weights are an additional abstract level of weighting of the factors under study. Weighing is
necessary so that the enterprise can independently choose priorities according to the importance of
certain internal and external phenomena. If the analysis made the decision not to use the additional
weighting of the factors under study, then all the weighting factors will be equal to one value, which
can be calculated as follows:
1
ω= . (11)
K
Thus, the assessment of the performance of engineering and technological solutions can be based on
two components: risk analysis through monitoring the dispersion of enterprise performance indicators
and based on forecasting the results of the implementation of the solution, using regression models.
The assessment system is given in line with the assumption that it is necessary to simultaneously
evaluate the deviation (level of instability of a random variable) and the strength of the trend of the
analyzed indicators. The company should strive for continuous improvement of the quality and safety
of products, using all possible levers. The success of some companies proves that a truly valuable
resource is the generally accepted opinion of consumers about the company's products. Then there is
the task to measure these factors, since it is important to understand how well experience, reputation
and other factors influence the activity of an enterprise. To accomplish this task, it is advisable to use
the integral indicator of the weighted value of the regression coefficients (10). Suppose that it is
possible to track the dynamics of this indicator by using a significant amount of data collected by
analyzing the long-term experience of the enterprise. Then it is possible to measure the dependence
of this indicator on uniformly growing time indices. If the coefficients are favorable, then it will be
possible to note that irrational factors influence the enterprise in a positive way, since there is an
accelerated growth trend. In addition to time, an important indicator is capital investments related to
the provision of specific parameters of indisputability and quality of finished products, and the like.
Let’s imagine these indicators in the form of three-dimensional dependence. Since the behavior of the
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integral index is nonlinear, it can be accelerated by increasing or decreasing, it is advisable to use

power dependence. Then the equation, on the basis of which it is possible to describe the dynamics of
the integral index, can be represented as follows:
I ( t, v) = k0t k1 vk2 , (12)
where k0,k1,k2, k 0 , k1 , k 2 – power regression coefficients, part unit; t – the value of time indices, can
be represented as numbers of the natural number; v – capital investments associated with the
provision of specific parameters of indisputability and quality of the finished product, UAH.
This equation allows for a more in-depth study of the nonlinear dynamics of the resulting parameter.
To solve problems of this type, it is possible to use the integration functions. The relative change in
the volume of a three-dimensional figure, which is described by an integral indicator, costs and time
can already be considered as a way to measure the change in this indicator relative to two other
parameters simultaneously. The dynamics of change in the integral index is a three-dimensional
figure, the change of which over time can be analyzed. The volume of this figure can be calculated
using the formula:
VI =  k0t k1 vk2 , (13)

D
t, v ∈ D,
where V1 – the volume of the three-dimensional figure, which is described by the integral index of the
state of the enterprise, and the loss of time and money to achieve this state, part of unit; D – the space
of values of the cost and duration of the implementation of processes to improve the activities of the
enterprise.
Formula (13) allows to calculate the full volume of the described figure. When it is necessary to
identify the relative change in volume, it is advisable to calculate the volume of the four sectors and
the relative change in the absolute difference between two consecutive segments. Then the formula
for calculating the relative change will be as follows:
VID4 −VID3
S= , (14)
VID2 −VID1
where VID1, VID2, VID3, VID4 – the value of the volume of the three-dimensional figure under
investigation in four segments successive in time.
Based on the application of formula (14), it is possible to measure the relative change in the integral
indicator of the state of the enterprise at the same time as the duration and cost of achieving this state.
If this change is increasing, then there is reason to talk about accelerated improvement of the
enterprise’s activity in comparison with the costs and time required to achieve these improvement
goals. This suggests that there is a beneficial effect of irrational factors, including the experience of
employees, the reputation of the enterprise, and the like.So, with the growing dynamics of indicators
characterizing the state of the enterprise, it is possible to talk about positive changes, but if this
change reaches 15% or more, then it is worth talking about significant changes in the internal and
external environment of the enterprise that may have long-term consequences. Since the value of this
coefficient is already known, the criterion value of the indicator of the relative change in the state of
the enterprise, it is advisable to consider 1.15. When this value is reached, the changes are significant
and such have a positive effect on the state of the enterprise in the long term. To summarize the
obtained results, let’s present the sequence for evaluating the performance of engineering and
technological solutions of enterprises: the emergence of the need to evaluate the engineering and
technological solution; the choice of indicators on the basis of which it is advisable to evaluate the
engineering and technological solution; assessment of the future state of the enterprise based on the
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integral index:
N
I = ωiai ,
i=1
where ωi – the weighting factor for the i-th indicator; ai – the regression coefficient for the i-th
indicator; N – the number of indicators selected at the previous stage;
assessment of the level of instability of the enterprise based on the prediction of the dispersion of the
integral index of the prospective state of the enterprise (GARCH model); assess the impact of the
irrational component on the prospective state of an enterprise using the relative change in the integral
index of the prospective state of the enterprise (13); analysis of the results and formulation of relevant
conclusions.
References
1. Golitsina, O. L., Kupriyanov, V. M., & Maksimov, N. V. (2015). ‘Information and technological
solutions applied for knowledge-management tasks’, Scientific and Technical Information
Processing, 42(3), 150–161.
2. Dosi, G., & Nelson, R. R. (2016). ‘Technological Paradigms and Technological Trajectories’, The
Palgrave Encyclopedia of Strategic Management, 1–12.
3. Kniaz, S.V. (2015). ‘Transfer potential for innovative development of industrial and trade
organizations’, Actual Problems of Economics, Issue 7, 57–64.
4. Kniaz, S.V., Kosovsʹka, V.V. (2015). ‘Obgruntuvannya neobkhidnosti stvorennya transfernykh
system promyslovykh pidpryyemstv’ Actual Problems of Economics, № 8 (170), 16-24.
5. Lakiza, V.V. (2018) ‘Kryteriy dotsilʹnosti rehulyuvannya vyrobnycho-hospodarsʹkoyi diyalʹnosti
pidpryyemstva’, International Journal of Innovative Technologies, 1 (13), 128-133.
7350
A Mixed-Method Study on Readiness and Awareness of the

Internet of Things (IoT) Security in the Kingdom of Saudi Arabia
Meshari ALANAZI
Department of Computer Science and IT, La Trobe University, Melbourne, Australia

m.alanazi@latrobe.edu.au
Ben SOH
Department of Computer Science and IT, La Trobe University, Melbourne, Australia

b.soh@latrobe.edu.au
Abstract
The advent of the Internet of Things (IoT) provides yet another pervasive platform, leading to
more potential cybercrimes. There is a need to determine the required procedures and actions by
software development companies, service providers, government agencies and users before the
phenomenon invades the world. To that end, using a mixed-method approach, our work aims to
tackle the IoT potential threats in the Kingdom of Saudi Arabia, especially from the government
sector, where it is important to elaborate the government roles from different perspectives to
minimize the cybercrime threats to the IoT. The roles of the legislations, national data centers,
national information centers, different ministries, and government departments are important to
help to minimize the cybercrime risks in the up and coming IoT space that is still lacking in the
KSA.
Keywords: IoT, security risk, Saudi Arabia.
Introduction
The risks of Internet connectivity are growing rapidly with the widespread use of Internet of things
technology or Next Generation Internet as this technique will allow space for tens of millions of
intelligent systems (Smart Systems) to connect to the Internet (Gartner CIO, 2016).This
technology will open up the prospects and new ways to penetrate by hackers, so that they can
control the most Internet-connected devices, such as the steering wheel controls, and operating
rooms, and baby monitors, and devices with air conditioning and cooling control, lighting, and
many other devices, including aviation control towers, and operating rooms, and control, and
control missile, or any other device connected to the Web network.
Experts of information security technology and electronic crimes assert that we cannot eliminate
cybercrime, but we can reduce them and their risks and impacts (Chris Folk, 2015). With multiple
e-risks forms and types, it becomes necessary that each country needs to develop protective
measures so as to reduce the expected level of risk (Securing the Internet of Things, 2011). This is
not limited to software manufacturers only, but beyond them to include service providers, users,
governments and regulations, legislation, and governmental and private bodies.
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In this study, we aim to determine the possible types of electronic crime resulting from the
application of Internet of Things in Saudi Arabia, expected risks, as a result of that application,
and the actions required of software companies, service providers, governments, and users. The
study also will include the governmental sphere in that the study and analysis aim to address the
impact of electronic crime in the public sector.
Literature Review
The study (R. Roman, 2011) confirmed that the Internet of Things technology needs more research
and mechanisms in order to maintain confidentiality and privacy. The results of the study
confirmed that the big obstacle is security and confidentiality because the risks threatening the
safety of the use of the Internet of Things. The study recommended the need to reconsider the
traditional security methods used in current applications, such as encryption protocols, reliability,
property rights, and security policies, as well as the need to reconsider government laws and
regulations, in order to promote the concept of the Internet of Things that can be applied more
safely.
In (Chris Fold, 2015), the researchers said that “there is rapid progress in the Internet of Things
technology, where it is expected that the number of devices connected to the Internet, over the
next few years, about 50 billion devices, in 2020 and that the trade volume exceeds trillions of
dollars”. This technical explosion requires the transition to technologies, new and sophisticated
like Ipv6 rather than Ipv4, to enable the technical definition of this huge number of devices and
control. This transition will create new problems for users. The new threats called “action at a
distance” will create a new type of responsibility, laws, and regulations, and protocols of computer
security. The study suggested a change to the traditional security architecture (new IoT security
model) in order to maintain the privacy, security, and management of identification cards (Identity
management) and data ownership and control in the IoT space. Also, the researchers have revealed
in the study the compelling reasons for the reluctance of the people to the use of online Internet
services, such as purchasing, banking operations, banking, and the purchase of stocks, bonds, and
other business activities. Finally, the researchers proposed “Service acceptance model” to explain
why people refrain from dealing with electronic services.
The study (Wexter, 2014) proved that electronic crimes have significantly changed the role of the
police in the community because these crimes are beyond borders. The research confirms that in
2013, a theft involving withdrawals at ATM machines for 10 hours resulted in a loss of $45
million. Recommendations of this study include increased awareness and law enforcement.
Problem Formulation and the Study
There is a global trend towards the use of the Internet of Things technology (Peter Friess, 2014). It
is certain that the Internet of Things application will change the current way of life, in terms of
investment, opening up new areas of work, saving energy and resources, and at the same time will
create many problems, be they technical and technological, cultural, or moral in worldwide.
Many companies have started to prepare and equip the next generation of equipment and software
to be ready for the Internet of Things. In fact, Samsung announced that 90% of its products by
2017 would contain the “Internet of Things” techniques and in 2020 100% of its products will
contain this technology. Cisco predicted the Internet-of-Things-related businesses would about 41
billons US dollars and become a trend for all global companies, including Saudi companies to be
on the same level of readiness and awareness. However, according to the views of researchers,
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there are many challenges still facing the applications of Internet of things, including creativity in
integrating software applications in Internet devices, security, availability, maturity, complex
integration, and interoperability.
Research in the field of Internet of Things security is one of the most complicated and sensitive
topics (Peter Friess, 2014). This is because of the problems faced by researchers, such as small
Internet devices, limited storage, processing, and power of the battery. There is a trend towards the
use of intelligent systems to tackle IoT security problems is progressing very fast in the areas, such
as the identified risks and ways to protect them. However, proper awareness of IoT security risks
is the best immediate action (Ovidiu Vermesan, 2014).
To that end, we formulate the problem of this study based on the following points (Ovidiu
Vermesan, 2014) (Center, 2015):
• Build a model acceptable to all parties, producers, and consumers, and that addresses
confidentiality, privacy, and reliability within a reliable work environment based on
digital certificates and authentication protocols.
• Address the problems related to technical IoT security barriers.
• Propose solutions to the problems of bad ethical practices, and reflection on the cultures
of the communities, and the development of legislation and procedures related to modern
techniques.
The hypothesis of the study
The study is based on the following main hypothesis:
• There is an inverse relationship between Readiness and Awareness for the Internet of
Things and Cybercrimes. That is, the greater the level of Readiness and Awareness for
the Internet of Things, the fewer the cybercrimes.
The Significance of the Study
This study deals with an important and vital topic in the field of electronic crimes, at the level of
the world and in Saudi Arabia in particular, the challenges that accompany the new wave of
electronic crimes, which are expected to begin to expand and spread with the beginnings of the
uses of “Internet of Things”. In fact, the “Gartner Group” studies (Gartner CIO, 2016) predicted
that the number of smart Internet-connected devices reaches about 25 billion a year in 2016 at a
rate of 3.4 devices for each person of the world’s population, and 50 billion devices at a rate of 6.5
for each person is forecast in 2020.
We need to face the IoT security risks by taking action via legislatures and educating users and
companies about the seriousness of this upcoming IoT technology. Although Saudi Arab has
legislation to counter cybercrime (Gercke, 2012), the current legislation remains insufficient to
cope with the IoT cybercrime sophistication.
Objectives of the Study
The study aims to achieve the following objectives:
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1. Identify some types of security risks, electronic crimes, which threaten the future of
technology “Intelligent Systems and the Internet of things” in Saudi Arabia.
2. Identify the required security requirements, to maintain the security, confidentiality, and
privacy of users, and smart systems within Saudi Arabia.
3. Identify actions and duties, and security standards, and confidentiality required by the
government, and software development firms and service providers to reduce the risk of
electronic crime anticipated, inside Saudi Arabia.
4. Publication of research papers includes the results of the study, in conferences and
scientific journals.
5. Prepare a list of the pilot used by law enforcement authorities (police and justice) in
addressing the problems resulting from the application of Internet of Things in Saudi
Arabia.
Terms of the Study
Internet of Things (IoT): Is the network of physical objects or “things” embedded with electronics,
software, sensors, and network connectivity, which enables these objects to collect and exchange
data. (Chris Folk, 2015).
• Cybercrime: cybercrimes (or cyberattacks) generally refer to criminal activity conducted

via the Internet (Singleton, 2014).
• Next Internet Generation: a number of projects intended to improve Internet
performance or content quality in regions of various sizes and locations. (Chris Folk,
2015).
• Smart Device: is an electronic device, generally connected to other devices or networks
via different wireless protocols such as Bluetooth, NFC, WiFi, 3G, etc., that can operate
to some extent interactively and autonomously (Riek,2014).
• Smart System: incorporate functions of sensing, actuation, and control in order to
describe and analyze a situation and make decisions based on the available data in a
predictive or adaptive manner, thereby performing smart actions (Wexler, 2014).
The Limits of the Study
A. The objective limits:
• Identifying possible types of cybercrime resulting from the application of Internet of

Things in Saudi Arabia, expected risks, as a result of that application, and the actions
required of software companies, service providers, governments, and users.
• Analysis of the impact of electronic crime in the public sector, and the statement of the
government’s measures to be taken to curb the phenomenon, at the legal level as well as
at the level of the judicial and procedural.
• Define the role of the national information centers, the Center for Rapid Response
(CERT) in the reduction of the phenomenon, and the role of ministries, government
departments, and volunteers, and the role of regulations and legislation in the reduction of
electronic crimes.
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B. The spatial limits:
• The topic of the study is readiness and awareness for the Internet of Things, although the
phenomenon is cross-border, but it will be applicable in the Kingdom of Saudi Arabia.
C. The time Limits:
• Studying readiness and awareness required for the application of technology Internet of
Things, anticipated in the coming period of next five years , according to reports and
studies of information technology experts.
• Studying, modern electronic crimes, less than five years old, and projected over the next
period, according to reports and studies, security experts.
Methodology
This section describes the research and the methodology that will be applied to carry out the study.
It discusses the research design, data collection, data analysis, study period and mechanisms to
assure the quality of the study. It also describes the nature and source of data sample size. The
methods adopted for data collection are also illustrated, together with reliability and validity of the
research instruments’ methods of data analysis and ethical consideration.
A. Study Design
This study uses mixed method research involving a descriptive survey design in collecting
information by administering questionnaires to a sample of the target population. The study
will be aimed at collecting information from the respondents regarding the readiness and
awareness for the Internet of things (IoT) in Kingdom of Saudi Arabia. The investigator will
use both primary and secondary data. Primary data will be obtained using questionnaires,
while secondary data will be found from books, journals, and the Internet. We will use survey
to determine the user requirements for the application of the Internet of things phenomenon
and related electronic crimes.
We will use traditional screening methods (standard testing techniques), which combine
analysis and manual testing, analysis, and testing using some analytical software.
Examination and analysis processes will address a collection of previously published research
similar to this study. The work of previous studies is compared with each other, and
conclusions are drawn from them for the purpose of the current study.
B. Study population
The target population will form the basis of the selected sample from Saudi Arabia. It will
include officials of services provider companies, software developers, users, and leaders of
relevant government agencies responsible for the equipment, officials of the legal authority
(judiciary & police) and directors of some private sector organizations, and leaders of the
Saudi national information centers, and employees of Rapid Response Center (CERT).
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C. Study Tools
The main data collection instruments to be used are as follows:
1. Survey questionnaires: Survey questionnaires have the advantage of achieving rapid

contact with many people. It will be very useful for this research project to obtain
responses to the diverse indicators that require consultations with specific populations.
The primary objective of this survey is to measure the awareness the Internet of Things
phenomenon and the risks associated with them. We then analyze the results of this study
using specialized statistical analysis software
2. Interviews: The interview procedure is shedding light on research process through an
informal conversation. As part of this research project, an interview guide will be drawn
to make the interviews semi-structured. Interview questions will be written down, and the
interviewers will be trained so that they truly understand the subject matter as well the
responses they receive, to achieve the objectives of the study the researcher will conduct
interviews with some leaders of government and private agencies, individuals, and
service providers in Saudi Arabia.
3. A compendium of textual data: The compendium of textual data will primarily gather,
organize and analyze diverse documents that contain information relevant to the topic of
study, especially with regard to readiness and awareness for the internet of things (IoT) in
Kingdom of Saudi Arabia. The compendium of textual data will include: unpublished
research, theses dealing with cybercrime, and the security of smart and Internet of Things
regulations, reports of hardware manufacturers, software, and operating systems, the
systems standard international reference reports, products of major international
companies in the field, the security of smart systems, and Internet of Things in addition to
research papers and studies, and specialized projects, published in journals, refereed
conferences, technical reports on the subject of e-crimes arising from the application of
Internet of things, and the new wave of electronic crimes.
D. Data analysis methods
Quantitative analyses will be appropriate for this project with a bit of use of qualitative
methods as well. Codes will be assigned to qualitative variables such as readiness and
awareness for the Internet of Things. The qualitative data analysis will be carried out using
this coding strategy. The content study will be used to analyze the substantial body of data
collected in this study with the following procedure:
1. Reading of collected data.

2. Definition of classification categories for the collected data.
3. The categorization of the collected data.
4. Quantification and statistical treatment of data.
5. The scientific description of the studied cases.
6. The interpretation of results.
For quantitative data analysis, both the descriptive and the inferential statistics will be done to
better understand the readiness and awareness for the Internet of Things (IoT) security in the
Kingdom of Saudi Arabia.
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E. Mechanisms to Assure the Quality of the Study
• Data Privacy: Confidentiality will be enhanced in the research and individuals filling in
questionnaires will not be required to write their names. Relevant authorities will be
contacted so as to gain permission to carry out the research.
• Control of Bias: the researcher will make sure that the research study is objective,
independent and balanced. The researcher believes that objectivity is critical to the
success of scientific analysis. Thus, the researcher will actively work to keep a neutral
and objective research environment.
• Use accurate and most reliable data: To assure that the research study is useful,
informative and understandable, data, and information of the best quality will be used.
The data and information used in the research study will be validated from multiple
sources, and it will be assured that it is reliable and accurate.
Proposed Theoretical Framework
To achieve the objectives of the study, we propose a model that has 5 layers:
• Layer 1 (Introduction and Definitions) (information security - cybercrime - Internet of

Things).
• Layer 2 (Problem of the Study) (penetrations and types - types and classifications
hackers - security risks in cyberspace - the security risks that threaten the Internet of
Things - jamming electronic internet connectivity - prevention and treatment methods -
the role of software manufacturers - the role of service providers - the role of government
and legislation - user role - description of the problem and the local and global impact).
• Layer 3 (the New Wave of Electronic Crimes) (introduction and historical overview -
types of anticipated dangers - kind of expected the crimes - the source of such crimes as
"state, age and interests" - an inventory of the most anticipated crimes - its impact on the
Internet of things "locally and globally" - classification of electronic crime according to
various international standards, "the degree of risk, proliferation, easy").
• Layer 4 (Analysis and Discussion) (analysis of the most anticipated crimes -
classification of anticipated crimes by severity - the impact of electronic crime on the
agenda of each of the "public sector, private sector, civil society organizations,
individuals and personalities" - the required measures to curb cybercrime "required
actions of software designers, the measures required of service providers, the measures
required of governments, actions required of users "- the government of available
mechanisms to speed detection of the electronic" national information centers crimes,
national data stores, government rapid response centers CERT " - the various ministries
and government departments and their role at the speed of detection of electronic crime -
volunteers of experts and citizens - the role of regulations and legislation in the reduction
of the electronic crimes).
• Layer 5 (Results of the Study - the recommendations of the study).
Conclusion and Future Work
The proposed work attempts to address the different types of potential Cybercrime that face the
advent of the Internet of Things (IoT), and to determine the required procedures and actions by
software development companies, service providers, government agencies and users, before the
IoT phenomenon invades the world. The work will tackle the IoT potential threats in the Kingdom
of Saudi Arabia, especially in the government sector, where it is important to elaborate the
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government roles from different perspectives to minimize the cybercrime threats to the IoT, the
roles of the legislations, national data centers, national information centers, different ministries,
and government departments are important to help to minimize the cybercrime risks.
As future work, we aim to analyze the results and set our recommendations and findings in the
study, and also, we will publish the results in scientific journals and conferences.
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market deployment (Vol. 29). Aalborg: River publishers.
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environments and integrated ecosystems. River publishers.
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The Importance of Internship Programs for Intelligent

Agriculture Internship Report Frizon Group Romania
Marinela ILIE
PhD Student, The University of Economic Studies,

Bucharest, Romania
Email: marinela.ilie93@gmail.com
Abstract
Internship programs are an integral part of the training process. In Romania, most of the people who
benefit from such programs are represented by students. Their importance and attractiveness is
represented by the development and learning of applied professional skills. I believe that by doing an
internship program, students acquire theoretical and practical knowledge, experience and very
important, they have the chance to learn and interact with people inside, people who can play an
important role in personal and professional evolution. Even more, i think that for agriculture these
programs are very important, because of the low number of young people trained in this field and from
personal experience, i strongly believe that are 100% chances for students to remain in this beautiful
domain, especially now when the agriculture becomes more and more digitalised.
Keywords: Internship, technological progress, agriculture, information technology, social

development.
Introduction
The average age of farmers in the European Union is steadily rising, now reaching 51.4 years Romania
is no exception to the rule and reports that more than 50% of farmers are over 55. Demographic aging
in the agricultural sector is one of the major causes of concern at EU level. In the context of the exit of
Great Britain from the Union and, as a result of a tight budget for the next period, Member States are
facing new solutions to attract young people to agriculture.
Romania has among the least young farmers in the European Union. According to data from the
European Commission published in 2018, only 10% of farmers are under 40 Of these, only 23% are
women and the figures are steadily decreasing. On the opposite side are countries such as Germany,
Austria and Poland where only 10% of farmers are over the age of 65.
From an economic point of view, we need to look at more recitals:
• people with higher educational attainment earn higher incomes than they do the rest of the population-
at European Union level employers pay almost twice for those who have higher education than those
who have completed only one form of average studies;
• employers are looking for candidates who have both theoretical knowledge and knowledge practical
skills in the field under study;
• decreasing unemployment leads to economic growth and welfare gains social population in general
In Romania, the youth unemployment rate is around four ever higher than the rest of the people working
(http://epp).eurostat.ec.europa.eu/portal/page/portal/eurostat/home);
In the light of the above, it appears that students who have practical training already in the course of
their studies are likely to be more easy to find a job. The economy is supported by productivity growth
companies that have better-trained employees of the high wage level former students, as well as the
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fall in youth unemployment. One of the solutions for agricultural sector is represented by internships
programs, even more now when this sector will become 100% digitalised.
This paper is structured in 4 parts. After the introduction, the second section presents the literature
review with a short description of FrizonGroup Romania and personal internship report about such a
program. It is followed by the SWOT Analysis and proposals. In the final part are presented the
conclusions.
Literature Review
Digitalization and technology underpin the smart and sustainable development of the regions concerned
and beyond. I believe that the future of agriculture is its digitalisation. Following the program of
internship we have carried out at The Frizon Farms in Focsani-Vrancea, farms where agricultural
technology is successfully used and the theoretical research we have carried out so far, agricultural
technology makes economic activity more efficient and I believe that for young people, this field is of
paramount interest. We certainly need to prepare for the new digitized agriculture through information,
education, training and support.
During internship period at FrizonGroup (01. July-31. August 2019), I gained experience, many
theoretical and practical knowledge and information, which I certainly could not acquire in some other
way. The objective of this stage is the personal desire to acquire the knowledge and information directly
and real, necessary for the personal and professional evolution and for elaborating two chapters which
will be included in the PhD work entitled: "The impact of intelligent agriculture on the sustainable
development of the rural area in Romania".
The Frizon Group started to operate in 2010 with an area of 17 ha, reaching in 2018 to a surface of
3800 ha. "FrizonGroup" comprises 12 companies and the agricultural area ( 3800 ha) is divided into
companies: FrizonAgra S.R.L., Frizon Maica West Wild River S.R.L., FrizonAgra Crop S.R.L.,
Agricola Oostroem S.R.L.. The headquarters of Frizon is located in Nanesti, Vrancea County, and the
farm surface exploited are part situated in Nanesti, Namoloasa and Maicanesti, close to the Siret River.
The main crops are represented by peas, sunflowers and maize. Frizon farms are one of the few farms
in Romania which successfully practice precision farming.
It is to be mentioned that part of the technologies present here are not used by any other farm in
Romania. Technology investments are an active line of development for Frizon farms, with the
manager constantly concerned and interested in automating and improving the efficiency of agricultural
activities using technology. One of the most important elements of farm management is certainly the
use of precision farming technologies.
During the internship period I found that the crop monitoring applications are accessed daily. Their
particular importance is given by the management of each aspect of the agricultural works I think they
have an important role in achieving productivity and improve efficiency at lower costs.
Now the applications and technologies used to monitor crops, track records of work and operations are:
Vantage Products like Farm Track or Conected Farm, FieldClimate, Trimble FarmWorks- a specialized
agricultural software that offers intelligent solutions used for monitoring farm fields, implements,
operators, field work and used materials. Pessl Instruments Weather Station- provides weather
conditions information, fast-dynamic specific meteorological phenomena. The system is useful for time
alerts. TelekomCCTV - a monitoring system with camcorders attached to each machine and machine
on the farm gives a clear picture of field travel. Nik Electronics GEOSCAN- system broadcasts a
sequence of satellite images, highlighting the vegetation index. All these lead to the efficiency of the
decision-making process.
Frizon Group is a leading company in the precision agriculture field. Bringing together a dynamic and
motivated team and a unique synergy of innovation, equipment and know-how, the company is setting
new standards for producers and investors. The sustainable and transparent yearly growth is proving
that precision agriculture is one the most proficient investment destinations.
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During the internship period, the farm manager has integrate me into the farm's activity every day,
giving me information, helping and advising. I also noticed its constant involvement in all day-to-day
activities.
In the personal opinion, the manager of the Frizon farm is a experienced farmer, leader and
entrepreneur, has important team coordination and motivation skills. Also very important to mention,
I noticed its ability to communicate with company employees and various people who interact with. I
think that the Frizon team is made up of highly trained people, workers, who are constantly willing to
learn and constantly engage into the activities of the company
The following is a SWOT analysis of "FrizonGroup" in terms of information gathered and activities
that I have achieved during the internship period.
S.W.O.T. Anlalysis
S.W.O.T. Analysis
Strengths: Weaknesses:
-Farm manager is continuously focused on -The firm should benefit more from the existing
development, and efficiency; resources (Erste, Farmtrack, applications with
-The use of technology for digitalization and which the condition of agricultural crops is
effective operations; monitored for better decisions and higher yields
-Competitive long-term advantage; - a possible solution would be for someone to
-The use of precision farming; deal exclusively with: Filling, recording and
-Use of pilot technologies and machinery statistical interpretation of data;
(Mixing Station); - Difficulties in hiring skilled people; the
-Equipping with many modern machinery, and company is encountering such problems due to
equipment; the (rural environment) position and of the low
-Turnover trends; number of young people trained in this field - a
-Registration of Net Profitt in 2018; solution would be to carry out internship
-The sale of cereals by forward contracts programs in partnership with Romanian
(futures); Universities with Agricultural and Economic
-The team is made up of experienced persons, profiles, because I consider that students (more
prepared for the activities they carry out, than high school students) would choose a stable
devoted and efficient; job more quickly;
-The existence of a collaboration contract with -The impossibility of sowing (agricultural year
the staff recruitment company; efficient 2018-2019) of heavy precipitation, - as a
recruitment process (2 stages: Interview, solution, the farm manager initiated land
psychological test and Microsoft Excel, improvement or Tilllage Radish Cover Crop;
suitable medium for interview); -Reduced production of some soils due to the
-Wages and salaries in excess of the average of flood zones in different agricultural areas- a
wages and salaries in this field, possible early solution could be a reduction of
-The existence of storage and storage premises this areas (already known) by a number of
for cereals, different methods (drain work, variety crops), of
-Storage contracts for the storage and transport course with a cost-benefit analysis previously
of wheat from 2019; carried out; an account should be made of these
-Investment in Tataranu Base (another areas with drainage (each year) to create a plan
headquarters of Frizon), there are also storage to eliminate the affected areas;
halls, machinery, laboratory for grain analysis, -Rogattor (Sprayng Machine) must be
scale etc; continuously under greater attention of the
-Railway access (CFR contract) for the operator as technical problems may occur which,
transport of cereals; in the long run, can have a negative impact on the
-Land improvement works for non-utilised effectiveness of the activity; I consider that there
land or land-bearing areas; should be two persons who can operate the
-The use of irrigation system with drums; Rogator (in the event of purchase of another
machine or shift change), they must be fully
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-The use from 2019 of the irrigation Pivot acquainted with the machine, and properly
system; trained to perform the proper care, proper
-The use of forms of financing through cleaning of the machine;
contracts of his back type.
-Exploiting agricultural areas, compensating
the farmer for the tax payable on the area;
-The existence of contracts relating to the
provision of agricultural areas;
-Internship program for high school students
with agronomic profile.
Opportunities: Threats:
-Making the most efficient use of the Migration of the population to urban
technology in each activity so that the environment, the depopulation of the area;
efficiency achieved in each year is greater than Changes in the social, economic and natural
that obtained previously, the lower costs, the environment;
higher output; During the campaign periods, owing to the long
-Diversification of crops; working time required by the work done, the
-Attracting financing to develop several efficiency of the people may decrease and errors
projects for the use of pilot schemes of may occur- I believe that during this period a
irrigation or other technologies; particular exchange between particular persons
-Carrying out activities/projects relating to or close monitoring of the work by a person
environmental protection, responsible for this purpose is required;
-Development of agrotistic services; -- -People's lack of awareness of the importance of
Modernisation of damaged buildings agricultural practice;
(Tataranu),romoting economic development -Possibility of a reduction in the prices of cereals
in rural areas by improving services for the against the background of the increase of
population, encouraging environmental production,
protection measures, encouraging -Maintaining of the financial balance.
improvements in road, social, educational
infrastructure, etc.
-Increase of the cultivated area.
Conclusions
Agriculture internships are the best way to bridge the gap between going to school and landing great
job. Internships can help you develop your Agriculture experience by learning the ropes from more
experienced professionals. At the end of your internship, you’ll have relevant experience to help you
decide if a career in Agriculture is the right choice for you.Agriculture summer internships are pretty
common, but don't expect to be in charge at the end of your internship! Usually, you’ll have to work
from the bottom up, but interns are much more likely to get a job offer from the employer they’re
interning with. If you decide to intern at a smaller company, you’ll sacrifice the name prestige for other
benefits, such as having an opportunity to see your projects go from start to finish. Experience in
Agriculture is the key to offering value and creativity to the team.
During internship period at FrizonGroup (01. July-31. August 2019), I gained experience, many
theoretical and practical knowledge and information, which I certainly could not acquire in some other
way. All this helped me discover and understand the importance of the company's field of activity:
"Crops of cereals, leguminous plants and plants producing oilseeds”, respectively: “Agriculture".
On the basis of the above, I can conclude that "FrizonGroup" is a successful company, a modern farm,
which, in my personal vision, is in full development. In the long term, thanks to efficient management
and the current team, the success of the Frizon is guaranteed. I obtained all the information necessary
for writing the doctoral work, I had one of the most important professional experiences, I knew good
people and professionals, trained, workers, I was working alongside the best team, and I had the
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opportunity to know, receive advice and learn from one of the best managers. I would come back with
pleasure and enthusiasm at any time to work. All this will certainly have a defining role in personal
and professional evolution.
References
B Delgado-Vera C., Aguirre-Munizaga M., Jiménez-Icaza M., Manobanda-Herrera N., Rodríguez-
Méndez A. (2017) A Photogrammetry Software as a Tool for Precision Agriculture: A Case Study,
(eds) Technologies and Innovation.
European Commission (2016) “The Internet of Things. Digital Agenda for Europe”, European
Commission” [Online] [Accessed: 01 September 2019], Available: https://ec.europa.eu/digital-
agenda/en/internet-things
Whitepaper - FrizonGroup, [Online], [Accessed: 20 September 2019], Available:

http://frizongroup.ro/wp-content/uploads/2018/05/Frizon-whitepaper.pdf
Audit Report Frizon Group, [Online], [Accessed: 19 July 2019], Available: http://frizongroup.ro/wp-
content/uploads/2018/05/Frizonmaica-Raport-de-audit.pdf, and http://frizongroup.ro/ro/
The Future of Agriculture, [Online], [Accessed: 10 September 2019], Available:

https://easyengineering.ro/agricultura-viitorului/
Ion I., Adrian V. – Baza de modele economice, (2004), Adevărul
MCHEN, Nengcheng et al. Integrated open geospatial web service enabled cyber-physical information
infrastructure for precision agriculture monitoring. In: Computers & Electronics in Agriculture. [on-
line], Feb2015, Vol. 111
Michael W. Hill - The Impact of Information on Society, An examination of its nature value and usage,
Reed Business Information Limited, 1999, London
Nancy J. Yeager, Robert E. McGrath - Web Server Technology, (1996)
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Precision Agriculture in Romania:

Facts and Statistics
Cristinel FERTU
"Dunărea de Jos" University of Galați, Romania,
cristi_fertu@yahoo.com
Liviu Marian DOBROTA

"Dunărea de Jos" University of Galați, Romania
E-mail: liviudobrota82@gmail.com
Silvius STANCIU
"Dunărea de Jos" University of Galați, Romania
E-mail: sstanciu@ugal.ro
Abstract
This research aims to use the specific systems of the precision agriculture, or precision farming, so that
its results to be used by farmers successfully, in obtaining a high production with low costs. In the first
part it was presented the technology of the precision agriculture and its implications in helping farmers
structured on five chapters. Then there were weighed the strong and weak points of the precision
agriculture by using the SWOT Analysis. After that there were discussed suggestions regarding the
stages of the precision agriculture so that each farmer could have the same route for obtaining high
production. From all the specific solutions and systems of the precision agriculture mentioned below,
we finally underlined the role and use of drones as the most complex specific systems in obtaining most
detailed information about the performances of the cultures in the field. Practicing precision agriculture
could be the best way to progress for the farms from Romania.
Keywords: precision agriculture, Romania
Introduction
In a world in which the technology is continuously being developed and simplifies people’s lives, this
is integrated in almost all the domains of activity. Especially in agriculture, where which technology is
the best ally, it is essential that its implementation to be made at a highest level possible. Precision
agriculture (PA), satellite farming or site specific crop management (SSCM) is a farming management
concept based on observing, measuring and responding to inter and intra-field variability in crops. The
goal of precision agriculture research is to define a decision support system (DSS) for whole farm
management with the goal of optimizing returns on inputs while preserving resources (EOS Crop
monitoring, 2019). Precision agriculture is a key component of the third wave of modern agricultural
revolutions. The concept of precision agriculture first emerged in the United States in the early 1980s.
Towards the end of the 1980s, this technique was used to derive the first input recommendation maps
for fertilizers and pH corrections. The use of yield sensors developed from new technologies, combined
with the advent of GPS receivers, has been gaining ground ever since. Today, such systems cover
several million hectares. Around the world, precision agriculture developed at a varying pace. Precursor
nations were the United States, Canada and Australia. In Europe, the United Kingdom was the first to
go down this path, followed closely by France, where it first appeared in 1997-1998. In Latin America
the leading country is Argentina, where it was introduced in the middle 1990s with the support of the
National Agricultural (McBratney, Whelan and Ancev, 2005).
Recently, practicing precision agriculture represents the best way to progress for the farms from
Romania. The investment in the Romanian agri-food food sector represents an opportunity for foreign
companies due to the available natural resources, to the large number of consumers or to Romania’s
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European status. Agriculture, food processing and marketing are characterized by different percentages
of foreign investment in modern technologies (Stanciu, 2014).
The technologies from the domain (from automate GPS systems to the sensors for the soil) help those
who work in the agricultural sector to obtain the best results in a simple and efficient way, without
wasting resources. From this reason we widely analyze the implications of the precision agriculture:
what this is, how it can help farmers and what its stages are. According to European Parliament (2017),
precision agriculture is a modern concept of agricultural management that uses digital techniques to
monitor and optimize agricultural production processes. Instead of applying the same amount of
fertilizer to an entire agricultural field or feeding a large population of animals with equal amounts of
feed, the PA will measure variations in conditions on a field and adapt the fertilization or harvesting
strategy accordingly. It will also evaluate the needs and conditions of individual animals from larger
herds and optimize animal feeding.
Sonka and Cheng, (2019) mentioned that precision agriculture has several dimensions; indeed, the
concept itself is not precisely defined. A 1997 report of the National Research Council refers to
precision agriculture, "... as a management strategy that uses information technologies to bring data
from multiple sources to bear on decisions associated with crop production". For some reason, the term,
precision agriculture, has been primarily linked to crop production. However, precision practices, and
Big Data techniques, are equally applicable in animal agriculture.
Questions and Answers for Precision Agriculture
According to Bello (2013), the main questions for precision agriculture are: „What the precision
agriculture is? What is the role of the precision agriculture? SWOT analysis regarding the precision
agriculture could offer solutions? What are the recommendations of the precision agriculture? What
solutions and technologies the precision agriculture involves?”.
What the Precision Agriculture Is?
Shortly, the precision agriculture is a type of intelligent agriculture. The precision agriculture involves
the introduction of some technologies and top equipment for increasing the efficiency of the
agricultural process and assuring the control of production. This method helps the farmers understand
and manage their cultures better, to take advantage of the soils with potential, but also to protect their
cultures from the polluting and harmful factors. The agricultural management becomes efficient, as the
measurements from the field and the analysis of the environmental factors (weather, the quality and
properties of the soil, seasonality, the stage of development of the plants) offer the farmers the resources
necessary for efficiently understanding and manage the culture.
The Role of The Precision Agriculture
Its role is to offer precision to the agricultural processes for obtaining the best results. This type of
agriculture helps those involved in the process efficiently manage the resources, use the technology for
easing their work, but obtain in real time information about their cultures, in order to immediately make
adjustments and optimizations in the production process. For instance, with the help of the precision
agriculture and the measurements offered by it (soil tests, climate analysis, costs estimation), a farmer
knows if it is worth or not to invest in a culture from a certain area.
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Table 1: How does precision agriculture influence policies?
Policy issue Description Effect on policy objective*

Environmental Neglect of environmental issues, Use PA technology to enhance
issues loss of biodiversity and therefore biodiversity, e.g. via mixed cropping; use
potentially even higher risk of PA to become more environmentally
natural disasters friendly; conserve back up technology and
create seed banks as a back-up; and
stimulate external markets
Human health Possible health threats because of Secure biodiversity, for example through
lack of diversity as a result of seed banks; encourage international trade;
monocultures or closed borders and precision consumption: choose/control
your food supply from home
Societal and Disconnect between humans and Use technology, and communication
cultural issues nature, less understanding of and technology specifically, to give consumers
concern for nature insight in where food comes from (apps,
websites, social media); and precision
consumption: choose/control your food
supply from home
Societal and Social unrest because of high Use PA to create more data and better
cultural issues inequality, either between people insight or information for decision making,
or between regions to produce efficiently, and to create new
economic growth
Societal and Loss of privacy (and rise of Inform and educate people and companies
cultural issues security issues) about privacy issues in the context of
digitalization
Societal and Save traditional production Farmers need support and skills to manage
cultural issues mistakes; and policy agility
Economic Smaller farmers not being able to Use PA to create new business models and
issues keep up with new technologies new economic opportunities
because of lack of knowledge or
investment capital; large digital
divide between big and small
farmers
Economic Monopolies, because all data is in Free exchange/knowledge and idea flow in
issues the hands of big companies and innovation, and rapid technological
production is focused on development
efficiency and economic gain
Economic Loss of human labour because of Encourage ‘smart’ human-robot task-
issues robots sharing
Economic Strong variation between Develop a common international standard
issues standards in sustainability for measuring and monitoring
sustainability, gain insight into which
technologies really contribute (and how) to
sustainability; evidence-based standards;
and policy agility
Technological Big differentiation between Develop a common international standard
issues standards and types of data for creating and sharing data, avoid
centralised data; and need for data hygiene
Geo-political Vulnerability to ‘technology’ Make sure to keep up with new
issues developments, understand technology
Geo-political Lock-in effect, high dependency Create safe, reliable systems and
issues on technological systems contingency plans
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Geo-political Dependency on non-European Keep good relations with technology front-

issues countries for (production of) new runners, create a supportive environment
technologies for R&D into new PA technologies, and
encourage global collaboration
Geo-political Vulnerability to cyber-attacks and Invest in security and work together with
issues hacking the food system hackers
Source: European Parliamentary Research Service, 2017
SWOT Analysis of Precision Agriculture

According to Michailidis et al (2015), using a SWOT analysis it has been identified and quantified the
strengths, weaknesses, opportunities and threats of the treated wastewater sector focusing on the
economical regional aspects, on research innovation potential and on market exploitation and
penetration for precision agriculture.
Strengh:
The precision agriculture involves a strategy based on exact examinations of the environmental
conditions. So far, the Romanian agriculture did not have a definite plan, in which each stage (from
seeding to harvesting) to be monitored in order to be reached certain objectives.
• The advantage of the strategy is to help farmers anticipate the problems that they might
encounter, preparing in advance solutions so that the damages to be minimal. The drought, or,
on the contrary, the heavy rains, the pest or diseases of the plants are only some of the
situations that could lead to the destruction of a harvest.
• Practicing precision agriculture, the farmer may take the best solutions based on the available
conditions and may diminish the risk of appearing certain problems of the cultures. This way
the quality of the harvest is assured and the farmers may estimate the production from the end
of the season.
• Moreover, the mechanization of the agriculture is an ecologically friendly method, as it
assures the control of all the elements involved in the process and their effect on nature. The
plots are not wasted or destroyed due to improper cultures, the fertilizers, herbicides and
pesticides are well dosed and used only where it is necessary, so that they could help the
culture, without bringing harm to the soils (figure 1). Basic technologies used in precision
farming are variable rate technology (VRT), GPS soil sampling. computer-based applications,
remote sensing technology (EOS Crop monitoring, 2019).
Figure 1: Expectations for future precision agriculture

Source: Sonka and Cheng, 2019
• As for the water resources, they are carefully managed in order not to be wasted. Also, the
precision agriculture is simpler and may be managed, in some cases, from a Smartphone. In
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other words, some processes may be set without being necessary the presence of the farmers
on the scene for verifying the evolution of the cultures.
• The advantage of the precision agriculture is that on long term, it becomes the mot economic
method for approaching the agricultural process. When there are all the data of the situation
and each stage is carefully established, there are no problems that require supplementary costs.
The investment, as well as the profit, are estimated from the beginning.
Weaks:
The disadvantages for the precision agriculture are more related to the receptivity of the parties
involved, starting with the farmers.
• The technologies used for easing and making more efficient the agricultural works are pretty
expensive (as any new product that comes on the market), and this means high costs from the
beginning.
• Even if the investment is paid up in time, not anyone can purchase new equipment and also assure
the training of the personnel for operating all the systems.
Opportunities:
• Important financial awarding for Romania within the Common Agricultural Policy;
• The agricultural and agro-alimentary market – favourable regarding the prices, for agricultural producers
• Possibilities of developing some activities for transformation and distribution in the rural environment;
• Acceleration of endowing the rural area with European infrastructure;
• Existence of a specific request within the European common market that could lead to the stimulation of a
development of some niche products;
• The economic and political problems regarding immigration could encourage young people come back to
the country for starting small businesses;
• The public and political awareness of the importance of agriculture as factor of internal safety, promoting
the Romanian agricultural products.
Threats:
•Increasing the costs with the inputs in agriculture (fuels, chemical products for fertilization and treatment),
as well as the costs with the bank credits;
•Continuance of constituting exploitation mega structures;
•Accentuation of the degree of not using the manpower from the rural area;
•Tendency of the political environment from the European level to weaken the political and financial support
of the Common Agricultural Policy;
•European administrative and procedural restrictions (communitarian norms);
•Negotiations within the World Trade Organization;
•The monopoly Policy of some trade companies (cereals, vegetables) or big processers of raw materials
(milk) that occupy the most considerable segments of the market;
• Maintaining a part of black economy.
Recommendations for the precision agriculture for the Romanian Sector
It is established the need for the precision agriculture
As modern as this plan may seem, is not necessarily a feasible idea to purchase equipment and
automatic programs unless you practice agriculture at a certain level. In other words, for a small culture,
in which the precision agriculture would not make the difference, the traditional methods may be
enough.
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All the necessary measurements must be made
Before purchasing the equipment, make the measurements of the fields and make sure that all the
technology that you want to integrate (from tractors to irrigation systems) may cover the entire working
area and really help you make efficient the agricultural process.
3. An agricultural management plan must be established. The concept of „ precision agriculture “

is very wide, so it is structured based on the steps that it involves:
A. Control of technologies and mobile applications;

B. Gathering and construing the data from the field
C. Implementation and monitoring of the strategy
For each step there should be a responsible person or a team. This way the entire process shall be
controlled and there will not be procedural deficiencies. The advantage of the precision agriculture is
that the technology lets you know immediately when the problems occur, so that you may make
adjustments in due time. Therefore, if in one week it rains a little or it does not rain at all, the irrigation
system is reprogrammed in order to supplement the water quantity. Or if a culture, such as the wheat
culture does not signal that it would be ready on time, the development is stimulated with the help of
some growing stimulators. It may not be obtaining the expected culture from the first trial. As it happens
in all the domains, the tests and examinations are key elements for success. In this case, the objectives
are clearly defined and the resources one may appeal to are established in order to obtain a better harvest.
The Solutions and the Technologies that the Precision Agriculture Involves
The precision agriculture means, especially, the careful management of the resources for the
improvement of the agricultural products. Based on the needs of the farmers, the precision agriculture
involves more procedures and technologies that could simplify the work on the field (figure 2).
Figure 2: Applications for precision agriculture

Source Pop, 2016
• The agricultural drones
The revolution in agriculture started with the integration of the drones that assure the supervision of
the extended cultures, sending in real time of some information regarding their stage, possible
anomalies, the water necessary quantity. The drones help the farmers evaluate the fields without going
there, but also take fast decisions in case that some problems occur. The drones are considered airplanes
without a pilot on board and must be registered at the Romanian Civil Aeronautic Authority, complying
with the legislation in force. The drones equipped with multispectral cameras may be used for
7371
making NDVI maps, stress maps of the cultures caused by the lack of water, other aerial evaluation
that could reflect the condition of the cultures.
• Mechanized works coordinated by GPS

GPS systems may be installed on any agricultural equipment with power steering. Usually this system
includes a monitor and a receptor with the help of which the equipment can be controlled, without a
person inside them. The advantage is that the receptor of the GPS receives information about the field
from satellites and may perform certain agricultural works (seeding, applying the chemical fertilizers,
etc.) with maximum accuracy. Besides this, the GPS systems assures the control of the resources used
(fuels, agricultural products), which prevents their waste and reduction of costs.
• Agricultural applications
Technology is present everywhere and the agricultural applications help the farmers manage their
works, monitoring the procedures applied, the quantity of the product used, the condition of the soils
and the weather. Also by the help of these applications, the processes controlled by GPS may be
controlled.
• The mechanized planting

Another practice often met in the precision agriculture is the use of some planting machines that could
ease the physical work of the farmers and reduce the time allocated to this procedure. The mechanized
planting implies the use of some small tractors destined to all types of cultures: fruitful trees, seedlings,
shrubs, vine. Equipment must have a system that assures planting with a help of a small disc from a
proper distance, so that more rows could be obtained on the surface of a field. Also, the tractors for
mechanized planting are equipped with water barrels for the irrigation of the cultures.
• Fertilization
We were mentioning above that the precision agriculture is an agriculture practiced intelligently and in
this process of simplification, fertilization is included. By fertilization the plants receive the nutritive
elements necessary for their development. Generally, the fertilization is made by spreading the
fertilizers on the area cultivated, but this rule may be applied only in case of some gardens or small
areas. For bigger areas, the fertilization equipment makes this process efficient, assuring the entering
of the fertilizers exactly in the areas where it is needed, thus being amplified their effect. There are
machines equipped with the fertilization technology with different application. The process is very
efficient: first there are collected samples from the soil in order to be identified the necessities of the
ground, and then, with the help of the orders received by GPS, the machine distributes quantities and
types of fertilizers based on the area treated.
• Combating the pests and weeds

In some cases, although the natural conditions are optimal, favouring the development of cultures, pests
may appear that damage the quality of the harvests. Among those that cause the biggest problems are
the soil pests (beetles larvae, wire worms, fake wire worms, etc.), earth bug, the ladybug of the corn,
ladybugs of the beet roots, mole cricket, rodent pests, oriental fruit moth, San Jose louse, spike lice,
cicadas, different species of leaf lice and mites.
The precision agriculture comes to help the farmers and combats the pests of the agricultural cultures
by the controlled application of insecticides and treatments exactly in the areas affected. Firstly, the
analysis and continuous monitoring of cultures help the farmers know exactly when to take action. In
the same time, the machines controlled by GPS system may distribute different quantities of pesticides,
based on the needs of the cultures, after which it is scanned the entire area and are established the
affected areas. Precision in combating the pests and weeds help the farmers save many important
resources (time, fuel, pesticides), but also protect the harvest better.
• Analysis systems for the soil
This is another instrument used in the precision agriculture, which help the farmers even from the first
stages of the agricultural processes. In other words, the packages usually include soil devices for
collecting samples, tensiometers and soil humidity sensors, devices for monitoring the soil erosion or
devices for the soil penetration, devices that measure the compacting level of the soils. The analysis
7372
systems offer important data about the soil condition, so that the farmers know from the very beginning
if they are suitable for their needs and culture. For instance, in the flattened/compacted soils, the water
enters with difficulty and does not reach the root of the plant properly, which may sabotage its
development, and implicitly the harvesting plans of the farmers.
• Irrigation systems.
In agriculture, water remains the most important resource and its efficient management, under the
conditions in which huge quantities of water are used, it is a significant gain for the environment.
Technology of precision irrigation allows the farmers to monitor the humidity of the soils, to plan the
spraying of cultures based on the weather forecast, but also to use the variable rate and control the
machines so that they distribute water based on the needs occurred on different parts of the agricultural
area. Besides, the advantage is that the irrigation system may be activated through GPS directly from
the Smartphone. Another technique of the precision agriculture is the dripping irrigation. This method
is recommended firstly for the vegetables cultures and includes dripping a reduced quantity of water
exactly at the basis of the plant. Thus, water reaches where it should reach, without existing the risk of
entering the depth of the soil, where it has no effect on cultures.
In Romania, the precision agriculture faces small but firm steps. In countries such as Holland and
Belgium, this method is widely used. And the situation shall also change in the following years in our
country, where there are all the conditions for practicing the precision agriculture. The map of precision
agricultural farms is shown in figure 3.
Figure 3: Map of farms using precision agriculture in Romania

Source Pop, 2019
87 % the Romanian territory has small subsistence farms, with the average of farm size around 3.4 ha.
Agriculture still provides one third of total employment in the country. Romania’s internet use is the
lowest in the region, as only the half of the population uses the internet, and the impact of information
technology is far from its potential, especially in agriculture. The ratio of individuals who have never
used the internet is the highest in Romania (39 %) among the European Union countries. In terms of
the Network Readiness Index, Romania’s score is average and behind other European Union countries
of the workshop, but it is worth mentioning that the country marked a considerable improvement
gaining 12 places on the rank list from 2014 to 2015. 10 countries joined the EU in 2004 followed by
Bulgaria and Romania in 2007 and Croatia in 2013. While the average agriculture value added in the
sub-region is more than double of that in the EU/Western Europe (Romania, Bulgaria and Hungary are
the top three countries), because of the share of industry and mainly of the service sector, it remains
under the average of other sub-regions. Mobile coverage is almost universal in this part of Europe
7373
(99.74 %), and the number of mobile subscriptions is higher than in other sub-regions. 66% of the
individuals use internet; this situation is the highest in Slovenia and Estonia (80%), Latvia (75.2 %)
and Hungary (72.6 %), while it is lowest in Bulgaria (53.1%) and Romania (49.8 %) (figure 4).
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Slovenia Estonia Latvia Hungary Bulgaria Romania
Figure 4: Availability of IT technologies in CEE agricultural sector by selected countries (%)

Source FAO, 2015
Conclusions and Suggestions
In Romania, the precision agriculture is at the beginning, but in the near future, its technologies shall
be met more and more often. The agricultural potential of this country has always existed, but now,
with the help of these new technologies, it could be reach a higher level. The precision agriculture is
the management of the agricultural fields, by introducing a new technology and some very efficient
machines for the improvement of the agricultural process and assuring the control of the production.
Thus, by the measurements from the field and the analysis of the environmental factors (weather,
quality and properties of the soil, seasonality, the development stage of plants), the farmers obtain the
resources necessary for an efficient management of the resources and climate. For the following
research we suggest to present the types of drones that can be used for the analysis and inspection of
cultures and also the types of reports that are necessary for obtaining the best cultures.
Acknowledgements
This work was supported by the project “Excellence, performance and competitiveness in the
Research, Development and Innovation activities at “Dunărea de Jos” University of Galati”, acronym
"EXPERT", financed by the Romanian Ministry of Research and Innovation in the framework of
Programme 1 – Development of the national research and development system, Sub-programme 1.2 –
Institutional Performance – Projects for financing excellence in Research, Development and
Innovation, Contract no. 14PFE/17.10.2018.
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7374
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Environmental Health and The Rising Prevalence of Lassa Fever in

Nigeria: Imperative for Revitalizing Environmental Inspection
Charity A. BEN-ENUKORA1, Olusola OYERO2, Nelson OKORIE3 &

Babatunde ADEYEYE4
1234
Department of Mass Communication, Covenant University, Kilometer 10 Idiroko Rd., Ota
Correspondence: Nelson Okorie
Abstract
Lassa fever has become a serious public health problem in Nigeria. While previous studies highlight
the contributions of environmental factors to the prevalence of Lassa fever in Nigeria, this paper
advocates strict adherence to environmental sanitation and house-to-house environmental inspection
as necessary coercive mechanism towards a desirable clean and hygienic environment that will
discourage rodent infestation in and around human terrain.
Keywords: Environmental health, Environmental inspection, Environmental Sanitation, Lassa

fever
Introduction
Since 1969 when the Lassa fever virus was first discovered in Nigeria, clinical evidences have
confirmed the seroprevalence of the disease in Nigeria as seasonal and sporadic outbreak of the
disease in Nigeria (Adefisan, 2014; Rine & Silas, 2016; Adegoke, Ajibola & Ogundairo, 2017;
Ijarotimi, Ilesanmi, Aderinwale, Abiodun-Adewusi & Okon, 2018), with the mortality rate in many
cases of Lassa fever outbreaks in Nigeria surpassing the WHO’s 15% mortality estimate
(Inegbenebor, Okosun & Inegbenebor, 2010), besides its daunting impact on health care providers
and local communities as well as socio-economic wellbeing of the society.
Unfortunately, accurate figures on outbreaks in Nigeria have not been properly documented. A
number of figures available have only focused on outbreaks that occurred in the past or in recent
years. However, the summary of the reported cases of Lassa fever in Nigeria so far shows that
between 1969-2011, Nigeria recorded about 10 years of Lassa fever outbreaks with a total of 228
clinically confirmed cases and 148 deaths and four years of outbreaks of Lassa fever were recorded
with a total of 963 clinically confirmed cases and 447 deaths between 2012-2018 involving more
states and different regions in Nigeria.
Therefore, it is evident that incidence reports have established a significant increase in numerical and
geographical scope of Lassa fever cases in recent years. This indicates that the actual incidence and
distribution of the disease may possibly be misconstrued (Gibb, Moses, Redding & Jones, 2017).
The cause of the increased number of cases is unknown but Burki (2018) claims that it could be
attributed to the presence of more rodents, more infectious virus likely to cause severe symptoms or
improvements in the disease surveillance and contact tracing.
In recent times, new cases of infection have been identified in different states as various regions in
Nigeria experience outbreaks. Hence, the epidemiological relationship among cases has been
complicated, making it almost impossible to predict where possible outbreaks could occur (Ekuma &
Akpan, 2017). For this reason, the need for a comprehensive and predictive approach to risk
communication aimed at reducing the incidence of Lassa fever in Nigeria.
Clinical studies identified the Natal Multimammate rats, Mastomys natalensis which is one of the
most widespread rodent species all over the West Africa region ( Mustapha, 2017; Wirth & Lalis,
2018), as the rodent host of Lassa virus. However, other unidentified rodent populations such as the
7376
M. erythroleucus M. hildbrandtii and H. pamfi have recently been suspected as alternative reservoirs
of Lassa virus (Yunusa & Egenti, 2015; Ekuma & Akpan, 2017; Wirth & Lalis, 2018). This
demonstrates that there could be several other rodent reservoirs of Lassa virus within the endemic
regions which engender the disease outbreaks.
Various studies have confirmed that these rodents thrive in dirty and overcrowded environments,
open waste dumps, dirty drainages, food stuff stores, slums and rural dwellings with poor housing
facilities (Adefisan, 2014; Adegoke, et al., 2017; Ekuma & Akpan, 2017; Wirth & Lalis, 2018). The
rodents gain entry into people’s houses through openings in the doors and windows, and through
cracks and inlets in walls and on roofs (Yun & Walker, 2012). More so, houses without electricity
offer the rodents the opportunity to be active all through the day, thereby leading to increase in the
frequency of human contact with rats (Wirth & Lalis, 2018).
Therefore, environmental factors such as indiscriminate refuse disposal, poor household and
personal hygiene, poor environmental sanitation, inadequate and overcrowded housing encourage
mastomy rodents infestation and expose people to the risk of contracting Lassa fever infection
(Public Health Agency of Canada, 2011; Hala, 2013; Kelly, Barrie, Ross, Temple, Moses & Bausch,
2013). Thus, the rural population where Mastomys are usually found, especially in communities
where the predisposing environmental factors that encourage increased rodent infestation are
observed become vulnerable to Lassa fever infections.
Although precise modes of transmission are not well characterized, the primary transmission of the
Lassa virus from its rodent host to humans occurs through direct contact with infected rodents while
hunting, handling, butchering and consumption of rodents as bush meat, rodent bite or contact with
cuts, sores or bruised human skin (Ilesanmi, Omotoso, Alele1 & Adewuyi, 2015; Mustapha, 2017;
Burki, 2018; WHO, 2018), or indirect contacts with rodents through consumption of foods, snacks
and water which could easily be contaminated by infected rodents’ excreta as they scavenge on
human food remains or poorly stored food in and around the homes as well as inhalation of aerosols
from their exudates (Abimbola, 2012; Kelly, et al., 2013; Anuforo, 2016).
Remarkably, it has been observed that about 80% to 90 % of Lassa fever infections among humans
occur through the primary transmission routes rather than human to human (Gibb, et al., 2017; Isere,
Fatiregun, Ilesanmi, Ijarotimi, Egube, Adejugbagbe & Famokun, 2018; WHO, 2018). Thus,
transmission through this route is very common and requires adequate measures aimed at breaking
the chain of animal-man transmission.
Therefore, reducing the rodent populations in and around the environment especially in areas where
the disease is prevalent will aid in the control and prevention of Lassa fever (Abimbola, 2012;
Mustapha, 2017). This could be achieved through maintenance of the highest possible standards of
personal and community hygiene as well as environmental sanitation. Hence, the disease prevention
remains a shared responsibility of all and sundry. It is against this backdrop that this paper highlights
the importance of strict enforcement of house-to-house-environmental inspection in Nigeria.
Literature Review
Environmental Health and Environmental Sanitation
The concept environmental health evolved as a result of the wide recognition of the correlation
between public health and the environment. The concept has been defined by Garba (2004) as the
control of those factors that may possibly exert direct or indirect consequence on man’s physical,
social and mental wellbeing. Links (2006) defined environmental health as the features of human
health, comprising of quality of life shaped by physical, psychosocial, social, and biological
dynamics in the environment. It also deals with the theory and practice of evaluating, preventing
and controlling those features in the environment that have potential adverse effect on the health of
the present and future generations. Nwankwo (2018) posits that “environmental health is a broad
field of study that deals with the management or amelioration of factors in the environment, which if
7377
left untamed, will interfere adversely with public health”(p.61). Environmental health officers,
therefore, aim to reduce potential health risks associated with man’s living and working environment
(Nwankwo, 2018). They are vital members of the public health system in terms of disease
surveillance, prevention and control (Campbell, 2012; Musoke, Ndejjo, Atusingwize & Halage,
2016).
Unclean environment has been observed as a major environmental contribution to ill health across
the globe. Recently, the World Health Organization found that about 12.6 million deaths annually
across the globe are attributed to unhealthy environments (WHO, 2016). The implication of this
finding is that millions of people will continue to become ill and die if the desired actions are not
taken to make our environments more clean and healthy. To reduce or eliminate the effect of unclean
environments on human health, therefore, a proper environmental sanitation policy is fundamental.
The Water Supply and Sanitation Collaborative Council expresses that environmental sanitation is
an intervention aimed at reducing public exposure to infectious diseases through the maintenance of
a clean environment as well as measures to interrupt the cycle of disease (Mmom & Mmom, 2011).
According to Daramola (2012), the practice of environmental sanitation refers to public involvement
in the provision, utilization, and maintenance of facilities and services that stimulate a clean
environment in addition to compliance to environmental laws. A recent definition by Duru, et al.,
(2017), the authors express that environmental sanitation is “a set of actions or fundamental process
of collecting and safely disposing all kinds of wastes within the environment with the intention of
protecting and promoting the individual health and quality of life of communities”.
Anijah-Obi, Eneji, Ubom, Dunnamah & William (2013) maintain that environmental sanitation does
not end at street sweeping and cleaning of drainage systems. It also deals with adequate and safe
sewage and excreta disposal; community wastes management as well as the control of arthropods,
rodents, molluses or other alternative hosts related to infectious disease among humans. Sanitation,
therefore, reduces human exposure to pathogens (Naughton & Mihelicic, 2017) and affects a wide
range of development indicators positively (Daramola & Olowoporoku, 2016).
Theoretical Background
The use of coercive power to engender development forms the theoretical basis for this paper. The
concept of coercive power is based on deterrence (Hofmann, Hartl, Gangl, Hartner-Tiefenthaler &
Kirchler, 2017). Due to the fact that public services such as environmental sanitation are obligatory,
often times individuals tend to exploit the vulnerable system by refraining from participation.
Therefore, strict monitoring and enforcement of environmental sanitation regulations such as
inspection of premises to check compliance, caution, issuance of penalty notices, seizure, provision
of advice to aid compliance and prosecution applied either separately or in any appropriate
combination are required to foster cooperation so as to improve environmental conditions in and
around human surroundings. Environmental Health Officers are, therefore, guided by the Public
Health Laws applicable in the domain where they operate and enforcement of its provisions is an
obligation which they must fulfill (Nwankwo, 2018).
Environmental sanitation compliance in Nigeria

The history of environmental sanitation compliance in Nigeria has proved that coercive mechanism
is an effective tool for mobilizing citizens to comply with environmental sanitation. In the 20th
century Nigeria, the fear of sanitary inspectors was the beginning of environmental cleanliness.
They were regarded as the "Wole-wole" among Yorubas, "Nwaole-ala" among the Igbos and "Duba-
Gari" among the Hausas (Garba, 2004) in local parlance. Environmental sanitation legislations were
strictly enforced by the sanitary inspectors in those days (Anijah-Obi, et al., 2013)]. These sanitary
inspectors were very active instrument for preventive health services through routine environmental
inspection of households, markets, schools and communities to ensure compliance with
environmental sanitation. They ensured that people maintain a clean and healthy environment by
forcing them to dig latrines, dispose their waste far away from their homes, cut down tall trees, and
7378
cut bushes around their homes, offices, market amongst other things. Defaulters were penalized and
hunt down until they do the needful. Consequently, the active engagement of the sanitary inspectors
contributed immensely in the control of infectious diseases such as Yaws and Smallpox in the late
1940s and early 1970s respectively (Garba, 2004).
In 1985, the military government in Nigeria initiated another coercive scheme for environmental
sanitation with its declaration of "War Against Indiscipline" (WAI) of which the fifth phase focused
on “War Against Filth," (Anijah-Obi, et al., 2013). More so, Environmental Task Forces and
Sanitation Courts were established by state governments to enforce environmental sanitation
legislations. Furthermore, a monthly National Environmental Sanitation Day was observed every
last Saturday of each month. The exercise was used as a corrective measure to ensure strict
compliance to environmental sanitation throughout the period that it lasted as the succeeding
military governments failed to continue with the pre-existing environmental laws and regulations
(Olowoporoku, 2017).
However, in recent times various studies conducted in Nigeria after the demise of the “War against
Filth” established that attitude and practice towards environmental sanitation was low resulting into
indiscriminate waste disposal and inappropriate dumping of domestic, solid, medical and animal
wastes as well as poor sewage management in different parts of the country (Isah & Okojie, 2007;
Ademiluyi & Odugbesan, 2010; Olajide, 2014; Olukanni, Azuh, George, Ajayi & Emenike, 2014;
Ekong, 2015; Duru, et al., 2017). Furthermore, Daramola and Olowoporoku (2016) established that
there is a correlation between poor environmental sanitation practices and place of residence,
education, income and household size. Sequel to the poor attitude to environmental sanitation in
Nigeria, some scholars have argued that pro-environmental sanitation behaviour could be achieved
through effective Environmental Sanitation Education (EES) as part of school curriculum to sharpen
the citizens’ consciousness to accept sanitation as civic responsibility (Anijah-Obi, et al., 2013;
Olowoporoku, 2017). But the basic fact remains that environmental sanitation needs to be monitored
to ensure compliance because people tend to do the needful when they are chastised. Therefore, the
government’s political will is a significant factor in bring about development (Nelson, Kehinde,
Oyero, Williams & Soola, 2013; Oyesomi, Soola, Abioye & Oyero, 2014; Ogwezzy-Ndisika,
Ibraheem & Faustino, 2016) in all sphere of the polity including environmental sanitation
enforcement
Although the monthly environmental exercise and weekly cleanup (in some states) is still in
operation in some states in Nigeria, disregard of the house-to-house environmental inspection
programme contributed to the poor compliance with environmental sanitation which culminated in
poor sanitary conditions all over the nation (Olowoporoku, 2017).
Even though, the sanitary officials still exist under the umbrella of Environmental Health Officers in
Nigeria, regrettably, they can never be compared to the “Wole-Woles”, "Nwaole-alas" and "Duba-
Garis" of the olden. According to Nwankwo (2018) the current level of competences of
Environmental Health Officers (EHO) with respect to prosecution of public health matters was
found to be poor leading to non abatement of several public nuisances in the state. However,
inadequate training was identified as one the factors that affect prosecution performances by officers
(Nwankwo, 2018).
It is true that the three tiers of government have at one time or the other developed
legislative/regulatory instruments to address the issue of sanitation but enforcement of these
regulations remains ineffective. Laxity of the government and lack of political will to engage in
stringent enforcement of environmental sanitation laws in Nigeria has contributed to incessant
reoccurrence of sanitation-related disease outbreaks including Lassa fever. Proper monitoring and
compliance with environmental sanitation is required because one individual’s actions and inactions
could trigger the spread of Lassa fever and its attendant consequences to communities and the whole
nation at large.
7379
Conclusion
Inadequate environmental conditions have been identified as one of the contributing factors for the
reoccurrence of the Lassa fever outbreaks in Nigeria. The predisposing risk of contracting the Lassa
virus could be avoidable through community and individual efforts geared towards environmental
hygiene aimed at eliminating the disease vectors. Therefore, to ensure proper adherence to
environmental sanitation aimed at reducing the predisposing environmental factors that encourage
human contact with rodents’ reservoir of Lassa virus, the environmental health officers need to adopt
coercive mechanism to mobilize people to engage in adequate environmental sanitation.
Recommendations
• Revitalizing the post-colonial system of house-to-house environmental inspection will

stimulate individual and community actions towards eliminating preventable and controllable
environmental vector thriving factors and facilitate reduction in the incidences of Lassa fever in
Nigeria.
• Enforcement of environmental sanitation laws should be carried out rigorously.
• Reward for best compliance should also be introduced to serve as an incentive for others to
comply.
Acknowledgement
This paper is sponsored by Covenant University Centre For Research, Innovation and Discovery
(CUCRID).
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Risk Communication and Lassa Fever Management in Nigeria:

Engaging New Communication Technologies for Message Delivery
Charity A. BEN-ENUKORA1, Olusola OYERO2, Nelson OKORIE3

& Evaristus ADESINA4
1234
Department of Mass Communication, Covenant University, Kilometer 10 Idiroko Rd., Ota.
Correspondence: Nelson Okorie3
Abstract
Risk communication is recognized as one of the eight core capacities for guiding public health
responses and the successful management of infectious disease such as Lassa fever. However, risk
communication messages seem to be ineffective in achieving the desired outcomes due to untimely
message delivery. The 21st century communication technologies offers the potentials for risk
information to better reach the public needs and gratification for various population groups. This
paper, therefore, outlines the need for a proactive risk communication approach with the adoption of
new communication technologies to ensure speedy and effective message delivery across different
populations in Nigeria.
Keywords: Public health emergency, Lassa fever, New communication technologies, Risk
Communication, Sustainable health security
Introduction and Background to The Study
According to Reynolds & Seeger (2005), public health emergencies relates to the outbreak of
exceptional diseases or the identification of specific risks from environmental or lifestyle factors. In
another attempt to describe public health emergencies Nelson, Lurie, Wasserman, and Zakowski
(2007) assert that a public health issue becomes emergent when its health consequences is perceived
to overpower the routine community capabilities to tackle them. This assertion points to the fact that
public health emergencies are unpredicted situations that tends to overwhelm routine capabilities
thereby threatening health security and social stability in any society. Public health emergency events
include outbreak of infectious diseases such as severe acute respiratory syndrome (SARS), Ebola,
monkey pox, and Lassa fever.
Lassa fever is an animal-borne viral infection belonging to the same family as Ebola Virus (Usifoh,
Ighedosa, Aighewi, Asemota, Odigie & Faboya, 2016; Burki, 2018). The disease is endemic in West
African region with recurrent seasonal epidemics in countries such as Benin, Guinea, Ghana, Liberia,
Mali, Sierra Leone, Togo and Nigeria (WHO, 2017). Recent studies indicate that about 300,000-
500,000 cases of Lassa fever are reported in West Africa annually resulting in approximately 5,000
deaths across the region (Ogbu, Ajuluchukwu & Uneke, 2007; Omeh, Achinge & Echekwube, 2017).
This estimate of Lassa fever morbidity and mortality rates may be inaccurate as Gibb, Moses,
Redding and Jones (2017) claim that the estimates are extrapolations from studies carried out more
than two decades ago which have not been subsequently updated to match population growth.
Therefore, the morbidity and mortality ratios of Lassa fever disease may be more than the estimated
figures.
Evidence of seasonal patterns in Lassa fever epidemics have been documented, with hospitalized
cases peaking during the dry season (Omeh, et al., 2017; Shaffer, et al., 2014; Ilesanmi, Omotoso,
Alele1, & Adewuyi, 2015; Lo Iacono, et al., 2016). Reasons for the prevalence of Lassa fever
outbreaks during the dry season have been attributed to the seasonal migration of the mastomys from
nearby bushes to domestic environments as a result of the increase in human activities such as
burning of fields in preparation for the planting season, availability of farm produce (crops and
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grains) at homes, which are commonplace during the dry season thereby bringing people into closer
contact with rodents (Lo Iacono, et al., 2016; Kamara, Koroma & Gogra, 2015). However, the recent
all-year-round reports of Lassa fever outbreak in Nigeria indicate a change in the disease trend. This
change according to Ihekweazu (2017) suggests either an evolving epidemiology of Lassa fever in
the country or improved detection.
While the search for an effective cure for Lassa fever continues unabated, risk communication
activities are carried out as a major component of Lassa fever emergency management. The
objectives of risk communication interventions for Lassa fever include the promotion of knowledge
regarding the high-risk behaviours that promote Lassa fever infection, advocating risk reduction
measures in addition to influencing attitude and behaviour towards the disease prevention.
Information relating to contact tracing and isolation of victims are also provided to educate the public
on the need to reduce the disease spread.
Despite the risk communication activities been carried out over the years, various studies have shown
that inadequate knowledge of the disease remains a significant factor for the reoccurrence of the
Lassa fever outbreaks in Nigeria (Aigbiremolen, Duru, Awunor, Abejegah, Abah, Asogun &
Eguavoen, 2012; Lawal, 2014; Tobin, Asogun, Happi, Ogbaini, & Gunther, 2014; Reuben & Gyar,
2016). In addition, Yunusa and Egenti (2015) claim that poor education of the high-risk population
regarding measures that will help reduce rodent populations in their environment amongst other
factors brought about very poor management of the disease in Nigeria. In view of these facts, it is,
therefore, pertinent to ensure effective delivery of Lassa fever risk communication messages across
different populations in Nigeria, including the use indigenous media with political will from the
government (Oyesomi, Soola, Abioye & Oyero, 2014; Ogwezzy-Ndisika, Ibraheem & Faustino,
2016). This paper, therefore, highlights the significance of new communication technologies for
Lassa fever risk communication delivery.
Literature Review
Risk Communication and Sustainable Health Security
According to Covello (1992) defines risk communication as the information exchange among
stakeholders concerning the nature, significance, magnitude or control of a risks. Glik (2007).
describes risk communication as an exchange of information about the health risks caused by
environmental, industrial or agricultural policies, products or processes, among individuals, groups
and institutions. Perko (2012) says that risk communication is an interaction and sharing of opinions
regarding risks and the management of risks among various stakeholders including risk assessors,
risk managers, consumers and other interested parties, through various means of mass
communication. A more recent definition by World Health Organisation portrays risk communication
as “the real-time exchange of information, advice and opinions between experts, officials and people
who face threat to their wellbeing, to enable informed decision-making and the adoption of protective
behaviours” (WHO, 2017, p. 3). These definitions point to the fact that risk communication involves
two-way interactive communication process involving groups of people.
In the context of public health, risk communication is conceived as a significant element in disease
outbreak preparedness and control. As such, it proceeds from the identification of significant health
risks, preparing people who are at risk to deal with it, and coordinating responses upon the
occurrence serious health crises (Kreps, 2009; Schiavo, Leung & Brown, 2014). From this assertion,
it could be deduced that risk communication could either be proactive (before the emergence of a
health crisis) or reactive (when the health crisis has occurred).
This could be the reason why risk communication is often used interchangeably with crisis
communication in a wide range of literature and attempts to distinguish them have not yielded a
consensus. Some scholars believe that crisis communication is a spontaneous and reactive process,
often occurring in unexpected emergency situations while risk communication aims to reduce the
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likelihood of a crisis event occurring. In this context, risk communication precedes crisis
communication.
The major objective of risk communication is to improve collective and individual decision making
towards improving the health of the society. Risk communication plays significant roles in disease
prevention and preparedness, outbreak control and recovery especially where information is shared
very early (WHO, 2005; Schiavo, et al., 2014]. However, Dickmann, McClelland, Gamhewage,
Portela de Souza and Apfel (2015). maintain that comprehensive understanding of infectious disease
risks among stakeholders stimulate effective communication during epidemic outbreaks.
Likewise, the medium of communication and the message presentation determines the way risk
messages are interpreted. While some scholars believe that the mass media has a direct effect on the
audience, others have argued that multiple individual factors such as knowledge in addition to
intrapersonal characteristics and interpersonal communication networks influence behaviour towards
risk messages a large extent (Cascio, Cin & Falk, 2013; Lin, McCloud, Jung & Viswanath, 2018).
Another challenge in communicating health risks is reaching the intended audience. Risk
communication often involves greater numbers of people and diverse population groups (Bennett,
Calman, Curtis & Fischbacher-Smith, 2010). The community at risk is often the general public, while
there are different groups and individuals with different information needs and interest in reality
(Adekola, Fischbacher-Smith, Fischbacher-Smith & Adekola, 2017).To increase risk communication
messages delivery among diverse population groups, new communication technologies could be
valuable.
New Communication Technologies
The trend of information seeking among different population groups keeps shifting over time with the
“death” of the print media and the transcendence from radio and television to digital communication
which has become the order of the day. In the same manner, new communication technologies have
transformed the way messages are being sent and received across the globe. The unique qualities of
the new communication technologies include speed, compactness, and interactivity. The Internet for
example is a universal medium which can be used to reach a large number of people across the globe
within a short period of time. This character of the internet further brings forth the death of distance
to manifestation. The internet also promotes interactivity with its multimedia structures which offers
people engage in communication the opportunity to represent information in a variety of formats
including texts, images, audios, videos, memes and others (Sriramesh, Wattegama& Abo, 2007).
Internet applications such as LinkedIn, Pinterest, Tumblr, YouTube, Yelp, Flickr, Snapchat,
Instagram, Second Life, WordPress, and ZoomInfo are effective means to broadcast and amplify
various forms of communication (Samarya-Timm, 2016; Hauer, 2017).
Furthermore, the emergence of the social media platforms such as Facebook, Twitter, WhatsApp,
WeChat etc. has transformed communication in a more dynamic manner. With the proliferation of
smart phones and data distribution companies, many people depend on social media platforms either
to receive or send information on daily basis. The amount of traffic on different social media
platforms confirms that it has become a veritable tool for communication.
Theoretical Background
This paper is anchored on technological determinism theory and risk communication theories as
developed by Covello, Peters, Wojtecki and Hyde (2001) which include mental noise theory,
negative dominance theory, trust determination theory and the risk perception/outrage theory.
Technological determinism theory argues that the society is influenced and shaped by technological
development. Therefore, the society has to adjust and adapt to new technologies and innovations as
they evolve (Hauer, 2017). This theoretical assumption is relevant to this study since it advocates for
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the adaptation of risk communication messages used for Lassa fever intervention to the trending
communication technologies which guarantee messages delivery with a speed of light.
Mental noise theory is one of the risk communication models. The theory upholds that individuals
tend to become nervous upon hearing the news of an infectious disease outbreak. Consequently, the
mental unrest hinders people’s ability to acquire, retain and interpret information as they develop
difficulty in hearing, comprehension and recall of risk information disseminated (Covello, et al.,
2001; Covello & Milligan, 2010). Therefore, risk communication experts advocate that risk
communication messages should be concise and repeated over time to enhance comprehension.
The Negative dominance theory according to the proponents buttresses the idea that people have the
propensity of placing greater value on losses and other negative information or outcomes than on
gains or positive information and outcomes when they are under apprehension during disease
outbreak. The model presupposes that nervousness could lead to psychological biases; paying
disproportionally close attention to negative information and discounting positive information
(Covello, et al., 2001; Covello & Milligan, 2010). It is, therefore, ideal to counterbalance negative
messages with a larger number of positive or solution-oriented messages during public health
emergencies to avoid detrimental emotional responses and social outrage (Covello, 1992).
Trust determination theory is another theoretical assumption by Covello, et al., (2001).The authors
conclude that public trust is fundamental to the effectiveness of risk communication messages and
strategies. They maintain that risk communication will most likely achieve the desired objectives
when the messages are communicated by trusted information sources. As a matter of necessity, trust
must be established well in advance of an actual crisis event because individuals who are distraught
tend to distrust risk communication sources. Although, the manner in which trusted risk information
sources form and present risk messages also influence risk communication
The risk perception/outrage theory acknowledges that people have the tendency to develop stronger
level of concern when the risk event is perceived as uncontrollable or associated with adverse
outcomes.
The four theories of risk communication combine to form the basis for considering effective message
delivery as mediating factor for public understanding and compliance with expected behaviour to
reduce the incidence of Lassa fever in Nigeria.
The Significance of Timeliness in Risk Communication Message Delivery
Time is of great significance in risk communication. This is because timeliness facilitates the success
of risk communication activities. Considering the seroprevalence of Lassa fever in Nigeria, risk
communication activities would produce better results when proactive or predictive approach is
adopted rather than the reactive method which has been observed in Nigeria. Proactive interventions
motivate individuals to modify their behaviours to reduce the risk factors, and sequentially reduce the
onset of infectious diseases.
Scholars such as MacIntosh, Rajakulendran, Khayat and Wise (2016).have established that reactive
approach to healthcare is not only expensive, but to some extent it has been proved ineffective in
attending to the needs of the present generation. Continuing with a reactive practice in risk
communication will lead to increase cost in risk communication and mixed reactions from the
communication targets thereby rendering the messages ineffective.
Therefore, proactive or predictive approach to risk communication is a perquisite for raising

awareness and conscientising the public on high-risk behaviours that predispose people to infectious
diseases as well as reducing the economic impact of the disease on families and the nation at large. It
serves to reduce the diseases’ spread as people possibly will adopt and sustain healthy behaviours and
lifestyle that improve their health (Outwater, Leshabari & Nolte, 2017), while reactive risk
communication tends to declare the outbreak of infectious diseases in a spontaneous manner.
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In view of the fact that risk communication theories have established that risk communication during
outbreak situations often lead to panic and pandemonium as people often develop mental noise and
distrust of risk information sources, proactive risk communication prior to outbreak of Lassa fever
events would not only enable people exhibit ascendency during outbreaks, it would also facilitate
public participation in preparedness and response. Moreover, “most of the concerns and questions of
upset or concerned people can be upset or concerned people can be predicted in advance” according
to Covello and Milligan (2010, p. 46). When this is the case, interventionists would provide
appropriate responses to the anticipated questions even before they arise.
Furthermore, just as Hampton (2016) observes that new communication technologies encourages
persistent contact with the communication making pervasive awareness possible. For this reason, the
demand for integration of new and evolving communication technologies in health risk
communication has become popular. Scholars have observed that new communication technologies
have also lead to the reduction in the costs of interaction across the globe. Time and space no longer
amount to barrier for health risk communication (Nelson, Kehinde, Oyero, Williams & Soola,
2013).
Considering the widespread use of new communication technologies such as smartphones and
personal computers with their multimedia internet applications which enables texting, e-mail,
chatting, voice and video calls, audio and visuals records, photographs, tweets, infographics, and
memes that enhances message delivery, risk communication programmes need to be adapted to the
ways people communicate with new technologies to ensure effective delivery. These technologies are
powerful tools in message dissemination and amplification enabling different population groups to
follow up with risk information as opportunity to share risk communication messages among peers
within a shortest time abound. The power of the new communication technologies in risk
communication was demonstrated during the Ebola virus saga in Nigeria as risk information and the
hysteric salt-water bath and bitter kola antidote went viral among various social media groups.
Therefore, adoption of new communication technologies will not only guarantee speedy delivery of
risk information, it offers the opportunity to modify risk communication messages to, socio-
demographic traits, literacy level, social and cultural milieu as well as concept recognition abilities
and preferences of the communication targets (Strecher, Greenwood, Wang & Dumont, 1999).
Moreover, engaging new communication technologies will facilitate the reduction in funds expended
on Lassa fever risk communication and also facilitates continuous updates of information as events
unfold giving the risk communicators an edge over the situation rather than dishing out reactive
commentaries to the public.
Conclusion and Recommendation
Risk communication plays significant roles in disease prevention. Limiting health risk
communication to traditional and local media restricts outreach performance. Therefore, to ensure
effective message delivery and interaction between the various stakeholders, risk communication
programmes need to be adapted to the trend of information seeking among different population
groups.
Acknowledgement
This paper is sponsored by Covenant University Centre For Research, Innovation and Discovery
(CUCRID).
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Partnership as the Factor of the Development of

Polish Enterprises
Tomasz LIS
Faculty of Management, Czestochowa University of Technology,
Częstochowa, Poland,
tomasz.lis@wz.pcz.pl
Abstract
Rapid technological development has contributed not only to facilitating the life of the average
person, but also to increase the level of complexity of activities related to gaining a competitive
position and acquiring and maintaining clients. The reasons for these problems include lack of
understanding and communication between interested parties. One of the ways to solve the problems
raised is the introduction of a partnership between the company-employee-client line. As research has
shown, employees and external clients are willing to cooperate with, and act for the benefit of the
company. Partnership in physical cooperation requires a partnership at the information level.
Sincerity, honesty and reliability in the information exchange process allow to gain benefits. The
company has the opportunity to gain better competitive position and the external client has the
opportunity to meet the information needs related to his everyday life, including purchasing choices.
The purpose of the article is to show the problems that arise from the lack of understanding and
communication, as well as the benefits of introducing partnership in business. In the article, the
results of surveys conducted among clients and employees, will be presented and analyzed. The study
conducted in 2018 covered 357 first and second degree, full-time and part-time students, working and
not working at the Faculty of Management at the Częstochowa University of Technology. This
choice was dictated by the fact that these people are already, or in the future, responsible for business
management issues, in addition to clients of businesses. The results of the study and the interviews
conducted with employees, clients and employers will also be presented.
Keywords: partnership, information, clients
Introduction
Nowadays, very fast technological development is observed. This applies, inter alia, to the area of
information and communication technology. ICT is currently considered one of the most important
for development: the knowledge-based economy, markets and industries, and the activation of the
dynamism of globalization processes(Hagsten and Kotnik, 2017: 431-432). In this regard, according
to the author, it would also be necessary to add the undoubted influence of the development of
information and communication technology to the activation of the phenomenon of dynamism and
volatility of markets, including behavior of all participants. It results directly from virtually unlimited
access to information. Access, in which time and place barriers do not apply.
Every development and improvement is aimed at facilitating human life. This applies to both,
professional and private parts of it. As mentioned above, the development of ICT has contributed to
blurring the limitations resulting from physical distance and time, regarding: providing, acquiring and
exchanging information. The limitations of the information sphere of human life have also lost in
importance, not resulting from the possibility of reaching individuals which are close to the physical
sense, but which remain outside the "influence". A good example is social media. The author of this
publication, as most of the other people living and using them, through them, obtained the
opportunity to contact, and thus acquire and provide information from and to people with whom he
lost contact in the past. He can also make friends with other people, but also with organizations,
which results from common: friends, interests, views, frequented places, workplaces, experiences,
knowledge and everything that can connect two living units. At the same time, the unit is not only a
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man, but also a group focused around all the issues mentioned above. This network of connections,
usually purely informational, is virtually unlimited. Each participant has information and knowledge
that can be useful to others.(Volot and Gogol, 2017: 67-68)
In times when uncertainty, volatility and globalization are the basic features of the markets, one
should become a partner for cooperating units. Thanks to this, based on knowledge, skills,
qualifications and resources of partners, one can focus on the use of opportunities and avoiding
threats. Partnership can be considered as a network of related entities working for the benefit of their
own and common, which are not interested in competition, but cooperation and collaboration. Its
subjects are not only other enterprises, but mainly employees and clients. In the author's opinion,
partnership on the company-employee-client line is an essential base for success.
Partnership in an Enterprise
By definition, partnership is nothing but "equal treatment of one another”(Polish Language
Dictionary). According to Howaniec and Okrzesik, in relation to the economy, partnership is "a
system of formal cooperation between several institutions based on a legally concluded contract or
informal agreement, and relationships within cooperative activities and jointly adopted
plans”(Howaniec and Okrzesik, 2015: 169). The above-mentioned definition indicates the
institutional nature of the partnership. Much more broadly and in the author's opinion, more
accurately, the partnership in the economic sphere, describes the definition according to which "is a
voluntary and cooperative relationship between the various parties in which all participants agree to
work together to achieve a common goal or to undertake a specific task and share risk, responsibility ,
resources, competences and benefits”(Woźniczka, 2013). Partnership is undoubtedly very close to
cooperation and collaboration, conducted in order to gain specific benefits for each of the parties.
Partnership seems to be the meaning corresponding to close cooperation, in which the following:
trust, understanding of needs, respect, acceptance of differences, not taking actions to the
disadvantage of partners, are becoming more and more important. Thanks to this, as a result of close
communication, control and supervision, organization and management, the parties are able to
optimally pursue the common goal.(Butt et all, 2019: 240-241)
Partnership, just like cooperation, collaboration or creating network organizations, is undoubtedly

aimed at gaining better competitive position in the dynamic and changing environment. This is to
happen as a result of better use of the resources and potential of partners. Most importantly, this
should be done in an atmosphere of the mutual respect and integrity(Dvorak, Civinskas, 2018: 95-
98). This also should be done in accordance with ethical principles of human functioning.
Ethics in partnership is an indispensable condition of business success, as indicates J. Klimek in his

work. The author states that „it builds authentic customer relations referring to the company and its
activities, and thus leads to an advantage over competitors, (...) in internal relations within the
company it is the most effective way to base management on the modern understanding of
partnership”(Klimek, 2014: 97). The author emphasizes that ethical behavior should concern:
employees of the company, clients, and finally the community in which the company operates.
Building successful relations with the external environment should be initiated with activities aimed
at creating appropriate relations in the workplace. After all, the position of the enterprise depends
largely on the employee, the efficiency of his duties and the nature of relationships in which he
remains with others. In this respect, it is necessary to create and cultivate an appropriate
organizational culture. It must be based on trust and awareness of honest treatment of employees, but
also all other partners of the company.(Tan, 2019: 1-2)
Customers and employees can be also evaluated by various artificial intelligence methods (Scherer et
all, 2016: 570-576). It allows automatically choose the best persons for a give purpose to maximize
efficiency.
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Partnership relations in the enterprise should contribute to increasing the efficiency of employees and
the enterprise itself. On the other hand, they are building the positive image of the organization in the
community in which it operates.(Parker et all, 2019: 271-272) The employee, as the regular
participant in community life, shares information with others. It includes information about the
employer's approach to the employee and the environment.
The scope of impact of this information is increased as a result of the use of the Internet, for example
social networks. It therefore has an impact on the perception of the company by current and potential
customers and partners.
This is confirmed by the results of research conducted by the author of this publication: participatory
research, interviews with employers, employees and clients, results of a survey conducted among
students of the Faculty of Management at the Częstochowa University of Technology1. Employers
are increasingly aware of the fact, that employees inform people around them, how they are treated in
the place of employment. This information also applies to the general approach of the organization to
others. This is important due to the high competition, but also due to the lack of employees on the
market indicated by employers. Each of the examined parties is also aware that finding information
about the company, its approach to employees, customers and partners is not currently difficult. At
the same time, employers point out the difficulty in finding employees with whom it is possible to
enter into partnership relations. This situation applies to both new and already employed people. This
is especially difficult for production workers. Having more and more financial and social
requirements, their behavior often violates the trust of partners in the enterprise. Punishment and, in
extreme cases, dismissal of the employee often results in appearance of false information about the
wrong approach of the employer to subordinates. Such sentences are expressed in the interviews
mainly with the employer. Employees, although they seem to understand the existence of such
events, rarely indicate specific cases. Employers also pay attention to the fact that new employees are
concealing matters, which, in the end, results in insinuations in enterprises and deterioration of good
relationships in the team. Such situations do not affect relations with current and potential partners.
These problems are most often related with family relationships, real reasons for changes in the place
of employment and competences. What is very worrying, employers report, for example, the fact of
theft by the employee during inter-organizational cooperation. This obviously worsens the employer's
business relations and disturbs interpersonal relationships.
Partnership with Clients

The customer is a key market participant for the company. The pursuit of his satisfaction is the basic
company’s activity that results in maintaining in the market or obtaining the competitive
advantage(Nogalski and Niewiadomski, 2017: 123-124). The importance of the client is particularly
important today, when there is a lot of competition, which is further compounded by the development
of information and communication technology, especially the Internet. This is also influenced by the
phenomenon of globalization and the significant dynamism of the markets. The contemporary client
is demanding and changeable in his requirements and expectations. According to the author, one of
the most important reasons for this is to blur the limitations of time and place in relation to human
functioning in the information dimension.
Shaping the market position of an enterprise requires taking specific actions to satisfy the client. It
cannot be forgotten that the customer is not only the recipient of manufactured products (external
customer). The customer is also the recipient of the results of work of individual employees or
departments in the enterprise (internal client)(Li et all, 2019: 360-361). Considering the company's
structure in terms of the supplier-customer relationship confirms the need to build partner relations in
it. In the case of organizations that aspire to gain the competitive advantage, it is currently a necessity
according to the author. Among the needs and expectations of customers, internal and external ones,
one indicates(Thomas et all, 2019: 1-2):
• Respect ,
1 The analysis of the results of the survey will be presented in the following part of the publication.
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• Interest in the client's affairs,

• The right to reliable and substantive information,
• Feeling of setting the matter.
Satisfaction and meeting customer expectations is associated with the identification of his needs. It
seems that the optimal solution is the client's involvement in the process of his satisfaction. By
providing information and knowledge, the client participates in the process of creating an offer -
creating new products, improving existing ones. Acquisition must be accompanied by the provision
of information to the client. The basis of the partnership is the achievement of the expected benefits
by each party.(Ptak, 2014: 114-115) Thanks to partnership relations with clients, the company gains a
number of benefits, including: increased profits and improved competitive position. In conditions of
high volatility and dynamism, this is primarily the result of the ability of better sensitivity to market
events than the competition.(Kiselakova et all, 2018: 102-103) The customer satisfied with the
partnership, not only uses the assortment offer, but what is even more important, provides
information and knowledge about himself and others, and thus allows identifying opportunities and
threats that may occur.
Partner Relations and Position of The Company in The Opinion of Internal and
External Clients of Enterprises - Results and Analysis of The Research
In the study, two research methods: the traditional survey (PAPI) and individual depth interviews
(IDI), were used. The survey was conducted inamong 357 full-time and part-time students of the
Faculty of Management at the Częstochowa University of Technology. The study covered workers
(144 people) and unemployed (213 people). Among them were business owners and employees
employed in various departments and in various positions. The choice of students acquiring
knowledge in the field of management gives the opportunity to get to know the opinions of people
whose professional life is or will be related to management issues. This allows to gain knowledge
about the current and future approach (work). This group is a good research area also due to the fact
that all respondents are recipients of the offer and activities of enterprises on the daily basis.
Therefore, they have experiences and their own views on how and where the company-customer
relationship should go. They know what they expect from suppliers and what partnerships can give.
Individual interviews were conducted among employers, employees and clients with whom the
author of the publication had personal contact during his daily life. The analysis of the results will be
carried out in a logical order resulting from the layout of the publication. At the beginning, opinions
on building partnership relations in the company, among employees will be presented. In the second
place, opinions on building partnership relations with external clients will be described.
While creating the paper, the author based on the assumption that: in the dynamically changing
environment, business problems are related to the company-employee-customer relationship. The
basis of these problems are information activities. On the one hand, the enterprise deliberately tries to
provide positive information to the environment, identify and acquire the necessary information, and
on the other hand, it constantly provides negative information. Their source are employees' contacts
with possessed and potential clients (usually unconscious) and employees in their everyday life
(widely understood dissatisfaction with work). It increases the costs of activities - providing and
spreading positive information, reducing the ability to obtain the necessary information. According to
the author, it is possible to put forward the main thesis according to which: the development and
improvement of the company's operations in the dynamic reality is inseparably connected with the
introduction of partnership on the company-employee-client line. Such a main thesis allows to define
the following detailed theses:
• the basis of the partnership in conditions of high volatility and uncertainty is mutual honesty,
• the basis of the partnership in physical terms is the partnership in terms of information as the
primary area of cooperation,
• partnership within the company's organizational structure is a prerequisite for partnership with
external clients.
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One of the most important tests of partnerships is mutual behavior in a crisis situation. Respondents
in this regard were asked about their behavior in the situation when the enterprise in which they were
employed, went through the crisis. One of the most important factors in the activation of the crisis (its
effects) in the economic organization is the spread of inconvenient information outside. Therefore,
the question was asked: if in a situation when they would be reliably informed about problems,
possible consequences (dismissals, reduction of earnings), at the same time they would know that the
company operates honestly on the basis of ethical principles (in relation to internal and external
clients) would they pass negative information about the company outside?2 The maintenance of
discretion was declared by 51.39% of working people and 42.72% of non-working people.
Information about the problems would be spread outside by 14.58% of the employed and 20.19% of
the respondents without employment. Noticeable is awareness of the importance of the greater action
on the condition of companies in the case of partnerships among workers.
The company shaping partnership relations with and among its own employees is gaining them as
promoters, acting in its favor in the external environment. One of the most important activities in this
regard are: soliciting to establish cooperation (eg using the offer) and correcting false information and
strengthening positive information in the external environment (information space of human
functioning). Encouraging to cooperate was declared by 67.36% of employed and 61.50% of non-
working respondents. With regard to correcting false information and strengthening positive
information: 69.44% and 58.22%, respectively (Fig.1.). The opposite opinion was: solicitation,
10.42% and 7.04%, correction and reinforcement, 5.56% and 7.51%. The obtained results are
confirmed by the results of research carried out by D. Grego-Planer (together with the team) (Grego-
Planer, et all, 2013: 264-265).
Fig. 1: Actions carried out by employees as a result of shaping partnerships with them
Source: Own research
The summary of this part of the survey analysis, but also a smooth transition to its next stage, will be
results obtained in response to the question about the truth of the thesis, according to which: shaping
partnerships with its own employees and external partners including clients is a factor tightening
contacts with the company and motivating actions in its favor. Such an opinion was given by 79.86%
employed and 78.87% unemployed. The opposite opinion was respectively given by: 5.56% and
3.76% of the respondents. Obtained results clearly testify to the truth of the thesis.
In relation to external clients, shaping partner relations aims, among others, to modify the offer
(introduce new ones, improve old ones), optimize the ways of functioning (management) and
improve customer service processes. Benefits in the scope of: modification of the offer was
confirmed by 90.97% of employed and 90.61% of non-working, optimization of management was
confirmed by 71.53% of employed and 79.81% non-working, improvement of service by 80.56% of
employed and 94.37% of non-working (Fig.2). Based on the results, it can be concluded that
2 This question is important, among others, because the employee is one of the most valuable sources of
information about the company in its environment. In this respect, he has considerable influence.
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employees are aware of the positive effects of the partnership. Customers are also aware of their
value in this regard. This is confirmed, among others, by the results of research carried out by B.
Nogalski and P. Niewiadomski, who state that the most important activities aimed at strengthening
contacts with clients include: caring for image, customer service, investments and innovations
(Nogalski and Niewiadomski, 2017: 130-131).
Fig. 2: Benefits resulting from partnership on the company-clients line.

Source: Own research
The study gave respondents the opportunity to comment on the motivating factors for undertaking
cooperation with the company. At the same time, it should be noted that the question was constructed
in such a way that it allows to evaluate the approach of external clients. In connection with the above,
the results will be presented without division into working and non-working persons. The distribution
of received answers is presented in Table 1.
Table 1: Factors motivating external clients to start cooperation and establish

partner relations with the company
Satisfaction, that my opinions, my knowledge and willingness to engage are appreciated 26,89%
and allow me to: create new products, improve the quality and functional features of
products already available, improve the service process, improve the management process
Discounts for shopping in the company 37,82%
Cash equivalent 28,01%
Receiving the product, one time, for free (before cooperation, the maximum limit value of 7,00%
the product is agreed upon, which will be passed on to the customer if his comments are
taken into account)
Source: Own elaboration
In addition, one of the persons interviewed stated, that the motivation would be the possibility of
employment in the enterprise.
Activities related to consolidation or improvement of the competitive position require identification,

acquisition and use of appropriate knowledge resources. In this regard, according to respondents,
thanks to the partnership-based enterprise-customer relationship, it is possible to use the knowledge:
on the strengths and weaknesses of the company, according to 63.89% of employees and 71.36% of
non-working respondents, with the needs and expectations of clients: 71.53% of employees, 85.92%
of those who did not work, about the activities undertaken by the competition and the effectiveness of
their reception, according to 54.17% of employed and 62.91% unemployed, with upcoming market
events: 40.28% of employed and 43.19% non-working respondents.
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Conclusion
According to the author, relationships with clients based on partnership and trust, while maintaining
ethical principles, are currently one of the most important factors for enterprises to gain the
competitive advantage. They allow to modify the assortment offer, optimize management and service
- adapt to the requirements and expectations of customers. According to the author, this is primarily
due to the development of information and communication technology (ICT) - free access to
information, the possibility of information spreading freely, overcoming the limitations of time and
place. Information has always been and is the causative factor of human activity. Any dishonesty,
behavior with signs of fraud, use, abuse of trust, failure to meet the terms of obligations in the form
of information, reaches (or may reach) present and potential partners in a short time. This, in turn,
each time has the negative impact on the company and the position it occupies. It also seems, that
further development in the field of exchange and information flow, resulting in the transparency of
the entity in relation to its environment, will make partnership, integrity, and ethical principles
become an indispensable element of functioning in the free market economy, and not only the way of
competitive struggle.
In connection with the above, it should be stated that the contemporary client expects respect, honesty
and reliability. This applies to both external and internal clients (employees). The client has to offer
the information and knowledge, which, especially in conditions of high volatility, uncertainty and
dynamism, is of key importance on the market. He is able (and uses this opportunity) to disrupt the
functioning of the company - providing and disseminating information.
The multidimensional nature of the problem and natural limitations in the volume of the article make
it the subject of broader research. Research may, for example, relate to the real improvement of the
situation of the enterprise using partnership in its operations - with external employees and clients,
who adhere to the ideology of clarity and transparency of information. Another area of research may
be related to identification of the real understanding in enterprises of the fact of functioning in
realities of information transparency, including adaptation to requirements, which it brings.
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16. Volot O. I., Gogol T. A. (2017). Information technologies in accounting and management
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Odpowiedzialnego Biznesu. (2.03.2019). http://odpowiedzialnybiznes.pl/artykuly/partnerstwo-
jako-narzadzie-spolecznej-odpowiedzialnosci-biznesu/
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Multinational Corporations –
The Private Vector of Economic Globalization
Ovidiu Andrei Cristian BUZOIANU
PhD., National College “I.L. Caragiale”, Bucharest, Romani

buzoianuovidiu@yahoo.com
Alexandru Gabriel POSTOLACHE
PhD. Candidate, Bucharest University of Economic Studies, Bucharest, Romania,

Alexandru.Postolache@bancpost.ro
Mihai DINU
PhD. lecturer, Bucharest University of Economic Studies, Bucharest, Romania

dinu.mihai@eam.ase.ro
Raluca GEORGESCU

raluca.georgescu@infinitumgroup.com
Silviu DIACONU

silviudiaconu@yahoo.com
Abstract
Globalization means increasing economic relations between the world's states by reducing tariff barriers
that prevent good collaboration in world trade. The aim is to enrich the countries from a material point of
view, to increase the quantity of goods and services through an international division of labor through an
efficiency catalyzed by international relations, specialization and competition. Describes the process by
which companies, cultures and regional economies have integrated through communication, transport and
commerce. Globalization of the economy is the final stage of the process of enlarging the dimensions of
the economic activity space, a process started in the pre-industrial period. The speed of deployment and
the direction in which it evolved have been conditioned over time by progress in transport and
communications technology and, under some circumstances, even by governmental action to create a
business-friendly business environment.
Keywords: corporations, globalization, economy, foreign direct investment
Introduction
The term globalization is often associated with the term economic globalization: the integration of
national economies into the international economy through trade, foreign direct investment, capital flows,
migration, technology spread and military presence (Burlacu, et al, 2018a). But globalization is usually
7401
recognized as a combination of economic, technological, socio-cultural, political and biological factors

(Radulescu, et al., 2018). The term globalization may refer to the transnational circulation of ideas,
tongues or peoples' cultures, leading to vast exchanges of information between the world's states. An
important - if not the most important - factor in the spread of globalization over the years has been
technological development, which has greatly influenced economic life.
Globalization and its social impact imply the effects of globalization on the countries of the world, on
their economies, and on the citizens of the countries of the world (Bran, F. et al., 2018). What is
globalization for the world and what is the main factor contributing to the propagation of globalization in
the world (multinational corporations) are presented in this article, emphasizing the main social and
economic effects.
Literature Review of Multinational Corporations in the Global Redistribution of

Production Factors
Multinational firms are one of the most representative factors of contemporary economic progress. They
disseminate wealth, work, technologies, and contribute to raising the standard of living and improving the
business environment (Costache, et al., 2015). At the same time, multinational corporations are the "most
visible aspect of globalization".
Currently, the majority of economists accept that a multinational corporation consists of a company that
has expanded its production and marketing beyond a single country. Thus, "international production is an
added value creation activity under the ownership, control and organization of a firm (or a group of
companies) beyond its national borders".
Definitions given to multinational corporations greatly help to highlight their main features. Thus, no one
doubts that they have become global economic and financial operators. Naturally, the strategies adopted
by these firms to internationalize their production differ greatly from case to case, but ultimately they
have created a true chain of value-added links across the globe (Ionita, et al., 2009a). Some corporations
have considered the world market as their field of action, others have focused their attention on individual
or regional markets. Adopting a strategy or another has a lot to do with the nature of the product, but not
to a lesser extent, the barriers, the obstacles they had to face in order to gain access to those markets
(Radulescu, et al., 2018b).
The emergence and development of multinational corporations radically changed the data on competition
(Profiroiu,. et al., 2019. They have to face now a competition that is taking place in the conditions in
which we can talk about the existence of a "global industry.
In line with new theories on the economic nature of multinational corporations, a global industry is where
the competitive position of firms in a particular country is significantly affected by their position in other
countries and vice versa (Jianu, et al. 2019). Because of this, the international industry is not just a mere
collection of national, domestic industries, but a summation of links where each combatant has to fight
against others on a very broad international basis (Ionita, et al. 2009b). In the case of several separate
savings, firms establish their external activities as a portfolio, with a wide range of autonomy.
A global strategy means increasing interdependencies between geographically separated activities of

subsidiaries and parent companies (Burlacu, S., et al. 2019). At the same time, it implies optimizing the
local advantages of each subsidiary with the satisfaction of the demand conditions on the target market,
according to the idea, "the company must think globally but act locally." The natural consequence of this
is the tendency of specialization of subsidiaries in the production time that exploits the comparative
advantage of the host country.
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Multinational corporations resort to the transfer of technology across the "mother country" borders,
mainly two ways. The first is to internalize new manufacturing technologies in its own subsidiaries in
order to maintain ownership and gain adequate control over them.
The second path consists of the outsourcing of new technologies in the new framework of the economies
of the host countries, which can be done in different ways (Burlacu, et al., 2018b). In this respect,
participation in the creation of Joint Venture, technical assistance, various subcontracting arrangements,
sales of manufacturing licenses, franchising methods, on-site manufacture of parts of industrial
installations and equipment and so on.
Figure 1: The process of new technologies transfers worldwide

Source: United Nations, World Investment Report 1999, Foreign Direct Investments and the Challenge of
Development, United Nations, New York and Geneva
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As can be seen from the synthesis of the determining factors, international firms can resort to a certain
way in which they complete the process of transferring new technologies abroad, taking into account the
characteristics of those technologies, costs, risks, and the general structure economic policy of host
countries in the field of foreign direct investment.
Operations carried out abroad in the field of technology transfers are put by multinationals, to a large
extent, under the medium or long term profitability spectrum. This generally depends on some internal
and external factors of the corporation's multidimensional structure, being influenced by at least the
following factors:
• the novelty of the technologies implemented abroad;

• complementarity with other processes more or less similar to those developed by the firm
through new technologies relocated abroad and used to increase the performance of the
production processes pursued;
• the current trade value, especially when it comes to outsourcing;
• the pressure exerted by immitators, etc;
In 1970, the world's top 15 developed nations consisted of around 7,500 multinational corporations, so
that in 1994 the same countries would host about 25,000 multinational companies. At present,
international statistics show us that there are around 50,000 such businesses worldwide, with as many as
280,000 branches spread across the globe. They account for about 40% of the total assets of the private
sector in the world, accounting for one third of the goods produced in the entire world economy. The
International Labor Office estimates that multinational firms have about 100 million direct employees,
representing 4% of the world's wage-earning workforce and 12% of developing countries. Total annual
sales of all multinational corporation amount to nearly US $ 3.5 trillion (including intra-company
transfers and components).
Today, multinational corporations and not countries are the first agent of international trade. As a result,
multinational corporations have changed the structure of many countries' production factors as a result of
moving physical and human capital and technology from one part of the world to a new base of
production assets.
Table 1: Top 10 Top International Corporations in 2018
Rank The name of Country of Active Employers branches

the origin
multinational Total (mil. Total Total Numărul Number
corporation USD) filialelor of host
străine countries
1 Citigroup Inc USA 2.002.213 263.000 796 601 75
2 BNP Paribas France 2.948.928 201.740 755 596 61
3 Allianz SE Germany 822.418 151.800 546 444 58
4 Generali Spa Italy 607.381 85.322 278 261 45
5 Societe France 1.467.086 160.144 380 277 57

Generale
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6 UBS AG Switzerland 1.290.410 64.293 615 602 38
7 Unicredito Italy 1.331.024 165.062 853 829 38

Italiano Spa
8 HSBC United 2.364.452 309.516 741 485 54

Holdings PLC Kingdom
9 Axa France 1.015.010 103.432 542 485 38
10 Deutsche Germany 2.260.684 80.849 949 804 39

Bank AG
Source: UNCTAD/HEC Montréal, 2018
Regardless of the particularities of the various multinational companies whose area of origin differs so
much it is absolutely clear that mankind has stepped into an era in which they have gained control over a
large part of the world economy. It is clear that the role and especially the effect that large multinational
corporations have on the world economy far exceed their numerical significance. Often, the influence
exercised over a sector of activity, viewed in isolation, is less than the influence exerted on the world
economy as a whole. This is explained precisely by the creation in the last decades of a "global
production system" whose main promoters are multinational corporations.
The globalization of competition has given rise to other implications, most of them coming from the
sphere of information and technological communication. In an effort to reduce production costs, risks and
uncertainty, large multinational corporations have made strategic partnerships, primarily in the
technology field, to give them more flexibility in decision-making and action.
Cross-border Concentration of Capital and the Emergence of the World Oligopoly

The size of large industrial groups and the emergence of oligopoly networks have fundamentally changed
the physiognomy of the world economy. At the same time, new technologies and scientific discoveries
have created favorable conditions for unprecedented expansion of multinational corporations. All this has
been compounded by the increasing pace of mergers and acquisitions that have involved a certain
restructuring of large companies, the process of capital concentration being carried out simultaneously
both domestically and internationally.
The most characteristic form of this offer has been the oligopoly, namely the world oligopoly, which
some economists do not mechanically deduct from the degree of concentration of production and capital,
but as "a space of rivalry."
The emergence of the world oligopoly, as a natural consequence of capital concentration on an

international scale, created the possibility that economic interdependencies could transcend national
borders.
The process of cross-border concentration of capital and its accentuation lately gave rise to other
interesting effects. One of these is "outsourcing." When talking about outsourcing, we have a number of
possibilities to approach: from externalities of production (the effect that occurs when the production
possibilities of an enterprise are influenced by the choices of another enterprise), to the social ones (where
social costs and benefits differ from private ones, let's say of a production unit). They may be positive or
negative, the classification being relative, because they can be transformed at any time. In the present
7405
case, the term could also take on the idea of capital expansion and the deepening of the industrial division
on an international scale. Over the past 15 to 20 years, we have witnessed a considerable expansion of the
means by which large firms have managed to reduce the costs of their integration into the world economy
and exceed the limits imposed by market entry.
They often enter into asymmetric relationships regardless of their economic power. Many smaller firms
provide a wide range of procedures and means of action for organizing and consolidating market
positions and permanently dominating oligopolistic domination. These practices have facilitated the
switch from national oligopolies to the world oligopoly.
The organization of companies in oligopolistic networks is undoubtedly a superior form of concentration

of capital and globalization of the economy.
At the same time, the widespread use of telematics, flexible automation based on microelectronics and
other modern means of directing production has allowed the proliferation of specialized know-how and
the deepening of the division of labor within oligopolistic networks.
Foreign Direct Investment – the Spearhead of Globalization of Capital

For a long time, the theory of foreign direct investment has been given less attention, with priority being
given to other issues. Gradually, however, as multinational corporations have gained a growing weight
and importance in the structure of the world economy, the issue of international investment has increased,
so now it has come to occupy a distinct place in general economic theory.
Based on the decision of a firm to operate abroad, there are three factors. One of them refers to the need
to purchase cheaper natural and human resources. The second concerns the possibility of penetration in
some markets, where export could provide higher profitability margins. Finally, the third objective factor
is conditioned by the increased efficiency of all operations by a world - class firm. The three reasons
mentioned above are not mutually exclusive. On the contrary, they can move certain segments of the
world economy into motion, or it propels, in its entirety, an upward trajectory through their conjugated
effect.
Foreign direct investment has marked new records from one year to the next, being a natural consequence
of the intensification of multinational corporations and efforts to liberalize markets and trade.
Undoubtedly, one of the major causes of the rise in foreign direct investment is the affirmation of the
importance of international production, promoted primarily by multinational corporations.
Foreign direct investment has increased in the OECD member states, and this is explained by several
causes. Firstly, it is a direct result of the process of forming domestic capital, absorbed to a large extent
by domestic markets, but, on the other hand, looking for new markets where it can find a superior value.
Due to this, a number of traditional capital exporters have become important hosts of an impressive
amount of investment.
Removing obstacles to foreign direct investment and liberalizing their penetration into certain sectors of
the economy has been one of the important parts of the new political orientation. As a result, the state has
become more cautious about how a number of issues such as job creation, technology transfer, the effects
of foreign firms' presence on domestic competition, increasing labor productivity and competitiveness are
being addressed. On the other hand, increasing the degree of internationalization of economic life and the
need to capitalize on opportunities in new outlets have encouraged domestic firms to better emphasize the
benefits they have by expanding their sphere of activity abroad.
7406
At first, when some OECD countries faced massive capital inflows in the form of direct or portfolio
investment, they were inclined to practice certain restrictions. Often control over foreign capital gives the
public authority a false sense of security, destroying it from its essential role of implementing realistic,
effective monetary, fiscal and currency policies.
Another reason for the impressive increase in the volume of foreign investment is undoubtedly the very
large number of mergers and acquisitions between firms and firms. In all regions of the world, but
especially in the United States and Western Europe, mergers and acquisitions have played a particularly
important role in increasing foreign investment.
A very large influence on the increase in the volume of foreign direct investment was undoubtedly the
conclusion of different agreements between firms located in different countries. These agreements, which
have often materialized in short, medium and long-term arrangements, have come from a variety of well-
known joint ventures to leasing, subcontracting, franchising, marketing and Research and Development.
Over the past two decades, progress in science and technology has deeply influenced the entire
international business environment. From the list of causes that contributed to the vertiginous growth of
foreign direct investment, trade can’t in any way be missed. Many developing countries (but not only)
have developed a whole set of strategies for foreign investment. Often they have been associated with
rapid industrialization and, at the same time, an expansion of modern technologies.
Although internationalization of production and then its globalization is presented as an effect of

increasing capital exports as direct investment, today no one no longer doubts that, at some point, the
globalization of productive activity itself has changed in a case of increasing the volume of investment
flows.
The main factor that caused this reversal of the situation was the expansion of multinational corporations
on all continents and the entry into their work of increasing parts of material production and services. The
increase in the volume of foreign direct investment as a result of the intensification of multinational
corporations is also explained by the economic performance of their subsidiaries abroad.
Conclusion
Globalization is a phenomenon that has existed since the Middle Ages - the Silk Road, for example - and
which makes its presence more and more felt today by various factors. These factors can be represented
by multinational corporations - the key to the spread of globalization in the world - then, foreign direct
investment, unemployment, employment, migration, exclusion and social inclusion, etc. Another very
important factor in the spread of globalization, visible today, is technological development, which has
greatly influenced economic life. Information technologies have helped many economic actors -
consumers, investors, business people - by giving them new tools to identify and track economic
opportunities, including faster and more advanced analyzes of economic trends around the world, easier
asset transfers, and collaboration with partners at long distances.
Considering globalization as a process of "deepening and tightening the interdependence between world
economic actors," some authors try to balance the two forces present on this huge stage of the world
economy: on the one hand, the natural inclination towards cooperation, and, on the other hand, the tough
competition in which economic protagonists have been engaged in various forms of competition.
Undoubtedly, both cooperation and competition are two factors that have played an important role in the
spread of globalization. The dependence of national economies on one another for essential goods and
services, various raw materials, has been the basis for the persistence of international economic
cooperation.
7407
The key factor for the development of globalization is, as has been said, multinational corporations.
Definitions given to multinational corporations greatly help to highlight their main features. Thus, no one
doubts that they have become global economic and financial operators. Naturally, the strategies adopted
by these firms to internationalize their production differ greatly on a case-by-case basis, but ultimately
they have created a true chain of value-added links across the globe. In order to achieve this goal, there
was not always one way to act. Some corporations have considered the world market as their field of
action, others have focused their attention on individual or regional markets.
In line with new theories on the economic nature of multinational corporations, a global industry is where
the competitive position of firms in a particular country is significantly affected by their position in other
countries and vice versa. Because of this, the international industry is not just a mere collection of
national, domestic industries, but a summation of links where each combatant has to fight against others
on a very broad international basis.
The emergence of the world oligopoly, as a natural consequence of capital concentration on an

international scale, created the possibility that economic interdependencies could transcend national
borders. The process of cross-border concentration of capital and its accentuation lately gave rise to other
interesting effects. One of these is "outsourcing." When talking about outsourcing, we have a number of
possibilities to approach: from externalities of production (the effect that occurs when the production
possibilities of an enterprise are influenced by the choices of another enterprise), to the social ones (where
social costs and benefits differ from private ones, let's say of a production unit).
Foreign direct investment has marked new records from one year to the next, being a natural consequence
of the intensification of multinational corporations and efforts to liberalize markets and trade.
Undoubtedly, one of the major causes of the rise in foreign direct investment is the affirmation of the
importance of international production, promoted primarily by multinational corporations. The largest
volume of investment is made by developed countries. In turn, developing countries have invested
abroad.
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Financial Engineering and Development of Social Security:

Conceptual and Methodological Approach
Ghenadie CIOBANU
Ph.D., INCSMPS, Bucharest, Romania
gciobanu01@gmail.com
Zvetlana GOMBOS
z.gombos@yahoo.com
Evelina Petronela BALU

baluevelina@yahoo.com
Olivia Florentina BALU

University of Geneva, Switzerland
oliviabalu@yahoo.ch
Cristina DIMA
dima.cristina5@gmail.com
Abstract
In this article we aim to show a possibility of interaction of the concept of financial engineering with the
possibility of applying to support the vulnerable field of social security. Given the problems facing the
field of social security in Romania, which has been a member of the EU since 2007, and the moment of
accession to the Euro currency, we propose to see how the field of financial engineering can support the
social finance system and various socially vulnerable groups. It is a problem not only of Romania, it is a
problem of many countries, both developed countries, and especially developing countries.
Keywords: financial engineering, social security, pension funds
Introduction
In this article we set out to draw a parallel between the social security sector and the impact of financial
engineering on the support of social security. Social security is provided by the public institutions that
coordinate different systems, both at national level and at the level of regional public authorities - in
Romania - counties, and local ones. At central administrative level, the ministries, agencies, departments
ensure the social security of the persons regarding the provision of services and rights of social insurance,
social assistance, problems of management and regulation of the labor market and of social protection.
Another pressing problem is that of supporting the pension systems, in particular - the private pension
systems, the functioning of the private pension funds, namely in this area the financial engineering will
find its practical applicability. In this context, we want to mention the law of private pension funds.
We have all the certainty that the development of both private pension funds by applying the concept of
financial engineering in the management of the funds activity, but at the same time applying the concept
of financial engineering and in the activity of public finances, both at central level, at regional and local
level by creating viable and functional tools that would ensure local public authorities to understand how
7410
these financial instruments can help them to issue municipal securities, but also of rural local public
administrations to solve different financial problems.
We aim to reflect the essential moments in the evolution of the activity of private pension funds in
Romania in the last years. The value of the total assets under administration at the level of the entire
private pension system increased steadily during 2014, maintaining the positive trend registered in the last
years. Thus, as of December 31, 2014 the system reached 20.2 billion lei (4.5 billion euros) 1, and
represented 3.05% of GDP, compared to 2.34% in December 2013. The value of total assets under
administration at the level of the entire private pension system increased in 2015 to 25.94 billion lei
(about 6 billion euros), increasing by 28.62% compared to 2014.
Private administered pensions (Pillar II). At the end of December 2015, 6.56 million participants were
registered in the system of privately administered pensions, an annual advance of 4.18%. The total value
of net assets recorded at the end of 2015 by privately administered pension funds was 24.67 billion lei
(5.45 billion euros), the annual growth rate being 29.06% (27.85 5 as compared to euro coin). In the
private pension system in Romania (Pillar II and Pillar III) were registered at the end of December 2017 -
7.49 million participants, in 2018 7.72 million participants. Participants in privately administered pension
funds 7.04 million participants were registered in the privately administered pension system at the end of
December 2017, with an annual advance of 3.59%. Compared to June 2017, the number of participants
increased by 1.81%. 7.04 million participants were registered in the privately administered pensions
system at the end of December 2017, with an annual advance of 3.59%. Compared to June 2017, the
number of participants increased by 1.81%.
Optional pensions (Pillar III). The net assets of the voluntary pension funds reached, in December 2015,
the value of 1.25 billion lei (0.28 billion euros), registering an increase of 20.43% compared to December
2014. Financial instruments - country structure As of December 31, 2017, private pension funds owned
90.71% of assets in Romanian financial instruments, of the nature of government securities, deposits,
bonds, shares and collective investment undertakings. 6.95% of the assets of private pension funds were
invested in foreign assets, most of these financial instruments being issued in Germany (2.45%), France
(0.94%), Austria (0.83%) and Ireland (0.66%). In supranational bonds, 2.33% of assets were invested.
Financial instruments - the foreign currency structure 89.83% of the assets of the private pension funds as
of December 31, 2017 were denominated in national currency, And of the foreign currency investments
(10.17%), the highest share had - one euro investments (8.98%), followed by the US dollar (0.61%), the
Polish zloty (0.20%) and the Czech koruna (0.12%). The euro was the currency for which the pension
fund managers used foreign currency hedging instruments.
Objectives and Methods
In order to arrive at the elaboration of a viable and functional concept in the application of the financial
engineering mechanisms and tools for the management of the administrators of the institutions that
manage the private pension funds, but also for the formation of a financial education of the population -
that is, the fund holders, the investors - individuals. We set out to study the financial engineering factors,
which characterize the environment in which an economic agent operates - a modern corporation. The
environmental factors can be considered as external to the company, over which the company has no
direct control, but they have a direct connection with it, as it affects the performance of the company.
The second group - the factors that are internal to the company, intrafirm. Third, increasing price
volatility, general globalization of industry and financial markets, tax asymmetry, technological advances
and technologies, the success of financial theory, changes in the regulation of legislation, increased
competition, and so on.
We set out to examine the concepts: 1) The concept of technological progress. With the advances in
computer technology closely - achievements in the field of telecommunications, in which we have
7411
successes for certain branches of financial engineering. 2) The concept of polysemous "liquidity", a term
used to determine how easily assets are converted into cash, as well as the ability to cash in circulation, or
the ability to obtain cash in an emergency. 3) The concept of financial engineering knowledge includes all
the fundamental and modern knowledge of financial engineering, through which we intend to approach
the special concept for the course of developing financial engineering skills. 4) The concept of financial
engineering - the cost indicators and their use, the cost ratio, as a basis for financial analysis and
engineering. The chapter on income measurement includes the analysis of concepts related to the
assessment of the value of income, profitability and profitability rate. 5) The investment horizon is a very
important concept for financial engineering, in the activity of the investment director of a company. The
problems of the length of the investment horizon require an understanding of how individuals perceive
income and reduce the risk of measuring their investment horizon. 6) The concept of present value and
future value is appropriate for these objectives. We approached the examination of the assumptions
underlying the various methods of income assessment. 7) The concepts of lognormal distribution, the
relative incomes and the profitability in the basic period are important in the creation of methods for
evaluating the options. Their knowledge is necessary when analyzing the portfolio, in the case of multi-
periodicity. Another important issue is the risk area. Risk issues: portfolios and investment horizons. In
the performance of companies, in the impact of changing financial prices, which are interest rates,
exchange rates, commodity prices and equity prices. The problems of the exchange rate and the risks of
foreign currency, the factors that determine the exchange rate at sight and at the term. Our main purpose
is - to help people understand the mechanism of exchange rates, which are linked to interest rates (and
vice versa), as it is involved in the danger of borrowers and other parties to deal with world markets
because of possible fluctuating agents these levels and currency exchange as well as how interest rates
and exchange rate differences can be used profitably. Most of the financial engineering is associated with
the attempts to use the incorrect valuation of assets, deviations in the relation of prices and other elements
of market inefficiency.
The Evolution of Some Aspects of Social Security in Romania

Law no.76/2002, on the unemployment insurance system and the stimulation of employment, as
subsequently amended and supplemented, which provides measures to increase the employment
opportunities of people looking for a job: Social protection is financing from social contributions, local
budgets and the state budget. Family benefits and social assistance are tax-funded. The other branches are
mainly funded by contributions, as follows. Age limit, disability and survivors. In 2016, in Romania there
were 7 privately administered pension funds, administered by 7 administrators. Also, there were 10
Optional Pension Funds, administered by 8 Administrators. Employee: Pillar I: 10.50% (including 3.5%
contribution rate to Pillar II). There is a ceiling that applies to the calculation base, five times the
estimated average gross income, per source of income. Pillar II: 3.5% of the contribution rate is deducted
from Pillar I. The contribution rate to Pillar II is increased by 0.5% annually until it reaches 6%. There is
a ceiling that applies to the calculation base, five times the estimated average gross income, per source of
income. Employer: Pillar I: The contribution rate varies according to the working conditions: 20.80% for
normal working conditions, 25.80% for difficult working conditions and 30.80% for special working
conditions. There is a ceiling that applies to the calculation base, five times the estimated average gross
income, multiplied by the average number of employees. Pillar II: There is no requirement regarding the
employer contribution. Self-employed person: Pillar I: 31.30% (including 3.5% contribution rate to
Pillar II). There is a threshold that applies to the calculation base, 35% of the estimated average gross
income, and a ceiling, five times the estimated average gross income.
Financing of social services, Law 292/2011. The social services are financed from the following sources:
the state budget; the local budget of the county, respectively of the municipality of Bucharest; the local
budgets of the communes, cities and municipalities, respectively the local budgets of the sectors of the
municipality of Bucharest; donations, sponsorships or other contributions from natural or legal persons in
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the country and abroad; repayable and non-repayable external funds; the contribution of the beneficiaries;
other sources of financing, in accordance with the legislation in force.
According to Article 133. (1) From the state budget, funds are allocated for: financing the programs of
national interest, elaborated by the Ministry of Labor, Family and Social Protection, as well as by other
central public administration authorities with attributions in the field of social services and approved by
Government decision; financing programs for subsidizing private social service providers, carried out by
the Ministry of Labor, Family and Social Protection; financing the setting up of pilot social assistance
institutions; (2). Financing the social services provided through the public structures that are in the
subordination-coordination of the authorities of the central public administration;( 3) financing the social
services provided by the local public administration authorities and other public and private providers of
social services, according to the law; f) The financing of the permanent education programs of the
specialized personnel and of the research programs in the field of social services; g) capital expenditures
and repairs for day centers.
Financing of social assistance. According to Law no. 292/2011, Art. 128. Social assistance is financed
from funds allocated from the state budget, from local budgets, from donations, sponsorships or from
other contributions from natural or legal persons, from the country and from abroad, from contributions
of beneficiaries, as well as from other sources, in compliance with the legislation in the field and within
the limits of the available financial resources.
Fig. 1: Evolution of the social protection expenses in the period 2005-2017, total expenses,
million lei
Source: http://statistici.insse.ro:8077/tempo-online/#/pages/tables/insse-table
ASS122B - Expenses of social protection, by categories of expenses and by functions of social protection
The social protection functions are: disease/health care invalidity; age limit; followers; family / children;
summery; House; social exclusion (not elsewhere classified).
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Social protection expenses include: Social protection expenses includes expenses with social benefits;
administrative costs; other types of expenses.
Table 1: Evolution of the average number of pensioners by the retirement system,

thousand persons
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Total
pensioners 3679 4131 4292 4476 4995 5258 5417 5583 5755 5941 6153 6351 6378 6306
(I+II+III)
I. Social
insurance
3577 4034 4200 4392 4917 5187 5352 5524 5702 5894 6110 6311 6342 6274
pensioners –
total
II.
Beneficiaries
of social aid 35 31 27 22 20 17 15 13 11 10 8 7 6 5
- pension
type
III.IOVR 67 66 65 62 58 54 50 46 42 37 35 33 30 27
Invalidities/I 16 17 19 19 17 16 15 14 12 11 11 10 9 8
survivors'
51 49 46 43 41 38 35 32 30 26 24 23 21 19
pension /S
Source: The average number of pensioners by retirement system
http://statistici.insse.ro:8077/tempo-online/#/pages/tables/insse-table
Pensions I.O.V.R. that is granted to the disabled and injured in the war, the descendants of the dead or
disappeared in the war, as well as the descendants of the former disabled and injured retired from the war
are established according to the provisions of law no. 49, 31.03.1999, M.O. Nr. 135, 1.04.1999
From the table we see an increase in the total number of pensioners from 3679 thousand, to 6378 in 2002,
and of 5207 thousand in 2018.
Feeling the problems of old people without pensions and health insurance will be felt after 2025, when
the people working in the dark economy will reach the threshold of old age without pension, or without
health insurance, and the minimum service costs will be paid for them. by the social assistance system
(Profiroiu, A.,& Burlacu, S., and Sabie, O. (2019).
Investment options that are at least as good as the ones they have now. The goal is to allow ordinary
people to make informed investment decisions about risk-reward compromises and to implement
decisions at the lowest possible cost to the company and themselves. Costs are defined to include not only
explicit consulting fees or commissions, but also the expenses of one's own free time and the time and
patience of friends and relatives.
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To decide how to invest. Social costs include distorting the possible market resulting from misleading
advertising or unintentional subsidies that could sub-optimally encourage risk-taking behavior. The work
is organized as follows. First, we examine the economic theory of optimal consumer life and portfolio
selection to see what guidance savings investments offer. Then we would show how to use financial
engineering to produce a defined investment menu with a guaranteed level of minimum benefits, plus
participation in a Stock Reference Portfolio.
The Concept of Financial Engineering and Opportunities to Support the Sector of

Social Security
In Germany, (Dieckhoener, C., & Peichl, A., 2009) there is an ongoing debate on how to increase the
efficiency of the social security system and, in particular it’s financing. The purpose of this paper is to
simulate different financing systems for Germany. The introduction of a liberal or South Greek British
funding system increases inequality and poverty, as well as job incentives. The introduction of the Danish
social-democracy system decreases income inequality, but does not necessarily lead to lower poverty.
Tax payments are extremely high, while payments with social contributions are relatively low leading to
mixed incentive effects.
There are many reasons why financial engineering has become more important in the European economy,
and its role will be even more important and valuable in the future. In the context of the post-2013
multiannual financial framework, the role of European cohesion policy in shaping European investment
models will be fundamental, especially in the context of the EU2020; this policy should continue its
commitment to further, develop financial engineering investments in order to get more with the same
public funds available. The importance of financial engineering comes not only from its specific features,
but is also supported by the choice of the economic fields in which it has been applied so far and where
we will apply it in the future, as well as by the close connection between investments in these areas in the
context of the crisis and the long-term growth of the European economy.
The purpose of this study is to investigate the effects of the different mechanisms that have been, used to
solve financial problems, the problems of financial market development. New developments give rise to
the use of new tools in risk management, asset management and mortgage finance, pricing of derivatives
and coverage as well as the need to provide better tools to help make financial decisions. Financial
institutions need specialists with an understanding of the problems of financial strategies, with practical
expertise and know-how, at the same time they must focus on the importance of financial operations in
the bigger picture. So I'm trying to show the importance and impact of financial engineering.
The legislative framework for regulating the private pension regime initiated by Law No.411/2004 and,
was improved by amendments to the law. "The purpose of the system of privately administered pension
funds is to provide a private, distinct and supplementary pension supplemented by the public system, on
the basis of collecting and investing, in the interests of the participants, a part of the individual social
insurance contribution." Private pension scheme in the definition provided by law means "a system of
terms, conditions and rules on the basis of which the administrator invests the assets of the pension fund
for the purpose of obtaining a private pension by the participants". (Carp, A., 2018, p.79)
In opinion of the authors (Jariwala H. & Patel V. M., 2011), the rapid changes in corporate finance, bank
finance and investment financing have changed the scenario in financial markets. With increasing
competition, traditional product portfolios of financial institutions are being replaced by more complex
products, which have given rise to a new discipline known as financial engineering. In the fast-changing
environment, it is viewed as the process's financial innovation, which seeks to adapt existing financial
instruments and processes and to develop new ones, so as to enable financial entities to meet the changing
needs of customers and to do so. Face more effectively with the changing world.
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Today, complex financial products are presented with significant overlap in terms of benefits and
associated costs.
In order to remain relevant in the market and to gain market share, financial institutions must bring
innovations to the existing product line through financial engineering. Through this paper, the author
would like to shed some light on the concept of financial engineering, motivating factors, the need for
innovative products through financial engineering and proposing strategies for the same.
Authors (Felix UO & Rebecca Li and Onyeis OR, 2015) in this article evaluates the role of financial
engineering in the growth of the financial market. The study to explore the plausibility of the research
topic hypothesis showed above, using the financial market as a focal point. Specifically, this paper reports
on a theoretical examination that simultaneously considers the effects of these relationships between
financial engineering, the financial market and financial market growth, as well as the role of corporate
governance as financial engineering growth and market derivatives, mergers and derivatives. It
encapsulates the role of technological innovation, market restructuring and capitalization, e-banking,
cashless economy in this financial engineering market.
The authors (Marshall, J. F.,& Bansal, V. K.1998) are of the opinion: "Worldwide in the coming
decades, governments will move from pay-as-you-go social security systems to mandatory directed
retirement accounts. A major challenge facing the financial services industry is to help people manage the
risks of investing for their own retirement. One strategy that could be successful is to offer new contracts
for long-term savings that combine the best features of defined contribution and defined benefit pension
plans.” This paper has attempted to demonstrate that financial intermediaries can provide character
investment accounts. Staff who "reproduce" the best features of the pension system. These accounts could
provide some choice regarding participation in the potential "upside down" of the stock market without
jeopardizing the minimum level of benefits required by law. He also tried to show that the existence of
US inflation-protected treasury bonds derails government guarantees of personal investment unnecessary
accounts, which guaranteeing investments in common stocks against the risk of a "deficit" can be very
costly and creates the potential for moral hazard, and that the government can play a unique role, in
enriching investments the possibility to set by issuing securities that are linked to a per capita index of
consumer spending.
Galloping changes in global, regional and national financial systems, globalization of markets and
technological advances highlight and contribute to the emergence of the factors of financial engineering.
The rapid development of financial engineering in the last two decades is influenced by the influence of
various factors. Referring to Financial engineering factors (Marshall, J. F.& Bansal, V. K.1998, p.49,
50). Each of these factors stimulated the development of financial engineering. We will divide these
factors into two groups. First, it includes factors that characterize the environment in which a modern
corporation operates. Environmental factors can be considered as external to the company, over which the
company has no direct control, but which, however, have a direct connection with it, as they directly
affect the performance of the company. The second group consists of the factors that are internal to the
company, which controls at least a part. These latter factors are called intrafirm factors. Among the
environmental factors may indicate such factors as increasing price volatility, general globalization of
industry and financial markets, tax asymmetry, technological and technological advances, success of
financial theory, changes in the regulation of legislation, increased competition and operationally of
spending. Judgment.
About Globalization of markets (Marshall, J. F.,& Bansal, V. K.1998, pp.55, 57) There was a time when
American corporate managers only dealt with domestic economic problems. What is happening in other
countries, for the most part, they are not concerned. In any case, there are potential consumers of US
goods and suppliers of raw materials on foreign markets - and no more.
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About technological advances (Marshall, J. F.,& Bansal, Vipul K.1998,p.60), many sections of financial
engineering were caused by advances in engineering and technology, and to a large extent, these
achievements associated with computers. These include high-speed development of high-performance
desktop microprocessors. Computer network systems, improved input methods. With advances in
computer technology closely - achievements in the field of telecommunications. Successes have been and
continue to be significant for some branches of financial engineering. Although they are often behind the
scenes and therefore not adequately evaluated.
The success of financial theory. Finance theory as a formal discipline has studied the costs and risks, so
that a financial engineer cannot work effectively without a solid training in the field of financial theory.
The above does not necessarily require official financial disciplines for academic study. Financial science
has evolved from economics, and theoretician financiers have extensive training in the economic field in
economic theory and methods. Theorists in finance and financial practices are extremely versed in the art
of simulation, which is highly appreciated by economists.
Need for liquidity. The concept of "liquidity". By itself, the term is often used to determine how easily
they are active, are converted to cash, as well as the ability to cash in circulation, or the ability to obtain
cash in an emergency. In some cases, this determines the extent to which the value of the guarantee will
be rejected from the nominal value, with changes in the economic conditions, in particular the interest
rates.
The foundation of financial engineering knowledge. (Marshall, J.F. & Bansal, V. K.1998, p. 90), here we
aim to analyze all the fundamental and modern knowledge of financial engineering. We want, and
therefore, we intend, to approach the special concept for the course of developing financial engineering
skills. Giving the practical implementation of this financial engineering activity is more difficult than it
seems at first sight. Financial engineering, associated with many branches of financial activities and
specialized knowledge base, required for financial engineering as a field, can be very different. There are
certain areas of expertise, certain types of professionals with skills that are useful for many applications
of financial engineering. With this knowledge, the introductory discussion of modern financial
engineering, we hope to help the reader understand better, what motivation they had when we returned to
a question that was addressed.
Many sections of financial engineering require the art of great modeling, artistic modeling (Marshall, J.
F.,& Bansal, V. K.1998, p.92) In some areas this is not necessary, but in any case some qualifications are
needed to simulate the others. We define the art of modeling as the ability to assign situations, difficult
elements of major importance to essentially separate from the non-essential details. Modeling is a
necessary step in analyzing problems and verifying possible solutions. There are many different modeling
ways, and various financial engineers use a variety of approaches. Some approaches are very intuitive,
while others are very strict and structured.
In the opinion of the author (Berger, A.N., 2003), it is examined the technological progress and its effects
in the banking industry. Banks intensively use both information technologies and financial techniques,
and have a wealth of data available, which may be useful for a general understanding of the effects of
technological change. The study suggests improvements in costs and lending capacity as a result of
improved "back-office" technology, benefits for consumers from improved technologies - "front-office"
technologies. The study suggests significant increases in global productivity in terms of quality
improvement and variety of banking services. In addition, the study indicates that technological progress
has facilitated industry consolidation.
Research on the banking sector provides a wealth of information on technological progress.

In “The concept of financial engineering. Cost indicators and their use” the authors (Marshall, J.F.&
7417
Bansal,V.K.,1998) have examined the cost ratio, which is the basis of financial analysis and financial
engineering. These are ratios that are usually injected into every primary course of financial theory. Their
natural foundation, the financial logic of motivation is so obvious that in the financial engineering
industry they are considered as axioms. In conclusion (Marshall, J. F. &Bansal, V. K.1998, p. 114). All
financing and investment decisions based on the study of cash flows. These cash flows appear at different
times of time, and are not immediately subject to comparison. However, these flows can be standardized,
while reducing them to Current Value, using the appropriate discount rates. As soon as the cash flows are
reduced to their present value, they can be added together to determine the current cost of the investment
project, or this financing alternative. This amount is called the present value of the instrument (present
value of the instrument). The current value can be understood as a "fair" value.
Regarding Chapter of measuring the revenues, (Marshall, J. F. & Bansal, V. K., 1998, p.116) the authors
set out to analyze different concepts related to the evaluation of the value of the revenues. Particular
attention is paid to profitability in the basic period and the rate of return. Further, they focused on the
question regarding income indicators after taxation and the value for financial analysis. Then they
continued comparing the effective rates of income, with rates of adequate continuous interest rate
composition. Regarding the Concept of the investment horizon, and its role in making financial decisions,
we can say that knowledge of the conceptual apparatus should be useful when considering the working
methods and techniques of financial engineering, and when we will need to find out several sophisticated
modern concepts of financial theory.
Regarding the Investment Horizon,(Marshall, J. F.,& Bansal, V. K.1998, p.135) is a very important
concept for financial engineering, especially in the activity of the investment director of a company.
Therefore, the investment horizon is defined as a period until the planned closure of the position and the
use of investment income. In some cases, the known investment horizon raises the degree of certainty.
This is what happens when a medium or long term economy is made, and the respective amount is
invested later, when the investment horizon is defined. There are cases when that investment horizon
remains largely indefinite.
Issues related to the length of the investment horizon (Marshall, J. F.,& Bansal, V. K.1998, p.136) are not
new to financial engineering, but attention has not been drawn so often. This required an understanding of
how individuals perceive income and reduce the risk of measuring their investment horizon. This problem
is evident, before engineers associated with the management of the pension portfolio, and other sensitive
investment horizons.
Therefore, the authors (Marshall, J. F. & Bansal, V. K.1998, p. 137) concluded that investment income
can be measured in dollars (or other monetary units) or as a percentage. Dollar profit seems very
attractive, but it is less convenient for Analysis than interest rates. The economic concept, used quite
abstractly, is closely linked to the more specific financial concept - value reduction. The utility function
and its properties are important, and they have several financial evolutions. These allow us to understand,
how to make decisions, investors and other financial operators in the market.
The concept of present value is equally suited to these goals. What we choose depends on the concept
best suited to the study of the situation. The author also examined the hypotheses, which underlie the
various methods of income assessment, and came across these methods. Most commonly used for
revenue measurement - it is the internal rate of return, which for most fixed income instruments is usually
called maturity. Finally, we have seen that the length of the investment horizon and the frequency of
interest commitments are also extremely important factors in the analysis of incomes and which is
preferred for analytical purposes.
The concepts of lognormal distribution, the relative incomes and the profitability during the basic period
are particularly important in the creation of methods for evaluating the options. Their knowledge also
7418
needed when analyzing the portfolio, especially in the case of multi-periodicity, and in other very
important areas of financial engineering.
While we are not able to spend a brief appendix on the in-depth study of each of these concepts, we can
consider some important properties of the lognormal distribution, the relationship between these
characteristics with relative incomes and profitability for the base period. Some of them are useful to us
later. (Marshall, J.F. & Bansal, V.K.1998, p. 138)
Another important issue is the risk area, risk issues: portfolios and investment horizons (Marshall, J. F., &
Bansal, V. K.1998, p.143). On the financial performance of most companies in a certain impact of
changing one or more financial prices, these prices are interest rates, exchange rates, commodity prices
and equity prices. For example: A company that uses floating interest rate financing or does not have
assets with variable interest rates will affect changes in interest rates. For local firms selling their products
on foreign markets will be the direct impact of fluctuations in the exchange rates of its currency in the
foreign markets. Within the production sector company will be the impact of changes in the market prices
of raw materials and finished products.
The problem of interest rates and exchange rates (Marshall, J.F., & Bansal, V. K.,1998, p.215) Financial
engineers often have to come up with changes in the nature of debt. Sometimes it is about converting the
fixed rate debt obligations with floating interest rates into the same currency. Sometimes we need to
convert one currency into passive obligations into another.
Due to the interest rate considered similar (Marshall, J. F., & Bansal, V.K., 1998, p.214). Exchange rate
questions and foreign currency risks. Regarding these aspects, the factors that determine the exchange
rate on sight and on the term. Our main purpose is - to help people understand the mechanism of
exchange rates that are linked to interest rates (and vice versa), as it is involved in the danger of the
borrower and other parties to deal with world markets because of possible agents of the fluctuations of
these levels and of foreign exchange, as well as how interest in differences of exchange rates and rates
can be used profitably.
The problem of Speculation, arbitrage and market efficiency (Marshall, J.F., & Bansal, V. K., 1998,
pp.252, 257) On the one hand, most financial engineering is associated with attempts to use incorrect
valuation of assets, deviations in price relationships and other elements of market inefficiency. The use of
these features is a function of speculation and arbitrage. On the other hand, the efficiency of the market
itself is a product of speculation and arbitrage. The concepts of "speculation" and "arbitrage" are often
misunderstood. Many people associate these activities, trials of abusive exploitation by producers and
consumers. However, with very few exceptions, this view is far from the truth. Speculation and arbitrage
offer many direct and indirect benefits as a producer, and consumer. A corporation operates like an
aquarium in which any sudden movement can lead to waves that can create long-term problems.
Radulescu, C. V., & Dobrea, R. C., & Burlacu, S. (2018b). In addition, it is not an exaggeration to say
that the modern market economy cannot function well without these activities. According to some
authors, Radulescu, C. V.,& Bodislav, D. A., and Burlacu, S. (2018a) the foundation on the paradigm of
technological advances and taking into account demographic evolutions, yesterday's solutions, are no
longer efficient and require new solutions. Only by processing information and communication,
technologies will positively influence public institutions. The conclusions of the Jianu, I., Dobre, I.,
Bodislav, D. A., Radulescu, C. V., Burlacu, S. (2019) are also important to improving government
efficiency and the quality of the institutions, by strengthening the role of trade unions or social partners in
increasing their bargaining power. For growth that covers three dimensions that national governments
should focus on to make government intervention more effective in moderating income inequality:
participatory life, governance, money: low inflation, new financial instruments for small and medium-
sized enterprises or the low-income population. The spatial development in opinion of (Bran, F.& Alpopi,
7419
C.and Burlacu, S. , 2018) refers to developed areas and least developed, and every country that has
reached the stage of development was faced, first, with differences of procedure.
Conclusion and Recommendations

In order to be able to develop the approaches set forth in this article, it is necessary to create a balance
between the poles of poverty and wealth, between the social branch and the financial market that manages
and manages the huge investment portfolios, and some financial engineering tools applied today on
international financial markets. They can find applicability also in the management of social finances, and
especially of the pension fund market.
Financial assets known as investments are managed with careful attention to managing financial risks to
control financial risk.
It is important to apply financial instruments both at the level of public institutions, at the level of local
and regional public authorities, as well as in the private sector, which allow transactions with various
forms of assets with a degree of securitization on the organized secondary market.
The financial education of the population from Romania, which can invest in the field of pension funds,
needs to be further developed.
Both pension fund managers and financial and investment managers from companies of different profiles
need to be much more specialized and professionally trained to be more qualitative in order to be able to
act both on national and international markets in a globalized world.
1. All stakeholders should act in the direction of sensitizing government / parastatal agencies, legal
entities and the public with the opportunities and dynamics of the financial market and its importance for
achieving economic growth.
2. Government agencies, regulators and officials must properly harmonize publicly expressed views, as
well as fiscal and monetary policy decisions while maintaining consistency and a holistic approach to
policy implementation.
3. Increase with operators and other relevant representatives of the private sector in formulating and
implementing policies, in particular regarding policies that directly impact the financial market outside.
4. The growing markets will be incomplete without financial engineering products, such as derivatives,
which are useful in managing the risks associated with the financial system.
References
Berger, A.N., (2003) The Economic Effects of Technological Progress: Evidence from the Banking
Industry, Journal of Money, Credit, and Banking, Volume 35, No. 2, Apr. 2003, pp.141-176

Carp, A., (2018) Centenary evolution of social security in Romania, Romanian Journal of Statistics -
Supplement no. 12/2018 p.79
Dieckhoener, C., Peichl, A., (2009) Financing Social Security: Simulating Different Welfare State
Systems for Germany, April 2009 IZA Discussion Paper DP No. 4135
Felix UO, Rebecca Li and Onyeis OR, The Role of Financial Engineering in the Growh of the Financial
Market, Arabian Journal of Business and Management Review, Volume 5, Issue 4, online:
7420
http://www.omicsonline.com/open-access/the-role-of-financial-engineering-in-the-growth-of-the-
financial-market-2223-5833-1000136.pdf
Jariwala H. & Patel, V. M., (2011) Product Innovations through Financial Engineering, GFJMR Ganpat
University-Faculty of Management Studies Journal of Management and Research (GFJMR) Vol. 3 July-
December, 2011, p.34
and Economic Cybernetics Studies and Research, 53(2), 59-76
Marshall,John F., & Bansal, Vipul K.(1998) , FINANCIAL ENGINEERING , A Complete Guide to
Financial Innovation, New York Institute of Finance
Calitatea Acces la Succes, 20(S2), 521-524
Rădulescu, C. V., Bodislav, D. A., & Burlacu, S. (2018a). Demographic explosion and IT Governance in
public institutions. Managerial Challenges of the Contemporary Society. Proceedings, 11(1), 18, ISSN
2069 – 4229
The 12th International Management Conference“ Management Perspectives in the Digital Era”
November 1st-2nd, 2018, BUCHAREST, ROMANIA, 1, 741-747
*** Law no. 49 of March 31, 1999 regarding the pensions I.O.V.R., published in M.Of. of Romania. In
force since April 1, 1999
***Law No.411/2004 on Privately Administered Pension Funds, as modified and amended by the
Govern Emergency Ordinance no. 50/2005 and by Law no.23/2007, The official gazette of Romania nr.
482 din 18 iulie 2007
***Law nr.76/2002 on the unemployment insurance system and employment stimulation, The
Parliament, published in: The official gazette of Romania No. 103 of 6 February 2002
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Public Policies on the Impact of Social Transfers
Florina BRAN
Professor PhD, Bucharest University of Economic Studies, Bucharest, Romania
florinabran@yahoo.com
Dumitru Alexandru BODISLAV

Associate Professor PhD, Bucharest University of Economic Studies, Bucharest, Romania,
alex.bodislav@ase.ro
Amelia DIACONU
Lecturer PhD, Artifex University, Bucharest, Romania
diaconu.amelia@gmail.com
Victor Adrian TROACA

PhD student, Bucharest University of Economic Studies, Bucharest, Romania
adrian.troaca@gmail.com
Raluca GEORGESCU
PhD student, Bucharest University of Economic Studies, Bucharest, Romania
raluca.georgescu@infinitumgroup.com
Abstract
Romania has had different actions at national level over the last 20 years to reduce poverty. The
Commission for the Prevention and Fight against Poverty (1998) produced the Strategy for Preventing
and Combating Poverty, which was the first strategic document on social policy principles. Between 2001
and 2006, the Anti-Poverty and Social Inclusion Commission (CASPIS) developed various research to
combat poverty, set out indicators to monitor this process and developed different poverty maps. This
commission drafted the National Anti-Poverty Plan and adapted national goals to local needs. In 2005,
the Government drew up the Joint Social Inclusion Memorandum with the European Commission. This
was the first joint project on social inclusion at European level. In 2006, the Government approved the
establishment of a national mechanism for promoting social inclusion.
Keywords: social transfer, poverty, social exclusion, development.

