Revista Tinerilor Economiºti - Centru E-learning de Instruire al ...

Revista Tinerilor Economiºti - Centru E-learning de Instruire al ...

Revista Tinerilor Economiºti Anul IV Nr. 7, Noiembrie 2006

Selection from contents

Should more romanian companies be

listed on the stock exchange

Is Romania ready for the introducing

the pension system reform

Comparative results with the

european countries

New member seeks for opportunity to

start business in the EU –


The forming system in romanian

public administration

The SME owners’ perception on

corporate social responsibility: an

approach based on cognitive mapping

De la CSR-Corporate Social

Responsability a la RSO-

Responsabilite Sociale des

Organisations. Quelques apports a la


Causes and consequences of the

world population evolution

Foreign direct investment incentives

Economic significance of tourism in

the economic growth of Turkey












web page:

Editor in Chief

Assoc. Prof. Ph.D. Costel Ionaşcu

University of Craiova, Faculty of Economy and Business Administration, Romania

Asisst. Ph.D. student Cătălin Barbu

University of Craiova, Faculty of Economy and

Business Administration, Romania

Assoc. Prof. Ph.D.Mirela Cristea

University of Craiova, Faculty of Economy and

Business Administration, Romania

Ph.D.Lect. Laurenţiu Dragomir

University of Craiova, Faculty of Economy and

Business Administration, Romania

Ph.D. Lect Daniel Goagără

University of Craiova, Faculty of Economy and

Business Administration, Romania

Ph.D. Lect. Ramona Gruescu

University of Craiova, Faculty of Economy and

Business Administration, Romania

Prof. univ. dr. Buşe Lucian

Universitatea din Craiova, Facultatea de Economie

şi Administrarea Afacerilor

Ph.D., Assist. Prof. Goran Petrevski

SS Cyril and Methodius University, Faculty of

Economics, Skopje, Macedonia

Ph.D., Assist. Prof. Daniel Stavárek

Silesian University, School of Business

Administration, Karviná, Czech Republic

PhD. Prof. Olivier BACHELARD

Ecole Superieure de Commerce Saint Etienne

Saint Etienne, France

PhD. Prof. IGALENS Jacques

Responsable Département GRH

Université 1 Toulouse Sciences Sociales, France

Editorial Board

Academic Review Board:

Asisst. Ph.D. student Radu Ogarcă

University of Craiova, Faculty of Economy and

Business Administration, Romania

Assoc. Prof. Ph.D. Carmen Radu

University of Craiova, Faculty of Economy and

Business Administration, Romania

Assoc. Prof. Ph.D. Cristi Spulbăr

University of Craiova, Faculty of Economy and

Business Administration, Romania

Prof. Ph.D. Adriana Burlea-Şchiopoiu

University of Craiova, Faculty of Economy and

Business Administration, Romania

Ph.D. Lect. Laura Giurcă Vasilescu

University of Craiova, Faculty of Economy and

Business Administration, Romania

Paddy Gray

Director of Housing Management Programmes,

University of Ulster, Northern Ireland

Ph.D. Prof.Conway Lackman

Duquesne University, Pittsburg, SUA

Ph.D. Prof. Pedro CRUZ

Business Administration Department, Instituto

Poliécnico de Viseu, Portugal

Ph.D., Prof. Vasilescu Nicolae

University of Craiova, Faculty of Economy and

Business Administration, Romania

Ph.D., Prof.Burdescu Dumitru Dan

University of Craiova, Faculty of Automatics,

Computers and Electronics, Romania

The authors have the entire responsibility for the content of the articles

and only they will support all legal consequences generated by violation

of the copyright.

ISSN 1583-9982


The right order ...

Finally, after a long period of waiting we will be integrated

in the E.U. We received warnings and flags for the fact that

there are fields in which things do not work correctly in our

country. It is necessary a higher level of quality in the majority of

activity fields. Among these we find the educational system.

In order to realize this goal it was necessary the introduction

of a new criteria system to evaluate the activities and also the

fundamental modification of educational system. The focus has

moved to the research activity instead of the teaching activity.

All of these are the foundation for “raising from mediocrity” to a

higher level of performance and for increasing the compatibility

between the Romanian and the European educational systems. A

series of laws, measures, methodologies was adopted and adapted

through a very dynamic process.

We asked for competitivity from romanian educational

system in the international context, but as usual we forgot that

there is one essential aspect. The educational system works with

and for the people. The performance in this system is dependent

on the two main elements: human and material resources. For the

first category there was created and used a criteria for evaluating

the performance and for the second one some programs for

realizing investments have been started. All things were good

and beautiful but let see what the results are. For an easy

understanding lets take an example. Last year, the Ministry of

Education and Research had introduced and distributed in the

educational system funds bigger than in other years, accessible

through projects and designated to create the necessary

conditions for a decent education.

This is a very good thing but only if we not forget from the

beginning the real and legal possibilities to use those funds. The

funds were received in the last quarter of the year and almost in

the same time the reglementations for public acquisitions were

changed. To realize now a public acquisition now the entire

necessary activity needs almost two months, without taking into

account the supplementary time needed if something in this

process goes wrong. So, how many of these funds are possible to

use There will again appear voices which will say that the

university does not have the capacity to absorb these funds!

Let’s take another example. A new concept was introduced in


the higher educational system with the purpose to improve the

quality and to increase the teaching personnel visibility at the

international level. Again an excellent idea, which has to be

applied but which needs something more: financial resources.

Let’s make a simple estimation. The average monthly salary for a

teacher from higher educational system is now almost 450 euro as

the sources from Ministry of Education and Research affirm. We

do not take into account the fact that between the university

degree of professor and the rest of the university degrees there are

major differences regarding the salary.

The international visibility can be realized by participating to

the scientific events and by publishing the research results in the

main international scientific publications. A simple analyze

shows that an amount of 500 up to 1000 euro is necessary to

take part to one scientific event in a foreign country (50-300 fee

for participating and the rest for accommodation expenses). For

an article published in one of the main scientific publications

150-200 euro are usually needed. We do not forget the fact that

the special allocated financial resources for research do not exist

at the university or faculty level. Judging these presented facts in

the European context, we must put the following question: what

can a theacher do first with his/her financial resources Not

much, probably he/she can only survive! In this case, another

question appears: What must be done and in what order for

increasing the level of international visibility and the quality of

the educational system We must first ask for quality and then

we assure the necessary resources or vice versa

It seems to me that there are people who can and must decide

the future of the educational system but they cannot find the

right order, and thus the time is running out...

Assoc. Prof. Ph.D. Costel Ionaşcu







Ph.D. Lect. Laura Giurca Vasilescu

University of Craiova,

Faculty of Economy and Business


Craiova, Romania

Assoc. Prof. Ph.D. Ekrem Tufan

Anadolu University

Open Education Faculty

Eskisehir, Turkey






Ph.D. Lect. Drăcea Raluca

Assoc. Prof. Ph.D. Cristea Mirela

University of Craiova

Faculty of Economy and Business

Administration, Craiova, Romania



Ph.D. Lect. Mitu Narcis Eduard

University of Craiova

Faculty of Economy and Business

Administration, Craiova, Romania




Assoc. Prof. PhD. Cristea Mirela

University of Craiova

Faculty of Economy and Business


Craiova, Romania

Assist. Prof. PhD. Tufan Ekrem

Anadolu University,

Open Education Faculty

Eskisehir, Turkey




Ph.D. Lect. Laura Giurcă Vasilescu

University of Craiova

Faculty of Economy and Business


Craiova, Romania










Assoc. Prof. Ph.D. Jarmila Šebestová

Assoc. Prof. Ph.D. Marek Smysl

Silesian University Opava

School of Business Administration

Karviná, Czech Republic




Assist. Ph.D. student Moisescu

Ovidiu Ioan

Babeş-Bolyai University

Faculty of Economics and Business


Cluj Napoca, Romania




Asist. Ph.D. student Lupşa Dana

Ph.D. Lect. Constantin Sanda

Transilvania University of Braşov

Faculty of Economical Science

Braşov, Romania



Assist. Ph.D. student Bocean Claudiu

University of Craiova

Faculty of Economics and Business


Craiova, Romania




Ph.D. Lect. Gruescu Ramona

University of Craiova

Faculty of Economy and Business


Craiova, Romania



Ph.D. Lect. Buziernescu Radu

Ph.D. Lect. Nanu Roxana

Ph.D. Assist. Berceanu Oana

Faculty of Economy and Business


Craiova, Romania










Lect. Manole Cristina

Assoc. Prof. Ph.D. Colesca Sofia


Academy of Economical Studies

Faculty of Management

Bucureşti, România




Assist. Ing. Smysl Marek

Silesian University in Opava

School of Business Administration

in Karviná

Karviná, Czech Republic





Delphine Aegerter

Chair of HR and Organization

University of Fribourg







Ph.D. Luís Bento

Membre du Groupe de Paris en

Responsabilité Sociale

Vice-président de l’APG –

Associação Portuguesa dos Gestores

e Técnicos de Recursos

Past-President de l’IFTDO-

International Federation for Training

and Development Organizations

Vice-président de l’ETDF-European

Training and Development



PhD. Lect. Dragomir Laurentiu


University of Craiova

Faculty of Economics and Business


Craiova, Romania









Assoc. Prof. Ph.D. Radu Carmen

University of Craiova,

Faculty of Economy and Business


Craiova, Romania



Ph.D. Lect. Constantin Sanda

Assist. Lupsa Dana

Transilvania University of Brasov

Faculty of Economic Sciences

Braşov, Romania




Lect., PhD student Murăriţa Ilie

Ph.D. Assoc. Prof. Siminică Marian


Assist. Ph.D. student Cîrciumaru


University of Craiova

Faculty of Economics and Business


Craiova, Romania




Prep. Ph.D. student Criveanu Radu

University of Craiova

Faculty of Economy and Business


Craiova, Romania




Assoc. Prof. Ph.D. Levent Gokdemir

Assoc. Prof. Ph.D. Kamil Durdu

Inonu University

Faculty of Economics

Malatya, Turkey






Assoc. Prof. Ph.D. Sasho Kjosev

University “Ss. Cyril and Methodius”

Faculty of Economics

Skopje, Republic of Macedonia








Finances - Accounting


Ph.D. Lect. Laura Giurca Vasilescu

University of Craiova,

Faculty of Economy and Business


Craiova, Romania

Assoc. Prof. Ph.D. Ekrem Tufan

Anadolu University

Open Education Faculty,

Eskisehir, Turkey

Abstract: An increasing number of companies started to list their shares

on the Bucharest Stock Exchange, and other markets in the last time. This

has proved a very useful way for these firms to raise financing for new

investments. Making an Initial Public Offering (IPO) - the technical term for

a company listing its shares on the stock exchange - has allowed firms to

expand their business, as well as bringing indirect benefits through giving

them a higher public profile, which can be a particular boost to a

company's image if the shares perform well. Therefore, this research tries

to underline the requirements, the main advantages and disadvantages for

listing and delisting the firms.

Key words: capital market, listing, delisting, firm, stock exchange,


The Bucharest Stock Exchange is beginning to emerge from the period of

transition towards a fully developed market economy, becoming more mature and

efficient. It has moved well beyond its initial, largely symbolic status, and is starting to

play an increasingly important role in facilitating the growth of companies. It is now in

the process of becoming more of a genuine market place, which should promote

economic growth. This is consequently a very good time for both listed and non-listed

companies to review the pros and cons of their shares being traded on the stock


The answer as to whether to be listed or not will depend very much on the

individual circumstances of the company, on the professional financial advisor which

can help the companies in the decision making process, as well as with the practicalities

of listing or de-listing.

Romanian Capital Market - Key Regulations

The legal framework for securities trading was first put in place in 1994,

leading to the establishment of the Romanian National Securities Commission

(CNVM), the organization and functioning of the Bucharest Stock Exchange (BSE), the

issuance and trading of securities, as well as the regulation of brokerage activities of

intermediaries and investment advisors. As a consequence, effective securities trading

started in November 1995 on the Bucharest Stock Exchange.


Revista Tinerilor Economişti

The RASDAQ (the Romanian Association of Securities Dealers Automated

Quotation), or the Romanian OTC market, was officially established on September 27,

1996 and started trading started one month later. The market, which was modeled on

the US NASDAQ trading system, was created in order to enable trading in the shares of

over 5,000 companies that, following the Mass Privatization Program, were partially

privatized to some 16 million Romanian citizens.

Following the absorption of the Rasdaq by the BSE at the end of 2005, all the

Rasdaq-listed stocks are now traded on the BSE's Arena platform, on either the Regular

BER section (order-driven) or XMBS (negotiation-driven).

Over the past ten years, the governing law on the Romanian capital market

experienced numerous changes, which culminated in a new, consolidated capital market

law that was enacted on 29 June 2004.

The legislative framework of the Romanian Capital Markets consists of the

following Laws and Regulations:

• Capital Market Law (Law No. 297/2004);

• Company Law (Law No. 31/1990);

• CNVM instructions & regulations;

• Bucharest Stock Exchange regulations;

• Privatization laws.

The new Capital Market Law (Law No. 297/2004) aims at bringing the

Romanian capital market in line with European standards. While the new law outlines

only the general principles, additional secondary legislation was elaborated by the

regulatory body the National Securities Commission (CNVM in Romanian). CNVM is

the main regulatory body, which supervises both securities markets and it was

established in October 1994, as an independent administrative authority accountable to

the Romanian Parliament.

It is responsible for the all operations on the Romanian securities markets, the

protection of investors against unfair, abusive, and fraudulent practices, the circulation

of information regarding securities, holders and issuers, and the establishment of a legal

framework for financial services activities. In order to protect the investors' interest, the

Commission has the right to apply sanctions for the breach of the provisions of the laws

and the regulations issued for its implementation. Sanctions may range from fines to

withdrawal of authorization. Listed securities cannot be traded outside regulated

markets, which are those established under the authority and the supervision of CNVM.

There are currently two self-regulatory organizations (SRO), namely the BSE

and BMFMS (the Sibiu Futures Market) who have received their SRO status from

CNVM. The SROs have the authority to adopt their own rules regarding membership,

listing, trading, clearing, settlement, and registry activities.

Listing Requirements

Bucharest Stock Exchange

The corporate sector of the Bucharest Stock Exchange is organized into two

"qualitative" levels:

- the First Tier (with 21 stocks listed as of end of July 2006);

- the Base (Second) Tier (with 44 stocks listed), with different listing




Finances - Accounting

While it is comparably more accessible for a company to get listed on the base

tier (with the information disclosure and account auditing being the main requirements),

first tier listing is mainly sought by larger, well-established and profitable companies.

The requirements for listing and maintain on the BSE of the base tier

companies are the followings:

- securities registration with the CNVM’s Registration Office;

- free transferability of the securities;

- securities registration with the BSE, via the Registry Contact;

- share capital of minimum 2 million in RON equivalent;

- information disclosure;

- BSE fee payment.

The requirements for the first tier companies are the base tier requirements

(excepting share capital requirements), plus:

- minimum three years of activity;

- share capital of minimum 8 million Euro in ROL equivalent;

- net profit, excluding financial profit, during the last two years;

- business plan for the following two years;

- proven management performance and integrity, adequate ratio levels;

- free float no less than 15%, representing at least 75,000 shares, to be held

by the least 1,800 shareholders (excluding the company’s employees), each

with a minimum holding of ROL 100,000.

Starting with July 2001, the BSE introduced a new tier for the most transparent

listings, named PLUS Tier. The PLUS Tier is a special level, which can include both

first and second tier listed stocks, whose special requirements are the adherence to a

governance code and the publication of all information as requested by CNVM and

BSE on the company's website, both in Romanian and English. The inclusion or

exclusion of a stock from the PLUS Tier does not affect its position on the first or base

tier. Currently, there is only one company listed on this tier.

The proposed Stock Exchange Code adds a third tier to the market, which will

be dedicated to companies operating in the "new technology" sectors (such as IT&C,

biotechnology, drugs etc), replaces the "minimum share capital" requirement with

"minimum shareholders' equity" requirement for the first and second tier (which is also

reduced from EUR 2 million to EUR 1 million), and increases the first tier's required

free float to 25%, to be held by at least 2,000 investors. In addition, the bond market

will be split into three tiers, while new sections dedicated the investment companies

(such as SIFs) and Treasury papers are created.

The BSE is empowered to suspend trading in a security when the company

breaks listing requirements. The BSE also suspends a company from trading

immediately in case it announces the call for shareholder meeting that is to discuss

important issues (such as the change of the share capital, of number of shares issued or

profit appropriation), as well as during the dates of the shareholder meetings. The stock

will resume trading the following day after the publication of the announcement.

RASDAQ - Listing requirements

The companies included in the Mass Privatization Program (over 5,000

companies), concluded in 1996, were automatically listed on the Rasdaq. Since then,

the market has made efforts to filter the stocks based on qualitative criteria, which

culminated with the CNVM Regulation 2/2002, which created three "qualitative"

Revista Tinerilor Economişti

levels, namely the First Tier, the Second Tier and the Base Tier with three different

listing requirements. Currently, there are nine issuers listed on the first tier, 15 on the

second tier and some 3,200 listed on the base tier.

The First Tier requirements are the following:

• the issuer recorded profit for at least one of the last two fiscal years;

• the issuer's turnover is at least EUR 9 million;

• the issuer's total assets exceed EUR 4.5 million;

• the number of shares held by the shareholders with less than 5% of the total

number of shares exceeds 15% of the total number of shares or the average market

value of these shares is at least EUR 150,000;

• the share capital or the average market capitalization for the last two quarters

exceeds EUR 1 million;

• the company's shares were traded in at least half the total number of trading

days for the last four quarters.

For the Second Tier, the main requirements are:

• the issuer's turnover is at least EUR 2.5 million;

• the number of shares held by the shareholders with less than 5% of the total

number of shares exceeds 10% of the total number of shares or the average market

value of these shares is at least EUR 50,000;

• the share capital or the average market capitalization for the last two quarters

exceeds EUR 0.5 million;

• the company's shares were traded in at least a quarter the total number of

trading days for the last four quarters.

The requirements for listing on the Base Tier are identical with the minimum

conditions imposed by CNVM for a publicly-held company, namely:

• the issuer's shares should be publicly held;

• the issuer's shares should be dematerialized and registered;

• the issuer has an agreement with an authorized registry;

• the issuer has more than 100 shareholders;

• the issuer's share capital should be higher than EUR 100,000.

In order to maintain their shares on the First and Second Tier, the issuers are

obliged to submit to the market current, quarterly, half-yearly and yearly reports.

Suspension from trading is mainly decided when a listed company changes its

registry service provider, alters its share capital or undergoes a merging or splitting


Reasons for making an Initial Public Offering (IPO)

Recently, an increasing number of companies have taken the important step of

listing their shares on the Bucharest Stock Exchange, and other markets. This has

proved a very useful way for these firms to raise financing for new investments, with

many advantages over alternative sources of funding such as bank loans. Making an

Initial Public Offering (IPO), the technical term for a company listing its shares on the

stock exchange (also described as "going public"), has allowed firms to expand their

business, as well as bringing indirect benefits through giving them a higher public

profile, which can be a particular boost to a company's image if the shares perform


As Romania's economy continues to grow, EU accession approaches and the

activity on the Bucharest Stock Exchange increases, more and more companies are


Finances - Accounting

coming to see the advantages of making an IPO. However, the decision will depend

very much on the nature of the company. Not all firms are suitable, and there are no set

rules for those who do or do not qualify for an IPO. Generally speaking, issuers (these

are the companies which have decided to go public and issue shares) must possess

certain prerequisites. For example, long serving and competent management is a

positive consideration for investors. Also the company must be financially sound and

show earnings growth and future potential. It does help if the company is a market

leader or has a unique product or service to offer. Overall, issuers have to have a

convincing story to tell to the investor community.

The main reason for making an IPO is to raise finance for expansion of the

business. For example, companies might consider making an acquisition or purchasing

high technology production equipment.

An IPO also permits a company to become more visible and improve its

profile, as well as helping it to establish its market value. An IPO can involve not only

shares but also bonds (loans) as well as options and rights, although in Romania, IPOs

have still not developed to the same level as in Western countries.

A publicly listed company allows free trading by investors, who can buy and

sell shares, and this brings further advantages besides the initial influx of capital. It can

increase a company's ability to obtain more and possibly cheaper finance through

issuing either additional shares or bonds (loans).

Also, an IPO generates publicity for the company, because of its higher public

profile, and also establishes a market value for the undertaking, which can strengthen

confidence if the share value increases. This can bring many benefits including

attracting and retaining key employees, through increased confidence in the company

and possibilities for improved compensation packages.

Listing on the stock market also imposes certain prerequisites on the company,

requiring greater transparency and continuous compliance with the regulatory

environment. The company needs a history of long serving and competent management,

as well as to be financially sound, showing earnings growth and future potential. It is

helpful if the company is a market leader, or has a unique product to offer.

Listing on the stock market will mean that the company's business is a matter of

public record, and hence accessible to competitors. Disclosure requirements are more

arduous and the company will have to comply with stricter controls imposed by the

stock exchange regulatory authorities.

There is also a transaction cost attached to an IPO, for example for the work of

lawyers and auditors in preparing the sale of shares, although for most companies this

will be insignificant when compared to the overall benefits to be gained from the sale.

Once the company is listed, it will have to maintain its professional advisers to

ensure compliance with the securities regulatory regime, and other legal requirements.

The company's owners will have to run the risk that they might one day lose control as

well as having to deal with outside shareholders who at times may seem demanding and

who sometimes expect short term results which might go against the company's long

term interests.

After the IPO, the company's management will have to prove continuously to

investors and shareholders that it can maintain the value of their investment and grow

shareholder value, while resisting taking a short-term view geared to satisfying

shareholders' immediate needs. As with any other form of financing, there are no

guarantees that an IPO will be successful. However, these challenges will not be an


Revista Tinerilor Economişti

obstacle to the forward looking entrepreneur who embraces modern concepts of good

corporate governance, and understands the importance of securing the right professional


An important part of launching an IPO is underwriting. This is the process of

raising money by either debt or equity (in this case it is equity). Normally a company's

broker will do this, in one of two ways, either on a best efforts basis or with a firm

commitment. The difference between the two is that if the broker underwrites in a firm

commitment, he or she guarantees that a certain amount will be raised by buying the

entire offer and then reselling it to the public. In a best efforts agreement, however, the

broker sells the company's shares without guaranteeing the amount to be raised. In

Romania up to now, few brokers have underwritten an issue by guaranteeing it, since

many do not have the capital to do so. But this is likely to change in the future.

A critical issue for companies preparing an IPO is how much stock to float on

the market. They should consider how much money needs to be raised as well as the

value of the company. It will be important to bear in mind the need for liquidity of

shares, which will require a critical mass in free float, represented by the amount of

shares which are freely traded on the market. There are no benchmarks, but a minimum

of 10% seems to be an acceptable figure for most companies. It is also important to

remember that the amount must be high enough to justify the transaction cost of the


At each stage of the process, it will be very important to secure professional

advice from an outside consultant with knowledge of how to set up IPOs. In more

mature markets, investment banks normally take the lead. In Romania, brokerage firms

have been playing a crucial role for obvious reasons because they are authorized agents

to execute the IPO. Companies would be wise also to think about seeking legal counsel

as well as corporate finance and tax advice. After the IPO, there will be a need for

ongoing compliance with regulatory requirements and hence continued external

professional advice will be, necessary, for example from auditors.

The timing involved in setting up an IPO is also an important consideration. In

the preparatory stage leading up to the IPO, a company will need to plan well in

advance. It will have to think about putting in place the management team, as well as

considering the time to be spent in implementing strategies and showing an earnings

track record. Three years of audited statements will be needed. The company may need

to do some "house cleaning," such as disposing of non core assets, upgrading

information systems or resolving potential liabilities. The IPO itself should take roughly

three to six months, but deciding when to launch it can also be critical, as investors'

behavior is very unpredictable. What may be a hot IPO one day can quickly fizzle out

the next. So it is important to be alert to the market, and again an external adviser can

help with this. In more mature markets, issuers do a lot of pre-selling through for

example road-shows to investors. Although a company should not go overboard with

the marketing, it should pay attention to effective promotion of the IPO on the market.

The cost of an IPO will vary depending on the size of the issue. Apart from

legal fees, brokerage commissions and registration fees will also have to be paid. Time

spent by management on the preparation of the IPO should also be considered and

should not be underestimated. So prior to the IPO, management will need to think hard

about the company's main selling points, weighing up the pros and cons of a listing.

Preparations should be made well in advance, and a decision needs first to be made as

to whether an IPO is the right way to raise finance. The company's management will


Finances - Accounting

need to determine how much needs to be raised, keeping in mind the cost and taking

appropriate professional advice.

If the flotation of the company is to be successful, a robust audit needs to be

carried out well before listing takes place, to create the right image, giving strength and

value to going public. Coherent financial statements will need to be presented, because

investors require clear information about the company. Such statements also need to be

provided on an ongoing basis, to ensure that investors continue to be properly informed

about the company's activities, and hence retain confidence. At the same time,

management will need to be cautious, and not give too much forward financial

information for which they could be held liable.

Setting up an IPO will require teamwork involving management, lawyers,

auditors and brokers to present the company's profile in the most transparent and open

manner. Some marketing will also be necessary to make investors aware of the sale. A

secondary market will consequently develop around IPOs as more firms are listed on

the stock exchange, involving analysts, advisors, traders, brokers and public relations

specialists. Throughout the process, it will be essential for the company to secure

professional corporate finance and auditing advice to maximize the benefits of listing

and minimize the risks.

Delisting - Advantages for Some Romanian Companies

On the other hand, delisting of some companies whose shares are not being

actively traded is important both for the more effective operation of the Stock

Exchange, and to enable the firms themselves to operate more efficiently. In the early

stages of the operation of the Bucharest Stock Exchange, which opened in 1996, many

privatized former state companies were listed, and a large part of their shares were

never actively traded, since many were distributed to citizens as a populist measure by

governments as part of the sell-off. Many of these new shareholders had little idea of

what a stock market means and simply did nothing with their certificates. In addition,

governments failed to require these companies to comply with the normal transparency

requirements which should apply to a firm whose shares are traded on the Stock

Exchange. These companies should not be on the Stock Exchange, which is supposed to

be a meeting place between buyers and sellers, when there is little public interest in

trading in them.

In February 2006, the National Securities Commission introduced temporary

measures, making the process of delisting simpler, which it says were necessary to clear

the Stock Exchange of companies whose shares are not being actively traded, prior to

the definition of new rules in the next few months. The temporary arrangements allow

companies to withdraw from the Stock Exchange based on a majority vote of

shareholders at an extraordinary general meeting, which then appoints an expert to set

the shares' value before the minority shareholders are bought out. This will facilitate

delisting for many privatized industries, which are not trading effectively on the Stock

Exchange, and in which the majority shareholder usually owns around 60-70%. Under

the standard rules, defined in the Capital Market Law of 2004, majority shareholders in

such companies would first have had to make a public offer, and only after obtaining

90% of the shares could they then proceed to de-list. Since many of the smaller

shareholders are unknown, in practical terms it has been virtually impossible to de-list

these companies under the old rules.


Revista Tinerilor Economişti

Once a company has de-listed it has the advantage of no longer being subject to

the same onerous and costly reporting requirements. Just as for companies which want

to start trading on the Stock Exchange, those which de-list will need to seek expert legal

advice to ease them through the transition to their new status as a non-listed company.

An advisor will also help a newly de-listed company to maximize the advantages to be

gained from its new status, mainly resulting from simplified reporting requirements and

auditing, as well as greater commercial confidentiality.

Challenges of the Initial Public Offering (IPO)

Recently, KPMG 1 - a professional firm which provide audit, tax, and advisory

services - conducted research studies into companies' experiences in setting up IPOs

and the results are particularly useful for Romanian companies which are currently

considering listing on the Bucharest stock exchange, since they illustrate the pros and

cons of the process.

Some of the most important findings from the studies (figure 1) have been:

• Preparation and verification of the prospectus, due diligence and marketing

are the most challenging aspects of the IPO process. Respondents consistently said

these three areas were far more difficult and time-consuming than they had expected. In

general, larger companies found this process more challenging than did smaller ones.

• The IPO process is very time-consuming for key executives. At the busiest

time in the listing process, a majority of Chief Executives and Finance Directors spent

over half their time focusing on the IPO. This leaves significantly less time for them to

do their normal work and could increase the risk of the company's regular activities

being neglected.

• Around a third of smaller companies, and about half of those with market

capitalization of over EUR 150 million said that they had to do a significant amount of

work to prepare for the IPO. However, businesses backed by private equity houses

before the flotation generally needed to do much less work.

• Around 40% of companies take longer than expected to complete the IPO,

while only 4% take less time. The four main reasons for delays were: issues uncovered

during due diligence; changing market conditions; unrealistic timetables; and the

complexity of preparing the financial track record. Sometimes delays were caused by

lack of adequate systems or documentation at the start of the process, or at other times

by factors outside management's control.

In spite of the obstacles, it is nevertheless possible to make a company public

within a reasonable timeframe. The studies reveal that 70 percent of firms surveyed

spent less than three months planning and preparing for the IPO. Following the

planning stage, almost the same percentage took less than three months to complete it.

Over two-thirds, therefore, completed their IPO within six months.

The studies have revealed that the issue of resources should be dealt with at an

early point in the process, ideally at the planning stage. The amount of in-house

resources required was the most important aspect of the process that respondents would

have liked to know before starting. Management also needs to think about resources

over the longer term.

Completing an IPO is not just a six-month procedure after which the business

returns to its previous state. Public company status will make continued demands on



Finances - Accounting

senior executive time. It may be worth considering hiring new staff on a permanent

basis, particularly in areas such as investor relations, finance and business development,

or commissioning an external consultant to manage both the IPO and to assist with

some of the subsequent requirements of being a listed company.

preparation of business plan

8% 12%



preparation of financial track record





coordination of numerous advisors





improving corporate governance










due dilligence





preparation of prospectus





Source: KPMG (UK), 2005

0% 20% 40% 60% 80% 100%

difficult average easy don't know

Figure no 1. Challenges of the IPO process


As Romania enters the final stages of its journey towards EU membership, its

financial markets are operating more and more like those of a developed capitalist

country. After accession, standards of financial reporting will become stricter, with

listed companies being required to apply International Financial Reporting Standards

(IFRS). But regardless of the legal framework, the more competitive environment of the

European Single Market will make it imperative for Romanian companies to apply

stringent standards of auditing to demonstrate to the markets that buying their shares

will be a sound investment.

A well established financial services provider can help a company launch an

IPO through due diligence procedures, which ensure that all legal processes have been

complied with. It can also help with auditing services, which will not only aid

compliance with the legal requirements for an IPO, but will also act as a badge of

quality for a company, indicating a commitment to principles of transparency and

integrity. In Romania it is frequently the case that good laws exist on paper, but they are

often not applied correctly in practice. Many existing rules establish auditing standards

in compliance with international norms which are applicable to Romanian companies.

Unfortunately, what is lacking is quality checking to ensure compliance. It is very

important to consider who is checking the auditors. When choosing an outside auditor,

companies consequently need to consider what sort of internal quality controls the


Revista Tinerilor Economişti

auditor applies, for instance considering whether sufficient checks and balances exist to

prevent conflicts of interest. These mechanisms of quality controls play a very

important role in the internal procedures of a major international consultancy company,

which bases its activities on principles of corporate governance.

Once Romania approaches EU accession, the Romanian financial market is

increasingly taking on the characteristics of a developed Western economy, with much

greater emphasis on principles of transparency, integrity and high standards of

corporate governance, while the stock exchange is beginning to lose the handicaps

deriving from past inefficiencies, even though much work still needs to be done. Many

companies will consequently come to see the advantages of raising additional financing

through an Initial Public Offering.


1. Anghelache, G. Piete de capital: caracteristici, evolutii, tranzactii,

Economica Publishing House, Bucharest, 2004

2. Dragota, V,

Dragota, M.,

Stoian, A.

Evaluarea actiunilor pe piata de capital din Romania,

ASE , Publishing House, Bucharest, 2005

3. Fota, C-tin Investitii profesionale pe piata actiunilor, Sitech

Publishing House, Craiova, 2005

4. Halpern, P.,

Weston, J.,

Finante manageriale, Economica Publishing House,

Bucharest, 1998

Brigham, E.F.

5. Ionescu, G., H. Burse de marfuri si valori, Didactica si Pedagogica

Publishing House, Bucharest, 2004

6. Sichigea, N., Gestiunea financiara a intreprinderii: Aplicatii si teste

Giurca Vasilescu, grila, Universitaria, Publishing House, Craiova, 2005


7. Stancu, I. Finante, Teoria pietelor financiare, Finantele

intreprinderilor, Analiza si gestiunea financiara, .

Economica Publishing House, Bucharest, 1996


Finances - Accounting



Ph.D. Lect. Drăcea Raluca

Assoc. Prof. Ph.D. Cristea Mirela

University of Craiova

Faculty of Economy and Business


Craiova, Romania

Abstract: In the last six years, Romanian pension system was

confronted with many legislative projects regarding the implementation of

private pension. At this moment, we can say that the background for

implementation the private pension is quite established. Romania should

approach the matter of globalization taking into account the financial

oscillation, where the retirement funds system has an important role, as a

part of it. In addition, considering the high ratio between the number of

pensioners and that of active persons, respectively 4.5 million of

pensioners to 6 million of employees, the need for a process of restoration

of the pension system in Romania, at the same time with the creation of a

specific culture for the large audience, is obvious.

Key words: pension reform, structure of pension system, the public system, the

private pension, results and comparison

The existent economic situation, dominated by the integration within the

European structures, transformed the social security and aid system reform into a need.

In most of the candidate countries to the European Union, the reform of public services

of social securities and assistance creates a set of issues, which explains the relative

delay of changes within these fields.

First of all, the pension system, as well as that of public health or education,

involves dozens or hundreds of employed players on different levels, each one having

its own interests and routines, and the radical reform comes up against an opposition,

easy to understand. Secondly, people’s expectations within transitory countries,

consider the availability of social services similar from a qualitative and quantitative

point of view, to those existing in developed countries, in spite the fact that the

available means used by the existing public sector are not sufficient. Thus, we may say

that there exists a major discrepancy, but it does not reduce the level of expectation of


Pension systems pass through a period of crisis, all over the world. Many

countries, members of the European Union, undertake important costs – in general 8-

10% of the GDP, necessary only for maintaining the balance for a component of the

social security system, respectively, that of granting the necessary income after leaving

the work market. But situation is more difficult and more complex, especially for the

future. Considering the “particularities of the inherited pension system” and all the

factors affecting in an inevitable way the existing century (growing old population,

reduced active population, macroeconomic issues of the transitory countries, etc.), the


Revista Tinerilor Economişti

budget necessary for providing the retirement pays, as proportion of the GDP, is

estimated at a double value over 40 – 50 years.


Traditionally, the pension system relies on 3 pillars. The first pillar is the

public pension system which operates according to the dictum „pay-as-you-go”

(PAYG), it may be imposed according to the law or exist as a defined benefice. The

second pillar consists of the occupational provisions meant for retirement pays

(considering the work place) usually being previously constituted. Pensions are

administrated by the independent or affiliated pension funds, through group contracts of

life insurance or even through companies, gathering reserves. The third pillar consists

of individual voluntary economies, managed by insurers, mutual funds, investment

organizations or by the individual themselves. It generally represents a defined

contribution and enjoys of privileged taxes.

It is obvious that a balanced combination of these three pillars represents the

best solution and the benefiting of advantages deriving from the three systems becomes

possible, allowing thus risks distribution. Their optimum proportion depends on the

existing pension system, on the payers preferences, on the capital market considerations


The public system pay-as-you-go, as well as the first pillar, is suitable for

preventing the poverty of old persons and for achieving the distributed objectives. More

over, its merits consist of a more correct distribution of the inflation and risks generated

by catastrophes between generations.

If the income deriving from pensions are included in salaries, old persons may

be involved in the improvement of the entire society welfare. Most of the countries

have replaced the indexation of salaries with the growth of costs. The fact that the old

persons depend on the capacity and the determination of the young generation of

bearing the financial burden generated by the pension system, represents a


In addition, this system is vulnerable when dealing with the unemployment and

the process of ageing of the population. Financing usually counts on contributions to

the gross wages, thus the salary stimulations are reduced.

The main source of financing for the public pension system is represented by

the contributions, of the employees as well as of the employers. In most of the

countries, the eligibility of retirement pays requires a certain age and a minimum period

of contribution. Generally, the retirement age varies between 60 and 65 years. In

addition, the relative welfare of the pensioners compared to that of the working

population relies on the mechanism of payment indexation made by them. Almost all

the countries use costs indexation, allowing them to maintain constant real pensions.

Germany goes even further and includes the pensions in the net salary, favoring thus the

pensioners to the disadvantage of the working population. Till present, France and

Japan indexed pensions by increasing wages. In France, pensioners enjoy of the highest

level of public pensions (60% of the average wage), while the British pensioners

receive a pension of 18% of the average wage.

The second and the third are usually „pre-funded” (funds previously

constituted), encouraging thus private savings for the retirement plan. In most of the

situations, pensions financed from reserves of amassed assets are less vulnerable to the

demographic changes than those relying on the pay-as-you-go system. However, the


Finances - Accounting

inflationary shocks or catastrophes which devalue the amassed assets are dangerous for

the old persons.

Companies are tempted to provide commissions for the retirement plan in order

to draw personnel. Anyway, the regulations and taxation framework has a crucial

influence on the form and the extension of the way of involving the employees in this

occupational pension system. Companies may constitute reserves, pay conclude life

insurances in the name of their employees, deposit the money in an external retirement

fund or conclude a joint contract of life insurance.

The occupational pension system may represent a defined benefice or

contribution. The greatest difference is made by the risk distribution between the

employee and the employer.

- in the context of the defined contribution, the employee undertakes the risk of

a possible fall of the capital market, which becomes the employer’s duty when dealing

with the defined benefice. Employees enjoy of a large flexibility, because the value of

their capital may be calculated every moment. This constitutes an advantage for the

mobile employees. Contributions may be invested in any financial securities, though

most of the plans limit the investment choices in the case of bonds, shares and funds on

the monetary market, in practice. Thus, the employees undertake the risk for the entire

investment, and the pension account is by definition, completely financed from

contributions, the employer having no legal obligation, except the periodical payment

of contributions.

- in the context of the defined benefice, the employer undertakes an additional

risk concerning the unexpected growth of wages or of the inflation. The employer is

thus disadvantaged by the payments transferred outside the system and by the decline of

the retirement age. In such situation, the pension rate is pre-defined, and the

participants’ contributions are determined according to this level. The benefice formula

takes into account the working period and the wage rate (for example the employer

pays the employee for life, starting from the age of 65 years, an annual amount of 1%

from the final annual salary, for each year of work). The employer, also called „the

sponsor of the plan”, or an insurance company hired by the sponsor provides the

pension level, absorbing thus the investment risk. The obligation of the plan sponsor is

like a long term duty, for the employer.

The third pillar refers to individual saving projects. Individuals may use any

kind of saving means in order to provide resources for their retirement. The most usual

means are life insurances and money saving in a bank. In many countries, mutual funds

aim to take hold of this money, individuals being able to constitute a portfolio of

financial assets. As a rule, individuals’ saving plans are proper to the defined

contribution type. The pensioner, a part from his own savings, benefits from the

financial advantages obtained by investing them.

However, it is important to mention that, the structure of the pension system

differs considerably from one country to another due to different historical

development. In most of the industrial countries, the pillar for the creation of the

pension fund consists of an obligatory public retirement plan which is completed by a

private pension system.

At the international level, one may notice the successful use of retirement

plans based on public funds collection (e.g. Singapore), as well as on private funds (e.g.

Chile). For example, in Chile the innovator pension system, introduced since 1980,

which consisted in the replacement of public pensions with a national private system,


Revista Tinerilor Economişti

called Saving Accounts for Pensions (SAP) enjoying of a great success and contributing

to the promotion of the social and economic stability. After 15 years of operating in this

manner (the year 1995), pensions were 50%-100% higher within the new private

system than within the public system. In 1995, resources managed by private pension

funds were up to 25 milliard dollars or around 40% of GDP. Pension privatization was

one of the key reforms which determined the increasing rate of the economy from 3%

per year, to 6.5% per year as an average of the last 10 years, improving thus the

operations of the capital market, as well as the manpower.

In the EU, public pay-as-you-go pension systems represent the most important

income source for the elderly, covering some 90% of retirement income provision.

Between 1960 and 2000, total public pension expenditure rose by more than 6

percentage points to some 12% of GDP. At the same time, social security contributions

rose from around 11% of wages in the 1960s to around 19% in the 1990s. These

developments were driven to a large extent by demographic variations, labour market

developments and changes in pension system generosity (Rother, Catenaro, & Schwab,

2003, p. 3).








4.303.50 5.4 3.6








United Kingdom









7.8 12.4 6.5 4.6 2.3 5.5 2.5 9.4 0.2 5.3 15.6 31.4





% of GDP

Figure no. 1 Pension funds in the European economies – share of GDP, 2003

The growth rate of pension fund assets is expected to accelerate further over the

coming decade as both the public and private sectors intensify efforts to prepare

themselves for the rapid ageing of the population. It is also expected that pension

reform efforts will raise awareness regarding the implications of increasing life

expectancy and promote more savings. While part of the adjustment to ageing will and

should come through later retirement, higher savings is expected to help diversify risks,

especially in countries that have traditionally relied largely on “Pay As You Go”

(“PAYG”) systems for retirement income provision.