Introduction
The current strategy for poverty alleviation and social inclusion contains a plan that allows Romania to
make progress on combating poverty and promoting social inclusion for vulnerable groups as well as for
other disadvantaged and disadvantaged families. Combating social exclusion and poverty requires a
lifelong approach. For people under the age of 17, the strategy is to provide opportunities for
development, indifferent to the environment in which they come from. Children who grow up in different
environments that face a risk of poverty are at increased risk of discontinuing education. As far as adults
are concerned, the objective of the strategy is to provide opportunities for participation in Romania's
social, economic and cultural life.
In Romania, there are many social programs and interventions to combat poverty and social exclusion,
and experience and tools for identifying disadvantaged people have developed in recent years. In order to
achieve a higher return, it is necessary to coordinate policies and intervention programs. Because there is
7422
a strong link between social exclusion and poverty rates, positive outcomes make the reduction of the two
phenomena require a set of social policies for people to facilitate access to jobs to provide financial
support.
Identifying the needs of vulnerable and poor groups is an important element in implementing social
inclusion policies. Due to the fact that vulnerable groups face specific problems for which policies may
not provide real solutions, the state wishes to implement customized services to enhance social and
economic participation.
One of the major problems of the strategy is the correct allocation of resources on the territory of the
country. In Romania, almost half of people live in rural areas, and some of them are disadvantaged on
income and infrastructure. The government wants to reduce the gaps between rural and urban areas.
Social transfers are based on the introduction of a formula that encourages work, addressing obstacles to
access to social assistance and social services, simplifying access for people with disabilities to the social
protection system, and developing options to develop provisions to ensure reasonable income for elderly
people in rural areas who do not have pensions.
The strategy is organized by analyzing trends in social exclusion and poverty in recent years and making
a prognosis on poverty in the coming years. The second part concerns the presentation of sectoral policies
addressing the areas affected by poverty, but also those affected by this phenomenon. This section
analyzes employment policies and social transfers policies, presents the main issues in areas such as
health, education, social services, regional policy and regional disparities. The strategy ends with the
presentation of a set of initiatives that will have an impact on reducing poverty and promoting social
inclusion.
Population at Risk of Poverty and Social Exclusion
To determine the level of poverty through a one-dimensional assessment, two elements need to be
established:
1.the indicator to express the welfare level or the resources of each household;
2.a poverty threshold to compare the welfare level of each household so that those with a lower
level than that threshold are considered poor.
In Romania, various poverty assessment methodologies have been tested over time and they have
proposed different variants of these two elements. The most important are:
a. National method for calculating absolute poverty:
• was developed by the World Bank experts, the Anti-Poverty and Social Inclusion
Commission and the National Institute of Statistics and approved by the Government in
2005;
• aims to identify households that can not meet their basic food, service and non-food
needs;
• uses consumption expenditure as a welfare indicator and not income, which better
determines the household's living standards in Romania.
b. the relative poverty calculation method established and calculated at Eurostat by Eurostat:
• this method measures inequality in a company, without indicating whether material or
material deprived individuals can meet their basic financial needs or not (for example, if a
7423
company's income doubles or falls short, would be halved for all individuals in one year,
the number of people in relative poverty would remain constant);
• the poverty line is calculated as representing 60% of the median of the distribution of
adult income available;
• is used to monitor the achievement of Romania's national poverty reduction target.
The Government of Romania uses a wide range of indicators to measure poverty and social exclusion.
Thus, the main indicator used to measure the achievement of the EU target for increasing social inclusion
is to target people at risk of poverty or social exclusion (AROPE) who are in at least one of the following
three situations:
1. Are at risk of relative poverty, even if they have received social transfers (AROP - at risk-of-
poverty indicator). These are those whose annual disposable income is less than 60% of median
income, relative to the number of equivalent adults. Revenue available is the sum of all income
earned less taxes (income or property) and paid social contributions.
2. They live in households with a very low work intensity, ie people living in households where
members aged 18-59 have worked less than 20% of their work potential in the reference year.
Only 7.4% of Romania's population under the age of 60 belonged to this category in 2017 (the
EU average was 10.4%).
3. Persons in households who are in at least four of the following nine situations are subject to
severe material deprivation:
4.
• not afford to pay rent, loan rates or utilities bills;
• do not allow themselves to maintain their adequately heated home;
• cannot cope with unexpected spending;
• do not allow to consume meat or protein once every two days;
• they cannot afford to spend one week away from home;
• no color television;
• no washing machine;
• do not have a car;
• do not have a telephone.
People at Risk of Poverty in Romania

Romania's major problems are poverty and corruption. According to Eurostat data for 2018, Romania
ranks second in the European Union relative to the relative poverty rate, with 25.4%. NIS data show that
there are 8.5 million people in Romania at risk of poverty or social exclusion. Also, one-third of the
population cannot afford to purchase items deemed necessary to lead a decent living. Moreover, Romania
is by far the country with the highest inequality between rich and poor in the European Union.
7424
Fig. 1: Persons at risk of poverty or social exclusion (%)

In Romania, the poverty rate varied significantly compared to 2007, as shown above. Although the
poverty rate declined by 6.1% between 2007 and 2011, it had an upward trend in 2012, followed by a
downward trend by 2017. As a result, the decline in poverty between 2007 and 2015 was 9.6 points
percent, accounting for 2,605,000 people out of poverty.
Poverty Rate by Age

One third of children live in relative poverty. While the poverty rate for the total population has declined
over the past 10 years, the child poverty rate has also fallen by about 1%. One in two children in rural
areas still lives in relative poverty. In 2012, over 50% of children in rural areas lived in poverty,
compared with only 17% of urban children. This difference, combined with an even distribution of
children between urban and rural areas, makes over 74% of all poor children living in rural areas.
7425
Fig. 2: Poverty rate by age (%)

Since 2011, young people have recorded the second largest poverty rate, being the main group affected
by the economic crisis. In the case of young people, the poverty rate increased by 6% in the analyzed
period.
There has been a significant reduction in elderly poverty in 2008-2018 due to the rise in contributory and
social pensions. Single elderly people are at a higher risk of poverty than others. Approximately 1.2
million people aged 65 or over live alone (of which three are women). While 25.8% of single elderly
people live in poverty, only 5.8% of elderly couples are in this situation.
Persistent poverty in Romania

Most people in relative poverty in Romania live in persistent poverty. Among people living in relative
poverty in 2017, 81% lived in persistent poverty. Nearly one third of children live in persistent poverty
and the risk they are exposed to living in this poverty increased by almost 3% between 2008 and 2012,
while the risk for all other age groups increased by about 1%.
Regional Disparities
In rural areas, poverty is three times more prevalent than in urban areas. In 2012, 11% of people living in
urban areas were at risk of poverty and 38% of rural areas. The lowest share of people at risk of poverty
was recorded in Bucharest-Ilfov (3%), North-West (16%) and Center (19%). Followed by the regions
with the highest percentages in the Northeast (33%) and Southeast (30%)
Poverty of People Working

Poverty among people who work affects one in two adults. The poor working people are 92% located in
rural areas, 95% have at most gymnasium, 50% have only primary or lower secondary school, and most
7426
live in sparsely populated areas. Few more than half of the working families have only one employee, but
another 43% have two employees who try to have a decent living but still remain poor. The vast majority
of working poor combines wage income with social benefits (80% in total), child allowances being the
main form of support.
The Main Vulnerable Groups

Several groups face different forms of social exclusion or are at high risk of exclusion. The main
vulnerable groups in Romania are: poor people, children and young people without parental care and
support, the elderly alone or dependent, Roma, people with disabilities, other vulnerable groups and
people living in marginalized communities.
In 2016-2017, the vulnerable category included 1.85 million Roma, about 1.4 million poor children (aged
0-17), over 725,000 over 80, 687,000 children and adults with disabilities living in households and other
16,800 living in institutions, more than 62,000 children enrolled in the special protection system (either in
placement centers or in family care) and about 1,500 abandoned children in medical establishments.
Social Transfers and Social Services
The main objective of social protection is to support presenters belonging to a vulnerable group or unable
to work because they are elderly or have different disabilities and must be assured an optimal level of
income. The social assistance system in Romania has gone through various reforms over the last years to
become better. The main objectives focus on improving the training and quality of services provided by
social assistance workers, increasing administrative efficiency by reducing costs, improving the equity of
the social assistance system and reducing errors and frauds in the system.
In Romania, there is a support system for people with disabilities that includes three main sources of
assistance. Persons who have lost their ability to work while they were employed benefit from an
invalidity pension and rehabilitation services. Persons who are enrolled with severe or environmental
disabilities receive financial benefits such as subsidizing or providing free equipment to ensure social
inclusion. In addition, there is an institutionalized care system that supports about 17,000 people and is
funded from the state budget.
Romania faces a high degree of demographic aging driven by a steady increase in life expectancy and a
reduction in fertility rates. These trends substantially alter the age structure of society. Demographic
change will generate high fiscal pressures on the public pension system and health care services, while
income tax will increase. The number of elderly people will increase, both in absolute figures and as a
percentage of the total population, and this will result in an increase in healthcare services, but economic
output may also have a lower headcount inhabitant and economic growth could be limited. To alleviate
these risks of an aging population, the state needs to take measures such as ensuring jobs for the elderly
but able to work, analyzing early retirement and retirement age legislation, and analyzing social
retirement benefit policy.
More than 10 percent of small towns and about one third of rural areas do not have public social
assistance services. Social protection, health, education and employment services are very rare. There is
poor coordination of specialized services for the adult category in the areas. The state aims to develop a
national network for social services so that all resident countries have equal access to these services.
Social services are the set of activities designed to meet the social needs, but also the special, family or
individual needs to overcome or prevent a difficult situation. Social protection in our country is poorly
funded for the European Union, even if the funds for it have increased. In Romania, spending on social
7427
benefits grew during the global financial crisis, as in the rest of Europe, while goods and services
continued to receive steadily 4-5 percent of GDP, compared with an EU average of 8 -10 percent (or an
EU average of over 10 percent, with an upward trend after 2008).
In 2017, only 0.8% of the country's GDP was spent on social services and other health care services, risk
reduction and unemployment services. Most of the costs for social services, less medical care, are aimed
at reducing the risks to people and disability issues.
In order to improve the funding framework, it is necessary to develop in actions such as completing and
reviewing mechanisms for financing social services, coordinating funding mechanisms, improving and
increasing the transparency of national procedures.
It is essential to rigorously estimate the costs necessary for the establishment and operation of the
Community integrated intervention teams and then to allocate an appropriate budget to cover these costs.
The government aims to develop a comprehensive financial strategy for the integration of social
assistance (and a minimum budget), including all relevant budget lines in other sectors, as well as
European funds and any other types of external funding.
Key initiatives proposed for the period 2015-2020

The Government proposes a series of interventions to be implemented in the period 2015-2020, which are
expected to have the greatest impact in terms of poverty reduction and promoting social inclusion:
• Increase employment among low-income and vulnerable groups through personalized

workforce activation programs;
At present, over a quarter of the poor population does not have a job and is not enrolled in the education
system, which accentuates the state of poverty. The government aims to increase the budget for labor
activation programs and employment services for people in the same situation. Thus, with the help of EU
funds, the implementation, monitoring and evaluation of active employment policies will be strengthened.
• Development of integrated social services at community level;
In order to improve the basic services provided by social workers and community workers but also cost
efficiency, the government proposes to develop protocols to guide the work of these community workers
in different sectors, including clear summaries of responsibilities and rules for reporting, information
transfer and documentation activities; to define functional links between community worker teams and
other service providers (such as family doctors, nurses and NGOs); to establish functional relationships
between community worker teams and higher management levels to ensure professional co-ordination,
supervision and training / retraining, etc.
• Improve the tools for identifying disadvantaged schools to ensure that all children benefit
from equal opportunities.
This action is very important in combating poverty due to the plan it has proposed to remove education
barriers and to give all children in poor families the chance to go to school and acquire the skills they will
need in life. But these schools in disadvantaged areas also face major financial problems. A fairer
financial system incorporating social criteria in calculating per capita funding could allow some of these
schools to become sustainable and remain open.
7428
Thus, the government proposes to revise the funding methodology to improve the allocation of resources
to children in need, and to ensure that money is used to provide effective interventions that will increase
access to education and improve its quality for vulnerable groups.
• Development of a tool for identifying poor villages and marginalized rural communities;
In order to help remedy these disadvantaged areas, they must first be identified as quickly as possible and,
second, that specific social services must be available and accessible to their residents. Thus, case studies
will be carried out on these areas to validate the preliminary methodology to simplify it for use by local
authorities to centralize a list of areas most affected to target them with interventions and to achieve a
typology of marginalized rural communities, so that the effectiveness of interventions is ensured. In
addition, a rural development index will be developed so that it can effectively prioritize the necessary
investments (eg in water supply, gas or social services).
• Strengthen coordination mechanisms and develop a monitoring and evaluation system;

This will include strengthening the capacity to monitor the quality of life and family budget surveys,
improving the collection and use of administrative data and accessing EU funds to carry out program
evaluations of a number of representative initiatives. The government will collect data on the
development of a national social inclusion monitoring system to ensure that key elements of poverty
reduction, inclusion and social participation, and an integrated approach to social services are reflected in
national and local policies.
Conclusions
People-oriented policies should work in as many areas as possible. First of all, employment policies must
have the effect of reducing unemployment and inserting as many people as possible from vulnerable
groups into the labor market. Social transfers have the role of helping people who are in a difficult time of
life, and a minimum level of income must be guaranteed. Social services are beneficial to ensure a
minimum level of existence for all people in difficulty or belonging to vulnerable groups
Romania's major problems are poverty and corruption. According to Eurostat data for 2017, Romania is
among the first countries in the European Union in terms of relative poverty rate, with 28.3% being
overtaken by Serbia and Bulgaria.
One third of children live in relative poverty. One in two children in rural areas lives in relative poverty.
In 2017, over 50% of children in rural areas lived in poverty, compared with only 17% of children in
urban areas.
Among people living in relative poverty in 2017, 81% lived in persistent poverty. In rural areas, poverty
is three times more prevalent than in urban areas. In 2017, 11% of people living in urban areas were at
risk of poverty and 38% of rural areas.
The main vulnerable groups in Romania are: poor people, children and youngsters lacking parental care
and support, elderly people alone or dependent, Roma, etc.
The government aims at strengthening institutional capacities at all levels to enable the development and
implementation of policies to combat poverty and social exclusion. It also aims to develop a system for
monitoring and evaluating social inclusion and to follow through indicators the progress of the set
objectives. This system will ensure that the key elements of poverty reduction, inclusion and social
participation and the integrated approach to social services are reflected in national and local policies.
Developing policy-making capacity is a prerequisite at all levels to develop policies to combat poverty
and increase social inclusion.
7429
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7431
Public Policies Regarding SMEs in Romania
Dumitru Alexandru BODISLAV

alex.bodislav@ase.ro
Raluca Florentina CRETU

raluca.cretu@cig.ase.ro
Ciprian ROTARU
rotaru.ciprian84@yahoo.com
Elena Rusalca VELICU

elena.velicu@yahoo.com
Silviu DIACONU
silviudiaconu@yahoo.com
Abstract
At European level and beyond, small and medium-sized enterprises (SMEs) are considered to be a key
factor for growth, innovation, employment and social inclusion. The flexibility and adaptability of the
SME sector are key features to overcome economic crises and are extremely relevant to the current
recession. Recognizing the crucial importance of SMEs in economic development, the European Union
adopted in 2008 the Small Business Act, which sets out a strategic agenda to create a SME-friendly
climate and enable the boosting of entrepreneurial energies at European level. The emphasis on
entrepreneurship and on the role of SMEs is resumed in the Europe 2020 strategy, which seeks to open
the single market for small entrepreneurs correctly. In the case of Romania, public policy recognizes the
importance of SMEs, with various support instruments, both directly, through national and European
funds, and indirectly, by shaping a favorable regulatory framework. However, current SME policy is a
mix of contrasting issues, given that annual amounts are being invested consistently with Romania's
GDP, but there is no consensus on efficiency or results. Against this background, at the initiative of the
National Prognosis Commission (CNP) and with support from the European Social Fund, there was a
clear need to deepen the contribution of the SME sector to economic growth. Such an approach highlights
the need to duplicate qualitative "impressions" (perceptions surveys, expert opinions, etc.) with
quantitative methods, from statistical and econometric tools, capable of validating new policy approaches
or outlining new estimation methodologies of the major medium-term trends. After overviewing the ideas
presented above, the following paper was developed as a sum up of the actual situation in the SME’
development path at Romanian and European level.
Keywords: public policy, SME sector, development, growth, sustainability

Introduction
The Romanian Government considers the SME sector as a priority area of development for Romania,
7432
especially by encouraging the entrepreneurial initiative, capitalizing on the competitive potential of

SMEs, strengthening the institutional and regulatory framework. In the period 2010-2013 and by 2020,
the SME sector must move to a higher stage, that of developing competitiveness on the Single Market
and third markets (Radulescu, 2018a,b).
Supporting the SME sector is a priority of the economic program. As a contributor of strategic
importance to economic growth and job creation, the small and medium-sized enterprise sector needs to
benefit from state policy towards smart regulation, systematic consultation with representative
organizations, increased access to finance, simplification of procedures and de-bureaucracy for small
entrepreneurs.
The Importance of the SME Sector in Romania
Demography
From a demographic perspective, the number of SMEs in the period 2003-2010 had a different evolution,
from the steady increase recorded in 2005-2008, to the 2009 decline as the economic crisis began. The
first interval was characterized by the steady increase of the number of companies, so that in the peak
year 2008 the maximum value of 485,417 SMEs was reached, respectively by approx. 50% more than in
2003. With the deployment of the economic crisis, in 2009, for the first time after a relatively long period
of uninterrupted growth, the number of active SMEs fell by about 5% over the previous year. The
downward trend was accentuated in 2010, when the number of SME's declined by another 8 percent
compared to the previous year, reaching 423,236. This loss actually means returning to the level recorded
in 2006.
Occupancy
The data show that the number of jobs in SMEs has decreased sharply since 2009. Thus, the total number
of employees in the SME decreased by 11.9% in 2009, the downward trend continuing in 2010 and
producing a a total reduction of 16.5% compared to the beginning of the interval. In terms of distribution
by size class, in 2010 the number of employees in SMEs was evenly distributed among the three size
classes, as follows: 33.1% employed in micro enterprises, 33.6% in small enterprises and 33.3% in
medium-sized enterprises. Changes in the crisis period mitigated the differences in the distribution of the
number of employees in the three SME size classes. If, historically, small businesses hired more people
than micro-enterprises, while medium-sized enterprises hired more than small ones, the evolutions during
the crisis gradually altered the structure to the stage of a complete balance. The impact of the employment
crisis translates into absolute values by the loss of 464,339 jobs in active SMEs in the two years of
economic recession, 2009 and 2010. Compared to the business sector, where 628,390 jobs work, it is
found that 73% of them are found in SMEs. The situation can be explained by the negative impact of the
crisis, particularly strong for this indicator, translated into the intensity of the restructuring process in
small and medium-sized enterprises in Romania. So, if in the years before the economic crisis, Romanian
SMEs were an important contributor to the creation and preservation of jobs, this trend was interrupted in
the context of 2009 and 2010.
The structure of the SME category in the Romanian economy is very different after this measurement of
the economic results, as follows: SMEs in the industry create a lower VAB than those in commerce (24%
vs. 27%), constructions have a higher contribution (15% and lower services (only 34%). According to
this structure, it can be concluded that SMEs in the Romanian industry are less reliant on technology and
innovation, while the economy as a whole is characterized by slower tertialization. Also, within the
7433
industry, the activities that stand out are rather low-tech or medium-low tech, while among the dominant
service activities are the ones "less intensive in knowledge"
Measures Taken as Part of Effective Public Policies

Development of regional agencies to attract investment and export promotion
Duration: 2018-2019.
Beneficiaries: business environment, public, regional and local authorities.
Effects: identifying investment opportunities at the local level and realizing turnkey investment projects;
information on facilities for investors - an example being State aid schemes set up to support new national
investment; support for investors to obtain the necessary permits, connection to utilities and contracting
of support services needed to start the activity; establishing partnerships with financing institutions at
European and international level, bilateral chambers of commerce, foreign embassies in Romania;
attracting foreign investments with the support of the Romanian embassies abroad;
Impact: The amounts will be secured from non-reimbursable funds EUR 5,000,000 / year for 8 agencies.
Continue the Start-up Nation Romania program
Period: 2018-2020.
Beneficiaries: start-ups.
Effects: setting up more start-ups and increasing their competitiveness, new well-paid jobs in the
economy;
Value: 200,000 lei / project / contractor, 10,000 start-ups annually.
Strategic Invest Romania - State aid program to support strategic investments of local entrepreneurs
Period: 2018-2019
Beneficiaries: local investors; supporting domestic investments of at least 2 million euros, by granting a
grant from the value of the investment.
Effects: developing domestic capital, supporting the industrialization of Romania, increasing the number
of firms.
Creating the National Program for Entrepreneurship Development – PNDA
Period: 2018-2020.
Beneficiaries: local public authorities and business environment. It finances entrepreneurial infrastructure
at the level of local communities (establishment of at least one incubator / industrial park / technological
park).
Effects: Increasing attractiveness for investment in marginalized communities, developing business
infrastructure in Romania and increasing Romania's attractiveness as an investment destination (Profiroiu,
2019).
Program to support internationalization
Period: 2018-2020;
Beneficiaries: Romanian companies wishing to export.
Effects: increased exports of Romania and SMEs, through participation in international fairs with country
stand, economic missions, international events in their own name. By law, no dignitary can attend a
business visit abroad with an economic focus, without a delegation of business people, chosen through
7434
transparent procedure; the agenda of the Minister for Entrepreneurship must be publicly posted (Bodislav,
2011a,b).
Establishment of Entrepreneurship High Schools
Period: 2018-2020.
Beneficiaries: Students, new generations of young entrepreneurs.
Effects: Developing entrepreneurial skills among young people.
Professional Romania Program
Support program in public-private partnerships for vocational and vocational schools, a program that
supports the training of young people in the trades needed by the economy (lathes, welders, electricians,
mechanics, etc.). At this point, one of the most pressing issues of the economy is the lack of adequate
workforce.
Adopt the Law of Lobby
So, the business environment is no longer organized in circles, some closer to power centers, and others
disadvantaged. In this respect, like the European Transparency Register, the Lobbying Registry will be
set up.
Restart the Business Environment
By introducing compliance plans at a given time, so that all companies have provided a predictable
framework for the future, without fear that past mistakes will be able to push for further work.
Public policies and economic measures for empowering SMEs

SMEs refer to micro, small and medium-sized enterprises with less than 250 employees per year, net
annual turnover of up to EUR 50 million or net assets in RON up to 43 million euro.
Firstly, this sector deserves special attention because of its size and its global contribution to national
development (Branson et al., 2009).
Secondly, SMEs are more vulnerable to a poor business environment than larger businesses. It is
generally recognized that smaller firms pay a higher proportion of costs to doing business than large
businesses, and the external threats created by the poor business environment place them in a more
vulnerable position.
SMEs in Romania are currently facing difficulties in accessing funding due to supply and demand
constraints. On the supply side, Banks in Romania are under pressure, largely due to the high level of bad
loans (one of the largest in the European Union). With regard to the application:
• Lack of sufficient guarantees and results for start-ups, very young enterprises, micro-
enterprises
• Poor business performance and insufficient information for medium-sized companies,
banks will be reluctant to approve new loans.
In helping SMEs, the EU has several funding programs to develop or set up (Burlacu, et al., 2019). This
support comes in various forms, such as: grants, loans and guarantees. All this in various programs.
7435
The support programs are as follows:
1. Funding opportunities with theme (Example: specially designed programs for the environment,
training, training, research, etc.). In this case, service or support firms, business associates and
consultants submitting a grant receive subsidies that cover only part of the project costs.
2. Structural Funds: Those applying for these funds receive a direct contribution to the financing of
projects.
3. Financing instruments: Available through national funding mediators.
4. Assistance for the internationalization of SMEs: The pre-access mechanism for assistance is specific
to EU candidate or potential candidate countries. The Union offers indirect funding to these
countries, which means they can access loans more easily.
To simplify the regulatory environment and SME policy in Europe, there is a Small Business Act (Ionita
et al., 2009a,b). It has four priorities: promoting entrepreneurship, reducing the regulatory burden on
SMEs, improving their access to finance, and improving their access to internationalization.
To support the above priorities, the SBA set out the following principles:
1. Education and training for entrepreneurship

2. Effective bankruptcy procedures and second chance for entrepreneurs
3. Institutional and regulatory framework for SME policy-making
4. Business environment for business creation
5. SME support services and public procurement
6. Access to finance for SMEs
7. Supporting SMEs for the benefit of Euro-Mediterranean networks and partnerships
8. Skills and innovations in enterprises
9. SMEs in an eco-friendly economy
10. Internationalization of SMEs
There are a number of possible reasons or objectives to support the SME-oriented business environment:
1. Economic growth and transformation: to maximize opportunities for growth and

transformation through an assessment and identification of factors that inhibit the growth
of SMEs;
2. Formalization: to help formalize companies by creating the conditions in which informal
firms find that formalization offers more benefits than costs, as well as better use of
mechanisms;
3. Entrepreneurship: Developing and implementing national entrepreneurship policies and
programs, including support for entrepreneurship, finance, innovation and culture, and are
largely focused on entrepreneurial start-ups.
4. Job quality: Improving the legal and labor regulatory regime to address the quality of the
job challenges facing a large number of SME workers;
5. Women's economic empowerment: tackling the legal and regulatory barriers affecting a
disproportionately large number of enterprises owned and managed by women in the
SME sector.
7436
Conclusions
Research and innovation, as well as other management activities, are confronted with a number of
barriers, among which the study by the National Small and Medium Enterprises National Council
identified the following:
- the high cost of operations;

- insufficient funds;
- uncertainty about the demand for innovative products;
- difficult access to information;
- lack of medium to long-term forecasts;
- the rigidity of the eligibility of publicly funded projects;
- difficulty in finding partners for co-operation;
- difficult access to information on new technologies;
- problems with the quality of human resources.
The importance of SMEs in the economy is widely recognized and indisputable. Therefore, they need to
be supported in their development efforts for research and innovation (Jianu, et al., 2019). The
contribution of entrepreneurship and SMEs to job creation, innovation and growth is well recognized by
Romanian society and public authorities.
Romanian SMEs have been severely affected by a sharp drop in demand for goods and services and a
tightening in terms of lending, which drastically affects cash flow and liquidity. Several studies have
highlighted that obtaining financial resources is one of the main obstacles to starting and developing a
new business. We have found that there is no clear strategy or policy on the financing and support of
innovative SMEs or high growth companies.
We have also noticed the lack of a venture capital support program for innovative SMEs or other
alternative sources of funding in an environment with a rapid dismantling process. We recommend the
adoption of public policies aimed at increasing the range of available financial resources for SMEs and
promoting them on the market.
References
Bodislav, D. A., (2011a). The eco-innovational approach for the energy of the future. Quality Access to
Success Journal 121, 358 – 362.
Bodislav, D.A., (2011b). The Internet: source for the globalization of the market of goods and services,
Proceedings of Globalization: business, finance and education, Sofia, 331 – 334.
Branson, R., Bodislav, D. A. & Stoyanova, P., (2010), August 10. If I Could Do It All Over Again. The
Wall-Street Journal, A4.
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UNION. Economic Computation and Economic Cybernetics Studies and Research, 53(2), 59-76.
Profiroiu, A., Burlacu, S., & Sabie, O. (2019). REFORM OF THE PENSION SYSTEM IN
ROMANIA. Calitatea, 20(S2), 521-524.
Rădulescu, C. V., Bodislav, D. A., & Burlacu, S. (2018a). DEMOGRAPHIC EXPLOSION AND IT
Proceedings, 11(1), 18.
741-747
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Comment Les Villes Marocaines Peuvent- Elles Booster Leur

« Attractivité Estudiantine » ? Essai De Profilage De La Meilleure
« Ville Etudiante » Marocaine
Mostafa ABAKOUY
Université Abdelmalek Essaâdi (ENCG Tanger), Tanger, Maroc
mabakouy@yahoo.fr
Mohsine ALLA
Université Abdelmalek Essaâdi (ENCG Tanger), Tanger, Maroc
mohsinealla3@gmail.com
Résumé
Avec la montée de la concurrence et la libéralisation du secteur, les deux mondes des territoires et des
universités se sont rencontrés en quête d’un seul public « Les étudiants ». Répondre à la
problématique de l’attractivité territoriale estudiantine , est l’objet de notre recherche : Ainsi, notre
travail scientifique porte sur le développement d’un instrument conceptuel dénommé « Booster
d’attractivité estudiantine » qui permettra aux villes marocaines de se positionner en tant que « Villes
étudiantes » : Un instrument générique emprunté au concept théorique « Booster d’attractivité »
développé par Gollain (2014) dans le cadre de son modèle conceptuel de mix-marketing territorial.
Pour y arriver, on a construit un cadre conceptuel bâtit autour de cinq concepts :
- Attractivité territoriale résidentielle ;

- Attractivité territoriale estudiantine ;
- Booster d’attractivité ;
- Marketing de l’enseignement supérieur ;
- Les facteurs influençant le choix des étudiants de leur destination des études supérieurs.
Après une revue de littérature de ces concepts, on a procédé à une évaluation empirique de notre
cadre conceptuel : Ainsi, on a adopté une méthode quantitative, basée sur la méthode du sondage.
Comme outil d’enquête, on a administré un questionnaire auprès des bacheliers marocains. L’objet de
l’enquête portait sur les critères de choix des étudiants de leur ville post bac. Les résultats de notre
enquête, nous ont permis :
- La construction d’un modèle conceptuel de « Booster d’attractivité territoriale estudiantine »,

avec 8 leviers.
- La constatation que les étudiants marocains sont, en premier lieu, intéressés par la qualité des
établissements universitaires de la ville.
Mots-clés : Marketing de l’Enseignement supérieur, Comportement des étudiants pour leur choix
des études supérieures, l’attractivité estudiantine des villes, Booster d’attractivité territoriale
estudiantine.
Introduction
Avec le mouvement de mondialisation, dévastateur, qui n’épargne aucun territoire ou secteur,

l’enseignement supérieur est devenu aussi un secteur très concurrentiel avec une dimension
planétaire : Toutes les villes mondiales, via leurs universités, s’activent désormais pour s’attirer des
étudiants étrangers et instaurer leurs « Attractivité territoriale estudiantine » et s’ériger en véritables
« Villes étudiantes ».
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Au maroc, face à la faillite de l’école publique et la demande croissante des ménages marocains pour
une qualité de l’enseignement supérieur pour leurs enfants ; l’Etat marocain, à partir de 2015, via une
réforme juridique, a commencé à encourager le secteur privé marocain et étranger à investir dans le
secteur de l’enseignement supérieur. Ces grandes carences de l’offre « Education » publique dans
l’enseignement supérieur ont encouragé de grands groupes privés marocains à investir dans le secteur
via une offre différenciée promettant une grande qualité, matérialisée par des campus universitaires
géants à la façon anglo-saxonne.
Au vu de l’énorme potentiel du chiffre d’affaires que le secteur de l’enseignement supérieur au

Maroc, est promis à brasser ; de grandes institutions françaises de l’enseignement supérieur ont
emboité le pas au secteur privé marocain avec l’objectif majeur d’en faire du Maroc, un hub
continental majeur de l’offre « Education » brandée sous le label « France ».Des écoles de pays
anglophones (Grande Bretagne, USA..) leur emboitent le pas et ont commencé, eux aussi, à
approcher le secteur de l’enseignement supérieur marocain.
L’objectif de l’état marocain est clair ; profiter de l’effet de l’émulation que peut apporter le secteur
privé marocain & étranger, pour améliorer la qualité de l’offre de l’enseignement supérieur marocain
en général et rehausser les standards du secteur dans sa globalité.
Autre grande nouveauté dans le secteur de l’enseignement supérieur marocain, qui dénote de son
grand potentiel : L’entrée de fonds d’investissements étrangers dans le capital des universités privées
marocaines, avec des placements, estimées à plusieurs millions d’euros. Ainsi, le secteur marocain de
l’enseignement supérieur s’internationalise et joue désormais dans la cour des grands, en essayant de
se positionner en tant que géant continental et régional de l’offre « Education » de l’enseignement
supérieur.
Cette mutation majeure du secteur de l’enseignement supérieur au maroc en un secteur concurrentiel

internationalisé ouvert sur le monde, a poussé les institutions marocaines à commencer à adopter une
démarche marketing centrée sur « l’Etudiant », public cible, de leurs «offre académique ».
Confrontées à cette métamorphose organisationnelle & managerielle, les universités marocaines

devaient répondre rapidement à une problématique majeure : Dans un contexte concurrentiel &
mondialisé, comment retenir et attirer les « Etudiants » à leurs institutions ?
La notion d’ « Attractivité estudiantine », ainsi émerge et prend désormais tout son intérêt et son
importance, pour les universités marocaines : Elle devient, désormais, un principal challenge pour
leurs staffs dirigeants.
Juste que cette notion est fortement associée au territoire auquel appartient l’institution universitaire :
Au fait l’« l’attractivité territoriale estudiantine » est une notion assez globale qui ne se limite plus à
« l’offre académique » présentée par les universités : C’est une notion très complexe, intiment liée à
la notion d’ « attractivité territoriale résidentielle » qu’offre la ville domiciliant les centres
universitaires. En effet, les étudiants d’aujourd’hui ne choisissent plus, juste une institution
académique, pour y poursuivre leurs études, mais aussi et surtout tout un cadre résidentiel y associé.
D’un autre coté, les villes marocaines vivent une grande révolution territoriale et organisationnelle,
avec l’instauration et l’implémentation de la loi de la « Régionalisation Avancée » à partir de sep
2015 : Les villes marocaines font désormais face à la réalité de la concurrence des autres territoires
au niveau national et international. Outillées par des grandes réformes juridiques, financières et
institutionnelles ; les villes marocaines se doivent d’améliorer leur « Attractivité territoriale ».Cette
grande libéralisation du secteur de l’enseignement supérieur , présente une grande opportunité pour
les villes marocaines pour essayer de s’attirer un nouveau type d’investisseurs producteurs de cette
offre territoriale différenciée d’ « Education » et surtout essayer d’attirer de nouveaux types de
résidents , à savoir les « Etudiants » futurs « Talents » de demain.
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Pour bâtir leurs stratégies marketing adressées au public des « Etudiants », les villes marocaines
doivent répondre à ces principales questions :
- Comment les étudiants prennent-ils la décision du choix de la « Ville », où ils aspirent

poursuivre leurs études supérieurs ?
- Quels sont les éléments constitutifs d’un « Booster d’attractivité estudiantine » pour les villes
marocaines ?
- Quel est le profil idéal de la « ville étudiante », selon les étudiants marocains ?
Pour y répondre à ces questions on a choisi de mener une recherche quantitative, sous forme de
sondage auprès des bacheliers marocains. Le choix de la méthode de sondage, comme méthode de
recherche scientifique, a été motivé par la recherche des aspects suivants :
- La représentativité des résultats ;

- La possibilité de généralisation des résultats.
Avant de présenter dans le deuxième paragraphe, la méthodologie de la recherche empirique, son

contexte, ses résultats, ses limites et ses perspectives ; on présente dans un premier paragraphe le
cadre conceptuel qui a fondé notre recherche.
Cadre Conceptuel
Dans ce cadre conceptuel, nous présenterons les principales contributions théoriques produites
autour des principaux concepts associés à notre spectre de recherche, à savoir :
- Attractivité territoriale résidentielle ;

- Attractivité territoriale estudiantine ;
- Booster d’attractivité territoriale ;
- Marketing de l’enseignement supérieur ;
- Les facteurs influençant le choix des étudiants de leur destination pour leurs études supérieurs.
De l’attractivité territoriale économique à l’attractivité territoriale résidentielle

Les premiers travaux théoriques qui se sont intéressés à la notion de l’attractivité territoriale, l’ont
limité à sa dimension économique : Hatim (2004) l’a définit ainsi, « L’attractivité est la capacité
pour un territoire d’offrir aux investisseurs des conditions d’accueil suffisamment intéressantes pour
les inciter à y localiser leurs projets de préférence à un autre territoire ».Aussi, Hatim (2005) l’a
définit via cinq approches :
- L’approche « macro » par les indicateurs globaux : On cherche ici à identifier les déterminants
globaux expliquant la plus ou moins bonne attractivité « moyenne » du territoire considéré (en
général un pays ou une grande région) pour l’ensemble des investissements internationaux, c’est-
à-dire sa capacité à attirer une part de ces investissements plus importante que les autres
territoires.
- L’approche « meso » par les effets d’agglomération ou clusters : On cherche ici à comprendre
pourquoi une catégorie spécifique d’activités (secteur, fonction) sera davantage attirée par une
zone particulière (de niveau en général régional ou infrarégional).
- L’approche en termes d’image : On s’intéresse ici à la manière dont un territoire donné, en créant
un effet d’image dans l’esprit du décideur, peut accroître son attractivité, un peu comme
l’existence d’une « image de marque » peut stimuler la vente d’un produit.
- L’approche « micro » par les comparaisons de rentabilité selon les sites : On cherche ici à
déterminer le meilleur site de localisation possible pour un projet particulier. Ni l’approche par
les indicateurs globaux ni celle par les effets d’offre territoriale différenciée ne permettent en
effet de porter un jugement définitif sur les conditions concrètes de rentabilité d’un projet
d’investissement individuel sur un site donné.
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- L’approche par les processus de décision : On s’intéresse ici au processus à travers lequel
l’investisseur choisi le site sur lequel il localisera son projet. On peut donc considérer qu’il s’agit
d’une variante de l’approche « micro » précédemment décrite, dans la mesure où son objet est
l’analyse d’une décision spécifique par un agent individuel. Mais elle en diffère
fondamentalement dans la mesure où c’est ici la logique de choix de l’investisseur qui est placée
au centre de l’analyse, plutôt que les caractéristiques comparées des territoires en compétition.
Avec l’accroissement de la concurrence entre les territoires, les théoriciens ont élargi leur spectre
d’étude et ont commencé à s’intéresser à « l’attractivité territoriale » dans sa dimension
« Résidentielle » : Ainsi Alexandre et Al (2010) ont essayé de définir « l’attractivité territoriale
résidentielle » via, onze composantes de l’attractivité territoriale :
- La géographie et le climat, la démographie ;

- L’accessibilité, l’organisation politique, l’économie, l’urbanisme ;
- Le logement, les conditions sociales, les infrastructures ;
- La culture et le patrimoine, l’environnement ;
- La politique de développement durable.
Chacune de ces composantes peut être décomposée en ressources objectives et symboliques : Ces
composantes peuvent être appréhendées à travers des indicateurs quantitatifs et qualitatifs. Certaines
influent directement sur la qualité de vie, et donc sur l’attractivité résidentielle. D’autres, telles que
les composantes économiques, politiques ou d’accessibilité renvoient à des dimensions non
strictement résidentielles. Elles peuvent néanmoins influer sur la qualité de vie urbaine.
Florida (2004), via sa « Règle des 3 T », a enrichi la réflexion théorique sur l’attractivité
résidentielle des villes : Pour Les « classes créatives », la règle d’or de l’attractivité se résume selon
lui par la « loi des trois T » :
- Le Talent : il s’agit de rendre la ville désirable pour les « talents », à savoir les diplômés au fort
potentiel de création de richesses, les innovateurs et les créateurs artistiques ;
- La Technologie : elle détermine la capacité à transformer la recherche, les idées et les innovations
des créateurs talentueux en produits marchands ;
- La Tolérance: elle dépend de l’existence d’organisations et de communautés urbaines ouvertes à
des populations différentes, aux nouvelles idées et aux styles de vie « alternatifs ».
Ainsi, on peut conclure que les deux dimensions de l’attractivité territoriale (résidentielle et
économique) deviennent complémentaires : l’une conditionne l’autre et participe à sa formation.
Au niveau de l’attractivité territoriale résidentielle, Batat (2016) en distingue deux types :
- Une attractivité résidentielle durable : les individus ou des groupes d’individus possèdent un lieu de
résidence et y habitent pour une durée de plus d’un an. Ils y contribuent au développement du
territoire par des dépenses (consommation, impôts, etc.) ;
- Une attractivité résidentielle temporaire : les individus ou des groupes d’individus (Etudiants,
personnes en formation, touristes…) séjournent sur le territoire pour des durées inférieures à un an.
Ils contribuent au développement du territoire par des dépenses de consommation ou de location.
Ainsi , on peut considérer que « l’attractivité estudiantine » est une déclinaison de « l’attractivité
résidentielle » destinée au public des « étudiants » , permettant aux marketeurs de positionner leur
territoire , comme « ville étudiante ».
L’attractivité territoriale est aussi considérée comme un levier du marketing mix territorial, par
Goulain (2014) : Ainsi, il a développé un nouveau concept « le booster d’attractivité ». Pour Goulain,
(2014) : « Le boost d’attractivite ; ce sont des actions qui, en agissant de façon structurelle,
permettront d'améliorer la qualité et la compétitivité de l'offre territoriale ».
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Par ricochet, on peut définir le « booster d’attractivité territoriale estudiantine », comme « l’ensemble
des actions structurelles de la ville, lui permettant d’améliorer la qualité & la compétitivité de son
offre territoriale estudiantine, lui affirmant ainsi un positionnement marketing différencié de ville
étudiante, auprès du public des étudiants ».
Le Marketing, De L’entreprise A L’université : Le Marketing De L’enseignement

Supérieur Est Né.
Kotler & Fox (1995) introduisent le marketing au monde universitaire par la définition suivante ; le
marketing de l’enseignement est : « l’analyse, le planning, l’implémentation et le control de la façon
avec la quelle est formulée la conception des programmes universitaires, permettant un échange
fructueux de valeurs auprès du public des étudiants ».Bagheri & Beheshti (2010) argumentent que les
universités ont commencé leurs mues vers des institutions orientées « Marché », avec une
philosophie centrée sur la satisfaction de leurs étudiants. Parmi, les spécificités relevées au niveau de
marketing de l’enseignement supérieur, on note surtout le dilemme de « l’étudiant » relevé par
Conway et al (1994) : « Est ce qu’on doit le considérer comme un « client » ou un « produit » ? ».
Parmi les grandes contributions à la discipline du marketing de l’enseignement supérieur, le

développement d’un mix marketing à 7 P, présenté par Ivy (2008) est remarquable : Ainsi, selon cet
auteur, en milieu académique, les universités peuvent actionner leur marketing mix, avec 7 Ps :
- Produit, prix, place (distribution), promotion (communication) ;

- People (staff humain de l’université), physical facilities (installations physiques) &
processes (processus administratif).
La plus grande valeur ajoutée qu a apporté la discipline du marketing de l’enseignement supérieur , se

situe au niveau des réflexions menées sur le comportement des « étudiants » pour le choix de leur
lieu d’études supérieures à l’étranger : Ces travaux théoriques, certes récents, présentent une base
solide permettant aux universités et villes de bâtir leur politique d’«attractivité territoriale
estudiantine » : Ivy (2010) classe les modèles de choix des étudiants du lieu de leurs études
supérieures à l’étranger en trois dimensions : économique ( les coûts) , sociologique (influences de la
famille..) ou informationnel (prise de décision..).
Suh Li Phang (2012) a recensé, dans la littérature, les facteurs de choix des étudiants du lieu de leurs
études supérieures à l’étranger, comme suit :
- Manque d’accès à l’enseignement supérieur localement ;

- Coûts ;
- Perspective de carrière et perspectives des immigrés;
- Influences et recommandations de la famille, amis et professeurs ;
- Culture et environnement;
- Démarches de visa et les facilités des institutions académiques ;
- La réputation académique de l’université et notoriété du staff de l’université ;
- Qualité de vie et sécurité ;
- Les efforts de promotion et de marketing de l’université ;
- Satisfaction des étudiants de l’université ;
- La commodité de la langue et la possibilité d’apprendre une deuxième langue ;
- Proximité géographique du pays hôte de l’université.
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Etude Empirique
L’enseignement Supérieur Au Maroc : Evolutions & Perspectives
L’enseignement supérieur universitaire au Maroc compte actuellement 12 universités regroupant

125 établissements publics et 212 établissements privés. En termes d’effectifs, on recense plus de
50000 étudiants dont 5% inscrits dans le privé.
Le secteur de l’enseignement supérieur au maroc, connait actuellement deux évolutions majeures :
- L’installation de grands groupes français de l’enseignement supérieurs : via des accords établis avec
le ministère de tutelle marocaine, une dizaine de grandes écoles de commerce ou d’ingénierie
commencent à s’installer au maroc ; visant les étudiants marocains et faire du pays un hub africain.
- L’octroi de l’équivalence du diplôme public à des établissements privés, va chambouler le secteur de
l’enseignement supérieur et y accroitre la concurrence avec les établissements publics.
Face à ses évolutions structurelles ; les villes marocaines vont faire face à deux types de
challenges/opportunités :
- Attirer les grands établissements de l’enseignement supérieurs (privés, publics, marocains et

étrangers) pour s’installer sur leurs territoires ;
- Attirer les étudiants marocains et étrangers, pour venir étudier dans leurs villes respectives.
Dans ce contexte d’ouverture concurrentielle, notre recherche propose de répondre à la deuxième

problématique ; à savoir :
« Comment les villes marocaines peuvent-elles booster leur « Attractivité estudiantine » et

se positionner en tant que « Ville étudiante » au niveau national et international ? Comment peuvent-
elles bâtir ce « booster d’attractivité estudiantine » ? Quel est le profil type de la « Ville étudiante »
marocaine ?
L’étude empirique : sondage auprès des bacheliers marocains sur les critères de
choix de leur ville d’étude post-bac.
Pour se faire, on a opté pour une étude exploratoire de leur « Attractivité estudiantine » en essayant
de définir leurs « booster d’attractivité » leur permettant de se positionner en tant que « Ville
étudiante » auprès des étudiants marocains.
Notre méthodologie de recherche, s’est basée sur une méthode quantitative ; en adoptant la technique
du sondage, auprès des étudiants marocains. La recherche a porté sur les critères de choix des
étudiants marocains de leurs « Ville » des études post bac. L’enquête a porté sur 120 étudiants. Les
questionnaires ont été administrés au salon de l’étudiant marocain qui s’est tenu à Casablanca
pendant 3 jours à l’offec du 20 au 23 avril 2017.
La méthode d’échantillonnage adoptée, dite « probaliste raisonnée », nous a permis de cibler les
étudiants marocains venus des quartes coins du Maroc sur un même lieu et pendant une période
limitée de temps ; ce qui nous a facilité l’exécution logistique de l’enquête et lui a donné une grande
crédibilité méthodologique, facilitant la véracité et généralisation de ses résultats.
Le questionnaire (annexe 1) est composé de 6 questions .L’enquête a été dépouillée à travers le

logiciel sphinx. Les principaux résultats étaient comme suit :
- 68 % des répondants sont des filles et 32% des garçons ;
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- Plus de la moitie (55%) des répondants sont originaires de l’axe (Casablanca-kenitra) ;

- Les bacheliers scientifiques sont majoritaires (plus de 65%) ;
- La majorité préfère étudier à l’étranger (plus de 58 %) ;
- « Notoriété et multitudes des établissements supérieurs de la ville » arrive en tête des citations
(+90%) comme facteur de choix des étudiants pour leur ville marocaines des études supérieures ;
- « Disponibilité d’offre de logements pour étudiants (internats, cités universitaires, campus,
maisons de particuliers…) arrive en deuxième rang des critères de choix des étudiants ( +70%) ;
- La troisième place des critères de choix pour les étudiants marocains, est la « Proximité de votre
ville de résidence » (+50 des citations) ;
- Pour la majorité des étudiants marocains (plus de 90 des citations) l’offre de « divertissement »
(Entertainment) est le grand point faible des villes étudiantes marocaines ;
- En termes de classement, les étudiants marocains classe la ville de « Rabat » comme la première
ville étudiante marocaine grâce surtout, d’après eux, à la multitude et la notoriereté de ses
universités.
- En termes de perception d’image, la capitale administrative confirme son image de « meilleure
ville étudiante » auprès des étudiants marocains. (plus de 60 citations) .
En termes de conclusions majeures, on peut citer :
- La grande « ville étudiante » des étudiants marocains est « Rabat » : une image expliquée par
plusieurs facteurs ; principalement étant le premier pôle universitaire marocain par l’histoire.
- Casablanca et Tanger : les deux grands champions nationaux qui par leurs images positives
auprès des étudiants marocains, peuvent et doivent aspirer à un positionnement de « Ville
étudiante », via une offre territoriale « Student » différenciée, portée par une politique de
« branding » forte auprès de la cible « Etudiants » au niveau national et surtout international, au
vu de l’immense réputation et capital image dont jouit les deux métropoles marocaines au
niveau mondial.
- Les villes « Oujda » et Kenitra pâtissent d’une image et perception négative auprès du public des
« Etudiants » (respectivement derniers du classement des 10 grandes villes marocaines),
impactant significativement leur « attractivité estudiantine ». Leurs responsables doivent
travailler en profondeur leur « booster d’attractivité estudiantine » pour essayer de retenir et
attirer des « étudiants ».
- La « ville étudiante » idéale pour les étudiants marocains, est d’abord une ville à taille humaine,
avec une offre académique et d’hébergement étoffée et proche de leur ville d’origine. En
deuxième lieu, elle doit offrir une « offre de divertissement » assez riche.
La principale limite de notre enquête, reste sans doute la taille de l’échantillon. Ainsi, une grande
enquête en termes de taille, de localisation géographique permettra une meilleure précision et
généralisation des résultats.
Néanmoins, notre recherche reste un bon début pour la conception d’un outil d’attractivité territoriale
pour les attracteurs de nos villes, à savoir le « booster d’attractivité territoriale estudiantine » qui
peut être adapté à chaque type de « public » auquel la ville marocaine veut s’adresser (touriste,
résident, investisseur..).
A la fin de notre recherche, on peut présenter notre modèle de « Booster d’attractivité

estudiantine », comme suit :
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Figure 1 : Booster d’attractivité estudiantine pour les villes marocaines
D’après notre étude empirique et notre cadre conceptuel, on présente notre modèle conceptuel
« Booster d’attractivité estudiantine » sous forme pyramidale, composée de huit leviers placés par
ordre d’importance aux yeux des étudiants.
Conclusion
La critique qui peut être adressée à ses approches de définitions de l’attractivité, c’est qu’elles la
limitent au « public » des « investisseurs » et « des entreprises en implantation ». Alors qu’avec la
croissance de la concurrence entre territoires et villes, les praticiens de marketing territorial ne se
limitent plus à ce spectre limiteur et limitatif du marché de la « concurrence territoriale ». La réalité
des pratiques sur le terrain, révèle que les marketeurs des grandes villes mondiales élargissent leur
champ de « prospection attractive » à coté du traditionnel couple « Entreprises/touristes » à un autre
couple de cibles devenu aussi stratégique , de par le monde , à savoir « les résidents/ Talents ».
En effet, les théoriciens comme Goulain(2014) et les praticiens d’OnLyLyon affinent leurs
segmentations territoriales en allant de 4 segments jusqu’ à 15 « marches de mobilité » susceptibles
d’être cible de la politique de « marketing territorial ». Ainsi, certains auteurs, comme Goulain
(2014), commencent à ériger les « politiques d’attractivité » en véritable levier du marketing mix
territorial en les nommant des « booster d’attractivité ».
Cette nouvelle intégration théorique du concept « Booster d’attractivité » dans le mix marketing
territorial , va permettre aux professionnels de s’ouvrir sur de nouvelles voies dans la quête de
l’attractivité de leurs territoire , en essayant de se positionner sur de nouvelles dimensions de
l’ « Attractivité globale » d’un territoire : plusieurs dimensions de l’attractivité globale d’un territoire
ont commencé à prendre de l’ampleur et être érigées en véritable support de politique de
« Positionnement marketing » pour les villes internationales. Ainsi on a commencé de parler de
« smart city » , « youth city » , « Green city » ou « résilient city ».
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La « Student city » ou « ville étudiante » pour les villes francophones reste sans conteste les plus en
vue comme « positionnement marketing » choisi par les métropoles, de par le monde, au vu de
l’aspect stratégique que prend ce positionnement pour les marketeurs territoriaux et les
placesmakers. Parmi les cibles des attracteurs territoriaux ; attirer des « Etudiants » devient la
priorité de leur stratégie marketing. Leur principale motivation, est de capter les « Talents » de
demain susceptibles de construire, promouvoir et partager l’expérience territoriale de leurs villes
respectives.
ANNEXE 1 : Questionnaire sur l’attractivité estudiantine des villes marocaines
Bonjour,
Dans le cadre d’une enquête recherche doctorale sur l’attractivité estudiantine des grandes villes
marocaines, vous êtes prié (e) de bien vouloir répondre à ces questions
Merci de votre collaboration
Questionnaire Etudiants
Questionnaire N° ……………………
Enquêteur : ……………………………
Ville : ……………
AGE : ……………
Sexe : ………………
Type de bac : ……
Q1 /- De préférence, vous comptez poursuivre vos études supérieures à l’étranger ou au Maroc ?
A l’étranger Au Maroc
Q2/- Pour vous, quels sont les critères les plus importants pour choisir votre ville marocaine des
études supérieures ?? (Choisir au max 3 réponses)
Notoriété & multitude des établissements supérieurs de la ville

Proximité de votre ville de résidence
Disponibilité des moyens de transport urbain (tram, bus, taxi.)
Accessibilité des moyens de transport interurbain (train, car, autoroute…)
Disponibilité d’offre de logements pour étudiants (internats, cités universitaires, campus, maisons
de particuliers…)
Existence d’un fort tissu économique d’entreprises (stages, insertion professionnelle, enquêtes…)
Existence d’une grande offre de santé (hôpitaux, cliniques, médecins privés.)
Existence d’une grande offre académique (bibliothèques, centres de langues, …)
Existence d’une grande offre de divertissements (night live, restaurants, mall, parcs de jeux, parcs
de lectures)
Existence d’une grande offre culturelle (concerts, festivals, théâtre, cinéma, show, conférences,
débats, musées...)
Existence d’une grande offre d’activités sportives (matchs, salles de sports, terrains, événements
sportifs….)
Jumelage avec d’autres villes étudiantes
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Q3/- Pour vous, Etudiant (e), qu’est ce qui manque le plus dans les villes « étudiantes »
marocaines ??
Q4/ Classez ces grandes villes marocaines, de la meilleure ville « étudiante » marocaine, à la
moins bonne :
Agadir Marrakech Casablanca Rabat Kenitra
Meknes Fes Tanger
Tétouan Oujda
Q5 / Pour vous, étudiant (e), la meilleure ville « étudiante » marocaine est ……….
Pourquoi ? ?
Bibliographie
Alexandre H., Cusin F., Juillard C. (2010), ‘L'attractivité résidentielle des agglomérations françaises.
Enjeux, mesure et facteurs explicatifs’, L'Observateur de l'immobilier, n°76, p. 3-66
Batat, W. (2016) , ‘ marketing territorial expérientiel’, éd ellipses.
Conway, T., Mackay, S., and Yorke, D. (1994),’Strategic Planning in Higher Education: who are the
customers?’, The International Journal of Educational Management, Vol. 8, No. 6.
Florida, R., (2004), ‘Cities and the Creative Class ‘, Routledge, London.
Gollain, V., (2014), ‘ réussir son marketing territorial en 9 étapes ‘, CDEIF, paris.
Hatim, F., (2004), ‘ Attractivité, de quoi parle t on ? ‘, Revue pouvoirs locaux, n61.
Hatim, F., (2005), ‘ Attractivité : théorie et pratique, aller et retour ‘, EM Normandie, Working papers
paru dans l'ouvrage du SESSI sur la mondialisation des groupes français.
Ivy, J., (2008), ‘new higher education marketing mix: The 7Ps for MBA marketing ‘, International
Journal of Educational Management, 22(4), 288-299.
Kotler, P. and Fox, K.., (1995), ‘Strategic marketing for Strategic marketing for educational
institutions’, Prentice-Hall, New Jersey.
Suh Li, P., (2012), ‘Factors influencing international students’ study destination decision abroad ‘,
master degree, university of Gothenburg.
http://www.challenge.ma / le-fonds-dinvestissement-actis-entre-dans-le-capital-de-luniversite-
mundiapolis. (Consulté le 20/07/2017).
http://www.enssup.gov.ma (consulté le 14/06/2017).
www.letudiant.ma (consulté le 20/04/2017).

www.onlylyon.com (consulté le 10/08/2017).
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Study of Methods to Reduce Interregional Disparities

In Health Financing
Dmitry ARTEMENKO
Professor, Doctor of Science (Economics) Department of State, Municipal Finance and Financial
Engineering, Southern Federal University, Higher Business School, Rostov, Russia, e-mail:
dartemen@mail.ru
Farit KADYROV
Deputy Director of the Federal Research Institute for Health Organization and Informatics of
Ministry of Health of the Russian Federation Moscow, Russia, kadyrov@mednet.ru
Abdula CHILILOV
research scientist of the A.V. Vishnevsky National Medical Research Center of Surgery, Moscow,
Russia, chililov@mail.ru
Konstantin NOVOSELOV
Candidate of Science (Economics) Department of State, Municipal Finance and Financial
const75@mail.ru
Abstract
The aim of the research is to study the impact of the volume and methods of health financing on
regional indicators characterizing the health status of the population. It is concluded that in contrast to
the clearly manifested dependence of the health status of the population on the level of health
financing at the state level, such a correlation between regions is often absent. By applying statistical,
logical and other research methods, the main factors that counteract the manifestation of such
dependence are shown. The study used the materials of the Organization for economic cooperation
and development, the World health organization, official statistics on the Russian Federation. On the
basis of the analysis developed proposals aimed at optimizing the methods of distribution of financial
resources of health care at the level of the state and its regions. The proposals that have been
developed can be useful in the formulation of health financing policies by governments.
Keywords: financing, health economics, economic development, obligatory medical insurance
Introduction
Health financing issues have recently been the subject of research not only by individual scientists
and research centers, but also by international structures. First of all, the Organization for economic
cooperation and development (OECD) and the world health organization (WHO).
These studies provide a comparative analysis of health financing in different countries, including
sources and direction of funding. For example, Health at a Glance (2017).
In the interstate assessment of health financing, the average per capita volume of financing, the share
of gross domestic product allocated to health care and sources of financing are considered first of all.
But this is clearly not enough to form a sound policy of States in the field of health. It is difficult for
any state to ensure a sharp increase in health financing. But there is a large variety of methods of
financing, methods of territorial allocation of available resources, etc., Optimum use of limited
resources often provides the same positive effect as the increase in total funding.
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Therefore, it is extremely important to analyze how the patterns manifested at the level of the country
as a whole are manifested at the level of individual regions of these countries. This concerns, first of
all, the impact of the level and methods of financing on the health indicators of the population.
Health Expenditure Indicators

Health financing is becoming increasingly burdensome for national economies.
The financial resources that a country devotes to health care, both for individuals and for the
population as a whole, and how this changes over time is the result of a wide array of social and
economic factors, as well as the financing and organizational structures of a country’s health system.
In a statistic report of OECD (2017) mentioned, that in 2016, the United States is estimated to have
outspent all other OECD countries by a wide margin, spending the equivalent of USD 9 892 for each
resident (Figure 1).
Government/Compulsory Voluntary/Out-of-pocket
Fig.1: Hеаlth expenditure per capita, 2016
This level of health spending is almost two-and-a-half times the average of the 35 OECD countries
(USD 4 003) and 25% above Switzerland, the next highest spender. Compared with the other G7
countries, the United States spends almost 80% more than Germany and more than twice as much on
health care per person as Canada, France and Japan. OECD countries spending half or less of the
OECD average include many of the Central and Eastern European members of the OECD, such as
Estonia and Poland, together with Chile. Lowest per capita spenders on health in the OECD were
Mexico and Turkey with levels around a quarter of the OECD average, and similar to spending in key
emerging economies such as the Russian Federation, South Africa and Brazil. China spent around
20% of the OECD per capita spending level, while both India and Indonesia spent less than 10% of
the OECD average.
How much a country spends on health care over time relative to spending on all other goods and
services in the economy can be down to both growth in health spending itself as well as how well the
economy is performing overall. In a statistic report of OECD (2017) mentioned, that in 2016, health
spending is estimated to have accounted for 9.0% of GDP on average across OECD countries, largely
unchanged in recent years. This comes after a period of health spending growth above that of the
overall economy in the 1990s and 2000s that saw health expenditure as a share of GDP rise sharply in
many OECD countries. In 2016, the United States spent 17.2% of GDP on health, almost five
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percentage points above Switzerland, the next highest country, and more than eight percentage points
above the OECD average (Figure 2.).
Government/Compulsory Voluntary/Out-of-pocket
Fig.2: Health expenditure as a share of GDP, 2016
A group of ten high-income OECD countries, including Germany, France, Japan and Canada, follow
with around 11% of GDP going on health services. Another large group of countries spanning
Europe, as well as Australia and New Zealand (and South Africa) fit roughly within a band of
between 8-10% of GDP. A similar sized group of mainly Central and Eastern European countries,
such as Hungary, the Czech Republic and Poland allocate between 6-8% of their GDP to health. Only
Mexico, Latvia and, notably Turkey at 4.3%, spend less than 6% of GDP on health services. Turkey’s
health spending as a share of GDP is at a similar level to that in India.
There are a number of reasons leading to higher health care costs:
- population ageing and increasing costs of health care for older persons;
- fast technological process in healthcare and pharmaceuticals, allowing to treat previously
incurable or difficult to treat diseases. At the same time it leads to an increase in the cost of medical
care;
- increased well-being of many countries, which allows more funds to be allocated to health;
- deterioration of environmental conditions;
- public awareness of the importance of health care and higher demands on national
governments for better health financing, etc.
In these circumstances, the issues of obtaining objective information about the effectiveness of the
use of funds allocated to health are becoming increasingly important. This involves obtaining
information on both the amount of money spent and the results obtained, expressed primarily in such
indicators as life expectancy, mortality rates, etc.
New Opportunities for Objective Assessment of Health Financing

Health authorities need objective macroeconomic information about the health system. This
necessitates the development of a mechanism for regular, comprehensive and consistent monitoring
of financial flows in the country's health care system. In the world practice, such a tool is the Health
Accounts System (SHA).
The emergence of the system of national health accounts marked a new stage in the in-depth analysis
of health expenditure. The completion of a special questionnaire (The Joint Health Accounts
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Questionnaire - JHAQ) by OECD countries, as well as some non-OECD countries (for example,
Russia), provided comparable data on health financing in the context of:
- sources of funding (state budgets by level, compulsory and voluntary health insurance,
citizens ' funds, etc.).);
- manufacturers of medical services (medical organizations providing primary care;
hospitals, psychiatric hospitals, hospices, etc.).);
- by type of services (primary care, ambulance, long-term care, etc.), etc.
With other reporting forms currently being completed (for example, the annual OECD Health Data
Questionnaire), there is a unique opportunity to compare funding and health indicators between
countries. Thanks to the accumulated data, it is now possible to analyze these data already in
dynamics.
However, one of the main drawbacks of the questionnaires under consideration is the lack of
consideration of regional differences within countries. To address this shortcoming, it is necessary
that the data provided in JHAQ are initially generated at the level of health care providers and regions
in the same form as the final forms for the country as a whole. Unfortunately, many countries are not
ready for this – a long stage of adaptation of the financial and statistical reporting system to
international requirements is required. This is especially true for obtaining information from private
clinics that are not interested in providing detailed information (in the required form) about their
activities.
Russian Experience in The Formation of The System of National Accounts

The Russian Federation, which was actively involved in the development of the system of national
health accounts, faced similar problems.
In 1996-2001, within the framework of the World Bank project "Medical Equipment" (a component
of the "National Health Accounts"), Russian specialists carried out a large research work on the
adaptation of classifications of suppliers, financial intermediaries, sources of financing and services
(goods) of health according to the version of the Organization for Economic Cooperation and
Development to the Russian conditions and the current statistical and financial statements.
In a research study by Flek V.O. and others (2006) mentioned that the formed SHA matrices
correspond to the System of National Accounts of Russia in its structure. They ensure comparability
of data at the inter-national level. The SHA solves the tasks of monitoring and evaluating the
effectiveness of using the resources of the health care system, and it is also the basis for program-
targeted planning of the volume and financing of medical care for the population.
One of the key elements of the SHA, as a monitoring and evaluation system, is a data collection tool
that can be implemented as:
• special requests to organizations involved in the implementation of activities in the health

sector. The only advantage of this method is the prompt receipt of information. Disadvantages of the
method are the need for a large preparatory work to train those responsible for collecting and
providing such information, for the formation and filling in questionnaires. This requires considerable
labor and financial costs, and significantly increases the burden on organizations providing
information. In addition, information received on special requests is informal and often leads to
inaccurate data and difficulties in interpreting and analyzing them
• special studies. The advantage of this method is the possibility of obtaining the necessary
information and its justification. The disadvantages of this method are:
1. the need for additional financial costs;
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2. information obtained with the help of special studies is often of a short-term nature
and can be a special case for the period under study;
3. the need for staff training and a temporary separation from the main activity
• obtaining data from official statistical reporting. This method has the greatest advantages
over the above. First, such an approach does not require additional financial costs, since the
collection is carried out by special units on a regular basis, which allows obtaining constant and
comparable information for a long period of time. Secondly, such information is official and reliable,
since for its collection and provision a list of responsible administrative bodies and institutions has
been determined. With all the positive sides, one significant drawback is the impossibility of
promptly making changes to the composition of the information collected.
In order to institutionalize SHA, the Ministry of Public Health of the Russian Federation and the
Federal Fund of Mandatory Medical Insurance developed a form of statistical reporting. Its structure
is built on the principles of the SHA (information is collected according to the relevant categories
(funding sources, activities, types of health care providers, resources expended), the volume and
sections of the information collected are comparable, inter-table compliance is observed).
Since 2001, the collection and analysis of the data of the form of the industry statistical reporting No.
62 "Information on the implementation of the Program of State Guarantees of Providing Free
Medical Aid to the Citizens of the Russian Federation" is held annually. Based on the data presented
in the consolidated reports of the constituent entities of the Russian Federation on Form No. 62, an
analysis of statistical indicators of the activities of medical organizations and territorial health
authorities is carried out, an economic evaluation of the financial performance of the amounts and
types of medical assistance to the population is carried out primarily in the framework of the State
Guarantees Program.
Form 62 has a number of limitations. Information is collected only on medical services rendered,
excluding medical supplies and other ancillary services in the field of health care. Accordingly, in
this form are presented only those categories that reflect the consumption of medical services.
However, the data that form 62 allows you to collect is the most detailed source of information that
complies with the principles of the health accounts system.
Form 62 allows you to get information about providers of medical services in accordance with their
type (hospital, maternity hospital, dispensary, etc.) and the form of ownership - public and private.
The information collected also makes it possible to evaluate health care providers at their location —
in the city or in the countryside, which is especially important when planning the availability of
medical care for rural residents.
To facilitate the task of identifying a health care provider, the All-Russian Classifier of Enterprises
and Organizations, the All-Russian Classifier of Forms of Ownership, the All-Russian Classifier of
Organizational and Legal Forms and the Nomenclature of Medical Organizations are used. This
approach can significantly reduce errors in the identification of health care providers, allows for an
assessment of the volume of medical services and financial costs by managers of funds.
The types of medical services for which information is collected and analyzed correspond to the
enlarged classification of services in SHA.
The main section of the form 62 is devoted to data collection in the context of the classifier of the
category Health care functions. Every year, this section is revised to bring the composition of the
collected information closer to the SHA classifier of health care functions.
Mismatch of patterns typical for countries as a whole and for their regions
The relationship between the share of the country's gross domestic product (GDP) spent on health and
the health of the population has long been established. There is also a correlation between the overall
level of GDP of the country and the state of health of the population.
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Against this background, first, of particular interest are the examples of countries that fall out of the
total number-countries that do not show such dependence. Especially countries that, with relatively
low economic development, have managed to achieve significant progress in the field of health. It is
important to understand the reasons for success and perhaps to draw on this positive experience in the
effective use of limited resources by other countries.
Secondly, it is not enough to be limited to the level of the country as a whole. It is necessary to
deepen the studies, bringing them to the level of individual regions of States and intraregional
differences. This is especially true for large States, for example, United in the G7 or BRICS.
Organization of health care in countries with large population and territory has peculiar features.
They are related with the following problems:
- large influence of the geographic factors (for example, Russia is located in the territories
from permafrost to semi-desert);
- various density of population settlement ;
- actual problem of selecting a model for health care management (centralized or
decentralized);
- different levels of economic development of the regions and related different
opportunities of health care financing;
- organization of health care in remote and inaccessible settlements;
- etc.
During the last quarter of the century Russia has tested various models of health care organization
and financing.
In the former Soviet Union, a centralized system of health care financing was used. It had both
advantages and disadvantages. The advantage of such a system was the lack of differences in regional
health care financing related to the level of economic development.
However, central funding was based on the lack of financial and other independence of the regional
and municipal authorities. Now, a model of government in Russia is different.
After the collapse of the Soviet Union, health care institutions in Russia were divided into federal,
regional , municipal, and private. Thus, the main part of health care institutions was municipal.
Municipal health care institutions should be financed from corresponding local budget funds.
The first years of the Russian Federation as an independent state demonstrated that financing of
health care institutions from the corresponding budgets leads to too large differences in the levels of
financing in municipalities and regions. It all depended on the priorities of local authorities and
financial capacity. There was no uniform standards for health care financing. The relationship
between the share of gross domestic product (GDP) spent on health care and population health status
was stated long ago. There is also a correlation between the general level of country's GDP and
population health.
Against this background, the countries that do not follow this pattern and do not show this
relationship are of special interest.
Especially the countries that have managed to make a significant progress in the health care sector
having relatively low economic development. It is important to understand the causes of such success
and, perhaps, to use this positive experience of efficient use of the limited resources.
Secondly, it should not be limited to the country level as a whole. It is necessary to deepen the study
bringing them up to the level of the regions and intra regional differences. This is especially true for
large countries.
Let's consider the Russian Federation as an example. One would expect that in such a large territory
like Russia we will see the same relationship between the level of economic development and the
population health at the regional level as compared with other countries. But the prognosis for Russia
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is not justified. After the collapse of the Soviet Union at the end of the 1990s a very significant socio-
economic differences have been formed in the regions the country:
-by an average per capita gross regional product (GRP) - 18 times

-by the actual final consumption of households - 16 times;
-by the levels of health care financing - 15 times
However, variations in population longevity corresponding to these differences were not recorded .
It was also noted after almost 10 years past, in 2008, the picture was almost the same as in 1999.
It was found that the expected relationship between the living standards of the population in the
regions of Russia and population longevity is still missing.
But we cannot say that the health indicators in this period did not respond to changes in the economic
conditions in the country as general. Just in 2008 there was a peak in the growth of Russian economic
indicators. This had a positive impact on demographic indicators as well.
The reasons for the lack of correlation between the economic development of the regions and
population longevity are the following:
1) The high rate of change in the economies of the regions, a "slower" process of changes in
life expectancy objectively do not kept pace.
Imbalance in distribution of economic wealth by regions of the country existed in the late 1990s
became more intensive by this time:
Uneven economic development of the country in the late 1990s was partly explained by the crisis
associated with the collapse of the Soviet Union.
By the end of the 2000s, in conditions of the economic recovery in the country reduction of the pole
concentrating wealth and growth of the poles of poverty are evidences of inefficient regional policy.
3) Not in all economically developed regions of the country the economic growth was
realized as an increase in population longevity. At the present time, a stable relationship in Russia is
the relationship between a low level of life and low population longevity. The opposite trend does not
show itself clearly. Up to date, the economic development of the region is not a sufficient condition
to provide the growth of the population longevity and quality of life.
4) In some cases, the social policy aimed at reducing the differentiation by regions proved to
be more effective than the corresponding economic policy.
The following territories have achieved notable progress in the rating distribution of longevity among
the regions with the average per capita gross domestic product lower than the national average:
- In 1999 - the fifth part of the territories;
- In 2008 - the fourth part of the territory.
5) Significant differences in the mortality rate by regions are still remaining. This factor is
important for the well-off, medium life expectancy, and for disadvantaged regions. Thus, the
differences in population longevity in various municipalities are comparable with the Russian
regional variations and sometimes are less.
6) Intra-regional heterogeneity of population health status and mortality is not determined by
only a fraction of the rural population, as one might think. There is a considerable variation in
mortality in the urban population. Mortality is minimal in the administrative center of the regions,
maximal mortality indicators are recorded in the small towns of up to 10 thousand people, that is
shown in the Table.
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Table 1: Age-specific death rates (per 100 thousand of the people concerned), depending on the
type and population of urban settlement in the Central Federal District of Russia, 2018
0-14 15-29 30-44 45-59 60 and older
men Urban-type 106,8 365,9 893,8 2265,8 7955,1

settlements
Small cities: 145,9 271,6 1001,0 2502,3 8349,1
up to 10 ths.
10– 9,9 ths. 99,8 331,9 891,4 2326,0 8152,8
Medium cities: 104,5 310,5 896,1 2252,9 8054,5

20-49,9 ths.
117,3 332,9 862,2 2241,0 8252,3
50-99,9 ths.
Big cities: 79,9 230,0 776,8 2043,1 7431,3
100 ths and higher
Federal subject 93,2 243,3 752,1 1932,7 7169,2
center
women Urban-type 85,8 102,9 273,5 690,9 5321,1
settlements
Small cities: 53,0 135,8 264,1 807,0 5625,5
up to 10 ths.
10 – 19,9 ths. 72,4 99,3 291,3 717,1 5471,5
Medium cities: 77,9 91,4 272,7 661,2 5299,0

20-49,9 ths.
69,4 96,3 250,4 678,1 5335,5
50-99,9 ths.
Big cities: 55,3 54,1 248,8 625,1 4902,1
100 ths and higher
Federal regional 73,6 67,5 224,7 577,3 4735,5
center
It is important to note that all regions have one and the same health care system despite the
differences.
The 2018 data also do not show a close relationship between the level of economic development of
the regions and the state of health of the population (this dependence is typical only for a small
number of regions).
Methods to Reduce Interregional Disparities in Health Financing

Changes in funding cannot provide a quick impact on the population health status for a number of
reasons:
- in the more economically developed regions, the proportion of health expenditure in total
budget expenditure often falls;
- a system of mandatory health insurance (which provides substantial notations to poor
regions) partly compensates poor budget possibilities of resource -limited regions to allocate funds
for health care;
- improvement of the economic situation in the region primarily affects the regional centers
and less the countryside;
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- in conditions of improving the economic situation in the region, it is impossible quickly

increase health human resources , improve transport and other access to health care;
- the specific features of Russia, such as a large territory , uneven population settlement,
remote population locality in many regions, etc. provide an impact;
-it is difficult to provide a quick effect on mortality rates, particularly in the mortality caused
by non-communicable diseases as health conditions associated with the progression of these diseases
are formed for many years as a rule.
Under these conditions, the following federal healthcare programs proved to be quite
effective:
- "Health" priority national project;
- regional modernization programs;
- federal programs aimed at solution of health problems in specific health care areas
(treatment of heart attacks, strokes, medical care in road accidents, etc.).
These programs have a clear focus on improving the key fields of health care and provide a
more rapid positive effect than the investment in current health care financing.
So, there are three aspects of the problem of an impact on the population health status:
- differences in the economic situation of the regions;
- differences in healthcare financing provision in regions related to their overall financial
situation;
- intra-regional differences.
Ultimately, the challenge is not to prove or disprove the presence of correlation between the
economic situation of the regions and population health status (objective conditions for it are
available), but :
- to reduce the differentiation of socio-economic development of the regions;
- to reduce the differences within the regions;
- to provide the reduction in differentiation in population health indicators regardless of the
economic status of regions.
Therefore, it was decided to move to a system of mandatory health insurance (MHI) with saving
partial funding from the respective budgets. Payers of insurance contributions are companies (for the
working population) and regional governments (for the non-working population). Insurance
contributions were accumulated in the regional mandatory health insurance funds.
To guarantee a minimum level of health care financing by regions, the Program on State Guarantees
to Deliver Free Medical Care to the Citizens was developed.
To ensure consistency in the delivery of health care throughout all territory of the country, the
standard of medical care are introduced, including the average set of medicines, services, etc. in the
treatment of certain diseases.
In Russia from 2013, there are new opportunities to eliminate regional disparities in health care
financing:
- all the mandatory health insurance funds are accumulated at the federal level with the
further distribution by the regions. These resources are allocated to regions of the Russian Federation
according to the norms taking into account not only the number and age-gender composition of the
population, but also other criteria;
- predominantly single-channel financing through a system of mandatory health insurance,
which now becomes the dominant resource of health care financing. Budget financial opportunities in
the regions will provide no impact on the health care financing through a system of mandatory health
insurance;
-transfer of powers on the organization of health care from the municipalities to the subjects
of the Russian Federation (with the right to reverse delegation for municipalities)
This is a very important element of the mechanism to reduce inter-territorial differences in the health
care financing and, ultimately, to reduce disparities in population health indicators.
7457
So, saving high regional variations in population health and mortality slows an increase in life
expectancy in the country as a whole. This becomes a factor for not only demographic but also the
socio-economic separation in the country. The target policy aimed at overcoming the inter-and intra-
regional variations of population health and mortality is needed.
However, this did not solve all the problems. Separation of health care institutions by the federal,
regional and municipal leads not only to the differences in the levels of health care financing, but also
to difficulties in carrying out a common health care policy. Each level of government is responsible
only for the activities of subordinate institutions of public health.
So, it was decided to take away the powers on organization of health care from the municipal
authorities and to transfer them to the regional level. In its turn, the region itself decides to give
appropriate power to municipal authorities or to implement their own.
During the recent years, Russia has accepted the method of creation of incentives for regional
authorities for additional health care financing using the principle of co-financing. The Federal
Ministry of Health is implementing a number of programs aimed at combating certain diseases
(cardiovascular, cancer, tuberculosis, etc.). Regions are included in this program and receive the
funds from the federal budget under condition of a certain amount of co-financing. For example,
expensive equipment can be supplied through the federal budget in conditions that the regional
budget will allocate its own funds, for instance, to prepare rooms for the equipment, for installation of
the equipment, etc.
The Impact of Funding on The Effectiveness of Pay Systems

Effective use of health resources is largely determined by the systems of remuneration of health
workers. In turn, it is impossible to create effective remuneration systems in conditions of lack of
financial resources. Regional differences are particularly pronounced in this regard.
According to researches the binding of wages to the results of labor can be stimulating factor. But the
level of wages can be stimulating factor too. Well-developed countries can set rather high level of
public health workers’ salary. Therefore, the most important incentive for a number of employees is
not the dependence of wages on the results achieved, but the fear of losing their jobs and losing high
wages.
Developing countries are generally unable to provide high public health wages and are therefore
looking for the ways to motivate workers by creating opportunities to increase earnings by improving
their performance.
Among other things the creation of incentive pay systems implies the possibility of additional wages
for employees while improving certain indicators. But this requires additional funds both in the health
system and in specific institutions. Therefore, there are objective limitations in this area.
In some cases, it is extremely difficult to target employees to increase the volume of rendered
services: in the conditions of budget financing and within the framework of the existing legislation on
compulsory health insurance, it is rather difficult to obtain additional funds for the institution even
with an increase in the volume of medical care provided (extra-planned volumes of medical care are
usually not paid). This, on the one hand, makes it impossible to obtain additional funds to stimulate
employees, and on the other hand – the increase in the volume of medical services rendered is
meaningless.
There is often a discrepancy between the indicators wages are paid for (or for which it is advisable to
pay) and the indicators which institutions are financed for. So, quality indicators relevant to the
assessment of the work of specific employees do not directly affect the amount of funding; the
increase of the volume of indicators of medical care is meaningless in per capita financing).
7458
There are restrictions on the stimulation of certain activities, for example, the use of piecework wage
systems which are focused on volume indicators. These restrictions may be due to various reasons:
the increase of the number of diagnostic researches leads to higher costs for the providing of medical
care, despite the fact that the funding of institutions for the amount of diagnostic researches is arely
practised (usually only for diagnostic centers and centralized laboratories) – as a rule, the cost of
diagnostic researches in the average amount is included in the cost of the visit, the finished case, etc.,
in the per capita standard. Therefore, the increase in the volume of diagnostic tests (and stimulation
of workers for these indicators) is financially unprofitable for the medical institution.
It is also necessary to keep in mind the differences in the levels of financial support by regions,
limiting the possibility of increasing the share of incentive payments for a number of regions.
Traditionally, the wage fund of public institutions is formed on the basis of staffing and salaries set
for employees. Therefore, the wage fund is not directly related to the volume and real complexity of
the services provided. Work in the system of CHI, the implementation of public tasks by public
institutions, the providing of paid services suggest a different approach. It is necessary to include
labor costs (labor intensity) for the provision of services into the tariffs (prices). That’s why the wage
fund should be based on the volume of provided services. This would create an opportunity for direct
financial incentives for employees.
In the modern Russian health care, the use of indicators focused on financial results (income, profit,
etc.) is limited. This is partly logical – financial results cannot always be a purpose in health care,
especially for such types of non-profit organizations as state and municipal institutions. However, the
liberalization of the economy, the transition to a market system involves the wider use of financial
indicators to assess the activities not only for health institutions, but in some cases – for individual
workers too.
A very important factor affecting the effectiveness of pay systems is the practice of informal (shadow
payments, «under the table») payments. The new system of remuneration can be severely devalued
by the fact that the development of informal payment practices reduces the importance of the extra
money received by doctors. The amount of informal payments is sometimes higher, and that is why
extra payments are not able to encourage doctors to achieve targets which are not interesting to them.
It should be noted that differences in pay levels lead to imbalances in the staffing of health care.
Currently, medical personnel are very mobile and actively move to regions where wages are higher.
Therefore, more attention should be paid to the financial security of workers ' wages and to the
elimination of unjustified interregional differences.
Conclusion
Abandoning the centralized model of health care organization , which was typical for the former
Soviet Union, Russia has made too strong bias towards decentralization at the first stage,. It
concerned the accepted model of mandatory health insurance financing as well.. The practice showed
that such an approach was unreasonable. But a direct return to centralization was impossible.
At the present stage the following approaches were considered as more suitable:
- consolidation of the major powers on health care organization in the regional authorities as
a compromise between centralization and complete decentralization of health care;
- consolidation of Mandatory Health Insurance resources in the Federal Mandatory Health
Insurance Fund;
- adoption of the Program of the state guarantees for delivering free medical care to
population;
- to state the uniform requirements for health care provision across all the country by
introducing such documents as the orders of health care provision and health care standards;
7459
- realization of the Federal Target Programs aimed at the fight against more significant
diseases as a mechanism for promoting regional budgets with simultaneous condition of co-financing.
The mechanisms to achieve lack of differences in regional health care should be developed. It is very
important to provide an exchange of experiences among countries.
References
A System of Health Accounts. Version 1.0 (National Health Accounts System. Version 1.0) (2000)
Organization for Economic Co-operation and Development (OECD), 209.
Artemenko, D.A., Aguzarova, L.A., Aguzarova, F.S. and Porollo, E.V. (2017) Causes of tax risks and
ways to reduce them European Research Studies Journal. Т. 20. 3B, 453-459.
Belyaeva, N.V., Doktorovich, A.B., Klimkin, M.V. and Zaitseva TS (2001). The system of health
accounts in Russia. Moscow.
Efremenko, I.N., Panasenkova, T.V., Artemenko, D.A. and Larionov, V.A. (2018) The role of сrypto-
currencies in the development of the global currency system European Research Studies Journal. Т.
21. № Special Issue 1, 117-124.
Flek, V. O., Shilyaev, D. R., Obukhova, O. V., Titov I. A., Zaitseva, T. S., Dmitrieva, E. D.,
Ovcharova, O. V., Strizhak, E. A. and Rollouts, C. F. (2006) System of health accounts: approaches
to the formation, analysis and forecasting at the Federal level. Moscow, 143
Flek, V.O., Titova, I.A. and Dmitrieva E.D. (2006) Program-target approach to financial and
economic justification of expenses from state and non-state sources of financing for the provision of
various types of medical care to citizens of the Russian Federation in 2006, GlavVrach, 4.
Kadyrov, F. N., Obukhova, O. V. and Brutova A. C. (2019) Financing health care in 2019: new and
channels for the movement of funds. Health manager. 1, 70-78.
Mueller, M. and Morgan D. (2017), New Insights into Health Financing: First Results of the
International Data Collection Under the System of Health Accounts 2011 Framework, Health Policy,
Vol. 121, 7, 764–769.
OECD (2017) Health at a Glance 2017: OECD Indicators, OECD Publishing, Paris.
OECD/Eurostat/WHO (2017), A System of Health Accounts 2011: Revised edition, OECD

Publishing, Paris, http://dx.doi. org/10.1787/9789264270985-en.
OECD/EU (2018), Health at a Glance: Europe 2018: State of Health in the EU Cycle, OECD
Publishing, Paris.
Starodubov, V.I. (1999) Creating a system of national health accounts in Russia. Healthcare, 7.
7460
Marketing Experience Analysis of Organizing Retail Trade:

Current Trends in Russia And Abroad
Dmitry ARTEMENKO
dartemen@mail.ru
Official address: 105/42, Bol. Sadovaya Str., Rostov-on-Don, Russia, 344006

const75@mail.ru
Dmitry KOSTOGLODOV
Professor, Doctor of Science (Economics) Department of Marketing and advertising

Rostov State Economics University (RINH), Rostov, Russia e-mail: d.d.kostiglodov@yandex.ru
Official address: 69, Sadovaya Str., Rostov, Russia, 344002
Victoria BONDARENKO
Associate Professor, Doctor of Science (Economics) Department of Marketing and advertising,

Rostov State Economics University (RINH), Rostov, Russia
e-mail: b14v@yandex.ru
Inna EMELIYNENKO
Applicant Department of financial monitoring and financial markets Rostov State Economics
University (RINH), Rostov, Russia e-mail: innaemel@yandex.ru
Narine DADAYAN
Assistant Department of Marketing and advertising Rostov State Economics University (RINH),
Rostov, Russia e-mail: narinedadayan@mail.ru
Abstract
The article analyzes current trends of the retail trade development in foreign practice, investigates
current trends in Russian retail trade. Authors analyze issues of the media mix representation in the
promotion of e-Commerce in Russia and forecast a possible change in its structure. Within the
analytical study of current trends authors make the conclusion about the further actualization of
Omni-channel options for the sales implementation, the e-Commerce development, sales of products
under own trade mark (STM) and cost-saving formats sales in the discounters, offering the products
purchase in online and off-line mode. Russian retail develops within the vector of general global
trends, and the growth of competition increases the interest to the tested methods use of managing the
7461
trading business competitiveness. In this regard, it is very important and relevant to study the
experience of foreign companies in various forms of their activity, such as, for example, the
expansion of goods sold under the trade institution brand, improving the sales infrastructure,
increasing sales through the Internet, introducing various innovations in relationships with
consumers, studied in a number of scientific papers (Panyukova, 2013; Baker).
Keyword: retail, retail trade, trends, marketing experience
Theoretical, Informational and Empirical, and Methodological Basis of the

Research
One of manifested organizational trends dominating in modern retail abroad is the active penetration of
retail organizations into foreign markets. Russia is characterized by a lag in this direction, as there is a
problem of building relationships with local regional suppliers, which domestic operators just learn to
solve, mainly in national borders. The issue of interaction between owners of large chain stores and
local industries coordination remains relevant in pricing, quality monitoring, packaging and products
delivery terms.
According to the data, for Russia the level of modern chain stores formats penetration into markets
remains the same as in developing countries. These figures illustrate that Russian business needs
systematic work to achieve the high functionality level of foreign trade institutions.
Another important trend is the introduction of "green management" standards in the trading business.
To increase the positive image level in consumers’ eyes, companies try to be socially responsible and
invest in technologies minimizing environmental damage. As a result these technological solutions,
which require significant investments, pay off in the long term also in reputation.
The next significant trend is the multi-format business development to expand the coverage of
potential consumers. For example, there open format "at home" chain stores (chain stores of small
format, along with large-format hypermarkets). At the same time, the foreign business actively
develops monocannal sales based on the integration of all existing channels for goods sale (on-line
and off-line), based on the overall strategy of sales and customer relationships.
The researchers are quite right that omnichannel sales strategy allows businesses to improve
consumer behaviour forecasts, accelerate the penetration and implementation in the market segment
of company interest through remote interaction, operating large databases of consumers and
personification of loyalty programs, the image attractiveness and trade institution recognition growth
(Panyukova, 2013).
According to foreign trading companies’ managers surveys, they understand the importance of
omnichannel sales in the interaction with consumers and the formation of the developing business
profits (Rosenblum, 2013)
Data on synchronization of business processes in companies (based on research data) engaged in

omnichannel sales is shown in figure 1.
As we can see, omnichannel-oriented business can manage its competitiveness by synchronizing its
own business processes and improving the quality of interaction with consumers.
Another manifesting trend we have already mentioned, is the offer of goods under the trade
organization STM. Discounters try to offer cheap goods under the STM, enticing customers with the
price.
Expensive shops expand the STM product line and offer environmentally friendly products to their
customers with a high price bonus.
7462
Chain stores, on the one hand, produce goods attractive in price, on the other hand, work on
increasing the recognition of their own brand among the target audience.
17 57
Complex of operations… 20
6
15 56
Pricing strategy 25
4 Full
15 58
Assortment 23 synchronization
4
14 46
Order visibility 29
11
14 52
Traditional advertising 17 Partial
17
11 57 synchronization is
Digital marketing 32 underway
10 59
Customer loyalty policy
13 18
Technological operations…
8 58 Full
3 31
synchronization is
8 44 underway
Call center operation
20 28
7 51
Demand forecasting 36
6 No
7 52 synchronization
Customer segmentation 28
13
0 20 40 60 80
Fig. 1: Data on synchronization of business processes in companies engaged in omnichannel

sales, % (Rosenblum, 2013)
Data on the share ratio of STM in a number of countries in total trade turnover are shown in figure 2.
Switzerland 53%
Spain 51%
Great Britain 45%
Portugal 44%
Germany 42%
Belgium 41%
Austria 39%
Hungary 31%
Denmark 31%
Poland 30%
Netherlands 29%
Sweden 29%
Finland 29%
Czech Republic 27%
Greece 24%
Italy 20%
0% 10% 20% 30% 40% 50% 60%
Fig. 2: The own labels share in the total turnover of retail trade enterprises in several
countries in 2013, %
7463
Against the background of business interest in the STM and omnichannel sales, business is focused
on increasing sales through the Internet with the delivery of goods to home or in shopping centers,
post offices and so on to increase the availability of goods to consumers. The e-Commerce market is
growing all over the world. Now its development flagships are the countries of the Asia-Pacific
region, primarily China. According to the expert opinion due to China by 2019 – 2020, the volume of
this market can grow by 1 trillion dollars (Stolyarova etc., 2018).
It is also possible to trace the e-Commerce share dynamics in the world to total retail sales in 2015-
2018 and the forecast for 2019 - 2021 (figure 3).
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
2015 2016 2017 2018 2019 2020 2021
Fig. 3. The e-Commerce share dynamics in the world in retail sales, %
According to foreign research agencies investigations the use of the services of traditional stores in
the world due to various electronic services is about 28% less [8].
Results
In Russia, the e-Commerce share in GDP is about 1.2 - 1.3%. According to the data of the
Association of Internet trade companies (AKIT), presented in media in 2017, the on-line trade
turnover in Russia is more than 3% of the total retail turnover, in physical volume it exceeded 1
trillion rub. Increasing in this segment's sales is 25%.
The largest representation of electronic sales in Moscow is 32%, in St. Petersburg is 11.3% and in
Moscow Region is 7%. Also in the regions there is this segment active development, especially in
Rostov Region, Krasnodar Region, Nizhny Novgorod Region, Samara Region, Sverdlovsk Region,
Republic of Tatarstan and Tyumen Region.
We can present data on the volume and growth of the on-line sales market. The e-Commerce market
volume and dynamics in Russia in current prices are shown in figure 4.
According to the forecast the on-line sales share in Russia will grow in total to 5.4% by 2021. [6]
Naturally, such realities and expectations arouse interest in new products sales and the involvement
of traditional retail in increasing on-line promotion. In Russia, the on-line sales share in 2013 was
about 0.1% (Goreva, 2013), currently this figure tends to increase.
In the current conditions, on-line sales allow to save time and get acquainted with the reviews of
other consumers about the goods quality and specifics and quality of some trade organizations
7464
service, moreover it is, as a rule, saving financial resources. For this reason, this trend manifests itself
in cities of different sizes, from megacities to small towns.
2017 1150
25
2016 920
21
2015 760
7
Market volume, bln. rub.
2014 713 Growth rate, %
31
2013 544
34
2010 405
23
0 200 400 600 800 1000 1200 1400

Fig. 4: The e-Commerce market volume (in current prices) and dynamics in Russia (%)
However, some researchers note [13] that there are features in the consumers behaviour in small
towns that have a deterrent effect on the of this sales segment development: the behavioural
component (the desire to personally inspect and try the product); the price component (it is more
difficult for an on-line channel to keep low prices because of the limited number of suppliers).
Conclusions and Recommendations

The on-line promotion in small towns is prospective if it is implemented by large chain stores
structures, thus optimizing the work with the customer base. As the coverage of chain stores users
increases, it is obvious that in small towns and medium-sized cities, there will expand this type of
purchasing goods.
Naturally, for this area development, it is necessary to provide appropriate infrastructure, for
example, the ability to pay with electronic money, a Bank card. Specialized mobile applications are
very important as they allow to manage purchases from a mobile device. Trade organizations use QR
codes to quickly move to necessary commodity items and make a purchase.
Consumers react to the proposed sales innovations in different ways. Most of them respond
positively to the convenience of shopping. In this regard, it is also reasonable to study the retail
consumers classification in terms of the segment that makes active on-line purchases.
Since the on-line purchase can be regarded as a kind of innovation, then on-line sales customers can
be classified by Rogers: innovators (3-5% of consumers purchase new products within new services);
early adopters (10-15% do not react on prices, they assess the experience of experts and the reaction
of media); the early majority (up to 20-25% are focused on the leaders and sellers opinion); the later
majority (45-50% react on price changes, they are focused on "personal contact" with goods);
conservatives (about 5% do not see changes and want to make the traditional purchase)( Soloviev,
2008).
Trade organizations in terms of offering on-line sales need to work actively with the first four
categories of consumers, as the fifth one will gradually begin to the introduced format of service.
7465
The interest of trade organizations in the sales implementation in addition to the off-line sales in
various formats in the form of on-line services also can be traced, if we look at the dynamics of
advertising costs for e-Commerce. Investments that the trading business makes to promote this sector,
indicates its high attractiveness and future prospects, especially in combination with traditional sales,
for example, in the framework of the previously considered omnichannel option.
The advertising costs dynamics in Russia for a number in the category of e-Commerce is shown
below in figure 5 (Stolyarova etc., 2018).
2017 4.4
2016 3.5
2015 2.5
2014 1.6
2013 1.3
2012 1.3
2011 0.8
2010 0.3
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5
Fig. 5: The advertising costs dynamics in Russia for a number in the category of e-Commerce in
2010-2017, billion rubles
In this aspect the data on the e-Commerce category share in the Russian advertising market in 2010-
2017 is very interesting, too (figure 6) .
2.5 2.2
2
2
1.5
1.5
0.8
1 0.7 0.6
0.5
0.5 0.2
0
2010 2011 2012 2013 2014 2015 2016 2017
Fig. 6: The E-Commerce category share dynamics in the Russian advertising market in
2010-2017, %
Trade organizations use various media channels to promote information about their on-line services.
Data on the involvement of various channels in the promotion of e-Commerce and changes in the
media mix structure are shown in figure 7.
7466
1.4 7.1
2017 9.3 82.2
2.1 8.7
2016 7 82.2
3.5 8.3
2015 5.5 82.8
7.2 18.4
2014 5.1 69.4
4.9
4.6
2013 4.8 85.7
2.6
4 7.2
2012
86.3
2 5.5
2011 9.4 83.1
7.7
9.5
2010 20.2 62.6
0 10 20 30 40 50 60 70 80 90 100
Radio Press Outdoor advertising TV

Fig. 7 : Changes in the media mix structure in the e-Commerce promotion in Russia in 2010-
2017, %
The given structure demonstrates prospects of the developing segment for the trade business, as it
actively invests into the promotion of this direction with the help of such an expensive channel as TV
advertising.
Another previously noted trend, combined with the above-mentioned directions, and characteristic of
retail in Russia and abroad is the tendency to develop various discounters, varying the range, goods
quality and pricing. Rational consumers who plan their expenses will buy products in stores of
convenient format, a combination of different purchase types (on-line and off-line).
Conclusions
It should be admitted that above-mentioned popular formats differ in application depending on a size
of a certain territorial entity market (Artemenko, 2018). In medium cities and small towns, formats
with low and medium prices, offering a small and medium range will be the most common formats.
The on-line sales representativeness also will be lower at the moment in the medium and small
territorial entities.
Thus, within the competitiveness marketing management, the trading business varies the trading
infrastructure, introduces innovations into the sales process, offers an omnichannel sales version,
actively develops e-Commerce, STM goods sales and the cost-effective sales introduction in the form of
discounters offering on-line and off-line products purchase.
References
Artemenko, G., Artemenko, D. (2018) The use of fractal analysis in assessing the reliability of
taxpayers information (Book Chapter) Fractal Approaches for Modeling Financial Assets and
Predicting Crises.
Baker R. M&S Digital Lab Brings Nimble Startup Approach. [Online], [Retrieved June 22, 2019],
http://www.marketingweek.co.uk/opinion/ms-digital-lab-brings-nimble-
startupapproach/4005629.article.
E-Commerce in Russia. [Online], [Retrieved June 27,

2019],https://issek.hse.ru/data/2017/06/09/1170702854/NTI_N_55_09062017.pdf.
7467
E-Commerce Market in Russia: Results of the 1-st half of 2017. [Online], [Retrieved June 22,
2019],https://new-retail.ru/business/e_commerce/rynok_internet_
torgovli_v_rossii_itogi_1_polugodiya_2017_goda2371.
Global B2C Ecommerce Country Report 2017 (free). [Online], [Retrieved June 25,
2019],https://embed.ecommercewiki.org/Prot:Global_B2C_Ecommerce_Country_Report_2017_(fre
e).
Goreva M.A. (2013). E-Commerce as an Effective Sales Channel of a Retail Company. Internet
Marketing, 2(74), 111.
How Global is the Business of Retail? Global Research and Consulting. 2012 Edition. Executive
Summary. — http://www.rundlemall.com/bm.doc/cbre---how-global-is-the-business-of-retail---
executive-summary.pdf.
Panyukova V.V. (2013). The Network Trade Current State Study in Foreign Countries. Retail
Marketing, 3(03), 200-210
PLMA’s World of Private Label. Shoppers Across Europe are Buying More Private Label. [Online],
[Retrieved June 22, 2019],http://www.plmainternational.com/pressupdate/pressupdate_
new02.asp?language=en.
Radyukova, Y., Sutyagin, V., Treschevsky, Y.I., Artemenko, D. (2018) The Problems of Financial
Security of Modern Russia Proceedings of the 32nd International Business Information Management
Association Conference, IBIMA 2018 - Vision 2020: Sustainable Economic Development and
Application of Innovation Management from Regional expansion to Global Growth.
Retail E-commerce Sales Worldwide from 2014 to 2021. [Online], [Retrieved June 22, 2019],
https://www.statista.com/statistics/379046/worldwide-retail-e-commerce-sales.
Rosenblum P., Kilcourse B. Omni-Channel 2013: the Long Road to Adoption. 2013 Benchmark Report,
June 2013. [Online], [Retrieved June 22,
2019],http://rsrresearch.com/wpcontent/uploads/2013/06/2013_XChannel_rpt_RSR.pdf.
Soloviev B.A. (2008). Marketing. M.: Infra-M. 383 p.
Stolyarova A.V., Muzyko V.A. (2018). Electronic Commerce as a the Consumer Market Driver and Its
Projection on the Advertising Market. Advertising. Theory and practice, 1(83), 2-15.
Total Retail Survey 2017. [Online], [Retrieved June 22, 2019],www.pwc.com/2017totalretail.
Worldwide Retail and Ecommerce Sales: eMarketer’s Updated Forecast and New Mcommerce
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com/Report/Worldwide-Retail-Ecommerce-Sales-eMarketers-Updated-Forecast-New-Mcommerce-
Estimates-20162021/2002182.
7468
Trends and Directions of Supranational Cryptocurrency

Operations Regulations in The World Economy
Dmitry ARTEMENKO
dartemen@mail.ru

const75@mail.ru
Innessa EFREMENKO
Associate Professor, Doctor of Science (Economics) Department of financial monitoring and

financial markets Rostov State Economics University (RINH), Rostov-on-Don, Russia, e-mail:
efremenko@yandex.ru
Galina NAZARENKO
Candidate of Science (Economics) Department of Regional Support

JSB «Sobinbank», Moscow, Russia, e-mail: ngv@inbox.ru
Official address: d. 15, p. 56, Rochdelskaya Str., Moscow, Russia, 123376
Aleks PALANT
Postgraduate Department of World Economy Rostov State University of Economics, Rostov-on-Don,

Russia e-mail: efremenko@yandex.ru
Official address: 69, Bol. Sadovaya Str., Rostov-on-Don, Russia, 344002
Abstract
With permanent growth of virtual currencies circulation, the world economy faces a need for
institutional and legal regulation of this sphere and definition of approaches to this regulation. The
analysis of international experience demonstrates that the current aim of national regulators is to
minimize the risks, which arise when public interest is violated, in particular, in case of laundering of
proceeds of crime and tax evasion. The given article analyzes various approaches of countries and
international organizations, such as OECD, FATF, IMF, the World Bank, as well as the integration
association EAEU, to cryptocurrency market regulation. The authors suggest a range of measures
aimed at development of the national regulation of the virtual assets sphere at the level of the EAEU
member countries focused on minimization of the risks of loss of funds by investors at different
levels and provision of a basis for standardization of various approaches to cryptocurrency market
regulation and application of blockchain technology at the EAEU level.
Keywords: cryptocurrency, virtual currency, virtual asset, blockchain technology, national

regulation of cryptoeconomy, supranational regulation of cryptocurrency circulation.
Introduction
7469
The global economy is constantly changing. Periods of relative quiet and not-too-evident
transformations are followed by emerging factors, which make changes to the fundamental processes
of the modern economy. Global digitalization is one of those factors. Nowadays, all innovative
technologies are characterized by the use of digital technologies, creation of digital innovative
products and services. The emergence of virtual assets (virtual currencies, cryptocurrencies) in this
context is a logical extension of digitalization development in the global currency market.
The first reason for this process is the wish to accelerate the transition to universal cashless payments
and digital data storage with minimal costs and absence of intermediaries. The second reason is the
lack of trust to the current world order and the system of international coordination of economic
processes. In this regard, the major players in the world economy are actively searching for and
developing new forms and methods of formation, transfer and storage of values. An important role in
this issue is played by the process of globalization: today, there is no such limitation as national
borders, and transnational corporations’ financial capacities are growing every day.
Descriptions of the research methodology and justification of its choice
According to the Internet-portal CoinMarketCap, nowadays, there are over 2400 kinds of functioning
virtual currencies with total capitalization of 268.81 billion US dollars, including 186.05 billion US
dollars (69%) of Bitcoin capitalization (Table 1).
Table 1: Market capitalization of TOP-10 cryptocurrencies as of August 2019, USD
No Name of Market capitalization, Price, Money stock in

cryptocurrency billion USD billion USD circulation over 24
hours, billion USD
1 Bitcoin 186.05 10404.88 16.81
2 Ethereum 19.98 186.13 6.16
3 XRP 11.42 0.27 1.17
4 Bitcoin Cash 5.58 311.14 1.21
5 Litecoin 4.68 74.19 2.67
6 Binance Coin 4.32 27.79 0.17
7 Tether 4.05 1.0 16.86
8 EOS 3.34 3.60 1.22
9 Bitcoin SV 2.42 135.34 0.28
10 Monero 1.43 83.33 0.67
Source: web-site CoinMarketCap [online]: https://coinmarketcap.com/
However, the scale of virtual currencies use suggests that most subjects of the world economic space
still use traditional methods of payment, and in comparison with other monetary market tools virtual
assets’ capitalization is insignificant (Pic. 1).
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Fig. 1: Global amount of money, USD

Source: The World Bank [online]: https://www.worldbank.org
The adaptation of state institutions to the new conditions is more difficult as compared to private
businesses, however, it is the state regulation that has to form a comfortable environment necessary
for business and reduce the risks posed by cryptocurrencies’ and blockchain technologies’ inclusion
into calculations. There is still no established approach to the cryptocurrency sphere regulation either
at the national or at the supranational level. Every country considers virtual currency to be a means of
payment, a product or an asset.
Smaller states use increasing popularity of virtual currencies and treat them more liberally in order to
attract investment to the country; they reduce regulatory barriers to develop cryptocurrency industry.
A range of other countries are forming their attitude in a more restricted way, and international
organizations are studying this phenomenon and developing recommendations, standards of state and
international regulation of cryptocurrencies’ circulation.
Analysis and explanation of the results

Currently, the most widespread global method of virtual assets state regulation is the method of “soft
regulation”, when governmental bodies only inform their citizens of possible risks involved in
investment in digital assets. In a number of countries, national virtual cryptocurrencies have been
created (for example, Venezuela, Iran), in an effort to overcome the economic crisis.
An apparently contrary method is a total prohibition on transactions with virtual assets to decrease
risks in the banking sector. Such an approach is grounded in cryptocurrencies’ insecurity and risks of
loss increasing in proportion to the growth of their circulation. Bitcoin is also repeatedly criticized
due to its high volatility, which complicates the implementation of the key function of money –
storing and saving (Krugman, 2013).
Some authors argue that “the opinion on cryptocurrencies existing in the “supranational area” is at
variance with the true state of affairs. In fact, there is binding between cryptocurrencies and certain
countries. This concerns control over the points of ordinary (fiat) money turning into digital money
and back, licensing the infrastructure of digital currencies operators’ circulation, and their
supervision. Cryptocurrencies’ purchasers need to pay for them with ordinary money; in one way or
another they have to bring fiat money to cryptocurrency exchange and take fiat money out of it”
(Krugman, 2013).
Today, it is hard to imagine that countries can relinquish their exclusive right for emission of national
currency notes or allow making tax payments with private virtual currencies. Authorities consider
cryptocurrencies to be a threat of “capturing” money emission from state bodies.
It should be pointed out that, until 2012-2013, most countries did not pay that much attention to the
cryptocurrency market due to its insignificant size. But with growing popularity of virtual currencies
and formation of multiple opportunities to use them, countries began to contemplate the necessity to
regulate this sphere. Another important fact is that nowadays state regulation of digital economy, its
subjects and processes is carried out in accordance with public goals of the country and aimed at
minimization of risks of money laundering and terrorism financing (hereinafter – ML/TF) and tax
evasion.
In practice, one of two approaches to virtual currencies regulation can be applied:
- to form a unified regulatory legal framework for virtual currencies circulation;

- to establish requirements in accordance with the specificity of a certain asset.
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National regulators in developed countries prefer the latter approach arguing that issuing of tokens,
based on investment activity, should be made equivalent to the issue of securities and regulated
accordingly. This particularly affects the necessity to disclose information; at the same time the
subjects of the cryptocurrency market are at risk of unintentional mistakes when defining the type of
the asset. The main advantage of this approach over the former one is that in case of various assets, a
corresponding normative legal regulation is used in accordance with their risks: in case of goods
consumer legislation is applied, in case of possible profit from the token securities regulation is used.
At the moment, the world economy has no commonly accepted norms and rules regulating the global
cryptocurrency market. As we have mentioned before, every country individually chooses the
approach to follow in the development of state regulation for this sphere. Particular attention should
be given to activities of international organizations in the area of cryptocurrency operations
regulation.
The Organization for Economic Co-operation and Development (hereinafter – OECD) expressed its
interest in studying the issue of virtual currencies in 2018 for the first time, when it organized two
meetings with national regulators, inviting various experts; moreover, it conducted roundtable
discussions with business-community and state regulatory bodies to discuss risks and opportunities in
the sphere of virtual currencies and blockchain technologies. In September that year, the first
international “OECD Blockchain Policy Forum” was organized, where the OECD announced its
intention to focus blockchain technology activities in the following directions: development of
approaches to the blockchain technology regulation, practical implementation of these approaches
and promotion of international cooperation in the sphere of virtual assets.
OECD’s Senior Advisor at the Centre for Tax Policy and Administration Caroline Malcolm
emphasized that: “today, many countries are not certain about the position they hold in regard to the
issue of cryptocurrencies, so additional work of international organizations in this sphere is
necessary. In this context, the OECD is studying what is currently happening in the area of
cryptocurrencies and blockchain in order to give its recommendations on the regulation of this sphere
in a wide range of applications. These applications include: financial and product markets, financial
services, tax administration, protection of consumers’ rights, legislation on the fight against money
laundering and financing of terrorism (AML/FT). The Organization has an understanding of what this
picture in different countries looks like, what they do in this direction, and whether it is necessary to
develop a better practice model” (Lagarde, 2018). It should be noticed that the OECD is already
providing support for its member countries in the area of application of tax laws for virtual assets, as
national regulators of the OECD’s member countries have varied views upon this issue. According to
the law, currency exchange is tax-free. However, countries have value added tax, goods and services
tax, sales tax, etc. Besides, AML/FT measures must be complied with.
The Financial Action Task Force on Money Laundering, the FATF, was one of the first to define, on
the one hand, virtual currencies’ advantages: innovation, low cost and simplicity, and difficulty of
national regulation and control on the other.
In early 2014 the FATF prepared a brochure, where it expressed its view on the main terms and
definitions in the sphere of virtual currencies, and highlighted the risks in the observance of measures
against money laundering and financing of terrorism. According to the FATF, being regulated by
AML/FT measures virtual currencies’ risks are formed by transactions’ anonymity, reduced
possibility to verify the identity of operations’ subjects, insufficient transparency for the AML/FT
standards, as well as lack of regulatory and supervision authority.
In this regard, the FATF presumes (2019) that when countries allow circulation of virtual currencies,
a more preferable principle to follow is “make legal rather than banned”, for once these financial
market tools are legalized, they will be visible and under control of governmental bodies.
In autumn 2018, the FATF introduced corrections to its recommendations with respect to new
subjects (cryptocurrency exchanges, virtual wallets, ICO), which now had to be classified as subjects
of the law on AML/ (2019) and in June 2019, as part of fight against money laundering and terrorist
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financing in cryptoeconomy, it adopted and issued an Interpretive Note to Recommendation 15 on

New Technologies, that further clarifies the FATF’s previous amendments to the international
Standards relating to virtual assets and describes how countries must comply with the relevant FATF
Recommendations to prevent the misuse of virtual assets for money laundering and terrorist financing
(2019).
According to this document, “countries must assess and mitigate the risks connected with virtual
assets and virtual asset service providers; license or register service providers and subject them to
supervision or monitoring by competent national authorities – (notably, countries will not be
permitted to rely on a self-regulatory body for supervision or monitoring) – and implement sanctions
and other enforcement measures when service providers fail to comply with their AML/CFT
obligations; and underscore the importance of international cooperation” (2019).
In December 2018, the G20 Leaders’ Summit in Buenos Aires resulted in the member countries
reaching a decision on the necessity of cryptocurrencies’ national regulation in line with the FATF
standards. It was agreed to launch cooperation to regulate the virtual assets market and form a system
of digital services tax regulation. According to the document, cryptocurrency regulation will promote
development of an open and resilient global financial system. It is also pointed out that the member
countries will apply the FATF standards and recommendations with national regulation of
cryptocurrency circulation in fight with ML/FT.
In the European Union (hereinafter – the EU), institutional and legal regulation of virtual assets
transactions is carried out as part of AML/FT policy. Tax regulation of cryptocurrency transactions is
realized according to the national legislation of the EU member countries. It should be noted that
virtual currency exchange into national currency is regulated by the decision of the Court of Justice
of the European Union, supported by the position of the Value Added Tax Committee of the
European Commission. Moreover, separate integration regulators provided clarifications regarding
the use of virtual currencies in economy. Development of a unified supranational regulation of virtual
assets is out of the question yet.
The International Monetary Fund (hereinafter – the IMF) assesses serious influence of new
technologies (cryptocurrencies, innovative forms of financial intermediation, big data, artificial
intelligence) on realization of a state’s monetary policy.
The IMF’s position regarding virtual currencies is quite reserved: “currently, cryptocurrencies are not
capable of changing the existing order due to the high quotation volatility, high risks (resemblance to
pyramid scheme), energy-consuming technology, and weak economy of scale. However, once these
technical limitations are eliminated, virtual currencies will be able to act as a real competitor to the
existing currencies and monetary policy. Thus, central banks and banking institutions should start
taking cryptocurrencies seriously and, probably, take up their emission independently” (2018). The
International Monetary Fund also does not exclude a possible creation of a digital version of special
drawing rights.
It should be noted that a major transformation of the global financial market architecture is likely to
happen, which will result in creation of innovative technologies that can become a reason for banks to
lose their function of intermediaries and significantly weaken the influence of monetary policy
transmission mechanism.
The World Bank takes a cautious position regarding virtual currencies; however in doing so, it is
taking steps in blockchain technology implementation. In August 2018, as part of its pilot project in
cooperation with the Commonwealth Bank of Australia bonds amounting to US$80 million were
issued on the basis of blockchain technology. They were called “bond-i” (Blockchain Offered New
Debt Instrument). The investors included Australian and American insurance companies, financial
organizations, and pension funds. These securities were the first financial tool with a life cycle
managed with the use of distributed ledger technology.
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The Eurasian Economic Union (hereinafter – the EAEU) does not have a common understanding of
the nature and methods of virtual assets regulation. The development of cryptoeconomy legal
regulation in the EAEU is at an early stage. We should note here that the Russian Federation and the
Republic of Belarus have already formed a certain experience in legal and organizational framing in
this sphere, as well as in related business activity, but other EAEU member countries (Armenia,
Kazakhstan and Kyrgyzstan) are still studying this phenomenon and analyzing Russia’s and Belarus’
regulation experience.
According to A. Levashenko (2018), Head of the Russia-OECD Center at the Russian Presidential
Academy of National Economy and Public Administration under the President of the Russian
Federation: “The system of cryptocurrencies regulation in the EAEU should be business-friendly.
This requires taking four steps: adoption of a common glossary of cryptoeconomy terms, creation of
the EEC guidelines for ICO holding, developing EEC recommendations on risks and base erosion in
the light of international experience and the OECD standards”.
Controversy over the Results

The relevant issues on supranational regulation of cryptocurrencies transactions on the territory of the
EAEU member countries derive from the need to comply with the provisions of the Treaty on the
Eurasian Economic Union and integration legal documents regulating its development.
The global practice has developed several ways to integrate virtual assets into traditional economy by
implementing already existing legal framework:
1) to single out new subjects of digital economy in the enacted legislation (for example, as
part of anti-money laundering and combating the financing of terrorism);
2) to extend the applicability of existing laws and regulations to the new subjects of digital
economy;
3) to single out new subjects in the law on anti-money laundering and combating the
financing of terrorism and adopt new legislation to it.
As part of the EAEU member states cooperation, it will be reasonable to follow the first way to
identify clients creating virtual wallets for cryptocurrency, conducting transactions with virtual
currencies, which will mitigate public risks and enable further development of digital economy.
As for creation of the national regulation system for the virtual assets sphere, it is preferable to use
“soft law” practices at the EAEU member states level with the aim to mitigate risk of funds loss by
investors of different levels and establish a base for standardization of various approaches to the
regulation of cryptocurrency markets and implementation of the blockchain technology at the level of
the EAEU, which include:
- development of a common glossary of digital economy terms and definitions for the
EAEU;
- adoption of guidelines on ICO holding on the territory of the EAEU member states for
businesses operating in this sphere;
- formulation of the EEC recommendations on the risks in the sphere of money laundering
and financing of terrorism, as well as tax evasion, taking into consideration global practice and the
adopted OECD standards.
Next, it will be required to work out a full-scale supranational legal framework, which will regulate
the functioning of cryptocurrencies and blockchain technology to remove them from the “blind
zone”, to minimize risks of collusive corruption and misuse of the existing regulatory legislation
when dealing with the digital economy subjects, and to further develop the EAEU member states’
standardized approaches to regulation of virtual assets’ circulation.
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Conclusion
Thus, the conducted research shows that cooperation in the sphere of cryptocurrency regulation is of
a supranational character and requires international efforts. Another important issue to note is a high
level of legal framework flexibility in the area of cryptocurrency regulation at both supranational and
national levels; so it should be recognized that further development of cryptocurrencies and other
cryptoassets will grow globally and replace obsolete public processes. Regulators must be ready for
this development and shape a position based on the free enterprise principle and risk-oriented
approach to protection of public values.
References
Lagarde C. (2018) A Regulatory Approach to Fintech: We Must Guard Against Emerging Risk
without Stifling Innovation. Finance & Development, 9-10.
Krugman P. (2013). “Bitcoin is Evil” [Online], [Retrieved June 22, 2019],

https://krugman.blogs.nytimes.com/2013/12/28/bitcoin-is-evil/
CoinMarketCap // https://coinmarketcap.com/
FATF statement on virtual assets (Posted on the official FATF website following the Plenum
10.1.2018). [Retrieved June 27, 2019], http://www.fedsfm.ru/preparation-fatf-fourth-
round/news/3508
International Workshop “OECD and EAEU Countries: Opportunities for Approaching Approaches to
the Regulation of Crypto currencies and Blockchain” (2018). Moscow, Russian Federation, EEC
Headquarters, July 26, [Online], [Retrieved July 12, 2019],
http://www.eurasiancommission.org/ru/act/integr_i_makroec/dep_makroec_pol/Pages/26072018.asp
x
Public Statement on Virtual Assets and Related Providers. FATF. 2019. [Online], [Retrieved June
22, 2019], https://www.fatf-gafi.org/publications/fatfrecommendations/documents/public-statement-
virtual-assets.html
RANEPA experts collaborate with ECE // https://www.ranepa.ru/sobytiya/novosti/eksperty-ranhigs-

sotrudnichayut-s-eek
Blinkin M. Ya., Dupan A.S., Ivanov A. Yu., and others; hands. author count Simachev Yu. V.;
“Regulatory development: new challenges in the face of radical technological change: dokl. to 20th
April Int. scientific conf. on the problems of economic and social development”. Moscow, April 9-
12. 2019. Nat researched University "Higher School of Economics". 88.
World Bank Prices First Global Blockchain Bond, Raising A$110 Million. [Online], [Retrieved
June 22, 2019], https://www.worldbank.org/en/news/press-release/2018/08/23/world-bank-prices-
first-global-blockchain-bond-raising-a110-million
7475
Impact of Socio-Demographic Factors on The Demand for The

Internet Marketing in Hotel Companies Activity
Dmitry ARTEMENKO
dartemen@mail.ru

const75@mail.ru
Victoria BONDARENKO
Associate Professor, Doctor of Science (Economics) Department of Marketing and advertising,

Rostov State Economics University (RINH), Rostov, Russia
e-mail: b14v@yandex.ru
Innessa EFREMENKO
Associate Professor, Doctor of Science (Economics) Department of financial monitoring and

financial markets Rostov State Economics University (RINH), Rostov-on-Don, Russia, e-mail:
efremenko@yandex.ru
Vladimir LARIONOV
Associate Professor, Candidate of Science (Economics) Department of Marketing and advertising

Rostov State Economics University (RINH), Rostov-on-Don, Russia e-mail:
vlarionov777@gmail.com
Abstract
The study focuses on the analysis of the socio-demographic factors role in the manifestation of
certain trends relating to tourist services. At the same time, the authors analyze the leading role of the
Internet marketing in the hotel services promotion. Authors made a conclusion that, taking into
account current socio-demographic characteristics of the marketing environment, Internet marketing
in this situation is undoubtedly a valuable resource for the hotel business. The study proves that the
importance of the Internet marketing as a communication platform for interaction with customers and
partners and analytical platform for research, and further results verification will increase, taking into
consideration the current degree of the digital economy model development. It is necessary for
modern hospitality enterprises to analyze correctly what is happening in the sphere of innovations
and to implement them adaptively into business practices that will enhance customer satisfaction and,
ideally, contribute to the true loyalty manifestation.
Keyword: Internet marketing, socio-demographic factors, hotel enterprises, impact
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Introduction
Market development opportunities are influenced by the macro environment state, in particular, the
consumer segment representativeness and conditions for building relationships with customers within
the digital space. Macro-environment factors largely determine conditions and opportunities for the
business development in various industries and areas. The marketing environment, especially its
socio-demographic component, has a key impact on the tourism development and, accordingly, the
hotel business.
It means that demographic indicators make it possible to determine the size and forecast values of the
potential market, the offered services popularity on the basis of the sex and age structure of potential
consumers. Social criteria determine the popularity of certain price offers, value orientations and
preferences based on the cultural level, education, familiar social environment and perceived needs in
the life and leisure. According to the researchers, in the current world socio-economic system, there
are certain trends of the macro-environment impact, directly related to qualitative changes, as a
consequence of quantitative changes in the economy, technology, demography, social picture of the
modern world (Burnaeva, 2011).
The impact of any factors, including innovation, the knowledge economy formation, the active
movement of the population, the entertainment economy, can have a number of positive and negative
consequences for society in whole, and for tourism and hotel business in particular (Cetron, 2008).
The criterion of the population growth, for example, is usually attributed to positive aspects of this
kind, as the population increase, the potential market for tourist services consumers and the demand
for accommodation services are growing. The increase in life expectancy of the population, as well as
improving the life standard of adults and elderly individuals who tend to spend their leisure time, for
example, getting new impressions while traveling is the positive impact factor as well.
Theoretical, Informational and Empirical, and Methodological Basis of the

Research
An increase in the proportion of the elderly population, including the working population, that is,
already with certain formed desires and intentions, with an appropriate income also contribute to
positive changes for the tourism and hotel business. In many ways, the progress in the medical
technologies development, as members of society can keep a certain standard of life and spend their
leisure time for fun contributes to this. Along with this, medical tourism is actively developing,
attracting the "age segment" of consumers, preferring to combine recreation with treatment and health
correction.
Another positive factor is the focus of the population on maintaining a healthy lifestyle, which
contributes to the development of the organic food and fitness clubs market. The same trend
stimulates the active tourism development, balanced loads in travelling and so on. As one of the sub-
directions there is developing a visit to the "beauty farms" and various SPAs in the famous resorts, in
the health resorts and just beyond the boundaries of megacities, offering services to restore vitality,
proper loads on the body, the natural biorhythms restoration. More often this proposal is focused on
the female target audience, which has recently become economically active and can independently
plan and pay for their holidays.
The population mass migrations and modern communication technologies, allowing to use booking
services, exchange of information, access to information about places of accommodation, expected
distances and feedback about them from industry professionals and consumers, also have a positive
impact on the tourism and hotel business development.
The second and third careers popularity growth in the world involves both increasing interest in
obtaining educational services abroad, and subsequent foreign internships, building their own career
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in a country with different lifestyle from the country of primary residence also contributes to these
processes.
However, along with many positive factors of the marketing socio-demographic environment impact,
it can be noted that some of the changes taking place in society and the specifics of consumption can
be attributed to the negative impact and/or conditionally negative impact factors on the tourism and
hotel business development. Most of these factors, not directly, but indirectly, have a
multidirectional impact on society and various spheres of its life. Thus, environmental standards for
business make certain adjustments to the work and increase the cost of various business processes,
urbanization changes the "profile" of the planet, in whole, the lack of resources and time restricts the
leisure and recreation of individuals, and the consumerism growth and the strengthening of the role of
rights and consumer protection create various difficulties for business, including difficulties for
tourism and hotel business.
It seems that the marketing socio-demographic environment factors impact on the tourism and hotel
sector development should be investigated to identify certain patterns and build reasonable forecasts.
The population in the conditions of the economy digitalization is adapted to receive information,
including about hotels services, from the Internet, spends free time and business communication in
social networks, which, a priori, makes the Internet marketing popular in the work of hotel services.
Thus, in the developing modern digital economy, information and communication resources form a
platform for the various organizations successful functioning, building their relationships with
business partners, analytical work, monitoring market realities, consumer preferences marketing
research, reactions to new products and implemented bonus programs, and so on (Radyukova etc.,
2018).
This platform, in principle, has made significant adjustments to products communication promotion
and the image of organizations, data collecting and analysis, tracking the consumer demand dynamics
and the work with target audiences, which is extremely important for the hotel enterprises
functioning.
To a large extent, this is mediated by the fact that collective hosting services potential users are active
Internet users. Thus, according to the annual Industry Report of the Federal Agency for Press and
Mass Communications "Internet in Russia in 2017. Status, Trends and Prospects of the Development"
more than 88% of young people, about 75% of middle-aged people; more than 50% of people aged
from 54 to 64 actively use the Internet; among men older than 65 years old, one in three use the
Internet (2018).
According to the above-mentioned report, citizens of different age groups are active Internet users
(table 1).
Table 1: Percentage of the Internet users during the last month in selected age groups,
September 2017 – February 2018 (Veselov, 2019).
Age group The proportion of users, %

12-17 years old 96,9
45-54 года 76,1
65 years old and older 27,7
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Let us also explain that according to the available research data, it can be noted that social status is not of great
importance in terms of the Internet use. Thus, "there are about 95% of such people among managers and leading
specialists, at least 97% among pupils and students, about 88% among housewives, about 70% among
unemployed citizens, and almost one in three persons among pensioners" (Veselov, 2019).
Also describing the digital economy formation in our country, we note that in 2017, according to the study of the
Digital Society Index made by the Agency Dentsu Aegis Network, Russia got to 10 countries-leaders of the
digital economy (table 2).
Table 2: Digital Society Index Rating, 2018 (Digital, 2018)
Top-10 the global

Dynamics Involvement Trust
digital economy
1 Great Britain 1 USA 1 Great Britain 1 China
2 USA 2 Great Britain 2 China 2 Germany
3 China 3 Germany 3 USA 3 Great Britain
4 Germany 4 France 4 Australia 4 Australia
5 France 5 Australia 5 France 5 France
6 Australia 6 Japan 6 Germany 6 USA
7 Spain 7 Spain 7 Russia 7 Spain
8 Italy 8 China 8 Spain 8 Italy
9 Japan 9 Italy 9 Italy 9 Russia
10 Russia 10 Russia 10 Japan 10 Japan
According to the presented data, Russia scored highest by the Internet user involvement criterion, which once
again indicates the high activity of Russians on the Internet.
Results
The above data demonstrate the relevance of building the analytical work and communication with
consumers in the hotel business through Internet-marketing. This confirms the need for the more
detailed research of the Internet marketing conception.
In relation to the hotel sector, the Internet marketing conception allows the hotel enterprises to fully
implement activities within the strategic, socially-oriented marketing, relationship marketing,
simplifies research and communications with the target audience, including a web resource and
search engine optimization, Internet advertising, SSM marketing, SMS marketing, mobile marketing
(table 3).
Table 3: Main resources of the Internet marketing (based on the source data
(Baumgarten, 2015))
Resource Characteristic
Web-resource and search engine Information blocks containing information relevant to the
optimization target audience; tools for building interaction with target
segments. The main task is to create demand and book rooms
of the hotel company
Internet advertising (contextual, It is of interest to customers searching for the hotel services;
native) native advertising does not cause rejection, because it creates a
feeling that the customer makes a decision him/herself, without
obsessive communication pressure
social media marketing The emphasis is on attracting social networks users to the hotel
enterprise site, creating interest and attracting attention to the
collective accommodation facility service products.
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mobile marketing It involves bringing up-to-date information to customers and

receiving feedback from them, allowing to analyze current
trends (this communication requires a tablet, smartphone,
mobile phone)
Sms- marketing It acts as a component of direct marketing, simplifies the
process of the customers registration, notifying them about
various promotions and customer programs.

The hotel company website is a meeting place with potential customers and first of all it should be
interesting for them, as well as its interface should be very convenient and simple. All important and
relevant for the consumer information should be placed on the site main page in a way he/she could
immediately find it.
According to empirical studies and measurements results if the time to search for the necessary
information on the site exceeds 30 seconds, the hotel enterprise risks losing about half of the traffic,
because users interested in the required information will move to another resource (Artemenko etc.,
2018).
In addition, it is reasonable to offer easy navigation through the hotel website sections, compliance
with the obvious logic in the transition from one subject to another, compliance with the sequence as
a result leading to the booking rooms or leaving a potential client contact by which the collective
accommodation facility manager will be able to contact him.
Hotel company customers will appreciate the description of the objects located near their
accommodation, especially if the map and step-by-step instructions are placed. It is also reasonable to
post a large number of photos and/or video files to assess the proposed location and the area around.
It is useful to provide hotel managers contacts in large print, so that customers can easily get the
current information about the availability of rooms. It is very a useful communication form when
potential consumers can leave their contact information and manager promptly will call back to
satisfy the request and help with booking (Skobenko, 2015).
Consumer forums are very important, too, where consumer can ask questions, describe their
impressions, evaluate the services provided to them, clarify the reason for their doubts and/or
concerns. Such discussion platforms are a valuable analytical resource for companies providing
accommodation services.
In summary, it should be noted that, taking into account current socio-demographic characteristics of
the marketing environment, Internet marketing in this situation is undoubtedly a valuable resource for
the hotel business.
Its importance as a communication platform for interaction with customers and partners and an
analytical platform for research and further verification of the results will increase, taking into
account the actual degree of the economy digital model development in Russia. Accordingly, modern
hotel enterprises need to competently analyze innovations taking place in this area and adaptively
introduce them into their own business practices, which will increase satisfaction and, ideally,
contribute to the true loyalty manifestation.
References
Artemenko, G., Artemenko, D. (2018) The use of fractal analysis in assessing the reliability of
taxpayers information (Book Chapter) Fractal Approaches for Modeling Financial Assets and
Predicting Crises.
7480
Baumgarten, L.V. (2015). The Analysis of Marketing Conceptions in the Hotel Business, 2, 110-117.
Burnaeva, E.R. (2011). The Socio-demographic Factors Impact on Trends in the International
Tourism and Hotel Business Development. Marketing services, 4(28), 280-293.
Cetron, M.J. (2008). «10 Travel Trends. Part 1». Travel Weekly, June 11.
Digital Society Index, 2018. (2018). Framing the Future. Dentsu Aegis Network.
Internet in Russia in 2017. Status, Trends and Prospects. Industry Report of the Federal Agency for
Press and Mass Communications. Moscow, 2018.
Radyukova, Y., Sutyagin, V., Treschevsky, Y.I., Artemenko, D. (2018) The Problems of Financial
Security of Modern Russia Proceedings of the 32nd International Business Information Management
Association Conference, IBIMA 2018 - Vision 2020: Sustainable Economic Development and
Application of Innovation Management from Regional expansion to Global Growth.
Skobenko, S.V. (2015). Internet Marketing for Hotels: Opportunities, Solutions and Experience.
Internet Marketing, 2(86), 86-94.
Veselov, S.V. (2019). Education Digital Transformation in the Communication and Advertising
Industry. In Proceedings of XXII International Scientific and Methodological Conference of Heads of
Departments of Marketing, Advertising, Public Relations, Design and Related Areas. ed. by V.A.
Evstafiev. Moscow: Publishing house "Eco-Inform", 297p. P. 21.
7481
The Role of the Mineral Extraction Tax in

The Form of Hydrocarbons in Russia
Dmitry ARTEMENKO
Professor, Doctor of Science (Economics)

Department of State, Municipal Finance and Financial Engineering, Southern Federal University,
Higher Business School, Rostov, Russia
e-mail: dartemen@mail.ru
Oleg OVCHAR
Candidate of Science (Economics) Head of the legal Department of the Federal tax service of Russia
e-mail: ovchar@yandex.ru

Engineering, Southern Federal University, Higher Business School, Rostov, Russia,
e-mail: const75@mail.ru
Abstract
The article examines the role of the tax on the extraction of minerals in the form of hydrocarbons in
the current Russian practice. It is rightly noted that natural resources are a major source of wealth
production. Their use is carried out on a fee basis in the form of tax and non-tax payments. By using
such economic methods as the method of synthesis and analysis, graphic method, modeling method,
the authors analyzed the revenues of the tax on mining in the form of hydrocarbons in the Federal
budget for a certain period. It is established that the share of mineral extraction tax in the structure of
budget revenues is significant, with the highest revenues from hydrocarbon production, which
confirms the financial dependence of the state on oil and gas revenues. It is emphasized that the
efforts of the Russian Government to liberate the Russian economy from oil and gas dependence are
fair and give a positive result, as this contributes to the growth of the country's industry, high
performance in the field of agriculture, as well as the development of small and medium-sized
businesses (Artemenko, Ovchar, 2016).The results of the study were the conclusions of the authors.
Thus, as an urgent problem of the research topic, the imperfection of the procedure of oil and gas
transportation due to the shortage of pipelines is highlighted. It is proposed to use hydrocarbon raw
materials rationally, since the economic and financial condition of the state directly depends on this
natural resource.
Keyword: oil, gas, gas condensate, natural resources, hydrocarbon raw materials, mineral
extraction tax, federal budget revenues.
Introduction
Russia is rich in natural resources, as it has the world's largest proven reserves of natural gas and
remains its largest producer. In addition, Russia is one of the leading countries in the world economy
in terms of oil production (Artemenko, Chelysheva, 2016).
Natural (natural) resources are a major source of wealth production. Their use is carried out on a fee
basis in the form of tax and non-tax payments.
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The revenues of the budget system of the country in the number of taxes paid in the use of natural
resources are the most significant revenues from the tax on the extraction of minerals in the form of
hydrocarbons. (Table 1)
Theoretical, Informational and Empirical, and Methodological Grounds of the Research
Note that hydrocarbon raw materials are presented in the form of (paragraph 2 article 333.43 of the
Tax code of the Russian Federation): dehydrated, demineralized and stabilized oil; gas condensate to
be processed; combustible natural gas (including associated).
Table 1: analysis of revenues of the mineral extraction tax in the form of hydrocarbons in the
Federal budget revenues for the period from 2015 to 2017
Name of indicator Year 2015, Specific Year Specific Year Specific

billion weight, 2016, weight, 2017, weight,
rubles % billion % billion %
rubles rubles
Budget revenues-total 13659,2 100,0 13460,0 100,0 15089,0 100,0
among them:
Tax and non-tax 13399,0 98,1 13307,9 98,9 15047,4 99,7
revenues
from them:
Taxes, fees and regular 3181,2 23,3 2883,0 21,4 4090,3 27,2
payments for the use
of natural resources
from them:
Tax on extraction of 3160,0 23,1 2863,5 21,3 4061,4 27,0
mineral resources
from them:
Tax on the extraction 3130,5 22,9 2830,0 21,0 4021,6 26,7
of minerals in the form
of hydrocarbons
from them:
Oil 2703,5 19,8 2342,1 17,4 3352,2 22,2
Natural combustible 346,5 2,5 368,2 2,7 545,4 3,6
gas from all types of
hydrocarbon deposits
Gas condensate from 80,5 0,6 119,7 0,9 124,0 0,9
all types of
hydrocarbon deposits
Other income from 29,6 0,2 33,5 0,3 39,8 0,3
mineral extraction tax
Source: official website of the Russian Treasury, http: www.roskazna.ru, author's calculations
The analysis of revenues of the mineral extraction tax in the form of hydrocarbons to the Federal
budget for 2015-2017, carried out in table 1, revealed that its role is significant. The share of mineral
extraction tax (MET) in the total amount of Federal budget revenues is: 23.1%; 21.3%; 26.9%,
respectively. Among them, the share of the tax on mining in the form of hydrocarbons took: 22.9%
(of 23.1%); 21.0% (of 21.3%); 26.7% (of 26.9%), respectively. Other income from tax on mineral
extraction is insignificant and is equal to: 0,2% (from 23.1 per%); 0,3% (from 21.3 percent); 0.3
percent (from 26.9 percent), respectively. As part of the tax on extraction of minerals in the form of
hydrocarbons, the most significant share of oil: 19.8%; 17.4%; 22.2%, respectively. As for natural
gas fuel from all types of hydrocarbon deposits, its share is less significant, it was: 2.5%; 2.7%; 3.6%,
respectively. A similar indicator for gas condensate from all types of hydrocarbon deposits is: 0.6%;
0.9%; 0.9%, respectively.
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Thus, in the amount of the tax on the extraction of minerals in the form of hydrocarbons, the most
significant revenues from oil production, which occupy about 98.0-99.0% of the total tax on mining.
According to the budget legislation of the Russian Federation, the MET is a member of the group
"Taxes, fees and regular payments for the use of natural resources". Along with it this group includes:
water tax; fees for the use of objects of fauna and for the use of objects of water biological resources.
The component of the last two tax payments is scanty in the income of the Federal budget. For
example, if in the Federal budget in 2017 taxes in the system of nature was only 4090,3 billion rubles,
the tax on extraction of mineral resources belongs 4061,4 billion roubles (of them tax in the form of
hydrocarbons amounted to 4021,6 billion rubles) and only 28.9 billion rubles up two other tax in the
system of nature, i.e. a ratio of 99,3% 0,7% respectively.
Let us draw the dynamics of the tax on mining in the form of hydrocarbons in the Federal budget of
the Russian Federation for 2015-2017. (Fig.1)
4500
4061.4 4021.6
4000
3500
3160 3130.5
3000 2863.5 2830
2500 2015 year

2016 year
2000
2017 year
1500
1000
500
0
MET just MET in the form of hydrocarbons
Fig.1: Dynamics of the tax on mining in the form of hydrocarbons in the Federal budget
of the Russian Federation for 2015-2017. (billion rubles)
Figure 1 shows that in the Federal budget of the Russian Federation for the period under review, tax
revenues are unstable, as in 2016 there is a decline, but in 2017 revenues increased significantly and
exceeded the indicators of 2015. So, if in 2015 the overall income tax on mining amounted to 3160,0
billion rubles, the tax on extraction of mineral resources in the form of hydrocarbons equal 3130,5
billion rubles; in 2016 from 2863,5 billion tax on extraction of mineral resources in the form of
hydrocarbons amounted to 2830,0 billion rubles; in 2017 from 4061,4 billion rubles, the indicator
took 4021,6 billion rubles. In the amount of the tax on extraction of mineral resources apart from
hydrocarbons, included: tax on extraction of common mineral resources; tax on extraction of other
minerals (except for minerals in the form of natural diamonds); tax on extraction of mineral resources
on the continental shelf of the Russian Federation, in the exclusive economic zone of the Russian
Federation, in the extraction of minerals from subsoil outside the territory of the Russian Federation;
tax on the extraction of minerals in the form of natural diamonds; tax on the extraction of minerals in
the form of coal; tax on the extraction of minerals paid by the participants of the Special economic
zone in the Magadan region, in respect of minerals (except for minerals in the form of hydrocarbons,
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natural diamonds and common minerals) extracted on subsoil plots located in whole or in part on the
territory of the Magadan region. (Sabitova, Shavaleeva, 2018). Revenues from them are insignificant,
for example, in 2017 the total amount of MET, with the exception of MET in the form of
hydrocarbons amounted to 39.8 billion rubles (4061.4 billion rubles – 4021.6 billion rubles).
Results
There are many factors that affect the performance of the mineral extraction tax in the form of
hydrocarbons. One of such factors is the transportation of oil and gas.
Here are some statistics on the example of gas condensate, affecting the rate of collection of tax on
mining in the form of hydrocarbons. Thus, at the end of 2015, the production of crude oil in Russia as
a whole amounted to 534.1 million tons, of which gas condensate took 32.7 million tons. The shelf
produced 2.44 million tons of gas condensate, or 7.5% of the total production. In 2016, 34.8 million
tons of stable gas condensate were produced in Russia, which is 6.4% higher than the previous year.
Recently, gas condensate was taken into account in the Crimea, although production volumes are still
insignificant - 0.16% of the total Russian volume in 2016 (12.Pajkovic, 2018).
Note that the highest producer prices for gas condensate are observed in the Ural Federal district (the
price is 14.0% higher than the average in Russia), and Vice versa, the lowest producer prices for gas
condensate are in the southern Federal district (the price is 37.0% lower than the average in Russia).
The volume of gas condensate imports in the Russian market in 2016 increased by 13.0% compared
to the previous year and amounted to 7.5 million tons, bringing to importers 42.9 million dollars.
Kazakhstan was recognized as the main importer of gas condensate in the Russian market in 2016. It
should be noted that the processing of Russian gas condensate has been canceled in Kazakhstan. The
reason for this was the increase in the price of raw materials. It is possible that the work on the
processing of gas condensate in this country will resume when prices are equal to the prices of 2014-
2015. Russia supplies the largest volumes of gas condensate to Finland (40%). Gas condensate
exports to Korea and Holland are significant (11. Efremenko etc, 2018).
The largest exporter of gas condensate for the period under review is «Novatek» Limited Liability
Company, which accounted for 85.0% of total exports, and in value terms, the volume of its exports
reached 87.0%. As for the unstable gas condensate, it should be noted that the capacity of Russian
organizations for its preparation is about 56 million tons. At the same time, the total volume of supply
for stabilization in 2015 amounted to slightly more than 38 million tons.
«Gazprom» group of companies is recognized as the most famous producer of gas condensate in
Russia. Their export potential of stable gas condensate production is estimated at about 250 thousand
tons per month. The largest suppliers are the Surgut plant, Sosnogorsk plant and the «Sakhalin-3»
project. According to the results of 2015, «Gazprom export» Limited Liability Company sent to
foreign consumers about 600 thousand tons of stable gas condensate, in 2016 - no more than 350
thousand tons. The reduction in this indicator is explained by the redistribution of supplies in favor of
domestic consumers, namely the Limited Liability Company «Gazprom Neftekhim Salavat», the
enterprises of the «TAIF» group. It is important to note that in 2016 «Gazprom Neftekhim Salavat»
Limited Liability Company processed 4.5 million tons of gas condensate and 2 million tons of oil
with the help of two separate units for primary processing of hydrocarbon raw materials. In 2017
(Pajkovic, 2018). The management of the organization made the decision on technological
reorganization of installation for oil refining in order to replace oil with gas condensate partially. This
solution is advantageous from the economic point of view of the company, as «Gazprom» sells gas
condensate with an investment discount. Of the total volume of gas condensate processing, which is
580 t/h, the oil plant accounts for 170 t/h, and the question of further modernization of the plant to
increase the processing of gas condensate in the future to 340 t / h. (Akopdzhanova, 2019).
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Thus, the largest participants in the market of stable gas condensate are public joint Stock Company
«Gazprom», Limited Liability Company «Novatek», open joint Stock Company «Rosneft». It is
important to take into account that the development of the gas condensate market was most
significantly influenced by the tax maneuver, as well as a number of external factors, including the
fall in oil prices, the depreciation of the ruble, the change in demand for oil products. A tax maneuver
is a tool for setting permanent rules of taxation for a certain period of time. Under the influence of
external factors, taxation of production and processing of hydrocarbons was subject to constant
changes: transformation of the procedure for calculating oil duties; change in the list of excisable oil
products; revision of the criteria for classification as excisable oil products; modification of the excise
rate for gasoline and fuel; change in the procedure for calculating MET. In the current Russian
practice, structural changes have taken place in the light of the above circumstances. Thus, the supply
of stable gas condensate to the «gray» market segments decreased, in addition, the volume of
qualified processing of stable gas condensate at oil refineries increased.
Given that the Federal budget revenues consist of three sources: tax and non-tax revenues, as well as
gratuitous revenues, it is fair to note that the share of the tax on mining is impressive (Aguzarova,
2018).
This fact confirms the financial dependence of the state on oil and gas revenues. In this regard, the
Government of the Russian Federation is actively working to reduce the impact of oil price changes
on the macroeconomic indicators of the country. These indicators are influenced by the ruble
exchange rate, interest rates of banks and others. Experts ' opinions on the cost of oil in 2019-2020
diverge. According to most of them, the way out of the crisis of the world economy will have a
positive impact on the cost of oil in 2019. Oil prices are expected to fall moderately from mid-2019.
Thus, according to the Central Bank's forecasts, in the near future the cost of oil will be $ 70 per
barrel and will gradually fall to $ 55 per barrel (although experts previously predicted $ 45 per
barrel), in 2020 the price of oil will be $ 50 per barrel (although previously mentioned about $ 42 per
barrel) (Bashmakov, 2018). Practice has shown that the Russian economy is becoming more and
more protected from the drop in the price of raw energy. The Russian economy demonstrates
stability.
The efforts of the Government of the Russian Federation on withdrawal of the Russian economy from
oil and gas dependence has already had a positive effect. This is facilitated by the growth of the
country's industry and high indicators achieved in agriculture, as well as the development of small
and medium-sized businesses (Artemenko, 2017). The Ratio of oil and gas revenues to other types of
budget revenues will be about 30 to 70%. This suggests that the economy is developing not only in
the oil and gas sector, but also outside it, and this is one of the positive results of improving the
budget and tax policy of the state.
At the same time, processing of hydrocarbon raw materials is recognized as an important element of
economic activity of any developed state. At present, the issues related to the raw material potential
in terms of hydrocarbon raw materials are particularly relevant (Artemenko, 2017). The development
of the state in the global political arena, as well as the stability of the economy and the standard of
living of the population, directly depends on the state of Affairs in this area.
As you know, all natural resources are divided into two groups: exhaustible and inexhaustible. Fossil
fuels – a finite resource. According to experts, the volume of natural hydrocarbons is gradually
exhausted. For oil, the period of full consumption is 50-100 years, and for gas - 120 years. At the
same time, according to the same experts, there are unknown gas and oil fields, as well as
unconventional hydrocarbon deposits, the volumes of which are so large that they will be enough to
meet the needs of the next generations. Nevertheless, it is necessary to protect and preserve the
natural resources of the country, as the careful use of proven reserves, reasonable replenishment of
production of new fields, the development of effective new exploration technologies, extraction of
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hydrocarbons from reservoirs, their effective use - all this contributes to the preservation of valuable
energy resources of the entire planet (not only Russia).
We noted that oil is recognized as one of the types of hydrocarbon raw materials. This combustible
substance is an oily liquid and is used for the production of various fuels. Another type of
hydrocarbon raw material is associated natural gas. They can be in three types of deposits: oil, gas,
gas condensate. Oil and gas deposits are characterized by the simultaneous presence of oil and gas,
and gas condensate species are characterized by high pressure and elevated temperatures in the
reservoir. In such conditions, the hydrocarbons transferred to the gas, when the pressure is the reverse
of condensation.
The current Russian market of gas condensate has always been stable and resistant to external
manifestations (Akopdzhanova, 2019). The Subjects exported this product continue to ship it abroad.
Note that in the domestic market, the demand of domestic consumers does not fall.
Under the influence of the tax maneuver, the use of gas condensate in the domestic market has
increased, which is confirmed by the annually increasing dynamics of budget revenues from its
payment (Artemenko, 2016).
Conclusions
Summing up, we note that the tax on mining in the form of hydrocarbons is recognized as one of the
most important tax payments paid by the subsoil user to the budget. His role is quite significant. It is
accepted to refer to hydrocarbon raw materials: oil; gas condensate; gas. The forecast for
hydrocarbon production in Russia looks optimistic. The main deterrent to the increase in sales of
hydrocarbons may be problems in the field of transportation. In the sales market, there are problems
with the shortage of pipelines, the need for renovation of other types of infrastructure. Only the
situation with railway transportation saves the state a little.
Among the main areas of use of hydrocarbon raw materials, it is necessary to mention their use in the
form of fuel. Gas is recognized as the most popular type of energy resources. In addition to natural
and associated gas, oil is a significant hydrocarbon raw material. The share of Federal budget
revenues is significant. The economic and political power of the state directly depends on the
rationality of production, complexity of processing of natural resources, compliance with security
measures.
Today, through the efforts of the Russian Government, the Russian economy is showing positive
growth rates. Such predictable policies provide a good basis for improving financial and investment
processes.
However, there are disparities in the taxation of certain types of minerals. The current tax legislation
regarding the extraction of some minerals has been developed without due regard to the requirements
of the legislation and the specifics of the development of deposits.
References
Aguzarova F.S. (2018). Actual problems of taxation of mining in Russia. Taxes-journal. 1, 30-33.
Akopdzhanova M. O. (2019). Taxation of revenues from hydrocarbon production: novelties of tax

legislation.Taxes-journal. 1, 22-23.
Artemenko D. A., Artemenko G. A. (2017). Reform of the taxation system of the oil and gas sector of
the Russian economy. State and municipal management. Proceedings of the SKAGS. 2, 75-80.
Artemenko D. A., Ovchar О.V. (2016). About Ways to improve the tax administration of the largest
taxpayers of the oil and gas sector. In the collection: Financial instruments of socio-economic
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regulation of regional development. Collection of materials of the all-Russian scientific and practical
conference. 311-314.
Artemenko D. A., Chelysheva E.A. (2016). Improvement of methods and tools of tax regulation of
environmental management. Economics. Business. Banks. 3 (16),17-28.
Bashmakov I. A. (2018). World Energy: myths of the past and lessons of the future. Economic Issues.
4, 49-75.
Efremenko, I. N., Panasenkova, T. V., Artemenko D. I. Larionov, V. I. (2018). The role of

cryptocurrencies in the development of the global monetary system. European Research Studies
Journal. Volume XXI, special issue 1, 117-124.
Pajkovic P. R. (2018). Analysis of oil and gas revenues for 2015-2017. Economics and
entrepreneurship. 7 (96), 964-967.
Results of the Conference gas condensate 2016 [Online], [Retrieved June 22, 2019],
https://neftegaz.ru/analisis/view/8424-Itogi-konferentsii-Gazovyj-kondensat-2016.
Sabitova N.М., Shavaleeva CH. M. (2018). Oil and Gas complex and risks of the budget system of
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Demo rynok gazovogo kondensata November 2013 [Online], [Retrieved June 22, 2019],
http://www.indexbox.ru/new_files/research/files/
IB_demo_rynok_gazovogo_kondensata_November_2013.pdf.
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The Effect of Audit Market Concentration on Audit

Quality in Indonesia: Study of Pp No. 20/2015
Muthia Prima NURMALA, Fitriany FITRIANY*
Department of Accounting, Faculty of Economics and Business, Universitas Indonesia, Indonesia
muthianirmala@gmail.com
fitrianyamarullah@gmail.com
*corresponding author
Abstract
This study aims to obtain empirical evidence about the impact of audit market concentration on the
audit quality regarding PP No. 20 of 2015, which abolished mandatory audit firm rotation. Before
2015, in Indonesia, there was a rule that the audit firm must be rotated every 6 (six) years. The
sample used in this study is a non-financial company listed on the Indonesia Stock Exchange in 2013-
2017. This study found that with the abolition of audit firms’ rotation on PP No. 20 of 2015, will
affect the relation between audit market concentration and audit quality. When regression with all
samples (data before and after regulation), this study did not find the effect of audit market
concentration on audit quality. But when the data is separated between the period before and after the
PP No. 20 of 2015, this study found that before the regulation, the audit market concentration had no
effect on audit quality. However, after the regulation, the audit market concentration has a positive
effect on audit quality. This is possible because with the abolition of mandatory audit firm rotation,
an audit firm will have more knowledge about the company being audited so that its competence will
increases and impacts on the quality of the audit.
Keywords: audit market concentration, audit fee, audit quality
Introduction
In the United States, there is a Sarbanes-Oxley Act that regulates the obligation to rotate Public
Accountants every 7 (seven) years. Regulations related to auditor rotation are also applied in
Indonesia. The Indonesian government first imposed regulations relating to auditor rotation in 2002,
where the mandatory audit firm rotation every five years, and mandatory audit partner rotation every
three years. In 2008 mandatory audit firm rotation changes to every 6 (six) years.
In 2015 Indonesian Government issue regulation (PP) Number 20/2015 eliminated mandatory audit
firm rotation. Mandatory audit partner change to every 5 (five) years still applied. The revision of this
regulation is an interesting topic to examine by looking at the impact before and after the application
of the regulation on audit market concentration and audit quality.
The existence of regulations regarding audit rotation can affect audit quality. Fitriany et al., (2016)
revealed that the existence of audit rotation would have an impact on auditor competencies that are
low in understanding internal control of client companies, but increasing auditor independence. The
low auditor competency is caused by new auditors need more effort to understand the industry and
internal control of the company.
Research related to the concentration of the audit market in Indonesia has been conducted by
Afriansyah and Siregar (2007), examined the effect of rotational regulation on the structure of the
audit market in Indonesia, in the period 2000-2005, which showed that regulation resulted in a
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decrease in the audit market concentration. Anggraita et al.,(2016) state that the audit market in
Indonesia has a high concentration level and will reduce audit quality. Kallapur et al., (2010) examine
the relationship between audit quality and audit market concentration at the city level in Hong Kong.
The research found that there is a positive relationship between the audit market concentration and
audit quality. Huang et al., (2016) investigate the impact of audit market concentration on audit
quality in China from 2001-2011. They found that audit market concentration has a significant
positive impact on audit quality through increasing audit fees.
The purpose of this study is to obtain empirical evidence related to the effect of PP No. 20 of 2015
concerning the abolition of audit firm rotation and market concentration of audit audit quality, which
is a development of research conducted Huang et al., (2015). Differ with Huang et.al., (2015), this
research investigates the impact of the abolition of regulation regarding mandatory audit firm
rotation. Before and after the implementation of those regulations.
Theoretical Overview and Hypothesis Development

Agency Theory
Agency theory said that the relation between the agent (manager) and the principle (shareholder) is
not always in line which causes a conflict of interest between the two parties. It is expected that the
supervision of independent external auditors can reduce agency costs (Jensen and Meckling, 1976
and Watts and Zimmerman, 1986). This is because the financial statements that are used to see the
performance of the agent get assurance from public accounting firms (PAF).
Audit Market Concentration

A concentrated market is a market that is only controlled by a number of business actors. Rekarti and
Nurhayati (2016) state that the influence of business actors and market share can be demonstrated
through market concentration and business actors can position themselves in market competition. The
higher the market concentration, the market leads to imperfect competition.
An increase in the market concentration of an industry is an increase in barriers for new companies to
enter the industry and clients who are reluctant to replace distributors of goods or services and the
high price-fixing by distributors of goods or services (Beattie et al., 2003). Increasing market
concentration has an impact on the reduced choice in the audit market. The variety of PAF choices in
the audit market is necessary because some clients choose to use PAF that are different from their
competitors. Dubaere (2008) states that concentration also depends on PAF size, number of PAF in
the audit market, type of client industry, and total sales of PAF.
Audit Quality
Audit quality is the extent to which auditors can find violations in financial statements and dare to
report such violations (De Angelo, 1981). Audit quality is the result of the auditor's competence for
professional services related to independence and integrity, the relationship between the auditor and
management and understanding of the business and industry of the client (Corbella, 2015). The
violation or fraud found depends on the competence of the auditor and reporting if the occurrence of
fraud is dependent on auditor independence, so it can be concluded that competence and
independence are mandatory matters possessed by an auditor (Dies and Groux, 1992). Outputs and
inputs produced by PAF can be used as a measure to assess whether the results of the audit are of
quality (Defond et al., 2014). For output, audit quality can be seen from the number of misstatements,
opinions issued and quality of earnings. Whereas from the input, audit quality can be seen from the
audit fees paid and the characteristics of the auditor. Previous studies have used discretionary
accruals as a measure of audit quality and some of them are Dechow et al., (1995), Kasznik (1999),
and Kothari (2005).
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Hypothesis Development
High market concentration can also affect audit quality. There are several studies that show high
market concentration can improve audit quality, and others actually reduce audit quality. When the
audit market is concentrated, the choice of the audit company is limited. This causes independence
not easily disturbed, resulting in higher audit quality (Kallapur et al. 2010; Newton et al. 2013). In
addition, if the audit market is more concentrated, it will increase the economic scale of an
accounting firm, thereby reducing audit costs, so that the audit can increase quality.
On the other hand, if the audit market is concentrated, auditors will have low incentives to improve
quality and tendencies to be overconfident and satisfied, resulting in worse audit quality (Boone et al.
2012; Francis et al. 2013).
Based on the explanation above, the hypothesis in this study are two tail:
H1: Audit market concentration affects audit quality.
Research Model & Methodology

Research Model
The research model used is:
! " # $$ %
Description :
ABS_DAC : Audit quality is calculated using discretionary accruals with 2

model, Kothari and Dechow
CONC : The audit market concentration, measured by the Herfindahl
Hirschman Index
REG 1: after reg (2015-2017), 0 before regulation (2013-2014)
BIG4 : The size of the firm's Public Accounting Firm, which is measured
by the dummy, is worth 1 if it is a BIG PAF 4 and 0 if not.
LNTA : The natural logarithm of the company is based on the total assets of
the client company
INVREC : Amount of inventory and receivables per total asset.
CATA : The ratio of current assets to total assets.
QUICK : The ratio of current assets (minus inventory) per current debt.
LEV : Long-term debt ratio per total asset.
ROA : Return on asset
BTM : Book to market ratio
LOSS : Dummy variable, 1 if the company experiences a loss in the year of
the book, and 0 otherwise.
Variable Operationalization
Audit Quality
Audit quality (AQ) in this study is proxied by discretionary accruals. The discretionary accrual model
used in this study is Kothari et al., (2005) and Dechow (1995).
Abs_dac is predicted to have a negative relationship with earnings quality and audit quality. The
higher the level of DAC in a company, the higher the level of earnings management can be indicated
(Velury and Jenkins, 2006). The higher the level of earnings management, it is said that the quality of
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earnings is also low. The low quality of earnings, marked by the existence of earnings management,
furthermore, can describe the poor quality of the audit. This is because, in the quality audit process
and results, findings regarding earnings management should be detected and reported so that the
existence of earnings management can also indicate poor audit quality.
Audit Market Concentration

The audit market concentration (CONC) was calculated using the Hirschman Herfindahl Index
(HHi). The market share in this study is calculated using the total assets of the client and the total
clients in the particular industry and year. Before being calculated, client companies are first
classified based on industry classification according to the Jakarta Industrial Classification (JASICA).
Company data is obtained from the Center for Financial Professional Development (P2PK) which
contains all registered PAFs. The calculations from HHi are as follows:
HHi = P12 + P22 + P32 + P42 + P52 + …………………………. + Pn2
Descriptions:
HHi: Hirschman Herfindahl Index

P: Market share
The market share is calculated based on the total assets of the client, calculated through the division
of the total assets of PAF clients with total assets in the industry. While the calculation of market
share for the number of clients is the division of the number of clients and the total number of
companies in the industry. After the results of each calculation are obtained, the results of the total
client assets and the number of PAF clients are squared. Next, the sum of the squares is summed to
get the HHi index per industry per year.
Control Variables
Auditor Size
Auditor size is used in this study as a variable controller of audit costs. The auditor size is symbolized
by BIG4 which, is a variable dummy. It is valued as 1 if the company uses Big 4 PAF, and 0 if using
PAF other than Big 4. Mayhew and Wilkins (2003) stated that the influence of Big4 PAF has more
expertise and technology, so the audit quality will increase.
Company Size
The size of the company in this study was measured using the logarithm of total assets (LNTA). The
total assets are used as natural logarithms so that the distribution becomes more evenly distributed.
This variable illustrates the high effort that the auditor needs to do in conducting the audit process for
companies that have large sizes. Previous research conducted by Hay et al., (2006), Chen et al.,
(2007), Carson et al., (2012) and Evans and Schwartz (2014), and Huang et al., (2016) used company
size in their research as control variables. It is predicted that company size variables are positively
related to audit quality. The greater the size of the company, the better the internal control, so the
audit risk gets lower and audit quality can be higher.
Client Business Complexity
The complexity of client business in this study is measured using INVREC or the ratio of total
inventory and receivables to total assets. More complex, more risk, and lowe audit quality.
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Leverage
Xie et al. (2010) state that the level of leverage is the amount of the company's liability per asset
value. If the level of leverage is positively and significantly related to audit costs, it indicates that the
client who relies on the financing of the obligation through debt and this has an impact on the audit
fees charged also increases (Chen et al., 2007). The high leverage value is related to the risk of the
company increasing in fulfilling its obligations which can make the company enter into a state of
financial difficulties, the audit risk increases, which causes lower audit quality.
Book to Market Ratio
Companies that perform well tend to have high capitalization values. Aghazadeh et al. (2018) show
that the higher the book to market ratio can reduce the risk of the company which can reduce audit
costs. Huang et al. (2016) state that clients who have a low book to market ratio value have poor
earnings quality. So, for the book to market ratio variable, it is predicted that it is positively related to
audit quality.
Company Loss Rate
In this study, company losses (LOSS) are proxied by dummy variables, which are worth 1 if the
company loses, and 0 if vice versa. Companies that experience losses can be indicated that the
company is experiencing problems in going concern. Fleischer and Goettsche (2012) use LOSS as a
proxy for conditions of financial difficulties. and has an impact on increasing audit costs, as an
indication of the increased audit risk. So it is predicted that LOSS is positively related to audit
quality.
Sample and Data
This study uses data from non-financial companies listed on the Indonesia Stock Exchange, the
research is five years starting from 2013 to 2017. This is related to the issuance of the regulation of
the Capital Market Supervisory Agency (Bapapem-LK) No. X.K.6 of 2012 concerning Submission of
Annual Reports Issuers are required to disclose audit fees in the company's annual report.
The data used in this study are secondary data taken from the Indonesia Stock Exchange website and
the Center for Economic and Business Data (PDEB FEB UI), journals and related literature, and
other information. Data from the Public Accounting Firm (PAF) and its clients are obtained from the
Financial Professional Development Center (P2PK) from 2013-2017, which is then calculated by the
Herfindahl Hirschman Index (HHi) to determine the level of concentration of the audit market.
To see the impact of regulations applied in Indonesia, this study divides the period into two analyzes,
before the implementation of PP No.20 (2013-2014) and the period after the implementation of PP
No. 20 (2015-2017).
The criteria for the sample in this study are:
1. Non-financial industrial companies used are listed on the Indonesia Stock Exchange
2. Publish audited annual reports.
3. Having the data needed in this study.
Thus research obtained 505 data, consisting of 101 companies each year.
Result and Discussion

Table 1 and 2 shows a descriptive statistic for the data. Audit quality variables are calculated using
ABSDAC (absolute discretionary accruals) through the Kothari (2005) and Dechow (1995) model.
The results of the testing of descriptive statistics in the period 2013-2014 (before PP 20 regulation)
indicated that the company that had the highest ABS_DAC value was PT. Perusahaan Gas Negara
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(PGAS) in 2013, with a maximum value of -0.000006, and a standard deviation of 0.1219. While for
the period after the abolition of regulations related to rotation, namely in 2015-2017, the discretionary
absolute minimum value was -0.4391 and for the highest audit quality was PT. Charoen Pokphand
Indonesia is equal to -0,0002 with a standard deviation of 0.1287.
The audit market concentration in the 2013-2014 period has an average value of 0.0479 and a
standard deviation value of 0.0166, this value indicates that the value of the standard deviation is
greater than the average value so that data for market concentration is scattered and varied. Whereas
in 2015-2017, the average value for the audit market concentration was 0.0371 and the standard
deviation was 0.0193, the value indicated that the standard deviation value was smaller than the
average value, the distribution of data for audit market concentration are not spread perfectly.
Table 1: Descriptive Statistics Before Regulation (2013-2014)
Variable Mean Std. Dev Min. Max.