In 2001, all the candidate countries signed participation agreements to the

European Employment Strategy, and National Employment Projects were elaborated

according to the four pillars of the strategy. The impact valuation of this model remains

open as long as there is no certitude concerning the European model compatibility to





Czech Republic

Slovak Republic



Euro Area

Total G 10 (8)

Total world

Finances - Accounting

the work market institutions within the candidate States. However, it is obvious that the

European integration process of the countries in Central and Eastern Europe meets at a

certain level the internal reform process. This being possible due to the fact that not

only the European Union may influence the social policy of the candidate countries, but

also the international organizations, which successfully promote their own models. The

absence of a model characterizes the first working years of the reforming process of the

area. On one hand, the welfare model developed by the Member States varies from the

minimal (anglo-saxon) model to the universal (northern) one. On the other hand,

considering the conditions imposed for the financial assistance coming form

international organizations such as the World Bank, the liberal model promoted by the

World Bank is particularly applied in countries of the Central and Eastern Europe, this

being available for the system reform of medical assistance for the national pension

system of the area. Concerning the pensions, the strategy of the three pillars promoted

by the World Bank was implemented within the majority of the countries of the area.

Table no. 1 indicates the synthesis of the main arrangements undertaken by the States of

the Central and Eastern Europe in order to introduce the multipillar system.

As we may notice, the countries of the CEE were influenced by the World

Bank in structuring this domain, which uses the well-known multipillar system (the 1st

Pillar – public social securities, the 2nd Pillar – funds with compulsory contribution

privately administrated and the 3rd Pillar – pension funds with optional contribution

privately administrated).

At present, there are around 15 million of persons who contribute to private

pension funds within the States which became members of the European Union (EU) on

the 1st of May 2004. For these countries, (Cyprus, Czech Republic, Estonia, Hungary,

Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia) a growth of the number of

persons involved in the private pension system, generated by the EU ascension is


In Poland, the assets administrated within the 2nd Pillar have an amount of 8

bil. euro, and the investments on foreign markets are limited to 5%. In Czech Republic,

one of two active persons that contribute to a pension fund with 10 euro as monthly

average individual contribution the assets administrated reach 2,1 bil euro. In Hungary,

over 2 million of inhabitants contribute to universal private pensions, the equivalent of

one person of five, and the investments abroad are limited to 30% of the total assets.

In the countries mentioned above, insurance companies and banks are

important players on the private pension market, and the minimum requirements for a

company which managed these kinds of funds are very drastic.

The State, whose economic role is constantly reduced, offers attractive fiscal

incentives for those who invest in private pension funds. However, the concern is not

only the inference of contributions to the private pension funds from the tax base, but

also the diminution of contributions to the public social securities when imposing the

binding ness of contributions to the 2 nd Pillar.

The ascension of the 10 States to the EU involves the adoption of the new

norms and their provisions. At the same time, in these States there is the opportunity of

renouncing to the restrictions concerning the investment of capitals collected by the

pension funds, finally leading to an increase of the cross-border investments within the

CEE area, so more chances for the economic development.

Table no. 1 Pension reform within States in the Central and Eastern Europe


Revista Tinerilor Economişti












Pension systems organization and operation

(I st , II nd and III rd pillars)

1.reformed public pension system type PAYG

2.mandatory contributions to the universal pension funds and to the

occupational projects

3.contracts of individual pensions concluded with insurance

companies according to the insurance law

1. public pension system type PAYG

2.pension funds privately managed (the year 2000)

3.voluntary pension funds, privately managed ( final contributions)

or pension insurances according to the individual pension projects

1.projects of pension whose value is determined by the income

achieved during the working period

2. (public) pension funds privately managed or managed by the

State Treasury

3.private pension funds (voluntary saving)

1.public pension system organized according to social security


2.mandatory pension funds according to the Pension Funds Law

becoming effective in 2000

3.individual pensions willingly transacted with insurance


1. pension system relying on defined contributions, administrated

by ZUS (public institution)

2.compulsory pension funds based on individual accounts,

administrated by private companies

3. individual and group pensions

1. public pension system

2.voluntary additional pensions

1. public pension system type PAYG, with virtual accounts

2. pension funds based on individual accounts

3.additional pensions transacted with pension funds

1. reformed public pension system type PAYG

2. mandatory pension funds

3.additional pension projects willingly transacted with mutual

pension funds, pensions companies and insurance companies

1. public pension system type PAYG

2. compulsory pension funds constituted by employers

3. voluntary pensions according to the individual pension projects

Source: European Institute from Romania, Studies of Impact (PAIS I), Romanian System of

Social Securities and of integration to the European Union,

Regarding the situation of pension funds in Romania, one may notice that it

was satisfactory in 1990. As the other ex-socialist countries, our country entered the

transition period using a pension system type PAYG (so-called step by step system)

according to this system pensioners are paid from the present employees’ wages, and

the pension rate is related to the income level, but not directly related to the total


Finances - Accounting

contribution. The key variable of such a system is the number of pensioners reported to

the number of employees (payers).

The social solidarity principle and the binding character of the necessary

contribution do not justified the disagreement between the contribution proportion

(value and length of time) and the pension proportion. This situation is present in

Romania for several years by means of a completely unequal way of pension

calculation for those who retired before the 1 st of April 2001.

After 1990, the pension system reform in Romania became a need, thus two

kinds of arrangements were undertaken, they were meant to solve the issues. These are:

- emergency short term arrangements, which have partially solved certain

issues (adjustment of benefices using repeated indexation as an answer to their

deterioration generated by the inflation);

- a long term proposed reform which has materialized by separating the

pension funds from their administration by the State budget and central administration

(process accomplished not only in Romania, but also in Albania, Czech Republic,

Hungary, Slovakia) on one hand, and on the other hand, in achieved transformations

according to the new law of 2000: the extension of the subscription period and the

drastic conditions for the anticipated retirement.

Thus, since 2001, when the new law became effective, the financial issues of

the system were partially solved, generally using “ad hoc” solutions, without having a

long term strategy, fact which created serious inequities in the system.

The demographic evolutions together with the deficiencies of the PAYG

system contributed to the failure of the system. Discussions concerning pension reform

started in 1992, when the first White Book was published, but the first important

revision of the system was achieved, as we have already mentioned, in 2000, by

adopting the Law 19/2000 which became effective in April 2001. The Law mentioned

above reforms the pension system, which had the following composition:

- redistributive compulsory component, publicly managed (1 st pillar);

- compulsory component, based on capitalization, privately managed (2 nd

pillar), the legal framework being established according to the law no. 411 from

November 9, 2004 concerning the pension funds privately managed;

- optional component, also based on capitalization, privately managed (3 rd

pillar), the legal framework being established according to the law no. 204 from June

2006 concerning the facultative pensions.

As a result of the inefficient policies adopted after 1989, the pension system in

Romania confronted with extremely serious issues during transition:

1. the unequal calculation of the pension for persons retired in different

periods of time. The pension calculation was unequal till 2001, being different for those

retired in different periods of time and related only to the contribution of the best 5

years of work from the last 10 working years. This situation led to „huge” pensions

based on high contributions on a five year period and extremely reduced pensions due

to small wages at the end of the professional carrier or due to the retirement before the

year 1989 2 . In addition to this, different retirement periods of certain persons having the


“The most important pension in Romania is of 109 million lei, this amount exceeds 42 times the

average pension, which, at the beginning of January, was settled to 2.6 million lei. According to the last

data provided by the National Institution of Pensions and other Social Securities (NIPSS), at present, from

6.7 million of pensioners, only 1,157 receive pensions exceeding 10 million lei. Among them there are

former magistrates, managers of enterprises and bankers. At the opposite side there are 1.7 million of


Revista Tinerilor Economişti

same seniority, the same profession (so the same effort of contribution) led to

completely different pensions considered according to the retirement period (before

1998/ 1998-April 2001/ after 2001);


Figure no. 2. Net average pension of public social securities

2. postponement of the system reform and instability of the field legislation.

The new Law of the Pension Securities system and other social securities (law

no.19/2000) was voted and implemented after a long period of time, the need for such a

law was felt at the beginning of ‘90s. Moreover, it was immediately amended various

times, rendering it hard to understand (apply);























pensionari de asigurari sociale (fara agricultori)

pensionari de asigurari sociale- agricultori

beneficiari de ajutor social (de tip pensie)

pensionari IOVR

Source: processing of data obtained from CNS

Figure no. 2 Evolution of the number of pensioners by categories (thousands of


3. decrease of the number of payers from 8 million in 1990 to around 4.5

million at present, causing an important crisis regarding the pension funds financing.

Within certain sectors there is a reduced number of payers who contributes to the

pension system (in agriculture, for example, there are around 2 million of active

persons, from which only 50-60 thousand contribute to the social security system);

farmers, who monthly receive pensions varying from 200.000 to 800.000 lei. The most insignificant

pension in the country is of 400 lei, the unfortunate beneficiary is Gheorghe Homoc (67 years), from

Cladova, Timişoara city. The fortunate owner of a 109 million pension, the equivalent of 2,660 euro, is a

former manager of a foreign trade company.” Source: Gardianul (The Guardian), February 2, 2004


Finances - Accounting

4. alarming increase of the number of pensioners (from 3.5 million in 1990 to

6.19 million in December 2005).

The increase of the number of pensioners was achieved by including within the

general pension system of the agriculture pensioners (around 1.7 million, a reduced

number then 1.512 million in December 2005), according to numberless anticipated

retirements approved by the government during the last 16 year, by the artificial

increase of the number of pensioners due to disabilities, a great number of cases being

suspicious, by fraudulent means, remaining undetected and thus available due to the

lack of control and sanctions within the pension system. At present, 805,000 persons

(13% of the total number of pensioners) are retired due to the disability.


























pensionari pentru limita de varsta pensionari cu pensie anticipata pensie de invaliditate


Figure no. 3. Categories of pensioners (except retirements in agriculture)

Simultaneously, the important share of persons retired due to the 2nd degree

disability (73%), less important than that of 3rd degree retirement disability,

respectively 1st degree, is surprising. On this way, anticipated retirement and disability

retirements lead to a real average age of retirement of astound 52-53 during the period


5. reduced collecting rate (non-payment of the contribution by certain

employers, especially in the public sector). Per total, the average pension rate was

reduced to a relative value due to the non-payment of the contribution by big public

enterprises and by those who work on the black market. The collecting rate inside the

pension system is much reduced (in 2001 it was only 77%), fact that seriously affects

the possibilities of indexing the pensions. The fact that there is an important

contribution rate belonging to the employer and a small contribution rate belonging to

the employee (though within the EU countries there is an inverse ratio) maintain the

possibility of non-payment contribution in the case of public enterprises and renders

the sanctioning of individuals difficult;

6. lack of entering the real incomes. Another major issue which affects the

inputs within the pension system is that of undeclared salaries. Although it is difficult

to prove using figures, the great number of insured persons having as declared salary

the minimum salary by economy in spite considerable „non-salarial” incomes, implies

reduced contributions;

7. reduced rate of insuring the active population by means of pensions. At

present, less than half of the active population is insured (below 5 million from a total

of 10.5 million), fact which generates long term issues. Only the insured persons will

receive pensions on 25-35 years, the persons who work on the side or do not work at all


Revista Tinerilor Economişti

(who are significant as number), who, thus, do not belong to the State Insurance system

will burden the social security system when reaching the retirement age (requiring the

minimum insured income or other forms of social aid from the public budget).

8. postponement of introducing solutions complementary to the parametric

ones (introduction of the 2nd and 3rd pillar – pensions privately administrated).

In conclusion, the socio-demographic and economic issues which characterizes

the last period (the ageing of the population, the diminution of the active population,

macroeconomic issues encountered by countries in transition, etc.) will amplify in the

next decades and will transform the issue of the social protection of old persons and,

particularly, that of achieving a more efficient management of pension systems in a

fundamental challenge for the developed countries as well as those in transition.

For Romania, this problem is aggravated by the alarming delay of the reform,

by wrong decisions, the lack of a coherent vision and coherent strategies in the field. In

this context, in addition to the major issues of all ex-communist countries which

registered an economic decline and a decrease of the number of wage-earners (those

who support the pension system by contributing to it) Romania also confronts with an

incomplete pension system which continues to be related to the 1st pillar, the

occupational and voluntary components privately administrated being still in the

incipient stage and needing time to achieve its implementation and to obtain results.

At the same time, one should not ignore the fact that, due to the increased

number of old persons, a new balance of the report between the resources necessary for

pensions and other social securities and the costs is required, in order to provide the

practicability necessary for the operation of the multipillar system which is expected in

Romania in the near future.


1. Rother, P. C.,

Catenaro, M.,

& Schwab, G.

Ageing and Pensions in the Euro Area Survey and

Projection Results. Paper presented at the 2003

Conference on Ageing and Welfare Systems: What Have

we Learned A Comparative EU-US Perspective, Centre

D’Edutes Prospectives et D’Informations Internationales,

Retrieved January 24-25, 2003

2. * * * European Institute of Romania, Romanian System of

Social Securities and of integration to the European

Union, Studies of Impact (PAIS I)

3. * * * European Institute from Romania, Studies of Impact

(PAIS I), Financial Management Solutions and Options

for Providing the Real Growth of the Pension Rate in


4. * * * Global Pension Statistics project and Insurance Statistics

database, (2005). Pension Markets in Focus. Retrieved

June, 2005, from OECD database.

5. * * * Law no. 19/17.03.2000 concerning the pension public

system and other rights to social securities

6. * * * Law 204/2006 regarding facultative pensions art. 87,

Official Monitor , Part 1 no. 470 from 31/05/2006


Finances - Accounting


Ph.D. Lect. Mitu Narcis Eduard

University of Craiova

Faculty of Economy and Business


Craiova, Romania

Abstract: Insurance is the greatest fortification which our species has

formulated. Since its emergence, insurance has captured every aspect of

human life to health disorders, from multi-million dollar projects to building

properties, from houses to household articles, from computer systems to

automobiles to jewelry; the list is infinite… . Notwithstanding, insurance

selling is easier said than done. In the face of all merits, the insurance

agents find it increasingly difficult to put it on the market. This is where the

need for an aggressive marketing approach comes into play. There are

different procedures; one palpable formula is “Direct Marketing”. Few

years ago, there was the rush to telemarketing, and then came the rush to

the Internet. Now marketers realize that all of these – telephone, mail,

Internet, e-mail – the so-called “new media”, are simply alternative

channels that enable direct contact with a customer.

Key words: insurance, direct marketing, e-mail marketing, database, insurers

Direct marketing is increasing in importance in business in general, and in the

insurance business in particular. Direct marketing is gaining share in the insurance

business worldwide, with spectacular success in some areas such as auto insurance.

Database marketing techniques are increasing in sophistication, driven in part by

increases in available computer power. Other financial services companies such as

banks use these techniques well, and will bring them to the insurance markets, forcing

insurers to adopt them to keep pace.

Direct marketers use very sophisticated analytic techniques, developed over

many years of marketing a wide variety of products. Insurance is a unique product for

these techniques in many respects.

One very important respect is in that the cost of goods sold is a function of who

buys the product. For other products, direct marketing techniques are used to manage

the volume of sales and the cost of selling, with the cost of the products sold taken as a

fixed assumption in the analysis.

Direct marketing is the most accountable marketing disciplines, and forms a

key factor in increasing sales and identifying the target audiences or markets. Critical

combinations of offer, targeting and message are essential to the success of any

insurance direct program. Direct marketing can be made more personalized than any

other form of marketing. With campaigns reaching into people’s homes and dealing

with consumers on a one-on-one basis, the basic needs of the arrival of the internet into

millions of homes worldwide. The internet has given direct marketing yet an alternative

method to pursue target audience.


Revista Tinerilor Economişti

Selective reach, segmentation capabilities, frequency, flexibility, timing,

personalization, cost efficiencies, ability to measure effectiveness are some of the

advantages of direct marketing. From the life insurance agent’s standpoint, there is a

need for a systematic exercise that would help them fetch more progressive customers.

For the insurance agents, its time now for a hard-line marketing scheme and ensue upon


There is no short cut to success; instead, success occurs when opportunity

meets preparation. In today’s world, where there is burgeoning competition, the need of

the hour is to come to a decision and proceed accordingly.

Proposed below are several courses of action that would educate insurance

negotiators for enhanced clientele-base.

I. Knowing the basics

Today, the insurance agents are experiencing some of the most turbulent times

in history. The stock market is on a roller-coaster ride. The Internet has created a whole

new economy, and this is just the beginning. In a competitive industry such as

Insurance, there is little time for hand holding, business babysitting and prodding.

Unfortunately, working hard is not enough to guarantee success.

Agents must take initiative, recognize opportunities and be self-motivated to

make it happen. Being able to recognize and capitalize on opportunities is usually the

result of preparation and planning. There is no substitute for preparation. The prevalent

economic guidelines motivate individuals to understand important economic behavior.

An insurance agent should also practice this.

A pattern seems to be emerging that speak of successful agents – those

positioned to be around for the long term. The characteristics that describe this agent

group are similar to the characteristics of other professionals (lenders, brokers, etc.).

This group of agents should be self motivated, have an appreciation for and understand

economic principles, approach their professions as part of a larger team, know the value

of education and outreach and are involved in professional development, understand the

role service plays in selecting professional assistance, are persons of high integrity with

strong a work ethic and are effective in communicating and relating with others.

Although, it seems easy, yet many people fail to be consistent in their

marketing efforts. An agent shouldn’t do just one mailing, run just one ad, do just one

joint venture and expect blockbuster results. Marketing doesn’t work like that. An agent

should create a marketing plan and a marketing budget for the year, and stick to it. For

example, maybe plan calls for mailing 200 postcards a week, developing and

maintaining an internet website, running 2 small ads a week in local newspapers, and

setting up one new joint venture per month. If that’s want is intended, the agent will

create momentum, and sales and profits will start to roll in.

II. E-mail marketing

Business today is turning to the Internet. E-mail marketing, part of direct

marketing, is probably the most important marketing strategy an insurance agent could

implement. Thousands of consumers are signing up daily and it has been studied that

consumers are getting comfortable with email. Marketers are excited about the unique

intersection of urgency and free delivery, which was never approached by any ripe for

insurance agents to nurture existing clients and recruit new customers. It seems this

highway will be crowded soon.


Finances - Accounting

However, e-mail marketing offers immediate results, requires much less effort,

and could be the single most powerful traffic generator for websites. Therefore, it is

strongly recommended that e-mail strategy should be executed at once. Agents should

capture the e-mail addresses and examine all points of customer contact immediately.

An “e-mail capture” component must be added to each customer. Then, by mail and

phone, the existing customers should be contacted requesting their e-mail addresses.

Agents should make sure of automation system that includes a required line in the

database for e-mail addresses 3 .

Spamming should be avoided at the outset. There are certain e-mail etiquettes

and rules that must be observed strictly. Care and feeding are the operative words for

the e-mail messages. E-mail is the place to add to the relationship bank by providing

short, but important value-added messages. Even though e-mail is a softer sell, all the

principles of high impact marketing apply here.

Following bits suggest abundance success in drafting a sales letter in this line of

direct marketing, i.e. e-mail marketing:

- “Subject line” should be a compelling headline;

- The tone should be conversational, as if written to a friend;

- Bullet points must be used to call attention to important points;

- It is important to add value to the people who the e-mail is aimed at;

- Inserting some legitimate urgency would drag attention;

- The insures must be given a compelling reason to contact the insurance


- Last but certainly not the least, the agent must sign off with his/her name,

and add a “P.S” (if required).

III. Database marketing approach

Marketing database tools have increased in size and power over the years.

Successful direct marketers continually enrich their databases. Knowledge about

customers and their buying behavior is a key competitive advantage. Marketing

databases are constantly enriched through external data sources, through customer

feedback and surveys, and through customer interaction with the call centre.

Sophisticated mathematical tools are used to analyze this data, to spot buying

behavior patterns that can help manage the marketing process more effectively. These

tools are often based on linear regression models, enhanced by special techniques.

Direct marketing applies sophisticated mathematical techniques to large data sets, to

manage the marketing process to maximize response rates or revenue generated. Much

of this approach is valid for insurance as well, but the objective function, the item being

maximized, should change.

Agents need to sort out those potential customers by using statistical tools and

studying the behavioral trends that would help them go and get more potential

customers. This will bring about success for the insurance agents.

IV. Commitment to education

It is crucial that agents thoroughly understand all of the products they make

available to potential insurers. It requires a strong commitment to education and


For instance, ZIPDRIP is an automatic e-mail marketing system designed for

insurance agents.


Revista Tinerilor Economişti

lifelong learning to stay current, and to be able to understand all aspects of insurance

well enough to provide the quality of service insurers need and deserve.

Learning helps agents to be innovative, inventive and thought provocative. In

today’s world, insurance agents are supposed to be more like financial planners, less

product pushers. For example, a life insurance agent should educate insurers about the

hidden benefits (such as tax exemption) of the policy rather than selling it as a mere


Few vocations require more vigilance in personal study and effort to stay

current. A commitment to education and life-long learning goes hand in hand with

strong communication skills. The basic assumption of strong communication skills is

that agents have an important message to communicate and are skilled at doing so. Thus

education includes not only understanding types of insurance, economics and

marketing; but also teaching, training, education and sales skills.


In the future, direct marketing and the emerging technology of database

marketing are expected to increase in popularity. The logical techniques will become

more refined, computer power will continue to decrease in cost, customer databases

will become richer and consumers continue to become accustomed to purchasing

insurance policies. Insurance agents using these approaches will gain share in all types

of insurance. Banks and other financial services industries are entering the insurance

industry, agent-based insurers will need to adopt them, to help improve agent

productivity and reduce marketing costs. These new techniques will change the

operations of insurers, with integration of marketing and pricing. This integration offers

expanded opportunities for actuaries, as the pricing actuary is drawn into the marketing

team, helping to manage that process on a day-to-day basis.


1. Constantinescu, Marketing în asigurări, Editura Bren, Bucureşti, 1998


Dobrin, M.

2. Cristea, M. Asigurări internaţionale, Editura Reprograf, Craiova, 2003

3. Politis, A. Managementul agenţiei de asigurări, Editura All Beck,

Bucureşti, 2001


Finances - Accounting


Assoc. Prof. PhD. Cristea Mirela

University of Craiova

Faculty of Economy and Business


Craiova, Romania

Assist. Prof. PhD. Tufan Ekrem

Anadolu University,

Open Education Faculty,

Eskisehir, Turkey

Abstract: Our paper focuses on consumer’s behavior of banking market

and underlines the conclusions that were taken by many studies on this

area. In order to understand the buying decision of the clients, we present

the behavioral factors and the theories of consumers’ behavior. The

conclusion of studies made at different banks indicates that there are

similar aspects that banks take into account when selecting factors for

analysis; still, there are differences between factors in the research. This

diversity may result from management practices different from one bank to

another, different bank locations, client group, income, age, family

members, job, available liquidities, different approaches of main aspects

taken into account and other factors as well. These studies will be useful in

carrying on the research on the particular banking market like Romanian

and Turkish markets.

Keywords: client-bank relationship, customers` preference, behavioral studies,

changes across the generations, decision-making

1. Introduction

On the banking market, fulfilling the needs of banking product and service

consumers is of paramount importance. Therefore, irrespective of tendencies on bank

marketing, such as: segmentation of the banking product and service market, policy of

new products and instruments circulation, advertising policy, the bank is interested in

clients` behavior which is the fundamental factor in organizing the overall banking


2. Factors which influence the consumer’s behavior

Consumers` behavior is influenced by economic factors as well as behavioral

factors that are characteristic to each individual or each group.

Among economic factors we may mention: the real income available for

buying the product or service; the product or service` price; personal understanding on

quality/price ratio; relative price of similar products; relative price of complementary

products whose buying depends on buying the main product.

We should not neglect the analysis of behavioral factors that determine the

demand of products and services on a market. The person who carries out a market


Revista Tinerilor Economişti

survey must be fully aware of the reason for which people need or want certain

products so as to be able to classify consumers depending on the grounds that make

them buy, project and throw on the market goods that would satisfy consumers` needs

and necessities, carry out advertising campaigns suitable for various market sectors.

Behavioral factors determining the market demand are: personal justification,

personality, culture, life style, social class, group affiliation, family cycle.

Specialists who tend towards studying the client’s behavior have distinguished

several behavioral aspects:

a) thus, according the well-knowing A. H. Maslow`s theory, necessities and

desires are classified so as the ones at a superior level should influence the buying

attitude only after there were satisfied the needs placed at inferior levels, as we may see

in figure no 1:

Self- achievement necessities

Independence necessity

Esthetic necessities

The need of knowledge

Self-respect necessity

Social necessities

Physiological necessities

Figure no. 1 Classification of necessities drawn up by Maslow

Consumers’ behavior is determined by a series of necessities at various levels.

An individual’s fundamental motivations are triggered by the need to feed, rest, have a

home, be safe and not be alone. Therefore, people buy food and drink, pay their rent or

buy a house, sign insurances, go out with friends in pubs, do shopping, go to church, to

professional institutions.

Once these necessities are satisfied, the theory says that personal justification

will be determined by: the desire to gain the other people’s respect, for instance by

owning particular goods, by charity deeds, the desire to live in a healthy environment,

away from pollution and crowd, with considerable consequences on the other activities

that affect the environment, the desire of independence and self-achievement. For

instance, owning a place to live in offers much more freedom of action by eliminating

the dependence triggered by the existence of an owner. Self-achievement may be

obtained by using several methods, it may be the result of owning a bank account,

professional fulfilling, carrying out a pleasant activity depending on each person’s life


b) The theory of one’s own image presents the consumer’s behavior as being

determined by his urgent need of physiological necessities, safety and social necessities.

This theory highlights the paramount importance of emotional and psychological

necessities triggered by the concept of one’s own image. Thus, goods and services can

be bought because they satisfy these special needs. For instance, many products are

advertised using the line: ‘Its use will spot you in the crowd’ and consumers think that,


Finances - Accounting

by making use of this kind of products or services, they will distinguish them from

other people offering them a distinct status.

Therefore, buying behavior is seen, according to this theory, as a means of

creating and supporting one’s own image. The components of one’s own image are

presented in figure no 2.







Figure no. 2. The components of one’s own image

Personality represents the wholesome of features defining a person, making

him/her different from other people. The features creating an individual’s personality

originate from two sources. Thus, some of them are hereditary (according to Freud and

Jung`s theory), others are the result of social conditions and life experience (according

to Adler`s theory). Defining the personality is a prolonged process that continues to old

ages. The person carrying out the survey should take into account the multitude of

existing personalities because products and services must respond to widely accepted

behavioral types and to widely accepted tolerance levels.

Culture plays an important role in determining the buying behavior because it

influences behavioral standards or norms. For instance, the consumption of a certain

meat type (pork) is highly reduced in Islamic countries as it is prohibited by religion.

Culture may be defined as a distinct behavioral model originated from certain beliefs

and customs. It brings together experience, customs, beliefs, strives and ambitions of a

community. Every individual is socialized in a certain culture, that is, he is integrated in

that community’s norms. A social person’s behavior towards the buying process is

influenced by the socialization process. Accepting a new product or service may depend

partly on the cultural implications of behavioral changes. For instance, buying and

saving are considered two of the supreme values of Western culture. These cultures

have experienced major changes so as, for instance, the use of credits is now a general

characteristic of the attitude of buying.

Synthetically, the decision of buying is presented in image no 3:




Intention of



Other people’s




Decision of


Figure no. 3. The model of buying decision


Revista Tinerilor Economişti

In order to take a certain decision of buying, a consumer evaluates, firstly, his

options (for instance, the possibility to turn liquidities into treasury bills or to create

bank deposits), then, he expresses his intention to buy (he tends, for instance, to create a

bank deposit as he has the possibility to make use of that amount of money at any

moment). There are also two variables that may influence the buying decision, that is,

the other people’s attitude (most of the people prefer treasury bills because there is

offered a more advantageous interest) as well as the attitude towards the risk (there is

the risk for a bank to be short of liquidities and thus, not be able to meet the demands of

withdrawing available funds or the risk for the government to postpone returning its

debt at maturity date through issued treasury bills). The impact of these variables would

be eventually felt on the buying decision (the client chooses opening a bank deposit at a

powerful bank that is insured in case of that bank’s lack of liquidities).

3. Studies and research on the banking consumer’s behavior

In order to have a better bank-client communication, the client, as well as the

bank must obey a series of rules that consist or not of norms or instructions. Over the

time, these rules have represented a code of conduct and there is the result of bank


Ever since 1941, the professor Ştefan Dumitrescu has suggested a set of

advice 4 for bank clients concerning their behavior in the relationship with the bank; we

mention only few of them: properly choose one’s banker, trust him so as he would trust

you, never forget that he is to account for in front of shareholders, deposit holders and

do not be surprised when you are asked to offer information and guarantees before

obtaining loans; the loan that he grants you represents other people’s money and not his

own; do not go to a bank to make a loan if you intend to entrust your actual bank

operations to a competing bank; the bank is not a philanthropic institution and it will

eventually ask you to return the loan; consider the time when you ask for the loan, when

and how you will pay it off; take into account your banker’s opinion before closing a

deal that you think is good, he may spare you, by his advice, of a litigation or loss.

The advice may continue and they are still good nowadays. Still, because of the

process of bank diversity, there appeared a multiplication and a gradation of these rules.

In their way of understanding the bank, people seem to be the defenders of popular

sayings such as: The banker lends a loan only to the rich by using the poor`s money or

The banker is the man who lends you his umbrella when the sun shines and asks it back

when it is raining. The bank might be characterized by: power, proximity, modernism;

the clients might reproach the bank with it being too centralized, too aggressive and

dominant, almost dehumanizing.

As a dynamic element of the bank-client relationship, the client’s attitude in

their relation is likely to be influenced and even built. Every bank clerk must be asked

to be able to induce an attitude, a mutually profitable and pleasant relation in the group

of possible or real clients.

As for the client’s attitude towards the bank, it is highly influenced by the

technique, modernism offered by the bank system. If, not long time ago, when we

would enter a bank, we would find a cold and mysterious world, nowadays, the

hospitable atmosphere and new technical equipment are attractive for the client in his

relation with the bank. The new electronic bank system is more than a technological

4 Ştefan I. Dumitrescu, Manual of credit and bank, Bucharest, 1941, p 38.


Finances - Accounting

revolution because it is thought to be provocative of a psychological revolution that

may be encountered at the level of the consume behavior and the economic agent’s

behavior. The new techniques used as pay off means change the communication climate

between the bank and the client.

Ever since the beginning of the interest in the bank marketing in the sixties,

banks have been interested in analyzing their behavior aiming at improving the bank’s


Thus, a first study was carried out by Leonard L. Berry in 1968 stating that

the bank’s image is based on 12 factors 5 . The conclusions of this study were taken as a

result of interviewing the clients of a certain bank.

The main factors that the bank should take into account to improve its image,

according to Leonard L. Berry, depending on their importance level are: advantages

related to bank location (1); other advantages, such as the ones related to parking,

clients business hours (2); advertising (3); bank atmosphere (4); the cost of offered

services (5); the interest paid for term deposits (6); the quality of offered services (7);

the structure of offered services (8); the training, attitude and availability of the front

office staff (9); credit service (10); advertising (11); bank’s reputation(12).

Later, in 1976, this study was revised by Thomas Anderson, Eli Cox and David

Fulcher, who proved how difficult it is for the marketing staff of a banking institution to

identify all the aspects in the research. Thus, they developed Berry’s list and improved

it by setting out 15 criteria that the clients should take into account in selecting a bank.

We may find this study in the specialty literature under the name of Anderson-

Cox-Fulcher 6 list. According to the importance level, the bank selection criteria

presented in Anderson-Cox-Fulcher list are: friends recommendation (1); bank’s

reputation (2); facility in granting credits (3); personnel’s kindness (4); charges for

current account operations (5); interest of offered credits (6); location (7); the

possibility of operating debit balances for current accounts (8); offering a wide range of

services (9); parking (10); clients business hours (11); interest offered for savings

deposits (12); special services for the youth (13); special services for women (14);

awards or presents offered on opening new accounts (15).

After almost a decade, every factor’s importance changes compared to the 60`s

when factors related to bank’s location, parking and clients business hours were

decisive in defining the bank’s image. For the following decade, the most important

factors in selecting a bank were thought to be: friends’ recommendation, the field of

activity of banking services, the bank personnel’s kindness and proper attendance.

For the following decade, studies on this issue were improved by Richard

Sielaff (carried out during the period 1983-1984), who made up a top of the factors

determining a bank’s image, achieved through the analysis of 4 banks. Thus, we may

notice the importance of some factors such as: personnel’s kindness, pay desk services,

in rapid efficient current accounts, clients’ business hours.

A study made in France in the 80`s on criteria that dictate choosing a bank

points out several criteria: physical as well as psychological approach (proximity), the

modernism of a bank with telematics services, a bank dynamism concerning the clients`

5 Berry Leonard, Banking, Marketing and The Image Concept, Arizona Business Bulletin,

November, 1968, p. 239-244


Anderson Thomas, Cox Eli, Fulcher David, Bank Selection Decision and Market

Segmentation, Journal of Marketing, Volume 40, January, 1976, p. 40-50


Revista Tinerilor Economişti

needs, information clearly presenting products and services, dialogue, communication,

an institution that would be more of a partner than a necessity.

However, irrespective of used countries and methods, the main priorities in

choosing a bank would be: proximity, sympathy towards the banks reception method,

the desire to obtain a loan in advantageous conditions, in a quick manner and without

formalities, the possibility of withdrawal anytime, bank recommendation by the family

or close friends.

Taking into account these aspects, banks integrated new factors that must be

carefully studied in their relation with clients such as: professionalism and competence

of the bank employees, the bank’s innovation and modernism, offering periodical

reports that would insure the transparence of the banking activity, Saturday included in

business hours with clients.

A study made in the year 2006 by Forrester Research from USA on the

consumer behavior explains the changes across the generations. To understand the

gender differences, they examined survey responses from males and females across five

different generations: Gen Yers, Gen Xers, Younger Boomers, Older Boomers, and

Seniors 7 . Their analysis uncovered the following:

• Males grow increasingly more affluent as they age. For each

generation, a higher percentage of males than females have at least $100,000 of

investable assets. The gap expands with age to the point where the percentage of

wealthy male Seniors is more than twice as high as the percentage of wealthy female


• Females worry more about retirement. Across all generations, more

females than males say that they are concerned about having enough money to retire.

• Older males and females prefer the human touch. For both males and

females, the percentage of consumers who are more comfortable dealing with people

when they shop or bank increases with age.

• Females look more at price than brand. More females than males

across all generations agreed with the following: "Price is more important to me than

brand names."

• Males are more willing to buy on credit. More males than females in

every generation say that they will buy something they want on credit.

• Females rely more on recommendations. Younger generations of

consumers - Gen Yers and Gen Xers - are the most likely to rely on recommendations

from friends and family. Within every generation, females are more reliant on input

from friends and family than males are.

The conclusion of studies made at different banks indicates that there are

similar aspects that banks take into account when selecting factors for analysis; still,

7 Generation Y – Gen Yers - is generally considered to be the last generation of people,

currently (as of 2006) includes those in their 20s, teenagers and children over the age of 6.

Generation X – Gen Xers - includes individuals born between 1965 and 1973 (current age is

33–41), considered as "twentysomething" in the years 1987 to 1991. Younger Boomers are

those born between 1954 and 1964 (current age is 42–52). Older Boomers include individuals

born between 1946 and 1953 (current age is 43–60). Pre-retirees or Seniors are those

individuals born in 1945 and earlier - current age is 61 or older. The terms are used in

demography, the social sciences, and marketing.



Finances - Accounting

there are differences between factors in the research. This diversity may result from

management practices different from one bank to another, different bank locations,

client group, income, age, family members, job, available liquidities, different

approaches of main aspects taken into account and other factors as well.

Moreover, the behavior of banking products and services consumers

depends also on the forms that the currency takes, which, in other period of time,

represented the most beautiful thing that people owned.

Doubloons or golden ducats resembled objects of art. Metallic coin, then, in a

lower level, fiduciary coin, implies a physical, material relation. Scriptural coin,

especially the one that imitates circle, triggers a greater detachment and a start of power

over money. Together with passing over to the cartel-coin, to the technical character of

used instruments, its holder will become more valuable by increasing his fame and the

power over money will rise too. The more dematerialized forms of money increase the

psychic size on the perception of money in the disadvantage of their physical, material


The client’s attitude towards banking products and services is also

influenced by their flexibility depending on clients` needs. If we are to analyze a

famous service, for instance, inflows and pay offs in cash in and from the economic

agents` accounts, it has greatly changed: cash deposit in sealed bags, depositing

payment papers during prolonged work hours in the afternoon and on Saturday.

These diversifications of inflow and cash pay offs service were determined by

an increase of cash volume on the market, by the necessity of bank’s attraction towards

cash. Together with the perfecting intra and inter-banking electronic discounts,

introducing credit and debit cards, modification of the current salary payment by

transferring money into the employees` accounts open at the bank, the preference for

this service will reduce, the clients having the possibility to choose a quicker and

handier service.

4. Conclusions

We may say that clients` preference for banking products and services is

decisively determined by the fluctuation of conjunctural conditions, comfort, rapidity,

security and accessibility to a banking product or service.

The technology contributes to improving existing banking products and

services, the increase number of clients proving that people can afford to pay for

superior products or services.

Based on information technology, we would like to create an online integrated,

client-oriented banking system based on the most modern informatics technology that

would allow, besides efficient management of the main banking processes, allowing

some new products aimed at clients, including the ones from the electronic bank

category which would lead to consolidating the clients’ base of the bank.

The client’s attitude towards the bank represents his own way of reacting to

banking products and services offer and the process of acquiring an attitude is strongly

related to justifications and personality in satisfying his needs.

To sum up, the client’s attitude in his relation with the bank is based on some


• is based on the client’s conception about the quality of the bank

services, about financial security, social fame;

• it can be modeled by marketing people;

Revista Tinerilor Economişti

• the client’s attitude is shaped starting with a total of contextual factors

such as: culture, family relationships, self image compared to dreams,

ideal ego, personal experience in the relation with the bank,

information obtained through media or rumors, ideas about the bank of

the persons whom the client considers to be opinion leaders.

Consequently, the client’s attitude towards the bank represents his personal way

of reacting to banking services and products offer and the process of acquiring an

attitude is strongly related to justifications and personality in satisfying his needs.

The conclusion that we must trigger is that there must be a continuous interest

in finding out clients` needs, dissatisfactions and the power of decision-making that

would attract more and more new clients and keep the existing ones.


1. Anderson, Th., Cox, Bank Selection Decision and Market Segmentation,

E., Fulcher, D., Journal of Marketing, Volume 40, January, 1976

2. Badoc, M., Marketing management pour les societes financieres, Les

Editions D'Organisation, Paris, 1995

3. Berry, L., Banking, Marketing and The Image Concept, Arizona

Business Bulletin, November, 1968

4. Berry, L., Big Ideas in Services Marketing, Journal of Consumer

Marketing, 1986

5. Dumitrescu, St. I., Manual of credit and bank, Bucharest, 1941

6. Temkin, B., Dolan,

E., Hult, P.,

Financial Attitudes Differ Across Genders, Financial

Consumer Gender Gap series, July 14, 2006, Forrester



Finances - Accounting


Ph.D. Lect. Laura Giurcă Vasilescu

University of Craiova

Faculty of Economy and Business


Craiova, Romania

Abstract: Leasing is an important source of medium and long-term

financing in developed economies and also in countries with transition

economies because leasing is an economically-efficient solution to the

question of asset acquisition. Leasing is particularly important in financing

to small and medium-sized enterprises and start-ups, which play a key role

in introducing innovation and competition into the economy and in job

creation. The Romanian leasing market is developing in present and is

extending to new fields, conquering a part of the fields which belong to the

banks. In the same time, the sector will get to maturisation, the small firms

will merge and will form important firms.

Key words: leasing, operational leasing, financial leasing, Romanian leasing market


Leasing is an important source of medium and long-term financing in

developed economies, and also in countries with transition economies because leasing

is an economically-efficient solution to the question of asset acquisition. Leasing is

particularly important in providing finance to small and medium-sized enterprises and

start-ups, which play a key role in introducing innovation and competition into the

economy, and in job creation. Leasing can also be an effective mechanism for

jumpstarting an economy because the following reasons:

- a healthy leasing industry results in increased flows of financing to the

productive sector of the economy, facilitating an increase in domestic production, a rise

in equipment sales, and a wider choice of financing options available to business;

- leasing offers a way to modernize production and develop small business.

Leasing companies play an important role in the financing of small and medium-sized

businesses, which need financing to expand but often do not have the credit history or

collateral sufficient for other financing sources;

- leasing creates competition in the financial marketplace. Leasing, which is not

as risky as working capital lending, creates an alternative method of financing

businesses and directly competes with bank lending products. In transition economies,

leasing complements bank financing, allowing businesses to access both lease financing

and additional bank financing without increasing their collateralized debt.

- leasing increases the total capital investment in an economy. Leasing is a

complementary form of financing that serves as a substitute to bank lending and

increases other forms of financing.


Revista Tinerilor Economişti

- leasing increases the sale of equipment. Leasing offers domestic and foreign

suppliers a new mechanism for increasing their customer base, and access to new

clients - previously poorly financed businesses.