ABS_DAC 0,1171 0,1158 0,0002 0,4334
Dechow
ABS_DAC 0,1278 0,1219 0,00006 0,4391
Kothari
CONC 0,0479 0,0166 0,0230 0,0790
BIG4 0,5148 0,5010 0 1
LNTA 28,8729 1,4929 24,6468 32,5856
INVREC 0,3230 0,2537 0,0013 1,1524
CATA 0,4882 0,2269 0,0773 0,9502
QUICK 0,7154 0,2075 0,1245 0,9999
LEV 1,3666 1,4937 0,2236 10,9340
ROA 0,0643 0,1217 -0,8800 0,5400
BTM 0,7595 0,9486 -2,1343 5,7519
LOSS 0,1832 0,3877 0 1
N: 202
Table 2: Descriptive Statistics After Regulation (2015-2017)
Variable Mean Std. Dev Min. Max.
ABS_DAC Dechow 0,0693 0,0739 0,0005 0,433

ABS_DAC Kothari 0,0723 0,7870 0,00002 0,4391
CONC 0,0370 0,0193 0,01529 0,0850
BIG4 0,5148 0,5006 0 1
LNTA 29,0922 1,5702 24,5683 32,9217
INVREC 0,2992 0,2327 0,0030 1,1607
CATA 0,4567 0,218 0,0578 1,0284
QUICK 0,7189 0,2055 0,0589 0,9999
LEV 1,377 1,4378 0,0156 12,2045
ROA 0,05452 0,1033 -0,5500 0,5800
BTM 0,8599 1,2027 -5,7775 7,2919
LOSS 0,2079 0,4065 0 1
N:303
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Based on the table above, it can be seen that the average audit market concentration in Indonesia
before PP 20 is 0.0479 dan after PP 20 is decrease to 0.0370. Based on this data, it can be said that
the audit market concentration in Indonesia is relatively low because the value is still below 10%.
Tables 3 and 4 show the regression results for all data, tables 5 and 6 are the regression results before
PP 20 and tables 7 and 8 show the regression results after PP 20. CONC variable has a coefficient of
-0.2699 with a probability value of 0.172 (Abs_Dac with Dechow 1995 Model – Table 8 ) and a
coefficient of -0.2386 with a probability value of 0.229 (Abs_Dac with Kothari 2005 model – Table
9). These results explain that using all data throughout the year before until after the application of PP
No. 20 of 2015, the audit market concentration does not affect audit quality.
After analysis of all data, statistical tests are carried out for data that are distinguished into 2 different
periods, before and after the application of PP No. 20 of 2015. Before the application of regulation
period that has been shown in tables 10 and 11, explains that the CONC variable has a coefficient of -
0.9329 with a probability value of 0.445 (Abs_Dac measured by Dechow 1995) and a coefficient of
0.5962 with a probability value of 0.467 (Abs_DAC measured by Kothari 2005). These results
explain that the market concentration of audit does not affect audit quality. This result is in line with
research by Jeter and Shaw (1995) who found that the existence of regulations related to rotation and
competition did not affect audit quality directly. GAO (2003, 2008) predicts the possibility of a
negative influence on the relationship between the audit market concentration and audit quality, but it
turns out that the relationship is not found to be significant and further research is needed regarding
this. These results indicate a lack of support for the opinion that the auditor's independence can be
compromised or that audit effort can be reduced due to pressure from a competitive market.
Further statistical testing is carried out after the application of PP No. 20 (2015-2017). The statistical
test results are shown in tables 12 and 13 explain that the CONC variable has a coefficient of -0.3987
with a probability value of 0.053 (Abs_Dac Dechow 1995 calculation method) and a coefficient value
of -0.44448 with a probability value of 0.059 (Abs_Dac measured by Kothari 2005). These results
indicate that the significant positive relationship between the audit market concentration with audit
quality. The higher the concentration of the audit market, the better audit quality produced.
A positive relationship between audit market concentration with audit quality explained by Mardiana
and Anggraita (2015) who found that the concentration of the audit market had a significant positive
effect on audit fees. That is because the high concentration shows a low level of competition between
PAF (Public Accountant Firm). Huang et al. (2016) state that the audit market concentration has a
significant positive effect on audit quality through increased audit fees. This is because the existence
of market concentration gives the auditor a stronger market power so that it can charge higher audit
fees. Market concentration reduces the fear of losing clients and increases bargaining power and the
ability to determine audit costs. The concentration of the audit market has a significant positive effect
on audit fee in the period after the adoption of PP No. 20 of 2015 (2015-2017) indicates that the
longer working period of PAF, causes competition among PAFs to decrease, because PAF has
bargaining power and economies of scale so that it can cause PAF to charge higher audit fees. It is
also in line with research by Manry et al. (2008) which states that the longer the working period of
PAF with clients is related to the increasing audit quality. This indicates that PAF is increasingly
understanding the client's business so that it can improve audit quality. Kallapur et al., (2010) found
that the higher the concentration of the audit market, the higher the quality of the audit produced.
Based on the explanation above, the abolition of regulations makes PAF better understand the client's
business so that clients feel they do not need to seek new PAF so that the concentration of the audit
market increases. When the market is concentrated, the PAF in the market is increasingly limited,
PAF is not afraid of losing clients, PAF independence increases so that audit quality increases. In
addition, because the PAF does not have to rotate, the PAF is increasingly controlling the client's
business, so that its competence increases.
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Table 3: Regression Result of Abs_Dac Dechow 1995 – All Data
Variable Coef. Prob (alfa 0.01)

CONC -0,2699 0.172
REG_YEAR -0,0436 0,001***
BIG4 -0,0018 0,437
LNTA -0,0017 0,323
INVREC -0,0951 0,013***
CATA 0,0956 0,004***
QUICK -0,0496 0,089
LEV -0,0033 0,159
ROA -0,0695 0,085*
BTM -0,0081 0,036**
LOSS 0,0288 0,014**
Number of observations 505
R-Squared 0,135
Dep var: Abs_dac
Table 4: Regression Results of the Abs_Dac Kothari 2005 – All data

CONC -0,2386 0.229
REG_YEAR -0,0537 0,000***
BIG4 -0,0042 0,372
LNTA 0,0012 0,394
INVREC -0,1495 0,001***
CATA 0,1178 0,002***
QUICK -0,0824 0,026**
LEV 0,0025 0,250
ROA 0,0831 0,067*
BTM -0,0028 0,029**
LOSS 0,0402 0,002***
R-Squared 0,125
Dep var: Abs_dac
Audit Market Concentration and Audit Quality - Before Regulation
Table 5: Regression Results of Abs_Dac Dechow 1995 Before Regulation

CONC -0,9329 0.445
BIG4 0,0152 0,244
LNTA -0,0027 0,361
INVREC -0,1677 0,023**
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CATA 0,1555 0,013**

QUICK -0,0611 0,207
LEV -0,0084 0,103
ROA 0,0044 0,454
BTM -0,0010 0,462
LOSS 0,0407 0,062*
R-Squared 0,0815
Dep var: Abs_dac
Table 6: Regression Results of Abs_Dac Kothari 1995 Before Regulation
Variabel Coef. Prob (alfa 0.01)

CONC 0,5962 0.467
BIG4 0,0093 0,346
LNTA -0,0004 0,480
INVREC -0,2037 0,011**
CATA 0,1924 0,005***
QUICK -0,0614 0,219
LEV -0,0069 0,157
ROA 0,1052 0,105
BTM -0,0019 0,431
LOSS 0,0460 0,040**
R-Squared 0,0971
Dep var: Abs_dac
Audit Market Concentration and Audit Quality -After Regulation

Table 7: Regression Results of Abs_Dac Dechow 1995 After Regulation

CONC -0,3987 0.053*
BIG4 -0,0105 0,147
LNTA -0,0022 0,253
INVREC -0,0130 0,373
CATA 0,0447 0,097*
QUICK -0,0113 0,365
LEV -0,0052 0,049**
ROA -0,1469 0,003***
BTM -0,0097 0,004***
LOSS 0,0091 0,233
R-Squared 0,007
Dep var: Abs_dac
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Tabel 8: Regression Results of Abs_Dac Kothari 1995 After Regulation

CONC -0,4448 0.059*
BIG4 -0,0038 0,373
LNTA -0,0001 0,490
INVREC -0,0603 0,099*
CATA 0,0291 0,233
QUICK -0,0475 0,108
LEV 0,0013 0,356
ROA 0,0541 0,184
BTM -0,0025 0,279
LOSS 0,0233 0,052*
R-Squared 0,033
Dep var: Abs_dac
Research Conclusions
This study found that with the abolition of PAF's rotation obligation on PP No. 20 of 2015, affects the
relationship of audit market concentration and audit quality both directly and indirectly in this case
mediated by audit fees. When regression with all samples (the period before and after regulation), this
study did not find the effect of audit market concentration on audit quality. However, when the data is
separated between the period before and after the PP No. 20 of 2015, this study found that in the
period before the regulation, the audit market concentration did not affect on audit quality.
Nevertheless, in the period after the regulation, the market concentration of audit services has a
positive effect on audit quality. This result shows that the rules are new, which removes the
obligation of audit firm rotation to be effective in improving audit quality. This is possible because
with the abolition of the necessity of rotation, the audit market concentration will increase and an
audit firm will increasingly have knowledge of the company being audited so that its competence
increases and impacts on the quality of the audit.
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Implementation of ISAK 16/IFRIC 12 (Service Concession

Arrangements) in a Toll Road Business Entity
Rana AULIA1, Fitriany FITRIANY2

1,2
1
ranaauliaa@gmail.com
2
fitrianyamarullah@gmail.com
Abstract
This paper aims to analyze implementation of ISAK (Interpretation of accounting standart) No 16

related to concession agreements between PT GGA (Toll Road Business Entity) and BPJT (Toll
Road Regulatory Agency) and also testing of impairment on on that intangible assets. ISAK 16 is the
same, with contents of IFRIC 12. The analysis shows that the agreement between BPJT and PT GGA
meets the criteria as a concession agreement in accordance with ISAK 16, because BPJT controls and
it regulates the prices and services that must be provided by PT GGA, and PT GGA must return the
toll road to the BPJT at the end of the concession period. Regarding the rules for recognizing
concession rights in ISAK 16, the concession rights owned by PT GGA can be recognized as
intangible assets. As the concession rights are recognized as intangible assets, it is necessary to
periodically assess impairment base on PSAK 48. Based on the results of the impairment test
conducted by PT GGA, it shows that intangible assets do not experience impairment. Furthermore,
because impairment testing requires accounting estimates, the auditor conducts an audit process of
these accounting estimates in accordance with ISA 540 and found that there is no any impairment.
Keywords : intangible asset, concession agreement impairment test, auditing accounting estimates,
toll road.
Introduction
Over time, the private sector participates in toll road investment as a toll road operator. Toll road
operators are the parties responsible for operating and managing toll roads. Toll road operators are
usually in the form of legal entities engaged in the operation of toll roads or referred to as Toll Road
Enterprises (BUJT). BUJT who wants to have the right to operate the toll road will sign an agreement
with the Toll Road Regulatory Agency (BPJT). BPJT is a body under the Ministry of Public Works
and Public Housing whose duty is to regulate and supervise matters that include the operation of toll
roads in Indonesia.
In Indonesia, there are only about 50 BUJT companies (www.bpjt.pu.go.id). How is accounting
treatment related to the recognition of service concession agreements between BPJT and BUJT. The
contract agreement between BPJT and PT GGA is classified as a service concession agreement so
that it refers to applicable accounting standards, namely ISAK 16 regarding service concession
agreements. Based on ISAK 16, BUJT cannot recognize toll road concession agreements as fixed
assets, but rather intangible assets or financial assets. It is interesting to analyze how the accounting
treatment applied by PT GGA for the recognition of the concession rights of the agreement. Does PT
GGA recognize as intangible assets or financial assets in the company's financial statements.
Referring to ISAK 16, PT GGA recognizes the toll road service concession agreement as an
intangible asset. For intangible assets, impairment testing is required in accordance with PSAK 48
regarding impairment. This impairment test requires accounting estimates that are considered to have
moderate (normal higher) risk by the auditor. This risk assessment is because the auditor considers
the complexity of the accounting estimates performed to be quite complex and has a material
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intangible asset balance. This makes the writer more interested in discussing the accounting treatment
of the recognition of the service concession agreement.
The objectives of this study are: 1) to valuate whether the contract agreement between BPJT and PT
GGA is classified as a service concession agreement in accordance with ISAK 16; 2) to evaluate how
accounting treatment regarding recognition of service concession agreements for the operation of toll
roads is in accordance with ISAK 16; 3) to evaluate whether intangible assets are impaired in
accordance with PSAK 48.
Company Overview
PT GGA
PT GGA is a toll road operator in the Java area. PT GGA has a service concession agreement with
the government (BPJT) which gives the right to manage and operate the toll road. Based on the
service concession agreement, the following are regulated matters, including:
- PT GGA has the right to manage and operate the toll road in accordance with the
agreement
- BPJT has the authority to regulate and oversee the operation of toll roads
- Toll rates charged to toll road users are determined by BPJT and change every two
years.
- The capital structure to fund toll road investment is 70% debt and 30% equity.
- PT GGA has a concession period from 2011 to 2055
- PT GGA is required to return the toll road to BPJT at the end of the concession period.
Analysis Framework
ISAK 16 concerning Service Concession Agreements
Infrastructure that is for the public is usually built and operated by the public sector using public
budgets. The government is currently introducing contractual service agreements to invite the private
sector to participate in financing, developing and operating infrastructure. The said agreement is
regulated in Accounting Standard Interpretation (ISAK) 16.
Contractual Services Agreement

Under ISAK 16, contractual service agreements are agreements that usually involve the private sector
as the operator to build infrastructure, operate and maintain the infrastructure within a certain period.
The following characteristics make a service agreement classified as a service concession agreement:
a. There are public sector entities that are parties to the concession services agreement.
The public-sector entity may be a government agency or private entity designated to be
responsible for the service.
b. There are operators who are responsible for managing infrastructure or related services
c. The contract sets the initial price and price changes that will be charged by the operator
to the service user during the concession period.
d. the operator must return the infrastructure to the concession contractor at the end of the
concession period in accordance with the specified conditions, with the presence or
absence of additional compensation, regardless of the party initially financing the
infrastructure
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In addition, the infrastructure included in this interpretation is if the following conditions apply:
• The concessionaire controls or regulates what services must be provided by the

operator, to whom the services must be provided, and the price;
• The concessionaire controls through ownership, benefit rights or other forms, for any
significant residual interest in the infrastructure at the end of the agreement period.
Treatment of Operator Rights over Infrastructure

Operators in the concession agreement cannot recognize the infrastructure as operator's fixed assets.
That is because the concession agreement does not give operators the right to control the use of
public service infrastructure. Operators only have access to operate infrastructure in providing public
services for the benefit of the concessionaire in accordance with the provisions made in the contract.
Therefore, infrastructure in this case cannot be recognized as a fixed asset belonging to the operator.
Recognition of Rewards for the Agreement

The operator in this interpretation acts as a service provider. Operators play the role of managing and
enhancing infrastructure capabilities in order to provide public services and operate and maintain
infrastructure similar to the concession agreement period.
If the operator carries out construction services or increases infrastructure capabilities, the rewards
received and will be received are recognized at fair value. These benefits can be in the form of rights
to:
a. financial assets; or
b. intangible asset.
The operator recognizes a financial asset if the operator has contractual rights without conditions to
receive cash or other financial assets or the discretion of the grantor for the construction service. If
based on the contract the concessionaire guarantees that the operator has the right to receive cash on:
• a certain amount or can be determined; or

• deficiencies, if any, between the amount received from users of these public services.
The operator recognizes an intangible asset if the operator receives the right (license) to charge the
public service user. A right to charge users of public services differs from the unconditional right to
receive cash because the amount depends on the extent to which the public uses the service.
However, if the operator for construction services is partly with financial assets and partly with
intangible assets, then the operator records the two separately.
PSAK 19 concerning Intangible Assets

PSAK 19 concerning intangible assets regulates the definition of intangible assets as follows:
Definition of Intangible Assets and Identification

PSAK 19 is the Accounting Standard which regulates intangible assets. Intangible assets are
nonmonetary assets that are identified without physical appearance. An asset can be identified if the
asset fulfills the following things:
a. assets can be separated, are separated or distinguished from the entity and sold,
transferred, licensed, leased or exchanged, either individually or jointly with contracts,
identifiable assets, or identifiable liabilities, regardless of whether the company has the
intention to do so; or
b. assets arise from contractual or other legal rights, regardless of whether those rights can
be separated or transferred from the company or from other rights and obligations.
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PSAK 48, 2014 revision of Impairment of Assets

PSAK 48 is an Accounting Standard which regulates the impairment of assets. PSAK 48 was made as
a procedure so that assets are recorded no higher than the recoverable amount. A company must test
its assets with the aim of knowing whether or not there is an indication of asset impairment.
Impairment occurs if the amount of an asset recorded exceeds the amount to be recovered through the
use or sale of the asset. If an asset is impaired, the company will record the difference between the
carrying value of the asset and the recoverable value of the asset.
The following are some of the things regulated in PSAK 48 regarding impairment in assets:
Identify Assets that are likely to Face Impairment

The company must make an assessment as to whether there is an indication that the asset is impaired
or not. If there are indications, the company estimates the recoverable amount of the asset. However,
companies must continue to test impairment regardless of whether or not there are intangible assets
that have unlimited useful lives or assets that cannot be used. The company can carry out testing at
any time in a period but must at the same time every year.
The company analyzes whether there are indications that cause impairment of these assets by
considering the items described in Table 1. But the company is not intended to cover all of these
indications.
Table 1: Indications of Impairment from External and Internal Sources
Information from External Sources Information from Internal Sources
a. There are observable indications that an e. There is evidence that the asset has
asset has significantly declined in value suffered obsolescence or physical
during the period as a result of time or damage
normal use
b. There are significant changes in terms of f. Significant changes that have occurred
technology, market, economy or legal scope or will occur in the near future. These
in which the company operates so that it has changes can be in the form of a
a detrimental impact on the company in the cessation of use of assets.
current period or in the near future
c. There was an increase in market interest g. There is internal evidence that indicates
rates during this period so that it might affect that the economic performance of
the discount rate used in calculating the assets is deteriorating or will be worse.
value in use of assets and reduce their
recoverable amount
d. The condition that the carrying amount of

the company's net assets exceeds market
capitalization
Source: PSAK 48 concerning Impairment of Assets
7504
Measurement of the Recoverable amount of Assets

Referring to PSAK 48, the definition of recoverable amount of an asset or cash generating unit is a
higher amount between the fair value less the cost of disposal of assets or cash generating units with
the use value of an asset or cash generating unit. Fair value is the price received to sell an asset or the
price to be paid to transfer a liability between market participants. In addition, the use value is the
present value of the cash flows that the company expects to receive from the asset or cash generating
unit.
Fair value is reduced by disposal costs and use value does not always need to be determined both.
The company can only determine one of them. If one of the amounts exceeds the carrying value of
the asset, the asset is not impaired.
The use value of an asset can be measured by considering the following elements:
● The estimated amount of future cash flows expected to be obtained from the asset;
● Expectations about variations in the amount or timing of future cash flows;
● The time value of money, which can be represented by the applicable risk-free interest
rates;
● Price for bearing an uncertainty inherent in the asset; and
● Other factors that are usually considered by market participants because they can affect
the valuation of future cash flows, for example liquidity.
The following steps can be taken by the company in estimating the value in use of assets:
Stage 1: Estimating future cash inflows and outflows from the use of assets and disposal
Stage 2: Use the appropriate discount rate to measure the future cash flows
Recognition and measurement of impairment losses

If the carrying amount of the asset is greater than the recoverable value, the next treatment is to
reduce it to the amount that can be recovered. This reduction is referred to as an impairment loss. If
an impairment loss occurs, the amount will be recognized in the income statement.
Identify Cash Generating Units where Asset is Covered

If there is an indication that the asset is impaired, the recoverable amount is estimated for that
individual asset. If conditions do not allow the company to estimate the recoverable amount of an
individual asset, the company can use the recoverable amount for the cash-generating unit in which
the asset is covered. The company cannot determine the recoverable amount of an individual asset if
it is in the following conditions:
● Asset value cannot be estimated close to its fair value less the disposal costs
● Assets do not generate cash inflows that are independent of other asset groups
Recorded Amount and Recoverable Amount of Cash Generating Unit

The recoverable amount of a cash generating unit can be determined on the same basis as an
individual asset. The recoverable amount of the cash generating unit is the higher value between the
fair value less the disposal costs and the use value of the cash generating unit.
The carrying amount of the cash generating unit includes the carrying amount of assets that can be
directly attributed on a rational basis, and will generate cash inflows that can be calculated as the use
value of the cash generating unit. However, the carrying amount of the cash generating unit does not
7505
include the carrying amount of any recognized liabilities, except in determining the recoverable
amount, the liability must be considered.
Analysis
Accounting Treatment related to Recognition of Service Concession Agreements
Before discussing the audit process, the author would like to discuss accounting treatment related to
the recognition of service concession agreements and testing for impairment of assets in accordance
with applicable accounting standards because as an auditor it is also important to know that. The
following applies the applicable accounting standards, including:
Application of ISAK 16 concerning Service Concession Agreements

PT SOB has two subsidiaries, both of which are toll road operators. The two subsidiaries are PT
GGA and PT GGS. According to Government Regulation No. 15 of 2005 concerning Roads, it states
that the legal entity engaged in the operation of toll roads is the Toll Road Business Entity (BUJT). In
addition, according to ISAK 16, companies that have the responsibility to operate and manage toll
roads are referred to as operators. In this case, PT GGA as a toll road operator in the Java area while
PT GGS as a toll road operator in the Banten area. Both have cooperation agreements with
government-owned entities.
The government-owned agency authorized to regulate matters related to toll roads is the Toll Road
Regulatory Agency (BPJT). The agency is under the Ministry of Public Works and Public Housing.
This means that PT GGA and PT GGS have a cooperation agreement with BPJT to operate the toll
road in accordance with the agreement.
The agreement between PT GGA and BPJT states that PT GGA has concession rights to manage and
operate the toll road. The toll road has a concession period from 2011 to 2055. The agreement also
stipulates a capital structure to fund the initial investment of the toll road, which is a debt of 70% and
equity of 30%. In addition, the toll rates charged for toll road users are set by the BPJT and change
every two years. Furthermore, PT GGA must return the toll road at the end of the concession period
to BPJT. Based on ISAK 16, the contract agreement between PT GGA and BPJT is a service
concession agreement that gives birth to concession rights for PT GGA. This is because the
agreement fulfills the characteristics of the concession agreement as outlined in Table 2 as follows.
Table 2 : Characteristics of Service Concession Agreements in accordance with ISAK 16
Characteristics of Service Concession Agreements in accordance Yes / No

with ISAK 16
The concession provider is a public entity (BPJT) Yes
The operator (PT GGA) is responsible for managing and operating Yes
the infrastructure
The contract sets the initial price and regulates price changes during Yes
the agreement period
The operator (PT GGA) is required to hand back the infrastructure Yes
to the concession provider
Source: ISAK 16 concerning the Service Concession Agreement
7506
Based on ISAK 16, the recognition of service concession rights for toll road operations cannot be
recognized as an operator's fixed assets, but rather intangible assets or financial assets. Concession
rights are recognized as financial assets if there are unconditional compensation for obtaining certain
cash or financial assets from BPJT. However, concession rights are recognized as intangible assets if
BUJT only has the right to charge compensation to users of public services. This means that the cash
received by PT GGA depends on the toll road user.
In this case, PT GGA recognizes it as an intangible asset because the agreement states that PT GGA
only has the right to charge toll road users so that the cash received depends on how many toll road
users are. In addition, PT GGA did not get a certain amount of cash or other financial assets as
unconditional compensation from BPJT.
Application of PSAK 48 concerning Assets Impairment Testing

Referring to PSAK 48 concerning impairment of assets, it is stipulated that intangible assets that have
a limited useful life need to be tested periodically for impairment. Management identified that the toll
road is a cash generating unit owned by PT GGA, because it was unable to estimate the recoverable
amount of individual assets. This is because the company requires other assets not only those
intangible assets if it wants to generate revenue on the toll road. For example, a toll road can operate
perfectly if there are e-toll machines, employees who manage toll roads, and so on.
Next, management identifies an indication of an impairment in the cash-generating unit. This

indication can be seen from two sides, namely indications sourced from internal or sourced from
external. Based on the results of identification by management, there are indications of an increase in
interest rates that can affect the discount rate to calculate the value in use and may have an impact on
reducing the recoverable value of the cash generating unit. Therefore, each period of management
conducts an impairment test of the cash generating units it owns. The following is Figure, which
explains the process of testing the impairment of assets.
Figure 1: Impairment Test Process
Source: PSAK 48 concerning Impairment of Assets
7507
Management conducts an impairment test by comparing the recoverable value of the cash generating
unit with its carrying value. If the carrying value is higher than the recoverable value, the asset is
impaired. In determining the recoverable value, there are two methods used, namely higher value
between fair value reduced by disposal costs and use value. In this case, management uses the value
in use method to determine the recoverable value because the assets are not planned to be sold but
will be used during the service concession agreement period.
In determining the value in use, management must make an estimate of cash inflows and outflows
from the current year until the end of the service concession period. Management discounted the
estimated cash flows to determine the use value of the cash generating units. In the process of making
cash flow estimates there are assumptions related to revenue, cost of revenue and discount rates used
by management, including:
a. Revenue
Revenues are cash inflows obtained by the company from toll road users. There are elements
that are considered by management in determining the amount of revenue, including Toll
Rates and Toll Traffic Volume.
b. Cost of Revenue and General Administration Expense
Management in determining the operational cost projections adjusts to the inflation rate that
has been made by management. Management determines itself based on the knowledge held
by management.
c. Discount rate
Management calculates the Weighted Average Cost of Capital (net of taxes) as the discount
rate for calculating the cash flows of the cash-generating unit
These assumptions are used by management in determining the value in use of cash generating units,
which then become the recoverable value of the cash generating units. Thus, management can find
out whether the recoverable value is higher than the carrying value of the cash generating unit. The
results state that there is no impairment because the recoverable value is higher than the carrying
value of the cash generating unit.
Testing for impairment is closely related to accounting estimates. The audit process for accounting
estimates is carried out by the audit team in broad terms in accordance with ISA 540 which discusses
the audit of accounting estimates. This also complies with PSAK 48 concerning Impairment of Asset
Value. The audit process carried out is to assess the accounting estimates and to test the impairment
of cash generating units. In carrying out an impairment test, the auditor needs to measure the
recoverable value of the cash generating unit which can be determined through use value or fair value
minus disposal costs. However, the auditor decides that the recoverable value is more precise if
measured by value in use, because the cash generating unit is not intended for sale. Estimated value
in use of cash generating units is measured from estimated cash flows. This cash flow estimate is
determined based on three assumptions, namely revenue, cost of revenue and discount rate.
First, the amount of cash generating unit revenue is measured based on the toll tariff and the toll
traffic volume. The toll tariff is projected by considering the effect of the inflation rate and is adjusted
every two (2) years. In addition, the traffic volume is projected based on the results of the auditor's
evaluation of the traffic volume projection made by experts. The auditor saw that the actual data
volume of traffic in 2018 was 22% lower than projections made by the expert. This was considered
by the auditor to reduce the projected traffic volume by 22% in subsequent years.
Second, the total cost of revenue of the cash generating unit is measured based on the results of
benchmarking to PT GGS. PT GGS is a toll road operator that has been operating since 2005 so that
PT GGS is more stable compared to PT GGA. PT GGA is expected to produce performance as good
as PT GGS in the future. Therefore, the auditor makes PT GGS a benchmark in determining the cost
7508
of revenue. In addition, the auditor determines that depreciation and amortization costs are considered
the same as the current year. Furthermore, after knowing revenue and cost revenue, the cash flow
value can be known by the auditor.
Furthermore, to measure the value in use, the cash flow must be discounted to the discount rate
before tax. Calculation of discount rate is determined by calculating the Weighted Average Cost of
Capital (WACC). Broadly speaking, WACC is the sum of the cost of equity with the cost of debt.
The cost of equity is determined using the CAPM model, while the cost of debt is obtained from the
Prime Lending Rate (SBDK) sourced from the Financial Services Authority. After knowing the
discount rate, the auditor can apply the discount rate to cash flow.
This test yields the recoverable value obtained from the use value of the cash generating unit, which
is higher than the carrying value. Therefore, the cash generating unit is not impaired. The conclusion
is in accordance with the results of management testing. Therefore, management does not need to
recognize impairment losses and continue to record assets at their carrying values.
Conclusion
The purpose of this paper is to evaluate whether the contract agreement between BPJT and PT GGA
is classified as a service concession agreement in accordance with ISAK 16 and to evaluate how
accounting treatment regarding recognition of service concession agreements for the operation of toll
roads is in accordance with ISAK 16. Based on the analysis described above, it can be concluded that
the recognition of service concession rights made by management is appropriate. According to ISAK
16, the characteristics of an agreement are a service concession agreement in that the service provider
is a public entity; the operator is responsible for managing and operating the infrastructure; the
contract agreement determines the initial price and price changes that will be charged to service
users; and operators are required to return the infrastructure to the concessionaire. These things are
taken into consideration in determining the agreement between the Toll Road Regulatory Agency
(BPJT) and PT GGA whether it is a service concession agreement.
BPJT is a public entity under the Ministry of Public Works and Public Housing, while PT GGA is an
operator who has the responsibility to manage and operate the toll road. In the agreement, there are
rules regarding toll road usage tariffs and toll tariff changes every two years that are set by BPJT.
Furthermore, PT GGA has the obligation to hand over the toll road back to BPJT at the end of the
concession period. The contents of the binding agreement between BPJT and PT GGA have fulfilled
the characteristics mentioned in ISAK 16, then the agreement between BPJT and PT GGA is a
service concession agreement.
Furthermore, ISAK 16 regulates that operators cannot recognize toll roads as fixed assets but as
intangible assets or financial assets. The operator recognizes intangible assets if the operator only has
the right to charge compensation to public service users, while the operator recognizes financial
assets if the operator has unconditional compensation for obtaining a certain amount of cash on
certain financial assets from BPJT. In this case, PT GGA as the operator only has the right to charge
compensation to users of public services. This means that the cash received by PT GGA depends on
the number of toll road users. Therefore, PT GGA recognizes concession rights as intangible assets.
In the end of the year, impairment test is done on that intangible assets by comparing the recoverable
value of the cash generating unit with its carrying value. If the carrying value is higher than the
recoverable value, the asset is impaired. In determining the recoverable value, there are two methods
used, namely higher value between fair value reduced by disposal costs and use value. But neither
method must be used. In this case, management uses the use value method to determine the
recoverable value because the assets are not planned to be sold but are used during the service
concession agreement period. Therefore, the cash generating unit is not impaired. The conclusion is
in accordance with the results of management testing. Therefore, management does not need to
recognize impairment losses and continue to record assets at their carrying values.
7509
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to International Standards on Auditing. Harlow: Pearson.
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Takberwujud. Jakarta: Salemba Empat.
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7510
Effects of Personal Attributes on Job Satisfaction of a

Lebanese University Employees
Dr. Jennifer Abou Hamad
Notre Dame University – Louaize, Lebanon

jabouhamad@ndu.edu.lb
Abstract
The purpose of this study is to examine what variables affect the satisfaction of employees at a Lebanese
university. The working conditions are one of the most affecting variables of job satisfaction as the results
of many researchers have indicated. The surrounding space, atmosphere and environment play a role in
motivated employee performance as well as organizational commitment. Demographic variables mainly
have shown contradicting results whether they cause job satisfaction or dissatisfaction. Age, gender, tenure
and education all vary from one employee to another resulting in different perceptions of the above-
mentioned factors. The short-form Minnesota Satisfaction Questionnaire (MSQ) was used as the method
of collecting data from the university staff members. The findings of this research could be an approach
towards the next step for enhancing employee job satisfaction. The literature review is insightful for other
studies not only universities but organizations as well. The results of this case study highlight the
importance of satisfied employees and their effect on organizational performance.
Keywords: Employees’ satisfaction, Lebanese university, Minnesota Satisfaction Questionnaire, Case

study.
Introduction
Job satisfaction is defined as “the degree to which an employee, by means of an effective orientation or a
positive attitude, achieves a positive result in relation to his/her job, in general, or to specific personal
aspects" (Leite et al, 2014, p. 480). Sypniewska (2014) defines job satisfaction to be the perception of
employees of their jobs in terms of the quality of their work and performance and whether it gives them
positive or negative emotions. Positive attitudes or feelings towards a job are known to be as satisfaction
and negative attitudes or feelings towards a job are known to be as no satisfaction. Sypniewska (2014)
states that the term job contentment is commonly used to reflect the term job satisfaction. "Contentment is
the emotional reaction of pleasure or pain, experienced in connection with performing specific tasks,
functions and roles" (Banka, 2002 in Sypniewska, 2014, p. 57).
Demand for education is constantly increasing in Lebanon; special attention should be given for those who
work in this sector, especially in our case which is that of a Lebanese University. This university has around
5000 students enrolled in the Fall 2019 semester. Satisfied employees will perform with high efficiency
and effectively to serve these students and their professors. Theoretically, this research study will highlight
the importance of job satisfaction and that it is not just a group of theories. It will draw attention to the
certain job aspects that employees find satisfying or dissatisfying.
The research question is the following:

To what extent personal attributes enhance job satisfaction?
7511
Job Satisfaction
Job satisfaction is the positive feeling about the job resulting from an evaluation of its characteristics
(Robbins and Judge, 2014). A negative feeling might result from the evaluation, but then satisfaction will
not exist, rather dissatisfaction. Buitendach and Rothmann define job satisfaction as "an effective or
emotional reaction to the job, resulting from the incumbent's comparison of actual outcomes with the
required outcomes" (2009, p. 1).
Chomal and Baruah state that "job satisfaction is the extent to which the individual experiences a
pleasurable emotional state as a result of fulfilling important job values" (2014, p. 54). Satisfied employees
are motivated employees; they tend to have high levels of organizational commitment, job involvement and
are psychologically empowered (Arogundade and Arogundade, 2015).
Elements of Job Satisfaction

Work Factors
Salary
Chaudhry et al. (2011, p. 1) state "salary or pay is a form of episodic compensation from a firm to its
worker, which is completely stated in an employment contract".
According to researchers, high levels of income increase job satisfaction, which helps to retain and motivate
employees. It enhances their performance and productivity levels, encourages them to work towards
achieving organizational goals and helps decrease turnover rates (Chiu et al. 2002, Milkovich et al. 2014).
On the other hand, Sweet et al. (2006) and Cummins (2002) argue that income and monetary awards have
little or less impact on job satisfaction than other variables do, such as working conditions and social status.
Pay-for-performance is observed to be one of the most effective systems of pay (Omar and Ogenyi, 2006).
It helps build trust between the employee and employer, increasing performance and restructuring the
organization (Boselie et al. 2001).
Age
Frederick Herzberg et al. (1959) suggested that age and job satisfaction have a U-shape relationship. At the
beginning of their career life, employees seem to be satisfied with their jobs, as the years pass by,
satisfaction begins to decline, until it reaches a stage where it begins to incline again and remains high. The
explanation for this relationship is that individuals when they start work, they set high expectations and
dreams of their career life, but when these expectations are not fulfilled, satisfaction decreases. As they
gain experience in work and the real life, people adapt and adjust to certain facts, which increases
satisfaction levels again. Other researches such as Clark et al. (1996) and Hunter (2007) agree with
Herzberg's theory as well.
Gibson and Klein (1970) propose that age has a linear positive relationship with job satisfaction. The reason
for this relationship is that older employees tend to have a different approach and attitude towards the job
than younger employees; they are more experienced and mature. Older employees tend to be more
committed towards the organization, skilled and perform effectively (Kumar and Giri, 2009).
On the contrary, Luthans and Thomas (1989) found a negative relationship between age and job
satisfaction. It is suggested that as employees get older, their excitement and energy is burned out, which
causes fatigue and disinterest in work (Oshagbemi and Hickson, 2003).
7512
Gender
"Diversity in the workforce can serve to provide a richer mix of talents and ideas" (Sumner and Niederman,
2004, p. 29). Women's employment rates are constantly increasing, but their job satisfaction levels in
relation to males remain vague.
Biologically, women tend to be more emotional, sensitive and caring, which is a weak point held against
them in the workplace, they are viewed to be less confident, able to make decisions and determined
(Cleveland et al. 2000). Studies conducted by several researchers concluded that females are satisfied more
than males; the reason is that females set low expectations from the workplace and don't compare
themselves to males, but rather to underprivileged females (Jung and Moon, 2007).
Contradicting results show that men are more satisfied than women (Chusmir, 1981). While other studies
revealed no relation between gender difference and job satisfaction (and Sumner and Niederman, 2004).
Education
The third variable that affects the level of employee job satisfaction in our study is Education. We will start
by stating the benefits of education, not only on job satisfaction, but on the personal lives of individuals as
well. Then the disadvantages will be discussed along with the results of different researchers who found
conflicting results regarding the relation between education and job satisfaction.
There are positive impacts of education on relationships between co-workers and supervisors, greater
autonomy in the job, healthier working conditions and ability to perform complex tasks. "Better- educated
people are thought to both form more accurate expectations and pursue their aspirations more efficiently
than poorly educated people" (Vila and Garcia-Mora, 2005, p. 409).
Education tends to raise the expectations of employees in terms of rewards and higher positions, however,
when these expectations are not attained, job dissatisfaction appears, because employees feel they are over
qualified for the position they hold (Hersch, 1991).
Mismatches between salaries and level of education often exist in the workplace; overeducated people tend
to earn the same, as undereducated people, both holding the same position at work; sometimes they even
earn less (Allen and Van Der Velden, 2001).
Tenure
"Though age and tenure are highly related, they are conceptually different" (Gibson and Klein, 1970, p.
411). To help understand it, we will discuss the theory of 'life span development' that Natarajan and Nagar
(2011) explain. According to them an individual pass through three main stages in his/her life. The first
stage is known as the infancy stage, it is concerned with the traits and characteristics passed through genes.
The second stage is the adolescent stage which is the most complex. During this stage individuals explore
their surroundings and try to rationalize what they have learned during the past years. The third and final
stage is the adulthood stage; it deals with adjusting to the environment and finding balance in life.
Similar phases apply to employees when they join an organization; it takes time for individuals to adapt to
their surroundings, especially if their values are difference from those incorporated in the organization, but
if they fail to, they tend to leave the organization. Employees who stay at the organization build high
organizational commitment and maturity; they have high levels of affective and normative commitment
(Natarajan and Nagar, 2011).
7513
Herzberg et al. (1957) find that age as well as tenure has a U-shape relationship with job satisfaction. In
1965, Hulin and Smith reject Herzberg's theory to state that age and tenure are linearly related to job
satisfaction. A possible explanation to the positive relationship between tenure and job satisfaction is that
with time and service to the organization, employees learn to put a ceiling to their expectations that would
not exceed their actual return, this way disappointments are diminished (Gibson and Klein, 1970).
Sometimes, high-tenure employees are not satisfied, but the fact that they are too involved now with the
organization makes it very hard for them to leave (Judge 1993), "high-tenure individuals may have
accumulated more side bets, sunk costs, or investments with the organization" (Duffy et al. 1998, p. 951).
Tenure is not only associated with the years of employment in the organization, it is also associated with
the department or office or employment. General procedures and compensation structure are common to
the whole organization, but the working conditions, culture and social network of the departments, are the
ones that affect commitment and motivation the most leaving to job satisfaction (Natarajan and Nagar,
2011).
Student Contact
Jobs requiring contact with students are those in the academic field, either schools or universities, in our
case, it is a university. Tai and Chuang (2014) state that employees in universities play a great role in the
success of the institution and quality of learning because they are the first line people who have contact
with students. Since the universities' environment is a demanding one, employees should have commitment
and loyalty to be able to tolerate the stressful working environment (Tai and Chuang, 2014). In their study,
Khalid et al. (2012) find that job related elements such as compensation, relation with supervisors and co-
workers, working conditions, job security and other demographic variables affect job satisfaction of
university staff.
As mentioned above, stress is one major factor that affects job satisfaction. Stress in the workplace causes
anger, depression and loss of energy, eventually leading to poor performance and job burnout (Anand and
Arora, 2009).
Burnout is a result of work overload that could be associated with lack in staff, poor managerial decisions,
unhealthy working conditions and unfulfilled expectations (Sumner and Niederman, 2004). Piko (2006)
claims that job burnout is a major cause of job dissatisfaction.
A study by Olorunsola (2013) reveals that job satisfaction varies in relation with the following components:
achievement, advancement, recognition, working conditions, supervision, salary, university policies,
interpersonal relations and work itself (respectively from highest to lowest). The study recommends that
"university and administrative policies should be enriching and robust to accommodate innovation,
empowerment of workers, in-service training, promotion of workers as at when due advancement, car loans,
medical facilities, housing loans, training on the job opportunities, pension scheme and security of workers"
(Olorunsola, 2013, p. 173).
Another study conducted by Tamini and Kord (2011) shows that job burnout affects job satisfaction
negatively, especially emotional exhaustion and depersonalization, while personal accomplishment has a
positive effect on job satisfaction. The sample includes 170 employees from an Iranian university ranging
from 20 to 50 years of age.
The working conditions are one of the most affecting variables of job satisfaction as the results of many
researchers have indicated. The surrounding space, atmosphere and environment play a role in motivated
employee performance as well as organizational commitment.
7514
Demographic variables mainly have shown contradicting results whether they cause job satisfaction or
dissatisfaction. Age, gender, tenure and education all vary from one employee to another resulting in
different perceptions of the above-mentioned factors. Working position has often been associated with age
and tenure, which causes confusion and the literature about this topic, is rare. Student contact is a feature
related to employees of academic institutions. Dealing with people is one of the hardest aspects of a job
and causes stress to employees, especially when the surrounding environment is not supportive and lacks
basic motivating factors.
Happy employees are likely to be motivated, engaged, committed and loyal to their employers.
Methodology
The purpose of this study is to examine what variables affect the satisfaction of employees at a Lebanese
university. This university has 231 staff members, the sample of this research consisted of 231 staff
members, we intended to go for a census.
The list of staff members was extracted from the university online Catalog.
The response rate is 81.8%; 189 responded (114 females, 75 males), 35 did not respond, 7 were used for
pilot testing. There are several reasons for not responding, such as: no desire to response, disinterest and
leave.
Instrumentation
The short-form Minnesota Satisfaction Questionnaire (MSQ) was used as the method of collecting data
from the university staff members.
Research Analysis
The IBM SPSS Statistics 20 program is used to perform the statistical analysis after the data collected from
the 189 respondents has been entered into the computer.
The minimum age is 22 and the maximum age is 69. The average age is 40.39 and standard deviation is
10.20. The sample consists of 114 females and 75 males; totaling 189 respondents. The minimum years
worked by an employee is 1 year, and the maximum is 33 years. The average is 10.80 years and the standard
deviation is 7.84. Of the 189 employees, there are 16 directors, 60 supervisors and 113 assistants (any
employee who is not a director or supervisor). Most of the employees, 86 out of 189 hold a Bachelor degree
(45.5%), only one has a Doctoral degree (highest degree in education) and 2 employees hold an Elementary
degree (lowest degree in education). 51 employees hold a Masters degree (27%). The Secondary stands for
High School and Technical degrees; 49 employees hold a Secondary degree (25.9%). 129 employees do
have contact and 60 don't have contact.
Hypothesis 1: There is a positive relationship between age and job satisfaction.

This hypothesis is partially rejected; employee satisfaction is positively correlated with age, for three
aspects of the job: Independence, Ability Utilization and Compensation.
Hypothesis 3: There is a positive relationship between tenure and job satisfaction.

This hypothesis is rejected; employee satisfaction is not correlated with the years of work at NDU.
Since the educational degree and working position values are of ordinal scales, unlike the age and years of
work at NDU which are metric, we will use non-parametric Kruskal-wallis test to show variation between
7515
them and the MSQ items. This test will account for the difference in the number of observations in the sub-
groups.
Degree- Select the degree that you currently hold
The level 5 doctoral and level 1 elementary are excluded because they only represent 3 respondents. Level
2 secondary has 49 respondents, level 3 bachelor has 86 respondents and level 4 masters has 51 respondents.
Table 16 shows that the null hypothesis is rejected for compensation. The educational degree affects
satisfaction with compensation.
H5: There is a negative relationship between the educational degree and job satisfaction.
This hypothesis is partially rejected; employee satisfaction is negatively correlated with respect to
education, for compensation. As the results indicate, employees tend to be dissatisfied with their salaries
as they earn higher educational degrees.
Position- Select the Title that fits you the best

The non-parametric Kruskal-Wallis test will show if the working position causes variation in job
satisfaction with respect to the MSQ items. Director is represented by 3, Supervisor by 2 and Assistant by
1. There are 16 Directors, 60 Supervisors and 113 Assistants.
H4: There is a positive relationship between the working position and job satisfaction.
This hypothesis is partially rejected; employee satisfaction is positively correlated with position, with
respect to activity, variety, social status, security, authority and ability utilization. As the results indicate,
employees tend to be satisfied with the above 6 items as their working position changes.
Gender
H2: Females are more satisfied with the job than males.
This hypothesis is partially rejected; females are more satisfied than males except for responsibility,
creativity, working conditions, ability utilization and supervision: human relation, males tend to be more
satisfied than females.
Student Contact- Does your current position require contact with students?
H6: The employees having contact with the students and job satisfaction are positively related.
This hypothesis is partially rejected; employee satisfaction is positively correlated with student contact,
with respect 2 MSQ items, which are moral values and authority.
7516
Conclusion
The sample is a normally distributed sample with a response rate of 81.8%. The demographic variables are
of ordinal and metric scales.
Five out of six hypotheses are partially rejected because the results indicate variation of employee job
satisfaction with different aspects of the job, the university's policies and working environment.
Table 1: Hypothesis Summary
Hypothesis # Hypothesis Statement Result

H1 There is a positive relationship between age and job Fail to reject
satisfaction
H2 Females are more satisfied with the job than males Fail to reject
H3 There is a positive relationship between tenure and job Rejected
satisfaction
H4 There is a positive relationship between the working Fail to reject
position and job satisfaction
H5 There is a negative relationship between the educational Fail to reject
degree and job satisfaction
H6 The employees having contact with the students and job Fail to reject
satisfaction are positively related
Reliability
Reliability is "the degree to which a measure is consistent or dependable; the degree to which it would give
you the same result over and over again, assuming the underlying phenomenon is not changing" (Trochim
and Donnelly, 2006, p. 80).
The Cronbach Alpha (α) is a measure of internal consistency in SPSS; (α) below 0.6 is weak, (α) between
0.6 and 0.7 is acceptable and (α) above 0.7 is strong and reliable (Menassa, 2014).
Table 2: Cronbach Alpha
Reliability Statistics
Cronbach's N of Items
Alpha
.874 20
7517
Conclusion and Recommendations
This research is a case study of a Lebanese University. The main purpose of it is to find which demographic
variables affect employee job satisfaction.
The main limitation of this case study is the willingness of the employees to participate in the research.
Although the response rate is very sufficient and representative (81.8%), some employees didn't wish to
fill the MSQ due to the belief that the results will not affect their satisfaction; there would be no change
implemented to enhance their satisfaction. Some administrative assistants state that the MSQ is not relevant
to their job description.
The fear of sharing the results of the study with the administration is noticeable among some of the
employees, the confidentiality of the respondent's identification is assured and the MSQ was distributed
and collected by the researcher to avoid the insecurity of online surveys.
The data collection process was expected to take 1 month; instead it took around 2 months to complete it.
The demographic variables in the questionnaire distributed did not include the marital status of employees;
this is because the MSQ is a measure of employee satisfaction handling items related to the job. Work-life
balance is not discussed in this research.
As the results of the questionnaire indicate, employees are satisfied in general with the different aspects of
the job they hold and the university's policies and procedures. Out of a scale of 7 least scoring item is
compensation (4.01) and highest scoring item is moral values (5.96).
Older employees tend to be satisfied with their compensation more than younger employees; compensation
constitutes an issue for those who hold high levels of educational degrees. 49 employees hold secondary
degree, 86 bachelor degree and 51 master degree; thus, more evaluation should be focused towards higher
degree holders.
Years of work (tenure) do not cause variation in employee satisfaction, but rather the working position they
hold. Employees are satisfied with the variety and activity of their work and social status it gives them as
they occupy higher titles.
Females tend to feel suppressed with certain issues such as creativity at work, ability utilization, creativity
and responsibility. Focusing on their development is essential for the university. Perhaps their job
description should be more diverse and utilizing of their abilities.
The findings of this research could be an approach towards the next step for enhancing employee job
satisfaction. The literature review is insightful for other studies not only universities but organizations as
well. The results of this case study highlight the importance of satisfied employees and their effect on
organizational performance. As mentioned in the limitations section, work-life balance is not discussed in
this research, perhaps future research is possible on this topic; study the effect of personal life on
satisfaction. Training is an emerging subject that could be researched to know its effects on satisfaction and
performance.
7518
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7521
Generic Strategies in Civil Construction Companies in the North

Coast of Portugal: A Qualitative Approach
José Maria GOMES
Polytechnic Institute of Cávado and Ave (IPCA), Portugal

Campus do IPCA. Vila Frescaínha S. Martinho. 4750-810 Barcelos/Portugal
josmariagms@gmail.com
Bruno SOUSA

Applied Management Research Unit (UNIAG)
bsousa@ipca.pt
Teresa DIEGUEZ

Polytechnic Institute of Porto (IPP), Portugal
tdieguez@ipca.pt
Paula Odete FERNANDES

Instituto Politécnico de Bragança (IPB)
Campus de Santa Apolónia. 5300-253 Bragança/Portugal
Tel.: 00.351.273.303.103; Fax: 00.351.273.313.051
pof@ipb.pt
Abstract
The world is changing and the civil construction sector, with strong impact on the economy, the
environment and the society as a whole, must be aware of it. The future requires optimal responses to
its correlated megatrends, both in what concerns to the opportunities they offer and also to the
challenges they pose. In Portugal, as other European countries, the construction sector has great weight
in GDP and creates many jobs. This sector is based on a business structure where small and micro
enterprises prevail. In times of crisis, it is always hard to understand how to build a sustainable market.
Companies of this sector in particular suffered big difficulties since 2008 and today they are still
competing, because they were able to define successful strategies. This study aims to understand,
through Porter’s (1980) generic competitive strategy model, how Portuguese companies working in
civil construction in the north coast of Portugal achieved sustained competitive advantage and have
overcome the impact of the difficulties experienced in recent years. As conclusions the competitive
advantage for most of the studied companies seems to be based on cost leadership and there is a
conjugation between the competitive advantage via cost and via differentiation, since this advantage
may vary according to the characteristics of each market.
Keywords: Competitive advantage, Cost Leadership, Differentiation, Focus, Strategy.
7522
Introduction
Strong and deeper alterations occurred after Lehman Brothers Collapse in 2008. The worldwide
economy suffered big impact and every players and activities were forced to find solutions for new
problems. Civil construction companies were major affected (Russo & Aaron, 2011), with
unprecedented changes in the environment, namely the “coincidence of a sharp economic downturn,
the significant decline of public works, a reduction in lending, increased competition, and structural
changes in the marketplace” (Tansey, Spillane & Meng, 2014, p. 705).
With strong impact on the economy, the environment and the society as a whole, the Engineering &
Construction industry supplies almost all other industries. With total annual revenues of almost $10
trillion and added value of $3.6 trillion, the construction industry accounts for about 6% of global GDP.
The industry is expected to strongly grow in the coming years, to estimated revenues of $15 trillion by
2025. More than 100 million people are already employed today in construction worldwide. It is the
largest global consumer of raw materials, and constructed objects account for 25 - 40% of the world’s
total carbon emissions (World Economic Forum, 2016). Megatrends for this sector are correlated with
four domains, namely society and workforce, markets and customers, politics and regulation and
sustainability and resilience. The future requires optimal responses to these megatrends, both in what
concerns to the opportunities they offer and also to the challenges they pose.
In Portugal, as other European countries, the construction sector is based on a business structure where
small and micro enterprises prevail. The business structure is made up of large multinational
companies, regional companies, specialized companies and sole proprietors (Baganha, Marques, &
Góis, 2002).). According to FEPICOP (The Portuguese Federation of the Construction Industry and
Public Works), this sector represented, in 2018, 6.6% of the Portuguese GDP.
This study aims to understand, through Porter’s (1980) generic competitive strategy model, how
Portuguese companies working in civil construction in the north coast of Portugal achieved sustained
competitive advantage and have overcome the impact of the difficulties experienced in recent years.
For this purpose, this paper begins with a review of existing literature, presents the main objectives to
be achieved, followed by results obtained by semi-structured in-depth interviews with five managers
of companies working on this activity sector. Finally, the paper outlines the conclusion, research
limitations and suggests areas for future research.
Literature Review
Strategic management is a huge and well researched area of attempt over the last few decades, most
especially within the construction management field (Oyewobi, Windapo & James, 2015). Deeper
insights into construction organisations’ strategic perspectives and competitiveness have been
significantly studied by researchers (Betts & Ofori, 1992; Chinowsky & Meredith, 2000).,
Organisations compete in the construction market by differentiating their services or product from that
of their competitors, being through price differentiation, innovation, quality or completion on schedule
(Kale & Arditi, 2003). Some findings show that organisations are more appetence to utilize strategies
that differentiate them from industry competitors as an alternative of pursuing a low-cost strategy or
focus strategy (Li & Ling, 2012).
Porter (1996) argues that for an organization to obtain high rates of return it must seek to be well
positioned in a market where there is an unfavourable industrial structure and an average profitability.
Organizations should seek to establish an advantage over their rivals either through a lower price or
through the presentation of benefits and services that justify customers paying a higher price (Arshed
& Pancholi, 2016).
According to Porter (1980), competitive strategies can be offensive or defensive, and their main
objective is to obtain a stable position in an industry or sector, successfully facing competitive forces
in order to obtain the highest possible return on the investment made. Porter presented three generic
strategies, namely: Cost Leadership, Differentiation and Focus.
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Cost Leadership Strategy is the strategy followed by an organisation that aims to minimise operational
costs by achieving economies of scale, reducing costs based on experience, tight management control,
minimising costs in areas such as research and development, reduction of the sales team, elimination
of after-sales service an advertising, among others. The adoption of a cost leadership strategy can
translate into benefits for a company, namely in obtaining higher profits by charging the same or lower
prices than its competitors (with lower costs). Nevertheless, this strategy may also trigger some risks,
among which, the occurrence of technological leaps that may eliminate the possible benefits existing
in relation to scale and experience, the imitation and entry of more technologically developed
competitors, the inflation of costs combined with the inability to reflect them in sales prices due to lack
of differentiating arguments and excessive greed in relation to costs, when compromising the necessary
product innovation or the improvement of its quality (Porter, 1980; Hambrick, 1983; Huang, 2001;
Teixeira, 2011).
Differentiation Strategy consists in the differentiation of a product or service offered so that it can be
considered unique (in terms of brand, image, design, quality, technology, durability, after-sales service,
advertising, among others) by the entire industry and can essentially be perceived by its customers as
superior to its competitors. The choice of this strategy does not mean that the company does not worry
about costs, only they are not the priority strategic variable (Porter, 1980). It should be noted that the
adoption of a differentiation strategy may result in benefits for organizations, among which, the
achievement of above-average returns, increased bargaining power in relation to suppliers and less
chance of exchange for substitute products. In addition to the benefits, some problems to avoid must
be taken into consideration, among which, the imitation and the dilution of the brand through the
extension of the product lines (which happens when companies insert products and services of lower
price and quality below a prestigious brand) and differences in the perception of differentiation
(Teixeira, 2011).
Focus Strategy consists on the combination or not of the two above mentioned strategies in order to
meet the specific needs of their customers. According to Miles, Snow, Meyer, and Coleman (1978),
the strategy of the focus had fixed on production efficiency for a certain more restricted market segment
in order to meet the particular needs of customers instead of increasing product quality. Among some
advantages of this strategy, appears the need for fewer resources compared to the rest of the market,
specialization and possibility of acquiring a better knowledge of the segmented market and the
possibility of entering a new market in a simpler way (Teixeira, 2011).
Case Study
The present study intend to understand if the responsible in charge for the construction sector in
Portugal are familiar with basic concepts of management and strategic management, particularly in
what concerns to generic strategies, as well as comprehend what are their perception about their
business. This study is a convenience study and was conducted using semi-structured in-depth
interviews with five managers of civil construction companies in the north coast of Portugal, already
internationalized and represented at high level. Due confidentiality of data, the interviewees and their
companies are here identified with a code CC (Construction Company), followed by 1, 2, 3, 4, 5 (order
of the interviews). The interviews took place during March and May 2019 and had the duration of 45
minutes.
The script of the interview is divided into two chapters. The first chapter (A) presents the company and
the strategy guidelines. The second chapter (B) is linked with the formulation of the strategy, in
particular in what concerns to Porter's generic strategies model. The idea is to understand whether the
company considers that it has a greater competitive advantage through cost leadership, through
differentiation, or both, and if there is a combination, whether this advantage is common in all markets
or has specific niches.
The objective of the study was to understand what tis he competitive advantage for most of the
companies in the civil construction sector and whether if this advantage is common to all markets or if
has specific niches.
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Discussion and Results
In order to understand and contextualise each of the analysed companies, the table below (Table 1)
gives us some important information related to job position of the interviewed, headquarters location
and markets of business.
Table 1 : Summary Table
Company Data
• Interviewed: Manager
• Headquarters Location: Barcelos, Portugal
CC1 • Markets: Portugal, Spain, Belgium, Netherlands, Norway, Slovakia,
Turkey, Ireland, Colombia, Ecuador, Brazil, Dominican Republic, Mexico
CC2 • Headquarters Location: Maia. Portugal
• Markets: Portugal, Spain, France, Germany, Brazil and Cape Verde
• Interviewed: Market Director
• Headquarters Location: Braga, Portugal
CC3 • Markets: Portugal, Spain, France, Germany, Belgium, Netherlands,
United Kingdom, Gibraltar, Algeria, Morocco, Mozambique, Angola,
Brazil, Qatar. United Arab Emirates, United States, Russia, Kazakhstan,
China and Cape Verde
• Interviewed: Director
CC4 • Headquarters Location: Braga, Portugal
• Markets: Portugal, Angola, Brazil, France
CC5 • Headquarters Location: Braga, Portugal
• Markets: Portugal, France, Belgium, Netherlands, Angola, UK
Chapter A: Company and Strategy Guidelines

CC1 is a company with about 15 years and has its headquarters are in Barcelos. As a result of the will
of its founder, and triggered by the Spanish market demand, EC1 was born in Spain, at a time when
public works in Spain were in a phase of exponential growth, trying from the beginning to be the
solution for the problems and challenges of its customers. The company began with the supply of labour
force to the large Spanish construction companies. Accompanying its customers, the first country to
which the company internationalised went precisely to Portugal. Initially, the company's corporate
purpose encompassed all types of construction. As a result of the evolution of the company and the
sector, the company sought to specialise and adopted a more specific corporate purpose, focusing on
the construction of large concrete infrastructures, namely, bridges, dams and tunnels, i.e. the execution
of concrete in situ. More recently, and as a result of all the knowledge acquired over the years through
adaptations made to its own equipment, the company has extended its activity to the concession of
equipment for the construction of bridges, namely through the concession of a “Form Travelers” with
about 10 metres (the only one in the market with this dimension - the competition only can make
advances up to 6 metres). These changes led to a change in the company positioning in the value chain
and in the way the large construction companies look at the company. Today EC1 is no longer seen as
a mere subcontractor, but as a solution to the various construction challenges, insofar as it carries out
the works with less risk, as well as intervening in the design and conception, contributing with technical
solutions aimed at optimising projects in terms of material, human resources and time. Thus, the
company has established itself as an international reference in the construction of large infrastructures,
developing engineering solutions tailored to the needs of its customers. This company presents a
7525
strategy of focus on differentiation because it is integrated in this niche market (construction of bridges,
dams and tunnels).
CC2 is a company that is about 35 years old and has its headquarters in Maia. The company emerged
as a result of the will of its founder who, after completing his Degree in Civil Engineering at the
University of Coimbra, Portugal, came to work in Porto for a project office. With the knowledge
acquired over the years, the founder decided to create a own company of Civil Construction. Initially
its main activity was the development of public works, particularly in the city of Porto. In addition to
the development of public works for the Municipality of Porto, it also had two large private clients who
filled all of the Group's activity. During the 1990s, in addition to the civil construction company, the
founder created a business group where he had a complementary number of companies to civil
construction, including electricity companies, locksmiths an carpentry, among others. As a result of the
crisis experienced in 2008 and the changes in the political power in the city of Porto, the company
decreased its activity and almost disappeared from the market. In order to cope with this experienced
counter cyclicality, the company decided to expand its activity to the whole country and internationalize
itself. Currently the company seeks to consolidate its presence in the national market in a sustained
manner with the use of a quality construction of residential and non-residential works (public and
private) in order to gain market share in the national territory (thus reducing exposure to foreign
markets). In this case, we can notice that the company does not present a clear definition of its strategy.
The business is adjusted according to needs. However, as a result of the answers obtained in the
interview, the interviewee mentions that the cost leadership strategy (the lowest price) is the one that
allows the company to obtain a greater competitive advantage.
CC3 is a company with about 62 years. It was born as a family business in Braga and started by
developing small contracts becoming today the third largest civil construction company in Portugal,
where in terms of turnover the highest percentage comes from foreign markets. It is a company
dedicated to the development of residential and non-residential buildings (special works, public
buildings, industrial, sports, hotels, retail, theme parks, housing, among others), and not so much
infrastructure. The company is only present in the construction and real estate sector. In the construction
sector, it holds stakes in around fifty companies in complementary areas to construction, such as
carpentry, locksmithing, prefabricated, maintenance, concrete, piles and foundations, among others.
They also have a department related to innovation and industry 4.0, engineering and pre-construction.
In this sense, the company's strategy involves encompassing all the specialties and all the phases of the
construction process within its structure, by the continuous growth in the national market, by investing
in internationalization, consolidating its presence in the countries where it operates, and by studying
the entry into new countries. It also passes by investing in younger business areas such as the
Environment, Energy and Services. This company presents a clear definition of the strategy in terms
of business. Although they consider that cost leadership (the lowest price) is the competitive advantage
that allows them to obtain the highest return, the interviewee refers several times to the combination of
the lowest price with differentiation, in reference to the hybrid strategies.
CC4 is a company that started its activity in Portugal in 2013 and has its headquarters in Braga.
Curiously, the company started its activity about eleven years ago in Angola where the company's
manager created a fully verticalised company that encompassed the most diverse activities associated
with the area of civil construction, including locksmiths, carpentry, metalworking, plating and
electricity, among others. As the interviewed says, "...the company emerged from a very strong will of
its leader who is a determined person in his ideas and who has a level of risk far above what the rating
agencies can understand...". After consolidating its presence in the Angolan market, the company
internationalized to Brazil, where it developed its civil construction and real estate activities. After the
period of crisis experienced in Portugal, the company decides to start its activity in Portugal with the
creation of a central purchasing department with the objective of selling mainly materials to Angola.
The year 2014 was marked by the company's first major purchase in the sector - the purchase of a
quarry for exploration. With the entry into the Portuguese market, its leader creates a group composed
of several complementary companies to the civil construction sector, as well as companies linked to
the agricultural, hotel and motor sports sector. The company is dedicated to the development of
residential and non-residential works. The interviewee from this company also mentions that cost
7526
leadership is the strategy that allows him to obtain a greater competitive advantage. However, like the
interviewee from the previous company, this interviewee also mentions that companies should present
differentiation in their products/services and that companies should present a fair price.
CC5 had its origin in the forties, emerging as a family-owned company. It began to work from stone
and stone began to diversify into other sectors of activity, such as water and environment, renewable
energies (not only as a builder, but also as a manager), real estate, telecommunications. In addition, he
also holds stakes in venture capital companies in innovative start-ups (smart cities, environmental
monitoring, water, air, noise) with the aim of diversifying knowledge and thus having a greater
competitive advantage. This company has a clear strategic definition, is well organized and has a deep-
rooted business culture. They argue that leadership in cost is the one that allows them to obtain a greater
competitive advantage, although they consider that it is important to have differentiation. There is also
an allusion to hybrid strategies.
Chapter B: Company Porter's Generic Strategies Model

In order to understand whether managers consider that the company has a greater competitive
advantage when it executes a service at the lowest price (cost advantage), or when it executes a
differentiated service but at a higher price (differentiation advantage), or if it considers that there is a
conjugation between the two, and if this conjugation is common to all markets, or if it has specific
niches. Table 2 illustrates the answers given by the interviewed.
Table 2: Illustrative Phrases: Generic Strategies
Company Illustrative Phrases

"I believe that there is a differentiation in these big companies, the big players, they don't
just risk for the price, the price is important, but above all the technological solution that
CC1 you propose! If you get there... that's why the technological solution through differentiation
is fundamental for you to be successful".
"The first thing that counts is the money! It's cheaper! But this company is more suitable
than that! But first is money...Even today our facilities still have an image, which is
CC2 something I intend to change, a warehouse image, let's say, more of a construction site,
exactly because in public works what counts is the price, not the image...".
"As a rule, price is the main factor."
CC3
"When it comes at a fair price! The whole company must move towards this... And the fair
CC4 price is given when? When the product is fair, it is good and at a correct price... we have to
have added value in our products, but at a fair price".
The price is always the price this is what we have to give to the customer, because nowadays
to say that we have quality is debatable. All companies must have quality! We are not an
underdeveloped country or something like that. I must have quality. What do we have left?
I must have price and deadline. I must be the same or better than the others. Therefore, do
CC5 it in the shortest time and at the lowest price. Our goal is to make it cheaper and earn more
than the competition. And how? Through differentiation. How will I do it differently?
Which are the constructive processes that I will use to be cheaper, to do the same with the
same quality or more quality.
Analysing Table 2 it is possible to see that 80% of respondents consider that the lowest price (advantage
by cost) is the one that allows companies in the sector to obtain greater competitive advantage (CC2,
CC3, CC4 and CC5). This result seems to highlight that companies put emphasis on organizational
efficiency, namely through the curve of experience, economies of scale, control and reduction of
administrative costs and technology.
Contrary to the other companies, CC1 presents a strategy of focus through differentiation ("hence the
technological solution through differentiation is fundamental for you to succeed"). As previously
indicated, CC1 performs civil construction services in a very specific market niche (bridges, viaducts
and tunnels) where there is not much competition ("we are in a niche market, internally we have very
7527
little or no competition"). In this case, the company's strategy is to meet the specific needs of its
customers that constitute a market segment, instead of trying to satisfy the general needs of all
customers ("we are focused on this area of operation, we will not make buildings, we will not do
anything else, this is our area of operation, and this is then revealed by our customers"), but with
recourse to differentiation. This result seems to point out that the advantages that benefit firms
implementing differentiation strategy refers to the realization of higher income compared to
competitors due to brand loyalty, quality and lower demand elasticity of consumers.
Although the CC5 interviewee considers that the cost advantage is the one that allows him to obtain a
greater competitive advantage (the price is always the price ... I must have price and deadline. I must
be the same or better than the others, so do it in the shortest time and at the lowest price). This result
may underline the principles of strategy of cost leadership as trading standard products combined with
aggressive pricing. More innovation and optimization in order to reduce costs and thus present the best
price - reduction of production cycles through higher efficiency.
When asked if this advantage (differentiation) would be common to all markets, the CC1 respondent
replied: "Obviously it depends, we are in very different geographies, we are in what I call the first level
market, and we talk about markets like the UK, like Norway, where the production costs associated
with labour are very high. Of course, in these countries we have a competitive advantage by the price,
because when they move forward, when these projects move towards execution, they are very much
studied. Instead, the German market asks us to offer the solution, and then we make all the difference
through the differentiation of the process... South American market, then the existence of labour is
immense, and at lowest prices! How does the company succeed in such a market?...”our differentiation
in those markets where labour is very cheap, obviously being cheap, we differentiate ourselves by
technology and by executing in less time and with less resources, so here the geography counts very
much!". With this response from the CC1 respondent, it is possible to see that the focus strategy using
differentiation can vary from market to market - depending on the characteristics of each market. In
markets where there is technological development and knowledge of construction methods and
processes, differentiation is no longer valued because it is a more mature market where projects are
previously studied. Then the lowest price is the competitive factor. In markets where knowledge is not
so developed and labour is "cheaper", the most valued factor is differentiation and training for the
execution of services. These results give us some insights about how industry works within many
different niches and segments, in that way allowing a focuser to pick a competitively attractive niche
appropriated to its resource strengths and capabilities. Carrying out this strategy makes possible the
firms to enter on a range of activities associated with differentiation and low cost in a target market
niche from which the company generates higher profits. We can see that differentiation is most valued
in less developed countries - where processes are not yet very developed. In developed countries, cost
leadership is the one that allows companies to obtain the greatest competitive advantage.
Similarly, the CC4 interviewee stated that 'the French market already well recognises the concept of a
fair price. It no longer enters into speculative prices of 60%, 70%. That doesn't exist there". It can be
said that the interviewed acknowledges that there is not much difference between the competitive
advantage via price (fair price) between the Portuguese market and the French market. When he refers
to the South American and African markets, he says that the fair price has an associated risk component,
that is, the price will be higher due to the risk and uncertainty of the market. There is no competitive
advantage through differentiation, but through an increase in the risk variable. In this case, the
interviewed makes no reference to a combination of sources of competitive advantage between
markets. This result point out that firms make an effort to pursue more than one strategy at a time by
bringing out a differentiated product at low cost. They seem to combine a market segmentation strategy
with a product differentiation strategy according to the characteristics of their target market segments
(demand side).
Conclusions, Limitations and Future Works
The generic strategies model presented by Porter highlights the way in which companies exploit their
key competences in order to obtain a greater competitive advantage when compared to other
7528
competitors in the sector. The generic strategies presented by Porter are three: cost leadership,
differentiation and focus. However, there are authors who refer to the Hybrid or undetermined strategy,
explaining that it is a combination of cost and differentiation strategies that can bring high profitability
to companies. In order to respond to the question: 'What is the competitive advantage for most
companies in the sector? Is this advantage common to all markets or does it have specific niches?"
About the first question, the competitive advantage for most companies in the civil construction sector
is the competitive advantage through cost leadership (80%). Only CC1 clearly presents a focus strategy
with competitive advantage through differentiation by the market segment in which it operates.
Regarding the second question, only the CC1 respondent mentioned that there is a conjugation between
the competitive advantage via cost and via differentiation, since this advantage may vary according to
the characteristics of each market.
As a theoretical contribution, this article aims to show that civil construction companies in Portugal
have managed to survive the adversities, due to their capacity to adapt to the various realities they have
to face. The companies studied, although they perceive the cost leadership strategy as being the most
adequate, in reality end up using a hybrid strategy, given that depending on the segment and the product
or service to be offered, they end up differentiating themselves (through cost reduction and productive,
productive innovation) in order to serve the customer at the lowest possible price, but with a service of
higher quality.
In general, the study seems to point to the importance of Critical Success Factors that include
reputation, technological innovation and delivery times. The studied companies seems to be based on
cost leadership and there is a conjugation between the competitive advantage via cost and via
differentiation, since this advantage may vary according to the characteristics of each market namely
transparency, risk and geography.
In terms of limitations, the present study presents a very general approach to the theme of the strategy,
in particular generic and hybrid strategies. The sample is a convenience sample and authors are aware
of not be very representative of the sector.
As suggestions for future works, it is recommended to increase the number of companies to be analysed
in order to obtain a more representative sample of the Civil Construction sector in Portugal. It will also
be advisable to extend the geographical scope (which was limited to the North of Portugal) to the entire
national territory. Considering that the analysed companies are heterogeneous in terms of their size, it
would be advisable to define a specific class of companies (micro, small, medium or large companies)
in order to obtain data more easy to analyse and make projections.
Acknowledgment
This work is funded by National Funds through the Foundation for Science and Technology, Portugal,
under the project UID/GES/04752/2019.
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The Impact of Corporate Diversification on

Company Performance and Risks
Nataliia OVERCHENKO

Peter the Great St. Petersburg Polytechnic University
Saint Petersburg, Russia
nataliia.overchenko@yandex.ru
Paula Odete FERNANDES

Campus de Santa Apolónia. 5300-253 Bragança/Portugal
Tel.: 00.351.273.303.103; Fax: 00.351.273.313.051
pof@ipb.pt
Olga KALCHENKO
Peter the Great St. Petersburg Polytechnic University

Saint Petersburg, Russia
kalchenko_oa@spbstu.ru
Abstract
The strategy is the main direction of the company. In the development of the economy, an important role
is played by corporate diversification strategies. The study of the essence of the concept of diversification
of production shows that its methods are rigidly dependent on the scope of business and enterprise
management. Diversification requires a degree of flexibility in the approaches to its implementation,
therefore, at the beginning of planning activities, none of them should be excluded. This research focuses
on the impact of corporate diversification on company performance and risk. To complete this purpose, the
research question will be answered: how does corporate diversification affect enterprise indicators?
Research is based on the open annual financial statements of PJSC Gazprom. To assess the differences,
find the relationship between variables and confirmed the hypotheses of the study, various statistical
analyses were applied. The result evidence from Russian company showed that unrelated diversification is
positively related to firm’s performance. However, related product diversification is negatively related to
firm’s performance. In addition, the relationship between geographical diversification and the efficiency
of the company is positive, moreover, the hypothesis of product diversification and reducing the risk of the
company is confirmed. However, the hypothesis that geographical diversification contributes to reducing
the risk of the firm has not been corroborated.
Keywords: Corporate diversification, Company performance, Risks, Internationalization.
Introduction
Often in the literature about strategic management, investment and finance can be found the concept of
"diversification". In fact, many of us in our daily life intuitively apply a diversification strategy, not really
delving into the economic essence of this term. For example, many people prefer to keep their savings not
7531
only in national but also in foreign currency, while entrepreneurs decode to open a new business in the new
industry having increased their turnovers.
Innovative orientation of the industrial enterprise requires new theoretical approaches to the processes of
diversification of economic activity. The genesis of methodological approaches in this area shows that the
portfolio approach has given way to the resource approach, that is, the priority of finding a source of
competitive advantage has fundamentally changed. If earlier, the causes and sources of diversification were
sought in the external competitive environment, then in modern conditions the key competences that an
industrial enterprise has become a source of competitive advantage.
Business diversification, regarded as an independent strategic alternative, contributes to ensuring the

market manoeuvrability of an industrial company, and in this sense, the theory and practice of strategic
management consider it as one of the key corporate strategies.
The strategy for the development of diversification processes involves the consistent implementation of
long-term activities of economic entities at various levels. At the macro level, this strategy involves the
diversification of the activities of the economic systems of the regions, districts and the country as a whole.
At the micro level, diversification of an enterprise is a form of corporate strategy implementation, the main
commercial goal of which is to increase profits by using competitive advantages with various incentives.
The diversification strategy is the distribution of risks through the expansion of activities, the development
of new areas and areas of application of knowledge, resources and financial resources. The main goal of
this strategy is to reduce the risks that arise when all efforts or money are concentrated in one area.
The subject of the research is based on impact of corporate diversification on the performance and risks of
the company. The purpose of the study is to analyse the impact of corporate diversification on the
company's performance and risks.
Achieving this goal required the formulation and solution of the following tasks:
- explore the concept and types of diversification;

- to study the theoretical aspects of international diversification;
- to study the methods of risk diversification;
- determine the dynamics and development potential of the diversification strategy for companies.
The following general scientific research methods were used: analysis and synthesis of theoretical
specialized materials, scientific articles, research and statistical data.
This work is divided into four parts. The first section is dedicated to understanding the concept of corporate
diversification, factors and risks that can affect it. Second section covers the methodology of research. The
survey related to the impact of corporate diversification on performance and risks of the company. There
was also presented main objectives of the study and research hypotheses. In the third part analysis and
results of the survey was presented. The last section will be dedicated to the presentation of the main
findings and discussion.
Background
One of the approaches used by the companies to remain competitive in business is diversification. In the
most general sense there is a diversification of a product where the company gains income from several
industrial sources; and geographical diversification where the company gains the income from several
geographical locations. Diversification of production is an expansion of release of new goods with the
purpose to reduce the enterprise risks caused by a changeable business environment (Darhovskyi, 2017).
7532
The relevance of research substantiated by the fact that innovative orientation of the industrial enterprise
requires new theoretical approaches to the processes of diversification of economic activity.
Corporate diversification, regarded as an independent strategic alternative and as one of the key corporate
strategies.
There are several drivers and the reasons because of which the company chooses as strategy diversification,
all of them with are connected with advantages from:
• Higher market power,

• Use of existing capacities and resources in other dimensions,
• Better allotment of assets through internal capital markets,
• Greater debt capacity,
• Decreased performance variation by virtue of a portfolio of imperfectly correlated set of
business.
It is believed that diversification leads to a better use of material and non-material resources of the
enterprise. On the one hand, it reduces the risk of the enterprise’s dependence on any single product or
market, but on the other hand, it increases it, since there is a risk inherent in diversification.
• Diversification - expanding the range of products, the development new types of industries or
territories in order to improve efficiency, obtain economic benefits and prevent bankruptcy.
• Corporate diversification strategy - the expansion of interests in the framework of new areas of
activity and new markets that differ from the main product lines of the organization.
Diversification can be divided by related and unrelated diversification. Related diversification allows you
to use the benefits that the company has achieved in its traditional sphere. Related diversification is
beneficial if there are strategic matches between the value chains of companies that allow:
- exchange valuable experience, technological know-how,

- combine related activities of companies to reduce costs,
- share brands.
The associated diversification predetermines the work of the principle of synergy. A diversified company,
in the presence of strategic correspondences and a coincidence of the value chain, gives better results than
the same divisions would have worked individually. Unrelated diversification is the transition of the
company to a new area. With this type of diversification, it is not necessary to select a sphere with strategic
correspondences: capital is invested in any industry that seems profitable, attractive.
This is one of the most difficult development strategies to implement, since its successful implementation
depends on many factors, in particular, on the competence of the existing staff, and in particular managers,
seasonality in the life of the market, the availability of the necessary amounts of money, etc. Often with
unrelated diversification, preference is given to activities that guarantee rapid financial growth.
The main advantage of the strategy of unrelated diversification is based on reducing the risk for the
conglomerate as a whole. Risk reduction is associated with the fact that different industries can be at one
time in different phases of industry life cycles. Downturns in some are offset by rises in others.
Transnational diversification as a form of corporate strategy of diversification of production appeared in

the 70th years as the response to increase in the competition and globalization of commodity markets and
services. It significantly differs from traditional forms of diversification, Ansoff even calls it not
diversification, but internationalization (Endovitskii, 2017); and has the specific features connected not
7533
only with penetration into other industries of various countries, but also just with geographical expansion
(Errunza, & Senbet, 1981).
Geographical diversification and its benefits and costs is quite a well-studied topic in the academic
literature. In general, academician divide internationalization by two types: multinational companies and
foreign direct investments. Theory of multinational companies involves arguments on shared resources and
experience exchange between divisions in different countries, global arbitrage opportunities (Kogut, 1989)
and synergies in business process and systems optimization (Fayerweather, 1978). School of foreign direct
investment puts that internationalizing companies are able to reduce risk by diversifying their businesses
in different locations (Lessard, 1976), and improve performance via economies of scale and resource
sharing (Rieck, Cheah, Lau, & Lee, 2004).
Moreover, various authors have argued that international diversification enhances shareholder value by
exploiting firm-specific assets, by increasing operating flexibility and by satisfying investors’ preferences
for holding globally diversified portfolios.
Any sphere of human activity is associated with the action of many conditions and factors in achieving set
goals. In addition, the results obtained can be both positive and negative, since it is difficult to calculate the
influence of these factors on the implementation and results of management decisions. Therefore, any
commercial activity seems to be risky, dangerous and the entrepreneur may suffer losses at all stages of the
company’s activity and production stages.
Risk is a key, critical element of entrepreneurship. Entrepreneurial risk can be understood as an economic
category, quantitatively and qualitatively expressed in the uncertainty of the result of the intended
entrepreneurial activity, which reflects the degree of success or failure of the entrepreneur (company) in
comparison with pre-planned results.
For an entrepreneur, this can also be a possible loss of resources, lack of profit, missed opportunities,
damage. Therefore, for an entrepreneur, risk is a specific form of uncertainty in the implementation of
entrepreneurial activity.
Risk management is the process of identifying, evaluating and controlling threats to the capital and profits
of an organization. These threats or risks can come from a variety of sources, including financial
uncertainty, legal obligations, strategic management errors, accidents, and natural disasters. Threats to
information security and the risks associated with data, as well as risk management strategies aimed at
mitigating them, have become the main priority for digitized companies. As a result, the risk management
plan increasingly incorporates processes for companies to identify and control threats to their digital assets,
including corporate data, customer personal information and intellectual property.
Methodology
In consideration of literature review presented above were outlined five researches hypotheses (H) which
will be checked in the empirical part of this study:
H1: Related product diversification is positively related to firm’s performance;
H2: Unrelated product diversification is negatively related to firm’s performance;
H3: The relationship between geographical diversification and firm’s performance is positive;
H4: Product diversification is associated with reduction of firm’s risk;
H5: Geographical diversification is associated with reduction of firm’s risk.
Research is based on the open annual financial statements of PJSC Gazprom. Public Joint Stock Company
Gazprom is a large Russian company founded in 1989, which carries on the business of extraction,
7534
production, transport, and sale of natural gas. Gazprom ranks first in the world in the production of heat
energy.
The share of Gazprom in the world's gas reserves is 17%, in Russian - 72%. Gazprom accounts for 12% of
world and 68% of Russian gas production. It ranks seventeenth in the list of the largest energy companies
according to S&P Global Platts (2018).
The company has subsidiaries in industrial sectors including finance, media and aviation, and majority
stakes in other companies.
Gazprom is a global energy company focused on geological exploration, production, transportation,

storage, processing and sales of gas, gas condensate and oil, sales of gas as a vehicle fuel, as well as
generation and marketing of heat and electric power.
Gazprom views its mission as ensuring a reliable, efficient and balanced supply of natural gas, other energy
resources and their derivatives to consumers.
The main objective of a research it to reveal the impact of corporate diversification on indicators and risks
of the company. The modelling method with a small amount of data will be carrying out in order to do
analysis regarding the association between the variables and testing the truthfulness of the hypothesis. As
an example was taken PJSC Gazprom. Gazprom’s strategic goal is to establish itself as a leader among
global energy companies by diversifying sales markets, ensuring reliable supplies, improving operating
efficiency and fulfilling its scientific and technical potential. Data were taken from the official website of
the company as every year Gazprom publishes all financial statements, in particular were used balance
sheets and income statements for the further calculations. All indicators were considered in dynamics for 5
years, from 2013 to 2017.
Next, the necessary variables were selected to assess the impact of corporate diversification on company
performance and risks. For product diversification it will be used the Entropy indices. For the Entropy
indices we use three different measures: total entropy, related entropy and unrelated entropy, which
measure total diversification, related diversification and unrelated diversification, respectively. Moreover,
were calculated such indexes as internationalization, return on assets, return on equity, Tobin’s Q, PE,
Leverage and Beta.
The following carcasses of models will be used in the study with adjustments based on conducted tests of
fit for the estimators described above (Palich, Cardinal, & Miller, 2000):
Models for accounting-based performance:
ROAt,I = α0 + α1Entropytotal + α2Internationlization + α3Size + α4Growth + α5Profitability + εt,I
ROAt,I = α0 + α1Entropyrelated + α2Entropyunrelated + α3Internationlization + α4Size + α5Growth +
α6Profitability + εt,i
ROEt,I = α0 + α1Entropytotal + α2Internationlization + α3Size + α4Growth + α5Profitability + εt,I
ROEt,I = α0 + α1Entropyrelated + α2Entropyunrelated + α3Internationlization + α4Size + α5Growth +
Models for market-based performance:
Tobin’sQt,I = α0 + α1Entropytotal + α2Internationlization + α3Size + α4Growth + α5Profitability + εt,I
Tobin’sQt,I = α0 + α1Entropyrelated + α2Entropyunrelated + α3Internationlization + α4Size + α5Growth +
7535
PEt,I = α0 + α1Entropytotal + α2Internationlization + α3Size + α4Growth + α5Profitability + εt,I

PEt,I = α0 + α1Entropyrelated + α2Entropyunrelated + α3Internationlization + α4Size + α5Growth +
Models for accounting-based performance:
Leveraget,I = α0 + α1Entropytotal + α2Internationlization + α3Size + α4Growth + α5Profitability + εt,I
Leveraget,I = α0 + α1Entropyrelated + α2Entropyunrelated + α3Internationlization + α4Size + α5Growth +
Models for market-based performance:
Betat,I = α0 + α1Entropytotal + α2Internationlization + α3Size + α4Growth + α5Profitability + εt,I
Betat,I = α0 + α1Entropyrelated + α2Entropyunrelated + α3Internationlization + α4Size + α5Growth + α6
Profitability + εt,i
After will be described the variables used in this study.
Table 1: Classification of variables used in the research.
Type Measure of Based on Variable Name

Related entropy index Related Entropy
Product
Independent Diversification Unrelated entropy index Unrelated Entropy
Geographical Degree of internationalization Internationalization
Accounting ROA ROA
ROE ROE
Performance
Market Tobin's Q Tob Q
Dependent
PE PE
Accounting Leverage Lev
Risk
Market Beta Beta
Calculation of variables
For product, diversification it will be used the Entropy indices. For the Entropy indices, we use three
different measures: total entropy, related entropy and unrelated entropy, which measure total
diversification, related diversification and unrelated diversification, respectively.
The Entropy measure is computed as follows:
n
Total Entropy index =  wi ln  1  [1]
i =1  wi 
Where Wi is weight of segment i revenue. This measure considers the weighted average importance of
each segment or industry a firm is active in (Palepu, 1985).
A significant advantage of the entropy measure over other continuous measures is that its total
diversification can be decomposed into related and unrelated diversification. Henceforth, Total
7536
diversification = Related diversification + Unrelated diversification (Palepu, 1985). Related diversification

is defined as:
n
 
Related Entropy index =  w j ln  1  [2]
j =1  wj 
Where Wj is weight of segment j revenues; these j segments include revenues from all operations within
the main 2-digit SIC industry group of the company (Palepu, 1985). Unrelated diversification is defined as:
n
Unrelated Entropy index =  wm ln  1  [3]
m =1  wm 
Where Wm is weight of segment m revenues; these m segments include revenues from all operations in
different 2-digit SIC segments comparing to the main SIC industry of the company (Palepu, 1985).
As for the measure of geographical diversification, we use the degree of internationalization, which is
defined as (Palepu, 1985):
Foreign sales
Degree of internationalization = [4]
Total sales
It is the most frequently used measure of internationalization, even though it does not allow for a separation
between sales by foreign subsidiaries and sales attributed to exports from the parent company. We also use
it in our study due to data availability reasons.
To better analyse the impact of diversification on the performance, in this study we use two accounting
measures and two market-based measures, making it four performance variables in total. For the
accounting-based measures we use ROA and ROE, which are calculated as follows (Palich, Cardinal, &
Miller, 2000):
Net income [5]
ROA =
Total assets
Net income
ROE = [6]
Total equity
As for market-based variables, we use Tobin’s Q and Price to earnings ratio, which are, calculated as
follows (Palich, Cardinal, & Miller, 2000):
Total market value
Tobin ' s Q = [7]
Total assets
Pr ice per share
PE = [8]
Earnings per share
To better analyse the impact of diversification on the risk, in this study we use both accounting-based and
market-based measures of risk. The accounting measure we use is leverage ratio, which is calculated as
(Palich, Cardinal, & Miller, 2000):
Total debt
Leverage = [9]
Total equity
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As for market-based risk, we use the systematic risk measure of beta, which is calculated as follows (Palich,
Cardinal, & Miller, 2000):
Cov ( Ri , Rm )
βI = [10]
Var ( Rm )
Where Ri represents stock returns, and Rm stands for market returns.
Besides will be used several control variables in order to more clearly determine the firm position.
Therefore, this study controls for firm size, growth and profitability, the measures that have shown to affect
performance in prior research (Palich, Cardinal, & Miller, 2000).
Firm size is measured by taking a natural logarithm of firm’s revenues:
Size = ln(Re venue) [11]
For the growth control measure, we use yearly percentage change in revenues:
Re vn − Re vn −1
Growth = [12]
Re vn −1
As finally for the profitability control measure will be used the operating margin:
Operating income
Operating margin = [13]
Total revenue
Results
All indicators were considered in dynamics for 5 years, from 2013 to 2017 and all the data was derived
from annual open financial statements.
Based on the summary statistics company in the sample on average have Return on Assets of 7,3%, Return
on Equity of 12.4%. It is only normal that ROA is significantly smaller that ROE, that shows that company
in a good state. It also means that company have debt more or less equal to equity. This is proved by the
average Leverage variable of 0.8.
Related diversification, unrelated diversification and finally, internationalization repeats the same pattern
trey are positively correlated with all measures.
Table 1: Summary statistics
Variable Mean Std. Dev. Min Max

ROA 0.727 0.008 0.067 0.082
ROE 0.124 0.011 0.112 0.134
Tobin's Q 0.753 0.022 0.728 0.770
PE 1.479 0.142 1.341 1.625
Leverage 0.805 0.217 0.567 0.991
Beta 0.869 0.086 0.794 0.963
Size 10.042 0.076 9.958 10.105
Growth 0.163 0.125 0.074 0.251
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Operating margin 0.156 0.017 0.141 0.175

Related Entropy index 0.426 0.061 0.371 0.492
Unrelated Entropy index 0.070 0.017 0.055 0.088
Degree of internationalization 0.206 0.030 0.181 0.240
In order to understand which of the tests must be carried out to corroborate or not corroborate hypotheses
listed above Students T test was used. In the pivot table (Table 2) we see that Sig. (2-tailed) is less than 5%,
for further research of the hypotheses and their corroboration or not corroboration was decided to conduct
paired sample T-test.
Table 2: Summary of influence of two dependent samples (Paired sample T-test).
ROA ROE Tobin's Q PE Leverage Beta

Related diversification index 0.007 0.009 0.006 0.002 0.055 -
Unrelated diversification index 0.659 0.006 <0.001 0.003 0.024 -
Degree of Internationalization 0.009 0.020 <0.001 0.003 - 0.002
The diversification-ROA analysis gives us the result that increased diversification leads to increased return
on assets: it concerns unrelated diversification, No significant relationship between related diversification,
internationalization and ROA is found, so we make no inferences here.
During the diversification-ROE, analysis was obtained the result that there is no significant relationship
between related, unrelated diversification and ROE is found, so we make no inferences here. However,
there is a connection between internationalization and ROE. Increased geographical diversification leads
to increased return on equity.
During the diversification -Tobin’s Q and diversification - Beta analysis there are not significant for any of
the analyses.
The diversification-leverage analysis gives us the following results. Higher related diversification
comparing to company’s own average exerts positive influence on leverage. Higher unrelated
diversification comparing to company’s own average also exerts positive influence on leverage. Finally,
there is not significant regarding internationalization and leverage.
Risk management is one of the most difficult areas of management; it includes various branches of
knowledge and practical skills in the field of strategic, financial and investment management. Hypothesis
4 has been confirmed, as the basic principle of diversification is based on the distribution of risks in order
to prevent their concentration. Therefore, the product diversification of PJSC Gazprom should also be
considered as one of the possible options for risk reduction.
It is important to note that investors seem to associate excellent performance with unrelated diversification,
which, in turn, is beneficial for the value of the firm. However, often it should be noted that these
expectations are speculative in nature and, therefore, should not mean that the current performance is equal
to the expected performance. However, for PJSC Gazprom unrelated diversification is an excellent method,
based on financial indicators.
We see that increasing internationalization has a positive effect on performance indicators. Moreover, it
seems that the company in the sample that goes to the international level is profitable and can increase
profits without a significant increase in assets. This shows that there is a demand for the products of Russian
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companies abroad, and that these products are of sufficiently high quality so that they can be sold to foreign
consumers. Accordingly, internationalization is another opportunity to implement a diversification strategy
for PJSC Gaz-prom.
According to the results, for PJSC Gazprom was were recommended to use diversification in order to
accomplish reduction of risks. Concerning the type of diversification the company should use unrelated one
and Internationalization.
There are at least five important steps in implementing a successful and long-term diversification strategy.
They are listed below:
1. Attract the entire top management team
Senior management should be involved and prominent throughout the diversity project. Visionary
speeches have little effect alone. The CEO and other senior executives should be visible at seminars,
training programs, and Q&A sessions on diversity issues.
An important first step in demonstrating the path is also the introduction of diversity at the senior
management level.
2. Adapt organizational structure
Organizational structure must support diversity efforts. This can be done by creating a diversity
office and appointing a chief diversity officer (CDO). If the organizational structure supports
diversity proposals, then it will most likely be taken seriously throughout the business.
3. Communication about the initiative on an ongoing basis
Communicating why diversity is critical to the success of your business is very important. The
message should be plentiful and include various channels such as social networks, newsletters,
intranets, seminars, meetings, posters and so on.
4. Creating a formal project plan
Create an official project plan to support a diversity strategy with measurable goals that integrates
with your company's other strategic goals and operations.
Over the years, various studies have shown that if such a project is not carefully planned in advance
using proven and reliable processes, critical elements will not be given due attention.
Such project plans should take into account the time required to form a mindset that recognizes that
diversity is part of the overall strategy. The project should also include a performance appraisal
program that functions as an accountability mechanism.
5. Change of personnel policy to attract different employees.
If we talk about choosing a diversification strategy, then there are several steps to successfully
complete this task.
Preliminary assessment of the company and business environment; the most important thing to do is a
thorough assessment of the environment and the company, the nature of its business, its management
effectiveness, its strengths and weaknesses. It is also necessary to study market trends, competition, new
developments in the industry.
Industry choice and ideas for diversification; ideally, business choice for diversification is preceded by a
serious macroeconomic and industry analysis to identify areas of the economy with expected rapid growth
and industries suitable for investment.
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Evaluation of new business (industry) and planning processes; Preparing for diversification is no different
from starting a new business.
Planning and portfolio management. Very often, after setting up the initial product portfolio, it remains
unchanged for many years, despite the end of the life cycle for some products and market changes. This
reduces the competitive advantage of the company, and it has only two alternatives - to meet the new needs
of the market and, therefore, to update its portfolio or fail.
Conclusion and Limitations

A negative relationship was found between the associated diversification and enterprise performance;
reasons may include the “new toy” effect, scattering of rents, over-investment and cross-subsidization. In
fact, this value can be reduced due to tax benefits from diversification. In general, there may be numerous
explanations for the phenomena, and this may be an interesting topic for future research. However, from
the point of view of Gazprom’s data, a positive relationship was found between unrelated diversification
and financial performance. Possible reasons include the ability to support and justify the capital investments
necessary for diversification, the political ties in the emerging market and the expectations of investors who
consider corporate diversification as a productive management activity.
In addition, it was found that the relationship between geographic diversification and firm performance is
positive. As for the case with capital returns, the results show that, the company in the sample go
international and can increase profits without a significant increase in assets. This shows that there is a
demand for the products of Russian companies abroad, and that these products are of high enough quality
so that they can be sold to foreign consumers. However, this does not guarantee a reduction in the risk of
the firm, concluding that in more internationalized companies, total assets tend to grow faster than the
market value, if there is growth at all, and it is better to use product diversification.
Summing up, we can say that the results of the Russian company showed that unrelated diversification is
positively related to the company's performance. However, the associated product diversification is
negatively related to the firm. In addition, the relationship between geographic diversification and firm
performance is positive, but there is no correlation between geographic diversification and risk reduction
for the firm. Moreover, the hypothesis of product diversification and risk reduction is confirmed. Thus,
three options for implementing the diversification strategy are acceptable for PJSC Gazprom.
Results lead to a few managerial implications for both decision makers in companies and investors.
Managers should be aware that diversification could cause not only positive but also negative effects. In
order to be able to predict potential outcomes of diversification managers should be aware of factors that
create and destroy value when enterprise start diversifying across products or industries. Other situation is
that company could start to diversify only if it has well-establish position, and even though a firm need to
check whether industry potential is high enough or not. Diversification targets should be picked carefully,
because of the results will be highly dependent on a huge number of factors.
There is a scope of lines for future research: besides, of including more markets and industries to the
analysis and then comparing the results, what could be valuable is to compare results of diversification via
different modes such as M&A. In addition, analysing how companies could quantify the initial capabilities
and resources, and comparing them concerning diversification could also be a promising topic to study.
There are several limitations associated with this study; these limitations, in turn, create suggestions for
further research. First limitation is the general nature of the research. In this study were analysed as an
example Russian company PJSC Gazprom. Future research could conduct the similar analysis across
various markets and industries and then compare the results; this would allow making industry and market
specific conclusions and implications.
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Another limitation of this study is a rather limited amount of performance, risk and control variables.
Including more of dependent variables would enable to track diversification impact on different parts of
corporate performance and risk and give more results that are comprehensive. Including more control
variables, in turn, would allow improving the results of the empirical analysis by better controlling for more
aspect of company operations.
An interesting topic for future research would be to compare and contrast how each attempt of
diversification with various methods differ from each other in terms of their impact of company
performance and risk. The results would be beneficial for managers responsible for diversification decisions
in companies and for all persons making decisions, as it would allow them to better understand potential
costs and benefits associated with each diversification mode.
A very interesting topic for future research would be research how companies could quantify the sufficient
conditions for the future diversification and compare different approaches. These assessments would be
useful in helping predict diversification results.
Acknowledgment
This work is funded by National Funds through the Foundation for Science and Technology, Portugal,
under the project UID/GES/04752/2019.
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the Firm: Theory and Evidence. The Journal of Finance, 2 (36), 401-417.
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Lessard, D. (1976). World, country, and industry relationships in equity returns: Implications for risk
reduction through international diversification. Financial Analysts Journal, 32 (1), 32-38.
Palepu, K. 1985. Diversification strategy, profit performance and the entropy measure. Strategic
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Palich, L. E., Cardinal, L. B., & Miller, C. C. (2000). Curvilinearity in the diversification– performance
linkage: An examination of over three decades. Strategic Management Journal, 21, 155-174.
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Rieck, O., J. Cheah, A. Lau, & S. Lee. (2004). The Relationship between degree of internationalization and
firm performance in the telecommunications industry. Paper presented at the ITS Europe 16th European
regional conference proceedings, Porto, Portugal.
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Cooperative Network Interactions as Innovative Combinations of

Resource Use During the Organizational Digital Transformation of
The Economy
Vasily V. KUIMOV1, Liudmila V. IUSHKOVA1,3, Eva V. SHCHERBENKO1,2, Liudmila А.
YAKIMOVA3, Maria V. POKUSHKO1
1
Siberian federal university
Russian Federation, 660041, Krasnoyarsk, Svobodny Av., 79
2
Reshetnev Siberian State University of Science and Technology
Russian Federation, 660037, Krasnoyarsk, Krasnoyarsky Rabochy Av., 31
3
Krasnoyarsk state agrarian university
Russian Federation, 660049, Krasnoyarsk, Mira Av., 90
Abstract
We are researching new events in the postindustrial economy that are forming according to the laws
governing its development, aimed at achieving qualitative results using innovative combinations and
interpenetration of different resources, including those achieved through cooperative network interactions
of business structures and development of the format of platform solution in the organizational digital
transformation.
Keywords: Cooperative network interactions, organizational digital transformation, laws of

postindustrial economy, resources of cooperative network interactions
Introduction
The starting point of our research is the understanding of the transformational transition to a new type of
economy and social practice, which occurs under the influence of active actions aimed at improving the
positions of various actors, based on their active communications and the use of digital technologies.
Among those actors are businesses, citizens and civil society, non-profit, professional and public
organizations, the state and local government, interstate structures and unions.
The interaction of such a large number of actors, which represent various interests and positions, is possible
on the basis of a new paradigm of their relationship, which develops through the transition from a hierarchy
and quasi-market model to a cooperative network model that determines the achievement of final results
based on agreed goals, resource cooperation, mutual actions and opportunities, while maintaining the
independence and initiative of the participants, with their multi-level interactions among themselves and
outside of this environment. This kind of cooperation acts as a motive for the development of denser
(cluster) interactions to obtain high-quality results and network effects and ensure growing
competitiveness.
An analysis of changes in the transition to a new state is built using the paradigm of existing theories of
innovative development, including Kondratiev’s theory of big cycles and L. Nefedov’s conclusions that
information and communications based on modern digital technologies are the “basic innovation” of the
fifth post-industrial development cycle. We also share the statement of R. Viber, who notes that “in the
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current business cycle, information becomes the dominant of the economic growth, and the core of basic
innovation is digital and computer technology”.
The study of the driving forces of this process is based on the evolution of their development. It is known
that A. Smith considered growing consumption of goods and services to be the main driver of development.
J. Schumpeter, however, stated that it was the initiative and creativity of entrepreneurs to find the best ways
to use resources. E. Phelps, Nobel Prize laureate in Economics of 2008, notes that for the emergence of
innovations, intellectual incentives are necessary, which in his opinion are caused by “a multitude of
economic freedoms” and the presence of “various supporting institutions” to fulfill the needs of businesses.
Similar views are expressed in the works of the Austrian School of Economics. M. Porter in his works
justifying the cluster approach shows that in order to achieve results, conordsitated actions and adoption of
general rules of interaction are necessary.
We perceive as very important works of a number of authors who recognize the paradigm of the “network
revolution", whose supporters consider entrepreneurial and social networks to be a new phenomenon in the
modern economy. Among them are foreign and Russian scientists A.A. Auzan, M. Castells, V.V. Kuimov,
J. Lipnack, N.V. Smorodinskaya, J. Stamps, M.Yu. Sheresheva. These and a number of other scientists, in
their studies of various aspects of the new economy, use similar approaches. The common point of their
views is that qualitatively new interactions in the market are inherent in modern business by integrating
individual resources, gaining access to combined resources, creating a single information and marketing
field, cooperation of competitors, etc., which increases market stability and ensures achievement of
competitive advantages for everyone participating in these processes.
Hence, according to the research of V.V. Kuimov (2000), the main directions of modern and future business
development are:
− heterogeneity (diversity) of goals of the enterprise and diversification of its activities;

− cooperation with partners, networks and networking technologies of joint activities aimed at reducing the
time of execution and completion of transactions, development of integration for the “mutual benefits of
voluntary exchange”, equal cooperation to achieve the synergy effect;
− integration of state-municipal and public interests with business interests and vice versa.
New aspects of the incentives of modern actors to mutually agreed upon actions in the markets and in the
communities can be identified in the works of professor R. Weiber, who, when studying the manifestations
of economic laws in modern conditions, notes that “the transition to a network economy is ensured by the
telecommunications infrastructure” and concludes that:
− “in the industrial economy, the law of diminishing marginal returns with negative feedback is in effect,
and in the information economy – the one of increasing returns with positive feedback...”;
− “the growth of fixed costs and the reduction of marginal costs make the manufacturer strive for the rapid
sale of the highest possible volume of production”;
− “the functional specialization based on the division of labor is being replaced by the integration of labor
processes based on technological networks”;
− “the industrial economy focuses on the economies of scale of production, and the information economy
does on the network effect”.
For the analysis of modern processes, the conclusions of K. Kelly, who generalized the characteristic laws
of the network economy, are highly valuable. He determines that:
− the value of products stems from their multiplicity;
− the network economy is characterized by fixed costs with the rapid distribution of products;
− the effectiveness of the results of work is ensured by the entire network, distributed among all the
participants in the process;
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− the network economy is characterized by the following: a mechanism of self-organization and self-
renewal, an increase in the interest of participants in joint activities, centers of interests, and maximization
of enterprise’s own profit relative to the efficiency of the infrastructure as a whole.
Based on our research and on the analysis of the research results of other authors, we state that the modern
process of changes and transformations should be characterized as a transition to the economy of
cooperative network interactions, taking place on the basis of organizational digital transformation.
Moreover, this process to a greater extent develops as endogenous. Similarly thought E. Phelps, who noted
that “the development of prosperity ... was the fruit of ubiquitous endogenous innovation, i.e. the
introduction of new methods or products arising from ideas that were born within the national economy”.
Even more accurately, the idea that development is built on the internal needs and processes of
organizations and their communities was expressed by P. Romer, Nobel Prize laureate of 2018. In his work,
he adds technology to the list of main factors of production (capital and labor), which he treats as an
endogenous (internal) factor and considers the central part of the economic system. At the same time, in
his opinion, “... in the long term, the chances of ensuring fast growth are higher for an economy with
developed science and human capital than for an economy devoid of these advantages”.
Thus, adhering to the positions of P. Romer and E. Phelps, K. Kelly and R. Weiber regarding new processes
of modern development, our studies show that they are carried out on the basis of cooperative network
interactions and organizational digital transformation, built on an active the use of information, intensive
communications, with high human potential and its main resources.
Results
Here we will define the content of our understanding of the concept of "economics of cooperative network
interactions".
It is known that relationships can occur in the following forms:
− hierarchies, as subordination and execution of management decisions, which give quick results in
execution, are clear and simple to organize, but poorly conduct signals from below, and in modern
economics and social practice, with their dynamically changing environments, such development is
significantly delayed and loses pace;
− quasi-market, seeking to get the maximum result from each transaction. In a constant search for such
opportunities, actors incur large transaction costs for the preparation, conduct and maintenance of new
transactions, which also hinders their competitiveness;
− entrepreneurial networks tuned for relatively long-term interactions, obtaining mutually beneficial results
and a significant reduction in transaction costs for new developments, costs of implementation and
maintenance of contracts due to their type.
In real business structures, which is confirmed by both our research and studies of many other authors, all
three of these interaction formats are present simultaneously, complementing each other. At the same time,
with the development of the organization, long-term relationships of mutual coordination with business
partners, with the community and the authorities manifest themselves more and more.
Therefore, we state that it is quite natural to single out the fourth form of interactions – cooperative network
interactions (CNI) – as ones that reflect real processes the most, that include all the advantages of the three
7545
forms mentioned previously. We define CNI as “processes of interpenetration and harmonization of actions
due to the simultaneous platform interaction of producers, consumers, intermediaries in the form of
hierarchies, market and networks as a whole, on the basis of recognition of common goals and values,
cooperation of resources or their parts, while maintaining independence and leadership of the participants,
observing their voluntary connectedness, with possible interaction with government and public structures
through the use of modern information technologies and communications, including social networks”.
In such conditions, to achieve success, enterprises require fundamentally new actions aimed at:
− development of strategic alliances that, when building long-term plans, make fuller use of resources,
ensure the rapid development of each other's experience, expand the market field for each of the participants
through interaction, and provide quick maneuvers for the production and marketing of products in
particular;
− conducting a comprehensive systematic analysis of large volumes of combined information on the
markets of participants, its processing and making informed decisions on development, allowing to reduce
errors and strategic miscalculations;
− strict adherence to the growth rate of competitiveness by both of the participants and their network of
interactions as a whole, by reducing costs, expenses of materials, raw materials, energy; productivity
growth, using other network effects and the “Sachs beneficial circle” factor, etc.;
− organization of new formats for generating revenue, etc., which is possible through the use of digital
platform solutions.
As our studies demonstrate, all of the listed development conditions are most fully implemented in the
formats of cooperative network interactions of participants. During the analysis of the activities of
enterprises from the perspective of cooperative network interactions, we have used the method of functional
environmental analysis and forecasting of activity proposed by V.V. Kuimov, which is based on the
following provisions:
− any organization’s activities are carried out in five environments: internal one, where all the
coordination of activities is carried out, the competitive environment, as well as in the environment of
partnership interaction, information and communication environment, and the external environment.
− activities of the enterprise are built on the implementation of its functions in these environments, that
is, the main actions for the co-organization and such combination of all the resources that leads to achieving
high-quality results. We observe the following functions: the adaptive and integrative function, the
information and marketing support, financial and economic function, logistics, the hire, management,
education and motivation of employees, as well as the production and technological function, which is
formed by the functions of procurement activity, production technologies and sales activity.
The study was done on the food market of the Krasnoyarsk Krai region of the Russian Federation. Its results
allowed us to draw conclusions about the structure of cooperative network interactions between enterprises
and their partners, including suppliers (households, farmers, agricultural enterprises); active sales network
(distributors, own chain of stores, wholesale trade, work with state and municipal procurements,
cooperation with major logistics partners, etc.). This paper focuses on the study of digital technologies used
and their role in business. To do this, we have made an analysis of the conditions and results of the
interaction of enterprises with other business entities and organizations, and government agencies. To give
an example, we have summarized the cooperative network interactions of a separate business entity of the
food market — a meat processing enterprise – in terms of its functions in the following table (Table 1)
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Table 1: Cooperative network interactions of a food industry representative

(meat processing enterprise)
Enterprise function Members and goals of the cooperative network interaction (CNI)
Adaptive and integrative Participants from the enterprise: director and his deputies; heads of
(AIF) departments and workshops.
Interaction with: Federal Service for Supervision of Consumer Rights
Protection and Human Well-Being, Federal Service for Veterinary and
Phytosanitary Surveillance, Ministry of Emergency Situations (fire
safety), Pension Funds, Social Insurance Funds, tax inspection,
municipal administration, public organizations for consumer protection,
etc.
Goals of interaction: coordination of the activities of all departments
based on strategic and tactical goals, compliance with the laws of the
Russian Federation, requirements of supervisory authorities,
expectations of the local community and corporate culture.
Digital technologies used to implement this function: 1C software,
own website, mobile applications, electronic document exchange, cloud
data storage.
Production Procurement Participants from the enterprise: procurement department.
and activity Interaction with: farmers (9 units); agricultural enterprises (11 units);
technological (PA) consumer cooperatives (8 cooperatives, which consist of 780 peasant
function farms); wholesale enterprises (4 wholesale organizations); suppliers of
(PTF) spices, additives, containers (2 enterprises).
Goals of interaction: ensuring the rationality of procurement and the
optimal assortment, application of procurement regulations, acceptance,
storage, displaying of purchased goods and services.
own site, mobile applications, electronic document exchange, cloud data
storage.
Production Participants from the enterprise: product preparation workshop;
technologies semi-finished products workshop; finished goods warehouse.
(PT) Interaction with: repair and service company.
Goals of interaction: production of quality products, the demanded
assortment, volume, new products.
data storage.
Sales Participants from the enterprise: sales department (wholesale, retail,
activity small wholesale groups);
(SA) Interaction with: distributors (31 units); distribution networks (5
units); own stores (11 stores), small wholesale department, state and
municipal procurement department, logistics company.
Goals of interaction: development of sales scale of products.
data storage
Financial and economic Participants from the enterprise: financial and economic department
function (FEF) of the enterprise, including accounting;
Interaction with: banks (2 commercial banks); insurance companies (2
organizations); leasing company.
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Goals of interaction: financial and economic support of the activity,

search for effective partners, implementation of current activities and
development of innovative projects.
The digital technologies used to implement this function: 1C software,
own website, Internet, mobile applications, electronic document
exchange, cloud storage, online cash-desk programs.
Logistics (LOG) Participants from the enterprise: logistics department; heads of other
departments and workshops of the enterprise.
Interaction with: organizations providing heat, water supply, steam;
electricity; enterprises for the supply of spare parts, consumables (2
suppliers); car depots (2 enterprises).
Goals of interaction: providing the enterprise with resources and
supplies, creating conditions for work, rationalizing (economy) the
consumption of resources.
Digital technologies used to implement this function: 1C, own site,
Internet, mobile applications, electronic document exchange, cloud
storage
Information and marketing Participants from the enterprise: marketing department.
support (IMS) Interaction with: Federal State Statistics Service; 5 media
organizations; legal agency.
Goals of interaction: analysis of markets, activities of partners,
competitors, legislative changes and development of projects for the
development of enterprise products, its branding and market promotion.
exchange, cloud data storage.
Hire, management, Participants from the enterprise: human resources department, heads
education and motivation of of departments, workshops and divisions of the enterprise.
employees (HMEME) Interaction with: recruitment agencies (2 organizations; colleges (2
educational institutions), universities (1 organization of higher
education); employment department in the areas of residence.
Goals of interaction: implementation of the human development
program, selection and training of staff, and work incentives.
exchange, cloud data storage.
The obtained results of the study made it possible to determine the structure, highlight the levels of the
interaction network under study, and form the interaction scheme within the cooperative network
interaction, which made it possible to establish the most important and valuable nodes – the enterprises and
organizations with which the largest number of interactions is made, and the most important for the entire
network decisions are made (or can be made).
Thus, an analysis of the levels and depth of cooperative network interactions established that the suppliers
of the enterprise are farmers (9 units). These interactions are based on long-term supply contracts. Farmers
receive additional support from the state through agricultural development programs.
The interaction network includes consumer cooperatives (8 units), which unite in their structure more than
780 peasant farms. In this node, two levels of interaction should be distinguished: “peasant farm -
cooperative”, which is carried out on the basis of the Charter of the cooperative, with the establishment of
the rights of the founders and the governing body (Board of the cooperative), and “cooperative -
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enterprise”, which is built on the basis of supply contracts defining authority and responsibility between
the parties to the interaction. At this level, the enterprise provides for its participation in financing peasant
farms for the purchase of feed, veterinary services, assistance in the acquisition of small vehicles -
refrigerators for transporting meat products, etc.
Another level of interaction is relations with agricultural enterprises (11 units). With each of them, the
company builds interactions on the basis of long-term supply contracts providing for an agreed price and
supply volume for each year. An important element of these relations is the long-term prospect of product
sales, the assortment and prices agreed upon for the year, mutual financial and other kind (for example,
transportation) assistance in unforeseen circumstances.
On a separate level is building relationships with wholesalers. For purchasing goods, they are based on one-
off compensation purchases. Relationships with wholesale enterprises (5 units) supplying spices, additives,
seasonings, packaging products for semi-finished products, etc. are built on the basis of long-term supply
contracts. In this case, the company has reliable suppliers of products specialized for its technological
process.
The enterprise is provided with technological resources on the basis of long-term contracts. This area of
cooperation is formed in various fields. Firstly, relations with natural monopolies, suppliers of basic
resources (water, heat, steam, sewage), are built taking into account annual changes in tariffs approved by
the relevant state bodies or municipal bodies. Secondly, with suppliers of all kinds of resources (Internet,
telephone, spare parts, repairs, consumables, etc.) that work in a free, competitive market, the conditions
for cooperation are determined by the concluded contracts and agreements.
An important place in the activities of the network structure, of which the analyzed enterprise is a
participant, is occupied by transport and logistics services. For this, long-term cooperation agreements were
concluded with two transport companies, the terms of which determine the individual details and price
parameters of the service.
Active relations of cooperation-network interactions are also manifested in the node "enterprise - marketing
products." This activity is formed in two directions: marketing products of a consumer marketing
cooperative (of which the enterprise is a participant), and marketing products bypassing its sales channels.
Thus, the company develops its distribution network operating in 31 territories (municipalities) of the
region. The distributors are 15 independent enterprises, 16 individual entrepreneurs, who work on the basis
of long-term distribution agreements that provide for regular purchases of products (from the enterprise
under study) of a certain volume and assortment. For 4 of these distributors, a payment delay of 10 days is
established, seven entrepreneurs make a payment immediately after receipt of the goods - a centralized
delivery of products is organized for them, the rest of the distributors receive and export the products
themselves.
Sales of goods in small batches is done directly at the enterprise by the sales department and is possible for
the entire range of the studied enterprise. Such purchases are carried out by small and medium-sized
business entities of the region, independently exporting products from the territory of the enterprise on the
basis of a waybill and a preliminary calculation.
Another level of network interactions in the field of marketing is the enterprise’s participation in tenders
for the supply of its products (the whole assortment) under state and municipal contracts (supply contracts),
which is organizationally carried out by its sales service. The main buyers of products along this line are
schools, kindergartens, hospitals. Delivery contracts for schools and kindergartens last for a period of up to
5-6 months, for hospitals for 12 months. Prices, volumes and packaging options for delivered goods are
formed based on the results of the auction.
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Through its own sales network, the entire range of products is sold. The company has 11 branded stores
located in different regions of the region (large settlements), which weekly form orders for a certain amount
and range of products. The price of goods is determined by the company, depending on the location of the
store.
In addition, the company, on the basis of a long-term supply agreement, sells part of its product range
through a trade and logistics center. Prices, volumes, and assortment of supplies are agreed upon once every
six months. This format (through the trade and logistics center) for the purchase of products of the enterprise
under study is convenient for retail chains, restaurants, cafes, canteens, and other enterprises that have
concluded long-term supply contracts for products with the trade and logistics center. Coordination of
volumes, packages, assortment, prices is coordinated with the listed types of buyers, as a rule, once a
quarter. An enterprise has concluded an agreement with retail chains on product marketing, which
guarantees the provision of priority and advantageous location on store displays.
Earlier we have mentioned that a separate marketing organization for the enterprise under study was a sales
cooperative. So, being a producer of products, in order to ensure a larger volume of products and the breadth
of its assortment, they have initiated the creation of a consumer-sales cooperative, which, in addition to the
enterprise itself, included three more independent producers of meat products. As a result of the increased
sales volume and the expansion of the assortment following such cooperation, the company willingly
operates, as already noted, a trade and logistics center, which in turn supplies products to five retail chains,
44 large stores, 32 dining rooms and cafes. This consumer-marketing cooperative has entered into
agreements with three meat processing enterprises, which also supply their products to the trade and
logistics center, which forms large volumes and a stable range of its offers and creates favorable conditions
for both the consumer and the manufacturer. The price of these products, conditions, delivery schedules,
etc. is agreed upon by the cooperative with the trade and logistics center.
Thus, we see that the activity is built in the format of cooperative network interaction on a long-term basis
and common goals (coordinated actions to obtain sustainable workload and profit). Cooperative network
interactions are inherent in the interaction of an enterprise with distributors, its own distribution network,
in working with a trade and logistics center, including work with distribution networks and other enterprises
and organizations. In addition, we define the interactions of the enterprise in the implementation of
wholesale trade and state-municipal procurement.
The study found that the largest number of links in this cooperative network interaction is realized in the
node “production and technological process”, including procurement activities (procurement of raw
materials, goods and materials for the production and technological process of the enterprise), where 20
direct procurement links are shown , as well as relations through 7 consumer cooperatives with 780
households. In the node “logistics” 13 links were established. In the link "sales activities" - 50 direct links
solely for long-term relationships.
The relations of the enterprise with organizations involved in small-scale procurement, as well as in the
work of state and municipal procurement and relations with partners purchasing enterprise’s products
through a trade and logistics center, can be classified as unstable, since there are no strategic partnership
agreements with them (long-term cooperation) and this makes it difficult to interact on a cooperative
network basis.
Here, from the point of view of the topic of our research, an analysis of the activities of the enterprise and
the consumer-marketing cooperative requires special attention. This expresses one of the essences of the
cooperative network interactions and a special resource contained in such interactions - which we will call
the “resource of joint action”. The expansion of any business is possible only with the growth of sales
activities - sales volumes, and every organization strives for this.
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Several manufacturers of similar (possibly complementing each other's assortment) products, forming joint
structures (in this form, a consumer-sales cooperative), form a joint market offer. In doing so, they provide
large volumes of products, increasing for consumers (buyers) of these products the reliability of the product
offer in terms of regularity, assortment and volume of deliveries. In essence, by forming a production and
marketing cooperative or other joint structure, each enterprise not just expands the market for its products
and increases the reliability of supplies. In joint activities, adopting the best experience, each of the
participants in the cooperative develops its products, their quality and consumer-oriented properties. In
addition, based on a joint market offer, further steps are possible to form a single product brand and (due
to growth in sales) its rapid promotion and consolidation in the markets.
In the case under study, the joining of the production and marketing cooperative to the large distribution
network of the analyzed enterprise created an opportunity for all its participants, due to the growth of the
joint production volume up to 1 billion rubles per year, to become a supplier of two large retail chains,
coordinate and conclude additional agreements with them for marketing services to promote these joint
products.
Then, the activity of the enterprise and the consumer-sales cooperative in cooperation with manufacturers
of similar (or complementary assortment) products is logical from the standpoint of developing new
resources for market expansion and consolidation. The main condition for such cooperation and the
inclusion of enterprises (non-cooperative members) in the circle of interaction is the same principle – an
increase in the volume of products presented to the market, an increase in the stability of its presence on
the market, the achievement of operational maneuver in the event of failure of individual producers in
interaction and the supply of such products at the expense of other members of the cooperative network
interaction. It is also important that, forming a joint activity, all the participants in the cooperative network
interaction actively use the general information about the markets, significantly reducing uncertainty and
achieving greater reliability in choosing alternatives for practical actions, which leads to an increase in
profit, as well as other qualitative indicators for each of the enterprises.
A special role in all these processes (market expansion, consolidation on it, reduction of uncertainty and
risks due to the growth of circulating joint information, etc.) is played by the cooperative network
interactions of functional units (departments, workshops and other structures) of management of specific
enterprises participating in cooperative network interaction.
Modern practices of interaction between business entities, government and society require enterprise
management structures to understand their role and importance, to constantly comply with the basic
principles of cooperative network interactions (unity of purpose, values, the provision of a portion of their
resources and the use of combined network resources, independence, initiative , voluntary connectedness,
the presence of several leaders and integrated levels of interaction).
The activity of the cooperative network interaction analyzed in the article, from the point of view of the
role of the functional units of the enterprise under study, is characterized by the following:
− The role of procurement units is formed by providing the enterprise with raw materials. In the study, we
saw flexible options for achieving mutual goals. The departments of the enterprise responsible for material
and technical support equally fulfill their mission.
− The marketing activity manifests itself as especially multivariate. It is formed by sales services in the
areas of hierarchical practices in small wholesale trade, state-municipal procurement, cooperative network
long-term relations with distributors, enterprises of their own sales network, a trade and logistics center and
its work with retail chains, other trade enterprises, public catering, and consumer-sales cooperative and its
members, as well as enterprises operating under an agreement with a consumer-sales cooperative.
− The analysis also revealed the roles of information and marketing support units for cooperative network
interaction, based on the analysis of data and processes on the market, constantly adjusting the activity in
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the entire interaction mechanism for choosing new markets, to clarify working practices with participating
enterprises and consumers, and to promote products and brands in new markets.
− The financial and economic services of the enterprise under study and members of the cooperative
network interaction build their interactions with the most reliable banks, insurance and leasing companies,
constantly analyzing financial and economic results and discovering new reserves in the cooperative
network interaction.
− A significant role in the formation and maintenance of the cooperative network interaction of its goals,
objectives, confidence in partners is played by the hire, management, education and motivation of
employees, and the maintenance of corporate culture within the cooperative network interaction. In turn,
the adaptation and integration role of the enterprise’s management and its functional units, as well as the
directors of all enterprises and organizations involved in the cooperative network interaction, consists in
systematic work with supervisory authorities, with the pension and social insurance funds, with the tax
inspectorate, with local authorities and society.
Discussion
In cooperative network interactions (CNI), in addition to the above, three additional features of interactions
are also actively manifested:
a) presence or desire to establish long-term interaction with the government and society;
b) presence and active use of information networks (technological, social) in their various forms and
manifestations;
c) change of functional responsibilities of managers, since they solve not only economic and technological
problems, but it is important that they become active mediums of communications throughout the structure
of cooperative network interactions, including with partners for interaction at all levels.
Cooperative network interactions are primarily interactions between business structures to achieve their
goals, but in the interests of its development the cooperative network interactions may include other
participants (state, municipal, public and non-commercial), including in the value-added chain.
Such interaction, as studies have shown, creates a multilateral network effect, including the positive
feedback, the brand effect and the viral effect of a large active structure, which together form the key
interaction of the participants - units of value and a certain selection (filter), which allows preserving the
value of the interaction. All of this confirms that in the cooperative network structures, while maintaining
the independence of each participant, it is possible to build coordinated actions, coordinate the process of
managing business structures in inextricable unity.
The new economic system is becoming the engine of a new cooperative network economy. In an effort to
pursue a more flexible policy in the field of fixed costs, enterprises develop cooperative network
interactions and use the following approaches:
− integration into network structures with the cooperation of various resources of independent enterprises;
− transformation of large structures into small and independent enterprises in compliance with industrial
and technological integration;
− combined solutions related to the development of both external and internal network interactions;
− network solutions to accelerate the development of new products, technologies and product marketing.
H.R. Varian writes on this subject that “the joint actions of Moore’s law, the Internet, computer awareness
and financial markets led to the period of rapid innovations”. Understanding of the special importance of
sharing the capabilities of information integrated in business networks is becoming more and more acute.
S. Knoll highlights a special type of cross-business synergy – informational synergy. In his opinion,
partners get it from using common, accessible channels of information, which allow focusing information
7552
flows, and analyzing competitors, market changes, new technologies, governmental and international legal
decisions, etc.
Conclusion
Thus, we can state that not only product or marketing, but primarily process and managerial innovations
arising in cooperative network interaction from the use of new management methods lead to maximum
benefits from interactions.
The transition from traditional management methods to ones based on cooperative network interactions (a
combination of hierarchical, market, network and even reciprocal) can create a special effect. This transition
to cooperative network interactions and changes in management systems is caused by:
− a new role of consumers whose expectations are diversifying and becoming more complex;
− globalization and the corresponding difficult competition, which encourages managers to integrate, both
to obtain a competitive product, and to combine resources, including intellectual ones;
− a developed and accessible information and communication environment, including the operational
analysis and adjustment of digitalized business processes, based on the processing of big data that allows
them to make more informed decisions, predict the purchasing behavior of not just large groups of people,
but specific buyers and partners, communicate and coordinate joint decisions with partners;
− increased influence of the social environment and surroundings, including participation in social
networks, maintaining personal reputation, etc., which actively affects the decisions made.
Acknowledgements
The authors would like to extend their gratitude to their colleagues who, with their support, directed us to
these complex studies; to the reviewers for their comments defining new research goals. We are grateful to
the Russian Fund of Fundamental Research that has provided the grant 18-010-00192 “Cooperative
network interactions as a resource for self-management and achieving quality results in economics”, on
which these studies were carried out.
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7553
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7554
Paper Online Social Networks: An Integrated Tool

Used in Online Promotion Strategies
Raluca-Giorgiana CHIVU
The Bucharest University of Economic Studies, 6 Piața Romană, Bucharest, Romania

raluca.chivu0126@gmail.com
Luiza-Maria TURLACU (LAZĂR)

luiza.turlacu@gmail.com
Ionuţ-Claudiu POPA

popa.claudiu3@yahoo.com
Florina BOTEZATU
The Bucharest University of Economic Studies, 6 PiațaRomană, Bucharest, Romania

botezatuflor@gmail.com
Otilia - Elena PLATON
The Bucharest University of Economic Studies, 6 PiațaRomană, Bucharest, Romania

otiliapl@yahoo.com
Abstract
Use In the era of speed, during the care becomes a significant problem, the care works "save" become
more critical. If the beneficiaries of the Internet network are more and more numerous, a new way of
"supplying" with goods and services has begun to open, the need to go beyond the magazine, but other
things are being promoted. That is the online environment. It seems that "the internet has made a piece
more efficient it is easier for buyers outside what is available, where and for this cost" (Kazumori, and
McMillan, 2005, p. 543). Online advertisements, banners, and pages of care are increasingly opening, as
well as commercials appearing at the beginning of s.a.m.d. Represents a disruption of the intention to
drive a consumer for a beneficial action for the company: buying or consuming "Instead, the World Wide
Web is a multimedia environment, it can open up the possibility of further combining text-based
alternatives offered by other Internet applications and services" (Orzan, Orzan, 2007, p.55).
Keywords : online marketing, online social networks, online advertising.
Introduction
Web advertising includes a variety of methods and means by which the message reaches its destination.
From banner advertising to e-mail advertising, viral marketing, contextual advertising, the online
environment becomes the primary measure adopted by big companies. "E-commerce is also likely to
7555
influence the purchasing patterns of businesses and consumers in a local community. The cost savings
from the transaction can be used to explain what the attractiveness of web commerce is for buyers
"(Steinfield and Whitten, 1999, p. 5)
Influencing Factors in Online Advertising
It seems that "an online advertising campaign can have particular objectives. With her help, you can gain
notoriety (for a brand, product, offer or service), customer relationship (for example, you can be offered a
free online service to develop a long-term relationship with your target audience), sales leads (through
which the user can be brought to the point of sale offline or even online, if the product is sold through a
virtual store), data about users can be collected and content generated by consumers can be obtained
"(Rancea, 2007, p.2)
However, "many consumers are skeptical or suspicious about the functional mechanisms of e-commerce,
its transparent processes, and effects, as well as the quality of the products that are offered online"
(Grabner-Kraeuter, 2002, p. 43).
Moreover, the confidence given to online advertising is becoming less significant; the cases in which the
purchases are made after viewing the online advertisements have suffered a significant decrease in recent
years. Several studies have shown that perceived risk is an essential and decisive factor for online
shopping. Risk is "the combination of the probability of an event and its consequences when there is a
possibility that they will be negative. The perceived risk is the uncertainty that a consumer faces when it
is not capable of anticipating the consequences of general purchasing decisions"(Tsiakis, 2012, p. 1267).
Blythe (1998, p. 42) says that the main way to reduce the risk is to inform. Continued, as consumers have
more information about a particular product or service, the lower the risk perceived by them. Also,
Nepomuceno, Laroche & Richard, (2014, p. 619) say that another risk reduction factor may be the
Consumer's familiarity with the respective brand. If the individual buys products from a well-known
brand and knows what to expect, then the risk level is also lower. If the risk is, however, perceived as
high, they will waive the purchase decision. According to Lim (2003, p. 218), the risk perceived by
online shoppers is very similar to the risk perceived by shoppers over the phone, and this is that they do
not have the possibility to inspect the products personally, or to compare the quality, size or style. of these
products, and the result received can often be unsatisfactory. Thus, "concerning the factors that influence
the behavior of the consumer in general, among the relevant aspects that influence the behavior of the
online consumers are the characteristics of the website, the individual perception, the psycho-
demographic characteristics of the consumers, the characteristics of the seller and the social context"
(Cetina, Munthiu and Radulescu, 2012, p.185).
It seems, however, that in the online environment, there are so-called influencers, opinion leaders, or
mass leaders. According to a study by the International Advertising Association, "The main categories of
influencers in the Romanian digital environment are" Professionals "," People like us "and" Celebrities ",
the latest study" Influence Me ", carried out by Starcom MediaVest Group and Cristian Manafu. The new
study identifies and describes the main categories of online influencers, as well as their role in brand
communication strategies" (Kapra, 2016).
Ø Professionals are specialized persons in a particular field. These are the most-watched
influencers, especially Internet users in the urban area, interested in quality information to ensure the
quality of their decisions. "Professionals" have created their image as an influencer in the offline
environment, on TV, or in the online environment with the help of Facebook, blogs, or press releases. It
continues to operate in these online environments, but it also extends its influence on news sites, Twitter,
or Pinterest "(Kapra, 2016).
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Ø People like us are those who have acquired notoriety in a specific field, frequently offering
relevant information regarding a particular product, service, domain, etc. "The influencers in this category
are appreciated because they are well informed, correct, original, and always try new things. The
connection created with the followers is based on the standard social status; they are ordinary people,
without a reputation gained in showbiz or a certain professional field, but with which the audience can
relate relaxed "(Kapra, 2016).
Ø Celebrities "are considered influencers only by one of the five internets, they are pursued
more for entertainment, and not necessarily for the information, they provide. Their influence is
manifested at an aspirational level, in areas related to the lifestyle of those who follow them: fashion,
culinary / nutrition information, travel, health"(Kapra, 2016).
Fig.1: Categories of influencers in the Romanian digital environment

Source: Kapra, 2016
However, it seems that, in reality, "consumers often act impulsively when making online decisions.
Triggered by easier access to products and purchases, lack of social pressure, and lack of delivery efforts,
impulse buying occurs at about 40% of all online sales "because they are aware that" electronic
procurement reduces the time between order and delivery. Also, the time savings are particularly
spectacular "(Kotler and Armstrong, 2008, p. 252). Also," online shopping spaces are increasingly
attractive to consumers, offering many facilities, including 24/7 availability, saving benefits. Of time, as
well as increasing the possibilities of researching products and prices "(Lee, et al., 2012, p. 364).
Measurement Methods in Online Advertising
However, it seems that, in reality, "consumers often act impulsively when making online decisions.
Triggered by easier access to products and purchases, lack of social pressure, and lack of delivery efforts,
impulse buying occurs at about 40% of all online sales "because they are aware that" electronic
procurement reduces the time between order and delivery. Also, the time savings are particularly
spectacular "(Kotler and Armstrong, 2008, p. 252). Also," online shopping spaces are increasingly
attractive to consumers, offering many facilities, including 24/7 availability, saving benefits. Of time, as
well as increasing the possibilities of researching products and prices "(Lee, et al., 2012, p. 364).
7557
Online advertising is gaining increasing popularity among companies that want to get as close to the
consumer as possible. Through the Online environment, they not only have 24/7 availability so that the
products and services offered can be viewed and ordered/purchased, but they also have countless online
promotion methods and techniques.
The site itself represents the primary link in the virtual communication chain, but depending on the needs
of the company, many online tools can be used, a printer that we can list on banner advertising (static,
dynamic, interactive), sticky ads, floating advertising, viral marketing.
However, depending on the needs of the company and the objectives set, it is necessary that all these
forms of promotion used lead to a tangible and coherent result, which is why we use the measurement
methods in online advertising. "One of the most popular schemes is to add a visitor counter to the
website. A second way is to look in the server logbook. If you have a personal one, the server software
will have a file that keeps the Internet addresses of each visitor and the web page or the image they
looked at "(Orzan, Orzan, 2007, p. 77). Also, there is the possibility that in the case of the use of access
logs, each line of them will record a "hit", so every time an online browser views a distinct web page or
opens an image/file, etc. it is memorized. For example, "if a user looks at four or five pages, each with
multiple images, a single user will be logged with 10 or 20 hits in the access logs" (Orzan, Orzan, 2007,
p. 77). The use of hits tells us which part of the site is the most visited, famous etc., or you can even
check the response to a specific advertisement (or banner) promoted through another site.
Table 1: Methods of measuring used in the online environment
Nr. Method of measuring Explication

Crt.
1 Visitor counter to the website Keep track of visitors
2 Look in the server logbook the server software will have a file that keeps the Internet
addresses of each visitor and the web page or the image they
looked at
3 Use of access logs each line of them will record a "hit", so every time an online
browser views a distinct web page or opens an image/file, etc. it
is memorized
4 Measuring ways to pay in the the online environment offers the possibility to pay only the
online environment shares
5 Consumer reactions formal and informational
6 Access who visits, while consulting, analyzing the number of accesses,
identifying the site with the most intense traffic, etc.
7 Activity the signatures left in the guest book, the number of completed
forms, etc
8 Sales / Transactions their volume
However, online advertising does not generally have economic objectives such as increasing sales,
increasing business share, etc. precisely because identifying the effect of online advertising on these
indicators is almost impossible to achieve. "But an online advertising campaign can have particular goals.
With it, you can gain notoriety (for a brand, product, offer, service, etc.), customer relationship (for
example, a free online service may be offered to develop a long-term relationship with your target
audience), sales leads (through which the user can be brought to the point of sale offline or even online, if
the product is sold through a virtual store), data about users can be collected. Content generated by
consumers can be obtained "(Rancea, 2007 ).
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The online environment offers companies the opportunity to observe, measure and analyze in real-time
the route of users within the sites, as they follow the promotion tools (from which promotion site clicked
on our banner, what pages visit, where he spends the most time, or other actions performed within the
site).
If in the case of traditional advertising, the impact of the promotion campaigns is measured by opinion
polls, by using the rating elements, etc., in the case of online promotion campaigns there is the possibility
to follow precisely the target group targeted, and this is possible with the help of the tool Google
Analytics. Basically, "the manufacturer can find out exact data about the time a user spends on a site or a
particular page, the number of users over a certain period and any other details about the behavior of the
users on the site and the traffic generated by a specific advertisement in which he has invested, which
allows the most efficient management of the budget for a producer of goods or services"(Rancea, 2007).
In addition, to the fact that the producer can observe absolutely all the actions performed by the consumer
in the promotion campaign, the online environment offers the possibility to pay only the shares, and not
in the general way as in the case of traditional campaigns (eg, in the case of For TV advertising, the
producer does not have to know how many people will watch TV when broadcasting his advertising
spot), so there are many ways to pay in the online environment:
• CPM (Cost Per Mille) - the price for advertising 1000 times;
• CPC (Cost Per Click) - the price for each click in the advertisement
• CPA (Cost Per Action) - price per share (purchase, click, tc.)
• CPV (Cost Per View) - the price per ew / visit following an advertisement;
• CPL (Cost Per Lead) - derived from CPA, percentage payment from the value of the sales
obtained from an online advertising material;
• Flat Fee - involves the payment for is playing an advertisement in the content of a site,
depending on the period of display.
However, besides the practical ways to measure success in online campaigns, there are other indicators to
measure the Efficiency of digital marketing: "consumer reactions (formal and informational); access (who
visits, while consulting, analyzing the number of accesses, identifying the site with the most intense
traffic, etc.); activity (the signatures left in the guest book, the number of completed forms, etc.); sales /
transactions (their volume); the value of the advertising services provided (who buys the advertisement
on the company's website, how much it pays); the attention paid by the media (online and offline, reports,
citations, etc.); requests for cross-connections (how many and from whom) "(Orzan, Orzan, 2007, p.78).
Social networks are organized in the form of structures consisting of nodes of connection between people,
groups, organizations and related systems are connected to each other through shared values, visions,
ideas; social contacts; affinities; dispute; financial scholarships; trade; membership of organizations; the
joining of certain events as a group and one or more types of attachment consisting of many aspects of
human relationships (Can, Alatas, 2019).
Referring to online advertising, promotion through social networks has become increasingly used due to
considerations such as the high impact on the target group, low costs, and more.
7559
Fig. 2: Benefits of social media marketing

Source: Colwyn, 2014
Conclusions
We can, therefore, conclude by saying that the perception of online commerce is highly dependent on the
individual, from one social status to another and from one experience to another. Moreover, one of the
decisive influencing factors is the experience or the degree of trust given to the online environment. The
"modern" people, those for whom time means money and money means power, often choose the online
shopping option. Maybe from the convenience or from the high level of knowledge and information
regarding services and products. In contrast, the "simple" people (so to speak, those who are not in step
with the technological development and do not have from childhood various accessories and electronic
gadgets) still have restraints on the purchase of goods and services online.
We can thus see that, rightly, online marketing becomes an integral part of the promotion campaigns,
both due to the financial advantages it has (the various payment methods that allow the company to pay
only as a result of the Efficiency of the promotion campaigns and not to make payments. which may not
bring any consumer) but also because it is much closer to the consumers and especially to the target
group to which it is addressed, because the online environment allows a much more precise segmentation
than any other communication media channel and thus the message it only reaches individual interest and
not a mass of people who already use other products/services.
However, there are certain limitations of the research which consist in the continuous evolution of the
promotion methods used in the online environment and the development of techniques for measuring
their effects. It is recommended that future researches carry out updated analyzes on different websites
and social networks, both from the perspective of the promotion techniques used and from the perspective
of the users and their effects.
7560
Acknowledgment
This work was supported by a grant of the Romanian Ministry of Research and Innovation, UEFISCDI,
project number PN-III-P1-1.2-PCCDI-2017-0800 / 86PCCDI/2018 - FutureWeb, within PNCDI III – The
Bucharest University of Economic Studies
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Circular Economy in Romania
Drd BURLACU Oana Steliana
University “Dunarea de Jos”Galati, Faculty of Engineering and Agronomy Braila, Romania

Braila, Romania
E-mail: oana.steliana@yahoo.com
Prof. TUREK RAHOVEANU Maria Magdalena
University “Dunarea de Jos”Galati, Faculty of Engineering and Agronomy Braila, Romania

Braila, Romania
E-mail: mturek2003@yahoo.com
Abstract
As sustainable development includes environmental protection and environmental protection is
conditional on sustainable development, an institution's concerns in this regard must be considered as one
of the priorities that will set development strategies and programs and will implement them in practice so
that environmental protection be permanently taken into account.
In this paper we want to highlight the concept of circular economy what refers to the harmonization of
sustainable development needs of long-term humanity, it is necessary to optimize resource consumption
so as to reduce the consumption of raw materials and energy and reuse as much as possible and how it is
applied in Romania.
In conclusion, achieving the principles of sustainable development is a necessity of time, which would
result in effective results corresponding to the contemporary ecological provisions, the interests of the
human society.
Keywords: sustainable development; circular economy; environmental; wire harness company;

improvement.
Introduction
“A circular economy is one that is restorative and regenerative by design, and which aims to keep
products, components and materials at their highest utility and value at all times, distinguishing between
technical and biological cycles.” Ellen Macarthur Foundation
The sustainable development is a process of continuous and permanent improvement, learning and
perfecting, and the introduction of sustainable development policies into a society or company guarantees
the creation of sustainable (not only immediate) value and consequently long-term benefits.
The concept of circular economy refers to the harmonization of sustainable development needs of long-
term humanity, it is necessary to optimize resource consumption so as to reduce the consumption of raw
materials and energy and reuse as much as possible.
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Improving the use of resources must reach such a limit that the amount of natural resources consumed net
(those extracted for the first time from the natural environment) will not jeopardize their natural recovery
rate in sufficient quantities for future generations.
More specifically, the circular economy is an economy that produces zero waste. This is, in other words,
a redefinition of "sustainable development" of the famous Bruntland Commission, focused on resources.
The capitalization of products and secondary resources are vital for the circular economy to be carried out
in optimal terms. In this matter, the development of this new market has an important role in the practical
implementation of resource efficiency. From this perspective, digital trading platforms for secondary
products can actively contribute to the process of optimizing resource consumption at the level of
economic activities.
The number of companies in Romania that started to report on sustainable development, in addition to
financial data, is rising.
Companies that act according to the principles of sustainable development often have high performance
(even in the short and medium term) over other companies due to better control of the different risk
categories they are exposed to.
As a case study in this project I chose Braila County in Romania, more precisely a company for
producing wiring harnesses where the object of activity is according to the CAEN CODE 2931
Manufacture of electrical and electronic equipment for motor vehicles / section C with location in
Romania, the city of Braila.
This company was founded in Japan and is one of the world's most important wiring harnesses groups.
The company is a lucrative business partner, whose name is associated with quality and competence in
the activity that it represents and carries out, implementing and developing policies on environmental
protection, health and product quality.
This study is intended to provide answers to a series of questions such as:
- how to achieve the circular economy,

- what is the role of stakeholders
- to identify ways of promoting the circular economy applicable to the Romanian development
model.
Material and Method

Achieving a circular economy that combines harmoniously with green growth brings to the forefront the
need to implement a sustainable approach to economic activity.
Circular economy does not belong to a single area of activity or to single resources, it can be extended to
all sectors of different types of synergies that can generate cumulative positive or negative effects.
Circular economy requires resource efficiency to produce more economic value with the same or fewer
resources.
In the last decades, the accelerated industrialization has increased the consumption, a behavior that we
have seen more and more especially in the context of technology development.
In most cases, electrical and electronic equipment is discarded when are obsolete or outdated.
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As a case study we chose a county in South-East of Romania - Braila County, and we turned our attention
to a wire harness factory where we analyzed the environmental / natural resources issues, if the rules for
sorting waste are respected and how this affects the society. Also, for a circular economy are took into
consideration, the parts that can be reused or recycled and thus significantly to reduce the impact on the
environment.
Circular economy is based on few defining principles:
Waste becomes a resource: is the main feature. All the biodegradable material returns to the nature and
the not biodegradable is reused.
Second use: are reintroduced in the economic circuit those products that no longer correspond to the
initial consumer’s needs.
Reuse: reuse certain products or parts of those products that still work to elaborate new artifacts.
Reparation: find damage products a second life.
Recycle: make use of materials founded in waste.
Valorization: harness energy from waste that can’t be recycled.
Functionality economy: circular economy aims to eliminate the sale of products in many cases to
establish a system of rental property. When the product completes its main function returns to the
company, where it is dismantled for reusing the valid parts.
Energy from renewable sources: elimination of fossil fuels to produce the product, reuse and recycle.
Eco-design: considers and integrates in its conception the environmental impacts throughout the life cycle
of a product.
Industrial and territorial ecology: establishment of an industrial organizational method in a territory

characterized by an optimized management of stocks and flows of materials, energy and services.
Collaborate to Create Joint Value - Work together throughout the supply chain, internally within
organizations and with the public sector to increase transparency and create joint value.
Rethink the Business Model - Consider opportunities to create greater value and align incentives through
business models that build on the interaction between products and services.
In order to implement a circular economy, the European Commission adopted at the end of 2015 a set of
actions aimed at following the whole life cycle of a product, measures which have been taken over by all
Member States.

The three components of sustainable development (economic growth, social inclusion and environmental
protection) aim at creating conditions for the well-being of countries and their citizens by eradicating
poverty, raising living standards, reducing social inequalities, or implementing global resource
management measures natural.
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Figure 1: Sustainable development

(Source:https://ro.wikipedia.org/wiki/Dezvoltare_durabil%C4%83)
Circular economy is a component part of sustainable development, bringing to the forefront the need to
optimize resource consumption to prevent, reduce waste and promote the re-use.
Waste management is an important part of the circular economy but it calls into question the need for a
deeper analysis of the product value chain, starting with the extraction of materials, continuing with the
eco-design phase and ending with the finished product, which later becomes a new resource for another
industry.
As a case study we chose a county in South-East of Romania - Braila County, and we turned our attention
to a wire harness factory where we analyzed the environmental / natural resources issues, if the rules for
sorting waste are respected and how this affects the society.
Also, are took into consideration 7 keys elements:
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Prioritise regenerative
resources
Circular Economy Design for the future
Preserve & extend what

is already made
Rethink the business

model
Incorporate digital
technology
Use waste as a resource
Collaborate to create
joint value
Figure 2 : The 7 Key Elements
(https://www.circle-economy.com/the-7-key-elements-of-the-circular-economy)
1. Prioritizing renewable resources - Ensures that renewable, reusable and non-toxic resources are
used as materials and energy efficiently.
2. Keeping and extending what has already been done - While the resources are in use, they are
being repaired and updated to maximize their lifespan and offer them a second life through takeover
strategies when is necessary.
3. Use of waste as a resource - Use of waste streams as a source of secondary resources and waste
recovery for reuse and recycling.
4. Rethinking the business model - Consider opportunities to create greater value and align
incentives with business models that are based on the interaction between products and services.
5. Design for the future - The account for the perspective of the systems during the design process,
the use of appropriate materials, the design for an adequate life and the design for an extended future use.
6. Inclusion of digital technology - track and optimize the use of resources and strengthen links
between actors in the supply chain through digital platforms, online and technologies that offer prospects
7. Collaborate to Create Joint Value - Work together throughout the supply chain, internally within
organizations and with the public sector to increase transparency and create joint value.
In this sense, numerous analyzes and measurements were made, both in the chemistry laboratory with
samples taken from the mentioned company's surface, as well as on-site analyzes.
In other words, the actual waste collection is organized on certain flows, such as: cardboard, household,
plastic, glass, metal, wood, batteries and accumulators, electrical and electronic equipment’s, for each
existing an appropriate storage / places inscribed so as to be visible to any employee.
The company manages carefully the generated waste and regularly is gave it to specialized collectors,
thus reducing the risks to human health and the environment.
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In this context, clean, low-consumption natural resources technologies have been developed, courses are
organized whereby employees are presented with risks of non-compliance with environmental protection
rules, being advised to engage and support the proper management of waste, and are also initiated
activities / competitions in this matter, participating in external actions on environmental protection and
waste management.
Discussing on a larger scale (county, region, country), and starting from the major differences between
the member countries of the European Union regarding the elaboration and implementation of strategies
for sustainable development and transition from the linear economy to the circular economy is necessary
a thorough analysis of the recycling modalities, but also of community waste, packaging waste and bio-
waste requires investment in research and innovation to find solutions to extend the life cycle of raw
materials, waste re-use and thus so that we can talk about resource productivity and the real rate of
economic growth.
After a lengthy consultation process between member countries, representatives of European producer
associations and non-governmental organizations interested in promoting the circulation economy, the
European Commission has come to show and endorse some measures such as:
- Introduce mandatory recycling rates for different categories of waste. For example, plastic
waste, glass, metals, paper and cardboard waste as well as biodegradable waste will no longer be accepted
for final storage.
- Introduction of the obligation to redesign the products with two objectives:

A) Increasing the proportion of raw materials from recycling in the total raw materials used by
companies;
B) Increasing the recyclability of products at the end of their life cycle, together with rewriting the
European Waste Code to re-consider waste as secondary raw materials.
- Adoption of economic instruments to promote re-use and stimulation of industrial symbiosis and
greener products.
- Increase the recycling rate of municipal waste to at least 65% by the year 2030.
- Increase the recycling rate of packaging waste to at least 75% by 2030.
- Capping the final disposal rate for all categories of waste to a maximum of 10% by 2030,
including fiscal and coercive instruments such as interdict the storage of separately collected waste and
surplus waste disposal 50% reduction of food waste by 2030.
- Introduce minimum standards and obligations to water users on mandatory recycling rates by
sector.
In a study on the efficiency of material resources, published earlier this year by the European
Environment Agency, "More from less - material resource efficiency in Europe", 32 countries in Europe
were evaluated.
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In order to build the Romanian model of the circular economy, an important role is represented by the
good international and European practices, also the structural and cohesion funds, must be actively and
continuously supported. This support is essential for recovering development gaps, implementing new
technologies, educating consumers on the role of resource efficiency, preventing and combating food
waste.
As a future action, consideration may be given to awarding an additional score for funding proposals that
promote options for prevention, recycling, disassembly, recycling of products in a sustainable manner by
making the activities as small as possible, or introducing a voucher type for companies that promote the
circular economy through implemented projects.
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Other potential criteria would be: quantity of packaging waste, purchase of renewable energy products,
bio-economy, etc.
Conclusions
The definition of sustainable development induces the idea that its realization becomes feasible only
when the generosity and within the same generation manifests an associative spirit, tolerance, solidarity
and mutual care, one by virtue of which one's good and well-being must not, in any way, affect the
happiness of another.
The circular economy zone includes all sectors because the resource efficiency is a topic related to the
ability to generate cost savings and to implement new technologies that streamline economic processes
and in times of economic growth are used more raw materials, energy, water, building materials and
metals, and the chapter requires an increased attention.
The circular economy is closely linked to the growth of competitiveness. At the same time, this concept
brings with it a number of benefits, but also challenges that all interested stakeholders, both private and
public, or ordinary citizens, have to react.
References
1. http://ier.gov.ro/wp-content/uploads/2019/03/Final_Studiul-3_Spos-2018_Economie-
circular%C4%83-1.pdf
2. http://www.amfiteatrueconomic.ro/temp/Articol_2717.pdf
3. https://www.activesustainability.com/sustainable-development/what-is-circular-economy/
4. https://www.circle-economy.com/the-7-key-elements-of-the-circular-economy
5. Bastein, T., Roelofs, E., Rietveld, E. and Hoogendorn, A., 2013. Opportunities for a circular economy
in the Netherlands.
6. https://www.circle-economy.com/the-7-key-elements-of-the-circular-economy
7. http://sieg-dd.ro/economie-circulara/
8. http://www.eea.europa.eu/highlights/resource-efficiency-in-europe-benefits
9. https://ro.wikipedia.org/wiki/Economie_circular%C4%83#cite_note-2
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Strategic Approaches to the Sustainability of Leather

Manufacturing in Bogota, Colombia
Raúl Ignacio Cruz MALDONADO

Autor, Bogotá, Colombia, raul.cruzmaldonado@uniminuto.edu.co
Ana Emelis OBREGON FLOREZ

Co-autor, Bogotá, Colombia, ana.obregon.f@uniminuto.edu.co
Gregorio Enrique PUELLO-SOCARRÁS

Co-autor, Bogotá, Colombia, gregorio.puello@uniminuto.edu.co
Claudia Liliana SERRANO JUNCO

Co-autor, Bogotá, Colombia, claudia.serrano.j@uniminuto.edu.co
Abstract
Although, in Colombia, many of the economic sectors are currently standardized, there are many
small producers that are still on the sidelines, or have not considered it necessary to establish
themselves as sustainable productive organizations, to promote in each economic sector, a set of
strategies and actions aimed at improving productivity, reducing environmental impact, increasing
profits and ensuring the well-being of workers and consumers. This research seeks to stimulate the
leaders of MSMEs (Micro, Small and Medium Enterprises), to practice the production of origin and
brand building, as a strategy of change management in the face of the new global patterns of demand
(Hayes, 2018). This purpose will give the possibility of MSMEs to become formal and transparent
organizations that promote the best productive practices in the leather, footwear and leather goods
sector, as a tradition that builds historical value to the Restrepo neighborhood, in the city of Bogotá
(Colombia), which can position this area, as an Industrial District (Acevedo and Muñoz, 2014) The
contribution of this research, after diagnosing the reactive, proactive and value-seeking scope of 32
MSMEs, consists in devising an management model that allows companies in the leather, footwear
and leather goods sector, to improve their productive model, with based on a strategic approach to
sustainability, (Laura Macchion, 2018), which integrates management indicators, environmental and
social, from the perspective of Lean Manufacturing (Ramachandrana & N. Alagumurthia 2013). In
addition, the proposed production model will seek to prepare MSMEs to face phenomena such as
Fast Fashion (Bruce & Daly 2011)
Keywords: footwear and leather goods; sustainability; Lean Manufacturing, MSMEs.
Introducción
En Colombia el clúster de la producción del sector del cuero, el calzado y la marroquinería se ha
organizado a través de organizaciones como ACICAM (Asociación Colombiana de industriales del
Calzado, el Cuero y sus Manufacturas), que promueve el desarrollo equilibrado de este sector. Sin
embargo, a pesar de las iniciativas de ACICAM y el Gobierno Nacional, en Colombia todavía hay un
conglomerado de empresas que se dedican a la manufactura del cuero, que aún presentan altos
niveles de informalidad y, por lo tanto, necesitan ser objeto de mejoramiento, en sus actividades y
procesos, a través de un modelo propuesto en la presente investigación.
Este estudio busca generar una reflexión en las unidades productivas, con respecto a la necesidad de
crear estrategias de gestión del cambio en la demanda (Hayes,2018), que permitan el mejoramiento
de los niveles productivos, con base al fortalecimiento de los procesos sostenibles y el uso eficiente
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de los recursos energéticos en los productores del sector del cuero, el calzado y la marroquinería en
Colombia.
Objetivos
El objetivo de la presente investigación es la aplicación de un modelo integral de asesoramiento a las
MiPyMEs del sector del cuero, el calzado y la marroquinería, de la localidad Antonio Nariño, a la
cual pertenece el Barrio Restrepo, con el propósito de contribuir en su fortalecimiento productivo.
Inicialmente se identificó al conjunto de MiPyMEs, pertenecientes a la localidad Antonio Nariño, a la

cual pertenece el Barrio Restrepo, ubicado en Bogotá, para caracterizar a las Mipymes en términos de
las variables definidas para la construcción del modelo de mejoramiento productivo que será
propuesto.
Finalmente se aplicará el modelo de mejoramiento productivo, al conjunto de las MiPyMEs que

conforman la unidad de análisis. Para cerrar, el último objetivo de la investigación consiste en
realizar la difusión de un reporte con los resultados de la presente investigación.
Metodología
El enfoque de la investigación es cuantitativo, define el conjunto de variables que intervienen en la
configuración de un modelo de carácter explicativo y propositivo, el cual permite el mejoramiento
productivo, en las MiPyMEs del sector del cuero el calzado y la marroquinería. Los instrumentos que
aportan los investigadores para obtener esta información son en general estructurados, desde
cuestionarios y observaciones en registros sistemáticos; valiéndose sobre todo de la estadística
descriptiva e inferencial, a través de medidas de tendencia central, datos de dispersión y correlación
(Mejía,2017)
La muestra tomada fue de 32 unidades productivas, pertenecientes al sector de la marroquinería, en el

Barrio Restrepo. Esta muestra es probabilística estratificada; agrupa a la población por segmentos,
según el tamaño de la unidad productiva y asigna una fracción de muestreo diferente, a cada una de
las unidades productivas (micro, pequeña y mediana empresa).
Para la recolección de la información y la implementación del modelo se emplearon diferentes

instrumentos de recolección de datos, como la encuesta a modo de unidad de análisis, aplicada a los
propietarios de las MiPyMEs del sector del cuero, el calzado y la marroquinería, pertenecientes al
barrio Restrepo. La revisión documental tuvo en cuenta el análisis del sector del cuero, el calzado y la
marroquinería desde entidades oficiales y no oficiales, además de las experiencias a nivel global en
Asia, Europa, Norteamérica y Suramérica, para la adaptación del modelo de mejoramiento productivo
propuesto.
Resultados Parciales
Durante el trabajo de campo de acercamiento a las MiPyMEs se observó cómo las unidades
productivas más pequeñas, que participan del sector del cuero, el calzado y la marroquinería, en la
localidad Antonio Nariño, a la cual pertenece el Barrio Restrepo, están concentradas en mayor
volumen, en el territorio circundante al Parque la Valvanera, denominado Restrepo Occidental. Esta
aglomeración está compuesta por pequeños locales dedicados a la fabricación, comercialización y
venta al detalle o comercio minorista, de productos del calzado y la marroquinería, manufacturados
en cuero natural y materiales sintéticos.
También esta aglomeración la componen los proveedores de materias primas y proveedores de

servicios con talleres satélites para el corte, ensamble y costura, como procesos productivos que
posibilitan la oferta de mercado por parte de las MiPyMEs. Se observó que el entorno laboral en que
los trabajadores realizan la manufactura, es reducido e inhóspito, carece de señalización, sin sistemas
de ventilación y presenta la ausencia de elementos de protección para la salud, exponiendo la
integridad de los trabajadores.
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Presuntamente esta problemática surge a raíz de la explotación por parte de los eslabones de la
cadena que monopolizan la comercialización, donde su labor se reduce a la de un simple
intermediario que no genera valor para construir una marca que perdure en el tiempo, si no que busca
la concentración de capital, sin importar la calidad o tradición de un clúster disminuido.
En este sentido, estos eslabones de la cadena productiva del Restrepo dedicados a la

comercialización, han desplazado a los trabajadores del Barrio el Restrepo, que por tradición
pertenecieron al sector tradicional del calzado y marroquinería, poniendo en detrimento el valor de
este oficio, al comerciar productos de baja especificación, carentes de originalidad y sin producción
de origen.
Discusión
En esta experiencia se busca generar una discusión sobre la gestión del cambio, que estimule a las
organizaciones a forjar las capacidades que requieren, para adaptarse a los nuevos patrones de la
demanda (Hayes,2018), enfocando sus modelos productivos hacia las nuevas regulaciones, de
carácter ambiental y social, como una oportunidad de crear valor, el cual asegure la sostenibilidad de
las MiPyMEs que participan del sector del cuero, el calzado y la marroquinería en Latinoamérica.
References
Acevedo, J. A. R., & Muñoz, J. D. F. (2014). Sistemas productivos locales: estrategias empresariales
para el desarrollo.
Hayes, J. (2018). The theory and practice of change management.
Macchion, L., Da Giau, A., Caniato, F., Caridi, M., Danese, P., Rinaldi, R., & Vinelli, A. (2018).
Strategic approaches to sustainability in fashion supply chain management. Production Planning &
Control, 29(1), 9-28.
Mejía, J. E. (2017). Seminario de investigación II.
Palgrave. Bruce, M., & Daly, L. (2011). Adding value: challenges for UK apparel supply chain
management–a review. Production Planning & Control, 22(3), 210-220
Ramachandran, L., & Alagumurthi, N. (2013). Application of key performance indicators in a leather
and shoe industry for leanness analysis using multicriteria approach: a pre implementation study.
International Journal of Advance Industrial Engineering, 1(2), 43-47.
Maldonado, R. I. C. (2017). La impresión tridimensional, una herramienta que fortalece el proceso de

enseñanza-aprendizaje del estudiante de diseño. Revista INNMODALAB, 1, 54-81.
Valdivieso, O. J. Z., Salinas, O. A., Serrano, K. D. R., Ramírez, I. R. V., & Prada, D. F. S. (2019).
Innovación disruptiva, estrategia de inclusión al emprendimiento social. Inclusión y Desarrollo, 6(1),
33-46.
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Leather Cluster Employees Safety and Health at Work:

Risk Management in Bogota’s Restrepo Neighborhood
Ana Emelis OBREGON FLOREZ
Co-autor, Bogotá, Colombia

ana.obregon.f@uniminuto.edu.co
Raúl Ignacio Cruz MALDONADO
Autor, Bogotá, Colombia

raul.cruzmaldonado@uniminuto.edu.co
Gregorio Enrique PUELLO-SOCARRÁS

gregorio.puello@uniminuto.edu.co
Claudia Liliana SERRANO JUNCO

claudia.serrano.j@uniminuto.edu.co
Abstract
Es importante resaltar que el mercado de la marroquinería es fuente de desarrollo económico y social,

pero día tras día se realiza en una producción muy acelerada, poco flexible y de precios bajos, desde
el año 2009 el sector ha tenido una crisis financiera que ha influido en el bajo crecimiento de las
MiPyMEs, fenómeno que se ve reflejado en los salarios y puestos de trabajo. Según estimaciones de
la ONUDI (Organización de las Naciones Unidas para el Desarrollo Industrial), agencia que
promueve el desarrollo industrial, se estima que, para disminuir la pobreza, el sector de la
marroquinería contribuye con el empleo de 4,2 millones de personas, sin embargo, el gobierno y
otros sectores en el mundo apuntan a 6 millones de personas que trabajan en el cuero y 7.1 millones
en el sector del calzado y la marroquinería, (Orgaización Internacional del Trabajo , 2014).En la
ciudad de Bogotá Colombia, se aplicó como Instrumento, la matriz de riesgos para evaluar a 129
empresas. Este instrumento indago a 40 trabajadores sobre sus conocimientos, aptitudes y prácticas
en las actividades laborales. La problemática que se evidencia en la investigación es no cumplimiento
en el cambio de la norma y el atraso de las MiPyMEs para cumplir con el decreto 1072 de 2015, que
cosiste en tener sistemas una gestión en seguridad y salud en el trabajo.
Palabras clave: artículos de cuero, decreto 1072-2015, factores de riesgo, prevención del sector
marroquinería.
Antecedentes Históricos
Después de la conquista de América se introdujeron el caballo y el cerdo a este territorio. Los
españoles tomaron grandes espacios de tierras que los llamaron fincas, donde los indígenas fueron
empleados para realizar las actividades de la ganadería. En la época de la colonia, la cría de animales
de granja así mismo multiplico los tributos de los indígenas a la corona española, donde entre 1500 y
1680 la ganadería se multiplico por el crecimiento de la minería y en esa época la actividad fue muy
valorada por la corona española, (cuero, 2019)
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En Europa la producción del cuero se da principalmente en Cartago, debido al consumo histórico del
imperio Romano, actualmente el mercado está enfocado en Barcelona y la ventana del mercado de la
moda en Francia y parís, Europa ha venido aumentado la producción de cuero y pieles debido al
consumo de carnes ocupando el primer reglón como productor del cuero.
Colombia es el octavo país con más cría de ganado y es conocido como uno de los países con pieles
finas por su ganado, su inicio fue en la época precolombina iniciada en el siglo V con los primeros
pobladores los chibchas, el grupo que con el tiempo se dividió en caribes, Arawaks, y muiscas tribus
muy pequeñas que dejaron un gran desarrollo cultural y tecnológico, familias cercanas a la ganadería
(Cuero Artistico, 2019).
La industria del cuero en Colombia nace de la época precolombina cuando los indígenas debían
guardar su temperatura en los climas extremos dejando un legado ancestral artesanal, en los años 70
el mercado crece de tal manera que Colombia exporta e importa pieles y calzado a otros países.
Desde los 80 la industria del cuero se ha podido mantener participando en la moda desde el año 1983,
(Estudios de Mercadeo, 2014).
En la ciudad de Bogotá, el Barrio Restrepo cuenta con 1500 empresas de calzado que utilizan su
propia marca “Hecho en el Restrepo”, estas afrontan problemas financieros por la entrada de grandes
volúmenes de productos del sector de la marroquinería y el calzado asiático a Colombia, provenientes
de países como China, Vietnam e India, que además de la venta de insumos y productos en imitación
de cuero y piel, también intervienen en la industria de la maquinaria para la manufactura.
En Colombia las marcas Spring Step, Calzado La Corona, Vélez, se destacan por su organización
comercial, sin embargo, la marroquinería en el Barrio Restrepo es una tradición ancestral y empírica,
de las grandes medianas y pequeñas empresas (MiPyMes), que se han concentrado en esta ubicación
geográfica, jugando un papel clave para la generación de trabajo. ACICAM (Industriales del Calzado,
el Cuero y sus Manufacturas, SENA (Servicio de Enseñanza y Aprendizaje) y la Cámara de
Comercio de Bogotá (CCB), han generado para esta población trabajadora diferentes estrategias de
educación para colocar el sector en un modelo más competitivo, a pesar de ubicarse en el cuarto
lugar, Colombia como país generador de cuero, el diseño, manufactura y sus procesos están atrasados
a comparación de Argentina y Europa, (economico, 2019)
Según Kauffman (2001), afirma que las MiPyMEs carecen de un sistema de planeación,
organización, administración y control eficiente, a comparación con las grandes empresas, estas
poseen un menor grado de innovación y desarrollo tecnológico. Existe evidencia de las bases de
datos, procedentes de la matriz de riesgo y los cuestionarios aplicados a las 120 MiPyMEs sobre los
registros de accidentalidad, factores de riesgo locativos, factores de riesgo biológico, factores de
riesgo químico y material particulado, para socializar y concientizar a cada uno de los dueños de las
unidades productivas sobre la necesidad de realizar un modelo aplicado de seguridad y salud en el
trabajo bajo la norma GTC 45, decreto 1072 de 2015.
Bibliografía
Cuero Artistico. (28 de 06 de 2019). Obtenido de

http://tallercueropedro.blogspot.com/2013/05/breve-historia-del-cuero.html
cuero, M. d. (28 de 06 de 2019). Museo del cuero. Obtenido de

https://www.micuero.com/informacion-sobre-el-cuero/historia
Driggs, T. J. (02 de 02 de 2014). Universidad Politecnca de nicaragua. Obtenido de

https://es.slideshare.net/AMANONICARAGUA/manual-instructivo-de-marroquineria
economico, O. d. (28 de 06 de 2019). economico, Observatorio del desarrollo. Obtenido de

http://observatorio.desarrolloeconomico.gov.co/industria/el-restrepo-ampliado-la-cadena-productiva-
del-cuero-calzado-y-marroquineria.
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Estudios de Mercadeo. (2014). El mercado y la Marroquineria en Hong Kong. 36.
Instituto de Seguridad e Higiene en el Trabajo. (12 de 07 de 2019). Obtenido de Instituto de

Seguridad e Higiene en el Trabajo:
https://www.insst.es/InshtWeb/Contenidos/Documentacion/FichasTecnicas/NTP/Ficheros/201a300/n
tp_266.pdf
Kauffman, S. (2001). El desarrollo de las micro, pequeñas y medianas empresas: un reto para la
economía mexicana. Revista Ciencia Administrativa. Universidad Veracruzana, 1, 40-48.
Michael Mc Cann . (2019). Enciclopedia de Seguridad y Salud en el Trabajo. España: Insht.
OIT. (7 de 06 de 2019). Organización Internacional en el Trabajo . Obtenido de

https://www.ilo.org/global/industries-and-sectors/textiles-clothing-leather-footwear/lang--
es/index.htm: https://www.ilo.org/global/industries-and-sectors/textiles-clothing-leather-
footwear/lang--es/index.htm
Orgaización Internacional del Trabajo . (2014). Salarios y Tiempos de Trabajo en los sectores de los
textiles , el Vestido, el cuero y el Calzado. Ginebra, Zuiza: Impreso por la Oficina Internacional del
Trabajo.
Organización Mudial de la Salud. (30 de Noviembre de 2017). Protección de la Salud de los

Trabajadores. Obtenido de Organización mundial de la Salud : https://www.who.int/es/news-
room/fact-sheets/detail/protecting-workers'-health
Programa de Prevención de lesiones y enfermedades para pequeñas empresas . (28 de 06 de 2019).

Los riesgos en el trabajo. Obtenido de
https://www.dir.ca.gov/chswc/WOSHTEP/iipp/Materials/spanish/Factsheet_C_UnderstandingJobHaz
ards_ES.pdf
Safet YA. (30 de JUNIO de 2019). Obtenido de Safet YA: https://safetya.co/gtc-45-guia-

identificacion-peligros/
Verónica Andrade Jaramillo, I. C. (2008). Salud Laboral. Pensamiento Psicológico, Vol. 4, N°10,
2008, pp. 9-25, 17.
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Reporte de Riesgos de Seguridad y Salud en trabajadores

informales de canteras de Ciudad Bolívar, Bogotá
Report on Safety and Health Risks for Informal Quarry Workers

In Ciudad Bolivar, Bogotá
Gregorio Enrique PUELLO-SOCARRAS,

Corporación Universitaria Minuto de Dios, Bogotá, Colombia
gregorio.puello@uniminuto.edu
Ana Emelis OBREGÓN-FLOREZ,

ana.obregon.f@uniminuto.edu.co
Claudia Liliana SERRANO-JUNCO,

claudia.serrano@uniminuto.edu.co
Raúl Ignacio CRUZ-MALDONADO

raul.cruzmaldonado@uniminuto.edu
Resumen
La Evaluación de Riesgos para la Seguridad y Salud Laboral es una tarea sumamente importante,
poco atendida cuando se trata de trabajo informal en Colombia. La investigación en este tema
enfrenta múltiples desafíos teniendo en cuenta que los trabajadores informales ocupados representan
el 48.5% de la población total de trabajadores en Colombia. El objetivo principal de este documento
es intentar establecer tanto una recopilación de los proyectos y artículos enfocados en los riesgos de
Seguridad y Salud Laboral como una comparación del trabajo de campo realizado y los riesgos
prevalentes identificados a partir de la norma GTC45 a los que están expuestos los trabajadores de
canteras formales e informales, a través del desarrollo de matrices de revisión documental basadas en
los riesgos de Seguridad y Salud Laboral; a través de la recopilación de datos de estudios de caso
mediante revisión documental y de informes técnicos de Seguridad y Salud en el trabajo, incluidos en
Revistas Académicas Colombianas Indexadas de los últimos 3 años, esperando desarrollar una
comparación a través de una Matriz documental de Riesgos abordados, estableciendo así una
discusión sobre resultados y métodos, con el objetivo de comprender tendencias para abordar este
problema.
Palabras clave: Informalidad laboral; Salud y Seguridad; Estudios comparativos.
Abstract
Risk assessment for labor safety and health is a major endeavor, poorly addressed when it comes to
informal labor in Colombia. Research in this matter faces multiple challenges taking into account that
occupied informal workers represented 48.5% of total worker’s population in Colombia. The main
objective of this paper is to try and establish a compilation between formal and informal quarry
workers projects and papers in regard of labor safety and health risks along with a risk comparison
based on GTC45 norm to both formal and informal worker's risk exposure, through the development
of a labor safety and health risk assessment document matrix; through case studies data gathering
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supported in document reviews and Safety and Health at work technical reports throughout
University Indexed Colombian Journals for the past 3 years, hoping to develop an approached
comparison in a Risk assessment document Matrix, thus setting a discussion around both results and
methods , aiming to understand trends to address this issue.
Keywords: Informal labor; Health and safety; Comparative studies.
Introducción
El proyecto propuesto desde la Dirección de investigación y el programa de Administración en
Seguridad y Salud en el Trabajo de la Corporación Universitaria Minuto de Dios y sus grupos de
Investigación GICABS y GIBS de la Facultad de Ciencias Empresariales, se enfoca en la realización
de un estado del arte de la investigación sobre población laboral informal representada en artículos
científicos publicados en revistas indexadas a nivel nacional (Colombia) e Iberoamérica, que para el
caso de este artículo corresponden a los estudios que se hayan realizado sobre los puestos de trabajo
foguista en empresas fabricantes de ladrillo, tanto formales como informales.
El fin de este estudio no sólo es el de establecer las tendencias de investigación con estas
comunidades de trabajadores, donde por el carácter técnico de la norma y la exclusión de estas
comunidades del Sistema General de Salud y Seguridad en el Trabajo la investigación presenta
múltiples desafíos, puesto que no es común encontrar antecedentes de realización y registro de este
tipo de proyectos enfocados en comunidades laborales informales en Colombia.
Adicionalmente se espera una reflexión crítica, a partir de este diagnóstico y con el trabajo de campo
realizado en el Parque Minero Industrial de Mochuelo Bajo por los estudiantes del semillero de
investigación SST-IN (Seguridad y Salud en el Trabajo Informal) y los investigadores docentes, la
reflexión sobre estas metodologías y el reporte de estudio de un puesto de trabajo (foguista o
fogonero) y sus riesgos asociados, teniendo en mente lo dispuesto en el ODS 8 “Trabajo Decente y
crecimiento económico - Promover el crecimiento económico inclusivo y sostenible, el empleo y el
trabajo decente para todos” OIT (2018) , que describe la situación de comunidades laborales similares
de la siguiente forma:
“Alrededor de la mitad de la población mundial aún vive con el equivalente a 2 dólares al día. Con
demasiada frecuencia, tener un empleo no garantiza la posibilidad de escapar de la pobreza. Una
carencia persistente de oportunidades de trabajo decente, inversiones insuficientes y bajo consumo
producen una erosión del contrato social que es el fundamento de las sociedades democráticas: el
derecho de todos a compartir el progreso.” OIT (2018)
Para el establecimiento de condiciones dignas para los trabajadores que se encuentran en condiciones
más vulnerables y que han sido excluidos del SG-SST por su condición de informalidad, es necesario
comenzar estableciendo qué se ha realizado en los últimos años y cuáles son los riesgos identificados
en un estudio de caso de un puesto de trabajo, como parte del ejercicio investigativo del semillero y la
adquisición de capacidades y aptitudes para la investigación dentro de este campo de trabajo.
De esta manera y teniendo en cuenta lo anterior, se plantea la siguiente pregunta de investigación:

¿Cuáles son los principales riesgos a los que se exponen los trabajadores del puesto de trabajo
“foguista” o “fogonero” de empresas dedicadas a la fabricación de ladrillo, comparables con los
estudios realizados para el mismo puesto de trabajo en Colombia y en Iberoamérica en los últimos
años?
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Métodos
Para el proceso de desarrollo de la presente investigación, se realizó una revisión sistemática de base
al estudio de campo que es de carácter exploratorio, donde se buscaron y seleccionaron reportes de
trabajos de investigación aplicada o papers, dando prioridad a aquellos publicados en revistas
indexadas de orden nacional (Colombia) e Iberoamérica, presentes en bases de datos virtuales dentro
de las áreas de la salud pública y de la salud ocupacional; que tuvieran en cuenta el enfoque social de
las investigaciones y en donde se hubiese realizado trabajo con población laboral informal,
preferentemente publicadas en los años 2015 - 2019. En la siguiente tabla se indican los parámetros
principales de las etapas de la revisión bibliográfica realizada:
Tabla 2: Parámetros de revisión de fuentes secundarias.
Criterio Valores Observaciones

Bases de datos consultadas Google Scholar Accesos a las bases de datos
(Ubicación de los estudios: SCOPUS especializadas en español
Colombia e Iberoamérica) Mendeley
Palabras clave de búsqueda - informalidad artículo "seguridad Se incluyen artículos en inglés
(con operadores booleanos) y salud en el trabajo" realizando la variación de las palabras
– Selección y evaluación de source:Colombia de búsqueda en inglés con sus
los estudios - informalidad artículo "seguridad operadores booleanos. La evaluación
y salud en el trabajo" realizada de los mismos se puede
- “Foguista” XOR “Fogonero” apreciar en la tabla 2.
AND “Puesto de trabajo”
Años de publicación 2015 a 2019 No obstante el rango de consulta, es
permisible extender el rango a todos los
estudios realizados a la fecha
Fuente: Elaboración propia
Para la recolección de datos de fuentes secundarias se trabajaron las categorías de revisión descritas
en la tabla 2 y para ello se utilizó como metodología de sistematización para la revisión bibliográfica;
registros en Resúmenes Analíticos Especializados (RAEs).
Se determinaron adicionalmente algunos criterios de selección y de exclusión, que permitieron filtrar

los elementos a ser tenidos en cuenta por el alcance y el enfoque del proyecto.
Tabla 2. Categorías de revisión de fuentes secundarias.
Categoría Valores Observaciones

Modalidad de reporte Artículos de resultado de investigación y Publicados en los cinco últimos años,
Artículos de revisión en revistas nacionales, indexadas
Estadísticas generales Trabajos y reportes sobre población Criterio de exclusión
de publicaciones informal en SST
Uso de indicadores Coeficiente de Gini Criterio de selección
innovación social Determinantes sociales
Uso de metodologías Definidas por la OIT o por entidades de Criterio de exclusión
de innovación social enfoque social
De acuerdo con la anterior tabla se realizaron los análisis pertinentes para permitir la comparación
con los hallazgos de las inspecciones realizadas como resultados de la investigación.
Finalmente, y para complemento de lo anterior se realizaron inspecciones en campo dentro del

Parque Minero Industrial de Mochuelo Bajo con empresas mineras formales e informales, para esta
recolección de datos de fuentes primarias se aplicaron observaciones planeadas de puestos de trabajo
basadas en los elementos relevantes de los formatos prescritos por las normas NTP386 y NTC4114 y
una observación basada en el método OWAS (Ovako Working Analysis System).
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Con lo anterior se estructuró el diseño metodológico del proyecto de la siguiente manera:
Tipo de Investigación
El tipo de investigación escogido es Documental (Fuentes secundarias) de acuerdo con lo expresado

por Bernal (2014), cuando menciona que “(...) consiste en un análisis de la información escrita sobre
un determinado tema, con el propósito de establecer relaciones, diferencias, etapas, posturas o estado
actual del conocimiento respecto al tema objeto de estudio.” (pág. 111) y Exploratorio (Fuentes
primarias), con un alcance definido por él método de estudio de caso, como lo plantea Martínez
(2006), cuando menciona: “(...) el método de estudio de caso es una herramienta valiosa de
investigación, y su mayor fortaleza radica en que a través del mismo se mide y registra la conducta de
las personas involucradas en el fenómeno estudiado...” combinando esta fortaleza en escenarios de
estudio con población informal con “(...) los datos pueden ser obtenidos desde una variedad de
fuentes, tanto cualitativas como cuantitativas; esto es, documentos, registros de archivos, entrevistas
directas, observación directa, observación de los participantes e instalaciones u objetos físicos”
(Chetty, 1996 como se cita en Martínez, 2006). De esta manera se espera cumplir las expectativas del
estudio a través del análisis de fuentes secundarias, para construir el estado del arte objeto de la
investigación.
Diseño de Investigación
El diseño de la investigación es una revisión panorámica, que de acuerdo con Whitemore, Chao,
Yang, Minges & Park (2014) como se citan en Guirao-Goris,
(...) tienen por objeto identificar rápidamente los conceptos clave que sustentan un área de
investigación y las principales fuentes y tipos de evidencias disponibles, y pueden llevarse a
cabo como proyectos aislados por propio derecho, especialmente cuando un área de
conocimiento compleja o no se ha revisado exhaustivamente antes...” (2014),
Teniendo en cuenta que por el trabajo de selección sesgada que se realiza sobre el Universo
y sobre el sujeto de investigación (foguista) no se asignan de forma aleatoria y corresponde a la
disponibilidad y el alcance de los investigadores dentro del terreno.
Población y Muestra:
Universo: Empresa mineras de transformación de arenas y producción de ladrillo en el
Parque Minero Industrial de Mochuelo Bajo.
Población: 107 empresas mineras registradas en la zona, con 7 empresas formales, ~70 en
proceso de formalización y un número indeterminado de empresas informales (+/- 30)
Muestra: Por conveniencia, Puesto de trabajo foguista (operario de horno)
Operacionalización de Variables: No se trabajan variables identificadas plenamente, puesto que se

busca establecer un acercamiento de corte más cualitativo a la realidad de los actores, para
comprender los riesgos a los que está expuesto e interpretarlos con variables observadas del entorno y
de su comportamiento, enriquecidos con elementos de innovación social propios de las ciencias
sociales y humanidades.
Técnicas e Instrumentos de Recolección de Datos: Se realizó una sistematización apoyada en Fichas

de registro tipo RAE (Resumen Analítico Especializado). Se aplicaron, así mismo, observaciones
planeadas de puestos de trabajo basadas en los elementos relevantes de los formatos prescritos por las
normas NTP386 y NTC4114.
Técnicas de Procesamiento y Análisis de Datos: Se desarrolló el análisis a través del desarrollo de un

estudio de entorno sobre riesgos prevalentes observados (químicos y ergonómicos), en el primero
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basados en la GATISO-NEUMO por la cantidad de aerosoles sólidos (Sílice y Carbón) presentes en

el ambiente con el consecuente riesgo por exposición para Neumoconiosis (CIE 10 -J64/ CIE-10 J62/
CIE-10 J601) y en el segundo por las posturas adoptadas por el trabajador se complementó el estudio
de entorno con un análisis de puesto de trabajo basados en la metodología OWAS (Ovako Working
Analysis System).
Validez y Confiabilidad: En este aspecto se tendrá en cuenta la confiabilidad definida por Mc Daniel
y Gates (1992) “es la capacidad del mismo instrumento para producir resultados congruentes cuando
se aplica por segunda vez, en condiciones tan parecidas como sea posible” como se cita en Bernal
(2014, p. 247) con respecto tanto a los RAEs como a las observaciones y la validez real, como se
menciona en Bernal, que menciona: “(...) se relaciona con el juicio que se hace respecto al grado en
que el instrumento de medición mide lo que debe medir. Este juicio consiste en tener una idea clara
de la variable que desea medirse y evaluar si las preguntas o los artículos del instrumento en realidad
la miden.” (2014, p. 248).
Resultados De La Investigación
Revisión Documental
Con respecto a la revisión documental preliminar, el estudio arrojó que la literatura respecto de
estudios sobre informalidad desde la perspectiva de seguridad y salud en el trabajo es escasa, como
se puede observar en las capturas de pantalla de las búsquedas de Google Scholar, SCOPUS y
Mendeley, para cada uno de las palabras clave de búsqueda utilizadas y como se puede apreciar en
los resultados contenidos en la Tabla 3:
Imagen 1: Resultados revisión base de datos SCOPUS. Fuente: propia
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Imagen 2: Resultados revisión base de datos MENDELEY. Fuente: propia.
Imagen 3: Resultados revisión GOOGLE SCHOLAR. Fuente: propia.
Tabla 3: Resultados de la revisión de fuentes secundarias a nivel nacional e Iberoamérica
Categoría Valores Resultados

Modalidad de reporte Artículos de resultado de investigación y A nivel nacional: 1020 trabajos desarrollados en informalidad en
Artículos de revisión diferentes niveles; 143 artículos que hablan de seguridad y salud
Verbatims usados (Google académico: en el trabajo informal, todos ellos son artículos resultado de
informalidad artículo "seguridad y salud en investigación
el trabajo" source:colombia) A nivel Iberoamérica: 4530 trabajos desarrollados sobre
informalidad desde diferentes disciplinas,
Estadísticas generales de Trabajos y reportes sobre población Nivel Nacional: Solamente 6 artículos publicados en revistas
publicaciones informal en SST indexadas corresponden a trabajos desarrollados con población
Verbatims usados (Google académico: laboral informal y Seguridad y salud en el trabajo. (Google
informalidad artículo "seguridad y salud en Scholar) - Ninguno en SCOPUS o MENDELEY
el trabajo" source:colombia) A nivel Iberoamérica: El panorama de publicaciones es mucho
más prometedor, con 2140 resultados de la búsqueda, en diversas
áreas, aunque de ellos sólo 3 artículos hablan del puesto de
trabajo foguista, ninguno de ellos desde el trabajo con calderas
para la cocción de ladrillo, sólo desde una perspectiva de
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trabajadores ferroviarios (maquinistas o fogoneros de las calderas

a vapor)
Uso de indicadores Coeficiente de Gini Ninguno de los artículos revisados utiliza indicadores de
innovación social Determinantes sociales medición asociados a valoraciones sociales extralaborales o a
determinantes sociales
Uso de metodologías de Definidas por la OIT o por entidades de Ninguno de los artículos revisados utiliza o propone
innovación social enfoque social metodologías de intervención enfocadas en la innovación social.
En el ejercicio de revisión de fuentes secundarias, se tuvo en cuenta como complemento de este

estudio documental lo establecido por Puello-Socarrás & Vargas (2019), con respecto a la revisión de
proyectos de grado que trabajan con población informal en la ciudad de Bogotá: “En cuanto al
número de trabajos de grado (...) se aprecia la relación de 7.005 trabajos de grado desarrollados en
(...) 15 universidades; de los cuales 40 proyectos tienen contenido o enfoque social de diversos tipos;
durante los años 2016 – 2017, de estos últimos, 18 corresponden a trabajo con población informal,
pero distribuidos en 6 universidades; las demás universidades no registran trabajos de grado con
población informal. (Puello-Socarrás & Vargas, 2019, Pág. 15)
De este estudio, también se desprende que ninguno de los trabajos de grado revisados utiliza
indicadores de innovación social, ni tampoco integra metodologías de innovación social. En este
particular, la situación es similar y aún más precaria con respecto a los proyectos y papers resultado
de investigaciones realizadas para el mismo período, lo que permitiría especular una correlación entre
estos dos factores y por tanto, una falta de interés en el ejercicio de este tipo de proyectos dentro de la
comunidad académica nacional, cuyas causas aún están por ser investigadas con mayor profundidad y
que no fueron determinadas al no hacer parte del alcance de esta investigación.
En el caso iberoamericano la situación es diferente, tanto en cantidad de documentos publicados

como su enfoque, ya que recogen diferentes expresiones de desarrollo de investigaciones con
trabajadores informales, pero no se identifican en ellos trabajos desarrollados en el puesto de trabajo
específico, el cual es el foguista. Papers que identifican este puesto de trabajo, lo ubican en la
industria ferroviaria como la persona encargada de alimentar las calderas de la máquina de vapor, por
lo que se trata de estudios retrospectivos y escasos al haber caído esta tecnología en desuso y por el
hecho de que el puesto de trabajo foguista ha desaparecido en la mayoría de escenarios laborales.
No obstante lo anterior, los estudios coinciden en que los riesgos de exposición de los trabajadores de
este puesto de trabajo están representados en los siguientes grupos principales:
Riesgos prevalentes
Riesgo Físico: Exposición a material particulado (carbón) con el consecuente riesgo de

neumoconiosis o “enfermedad del pulmón negro”. Factores de riesgo asociados son el inexistente o
deficiente uso de Elementos de Protección Personal, desconocimiento de los riesgos y conceptos de
higiene laboral por parte del trabajador expuesto y persistencia de las condiciones de riesgo en el
entorno debido a controles precarios en máquinas y ambientes.
Riesgo ergonómico: Debido a las posturas inadecuadas con el consecuente riesgo de desarrollo de
enfermedades posturales. Factores de riesgo asociados son desconocimiento de los riesgos y
conceptos de higiene postural por parte del trabajador expuesto y persistencia de las condiciones de
riesgo debido a la inexistencia de controles como las pausas activas en el desarrollo de la labor,. Al
requerir una vigilancia continua y repetida de las actividades a su cargo.
También es importante anotar la exposición a radiaciones térmicas que interactúan con los anteriores
riesgos identificados como prevalentes para el puesto de trabajo.
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Hecho lo anterior, se procede a desarrollar la inspección del puesto de trabajo en las empresas
escogidas
Resultados De Las Inspecciones Al Puesto De Trabajo Foguista
Para obtener los datos iniciales que dieron origen a los análisis posteriores, se aplicaron dos
instrumentos de observación basados en los formatos de observaciones planeadas del trabajo, en el
puesto de trabajo foguista / operario de alto horno prescritos por la NTP 386 y la NTC 4114. En la
figura 1 se aprecia el puesto de trabajo foguista, con la máquina que alimenta de carbón el alto horno:
Imagen 4: “Araña” alimentadora de carbón al alto horno para cocción de ladrillo, condiciones
generales del puesto de trabajo foguista. Fuente: Propia.
Por otro lado, la inspección del puesto de trabajo arrojó las siguientes características, con los
resultados descritos en la tabla 4:
Nombre del Puesto de Trabajo: El puesto de trabajo a ser contemplado para el estudio es
determinado “foguista”, quien se encarga de alimentar el horno de cocción de ladrillo con carbón
mineral.
Área o Sección: El área correspondiente al puesto de trabajo es el área de producción, en la

cantera y directamente vinculado a la cocción de la arcilla para la producción de Ladrillos y Bloque.
En la Imagen 4 se puede apreciar el flujo del material por el proceso productivo, siendo el horneado
el penúltimo proceso, antes del embalaje y despacho.
Número de trabajadores: En el momento el trabajo de foguista es desarrollado por dos

personas, en dos turnos de 8 horas.
Funciones Del Trabajador – foguista
- Cargue de material (carbón) en carretilla para alimentar caldera/horno

- Cargue de caldera con carbón como combustible
- Cierre del horno y apertura de horno
- Manipulación de controles para el encendido, control de temperatura, presión y apagado de
la caldera, control del consumo del combustible.
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Descripción de los Recursos Materiales

Carbón: recurso que permite el funcionamiento de la caldera para encenderla.
Soplete de oxiacetileno: Sirve para encender el fuego en la caldera al inicio del proceso.
Ladrillos listos en arcilla. Los ladrillos se introducen en la caldera para obtener el producto final.
Horno: dispositivo que genera calor y que lo mantiene dentro de un compartimiento cerrado.
Caldera: dispositivo que, gracias a una fuente energética, que calienta el material / herramienta para
la cocción del material.
Análisis Sistema Hombre Máquina

Es un sistema Manual: El ser humano provee energía para el funcionamiento, y que el control que
ejerce sobre los resultados es fuerza y el control de la actividad a través de la experiencia en el cargo.
El trabajador quien asume el cargo de Foguista debe manejar la caldera, introduciendo el carbón y
encendiéndolo con ayuda de los materiales combustibles, manteniendo una temperatura adecuada
para no dañar el producto final. En el momento que se encuentra la caldera lista, se procede a
introducir los bloques de ladrillos ya secos para hornearlos y tener el producto final procesado.
Características del puesto de trabajo
- Ubicación de calderas u hornos al aire libre (estructura con techo)

- Manipulación de herramientas manuales no mecanizadas
- Transporte de cargas (carreta cargada y levantamiento de herramienta Pala)- sobresfuerzos
físicos
- Presencia de altas temperaturas
- Exposición a polvo de carbón y otros materiales
- Uso de equipos eléctricos como los ventiladores
- Mantenimiento en posturas prolongadas
- Contaminación del ambiente por humos
- Experticia y conocimiento para la manipulación de las calderas y terminado del producto
Dotación y elementos de protección personal

Tabla 4: Resultados de la Observación en EPPs y dotación
Elementos de protección personal Dotación
Guantes carnaza manga larga Camisa manga larga en drill

Botas caucho con puntera acero Pantalón en drill
Tapabocas Botas pantaneras
Monogafas
Casco
Propuesta de SVE basada en GATISO-NEUMO
Por el alcance del proyecto, sólo fue posible realizar la primera parte de la vigilancia del Riesgo
Químico presentado por los aerosoles sólidos presentes en el ambiente e identificados como fruto de
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la observación del puesto de trabajo (Sílice y Carbón), aunque se tuvo conocimiento de las
mediciones realizadas in situ de una empresa de ingeniería y que son de uso exclusivo de la empresa
en donde se realizó la observación del puesto de trabajo foguista. Por esta razón se presenta el
esquema de desarrollo del SVE, que es el resultado de la propuesta de control adecuada para estos
casos, a partir de lo descrito por el Ministerio de protección Social de Colombia y la Pontificia
Universidad Javeriana:
Imagen 5: Diagrama de flujo sobre vigilancia ambiental definido por GATISO-NEUMO:

Aerosoles sólidos - Sïlice/ Asbesto/ Carbón. Fuente: (Minprotección Social & Pontificia
Universidad Javeriana, 2007, pág. 34).
Análisis de puesto de trabajo basado en OWAS

Como primer paso, se determinan las tareas efectuadas por el trabajador, las cuales son:
Tarea No. 1 Cargue de material
Movimientos realizados: Movimientos flexión, extensión en MMII, Giros y flexiones de tronco,

Flexoextension de MMSS, Flexión de cuello.
Tarea No. 2 Cargue de caldera u horno para quema
Movimientos realizados: Flexión de tronco, Flexo extensión de MMSS, Flexión de MMI, Agarre
cilíndrico mango de la pala.
Tarea No. 3 Cierre del horno y apertura de horno
Movimientos realizados: Flexión de tronco, Flexo extensión de MMSS, Flexión de MMI.
Tarea No. 4 Manipulación de controles para encendido de horno
Movimientos realizados: Flexión de tronco, Flexo extensión de MMSS, Flexión de MMI.
Resultados obtenidos
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Imagen 6: Ficha UNE-EN 1005-4. Fuente: Propia.
Imagen 7: Ficha UNE-EN1005-4 (Tronco). Fuente: Propia
7586
Imagen 8: Ficha UNE-EN1005-4 (Brazos). Fuente: Propia
7587
Imagen 9: Ficha UNE-EN1005-4 (Cabeza y Cuello). Fuente: Propia
7588
Imagen 10: Conclusiones Ficha UNE-EN1005-4 (Tronco). Fuente: Propia
Imagen 11: Conclusiones Ficha UNE-EN1005-4 (Brazos). Fuente: Propia
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Imagen 12: Conclusiones Ficha UNE-EN1005-4 (Cabeza y Cuello). Fuente: Propia
Puntos a resaltar de la observación bajo el método OWAS
El Tronco en estática en postura de flexión/extensión es aceptable si existe apoyo para el tronco

completo.
Los Brazos en estática en postura flexión/extensión/abducción es aceptable si existe apoyo para todo
el brazo.
En Brazo derecho la flexio/extensión y o la abducción del brazo no es aceptable.
En Cabeza y Cuello la línea de visión no es aceptable.
Todos los hallazgos anteriores indican que se debería establecer aparte de los controles adecuados
(Elementos de Protección Personal, Capacitaciones sobre Higiene Postural, Programas de Pausas
Activas), un Sistema de Vigilancia Epidemiológica, ante los síntomas de casos probables que se
identificaron de manera exploratoria. No obstante, se requiere de mayor profundidad en los estudios y
un seguimiento desde el punto de vista de medicina ocupacional dada la escala de tiempo que se
requiere para el desarrollo de las enfermedades crónicas aquí relacionadas.
Discusión
Como reflexión inicial de los resultados, es importante declarar las limitaciones del estudio, al existir
la posibilidad de que en las revistas y bases de datos consultadas exista subregistro o no
disponibilidad digital de algunos papers, problemas con la consulta o con la indexación de algunas
revistas o del acceso a los textos completos de algunos artículos. En todo caso, se requiere una
revisión más profunda con respecto a papers en idioma inglés y con respecto a publicaciones en
revistas indexadas a nivel Iberoamérica para ayudar a determinar de mejor manera estos estudios, así
como sus tendencias.
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Los hallazgos de la investigación documental y de la inspección realizada dan como resultado en

primera medida, que existe un subregistro de este fenómeno en este puesto de trabajo en Colombia,
situación comparable a situaciones y eventos pasados a nivel Iberoamérica donde se han identificado
factores de riesgo de desarrollo de enfermedades crónicas (como la neumoconiosis) con el
consiguiente riesgo para la salud pública.
Es controversial que este puesto de trabajo aún subsista en algunos escenarios, dadas las tecnologías
disponibles tanto para la cocción de ladrillo como para mitigar los riesgos asociados a la exposición
en el puesto de trabajo estudiado. No obstante, la explicación se puede encontrar en el carácter
informal (y el actual proceso de formalización de las empresas estudiadas) en el que lamentablemente
la brecha entre la formalización económica y la formalización de la seguridad y salud en el puesto de
trabajo puede abarcar muchos años entre la aplicación de una y otra.
Por último, es importante anotar que, pese a que el puesto de trabajo foguista en horno de carbón
tiende a desaparecer en otros escenarios formales, no es menos importante su estudio dado que en
escenarios de trabajo informal persiste y se mantiene como una opción de empleo de bajo costo y de
alto riesgo para el desarrollo de enfermedades que de seguro generan un alto costo para el trabajador
y para los sistemas de salud en el que se encuentre. Esta precariedad laboral puede ser eliminada de
raíz, pero se requiere que se realicen otros estudios complementarios, así como el seguimiento
necesario para el mejoramiento de las condiciones de vida de los trabajadores y sus comunidades.
Agradecimientos
A la 34va Conferencia IBIMA (International Business Information Management Association, USA),
y en especial al Dr. Khalid S. Soliman, 34th IBIMA Conference Chair; a la Corporación
Universitaria Minuto de Dios, Vicerrectoría Bogotá Sur y su Dirección de Investigaciones, a los
diferentes investigadores docentes que de una u otra forma colaboraron con la realización de este
escrito, a Ana Carolina Serna Rubio por sus aportes docentes e investigativos y al grupo de
semilleros de SST-IN (Seguridad y Salud en el Trabajo Informal) cuyo trabajo hizo posible esta
investigación.
Notas
1. “La neumoconiosis es la acumulación de polvo en los pulmones y las reacciones
tisulares provocadas por su presencia. A los fines de esta definición, ‘polvo’ es un
aerosol compuesto por partículas inanimadas sólidas” (Enciclopedia de Salud y
Seguridad en el Trabajo de la OIT y traducida al español por el Ministerio de Trabajo
y Asuntos Sociales de España (2001)
Bibliografía
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de Salud. Departamento de Salud Ocupacional. Chile.
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2. Benassati, D. (2014). Análisis integral de puesto de trabajo de operador de planta de asfaltos.
3. Bernal, C. (2014) Metodología de la Investigación. Tercera Edición. Colombia, Pearson.
4. Cross, R.; Prusak, L. (2002) The people who make organizations go or stop. Harvard
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Aparato Respiratorio.
7591
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investigación científica. Pensamiento & Gestión, (20), 165-193.
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Colombiana de Neumología – Vol. 27 No. 4
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rmalidad_mar17_may17.pdf
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Sistema de Gestión de la Seguridad y Salud en el Trabajo (SG-SST).
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Gestión de Seguridad y Salud en el Trabajo para empleadores y contratantes
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DO NOT arrange references in categories like below. The titles in green are
just to show examples. The final list of references should be arranged
alphabetically in one category.
Journal Articles
Last name, initials. (year) ‘Article title with only first letter upper case,’ Journal name, vol (issue
no.), pages.
Example: Articles with one author
Ackoff, R L. (1961) ‘Management Misinformation Systems,’ Management Science, 14 (4), 147-156.
Example: Articles with two authors
Sabri, EH and Beamon, M. (2000), 'A Multi-Objective Approach to Simultaneous Strategic and
Operational Planning in Supply Chain Design,' Omega: an International Journal of Management
Science 28 (1), 581-598.
Example: Articles with more than two authors
Fox, MS., Barbyceanu, M. and Teigen, R. (2000), 'Agent-oriented Supply Chain Management,'
International Journal of Flexible Manufacturing Systems, 12 (1), 165-88
Online Journals and websites
Last name, initial(s). (Date published). Title of article. [Online]. Publisher. [Date you accessed the
site]. Available: URL. Example:
Lorek, L. A., (2003), ''Buyers catch on to online shopping,' San Antonio Express-News. [Online],
[Retrieved December 22, 2003], http://web.lexis-nexis.com/universe/document
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Bonini, C P. (1963) Simulation of Information and Decision Systems in the Firm, Prentice-Hall,
Englewood Cliffs, New Jersey.
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Edited Books
Trowbridge, P. (2003), A case study of green supply chain management at advanced micro
devices, Greening the Supply Chain, Sarki, J. (ed), Greenleaf, Sheffield.
Periodicals
James, D. (1999), 'From clicks to coin,' Marketing News, 33 (21), 3.
Conference Paper
Jandos, J. and Vorisek, J. (2009), ‘Enterprise Web 2.0. What is it really?’ Proceedings of the 13th
Inernational Business Information Management Association (IBIMA), ISBN: 978-0-9821489-2-1, 9-
10 November 2009, Marrakech, Morocco, 10-15.
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Combination of Balanced Score Card and

Blue Ocean Strategy in Strategic Planning
Hossein SAFARI
University of Tehran, Tehran, Iran
hsafari@ut.ac.ir
Mohammad Hadi RANJBAR

mh.ranjbar@ut.ac.ir
Fatemeh MIRZAEI RABOR

mirzaeiftmh@yahoo.com
Somayeh MALEKMAKAN
Smalekmakan90@ut.ac.ir
Abstract
Strategic management process is not a straightforward task. To make the process more effective, it is
essential to use reliable models which have potential for value creation as well as comprehensive
approaches toward strategic management. In doing so, we combined Balanced Score Card (BSC) and
Blue Ocean Strategy (BOS) with each other to fulfill an effective strategic planning. Therefore, this
study aims to propose a methodology which integrates BSC and BOS and we applied REGIM and
fuzzy NAIADE techniques to do strategic planning in the largest Iranian internet service provider.
There are three main contributions in this study. First, strategic planning research is mostly based on
BSC structure. However, we create synergy in strategic planning by combining two well-known
strategic models known as Blue Ocean Strategy and Balanced Scorecard structure. In fact, BSC
creates sustainable advantages by executing appropriate strategies and BOS is practical when
companies avoid sever competition and create uncontested market. The integration of these models
help companies to response more properly to today's changed-filled environment. Furthermore, new
strategy map (SM) is constructed based on governing ideas and destinations which contains
characteristics of a good BOS strategy. Finally, we applied fuzzy REGIM to identify the level of
importance for each destination and we used fuzzy NAIADE to rank strategic objectives.
Keywords: Balanced Scorecard, Blue Ocean Strategy, Fuzzy Naiade, Strategic Planning
Introduction
According to Anagnostopoulos (2010) organizations led toward success take benefits of a powerful
management system. This would help them to avoid failures through using tools and processes which
consider strategies and operations. To form a closed-loop management system considering Balanced
Scorecard (BSC) structure which guarantees organizations’ success, is essential to articulate
organization’s strategy. This stage is carried out through creating a perfect image of existed and
desired situation of organization. As noted by Kaplan and Norton (2008) defining aspire future
results, initial reason for forming organization and core values prescribed as desirable attitudes is
necessary. According to Kaplan and Norton (1996) and Stewart and Carpenter-Hubin (2001) these
"long term drivers of success" comprise an integrated-set of objectives and tools. Kaplan and Norton
(2008) claimed that vision, mission and values or “codes of conduct” as mentioned by Craig and
Moores (2005) are known as enterprise identity in process of strategy development. As Martin-
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Castilla and Rodriguez-Ruiz (2008) said, enterprise identity as a role model of excellence culture
leads organizations toward excellence. Senge (2006) expressed the importance of building
“governing idea” to create a shared vision between people involved in learning organizations which
comprises the answers of three essential questions of “What”, “Why” and “How” pointed out the
meaning of vision, purpose or mission and core values, respectively. By introducing vision, mission
and value, internal and external environment is investigated to do strategic analysis as noted by
Kaplan and Norton (2008). To create a clear picture of “long term drivers of success” it is necessary
to translate these notions into overall strategy. They should be defined to determine a planned linkage
between market and internal environment of the organization, said by Knights and Morgan (1991).
Porter (1996) called them generic strategy which expresses strategic position of organization in a
broad but simple format of overall tendency of organization. Bowman and Helfat (2001) stated that
corporate strategy points out as the subset which affects profitability and shows the same meaning of
overall strategy. This is known as core and predominant strategy that focuses on entire firm to
achieve main goals and can be considered as grand strategy according to Hitt and Ireland (1985) and
Body and Elliott (1998). Corporate strategy is essential since it indicates a pattern of primary policy
in order to achieve “governing idea” (Hax and Majluf, 1986). As Kaplan and Norton (2000) said
definition of vision helps organization to create picture of overall goals. Similarly, to move toward
fulfilling overall goals, it is necessary to articulate a more transparent image in some detail as
strategic destination which is attainable in future, according to Cobbold and Lawrie (2002) this is
clearer than corporate strategy. It is essential to note that business unit’s strategy translates into long-
term strategic objectives and BSC structure defines the mechanism of achievement and obtainment of
feedback considering those long-run objectives (Kaplan and Norton, 1996). Strategies should be
translated into objectives and measures which can be transferred to all units and employees. Strategic
map (SM) and BSC are tools that function in strategy translation. Using SM would be simplified
through developing strategic theme which is "a vertical slice within map consists of a distinct set of
related strategic objectives" (Kaplan and Norton, 2008). Then, the chain of cause-and-effect
relationship between goals should be determined through forming SM. In fact, as noted by Cebeci
(2009) every arrow in SM shows the goals which have an effect on other goals. SM illustrates how
destinations are attained. It also, identifies strategic objectives and financial and non-financial assets.
Moreover, it precises how combination of assets is led toward creating customer value. According to
Gomes, Romão, and Caldeira (2013) it outlines the desired financial outcomes and shareholders,
customer and business processes relationship. SM functions as a visual tool that illustrates how key
components are involved in an organization's strategy (Buytendijk, Hatch, and Micheli, 2010). As
Sankaran and Iyer (2011) proposed, SM shows how strategic objectives are connected between
different sections of an organization and the way that they act to achieve overall results. SM is
formed considering four aspects of BSC. Strategies are described through depiction of generic
architecture in SM (Bogza and Zaharie, 2009). BSC not only functions as a goal-oriented tool which
translates strategy into operational terms as mentioned by Olve.NG et al. (1999) but also it serves as a
performance-oriented role which measures and evaluates business activities from the broad
viewpoints of both tangible and intangible aspects. In this case the action oriented approach of BSC is
investigated to improve business performance. It helps organization to monitor their performances
and solve the related problems (Martinsons, Davison, and Tse, 1999). BSC helps managers to
translate strategic objectives to performance measures (Gomes, Romão, and Caldeira, 2013). It also
articulates target and measures for strategic objectives (Bogza and Zaharie, 2009).
As previous researches show there are different stages which need to be carried out in order to do
strategic planning through using BSC structure. First of all, Foundation statement which involves
vision, mission and value should be defined (Craig and Moores, 2005). It is essential to analysis
internal and external environment through forming IE matrix and summarizes it in a SWOT matrix
(Kaplan and Norton, 2008). Next, overall strategies which means as general tendency of an
organization, are articulated. Then, strategic destination or long run objectives are specified which
clarifies overall strategies. In the next step, strategic theme which depicts relationship between
different sections of organization considering four aspects of BSC is formed. It is important to note
that strategic themes comprise the meaning of short run objectives. In this stage, application of SM
and BSC is necessary to translate the statement into particular objectives and initiatives. SM involves
strategic objectives defined in previous steps. Through forming BSC it is essential to define measure,
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target, budget, initiatives and processes for fulfilling objectives. In goal-oriented approach, a top-
down perspective is carried out and in action-oriented approach, a down-top approach is considered.
Blue Ocean Strategy
Blue Ocean Strategy (BOS) is “a consistent pattern of strategic thinking behind the creation of new
markets and industries where demand is created rather than fought for and the rule of competition is
irrelevant”. So, companies avoid rigorous competition by creating an uncontested market space,
thanks to BOS. For gaining a Blue Ocean, two approaches have been presented. The first approach is
to create entirely new industries and to create a new niche market inside the existing industry by
modifying the existing competitive rules. Kim and Mauborgne (2005) suggested four actions
framework as guidelines to get a new strategy with BOS characteristics. These four actions are
Eliminate, Reduce, Raise and Create.
When BSC is used for creating strategy, the focus is around existing competition; as the concern is
shifted to alternatives and noncustomer by using Blue Ocean for gaining competitive advantage, the
result is insight into method for reconstruct industry boundaries, buyer value and cost structure.
Creating Blue Oceans is not the end, every rival or entrant of market could be an imitator of
competitive advantage, so it should be a dynamic process. Kim and Mauborgne (2005) suggested a
way for getting away of imitators; a good blue ocean strategy is one that is not easy to imitate
because of having some traits. But the critical question for strategists is "How do you open up and
capture a Blue Ocean of uncontested market space?". To address the above mentioned question, the
best way is turning to the strategy canvas; the strategy canvas is both a diagnostic and an action
framework for building a convincing BOS. Strategy canvas captures the offering level that buyers
receive across all key competing factors. A high score means strategy canvas, an analytic framework
that is central to value innovation and the creation of blue oceans. A BOS should have three
characteristics to be named a good strategy; focus, divergence and a compelling tagline. Without
these qualities, a company’s strategy will likely be muddled, undifferentiated, and hard to
communicate with a high cost structure.
Without analytic frameworks and principles to effectively manage risk, creating Blue Oceans is seen
as too risky for managers to follow as strategy.
4 Action Framework (The Eliminate-Reduce-

Raise-Create Grid)
Is Used In Order To
Reducing cost Focus

Reconstruct
elements, and
Raising Buyer Market
value Boundaries
Divergence
Started from Old Value Curve Focus on the 3 Characteristics
Big Picture, Not
the Numbers
Compelling Tagline
Destination
Reach Beyond
Through Existing
Demand
Get the Conclusion New Value

Strategic
Curve
Sequence Right
Fig. 1: Research framework
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Methodology
In this section, BSC structure and BOS used together and REGIME and NAIADE techniques are
applied in order to do strategic planning.
As it was pointed out, Strategy formulation is begun with definition of vision, mission value which
are the answer of essential questions about organizational identity. By introducing these “codes of
conduct” (Craig and Moores, 2005) a clear message of organization purpose and preferences is
produced for internal and external stakeholders (Lam and Khare, 2010). In next step, it is essential to
define an overall direction of organization which means corporate strategy (Mintzberg, 1990).
According to Gabrysova (2006) Organization can express its competitive factor through articulating
corporate strategy. In this stage, IE matrix is formed which indicates internal and external situation of
organization (Kaplan and Norton, 2008). Then, a clearer image of what an organization tries to
achieve should be developed which is known as strategic destination. Organization needs to create
destination statement in order to express their goal in more specific way (Cobbold and Lawrie, 2002).
In the proposed methodology, destination statement is articulated by using “strategy canvas” which is
identified in BOS. Destinations are created considering the characteristics of a good Blue Ocean
strategy; destinations are ranked according to three characteristics of a good strategy from BOS
perspective; focused, divergent and compelling tagline. The higher score obtained the better BOS
strategy. Then, destinations are ranked using REGIME technique in order to find the level of
importance for each destination.
As it was explained earlier, destinations should be met since they facilitate achievement of overall
goals. Thus, strategy map is applied to illustrate the way that destinations are attainable. In this stage,
a cause-and-effect relationship are articulated in a scheme of a chain that relates strategic objectives
considering four approaches of BSC (start from financial objectives, link to customer objectives and
continue with internal processes and learning and growth objectives). These chains are known as
strategic themes which categorize strategic objectives. As stated by Anagnostopoulos (2010) to fulfill
every strategic theme, it is essential to identify measure, target, initiatives and processes. Strategy
themes are formed through SWOT analysis which identifies strengths and weaknesses that
organization has and opportunities and threats that are existed in external environment.
The most important feature of SWOT analysis is laid in identification of strengths and opportunities.
It also benefits organizations through highlighting weaknesses (the points that need improvement)
and threats (the points that need management to elimination). SWOT analysis produce outputs which
are strategic ideas. While these ideas are formed, strategy map is articulated and linked with strategic
ideas which are known as strategic themes. In fact, strategy map involves various strategic themes
which are linked to aspects of BSC to fulfill objectives considering proper strategies according to
Ronchetti (2006). Destinations ranked through using REGIME technique are the weighted criteria for
evaluation of strategic objectives which are formed in strategy map. In this way the level of
importance of every strategic objective will be identified through using NAIADE technique
considering weighted destinations. It is obvious that destinations serve the role of criteria and
strategic objectives are alternatives in NAIADE technique.
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Fig. 2: Research Methodology
In this paper, the advantages of both BSC and BOS are used together. Governing idea, which include
mission, vision and values create with the BSC structure. As mentioned in literature review, success
comes not from battling competitors, but from making the competition irrelevant; to do so, BOS
applied to have a more effective strategy that helps company to avoid from head-to-head competition.
It has to be mentioned that strategic objectives (SO) are built based on destinations, so the SOs
contain the BOS characteristics, too.
Principles of Regime Method
The regimes are + and - signs that each alternative takes after the pairwise comparison with the rest
of the alternatives. The advantage of the regime method is that different weighs can be assigned to
criteria according to their relative importance and different priorities to them (Karydis, 2005).
Suppose we have a discrete choice problem with I choice options or alternatives i (i=1,2,3,…,I),
characterized by J judgment criteria j (j=1,2,…,J ). The basic information we have is composed of
qualitative data regarding the ordinal value of all J judgment criteria for all I choice options. In
particular, we assume a partial ranking of all I choice options for each criterion j, so that the
following effect matrix can be constructed:
E= (1)
The entry eij (i=1,...,I; j=1,...,J) represents the rank order of alternative i according to judgments
criterion j. Without loss of generality, we may assume a rank order characterized by the condition 'the
higher, the better', in other words: if ejj> ei'j, then choice option i is preferable i' for judgment criterion
j. As there is usually not a single dominating alternative, we need additional information on the
relative importance of (some of) the judgment criteria. In case of weighting methods this information
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is given by means of preference weights attached to the successive criterion. If we deal with ordinal
information, the weights are represented by means of rank orders Wj (j=1,...,J) in a weight vector w:
w = (w1, w2, ... , wj)T (2)
w*= (w1*, w2*, ..., wj*)T (3)
Next, the regime method uses a pairwise comparison of al l choice options, so that then the mutual
comparison of two choice options i s not influenced by the presence and effects of other alternatives .
Consider two alternative choice options i and i'. If for criterion j a certain choice option iis better than
i', it should benoted that in case of ordinal Information, the order of magnitude ofii' j is not relevant,
but only it's sign. σii'j = sign sii'j = + and σii'j = sign sii'j = -, we may construct a Jxl regime vector rî
, defined as :
rii' = (σii'1, σii'2, …, σii'J)T ,ν i, i', i'≠i (4)
These regime vectors can be included in aJ*l(l-1) regime matrixR:

R = {r12 r13 ... r1I ,,, rI1 rI2 ... rI(I-1)} (5)
It should be assumed that the weighted dominance of choice option i with regard to i' can be
represented by means of the following stochastic expression based on a weighted summation of
cardinal entities.
vii' = (6)
Next, a certain probability pii' for the dominance of i with respect to i', should be introduced:
Pii' = prob (vii'>0) (7)
And define as an aggregate probability measure:

Pi = (8)
Impact matrixes are constructed according to Eq. (1) of REGIME method and are shown as follow:
Characteristics of a Good Strategy

compelling
Strategic Destination focus Divergence
tagline
1. Increasing market share to 35% 2 2 4
2. Excellence to Award Level 1 3 2
3. Developing of Two New Product 4 4 3
4. Attaining Net Margin of Profit to 30% 3 1 1
W= (3.75, 3.50, 3.25)T

A pairwise comparison of the information in impact matrixes leads to the following regime matrixes
as Eq. (5).
R=
We can easily derive Vii' by means as Eq. (6). Vii' table is as follow:
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= 3.50 = -3.50 = 4.00 = -3.00

= -4.00 = -11.00 = 11.00 = -3.00
= 3.00 = 3.00 = 11.00 = -11.00
By using Eq. (7) and (8) it's directly derived Pi that shown the total dominance of each choice option;
via Pi values it's possible that compare SOs. The final ranking of alternatives’ results is demonstrated
in below:
P12 =9 /12 P21 =4/12 P31 =10/12 P41 =5/12

P13 =3/12 P23 =2/12 P32 =11/12 P42 =5/12
P14 =7/12 P24 =7/12 P34 =11/12 P43 =2/12
P1 = ( )=
P2 = ( )=
P3 = ( )=
P4 = ( )=
NAIADE Concept
NAIADE (Novel Approach to Imprecise Assessment and Decision Environments) as stated by

Munda (1995) is a multi-criteria analysis, which is performed on the impact matrix, is based on a
comparison algorithm of the alternatives made up by the following steps:
1. completion of the criteria/alternatives (impact) matrix,

2. pairwise comparison of alternatives using preference relations,
3. aggregation of all criteria, and finally
4. ranking of alternatives.
Equity analysis is performed by the completion of an equity matrix from which a similarity matrix is
calculated. Through a mathematical reduction algorithm, it is possible to build a dendogram of
coalitions which shows possible coalition formation, and level of conflict among the interest groups.
As for most of the discrete multi-criteria methods, the starting point is the creation of the
criteria/alternatives matrix. In this stage we input the value associated to each criteria according to
each alternative. In the case of fuzzy uncertainty, the user must define the membership function of the
fuzzy number.
i. The semantic distance
In order to compare the criteria values for the alternatives, it is necessary to calculate the semantic
distance. In the case of fuzzy evaluation, Semantic distance measures the distance between two
functions: it takes into account the position and also the shape of the two functions. Given two fuzzy
sets , let’s define
where f(x) and g(y) are two functions obtained by scaling the ordinates of , through
, such as:
The semantic distance between the two fuzzy sets is defined as follows:
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(where sets X and Y can be non-bounded), then
ii. Preference Relations and Pairwise Comparison of Alternatives
The comparison of criteria scores (values) of each pair of (alternatives) actions is carried out by
means of the semantic distance described above. This comparison is based on preference relations,
expressed by the user, for each single criterion starting from the distance between alternatives.
Preference relations are defined by means of 6 functions that allows to express (depending on the
distance between alternatives), for each criterion, an index of credibility of the statements that an
alternative is much better, better, approximately equal, equal, worse and much worse than another.
The credibility index goes from 0 (definitely non-credible) to 1 (definitely credible) increasing
monotonically within this range. The following are the definitions of the six preference relations:
- the first two relations much better are defined as follows:
- the preference relations approximately equal and equal are defined as follows:
- finally the two preference relations much worse and worse are defined as follows:
iii. Criteria Aggregation

Through an aggregation algorithm of the credibility indexes, NAIADE calculates a preference
intensity index of one alternative with respect to another. In particular the parameter is used
to express the minimum requirements on the credibility indexes. Only those criteria whose
indexes are above the threshold will be counted positively in the aggregation. The intensity
index of preference (where * stands for of alternative versus
is defined as follows:
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In order to use information on the diversity among the assessment of the single fuzzy relations,
according to each criterion, the entropy concept is useful. Entropy is calculated as an index
varying from 0 to 1 that gives an indication of the variance of the credibility indexes that are
above the threshold, and around the crossover value 0.5 (maximum fuzziness). An entropy value
of 0 means that all criteria give an exact indication (either definitely credible or definitely non-
credible), whereas an entropy value of 1 means that all criteria give an indication biased by the
maximum fuzziness (0.5).
The information provided by the preference intensity index and correspondent entropies
can be used to build the degrees of of the following statements:
“according to most of the criteria”:

a is better than b
a and b are indifferent
a is worse than b
The statements a is better than b, a and b are indifferent, a is worse than b are calculated as
follows:
Where is the associated entropy level over the preference intensity index
and the ôperator can be replaced by the minimum operator which gives no compensation, and the
Zimmermann-Zysno operator which allows for varying degrees of compensation g (from 0 minimum
compensation to 1 maximum compensation).
Finally the “according to most of the criteria” operator is implemented filtering the
iv. Ranking of alternatives
The final ranking comes from the intersection of two separate rankings. The first one is based
on the better and much better preference relations and with a value going from 0 to 1 indicates how
a is “better” than all other alternatives. The second one is based on the worse and much worse
preference relations, its value going from 0 to 1 which indicates how a is “worse” than all other
alternatives.
,llows: are calculated as fo
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v. equity analysis
Equity analysis starts with the creation of the equity matrix which gives a linguistic indication of the
interest group judgement for each of the alternatives. A similarity matrix is then computed starting
from the equity matrix. The Similarity matrix gives an index, for each pair of interest groups of
the similarity of judgement over the proposed alternatives. This index is calculated as
where is the Minkovsky distance between group and group which is
calculated as follows:
Through a sequence of mathematical reductions, the dendrogram of coalition formation is built.
Case Analysis
The proposed methodology explained in previous section is carried out in the largest Iranian internet
service provider and Internet communication solutions, which has successfully provided customers
with excellent services throughout the country. The company is the first ADSL2+ service provider in
Iran with more than 800 skilled employees at its headquarter, which are run through four main
official agents. This company has more than 100 high street agents with approximately 1300
employees and more than 1000 independent retailers. The company has the largest share of the
nationwide Internet users market and the supplementary services, especially in the high speed
ADSL2+ Internet services in Iran. It is ranked first in its industry during 2012 and 2013.
Strategic planning is done considering the proposed methodology through the following steps:
1. Defining vision, mission and value

2. Forming corporate strategies using IE matrix
3. Articulating strategic destination based on BOS strategy canvas
4. Ranking strategy destination using REGIM technique
5. Specifying strategic theme through SWOT analysis
6. Identifying strategic objectives through forming strategic theme
7. Ranking strategic objectives considering weighted criteria via applying NAIADE technique.
At first, the company defined its vision as “Looking to the future, with endless efforts we are seeking
the most up to dated and optimized technologies and opportunities. The possibility of communication
among people and organization with those which are important for them is performed using creative,
perseverant expertise with communications platform due to the fact that maintaining our leading
position in the market without high quality services would not be possible.”
The mission statement is presented according to David’s model (2009) as follow:
“The first high speed internet service providers in Iran. The most important products of the company
are the various services of communication platform creation (IP Based).”
The most striking feature of the company is service introduction of the company based on
entrepreneurship and continuous improvement, inspired from global knowledge and practices toward
presenting safe and reliable internet for people. Moreover, the broad extent of the company’s effort is
led toward deploying modern technologies to update and enhance efficiency. Believing in “Being the
best in its expert” necessitates continuous development of facilities and technical equipment,
improving work force quality and high amount of attention to service presentation quality.
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To identify appropriate generic strategy for cited company internal and external factors which are the
output of IFE and EFE are summarized in IE matrix. This matrix is used to represent the strategic
position of the company. “Grow and build”, “hold and maintain” and “harvest or divest” are
strategies assigned to position 1, 2 and 3, respectively. Strategic position of the company is located on
position two which comprises “growth with concentric diversification strategy”. This will diversify
company activity into related companies and businesses according to Angelina and Wibowo (2012).
Then, formulating strategic destination based on three characteristic of a good BOS strategy
evaluating priority of each strategy destination through REGIM technique. To formulate good
strategies base on vision, mission, value and corporate strategies, destinations are made to create a
new strategy canvas. These destinations should be satisfied customers by raising buyer's value and
reducing cost. The four actions framework and BOS principles are used for creating destinations
which contain three BOS good strategy characteristics. After that, the destinations' importance is
evaluated through REGIM technique, the results are as inputs for next step. Next, in a four quadrants
grid which indicates strengths, weaknesses, opportunities and threats (SWOT) a foundation is formed
to understand the level that strengths can be used to manipulate opportunities and weaknesses can be
improved in a way to ignore organizational threats (Helms and Nixon, 2010). As mentioned by
Dyson (2004) SWOT analysis link internal and external factors to stimulate new strategies. Strategies
should be translated into strategic objectives by forming strategy map and BSC. Strategy map helps
to visualize strategy in a cause-and-effect chain which comprises financial, customer, internal
business process and learn and growth strategic objectives. Strategy map then are divided into
different slice that involves set of related strategic objectives. The cited company by passing these
processes finds its strategic themes as below:
1. Market development
2. Operational excellence
3. Complete product portfolio
4. Revenue growth
To articulate strategic objectives SWOT analysis is carried out. The outputs of SWOT analysis are 20
strategic objectives listed below:
Table 1: The output of SWOT analysis for the studied company
Approach Strategic Objectives Code

Developing revenue opportunities FI-G-1 A
Financial
Optimal cost management FI-P-1 B
Offensive sell CU-PS-1 C
Complete portfolio of products and services and continuous
CU-PS-2 D
improvement of their quality
Change and differentiate in the means of presenting service CU-PS-3 E
Continuous improvement of trade mark position and
CU-I-1 F
customer Professional and social prestige
Develop customer care initiatives and increase their
CU-R-1 G
satisfaction and loyalty
Development and improvement of supply chain IP-OM-1 H
Continuous optimization of product and services presenting IP-OM-2 I
Optimal technical supporting of product and services IP-OM-3 J
Internal More attention to CRA requirements, environment and other K
IP-RS-1
processes stakeholder
Facilitate relationship with customer and quality develop of
IP-CM-1 L
sale network
Creating and maintaining competitive knowledge advantages
IP-I-1 M
and presenting different, up to date and efficient innovations
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Excellence of human resources management systems LG-HC-1 N

Quality and specialty development of human resources LG-HC-2 O
Increasing welfare and loyalty of staffs LG-HC-3 P
Optimization of technologies and empowerment of technical
LG-IC-1 Q
Learning and network infrastructure
and Providing necessary context for continuous organizational
growth LG-IC-2 R
learning
Establishment and development of an efficient management
LG-OC-1 S
system and applying international standards
Management and maintenance of equipment and financial
LG-OC-2 T
assets
While strategy map is formed, it links to performance metrics, targets and strategic initiatives that are
formed in BSC context (Kaplan and Norton, 2008).
By the aid of NAIADE technique and weighted criterions strategic objectives are ranked. In the table
below, the impact matrix of NAIADE technique is shown. To form impact matrix, we insert strategic
objectives as alternatives and destinations as criteria. It is essential to note that those criterions are
weighted through REGIME technique and the weighs are considered in preference relationship while
impact matrix is formed. We choose fuzzy option in NAIADE technique since our data are fuzzy.
The method used in gathering information involves interview with 6 experts of the company
comprises of CEO and board of directors and send questionnaire to 50 experts such as middle
managers, quality managers and supervisors of different departments. To evaluate every alternative
considering weighted criteria experts mark them using 9 scale of Likert as they are shown in impact
matrix.
Table 2: The impact matrix of NAIADE technique
The next stage in NAIADE technique was evaluation of coalition formed between experts. We
formed an equity matrix in which 6 experts of the company comprised of board of directors and CEO
evaluate alternatives and mark them by 9 scale of Likert (table 3).
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Table 3: The equity matrix
As it is illustrated in cited diagram the alternative H (“Development and improvement of supply

chain”) is ranked first and the least important strategic objectives are “D”, “T” and “K”. In between,
the best and the worst alternatives managers are indifferent in choosing some of the alternatives. Take
it for illustration, if alternative “M” is chosen the next alternative to fulfill will be “E” or “F” or “S”
and similarly, if alternative E is chosen in later stage, alternatives “B” or “Q” can be best option to
meet.
Fig. 3: Ranking of alternatives
In analysis of Equity matrix result shown in dendogram of coalition formation experts reach
agreement with each other in 4 stage and the strongest coalition formed between them is 0.6866 and
the last coalition formed between all of them is 0.6198.
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Fig. 4: Equity analysis results
Conclusion
Strategic planning comprised of different stages set the step to create a clear picture from future. It
will be reliable if it is based on tools and approaches offered ways for value creation and overall
view. Therefore, we proposed a methodology which gains benefit from two strategic models.
Applying balanced scorecard and blue ocean strategy not only does define strategies based on value
creation but also they serve a role as strategic tool to integrate strategic management which considers
both financial and non-financial measures. REGIM and Fuzzy NAIADE technique are applied in
strategic planning for the first time to rank strategic destination and strategic objectives.
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Depersonalization of the Customer Relationship

In the age of Digitalization
*Professor Aihie OSARENKHOE
University of Gävle, Department of Business & Economic Studies, Gävle, SWEDEN

E-mail: aoh@hig.se
Dr. Daniella FJELLSTRÖM

University of Gävle, Department of Business & Economic Studies, Gävle, SWEDEN.
E-mail: Daniella.fjellstrom@hig.se
Abstract
The current age of digitalisation brings several opportunities and challenges that have precipitated the
need to implement digital solutions in organisations. Against this background, technological interface
that enables customers to produce service outcome, independent of direct service-employee
involvement, is commonly used in organisations in various sectors Extant literature is not keeping pace
with the increasing speed in which the digitalisation of society and business is marching forward. In
literature, more attention is devoted to personalised service encounter – the use of inter-personal buyer-
seller interactions in the process of creating service outcomes. “Personalization”, using software
applications/digital tools necessitates lesser inter-personal interactions. Hence, the relationship
between companies and customers is increasingly being “depersonalised”. But, we ask in this study the
following research question, “does depersonalization affect service provider-customer relationship
positively or negatively? To answer this question, thus study aims to identify the pros and cons of
depersonalization necessitated by digitalization and how it affects “customer-service provider
relationship. The theoretical background rests on the discussion of personalization and
depersonalization, technology-based service encounter, customer relationship strategy, opportunities
and challenges of digitalization. A qualitative research approach entails both company and customer
perspectives. Hence, data was collected through interviews. Findings show that depersonalisation
through digitalization, despite some challenges, has positive effects on the “service provider-customer
relationship”. Concludes that personalised buyer-seller interactions is considered an unalloyed good.
However, adjusting and modifying the service, and making personalised recommendations, are
considered a way to greater customer satisfaction. Implications for overcoming the challenges are
discussed. Technology will continue to play vital role buyer-seller service encounter and will continue
to be a crucial component in the customer-firm interactions. Further studies should investigate the
reasons for positive or negative aspects. In addition, it remains open question regarding the perception
of "less human error".
Keywords: Automation, Depersonalization, Digitalization, Customer Relationship
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The Effect of Digital Marketing on Customer

Relationship Management
*Professor Aihie OSARENKHOE
University of Gävle, Department of Business & Economic Studies,
Gävle, SWEDEN.
E-mail: aoh@hig.se
Dr. Daniella FJELLSTRÖM

University of Gävle, Department of Business & Economic Studies,
Gävle, SWEDEN.
E-mail: Daniella.fjellstrom@hig.se
Abstract
This research examines the combination of social media and customer relationship management with
the help of customer relationship performance and social customer relationship management
capabilities in order to explore as if social media can be utilized as a constructive CRM instrument in
business-to-business settings. Additionally, the research will disclose the positive or negative impact
of the social media on customer relationship performance. During the research process, we interviewed
digital marketing managers from four different small and medium sized organizations. The findings of
our research show that because of the companies’ less effective customer relationship management
capabilities, the companies were not able to achieve customer relationship performance by utilizing
social media. Additionally, we found that not only social media is the most effective instrument for
CRM. We also found that there is no specific social media used by every company i.e. the efficiencies
of social media platforms varies from company to company.
Keywords: Social media marketing, customer relationship management, Customer orientation,

Business to Business.
Introduction
Social Media has altered the ways in which individuals interact, share their views, the information and
generate the content. The New social media (NSM) and Social Networking Sites (SNS) have become
the inseparable part of our day-today life (Šedivá & Müllerová, 2014).With the increased use of smart
phones and tablets, consumers are spending more and more time of social media platforms (Adler
2014). Passive customers are participating in social networking posts and becoming the content
creators because of the influence of social Media. (Trainor 2012).Companies now a days are using
social Media to make and retain the Long-lasting customer relationships, create network based
customer support, to encourage promotion through word of mouth and for new ideas and content
creation(Trainor 2012).
Many firms have successively integrated social Media applications with their consumer databases
which has improved the management of customer relationships and this addition of social media in
customer relationship management is known as “Social Customer relationship Management”(
Lehmkuhl 2014).
In Business- to- consumer organizations, social media has been successfully recognized as an
interactive, promotive and communication tool (Moore et al. 2013). Social media can offer the same
benefits to business- to- business organizations. Marketers began to realize the importance of social
media for making and retaining customer relationships and to enhance brand value (Swani et al.,2014).
Social media in business to business relationships have the potential to increase the firm’s performance
due to the online platforms enhancing customer participation and value created by the customer’s
participation (Trainor, 2012)
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In spite of the fact that many researchers have been conducted for social media and customer
relationship management individually , but there was a lack of study conducted on a combination of
social media and customer relationship management in business-to- business context. Hence, this study
focuses to examine the combination of both social media and customer relationship management in
business to business conditions.
The previously conducted research studies paid very low attention on the combined phenomenon of
social media and customer relationship management in business to business environment. Hence, the
main aim of this study is to observe the combined utilization of social media and customer relationship
management by business-to-business firms. The following are the research questions which intent to
examine how and why the business-to business firms use social media in association with customer
relationship management:
RQ 1: What effect does the social media have on the relationship between the firms and their customers
in business to business settings?
RQ 2 : Is social media is the best way to enhance the customer relationship performance?
Literature Review
Social Media Marketing
Social media marketing (SMM) is a major tool for customer relationship management. It is the usage
of social media web sites to interact with the customers and maintain relationship with them. By the
improvement of technology and advancement of markets it is evolving and is getting more dynamic
(Hoffman & Fodor, 2010). Marketing and customer relationship management has been revolutionized
by SMM (Hanna, Rohm & Crittenden, 2011). Most used forums by major brands for promotion of
their products are social networks (e.g. Facebook), microblogs (e.g. Twitter) and video sharing sites
(e.g. YouTube) (Ashley & Tuten, 2014). They are followed by games, mobile apps and photo sharing
(Ashley & Tuten, 2014).
(Chan & Guillet, 2011) says it is vital to analyze between different social media networks and select
appropriate in order to succeed in its usage for CRM. There are different kinds of social media
platforms but a similarity among them is that they are used to gain information (Whiting and Williams,
2013). It is also important to be careful while targeting the segments as well (Zhu and Chen, 2015).
E.g. for the hotel industry, organizations must see that which SM techniques are used by the
competitors. To call SMM successful, it should be able to mold the decision of the customers in the
favor of organization (Mangold & Faulds, 2009).
There are limitations in usage of social media for CRM. Language influence the way of thinking of
customers. The attitude and language used on SM should be interactive and involving, not one-sided
flow of information. Another limitation is the technological infrastructure of both company and the
buyers. The strategy should be made according to the capabilities of both customers and organization
(Berthon, Pitt, Plangger & Shapiro 2012). Size of the firm and the use of technology are positively
related to each other (Michaelidou, Siamagka & Christodoulides, 2011). Flexibility should be adopted
as there cannot be a single rule to succeed in CRM. It is evident that in many cases lack of belief among
the senior management results in failure of SM campaigns (Berthon, Pitt, Plangger & Shapiro 2012).
SMM can be in some cases irritating for the customers. Especially when it interrupts their online
activities. This irritation should be avoided as much as possible. Virtual brand communities are more
trusted and less irritating for Facebook users (Chi, 2011).
There are various factors affecting the behavior of customers towards social media. It is evident that
the income of customers and their behavior towards social media is positively related. Cultural
background and other social attributes also have an impact on this behavior (Akar & Topçu, 2011).
Relation between income and behavior had lead luxury fashion brands to focus on SMM (Kim & Ko,
2012). Improvements to brand image and awareness are also observed through SM (Godey, B.,
Manthiou, A., Pederzoli, D., Rokka, J., Aiello, G., Donvito, R. and Singh, R. 2016).
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De Vries, Gensler & Leeflang (2012) have suggested implications for the CRM and role of SM. They
came up with psychological approach for this. The involvement attitudes of customers should be
analyzed for the getting more likes and comments. E.g. the fans of a brand will be attracted to a post
on Facebook asking a question (De Vries, Gensler & Leeflang, 2012).
Modern era is providing us with technical advancements, there is a consistent development in SM use
where customers can share their opinions on goods or services on various digital platforms (Tirunillai
& Tellis, 2014). As the marketing theories continue to develop, organizations must change the way
they execute their business due to the digital contributions made by satellite communication and
scientific developed devices (Saravanakumar & Lakshmi, 2012). According to (Parsons, Zeisser &
Waitman 1998) digital marketing fundamentally would change the effectiveness in their management.
A key factor for making SMM work for organizations is to understand the identities and behavior of
the customer (Stephen, 2016). As the relationships amongst buyers and sellers are changing from a real
world relationship into a virtual relationship, it brings people together in online communities. The
transformation of marketing theories from traditional to digital allows customers and organizations to
share information and achieve mutual benefits (Tiago & Veríssimo, 2014).
B2B Business to Business

In a business to business context the focus is on long-term relations rather than a single or few
transactions. SMM as a CRM tool use full to start the relationship (Homburg et al. 2009). The
customers are bigger organizations which make the CRM more complicated and the product
development process is usually monitored by the customer organization. This also makes the
development of product more time consuming (Webster 1995).
SMM is usually expected to be a good tool for b2c relationships more than for b2b relationships. There
are benefits of it observed in b2c marketing and relationships. According to (Järvinen et al. 2012) there
are numerous advantages of using SMM in b2b context. It helps to create brand awareness and increase
customer loyalty. It is also beneficial to provide customer service and encourage the development of
customer relationships.
The purpose of marketing is to inform and persuade the customers about a product and convince them
to purchase and create brand loyalty (Berman et al 2013). The importance has always been given to
consumers, but this has been faded away in traditional marketing techniques which are more focused
on products appreciation. However, SMM promotes customer orientation and strategies are made to
enhance communication.
The official social media pages of big brands are very helpful to gain control over the customers
accessibility on information. Almost all established companies have official Facebook and Twitter
pages. Most likely target of social media pages are the existing customers. The company can gain very
thorough access to existing and potential customers (Kim & Ko, 2012).
B2C (Business to consumer)

In b2c context social media is one of the best options available to interact with the customers.
(Weinberg & Pehlivan, 2011) came up with a concept of customer evangelism. Social media is an
exceptional tool for that. There are few forces identified by (Weinberg & Pehlivan, 2011) that combine
to make it an evangelism. These are conversation, engagement, human voice, sharing, collaboration
and openness. These all can be found in social media marketing (Weinberg & Pehlivan, 2011).
According to (Trainor et al., 2014) the social CRM capabilities are directly and positively related to
Customer relationship performance. the more capable an organization will be in social CRM, the better
it could perform in relationships with the customers. There may be factors like training, management
support and organization size that can moderate this relationship.
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Customer Orientation and Social Media

Schultz, Schwepker and Good (2012) says that there it is not evident that customer orientation and
usage of social media are positively related. We should not confuse it with sales performance. Social
media usage does have a positive impact on sales performance. There is a need to analyze the SMM
strategies to gain maximum benefits out of the investment done in social media.
Customer engagement can turn customers into fans. Social media helps fans to connect with other fans
increasing mutual satisfaction and advocacy. Fans can also interact with potential customers,
influencing them into transactional customers and launching the customer engagement cycle. Only if
sellers or current clients connect and move with potential customers and reach turning them into
transactional customers will the chance arise of their transition through resulting stages of the customer
engagement cycle with some eventually changing into fans. Satisfaction is crucial to retain
transactional customers and switch them into either loyal or delighted customers. Transactional
customers may be became delighted customers by making effective commitment and building
emotional bonds with them or into loyal customers by making scheming commitment and building
enduring relative exchanges with them. (Sashi, 2012)
Conceptual Framework
According to (Trainor et al. 2014) there is a positive relationship between the usage of SM and CR
performance. Social CRM capabilities play an intermediating role between them. It is evident that there
is a positive relation between the use of SM and customer relationship of an organization (Harrigan et
al. 2014). A chain effect can be concluded by this. CRO positively affect the use of SM, which is added
with social SRM capabilities and that impacts the CR performance positively.
Customer Relationship Orientation
In CRO approach the organizations try to maintain a relationship with customers which are based on
loyalty, retaining, and mutual benefits. There is a need to analyse the techniques in SMM to improve
CR performance through CRO.
Social Media use
The conversation through SM includes sharing of information, relationships and groups. Sharing helps
the firms to gain control on information received by customers. Groups are the e-tools which allow
online binding of the customers and potential customers. Relationships represent the technologies that
associate the customers and the company for mutual benefits (Trainor et al. 2014).
Social CRM Capabilities
Social CRM is based on the generation of information, the dissemination of information and the ability
of responsiveness. The SCRM capabilities are actually the ability to manage the information related to
relationship (Trainor et al. 2014).
Customer Relationship Performance
Successful CRM strategies result in CR performance. Efficient, effective, competitive and service
oriented approach supports the achievement of better customer relationship performance (Harrigan et
al. 2011)
Methodology
Qualitative research is open and exploratory in nature. It focuses on evaluating people and their
concerns and senses by interpreting and deriving human experiences in certain conditions (Cresswell,
1998). According to Patton, (1990) qualitative methodology includes three types of qualitative
interviewing; informal or conversational interviews, semi structured interview, and standardized or
open ended interview. The research questions used in qualitative method are open ended, and requires
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the answers in detail and possible explanations of the main phenomenon. In this report we used
qualitative method was used in which semi structured interviews were conducted.
This research is an arrangements of the conditions for collection and analysis of data in a way that
purposes to combine relevance to the research purpose with economy in procedure (Kothari, 2004). In
order to explore and gain insights about how companies utilize social media as CRM tool, exploratory
research strategy was applied and to explain the relationship between social media as CRM tool. In our
study we have chosen qualitative methodology.
We collected the data from primary sources that include observations and interviews of people. List of
registered companies in chamber of commerce were taken into consideration to select amongst those
which are using the social media effectively and successfully. So in start 10 companies were contacted
and just 6 companies replied with some kind of responses and just 5 companies show interest and
willingness to cooperate with the study. These 5 companies reduced to 4 after some discussion with
the firms, because one company could not provide the data and information required in our study.
These final four companies were given a name of W, X, Y, Z. We created a document based on all the
abbreviations used in the questions and interviews for the better understanding of interviewees. We
conducted semi structured interviews from our samples in which we kept the process more flexible and
the interviewees were encouraged to give the answers of the questions with their convenience and own
perspective.
So we came up with some detailed responses from the targeted interviewees and these targeted people
were digital marketing manager of the company or the people who were responsible for gathering the
qualitative data about social media. We developed a guide for semi structured interviews by keeping
in mind the conceptual framework of our report. It is sub divided into four categories: CRO, SM use,
SCRM capabilities, and CRP. We avoided direct questions to ask and more focused on when, how, and
what. This interview guide along with the abbreviation list was sent to interviewees before one week
of the interview. All the interviews were conducted through phone, whatsapp, and Skype.
The empirical data is stated as per the framework of conceptual model in which the data collected from
the companies are displayed. Company W is an IT company and X is a pharmacy company with over
150 and 180 employees respectively. Company Y is a real estate company with over 10 employees and
company Z is a software development startup company with over 6 employees.
Empirical Data
The interview with company W revealed that their main priority is retaining the existing customers.
The focus of the upper management is on employee’s participation in social media to interact with
customers and retain the relationships. The relationships with the customers are considered as
significant assets with whom the dialogs can be shared and value can be co- created by positive
electronic- word of mouth.
As per the interview with company X, it was disclosed that customers are valuable assets for them.
Moreover, the higher management also clarified the roles to all the employees to initiate regular
meeting, communication and feedback from the customers.
For company Y, customers are of highest priority and retaining long term- relations with customers is
very significant due to customer’s impact on electronic word of mouth and direct sales. The upper level
management encouraged the employees to communicate with customers and improve the relationships.
According to company Y, the key factors to maintain good customer relationships are communication
and dialog.
According to company Z, their main focus is on making new customers rather than on customer
retention. Their main focus is to get short term software development projects; this is because of the
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nature of their startup business. As per the small size of the company, there was absence of CRO
encouragement by the higher management.
Empirical Data
Social Media Use
Company W was utilizing twitter, linkedIn and SMS as social media for its business. As per the
interview, twitter is the most effective SM for its business. It was due to the more professional ambience
and conversations over twitter than facebook. According to company W linkedIn is better tool for
recruitment. The company focuses on generating quality content that encourage discussions and
contributes value to their firm. Company W was the only company using social media to expand social
networks and conveying information to the customers.
Company X was using youtube, facebook, linkedIn and twitter as SM platforms. As per the interview,
facebook is very effective for them because of the fast and emotional interaction and easy content
generation from their facebook page. The interviewee stated twitter as an important SM platform, but
also explain it as too professional i.e without any emotional conversations. The interviewee
characterized linkedIn as a good communication tool providing advantages like identifying target
groups. But the company X only created its profile on LinkedIn to maintain their presence. The
interviewee cleared that the company use youtube as an embedding tool on their facebook page or
website homepage for enhancing the content. To conclude, interviewee said that their main focus is on
generating the content on their website homepage and they use SM platforms to support their homepage
content. Social media is mainly used for information content and disclosed that they use emails for
communicating the customers. Hence SM was not used for customer communication mainly.
Facebook, twitter and linkedIn were used as SM by company Y but according to them facebook is
more efficient. It is because of the no cost, less limitations, easy public access. LinkedIn was
characterized as second efficient SM due to high professional communities but it was less used by the
company. Twitter was characterized as limited and outdated SM by company Y. The interviewee also
stated that they prefer face to face communication rather than SM and emails. It was concluded that
company C was using SM for disseminating information to the clients rather than focusing on
emotional conversations with their customers.
The social media platforms used by company Z are facebook, instagram, twitter and linkedIn. For
company Z, facebook is the most utilized SM for promoting their brand and show their software
innovations. The interviewee stated that facebook is the way to expand their national and international
networks. They were present on linkedIn, instagram and twitter just to maintain their professional
profile. To conclude, the interviewee revealed that their main focus is to gain new projects by using
these SM networks.
Social CRM Capabilities

In terms to generation dimension, market research, industrial shifts, and products demands were
covered through social media by company W. The interviewee stated that they provide training to
employees for participating in SM. From a corporate perspective, company W is using SM for
identifying and targeting the audience, which creates value for the firm. In terms of operational
dimension, the company focused on customer interactions and relations by using SM. From a
marketing perspective, they generate content and take feedback from the customers. In terms of
dissemination dimension, company used weekly newsletters for better marketing and IT approach.
From responsiveness perspective, the company focus is mainly on maintain and retaining customer
relationships.
In terms of generation dimension, SM is not utilized by company X in any aspect. It was due to the
concern of posting critical information over a public social media, problem in identifying the
occupation of and information from the followers and lastly, the information on industrial shifts to be
gathered by the social media are already conveyed to upper management by business relationships.
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For generation dimension, SM is used by the company Y for market research by having a view of rival
firm’s activities on social media and websites. In terms of dissemination and responsive dimensions,
company does meetings within the company due to the small size of the business. Company Y utilizes
SM for driving traffic and promotion of their business and does market research to keep a track to
demands and competitors activities. To conclude company Y is aware about its limited SM based
abilities and intent to improve in future.
In context to generation dimension, company Z explained that SM is used for getting information for
potential business leads. In terms of responsiveness dimension, the interviewee disclosed that the
discouraging comments on the social media posts are simply removed for maintaining the
professionalism of the content and positive image of the business.
Customer Relationship Performance

According to the interviewee, company W experienced an increase in customer loyalty and retention
by more customer and employee engagement on their website and twitter. The company measures its
customer relationship performance on the basis of likes, tweets, comments and the number of shares
of its content.
The interviewee from the company X stated that they are not able to measure the customer relationship
performance due to the lack of knowledge about their followers on SM. The interviewee stated that
their website is more efficient than SM in terms of customer retention. To conclude, social media has
no effect on its customer relationship performance.
According to company Y, face to face interactions are more effective in customer retention rather than
using SM. The interviewee stated that the quality of the service or product provided is more effective
in retaining the customer than using SM.
The interviewee from the company Z explained that SM is mainly used for making better company
reputation and getting new software projects. To conclude, company Z use SM only for market research
and business promotion and network expansion but not for retaining customer relationship.
Discussion
As per the interview conducted, all the organization stated themselves customer relation focused
organizations which aided them to gain a competitive edge, mutually profitable relation and helps them
in co-creating the firm’s value. According to the interviews conducted in the company W, X and Y,
these companies were highly focused towards retaining consumers and enhancing consumer’s loyalty
by two-way communication and satisfaction of consumer’s needs. These participants stated that the
importance of electronic-word of mouth has been experienced by these companies, they indicated that
the firm’s effectiveness can be enhanced by generating advanced information posts regarding the
company’s product and value, resulting in better customer’s participation for better solution for them,
which can be linked to the findings of Andreassen & Streukens, (2009).
Whereas the company Z was interested in identifying potential consumers for short duration projects
but not really focused towards maintaining customer relationship.
Social Media Use

According to the interviews with company X, Y and Z, the most effective and reliable social media for
their business is facebook, this is because companies believe that firms can make closer relationships
with their customers on facebook. These companies identified twitter as the lowest utilized social media
for their businesses. This observation does not complement the latest twitter business trend, which is
utilized by the business to business firms as a significant tool (Swani et al. 2014). According to the
participants, this is due to twitter’s limited functions and lack of close relationships.
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On the other hand, company W identified twitter as social media used by them rather than facebook.
The reason for using twitter was the professional discussions and the networks and groups that can be
found only in twitter. Hence concluded that professional conversations and the professional functional
groups are highly significant for firm W.
LinkedIn was used by every company, but the frequency of its use differed in all the firms. According
to Jussila et al.’s (2014), employee recruitment and selection is one of the most important function in
order to achieve better customer relations, hence we understood that LinkedIn is important for all the
companies.
As per the interview conducted, company W and X stated that social media is the main tool that brings
the new business leads to the company.SEO success can be measured with the hike in the traffic on
the website, where the website traffic is assumed to be associated with the rise in sales (Heinze, Fletcher
& Chadwick, 2010).
Social CRM Performance

With context to information generation capability of Social CRM, company W, Y and Z use social
media to do market research, examine the changes in the industry and gather latest information for
latest trends and demands for the specific products. Also, these companies failed to generate desired
information by the social media and they disseminated information by different ways like using
external social media and meetings in person. Company X indicated that it does not have any social
CRM capability in its business. As per Jayachandran et al. (2005), the companies W, X, Y and Z were
not able to incorporate and use the information gathered by the social media used by them.
As per the interview conducted, the company W and Z shared that the use of social media has enhanced
their customer loyalty and retention whereas company X & Y stated that the use of social media has a
very low impact on their customer relationship performance. With the help of social media, customer
participation increases and firm value is enhanced with the engagement of customers in the
communication, this way relationship performance gets influenced in a positive way (Trainor, 2012).
Conclusion
We attempted to demonstrate the impacts of social media marketing on customer relationships in
business to business environments. The viability of social marketing is clearly appeared in the report.
In this digital era, social marketing is very important to build a good relationship with customers.
The measure of individuals in advanced media is immense. According to Rodriguez, Peterson and
Krishnan (2012), social media is universal and global phenomenon and occupy almost every commerce
circles. As Gensler & Leeflang (2012), people engage more in social networking sites and members of
these sites shares their ideas to each other about product or services. Such opinions about product play
an important role for transaction about that product or services. Anything positive about the brand can
lead them to progress. Balakrishnan, Dahnil & Yi (2014), social media is an important tool for
marketers to target their customer quickly and efficiently as the interaction of people increasing
continuously due to this platform.
Taking into consideration our research purpose, how companies react and employ SM as their CRM
tool in a b2b environment, it is significant to review our research questions. With regard to our research
questions, the effect of SM has a positive impact on CRP through SCRM capabilities. Despite based
on the research outcomes, companies either have deficiency in SCRM or unable to effectively use SM
for SCRM purposes. Due to this deficiency or lake of fully utilizing SM, it has no influence on CRP.
They did not use SM for relationship tool but their attention is to use it for marketing tool.
We observe many similarities and point of differences in each part of the framework. Companies were
perceived customer relationship oriented and they showed concern about the same priorities in the
social media use. According to Liyakasa, (2012), CRO’s shared perception give the evidence that when
companies create maximum value with best allocation of resources while reducing the risk, are often
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customer relationship oriented. Choosing and utilizing adequate social media channel leads towards
beneficial relationship for both ends i.e. companies and customers. On the other hand SCRM
capabilities depict the same perception but the limitations’ level can be different between customers
and companies. There could be difference of perceived value of SCRM capabilities for companies as
well as customers. Companies which use and rely more on using traditional way of communication
argue that SM had low or did not have impact on CRP, our research results endorse the arguments as
high CRP was achieved through traditional channels rather than SM use. In contrary to this thought,
companies who rely on SM or other online, IT communication state that SM influence the CRP
positively, found in our report in line with the positive relationship between CRP and SCRM
capabilities.
In our theoretical framework, our major findings to expand CRO (customer relationship
orientationship) revolve around the social media channels like twitter, Facebook, Youtube, linkedin,
and live feed functions. Whereas, Facebook is considered as more personal and twitter is used for more
business interactions. We can conclude based on the above mentioned arguments that these platforms
have primary functions of communication with the potential customers. Mentioning the theoretical
framework, the most noticeable finding is circulation around the use of Twitter, YouTube and
Facebook etc. Normally Twitter is used for business communications while Facebook is commonly
used for emotional communications. So we found that the efficiency of the different platforms varies
from company to company.
To sum up, only few companies employ SM platforms as a CRM tool in a b2b environment to get
positive Customer relationship performance.
We recommend managers to be more responsible for social media in the organizations, that to continue
in developing with further SCRM (social customer relationship management) capabilities by using two
intermediates , YouTube and Twitter, not for only one way communication i.e. collection of
information but also for two way interaction that is dissemination and responding to the information.
Another recommendation is that SCRM capabilities can be increased by focusing on social analytics,
live feeds, and photo sharing subject to the condition if company has more resources. So if the resources
are available, these can be invested in social media (SM) as a CRM (customer relationship
management) tool because it has positive effect on CRP.
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Determinant of Audit Quality
Fitriany FITRIANY1, Dwi MARTANI2, Viska ANGGRAITA3 and
Nur Aulia RAHMAH4

1,2
fitrianyamarullah@gmail.com1
dwimartani@gmail.com2,
viska257@gmail.com3
rahmah.naulia@gmail.com4
Abstract
This study aims to analyze various factors that determine audit quality and theories related to audit
quality. The research method is study various previous literature relating to audit quality and then
classify the factors that affect audit quality. Based on an analysis of various factors that affect audit
quality, this study identified 41 factors that determine audit quality and can be grouped into two
things namely competency and auditor independence. This research presents a table that present
determinants of audit quality from various aspects of the audit process, namely inputs, processes, and
outputs and is associated with independence and competence aspect. The determinants of audit
quality from input aspects such as auditor competence, auditor education level, number of auditors,
reputation, fees, auditor specialization. Determinants of audit quality from aspects of the process are
the technology used, time, etc. Whereas the determinants of the output aspect such as earnings
quality, opinion, etc.
Keywords: audit quality, audit quality determinant, independency, competency
Introduction
Research on the determinants of audit quality has been widely done and found various factors that
affect audit quality. But to the best of researchers' knowledge, there are no studies that summarize
these various factors. This study tries to analyze various factors and group them into two things:
competency and independence. These two factors are derived from the definition of audit quality
from De Angelo (1981a) who said that audit quality is the extent to which the auditor's ability to find
fault from his client (competency) and the extent to which the auditors' courage informs the errors
found (independence). This study also presents the relationship of audit quality with various theories
including agency theory, signaling theory, regulation theory.
Agency Theory and Audit Quality
Jensen and Meckling (1976) Agency theory explains the contractual relationship between
owner/shareholder and agent/manager. In a contract, the agent must work according to the
delegation of authority from the owner/shareholder. However, because there is a self-interest
motivation (self interest), the manager does not always act in accordance with the wishes of the
owner in reality. One of the reasons is moral hazard (the desire of managers to act for personal
gain). This can occur because of the information asymmetry between the manager and owner.
Therefore, an independent third party as a mediator is needed, namely an external auditor, who will
give an opinion on the reasonableness of the financial statements made by the manager. The use of
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an independent external auditor is expected to reduce agency costs (Jensen and Meckling, 1976;
Watts and Zimmerman, 1986).
The Stewardship hypothesis in Watt and Zimmerman (1986) states that financial and auditing
reports are needed to examine the honesty and reliability of reports made by managers and as a tool
to monitor contracts between managers and owners. The manager will try to choose an auditor who
can build the manager's image as the good steward.
On the other hand, the moral hazard hypothesis stated that managers have a tendency to maximize
the level of welfare at the expense of the welfare of the owner. Managers tend to choose auditors
who give managers the flexibility to choose accounting procedures that managers like. However, at
the same time he was also willing to give an audit opinion in his favor.
The auditor's agency problem stems from an institutional mechanism. The auditor is appointed by
management to conduct an audit for the interests of shareholders, but the audit services are paid by
management (Gavious, 2007). This creates a conflict of interest that the auditor cannot avoid. This
institutional mechanism raises the auditor's dependence on his client so that the auditor can lose his
independence and must comply with various client wishes in the hope that his future audit
engagement will not be interrupted.
Palmrose (1984) and Healy and Lys (1986) state that audit quality is the main indicator in auditor
selection. That is, the quality of auditor services provided to clients is the main consideration in
choosing an auditor. Consistent with agency theory, company management always wants to satisfy
investor desires by choosing auditors who can reflect a good manager's image to the investors.
On the other hand, there are agency problems arise from the auditor's side, where the auditor has an
interest in maintaining and increasing the income of his audit services by fulfilling the wishes of the
audit client, especially the long-term client. This is done in order to guarantee the continuation of the
audit engagement so that the auditor's income is guaranteed. The incentive to cooperate with
fraudulent management comes from the economic dependence. Thus, in economic interests, a long-
term audit engagement will lead to closeness and loyalty between the auditor and client. This will
reduce audit objectivity and reduce auditor independence. The problem that needs to be considered is
that if the auditor is retained for a long period of time, it is likely that the auditor will feel comfortable
so that the objectivity of the audit will be disrupted (Mautz and Sharaf, 1961).
However, auditors must consider litigation and reputation risks that arise in maximizing profitability
(Reynolds and Francis, 2001). Audit failures can result in the imposition of sanctions on the auditor
by the regulator which will damage the auditor's reputation. The regulator (government) acts as a
protector of the public interest by issuing policies / regulations so that audit quality is maintained.
Signaling and Audit Quality Theory
Megginson (1997) states that signaling theory is based on the assumption of asymmetric information
between parties in the company (management) who have complete information and those outside the
company (investors) who do not have complete information about the company. With this
information asymmetry, it is very difficult for investors to objectively distinguish between high
quality and low quality companies. As a result, investors will judge all companies equally. Managers
from high quality companies have an incentive to convince investors that the company is better so
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that the company's stock price increases. The signal must be something that can be trusted so that it is
not easy or expensive to be imitated by low-type manage.
According to Scott (2009), based on signaling theory, managers have the choice to communicate the
quality of the company (for example the quality of business strategies, information, resources, and
quality of financial reporting) in various ways. Signaling theory clarifies signals into two major
groups, namely direct signals and indirect signals. The direct signal is reflected in disclosures in the
company's financial statements. While indirect signals include related to the amount of equity
retained, the quality of external auditors, capital structure, dividend policy, selection of accounting
policies, and publication of company forecasting.
Audit quality can be a signal of the value of securities the company will issue. A rational manager
will not use good to high quality auditors if the company does not have good prospects. Datar et al.
(1991) developed a model that explained audit quality as a signal of the value of securities to be
issued by companies.
Balsam (2003) states that good audit quality can reduce the uncertainty felt by users of financial
statements (investors) and can also reduce the "noise" of earnings report. A good audit quality can
give investors confidence about the fairness of the financial statements. With this reduction in
uncertainty, earnings announcements will be responded to better by the market as indicated by a
better level of ERC (Earnings Response Coefficient).
Relevant signaling theory is used as a reference in this study because it is closely related to market
reaction to earnings announcements as measured by ERC and the level of predictability of financial
statements. Some variables in this study such as the level of debt (leverage), the level of company
growth (price to book value), and the quality of financial statements (quality of earnings) are closely
related to signaling theory.
Regulation Theory and Audit Quality
There are two regulatory theories namely public interest theory and interest group theory (Scott,
2009). Public interest theory believes that regulation should be able to maximize social welfare.
Whereas interest group theory sees that regulation is the result of lobbying from several individuals
or groups who defend and convey their interests to the government. According to public interest
theory, regulation arises from people's desire to fix market failures. In this theory, regulators are
assumed to have an interest in taking actions that are more in favor of the public interest and
maximize social welfare (Scott, 2009).
Accounting practices are recommended to be regulated to protect the public from information
asymmetries that threaten the public interest. The important role of accounting and auditing is to
report relevant and reliable information so as to reduce the information asymmetry between the
company, investors, and other users of financial information. This role requires accountants and
auditors who are credible and competent. Laws are needed to regulate the accounting profession by
controlling the licensing process and maintaining high audit quality.
Auditor Competency and Independence
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Watts and Zimmerman (1986) state that auditor competence and independence play an important role
in explaining the application of contracting theory in auditing practices. Monitors conducted by the
auditor will not be of any value to the user, unless the user believes that the auditor will report
violations that occur in the company. The amount that companies will pay for auditor services
depends on the probability of finding a violation. The higher the possibility of the auditor reporting a
violation, the more effective the contract is, so the lower the agency cost and the higher the
company's stock price will be.
The possibility of the auditor reporting a violation depends on the likelihood of the auditor finding
the violation and reporting the violation (Watts and Zimmerman, 1982). The possibility of the auditor
finding a violation depends on the auditor's competence.
Independence shows the extent to which the client is able to pressure the auditor not to reveal the
violations found by the auditor or the extent to which the auditor can withstand client pressure (Watts
and Zimmerman, 1986).
Independence and competence are trade offs. The longer a company audits, the auditor's competence
increases. But along with that, the auditor's relationship with the client is getting closer (familiar) so
that independence becomes down. However, an increase in competency that is followed by a
decrease in independence is not always the case, because there is an audit risk where the cost to be
borne by the auditor is greater than the additional revenue obtained. In other words, the lost of
independence is greater than the additional fee due to additional clients (Watts and Zimmermen,
1985). Because of this audit risk, there are some auditors who remain competent without losing their
independence.
Definition of Audit Quality
DeAngelo (1981a) defines audit quality as the ability of auditors to detect errors in financial
statements and report them to users of financial statements. The chance of detecting errors depends
on the auditor's competence, while the auditors' courage to report errors on the financial statements
depends on the auditor's independence.
Jackson et al. (2008) looked at audit quality from two sides, namely actual quality and perceived
quality. Actual quality indicates the level of risk of material error in the financial statements that can
be reduced by the auditor. Quality perception shows the level of trust of users of financial statements
on the effectiveness of auditors in reducing material misstatements in financial statements made by
management.
Audit Quality Dimensions and Measures
Audit quality has many dimensions that until now there has been no reference/guidance to measure
audit quality. Based on the definition of audit quality according to DeAngelo (1981a), the dimensions
of audit quality can be divided into competencies and independence. Competence is measured by the
ability of auditors, for example the level of experience, specialization, etc., while independence is
measured by the extent to which the auditor can be independent in conducting the audit process and
giving opinions.
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According to Lewensohn et al, (2007) audit quality can be measured by three approaches, namely: (1)
using audit quality proxies, for example auditor size (Mansi et al, 2004), earnings quality (Kim,
2002), audit firm reputation (Beatty, 1989), the amount of audit fees (Copley, 1991), the existence of
lawsuits against auditors (Palmrose, 1988), and others; (2) a direct approach, for example by looking
at the audit process carried out and the extent of compliance with audit firm to audit audit standards
(Dang, 2004; O'Keefe et al, 1994); (3) using perceptions from various parties towards the audit
process conducted by audit firm (Carcello, 1992).
For the first approach, the proxy used is earnings quality, as audit quality is often associated with
earnings quality reported in financial statements. Basically, an audit conducted by an external auditor
aims to determine whether the figures contained in the financial statements have been presented fairly
and have reflected the true state of the results of the company's operations and the financial condition
of the company concerned. If the resulting audit quality is "poor", then the resulting profit figures will
tend to contain accounts that do not accurately describe the results of operations and financial
condition of the company (Chen, 2004). Therefore, earnings quality is used as a proxy of audit
quality.
The second approach (looking at the audit process carried out and the extent of AUDIT FIRM’s
adherence to audit standards) has been carried out among others by Dang (2004) and O'Keefe et al.
(1994). However, this approach is difficult in Indonesia because of the difficulties in obtaining data.
In fact, this second approach can be measured based on the results of a peer review conducted by
IAPI (Institute of Public Accountant in Indonesia) and the Ministry of Finance. But the amount of
data is inadequate and less representative because the peer review is only done by sampling.
The third approach (perception of audit quality) can be done using a questionnaire. Research that
measures audit quality using a questionnaire has been conducted by Carcello (1992) who conducted a
survey of auditors, users, and financial statement makers. Behn et al. (1997) examined the
perceptions of controllers, while Samelson (2006), Lowensohn (2007), and Daugherty and Tervo
(2008) examined the perceptions of financial directors on audit quality. However, this research has
not linked audit quality with tenure and rotation.
Earnings Quality as a Measure of Audit Quality
Audit quality is defined in various ways, ranging from the level of audit compliance with audit
standards (Khrishnan and Schauer, 2001), the possibility of financial statements containing material
errors and the auditor does not find and report these errors (DeAngelo, 1981), the accuracy of the
information reported by the auditor ( Beatty, 1989), to the ability of audits to reduce noise and bias
and increase the accuracy of accounting data (Wallace, 1980). Jackson et al. (2008) say that the actual
audit quality is when the audit does not cause a type 1 error (bad companies are given an unqualified
opinion) or type 2 (good companies are given a qualified opinion). To measure the quality of audits
in various companies, it is more possible and easier to do it using information that is publicly
available, namely the quality of earnings reported in financial statements (income statements).
The income statement is one of the financial statements that is useful for knowing the performance of
the company and company management. In addition, the income statement is also useful for investors
and creditors to predict the company's cash flow in the future. Because every company has the
freedom to choose accounting methods and estimates, the quality of earnings at each company can be
different.
7627
Profit as part of the financial statements, does not always present the actual facts about the company's
economic condition so that the profits which were originally expected to provide information to
support decision making, are of doubtful quality. A biased profit can mislead the users of the
financial statements so that the profit cannot explain the true value of the company. The quality of
earnings in particular and the quality of financial statements in general are important for users of
financial statements for the purpose of making contracts and making investment decisions (Schipper
and Vincent, 2003). For investors, earnings information is considered to have relevance in analyzing
the rate of return of shares issued by the issuer.
Factors Affecting Audit Quality

Various studies have examined the factors that influence audit quality. Table 1 shows the factors that
influence the quality of audits that are collected by researcher and then grouped into input factors,
processes, and outputs. In addition, it is also grouped according to the dimensions of competence and
independence and how the impact to the audit quality.
Table 1: Determinants of Audit Quality
Impact on
Description Researchers Audit Dimension
Quality
I. Input
Number of Auditors / Firth & Lin Tan (1998) Positive Competence

Partners
Auditor Competency Hogart (1991) Positive Competence
Level, Auditor/Partner
Education
Brand Name (Reputation) DeAngelo (1981b), Positive Competence
Dopuch dan Simunic
(1982)
Fee Copley (1991), Positive Competence /

O’Sullifan (2000) Independence
Auditor Scale, Number Deis & Giroux (1992), Positive Competence /

and Variety of Clients Firth & Lin Tan (1998) Independence
Audit Hours Palmrose (1988) Positive Competence
Auditor Specialization Carcello (1992); Positive Competence

Hammrsley (2006),
Mayangsari (2003)
Audit Experience Carcello (1992), Positive Competence

Widagdo et al. (2002)
Understanding of the Carcello (1992), Positive Competence

Client Industry Widagdo et al. (2002)
7628
Clients' Financial Deis & Giroux (1992) Negative Independence

Soundness
Power Conflict Effect DeAngelo (1981); Deis Negative Independence
& Giroux (1992)
II. Process
Compliance Compliance with Audit Carcello (1992), Positive Competence

Standards Widagdo et al. (2002)
Compliance with GAAP Dang (2004), O’Keefe Positive Competence

et al.(1994)
Compliance with Auditor Positive Competence

Ethics
Widagdo et al. (2002)
Level of Violation Deis & Giroux (1992), Negative Competence

Pierre dan Anderson
(1984)
Attitude Careful Attitude of Widagdo et al. (2002) Positive Competence

Auditors
Unbelief (Skepticism) Widagdo et al. (2002) Positive Competence
Auditor's Ability to Goldman & Barlev Positive Competence

withstand Pressure (1974)
Responsive to Client Widagdo et al. (2002) Positive Competence

Needs
Technology Audit Technology Used Dopuch & Simunic Positive Competence
(1980)
Quality of Field Work Widagdo et al. (2002) Positive Competence
Commitment KAP's Commitment to Widagdo et al. (2002) Positive Competence

Audit Quality
Involvement of KAP Widagdo et al. (2002) Positive Competence
Leaders
Time Report Timeliness Dwyer & Wilson (1989) Positive Competence
Workload Auditor Lopez (2005), Hansen et Negative Competence

al.(2007)
Time budget Pressure Alderman & Dietrick Negative Competence

(1982); Kelley and
Margheim (1990);
Ragunathan (1991);
Sweeney and Summers
(2002); Coram et
7629
al.(2004)
Tenure Deis & Giroux (1992), Positive/Neg Competence /

Knechel & Vanstraelen ative Independence
(2007), Davis et
al.(2002)
Tabel 1: Determinants of Audit Quality (continuing)
Impact on
Description Researchers Audit Dimension
Quality
Regulation Rotation Mautz dan Sharaft Positive/Neg Competence /
(1961), Gavious (2007) ative Independence
Corporate Governance Mayangsari (2003) Positive Competence

Mechanisms in Client
Companies
Review by Third Parties Deis & Giroux (1992) Positive Competence /
Independence
Involvement of the Audit Widagdo et al. (2002) Positive Competence /
Committee Independence
III. Output Profit Quality Kim (2002), Fargher et Positive Competence
(Discretionary Accruals, al (2008)
Earnings Response
Coefficient,
Conservatism)
Audit Report and Francis (2004) Positive Competence
Financial Statement
Quality
Accuracy of Opinion Knechel & Vanstraelen Positive Competence /
Provided (2007) Independence
The Audit Report / Deis & Giroux (1992) Positive Competence

Working Paper will be
reviewed by a Third Party
IV.Others User Perception of Carcello (1992), Jackson Positive Competence /
Financial Statements et al.( 2008) Independence
Summarized by author of various research
Deis and Giroux (1992) conducted a study of four things that were considered to have a relationship
with audit quality, namely: (i) the length of time an auditor had examined a company (tenure), the
longer an auditor had audited the same client, then the resulting audit quality will be lower, (ii) the
number of clients, the more the number of clients, the audit quality will be better because the auditor
with a large number of clients will try to maintain its reputation, (iii) client financial health, the
7630
healthier the client's financial condition will be there is a tendency for the client to pressure the
auditor not to follow the standards, and (4) review by a third party, the quality of the audit will
improve if the auditor knows that the results of his work will be reviewed by a third party.
Carcello (1992) said that the factors that influence audit quality are experience, industry expertise,
responsiveness, and auditor's adherence to auditing standards for financial statements.
Research conducted by Mayangsari (2003) examined the effect of independence and audit quality on
the integrity of financial statements. The results of this study support the hypothesis that auditor
specialization has a positive effect on the integrity of financial statements, and independence has a
negative effect on the integrity of financial statements.
Widagdo et al. (2002) conducted research on the audit quality attributes by the Public Accounting
Firm that had an influence on client satisfaction. There are 12 attributes used in this study, namely:
(1) audit experience; (2) understanding the client's industry; (3) responsive to client needs; (4) adhere
to general standards; (5) independence; (6) caution; (7) commitment to audit quality; (8) involvement
of audit firms leaders; (9) doing field work properly; (10) the involvement of the audit committee;
(11) high ethical standards; and (12) not easy to believe. The results showed that the seven audit
quality attributes that influence client satisfaction are: (i) audit experience; (ii) understand the client's
industry; (iii) responsive to client needs; (iv) adhere to general standards; (v) commitment to audit
quality (vi) leadership involvement; (vii) audit committee involvement. While 5 other attributes do
not affect client satisfaction.
Brand name (for example Big Eight versus Non-Big Eight) is a factor that influences the cost of audit
and auditor selection. As a measure of audit quality, brand names indicate the level of auditor
reputation (DeAngelo, 1981b) and the auditor's ability to deal with client pressure (Goldman and
Barlev, 1974). Although testing audit quality is very difficult without measuring audit quality
directly, auditor size is often used as a measure of audit quality.
Blokdijk et al. (2006) made a comparison of audit quality conducted by Big-4 and Non-Big-4 by
looking at the audit program in terms of total working hours, allocation of audit effort at four stages
(planning, risk assessment, substantive testing, and completion), and the trigger for audit effort. The
results of his research concluded that between the Big-4 and Non-Big-4 had the same total effort.
However, Big-4 allocates more effort in the planning and risk assessment stages than in the
substantive testing and completion stages.
Deis and Giroux (1992) measure audit quality from reputation effects, power conflict effects, report
timeliness, audit hours, and the level of violations. The results confirm previous research on audit
report timeliness (Dwyer and Wilson 1989) and actual audit hours (Palmrose 1986, 1989) as a
measure of audit quality. The study concluded that audit hours are a good measure of audit quality
when direct measurements are not available.
Knechel and Vanstraelen (2007) examined the effect of tenure and audit quality on private companies
in Belgium using a measure of audit quality that is likely the auditor issued a going concern opinion.
If the auditor issues a going concern opinion and then proves that the company is bankrupt, then the
quality of the audit conducted by the auditor can be said to be good. However, if the auditor does not
issue a going concern opinion, it turns out that the company is bankrupt, so the audit quality is not
good. The results of the study concluded that the long-term relationship between the auditor and the
client would increase the likelihood of the auditor issuing an unqualified opinion.
7631
Conclusion
This study aims to analyze various factors that determine audit quality and theories related to audit
quality. The research method is to study various previous literature relating to audit quality and then
classify the factors that affect audit quality. Based on an analysis of various factors that affect audit
quality, this study identified 41 factors that determine audit quality and can be grouped into two
things namely competency and auditor independence. This research presents a table that present
determinants of audit quality from various aspects of the audit process, namely inputs, processes, and
outputs and is associated with independence and competence aspect. The determinants of audit
quality from input aspects such as auditor competence, auditor education level, number of auditors,
reputation, fees, auditor specialization. Determinants of audit quality from aspects of the process are
the technology used, time, etc. Whereas the determinants of the output aspect such as earnings
quality, opinion, etc.
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7633
Enhancing Ukraine's Competitiveness in a Global Space Under

Conditions of Sustainable Economic Development
Nataliia ORLOVA
Dr. Sc. (Public Administration), Рrofessor, Department of Public Administration, Kyiv National University of
Trade and Economics, Kyiv, Ukraine,
nsorlova78@gmail.com
Olena КОZYRIEVA
Doctor of Economic Sciences, Head of Department of Management and Administration, National University of
Pharmacy, Kharkiv, Ukraine
yakakos74@gmail.com
Nataliia KONDRATENKO
Doctor of Economics, Professor, Department of Management and Public Administration, O.M.Beketov National
University of Urban Economy in Kharkiv, Kharkiv, Ukraine
2123kondratenko@gmail.com
Militsa VOLKOVA
PhD in Economics, Associate Professor, Department of Management and Public Administration, O.M. Beketov
National University of Urban Economy in Kharkiv, Kharkiv, Ukraine
milaha7432@gmail.com
Oleg DIEGTIAR
Dr. Sc. (Public Administration), Associate Professor, associate professor of the Department of Management and
Public Administration, O.M.Beketov National University of Urban Economy in Kharkiv, Kharkiv, Ukraine
odegtyar@i.ua
Tykhon YAROVOY
Ph.D. (Public Administration), Associate Professor of the Department of Public Administration, Interregional
Academy of Personnel Management, Kyiv, Ukraine
tikhon_9563963@ukr.net
Abstract
The purpose of the article is to determine the directions of increasing Ukraine's competitiveness in the
global space in order to ensure sustainable economic development. On the basis of the methodology
for assessing sustainable development and competitiveness, the Global Competitiveness Index, the
Global Indicators Index, the RobecoSAM Ranking, Ukraine (Sustainable Economic Development
Indicators, Doing Business, Moody's Investors Service) were developed. Global Competitiveness
Index ranking leaders are the United States, Singapore and Germany, Switzerland, which proves the
effectiveness and weight of government policy that takes into account the full range of
competitiveness factors. The European countries dominate the Global Sustainable Competitiveness
Country Index rating, namely, Switzerland, Norway, Iceland, and Finland. It has been proved that the
external opportunities for the corporations development in Ukraine on the modern economic
development are very weak (GCI Ukraine ranked 83rd, GSCI ranked 91st). The analysis of the main
indicators of the economic development assessment of Ukraine shows that the low level of gross
accumulation of fixed capital in gross domestic product hinders the modernization of the economy,
reduces the return on capital of production equipment, and does not support the maintenance of
productive capacity capable of creating a competitive product. The article proposes the directions of
increasing Ukraine's competitiveness in the tasks of sustainable economic development
implementation formed in accordance with the sustainable development strategy of Ukraine, the
Framework Partnership Program between the Government of Ukraine and the United Nations,
analysis of the main national and international indicators of sustainable development.
Keywords: sustainable economic development, competitiveness, global space, foreign direct investment
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Introduction
Sustainable development of the national economy becomes a strategic direction of the economic
policy of any country. The basis of the sustainable development concept is the need to strike a
balance between satisfying the modern needs of mankind and protecting the interests of future
generations, including their need for a safe and healthy environment.
Sustainable development is a process of building the state on the basis of adjustment and
harmonization of social, economic and environmental components in order to meet the needs of
present and future generations. The definition of the national paradigm of the sustainable
development strategy is under the influence of contemporary world tendencies to solve the problem
of not only harmonious development of mankind, but also its survival. The conceptual foundations of
sustainable development primarily involve ecologization of the economy, humanization, and the
introduction of a certain system of principle approaches to social activity issues.
One of the directions of sustainable development is the formation of a competitive economy,

ascertaining the influence of its various factors on the social, economic and environmental
components. Competitiveness enables the national economy to successfully compete on the domestic
(with imported goods) and external (to promote exports) markets. The growth of national
competitiveness is the goal of the state economic policy and an instrument of the sustainable
economic development model realization.
The current economic situation in Ukraine determines economic growth as the main priority of the
country's development. Expansion of European integration ties of Ukraine, strengthening the
dependence of the national economy on the globalization processes and, as a result, the increase of
international competition actualizes the issue of national competitiveness development.
Analysis of recent research and publications. The research of sustainable development strategy and
investment component of countries' competitiveness is devoted to the work of a large number of
domestic and foreign scientists.
The research of D. Kaufmann, A. Kraay (Kaufmann, Kraay and Mastruzzi, 2010) summarizes the
methodology for assessing competitiveness within the main governance aspects: transparency,
accountability, political stability and non-violence, government effectiveness, quality of regulation,
rule of law and control.
I. Kryuchkova (Kryuchkova, 2018) in the research proves that maintaining high rates of investment
growth demand and raising its level of capitalization are key factors of country economic growth; the
need to improve the country competitive environment is substantiated.
N. Orlova's scientific works (Orlova and Marukhlenko, 2018; Orlova and Mokhova, 2018) are
devoted to the research and formation of effective investment policy for enhancing the country's
economic development, investment attractiveness and competitiveness.
The researches on competitiveness and sustainable development are disclosed in scientific works of
Porter M.E., Sachs J.D., Warner A.M. (Porter, Sachs and Warner, 2000), Jennifer Blanke, Roberto
Crotti, Margareta Drzeniek Hanouz, Brindusa Fidanza, Thierry Geiger (Blanke, Crotti, Hanouz,
Fidanza and Geiger, 2011), Dorel Ailenei, Liviu-Cosmin Mosora (Dorel Ailenei and Mosora, 2011),
etc.
Scientific works of Porter M.E., Sachs J.D., Warner A.M. (Porter, Sachs and Warner, 2000) are
dedicated to analyzing the global economy and identifying the key goals of globalization processes,
according to which the economy competitiveness is a major factor in the country economic growth.
Generalization of diagnostic tools that indicate the economy strongest areas, issues that need to be
overcome in order to increase national competitiveness, are discussed in the works of Jennifer
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Blanke, Roberto Crotti, Margareta Drzeniek Hanouz, Brindusa Fidanza, Thierry Geiger (Blanke,
Crotti, Hanouz, Hanouz, Hanouz, Hanouz, Hanouz, Hanouz 2011).
Scott and Lodge consider the country's competitiveness as the ability of a country to create, produce,
distribute and / or serve products in international trade, receiving increased revenue from its resources
(Scott and Lodge, 1985).
The scientific research results of these scientists are devoted to models of increasing the country
economic growth in the conditions of globalization processes development. At the same time, these
papers do not consider the interdependence between the model of sustainable development and the
competitiveness of the national economy in modern conditions. Therefore, only an international
methodology can be used to cover the topic of increasing Ukraine's competitiveness in the global
scale in the context of sustainable economic development.
Buckley P.J., Pass C.L. and Prescott K. argue that competitiveness includes the effectiveness of
achieving aims with the lowest possible cost and efficiency with the right goals. Competitiveness
includes both aims and tools aimed at achieving these goals (Buckley, Pass and Prescott, 1988).
Cambridge Dictionary defines the concept of "competitiveness" as the ability of a country to offer
products and services that meet the standards of quality in world markets at competitive prices
(Cambridge Dictionary, 2018).
The Financial Times research, in terms of competitiveness, means increasing the ability to compete
by improving productivity over the long term. The concept emphasizes continuous improvement
through ongoing innovation in economic processes and management, which in turn transforms input
data into valuable products and services that allow the country to maintain high wages and earn
returns on invested capital. As a result, it creates a strong currency and promotes innovative ways of
using resources (Finansial Times, 2018).
Competitiveness for the Organization for Economic Co-operation and Development (OECD) is the
degree to which a nation can, under free trade and fair market conditions, produce goods and services
that meet the requirements of international markets, while supporting and expanding the real incomes
of their people in the long run. This understanding puts forward the statement that competitiveness is
built into the type of economic system, in this case, into a market economy (The Council on
Competitiveness, 1992).
The World Economic Forum, which measures the competitiveness of the countries since 1979,
defines "competitiveness" as "a set of institutions, policies and factors that determine the level of
productivity of the country" (World economic forum, 2017).
All studies that address the issues and areas of sustainable development of countries require some sort
of systematization and broader coverage.
The purpose of the article is to determine the directions of increasing Ukraine's competitiveness in
the global arena in order to ensure sustainable economic development.
Methodology for Assessing Sustainable Economic Development at The Global

Level
The World Economic Forum study provides two indices based on country ratings: the Global
Competitiveness Index (GCI) and the Business Competitiveness Index (BCI). The main means of
generalized competitiveness assessment is GCI, created by Xavier Sala-i-Martin, the Professor of
Columbia University in 2004 (Center for Humanitarian Technologies, 2018).
GCI evaluates factors that collectively determine the level of country productivity - the most
important factor in long-term improvement of living standards. The Global Competitiveness Index is
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comprised of 113 variables, which detail the competitiveness of the world countries that are at
different levels of economic development. All data are grouped into 12 benchmarks that determine
national competitiveness: quality of institutions, infrastructure, macroeconomic stability, health and
primary education, higher education and training, the efficiency of the goods and services market,
labour market efficiency, financial market development, the level of technological development, the
size of the domestic market, the competitiveness of companies, innovation potential (World
economic forum, 2018).
The choice of these variables is due to theoretical and empirical studies, and no factor can
independently ensure the competitiveness of the economy. The most competitive are the economies
of those countries that are able to pursue a comprehensive policy, take into account the whole range
of factors and the interconnection between them.
The United States, Singapore and Germany were the leaders of GCI rank in 2018 (Table 1). The
previous year's leader Switzerland took the 4th place.
Table 1: Country ranking for the Global Competitiveness Index, 2018
Economy Score Economy Score

1 United States 85.6 12 Canada 79.9
2 Singapore 83.5 13 Taiwan, China 79.3
3 Germany 82.8 14 Austria 78.9
4 Switzerland 82.6 15 Korea, Rep 78.8
5 Japan 82.5 16 Norway 78.2
6 Netherlands 82.4 17 France 78.0
7 Hong Kong SAR 82.3 18 New Zealand 77.5
8 United Kingdom 82 19 Luxembourg 76.6
9 Sweden 81.7 20 Israel 76.6
10 Denmark 80.6 …
11 Finland 80.3 83 Ukraine 57.0
Source: (World Economic Forum, 2018)
The most competitive countries according to this assessment are the United States (GCI - 85.6),
Singapore (83.5) and Germany (82.8). The business culture, labor market and financial system are
highly appreciated in the dynamics of US business. The second position of Singapore (83.5) is
determined by the openness and infrastructure in the world transport system. Germany, in third place,
has the European economy with the highest competitiveness, where the government focuses on
innovation (first out of 88), business dynamics (82, second after the US) and health (94).
Out of the 140 studied economies, 117 countries still lag behind the quality of institutions that
affected their overall competitiveness. Among the countries with the lowest competitiveness index
are Haiti (36.5), Yemen (36.4), and Chad (35.5).
According to the new methodology of Global Competitiveness Report, Ukraine ranked 83rd out of
140 countries. Formally, Ukraine's place has improved by 6 positions. However, the change in
methodology does not allow to directly comparing with the last year's rating. Therefore, in order to
compare the dynamics of indicators, the rating developers calculated the position of countries
applying new methodology to the previous period.
As a result, Ukraine's position degraded in 11 components, and only one (Dynamics of Business)
recorded positive changes. Ukraine scored the most points for such components as Skills (45th
place), Market Size (47th place), Infrastructure (57th place) and Innovative Capacity (58th place).
However, according to "Level of Electrification" indicator Ukraine took the first place, which it
shared with 66 other participants in the rating.
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The components that lowered Ukraine’s position were "Macroeconomic Stability" (131st place),
"Financial System" (117th place) and "Institutes" (110th place). Among the indicators that decreased
Ukraine’s position were: the impact of organized crime on the cost of business; the level of inflation
(average for 2016-2017); debt dynamics based on credit rating; the level of terrorism; independence
of the judicial system; protection of property rights; road quality; the impact of taxes and subsidies
and competition; flexibility in wage setting; SME financing; bank reliability; share of unstable loans;
the pace of innovation companies growth.
The neighboring countries of Ukraine occupied the following places: Russia - 43, Poland - 37,
Slovakia - 41, Hungary - 48, Romania - 52. Below was only Moldova - 88. Belarus traditionally does
not participate in the ranking.
Improvement of the financial market infrastructure, introduction of an effective mechanism for

protecting the rights of creditors, implementation of training programs on sustainable development,
human rights, gender equality, creation of conditions for the use and development of the latest IT
technologies in the social and economic sphere, introduction incentive for technical modernization
and innovation activities, creating conditions for easy business and small and medium business
development will ensure Ukraine’s creditworthiness level and an increase in the GCI rating.
To measure the level of development, capacity, and economic enhancement, SolAbility has released a
rating of 183 countries for the Sustainable Competitiveness Country Index (GSCI), which measures
the current and future ability of countries and their economies to create and maintain financial and
non-financial income for their populations.
GSCI (based on 111 measurable, quantitative indicators derived from World Bank, International
Monetary Fund and United Nations agencies) includes analysis of sustainable growth foundations:
- natural capital - this natural environment, including the availability of resources and the level of
these resources exhaustion;
- social capital - from the law, safety, freedom, equality and life satisfaction in the country;
- resource management - the effectiveness of using existing resources as a measure of operational
competitiveness in the world with resource constraints;
- intellectual capital - the ability to generate wealth and jobs through innovations and value-added
industries in globalized markets;
- management efficiency - results of major state areas and investments - infrastructure, market and
employment structure, providing a framework for sustainable and long-lasting development.
GSCI shapes current and future development prospects and risks for countries; is an alternative
measure of competitiveness, such as gross domestic product (GDP) or credit ratings (SolAbility,
2018).
In the ranking of sustainable competitiveness in 2017 (Table 2) European countries dominated. Of the
twenty best states, only three are not European - New Zealand, South Korea, and Japan. The Nordic
countries, including the Baltic States and Slovenia, hold top positions. Germany ranked 14th, United
Kingdom 22nd, and the world's largest economy, the United States, ranked 29th.
7638
Table 2: Global Index of Countries Sustainable Competitiveness in 2017
The Rating of
Sustaina The
intensit Intellec opportuni
ble rating Social
Indic y rating tual ties for
Country competiti of capital
ator of the Capital effective
veness natural rating
resourc Rating managem
rating capital
es use ent
Sweden 1 60.5 5 9 2 37 11
Norway 2 58.2 27 78 3 15 1
Iceland 3 57.6 20 60 18 12 3
Finland 4 57.4 16 41 8 46 4
Denmark 5 57.2 61 18 5 19 12
Ireland 6 55.4 65 24 23 1 25
Switzerland 7 55.3 71 38 7 28 6
Austria 8 54.8 70 72 12 9 13
Latvia 9 54.2 25 15 37 18 51
Estonia 10 53.7 9 131 28 6 39
… … ... … … … … …
Ukraine 91 43.0 92 152 80 100 57
Source: (SolAbility, 2018)
Ukraine in the GSCI rating took 91st position in the international rating (43.0), this rating is typical
for developing countries. The low indicators are the intensity rating of the use of resources and the
rating of the possibility of effective management at the country level.
The main task for improving the rating of Ukraine is to improve the management efficiency and the
optimal use of available resources: reforming the system of vocational education on the basis of new
competencies provision, coordination of functions of financial regulators, introduction of a
comprehensive program for raising financial awareness.
Ranking of RobecoSAM countries can be a powerful tool for improving the risk analysis for
government bonds, which allows investors to make more informed investment decisions. The
assessment of the country's resilience is based on 17 indicators of the environment, social sphere and
management, which receive respectively 15%, 25% and 60% of the total score.
The score ranges from 1 to 10 and has to be interpreted as an estimate, with a maximum score of 10
and the lowest 1. According to research of Robecosam in 2018-2018 it is presented the sustainable
development rating of countries (Fig. 1).
7639
8,2 4
8 3,5
3
7,8
2,5
7,6
2
7,4
1,5
7,2
1
7
0,5
6,8 0
Canada
Ireland
Ukraine
Turkey
Egypt
Nigeria
China
Thailand
India
Denmark
Australia
Vietnam
Sweden
Switzerland
Finland
Netherlands
Pakistan
New Zealand
Norway
Venezuela
2017 2018 2017 2018
Fig. 1: The sustainable development (sustainability) rating of countries for 2017/2018
In fig. 1 the diagram on the left determines the countries with the highest rating, the diagram to the
right - with the lowest. Ukraine has raised its position in this ranking from 3.45 in 2017 to 3.55 in
2018, but these indicators remain low in the overall ranking. Through the prism of this rating,
investors can draw conclusions about the possibilities of financial investment and the corporate sector
functioning in the country.
Thus, to ensure the sustainable development (sustainability) of Ukraine and to increase the overall
country rating of RobecoSAM, it is necessary to reform the system of vocational education on the
basis of new competencies provision, implement the innovative approaches in order to increase
investment in education, form a qualified labour market.
International ratings of sustainable development prove that external opportunities for the
development of corporations in Ukraine on the current economic development of the country are
insufficient. Domestic corporations, responding to the new challenges of sustainable development of
the country, are forced to take into account, in addition to the economic aspect, the social and
environmental requirements of the parties concerned.
Results
The definition of the national paradigm of the sustainable development strategy of Ukraine is under
the influence of contemporary world tendencies in solving the problem of not only balanced
development of socio-economic relations, but also the harmonious development of mankind as a
whole. In September 2015, at the United Nations Summit on Sustainable Development, new
development benchmarks, as reflected in the Sustainable Development Strategy "Ukraine 2020",
were approved. Ukraine, like other United Nations member states, joined the global sustainable
development process (Ministry of Economic Development and Trade of Ukraine, 2017).
By building the state and introducing new instruments for market regulation of socio-economic
processes, Ukraine needed clear estimates of indicators for achieving Sustainable Development Goals
(SDG), which are presented in Table 3.
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Table 3: Indicators of sustainable economic development assessment in Ukraine
The task of sustainable Indicators

economic development
1. Ensure sustainable GDP Net inflow of foreign direct investment (according to the balance
growth on the basis of of payments), billion USD
production modernization, Index of physical volume of GDP (average),%
innovations development, Share of gross fixed capital accumulation in GDP,%
export potential increase Energy intensity of GDP
Material volume of GDP
The share of export of goods with the use of high and medium-
high technology production in total exports of goods,%
Ukraine's ranking in the Global Innovation Index
2. Increase the efficiency of Percentage of expenses for performing scientific and scientific
production on the basis of and technological works in GDP,%
sustainable development and The share of implemented innovative products in the volume of
development of high-tech industrial share,%
competitive industries
3. Increase the population Share of population satisfied with accessibility and quality of
employment level school education services,%
Ukraine's ranking in the Global Competitiveness Report in the
"higher education" direction
Number of university cities, units
4. Reduce the proportion of Share of households suffering from lack of funds to obtain any
young people who are vocational education by family members,%
unemployed, do not study or Level of participation of adults and young people in formal and
acquire professional skills informal education and training during the last 4 weeks,% of
population aged 15-70
5. Create institutional and The number of employees involved in small and medium
financial opportunities for enterprises, million people
self-realization of the The share of value added at the cost of production of medium and
economically active part of small enterprises, in% of the total value added at cost of production
the population potential and The share of small and medium enterprises with a loan or credit
the creative economy line, in their total,%
development Ukraine's ranking in Ease of Doing Business Operation
Source: (Ministry of Economic Development and Trade of Ukraine, 2017)
The share of gross fixed capital accumulation in Ukraine's GDP in 2018 was the lowest during the
entire period of independence (16.0%), which is almost twice less than the level of individual
European countries. Such a level impedes the economy modernization, reduces the return on capital
of production equipment, and does not support the maintenance of productive capacity capable of
creating a competitive product.
According to the results of 2018, a slight increase in GDP was observed in Ukraine (3.1%), with
industrial production growth and inflation declining in the average annual calculation, but such rates
are extremely insignificant (Fig. 2). The current situation cannot guarantee sustainable growth and
accelerated overcoming of the gap in GDP per capita between Ukraine and the most developed
countries.
As a result, the level of energy intensity of GDP in Ukraine (0.28) is almost three times higher than
the European analogue (0.1), GDP (0.881) material content is twice that of the European (0.44)
combined with a low productivity of 17.2 thousand USD, or 77.7% less than the European level
which intensifies the substitution of domestic producers from competitive markets.
7641
25
20
15
10
5
0
-5
-10
2012 2013 2014 2015 2016 2017 2018
Net lending (+), Net borrowing (-) Gross savings Gross fixed capital accumulation
Fig.2: Dynamics of indicators of economic development in Ukraine in 2012-2018,% to GDP

Source: (Government Service of Statistics of Ukraine, 2018)
The investment tendency remains low, according to 2018; gross fixed capital formation is only 16.5%
of GDP. The dynamics of capital investment is significantly dependent on fluctuations in the
economic situation. The low investment attractiveness of the Ukrainian economy leads to a lack of
foreign direct investment to restore the national economy potential (Ministry of Economic
Development and Trade of Ukraine, 2017).
In the Doing Business 2018 rating, Ukraine rose by +4 points and ranked 76th out of 190 countries.
The greatest progress Ukraine showed in the following ranking positions: +105 points (from 140th to
35th place) for the component "obtaining construction permits" - due to a decrease in share
participation in Kyiv from 10 to 2% and a decrease in the cost of technical maintenance; + 41 points
on "payment of taxes" for the reduction and unification of the Single social contribution rate
(Government Service of Statistics of Ukraine, 2018).
Moreover, it has to be noted that in the ranking of Moody's Investors Service agency Ukraine
improved its credit rating in the international economic list. It changed from Caa3 to Caa2, which
meant changing the forecast from "stable" to "positive" (Government Service of Statistics of Ukraine,
2018).
The problem of conducting qualitative monitoring of sustainable development at the national level is
the lack of a methodology and methods for calculating a number of indicators; lack of methodology
for analyzing the compliance of national indicators with international standards; absence of
normative act defining the boundaries of the authorities responsible for developing the monitoring
procedure both at the international and national levels; lack of domestic information base.
The process of forming national strategies in the new realities of Ukraine coincided with the adoption
of the SDG and the determination of their priority in the national reform agenda. The Ministry of
Economic Development and Trade, on behalf of the Government of Ukraine, in partnership with the
United Nations, has launched a process of nationwide local consultations on SDG, which lasted for
2016 in Kyiv and ten regions of Ukraine. Some 1,000 representatives of government (national and
local), academia, and civil society and United Nations agencies were involved in the consultation
(President of Ukraine, 2015).
The Framework Program Partnerships (FPP) between the Government of Ukraine and the United
Nations is a general strategic partnership program between the Government of Ukraine and United
Nations agencies, funds and programs for the period 2018-2022. The FPP was formulated with the
participation of the Government, the United Nations in Ukraine, civil society and other stakeholders,
and reaffirms the commitment of all partners to supporting the agenda for sustainable development
by 2030 in areas relevant to national development priorities (Uryadovy portal, 2018).
The United Nations and the Government of Ukraine have agreed to cooperate to achieve the
following deliverables in direction “Sustainable economic growth, environment and employment”:
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ensuring a fair labor market, access to decent jobs and economic opportunities; implementing gender-
responsive programs and measures to ensure sustainable management of natural resources, preserve
ecosystems, adapt to and mitigate the effects of climate change, and create "green" jobs.
The realization of the SDG in Ukraine is possible provided that the problems of the limited resource
potential and the lack of appropriate institutional mechanisms for its optimal use are solved. The
estimated resource requirements (overall budget frameworks) provide an overview of the resources
needed and available, as well as the possible financing gap to achieve the planned end-points. The
budget framework will provide the basis for joint resource mobilization, funding priorities and
resource allocation.
In order to reach the final results in direction “Sustainable economic growth, environment and
employment” the FPP will need $ 236.08 million USD, the indicative financing gap is currently
$213.2 million USA (table 4).
Table 4: Financial resources according to the final results (USD million)
United Nations Direction 1: Sustainable economic growth, environment and

Institutions employment
The end result: Ensuring a fair The end result: Implementing
labor market, access to decent gender-responsive programs and
jobs and economic opportunities measures to ensure sustainable
management of natural resources,
preserve ecosystems, adapt to and
mitigate the effects of climate
change, and create "green" jobs
Will be Will be
Planned Current
mobilize
Planned Current mobilize
Food and Agriculture
1,80 1,25 0,55 1,80 1,80 0,00
Organization
International Labour
11,57 1,39 10,18 0,00 0,00 0,00
Organization
International Organization
0,80 0,06 0,74 0,00 0,00 0,00
for Migration
United Nations Economic
0,15 0,15 0,00 0,25 0,25 0,00
Commission for Europe
United Nations
0,00 0,00 0,00 3,00 2,00 1,00
Environment Programme
United Nations
28,30 2,20 26,10 42,40 3,00 39,40
Development Programme
United Nations Population
4,50 0,50 4,00 0,00 0,00 0,00
Fund
United Nations 2,74 0,54 2,20 0,00 0,00 0,00
United Nations Children's
0,00 0,00 0,00 0,40 0,21 0,19
Fund
United Nations Industrial
Development 0,00 0,00 0,00 7,50 7,50 0,00
Organization
United Nations Office for
10,00 0,00 10,00 0,00 0,00 0,00
Project Services
United Nations Women 0,80 0,00 0,80 0,00 0,00 0,00
World Food Programme 2,00 2,00 0,00 0,00 0,00 0,00
World Health
0,00 0,00 0,00 0,03 0,03 0,00
Organization
TOTAL 62,66 8,09 54,57 55,38 14,79 40,59
Source: (based on Uryadovy portal, 2018)
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The general budget frameworks will be reviewed annually by the Government of Ukraine and UN
agencies in order to ensure a more effective implementation of the Partnership Framework Program.
United Nations agencies strive to jointly mobilize resources to achieve the end results provided by the
FPP. The United Nations will ensure support and attract additional resources in cooperation with
other development partners, including world financial institutions, the private sector, civil society and
the general public. Along with the creation of the Trust Fund with the participation of many partners,
the United Nations agencies will intensify their coordination work in the east of Ukraine in order to
effectively and transparently direct grant financing for the needs of the reconstruction and peace
development.
In line with the investment policy of sustainable development, governments have a wider and more
complex range of development challenges that must be addressed together with the creation or
support of a generally favourable investment climate. The Sustainable Investment Policy aims to
implement the concept of sustainable development in concrete measures and mechanisms at the
national and international levels, as well as at the level of policy development and implementation.
This leads to the emergence of certain investment policy tasks at the national and international levels
(Orlova and Marukhlenko, 2018).
The framework for investment policy for sustainable development (ROIPUR) was developed by the
United Nations Conference on Trade and Development (UNCTAD). ROIPUR includes: key
development principles and practical recommendations for a national investment policy and possible
options for structuring and applying international investment agreements.
The amount of global foreign direct investment (FDI) decreased by 23% to 1.43 trillion USD in 2017
(Fig. 3). The decline of 22% was due to a downturn in the value of cross-border mergers and
acquisitions. FDI inflows to developing countries remained at $ 671 billion USD in 2017; the
situation did not improve after a 10% fall in 2016 (UNCTAD, 2018).
Investment flows to countries with a structurally weak and vulnerable economy remained unstable.
The influx of investment in the least developed countries (LDCs) fell by 17% to 26 billion USD. In
developing countries that do not have access to the sea, this figure increased slightly (by 3%) to $ 23
billion USD.
For developing countries FDIs remain one of the most important sources of funding. Within the
whole group of developing countries they accounted for 39% of the total amount of financing, but in
the LDCs the figure was less than one quarter, with the downward trend being continued since 2012.
The inflow of FDIs to transition economies in South-Eastern Europe and the Commonwealth of
Independent States (CIS) declined by 27% to 47 billion USD: a lower level for the whole period since
2005 was detected only once. The decline was mainly due to the weak dynamics of FDIs in the four
main host countries (Russia, Kazakhstan, Azerbaijan and Ukraine) (UNCTAD, 2018).
All countries Developed countries Developing countries Transition countries
2000
1800
1600
1400
1200
1000
800
600
400
200
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Fig.3: Foreign direct investments in the world, billion USD

Source: UNCTAD
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According to the State Statistics Committee of Ukraine in 2017, the amount of 1730.4 million USD
of direct investments was invested in foreign economy by foreign investors from 76 countries of the
world (State Statistics Service of Ukraine, 2018). The volume of attracted foreign direct investment
from the starting point (share capital) in the economy of Ukraine in 2018 amounted to 39144.0
million USD (Fig. 4).
60 53,7
51,7
48,2
50 45,4
39 40,7
36,2 37,5 39,1
40
30
20
10
0
2010 2011 2012 2013 2014 2015 2016 2017 2018
Fig.4 : Volume of direct foreign investments in Ukraine, billion USD