The new legislative frame regarding the leasing in Romania

According to the law, leasing as an economic operation is defined as follows:

“... leasing operations whereby a party, referred to as the lessor/financer, transmits for

a determined period the right of using a good owned by it to the other party, referred to

as the lessee/user, at the latter’s request, against a periodical payment, referred to as

the leasing installment, and at the end of the leasing period the lessor/financer

undertakes to comply with the lessee/user’s right to choose either to buy the good, to

extend the leasing agreement or to end the contract relationship.“

The definition comes not only from the new leasing law but also from the new

law dedicated to non banking financial institutions. A simple inventory of the new

legislation shows a tremendous legislative effort done in the last years:

• Leasing Law No. 278/2006 that modifies the Governmental Ordinance

51/1997 republished;

• Non Banking Financial Institutions Law No. 266/June 2006 that approves

Governmental Ordinance No. 28/February 2006;

• Law No. 343/July 2006 that modifies Law No. 571/2003 on Fiscal Code.

All the legislative changes reflect the inclusion of financial leasing in the

category of credit activities. Therefore, the leasing companies should have a minimum

share capital, subscribed and paid equal to 200,000 EUR.

As a step forward to the non banking financial institutions special law, the

leasing law brings amendments related to the:

- obligation for external audit of all leasing companies by accredited


- obligation for only one main field of activity which has to be leasing;

- the obligation to report on periodical bases to the Central Bank;

- the right and obligation to consult the banking risk data base.

The new legislation has also considered the consumer/lessee protection in case

of lessor's bankruptcy. Thus, under bankruptcy procedure, all lessees' rights derived

from leasing contract are opposable to the syndic judge and creditors.

With purpose to eliminate any confusion between financial and operational

leasing, Law No. 287/2006 sets forth that leasing agreements should contain a clause to

define the agreement as financial or operational leasing.

The law also clarifies the parties' rights and obligations related to the good's

insurance aspects. Thus, while by the former Governmental Ordinance, the obligation

to insure the leased assets fell exclusively to lessors, Law No. 287/2006 allows the

parties to include a clause in the leasing contract setting forth derogation from the

general rules. Nevertheless, the full risk insurance of the leased asset stays as a

contractual obligation.

With respect with the above mentioned legislative changes related to the

leasing activity, the Fiscal Code has been amended accordingly. Thus the new Law No.

343/July 2006 that modifies Law No. 571/2003 on Fiscal Code comes with specific

definition of financial and operational leasing. This definition is with respect to

International Accounting Standards - IAS 17, and brings more clearly the specific

aspects of each type of leasing contract in direct relationship with the fiscal authorities.



Finances - Accounting

Besides this basic redefining of financial and operational leasing, the new text of law

makes a revolution from principals' point of view by recognizing the fiscal ownership

of lessee in financial leasing contracts. The third aspect that brings a change for

financial leasing is its fiscal recognition as a financial service from the profit

deductibility provisions point of view.

Financial vs. operational leasing

Both the Law 287/2006 and the New Fiscal Code regulate two categories of

leasing operations: financial leasing and operational leasing. To be included in the

category of financial leasing, a leasing operation must meet at least one of the

following requirements:

- the risks and benefits related to the ownership right pass on to the user at the

moment that the lease agreement comes into effect;

- the parties expressly provide that upon expiration of the lease agreement the

right of ownership over the equipment will be transferred to the user;

- the lease period exceeds 75% of the normal period of use of the asset.

By comparison, the operational leasing is defined to be any leasing agreement

that meets none of the above-mentioned requirements.

However, starting with January 1, 2007, the above quoted provisions of the

Romanian Fiscal Code regarding financial leasing will be amended as follows:

- the lessee shall have the option to buy the asset at the date the lease agreement

expires for a residual value that must not be higher than the difference between the

maximum normal period of use and the duration of the leasing agreement as related to

the maximum normal period of use;

- the total value of the lease installments without the auxiliary expenses is

higher or equal to the value of the asset when the lease was executed; or

- the lease period exceeds 80% of the normal period of use of the asset (and not

75%, as currently set forth)

- the risks and benefits related to the ownership right pass on to the user at the

moment the lease agreement comes into effect; or the parties expressly provide that

upon expiration of the lease agreement the right of ownership over the equipment will

be transferred to the user.

The new leasing regulations define lease installments as related to either

financial leasing or operational leasing as follows:

- for financial leasing, the installment must be computed as a quota of the

asset’s entry value plus the leasing interest as set by the parties;

- for operational leasing, the installment shall be determined by mutual

agreement of the parties.

According to Law 287/2006, to avoid any doubt, all lease agreements must

contain a clause defining explicitly whether the agreement as a financial or an

operational leasing contract. The obligation to insure the leased assets must be included

in a provision in the lease agreement incurring such liability either to the lessee or to the

lessor. Also, Law 287/2006 extends the enforceability of lease agreements to all

personal and real securities used to guarantee fulfillment of the obligations under the

equipment lease agreement.

If both parties agree, the law entitles the lessee to purchase the goods before the

end of the leasing period, but no earlier than 12 months, provided that all the

contractual obligations are executed.

Revista Tinerilor Economişti

Leasing should be profitable for all parties involved:

- with limited financial resources and no collateral requirement, the lessee can

acquire equipment that increases their productive capacity and their ability to generate


- lessors have a lower risk method for financing businesses, because they

maintain ownership of the asset until the lease has been completely paid off by the


- for suppliers, leasing expands their market base by providing businesses a

way to purchase equipment without having significant upfront cost.

In practice the operational leasing is not as common as the financial leasing.

This is because the leasing companies are reluctant to proceed with the operational

leasing. The possible arguments of small number of the operational leasing agreements:

- the clients are not very well informed with regard to the advantages of this

type of leasing;

- the leasing companies prefer to conclude financial leasing agreements with an

irrevocable option to buy from the lessee, thus the lessor want to be sure that the

ownership shall be transferred to the lessee;

- in the majority of cases the clients desire to acquire the property of the goods

regardless of the type of leasing;

- the leasing companies shall have to register the depreciation of the good in its

accounting books and to reevaluate the fixed assets at the end of each accounting year.

- when concluding operating leasing agreements, usually the clients desire to

take the benefits of deducting the entire leasing installment (as operational leasing) and

acquiring the leasing object for a residual value established form the very beginning.

Because there are suspicions of fraud, the fiscal authorities, when performing an overall

control of the company, are very carefully in establishing the nature of the leasing


All of these reasons may be a direct explanation of the fact that operational

leases represent around 1.5% out of the total leasing agreements on the Romanian


It is also expected that the new legislation related to the supervision of this

market will have a direct impact on this aspect. The leasing ordinance implies the

possibility that the National Bank of Romania could issue norms that may limit the

level of operational leasing agreements for authorized financial lease companies. Such a

norm will definitely divide the players into two types of authorized leasing companies:

financial leasing companies acting strictly under the rules and norms of National Bank

of Romania and the operational leasing companies that will remain under the

governance of commercial legislation.

As a consequence of the still unclear fiscal and accounting treatment, the

leasing business has shown a lack of interest in developing real estate leasing. The

current domestic legislation provides no specific rules for real estate leasing, which is

treated like any other leasing transaction. Romanian leasing-related authorities have

focused on redefining for tax purposes financial and operational leasing for the purpose

of creating a better and clearer distinction for to avoid the risk of re-classifying an

operational lease as a financial one and vice-versa. An updating of the Fiscal Code in

this regard is expected to enter into force once Romania joins the EU.

Since only the financial leasing market falls under the direct authority and

control of the Romanian Central Bank, these businesses must to take into consideration



Finances - Accounting

and follow the National Bank’s prudential banking rules. Consequently, in order to

eliminate the differences between the applicable fiscal regimes, the Ministry of Public

Finance should treat all financial leasing operations as benefiting from the treatment

afforded by banking legislation to credit operations.

Despite the operating leasing contracts are not so numerous still there are

important issues relating to the deductibility of the installments, the way of calculating

the installments, depreciation during the leasing period, ownership transfer at the end of

the leasing agreement, transfer price.

When analyzing the advantages we have to take into consideration the parties

implicated in these leasing operations: lessor, lessee. For the supplier of the good it

makes no difference the type of leasing concluded. The main advantage for the lessee is

the possibility of the entire deduction of each leasing installment with the direct

consequence of paying less profit tax. In case of financial leasing the lessee shall deduct

only the interest which is contained in the financial leasing installment. The advantage

for the lessee in operational leasing is considerable, but this incentive makes the

difference only in case of companies with 16% profit tax and not for micro enterprises

where the deductibility of the expenses is not relevant for revenue tax.

Under the provisions of the Romanian Fiscal Code, in the case of financial

leasing the user is considered the owner; while in the case of operational leasing the

lessor is the one considered to hold such capacity.

The monthly lease installments are treated differently from a fiscal point of

view depending on whether they are financial leases or operational ones, as follows:

- financial lease installments represent a part of the purchase price and so the

lessee must deduct the relevant interest;

- in the case of operational leases, such an installment would represent the rent

paid in exchange for the usage of the goods and hence be deductible as a royalty by the


The insurance premiums paid for the good are also deductible for the lessee

regardless of the type of leasing. Notwithstanding the significant advantages for the

lessee still the number of the operational leasing agreements concluded is not so high.

Recent Evolutions regarding the Romanian Leasing Market

With a history of more than 10 years within the Romanian local market, the

Romanian leasing market speaks for itself when statistics are to be presented. The

economic growth of last years was also experienced at the level of the leasing market,

which registered a significant development, confirming the status of leasing as a

complementary financial product to other banking products and accessible to a high

number of economic agents. To this extent, one could claim that leasing became a

medium-term financing source capable of supporting the development of different

sectors of the national economy at competitive financing costs.

The total number of players on the market is around 200. Some 18 of these

firms are leasing companies affiliated to banks, a few are companies created by

manufacturers or dealers of automobiles and other goods while the rest are independent

leasing firms. A number of 38 leasing firms are affiliated to the Association of Leasing

Companies of Romania (ASLR) whose members account roughly for half of the

market, while other 15 are members of the Leasing Bankers' Association (ALB).

According to ASLR, the size of the Romanian leasing market in terms of value

of concluded contracts has grown over the last six years at an average compounded rate

Revista Tinerilor Economişti

of 40% per year from EUR 285 million in 1999 to over EUR 2.2 billion in 2005 (table

nr. 1). The top 20 leasing firms account for 80% of the market.










Table no 1. Romanian leasing market

1999 2000 2001 2002 2003 2004 2005 2006

285 422 962 900 1400 1815 2215 2769

- 48% 128% -6% 56% 30% 22% 25%

Source: Association of Leasing Companies of Romania (ASLR)

Historically, most of the lease contracts on the market have been financial

leases. Based on ASLR statistics, in 2004, financial leases accounted for 91% of the

total (in terms of value of goods), a weight that had increased to 96% in 2005.

Bank affiliated leasing companies register the largest market share with 61.5%

of the total, followed by captive companies with 24.8% and the independent companies

with 13.7%.

By customer type, 67% of the leasing operations are concluded with the

corporate customers, the public sector accounts for 21% while the leases to individuals

represent the remaining 12%. (figure 1)







Source: Association of Leasing Companies of Romania (ASLR)

Figure no 1. Leasing contracts by customer type (2005)

As far as the term of such agreements is concerned, most of these (48%) are for

a period of 3-5 years, and only 44 % are short term (1-3 years). (figure 2)

The usual term for real estate leases is 5 to 8 years.


Finances - Accounting

1-3 years 3-5 years > 5 years

Source: Leasing Bankers' Association (ALB).

Figure no 2: Leasing contracts by contract term (2005)

The overwhelming source of demand for financing through leases on the local

market comes from the vehicle sector, which accounted in 2005 for 91% of total

contract value for ASLR members. The remainder was split between equipment leases

(6%) real estate investments (1%) and others (2%) (figure 3).

real estate








Source: Association of Leasing Companies of Romania (ASLR)

Figure no 3: Leasing contracts by assets type (2005)

Analyzing the trend of vehicle importation and sales, it is not difficult to

assume that, in structure, the lease financing, on one hand will decrease, concerning the

passenger cars segment, but on the other hand will increase, concerning the equipment

and real estate segments.


Revista Tinerilor Economişti

For the end of year 2006, ALB estimates a total amount of EUR 1.4 billion

leased assets with a total of 2.3 billion at Romanian leasing market level, meaning 15%

growth rate.


The Romanian leasing market is developing in present and is extending to new

fields, conquering a part of the fields which belong to the banks. In the same time, the

sector will get to maturisation, the small firms will merge and will form big, important

firms, being encouraged by the law issued by the National Bank of Romania regarding

the minimum share capital. Also, this law imposes a higher transparency and standards

regarding the financial reports and audit of the leasing companies which will constitute

advantages for them and will insure more credibility for the investors.

A main objective of the Romanian Government is the harmonization of

respective Romanian legislation with European Union requirements. The current

provisions of the Romanian Fiscal Code do not cover the IAS17 standards which relate

to leasing in a very detailed manner.

Consequently, operational leases have suffered from fiscal mistreatment with a

direct effect on the total volume of such operations in the country. The fiscal definition

does not follow the accounting one related to financial and/or operational leases.

It may be a direct explanation of the fact that operational leases represent around 1.5%

out of the total leasing agreements on the Romanian market.

Romania’s accession to the EU should bring large corporate, multinational

customers into the country and specific leasing products will have to be offered to those

who already have a portfolio history with present leasing companies in Romania. This

is one very good reason why most of the important players on the market are interested

in a quick harmonization of all Romanian leasing legislation.

The improvement of the regulatory framework in view of alignment to the EU

standards, the strengthening and consolidation of the Romanian financial institutions

and the increasing competition among these are factors likely to stimulate for the

leasing operations.


1. Andreica, M. Decizia de finantare in leasing, Ed. Cibernetica, 2003

2. Grant, R. Asset Finance and Leasing Handbook, Woodhead-Faulkner,


3. Molico, T. Leasingul - un instrument modern de investiţii şi finanţare,

Wunder, E. Editura CECCAR, Bucuresti, 2003

4. Popa. A. Romanian real estate and mortgage market, Real Estate

Giurca Research and Education, Conference to Metropolitan

Vasilescu L. Research Institute, Budapest, February 18-25, 2005, http://

5. Popescu, I. Leasing hit by new rule, Bucharest Business Week, v. 8, nr.

6. Sichigea, N.


Vasilescu, L.

1, January 2004

Gestiunea financiară a înteprinderii, Aplicaţii şi studii de

caz, Ed. Universitaria, Craiova, 2005


Management – Marketing - Tourism


Assoc. Prof. Ph.D. Jarmila Šebestová, M.Sc.

Assoc. Prof. Ph.D. Marek Smysl, M.Sc.

Silesian University Opava

School of Business Administration

Karviná, Czech Republic

Abstract: The main idea of this paper is to analyze opportunities to

start business abroad by the Czech investor point of view. The question is

– which factors could cause that domestic business units move to another

country The analysis is mainly based on „comparative advantage”

approach – minimum cost, maximum benefit. Useful is to keep in mind

that one advantage could not bring more satisfaction with entrepreneurship

abroad. Are all business conditions comparative or competitive

Keywords: Registered capital, mobility of capital, VAT rate, insurance costs,

minimum wage rate


Entry conditions on integrated market brought many new structural impulses to

Czech business subjects – protective duties have been abandoned, our farmers have

been involved in integrated agricultural policy, changes in the tax system, growth of

personal mobility, liberalization of capital flow, subventions for economically

backward regions or bad structuralized regions.

The united EU market offers other new possibilities, such as market without

frontiers with 500 million consumers. It is necessary to have a wide international view,

higher education in investment and management, finally, speaking other foreign

languages, especially English to be successful on this market. If you do not understand

their philosophy, you could suffer from severe competition on the market, and then you

could have problems with international law, which protects the united market in the EU.

It may not be forgotten that the “old” EU members have an advantage – time spent on

the European market. It is the reason why Czech investors could have some other

problems to face. These were the fundamental reasons why we have prepared this


The purpose of the analysis is to map out conditions for founding a company in

the EU by using its keystones “Free mobility of goods, services, persons and capital” in

real life. In our analysis we shall put special emphasis on the sections concerning

persons and capital.

Methods of analysis

To found a company in another country than the Czech Republic, it is critical to

make a comparative analysis of future costs of carrying on business in our republic and

the EU. We have divided these into the three following sections (see Table 1).


Revista Tinerilor Economişti

Table no. 1 Methods of business costs analysis



Goods and services free


Free mobility of persons

Free mobility of capital

• Basic principles in the integrated EU market

• Wages and salaries costs,

• Insurance costs paid by employer

• Long-term residence in EU, permission for working

in another country

• Amount of registered capital for foundation of

common company forms such as limited liability

company, joint stock company or self proprietor

• administrative costs and barriers,

• VAT rate

Free mobility of capital

• Comparison of requests on registered capital in the EU countries

When we intend to carry on business in the Czech Republic, we are obliged to

follow the Czech Commercial Code, which stipulates the amount of the registered

capital, which depends on the company legal form. In order to be permitted to establish

a company with limited liability in the Czech Republic, you will need CZK

200,000 (€ 6,329) and for joint stock company you need CZK 2,000,000 (€ 63 291).

In our business law there are other business forms, such as self proprietor,

partnerships, limited partnerships, in which you do not need to have a registered capital

except in the case of a co-operative, but on our market there are only two dominating

forms - company with limited liability and joint stock company. Why are the other

forms inessential for our analysis In majority of countries their definition is not

identical. This is the reason why we specialize on these two forms – limited liability

company and joint stock company. This could be illustrated by the statistics in the

selected EU countries as showed in the table below:

Table no.2 Comparison of the amount of registered capital


Common forms of

company type

Currency Request on capital Capital in €

Great Britain

Company with limited

liability (CLL)

not requested

Joint Stock company


not requested


CLL DKK 125,000 16,788

JSC DKK 500,000 67,152


CLL EEK 40,000 2,547

JSC EEK 400,000 25,467



not requested


not requested


CLL EUR 10,000 10,000

JSC EUR 100,000 100,000


CLL HUF 3,000,000 12,173

JSC HUF 20,000,000 81,153



Management – Marketing - Tourism


Common forms of

company type

Currency Request on capital Capital in €


CLL EUR 25,000 25,000

JSC EUR 50,000 50,000

CLL EUR 18,000 18,000

The Netherlands JSC EUR 45,000 45,000



not requested

JSC EUR 25,000 25,000


CLL EUR 35,000 35,000

JSC EUR 70,000 70,000


CLL EUR 18,000 18,000

JSC EUR 60,000 60,000

Slovenia CLL SIT 1,500,000 6,249

Slovak rep.

CLL SKK 200,000 4,998

JSC SKK 1,000,000 24,989


CLL PLN 50,000 11,450

JSC PLN 100,000 22,900

Finland CLL EUR 8,000 8,000



not requested

JSC EUR 37,000 37,000


CLL LTL 10,000 2,895

JSC LTL 100,000 28,951



not requested

JSC BEF 2,500,000 61,982

From the viewpoint of “minimum costs”, the cheapest company with limited

liability can be established in Estonia, Lithuania and Slovakia, while the most

expensive will be in Austria, The Netherlands and Greece.

The cheapest joint stock company could be founded in Slovakia, Poland and

Portugal, but the most expensive countries include Austria, Hungary, and Italy.

• Common administrative and other barriers

Each country has a priority to protect their own market and their producers,

because the EU countries have not fixed uniformity of business law. It is the reason,

why they impose barriers and restrictions. A common restriction is in a form of tax

from registered capital, ranging from 0.5% to 1% (e.g. Belgium, Greece, Poland) or in a

form of registration fee, ranging from € 30 (GB, Ireland) to € 800 (Hungary), banking

guarantee amounting to 50 000 USD (Greece).

Establishing of a company in other country is more complicated also due to the

fact, that corporate statutes will have to be translated into the local language (which

extends the process of registration and raises administrative costs), while it is customary

to translate the articles of association into English. This barrier exists in Estonia,

Finland, Latvia, Slovenia, or they require that a country resident be a manager or a

lawyer in the particular company (e.g. Denmark, Estonia, Ireland, Lithuania, Spain,

Portugal and Slovenia).

The best conditions and minimum administrative costs are offered by Malta,

where registration process will be accomplished within 3-4 days, the same will take 1-2

weeks in Portugal in the case of establishing a joint venture company with a Portuguese

Revista Tinerilor Economişti

person; on the other hand, this process will take approximately 3-4 months in The

Netherlands and Austria (and, moreover, you will have to hand in the certificates of

education, tax receipts, etc.).

Table no. 3 Examples of administrative fees in EU


Administrative cost (mainly)

Total Number of Time

in € procedures (days)

Belgium tax from registered capital 0.5% 1,607 4 27

Czech Republic fee for notification in Trade register - CLL, JSC 747 10 24

Denmark 0 3 5


registration fee , fee for incorporation in Trade

7 8



Germany registration fee, fee for notification 1,775 9 24

Great Britain registration fee 209 6 18

Greece tax from registered capital 1% 3,712 15 38


registration fee, fee for notification in Trade

6 38



Ireland registration fee 102 4 19

Lithuania tax from registered capital 1% 155 7 26

Poland notary fee –3% from, registration fee 1187 10 31

Slovakia fee for notification in Trade register - CLL, JSC 299 9 25

• Comparison of VAT rates

One of the EU priorities is to reduce differences between the basic VAT rates,

but at the present time these figures are considerable – about 10%. For a businessman,

who intends to commence his production in the particular country, this factor is vital, of

course. The VAT rate has an influence on the sales price of the product and its rate

increases or reduces competitiveness on the foreign markets.

Table no. 4 VAT rates in EU

Country EU 15 Basic VAT rate Basic VAT rate - new EU members

Luxembourg 15 %


Basic VAT rate

Germany 16 %

Cyprus 15 %

Spain 16 %

Malta 15 %

Great Britain 17.5 %

Estonia 18 %

Greece 18 %

Lithuania 18 %

The Netherlands 19 %

Latvia 18 %

Portugal 19 %

Czech rep. 19 %

France 19.6 %

Slovakia 19 %

Italy 20 %

Slovenia 20 %

Austria 20 %

Poland 22 %

Belgium 21 %

Hungary 25 %

Ireland 21 %

Finland 22 %

Denmark 25 %

Sweden 25 %


Management – Marketing - Tourism

The minimum VAT rates are offered by Cyprus, Malta, Luxembourg, Germany

and Spain – 15-16.5%, the maximum VAT rates are imposed in Hungary, Poland,

Denmark, Sweden and Finland.

Free mobility of persons

After the big expansion of the EU in May 2004, many EU countries have

accepted a “transition period”, which restricts free mobility of persons - employees in

the EU. This period will definitely expire in 2011. Only Ireland and Great Britain

opened their labour markets at once. We have illustrated the situation in Table 5. These

restrictions are affected by their own situation on the labour market and their concern of

inexpensive, but qualified foreign labour force arriving from the new EU countries.

Table no.5 Focus on free mobility of people

EU Country


- residence permission,


- you cannot have the following sectors -

building industry, security services, health

services, accommodation services


- residence permission,

- abstract from the criminal register


- residence permission,


- application fee - 2800,- CZK (approx. € 89),

- residence permission for 2 months


Employer must guarantee a minimum wage

rate, accommodation, labour permission.


Entry visa, abstract from the criminal register,

administrative fee, translation to Spanish


Quota of 8,000 permissions per year


Labour permission, employment contract,

abstract from the criminal register

New Members from May 2004 Without barriers

• Comparison of minimum wage rates

Minimum of wage cost is another factor playing role in the making of the

decision as to where you intend to set up your business. We have made a comparison in

Table 6. The cheapest labour force is offered by Estonia, Lithuania, Latvia, Slovakia,

while the most expensive can be found in Luxembourg, Belgium and the Netherlands.

Table 6 Comparison of minimum wage rate

Country currency

Rate per Amount

month in €


Belgium EUR 1,233.54 1,233.54

Czech rep. CZK 6,700 212.23



Not Problem is solved by collective

defined agreement

Estonia EEK 2,480 158.50


Revista Tinerilor Economişti





Rate per



in €




Problem is solved by collective

agreement, minimum wage rate is

different in concrete sectors

France EUR 1,090.48 1,090.48 35 hours per week

1,227.57 1,227.57 39 hours per week

Ireland EUR 1,092.00 39 hours per week





Cyprus CYP 345 598.20

Lithuania LIT 450 130

Latvia LVL 80 122

Luxembourg EUR 1,403 1,403 Rate is for unqualified staff

Hungary HUF 54,000 219.11

Malta Lira 230.23 542.40





For the unqualified - HUF 54,000;

For qualified - HUF 100,000.

Problem is solved by the collective

agreement, it depends on business




EUR 1,264.80 1,264.80 For people aged over 23

Portugal EUR 365.60 365.60





Problem is solved by collective


Greece EUR 504.83 504.83 Employees must receive 13th and

14 th salary

Slovakia SVK 6,080 151.93

Slovenia Tolar 103.64 442.60

Spain EUR 460.50 460.50 Employees must receive 13th and

14 th salary




Great Britain GBP 702 1,028

Problem is solved by collective


39 hours per week; GBP4,5 per


For workers between 18-21 years-

GBP 3,80 per hour,

• Insurance costs

You can see that the minimum costs for insurance paid by the employer are in

the Great Britain, where an employee pays it on his own, the list is followed by

Slovenia and Poland. The maximum rate is in France because they guarantee a pension

at 70% of your wage rate.



Table no. 1 Outline of insurance costs


costs in €

Great Britain 0

Management – Marketing - Tourism


SI- GBP 2 per week is paid by employee, employer

7% from profit above € 4,385

Slovenia 79.5 SI-employee 22,1%, employer 15,9%

SI - employee 18,71%, employer 18,29%

- contribution to labour fund 2,45%

Poland 104.1

- wage fund 0,08%,

total 20,82%

Portugal 118.75 SI-employee 11%, employer 23,75%

Employer HI- 3%, pension fund 27%,accident insurance



1%, employee 3%

Hungary 165 employer HI - 11%, pension fund 22%, employee 2-8%


165 employer pays all - 33% - health + social insurance

France 230 Employer 46%, employee 22%

SI – social insurance, HI – health insurance, the Calculation was made from a monthly wage rate

of 500 €


Considering the simplified analysis of the named factors the following results

may be concluded: the best conditions for founding a limited liability company are in

Estonia or Lithuania (minimum rate of registered capital), for registration in Great

Britain (minimum administrative costs), employing staff from Estonia (minimum wage

rate), and considering insurance duty in again Great Britain (minimum insurance costs),

VAT registration in Cyprus or Malta.

If we are agree that the combination of the above is not good to implement in

common life, we could recommend staying in Estonia, having to stand the disadvantage

of a long administrative process.

There is, of course, another possibility – not setting up “your own” company,

but taking an opportunity to expand with an existing company abroad in the form of

joint venture or strategic alliance – good conditions are in Portugal. Then, you could

take the opportunity to get money from the EU funds, where good chances are offered

at Cyprus and Malta by fast registration process and interest of the local government in

supporting small and medium sized enterprise.

To act as a self-proprietor is more difficult in the EU than in our country – it is

more complicated to obtain a trade license, because one must have a qualification in the

particular branch of business, than long-term experience and also, one has to be a

member of the national professional institutions.

A business activity like commercial representation is not recommended, since

many countries EU impose severe restrictions, which prohibit independent business -

they view these as a mere representation. A clear reason – tax is paid to the country

where the company has a registered place of business and it brings no benefits to the

host country.


Revista Tinerilor Economişti

Benefits from the enterprise can be defined in two ways: firstly, a profit for the

company’s owner, secondly, state revenue from the settled taxes. Low rate of

corporation tax are offered at Cyprus a Malta. Tax rate is about 10%.

Business environment in the EU is very different, varying markedly country-tocountry.

Advantage for the new EU member states is good rate of exchange for Euro

and this factor decrease costs for capital and wage rate. Disadvantage is that economic

system has not developed properly so far. It may be the reason why they offer better

conditions for foreign investors – they intend to facilitate their own development.

Finally, I would like to add that this material has not been drawn up to seek

solutions for all the problems, but we would like to present a new way for Czech

businessman and Czech companies in the EU environment and make up a simple

analysis on possibilities and opportunities for their expansion.


1. Kozak, M.,

Leventhal, S.

Micro, Small, and Medium Enterprises: A Collection of

Published Data , [accessed.14.10.2006], URL:


2. Šebestová, J. Globalization tendencies in the Czech SME'S - Historical

Approach (1997-2004).In From Transition to Sustainable

Development: The Path to European Integration (+CD).

Sarajevo: University of Sarajevo, School of Economics and

Business, Bosna i Herzegovina, 2006. ISBN 9958-605-89-


3. Vyakarnam,S.,

Leppard,J. W.

4. Wernerfelt,


5. * * *

6. * * *

7. * * *

Plánování podnikatelských strategií. Praha: Grada,1998.

ISBN 80-7169-533-5.

Resource-based View of the Firm. Strategic Management

Journal, 1984 Vol. 5, 171-180


Management – Marketing - Tourism


Assist. Ph.D. student Moisescu Ovidiu Ioan

Babeş-Bolyai University

Faculty of Economics and Business


Cluj Napoca, Romania

Abstract: Even though the number of brands has strongly increased in

recent years, only a few managed to endow themselves with significant

brand loyalty. Besides the actual proprietary brand assets, such as patents

and trademarks, other major elements like brand loyalty, perceived quality,

brand associations, and others, underlie brand equity. A successful brand

strategy must be based on creating brand loyalty. For achieving this goal

consumers must be classified on a loyalty basis, while marketing

strategies and mixes must be shaped accordingly.

Key words: brand equity, brand loyalty, loyalty degree, brand strategy

The American Marketing Association defines brand loyalty as “the situation in

which a consumer generally buys the same manufacturer-originated product or service

repeatedly over time rather than buying from multiple suppliers within the category” or

“the degree to which a consumer consistently purchases the same brand within a

product class”. Trying to define the term, David A. Aaker considers that brand loyalty

“reflects how likely a customer will be to switch to another brand, especially when that

brand makes a change in price, product features, its communication or distribution

programs”( Aaker, 1992). Brand loyalty represents the core of a brand’s equity. Daryl

Travis considers that “creating customer loyalty is neither strategic nor tactic”, but

rather “the ultimate objective and meaning of brand equity”, adding that “brand loyalty

is brand equity”(Travis, 2000).

A successful brand strategy must be based on creating brand loyalty. For

achieving this goal, consumers must be classified on a loyalty basis and then the

marketing mix must be shaped according to this classification.

A first approach of classifying consumers considering their degree of loyalty is

that of George H. Brown (Kotler, 2002), according to whom buyers can be divided into

four groups: hard-core loyals (always buy the same brand), split loyals (loyal to two or

three brands), shifting loyals (loyal to one brand for a period of time, but easily shifting

from one brand to another, due to certain advantages offered by the new brand), and

switchers (show no loyalty to any brand, switching the brand with almost any buying

situation). Each market consists of a different number of these four types of buyers. For

example, a brand-loyal market has a high percentage of hard-core loyals. In such

markets, entering or increasing market share are very difficult tasks. Still, brand loyalty

must be carefully interpreted as it may actually reflect habit, indifference, a low price, a

high switching cost, or the non-availability of other brands.

A second approach is that of David A. Aaker (Aaker, 1991) who sees five

levels of brand loyalty and groups customers accordingly into a loyalty pyramid (fig.1):


Revista Tinerilor Economişti

a) The first level represents non loyal buyers who are completely indifferent to

brands, each brand being perceived to be adequate if the price is accepted.

b) The second level includes satisfied or at least not dissatisfied buyers with no

dimension of dissatisfaction sufficient enough to stimulate a change, especially if that

change involves effort. These customers can be vulnerable to competitors that can

create a perceived benefit in the case of switching.

c) The third level consists of satisfied customers with switching costs (loss of

time, money, or acquired loyalty advantages, performance risks associated with

switching etc.). In this case, competitors must create an inducement or incentive to

switch by offering a benefit large enough to compensate the switching costs.

d) The fourth level contains customers who truly like the brand and have an

emotional attachment to the brand, based upon associations such as a symbol, a set of

use experiences, or a high perceived quality. The emotional attachment’s reason is not

clearly identifiable as sometimes just the fact that there has been a long term

relationship can create a powerful affect.

e) The fifth level represents committed customers, proud to have discovered and

used the brand, and to whom the brand is very important both functionally a as an

expression of their personality. The value of this category of customers stays in the

impact they have upon others through their recommendations.


to the brand

Likes the brand

Satisfied - with switching costs

Habitual - with no reason to change

Switcher - price sensitive – indifferent - with no brand loyalty

Figure no 1: The loyalty pyramid

Considering the level of involvement and that of perceived differences between

brands, Henry Assael (Kotler, 2002) identifies four brand loyalty driven types of

consumers (fig. 2):

a) Complex loyals firstly do research, then develop beliefs and attitudes about

the brand, and finally make a thoughtful choice. Marketers should educate these

consumers about the brand’s attributes, differentiate and describe the brand’s features,

and motivate sales people to influence the brand choice.

b) Dissonance loyals shop around and buy fairly quickly, as they may consider

most brands in a given price range to be the same, even though expensive and selfexpressive.

After buying, they experience dissonance noticing certain disquieting



Management – Marketing - Tourism

features or hearing favorable things about other brands, but seek information that

supports their choice. In the case of these consumers, marketers should supply

evaluations that help them feel good about their brand choices.

c) Habitual loyals make decisions based on brand familiarity. They keep

buying the same brand out of habit as they are passive recipients of information

conveyed by advertising. In the case of these consumers, marketers should try to

dominate shelf spaces, keep shelves stocked, and run frequent reminder ads.

d) Variety-seekers switch brands for the sake of variety rather than

dissatisfaction. These consumers have some beliefs about brands, choose brands with

little evaluation, and mostly evaluate them during consumption. In the case of these

buyers, marketers could offer lower prices, coupons, free samples etc., but should

constantly try to reconfigure the brand’s features so as to offer something new etc.







Many and/or significant Complex loyals Variety-seekers

Few and/or not significant

Dissonance loyals Habitual loyals

Figure no 2: Involvement / perceived differences based loyalty types

Brand loyalty has also been conceptualized as an interaction of attitude and

behavior. Dick and Basu (Dick and Basu, 1994) argue that loyalty is determined by the

strength of the relationship between relative attitude and repeat patronage. On the basis

of attitude-behavior relationship, they propose four types of brand loyalty (fig. 3). The

“spurious loyalty” and “no loyalty” categories occur under low relative attitude that

might be indicative of a recent introduction and/or an inability to communicate distinct

advantages, or may be due to the dynamics of a specific market, where most competing

brands are seen as similar, and it may be difficult to create a high relative attitude.



Repeat Patronage



High Loyalty



Low Spurious loyalty No loyalty

Figure no 3: Attitude / behavior based loyalty types

Rowley and Daves (Rowley and Daves, 2000) observe that in the previous

loyalty typology, Dick and Basu’s category of no loyalty is seen to relate to customers

whose repeat patronage and relative attitudes are low, but not necessarily negative,

meaning that this category includes customers who make infrequent purchases or

potential customers. Non-loyals may exhibit this trait as they have no particular interest

in the brand, have a negative orientation towards a brand or have a positive orientation

towards a competing brand. Thus, Rowley and Daves propose that non-loyal consumers

be differentiated on the basis of: repeat patronage or intent to continue shopping, and

relative attitude as demonstrated through recommendations made to others, from

inertial (associated with behavior and attitude which is relatively passive, and not likely

to influence others and which may or may not lead to purchase) to negative (concerned

with strong negative attitudes, or behaviors which seek to undermine a brand) (fig. 4):

Revista Tinerilor Economişti

a) Disengaged loyals are neutral and uninterested. They have never been

customers because they have no awareness, the product is not relevant to them or the

product is not within their perception of affordability. Yet, these circumstances may

change and they may have potential for being customers in the future.

Disengaged loyals need to be re-engaged with the brand. Marketing

communications that are likely to be successful focus on promotion. Customer

awareness may need to be enhanced by offering free samples, and other promotions

which encourage these customers to sample the product again may be important.

b) Disturbed loyals are existing and continuing customers, who are suffering a

temporary perturbation in their loyalty status, and are in the state of questioning

previously assumptions about a brand, because they had a negative experience with the

brand, or have an unfavorable comparison with other brands, or were exposed to

promotion of competitive brands, which tempt them to try alternatives. These customers

could be encouraged or enticed to consider re-commitment to the brand, provided they

are assisted to see past their negative experience.

Disturbed loyals need to be re-captured. They are susceptible to promotional

endeavors such as attractive packages and new products of competitors. Organizations

should respond by benchmarking with competitors’ products. Recovery procedures

such as complaints procedures, suggestion boxes, customer service and reimbursements

may be appropriate.

c) Disenchanted loyals are customers who used to be loyal, but who have

become less so. Their behavior is such that they do not at present purchase the brand

and are unlikely to do so in the future. Their attitude has ceased to be positive towards

the brand but often remains neutral, rather than negative, due to previous positive

experiences with the brand. Disenchantment arises because of a negative experience

with the brand, a positive experience with a competitor, or changes in the match

between customer requirements and the product range associated with the brand.

Disenchanted customers are susceptible to strategies similar to those used for

disturbed loyals, with the difference that the opportunity for addressing specific

incidents has passed.

d) Disruptive loyals are previous customers, who have strong negative attitudes

and behaviors in respect of the brand. They maintain negative views on the brand and

are likely to communicate these to others, possibly vociferously.

Disruptive customers are not likely to be converted into loyal customers again.

The focus must be on negating the effect of any negative aspect on brand image that

these customers can achieve, either in the media, and through pressure groups, or by

word of mouth. In order to be successful in this endeavor, a business needs to

understand where any earlier major weaknesses or flaws in product performance and

customer service lie, to eliminate these, and to demonstrate that any major problems

have been eliminated.



Inertial Negative

Inertial Disengaged Disenchanted

Negative Disturbed Disruptive

Figure no 4: Types of non-loyalty driven behavior


Management – Marketing - Tourism

Finally, it is useful from a marketing perspective to see how brand loyalty

evolved along the time. Thus, Bennett and Rundle-Thiele (Bennett and Rundle-Thiele,

2005) identify five distinct brand loyalty eras:

1) The birth of brand loyalty (1870–1914), when products quality varied

widely, and brands made products clearly identifiable. Brands were initially introduced

as a means of assisting consumers to distinguish between available products.

2) The golden era of brand loyalty (1915-1929), when customers perceived

improved quality of brands while retailers were enthusiastic about the increased sales

resulting from brands. Brand recall was high and many consumers were loyal to a single

brand of product. As consumers were able to access the brands more widely, familiarity

and loyalty with the brands increased. Towards the end of this era, however, consumers

became cynical towards advertising, which they perceived to be tasteless, manipulative

and deceptive, while its costs were said to inflate prices.

3) The latent brand loyalty era (1930-1945) was characterized by a scarcity of

branded products. Brand scarcity meant that many consumers were either rationed or

required to do without previously purchased brands. Despite the lack of availability,

brand preference actually increased during this period. Consumers had high levels of

brand preference, but were not able to actually buy the brand.

4) The multi-brand loyalty era (1946-1970), when brands became more

available, and consumers returned to their old habits and continued to purchase their

favorite brands. During this period there was an explosion in new products and discount

retailers emerged changing distribution with a focus on price competition for brands,

with many introducing private brands. This created great concern for the manufacturer

brands and, combined with increasing choice and high product quality, encouraged

variety-seeking behavior. A common feature in many markets during this era was that

customers were polygamous, buying several brands. Multi-brand loyalty emerged in the

middle of the 20th century. Marketers realized that brand loyalty was not a personal

disposition, but rather it was specific to certain product categories.

5) The declining loyalty era (1971 – today), when the level of differentiation is

declining, and hence competing brands are becoming more substitutable, as product

quality increased and brands became more consistent, while consumers are increasingly

price-sensitive. This similarity between competing brands, the increasing array of

competing brands, combined with the increased cynicism towards advertising, has

resulted in consumers being both more price-sensitive and rarely loyal to a single brand.

In markets with little differentiation, customers can be ambivalent towards brands and,

as a result, they buy different brands. Today most customers include several brands in

their preferred brand set. There are, however, some brands towards which consumers

demonstrate intense sole-loyalty, and these brands often have brand communities.

Brand communities are groups of consumers whose common theme is their usage of a

particular brand, and the more integrated the consumer is into the brand community, the

more loyal they are in consuming the brand.

To conclude, we might say that any brand strategy must use several loyalty

based consumer typologies in order to identify the appropriate marketing mix best

shaped to each segment. Furthermore, certain rules generally apply when managing

brand loyalty, along with specific tactics and strategies established after a detailed

analysis of the particular situation a brand or its actual and potential clients has.

Managing brand loyalty implies a periodical assessment of the results obtained through


Revista Tinerilor Economişti

specific strategies and of the levels of brand loyalty among customers, considering both

functional and emotional perceived aspects related to the brand.


1. Aaker, D. A. Managing Brand Equity: Capitalizing on the Value of

a Brand Name, The Free Press, New York, 1991

2. Bennett, R.,

Rundle-Thiele, S.