Source: Government State Statistics Service of Ukraine
Investments were directed to developed areas of economic activity: to institutions and organizations
that carry out financial and insurance activities – 26.1% and industrial enterprises – 27.3% (State
Statistics Service of Ukraine, 2018).
The main source of capital investments financing is the enterprise and organizations own funds, due
to which in 2017 the amount of 69.9% of investments were covered. Foreign direct investments in the
Ukrainian economy are from around 130 countries, the main amount of which have been coming
from a small number of countries for many years. The key investor countries include Cyprus –
25.6%, the Netherlands – 16.1%, the Russian Federation – 11.7%, the United Kingdom – 5.5%,
Germany – 4.6%, the Virgin Islands (Brit.) – 4.1%, and Switzerland – 3.9% (Government State
Statistics Service of Ukraine, 2018). This indicates a slight geographical diversification of FDIs
exporting countries to Ukraine.
However, the current geographical structure of foreign investors in Ukraine is not optimal and does
not correspond to the structure of investors who place their capital in the vast majority of developed
countries. For the Ukrainian economy the investments from countries that are technological leaders
specializing in the production of high value-added goods, namely from the EU Member States
(France, Italy, Germany), as well as the USA and Japan are essential.
Thus, Ukraine remains attractive state for investors; at the same time it is not aside of the world
processes and is sufficiently integrated into the world economy and the violation of macro stability on
foreign markets has its influence in Ukraine. The state policy of Ukraine is aimed at the consistent
development of the Ukrainian economy and intensification of investment activity, protection of
investors' rights. Therefore, the strengthening of the indicators was influenced by the structural
reforms implementation in Ukraine, which helped the country to cope with the debt burden and
improve its position in foreign markets.
In general, the investment process in Ukraine is constrained by subjective and objective reasons,
among which are: political and economic instability; frequent changes in legislation; absence of
established customs control and deficiencies in the Customs Code of Ukraine; the corruption in
Ukraine; slow pace of privatization; weak development of market institutions (corporate sector,
securities market, land market, real estate market); low competitiveness of many Ukrainian goods;
insufficient integration into the world economy; lack of a clear investment policy with appropriate
mechanisms at the state and local levels implementation; inactivity of local authorities in attracting
investments, lack of incentives and mechanisms for funding attraction.
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The main objective of the financial sector reform in Ukraine by 2020 is to create a financial system
capable of sustainable economic development through efficient redistribution of financial resources
in the economy based on the development of a fully-fledged market competitive environment in
accordance with European Union standards (Robecosam, 2017).
A comprehensive program aimed at developing the Ukrainian financial sector by 2020 has initiated a
comprehensive reform of Ukraine's financial system. The inflation rate in Ukraine decreased by 3.9%
compared to last year and comprised 109.8% in 2018. Expansion of payment infrastructure and
growing popularity of innovative payment methods contribute to the sustainable development of non-
cash payments using bank cards in Ukraine.
The number of non-cash transactions for 2018 increased by almost 33.0% compared to 2017 and
amounted to 3.1 billion units, while the amount of operations went up by 55.4% and reached 1.377
billion UAH. That is, eight out of ten payments with card transactions are cashless. As of 2018, the
share of non-cash transactions using bank cards issued by Ukrainian banks reached 45.1%. This is
5.8% more than in 2017 (39.3%). The positive trend is related to the steady increase in demand for
non-cash transactions among Ukrainians and the promotion of innovative financial services.
In 2018, the volume of hryvnia banknotes and coins in the cash circulation in Ukraine increased by
10.7% to UAH 400.1 billion. The level of cash in the economy to GDP fell to 10.3% from 11.1% in
2017. Developed countries are reducing the use of cash which promotes economic growth, enhances
transparency and encourages the active development of modern services and technologies.
The nominal interest rate on new national currency loans in 2018 was 20.3%. The national currency
credit portfolio of banks increased by 8.1% to 616 billion UAH. Сonsumer lendings were actively
promoted last year by banking sector. In 2018, the national currency deposit portfolio of banks
increased by 10% to 539.7 billion UAH. While forming the savings Ukrainians preferred national
currency deposits. The ratio of loans to deposits in 2018 was 114.14% which is less than the previous
year (116.55%).
The reform in the financial sector implies the strengthening and obtaining high quantitative and
qualitative indicators. Qualitative indicators include confirmation of international accounting and
auditing standards implementation in the financial sector, as well as common international standards
for electronic document circulation. The most important quantitative indicators are: lowering
inflation; increase in the share of cashless transactions in the total amount of transactions with bank
cards at least up to 55%; the obtaining of cash in the economy is not higher than 9.5%; reduction of
the nominal rates for new loans in the national currency up to 12%; a decrease in the ratio of loans to
deposits in the bank up to 110%; entry into the first 50 countries rating by the level of financial
market development by the Global Competitiveness Index (Robecosam, 2017). There is a need for a
focused investment policy that will increase the motivation to invest and consolidate investment
promotion in innovative areas directly related to the SDG implementation.
In order to further improve the investment climate in Ukraine, the current issue is the improvement of
the legal and organizational framework for the mechanisms capacity enhancement in order to ensure
a favorable investment climate and the basis formation for the preservation and increase of the
domestic economy competitiveness.
In the conditions of continuous aggravation of international competition, the state ought to create
conditions for increasing the efficiency and competitiveness of the Ukrainian economy. It is achieved
primarily through a balanced macroeconomic policy. Thus, the development and implementation of
effective areas of sustainable economic development is a key to increasing Ukraine's competitiveness
(Fig. 5).
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The grounds for the Ukrainian strategic course has to be the introduction of an innovation model,
infrastructure modernization and economic growth as a result of structural adjustment, the growth of
domestic science and innovation, which will enable the construction of a new high-tech economy.
Conclusions
In order to improve the competitiveness of Ukraine in the global space, to ensure sustainable
economic development, the enhancement of the following directions of the state economic policy is
necessary:
- to improve institutional mechanisms in the field of cross-border cooperation within Euroregions,

which envisages strengthening their role as coordinating institutions of cross-border cooperation and
expanding the powers of regional authorities and local self-government in the of cross-border
cooperation implementation;
- to improve the monitoring processes and control over the targeted spending of funds received from
institutional donors in accordance with the international principles of international technical
assistance;
- to pursue a purposeful investment policy that will increase the motivation to invest and consolidate
investments in innovative areas directly related to the SDG implementation;
- to improve the conditions for doing business, including by improving the regulatory environment,
simplifying the procedure for administering taxes and fees, establishing simple and transparent tax
rules, creating a favourable investment climate;
- to update educational standards, improve the productivity of higher and vocational education
institutions, provide quality higher education and professional training for specialists who meet the
needs of the European labour market;
- to introduce innovative approaches, increase of investments in educational sphere including
vocational education, in order to form a skilled labour market;
- to update the content of education through the sustainable development curricula introduction,
rational consumption, human rights, gender equality, culture, social cohesion, peace and non-
violence, etc.;
- to introduce incentives for priority (no more than 5) types of economic activities that meet at least
the following criteria: they have high added value, export potential and are innovative;
- to create incentives for providing technical modernization and innovation activities, including
paying special attention to sectors with high added value and labour-intensive sectors;
- to create incentives for the introduction of rational consumption patterns on the basis of sustainable
development and prevent the environment deterioration.
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The task of economic Directions

sustainable development
Improvement of the financial market infrastructure
Ensure sustainable GDP Introduction of an effective mechanism for

growth on the basis of protecting the rights of creditors
production modernization,
innovations development,
export potential increase Protecting the rights of creditors
Coordination of functions of financial regulators
Creation of conditions for the use and development

of the latest IT technologies in the social and
Increase the efficiency of
economic sphere
production on the basis of
sustainable development
and of high-tech Foreign policy implementation
competitive industries
development
Introduction incentive for technical modernization
and innovation activities
Reforming the system of vocational education on

the basis of new competencies provision
Increase the population
employment level
Implementation of training programs on sustainable
development, human rights, gender equality
Introduction of a comprehensive program for

raising financial awareness
Reduce the proportion of
unemployed young people,
who do not study or Improving the quality of higher education and
professional training in line with the needs of the
acquire professional skills
European labor market
Implementation of innovative approaches to

increase investment in education
Create institutional and
financial opportunities for
self-realization of the potential Creating conditions for easy business and small and
of the economically active medium business development
part of the population and the
development of creative
economy Formation of a qualified labor market
Fig.5: Areas of competitiveness increase while implementing the economic sustainable
development tasks in Ukraine
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The result of the abovementioned efforts ought to be represented as the efficiency increase of the
national economy (reduction of material consumption of GDP and energy intensity of production),
achievement of sustainable socio-economic development, improvement of the investment climate and
increase of the country's competitiveness.
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Legal Aspect of Solving Digital Economy Problems

In Modern Russia
Kryachkova Lyudmila Ivanovna

305004, Russia Kursk, ul. Radishcheva 116,
E-Mail: enigma3021@mail.ru
Korovin Vladimir Viktorovich

305021, Russia, Kursk, st. 50 years of October, 94
E-mail: enigma3021@mail.ru
Rudneva Larisa Evgenievna

Petrachevskaya Julia Lvovna

Brezhneva Valeria Mikhailovna

Abstract
The article reflects the content of the category “digital economy”, defines its main features, draws
conclusions about how the science of business law and the legislation on entrepreneurial activity should
respond to digitalization processes in Russia. The trends of Russian legislation in recent years have
been identified. The analysis of certain types of digital technologies is carried out and their influence
on the development of legislation is investigated. The article analyzes the initiatives and decisions of
the Council of Legislators of the Russian Federation on the development of the digital economy of
Russia. Attention is focused on key provisions of the decision of the Council of Legislators of the
Russian Federation, and, in particular, on issues of legal regulation, the formation of human resources
and improving the effectiveness of IT education.
Keywords: Council of Legislators of the Russian Federation, regional digitalization, digital

economy, socio-economic development, public administration systems.
Introduction
The idea of an electronic (digital) economy arose at the end of the 20th century. In 1995, the American
scientist Nicholas Negroponte in his book “Being Digital” formulated the concept of electronic
economy, based on the transition of humanity in its business from processing atoms to processing
electronic bits [1,20].
Compared to the traditional market of classical goods and services, the advantages of the new economy
are based on the lack of weight of goods, the virtuality of economic ties, a significant reduction in the
need for raw materials, unnecessary bulky transport infrastructure, the possibility of rapid global
movements, the use of new digital currencies, etc. Of course, it is now very difficult to imagine in detail
how the new economy will develop and whether it will be a revolutionary alternative to the traditional
economy. Nevertheless, it is necessary to identify the social patterns that arise in digital economic
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relations and their proper legalization, which, among other things, will ensure the implementation of
the genetic requirement of the principle of social justice [2,7,11,21].
Russia does not stand aloof from the global digitalization process and proceeds from the fact that the
creation of a digital economy increases the country's competitiveness, the quality of life of citizens,
and ensures economic growth and national sovereignty.
Currently, one of the priority areas of development of our state is the digital economy. In his Address
to the Federal Assembly of the Russian Federation of February 20, 2019, President V.V. Putin drew
attention to key aspects of the digital economy: “Already this year, it is necessary to adopt a general
scheme for developing the infrastructure of the digital economy, including telecommunication
networks, storage and data processing. The task of the coming years is to organize universal access to
high-speed Internet, to begin the work of fifth-generation 5G communication systems. For a real
revolution in the field of communications, navigation and the creation of Earth remote sensing systems,
it is necessary to expand the capabilities of our satellite constellation.
Responding to the challenges of the time, the Government of the Russian Federation, by its resolution
of 08.28.2017 No. 1030, approved the comprehensive long-term program “Digital Economy of the
Russian Federation” (hereinafter - the program), in the development of which not only representatives
of government bodies, but also business structures took part. The program reflects the main directions
of development of the digital economy in the country, providing for the improvement of the legal
framework, the formation of human resources and the increase in the effectiveness of IT education.
According to the chairman of the board of the Association of Lawyers of Russia V.S. Gruzdeva, “the
legal community should not only work on eliminating existing legal restrictions for introducing new
intellectual developments, but also begin to form a regulatory environment for the future based on day-
to-day developing technologies” [5]. Along with this, the development of the digital economy requires
the active involvement of all structures of representative democracy, as well as federal and regional
authorities in these processes. The development of the digital economy is, of course, a powerful lever
for increasing the country's competitiveness, improving the quality of life of citizens, ensuring
economic growth, and, finally, national sovereignty. That is why the digital economy has become a
priority trend in the socio-economic development of the Russian Federation. This provision is updated
in the messages of the President of the Russian Federation to the Federal Assembly of the Russian
Federation dated December 1, 2016, March 1, 2018, and February 20, 2019.
The legal basis for the formation of the national digital economy is the Constitution of the Russian
Federation, Federal Law dated June 28, 2014 No. 172-ФЗ “On Strategic Planning in the Russian
Federation”, the National Security Strategy of the Russian Federation approved by Decree of the
President of the Russian Federation dated December 31, 2015 No. 683, Strategy for the Development
of the Information Society in the Russian Federation for 2017-2030, approved by Decree of the
President of the Russian Federation of May 9, 2017 No. 203, program "Digital Economy of Russia
Federation ”, approved by order of the Government of the Russian Federation of July 28, 2017 No.
1632-p.
The program defines goals, objectives, directions and terms for the implementation of the main
measures of the state policy of the Russian Federation to create the necessary conditions for the
development of the national digital economy, in which digital data is a key factor in production in all
areas of socio-economic activity.
Thus, the institutional basis for the implementation of the program has now been created: the rules for
developing, monitoring, monitoring the implementation of action plans in the areas of its
implementation have been approved; work is underway to implement the list of instructions of the
President of the Russian Federation on the use of digital technologies in the financial sector, approved
by the President of the Russian Federation on October 21, 2017 No. Pr-2132.
The current stage of the program is associated with the organization of a favorable regulatory
environment in the following basic areas: regulatory regulation; personnel and education; formation of
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research competencies and technological groundwork; information infrastructure; Information

Security. Priority measures are being taken in order to remove legal restrictions in various areas of
economic activity, which involves the amendment of a number of legislative acts.
In connection with establishing the priority nature of the development of the digital economy, and at
the same time, attaching paramount importance to federal relations as the basis for regional
development, the Council of Legislators of the Russian Federation emphasizes that the digital economy
has great potential to promote the socio-economic development of the constituent entities of the
Russian Federation.
A distinctive feature of the current stage of development of the state and society is that information and
communication technologies are becoming part of modern systems in all areas of state and municipal
government, economic and social activities, national security systems and have a significant impact on
the development of traditional sectors of the economy of the Russian Federation.
At present, certain successes have been achieved in the field of entrepreneurship using digital services,
electronic trading platforms have been created, the number of households with access to the Internet
telecommunication network has increased, and the list of state and municipal services provided in the
federal state information system is expanding. Unified portal of state and municipal services
(functions)”, a unified system of interagency electronic interaction, work ie a network of
multifunctional centers of public and municipal services on the principle of "one window". The
development of the digital economy is also facilitated by the infrastructure of science and innovations
created in the constituent entities of the Russian Federation, represented primarily by development
institutions, technology parks, and business incubators.
At the same time, experts note the differences in the level of socio-economic development of the
constituent entities of the Russian Federation, which, of course, determines the different degree of their
readiness to switch to the management model proposed by the digital economy. The main constraints,
according to experts, include: underdeveloped information and telecommunications infrastructure in
certain constituent entities of the Russian Federation, high cost of organizing telecommunications,
inadequate funding for certain activities in the field of informatization and information protection, lack
of qualified personnel to carry out activities in the field of digital economics.
The problem of the so-called digital inequality, which is expressed primarily in the lack of access to
mobile radio-telephone communication services and broadband access to the Internet information and
communication network in small and hard-to-reach populated points, also remains relevant.
Serious problems exist in the implementation of information and telecommunication technologies and
at the local government level.
According to consulting agencies, only 10% of municipalities meet the requirements for digitalization
established in the legislation of the Russian Federation.
A separate problem is also the lack of unification of the cryptographic information protection systems
of information systems of state authorities and local authorities, entailing incompatibility of
communication channels.
In its decision, the Council of Legislators of the Russian Federation notes that the basis for the effective
development of the digital economy is government policy aimed at creating legislative, financial,
organizational and personnel support for the digital transformation of the national economy.
The implementation of the program requires a qualitative increase in the role of the constituent entities
of the Russian Federation in digitalization, taking into account their economic specialization, the
territorial location of high-precision and high-tech industries, and taking advantage of the domestic
economy. The main criteria for the successful implementation of the program in a particular region of
the Russian Federation, according to lawmakers, should be considered: high scientific potential, low
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public debt, the ability to build up consumer markets, the presence of key state competencies in
industries such as energy, space, communications, information technology, defense industry [4].
Therefore, the primary tasks of the digital transformation of the economy are the consistent formation
of a policy for the development of the digital economy and the harmonization of approaches to its legal
regulation in the space of the Eurasian Economic Union.
Emphasizing the importance of constructive interaction between the chambers of the Federal Assembly
of the Russian Federation and the legislative (representative) bodies of state power of the constituent
entities of the Russian Federation in the process of legislative support for the implementation of the
program, the Council of Legislators of the Russian Federation in its decision identified three major
areas for the development of the digital economy.
Firstly, it was recommended that the chambers of the Federal Assembly of the Russian Federation
apply within their powers, in accordance with the Federal Law “On Parliamentary Control”, the forms
of parliamentary control over the preparation of draft laws stipulated by the action plan for the
implementation of the program in the area of “Normative Regulation” and the adoption by federal
bodies executive branch of normative legal acts aimed at the development of the digital economy.
Recommend to the Government of the Russian Federation: to analyze the proposals of the constituent
entities of the Russian Federation for the development of the digital economy that have been submitted
to the Commission of the Council of Legislators on information policy, information technology and
investment, and to consider the feasibility of amending action plans in the areas of program
implementation.
According to lawmakers, in preparing draft federal laws in the field of the digital economy, special
attention should be paid to measures to support the sectors of the domestic economy that are developing
and manufacturing high-tech products. Along with this, it is necessary to provide incentives for the
creation, production and widespread use of competitive Russian software and technology in the field
of digitalization, providing for tax benefits for manufacturers and consumers of the Russian software
product.
It was decided to supplement the program with several new directions, providing for the digitalization
of the system of public administration, healthcare, the financial sector, transport and logistics,
providing for the participation in the implementation of these areas of government by the constituent
entities of the Russian Federation and local governments.
In a package of measures aimed at developing the digital economy, lawmakers consider it appropriate
to consider the possibility of supporting the draft federal law on amendments to certain legislative acts
of the Russian Federation in terms of increasing the efficiency of the construction and operation of the
Safe City hardware-software complex. This hardware-software complex is aimed at creating and
providing legal support for a unified integrated security system, providing a unified algorithm for the
interaction of federal, regional and municipal authorities in emergency cases.
An important area was recognized as the task of digitalization of the public administration system. In
this regard, it is planned to develop a hardware-software complex (“platform”) for providing standard-
setting activities that will create conditions for the paperless nature of the interaction between
participants in the standard-setting process and editing draft regulatory legal acts in real time, including
the development of a control panel that provides the ability to track progress on draft regulatory legal
acts of the Government of the Russian Federation and federal executive bodies, necessary for the
implementation of federal constitutional laws, federal laws, and connection to the specified complex
of electronic resources of the chambers of the Federal Assembly of the Russian Federation.
Along with this, in collaboration with state authorities of the constituent entities of the Russian
Federation, lawmakers propose supporting pilot projects in program areas with the goal of creating a
state information resource for presenting successful practices in the digital economy. In this regard, it
was deemed appropriate to expand the practice of applying the mechanism of regulatory platforms in
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the territories of the constituent entities of the Russian Federation, considering the technological
capabilities of the constituent entities of the Russian Federation, in order to test solutions using digital
technologies, including in the areas of the program, to eliminate the risks of violation of the legislation
of the Russian Federation.
In the long term, within the framework of the Eurasian Economic Union, it is proposed to continue the
implementation of the Guidelines for the implementation of the EurAsEC digital agenda until 2025,
approved by the decision of the Supreme Eurasian Economic Council on October 11, 2017 No. 12,
with the aim of forming a single digital space of the Eurasian Economic Union. In line with this
direction, it was recognized that it is extremely important to continue harmonization of the national
legislation of the Member States of the Eurasian Economic Union in the field of the digital economy,
including taking into account the experience of the Inter-Parliamentary Assembly of the Member States
of the Commonwealth of Independent States in harmonizing the national legislation of the Member
States of the Commonwealth of Independent States [3,9,10]. This multifaceted activity, in turn,
involves the creation of favorable legal conditions for the collection, storage and processing of personal
medical data.
At the same time, responsibility should be provided for violation of the rights of patients through
leakage of information from the integrated electronic medical card of the unified state information
system in the field of healthcare.
In the field of education for the digital economy, it was decided to implement a number of measures to
create the conditions for additional professional education of federal state civil servants and municipal
employees in order to provide federal executive bodies, executive bodies of the constituent entities of
the Russian Federation, local self-government bodies with personnel ready to participate in the digital
transformation of public administration [6,8,12,13].
Secondly, lawmakers decided to recommend to the Ministry of Education of the Russian Federation
and the Ministry of Science and Higher Education of the Russian Federation: to update federal state
educational standards of all levels and forms of professional education and increase the number of
budget places for training specialists in the field of information systems and technologies in order to
meet the needs in frames. Particular attention should be paid to providing all forms of assistance to
educational institutions of higher education in concluding agreements with leading Russian IT
companies on students gaining practical skills in solving problems in the field of digital technologies.
And, finally, to develop a concept of medium-term measures to inform the public about digital
technologies and training in their use (remote provision of state and municipal services, medical
services, in banking and other fields).
Thirdly, to recommend to the legislative (representative) bodies of state power of the constituent
entities of the Russian Federation: to consider the possibility of correlating the system of strategic
planning documents of the constituent entities of the Russian Federation with the program through the
revision and updating of concepts, programs, and comprehensive projects related to the development
of the digital economy in the constituent entities of the Russian Federation; include in the strategy of
socio-economic development of the constituent entities of the Russian Federation the tasks of
developing the digital economy as priority.
To this end, to analyze the existing technological capabilities of the constituent entities of the Russian
Federation and form unique sets of technological competencies, among which are distinguished such
as: “smart specialization”: clusters of production, research and educational organizations. In addition,
the strategies for the socio-economic development of the constituent entities of the Russian Federation
should be supplemented with an appropriate section on technological development [4,14,15-19].
All of the above allows us to conclude that at present the digital economy is becoming a kind of
locomotive for the growth of industrial and production indices. At the same time, it is an invariable
condition for ensuring social well-being, the implementation of new startups, the development and
implementation of new technologies and innovations. All this necessitates updating the Digital
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Economy of the Russian Federation program not only at the federal, but also at the regional level.
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Academy, 2017. -C. 399-401.
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Muslim Educational Migrants in Latvia – Cultural Approach
Jelena BUDANCEVA
University of Economics and Culture, Riga, Latvia

jelena.budanceva@gmail.com
Abstract
After Latvia joined the EU in 2004, the amount of foreign students in Latvian universities rapidly
increased from 1676 students in 2004 to 8806 in 2017. Statistics of last 3 years also show that
approximately 2 000 of foreign students are Muslims and this amount has a tendency to grow. The
purpose of the study was to learn the habits and obstacles of the consumption of culture by Muslim
students in Latvia, as well as their integration level to cultural and social life. To achieve the research
purpose, the survey among 178 respondents – foreign Muslim students studying in Riga – was
conducted. The results were processed, using analysis of frequencies and ranking. The most important
findings are that 40% of respondents are visiting cultural events at least once a month, but they choose
entertainment possibilities like cinema, night clubs and public events, which are not linked with a
language obstacle. For newcomers the most important obstacle for visiting cultural events is luck of
the information, for long stayer – the language barrier. Most than half of young Muslim migrants are
filling integrated into the routine life, but just 12 % are integrated into the cultural life of Latvia too.
Keywords: educational migrants, culture consumption, survey, Latvia.
Introduction
In accordance to the World migration report of 2018 approximately 3.3% of the world’s population
are international migrants. One third of 244 million world’s international migrants (75 million) in
2015 lived in Europe. Only in 2017 2,4 milion migrants entered the EU from non-member countries
(Eurostat, 2019). Observing the migration processes of the last two decades, we can consider that the
problem of refugees and economic migrants has received great researcher`s coverage; in turn,
migration with the aim of obtaining education has been studied relatively little so far. However, the
scope of migration reasons is more brightly as just economy and safety. If, in the case of European
students, problems of integration into the social and cultural context rarely arise, for the
representatives of the Muslim world it is more difficult to cope with cultural shock and social
challenges.
With development of globalization and supporting instruments as ERASMUS in Europe, Lisboa

convention and other documents, which systemized educational system, provided international
standards and gave financial support to the students and HEI for international exchange, the amount
of international students started to grow. Usage the English language as lingua franca at many
European high schools as basic or additional language for educational programs allowed the students
from over the world to choose the favourite high school. The educational migration seems to have
different reasons, also including safety and economic issues, but there is a specific goal included.
Even by several rarely studies on educational migrants, the focus mostly meets the economic impact
of students-migrants (Scott-Clayton, 2012) and their influx on the labour market (Kustec, 2012;
Hsieh and Kohler, 2007, Nickell and Saleheen, 2009, Fletcher and Morakabati, 2013, Rokita-Poskart
2016).
The goal of the research was to examine young students from Muslim countries studying in Latvia
and their integration into the culture life of the host country. The topic was initiated by 1st year
foreign students starting their integration into the Latvian social and cultural life. The current study
was conducted by young Muslim students of the University College of Economics and Culture,
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representatives of the programmes “Economics” and “Business administration” in December 2018.

178 respondents were surveyed during the given research.
The research hypotheses were stated, as follows:
H1: The Muslim students in Latvia are not involved into the cultural live because of cultural
differences;
H2: The Muslim students are less visiting the cultural events in Latvia as in their home country;
H3: The price of the cultural event does not matter for Muslim students.
To achieve the research goal and to test the stated hypotheses, survey data were processed, using such
methods, as analysis of frequencies and ranking. The results of the survey revealed the fact that not
cultural differences but language obstacle is most reason for being not involved into the social and
cultural life. This may be a reason why Muslim students in fact are more often visiting the cultural
events at home. However, the financial part is important, if the entrance tickets cost more than 10
Euros.
Educational Migration in Theory and Numbers
Starting the theoretical issue, we have to define the migration and migrants, which is not so easy, as
mentioned in UNESCO report of 2019 (UNESCO, 2019, vii) – “there is no international agreed
definition of who a migrant is”. Sometimes migrants are divided in the short and long term, as UN
does (UN recommendations, 1998). The International Organization of Migration defines it as “the
movement of a person or a group of persons, either across an international border, or within a State. It
is a population movement, encompassing any kind of movement of people, whatever its length,
composition and causes; it includes migration of refugees, displaced persons, economic migrants, and
persons moving for other purposes, including family reunification (ION, key terms).
Many international organizations are collecting information considering migration processes and
statistics for International Organization for Migration Indicators, for the World Bank’s World
Development Indicators and also for the UNO. Databases of these organizations are useful to
generate statistics on the volume and demographic composition of migration stocks and flows, but
they do not report migrants’ educational attainment. Even the special issue of Harvard Educational
Review dedicated to the education and migration topics, is dealing with scholarship and immigrant’s
children education and integration (Immigration and Education, 2001).
As common definition for the educational migrations says, it is “movements of people from their
current place of residence to an academic centre in order to undertake higher education” (Rokita-
Poskart, p.6). In any case, young educational migrants are generating a number for consequences –
both economic and social – and are changing the academic centres on cultural and demographic
levels.
Starting with early 60ies, authors often view migration as an investment decision, similarly to
education (Becker, Sjaastad 1962). Many authors agree that migrants acquiring education in their
home countries generally experience lower returns to education than when schooling is completed in
the host country (Bratsberg and Ragan, 2002, Ferrer and Riddell, 2008, Basilio and Bauer, 2010).
One of important reasons for migrating is the wish to acquire skills that have a high return in the
country of origin. Dustmann and Glitz (2011) show that foreign students constitute a significant
fraction of the student population, with their share often exceeding 10 percent, for the 10 largest
immigrant-receiving countries in the OECD. Foreign students are the fastest-growing group of
migrants, contributing to making tertiary education services a sector of significant growth for jobs.
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From the view of permanent migration, the host countries are moving towards ‘two-step migration:
facilitating of temporary migration for study period often leads to the applications for permanent
residence. Dreher and Poutvaara (2010) find that an increase in the number of students by 10%
increases immigration to the United States by about 1%, implying that student flows result in a
significant addition of highly qualified people for the host country.
As several host countries have experienced substantial changes in their attitudes towards attracting
foreign students it is nowadays possible to understand the causal effect of such inflow and its
consequences (e.g. Kato and Sparber, 2013). Research using experimental evidence may also prove
highly relevant to determine causal effects of changing flows of international students, and the
sensitivity of their choices to changes in their information set.
One of the most important studies about the migration influences on education was made in
Australia, which is the country with education as third largest export, behind iron and coal and ahead
of tourism. Many migrants come first to Australia as undergraduate or postgraduate students (Hugo,
2004; Baas, 2006; Hawthorne, 2010). In spite to the high economic impact of educational migrants,
the preoccupation of HEI stuff throughout the 1990s with large inflows of foreigner students from
Asia, followed dramatic reductions in public funding for Australia’s tertiary sector. The fear was that
a surge in international students from Asia could upset the teaching and learning dynamics operating
in lecture and tutorial rooms, where students’ interactions and participation are consolidated learning
practice (UNESCO, 2019).
Other theoretical perspective of this survey is connected to the topic of cultural diversities and
integration of the migrants into social and cultural life of the host country. In 2001 the State
Programme of the Latvian Society Integration was elaborated. It stated, in particular, that Latvia is a
national democratic state where every inhabitant has the right to form and keep the national (i.e.
ethnic – V.M.) identity. The integration programme envisages the development of concrete
mechanisms which will be able to guarantee the right of the Latvian people for self-determination as
well as to secure the same rights for the national minorities (Latvija ir demokrātiska, nacionāla valsts,
kurā katram Latvijas iedzīvotājam ir tiesības uz savas nacionālās identitātes veidošanu un
saglabāšanu. Integrācijas programma paredz izstrādāt konkrētus mehānismus latviešu tautas
pašnoteikšanās tiesību garantēšanai, kā arī mazākumtautību tiesību īstenošanas nodrošināšanu
(Sabiedrības integrācija Latvijā 2001)). In Latvian scientific field this is mostly viewed in terms of
ethnic and national identity. As Ilze Apine mentioned, “in 2000-2008 it [the theme of integration]
takes the central place in the studies of politologists and sociologists. It was dictated by the conditions
of foreign policy, and a strong desire of Latvia to become a member of EU.“ (Apine I., 2012). After
2008 the discurs of the integration topic was focused on Latvian identity and as that time culture
minister S. Ēlerte expressed - “the basis of nation and integration is the Latvian language and Latvian
cultural space”(Bojārs, Lūsiņa 2010). It follows not only that the state nation is only Latvians, but
also that the migrants have to adopt Latvian values and language. Therefore most of the research
(I.Plotka, T.Grishkina, M.Vidnere) in this field is devoted to the issues of Latvians and Latvia`s
Russians identity and integration opportunities.
Having studied the available theoretical and empirical works on the topic of educational migration,
we can consider that migration with the aim of obtaining highest education has so far been studied
relatively little and mostly in context of ecenomic impact. The Australien experience also shows that
the huge amount of foreign students, belonging to other culture, can lead to different social and
educational problem and need special solutions. The situation with Muslim students in Europe
depends on state, where they are coming to study – historically, there are countries like France,
Germany and even Sweden, who have experienced a large influx of Muslim people, including
students, both - historically and in the last decades. If we see the statistics of immgration in EU,
Latvia is not among the countries with a large number of immigrants.
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Fig. 1: Amount of immigrants in EU countries per 1000 inhabitants (EUROSTAT, 2017)
Most immigrants in Latvia are from Russia, Ukraine and Belorussia, as well as from Kazahstan.
From 2016 studies as a main reasons for getting Latvian residence permit are in third place (29% real
estate investor, employee - 22%, studios - 15%) (Integration, 2017).
Statistics of The Office of Citizenship and Migration Affairs shows that on 01.07.2019 in total 7574
persons had a temporary residence permit, stating as the reason studies. 4672 of them are from non-
EU countries and 2001 are from Moslims countries (excluding 1893 applications from India, which
also have big community of Muslims) (PMLP, 2019). In turn, statistics from the Ministry of
Education show that in 2018 there were 8340 foreign students at state and private high schools of
Latvia.
80000 72945
70000
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60000
50000
40000
30000
20000 15920
8340
10000 4672 3668
8% 24% 11%
0
All students Foreign students in % from all students
State HEI Private HEI TOGETHER
Fig. 2: Amount of foreign students in Latvian HEI, 2018 (author's summary based on the
Annual Report on Higher Education)
If, in the case of European students, problems of integration into the social and cultural context rarely
arise, for the representatives of the Muslim world it is more difficult to cope with cultural shocks and
social challenges.
Statistics speak of approximately 2 000 Muslim students currently studiyng in Latvia. Table 3 shows
their origin countries. Table 3 consists also students from India, because the persentage of Muslim
inhabitants there is about 17%-20% (at the expense of the population for this survay, Indian students
were not calculated).
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2500
2070
2000
1500 1243
1000
500
214 196 187
56 37 24 16 14 14 8 8 5 4 4 4 4 4 18
0
Fig. 3: Amount of foreign students in Latvian HEI by Muslim countries of origin, 2018
(author's summary based on the Annual Report on Higher Education)
Continuing a series of studies on the topic of cultural consumption, the author examines young
Muslim students and the degree of their integration into the culture of the host country - Latvia -
through the issues of consumption of cultural products and services. The purpose of the study is to
learn the habits and obstacles of the consumption of cultural goods by Muslim students in Latvia.
Methodology
In total, 178 respondents – foreign Muslim students studying in Riga – participated (approximately
9% of all current Muslim students in Latvia). The survey was conducted in December 2018 using
snowball sampling. At the research participated students from 5 different, both state and private, high
schools of Riga. 8 questions were closed type questions. All questions were mixed type question,
with the answers choices given and free version “other answer”. Data analyses was made with SPSS
program.
Respondents were surveyed, using the authors’ developed questionnaire. The developed
questionnaire contained 16 questions regarding the cultural consumption in general, preferences and
obstacles, as well as the questions on cultural consumptions patterns. The structure of the research
instrument is reflected in the Table 1.
Table 1: Structure of the questionnaire
Section A Respondent profile questions

A_Q1 Gender
A_Q2 State of origin
A_Q3 Age (in years)
A_Q4 Education (4 alternatives)
A_Q5 Employment
A_Q6 Studies (year, program)
A_Q7 Relation to the culture field
A_Q8 Residence
A_Q9 Duration of living in Latvia
Section B Main questions – consumption of cultural goods and services
B_Q1 Integration into the social life
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B_Q2 Integration into the cultural life

B_Q3 Frequency of visiting cultural events
B_Q4 Reasons, why not visiting cultural events
B_Q5 Types of visited events (10 alternatives)
B_Q6 Comparison of visiting cultural events in Latvia and at home country
B_Q7 Importance of tickets costs attending the event
B_Q8 Amount of spent money by last visited event
Source: Authors’ developed
Answers to the question A_Q2are correlating with common statistics and shows that respondents are
coming from the most represented states – starting with Uzbekistan and India.
50 44.3
40
30 26.1
20
11.4
9.1
10 4.5
1.1 1.1 1.1 1.1
0
Percent
india uzbekistan turkey
azerbaidzhan kazahstan pakistan
shri lanka afganistan other
Fig. 4: Respondents’ origin country in %.
The sample size is 178, which is enough by the population of 2000 Muslim students currently
studying in Latvia and by margin of error of 5%, which means that confidence level is more as 80%.
The sample consisted of 178 respondents - women (29,5%) and men (70,5%) in age from 19 to 23
making bachelor studies. The most popular programs for our respondents are business and economics
(38,6%), language studies (6,8%) and IT (5,7%). The average age of the participants was 20,7 years,
from minimum 18 years till maximum 30 years. More than half of all respondents – 59,1% are
currently working. As a place of residence for 64,8% of the sample was Riga (capital of Latvia);
outside of Riga, 20 km, and outside of Riga, more then 20 km were marked each by 14,8% and 5,6%
had no answer. The distribution of respondents according to other profile criteria is reflected in the
Table 2.
Table 2: Research sample distribution
Education Respondents Residence Respondents

Secondary 44,3% Riga 64,8%
Higher 52,3% Outside, till 20 km 14,8%
Other 3,4% Outside, more than 20 km 14,8%
No answer 5,6%
By understanding the level of social and cultural integration, the duration of stay in host country has
high importance. Figure 5 shows the sample distribution by time, they live in Latvia – A_Q9.
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35
31.82
30
25 22.73
20
15.91
15 13.64
10
6.82 6.82
5 2.27
0
no answer less than 3 3 to 6 month 6 month to 1 1 to 3 years 3 to 5 years more than 5
month year years
Fig. 5: Living period in Latvia in %.
Indeed, we can consider, that 68,1 % of all respondents are living in Latvia more than half of year,
which means that they are already over the culture shock and are to some extent integrated into the
daily life of Latvia.
Results
The first questions of Block of the questionnaire – B_Q1 and B_Q2 - were about integration level
into social and cultural life in Latvia. Our research shows, that at least most than half of young
Muslim migrants (53,4%) are filling integrated into the routine life, but just 12 % are integrated into
the cultural life of Latvia too. Important is amount of those respondents, who are not integrated at all.
Correlation analyses shows, that mostly these are newcomers, who are living in Latvia less than half
of year.
Table 2: Research sample distribution
Integration Respondents
Integrated to social life 53,4%
Integrated to cultural life 12%
Integrated to both 19%
Not integrated 15,6%
Answering the question B_Q3 about frequency of visiting cultural events were divided between those
who are visiting events once a week (17%) or once every 6 month (19,3%), and most popular option
– visiting events once a month (39,8%). The responses are summarized in the Figure 6.
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39,8%
19,3%
17,0%
12,5%
6,8%
4,5%
dont visit once a week once a month once every 6 once a year less than once
month a year
Fig. 6: Frequency of visiting cultural events in Latvia in %
As we see, there is a small number of students, who are not visiting cultural events in Latvia at all –
just 4,5%. Most of respondents are visiting cultural events once a month (39,8%) or once every 6
month (19,3%), which is quite good indicator – still we don`t have an overview about the types of
cultural events, students are visiting. Answers figured out, that just 4,5% of most young Muslim
students are not visiting cultural events in Latvia.
other 4.5
night clubs 48.9
popmusic concerts 27.3
non-popmusic concerts 13.6
theatre and opera 24.1
cinema 44.3
sport events 23.9
children and families events 10.2
public holidays 40.9
Riga city fest 39.8
educational events 20.5
Fig. 7: Types of cultural events in Latvia, visited by young Muslim students in %
The figure shows answers to the questions B_Q5, that most popular events for young Muslim
students are mass events like City fest or other public holidays (39,8% and 40,9%), as well as
entertainment events (44,3% for cinema and 48,9% night clubs). These are all entertainment events,
which are not related to the high culture and also are free of charge or not so expensive like visiting
opera, for example.
This choice is correlating with answers to the question B_Q4, which points out obstacles disturbing
visiting of cultural events.
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no time 4.55
language obstacles 25.00
to expensive 4.55
no information about cultural events 26.14
no offer for me in Latvia 19.32
not interested at culture at all 12.50
other answer 7.95
Fig. 8: Obstacles for visiting cultural events in Latvia in %
The most important obstacles are the luck of information (26,1%) and language obstacles (25%),
which also could be connected – students are feeling the luck of information because they don’t get
information about the events which is only in local language.
The results of questions B_Q6 are showing that 48,9% are more often visiting the cultural events in
their home country, which is confirming the hypothesis 2. Just 22,7% says that they are often going
to some cultural events in Latvia – here we could consider, that it could be also visiting of nightclubs,
which are not so common in Muslim countries.
Regarding the expenses for cultural events, spent during last visit – question B_Q9 - most
respondents had spent from 6 to 30 euros (together 55,7%), which means that students are not visiting
very expensive events like concerts or opera, and also are not going to the museums or other cheap or
free events.
11.36 5.68 7.95

21.59
11.36
6.82
15.91 18.18
less than 5 6 to 10 11 to 20 21 to 30
31 to 40 41 to 50 more than 50 no answer, hard to say
Fig. 9: Spending money for last visited cultural event
Also the question about importance of the entrance price for students shows 2 importance waves: the
first is after 10 euros – so by cheaper entrance fee the price is not that important; and the second wave
shows, that there is quite big amount of students for whom the price is not important at all.
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doesn t matter 27.27
important if more than 20 11.36
important 14.77
Fig. 10: Importance of tickets costs attending cultural events
In the questionnaire was asked (A_Q7) about belonging of the respondents to the cultural field –
40,9% are not related to the culture at all, 39,8% are working in culture or related field and 17% are
related to the culture outside the work. By making the correlation between belonging to the culture
and visiting events, we confirm the common theory, that persons related to culture, are more often
visiting cultural events.
Fig. 11: Correlation between belonging to the culture field and visiting of the events
As figure shows, between persons who are related to the cultural field, answers, that they are not
visiting cultural events at all, are not given. Persons working in culture or related field, are going to
the events mostly once a week or once a moth.
Other important statement, which was found out by making correlations, is that students who are
living in Latvia not that long, mostly don`t get information about events. The language obstacle is
more important for persons, who are living in Latvia more than 1 year.
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Fig. 12: Correlation between belonging to the culture field and visiting of the events
As a result the survey shows, that not the cultural differences, but luck of the information and
language problem are the biggest obstacles to join the cultural life in Latvia for young Muslim
students. Also for them the price is important, if the entrance to the event is more than 10 euros. The
young Muslim students are visiting entertainment events, like city fest, public holidays, cinema and
nightclubs – still those events, where the language skills are not so important and the price is not so
high. In spite of the fact, that most of them are filling integrated into the daily live at least after 6
month of being in Latvia, just small part is really integrated in the cultural live.
Conclusions
The current paper reflected the results of the survey that was conducted by students of the University
College of Economics and Culture in 2018 in order to learn the habits and obstacles of the
consumption of culture by Muslim students in Latvia, as well as their integration level to cultural and
social life.
Survey sample consisted of 178 respondents that is absolutely sufficient amount for Latvian survey,
considering population size equal to 2 000 (Annual Report on Higher Education, 2018).
The results of the research show luck of theoretical and empirical issues on the topic of educational
migration. Related articles consider only economic issues of the educational migration, ignoring
cultural and social field.
The research revealed the reason for Muslim students, why they are not integrated into cultural life is
not because of cultural diversities, but because of language obstacles and luck of information (Fig 8).
Thus, the first hypothesis H1: The Muslim students in Latvia are not involved into the cultural live
because of cultural differences is rejected.
However, analyzing the results we can conclude, that even in the case of young Muslim students,
cultural events are more frequently attended in the home country than in Latvia,
Thus, the second hypothesis H2: The Muslim students are less visiting the cultural events in Latvia
as in their home country is confirmed.
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The third hypothesis H3: The price of the cultural event does not matter for Muslim students was
also rehejcted – for joung Muslim students the event price is important, if it is more than 10 euros.
Most of the respondents are visiting the cultural events quite often, but they prefer fests and
entertainment options, which are not related to the language. Luck of the information in English and
events, which are understandable for incomers are one of the most important obstacles for cultural
integration. Since all movies in Latvian cinemas are in original language with Latvian and Russian
subtitles, our respondents are choosing cinema as one of the most visited event (Fig 7). This is also a
reason, why more that 27% are filling not integrated nor into the cultural, either into social life.
The results of the survey could be used in two aspects: for the development of the offer of cultural
goods and services, interesting for Muslim students on the one hand, and for the increasing of their
integration into the Latvian society - on the other. Latvian low obliges all entrepreneurs to make the
advertisement in Latvian language and to insure the translations into Latvian languages.
Understanding needs and preference of young Muslim students can help and be used also for
searching new ideas and strategies for teaching. The amount of external students in Latvia have trend
to grow up and we have to develop new research topics helping to understand Muslim students and
helping them to be involved into the social and cultural life. The areas for the prospective further
research could be social issues and obstacles for Muslim students, their daily life and occupations,
prejudices (gender, religion, race and etc.). Besides, it could be interesting to compare Latvian
situation with other countries of EU.
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Engagement and Affection in Innovation Projects
Bogdan LENT
University of Science and Technology, Bydgoszcz, Poland

bogdan.lent@utp.edu.pl
Abstract
Innovation is a Must in a globalized economy. Innovation teams, personalities, and values, as well as
the interaction with the environment: directly: within the hosting organization and indirectly – with
various stakeholders outside the organization, play decisive role in reaching the objectives of
successful innovation.Research presented in this paper focuses on the personality-related factors
within the domains of the cognitive capabilities, affection/willingness and/or courage and the
feasibility to act.The phenomenological classification of the personalities’ interdependences leads to
the identification of innovative engagement and affection as culture-dependent. The innovative
nonconformist, whose innovative behavior origins from the group values expose the innovative high
engagement. Salaries and status do not motivate and increase the affection of the innovative
personalities, but primarily the task, team, in which innovator works, and cultural heritage. The high
impact of extrinsic motivation on affection opens handling options for the managers.
Keywords: Innovative personality, value systems, innovation project,, phenomenological

classification; Team Centred Interaction TCI; engagement model; motivation factors.
Introduction
Innovation, (from Latin Novus (the new) meaning something new, unprecedented, renovation, new
(product) placement (Egger 1992)) is a Must in a globalized economy. If 1935 company like General
Electric was registered for 90 years among the S&P top 500 companies, twenty years later it was
already half of it and further this number decreased to today about 20 years (Stern and Jaberg 2013,
Anthony et al. 2019). And this pace continues to the expected 12 years in 2026 (dito). This means,
the company has to innovate and keep pace with the overall development just simply to survive.
Same time new innovative products contribute to 47% of total turnover in up to 10% of the
innovative companies, 22% in the group 10.1-20%, 17% 20.1-30% and 14% in all others accordning
to IBM (2006), and 30% overall by Cooper and Edgett (2005).
According to the survey conducted among 722 top managers (McKinsey 2007), only 32% of
innovation origins from own R&D departments, but up to 75% of innovation in the companies
origins from non-institutional sources. Thus it is not the organization alone, which determines the fate
and success of the innovation.
This paper presents research on the conditions of non-institutional innovation.
Firstly the next section summarizes the findings from the systematic literature survey, related to the
chosen topics. Later the findings from the systematic literature survey, related to the chosen topics are
evaluated. The research results and discussion closes the papter.
The research question follows Bowlby (1958) by focusing on “What?” and “How?” leaving
purposely the causal and conditional “Why?” for further research. No claim of completeness, neither
orthogonality is raised in this paper. (Meredith 1988).
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The SLR had been conducted taking the following criteria under considerations:
• What drives the non-institutional innovation?

• What are the factors determining innovation behavior
• Which role plays culture here?
In the assessment of the contents, priority is given to the intention of the content over the pure
semantics. The research focuses on project emergence conditions and the personality of the person
engaged in such an endeavor.
The research method bases on the qualitative approach targeted in the exploration of the mechanisms,
which impacts the capabilities and the personality of the persons, who get engaged in the innovation.
Firstly the mathematical model developed by Lent (2017) has been adopted with the extension of the
personal feasibility (psychomotor) to the general feasibility, which comprises the external impact
factors:
wi = Cognitition*Affection*Feasibility to apply
(1)
mi = mi (Cognitition)* mi (Affection)* mi (Feasibility to apply)
(2)
where:
wi is the ith capability needed to perform a specific activity

mi is the maturity of the ith capability.
The performance of an innovator may vary over the time:
[Performance of Innovator] = ʃ f ([Σ (wi * mi )]t, institutional impact)dt

(3)
To assure the completeness of the considerations, a phenomenological classification model has been
developed to expose the correlation of the cognitive capabilities, the feasibility, and the
affection/willingness. The cognitive capabilities were analyzed in separate research of the author
presented in Pinkowska (2012). The feasibility is determined by the institutional interventions. The
non-institutionally stimulated innovation engagement and affection are the subject of the research
presented in this paper.
A model of the innovative engagement, which includes the personality, affection, motivation and –
for completeness – organizational factors, have been developed and instrumentalized.
The pragmatic paradigm that has been established for our research led to the following hypotheses:
H1: Personal engagement, personal development opportunities and culture have positive impact
on innovation engagement and success.
H2: Group cultural heritage, deterimined by the goals and group values, impacts attitude and
behavior of innovator.
H3: Creative non-conformist, who engage themselves in their work and expose the affection,
stipulated by the goals and personal engagement opportunities, are the sought innovators.
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Author projects the theoretical findings of the presented research onto his personal experience of
managing innovation projects in several cultures with meantime about 1000 directly interacting indi-
viduals, providing for semi-scientific validation of the findings.
The relevance of both the engagement and affection in successful innovation is underlined in the
conclusions.
Based on the above, the following research steps were performed by the authors:
1. Delimitation of the area of concern (i.e. Impact factors on innovator performance)

2. Identification the factors which impacts the innovator performance
3. Verification of completeness by designing phenomenological interdependences
4. Development of the model of the impact factors following the phenomenological taxonomy
5. Evaluation of the impact factors and operationalization of the model
6. Factorial analysis
7. Discussion of the various impact factors and of their impact on personal engagement and af-
fection
8. Verifiction of the impact factors with the research on motivation led earlier by the author
9. Conclusions and hypothesis verification
With this approach, we provide ontologically, epistemologically and methodologically congruent

standards for our research (Klenke 2008).
Research Results
Literature Survey and Theoretical Background

The systematic literature review SLR (Kitchenham et al. 2009) covered separately available analyses,
surveys results, and best practice advice. The definitions of innovation and innovation projects
introduce the reader into the topics of this paper - the non-institutional innovation. The literature
findings in this chapter lead to the formulation of the phenomenological classification of the
personality interdependencies and later analysis of the behavioral conditions.
In 1912 Joseph Schumpeter (1912) published his book on the theory of the economic development
defining the innovation as a successful introduction on the market of the new product, built from the
available economical possibilities. Brown and Ulijn (2004) follows this definition. Oslo Manual
extends slightly the Schumpeterian innovation defining it as the implementation of a new or
significantly improved product (good or service), or process, a new marketing method, or a new
organizational method in business practices, workplace organization or external relations (OECD &
Eurostat (2012).
The innovation project is projected in general along with the definition of the ISO21500:2012 (2012),
aimed in innovation as defined above. There are about 40 concurrent management processes. Several
processes in this standard are continuations of the other one, thus can be well bound into one process:
like e.g. Procurement Preparation, Procurement and Contract Management – bound into one
Procurement Management and so on (Lent 2013).
Fernez-Walch (2017) defines an innovation project as a non-recurrent process aiming to formalize a
new idea (and purpose) and turn it into an innovation proposed to the potential users. As this
description matches well the description of the innovation in the goal of the innovation project, it
misses the notion of the perpetual recurrent processes – properties of a project. Further Fernez-Walch
focus on organizational institutional components of the innovation, omitting the core of Schumpeter
and later authors’ notion about the substantial and decisive role of an entrepreneur, his personality,
formed by the cultural heritage in the innovation ( Brown and Ulijn 2004, Keklick 2018, Hofstede et
al. 2004).
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Neely and Hil (1998) posit that the innovation capacity of a firm regards three important and
interrelated perspectives: (1) culture, (2) internal processes, and (3) external environment.
Stern and Jaberg (2013) define “soft skills” as a generalization of the culture. Same authors, as well
as Knight (1967), Michalik (2003), Lozano and Rumo (2012), Criscuolo et al. (2014), Sakhardari and
Bidakhavidi (2016), Neto et al. (2018), indicate that the personality, motivation and organizational
factors are key impact factors in the causality of the innovative projects. This conforms to the earlier
conclusions about the cultural impact on innovation mentioned above.
Whether we apply the innovation view of Fernez-Walch (2017) or ISO21500:2012 (2012) project
definition, we come down to the process, which is composed of several actions. Capability to perform
these actions depends on the abilities, attitudes, and aptitudes of those performing these actions.
Bloom (1984) sees the capabilities to perform given task results from the interaction of the three
domains:
• Cognitive (ability to process and utilize in a meaningful way)

• Affective (attitudes and feelings related to the subject action, engagement, motivation)
• Psychomotor (manipulative and physical skills, called aptitude, too)
Ion and Brand (2009) generalized later these three dimensions as:
• Capabilities and/or Potential (which Bloom narrowed to cognitive abilities)

• Willingness and/or Courage to act (corresponds to the affective domain)
• Feasibility to act (which extends beyond the psychomotor individual aspect).
The cognition capabilities of the person involved in an innovation project are on the highest three
levels (out of six in total) in Bloom’s taxonomy. Research led by the author and summarized in
(Pinkowska 2012) analyzed the capabilities of the project manager in the area of human factors. 40%
(n = 10) of the cognitive skills were found on the most challenging level 6 of Bloom’s taxonomy,
followed by 20% (n = 5) of skills on the level 5.
The entrepreneurship characteristics of the willingness and courage are extended with the notion of
affection, as a precondition of any innovative engagement.
The institutionally stipulated engagment has been extensively studied. Masumba (2019) identifies the
innovation engagement skills and bind them with company values, stopping short of elaborating the
relationship between the both. Later he lists the organisational incentives targeting the innovation
engagement of the employees. Rosas et al. (2018), Jonas et al. (2018) identified archetypes in
innovative organization. “Engagement” is mentioned twice without any evaluation, affection only
once as an attribute of the archetype “lover”, what makes these findings questionable, as affection is a
bias to any innovative engagement. A thorough analysis on affection as a consequence of positive
emotional culture in an organization may be found in Ghosh (2019).
In this research we focus on the causes and reasons of the innovator affection applying the above
mentioned Bloom (1984) definition of affection as overall attitudes and feelings related to the subject
actions, engagement, and motivation.
Sindgwik (2015) defined the affection in the ethics early-modern sense, as covering all pro and contra
attitudes: desires, approval, likings, but also disapprovals, dislikings and so on.
Modern approaches like that of e.g. Floyd (2015) refer to Descartes, Spinoza and early British ethical
writers in defining the affection as basically positive emotional disposition, that is externally directed
and which bore a resemblance to passion, but is free of its sensuous elements and volatile nature. In
Plutchik (1991) wheel of emotions, this positively biased affection ranges from vigilance,
anticipation, interest, ecstasy, and admiration through joy, trust, acceptance, up to the serenity. The
degree to which the affection is available for the deployment of the cognitive abilities is influenced
by three factors (Bowlby 1958, Mitchell 1988, Holmes 2002):
• Inherited and Early Life Experience
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• Culture, Values in particular

• Extrinsic Motivation
Modern neuroscience identifies the personality development in the womb as being strongly
influenced by the impact of nutrition and stress hormones of mother on the gens of a child. Upon
birth, not all synapses are fully interconnected. The attitude of mother in the first three months
influences the development of the trust and attachment resulting in the development of the G-
Oxytocin receptors, responsible not only for the empathy, trust, self-confidence and cognition, but as
a result – for successful behavior in the educational and later professional environment, thus
impacting firstly, the affection as defined above, and secondary, the maturity level, in which this
affection is exposed.
We conducted the research on extrinsic motivation in Project Management in separate research,
summarized a. o. in (Seiler et al. 2012, Lent 2013). The findings will be later related to the factors
influencing the innovative non-institutional engagement.
In conclusion, capabilities and willingness to deploy them in order to perform a specific action in an
innovation project, and the affection are the cornerstones of the successful innovation. The research
presented in this paper focuses on the later one.
Phenomenological classification
Team Centered Interaction model TCI has been chosen as a comprehensive behavioral reference to
an individual, placed in the social and material environment (Cohn 1975/2009). In this model focus
of personal orientation is either on personal topics (“I”), on interaction with others (“We” replaced
here for differentiating purposes with “Team”, T) or on a common goal (“It”, replaced for the same
reason with “Goal” G). The environment (“World”, W) is taken under considerations in closest, as
well as in broad, meaning into account, while considering each of the perspectives I, We (Team) or
Goal (It). The cognitive processes permanently rotate: while focusing on “I” we influence our “We”
thinking, “We” thinking leads to common goal focusing (“Goal”) and goal-oriented thinking influ-
ence back our egocentric orientation. All biased by the “World”. According to Cohn an individual
and the team are successful when for each team member including the leader, all items are in balance
(idem). The person engaged in an innovative project with a team composed of family, family busi-
ness managers and shareholders forms a TCI model. This justifies the choice of TCI for the phenom-
enological classification in one dimension. The other dimension builds the conditions for the en-
gagement, stipulated by the cognitive process:
• Willingness/Courage and Affection of the person

• Cognitive Capabilities/Potential of the person
• Feasibility to act
The correlation of both: the cognitive process and the engagement conditions resulted in the matrix
presented in Table 1 further below. This systemic approach help to secure the completeness of the
considerations, related to the personalities of the person engaged in the innovative endeavor.
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Table 1: Phenomenological interdependences in innovative engagement

(Me) (We) (Goal) (World)
Dimension Innovator person- Innovator working place Attitude towards Innovator environ-
ality orientation relationship orientation the goal ment orientation
Willingness 1.Intrinsic motivation 4.Extrinsic family and 7.Risk-taking 10.Extrinsic world
/Courage/ and values management motivation willingness motivation
Affection
Cognitive 2.Knowledge and 5.Relationship relevant 8.Goal achievement11.Availability and
Capabilities capabilities capabilities relevant capabilities quality of the right
/Potential tools
Feasibility 3.Creativity, 6.Allowance & 9.Attainability 12.Access and
organizational psychological support of conscious support
adaptation capability family and management for the leader
Innovative Engagement and Affection
The above characteristics of the innovation projects demand a particular personality. Michalik (2003)
defines innovative engagement as a voluntary, conscious, long term participation in the process of
innovation creation, entered upon own incentive by ambitious and risk-prone individuals with high
persistence and capability for at least time-limited intensified innovation activities.
These individuals are further called innovators. Their engagement is affected by:
• The Willingness /Courage/Affection: Innovator faces numerous obstacles, enters high risks,
• The Capabilities/Potential: Knowledge and Skills of those involved in Innovation,
• The Feasibility: Creativity, cognitive abilities and permissive set-up for an innovation.
An impact of the personality of the involved person, company environment and the relationship with
others at the working place on each of these dimensions is given in the phenomenological Table Ⅰ
above.
In particularly the affection subdues to the gradual evolution. In a professional environment, an

impact may hardly be taken on the prenatal and early life stage. It starts with the culture and values.
The innovation drive in the behavior is determined by attitude, originating from the personal values,
(“Acting” in the Circular Schwartz model (Cieciuch and Schwarz 2014). These in turn, results from
the group values, developed and maintained by the group culture (DaDeppo 2015). Indirectly, as
related to the innovator organizational environment, confirms it Masumba (2019). So it is the group
culture which impacts the affection and thus innovative behavior. Certain, however limited, influence
may be exercised in this area (Figure 1) (Masumba ditto).
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Figure 1: Cultural impact on affection and innovation drive.
However, other economic factors impact the overall innovation force. Following Chipulu et al.
Thailand shall be among the most innovative countries (low IDV, high UAV). In fact, it is
Switzerland (very high IDV, same high UAV), which dominate for some years the innovation and
competitiveness indexes, whereas Thailand ranks about 40th place (Chipulu et al. 2014, Dutta et al.
2018).
In the operationalization model, the behavior conditioned by the willingness/courage is listed as the
innovation attitude. The behaviors conditioned by the capabilities/potential are grouped as innovation
aptitude. The extrinsic motivation stimulates the innovative atmosphere, resulting from the
imposition of the innovator personality and the environment innovation orientation. This confirms
also the research results of Sakhdari and Bidakhvidi (2016). The final innovative engagement is
conditioned by the barriers, both in the personality as well as in the environment. The factorial
analysis leads to the clustering and the identification of the main factors, which impacts the
innovative engagement. The final evaluation criterion of innovation economic and technological
success is the quality of innovative engagement.
An analysis of the interdependencies between those factors by Michalik (2003) indicates the direct
impact of the goal orientation of the innovator on his salary and status. This is evident in regular
innovative projects, where innovator has the opportunity to distinguish himself from the others. Weak
correlation (correlation coefficient) between the goal orientation and flexibility/personal development
opportunities suggests, that the goal-oriented innovator put less value on the last.
The high stakes of status and salary correspond to the direct correlation with the organization
structure: salary and status dominate as the main motivational factors even in the most innovative
enterprises. Simultaneously the weak correlation between the salary/status and the innovation
(organization culture) demands a high sensitivity of superiors to recognize the innovative personality
among the employees and to act in the right way. Our research on motivation (Seiler et al 2012)
confirm these findings.
Nonconformists, as could be expected, do not put much value on salary, but – what might surprise –
maintain excellent relationships both with their superiors and with colleagues. A possible explanation
might be rather the desire of nonconformists to share their ideas with their colleagues, than to
swagger around. Their good relationship with the superiors may be explained with their desire to
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benefit from the perfect communication with the superiors intended to shift their attention beyond
any suspicions.
The creativity of the nonconformist innovators in general impacts positively also the overall
relationships between the colleagues and superiors. Further, the positive correlation with the personal
development opportunity indicates that the innovators favor the coaching leadership (delegating
style) rather than the participative one (Lent 2013).
Work engagement, which has a positive impact on the relations both with the colleagues and with the
superiors, in correlation with high competence of the innovators in problem-solving, create an
excellent set-up for the progress in an innovation process. Motivation is the factor with the highest
impact possibility in the professional innovation process. Michalik (2003) aggregated the innovative
engagement in innovative personality, which includes work engagement, determined by the affection,
on one side and an innovative environment on the other side. Jointly they are leading through the
extrinsic motivators, innovative atmosphere and the barriers of innovative engagement, like
unwillingness (missing affection) to innovative engagement.
In our Swiss ICT survey research (Seiler et al 2012) task, team, and resource-related aspects were the
most important content and procedural motivational factors. Distinguishing the sub-dimension in the
inventory, clear task, goals and results (content factors) have the highest impact on motivation (5.26
on a Lickert scale 0-6), followed by procedural factor Team (sub-cluster of interpersonal, 5.07) then
the remaining interpersonal relations (Environment), resources (innovative environment in Michalik
(2003)) and further procedural factors. This indicates the high impact of extrinsic motivators on
affection, thus handling options for managers.
All the above findings match the personal experience of the author and extend the related researches
led by the author and mentioned earlier in this paper.
Summarizing we conclude, that the major positive impact on innovation engagement and success
have:
• Personal engagement
• Personal development opportunities and
• Culture
Conclusions and Further Research Directions
“An enterprise, which pursues the innovation enters irrevocably the risks. An Enterprise which does
not risk the innovation, cease to exist”. Dornberger attributes this statement to Ferdinand Piech of
VW (Dornberer 2006). Author of this paper could not trace the original source, yet fully share this
opinion. Enterprises are condemned to innovation. How shall they proceed?
The research results proved the innovation engagement dependence on personal engagement,
development opportunities and culture, thus positively verifying the Hypothesis H1.
Group cultural heritage impacts our attitude and thus behavior. Goals and values precondition our
otherwise inherited affection, thus positively verifying the Hypothesis H2.
The factorial analysis and discussion demonstrate that creative non-conformists, who do engage
themselves in their work, expose affection being motivated by the goals, and carefully coached
towards personal development, create the most valuable human capital in the enterprise, what
positively verify the Hypothesis H3.
Addtionally we demonstrated, that encouragement to risk-taking and high tolerance of erroneous

steps are the core of innovative organizational culture.
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We may develop the algorithms the mathematical models for cognitive capabilities, useful in
development of the artificial intelligence in innovation and project management, yet the human
factor, expressed in the dynamical model, will dominate the project fate still for generations. Whether
someone will acuire the desired level of maturity in demanded capabilities is conditioned by his
affection towards the project goals. Affection thus impacts the innovation drive. The prenatal und
early life stage factors can be influenced only to certain degree by the society – only indirectly over
the mother’s situation and behavior towars saugling.
Our handling options begun with the cultural heritage of a group, to which the innovator belongs. The
group values, internalized as personal attitude impacts the affection towards goals, exposed in
innovative behavior.
The highest impact on someone’s affection is achieved by the extrinsic motivation. Here the goal (to
recall: affection is externally directed) and interactions within the team are the most motivating
factors, followed by futher procedural - thus influenced by the superior, and the environmental
factors.
Authors thank the reviewers for their valuable comments, which led to the significant improvements
of this paper.
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How to Develop Business Ethics in Entrepreneurial Student Program?
Darma Rika SWARAMARINDA

Universitas Negeri Jakarta, DKI Jakarta, Indonesia
darmarikas@gmail.com
Henry ERYANTO
henryeryanto@gmail.com
Abstract
This article illustrates how business ethics can improve sales achievement and discusses how it can be
developed among students who involved in entrepreneurial student program. Good sales achievement is
supported by the business ethics attitudes owned by the students. This business ethics is important
because it contains value and ethics. The research methodology used in the article is descriptive and
quantative. The sample used in this study amounted to 100 students taken purposively by age and
students who have already taken entrepreneurial student program. In this way, analysis of business ethics
building is made by exploring students' attitudes in order to improve their sales achievement. From the
results, it can be concluded that the application of business ethics in entrepreneurial student program
activities on campus is still not good. Students who undertake entrepreneurial student program activities
have not fully implemented ethical moral values in running their business. Not all students in the program
get knowledge about business ethics in entrepreneurship in their lectures because they are not included in
one of the courses in their study program. The student did not get any socialization or business ethics in
entrepreneurial student program activities, which emphasized only how to get maximum sales results.
Keywords: business ethics, education, entrepreneurial student program.
Introduction
In business activities or entrepreneurial activities always aim to get a profit. This indeed becomes a
necessity where a good business from an economic point of view must benefit. The next point of view is
law, business is said to be good if it has legality. And one other aspect is very popular and needs attention
in this business world is the norm and business ethics. This is sometimes forgotten in running a business,
whereas a business that is good from an ethical perspective is ethical business. In addition to business
ethics can guarantee the trust and loyalty of all that affect the company also determines the progress or
withdrawal of a company. Business ethics is very important to maintain the loyalty of stakeholders in
making decisions and solving all company problems. Because all company decisions greatly affect and
are influenced by stakeholders. Stakeholders are all individuals or groups with an interest in and
influence the company's decisions. How about the application of business ethics in entrepreneurial
practice activities on campus? has it been applied in the values of entrepreneurial practice? Did they get
knowledge about business ethics in entrepreneurship?
Literature Review
Business Ethics
Keraf (2005), in the broadest sense of ethics is a procedure for dealing with other humans. Ethics is often
referred to as the act of regulating human behavior or behavior with society. Behavior needs to be
regulated so that it does not violate the norms or habits prevailing in society, because the norms or habits
of the people in each region of different countries.
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Business ethics is a specialized study of right and wrong morals. This study concentrates on moral
standards as applied in policies, institutions, and business behavior. (Velasquez, 2005). During this time
we as consumers can judge the unethical actions taken by the company will usually get a countermeasure
from consumers or the public for example in the form of boycott movements, bans on circulation,
prohibitions on operations and so forth. Recently if there are consumers who are dissatisfied with a
service or product from a company, then they will post their frustration on social media. This will have an
impact on the decline in sales value and corporate image. Whereas companies that uphold business
ethics, generally include companies that have a high corporate image ranking, especially if the company
does not tolerate unethical actions.
Business ethics is very important to maintain stakeholder loyalty in making company decisions and in
solving company problems. This is because all company decisions greatly influence and are influenced
by stakeholders. Stakeholders are all individuals or groups with an interest in and influence on company
decisions. Who are the company's stakeholders?
1. Entrepreneurs and business partners

2. Farmers and companies supplying raw materials
3. Workers' organizations representing workers
4. The government regulates the smooth running of business activities
5. Bank of corporate funders
6. Investors
7. The general public served
8. Customers who buy products
In this articles, we agree that company’s stakeholders are also relate with the students who join the
entrepreneurial student program. According to Goffrey (1996), there are several attitudes and behaviors
that must be carried out by employers and all employees, namely:
1. Be honest in acting and behaving,

Honest attitude is the main capital of an employee in serving customers. Honesty in saying, speaking,
behaving, or acting. It is this honesty that will foster customer confidence in the services provided.
2. Be diligent, on time, and not lazy
An employee is required to be diligent and punctual in working especially in serving customers and
should not be lazy in working.
3. Always smile
In dealing with guests / customers, an employee must always smile, never be depressed or sullen. With a
smile we are able to tear down the hearts of customers to like our product or company.
4. Meek and gentle
In behaving and speaking when serving customers or guests should be with a gentle voice and a suave
attitude. This can attract guest interest and make customers feel at home in touch with the company.
5. Polite and respectful
In providing services to customers, the barriers are always polite and respectful. Thus the customer will
also respect the services provided by these employees.
6. Always cheerful and passionate
The always cheerful attitude shown by employees can break the existing rigidity, while the social attitude
will also cause customers to feel fast and close friends like old friends so that everything runs smoothly.
7. Flexible and likes to help customers
In dealing with customers, employees must be able to provide understanding and want to budge to
customers. Everything can be resolved and there is always a way out in a flexible way. Employees are
expected to like helping customers who have difficulty to find a way out.
8. Serious and have a sense of responsibility
In serving customers, employees must be serious and earnest, steadfast in dealing with customers who are
difficult to communicate or who like to chatter. And also must be able to take responsibility for their
work until the customer feels satisfied with the service provided.
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9. High sense of belonging

This sense of ownership will motivate employees to serve customers, besides that employees must also
have a soul of service, loyalty, and loyalty to the company.
Entrepreneurship and Entrepreneurship Program
According to Frinces in Eryanto (2019) ,“entrepreneur who comes from the French "entreprendre" who
does (to undertake) or try (trying).Then the word entreprendre is also defined as 'between the taker' or
'intermediate' (go-between)”. HAR Tilaar in Eryanto (2019) stated that: "discussing the relationship
between curriculum and entrepreneurship implicitly recognizes that entrepreneurship can be incorporated
into the curriculum of formal and non-formal education institutions."
Entrepreneurship material or courses have indeed become compulsory subjects at Jakarta state
universities, but business ethics courses to complement these courses have not been applied in all
faculties at Jakarta State universities, even though business ethics is also a value that can support running
business or good entrepreneurial activities.
There are several concepts that explain entrepreneurship. Here are 6 important entrepreneurial essentials
(Suryana, 2003), namely:
1. Entrepreneurship is an effort to create added value by combining resources through new and
different ways to win the competition. The added value can be created by developing new technologies,
finding new knowledge, finding new ways to produce new goods and services that are more efficient,
improving products.
2. Entrepreneurship is the ability to create the new and different.
3. Entrepreneurship is a process of doing something new (creative), and something different
(innovative) that is useful to give more value.
4. Entrepreneurship is a process of applying creativity and innovation in solving problems and
finding opportunities to improve life.
5. Entrepreneurship is a value needed to start a business (start-up phase) and business
development (venture growth).
6. Entrepreneurship is a value that is manifested in the behavior that is the basis of resources,
driving forces, goals, strategies, tips, processes, and business results.
Business Ethics and Entrepreneurship

Ethical goals must be in line with company goals, there are several ethical goals that the company always
wants to achieve, namely:
1. For friendship and association
Ethics can increase familiarity with employees, customers or other interested parties. The friendly
atmosphere will turn into friendship and increase the breadth of the association. If employees, customers,
and the community become familiar, all matters will become easier and smoother.
2. Pleasing others
The attitude of pleasing others is a noble attitude. If we want to be respected, then respect others.
Pleasing people means making people happy and satisfied with the services provided. If the customer
feels happy and satisfied with the service provided, hopefully they will repeat it some time.
3. Persuade customers
Each prospective customer has its own character. Sometimes potential customers need to be persuaded to
become customers. Various ways can be done by companies to persuade prospective customers, one of
them is through ethics shown by all company employees.
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4. Retain customers
There is an assumption that maintaining customers is much more difficult than finding customers, and
there are also those who think that maintaining customers is easier because they have felt the product or
service provided.
5. Fostering and maintaining relationships
Relationships that are already going well must be continued and fostered. Avoid differences in
understanding or conflict. With ethics create relationships in a closer and better atmosphere.
Research Method
This research uses the descriptive quantitative survey method and the data is analysed by content
analysis. The research uses primary data from observations of the respondents, who were students
selected according to student entrepreneurial program.
Results
From the results, it can be concluded that: The application of business ethics in entrepreneurial student
program activities on campus is still not good. Based on the survey results to them, it was found that 60%
of respondents had not applied ethics in doing business in their business activities. They still rely on how
to sell a lot and get a profit.
Students who undertake entrepreneurial student program activities have not fully implemented ethical
moral values in running their business. As many as 68% of students participating in the entrepreneurship
program said that moral values and business ethics were set aside first because for start-up business
needed first was an entrepreneurial mentality that never gave up and always worked hard, not lies in the
business ethics and moral values in business.
Not all students who take part in entrepreneurial student programs get knowledge about business ethics in
entrepreneurship in their lectures. Only 42% of program participants gained knowledge about business
ethics in teaching and learning activities, the remaining 58% did not get this knowledge because it was
not included in one of the courses in their study program. Entrepreneurship material or courses have
become compulsory subjects in Jakarta state universities, but for business ethics courses that can
complement entrepreneurship courses have not been applied in all faculties at Jakarta state universities,
even though business ethics are also moral values which can support the running of a business or good
entrepreneurial activity.
Although only 32% of students apply business ethics in their practical entrepreneurial activities, they
themselves believe that the increase in sales occurs in their businesses because they have adopted moral
and ethical values including honesty in doing business, discipline in carrying out their work or division of
work respectively , being polite and respectful towards consumers also makes sales results or
achievements increase, because consumers return to buy their products because the services provided are
satisfactory. Having responsibility for the business and services for consumers also makes the life cycle
of the business that they run also good and healthy.
72% of students who participate in the program do not get socialization or deepening about business
ethics in entrepreneurial student program activities, which emphasizes only how to get maximum sales
results.
Suggestions
From the results, researchers give suggestions to the problems that were found in this research. The
application of business ethics in entrepreneurial student program activities on campus is still not good
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and students who undertake entrepreneurial student program activities have not fully implemented ethical
moral values in running their business. So the executive committee of the university should add
assessment criteria, one of which is the criteria for applying moral and ethical values in entrepreneurial
activities carried out. It is hoped that this can become a motivator for program participants to implement
the business ethics. Not all students in the program get knowledge about business ethics in
entrepreneurship in their lectures because they are not included in one of the courses in their study
programs, so universities must create curriculum FGDs that involve all elements in the university to make
curriculum or ethics courses business in study programs at UNJ, because UNJ graduates themselves are
not only as teachers but also entrepreneurs. The student did not get any socialization or business ethics in
entrepreneurial student program activities, which emphasized only how to get maximum sales results, so
it should be added material about business ethics in the material depth or training education in
entrepreneurial student programs.
References
Alma, Buchori. (2001). ‘Entrepreneurship’. Bandung: Alfabeta.
Eryanto, Henry, Darma Rika S. and Dewi N. (2019). ‘Effectiveness Of Entrepreneurship Practice
Program: Using CIPP Program Evaluation’. Journal of Entrepreneurship Education, Volume 22 (1), 1-10.
Fadiati, Ari, and Purwana Dedi. (2011). ‘Become a Successful Entrepreneur’. Bandung: PT. Remaja
Rosdakarya.
Goffrey, Meredith G. (1996). ‘Entrepreneurship: Theory and Practical’, Jakarta: Pustaka Binaman
Pressindo.
Keraf, Sony. (2007). ‘Business Ethics’. Bandung: Surya Pustaka.
Suryana. (2003). ‘Entrepreneurship, Practical Guidelines, Tips and Processes for Success’, Jakarta:
PT.Salemba Empat.
Velasquez, Manuel G. (2005). ‘Business Ethics, Concepts and Cases - 5th Edition’.
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Innovation in Warehouse Logistics –

Industry 4.0 Operational and Productivity Gains
Attila TURI
Politehnica University Timişoara, Timişoara, Romania, attila.turi@upt.ro
Michael PETRI
Politehnica University Timişoara, Timişoara, Romania, michael.petri@continental-corporation.com
Marian MOCAN
Politehnica University Timişoara, Timişoara, Romania, marian.mocan@upt.ro
Abstract
The purpose of this paper is to quantify the results obtained by implementing an innovative industry
4.0 warehouse storage concept within a German automotive industry company based in Western
Romania. The conducted research presents the benefits of the proper application of technology in the
logistics activity and highlights specific improvements and associated outcomes after redesigning
warehouse layout and process flows. The paper highlights the challenges of doubling storage
locations without extending the designated area, but with the issue of losing warehouse space in favor
of production in view of estimated volumes increases for the following 5 year-timespan. The selected
automatic storage concept and the redesigned layout are a premiere for the dynamic automotive
industry sector in Romania, as the case study already after 6 months outlines consistent operational
improvements throughout the warehouse-specific processes. Findings show an almost optimized
30% more stable process, an increase in speed of warehouse movements, gaining more than 20% new
storage locations than was expected, more than doubling location occupancy rate, a 70%
improvement of interoperations issues rate and a more than 4 times better overall productivity gain
enabling an effective support of both current and future customer volume demands.
Keywords: warehouse logistics; automotive industry; innovation; operations planning.
Introduction
The logistics department of any manufacturing company has some of the most dynamic and complex
challenges to manage in order to adequately support both the smooth operation of the production
process as well as the reliable delivery of the finished goods, as also shown by Druecke and Zentgraf
(2017). The most common issues related to warehouse logistics are related to managing the available
warehouse space and its associated layout configuration, having a reliable real-time inventory
accuracy and tracking of goods’ movements as well as an effective logistics process flow for all
operations (picking, packaging and handling, balancing demand fluctuations and emergencies, order
responsiveness, system transparency and communication), all within a cost-competitive background,
as confirmed by Masar and Hudakova (2019).
The logistics area’s goal is to be able to support the production department’s needs in terms of
inbound and outbound flows by assuring a reliable supply for an effective production process as well
as a reliable preparation for on-time customer order delivery, as is also emphasized by Yin et al
(2018). Logistics does not directly add value to the products, but it is vital for the effective running of
the manufacturing process by constantly optimizing its layout in line with production requirements
and its volume dynamics, as is also highlighted by Zhong et al (2017). A competitive logistics service
will strengthen the reliability of the production process and will enable the foundation for the
appropriate setting of productivity, cost and quality of service key performance indicators (KPIs)
targets and sourced results, as is also supported by Chiarini and Vagnoni (2015).
A German automotive industry company from Western Romania is faced with the challenge of
increasing its production capacity to handle its short- and medium-term projects for some of the most
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important car manufacturing plants and brands throughout the world. After successfully extending
and increasing its production output throughout the last 5 years (plant capacity has tripled within this
timespan, average number of employees has doubled, financial indicators have risen accordingly),
there are no more extensions planned for the following years to help the facility absorb the forecasted
volumes, as well as the agreed contracted output levels.
In this sense, a constant reorganization and redesign of the logistics area’s layout needs to be put in
place in order to increase both the share of production in the total available space as well as the
storage capacity in the warehouse area and keeping an optimal balance and performance between the
two, as is also suggested by Kolberg and Zuehlke (2015). In terms of the practical challenges, the
project requires production and warehouse to handle and manage a double amount of parts within
most of the plant’s productive areas (work cells and workstations allocated for each specific project
and/or customer) with roughly the same amount of available resources (specific equipment,
machines, working installations and employees).
Around 17 million pieces are currently assembled to produce more than 45,000 finished goods, but
estimated growth shows that volumes will increase to more than two thirds by 2024 to almost 30
million pieces which will need to be handled by inbound logistics and supplied to production. For the
warehouse this means generating more storage locations (up to 50% more locations than are currently
available, but in less available space) to adequately support the estimated production growth
throughout the following 5 year timespan. Furthermore industry 4.0 concepts have to be also
implemented to facilitate an improved process flow and the quality of the logistics service as well as
the overall and specific cost competitiveness need to remain at company benchmark levels, as is also
outlined by Hrusecka et al (2019).
Within recent years industry 4.0 has become more and more common within manufacturing plants
and warehouse logistics as a modern and reliable means to source improved process effectiveness and
increased productivity, as is also pointed out by Rother and Baboli (2019). Some of the most
important features of the fourth industrial revolution are related to smart manufacturing (factory and
workplace interconnectivity), human-robot collaboration especially for unpleasant, exhausting or
unsafe repetitive tasks (technical assistance), wireless connectivity and sensors enabling real-time
management of the whole production line (information transparency) and autonomous decision-
making (smart automatization), as Hofmann and Ruesch (2017) also underline.
The innovations brought about by industry 4.0 seek to enable a leaner and cleaner manufacturing
environment that can source higher quality products, at a more competitive cost and that can drive the
change towards a more sustainable supply chain, in line with the upcoming shifts that are under way
to support the broader usage of electric vehicles in the near future, which is also supported by Buer et
al (2018).
The inspiration for the introduction of the automatic storage (autostore) project came from Germany,
where the main pillars in line with the industry 4.0 strategy are, on the one hand, the strong
customization of products (to better match customers’ more and more diverse demands) and, on the
other hand, a highly flexible and mass production process, capable of achieving very competitive
operational, productivity and high quality performance results to support business objectives, as is
shown by Belov (2016).
The challenge in Western Romania was however more complex, as the integration of the new
innovative warehousing technology was a premiere, the installation of the automatic storage in the
warehouse had to be done without affecting regular activity and from the beginning the concept had
to become fully operational to a degree of at least 80% to match project objectives. The choice of the
industry 4.0 autostore was also prompted by some other specifics of the Western Region faced by the
German automotive industry supplier: workforce crisis (0.78% unemployment rate in the region at
the end of 2018), pressure on higher salaries (minimum salary in Romania has more than tripled in
the last 10 years, more than doubled in the past 5 years and increased by more than 50% in the last 2
years) and workforce fluctuation (has increased in the automotive sector due to the harsh competition
for highly skilled workforce among automotive employers), as Krzywdzinski (2017) also implies.
7688

The methodological approach presents the project details in preparing the redesign of the logistics
area of a German automotive company from the West of Romania to prepare its warehouse in view of
the expected growth in customer volumes within the following 5 years. The reorganization of the
layout and the process flows will need to source an improved capacity in terms of storage locations
and also absorb the allocated space reduction of the logistics area in view of enhancing the share of
manufacturing in the logistics to production floor space ratio. In addition, besides an increased
volume and reduced space, process flow will need to be improved to enable higher operational
effectiveness and increased productivity in terms of logistics KPIs, as well as maintaining strict
industry challenges (high quality, competitive cost and tight deadlines).
The project for the warehouse had 5 main focus areas, which were discussed in terms of current
situation, project targets after implementation and improvements actions needed and actual results
after 6 months after implementing the main solution in April 2019. The preparations that were
discussed focused on 5 different warehouse issues: repack for raw material, material storage, storage
capacity increase (project’s main requirement), storage method and picking process. The detailed
presentation of the initial situation, required improvement actions and current project results (after 6
months of implementation) are presented in the tables from the “Results” section. Further constraints
were not to stop current every day operations or other prior ongoing projects of the plant during the
installation of the new innovative storage concept. Also, in view of the highly innovative nature of
this industry 4.0 project, trade secrecy issues as well as the sensitive nature of the process and its
implementation process, parts of the underlying data for the case study could not be fully revealed
due to the German company’s policy. As a result not all relevant data could be disclosed at the time
the paper was written which may cause some limitations, such as a certain lack of consistency in the
quantification of the obtained results, some transitions may not be very clear or intuitive or even an
overall weak research background could be implied.
The project team was composed of several specialists from the plant’s main operations (logistics
department manager, process flow manager, team leaders, implicated workers as well as bachelor and
master students studying logistics in their internship projects at the company) and vast analyses have
been carried out to source the best practical solutions to enable a highly effective and efficient
logistics process flow around the innovative automatic storage concept. The actual outcomes of the
improvement project are presented as results or gains (expressed in %) based on before-after
comparisons (initial situation vs. actual obtained outcomes) of specific process flow times, real-time
individual and team productivity levels (carried out automatically at each workstation), operators’
views on implemented improvements (based on their individual operational responsiveness and
achieving of both personal and team targets in terms of productivity), as well as specific area reports
(business dashboard type approach enabling specific visualization of main KPIs, planned and
achieved workload and output levels and other specific company metrics) generated by the
company’s own performance measurement tool.
Results
Since the beginning of the year 2019 the plant has been undergoing constant changes, especially in
terms of layout reconfiguration for the supporting logistics processes to be able to cope with the
estimated growth in production volumes which will affect the plant within the following 5 years. The
estimated increase in terms of inbound logistics is shown in table 1.
Table 1: Inbound logistics growth estimates
2019 2020 2021 2022 2023 2024

number of pieces [millions] 17* 18 19.5 22.5 26.5 28
growth dynamic, year-to-year [%] 0 +5.88 +8.33 +15.38 +17.77 +5.66
growth dynamic, overall [%] 0 +5.88 +14.70 +32.35 +55.88 +64.70
*estimated level for the end of the year 2019
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Currently the plant handles around 17 million pieces (data for both 2018 and 2019), but the
contracted projects will further increase the challenges for the production department, but especially
for the storage in the warehouse. This is because the warehouse will lose a part of its available space,
but the other hand, it will need to increase its storage capacity by up to 50% or more to be able to
handle the growth dynamic on medium-term. Estimates show that growth will source flows of over
20 million units by 2022 (a 33% increase compared to current volumes), over 25 million by 2023
(more than 50% increase compared to this year’s volumes) and close to 30 million pieces by 2024
(two thirds more than today’s volumes), which will have to be managed with more or less the
existing installed infrastructure and space limit constraints.
The complexity and the degree of the challenges for the redesigning of the warehouse and its
associated process flows are presented in table 2. The redesign of the warehouse layout needed to
solve the specific issues regarding repack, material storage, capacity increase requirements, storage
method and picking process. Table 2 presents the initial situation (current features, pending issues
and performance levels) and the improvement actions approved and applied (layout changes, action
plans and projected results if requirements were met). The target of the improvement actions was to
better support current production needs for both pending projects and especially to enable an
effective capacity of the warehouse to fully handle the upcoming contracted volume estimates for the
upcoming years (2020-2024 projects for the plant). Besides the functional aspect of the new layout
and its features, another major point was to be able to not affect current projects and still continue to
produce and deliver customer orders, to avoid backlog and maintain established output levels and
schedules. These objectives are met (for the first 9 months of 2019) and the way things are running
(final trimester production schedule, current operational rhythm and obtained productivity figures)
suggests that the target will also be met by the end of the year, as was planned prior to the beginning
of the storage redesign project.
Table 2: Warehouse storage method redesign project

Initial situation Improvement action
- analyze current situation and identify
weak points
- repack area is currently undersized
- concept discussion, material and work
- process is not stable and quantity
flow set up
Repack for fluctuates
- supplier meetings and finalizing concept
raw material - repack materials require and occupy
- testing system and make improvements
space on ground floor
- calculating timeline and action plan,
- standard work cell is not defined
starting purchasing process,
implementation
storing at pallet level eliminating shelves from forklift area
Material (picking involves forklifts) (redesigning of traffic area)
storage forklift traffic issues forklift traffic reduction
(high density flows – slower movements) (low density flows – faster movements)
Storage
extend current configuration redesign current configuration (new)
capacity
(adding an extra 15,000-20,000 locations) (adding an extra 30,000-40,000 locations)
increase
tight WH/production floor space ratio improved WH/production floor space ratio
project
(1/1.8, below company benchmark) (1/2.4, very close to company benchmark)
requirements
classic concept creating a new concept
Storage more than 1 material / location storage at box level
method mixing the receiving number fully automated
(location occupancy rate: 44%) (location occupancy rate target: 80%)
checking only the material in-depth automatic check
Picking (not the quantity) (fulfill requirements for Industry 4.0)
process minor interoperations issues zero interoperations issues
(issue rate: 0.2 – 0.05%) (target issue rate: 0.05 – 0.02%)
The issues with the current situation, improvement actions needed and the chosen alternatives were
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discussed at the beginning of 2018 and the implementation of a part of the improvement measures
started in July 2018 with the final major step of the project being the month of April 2019 when the
new industry 4.0 warehousing system (autostore) was made operational and some important results
have already been achieved. These results are shown in table 3.
Table 3: Warehouse storage method redesign results
Improvement action Improvement project results

- analyze current situation and identify - repack area is now improved (86% of
weak points workers consider it optimized in its current
- concept discussion, material and work design)
Repack flow set up - process is more stable (30% overall
for - supplier meetings and finalizing improvement) and quantity fluctuates within
raw concept acceptable margins
material - testing system and make improvements - repack materials have designated space within
- calculating timeline and action plan, logistics area
starting purchasing process, - standard work cell is now defined and
implementation operational (10-15% improvement)
eliminating shelves from forklift area
directly storing at ESD pallet level
(redesigning of traffic area)
Material (picking does not involve forklifts)
forklift traffic reduction
storage forklift traffic is only marginal
(low density flows – faster
(very low density flows – fast movements)
movements)
redesign current configuration (new)
(adding an extra 30,000-40,000
Storage redesigned configuration (new)
locations)
capacity (adding an extra 42,500 locations)
improved WH/production floor space
increase improved WH/production floor space ratio
ratio
project (1/2.7, above company benchmark)
(1/2.4, very close to company
benchmark)
creating a new concept new optimized concept
Storage storage at box level storage at ESD box level
method fully automated fully automated and autonomous
(location occupancy rate target: 80%) (location occupancy rate: 95%)
in-depth automatic check in-depth automatic check
Picking (fulfill requirements for Industry 4.0) (in line with Industry 4.0 requirements)
process zero interoperations issues zero interoperations issues
(target issue rate: 0.05 – 0.02%) (issue rate: below 0.01%)
The entire set of targeted improvement actions were grouped around the implementation of the new
fully automated and autonomous warehousing concept called autostore (automatic storage).
Autostore was the new storage method chosen as it came with the advantages of fulfilling most of the
project’s desired criteria regarding storage capacity, space constraints, industry 4.0 concept and
reliability. Autostore is an automated small parts storage system, where finished goods are stored in
small bins, one on top of each other in a metal frame (flexibility and agility). Robots collect the
required bins and transport them at integrated picking stations, whilst the automatic storage system is
designed to efficiently pick and store single items and small cases to make better use of the available
space and increases the overall efficiency at integrated goods-to-person workstations. One of the
most important features is related to the fact that the autostore can self-optimize its own flows as time
passes, which is especially useful in terms of choosing appropriate locations for high and low-running
goods stored. These features of the autostore are also highlighted in figure 1. The overall
improvements currently achieved are highlighted in table 3 and categorized on repack, material
storage, storage capacity, storage method and the picking process.
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Fig. 1: the features of the automatic storage (autostore) system
For the repack of raw material the major problem was the fact that the area was undersized, which
generated lots of issues. The most important were related to low productivity, occurring errors which
needed time to be sorted, as well as a lack of proper organization leading to materials requiring and
occupying space on the ground floor, which was not acceptable. These issues meant that there were
no actual and functional work cells which led to an unstable process where quantity fluctuations
would add extra pressure and affect productivity levels. In view of volume increases projected for the
medium-term, this situation was not at all sustainable so measures were taken and the results were
important. The area was redesigned and consistently improved (86% of workers even consider it
optimized in its current design), which highly increased ergonomics and practically eliminated almost
all of the previous issues. Productivity has increased (preliminary data shows that the improvement is
around 35-40%), occurring errors have been reduced (around 70% of errors were eliminated) and
overall organization was improved (especially in terms of visual management). These changes
enabled and brought about a standard work cell which is now defined, functional and operational
(estimates show a 10-15% improvement) and contributes to a more stable process (30% overall
improvement). In addition quantity fluctuations are now within acceptable margins and even when
higher variations arise the design of the work cell is more capable to handle the increased volumes
and can maintain targeted productivity levels. Seen as now the repack materials have their designated
space within the logistics area and all process flows and work cells are properly defined, the repack
area is capable of supporting the estimated volume increases planned by 2024.
In terms of material storage, storage was done at pallet level, meaning that the picking process
involved using forklifts, generating forklift traffic issues (high density flows meant overall slower
movements within the logistics area). The project targeted eliminating shelves from the operating
space of the forklifts by redesigning the traffic area, reducing forklift traffic and thus achieving much
faster movements due to lower density flows. The new concept implies directly storing at ESD pallet
level, meaning that picking does not involve forklifts as much as before (due to the introduction of
the new storage method, picking, as was previously done, is no longer used), forklift traffic is
currently only marginal and has contributed to reducing traffic flows (very low density flows) and
overall fast movements within the warehouse area have been achieved.
The storage capacity increase project requirements meant redesigning the storage configuration and
increasing the share of production in total space (and thus reducing the allocated space for the
warehouse), but at the same time increasing storage capacity. The initial configuration with some
improvements could have added a further 15,000-20,000 locations, but would have had trouble to
increase the warehouse to production floor space ratio to an acceptable level (1/1.8 was below the
company benchmark). The improvement project targeted a new configuration (estimates showed an
extra 30,000-40,000 locations would be gained) and that the warehouse to production floor space
ratio would be close or maybe even reach the company benchmark level of 1/2.5. Actual results after
implementing the industry 4.0 storage concept autostore are however even better, as it has generated
42,500 locations (21.4% more than the average estimates and 6.2% more than the most optimistic
one) and the warehouse to production floor space ratio (1/2.7, which represents an improvement of
roughly 50% compared to the initial situation and 12% better than the expected project outcome) is
currently above company benchmark by 8%.
The previous storage method used within the warehouse was a classic concept (pallet racking by
using shelves, aisles and forklifts), with more than 1 material being assigned per location (from the
company’s ERP system) and with mixing the receiving number. The overall location occupancy rate
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within the warehouse was at a level of only 44%, creating minor issues even for current operations as
well as being insufficient for handling the estimated growth volumes for 2020-2024. The newly
installed storage method (autostore) is fully automated and autonomous (it constantly optimizes the
locations of high and low-runners within the grid), storage is directly at ESD box level and it also
applies some important industry 4.0 principles (agility, standardization, automatization and
transparency). The main benefits however come from the increase in terms of location occupancy
rate: the target was to achieve a rate of around 80%, but current real-time stats show a usage of 85-
95% for the first 3 months after implementation and currently the system averages somewhere around
95% (around 18.75% more than the targeted occupancy rate).
For the picking process the most important issues were related to the fact that material checking was
only done by material type (not the quantity) and there were some minor interoperations issues (the
issue rate ranged between 0.05 – 0.2%). The project sought to perform an in-depth automatic check,
fulfill industry 4.0 requirements and source improved effectiveness, the target being zero
interoperations issues (with a realistic target issue rate of 0.02 – 0.05%). Measurements for the first 6
months show that the average issue rate for this timespan was actually below 0.01% (an average
improvement of around 70% compared to the target rate and a 50% improvement compared to the
optimistic target), adding a further contribution to the project’s overall performance results within
only a couple of months after implementation. Further productivity gains are related to the
performance of the automatic storage system (150 put bins per hour and 310 pick bins per hour),
which on average is 3-5 times more than for most of the regular orders (around 80% of total) and can
reach up to 10 times more for other more urgent orders (around 20% of total).
From a more general point of view the new implemented storage concept brings about several
operational and productivity gains: more storage locations, but with less used space and at a lower
cost (due to reduction of dedicated workers and forklifts), increased safety (no risk of accidents, as
forklift traffic has been eliminated in the new concept), environmentally friendly and cleaner
warehouse (electric propulsion of the ESD boxes’ location movements within the autostore grid, ESD
pallets used instead of wooden ones) and overall quality increase (no damage due to mishandling,
stable KPIs with very low defect rates and very good ppm results).
Other industry 4.0 improvement projects are currently being discussed and are subject for
implementation depending upon the autostore’s results. Most of these considered projects include
areas such as data visualization and analytics, advanced human-machine interfaces, smart sensors and
advanced algorithms, which will add-on innovative features in the plant’s production process. These
projects thus target enabling the smart factory concept and will provide the support in manufacturing
infrastructure to provide customers with the increasingly complex products which will fit the modern
cars of the years to come.
Besides the immediate benefits already presented, the warehouse, in its current layout and
configuration, is capable of integrating the estimated growth volumes in a much larger proportion, as
is shown in tables 4 and 5.
Table 4: Warehouse storage capacity improvement project (without autostore)
2017 2018 2019 2020 2021 2022

Pallet demand (estimates) [%] 100 131 137 154 175 179
Pallet demand dynamic [%] N/A +31 +6 +17 +21 +4
Pallet capacity (current) [%] 100 91 91 91 91 91
Pallet capacity dynamic [%] N/A 0 0 0 0 0
Pallet capacity gap (current) [%] N/A -40 -46 -63 -84 -88
Pallet capacity gap reduction (target) [%] N/A 25 15 20 10 15
Pallet capacity gap (project estimates) [%] N/A -15 -31 -43 -74 -73
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Table 5: Warehouse storage capacity improvement project (with autostore)
2017 2018 2019 2020 2021 2022

Pallet demand (estimates) [%] 100 131 137 154 175 179
Pallet demand dynamic [%] N/A +31 +6 +17 +21 +4
Pallet capacity (current) [%] 100 91 121 136 150 175
Pallet capacity dynamic [%] N/A 0 +30 +15 +14 +25
Pallet capacity gap (current) [%] N/A -40 -16 -18 -25 -4
Pallet capacity gap reduction (actual) [%] N/A 7 5 3 5 2
Pallet capacity gap (project results) [%] N/A -33 -11 -15 -20 -2
The autostore project idea came at the beginning of the year 2018, but the fact that the idea was so
innovative meant that it had to undergo an in-depth analysis process to adequately filter its technical
requirements, functional features, implementation challenges and overall productivity gains, as well
as return on investment figures. In parallel, a project scenario without the implementation of
autostore (a roughly 2 million euros investment) was also discussed, but despite the projected
solutions to handle the increase in estimated volumes for 2020-2024, the capacity gap would be still
too high and not at all sustainable. Despite consistent and pertinent improvement ideas, redesign
scenarios and process flow innovations which ranged from 10% to 25% improvement in capacity
increase, these figures were not enough, as the missing capacity proportion would have remained
unrealistic for an effective warehouse (see table 4). By 2020, the lack of storage spaces would have
almost reached 50% of the entire warehouse and for 2021-2022, the projected lack of space would
have again increased by a further 50% to reach almost 75% (almost twice as much demand for space
as the available warehouse capacity).
Simulations of scenarios for the expected outcomes and results after the implementation of the
autostore concept were however a lot more impressive and this was the chosen alternative. There was
immediate confirmation of the fact that this was the right choice, as improvement ideas could only be
implemented to an extent of just over 25% of initial targets (2017) and around 33% (2018) which
would have further made the gap larger between the actual demand for space and the capacity
available. With the introduction of autostore the excess need of warehousing spaces will range
between 10-20% for 2019-2021 and will nearly be leveled out by 2022, but still the gap is more than
4 times lower than in the alternative scenario (see table 5). Year-to-year comparisons show
improvements range from 3 (for 2019 and 2020) to 4 times (for 2021) compared to the project
without autostore implementation between 2019 and 2021. In 2022 the demand and need for capacity
would be almost leveled out (35 times better than the classic alternative) and overall lack of space for
the analyzed timespan would be of only 48% for 2019-2021. The margin for further gap reduction is
however scarce, so the need for externalized warehousing spaces will remain, but volumes will be
acceptable at around 16% per year (2018-2022 average, real conditions), compared to 47% per year
for the classic concept (2018-2022 average, with supposed improvements) which is not that reliable
and could have further increased.
In view of the current situation, the most important objective was related to redesigning the
warehouse area and preparing it to handle an increased amount of storage locations. This was
achieved by creating a new storage method concept that has practically doubled the location
occupancy rate (a 115% increase) by applying industry 4.0 principles, whereas the quality (average of
90% reduction of interoperations issues), cost effectiveness (estimates show a 35% cost reduction)
and productivity of the inner logistics operations (by more than 40%) has been substantially
improved. These improvements enable a more effective logistics area which due to its innovative
automatic storage concept can better support production. Among the autostore’s most specific
features are: modular design (expandable and easy to relocate), standardization (standardized
components, based on KLT (Kleinladungsträger) box handling, box in box system with the use of
standard boxes from production), automatization (goods-to-person picking, transportation and
movements performed by robots) and transparency (SAP booking for each movement, including
traceability features and stock control). Other important gains are related to the reduction of forklift
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traffic and of associated maintenance and possible accident risks, improved area cleanliness
(warehouses are usually considered “black” zones or areas) and avoiding the need for 24/7
maintenance thanks to on-site available replacement robots.
The increasing automation in manufacturing companies brought about by industry 4.0 features
(cyber-physical systems (CPS), the internet of things (IoT) and industrial internet of things (IIOT))
will constantly realign and shift process flows within the following years to source increased
productivity, overall layout efficiency and product quality, the challenge being to balance a proper
rate at which these technologies are introduced into factories.
Conclusion
The innovative project of a German automotive industry supplier in Western Romania to improve its
warehouse capacity and logistics effectiveness brought about some remarkable results. The
workforce market specifics for the region (highly-skilled workforce, under 1% unemployment,
pressure on higher salaries and workforce fluctuation issues), the scale of the contracted projects and
estimated growth volumes within the following 5 years (around 15% increase in inbound logistics by
2021, more than 30% by 2022 and more than 60% by 2024), as well as the space constraints (no
further extension possible, increasing share of production area and simultaneously decreasing
warehouse capacity) prompted an ingenious approach in order to properly handle these medium-term
challenges. The company came with a solution it also applied in one of its warehouses in Germany,
but that for the Romanian market was a premiere: an automatic storage (autostore) concept, in line
with industry 4.0 principles, which could handle the operational and productivity challenges and
targets.
The autostore project was implemented in April 2019 and the results after 6 months show that the
solution is already efficient in handling the volumes, activity and process flows within the warehouse:
in the repack area a standard work cell was defined and contributes to a 30% more stable process (the
redesigned layout is even perceived as optimized by almost all workers), material storage is done
ESD pallet level (no more shelves, forklift traffic was thus reduced and warehouse movements are
significantly faster), storage capacity has been consistently improved (more than 20% more storage
locations generated than the average estimates despite the warehouse to production floor space ratio
being improved in favor of the former by around 50%, meaning the indicator is currently above
company benchmark by almost 10%), the features of the new autostore storage method (compact
storage at ESD box level, fully automated and autonomous and applying of industry 4.0 principles)
have more than doubled the location occupancy rate to around 95%, an improvement of almost 20%
even compared to targeted results and the picking process has also increased its overall performance
(interoperations issues have been reduced to a level of under 0.01%, an improvement of 70%
compared to the targeted rate). Overall, the productivity of the new autostore system is around 4
times higher for regular orders (80% of total orders), with an even better operational responsiveness
in output levels for the urgent orders (20% of total orders) that can reach up to 10 times better results
than the previous warehouse layout configuration. The need for external storage locations will be thus
of only 10-20% for 2019-2021 within current layout configuration, a reasonable amount in view of
other potential improvements which could be identified to further reduce the lacking storage capacity
to accommodate estimated volumes for the following 5 years.
The results of the autostore project in only 6 months after its implementation show a very high degree
of operational and productivity gains for the German automotive industry company after introducing
the innovative industry 4.0 storage concept in its warehouse logistics. It is also a confirmation of the
fact that technology is an important means of achieving better overall results in operational process
flow, logistics effectiveness and overall added value and cost competitiveness. Industry 4.0 brings
about new principles to improve internal plant activity and increase product quality, but requires
higher skilled employees to efficiently apply its concepts and source higher customer value. The
automotive sector is a very dynamic industry and long-term success will be determined by the
manufacturers’ and their associated supply chain partners’ ability to adapt to challenging market
shifts and continuous technological innovations.
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Acknowledgment
This work was supported in part by research grant GNaC2018 – ARUT, no. 1359 / 01.02.2019,
financed by Politehnica University of Timişoara.
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Educación Financiera En Estudiantes De Los Últimos Años De

Secundaria: Evaluación De La Psicología Del Ahorro
Financial Education in Students of The Last Years of Secondary:

Evaluation of Savings Psychology
Claudia Liliana SERRANO-JUNCO
Corporación Universitaria Minuto de Dios UNIMINUTO
Magister en Docencia, Administradora de Empresas Comerciales,
claudia.serrano@uniminuto.edu.co, Colombia
Ana Emelis OBREGON-FLOREZ

Magister en Seguridad y Salud en el Trabajo, Instrumentación Quirúrgica
ana.obregon.f@uniminuto.edu, Colombia
Gregorio Enrique PUELLO-SOCARRAS

Magister en Gerencia y practica del desarrollo, Diseñador Industrial
gregorio.puello@uniminuto.edu
Raúl Ignacio CRUZ-MALDONADO

Magister en Tecnologías Digitales Aplicadas a la Educación, Diseño Industrial
raul.cruzmaldonado@uniminuto.edu
Resumen
La educación financiera es un tema que se ha ido incorporando en las instituciones educativas en los últimos
años de manera vertiginosa, atendiendo que las dinámicas socioeconómicas en los países son fluctuantes y
requieren especial atención debido a las variaciones de los indicadores económicos como el PIB, las divisas
o la calidad vida; entendiendo que las crisis financieras son las que agravan la pobreza y la desigualdad de
las naciones (Baquero, 2014) . Es así, que este documento describe y desarrolla las características de un
grupo de adolescentes que cursan los dos últimos años de educación secundaria indagando sobre los
conocimientos y configuraciones de la psicología económica, desde el factor del ahorro.El estudio y
posterior análisis de datos se desarrolló a través de un modelo de regresión lineal para datos cuantitativos
desde dos variables exógenas: la cultura del ahorro del dinero vs estudiantes que recibieron formación
académica en conceptos financieros y los que no. En otras palabras, a través de la encuesta bajo un modelo
de escala de Likert se logra identificar las variables que se relacionan directamente sobre la cultura de
ahorro en los jóvenes.
Palabras Claves: Ahorro, cultura, adolecentes, psicología del ahorro, financiación.

Abstract
Financial education is an issue that has been incorporated into educational institutions in recent years in a
vertiginous manner, taking into account that the socioeconomic dynamics in the countries are fluctuating
and require special attention due to variations in economic indicators such as GDP, foreign exchange or
quality of life; understanding that financial crises are the ones that aggravate the poverty and inequality of
nations (Baquero, 2014). Thus, this document describes and develops the characteristics of a group of
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adolescents who are in the last two years of secondary education, inquiring about the knowledge and
configurations of economic psychology, Fromm the savings factor.The study and subsequent data analysis
was developed through a linear regression model for quantitative data from two exogenous variables: the
culture of saving money vs. students who received academic training in financial concepts and those who
did not. In other words, through the survey under a Likert scale model it is possible to identify the variables
that are directly related to the culture of saving in young people.
Keywords: Savings, culture, teenagers, savings psychology, financing.

Introducción
Observar las técnicas de ahorro en los individuos es una herramienta que permite visualizar la capacidad
que tiene el ser humano para el manejo de sus finanzas personales a lo largo del tiempo, las metas
financieras a corto, mediano y largo plazo. No obstante, estos hábitos financieros no logran verse reflejados
en todas las etapas del desarrollo humano. Sobre todo, en aquellas en que los individuos, están en proceso
de aprendizaje, las cuales corresponde entre las edades correspondientes entre los 14 y 17 años.
De esta manera, la importancia de los procesos de enseñanza y aprendizaje adquieren sentido desde una
perspectiva financiera, cuando los individuos logran hacer un manejo adecuado de sus ingresos, frente a la
capacidad de los gastos. Entendiendo que existe la necesidad de fortalecer la cultura del ahorro en estas
prácticas, la maximización de los recursos y evitar el hábito de hacer gastos innecesarios en productos,
igualmente poco provechosos.
Bajo estas circunstancias, se logra evidenciar que la psicología del ahorro es aquella que responde a las
conductas que tiene el ser humano, a la hora de manejar la economía. Y que por supuesto, esta debe ser
enfocada hacia el manejo de recursos de manera óptima, con ello es posible hacer configuraciones desde
edades tempranas sobre la práctica del manejo del dinero.
Bases Conceptuales
Relación Entre La Psicología Y La Economía
Lograr explicar la conducta humana es quizá una de las tareas básicas de la psicología (Segovia, 2017), por
ello, la complejidad de la ciencia en sí, ya que está dividida en múltiples áreas y métodos, lo que hace que
los especialistas se enfoquen en una en particular. De acuerdo con Arana, Meilán, & Pérez (2006) algunas
personas estudian los contenidos de la conciencia, de las funciones, la comprensión de las vivencias
humanas, la introspección, entre otros. Es así, que no resulta del todo descabellado pensar en la psicología
económica. Al contrario, los psicólogos entran de lleno en el campo de la economía cada vez que intentan
analizar el hecho que una persona decida ahorrar, o que se proponga comprar un producto determinado,
claramente estas actividades solo cobran sentido en un contexto socio histórico y económico determinado
(Gil, Lajeunesse, Borrás, & Juanola, 2004 ).
De otro lado, la opción en la adquisición de un bien o servicio, corresponde al proceder económico de las
personas, según lo afirma Cárdenas (2016). En otras palabras, desde el ámbito de la psicología económica,
la conducta que involucra la toma de decisiones en el ámbito financiero de cómo invertir, ahorrar, consumir
o gastar corresponde al comportamiento económico como lo argumentan, Varela, Ponsot Balaguer, Rivera,
Rivas, & Márquez (2014). A su vez, estas actuaciones intentan explicar las consecuencia, satisfacciones y
nivel de bienestar que genera la adquisición del producto o servicio en las personas (Van Raaij, 1981).
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Hasta el momento se ha logrado asociar los términos de la psicología, entre otras, a las conductas que tiene
el hombre en el momento de la toma de decisiones; desde el concepto economía corresponderá, entonces,
a la posibilidad de hacer transacciones de tipo financiero en la adquisición de un producto o servicio.
Complementando lo anterior, Muñeton, Ruiz, & Loaiza (2017) expresan que la toma de decisiones se centra
desde dos dinámicas: 1) La fuente de información interna, que corresponde a las preferencias, gustos y
objetivos; y la 2) Implica sobre las fuentes de información externa, el contexto y las influencias de decisión
sobre el individuo. Rivera et al, (2015) incluyen un tercer factor situacional, que, aunque corresponde al
contexto es categorizado como el estilo de vida (moderno vs tradicional) que están condicionados a los
ingresos, disponibilidad de gastos, políticas, desempleo, tasas de interés e inflación.
Oportunidad De Educar Para El Ahorro
Según Denegri, Gempp, Del Valle, Etchebarne, & González (2006) en los contextos sociales y culturales
existen escenarios complejos, que hacen que, la comprensión de la economía sea una necesidad básica en
el ejercicio de la ciudadanía. Por ello, el papel de la enseñanza de esta disciplina en la escuela y la
alfabetización adecuada de programas de estudio de educación financiera. Marshall (2014) afirma que, las
instituciones públicas de orden mundial se han preocupado por estas temáticas: El Banco Mundial, El
Banco Interamericano de Desarrollo, El Centro de Estudios Monetarios Latinoamericanos, el G-20, La
Organización para la Cooperación y el Desarrollo Económicos quienes han desarrollado diversos
encuentros en torno a este asunto.
Paralelo a ello, el crecimiento económico de un país, está directamente ligado a la minimización de los
indicadores de pobreza y desigualdad social, de acuerdo a Sánchez (2006); es así que, la escasez económica
no sobresalta a todas las personas por igual, la afectación se logra dilucidar con mayor proporción en los
niños, jóvenes y adolescentes, ya que se compromete a futuro el desarrollo de posibilidades académicas,
laborales y sociales (CEPAL, 2017). Siendo esta población objeto vulnerable al competir y estar en
desventaja por los empleos que podrían ayudarle a salir de la pobreza en la edad adulta. Asimismo, tiene
menos acceso a la educación y está en mayor riesgo (Banco Mundial, 2016)
La comisión Económica para América Latina y el Caribe (CEPAL) en conjunto con el Banco de Desarrollo
de América Latina proponen que la educación financiera deberá ser impartida en los colegios como un
elemento fundamental dentro de las estrategias de cada país, en donde se enfatice en un currículo que
incluya la cultura financiera y los padres de familia logren también ser incluidos dentro de los procesos de
enseñanza y aprendizaje (CAF, 2013). Esta situación podría minimizar la brecha existente entre las
posibilidades de reducir la pobreza entre las sociedades y potenciar los indicadores económicos como lo
afirma Keeley (2018).
Educación Financiera
El término de educación financiera es un tema que se ha desarrollado recientemente por diversos teóricos,
al que se le atribuye las posibilidades que tienen las personas para saber administrar el dinero Ramos,
García, & Moreno (2017). A manera de ejemplo, en la investigación realizada por Danes & Hira, (1987)
exponen que la educación financiera se asocia al conocimiento del manejo financiero, el uso de tarjetas de
crédito, los indicadores de interés de los préstamos, seguros, entre otros.
No obstante, otros autores como Xu & Zia (2012) reconocen que el concepto abarca la adquisición de
temáticas como disciplina de las economías y que se relacionan con: la conciencia, las habilidades, la
capacidad financiera en el manejo del dinero y su planeación. En coherencia a la premisa anterior se logra
afirmar, que es un proceso en donde los consumidores e inversores mejoran su comprensión de los
productos y los conceptos financieros (Trias, 2013) en donde los agentes participes desarrollan las
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capacidades y la confianza, son conscientes de los riesgos financieros, de inversión, el bienestar y las
oportunidades en la toma de decisiones.
Olin (2014) logra sintetizar el término de educación financiera como un esquema que abarca diversos
conceptos, que se llegan adquirir en el proceso de enseñanza y aprendizaje; y que sirven como herramienta
para desarrollar habilidades, actitudes y capacidades que logren hacer una acertada toma de decisiones en
el uso de los recursos económicos, los servicios financieros y la administración de dineros.
A manera de conclusión, la formación financiera debe ser un sistema que se enmarque como un hábito que
se adquiere desde edades tempranas, producto de la práctica del uso del dinero, las decisiones financieras,
los procesos de negociación y el análisis de los indicadores económicos. A juicio de Espín, Castillo, &
Loza (2018) durante todas las etapas de la vida, la educación financiera debe estar presente, desde la niñez
se debe generar una cultura del ahorro e inversión, generando en otros el legado intangible del conocimiento
de la ciencia y su práctica, esto ayudara a minimizar la pobreza y desigualdad.
Cultura Del Ahorro
La cultura del ahorro es uno de los factores menos influyentes en los adolescentes, debido a las
innumerables opciones que ofrece las actividades comerciales primarias y de influencia. Fruto de ello, los
niños y preadolescentes son un segmento de consumidores potenciales en la diversa gama del mercado de
productos y servicios ya que se logra captar su atención fácilmente por sus gustos y preferencias. Según
Denegri Coria, Lara Arzola, Córdova Cares, & Del Valle Rojas (2018) las organizaciones que
comercializan productos y servicios para niños, incrementan su interés en hacer estrategias de penetración
y fidelización de forma agresiva e indiscriminada, apuntando a las exigencias de la globalización.
Pues bien, no se trata solo de saber que los adolescentes gastan indiscriminadamente el dinero en los
productos que logran captar su atención o satisfacer sus necesidades, más allá de ello, direccionar la mirada
hacia sus hábitos de consumo que radican principalmente en el uso de nueva tecnología entre ellos:
celulares, tablet, artefactos tecnológicos, de igual forma, costos para su funcionamiento planes de datos,
aplicaciones; y las de menor costo como golosinas o dulces (Gamboa, Hernández, & Avendaño, 2019).
Es posible afirmar que la educación financiera es consecuencia de la cultura del ahorro, en términos
generales, existe una relación directamente proporcional entre la adquisición del conocimiento y la puesta
en práctica de los conceptos aprendidos. En otras palabras, a mayor nivel de educación financiera
corresponderá un mayor grado de cultura de ahorro (Amezcua, Arroyo, & Espinosa, 2014). De otro lado,
diversos estudios han logrado determinar que la población adolecente carece de conocimientos y
habilidades que se relacionen con el ahorro, la inversión, el manejo de finanzas y el control del gasto
desmesurado (Huchín & Damián, 2011; Jaulin, Salazar, & Rodríguez, 2016; Atuesta, 2017).
Objetivos
El estudio realizado corresponde al contexto de la psicología económica manejada en población de jóvenes
adolescentes, donde se tiene en cuenta las bases teóricas del concepto de ahorro de dinero; entendido como
el desarrollo de conductas económicas racionales para evitar niveles excesivos de endeudamiento (Denegri
Coria, Martínez Toro, & Etchebarne López, 2007), determinando sí los adolescentes tienen constructos
teóricos, o al menos, logran hacer un acercamiento de los elementos de la educación financiera:
Administración, ingresos, gasto, ahorro, inversión, contabilidad; y el hábito del ahorro.
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Método
Participantes
La población muestra de estudio se obtuvo de un universo de n = 1030 estudiantes que estuvieran cursando
los dos últimos años de enseñanza básica obligatoria, también conocida como educación secundaria alta
(Unesco, 2011). Procedentes de las instituciones de carácter público en zona central de Colombia,
específicamente ubicados en la capital, Bogotá. En relación al Sistema Integrado de Matriculas (Educación,
2017) la población total en el rango de nivel educativo Media es de N= 105.217 estudiantes activos,
obteniendo así: Espacio muestral de n= 1030 encuestas, Z= Nivel de confianza 99% y Margen de error ε =
4.
Subdivididos en dos grupos proporcionales, iguales: el primero, a estudiantes que dentro del plan de
estudios curricular de la institución educativa incluyera materias especializadas en gestión, finanzas,
contabilidad o economía; el segundo grupo enfocado hacia jóvenes que dentro de los programas académicos
que no incorporaran materias, ni áreas de estudio que se enfocaran a la psicología económico; por tanto, la
muestra fue obtenida por conveniencia en las instituciones educativas de carácter público que ofrecieran
este tipo de servicio.
Instrumentos
Los instrumentos de recolección de información usados se diseñaron en función del tipo de las variables de
correlación a estudiar, validados y triangulados por expertos en educación financiera y estadistas, que
correspondieron a: Encuesta de conocimiento de términos financieros, bajo un modelo de concepto –
relación – termino (E1); y encuesta de percepción estructurada mediante los estándares del modelo Likert
sobre la cultura del ahorro (E2) que se logran detallar con mayor precisión en el siguiente apartado.
Tabla 1: Encuesta 1 (E1) sobre educación financiera: Concepto - Relación - Termino
Indicador (Formación financiera)

E1-1 Técnica que está regida por un conjunto de principios propios cuyo objeto es mostrar la historia
financiera de una unidad económica con fines informativos a propios y terceros.
E1-2 Este término alude a la entrada de dinero en el patrimonio de una persona, empresa, entidad o gobierno
en un tiempo determinado, bien sea por su actividad laboral a través del salario, ventas, negocios, entre otros.
E1-3 Es una erogación o salida de dinero de las empresas, las personas físicas o las organizaciones
gubernamentales. Desde una familia hasta una empresa deben tener control de este elemento para evitar un
déficit en su economía, es decir, para permitir las entradas de dinero permitan afrontar las deudas y
obligaciones.
E1-4 Proceso de planificar, organizar, dirigir y controlar el uso de los recursos y las actividades de trabajo con
el propósito de lograr los objetivos o metas de la organización de manera eficiente y eficaz.
E1-5 Cantidad limitada de dinero que se pone a disposición de terceros, de una empresa o de un conjunto de
acciones, con la finalidad de que se incremente con las ganancias que genere ese proyecto empresarial.
E1-6 Acción de apartar un porcentaje del ingreso mensual que obtiene una persona o empresa con el fin de
guardarlo para un futuro
E1-7 Son los recursos que consiguen los individuos o entidades por el uso de riqueza, trabajo humano, o
cualquier otro motivo que haga incrementar el patrimonio.
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E1-8 Funcionamiento estructura y rendimiento de las organizaciones.

E1-9 Reservar o guardar parte de los dineros obtenidos ordinariamente por el efecto del trabajo, salario,
negocios o situación que hizo incrementar el patrimonio para una adquisición de un bien o servicio en
particular.
E1-10 Colocación de capital para obtener una ganancia futura.
E1-11 Disciplina encargada de la sistematización, análisis, interpretación y presentación, mediante estados
contables, de la información financiera de la empresa.
E1-12 Corresponde a emplear el dinero o hacer uso de él, en un bien o servicio
Nota: Elaboración propia.
La encuesta E1, es una encuesta cerrada de conocimientos técnicos afines con educación financiera (E1,
tabla 1), se formulan 12 apartados de conceptos en relación a: ahorro, inversión, ingresos, gastos,
administración y contabilidad; con escala valorativa de 0 y 5, para lograr cuantificar el valor obtenido. Cada
párrafo o frase esta direccionada a la relación con el significado, de tal forma que el estudiante logre hacer
la analogía entre el concepto con la palabra. Implicará, entonces, que el encuestado haga la relación
concepto – término. A su vez, la encuesta permite medir en una escala final de puntuación 0 a 60, por cada
concepto relacionado con el significado corresponderá a una relación de 5 puntos. Es así, que la encuesta
propone a la lectura cuidadosa y reflexión del conocimiento en dependencia con el constructo teórico. De
tal manera, que las variables se relacionaron con dos opciones conceptuales con el termino (Tabla 3), estas
se pueden analizar a partir de las respuestas suministradas por los encuestados de la afirmación E1-1 a la
E1-12.
Tabla 2: Conjunto de términos y afirmaciones donde se califican
Término Indicador
Administración E1-4, E1-8
Ingresos E1-2, E1-7
Gasto E1-3, E112
Ahorro E1-6, E1-9
Inversión E1-5, E1-10
Contabilidad E1-1, E1-11
Nota 1:Elaboración Propia
De otro lado, la encuesta E2 se compone de 12 ítems que se estructuran en la psicología del ahorro,
evaluando con escala valorativa de 1 (nunca) a 5 (siempre); evalúa temáticas en relación a las metas y
objetivos de ahorro a largo, corto y mediano plazo; las prioridades de ahorro, hábitos y disciplinas a la hora
de hacer este tipo de ejercicio en adolecentes tanto de estudiantes que han recibido educación financiera y
los que no.
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Tabla 3: Encuesta 2 (E2) sobre psicología del ahorro
Ítems
E2-1 Tengo un plan de ahorros con metas de corto plazo.

E2-2 Tengo un plan de ahorros con metas de mediano plazo.
E2-3 Tengo un plan de ahorros con metas de largo plazo.
E2-4 Tengo planeación financiera ya que a diario reviso mis ingresos y gastos
E2-5 El ahorro en mi vida es una prioridad.
E2-6 Evito hacer gastos innecesarios.
E2-7 Guardo el dinero que destino a ahorrar y no lo ocupo en otros gastos
E2-8 De mis ingresos guardo el 10% con ello alcanzaré las metas de ahorro que me he propuesto.
E2-9 Soy disciplinado cuando me propongo ahorrar dinero.
E2-10 Custodio el dinero que ahorro para cumplir mis metas
E2-11 Cuando empiezo a ahorrar dinero tengo claro cuánto tiempo voy hacer este ejercicio y cuanto rubro
destinar
E2-12 Evito adquirir deudas para ahorrar sin problemas
Nota: Elaboración propia
La elaboración y diseño de preguntas se esquematizó bajo los parámetros de los hábitos de ahorro propuesto
por (Garzón, 2017), considerando los componentes de planeación financiera y las recomendaciones
generales del hábito del ahorro de dinero.
Procedimiento
El estudio investigativo se realizó bajo la parametrización de los aspectos éticos cualitativos con niños
(Moscoso & Luz, 2018), asegurando la vinculación voluntaria de los jóvenes a encuestar y las
consideraciones éticas que trae consigo la presente investigación, manteniendo en absoluta reserva,
confidencialidad y privacidad de los datos en relación con los encuestados.
Los estudiantes adolecentes encuestados emplearon un tiempo promedio de 20 minutos para contestar el
instrumento de recolección de información, dando las instrucciones pertinentes para contestar la escala. La
aplicación se llevó a cabo por grupos de trabajo en las diferentes instituciones educativas distritales, la
selección de cada sub muestra seleccionada por conveniencia; datos recogidos en el periodo febrero – marzo
de 2019 utilizando variables cualitativas (género, relación termino – concepto, tendencias de ahorro) y
variables cuantitativas (edad).
Análisis De Los Datos
Utilizando el método de la estadística descriptiva se ha hecho el análisis cuantitativo y cualitativo de los

datos conjuntamente porque no solo se ha examinado la conceptualización de teorías, sino que también se
logra analizar la cultura del ahorro. En otras palabras, se determinan dos focos de análisis: el primero,
referencia a los estudiantes que han recibido educación financiera y la cultura de ahorro junto con los que
no, identificando los rasgos entre el concepto y la relación con el termino (tabla 1). Paralelo a ello a través
del modelo de regresión lineal se determina la correlación existente de la incidencia de la psicología del
ahorro en los adolescentes (tabla 3) considerando, así, los resultados estadísticamente significativos debido
al margen de error menor a 0.4.
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Resultados
De acuerdo a los datos obtenidos dentro del trabajo investigativo, se exponen dos apartados producto del
análisis microscópico de la información recolectada; el primero tiene que ver con el análisis de correlación
existente entre los jóvenes que han recibido educación financiera y los que no respecto a las respuestas de
la relación entre el termino y el concepto. El segundo momento alude al análisis de la psicología del ahorro
en los jóvenes que cursan los últimos años de educación secundaria y la relación existente entre el
conocimiento en términos financieros y los que no.
Situaciones En El Contexto Juvenil Sobre Educación Financiera
La relación existente de educación financiera, el primer grupo de indicadores analizados, abarca los
conceptos de educación financiera, obteniendo los factores de recurrencia y valores promedio de cada
característica (tabla 4).
Tabla 4: Factores de recurrencia y valores promedio sobre conceptualización de

educación financiera
Estudiantes que SI han recibido educación financiera

Porcentaje de Desviación
Valor promedio
adolescentes que típica del
Término Enc 1 del concepto
relaciona termino valor
acertado
con concepto promedio
E1-4 E1-8 E1-4 E1-8
Administración 296 15,5
265 327 51,46% 63,50%
E1-2 E1-7 E1-2 E1-7
Ingresos 315 15,5
346 284 67,18% 55,15%
E1-3 E1-12 E1-3 E1-12
Gasto 189,5 6,25
202 177 39,22% 34,37%
E1-6 E1-9 E1-6 E1-9
Ahorro 371,5 14,75
401 342 77,86% 66,41%
E1-5 E1-10 E1-5 E1-10
Inversión 309 4,5
300 318 58,25% 61,75%
E1-1 E1-11 E1-1 E1-11
Contabilidad 296 26,5
243 349 47,18% 67,77%
Estudiantes que NO han recibido educación financiera

Porcentaje de Desviación
Valor promedio
adolescentes que típica del
Término Enc 1 del concepto
relaciona termino con valor
acertado
concepto promedio
E1-4 E1-8 E1-4 E1-8
Administración 194,5 10,25
174 215 34% 42%
E1-2 E1-7 E1-2 E1-7
Ingresos 207,5 12,75
233 182 45% 35%
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E1-3 E1-12 E1-3 E1-12

Gasto 97,8 73,8
148 145 28,74% 28,16%
E1-6 E1-9 E1-6 E1-9
Ahorro 262,5 0,75
264 261 51,26% 50,68%
E1-5 E1-10 E1-5 E1-10
Inversión 215 0,5
216 214 41,94% 41,55%
E1-1 E1-11 E1-1 E1-11
Contabilidad 191,5 19,25
153 230 29,71% 44,66%
Entendiendo que la muestra poblacional encuestada se divide en dos subgrupos proporcionales entre sí. Se
logra evidenciar que 57,51% de los estudiantes que han recibido educación financiera es asertiva respecto
al concepto de administración, sobre la población de encuestados que aún no han recibido conocimientos
frente a términos financieros, con un 39,40% del total de la muestra seleccionada. Logrando así reafirmar
la premisa expuesta por Amezcua, Arroyo, & Espinosa (2014) al expresar que: “a menor nivel de educación
financiera corresponde a un menor grado de cultura financiera” (p.23). Paralelo a ello se logra dilucidar
que este comportamiento se mantiene en los subsiguientes términos financieros con mayores porcentajes
de asertividad en la población que ha logrado recibir procesos de enseñanza y aprendizaje en la disciplina
de las ciencias económicas.
No obstante, el término ahorro en ambas muestras probabilísticas es de mayor valor promedio, esto significa
que, aunque las competencias en términos de educación financiera son insuficientes en los jóvenes y
adolescentes, la población reconoce conceptualmente que el ahorro corresponde a el resguardo de un bien
o dinero para su posterior ocupación. Término categorizado en el tercer y segundo cuartil, respectivamente.
Una mejor interpretación de este esquema de recurrencia, se logra evidenciar a través de la gráfica de datos
bivariados, en la tabla 5:
Tabla 5: Análisis de dispersión sobre términos financieros en estudiantes (Enc.1 Vs Enc.2)
400
y = 4,6857x + 279,77
350 R² = 0,0219
300
250
200
150 y = 3,5286x + 190,57
100 R² = 0,0307
50
0
0 1 2 3 4 5 6 7
Enc 1 Enc 2 Linear (Enc 1) Linear (Enc 2)
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La relación existente en ambas encuestas es positiva en la medida que, las frecuencias absolutas de cada
uno de los términos financieros, tienden al crecimiento según lo explicita la pendiente de cada ecuación
lineal; En contraposición a algunos datos. Tal es el caso, se logra interpretar que el concepto de gasto en
ambos casos presenta confusiones, con picos a la baja. En otras palabras, aunque los términos financieros
presentan un esquema de linealidad entre los adolescentes que contestaron positivamente a estos
cuestionamientos, el concepto de consumo, no es claro para el total de la población.
No existe una correlación directa entre la cantidad de estudiantes que tienen conocimientos respecto a los
términos financieros, proporcional a los estudiantes que aún no hay recibido clases en estas áreas del
conocimiento, en este caso el ajuste del modelo de regresión está determinado por el coeficiente de
determinación R2=0.021 para la encuesta 1 y R2=0.0307 para la encuesta 2. No obstante, para el análisis
cuantitativo de los datos obtenidos, permite ver que el modelo es irrelevante. Sin embargo, se mantiene la
regularidad en mayor proporción de respuestas afirmativas y correctas en los adolescentes que han tenido
acercamiento a conceptos económicos, respecto a los que no.
Conclusiones Y Prospectiva
El Trabajo Investigativo Permitió Identificar Que:

La apropiación del conocimiento es un factor influenciador en las practicas contextuales de los estudiantes,
es decir que ha mayor grado de adquisición de conocimientos, mayor será la apropiación del significado de
los conceptos. En el caso particular de la temática abordada y sustentados en Lusardi & Mitchell (2013)
atendiendo a la educación financiera, expresada como alfabetización, se logra identificar que las personas
logran la capacidad financiera cuando logran adoptar y procesar la información económica.
De otro lado, Será entonces labor imperante de las naciones y las instituciones de educación básica
incorporar currículos que fortalezcan la enseñanza de la educación básica para la administración de
recursos, según lo sustenta Raccanello & Herrera (2014) desde dos perspectivas básicas: 1) el manejo de
las finanzas persones en la cotidianidad y 2) mejorar las condiciones de calidad de vida con la certeza de
ello desde en la utilización de productos financieros.
Aunque se logren desarrollar conceptos teóricos frente a temáticas que aborden temas económicos los
adolescentes están lejos de la teoría frente a la realidad que viven constantemente. De hecho, es posible
identificar que el tema ahorro en ambos casos, estudiantes que han recibido y los que no disciplinas
alrededor de la economía, están sórdidos a realizar las prácticas que allí intervienen.
Abordar temas de “inversión consecuencia de ahorro” en las dos poblaciones estudiadas es unas practica
rezagada, aunque existe y se reconoce como una afirmación correcta, en el sentido contextual pierde
validez. La psicología del ahorro no está directamente ligada frente al conocimiento y la practica según se
evidencia en la población estudiada, generar el hábito va más allá de ser una lección aprendida.
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7709
Analysis of Selected Factors on the Preferred Form of Continuation of

The Company's Privileged Areas Based on the Example of the
Katowice Special Economic Zone in Poland
Luiza PIERSIALA
Czestochowa University of Technology, Poland

luiza.piersiala@wz.pcz.pl
Patrycja KRAWCZYK
Czestochowa University of Technology, Poland

patrycja.krawczyk@wz.pcz.pl
Abstract
Research background: The considerations contained in this article concern the analysis of selected
factors affecting the further functioning of special economic zones in Poland. The problem is presented
on the example of the Katowice Special Economic Zone. Purpose of the article: The aim of the article is
to present the results of an empirical study on a selected form of continuing business activity in the
special economic zone after 2026 and assessing the accuracy of the decision to start a business in the
Katowice Special Economic Zone. Methods: A research method used in the survey was a survey
questionnaire. It was addressed to the owners managing their enterprises and to persons holding
managerial positions or responsible in the company structure for contacts with the authorities of relevant
economic zones. Based on conducted surveys the in-depth analysis of the empirical material was made,
concerning the role and influence of the Katowice Special Economic Zone on entrepreneurship of
business entities operating there, and organizational solutions plans after 2026.
Keywords: special economic zones, investment attractiveness, management, regional economic

development.
Introduction
After a fall of a communist system in 1989 in countries of Central and Eastern Europe, as well as in
Poland, the political and economic transformation has started. The goal of which was to reduce a
development gap in relation to Western European countries. But, there were some visible differences in
development of particular regions in Poland. Polish government in 1994 established special economic
zones, the aim of which was to mitigate these differences, among others, by attracting investments and
creating new jobs, developing technologies, strengthening the competitiveness of manufactured goods
and promoting exports (Hajduga et al., 2018: 82). After the period of a system and economy
transformation in Poland, special economic zones became the first real effect of creating privileged
investment areas. Investment areas were created thanks to directives and legal regulations established at
the national level and transferred to implementation for individual regions. The SEZ in Poland is
established by the Council of Ministers. However, first of all, the Council must obtain the consent of the
commune council and the board of the region in which the zone is to be located. The incentive SEZ
package for entrepreneurs is connected, firstly, with preferential financial aspects. The main incentive
offered by SEZ is a granted exemption from income tax on income from business activity conducted in
SEZ, provided that they continue their activity and maintain employment for at least 5 years. In the field
of SEZ, subzones were created, which are investment areas in specific cities and communes. Sub-zones
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are defined as local zones of economic activity, as they are an initiative subject to regulation at the local
level. Decision about location of investments in the area of SEZ, usually has a long- term character. From
the survey presented at this article, it follows that in terms of the value of completed investments, the
Katowice Special Economic Zone has been in the leading position since the beginning of the analyzed
period. This was due to large investments carried out by car companies.
Katowice Special Economic Zone made a diversification of economic activity which has been for years in
Upper Silesia, breaking the monoculture of the mining and metallurgical industry into other branches of
industry. It also achieved another goal, that is increasing the competitiveness of manufactured goods and
services by increasing the number of innovative investments, influenced the development of technical
infrastructure, an increase in exports, an increase in employment (labor market activation, an increase in
the level of education and qualifications of employees). It takes part in stimulating the production and
service activities in the region through the creation of a modern industrial center. In addition, it supports
the development of the automotive cluster.
The article is divided into two parts, theoretical and research. In the first, theoretical part, the aspects of
the functioning of Special Economic Zones in Poland and in the world were discussed. A review of
Polish and world literature concerning the discussed problem is also presented. In the empirical part,
special attention was paid to the functioning of enterprises in the Katowice Special Economic Zone. The
considerations have been concluded with the summing up of the results of the research.
follow keywords. This section should provide background of the study and highlight research
motivation.
Literature Review
Modernly, entrepreneurship is a very important factor which favors processing and developing of
economic organizations. Entrepreneurship has a clear global, regional and local dimension.
Entrepreneurship may be analyzed at the macroeconomic level (Puto, Brendzel-Skowera, 2013: 21).
Macroentrepreneurship concerns all society, region or country. We can distinguish international
entrepreneurship which is connected with internationalization of enterprises, but also local or regional
entrepreneurship related to a specific area (Kabus, 2016: pp.63-65, Domański, Gwosdz, 2010:30).
Entrepreneurial attitudes determine the competitiveness and market potential of the organization, but also
affect the development of the region and the entire economy. The region's development process includes
all changes taking place at different rates and with varying intensity in the economic, social, technical and
environmental spheres (Nowakowska-Grunt, 2014: 320). The meaning of enterprising and innovative
business models of territorial units at the communal and poviat level is growing. Entrepreneurship of
territorial units as a scientific issue, appeared in the theory of new public management (Budaj, 2016: 67).
It is related to the public administration model popularized in the 1980s in the United States (Żelazko,
Sendrowska, 2013: 72). By changes in the law system in the area of functioning of local governments,
communal authorities play a key role in the development of phenomena occurring in the area of economic
development. On the world stage, the importance of economic and spatial units, such as regions, is
growing; many concepts identical with entrepreneurship are analyzed in relation to regions (Piersiala,
2019: 169). Modern economic forms and instruments for stimulating competitiveness in these areas
include special economic zones. Special economic zones were created independently in many countries in
the world (Piersiala, 2019: 168, Crane et al., 2018:100). Law dissimilarities in different countries
influenced the multiplication and emergence of many definitions of the term SEZ, which to this day
remains ambiguous. The Ernst&Young’s report published in 2011 presents nomenclature of organized
and privileged investment areas, occurring in different countries and identified with the concept of special
economic zones. SEZ are defined synonymously as: Duty Free Areas, Export Areas, Entrepreneurial
Areas, Foreign Trade Areas, Scientific or Technologically Specialized Areas, Free Ports. In the following
article, it is accepted that SEZ are deliberately separated, specialized entrepreneurial areas, which in legal
7711
terms are identified as a political and legal entity, a separate area in a given country, where favorable
investment conditions for various economic entities are created (Kryńska, 2000: 55, Warr, 1989: 66-68).
The primary goal of establishing economic zones is to support the economic development of a given
region. Special economic zones through establishing cooperation with international economic entities are
part of the global economy (Moberg, 2015: 168, Korenik, 1998: 137). Nowadays, the problem of special
economic zones is the subject of intensive international research. In foreign literature on the subject,
issues related to the creation and functioning of SEZs are discussed from the perspective of free trade and
non-traditional forms of export, and how it affects economic growth (Warr, 1989: 66-68, Miyagiwa 1986:
340, Jarreau et. all, 2012: 286-288). In the world literature, special economic zones are also analyzed as
small geographical areas that enable the integration of free market principles in order to attract additional
foreign investment to increase prosperity in specific regions (Bräutigam, Xiaoyang, 2011: 30, Crane et
al., 2018: 100).
There are many studies at various spatial levels assessing and analyzing the impact of SEZs in the world
(Gobillion et al., 2012: 78, Fisher, 2018: 245-247, Moberg, 2015: 167-190) or on ecological and agro-
cultural problems (Kovacs et. al: 2010: 569). Polish publications about regional and local development
occur since the second half of 1990s. The issue of SEZ due to the thematic multifacetedness is also
popular today. In research work there are series of works presenting the efficiency of SEZ creation and
the application of tax breaks, the dynamization of regions and employment growth in areas covered by
the zones, and the real significance of zones for the national economy and in particular the local economy
(Mayer et al., 2013, Adamczuk, 2000, Givord et al., 2011, Givord et al., 2012). In turn, other
publications determine the influence of zones on the development of the region and the economy as
neutral (Gobillion et al., 2012), or formulated conclusions, undermine the creation of privileged
investment areas (Kryńska 2000, Sridhar, 1999, O'Keefe, 2003). Explanations of SEZ success or failure
often concern the quality of the infrastructure, location and zones size (Farole and Akinci, 2011: 221;
Pradeep and Pradeep, 2008). Proximity to large markets as well as preexisting industrialization also
increase SEZ performance (Frick et al., 2019:30).
Research Methodology and Sample Description
The authors conducted surveys about the role and influence of special economic spheres on
entrepreneurship of economic units. The survey was conducted on 63 enterprises which operate in the
area of Katowice Special Economic Zone (KSEZ S.A.) The survey method which was used was the
questionnaire. It was directed to owners who manage their enterprises and to people who have managerial
positions or who are responsible in the company structure for contacts with the authorities of the relevant
economic zones. The questionnaire was anonymous and was it preceded by a cover letter addressed to the
surveyed entrepreneurs, which explained the basic issues related to the conducted research. The sampling
frame was the enterprise database which was posted on the website of the Katowice Special Economic
Zone. The object of the research was business entities reported as conducting business activity and having
the relevant permit, whose headquarters were located in the area located in the KSEZ. In the analysis of
collected data one and two-dimensional statistical methods were used. In order to verify statistically the
hypotheses in the study, the following statistical techniques were used: non-parametric chi-square
independence test and C-Pearson's contingency coefficient (Ostasiewicz, Rusnak, Siedlecka, 2001: 291-
310). The chi- square independence test is used for comparing two qualitative or quantitative features
describing the general community. It was decided to test independence with a non-parametric chi-square
test, because most variables describing the determinants of entrepreneurship affecting the functioning of
enterprises are immeasurable features, expressed on a nominal scale that can not be assigned to any rank.
The Pearson correlation coefficient is used when examining the existence of a relationship between
continuous (quantitative) variables and is a measure of the strength of a linear relationship between
features. It assumes a value from -1 to 1, and reaching the limit value means that there is an ideal
dependence of variables. A value of 0 means a total lack of dependencies. Variable pairs were analyzed,
each time putting the H0 hypothesis (called the checked, tested and verified hypothesis) informing about
7712
the absence of a statistically significant relationship between variables (independence of features) and the
alternative H1 hypothesis, according to which, there is a statistically significant relationship between the
variables tested (features are independent). In case of rejection of the Zero hypothesis, according to which
two features that describe the given statistical group is independent, the stochastic dependence of these
features is assessed. The assessment of a strength of the tested relationship was checked by the level of
safety p (so-called p-value), which determines what is the minimum level of significance a. The lower the
value of p is, the stronger the relationship is. Values below 0.05 indicate a statistically significant
relationship.
Results
One of the questionnaire’s question goal was to measure the evaluation variable, from today's
perspective, the accuracy of the decision to start a business in the KSEZ. The respondents had to rank the
answers using a scale from 1 to 5, where 1 - "accurate" and 5 - "irrelevant". The obtained responses were
presented in the figure no. 1.
Fig. 1: Assessment of the accuracy of the decision to start a business in the KSEZ
According to investors' declarations over 85% of surveyed respondents positively assessed the decision to
start a business in the Katowice Special Economic Zone. This aspect was negatively assessed by 3.2% of
entrepreneurs. Due to limitation of KSEZ date of operation, the empirical study’s goal was to gain
answers about plans which entrepreneurs have (according to existing regulations of the SEZ in Poland to
operate until the end of 2026). Respondents were asked to point out what kind of the organizational
solution would be the best for them after 2026 (in their opinion): whether they would like to continue the
operation of the SEZ unchanged, or would prefer to transform the SEZ into technology or industrial
parks. Another option would be the possibility of transforming SEZ into clusters. There was also an
answer ‘I don’t know’. The structure of answers according to respondents’ declarations shows that after
finishing the functioning of privileged areas, the best solutions would be continuation of the operation of
special economic zones in an unchanged form - 52.4% of responses. Another idea which is favor would
be transforming zones into clusters. This solution was supported by 14, 3% of respondents. Clusters area
form of cooperation between at least three categories of units. The first unit are enterprises and their
institutional environment. The second are units which operate around scientific and research institutions.
The third is public authorities (see more: Nowakowska-Grunt, 2014: 421-430). 9,5% of respondents
chose transformation into technology or industrial parks. In the area of technological parks enterprises
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have their investments and they use advanced technologies and these, which cooperate with research
institutes. Every fifth of respondents cannot show an optimal solution according to a distant time
perspective.
It should be remembered that for regional entrepreneurship, the development of business environment
institutions has a great meaning which creates an infrastructure that favors the development in the region:
technology parks, business incubators, technology transfer centers, training and information institutions,
trade fair centers, investor service offices in municipalities (Woźniak, 2013: 60-61).
In the another step of the analysis, the preferred form of continuing operations of the company after 2026
was explored, depending on the size of the enterprise. This time, the dependence occurred to be
statistically significant. The H0 hypothesis about the lack of dependence between variables should be
rejected. The calculated statistics x2 (9, N = 63) = 25.245, p <0.05 exceeds the critical value (16.91) read
from the distribution table x2 at the significance level α = 0.05, therefore the zero hypothesis about the
lack of dependence was rejected, so there is a dependency between the two variables. The obtained
results are presented in the table 1.
Table 1: The relationship between the preferred form of continuing the enterprise after
2026 and the size of the enterprise
Selected form of continuing operations after 2026

The size of an
enterprise SEZ Technology Clusters I have no Altogether
parks opinion
micro 0 1 1 5 7
small 5 0 1 6 12
medium 17 4 2 3 26
big 11 1 5 1 18
Altogether 33 6 9 15 63
2
χ = 25,245, df=9, p=0,003
Fig. 2: Forms of continuing operations of enterprises after 2026 (according to the size of the
entrepreneur)
What is more, C-Pearson's contingency coefficient was used to check the strength of dependence between
the variables studied, and its value of 0.535 informs of the high strength of the variable dependence. Big
7714
and medium enterprises want to continue to operate under the rules and regulations on SEZ. On the other
hand, small and micro enterprises have no preferences as to the continuation of operations after 2026. In
order to check the relationship between the preferred form of continuing operations of the company after
2026 and the length of the enterprise's operation in the zone, the chi-square test of independence was
performed. The results are presented in table 2 and figure 3.
Table 2: The relationship between the preferred form of continuing operations of the company after
2026 and the length of the enterprise's operation in the zone
Form of The period of company’s operation in the zone

continuation of Less than From 5 to 10 Under 10 years Altogether
activity 5 years years
SEZ 0 11 22 33
Technology parks 1 1 4 6
Clusters 1 3 5 9
I have no opinion 5 2 8 15
Altogether 7 17 39 63
χ2 = 12,779, df=6, p=0,047
25
20
15
10
0
SEZ Technology park Clusters I have no opinion
less than 5 years from 5 to 10 years under 10 years
Fig. 3: The choice of the form of continuing operations of enterprises after 2026 (according to the
length of the enterprise in the KSEZ
The test χ2 (6, N=63)=12,779, p<0,05 presented dependences between variables. The obtained value of
the test statistic 12, 779 exceeds the critical value (12.59) read at the significance level α = 0.05, which
gives foundation for rejecting the hypothesis of the lack of dependence. The value of the contingency
coefficient is C = 0.411, which means that the relationship is average.
As the obtained research results indicate, investors positively assess the investment undertaken in the
KSEZ - this answer was given by over 85% of the respondents. Large and medium-sized enterprises want
to continue operating on the principles and regulations on SEZs. On the other hand, small and micro
enterprises do not have specific preferences as to the continuation of operations after 2026. The results
obtained indicate that special economic zones are a good place to start a business.
7715
Summary
The goal of SEZ is to increase investment, reduce barriers to action and make it easier for investors. The
establishment of SEZ mostly aimed to attract the investment from the foreign countries and enhance the
growth of the country.
To sum up, it can be ascertained that functioning of special economic zones in Poland should be assessed
positively. The Act on Special Economic Zones is to apply in Poland until the end of 2026, which will
further allow entrepreneurs to develop. The Ministry of Economy states that the development of special
economic zones as investment areas will be conducive to the development of clusters, industrial and
technological parks as well as other forms encouraging to invest. One of the main aim of SEZ functioning
is to support new investments according to the policy of sustainable development, i.e. socio-economic
development, through actions aimed at increasing the competitiveness of the Polish economy and creating
new jobs. As other studies show, SEZs have a significant positive impact on employment. 100 new jobs
in SEZ creates, on average, about 72 jobs outside SEZ in the same voivodeship and 137 jobs in
neighboring cities.
Recently in Poland, the project “Poland - a special economic zone” has been discussed. Pursuant to the
Act on supporting new investments, the Polish Investment Zone has been operating since June 30, 2018.
The whole area of Poland, where economic activity can be conducted, became a special economic zone
(the so-called Polish Investment Zone). The new investment support system, among others, extended the
territorial range of Special Economic Zones from 0.08% of the country’s territory to almost the entire
territory of Poland, also differentiated the criteria for granting aid depending on the quality of investment,
the economic situation in the region and its strategic needs in accordance with the principle of sustainable
development. Any company in any city or municipality can apply for a tax credit and preferential
conditions. At the same time, investments related to the creation of research and development centers or
shared service centers should be preferred. The Ministry of Entrepreneurship and Technology informs
that the Act allows investors to exempt tax for 10, 12 or 15 years, depending on the location of the
investment. Projects affecting the competitiveness and innovation of regional economies can count on a
bonus. There are also new criteria for obtaining licenses to support underinvested regions of the country.
This article has several important rules implications. First, the results can help decision-makers identify
regional similarities and differences in special economic zones in Poland. The research may be a source
of interesting results for authors dealing with regional policy in Poland. As a future direction of research,
the authors want to further analyse the impact of economic factors on the development of zones in Poland
and the barriers limiting them.
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General Framework of Energy Management System:

Managerial and Technical Aspect
Sanda RAŠIĆ JELAVIĆ, Ph.D., Professor
Faculty of Economics of Business, University of Zagreb, Zagreb, Croatia
Email: srasic@efzg.hr
Abstract
Energy management system is a useful tool for improving energy efficiency of an organization and,
consequently, reducing their greenhouse gas emission. In this paper, various antecedents of energy
management system, including barriers and drivers, are presented. General conceptual framework
of energy management system is developed and adapted, compliant with the requirements of
international standard ISO 50001. Based on literature review, the key elements of energy
management system such as planning, implementation/operation, monitoring, assessment and
improvement, are explained within two main parts: managerial and technical. Presented framework
of energy management system provides a useful approach to meet expectations of energy
management system and to exploit energy potential in organizations.
Keywords: energy management system, general framework

Introduction
Over the last few decades, environmental and energy awareness has grown considerably along with
the recognition of the importance of sustainable development. Concerns about climate change and
higher energy consumption created a pressure to reduce greenhouse gas emissions and to improve
energy efficiency. In order to manage and conserve energy successfully, it is aimed at consuming
as little energy as possible in achieving the same effect, as well as using renewable energy sources,
taking into account the security of energy supply, energy costs and possible energy loss. Such
changes are needed at the state level, at the level of households and at the level of organization, for
which there is a strong political influence. A large number of countries have signed Kyoto Protocol
that commits state parties to reduce greenhouse gas emission. Achieving Kyoto Protocol objectives
requires reduction of energy consumption and an increase of the renewable energy share. The
European Union has issued the Directive on Energy Efficiency 212/27/EU, which sets out the goals
of environmental protection and energy until 2020, and has formulated a new strategy for 2030 in
order to reduce the negative impact on environmental and climate change. The stricter
environmental regulations, policies such as international emissions trading, the rise in energy prices,
new energy efficiency improvement programs etc. have increased the interest of organizations for
implementing energy management system. The pressure on organizations rises additionally with
the higher stakeholder requirements toward sustainable development. Hence, the implementation
of the energy management system could be the natural and cost-effective way to meet regulatory
and stakeholder requirements for improving energy efficiency. Despite the energy-related
investments and potentials in industrial sectors over the last few decades (International Energy
Agency, 2007), there is still room for improvement of energy management. Energy issues are
important regardless of the size of the organization and industry type. It is estimated that the
implementation of energy management system into organizations that have average energy
consumption, might result in energy savings of 5-15%, depending on type of business and energy
efficiency (Markotić, 2018). Energy consumption might create significant costs that influence on
resource productivity. Consequently, energy is recognized as a critical factor of competitiveness
(Abdelaziz et al, 2011) and when organization operates in the environment that is characterized by
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scarce resources and high competition, energy management can be useful tool for improving
competitive position, especially in energy-intensive industries.
Definition of Energy Management System

Despite increasing use in practice, in the academic literature there is no consistency in defining the
concept of energy management (Backlund et al, 2012) and different methods of modeling the
energy management system can be found. Based on systematic review of scientific journal
publications on energy management in industry, Schulze et al (2016) concluded that definitions of
energy management possess a different scope in regard to the strategic, operational or tactical
organizational level, focusing on dissimilar aspects of what composes energy management and aim
toward a diverse set of possible objectives.
According to Javied et al (2015), energy management system is a systematic and continuous

approach to achieve sustainable energy improvement - “targeted deployment of methods and
measures of energy – related tasks, thereby implementing a continual energy efficiency
improvement approach in companies while keeping the costs and uninterrupted energy supply in
consideration”. Ates and Durakbasa (2012) define energy management system as a combination of
energy efficiency, technology and related process management, resulting in a reduction in energy
costs and CO2 emissions. Kannan and Boie (2003) defined energy management as “judicious and
effective use of energy to maximize profits and to enhance competitive positions through
organizational measures and optimization of energy efficiency in the process.”
In this paper, energy management system is defined as a supportive tool that includes planning,
implementation, controlling and assessment focused to achieve energy-related goals and emission
reduction goals, striving on continual improvements.
Barriers and Driving Forces of Energy Management System

Previous research has emphasized that the reasons for non-implementation or delayed
implementation of technically available energy efficient technologies lie in various barriers to
energy efficiency (Brunke et al, 2014). These barriers and obstacles have been analyzed upon
various studies and divided into several categories: energy awareness, behavior/motivation, know-
how and financial resources (Javied et al, 2015).
First type of barriers can be found in the lack of energy awareness, inadequate organizational culture
and climate, the lack of positive attitudes towards energy management as well as the lack of
accountability for energy consumption and for considering renewable energy sources. In some
cases, employees feel that the existing process workflow is satisfactory, that energy consumption
need not to be upgraded and looks suspicious of additional energy analysis. Historically, energy
costs were a relatively small part of total costs as energy prices were relatively low and stable,
hence, they were often treated as an overhead (Caffal, 1995). If energy costs are only a small part
of overall costs, energy is not perceived as a “core” for the company and energy is not treated
strategically (Rudberg et al, 2013), Furthermore, if energy costs are perceived as a fixed cost rather
than the cost that can be influenced directly, it can hinder organization to implement the energy
management. In last decade that is characterized by the rise in energy prices, such attitudes have
been changed, especially in energy-intensive industries. Additionally, insufficient support from top
managers and their sporadic involvement can hinder implementation of energy management
system.
A lack of motivation to improve energy efficiency is another obstacle. It is created by inadequate

incentive system that insufficiently drives employees toward achievement of energy goals, toward
creativity and innovation in energy-related issues. Difficulties in implementation and operation of
energy management system might be found in insufficient knowledge, skills and competences of
employees.
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Common barriers for implementing the energy management system are the lack of financial
resources for initial investment, relatively short payback period criteria for energy-related
investments, insufficient and inadequate organizational resources such as obsolete technology and
equipment.
On the other side, there are many driving forces that focus organizations to implement energy
management system. Implementation of that system can provide the organization the possibility to
avail various benefits such as: (1) reduction of energy consumption due to responsible behavior, (2)
reduction of costs through a structured approach to define, measure and manage energy
consumption (3) achieving energy efficiency goals, (4) improving productivity that results from
better technical solutions, (5) reduction of greenhouse gas emission, (7) reduction of tax payment
and sanctions due to less greenhouse emission, (6) better ability to meet legal requirements and
stakeholder expectations (7) raised security of energy supply based on a better understanding of
energy risk etc. Omeltchenko (2012) grouped such benefits into financial, organizational and image
benefits. According to Pye and MyKane (2000), among various benefits that might result from
implementation of energy management system, non-energy benefits often exceed energy saving
benefits. Worrel at al (2003) emphasize the importance of overall productivity increase that can be
achieved as a result of energy efficiency investments.
The Framework of Energy Management System

In accordance with the international standard ISO 50001:2011 “Energy management System:
Requirements with guidance for use””, the general conceptual framework of energy management
system is developed and adapted in this paper. The framework is based on Deming cycle approach
(Plan Do, Check, Act) which is focused on continual improvement. Figure 1 presents the model of
energy management system with the key elements: planning/strategy, implementation/operation,
control, management review and improvement. In this paper, conceptual framework is presented
and explained through two main parts of the system: managerial and technical.
The base for establishing energy management system is appointment of energy manager and
members of energy management team. Energy manager should have defined authority and a
responsibility to implement and maintain the energy management system and should be responsible
to report about energy performance directly to top management. Energy manager may
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Fig. 1: Framework of the energy management system
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be the leader of the team for implementation of energy management system. Authority and
responsibility of the members of energy team should be precisely defined as well. Energy manager and
members of the implementation team may support various organizational departments in planning,
implementation/operation and control of the energy efficiency activities.
Planning of Energy Management System

Planning is the first phase of energy management system. Managerial part of planning includes: (1)
framing the organizational vision, mission and policy regarding energy; (2) setting energy-related
objectives and targets; (3) framing energy-related strategy (4) planning the resources for energy
management system (5) creating energy-related programs. Technical part of planning includes: (1)
energy review, (2) determination of energy baseline, (3) determination of energy performance
indicators.
Organizational vision, mission and policy statement should incorporate the value of energy efficiency.
Energy policy provides a frame for the organizational operations regarding energy use and presents the
guidance for the employees. Objectives and targets of energy management system are established to
provide specific emphasis and direction to meet energy-related policy, mission and vision. It is useful
to set energy-related using SMART (Specific, Measurable, Appropriate, Realistic and Timed target)
approach.
Reitbergen and Blok (2010) found that targets are usually set in two mail areas: reducing energy use
and reducing greenhouse gas emission. In developing organizational strategy, energy issues should be
considered. Many scholars emphasize the importance of framing formal energy strategy (Ates and
Durkbasa, 2012; Rudberg, 2013; Schulze et. al, 2016). Rudberg (2013) states that the main prerequisite
for incorporation of strategic perspective into energy management system is political continuity
regarding energy issues and establishment of energy manager, who is responsible for the energy
management system and energy performance.
Energy review covers initial use of energy in organizational processes and helps to identify energy
baseline - the current state of energy flow and energy consumption. Within energy review, it is possible
to detect problems, as well as possibilities and potentials for energy savings. The main energy-related
processes and energy consumers should be determined. In the energy-intensive industries, the main
energy consumers are in production process, while in non-energy-intensive industries the main energy
consumers are usually in support functions (Schulze et al, 2016). The review should be focused on
equipment and devices that have increased energy consumption and water consumption, such as the
equipment in the production (service) process, heating/cooling systems, ventilation, lighting
equipment, places where energy loss is possible. To improve energy audit process, Seryak and Kissock
(2005) proposed Lean energy analysis approach to identify, quantify and eliminate non-value added
energy use.
The results of energy review create the base for setting the energy-related targets. Such targets should
be set from a company level to the level of business groups, functional areas and/or plant or facility
level (Rietbergen and Blok, 2010). To achieve energy-related targets, energy-related programs with
specific energy efficiency measures, should be developed. Hence, this part of energy management
system is particularly important. Energy efficiency measures include operational decisions regarding
the acquisition, allocation, utilization and disposition of resources, especially regarding financial
investments by calculating payback periods (Peterson and Belt, 2009; Sandberg and Söderström, 2003).
Furthermore, it is necessary to plan sufficient resources (financial, material, human, information etc.)
needed for energy efficiency measures.
Implementation/Operation of Energy Management System

The next phase of the energy management system is implementation and operation. Based on energy-
related programs, different energy efficiency measures and actions will be implemented. These
measures can be of a technical or management nature (Caffal, 1995; Fleiter et al, 2012; McKane et al,
2007), Managerial part of implementation includes: (1) development of energy awareness and
7723
competences; (2) motivation (3) communication, (4) documentation, (5) operation management.
Technical part includes: (1) development needed to implement energy-related programs, (2) supply of
energy and energy-related products/services.
Improving energy efficiency is facilitated by creating the responsible behavior of employees in

practice. In order to develop energy awareness, all employees should attend orientation training on
energy issues. Furthermore, the energy manager and energy management team (that have direct
responsibilities and responsibilities in energy management system) should attend detailed instructions
to acquire necessary competencies. They have to acquire technical knowledge on energy issues (per
example, measuring and analyzing energy consumption, analyzing technical options etc.) as well as
managerial knowledge. Knowledge on approaches, techniques and tools such as Lean management,
Six Sigma etc. can support energy-efficiency improvement cycles in practice (Mkhaimer et al, 2017).
Aflaki et al (2013) emphasize the importance of acquiring technical expertise that provides the
necessary competence for energy-related project evaluation and implementation. Networking could be
useful to disseminate and share of knowledge regarding energy issues. Suk et al (2013) found that the
willingness for energy saving, support from top management and internal training in the area of energy
savings, as internal factors, determine a company’s practice level of energy-saving activities. Based on
their empirical research, Liu et al (2012) concluded that internal training in the area of energy saving,
as an internal factor, has a significant and positive influence on a company’s level of energy-saving
activities.
Reward system in organizations should motivate employees toward meeting energy-related targets,
toward creativity and innovation. Documentation of energy management system should be designed
according to the requirements and should be integrated into the existing documentation. Energy-related
procedures should ensure that employees at all organizational levels perform their activities in the
manner consistent with the energy policy. Such procedures can serve as a type of preventive operational
control. Organization should establish good internal communication and cooperation that will help
employees to perform their tasks respecting energy requirements successfully. Internal communication
can be established through usual means such as regular staff meetings, E-mails, Intranet, official letters,
memos, posting information on company bulletin board, internal newspapers etc. Peterson and Belt
(2009) suggest that corporate culture has to be taken into account when selecting tools of
communication. The structure of the energy management system and resources available will depend
on the size of the organization and industry type (weather the organization is in energy intensive-
industry or not).
Within the technical part, previously planned energy efficiency measures should be developed and
implemented in practice. Such measures include improving the energy efficiency of buildings (such
as the installation of better insulation materials) as well as improving the energy efficiency of
equipment - replacement of inefficient technical systems, equipment or materials. Stenqvist and
Nilsson (2012) suggested that energy efficiency measures can be developed within various end of use
technologies: motor and motor-related, pumping system, compressed air system, fan system,
heating/ventilation, cooling and lighting. Besides, Kanan and Boie (2003) suggest the use of measures
that optimize hot water usage, insulations of pipes, recalibration of thermostats etc. It is useful to
integrate environmental and energy efficiency criteria into the procurement, as well as to seek the
possibility of cooperation with quality suppliers that can help in enhancing energy efficiency. Aflaki et
al (2013) revealed that many profitable energy efficiency projects that theoretically could be
implemented in industrial companies in practice, in the end are not. The reason for that is often a lack
of know-how to identify, value and execute these projects in organization (Schulze et al, 2016). Many
scholars emphasize the importance of energy risk management system (SERM) that analyzes the
exposure of the company to relevant components of risk related to its energy use and manages it in the
context of the company’s predetermined financial objectives and risk tolerances (Vasudevan and
Higgins, 2004).
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Control of Energy Management System

Managerial part of control of energy management system includes: (1) internal audit of energy
management system, (2) corrective and preventive measures. Technical part of controlling includes:
(1) monitoring and measuring, (2) checking the results, plans and activities.
Information and communication technologies (ICT) are important tool for monitoring and measuring
of operative processes and energy performance. Energy performance is a measurable result concerning
energy efficiency, energy use and energy consumption. Sivill et al (2013) emphasize that operating
personnel lack visibility of energy performance in their daily activities and that performance metrics
are focused on department level, rather than on subsystem and equipment level. Similarly, Thollander
and Ottosson (2010) suggest a monitoring that use measuring at facility level to allocate energy-related
costs properly.
Well design system for monitoring and measuring of energy consumption in operation and support
functions helps to detect deviations from the energy-related targets and to design and implement
corrective and preventive actions promptly. That provides the possibility of early warning of
deviations, which can be on a daily basis, and preparing the base for detecting the cause of deviations.
Per example, installing sensors that switch off energy supply in the case of a break in production or in
the case of stalling or non-use of space, can make useful savings.
Internal energy audit is a process of comparison of the manner in which elements of energy
management system are functioning relative to the way in which the elements were designed to function
and to detect nonconformance. It is a managerial tool for checking, monitoring and analysis of energy
management system that helps the organization to enhance energy-related performance. Internal energy
audit should be conducted objectively and impartially by competent internal or external auditor.
According to requirements of standard ISO 19011, there are three types of internal audit: internal audit
of system, internal audit of process and internal audit of product/service. Internal audit of the energy
management system should check the appropriateness and adequacy of the measures of management
system, the completeness of the documentation, the degree of compliance with the system
requirements, and organizational and other weak points. The internal audit of energy-related process
should check the improvement of processes capabilities regarding energy requirements, the necessary
process characteristics, and improvement of the processes monitoring. The internal audit of energy-
related products/services checks the conformance of products/services with energy-related
requirements and possibilities for improvement the energy-efficiency of product. According to the
annual plan, regular audits are carried out at least once a year, but additional audits can be carried out
in the case of increased problems. In practice, organizations that are certified according to the standard
ISO 50001, usually conduct internal audits before the external audit, in order to check the compliance
with the requirements of the ISO 5001 standard. Escriva´-Escriva´ et al (2012) have emphasized the
problem that traditional energy audit take place at a given point in time, without continuity to guarantee
improvements, so they have proposed a continuous assessment model.
If internal energy audit detects non-conformities, appropriate corrective measures should be taken,
which require prior identification of the causes of that non-conformities. Preventive measures can also
be taken, based on the recommendations of auditors and based on evaluation of the results of previously
taken corrective actions.
Management Review and Improvement of The Energy Management System

In management review and improvement of energy management system, managerial part includes: (1)
management review of the energy management system (2) improvement of the energy management
system. Technical part includes report on energy-related performance and energy-related indicators.
Energy efficiency indicators are specific expressions of energy-related performance. These are ratios
that describe the relationship between an activity (e.g. a production process or its physical outcome)
and the required energy (Bunse et al, 2011) Examples of such indicators are: energy
consumption/quantity of products or services; energy consumption/production time ratio etc. Bunse et
7725
al (2011) group various energy efficiency indicators into economic, physical, thermodynamic and
hybrid indicators and explain their applications. They suggest that adequate indicators for energy
efficiency should be defined on company, plant and even on process level. The choice among various
indicators should depend on the industry-type and other organizational factors. Energy efficiency
indicators allow the comparison of energy-related data with previous periods (historical
benchmarking), with competitors (industrial benchmarking), with similar processes in other industries
(functional benchmarking) or with the similar processes within the same organization (company-wide
benchmarking).
Continual improvements happen when management continually review information on energy-related

performance and compare them with the energy policy, objectives and targets. Management review
should consider energy-related performance, energy-related indicators and findings of internal energy-
audit. Management should understand the causes of non-conformances and deficiencies of energy
management system. They should evaluate the effectiveness of corrective or preventive actions, decide
about changes in procedures needed to improve energy management system, evaluate the suitability of
energy policy and targets as well as effectiveness of energy-related measures. Management should
understand the acceptance of energy management system by employees, their motivation and
competences regarding energy issues. Furthermore, they need to determine whether corporate culture,
climate and management style support the functioning of the energy management system. Based on the
review on energy performance indicators, internal energy audit and results of benchmarking,
management has the opportunity to make a realistic assessment of the energy management system,
detect deficiencies and create prerequisites to exploit the energy potentials in the future.
Conclusion
Implementing the energy management system is a complex and demanding process. Each organization
is specific regarding defined objectives, organizational factors and type of industry (regarding the level
of energy-intensity). Therefore, it is necessary to adjust the approaches of implementation and
maintenance of energy management system in each individual case. It is important to determine energy
baseline, organizational advantages and disadvantages regarding energy issues, as well as identify
energy-related opportunities. Managerial approaches, techniques and tools such as Lean management,
Six Sigma derived from quality management, energy risk management and other managerial techniques
are useful to support successful operation of energy management system. Using technical approaches
and tools are as equally useful.
State governments that provide an incentive environment for the development of energy-efficient and
environmentally responsible innovations, create various opportunities and drivers for organizations.
Incentive measures for improving energy-efficiency are: government programs for stimulating energy
efficiency in organizations, improvement of cooperation between organizations and government
institutions in dealing with energy-related issues, regulation of energy audit report as obligation for
organizations, fees for greenhouse gas emissions, policies such as emission trading system, incentives
for environmentally friendly technologies (Dekanović and Karasalihović, 2016), voluntary agreements,
networking etc. (Granić, 2012). Organizations might be particularly interested in obtaining financial
incentives for improving energy efficiency within European Union funds or similar domestic funds.
In this paper, general framework of energy management system is presented. The main elements of
energy management system i.e. planning, implementation/operation, control, management review and
improvement are explained through two main parts: managerial and technical. Based on literature
review, it can be concluded that problems in the operation of the energy management system arise from
inadequate planning, as well as from difficulties in implementation, measurement, control, and
corrective/preventive measures. Preferring functional rather than process approach, deficiencies in
operation process regarding energy issues, unsuitability of energy-efficiency measures, inadequate
integration of energy management principles into staff processes, insufficient competences, inadequate
organizational culture and climate, management style, etc. might create difficulties as well. A reward
system that insufficiently motivates employees toward achievement of energy efficiency goals,
creativity and innovation will make it difficult to exploit energy improvement potentials. Identifying
7726
and solving these problems is important to enable energy management system to operate successfully
and to meet expectations.
The model of energy management system explained in this paper present useful framework that can
help organizations to implement energy management system in practice, to achieve energy-related
performance and non-energy benefits, while focusing on continual improvements. Description of the
main components of an energy management system and corresponding findings can help managers and
experts in quality, environment and energy to understand the prerequisites for successful energy
management.
The further research in relation to energy management might focus on the casual relationship, such as
research of the connection between the energy management system and business performance
(financial, operational, organizational, market, environmental perspective). Additionally, the further
empirical research of individual variables of energy efficiency investments (type of energy-efficiency
measures, investment costs, payback period, potential energy savings, cost saving etc.) might be
interesting to explore this subject more extensively. Furthermore, longitudinal research, especially on
company level, empirical research that focus on transnational and non-energy intensive industries and
contingency approach based on company size, type of industry, region etc. might be interesting research
subjects as they have not been extensively explored (Schulze et al, 2016).
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Project Management as an Element of

Continuous Improvement in Production Companies
Aneta KUCIŃSKA-LANDWÓJTOWICZ
Opole University of Technology, Faculty of Production and Logistics Engineering, Opole, Poland,
a.kucinska-landwojtowicz@po.edu.pl
Izabela D. CZABAK-GÓRSKA
i.czabak-gorska@po.edu.pl
Marcin LORENC
m.lorenc@po.edu.pl
Abstract
Continuous Improvement is a concept recognised in the literature and management practice as essential
in today’s business environment. The article deals with the management of projects implemented in
manufacturing companies as part of broadly understood organisation improvement programmes. The
first part of the article presents the conclusions resulting from literature analysis regarding the
significance of improvement projects. Attention was drawn to the need for skilful management of this
type of initiatives, errors appearing in their implementation and their classification. This was followed
by a reference to empirical research conducted in a manufacturing company, which allowed for their
more detailed characteristics.
Keywords: project management, organisation improvement, Continuous Improvement (CI),

improvement projects.
Introduction
Every day, organisations operating on the market face the challenge of meeting the expectations of
their customers, employees, shareholders or further environment. On the one hand, they still want to
improve their efficiency in performing routine activities, on the other, managers are aware of the need
for continuous development and introduction of changes. This is favoured by an increase in the level
of employee qualifications and access to knowledge about new trends in management or technology.
According to Fryer and Ogden (2014) many researchers believe that a modern organisation cannot
build a high level of performance without a key ingredient that is Continuous Improvement (CI).
Swinehart, Miller and Hiranyavasit (2000) describe CI as the final ultimatum for building an
organisation belonging to the ‘a World-Class’ group, while research on the application of the concept
of continuous improvement in countries such as Japan, Australia, Sweden, Great Britain, Spain,
Belgium or China confirm that it is implemented in enterprises worldwide, see Boer and Gertsen
(2003), Marin-Garcia et al. (2008), Dabhilkar et al. (2007). The introduction of improving technical,
organisational and commercial changes means that to achieve them it is necessary to implement well-
organized and efficiently implemented new, unique projects. Therefore, according to Bukłaha,
Juchniewicz (2019) organisations increasingly combine two categories of activity: operational
activities - process and routine, and project activities - related to innovation, change and transformation.
The implementation of such projects requires special and time-limited organisational solutions within
the existing structure of the organisation or implemented outside of it, see Trocki (2012), which
requires building organisational capacity to find a balance between repetitive and project activity called
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‘ambidexterity’, see Zakrzewska-Bielawska (2016). Routine activity ensures its business continuity,
and a design approach allows the transformation and development of the organisation, which must
result from the adopted strategy. In the past, project management (PM) was closely associated with the
civil and built environment and the defence industries. Nowadays, it is in common use in virtually all
sectors of the economy, such as information technology (IT) and information systems, manufacturing
(product innovation), finance and service industries, and arts and culture (events), see Abbasi, Jaafari
(2018).
In this article, attention has been focused on organisations operating in the production industry, focused
on development based on the concept of continuous improvement. Its use entails the introduction of
methodologies such as (e.g.): Kanban, Total Productive Maintenance (TPM), 5S, Total Quality
Management (TQM), or further: Lean Manufacturing, Six Sigma, Lean Six Sigma. Organisations
deciding to implement these types of methods require organisational support that will enable coherent
and logical actions at the stage of introducing and developing numerous new initiatives. This can be
done by using project management methods and techniques. However, as the results of Spałek (2014)
research conducted among domestic enterprises operating in the engineering industry show, about 90%
of them have only reached the second level of maturity in project management in individual areas of
assessment, i.e. methods and tools, human resources, the design environment and project knowledge
management. Although the area of methods and tools has proven to be the most mature, in 79% of
cases it was similarly the second level. In the surveyed foreign enterprises, the area of methods and
tools was also the most mature, in 55% of cases it was level 3. The level of application of project
management and project tools was also examined in a group of small and medium enterprises operating
in Europe. Conclusions from the conducted research indicate that such organisations require simplified
versions of project management and uncomplicated sets of project management tools. According to
Turner and Ledwith (2018) smaller companies indicate the need to use project management procedures
adapted to smaller projects, while medium-sized enterprises most often use such techniques as:
computer support through the use of the Microsoft (MS) Project software, Gantt charts, Critical Path
Method (CPM) and value analysis.
Research Questions and Article Purposes
Continuous improvement of the organization requires the introduction of numerous changes of varying
degrees of novelty and complexity. In this article, the authors decided to answer the following research
questions: are improvement initiatives projects? What are their characteristics? What project
management tools are useful for managing them?
The article aims to define and classify improvement projects and indicate techniques recommended in
their management, and to present the role which they play in implementing the assumptions of
continuous improvement in manufacturing companies. It is an important topic allowing for the
elaboration of guidelines which would reduce the risk of errors in implementing improvement projects.
Research was conducted in two steps: using a literature review and reference to a case study (example)
in which direct observation, document analysis and partially structured interview were applied. This
approach results from the need for in-depth analysis of the issue related to managing improvement
projects, especially in reference to empirical studies. Case studies are rarely found in subject literature.
The example presented in the article aims to analyse improvement projects in a production enterprise
pursuing the rules of CI and supplementing their characteristic and classification presented in the
literature.
Literature Review
The link between Project Management and Continuous Improvement

According to Marin-Garcia, Pardo del Val and Bonavía Martín (2008) the CI concept is treated as a
way to maintain and improve the organisation’s competitiveness by using the knowledge and
commitment of all its employees. An analysis of the definition of ‘continuous improvement’ allows to
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conclude that it is connected with building a culture of lasting improvement, see Bhuiyan and Baghel
(2005), as well as with launching a number of procedures enabling the organisation to improve what it
is currently doing, see Bessant, Caffyn (2001). Brunet and New (2003), on the other hand, indicate that
CIs are ubiquitous and continuous activities, besides the standard roles of participants to identify and
achieve results that contribute to achieving organisational goals. Bhuiyan and Baghel (2005) describe
CI as an improvement initiative that increases success and reduces errors. The terms appearing here:
‘a number of procedures’, ‘activities outside the standard roles’ or ‘initiatives’ indicate the link between
CI and the need to launch various types of projects that allow the implementation of the concept’s
assumptions. Despite the fact that the definitions also emphasize that CIs are minor changes which do
not require large investments, experience shows that a large amount of work and organisational
effectiveness are needed to launch a new way of thinking and the organizational capacity which could
be obtained through the use of project management.
This need is undoubtedly enhanced after analysing a set of specific values, principles and numerous
techniques recognized as basic CI practices. Sua´rez-Barraza, Ramis-Pujol and Kerbache (2011) listed
the most important principles and values of CI:
- maintaining and improving standards,

- focus on processes,
- improvement at Gemba level,
- participation of all employees,
- commitment of top management,
- discipline and constancy of purpose,
- ability to conduct experiments,
- observation.
as well as the most important techniques: Total Productive Maintenance (TPM), Total Quality Control
(TQC), autonomy, Single Minute Exchange of Die (SMED), PDCA (Plan-Do-Check-Act) cycle,
SDCA (Standard-Do-Check-Action) cycle, activity of small employee groups, as well as so-called
improvement teams, Kanban and Just in Time, Total Flow Management (TFM), inter-departmental
management, 5S and elimination of waste, Gemba and visual management, Hoshin Kanri, zero defects.
They require the introduction of solutions that, in many cases, constitute a new challenge for
organisations, e.g. TPM, Single Minute Exchange of Die (SMED) or Just in Time. Their
implementation constitutes a sequence of unique, complex and related tasks with a common goal. The
management’s intention should be to introduce them within a fixed time limit, without exceeding the
set budget and of course, in accordance with the assumed requirements.
This basic characteristic allows to recognise that these are projects which, before they become a
permanent practice, must be wisely initiated and defined, planned, organized and implemented.
Organisational errors at the implementation stage of these programmes are particularly risky, primarily
due to the simultaneous development of the organisational culture and work environment, which in
effect can have a positive and negative impact on the environment.
It also turns out, however, that research to identify errors of CI initiatives in manufacturing
environments has shown that many of them relate to project management.
The results of the study carried out in enterprises which apply the design approach in improvement
activity indicate that the most common errors are:
- poor selection, see Gijo (2011), Keim (2011) and project resources, see Snee (2010),
- project selection is not aligned to the enterprise’s strategy, see Kornfeld and Kara (2013),
- too large scope, see Hariharan (2006),
- selection of inappropriate methods, see Kornfeld and Kara (2013),
- assessment concerning the number of implemented projects as a measure of success, see
Hariharan (2006),
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- slow pace of the project team’s work, interruptions in operation, poor selection and application
of methods or tools, see McLean, Antony and Dahlgaard (2017),
- duration of more than six months, infrequent team meetings or little technical support from Master
Black Belt (or equivalent), see Snee (2010),
- lack of analysis of the connection between the implemented project and the environment, see
McLean, Antony and Dahlgaard (2017).
Further obstacles are identified in the project’s resources area:
- selection of such people for the project teams who do not have enough time for this job, see Keim
(2011),
- too large project teams, see Snee (2010),
- a lack of involvement presented by team members, leadership deficiencies in the project or
withdrawal of key people due to the pressure of current tasks, see Hariharan (2006),
- the team members’ turnover and shortage of access to key data, see McLean, Antony, and
Dahlgaard (2017).
This means that introducing improvement initiatives is not an easy task, and that the errors mentioned
are linked to many aspects of managing this type of project. Therefore, in order to enhance organization
improvement, it is necessary to develop guidelines related to the management of improvement projects.
However, it must be preceded by their characteristics and classification. This is an important task since
it will facilitate the selection of methods and techniques appropriate to the scale and nature of the
implemented project.
An organization operating in line with the CI concept quite often implements several improvement
projects simultaneously, which also requires the use of techniques supporting the management of a
project program. Martinsuo and Lehtonen (2007), in their research, noticed that the performance of a
single project influences the final outcome of the group of projects realised in the company. There are
factors which could be associated with managing a number of projects in parallel, which is more
connected with project program management. The scope of project program management includes:
creating a program strategy, project evaluation, creating a hierarchy, followed by the selection and
management of active projects (projects which have been awarded funds). Therefore, according to
Spałek (2012) it is necessary to select and use appropriate tools supporting the management of several
projects simultaneously, which in enterprises operating in a multi-project environment is the role of the
project management office. Techniques supporting project program management include: dashboard,
Gantt chart, task management, reporting, timesheets and planning. The most important task of each
project is to achieve one basic goal and specific goals. The main goal must result from the adopted CI
strategy, and all projects should be implemented in a specific order. Undoubtedly, project approach can
be a great support in minimising the above-mentioned errors.
Definition and characteristics of improvement projects

In the book by Kisielnicki (2011) a project is a broad concept and includes both the activity of creating
new facilities and modernisation of existing ones. It relates to organisational and technological changes,
as well as those related to the introduction of new products to the market. Pawlak (2007) narrows this
concept and presents the project as an undertaking implemented within a specific organisation, which
is new, unusual and different from routine activities. Projects implemented by organisations operating
in the socio-economic environment are characterized by very large diversity and at the same time there
are many criteria according to which they can be classified. In the literature on the subject, among
others they were divided according to: fields, specifics, significance, scope, origin, result, innovation,
range of size and orientation, see Trocki (2012), see Marek-Kołodziej, Łapuńka et al. (2017). Referring
to the earlier definition of the project by Pawlak (2007), it was assumed that an improvement project
is a unique undertaking, aimed at achieving the goal of improving the organisation and its processes;
it is a sequence of completed and related activities. It is planned in time and has allocated resources
necessary for its implementation. According to Wyrozębski (2014) it should be taken into account that
a project is not a task that is too simple; it is a continuous activity that has no clearly defined purpose
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or scope and is part of an existing process. Therefore, it is worth specifying whether routine tasks or
projects are discussed; a model is proposed in the literature to distinguish between them (Table 1).
Table 1: Model for distinguishing between projects and routine tasks
Criteria For each statement, choose or Choose the appropriate descriptive

either from the column below statement from the column below on
on the left. the right.
Please rate each descriptive Please rate each descriptive statement
statement in the column below in the column below with a number
with a number ranging between 1 ranging between 6 – 10.
– 5. 6 - I agree to a very small extent
1 – I entirely agree 7 - I agree to a small extent
2 – I agree 8 - I agree partially
3 – I partially agree 9 - I agree to a large extent
4 - I do not agree 10 - I completely agree
5 - I completely do not agree
Limitations There is ample time. There are time constraints.
The subject is repetitive. The subject is unique.
Not all phases are within the time All phases will happen within the
frame from start to finish. timeframe from start to finish.
Execution The organisation’s processes are Specific and appropriate processes are
sufficient for handling this. required.
Participants have a similar Participants have a different
background. background.
All necessary knowledge is in one Extensive co-operation is needed.
place.
Environment There is a low risk and There are multiple types of risk and/or
predictability is high. opportunities.
It will lead to minimal changes. It will lead to extensive changes.
The environment has little effect The results are very much affected by
on the results. the environment.
Those involved will be few and Many will be involved and not all
known. known.
Source: study based on Jonsdottir, Ingason and Jonasson (2014)
According to Jonsdottir, Ingason and Jonasson (2014) each statement is given a grade from 1 to 10 and
a total sum is calculated to discern if the subject is a project or not. If the total outcome is 60 or higher
there is a strong possibility that this is a project and PM methods need to be used.
The model indicates that the initiatives implemented under CI in many cases meet the project criteria
since they correspond to the description in the right column of the table.
Classification of improvement projects

The analysis of literature on projects implemented as part of organisational improvement has allowed
the selection of the following classification criteria:
- project initiator,
- improvement strategy adopted,
- type of problem being solved,
- organisation maturity, company age and process maturity and standardisation.
Projects may be initiated by top management, by middle management or by line employees.
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In the book by Hamrol (2015) the division, adapted to the adopted improvement strategy and the type
of issue distinguishes four groups of improvement projects: cleaning, eliminating waste, quality
improvement and searching for opportunities. The characteristics of the proposed groups of projects
are presented in Table 2.
Table 2: Classification of improvement projects
Group/ Purpose of projects Recommended concepts/ methods/tools
Group A – cleaning Concepts: TQM, Kaizen, Lean

Purpose: Methods and tools: 5S, SMED, Kaizen
Organising the overall mess and organising the conclusions
management system
Group B – eliminating waste Concepts: Lean
Purpose: Tools: Kaizen, Theory of constraints (TOC), Six
Shortening the transition time (Lead Time) Sigma
Reduction of in-process stock In particular: Value stream mapping (VSM),
Elimination of other types of waste SMED, TPM, supermarkets, autonomous
maintenance, multitasking, KANBAN, flow
levelling and balancing, drum-buffer-rope
mechanism, Design of Experiments (DoE),
capacity indicators
Group C - quality improvement Concepts: Six Sigma and Kaizen
Methods and tools: brainstorming, Quality
Purpose: Function Deployment (QFD), block diagram,
Elimination of problems with meeting quality data grouping, Ishikawa diagram, Pareto
requirements diagram, ABC analysis, systematics diagram, |
5 Why diagram, histogram, ability indicators,
control charts, DoE, FMEA (Failure Mode and
Effect Analysis)
Group D - searching for opportunities Kaizen and Six Sigma projects
Purpose:
Being better
Source: study based on Hamrol (2015)
As described in the table, concepts, methods and tools supporting their implementation were proposed
for each group of projects. The presented classification of projects is focused on such improvement
strategies as: quality management (TQM, Six Sigma), Lean Management and Kaizen. However, when
it comes to the types of issues to be solved, the following were distinguished: cleaning, eliminating
waste, improving quality and searching for opportunities.
However, improvement projects can also be treated more universally - as an element of operation when
designing an integrated business management system in a newly created enterprise, as well as in an
enterprise that intends to improve its system. The design process for such projects can be summarized
in four steps, which are shown in Figure 1.
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assessment of • models of excellence

management • maturity models
system maturity
setting a target • determining the planned scope

achievement level of maturity of the management
system
designing an
improved • determining the target
management system state
implementation of the
project involving the
launch of initiatives • improvement project
to improve the management
management system
Fig. 1: The process of designing projects to improve the management system

Source: own study
Therefore, introducing improvement initiatives in the area of the management system functioning in
the enterprise requires a design approach. Members of the team implementing this type of project may
belong to the staff of a given enterprise or may also be external consultants. It is worth emphasising
that as part of a single project to improve the current management system, challenges should be taken
to overcome no more than one level of maturity, see Haffer (2011).
According to Hamrol (2015) the answer to the question of where the enterprise is at in terms of the
need to improve processes and resources can be obtained by determining the age of the enterprise as
well as the maturity of processes and standardisation. Depending on where the organisation is at,
improvement projects will be oriented towards:
- introduction of basic standards - for young enterprises and immature processes,

- ‘system optimisation’, i.e. identifying issues and searching for opportunities for improvement -
for old enterprises and mature processes.
Improvement projects resulting from the assessment of management system maturity or process
maturity and standardisation can be qualified as internal projects commissioned by the organisation's
management.
For their implementation it is recommended to use the PDCA cycle, which consists of four phases:
plan - do - check - act. In the case of improvement projects, these phases correspond to processes in
the project management cycle and in the project life cycle (Table 3). The planning phase includes the
stage of initiating and defining the project, planning its structure, organising and designing the project
result. The project is being realised at the implementation stage. Checking is understood as control, i.e.
on-the-fly control along with the coordination of actions in the event of any disturbances. The last
phase is associated with an analysis of the results, closing the project, if it is justified, along with the
preparation of a report on the implemented activities also containing guidelines and recommendations
for the future.
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Table 3: Phases of PDCA cycle in combination with project stages and tools supporting its
implementation
Deming cycle phase Project stages Tools supporting PDCA

cycle
Plan - Planning the - initiating and defining the project, Block diagram
activities to be performed, setting goals Arrow diagram
how they are implemented - planning: project structure, Requirements matrix
and the necessary deadlines and resources Ishikawa diagram
resources - organising: the project team and Comparison in pairs
project implementation
- designing the project result
To - Performing what has - implementation of the project Relationship diagram
been planned Flow diagram
Action diagram
Check – Checking - control of project execution: Control chart

the results obtained at controlling and coordinating Scatter diagram
every stage of the project Pareto diagram
Matrix diagram
Act – an analysis of the - analysis of obtained project results Relationship diagram
situation and taking further - closing the project Priority matrix
actions consisting in Block diagram
maintaining or improving
Source: own study
Table 3 also includes examples of tools supporting the operation of the PDCA cycle in its individual
phases, useful of course during the implementation of the improvement project.
Improvement projects implemented in a production enterprise - an example

Research on the implementation of the continuous improvement concept was conducted in a large
enterprise producing electronic devices, including control elements with decorative elements. It is an
experienced supplier of components for organisations producing household appliances which operates
in the electrical and electronic industries. The organisation employs over 900 staff members. There are
14 production lines in the plant, where serial production is carried out.
This case was chosen because:
- the company’s management has recognized the principles of continuous improvement as a major
element of the organisation’s strategy, which gives rise to the analysis of the importance and place
of project management in the implementation of its assumptions,
- the company management implements and applies all key practices of the CI concept in a
thoughtful and orderly manner, which allows observation and assessment of their adaptation
processes,
- a structured system of CI-related activities has been created in the enterprise, which eliminates
randomness of implementing CI practices in the organisation,
- the enterprise has documentation confirming the CI practices used and projects implemented,
which enables the use of documentation analysis.
The implementation of CI in the enterprise started with four projects:
- launching a programme of improvement actions at the managerial and team level,
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- implementation of projects in the production area related to work standardisation, 5S technique

and launching the flow of Kanban charts, carried out by the so-called permanent teams of
continuous improvement,
- launching a new organisational unit responsible for the continuous improvement programme in
the enterprise,
- launching a suggestion system.
The implementation of projects presented above took place in the first stage of introducing CI in the
enterprise and was associated with a very high commitment of top management. Four stages were
identified in their implementation: concept, planning, implementation and completion. They all had a
specific goal, start and end dates and budget. A project team and its leader were appointed for all
projects. The significance of the projects was very high both from the point of view of the operational
objectives pursued and in relation to the new organisational culture in the enterprise shaped during this
period.
The second stage in the concept’s development is continued implementation of activities in the field of
continuous improvement teams and the suggestion system, as well as the introduction of a new
approach to process improvement, based on the methods related to the implementation of Lean
Manufacturing, including Total Productivity Maintenance (TPM), waste reduction, organisation of the
suction production flow and value added analysis. This involved launching the implementation of many
improvement projects, where the end of one involved the launch of the next. At the same time, projects
aimed at improving employee qualifications were continued. Improvement projects were characterized
by diversity and uniqueness. In many cases, they were created interactively through consultations and
arrangements between top management and operational level managers.
In the third stage of development of the continuous improvement concept, new improvement activities
appeared in the enterprise, i.e. launching Lean activities also in the area of administration and
development. Furthermore, the implementation of projects began in accordance with DMAIC (Define,
Measure, Analyse, Improve, Control), characteristic of the Six Sigma strategy. It is clear and contains
all stages resulting from the logic of proceedings when solving issues or achieving the set goals.
The summary and collective characteristics of the projects implemented in the three stages of
development of CI specified are presented in Table 4.
Table 4: Characteristics of projects implemented in three stages of CI development in the

examined production enterprise
Stage Implemented projects Project classification Applied practices

and tools
1 Launch of permanent - organisational Defining the project

continuous improvement teams - tactical Project planning
Improvement projects - realisation Opening meeting
implemented by permanent - interorganisational Formally assigning
continuous improvement teams - ‘soft’ resources to the
Appointment of a CI cell - small (3-12 performers) project
Launch of the suggestion - implementation period 3-6 Determination of
system months indicators
Projects raising employee Project monitoring:
qualifications approach: top-down reporting on the status
of the project,
approving the results
Summary meeting
Project charter
Project schedule
Teamwork
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2 Improvement projects - organisational projects As above

implemented by permanent - tactical and operational +
continuous improvement teams - realisation PDCA and 8D
Projects introducing Lean - internal and in relation to methodology
methods in the area of the suppliers Improvement
production system - ‘soft’ process-oriented and workshops
Improvement projects ‘hard’ object-oriented
implemented by ‘Kaizen - small (3-12 performers)
Teams’ (25) - implementation period 3-6
Projects raising employee months
qualifications approach: top-down and
interactive
3 Improvement projects - organisational projects As above
implemented by permanent - tactical and operational +
continuous improvement teams - realisation DMAIC methodology
Projects introducing Lean - internal and in relation to
methods in the area of the suppliers
production system - ‘soft’ process-oriented and
Projects introducing Lean ‘hard’ object-oriented
methods in the area of - small (3-12 performers)
administration and research and - implementation period 3-6
development activities months
DMAIC projects
Improvement projects approach: top-down and
implemented by 'Kaizen Teams' interactive
(59)
Projects raising employee
qualifications
Source: Own study
The table also includes a list of practices and tools used in the enterprise to manage projects in the CI
area, which involve:
- defining the project,

- project planning,
- opening meeting,
- formal assignment of resources to the project,
- definition of target indicators,
- project monitoring: reporting on the status of the project, approving the results,
- summary meeting,
- project charter,
- project schedule,
- teamwork principles,
- methodologies: PDCA, 8D and DMAIC.
The solutions adopted in the studied enterprise allow for a reduction in the number of duplicate errors
in implemented projects. Each project is defined and planned. Opening meetings, formally assigning
resources to a project, defining indicators to monitor its effectiveness and approving results are a
regular practice. Project schedules are also prepared, which facilitates reporting on the status of the
project. One of the very good practices is keeping proper documentation (so-called project charter) and
project coordination performed by the CI department. In a sense, it has become a project management
office and a know-how base for ongoing projects. It also has responsibility for the flow of project
information as well as the supervision and administration of the electronic database. Each project ends
with a debriefing meeting during which the conclusions from its implementation are analysed,
regarding both the purpose of the project and the experience acquired during its course.
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Results and Conclusion

The research carried out by the authors was divided into two stages. The first consisted in an analysis
of the literature, which demonstrated that project management is particularly significant for enterprises
operating in accordance with the CI approach. This entails the need to launch numerous projects as
well as the to apply project management techniques and their program.
Based on an analysis of literature, the authors defined the concept of “improvement project” and
selected the criteria for their classification. They also developed a juxtaposition of the PDCA cycle
phases with project stages and tools supporting its implementation.
The particular significance of managing improvement projects was also confirmed by providing an
example of a manufacturing company that has been operating in accordance with the CI concept for
several years. Enterprise research has shown that most initiatives meet the project criteria in Table 2,
and selected project management techniques are used to implement them.
A detailed analysis of the projects implemented in the company in three stages of the development of
the CI concept allowed their characterization and identification of the applied practices and tools for
project management.
In summary, on the basis of research, improvement projects were divided into three groups:
1) projects initiated by top management in accordance with a top-down approach regarding the
organisation of CI activities and the launch of further improvement programmes / methodologies,
raising the level of the organisation’s maturity, with a greater range and level of advancement,
unique but carried out according to a fixed plan, with a specified start and end date, pursuing a
clearly defined goal; project manager appointed by top management, requiring greater tangible
and intangible resources;
2) improvement projects initiated by medium level managers and by the person responsible for the
area of continuous improvement (specialist/leader for continuous improvement) of medium range
and level of advancement, related to the applied improvement methodologies, unique but carried
out according to a set plan, with a fixed start and end date, lasting a maximum of 3 months,
pursuing a clearly defined goal, initiated in accordance with a top-down approach or interactively,
implemented by interdisciplinary teams appointed specifically for the project; requiring medium-
level financial support;
3) Kaizen projects (Improvement/Kaizen Project) aimed at implementing minor, everyday
improvements, using intuition, knowledge, skills and expertise gained in the workplace, short-
term, using low financial resources.
The proposed project characteristics are shown in Figure 2.
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Continuous Improvement Management Project

Projects initiated by top Improvement Project - programme implementation
management:
- organisation of a cell supporting the
Projects initiated at the level of middle
Improvement/Kaizen Project
operation of IC programme management, process leaders, CI
- launching suggestion system specialist.
Projects initiated at the level of operational
- launching a training system Implemented as part of applied managers, process leaders, CI specialist,
improvement methodologies. resulting from operation of the suggestion
- implementing CI methodologies Problem-oriented depending on the system.
It is recommended to use advanced processes and techniques used. Projects focused on the implementation of
methodologies or selected project It is recommended to use selected less minor, everyday improvements.
management techniques supporting time-consuming project management It is recommended to use simple project
project management and IT support. techniques, e.g. project charter, schedule, management techniques, e.g. project
8D, PDCA, DMAIC, IT support. charter, 8D.
Fig. 2: Improvement project characteristics

Source: own study
It should be emphasised that the use of a design approach supports the implementation of the strategy
adopted by the company and the subsequent implementation and application of CI principles and
techniques. On the other hand, the description of ventures allows directing their leaders to the selection
and application of methods and techniques of project management appropriate for the identified
categories of improvement initiatives.
The limitation of the research lies in the fact that the results of the study are based on a single case
study; therefore, caution is required before making generalisations on the basis of data. Further research
is required to gather analysis results within a larger number of enterprises, which would enable to
present more universal conclusions.
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Customer Purchase Intention and Sharing Intention in a Social

Commerce Context: An Empirical Study in Indonesia
Mitchell PRANATA
Universitas Pelita Harapan, Tangerang, Indonesia

mitchellpranata@gmail.com
Davin EZAR

davinezar@icloud.com
Sabrina Oktaria SIHOMBING

sabrina.sihombing@uph.edu (corresponding author)
Abstract
E-commerce companies are facing difficulties in garnering trust from modern customers, who are more
involved than ever due to rapid growth of the internet. By incorporating social commerce, e-commerce
companies may fulfill a desired social experience for customers and build long-term trust, among many
other benefits like creating profit. However, despite the potential benefits of social commerce, there
hasn’t been much empirical research on this topic. Thus, this study focuses on understanding relational
factors, including social support, trust and commitment that affect customer purchase and sharing
behavior in a social commerce context. This study particularly focuses on the company’s use of
Instagram as a social commercial platform. This research uses data collected from 304 respondents. Data
is analyzed by applying Structural Equation Modeling. The results show that one out of fourteen
hypotheses that is not supported. Findings show that social support gives significant impact towards
forming social commerce shopping and sharing intention.
Keywords: purchase intention, social commerce, empirical study, Indonesia
Introduction
Marketers face increasing difficulty trying to target modern customers, who are now more involved and
smarter than ever. Customers are now taking advantage of the internet to search, share and exchange
information on different products and services. Thus, shopping has developed into a social experience,
where customers have the desire to connect and feel important (Collier, 2012). Moreover, trust is
becoming an increasing challenge for e- commerce customers, which can be overcome by social
commerce through encouraging social interaction (Hajli, 2015).
That said, e-commerce business organizations are now encouraging customer participation, enabling
users to share and generate content on the social media platforms to form relationships and purchase
products to earn profit (Huang & Benyoucef, 2012). In other words, social commerce was born. By using
social commerce, e-commerce companies are able to gain positive reputation, build customer trust, seek
new customers, discover business opportunities, produce better products and optimize their marketing
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efforts. Additionally, customers are able to make well-informed decisions and create their perceptions
based on information generated by others in the social network (Huang & Benyoucef, 2012).
Despite the clear benefits of social commerce, it is still not well understood (Lu, et al., 2016). More from
Lu, et al. (2016), social commerce impact towards purchase decision has not been well researched.
Furthermore, there is little study with actual empirical evidence and minimal effort to combine these
results into applicable solutions for businesses that want to adopt social commerce (Busalim &
CheHussin, 2016). Therefore, referring to the discussion above, this research is done to study and
understand factors that affect consumer behavior social commerce adoption.
Literature Review
Social Commerce. Social commerce refers to a social media platform that is used to conduct commercial
activities (Turban, et al., 2016, 8). These activities include online transactions and information exchange
on a virtual platform. In addition, social commerce also refers to a social, collaborative online space
(Huang & Benyoucef, 2012), that allow customers to express their opinion on products and services (Li,
2017). More from Li (2017), social commerce transports social connection from the real world into a
virtual world. The main goal of a social commerce is to build relationships between the company and
customers in a social network to obtain commercial benefits, such as increased sales and customer loyalty.
Through social commerce, companies can encourage customers to frequently visit the platform and create
intention to purchase a product repeatedly (Liang, et al., 2011, 74).
Social Shopping Intention. Social shopping intention is the customers’ motive to purchase products via
social media platforms (Lu, et al., 2016). According to Dutta and Bhat (2017, 511), social shopping
intention is considered as a predictor of actual shopping behavior. In the context of e-commerce
businesses, trust has a significant role in influencing customer intention to purchase (Dutta & Bhat, 2017).
According to Hsiao, et al. (2010), once a consumer develops trust towards an e-commerce platform, they
are stimulated to having the intention to conduct transactions in that e-commerce platform.
Social Sharing Intention. Social sharing intention can be defined as customers’ intention to share their
experiences purchasing products from social media platforms (Yang, et al., 2015). Online social sharing
is different to traditional customer feedback. It focuses on sharing information towards an individual’s
friend in the virtual platform (Liang, et al., 2011). Furthermore, traditional customer reviews are shared
with anonymous online shoppers. According to Dutta and Bhat (2017), information shared on virtual
platform is known as eWOM (electronic word-of-mouth). Previous scholar studies show that 83% of online
shoppers are willing to share commerce information to their friends (Liang, et al., 2011). More from
Liang, et al. (2011, 69), the study also shows that 67% of online shoppers are willing to purchase based
on the recommendations that were posted in their community. E-WOM is considered important because
customers prefer to rely on personal communication sources rather than formal commercial sources
(Dutta & Bhat, 2017).
Community Commitment. Community commitment refers to a sense of belonging and emotional

attachment to other members in a community (Rishi & Bandyopadhyay, 2017). Commitment is considered
as an essential factor in building and maintaining a relationship (Shen, et al., 2014). More from Shen, et
al. (2014), it also believed that commitment in a relationship leads to cooperative behavior among
members, which eventually leads into marketing success. Commitment-trust theory is suitable to examine a
long-term relationship of an individual towards community (Shen, et al., 2014). This theory focuses on the
impact of both interpersonal relationship and trust towards building a long-term relationship.
Prior research has shown that relationship commitment is a key-facilitator in online commerce activities
(Wu, et al., 2009) and affects user behavior (Zhou, 2011; Bateman, et al., 2011). Moreover, online
community commitment has been found to impact intention to conduct social commerce (Lal, 2017;
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Tajvidi, et al., 2017), which includes social shopping intention, as well as increasing participation by
members in that community (Lal, 2017). Commitment helps reduce risk and encourages members to
regularly spend their time in a virtual community (Wu et al., 2009).
In a virtual community, members are able to make friends and share useful information with each other
(Wu, et al., 2009). Therefore, it can be inferred that when an individual is committed to a virtual
community, he or she will strengthen their relationship through frequent interaction. Additionally, a
committed individual will more likely help add value to a virtual community by participating in social
commerce activities (Chen & Shen, 2015). When customers have high satisfaction, they become
committed and loyal to that enterprise. In doing so, customers often make re-purchases, leaves good
customer review and even defends the enterprise following a criticism (Hsu, et al., 2010). According to
Lai and Chen (2008), users who are committed to a community would be more open to sharing their
feelings, socialize with other members, write reviews and spend more time in that community. Based on
the discussion above, the following hypothesis have been formed:
H1a: Community commitment is positively related to social shopping intention.
H1b: Community commitment is positively related to social sharing intention.
Trust towards Members. Trust towards members can be defined as an individual allowing others in his or
her social community to be a reliable source of information (Chen & Shen, 2015). More from Chen and
Shen (2015), individuals that trust their members will rely on their words, actions and decision.
Additionally, trust towards members represent an individual willingness to rely openly on other members
(Shen, et al., 2014). Trust towards members can influence customer participation in sharing and
exchanging information within the community (Chen & Shen, 2015). In a trusting environment, people
tend to give support towards other members and become actively engaged in social activities (Chen &
Shen, 2015, 57). Mutual trust among members will lead to collaborative action within a community to
gain mutual benefits (Shen, et al., 2014, 146). More from Shen, et al. (2014, 146), if the level of trust
among other members are well-established, it reduces the degree of uncertainty. In this study, trust
towards member is created through host-member relationship rather than member-member.
One of the key-facilitators in online commerce and purchase intention is member trust (Wu, et al., 2009;
Kim & Park, 2012; Kim & Xu, 2012). Trust allows members to conduct repeated transactions, visits and
recommendations to the content provider (Wu, et al., 2009). Specifically, trust toward members regards
an individual allowing others in his or her social community to be a reliable source of information.
Individuals that trust their members will rely on their words, actions and decisions (Chen & Shen, 2015).
In a social network, trust is able to increase customer purchase intention (Hajli, et al., 2016) and spread
positive-word-of- mouth (Kim & Park, 2012). When a member trusts other members in the community,
they will participate by helping each other and conducting other social activities (Chen & Shen, 2015).
For instance, user relationships greatly influence social shopping intention (Bai, et al., 2015; Liang, et al.,
2011). Moreover, social interaction amongst members in a group or community greatly affects a
consumer’s intention to conduct social commerce activities (Liang & Turban, 2011).
Prior studies on virtual communities show that interpersonal trust impacts the willingness of members to
share word-of-mouth and receive information (Ng, 2013; Kim & Park, 2012). Strong relationships
amongst members help encourage knowledge sharing in that community (Hashim & Tan, 2015;
Uzunoglu & Kip, 2014) and member-trust tend to give out reliable and useful information (Kim, et al.,
2008). According to Kim and Park (2012), indicated that users who trust social commerce sites are more
likely to spread positive worth-of- mouth and purchase on these platforms (Hajli, et al., 2016). Other
factors, such as active communication and information quality allows trust to be formed (Bock, et al.,
2012). Based on the discussion above, the following hypothesis have been formed:
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H2a: Trust toward members is positively related to social shopping intention.
H2b: Trust toward members is positively related to social sharing intention.
Trust toward Community. Trust toward community refers to an individual feeling that his or her
community is a reliable and predictable place to conduct social interaction (Chen, et al., 2009, 153). Each
online community has its own set of rules and follows certain norms, whether written or unwritten, that
its members can benefit from (Chen & Shen, 2015). More from Chen and Shen (2015), the amount of
participation within an online community greatly depends on whether these norms are respected and
followed. Trust towards community is a very important topic now, especially online where frequent
frauds and deceptions occur (Hung, et al., 2011). Thus, an online community that acts with integrity and
follows certain norms is able to foster trust by reducing the amount of risk perceived by its members
(Chen & Shen, 2015). In this study, trust towards community is defined as the ability of the host to satisfy
individual needs, which in turn affects the amount of trust garnered in that online community (Lal, 2017).
Trust toward community pertains to an individual feeling that his or her community is a reliable and
predictable place to conduct social interaction (Chen, et al., 2009). In a social commerce context, trust
towards community is measured by the online platform’s ability to live up to expectations of its online
community members (Lal, 2017). Thus, being able to satisfy the needs of members helps create a good
perception of the community and influence members to partake in social commerce activities (Lal, 2017).
When the community acts with integrity, members will become less worried about risks associated such as
deception or misuse of sensitive personal information (Chen & Shen, 2015, 57). Prior research also shows
that high customer trust in online vendors can increase customer intention to purchase or share
information (Berlilana, 2017; Lu, et al., 2016; Hajli, et al., 2016; Ng, 2013; Li, et al., 20187; Kim, 2011;
Kim, et al., 2012; Chen, et al., 2014; Kim, et al., 2008). Members who have gained trust in their
community will more likely seek out product recommendations or share their experiences (Chen & Shen,
2015). Based on the discussion above, the following hypothesis have been formed.
H3a: Trust toward community is positively related to social shopping intention.
H3b: Trust toward community is positively related to social sharing intention.
The commitment-trust theory suggests that trust, mediated by commitment, positively influence
behavioral intentions (Wang, et al., 2016) and acts as foundation for community cohesion (Williams,
2012). Thus, trust is directly related to feeling of commitment (Wu, et al., 2009). When members place
trust in a social commerce community, risks and uncertainties involved will lessen (Chen & Shen, 2015).
In turn, members will more likely continue to preserve and strengthen the community relationship (Chen
& Shen, 2015). Prior research also shows that consumers that trust their community will commit to it and
become involved in activities (Noori, et al., 2016). Based on the discussion above, the following
hypothesis have been formed.
H4: Trust toward community is positively related to community commitment.
The trust-transfer theory states that individuals can form trust to a community via two different ways
(Chen & Shen, 2015). First, member-trust is a necessary mechanism to positively affect their commitment
(Wu, et al., 2009; Hadjikhani, et al., 2008). Member commitment manifests when an individual encounters
a reflection of their own beliefs, in turn forming a sense of responsibility and trust in the community (Wu,
et al., 2009). Members who share similar values have a homogeneous system of thought and behaves
similarly (Wu, et al., 2009).
If members believe that information is being spread appropriately amongst members, they will have
confidence that the community will continue to improve (Chen & Shen, 2015). Moreover, member-trust
reduces uncertainty and gives members more confidence to conduct social interaction (Chen, et al.,
7746
2014). Second, in a virtual environment, members form attachments to each other as they share similar
interests and interact with one another (Wu, et al., 2009). Interaction in the community affects member
commitment to that particular community (Liang & Turban, 2011).
Prior studies show that interpersonal trust lays a good foundation for building institutional trust (Chen &
Shen, 2015). Trust in a social network platform is a determinant of the trustworthiness of its activities
(Hajli, et al., 2016). For instance, member trust directly influences trust towards a website service provider
(Chen, et al., 2014). In other words, members that trust each other increase their sense of belonging and
are more likely to trust their community (Yang, et al., 2017). Moreover, in a virtual community,
interpersonal trust amongst members facilitates their sharing of information to the community (Chen, et
al., 2014). Based on the discussion above, the following hypothesis have been formed.
H5: Trust toward member is positively related to trust toward community.
Informational Support. Informational support refers to an individual’s social group offering their advice,
guidance and useful information. It is used to help the individual solve their problems, generate new ideas
and support them in making right decisions (Liang, et al., 2011). Furthermore, informational support in a
social network helps others in sharing commercial information and recommendations (Liang, et al., 2011,
72). More from Liang, et al. (2011, 72), It is used to help the individual solve their problems, generate
new ideas and support them in making right decisions.
Informational support is tangible in nature, and takes form in suggestions, plans, and knowledge
interpretation (Liang, et al., 2011, 72). According to Liang, et al. (2011, 72), by providing supportive
information, others members will perceive the user as being helpful and caring. Henceforth, it also
enhances trust among members, which leads the user to conduct commercial activities in a social
commerce (Liang, et al., 2011, 72). Informational support emphasizes knowledge sharing towards both
parties (Yang, et al., 2015, 446), which is considered as important as it influences the community’s
sustainability (Yang, et al., 2015, 445). Only then can members in the community regard the platform as a
learning environment (Yang, et al., 2015, 446).
Active communication and information quality allows trust to be formed (Bock, et al., 2012; Kim, et al.,
2008; Kim & Park, 2012). Receiving social recommendations from people in charge of the community
can increase trust. Therefore, to gain member trust, access to useful informational support must be readily
available. Prior research has also found informational support to have an effect on trust (Shanmugama, et
al., 2016; Hajli, 2014). A strong foundation of social support in an online community allows members to
feel connected with one another and helps build trust (Shanmugama, et al., 2016; Crocker & Canevello,
2008). Based on the discussion above, the following hypothesis have been formed.
H6a: Informational support is positively related to trust toward members.
It has been found that a social commerce environment consisting of high- quality informational support
and emotional support can increase positive customer perception, which forms trust, satisfaction and
subsequent commitment to that environment (Tajvidi, et al., 2017; Laroche, et al., 2012; Liang, et al.,
2011; Pentina, et al., 2013). Moreover, high-quality informational support allows members to build
connections with others in the community and trust them (Kim & Park, 2012, 321; Kim, 2011;
Shanmugama, et al., 2016; Crocker & Canevello, 2008). When information sharing is prominent in the
community, members can judge the environment for what it truly is (Chen, et al., 2014). Thus,
uncertainty in the community is reduced and trust is formed as members become self-assured while
conducting social activities in the community (Chen, et al., 2014). Based on the discussion above, the
following hypothesis have been formed.
H6b: Informational support is positively related to trust toward community.
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When informational support is provided, members will regard its value and commit to maintain the
relationship (Chen & Shen, 2015, 58). In addition, members will have an intention to co-create value if
they perceive the community to have strong social support (Tajvidi, et al., 2017; Laroche, et al., 2012;
Liang, et al., 2012; Pentina, et al., 2013), as well as a desire to prolong and strengthen their relationship
(Chen & Shen, 2015, 58). Moreover, when information is easily accessible, members will be satisfied
and feel encouraged to participate in the community, which in turn increases their commitment level
(Yang, et al., 2017; Hashima & Tan, 2015). Members will be committed to engage with their community
and reinforce bonds by conducting social commerce activities, such as seeking out product
recommendations or sharing their experiences (Chen & Shen, 2015). Based on the discussion above, the
following hypothesis have been formed.
H6c: Informational support is positively related to community commitment.
The difference between emotional support and informational support is that it directly addresses
emotional needs of members, such as empathy, care and understanding helping to solve issues indirectly
(Liang, et al., 2011). In a social commerce environment, emotional support can increase user satisfaction,
foster trust and commitment (Tajvidi, et al., 2017; Laroche, et al., 2012; Liang, et al., 2012; Pentina, et
al., 2013). If an individual receives good treatment, he or she will feel obliged to help other members and
feel more comfortable staying in the community (Liang, et al., 2011). Therefore, if members receive good
emotional support, they are inclined to form trust to other members of the virtual community (Chen &
Shen, 2015; Kim & Park, 20121). Moreover, firms can form good reputation by spending time on
creating honest care for its customers (Kim & Park, 2012). Based on the discussion above, the following
hypothesis was formed.
H7a: Emotional support is positively related to trust toward members.
The act of caring towards others can become a foundation in building trust among the member and
community (Chen & Shen, 2015). If an individual receives good treatment, he or she will feel obliged to
help other members and feel more comfortable staying in the community (Liang, et al., 2011). In a social
commerce environment, emotional support can foster trust (Tajvidi, et al., 2017; Laroche, et al., 2012;
Liang, et al., 2011; Pentina, et al., 2013), which is treated as a valuable intangible for online sellers (Kim
& Park, 2012, 323; Park, et al., 2012). Moreover, firms that are perceived with a good reputation must
provide genuine care to its customers (Kim & Park, 2012). Based on the discussion above, the following
hypothesis have been formed.
H7b: Emotional support is positively related to trust toward community.
Community commitment pertains to continuous participation by members over a long-term relationship

(Hashima & Tan, 2015). Communities that acknowledge member contribution and expresses care will
enhance member commitment (Yang, et al., 2017, 157; Kuo & Feng, 2013). Hence, if members receive
care in the form of emotional support from their community, they will develop a sense of belonging and
emotional attachment to that community (Chen & Shen, 2015, 58; Wang, et al., 2012; Tajvidi, et al.,
2017; Laroche, et al., 2012; Liang, et al., 2011; Pentina, et al., 2013). Moreover, relationships with other
members of that community will be formed, which also forms a basis of community commitment (Wang, et
al., 2012). Based on the discussion above, the following hypothesis have been formed.
H7c: Emotional support is positively related to community commitment.
Based on literature review discussed in this chapter, the following model and hypothesis have been
formed. Figure 1 depicts the proposed model.
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Figure 2: Research Model

Source: Chen and Shen (2015)
Research Method
Research paradigm. This research adopts the post positivist paradigm. Historically, this paradigm
stemmed from regular positivism, which maintains that researchers consider reality as a predictable and
controllable environment. There is a single truth or objective reality that can be discovered using the
appropriate tools. However, an evolved version of this philosophy has been recently developed, known as
post positivism, which states that there is an objective reality that exists independent of the research. This
reality may be predicted using evidence to support or reject a hypothesis, but an actual truth cannot be
formed (Leavy, 2017, 92). The results of this research can be seen as an educated guess with reliable data
to back up the claims as to approve or disprove the hypothesis. Case in point, this particular research aims
to identify the relationships between seven distinguishable variables (emotional support, informational
support, community commitment, trust towards community, trust towards members, social shopping
intention and social sharing intention). Thus, it is appropriate to adopt the post positivists’ paradigm as this
research aims to observe and measure the relationships between the isolated variables mentioned.
Research instrument. The research instrument was adapted from Chen and Shen (2015). The
questionnaire was originally written in English. Following Craig and Douglas (1999), this research
applied double-back translation in order to establish translation equivalence. Back-translations currently
the most popular tool for assessing the quality of translation used for cross-cultural social research
purposes (Tyupa, 2011). In the specific, the English questionnaire was translated into Indonesian
language by the researcher, and then back-translated from Indonesia language to English by another
person. The questionnaire then was distributed through online and electronic questionnaires. There are six
reasons behind choosing electronic and online questionnaires. First, distributing online questionnaires
cuts the cost in delivering questionnaire (Nardi, 2018). Second, due to the database system that allows the
researcher to automatically record the respondents’ answers (Sekaran & Bougie, 2016), it eliminates a
redundant step and saves time. Third, an online questionnaire platform often has a system that allows data
7749
to be coded instantly, eliminating any human error (Nardi, 2018). Fourth, online questionnaires also
provides basic statistical analysis for the overall results of the questionnaires (Sekaran & Bougie, 2016).
Fifth, the distribution time of online questionnaires is much faster than the other methods and can be
shared via link or e-mail (Nardi, 2018, 88). Sixth, the distribution of an online questionnaire can reach
respondents across a wide geographical area around the world (Sekaran & Bougie, 2016).
Sampling design and sample size. This research applied judgmental sampling design. Specifically, there are
two criteria that must be met for respondents to be eligible in this study. First, respondents must have
some form of interaction with Shopee’s Instagram account. This interaction can be in the form of
commenting on a recent post, liking a recent post, viewing an Instagram story and so on. Second,
respondents must participate in these interactions in the past three months. Relating with the sample size,
the sample size that are taken for this research is 350 respondents.
There are three reasons as to why the researchers have chosen this sample size. The first reason is that
most research requires a sample size between 30 to 500 (Sekaran & Bougie, 2016, 264). Second, to
conduct an EFA (exploratory factor analysis), which be explained in later sections, the minimum sample
size required is 100 respondents under optimal conditions (Fabrigar & Wegener, 2011, 27), and up to 400
or more under poor conditions. Since optimal conditions are usually difficult to achieve, researchers
should always consider taking more respondents. Thus, the researcher has decided to take 300
respondents as a minimum requirement to account for the possibility that the data have a lot of
variability. A bigger sample size is required for data with a lot of variability (Sekaran & Bougie, 2016,
259).
Goodness of the data. A measuring instrument must be evaluated for both reliability and validity
(Blunch, 2012). This research applied inter-item consistency reliability using Cronbach’s alpha and
Composite Reliability for measuring reliability. A Cronbach’s alpha of 0.7 is considered the minimum
acceptable range, and anything above 0.8 would be considered good (Sekaran & Bougie, 2016). In
relating with validity, this research applied construct validity that allows the researcher to ensure that the
items used to measure a concept fit each other (Sekaran & Bougie, 2016). Construct validity can be
achieved by obtaining convergent and discriminant validity. To test convergent validity, Exploratory
Factor Analysis, also known as EFA is used. When using EFA, a general rule of thumb is that a factor
loading of above 0.71 is considered excellent, 0.63 is very good, 0.55 is good, 0.45 is fair, and 0.32 is
considered poor (Harrington, 20084). Furthermore, to test discriminant validity, Pearson’s correlation
between constructs was applied.
Data Analysis. Structural equation modeling (SEM) was applied in order to test research hypotheses.
Using SEM allows the researcher to simultaneously analyze all of the interconnected relationships
between endogenous and exogenous variables (Ho, 2013). In particular, this research uses Partial Least
Squares Structural Equation Modelling (PLS-SEM) as the main analysis tool.
Results
Respondent’s Profile. For this study, 350 questionnaires have been distributed, out of which there 310
questionnaires are obtained back from the respondents. The response rate from 350 questionnaires is 88%.
From the overall 310 questionnaires that have been collected, there are 304 usable data for later analysis.
The 304 questionnaires represent a usable response rate of 87%. Out of 304 collected questionnaires,
female respondents constitute 82% of the entire collected responses. Moreover, in the age category,
respondents who are aged below 25 years old make up the biggest percentage of 76%. Moving on to the
occupation category, college respondents make up the biggest percentage of 30%, followed by others
(27%), employees (25%) and students (18%).
Reliability and Validity. The results show that all of the seven variables are considered reliable as they
are all above the 0.7 threshold. The range of Cronbach’s Alpha Coefficient is 0.835 to 0.875.
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Furthermore, the results also shows that the range of Composite Reliability is 0.898 to 0.925. In testing
the convergent validity, the researcher applied EFA and AVE. In testing EFA, the data is considered valid
if the items are grouped on one component. Furthermore, the minimum factor loading used for EFA test is
0.30 for a sample size of 304 respondents. Attached below Table1 shows the result of EFA.
Table 1: EFA Outer Loading of Actual Test
Components
1 2 3 4 5 6 7
ES1 0,792
ES2 0,879
ES3 0,822
ES4 0,882
IS1 0,777
IS2 0,875
IS3 0,907
IS4 0,839
TTC1 0,864
TTC2 0,878
TTC3 0,862
TTM1 0,880
TTM2 0,898
TTM3 0,877
CC1 0,804
CC2 0,892
CC3 0,883
CC4 0,833
SSHO1 0,855
SSHO2 0,811
SSHO3 0,787
SSHO4 0,862
SSHA1 0,805
SSHA2 0,890
SSHA3 0,900
SSHA4 0,881
Source: data analysis
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Note:
•CC = Community Commitment

•ES = Emotional Support
•IS = Informational Support
•SSHA = Social Sharing Intention
•SSHO = Social Shopping Intention
•TTC = Trust Towards Community
•TTM = Trust Towards Members
The other method used to measure convergent validity is Average Variance Extracted (AVE). An AVE
value of more than 0.5 means that a particular construct is deemed valid. On the other hand, an AVE value
of less than 0.5 means that a particular construct is not valid. Table 2 shows that all AVE values exceed
the Threshold and are valid.
Table 2 Actual Test AVE
Indicators Average Variance Extracted Requirement Result
Emotional Support 0.713 0.5 Valid

Informational Support 0.712 0.5 Valid
Trust Towards Community 0.753 0.5 Valid
Trust Towards Members 0.783 0.5 Valid
Community Commitment 0.729 0.5 Valid
Social Shopping Intention 0.688 0.5 Valid
Social Sharing Intention 0.757 0.5 Valid
Next, to test discriminant validity, the researcher uses a correlation method. Table 3 shows the results of
the correlation testing. As shown, all of the correlation between different variables are lower than the
correlation between the same variable. In other words, all of the bolded values are the biggest in its column
and discriminant validity is achieved.
Table 3: Pearson’s Correlation
CC ES IS SSHA SSHO TTC TTM
Community Commitment 0.854
Emotional Support 0.657 0.845
Informational Support 0.585 0.647 0.851
Social Sharing Intention 0.586 0.495 0.549 0.870
Social Shopping Intention 0.633 0.543 0.544 0.679 0.829
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Trust towards Community 0.636 0.578 0.650 0.585 0.546 0.868
Trust towards Members 0.667 0.673 0.726 0.566 0.561 0.675 0.885
Hypotheses testing. A hypothesis is considered supported if the relationship between one variable to
another has a significant critical value of 1.645 and a p-value of ≤0.05. If a hypothesis does not meet
these requirements, it is not supported. Attached below is Table 4 shows the result of structured model.
Table 4: Hypothesis Testing

Standardized Regression Critical P-
Hypothesis Variable Relationships Conclusion
Weight Value Value
Community commitment -> Social

H1a 0,411 5,014 0,000 Supported
shopping intention
Community commitment -> Social

H1b 0,283 3,807 0,000 Supported
sharing intention
Trust towards members -> Social

H2a 0,174 2,198 0,028 Supported
shopping intention
Trust towards members -> Social sharing

H2b 0,190 2,240 0,025 Supported
intention
Trust towards community -> Social

H3a 0,168 2,035 0,042 Supported
shopping intention
Trust towards community -> Social

H3b 0,277 3,652 0,000 Supported
sharing intention
Trust towards community -> Community

H4 0,337 5,489 0,000 Supported
commitment
Trust towards members -> Trust towards

H5 0,368 5,404 0,000 Supported
community
Informational support -> Trust towards

H6a 0,500 8,554 0,000 Supported
members
Informational support -> Trust towards

H6b 0,290 4,237 0,000 Supported
community
Informational support -> Community Not

H6c 0,115 1,873 0,062
commitment Supported
Emotional support -> Trust towards

H7a 0,349 5,595 0,000 Supported
members
Emotional support -> Trust towards

H7b 0,143 2,384 0,018 Supported
community
Emotional support -> Community

H7c 0,388 6,737 0,000 Supported
commitment
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Discussion
As seen on Table 4 based on the critical and p-values, out of the 14 hypothesis, 13 are supported and 1 is
not supported. The supported hypotheses are H1a, H1b, H2a, H2b, H3a, H3b, H4, H5, H6a, H6b, H7a,
H7b, and H7c. The not supported hypothesis is H6c. Hypothesis 6c states that there is a positive
relationship between informational support and community commitment, but the result is not supported.
In other words, the higher informational support provided in a community, the lower that individual
becomes committed to that community. There are two main reasons why this hypothesis is not supported.
First, several respondents have disagreed to the availability of informational support on Shopees’
Instagram page. This is due to the large number of Shopee customers relative to the available Shopee
admin to address questions. Therefore, there are several customers who were left with unaddressed
concerns. Moreover, some questions may be unintentionally missed and unanswered due to the
overwhelming number of incoming questions. These customers feel that Shopee does not provide them
with much needed informational support, and may consider Shopee as ignorant. Therefore, the amount of
informational support received by different customers can affect their commitment towards the
community and participation (Wang, et al., 2012). Second, based on based on the profile of respondents,
majority of respondents’ gender is female. Female consumers value emotional transaction and interaction
rather than only information (Fan & Miao, 2012). Moreover, having emotional support creates a lower
risk of member dropout from a community, rather than only providing informational support (Wang, et
al., 2012).
Conclusions
The purpose of this study is to answer the research questions in this topic. Based on the results and
discussion in the previous chapters, it can be concluded that there are thirteen hypotheses that are
supported and one hypothesis that is not supported. The following are results of the hypothesis testing.
This study investigates factors that affect consumer purchase and sharing intention. Findings in the study
show that trust and commitment significantly impact customer intention to shop and share information in
a social commerce. Moreover, path coefficient values show that a member’s intention to engage in social
commerce shopping activities is greatly dependent on community commitment. On the other hand, trust
towards members and community play much smaller, yet equal roles in impacting a members’ social
shopping intention. Similarly, a member’s intention to share knowledge on a social commerce platform is
most dependent on community commitment, followed closely by trust towards community and trust
towards members.
There are three main limitations in this study. The first limitation is the subject of the study, which
specifically focuses on Shoppe’s Instagram account as their social commerce platform. Thus, the subject
of this study does not represent other social commerce platforms that Shopee owns, such as Facebook and
is only applicable to Shopee’s Instagram account. Second, since this study uses non-probability sampling,
meaning that not all individuals in the population is eligible to become a respondent. Therefore, the results
cannot generalize the entire population of Shopee’s customers, rather only specific to the sample taken.
Third, this research is geographically bound to Indonesia. That said, Shopee is an international e-
commerce platform located in seven different countries, including Indonesia. Shopee consumers that
reside outside Indonesia have different cultures, attitudes, and consumer behaviors. Therefore, the results
of this study is only applicable to Indonesian Shopee consumers that have interacted with its Instagram
platform and is unable to act as a guideline.
Based on the research limitations and the results of the study, there are three recommendations for future
research. The first recommendation is for the researcher use a broader pool of respondents, which allow
the study to be generalized to the population. This can be done by using probability sampling that allows
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the entire population of Shopee’s Instagram followers, not only those who interact with Shopee in the
past three months. Second, should be conducted on an international level. For instance, the future
research should be done in different countries that Shopee operates in, such as Vietnam, Singapore,
Malaysia, Thailand and Philippines. By applying this research to a different environment, the researcher
will understand differences in consumer behavior outside Indonesia and see how social commerce works
in different countries. Third, in the future research, the author should conduct this study using different unit
analysis. For instance, future research may use group or cultural unit analysis to get new perspectives and
segment respondents into different categories.
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Student Creativity at School:

Can This Increase Interest in Entrepreneurship?
Henry ERYANTO

henryeryanto@gmail.com.
Darma Rika SWARAMARINDA

darmarikas@gmail.com.
Abstract
This study aims to study the Effect of Student Creativity on Entrepreneurial Interest in Vocational
Students in East Jakarta. The research method used was a survey method and quantitative. The
sample used in this study amounted to 100 students taken purposively by age and 2nd grade students
in office administration program. Data variables Entrepreneurial Interest and Student Creativity are
primary data using a Likert scale model questionnaire. The results of this study indicate that students
have a significant interest in student interest in entrepreneurship, or have a significant role in
leadership in growing student entrepreneurial interest.
Keywords: Education, Entrepreneurial Interest, Student Creativity.
Introduction
The growth of entrepreneurial interest at this time is very important, considering the demand for the
number of workers is no longer balanced. Labor supply is very low while demand is very high. The
government needs to pay attention to the many factors that affect entrepreneurial interest in the order
to prepare students to enter the workforce and reduce the unemployment rate.
One factor that influences entrepreneurial interest is student creativity. Student creativity can also
encourage an entrepreneurial spirit in students. With creativity, students are able to generate new
ideas and be open to new ideas and have new breakthroughs to produce a business or product. This
certainly has an impact on entrepreneurial interest in students. Creative students tend to be able to
produce products or business ideas that can be produced and marketed. Activities like this will be
able to give birth to young entrepreneurs.
Entrepreneurial interest is a source for the birth of future entrepreneurs. However, the efforts made by
schools, as if not enough to foster student interest in entrepreneurship, the fact shows that there are
still very few students, especially students in office administration competency skills at State
Vocational Schools entrepreneurship after finishing school. Based on data from several schools, it
was obtained from the results of the search for alumni of office administration competency expertise
that most State Vocational School graduates choose to work in a company or other occupation rather
than being an entrepreneur. Interest, creativity and innovation are needed for students who are
entrepreneurial to be able to identify business opportunities, then utilize business opportunities to
create new job opportunities.
In order to encourage the growth of entrepreneurial interest for students and create graduates who are
able to become job creation, it is necessary to provide guidance for students to be able to carry out
entrepreneurship. Students are directed in a program in order to foster entrepreneurial activities in the
school environment, such as entrepreneurial practices, namely marketing skills that will be a source
of inspiration for students after graduation. However, based on the results of interviews conducted by
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researchers with the principal that there is no entrepreneurship program that is run at the State
Vocational School . Thus there is no entrepreneurship program that is run to increase student
creativity so that the creativity of students at the State Vocational School is low.
If observed more deeply, there are no programs that can stimulate student creativity. The creativity of
State Vocational School students is not in accordance with the expectations of the school, it is seen in
the lack of school entrepreneurship programs. Whereas creativity is an important element in
entrepreneurship. Creativity can also be someone's initial capital for entrepreneurship. Based on the
background m Problem pene Liti interested in conducting research on creativity of students to the
Interests Influence on Student Entrepreneurship at State Vocational Schools in East Jakarta.
Literature Review
Entrepreneurial Interest
Aris Subandono (2007) defines that interest in entrepreneurship is the tendency of the heart within the
subject to be interested in creating a business which then organizes, organizes, bears the risk and
develops the business that it creates. In line with this, the interest in entrepreneurship is the desire,
interest and willingness to work hard to be independent or try to meet their needs without feeling
afraid of the risks that will occur, always learning from failure (Santoso, 2009) .
According to Fuadi in Putra (2012) interest in entrepreneurship is the desire, interest, and willingness
to work hard to make the maximum effort to meet the needs of his life without fear of the risks that
occur. Then according to Sutanto in Sifa ( 2016) interest in entrepreneurship is the desire, interest,
and willingness to work hard or have a strong will to try to fulfill their daily needs and create new
businesses without fearing the risks that will occur and always learning from failure in
entrepreneurship.
Student Creativity
Hubeis (2005) , that creativity is connecting and reassembling knowledge in the human mind that
allows itself to think more freely in arousing new things, or producing useful things. Other opinions
expressed by (Munandar, 2003) that creativity is an imaginative activity which results in the
formation of a combination of information obtained from previous experiences into something new,
meaningful and useful. Creativity is actually owned by every individual but the levels are
different. The emergence of creativity is not bound by age and education, creativity can be realized
anywhere, including in school students.
Buchari Alma (2007) , creativity is a person's ability to give birth to something new, both in the form
of ideas and real work, which is relatively different from what has been produced or delivered. Then
according to (Supriadi, 2005) that creativity is a person's ability to give birth to something new, both
in the form of ideas and real work that is relatively different from what already exists. It is similar
that creativity is the ability to provide to provide new methods and produce something new that
applies them in problem solving (Semiawan, 2009).
Research Methods
The research method used was a survey method. The survey method used a collegial approach and
used primary data for the independent variables of student creativity and the dependent variable for
Entrepreneurial Interest. The population in this study were all students majoring in office
administration at the State Vocational School in East Jakarta . Determination of the sample
taken purposively with sample criteria is the final grade students who have undergone entrepreneurial
practices and are incorporated in school organizations . The data analysis technique will be performed
using the estimation parameters of the regression model with the SPSS ( Statistical Package for
Social Science) version 21.0 program.
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Research Results and Discussion

The results showed a linear relationship between student creativity with entrepreneurial interest with
values F = 36,684 and p = 0,000 and t count value 3,720> t table 1,986 which states the significance
(t count> t table ) meaning that each independent variable of student creativity has an influence positive
and significant towards the dependent variable namely entrepreneurship interest in students.
Then student creativity has a coefficient of 0.343 which means that every time there is an increase in
student creativity by 0.343 there will be an increase in entrepreneurial interest by 0.343 and vice
versa at a constant of 38.668. The form of influence between the variables of entrepreneurial interest
with the creativity of students of the State Vocational School office administration in East Jakarta has
a regression equation,Y = 38.668 + 0.343X. From this equation, it can be concluded that interest in
entrepreneurship will increase, if the individual has high creativity.
Based on the results of calculations that student creativity affects entrepreneurial interest in students
means the better the creativity of students, the better interest in entrepreneurship on
students. Conversely the lower the creativity of students the lower the interest in entrepreneurship in
students. Then the lower the family environment, the lower the interest in entrepreneurship in
students.
The coefficient of correlation (R) is obtained by 0.546. These results indicate that the variable of
creativity of students with an entrepreneurial interest occurs a strong influence. The results of the
regression coefficient test (R Square) obtained 0.298, the coefficient of determination of student
creativity variables contributed the effect of 29.8% to entrepreneurial interest, and the remaining
70.2% was influenced by other variables not examined .
Based on the average score of entrepreneurial interest scores on the indicator where the interest gets
the highest score of 50.2%. And it can be seen that the lowest indicator is the indicator ready to face
the risk of 49.8%. This illustrates that students are still not ready to face the risks that will occur in
entrepreneurship and this can affect the level of entrepreneurial interest in students at the school.
Based on the average score of students' creativity score on the indicator which produces a new form
the highest score is 34.4%. And it can be seen that the lowest indicator is the new method indicator
that is equal to 31.9%. This illustrates that the new methods of entrepreneurship in a school are still
low and this can affect the level of entrepreneurial interest in students at the school.
The results of this study only apply to State Vocational Schools in East Jakarta, which cannot be
generalized in other schools because of certainty respondents have different characteristics.
Conclusion
Based on the results of research on the influence of students' creativity to the interest in
entrepreneurship in students State Vocational Schools in East Jakarta , the researchers concluded as
follows: there is influence a positive and significant correlation between creativity of students with
interest in entrepreneurship in students the value of t count 3,720> t table 1.986 means the better the
creativity of students, the better the interest in entrepreneurship in these students.
Suggestions
Based on the conclusions above, the suggestions that can be given by researchers include:
1. For the State Vocational School in East Jakarta and other educational institutions.
It is better for the teacher or supervisor to create entrepreneurship programs that can support
skills and develop students' creative ideas so as to increase student entrepreneurship. Teachers or
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mentors can also use learning strategies that are as creative as possible with the aim of
developing their abilities and skills in entrepreneurship.
2. For student.
As a hope that can be used as input for students to increase student creativity so as to foster
interest in entrepreneurship. For this reason it is suggested to students that increased
entrepreneurial interest makes students have creative thinking and can be entrepreneurial.
3. For Further Research.
For further research development can be done with a variety of methods that can be used so that
students have high entrepreneurial interest.
References
• Alma, B. (2011). ‘Entrepreneurship’. Bandung: Alfabeta.
• Hubeis (2005). ‘Creativity and Innovation Management in Business’.
• Munandar, U. (2003). ‘Gifted Child Creativity Development’. Jakarta: Gramedia Main Library.
• Putra, R. A (2012). ‘Determinants of Management Student Interest

in Entrepreneurship’. Management Journal, 01 (1)
• Santoso. (2009). ‘The Home Environment Determines The Interests Of

Entrepreneurship’. Surakarta: FKIP UNS.
• Semiawan. (2009). ‘Creativity and Giftedness’. Jakarta: PT Index.
• Sifa, Nurkhin. (2016). ‘Effect of Entrepreneurship Education, Family and Self

Efficacy Against Intention to Entrepreneurship of students of class XI student of Accounting
Program Vocational High School Semarang. Semarang State University, Indonesia’. Economic
Education Analysis Journal. p-ISSN 2252-6544, e-ISSN 2502-356X.
• Subandono, Aris (2007). ‘The Effect Of Life Skills On Productive Chemistry Training And
Learning Achievement Of Entrepreneurship Training On The Interest Of Entrepreneurship In
The Students Of State Vocational School Of Industrial Chemistry’.
• Supriadi. (2005). ‘Guidance Program To Help Improve The Ability To Speak In Kindergarten
Age Children’. Bandung: UPI FIP.
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Investigating Job Motivation, Job Satisfaction, and Organizational

Citizenship Behavior among Vocational Teachers
Susan FEBRIANTINA
Faculty of Economics, Universitas Negeri Jakarta, Indonesia

susanfebriantina@unj.ac.id
Dewi NURMALASARI

special.dewi@gmail.com
Roni FASLAH

ronifaslah@unj.ac.id
Reza Bagas Rifaldi PRAYOGA

rezarifaldy12@gmail.com
Abstract
This study investigated teacher’s citizenship behavior-a demand in working in which teachers are
willing to work outside of works voluntarily, and its interconnectedness with teachers‘ job motivation
and job satisfaction among them. Drawing on a survey of 200 teachers of vocational high schools in
Indonesia, the results showed that teachers’ citizenship behavior significantly relates to the teacher’s
job motivation and teacher’s job satisfaction. Some possible school encouragements are needed to
exhibit teachers’ citizenship behavior without paying added cost voluntarily.
Keywords: citizenship behavior, job motivation, job satisfaction, vocational teacher
Introduction
The success of educational institution depends on the extent to which a school is able to manage school
resources (Odden, 2011). These resources are not only about school leadership (Febriantina, 2016), but
also teachers and staffs, as well as students, parents, and school community empowerment (Supovitz,
2015). However qualified and skilled teachers in the 21st century now become one of the greatest
resources of an effective school (Fonseca-Chacana, 2019) (Darling-hammond & Bransford, 2005)
(Altan, Lane, & Dottin, 2019).
Facing competition era which is completely sophisticated, the challenges of vocational high school
teachers as the front guard of education are even higher (Marsofiyati & Febriantina, 2016)(Hämäläinen
& Oksanen, 2012) (Warwas & Helm, 2018). Both studies indicate that the high and complex
performing of a vocational high school teacher has been professional needed. Therefore the success of
schools basically depends on teachers’ willing to do more jobs beyond their duty in contributing
successful change, that is what is called teachers' citizenship behavior (Bogler & Somech, 2004)
(Yildirim, Uzum, & Yildirim, 2012). However, to respond to these contemporary challenges, some life
skills included numeracy skills, literacy and communication, ICT, social interpersonal, foreign
language usage and entrepreneurship skills are required (Simona, 2015, pp. 1–6). One kind of social
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interpersonal skills is teachers citizenship behavior (Runhaar, Konermann, & Sanders, 2013).
Since many years ago, the studies of organizational citizenship behavior in various organizational
settings has been an interesting topic to be discussed by some scholars. Organizational Citizenship
Behavior (OCB) is defined as “performance that supports the social and psychological environment in
which task performance takes place”(Organ Dennis W., 1997). It provides an effective way to manage
interdependencies between members of the organization, and as a result, it increases outcomes achieved
collectively (Dipaola & Tschannen-Moran, 2001, p. 425) (Smith, Organ, & Near, 1983). In school level,
teachers citizenship behavior refers to voluntarily behavior of a person to work, help and serve
optimally such as lending handwork to other teachers or preparing some students remedial or
enrichment assignments, and extended to principals, students, and more school residents (Belogolovsky
& Somech, 2010) (Dipaola & Tschannen-Moran, 2001). Schools cannot predict and anticipate the
various roles and tasks of each school citizen in achieving school goals (Polat, 2009). Thus, teachers
citizenship behavior become essential (Thornberg & Oğuz, 2016) (Özdemir & Ergun, 2015) (ÖZDEM,
2012) (Zeinabadia, 2010).
This article aims to enrich the study of citizenship behavior, especially for the teachers. There are many
factors influencing teachers’ citizenship behavior (Desselle, Raja, Andrews, & Lui, 2018) (Kim, Van
Dyne, Kamdar, & Johnson, 2013). However, those studies have yet put enough attention to the
interconnectedness of job motivation and job satisfaction on teachers’ citizenship behavior. This article
aims to cover this shortcoming study of their interconnectedness.
Literature Review
Previous studies related to organizational citizenship antecedents (OCB) has been widely carried out.
Job attitudes are robust predictors of OCB. Other studies also found that job satisfaction, perceived
fairness, organizational commitment, leader supportiveness also correlate with OCB (ORGAN &
RYAN, 1995) (Zeinabadia, 2010). As argued in the previous study, both motivating job characteristics
and job satisfaction had a positive relationship with OCB (Chiu & Chen, 2005). It seems logical to
assume job satisfaction should be a major determinant of an employee’s organizational citizenship
behavior (Posdakoff, MacKenzie, Paine, & Bachrach, 2000). Job satisfaction is moderately correlated
with OCBs; people who are more satisfied with their jobs are more likely to engage in OCBs (B. J.
Hoffman, Blair, Meriac, & Woehr, 2007). Individuals with certain personality traits are also more
satisfied with their work, which in turn leads them to engage in more OCBs (Ilies, Fulmer, Spitzmuller,
& Johnson, 2009) (Islam, Khan, Ahmad, & Ahmed, 2014) (Araslı & Baradarani, 2014).
Even knowing that job satisfaction has been an antecedent of OCB, very few researchers have assessed
the impact of job motivation with OCB, and the impact of motivation on volunteers’ performance has
never been investigated to our knowledge (Millette & Gagné, 2008) (Gagné & Deci, 2005). Some
studies showed that the process variable stimulating OCBs is intrinsic motivation. Individuals who
perceive that the organization cares about their well-being by satisfying their personal needs have
higher self-determined work motivation which, in turn, activates voluntary behaviors (Deci et al., 2001).
Employees who feel supported by their organizations develop affective bonds with them and
autonomous work motivation, which, in turn, activates proactive citizens (Battistelli, Galletta,
Portoghese, Pohl, & Odoardi, 2013). Researchers have shown a strong interest in studying the
motivational bases of citizenship behaviors (Dewett, 2007). In this recent study, we examined how both
job satisfaction and job motivation impact on teacher’s citizenship behavior.
Method
Participants and Procedures
The sampling process of this research is based on oriented sampling. This grounded theory approach
aims to get a development sample theory. We collected data from some state vocational teachers in
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Depok Regions, Indonesia. In total, the research included 112 state vocational teachers. The mean
teachers’ gender was 61 females, and 51 were male. The mean age of the teachers was 25 to 34 years
with the current position as homeroom teachers, subject teachers, and vice headmaster. Most of the
teacher’s educational background was a bachelor’s degree with mean seniority in the school system
was 5 years minimally and 85 % of the respondents have been married.
Instruments
To collect the data, we used some questionnaires. Organizational citizenship behavior scale (OCBS)
developed by (Somech & Drach-Zahavy, 2000) was used to measure teachers’ citizenship behavior
towards the students, team, and school organization. The scale consisted of 24 items with the coefficient
alphas was 0.885. Job motivation was measured using the Job Motivation Questionnaire (JMQ)
developed by (Gagné et al., 2010) in which consisted of external regulation, introjected regulation,
identified regulation, and intrinsic motivation of teachers with the coefficient alphas was 0.857. Then
36 items of job satisfaction were measured with Job Satisfaction Assessment (Spector, 1985). It was
included 10 indicators, such as pay, promotion, supervision, benefit, contingent reward, operating
procedure, co-workers, nature of work, communication, and overall job satisfaction with the coefficient
alphas was 0.885 To describe the extent to which respondents agreed with some statements measured
on a Likert scale, respondents are given some scale ranging from 1 completely disagree to 7 (completely
agree) scale.
The characteristics of the sample were described based on sex, age, education background, teaching
experience period, and marital status (Yucel & Bektas, 2012). Based on sex categories, most
respondents were 55 % female teachers, and 45 % male teachers. Based on age data, 4 % of respondents
were less than 24 years old, 10 % were between 45 to 54 years old, 30 % were between 35 to 44 years
old, and 31 % were between 25 to 34 years old. The education background of most respondents was
62 % bachelor’s degree, and the remaining was magister degree. According to the teaching experience
period, 39 % of respondents had 1 to 5 years of teaching experience, 23 % of respondents had 6 to 10
years, 24 % of respondents had 11 to 15 years, and 14 % of respondents had over 16 years’ experience
in teaching. The last category of respondents is based on marital status. 85 % of respondents were got
married, and 13 % were single.
The data is analyzed using Partial Least Square (PLS) and aided with software Smart PLS 3.0 (Nusair
& Hua, 2010). PLS is one of the alternative methods to Structural Equation Modeling (SEM) used to
overcome the problems in the relationship between very complex variables with a minimum size
sample of data is around 30-100 samples (Rahman, Memon, & Karim, 2013) It also has non -parametric
assumptions that mean the data does not refer to one of the distribute particular (Camgoz-Akdag &
Zaim, 2012) (Kazár, 2014). To measure Smart PLS data there are three criteria used included
convergent validity, discriminant validity, and composite reliability (Voth-Gaeddert & Oerther, 2014).
Table 1: Iteration Loading Factor Value
Organizational
Job Job
Indicator Indicator Indicator Citizenship
Motivation Satisfaction
Behavior
JM1 0,657 JS1 0,683 OCB1 0,592
JM3 0,784 JS3 0,764 OCB7 0,61
JM4 0,705 JS5 0,671 OCB12 0,563
JM5 0,734 JS7 0,547 OCB13 0,574
JM6 0,579 JS9 0,638 OCB15 0,698
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JM7 0,659 JS11 0,67 OCB16 0,626

JM8 0,658 JS22 0,532 OCB18 0,785
JM9 0,792 JS25 0,6 OCB19 0,543
JM10 0,532 JS27 0,713 OCB20 0,665
JS28 0,57 OCB21 0,6
JS30 0,709 OCB22 0,7
JS33 0,594 OCB23 0,634
JS35 0,672 OCB24 0,803
Convergent validity is measured by looking at the reliability item (validity indicators) shown by the
loading factor value (Plouffe, Paunonen, & Saklofske, 2017). It is a number showing the correlation
between the score of a question item with an indicator score that measures the construct. The value of
the leading factor is stated as a minimum level if it exceeds the number 0,3, and a significant level if it
exceeds the 0,5. Outer loading values between 0,5 to 0,6 are considered enough to measure the validity
convergent requirements (see Table 1).
Table 2: Cross Loading
Organizational
Job Job
Citizenship
Motivation Satisfaction
Behavior
JM1 0,657 0,503 0,349
JM3 0,784 0,364 0,343
JM4 0,705 0,283 0,424
JM5 0,734 0,395 0,425
JM6 0,579 0,235 0,226
JM7 0,659 0,338 0,295
JM8 0,658 0,238 0,251
JM9 0,792 0,397 0,356
JM10 0,532 0,375 0,164
JS1 0,486 0,683 0,407
JS3 0,297 0,764 0,345
JS5 0,414 0,671 0,372
JS7 0,259 0,547 0,27
JS9 0,246 0,638 0,265
JS11 0,253 0,67 0,323
JS22 0,314 0,532 0,335
JS25 0,252 0,6 0,344
JS27 0,359 0,713 0,432
JS28 0,347 0,57 0,389
JS30 0,318 0,709 0,402
JS33 0,22 0,594 0,287
JS35 0,424 0,672 0,362
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OCB1 0,415 0,376 0,592

OCB7 0,317 0,528 0,61
OCB12 0,34 0,266 0,563
OCB13 0,279 0,29 0,574
OCB15 0,296 0,4 0,698
OCB16 0,292 0,231 0,626
OCB18 0,326 0,3 0,785
OCB19 0,186 0,178 0,543
OCB20 0,417 0,316 0,665
OCB21 0,235 0,278 0,6
OCB22 0,303 0,495 0,7
OCB23 0,282 0,334 0,634
OCB24 0,321 0,415 0,803
To determine discriminant validity, done by looking at the cross-loading measurement of the construct
(Sarstedt, Hair, Cheah, Becker, & Ringle, 2019). The cross-loading value shows the magnitude of the
correlation between each construct with the indicator and the indicators of the other block construct
(Zhu, Zhang, Wei, Li, & Zhao, 2019). A measurement model that has good discriminant validity when
the correlation between the construct and the indicator is higher than the correlation with the indicator
of the other bock construct (Sarstedt, Ringle, Smith, Reams, & Hair, 2014). The data processing using
Smart PLS 3.0 as a result of cross-loading can be shown in Table 2.
Based on table 2, the value of cross-loading also shows the discriminate validity was good by since the
value of the correlation indicator to the construct much higher than the value of correlation indicator to
construct other. As an illustration loading factor OCB24 (questions indicator to organizational
citizenship behavior) is at 0,803 which is higher than the loading factor to construct another, namely
JM (0,321), and JS 0.415. The tables also show that indicators of commitment to the organization also
have a value loading factor which is higher than the loading factor to construct another. The same thing
can also be seen in accountability indicators, constructs latent predict indicators on the block they are
much better compared to the indicator in block others (Maraun & Gabriel, 2013).
The next step to measure the reliability of the constructs was determining Cronbach's alpha of blocks
of indicators that measure the construct (de Vet, Mokkink, Mosmuller, & Terwee, 2017). The result of
the testing of composite reliability and Cronbach's alpha of Smart PLS can be seen in table 3.
Table 3: The result of the testing of composite reliability and Cronbach's alpha
Cronbach's Composite
Alpha Reliability
Job Motivation 0,857 0,886
Job Satisfaction 0,882 0,902
Organizational
0,885 0,904
Citizenship Behavior
Constructs declared reliable if it has a value of composite reliability above 0.70 and Cronbach's alpha
on top of 0.60. From the results of the output, Smart PLS on top of all constructs have a value of
composite reliability at above 0.70 and Cronbach's alpha on top of 0.60. Thus, it can be concluded that
the construct has good reliability (Christmann & Van Aelst, 2006).
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After testing the fulfilled outer model, the next is testing the inner model (structural model). The inner
model can be evaluated to see R-square (reliability indicator) construct the dependent and the value of
the t-statistic of a testing coefficient path (path coefficient) (Drouineau, Maïzi, & Mazauric, 2014). The
higher- value R-square means getting better the model predictions of the model studies were submitted.
Path coefficients indicate the level of significance in hypothesis testing.
a. Analysis of variant (R2) and test determination

Analysis of variant (R2) or a test of determination is to know the great influence of variables
independent of the variable dependent such (see table 4).
Table 4: R-squared
R- square
Organizational Citizenship Behavior 0,359
Based on the value of R-square above shows that both job motivation and job satisfaction explain
the variability construct of organizational citizenship behavior amounted to 35.9 %. The rest of
64.1 % is explained by the other construct of the outside and was examined in the study of this.
b. Hypothesis Testing
Hypothesis testing is based on the results of the Inner Model test (structural model) which includes
R-square output, parameter coefficients and stick statistics (Acun & Yilmazer, 2019). To see
whether a hypothesis that can be accepted or rejected them to pay attention to the value of the
significance of inter-construct, the t-statistic, and p-values (J. I. E. Hoffman, 2019). Testing the
hypothesis of this study was carried out with the help of Smart PLS (Partial Least Square) 3.0
software. The value can be seen from the results of bootstrapping. Rules of thumb are used in
research this is the t-statistic > 1,657 with a level of significance p-value of 0.05 (5%) and the
coefficient beta is worth positive. The value of testing hypotheses of research this can be shown
in table 5 and to the results of the model study of this can be described as visible in Figure 1.
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Fig. 1: Display of PLS Bootstrapping Results
The result illustrates how much the relationship between job motivation on organizational citizenship
behavior, and job satisfaction on organizational citizenship behavior. The first relationship is 3,402.
Identified regulation which reached 18,233 become the highest indicator determining vocational
teachers’ job motivation. The statement “I chose this job because it allows me to reach my life goals”
in JM 3 (job motivation 3) is the statement most respondents chose in determining their job motivation.
The lowest proportion shows that most of the respondents perceived external regulation indicators with
the statement “Because it allows me to make a lot of money” is a very lowly choice. The relationship
between job satisfaction on organizational citizenship behavior is 4,592. The highest indicators relate
to vocational teachers’ job satisfaction is quite a competent supervisor which is 18,953.
Table 5: Path Coefficient Table
Original Sample Standard

T Statistics
Sample Mean Deviation P Values
(|O/STDEV|)
(O) (M) (STDEV)
Job Motivation ->
Organizational 0,277 0,288 0,081 3,402 0,001
Job Satisfaction ->
Organizational 0,408 0,430 0,089 4,592 0,000
The first hypotheses examine whether job motivation is a significantly positive relates to organizational
citizenship behavior. The results of the test showed the value of the coefficient of the original sample
estimate job motivation on organizational citizenship behavior of 0,277 and the t-statistic that is as big
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as 3,402. From these results, it was stated that t- statistics were significant because > 1,567 with p-
values < 0.05. Thus, the first hypothesis is accepted. It means that job motivation indeed to have a
significantly positive interconnectedness on organizational citizenship behavior (Ma & Qu, 2011)
(Tziner & Tanami, 2013).
The second hypothesis tests whether job satisfaction is a significantly positive relates to organizational
citizenship behavior. The results of the test showed the value of the coefficient of the original sample
estimate job motivation on organizational citizenship behavior of 0,408 and the t- statistic that is at
4.592. From these results, it was stated that t- statistics were significant because > 1,567 with p-value
< 0.05. Thus, the second hypothesis is accepted. It proves that job satisfaction indeed to have a
significantly positive interconnectedness on organizational citizenship behavior (van Dick, van
Knippenberg, Kerschreiter, Hertel, & Wieseke, 2008).
The last hypothesis examines how much the relationship between job motivation and job satisfaction
on organizational citizenship behavior. To look for this, we need to count the F value firstly using this
( )
formula: ( )
. Thus, we can see that F value = 14.648.
The result shows that F table is 3,04 and F value is 14,664. If F value is higher than F table then, we
can find the relationship between both job motivation and job satisfaction on organizational citizenship
behavior. In the research study by (Budiyanto & Oetomo, 2011) stated that job motivation is positively
and significantly associated with organizational citizenship behavior with a t-statistic value = 2.541 >
1.96 and has a regression coefficient value of 0.284. Organizational citizenship behavior is also
positively and significantly related to job satisfaction of with a statistic value = 3.310> 1.96 and has
regression coefficient value of 0.528. Organizational citizenship behavior (Y1) is positively and
significantly related to job satisfaction of (Y2) with a statistic value = 3.310> 1.96 and has regression
coefficient value of 0.528.
Conclusion, Limitation, and Recommendation
The issues raised in this study relate to the investigating of the relationship between job motivation,
job satisfaction, and citizenship behavior among vocational teachers. Findings from the data aid our
conclusion that vocational teachers’ job motivation is positively and significantly related to teachers’
organizational citizenship behavior. Vocational teachers’ job satisfaction is also positively and
significantly related to teachers’ organizational citizenship behavior. Both job motivation and job
satisfaction are positively and significantly related to organizational citizenship behavior among
vocational teachers. The limitation of this study is in investigating limited variables concerned with
job motivation, job satisfaction. Furthermore, teachers’ organizational citizenship behavior is still
related to many other variables except this research mentioned. Thus, the next research could examine
probably.
Acknowledgement
The author would like to acknowledge to Faculty of Economics, Universitas Negeri Jakarta, Indonesia
who has given full fund for this research.
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The Lorenz Curve and the Measurement of Inequality in

Kazakhstan
Mohamed EL-HODIRI
Kansas University, Lawrence KS, USA

mohamedelhodiri@gmail.com
Tatiana KUDASHEVA
al-Farabi Kazakh National University, Almaty, Kazakhstan

kudascheva@gmail.com
Bulat MUKHAMEDIYEV
al-Farabi Kazakh National University,Almaty

Kazakhstan,mukhamediyev@gmail.com
Abstract
The successes of social and economic policy are expressed, first of all, in a more uniform growth of
the well-being of all citizens of the country. However, there is a diversity of approaches to measuring
inequality across countries. The lower values of the Gini coefficient calculated by consumption can
create a wrong picture of the public welfare in the country compared to other countries in which
inequality is estimated by income or by other means. The purpose of the paper is to point out the
problem of discrepancies in measuring income inequality in countries that previously had planned
economies and construct estimates of money income inequality including forecast estimates on the
example of Kazakhstan. The procedure for forecasting the inequality is based on the approximation of
the Lorentz curve by a lognormal distribution. Forecasting inequality allows assessing the effectiveness
of the economic policy being developed in the country. It is known that one of the drawbacks of
estimating inequality through the Gini index is the complexity of accounting for the income of high-
income groups of the population. The methodology used in the article makes it possible based on
macroeconomic indicators to make an estimate of these incomes and for more accurately assess the
inequality in the distribution of incomes. Estimating of income inequality will provide an opportunity
to get a real idea of the state of the economic stratification of a country's population in comparison with
other countries. Moreover, forecasting inequality indicators will create the basis for effective
management of income inequality reduction processes in the country.
Keywords: Inequality, measurement, Lorenz curve, Gini coefficient, Kazakhstan

JEL: C32 · E60 · E66 · G10
Introduction
Income inequality is one of the most important issues of public welfare and economic development of
many countries in the modern world. Negative consequences of inequality for public welfare are
known. Above all, greater inequality leads to a greater level of poverty, since the poorest layers of the
population receive fewer resources. A higher level of inequality hinders economic growth since low-
income groups of the population have virtually no access to credit for their own household production.
Therefore, it should be paid special attention to reliable estimates of income inequality measures for a
population of households, especially in the context of globalization (e. g. Avetisyan 2016; Çelik and
Basdas 2010; Jędrzejczak 2012), as well as in the context of the global competitiveness of national
economies (Mukhamediyev et al. 2018). Typically, the level of inequality in different countries is
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estimated by money income, by income used for consumption, by available resources, etc. Households
and individuals assess their welfare not only in terms of the absolute level of access to benefits, also in
comparison with the welfare of other members of society.
This variation in approaches, firstly, does not allow us to compare the levels of inequality across
countries. Secondly, it may give wrong guidelines for the government's economic policy, for
example, the relatively low Gini coefficient on consumption can be perceived as evidence of
well-being in the country's socio-economic development, whereas its money income values can be
much higher. According to Timothy and Smeeding (2015) “Recent research establishes strong evidence
that economic inequality in the US has increased over the past few decades, but that the amount of
increase varies by the measure used”. Therefore, in order to develop economic programs aimed at
improving social welfare, it is important to choose a proper method to measure inequality.
The purpose of the paper is to point out the problem of discrepancies in measuring income inequality
in countries that previously had planned economies and construct estimates of money income
inequality including forecast estimates on the example of Kazakhstan.
Measuring Inequality in CIS Countries
The Commonwealth of Independent States consists of 12 countries. For some of CIS countries the data
are incomplete, and for Turkmenistan they are completely absent. Fig. 1 shows the Gini index curves
of eight CIS countries for 2005-2014. Also, for comparison, it shows the US Gini index curve.
45
43 Belarus
41
39 Ukraine
Gini index, %
37 Kazakhstan
35
Kyrgyz Republic
33
31 Moldova
29 Russian Federation
27
United States
25
23 Georgia
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Armenia
Years
Fig. 1: The Gini index curves for 2005-2014. Source: Authors’ calculations based on data from
World Bank (2017a)
Among them, there are two groups of countries: the first group with a relatively high level of inequality
and the second group with its relatively small level. For example, Russia and Kazakhstan have
relatively close levels of economic development, but as can be seen in Fig. 1, the values of the Gini
index differ significantly. The explanation for this lies in various approaches to assessing inequality.
Table 1 reveals the indicators based on which the Gini coefficient is calculated in different countries.
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Table 1: Welfare indicators for national estimates of income inequality
Country Indicators
Azerbaijan consumption expenditures
Armenia consumption aggregate
Belarus available resources
Kazakhstan income used for consumption
Kyrgyzstan consumption aggregate
Moldova adjusted consumption aggregate
Russia available resources (household survey) and incomes (balance
between incomes and expenditures of the population based on data
provided by the ministries and departments)
Uzbekistan aggregate income
Ukraine total income
Data source: United Nations Economic Commission for Europe (2016)
Average income indicators of the population, such as per capita income, per capita consumption do not
always reflect the real economic situation of most households in the country and must be necessarily
accompanied by indicators that characterize their distribution and concentration. Therefore, indicators
of inequality are an integral part of assessing the standard of living of the population. Kampke (2010)
noted that inequality and poverty are related to each other and that the median is more likely to
demonstrate inequality. Inequality can be assessed from different perspectives (e. g. Alker and Russett
1964); Pfeffer et al. 2016).
Measuring Income Inequality in Kazakhstan
The Committee on Statistics of the Ministry of National Economy of the Republic of Kazakhstan
(CSRK) calculates the main indices of inequality only by consumption. Important to mention that
CSRK uses an aggregated indicator – income used for consumption. This is a good and informative
indicator for calculating poverty indicators. However, the indicators of the prevailing inequality in the
society are more appropriate to calculate according to money incomes. After all, the inequality in the
money income of the population can be much higher and more accurately to reflect the situation with
the stratification in the Kazakhstan society. In addition, the use of macro indicators of money incomes
in the econometric model, which also estimates the shadow earnings and incomes of the population,
allows in calculating the inequality indicators to take into account all groups of the population,
including the richest as well as the poorest ones. A number of authors who study the issues of the
standard of living and inequality in Kazakhstan tend to believe that the indicators of inequality
calculated by official statistics do not always fully reflect the existing situation.
Construction and forecasting of the Lorenz curve
Estimation of lognormal distribution parameters
Lognormal distribution is widely used in statistical studies as a mathematical model that fairly
accurately reflects the distribution of income in society. That is, the distribution of population by per
capita income x is described by the formula:
= , (1)
√
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where μ is the mathematical expectation, and σ is the standard deviation of the natural logarithm of the
random variable x. These two parameters determine the required distribution, and they can be estimated
based on sample characteristics according to data of statistical surveys. Mathematically, it is easy to
identify the relationships between the parameters of the distribution (1) of the logarithm of the random
variable x and parameters of the distribution of the random variable x:
= + , = − , = , (2)
where is the expectation, is mode, is the median of the random variable x. Substituting these
characteristics of the random variable x distribution with the corresponding sample counterparts: the
nominal average , the sample modal or median values and , we can obtain formulas for
estimating the parameters of the lognormal distribution (1).
Accordingly, we obtain formulas for the parameters of the lognormal distribution: =

!
ln , = !
− . And if one uses the sample mean and the sample median
of per capita income, in accordance with equalities (2) the formulas for estimating the expectation
and variance of the lognormal distribution (1) will take the form = ln , = 2 −
. To estimate the parameters, it is also possible to choose a pair of sample modal value , or
sample mean value of the per capita income: = ln , = − .
Forecasting of Money Income Distribution
The estimated distribution law of per capita income (1) serves as the basis for constructing the Lorenz
curve, which in turn allows one to calculate indicators of differentiation by income, in particular, the
Gini coefficient. Many authors in the study of income inequality use the Lorenz curve (e.g. Núñez-
Velázquez 2006; Jann 2016). To construct the Lorenz curve we must first determine the points & ,
, … , ( , such that each interval ) * , * +, , = 1, 2, … , , contains a share, which measures 1/n of the
entire population, in ascending order of the monthly per capita income x. Note that & = 0. Other values
/0 1 2
of * are determined from the formula * = , where the value 3* is obtained from the
/ 7
*
equation 453* + = (
for , = 1, 2, … , , and 4 3 =
68 9: is the Laplace function.
√
Then we can calculate the ordinates ; , … , ;( of the points of the Lorenz curve, corresponding to
(
the values , , … , of its abscissa. There are ;& = 0 and ;( = 1. After some transformation we
( ( (
=( 0 2
obtain ;* = 4 < − > , , = 1, 2, … , .
The greater the number of intervals n, the more accurate the Lorenz curve approximation will be. In
practice, the Lorentz curve is usually constructed for quintiles with n = 5 or for deciles with n = 10.
Thus, the parameters of the lognormal distribution can be used to construct the Lorenz curve and
estimate the level of population differentiation in income. However, there is interest in forecasting of
indicators that reflect the future income differentiation. This can be done by estimating the expected
values of the characteristics of the population income distribution. To assess the predictive value of the
expectation ?1 and variance ?1 in the next year t +1 we need the predicted values of the sample
mean ?1 , sample modal value ?1 ), or sample median ?1 of per capita average monthly
money income. Then the required values ?1 and ?1 can be estimated by the specified formulas for
and .
Evaluating and forecasting the distribution of the population in money income
Value of the nominal average monthly income per capita ?1 can be represented as part of the
country's gross domestic product, which is used as the money income of the population, divided by the
population size and the number of months in the year. It is of particular note that this is a
macroeconomic indicator. The CSRK does not publish forecasts for this indicator. Therefore, one has
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to assume that there is a sufficiently close relationship between the macroeconomic indicator of the
nominal per capita income and other macroeconomic indicators, and evaluate it using econometric
methods.
To calculate the projected modal value of the money income ?1 we used the formula ?1 =
@ABCD GFBCD
? EF?1 proposed by Kolmakov (2006). Here the value HI? is the total income share of
@AB GFB
wage and transfers in the structure of income and expenditure balance. The coefficient EF?1 reflects
the compensatory effect of the income structure balance indicators on formation of the modal income
growth rate, and differs little from one.
Table 2 shows the actual and calculated or predicted data for the Republic of Kazakhstan, used to
construct the Lorenz curve and to calculate the Gini index. The predictive values of the indicators are
calculated by the authors using the approximations for 2017 and 2018 only based on the forecast of the
International Monetary Fund (2017) for the growth rate of Kazakhstan's GDP: 2.5% in 2017 and 3.4%
in 2018.
There is a more complicated situation with the indicator "Modal value of average monthly money
income per capita". The official statistics doesn’t published it. However, for each year the statistics
compilation mentioned above contains a table "Distribution of households and population in them by
average income" with intervals of 1000 KZT. According to these data, it is impossible to accurately
determine the modal value of income. Therefore, the following approach is used. For 2014, the modal
value of per capita average monthly income is specified by calibration, so that the Gini coefficient,
obtained by calculation and construction of the Lorenz curve, coincides with its actual calculated value
from the official statistics. And for consequent years the modal values of the distribution are calculated
using the formula for the projected modal value of the money income ?1 .
Table 2: Money income and income used for consumption per capita
Nominal money income per capita Income used for consumption per
Year
per month, KZT capita per month, KZT
2009 34282 21348
2010 39014 26152
2011 45918 30618
2012 51860 33745
2013 56453 36761
2014 62271 39256
2015 67321 40675
2016 75025 44456
2017 76898 48449
2018 85020 53453
Data source: Committee on Statistics of the Ministry of National Economy of the Republic of Kazakhstan for 2009-
2016 (CSRK 2011; CSRK 2016a; CSRK 2016b) and forecasted data for 2017-2018 evaluated by authors using
International Monetary Fund (2017) data
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There is a more complicated situation with the indicator "Modal value of average monthly money
income per capita". The official statistics doesn’t published it. However, for each year the statistics
compilation mentioned above contains a table "Distribution of households and population in them by
average income" with intervals of 1000 KZT. According to these data, it is impossible to accurately
determine the modal value of income. Therefore, the following approach is used. For 2014, the modal
value of per capita average monthly income is specified by calibration, so that the Gini coefficient,
obtained by calculation and construction of the Lorenz curve, coincides with its actual calculated value
from the official statistics. And for consequent years the modal values of the distribution are calculated
using the formula for the projected modal value of the money income ?1 .
For 2015, the Gini coefficient for money income used for consumption is also known and equal to
0.278 according to Committee on Statistics (CSRK 2016a). This allowed us to choose the value of the
coefficient ks. The resulting value of 0.9955 was then used for subsequent calculations in calculating
the Gini coefficient for cash income of the population, and also for forecasting.
Limitations in the data. Keep in mind that there are limitations in the data used in the construction of
the econometric model. Since there are no indicators of modal values of consumption and modal values
of money income for the entire population in the official statistics, for 2015-2016 they were evaluated
by the authors according to a sample survey of the distribution of money income and consumption. Of
course, these are approximated values.
There are further no official forecasted values of per capita income, consumption, and income structure
of the population for the future period. These figures were estimated for 2017-2018 by the authors
based on econometric methods for the purposes of this study. However, the development and testing
of the methodology of this indicator forecasting is beyond the scope set out in this study and therefore
is not considered in detail in the paper.
Prediction of the Population Differentiation
In the publications on the living standards of Kazakhstan, in some cases, data on nominal income of
the population is presented, while in others - data on population income spent on consumption. In
particular, the Lorenz curve and the Gini coefficient are calculated only for the consumption (personal
income spent on consumption). We consider both options in this paper, to compare indicators of
inequality.
The basis for forecasting population differentiation in income distribution is the representation of the
average monthly income per capita of the population in the form of the lognormal distribution (1). 2014
is taken as the initial period. Calculations are performed for the period 2014-2018. Using formulas for
parameters of the lognormal distribution, the expectation & J and variance & J are calculated. Then,
as described above, the Lorenz curve is constructed, and the Gini coefficient is calculated. The
calculations are easy to carry out using Excel. One obtains the decile Gini coefficient for 2014,
calculated for consumption is 0.2780.
Construction of the Lorenz curve and the calculation of the Gini coefficient for future years require an
evaluation of the parameters of the lognormal distribution ?1 and ?1 . And this in turn requires the
actual values or predictions of the average value ?1 and modal value ?1 of average monthly per
capita consumption, and the total income share of wages and transfers in the structure of the balance
of income and expenditure HI?1 , shown in Tables 2 and 3.
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Table 3: The modal value of the average per capita average monthly money income used for
consumption and the total income of the share of wages and transfers
Indicator 2014 2015 2016 2017 2018

Modal value of income used for
26461 27435.6 29970.5 32644.8 35997.7
consumption per capita per month, KZT
The total income share of wage and
transfers in the structure of income and 85.50 85.90 86.2 86.5 86.7
expenditure balance, %
Source: Own calculations using data from Table 2
On their basis, according to formulas for ?1 and ?1 , predicted values of parameters μ and σ are
calculated (Table 4).
Table 4 : Estimates of the parameters of the lognormal distribution of the average per capita
monthly income used for consumption
Parameters 2014 2015 2016 2017 2018

Expectation 10.45 10.48 10.57 10.66 10.75
Standard deviation 0.512 0.512 0.513 0.514 0.514
Source: Own calculations using data from Tables 2 and 3
Similarly, parameter estimates of the lognormal distribution of per capita average monthly income are
calculated (Table 5).
Table 5 : Parameter estimates of lognormal distribution of average monthly money income per
capita
Parameters 2014 2015 2016 2017 2018

Expectation 10.70 10.78 10.89 10.91 11.01
Standard deviation 0.820 0.820 0.820 0.820 0.821
Using the data from Tables 4 and 5 one can calculate the Gini coefficient for the distribution of the
monthly average per capita consumption as well as the average monthly money income per capita. The
corresponding Gini coefficients are calculated and presented in table 6.
The magnitude of the Gini coefficient of 0.278 in 2014 (CSRK 2016a) was used as a starting point for
the calibration of the model parameters, and for 2015-2016 the estimates of the Gini coefficient with
the model are almost identical to the officially published values. It is thus confirmed that this
methodology predicts the measure of inequality - the Gini index - well, and can also be used to assess
and predict inequality in money income. The future Gini index, estimated by the model will be 0.2786
for 2017 and 0.2790 for 2018 (Table 6). Its value will slightly increase, which means a slight increase
in consumption inequality in Kazakhstan.
Table 6 Estimates and predictive values of the Gini coefficient

Years 2014 2015 2016 2017 2018
The Gini coefficient by money income
0.2780 0.2780 0.2783 0.2786 0.2790
used for consumption
The Gini coefficient by nominal money
0.4281 0.4281 0.4283 0.4285 0.4286
income of the population
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At the same time, one should note that the reliability of these projections depends on the International
Monetary Fund (2017) implementation of the GDP growth rate of Kazakhstan forecast for 2017-2018.
The Gini coefficient for per capita money income is not calculated by the Statistics Agency and is not
officially published. Therefore, for 2014, the initial value was taken as 0.4281, which was obtained by
the authors in early studies based on the database of the households budgets survey in Kazakhstan (11
523 households) carried out by the the Statistics Agency in 2009 (Table 6). The actual value of the Gini
coefficient by money income for 2009 was 0.4331. Next, an evaluation was carried out for 2014-2018.
As for Table 6, the level of inequality among the population on per capita income is significantly higher
than inequality on per capita consumption for 2014-2016, similarly so for predicted values for 2017-
2018. One can see the Lorenz curves for 2014 on Fig. 2.
100
Cumulative share of income, %
90
80 Uniform
70 distribution
60
50
On money
40 income
30
20
On income
10 used for
0 consumption
0 10 20 30 40 50 60 70 80 90 100
Cumulative share of the population, %
Fig. 2: Lorentz curves for money income and income used for consumption in Kazakhstan in
2014. Source: Authors’ calculations based on data from the Committee on Statistics of the
Ministry of National Economy of the Republic of Kazakhstan for 2009-2016 (CSRK 2011;
CSRK 2016a; CSRK 2016b) and forecasted data for 2017-2018 evaluated by authors using
International Monetary Fund (2017) data
One of the reasons for significant differences in money income inequality and inequality in
consumption, is that the differentiation of incomes of the population is always much higher than the
differentiation in consumption. After all, money income further includes funds invested into savings,
which are almost absent in the poorest groups, but are quite high among the more affluent groups.
The second and more significant reason for the difference is the fact that the prediction model used a
macroeconomic indicator for money income - nominal per capita income (an indicator of the total
population), while in official statistics the Gini index is calculated for the total sample, which does not
include wealthiest and the poorest layers of population. Therefore, inequality indicators estimated for
the total sample may be lower than the levels of inequality on the entire population. Using
macroeconomic indicators for the general population, the income distribution model takes into account
all groups, which avoids the disadvantages of sampling.
It will be interesting to compare the level of inequality in Kazakhstan, estimated by the Gini coefficient
for income of the population, with other CIS countries, as well as the developed countries of the OECD
and BRICS.
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Of course, for a comparative assessment of the level of inequality between countries it is not sufficient
to utilise only the Gini index. The common approach is to assess the level of inequality in cross-country
comparisons, taking into account the size of per capita gross domestic product (GDP).
55
Brazil
50
45 Mexico
KAZAKHSTAN on money
Gini index, %
income US
40
Russia
35 Italy
Armenia France
Poland Germany
30 Kyrgyzstan
KAZAKHSTAN on
Moldova
25 consumption
Ukraine
20
0 10 20 30 40 50 60
GDP per capita, PPP, th. $
Fig.3 : GDP per capita and Gini index for some countries in 2015. Source: Authors’
calculations based on data from World Bank (2017a), United Nations Development Programme
(2017), and World Bank (2017b)
The Fig. 3 shows the two values of the Gini index for Kazakhstan: in per capita consumption (official
data for 2015) and for money income (calculated by the authors’ data model for 2015). One can see
that the positions of Kazakhstan in these two cases are significantly different. It should be noted that
the level of inequality on money income in Kazakhstan is higher than in Russia. This indicates a more
significant stratification of Kazakh society, than is represented by the Gini index in the official
statistics, which is calculated by consumption.
Conclusion
There are various ways to measure income inequality among countries, especially those in which they
previously had a planned economy. We believe that assessment of the level of inequality on
consumption are more appropriate for low-income countries, but they do not quite correspond to
countries with middle or high income. In Kazakhstan, the money income inequality of the population
is significantly higher than inequality by consumption.
On the one hand, it is commonly acknowledged that the differentiation of the population by money
income is higher than the differentiation by consumption. On the other hand, when calculating in the
model, a macroeconomic indicator of the population's money income was used, compiled from the
balance of incomes and expenditures of the household sector with an additional estimate of shadow
earnings and unregistered employment, as well as tax payments. That is, the model takes into account
all income groups, including the wealthiest and the poorest. Whereas in the sample survey of
households, these groups fall outside of the study and their income is not counted in determining the
level of economic inequality. Thus, the inequality in money income more adequately reflects the
situation in Kazakhstan society than the estimated consumption inequality. When juxtaposing
countries, money income inequality in Kazakhstan is slightly higher than in Russia. These two
countries are energy-exporting countries and get high profits from rising energy prices, i.e. have a
similar economic structure.
Estimating of income inequality will provide an opportunity to get a real idea of the state of the
economic stratification of a country's population in comparison with other countries. Moreover,
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forecasting inequality indicators will create the basis for effective management of income inequality
reduction processes in the country.
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Responsabilidad Social Empresarial En La Construcción De Paz:

El Caso De La Pymes En Florencia Caquetá-Colombia
José M. RINCÓN A.
Corporación Universitaria Minuto de Dios, Bogotá, Colombia, jose.rincona@uniminuto.edu
Luz D. GONZÁLEZ-CORTÉS. .
Universidad de la Salle, Bogotá, Colombia, ldgonzalezc@hotmail.com
luzgonzalezc@unisalle.edu.co
Bexsi RODRIGUEZ A.
Universidad: Universidad de la Amazonia, Bogotá, Colombia bexsibr@gmail.com
Emma ÁVILA GARAVITO

Corporación Universitaria Minuto de Dios – UNIMINUTO, Bogotá, Colombia,
emma.avila.g@uniminuto.edu
Resumen
El trabajo que se describe a continuación hace parte de un proyecto de investigación en ejecución,

articulado desde tres universidades colombianas en torno al compromiso de las Pequeñas y Medianas
Empresas –PyMEs, hacia las acciones de construcción de Paz en Colombia, específicamente, en el
territorio de la Amazonía, zona que ha sido fuertemente afectada por el conflicto armado interno.
Este proyecto se articula en dos fases; en esta primera fase se realiza un diagnóstico de la situación
actual de la Responsabilidad Social-RSE de las PyMEs en Florencia Caquetá-Colombia con el
objetivo de identificar, por una parte, las acciones que han desarrollado dichas organizaciones en
construcción de paz; y por otra, las oportunidades para el diseño de una estrategia de RSE vinculada a
las acciones de construcción de paz en las PyMEs en áreas de posconflicto.
Palabras clave: Responsabilidad Social Empresarial, Construcción de Paz, Desarrollo Sostenible.
Introducción
La vinculación de las PyMEs en el posconflicto es un tema relevante, debido al papel protagónico

que juegan estas organizaciones en la recuperación del tejido social y económico en las áreas
afectadas por la guerra , en palabras de Roux (2018) la única forma avanzar como país es
reconciliarnos con la oportunidad que nos abre el acuerdo de paz. Históricamente las pequeñas
empresas han sido en Colombia una fuente importante de vinculación laboral de las áreas locales,
convirtiéndose, de esta forma, en una estrategia comprobada de generación de empleo e ingresos para
el país. Como lo demuestra en el informe del Departamento Administrativo Nacional de Estadísticas-
DANE, estas organizaciones representan para el año 2016 el 35 % del PIB, el 80 % del empleo del
país y el 90 % del sector productivo nacional Revista Dinero, (2016)
Esta característica especial hace de las PyMEs una estrategia manifiesta dentro de los procesos de
generación de ingresos, de recuperación del tejido social y económico de las poblaciones que fueron
afectadas por el conflicto armado entre el Estado colombiano y la guerrilla de las FARC. En este este
contexto, la Responsabilidad Social Empresarial-RSE, que se deriva de estas organizaciones, se
convierte en un elemento vital para la construcción de paz al interior de las áreas locales
promoviendo el emprendimiento y la generación de ingresos de víctimas del conflicto armado y
excombatientes reincorporados a la sociedad civil.
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A pesar de la enorme importancia que juega la RSE en las PyMEs para la construcción de paz en las
áreas afectadas por el conflicto armado, ésta se ve seriamente afectada debido a la resistencia de los
empresarios a establecer estrategias de RSE. Muchos son los factores que influyen en esta decisión,
por ejemplo: el carácter voluntario de la RSE, el escaso conocimiento de los beneficios que la RSE
genera y asumir estas estrategias como “costos” para las organizaciones. En este sentido, diferentes
investigaciones demuestran que una vez los empresarios adquieren el conocimiento adecuado sobre
los beneficios de la RSE para sus organizaciones y las áreas locales donde éstas se desarrollan, se
implican fuertemente:
Apenas 37.75 % de las empresas conoce el tema de responsabilidad social empresarial y que
después de haber realizado talleres pedagógicos y de sensibilización los empresarios están
dispuestos a adoptar esos programas en sus compañías, eso sí trabajando en cohesión con
otros actores, en especial con la tutoría de los Gobiernos nacional y regional Ospina et al
(2008). citado en González 2016, (p.89)
De tal manera, el desconocimiento de los mecanismos y beneficios de la RSE también se evidencia

en el municipio de Florencia-Caquetá, como se demuestra en la “Línea de base de Responsabilidad
Social Empresarial en Florencia, Caquetá. Una oportunidad de mejora” Cantillo y Bolena (2017). De
allí la pertinencia de articular este proyecto en esta área en posconflicto, que además se vincula con la
Universidad de la Amazonía, como una alianza estratégica que genere en los empresarios una actitud
positiva frente a las acciones de construcción de paz en el municipio desde la RSE y su impacto en el
desarrollo económico local.
Enfoque De La Investigación
Esta investigación se enfocara principalmente en identificar el nivel y compromiso de la
Responsabilidad Social Empresarial en las PyMEs en el municipio de Florencia-Caquetá-Colombia,
hacia la consolidación de acciones de construcción de Paz, asimismo: i. examinará si las
organizaciones y empresarios reconocen entre sus políticas la responsabilidad social empresarial; ii.
establecerá el nivel de compromiso de los empresarios y el grado de disposición en dirigir sus
esfuerzos a la construcción de paz; iii. identificará las acciones de responsabilidad social que se
desarrollan; iv. finalmente, conocerá las acciones de responsabilidad social están encausada a la
construcción de paz. Se desarrollará bajo una metodología con enfoque descriptivo de tipo mixto, el
cual incluye investigación cualitativa y cuantitativa.
El interés central de trabajar con PyMEs desde esta propuesta se sustenta en el hecho de que estas
organizaciones se establecen en Colombia como estrategias fundamentales para la recuperación del
tejido social y económico de las áreas locales, por lo cual, se perciben como entes fundamentales en
el mejoramiento de las condiciones de vida para las víctimas del conflicto armado y excombatientes
reincorporados. De allí la importancia de vincular el compromiso de la Responsabilidad Social
Empresarial - RSE de estas organizaciones, a las acciones de construcción de paz del área local.
Prandi y Lozano (2010) plantean que las políticas de RSE en los ámbitos económicos y
sociales que están dirigidos a la construcción de paz tienen dos objetivos: el primero, es
económico, enfocado en crear oportunidades de subsistencia y emprendimiento y el segundo,
es el social, para atender la exclusión social surgida a raíz del conflicto, de ahí, que mediante
la RSE ‘las empresas pueden contribuir a reparar las fracturas sociales entre las comunidades
enfrentadas propiciando actividades económicas conjuntas que deberán ser diseñadas con gran
cautela y desde el conocimiento profundo del conflicto y de sus consecuencias” Prandi y
Lozano (2010, p. 47). Citado en Sepúlveda, Moreno, Tovar, Franco & Villarraga (2016),
(p.52).
Desde este punto de vista, el estado del arte para esta propuesta se articula en torno a investigaciones
que han sido desarrolladas con el fin de conocer la vinculación de las organizaciones en el
posconflicto en Colombia a partir de la RSE. El fin de desarrollar este ejercicio de revisión
bibliográfica es mostrar la pertinencia del proyecto que aquí se plantea, al poner en perspectiva la
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importancia de la RSE como elemento fundamental en el logro de acciones de construcción de paz en

las áreas locales.
En tal sentido, el primer elemento para resaltar es la importancia del rol del empresario y las
organizaciones como actores fundamentales en la generación de acciones de construcción de paz. Al
respecto, González (2016), en su documento denominado “empresa privada: principal socio en el
posconflicto y la construcción de paz” establece la importancia del rol empresarial en la construcción
de paz al vincular los entornos de no-conflicto con el dinamismo del tejido social y económico de
cualquier sociedad. En ese sentido, establece el interés consciente del empresariado de querer
desarrollarse al interior de áreas locales alejadas del conflicto armado:
Los principales resultados señalan que la empresa privada tiene un papel clave en el proceso de
construcción de paz, los empresarios entienden que un país sin guerra mejora las posibilidades de
negocios y que para contribuir efectivamente a su desarrollo existen herramientas jurídicas y
organizacionales, como la responsabilidad social empresarial, las alianzas estratégicas con el
Gobierno y como financiadora de paz. (p.84)
Por otra parte, una de las grandes dificultades a la que se ven enfrentadas las organizaciones, a la hora
de establecer compromisos de construcción de paz, es el desconocimiento del empresariado de los
diferentes mecanismos existentes para vincularse a los mismos a través de la RSE. Al respecto, para
el caso de las PyMEs, Sepúlveda et al. (2016), establecen que “existe una falsa creencia de que la
Responsabilidad Social Empresarial es exclusiva de las grandes empresas, siendo esto una de las
principales barreras que al momento de acercarse a la responsabilidad empresarial como una nueva
forma de hacer negocios” González, (2011). (p.46)
Igualmente, González (2016), referencia un estudio efectuado en el municipio de los Patios (Norte de
Santander) por el programa Cercapaz donde se encontró que:
apenas 37.75 % de las empresas conoce el tema de responsabilidad social empresarial y que
después de haber realizado talleres pedagógicos y de sensibilización los empresarios están
dispuestos a adoptar esos programas en sus compañías, eso sí trabajando en cohesión con otros
actores, en especial con la tutoría de los Gobiernos nacional y regional Ospina, Cárdenas y
Beltrán, (2008) (p.89).
Estas investigaciones advierten entonces la pertinencia de realizar esfuerzos investigativos en la

concientización de los empresarios en su rol como actores fundamentales de construcción de paz,
como lo establece la línea de trabajo de la investigación que aquí se presenta. La sensibilización
temática expone a los empresarios a que comprendan los beneficios de vincularse en el
fortalecimiento de las acciones de construcción de paz por las recompensas futuras que esta alianza
les proveerá.
Al respecto, Wallace (2013) y Vecino (2015), plantean que:
La importancia del rol empresarial en esta etapa consiste en que, si en Colombia se logra
concientizar al empresario de la trascendencia de su labor en este proceso, los resultados pueden
ser más tangibles y duraderos lo que puede asegurar que el proceso de paz y su etapa final, se
consoliden en una paz estable y duradera. Citado en Gaspar, Barrios & Jiménez, (2017), (p.133)
A su vez, la vinculación del empresariado a sus acciones de RSE tiene efectos multiplicadores en la
medida que éstos se difunden al interior del tejido social y económico de las áreas locales como lo
establecen las investigaciones anteriormente mencionadas. Sin embargo, esta responsabilidad no es
exclusiva del sector empresarial y deberá recaer también en los diferentes actores establecidos en el
área local.
En tal sentido, Gonzáles (2016), identifica que una de las dificultades persistentes entre el
empresariado para vincular sus esfuerzos de RSE a acciones de construcción de paz se centra en el
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temor de éstos a considerar que deberán asumir de forma inequitativa y solitaria dicha
responsabilidad:
[el empresariado] cree que el Gobierno envía mensajes contradictorios o divergentes, le preocupa
que con estos procesos se premie a las personas que han estado al margen de la ley, percibe que el
Gobierno solo lo tiene en cuenta cuando enfrenta problemas financieros y siente que no se le
explica lo suficiente sobre cómo se invierten los recursos aportados. (p.90)
Por su parte Rettberg (2013), establece una hipótesis sólida frente a este elemento de responsabilidad
compartida, al plantear que con el fin del conflicto no se establece de forma inmediata la llegada de la
paz. Advierte por ello, que la construcción de la paz es un “proceso dinámico” que al ser articulado
desde los ámbitos nacional e internacional requiere, para su consolidación, el esfuerzo mancomunado
de todos los actores empezando por los “actores armados enfrentados” e involucrando también a
“actores de diferente naturaleza (domésticos e internacionales, públicos y privados, independientes y
colectivos)”. (p.17)
Ayala y Hurtado (2007), establecen también un paralelo de responsabilidad compartida en la

construcción de paz al afirmar que: “El posconflicto se construye, no se alcanza”. De acuerdo con su
teoría, “El posconflicto no puede entenderse como un fin último, sino como un proceso en el que hay
varias tareas por hacer […]. Citado en Sepúlveda et al. 2016 (p.52).
Los resultados obtenidos por los diferentes autores avalan el hecho de que esta investigación
mejorará el compromiso de las PyMEs hacia el desarrollo de acciones de construcción de paz en
Florencia-Caquetá, por el hecho de que el empresariado, al tener información más clara frente a los
diferentes políticas y mecanismos existentes de RSE, se hará consciente de los beneficios futuros que
le serán retribuidos al asumir su rol y responsabilidad dentro de dicho proceso.
Referencias bibliográficas
• Bernal, C. (2010). Metodología de la investigación. Tercera edición. Pearson Educación,

Bogotá.
• Dinero, R. (2016). “Mipymes generan alrededor del 67% del empleo en Colombia, ' Revista
Dinero. . [Online], [Retrieved. Septiembre 30,
2019], https://www.dinero.com/noticias/camara-de-comercio/151
• González, J. A. (2016). ‘Empresa privada: principal socio en el posconflicto y la

construcción de paz’. Panorama, 10(18) pp. 84-92 .
• Hernández, H. G., Barrios, I., y Jiménez, A. (2017). 'El aporte del empresario barranquillero
en el postconflicto: una mirada desde la responsabilidad social empresarial. NOVUM':
Revista de Ciencias Sociales Aplicadas, (7), 131-145.
• Jiménez Sierra, D., Rincón Acevedo, A. y Pérez Suescún, L. (2018). 'Análisis del
liderazgo social de las pymes de Santa Marta para el post-acuerdo desde el enfoque de
la RSE'. Revista EAN, 85, 105-124. DOI: https://doi.org/10.21158/01208160.n85.2018.2051
• Nubia Marcela Roa Martin (S.f). Contaduría Pública. Universidad de la Salle. Correo
electrónico: nroa83@unisalle.edu.co
• Rettberg, A. (2013). 'La construcción de paz bajo la lupa: una revisión de la actividad y de la
literatura académica internacional. Estudios Políticos', (42), 13-36.
• Roux Rengifo, FJ de 2018, La audacia de la paz imperfecta.
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• Sepúlveda Romero, M., Moreno Martínez, E., Tovar Mesa, J., Franco Villalba, J., y
Villarraga Tole, C. (2016). Responsabilidad social de las Pymes en el marco del
posconflicto, como soporte para la inclusión laboral de la población reinsertada.
Comunicación, Cultura Y Política, 6(1), 45-62.
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Desafíos Para La Enseñanza De La Ética Profesional En

Contabilidad Bajo Un Marco De Regulación Internacional:
El Caso Colombiano
Juan C. RUIZ-URQUIJO
Corporación Universitaria Minuto de Dios- UNIMINUTO, Bogotá, Colombia

jruizurquij@uniminuto.edu.co
Abstract
The paper examines the proposal about professional ethics courses either from an accounting
approach or from humanistic areas form the curricula in 129 Public Accounting courses in Colombia,
given the recent convergence to international financial information standards proposed by IFAC and
its standards related in particular by the International education standards (IES), we used an
Neoweberian theory of splitting the business ethics about deontological ethics, which is used given
public interest character’s into the accounting profession, and it was contrasting it with the proposals
established by IAESB and IFAC under the IES 4. We found an equilibrium between the institutions
considered so that the ethics courses in accounting are assumed by humanistic and institutional areas
in her universities, but the rise of own courses with cases and methodologies is also observed since
professional accounting structures.
Keywords: Ethics, Accounting education, Ethics teaching.
Introducción
Debido a las fallas financieras de la última década, es cada vez más necesario que en cualquier
profesión liberal, y más aún dentro de la función contable, se dependa de principios éticos
fundamentales, que garanticen los más altos estándares del trabajo a desarrollar, lo que permitirá
lograr servicios transparentes y de calidad en el marco del interés público como afirman (Koumbiadis
& Pandit, 2014). Este aspecto se ve reforzado con las estructuras globalizantes contables, a partir de
procesos de estandarización de normas no solo en la producción de información financiera, sino en
aspectos de enseñanza contable y de estándares éticos que Herrera (2012) denomina arquitectura
contable internacional.
En el caso colombiano a partir de la ley 1314 de 2009 se ha desarrollado la implementación de la

norma financiera tanto en aspectos públicos como privados, así mismo se ha generado la obligación
de la incorporación del código de ética de la IFAC y las Normas Internacionales de Auditoria para los
prestadores de servicios de aseguramiento y control, en este sentido el único corpus normativo que
aún no se incorpora desde las cinco líneas de trabajo de la IFAC es el de las normas internacionales
de educación (IES) para la formación de profesionales contables. Este aspecto determina que el tema
de la ética en la profesión contable se debata cada vez más a nivel internacional y nacional como
explica Abbasi (2013).
El texto se desarrolla metodológicamente de forma descriptiva, y se compone de las siguientes partes:

se presenta el marco teórico, el diseño metodológico y posteriormente se analizan los resultados bajo
una mirada de las teorías neoweberianas. La investigación es relevante en la medida que se observa
como las actividades extracurriculares, el diseño curricular, la presencia de profesionales exitosos con
espíritu ético en las universidades son significativas estrategias para enfocar la conciencia ética de los
estudiantes de la profesión contable y su comprensión de su rol en la sociedad al servicio del interés
público y el fortalecimiento de la confianza pública (Castillo Muñoz, Córdoba Martínez, & Villarreal,
2014; IAESB, 2006; IAESB & IFAC, 2008) . También los docentes, como parte del sistema
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educativo, tienen considerable influencia en el desarrollo de la conciencia ética de una generación en

todo el proceso educativo como explican St Pierre & Rebele (2014). Además de proporcionar
estructura técnica en producción de información con altos estándares, se establecen elementos
potenciales para manejar contenidos sociales y de comportamiento, cualidad que resaltan los
estándares de educación desde la IFAC como revelan Castillo, Córdoba & Villareal (2014). Los
educadores son referentes importantes para los estudiantes de hoy, pero también para los contadores
públicos o gerentes de mañana para tomar decisiones sobre lo que es o no ético. En esta misma línea
Singh & Poduval (2009) argumentan la importancia de cuestionar, ¿qué lugar debería tener la ética en
el plan de estudios?, cuestionamiento a resolver en el presente documento.
Marco Teórico Y Revisión De Literatura
Los profesionales contables desarrollan su trabajo en múltiples campos, incluyendo auditoría,

impuestos, contabilidad gerencial, planificación financiera, consultoría y contabilidad (Apostolou,
Dorminey, Hassell, & Watson, 2013). En cada una de estas áreas, los estados financieros y contables
deben ser aplicables y presentados adecuadamente para facilitar la toma racional de decisiones en los
sistemas económicos. Por lo tanto, los mismos se sustentan en la precisión del valor financiero de las
entidades, y estos reportes esencialmente son preparados por contadores, todo en un marco de interés
público como manifiesta Mintz (2013). Los profesionales contables generalmente se enfrentan a
diferentes situaciones que requieren juicios y dilemas éticos significativos. Teóricos como Mintz &
Morris (2016) reconocen que hay muchas oportunidades disponibles en su trabajo para participar en
comportamientos inmorales que implican algunos beneficios personales. Cualquier comportamiento
poco ético en la contabilidad conducirá de alguna manera a una falla en los sistemas económicos.
Como resultado, varios organismos intentan esbozar el mapa de la ética contable para guiar a los
profesionales contables en un método ético cuando enfrenten problemas de dilemas y juicios éticos,
este aspecto mucho más estructurado desde los códigos de ética con corte deontológico como relata
Gilman (2005).
La profesión contable ha podido adoptar muchos cambios en la profesión al generar una base sólida
de un código de ética que elevará su reputación de integridad y servicio al público. Además, los
líderes de la profesión apelan en confiar a la educación y al desarrollo moral las bases para
proporcionar la estructura decorosa del carácter básico de los contadores (Boyce, 2014). En el caso
norteamericano la AICPA ha instalado estándares adicionales vinculados a la ética y a la educación,
estos estándares se convirtieron en un requisito básico para que el candidato al examen de CPA
requiera de un mínimo de 5 años de educación en contabilidad, y los CPA que no están en la práctica
empresarial deben tener educación permanente en el campo de la ética (Abbasi, 2013), para la
AICPA la profesión contable se debe acercar lentamente a la sociedad para volver a ganar la
confianza y el reconocimiento públicos, aspecto que se destaca en el estudio desarrollado por la
Comisión Pathways (AICPA, 2012), en la que se pretende dar un cambio de rumbo a la educación
contable con énfasis hacia una mejor estimación ética.
Así mismo IFAC como organismo regulador a nivel internacional de la profesión contable ha
propuesto desde el IAESB el estándar 4 (en adelante IES 4), denominado enseñanza de valores
profesionales, la ética y las actitudes, la cual determina que los contadores profesionales deben
adquirir durante el proceso educativo como explican Watty, Sugahara, Abayadeera, & Perera, (2013):
“Los valores, la ética y las actitudes profesionales deben tratarse por derecho propio dentro del
marco educativo ... Es esencial que no se perciban como algo periférico a su propio programa
educativo " (párr. 8). Asimismo, el desarrollo ético no puede ser ignorado en el proceso educativo y
debe "comenzar de forma anticipada en la educación de un contador profesional” (párr. 9). Ese
aspecto determina la importancia que genera para IFAC la educación ética como medio para
fortalecer la profesión y no la simple suscripción a un código profesional (West, 2017).
Por este motivo se observa como el IES 4 establece que, como mínimo, todos los programas deben
cubrir los siguientes temas dentro del plan de estudios: la naturaleza de la ética; diferencias entre
enfoques de ética basados en reglas y principios; cumplimiento de los principios fundamentales de
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integridad, objetividad, competencia profesional, debido cuidado y confidencialidad; comportamiento

profesional y cumplimiento de estándares; conceptos de independencia, escepticismo,
responsabilidad y expectativas públicas; ética y desarrollo profesional; responsabilidad social del
profesional contable ; ética y legislación; ética en relación con los negocios y el buen gobierno;
denuncia de irregularidades, conflictos de intereses, dilemas éticos y su resolución y las
consecuencias del comportamiento poco ético para el individuo, la profesión y la sociedad (IFAC,
2018).
En esa misma línea de trabajo tanto la posición de IFAC como la de AICPA determinan la
importancia de la enseñanza de la ética, así se deben observar las formas y estrategias para cumplir
este cometido, tanto como cuando se habla de ética o como se vive en el desarrollo profesional, la
primera pregunta planteada es: ¿Se puede aprender la ética? Toro & Rodríguez, (2017) plantean que
hay una variedad de actitudes con respecto a esta pregunta, desde la incertidumbre hasta el
escepticismo total, particularmente en una sociedad capitalista. A partir de los estudios de desarrollo
moral en los años 80 aplicando la teoría de Kohlberg, Chelariu, Horomnea, & Florentin (2014) logran
demostrar un marco de cuatro componentes para el comportamiento ético que consistió en:
sensibilidad moral; juicios morales; motivación y carácter morales. Este marco generó junto con la
ductilidad del comportamiento profesional contable la necesidad de fortalecer la inclusión de
estructuras éticas en los planes de estudios como explican Alegria Carreira, do Amparo Guedes, & da
Conceição Aleixo (2008). En lo que se está de acuerdo es que el abordaje debe hacerse
curricularmente ya sea a través de un curso específico de ética o de forma trasversal en diferentes
asifnaturas o en cursos de ética humanística, en el texto exploraremos está posibilidad a través del
estudio de los planes de estudio de universidades en Colombia.
Metodología de Investigación
El propósito de este estudio es doble. Primero, analizar los pronunciamientos de la IFAC y el IAESB
con respecto a la educación de los contadores profesionales tal como se encuentran en el IES 4. En
segundo lugar, se analizarán los planes de estudio de instituciones de educación superior colombianas
que ofertan programas de Contaduría Pública para determinar si el plan de estudios se aproxima a las
recomendaciones de IFAC.
La información se tomó del Sistema Nacional de Información de la Educación Superior –SNIES–, del
Ministerio de Educación de Colombia, con corte a 2018, el cual arrojó la existencia de trescientos
sesenta y tres (363) programas de Contaduría Pública, de los cuales se determinan que doscientos
veintisiete (227) están activos y el 12% del total corresponde a la modalidad virtual o a distancia
tradicional. De estos 227 para efectos del análisis se eliminan los que tienen varias sedes con
diferente registro ofertadas por la misma institución, pero con el mismo plan de estudios, quedando
129 programas académicos, los cuales serán la población objeto de análisis.
Para obtener cada plan de estudios se indago en cada página web de las universidades ofertantes,
desarrollándose una revisión por más de tres meses la cual se condensó en fichas de análisis que
incluían los siguientes elementos: Nombre de la institución, lugares de oferta, naturaleza pública o
privada, modalidad de enseñanza (presencial, virtual o distancia), total de créditos académicos y
periodos académicos, se examinaron el total de asignaturas ubicando si incluían algún tipo de
enseñanza de ética, inicialmente contable ( se observaba si el nombre del espacio de formación
indicaba elementos profesionales como código de ética, deontología, responsabilidad profesional,
etc.); o ética en general (se incluyeron términos de aceptación como moral, valores, axiología,
responsabilidad social empresarial, se excluyó expresamente los términos desarrollo sostenible y
responsabilidad ambiental), se revisaba si tenía más de un curso, si los cursos eran electivos u
obligatorios. Además, se inspeccionaron las declaraciones de misión y visión de los programas para
determinar si se mencionó la ética en cualquiera de ellos.
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El promedio de créditos académicos de la educación virtual y tradicional es de 151 créditos

académicos, proyectados a en promedio a 8,5 periodos académicos, así mismo se nota un mayor
énfasis de educación presencial como se observa en la siguiente tabla:
Tabla 1: Programas ofertados de Contaduría Pública
Numero de programas
Públicos 31 Presencial 113
Privados 98 Virtual 12
Distancia 4
129 129
Fuente: construido con datos del SNIES. https://snies.mineducacion.gov.co/consultasnies/programa#
Este estudio posee como limitación el no analizar a profundidad los contenidos mínimos o syllabus,
lo cual se hará en un estudio posterior usando como antecedente el trabajo de Ruiz-Urquijo & Ariza,
(2019), y se filtrará a partir de los análisis obtenidos en el presente documento.
Resultados Y Discusión
El Marco Normativo Colombiano
A continuación, se presenta una línea de tiempo construida a partir del estudio de ASFACOP (2019)
en el que se observa el comportamiento en la oferta de los programas de modalidad virtual y a
distancia tradicional, el cual recrea una tendencia hacia nuevos programas en modalidad virtual, y
con una reducción de periodos académicos de 10 a 8.
Fuente: (ASFACOP, 2019)
Inicialmente se debe comprender el contexto educativo en Colombia, los datos analizados provienen
de la información pública alojada en Ministerio de Educación Nacional –MEN–, referente a la oferta
de programas académicos del área, además se revisaron como elemento estructurante los siguientes
documentos: 1) condiciones específicas de calidad en los programas de contaduría pública, que
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estuvieron vigentes con la resolución 3459 de 2003; 2) los Estándares Internacionales de Educación
Contable – International Education Standard IES, los cuales hacen parte de las normas de
aseguramiento de la calidad promulgadas por la IFAC y que están asociados con las normas de
aseguramiento a las que convergió el país tras la promulgación de la Ley 1314 de 2009 y
posteriormente con el Decreto 0302 de 2015, aunque no se evidencia la obligatoriedad de su
cumplimiento, documentos que fueron la tercer fuente de análisis.
Análisis De La Enseñanza De La Ética A Partir De Las Mallas Curriculares
A continuación se presentan los resultados del análisis de las mallas curriculares/plan de estudios de
129 IES, en la misma se puede observar la existencia o no de un curso específico ya sea de ética
general o de ética contable, así mismo se encuentran trazas de influencia internacional al encontrar
cursos como Código de Ética de la IFAC, estos aspectos de análisis materializan las tendencias
expuestas anteriormente, ya que según Koumbiadis & Pandit (2014) un curso de ética contable
específicamente es interesante y / o beneficioso, el hecho de que el curso de ética se imparta a adultos
(estudiantes mayores de 18 años) significa que se está impartiendo a ciudadanos cuyos marcos
morales ya han sido desarrollados y no es probable que los varíen mucho.
En estudios paralelos, por ejemplo, Limijaya (2018) encontró que el 60% de universidades en
Indonesia impartía un curso específico de ética contable, así mismo se halló que se ofertaba el curso
contable mezclado con otras profesiones, otro estudio en Brasil de Feil, Diehl, & Schuck (2017)
aseguró que los principios éticos / morales de los estudiantes que se tengan establecidos, no es
probable que se modifiquen, pero también expusieron que la educación, incluida la capacitación en
ética, puede proporcionar una base más sólida para el desarrollo sobresaliente y la mejora del carácter
del estudiante. Además, existen dos limitaciones para la educación en ética contable: en primer lugar,
la mayoría de los profesores no han sido formados en enseñanza de la ética formalmente, ni en
pedagogía, aspecto que se observa en diversas profesiones liberales (Kind & Chan, 2019). En
segundo lugar, la mayoría de la enseñanza de la ética está integrada dentro de diversos cursos de
contabilidad general, o auditoria, lo que implica estar expuesto a la voluntad del maestro de dedicar el
tiempo necesario a los casos éticos como explica Leitsch (2006). No obstante, el estudio de St Pierre
& Rebele (2014) manifiesta que los estudiantes deberían aprender tempranamente en los programas
académicos el comportamiento en las organizaciones con actitudes más éticas. Aunque los recientes
escándalos financieros son un síntoma de que aparentemente el método integrado/transversal para la
enseñanza de la ética no ha sido exitoso (Singh & Poduval, 2009), o al menos, se ha evidenciado que
no ha evitado los recientes escándalos a nivel global y especialmente en Colombia.
Manifiesta O’Leary, (2009) que a partir del estudio realizado por NASBA- National Association of
State Boards of Accountancy, en conjunto la Asociación Americana de Contabilidad (AAA por sus
siglas en inglés) se emitieron requisitos en el territorio norteamericano para la enseñanza de la ética
contable que impactaron de forma globalizada a la profesión, el estudio determinaba que cualquier
programa de contabilidad debería incluir y enfatizar el comportamiento ético y la responsabilidad
profesional, conocida como la regla 5.2 de NASBA (Haywood & Wygal, 2009), pero que además no
se requerirán cursos específicos de ética gerencial o contable, es decir revelaban la necesidad de
transversalizarla en el currículo. Sin embargo, en oposición por lo menos cuatro juntas de
contabilidad estatales (Texas, Maryland, Nueva York y Nebraska) han agregado requisitos de
educación para la obtener la licencia de CPA (Apostolou, Dorminey, Hassell, & Hickey, 2019), está
propuesta de NASBA ha generado polémica y antagonismo frente a IFAC, debido a que deja al libre
albedrío las formas de enseñanza de la ética profesional, en contraposición con la postura de IFAC
que determina en el párrafo A52 que:
“Los programas profesionales de educación contable están diseñados para ayudar a los
aspirantes a contadores profesionales a desarrollar la competencia profesional adecuada para
el final de su DPI (desarrollo profesional integral). Dichos programas pueden incluir
educación formal entregada a través de calificaciones y cursos ofrecidos por universidades,
otros proveedores de educación superior, organismos miembros de IFAC y empleadores, así
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como capacitación en el lugar de trabajo. El diseño de programas profesionales de educación

contable ofrecidos durante el DPI puede, por lo tanto, involucrar aportes importantes de
partes interesadas que no sean los organismos miembros de IFAC” (International
Accounting Education Standards Board-IAESB, 2017)
Es decir, este pronunciamiento trasciende el aprendizaje de la ética de un modelo transversal (es decir
sin cursos específicos), con un curso concreto de ética, y lo lleva a niveles que indican que la ética se
continúa aprendiendo aún después de la obtención de un título profesional, al revisar los resultados de
la tabla 2 presentada continuación se observa una mezcla equilibrada en la propuesta de la enseñanza
entre cursos ofertados por profesionales contables (dado que pertenecían al área curricular contable) y
cursos desde áreas humanísticas, así como la no enseñanza desde un curso concreto de ética (un 20%
de los programas), pero si una manifestación ética en su misión y visión, en este sentido Colombia se
asemeja al caso norteamericano sin una postura clara frente a la inclusión de enseñanza ética dentro
de los currículos. El análisis de la tabla 2 implica comprender que en este caso de no considerar un
curso específico de ética, se asume que está enseñanza se debe dar en casos de asignaturas del área de
control y tributaria, pero se corre el riesgo de que no se desarrolle y en la mayoría de los casos queda
a discreción del profesor de cada espacio académico, algo instituido es el número de horas por
periodo académico que en promedio es de 96 horas, que es el resultante de dos créditos académicos,
sin importar si la IES es publica, privada o la metodología de enseñanza.
Tabla 2 : Cursos ofertados por programas de Contaduría Pública relacionados con ética
Programas que ofrecen

un curso de ética
desde el área no
Programas que ofrecen contable Programas que ofrecen
un curso de ética desde el (humanidades, más de un curso de Programas que no ofrecen
área contable institucional) ética ningún curso de ética
Numero de
programas:
129 45 54 5 25
Ética
Ética contable
Código profesional del
Ética
contador público
Ética y
Código de la IFAC
responsabilidad
Deontología
empresarial
Ética del contador y de la
Ética empresarial
empresa Ofertan asignaturas
Ética de los negocios Adicionales:
Ética y responsabilidad humanísticas electivas,
Ética y Política Ética y valores,
empresarial aunque no se evidencia un
Ética, ciudadanía y Axiología,
Nombre de Ética de los negocios sentido estricto de ética
paz Responsabilidad social
los cursos Ética y responsabilidad profesional
Ética y valores - RSE,
profesional
Ética filosófica Ética cristiana y
Revisoría Fiscal y ética En su misión y visión
Ética y proyección humanismo
en las organizaciones declaran aspectos éticos
social
Ética gerencial y
Entorno, globalidad y
responsabilidad social
ética
Enviromental
Ética, valores y moral
Accounting and Ethics as
Ética Cristiana
Social Responsibility
Ética y compromiso
profesional
Van desde 4° hasta 10°,