The Brand Loyalty Life Cycle: Implications For

Marketers, Journal Of Brand Management, Vol.12,

No.4, 2005

3. Dick, A., Basu, K Customer Loyalty: Toward an Integrated Conceptual

Framework, Journal of Marketing Science, Vol.22,

No.2, 1994

4. Kotler, P. Marketing Management, Millennium Edition, Prentice

Hall Inc., Upper Saddle River, New Jersey, 2002

5. Rowley, J., Daves, Disloyalty – A Closer Look at Non-Loyals, Journal of


Consumer Marketing, Volume 17, No.6, 2000

6. Travis, D. Emotional Branding: How Successful Brands Gain the

Irrational Edge, Crown Publishing Group, 2000


Management – Marketing - Tourism


Asist. Ph.D. student Lupşa Dana

Ph.D. Lect. Constantin Sanda

Transilvania University of Braşov

Faculty of Economical Science

Braşov, Romania

Abstract: For the past years, information and knowledge are replacing

capital and energy as the primary wealth-creating assets, generating a

new type of economy, and called knowledge based economy (KBE), within

knowledge management is the main instrument for the companies to

obtain competitive advantage. Given the goal of EU established at Lisbon

and the perspective of Romania’s accession to EU, Romanian companies

must align their management practices with knowledge management in

order to survive on a broader and international market and in order to

obtain competitive advantage.

Key words: knowledge management, knowledge based economy

The importance of knowledge to economies has been much debated in recent

years; information and knowledge are replacing capital and energy as the primary

wealth-creating assets. In addition, technological developments in the 20th century have

transformed the majority of wealth-creating work from physically-based to

"knowledge-based” and the concept of “knowledge-based economy” thus results from a

fuller recognition of the role of knowledge and technology in economic growth.

Knowledge has always taken a central role to economic development, but only over the

last few years has its relative importance been recognized, just as that importance is

growing. Thus European Union has established that it must "become the most

competitive and dynamic knowledge-based economy in the world, capable of

sustainable economic growth with more and better jobs and greater social cohesion"

(strategic goal for 2010 set for Europe at the Lisbon European Council - March 2000).

A knowledge-based economy is one in which the generation and exploitation of

knowledge, as embodied in human beings (as “human capital”) and in technology, play

the predominant part in the creation of wealth. The term "knowledge-based economy"

was coined by the OECD and defined as an economy which is "directly based on the

production, distribution and use of knowledge and information" (OECD 1996). The

Asia-Pacific Economic Co-operation (APEC) Economic Committee extended this idea

to state that in a KBE "the production, distribution and use of knowledge is the main

driver of growth, wealth creation and employment across all industries" (APEC 2000).

According to this definition, a KBE does not rely solely on a few high

technology industries for growth and wealth production. Rather, all industries in the

economy can be knowledge intensive, even so called 'old economy' industries like

mining and agriculture.

Technology and knowledge are now the key factors of production. With

increased mobility of information and the global work force, knowledge and expertise

can be transported instantaneously around the world, and any advantage gained by one


Revista Tinerilor Economişti

company can be eliminated by competitive improvements overnight. The only

competitive advantage a company will enjoy will be combining market and technology

know-how with the creative talents of knowledge workers – defined as "symbolic

analysts", workers who manipulate symbols rather than machines and including

architects and bank workers, fashion designers and pharmaceutical researchers, teachers

and policy analysts - to solve a constant stream of competitive problems and its ability

to derive value from information. The world is now evolving to a knowledge-based

economy where knowledge management is essential.

Changes which have highlighted the increasing importance of knowledge have

been observed in several economies (Houghton and Sheehan 2000; OECD 2001a; Gera

and Weir 2001). Such changes are: growth in demand for high-skilled workers, with an

increased emphasis on cognitive skills, the development of ideas and life-long learning;

increased openness of the world economy, leading to increases in trade (especially in

knowledge-intensive exports), foreign direct investment (FDI) and knowledge transfer;

prevalence of information and communications technologies resulting in: emergence of

new arrangements of work, production, shopping and education, increased codification

of knowledge, and decreased costs of knowledge dissemination; internationalization of

production requiring increased knowledge to control and integrate business units;

changing composition of production in more advanced economies, with movements

towards services and away from manufacturing, and a movement towards higher valueadded

services; increased participation in international and domestic networks (and/or

geographic or industry clusters) for the exchange of products, capital and knowledge,

e.g. joint ventures, non-equity agreements and less formal inter-firm collaborations; and

increased interest in R&D and other aspects of innovation.

In order to globally estimate the possibility of knowledge development but also

the effective utilization of the environment that is favorable to knowledge, World Bank

Group uses a system of 80 variables for classify 128 countries on a top based on these

two coordinates.

World Bank Group methodology to establish the ability of one country to

generate, adopt and diffuse knowledge, representing the possibility to develop the

knowledge of the analyzed country, consists in calculating a knowledge index (KI) and

in order to establish the effective utilization of the environment that favors the

knowledge for economic development of that country WBG calculates the knowledge

economy index (KEI). The index establishes the global level of development through a

knowledge based economy of one country.

Using the interactive instrument of benchmark, offered by WBG, the following

were concluded:

♦ from the point of view of KEI, in 1995 Romania was placed on the

51 place on the top from 128 countries, with a value of 5.37 compared with

Sweden, being on the first place on top, with a value of KEI of 9.2. The

situation for Romania has improved in 2003-2004 when the value was 5.27,

representing the fact that the effective utilization of the environment that favors

the knowledge for economic development had improved.

♦ in 1995 Romania was placed on the 54 place on top 128 with a

value of KI of 5.41 and in 2003-2004 was placed on 47 with a value of 5.58,

improving thus its possibility to develop knowledge.



Management – Marketing - Tourism

Table no. 1 – Romania’s status. Source: The Knowledge Assessment Methodology

(KAM) website (

1995 Country KEI KI

1 Sweden 9.20 9.47

51 Romania 5.37 5.41

2003-2004 Country KEI KI

1 Sweden 9.17 9.54

48 Romania 5.27 5.58

Knowledge management within companies and the bound between knowledge

management and knowledge based economy is determined also by the number of

Internet users, because of the workers necessity to be able to use the Internet, because

most of knowledge bases – instruments of knowledge management – have the for of

websites. Thus, in 1990, there weren’t any Internet users at 1000 population, but in

2003, there were 184 Internet users at 1000 population, according to The World Bank

Group, thus the capacity of Romanian economy to be transferred to a knowledge based

economy being increased

Given that knowledge management is important for a knowledge-based

economy and the different forms of knowledge and knowledge flows are likely to be

relevant to a knowledge-based economy (KBE), defining knowledge is an imperative.

There are a number of ways of viewing and defining knowledge, for instance, a number

of authors distinguish knowledge from information (and information from data). Alan

Burton-Jones (1999) defines knowledge as "the cumulative stock of information and

skills derived from use of information by the recipient". He distinguishes knowledge

from data (signals which can be sent by an originator to a recipient) and information

(data which are intelligible to the recipient).

Related to knowledge, knowledge management is another term specific to

knowledge-based economy. “Knowledge management is concerned with the

exploitation and development of the knowledge assets of an organization with a view to

furthering the organization’s objectives. The knowledge to be managed includes both

explicit, documented knowledge, and tacit, subjective knowledge. Management entails

all of those processes associated with the identification, sharing, and creation of

knowledge. This requires systems for the creation and maintenance of knowledge

repositories, and to cultivate and facilitate the sharing of knowledge and organizational

learning. Organizations that succeed in knowledge management are likely to view

knowledge as an asset and to develop organizational norms and values, which support

the creation and sharing of knowledge” (Rowley, 2000).

In brief, KM is the management of processes that govern the creation,

dissemination, and utilization of knowledge by merging technologies, organizational

structures and people – composing a knowledge management system - to create the

most effective learning, problem solving, and decision-making in an organization.

European Committee for Standardization has published in march 2004, after a

workshop, a resolution consisting in five parts, called CEN Workshop Agreements

(CWA 14924). According to European Guide to good Practice in Knowledge

Management - Part 1: Knowledge Management Framework (CWA 14924-1), the

framework for knowledge management is represented by three levels: processes that

generate added value, central activities and enablers. According to European Guide to

Revista Tinerilor Economişti

good Practice in Knowledge Management - Part 3: SME Implementation (CWA 14924-

3), five steps must be followed in order to implement knowledge management:

launching a knowledge management project, measuring the present stage of knowledge,

development, implementation and sustainability.

Knowledge management is the future type of management used by the

companies in order to acquire the competitive advantage. The Romanian companies,

from the perspective of EU accession and given its priority established at Lisbon, must

start to apply knowledge management principles in order to become competitive on a

broader and international market, and the presented guide would be a good staring point

to understand and to implement knowledge management.








3. Burton-Jones,


4. CEN



5. Gera, S.,

Weir, T.

Towards Knowledge-based Economies in APEC, APEC

Secretariat, Singapore, 2000, available at

The New Economy and APEC,APEC Secretariat,

Singapore, 2001, available at

Knowledge capitalism – business, work and learning in the

new economy, Oxford University Press, Oxford, 1999


Management Centre: rue de Stassart, 36 B-1050 Brussels,

march 2004, available at


The Knowledge-based Economy and Economic Growth:

theory and empirical evidence, New Economy Issues Paper

No.3, Department of Industry, Science and Resources,

Canberra, 2001, available at

6. Godin, B. The State of Science and Technology Indicators in the

OECD Countries, Science and Houghton, J. and Sheehan,

P. 2000, A Primer on the Knowledge Economy, Centre for

Strategic Economic Studies, Victoria University,

Melbourne, 1996, available at

7. Neef, D. The Knowledge Economy: An Introduction in The

Knowledge Economy, Ed. D. Neef, Butterworth-

Heinemann, Boston, 1998

8. OECD The Knowledge-based Economy, Paris, 1996

9. OECD A New Economy The Changing Role of Innovation and

Information Technology in Growth, Paris, 2000

10. Rowley, J. Is higher education ready for knowledge management

International Journal of Educational Management, 14(7),

325-333, 2000

11. World Bank


Program on knowledge for development, Knowledge

Assessment Methodology and Scorecards, 2002, available



Management – Marketing - Tourism


Assist. Ph.D. student Bocean Claudiu

University of Craiova

Faculty of Economics and Business


Craiova, Romania

Abstract: Good corporate governance is an important step in building

market confidence and encouraging more stable, long-term international

investment flows. The business corporation is an increasingly important

engine for wealth creation worldwide, and how companies are run will

influence welfare in society as a whole. In order to serve this wealth

creating function, companies must operate within a framework that keeps

them focused on their objectives and accountable for their actions. Many

countries see better corporate governance practices as a way to improve

economic dynamism and thus enhance overall economic performance.

Key words: corporate governance, ownership, shareholders, top management

1. Concept of corporate governance

The compatibility of corporate governance practices with global standards has

also become an important part of corporate success. The practice of good corporate

governance has therefore become a necessary prerequisite for any corporation to

manage effectively in the globalized market.

The term “corporate governance” is a relatively new one both in the public and

academic debates, although the issues it addresses have been around for much longer, at

least since Berle and Means (1932) and the even earlier Smith (1776).

In the last two decades, however, corporate governance issues have become

important not only in the academic literature, but also in public policy debates. During

this period, corporate governance has been identified with takeovers, financial

restructuring, and institutional investors' activism. One can talk about the governance of

a transaction, of a club, and, in general, of any economic organization. In a narrow

sense, corporate governance is simply the governance of a particular organizational

form - a corporation.

Viewing the corporation as a nexus of explicit and implicit contracts, Garvey

and Swan (1994) assert that governance determines how the firm’s top decision makers

actually administer such contracts.

Shleifer and Vishny (1997) define corporate governance by stating that it deals

with the ways in which suppliers of finance to corporations assure themselves of getting

a return on their investment. A similar concept is suggested by Caramanolis-Cötelli

(1995), who regards corporate governance as being determined by the equity allocation

among insiders and outside investors.

John and Senbet (1998) propose the more comprehensive definition that

corporate governance deals with mechanisms by which stakeholders of a corporation

exercise control over corporate insiders and management such that their interests are


Revista Tinerilor Economişti

protected. They include as stakeholders not just shareholders, but also debt holders and

even non-financial stakeholders such as employees, suppliers, customers, and other

interested parties. Hart (1995) closely shares this view as he suggests that corporate

governance issues arise in an organization whenever two conditions are present. First,

there is an agency problem, or conflict of interest, involving members of the

organization – these might be owners, managers, workers or consumers. Second,

transaction costs are such that this agency problem cannot be dealt with through a


Zingales (1997) defines corporate governance as the complex set of constraints

that shape the ex-post bargaining over the quasi-rents generated by a firm. All the

governance mechanisms discussed in the literature can be reinterpreted in light of this


An OECD study (1999) considers that corporate governance is the system by

which business corporations are directed and controlled. The corporate governance

structure specifies the distribution of rights and responsibilities among different

participants in the corporation, such as, the board, managers, shareholders and other

stakeholders, and spells out the rules and procedures for making decisions on corporate

affairs. By doing this, it also provides the structure through which the company

objectives are set, and the means of attaining those objectives and monitoring


A few studies have examined corporate governance in emerging markets,

although none has estimated the link between CEO turnover and corporate

performance. Researchers (La Porta, Lopez-de-Silanes, and Shleifer, 1999; Claessens,

Djankov, Fan and Lang, 1999; Lins, 2000) have studied the implications of the

concentrated corporate ownership that is common in many emerging and developed

markets and conclude that the principal agency problem in large corporations around

the world is that of restricting expropriation of minority shareholders by the controlling


2. Importance of corporate governance

Corporate governance matters for distribution of rents. Zingales (1997)

considers that are three main channels through which the conditions that affect the

division of quasi-rents also affect the total surplus produced:

1. Ex-ante incentive effects. The process through which surplus is divided expost

affects the ex-ante incentives to undertake some actions, which can create or

destroy some value, in two main ways. First, rational agents will not spend the optimal

amount of resources in value enhancing activities that are not properly rewarded by the

governance system. Second, rational agents will spend resources in inefficient

activities, whose only (or main) purpose is to alter the outcome of the ex-post

bargaining in their favor.

2. Inefficient bargaining. A second channel through which a governance system

affects total value is by altering ex-post bargaining efficiency. A governance system,

therefore, can affect the degree of information asymmetry between the parties, the level

of coordination costs, or the extent to which a party is liquidity constrained.

3. Risk aversion. Finally, a governance system might affect the ex-ante value of

the total surplus by determining the level and the distribution of risk. If the different

parties have different degrees of risk aversion (or different opportunities to diversify or


Management – Marketing - Tourism

hedge risk), then the efficiency of a governance system is also measured by how

effectively it allocates risk to the most risk-tolerant party.

3. Principles for corporate governance

Corporate governance is only part of the larger economic context in which

firms operate, which includes, for example, macroeconomic policies and the degree of

competition in product and factor markets. The corporate governance framework also

depends on the legal, regulatory, and institutional environment. In addition, factors such

as business ethics and corporate awareness of the environmental and societal interests

of the communities in which it operates can also have an impact on the reputation and

the long term success of a company.

OECD have assembled a system of principles that are intended to assist

member and non-member governments in their efforts to evaluate and improve the

legal, institutional and regulatory framework for corporate governance in their

countries, and to provide guidance and suggestions for stock exchanges, investors,

corporations, and other parties that have a role in the process of developing good

corporate governance. The principles cover five areas:

I) The rights of shareholders;

II) The equitable treatment of shareholders;

III) The role of stakeholders;

IV) Disclosure and transparency;

V) The responsibilities of the board.

Briefly those principles are:

I) The corporate governance framework should protect shareholders’ rights.

II) The corporate governance framework should ensure the equitable treatment

of all shareholders, including minority and foreign shareholders. All shareholders

should have the opportunity to obtain effective redress for violation of their rights.

III) The corporate governance framework should recognize the rights of

stakeholders as established by law and encourage active co-operation between

corporations and stakeholders in creating wealth, jobs, and the sustainability of

financially sound enterprises.

IV) The corporate governance framework should ensure that timely and

accurate disclosure is made on all material matters regarding the corporation, including

the financial situation, performance, ownership, and governance of the company.

V) The corporate governance framework should ensure the strategic guidance

of the company, the effective monitoring of management by the board, and the board’s

accountability to the company and the shareholders.

The principles are primarily intended to provide assistance to governments.

They also provide guidance and direction for stock-exchanges, investors, corporations

and other parties that have a role in developing good corporate governance. They can

indeed be a useful point of reference for many emerging markets and economies in

transition. Not only do the principles provide a benchmark for internationally accepted

standards, they also offer a solid platform for analysis and practices in individual

countries taking into account country specific circumstances, such as legal and cultural



Revista Tinerilor Economişti

4. The institutions of corporate governance

Mark Roe define corporate governance as the relationships at the top of the

firm - the board of directors, the senior managers, and the stockholders. In his opinion

institutions of corporate governance are those repeated mechanisms that allocate

authority among the three and that affect, modulate and control the decisions made at

the top of the firm.

Core corporate governance institutions respond to two distinct problems, one of

vertical governance (between distant shareholders and managers) and another of

horizontal governance (between a close, controlling shareholder and distant


The principal institutions are about ten: the market, the board, gate-keeping,

coalescing (via takeovers, proxy fights, and shareholder voice), incentive compensation,

professionalism, lawsuits, capital structure, and bankruptcy. Some institutions deal well

with vertical corporate governance but do less well with horizontal governance. The

institutions interact as complements and substitutes, and many can be seen as

developing out of a “primitive” of contract law. Arguably a system must get contract

enforcement, as well as basic property rights, satisfactory before it embarks on more

sophisticated corporate governance institutions.

5. The search for good corporate governance practices

Corporate governance affects the development and functioning of capital

markets and exerts a strong influence on resource allocation. In an era of increasing

capital mobility and globalization, it has also become an important framework

condition affecting the industrial competitiveness and economies.

Corporate governance mechanisms vary depending on industry sectors and type

of productive activity. Corporate governance framework can influence upon the

development of equity markets, R&D and innovative activity, and the development of

an active SME sector, and thus influence upon economic growth.

Identifying what constitutes good corporate governance practice, and under

what circumstances, is a difficult task. This is partly because the effectiveness of

corporate governance systems is influenced by differences in countries’ legal and

regulatory frameworks, and historical and cultural factors, in addition to the structure of

product and factor markets. The challenge, therefore, is not only to identify the

strengths and weaknesses in each individual system or group of systems, but also to

identify what are the underlying conditions upon which these strengths and weaknesses


One of the main challenges facing policy makers is how to develop a good

corporate governance framework which can secure the benefits associated with

controlling shareholders acting as direct monitors, while at the same time, ensuring that

they do not expropriate excessive rents at the expense of other stakeholders. The search

for good corporate governance practices should be based on an identification of what

works in defined countries, to discern what broad principles can be derived from these

experiences, and to examine the conditions for transferability of these practices to other


6. Corporate governance in Romania

Emerging Romanian system of corporate governance is characterized by the

big issue of the presence of major shareholders (who act as block holders) as a result of


Management – Marketing - Tourism

privatization with strategic investors. Consequently, the problem of responsibility and

accountability of the senior management does not seem to be a fundamental issue in

this case, rather the main problem that affects the Romanian corporate governance may

be identified in the weakness of the minority shareholders. In fact, due to the strength of

the block holder, the senior management is usually effectively monitored, so that it does

not run the company according to its own interest. However, this fact does not lead to

the conclusion that the interests of all the shareholders are pursued, since the block

holder seems to be able to make the senior management pursue his or her interest,

which often differs from the interest of the minority shareholders.

Corporate governance in Romania tends to benchmark other system, especially

of the European Union country, where it seems likely that the potential future corporate

governance system will take more into account the stakes of the employees, due to the

relevance of the Germanic reality.

7. Conclusions

Corporate governance is a concern of great importance to owners of common

stocks, because stockholder wealth depends in large part upon the goals of the people

who set the strategy of the corporation. The objectives of corporate managers often

conflict with those of the shareholders who own their companies.

The objectives of a good corporate governance system should be:

1) to maximize the incentives for value enhancing investments, while

minimizing inefficient power seeking;

2) to minimize inefficiency in ex-post bargaining;

3) to minimize any governance risk and allocate the residual risk to the least

risk-averse parties.

Mechanisms for controlling the dimension of corporate costs are necessary and

they include external and internal disciplining devices. It was observed that due to

important theoretical and practical limitations, external disciplining devices including

takeover threat, the managerial labor market, and mutual monitoring by managers,

reputation, competition in product factor markets and financial analysts cannot alone

solve the corporate governance problem, although they may be important in some

particular circumstances. Firms therefore have to adopt complementary internal

disciplining devices in order to minimize their total agency costs. These internal devices

include the composition of the board of directors, insider ownership, large shareholders,

compensation packages and financial policies (dividends and debt).

Events of the last two decades indicate that even corporate internal control

systems have failed to deal effectively with these changes, especially excess capacity

and the requirement for exit. Making the internal control systems of corporations work

is the major challenge of our time.


1. Berle Jr., A.,

Means, G.

2. Caramanolis-

Cötelli, B.

The Modern Corporation and Private Property, Macmillan,

New York, 1932

External and Internal Corporate Control Mechanisms and

the Role of the Board of Directors: A Review of the

Literature, Working Paper No 9606, Institute of Banking

and Financial Management, 1995


Revista Tinerilor Economişti

3. Claessens, S.,

Djankov, S.,

Lang, L.

Who controls East Asian corporations, World Bank Policy

Research Paper 2054, February 1999

4. Farinha, J. Corporate Governance: a Survey of The Literature,

November, 2003, accessed at, 22.09.2006

5. Garvey, G.,

Swan, P.

The Economics of Corporate Governance: Beyond the

Marshallian Firm, Journal of Corporate Finance 1, 1994, p.


6. Hart, O. Corporate Governance, Some Theory and Applications, The

Economic Journal 105, 1995, p. 687-689

7. John, K., Corporate Governance and Board Effectiveness, Journal of

Senbet, L. Banking and Finance 22, 1998, p. 371-403

8. La Porta, R., Corporate ownership around the world, Journal of Finance

Lopez-de- 54:2, April 1999, p. 471-517

Silanes, F.,

Shleifer, A.

9. Lins, K. Equity ownership and firm value in emerging markets,

working paper, Kenan-Flagler Business School, University

of North Carolina at Chapel Hill January 2000

10. OECD Study OECD Principles of Corporate Governance, Paris, 1999

11. Roe, M. The Institutions of Corporate Governance, Discussion Paper

No. 488, Harvard Law School, 08/2004

12. Shleifer, A., A Survey of Corporate Governance, Journal of Finance 52,

Vishny, R. 1997, p. 737-783

13. Zingales, L. Corporate Governance, University of Chicago, NBER &

CEPR, 1997


Management – Marketing - Tourism


Ph.D. Lect. Gruescu Ramona

University of Craiova

Faculty of Economy and Business


Craiova, Romania

Abstract: Tourism is an industry with an intensive work market, which is

based on men. The importance of the strategic treatment of tourism as a

consequence of its involvement in the solving of the problems of the

working class imposed, world wide, the promotion of some politics which

should assure both tourism’s integration in the strategies of fighting against

the unemployment, and also the allocation of investments for the increase

of the level of education and formation of professional aptitudes and

personnel quality, encouraging the partnership public sector-private sector.

Keywords: training initiatives, human resources, qualitative aspect, productivity,

professional preparation

Generally, the work market in tourism is characterized by a low level of the

education. Tourism is a traditional industry, fragmented, dominated by small businesses

and lead by managers who, mainly, have no education or formal training in tourism.

There is a point of view that a well qualified generalist can be soon trained in specific

problems of a touristic operation and it is preferred to a high qualified specialist in

tourism. This approach from down to up suffocates both the innovation and the

leadership. Given the rapid change of the nature of tourism, there is a danger from the

overspecialization in knowledge and detailed abilities.

Over the last years, countries have responded to the growth of the tourism

industry, focusing on the development of the product and on the marketing. With

limited resources used in tourism, the countries in general gave priority to the build of

hotels, airports, roads and other facilities and on the development of marketing


The advantages of tourism (Ionescu, Ionascu, Popescu, 2002) in the

mobilization of the working class consist in:

• Direct and indirect benefic effects for the entire economy;

• Jobs generator in arias with high rates of unemployment;

• Great number of jobs for debutants, youth, for female persons;

• Offers a large range of specific profession to the industry of tourism;

• Higher potential of growth of the utilization of the working force than

that of the industry in general;

• Season jobs;

• The capacity of creating new jobs in different regions, through

investments in the infrastructure;

• The predominance of the jobs in small and middle enterprises, the main

engine of the market economy.


Revista Tinerilor Economişti

The development of the human resources and of the training programs are often

implemented on an ad-hoc basis, with specific programs for preoccupations to face the

most pressing needs from an industry of the sector. There is a tendency of development

of the initiatives of remediation of the training which respond to what usually happens,

more likely than the proactive training initiatives, which anticipate which are going to

be the future needs of the industry. The important working resources are not seen as an

integrating part of tourism’s development. When tourists visit a destination-attraction,

they “buy” not only the charm and the attractions, but also the handing and services of

the employees from tourism.

The development of human resources includes the preparation and the

professional development of the employees. The general objectives of the same activity

result from the inner needs of a unit and are subordinated to it; they refer to the

elimination of the differences between the real level and the necessary level of the

personnel’s knowledge and abilities, to the creation for each employee of the

opportunities to learn, so that the learning would become a permanent activity of each

man of the firm.

The present problems working force demand from tourism derives from the

reasoning of economic order, connected to the increase of the economic efficiency, the

cost occasioned by the activity of professional preparation and development being taken

as investment for the assurance of the firm’s progress.

The professional preparation is a process of learning/training, through which

the wage earners acquire theoretical and practical knowledge, new technical abilities

which should make their present work more efficient. The professional development is

a more complex process of preparation of managers or other specialists to assume

increased responsibilities, in the present or future seats. These two types of activities

differ by purpose and persons to which they address to. In exchange, they are both

necessary both for the individual progress of each employee, and for that of the


The diversity and the quality of the services are the main factors of concurrence

and, as a consequence, the fundamental problems with which are dealing the industry of

tourism in general and the receptor international tourism in particular. On these two

essential aspects depends, in the last place, the prosperity, the stagnation or the

involution of the entire future touristic activity.

The service provided for the clients is the result of two components: a

qualitative one, with mainly material character (example: the doting with technique

equipments, the quantity and the diversity of the aliments, the environment, the number

of the personnel etc.), which can be evaluated on an objective basis, and the second one,

a qualitative component, behaviorist, which cannot be evaluated objectively; this in

certain situations can have a decisive role.

The quantitative growth of those involved in the organization and the

performing of voyages, in the serving of tourists is an effect of the significant increase

of the number of persons which make a journey, the distances of traveling, of the time

allocated to holidays etc. the number of those who work in hotels and restaurants,

transports, travel agencies, pleasure performances, the administrative leading of the

touristic apparatus registered a substantial increase on tourism’s development. These

activities are found, totally or partially, in the structure of the touristic industry, which

makes difficult the rigorous evaluation of those occupied in tourism; many of these jobs

are seasoning or part-time, so that, the contribution of tourism to the full-time hiring is


Management – Marketing - Tourism

considerably smaller in comparison to the jobs paid by the hour. Moreover, we should

mention that the aria of inclusion of the touristic industry is sensibly different from one

country to another, accentuating the difficulties of commensuration from this sector.

The jobs are often created in arias where there are few alternatives of hiring. It is worth

reminding that many of these jobs attract those who want to work during the season,

such as students who look for work as representatives of the resort during the summer

or the owners who rent their houses in the summer time.

It is clear that, for the countries which are major warm destinations or who

rejoice a powerful internal touristic demand, the number of jobs is much bigger. In the

balance sheet, tourism as a form of employment is benefic from the economic point of

view, although efforts should be made in order to create more full-time jobs in this


A particular aspect of the relationship tourism-working force is represented by

the indirect contribution to the increase of the number of those occupied in this sector,

the tourism having the quality of goods and services consumer; this influences

favorably the utilization of the working force in its supplying branches, such as:

agriculture, alimentary industry, light industry, constructions, the industry of

construction materials, etc. If the tourists are accommodated in a certain aria, there are

created directly jobs. These workers and their families who live nearby must take

supplies from the aria, and their families need preparation and medical assistance. In

their turn, these give birth to other jobs in shops, schools and hospitals in order to

satisfy the needs. The volume and the quality of the touristic activity depend essentially

on the personnel quantified by characteristics like: the number of workers, the

qualification level, and their professionalism. The role of the human factor increased

during the contemporary period, because of the increase of exigencies of consumers for

the quality of services and the participation to the touristic activity of larger and larger

segments of the population.

A multitude of aspects define the relationship tourism-working force under the

qualitative aspect, such as: the level of qualification of those occupied in tourism and

the structure of the working force on levels of preparation, the report between the those

hired full time and part time, the proportion of the seasoning employees and the

personnel fluctuation, the cost of the professional formation.

From the point of view of the professional preparation, a great part of the

specialists consider that tourism needs personnel with a high qualification level, with a

large horizon of knowledge, well trained, knowing a foreign language of international

circulation, capable to recommend and promote the touristic product; also an important

segment of the experts in the field appreciate that also the activities which do not

require a specialty preparation have a large presentation in tourism, this becoming a

outlet for the unqualified and poorly qualified working force.

The experts’ opinions are supported by the structure on qualification levels of

those occupied in tourism; upon some studies effectuated in the main European touristic

countries the fallowing were observed: appreciatively 40% form the total of the

personnel from tourism is unqualified, almost 42% has general average preparation,

8%-specialty studies and only 10%-superior studies.

The relative high cost (comparable, in some authors’ opinion, with that from

the industries with high level of technique) the demand of a new job in tourism and its

maintenance is determined by the temporary character of the employment of the

workers from tourism.


Revista Tinerilor Economişti

The quality characteristics of the serving personnel have in view:

- The quantitative side (number of employees at one room);

- The qualitative side (handling, specialty knowledge, attitude towards the

clients, the operability of the serving, elegance, good taste etc.)

Taking into consideration all these, a definition of the quality of human

resources is enunciated as being “the ensemble of their individual and mutual

characteristics which in a certain social and management climate, of a system of

stimulants and in the presence of some adequate material conditions are used

voluntarily for the realization of the objectives of the organization at a high

performance level”.

It is obvious that the desire of rending efficient the activities of the companies

imposes the necessity of the assurance of the human resources at a superior qualitative


In fact the international standards of the quality vise precisely this thing, and a

distinct procedure of the quality system (included in these standards), entitled “the

qualification, the training, the selection and the hiring of the personnel”, establishes the

demands and the modalities of assurance of the corresponding human resources under

the qualitative aspect basing itself on the fallowing components:

• The recruiting, the selection and the integration of the personnel;

• The appointment on the job/post;

• The promotion and the transfer;

• The wage system and other forms of remuneration;

• The evaluation of the personnel;

• The organization and the production of work;

• The professional instruction and preparation;

• The assurance of the conditions for the recuperation of the working


These components have in view the assurance and the growth of the human

resources quality and also the qualitative level at a certain point, on the basis of the

specific characteristics.

The personnel’s behavior must be inscribed in a conduit specific to each firm,

which is defined through its politic of a product. The objectives of the use of the

personnel are tightly connected to the ensemble objectives of the politic of product of

the firm. They are found in desiderates as the quality improvement, the productivity

growth and the services diversification.

The dimension of the quality of the performed services is determined, in

greatest part, by the activities fulfilled by the contact personnel. Their simple

enumeration outlines the role of the personnel performer of services, come in direct

contact with the client, in the improvement of the services’ quality in tourism: the

correctitude, the receptivity, the trust inspired, the personalization and their inclusion as

an objective of the use of the personnel. Such a role is the consequence of the position

held by the personnel, found at the frontier between the internal and the external

environment. The reminded aspects suppose the development of an emotional activity

characterized by symbol, look, the expression of a sincere interest, conversation etc.

The essential role of the human resources both at the level of firm, and at the

level of the entire society, results from the fallowing considerations:

• the human resources fulfill a decisive role in the process of transformation of

nature in goods destined to the needs of the society;



Management – Marketing - Tourism

• the human resources produce and reproduce the objective factors of production;

• they represent both the creators and the stimulators of the production means;

• they represent the only production factor capable of creating great values;

• they influence in most part the efficiency of the use of material, financial

resources and of information.

The aptitudes necessary to the development of a useful activity must satisfy the

fallowing criteria:

• the competence, respectively the capacity of resolving the tasks required by the


• the years of service, the firm being able to recruit whether only youth, more

easily to form professionally, or experienced candidates;

• the intelligence, the creativity, the ease of integration in the work groups, the

results obtained at the present job or at the previous jobs.

In tourism however, because of the direct relationship personnel-client, it is

also necessary to observe the personnel’s behavior, its attitude, its way to act and react,

because these represent essential critiques of appreciation of the quality of services in

their whole, elements which generate the tourists’ pleasing and satisfaction.

Tourism gives to the work performed in this sector a series of characteristics

among which: large consume of live work, material and moral responsibility, relatively

high and complex level of preparation, direct relations worker-client, accentuated

seasonality, use of work models with partial time.

Tourism is an intensive domain in the work which means the consummation of

live work is superior comparatively to other branches of close dimensions. Thus, the

necessary of work at the unity of product is one of the highest, which supposes a greater

number of workers and lower work productivity. The main reason of this state consists

in the fact that the mechanization and the automation have a limited sphere of

application and can be realized for a small number of operations.

Because of the direct implication of an important part of the tourism employees

in the process of serving the consumers, these have a high material and moral

responsibility. The material responsibility is determined by the material values the

employees have to take care of, administrate and manipulate, to which is added, for

many personnel categories, the responsibility for the goods of the tourists found in the

hotel accommodation units and similar ones.

As far as the moral responsibility is concerned, we must start from the premises

that the employee from tourism has an important role in the simulation of the demand,

the creation of a relaxation atmosphere, the formulation of the buying decision, the

formation and the maintaining of the interests for the touristic product and, in

conclusion, in the tourist’s return.

Also, the touristic industry supposes a relatively high and complex level of

preparation. In tourism there is an important number of functions which do not need a

special qualification; beside these the work from tourism reclaims apart from the

knowledge of technical order, specific to each sector (hotels, alimentation, transport)

also a high general instruction and culture level. The employee must know a language

of international circulation, know and be able to present the touristic values of the aria

where they perform their activity, be able to offer detailed useful and correct

information; the physical features and the appearance are important for the creation of

an agreeable atmosphere and the stimulation of the consumers. Also, they must have the

Revista Tinerilor Economişti

capacity to adapt to the psychical mood of the tourist, to promote a relaxed, relaxing

climate (R. Minciu, 2001)

Another characteristic of the work in tourism is that of the direct contact

between the worker and the client/tourist which will determine a continual effort of the

worker to adapt to the demands and the personality of each client, and also of an

adequate of communication between them. The direct contact employee-client imposes

increased exigencies regarding the professional, specialty and psychical preparation.

The work productivity in tourism presents smaller values than in other branches

of the economy because of the large consummation of live work and the reduced

possibilities of implementation of the technical progress. For the realization of an

increase of the work productivity, this reflecting in the financial results of ensemble of

the economic agent, it is necessary to identify the influence factors of the work

productivity and the modality of their modification.

Within the factors of direct influence allows the exercise in better conditions of

the functions and the obtaining of better results. Any misfit between the demands of the

job and the professional preparation of the employees is negatively reflected on the

work productivity and on the satisfaction in work of the worker. As a consequence, a

rigorous delimitation of the attributions of each job is important, the recruitment of well

prepared workers and the permanent raising of their level of qualification.

Also, an important factor of influence of work productivity is constituted by the

manner of organization of work. This vises the organization of each job in the purpose

of the obtaining of a maximum working efficiency, through the promotion of modern

methods of leading, the fluidization of the information circuit, the improvement of the

system of work norm setting and the, the simplification of the organizational, the

simplification of the organizational structure, the reduction of the number of


The results of the work and the consummation of live work differ in report of

the degree of technical endowment and the technical-functional parameters of the

equipments and installations. The growth of the degree of technical endowment

reclaims, however, the investments raised and it is relatively limited, only a part of the

compartments of the touristic activity having a high degree of receptivity at the

technical progress. The realization of these investing efforts for a superior technical

doting will allow the getting of better results under the qualitative aspect, at the same

time with the more rapid and quality serving of the consumers.

Beside the direct factors of influence, on the work productivity can act, at

random and with a more reduced, a series of indirect factors which exercise an

influence on the conditions in which the touristic activity is developed: the level of

prices and tariffs, the seasonality of the touristic activity, the tourists’ structure, the

placement of the units according to the main orientations of the fluxes of travelers, the

force of attraction of certain arias, the fame of some holiday destinations.

The level of prices and tariffs determine the majoring of the value volume of

the activity and, implicitly, a growth of the work productivity. This factor, however,

must be carefully analyzed, the variation of the prices and tariffs being possibly the

effect of the action of plural factors such as: the improvement of the services’ quality,

the inflation and the structure on types and categories of comfort of the units. The units

of superior category register thus higher levels of work productivity although the effort

of the employees and the consummation of live work can be the same with that of the

employees from the units of a more modest category.


Management – Marketing - Tourism

The seasonality dependent on the natural factors, on the consume customs, on

the institutionalized holiday periods, determine the concentration of the demand in

some periods and its limitation the rest of the time, with unfavorable effects on the

volume of the activity, the consummation of live work and of their results.

The incidences on the work productivity create the structure of tourists too

according to the type of tourism practiced-national or international, on the type of

arrangement solicited (in the organized tourism being used more reduced tariffs), the

used means of transport, the motivation of the journey, etc. (R. Minciu 2001)

Because the improvement of the quality of services and the growth of the

productivity are often found in an inverse relation, becomes necessary the performing

of the activity in a manner which would assure the equilibrium between the quality and

the quantity of the performed services, equilibrium which is constituted in a specific

objective of the use of personnel.

In this context appears obvious the fact that the strategies of the use of the

personnel are found in the strategies of the activity developed in the domain of the

assurance with the necessary of human resources.

• the recruitment of personnel with real aptitudes for the performing of touristic


• its perfecting in the performing of some high quality services;

• the motivation of the personnel hired for its perpetuation,

• the assurance of the material support necessary to the realization of the

performance and

• the keeping the best within the firm

Each alternative is rendered operational through various specific strategies.

One of the major problems of the industry is the developing of challenging and

financially attractive careers in the industry of tourism: the careers which will increase

the dignity of the industry through the increasing of the professionalism; the reduction

of expensive expenses with the personnel; the raising of the productivity through the

sense of the property. Clearly the education and the training have an important role to

play, to build a solid foundation of qualification and the experience of the industry. All

over in tourism, the expenses with the personnel are generally raised at all the level of

sub management, leading to difficulties regarding the recruitment. But the companies

which carefully planned the recruitment and training strategies sustain that that helped

them keep their personnel.

The employers from tourism consider that the preparation basis as important at

all levels. From their point of view, the most appropriate educational level is the

vocational training for the personnel which is in direct contact with the clients and the

supervisors, while these prefer post university classes for the managers.

The preferred study domains are the specific preparation in the tourism

combined with the study of the businesses and liberal arts, which suggests that the

employers wish to discover human resources of the type of those prepared in several

domains, which can adapt to the functions specific to each professional category.

The employers from tourism have identified their priorities for basic and

theoretic knowledge and the personal abilities considered essential for each type of job.

Of particular interest, low rates of the priorities were registered, which is surprising if

we consider the levels of satisfaction of the employers from tourism are relatively low.

Still, the interpersonal communication appeared as being of a relevant importance at the

level of the supervisors and the personnel which is in direct contact with the clients,


Revista Tinerilor Economişti

while the management abilities and the strategic planning were overwhelming at the

managerial level. As main tendencies in the problems connected to the development of

the abilities and of those referring to the job we can notice:

• The managers will have to develop more abilities as far as the management of

human resources is concerned, especially in the knowing of the aspects which

motivate the working force.

• At the same time with the continual internalization of businesses, all the

managerial levels will need more training as far as the international

environments and the multicultural abilities are concerned.

• The knowing of the environment and the conservation techniques will become

an essential part of the education in tourism at all professional levels.

• The expansion of the franchise among the transnational companies will hurry

the need for international standards in the quality of services and finally among

the abilities and knowledge of the employees.

• The problems of public health, such as AIDS, will become an essential part of

the education in tourism at all levels.

• The supervisors will have to acquire more management abilities of high level,

such as the previsions of marketing and the strategic planning.

• The employers will prefer the candidates who already hold a combination

between the formal education and a previous working experience.

• The performance of an employee will count more than other criteria regarding

the compensation and the benefits.

• The groups, such as those of women, which were traditionally less represented

at the managerial levels, will play a more important role.

• The change of the life style will determine the companies to adopt more

flexible practices of work.

• Tendencies of saving the economy will reduce the chances of promotion of the


• In order to increase the services’ quality, the incentives will become standards

for companies.

• More tourism graduates will be hired for supervisors’ positions than it is

usually the case.

• The towns of 24 h will become the norm, inducing a non stop system of hiring.

• A MBA will become an essential request to enter and advance at the

managerial levels of a company.

• The industry will rather hire persons who detain knowledge in the liberal arts.

The employers appreciated the quality of the abilities and knowledge of their

employees as being very low, especially at the level of the personnel which is in direct

contact with the clients. Still, this is precisely the category with the lowest access to the

training opportunities, so we ca deduce from the observations regarding the current

initiatives meant to improve the preparation of the employees from tourism.

Beside the formal education, the employers showed a special importance for

the previous experience of their personnel. From now on we need specific training

programs which should combine the theoretic knowledge with the experience.

The most appropriate environment for the habituation of abilities and

knowledge requested for the fulfillment of the tasks connected to each occupational

category has proven to be a combination between school and the job, which suggests


Management – Marketing - Tourism

that the suppliers of education and the employers from tourism should work more

together in the creation of training programs.

The main major tendencies are the predictable growth in the industry of tourism

and the reorientation towards new markets. The problem on which there is a general

consensus refers to the need of qualified human resources, capable of guarantee the

offering of quality services in tourism- a sine qua non condition in order to exist


There is a general agreement that the businesses in tourism should play a

relevant role in the training and practical education of their employees. Within the

educational system are permanently producing modifications, in order to adapt to the

demand in continuous change:

• the training institutions in tourism will have to improve the part of the

education syllabus which refers to the businesses abilities.

• The constant technological change will affect the traditional teaching methods,

once are introduced alternatives such as distance education, interactive training


• The industry will have an increased responsibility for the preparation of their

employees at all levels.

• The companies will continue more and more the continuous preparation in

order to assure the commitment and the keeping of their employers.

• International exchange programs at all hiring levels will become usual.

The industry and the education must work in partnership in order to promote

the accessibility of tourism as an activity. The educational levels in schools- and among

the general public- connected to the tourism, was lowed in the past and contributed to

the bad image of tourism and to its acceptability as an activity in general. This is why

there is a desperate need in the future so that industry and education tie this lack and

work together. The expansion of education and training in tourism has reached the point

to create an intense pressure on the budgets of the public sector. Traditionally, the

public sector expects to furnish educational programs which will produce the managers

from tourism and the personnel in direct contact with the client. In front of the budget

reductions, the educational institutions will have to cooperate much closer, and enforce

the connections with the industry, the tourism boards and other organisms in tourismincluding

the community and the consumers.

In the future, are needed a vision, commitment and mutual respect both from

the part of industry and the education. If education and training in tourism will support

a profitable industry in tourism, where the key position of the development of human

resources is recognized, stronger partnerships will be able to be realized, a better

communication and a mutual direction for an education, training and quality products in

tourism. The development of quality tourism and of a quality education and training in

tourism will satisfy the conviction of a large specter of clients- parents, students,

employers, governments and the tourism clients- that tourism is a responsible, mature


A distinction should be made between education and training, the benefits of

the education in tourism are more on a long term, contrasting to the training in tourism,

where the benefits are measurable and instantaneous.

For the industry as a whole, these add value, raise the quality of the personnel,

give a sense to the professionalism and of the property. Also, it helps to the

identification and to the pointing out of the resemblances with other different sectors


Revista Tinerilor Economişti

(for instance transport, hospitality, attractions). Those who work in industry understand

the inter-relations between the sectors and start to perceive opportunities of businesses.

The training offers especially practical abilities and knowledge which raises the

performance and the productivity of the personnel within the industry, connecting the

education and training to the planning of the working force it will be allowed a greater

closeness to the sector’s needs of the results of the tourism schools. Obviously, the

employers with vision on a long term use education and training to help them keep the

personnel offer a career to the employees succeeding this way a better use of the human

resources in the industry of tourism.

A well trained professionally industry of tourism will furnish a better product

and a better level of the service for more and more full of pretensions tourists. Better

prepared personnel, better paid offering better services to the clients and a greater

productivity of the company, make the company and the country richer, benefiting both

the visitors and the resident population. The visitors will return to reinforce the cycle.

The industry admits clearly that the quality human resources in tourism are the

key for its future success. Beside this quality need is registered an increase in the

number and variety of the abilities requested for different occupations of the industry.

For instance, the hotel personnel have access in useful time to information in order to

help them fulfill more efficiently the tasks. Also, the general hotel managers are no

longer simple good hosts; they must be efficient leaders with good operational and

financial management abilities and be capable of assuming a large palette of

responsibilities from the increase of sales, the planning of a new relaxation complex,

and also develop a multicultural approach of the businesses operations. This means that,

in order to stay efficient, the tourism managers must profound their knowledge

regarding the operational aspects of businesses, and the good conceptual and creative


The fact that tourism is interpreted in different ways and extends on so many

sectors is reflected through the multitude of educational approaches adopted.

The professional preparation and the systems of professional preparation play

an important part when we speak of the need of perfecting the aptitudes, but new forms

of work organization and a more complex business environment suppose new

approaches of the professional preparation. Plus there is the need of taking into account

all the processes during which people learn, in order to understand and improve the

totality of the possibilities of development of the human resources as an innovation

basis, productivity, quality and competition in the industry of tourism.

The professional preparation is necessary to cope with the demand in growth to

the acquiring of new aptitudes by the working force. For that were outlined through

importance the fallowing priorities: the facilitation of the information exchange,

especially through the new technologies; the improvement of the professional

preparation through the acquiring of new aptitudes in the industry of tourism; the

improvement of the quality of the touristic products; the promotion of the

environmental preservation and the durable development in tourism; the professional

preparation and other processes regarding the job and the spare time when people are


The preparation of the human resources can be achieved through one of the


• formal learning, which takes place in education and training educations,

generating diplomas and acknowledged qualifications



Management – Marketing - Tourism

• the non formal learning which happens beside the main systems of the

education and training and does not necessarily lead to formalized certificates.

The non formal learning can be furnished at the job place through the activities

of the organizations and the societies’ groups (such as the youth organizations,

the syndicates and the politic parts). Also they can be furnished trough the

organizations and the services which were founded to complete the formal

systems (such as the art, music, sport classes or the private professors to get

prepared for the exam)

• the informal learning is not an usual accompaniment in the ordinary life. Unlike

the formal and the non formal learning, the informal learning is not necessarily

an intentioned learning and hence it can be easily recognized by persons as a

way of contributing to the knowledge and their competences.

The concept of competence embraces the technical abilities, the general

abilities, the personal abilities and also the abilities (easy abilities) necessary to be

useful in other abilities in an organizational/ business context. While the abilities can be

acquired in an institutionalized context offered by educational/ training institutions, the

person needs informal abilities and auto learning abilities in order to use the formal

abilities at his job.

There is the need of knowledge for tourism in general and need for each

working category: managers, supervisors, qualified/professions working force. Still

there is a mutual need of knowledge needs for all the categories- which of course

depend on the size of the enterprise.

Beside the fact that the learning needs are oriented towards the ability to lead

and facilitate the stimulation of services- which is the basis of the industry- the needs of

learning could be relevant for other sectors of the economy too. This works for all the

categories of working force and in particular for management.

The fast progress of the tourism as an object, and the acknowledgement of its

importance by the government had accelerated the study of tourism, although often in

an ad-hoc and unplanned manner. Tourism has now its own academic community,

magazines, the support of the professional societies and an increasing number of books.

As far as this growth increases a series of new classes in tourism, the educators in

tourism is confronted with severe problems, and is concerned by the quality and the

distribution of classes in tourism, the standards of the involved personnel. First of all,

the aria of study itself presents a major handicap, influenced by the weaknesses and the

conceptual fragmentations. Hence the educators are dealing with many questions which

in other subjects would be on mutual ground. This happens just because there isn’t a

general agreement on the definition of tourism or on what the industry of tourism

contains. This leads to a number of different industrial sectors and academic subjects,

reinforcing the needs of a disciplined approach. Also it points out the problems with the

data sources both of comparability and also of quality. Great part of the activity of

tourism is relatively recently developed, and only of a few time it was considered it is

worth a serious business effort or an academic study. As a consequence, the subject

lacks the antecedents of a mature domain, and the educational and intellectual

infrastructure is only now arranged. The diversity and the quality of services are the

main factors of competitiveness and, thus, and also the fundamental problems with

which is confronted the industry of tourism in general and the international receptor

tourism in particular. On these two essential aspects depends, last of all, the stagnation

or the regression of the entire future touristic activity.

Revista Tinerilor Economişti


1. Cooper, C.,

Shepherd ,R.,

Westlake, J.

Education and educators in tourism: A manual of

tourism and hospitality education, WTO Tourism

and Training Series, 1996

2. Cristureanu, C. The economy and the politic of international

tourism, Abeona, Bucharest, 2002

3. Holloway, J. C. The Bussiness of Tourism”-sixth edition, Pearson

Education, London, 2002

4. * * * Present problems of the demand of working force

from the Romanian tourism in the context of the

European Union adherence-Phase I, The National

Institute of Research-Development in tourism,



Management – Marketing - Tourism


Ph.D. Lect. Buziernescu Radu

Ph.D. Lect. Nanu Roxana

Ph.D. Assist. Berceanu Oana

Faculty of Economy and Business


Craiova, Romania

Abstract: When considering the change of the Romanian society, one

cannot ignore the public administration system, the need for introducing a

modern dimension in this system and for sharing the values of the

European administrative space. This article is aimed at approaching these

ideas in the context of the impact of the reform process on the public

administration in the recent years. The major challenge for local authorities

is to create the mechanisms for supporting Romania’s accession to the

European Union, in order to deal with the cultural and economic changes,

but also to be able to manage European structural and cohesion funds and

to implement public policies.

Key words: public administration, reform, decentralization

Integration in the European structures requires the development of a public

administration convergent to the values of the European Administrative Space, and also

capable to allow Romania to meet the requirements of full EU membership.

Public administration reform reflects substantive changes in its major

components, both at central government and local administrative level, and in the

delivery of public services in general. On the other side, democratic consolidation

requires the development of a new relationship between citizens and administration, a

strengthened role of the authorities and the redefinition of the partnership with the civil

society and the local elected officials.

Public administration reform is an all-embracing concept; it contains all aspects

of the public sector organization including the overall architecture of ministries and

agencies, the organizations, systems, structures, processes, incentives, as well as the

arrangements for maintaining governance over these arrangements and reforming the

system from time to time.

Administrative capacity is crucial to reform and to the functioning of the state,

but as we have noted it is only part of the larger vision, and by itself it will not be

effective in delivering the results expected from a modern administration. In fact,

increased administrative capacity, by itself, can be as much of a hindrance as a help to

achieving results. It depends in part how it is organized and directed, and also how it is

staffed and with what attitude the staff undertake their functions.

In order to support the fundamental change of the administrative system, in

agreement with the requirements of the reform process, a consistent set of measures

needs to be implemented in a clear time framework, in the areas of civil service reform

– aimed at creating a professional, stable and politically neutral corps of civil servants -,


Revista Tinerilor Economişti

local public administration – aimed at continuing the decentralization/de-concentration

process of public services - and central government reform – aimed at improving the

policy formulation process.

A coherent and credible public administration reform process engaging both the

political and the administrative systems requires the development of a stable network

promoting the change, made up of the main stakeholders in this process.

In practice, the reformers network can simply get started by trying to develop

managerial capabilities and working out how to install these new capabilities within the

existing hierarchies of the state. This process will reveal the kind of problems that other

countries have had to solve, and will reduce the learning cycle Romania has to go

through. In 2002 a national modernizers network covering both central and local

administration was set up, with the support of EU funded experts. The network consists

of over 380 civil servants working in ministries, prefectures and local communities.

In order for public administration reform to be successful, it is necessary that a

large number of target groups (especially key people at the management and decision

making levels) support and commit to the need for changes and their implementation.

Based on the integrated organizational development model, the negative influences on

the implementation process can be identified:

- strategic factors (decision making complexity),

- structural factors (bureaucracy of the system, limited human and financial

resources, size and complexity),

- cultural factors (risk aversion, inertia, mentality),

- and behavioral factors (lack of individual incentives, misunderstanding of overall

objectives, frustration, expectation behavior).

Decentralization is the transfer of authority and responsibility for certain public

functions from the level of the central government of a country to sub-national

government levels or autonomous institutions1.

The Strategy for Public Administration Reform in Romania, agreed by the

European Commission, defines decentralization by three directions:

⇒ Continuation of the decentralization, by transferring administrative and financial

responsibilities and competencies from the central administration to local


⇒ Continuation of the deconcentration process, by delegating responsibilities to the

territorial levels according to local needs, within the same administrative structure

(the deconcentrated services are operating under the authority of the ministry

delegating that responsibility);

⇒ Transformation of the deconcentrated territorial services, according to citizens

needs and for making them more effective, into decentralized services under the

authority of local authorities.

Depending on the transferred responsibilities, the decentralization falls under

three categories: political, administrative and fiscal.

Political decentralization means greater power for the citizens in the decision

making process, guaranteed by the democratic processes.

Administrative decentralization is, the transfer of responsibility on the

planning, financing, and management of certain public functions from the central

government and its agencies to subordinated units, semi-autonomous public authorities

or regional or local authorities.


Management – Marketing - Tourism

In the current context of public administration reform, decentralization and

deconcentration, as part of the administrative decentralization, are considered a priority,

noting that the decentralization is assimilated to devolution and delegation. In the same

context, we must note that in Romania’s case, devolution does not involve a possible

territorial and administrative autonomy.

According to the Constitution of Romania, revised in 2003, “the public

administration of administrative and territorial units is based on the principles of

decentralization, local autonomy and deconcentration of public services”. At the same

time, the fundamental law states that the County Council is “the public administration

authority coordinating the activity of local councils, with a view to providing the public

services of county interest” (Art. 122/1).

During the last years, Romania has made important progresses in the area of

decentralization. The process went through four stages. In the first stage (1991-1994) 8

important changes were made in the structure and funding of local authorities, including

the introduction of the local taxation system.

In the second stage of the reform policy (1998- 2000) administrative and

financial decentralization became a priority. Based on the new legislation on financing

of local public authorities5, the share of GDP going to local budgets increased (from

3.6% in 1998 to 6.5% in 2001), but also the share of local expenditure in total public

expenditure increase (from 14.4% in 1998 to 26.6% in 2001).

In the third stage (2001- 2004) the new laws set new rules for certain functions

of local authorities6, especially from public services or utilities 9 .

The fourth stage (after 2004) started with the design and approval of the

Updated Strategy for Accelerating Public Administration Reform (Government

Decision no. 699/2004). One of the most important components of this strategy is the

continuation of the decentralization and deconcentration processes. For implementing

this strategy, a legislative package was drafted to support the entire process (the

Framework Law for Decentralization no. 339/2004, the Law of the Prefect no.

340/2004 and the Government Decision no. 2201/2004 on the Inter-ministerial

Technical Committee and Working Groups on Decentralization).

Public administration cannot be reformed in a few years. It is a long-term

process, which probably can be implemented only by several consecutive governments

in a difficult, highly competitive and rapidly changing external environment. For this

reason, it is necessary to reach consensus on the following principles which will govern

the whole reform process:

⇒ Widely disseminating information on the reform and mobilizing interest of citizens,

professionals, political representatives and civil servants in making the reform

8 Law on Local Public Administration no. 69/1991, Government Ordinance no.15/1992 on Local Taxes,

and Law no.27/1994 on Local Taxes.

9 Law no. 326/2001 on publioc community services, Government Ordinance (GO) no. 86/2001 on local

passangers public transport services, GO no. 84/2001 on the public service for people’s registration, GO

no. 88/2001 on the public services for emergency situations, GO no. 202/2002 on the integrated

management of the coastal area, GO no. 21/2002 on tha management of urban and rural communities, GO

no. 32/2002 privind on that public services for water distribution and sewage, GO no.71/2002 on setting up

local public services for the management of public and pritate domains of local interest..


Revista Tinerilor Economişti

happen and democratically exchanging opinions on its desirable and feasible


⇒ Basing the reform on solid professional analyses of the present state and

performance of public administration and on periodic evaluation of the

consequences of completed reform steps;

⇒ Using experience with public administration reform in other countries, particularly

in EU member states and in the countries preparing for accession to the EU, while

considering our own tradition and experience;

⇒ Adopting a comprehensive approach to the reform: no isolated and partial changes

should be implemented if not conceived as integral and organic parts of the total

reform strategy and process;

⇒ Viewing the reform as an open process: individual reform components will be

continuously updated and adapted to the changes in the external environment of

public administration and in other components of the reform, and will utilize

experience acquired during implementation;

⇒ Determining strategic priorities: a limited number of priority changes will have to

be defined for every reform phase on which attention and funds will have to

concentrate; these should be the changes that predetermine the overall progress of

the reform and condition or influence all other changes;

⇒ Assuring continuity of the operation of public administration, which must continue

to function also in the course of reorganization, decentralization and other changes;

⇒ Managing and coordinating the whole reform from a single centre at the highest

level of Government, to ensure coherence of the strategy implementation.


There is a considerable gap between the legal developments (both

constitutional and regulatory) and the actual implementation on the ground. In theory,

Romania is already a decentralized state. This statement can be supported by the

following arguments: the Constitution of Romania guarantees the freedom to manage of

local communities and no subordination between administrative tiers; successive

primary legislation grants wide competencies to local communities in the areas of

education, health care, social security, cultural action, local services management, etc.

But in reality the situation is seriously lagging behind, often because of the financial

arrangements. For example, the VAT transfers envisaged for funding the new

competencies are done in an arbitrary and non-transparent way, without clear objective

criteria. At local level, decentralization has not had consistent and substantive effects so

far, but is a favorable opinion on the decentralization process and on the advantages it

may generate.

The state services lack visibility as far as local needs are concerned and have a

tendency to be reductive in credit allocation, although these allocations are supposed to

automatically finance the new competencies. This creates frustration among local

officials, who are (rightly) claiming that the decentralization stated in legal acts is

insufficiently applied and ultimately depends on their ability to negotiate with the state,

with all the related political risks.


Management – Marketing - Tourism


1. Profiroiu, M. Managementul strategic al colectivitatilor locale, Editura

Economica, Bucuresti, 2003

2. Rondinelli,


What is Decentralization, In Litvack, J. and J. Seddon

(eds.). “Decentralization Briefing Notes”, Washington,

D.C.: Word Bank Institute, 1999.

3. * * *


Revista Tinerilor Economişti


Economic Theories – International Economic Relations


Lect. Manole Cristina

Assoc. Prof. Ph.D. Colesca Sofia Elena

Academy of Economical Studies

Faculty of Management

Bucureşti, România

Abstract: In the context of the Romanian public administration reform,

the continuous formation of human resources becomes a solid

background. In order to implement all continuous forming programs and

realizing the public administration reform objectives there is needed the

establishment of the priority problems and the time horizon they must be

approached in. All these aspects are mentioned, detailed in the following


Key words: Forming system, public administration, human resource management

The forming system represents the total activities and the corresponding

structure regarding initial and continuous formation of public servants, meaning the

conceptual, methodological and didactical support, in order to realize the forming

strategies. This system’s construction offers an overall image of all mechanisms and

forming methods, emphasizing their coherence and efficacy. Actually, the knowledge

transfer, know-how and/or experiences essentially orient this system as follows:

- the knowledge transfer consists of the mobilization of general or specialized

knowledge needed to be accumulated with priority;

- know-how means detailed knowledge of means and necessary methods needed

to develop current activities;

- experiences appeal to active participation during the forming program,

regarding the possibilities transfer in order to act.

The architecture of the forming system appears to be extremely diverse and

specialized, consisting of the following aspects:

1. The compulsory forming levels;

2. Forming cycles including the program frames;

3. Forming centers (national and local forming network)

The compulsory forming levels

The successive scanning of compulsory forming levels is materialized in

proficiency recognition, needed to access and promote in the public servant career.

These levels are presented as follows:

Level 1: forming before conscription, generally realized in an organized

environment, based on knowledge development, usually corresponding to the high

school or specialized university studies. This forming level corresponds to the forming

need of potential public servants.


Revista Tinerilor Economişti

Level 2: general initial forming corresponds to the realization of basic

administrative education which gives to the public servant the possibility to master

basic vocabulary knowledge as well as public institutions and authorities structures and

a series of concepts connected to the reform process of public administration. The target

group consists of potential public servants, as well as debutante public servants without

an initial specialized formation.

The first two levels can be put together and can address to existing and future

public servants, whose initial forming is different from the legal sciences or public


In this case, initial forming in the mentioned fields becomes compulsory and

must assure the indispensable professional re-conversion for public servants that held a

leading position or high public servants. This project will be realized by the INA by

specialized forming programs, lasting two years, conceived as post-university forming

programs with professional disposition, dedicated to future public servants, and by

accredited universities by post-university academically studies in the public

administration field, lasting for two years, especially dedicated to the public servants

holding leading positions and high public servants without initial specialized


Level 3: Post-conscription forming in order to adapt to the position, which

means reading and learning the details mentioned in the job description, and underlying

the attributions derived from it, upon legislation, methods and specialized practice as

well as understanding the decisional and organizational processes specific for the public

service. This forming level is especially conceived for debutante public servants, not

matter their initial knowledge.

Level 4: The continuous forming regards trying to make the professional

practice perfect, the periodical actualization of knowledge, methodology and law

fundaments. Continuous formation is especially conceived for all public servants and is

realized according to their career plan and the public service exigency.

The forming cycles

The formation cycles (3 – 5 years) consist of frame programs, elaborated and

commonly approved by the trainers and the trainee. Such frame programs correspond,

on short term, to a perfection program, and it regards, on annual sequence, the themes

presented in table 1.

All forming cycles have a logic sequence according to the career plan of each

public servant, putting together the forming route specific for the public service.

Table no.1

Frame 1 Frame





IV – V

Actualization of specialty knowledge 30–35% 25–30% 20–25% 15–20%

Assimilating managerial aptitudes 10–15% 20–25% 30–35% 40–45%

General problems of the public sector 20–25% 15–20% 15–20% 10–15%

European integration 15–20% 20–25% 20–25% 20–25%

Other 15% 10% 5% 5%


Economic Theories – International Economic Relations

The forming centers

The structure of the forming system is given by the I.N.A. and by the eight regional

centers for continuous forming in the local public administration. The main evolution

direction of this structure is represented by the increase of the density of forming

network suppliers by:

• Creating a national and eight regional center network of continuous forming in

which there will be trained, directly or in partnership, the other actors and

accredited forming suppliers. The access in these networks will be coordinated

by the I.N.A., and, if the case, by the continuous forming centers for the local

public administration, based on the methodology elaborated by the Scientifically

Council of I.N.A.

The methodology will have the following criteria:

• the expertise and the experience proven in organizing the forming and

perfection programs;

• the existence of an own specialized forming course;

• promoting the programs included in the I.N.A. portfolio, correspondent to the

forming needs, established by the public authorities and institutions;

• the logistic capacity and conditions, according to the standards and

methodology used by the I.N.A. or the regional centers;

• the needed accreditation, in legal or administrative science or other

specialization required by the public service.

• Expanding the actual own preparing network by creating in each county, a

continuous forming unit, managed by the regional center to which the county

belongs to, together with the county public authorities.

By creating these continuous forming units, the access to the programs will be a

lot easy, the costs will be reduced and the implication and responsibility of local

authorities of public administration will be increased.

• Promoting alternative forming mechanisms by the methodological and

pedagogical coordination with the partner universities to I.N.A., in order to

widen the good practice and usage of reciprocal analysis of continuous forming;

• Use of new informational and communication technologies and creating on the

I.N.A. level, of a public administration knowledge center, which will include

the best practice and their distribution in the national and regional network.

Regarding the forming programs methodology, elaborated by I.N.A and

consulting the regional centers, is regarded the learning and usage of different forming

techniques and standards offered by prestige institutions from the European Union, just


Table no.2



Seminary/conference 35 – 40%

Case studies, discussions 25 – 35%

Study visits 10 – 20%

Simulation, role playing 20 – 25%

The used standards regard to:

a) the evaluation of continuous forming activities, the knowledge assimilation

level, the participation and interest regarding the training level (see table 3).


Revista Tinerilor Economişti

General criteria

Active participation and the

interest in learning

Team work and the position

inside the team

The level of accumulation for

the new knowledge and


Table no. 3

Specific criteria

Attendance to forming activities;

Consistency and frequency of all


Relations with other participants;


in final


30 – 35%

20 – 25%

Assuming the leading position.

Testing results; proof of

accumulated abilities. 40 – 45%

b) the participants’ evaluation of forming activities, forming methodology, as

well as means of communication (see table 4).

c) the evaluation of INA performances, of regional centers and of other

forming suppliers. This type of evaluation regards reaching the established

forming levels, coverage of all themes and necessary capacity required by

the authorities and public institutions, together with obtaining the quality

standards for the preparing process of public servants;






Exposure clarity




Table no. 4

Percentage in

Specific criteria



Usage degree for the new technologies;

Methodological diversity. 30 – 35%

Approaching the announced themes;

30 – 35%

Time sufficiency.

Understanding the forming content;

Clarifying the new concepts and approaches. 30 – 35%

Behavior The type of public and collaboration


10 – 20%

d) the evaluation of beneficiaries’ satisfaction regarding formation (public

servants), reported to the mission of public authorities they are part of, as

well as the individual career plans.

By the forming methodology is also taken to consideration the insurance of a

unitary formation system support by creating a quality standard system for didactic

materials, under the I.N.A. expertise. Considering each type of continuous forming

program, the content of the didactic materials must have the pattern of a minimal

curriculum, representing 75% of the total forming activities. In order to establish this

minimal curriculum, I.N.A., together with the other formation actors will take into

consideration the European field activity as well as the knowledge level, managerial

and specialty aptitudes, required by the public service.


Economic Theories – International Economic Relations

An essential aspect in ensuring the efficiency in the forming system consists in

the trainers’ formation.

On the I.N.A. level, but also on the regional centers there will be constituted a

trainer’s body, upon professional criteria, that will put together the individual,

theoretical and methodological expertise with the experience specific to public

administration professionals.

In conclusion, inside the public servants corpse can enter specialists and

practitioners from the central and local administration, teachers, and experts in the

superior teaching institutes or from continuous formation centers inside the country or

from abroad, together with trainers prepared in international projects or by the I.N.A.,

or regional or department centers.

The corpse will have expertise degree hierarchy, similar to the practice used by

some institutions of the European Union, and will be structured on forming levels

covering the immediate and future needs, regarding the supplying of continuous

forming programs.

Regarding the building of a corps of professionals in the formation field, there

is necessary to be followed the next stages:

• widening the selection and formation base of trainers used in the INA

promoted programs and/or regional centers;

• elaborating selection criteria and strengthening the own testing and trainers

evaluation system, such a manner that it will ensure the complete coverage

of forming needs;

• establishing the best report between the theoretical content and the practical

content of the formation, putting more accent upon the most relevant

practical aspects and promoting good practice techniques in public

servants’ activity;

• conceiving and promoting a stimulation system regarding the payment of

the trainers’ activity.

The annual initial and continuous forming capacity for the public servants can

only be touched by the implication in the forming system of other fore mentioned

actors, who will ensure equivalent forming programs, offered by the same trainer or by

different trainers, in the following conditions:

• the trainers have a well-known expertise for the field they activate in;

The well-known expertise must be based on the professional evolution and

on the personal career accomplishments of all trainers and depends of the

environment they come from: university, central and local administration,

institutions specialized in training programs, etc.

During the build-up of the trainers’ corpse, on the INA level or usually on

the regional levels, the expertise will be recognized as belonging to this


• the forming supplier is temporary authorized or accredited, according to the

Romanian law and holds the necessary logistic conditions for the program to

be performed.

The temporary authorization and accreditation are concepts used in the

Romanian superior teaching institutes and will be taken to consideration,

especially in the long-term programs. There can also be taken to

consideration the authorizations and accreditation obtained by international


Revista Tinerilor Economişti

cooperation or by especially constituted by INA and ANFP (The National

Institute for Administration and the National Agency of Public Servants).

• the forming and evaluation methods are compatible and they ensure the

flowing process of the program at the same exigency level;

The forming programs addressed to the public servants have something

specific, needing the usage of new information and communication

technologies, as well as complex evaluation systems, capable to emphasize

the formative aspects and the resulted managerial skills, as a result of the

attendance to the program.

• the duration of the programs is the same;

Reported to the type of the offered program, the same duration supposes the

same number of hours dedicated to didactical and application activities,

meaning the same number of teaching hours, applications or other direct

activities, like the individually assisted study.

• the content of the programs is similar and answers the forming needs for a

certain public service, ensuring the best report between theoretical and

practical applications;

This condition imposes the existence, in the total content of the program, of

some modules ensuring the minimal curriculum passage, finalized by

obtaining the same level of theoretical and formative knowledge.

In the general economy of some equivalent programs, the minimal curriculum

should cover 70 – 75% of their content.

The other activity existent in the program will be connected to the

specialization, having the possibility to be optional, and this way ensuring a wider

vision upon the problems existing in the public administration.

For the executive public servants, there are created equivalent programs,

according to the mentioned period and expertise conditions, and the professional

training programs for the specialty of the position they hold.

Also, in the same mentioned conditions, equivalent programs can be considered

the programs realized during international projects dedicated to institutional building of

public administration structures, etc.

In table 5, there can be observed the equivalent program types, the target

groups to which they are addressed, the forming suppliers, and also the means of

attesting the knowledge:









lasting 2 years.

Target group

Licensed youths

in universities,

not older than

30 years; public

servants with

license in other



Table no. 5













studies, lasting 2

years; Postuniversity


on long term,







of the


INA Diploma;


study diploma

granted by


Diplomas from


institutions for










lasting for one






minimum 180



programs in




between 3

days and 3





lasting from

one to 3 days.

Target group

Actual and

future leading

position public


Public servants

for operational






- All public

servants and


servants from

central and

local public


no matter the

position they

hold (executive

or managerial).





Economic Theories – International Economic Relations














with profile


INA for high


servants and





leading public













Master programs

in public


organized by the






organized by the









Master programs

for specific



fields organized

by schools and

forming centers

of ministries and



Seminaries and

conferences on

different themes

from the public




of the




INA diploma –


Master diploma

given by the


INA diploma;



diploma given

by MECT.

INA certificate


certificate given

by the MECT;



given by the





In order to implement all continuous forming programs, and to finish all public

administration reforms, there is the need of establishing the problems by their priority

and the time horizon for their approach, as follows:

A) on short term :


Revista Tinerilor Economişti

• the elaboration and promotion of forming programs corresponding to the

forming levels one and two, and also to those corresponding to the

professional re-conversion;

• identifying the forming needs revealed by the Country Report 2003, and

ensuring the formative support for the public servants part of the

privatization process, agricultural reform, administrative and legal reform,

local development and project management;

• building the trainers corpse and establishing the calendar regarding its


• building, together with the ANFP, the back-up corpse for the young public

servants and the initiation of some prior forming activities need for them;

• identifying the financial and operational mechanisms for the logistic and

conceptual support of the continuous forming strategy for the public


• elaborating standards and unitary evaluation criteria regarding forming in

the public administration field, according to the European practice;

• conceiving and defining the forming routes for each type of public service.

B) on medium term:

• the consolidation of the continuous forming system for public servants and

making all its segments operational;

• creating the necessary capacity in order to form according to the Public

Servants Status;

• conceiving and implementing forming programs for the European

integration of the public servants reported to their part and position in the

process of adherence to the European Union;

• starting forming programs in the European Administration especially created

for youths, meant to prepare specialists who will ensure the interface

between the central and local administration and the European institutions;

• projecting and developing the forming activities regarding the support in the

prefecture corpse’s proficiency;

• integrating in specific proficiency programs of high public servants;

• creating a new infrastructure and logistic base for INA and the regional

centers that are compatible with their mission in the process of reform of

public administration.

C) on long term:

• harmonizing and updating the methods and forming practices with those

from the administrations of the countries members of the European Union;

• consolidating the professional dialogue with the partners and other forming

suppliers inside the country and abroad;

• affirmation of INA and of the regional centers as an authority with a

recognized expertise in forming public servants, inside the country and


In conclusion, one might say that in the context of Romanian public

administration reform, the continuous forming of human resources becomes its solid

support, being constituted in a determined process of its acceleration.


Economic Theories – International Economic Relations


1. Caramete, C. Formarea si perfectionarea resureselor umane in

administratie, in Revista de Administratie si Management

Public, ASE Publishing House, Bucharest, no. 1/2003;

2. Caramete, C. Formarea pentru integrare europeana a functionarilor

publici, in Revista de Administratie si Management Public,

ASE Publishing House, Bucharest, no. 2/2003

3. *** Revista de Economie si Administratie Locala, Tribuna

Economica Publishing House, Bucharest, No. 1, No. 6/2003

4. *** Strategia de reforma administratiei publice in Romania,

Public Adminstration Ministry,

5. *** Strategia de accelerare a reformei administratiei publice

in Romania,


Revista Tinerilor Economişti


Assist. Ing. Smysl Marek

Silesian University in Opava

School of Business Administration

in Karviná

Karviná, Czech Republic

Abstract: There are two main objects of this paper. The first object is to

compare the most important theories and opinions about competition,

monopoly and antimonopoly policy. The second object is to summarize

some monopoly regulation of these economics theories. All these theories

are subdivided into five parts started from the oldest time, e. g. from

Aristotle, through mercantilism, early capitalism, theories of A. Smith to the

classical Ricardian theories. There is discussed the competition and the

origin of the first framework of anti-trust legislation at the break of the 19 th

and 20 th centuries, the Karl Marx’s and his followers’ theories, the origin of

imperfect competition and the system of neoliberal politics.

Key words: monopoly, regulation, antimonopoly policy

The main aim of this paper is to summarize and compare the attitudes towards

imperfect competition, special towards monopoly and monopoly regulation of some

economics theories. It stands to reason that the attitudes of several theories coherent

with monopoly and antimonopoly policy were very different during the process of

evolution. Above all the evolution of the last century was focused on the theory of

dynamic competition. It was made out that monopoly is also limited by the process of

making prices. These findings were the sources of new state regulations activities. It is

the point, why to analyze the present situation of monopoly regulation and try to find a

new arrangement which will make whole economics more competitive.

1. Evolution of theories of competition, monopoly and antimonopoly policy

The main aim of this chapter is to summarize and compare the attitudes towards

imperfect competition, special towards monopoly and monopoly regulation of some

economics theories. It stands to reason that the attitudes of several theories coherent

with monopoly and antimonopoly policy were very different during the process of

evolution. Above all the evolution of the last century was focused on the theory of

dynamic competition. It was made out that monopoly is also limited by the process of

making prices. These findings were the sources of new state regulations activities. It is

the point, why to analyze the present situation of monopoly regulation and try to find a

new arrangement which will make whole economics more competitive.

1.1. The oldest theories of monopoly

Adam Smith is writing about monopoly in his An Inquiry into the Nature and

Causes of the Wealth of Nations like about an individual or a trading company. This

company has the same effect as a secret in trade or manufactures. The monopolists, by


Economic Theories – International Economic Relations

keeping the market constantly under-stocked, by never fully supplying the effectual

demand, sell their commodities much above the natural price, and raise their

emoluments, whether they consist in wages or profit, greatly above their natural rate.

The price of monopoly is upon every occasion the highest which can be got.

The natural price, or the price of free competition, on the contrary, is the lowest which

can be taken, not upon every occasion, indeed, but for any considerable time together.

The one is upon every occasion the highest which can be squeezed out of the buyers, or

which, it is supposed, they will consent to give. The other is lowest which the sellers

can commonly afford to take, and at the same time continue their business (Smith, A.,

An Inquiry into the Nature and Causes of the Wealth of Nations, 1976, p. 78).

In the accordance with was written above, wrote Smith that only state could

stop the evolution of beginning monopoly. It helped to creative the origin of the first

framework of anti-trust legislation.

As Smith was averse to restrains on international trade, so also he was opposed

to those on domestic commerce and with colonies. In an age when restrictive

preferences, privileges and state grants of monopoly were commonplace, he opposed

them all. He also opposed private combinations of producers and workers, although, in

a characteristic aside, he noted that there were more laws against combinations by the

sellers of labour than against the similar practice by the merchants and manufacturers

who employed them. He was not, however, entirely optimistic as to the possibility of

contending with private combination. The impulse to such association was strong. In

another deathless passage he observes that people of the same trade seldom meet

together, even for merriment a diversion ends in a conspiracy against the public, or in

some contrivance to raise prices. It is impossible, he says, to prevent such meetings, by

any law which either could be executed, or would be consistent with liberty and justice.

But though the law cannot hinder people of the same trade from sometimes assembling

together, it ought to do nothing to facilitate such assemblies, much less to render them


A century later, what Smith thought impossible would, after a fashion, be

attempted in the United States, and the effort would continue for another hundred years.

The Sherman Act and later legislation would forbid those of the same trade, even when

gathered for merriment and diversion, form discussing, much less agreeing upon,

prices. The prohibition would encounter not a few of the difficulties tat smith foresaw.

From Smith has come the commitment to competition as a principle in all

capitalist societies – competition that is presumed to ensure optimal industrial

performance. Considerably less influential has been Smith’s warning as to the

institution that, along with the state it might destroy competition. This was the state

chartered company – the corporation. Where it had monopoly privileges, as in the

colonial era, he was especially critical. But he also thought little of its efficiency. He

would be appalled at a world where, as in the United States, a thousand corporations

dominate the industrial, commercial and financial landscape and are controlled by their

hired management, something Smith thought especially to be deplored. He says, that

being the managers’ father of other people’s money than of their own, it cannot well be

expected, that they should watch over it with the same anxious vigilance with which the

partners in a private copartner frequently witch over their own (Galbraith, A History Of

Economics, 1987, p. 70).


Revista Tinerilor Economişti

1.2. First framework of antitrust law on the break of the 19 th and 20 th century

On the break of the 19 th and 20 th century was necessary to start managing the

regulation of the monopoly. The competition necessitated to its own destruction. The

biggest companies tried to make the lowest prices as was possible and wonted to get

exoteric market. So they tried to place another market with new products and services.

Because of stronger and stronger competition these companies’ costs were pushed

lower. The levels of these costs were lower than the demand enabled.

It has been one of the principles of free-enterprise economic philosophies that

monopolies are, as a general rule, undesirable and need to be strictly controlled. This is

not to say that the advantages of monopolistic supply in certain specific areas have not

been recognized; it is rather a case of ensuring that monopolies are restricted to these

areas and, at the same time, taking the necessary steps to prevent them from exploiting

the consumer. A case in point is the natural-gas industry. It is clear that a situation in

which individual consumers could obtain their gas supply from competing companies,

through competing pipelines and distribution systems, would be a highly wasteful form

of competition. The idea of a single supplier, therefore, makes sense in economic terms.

In order to prevent the consumer from being exploited, the monopoly's ability to control

prices and supply needs to be restricted. This has generally been the view taken of firms

operating as public utilities or in technical fields that invite a natural monopoly.

The owners of monopoly fixed the prices of their commodity with exclusive

reference to the immediate net revenue which they can derive from it. The increased use

of their commodity will before long recoup them for their preset loss. So it is clear that

is wanted of calculations by which monopolists should govern their actions, on the

supposition that he regards an increase of consumers’ surplus as equally desirable to

them. In case that the customer’s surplus is added to the monopoly revenue derived

from it, the sum of the two is the money measure of the net benefits accruing from the

sale of the commodity to producers and consumers together. And if the monopolist

regards a gain to the consumers as of equal importance with an equal gain to himself,

his aim will be to produce just that amount of the commodity which will make this total

benefit a maximum. The amount which the monopolist will offer for sale will be greater

and the price at which he will sell it will be less if he is to any extent desirous to

promote the interests of consumers (Marshall, Principles of Economics, 1961, p. 402).

These conditions conveyed to the origin of the first antitrust legislation. The first most

famous law leaded to curb concentrations of power ant restrict trade and reduce

economic competition were proposed by Sen. John Sherman.

Accordingly, most free-enterprise economic systems have an elaborate

framework of laws and regulations aimed at controlling monopoly. The oldest and

probably the most vigorous monopoly control legislation are represented in the U.S.

antitrust laws. Consisting primarily of the

and antitrust acts and

the Act,

they are aimed at preventing agreements among suppliers, the effect of which would be

to limit competition, and at preventing mergers between and acquisitions by and of

firms, the result of which would be to lessen competition or to create a monopoly. The

legislation provides for stiff civil and criminal penalties, and most administrations have

tended to enforce the laws vigorously. In areas where monopoly is countenanced, such

as in public utilities, a considerable degree of public control is exercised to ensure that


Economic Theories – International Economic Relations

monopoly power is not abused. In Great Britain the basic aims of the anti-monopoly

legislation are similar to those of the United States, but much greater weight is given to

the concept of the public interest. In the United States, any agreement or act that limits

competition is regarded as undesirable, but in Great Britain and other west European

countries such acts are accepted if they can be demonstrated to be in, or not to be

against, the public interest. In general terms, the degree of monopoly tends to be

relatively small in the United States; it is considerably more pronounced in Britain,

France, and other parts of Europe, where among operating monopolies are a large

number of state-owned enterprises (Encyclopedia Britannica Online,

The Sherman Antitrust Act of 1890, which declare illegal all attempts to

monopolize any part of trade or commerce in the U.S. initially used against trade

unions, it was more widely enforced under press. Theodore Roosevelt. In 1914

Congress strengthened the act with the Clayton Antitrust Act and the formation of the

Federal Trade Commission. In 1920 the U.S. Supreme Court relaxed antitrust

regulations so that only “unreasonable” restraint of trade through acquisitions, mergers,

and predatory pricing constituted a violation. For instance we can mention some others

antitrust acts: The Clayton Antitrust Act of 1914 outlawed unfair price discrimination,

interlocking directorates, and holding companies , as amended in 1936 by the

Robinson-Patman Act, prohibits discrimination among customers through prices or

other means; it also prohibits mergers or acquisitions whenever the effect may be to

substantially lessen competition. A 1950 amendment to the Clayton act forbade a

corporation to purchase another corporation's assets or stock, if doing so would reduce

competition. Labour unions are also subject to antitrust laws (Encyclopedia Britannica


In the absence of competition, the supplier usually restricts output and increases

price in order to maximize profits. The concept of pure monopoly is useful for

theoretical discussion but is rarely encountered in actuality. In situations where having

more than one supplier is inefficient (e.g., for electricity, gas, or water), economists

refer to natural monopoly. For monopoly to exist there must be a barrier to the entry of

competing firms. In the case of natural monopolies, the government creates that barrier.

Either local government provides the service itself, or it awards a franchise to a private

company and regulates it. In some cases the barrier is attributable to an effective patent.

In other cases the barrier that eliminates competing firms is technological. Large-scale,

integrated operations that increase efficiency and reduce production costs confer a

benefit on firms that adopt them and may confer a benefit on consumers if the lower

costs lead to lower product prices. In many cases the barrier is a result of

anticompetitive behavior on the part of the firm. Most free-enterprise economies have

adopted laws to protect consumers from the abuse of monopoly power. The U.S.

antitrust laws is the oldest examples of this type of monopoly-control legislation;

public-utility law is an outgrowth of the English common law as it pertains to natural

monopolies. Antitrust law prohibits mergers and acquisitions that lessen competition.

The question asked is whether consumers will benefit from increased efficiency or be

penalized with a lower output and a higher price.

1.3 Karl Marx and his followers

Marx was unaware of the existence of monopoly in the British economy of his

day. He treated monopolies not as essential elements of capitalism but rather as


Revista Tinerilor Economişti

remnants of the feudal and mercantilist past which had to be abstracted from in order to

attain the clearest possible view of the basic structure and tendencies of capitalism. It is

true that, unlike the classicists, Marx fully recognized the powerful trend toward the

concentration and centralization of capital inherent in a competitive economy. His

vision of the future of capitalism certainly included new and purely capitalist forms of

monopoly. But he never attempted to investigate what would at the time have been a

hypothetical system characterized by the prevalence of large-scale enterprise and


By accidental monopoly we mean a monopoly which a buyer or seller acquires

through an accidental state of supply and demand. The assumption that the commodities

of the various spheres of production are sold at their value merely implies, of course,

that their value is the centre of gravity around which their prices fluctuate, and their

continual rises and drops tend to equalize. There is also the market value—of which

later—to be distinguished from the individual value of particular commodities produced

by different producers. The individual value of some of these commodities will be

below their market-value (that is, less labour-time is required for their production than

expressed in the market-value) while that of others will exceed the market-value. On

the one hand, market-value is to be viewed as the average value of commodities

produced in a single sphere, and, on the other, as the individual value of the

commodities produced under average conditions of their respective sphere and forming

the bulk of the products of that sphere. It is only in extraordinary combinations that

commodities produced under the worst, or the most favorable, conditions regulate the

market-value, which, in turn, forms the centre of fluctuation for market-prices. The

latter, however, are the same for commodities of the same kind. If the ordinary demand

is satisfied by the supply of commodities of average value hence of a value midway

between the two extremes, then the commodities whose individual value is below the

market-value realize an extra surplus-value, or surplus-profit, while those, whose

individual value exceeds the market-value, are unable to realize a portion of the

surplus-value contained in them (Marx, K., Capital Vol III., London, UK: ElecBook,

2001, It does no good to

say that the sale of commodities produced under the least favorable conditions proves

that they are required to satisfy the demand. If in the assumed case the price were

higher than the average market-value, the demand would be smaller.

Finally, if equalization of surplus-value into average profit meets with obstacles

in the various spheres of production in the form of artificial or natural monopolies, and

particularly monopoly in landed property, so that a monopoly price becomes possible,

which rises above the price of production and above the value of the commodities

affected by such a monopoly, then the limits imposed by the value of the commodities

would not thereby be removed. The monopoly price of certain commodities would

merely transfer a portion of the profit of the other commodity-producers to the

commodities having the monopoly price. A local disturbance in the distribution of the

surplus-value among the various spheres of production would indirectly take place, but

it would leave the limit of this surplus-value itself unaltered. Should the commodity

having the monopoly price enter into the necessary consumption of the labourer, it

would increase the wage and thereby reduce the surplus-value, assuming the labourer

receives the value of his labour-power as before. It could depress wages below the

value of labour-power, but only to the extent that the former exceed the limit of their

physical minimum. In this case the monopoly price would be paid by a deduction from


Economic Theories – International Economic Relations

real wages (i. e. the quantity of use-values received by the labourer for the same

quantity of labour) and from the profit of the other capitalists. The limits within which

the monopoly price would affect the normal regulation of the prices of commodities

would be firmly fixed and accurately calculable. (Marx, K., Capital Vol III., London,

UK: ElecBook, 2001,

Engels, in some of his own writings after Marx’s death commented on the rapid

growth of monopolies during the 1880s and 1890s, but he did not try to incorporate

monopoly into the body of Marxian economic theory. The wholesale merchant, Engel,

says quite correctly, that efforts of the syndicate are intended to create a monopoly for

itself and to eliminate the wholesale trade entirely. Naturally prices will not be any

lower for the retailer. If the motives were not to obtain for the factory and the syndicate

the same benefits which accrue to the wholesale merchant, the whole movement would

be without purpose (Hilferding, R., Finance Capital, London, 1981, p. 416).

The first who incorporate monopoly into the body of Marxian economic theory

was Rudolf Hilferding in his important work, Das Finanzkapital, published in 1910. But

for all his emphasis on monopoly, Hilferding did not treat it as a qualitatively new

element in the capitalist economy; rather he saw it as effecting essentially quantitative

modifications of the basic Marxian laws of capitalism. We must recognize that

competition, which was the predominated form of market relations in nineteenthcentury

Britain, has ceased to occupy that position, not only in Britain but everywhere

else in the capitalist world (Baran A. P., Sweezy, M., Monopoly Capital, Suffolk, 1966,

p. 416).

Rudolf Hilferding writes about protective tariff, which means a constriction of

the economic territory, and hence an interference with the development of the

productive forces, since it reduces the size of industrial plants, discourages

specialization, and impedes, finally, that international division of labour which brings

about a flow of capital into those branches of production for which a given country is

best suited. This is all the more important in the case of the modern high protective

tariff since the tariff rates are frequently fixed less of regard for the technical conditions

of production which prevail in particular branches of production, than as the outcome of

a political struggle for power among various industrial groups whose influence upon he

state ultimately determines the tariff structure. The tariff is a brake upon the

development of the productive forces and hence of industry. It means direct deprives

industries which are capable of being cartelized of their monopoly of the domestic

market, if that monopoly is not already assured by protected freight rates in the case of

coal or by a natural monopoly in the case of German potash production (Hilferding, R.,

Finance Capital, London, 1981, p. 312).

1.4 Neoclassicism

In the market for consumer’s goods a relatively small number of sellers face a

large number of buyers, so that the imperfection of competition tells in favor of the

sellers. In the labour market the position is reversed. Thus the share of labour in total

output is ground between the upper and the nether millstones of monopoly and

monopsony. This account of the matter bears a close resemblance to the theory of

Lexis, quoted by Engels in the preface to Volume III of Capital. He writes that the

capitalist sellers, such as the producer of raw materials, the manufacturer, the wholesale

dealer, the retail dealer, all make a profit on their transactions, each selling his product

at a higher price than the purchase price, each adding a certain percentage to the price


Revista Tinerilor Economişti

paid by him. The labourer alone is unable to raise the price of his commodity, he is

compelled, by is oppressed condition, to sell his labour to the capitalist at a price

corresponding to its cost of production, that is to say, or the means of his subsistence.

Further he writes therefore that capitalist additions to the prices strike the labourer with

full force and result in a transfer of a part of the value of the total produce to the

capitalist class. Engels gives (though grudgingly) his approval to this formulation which

amounts to the same thing as the Marxian theory of surplus-value. Lexis thus provides a

bridge between Marx and the later theory. For Marx’s scheme under-capacity working

is impossible and the limit to the output of any concern is set, not by the imperfection of

the market, but by the capacity of capital. The post dated theories exposed many

relatively minor defects in capitalism which Marx, concentrating on major issues, was

content to ignore.

The theory is good enough for purposes of a general discussion of the nature of

the system. Where outright monopoly rules, or where a group of commodities is

produced by a few powerful firms, there is great scope for individual variations in

policy, and it is hard to make any generalization at all as to what governs the margin of

profit per unit of output.

All this makes a serious breach in the smooth surface of the orthodox

theory of value, and it seems that economic science has not yet solved its first problem

– what determines the price of a commodity

In this first statement of the theory of value Marshall wrote, that the great

central law o economic science is that producers, each governed under the sway of free

competition by calculations of his own interest, will endeavor so to regulate the amount

of any commodity which is produced for a given market, during a given period, that this

amount shall be just capable on the average of finding purchasers at a remunerative

price, a remunerative price being defined so as to allow for normal profits on capital.

This statement may be taken to mean two quite different things. It may mean that each

producer, governed by calculations of his own interest, endeavors to maximize the

profit, at each moment, on his current rate of output, by balancing marginal cost against

margin gain.

The other interpretation is that each producer endeavors to fix, not the price

which maximizes his current profit, but the price which will be remunerative in the long

run. This at first sight seems plausible, but it entirely begs the question of normal profits

on which, as we have seen, academic economics fails to provide any theory which is

relevant to the real world. Moreover, even if the question of normal profits were settled,

it would still remain to inquire what level of utilization of equipment is normal in the

long run. Generally speaking, the lower the level of utilization, good years with bad,

and the higher gross margin required to bring in any given level of profits. But the

higher the gross margin, other things equal, the lower the level of utilization, for given

the expected fluctuations in demand, the amount of capital seeking employment in the

industry is governed by the gross margin established in the market. And the amount of

capital employed influences the average utilization per unit of capital. The three

determinants, profit per unit of output, profit per unit of capital, and capital per unit of

output, ale all interdependent, and the whole analysis dissolves in a haze of doubt.

The Marxian theory might yield the explanation that the development of tradeunion

power has been just sufficiently rapid to prevent the rate of exploitation from

rising with the productivity of labour, while the academic theory suggests that a secular

rise in monopoly has been just offset by a relative fall in raw-materials prices. Both


Economic Theories – International Economic Relations

explanations are somewhat lame, and the mystery of the constant relative shares

remains as a reproach to theoretical economics (Robinson, J., An essay on Marxian

economics, New York, 1967, p. 81).

1.5 Ordoliberalism and dynamic theory of competition

The determination of the value of the monopoly is a special problem, and in

solving it we must not forget that in the normal circular flow no motive to form such a

value exists, hence the gain is not to be related to any other magnitude. However all this

may be, the monopolist can at any rate never say that they make no profit because they

ascribe an extremely high value to their monopoly.

In a discussing Lauderdale’s theory of interest Böm-Bawerk also comments

upon the case in which a labor-saving and hence profit-yielding machine is

monopolized. He emphasizes rightly that this machine will be so dear that no profit, or

only the minimum which will just induce people to purchase or hire it, will be

connected with its employment. Yet a profit is undoubtedly connected with its

production, which is as permanent as the patent. It might be said that the monopoly

position is for the monopolist something analogous to a productive factor. Imputation

takes place with reference to the services of this quasi-factor of production just as with

reference to other factors. The machine as such is not a source of surplus value, nor is

its means of production, but the monopoly makes it possible to obtain a surplus value

with the machine or its means of production. Obviously nothing is changed if we allow

producer and user to coincide in one person. There would be a source of surplus value

the existence of which would be explained by the theory of monopoly; there would also

be a reason for the assignment of a return to monopolists; and finally the fact that

neither imputation nor competition annihilates the return would be explained. However,

such monopoly positions do not occur regularly and numerously enough for this

explanation to be accepted, and moreover interest exists without them.

There are several designs for escaping market discipline, including that

imposed by younger, more adaptable, more aggressive competitors. The first is a return

to tariff protection. Faced with foreign competition, the great industrial corporation

seeks tariffs and also quotas that will release it from the pressure of market constraints.

After ceremonial praise of the free market, the need for a worthy exception is urged. A

revival of protectionist sentiment and legislation in the older industrial countries having

already occurred in the present, it will do so to even greater degree in the future. Once

protective tariffs were for infant industries, now they are for the old and putatively


A second well-established design for dealing with competition is simply to take

it over. This is the purpose of the international or multinational corporation. It has long

been thought that the latter is an instrument of aggression, even imperialism, on the

world stage. Far more important is its protective purpose, its profoundly important

service as an escape from the constraints of the market.

Evading market discipline is increasingly apparent in a third design, this is for

the older bureaucratically and intellectually more rigid enterprise to assign to firms in

the newer industrial lands work that can no longer be performed competitively in the

older countries.

Another and final recourse available to aging and inefficient private enterprises

is to seek forthright intervention by the government. This, in practice, goes far beyond

protection from foreign competition. In the United States the Reagan administration has


Revista Tinerilor Economişti

repeatedly set aside its free market rhetoric to come to the fescue of failing banks and

needful exporters and, at unprecedented costs, to protect farmers from the free market.

Again there is first the speech on the eternal verities of tree enterprise and then the case

for the particular exception (Galbraith, J., K., A History Of Economics, London, 1987,

p. 294).

We conclude that sunk costs, unlike fixed costs; can constitute a barrier to

entry. In particular, we argue now that fixed costs need not have any detrimental

welfare consequences, unless they also happen to be sunk. In an industry whose firms

use only capital on wheels or winks, some or all of that capital may be fixed, bud it is

not sunk. This means that in the absence of other entry barriers, natural or artificial, an

incumbent, even if he can threaten retaliation after entry, dare not offer profit-making

opportunities to potential entrants because an entering firm can hit and run, gathering in

the available profits and departing when the going gets rough. Such a situation fits our

definition of a contestable market, that is, a market vulnerable to costless reversible

entry, even when it is currently occupied by an oligopoly or a monopoly. The

contestable market is a generalization of the case of pure competition, and it offers

many of the same benefits. Even if it is run by a monopoly, a contestable market will

yield only zero profits and offer inducements for the adoption of Ramsey-optimal

prices; an addition, it will enforce efficiency of production, the adoption of new

improved techniques as they become available, and avoidance of cross subsidy in

pricing .

This resolves the apparent contradiction between our conclusion that fixed

costs of sufficient magnitude permit the incumbent to adopt entry preventing prices and

the preceding assertion that, in themselves, they constitute no barrier to entry. The

availability of sustainable prices does permit the incumbent to preclude entry. But he

can do so only by offering the public the very same benefits that actual competition

would otherwise have brought with it. With entry barriers, supernormal profits,

inefficiencies, cross subsidies, and no optimal prices all become possible. But in a

contestable market, which is perfectly consistent with the presence of fixed costs that

are not sunk, matters change drastically, and government intervention can contribute far

less, if anything, to the general welfare (Galbraith, J., K., A History Of Economics,

London, 1987, p. 292).

2. The Method Corporate Social Responsibility

In a large number of scientific literatures is written that method CSR has three

basic areas of field of actions. It is economic, social and environmental area. For the

thesis occasions we will abstract from the environmental area and will focus on the

economic and social aspects. It is necessary to be aware of the fact, that monopoly are

not scathe full for economic and for society. The existing of monopoly is a natural

result of competition. So it should be useful to find the way how to cooperate with

monopolies without negative impact on the society and economics. The second goal of

this thesis is to describe the way how to minimize the number of regulation activities

from the government in Czech Republic.

2.1. The Method CSR

Why should companies care about their social and economics responsibilities

There are a few aspects why to use CSR by managing corporate. The moral ones tend to


Economic Theories – International Economic Relations

be quite clear, while the financial ones are still more difficult to measure. They are

usually referred to as the business case for CSR.

The business case for CSR argues that a responsible attitude toward society and

the environment can make a business more competitive, more resilient to shocks, and

more likely to attract and hold both consumers and the best employees.

In a world where socially responsible investment is growing, it can also attract

investment and save businesses money in dealing with regulators, banks and insurers.

Some companies also feel that CSR is a significant part of their risk

management and reputation strategy. In a world where brand value and reputation are

increasingly seen as a company's most valuable assets, CSR can build the loyalty and

trust that ensure a bright sustainable future.

The method CSR is good not only for society but also for a doing good

business. Better understanding of the potential benefits of CSR for the competitiveness

of individual companies and for national economies can help encourage the spread of

CSR practice. The Department for Trade and Industry and some other departments have

therefore supported work exploring the business case for CSR. These cases will be

mentioned in the last chapter of the doctoral thesis after thoroughgoing tuition with


Business principles convey the basic reasons for a company’s existence as well

as how it carries out its role. They link a business’s core purpose and values to its

operations by providing guidance on decision-making processes, strategic goal setting

and behaviors. Business principles serve as a central and always-present frame of

reference for organizational decisions.

Business principles may be articulated using any combination of statements and

may include among others: mission, vision, and values statements, codes of conduct,

business principle statements, etc. Regardless of what they are called or how an

individual company groups their business principles together, it is through such

statements that many companies have chosen to demonstrate their commitment to the

larger notion of corporate social responsibility. Such statements extend a company’s

responsibility beyond return to shareholders to include an acknowledgement of its

responsibilities to a broad range of stakeholders throughout society including

employees, customers, business partners, communities and the environment (BSR Staff:

Business Principles, Business for Social Responsibility,

2.2. Business importance

As with any company-wide action, the articulation of business principles

should be grounded in a clear understanding of how they provide short and long term

value to the company in both externally and internally focused ways. Here are some of

the benefits that companies experience from having clearly articulated business


Organizational Touchstone: Companies are now increasingly attempting to

establish a set of holistic, explicit statements that reflect an interlinked set of values and

commitments. This shift towards a world-view that recognizes the interrelated nature of

stakeholder issues can provide a central comprehensive reference point for companywide

strategy as well as broader acknowledgement and consideration of stakeholder

expectations. Employees attached to different functional aspects of an operation may

become linked by a common set of organizational ideals expressed through business


Revista Tinerilor Economişti

principles. This common set of beliefs can in turn contribute to a sense of cultural

cohesion and social solidarity in a company otherwise characterized by a decentralized

structure with thousands of employees dispersed across the globe.

Values-based Decision-Making: Companies that institutionalize a values-based

decision-making process can proactively address a broad range of legal and ethical

dilemmas. Clearly defined values, when integrated into a company's organizational

infrastructure, provide employees with the necessary tools and conceptual framework to

make independent decisions in their daily operations that are consistent with the

company's underlying values. As a result, these companies reduce their vulnerability to

misconduct and the damage this can do to management focus, profitability, brand

image, and overall reputation. It cannot be overstated, however, that business principles

will only serve this function when successfully communicated to all employees and

integrated into decision-making infrastructures. Only then can they be used successfully

as a vital tool to guide decision-making at all levels of the company - from the

executive office to the shop floor - and throughout a company’s supply chain.

Greater Employee Commitment and Motivation: A stated and demonstrated

organizational commitment to responsible values and principles can help employees

find meaning and purpose in their work and help them link their individual efforts to

those of the company as a whole. Studies show that this perception of shared values and

purpose at all levels of the company contributes to organizational performance by

inspiring feelings of commitment, contributing to increased retention, as well as helping

to attract prospective employees.

Findings from additional research conducted by BSR (Business for social

responsibility) underscore that employees have more positive feelings about their work

and themselves - and as such demonstrate a stronger commitment to their workplace -

when they believe that the company they work for demonstrates good values and ethical

practices. In contrast, other evidence points to a possible crisis of confidence within the


Point of Reference for External Stakeholders: When a company articulates its

business principles, it enables stakeholders to know exactly where it stands on relevant

issues, thereby taking the first crucial step in aligning internal operations and external

expectations. This sharing of information regarding a company’s values and positions

can benefit its relationship with several different stakeholder groups:

Enhanced Customer Loyalty: Increasingly, customers are factoring companies'

business practices and perceived values into purchasing decisions. Several companies

that are typically associated with values-based business practices in the media and by

consumers credit their commercial success, in large part, to brand loyalty among

customers who support the company's values and mission. Indeed, mounting evidence

points to a belief on the part of consumers that companies have a significant

responsibility to society that extends beyond the simple delivery of affordable products

or services. A 2002 survey in 25 countries by Environics International found that more

than one third of surveyed consumers believed that large companies “should do more

than give money to solve problems.” The same study found that almost 50 percent of

consumers had considered punishing a company based on its social actions, and that

nearly 30 percent had actually avoided a company for that reason. Further, public

relations firm Quentin Bell Organization asserts that two in three U.K. consumers have

boycotted at least one brand for “perceived unethical behavior.” 95 percent of those

consumers say they’ll never purchase those brands again, while 10 percent follow up by


Economic Theories – International Economic Relations

writing letters and signing petitions (CSR facts and figures, CSR Europe Organization,

Supplier Alignment and Loyalty: Businesses with global supply chains are

experiencing increased stakeholder pressure to take greater responsibilities for the

activities of their suppliers and other business partners. Business principles may serve

as a useful tool through which a company can communicate its expectations to suppliers

regarding their conduct. It is becoming increasingly common for companies to require

suppliers through contract language to agree to operate according to a set of social and

environmental-related criteria or face the possible termination of the relationship.

Starting Point for Dialogue with Public Interest/Activist Groups: The public

release of business principles often represents the starting point from which a dialogue

between companies and organizations concerned with their operations begins. It is

particularly important that such language is backed up by recognizable performance

related to the business principles. Companies must “walk their talk” (or be prepared to),

or potentially face damaging consequences such as negative publicity and impact to

their credibility. A company’s decision to publicize its business principles, however,

can help it lay the foundation for a public-private relationship based on trust.

2.3 Another impacts of using CSR

CSR can also help to reduced absenteeism and save companies money through

increased productivity and by a reduction in hiring and training costs. For example,

companies that improve working conditions and labour practices among their offshore

suppliers often experience a decrease in defective or unsellable merchandise.

Using the CSR as part of a corporate business strategy can result in high

efficiency in operations, for instance, improved efficiency in the use of energy and

natural resources; reduced waste such as reducing emissions of gases; and selling

recycling materials.

3. Application of The Method Corporate SOCIAL Responsibility

On the basis of above described method, it is gone to be elaborated the

dissertation thesis on the topic ‚Theory of antitrust regulation - application on The

Czech Republic‘. The solitary approach of CSR is very wide and that is why the

attention is going to be paid only to the analysis of the cost elements in the monopoly

area of the Czech Republic. The aim of any economically advanced country is not the

effort to eject the monopoly from the market. The perception of the monopoly existence

as something bad or absolutely ineligible is wrong. We have to realize that the

monopoly is one of the basic market structures which are not itself economically or

socially harmful. It depends on the internal or external elements - control apparatus and

control precautions in order that there would be never reached the misuse of privilege

of the company position on the market. On this basis is going to be analyzed the social

capacity of existence of the selected monopoly, it is going to be discovered its extent of

its dominance in the market and the level of the social capacity. For this purpose is

going to be made the analysis of government control precautions and its following

description. The supposed aim is to find the precautions which were more successful in

the past. Thanks to detailed study of particular control standards will be possible to

appoint which precautions were less efficient and which were even useless. In the last

seventeen years were made a lot of these precautions. The other problem which relates

to the monopoly existence is ‚exploitation of small and middle companies which co -


Revista Tinerilor Economişti

operate with the monopoly. In some cases we cannot discuss this fact and it is going to

be very difficult to prove it and try to eliminate it. This is the fact when the small and

middle companies are for example the sub-suppliers of the monopoly and compared to

monopoly they carry out the minimum or almost zero profit. This situation comes when

the monopoly strictly dictates the trading conditions and the sub-supplier is forced to

accept them because of his position in the market. In case the sub-supplier does not

accept the trade conditions it means the loss of demand for the sub-supplier. I would

like to propose this subparagraph as a subject of the discussion and I would be very

pleased if there are any factual suggestions how to work with this problem and how to

solve it.

The increasing number of European enterprises develops own strategies of

shared social responsibility as a reaction to whole range of social, economic and

environmental oppressions. Their aim is to send the signal to different stakeholders

whereby they have to face: employers, share holders, investors, consumers, public

administration and non government organizations.


1. Aristotle Politics, with an English translation by H. Rackaham,

Harward university press, London, 1977. ISBN 0-674-


2. Baran A., Monopoly Capital, The Chaucer Press, Suffolk, 1966

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Panzar, C., J.,

Willig, D., R.

Contestable Markets and the Theory of Industry

structure, Harcourt Brace Jovanovich, New York, 1982.

ISBN 0-15-513910-X

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and Tanner, London, 1987. ISBN 0-241-12388-7

5. Hilferding, R. Finance Capital, textual editor T. Bottomore, Boston

and Henley, London, 1981. ISBN 0 7100 0618 7

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Stewart-Clark, J.

Competition Law in the European Community,

London: Kogan Page Ltd, ISBN 1-85091-972-0

7. Kandogan, Y. ‘Models of Competition Between One For-Profit and

One Non Profit Firm’, Carl university in Prague,

Working Paper, No. 240, ISSN 1211-3298, October


8. Kováč, E. ‘Tying and Entry Deterrence in Vertically

Differentiated Markets’, Carl university in Prague,

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9. Liefman, R. Kartelle und Trust und die Weiterbildung der

volkswirtschaftlichen organisation, EHM, Stuttgart,


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11. Marx, K., Capital Vol. III., London, UK: ElecBook, 2001,

[Accessed 15.06.2005]


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12. Ricardo, D. The Principles of Political Economy and Taxation, J. M.

Dent and sons, London, 1962

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New York, 1967

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Nations, textual editor W. B. Todd, Clarendon press,

Oxford 1976. ISBN 0-19-828184-6

15. Stelzer, I, M. Selected Antitrust Cases, Fifth Edition, Georgetown,

Ontario: Irwin-dorsey Limited, ISBN 0-256-01831-6

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Cambridge press, London, 1984. ISBN 0-262-19224-1

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ISBN 0-19-952263-4

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Competition, consumer Protection, translated by Trade

Links, Prague

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[Accessed 15.02.2006]


Revista Tinerilor Economişti



Delphine Aegerter

Chair of HR and Organization

University of Fribourg


Abstract. The Corporate Social Responsibility (CSR) is now established

as an integral part of corporate strategy and therefore as having an impact

on the firm’s perennial life. In spite of the large diffusion of the CSR topic

and the importance of SME in national markets, the main researches focus

on large companies. SME deserves its own tools. With the more direct

impact of the manager decision, SME constitutes a privileged field of

research for a cognitive approach of the corporate responsibility toward

society. This approach, with a cognitive mapping technique will allow us to

schematize the managers’ representations about the stakeholders and

their relation. The cognitive maps built will provide information about main

CSR issues and make it possible to localize and highlight changes’ brakes

about those issues.

Keywords: corporate social responsibility, SME, corporate strategy

Corporate social responsibility: a definition

The success of academic research and at the same time all the researches from

large companies and public authorities on Corporate Social Responsibilities (CSR),

confirms a global motivation for a better control of the economic activity’s influence on

society. This success acknowledges that the economic activity does not lead

automatically to the good of society.

There are other concepts often related to CSR like the business’ ethics or the

sustainable development. These concepts have their own specificities but refer to the

same ground idea: beyond the strict respect of the legislation, a firm as a social

responsibility towards various actors, called stakeholders, which are affected by the

policies and practices of the company (Smith, 2003). A major idea is that CSR can be

determined by the consequences of the company’s activities on the stakeholders

(Ackerman & Bauer, 1977). CSR’s issues are articulated around a triple bottom line

which includes: economical, social and environmental issues. The social responsibility

is however an ambiguous concept, there is no universality about its definition. It does

not always refer to the same reality; it all depends on who is talking about it (Xhauflair

& Zune, 2004).

CSR short history

According to the CSR’s first authors such as Berle & Means (1932) or Bowen

(1953), the emergence of the concept is due to the increase in large companies of the

CEO’s power. They already define the social responsibility of the businessman as a

voluntary integration of social values in the management. It is only in the early 70’s that


Economic Theories – International Economic Relations

CSR is integrated as a managerial issue that brings new models like the Caroll’s (1979)

well known pyramidal model. The meaning of the CSR concept has evolved since it

first appeared. Previously the term was filled with a certain morality but today the idea

goes more towards sustainable development (Cazal & Dietrich, 2005).

The power acquired by the companies mentioned previously transforms them

into windows of society’s values, furthermore with the general decline of the religion’s,

the state’s or even family’s powers. Various lobbies against this new economic power

reinforce the success of CSR. The popularity of the subject generated the creation of

many codes and principles, specialized standards, reporting tools and national


Ultimately the global enthusiasm about CSR issues is an encouraging

sociological phenomenon for the companies. An accurate application of this concept

supposes a predefined known behavior. There are two extreme kinds of corporate social

responsiveness, the rejection behavior and the proactive behavior (Oliver, 1991).

Carroll (1979) distinguishes between these extremes two more kinds of corporate social

responsiveness, and named them the reactive, defensive, accommodating and proactive

strategies. CSR behaviors are obviously not predefined but built in the relationship with

the stakeholders and therefore the concept has to be perceived as a process and not as

something pre-established.

A theoretical approach, called stakeholders’ theory, is born with the

development of the CSR concept. The notion of stakeholders already appeared in Berle

& Means works (1932) but the term was used the first time only after by authors like

Ansoff (1965). Freeman (1984) who developed the stakeholders’ theory defines the

concept of stakeholders as an individual or group who might be affected by any action

taken by an organization. The stakeholders’ theory considers the firm as a constellation

of co-operative and rival interests (Donaldson & Preston, 1995). According to this

theory the firms have responsibilities towards a group of stakeholders. This theory is

generally perceived as a widening of the agency’s theory of management. The agency’s

theory is a theory concerning the relationship between a principal, the shareholders, and

an agent of the principal, the company’s managers. Freeman (1984) with the creation of

the stakeholders’ theory extends this purely financial vision of corporate responsibilities

preached by Friedman (1970). Each firm has specific stakeholders with single answers

regarding the corporate strategy. To pay attention to those stakeholders could have a

powerful effect on the strategy’s chances (Ackermann & Eden, 2003).

An interesting characteristic of the stakeholders’ theory is to take into account

at the same time the managerial and business ethics issues. As a managerial theory, the

stakeholders’ theory is a tool which allows us to analyze the corporate environment.

But in a broader way this theory is a new theory which includes ethical issues (Gond &

Mercier, 2004). This is the most popular CSR theory, commonly used as a starting point

for research on the topic (Capron, 2003).

The stakeholders’ theory, just like the CSR concept has many limits on the

practical, conceptual and even ideological levels. A recurrent criticism concerning the

principles of CSR consists in the difficulty to put the theoretical approach into action.

The multiplicity and ambiguity of the terminologies do not help. Another criticism is

the extreme form of the theory which preaches for an equal responsibility towards all

stakeholders regardless to the legitimate property rights.

In practice, we have to deal with the bounded rationality of the managers,

influenced some time or other by the problems urgency or a personal interest. With this


Revista Tinerilor Economişti

bounded rationality the stakeholders’ wishes cannot be taken into consideration

exhaustively (Quairel & Auberger, 2004). The relevance of the corporate’s answer to

those wishes depends mainly on the leaders’ perception (Dejean & Gond, 2003).

Corporate social responsibility within SME

In spite of CSR popularity and the uncontested weight of SME in national

economics like Switzerland, only a few studies have been devoted to CSR in SME. The

SME are a privileged empirical field of research but are rarely the research object and

almost all the CSR tools developed are made for large companies (Castro, 2002). As

indicated in a European Commission Report (2002), we know few things about the

SME attitudes and activities concerning CSR. Like the well known “butterfly effect”

implies, it would be dangerous not to pay attention to those small firm’s actions.

Some characteristics about SME are well established like the uncontested

manager’s influence on employees and on firm policies. Another specificity of SME is

the weak bureaucratic structures and the quasi inexistence of standard rules and

procedures (Marchesnay, 2003). From those characteristics we can make out that in

SME, the value system of the manager is a critical component of organization decision

(Hornsby & al, 1994) and this is why the perception of ethics and social responsibilities

are significant and can reveal the roots of social policies.

The CSR issues are a typical kind of issues that managers push back instead of

facing up to them. The external pressure is often insufficient and even non-existent. The

field of responsibility is generally fuzzy and actions often involve time and material

resources usually difficult to obtain. According to the leadership theory, a leader will

easily solve an issue if an external pressure is put on it, inculcated for example by the

customer. With the absence of such a pressure, it is the similarity of the problem with

other problems already solved successfully which will facilitate its resolution if the

leader considers the problem to be in his direct sphere of responsibility and if the

resources needed are available (Yukl, 2002). Based on this statement one can

reasonably expect that case studies are potential sources of training for SME managers.

SME social management is also directed by the stakeholders’ theory. One does

not analyze however the relationship between the manager and the stakeholders as an

agency relationship (agency’s theory) but as a resource dependent relationship

(resource dependency theory) (Quairel & Auberger, 2004). The company depends on

the actors in its environment and thus its survival depends on the manager’s aptitude to

deal with the stakeholders’ requests, mainly those who’s contribution and support are

decisive for the company perennial’s life. It is the need of resources which is SME’s

main vulnerability (Salancik & Pfeffer, 1978).

In the context of SME, ethics and social responsibilities are strongly correlated.

When we discuss the ethical consequences of the corporate activities, appears the

concept of social responsibility (Mercier, 2004). The SME managers generally have

difficulties making purely impersonal decisions (Hornsby & al, 1994). The SME

manager is, according to Quinn’s assumption (1997), more incline to use his own

personal ethics in his management than any other CEO. In 1994, the article written by

Smith & Oakley on the ethical value of the leaders of SME gives state of Art on

research about CSR in SME. It clearly comes out that we still have a weak

comprehension of the ethical values of the SME manager. The relationship between

personal values and managerial actions is a challenge for the searchers studying

organizational behaviors (Smith & Oakley, 1994). The results of a study by Hornsby &


Economic Theories – International Economic Relations

al. (1994) on the ethical perception of SME managers contest the idea that for SME

owners CSR is equivalent with law. The results show a much broader vision and

sometimes even in complete illegality.

The SME management is characterized by proximity. This proximity is

geographical but also temporal (Torres, 1997). A CSR process in SME supposes

coherence between the manager’s representations, resources and tools needed as well as

external pressures. New tools are not enough for a good implantation of CSR process;

we have to adapt the manager’s cognitive system too (Quairel & Auberger, 2004).

Main research issues

No one argues that a firm is responsible for the social impact its activities have

but also no one is able to border precisely those responsibilities and to state the right

way to face them (Ackerman & Bauer, 1977). This study is devoted to SME and will be

concerned with the SME managers’ perception on stakeholders and the bonds between

them. The main academic purpose of this research is to extend comprehension about

SME and SME managers, to fill a gap in the already well furnished CSR research but

also to test a promising tool in managerial cognition.

More specifically the research issues try to border responsibilities perception

for SME manager using shared mental maps, to index non-economics issues, to draw a

stakeholders’ typology and to find motivations and brakes for explicit CSR strategy by

studying influence links’ representation. This study will also try to answer to those

three broad matters: Is the CSR concept perceived as a new social constraint (as a

pessimist view) or as an opportunity to claim the personal values of the SME owner

How the SME owners manage potential contradictions between economic interest and

Stakeholders’ expectations What are the most important changes’ brakes for solving

CSR issues All these issues which are still to be refined will be supplemented by a

reflection about the contribution of the methodology used.

Methodology: cognitive mapping, an introduction

In order to understand managers’ perception concerning corporate social

responsibility, this study proposes to use a method borrowed from cognitive psychology

called “Cognitive Mapping”. With this method it won’t be necessary to adjust a tool

developed at the beginning for larges companies. This tool is especially adapted to the

exploration of the mind and therefore it will fit to explore SME owners mind’s too! The

cognitive mapping is a methodology which makes it possible to capture and analyze

mind representations. The global idea consists of extracting thoughts for example with a

classic semi directive interview and to draw a chart, called cognitive map, revealing the

evoked concepts and the links between them.

As soon as we try to schematize cognition, we can speak about cognitive maps

(Verstraete, 1997). A cognitive map is usually defined as a graphical representation of

the beliefs of an individual concerning a particular field (Axelrod, 1976). The broadest

definition of a cognitive map defines itself as a chart of the mental representation the

researcher makes about the discursive representation stated by the subject from his own

mental representation about a particular issue (Cossette & Audet, 1994). This definition

identifies cognitive map as a representation of a representation (Verstraete, 1997).

We will from now on use the term “cognitive map” for the output and keep the

denomination “cognitive mapping” for the whole methodological process. In a more

concrete way, the output of this methodology is a kind of directed graph. On this graph,


Revista Tinerilor Economişti

the arrows’ direction indicates a belief of influence between two concepts (Eden, 2004).

As a diagram, the cognitive map includes two basic elements: nodes and arrows

between those nodes (Fuglseth & Gronhaug, 2002). The nodes symbolize the concepts

and are represented by text’s fragments that are connected by one-way arrows which

symbolize the links. Various kinds of links can be taken into account (Eden,

Ackermann & Cropper, 1992) but in this study we will more specifically be interested

by influence links. Only the positive or negative influence links will be used here. In

that case the term “cognitive map” is a commonly accepted abuse of language, when in

fact we should talk about influence map (Cossette & Audet, 1994).

Among cognitive map typologies there is one who classifies the map according

to the level of analysis:

1. The individual level: called also idiosyncratic level. This is the map of a human

being (used by Cossette & Audey, 1992).

2. The collective level: the output is called composite map and it is built by

superposition of individual charts (used by Bougon & Komocar, 1994).

3. The organizational level: the output is called strategic map and to create that

map several individuals are brought together in order to create a common map

(used by Eden, 1992)

In this study the cognitive map denomination will refer to a map at an

individual level because of the influence of an SME owner on firm strategy.

A metaphor comes recurrently in the literature representing cognitive maps like

roadmaps of our cognition. As well as a roadmap indicates the connections between the

cities on a given territory, the cognitive map indicates, by analogy, how the beliefs are

linked to each other. Laroche & Nioche (1994), take up again this geographical

metaphor and explain that the cognitive map just like the geographical map is a

reduction in two dimensions of the complex reality making it possible for people to find

their way despite the loss of some information. The cognitive maps can be seen as a

visual help to understand particular elements of thought (Eden, 1992) but as in

geography, the chart is a representation of the territory, not to be confused with the

territory itself (Wirtz, 2002).

In order to place the cognitive maps in the context of investigation, it seems

relevant to make a short stop on their history. The paternity of cognitive maps is

generally accorded to Tolman (1948) in relationship with his research on animal

psychology (Schwenck, 1988). The expression of cognitive map was then used as an

intangible mental representation and not yet as a concrete schema. It symbolizes the

mental representation that an animal, and by extension a human being, is making of the

space around him. Some authors prefer then to assign the true paternity of the cognitive

maps, as a chart of a mental representation, to Cartwright and Harary (1956). Those

two authors were the first to represented graphically cognitive elements. Thereafter

work on human being’s developed with for example Pailhous’ research (1970) which

uses as subjects the Parisian taxi drivers. They had to draw by memory a map of the

town of Paris. With this research, Pailhous was able to acknowledge the existence of a

relation between objective performance from the drivers in the action and their

representations defined by the quality of their roadmaps (Verstraete, 1996).

A few years later, mainly under the influence of the work of the sociologist

Axelrod (1976), research using the cognitive mapping technique increased. He was first

interested in the schematization of the political decision makers’ thoughts and


Economic Theories – International Economic Relations

developed methods to represent the cognitive maps in a diagram (Schwenck, 1988).

The application in management has been developed since the 80’s with the birth of the

concept of “strategic management” which introduces cognitive and social dimensions in

management. This is an extension of the critic of the supposed rationality used in main

studies in management during the 70’s. The owner’s representations of the company

and its surrounding belong to the organization’s strategy because they feed the

decision-making process which takes place into the development of the strategy. The

socio-cognitive recent approach of the strategy supports the place of cognitive strategic

management research (Stubbart, 1989). As Cossette (2000) wrote, the cognitive

dimension is considered by a growing number of the scientific community members as

essential for the explanation or for the comprehension of the organizations.

The use of a cognitive mapping tool in strategic management empirical

research is growing fast, particularly since Eden and his associates’ work in the 80’s.

The use of those maps to explore the cognitive structures of the members of an

organization facing complex issues became well known a few years ago during the 90’s

(Huff, 1990). It became popular in disciplines such as organizational sciences,

management, the strategy of company as well as decisional research (Fuglseth &

Gronhaug, 2002).

Methodology validation

The choice of such a method appears judicious for several reasons. First of all,

the exploration of the CSR within SME is a recent subject under development and with

the complexity of the concept, it seems relevant to use a qualitative method leaving a

certain freedom of answers and avoiding being locked up in predetermined ideas and

values. That justifies the choice of a method using the in-depth interview. Indeed,

qualitative methods are open by nature because of the collection of aspect ignored by

the traditional quantitative methods of investigation: the meaning that the subject gives

to the action and the organizational context in which it acts (Castro, 2002). Thus it is

through the speeches of the leaders that CSR within SME issues will be studied.

Cognitive mapping is only one of the many possible techniques for a

managerial cognition study. Frequently used are diagrams, scripts, systems of rules, indepth

interviews as well as mental models (Stubbart, 1989). Among those techniques,

only in-depth interviews collect the ignored dimensions mentioned by Castro (2002).

The other tools would require an exhaustively preliminary expertise from the researcher

in order to be able to draw up integrally the possible behaviors. Cognitive mapping is

using in its process the in-depth interview but goes further by providing a whole

process with an output with valuable qualities. The output can be used as a managerial

tool for leaders because of the well known liberating effect of the map. (Lecoeuvre &

Verstraete, 1998) and is perceived as a tool to help the strategic decisions in group’s

(Cossette, 2001).

There are obviously advantages as well as limits to using this tool. The creation

of a cognitive map can be helpful in structuring thoughts and thus making it possible to

clarify a confused idea (Fiol & Huff, 1992) by reflecting it as a mirror (Smithin 1980).

In the interpersonal relations, the creation of cognitive maps facilitates the diffusion of

ideas. Calori & Sarnin (1993) established that the cognitive map makes it possible and

facilitates the identification and the localization of communication problems. Fiol &

Huff (1992) assessed that a cognitive map also makes it possible to consider ways of

action. A cognitive map is therefore not a forecast model! It is more a support tool for


Revista Tinerilor Economişti

individual reflection. Thus it bears to communicate with the others and itself (Cossette,


Like Swan (1997) wrote, the different cognitive mapping techniques are

potentially useful tools for managerial studies but it is necessary to be aware of their

limits and to explain the use clearly in order to be able to use them in an efficient way

and to avoid any exaggerated application. The cognitive mapping process allows a great

place for the researcher’s subjectivity. The researcher has a significant role during the

process of construction which cannot be ignored (Cossette & Audet, 1994). To

understand the importance of the researcher during the data collection process, one

should consider that the subject interviewed prepared his speech according to the level

of researcher’s supposed knowledge. This is why any speech is partial. It is one of the

most significant limits of this research, but it has to be weighted because one finds it in

any produced speech and any interpretation of speech. Other limits explored by Axelrod

(1976): the sincerity of the individual is questioned, the slowness of the method is

criticized, and the exclusive presence of causal links and even only influence links and

the lack of quantification in the connections. Lot of other operational limits are also

frequently mentioned in the literature as the excess of focusing which can produce a

narrow vision (concept of "vision tunnel" by Fiol & Huff, 1992), the lack of forecasting

value or the limited lifespan of the map because of the dynamics of the mind’s


Methodology process

The cognitive map is the output of the cognitive mapping process (Eden, 2004).

Whatever the method used, the process includes at least the two following stages:

collecting data and coding it. The methodology used here is inspired by Cossette’s

works (various papers). While adapting to the investigation conditions, this method in

five stages tries to produce the most valid and reliable data possible (Brown, 1992):

1. The exploration stage which includes the collection of the data.

2. The coding stage which keeps the original language of the subject (Fuglseth &

Gronhaug, 2002).

3. The validation stage on the field, essential for the credibility of the study to

limit the effect of a misunderstanding of the speech by the researcher.

4. The analyzing stage using the software Decision Explorer® (called previously

COPE and developed by Eden and co). The analyzing stage gives meaning to

the semantic network produced.

5. The dissemination stage is the stage of the process which propagates the results

of stage four.

For the empirical investigation, an amount of 20 cognitive maps of SME

managers is aimed at in order to provide a path of reflection to the study issues. This

number is arbitrary but appears reasonable if we compare it to other investigations

using a similar methodology. The sample is much diversified and doesn’t claim to be

representative. In fact it is quite an illusion to aim for a representative sample of SME.

Half of the cognitive maps are already drawn and validated. Thus it is possible to

present some preliminary results.


Economic Theories – International Economic Relations

Intermediate results and expectations

The interpretation of the 10 first maps analysis gave us the following results.

First, the perception of responsibility is understood in a broad way: the economic

performance and the firm survival are integrated as matters of the social responsibility

for the SME manager.

Considering this broad vision, the employment creation, preservation and

development are the first responsibilities claimed by SME managers during the

interviews. They spoke about the need of keeping the employability of the workers.

About the definition of stakeholders, the employees are the priority stakeholders but

many other stakeholders are taken in account instinctively by the managers. The

systematically evoked stakeholders are then employees and in decreasing order:

customers, suppliers, environment, the leader himself, the State and local community.

The social objectives to reach are mainly objectives toward the employees, the

customers, the suppliers and the environment. There is also the objective to keep a good

local reputation. As factors of explanation of the various behaviors one finds the fact of

being SME, the number of suppliers, the frequency of the relationships to the suppliers

but also changes in the social environment.

Within the SME the social responsibility’s perception is personalized: The

manager’s ethics play an essential role in its perception of CSR. One can also note that

the reflections are based on real live situations: usually, the reflections are generated by

individual experimentations or other SME managers’. Concerning the way of

formalization, SME managers have a motivation of an explicit justification of their

values but those values are quite often disconnected from corporate strategy. The SME

managers who use CSR as a core strategy manage more easily the ambiguity generated

by the concept. Another observation is that the SME managers who have the lowest

internal conflict potential with their way of thinking about CSR are the two extremes:

managers who accept high ambiguity or managers who simplify reality a lot and

voluntarily ignore some information.

The territorial dimension and the relationships of the company play a

significant role in CSR perception of the manager. The industry branch of the SME has

an irrefutable influence too. In spite of this expected sector influence one finds a certain

number of common elements which can be considered as the axes of sensitivity of SME

leader. Regardless of a diversified random sample, there are shared networks in the

speeches. Some common topics come almost every time. Among the most central

concepts we once again find the employees but also the regional influence and the

difficulty to control their activity abroad.

All those intermediate results have to be confirmed, developed and refined at

the end of the study but one can already deduce with those suggestions that the CSR

concept is perceived by SME managers in the way of the surroundings of the

company’s development. Every individual map has also to be analyzed separately in the

purpose of localizing and highlight changes’ brakes about those issues.





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Gestion, nov.-déc., 1977

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EDEN C. identification and management, Academy of

Management Proceedings, 2003

3. BOUGON M. G.,


Les cartes cognitives composites. Théorie holistique et

dynamique des organisations et du processus

d'organisation. P. Cossette (Éd.), Cartes cognitives et

organisations, pp.37-56, Sainte-Foy, Québec: Les

Presses de l'Université Laval; Édition., 1994

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dirigeants, Revue Française de Gestion, Mars-Mai,

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catholiques du dirigeant de PME sur son mode de

management, Thèse de doctorat en sciences de gestion,

soutenue à l’Université Paris Dauphine, 26 mars., 2002

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evidence and implications, Academy of Management

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Studies, n°29(3), mai, pp.309-324, 1992

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environnementales, observatoire des PME européennes,

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from here, Journal of Management Studies, 29 (3), mai,

pp.267-285, 1992

16. Friedman M. “The Social Responsibility of Business is to increase its

profits”, New York Times Magazine, Sept. 13, 1970

17. FUGLSETH A. Theory-driven construction and analysis of cause maps,

M., GRONHAUG International Journal of Information Management, 22,


Economic Theories – International Economic Relations

K. pp. 357-376, 2002

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MERCIER S. critique de la littérature , Congrès AGRH, École des

sciences de la gestion, Université de Québec A

Montréal, 1-4 sept., 2004



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Française de Gestion VOL 29/144, pp.107-118, 2003

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par les parties prenantes, 15ème congrès AGRH, 1-2

sept., Montréal, Tome 4, pp. 2521-2541, 2004


Revista Tinerilor Economişti



Ph.D. Luís Bento

Consultant en Gestion

Partner de SERH-Sistemas e Estratégia de Recursos


Membre de l’Equipe de Projet de l’IDICT pour la

Responsabilité Sociale des Organisatins

Membre du Groupe de Paris en Responsabilité Sociale

Vice-président de l’APG – Associação Portuguesa dos

Gestores e Técnicos de Recursos

Past-President de l’IFTDO-International Federation for

Training and Development Organizations

Vice-président de l’ETDF-European Training and

Development Federation

Abstract: This paper presents the actual situation regarding to corporate

responsibility concept. There are presented here the fundamental

elements concerning to the history and evolution of this concept and the

social, economical and political benefits generated by the practical use of

it. Also the paper presents and analyzes this concept from perspective of

Groupe de Paris organization and E.U..

Keywords: corporate social responsibility, durable development,

En 1993, dévastée par un taux de chômage sans précédents 10 , l’Europe a

adopté, par la voie du Conseil Européen, le “Livre Blanc” sur la Compétitivité et

l’Emploi, un point de départ assurément très important pour l’évolution de la politique

structurelle de l’Union sur le long terme, couronnée en 2000 par l’adoption de la dite

Charte de Lisbonne et par l’adoption, en juillet 2001, du Livre Vert “Promouvoir un

Cadre Européen pour la Responsabilité Sociale des Entreprises” 11 .

Basée sur une histoire très riche – notamment celle qui découle dudit

“investissement éthique” 12 , complétée par les notions de “Corporate Citizenship” et de

“Corporate Social Responsability”– la vision européenne de la Responsabilité Sociale

des Organisations 13 est un concept selon lequel les entreprises et les institutions

décident, de leur propre gré, de contribuer à une société plus juste et à un

environnement plus propre, c’est-à-dire d’intégrer volontairement des préoccupations

sociales et environnementales dans leurs organisations, dans leurs opérations courantes

10 10,9% de la population pour l’Europe des 11 – source Eurostat “Les Hommes et les Femmes

en Europe”, yearbook.

11 Commission des Communautés Européennes – COM 2001-366

12 Mentionné pour la première fois par les églises méthodistes américaines, dans les années

trente du siècle dernier.

13 Proposée par l’auteur et par d’autrespour la distinguer de la Responsabilité Sociale des

Entreprises et englober, dans la notion de RSO, les Administrations Publiques, les ONG(s), les

Institutions de l’Economie Sociale, les Syndicats, les Associations Patronales et

Entrepreneuriales, les Associations de Corps, etc..


Economic Theories – International Economic Relations

et dans leur interaction avec toutes les parties impliquées 14 (actionnaires, collaborateurs,

fournisseurs, partenaires sociaux, partenaires locaux, administration publique et

autorités, sous-traitants, filiales, etc.).

A l’inverse de la vision américaine actuelle – centrée sur l’intention 15 et sur le

simple engagement formel 16 - la vision européenne souhaite se constituer comme un

outil d’intervention – économique, sociale et politique – capable de respecter les

traditions et la culture de diversité typiquement européennes, et susceptible de

contribuer à une plus grande “équité économique” entre les pays de l’hémisphère nord 17

et ceux ce l’hémisphère sud 18 .

Cette vision incorpore également d’une manière très significative la définition

de développement durable, telle qu’elle a été présentée par le Premier Ministre

norvégien, Mme HARLEM BRUNDTLAND, en 1987. D’après celle-ci “... le

développement durable est un type de développement qui répond aux besoins de

l’actualité, sans pour autant empêcher que les générations futures ne répondent aux

leurs ”. 19 (Ce même concept a été adopté en 1992, au Sommet de la Terre de Rio de

Janeiro, par tous les Etats participants. D’après l’Agenda 21, il est également applicable

aux collectivités locales, à la société civile et au secteur des affaires. D’où que

nombreux soient ceux – parmi lesquels l’auteur de ce texte – qui ont proposé la

désignation de RSO – Responsabilité Sociale des Organisations, par opposition claire

au concept de CSR - Corporate Social Responsability qui, parce que plus restrictif,

n’inclut pas certains secteurs très importants de l’activité économique et sociale, y

compris ceux chargés de fonctions normatives et de régulation).

Figure no. 1

14 Stakeholders et Shareholders

15 Il faut noter que, aux EU, ledit Etat Social n’existe pas.

16 C’est le cãs du “Global Compact” des Nations Unies et de l’OIT.

17 Où prédominent le Marketing, la R&D, les institutions financières, les gains.

18 La production à bas prix, le travail des enfants, les tragédies sociales, la pollution, la misère et

la faim.

19 Cette définition a été une réponse aux cris d’alarme lancés par les écologistes et par les

scientifiques à propos des risques de dégradation de la planète et de la “non-durabilité” de notre

modèle de développement.


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La construction d’une Europe socialement unie, basée sur le concept de

développement durable et sur les principes de la charte des droits fondamentaux

européens, est l’un des éléments centraux de la construction de l’union économique et


Le développement européen, tant sur le plan de la modernisation économique

que sur le plan de la compétitivité et de la productivité, doit se faire en assurant la

qualité environnementale et des modèles élevés de politiques sociales.

La Responsabilité Sociale des Organisations (RSO) est un instrument important

pour promouvoir le développement du modèle social européen, et se présente à tous les

états-membres, et évidemment aussi au Portugal, comme la voie à suivre pour une

participation active au processus décisif de la construction européenne, qui doit en ce

moment relever des défis nouveaux et vivifiants par l’entrée de dix nouveaux Etats.

Dans le Livre Vert “Promouvoir un cadre européen pour la responsabilité

sociale des entreprises”, du 18 juillet 2001, la commission européenne “... invite les

pouvoirs publics à tous les niveaux, y compris les organisations internationales, les

entreprises – depuis les PME(s) jusqu’aux multinationales – les partenaires sociaux,

les organisations non gouvernementales, ainsi que toutes les parties impliquées ou

toutes les personnes intéressées, à exprimer leur opinion sur la manière de construire

un nouveau cadre qui favorise la responsabilité sociale des entreprises...”.

Les apports à ce défi sont nombreux. Certains de nature nettement commerciale

et opportuniste, d’autres – la plupart, heureusement – étayés par une compréhension

authentique de sa dimension, comme on le verra plus loin à propos du Groupe de Paris

en Responsabilité Sociale.

Dans le contexte socio-économique émergent – celui de l’économie de la

connaissance et de la société de l’information – de nouveaux facteurs compétitifs sont

exigés sur le marché aux agents économique, et plus particulièrement aux entreprises. Il

ne suffit plus de tenir uniquement compte des variables strictement financières,

commerciales ou d’organisation. Il ne suffit pas non plus, comme ce fut le cas il y a

quelques années, d’être attentif aux conséquences sociales et environnementales des

décisions prises. Il faut faire plus, il faut utiliser la qualité sociale et environnementale

comme un bien et intégrer la responsabilité sociale comme une fonction essentielle de

la vie et de l’action des entreprises et des institutions, comme un actif économique et

social décisif.

A l’inverse d’autres modèles – Global Compact (Nations Unies), p.e. – être

socialement responsable ne signifie pas seulement s’engager à respecter toutes les

recommandations et obligations légales. D’après la vision européenne, être socialement

responsable signifie aller plus loin, investir davantage dans les multiples volets du

capital humain 20 , dans la sauvegarde et la défense de l’environnement 21 , dans les

relations avec les parties impliquées (stakeholders) 22 , avec les communautés locales 23 .

20 Pratiques du dialogue social et de la négociation; prévention des risques professionnels,

formation, rémunération juste et équitable, climat organisationnel, etc..

21 Au moyen de politiques, de pratiques et de l’utilisation d’équipements et systèmes écoefficients.

22 Y compris filiales et sous-traitants, indépendamment de l’emplacement géographique.

23 Au sens large, en promouvant une intégration locale harmonieuse et des réseaux de



Economic Theories – International Economic Relations

C’est, en somme et fondamentalement, un acte volontaire et non coercitif d’adhésion au

processus 24 de RSO. (Cette question de l’acte volontaire a soulevé beaucoup de doutes

dans maintes organisations non gouvernementales. Certaines estiment que l’adoption,

en premier lieu de pratiques de RSO, devrait être obligatoire pour l’aboutissement

ultérieur à une adhésion au processus. D’autres défendent le caractère coercitif –

obligatoire – de l’adoption de la RSO comme un modèle intégré de gestion. En ce

moment, une idée de plus en plus soutenue est que l’EU devra créer des mécanismes de

contrôle pour la Responsabilité Sociale, selon un modèle proche de ce que nous verrons

plus loin).


Une nouvelle vision intégrée

Créé en février 2003, le Groupe de Paris en RSO est un réseau informel

constitué par plusieurs Universités – Sorbonne (France), Twente et Niimejen (Pays-

Bas), Nothingam Forest (Angleterre), Hambourg et Berlin (Allemagne) – par des

Associations Professionnelles de Managers et Experts en Ressources Humaines – APG

(Portugal) ANDCP (France) – par des Instituts de la Qualité et des Technologies de la

Production – Berlin, Rotterdam, Amsterdam – par des entreprises – Danone, AGF

(groupe Allianz) – par des Institutions Syndicales – Centre for Trade Unions Rights – et

par des Institutions de Certification d’Auditeurs Sociaux – par exemple CCIAS. Ses

objectifs fondamentaux sont: promouvoir la vision européenne de la Responsabilité

Sociale des Organisations, préparer des modèles de Certification d’Auditeurs de

Responsabilité Sociale, élaborer et promouvoir l’adoption de Modèles d’Audit de

Responsabilité Sociale, divulguer, par tous les moyens (Conférences, Séminaires,

Interventions) la vision européenne, créer des réseaux nationaux de débat des

problématiques de RSO, aider, auprès des institutions de l’EU, à mettre en pratique

les décisions du Sommet de Lisbonne.

Le “Groupe de Paris en RSO” est ouvert, malgré sa constitution en réseau

informel, à la participation de toutes les personnes, institutions et entreprises ayant des

objectifs communs. Il se réunit régulièrement, développe des projets, apporte des

contributions et, surtout, établit une plateforme commune d’analyse et de débat qui a

permis un rapprochement significatif de tous ses membres et fait connaître ce qui est,

véritablement, la vision européenne de la RSO.

L’un de ses projets les plus intéressants est, actuellement, la conception et

création d’un Masters PanEuropéen en RSO, engageant les plus prestigieuses

universités européennes. En outre, le “Groupe de Paris en RSO” développe, en ce

moment, deux projets très importants : la conception d’une Matrice d’Audit de

Responsabilité Sociale et la conception du Programme de Certification d’Auditeurs de

Responsabilité Sociale.

Dans le cadre des débats et des réflexions déjà réalisés, s’est naturellement

détachée ce qu’on appeler de vision actuelle du Groupe de Paris sur la Responsabilité

Sociale des Organisations:

“La Responsabilité Sociale des Entreprises et des Organisations oeuvre au

développement organisationnel et aux résultats économiques, devant donc être

24 Ne pas confondre “processus” et “bonnes pratiques” de Responsabilité Sociale.


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entendue comme un outil de gestion visant à promouvoir les volets multiples de la


1. La vision européenne est une vision intégrée, car elle repose sur des

dimensions qui, dans les autres modèles, sont inexistantes ou invérifiables;

2. Elle ne repose pas sur un simple engagement, mais sur son existence

de fait, observable et mesurable;

3. Elle contient tous les éléments de construction de la cohésion

économique et sociale de l’Union Européenne, et constitue donc la maîtresse poutre

des objectifs définis dans la Charte de Lisbonne;

4. Elle respecte les principes du Fair-Trade definis par les institutions


5. Elle oeuvre au dialogue social aux niveaux régional et local;

6. Elle crée les conditions nécessaires à un développement harmonieux,

grâce à des pratiques fondamentales de développement durable – éco-efficacité,

sauvegarde de l’environnement, respect des normes et des traités internationaux

relatifs au commerce équitable, dialogue permanent avec les “stakeholders”, contrôle

des activités des subsidiaires et des activités d’outsourcing, application des principes

de la RSO aux unités délocalisées.

7. Ses progrès doivent être vérifiables et mesurables;

8. Elle s’applique non seulement aux entreprises, mais à toutes les

organisations, y compris l’Administration Publique.

9. Elle doit être reconnue publiquement par l’attribution d’un “label”

de Responsabilité Sociale, en contribuant de la sorte à un processus de benchmarks

susceptible d’aboutir à un développement économique et social permanent, et en se

distinguant des autres modèles où la Responsabilité Sociale n’est guère plus qu’une

nouvelle arme du marketing et rien d’autre, basée sur telle ou telle pratique de

Responsabilité Sociale.”

Figure no. 2

Cette vision, qui contient des questions et des problèmes encore ouverts 25 ,

constitue l’apport du “Groupe de Paris” à une réflexion sérieuse, englobante, impliquant

25 Comme on a pu le constater lors du récent Séminaire International organisé par l’IDICT, à



Economic Theories – International Economic Relations

tous ceux qui se soucient de ces thématiques et qui, surtout, clarifie définitivement les

positions de chacun. 26


Perspective européenne

C’est un concept selon lequel les entreprises et les institutions décident, de leur

propre gré, de contribuer à une société plus juste et à un environnement plus propre,

c’est-à-dire une intégration volontaire de préoccupations sociales et environnementales

de la part des organisations, dans leurs opérations courantes et leur interaction avec

toutes les parties impliquées (actionnaires, collaborateurs, fournisseurs, partenaires

sociaux, partenaires locaux, administration publique et autorités, sous-traitants, filiales,


Les niveaux de la Responsabilité Sociale doivent pouvoir être mesurés au

moyen d’indicateurs pré-établis et acceptés, tout comme la réalisation d’audits de

Responsabilité Sociale est un élément fondamental pour évaluer et comparer les progrès


L’adoption de pratiques auditables de Responsabilité Sociale, en tant qu’acte

volontaire, se justifie notamment:

• Par leur intérêt et leur effet à moyen et long terme ;

• Parce qu’elles sont directement associées au concept de développement durable qui

englobe, harmonieusement, l’impact économique, l’impact social et l’impact


Ce processus ne peut donc être entendu comme un simple complément des

activités normales de l’entreprise ou de l’organisation, mais comme un véritable modèle

de gestion intégrée.

Figure no. 3

En effet, ce dont il s’agit aujourd’hui, sur le plan de la vision européenne de la

Responsabilité Sociale des Organisations, est de passer du concept des “bonnes

pratiques”, assurément très méritoire mais fait d’actes isolés et sans signification

globale, à une nouvelle dimension, étayée par un processus intégré et continu d’actions

conséquentes et dynamiques.

Les plus sceptiques diront: “... oui, mais comment faire”

26 L’un des actuels principaux obstacles est l’absence de positions claires de la part des

stakeholders les plus importants sur ce qu’ils estiment devoir être la voie vers la mise en place

réelle d’un processus de Responsabilité Sociale des Organisations, en Europe.


Revista Tinerilor Economişti

Nombreux sont ceux qui étudient la manière d’instituer ce processus, tout

comme nous avançons aussi, au sein du Groupe de Paris, étant déjà parvenus à quelques

conclusions et propositions intéressantes:

a) Il y a lieu de créer un modèle-base d’Audit de Responsabilité Sociale, qui

contienne les dimensions et les indicateurs à évaluer;

b) Les Audits de Responsabilité Sociale doivent être effectués par des

Auditeurs de Responsabilité Sociale agréés;

c) Le Label de Responsabilité Sociale sera attribué par un organisme public,

moyennant Avis favorable de l’Auditeur et après audition de Comités Spécialisés;

d) Les Comités Spécialisés seront constitués par des éléments appartenant

aux différents réseaux nationaux qui travaillent en la matière.

e) L’attribution du Label de Responsabilité Sociale ne donnera lieu

à aucun bénéfice direct de nature pécuniaire, sous peine d’éluder ses véritables


f) La reconnaissance d’une organisation par l’attribution d’un Label de

Responsabilité Sociale, ne donnera lieu à aucune immunité légale ou normative,

attestant plutôt que, à un moment précis, les conditions étaient remplies pour cette


g) Le Label de Responsabilité Sociale obéira à une durée spécifique – un an

– et pourra être automatiquement retiré faute dealisation d’un nouvel Audit ou si

celui-ci ne propose pas le maintien de l’attribution de ce label.

h) Les Audits peuvent être effectués par des Auditeurs Internes – dûment

agréés – mais sont, dans ce cas, sujets à l’Avis d’un Auditeur Externe.

i) L’attribution du Label de Responsabilité Sociale n’exempte pas

l’Organisation d’accomplir ses obligations légales, et ne constitue pas non plus une

immunité contre toutes pratiques illégales ou moralement condamnables.

Bien que je sois convaincu que, malgré tout, la création d’un Label

Paneuropéen de Responsabilité Sociale n’est plus qu’une question de temps – et que

l’adhésion des nouveaux pays ne manquera pas d’accélérer le processus – nombreux

sont encore les détracteurs de cette solution qui, comme Friedman, estiment que la seule

responsabilité sociale d’une organisation “...est de maximiser le gain, en rémunérant

convenablement ses actionnaires ”.

Toutefois, les grands défis lancés par la Charte de Lisbonne à l’Union

Européenne jusqu’à 2010, notamment ceux qui concernent la création du plus grand

espace économique mondial fondé sur la société de la connaissance, exigent que cette

construction se fasse par la différentiation positive, c’est-à-dire en créant des avantages

compétitifs à partir de la différence, par le côté positif, par rapport aux autres espaces

économiques mondiaux préexistants ou émergents.

C’est ici que la vision européenne de la Responsabilité Sociale des

Organisations, centrée sur la vérifiabilité, sur la reconnaissance et sur l’évolution, peut

constituer un outil de levage décisif.


Economic Theories – International Economic Relations

Figure no. 4


Revista Tinerilor Economişti


PhD. Lect. Dragomir Laurentiu Constantin

University of Craiova

Faculty of Economics and Business


Craiova, Romania

Abstract: To evaluate a nation’s competitivity, we have to take into

consideration a large number of variables. The difficulty does not exist in

the number of factors, but in how you treat them, considering that some of

them have an effectively qualitative determination (the style and the

capacity of the managers, quality of the products, etc). Their quantification

is not easy; especially since it cannot be accomplished unless we use

some indicators which take into account the prices, costs, wages,

productivities, investments and exports.

Key words: competitivity, Business Competitiveness Index, Growth Competitiveness

Index, Global Competitiveness Index

By taking into consideration many factors, the accuracy of the evaluations

increases and in the last period of time, a preoccupation with a general character is the

measurement of the economical competitiveness of the countries and establishes their

hierarchy in accordance with their level and dynamics. Therefore, at the international

level there are many organizations which handle this aspect, two of them presenting a

special importance. We refer to:

► World Economic Forum – WEF, which started in 1979 to publishing The

Global Competitiveness Report;

► International Institute for Management and Development – IMD, which

starting editing The World Competitiveness Yearbook in 1989.

Initially, the Global Competitiveness Report was published by both

international institutions (WEF and IMD) but later, due to differences in their methods

of quantification, they started to supply separate reports on competitivity. The World

Economic Forum residing in Geneva (Switzerland) and considered one of the most

important global business communities, politically and intellectually and other leaders

of the society involved in the improvement of the global state, defines competitivity as

being “the ability of a country to record high growth rates of the GDP per inhabitant”,

while the International Institute for Management and Development which resides in

Lausanne (Switzerland) defines competitivity as being “a country’s ability to create the

added value, increasing the national wealth, by the administrating efficiently the next

bilateral terms: processes and products, attractivity and aggressiveness, globality and

proximity, social cohesion and taking risks.”

Under the coordination of the World Economic Forum, the Global

Competitiveness Report is published annually with the objective of evaluating the

competitivity of a large number of countries. To accomplish this evaluation and to

make a comparison of the competitivity level of contemporary economies they use two

composite indicators:


Economic Theories – International Economic Relations

- Business Competitiveness Index – BCI, elaborate by Michel Porter from Harvard

University and first introduced in this report in 2000.

- Growth Competitiveness Index - GCI, elaborate by Jeffrey Sachs and John McArthur

and first introduced in this report in 2001- 2002.

The Global Competitiveness Index is calculated and used to analyze the

potential of the economies, world wide, observing the health of economic growth areas

in the medium and long term time frame. This indicator is based on 3 elements: ♦ the

competitivity of the macroeconomic environment of each country analyzed; ♦ the

public institutions’ quality and the politics that these promote; ♦ the technological

efficiency in each country.

The competitivity of the macroeconomic environment is met in macroeconomic

stability conditions, considered the first important element for economical growth,

because during conditions of macroeconomic instability, with high inflation, firms can

not adopt coherent decisions, banking systems cannot function in conditions of a high

governmental deficits, and governments can not supply efficient services with high

interest’s rates due to past debts. In these circumstances the business environment will

suffer if the taxes paid by the economic agents are wasted by the government, and we

can not even talk about economic growth.

A second analysis element made with the help of the Global Competitiveness

Index is referred to the public institutions. Though in a market economy the biggest

contribution to the creation of the wealth and welfare is due to private firms, but we

can’t neglect the fact that the private economic agents have to operate and enter in

different relations with the created institutions and administrated by the state. It is

important to have a correct judicial system, which grants property rights by law,

because foreign firms consider that it is too expensive or even inefficient, to operate in

a country where there is excessive corruption.

The third fundamental element of the analysis with the help of the Global

Competitiveness Index is referred to as technological progress, a real economic growth

engine, which, in the long term, can not be made without an improvement to the

technologies. Viewing these aspects, the countries are divided into:

- Innovating economies, in which the economic growth is determined by their

innovation capacity and which are situated very close to the highest technological

boundaries of the world. We talk of countries like S.U.A., Japan, Taiwan,

Sweden and Switzerland, considered to be the most innovative economies in the


- Imitative economies, which depend in a large measure from outside technological


Because there is a difference between these two categories of countries, The

Global Competitiveness Index has a different calculation, by having a different weight

for one or other of these three elements:

For the countries with innovative economies, the weights are: ½ technology

index, ¼ public institutions index and ¼ macroeconomic environment index;

GCI = ½TI + ¼PII + ¼MEI, where

TI = technology index

PII = public institutions index

MEI = macroeconomic environment index;

For the countries with imitative economies, the weights are: 1/3 technology

index, 1/3 public institutions index and 1/3 macroeconomic environment index;


Revista Tinerilor Economişti

GCI = ⅓TI + ⅓PII + ⅓MEI

Along with the World Economic Forum, another organization measuring the

economic competitivity of the world’s countries and their hierarchy is the International

Institute for Management and Development from Lausanne. They are one of the most

important business schools in the world, with over 50 years of experience in the

developing leadership competence for international management companies. For over a

decade, this institute has been making annually a study on national competitiveness,

entitled The World Competitiveness Yearbook, where they analyze the conditions

offered by the economic and business environment in each country for the sustainability

of the firms’ competitivity.

Initially, this international competitivity study, was charting over 20 countries

on the basis of quantifiable data and state information and diagnosis obtained by

investigations which collected eight aggregate competitivity factors. These eight

factors are: the power of the national economy, internationalization/opening of the

economy, the government, the finances, the infrastructure, the management, the science

and the technology, the human resources. (Diagram no.1)

The competivity factor is calculated based on these eight factors, which take

into consideration a certain number of criteria for each factor as such: the power of the

national economy – 48; the opening of the economy – 60; the government – 54; the

finances – 35; the infrastructure – 46; the management – 37; the science and technology

– 42 and the human resources – 56. The index for the year 1996 is calculated to

establish the countries that have the most favourable predictions of stable economic

growth, in the next 5 years, on the basis of the economic conditions and the existing

institutions in each country.

The principles that estimate the influence of each factor on the international

competitivity are the following:

I. The National Economic power: ▪ the productivity that reflects the added

value in the short term; ▪ the competitivity in the long term with the ability for capital to

form itself; ▪ the prosperity of a country which reflects its past economic performance; ▪

the competition governed by market forces which improves the economic performance;

II. The opening of the economy/internationalization: ▪ a country’s success in

international trade reflects the national economy’s competitivity; ▪ opening of all

international economic activities which grows the economic performances of the

country; ▪ for the whole world, international investment is allocating economic

resources more efficiently; ▪ maintaining a high standard of living needs to integrated

into the international economy.

III. The government: ▪ state intervention in commercial activities has to be

minimized and orientated to create competitive conditions for the firm; ▪ the

government has to give information on the macroeconomic conditions and social

predictions which minimizes the external risks for the economic firm.

IV. The finances. ▪ the financial facility of the activities with added value; ▪ a

financial sector, which is very well developed, integrated internationally, supports the

competitivity of that country.

V. The infrastructure. ▪ a well developed infrastructure, including the

availability of natural resources and a functional business system for supporting

economic activity; ▪ a well developed infrastructure which includes information

technology, performing efficiently in the environment.


Economic Theories – International Economic Relations

VIII The people

ithe availability and labour market



I The national economy power

iThe macroeconomic evaluation of the

national economy


II The opening of the


ithe countries who participate in the

international fluxes of trade and investments


VII The science and technology

i the scientific and technological

capacity; successes of the

fundamental and applicative



VI The management

i the firms that are lead in an

innovative manner, profitable and





III The government

i the governmental politics which lead to

the competitivity


IV The finance

i the performance of the capital markets

and the quality of the financial services


V The infrastructure

i the adequate systems and resources to serve to

fundamental needs of the businesses


Figure no. 1 The factors that influence the competitivity

VI. The management. ▪ a competitive report of price/quality of the products

reflects the managerial ability for a country; ▪ the managerial orientation in the long

term increases the competitivity; ▪ the enterprising spirit is crucial for the economic

activity in the first phase; ▪ in developed businesses, the corporative management

commonly needs the ability to integrate and differentiate the business activities.

VII. The science and technology. ▪ competitive advantage can be built on the

efficient application and innovation of existing technologies; ▪ long term investment in

research and development is useful for growth of the competitivity of a firm; ▪ private

research and development investment are more proper for the growth of the

competitiveness of a country, than the public investments in research and development

for the defense sector.

VIII. The human resources. ▪ the qualification level of the labour market

increases the competitivity of a country; ▪ the growth of competitivity tends to increase

the expectation level for the quality and standard of living.

Later, this study charted the most competitive areas of the world, but it has

been increasing the number of the counties and analyzed regions (60), on the basis of

323 criteria, grouped after 4 competitivity factors:

► Economic performance, considering the following indicators:

- National economy: GDP, private consumption, governmental expenses, native

investments, saving rate, the weight of the main economic sectors (production, services,

agriculture) in GDP, GDP/inhabitant reported to the parity of the buying capacity,

predictions viewing the GDP evolution, consuming, investments, savings, inflation,

unemployment and the current account balances.


Revista Tinerilor Economişti

- International trade: the external pay balance, the commercial balance, the export,

the import, the international commercial changes reported to GDP, income from


- International investments: direct foreign investments, investments on the capital

market, relocation of production, services, research and development.

- Labour market: the number of workers in the economic sectors, employees with

part time and temporary work, the unemployment rate, long term unemployment and

unemployment among young people.

- Prices: inflation rate, the cost of living (the value of the products and services for

the citizens in the urban localities), living space rent and office rent.

► The efficiency of the governmental politics, which have a lots of contributing


- Public finances: budgetary deficit, internal public debt, external public debt, the

total public debt, the public finances management, currency and gold reserve,

governmental expenses.

- Fiscal politics: total incomes from taxes and other taxes, income tax, profit tax,

social assurance contribution, the level of the corporative taxes and the way these

discourage the contractor initiative, the level of tax evasion.

- The institutional frame: the short term interest rate, the cost of capital for the

business development, interest rate at credits compared to the interest rate in deposits,

the country’s rating for external loans, the central bank’s policies, the stability of the

currency exchange rate, the coherency of governmental public policies, the legal frame

of the proceeding businesses, the flexibility and the adaptability of the governmental

policies, the degree of understanding of the global challenge at a political class level,

the transparency of the public institutions, the bureaucracy and corruption.

- Commercial and businesses legislation: custom settles, protectionist policies,

public auctions for awarding public work contracts, access to credit, export assurance,

governmental subsidies, legislation in competitive fields and protection against

monopoles, price control, parallel economies, working legislation, legislation

concerning the migration of the labour market.

- Social frame: efficient functioning of the justice system, private property

protection and citizen’s security, social cohesion, crime rate, social disparities (extreme

poverty and extreme wealth), discrimination against minority groups.

► The efficiency of the businesses, who have a series of contributing


- Businesses productivity: working productivity, GDP/worker hour, productivity in

industry, agriculture and services.

- Human resources: the oral cost of the labour market in the manufacturing sectors,

the remuneration of the professional services, the remuneration of the managerial jobs,

the number of days and hours of working/year, the working relations, motivations and

labour market attitude, investment in training and professional guidance, the abilities

and labour market forces, worker qualifications, the “brain drain” to foreign countries, a

highly qualified and available labour market, the existence of a senior managers with an

experience in international work.

- Financing: access to banking credit, the number of credit cards issued by banks, the

volume of transactions made by credit cards, the evaluation of investment risk, the

access to the risk capital (venture capital), the development of a banking-financing

network (retail banking), the stock exchange capitalization, the transaction values and


Economic Theories – International Economic Relations

the number of native companies listed in the stock exchange, the index of exchange

values, the rights and obligations of the shareholders, the transparency of the financial

institutions, the cash flow for the auto financing of the companies, corporate debt.

- Managerial practices: adaptability and flexibility in decisions, business ethics,

managerial credibility, the administrating council capacity to survey and control the

executive directors, the preoccupation for satisfying the client and marketing

orientation, the corporative and social responsibility, the preoccupation for environment

protection, consumer health and working protection.

► The infrastructure, which has some contributing indicators:

- Basic physical infrastructure: the land surface, arable fields, degree of

urbanization, the dimension of the internal market, the density of the road network, the

density of the railways, air transportation, access to the utilities, import and the

production of energy and fuel, energetic intensity (the energy consumed for generating

a single product unit), the cost of the energy for industrial consumers.

- The technological infrastructure: telecommunication investment, the number of

telephone lines/1000 per inhabitant, the number of mobile telephones, the number of

owned computers, the number of internet users, broadband services, IT abilities in the

labour market, technological cooperation between companies, technological

development financing, intellectual property protection.

- The scientific infrastructure: the budgetary expenses for research and development,

companies expenses for research and development, the number of the wage earners

researchers, the fundamental research for long term development, the number of

published scientific articles, teaching science in schools, the license registrations

(inventions, innovations) the use of the licenses to generate profits.

- Health and environment: health expenses, the hope to live and reproduce, the

medium time life, the number of doctors and nurses relative to the population, medical

services infrastructure availability, the human development indicator, alcohol and drugs

abuse, recycling of packaging, used water treatment, carbon dioxide emission, life

quality, population and environmental legislation.

- Education: education expenses, the ratio teachers’ to children of school age, the

number of graduates, the quality of superior education, the analphabetism degree, the

comprehension of economic and financial notions among the population, the qualified

engineering demand for the investors’ needs, the technological and know-how transfer.


1. OCDE La competitive industrielle, OCDE, Paris, 1996

2. Porter, M.E., Schwab, The Global Competitiveness report 2004-2005,

K., Sala-I-Martin, X., Palgrave Macmillan, 2004

Lopez-Carlos, A.


Revista Tinerilor Economişti


Business Statistics – Economic Informatics


Assoc. Prof. Ph.D. Radu Carmen

University of Craiova,

Faculty of Economy and Business


Craiova, Romania

Abstract: This study intends to realize a critical debate on the content

and the dynamics of the theoretical concepts connected to the world

population growth, trying to explain the origin and sense of the expression

demographic explosion and other expressions that completed, detailed or

disproved this syntagm.

The research is founded on the idea that the debate on the terminology

used in present to define the demographic evolution, the presentation of

the global and the differential components of the population increase, the

main factors and evolutive scenarios of the world population, throw light

correctly on the dimension of the phenomenon and represent a guide for

the demographic present time. Based on these relevant aspects, the study

leads to the idea that our planet is structured in two diverging worlds: a

poor one, still in a demographic expansion and a rich one, in a

demographic stagnation, even in a virtual decline.

Key words: demographic explosion, overpopulation, regional disparities


For the last decades, the world population evolution was frequently presented

by using the concept of demographic explosion. We consider important to explain the

origin and real sense of this concept.

The expression demographic explosion became part of the current use since the

60 s . In the Pierre Rondiere’ book appears the idea that the world is surrounded by

terrifying figures, explosive statistics, frightening formulae. In the same year, the

President of the American Association of Sociology pointed out that the world has

become a chaos society because of the demographic explosion. The subsequent

generalization of this formula obviously clear appears in the French dictionary “Le Petit

Robert”; it explains the figurative sense of the word explosion like an unexpected and

violent manifesting and mentions a nuance of this word defined like an unexpected and

spectacular expansion giving the example of demographic explosion.

Relating to the legitimacy of using these two adjectives, the contemporary

French demographer Gérard-François Dumont affirms that the demographic evolution

may be considered spectacular though in the population field the growth was lower

than the increases in the economic and scientific fields. The unexpected characteristic

of the demographic growth is also debatable: the population increase was produced in

the course of time - decades, even centuries; it was not sudden, but it accompanied the

progress in economy, in medicine and in hygiene; it was not instant and simultaneous,

because it was manifested in different periods, with different rates, on different spaces


Revista Tinerilor Economişti

of the planet; finally, it was not totally unpredictable, taking the explanatory factors into

account. Gérard-François Dumont includes the expression demographic explosion

among the clichés used for designation, in a mystical and fabulous manner, the

phenomena which were not enough analyzed: the German economic miracle, the Asia

dragons etc.

Alfred Sauvy, one of the greatest demographer of the 20 th century , considered that

the expression demographic implosion is more appropriate than the other -

demographic explosion - to symbolize the evolutions for the last two centuries, but also

the scenarios of the future evolutions, in so far as some regions of the planet are

suffering a demographic closure, because of the population ageing or depopulation.

Working from these reasons, we think that the evolution of the world

population from the beginning of the industrial revolution is a phenomenon that can be

described and understood, which has a clear logic and follows its specific laws. The

reality of the demographic evolutions must be considered by having recourse to a

correct analysis: after we have measured, we must understand, says Gérard-François

Dumont. Three adjectives allow the characterizing and understanding of the

contemporary demographic history: unpredicted - nobody can imagine that during the

period of a century (only three or four generations!), the infant mortality, the juvenile

mortality and the maternal mortality would decrease, in most of the world countries,

with almost 95%-; unprecedented - relating to the demographic normal of the world

until the 18 th century, the contemporary demographic situations are singular, but not

extravagant or fantastical -; and logical - however unpredicted and unknown before are

the demographic evolutions, they are also based on a very strong logic; thus, the quasitripling

of the life expectancy at birth during the latest two centuries is not a

spontaneous appearance, but the result of some accumulations that allowed this

progress; at its turn, this demographic progress involves a series of consequences.

In order to give correct details of reality, we must measure the demographic

evolutions that changed the world; within this approach, the regional dimension has, in

present time, a greater significance than the global dimension of the population; the

importance of this regional dimension comes from the considerable disparities among

the continents, inside the continents or the countries. The geopolitics dimension of

demographic information also underlines the attention that it must be accorded to the

differential aspects.

The demographic dynamics at the present time can be essentially explained by

four fundamental processes: the demographic transition, the population ageing, the

mutations in women professional activity and the migration (politic, demographic or


On the occasion of the International Conference for Population and

Development- Cairo, 1994 - it was reaffirmed an older idea of humanity, the fear of

tomorrow, under a new name: the obsession of the planet overpopulation. The main

defect of this idea, according to Gérard-François Dumont opinion, is the fact that it is

only a dangerous ideology; the antidote against such an ideology which blinds the

people, is the attent analysis of reality based on scientific methods.

The world population estimations point out the slow evolution until the 19 th

century: 5 million inhabitants in the year 8000 b.c., 500 millions in the year 1650

(during that period of time, the world population was doubled at each 1500 years, with

an average annual increase rate of 0.004-0.06%), 750 million inhabitants in the year

1750 and 954 million inhabitants in the year 1800. The world population exceeded a


Business Statistics – Economic Informatics

billion inhabitants, for the first time, in the 19 th century, reaching at January the 11 th

1900 to 1.634 billion inhabitants. Between 1650 and 1850 ( when the world population

was one billion inhabitants ), the doubling time was reduced from 1500 years to 200

years, and the average annual population growth rate was 0.3-0.4 %. The world

population increase in the 19 th century is estimated at 71%, superior to the rates of

growth for the previous centuries: 23% in the 15 th century, 25% in the 16 th century, 17%

in the 17 th century and 40% in the 18 th century. The 20 th century achieved an accelerated

evolution compared to the 19 th century: the inhabitant’s number of the planet was two

billions in the year 1927, three billions in the year 1960, four billions in the year 1974,

five billions in the year 1987 and six billions in the year 1998.

Between 1950 (when the world population number was 2.5 billions) and 2000

(when the world population number was 6.057 billions), the average annual rate of

world population growth was 1.63 % (double than that of the first half of the last

century: 0.88 %). Converting this average annual growth in absolute numbers, we can

say that, during this period of time, the world population increased with 185000

inhabitants per day, or with 8000 inhabitants per hour! The period between 1965 and

1970 marked the greatest average annual rate of world population growth: 2.06%. After

this period, the average annual rates of world population growth decreased, reaching

1.73% between 1985 and 1990, 1.55% between 1990 and 1995, 1.2% between 1995

and 2000 and 1.4% between 2000 and 2005. Though the average annual rate of

population growth was placed on a descending line, the average annual natural increase

of world population was placed on an ascending line until present: from 47.1 million

inhabitants between 1950-1955 to 68.2 million inhabitants between 1995-2000 and 88.6

million inhabitants between 2000-2005. Based on these figures we can measure the

levels of the indicators for the last century: the world population increased with 4.422

billion inhabitants (over 44 millions per year), that represents a natural increase rate of

270% (1.32% per year). These figures are unknown before for the humanity history; in

the absence of an analysis of the influence factors and predictable consequences, they

justify the use of the expression demographic explosion.

The world demographic growth during the last two centuries is, in reality, the

direct result of the economic and public health changes due to the first industrial

revolution. The export of new technologies, that sprang up from the European countries

to the rest of the world – a process favored by the colonial policy – allowed the

previously observed expansion of the planet population. If in the northern hemisphere

countries the main engine of the demographic growth from the 19 th century and the

beginning of the 20 th century was the industry, subsequently accompanied with the

medicine and sanitary equipment progress, in the southern hemisphere countries, with a

century delay, the medical science performed the leading part.

The progress in medicine, biology and chemistry, materialized in the

substantial improvements of the means for investigation, diagnosing and medical

treatment, simultaneously with the development of the network for supply of drinking

water and for sewerage that secured the public hygiene progress, led to the amelioration

of living conditions. The humanity discovers this way that it is possible to become

reality a fact that was unimaginable in the past centuries and millenniums: the man can

have the desired effect on the decreasing of mortality. This astounding changing

became the first demographic revolution in the contemporary humanity history. The

demographic growth from the 19 th and 20 th centuries is not then the result of a higher


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fertility behavior, as in the previous centuries, but the result of the decreasing of

mortality based on the economic and sanitary progress.

The knowledge of the number of inhabitants of our planet at a time is justified

taking into account the world population homogeneity depending on its main

characteristic: the human character of each individual. However, the homogeneity

principle of the whole population is, in fact, only valid for this characteristic. Because

of that reason, Georges Mathews affirms: we can not talk about the world population

without the danger to be deceived and any elaborate study of the world population

obliges the analysis of its populations.

Even at the level of the continents, appear important demographic differences,

which are more powerful at the regional or national level. Between the two great areas

of the earth, geographically marked as North and South or economically delimited as

developed countries and under-developed countries, significant discrepancies persist for

almost all the demographic indicators:

• concerning the density of population, some areas are outlined: over populated,

scarcely populated and even depopulated;

• the structure of population by age clearly divides the six continents: on the one

hand, Africa, Asia and South America with a young population, and on the other

hand, Europe, North America and Oceania, with an aged population, both from a

demographical point of view;

• the classification of continents depending on the decreasing levels of natality and

fertility clearly follows the South-North axis; however, the world population

hierarchy following the general mortality does not have the same configuration

(Europe is placed before South America, Asia and Oceania).

These zonal disparities are due to the different evolutions, in the last half of the

20 th century, of the populations from the two areas of the planet: the population growth

was faster in the under-developed countries (with an average annual rate over 2%) than

the population growth in the developed countries (with an average annual rate under

1%). The range of variability of average annual natural increase, for an analysis on the

continental level, is bigger: from 2.63% in Africa to 0.9% in Europe.

As a result of different evolution of population by regions, continents and

countries, the structure of population by geographic areas knew and will continue to

know great fluctuations. Thus, according to the ONU projections, Asia will continue to

hold the first place in the international hierarchy (from 54.7% in 1950 to 60.6% in 2000

and 57% in 2025); Africa has passed on the second place (from 8.8% in 1950 to 13.1%

in 2000 and 13% in 2025); South America will own the third place (from 6.6% in 1950

to 5.7% in 2000 and 9% in 2025). The projections relive the fact that the proportion of

population of the North America and Europe in the world population will continuously

decrease until 2025, from 8% in the present time to 4% for North America and from

12% in the present time to 6% for Europe (in fact, during the first years of the new

millennium, only these two continents realized a decreasing percentage in the global


The profound demographic changes during the last two centuries had

significant consequences, direct or indirect, concerning human life.

The direct effects are connected to the unprecedented decreasing of mortality,

especially for three of its forms: the infant death rates reduced 40 times; the maternal

mortality rates reduced 100 times; the children and teen-agers mortality rates also


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reduced in a significant proportion. The decreasing of mortality has two complementary


• on the one hand, it is reflected in the increase of the life expectancy at birth; if at

the beginning of the 18 th century the life expectancy at birth was 25 years, at the

ending of the 20 th

century it was 75 years (three times multiplied); the world

population growth is, in the first place, a direct effect of extension of life duration;

• on the other hand, the decreasing of mortality with a faster rate than the natality

generated high rates of population growth; it is the second important cause for the

increasing of the number of inhabitants of the planet, starting with the year 1800

and especially from the year 1900.

The indirect effects of the first demographic revolution manifested in the

population geography; two of them must be underlined:

• the changes in the relative demographic weight of the countries and the continents,

that is explained by different calendar of the demographic processes: the different

moments of time and the different mortality decreasing rates for each country led to

the maximal rises with different intensities and in different periods; in this way, the

population distribution of the planet changed;

• the urbanization phenomenon, as a result of the natural increase of the cities

population and as that of the emigration of the rural population – partially due to

the higher natural increase of the villages population.

The demographic data presented confirm the unprecedented character of the

world population evolution during the last two centuries of the second millennium; the

demographic changes were considerable. Can we though talk about a demographic

explosion as far as it concerns the changes born from the human wills to improve their

living conditions and standard

Alfred Sauvy preferred to avoid this term, because it gives the impression that

the demographic movement was not always well understood, neither in its mechanism,

nor through its consequences. He prefers the term implosion because, often, the

population growth in a country was not accompanied, so far, by a flowing of the

population into another country. One of his arguments, pure pedagogical, is also the

definition of the word implosion in the dictionary Larousse en trois volumes (1965): an

assembly of explosions combined thus its effects being felt by the center. For Alfred

Sauvy an explosion can not be produced without the significant results. The use of the

term implosion underlines that, until the present time, the demographic growth reflected

in international migrations with low intensity, in modest emigrations (from the regions

with a strong increase to those with a low increase) in relation with the importance of

the effective demographic growth. He concludes: the demographic growth was

concentrated on the place where it was produced; the implosion was not yet followed

by an explosion.

The Philip M.Hauser’s analysis reconciles the mentioned terminology, taking

into consideration that the two phenomena - explosion and implosion - can live

together. Defining the demographic implosion like a concentration of the world

inhabitants on the small areas, he shows that the population explosion nourished the

population implosion. The American author adds a third characteristic, as a result of the

two previous phenomena, the demographic displosion, defined like a diversifying of the

population by increasing of its heterogeneity which separates not only the same


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geographical area, but also the same vital space, as concerning the economic activity,

as the social and political activities.

Irrespective of the concepts used for the summarizing the world population

evolution during the last centuries, the conclusion is that this evolution was logical: the

increase of the number of the planet inhabitants was not the fruit of a spontaneous

generations, unpredictable or incomprehensible, but of some explainable and scientific

analyzable mechanisms; these permit to strike a balance of the world population


• The decrease of mortality and the fight against the three plagues (infant mortality,

maternal mortality and children mortality) permitted an unexpected and significant

increase of the life expectancy at birth; during the last two centuries, the longevity

of the planet inhabitants had the most important evolution.

• The increase of the life expectancy at birth, combined with a considerable deviation

between the natality and mortality rates in the first phase of the demographic

transition, involved a significant increase of the world population: 71% in 19 th

century and 270% in 20 th century.

• These evolutions had as result the populating of the unpopulated regions of the

globe beginning with the year 1800 and contributed to an unprecedented


The knowledge of the demographic past and present of our planet, allows the

anticipation of its demographic future. The perspective, this vision over the future

intended to give a lead to the present time action, it benefits in demography by a series

of advantages: the demographic phenomena have a great inertia, dependent on the

population stocks at one time - as compared to these, the flows of the population: livebirths,

deaths, migration balance, are mathematically reduced – and an acquired speed,

dependent on the known past of the population.

Any demographic perspective must have in consideration the evolutive factors of

the population, which can be classified, depending on their probability, in three

categories: the almost certain factors, the probable factors and the possible factors.

In the first category are included two evolution factors, which are globally

summarized by the decrease of the world fertility with significant different values in the

two great areas of the planet: the decrease of the fertility in the under-developed

countries with a rate that will forward place the phenomenon over the border of the

generations replacement; the decrease of the fertility under the border of the generations

replacement in all developed countries, with predictable consequences on the

decreasing of their populations number.

The probable factors are more difficult to take into consideration in a global

manner, because they conduct to diverging results at the countries level, even

contradictory results in the same country. They refer to the mortality conditions and

include three factors favorable to the continuously decreasing of the mortality: the

amelioration of the sanitary conditions (with direct effects in the decreasing of the

infant, juvenile and maternal mortality); the medicine domination of majority of current

diseases (especially reflected by reducing of the mortality rates for the third age and by

increasing of the life expectancy at birth); and the behavioral factors (which aim the

male population and will conduct to the reducing of the deviation between the life

expectancies at birth for the two genders). Three other factors, that run the risk of

exerting a contrary sense influences, are included in the same category: the


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deterioration of the sanitary conditions (which does not necessarily advance in a

positive manner in all countries); the development of new diseases, with direct effects

on the mortality increasing, indirect effects by the load upon the health infrastructure

and the countries economy and secondary effects by favoring the reappearance of some

contagious diseases, which were considered, for a long time, eradicated in these

countries; the armed conflicts, with significant demographic costs.

In the category of possible factors, there are included: the migration and the

population policies. Taking into account the political and economic differences, but also

the increasing of the demographic lack of balance, there are in succession expected

human movements, considerable by its intensity and its effects on the fertility

behaviors. Concerning the demographic policies, it is difficult to specify their future

evolution, taking into account its character, rather implicit than explicit; depending on

the applied policies, the Southern countries could accelerate the second phase of their

demographic transition, and the Northern countries could resist against the ageing

population process.

Besides the mentioned factors, another cultural and religious factors, whose

influence is more difficult to estimate, they will act on the future demographic

evolution; the religious conditions and the cultural values will continuously be at the

bottom of the attitudes towards the nuptiality and the fertility.

Based on the hypothesis regarding the action and the influence of the evolutive

demographic factors, there were outlined, until now, more scenarios of the world

population future evolution.

The first of them, named the demographic implosion scenario was elaborated in

1989 by Jean Bourgeois-Pichat, the former director of the National Institute of

Demographic Studies of France. Consisting in the prolongation of the present fertility

behaviors for the Northern countries and their expanding on the Southern countries, the

scenario estimates the ageing, the depopulation and even the demographic exhaustion

of our planet around year 2400.

The demographic ONU projections, published in 1992, regarding of the world

population evolution until 2150, are based on five different hypothesis of fertility (with

values of the average number of live-births for a woman between 1.7 and 2.5) and on

single hypothesis of mortality: the increasing of the life expectancy at birth until 2075

to 87.5 years for women and 82.5 years for men (for the planet population). In the

maximal fertility variant, it is estimated for the year 2025 a world population of 9.4

billion inhabitants and for the year 2150 of 28 billion inhabitants. The minimal variant

estimates 7.5 billion inhabitants in 2025 and only 4.3 billion inhabitants in 2150. A

medium variant, with a fertility restricted around the border of the generations

replacement (2.1 children per woman) and an ameliorated state of health, estimates 10

billion inhabitants in 2050 and 11.5 billion inhabitants in 2150. This last scenario, that

was considered at that time the most probable, was named the scenario of the world

population stabilization. It places Asia, from demographic point of view, in front of the

other continents in the future centuries and considers that Europe will become, from the

same point of view, a sub-continent around year 2100.

A more recent ONU projections (2003) estimate, in a medium scenario (with a

fertility of 2 children per woman) a world population of 9 billion inhabitants in the year

2300; the maximal scenario (with a fertility of 2.35 children per woman) estimates 36.4

billion inhabitants; the minimal scenario (with a fertility of 1.85 children per woman)

estimates only 2.3 billion inhabitants; the constant scenario (with the fertility of 2.68


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children per woman, equal to the value of the year 2003) estimates 244 billion

inhabitants in 2150 and 134000 billion inhabitants in 2300. This last scenario clearly

indicates that the present level of fertility could not be preserved for an indefinite time.

The medium scenario also estimates that Africa will have 24% of the world population

in 2300 (doubled than in the present time) and Europe will have only 7%. The most

populated countries will continuously be India, China and United Stares of America.

The world population will continue to grow old: the average age, 26 years in the present

time, will be almost 50 years in 2300; the proportion of the over 60 years people will

increase, from 10% in the present to 38% in 2300; the proportion of the over 80 years

people in the world population will increase from 1% to 17% in the future three




The trends in the population dynamics in the postwar period brought up-to-date the

problem of the causal relation between the population and the economy and, implicitly,

the question: the population growth is a stimulus or an obstacle to the economic and

social development The demo-economic theories were separated into two

diametrically opposed conceptions:

• the population growth is a negative phenomenon (Malthusians, neo-Malthusians);

• the population growth is a positive factor for the economic development (anti-


The answer to this question must take into consideration that, on the one side, the

population is the most important consumer for the goods and the services and, on the

other side, the active segment of the population represents the most important factor of

production of those goods and services.

In a natural way, the population increase implies the satisfying of a greater volume

of necessities: food, clothes, shelter, education, health, new places of work. The long

series of statistic data pointed out the fact that the population dynamics was exceeded

by the production dynamics and, on the long term, the necessities of the world

population have been satisfied on the superior levels. This analysis operates with

macroeconomic blocks – populations and national societies – and uses like statistic

indicators the average annual growth rates of the population and the gross domestic

product. Without denying the meaning of this kind of analysis, we agree to the opinion

also expressed in the specialized literature – that such manner of approach to the

relation population-economy is over-simple and it have to go deeply into the study of

the components of those macroeconomic aggregates, of the complex correlations

between different variables of those macroeconomic blocks, by taking into

consideration their manifesting in different periods of time and on different spaces.

At the International Conference for the Population and Development from Cairo,

1994, some participants pulled the wires about the future of the planet by imposing the

concept of the global population or, more precisely, of the global overpopulation. Jean-

Claude Chesnais characterizes the idea that we will be too numerous like a superficial

and incorrect conception on the reality because it does not exist a global population as

it does not exist a global government; there are only national populations, with very

different demographic rates, densities and economic, social and ecological living

conditions. The concept of world or global population denies the biodiversity of


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mankind; it spreads the optical illusion of a uniform urgency for the decreasing of

natality (while the fertility levels are extremely variable from one country to another)

and dissimulates the international disparities.

We can say that the human planet is composed of two contrary universes:

• one that it does not renew, the industrial universe which comprises the three poles

of the prosperous triad (Western Europe, North America and Eastern Asia) and the

former Soviet block; it represents a quarter of the world population and it is, in the

greater part, in the situation of virtual depopulating;

• and other that largely benefits of the spreading of the medical techniques and it is

not yet suited to this exogenous shock by restricting, in consequence, the size of its

off spring; through its mass and speed – more or less rapid and comparable with the

local resources – it involves the unexpected multiplication of the planet population.

The heterogeneity of the world population – which expresses also inside the

two antagonistic universes – it does deceitful the concept of world overpopulation, from

two points of view.

Starting from the idea that the world population evolution has to be examined

with calm and serenity, by refusing both the myths and the fears which it might cause,

Gérard-François Dumont realizes a careful analysis of the greatest disparities which

humanity is, at present, confronted. Regarding the double lack of balance, between the

population, the natural resources and the environment, the author considers necessary to

pose some questions: the planet resources are sufficient to feed twice the population If

the answer is negative, we really point at an irreversible starvation of the planet

inhabitants If the answer is affirmative, which are the conditions that allow a

judicious utilizing of the resources for nourish all the people These questions, and

especially their answers with a scientific base, will permit the elimination of the two

major fears of the humanity: the over-populating and the starvation.

The quantitative arguments in favor of the existence and the perpetuation of the

lack of balance between the population and the natural resources of the planet are based

on real figures which prove that, in the poor regions of the globe, the increase of the

population – excessive in connection with the local capacity of supporting – it

endangers the development resorts, threatening the political and social stability:

• on the 2/5 of the planet area live over one billion inhabitants whom the agriculture

can not feed with the present level of the agricultural input;

• in the last 30 years, the number of people who lives under the social status of

poverty, has continuously increased, exceeding one billion inhabitants; the

malnutrition affects over 0.5 billion inhabitants; around 2.8 billion inhabitants –

two of five people – yet struggle to survive with less than two dollars per day;

• every year, 6-7 million hectares of agriculture area become infertile; in the last 30

years, over 50 million hectares of arable area have been removed from the

agricultural circuit for the other destinations;

• annually, over 11 million hectares of forest are cleared; one half of the forest

resource was eliminated until the present time;

• one half of the planet population lives in countries with a few water resources.

The qualitative arguments were recently included in the name of the

indispensable equilibrium between the being and the environment – that we name in the

present time the ecosphere. It is, in the first place, the question about the appearance of


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the greenhouse effect or the global rise in temperature as a result of increasing of the

greenhouse gas volume emitted in the atmosphere. Though the men of science did not

elucidate the effects of this process, there are evidenced until present the alarming

consequences: the displacement of the ecological zones to the poles; the disappearance

of a great number of plants and arbors; the reducing of the forest area and the increasing

of the desert area; the melting of the glaciers and the raising of the oceans level.

The challenge for the humanity is real great, but not as urgent as these figures

indicate, that, by omitting the relative character of those disparities, throws into the

shade the real disparities, especially presents in the industrial regions of the north of the

planet (North America, Europe and Eastern Asia). Because in matters of demographic

behavior, the urbanization and the level of instruction of the female population are even

more important than the level of income per inhabitant, the theoretical advanced

countries area includes also the Eastern Europe countries. The real menace for the

advanced countries, the suicide by unnatality, it carries on the germ of the demographic

and ecological decline. The immigrations could not compensate the losing of the young

people and the absence of the children from these areas; moreover, they involve

xenophobe outbreaks, as more violent as the unemployment has a structural character.

At the international level, the number of immigrants increased from 79 millions in 1960

to 175 millions in 2000 – more men and women trying this way to escape from the

unemployment. Because the unnatality, the ageing and the unemployment can attract to

one another into an infernal spiral, the survival of some civilizations from this part of

the globe and their most important values – the liberty and the equality – become a real


Analyzing the correlation population-development, we must not give to the

concept of development only its strict economical sense; the development also means a

hygiene improvement policy, a decreasing infant mortality policy and a liquidation of

illiteracy policy. The development, in the most comprehensive sense of the word,

permitted to the humanity to climb over the risks, greater in theory than in reality, of the

starvation. The planet can feed its people, because the concept of resource is relative;

we talk more often than not, about the known and at present utilized resources; the

utilizable resources are unlimited: the progress of science and technology can multiply

the means of subsistence for the people.

The earth really can and could feed its inhabitants, but between to be able to

and to effectively realize this objective, it is a margin that depends on political, social

and cultural factors. For the benefit of the elimination of the quantitative fear about the

insufficient food resources of the world population, we have to avoid in the future some

measures of economic policy, that were applied in the past in the under-developed

countries (including the Eastern Europe countries): the priority of industry over the

agriculture; the overwhelming fiscality for agriculture; the imports or subventions that

falsify the real market prices of the agricultural products; the excessive urbanization

that leads to the crushing of the rural economy.

The other fear, qualitative, which the humanity is confronted, is the ecological

equilibrium of the planet. The application of some hyper-mechanized systems in the

under-developed countries had also negative consequences: the decreasing of number

of jobs, the excessive concentrated urbanization, the destruction of the soil and the other

elements of the environment. But, besides those errors of abusive imitation of the

industrial world, they proved a development models adapted for the different countries

and regions, models that are not unfortunate for the ecosphere.


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If the man is an incorrigible contaminater, he also can be a greater preserver,

a magnificent cultivator, says Jean-Claude Chesnais. For that reason, we can add, a true

equilibrium of the eco-system needs the man. René Dubos affirms that the earth needs

the people…because the people imagination and work create what we give the name

Nature…it is a symbiosis between the earth and mankind, not an opposition.

Referring to the same aspect, Theodore W. Schultz, a winner of the Nobel

Prize, affirms that the essential connection between economic productivity and human

prosperity is rediscovered in all countries, poor or rich and the investments in

population quality and knowledge are the decisive factors that allow the insurance of

the standard of life and of the perspectives for humanity. He declines the current but

incorrect opinion corresponding that the resources, limited in space, energy, arable area

and other physical characteristics of the planet, could constitute an insurmountable

obstacle to the amelioration of the mankind destiny; he says that the acquired aptitudes

of the people – education, experience, competence and health – are the determinants of

the economic progress.

The partisans of the neo-ecologism, who give priority to the animal species

over mankind, are afraid of the mad expansion of the human specie and vehemently

affirm that the optimal population of the planet is eight times smaller than the effective

population. Taking into consideration that the man is the most important enemy of the

eco-system, they oppose to the increasing in a cancerous manner of the population and

state the case for the elimination of 350000 people per day, but they also add: it is so

dreadful to say that it must not be told.

The data presented by them, a global data that deny the geographical

differences, are not scientific argued, because they do not refer to the theory or the

reality of the demographic transition. Therefore, Jean-Claude Chesnais concludes: the

demographer or the economist must challenge these sophisms of the neo-ecologism.

The disparities frequently presented, between population and resources or between

population and nature, they are false disparities. The real alarming disparities are in the

North of the planet: between the increased proportion of the full age population and the

decreased proportion of the young population; between the increased number of the

reduced families and the progressive decreasing of the numerous families; between the

important urban agglomerations and the rural zones, in process of the demographic


One of the causes of the demographic metamorphosis in the developed areas of

the planet is the spreading of a safer contraceptive techniques; thus, the natality become

the object of a conscious calculation which has, in its turn, for prior cause, the

pronounced decreasing of the infant mortality. Jean-Claude Chesnais describes very

suggestive and also realistically this metamorphosis: There where the death spectrum

continues to obsess the age generations (in the disinherited regions of the planet), the

fertility cult persists: each birth is celebrated like revenge against the death. There

where the death disappeared long ago from the dailyscape and where it is pushing an

old age, the people tend to behave as they are immortals; they forgot they are mortals

and they stop their reproduction.

Another cause of the demographic vitality loss in the advanced countries, it is

the women condition changing, by the extraordinary raise of their level of education

and by the access to the financial autonomy. Through the increasing of the women

employment rate, the child opportuneness cost also increases and the living standard of

the couples with children decreases; implicitly, the fertility also decreases. The social


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protection system was not yet adapted to the new socio-demographic variable of the

employee urban societies, where the child became one of the pivots of the consumption

society. The children are the great forgottens of the State Providence…the major

beneficiaries are the old people, the risk of gerontocracy being real.

The rich countries often wonder why the poor countries have a higher level of

natality. For the inhabitants of the under-developed countries, the children represent: a

fortune, a protection and a guarantee. That is why, Alfred Sauvy said: not because they

have children the people are poor; because they are poor, they give birth children.

The population problems must not be studied independent of the whole

society’s problems, of their development and education policies. The great springs of

the history can be reduced at three main factors: the technical progress, with its two

major components, medical and economical; the ideologies which stimulate the people,

creating the motivation to learn, to innovate and to produce; the demographic growth

that, by causing reasons for investment and creating conditions for the investments

profitability, it maintains a favorable environment for the economic expansion.

In order to avoid the biological collapse and the cultural shock, it is necessary a new

humanism: an ambitious life policy, a wide opening to the world. The population

growth, the economic development and the revival of all regions of the planet

participate, in equal measure, to the future of our civilization. We can conclude that our

planet is structured in two diverging worlds: a poor one, still in a demographic

expansion and a rich one, in a demographic stagnation, even in a virtual decline. At the

beginning of the third millennium, all major inequalities and differentiations of the

planet remain to defend and to conquer: between man and nature, between rich

countries and poor countries, between women and men, between new generations and

old generations.


1. Chesnais, J. C. Le crépuscule de l`Occident. Démographie et

politique, Editions Robert Laffont, Paris, 1995

2. Dumont, G.F. La montée des déséquilibres démographiques, Edition

Economica, Paris, 1984

3. Dumont, G.F. Le monde et les hommes. Les grandes évolutions

démographiques, Edition Litec, Paris, 1995

4. Sauvy, A. La terre et les hommes, Edition Economica, Paris,


5. *** The Situation of the World Population in 2004, after

ten years from the Action Plan of CIPD, Cairo,

UNFPA, 2006

6. *** World Population Report, Department of Social and

Economic Affairs, ONU, 2006


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Ph.D. Lect. Constantin Sanda

Assist. Lupsa Dana

Transilvania University of Brasov

Faculty of Economic Sciences

Braşov, Romania

Abstract: The aim of this paper is to examine whether international

investment incentives can be justified on the host country effects of foreign

direct investments. In particular, we discuss whether the externalities from

the operations of foreign multinational corporations are strong and

systematic enough to justify subsidizing foreign investment with various

fiscal and financial incentives. We also discuss some alternative policy

measures available for governments to benefit from inward foreign


Based on the current knowledge of spillovers, we try to see whether

investment incentives can be justified or not, and discusses the design of

incentive policies.

Key words: foreign direct investment, incentives, multinational corporations

As most countries have liberalized their policies to attract investments from

foreign multinational corporations an increasing number of host governments

provide various forms of investment incentives to encourage foreign owned companies

to invest in their countries. These include fiscal incentives such as tax holidays and

lower taxes for foreign investors, financial incentives such as grants and preferential

loans to multinational corporations, as well as measures like market preferences,

infrastructure, and sometimes even monopoly rights.

There are some explanation about the increasing interest for investments like

low growth rates and rising unemployment but it appears that the globalization and

regionalization of the international economy have made foreign direct investments

incentives more interesting and important for national governments.

Even a small country may now compete for foreign direct investments, given

that it can provide a sufficiently attractive incentive package. At the same time, national

decision – makers have lost many of the instruments traditionally used to promote local

competitiveness, employment and welfare

The scope for active trade policy has diminished as a result of successful trade

liberalization, and the internationalization of capital markets has limited the possibilities

to use exchange rate policy as a tool to influence relative competitiveness.

Most clearly, this has been seen in Europe, where the Single Market program

has shifted the responsibility for trade and exchange rate policies from national

governments to the European Commission and the European Central Bank. Even so,

national decision – makers continues to promote their competitiveness and welfare

using those policy instruments that remain at their disposal, including foreign direct

investments incentives.


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In order to compete successfully in a foreign market a firm must possess some

ownership-specific assets in knowledge, technology, organization, management, or

marketing skills. Such firm has several alternative ways to claim the rents that they will

yield in foreign markets, including subsidiary production, joint ventures, licensing,

franchising, management contracts, marketing contracts, and turnkey contracts. Of

these, subsidiary production and joint ventures involve varying degrees of foreign

presence, and force the firm to decide where to locate their foreign activity.

In the past, the view was that multi national corporations are mainly attracted

by strong economies based on market size and the level of real income, with skill levels

in the host economy, the availability of infrastructure and other resources that facilitate

efficient specialization of production, trade policies, and political and macroeconomic

stability. Foreign direct investments was market seeking. Foreign investors seeking an

export base were less focused on local market size and more concerned about relative

cost of production, while investment incentives were seen as relatively minor

determinants of foreign direct investment decisions.

In recent years the view of the importance of incentives begins to change and

one indication is the proliferation of investment incentives across the world. Very few

countries compete for foreign investments without any form of subsidies today. With

the exception of export processing zones and industrial estates, where infrastructure and

land are subsidized, developing countries are more likely to base their incentive

schemes on tax holidays and other fiscal measures that do not require direct payments

of scarce public funds. Direct financial subsidies are likely to have their main influence

on the location decision itself, while tax holidays may well effect operational decisions

for several years.

Recent econometric studies on the effects of foreign direct investments

incentives, in particular fiscal preferences, suggest that they have become more

significant determinants of international direct investment flows in spite of that most

foreign direct investment incentives apply in particular to greenfield investments rather

than foreign acquisition of existing companies.

The main reason for that is the internalization of world economy. Global trade

liberalization has made easier for multi national corporations to set up international

production networks, so that a larger share of output is shipped to international

customers or affiliated companies in other countries rather than sold to local customers.

This has reduced the impact of market size and allowed smaller countries to compete

for investments that would automatically have been directed to the major markets in the


Regional integration has similar effects, allowing multi national corporations to

supply all or several member states from a single location within the region. Incentives

have also become increasingly important for national policymakers who are trying to

promote local production, employment and welfare. The scope for active national trade

and exchange rate policy has diminished, most clearly for present and potential

European Union members, who are largely bound by decisions taken by the European

Union Commission and the European Central Bank, and shifted attention to industrial

policy, including measures such as investment incentives.

As a result, the incentives provided by many countries have become more

generous over the years. Considering that market integration has reached further at the

regional rather than global level, it is also clear that the effects of incentives are likely

to be particularly strong in the competition for foreign direct investment within regions,


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when the initial investment decision has been taken and the investor is choosing

between alternative locations in a given region.

The problem is that investment incentives are or are not likely to yield benefits

that are at least as large as the costs and if those costs are justified.

Even if the foreign multi national corporation do not differ in any fundamental

way from local firms, the costs of the initial investment incentive could arguably be

recouped over time as the economy grows thanks to the foreign direct investment

inflows. However, there are at least two arguments against this type of incentives. It is

difficult to make reliable calculations about the expected future benefits in terms of

growth, employment, or tax revenue, which is necessary to determine how large the

subsidies should be. This is particularly complex in cases where foreign direct

investments projects that are driven by investment incentives rather than economic

fundamentals of the host country.

The reason is that these investors are likely to be relatively footloose, and could

easily decide to move on to other locations offering even more generous incentives

before the expected benefits in the first location have been realized.

Furthermore if foreign investors do not differ in any fundamental way from

local investors subsidizing foreign direct investments may distort competition and

generate significant losses among local firms.

Thus, it is hard to justify investment incentives focusing on foreign multi

national corporations that do not differ fundamentally from local companies. At the

same time, it should be noted that this conclusion does not rule out public policy

intervention in the form of investment subsidies in situations where unemployment,

insufficient investment, or weak growth are central policy problems. Instead, the policy

prescription is that the problems should be addressed with policies that do not

differentiate between foreign and local investors.

In the more realistic case where conditions for foreign firms differ from those

for local firms, it is easier to motivate foreign direct investments incentives with the

argument that there may be some distortion or market failure that is specific to multi

national corporation production. The most obvious distortions occur if rules and

regulations are biased against foreign owners. In such cases foreign direct investment

incentives may well be needed to overcome the various obstacles faced by foreign


Supposing there is no formal discrimination of foreign owners, controlling for

this, the most common source of market failure is related to externalities or spillovers of

foreign direct investment.

A firm must possess some asset in the form of knowledge of a public-good

character to be able to compete in foreign markets.

If the multinational corporation cannot capture all quasi-rents due to its

productive activities in the host economy, or if the affiliate increases the competitive

pressure and removes distortions, the host country’s private sector can gain indirectly

when productivity spills over to locally owned firms. Thus, when markets fail to reflect

the social benefits of the foreign direct investment, government action can be justified

to bridge the gap between social and private return for foreign direct investment

projects that create positive spillovers.

The increase in competitiveness may attract further foreign investors into the

country, raising national income and welfare. This motivates the host country to

subsidize foreign direct investment, in competition with other host countries that see the


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same potential gains. Differences in country size, production costs and expected gains

from foreign direct investments inflows influence each country’s optimal incentive


The equilibrium distribution of foreign direct investments between countries

with subsidies may well be significantly different from that without subsidies even in a

perfect information setting, where each country implements its optimal incentive

scheme. Foreign direct investment incentives can be expected to have a significant

impact on the pattern of international investment.

Although the rationale for subsidizing inward foreign direct investments is to

correct the failure of markets to reflect spillover benefits, it should be noted that neither

policy making nor formal theory have focused much effort on matching the size of

subsidies to the amount of expected spillover benefits. Instead, it is assumed that the

spillover benefits are sufficiently large to justify investment incentives. In other words,

few commentators have assessed the empirical evidence regarding spillovers in

connection with this particular policy debate.

Based on the argument that foreign firms can promote economic development

and growth, many countries have introduced various investment incentives to

encourage foreign multi national corporations to invest in their market. Such incentives

can mainly be justified if the foreign firms differ from local companies in that they

possess some firm specific intangible asset that can spill over to local firms. In that

case, the foreign investor’s private benefits are lower than the social benefits and total

foreign investment will fall short of the optimal amount unless various investment

incentives compensate the foreign investor.

There are good reasons to remain cautious in granting incentives focusing

exclusively on foreign investors. It is not easy to determine where and how spillovers

will occur.

It is also difficult to calculate the value of these externalities, which is

important, since national welfare will increase only if the investment incentive is

smaller than the value of externality. If the subsidies are larger than what is motivated

by the externalities, the host country will not only lose public revenue, but the

incentives will also discriminate against local firms that may lose jobs and market


Competition among governments to attract foreign direct investments may

create problems. When most governments compete actively for foreign direct

investments, it is difficult for any individual country to stay out of bidding contests,

which effectively shift profits from the host country to multinational enterprises.

One reason is of course that strong promotion efforts show that the

government is actively doing something to strengthen employment, productivity,

growth, or some other policy objective.

Another reason is that some of the perceived benefits are easily observable

while some of the costs are distributed over long periods of time and hard to measure.

Consequently, there is a tendency to overbid and the subsidies may very well surpass

the level of spillover benefits, with welfare losses as a result.

In the same way as investment incentives may be politically attractive in the

short run, but costly in the long run, protectionism may also promote local employment

and production in the short run at a high long run cost.

In the trade area, the path away from beggar-thy-neighbour policies has been

multilateral negotiations where trade liberalization is coordinated across countries. It is


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clear than similar solutions would be first best also in foreign direct investment policy,

in particular at the regional level. However, although several multilateral agreements

include clauses on incentives and investment rules, their coverage remains limited.

In the European Union, investment incentives are in principle restricted to

areas qualifying for regional assistance.

In the absence of multilateral agreements on investment, it is therefore likely

that many countries will continue subsidizing foreign direct investments.

The potential for spillovers is not likely to be realized unless local firms have

the ability and motivation to learn from foreign multinational corporations and to invest

in new technology. Consequently, investment incentives aiming to increase the

potential for spillovers may be inefficient unless they are complemented with measures

to improve the local learning capability and to maintain a competitive local business


This suggests first and foremost that the incentives should be rules-based and

available on equal terms to all investors irrespective of industry and nationality of

investor, rather than based on discretionary decisions.

The motive for supporting foreign investors, including existing investors that

may consider expanding their activities, is to equalize social and private returns to

investment. But there is a difference between social and private returns only if local

firms are actually able to absorb some of the potential spill over benefits, and this does

not occur automatically. Hence, to justify foreign direct investment incentives, there is a

reason to simultaneously subsidize local firms to strengthen their capacity to absorb

foreign technology and skills.

Governments should also consider their efforts to modernize infrastructure,

raise the level of education and labour skills, and improve the overall business climate

as parts of their investment promotion policy. These are important components of the

economic fundamentals that determine the location of foreign direct investments. In

addition to attracting foreign direct investments and facilitating the realization of

spillovers, these policies will also promote growth and development of local industry.

This, after all, is one of the ultimate goals of government intervention in general.

Foreign direct investment can play an important role in raising a country’s

technological level, creating new employment and promoting economic growth.

Many countries are therefore actively trying to attract foreign investors in order

to promote their economic development, particularly at times when the country’s

domestic growth prospects appear weak. However, designing efficient incentive

programs is complicated task, and the competition between host governments trying to

attract foreign direct investments is likely to complicate the task further, as it tends to

shift profits and welfare from the host countries to foreign multinationals.

Many countries will continue using foreign direct investments incentives as

important policy tools.

The use of investment incentives focusing exclusively on foreign firms is

generally not an efficient way to raise national welfare.

The main reason is that the strongest theoretical motive for financial subsidies

to inward foreign direct investment – spillovers of foreign technology and skills to local

industry – is not an automatic consequence of foreign investment.

The potential spillover benefits are realized only if local firms have the ability

and motivation to invest in absorbing foreign technologies and skills.


Revista Tinerilor Economişti

To motivate subsidization of foreign investment, it is therefore necessary, at the

same time, to support learning and investment in local firms as well.

Good governance in the area of foreign direct investments policy is to consider

the investment incentive packages as part of the country’s overall industrial policy, and

make any incentives available on equal terms to all investors, foreign as well as local.


1. Blomstrom

M., Kokko A.,

Zejan M.

Foreign Direct Investment. Firm and Host Country

Strategies, London, Macmillan, 2000

2. Dunning J. Multinational Enterprises and the Global Economy,

Reading: Addison-Wesley Publ.Co, 1993

3. Haaland J.I.,


International Competition for Multinational Investment,

Scandinavian Journal Of Economics, vol. 101, pp.631-649,


4. Kokko A. Productivity Spillovers from Competition between Local

firms and Foreign Affiliates, Journal of International

Development, vol.8, pp.517-530, 1996

5. Taylor C.T. The impact of Host Country Government Policy on US

Multinational Investment Decisions, World Economy,

vol.23, pp.635-648, 2000

6. Oman C. Policy Competition for Foreign Direct Investment: A Study

of Competition among Governments to Attract FDI, Paris:

OECD, 2000

7. UNCTAD Incentives and foreign Direct Investment, Current Studies,

Series A, No.30, New York and Geneva: United Nations,



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Lect., PhD student Murăriţa Ilie,

Ph.D. Assoc. Prof. Siminică Marian Ilie,

Assist. Ph.D. student Cîrciumaru Daniel

University of Craiova

Faculty of Economics and Business


Craiova, Romania

Abstract: The deep economic-social crisis, which marked the transition

of Romanian society from the planned economy to market economy,

affected to a high level the Jiu Valley. This occurred because the monoindustrial

character of the region didn’t sustain a quick accommodation of

the economical system, thus after 16 years from the events December

1989, the reality from the Jiu Valley is far away from the present times.

Many programs and strategies tried to develop the local economy, but

without results. We wish to carry out a statistical analysis of the Jiu Valley

and we present a forecast of some territorial indicators, as well as the

ways and the means of economical development of the region.

Key words: crisis, development, regional, analysis, prognosis.

In Romania, coal industry registered a slow increase during the first half of the

1990, followed however by a marked decline of production in the second part of the last

decade. The objectives of the first strategy of reorganization in mining, from 1998,

were referring to adjusting the mining industry at the requirements of market economy,

minimize state direct involvement as own