Lugar en el la mayoría se concentra Van desde 2° hasta
plan de en los dos últimos 10°, en promedio se ve
estudios periodos académicos en 8° En toda la malla
Naturaleza Todos son obligatorios 2 electivos, 52 Obligatorios
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(obligatorio o obligatorios
electivo)
En general, deben haber
cursado las asignaturas
de auditoria y En general ningún
Prerrequisitos contabilidad financiera prerrequisito
Número de
créditos
(horas de
trabajo) en
promedio 2,1 2,2 1
Fuente: Elaboración propia a partir de las fichas de recolección
Así mismo St Pierre & Rebele, (2014) creen que la ética debería integrarse en los cursos de negocios
y contabilidad y no establecerse como una clase requerida separada con un enfoque exclusivo para el
tema de la ética, sobre todo por la necesidad de aprender ética en la práctica, aspecto que se destaca
por lo propuesto por IAESB (2017): en el párrafo A 35: “Las experiencias más realistas sobre las
cuales reflexionar pueden ocurrir en el lugar de trabajo. Cuando esto no sea posible o apropiado, se
deben desarrollar simulaciones de experiencias de la vida práctica”
El abordaje se puede hacer de diversas conveniencias, desde este enfoque internacional, lo relevante
para desarrollar el estándar 4 implica la consideración de casos selectos que estén en el dominio
público, pero sobre todo como indica IAESB (2017) se debe estimular a los organismos miembros de
IFAC, a los educadores y a otras partes interesadas en identificar el enfoque más apropiado para el
aprendizaje y el desarrollo de los valores profesionales, la ética y las actitudes, teniendo en cuenta el
entorno nacional y cultural de cada espacio de desarrollo profesional. También se observa en la tabla
2 que de las 104 universidades restantes, la oferta de la asignatura de ética o sus relacionamientos se
da en partes iguales entre áreas humanísticas, es decir ofertadas por profesionales de la sociología, la
filosofía, economía, etc. y la otra mitad por profesionales contables enfatizados en problemas y
perspectivas propias de la profesión, este último aspecto se alinea con lo propuesto desde IESBA
(2017), en donde “La actividad reflexiva es el proceso iterativo mediante el cual los contadores
profesionales, en todas las etapas de su carrera, continúan desarrollando su competencia
profesional mediante la revisión de sus experiencias (reales o simuladas) con el fin de mejorar sus
acciones futuras” (párrafo A34)”, aspecto que garantiza que los casos a tratar sean específicos con la
estructura profesional contable y no con dilemas éticos y morales de forma genérica o de otras
profesiones. Otro aspecto por destacar es que la mayoría de los cursos de oferta con carácter ético se
dan en los últimos periodos académicos.
Si bien la educación ética en Colombia ha ido en aumento en la última década, y se ha tornado más
específica hacía un enfoque deontológico, y de responsabilidad profesional, esto tal vez por los
requisitos normativos mencionados en el marco colombiano, se requerirá educación ética adicional a
medida que el Código de Ética Contable colombiano expresado en la Ley 43 de 1990 y el Código de
Ética para Contadores Profesionales de IFAC confluyan y el estándar 4 y las normas de educación
local entren en vigor.
Un Análisis A Partir De Las Aplicaciones Modernas De La Teoría De Max Weber
En esta etapa de modernidad capitalista afianzada, los métodos, datos y conclusiones de Max Weber
han sufrido una gran cantidad de revisionismos y críticas. Sin embargo, su hipótesis de que existe una
relación entre las creencias religiosas (elementos ideológicos) y los agentes económicos y sus
actividades, sigue siendo ampliamente aceptada. De hecho, el fenómeno del “espíritu” del
capitalismo se observa como de amplio alcance como sustenta Ascher (2010), este ejercicio del
estudio de la estructura religiosa (ideológica) en relación con el espíritu empresarial es funcional
debido a lo observado en los resultados de la tabla 2 en la enseñanza de ética desde áreas
humanísticas e institucionales, en la que se observa la práctica de mezclar en los planes de estudio la
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ética profesional contable, que demanda un alto estándar deontológico o del deber hacia el interés
público; en contraste con la ética de los negocios, enmarcada en una ética similar a la del
cristianismo protestante, en este sentido es cuestionable el cómo discernir para un docente de una
ética ascética, de llamado al trabajo, al frugalismo y de administración legítima como la define
Pellizzoni (2018), de una ética del control público, este aspecto se observa en nombres de cursos
como : Ética de los negocios, Ética y responsabilidad empresarial, Ética gerencial y responsabilidad
social. Los anteriores aspectos de enseñanza de la ética, como el estudio de la moralidad, describen,
analizan y juzgan lo que considera un comportamiento correcto e incorrecto en un contexto dado.
La ética empresarial es la aplicación de ese proceso evaluativo a las normas y estándares de

comportamiento designados en el mundo del comercio (Ascher, 2010). Muchos de los principios
morales utilizados en la ética empresarial encuentran paralelos en el concepto de integridad en las
culturas asiática y occidental. Por ejemplo, el concepto de utilidad explicado por Enderle (2007) que
determina lo correcto o incorrecto al evaluar las consecuencias, favorables y desfavorables, que
produce una política o práctica en la organización, o la teoría de los derechos que evalúa una acción o
política basada en los derechos de cada parte interesada y en el deber correspondiente de la empresa
de proteger dichos derechos, todo esto insertado en una ética organizacional que determina seguir los
valores trazados en la declaración de misión o el código de ética de la compañía, es decir en donde el
fin último desde una estructura utilitarista es el capital de la empresa en sí misma, pero no el interés
de la sociedad en general, aspecto que puede ser estudiado en las posiciones de los abogados de los
tribunales de arbitramento en conflictos de la empresa privada y el estado; aunque la ética
empresarial es un campo en evolución cuyas decisiones y acciones incluyen la responsabilidad social
empresarial, este se convierte en un marco muy limitado en donde no se revelan todos los aspectos de
la organización, y en el que aspectos como el desarrollo sostenible (no sustentable) y la filantropía
son muchas de sus formas de gestión como explican Ruiz-Urquijo, Ortiz, & Laverde (2017). Estas
perspectivas éticas son aplicables a las diversas dimensiones de los negocios, que van desde la
adquisición de recursos naturales hasta la distribución del producto o servicio final, lo que implica un
marco de una ética de corte más utilitarista y menos virtuosa, se observa que la necesidad de
integridad y ética en los negocios nunca ha sido tan grande y relevante hoy día, como lo demuestran
los numerosos escándalos empresariales que han dado paso a una nueva generación definida por un
comportamiento poco ético, pero que se enmarca en la necesidad de lucro para demostrar resultados,
externalizando los costos a la sociedad (Ambrose & Cross, 2009).
Así desde el análisis de la enseñanza, se plantea en esta investigación cuestionar la mezcla de cursos
con enfoque empresarial con profesionales contables, ya que las teorías éticas utilitaristas y egoístas
subrayan los argumentos principales en apoyo a la distribución eficiente de los recursos dentro de los
paradigmas empresariales prevalecientes, evidentemente no como lo propone el análisis
neoweberiano de ese espíritu del capitalismo explicado por Ascher (2010). Entonces es viable
cuestionarse si es posible enseñar una posición ética que defienda el beneficio personal a corto plazo
a expensas de la tragedia social de más largo plazo como lo representa Hardin en “La tragedia de los
comunes” (Ogilvy, 2015). Esto no es posible en un marco individual-capitalista, en donde el
formalismo reemplaza el juicio moral sustantivo con un racionalismo exacerbado, mientras que el
consecuencialismo lo reemplaza con una racionalidad calculadora como explica Enderle (2007),
ambos enfoques privilegian la frugalidad, el ascetismo, que se oponen epistemológicamente a las
decisiones morales deontológicas establecidas para el profesional contable, que desde un enfoque
reflexivo debe servir al interés público, apreciado este como los intereses más amplios de la sociedad,
incluyendo características como el mantenimiento de la vida para generaciones presentes y futuras
traducido en aspectos ambientales y de sostenibilidad, comprendiendo ese público como todas las
partes interesadas en un mercado, talante que IFAC (2012) ya ha observado en su declaración sobre
el sentido más amplio del interés público, dejando de lado únicamente el paradigma de utilidad al
inversionista y rentista de capital. Así está ética contable debe tomarse con respecto a un principio
fundamental, desde el imperativo categórico kantiano, y con un nivel de moralidad posconvencional
y de ética ciudadana desde Kohlberg.
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Conclusiones
Desafíos para la enseñanza de la ética, actitudes y valores en la profesión contable
El propósito de este estudio fue doble. Primero, analizar los pronunciamientos de la IFAC y el
IAESB con respecto a la educación de contadores profesionales tal como se encuentran en IES 4 y el
Handbook de IASEB. En segundo lugar, analizar los planes de estudio de un conjunto de
instituciones colombianas que ofertan programas contables a nivel profesional, para determinar si el
plan de estudios de cada programa académico sigue las recomendaciones de la IFAC. Una de las
limitaciones de este estudio fue no revisar materiales de clase y syllabus a profundidad, las
ramificaciones adicionales de este estudio podrían encuestar a universidades y educadores contables
de asignaturas de ética, pero también de asignaturas de áreas profesionales relacionadas con dilemas
éticos.
La enseñanza de la ética dentro de las escuelas de negocios y facultades de ciencias económicas es

una estructura compleja. Este es especialmente el caso de los profesores asignados a la tarea de
enseñar ética a los estudiantes de Contaduría Pública, ya que se enfrentan a varios desafíos innatos.
En primer lugar, los principios de la ética son fundamentalmente diferentes de los temas técnicos que
constituyen la mayor parte de los programas de contabilidad. La naturaleza filosófica de la ética no se
presta a los métodos de enseñanza a los que los estudiantes y los docentes contables están
acostumbrados y es una de las razones por las que la enseñanza de la ética se descuide con tanta
frecuencia. Además de las dificultades fundamentales, también están las limitaciones presupuestarias
para investigar en términos de didáctica contable. Tradicionalmente, los profesores universitarios
están sujetos a limitaciones de tiempo significativas, pero además se logra observar en la tabla 2 el
uso de profesores no contadores para compartir las sesiones con otros programas de las IES, aspecto
que se evidencia en el 50% de los cursos analizados, lo que abre el debate para considerar también el
material, estrategias didácticas y casos utilizados en el contexto de clase.
El desafío para los educadores del futuro próximo implica recrear propuestas para producir alumnos
creativos y flexibles para toda la vida, y proporcionar a los estudiantes las competencias necesarias
para tener éxito desde un marco de confianza pública, y así empoderar a todos los graduados
contables para avanzar en su profesión, en las organizaciones y la sociedad. A medida que avanzamos
bajo estándares internacionales se requerirá cada vez más que los contadores aprecien el papel crítico
que la ética cumple en la profesión contable y trabajen continuamente para mejorar su proceso de
reconocimiento y reflexión sobre cuestiones y dilemas éticos. Como muchos contadores demuestran
una debilidad inherente en el área del razonamiento ético, es especialmente importante que el sistema
de educación contable esté mejor diseñado para ayudar a los estudiantes a desplegar estas habilidades
esenciales, aspecto que se logra con una claridad curricular en los diseños de planes de estudios. Esto
requerirá una acción significativa tanto de las instituciones de educación superior, así como de los
organismos y gremios contables para mejorar los métodos de enseñanza a través de casos y
aplicaciones en las organizaciones, incrementando el tiempo de instrucción dedicado al material de
ética.
En la revisión de los planes de estudio se observa como la enseñanza de la ética se desarrolla algunas
veces desde áreas humanísticas dejando de lado elementos profesionales contables, aspecto que
puede o debe complementarse con una condensación de elementos de ciudadanía y desarrollo
profesional como explican Cooper, Leung, Dellaportas, Jackling, & Wong (2008) a través de
herramientas de caso en contextos propios profesionales. Así mismo se observa la inconveniencia
epistemológica que genera mezclar la ética del empresario con la ética del profesional contable, ya
que provienen de un antagonismo entre utilitarismo y deontología como lo sustento el análisis
neoweberiano de Ascher (2010).
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La integración completa de la educación ética en el plan de estudios puede no ocurrir a menos que lo
ordene una agencia reguladora como el ministerio de educación, este elemento ha llevado a que
exista una heterogeneidad en nombres de cursos y estrategias para asumir la enseñanza de la ética. En
este sentido los educadores contables deben prepararse tanto para la enseñanza de la convergencia de
las NIIF con los COLGAAP , así como para la inclusión de una amplia cobertura ética en el plan de
estudios, dado que este aspecto es el que exige la sociedad hoy día. Las normas internacionales en sus
cinco áreas (norma financiera, normas de aseguramiento, código de ética, normas de contabilidad
pública y estándares de educación) que emanan desde IFAC deben observarse de forma integrada, y
no fragmentada como es percibido por estructuras de la práctica profesional contable, y aquí juega un
papel importante los elementos de comprensión de los estándares internacionales de educación. Se
abre así un panorama para estudiar las prácticas de enseñanza, las estrategias y el material utilizado
en las asignaturas de ética, así como la percepción de los egresados y estudiantes de estas
metodologías en correlación con su quehacer profesional.
Agradecimientos
El desarrollo de esta investigación fue financiado por la Corporación Universitaria Minuto de Dios
dentro de la convocatoria de UVD-2018 perteneciente al proyecto C117-20-128 -Análisis
comparativo de las metodologías de enseñanza de la ética profesional, con código 300-IN-1-18-023.
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A Dualistic Chain of Command –

The Identification and Consequences of the Phenomenon
Małgorzata MATYJA
Wroclaw University of Economics, Wroclaw, Poland
malgorzata.matyja@ue.wroc.pl
Magdalena RAJCHELT-ZUBLEWICZ
magdalena.rajchelt@ue.wroc.pl
Estera PIWONI-KRZESZOWSKA
estera.piwoni-krzeszowska@ue.wroc.pl
Abstract
Purpose. In this paper the authors intend to investigate the organizational situation consisting in
simultaneous overlapping of hierarchical relationships between supervisor and subordinate passing in
opposite directions. Such situation is named “a dualistic chain of command”. The purpose is to determine
the implications of such a chain of command in organizations. Design/methodology/approach. This is a
conceptual paper. It uses logical reasoning methods based on the review of the contentions of different
scholars. Findings. The key findings allow to indicate mainly a destructive influence of the disturbed
chain of command on different fields in an organization. These fields include organization as a whole,
employees i.e. subordinates, managers i.e. supervisors and relationships between them. More precisely,
the implications include: decline in overall performance, lower quality of superior-subordinate
relationship, hindering decision making processes, conflicts, supervisors’ demoralization and their
retaliation. Research limitations/implications. It is a reflective paper and it has no empirical results.
Besides, there has been no analytical treatment for a problem of a dualistic chain of command in the
literature so far. However, because the dualism is a certain disruption in the chain of command, the
analysis was extended with other possible irregularities in the chain of command. Originality/value. The
paper fills the gap in the theoretical explanation of the problem of the dualistic chain of command.
Keywords: chain of command, dualistic, superior-subordinate relationships, authority.
Introduction
Every organization has a structure understood as “a pattern of relationships among positions in the
organization and among members of the organization” (Miller, 2007). These relationships may be
different in their nature. They are often called workplace relationships, which are “unique interpersonal
relationships with important implications for the individuals and the organizations in which the
relationships exist and develop” (Gaur and Ebrahimi, 2013).
Many authors share the view that one of the most important relationships within organization is the
relationship between superior and subordinate, often named as hierarchical relationships (Kozina, 1990;
Abu Bakar and Mustaffa, 2008; Gaur and Ebrahimi, 2013; Oginni et al., 2014). The reason might be its
common occurance in an organization – every individual is involved in a superior-subordinate
relationship. Despite such a wide scale of this phenomenon, the output of existing literature insufficiently
organizes and explains it. Researchers do not even agree on the number of publications on the subject.
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Some claim that there were large attempts within superior-subordinate relationship (Waldron, 1999; Abu
Bakar and Mustaffa, 2008; Kassing, 2009) and conversely, some point to the deficiencies in this area
(Friebel and Raith, 2004; Hart and Moore, 2005; Smeets and Warzynski, 2008).
The concept of superior and subordinate relationship is deeply rooted in the leadership concept
manifested through leadership styles (Oginni et al., 2014). Supervisor is seen in the light of superior as
well as leader. The power of the leader in turn refer to hierarchical relationships which determine the
division of authority in an organization (Kozina, 1990). The sequence of hierarchical relationships
establishes the chain of command. In this way, the location of the chain of command in the organization
is drawn – it is a component of superior-subordinate relationships that are part of workplace relationships.
One of Fayol’s principles of management referring to the chain of command became paramount in the
discussion of superior and subordinate relationship (Oginni et al., 2014). The emphasis of the chain of
command is on the inter-connectivity and unbroken set of reporting relationship from the top of the
organisation to the bottom. It is a test on individual’s performance against the expectations of a superior.
Griffin (2004) in turn claims that from the lowest to the highest position in an organization, a clear and
uninterrupted line of authority should be observed. According to H. Fayol, “the clearer the division of
hierarchical relationships is, the more effective the process of decision taking and effectiveness becomes”
(quote for Crumption, 2013).
Ishida (2015) reports that typically those higher up in the hierarchy, are conferred more authority and,
hence, carry an asymmetrically large weight in the decision-making process than others. Therefore,
normally the chain of command should be directed from top to bottom of an organizational structure
(Morgan, 1997). Consequently, if the chain of command is a sequence of hierarchical relationships
between superiors and subordinates, each relationship between each dyad should be directed from a
superior to a subordinate. It seems so obvious that it is difficult to imagine that it could be different.
As pointed out by Zieleniewski (1972), a hierarchical relationship is always, bearing in mind one case,
one-sided. However, this does not eliminate the possibility of occurrence of hierarchical relationship
between the same team members inversely directed bearing in mind another case. Moreover, this allows a
change of direction of the relationship between the same members in another case of the same type
(Zieleniewski, 1981). While considering the hierarchical relationships we could distinguish the following
types (Kozina, 1990): 1) imperious, characterized by full subordination, which divide into: those related
to managerial positions, and those related to instance (higher and lower organizational units), 2)
regulatory – characterized by partial subordination, understood as limited rights to some decisions,
mainly methodological related to the way the tasks are carried out.
Let’s assume that worker A is a supervisor for worker B who, aside from work under A’s supervision, sits
also on a higher instance in an organization. Here, we encounter a situation of simultaneous overlapping
of hierarchical relationships – those related to managerial positions and those related to instance –
between the supervisor A and the subordinate B passing in opposite directions. In such way, the disturbed
chain of command is created. It has a dualistic nature because it assumes the existence of two separate
hierarchical relationships connecting the same employees, in addition inversely directed.
The three main questions remain unanswered: 1) What are the reasons of occurrence of the dualistic chain
of command? 2) What consequences does the dualistic chain of command bring? 3) How can the negative
outcomes of the dualistic chain of command be overcome, if there are any? Therefore, the aim of the
paper is: determining the outcomes of the dualistic chain of command in an organization.
The paper fills the gap in the theoretical explanation of the problem of the dualistic chain of command.
This is a conceptual paper. It uses logical reasoning methods based on the review of the contentions of
7809
different scholars to develop the hypothesis. The authors believe, that it begins the discussion of the
identified phenomenon.
The possible disturbances in chain of command
There are many fields within an organization that could be affected by a dualistic chain of command.
However, it is extremely difficult to find in existing literature logical or empirical evidence proving both
the occurrence of this phenomenon and its implications. The problem of a dualistic chain of command,
understood as simultaneous overlapping of hierarchical relationships between the supervisor and the
subordinate passing in opposite directions, to the best of the authors’ knowledge, has not been sufficiently
defined and explained by scholars.
However, there were numerous attempts to recognize the consequences of widely considered
inappropriateness in a chain of command. The role of properly functioning chain of command was also
emphasized by some authors. As the dualistic chain of command is a certain disruption, it is firstly worth
considering other disturbances of the chain of command in the organization that have been the subject of
research by other authors.
The relatively close approach to the defined problem of a dualistic chain of command applies Kassing’s
(2007, 2009) circumvention which involves going around one’s immediate supervisor to share concerns
with someone higher in the chain of command. This topic was also commented on by Falconi (1997) and
Friebel and Raith (2004). Circumvention is initiated when employees question their immediate
supervisors’ behaviour or when they perceive that their immediate supervisors are not receptive to
hearing or are incapable of responding to dissent effectively (Kassing, 2007). It impends the problem of a
dualistic chain of command in terms of referring to a higher instance and causes of occurrence. Yet,
circumvention focuses on communication between superior and subordinate, i.e. functional-information
relationships, while a dualistic chain of command involves hierarchical relationships. Although
circumvention is undoubtedly a kind of disorder in a chain of command, it could not serve as means of
interpreting the phenomenon of a dualistic chain of command.
The problem of fall in communication between superior and subordinate was investigated also by Abu
Bakar and Mustaffa (2008). They confirmed as Meiners and Miller (2004) that the extensiveness of
communication activities can influence various activities in organization. However, their work represents
only one particular way in which the dualistic chain of command can manifest. Similarly to the research
of Gaur and Ebrahimi (2013) and Oginni et al. (2014) who discuss the incorrectness of managing the
superior-subordinate relationships or to Brutus et al. (1998) who criticize the rating of a supervisor by his
employee.
Another possible interruption in the chain of command refers to the division of authority, which, as it was
mentioned before, constitutes the substructure for consideration of the stated problem. For example,
Aghion and Tirole (1997) theorize on an unequal allocation of authority. Like many scholars, they
distinguish formal authority (the right to decide) from real authority (the effective control over decision).
They point out that sometimes a subordinate can have an increased real authority, even larger than his
supervisor. However, their approach refers to the context of asymmetric information, i.e. when a
subordinate has an access to the information which is not fully or partially in the possession of his
supervisor. Although the Aghion’s and Tirole’s (1997) findings recognize some confusion of hierarchical
relationships, their context does not really capture the essence of the dualistic chain of command.
The authority is the defining feature of hierarchy (Baker et al., 1999) and the dualistic chain of command
is a hierarchy disorder. Although there are different opinions about positive and negative aspects of
7810
hierarchies in organizations (Leavitt, 2003; Oshagbemi and Gill, 2004; Sanner and Bunderson, 2018), we
can also find expressive voices convincing that any inappropriateness in organizational hierarchy is not
optimal (Qian, 1994; Hart and Moore, 2005).
The consequences of disturbed chain of command. The hypothesis development

The detailed analysis of scholars’ conclusions on the chain of command allows to indicate its constructive
or destructive influence on different fields in an organization. These fields, summarized in table 1,
include organization as a whole, employees i.e. subordinates, managers i.e. supervisors and relationships
between them. Distinguishing the influence of disturbed and undisturbed chain of command on different
fields in an organization leads to the following statements: S1 – disturbed chain of command is
destructive, S2 – disturbed chain of command is constructive, S3 – undisturbed chain of command is
constructive, S4 – undisturbed chain of command is destructive.
In table 1. particular statements are assigned to the conclusion of particular authors. On 36 collected
conclusions on the influence of chain of command 26 refer to S1 and S3, 5 refer to S2 and also 5 refer to
S4. Therefore, on the basis of the adduced literature review and in the face of the vast majority of
arguments for, there can be accepted the hypothesis assuming that the disturbed chain of command
negatively influences the following fields in an organization: organization as a whole, employees i.e.
subordinates, managers i.e. supervisors and relationships between them. Taking into account that the
dualistic chain of command is a kind of disturbance, the above hypothesis can also be adopted to this
phenomenon.
Discussion and future Direction of The Research
First of all, the authors would like to include important constrains of their research. As it was stated
above, to the best of the authors’ knowledge there has been no analytical treatment for a problem of the
dualistic chain of command, understood as simultaneous overlapping of hierarchical relationships
between the supervisor and the subordinate passing in opposite directions, in the literature so far. It is the
main limitation of the theoretical analysis of the problem. However, on the other side it could serve as the
challenge for scholars to investigate it in a broader way. Although the provided analysis is new, it makes
use of building blocks developed by other authors. Therefore the authors believe that the issues covered
in this paper are just the beginning of the discussion of the identified phenomenon.
Table 1: The influence of chain of command on different field in an organization
Fields influenced by State-

Authors
chain of command related to ment
Fayol, 1949 S3
South and Matejka, 1990 S1
efficiency, performance
Hart and Moore, 2005 S1
Abu Bakar and Mustaffa, 2008 S1
organization Fayol, 1949 S3
Syriopoulos and Tsatsaronis,
decision making process S3
2012
Zydziunaite V. et al., 2015 S3
strategy Yoo et al., 2006 S3,S4
7811
Yoo et al., 2006 S4

innovation
Sanner and Bunderson, 2018 S4
South and Matejka, 1990 S1
staff commitment Abu Bakar and Mustaffa, 2008 S1
Oginni et al., 2014 S3
Oginni et al., 2014 S3
conflicts
Sanner and Bunderson, 2018 S3
hierarchy Kassing, 2009 S2
Qian, 1994 S3
efficiency, performance
Gaur and Ebrahimi, 2013 S1
wages Qian, 1994 S3
employees, initiative Aghion and Tirole, 1997 S2
subordinates achieving goals Kassing, 2007 S2
improving workplace
conditions or corporate Kassing, 2007 S2
policies and practices
performance Kassing, 2007 S1
loss of control Aghion and Tirole, 1997 S1
Falconi, 1997 S1
managers, demoralization
Zydziunaite V. et al., 2015 S4
supervisors
Brutus et al., 1998 S1
responses, retaliation Friebel and Raith, 2004 S1, S3
Kassing, 2007 S1
superior- leadership style Oshagbemi and Gill, 2004 S3, S4
subordinate Kassing, 2007 S1/S2
relationships quality
Abu Bakar and Mustaffa, 2008 S1
Moreover, the authors are aware that this is a reflective paper and it has no empirical results. It would
have been interesting to see, in an empirically based paper, the causes and effects of existing the dualistic
chain of command in real organizations. Although the analyzed problem could still seem just theoretical –
what would happen if the subordinate had a bigger power than his supervisor? – it is reflected in the
practice of some organizations. For example, in worker cooperatives, whose members have the ownership
and are at the same time employed on the basis of the so-called cooperative employment contract. Out of
all the members, belonging to the general assembly, the supervisory board monitoring the activity of the
whole cooperative and management board, is selected. The managerial positions in a cooperative,
including also the boards, can be taken by employees from outside the members, who bearing in mind
their position supervise other members – also those who belong to the supervisory board. In such way, the
tangle of hierarchical relationships is formed.
It is also essential that the dualistic chain of command is present in other organizations, such as
universities (when the subordinate of the head of a department is simultaneously the dean of a faculty or
even the rector of a university), employee companies, and also family companies. Therefore the potential
scope of the identified phenomenon is, in this respect, considerably wider.
7812
The authors would also like to point out the possible theory contexts for consideration on the dualistic
chain of command. They could work well for explaining the existence of this phenomenon and emerge
the future directions of the research.
First of all, the dualistic chain of command results from the configuration of hierarchical relationships in
an organization. It is also directly connected with the division of authority in organisations, which has
been widely discussed in literature concerning management for a long time. Although even today scholars
have different opinions concerning the very term “authority” and its main indicators (Bourgoin and
Bencherki, 2013), it can be claimed that there are two supplementary trends formed on the basis of
analyzing this topic. One of them identifies authority as power, control (Aghion and Tirole, 1997;
Dessein, 2002). This trend is represented by the theory of principal-agent (Grossman and Hart, 1983). In
the other trend, the authors combine authority with leadership, which in some way is the ability to
influence subordinates. Among their representatives, there are the following: C. I. Barnard (1938), M.
Weber (1968) and their followers (e.g. Satow, 1975; Nelson, 1993; Hoogenboom and Ossewaarde, 2005;
Lounsbury and Carberry, 2005). Some include leadership capabilities to the strategic assets of
organizations that allow them to achieve performance on a daily basis with long-term success (Kivipold
and Vadi, 2010). There are also voices that authority is an indispensable component of both management
and leadership (Koźminski and Jemielniak, 2011). The dualistic chain of command refers to a situation in
which there is an unclear division of authority in an organization.
Moreover, the concept of the dualistic chain of command is directly related to the idea of employee
participation, which from the practical point of view dates back to the period right after the end of the
first world war and which experienced its revival in the 70’s in the previous century (Błaszczyk, 1988).
Together with the development of this idea, in enterprises the development of the scientific explanation of
this phenomenon began. Many scholars and practitioners agree that employee participation brings an
organization many benefits. Among those, the following can be mentioned: “socialization of capital”,
prevention of employee alienation, better employee motivation, favouring democratization of social and
political life, higher accuracy of decisions and their better implementation (Borkowska, 1990). Also, the
specification of forms of employee participation is essentially important (Sagie and Aycan, 2003). The
dualistic chain of command constitutes extreme forms of employee participation: direct, formal, decisive,
financial, containing the right to joint settlement. Taking into account the doubt about the benefits of
employee participation and its extreme forms, considering the chain of command forces analysis of the
idea of employee participation in a critical way.
An alluring theory context for consideration of the chain of command is the latest concept of
microfoundations which has attracted the attention management scholars since early 2000s. Works of
Lippman and Rumelt (2003a, 2003b), Foss (2003), Gavetti (2005), Teece (2007) and Fellin and Foss
(2005, 2006, 2011) became the basis for the microfoundational analysis in strategic management. The
concept of microfoundations exposes the importance of finding the causality of collective phenomena at
lower levels of analysis (Piórkowska, 2017). It refers mainly to the basis of collective phenomena, as well
as those occurring at the level of the entire organization and/or the relationship between constructs at the
initial level of perception of a given phenomenon. The concept of microfoundations has worked well for
explaining the occurrence of some phenomena in an organization depending on the behaviour of
individual superiors and subordinates. Thus, it allows to discover the impact of the dualistic chain of
command.
Conclusion
The chain of command has a great importance in every organization. However, in employee-managed
firms it often gains complexity by entanglement of hierarchical relationships resulting from enabling
employees to participate in management. The situation of simultaneous overlapping of hierarchical
7813
relationships between supervisor and subordinate passing in opposite directions induces dualism of the
chain of command. This, in turn, has negative consequences for different fields in an organization.
Finding those consequences turned out to be difficult because, to the best of the author’s knowledge,
there has been no analytical treatment of such problem.
However, because the dualism is a certain disruption in the chain of command, decision to extend the
literature review with other possible irregularities in chain of command has been taken. They include:
circumvention and fall of communication between supervisor and subordinate, the allocation of formal
versus real authority in context of asymmetric information and general inappropriateness in
organizational hierarchy.
The key conclusions emerging from the analysis allow to indicate mainly destructive influence of
disturbed chain of command on different fields in an organization. These fields include organization as a
whole, employees i.e. subordinates, managers i.e. supervisors and relationships between them. More
precisely, the implications involve decline in overall performance in organizations, as well as quality of
the superior-subordinate relationship. They also include hindering the decision making processes and
provoke conflict situations. They are demoralizing to supervisors and not infrequently, they result in a
managers’ response in the form of retaliation.
In the authors’ opinion, from the theoretical point of view the paper contributes mainly to:
• drawing the attention to the possibility of existence of the phenomenon of the dualistic chain of
command in organizations,
• filling the gap in theory by the integration and systematization of knowledge on the dualistic chain of
command and its outcomes,
• updating the present output related to hierarchical relationships, problems connected with the division of
authority in organizations, leadership,
• provoking thinking also about the negative aspects of employee participation,
• noticing the possibility of using the concept of microfoundations while consideration of different
disturbances in the chain of command.
However, given the paper limitations related to relatively scant literature and the lack of empirical
treatment of the research problem, it has to be underlined, that the preliminary analysis of the
phenomenon of the dualistic chain of command needs to be expanded and explored more deeply. A
theoretical and research models are required too. This allows the authors to formulate the next steps of
their research.
Acknowledgment
The project is financed by the Ministry of Science and Higher Education in Poland under the programme
"Regional Initiative of Excellence" 2019 - 2022 project number 015/RID/2018/19 total funding amount
10 721 040,00 PLN.
7814
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Factors Hindering Retail Development in Russia
Oksana KARASHCHUK
E-mail: karaschuk.os@rea.ru
Elena MAYOROVA
E-mail: e_mayorova@mail.ru
Alexander NIKISHIN
E-mail: nikishin.af@rea.ru
Tatyana PANKINA
E-mail: pankina.tv@rea.ru
Abstract
A developed and efficient retail industry is an important condition for the economic and social well-
being of a country. After the crisis of 2014, the situation in the Russian retail industry became more
complicated. This manifested, among other things, in a dropping physical volume of retail trade
turnover and an increase in consumer prices. In this short paper, the authors consider the factors that
hinder the retail industry development in Russia. The factors considered include high competition
within the industry, insufficient effective demand, high taxes, high rents, lack of financial resources
and high transport costs.
Keywords: retail, constraints, Russian Federation, competition.
Introduction
A developed and efficient retail industry is an important condition for the economic and social well-
being of a country. Retail companies provide its residents with goods and services, create jobs and,
correspondingly, population incomes, and contribute to the national wealth accumulation. Trade affects
the development of production, agriculture, transport, and other sectors of the economy (Bragin, Ivanov,
& Stukalova, 2009; Rudenko et al., 2015; Mayorova et al., 2018; Rozhnova et al., 2018).
After 2014, when economic sanctions were imposed on Russia by several countries, the situation in
retail industry became more complicated, which resulted in a sharp rise in prices (Ryzhkova, & Batova,
2015; Seifullaeva et al., 2018). With an actual rise in the sales turnover, in 2015–2016 its physical
volume decreased (Fig. 1). Growth resumed in 2017–2018 but did not reach the level of 2014.
7819
35000000 110
30000000 105
25000000
100
20000000
95
15000000
90
10000000
5000000 85
0 80
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Retail trade turnover, mln rub.
Physical volume index of retail trade turnover, % of the previous year
Fig. 1: Retail trade turnover in the Russian Federation
Source: Federal State Statistic Service (Rosstat, www.gks.ru), compiled by the authors
In this situation, it is especially important to study the factors impeding the development of the Russian
retail industry. This short paper considers what factors hinder the development of retail industry in
Russia.
Data and Methods
We have analyzed the data of the Federal State Statistic Service of the Russian Federation (Rosstat)
(www.gks.ru) characterizing the change in the business climate in the Russian retail industry from Q1
2014 to Q2 2019, i.e. in the crisis and post-crisis periods. An assessment of the factors hindering the
retail industry development is provided based on the results of a questionnaire completed by the heads
of retail companies who were asked to evaluate the changes in their sphere. More than four thousand
retail companies differing in the average daily turnover and number of employees are surveyed on a
quarterly basis in the retail industry. According to Rosstat, the surveys use representative samples, are
categorized by territories and cover all groups of companies differing in the type of ownership and size.
We have compared the factors hindering the retail industry development, identified trends in their
changing significance and predicted which factors would affect the Russian retail industry in the future
considering the regression equations corresponding to the trends.
Results
According to the results of Q2 2019, the high level of competition has the strongest effect on the retail
industry. Over half of the respondents also acknowledge that insufficient effective demand is a
significant constraint, and the high taxes takes third place. A much smaller number of retail
representatives noted high rents, lack of financial resources and high transport costs as the factors
constraining its development (Fig. 2).
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High transport costs 21
Lack of financial resources 24
High rents 28
High taxes 43
Insufficient effective demand 51
High competition 64
0 10 20 30 40 50 60 70
Fig. 2: Factors hindering the development of the retail industry in Russia in Q2 2019 (the
proportion of respondents who selected a particular factor as a constraint), %
The main constraint on the retail business is the competition that has traditionally been strong in the
industry. Despite a downward trend, this factor remains generally stable (Figure 3). In Q2 and Q3 2018,
the share of respondents considering competition a constraint dropped. We believe, however, that a
significant decrease in the importance of competition should not be expected in 2020. Strong
competition in the industry is created by retail chains, whose share in the retail trade turnover of both
Russia as a whole and individual regions is increasing (Belyakova, Mordvinova, 2017; Mayorova et al.,
2019).
Effective demand has a large influence on retail trade. The significance of this factor was increasing
until 2016 (Figure 3). This can be explained by a drop in the real disposable income of the population
that followed the crisis of 2014. The drop in income led to a change in consumer behavior and more
rational consumption. Accordingly, the importance of effective demand as a factor hindering retail
trade has increased. Later (after 2016), according to the trend line, the negative impact of demand on
the functioning of retail companies began to decline. However, population income rises in some periods
do not currently allow it to return to the pre-crisis level. Thus, a significant decrease in the importance
of effective demand is not expected in the future either.
The third factor (high taxes) was considered a constraint on the activity of retail companies by less than
half of the respondents in 2017–2019. Moreover, a linear downward trend is clearly visible in Fig. 3.
Thus, the share of the retail industry representatives who believe that high taxes are a constraint on
their work is declining, which should as a whole be evaluated positively.
7821
75
70
65
y = -0.0226x2 + 0.2264x + 69.429
60 R² = 0.8038
55
50
y = 0.0035x3 - 0.2031x2 + 3.0935x + 41.867
R² = 0.7978
45
y = 0.0004x2 - 0.5902x + 54.896

40 R² = 0.934
35
30
I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I
2014 2015 2016 2017 2018 2019 2020
Insufficient effective demand High taxes

High competition Poly. (Insufficient effective demand)
Linear (High taxes) Poly. (High taxes)
Fig. 3: The main factors hindering the development of retail industry in the Russian Federation
(the proportion of respondents who selected a particular factor as constraint), %
Other factors hindering the development of the Russian retail industry include a lack of financial
resources, high rents and high transport costs (Fig. 4). Retail companies began to feel a lack of financial
resources to a greater extent in the crisis year of 2014, and then in 2015. Since the beginning of 2016,
the significance of this factor has been decreasing. While, according to the results of Q4 2015, 34% of
respondents recognized a lack of financial resources as a constraint, throughout 2018 the share of such
respondents was 26%, and 24% in H1 2019. Based on the identified trend, the importance of the lack
of financial resources as a constraining factor will continue to decline in the future.
High transport costs, selected as a hindering factor by fewer respondents, also demonstrate a downward
trend. It is expected that the importance of this factor will continue to decline. The proportion of
respondents noting the importance of high rents changes irregularly and does not demonstrate an
explicit trend. The coefficient of determination of 0.3081 does not allow for a reliable forecast. At the
same time, according to the results of surveys conducted by Rosstat, high rents became a more
significant constraint on the retail companies than a lack of financial resources in 2018–2019.
7822
35
33
31 y = -0.0415x2 + 0.6321x + 28.935

R² = 0.8239
29
27
y = 0.0001x4 - 0.0068x3 + 0.1478x2 - 1.1526x + 29.662
25 R² = 0.3081
23
21
19 y = -0.2377x + 25.416
R² = 0.7972
17
15
I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I
2014 2015 2016 2017 2018 2019 2020
Lack of financial resources High rents

High transport costs Poly. (Lack of financial resources)
Poly. (High rents ) Linear (High transport costs)
Fig. 4: Other factors hindering the development of retail industry in the Russian Federation
(the proportion of respondents who noted a particular factor as a constraint), %
Conclusion
An analysis of the factors hindering the development of the retail industry in Russia produced the
following results and conclusions:
1. The main factors hindering the development of the Russian retail industry are high
competition, insufficient demand and high taxes. Despite the downward trends, including a
drop in the share of respondents considering these factors to be constraints in 2017 and 2018,
a further decrease in their importance is not expected considering the current socioeconomic
situation.
2. To a lesser extent, the development of retail industry is affected by a lack of financial
resources, high transport costs and high rents. The significance of the first two factors has
been declining in recent years and is expected to continue to do so. The share of respondents
who consider high rents to be a hindering factor changes irregularly and limits forecasting
opportunities.
3. Over the past two years (2017–2019), all the considered factors show a downward trend, i.e.
the share of respondents considering these factors to be constraints is declining. This trend
positively characterizes the changes in the retail industry, and suggests positive prospects for
its further development after the crisis in 2014–2015.
An understanding of the factors hindering the retail industry development is necessary both in the
context of its state regulation and to justify the management decisions made by the heads of retail
companies.
7823
References
• Belyakova, E.V. and Mordvinova, A.E. (2017). Modern state and tendencies of development of
retail chains in the Russian Federation, Logistics systems in the global economy, 7, 58-62.
• Bragin, L. A., Ivanov, G. G., and Stukalova, I. B. (2009). Retail trade: current trends and
development prospects. Moscow, Russia: Plekhanov REA.
• Federal State Statistic Service (Rosstat, 2019). Official website [electronic resource]. URL:
www.gks.ru. Retrieved 20.09.2019.
• Mayorova, A., Kevorkova, Zh., Luneva, E., and Sapozhnikova, N. (2019). State and Development
of Retail Chains in the Russian Regions. Proceedings of the 33rd International Business
Information Management Association Conference, IBIMA 2019, ISBN: 978-0-9998551-2-6,
April 10-11, Granada, Spain, 1310-1320.
• Mayorova, A.N., Panasenko, S.V., Nikishin, A.F., Ivanov, G.G., and Mayorova, E.A. (2018).
Analyzing regional differences in the condition and development of trade in Russia,
Entrepreneurship and Sustainability Issues, 6(2), 927-938. DOI: 10.9770/jesi.2018.6.2(30)
• Rozhnova O.V., Kevorkova Zh.A., Komissarova I.P., Luneva E.V., and Mayorova A.N. (2018).
The role of trade in socio-economic development of Crimea, International Journal of Civil
Engineering and Technology, 9(12), 48–54.
• Rudenko, L.G., Zaitseva. N.А., Larionova, A.А., Chudnovskiy, A.D., and Vinogradova, M.V.
(2015). Socio-economic role of service-sector small business in sustainable development of the
Russian economy, European Research Studies Journal, 18(3), 223-238.
• Ryzhkova, Yu.A., and Batova, V.N. (2015). Effect of sanctions on Russian economy, Azimuth of
Scientific Research: Economics and Administration, 2 (11), 62-65.
• Seifullaeva, M.I., Panasenko S.V., Shirochenskaya, I.P., Tsvetkova, A.B., and Yevseyeva, J.
(2018). Main tendencies and problems of agricultural export and import in Russia under economic
sanctions, Espacios, 39(9), 38.
7824
Early Termination of Studies and Its Influence on Innovation in

The Training of Military Professionals
Ivana Nekvapilová
University of Defence, Kounicova 65, 662 10 Brno, Czech Republic
ivana.nekvapilova@unob.cz
Jolana Fedorková
University of Defence, Kounicova 65, 662 10 Brno, Czech Republic
jolana.fedorkova@unob.cz
Abstract
In connection with national and international emphasis on qualitative parameters of universities
performance evaluation the paper discusses the basic parameters of the qualitative dimension relating to
the early termination of studies, their fulfillment and influence on the development of the contemporary
Czech military university system. The text has the character of a descriptive and comparative study. It
focuses on finding out whether the condition of students´ military life or factors included in the failure to
study predominate among the reasons for the early termination of studies at the military university. It was
conducted the analysis of available documents and published outputs from already implemented
quantitative and qualitative research in the civilian and military environment. It has been found out that
even in the military environment the reasons for the dropout of the study predominate over the reasons
associated with the conditions of students´ military life. Following the findings, it suggests direction for
innovation in the education of military professionals. However, the military system at the tertiary level of
education could realize only selective implement measures to reduce the number of early termination of
studies, which successfully carried out civilian universities. Especially those related to the free choice of
students´ professional orientation.
Keywords: early termination of studies, study failure, retention, tertiary education
Introduction
The international and national documents set the ambitious goals – to achieve a high proportion of
university students in the age group of 30-34 years for the Czech higher education system, which also
includes the military education system. At the international level, 40% of university students (ET 2020)
are required, at national level 35% (The Framework for the Development of Higher Education by 2020).
For comparison, the Czech Republic has been above the average of the countries selected by the
Organization for Economic Co-operation and Development (OECD) according to the research
implemented, since 2004 (Matějů et al., 2004). In the OECD statistics, the Czech Republic, in addition to
Estonia and Sweden, belongs to the countries with the highest study failure. Moreover, the trend, which
began around 2000, has shown the upward tendency in the course of the years and is still rising according
to some statistics (Study success at Czech universities 2018). The most serious problem is in the
bachelor´s study programs, where there are approximately ten times more students than in the “long”
master´s study programs. The technical, scientific and agricultural fields of study have achieved around
60% in recent years. Humanities and economic fields of study ranged between 40% and 50%; it was
found out that the study failure was approximately 30% in the medical, law, pedagogical and artistic
fields of study; the study failure in psychology students was by far the lowest with 15% (Vlk, Drbohlav,
Fliegl, Hulík, Stiburek, Švec, 2017). Mouralová, Tomášková (2007) point out that approximately half of
all study failures fall on the first years.
7825
The Military University also monitors the data depending on the field and year of study; it is clear that
mainly technical fields of study, rather electrical than mechanical engineering, and the fields of study
based on economic management, which could be categorized as humanities and economics, wrestle, in
the long term, with a high number of students terminating their studies prematurely. In the previous
academic year 2018/2019, a total of 277 students were admitted to the Faculty of Military Leadership,
which provides the economic and managerial profile of the studies; however a total of 184 students
actually enrolled. Already in the first year, 33 students dropped out of their studies. The required number
of graduates at the given faculty for this 1st year is 159 people. At the Faculty of Military Technology,
which offers technical fields of study, a total of 282 students were expected to complete their studies
regularly this year. However, 137 students enrolled in the study, and only 103 students started their
studies – 21 students dropped out of their studies in the 1st year.
The statistical data reflect only the number of students who will not complete their studies they have
started; they do not include the fact that, for some reason, the student chooses a different field, a different
educational institution or the form of study. It is not possible to reliably predict how many students of the
first year will actually receive a university degree. The urgency of the higher education goals set raises
the questions: How to approach this phenomenon, which has long been accompanying not only Czech
higher education? Can the early termination of university studies be a private matter of the student in the
future? The European Commission considers a high percentage of unsuccessful students to be a sign of
the inefficiency of an educational institution. Since the last year, this opinion has clearly established itself
at the national level through the Ministry of Education, Youth and Sports of the Czech Republic. It is a
duty of all higher education institutions to state the measures they apply in reducing the study failure in
their Annual Reports for 2018 (Press Release 2019).
The early termination of studies is not only a purely private problem. It has become a problem of
educational institutions. This change is based on the assumption that if higher education institutions are
able to identify and analyze various obstacles that make their studies more difficult, then they can modify
or remove them. This can increase the chances of students to successfully complete their university
studies (Švec, Tichá, 2007).
This assumption can be considered rational since the Czech civilian higher education system and the
schools themselves have undergone significant changes since the beginning of the new century. Experts
attribute a slight halt of the growing number of early school dropouts at civilian universities noticed in
2014 to the effects of measures implemented by public and private higher education institutions. These
effects of measures are aimed at improving the quality of the educational process, creating the study
facilities as well as the consulting activities. However, they consider the situation temporary (Study
success at Czech universities in 2018).
On the basis of available sources and the research already realized, the aim of the article is to answer the
following research question: Are the reasons for early termination of studies at the military university the
same as at other civilian universities? The answer should also contribute to the specification of the
parameters for the realization of the comparison of a civilian and military higher education institution in
the qualitative parameter – early termination of university studies; they should also contribute to
assessing the possibilities to use the measures implemented by civilian schools related to reducing the
number of students dropping out of the military study programs.
Theoretical Possibilities
According to the law, university studies can be terminated early for a number of reasons: voluntary
abandonment of study, failure to meet the requirements arising from the study program according to the
Study and Examination Regulations, withdrawal of the study program accreditation, termination of the
study program accreditation etc (Act on The Higher Education Institutions and on Amendments to Other
7826
Acts as amended on 1 July 2019). When researching or assessing the results, it is advisable to distinguish
whether the early termination of studies happens at the student's own request or at the initiative of the
educational institution, when the reasons for the termination of studies stipulated by law and internal
school regulations are fulfilled.
However, the officially stated reasons for the termination of university studies need not and often are not
the real reasons for leaving the university or the termination of a particular field of study. In many cases,
the failure to fulfil study obligations is not caused by the inability to study, but, as the research of the
study failure shows, it is due to quite different, personal reasons. In many cases, the expressions of the
same meaning as the early termination of studies are used. These concepts are study failure, dropout,
mortality (Framework for the Development of Higher Education by 2020). These express the share of
unsuccessful termination of studies in the total number of students (Mouralová, Tomášková, 2007, p. 16).
Just as the concept of early termination of studies, the study failure according to already implemented
research at the national level is considered to be a considerably heterogeneous factor, under which several
partial phenomena with different causes are hidden without exploring the motives of individual actors.
(Mouralová, Tomášková, 2007, p. 25).
With a view to the reasons stipulated by law, it is more accurate to approach the concept of early
termination of studies as a more general term, including the concepts of study failure and other forms of
dropouts. For statistical processing of data it is necessary to know the real reason for the termination of
studies in each case, so that it can be categorized. In some studies, the concept of termination of studies is
almost absent. Researchers focus on the opposite of the phenomenon – keeping students in the study –
retention. Spady (1970, 1971) or Astin (1972) began to explore this area fifty years ago. The
sustainability of university students is described by Moxley, Najor-Durack, Dumbrigue (2004) as a matter
of fulfilling learning goals based on student aspirations in education. Švec and Koláčková (2013) point
out that retention is a poorly structured problem. The use of retention indicators for comparing
educational institutions and research results is thus difficult in the Czech Republic, and is further
complicated by the low number of research studies in the given field. Both approaches aim at the
understanding of the common phenomenon and these are the reasons for the student to either stay in or to
leave a particular educational institution or program.
Theoretical models following the work of Bean (1983) and Tint (1993) divide the reasons causing the
dropout of students into several general groups – student background, organizational, pedagogical, social
and psychological reasons, environmental reasons. The study failure is the largest contributor to the early
termination of studies. It is made up of a whole group of factors. The team of authors Menclová, Baštová,
Konrádová (2004) implemented the research in 363 students of technical faculties of Czech universities
who had the problems with their studies. It resulted from the research that one of the most important
causes of their study failure was their inability to master the technical curriculum, followed by the
difference in the way of study at the secondary school.
The highest frequency of study problems in the total number of students who did not complete their
studies was recorded in the research implemented by Švec and Tichá (2007) at the faculties of economics
in the first years of the six faculties of economics of the Czech Agricultural University and the University
of Economics in Prague. The study problems were identified as: difficulty of study (57%), different way
of study compared to the secondary school (48%), study abroad (12%), quality of teaching (6%),
concurrent study (5%) and poor faculty selection (4%). The loss of motivation to study due to the above
identified study problems was found in 48% of the interviewed students.
It results from the research implemented by Švec and Tichá (2007) that the study failure is most often
related to the field of study and the student himself when his personality traits, knowledge, abilities and
habits manifest themselves in coping with the study demands. The academic and social integration of the
first-year student is a focus of the research done by Mouralová and Tomášková (2007), which builds on
7827
the works of Pascarell and Terenzini (1980). Pascarell and Terenzini have shown that the degree of
academic integration depends on the student's academic success and intellectual development. Social
integration is then related to the degree of interaction with peers and the school staff. The contact and
communication with teachers and the others in the school management, as well as with the bureaucratic
sphere of the institution, is important. According to these authors, the early termination of studies can be
prevented by timely and well-planned interventions through the institution towards specific students, in
whom indications of intention to drop out have been identified. Successful integration correlates
significantly with the general characteristics and the student´s characteristics. These include e.g. gender,
ethnicity, talent, academic abilities, study results from the secondary school and the students´
expectations, as well as the parents' incomes and education, the motivation to complete their studies,
extracurricular activities and, last but not least, the choice of university and whether the given institution
was a priority choice for the students, a substitute choice, or even an emergency choice (Mouralová,
Tomášková 2007).
Mouralová and Tomášková (2007) describe the situations leading to the early termination of studies and
their causes as follows: dissatisfaction with the form of study and the form of teaching, dissatisfaction
with the choice of field of study, the mismatch between wishes and the reality, the lack of motivation to
study, incompatibility with the university or the university environment, the lack of skills and more
external factors. They point out that individual reasons do not lead to the early termination of studies, but
it is a combination of several factors or a gradual increase in problems and their accumulation.
The aim of the study was to examine the accesses to education in 5,805 undergraduate students with the
use of the Self-Regulated Learning, Emotions and Motivation Computerized Battery (Lem_B) (Mega,
Ronconi, De Beni, 2014). The overall dissatisfaction of a student need not necessarily be caused by the
educational institution itself, but it is strongly influenced by his overall attitudes to life, work and study.
The structural equation model showed that students´ emotions influence their self-regulated learning and
their motivation, and these, in turn, affect the academic achievement. Thus, self-regulated learning and
motivation mediate the effects of emotions on academic achievement. Moreover, positive emotions foster
academic achievement only when they are mediated by self-regulated learning and motivation.
The study failure is also closely related to coping with the load and especially the study load. From the
socio-psychological point of view, the study load can be described as the demands of study. In the Czech
environment, the research on the study load is assessed from a social-psychological point of view as the
ability to manage stress – the use of both positive and negative coping strategies. In general, managing
stressful situations is focused on a problem/situation and emotions. The proven difference in using
positive and negative strategies is not significant (Blatný, Osecká, 1998; Jeřábková, 2014). Psychological
resistance plays an important role in coping with the study load – the student's ability to withstand
stressful situations, which determines his success/failure in his personal and professional life. Lazarus
(1999), Pannebaker (1990) and Nolen-Hoeksema (1991) focus on managing negative emotions. The
authors agree on the strategy of finding emotional support in other people and fixing the problem. Coping
strategies in the academic environment influence the approaches to education – exam preparations,
adaptation to university, the level of self-esteem, optimism and psychological control (Moneta, Spada,
Rost, 2007; Aspinwall, Taylor 1992; Mantzicopoulos, 1990). Numerous research studies have shown that
coping strategies in students vary according to the degree of anxiety (Raffety, Smith, Ptacek, 1997),
extraversion and neuroticism (Gallagher, 1989) with the assumption of
a certain individual stability in the preference of coping activities, differentiation and use (Baumgartner,
2011).
According to the pan-European HEDOCE study from 2015, implemented by the Dutch research centre
CHEPS and the Norwegian NIFU (Stiburek, Vlk 2018), it is the motivation that decides whether the
student wants to turn to self-study, to attend lectures, to actively participate in seminar discussions and to
devote his time and energy to the efforts for a true understanding of the problems and the acquisition of
7828
skills. Motivation will reinforce the will to cope with the obstacles presented by the study load.
Universities often do not admit that motivation is a factor that they can influence directly.
Methodology
There are relatively a lot of studies and outcomes that map the early situation of the early termination of
university studies. In order to compare the results obtained at civilian universities with those obtained
from the probands coming from the military environment they need to be subjected to meta-analysis. This
will help ascertain how they were obtained and interpreted, whether they can be considered
representative.
The choice of the research design conformed to this intention. Qualitative methodology prevails in the
research design. It uses the content analysis of information sources such as the Higher Education Act, the
documents and reports of the Ministry of Education, Youth and Sports, outputs from selected research
projects in the time span from the 1970s to 2019, where the first-year civilian students formed the
research sample. As for the military studies, content analysis was used to interview approximately 300
students. Interviews were conducted regularly before the end of the first semester of study. Content
analysis was also used in the questioning of outgoing students of the 1st year within the development of
diploma theses from 2015 (Vlašín, 2015). The search of resources has shown that it is necessary to
operationalize the concept of dropout.
When assessing the research results, it is important to answer the question: What types of reasons does
the research aim at? Are any answers of respondents sufficient for the research or should the research
differentiate the real reasons for early termination of studies from the alternative ones? How are the
student's real reasons detectable? The research studies realized allow us to understand the importance of
using the qualitative research and its methods, especially interviews with students and qualitative analysis
of their statements. The research studies also clarify the role of the quantitative research, the results of
which enable us to observe a certain degree of stability or, vice versa, the dynamics of the reasons given
in large groups of respondents in addition to surveying the occurrence, distribution and interrelations of
reasons. The mixed research design has proven to be an appropriate approach for the institution to
investigate the real causes of early termination of studies and monitor their changes. Based on such
findings, it is possible to more accurately predict the need and priorities for potential innovations at the
educational institution and thus ensure the provision of effective assistance to the student in coping with
the study requirements.
Individual research teams use different approaches to explore the reasons for dropping out of the
university. They also demonstrate how the given starting point opens the research problem. Although,
from the historical point of view, partial views have been constituted gradually, they can now be applied
either as part of a holistic approach or individually or in various combinations according to the intent
pursued. What views are these? Until the 1970s, the approach that could be described as administrative
prevailed – monitoring the socio-economic characteristics of students and their learning achievements
before starting their university studies. Since the mid-seventies of the last century, it was the sociological
approach, which allows uncovering the institutional conditions of dropout and the psychological approach
associated with it, which aims at the identification of the student´s internal dispositions and motives
(Larsen et al., 2013; Švec, Koláčková, 2013; Vlk et al., 2017, p. 37).
The results of the research implemented within the individual approaches have resulted in an important
finding. “The dropout is a result of specific constellations of an individual's characteristics, his family,
school, and the education system only if these constellations have developed long-term negative attitudes
towards the school and study” (Hloušková, 2014, p. 14). If the measures to reduce the number of
unsuccessful studies are to be effective, it is necessary to know not only individual reasons but, above all,
their interrelations, which will finally result in the dropout. It is also necessary to know how the student's
7829
attitude towards the school and study develops – to know all that not only in general population
parameters, but especially in relation to a particular educational institution, field of study and a particular
group (year) of students. Mouralová and Tomášková (2007, p. 23) offer five model cases (A-E) for
understanding the differences in the way of leaving school. They arose as thought constructs, similar to
the Weber ideal types by abstracting the characteristics of individual cases of dropping out of studies to
an extreme form. They have an ambition to combine all identified dimensions of the phenomenon called
dropping out of the university studies and can be used in the research.
Most of the research implemented is aimed at a group of the first-year students, in which the largest
number of unfinished studies is still recorded. Many researchers draw attention to the fact that in this
group it is necessary to pay attention to the selection of the research sample. There may be different
categories of respondents: those leaving the university with no continuation of this type of education,
those who are waiting for the results of the admission procedure to another university or a decision to
transfer to another field of study, etc. Percentage of individual groups in the research sample can
significantly influence the result in the number and structure of the identified reasons for leaving school.
The results of several studies focusing on the first-year students may not be comparable.
Results
In military higher education, in addition to teaching, there are a number of peculiarities that can be
perceived in relation to the completion of studies as reasons for continuing, but also for reasons of early
termination of studies. The benefits usually include salary, scholarship, free accommodation, full board,
language study offer, foreign training courses and stays, military equipment, sports activities, cultural
activities, crediting the period of study to the retirement pension and future employment security. The
ambivalent relationship is recorded in the students to the basic parameters of military life, which
accompany the student throughout his university studies – the intensity of military training, military way
of life, which emphasizes the fulfilment of military duties during the study, obedience to authorities and
adherence to the daily routine. For some students, these requirements are very attractive and they have
joined the army and enrolled in the study also because of them, for others they can be a significant
obstacle because they have different ideas and different expectations.
Recently, it has emerged that the undeniable advantages – benefits that represent a competitive advantage
of soldiers in the labour market, cease to be motivators for the next generation Z to continue training. As
shown above, the number of unfinished studies in the first years of study has not decreased significantly
in recent years. The situation of a military university with regard to the early termination of studies is
more complicated than the situation of a civilian university – not all those admitted to study actually start
up. Not only for reasons commonly found in the civilian sector (e.g. the selection between a few schools
on the basis of a successful admission procedure), but also for health reasons – both physical and mental
health are monitored or because of lack of training in the basic training area (continuous military training
– a practical drill on the training ground), which precedes the commencement of academic studies. At the
beginning of the 2019/2020 academic year, approximately 60 people terminated this course voluntarily.
In determining the reasons for the dropout, attention is, therefore, paid in the first stage to whether the
reasons fall more in the area of military conditions and student life demands or in the area of study
failure, which is then further diversified. It is traditionally assumed that the first group of reasons prevails.
Unlike civilian institutions, the military sphere has not ascribed the importance of a socio-psychological,
qualitative concept of study failure as a civilian institution. The existing ways of recording reasons for the
early dropout do not always correspond to those used in the national and international studies mentioned.
Military students were not included. The research implemented was of a smaller extent, linked to the
development of students' diploma theses (Vlašín 2015) or the solution of partial problems. For example,
attention has been paid to coping strategies in connection with the difficulty of military training, but not
with the study (Kutal, 2011; Honzek, 2015).
7830
The University of Defence monitors the strongest incentives that led students to launch a military form of
study and were reported by more than 50% of students. Strong motivation was demonstrated in the
following areas: guaranteed security of employment after graduation (81.2%), interest in the army and the
profession of an officer of the Army of the Czech Republic (78.2%), increase in physical fitness and
sports (77.6%), the possibility of obtaining a university degree in the field (72.3%), becoming
independent (67.4%), the desire for adventure (61.3%), service to homeland and admiration for military
values (57%), financial remuneration during the studies at the University of Defence (55.6%). If we then
compare them with the reasons given by the first-year students at the early termination of studies, we can
say that these are often unfulfilled expectations in individual areas. However, they may also be caused by
misconceptions of the applicants for the military profession or underestimation of their own abilities.
The study failure rate and the reasons of the students at the military university vary depending on the field
of study, as indicated by a qualitative research on the early termination of studies at the University of
Defence in 2015 (Vlašín). With the help of the content analysis of the answers of 10 respondents (5
represented the economic-managerial focus and 5 the technical focus of the study) two model cases have
been drawn up, which illustrate the ways of early termination of the studies at the military university.
The majority of applicants are admitted to study the military study programs in economics and
management. The main motives are interest in the military profession – armed forces, positive attitude to
the military, security of employment, financial security and social prestige. The first reflections on
leaving school after the completion of the basic training course are related to negative feelings from the
military academic environment in the garrison of Brno – the quality of accommodation is assessed
negatively, the academic environment does not match the original ideas (selection of unnecessary
subjects, style and low level of teacher training, unsatisfactory subsidy of foreign language teaching), lack
of military practice and unwillingness to adapt to the rules and requirements of the military academic
environment. There are feelings of non-freedom, lack of self-realization and minimal contact with the
military environment and training. Studying is not considered to be very demanding – rather a
continuation of the secondary school. A student thinking about the early termination of studies from the
first week after matriculation decides and resolves the situation within four months of its commencement.
His family and friends either discourage him or support him. Whatever the approach, if his resolution to
terminate the studies is strong, he will do it. The student believes that the University of Defence has the
tools to keep him, but does not use them – it recommends combining teaching with practical training,
individual approach of superiors and interest in the student, cooperation with older students – mentoring
as a tool of integration into the team. The student quits the service and completely leaves the military area
or works as an ordinary soldier in a unit or a facility of the army.
The following reasons have been found out among students: lack of interest, inability to master the
curriculum of this focus, different way of study compared to the secondary school, too high requirements
for some exams, insufficient preparation at the secondary school, poor choice of the faculty, low support
from teachers, poor quality of lectures and exercises (Vlašín 2015).
The majority of applicants for admission to the military technical study programs are enrolled – in some
cases even those who, due to a large number of applicants, were not placed in economic management
programs. The main motives are interest in the military together with the ambition to obtain a university
degree and academic degree, social securities – financial background and security of future employment
in the Army of the Czech Republic, narrow specialization (pilot, meteorologist, geographer, weapon and
ammunition expert etc.) and the non-traditional character of work. The student comes from the secondary
school, employment, employment office or other university. He begins to consider leaving either before
starting the basic training course (wondering whether he has made the right career choice) or two to three
months after the start of the academic year, when he admits that he is unable to meet his study obligations
in technical subjects – e.g. electrical engineering and mathematics. Different approaches of teachers, their
7831
demands on students and the related requirements for passing credits/exams also play a role. He assesses
the university environment, or more precisely, its buildings, classrooms, but also hostels rather negatively
(during a day the student moves during breaks to different classrooms located in five buildings of the
University of Defence). The information on the new accreditation of the study program of the faculty is
misleading for him. He learns about the five-year master's study program without the intermediate stage
(the degree of bachelor). He assesses the demands on the service of a military professional who he will
be after taking an oath of a professional soldier. Emphasis is placed primarily on military behaviour and
courtesy, punctuality, observance of the daily routine, drill training and dressing discipline. The student
does not decide on the dropout quickly (considering one to two months), assesses all alternatives – his
abilities, advantages and disadvantages of terminating education. He consults his decisions with his
parents and friends. He would like to gain experience in a unit first, he would like to be an authority for
subordinates – not just a university-educated officer without practice. He does not give up the idea of
completing university education after a certain period of service in a unit, without realizing the pitfalls of
further studies. The student believes that the University of Defence does not have a tool to keep him if he
has already decided – his resolution is definitive, binding and authoritative. It will not be changed by the
involvement of school management, the individual approach to his needs or interviews with superiors. He
then assesses the approach of the teaching staff, teamwork, team consolidation in the course of basic
preparation and communication – timely and clear provision of all information. The assessment of the
real conditions of study and expectations play an important role. Expectations are referred to as naive –
the discrepancy between the ideas of studying at the military and a narrowly specialized university, and
not "only" at the university founded by the Ministry of Defence.
The interviewed students of this program stated their reasons for the decision not to complete their
studies: insufficient military training or strict military regime and disagreement with the scope of
employment of a professional soldier, unsatisfactory five-year master's study program, demanding study
requirements (mainly the subject Basics of Electrical Engineering), unsatisfactory composition of
subjects (Mathematics, Economics, etc.), underestimation of own preparation, selection of professional
study module after three years of study, different approach of teachers – the way of education and
interaction, a small time allocation for English lessons.
From the abovementioned results it can be concluded that the military conditions of the students' life are
not a predominant reason for the decision to terminate their studies prematurely. As with civilian
universities, these are reasons falling under the category of the study failure. Therefore, it is important to
pay attention to the key issues in this category that have already been identified at civilian universities,
such as motivation to study and coping with the study load. The specific steps have already been taken in
these directions and are also being prepared.
Last year, authors Saliger and Kozakova (2018) conducted a study identifying potential stressors in
military students in the Army of the Czech Republic. In the research part, the method of quantitative
research was used through the unstandardized questionnaire research technique. This was a self-
assessment test of rating the perception of stressors. The research sample consisted of
a total of 140 students of the Faculty of Military Leadership of the University of Defence. The results
were applied for the suggestion and recommendation for increasing the readiness of graduates of the
University of Defence to manage the post of an army leader immediately after the graduation. The results
were discussed in connection with the training of military leaders under the auspices of the Ministry of
Defence of the Czech Republic.
Conclusion
If it has been ascertained that the reasons for dropping out of the study programs are the reasons for study
failure, does this mean that military higher education system can use the same tools to reduce the dropout
7832
rates as civilian universities? The answer to the question is not and cannot be unequivocal because the
development of military education after 1989 was not extensive, but on the contrary, the individual
faculties were gradually reduced and subsequently, in 2004, the three military universities merged into
one university. This process was also accompanied by significant interventions in material infrastructure
and financial provision. The university was founded by the Ministry of Defence of the Czech Republic.
Its development has been and still is limited by the allocated funds and the requirements of the armed
forces for the profile of specialities as well as the requirements for the number of university-educated
personnel within the Ministry of Defence. The Ministry of Education, Youth and Sports sees the
perspectives in higher permeability of disciplines – flexibility within the study programs. Universities
themselves create incentive programs in the framework of marketing activities that would raise students'
awareness of the conditions and perspectives of their studies. The effectiveness of organized
compensation courses that help to increase success and to master the required subject is conditioned by
the fact that universities do not learn to work better with the motivation of the students. An important
factor that plays a role in the success or failure of a student at a university is his ability to cope with the
study load – demands of study, which is related to motivation and personal discipline.
The civilian sector already provides more freedom to choose a future career orientation in the credit
system of study than the military study, where the variability of the credit system is limited. It also
enables the study of several disciplines at the same time and the participation in research and
development projects. It uses modern technologies often and more intensively to provide basic and
complementary forms of higher education (video recordings of lectures, remote access to lectures). It
establishes intensive cooperation with practice in relevant fields of study. Educational institutions have
set up counselling and development centres to provide students with a wide range of services enabling
them to cope with the demands of their studies.
The military education system is aware of the fact that a number of intelligent, talented and ambitious
young people who are dissatisfied with what the school offers them leave the school – it is a mismatch of
ideas and expectations from their studies and their real form. Through regular counselling interviews at
the beginning of their studies, it seeks to identify these disappointed individuals first and to assist in their
integration into the university environment, which also often represents the social environment of the
field. Therefore, the school actively focuses mainly on supporting the individual study needs of students,
increasing their motivation to study and interest in adequate selection of the field and employment after
the graduation. Students have also been offered the opportunity to solve individual problems associated
with adapting to the new social and learning environment, inter alia, through the services of the
University Advisory Centre.
Acknowledgment
The study is an output of the preparatory phase of a specific university research project entitled
“Experience of Foreign Military Universities with the Early Termination of Studies” (SV19-FVL-K104-
FED). In addition to the project, where the knowledge will contribute to the creation of
a questionnaire of its own construction and questions for semi-structured interviews with selected
respondents, it is assumed that the results will be used to innovate the educational programs for the
military study and the development of the dissertation thesis entitled “Specifics of Coping with the Study
Load by the Students of the University of Defence”.
7833
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Company Failure Determinizing Factors -Theoretical View
Tomas KLIESTIK
University of Zilina, Faculty of Operation and Economics of Transport and Communications, Department
of Economics, Univerzitna 1, 010 26 Zilina, Slovak Republic, tomas.kliestik@fpedas.uniza.sk
Pavol DURANA
University of Zilina, Faculty of Operation and Economics of Transport and Communications, Department
of Economics, Univerzitna 1, 010 26 Zilina, Slovak Republic, pavol.durana@fpedas.uniza.sk
Corresponding author
Abstract
Companies are the complex organisms that do not exist in isolation but interact each other with entities in
the national economy, whether they are other companies, non-financial or financial corporations,
government authorities or individuals and households. Failure, respectively the bankruptcy of the
company will result in a chain reaction with negative consequences for all economic subjects. Every (not
only market) economy in the world encounters the failure or bankruptcy of business entities. Company
failure can take a variety of forms, manifestations and consequences. In particular, the consequences are
the driving force of the research and development of the issue. It is a description or construction of
methods and models enabling to predict the failure with advance time. That is, to know the likely
evolution of company fundamentals in the next few years. While in the centrally managed economies the
consequences were borne by the state as a whole, in market economies they directly affect all entities
entering into relations with the particular company. In other words, all market participants (owners,
creditors, suppliers, customers, employees, competitors, the state, the municipality, etc.) are involved in a
market economy. Each of the involved groups applies a wide range of tools, algorithms and methods, but
their aim is identical, i.e. to predict the future development of the company's financial health, respectively
companies. The entities seek the answer for question whether a particular company will not be loss-
making in the future or even due to bad decisions, or endogenous and exogenous influences will not cease
its activities. Development of the algorithms and methods would not be possible without a detailed,
almost holistic knowledge of the causes of company bankruptcies. This article deals with the issue
problem. Its ambition is to serve as a methodological instrumentation in the construction of bankruptcy
models.
Keywords: bankruptcy, company, endogenous influences, exogenous influences, model
Introduction
Various situations can arise in the life cycle of each company, some of which are related to the success
and prosperity, others on the contrary are related to the crisis, failure and decline (Valaskova et al., 2019).
It is evident that the aim of the management of each company is to be in the first of the mentioned
situations, but in fact the second case is no exception, because the crisis and crisis situations are the
fundamental drivers of every market economy. While during the boom there is progressive improvement
and to some extent also spontaneous, in times of crisis are radical and often unwelcome steps necessary to
regain financial health and stability of the company (Gavurova et al., 2017). Thus, the crisis may provide
the scope for radical changes, i.e. is an analogy of natural selection in nature, where only strong
individuals survive and adapt to new conditions and others are doomed. Therefore, every company should
be at least theoretically prepared for the last phase of the life cycle, i.e. for example to a situation when, it
will not be able to meet its obligations. Such a situation almost never comes unexpectedly and without a
7837
warning, therefore the company management must be able to identify impending problems early based on
the results of the financial analysis (Shpak et al., 2018). In general, the term "company failure" is used in
a negative connotation in order to describe the company’s financial health that is confronted with a
temporary liquidity shortage and with difficulties resulting in a failure to meet the financial obligations
within their payment terms and to their full extent (Suler, 2017).
Bankruptcy Causes of Companies
There are currently a few hundreds, perhaps up to thousands of companies’ bankruptcy prediction models
that have been developed at a specific time and under the conditions of specific economies (Zvarikova et
al., 2017). The basic question that their authors had to ask is: when we can consider the company
„financially sound" and when it is on the way to failure or bankruptcy (Berent et al., 2017). In order to be
able to answer this question with justification, we should first know the causes of the failure. There exist
a wide range of causes, here are some of them. Mitroff (2001) discovers eight basic causes of financial
health deterioration:
• Economic causes: strikes, labor riots, market failure, a decline in core earnings and sharp changes in
market prices.
• Information causes: incorrect information, loss of protected and confidential information,
machinations with computer data processing, loss of sensitive data related to customers, suppliers and
other stakeholders.
• Physical causes: loss, destruction or damage of important assets - raw materials, machinery and
equipment, means of transport.
• Human resources: departure, loss of key experts or managers, lack of skilled workforce in the labor
market.
• Reputation: defamation, spreading false or alarming news about the company, damaging the good
name of the company, theft of intellectual property, imitation of company logo.
• Causes of criminal nature: hostile takeover, terrorism, violence at the workplace.
• Natural disasters: earthquakes, fires, floods, hurricanes, whirlwinds, volcano eruptions, etc.
According to Zuzak & Konigova (2009), the causes of company financial health deterioration are
determined by the situations in which this company occurs. He divides them into two basic groups:
internal and external. He points out, however, that the dichotomous division is not always sufficient, and,
therefore, gives other reasons:
• internal and external economic causes,

• manufacturing and technical causes,
• causes due to problems with suppliers,
• information causes,
• social and workforce related causes,
• market causes,
• political reasons,
• legislative causes,
• natural causes.
Slatter & Lovett (1999) divide the causes of company financial health deterioration into endogenous and
exogenous ones and explore them further in detail. They further state that exogenous factors can have
7838
only minimal impact on companies but they cannot separate company from them in the context of the
current dynamically evolving environment.
1. Endogenous causes
• weak management and its mistakes,
• insufficient financial control,
• poor management of working capital,
• high expenses,
• insufficient marketing,
• undertaking projects which are too large for the company,
• excessive production volume compared to the structure of financing,
• negative impacts of mergers and acquisitions,
• inappropriate financial policy of the company,
• incorrect and ambiguous internal guidelines leading to disinterest and confusion of
employees during their fulfillment.
2. Exogenous causes
• negative changes in market demand for the company´s products,
• competition,
• change of input commodity prices in an unfavorable direction.
On the basis of general economic theory Lizal (2002) defines three causes or models that can detect the
deterioration of the company financial health:
• The neoclassical model, in which case bankruptcy is considered a positive event because it allows the
release of assets that have not been allocated efficiently. In this case, the market has basically a
healing effect as inefficient companies also consume inputs, which is not desirable from the economic
point of view because the assets were allocated for inappropriate business activities.
• The financial model which works with the idea that the assets are correctly allocated, but that the
structure of asset covering resources was inadequately set, i.e., weighted average cost of capital
(WACC) is not minimal. In other words, the capital structure is not optimal.
• The corporate governance model which is based on the premise that both the assets and the
liabilities of the company described in the previous two models are used efficiently, but there is poor
management of the company, therefore, the bankruptcy is the result of ineffective problem
management.
Altman & Hotchkiss (2006) mentions other causes of company financial health deterioration, most of
which the company cannot influence, therefore these rank among external factors:
• chronically problematic sectors of economy (e.g. agriculture, textile industry, etc.)

• deregulation of key sectors (e.g. airlines, financial services, healthcare, energy);
• high real interest rates,
• international competition,
• excessive capacity among sectors.
New technologies as the next cause of company failure is defined by Norton (1989) as an environmental
factor that destroys demand for old products or services. In this area he also mentions government
policies as the cause of the company financial health deterioration. However, he adds that under the same
circumstances, some companies will survive while others not. The authors Charan and Useen (2002)
claim that the main causes of company failure are:
7839
• irresistible force,
• managerial mistakes,
• slackness because of achieved success,
• behavior of competitors,
• underestimation of negative messages and trends,
• acceptance of excessively high risk.
Another important issue that needs to be taken into account when assessing the company financial health
is the relationship between the age of the firm and the possibility of failure. Dun & Bradstreet (1980) in
their research showed that more than 50% of all failures occurred in companies "aged" from two to five
years. After five years of existence the companies tend to be more stable and experienced, indirect
consequences of that is a better access to capital, whether in the form of a loan or through issuing shares
or bonds. Other, especially financial reasons for company failure, are as follows:
• Industry sectors: some industries tend to be chronically "unhealthy" companies operating in these
sectors have a high probability of failure in the near future,
• Interest rates: as a result of high interest rates, some companies will find themselves in a situation
where they can no longer repay their obligations to the bank, whether in the form of interest or principal
repayments.
• Competition: international division of labor and competition enormously increases company spending.
• Debt to equity ratio: companies, especially in the United States, have increased the volume of foreign
resources. The financial leverage has increased, but companies have become more vulnerable. This fact is
particularly important in the economic recession.
• Deregulation: deregulation of key sectors leads to a competitive environment, which reduces the value
of monopolistic rent.
• Growth rate: high speed of creating new companies will cause higher company failure rates. New ones
are characterized by a higher probability of failure than established ones, as was stated in the introduction
to this paragraph.
The causes of financial problems of companies are dealt with by Newton (2009) who bases his work on
both the Dun & Bradstreet study and the Small Business Administration study, he lists causes of failure
as follows:
• inability to manage cash flow,

• starting a business with a low level of equity,
• absence of a good business plan,
• setting of unreal, inadequate goals,
• excessive optimism
• underestimation of the company's weaknesses,
• insufficient marketing,
• inexperienced management,
• underestimation of competition,
• organizational arteriosclerosis,
• inadequate or incorrect delegation of decision making powers,
• hiring inappropriate managers,
• excessive dependence on one customer.
Brigham & Gapenski (1996) discuss the causes of financial difficulties are usually the result of a series of
mistakes, bad judgment and the interdependent weaknesses of a particular company or its management
7840
which can be assigned directly or indirectly to management, and the signs of potential financial stress are
generally evident before the company actually fails. Gaither & Frazier (2001) explain the causes of the
company financial health deteriorating, respectively its failure as a result of incorrect understanding of a
difference between the margin and the gross profits by company owners. He also mentions other causes:
• long-term negative balance on an overdraft bank account,

• inability or limited ability to borrow funds from a bank,
• inability to pay ordinary taxes,
• lack of investment,
• failure to deliver financial statements on time,
• wages are not in line with gross earnings (currently it is recommended that gross wages should not
exceed 45% of gross profit)
• liabilities exceed assets.
Arnold & Lewis (2018) described some of the reasons for the company financial health deterioration that
affect the risk of incurring the costs of financial stress. This description is from the emergence of
financial stress costs point of view. They mention that the causes or factors vary and are specific for each
individual company:
• Increased sensitivity of company revenues to macroeconomic situation. If company fundamentals

are sensitive to the volatility of the economy, shareholders and creditors may perceive a greater risk of
financial stress and, therefore, require higher returns as a substitution for undergoing this high risk in
comparison to companies that are less sensitive to economic events.
• Inappropriate share of fixed and variable costs. The company whose activity is highly capital
intensive, i.e. it works with high operating expenses, is unable to cover the need for capital by its own
resources, and, therefore, increases the share of foreign capital, which can have fatal consequences.
• Lack of liquidity and tradability of company assets. Some companies invest in such a types of assets
that can be easily and quickly sold, they allocate their funds to assets with high liquidity. The reverse may
be the cause of financial health problems in a company.
• Insufficient ability of the company to keep sufficient cash. Some companies generate regular and
sufficient cash-flow; on the other hand, companies with delayed and insufficient cash receipts may have
problems in the future.
The authors Bruno & Leidecker (1988) have another view on the causes of company failure which is
abstracted from the financial aspects that were, in their opinion, the reason for company failures in the
sixties to the eighties of the 20th century. They bring to our attention several non-financial, mainly
marketing causes, such as:
• incorrect timing for launching products onto the market,

• inappropriate product design,
• inappropriate distribution policy,
• inappropriate sales strategy,
• excessive reliance on one customer,
• inefficient team and personal problems,
• unilateral thinking as weel as cultural and social factors.
And finally, we list the reasons for the company financial health deterioration according to the Czech
authors Synek et. al. (2007) who emphasize the impact of the external environment factors due to the fact
that the external environment can not be influenced by the company itself. They are factors:
7841
• political,
• economic,
• financial,
• monetary,
• legal and tax factors,
• social factor,
• factors resulting from the nature of the industry.
Zopounidis & Dimitras (1998) recognize two groups of bad company management decisions that may be
the potential causes of financial health deterioration, which they classify internally as:
1. Financial and investment causes:
• Inappropriate ratio of company´s own and borrowed resources: Inappropriate dependence on

borrowed resources in most cases results in higher profits, but also increases the risk of financial stress.
• Insufficient creation of financial reserves: Despite internal rationality, company owners in the period
of economic growth prefer higher profits and, therefore, the company gets a longterm exposure to the risk
of financial stress.
• Excessively long accounts receivable payment collection terms.
• Undercapitalisation of a business: Situation where the golden balance rule is not complied with, in a
sense that long-term assets are covered only in part by long-term liabilities. The remainder is covered by
short-term liabilities.
• Flexibility in cost reduction: Represents one of the necessary prerequisites or steps for preventing
company failure. In particular, reducing fixed and wage costs is problematic.
• Ignorance about company´s own capital costs: Some companies, especially in the economic
conditions of transition countries, often behave as if the type of capital they borrowed were for free but
the opposite is true.
• Incorrect price calculation: As a result of this the fair sale price is determined unfairly.
2. Financial and investment causes:
• Lack of business strategy or bad strategy and mismanagement.

• Lack of knowledge and incorrect approach of the management.
• Reluctance and fear to take vigorous actions.
• Insufficient competitiveness of company products.
• Inappropriately chosen product portfolio and bad marketing campaign.
• Low labor productivity.
• Late recognition of first signs of company failure.
• Wrong reaction or no reaction to the symptoms of company failure.
In the following overview table we present a holistic and essential view of the causes of the company
financial health deterioration.
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Table 1: Causes of the company financial health deterioration
DESCRIPTION SOURCES
Poor Strategic Decisions
• Bruno and Leidecker (1988)
Too strong dependence on one/few • Venkataraman (1990)
customers • Bruno et al. (1992)
• Egeln et al. (2010)
• Hunsdiek and May-Strobl (1986)
• Duchesneau and Gartner (1990)
Limited planning horizon/-efforts
• Gaskill et al. (1993)
Rigid focus on target customers • Egeln et al. (2010)
Malinvestments • Egeln et al. (2010)
• Hill and Hlavacek (1977 )
Growth strategy is too risky • Cressy (2006)
No cost-covering prices
• Egeln et al. (2010 )
Too high prices
Inappropriate advertising strategy • Zacharakis et al. (1999)
• Pleschak et al. (2002)
Low product diversity
Regional focus is too narrow • Egeln et al. (2010)
Too strong dependence on one/few suppliers • Egeln et al. (2010)
Deferred investments • Egeln et al. (2010)
Too high product diversity • Egeln et al. (2010)
Regional focus is too broad • Egeln et al. (2010)
• Hill and Hlavacek (1977)
• Maisberger (1997)
Business concept/planning errors • Zacharakis et al. (1999)
• Lussier and Halabi (2010)
• Cardon et al. (2011)
Excessive costs
Vague/doomed business model • Maisberger (1997 )
• Bruno et al. (1992)
Inappropriate timing of market entry
• Zacharakis et al. (1999)
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No/hardly any market research • Duchesneau and Gartner (1990)

Incorrect business definition
Underestimation of capital requirements for • Pleschak et al. (2002)
market
Launch and production development
Faulty financing concept • Pleschak et al. (2002)
Flawed marketing/sales concept • Pleschak et al. (2002)
Too late or insufficient marketing activities • Pleschak et al. (2002)
Excessive R&D costs • Pleschak et al. (2002)
Underestimation of cust • Pleschak et al. (2002)
Omer-related modification
Efforts
Skill and qualification shortfalls
Controlling
Marketing • Egeln et al. (2010)
Market knowledge • Pleschak et al. (2002)
Organizational skills/ • Meyer (1999)
Operational management • Pleschak et al. (2002)
Insufficient knowledge in human resources • Hill and Hlavacek (1977)
Management/ • Pleschak et al. (2002)
Deficiencies in the staffing policy • Egeln et al. (2010)
Technical skills
No/hardly any (start-up) consultancy
• Kay et al. (2001)
• Schwartz (1999)
Imbalanced qualifications
• Cressy (2006)
Contract design • Hunsdiek and May-Strobl (1986)
Overestimation of one’s own capabilities • Maisberger (1997)
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Lack of commitment • Maisberger (1997)

Lack of perceverance • Maisberger (1997)
Incompetent key personnel
• Cressy (2006)
Lack of entrepreneurial vision • Zacharakis et al. (1999)
• Franco and Haase (2010)
Unfavorable personality traits/ • Duchesneau and Gartner (1990)
Impulsive behavior of the lead entrepreneur • Pleschak et al. (2002)
Very high internal locus of control of the • Duchesneau and Gartner (1990)
Lead entrepreneur
Sales and distribution
Lack of experience • Michael and Combs (2008)
Weak communication skills • Franco and Haase (2010)
Lack of business knowledge • Pleschak et al. (2002)
Insufficient strategic management • Pleschak et al. (2002)
Intra-corporate causesí
Insufficient process innovations • Egeln et al. (2010)
Insufficient product innovations
Insufficient personnel reduction • Egeln et al. (2010)
Insufficient product quality
Technical planning targ • Pleschak et al. (2002)
Ets are not achieved
High decision-making power of the lead • Duchesneau and Gartner (1990)
Entrepreneur
Non-participative decision-making • Duchesneau and Gartner (1990)
Problems on sales and factor markets
Decline in sales/
Collapse of the target market
Bad dept losses • Egeln et al. (2010)
Increasing prices on factor markets • Egeln et al. (2010)
Poor industry development • Egeln et al. (2010)
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Generally poor economic situation • Egeln et al. (2010)
Strong competition • Egeln et al. (2010)
Personnel acquisition issues
Lack of customer loyalty • Egeln et al. (2010)
Problems related to tapping new markets
Problems related to customer acquisition • Egeln et al. (2010)
Poor supplier relations/ • Zacharakis et al. (1999)
Problems with suppliers or cooperation • Pleschak et al. (2002)
partners
Lack of service quality of • Reiß and Heimerl (1998)
Infrastructural network • Franco and Haase (2010)
Partners/bureaucracy
Cautious customer behavior • Pleschak et al. (2002)
Uncompetitive product • Pleschak et al. (2002)
Image/reputation problems • Pleschak et al. (2002)
Financial problems
Undercapitalization/ • Duchesneau and Gartner (1990)
Lack of financial reserves/ • Bruno et al. (1992)
Insufficient equity capital • Zacharakis et al. (1999)
• Thornhill and Amit (2003)
Increasing/early debt • Bruno et al. (1992)
• Thornhill and Amit (2003)
Credit refusal
Lack of investment capital • Egeln et al. (2010)
Loan terminations
• Cardon et al.( 2011)
Problems with banks/ • Maisberger (1997)
Restrictive behavior of the principal bank • Pleschak et al. (2002)
Low funding availability
Poor VC/shareholder cooperation
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Lower sales than planned • Pleschak et al. (2002)
Personal issues
Stress/excessive workloads • Egeln et al. (2010)
Disappointment related to income • Egeln et al. (2010)
expectations • Cardon et al. (2011)
To high personal liability • Egeln et al. (2010)
Health reasons • Egeln et al. (2010)
Family reasons
Too strong risk aversion • Egeln et al. (2010)
Dissonance regarding corporate strategy
Problems related to succession • Egeln et al. (2010)
Internal management issues
Conflict/disagreements in management team • Meyer (1999)
Compensation of shareholders • Egeln et al. (2010)
Management changes • Egeln et al. (2010)
Conclusion
Nowadays, in times of cross-linked and global economy, the emergence and disappearance of companies
is much more frequent than in the past. Due to globalization and the interdependence of individual
national economies, the disappearance and bankruptcies of companies are from the quantitative point of
view (especially in terms of the volume of assets) more pronounced. Individual national economies do
not work separately but in very intense interaction with each other, which means that the economies of
individual countries are increasingly dependent on each other and so the financial crisis of one country
with a short time delay will be transferred to another country and soon will have a global character. Since
the construction of the first prediction models, both professional and lay public have been questioning
predicative ability of these models. In extreme cases, whether the prediction models at all are able to
predict company failure, respectively bankruptcy. Criticism of the prediction models is focused on several
areas: (i) variables selection, (ii) company sampling, (iii) lack of non-financial variables, (iv) review
period used, (v) ambiguous definition of company failure, ((vi) data mobility and instability issues; and
(vii) neglect of the time dimension of company failure.
Acknowledgment
This paper is an output of VEGA 1/0428/17 Creation of new paradigms of operational management at the
threshold of the 21st century in conditions of the Slovak republic, which authors gratefully acknowledge.
7847
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Project Management in a Small-Sized Construction

Company in Poland: A Case Study
Adrianna GUZOWSKA
UTP University of Science and Technology, Faculty of Management, Bydgoszcz, Poland,
E-mail: Adrianna.Guzowska@utp.edu.pl
Abstract
The article presents the essence and the importance of IT project management computer program. The
literature review has facilitated defining the term ‘project’ and providing characteristics of selected
project management software. It was found that small enterprises usually do not apply such programs.
An in-depth interview with the enterprise owner indicated that a failure to apply project management
programs makes construction enterprise management difficult and, frequently, delays the project
completion date. The last part of the paper discusses the project management process with an example
of the forest road construction project executed earlier. It demonstrates how one can apply the software
selected to support its execution and discusses the potential benefits resulting from it.
Keyword: project management, project management programs, business management

Introduction
The key construction project management problem is a risk of the complication of the entire business
process which, as compared with the processes of other sectors operating on the market, is very
complex. At the same time managing a bigger number of construction sites creates a big scope of tasks
and events with an essential impact e.g. on the compliance with the works schedule and investment
costs. According to the Project Management Institute (2013), a project is an undertaking limited in
time the key objective of which is to produce a unique product, service or the final condition.
Small- and medium-sized enterprises are considered a group acting as an economic trigger. Such
enterprises are sensitive to changes on the market and exposed to turbulences resulting from an
economic crisis. Project management is more and more popular. One can note that the market offers
many IT solutions which support project management, while small enterprises rarely use IT solutions
facilitating project management, which disturbs the entire process, reflected in e.g. a delayed project
completion date. For the enterprise, an effective solution is searching for IT solutions for a more
efficient and effective management of various projects. Project management program defined as
computer software, designed to support schedules, project control, budget management, risk, service,
documentation, resource distribution, as well as administration of deviations in implemented projects.
The key objective of this article is to present the application of software supporting project management
for a specific construction project the contractor of which is a small enterprise and to indicate the
benefits resulting from it. In addition, an attempt will be made to prove that skilfully combining the
functionality of project management programs would enable efficient management of the company,
while getting rid of machine downtime that results in extended delivery times.
The research uses secondary sources, including non-serial printed publications and Internet sources to
cover project management, construction enterprise management and IT project management solutions.
The empirical part draws on the following research methods: case study, internal documents
(construction documentation) and individual in-depth interview. The interview was made with the
construction enterprise owner. The measurement tool was made up by a questions list.
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Literature Review
In the studies performed in Great Britain by Turner, Rodney; Ledwith, Kelly (2009) in a group
representing the SMEs sector it has been concluded that most enterprises do not use any project
management methods and tools. Turner and Ledwith studied (2018) 19 firms in which it was found
that the costs and the red tape constituted the main barrier to project management methods acceptance.
Murphy, Ledwih indicate that project planning contributes to the success of the entire enterprise.
In Poland, the research performed by Wójcik (2015) shows that in the SMEs sector only 13.8% of the
enterprises used the project management methods in the Śląskie Province. Other research by Łapuńka,
Biniasz (2013) demonstrate that in the opolskie province most of the construction companies studied
(80%) have not implemented all the project management methods. The research published by
Żmigrodzki (2012) points to SMEs management problems, including e.g. increasing costs of the
projects in progress, delays and variation in demand, while the research published by Dziekoński
(2010) indicates relatively low SMEs project management competences. In addition, according to
research carried out by Stańkowska on a group of 19 medium-sized construction companies operating
in the Lubuskie Voivodeship, only 2 such cases of using project management programs were found.
The above considerations show that small enterprises in Poland usually do not use the project
management methods and project management programs, which are usually associated with high
implementation costs. Most often, this means extending the duration of projects. The applicable
literature seems to be few the coverage on SMEs using IT project management programs and so an
attempt has been made to present their benefits. In that context it is justifiable to select an adequate
project management program which would meet the requirements of the construction enterprise under
study in terms of project management.
Specific nature of construction projects in Poland

The construction sector is one of the key economic sectors in Poland. Enterprises operating in that
sector are frequently related to the necessity of changing the place of operation; hence an obligation of
transferring also the resources consumed throughout the construction process. The sector shows a long
cycle of erecting buildings, however, all the processes require maintaining the quality criteria, a unique
organizational and technical character which must be subordinated to the preferences of the clients. All
the construction processes are complex, which calls for the application of various technologies. The
entire cycle also requires the coordination of the tasks of many entities affecting the contract completion
date.
The political and legal environment of construction enterprises in Poland is neutral. The execution of
the processes is affected by the law which, according to the reports by KPMG and PZPB (the Polish
Association of Construction Industry Employers), creates barriers and limitations due to extended
construction procedures and a prolonged building permit waiting time. Law enforcement practice also
shows serious deficiencies. The problem concerned especially public investments, related to the client’s
low competences and decision-making skills.
Project Management Programs

Project management software is most frequently defined in literature as computer programs to support
works scheduling, project control, budget, risk, quality, documents and material distribution
management, as well as administering the deviations in the projects executed. According to Spałek
(2011), project management software offers support in the following areas:
• online monitoring of the dependencies in the project,

• allocating resources to tasks to maximise their effective use,
• project portfolio management,
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• works schedule modification support,

• risk analysis
• simultaneous coordination of a few works schedules,
• online task execution time tracking.
IT programs for project management show advantages and disadvantages. The key job of those
programs is to facilitate work in enterprises and project teams. The programs help developing reports
and documents online at the same time by a few users, as well as keeping the calendar of the works to
be carried out. They facilitate drawing up a list of tasks to do done, time and document management,
modifying errors, allocating tasks to the project participation, as well as creating discussion forums.
The IT project management program defects include a risk of implementing inadequate software which
will not meet the enterprise requirements, high program costs and organization employee training. The
enterprise also faces a difficulty of a long program implementation and improvement time.
Project management programs can be divided into those which are free of charge and which require
fee payment. The most popular ones in Poland are: Andcom, Enovatio, MS Project, BlueAnt,
Assembla, BaseCamp, “mBudowy”, Open Project, Collabtive, Redmine, ProjectLibre, Gantt Project.
Andcom and “mBudowy” are dedicated to the construction sector. For the purpose of the analysis, the
article has selected “mBudowy” as, unlike Andcom, it is free of charge. In addition, "mBudowy" has
functions that support business processes, customer service, invoicing, cost accounting and support for
procurement processes. It also enables correspondence handling. The program “mBudowy” consists of
4 modules: contract management, project management, resources management, supplies management.
It also allows access with an Internet browser. The software supports creating Gantt chart schedules.
One can define parameters for them, namely: commencement and completion date, relations between
tasks, team member roles, additional descriptions, the criteria of considering a given stage completed.
Additionally, it allows for processing correspondence as well as resource requirement planning. The
free-of-charge version of “mBudowy” application allows for managing 5 projects at the same time.
Project Management With A Small-Sized Construction Enterprise As The

Example
General Project Characteristics in The Enterprise Under Study

The enterprise analysed renders construction services, including earthworks, demolition works,
excavation and domestic and international transport services. It mostly executes projects related to
forest road construction and modernization. The company is also a concrete manufacturer and it
operates its own construction aggregates mine. The fact additionally facilitated works planning as the
enterprise did not depend on suppliers. The materials purchased were e.g. concrete blocks, barriers, and
parking blocking devices. The enterprise employs 18 people. Annually the company executes on
average 10 project works.
To prepare construction projects, the company first planned the scope and method of performing the
construction processes. As the company used to win clients mostly in public tender procedures, it had
to keep the parameters, especially time, costs and maintaining the high quality of the workmanship. To
win clients, the enterprise’s tender had to include attractive conditions and to meet the lowest price and
short contract execution time criteria. While developing the tender, the company started from the works
site inspection to develop the tender cost estimate. Already at that moment each of the key stages of
works had to be planned and the tasks had to be allocated to it. The planning springboard was to order
all the actions according to their performance technology guidelines. It was essential to allocate each
task with the materials, equipment and human resources. All the actions facilitated drawing up the cost
estimate.
The materials were purchased when needed. When the company was executing at the same time a few
construction projects, the person responsible for the planning of the distribution of machinery, materials
as well as the stages of the works was a construction engineer (the holder of B.Sc. in construction
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engineering). The company did not plan the deployment of machinery much in advance. It was arranged
in the way that if e.g. an excavator was released from one construction site, it was allocated immediate
to another site. As a result, most often project execution downtimes occurred.
While developing the construction cost estimates, in its quotation for the client the construction
company was calculating additional project execution time as well as the costs which could result from
additional works not expected before. The company did not analyse a project risk. With the interview
made with the company owner it was concluded that the reasons for the construction works time
becoming prolonged are weather conditions as well as a bad machinery planning. There were situations
in which the enterprise had to address the client with a request for the construction works acceptance
deadline to be prolonged.
The interview shows that the company does not use any project management methods, and also does
not use project management programs. The interview also led to a conclusion that the company faces
has a problem with planning the right machinery deployment. Besides the enterprise did not specify
the specific task commencement and completion time for each stage. Finally, the actions were
translated into the total project execution time. To avoid the construction project execution downtimes,
in the enterprise under study there was proposed an implementation of software facilitating project
planning and management. To highlight the software applicability to project management, the analysis
of its functions was made to be used for testing one of the construction works.
Example of the project executed by the enterprise

Table 1 presents an example of the project executed in the enterprise under study. The construction
works involved a forest road reconstruction.
Table 1: Forest road construction project executed by the enterprise
Key stage Detailed stage

Taking measurements and defining the course of the forest road in a lowland area
Mechanical soil loosening together with cutting and crushing
Preparation works
Mechanical road surface cleaning of the unimproved road
Taking away the soil layer from the road and berm
Earthworks performed with excavators
Forming together with densifying the embankments
Earthworks
Manual forming of earth embankments
Embankments densifying
Manual profiling and densifying the ground (creating the road surface structure
layer)
Executing and densifying the draining layer along the entire road length and width
Base
Densifying the draining layer along the entire road length and width
Road base from the crushed-stone aggregate
Evening the base with crushed stone
Road surface base
Road surface
Further road surface base
Landfilling of embankments together with the excavation bottom
Supplementing and Making grooves under kerbs and kerb bases
finishing works Making concrete bases under curbs
Making water joggles
Executing ditches and drainage channels
Ditches Manual diggings
Manual embankment forming
Manual cleaning of culverts 0.6 m in diameter from muds
Culverts
Manual cleaning of culverts 0.8 m in diameter from muds
Source: own study based on the internal documentation of the enterprise.
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The project included 7 stages. The enterprise analysis first divides the enterprise into the key stages
and then allocates detailed stages to each of them.
Application of “mBudowy” program to the road construction project execution

One of the reasons for machine downtime in the analyzed company was bad weather conditions. This
is a factor independent of anyone, so it is difficult to predict the deterioration of the weather. Weather
conditions often prevent work. The only way to reduce this type of downtime is by observing short-
term weather forecasts. In this case, it would be possible to accelerate by several days other construction
work in which the weather would not affect the completion of the schedule. The "mBudowy" program
allows you to add weather information to the event tab (Fig. 1). You can also specify the exact start
and end times of the weather change.
Figure 1: Weather data entered in the mBudowy program
Source: own study, screenshot, website:

https://mojebudowy.pl/system/context5c2b9e3862a780.78995108/loader, as on 20.12.2018
Another reason for machine downtime in the analyzed company is the result of faulty work
organization. The arrangement of machines on each of the construction works was planned from day
to day. The Fig. 2 shows an example of improper work organization that happened during the
implementation of the first stage of construction works listed in Table 1 (blue). Due to the fact that the
loader operator was late to work, he could not load the dump trucks with aggregate for an important
individual customer of the analyzed company (17.05). After the operator came to work at the same
time, a loader was needed at the forest road construction site. Another problem was the excavator's
downtime due to poor preparation of the access road on which the dump trucks are bogged down (24.05
- 25.05). The next problem is the downtime resulting from the need to simultaneously mount the same
equipment on another construction site (29.05) - the second ventures are marked in purple. The reason
for these stops is the incorrect assumption of the construction manager that everything will go according
to plan. That is why it is important to use IT solutions for project management.
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Figure 2: Graphic layout of machine park layout in the "mBudowy" program
Source: own study, screenshot, website: https://mojebudowy.pl/system/context5c2b9e3862a780.78995108/loader,

as on 20.12.2018
Presenting the above construction works in “mBudowy” allows for machinery park management by
introducing all the machinery. The list in “mBudowy” facilitates planning the machinery deployment
for respective stages. Such action would make it easier to reserve equipment on a given day for a
specific project in the analyzed company.“mBudowy” software offers a graphic function which allows
for a view of the machinery requirements for respective days. The option would have prevented project
downtimes.
Machine downtime is also caused in the analyzed company by the managing construction engineer,
who should properly control the correct preparation of works, their synchronization and properly
selected composition of working teams. In this case, it should properly secure the access road
mentioned in the previous paragraph. In this case, the function of the "mBudowy" program will work
perfectly - the ability to create a Gantt chart (Fig. 3).
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Figure 3: Gantt chart for forest road construction process in the construction enterprise

as on 20.12.2018
The software allows the construction engineer for entering the key tasks planned as part of the forest
road construction project. For each key stage the tasks have been allocated and provided with the
commencement and completion date. The program in analysed enterprise would allow for making fast
changes in the Gantt chart if an unscheduled task execution time is prolonged - in this case, downtime
resulting from poor preparation of the access road. The software offers an option of editing data entered
at any moment. For the software user it is very convenient to allocate the material, equipment and HR
requirements for the analysed enterprise. This function would contribute to the efficient management
of human and hardware resources.
“mBudowy” application allows for introducing changes in the task progress status (new, in progress,
completed). Each status is attributed to a specific colour, which additionally facilitates identifying
project stages. A possibility of changing the colour for a respective task provides information to all the
software users on the status of the tasks. This message, additionally, would have supported the
purchase planning i.e. parking locks or curbs.
Fig. 4 presents a review of the third task stage: supplementary and finishing works. It presents the
following data: task, commencement and completion date, priority, status, time, and works progress.
A possibility of a fast task view provides information on its progress without a need of investigating
the details. The software would allows the analyzed company to access information update on the
construction works progress.
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Figure 4: Task execution status selection window

as on 20.12.2018.
Any technical downtime, in addition to the obvious cost of repair, causes additional negative financial
consequences, which are called hidden costs, because they burden the result of any business. The reason
is unconsciousness and a complicated way to monitor these types of costs.Each stage in “mBudowy”
provides the items of planned and executed budgets as classified cost categories. The program is
hierarchy structure, similarly as the schedule. The function would allow for cost control at each stage
of the construction project. The module provided for two kinds of budget updates: manual and
automatic. The budget value carriers were resources requirements. The key function of the module
Budget for the anlyzed company is a possibility of using the contracting process according to the
demand, and updating the budgets of costs executed in the enterprise.
The program allows for adding notes in the schedule to facilitate the management of all the documents
and files shared throughout the enterprise execution time. It is possible to add a file with
documentation and to allocate it to specific tasks, which would in future provide access to company
documents or help prepare a tender.
Evaluation of the applicability of potential benefits from implementing the program

“mBudowy” in the construction enterprise analysed
“mBudowy” software is a perfect alternative for a given construction enterprise to the problems
resulting from complex investment processes. The program analysis with the example of the forest road
construction process has facilitated evaluating its functionality in the company. Implementing the
program “mBudowy” the enterprise could have effectively managed the projects as well as, on top of
that, properly manage the layout of the machine park and reduced the costs of its operation.
The main benefits of implementation "mBudowy" program for the analyzed construction company:
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• a possibilities of planning resources much in advance - would allow transparent arrangement

of machines and avoid downtime in the implementation of construction projects. The
earthworks discussed in the article were delayed by a week. If the company used the
"mBudowy" program, it could control the availability of machines in advance through the
schedule, instead of planning it from day to day.
• a possibility of drawing up and controlling tasks and resources schedules - would allow control
of the implementation of project tasks and determine the current demand for raw materials,
e.g. concrete blocks,
• creating Gantt charts that give you the ability to edit schedules and individual stages. Thanks
to the option of setting the start and end time, the company would not have to add a large
amount of time to complete the project,
• cost control at each task execution level - this would avoid additional unforeseen costs, The
creator of the program indicates that the use of all functionalities of the program allows to
reduce the cost of construction investment by up to 25%.
Additional benefits for the analyzed construction product:
• a possibility of integrating with other software if implemented in the enterprise,
• cataloguing, archiving of documents, accessibility to encoded data transmission, backup

copies - this function would allow the creation and cataloguing of tender documentation and
the possibility of quick access to data,
• accessibility to the program from the Internet browser - this option would allow for ongoing
reporting of changes in project implementation, e.g. extension of time due to adverse weather
conditions,
• a possibility of sending e-mails to team members - to improve the management of the entire
construction project,
• user-friendliness - which translates into efficient business management.
All the benefits mentioned above from the implementation of the "mBudowy" program will allow
compliance with the parameters, i.e. time, costs and quality in the context of acquiring new customers.
The big advantage of the program is the price. For small enterprises, such as the company being
analyzed, the program version will be free of charge with a possibility of a simultaneous management
of 5 projects. The enterprise under study, for the last 6 years, have not managed more than 5 projects
simultaneously. If the company decided to extend its business activity further, then the “mBudowy”
program user licence costs would be PLN 25 per month.
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Recapitulation
The research performed has identified a problem with planning the right machinery distribution
resulting in prolonged task execution time. Machinery deployment was planned little in advance.
Besides the enterprise did not specify for each stage the time of commencement and completion of
respective tasks. Such operation finally affected the entire project execution time. Neither did the
enterprise perform any risk analysis. Nor did it use any project management programs. To avoid
construction project execution downtimes in the enterprise, it has been proposed to implement the
“mBudowy” system facilitating project planning and management.
The presented research results and the characteristics of the "mBudowy" program allowed to achieve
the purpose of the article.. The conducted considerations show that there is a need to implement a
project management program in the analyzed enterprise. This will avoid downtime in the
implementation of projects between simultaneously implemented projects, which are mainly caused by
inadequate internal logistics. It can be stated that they result from the competitiveness of customer
seeking.
The quoted description of the software based on the ongoing construction work showed the advantages
that it would give the company by implementing the "mBudowy" program. Additionally, it would
facilitate the process of working time settlement for both equipment and human resources in analyzed
company. The project management program presented in this paper and proposed to the enterprise
would help simplifying the entire process of creating project works schedules and their management
by creating Gantt charts, machine park schedule and previewing each completed work step.
“mBudowy” application would facilitate determining and controlling the budget at each project
execution stage, Another program advantage would be a possibility of an online monitoring of each
task execution status, which would contribute to controlling the implementation of the project
according to the assumed date of completion of the project.
According to the IDC report (International Data Corporation) from 2008, the implementation of an IT
project management program allows to increase by 35% the number of projects that can be coordinated
at the same time. In this case, for the analyzed company, "mBudowy" would enable support in the
coordination of a larger number of projects, however it can be assumed that this fact could help to avoid
machine downtime. In addition, the number of failed projects could be reduced by as much as 59% -
more projects would be completed within the deadline set for the company in question. Additionally,
as the author of the software indicates, the costs of construction investments could be reduced by up to
25%. Research conducted by Stańkowska and Jakubowski indicate that the increase in the
competitiveness of Polish construction enterprises, especially small and medium ones, requires a
change in the approach to project implementation, searching for IT solutions in management in order
to achieve operational excellence.Therefore, it becomes justified to implement the "mBudowy" system
in the analyzed enterprise.
By attempting to present the functionality of the "mBudowy" program, it can be said that the software
will be perfect for any construction company in the SME sector. The presented article presents the first
stage of research - before the program is launched, while the company plans to implement the
"mBudowy" program - this will be the next stage of research.
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Risks of the banking sector and the Central Bank in

competition with the IT industry
Pavel PIMENOV
Saint-Petersburg National Research University of Information Technologies, Mechanics and Optics,

Bachelor of Economic, Kronverkskiy prospekt, 49, St. Petersburg, 197101, Russia,
pavpimenov@gmail.com, https://orcid.org/0000-0002-4683-8525
Boris VARLAMOV
Saint-Petersburg National Research University of Information Technologies, Mechanics and Optics,

Kronverkskiy prospekt, 49, St. Petersburg, 197101, Russia, boris.varlamov@mail.ru,
https://orcid.org/0000-0002-0592-6465
Huiyan GUO
St. Petersburg State University, Master of journalism, Universitetskaya Embankment, 7–9, St.
Petersburg, 199034, Russia, ghuiyan@mail.ru, https://orcid.org/0000-0001-6526-3109
Abstract
The paper examines the impact of a large IT company entering the Russian banking market in terms of
risks for the new Bank, existing players and the Regulator. The study focuses on the level of
competition and market transformation, as well as on hidden changes in terms of transfers, scoring and
other intrabank processes.
Keywords: banking sector, IT-bank, digitalization, competition, scoring transformation.
Introduction
Over the past few decades of human development, the world has changed significantly. The economy,
as a sphere of life dependent on progress, has also felt the wind of change. The trickle of modern
technology has led to scrapping traditional ways of production, increased business scalability,
formation of new industries and adjustment of the position of mankind throughout the financial system.
The banking sector with its high inertia and overregulation actively incorporates successful solutions
to improve its own efficiency. However, due to serious regulation and internal conservatism it seeks
no global changes in the organization or product development. Being in this state, banks may not cope
with modern changes. Modern IT giants, previously unrelated to the banking sector, with sufficient
financial and technological capabilities due to the development of the fourth technological revolution
in the medium term have a real chance to break into the banking market, which is already happening
indirectly through related services. This situation is especially noticeable in the market of payment
systems in China, today divided between the largest representatives of the trade industry, like Alibaba
Group with the technology of payment by face AliPay, TaoBao and the system of introduction of QR
codes into payments. Although these organizations are associated with the banking sector indirectly,
presenting their "solutions-add-ons", there are a number of objective reasons why they are likely to
occupy a similar position with banks through integrating into the banking system. As part of this work,
our goal is to model, evaluate and comment on what would happen in the case of the previously
described changes in the banking sector. We have taken the territory of Russian Federation as the basis
for the study, and we can say that our results are applicable to a reasonable extent to the whole world.
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Therefore, this work presents the Analysis of the situation on the banking market in case of the
appearance of a large player with wide IT-competences (IT-Bank), which became part of the banking
group headed by a technology company. The relevance of the topic is supported by the entry of the
world into the era of the fourth industrial evolution and, as a consequence, the mass digitalization of
all sectors of the economy, including banking.
Necessary Assumptions
Before considering the direct effect on the market, it is necessary to answer the question about the
reasons for the creation of such an IT-Bank. An organization capable of carrying out the full range of
banking operations in the process of creation requires serious cash injections. In the case with RF, it is
necessary to have an authorized capital of 3.6 billion rubles for the possibility of full-fledged work
from the date of creation (Consultant plus (2017)). Existing opportunities of IT giants allow to find
other ways of receiving similar profit without considerable financial injections. Therefore, the reason
should be located not only and probably not so much in the plane of exclusively receiving dividends
and preferences from the subsidiary, but in a different direction with more global goals. We cannot say
with full certainty about the true intentions of the parent company, but we can make a number of
assumptions.
German Gref, CEO of Sberbank, at a lecture at the corporate University of Sberbank (2018) said: "The
main trend of modern banking is the creation of ecosystems around the forming platforms. In the near
future, transnational, global platforms will dominate, other systems will die out." It is seen that
Sberbank current policy itself is in relation to its application, coupled with collaboration with Yandex,
reflects the thesis above. According to our opinion, the IT giant can adhere to similar goals when
creating a subsidiary Bank. Therefore, we cannot fully talk about entering the market of a full-fledged
competitor. We are talking about creating an ecosystem, that is, individual elements, such as banking,
insurance, factoring, leasing, retail, etc., connected through a single system-forming platform. The
influence of such an Association is discussed later.
On the other hand, the Bank can become a convenient "pocket" solution for an IT giant. The practice
of such organizations is not new. However, this development is unable to result in significant changes
in the industry, so for this work, such an outcome is less relevant.
Based on the above, this study identifies a number of significant assumptions. IT-Bank entering the
market under the current set of conditions with a high probability:
1. It is an additional project that pursues the goals of the parent company in terms of creating
an ecosystem of its products.
2. Products rely on Internet services.
3. The company mostly operates in the electronic space, using a network of customer centers
through outsourcing which reduces costs while maintaining flexibility and interaction with
customers.
Industry’s Risks and Opportunities
For the purposes of this work, the Bank as an element of a single ecosystem should be considered. An
ecosystem is a network of organizations, that is formed around a single technology platform and uses
its resources and services to create special offers for customers and provide them with access to the
created offers. This effectively expands the activities of groups, such as Sberbank, in non-banking
sectors. In such conditions, a huge number of new risks appear, which previously banks did not face in
their activities. Risk management in the case of a large number of subsidiaries located in different
countries and a wide range of operations is a very difficult task. Many risk factors need to be considered,
as well as features of local regulation across jurisdictions that can vary significantly. To understand
how the activities of one member of the group may affect the financial stability of other members and
the stability of the group as a whole, it is necessary to identify the maximum possible number of real
risks, be able to assess them on a consolidated basis and take into account the mutual influence.
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However, a risk as an uncertainty of losses can be reversed, turning from a problem into an opportunity,
which also requires additional research.
There is an obvious need to consider the risk component of such an event comprehensively from
different sides, without focusing solely on the IT company. Thus, the risk analysis should be reflected
from two perspectives: the Bank itself and industry regulators as responsible for maintaining stability.
First of all, consider the risks and opportunities of IT-Bank as the smallest unit of the structures studied.
It is worth mentioning that the focus is on the new challenges that the company faces. The new structure
is unlikely to avoid classic risks for business and industry, such as the risks of non-payment or
withdrawal of funds from Bank accounts by depositors, but based on the high life of the industry, they
are not so unpredictable. In addition, a number of the risks mentioned are exclusively applicable to
Russia because of domestic banking market features. However, in general, this combination with a
number of exceptions can be relevant for any IT Bank, regardless of the country origin.
Based on S&P Global Rating (2018) analysis, we have selected the following risks for the new IT
Bank:
1. The risk of rehabilitation is based on the tendency to improve the banking system of the
Russian Federation.
2. Competitive risk is associated with the activities of competing industry structures in terms of
creating innovative solutions.
3. The risk of regulation is associated with the global trend towards the formation of a unified
regulatory system (for Russia – the Central Bank as a mega-regulator). The Bank of Russia is
currently preparing regulatory reforms for banking groups and Bank holdings. To gradually
adapt market participants to the new regulation, it was proposed to establish a four-year
transition period. The Bank of Russia supported the proposal and postponed the introduction
of regulation. The introduction of the new regulation will entail significant costs for banks,
but it is necessary to ensure the financial stability of other financial companies, as well as the
stability of the financial system as a whole.
4. Coverage risk is based on the availability of infrastructure opportunities and the involvement
of the population in the process of digitalization and improving their own financial literacy.
5. IT risk is fundamental and is associated with the orientation of the Bank to IT institutions as
the core of its development.
6. Concentration risk is related to the fact that financial assets, as well as related risks, will be
redistributed among a limited number of internal counterparties. In this case, risk
accumulation and risk multiplication are possible, which can potentially be more dangerous
than attacks on the system, since the bankruptcy of the institutions forming the system can
result in the Paralyzation of the entire system.
Based on the information provided, we have ranked the risks for regulators depending on the amount
of damage and the probability of its occurrence. The result is shown in figure 1.
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Fig. 1: Risk matrix for IT-Bank

Source: compiled by the authors.
Let’s consider a number of risks in more detail.
Competitive risk can be traced to the introduction of new technologies by Russian banks (Fig. 2).
Fig. 2: Introduction of new technologies in the banking sector in 2017

Source: Deloitte (2016)
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It can be noted that only five Russian banks have original solutions. However, this suggests that they
have an established system of developing successful IT solutions, which creates stiff competition in
the promising market of high-tech products.
In addition, Sberbank represented by German Gref has already officially expressed its position
regarding the desire to create a banking ecosystem. In addition, other banks can also contribute to the
limited operation of the IT-Bank system, seeing it as a potentially dangerous competitor that can shake
their position.
As a result, there may be a situation of leaving customers for the services of a stronger brand in the
banking environment and, as a consequence, the loss of a significant number of ways to achieve the
strategic goal of creating an ecosystem.
Coverage risk opens a block of risks tied to a significant binding both company success and competitive
advantages to the situation in the IT of a particular region and country as a whole. This risk is largely
based on the imperfection of the electronic financial system in Russia both in terms of infrastructure
and in terms of the behavior of subjects. To date, according to the Central Bank (2018) in Russia, on
average, one person has 2-3 Bank cards. It would seem that there is a high potential for the integration
of services based on the use of electronic money. However, according to Rosstat (2018), almost 72 %
of per capita income is transferred to cash. The card, in fact, in most cases is needed exclusively for
cashing out funds after receiving a salary at the nearest ATM (Fig. 3).
Fig. 3: Share of funds withdrawn from Bank cards, 2018.

Source: Central Bank of Russia (2018)
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This situation may be caused by the previously voiced problem of the availability of the necessary
infrastructure (50% of terminals are not equipped with NFC - Coursera.org (2018), Roskachestvo
(2018)) and the General financial literacy of the population. In this regard, the company runs the risk
of gaining an elementary customer base interested in the company's IT developments of sufficient size
to potentially recoup the costs of R & d (research and development).
Moreover, there remains the possibility of latent demand, and the new ecosystem could help stimulate
the use of electronic means of payment. However, a negative scenario is very likely.
The other side of the issue is also related to infrastructure, but more to the analytical aspects and the
overall development of the company. The development of the structure, so strongly tied to IT, largely
depends on the speed of innovation in the country. In certain areas related to banking, the company
may well become a pioneer of development, which can be attributed to opportunities. However, in any
aspects witch independ of it or low-profit innovation, the company has to adjust to all-Russian realities.
A classic example of this direction is communication. The IT bank, which has mostly virtual interaction
with the user, is forced to adjust to the cycles of updating the network standard. However, there is a
certain time lag between Russia and foreign implementations, as shown in Figure 4.
Fig. 4: Time lag of implementation of communication standards in foreign and
Russian networks
In such circumstances, the competitive advantage of the company can be leveled by time, which can
lead to the alignment of positions and the prevalence of brand strength and historical development over
technological potential.
IT risk is a complex concept that gathers the whole set of risks of violation of the correct operation of
the system on which the key competitive advantages of the company are based. This group, according
to the authors — is the most significant for the Bank. In this work, the risk IT is divided into two
essential elements: (1) the system risk associated with outages of the IT system or raw version of the
firmware, which is characteristic for external applications, the company imaging system for users,
which is analogous to operational risk; (2) cyber risk.
Consider the latter in more detail. According to Aon (2018), the number of hacker attacks is constantly
increasing, however, oddly enough, the amount of monetary losses is decreasing. This is due to the
growth of Bank protection systems. Cybercriminals are increasingly resorting to phishing and Trojans
for smartphones, that is, targeting consumers themselves.
We calculated the probabilistic losses during hacking (successful attack) on such a platform by the
Monte Carlo method, which is presented below (see Fig. 5).
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Fig. 5: The average amount of losses in the implementation of a cyberattack on the ecosystem
or its individual element, calculated by the Monte Carlo method.
At the same time, we made several important assumptions — this platform is equivalent to VK, that is,
almost Sberbank or VTB. Maximum and minimum value — the value of the amount of real losses in
the implementation of attacks. The number of iterations is 5,000.
However, monetary losses are not the main danger here. Increasingly, at the time of the analysis, as
noted in the BCG report, in almost 50% of cases, customer data is stolen in attacks. This means that
there is not just withdrawal of money from accounts, but data theft for various purposes. Including
implementation through darknet ($9 for MasterCard debit card data according to Positive Research
(2018)). The platform is the accumulation of risks (theft of money, theft of data, the creation of artificial
failures in the system or even the creation of botnets (this is the process of internal attacks on siestami,
that is, when all people's accounts are bots), all this leads to a stop of the system), that is, in fact, one
attack is enough to disable the entire platform. This allows us to call this risk backbone. This is also
proved by the amount of insurance premiums collected for cyber insurance of financial institutions. In
particular, the AON (2018) study demonstrates exponential growth (Fig. 6).
Fig.6: Amount of signed cyber insurance premium worldwide, 2002 - 2020 dynamics.
Source: Aon (2018)
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It means that for the heads of financial institutions it is becoming more important and more dangerous,
and most importantly, more urgent. (statistics company AON 2017. These data are also confirmed by
data from the website of Hannover Re (2018) and Swiss Re (2018)).
As opportunities for IT-Bank we would like to highlight the following:
• Optimization of information flows for the basic IT system. That is, the collection and storage
of relevant information about all members of the network. This will optimize engineering,
audit and, most importantly, marketing schemes of interaction with each individual client.
• Increase the financial literacy of users and at the same time increase their efficiency. We are
talking about informing users about various products, such as investment life insurance,
Federal loan bonds, etc. That is, what can increase the welfare of users of the system and the
welfare of the IT-Bank.
• Reduced costs for processing and interaction with all members of the network. Reduction of
transaction costs due to the use of online payment services built into the IT system. In General,
the level of online in Russia is as follows. According to a study by Mediascope (2018): "most
often online, users pay for mobile communications (67.7%), housing (61.6%) and orders in
online stores (52.4%). In addition, this way people transfer money to each other (48.8%), as
well as pay fines, taxes and state duties (41.8%). Moreover, the age of online payers is 18-55
years.".
• Creation of a single identification system for all users with a deep encryption system, similar
to the blockchain. This will reduce fraud and data theft and, as mentioned above, increase the
speed of payments. And based on the research data Yandex.Money (2018) and DIT of the city
of Moscow: "...the most popular reason for refusing cashless payment is a sad experience:
16% of Muscovites faced the fact that the payment service was not available, 6% - with long
terms of crediting the payment, 3% admitted that fraudsters were able to fraudulently gain
access to their account.» (Yandex.Money (2018)). Thus, it is quite possible to lead to a
significant increase in users.
Risks to the Central Bank
Talking about the risks that Central banks and international regulatory bodies (e.g. the Basel
Committee) should take into account in relation to such ecosystems, it is worth considering:
1. System risk. Such a system, uniting a huge number of people and businesses, will have a
system-forming character. Problems with it can have a negative impact on the level of the
whole country in which it operates, leading to a decrease in GDP, etc.
2. The risk of imbalance in the market. The emergence of such a system or a number of
systems will lead to the emergence of IT-banks, which will include the entire service
sector and provide them at competitive prices. And it will reduce competition in the
market (according to the Financial Times (2018), by more than 88%). The author believes
that the possible result may be the establishment of "legal" oligopoly, which we see in the
telecommunications market, that is, the presence of no more than 10 players. This can
significantly harm the classic market foundations.
3. The risk of external dependency. The realization of this risk is related to the fact that the
dominance of an external ecosystem can lead to a strange dependence on a foreign system,
which is very similar to a dependence on a foreign currency with all the ensuing
consequences.
4. Regulatory risks associated with regulatory uncertainty. This risk is related to the fact
that modern regulatory systems (whether Basel agreements, Solvency, etc.) are developed
for individual elements of such an ecosystem. For some elements, for example, the basic
system, and their relationship to each other, such regulation and even any
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recommendations simply do not exist. It is also obvious that a synergistic effect will also
be present in the ecosystem. In this regard, integrated recommendations and regulatory
requirements for ecosystems need to be developed. It is optimal to develop such
recommendations by analogy with Basel II (2017) in the format of interaction at the
supranational level. This is the only way to create preconditions for limiting new risks.
Based on the information provided, we ranked the risks for regulators according to the severity and
probability of the damage. The result is shown in figure 7.
Fig.7: Risk matrix for regulators

Companions of new risks are new opportunities. The market access of it banks is no exception. When
it comes to the capabilities of regulators, it is worth considering that under the same conditions,
consideration should fit into the main functions of the regulators in the market. It is worth mentioning
that all possibilities overlap and interact with each other in some way. So, in our opinion, the main
features:
• improving the transparency of regulatory transactions. Establishing a continuous control

system for all participants in the ecosystem will allow full control of almost all transactions.
• Improving the quality of integrated ecosystem requirements.
• Accelerated cleaning of sectors from poorly prepared and "pocket" banks.
• Improving people's financial knowledge. The integration of the ecosystem into daily life will
increase the interaction of the population with financial services. Therefore, through
educational advertising or special services ("cards" to Sberbank online), it is possible to
implement a program to improve the financial qualities of the population.
• Decrease in the money supply in circulation.
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Let's discuss the latter in more detail, because in our view, the issue of realizing this opportunity is
more profound than at first glance.
According to the Central Bank of Russia (2018), the share of non-cash payments in Russia amounted
to 55% in 2018, but if you look at the independent data and reports for 2017 of MasterCard Advisors,
Wirecard and McKinsey, this figure does not exceed 5%, as shown in figure 8
Fig. 8: Share of non-cash payments in the world in 2017
This is due to the fact that the Central Bank of Russia (2018), unlike other methods, considers the main
“non-cash” operations (withdrawing cash from the card and transferring to its other cards) to be the
type of non-cash payments.
This imbalance creates the possibility of using IT-Bank as a dynamic of development of non-cash
payments. This can lead to a reduction in the cash supply in circulation, which reduces the cost of
printing cash and coin. For rice. 9 represents the total number of coins and banknotes in circulation in
2018.
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Fig.9: The number of coins and banknotes in circulation in the Russian Federation for 2018.
Source: Central Bank of Russia (2018)
The cost of money printing and minting according to the Banki.ru (2015) is respectively 35 cop. and
1.2 rubles. The benefit of increasing cashless transactions to the world leader (which is possible) will
mean reducing the costs of replacing bills and coins and reducing the costs of the Payment Processing
Center (according to the RBC calculation, the total amount of savings of the Central Bank in this case
is more than 15 million rubles). IT-bank, popularizing available cashless transactions within its own
ecosystem, can to a certain extent accelerate the process of transition to digital money.
However, perhaps the most significant result of the reduction in cash will be the increasing of
transparency and control of cash flows, obstacle to the legalization of criminal proceeds, etc.
Thus, both the company and the industry, acquire a completely different set of risks from the standard,
which need to be combated. At the same time, virtually every risk can be seen as an opportunity for the
IT bank to strengthen its own market position and create new solutions to minimize or completely
offset the risk component. As it could be noted, risk management is possible in the stage of prevention,
which opens up additional possibilities of correction. However, there is another fact that in one way or
another the binding thread passed through almost all risks. This is the high role of brand strength and
user confidence in long-standing and successful banks. Thus, the question of the competitiveness of
technologies over years of experience arises. This thesis will be discussed in more detail below.
The Ratio of Modern IT Services and Banks
Remote banking services, online payments, electronic money, payment systems-these concepts,
initially far from each other, in recent years, have unusually closed and intertwined, saturating Russian
Internet users with a variety of services that allow you to receive, store, manage and spend money
without leaving your computer or your mobile device.
An interesting question in this case is the Ratio of Internet services to banking sector. Thus, an Internet
service is nothing more than a set of certain services provided to the user through the Internet. A bank
is a credit institution that mediates the transfer of money from loans to borrowers. At the same time, it
is worth noting that it is the institutions that are primary, as they can exist without services. As for the
Payment Internet services, they cannot exist without a bank. The money has accounts in the respective
banks where the accumulated finances are stored. Legally, when the client replenishes the wallet, he
transfers the money to the settlement account of the organization LLC "PS" Yandex.Money". In its
accounting department, this company credits them to a client personal account. This brings us to the
idea that services are dependent and inextricably linked to banks or other financial institutions. That’s
why it is not possible to compare services and the banking sector with each other in terms of functions
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performed.
On the other hand, for the purposes of this work, the authors compared the number of users (relevant
indicator). Two banks, two services and two platforms were selected, which also feature built-in
Internet services (in this case, transaction services). The results of the comparison are presented in the
diagram, which was built by the authors according to the data taken from open sources as of 01.11.2018.
Fig.10: Number of active users on 01.11. 2018

As can be seen from the chart above, the number of clients of Internet services of banks and platforms
is comparable. Moreover, it is worth considering that people spend even more time on platforms, which
makes them serious rivals of banks in the fight for consumer attention. This simultaneously creates
even more fruitful ground for cooperation in the fight for clients. In this rivalry services are not leaders,
due to dependence on banks and limited sources of profit. Thus, most transactions in the payment
system are charged a fee - on average 3%, which is a tangible limitation for customers.
Conclusion
Thus, the authors of this work believe that one of the main reasons for the organization of IT-bank can
be considered the creation of an ecosystem. An ecosystem is a network of organizations and services
that is formed around a single technology platform and uses its resources and services to create special
offers for customers and give them access to the created offers.It is obvious that with the emergence of
such an IT-bank, completely new in its structure and way of functioning, everyone will face new risks
and challenges.
Thus, regulators, represented by, for example, the Central Bank and supranational regulators, will face
the need to develop new recommendations and norms. It is obvious that with a high probability it will
be possible to talk about the imbalance in the market, due to the dominance of one or two players or
even its capture of the market by a stronger foreign player.
The IT bank itself will face, due to its peculiarities, that the risk palette for it will change. According
to the authors, despite the fact that classic risks, such as liquidity risk, interest rates, and credit will
remain in existence, the most significant risk will be the risk associated with cyber protection and IT.
The authors also analyzed concentration risk, competition risk and coverage risk.
At the same time, there are also a number of opportunities that can be used by regulators and the IT
bank itself. Regulators will be able to increase transparency of transactions, develop requirements for
ecosystems on a preventive basis, increase financial literacy of the population and reduce the money
supply in circulation. IT-bank will be able to reduce its costs, optimize logistics channels of information
flows and accumulate sufficient data about each client, which in turn will allow to reach a new level of
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interaction with clients.
References
• Aon Cyber 2018—the fast-moving target. Benchmarking views and attitudes by industry
[Retrieved August 20, 2019]
https://www.aon.com/russia/files/Final_2016_Cyber_Captive_Survey.pdf.
• Banki.ru (2015) production Cost of ruble notes increased by 32% [Retrieved August 20, 2019]
https://www.banki.ru/news/lenta/?id=7762953
• Basel II 2017 International Convergence of Capital Measurement and Capital Standards: a Revised
Framework [Retrieved August 20, 2019], https://www.bis.org/publ/bcbs107.htm
• Central Bank of Russia 2018 [Retrieved August 20, 2019], http://www.cbr.ru/
• Consultant plus 2017 Law on banks and banking activities of 02.12.1990 N 395-1 (as amended).
(edited on 29.07.2017) [Retrieved August 20, 2019], www.consultant.ru.
• Coursera.org 2019 risk Management in the era of ecosystem creation [Retrieved August 20, 2019],
https://www.coursera.org/learn/osnovy-risk-menedzhmenta-v-banke/lecture/rmbtD/upravlieniie-
riskami-v-epokhu-sozdaniia-ekosistiem
• Deloitte (2016) Banks for geeks: experts name financial innovation leaders [Retrieved August 20,
2019] https://www2.deloitte.com/ru/ru/pages/about-deloitte/deloitte-in-press/2016-year/eksperty-
naazvaliliderov-finansovyh-innovaciy.html
• Hannover.Re 2019 [Retrieved August 20, 2019], https://www.hannover-re.com/
• Mediascope 2018 Online payments in Russia: Mediascope research [Retrieved August 20, 2019],
https://money.yandex.ru/page?id=532440
• Roskoshestvo 2018 Contactless payments: the technology of the future or risky service? [Retrieved
August 20, 2019], https://roskachestvo.gov.ru/press/articles/beskontaktnye-platezhi-
tekhnologiya-budushchego-ili-riskovannyy-servis/
• Rosstat 2019 Website of the Federal state statistics service of the Russian Federation [Retrieved
August 20, 2019], http://www.gks.ru/
• S&P Global Rating 2018 banking sector industry and country risk Assessment: Russian Federation
[Retrieved August 20, 2019],
https://www.spratings.com//documents/20184/798025/BICRA+RUSSIA+June+2017/444986e6-
c654-4f61-9915-61844dea08fb
• Sberbank corporate University 2019 [Retrieved August 20, 2019], https://sberbank-

university.ru/ru/
• Swiss Re 2018 [Retrieved August 20, 2019], https://www.swissre.com/reinsurance.htmL
7875
• the Financial Times 2019 [Retrieved August 20, 2019], https://www.ft.com/
• Yandex.Money 2018 non-Cash payments of Muscovites: Yandex research.Money and the CIO of
the city of Moscow Retrieved August 20, 2019] https://money.yandex.ru/page?id=532941
7876
Assessment of Environmental and Economic Efficiency of

Secondary Resources Obtained at the Landfills for the Production
and Sale of Commercial Products in Context of
Regional Economic Safety
Donchenko Vladislav Konstantinovich
Doctor of economic sciences, Professor, Federal State Budgetary Institution of Science St. Petersburg
Research Center for Ecological Safety of the Russian Academy of Sciences. St. Petersburg,
Russian Federation,
E-mail: donchenkovk2017@mail.ru
Kudryavtseva Tatiana Jurievna

Doctor of economic sciences, Associate Professor, Peter the Great St. Petersburg Polytechnic
University. St. Petersburg, Russian Federation,
E-mail: kudryavtseva_tyu@spbstu.ru
Hilchenko German Vladimirovich

Limited liability company «Synergy +». Integrated environmental support of enterprises. St.
Petersburg, Russian Federation. E-mail: Rubin Goldenberg goldenbergr1983@gmail.com
Andreyeva Darya Andreyevna

PhD, Department of Security, North-West Institute of Management, branch of the Russian
Presidential Academy of National Economy and Public Administration (RANEPA), St. Petersburg,
Russian Federation,
E-mail: a.d.andreeva@yandex.ru
Abstract
The article is presenting the results of studies of transition processes in the economy of environmental
management associated with the development of the national waste processing industry. In the
process of research, ecological and economic analysis of the market of services in the system of solid
municipal waste management was performed on the example of St. Petersburg and the Leningrad
region. Institutional factors necessary for the formation of the Institute of voluntary corporate social
and environmental responsibility of owners of solid municipal waste landfills in the regional system
of environmental management are identified. The main attention was paid to the assessment of
environmental and economic efficiency of the use of secondary resources obtained at solid municipal
waste landfills for the production and sale of commercial products with the participation of small and
medium-sized businesses. The assessment of ecological and economic efficiency of techno parks
development with the use of energy resources of solid municipal waste landfills is given.
Keywords: economy of nature management, environmental protection, municipal solid waste, waste
processing industry, social responsibility, corporate social and environmental agreements, incentives
for small and medium-sized businesses, industrial methods of production of secondary resources, Eco
techno parks, goods from secondary resources, regional economic safety.
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Introduction
Currently, environmental and economic problems of solid municipal waste landfills (MSW) in the
regional environmental management systems of the Russian Federation are among the priorities
(Afanasieva, Rodionov, Vasilev, 2018; Shabunina, Shchelkina, Rodionov, 2017). This is due to the
fact that, in almost all regions of the Russian Federation, MSW landfills have become a source of
environmental danger and social tension. They were perceived by local communities as a negative
environmental aspect in their territory, as evidenced by the facts in the media.
In the new environmental policy of Russia, the priority was given to industrial methods of processing
of MSW using the best available technologies (BAT) (Rodionov, Konnikov, Konnikova, 2018). Its
implementation helps to reduce the use of natural resources, as well as reduce the negative impact of
MSW landfills on the environment and the population.
MSW landfills should be enterprises waste processing industry of Russia and their owners will be
interested in adopting the principles of social and environmental responsibility. This involves their
participation in the preparation and conclusion of corporate social and environmental agreements
(CSEA) on the territory of its activities. This meets the principles of the "green economy" and
modern ideas about environmental culture and professional ethics in the processes of interaction
between business, government and the public. The production activity of MSW landfills includes the
use of secondary resources (SR) for the production and sale of marketable products.
The new business model for Russia corresponds to the world achievements (Rudskaya, Rodionov,
2018; Skhvediani, Kudryavtseva, 2018). The relevance of its implementation determined the object
of this study as the study of new types of economic activities of MSW landfills in the status of
enterprises of the waste processing industry of Russia in the regional natural resource use systems.
The subject of the study was the disclosure of the problem of environmental and economic efficiency
of the use of secondary resources at the landfills for the production and sale of commercial products,
on the example of St. Petersburg and the Leningrad region.
The purpose of the study is to assess the environmental and economic efficiency of the use of
secondary resources obtained at the landfills for the production and sale of commercial products with
the participation of small and medium - sized businesses. To achieve the goal, the following
objectives of the study were set:
• determine the necessary and sufficient conditions for the formation of the Institute of
voluntary corporate environmental responsibility of owners of landfills in the regional system of
environmental management;
• perform analysis of the market of services in the system of treatment of MSW on the
example of St. Petersburg and Leningrad region;
• to assess the environmental and economic efficiency of commercial use of SR at the landfills
for the production and sale of commercial products with the involvement of small and medium-
sized businesses.
• to determine the main directions of development of MSW landfills as the basic enterprises of
the waste processing industry in the regional natural resource use systems of the Russian
Federation.
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The theoretical basis of the study is: the neo-institutional economic theory, methods of ecological and
economic management of natural resources (Donchenko, 2015), ecological, economic and
institutional analysis of the processes of formation of waste processing industry in Russia (Vinculis,
Chusov, 2017; Malevskaia-Malevich E.D., Demidenko D.S. (2017). For the analysis of processes of
formation of regional markets for goods produced with the use of secondary resources received at
MSW landfills was applied the method of Herfindahl – Hirschman index, as well as methods of
assessment of environmental and economic efficiency of production of goods from secondary
resources (Begak, Guseva, Boravskaya, 2010). To identify trends in the formation of inter-regional
markets of goods produced using SR, the method of analyzing the impact of inter-regional
interactions in the field of treatment of MSW was used (Malinin, 2006).
Literature Review
The Genesis and theoretical foundations of the concept of social responsibility were laid in the works
of the classical school of political economy - A. Smith, D. Ricardo, Georges Simond de Sismondi. In
their scientific views, any economic activity is social, so it is necessary to coordinate the results of
self-serving activities of economic agents and the interests of social welfare. Responsible business
should take into account and take responsibility for the satisfaction of both its own and public
interests.
At a time when MSW landfills were the final disposal site for MSW, they were perceived by local
communities as a negative environmental aspect. This is confirmed by the facts in the media in
various regions of the Russian Federation. Their owners were not interested in participating in the
territorial the CSEC. In the process of creating a national waste processing industry, such an interest
may occur.
A critical analysis of the works in the field of corporate social responsibility of business entities and
their impact on local communities was published in scientific monograph (Blagov, 2011). It was
shown that currently Russian scientists focus on the consideration of socio-economic phenomena and
processes in environmental management related to the management of MSW management system
and environmental protection. In the studies of foreign authors much attention is paid to the study of
the phenomenon of corporate socio-economic and environmental responsibility of business,
government and the public.
Effective operation of MSW landfills helps to attract various institutions of civil society to solve
specific problems of MSW processing in order to obtain SR for the production of marketable
products (Research report «Overview of control mechanism for waste management in Finland»). In
studies it was shown that international practice in this direction is the creation of an industry for the
processing of MSW in the SR for the production of them certified commodity products (Alekseev,
Karlik, Makhatadze, 2013).
In the process of its creation, many institutional (Semiletova, 2017), economic (Krasnova, 2018),
organizational, technological (Kartamysheva, 2017), social (Gusev, 2018) and environmental
(Malinin, 2006) problems should be solved. The production of SR at the landfills of MSW has been
actively developed with the participation of small and medium-sized businesses today in the world.
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Results
The market of services in the system of treatment of MSW in the Russian Federation is currently
changing dramatically. This is due to the legislative consolidation of the Institute of regional
operators, which have a monopoly status in the regional system of solid waste management. In a
market system, the establishment and maintenance of a fair competition regime and compliance with
antitrust laws are fundamental. The indicator of the current state of the market is the value of the
Herfindahl-Hirschman index (HHI). On the example of St. Petersburg, St. Petersburg and Leningrad
region in the study analyzed the dynamics of this indicator in relation to the situation in the regional
system of treatment of MSW was carried out.
It is shown that at the end of the nineties the dynamics of HHI was in the range from 200 to 300,
indicating that the regional market of services in the MSW system in the Leningrad region was
attended by many players and there was free competition.
In the period from 2000 to 2010, the value of HHI increased to 800, indicating that the number of
companies operating in the regional market in the system of treatment of MSW as a result of
competition, decreased. In the subsequent period until 2018, the value of HHI increased to 1900,
which indicates the sharp competition of the main players, which resulted in the formation of a
sufficiently high level of monopolization in the regional market in the system of treatment of MSW
in the Leningrad region. Since 2019, when switching to the Regional operator system, it is equal to
10,000, that is, a system of full monopoly has been created.
It should be noted that the results of the study will be largely typical for other cities of the Russian
Federation with a population of more than one million people, as well as for the surrounding areas,
were the are landfills.
It is known that in a market economy the transition to a monopoly system has obvious disadvantages
and obvious advantages.
The main drawbacks in the transition to the network system of regional operators include the
reduction of participants in the MSW-related services markets. There was a socio-economic
problem of finding new activities, mainly for small and medium-sized businesses.
The main advantage should be considered the creation of institutional conditions for the transition to
industrial methods of collection, transportation and processing of MSW into secondary resources, as
well as the production of useful commodity products from them. Industrial methods initiate
investment attractiveness of creation and development of ecological mechanical engineering for
enterprises of waste processing industry. Regional operators are economically interested in the active
formation of consumer demand for equipment and BAT in the sphere of their economic activity. It
can be assumed that in this segment of the national market, a significant increase in demand and
supply is expected.
An important direction of actively involving small and medium business abroad are Eco techno
parks. They are created in conjunction with MSW landfills enterprises. These organizations use
landfill biogas, heat, electricity, compost and soil for agriculture and green building in cities and
towns. In the current world practice, the technology of degassing the landfill body during operation is
used to prevent emissions of pollutants and bad-smelling substances into the atmosphere.
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Technically, it is implemented by incorporating into the technology of operation of MSW landfills a

collection system formed during biogas bioconversion and its use for heat and electricity production.
To do this, vertical wells are laid in the body of the polygon, which are connected to the collector.
From the collector biogas are forced fans into the gas treatment system to remove moisture (gas
condensate). The prepared gas is sent to the gas tank or directly supplied to the cogeneration unit for
the production of heat and electricity. The electric and thermal energy produced by the generators is
used for their own needs, and the excess is supplied to other consumers through the networks.
In Russia, the regulatory documents necessary for the design, construction and operation of modern
technological complexes at MSW landfills are currently being actively developed. For this purpose,
the recommendations that take place in the European and new Russian reference books on BAT are
used.
As already noted, the main resource for obtaining useful products in the form of biogas, heat and
electricity at MSW landfills is landfill gas (biogas). Its annual emission exceeds 2 million tons. The
main components of biogas are methane (50%), carbon dioxide (27%), nitrogen (23%), as well as
components such as sulfur, hydrogen sulfide, ammonia and other compounds, among which may be
dangerous. The volume weight of landfill gas is about 1.3 kg / m3.
The energy characteristics of landfill gas are of commercial interest. On average, one cubic meter of
landfill gas can impossible produce 4.8 kWh of electricity and more than 5 thousand. Gcal heat
energy. This determines significant opportunities for expanding the use of landfill gas energy for own
needs of MSW landfills, as well as the sale of heat and electricity to other consumers.
We will assess the economic efficiency of commercial use of landfill gas of MSW using statistical St.
Petersburg data. For General presentation, economic calculations are made in euros at the Bank's rate
of one Euro=75 rubles. As a result, we have: the energy potential of a ton of landfill gas is 6240 kW
of electricity and 5.4 Gcal of thermal energy. These economic indicators can be calculated on the
basis of the current tariffs for electricity and heat, as well as the cost of processing landfill gas into
commercial products for commercial use. For St. Petersburg in 2019, the average daily tariff was 0.15
euros per kW of electricity and 24.5 euros per Gcal of thermal energy and 105 euros per ton of
natural gas.
For commercial use of landfill gas of MSW landfills in the form of certified biogas, it must be
drained, cleaned of impurities. Air conditioning costs include the acquisition of process equipment,
training of personnel, systems and devices for continuous process control, including fire protection
systems and other technological measures. The implementation of these activities requires
considerable resources. According to various sources of information costs can be 40-50% of the
present cost of electricity and 30-40% of the present cost of thermal energy.
For the conditional economic calculation, we take the average values of the cost coefficients. Then
the added value from the energy use of one ton of landfill gas is 936.0 × 0.45 = 421.2 EUR for
electricity and 132.0 × 0.35 = 46.2 EUR for thermal energy.
In the calculations of economic efficiency, we have forgotten that the emission of landfill gas, which
contains various pollutants, is a danger to the environment and human health. In Russia, the rate of
payment for methane emissions, which is more than 50% of landfill gas is 1.5 EUR per ton.
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It should be noted that the rates of payment for the emission of landfill gas as greenhouse gas are
much higher. For different countries, they vary and are in the range of 10 - 30 EUR per ton. In our
study, we do not consider the exchange concept of trading in greenhouse gas quotas, but use the
concept of the direct impact of greenhouse gases on the climate system.
The data obtained show that the owners of MSW landfills will have the maximum social and
economic effect if the cogeneration technology is used to produce thermal and electric energy from
landfill gas.
According to the results of field studies, the emission of landfill gas at landfills in large cities in the
active period is 5 -7 tons / hour. Every 10 years it is reduced by about 2 times study (Alekseev,
Karlik, Makhatadze, 2013). This leads to the conclusion that MSW landfills in Russia should be
included in the number of energy enterprises. The produced electric and thermal energy can be used
for the development of ecotechnoparks, which can be created in the areas adjacent to the MSW
landfills. Now in Russia owners of alternative sources of the electric power can give to the General
electric network no more than 15 kW-h of the electric power. While this rate has not changed owners
of MSW landfills would be advantageous to supply energy enterprises Eco production at discounted
prices. This situation can have a positive effect on the development of such areas of small and
medium-sized businesses as year-round cultivation of flowers and potted plants in greenhouses, as
well as the production of fish meat in automated Aqua farms.
Prospects for the development of solid waste landfills as enterprises of the waste processing industry
of Russia, producing useful products from solid waste, which is in demand in the market, allow us to
introduce an ecological and economic index of their activities. Its is proposed to be determined in
the form of the ratio of the cost of commercial products produced using SR to the amount of
prevented environmental damage during the operation of the technological complex of the
organization. According to the size of the ecological and economic index in the future it will be
possible to conduct ecological and economic rating of landfills.
Discussion
The transition to a new environmental policy in the Russian Federation contributes to the investment
attractiveness of the waste processing industry. The result of this policy will be the expected growth
of public and private investments, which determine the value of the strategic indicator of the
investment attractiveness of a new type of economic activity.
The analysis of the market of services in the system of treatment of MSW on the example of St.
Petersburg and Leningrad region showed that MSW landfills in the status of organizations waste
processing industry can compensate for the shortcomings and take advantage of the introduction of
the Institute of regional operators.
Ecological and economic analysis of secondary resources production using industrial methods at
solid municipal waste landfills made it possible to determine the institutional conditions that
stimulate the activities of small and medium-sized businesses. In foreign practice, corporate social
and environmental agreements are actively used for the implementation of environmental policy in
specific areas. They involve authorities, business owners, public organizations and the local
population. They can be considered as an integrated institution in environmental protection and in the
economy of environmental management. The participation of owners of MSW landfills, as well as
representatives of regional operators in the preparation and adoption of corporate social and
7882
environmental agreements creates conditions for attracting investment and stimulating the activities
of small and medium-sized businesses in the production of commercial products using SR obtained at
MSW landfills.
The main SR for obtaining useful products in the form of biogas, heat and electricity at MSW
landfills is landfill gas. On the example of its use as SR the assessment of ecological and economic
efficiency of economic activity of landfills of MSW as the enterprises of the waste processing
industry of Russia was given.
In the process of research for the analysis of environmental aspects in the economy of environmental
management on the example of the landfills was justified ecological and economic criterion. The
introduction of this criterion in the statistical reporting will provide real information about the
environmental and economic activities of a particular enterprise.
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management system: the experience of the project SE500, Economy and management, 4(90), 12-
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environmental management: ways of development of environmental and economic regulation,
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Transforming the Securitization Mechanism of Mortgage Assets

Using Blockchain Technology
Dmitry.A. SERGEEV
Peter the Great St. Petersburg Polytechnic University (SPbPU), Russia
9265407@gmail.com
Anastasia.U. PUGACHEVA
Peter the Great St. Petersburg Polytechnic University (SPbPU), Russia
pugachova_nastya@mail.ru
Abstract
Mortgage lending in its organized forms remains to be a relatively low-risk, and, consequently,
attractive transaction for banks. In the banking system of the RF the share of mortgage loans with a
fixed interest rate is growing, so it is relevant and important to discuss the topic of bank assets
securitization as a tool to be used for managing bank risks and forming a balanced framework of assets
and liabilities of Russian banks. At the same time, bank assets securitization today helps the financial
sector to transfer to a new business-model and even to a new banking paradigm both in global banking
processes and in their Russian segment as an integral part of the world economy. Moreover, the global
financial market accommodates new financial technologies and tools - blockchain, cryptocurrencies,
artificial intelligence, cloud services, Big Data, etc., with the modern technological components in the
banking sector making more and more impact on the transformation of banks into a certain value
integrators in the digital space (in contrast to the traditional feature of banks aimed at redistributing
temporarily free financial resources from donor clients to acceptor clients).This paper is aimed at
analyzing the main aspects of the problems and prospects of blockchain technology introduced in the
mechanism of mortgage assets securitization in the middle-term horizon of projecting and to evaluate
the Russian experience in adapting blockchain technologies on the example of the Masterchain
project.
Keywords: Securitization, blockchain, mortgage, financial assets, Masterchain.
Introduction
The main causes of the crisis on the market of mortgage securities in 2007-2008 were the uncontrolled
operations of mortgage companies, which granted a lot of loans to borrowers trying to make money
on commission, and the wrong evaluation of risks made by investment banks and rating agencies.
In our opinion, this problem should be tackled by considering securitization as an interblock process
in which certified artificial intelligence is used to buy loans in various blockchains of loans
(mortgages, automobiles, unsecured loans, etc.) with subsequent issue of asset-backed securities in
blockchains of securities (CDO, RMBS, CMBS etc.), while all information about the converting
process is irreversibly documented - sorting, analyzing and constructing - in the interblock chain.
The potential of blockchain technology lies in optimized processes, reduced costs, higher speed of
transactions, increased transparency and consolidated safety. The technology can affect all
participants in the securitization cycle - from creators to rating agencies, agents, investors and
regulating bodies.
Blockchain can reduce risks on the securitization market as a whole and lead to a growing interest of
investors to securitized (primarily - mortgage) assets. This, in turn, will improve the framework of the
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mortgage market. In case higher quality and more transparent information is available, conformity to
regulatory requirements can also be simplified and market collapses will be less likely.
Introduction of the Blockchain System
The world experience shows that system development of the securitization market makes it possible
not only to reduce the existing risks, but also stimulate large-scale investment processes in the
economy.
Many companies are interested in using the advantages of blockchain technology. This is primarily
due to financial benefits obtained from more optimized and faster business processes. In addition, this
wish is preconditioned by an image component. However, today there are no regulated distributed
ledgers on the Russian market, which would meet the standards (Bogucharskov A.V., 2017).
So, the main pre-requisite for developing the Masterchain platform - Russian implementation of
blockchain - is the need for technological solution for the financial market. This solution has to meet
the requirements of the Russian law, and to be compatible with the most common frameworks of
distributed ledgers.
A number of limitations in financial systems is also a pre-requisite for developing such a specialized
platform:
1. A system of intermediaries, which ensures trust during transactions. Such a system

does not make it possible to increase the speed of transactions and reduce costs per transaction.
2. The complexity of audit and risk management procedures due to fragmented data
on the executed financial transactions.
3. The lack of technical standards in applying the distributed ledgers technology
prevents integration of financial organizations' business processes and the data they use.
The above factors limit a lot the development and introduction of technologies by agents of the
financial market and, at the same time, prevent stakeholders from having a homogeneously distributed
access to them. Also, the above limitations reduce the opportunity to obtain up-to-date information,
which is important when management decisions are made, which, in turn, increases the risks of fraud
transactions for the entire financial market.
At the moment the securitization process is long and expensive. At least 2 months is needed, from
buying credits to selling securities to investors.
Many stakeholders are involved (for instance, rating agencies, auditors, etc.) and regulating
procedures. By and large, they must protect investors and solve conflicts of interests of various
agencies.
The second cause is a considerable volume of document flow. Many transactions must be carried out,
for example, transferring the property right on a loan or changing borrowers. All these transactions
are mostly made on paper - today only about 5% of bank loans are totally digitized. Thus, a lot of
meticulous check-ups must be made manually and various settlements must be made by credit deals.
There is a solid opinion, that securitization is a complicated intellectual process, which calls for
(Tabernakulov A., Koifmann J., 2019):
a) accumulating data,
b) analyzing them with consideration of ratings, probabilities, standard deviations, etc.
c) using mathematical formulas to create intellectual structured securities. Both due to the
complexity of securities and due to their paper format, it is difficult to be quick and effective
in finding out about the efficiency of loans related to securities. (Calandra M.A., Giles L.P.,
Samlin S.D., Simonds R.D.,.2018)
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The above problems in the RF must be tackled with the help of a single Russian national network of
financial information storage and exchange using the technology of distributed ledgers - Masterchain.
It should allow the automation of the process of financial transactions for participants using an
integrated decision-making logic - smart-contract (Tapscott A., Tapscott D., 2017).
There is need for artificial intelligence which can analyze the requirements of investors, choose loans,
evaluate, analyze and design new assets. It should define how credits are classified and how they are
used to create corresponding securities. Such a system can simultaneously evaluate and create
mathematically correct securities.
Thus, blockchain will bring trackability and transparency in the securitization process. Thanks to
blockchain technology, all phases of securitization will be available for all participating parties, which
ensures a high level of trust of the participants in such transactions.
It is already clear that blockchain is a technology which can optimize many business processes and
make some areas of state regulation more transparent, so many countries are developing their own
blockchain technology-based platforms. In Russia such a platform is Masterchain, developed by the
FinTech association and leading Russian banks (Leloux L., 2018); (Saveliev A.I., 2017).
The Notion of The Masterchain Platform and Its Essence

Masterchain is a peer-to-peer network with controlled access. Its nodes interact on the basis of
modified Ethereum protocol. Masterchain offers the possibility of recording information safely in a
distributed ledger (DL), whose copies are located on every node of the network.
The construction principles of Masterchain are:
− The distributed ledger of Masterchain does not store data which call for specific storage mode
(data protected as a commercial secret, personal data, secret data, etc.)
− Legal value (within Russian law) of information processed in Masterchain.
− Lack of technical need for trusted intermediaries.
− Support of smart contracts.
− Lack of a single fault point.
− Independent accounting of resources spent by participants on maintaining the system
operative.
− Scalability (by the number of participants and transactions).
Fig. 1: Using Masterchain for financial organizations' business processes
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The requirements for the platform was formed given the experience of the existing distributed ledgers.
The requirements are divided into three main groups:
1. Operational requirements. Scalability by the number of nodes. A growing number of nodes must
not affect the complexity of the platform algorithm.
2. Supporting the mode of the distributed system, when all presented requirements cannot be
executed at the same time:
2.1 the network continuity is failure free;

2.2 the information transfer rate is constant;
2.3 the network is safe (traffic cannot be modified by a third party);
2.4 the topology of the network is constant;
2.5 centralized administering;
2.6 all nodes and communication channels are identical;
2.7 there is a clock universal for the entire system;
2.8 experience of mass usage of the platform on the Internet without controlled access
to the system, with opening of initial codes.
3. Safety requirements:
3.1 Evidence of the chain authenticity. A single-level algorithm for the only true version of the DL.
3.2 Data do not affect the logic of the consensus algorithm inside the chain.
3.3 Capability of calculating the price of compromising a system with a high accuracy.
3.4 Controlled access of nodes to the network.
3.5 Using Russian certified algorithms of cryptographic data protection.
4. Functional requirements:
4.1. supporting the capability of creating new copies of the program code within the network,
whose execution entails some events (smart-contracts);
4.2. accounting the operation of validators (mining)
4.3. controlled access to the network.
Sufficiency in law is achieved through correspondence to Russian law N63-FZ "On electronic
signature" dated 06.04.2011, in particular, cryptographic conversions are implemented in the
cryptographic data protection systems (CDPS), having the necessary certification.
The Masterchain platform uses technological units of account (TUA) to account processing
transactions. They are created by validators (miners) in the process of creating blocks. In addition,
there are specialized units of account, used for value transactions and created under smart-contracts.
Masterchain implements the mechanism of technical commissions for transaction and execution of
smart-contracts, similar to the mechanism implemented on the Ethereum platform.
There is technical commission, expressed in TUA for executing every transaction. An abstract unit
called gas is used to calculate technical commission. Gas is a measurement unit of resources necessary
for processing a transaction and its recording in the DL (distributed ledger). The number of TUA set
by the administrator corresponds to a unit of gas. Correspondingly, if we multiply the quantity of
necessary gas by the number of TUA, we obtain the minimum necessary costs per transaction.
TUA, obtained by the miner for processing the transaction, are used to account the following costs:
− costs per calculations performed within the transaction;
− commission per data amount recorded in the DL.
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Commission also works as protection from DDoS attacks with junk transactions, since the attacker,
the same as all other users, has to spend TUA to use the resource. The size of sent transactions, data
computation and storage are included here.
Strategic Goals for Developing the Masterchain Platform

Some projects are planned to be executed in a short run on the Masterchain platform. Figure 2
illustrates the operational scheme of the depositary accounting system.
Fig. 2: The scheme of the decentralized depositary system for accounting mortgages.
The first project is the "Decentralized depositary system (DDS) for accounting mortgages".
The project has several goals:
1. Commissioning the DDS in accordance with the effective dates of requirements for
accounting mortgages in electronic format.
2. Attracting enough mortgage banks for the unification of the solution through entire segment.
3. Ensuring reduction of cost and time of operations concerning storage, accounting and
securitization of mortgages.
The tasks of the project are:
1. Creating a consortium of the key market players by mortgages to take part in the operation
of the DDS.
2. Developing and implementing the DDS solution as a fully Open Source "boxed" solution.
3. Introducing the DDS into industrial us to account electronic mortgages.
4. Organizing a Service company (SPV) to service and simplify contract relations between the
participants of the DDS.
The project will correspond to the existing legal base of the RF and will also sustain the division of
roles and functions of the existing participants. The storage depositories form a "cloud" for distributed
storage of electronic mortgages and activity on deposit accounts, while the processes between
participants are automated on smart-contracts, following the logic of the current legislations.
Banks, the national mortgage operator (AHML/DOM.RF) and Rosreestr will be participants of the
project.
This project will make it possible to reduce considerably (2-5 times, approximately) the cost of
storage, accounting and preparation of securitization transactions. The time of transactions will go
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down from several days to several minutes, while the security of storing mortgages and transactions
on deposit accounts will increase.
The second project, which is planned to be launched, is "KYC" or Know your customer.
The project represents implementation of shared access to a decentralized data storage ("KYC
attributes" structure) through a technology of distributed ledgers on a commercial basis.
The structure of "KYC attributes" data is not stored in the decentralized network of Masterchain, but
is kept in impersonal format in the decentralized storage (IPFS), integrated with the decentralized
network of Masterchain.
The goals of the project are:
1. Ensuring the reduction of risk of lacking the necessary information to prevent fraud
transactions.
2. Exchanging information about natural persons ("KYC attributes" structure) between

participants of the decentralized network of Masterchain without revealing bank secret data and
personal data of clients.
3. Ensuring the scalability of the solution in terms of:
3.1 capability of simplified identification – implementation of the Digital Identity concept;

3.2 exchanging data on legal entities;
3.3 exchanging credit histories.
The goals of the project, apart from implementing business scenarios of using the KYC concept, are:
• providing interbank communication without revealing the client base on commercial basis;
• ensuring execution of No13-FZ (dated 02.07.2017) in terms of compliance with the
requirements on depersonalization, destruction of personal data, lack of ignored inquiries from
PD owners;
• ensuring control by the process regulator.
The following operations are planned within the project.
1. Ensuring confidential information exchange by clients to natural persons on

commercial basis.
2. Acquiring, processing and forming the "KYC attributes" data structure:
2.1 Objective attributes are not determined by a behavior pattern or interrelations
guaranteed by the state.
2.2 Accumulated attributes are facts that can change during the life cycle of a natural
person or a legal entity.
2.3 Acquired attributes are data that can change and are an identifier of relations with
the trusted data domain.
2.4 Forming a decentralized storage, granting access according to the accepted concepts
of roles and authorities of the decentralized network of Masterchain.
3. Executing business-scenarios:
3.1 checking natural persons with respect to being included in the register of fraudsters,
identified by the participants of the decentralized messaging system via scoring the questionnaires of
natural persons;
3.2 checking natural persons with respect to the fact of death registration.
4. Possibility of scaling this solution in future:
4.1 implementing the process of exchanging the credit histories of clients (analogue to
a credit bureau);
4.2 implementing the process of exchanging data on legal entities;
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4.3 implementing the process of simplified/remote identification of a client;

4.4 expanding the functionality of the system to implement a full-fledged KYC scenario.
The participants of the project are:
• provider - participant of the decentralized network, responsible for acquiring, processing and
transferring the "KYC attributes" data structure;
• consumer - participant of the decentralized network, having access and using the "KYC
attributes" data to prevent fraud transactions;
• natural person - presents/withdraws agreement for PD processing to form the "KYC
attributes" data structure;
• regulator - provides control/auditing the selected scenario/process with respect to conformity,
compliance with the legal basis, execution of inquiries of natural persons.
The third project based on Masterchain is the "Digital Letter of Credit".
Thanks to this project it is expected that the time will reduce for executing deals by letters of credit
with a 15 days' coverage (phase 1 is 9 days, phase 2 is 6 days) due to the exclusion of paper document
flow (phase 1) and automation of financial transactions (phase 2).
The tasks of the project are:
1. Exclusion of paper document flow and related time delays during execution of deals.
2. Automation of financial transactions.
Participants of the project:
2.1 Seller.
2.2 Bank, serving the seller.
2.3 Buyer.
2.4 Bank, serving the buyer.
2.5 Transportation company.
According to the projection, the time of execution of the letter of credit with a 15 days' coverage is
expected to reduce, while the technology is easily adaptable, in particular, to being used in a system
of escrow accounts as a way of settlements by deals with real estate properties in accordance with the
relevant changes in the current legislation of the RF in this field, enforced on 01.07.2019.
Transforming Mortgage Securitization Using Blockchain

The mortgage industry is experiencing considerable transformations, while the blockchain technology
provides a beneficial potential for business, creating a reliable environment for several stockholders,
ensuring safety and using data in real time for taking decisions with a high degree of trustworthiness.
Blockchain technology will be useful in the process of securitization, because it can reduce costs,
increase the speed of transactions and improve transparency for all stakeholders. The technology
ensures big effectiveness in all parts of processes for every participant.
Stakeholders, who can get benefit from blockchain technology include lenders, sponsors and
investors. The technology will also help various service renderers, rating agencies, trustees and
regulatory bodies, involved in transactions (Walport M., 2015).
Securitization is an important source of capital not only for the financial sector, but for the economy
as a whole. The more transparent the mortgage sector is, the more confident the investors will be,
allowing the capital markets to invest in the diversified pool, which will make the market more liquid.
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Using blockchain technology, sponsors, lenders, rating agencies, trustees, investors and other
participants of the sector have an opportunity to simplify transactions a lot, checking the loan from
the moment it was made until it is paid off.
The distributed ledger technology (DLT) with smart contracts optimizes processes, reduces costs,
increases the speed of transactions, improves transparency, improves safety, affecting all participants
of the securitization cycle.
Using blockchain all parties can track assets, manage cash flows and execute trusted business
operations. Blockchain reduces risks in the securitization market, which stimulates investors' interest.
It unites all market participants on a single platform (Davidson A., Sanders A., Wolff L., Ching A.,
2007).
It creates a single database that can be used by participants for analysis and projections, allowing
service providers, rating agencies and investors to take measures based on verified unchanged data in
real time, and, consequently, get rid of such problems as errors in documents and fraud.
With the right architecture, the system will allow participants to maintain precise, adapted operational
processes in real time mode. Apart from consistency of data, it ensures that data are presented between
markets, allowing automatic exchange of data between participants (Remnev A.V., 2018).
The capability of blockchain to bring all market players to a single platform, where information
exchange is simple and all changes are trackable for audit, can facilitate every aspect of structuring
safety. It will be able to create a single source of information, which can be used by all participants
for analysis and projections.
Implementation Problems
With new technologies new risk arise. Securitization is an important source of capital not only for the
financial sector, but for the economy as a whole. Any change in the structure of the market of the
sector, including an auxiliary technological infrastructure and precautions, must be accepted with a
lot of caution.
Consulting with experts of the sector and blockchain specialists will help to find out about some
problems that must be solved before the sector can successfully transfer transactions to blockchain.
These potential risks can be roughly divided into three categories (Remnev, A.V, 2018):
Data safety and confidentiality. With such big amounts of information about one technological
platform, a successful cyberattack can destroy the system. Moreover, problems with confidentiality
can arise, because the distributed structure of blockchain shares and stores confidential data on several
nodes.
Technology which has not been fully checked yet. Blockchain is still a relatively new technology.
Although some blockchains have many years of work experience, a lot of smart contracts and other
applications of blockchains have not reached a clearly bulletproof level of safety.
Legal and regulatory uncertainty. Regulators will have to accept using blockchain for securitization,
including, but not limiting to blockchain methods for data input, verification and protection. There is
a possibility that a new monitoring environment will be needed with regulatory presence in
blockchain. Regulatory bodies will also have to rethink, how financial institutions must integrate
blockchain in regulating reports.
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Results, Discussion and Conclusions

What will be the result of this new system? With ideal data, lower costs, increased safety and far
quicker flows of payments, the interest of investors will grow even with respect to securities which
earlier were considered non-transparent and, consequently, risky. The volume of trade will increase,
and a growth of safe and stable securitization will be increased demand and reduce the cost of credit
for a wider economy.
If an unfavorable scenario emerges due to macroeconomic conditions, serving organizations, rating

agencies and investors will be able to take measures relying on verified data in real time, while the
unchanged data of blockchain will make it possible to eliminate the problems of bad documentation
and fraud.
The securitization industry will have a lower cost, be more effective, bigger and more resistant to
fraud and declines.
When assessing a structured finance transaction, the analytical framework of S&P Global Ratings
includes five key rating factors (or "five pillars"):
• Legal and regulatory risks;

• Operational and administrative risks;
• Credit quality of the securitized assets;
• Payment structure and cash flow mechanisms;
• Counterparty risks.
So, legal and regulatory risks and operational and administrative risks would initially be the most
affected pillars of our framework by the application of blockchain technology to the securitization
process.
Thus, using blockchain implies potential cost savings, new operational efficiencies, and improved
transparency and accuracy, according to the market. Below we discuss some advantages of blockchain
for the key elements of securitization transactions.
Originator and assets (Calandra M.A., Giles L.P., Samlin S.D., Simonds R.D., 2016):
• Ability to create larger homogeneous asset pools to facilitate statistical analysis;

• Diversification of assets can reduce vulnerability to economic stress.
Process:
• Set of smart contract templates developed for securitization will enable quick
establishment of the trust, and the time frame of the securitization process could be reduced
substantially (Tatiana M. Kovaleva, Oleg A. Khvostenko, Alla G. Glukhova, Evgeny V.
Mozharovsky, 2017);
• Data sets are provided in a structured format;
• Full transparency of process setup and the data used;
• Improved quality of available data on the blockchain, which could mitigate reporting
errors or potential misrepresentation.
Execution:
• Quicker and more accurate cash flow reporting;

• Real-time transparency during execution. Any revealed issues would be known.
Oversight:
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• Real-time full transparency of all transactions;

• Ability to statistically test health of the process, and predict the outcome.
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Shortened Working Hours as a Way of Preventing

Mass Technological Unemployment
Alexander V. ZOLOTOV
Department of Economic Theory and Methodology
The N.I. Lobachevsky National Research State University of Nizhny Novgorod
Nizhny Novgorod, Russia
E-mail: zolotov.nieml@ro.ru
Mikhail V. POPOV
Department of Social Philosophy and Philosophy of History
St. Petersburg State University
St. Petersburg, Russia
E-mail: popov.nieml@ro.ru
Oleg A. MAZUR
Department of Economics and Management
Nevinnomyssk Institute of Economics, Management and Law,
Nevinnomyssk, Russia
E-mail: mazur.nieml@bk.ru
Abstract
The purpose of the article is the justification of the idea that the reduction in the length of the working
day can contribute to the reduction of unemployment rates while maintaining a normal level of
profitability with rising levels of labor productivity. The research methodology, one of the essential
aspects published in this article, is materialistic dialectics. The article presents an analysis of the
options for using labor savings resulting from the implementation of digital technologies, production
automation, its robotization, and reveals the main types of the dynamics of the number of employees
within the process of using advanced technologies with a stable and shortened working day. It has
been confirmed that the reduction of the working day with an increase in wages helps to stabilize and
increase the level of employment. It has been revealed that a decrease in the length of the working
day can and should be combined with an increase in the profits of firms provided that labor
productivity is increased due to production automation. It has been concluded that there is a
possibility of a compromise as a form of resolving the contradiction of the interests of employers and
workers in using the obtained labor savings as a result of automation of production and services. A
hypothesis is formed which states that the strategy to prevent and reduce unemployment is the
reduction of the length of the working day.
Keywords: technological unemployment; employment; increase in labor productivity; automation;

shortened working hours.
Introduction
The solution to the problem that, by definition, represents an intractable task, is proposed in the
article. This problem is that the inevitable objective growth of the organic structure of the capital, that
causes increased labor productivity, also causes an increase in unemployment. The purpose of the
article is the justification of the idea that the reduction in the length of the working day can contribute
to the reduction of unemployment rates while maintaining a normal level of profitability with rising
levels of labor productivity. The subject of the research is the internal contradictory relationship
between labor productivity and unemployment. The relevance of the study is justified by the growth
of unemployment both in the most developed countries and less economically developed ones, which
is intensified within the process of automation of production and services. A hypothesis is formed
which states that with the modern and perspective automation and robotization of production and
services, the growth of labor productivity becomes so significant that it creates objective
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opportunities and the need to reduce the working day with maintaining (increasing) employment
while maintaining the level of profitability of production and services.
Main Part
The implementation of information technology, which determines a significant increase in labor

productivity, despite the attractiveness of the technological aspects of this process, raises reasonable
concerns about the possibility of reducing the level of employment. In this regard, the position of M.
Ford is illustrative. He tends to recognize the inevitability of mass technological unemployment as a
result of the diffusion of new information technologies not only in the manufacturing sector, but also
in the service sector (Ford, 2015). K. Schwab also views unemployment as a negative side of robotic
services (Schwab, 2015). For decades, it has been reasonably believed that the service sector is
capable of absorbing labor freed from manufacturing due to the use of new technologies. As
automation and robotization penetrate the service sector, its ability to absorb those who are laid off
from manufacturing is weakening.
The economic literature also presents a more positive view of the experience and prospects of the
labor sector development (Mazur , 2009; Autor, 2015). Experts at the McKinsey Global Institute also
believe that the loss of jobs in certain sectors and enterprises will be accompanied by the creation of
new positions in the progressive sectors of the economy (MacKinsey Global Institute, 2017). Then
the problem of ensuring employment is solved by retraining the released workers in accordance with
the new requirements. Without denying the importance of professional retraining and advanced
training for preventing unemployment, the problem of matching the amount of created jobs over the
number of job cuts should be noted: the implementation of information technologies, automation and
robotization allows achieving higher efficiency with fewer new jobs than before. Keeping this in
mind, as well as the effect of the fundamental growth trend of the organic structure of capital,
retraining of workers alone is not able to exclude mass technological unemployment.
The unemployment rate indicator does not quite accurately reflect the abundance of labor offers in
the modern economy. As shown by D.G. Blanchflower, what is happening is workers at the given
level of wage rates are forced to work fewer hours than they would like (Blanchflower, 2019).
Obviously, this situation is connected not only with the consequences of the global economic crisis of
2008, but also with the progress of digital technologies.
Given the preconditions, John Maynard Keynes’s idea of reducing the duration of shifts and the work
week without lowering wages to prevent massive technological unemployment remains relevant
(Keynes, 2009). Distributing the decreasing level of labor in the economy among all able-bodied, and
thereby reducing working time, it is quite possible to ensure full employment. Hence there is the bold
forecast of the great economist about the introduction of 3-hour work shifts and a 15-hour work week
by 2030.
The problem of the influence of reducing working time on employment is also considered by modern
authors (Bosch and Lehndorff, 2001; Raposo and van Ours, 2008). But, as a rule, this is done with no
correlation with the approach proposed by John Maynard Keynes. When it comes to his forecast for
2030, he is criticized as unattainable, based on extrapolation of the existing rate of reduction of
working time for the coming period (Skidelsky and Skidelsky, 2013).
At the same time, economics literature has shown that the discrepancy between predicted and existing
trends in working time dynamics is not related to the essence of the approach proposed by John
Maynard Keynes, but to the fact that production progress has mainly been used to reduce the number
of employees (Zolotov et al., 2016).
It all makes it reasonable to develop the approach proposed by John Maynard Keynes in assessing the
prospects of employment in the modern economy, especially since the positive impact of reducing
working time on fighting unemployment is confirmed (Pouwels et al., 2008). The value and
significance of the study, the results of which are reflected in this article, includes both the
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justification of the applicability of John Maynard Keynes’ approach to the issue of a significant
increase in labor productivity due to automation and robotization of production and services, and the
identification of a compromise of the interests of capital owners and workers as a form resolving the
contradictions of these parties in the process of shortening the working day and maintaining
(increasing) employment.
The method represents the awareness of the form of internal self-movement of the content of the
studied object (Hegel, 2017). The content of the modern production is the movement of capital,
whose moment is the growth of the organic structure of capital, which determines the growth of labor
productivity. Self-movement of capital results in labor saving, which, in turn, is realized both in
reducing the cost of goods, increasing free time of society, and in displacing workers from
production.
The awareness of such a form of self-movement of capital as the accumulation of free time in society
does not require empirical, superficial – seen from the examples of individual enterprises,
descriptions or even analysis, but rather a deeper examination of the fundamental relationship
between the forms of realization of labor savings - profit movement and working hours. Reducing the
length of the working day at any given time leads to a drop in profits, that is, to a slowdown in the
expanded reproduction of capital, which, in turn, will tend to increase the duration of working hours
for its preservation and expansion. The latter, having reached the boundary of the physiological and
social capabilities of workers, is capable of undermining the reproduction of capital itself. Thus, the
growth of profit as a source of expansion of capital and the reduction of working hours, being in unity
with the process of capital movement, are opposites. That means they are contradict each other, the
resolution of which is the source of development of individual and social capital. Consequently, the
dialectical method, the essence of which is a contradiction as a unity of opposites, is necessary for the
study.
The dialectical method, being a universal method of cognition of developing reality, includes, as its
own moment, a formal logical method, which is used in the study of identifying main options for the
correlation of profit dynamics, working hours within the growth of labor productivity and the impact
of this ratio on preservation, displacement or increase in the number of employees in enterprises.
The implementation of the dialectic method has made it possible to identify a progressive trend,
which is the result of resolving the contradiction between the dynamics of profit and the length of the
working day, expressed in maintaining an acceptable level of profitability while reducing the length
of the working day and maintaining or increasing the number of workers on the basis of a significant
increase in labor productivity due to automation of production.
The illustrative calculation of the types of implementation of labor saving carried out in the article
corresponds to the objective correlation of the dynamics of profit and the length of the working day
and illustrates the actual strategic trend of global development - reducing the length of the working
day as an effective method of preventing unemployment.
Employment dynamics is usually viewed at the macroeconomic level, which is justified in as long as
the change in the number of employees in a single enterprise does not match the dynamics of the
number of employees in the economy.
At the same time, the decision on what should the number of employees be, is done at the enterprise
level. Apart from the public sector of the economy, the state influences the employment policy of
enterprises mainly indirectly - through tax and monetary regulation. Therefore, for the purposes of
our study, it is reasonable to consider the dynamics of the number of employees in enterprises,
assuming that the macroeconomic result is determined by microeconomic processes.
The reduction of working hours will be studied in the form of a decrease in its normal duration. Such
a reduction is associated with an increase in labor productivity. The reduced number of working
hours in a crisis situation of an enterprise, while workers are forced to reduce working hours with
correspondingly reduced wages, is not included in the concept of “normal working hours”.
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As the object of analysis, we will choose the dynamics of the working day, since it is the number of
working hours per day that is the basis for the duration of all other periods of labor activity: the
working week, the number of hours worked per month, year, and working life.
Furthermore, a shorter working day means that an employee’s total earnings for a reduced number of
hours are not reduced. Otherwise, we would be talking about the transition of the employee from full-
time to part-time employment. Part-time employment may be forced or voluntary, but it does not
characterize the normal length of the working day. Practice confirms that the reduction of working
time as a result of collective actions of workers organized in trade unions, as a rule, is combined with
an increase in real wages (Raposo and van Ours, 2008).
A shorter working day may be faced with a wary attitude of employers who fear that enterprises will
no longer be profitable despite an increase in labor productivity. Accordingly, the problem of the
dynamics of working time and the number of employees should be analyzed in accordance with
changes in such significant indicators as the amount of profit and the level of profitability.
The dynamics of all the abovementioned indicators will be measured for three types of dynamics of
working hours, which is necessary to ensure the complete comparability of the source data: it is
necessary to compare how various options for using labor productivity growth will affect the
dynamics of the analyzed indicators.
Progressive technologies in production have always led to an increase in labor productivity (a

reduction in labor costs per unit of produce). Labor saving per fixed volume of produce represents the
direct and immediate result of the implementation of new technologies. This result alone does not say
anything about the dynamics of the number of employees in the enterprise.
The fact is that the fund of an enterprise’s working time that is necessary to produce the desired
volume of production with the existing level of labor productivity can be provided by a different
number of employees. The working time fund is a multiplier, its factors are the number of employees
and the time worked by each employee. A general rule has developed through practice according to
which the number of employees is determined based on the existing length of the working day
(working time). Once the value of this duration is changed, with the given fund of working time, the
value of the first factor - the number of employees - will change.
When, as a result of the use of advanced technologies, the working time fund decreases, there is a
principal possibility of the existence of the following main types of dynamics of the number of
employees of an enterprise.
First: if the working day is reduced at the same rate as the total fund of working time, the number of
employees does not change.
Second: if the working day decreases faster than the total fund of working time is saved, there is a
need to attract additional labor force.
Third: if the working day remains the same or its duration decreases more slowly than the fund of
working time decreases, there is an excess labor force that has to be dismissed by the employer.
The implementation of all these types of dynamics of the number of employees of the enterprise
leaves an unanswered question of how the level of wages, profits and profitability is changing. The
changes in these indicators should be taken into account, since the dynamics of wages motivates
workers to perform better, and the dynamics of profit and profitability influences the economic
behavior of employers.
We will demonstrate the clear idea of implementing the abovementioned three types of dynamics of
the number of employees of the enterprise.
Supposedly, let us decide that initially 800 man-hours are required to produce a given volume of
products of 800 units of goods, which means labor productivity comprises 1 unit of goods per hour.
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The working day (shift) is 8 hours. All employees of the enterprise produce the same product and
have the same productivity. Therefore, the number of employees will be 100 people. The price of the
goods is 1000 rubles, consequently, the cost of the daily release will be 800,000 rubles. Furthermore,
we can say that material costs for the indicated volume of output are 480,000 rubles, and the salary
fund is 160,000 rubles. It follows that the amount of profit from the sale of this issue will be 160,000
rubles, and the level of profitability of production will be as follows - [160000: (480000 + 160000) ×
100%] = 25%.
Let us assume that labor productivity as a result of the implementation of new technologies will reach
130% of the initial rate. This increase is used to increase the output by 110 units and to reduce (save)
the working time fund by 100 man-hours. Such an increase does not affect the price of the goods and
is associated with an increase in the volume of material costs, although at a lower rate than the level
of the increase of productivity, which is consistent with conventional practice.
Table 1 shows the calculations that can be used for the option of reducing the working day to the
extent of reducing the total fund of working time.
Table 1: The size and dynamics of employment, the cost of production, wages, profits and
profitability with a reduction in working hours to the extent of reducing the fund of working
time
Indicators Indicator value Indicator dynamics
initial final in absolute in percentage
value
Issue volume (in pieces) 800 910 + 110 +13,8
Working hours fund (in hours) 800 700 - 100 - 12,5
Productivity (pieces per hour) 1 1,3 + 0,3 + 30%
Working day (in hours) 8 7 -1 -12,5
Number of employees 100 100 0 0
Issue cost (rub.) 800000 910000 +110000 +13,8
Material expenses (rub.) 480000 540000 +60000 +12,5
Payroll (rub.) 160000 175000 + 15000 + 9,4
Average salary (rub.) 1600 1750 + 150 + 9,4
Profit (rub.) 160000 195000 + 35000 +21,9
Profitability (%) 25,0 27,3 + 2,3 p.p. + 9,1
So, within the implementation of new technologies while at the same time reducing the working day
and maintaining a stable number of employees, the increase in wages, growth in profits and
profitability are quite compatible. Moreover, in accordance with the conditions of the example, profit
grows at a faster pace than salary.
Let us consider the second option in the dynamics of the total fund of working hours and the length of
the working day, within the situation of the working day being shortened faster than the decrease in
the value of such a fund.
profitability with a shorter working day at a faster pace than decreasing the fund of working
time

initial final in absolute in
value percentage
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Working day (in hours) 8 6 -2 - 25,5

Number of employees 100 ≈ 117 + 17 + 17
Issue cost (rub.) 800000 910000 +110000 +13,8
Payroll (rub.) 160000 190000 + 30000 + 18,8
Average salary (rub.) 1600 1624 + 24 + 1,5
Profit (rub.) 160000 180000 + 20000 +12,5
Profitability (%) 25,0 24,7 - 0,3 p.p. - 1,2
As it can be seen from the data given above, when using labor saving to reduce the working day at a
rate higher than the rate of a decrease in the total fund of working time, there is a need for additional
employees.
At the same time, an absolute increase in the profit of an enterprise is possible even in case of
increasing the average wage simultaneously. In the given example, there was a slight decrease of the
level of profitability, however it is not an inevitable consequence of implementing this option.
Consequently, if the rate of reduction of the working day is 18.75% (this corresponds to the transition
to a working day of 6.5 hours), only 8, but not 17 employees will be required to be hired additionally.
Then, with an increase in the average salary by 66 rubles per day profitability will remain the same,
which is 25%.
So, why do technological innovations often threaten employment? To answer this question, let us
consider an example that preserves the duration of employees’ working hours while reducing an
enterprise’s working time fund (table 3 demonstrates the data). A similar situation also corresponds
with the premise of a constant level of average wages for workers: if they are not able to protect
employment, then it follows that they are hardly able to raise the level of wages.
profitability at the conservation of working hours with a decrease in the fund of working time

initial final in absolute in
value percentage
Working day (in hours) 8 8 0 0
Number of employees 100 ≈ 88 - 12 - 12
Issue cost (rub.) 800000 910000 +110000 +13,8
Payroll (rub.) 160000 140800 - 19200 - 12,0
Average salary (rub.) 1600 1600 0 0
Profit (rub.) 160000 229200 + 69200 + 43,3
Profitability (%) 25,0 33,7 + 8,7 p.p. +34,8
Obviously, the use of technological innovations to reduce the number of employees makes it possible
to significantly raise the rate of increase in profitability compared to the option of reducing the
working day. This is the main motivation that encourages employers to fully obtain the benefits of
innovation as a whole, rather than share it with employees.
As follows from the option of shortening the working day to the extent of reducing the fund of
working time, this option of using labor savings does not exclude a relative deterioration of the
workers’ position: their earnings can grow more slowly than the increase of their profit. The fact that
such a situation is plausible in reality is evidenced by the widely known experience of Henry Ford
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enterprises in the early 20th century, with natural amendments in numbers - for example, reducing the
working day to 8 hours, etc. In the digital age this experience has ceased to be relevant, only because
the scale of labor savings is growing compared to the previous century, allowing us to increase the
pace of reducing working hours, the growth rate of salaries, profits and profitability.
The second option reveals the compatibility of technological progress with a reduction in
unemployment. This may explain, for example, a decrease in unemployment rates in France as a
result of the transition to a 35-hour work week. Consequently, Keynes's idea of preventing mass
technological unemployment by reducing the working day and working week is basically true.
So, it would be a mistake to identify the reduction of the working day, carried out on the basis of the
growth of labor productivity and contributing to the stabilization or increase in the number of
employed workers while raising their salaries, with a measure contrary to the goal of increasing
profits and profitability. According to the performed calculations that confirm the hypothesis put
forward for the case of an increase in labor productivity by 30 percent or more, there is an objective
possibility of a combination of an improvement in the position of workers and an increase in the
profit of employers, which creates objective prerequisites for resolving the contradiction between
employers and workers. The justification of this option for resolving the contradiction constitutes a
certain scientific contribution of the study, the practical contribution of which will increase as the
scale of the reduction of the working day is expanded not only in the most developed countries, but
also in less technologically developed countries, which, unfortunately, still also include Russia.
However, certainly, within a single enterprise, there is a chance of such a radical increase in labor
productivity, for example, by 100 times, that even a 2-3-day reduction in working hours will not
prevent overmanning. So far, such situations are not so common and are unlikely to prevail in the
future. Their influence on the scale of redundancy in the labor force in the economy as a whole is
incomparably less than it is within an increase in labor productivity at a pace that makes it possible to
stabilize the number of employees by reducing the working day.
The third example clearly illustrates that the main reason for the fears of mass technological
unemployment in automation is the dominance of the option of using labor saving, which eliminates
the reduction in working hours. If the working day is considered to be permanent, then any labor
saving leads to a reduction in the number of employees, which ultimately causes an increase in
unemployment. Such dominance is due to the desire of entrepreneurs to obtain the full effect of
increasing labor productivity without taking into account the interests associated with improving the
position of workers. This exact option of business owners selfishly obtaining capital achieved by both
parties of the social contradiction of labor savings may be effective for the reproduction of capital
only in the short-term perspective, while in the long-term strategic perspective, such appropriation
leads to a deterioration in the quality of labor and, therefore, to undermining the expanded
reproduction of capital, including the exacerbation of crises of relative overproduction.
Conclusion
The strategy of reducing the working day is the strategy of self-movement of the modern economy,
stimulating and accelerating the development of production through the introduction of labor-saving
technologies and at the same time reducing unemployment. The study has shown that this strategy is
compatible with the preservation and growth of production profitability, provided that the
contradiction of the reduction of the working day and the growth of profitability due to the growth of
labor productivity based on production automation are positively resolved.
The growth of profit and profitability is compatible with shorter working hours and higher salaries.
Profit and profitability in this case grow at a slower rate than in the case of ignoring the interests of
workers, however this does not exclude the total profit in relation to the wage fund rising faster.
Consequently, a compromise of interests of the parties of labor relations, preventing the emergence of
mass technological unemployment in the context of the expansion of digital technology, is
objectively possible.
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Theoretically justified efficiency of reducing the length of the working day, while maintaining the
profitability of production and the service sector, is not only practically achievable in the process of
wide use of automation, causing a leapfrogging, multiple increase in labor productivity, but also in
practical implementation will inevitably become a condition for the development of workers, which
in the modern world is becoming the main factor of the development of production.
In further studies on the need to reduce the working day, it is necessary to study the contradiction
between maintaining the level of profitability and the tendency of the rate of profit to decrease as a
consequence of the growth of the organic structure of capital, which implies going beyond the
borders of a microeconomic object and bringing forthcoming studies to a macroeconomic level.
References
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Economic Risk Mitigation Mechanism in the Development of

Small and Medium Enterprises
Shakizada Niyazbekova
Ph.D., Associate Professor of Department «Finance and Credit»,
Moscow Vitte Univercity, Russia, Moscow,
shakizada.niyazbekova@gmail.com
https://orcid.org/0000–0002–3433–9841
Asem Nurzhanova
Doctoral student,
of JSC Financial Academy, Republic of Kazakhstan, Nur Sultan
https://orcid.org/0000–0001–5051–3187
Bibigul Issayeva
PhD, Associate Professor of Department «Economics and Entrepreneurship»,
L.N.Gumilyov Eurasian National University, Republic of Kazakhstan, Nur Sultan
b.isayeva_78@mail.ru
https://orcid.org/0000–0002–8109–2896
Tatyana Sobol
Ph.D., Associate Professor,
Moscow Vitte Univercity, Russia, Moscow,
https://orcid.org/0000–0002–5277–7618
Gulzhanat Kaldenova
Ph.D, Senior Lecturer,
Baishev University, Republic of Kazakhstan, Aktobe,
https://orcid.org/0000-0003-1055-4819
JEL classification: J18, L84, M21
Abstract
Economic risk management of small and medium-sized businesses includes changes in market
conditions. Note that a general economic downturn can lead to a sudden or unexpected loss of income.
To improve economic risks management of small and medium-sized businesses, it is necessary to
maintain an adequate level of capital. This will allow small and medium-sized enterprises to withstand
internal problems, such as updating or replacing defective parts, machines, systems, adjusting, or
eliminating unforeseen risks and much more. Starting small and medium-sized enterprises always
needs capital to purchase goods, credit insurance. Kazakhstan is getting tremendous supports from
entrepreneurs in the capital city of Nur-Sultan, as well as in all regions and districts. These include:
consultation of government agencies, accounting and taxation, training for beginners and continuing
managers of small and medium-sized businesses, invitation of foreign experts with experience in
business (restaurant, beer, atelier, pasta shop, dairy, meat processing and much more), where payment
for accommodation, meals, flight is carried out by the inviting Kazakhstan side. The article addresses
the problem of economic risk mitigation mechanism in the development of small and medium
enterprises (SMEs) in the Republic of Kazakhstan. The article touches upon the topic of commercial
banks and government support institutions which provide preferential loans to SMEs. It shows the
comparison of the number of Kazakhstani operating SMEs for 2013–2018 divided into «small» and
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«medium» ones. The purpose of the article is to analyse economic risk mitigation mechanism in the
development of SMEs with the help of profound policy of financial support.
This problem is underexplored and requires further research; that is why the article covers the economic
risk mitigation mechanism in the development of SMEs through preferential loans to the industry
sectors and prohibition to inspect micro– and small enterprises. The article exposes regional
programmes for SMEs. Special attention is paid to SMEs regional funding programmes of each region.
In conclusion, the authors give their findings and recommendations.
Keywords: efficiency; regional funding; risk; mechanism; soft loans; «small» and «medium»
company; commercial banks; market.
Introduction
The corporate activities of SMEs are inherently connected with continuous management of economic
risks. Due to their particularities, nuances, as well as specific conditions of Kazakhstan as a state, the
SMEs of the region are characterised by a degree of uncertainty in economic activity. Under the
conditions of economic crises and high competition among SMEs of various industries the uncertainty
increases and it makes the objectives of risk identification and risk mitigation especially relevant.
It is a well–known fact that SMEs of the state play an important role in the development of national
economy, making up the bulk of it. One of the alternative risk mitigation mechanisms is providing
Kazakhstan SMEs with affordable financing of priority projects. This risk mitigation mechanism has
shown the efficiency of Government’s managerial decisions. According to statistics, in the developed
Western countries the share of SMEs in the economy makes up 80 per cent of the total number of
enterprises. In Kazakhstan, small enterprises have the lead.
Active work is underway in the development of SMEs in the Republic of Kazakhstan. The government
pays close attention to SMEs, realising the importance of such enterprises.
The national chamber of entrepreneurs «Atameken» conducts free training of beginner entrepreneurs
with grant payment, provides consulting services in the field of accounting, taxation and business
dealing, and offers a wide range of benefits. In many developed countries, SMEs address economic
and social issues. SMEs serve as a basis for stable economic development and provide employment for
the majority of the population in order to reduce unemployment. In these countries, small businesses
account for 50–70 % of GDP.
Methods. The following scientific research methods were used in the work: the method of deduction;
the method of analysis was used to assess, identify factors; the method of synthesis was used to obtain
summarized results of the study; the method of comparison was used to justify the factors and
conditions.
Approach. The authors use a descriptive approach to review published studies on the development,
with a particular focus on the analyzed elements, the scientific journals that consider this study. The
study is based on obtaining, analyzing and summarizing experimental data.
Results
Business in the real economy involves an economic risk. All successful and beginner entrepreneurs are
aware of it. There is a problem of risks in SMEs, which in practice has a multifaceted nature. Timely
and thorough collection of data and their in–depth analysis done by the SME leaders will help to create
a competent, well–thought–out and structured mitigation mechanism for risks in the development
Hudakova (2018). Economic risk is the danger of direct financial loss or failure to achieve the desired
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outputs due to random changes of external and internal conditions of production, as well as non–
optimal managerial decisions.
Economic risks in the development of SMEs, problems, etc. are discussed in the works of Rudenko
(2019), Morkovkin (2019), Kolosova (2019), Isachkova (2019), Saiymova (2016). All this requires
further research on the problem.
In many issues connected with business development, SMEs tend to minimize the risk; consequently,
they take actions on its mitigation Bayrakdaroğlu (2014), Şan (2014). Let us consider the growing
number of SMEs with the potential need in loan support. Thus, by March the number of registered
small businesses was 426.4 thous., while 277.5 thous. of them were operating enterprises. They include
156.4 thous. actively working small businesses, while 45.5 thous. are new in the market.
Over the past six years, the number of small enterprises in Kazakhstan has increased by 96,019 in 2018,
and medium enterprises – by 327. It is also clear that the number of medium–sized enterprises has
decreased in 2018 as compared to 2015.
Commercial banks and government support institutions provided a loan jump to small and medium–
sized enterprises, so, Kazakhstan allocated 600 bln KZT for preferential loans, and at least
100 bln KZT of them was given SMEs. BankCentreCredit, ATFBank, and Nurbank take part in the
programme of affordable financing of priority projects. The first loan was granted by BankCentreCredit
with the support of the Small Enterprise Fund «Damu».
The SEF «Damu» having developed a huge number of financing programmes caused the increase in
the number of SMEs. Bank lending is an efficient and prompt solution to financial problems, a
profitable tool for the development of small and medium–sized enterprises, the ability to respond to the
emerging negative circumstances in a timely manner Daiva Jurevičienė, Viktorija Skvarciany (2016).
Various government programmes for SMEs development in the Republic of Kazakhstan are presented
in Nowadays, SMEs can get a loan for the purposeful development of the business, working capital
financing, purchasing new equipment, and building up the production base.
With the aim to implement the government programmes of SMEs development, they developed lending
through commercial banks and so called preferential loans of microfinance organizations for business.
Thus, the government programme supports such projects as the programme for conditional investment
of funds into microfinance organizations for the subsequent financing of micro– and small enterprises;
the programme for financing SMEs leasing transactions; the programme providing co–funding scheme
of Fund resources and Bank assets and the subsequent SMEs financing in the economic sectors in
accordance with the terms of the Single Funding Programme of Business Road Map; the Programme
of Regional SME Financing in the cities; the Programme of Regional SME Financing of Karaganda
Region and other regions; the Programmes for entrepreneurs; the Filter for programme selection; the
Target Purpose programme.
The loan support for SMEs is getting weaker for the second consecutive year. By the spring of 2019,
the volume of loans to small enterprises had amounted to only 2.2 tln KZT. The volume of loans in the
economy amounted to 17.3 %. For comparison: the loans in the economy amounted to 21.7 % a year
ago; and 24.3 % in 2017. Taking into account the increasing problem, the «Priority Projects Credit
Mechanism» was launched at the initiative of nation's leader Nursultan Nazarbayev (Government
Decree of the Republic of Kazakhstan dated December 11, 2018 No. 820). Creation of the long–term
tenge liquidity provision system is one of the main aims of this project.
It should be reminded that, as a part of this programme, the National Bank of the Republic of
Kazakhstan acquired second–tier bank bonds for the sum of up to 600 bln KZT at their own expenses
and at the expenses under control, with repayment period of up to 7 years and the remuneration rates
of up to 11 % per annum. For its part, the second–tier bank has the right to pay off the issued bonds
ahead of schedule on the terms determined in the prospectus of share issue and agreed with the National
Bank of the Republic of Kazakhstan.
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The limit on the bond purchase for each second–tier bank should not exceed 70 bln KZT. If the bank
does not use the limit, the partially or completely unutilised limit may be redistributed proportionally
among other interested second–tier banks. The borrowed and own funds of commercial banks
according to the Programme are aimed at financing priority projects in the following areas: processing
in agricultural sector up to 100 bln KZT; production in agricultural sector up to 100 bln KZT;
manufacturing sector and services up to 400 bln KZT.
At the same time, at least 100 bln KZT was allocated for lending projects implemented by small and
medium–sized enterprises. For such purposes, each bank provided SME financing in the amount of not
less than 17% of the total volume of loans under the terms and conditions established by «Priority
Projects Credit Mechanism». The National Bank of the Republic of Kazakhstan has already
repurchased bonds of three financial institutions for almost 113 bln KZT as of March 20, 2019.
According to the financial regulator, the leaders are ATFBank (bought bonds for 60 bln KZT) and
BankCenterCredit (the National Bank of the Republic of Kazakhstan acquired securities of the Bank
for 42.7 bln KZT). Nurbank also took part in this programme (10 bln KZT).
The repayment period is 7 years; the rate of return is 10.95 % per annum. The National Bank of the
Republic of Kazakhstan reminded that financial organizations with a capital of at least 60 bln KZT may
participate in the programme of priority projects financing. Nine financial institutions expressed their
willingness to take part.
The first loan under this programme was granted by Bank CentreCredit with the support of the
Enterprise Fund «Damu»: Merki Cheese–Factory in the Jambyl Region was granted a loan within the
framework of "Priority Projects Credit Mechanism" implementation. The remuneration rate was 14.95
%. 6.95 % of them are subsidized by the state. The loan sum is 16 mln KZT, the repayment period is 7
years. The entrepreneur is planning to use the allocated funds to modernise the manufacturing line. It
would significantly expand the range and the quantity of the output products. Thus, small and medium–
sized enterprises can get a preferential loan at the final rate of 8 % per cent per annum for a term of 7
years. The loan is given on investments and working capital financing. Companies all over Kazakhstan
can use this loan offer as BankCentreCredit is represented in all regions of the country.
It is worth mentioning that the support of small and medium–sized enterprises is the key direction of
the highest priority for the bank Niyazbekova (2016), Grekov (2016), Blokhina (2016). Beside
reimbursement programmes together with «Damu» Fund, the bank has its own credit proposals and
preferential loan programmes using the funds of ADB and EBRD. The regional programme support is
focused on implementation of priority directions to support SMEs. It gives the opportunities to render
support to the entrepreneurs and SMEs taking into account their specific character directly in the region.
Thus, the implementation of the support mechanism of the SMEs development programmes allows
taking into account industry priorities, specific nature, and economic strength of each particular region,
district, and city. SMEs economic risks can include the immense amount of examples, depending on
the specifics of the activity and nature of the enterprise.
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Entrepreneurial risks. Sales risks. Credit risks. Financial risks. Exchange risks.
Manufacturing risks. Fraud (theft). Investment risks.
Low proportion of marketing innovation. Absence of business propositions by
Low level of market research in the process commercial banks, leasing companies, and
of product or service development. transport companies.
Rate raising for products storage. Unavailability of private storage. Decline in the supply and demand.
Risk of financial insolvency. Dishonesty of partners and suppliers. Unexpected disruption of supplies,
etc.
Problem of goods and services promotion in the Demand for immense amount of documents from
market. High price of raw and consumable business people. Absence of experience, skills, and
materials. High freight rates. knowledge of many business branches, proper
analysis, and efficient solutions business
planning, predictive
Economic risks of small and medium-sized businesses and the mechanism for
their reduction
Figure 1: Shows the continued list of the types of SME economic risks in the Republic of
Kazakhstan divided into fields and types of business.
Note: developed by the authors based on the materials studied.
However, the risk mitigation mechanism depends on management policy and profound strategy as well.
It is known that the director (property owner) is fully responsible for SME risk mitigation. Timely
monitoring of the asset reduction possibility, safety from external and internal threats would help not
just to minimise the economic risks of any kind, but to prudently avoid them.
It is important to note that the United States of America and Japan are realizing the government–
sponsored programmes on risks mitigation and recovery of risk–related losses. Japan teaches people
and businessmen the risk mitigation culture by purchasing insurance programmes as there often happen
natural disasters, cyclones, floods, therefore, business community experiences difficulties. In the USA
there are tornadoes, hurricanes, floods, snowfalls. However, the insurance programmes, which people
have, do not always reduce damage caused by natural disasters. In Kazakhstan the financial literacy
programme for population was working perfectly from 2007 to 2011. It taught the basics of finance,
investment of money, and how to obtain a credit. Having the experience of that time, nowadays it is
possible to strengthen and resume the financial literacy programme for beginner entrepreneurs in the
fields of insurance, investment, and business.
Conclusion
Thus, this research study allows us to draw conclusions and suggestions.
1. Opening a new business involves primarily economic and financial risk.
2. The statistics of the failed leaders of small and medium-sized businesses shows that in the first or
second year many of them suffer losses and this is as a result of lack of experience and knowledge,
lack of human resources, lack of funds, lack of a clear plan, high cost of rented space, as well as
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untimely submission of reports to the tax service. Hence, it results to economic risk, since they incur
huge amounts of fines and penalties.
3. Not a single state, a single leader, nor a single structure will be able to 100% guarantee that the
business will be successful.
4. However, you can take purposeful steps to reduce the economic risks of small and medium-sized
businesses, having passed mini-training with experienced entrepreneurs, in government agencies, and
watching videos on YouTube, thus gives a huge chance for success of the activity.
5. The stronger the small and medium business of any country, the less likely it will be affected by
economic risks - if they occur - or unforeseen events. Strengthening a business is both management
and financial management, which includes strategies for maintaining and expanding the client base,
affordable business marketing, maintaining high morale among employees, and improving business
practices. It is recommended to search for opportunities to create networks, create general chat in
Internet resources, all this will help minimize exposure to economic risks.
5. Insurance in all countries comes first. Therefore, knowledge of insurance features will help minimize
the economic and financial costs of natural disasters, risks as a taxpayer and others.
We believe that the support of the efforts of the Kazakh government is aimed at helping small and
medium-sized businesses to protect themselves from the effects of economic risks, to promote a culture
of risk management in activities where the costs of natural disasters incurred by taxpayers are
minimized.
Thus, in this article authors have tried to reveal risks of small and medium–sized enterprises where the
main factors of the rapid development are the desire of people to start their own business and also run
a business on the basis of the rules of the free market. There is a dramatic reduction in the number of
jobs at major plants and factories, which had an impact on the increase in the number of small and
medium–sized enterprises. Kazakhstan is improving the normative legal base, financial and tax
regulations of business organisation, which intensify competition. Risk mitigation mechanism will
become an investment for growth. Regular supporting programmes for small and medium–sized
enterprises intended to reduce tax burden, develop the investment policy, as well as the three–year
prohibition on the subjects of micro and small enterprises since January 1, 2020 will allow
entrepreneurs to work confidently in the Kazakhstani market of goods and services. Changes in the
regulatory framework for functioning in SME economy, the existing Small Enterprise Fund «Damu»
form economic risk mitigation mechanism in the development of small and medium–sized enterprises,
as well as a mechanism stimulating the entry into the foreign markets.
Acknowledgment
We are very grateful to our parents and colleagues who supported us while we were working on the
study.
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Airports in Regional Cluster-Based Policies

(by the example of OAO «Omsk airport»)
Anastasiya SOKOLOVA
St. Petersburg State University, St. Petersburg, Russia
a.sokolova@spbu.ru
Maria VISHNEVA
st040921@student.spbu.ru
Anton GRIGORYEV
st070109@student.spbu.ru
Abstract
The article deals with the problem of defining the influence of airport activity on regional economic
development and taking this influence into account in development of regional cluster-based policies. The
fact that these issues have been poorly studied, at the background of strategic importance of social and
economic development of the Russian regions and the idea of including the Omsk airport in this region’s
transport network, make consideration of these issues crucial. The main objective of the study is to
substantiate expediency of including the Omsk airport in the region’s cluster-based policies. The results
obtained are as follows: we have described the mechanism of participation of the airport in the process or
formation and functioning of logic chains, which combine enterprises into a cluster; we have defined
cluster-forming features of airport activity; we have conducted correlation and regression analysis which
proves substantial influence of the Omsk airport’s economic activity on the regional economic
development; we have brought to light lack of cluster-based policies in the Omsk region and the
inefficiency of the existing clusters; we have developed recommendations to improve economic
clusterization in the Omsk region, and charted prospects of future studies. Application: the results of the
study can be used to develop regional cluster-based policies in the Omsk region and development plan of
OAO «Omsk airport» as a growth point of the region. Practical relevance: we have developed
recommendations to advance economic clusterization in the Omsk region with the necessary inclusion of
airport activity in the process.
Keywords: cluster-based policies, airport activity, the Omsk region, regional economic development,
clusters, airport, Siberian Federal District.
Introduction
Topicality of the research question lies in the need to work out efficient mechanisms of economic
development for the Russian regions, including by way of development and implementation of cluster-
based policies which take into account specific features of local production, in which airports play a
major role.
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According to the «Strategy of social and economic development of Siberia until 2020», development of
Siberian Federal District (SFD) is the Russian national security priority. The Strategy aims at organizing
backbone transport network of SFD, the Omsk region being part of this territory. Inclusion of the Omsk
international airport into this network brings up to date the problem of assessment of influence of airport
activity on economic development of the Omsk region, as well as the issue of taking this influence into
consideration in the course of regional economic clustering. It should be noted that despite the existing
clusters in the Omsk region there are no regional cluster-based policies, which shall be considered as a
major factor which leads to inefficiency of their functioning.
Modern trends of regional economic development which includes cluster-based approach have received
attention of Russian scholars in various fields: analysis of influence of industrial clusters on development
of the territory (U.S. Zakharova, K.A. Ainutdinova); sustainable development and cluster analysis (T.V
.Semionova, I.A. Scheglova); introduction of modern approaches of system cluster planning in Russia
(N.G. Tokareva, M.S. Tsvetkova). Foreign scholars have published works on: the essence of clusters (A.
Marshall, M.E. Porter, А. Markusen, J.A. Roelandt, P.R. Krugman, P. Morosini); typology of clusters (M.
Enright, C. Nuur, Z. Yang, P. Hao, J. Cai, S. Iammarino, А. Markusen); meaning of clusters for economic
development of territories (I.G. Koliousisa, S. Papadimitriou, E. Riza, P.J. Stavroulakis, V. Tsioumas,
A.B. Eisingerich, S.J. Bell, P. Tracey, L. Sarach); regional cluster-based policies (P. Mans, F. Alkemade,
Tessa van der Valk, M.P. Hekkert).
It should be noted that cluster-based policies implemented in the Russian regions aim at development of
artificial clusters through top-down initiative, by way of national (regional) cluster strategies and their
provision with resources. However, the bottom-up initiative is also possible, in the form of suggestions
introduced by economic agents, co-operative programmes and projects. In this respect, Dr. Michael von
Hauff, a German expert on cluster economy, considers that in general the Russian economy is «Hub-and-
Spoke» type, in which industrial giants are the powerhouse of regional cluster development, surrounded
with small-size organizations. In essence, these are local clusters, and necessity of their development for
present-day Russia is scientifically justified, for instance, in the works of A.I. Malgasov (2012) and T.
Elistratova (2015), while in the West cluster-based policies aim at development of major «traded
clusters», which include banks and insurance companies. Moreover, in contrast to the Western approach
which prioritizes increase in competitiveness of businesses which form the cluster, the Russian cluster-
based policies, according to M.A. Dombrovsky (2010), shall focus on strategies aimed at encouraging
particularly regional competitiveness.
Despite numerous studies in the field, at present the issue of «airport» aspect of regional development is
poorly studied in terms of Russian theoretical works as well as in practice of cluster-based policies of the
Russian regions. This study aims at filling this theoretical and practical gap.
This study is to check a hypothesis that performance of OAO «Omsk airport» has a major influence on
economic development of the Omsk region, which makes it expedient to include the regional airport in
the Omsk region cluster-based policies.
The hypothesis is asserted by way of consistent solution of the following objectives:
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1) to consider specific features and the role of airport activity in the development of regional clusters;
2) to study the influence of OAO «Omsk airport» on economic development of the Omsk region;
3) taking into account the results obtained, to suggest recommendations for development of cluster-
based policies of the region and define prospect of future studies.
Methods
The key method applied is correlation and regression analysis which allows to define factors influencing
the development of the Omsk region and study the correlation with indicators of OAO «Omsk airport»
performance to use the results obtained in development of cluster-based policies of the region.
Inter alia, the following methods were used in the course of the study as well: systems and structural, to
find the relation between airport performance and the region’s economy; simulation, to define the extent
of the airport’s influence on the regional development.
The informational background of the study is the results of theoretical works of famous foreign and
Russian scholars on the topic; information published by the Federal State Statistics Service in the open
access; annual reports of OAO «Omsk airport» for 2005-2016 approved by the company’s management;
information in reliable open sources, including websites of the regional government and the Omsk
administration; current Russian and foreign legal acts which regulate aviation operations. All calculations
were made in Microsoft Office Excel 2007.
The notion of airport is as a rule provided in the national legislation. Thus, according to the US Federal
Aviation Administration (see Airport categories according to Federal Aviation Administration, 2018), an
airport is defined in the law as any area of land or water used or intended for landing or takeoff of aircraft
including appurtenant area used or intended for airport buildings, facilities, as well as rights of way
together with the buildings and facilities.
In the European law (for example, Air Navigation and Transport (Amendment) Act, 1998) an airport is an
area of land including the airfield and all land which belongs to or is taken by facilities managed by the
airport administration, including sheds, access ways and parking spaces used or to be used as a whole or
in part for any purpose of the airfield’s functioning.
In the Russian law (Russian Aviation Code, 1997) an airport is a set of facilities which include an airfield,
air terminal, other facilities for landing and takeoff of aircraft, air services and having the necessary
equipment.
In the recommendations of the Federal air transport Agency of the Russian Federation (Administrative
guidelines of the Federal Air Transport Agency for provision of public service for due organization and
realization of mandatory certification of airports and handling of the National Airport Registry, 2012) an
airport is managed by the main operator, a legal entity which has right of ownership, economic
management, operational administration, lease or other legal grounds in respect of a civil airfield,
performing coordination of works at the airport, providing for the airport’s readiness for landing and
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takeoff and air services, as well as compliance by all operators and users of safety regulations, air and
environmental safety, a holder of airport compliance certificate and civil aerodrome certificate.
There is a difference between aviation or main and non-aviation or additional airport activities (Fig. 1).
Fig. 1: Airport activities

Source: made by the authors on the basis of the ICAO Circular № 142-1979 Development of Non-aeronautical
Revenues at Airports (1979) and draft Federal Law «On Airports and Activities at Airports of the Russian
Federation» (2011).
In the works of Western scholars (Babkina et al, 2017, p. 15) aviation activity takes a major place in
transport systems, as airports along with airlines provide for air transportation of passengers and cargo,
providing for mobility of labour resources, creation of new industrial, infrastructural and social economic
facilities located in the region, including places with no access for other types of transport.
Economic clusters are based on the idea of including economic agents which are part of the cluster into
chains aimed at bringing materials or end-products to industrial consumption or end-users. These chains
allow economic agents to minimize stocks and expenses, reduce the product’s time to market and
relatively quickly adapt to new market conditions. In turn, according to Western scholars (analysis
conducted by Gwl Realty Advisors, 2014), the airport activity can be considered as a mechanism which
encourages development of intra- and interclusteral chains.
Airports function as linking elements in two structural chains, which along with their description are
given in Table 1.
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Table 1: Types of chains and their characteristics
Type of chain Description Example

Includes integrated carriers with a single structure which manage FedEx and
Integrated
the movement of material flow from a consignor to a consignee. DHL
Includes such logistics structures as 3PL-operators (Third Party
Atlanta Bonded
Logistics) which provide comprehensive services for
Freight- Warehouse
transportation, dispatching, warehousing, customs clearance. In
forwarding Corporation and
other words, outsourcing of all or most part of logistics
C.H. Robinson
operations.
In both cases airport activity combines the abovementioned types of business operations in chains in
which types of economic agents are defined basing on the territorial principle (Fig. 2).
Fig. 2: Types of economic agents combined in chains
Source: made by the authors on the basis of the analysis of «Air Cargo Supply Chains and the Changing Dynamics
of airports» conducted by Gwl Realty Advisors (GWLRA).
It shall be noted that the process of formation of these chains of which airports are participants depends
on the level of development of the airport’s route network, which is a basis for investment and human
capital assets flow into the region. The basic criterion of the level of development of this chain is
passenger flow − the total number of incoming and outgoing passengers in the airport. The supreme level
of development of the airport’s route network is hub route network, which is a combination of flights
which connect the airport, or the hub itself, with arrival and departure airports (Otverchenko et al, 2017,
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p. 112). This allows to minimize passenger handling services costs, at the same time increasing the
airport’s revenue from non-aviation activity.
That’s why an airport should be considered as a link in chains, and airport activity as a mechanism which
triggers their development, the efficiency of which depends on: prospects of development of the airport’s
ground infrastructure and its route network; policy of management of the stock of companies which are
part of the scheme when it is preferable to form customized stock, and speedy delivery to the warehouse
is made possible through air services in the «just in time» or «last minute» modes; stability or sustainable
development of enterprise nets in the region; poor level of development of the ground transport
infrastructure and so on (see more in the analysis by Gwl Realty Advisors, 2014).
Thus, an airport may be considered as a significant part of the regional cluster-based policies
implemented in the following ways. First, an airport is a linchpin between clusters, for instance, in a
business-model of a multi-modal hub which works in Nice and Hong Kong.
Second, there is an airport city created around the hub. For instance, Schiphol airport in the Netherlands,
Dallas airport in the US, Chek Lap Kok Airport in China, Singapore Changi Airport. In the course of
development an airport city evolves into an aerotropolis, e.g., Atlanta Alliance (US) and Aerotropolis
Europe (France).
Third, an airport included in clusters like a logical cluster (Hamilton International Airport in Canada);
aviation cluster, for example, in Colorado, US and Ulyanovsk, «Ulyanovsk-Avia»; and, finally, airport
cluster, like the Finnish airport cluster.
Among the main characteristic features of airport activity is that though airfreight define an airport as a
linking element of the system of chains – the basis of formation and functioning of clusters, it is
passenger air transportation which is a key factor of these processes, as freight is usually transported by
passenger aircrafts in the form of «belly freight». That’s why high passenger flow increases both potential
and efficiency of commercial cargo air transportation.
This study object is OAO «Omsk airport» located in the city area, which has two runways. The airport
services both civilian aircrafts and aircrafts of the Russian Ministry of Internal Affairs. The main owner is
the Ministry of Property Relations of the Omsk region, which has 93.89 % of all ordinary shares issued in
its possession (according to the State Register of Aerodromes and Heliports of Civil Aviation of the
Russian Federation for 2019).
The airport’s infrastructure of the region also includes military airport «Omsk-Severny» and civilian
airport «Omsk-Fiodorovks», an unfinished facility because of lack of funding.
The active Omsk airport has a lot of potential for further development. Its main operator carries out
economic policy aimed at implementation in the near future of plans for development of the airport
infrastructure and the set of non-aviation services as well as introduction of a project for setting up
comfortable conditions for the disabled called the «Accessible Environment»; programmes for technical
re-equipping of the airport security service, acquisition of new equipment and special-purpose vehicles.
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The route network is actively expanded at the expense of international, interregional and intraregional air
transportation. The airport’s activity is also aimed at:
− attracting new airlines, including execution of mutually beneficial contracts with integrated carriers;
− optimization of tariff policies;
− development of non-aviation activities both in the airport terminal and on the adjacent territory
through new investment.
The study of influence of OAO «Omsk airport» on the economic development of the Omsk region in
2015-2016 was conducted with the help of correlation and regression analysis which allows to define the
close interrelation between the sampling variables, and to define the math function which describes the
causative-consecutive dependency between them.
At the first stage the dependent variable y is gross regional product per capita (GRP per capita) in m
RUR/person. Independent variables: x1 – coefficient of air mobility of residents of the Omsk region
calculated as relation of the annual passenger flow of OAO «Omsk airport» to the annual population of
the region; x2 – the share of fixed assets of the regional processing industries (%); x3 – agricultural
produce (m RUR); x4 – coefficient of ground population mobility, a ratio of annual amount of passengers
carried by public railways and buses to the annual population of the Omsk region.
For coefficients of correlation of the abovementioned variables see table 2.
Table 2: Correlation coefficients
y x1 x2 x3 x4
y 1 0,928 0,977 0,952 -0,125
x1 0,928 1 0,877 0,810 -0,176
x2 0,977 0,877 1 0,914 -0,240
x3 0,952 0,810 0,914 1 -0,016
x4 -0,125 -0,176 -0,240 -0,016 1
Table 2 shows the weak negative correlation link between the coefficient of ground population mobility
and GRP per capita (-0,125), which proves weak negative influence of this variable on the economic
development of the Omsk region. This conclusion is proved by low negative correlation between x4 and
x1 (-0,176), between x4 and x2 (-0,240), and x4 and x3 (-0,016) as well.
An obvious positive correlation dependence has been found between GRP per capita and the following
variables: coefficient of air mobility (0.928), fixed assets of regional processing industries (0.977),
agricultural produce (0.952).
A weak correlation dependence has also been found between GRP per capita and each of the following
regional indicators: average annual employment; number of enterprises and organizations; residential
houses put into operation; flats put into operation; organizations engaged in research and development;
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shipped own-produced goods, works and services rendered using own resources across the business:
extraction of mineral resources; index of production in «Manufacturing»; index of production in
«Production and distribution of electric power, gas and water»; average annual employment across the
business: other types of activity; price of fixed assets across the business: extraction of mineral resources;
agricultural production index; balanced financial result (profit less loss) of crop organizations;
profitability of goods, produce (works, services) sold by crop organizations; profitability of goods,
produce (works, services) sold by cattle breeding organizations; main indices in «Timber harvesting»:
average annual number of employees in organizations; export and import pattern: chemical industry
production, rubber (groups 28-40) – export; export and import pattern: chemical industry production,
rubber (groups 28-40) – import; export and import pattern: timber and pulp and paper produce (groups
44-49) – export; export and import pattern: engines, equipment and transport vehicles (groups 84-90) –
import; foreign trade with far-abroad: import; foreign trade with the CIS countries: export; foreign trade
with the CIS countries: import; export and import of technologies and technical services: export – number
of contracts; passenger flow by public service buses; export and import of technologies and technical
services: import – price of the contract; export and import of technologies and technical services: import
– annual flow of funds.
These indicators, along with the coefficient of ground population mobility, have not been included in the
correlation and regression model made at the second stage of the study in the following form:
y = −0,063 + 0,201⋅ x1 + 0,009 ⋅ x2 + 1,223 ⋅ 10−6 ⋅ x3 . (1)

The results of calculations of multiregression and correlation model are given in Table 3.
Table 3: The results of calculations of multiregression and correlation model
Indicator Value
Multiple R 0,9982
R-squared 0,9965
Standard determination rate 0,9952
Standard error 0,0052
The model (1) correlates with the sampling, which is evidenced by high standard determination rate (R2)
equal to 0.9952 (99.52 % variation of variable y in relation to its median is explained by change in
arguments x1, x2, x3). High F-statistics (F = 755,35), as well as its level of significance equal to 3,765·10-
10
, shows significant linear correlation dependence of y from x1, x2, x3. Level S = 0,0052 of standard
deviation of regression errors is small compared to -y- = 0,22, which indicates narrow spread of sampling
data in relation to regression plane.
The correlation and regression model shows that the biggest is coefficient of argument x1, which stands
for coefficient of air population mobility, the 1% increase of which brings the 0.3% increase of GRP per
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capita on average, and vice versa. Hence it is expedient to develop the Omsk airport on both federal and
regional levels, including by way of funding projects to modernize and expand both main and auxiliary
airport activity, and consider the airport as а significant part of regional cluster-based policies. However,
at present cluster-based policies are not implemented in the Omsk region, and development of clusters is
the main objective of the «Strategy of social and economic development of the Omsk region 2025»
(2013).
At present there are three clusters in the Omsk region: agri-biotech industrial cluster; hi-tech elements and
systems cluster, in which cluster-forming companies belong to defence industry; petrochemicals cluster
(news agency «Omsk Region», 2019). Forest-industry cluster is now being developed. It should be noted
that the existing clusters display poor efficiency and, according to the regional administration,
redesigning is necessary, in particular because enterprises within separate clusters are not connected with
logic chains, a development mechanism of which can be exemplified by the Omsk airport.
Conclusion
The study makes a case for the necessity to develop efficient regional cluster-based policies in the Omsk
region which will include airport activity, which is part of economic ties between businesses which form
clusters.
The study provides insight into airport activity and its influence on the region's economic development,
when airport activity is seen as a mechanism which triggers development of logic chains which link the
activities of economic agents in various production sectors into clusters. Description is also given to the
global experience of airports' participation in economic regional clusterization.
The result of the correlation and regression analysis of the influence of OAO «Omsk airport»
performance on the economic development of the Omsk region shows high degree of correlation
dependence between Gross Regional Product per capita, coefficient of air population mobility, fixed
assets of the regional processing and agricultural produce. At the same time there is a weak negative
correlation dependence between these indicators and the coefficient of ground population mobility in the
region.
The multiregression model with a dependent variable, GRP per capita, we have developed has shown that
significant influence on regional economic development is exerted by the change in the coefficient of air
population mobility, hence the hypothesis made at the beginning of the study is proven. Therefore,
studying the activity of OAO «Omsk airport» as an object of regional economic clusterization is of great
importance. This problem is topical because of the absence of cluster-based policies in the region as well
as inefficiency of the three existing clusters: agri-biotech industrial cluster; hi-tech elements and systems
cluster, petrochemicals cluster.
Some scholars (Sokolova, 2011) have an opinion that regional sustainable development is based on the
notion that social and economic processes, structure of economic systems and their specialization have
clear regional nature. Significant influence is exerted by territorial and functional difference in nature and
climate, system of population distribution, resources. Therefore, sustainable development of an area
depends on the economic systems being able to perform their own target function.
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Thus, for Omsk the target function is to provide for backbone transport network on the level which
complies with the Russian national security.
In this respect we have suggested the following. First, to develop a development programme for OAO
«Omsk airport» as an economic growth point for the Omsk region on the regional level.
Second, it is necessary to develop cluster-based policies on the regional level as well, in the framework of
which it is essential to justify the mechanism of reforming the existing clusters on the basis of logic
chains with the assessment of the following options of including OAO «Omsk airport» in the regional
clusters:
− airport as a member of cluster, a link between its participants and external economic agents;
− airport as a cluster-forming enterprise (a growth point) in the form of regional transport and logistics
hub, a regional airport cluster or an airport city.
It should be noted that to form an airport cluster and an airport city the following is necessary:
1) active use of scientific potential of the Omsk region, which is relatively high and is represented by
discipline-specific, academic and institutional sectors;
2) significant investment, including through international financial institutions.
The prospects of the further study reside in dealing with the following issues:
− development of a basic concept of cluster-based policies in the Omsk region;
− further study of influence of airport activity on social and economic development of the region using
other econometric models;
− comprehensive study of the link between airport infrastructure and economic development of
Siberian Federal District;
− study of specific features of formation and predictive estimate of efficiency of functioning of
backbone transport network of Siberian Federal District, including international airports in the territory.
References
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7921
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7923
The Impact of e-Books Learning Effectiveness, Creativity and

Attitudes on Economic Literacy in Higher Education
Suparno
Lecture, Faculty of Economics, Universitas Negeri Jakarta
suparno@feunj.ac.id
Suwatno
Professor, Faculty of Economics, Universitas Pendidikan Indonesia
suwatno @ upi.ac.id
Disman
disman@upi.edu
Eeng Ahman
eengahman@upi.edu
Susan Febriantina
Lecture, Faculty of Economics, Universitas Negeri Jakarta
susanfebriantina@unj.ac.id
Abstract
The merging of economic literacy theory on students’ attitude and creativity have given to rise into urgent
insight currently. However, some kinds of literature related to economic literacy and students’ learning
attitude as well as creativity could be found rarely. The purpose of this paper is to identify the impact of
the effectiveness of e-book learning media, learning creativity, and attitudes towards students’ economic
literacy in higher education, located in the capital city of Indonesia. The research target consists of
Economic Education students, Faculty of Economics, Jakarta State University, with a sample of 168 filled
questionnaires. Therefore, the results show that some, directly and indirectly, variables have a positive
and significant impact simultaneously. E-book learning media variable directly impacts on learning
creativity as much as 22.6%, e-book learning media, learning creativity, and attitudes as much as 49.6%,
both e-book learning media, and learning creativity, as well as attitude on economic literacy is 37.2%.
Keywords: effectiveness of e-book learning media, learning creativity, learning attitudes, student
economic literacy
Introduction
The economic theory teaches basic economic concepts mastery as literacy abilities in the learning process
(Rady & Milkman, nd; Salemi, nd). Economic literacy is someone's basic knowledge of economics that is
useful in studying and developing economic activities in everyday life. The ability to make rational
economic decisions (Ronald, nd), priority scale, considering needs and resources are as the basis for
carrying out economic activities in terms of production, consumption, and distribution (Jappelli, 2009).
The understanding of economic literacy as the basis of the economic behavior pattern of students in
Indonesia is still relatively low (Sina, nd). The result of the previous study indicates that based on
economic behavior, consumptive behavior is caused by the inability to overcome personal economic
7924
problems. The students are unable to manage financial and investment and cannot even take chances in
entrepreneurship activities. They are also very consumptive about online shopping or just following the
trends of online shopping. The tendency of economic students who have obtained knowledge of
economic education needs to be researched as a basis for rational economic choices, actions, principles,
and economic motives.
Factors influencing students' economic literacy include economic education, interest in economics, and
belief in the benefits of economic literacy (Dilek & Konak, 2018). The implementation of learning is the
existence of learning outcomes, a person's ability to determine rational economic actions can also from
learning outcomes obtained from economic subjects. Learning outcomes are overall student learning
achievement, which is an indicator of competency and the degree of. Thus, economic learning with the
media, teachers, academic environment is very important in developing literacy recently.
UNESCO explained that digital literacy skills are everyone's rights and the basis for lifelong learning.
The multiple effects cover a very wide range, literacy skills help eradicate poverty, reduce child
mortality, population growth, and ensure both sustainable development and the realization of peace, a
better quality of life (UNESCO, 2006). E-book as digital media can be used as a learning resource.
Various learning resources currently provide e-books. Thus, students can learn from any resources
through android easily.
Literature Review
Economic Literacy
Trevor H. Cairney (Cairney, Lowe, Mckenzie, & Petrakis, 1991) economic literacy is "literacy is used as
a cultural tool to construct symbolic meaning and to engage with others" that literacy is used as a cultural
tool to build symbolic meaning and to engage with others. Kern (2015) states that "literacy is commonly
defined as the ability to read and write." (UNESCO, 2008) literacy is not only concerning the authenticity
of thinking and reading; it involves a learning process (learning) and skills (life skills) to be used by
individuals, a community or a nation to survive ongoing basis changes. Economic literacy is a useful tool
to change the behavior from not being smart to be smart (Sina, 2012), such as how to use the income to
save, invest, protect and fulfill living needs.
Economic literacy was first introduced by the National Council for Economic Education in the United
States NCEE (The National Council on Economic Education). Economic literacy is a condition that
describes a person who can understand basic economic problems well so that he can carry out economic
activities properly (Girls Inc., 2018). North Central Regional Educational Laboratory defines that
economic literacy is the ability to interpret economic problems and examine different choices related to
finding solutions, defining costs and benefits, analyzing the results of changes in economic conditions
and public policies, collecting and organizing data, weighing costs and benefits.
Economic literacy will improve individual competence. In its development, economic literacy will assist
in decision making, solving problems knowing about the influence of inflation on exchange rates, and
how to make the right invest (Matthews, 1999; Hunt, 1941) Economic literacy is an important part of
economic learning at the undergraduate and postgraduate levels in Indonesia. This becomes economic
literacy as a learning outcome and is a special study as a scientific discipline. In learning sessions,
lecturers can prepare learning environments, including effective media. E-books, as a media, can be
prepared by lecturers in shaping economic literacy. In social learning theory (Bandura, 1971); (Bandura
& RH Walters, 1963) states that the environment can influence learning outcomes. This is a reference for
teachers that preparing a learning environment including the media is important (Lin & Chen, 2017) and
7925
also able to improve critical thinking skills (Suparno, 2017) and improve entrepreneurial skills in
universities (Suparno & Saptono, 2018).
Based on the theoretical study and economic literacy literature of the experts above, it can be synthesized
that economic literacy is one's knowledge about economic concepts that are useful in making appropriate
decisions in rational economic activities. Someone who has a high level of economic literacy will be able
to manage economic life efficiently and effectively and make better plans for future economic activities
towards prosperity.
E-Book Learning Media
Most of the learning still uses paper as a learning book today. More than 300,000,000 (million) tons of
paper are consumed by the entire world population. This is equivalent to 800,000 tons per day or
10,000,000,000 (billion) sheets of 80 gram A4 size (Sam Martin, 2011). This is a waste of resources and
in the long run, a threat to society and nature would be. This becomes a necessity for media studies as
digital-based learning resources such as e-books because the role of learning media is very helpful for
students and teachers and students during the learning process.
The media shows everything that carries information between the source and the recipient. Jauhar (2011).
E-book as a multimedia learning is very interesting because it provides ideas, information, and learning
materials according to the level of thinking of students. Things that are part of the information contained
in e-book based on flash include; video, sound, music, text, animation, movies, graphics, images, and
data. Learning media includes everything that can bring the message and information conveyed by the
teacher as communication to students in conveying learning material, so that they can increase students'
knowledge, motivation, thinking and understanding of the learning material delivered.
Research conducted by Bobbi DePorter (Ariani & Haryanto, 2010) quantum learning initiators revealed
that humans can absorb as much as 70% of what they wear, 50% of what is heard and seen (audiovisual),
and 30 % of what he saw, from information 20% and from what was read 10%. Learning media is
expected to be able to increase awareness of audio-visual learning. Multimedia refers to various
combinations of graphics, text, sound, video, and animation. This amalgamation is a unity that together
displays information, messages, or content of lessons (Arsyad, 2002).
E-book learning media can increase literacy (Kurnianingsih & Ismayati, 2017). The ability to read and
analyze can be obtained through media in the form of images, graphics, and even videos of real learning
experiences presented in digital books. Students' thinking ability will actively encourage experience in
solving problems. Media in learning will influence the attitude of learning (Teoh & Neo, 2007). This can
be done through teacher creative learning and student behavior activities in learning. Media is a tool that
can stimulate and influence the attitudes and behaviors (Wahab, Othman, & Muhammad, 2017); (Eulah,
Banaag, Rayos, Grace, & Lopez, 2014).
Learning Creativity
Creativity is needed in various fields and professions. In learning, student creativity is very important to
achieve good learning outcomes. Drevdahl defines that creativity is the ability of a person to produce new
ideas, in the form of activities or synthesis of thoughts that have a defined purpose, not mere fantasy. This
is reinforced by David Campbell that creativity is an idea or innovative human thought, effective, and
understandable (Ambarjaya, 2012). Chaplin stated creativity as an ability to produce new forms in art, or
in machinery or in solving problems with new methods (Rachmawati, et al., 2010) The statement was
reinforced by Ned Hermann who defined creativity as an ability to challenge assumptions, recognize
7926
patterns, see in new ways, make various relationships, take risks, and immediately capture opportunities
(Saritomo, et al., 2010). Four behaviors that can bring creativity by Bloom (Conny, 2009):
a. The flexibility of thinking (fluency), which is the ability to generate new ideas.
b. Flexibility, which generates a wide range of new ideas.
c. Originality is a unique response to a situation.
d. Elaboration is an expansion of thinking about the topic.
Parnes explained that while the creative process will only occur if it is raised through problems that spur
on five kinds of creative behavior, as follows:
a. Fluency (fluency), which is the ability to express similar ideas to solve a problem.
b. Flexibility, namely the ability to produce various kinds of ideas to solve a problem outside the
usual category.
c. Originality, the ability to give a unique or extraordinary response.
d. Elaboration, which is the ability to express the direction of ideas into reality.
e. Sensitivity (sensitivity), namely sensitivity to capture and produce problems in response to a
situation (Rachmawati. et al. 2010)
Learning creativity shapes attitudes (Toraman & Ulubey, nd) such as disciplines. Creative thinking skills
are also able to form a scientific attitude in learning by applying inquiry-based learning methods (Sandika
et al., 2018). Learning creativity is the ability of students to produce new ideas or combine some
information knowledge obtained from the teacher in learning activities into a new combination that is
different from before that has a purpose and can be useful for others.
Learning Attitudes
Human attitudes as behaviors in learning are not something that is constantly carried and is permanent
from birth. Attitude arises as to the response of individuals to see and feel a thing that can stimulate their
thinking. In economic learning, planting attitudes is important to be able to be developed as a support for
achieving learning outcomes. The attitude of students is the reaction of students to stimuli or stimuli
received both positively and negatively on subjects.
Secord and Backman (Azwar, 2011) define attitudes as certain regularities in terms of feelings
(affections), thoughts (cognitions), predisposing actions someone to an aspect in the surrounding
environment. Learning attitudes influence literacy skills (State, State, Iwoye, State, & State, 2013). The
study established the fact that students' perceptions, students' attitudes, and students' experiences are
significantly related to information literacy skills. Learning attitudes influence student literacy (Akhan,
2015), including knowledge literacy in reading (Arezki et al., 2015); (Mackenzie, Hemmings, & Kay,
2011). Therefore, in learning, teachers need to form attitudes as an effective supporter of achieving
learning outcomes.
The attitude of students in learning in this study is a readiness to react to responses from other people and
themselves as a result of attitudes and experiences that cause feelings of pleasure or displeasure from the
achievements that have been received by the learning objectives.
7927
Method
Research Design
This study used a quantitative approach with causal design, and it was conducted through a survey of
students in economic education programs. The study examined the influence of e-books learning
effectiveness, learning creativity and attitudes on economic literacy in higher education. Data analysis
techniques with Confirmatory Factor Analysis (CFA), Joreskog and Sorborn (1993) are used to test uni-
dimensional, validity and reliability of construct measurement models that cannot be directly measured,
measurement theory (Hair et al., 2006). Test the validity and reliability of the questionnaire items, and as
a requirement for testing the hypothesis is to test the normality of regression estimates error, linearity test
and significance of the regression coefficient and correlation. Test normality of regression estimates
using the Lilliefors test while linearity tests and significance of correlation coefficient and regression
using ANOVA. Test the normality of data with the provision if the significance value is greater than 0.05
then the data is normally distributed, whereas if less than 0.05 data is not normally distributed.
Population, Sample and Sampling Techniques
The population in this study were students from economic education, Faculty of Economics, Jakarta State
University with 320 education students spread to economic education study programs, accounting
education, office administration education, and business education. The number of samples is based on
the table of Issac and Michael using a significance level of 5% in as many as 168 students. In this case,
the questionnaires distributed randomly to the purposive sampling technique.
Instrumentation and Analyses
In this study, the effectiveness of e-book learning media was measured by a questionnaire (Arsyad, 2002;
Suparno, 2017) with aspects of achieving goals, accuracy, and usability as follows:
1. I can operate this e-book with flash media easily

2. In my opinion, this e-book media is less attractive
3. This E-book media can display outdoor learning well
4. I can explore thinking and learning experiences independently
5. This media is very useful in learning for me
6. Interactive media in independent learning
7. I can analyze the learning questions given by the teacher independently through the e-book
8. This e-book media is new, so I can not understand it
9. This e-book media can deliver learning material clearly
10. I can use media e-book on a personal computer or android
Learning creativity was measured by a questionnaire regarding two aspects, cognitive and behavior.
Cognitive include fluency in expressing opinions /fluency, flexible in solving learning/flexibility
problems, original thinking/originality, and skills detailing ideas/elaboration. The second consist of high
curiosity, challenged by plurality, and dare to take risks (Sandika et al., 2018). The instrument of attitudes
are measured by the combined dimensions of components of cognition, affective components, and
behavioral components (conative) with attitude objects in economic learning are attitudes toward learning
material, attitudes toward learning processes, attitudes related to values that exist in economic subjects,
Secord & Backman (Azwar, 2011) with aspects as follows:
1. Cognition:
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a. Expression of trust in objects

b. Perceptual reactions to objects
2. Affection:
a. Feeling expressions of economic subjects
b. Psychological reactions to economic subjects
3. Behavior:
a. Intention to behave from learning
b. Open behavior towards subject matter objects
The aspects of students’ economic literacy are measured by abilities compiled by the Council for
Economic Education Test of Literacy (Harsoyo, Saptono, & Purwanta, 2017); (Walstad, Rebeck, &
Butters, 2013) with ability tests in 1) Scarcity, choice, productive resources; 2) Decision-making,
marginal analysis; 3) Economic systems and allocation mechanisms; 4) Economic incentives - prices,
wages, profits; 5) Voluntary exchange and trade; 6) Specialization and comparative advantages of
markets; 7) Supply and demand; 8) competition; 9) Economic institutions; 10) Money and inflation; 11)
Prices of interest rates in labor markets and income; 12) Physical and human capital investment; 13) The
economic role of government; 14) Government failure, special interest groups; 15) Output, income,
employment, and the price level; 16) Unemployment and inflation; 17) Policy; and 18) Fiscal and
monetary policy. Model and Data Analysis Based on literature review and related theories, data analysis
in this study used path analysis. Path analysis developed by Sewall Wright is used to analyze the
relationship between variables on endogenous variables. The analysis of relationship patterns among
variables aimed to know the direct or indirect influence between variables. The constellations of the
structure of influence built-in research, namely (see figure 1).
X1. E-book Learning

Media H4 = ρ41
H2 = ρ31
ε1 X3. Attitude H6 = ρ43 X4. Economic Literacy
H1 = ρ21
H3 = ρ32
X2. Learning H5 = ρ42 ε2 ε3
Creativity
Fig. 1: The Proposed Model
Therefore, the hypothesis is as follows:
1) H1: There is a positive and significant link between the e-book learning media (X1) and learning
creativity (X2),
2) H2: There is a positive and significant link between e-book learning media (X1) and student
learning attitudes (X3),
3) H3: There is a positive and significant link between learning creativity (X2) and student learning
attitudes (X3),
4) H4: There is a positive and significant link between e-book learning media (X1) and economic
literacy (X4),
5) H5: There is a positive and significant link between learning creativity (X2) and economic
literacy (X4),
6) H6: There is a positive and significant link between student learning attitudes (X3) and
economic literacy (X4).
During this study, data analysis uses descriptive statistics and inferential statistics. The validity and
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reliability of the tests and the requirements for testing the hypothesis is a normality regression test using
ANOVA. Analysis of the factors that influence the interest in establishing exogenous variable economic
literacy, and the effectiveness of e-book learning media, learning creativity, attitudes were analyzed as
endogenous variables, and correlations were carried out. The test is the normality of data with the
provision if the significance value is greater than 0.05, then the data is normally distributed, whereas if it
is less than 0.05 the data is not normally distributed. The test instrument was conducted with 50 students.
With 22 questions on economic literacy tests, 12 questionnaires on the effectiveness of e-book media, 19
items on the learning creativity questionnaire, and 13 items on the attitude scale questionnaire. The
formula used for the validity of the product is the Pearson test and the reliability test with Cronbach
Alpha. Data were analyzed by multiple linear regression to analyze the relationship between variables on
endogenous variables - the data processed with SPSS 19.
Based on economic literacy variable data (X4), students' attitude (X3), learning creativity (X2), and e-
book learning media (X1), conducted a validity test with Product Moment Correlation of Pearson to 50
students show each item r arithmetic > 0.279. This means that each item is valid, and Statistical
Reliability Test: Cronbach's Alpha shows the value of ≥ 0.5, so it's reliable. Furthermore, the
requirements test of research questionnaire data was analyzed to 168 students, namely a test of normality
with the Kolmogorov-Smirnov test with a significance level of 5% (see Table 1).
Table 1: Test Data Distribution Research: One-Sample Kolmogorov-Smirnov Economic Literation

Test, Learning Attitudes of Students, Creative, and E-Book Learning Media
E-Book
Learning Learning Economic
Media Creativity Attitude Literacy
N 168 168 168 168
Mean 45.8393 75.5060 42.5476 15.0946
Normal Parameters,
b Std. 5.67904 4.64140 2.18635 4.05254
Deviation
Absolute 0.096 0.088 0.080 0.117
Most Extreme
Positive 0.096 0.061 0.066 0.117
Differences
Negative -0.075 -0.088 -0.080 -0.112
Kolmogorov-Smirnov Z 1,239 1,144 1,043 1,181
Asymp. Sig. (2-tailed) 0.093 0.146 0.226 0.124
a. The distribution test is Normal.
b. Calculated from data.
With Kolmogorov-Smirnov One-Sample Test on Asymp. Sig. (2-tailed) Obtained data distribution of e-
book media effectiveness is 0.093, learning creativity 0.146, learning attitude 0.226, and economic
literacy 0.124; with normal distribution test. Furthermore, the hypothesis testing between variable
structure and sub-structure 1 consists of the e-book learning media (X1) as an exogenous variable and
creativity in learning as endogenous variables (X2). Become structural equation: X2 = ρ21 + ε1,
calculation of path coefficient using SPSS 19.0 (see Table 2).
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Table 2: Linear Regression (Multiple Regression) Output Effectiveness of E-Book Learning Media,
and Learning Creativity
Unstandardized Standardized
Model Coefficients Coefficients t Sig.
B Std. Error Beta
(Constant) 44.943 4,402 (Constant)
1
E-book Learning Media .667 6,970 0.667
a. Dependent Variable: Learning Creativity
Path coefficient ρ21Learning= 0.476. Thus, the form of the structural equation is X2 = 0.476X1 + ε1. Value
of R22.1. The R square of the Model Summary is 0.226, so the magnitude of the effect of other variables
outside the model (error) on the endogenous variable X2 is ε1 = 1 - R22.1 = 1 - 0.226 = 0.774. Testing the
path coefficients of the sub-structure model 1 will give the decision of hypothesis testing 1 (see figure 2).
ρ21= 0,476 X2
t = 6,970 ε1 = 0,774
X1
Fig. 2: Sub Structural Model Coefficient Effectiveness of E-Book Learning Media, and Learning
Creativity
Sub-structure 2 consists of e-book learning media (X1), learning creativity (X2), and learning attitude
(X3). The coefficient analysis model X3 = ρ31X1 + ρ32X2 + ε2 (see table 3).
Table 3: Linear Regression (Multiple Regression) of The Output Effectiveness of E-Book Learning
Media (X1), Learning Creativity (X2) and Attitudes (X3)
Model Coefficients Coefficients T Sig.
B Std. Error Beta
(Constant) -3.777 3.717 -1.016 0.311
E-book Learning 0.187 0.072 0.164 2.603 0.010
1
Media
Learning Creativity 0.500 0.051 0.612 9.731 0.000
a. Dependent Variable: Attitude
Path coefficient ρ31= 0.164 and ρ32= 0.612. Therefore, the form of the structural equation is X3 = 0.164X1
+ 0,612X2 + ε2. The value of R23.12 or R square in the Summary Model is 0.496, then the magnitude of the
effect of other variables outside the model (error) on the endogenous variable X3 is ε2 = 1 - R23.12 = 1 -
0.496 = 0.504 (see figure 3).
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ρ31= 0,164
X1 t = 2,603 ε2 = 0,504
r12= 0,476 X3
X2 ρ32= 0,612
t = 9,731
Fig. 3: Sub Structural Model Coefficient Effectiveness of E-Book Learning Media, And Attitude
Sub-structure 3 consists of variable e-book learning media (X1), learning creativity (X2), learning attitude
(X3) and economic literacy (X4). The equation of model X4 = ρ41X1 + ρ42X2 + ρ43X3 + ε3 (see table 4).
Table 4: Linear Regression (Multiple Regression) Output of E-Book Learning Media (X1),
Learning Creativity (X2), Attitude (X3), and Economic Literation (X4)
Coefficients Coefficients
Model T Sig.
Std.
B Beta
Error
(Constant) -4.291 2.065 -2.077 0.039
E-book Learning 0.085 0.041 0.150 2.094 0.038
1 Media
Learning Creativity 0.113 0.036 0.279 3.156 0.002
Attitude 0.142 0.043 0.287 3.292 0.001
a. Dependent Variable: Economic Literacy
Based on the calculation above, the path coefficient ρ41= 0,150; ρ42= 0.279; and ρ43= 0.287. The form of
structural equation X4 = 0,150X1 + 0,279X2 + 0,287X3+ ε3. The R24.123 or R square can be seen in the
Model Summary table is 0.372, the magnitude of the influence of other variables outside the model
(error) on the endogenous variable X3 is ε3 = 1 – R23.12 = 1 - 0.372 = 0.628 (see figure 4).
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ρ41= 0,150
X1 t = 2,094
t = 3,292
ρ31= 0, 164
ρ21 = 0,476 X3 X4
t = 2,603
t = 6,970
X2
ε2= 0,504
ε2=0,774 ρ32 = 0,612 ρ42= 0,279
t = 9,731 t = 0,315 ρ43 = 0,289 ε3=0,628
Fig. 4: Analysis of E-Book Learning Media, Learning Creativity, and Attitude on Students’
Economic Literation
Description:
X1 = e-book Learning Media
X2 = Learning Creativity
X3 = Attitude
X4 = Economic Literacy
According to the above data, direct, indirect, and total effects based on the path analysis are presented in
the following (see table 5).
Table 5: Path Coefficients
Influence of Causal
Influence
variable traversed Indirect Total
Variable Direct
X2 X3 X2 and X3
X1 to X4 0.476 - - - - 0.476
(0.476) - -
(0.279) 0.1328 0.608
- (0.164) - 0.0473 0.523
(0.289)
- - (0.476) 0.0841 0.560
(0.612)
(0.289)
X2 to X4 0.279 - - - - 0.279
- (0.612) - 0.1768 0.456
(0.289)
X3 to X4 0.289 - - - - 0.289
X1 to X3 0.164 - - - - 0.164
(0.476) - - 0.2913 0,455
(0.612)
X2 to X3 0.612 - - - - 0.612
X1 to X2 0.476 - - - - 0.476
The coefficient on the image above, it can be concluded that all pathways have a direct and
indirect positive and significant effect so that all hypotheses are accepted. The goodness of Fit
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Statistics shows the size of the match test for the proposed model. By using GOF, the value of P =
1,000 can be concluded that the model fit with the data is tested with Lisrel stated that the fit is
perfect which means the proposed model fits perfectly with the data. Thus, the structural model
proposed in this study does not need to be modified. This is due to the path model that has been
built based on developing a theory (research construct) that has met the requirements for testing.
Based on path analysis data, the effect of e-book learning media (X1), learning creativity (X2),
attitude (X3) on economic literacy (X4) shows that all variables have a direct and indirect effect
positively and significant. Simultaneously from the variable e-book learning media (X1), which
directly affects learning creativity (X2) equal to 22.6% and 74.4% influenced by other variables.
The contribution of e-book learning media (X1), learning creativity (X2), towards attitude (X3)
equal to 49.6% and 50.4% influenced by other variables. The contribution of the e-book learning
media (X1), learning creativity (X2), attitude (X3) on economic literacy (X4) is 37.2%, and 62.8%
is influenced by other variables.
E-Book media (X1) on learning creativity (X2) of 0.47602 or 22.6%. E-book, as an effective
medium, is used in learning to improve learning creativity. Teachers can use and choose an e-book
because students can learn independently by utilizing free time besides at school (Yalman, 2014);
(Gorghiu, Gorghiu, Bîzoi, & Suduc, 2011). Millennials tend to be flexible in managing time and
activities with challenging targets. The material in e-book media can be studied independently and
clearly; this indicates that learning difficulties can be overcome by students and provide
experience.
In media usage, some students have difficulty accessing through personal computers or android so
that they give input to the instructor that e-book applications need to be modified so that they can
be accessed easily through various devices. In general, students provide feedback that e-book
application as a medium is a future learning model in the hope that it can include audiovisual in
media and flash-based applications so that it is interactive in learning and able to be used for
problem training as a substitute for student worksheets.
The use of e-book media in increasing student creativity is corresponded by Bandura's learning
theory in social learning theory, that students through the environment can be formed to be able to
learn and improve results through creative behavior. Media research to improve creativity also
strengthens the findings that the media is effective in increasing student learning creativity in the
classroom (Sharif, 2019).
E-Book learning media (X1) on attitude (X3) is 0.1642 or 2.6%. The use of e-book media is
effective in shaping student learning attitudes. Learning develops aspects of cognition, affection,
and behavior. With learning media, aspects of intention to behave in learning take precedence and
have the highest value. This indicates the importance of the media to be able to provide contextual
learning to provide direct experience and attitudes that arise from every economic problem
(Anderson & Davidson, 2019).
The reaction of trust in objects is also important in fostering an attitude to learning from the media.
This is because the media can display various economic conditions and supporting data. Concepts
and understandings such as inflation, unemployment, financial and trade balance deficits, the
amount of foreign debt, investment, import-exports, and others provide a stimulus that students
can respond to in learning. This is by the behavioristic learning theory.
Learning creativity (X2) on Attitude (X3) is 0.1622, or 34%. Learning is changing behavior. The
school must give correct thinking to Dewey (Johnson, 2010). Based on constructivism theory
students can shape learning outcomes through building learning knowledge. This can be done by
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the teacher by preparing good learning. Flexible in solving problems can be implemented as a
reference for developing learning attitudes. Students find various economic problems and facts,
and they choose various alternatives to solve the right problem. The desire to independently
convey thoughts on economic problems is the focus of the development of learning creativity. This
can be done by the teacher by developing learning that conveys new, contextual topics, and
provides challenges that have various alternative problem solving effectively.
E-Book learning media (X1) on economic literacy (X4) is 0.1502 or 22.6%. Learning media can
be used to improve economic literacy. Economic literacy as a basic ability to basic concepts of
economics can be formed with good learning media. Students can explore good thoughts and
experiences independently are important aspects developed in e-books as learning media in
shaping literacy. The desire to study themselves with data, facts are still the choice of students.
They compare data and reality so that conceptually form knowledge and experience of learning
independently.
In the media, e-books can convey learning independently. Text-based learning materials, videos,
problem training, and learning outcomes are the expectations of students in developing e-book
media. This is because various e-book media are still in the form of a compilation of material and
images. Flash-based e-books are highly sought after by scholars in independent learning and
forming economic literacy.
Learning creativity (X2) on economic literacy (X4) is 0.2792 or 7.7%. This indicates that student
learning creativity influences economic literacy skills in classroom learning. High curiosity by
looking for basic economic concepts by existing events contextually becomes learning creativity
that can be developed by the teacher. Various economic conditions such as the economic crisis,
soaring food prices, the depreciation of the obsolete currency, the increase in the price of gold and
oil are the parts that attract students in developing literacy by knowing and looking for more
causes of the economic conditions (Lo Prete, 2013). This becomes an important part that economic
literacy can be formed by encouraging learning creativity through the delivery of economic
problems with data and facts (Di Girolamo, Harrison, Lau, & Swarthout, 2015).
The attitude (X3) of economic literacy (X4) is 0.2892 or 8.3%. Learning attitudes affect students'
literacy abilities. Attitudes as a form of responsive behavior in learning need to be formed.
Economics is a family of social sciences. Attitudes in learning greatly affect economic literacy.
The intention to behave in economic learning as a form of attitude towards knowledge of basic
economic concepts becomes an important part that teachers can develop in learning. Students'
interest in learning forms a conducive behavior in shaping the basic abilities of economic
concepts.
Conclusion, Limitation, and Recommendation
The study relates to the impact of e-book learning effectiveness, creativity, and attitudes on economic
literacy among higher education students. All have a positive and significant impact simultaneously. E-
book learning media variable directly impacts on learning creativity as much as 22.6%, e-book learning
media, learning creativity, and attitudes as much as 49.6%, both e-book learning media, and learning
creativity, as well as attitude on economic literacy is 37.2%. The limitation in this study is quantitative
with a causal approach, measurement of variables is done by using an instrument in the form of a
questionnaire in the form of a rating scale, and Likert scale can not delve deeply information about the
research variables studied. Questionnaires involving tests often make students bored doing it. Regarding
this study, the researchers give some recommendations that e-book learning media could be one of the
learning medias merging students ‘creativity and positive attitude on economic literary. Furthermore,
economic literacy is still influenced by many other variables except this research mentioned. Thus, the
7935
next research could examine probably.
Acknowledgement
The author would like to acknowledge to Faculty of Economics, Universitas Negeri Jakarta, Indonesia
who has given full fund for this research.
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Industry 4.0 adoption. An overview of European Union Enterprises
Lidia ALEXA
”Gheorghe Asachi” Technical University, Iasi, Romania

lidia.alexa@tuiasi.ro
Mirza Mohammad Didarul ALAM
School of Business & Economics, United International University, Bangladesh

mirza@bus.uiu.ac.bd
Abstract
Technology and Digital transformations have been significantly disrupting and affecting business models,
manufacturing processes, and corporate governance in the past decade. The constant improvements in
information and communication technologies (ICT) infrastructure, and in analytical capabilities have
fuelled a stream of innovation and changes at all levels of business models and value chains and the
ability of companies to adopt and master them has become an element of competitive advantage in almost
all economic sectors. The present study focuses on providing an overview and discussing the current
status and the implications and challenges for Industry 4.0 adoption among European manufacturing
SMEs.
Keywords: Industry 4.0, digitization, ICT, business models, SMEs.
Introduction
Industry 4.0 refers to recent technological advances where the internet and supporting technologies that
serve as a backbone to integrate physical objects, human actors, intelligent machines, production lines
and processes across organizational boundaries to form a new kind of intelligent, networked and agile
value chain (Schumacher et. al, 2016). The concept of Industry 4.0 has gained great importance in recent
years in all sectors of the economy, hence the vast amount of academic research and discussions.
The introduction of the term came from the German Federal Government which presents Industry 4.0 as
an emerging structure in which manufacturing and logistics systems in the form of Cyber Physical
Production System (CPPS) intensively use the globally available information and communications
network for an extensively automated exchange of information and in which production and business
processes are matched (Bahrin et. al, 2016).
Industry 4.0 brings disruptive changes to supply chains, business models, and business
processes (Schmidt et. al, 2015). The possibilities offered by the growing use of digitization in the
corporate world are changing companies’ competitive positions, how they interact with their employees
and customers (Dery et. al, 2017) and how they position themselves in the market. Some companies are
offering products and services that are apparently outside their original business model, but that are
possible because of the way that model has been adapting itself to digitization (Dongback, 2017).
So in this particular context, it is beginning to be clear that nowadays it is unnecessary to primarily focus
on awareness-raising with respect to – 1) what industry 4.0 trends are, and 2) what they can bring. These
trends are, at least in certain respects, already advancing quickly within many enterprises, and
7939
furthermore, their dynamics correspond to the high pace of change overall today. Thus, at the recent time,
the burning question is not “whether,” but “when” i.e., how fast 4.0 trends will penetrate into the day-to-
day lives of enterprises—and beyond them into society overall (Basl & Doucek, 2019).
Industry 4.0 key Components
The extant literature provides a wide range of definitions and key components for Industry 4.0, which
shows the growing interest and impact of the subject but can also raise confusion and adjacent challenges
in terms of understanding and adopting it in the business and manufacturing process.
Hermann et al (2016) defines Industry 4.0 as a collective term to refer it as technologies of value chain
organizations, the components of which are categorized as Internet of the Things, Cyber Physical
Systems, Internet of Services and Smart Factory.
Rüßmann et al (2015) shapes the vision of Industry 4.0 by defining nine aspects related to the concept,
which are: Big data and Analytics, Autonomous robots, Simulation, System Integration (Horizontal and
Vertical) , Internet of Things, Cyber security and Cyber Physical Systems (CPS), the Cloud, Additive
Manufacturing, and Augmented Reality.
Big data and Analytics refers to the collection and comprehensive evaluation of data from many
different sources such as production equipment and systems as well as enterprise and customer-
management systems and it will become standard to support real-time decision making (Rüßmann et al,
2015). According to Forrester’s definition, Big Data consists of four dimensions: volume of data, variety
of data, velocity of generation of new data and analysis, value of data (Witkowski, 2017). One of the
main challenges with respect to big data refers to the fact that manufacturing companies need viable and
up-to-date solutions that collect, process, and produce valuable and usable data from many diverse
sources and merge it to provide real-time perspective analytics for 24/7 automated rules and adaptive
machine learning.
Autonomous robots play an important role in modern manufacturing industry. The number of
multipurpose industrial robots developed by players in the Industry 4.0 in Europe alone has almost
doubled since 2004 (Roland Berger, 2014). Robots are also becoming more autonomous, flexible, and
cooperative day by day and at certain they will interact with one another and work safely side by side
with humans and learn from them (Rüßmann et al, 2015). An autonomous robot is used to perform
autonomous production method more precisely and also work in the places where human workers are
restricted to work. Autonomous robots can complete given task precisely and intelligently within the
given time limit and also focus on safety, flexibility, versatility and collaboratively (Bahrin et. al, 2016).
The most important impact of autonomous robots is on job market structure, as many jobs become
obsolete and companies need workers with a different set of competences and skills.
Simulations will leverage real-time data to mirror the physical world in a virtual model, which can
include machines, products and humans (Rüßmann et al, 2015). This element allows operators to test and
optimize the machine settings for the next products in line with the virtual world before the physical
changeover, thereby driving down machine setup times and increasing the end product quality.
System Integration: Horizontal and Vertical System Integration. Integration and self-optimization are
the two major mechanisms used in industrial organization (Schuh et. al, 2014). The paradigm of Industry
4.0 is essentially outlined by three dimensions of integration: (a) horizontal integration across the entire
value creation network, (b) vertical integration and networked manufacturing systems, and (c) end-to-end
engineering across the entire product life cycle (Stock & Seliger, 2016).
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Internet of Things refers to a worldwide network of interconnected and uniform addressed objects that
communicate via standard protocols (Hozdić, 2015). There is also another approach which talks about the
Internet of Everything (IoE) which consists of Internet of Service (IoS), Internet of Manufacturing
Services (IoMs), Internet of People (IoP), an embedded system and Integration of Information and
Communication technology (IICT) (Neugebauer et. al, 2016). The factories of the future are all about
intelligent planning, agility and networking with all elements of the process interconnected and in
constant real-time communication.
Cyber security and Cyber Physical Systems (CPS). Cyber security has become paramount with the
increased connectivity and use of standard communications protocols that come with Industry 4.0 and so,
the need to protect critical industrial systems and manufacturing lines from cyber security threats
increases dramatically (Vaidyaa et al, 2018). The term CPS has been defined as the systems in which
natural and human made systems (physical space) are tightly integrated with computation,
communication and control systems (cyber space) (Bagheri et. al, 2015) and is characterized by the
decentralization and autonomy of the production process.
The Cloud. Within Industry 4.0, fast and reliable data sharing is and so cloud-based IT-platforms serve
as a technical backbone for the connection and communication of manifold elements of the Application
Centre Industry 4.0 (Landherr et al, 2016).
Additive Manufacturing methods are also widely used in Industry 4.0 to produce small batches of
customized products, reducing time to market, and increasing customer satisfaction by proving products
and services that better respond to the consumers’ needs and expectations. At the same time, high-
performance, decentralized additive manufacturing systems will reduce transport distances and stock on
hand, diminishing costs.
Augmented Reality systems support a variety of services meant to both increase productivity and
decrease errors, such as providing workers with real-time information to perform procedures and make
decisions, sending repair instructions on how to replace a particular part as they are looking at the actual
system needing repair (Rüßmann et al, 2015)
Opportunities and challenges of Industry 4.0 adoption
In this thriving context, manufacturing enterprises are currently facing substantial challenges with regard
to the disruptive concept of Industry 4.0. It is obvious that such a far-reaching vision will lead to an
increased complexity of manufacturing processes on the micro and macro level (Schuh et. al, 2014) and
especially small and medium sized manufacturing companies are uncertain about the financial effort
required for the acquisition of such new technology and the overall impact on their business model.
Subsequently, increasing complexity on all firm levels creates uncertainty about respective organizational
and technological capabilities and adequate strategies to develop them (Schumacher et. al, 2016).
In order to face the new challenges, companies will need virtual and physical structures that allow for
close cooperation and rapid adaption along the whole lifecycle from innovation to production and
distribution (Gligor, D.M., Holcomb, 2012) and so industrial companies are digitizing essential functions
within their internal operations processes, as well as with their partners along the value chain (De Carolis
et. al, 2017). In addition, they are enhancing their product portfolio with digital functionalities and
introducing innovative, data-based services (GMIS, 2016). This is a journey they are taking towards a
complete value chain transformation and at the end, successful companies will become true digital
enterprises, with physical products at the core, augmented by digital interfaces and innovative services
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(Lee et. al, 2016; Porter et. al, 2014). In a futuristic and disruptive vision, these digital enterprises will
work together with customers and suppliers in industrial digital ecosystems (GMIS, 2016).
Despite the clear advantages and opportunities provided, extensive research on company’s perspective
over Industry 4.0 (Erol et al, 2016, Schumacher et. al 2016) have shown that companies have serious
problems to grasp the overall idea of Industry 4.0 and particular concepts hereof:
• Companies perceive the concepts of Industry 4.0 as highly complex with no strategic guidance
offered
• Companies are not able to relate it to their specific domain and their particular business strategy.
• Companies experience problems in determining their state-of-development with regard to the

Industry 4.0 vision and therefore fail to identify concrete fields of action, programs and projects.
• In this specific context, one of the main challenges industrial companies are now facing is to
define their Industry 4.0 transformation roadmap. In order to support companies to start defining
their digitalization transformation roadmap, a model to analyse their status quo is needed.
To overcome growing uncertainty and dissatisfaction in manufacturing companies regarding the idea of
Industry 4.0, new methods and tools are needed to provide guidance and support to align business
strategies and operations.
Various readiness indexes and maturity models can help companies to make easier, and also faster,
decisions concerning the question of in which areas they should build up Industry 4.0, and at what tempo.
Both of these, meanwhile, indicate not only a company’s own position, but also the positions of its
competition. At present, attention is shifting towards tasks connected with the execution of needed
changes and towards specifying the expectations other than merely profit that are connected with their
deployment (Basl & Doucek, 2019).
Studies on Industry 4.0 Adoption
Academic investigation addressing Industry 4.0 extensively focuses on large enterprises (Arnold et al.,
2016; Radziwon et al., 2014) and only marginally on SMEs (small and medium-sized enterprises)
(Schmidt et al., 2015). Yet many large companies act as suppliers to SMEs and have SMEs as suppliers.
Their actions affect the actions of their smaller supply chain partners and their requirements influence the
positioning of SMEs towards the technological developments derived from Industry 4.0. Therefore, it is
important to consider how SMEs implement Industry 4.0 and consequently, how it impacts industrial
value creation in SMEs (Muller et al., 2018). SMEs also provide a fruitful research sample, as those
represent over 99% of the companies located in the EU and hire between 50% and 70% of the full time
equivalent of persons employed.
Industry 4.0 adoption in the European Union
The European Union understands the potential of advanced technologies to transform EU industries and
so there are several policies at European level that have been further translated to national level meant to
encourage and support adoption of digital technologies.
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In May 2015, the European Commission adopted a Digital Single Market Strategy as one of its top 10
political priorities for 2015-2019. The Digital Single Market Strategy had 16 initiatives that covered three
broad pillars: promoting better online access to goods and services across Europe, designing an optimal
environment for digital networks and services to develop and ensuring that the European economy and
industry takes full advantage of the digital economy as a potential driver for growth.
In the same spirit, most of the EU governments have made Industry 4.0 a priority adopting large-scale
Industry 4.0 policies to increase productivity and competitiveness and improve the high-tech skills of
their workforce.
Within the Strategy for the Single Digital Market, the European Commission (2015) has been working on
the identification and gathering of data that allows for the measurement and characterization of the digital
society, including data related with the digitization of production processes.
Data Covering Industry 4.0 Adoption In EU
Most of the data used throughout this study is based on the The Digital Economy and Society Index
(DESI) (2019), which is a composite index that summarizes relevant indicators on Europe’s digital
performance and tracks the progress of EU Member States in digital competitiveness and Eurostat
database which is the outcome of the answers to the questionnaire ICT usage and e-commerce in
enterprises (Eurostat, 2018) and refers solely to enterprises from the manufacturing sector, according to
the statistical classification of economic activities in the European Community. This survey is conducted
periodically and enquires the habits, practices, constraints, expectations, and intentions related to ICT
usage with the intention of gathering information that allows the characterization of the degree of
adoption across time and countries in the EU.
According to DESI (2019) Finland, Sweden, the Netherlands and Denmark, have the most advanced
digital economies in the EU followed by the UK, Luxembourg, Ireland and Estonia. Bulgaria, Romania,
Greece and Poland have the lowest scores on the index.
In terms of Internet access, according to Eurostat data, in 2018, the vast majority (97 %) of EU
enterprises with at least 10 persons employed used a fixed broadband connection to access the internet,
going up 3% from 2011, suggesting that at EU level the uptake of this technology has reached saturation.
9 countries have declared that 100% of their companies have internet access, while at the other end of the
spectrum are Romania and Greece with 86% of companies with internet access. With almost all
enterprises connected to the internet via broadband, the attention of policymakers has more recently
switched to the speed of fixed broadband connections.
Internet connection speed. In Industry 4.0 context, speed is equally important to access, and so, the
share of enterprises using the fastest internet connections tripled between 2011 and 2018. In 2018, one
fifth (20 %) of enterprises in the EU-28 had an internet connection speed that was within the range of ≥ 2
Mb/s but < 10 Mb/s, with a slightly higher share (24 %) having a connection that was in the range of ≥ 10
Mb/s but < 30 Mb/s. One quarter (25 %) had a connection in the range of ≥ 30 Mb/s but < 100 Mb/s,
while the fastest internet connections (at least 100 Mb/s) were enjoyed by more than one sixth (18 %) of
enterprises in the EU-28.
In terms of Cloud computing, the Eurostat data showed that more than 1 in 4 (26 %) EU enterprises
reported that they used cloud computing services. Compared to 2014, this represents an increase of 7%.
However, there are significant differences across countries. In Finland, Sweden, Denmark, the
Netherlands, Ireland, the United Kingdom and Belgium at least 40 % of enterprises used cloud computing
7943
in 2018. On the other hand, in Romania and Bulgaria only 10 % or fewer enterprises did so, confirming
the results of the DESI conclusions. Another relevant element refers to the significant differences
between large enterprises and small ones when cloud computing use is discussed: the first ones use
cloud computing much more (56% of enterprises employing 250 persons or more) than small ones (23%
of enterprises employing 10 to 49 persons). And over the last four years (between 2014 and 2018), the
highest increase in cloud computing usage was also registered for large enterprises ( 21% increase),
compared with 12% in medium sized enterprises and 6% in small enterprises.
The use of 3D printing, also known as 'additive layer manufacturing', refers to the use of special printers
either by the enterprise itself or the use of 3D printing services provided by other enterprises
(outsourcing) for the creation of three-dimensional physical objects using digital technology.
In 2018, 4 % of EU enterprises with at least 10 persons employed used 3D printing, either their own 3D
printers or printing services provided by other enterprises. The largest shares of enterprises using 3D
printing were observed in Finland (7 %), Belgium, Denmark, Malta and the United Kingdom (all 6 %).
The smallest shares were reported by enterprises in Cyprus and Latvia (both 1 %), followed by Bulgaria,
Estonia, Greece, Hungary, Poland and Romania (all 2 %).
In large enterprises, the share of 3D printing stood at 13 % compared with 4 % in SMEs. This technology
was most used in the manufacturing sector (9 %), followed by enterprises in professional, scientific and
technical activities (6 %) and in information and communication (5 %).
Big data usage. In recent years, the quantity of digital data created, stored and processed in the world has
grown exponentially. Each activity conducted online or by using information and communication
technologies generates series of digital imprints which, given their volume, variety and velocity, are
referred to as big data.
According to the data gathered from companies in the EU, in 2018, 12 % of enterprises with at least 10
persons employed reported analysing big data. The big data analysis is predominantly done by large
enterprises (33%) and medium sized enterprises (19%). Among EU Member States, the largest shares of
enterprises analysing big data were observed in Malta (24 %), the Netherlands (22 %), Belgium and
Ireland (both 20 %). The smallest shares were noted in Cyprus (5 %), Hungary and Austria (both 6 %),
Bulgaria and Italy (both 7 %).
Enterprises that analysed big data used a variety of data sources, the most popular ones used being
geolocation and social media data. Almost half of all enterprises analysed geolocation data from the use
of portable devices e.g. portable devices using mobile telephone networks, wireless connections or GPS
(49 %), followed by data generated from social media e.g. social networks (45 %). Less than one third of
enterprises analysed own big data from smart devices or sensors (29 %) or data from other sources
(26 %).
As shown in Figure 1, in SMEs, the use of geolocation data from portable devices and data from social
media was prevailing whereas large enterprises mostly used data from the enterprise's own smart devices
or sensors and other sources.
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Figure 1: Structure of the data sources used and size class of EU enterprises
In large enterprises, big data analysis was performed mainly by own employees (90 % of enterprises
analysing big data) rather than by an external service provider (75 %). Among SMEs, slightly more
enterprises relied on external service providers (42 %) to analyse big data than on own employees (40 %).
Conclusions
The high interest and impact of Industry 4.0 technology and applications is highly visible both in terms of
literature written and research conducted and in the actual evolution statically proven. What is still under
discussion is the fact that there are still significant discrepancies between different countries in the EU
and also between large corporations and SMEs, showing that internet access alone is not enough anymore
to ensure access and competitiveness.
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Problems of industrial and Innovative Development of Economy of

the Republic of Kazakhstan in Modern Conditions
Mohamed EL-HODIRI
Kansas University, Lawrence KS, USA
mohamedelhodiri@gmailcom
Ainur Ongdas
Kazakh National University, Almaty, Kazakhstan
ainukon84@mail.ru
Abstract
We consider the strategy of industrial and innovative development in the Republic of Kazakhstan. A
model of allocation of investments to industrial and innovative development of the Kazakhstan
economy is investigated as a returnable resource is offered. Conceptual approaches to formation of
republican clusters in all industries and a technique of an assessment of synergetic effect of their
activity are developed.
Keywords: industrial development, innovative development, economy of Kazakhstan, strategy,

investments, cluster.
Introduction
The problem of industrial and innovative development of economy of the Republic of Kazakhstan is
currently being implemented as part of the Strategy of industrial and innovative development of the
Republic of Kazakhstan (SIID).
Main objective of SIID is to achieve sustainable development of the country by a way of

diversification and the minimization of dependence on a single resource.
In the process of implementing SIID a complex of the interdependent mutually complementary

measures are carried out These measures include the creation of institutes of development, special
economic zones, industrial zones, a clusters initiative, the 30 corporate leaders program, and the
creation of Regional financial center in Almaty.
Currently the third stage SIID (2011 – 2015) is being implemented. At this stage adjustment of the
system of organizational measures and the acceleration of work in the field of development of
competitive production of manufacturing industry is planned.
It should be noted that in the course of carrying out of the SIID a serious gap which makes
consideration of economic efficiency fade into the background. It is noted that the well-known
campaign in which the state becomes the economic donor to some chosen subsectors of economy
without expecting any returns, i.e. investments into industrial and innovative development of the
Kazakhstan economy are considered as an irrevocable economic entitlement. This state of affairs
can lead to unacceptable consequences nearly derailing the process of development of national
economy.
7947
Methods
Choosing as a basis of industrial and innovative development of the Kazakhstan economy
programmatically – a target method, the author offers the model, giving the chance to consider
investments into industrial and innovative development of the Kazakhstan economy as a returnable
resource. In Figure 1 the model of a circulation of the economic resources necessary for providing
SIID within 34programmatically – a target campaign to industrial innovatively development of the
Kazakhstan economy is presented.
Fundsbudget of the The raised funds Own funds complex

of the target program On financing sources
Program period
t1 t2 … t
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An algebraic formulatiois presented below

T
Figure 2: A matrix of mathematical formulation of circulation of the

economic resources necessary for providing SIID within programmatically – target approach
to industrial innovatively development of the Kazakhstan economy
In this matrix the following designations are accepted:

N
Xij – entrance to structure of resources х,
j1
I – the size of invested means during the period t for SIID realization j,
Р – number of the program actions realized within SIID,
T – terms of performance of actions of the provided SIID.
T
Xijt (b) – the volume of the invested resources of the republican budget invested
t1
for realization of SIID, distribution of resources b, in the period a,
T T
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Xijt (a) Xijt (b)

t 1 t 1
T
bt – the volume of other funds of SIID of resources raised for realization b, in
i1
T
T the period a,
bt a t
i1 i1
T
CijT – total effect from SIID realization,
i1
T
Eijt – rest of resources after SIID realization j.
i1
The mathematical model describing efficiency of SIID (Ec) can be described by the following
expression:
T
CijT
i1
Ес = N T (1)

X
i
j

E
i
j
t
j

1
i

1
If Ec indicator is more than unit, SIID can recognize effective if this indicator is less than unit, SIID
didn't solve the tasks set for it.
In other words, SIID has to bring to the state notable economic effect.
Now in Kazakhstan the inertial industrialization fixing raw specialization of economy is followed.
The calculations performed by the author, on the basis of data of the forecast of social and economic
development of Kazakhstan for 2013 – 2017, show that by the end of the period, the share mining
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and manufacturing industry will make respectively 60% and 34% [4]. It means that the government
predicts a decline in mining sector to level of 2012 for 4% and on the contrary, expects increase in a
share processing for 3,5%. According to forecasts of the author, positive changes won’t happen, the
lag effect in industry development opposite will remain. The government places hopes on the Card
of industrialization within which for 2,5 years of implementation of the State program on the
development of the Republic of Kazakhstan forced industrial innovatively for 2010 - 2014, according
to official figures, 389 projects on which realization 1,8 trillion tenges are invested are started, and
90 thousand workplaces [3] are created. At the same time, still there is no reliable and available
information about a contribution of the Card of industrialization to industry development.
Calculations of the author show that in a total amount of industrial production for 2011 the share of
objects of the Card of industrialization didn't exceed 3%, and following the results of 2012 this figure
can reach 4% and generally at the expense of a contribution of a small amount of objects of the
mining industry. As we see, the Card of industrialization doesn't create the prerequisite for positive
restructuring of the industry.
There are many reasons of a lag effect of industrialization, but among them, according to the author,
the most essential role is played by the following.
1. Historical heritage of the Soviet era. The economy of the Soviet Kazakhstan was mainly
agrarian and raw. The enterprises of manufacturing industry acted as links of the technological chain
connecting a set of the enterprises of all 15 republics in a uniform complex. In 1990 the share of the
industry made only 20,5% of GDP, and the share of oil and gas sector in structure of industrial
production hardly reached 2,6% [5].
Since 2000 on part of the former Soviet Union the integration project known as EurAsEC within
which the Customs union and the Common free market zone are formed is realized. The Customs
union is formed for creation of the uniform customs territory within which the common customs
tariff and other uniform measures of regulation of trade with the third countries is applied. In other
words, the Customs union is a form of trade and economic integration of the certain countries,
participants of EurAsEC. The purposes of the Common free market zone are more extensive and
influence economic policies of member countries. It is planned that in the territory of the Common
free market zone the same mechanisms of regulation of economy based on the market principles and
application of the harmonized precepts of law also will function the system of the coordinated
economic policies providing the free movement of goods, services, the capital and labor will be
carried out.
2. Consequences of privatization of state ownership of the 1990th years. By the beginning of
1996 as a result of the second stage of privatization of state ownership of 78,7% of medium-sized
enterprises were privatized in whole or in part, and as a whole less than for 3 years into private hands
passed 61,4% of property of medium-sized enterprises [2]. Subsequently some privatized enterprises
ceased to exist as subjects of economy.
3. Localization of the centers of adoption of economic decisions outside Kazakhstan. This one
of consequences of privatization of the largest industrial enterprises, being shown that strategic
positions in a control system are in hands of nonresidents. In other words, adoption of economic
decisions is carried out in the headquarters located outside Kazakhstan. So, the vast majority of the
largest companies of the mining industry and the metallurgy creating in total nearly 16% for gross
domestic product, are in long-term concession at nonresidents, or the controlling stake belongs to
citizens of the foreign states. As economic interests of top managers and owners of these companies,
as a rule, don't coincide with longterm goals of Kazakhstan, their decisions have negative impact on
industry structure.
4. Backwardness of market institutes and infrastructure, first of all, financial, engineering and
consulting. Lack of infrastructure constrains introduction of technologies, exchange of information,
restructuring of the companies and as a whole their development. It served one of the reasons of a
failure of a cluster initiative of the government.
5. High appeal of the mining industry to investments. For 1993 - 2011 the sum of direct foreign
investments of the mining industry of Kazakhstan made $82,8 billion or 31,4% of the total amount
of direct foreign investments; from them $71,1 billion – an investment into oil production and natural
gas [1]. If in the specified sums to include direct foreign investments in activities for carrying out
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geological investigation and the researches which volume exceeds $97,3 billion, the total amount of
investments into the mining industry will reach $180,1 billion (or 67,9%). Direct foreign investments
in raw sector continue to grow. For the specified period of an investment into manufacturing industry
made $26,2 billion (or 9,9%) of them $18,7 billion in metallurgy [1]. Foreign investors go to
processing branches reluctantly for economic motives – the minimum income at high capital
investments and tactical risks. The foreign companies are interested in operation of raw material
resources of Kazakhstan as can gain high investment income (a difference between market price of
a resource and costs of production). On the basis of the above it is possible to draw a conclusion, as
economy, and the industry of Kazakhstan need restructuring. Such major problem demanding huge
investments, can be solved by means of system measures innovative, investment, external economic,
fiscal and a monetary policy. The change in inertial industrialization is possible on condition of
political will to economy restructuring, first of all the industry – defining the majority of tendencies
of long-term social and economic and political development of Kazakhstan.
One of new conceptual approaches to innovative development of the Kazakhstan industry is the
clustering within which coherence of the power, sciences, education and business is most fully
realized.
Condition of full functioning of an industrial cluster is the state support. The role of the state in
realization of cluster policy in the European countries with the high level of liberalization of
economy differs from Kazakhstan (Table 1).
Table 1: Distinctions of a role of the state in cluster policy of the European countries with
high level of liberalization of economy and in Kazakhstan
Kazakhstan Western countries

The state initiates creation cluster or The state supports the initiative “from
supports relevant initiatives authorities below”, from outside businessmen,
universities, initiative groups
The state can invest both science and The state invests only science and
innovative development, and creation of partially infrastructure, other directions
new production (directly and by joint are invested by business
financing)
The state carries out the selective to the The state seeks to create identical legal
politician in relation to the various to the conditions for all potential participants of a
enterprises having possibility of inclusion cluster
in structure of a cluster
The state support at creation of an industrial cluster in the Kazakhstan conditions provides
fragmentary support when authorities can act as one of founders, using as a contribution to authorized
capital own intellectual, information resources, transferring real estate objects and other property.
According to the author, for the purpose of innovative development of the Kazakhstan industry it is
necessary to create republican clusters in all industries.
According to offered model of design of a republican industrial cluster, the Enterprise No. 1 has to
act as a peculiar element of republican cooperation and thus the representative of interests of all
industrial cluster. For example, having low competitiveness, this enterprise as a part of a cluster,
taking into account production power of all enterprises, can occupy one of leading positions, and,
therefore, it will provide such position to all cluster as a whole.
The author offered organizational model of formation of the republican industrial clusters, providing
management of full life cycle of industrial production within republican integration (Figure 3).
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Coordination council
of a cluster
Authorities Business Institutes
- banks
Representative Representative of Company1 - insurance companies
of the regional city
government administration - investment compani
es
- logistic centers
- transport companies
Company4 Company2
Company3
Production
Figure 3: Organizational model of formation of republican industrial clusters
The offered model of formation of republican industrial clusters will provide possibility of
management with full life cycle of industrial production within republican integration that
has to allow to reach effective realization of industrial production for the solution of
problems of expansion of market positions of an industrial cluster in particular and
accelerations of economic growth in Kazakhstan as a whole.
According to the author, from introduction of the cluster organization of industrial

production it is possible to estimate an indicator of synergetic effect on nature of changes
in area of economical and ecological leadership of republican industrial clusters with
inclusion at this indicator given concerning leadership in the sphere of innovations, in the
social sphere, in the sphere of updating and in the field of market positions of association.
In this regard the author offers to estimate synergetic effect from creation of republican
industrial clusters on the basis of a ball assessment of changes which are present or, at least,
have to be present at activity of cluster associations and testify to efficiency of their
functioning from the point of view of achievement of synergetic effect (Table 2).
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Table 2: System of the indicators characterizing synergetic effect from introduction of the
cluster organization of industrial production on the basis of studying of dynamics of changes
Leadership Direction of changes Changes Grade*
Economical and Changes in indicators of economic Increase of level of the

ecological efficiency of production income from realization of
leadership an innovative industrial
0,75 0,50 0,25
output
Changes in indicators of investment Increase of the volume of

activity investment 0,75 0,50 0,25
Changes in system of ensuring Introduction of new

ecological safety of production technologies of industrial 0,75 0,50 0,25
production
Innovative Development of a new industrial Increase in a share of an

leadership output innovative industrial output
0,75 0,50 0,25
Development of new technological Updating of capacities,

decisions inclusion in production of
new technologies 0,75 0,50 0,25
Development of the new Updating of technologies

organizational and economic forms of management,
of government production controlling, marketing,
0,75 0,50 0,25
logistics
Ability to updating Updating due to involvement of Change of number of

new participants of a cluster participants of a cluster 0,75 0,50 0,25
Updating due to acceptance of new Change in system of

strategic priorities strategic planning 0,75 0,50 0,25
Updating due to introduction of the Change in system of

new intra corporate distribution of profit, 0,75 0,50 0,25
relations stimulation, motivation of

participants of a cluster
Market leadership Competitiveness level in the market Ability to compete with the
foreign and domestic
producers who are present
0,75 0,50 0,25
in the market
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Competitiveness level in the Ability to compete with the

national market foreign and domestic
producers who are present
0,75 0,50 0,25
on the Kazakhstan market
Competitiveness level in a foreign Ability to compete in the

market world market
0,75 0,50 0,25
Social leadership Salary Increase of level of a salary

in relation to an average
salary in branch and in the
0,75 0,50 0,25
republic
Budgetary sphere Increase in a share of the

budgetary assignments 0,75 0,50 0,25
Social infrastructure Changes in character of

working conditions, safety
of production, social
security of the personnel
0,75 0,50 0,25
* 0,75 – changes are characterized by positive dynamics;

0,50 – positive dynamics is absent, dynamics has positive ill-defined character;
0,25 – changes have negative dynamics.
The coefficient of a synergy (Кс) from creations of republican industrial clusters by the
author is offered to be counted on formulas:
Кс =(Ʃ: N ) х Ко (2)
Ко = Ʃо: Nо
(3)
Ко – updating coefficient;
Ʃ – actually gathered bag of points characterizing the general changes; Ʃо – actually
gathered bag of points characterizing processes of updating;
N – the greatest possible score characterizing processes of changes (9 points); Nо – the greatest
possible score characterizing processes of updating (2,25 points).
Introduction of coefficient of updating is expedient to correct from the point of view of potential
possibility of a republican industrial cluster the strategy both alleconomic, and corporate in response
to the arisen problems.
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Creation of republican industrial clusters will have considerable impact on productivity growth at
the industrial enterprises, increase of their competitiveness, an entry into the international market,
response to changes of the market and the solution of social problems.
Conclusion
In the course of realization of problems of Strategy of industrial and innovative development of the
Republic of Kazakhstan the essential gap is observed – its economic efficiency fades into the
background. In other words, the known campaign when the state becomes the economic donor for
acceptor subsystems of economy is observed, i.e. investments into industrial and innovative
development of the Kazakhstan economy are considered as an irrevocable economic resource that is
quite misleading in modern conditions of development of national economy. Choosing a program
and target method as a basis of industrial and innovative development of the Kazakhstan economy,
the author offered the model giving the chance to consider investments into industrial and innovative
development of the Kazakhstan economy as a returnable resource. In other words, Strategy of
industrial and innovative development of the Republic of Kazakhstan has to bring to the state notable
economic effect.
For the purpose of industrial and innovative development of the Kazakhstan industry it is offered to
create republican clusters in all industries. It is possible to estimate an indicator of synergetic effect
from introduction of the cluster organization of industrial production on nature of changes in the
field of economical and ecological leadership of republican industrial clusters with inclusion in this
indicator of data on leadership in the sphere of innovations, in the social sphere, in the sphere of
updating and in the field of market positions of association. In this regard it is offered to estimate
synergetic effect from creation of republican industrial clusters on the basis of a ball assessment of
changes which are present or, at least, have to be present at activity of cluster associations and testify
to efficiency of their functioning from the point of view of achievement of synergetic effect.
References
1. Agency of the Republic of Kazakhstan on statistics,

2013 // http://www.stat.gov.kz
2. Ermakovich V., Kozarzhevsky P., Pankuv Yu. Privatization in the Republic of Kazakhstan
the Center of social and economic researches. – Warsaw, 1996.
3. Information on implementation of drafts of the Map of industrialization //
http://www.mint.gov.kz
4. The forecast of social and economic development of the Republic of Kazakhstan for 2013
– 2017 // http://www.analitika.kz
5. Industry of the Republic of Kazakhstan and its regions. Statistical collection.
1990, 1995 – 1999. – Astana, 2011.
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Performance Evaluation of DBSCAN

With Similarity Join Algorithms
Iulia Maria RĂDULESCU 1, a, Ciprian-Octavian TRUICĂ1, b, Elena-Simona APOSTOL1, c,

Alexandru BOICEA1, d, Florin RĂDULESCU1, e, Mariana MOCANU1, f
1
Computer Science and Engineering Department, Faculty of Automatic Control and Computers,
University Politehnica of Bucharest, Bucharest, Romania
a
iulia.radulescu@cs.pub.ro, bciprian.truica@cs.pub.ro, celena.apostol@cs.pub.ro,
d
alexandru.boicea@cs.pub.ro, eflorin.radulescu@cs.pub.ro, fmariana.mocanu@cs.pub.ro
Abstract
Clustering is an important Data Mining operation that groups objects into clusters based on their similarity.
The similarity join is a primitive operation used in clustering which retrieves the most similar pairs from
two input data-sets based on a dissimilarity function (also named metric). In this article, we transform
DBSCAN’s (Density-Based Algorithm for Discovering Clusters in Large Spatial Databases with noise)
algorithmic schema by replacing the multiple range queries with a single similarity join to minimize the
hyperparameter. Thus, instead of the two hyperparameters required by the DBSCAN, our approach requires
only the neighborhood radius ε hyperparameter. We propose two implementations for DBSCAN with
similarity join: i) QuickDBSCAN that uses an adapted QuickJoin algorithm and ii) KDTreeDBSCAN that
uses k-d-tree indexing structure. The experimental results show that DBSCAN with similarity join
outperforms the classic DBSCAN.
Keywords: DBSCAN, similarity join, k-d-tree indexing, QuickJoin
Introduction
Clustering methods are used in many domains such as psychology, market research, pattern recognition,
data analysis, image processing, city planning and biology, as Gupta, E. A., Gupta, E. A., & Mishra, E. A.
(2011) mention. Based on the clustering model, clustering algorithms are grouped as: i) connectivity-based
clustering, ii) centroid-based clustering, iii) distribution-based clustering, iv) density-based clustering. In
this paper, we focus on improving density-based clustering using similarity joins. A similarity join is a
primitive used to implement range and nearest neighbor queries when applying clustering algorithms.
In this paper, we implement and evaluate the DBSCAN algorithm proposed by Ester, M., Kriegel, H. P.,
Sander, J., & Xu, X. (1996) using similarity joins. DBSCAN is a density based clustering algorithm which
performs range queries in order to determine each object’s ε - neighborhood. All the ε- pairs are determined
by using one of two similarity join approaches: i) a non-indexed similarity join algorithm that uses
Quickjoin (non-indexed similarity join implementation described in Jacox, E. H., & Samet, H. (2008))
(QuickDBSCAN) and ii) a multidimensional index similarity join that uses k-dimensional trees
(multidimensional trees defined by Bentley, J. L. (1975)) (KDTreeDBSCAN). Our approach allows us to
drop classic DBSCAN’s m parameter (the minimum number of neighbours of a point in order to be
considered a core point) and specify only the εparameter (the neighbours radius).
The rest of the paper is organized as follows. In section 2 we describe significant related work. In section
3 we present the two implementations of DBSCAN with similarity join, i.e. QuickDBSCAN that uses an
adapted QuickJoin algorithm and KDTreeDBSCAN that uses k-d-tree indexing structure. Section 4
presents the experimental results and compares the QuickDBSCAN and KDTreeDBSCAN with DBSCAN.
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In the final section, we conclude and we present several new directions and improvements for the proposed
solution.
Related work
Similarity join algorithms use either unindexed method, such as the Quickjoin algorithm, or indexed
methods (such as D-Index, proposed by Dohnal, V., Gennaro, C., Savino, P., & Zezula, P. (2003), or eD-
Index, proposed by Dohnal, V., Gennaro, C., & Zezula, P. (2003, September)). The non-indexed approaches
dynamically partition and cluster data into smaller, easier to process subsets in such a way that all similar
pairs are still captured by the algorithm, while the indexed methods use indices that can apply to any metric
space, as stated by Pearson, S. S., & Silva, Y. N. (2014, October).
Other methods propose indexed similarity join to improve the retrieval of similarity queries, e.g. using
DBSCAN with multidimensional indexes (Böhm, C., Berchtold, S., & Keim, D. A. (2001) published a
comprehensive study discussing multidimensional indexes). The approach presented by Böhm, C.,
Braunmüller, B., Breunig, M., & Kriegel, H. P. (2000, November) improves the performance of the query-
intensive DBSCAN algorithm by replacing the computational intensive single similarity queries with a
similarity join.
We transform the classic DBSCAN algorithm such that it uses the similarity join primitive: we propose an
indexed based implementation with k-d-trees and non-indexed implementation, using Quickjoin. This
results in two major improvements: i) DBSCAN’s m parameter (the minimum number of neighbours of a
point in order to be considered a core point) is dropped, leaving just one hyperparameter to tune (the
neighborhood radiusε) and ii) both our implementations outperform the original version.
Methodology
The Similarity Join Primitive
The similarity join operation computes, for two data-sets R and S, all the (r,s),r∈R,s∈S pairs for which the
similarity predicate holds. The general definition of the similarity operator, also formalized by Böhm, C.,
& Krebs, F. (2004), is:
⋈ = {< , > | ( , ), ∈ , ∈ },
where is the similarity predicate.
The most well-known form of similarity join is the distance range join, which for a finite set of vectors
= { , , . . . , } and = { , , . . . , } is defined as all the pairs from the set × having distance
at most :
⋈ = {< , > | | − | ≤ , ∈ , ∈ }
Quickjoin
QuickJoin is an unindexed similarity join method inspired by Quicksort. QuickJoin algorithm utilizes
distance range similarity joins that recursively partition the dataset into smaller subsets. These subsets are
then efficiently processed by a nested-loop join. The algorithm takes two input parameters: the distance
(number of neighborhoods) and (a constant small number - the dataset’s dimension for which it can be
processed by the nested-loop join).
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The most important part of the QuickJoin algorithm is the partitioning routine. The most used partitioning
methods used in the literature are: ball-partitioning, generalized hyperplane partitioning, and multiple
pivots partitioning (used in the external memory version of the algorithm). In this paper, we focus on ball-
partitioning.
Ball-partitioning splits the dataset relative to the distance between two randomly chosen pivots: =
(! , ! ). ! can be chosen randomly, though it can be omitted completely if is defined as the median
of the distances from the other objects to ! . We consider = "# ( ($, ! )), $ ∈ %\! , where % is
the input dataset, because this leads to improved performance, as a result of a more even partitioning.
However, ! is just an auxiliary object used to define , it is not directly used in the partitioning process.
The objects situated at most from ! are included in partition '( , while the objects situated further than
from ! are included in partition ') . Some pairs will be missed if we use only '( and ') : there may be
objects near the '( border situated at a distance smaller or equal to . Therefore, another two partitions
(called window partitions) must be created: *( and *) . *( contains all the objects situated at a distance
smaller or equal to from the objects in ') , while *) contains all the objects situated at a distance smaller
or equal to from the objects in '( . The objects in each of the '( and ') partitions are further split until only
objects remain - which are processed by the nested loop. The *( and *) are combined and recursively
split in order not to miss pairs.
In the literature, there are different approaches for constructing the ball partitioning schemes, as presented
by Hjaltason, G. R., & Samet, H. (2003), e.g. the Vantage Point tree (vp-tree), the Fixed Queries tree (fq-
tree) , etc. We choose the Vantage Point Trees ball-partitioning method, proposed by Yianilos, P. N. (1993,
January), for our implementation because this partitioning method uses a single random pivot chosen from
the dataset, and defines as the median of the distances between ! and the other objects.
Multidimensional Indexes
Multimedia databases require searches for objects in the database which are similar (or complementary) to
a given search query. Thus, similarity join queries together with clustering algorithms are intensively used
in such databases (as stated by Böhm, C., Berchtold, S., & Keim, D. A. (2001) and Ester, M., Kriegel, H.
P., Sander, J., & Xu, X. (1996, August)). Paredes, R., & Reyes, N. (2009) mentions that these queries use
similarity range join with multidimensional indices.
Multidimensional indexes enable the efficient processing of similarity queries. High-dimensional indexing
methods are based on the principle of hierarchical clustering of the data space (Böhm, C., Berchtold, S., &
Keim, D. A. (2001)). The data vectors are organized in a hierarchically structured directory made up of
data pages and directory pages. The data pages consists of multiple data nodes, which contain the data
vectors (the actual objects in the input dataset). The data nodes are organized in a hierarchically structured
directory, made up of directory nodes grouped into directory pages. Usually, the structure of the information
stored in data nodes is completely different from the structure of directory nodes (Böhm, C., Berchtold, S.,
& Keim, D. A. (2001)). The directory nodes contain (+#,, !$ - # ) entries, where the key uniquely
identifies a record. The key may be a number, for B-trees (defined by Comer, D. (1979)), or a minimum
bounding rectangle, for R-trees (defined by Guttman, A. (1984)), or separating planes, for k-d-trees
(Bentley, J. L. (1975)). Each page has an associated page region - a subset of the dataset - used to “cut”
branches during query processing (Böhm, C., Berchtold, S., & Keim, D. A. (2001)).
Bentley, J. L. (1975) states that k-d trees (multidimensional binary search tree) are optimized for storing
and retrieving information using associative searches. The space partitioning a k-d-tree produces is
complete and disjoint, such that the page regions do not overlap (Böhm, C., Berchtold, S., & Keim, D. A.
(2001)). We chose the k-d tree as indexing structure due to its flexibility - it supports k-dimensional feature
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vectors as opposed to R-trees, which were designed for polygons. Furthermore, k-d trees produce a disjoint
decomposition of the space, as opposed to R-trees. This is important as, in the case of a non-disjoint space
decomposition, if a search fails to find an object in one path starting at the root, then it is not necessarily
the case that the object will not be found in another path starting at the root (Samet, H. (2010, December)),
causing lower performance.
Algorithm
In the original DBSCAN article, Ester, M., Kriegel, H. P., Sander, J., & Xu, X. (1996, August) define
clusters as maximal sets of density-connected points given the density-reachability property. We define ε-
pairs as pairs of objects with dist (obj_1,obj_2) ≤ε and ε- chains as sets of density-connected ε- pairs.
Therefore, the maximal ε- chains form the correct clusters. We compute all the ε- pairs using either
QuickJoin (QuickDBSCAN) or k-d trees (KDTreeDBSCAN). The pairs are afterward placed into buckets
based on the common objects shared between the pairs. After all the ε- pairs have been associated to a
bucket, we merge the buckets which share the same objects into a single cluster. As discussed above, the
clustering algorithm consists of two main steps.
First, we apply an adapted QuickJoin nested-loop algorithm (Algorithm 1), as follows. For each pair, we
verify if any of the objects from this pair are within an already existing bucket. If this checks then we place
the current pair in that bucket, otherwise we create a new bucket and place the pair in it.
Secondly, we perform the find and merge step (Algorithm 2). For each object from the input dataset, we
check if it is contained in more than one bucket. The other objects in the buckets which share the same
object are density-connected through that object. In the end, all these buckets will be merged.
quickJoinAdaptedNestedLoop(part1, part2, eps, dist)

for obj1 in part1:
for obj2 in part2:
if dist(obj1, obj2) <= eps:
if obj1 already belongs to some buckets:
for bucket in buckets:
addPairToBucket(bucket, (obj1, obj2))
else:
create a new bucket
if obj2 already belongs to some buckets:
else:
create a new bucket
addPairToBuckets(bucket, (obj1, obj2))
Alg. 1: Adapted nested loop procedure for quickDBSCAN
findAndMerge(buckets, inputDataset):
for obj in inputDataset:
mergedBuckets= []
if bucketContainsObject(bucket, obj):
mergedBuckets= mergedBuckets + bucket
replace all the separate buckets which were merged into mergedBuckets
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from the buckets set with mergedBuckets
Alg. 2: Merging the buckets into .- chains
The dimension of the dataset is controlled by QuickJoin’s parameter. However, is not important for the
accuracy of the clustering result, because it only controls how many < , pairs must be processed by
the nested loop join. However, as we show in the experimental results, better performance is achieved for
small numbers. Consequently, it is preferable to replace the m parameter - which determines the accuracy
of the algorithm - with c. For the k-d tree implementation, we first have to build the k-d index: we select
the dimension with the greatest variance, determine the median value and split the initial dataset with
respect to the median value. We repeat this procedure for each dimension on each obtained partition; after
we’ve finished iterating all dimensions, we restart by selecting the dimension with the greatest variance.
Then, we generate all the - pairs in a single query to the built index. We compute the - chains by adding
each pair of objects to its corresponding bucket, creating a new bucket if none of the objects is already
contained in a bucket (as described in Algorithm 1). We finally apply the find and merge step (Algrithm 2)
to combine buckets which share objects - and therefore are density connected through those objects - into
a single cluster.
Experimental Results
We implemented the algorithm in Python and stored the - pairs in MongoDB (Truica, C. O., Boicea, A.,
& Trifan, I. (2013, August)). We evaluate the runtime of QuickDBSCAN and KDTreeDBSCAN with the
classic DBSCAN algorithm on nine bidimensional synthetic datasets generated using Sklearn library
(Pedregosa, F., Varoquaux, G., et al (2011)) datasets module. We also compared different pivot choosing
methods for QuickDBSCAN.
Performance Evaluation
We used nine synthetic datasets of different dimensions (300 points and 600 points) from three categories:
moons, blobs, and circles. The moons and circles datasets contain continuous, non-gaussian clusters, while
the blobs dataset is made up of three Gaussian clusters.
Fig. 1: (a) - Moons (300 points) clustering result for QuickDBSCAN and KDTreeDBSCAN; (b) -
Circles (300 points) clustering result for QuickDBSCAN and KDTreeDBSCAN; (c) - Blobs (300
points) clustering result for QuickDBSCAN and KDTreeDBSCAN
As we show in Fig.1 (a), Fig.1 (b), and Fig.1 (c), the clustering results obtained for our transformed
DBSCAN algorithm are correct. We demonstrate that our implementations produce the correct results by
computing four cluster evaluation measures: i) Purity (formally defined by Zhao, Y., & Karypis, G. (2001)),
which measures the extent to which a cluster contains elements from primarily one class; its values range
from 0 (incorrect clustering) to 1 (correct clustering), ii) Entropy (described and formally defined by
Wagner, S., & Wagner, D. (2007)), which measures the probability of membership to a cluster of a
randomly selected element, given that all the objects in the input dataset have the same probability of being
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chosen; it takes values between 1 (incorrect clustering) and 0 (correct clustering). iii) Random Index
(introduced by Rand, W. M. (1971)), which compares the ground truth clustering with a given clustering;
its range is [0, 1], where 0 represents an incorrect result and 1 represents a correct result, and iii) Adjusted
Rand Index (used and formally defined by Truica, C. O., Radulescu, F., & Boicea, A. (2016, September))
- a version of Rand Index which is less sensitive to the number of clusters increase, defined as the
normalized difference of the Rand Index and its expected value under the null hypothesis; this evaluation
measure also varies between 0 (incorrect clustering) and 1 (correct clustering). We obtain the following
scores for all the datasets: i) Purity: 1, ii) Entropy: 0, iii) Random Index: 1.0, iv) Adjusted Rand Index: 1.0.
The results are represented in the figures Fig. 2, Fig. 3, Fig. 4, Fig. 5 and Fig. 6. The best performance was
obtained by KDTreeDBSCAN. QuickDBSCAN also outperforms the classic version of DBSCAN for small
values. For large values more -pairs must be computed, which causes more partitioning operations on
the dataset and therefore the performance decreases as ’s value increases. However, for the optimal value
of (the value which produces the correct clustering), QuickDBSCAN outperforms the classic version of
DBSCAN, as it is shown in Fig. 7. The correct clustering for the noisy circles dataset with 300 points is
obtained for 0.25 - a value for which QuickDBSCAN is faster than the classic implementation. We
can also observe that for optimal values, the QuickDBSCAN and KDTreeDBSCAN implementations
perform similarly.
Fig. 2 : DBSCAN vs KDTreeDBSCAN vs Fig. 3: DBSCAN vs KDTreeDBSCAN vs

QuickDBSCAN - noisy circles, 300 points dataset QuickDBSCAN - noisy moons, 300 points dataset
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Fig. 4 : DBSCAN vs KDTreeDBSCAN vs Fig. 5 : DBSCAN vs KDTreeDBSCAN vs

QuickDBSCAN - blobs, 300 points dataset QuickDBSCAN - noisy circles, 600 points dataset
Fig. 6 : DBSCAN vs KDTreeDBSCAN vs Fig. 7 : DBSCAN vs KDTreeDBSCAN vs

QuickDBSCAN - noisy moons, 600 points dataset QuickDBSCAN - noisy circles, optimal .
Pivot Choosing Strategies Performance

Choosing one of the dataset’s corners as pivot leads to improved performance [14]. For larger boundaries
(larger radiuses ) the window partitions length, expressed as 23 4, 3 5 46(where 3 is the median for all
distances between the pivot and the other objects, and 4is the neighborhood threshold - equivalent to our
parameter 7), is smaller.
This leads to a more efficient pruning of the vp-tree in case of nearest neighbor queries.
We compared both approaches - random choice versus corner point selection - and obtained similar results
in terms of performance (Fig. 8). For this set of tests, we used the circles dataset with 300 points and the
optimal 0.25. Both methods perform similarly because, in our algorithm, the windows partitions do
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not greatly influence the number of objects processed by the nested loops. The parameters which do have
a high impact on the performance are and .
We can observe that QuickDBSCAN performance is inversely proportional to and , and that for optimal
values of (considering the values which produce the most accurate clustering results optimal),
QuickDBSCAN outperforms the classic version of DBSCAN.
KDTreeDBSCAN is also sensitive to value. A larger means more -pairs to process, hence, a higher
runtime. However, the value does not influence KDTreeDBSCAN as much as it influences
QuickDBSCAN, but, for optimal values, QuickDBSCAN is faster.
Fig. 8: runtimes (in seconds) for the two pivot selection approaches: choosing the pivot as the
corner of the dataset in blue and random choice in green
Conclusions
Using the similarity join primitive, we manage to improve DBSCAN performance by maintaining the correctness of
the clustering and removing the minPts parameter (used by the DBSCAN algorithm). When using either
QuickDBSCAN or KDTreeDBSCAN algorithms, it is sufficient to specify the εparameter, therefore avoiding
inaccurate clustering results due to poor choice of the minPts parameter. Furthermore, QuickDBSCAN and
KDTreeDBSCAN, perform at least twice as fast than the classic algorithm.
As future work directions, we will continue with implementing an external memory version of QuickDBSCAN and
KDTreeDBSCAN algorithms - for input datasets which are too large to fit into the main memory and, for
QuickDBSCAN, we will experiment with the other partitioning methods described in [2] (generalized hyperplane
partitioning and partitioning with multiple pivots), in order to determine which one is faster.
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Böhm, C., & Krebs, F. (2004). The k-nearest neighbour join: Turbo charging the KDD process. Knowledge and
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Böhm, C., Braunmüller, B., Breunig, M., & Kriegel, H. P. (2000, November). High performance clustering based on
the similarity join. In Proceedings of the ninth international conference on Information and knowledge
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the performance of multimedia databases. ACM Computing Surveys (CSUR), 33(3), 322-373.
Comer, D. (1979). Ubiquitous B-tree. ACM Computing Surveys (CSUR), 11(2), 121-137.
Dohnal, V., Gennaro, C., Savino, P., & Zezula, P. (2003). D-index: Distance searching index for metric data
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Dohnal, V., Gennaro, C., & Zezula, P. (2003, September). Similarity join in metric spaces using ed-index.
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Vision 2025: Education Excellence and Management of Innovations through Sustainable Economic Competitive Advantage

Digital Competence, General Data Protection

purposes (communication, creative expression, information management, personal development,

Table 1: Focus Groups’ composition

Nr. Study program Number of Language of Study year

Research and Discussion

Central Statistical Bureau Data Base [Online] [Retrieved 30.08.2019]

Digitalization in Real Estate: Case of Latvia

Keywords: Digitalization, Digital Transformation, Information Technologies (IT), Real Estate.

Digital refers to all data and analytics activities

Digital goes beyond technology alone to reflect a mindset that

Digital refers to all customer-facing technology activities

Digital is synonymous with IT

Digital refers to all technology innovation-related activities

0% 10% 20% 30% 40%

Scopus Thomson Reuters Web of Science Ebsco

• public awareness and readiness to use e-Opportunities;

The most popular topics of digital real estate presented in Table 1.

Table 1: Topics of digital real estate

Real estate platform

• view of the house and its facades;

Residential real estate market segment

Construction Introduced highly specialized Not necessary 3D printing is being

• Digitalization has a growing importance in real estate industry;

Gardner glossary. (2018), Digitalization. [Online], [Retrieved 14 September 2019),

Evolution of the Innovation Research in the

Topic ”sustainability” 130425

Importance of Sustainable Innovation in the

Keywords: innovation, sustainability, sustainable innovation, business performance

Sustainable innovation 1779

Figure 6: The evolution of the number of citations of articles on sustainable innovation

Table 2: Top 10 journals according to the number of articles published on "sustainable

Nr.crt Journal Name Article no.

The State of Fisheries and Aquaculture in Republic of Moldova.

Mihaela MUNTEANU PILA1, Silvius STANCIU2

Keywords: Fish farming, fishing potential, evolution

Short literature review

Production of aquaculture during the period 1988-2017

Fig 1. The total volume of Aquaculture production in Moldova 1988-2017

The composition of the ichthyofauna of the main ecosystems of the Republic of

Gender Inequality Among Older Adults in Russia

Keywords: older adults, inequality, ageing, Active Ageing Index.

Parameters of Gender Inequality in Russia

Indicators men women

3.8 Lifelong learning 0 0

Research on the Optimization of the Storage

Iuliana Manuela DUMITRIU (ION)

Cristina STOICA (DINCĂ)

Marius Daniel NICULA

Mihaela Daniela URSAN (DINCĂ)

Keyword: areas, yields, seeds, quantity

Materials and Methods

Results and Discussions

8 Common wheat Barley autumn Barley spring Triticale

Fig. 1: Production of grain seeds

Table 1: Evolution of the areas and cereal production in Romania

Year Wheat Barley / Two-row barley

Preparation of Seeds for Storage

• Factor A - storage conditions: