ANNALS of Tourism 2008 Fulltext

The Annals of The "Ştefan cel Mare" University Suceava. Fascicle of The Faculty of Economics and Public Administration No.8, 2008

1

ISSN 1582-6554 www.seap.usv.ro/annals

THE ANNALS OF THE"ŞTEFAN CEL MARE"

UNIVERSITY SUCEAVA.FASCICLE OF THE FACULTY OF

ECONOMICS ANDPUBLIC ADMINISTRATION

Year 8, no. 8, 2008

Editura Universităţii Suceava

www.seap.usv.ro/annals


2

EDITORIAL BOARD:

Editor-in-chief: Carmen NĂSTASEEditorial secretary: Adrian Liviu SCUTARIUEditors: Elena HLACIUC, Carmen CHAŞOVSCHI, Mariana LUPAN, Ovidiu Florin HURJUI

SCIENTIFIC COMMITTEE:

Angela ALBU, „Ştefan cel Mare” University of Suceava, RomaniaGeorge P. BABU, University of Southern Mississippi, USAChristian BAUMGARTNER, International Friends of Nature, AustriaGrigore BELOSTECINIC, ASEM, Chi şinău, Republic of MoldovaIonel BOSTAN, „Alexandru Ioan Cuza” University of Iaşi, RomaniaAurel BURCIU, „Ştefan cel Mare” University of Suceava, RomaniaGheorghe CÂRSTEA, Academy of Economic Studies, Bucuresti, RomaniaSimion CERTAN, State University of Chi şinău, Republic of MoldovaCarmen CHAŞOVSCHI, „Ştefan cel Mare” University of Suceava, RomaniaLiliana ELMAZI, Tirana University, AlbaniaCristian Valentin HAPENCIUC, „Ştefan cel Mare” University of Suceava, RomaniaElena HLACIUC, „Ştefan cel Mare” University of Suceava, RomaniaElena IFTIME, „Ştefan cel Mare” University of Suceava, RomaniaMarian JALENCU, State University of Chi şinău, Republic of MoldovaMiika KAJANUS, Savonia University of Applied Sciences, Iisalmi, FinlandStefanos KARAGIANNIS, Institute of Tourism Research, Athens, Gre eceMaria MUREŞAN, Academy of Economic Studies, Bucuresti, RomaniaCarmen NĂSTASE, „Ştefan cel Mare” University of Suceava, RomaniaAlexandru NEDELEA, „Ştefan cel Mare” University of Suceava, RomaniaRusalim PETRIŞ, „Ştefan cel Mare” University of Suceava, RomaniaAbraham PIZAM, University of Central Florida, Orlando, FloridaGabriela PRELIPCEAN, „Ştefan cel Mare” University of Suceava, RomaniaGheorghe SANDU, „Ştefan cel Mare” University of Suceava, RomaniaPavlo SHYLEPNYTSYI, Bucovina State Academy of Fin ance, Chernivtsi, UkraineDoru TILIUŢE, „Ştefan cel Mare” University of Suceava, RomaniaIon TORONCIUC, National University Yuri Fedcovici, Chernivtsi, UkraineViorel ŢURCANU, ASEM, Chişinău, Republic of MoldovaDiego VARELA PEDREIRA, University of A Coruna, SpainRăzvan VIORESCU, „Ştefan cel Mare” University of Suceava, RomaniaValeriy YEVDOKYMENKO, National University Yuri Fedcovici, Chernivtsi, Ukraine

Text review and cover design:

Ovidiu Florin HURJUIAdrian Liviu SCUTARIU

Contact:

Faculty of Economics and Public Administration„Ştefan cel Mare” University of SuceavaStr. Universităţii nr. 13720229 SUCEAVA, ROMANIAPhone: (+40) 230 216147 int. 103E-mail: [email protected] web site: www.seap.usv.ro/annalsFaculty web site: www.seap.usv.roUniversity web site: www.usv.ro

[email protected]

www.seap.usv.ro/annals

www.seap.usv.ro


3

TABLE OF CONTENTS

SECTION 1. ECONOMY, TRADE, SERVICES ................................ ................................ ........ 7THE EU POLICY IN THE RESEARCH AND DEVELOPMENT - THE ROLE OFSUCEAVA UNIVERSITY IN THE REGIONAL CONTEXT ................................ ................... 8

Professor Ph.D. Aurel BURCIUAssociate Professor Ph.D. Carmen NĂSTASEAssociate Professor Ph.D. Carmen CHASOVSCHI"Ştefan cel Mare" University of Suceava, RomaniaPh.D. Researcher Miika KAJANUSSavonia University of Applied Sciences, Iisalmi, Finland

COMPETITIVE ADVANTAGES OF THE NATIONAL ECONOMY UNDERCONDITIONS OF OPEN MARKETS ................................ ................................ ...................... 17

Ph.D. Vitaly ALESHCHENKOInstitute of Economy and Organization of an Industrial Production of the Siberian Branch ofthe Russian Academy of Sciences, Omsk, RussiaAssociate Professor Ph.D. Alexandru NEDELEAŞtefan cel Mare University Suceava, Romania

PROMOTING RURAL TOURISM IN KENYA AND ROMANIA ................................ ......... 22Dr. Roselyne N. OKECHDept. of Ecotourism, Hotel & Institution Management, Faculty of Science, Maseno University,KenyaAssociate Professor Ph.D. Alexandru NEDELEAŞtefan cel Mare University Suceava

IMPACT OF THE TOURISM DEVELOPMENT ON POVERTY REDUCTION INALBANIA AS A COUNTRY IN TRANSITION ................................ ................................ ....... 29

Ph.D. Evelina BAZINIUniversity of Vlora, Albania , Faculty of Economy and Law, Tourism Department

THE TOURISM IN VIEW OF REGIONAL DEVELOPMENT IN THE NORTH-EASTREGION OF ROMANIA ................................ ................................ ................................ ........... 36

Assistant Ph.D. Student Adrian Liviu SCUTARIU“Ştefan cel Mare” University of Suceava, RomaniaAssociate Professor Ph.D. Cristian Valentin HAPENCIUC“Ştefan cel Mare” University of Suceava, Romania

THE PROCESS OF EU INTEGRATION, REGIONAL DEVELOPMENT, AND CROSS-BORDER COOPERATION ................................ ................................ ................................ ...... 44

Assistant Alina LARIONLecturer Ph.D. Marilena-Oana NEDELEA“Stefan cel Mare” University of Suceava, RomaniaProfessor Ph.D. Liliana ELMAZITirana University, Albania

SOCIAL PROTECTION AND THE CONFLICTUAL REALITY FROM ECONOMY ....... 50Assistant Ph.D. Student Gabriela -Liliana CIOBAN„Stefan cel Mare” University of Suceava, Romania

THE STATE OF LEGAL MARKETING IN LATIN AMERICA ................................ ........... 57Junior Research Worker Elina ZABOLOTNABukovyna State Finance Academy, Chernivtsy, Ukraine

THE STRUCTURAL ANALYSIS OF MODERN ECONOMIC SYSTEMS........................... 61Associate Professor Ph. D. Zoya HALUSHKADepartment of Economics, Faculty of Finance and Economics , Bukovyna State FinanceAcademy, Chernivtsi, Ukraine

www.usv.ro


4

THE DYNAMICS OF THE EXTERIOR COMMERCE OF ROMANIA IN 2007 ................ 65Lecturer Ph.D. Cecilia Irina RABONTUAssociate Professor Ph.D. Amelia Georgiana BONCEALecturer Ph.D. Marcel ROMANESCUUniversity “Constantin Brancusi” of Tg -Jiu, Romania, Faculty of Economic Sciences

SECTION 2. MANAGEMENT AND BUSINESS ADMINISTRATION ................................ . 70APPRECIATIONS REGARDING EXTERNAL CAPITAL IN ROMANIAN ECONOMY INTHE SECOND HALF OF THE 19TH CENTURY AND THE FIRST TWO DECADES OFTHE 20TH CENTURY................................ ................................ ................................ ................. 71

Professor Ph.D. Maria MUREŞANAcademy of Economic Studies Bucharest, RomaniaLecturer Ph.D. Oana Mihaela VĂSIOIUEcological University of Bucharest, Romania

CUSTOMER RELATIONSHI P MANAGEMENT IN MACE DONIANTELECOMMUNICATIONS ................................ ................................ ................................ ..... 77

Assistant Professor Ph.D. Lidija PULEVSKA-IVANOVSKAFaculty of Economics, “Ss. Cyril and Methodius” University Skopje, Macedonia

SOME ASPECTS ABOUT THE SMALL BUSINESS AND EU POLICY .............................. 85Lecturer Ph.D. Student Mariana LUPANStefan cel Mare University of Suceava, Romania

INVESTMENT PROJECTS: GENERAL PRESENTATIO N, DEFINITION,CLASSIFICATION, CHARACTERISTICS THE STAGES................................ .................... 92

Eng. Ec. Ph.D. Student Ioan HURJUIAccounts Chamber SuceavaAssistant Ph.D. Student Marcela Cristina HURJUI„Ştefan cel Mare“ University of Suceava

THE CONTROL OF INVESTMENT PROJECTS: TYPES OF CONTROL, THE STAGESOF THE PROCESS, CONTROL SYSTEMS ................................ ................................ ............ 99

Eng. Ec. Ph.D. Student Ioan HURJUIAccounts Chamber Suceava

THE IMPACT OF LEADERSHIP ON THE ORGANIZATIONAL LEVEL ....................... 108Eng. Claudia FRĂŢILĂ„Ştefan cel Mare”University of Suceava, Romania

ROMANIA COHESION POLICY................................ ................................ ........................... 113Assistant Ph.D. Student Marcela C ristina HURJUIŞtefan cel Mare University of Suceava, Romania

ANALYSIS OF CROSS-BORDER COOPERATION AS THE WAY OF EUROPEA NINTEGRATION OF UKRAINE ................................ ................................ .............................. 118

Rector, Doctor of Sciences, Professor Volodymyr PRYADKOVice-rector, Ph.D. Associate Professor Pavlo SHYLEPNYTSKYIBukovyna State Finance Academy, Chernivtsi, Ukraine

SECTION 3. ACCOUNTING - FINANCES................................ ................................ ............ 123THE ACCOUNTING HARMONIZATION IN THE PROCESS OF NATIONAL REFORMIN BASE OF THE IAS / IFRS STANDARDS ................................ ................................ ......... 124

Economist Ph.D. Camelia DOGARIUWest University of Timisoara, Faculty of Economic Studies, Timisoara, RomaniaMaster Student Enathe MUREKABIRI URIMUNBESHIFaculta di Economia e Comerc io Della Universita di Parma, ItaliaAssistant Ph.D. Student Muvuny BONAVENTUREFaculty of Economy, University of Kigaly, Rwanda


5

SPECIFIC FEATURES ABOUT COMMUNICATION AND THE IMPORTANCE OF THEANNUAL FINANCIAL STATEMENTS IN THE PROCESS OF COMMUNICATION ..... 129

Professor Ph.D. Elena HLACIUCLecturer Ph.D. Camelia MIHALCIUC“Stefan cel Mare” University of Suceav a, Romania

THE PLANIFICATION OF AN AUDIT OF ANNUAL FINANCIAL SITUATIONS FROMTHE VIEWPOINT OF THE INTERNATIONAL STANDARD OF AUDIT 300 ................. 136

Professor Ph.D. Viorel ŢURCANUAcademy of Economic Studies of Moldova, Republic of MoldovaProfessor Ph.D. Ionel BOSTANUniversity Stefan cel Mare Suceava, Romania

Doctor of Science Professor Dorel MATEŞWest University of Timisoara, Faculty of Economic Studies, Timisoara, RomaniaAssistant Marian SOCOLIUCAssistant Veronica GROSUUniversity Stefan cel Mare Suceava, Romania

THE EVOLUTION OF THE INTERNATIONAL STANDARDS OF ACCOUNTANCYIAS/IFRS, AREA OF APPLICATION AND THE MECHANISM OF ADOPTION ............ 142

Professor Ph.D. Viorel ŢURCANUAcademy of Economic Studies of Moldova, Republic of MoldovaDoctor of Science Professor Dorel MATEŞWest University of Timisoara, Faculty of Economic Studies, RomaniaProfessor Ph.D. Ionel BOSTANAssistant Veronica GROSUAssistant Marian SOCOLIUCUniversity Stefan cel Mare Suceava, Romania

THE IMPORTANCE OF MO DERN E-BANKS FOR DEVELOPMENT OF NEWECONOMY................................ ................................ ................................ ............................... 147

Lecturer Ph.D. Camelia Catalina MIHALCIUCLecturer Ph.D. Student Anisoara Niculina APETRI“Stefan cel Mare”University, Suceava, RomaniaAssistant Ph.D. Student Muvuny BONAVENTUREFaculty of Economy, University of Kigaly, Rwanda

LIQUIDATION BY AND OUTSIDE THE LAW OF BA NKRUPTCY AND OFINSOLVABILITY ................................ ................................ ................................ .................... 152

Lecturer Ph.D. Irina-Ştefana CIBOTARIUŞtefan cel Mare University of Suceava, România

ECONOMIC ENTITY PERF ORMANCE APPROACH CON SIDERING THERELATIONSHIP BETWEEN EFFICENCY – PROFITABILITY –COMPETITIVENESS ................................ ................................ ................................ .............. 158

Lecturer PhD. Student Anişoara -Niculina APETRIProfessor Ph.D. Gheorghe SANDULecturer PhD. Irina-Ştefana CIBOTARIU„Ştefan cel Mare” University Suceava, Romania

THE ROLE OF RESPONSIBILITY CENTERS IN THE OVERALL PERFORMANCE OFTHE ENTITY................................ ................................ ................................ ............................ 162

Ph.D. Student Camelia OBREJAUniversity „Valahia“ of Targoviste, Romania


6

POSSIBILITIES OF OPERATIONAL PURSUIT OF RECALCULATED COSTS(PREVIOUSLY ESTABLISHED, STANDARD) WITHIN THE FIELD OF MANAGEMENT................................ ................................ ................................ ................................ ................... 170


ROMANIAN FINANCIAL SYSTEM AND ECONOMIC GROWTH ................................ .. 179Lecturer Ph.D. Student Bogdan F ÎRŢESCU“Al. I. Cuza” University of Iaşi, Romania

THE ACCOUNTANT INFORMATION. DEMAND AND OFFER................................ ....... 186Assistant Irina CHIRIŢĂ“Stefan cel Mare“ University, The Economy and Public Administration Faculty, Suceava,RomaniaAssistant Ioana ZAHEURomanian American University, Bucharest, Romania

SECTION 4. STATISTICS, DATA PROCESSING (INFORMATICS) ANDMATHEMATICS ................................ ................................ ................................ ..................... 190ANALYSIS OF REPARTITION FORM IN DISTRIBUTIONS OF FREQUENCIES ......... 191

Associate Professor Ph.D. Elisabeta R. ROŞCA„Stefan cel Mare” University of Suceava, Romania

ANALYSIS OF VARIANCE USED IN THE STUDY OF THE RELATIONSHIP BETWEENVARIABLES ................................ ................................ ................................ ............................. 202

Associate Professor Ph.D. Elisabeta R. RO ŞCA„Stefan cel Mare” University of Suceava, Romania

ECONOMIC MODELS THAT LEAD TO LINIAR PROGRAMMING PROBLEMS ........ 212Lecturer Ph.D. Student Anamaria G. MACOVEI"Ştefan cel Mare" University Suceava , România, Faculty of Economics and Publ icAdministration

ECONOMIC MODELING PROCESSES USING MATLAB ................................ ................ 218Lecturer Ph.D. Student Anamaria G. MACOVEI"Ştefan cel Mare" University Suceava, România, Faculty of Economics and PublicAdministrationEng. Ec. Ph.D. Student Sorin T. SIRETEAN"Ştefan cel Mare" University Suceava, România, Faculty of Mechanical Engineering,Mechatronics and Management

SECTION 5. LAW AND PUBLIC ADMINISTRATION ................................ ....................... 223COMPARATIVE ANALYSIS OF LOCAL FINANCIAL AUTONOMY IN THEEUROPEAN UNION COUNTRIES ................................ ................................ ........................ 224

Ph. D. Student Elena RUSU“Al. I. Cuza” University, Faculty of Economics and Business Administration, Iasi, Romania

THE ROLE OF POLITICAL ADVISORS IN EUROPEAN UNION COUNTRIES ............ 231Lecturer Ph.D. Răzvan VIORESCU“Stefan cel Mare” University of Suceava , RomaniaAssociate Professor Ph.D. Diego VARELA PEDREIRAUniversity of A Coruna, Spain

THE NATURE OF THE POLITICAL RESPONSIBILITY OF THE ADMINISTRATIONAND OF ITS MEMBERS ................................ ................................ ................................ ......... 237

Lecturer PhD. Student Gabriela NEMŢOIThe Faculty of Economic Sciences and Public Administration , “Ştefan cel Mare” University ofSuceava, Romania


7

SECTION 1

ECONOMY, TRADE, SERVICES


8

THE EU POLICY IN THE RESEARCH AND DEVELOPMENT - THE ROLE OFSUCEAVA UNIVERSITY IN THE REGIONAL CONTEXT

Professor Ph.D. Aurel [email protected]

Associate Professor Ph.D. Carmen NĂ[email protected]

Associate Professor Ph.D. Carmen CHA Ş[email protected]

"Ştefan cel Mare" University of Suceava, RomaniaPh.D. Researcher Miika KAJANUS

Savonia University of Applied Sciences, Iisalmi, [email protected]

Abstract:A university is an institution of higher education and research, which grants academic degrees at all levels

(associate, bachelor, master, and doctorate) in a variety of subjects. A university provides both undergraduateeducation and postgraduate education. The European Union gives a main role to the research, development and innovationdomain (RDI) for consolidation of the competitiveness and for the economical growth.

In Romania the most important objective of the Universities is the education of the young generation and itsthrough specialization in various fields of activity. The goals of the university in th is direction are: boost the cross -border economic development process by increasing the amount of entrepreneurs who are establishing start ups cross -border; to upgrade human resources by enhancing the number of start -up entrepreneurs cross-border with viablebusiness plans and by training local trainers. In University of Suceava there are some projects will help to considerpromoting entrepreneurship project outside of formal school activity as an educational leisure and as a learningactivity for young people. Those projects are a precursor for the establishment of business incubators in the region.With those project crucial insights will be gained in the need, willingness and possibilities for the establishment ofbusiness incubators in the cross-border region in the coming years.

Keywords: development, education, EU policy, research, university

1. INTRODUCTION

In our society, the education and research -development activity has become two vectors ofthe economic development, where all the nations – including EU – explicitly situating thesecomponents on long term strategies’ basis. If the labor force, meaning the employees of a country orcompany, presents a high education/qualification, it will be obviously for that country/company todispose of a competitive advantage.

2. THE EU POLICY ON EDUCATION

The development of modern economies, especially in the area of those three “poles ofpower”, EU, USA and Japan, has determined the reconsideration of the educational politics and theextension of the different “schooling” forms beyond universities lectures. In EU, next to thecommunitarian institutions, the national authorities and diverse international organizations/organisms (OECD, World Bank, WTO etc.) give more importance to the sector of education and isoffering assistance in order to assure the quality of the educational processes for being a factor ofhuman development, sustainable economical growth and social cohesion.

OECD has proposed for the first decade of the new millennium some strategic ob jectives inthis field, objectives that, implicitly, are adopted even in EU (1):

1. The promotion of the continue education - lifelong learning.2. The evaluation and improvement of education results3. The promotion of a superior qualitative didactic activity.4. The reconsideration of superior education in the global economy.5. The construction of social cohesion through education.

[email protected]

[email protected]

[email protected]

[email protected]


9

Essentially, can be said that the world countries become established in global competition byeducation and science ; especially the science is translating in general economic growth by multipleand complex ways, and in the USA case, the estimations shows that the science itself hasrepresented half of the American economic growth in the last five decades (2).

The major changes that influence the conditions in which in the present is unrolling theeducational process in the entire world, changes that has to be considered even by EU includes (3):

The globalization is emphasizing leading to an increment of the persons’ mobility, of theaccess to knowledge out of the national borders, to the growth of demand for education, includinge-learning, to the growth of the adults needs for continuation of their education, to the increasing ofinvestments etc. As a result the opportunities for the increasing and diversification of the superioreducation “market” are growing.

The information technology and communications are rapidly extended in entire worldconcomitant with their application possibilities in the education field. In many parts of the world theinformation technology can assure the access to education for the persons that cannot be served bythe traditional institutions.

The competition in superior education has grown significantly in the last years in USA,Europe and Asia; the competition in t his field will put face to face the European universities and theAmerican ones, in connection with public politics from other fields, such as research, innovations,and the new technologies etc.

One of the objectives mentioned in March 2000 at Lisbon is that EU should became themost competitive and dynamic economy of the world, based on knowledge, capable to assure asustainable economic growth and many better work places and a bigger social cohesion. TheEuropean Council has underlined the determinant r ole of the educational system in reaching thisgoal and in promotion of the humanist values of the European society.

In this context the ministries of education from the member states has adopted the followingstrategic goals for this decade(4):

1. the growth of quality and efficiency of the educational system in EU;2. the facilitation of the access to the diverse forms of education and professional

formation for all the Union citizens;3. The opening of the educational system to entire world.

Synthetic the statistic data related to the expenses for education in EU compared with USAand Japan shows that the EU average (25) is situated significant behind the financial effort made bythe USA or Japan (according to data from the following).

Table no 1. Total expenses for education

Weight in GDP (Public andprivate total)

(%)

Annual expenses per student/pupil (EUR/PPS)

EU (25) 5,5 5518USA 7,5 10.005Japan 4,9 6779

The source: Europe in Figures – Eurostat Yearbook 2006-2007, http://ec.europa.eu


10

Figure no. 1. The Weight expenses for education in GDP in EU, USA and Japan (%)

5.50%

7.50%

4.90%

0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00%

EU(25)

USA

Japan


Figure no. 2. Annual expenses per pupil/student in EU compared with USA and Japan(EUR/PPS)

5518

10005

6779

0

2000

4000

6000

8000

10000

12000

EU(25) USA Japan


In 2002 was adopted the Education and Professional Formation 2010 program, which willbe applied by the „open coordination method ", respectively by Member States and EuropeanCommission formulation in common of the leading ways of actions. Systematic implementation ofthe Education and Professional Formation 2010 program supposes the finalization of the documentwhich promotes the European Qualifications Frame (EQF) for facilitating the mobility in Europe,an instrument utile for classification and comparison of the learning results at national and sectoringEuropean level.

The access to lifelong learning for all EU citizens is regarded as the fundamental princi pleof the national education and professional formations systems. All of the EU member statesrecognize the fact that the modifications occurred in conditions, frame and nature of the worknecessarily impose the application of the lifelong learning concept, respectively learning andinformation from the individuals, companies, institutions, society and the all economy sides. It isappreciated that the dimensions of the current economic and social changes and the rapidlytransition toward a society based on knowledge impose a new conception over the education andprofessional formation and also the making of an European area of lifelong learning (5).

After Lisbon, Stockholm and Feira European Council, in the present they overtake to theMemorandum on Lifelong Learning, having certain strategic objectives:

the construction of public -private partnerships (between companies, universities,schools, NGO-s, research centers etc.);

the resources augmentation for education (both from the state and from the privatesources for reaching 7-8 % from GDP);


11

the access facilitation to education for all, inclusively by consolidation of some localcenters/universities that offering learning.

The main finding of the 2006 edition of the European Commission’s annual report onprogress towards the Lisbon objectives in the field of education and training is that additionalefforts are urgently needed to achieve the five benchmarks by 2010. The Commissioner concludedthat “without better education and training systems, and wider parti cipation in them, Europe’scompetitiveness cannot be improved. Investment in human capital is therefore clearly a vitalinvestment in Europe’s future”; among the main findings of the report (6):

In the EU, about 6 million young people (18 -24 years olds) have left educationprematurely; if we are to reach the European benchmark of no more than 10% early school leavers,then 2 million of these young people would need to continue in education.

If present trends continue, some 1 million students will graduate i n math, science andtechnology (MST) every year in the EU in 2010, compared to the present level of 755 000graduates.

In order to achieve the EU benchmark of an 85% upper -secondary school completion rateby 2010, an additional 2 million young people (age d 20-24 years) would need to complete upper -secondary education.

An additional 4 million adults would need to participate in lifelong learning within anyfour-week period in 2010 if the EU benchmark of 12.5% participation rate is to be achieved.

About one in every five 15-year-old pupils in the EU is presently a poor reader. Reachingthe European benchmark for 2010 would imply that 200 000 pupils would have to improve theirstandard of reading.

The EU would need to more than double the amount it invests p er tertiary-level student(i.e. an increase of around 10 000 euros per year) to match the spending level in the USA; publicinvestment in education and training as a percentage of GDP has grown slightly since the adoptionof the Lisbon strategy, and is com parable with levels in the USA (and higher than in Japan).However, rates of private investment in educational institutions are modest in most Member Statescompared with the leading countries in the world (incl. the USA), especially in higher education.

During the coming 10 years, the EU needs to attract at least 1 million newly qualifiedteachers in order to replace those who will leave the profession due to retirement.

Most EU students are not taught at least two foreign languages from an early age, asrequested by the Barcelona 2002 European Council; at present, an average of only 1.3 and 1.6foreign languages per pupil are taught in the Member States in general lower - and upper-secondaryeducation respectively.

3. THE EU POLICY IN THE RESEARCH AND DEVE LOPMENT (RD)

The European Union gives a main role to the research, development and innovation domain(RDI) for consolidation of the competitiveness and for the economical growth; this domain will becalled synthetically Research and Development (RD). The important investments in research,development and innovation are essential for prosperity and economical growth at the level of those27 member states of the EU; gradually, some strategies of the member states have emerged withprojects/ programs promoted by the Council and by the European Commission. Especially beginningwith 1983, after some evaluation that presented a disastrously situation in EU, comparing with USAand Japan, in research and development domain, and can be discussed a Community’s policy of theEU, that, essentially have included 7 Framework Programs (7).

Starting with Lisbon Strategy, the European Union launched for the period 2007 – 2013 a set ofinitiatives that regards the research and innovation, the global competitiveness of th e universities andresearch institutes, entrepreneurial abilities development and knowledge transfer in products andservices.


12

The legal basis of the EU in RD domain, starts with the CECO Treaty, Euratom Treaty,EEC Treaty, European Unique Document (Act) , Maastricht Treaty etc(8).

As Toffler remarked, at all analysis levels, from the life style and culture continuing withmilitary problems, but most of all business environment and economy, the difference betweenEurope and USA become more obvious.

The EU goal, mentioned through the Lisboan Strategy, is that until 2010 the R&Dexpenses should get to an intensity of 3% (indicator calculated as weight of the R&D expenses inthe GDP), and from this 70% to be financed by the business enterprise sector. In 2004 tw o of theEU member states have achieved this indicator, and even exceeded; we mention Sweden andFinland that registered intensities of the expenses with R&D of 3,7% and 3,5% respectively. Pertotal, in which regards this indicator, the EU is situated at a modest level, comparing with otherdeveloped economies, if we are referring to USA and Japan, where this indicator reach the levelof 2,66% and 3,2% respectively (9). (Figure no. 3), although in 1995-2004/2005 in these twocountries the expenses with R&D had a fluctuant evolution(10).

Table no. 2 The intensity with the R&D expense in EU, comparing with USA and Japan

Weight in GDP, total publicand private, 2004

(%)

RD annual expenses per citizen(USD/loc)

UE (27) 1,84463

USA2,66

978

Japan3,20

893

Source: Adapted after Science, Technology and Innovation in Europe, EUROSTAT Pocketbooks, 2007;Europe in Figures – Eurostat Yearbook 2006-2007, http://ec.europa.eu; the value of this indicator is for EU 25; theabsolute value for the RD/citizen is for the year 2003.

The data included in the table shows a suggestive image regarding the position of the EUcomparing with the USA and/or Japan in which regards intensity of the RD activity, as ispresented, in the following charts (11).

Figure no. 3. EU versus SUA and Japan by the R&D weight in GDP

1.84%

2.66%

3.20%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

EU USA JAPAN

Source: Adapted by Science, Technology and Innovation in Europe, EUROSTAT Pocketbooks, 2007;Europe in Figures – Eurostat Yearbook 2006-2007, http://ec.europa.eu; the value of this indicator is for EU 25; theabsolute value for the RD/citizen is for the year 2003.


13

Figure no. 4. EU versus USA and Japan by the annual value of the RD/capital

463

978893

0

200

400

600

800

1000

EU US A Ja pa n

Source: Adapted by Science, Technology and Innovation in Europe, EUROSTAT Pocketbooks, 2007;Europe in Figures – Eurostat Yearbook 2006-2007, http://ec.europa.eu; the value of this indicator is for EU 25; theabsolute value for the RD/capita is for the year 2003.

Expenditure on research and development (R&D) is a key indicator of government andprivate sector efforts to obtain competitive advantage in science and technology. In 2004, researchand development amounted to 2,3% of GDP for the OECD as a whole (12).

Research & Development in the EU in relation to GDP, EU25 R&D expenditure stable at1.9% in 2004. In real terms, EU25 R&D expenditure grew by 1,3% per year between 2001 and2004. In 2004 the EU25 spent nearly 200 billion Euro on Research & Development (R&D). R&Dintensity (i.e. expenditure as a percentage of GDP) in the EU25 stood at 1,90% compared to 1,92%in 2003. R&D intensity remained significantly lower in the EU25 than in other major economies. In2003, R&D expenditure was 2,59% of GDP in the United States, 3,15% in Japan, while it was1,31% in China 3. R&D expenditure in the EU25 rose by 1,3% in real terms on average per yearbetween 2001 and 2004, compared to –0,1% in the United States and +1.8% in Japan between 2001and 2003(13).

In 2003 the business sector financed 54% of total EU25 R&D expenditure, while the sharesof the business sector in the United States and Japan were 63% and 75% respectively.

4. THE ROLE OF SUCEAVA UNIVERSITY IN THE REGIONAL CONTEXT

For the time being, there are almost 700.000 students in Romania, within about 70 public orprivate universities; from those 70 univ ersity, 49 are public, achieving respectively a part of yearlyfinancing from state budget, but disposing of autonomy as regards the own strategies, policy inHRM (Human Resource Management)etc.

The typical organizational structure of a Romanian university – similar to situation of otherwestern countries – include as basic “cell” the chair or department; this flowchart part has realcompetencies at three levels: educational (teaching -learning); of scientific research; managing.

Short History of the Suceava UniversityTaking the name of our Moldavian prince Ştefan cel Mare, the University is very much a

part of the Town and develops in close connection with the cultural and historical realities of thearea (Suceava Town: 110,000 people; Suceava County: 700,0 00 people); the main part of ourstudents came from: Suceava County; Neamt County; Botosani County.

It continues as well the cultural traditions of higher education in Bukovina, as they havebeen represented by:

the Academy of Putna (1500-1778 known as the Theological Institute from Putna,Bukovina);

the University of Cernauti(1875-1918, in that period Suceava was part of Bukovina, regionwith capital Cernauti); in 1918 Romania became a unitary national state;

the Faculty of Forestry in Campulung Moldovene sc(1950-1960).


14

Suceava is one of the most attractive and historic town inRomania. Situated on the Land of Bukovina, one of the landmarksof Romania spirituality owing to the beauty and variety of itsscenary, as well as to its rich legacy of historical and artmonuments, Suceava is famous for its touristic and cultural life .

Suceava is one of the most attractive and historic town inRomania. Situated on the Land of Bukovina, one of the landmarksof Romania spirituality owing to the beauty and variety of itsscenary, as well as to its rich legacy of historical and artmonuments, Suceava is famous for its touristic and cultural life .

“Ştefan cel Mare" University of Suceava

The first step for Suceava University was made in 1963, by setting up the High EducationInstitute of Suceava; in 1990, the Government decided to give the status of University to theprevious High Education Institute and so, Stefan cel Mare University of Suceava became oneimportant new medium size university in Romania.

Research and Development at the Suceava UniversityThe University Stefan cel Mare is one of the most important institutions in the higher

educational field in the north – east of Romania. The university is offering a modern educational -curriculum, following the example of modern universities of Europe, but , in the same time, keepingher own traditions.

The University Stefan cel Mare is a public institution educating in total 12000 students innine faculties, with a number of 315 staff, teachers and researchers and 300 administrative staff(2007). The main contributions of University in local context are to be located in: educating skilledlabor force for local administrations, commerce, services and industries; improving education andcontinuous education for practitioners, managers, namely in tourism -related issues researchactivities; partnership with different institut ions and firms.

Faculties and Departments of Suceava University are: Economics and PublicAdministration; Educational Sciences; Electrical Engineering and Computer Science; FoodEngineering; Forestry; History and Geography; Letters and Communication Sciences; MechanicalEngineering Mechatronics and Manage ment; Physical Education and Sports, and departments:DPPD; International relations; DCTI; Distance learning; Quality management.

University Stefan cel Mare of Suceava has led or participated in over 80 projects that meansa major role in delivering European Structural Funds Programmes. The University trough theFaculty of Economics and Public Administration initiated many projects financed by EU or byMinistry of Research and Education aiming to SME growth: Developing and implementation of theentrepreneurial behaviour of the students and graduate students from Bucovina area in mark eteconomy development context (CNCSIS 720, implementation period 2004 -2006), Optimalstrategies of adherence (and expansion) of the multinational companies to the efficiency of thetechnological transfer through the ISD chain, European Curriculum for Methodological Forming in


15

Environmental Education (Leonardo d a Vinci, implementation period 2006 - 2007), INNO-FOREST: Integrating innovation and entrepreneurship in higher forest ry education(implementationperiod 2005 - 2007), INNO-TOOLS Enterprise level Inno-tools – Innovation tool-box in Europeanperipheral areas(implementation period 2007 - 2008), Leonardo vocational training according to EUstandards for young graduates in th e field of adult education - implementation period 2005-2006,Developing of skills and competences for trainers in the field of formal and informalentrepreneurship training programmes for local community , CII-SK-0044-01-0506 - AppliedEconomics and Management, CENTROS – Counselling Centre for the unemployed.

The important projects related to the Structural Found are the two project financed troughthe Phare CBC Cross Border. The VISEC (Virtual Incubation of Student Entrepreneurs CrossBorder) project will help to enable the border region between Romania and Ukraine to considerpromoting entrepreneurship projects outside of formal school activity, as an educational leisure andas a learning activity for young people.

The VISEC project is a precursor for t he establishment of business incubators in the region.With the VISEC project crucial insights will be gained in the need, willingness and possibilities forthe establishment of business incubators in the cross -border region in the coming years. Theprimary target group of the VISEC project is young people from universities and schools of highereducation who are finishing or just finished their studies. The secondary target group of the VISECproject is established SMEs who are looking for strong growth op portunities cross-border.

Another project - TESCA (Tourism Entrepreneurship in Suceava and Chernivtsy Area)project is a Human resources development project and will contribute to a steady upgrade ofentrepreneurial skills and sustainable business cross b order enterprise cooperation from the tourismfield. Common Interests of the partners are: to develop an endogenous capacity to train, developand coach local entrepreneurs; to proof that common activities can have direct economic and socialbenefits through tourism development; to demonstrate the capacities of the involved institutions toobtain similar results in other regions; to adopt an entrepreneurship development method which isboth efficient and effective; to increase number of local/international high-tech companies intourism field.

University Stefan cel Mare of Suceava are also involved with the North -East RegionalDevelopment Agency, in the project RIS DISCOVER NE. The project objective is to develop thefirst Regional Innovation Strategy in No rth -East Region Romania that will contribute to thevalorisation of its economic potential, based on an innovation support system.

4. CONCLUSION

In European Union, each member state assumes the entire responsibility for the educationalsystems and for the content of educative programs, based on the subsidiary principle. The EU role is tocontribute to the development of a qualitative education by encouraging the cooperation betweenmember states and, if is necessary, by completing their actions for the porpoise of developing theEuropean educational dimension, by favoring the mobility and by promoting the European cooperationbetween educational institutions. European Union has specific means for stimulation of cooperation inthis field by commune actions such as: programs for communitarian actions (Socrates, Leonardo daVinci), which are submissive to the co-decision procedure and to the communitarian juridical acts(recommendations, communications) etc.

In University of Suceava there are some projects will help to consider promotingentrepreneurship project outside of formal school activity as an educational leisure and as a learningactivity for young people. Those projects are a precursor for the establishment of businessincubators in the region. With those project crucial insights will be gained in the need, willingnessand possibilities for the establishment of business incubators in the cross -border region in thecoming years.


16

NOTES:

(1) OECD Work on Education 2005 - 2006, www.oecd.org(2) A. Toffler, H. Toffler – Revolutionary Wealth, 2006; translated Avuţia în mişcare, Editura ANTET, 2006(3) An Overview of Higher Education and GATS, www.acenet.edu(4) Report from Educational Council to t he European Council, http://ec.europa.eu(5) http://ec.europa.eu/education/policies/lll/life/what_islll_en.html(6) European Commision a Annual Report, http://ec.europa.eu/education/policies(7) G. Popescu – Economie europeană, Editura Economică, Bucureşti, 2007, pag. 179(8) Porfiroiu, M., Popescu I., Politici europene, Editura Economică, Bucureşti, 2003, p. 21(9) A. Toffler, H. Toffler – Revolutionary Wealth, 2006; translated Avuţia în mişcare, Editura ANTET, 200 6(10) Dates for Japan are for 2003 year(11) Science, Technology and Innovation in Europe, EUROSTAT Pocketbooks, 2007(12) http://oberon.sourceoecd.org/vl=1075868/cl=21/nw=1/rp sv/factbook/07-01-01.htm(13) http://europa.eu.int/comm/eurostat/

BIBLIOGRAPHY:

[1] Popescu G. – Economie europeană, Editura Economică, Bucureşti, 2007[2] Porfiroiu, M., Popescu I., Politici europene, Editura Economică, Bucureşti, 2003[3] Toffler A., Toffler H. – Revolutionary Wealth, 2006; translated Avuţia în mişcare,

Editura ANTET, 2006[4] Lisbon Strategy[5] European Commision a Annual Report, http://ec.europa.eu/education/policies[6] OECD Work on Education 2005 - 2006, www.oecd.org[7] Science, Technology and Innovation in E urope, EUROSTAT Pocketbooks, 2007[8] An Overview of Higher Education and GATS, www.acenet.edu[9] Report from Educational Council to the European Council , http://ec.europa.eu[10] http://ec.europa.eu/education/policies/lll/life/what_islll_en.html[11] http://oberon.sourceoecd.org/vl=1075868/cl=21/nw=1/rpsv/factbook/07 -01-01.htm

www.oecd.org

www.acenet.edu

http://ec.europa.eu

http://ec.europa.eu/education/policies/lll/life/what_islll_en.html

http://oberon.sourceoecd.org/vl

http://europa.eu.int/comm/eurostat/

www.oecd.org

www.acenet.edu

http://ec.europa.eu

http://ec.europa.eu/education/policies/lll/life/what_islll_en.html

http://oberon.sourceoecd.org/vl


17

COMPETITIVE ADVANTAGES OF THE NATIONAL ECONOMY UNDERCONDITIONS OF OPEN MARKETS

Ph.D. Vitaly ALESHCHENKOInstitute of Economy and Organization of an Industrial Production of the

Siberian Branch of the Russian Academy of Sciences, Omsk, RussiaAssociate Professor Ph.D. Alexandru NEDELEA

Ştefan cel Mare University Suceava, [email protected]

Abstract:In the article factors of economic growth of Russia at a globa l competitiveness are analyzed. In contemporaryconditions, influence on competitiveness of national economy is emerged . There were necessary system transformationsin conditions of transition from scheduled to the market pattern of functioning in the Russian economy. Branch changesof development of economy in conditions of the open market allow asserting that the national economic system works ina regime of reproduction of the competitive enterprises. Due to economic reforms from the last period, competitive andnoncompetitive sectors have come to light in an obvious kind in an industry and in agriculture (in agrarian sector theseprocesses passed with a delay). Competitiveness of the Russian economy at the present stage bases on production oflow technological repartitions, is mai ntained by tactical price factors, and practically does not mention materialproduction conditions that make a similar sort of competitiveness rather unstable in the long -term period. Besides thenational economic system movable only by market forces is fa r from being always in state to generate desirablestructural shifts.

Key words: competitive advantages, national economy, open markets, Russian economy

1. INTRODUCTION

Gradual slowing down of rates of economic growth of Russian economy, as well as th emajority of the socialist countries, accompanied with stable decrease of productivity of majorfactors of production, was supervised already from second half of 1970th. However landslidefalling of volumes of the Russian production began in 1990 -1991, in connection with destroying ofscheduled system of economic relations. General changes during system reorganization of Russianeconomy (1991 - 1997) were defined by a complex of factors, first of all process of reduction ofinefficient branches and sectors of industry and agriculture in conditions of open economy.However it has caused sharp reduction of cumulative internal demand and has resulted to strongdecrease of production even in competitive industries.

As a result of rapprochement of internal and g lobal prices at existing technological structurethere was a falling profitableness of production in noncompetitive branches and curtailing ofcorresponding productions. At the same time, competitive branches nevertheless have managed tosave high levels of production, investments and employment. As a whole, after first seven years ofeconomic reforms (1991-1998) the structure of production in Russia has undergone qualitativetransformation: growth of competitive industrial and agricultural production in ab solute parametershas exceeded falling in noncompetitive sectors of economy. How affairs with competitiveness ofthe Russian economy are today?

2. ECONOMIC GROWTH AND INTERNAL COMPETITIVENESS

First of all we shall note, that the economic and political si tuation in 1999-2007 promotedhigh enough growth rates of the Russian economy (table 1). Economic growth of Russia essentiallyadvanced the highly developed countries of the world. In general, for a period of 1999 -2006 mid-annual rates of increase of gross national product have constituted 6.7 %, whereas rates of increaseof gross national product of whole world for the same period were 4.2 %. For these eight years

[email protected]


18

gross national product of Russia has increased for 68 %, but global gross national product ha sincreased only for 39 %.

Table no 1. The basic economic parameters of Russia in 1999 -2006.

1999 2000 2001 2002 2003 2004 2005 2006Gross national productincomes (% to previous year)

106,4 110,0 105,1 104,7 107,3 107,2 106,4 106,7

Industrial production indexincomes (% to previous year)

111,0 108,7 102,9 103,1 108,9 108,3 104,0 103,9

Investments in a fixed capitalincomes (% to previous year)

105,3 117,4 110,0 102,6 112,5 117,0 110,5 113,5

The foreign trade turnoverincomes (% to previous year)

86,9 130,2 103,8 108,1 126,0 132,4 131,5 127,0

Real money incomes (% toprevious year)

87,7 112,0 108,7 111,1 115,0 110,4 111,1 110,0

International reserve assets,on the end of a period (billiondollars)

12,5 28,0 36,6 47,8 76,9 124,5 182,2 303,7

Considering the last seven years as a whole, it is possible to allocate sharp initial takeoff ofparameters of economic development of Russia with the subsequent stabilization of lower level.Economic “jerk” of the Russian economy in 1999 -2001 was inquest of so-called regenerativegrowth (i.e. really there were the capacities, capable to increase physical volume of production atincrease of effective demand). The further stable development of economy occurred, as a matter offact, under the inertial script (curren t trends were prolonged) in conditions of increase of internaland external demand. On the one hand almost double import compression in comparison with a pre -crisis level of 1998 has ensured a place for intensive expansion competitive (first of all, at val ue)domestic production on a home market. On the other hand economic growth on foreign marketsbased on a favorable global conjuncture since 1999. Let's analyze quality of this growth from anitem of competitiveness of national economy.

First of all we shall consider competitiveness of industrial enterprises on an internal market.As a result of devaluation of 1998 when the prices for production of foreign competitors have sometimes increased, in the most advantageous provision there were the branches of a consumercomplex traditionally focused on home markets. The gain of production of consumer goods in 1999has constituted 8.7 % and has exceeded rates of common industrial growth and a turn -over of retailtrade. The contribution of branches of a consumer c omplex to a gain of a commercial production in1999 has constituted 13.2 %, against 8.4 % in 1998. During two next years influence of branches ofa consumer complex on a gain of production in economy was saved at the achieved level. Inaccordance with improvement of financial circumstances of the enterprises and growth of accruing,price competitiveness of the capital goods began to grow since 1999. As a result volumes ofproduction in an investment complex for a period of 1999 -2002 have increased for third incomparison with a level of 1998.

Thus, the main reason of increase of the competitive provision of the Russian enterprises oninternal market during regenerative growth was low price, which domestic manufacturers couldoffer after financial crisis of 1998. However, as the practice more than once showed, a similar sortof price competitiveness is rather unstable: at change of a parity of rates national both foreignexchanges and absence of technological possibilities of expansion of production the domes ticenterprises by degrees lose competitive advantages, conceding positions to the intensive offer of theimport goods. In result, with growth of incomes of the population and reduction of competitiveadvantages of the domestic goods on a price level condi tions to growth of import both consumer,and the investment goods were generated. The gain of import in 2000 has constituted 13.5 %, andproduction of an industrial output has increased only for 11.9 %, in 2001 corresponding figureshave constituted 19.0 and 4.9 %. If in I quarter of 2001 the share of the Russian import volume of


19

documentary resources of not food market constituted 45.9 % in IV quarter it was increased up to51.4 %, and by the end of 2002 - up to 54.8 %. The developed situation provoked slo wing down ofgrowth rates of the manufacturing industry finding in amplifying dependence on dynamics of aninvestment demand and innovational strategy of development. The out -of-date park of theequipment and "know-how", low labour productivity level were the factors limiting expansion ofthe competitive offer on the part of the domestic enterprises. In 2002 the customs statistics hasrecorded increase in volumes of import up to level of 1998. And in 2001 -2006 quarterly growthrates of import exceeded growth rates of the Russian commodity producers already in some times.

Fortunately, the state of affairs has appeared not absolutely bad: started on the first stage ofreforms the mechanism of natural selection made the business. Dynamics of food import restrai nedas a whole strong enough competitive items of the Russian enterprises - a share of import volume ofdocumentary resources of articles of food during 2002 -2006 was stabilized at a level of 34 %.Though, certainly, a line of less competitive sectors of t he Russian industry shows negativedynamics of the competitive provision: the share of the domestic goods in resources of retail tradeof not food market, as a result of crisis of textile, sewing, shoe production, has decreased from 51.6% to 44.3 % for a period 2000-2006.

As a whole, it is obvious, that 1998 has appeared critical for the domestic enterprises (thatdisposal of the Russian industry of barter which was recently serious problem at the majority of theenterprises of processing sectors is necess ary). Since 2001 many enterprises have believed instability of normal economic development and have risked passing from policy of minimization ofstocks of finish products to maintaining their reasonable surplus peculiar to healthy marketeconomy. In spite of the fact that the competitiveness on the majority of the markets increases,today it is possible to establish non -negative dynamics of the competitive provision of the Russianindustrial enterprises on home markets: the growing demand grants a possib ility to find «a placeunder the sun» to all interested participants of competitive relations. Though, certainly, the Russianenterprises are fixed on growing market segments more slowly then the foreign colleagues.

3. COMPETITIVENESS ON THE GLOBAL MARKET

Meanwhile the situation with competitiveness of domestic manufacturers on foreign markets,at first sight, is essentially different: on a background of “muffled marking time” of domesticprocess industry the export - focused sector becomes locomotive of economic growth of Russia(table 2), that naturally reputes its high competitiveness.

Table no 2. Dynamics of the Russian export

1999 2000 2001 2002 2003 2004 2005 2006Export, billion dollars 75,6 105,0 101,9 107,2 135,4 183,2 245,3 304,4Growth rates of export, %to previous year

101,6 138,9 97,1 105,2 126,3 135,3 133,9 124,1

Growth rates of grossnational product, % toprevious year

106,4 110,0 105,1 104,7 107,3 107,2 106,4 106,7

However at more detailed analysis it becomes understandable, at the expense of that soessential growth of sales in the world markets is achieved. The Russian foreign trade is guided byexport of raw material and production of low technological repartitions. Since second half of 2002influence of fuel and energy exporters sharply amplifies. According to State customs committee theshare of the fuel and energy goods has reached in 2006 a record level – 67.6 %. The secondcommodity section on significance in the Russian export are metals and items from them (by 2006their share constituted 13.9 %). On the third place is production of a chemical and petrochemicalindustry, predominary low repartitions (5.3 % of cumulative import). The share of other goods is


20

less than 14 % of cumulative import. In total at the expense of mineral products it is provided morethan 80 % of a gain of cost volume of export deliveries.

The basic precondition of growth of the Russian export is unprecedented high prices on theworld markets of raw material (table 3). The good situation on a foreign mar ket was saved forexporters of nonferrous metals: the level of the world prices for all nonferrous metals has reached amaximum for a 13-years period by 2007. In conditions of growth of global demand the world pricesfor metal rolling have essentially grow n (for 2006 the rise in prices on a hot sheet has constituted 56%, on a cold sheet - 20 %, the zinced sheet - 25 %). However the most essential rise in prices hastaken place in the petroleum markets. The level of the world petroleum prices, supervised in 2002-2007, is absolute for all period of development of new Russia.

Table no 3. The mid-annual world prices for the basic kinds of the export goods of Russia

2002 2003 2004 2005 2006Petroleum (Brent), dollars / barrel 25,02 28,83 37,4 54,38 65,15Natural gas, dollars / 1 one million BТЕ 3,4 5,5 6,0 8,9 12,2Copper, dollars / ton 1592,9 1785,6 2808,2 3606,0 6851,4Aluminium, dollars / ton 1350,7 1424,7 1693,2 1871,0 2619,4Nickel, dollars / ton 6175,1 9580,8 13757 14692 22038

Thus the Russian export grows thanking the price factor: after 2002 growth rates of physicalvolume of export - focused productions become much more modestly growth rates of their costvolumes.

In conditions of growth of the world prices the share of the fuel and energy goods in theRussian export stably grows and in 2006 constituted 65.2 % (56.8 % in 2004). Moreover, the data(table 4) testify about essential strengthening of export - focused tendencies of a raw orientation inpetroleum sector. Export of a crude oil constitut es more than 70 % of total export of petroleum andoil products.

Table no 4. A parity of production and export of power resources in 2000 -2006.

2000 2001 2002 2003 2004 2005 2006Net export ofpetroleum, % ofproduction ofpetroleum

42,9 44,4 47,8 50,6 55,2 53,2 51,3

Net export of petroleumand oil products, % ofproduction ofpetroleum

61,9 64,7 67,5 69,2 72,9 73,8 72,8

Current trends are confirmed also by numerous results of applied researches. So, sounded in2004 on V International conference «Co mpetitiveness and upgrade of the Russian economy» thedata allow to judge about rather stable, from times of socialism, tendencies in development of theRussian economy according to which external competitiveness of Russia is maintained basically bypetroleum, gas and metals. The majority of finished products (except for the weapon) are stillnoncompetitive in the global markets. Thus (behind very rare exceptions) if the degree ofprocessing is higher, competitiveness is lower.

4. CONCLUSION

Thus, it is possible to make the following conclusions about formation of competitiveness ofthe Russian economy at a new stage of development of market relations.


21

1. In conditions of transition from scheduled to the market pattern of functioning in theRussian economy there were necessary system transformations. Branch changes of development ofeconomy in conditions of the open market allow asserting that the national economic system worksin a regime of reproduction of the competitive enterprises. During last period of economic reformscompetitive and noncompetitive sectors have come to light in an obvious kind in an industry and inagriculture (in agrarian sector these processes passed with a delay).

2. Competitiveness of the Russian economy at the present stage bases on production of lowtechnological repartitions, is maintained by tactical price factors, and practically does not mentionmaterial production conditions that make a similar sort of competitiveness rather unstable in thelong-term period. Besides the national economic system movable only by market forces is far frombeing always in state to generate desirable structural shifts. As a result we notice in Russia theexport - raw pattern of economic development which stipulates rapprochement of rates of economicgrowth not with growth of competitiveness of the Russian processing sectors of economy, but withchanges of the world prices for primary goods. Therefore the active state policy on increase ofnational competitiveness is very necessary.

3.However traditional variants of state interference by means of industrial policy (branchpriorities, state investment, scale tax privileges) are of little use in postindustrial economy. In thisconnection as the basic directions in the field of increase of competitiveness of the Russianeconomy the state should promote really to strengthening of a competitiveness and development of“enterprise spirit” in country, actively integrate into global economy, introduce effective forms of asupport of the arising competitive companie s without dependence from their branch belonging.Only provided that the state policy will be directed on increase of competitiveness of domesticeconomy, Russia in new century can expect for positive structural changes and long -term economicgrowth.

BIBLIOGRAPHY:

[1] Arend R. How to maintain economic growth in resources depended economy? (Thebasic concepts and their application in case of Russia) // Questions of economy. - 2006. -№ 7. - P. 24-36.

[2] Belousov A. Evolution of reproduction system of the Russian economy. From crisis todevelopment. - Moscow: MAX Press, 2006.

[3] Entov R. Factors of economic growth of the Russian economy. - Moscow: IETP, 2003.[4] Gaidar E. Anomalies of economic growth. - Moscow, 1997.[5] Russia: an economic conjuncture: the information analytical digest / Anikeev P., etc.;

Centre of an economic conjuncture at Government of the Russian Federat ion. - Moscow,2006.

[6] The Russian economy in 2006. Tendencies and prospects. (Issue 28) - Moscow: IETP,2007.


22

PROMOTING RURAL TOURISM IN KENYA AND ROMANIA

Dr. Roselyne N. OKECHDept. of Ecotourism, Hotel & Institution Management,

Faculty of Science, Maseno University, KenyaAssociate Professor Ph.D. Alexandru NEDELEA

Ştefan cel Mare University [email protected]

Abstract:This paper identifies the available tourist attraction facilities within the Luanda rural region in Western Kenya

and in Romania. This is to address how the locals can participate directly in the entrepreneurship either by providingaccommodation and other attractions to either local or international tourists. This focus study in Luanda Division ofVihiga District tries to find out the best way of re-imaging of rural areas features and activities to make them touristattractive, and to relate rural tourism with social cultural and economic elements of rural areas. The area is not wellimaged, commodified and packaged to tap the rural tourism potential of the area. In the final analysis, the identificationof character as being significant for place is of critical importance for rural areas and the notion of rurality.

Key words: rural tourism, Kenya, Romania, international tour ism

INTRODUCTION

Rural tourism related activities have been widely regarded as key -tools for ruraldevelopment, specially in those countries – as Romania and all East European countries – whererural space and production is still a major par t of whole economic structure, trying by this way torevitalize declining areas and ensure them possibilities of achieving a sustainable future. At thispurpose, rural tourism must be considered like a complex plurality of multi -faced activities,contributing both to growth of other activities in rural areas and to improvement of life quality forlocal inhabitants, all this as part of an effective rural development integrated system.

With downturns in rural economies over the last three decade s, it is perhaps understandablethat governments have given a great deal of attention to the economic benefits of tourism,particularly for rural areas attemptin g to keep pace and adapt to the vigorous globalized economy.As Telfer (2002) suggested, growin g numbers of city-dwellers are getting away from it all in thecountryside. One of the advantages of rural tourism is that it is based on local; initiatives, localmanagement, has local spin-offs, is rooted in local scenery and it taps into local culture. In theory,the emphasis on the local can help to generate regional development. According to Sharpley andSharpley (1997), rural tourism is increasingly being used for socio -economic regeneration anddiversification. While the definition of rural varies in different countries, Sharpley and Sharpley(1997: 20) further describe rural as all areas ‘both land and water, that lie beyond towns and citieswhich, in national and regional contexts, may be described as major urban centres’. For tourism tobe described as rural tourism then it should mirror the characteristics that signify a rural areaincluding small settlements, low population densities, agrarian -based economies and traditionalsocieties. Lane (1994) details the difficulty in attempting to create a d efinition of rural tourism asnot all tourism in rural areas is strictly rural. Rural tourism extends beyond farm -based tourism toinclude:

Special-interest nature holidays and ecotourism, walking, climbing and riding holidays,adventure, sport and health tourism, hunting and angling, educational travel, arts and heritagetourism, and in some areas, ethnic tourism. (Lane, 1994:9)

Against this background, it is at this point that useful reference may be made to theexperience in Kenya on the ground that an u nderstanding of entrepreneurial opportunities of ruraltourism development issues in a different cultural and institutional context can add new perspectiveon common concerns. The Government of Kenya through the Ministry of Tourism and Kenya

[email protected]


23

Tourist Board are working round the clock to develop the Western Kenya tourism circuit in order tomake it an international and domestic tourist destination. A greater part of Western Kenya is madeup of rural areas, considering this, it means that most of the touristic activities and features that thisregion can offer are based in the rural areas within Western Kenya.

This paper is focusing on Luanda Division of Vihiga District to find out the best way of re -imaging of rural areas features and activities to make them tourist attractive, and to relate ruraltourism with social cultural and economic elements of rural areas. Luanda division is within Vihigadistrict in Western Province of Kenya and covers a total area of 98.6 sq km. It is bordered byKisumu district to the South, Siaya district to the North West and Emuhaya division to the East. Thetotal population size is approximately thirteen thousand with a density of approximately 1035persons per square kilometer. The population comprises a large number of youths be tween ages 10and 24 years as opposed to the older generation. The total annual rainfall received is 1004mm. Thesoil drainage is good therefore the instance of water logging is not prevalent.

Statistics have shown that approximately 60% of residents in Lu anda division are living belowthe poverty line. The ironical part of it is that this area is well endowed with natural resources whichhave been majorly used for economic activities such as agriculture and trade. This however, has nothelped in reducing the poverty levels in this area and hence, another economic activity should bedeveloped especially tourism in order to improve the well being of the area. There should be waysand strategies put in place to assist residents of Luanda tap all benefits accru ed to these naturalresources through rural area tourism. In view of the Kenyan tourism policy, the study focused onthe following areas:

Rural dwellers’ capacity to support and respond to changes induced by tourism Cultural considerations in planning rura l tourism Initiatives that encourage the development of any form of tourism in the region

FACTORS PREDICTING RURAL RESIDENTS’ SUPPORT OF TOURISM

An extensive array of research has been conducted on resident attitudes toward tourism.Recent research has been conducted targeting communities worldwide, including those in Europe.While earlier work focused on the large -scale, or macro, side of resident attitudes, more residentresearch has targeted the micro side of resident attitude research. These recent st udies have targetedspecific communities and have explored the various elements and characteristics within thosecommunities that predict resident attitudes about the presence of the tourism industry (McGeheeand Andereck, 2004).

Differences in attitudes have also been examined according to degree of tourismdevelopment, level of an individual’s involvement in the tourism industry, maturity of destination,type of tourism development, specific to one major event, and as compared to tourists’ perceptions.As a step in trying to explain resident attitudes toward tourism, several studies have investigated therelationship between an individual’s characteristic, such as demographics, personal benefits fromtourism, community attachment, and attitudes toward tou rism development. The majority of studieshave shown residents who are dependent on the tourism industry or perceive a greater level ofeconomic gain tend to have a more positive perception of tourism economic impact than otherresidents (Decio and Baloglu 2002; Haralambopoulos and Pizam, 1996; Jurowski, Uysal andWilliams 1997; Lankford and Howard 1994; Liu, Sheldon, and Var 1987; McGehee and Andereck2004; Sirakaya, Teye and Sönmez 2002).

Another variable that has been investigated in some studies is com munity attachment, oftenmeasured as length of residence and/ or growing up in a community. Some investigators have foundevidence that attachment is negatively related to tourism attitudes but this relationship is not yetconclusive, given that others have found the opposite. Harvey et al., (1995) addressed the role ofgender as a factor in residents’ perceptions of tourism development. Other research has found thatmen and women do not benefit equally as a result of tourism development in their communitie s.


24

While tourism may provide employment for young persons and women, men of thecommunity may perceive that tourism provides them few viable, respectable and thus acceptableopportunities for economic livelihood. Why is further exploration of gender issue s or research onwomen and tourism important? A variety of reasons exist including a continuing gender -basedsalary gap, rapid changes in family life and rural lifestyles that may push women into poverty,domestic problems, or into double -duty with work and family responsibilities. Other problemsassociated with tourism development, such as crime, drugs, and prostitution, may affect women andmen differently. Understanding how tourism development is perceived by all rural residents isimportant for planners and leaders alike as they struggle to balance quality of life issues withbuilding a strong economy.

RURAL IMAGING

Research on authentic and inauthentic tourist experience and the manner in which images ofattraction, culture and destinations are used i n advertising and promotion has been well presented inthe tourism literature. Both the nature of the destination image and manner in which it is created areof utmost importance because the appeal of tourist attraction arises largely from the image conjur edup, partly from direct or related experience and partly from external sources and influence. Mentalimage are the basis for the evaluation and selection of an individual’s choice of destination.Undoubtedly, there are many sources of the images that peo ple hold for place and product.Although rural areas have long served to attract visitor through their inherent appeal, it is only inrecent years that regions have explicitly sought to develop, image and promote themselves moreattractive to tourist investor and employees. Rural imaging processes are characterized by some orall of the following:

Development of critical mass of visitor attractions and facilities; The hosting of events and festivals; Development of rural tourism strategies and policies of o rganization with new or

renewed regional tourism organizations and how they relate to development of regionalmarketing and promotional campaigns; and

The development of leisure and cultural service and project to support the regionalmarketing and tourism effort.

The principle aims of imaging strategies are to attract tourism expenditure, generateemployment in tourism and related industries, foster positive images for potential investor and localinhabitants and provide an environment which will attract a nd retain the interest of professionalswho constitutes the core work force in the new services industries. The identification of character asbeing significant for place promotion is of critical importance for rural areas and notion of rurality.Place are increasingly being packaged around a source of real or imagined cultural traditions andrepresentations often focusing on a particular interpretation of the enterprise history of a place.Tourism may therefore reinforce those aspects of rurality and, henc e, identify those which havebecome commodified through the process of place marketing.

LUANDA CASE STUDY

This study was exploratory in nature reviewed district development plans to assess thestrategies put in place for the development agenda in the di vision. The primary data source ofparticipatory approach to determine the concerns earlier outlined was necessary. In order to getnearer to lasting development results or sustainability, many agree that a participatory approach hasto be taken (Mikkelsen, 1995). The units of analysis chosen include Luanda and Kima shoppingcenters and Emabungo village (Bunyore hill). These acted as the representation sample of Luandadivision. Workshops and participatory exercises were conducted with 50 local residents i n eacharea. The groups quickly and efficiently provided in -depth, qualitative information. The respondentswere chosen from different socio -economic groups to ensure a wide range of representativity.


25

RESULTS AND DISCUSSIONS

Most respondents (80%) were between 20 and 50 years old, and no respondents over 70years. In terms of gender (60% were women and 40% men). The gender distribution of therespondents reflects the socio-cultural structure in which there is a tendency for male domination inthe socio-economic and political life of the community but clearly this is not the case here. This isthe more reason why gender studies should be done frequently to determine the imbalances in termsof development initiatives in any given area. While 80% of the resp ondents had a very low income,15% had a moderate level of income and 5% had a relatively high -income level. Moreover, 60% ofthe respondents stated that their family incomes were just enough to survive while 30% of therespondent considered their family i ncomes to be enough for a fair standard of living. A largemajority (95%) had been living in the area since they were children. This may indicate thatrespondents were generally long time members of the local community.

The strong sense of belonging to Lu anda division among respondents and the answers givento place of birth seem to support the above statement. A very small percentage of the respondents(0.5%) were illiterate. Some, 55% had a primary education, and only 8% had a university education.Clearly, most respondents were not well educated in a formal sense, which could limit communityparticipation in tourism developments. From the interviews and participatory exercises it wasclearly noted that they were 3 basic attractions identified namely; Bun yore (Emabungo hills)Eswalwa hill and Luanda market. Bunyore (Emabungo) hills comprise of great boulder rocks thatmakes it look scenic and attractive. The hill is also a source of many streams and small rivers andpeople live and even farm here. Luanda market is strategically located along the busy Kisumu -Busia highway. The people who normally visit the area are from Kisumu and Siaya districts.Groceries range from local traditional food items to manufactured foodstuffs. Rural tourism demandis accessed through checking on the number of tourist facilities that are available in the area (Ogola,2005). From the facilities around there are a total of 37 bed spaces available mostly visited bystranded travelers thus showing that the area need to be marketed m ore.

According to the district development plan (2002 -2008) there are six hotels in Vihigadistrict out of which only four hotels are marked as the tourist class hotels and none of these arefound in Luanda division indicating low demand of tourism. The a rea has businesses which arewholesale (18), catering (25) garage (1), petty business (281) and hard labour business (40). TheLuanda area lacks travel and tour services as there is no agency to coordinate the tourist activities inthe area which is another indicator that tourism is on the lower side of economic development. Themission and vision of the sector of rural development, the major focus is put on the promotion offood security, agro-industrial development, trade, water supply, rural employment a nd sustainableutilization of the natural resources. This clearly indicates that most rural development activities areonly linked to agriculture development. In Kenya, tourism has not been incorporated in thedevelopment agenda for rural areas. It is only seen as a way of conserving forests and planners haveforgotten to incorporate it as multiplier effect of agricultural trade and industry that are found inthese areas. The only way of reimaging the Luanda division rural area to be very competitivetourism destination is by incorporating agriculture and a forestation to change the image of theattraction. Agro-forestry farming needs to be incorporated to bring out the aspect of rurality.

RURAL TOURISM IN ROMANIA

Ever since the fall of the Ceausescu regim e, numerous commentators as well as visitors toRomania have drawn attention to the significant tourist potential which this country ought to have.With mountains, forests, a sea coast, and historic towns, together with a climate which shouldattract visitors in both summer and winter, Romania ought to be as inspiring for visitors as Austriaor Switzerland. Yet the numbers of foreign tourists continues to be pitifully low, once again failing


26

this year compared with last. Romania’s tourist industry performed better under Ceausescu, withcharter flights to serve the mountains and Black Sea coast from Western European countries, mostof which ceased in the mid 1990s. While a fall in the number of visitors immediately after 1989 wasto be expected as many citizens of former Eastern Bloc countries inevitably chose to exercise theirnew-found freedom to travel to Western Europe, this should have been a short term development,and with an imaginative tourism strategy, Romania could have re -established its position intraditional markets as well as expanding into new ones.

Romania is, undoubtedly, a close place to the travelers and tourists who, among other things,want to spend their holiday in the middle of the intact nature. Consequently, the number of thetourists coming from the central European countries is continually growing. Many of them want toenjoy a holiday in an authentic peasant household. The rural tourism is for the people living in thecountryside the only possibility to earn extra money. Alongside t he development, within the localcommunities, of numerous individual accommodation structures, more and more local, regional andnational organizations are developing concomitantly in the peasant households, with the purpose ofpromoting the tourist offer of different areas.

Moreover, the offer of active holidays has increased, too. More and more people on holidaycome to Romania for excursions, trekking, hiking, horse riding, bicycle riding trips, mountain,cycling, off-road routes canoeing and kayak, raft ing, paragliding, cave and mine visiting routes andmany others. The organizers, often small, flexible and specialized firms, who offer active holidays,are becoming more diverse and more numerous in the market.

An effective tourism strategy would recognis e that Romania has no hope of attractingforeign visitors in significant numbers if tourist facilities continue to charge at least WesternEuropean prices for services which in many cases have barely improved since communism. Atpresent, the resorts seem to survive on Romanian tourists who prefer to stay in their own country orhave become used to doing so. But this market too is diminishing as more and more Romanians arerefusing to put up with such poor quality in relation to price and are heading for Gre ece, Turkey andother countries. The easing of departure restrictions for Romanian citizens leaving the country tovisit the Schengen area has given a further incentive to holiday abroad. With EU accession, thebureaucratic impediments to foreign travel fo r Romanians will further diminish.

There has been a significant increase in recent years in both the quality and quantity of ruralaccommodation thanks to individual investors and SAPARD funding. Activities of organisationssuch as ANTREC are assisting rural suppliers reach the market. Organisations such as ADEPT andthe Ecotourism Association are helping rural communities appreciate what tourism means and howthey can benefit from it. The formation of more local cooperatives of rural tourism products –attractions, accommodation, activities and retailers – are needed to focus visitor attention onparticular areas of the country.

More non accommodation product development is required in order to improve the range ofvisitor attractions and activities o n offer. In particular opportunities exist for the environmentallysustainable expansion of visitor activities in the protected areas. These can have a significantbeneficial impact on local community suppliers in or around the protected areas.

Better advance publicity of traditional rural events is needed t o facilitate visitor planning. Itis recommended that national parks and nature reserves prepare sustainable tourism developmentplans following the Retezat model and seek funding for identified visito r facilities.

It is also recommended that the NTO give priority public relations and promotionalassistance to the various rural associations as the range of products and activities they fosterrepresents some of the most important core values of Romania's brand image.

The proposed network of NTO regional development officers will assist individual ruralsuppliers with development advice in a broader regional and national context. They will alsofacilitate the establishment of local promotional consortia. At the same time they will facilitate thecollection of event, attraction and activity data through the local TIC network for inclusion in thenational tourism database and relevant promotional activity.


27

CONCLUSION

The government has done very little to boost rural tourism in this division or in Kenya as awhole justified by lack of tourism offices in various provinces. Most rural areas have been seen asproduction base agricultural raw materials and extractive units of mined materials. Decliningeconomic activity, restructuring of the agricultural sector, dwindling rural industrialization and out -migration of higher educated youth, has led to the adoption, in many western nations, of tourism asan alternative development strategy for the economic and soc ial regeneration of rural areas(Briedenhann and Wickens, 2004; Dernoi 1991; Hannigan, 1994a; Pompl and Lavery, 1993;Wickens, 1999; Williams and Shaw, 1991). Therefore most of the rural areas have always pushedtheir development agenda putting their hopes and interest on the above-mentioned sectors of theeconomy.

This is justified by the 60% level of absolute poverty in the Luanda division, simply becausethe community has used natural resource in agriculture and therefore cannot alleviate them frompoverty. Tourism industry depends on other sectors of the economy for its development. Theattraction and activities in the division gives or makes the area have a great potential of tourism.The potential in this area is not well imaged, commodified and pack aged to tap the rural tourismpotential of the area. The only way of encouraging rural area development is to encourage ruraltourism. For instance Bunyore hill famously known as Emabungo (which means jungle) can bereimaged by doing afforestation on the non-residential side. In so doing, the image of jungle as thename suggests can then be used to market it as mass attraction. This is in line with the projectproposals of development plans 2002 -2008.

To facilitate the development of tourism in Luanda a p rovision of good roads networks tofacilitate tourists’ traffic and other physical infrastructure to stimulate development of touristfacilities should be considered. As the government is the prime provider of the above mentionedservices, then process of imaging Luanda area for rural tourism will depend on the input ofgovernment in physical infrastructures. A large proportion of problems experienced byentrepreneurial ventures center around management -related issues, such as inappropriateorganizational structure, reluctance to delegate, absence of operational controls and predominanceof informal decision-making. For organizations to progress beyond survival requires not onlypossession of management skills and leadership to include more defined human res ource skills,planning and goal setting, financial management and the ability to manage people effectively.Tourism provides many opportunities for small entrepreneurs to contribute to the provision oftourism experiences for financial gain. These opportun ities occur in both the formal and informalsectors although, in reality, the distinction between the two may be blurred (Timothy and Wall,1997).

Romania has numerous villages and attractive countryside offering excellent opportunitiesfor rural tourism. The knowledge of the Romanian products through the rural tourism represents amain international factor for promotion of the Romanian economy and for the development of thenational market. In this context, the development of the national tourist brand represents a priority,taking into account its effect upon the attraction of foreign investments but also upon the extensionof the internal tourism, thus having a positive effect on the economy.

Within this general frame guidelines, and due to its natural landscape and cultural heritage,Romania owns a great potential in order to develop rural tourism activities, so becoming a firstimportance destination in South -Eastern Europe for such particular visitors.

REFERENCES

[1] Briedenhann, J. and Wickens, E. (2004). Tourism Routes as a Tool for the EconomicDevelopment of Rural Areas – Vibrant Hope or Impossible Dream? TourismManagement 25: 71-79.


28

[2] Deccio, C. and Baloglu, S. (2002). Nonhost Community Resident Reactions to the 2002Winter Olympics: The Spillover Impacts. Journal of Travel Research 41: 46-56.

[3] Dernoi, L. (1991). Prospects of Rural Tourism: Needs and Opportunities. TourismRecreation Research 16(1): 89-94.

[4] Hannigan, J. (1994a). A Regional Analysis of Tourism Growth in Ireland. RegionalStudies 28(2): 208-214.

[5] Haralambopoulos, N. and Pizam, A. (1996). Perceived Impacts of Tourism: The Case ofSamos. Annals of Tourism Research 21(3): 503-526.

[6] Harvey, M.J., Hunt, J. and Harris, C.C. (1995). Gender and Community TourismDependence Level. Annals of Tourism Research 22(2): 349-366.

[7] Jurowski, C., Uysal, M. and Williams, D.R. (1997). A Theoretical Analysis of HostCommunity Resident Reactions to Tourism. Journal of Travel Research 34(2): 3-11.

[8] Lane, B. (1994). What is Rural Tourism. Journal of Sustainable Tourism 2(1 & 2): 7-21.[9] Lankford, S.V. and Howard, D.R. (1994). Developing a Tourism Impact Attitude Scale.

Annals of Tourism Research 21(1): 121-139.[10] Liu, J.C., Sheldon, P.J. and Var, T. (1987). Residents Perceptions of the Environmental

Impacts of Tourism. Annals of Tourism Research 14(1): 17-37.[11] Long, P.T., Perdue, R.R. and Allen, L. (1990). Rural Resident Perceptions and Attitudes

by Community Level of Tourism. Journal of Travel Research 28(3): 3-9.[12] McGehee, N.G.and Andereck, K.L. (2004). Factors Predicting Rural Residents’ Support

of Tourism. Journal of Travel Research 43: 131-140.[13] Mikkelsen, B. (1995): Methods for Development Work and Research, A Guide for

Practitioners. Sage Publications.[14] Nedelea, Al. (2003): Politici de marketing în turism, Ed. Economica, Bucureşti[15] Nedelea, Al (2003): Piaţa turistică, Ed. Didactică şi Pedagogică, Bucureşti[16] Ogola, K.O. (2005): Rural tourism in Luanda Division . Unpublished Individual Project

Report.[17] Pompl, W. and Lavery, P. (1993): Tourism in Europe: Structures and Dev elopments.

Wallingford: CAB International.[18] Sharpley, R. and Sharpley, J. (1997): Rural Tourism: An Introduction . London:

International Thomson Business Press.[19] Sirakaya, E., Teye, V. and Sönmez, S. (2002). Understanding Residents’ Support for

Tourism Development in the Central Region of Ghana. Journal of Travel Research 41:57-67.

[20] Stan, E. (2007), Prognoză – Integrarea în U.E. salvează turismul, Jurnalul Naţional nr.4240/20.02. 2007

[21] Telfer, D.J. (2002): Tourism and Regional Development. In: R. Sharpley & D.J. Telfer(eds.): Tourism and Development: Concepts and Issues . Channel View Publications.

[22] Timothy, D. and Wall, G. (1997) Selling to Tourists: Indonesian Street Vendors. Annalsof Tourism Research, Vol 24, No 2, pp 322-340.

[23] Wall, G. (2001) The Role of Entrepreneurship in Tourism. ATLAS-ASIA ProceedingConference, pp 15-24.

[24] Wickens, E. (1999): Tourists’ Voices: A Sociological Analysis of Tourists’ Experiencesin Chalkidiki, Northern Greece. Unpublished Doctoral Thesis, Oxford BrookesUniversity.

[25] Williams, A.M. and Shaw, G. (eds.) (1991): Tourism and Economic Development :Western European Experiences (2nd ed.). London: Belhaven Press.


29

IMPACT OF THE TOURISM DEVELOPMENT ON POVERTY REDUCTION INALBANIA AS A COUNTRY IN TRANSITION

Ph.D. Evelina BAZINIUniversity of Vlora, AlbaniaFaculty of Economy and Law

Tourism Department

AbstractFighting poverty is a major challenge for Albania, in which tourism can make a significant contribution.

However, it is important to analyze the basic concepts behind specific policies and actions that would allow tourism tobe effective, like the possibilities offered by micro-credit. In fact, tourism development must be properly managed,avoiding anarchic, speculative development, so that it can be transformed into benefits for the local people and theirenvironment.This paper will list seven areas of action through whi ch tourism development in Albania as a Mediterranean countrycould fight poverty, with several of them relating to the possibilities created by micro -credit.After analyzing each of these approaches, a methodology must be drawn up for selecting the most ef fective projectsfrom two points of view – interest for tourism and impact on poverty reduction.

Key words: tourism, poverty reduction, economy, impact

1. INTRODUCTION

There are seven approaches for achieving benefits for the poor from tourism develop ment.We are listing this below:

Employment of the poor in tourism enterprises Supply of products and services by the poor to enterprises in the tourism sector Direct sale of products and services by the poor to the tourists Creation and management of tour ism enterprises by the poor Tourism taxation to benefit the poor Voluntary actions by tourism enterprises and tourists Investment in basic infrastructure to develop tourism while benefiting the poorThese methods can be adopted either separately or togethe r, depending on the tourism

projects under consideration.The methodology for implementing tourism projects to reduce poverty comprises four main

stages which are essential for ensuring the success of microfinance actions to be carried out in thetourism sector:

Ensuring that the necessary conditions exist for tourism projects Definition of tourism criteria in development projects Measurement of the project’s capacity to contribute to the fight against poverty Assessment of conditions for marketing and co st-effectivenessAny project financed by micro credit must be based on its real attractiveness for tourists, this

being essential if the project is to be successful and to bring in returns.

2. MEASURING CAPACITY FOR FIGHTING POVERTY

It is useful to be able to measure how projects that create tourist accommodationinfrastructure at sites of interest for tourism can help fight poverty. The evaluation should involve astudy of:

the number of jobs created, the reduction of migration from the country to citi es, the increase in revenue, and


30

the creation of access of poor people to basic infrastructure.Each of these factors can contribute to the fight against poverty.In order for tourism to contribute to the fight against poverty, it should be based on three

main areas: National and international policies, Tourism SME s present in the local areas where poverty is a problem. Micro credit to meet the needs of many enterprises or individuals linked directly or

indirectly to tourism development.

3. THE VALUE OF TOURISM ROLE

It is essential for the health and sustainability of the country community that new cash isconsistently introduced to the economy to replace cash spent outside the community by residentsand businesses, to offset inflation, and to provide fo r the needs and increasing expectations of agrowing population. Tourism presently offers the most significant opportunity to introduce newcash to the country.

Interviewees in this study assert their belief that tourism is the most important industry inlocal and national economy and that without it the community would be unable to sustain itslifestyle or vitality. Businesses would fail. The population would decline and unemployment wouldincrease as jobs would not be available elsewhere in Albanian regio ns.

Tourism is thus an economic driver. It provides money to fuel the economy and it supportsand sustains the values and lifestyle of a country residents and businesspeople. This is vitallyimportant as Albania and Macedonia strive to adjust to new econom ic realities and its populationseeks jobs and income from new sources.

Visitors come tour countries, they spend money, and they leave. As the visitors spend theirmoney, they facilitate the opportunity for our countries to put in place the infrastructure,opportunities, and services that makes the country lifestyle so attractive to the local population.

The proceeds of visitor spending provide revenue and create opportunities for existing andnew businesses. This process generates new employment, which is essential to accommodate thegrowing population. The tourism employees and tourism businesses spend money in thecommunity. Business and other interviewees in this research who are not front line tourismbusinesses showed clearly that spending by employees of the tourism industry and by tourismbusinesses is equally as important to the country as spending by visitors. This is a crucial message.

Population growth from new residents retiring in a country produces new demands on thecommunity. Without new and sustainable cash flow, the population can easily outgrow its capacity.Municipal services may decline and the burden of supporting failing infrastructure would fall on anaging population who moved to the community with the expectation of high standards of services.

Even without population growth, new demands are placed on the community. It is thereforeessential that Our countries ’s residential and business populations celebrate the contribution oftourism to its lifestyle and seek opportunities to expand the positive economic and social benefitsbrought by tourism. Given the extr aordinary population growth in o ur countries this becomes acrucial issue.

Tourism is a fiber of Albania that is woven throughout the lifestyle and economy of thecommunity and its population. It contributes to incubating other business sectors that are targetedfor growth. For example, new technology businesses are traditionally started in locations that meetthe lifestyle interests of their owners.

The lifestyle of Albania is conducive to the growth of small technology businesses for thisvery reason. However, the assets that make tourism successful, and the resulting flourish of tourismbusinesses, significantly contribute to making that lifestyle a reality. Further, a vibrant to urismindustry contributes employment statistics and cash flows that encourage people considering alocation for their new business.


31

4. ECONOMIC IMPORTANCE OF TOURISM

Tourism is a growing and complex phenomenon which is becoming one of the world'slargest economic activities. It involves an amalgam of industries such as tour operators, travelagencies and tour guides, transportation, accommodation, recreation and entertainment or food andbeverage services. The complexity and structure of the tourism indu stry are directly influenced bythe consumptions of the visitors who buy both tourism and non -tourism goods and services. Theactivities of tourists thus have effects on different industries including goods and products thatinitially may not seem to relevant to tourism.

To measure the influence of the tourism industry and its component activities on theeconomy, the instrument of Tourism Satellite Accounts (TSA) was developed by a partnershipinvolving the United Nations (UN), the World Tourism Organizati on (UNWTO), the Organizationfor Economic Cooperation and Development (OECD), Euro stat, government statistical agencies,national tourism administrations and central banks. The idea of TSA is to analyse in detail allaspects of demand for goods and servic es which are associated with tourism within the economy,and to measure tourism’s relationship to the supply of such goods and services within. Under theTSA concept, the tourism industry can be divided into tourism -specific, tourism-connected and non-specific industries according to the goods they produce. Tourism -specific goods consumed byvisitors refer, for example, to accommodation, travel agencies or transport services. Tourism -connected and non-specific goods and services (e.g. retail trade) are thos e which are predominatelydirected towards non-tourists. Tourism-specific industries are, for example, hotels, restaurants,passenger transport services, travel agencies, cultural, sporting and other recreational services. Allother industries (agriculture , forestry and fishery products, ores and minerals, electricity, gas andwater, manufacturing, construction work and construction, trade, transport, storage andcommunication services, business services, community, social and personal services) are tourism -connected or non-specific industries. Tourism in a wider sense can thus be seen as an economic andsocial phenomenon which both influences and is influenced by a set of industries according tovisitor consumption. Tourism hence has an impact on the whole economy directly and indirectly orthrough induced effects in terms of generation of value -added employment, personal income,government income etc. (Sources: UNWTO, Euro stat)

5. THE ROLE OF TOURISM ON POVERTY REDUCTION

Fighting poverty is a major chal lenge especially for the countries in transition such asAlbania, in which tourism can make a significant contribution. However, it is important to analyzethe basic concepts behind specific policies and actions that would allow tourism to be effective, li kethe possibilities offered by micro -credit.

The importance of tourism for reducing poverty was analyzed in the WTO report issued in2004 entitled “Tourism and poverty alleviation: Recommendations for action”. There are sevenareas of action through which tourism development could fight poverty, with several of themrelating to the possibilities created by micro -credit.

After analyzing each of these approaches, a methodology must be drawn up for selecting themost effective projects from two points of vie w – interest for tourism and impact on povertyreduction.

Seven approaches for achieving benefits for the poor from tourism development are asfollowing:

1. Employment of the poor in tourism enterprises2. Supply of products and services by the poor to enterpri ses in the tourism sector3. Direct sale of products and services by the poor to the tourists4. Creation and management of tourism enterprises by the poor5. Tourism taxation to benefit the poor6. Voluntary actions by tourism enterprises and tourists


32

7. Investment in basic infrastructure to develop tourism while benefiting the poorThese methods can be adopted either separately or together, depending on the tourism

projects under consideration.

5.1 Implementation of tourism development projects to reduce poverty

The methodology for implementing tourism projects to reduce poverty comprises four mainstages which are essential for ensuring the success of microfinance actions to be carried out in thetourism sector:

1. Ensuring that the necessary conditions exist for tourism projects2. Definition of tourism criteria in development projects3. Measurement of the project’s capacity to contribute to the fight against poverty4. Assessment of conditions for marketing and cost -effectivenessPrior conditions for setting up tourism project s. The conditions required for setting up

tourism development projects relate to the infrastructure needed to receive tourists, with investmentin communications, especially roads, the provision of drinking water, electric power andtelecommunications as well as basic health coverage. For each of these, a detailed analysis shouldbe carried out:

Accessibility. Year-round accessibility must be assured. In many tropical countries, in therainy season it is impossible to reach potential tourism sites. It is t herefore necessary to consider theinvestment required to guarantee year -round accessibility. This would also benefit the localpopulations and would allow the development of tourism SME’s.

Drinking water supplies . The supply of water, preferably drinking water, is an essentialcondition for receiving tourists. In many rural areas, water resources are very limited and water is ofinsufficient quality, making it necessary to sink wells or lay pipes. Such actions would also benefitthe local populations and may provide opportunities for local SMEs.

Electricity. If tourists are to stay overnight, electric power is necessary. This poses manyproblems in isolated regions because high levels of investment are often required. The possibility ofusing renewable energy sources should be analyzed, taking into account the technical and financiallimitations involved in maintaining facilities. Such maintenance might provide opportunities forlocal SMEs.

Telecommunications. Technical progress in cell telephony today can f acilitate telephonelinks even in isolated regions, but this entails costly infrastructure which must be taken into accountin tourism development because telephone links are essential for offering good conditions tovisitors. The mobile telephone networks can be of great assistance in developing micro commercialactivities facilitated by micro credit, a direct benefit from tourism development.

Health. The creation of basic medical and emergency facilities is also one of the basicconditions for tourism projects, especially in rural areas. It is necessary, to establish the basiccriteria to be adopted to meet the needs of tourists while benefiting local populations and allowingthe development of new service activities.

The prior conditions often entail lar ge investments which are not possible through microcredits. They have to be included in national and international programs in order to create thenecessary conditions for the implementation of projects financed by micro credit. It is alsoimportant that such investments and tourism projects achieve a balance between the resources usedfor, and the expected effects of tourism development.

5.2 Criteria for identifying tourism development projects

Tourism criteria are essential for ensuring that tourism d evelopment programs will besuccessful in assisting the poor. The interest for tourism of sites in which programs are to beimplemented must not be neglected. A satisfactory number of visitors will only be achieved if the


33

attractiveness of the site is main tained by the projects to build accommodation and infrastructure.The following are the conditions required for satisfying such tourism criteria:

Tourism potential. The region in which the tourism project is to be implemented shouldhave potential for tourism development as defined in the criteria for sustainable tourism andecotourism, especially with regard to biodiversity and natural resources in the form of fauna andflora. A precise study of such potential should be carried out, with comparisons with o ther tourismsites in the same region or in neighboring regions. This inventory might be carried out by localSMEs or might represent an opportunity for other SMEs to promote certain of the tourism resourcescovered by the inventory.

Tourism assets. The tourism assets of the precise site in which the tourism project is to beimplemented should be evaluated, focusing on the layout of the site and how it can be adapted toreceive visitors. It is important to take into account not only the creation of accommod ation andcatering structures but also leisure and sporting facilities. This analysis of the existing structure andthe possibilities for extension might serve as a basis for market studies for prospective SMEs.

Tourism synergies. Tourism synergies are very important for ensuring the success oftourism projects. It is important to ascertain the possibility of tourism excursions in a radius aroundthe tourism project site as these might encourage the creation of SMEs and micro tourismenterprise.Thus, any project financed by micro credit must be based on its real attractiveness for tourists, thisbeing essential if the project is to be successful and to bring in returns.

5.3 Measuring capacity for fighting poverty

It is useful to be able to measure how pro jects that create tourist accommodationinfrastructure at sites of interest for tourism can help fight poverty. The evaluation should involve astudy of:

1. the number of jobs created,2. the reduction of migration from the country to cities,3. the increase in revenue, and4. the creation of access of poor people to basic infrastructure.Each of these factors can contribute to the fight against poverty.Job creation. The creation of jobs by setting up tourism development projects is one of the

best ways of fighting poverty. However, in the poorest rural areas, rather than creating jobs in thetraditional sense, such initiatives usually only offer part -time activities to complement agriculturalwork. It is therefore important to evaluate both the creation of jobs in t ourism activities which mightinvolve more people than traditional jobs, especially in connection with tourism services offered bySMEs.

Reduction of the rural exodus . It is clear that one of the main reasons for the extremepoverty existing in the LDC is migration from the rural communities towards the outskirts of thelarge cities. This phenomenon is mainly caused by the lack of prospects in agricultural villages.Tourism development may represent an opportunity for holding back such migration by offeringother possibilities for income, apart from agricultural work. Ecotourism and rural tourism projectsimplemented by SMEs and micro enterprises can therefore be of a great impotance in countrieswhere the rural exodus is a problem, not only for preventing p overty but also for holding back thegrowth of shanty towns around cities.

Increase in revenue. This is one of the basic indicators for the impact of tourism on povertyreduction. It can be evaluated in monetary terms in comparison with the monetary income of localpopulations. In this case, experience has shown that the impact might be very great because therevenue of rural populations basically just allows them to be self -sufficient, with monetary revenuebeing very low. In some cases, even part -time tourist activity over 2 or 3 days a month might allowlocal populations to double their monetary revenue, which would amount to a very important


34

impact in the fight against poverty. The use of micro credit might be of great importance in thecreation and development of such micro activities.

Access to basic infrastructure . Tourism projects often allow the population living at, orclose to, tourism sites to benefit from roads and utilities such as electricity and drinking water. Thismeans that measurement of the impact on poverty alleviation of tourism development can be basedon the number of people who would benefit from such facilities.

Analysis of how tourism projects can reduce poverty shows the essential role that can beplayed not only by tourism SMEs bu t also by many other micro activities that can be set up withmicro credit.

6. TOURIST MARKETS AND MARKETING

A preliminary evaluation must be made of prospective markets and target clients in order toascertain the economic and tourism viability of touri sm development projects aiming to reducepoverty. It is essential to define the marketing conditions and the projected returns so that thetourism activity can become a permanent fixture, especially through the action of SMEs and microenterprises.

There are five types of tourist for most tourism projects in rural or isolated areas:o National tourists

The proximity of urban areas can be considered an asset in that it should bring innational tourists. Tourism sites are likely to meet the needs of city -dwellers for weekendleisure activities or for short stays.

o Expatriate resident touristsTourism sites set up in rural areas may also attract expatriate residents who can thus visita new natural environment close to their place of work and residence.

o Family visitorsPeople visiting family or friends in the country are also prospective customers forexcursions for short stays in such tourist sites.

o Business touristsBusiness tourists might be prospective customers for excursions or short stays in anatural environment that is completely different to their urban working places.

o International touristsThis is the most important group. In order to guarantee the continued success of tourist

projects aiming to reduce poverty, it is important to reach large numbers of t ourists. This can bedone through tour operator networks but also using technological methods via the Internet andwebsites.

In order for tourism to contribute to the fight against poverty, it should be based on threemain areas:

1. National and international policies,2. Tourism SMEs present in the local areas where poverty is a problem.3. Micro credit to meet the needs of many enterprises or individuals linked directly or

indirectly to tourism development.

7. CONCLUSIONS

Albania has many attributes that conf irm its role as a tourism destination. It has the criticalmass, with its tourism economy and the motivation for economic growth, to become a majorregional tourism and recreation destination. Tourism assets include the natural attributes of the area,which draw visitors, and the businesses that have evolved to deliver opportunities for visitors.


35

There is clear opportunity for the country communities to enhance significantly theirbenefits from tourism. However, this will require the formulation and execut ion of clear destinationdevelopment and marketing strategies. These strategies must include financial strategies for growth.

Tourism is the “number one” industry in Albania .Albania’s tourism economy is fragile and is comprised of small businesses and a few local

outlets of national franchises. Because of the high incidence of small businesses in the mix, thesuppliers to the tourism economy tend not to be highly visible.

Marketing strategies employed by these suppliers will likely be aggressive. It is importantthat the community is able to integrate its marketing and product strategies to take the bestadvantage of these opportunities.

REFERENCES

[1] Coltman M., Tourism Marketing New York, 1989[2] Elmazi L. – Strategjia Marketing, Tiranë 2002[3] Gronroos, C. Service Management And Marketing, Lexington Books, Massachusetts,

1990.[4] Kotler Ph., Armstrong G.- Marketing, Prentice Hall, 2007[5] Kotler Ph., Bowen J., Makens J., - Marketing For Hospitality And Tourism, Prentice Hall

,Inc., 1999.[6] Lewis Robert., Chambers R- Marketing Leadership In Hospitality , New York[7] Mihalic, T.: Environmental Management of a Tourism Destination, A Factor of Tourism[8] Competitiveness, Tourism Management 21/2000[9] http://www.mtkrs.gov.al[10] http://www.albaniantourism.com

http://www.mtkrs.gov.al


36

THE TOURISM IN VIEW OF REGIONAL DEVELOPMENT IN THE NORTH-EASTREGION OF ROMANIA

Assistant Ph.D. Student Adrian Liviu SCUTARIU“Ştefan cel Mare” University of Suceava, Romania

[email protected] Professor Ph.D. Cristian Valentin HAPENCIUC

“Ştefan cel Mare” University of Suceava, [email protected]

Abstract:In the European Union, medium length territorial units called regions have been delimited, as a way of

absorbing efficiently the funds from the European Union for regional development and also for interpreting andexamining the regional statistics. The present paper contains aspects referring to the situation of the tourism in theNorth-Eastern region, comparing it to that of the other regions. It can be noticed that, following a negative evolution ofthe indicators after 1990, the tourism has lately made some progress, tendency which can be found not only in thenorth-east, but also in other regions of the country . This tendency will be maintained for the coming years, especiallyfor reasons, such as: an increase in the quality of the services, rehabilitation of the infrastructure the use of thestructural funds and the great number of tourists from the European Un ion. The north-east region is one of the lowestdeveloped areas of Romania. The tourism can lead to a durable regional development in the north -east region ofRomania and to an increase in the development level of this region, taking into account that the European Union policyhas in view the elimination of the disparities among regions.

Key words: regionalization, regional development, tourism, North -East development region of Romania

1. INTRODUCTION

In the first part of this paper, we will refer to th e concept of region and the importance of theregionalization in the European Union. Next, we intend to analyze the situation of the tourism in thenorth-east region as compared to the other regions of Romania, based on certain indicators, andfinally we will suggest a few development directions and predictions concerning the region tourism.

2. REGIONALIZATION AND REGIONAL DEVELOPMENT

The word ‘region’ can have different connotations. All of them have in common the idea ofspace as entity, so that the mos t significant definition of region is that it represents a unit whichcontains a limited number of medium length zones territorially adjacent.

Although most of the European states are unitary states, the decentralization of the decisionis an idea unanimously accepted. Consequently, the regionalization became a common tendency inthe evolution of the territorial organization of the European states, the regions representing thestructures responsible for the assurance of the institutional convergence of the states, members ofthe European Union. Although the formation of regions is not a consequence of the regionaldevelopment policy of the European Union the high level of the funds meant to accomplish itsgeneral objective (the acquirement of the economic an d social cohesion by eliminating andpreventing the imbalance among regions) had an important contribution to regionalization as wellas to the establishment of some strategies, plans and programs of regional development which canensure appropriately the distribution and utilization of the resources.

The Nomenclature of Territorial Units for Statistics (NUTS) was established by Eurostat(the Statistic Office of the European Union) in 1981.This classified list was created in order toproduce a unique coherent plan of the territorial distributions so as to unify the regional statisticsand to make possible the application of the regional policies of the European Union.

The Nomenclature NUTS is structured on three levels marked NUTS -1, NUTS-2 andNUTS-3. Each state (NUTS-0) is thus organized in one or more regions at the NUTS -1 level, and

http://www.albaniantourism.com

[email protected]

[email protected]


37

are divided in one or more NUTS-2 regions and things are the same for the NUTS -3 regions. TheNUTS regulations settle the minimum and the maximum limits for the regions’dimens ions:

- NUTS-1 :3-7 million inhabitants;- NUTS-2: 800.000-3 million inhabitants;- NUTS-3: 150.000-800.000 inhabitants;According to the European standard structure, the territorial organization

of Romania can assimilate NUTS as follows:- Level NUTS-I: macro regions ,not used at present;- Level NUTS-II: 8 development regions with an approximate population of 2.8 million

inhabitants;- Level NUTS-III: 42 counties which reflect the territorial administrative structure of

Romania;- Level NUTS IV: it is not used as ther e have not been identified any associations of

territorial units;- Level NUTS V: 265 municipal towns and towns, 2.686 rural districts with 13.052

villages ,which reflect the territorial -administrative structure of Romania;From the structure point of view, the territory of Romania is organized in territorial units.

According to their status, the territorial units are administrative (rural district, town, municipaltown, county) and nonadministrative (1). As territorial nonadministrative units, there have bee ncreated 8 development regions, constituted through the reunification of several counties.

In Romania, there have been made, through voluntary association, eight developmentregions. The development regions of Romania correspond to the NUTS -II divisions of the EuropeanUnion. Although they are becoming more and more significant in the regional development area,these regions do not possess an administrative status, not having a legislative board or an executivecommittee.

The development regions are not administrative-territorial units, with no juridicalpersonality, being a result of free agreement between county and local councils.

The developmental regions coordinate regional infrastructure projects and are members ofthe Regions’ Committee from the moment of adhering to the European Union.

Concerning the “economic force” of regions, it is noticed that the gross domestic productper inhabitant over the national media, are Bucharest -Ilfov (where GDP/inhabitant is almost doublecompared to the national media) and West and Center regions. The poorest region is the North-Eastpart.

Between 1998 and 1999 in Romania it developed, with PHARE support , a complexinstitutional environment destined to realize the regional development objectives stipulated by theLaw nr.151/1998 concerning the regional development in Romania, respecting the principles ofallocating the structural funds (mainly The European Fund of Regional Development) to themember states of the European Union. The regions ’ function is to allocate the European Union’sfunds for regional development and to interpret and research the regional statistics. The currenttendency in E.U. is to decentralize the decisions.

The regional development policy reinforces the role and responsibilities of the local publicadministration and of the regional organizations in the economic and social development of eachdevelopment area and regions, concomitantly with the diminution of the involvement ofgovernmental institutions in such activities. The regional development policy is an importantcomponent of the local autonomy. One goal is the diminution of the regional imbalances, focusingon the stimulation of the balanced development and on the refreshment of the poor areas (with slowdevelopment). The North-East region is one of the less developed areas.

The policies and plans of regional development in the last years take into account more andmore the tourist sector, as a strategic sector for providing a dynamic and durable economic growth,of certain regions with an important tourist potential.


38

3. THE TOURISM IN THE NORTH-EAST REGION COMPAED TO THE OTHERROMANIAN REGIONS

The durable regional development must necessarily correlate and integrate the tourism ofRomania, among other local economic component s taking into account that this clean industry doesnot affect the environment and does not imply big investments. A good project of lastingdevelopment, included in a program of regional development, supposes investments less expensiveif the integration is harmoniously organized. The tourism may become an important component ofeconomy capable of important mutations in the territorial profile, determinin g a social-economicgrowth of some poor regions, as that from the North- East.

The North-East region is one of the least developed areas from Romania. The tourism maydetermine a lasting regional development in the North -East part of Romania and the growth of theliving standards, because the European Union ’s policy intends to eliminate differences amongregions.

The tourism may contribute , more than other sectors, to the accomplishment of some largerobjectives, established by governments as priorities for the general interest of the cit izens: fightingagainst poverty, improving life standards, growing currency cashing, intensification of relationsbetween countries, even politic objectives.

The development of the local tourism must be done with the local authorities ’ support whichhave to take into account that, beside s positive effects, the tourism generates a lo t of negativeeffects, too. By a careful planning and an intelligent management , the benefits may be maximizedand problems minimized. Thus, it may be realized a lasting development of the tourist sector byprotecting environment and local culture.

Thus, in the period of 1991-2003, the existing accommodation capacity , expressed by thenumber of accommodation places , continued to fall down, and in 2003 it was recorded a growth ,both at the national and at the North -East region levels (table no.1).

Table no. 1. Accommodation existing capacity in development regions, in the period 1991 -2005

- number of accommodation places -Year Total North-

EastSouth-East

South South-West

West North-West

Center Bucharest

1991 312407 23321 146527 25955 22230 21036 24732 38600 10006

1992 302533 22647 141917 23398 18766 23713 24270 37632 10190

1993 293036 21134 139281 23506 18046 23335 23357 35244 9133

1994 292479 21779 132505 23583 17875 23096 26259 38794 8588

1995 289539 20250 133739 23082 17462 22919 26044 37584 8459

1996 288206 18814 134489 23641 17010 22028 26493 36513 9223

1997 287943 19096 133296 23744 17118 22304 26472 36997 8916

1998 287268 19131 133006 23139 16890 22288 27231 36915 8668

1999 282806 18832 133548 22347 15363 21306 26382 36026 9002

2000 280005 17745 134081 22433 15295 21740 25547 35235 7429

2001 277047 16971 132053 21321 15326 22298 25197 34648 9233

2002 272596 17269 130111 21456 14855 20190 24561 33823 10331

2003 273614 17965 130991 21729 15112 20713 24320 32759 10025

2004 275941 17183 130854 22494 13936 21066 24576 34365 11467

2005 282661 18718 132965 22292 14672 21291 26019 35479 11225

Source: Territorial statistics 2002, INSSE, Bucharest, p. 327-336; The Statistical Yearbook of Romania, INSSE,Bucharest, 2002, p. 784, 2003, p. 839, 2004, p. 713, 2005, p. 740 and 2006, p. 740


39

In terms of development regions, the areas with the highest number of accommodationplaces are: the South-East followed by Center, North -West and South regions. We see that theSouth-east region has almost a half of the total accommodation places which exist at the nationallevel.

Concerning the number of tourist accommodation units from Romania , between 1991 and2005, this index registered a contradictory evolution, but after 2000 it had a consta nt tendency ofgrowing (table no. 2).

Table no. 2. The evolution of the number of tourist accommodation units in the period 1991 -2005 in Romania

- number of units -Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Touristaccomodation units

3329 3277 2682 2840 2095 2965 3049 3127 3250 3121 3266 3338 3569 3900 4226

Source: The Statistical Yearbook of Romania, INSSE, Bucharest, 1996, p. 677, 2002, p. 790 –791, 2003, p. 840 – 841,2004, p. 714 – 715, 2005, p. 738, 2006, p. 738 ; National Development Plan 2002–2005, The Government of Romania,p. 36.

Like the number of accommodation places, the index of plain utilization of the functioningcapacities had also a descending evolution. This decreased at the national level from 1991 to 2005,when it reached 33,4%. In the North-East region, the index is taking the general tendency ofdiminishing at the national level; it is the lowest index o f all regions (table no. 3).

Table no. 3. Indices of net using the capacity in function, in development regions, in theperiod 1991 - 2005

-%-Year Total North-

EastSouth-East

South South-West

West North-West

Center Bucharest

1991 49,8 46,1 52,9 52,6 46,2 49,0 46,1 46,0 60,6

1992 46,7 43,7 52,3 45,5 45,8 43,6 41,9 41,5 58,3

1993 43,1 40,4 49,6 41,1 42,0 36,0 38,1 38,7 57,9

1994 43,7 37,6 48,4 44,6 47,8 40,1 36,3 42,4 52,6*

1995 45,0 37,7 51,4 49,5 49,3 38,7 37,5 41,4 52,5*

1996 40,7 35,9 47,2 45,1 43,8 33,7 32,0 38,9 43,5

1997 37,7 31,7 43,0 43,2 39,7 31,9 29,7 34,8 47,5

1998 36,1 33,2 44,5 32,6 39,7 31,5 28,6 32,0 40,9

1999 34,5 30,0 41,5 29,5 41,8 35,4 29,0 29,3 38,5

2000 35,2 31,7 44,8 28,9 42,6 36,3 29,9 28,0 36,3

2001 34,9 30,2 42,3 29,2 44,9 36,9 31,9 28,2 32,2

2002 34,0 28,9 38,2 27,1 45,0 39,1 32,8 28,8 31,9

2003 34,6 29,2 37,8 28,7 44,4 38,7 35,5 28,5 35,9

2004 34,3 29,5 39,2 27,7 44,5 35,9 33,2 29,4 35,3

2005 33,4 27,2 37,8 28,1 40,6 34,7 32,2 29,5 38,1

* The Ilfov County andBucharest

Source: Territorial Statistics 2002, INSSE, Bucharest, p. 327 – 336 and The Statistical Yearbo ok of Romania ,INSSE, Bucharest, 2002 , p. 784, 2003, p. 839, 2004, p. 713, 2005, p. 740, 2006, p. 740


40

A descending evolution has in the period 1991 -2002 the index “Arrivals”, too . This evolutionis explained by the modest life conditions which made that the majority of Romanian people not beable to afford going on holydays. Also, the continuing decrease of the quality of the tourist serviceshas made the wealthy people spend their holyday abroad. The biggest decrease, in a relativeexpression, may be found at the “Arrivals” index in the North-East and South-West regions. In thelast years these things have started to change, so, after the year 2003 the “Arrivals” index has atendency to grow (table no. 4).

The same descending tendency is noticed in the ca se of the “Passing the night” index with aneasy growth after 2002 (table no . 5).

Table no. 4. Tourist arrivals in the tourist units, in the development regions, in the period1991 - 2005

-thousands-Year Total North-

EastSouth-East

South South-West

West North-West

Center Bucharest

1991 9603,3 1389,5 1789,2 1184,9 793,3 923,8 1099,6 1494,4 928,6

1992 8015,0 1120,3 1517,2 1045,9 642,4 783,4 910,3 1287,1 708,5

1993 7566,2 923,9 1400,1 903,7 576,0 705,9 1053,8 1177,8 825,0

1994 7004,7 846,4 1283,8 763,8 495,4 695,3 850,1 1114,8 955,1*

1995 7070,4 820,0 1395,4 816,5 544,6 648,1 805,7 1173,0 867,1*

1996 6594,9 780,8 1293,7 729,4 506,3 619,0 781,0 1234,7 649,9

1997 5727,0 662,8 1129,1 667,0 433,7 515,9 619,3 980,3 718,9

1998 5552,1 635,9 1171,5 641,6 374,3 520,3 605,9 927,5 675,2

1999 5109,4 568,8 1007,5 569,6 343,1 539,4 601,1 855,6 624,4

2000 5920,1 543,0 980,8 552,6 327,1 568,9 559,6 868,0 520,0

2001 4875,0 535,0 994,0 546,0 338,0 541,0 596,0 837,0 488,0

2002 4847,0 535,0 984,0 549,0 350,0 493,0 629,0 753,0 554,0

2003 5057,0 553,0 1019,0 572,0 324,0 520,0 637,0 847,0 585,0

2004 5639 619 1133 576 361 536 698 986 730

2005 5805 622 1108 574 334 535 733 1068 831


Source: Territorial Statistics 2001, INSSE, Bucharest, p. 327 – 336; The Statistical Yearbook of Romania, INSSE,Bucharest 2002, p. 784, 2003, p. 839, 2004, p. 713, 2005, p. 740, 2006, p. 740

Table no. 5. Stayings overnight in the tourist units, in development regions, in the period 1990- 2005

-thousands-Year Total North-

EastSouth-East

South South-West

West North-West

Center Bucharest

1991 31927,0 3064,0 9505,4 3512,0 2730,0 2936,8 3259,9 4659,3 2259,61992 26076,0 2520,0 7642,0 2864,0 2369,0 2344,0 2557,0 3798,0 1982,01993 24768,6 2176,1 7655,9 2614,1 2070,0 2101,7 2714,1 3517,2 1919,61994 23295,7 2052,9 6926,7 2385,5 1974,9 2220,1 2518,3 3495,5 1721,8*1995 24111,2 1987,3 7733,7 2386,2 2044,1 2239,5 2542,2 3552,0 1626,2*1996 21837,9 1894,9 7114,1 2207,3 1791,9 1892,0 2194,3 3337,7 1405,71997 19611,5 1615,8 6097,5 2135,3 1682,1 1712,1 1951,2 3020,2 1397,21998 19183,2 1642,1 6205,5 1961,1 1619,0 1749,9 1920,5 2831,2 1253,91999 17669,8 1440,4 5335,1 1789,1 1569,8 1827,7 1937,6 2627,8 1142,22000 17646,7 1467,8 5451,9 1470,5 1591,2 1878,1 1960,8 2560,3 996,12001 18122,0 1406,0 5602,0 1759,0 1745,0 1933,0 2118,0 2591,0 968,02002 17277,0 1332,0 5214,0 1623,0 1691,0 1909,0 2132,0 2316,0 1060,02003 17845,0 1451,0 5154,0 1704,0 1643,0 2034,0 2251,0 2431,0 1177,0


41

2004 18501 1490 5397 1782 1648 1939 2221 2665 13592005 18373 1436 5139 1807 1602 1836 2290 2782 1481


Source: Territorial Statistics 2002, INSSE, Bucharest, p. 327 – 336; The Statistical Yearbook of Romania, INSSE,Bucharest, 2002, p. 784, 2003, p. 839, 2004, p. 713, 2005, p. 740, 2006, p. 740

In the year 2005, it succeeded attracting 11% of the tourist circulation recorded at the nationallevel. Concerning the average length of the tourists’ staying in the tourist accommodation structuresof the North-East Region, this was, at the level of the same period, around the average value of 2,31nights, while the average length at the national level was 3,16 nights. This average length of stayingwas inferior to that registered at the national leve l but combined with a supplementary offer, fromthe tourist area, made the index of net utilization of the accommodation capacity be situat ed belowthe national media (31,78%), hardly attaining 28%.

4. DEVELOPMENT DIRECTIONS OF THE TOURISM AND PREVISIONS IN THENORTH-EAST REGION

In the North-East region there is a tourist potential not fully exploited, and the tourism is oneof those areas which do not require huge investments . For some projects resources from theEuropean Funds can be obtained. The development of the tourism will determine a development ofthe region by increasing income and by stimulating of those activities related to tourism.

The tourism is able to contribute to the internal development of a region, to the reduction ofthe regional unbalances, to the geographical redistribution of the welfare from the metropolitanareas towards the poor, peripheral ones. Consequently, the tourism appears as a viab le alternative ofdevelopment of different regions.

For the rural tourist development there are financing programs for developing of those agrotourist lodgings. This may be an explanation for the great number of agro tourist lodgings, appearedin the last years, together with the change in the tourist services consumer’s behavior.

The tourism still has a general infrastructure (particularly of the communication means) andsupport of the inadequate tourism. The services of information and promotion of tourism areinsufficiently developed. There is not enough qualified staff in this field .

At the regional level, for a lasting development of the tourism, we can systematize asobjectives:

- modernization of the tourists offers;- developing regional tourist products;- re-qualification of the labor force ;- improving the quality of the services;- improving collaboration and public-private partnership;- producing and delivering advertising promoting materials;- setting up and expanding regional tourist information points;

One of the most important measures for economic development of the region s is that referringto the development of the tourist infrastructure.

A long time planning involvement, supposes an approach of the tourist activity at the regionallevel. This supposes community involvement in the process of planning and developing, also increating and developing tourism forms which de termine benefits for the inhabitants. If they haveadvantages from the development of the tourism, then they will be more interested in supporting thetourism development in that particular region, will ing, in the same time to preserve the touristresources.

Among the measures required for the tourism development we mention (2):- identifying and arranging tourist resources, attracting private households in practicing tourism;- realizing training sessions at regional or local level for practicing some activities related to

tourism;


42

- granting financial-banking assistance for obtaining credits for starting some tourist activities;- supporting the private persons in obtaining homologate certificates of the tourist structures

and professional licenses in the field;- preparing local experts in tourism problems.

The development of tourism attracts, too, the development of other related areas. The notionof effects of multiplication established by receipts/expenditures, in the tourism, becomes relevant asa considerable number of another branches bene fit of activities from the tourist sector, themultiplier’s value may be interpreted as a stimulus-answer report in the context of the initialinjection of expenditures in the tourism area.

The tourist multiplier underlines that an initial expenditure made by a tourist in a region orin a country, becomes successively income for another economic areas (agriculture, the processingindustry, the industry of consumer goods, the construction and cons truction material industry, trade,services) related directly or indirectly to tourism until the moment when those financial resourcesleave the country, the reference zone or the economic sphere, generally under the form of taxpayments, savings, (amasings), imports etc., called the leakages (3).

By attaining the targets of the tourism development we will reach the multiplying effect ofthis. The profitable effects will be noticed upon the level of the population’s gains and upon otherexternal areas of the tourist activity.

Even if the private structure is extremely active, the tourism cannot develop only throughprivate initiatives, it also needs the support of the public institutions. The state can help in threedirections: infrastructure, promotion and intelligent fiscal facilities.

The tourism agencies anticipate an increase in the number of the Europeans who will visitour country starting from 2007. The tourism operators rely on the curiosity of the old EU membersof discovering the new states which a dhered on the 1st of January 2007, but also on the eliminationof the traveling restrictions. The foreigners may be interested mostly in the spa and rur al tourism,very good represented in the county of Suceava.

According to a FPTR (Federation of the Emplo yers in the Romanian Tourism) study theEuropeans allocate larger and larger sums of money for holidays and journeys. In the E.U.countries, the transport infrastructure, which facilitates traveling for a touristic purpose, is very wellfinalized. The time spent on traveling until getting to the destination is more and more reduced, sothat new destinations will capture the attention of those who practise the week -end tourism or theshort holidays. "The alignment of the air and railway transport to the EU s tandards will lead to theincrease in the number of the foreign tourists", was stated in the FPTR report. The study points outthe fact that the EU citizens spend more money on holidays and journeys. Moreover, there is inEurope an ageing tendency of the p opulation, which signifies more people with free time to travelaround.

The economical agents in the field will be able to access, beginning with July 2007,European Funds with a value of over 2,6 billions of euro, for the tourism in Romania. The greatestpart of the money, approximately 2 billions of Euro will come from The European AgriculturalFund for Rural Development concerning the improvement of the life quality in the rural zones andpromoting the rural tourism. There will be the possibility of co -financing for the projects which aredone by the small and middle sized firms.

Still, together with the activity of promoting Romania as an attractive destination for tourismand business, people will be able to access E.U. funds of about 127 millions of eu ro, through TheEuropean Fund for Regional Development. The projects which are developed based on this fundhave as an aim the promotion of tourism and the development of the promotion centers. The rest ofthe co-financing, of about 23 millions of euro, fo r these programmes will come from the statebudget.

The development of the tourism refers also to the permanent promotion of the regional andlocal tourism, and brings funds of about half a million euro that will be accessed from the EuropeanFund For Regional Development, to which we add 60 millions euros from the state budget. Theprojects will have as an aim the restoration and the capitalization of the historical and cultural


43

patrimony, the capitalization of the natural resources and the increasing of t he quality of services.Many economical agents from tourism are prepared with projects in order to access the Europeanfunds, so that we estimate the absorption degree will be higher, and the European co -financing willbring a substantial help for the deve lopment of tourism.

5. CONCLUSIONS

In the European Union, there were created territorial units of medium size called regions, withthe purpose to absorb efficiently the European Union funds for regional development and tointerpret and research the regional statistics. In Romania there are 8 development regions, of whichthe North-East region is the least developed. From the analysis of some indicators may be noticedthat after a long period when th e tourism had a descendent curve , in the last years this has had apositive evolution (the accommodation capacity has grown, the number of arrivals and of passingthe night have grown too, only the index of utili zation remaining at low levels ).

The tourism may become an important com ponent of the economy, which can determineimportant mutations in the territorial field , contributing to the social-economic growth of the region.The North-East region possesses an important potential for developing the mountain, cultural orreligious tourism. Because of an underdeve loped infrastructure, the tourism from this region is notdeveloped at the existing potential level. In the last years it is noticed a small growth of the tourism;it is estimated a continuation and even a stimulation of this tendency, concerning especially theattraction of tourists the European Union.

NOTES:

(1) Institutul Naţional pentru Statistică, 2005, Anuarul statistic al României - 2005, Bucureşti, p. 21-22.(2) Nina Hanciuc, “Consideratii privind necesitatea unor strategii regionale de promovare a turis mului în

contextual noii orientari de dezvoltare spatiala durabila”, în “Dezvoltarea regionala şi integrareaeuropeana”, lucrarile celui deal doilea simpozion national al Asociatiei Române de Stiinte Regionale, 4 – 5aprilie 2002, Editura Oscar Print, Bucu resti, 2003, p. 406

(3) Rodica Minciu, “Economia turismului”, Editura Uranus, Bucure sti, 2001, p. 303.

BIBLIOGRAPHY:

[1] Avramescu Tiberiu Cristian Direcţiile implicării autorităţilor publice centrale şi locale indezvoltarea turismului durabil , teză de doctorat, ASE, 2005

[2] Bodnăraş Emil– Finanţarea locală: practici comparate România - U.E., Seria ProblemeEconomice, vol. 245-246, Centrul de Informare şi Documentare Economică, B ucureşti,2007

[3] * * * Programul Operational Regional 2007 -2013, Ministerul Dezvoltării, LucrărilorPublice şi Locuinţelor

[4] Anuarul Statistic al României, INSSE, Bucureşti, 2002, 2003, 2004, 2005, 2006[5] http://www.antena3.ro/Turismul -romanesc-salvat-de-aderarea-la-UE_bss_28328_ext.html[6] http://www.stirievenimente.ro/stiri/Turismul -romanesc-are-toate-sansele-sa-cunoasca-una-

dintre-cele-mai-dinamice-evolutii-din-intreaga-Europa/669[7] http://www.wall-street.ro/articol/Turism/27041/Turis mul-romanesc-va-creste-cu-15-in-

2007.html

http://www.antena3.ro/Turismul-romanesc-salvat-de-aderarea-la-UE_bss_28328_ext.html

http://www.stirievenimente.ro/stiri/Turismul-romanesc-are-toate-sansele-sa-cunoasca-una-

http://www.wall-street.ro/articol/Turism/27041/Turismul-romanesc-va-creste-cu-15-in-


44

THE PROCESS OF EU INTEGRATION, REGIONAL DEVELOPMENT, AND CROSS-BORDER COOPERATION

Assistant Alina LARION“Stefan cel Mare” University of Suceava, Romania

[email protected] Ph.D. Marilena-Oana NEDELEA

[email protected]“Stefan cel Mare” University of Suceava, Romania

Professor Ph.D. Liliana ELMAZITirana University, Albania

[email protected]

Abstract:The integration of the Central and East European countries into the European Union creates a radically and

qualitatively new geopolitical situation on the European continent that, in its turn, requires some thorough going andstructural changes from the EU part as to development of international relations in their new form in the countries ofthe European Union and non-member states. In order to apply the regional development strategy, eight developmentregions were set up, spreading throughout the whole territory of Romania. With the process of EU integration at hand,cross-border cooperation has become a top priority in East-Central Europe.

Key words: European Union integration, regional development, cross -border cooperation

1. INTRODUCTION

With the process of EU integration at hand, cross -border cooperation has become a toppriority in East-Central Europe. In fact, there is no viable alternative to integrated regionaldevelopment. Regional development policy is an ensemble of measures planned and promoted bythe local and central public administration authorities, having as partners different actors (private,public, volunteers) in order to ensure a dynamic and lasting economic growth, through the effectiveuse of the local and regional potential, in order to improve living conditions.

The main areas regarded by the regional policies are: devel opment of enterprises, the labormarket, attracting investments, development of the SMEs sector, improvement of infrastructure, thequality of the environment, rural development, health, education, culture.

The overview of the situation in Romania related to regional development revealed severalaspects, which can lead to the conclusion that in the field of regional policy, there have been a lot ofprogress achieved during the last years, but there are still many things to be done in order to complywith the legal and institutional requests of the European Union cohesion policy.

2. THE PROCESS OF EU INTEGRATION

The endeavours for creating economic co -operations have been strengthened since the endof World War II. Following the integration process, partial ly launched within internationalorganisations and initiated in Western Europe in the 1950s, there have been several plans draftedwith the intention to co-ordinate and harmonise internationally operated economic and tradesystems on a regional basis.

In economic, trade and monetary terms, the European Union has become a major worldpower. It has considerable influence within international organisations such as the World TradeOrganisation (WTO), the specialist branches of the United Nations (UN) and at wor ld summits onthe environment and development.

The EU as a unit has much more economic, social, technological, commercial and political“clout” than the individual efforts of its Member States, even when taken together. There is addedvalue in acting as one and speaking with a single voice as the European Union.

[email protected]

[email protected]

[email protected]


45

One of the basic objectives of the European Union is to promote economic and socialprogress which is balanced and sustainable, in particular through the creation of an area withoutinternal frontiers, through the strengthening of economic and social cohesion and through theestablishment of economic and monetary union, including a single currency.

To achieve this objective, it is necessary to promote throughout the Community aharmonious and balanced development of economic activities, leading to a sustainable and non -inflationary growth which respects the environment. The Member States are to regard theireconomic policies as a matter of common concern and to conduct their economic policies with aview to the objectives of the Community. Therefore, Member States coordinate their economicpolicies within the Council.

The internal market has allowed larger businesses to benefit from enormous economies ofscale. Meanwhile, new export markets have been opened up to small and medium-sized businesseswhich previously would have been prevented from exporting by the cost and hassle.

The EU external trade is based on a common EU policy. In other words, where trade,including WTO matters, are concerned, the EU acts as one single actor, where the EuropeanCommission negotiates trade agreements and represents the European interests on behalf of theUnion’s Member States.

The integration of the Central and East European countries (CEE) into the European Unioncreates a radically and qualitatively new geopolitical situation on the European continent that, in itsturn, requires some thoroughgoing and structural changes from the EU part as to development ofinternational relations in their new form in the countries of the European Union and non-memberstates.

3. REGIONAL DEVELOPMENT IN EUROPEAN UNION AND ROMANIA

Regional development is a new concept that aims at stimulating and diversifying economicactivities, stimulating investments in the private sector, contribut ing to decreasing unemploymentand, last but not least, a concept that would lead to an improvement in the living standards.

In order to apply the regional development strategy, eight development regions were set up,spreading throughout the whole territor y of Romania. Each development region comprises severalcounties. Development regions are not territorial -administrative entities, do not have legalpersonality, being the result of an agreement between the county and the local boards.

Rural development has a very distinct place within regional policies, and deals with thefollowing aspects: removal/reduction of poverty in the rural areas; balancing of economicopportunities and social conditions between the urban and rural areas; stimulating local initiati ves;safeguarding of the spiritual and cultural patrimony.

The development region, constituted as a freewill association of neighbor countiesrepresents the implementation and assessment framework of the regional development policy. Thedevelopment region is not a territorial–administrative entity and does not have legal personality.

The main objectives of the regional development policies are as follows: to reduce the existing regional disparities, especially by stimulating the well -balanced

development and the revitalization of the disadvantaged areas (lagging behind indevelopment) and by preventing the emergence of new imbalances;

to prepare the institutional framework in order to comply with the integration criteria intothe EU structures and to ensure access to the financial assistance instruments (the StructuralFunds and the Cohesion Fund of the EU);

to correlate the governmental sector development policies and activities at the level ofregions by stimulating the inter -regional, internal and international, cross-border cooperationwhich contributes to the economic development and is in accordance with the legalprovisions and with the international agreements to which Romania is a party;The principles that the elaboration and the application of t he development policies are based

on are:


46

Decentralization of the decision making process, from the central/governmental level to thelevel of regional communities;

Partnership among all those involved in the area of regional development; Planning – utilization process of resources (through programs and projects) in view of

attaining the established objectives; Co-financing – the financial contribution of the different actors involved in the

accomplishment of the regional development programs and projec ts.

The overview of the situation in Romania related to regional development revealed severalaspects, which can lead to the conclusion that in the field of regional policy, there have been a lot ofprogress achieved during the last years, but there are still many things to be done in order to complywith the legal and institutional requests of the European Union cohesion policy.

Firstly, it can be said, that in Romania there in place a functional system for implementingregional policy, both at central a nd regional level. The system has been developed since 1997 -1998and is based on a special legal act, on the existence of central and regional bodies with attributionsand responsabilities set up by normative acts and on corps of central and regional exper ts. However,although functional, the system is not fully prepared to take over and efficiently implementstructural instruments. The analyses have revealed a number of weaknesses and gaps, which need tobe corrected or filled in:

The legal framework must be completed, in order to provide more precise attributionand resposabilities of the regional policy institutions:

More correlation is necessary between various laws regulating administrative aspects,financing and procedures about using the public funds in order to get a coherentcohesion policy framework;

The regional bodies are not yet strong enough in order to face all the attributionsprovided by law now, but especially in the future; they seem to need more support andexpertise from central bodies;

The resources of the present system have not been fully used and no completeevaluation of it has done by now; in spite of that, there have been several changes andattempt of changing the system during the last 3 years.

The analyses achieved, as well as th e numerous meetings with responsible persons at centraland regional level showed a weak development of the conceptual base related to regional policy andsocial and economic cohesion. In fact, there in no national concept for how cohesion should beapproached and achieved in Romania and what the role of regional policy would be. No debate atacademic or political level is carried on this matter now although various options seem to be takenin the implementation stage.

In order to set up a consistent region al policy and to achieve social and economic cohesion,one major request is to get very detailed and scientifically assessments about the social andeconomic disparities of the territory. The research proved that:

There has been no profound analysis of reg ional disparities in Romania and yet is agrowing official opinion that disparities are low and insignificant (at least comparedto those existent within EU countries);

There is no sufficient attention given to the extremely high disparities between ruraland urban areas and within urban areas, proved by numerous studies, which can be aspecific feature for Romania among the other EU and CEE countries;

No sufficient attention is paid to rural poverty, although this has been also proved bynumerous studies and is currently praised as being of national importance;

There is not a significant group of aggregated indicators used by an official body atcentral and/ or regional level, to assess regional and intraregional disparities, for themoment.

In fact, the research has brought into evidence, according to most of the opinions expressedby the participants at the meetings and interviews that there is almost no communication, among the


47

administrative and political bodies and the professional associations, experts , academic environmentand media in order to better understand the present situation and to find the best solution for thefuture. There is also very little information about the progresses and the policies undertaken byother candidate countries.

Thirdly, during the elaboration of the report, it appeared clearly that a major issue related tocohesion and an effective regional policy is the role of the regional structures. The debates withinthe interest group and not only went around the issues of regional isation, de-concentration, anddescentralisation and as the status of regions nd regional bodies. Although the matter of theadministrative regions and their institutions was not entirely the subject of the present report, it isobviously of high relevance for the topic of the report. For such reasons, examples are given aboutFrance, Portugal and Greece and their deconcentration processes.

Fourthly, the researches focused on programing process, provided besides obviousachievements, certain weaknesses. A n umber of practical aspects have been also identified duringthe research as important weaknesses related to the implementation process of regional policy.Among the most important are:

Reduced training activities of staff of both central and regional insti tutions as well asof the elected people;

Lack of any correlation and integration of spatial and regional planning instruments; Low correlation and integration of specially assisted zones (de -favoured areas,

economic free trade zones, industrial parks etc. ) with the regional developmentpolicy and its specific instruments;

Reduced communication among national bodies and among national andlocal/regional institutions involved; reduced information and awareness at the levelof the media and public about regional policy and its instruments.

4. CROSS-BORDER COOPERATION AND EU INTEGRATION

With the process of EU integration at hand, cross -border cooperation has become a toppriority in East-Central Europe. In fact, there is no viable alternative to integrated re gionaldevelopment. From the perspective of advancing European integration process, the existence of theappropriate legislative framework, economic and social policies aimed at ensuring the threemovement of persons, labor, material and spiritual goods ac ross the borders is of an utmostimportance.

Another important argument for the elaboration and implementation of integrated regionalcross border development policies is concerning the necessity to overcome the existing gap betweenthe economic levels and life standards in its constitutive micro -regions. The integration of lessdeveloped territorial-economical units in the economic activities system of the larger regions canprovide them important incentives and stimula for catching up. In the same time, integrated regionaleconomic, social, labor market and migration policies would allow for the implementation ofspecial development strategies designed for the needs of the less developed areas. In this way allterritorial micro-units belonging to the region can be supported to find and fulfill the economicfunctions best suited to them, in accordance with the principle of subsidiarity.

In the Ukrainian border region – and to less extent also in the areas belonging to Romania -the collapse of industrial enterprises and the resulting huge unemployment forced many people tosearch for sources of income in Hungary.

Today has become a political urgency to identify the resources and possibilities of regionalcross border cooperation in the field of labor migra tion. In order to prepare the ground for this, thereis a need for specifically designed institutional system, regulations and programs. This requires thejoint effort of local, regional and national governments. While the most important work has to bedone by the political and civil elite of the concerned region, the strong involvement of the centralgovernments in the process is also necessary, the more so as the political and administrativesystems, at least of Romania and Ukraine, still have strong cent ralist features.


48

A document issued by the European Union on July 1, 2003 suggests a mechanism forharmonization of the projects INTERREG, PHARE -CBC, TACIS-CBC, CARDS, MEDA aimed atstirring up cross-border co-operation offering the budget for financing of the programmes (newneighbourliness programmes) in the amount of 955 million Euro, out of which 95 million Euroallocated for TACIS (the programme that directly applies to Ukraine as well) for the period 2004 -2006 years.

Regional policy puts into practice the solidarity between the peoples of Europe mentioned inthe preamble to the Treaty on European Union. It helps to achieve one of the fundamentalobjectives laid down in the Treaty: the strengthening of the EU’s economic and social cohesion byreducing developmental disparities betwee its regions. It has a significant impact on thecompetitiveness of the regions and on the living conditions of their inhabitants, mainly by co-financing multi-annual development programmes.

These programmes are supported by four Structural Funds: the European RegionalDevelopment Fund (ERDF) for infrastructures and investments, generating jobs and SMEs; theEuropean Social Fund (ESF) for training, social integration and employment; the EuropeanAgricultural Guidance and Guara ntee Fund (EAGGF, Guidance Section) for rural development andaid to farms; and the Financial Instrument for Fisheries Guidance (FIFG) for the adaptation of the fisheries sector. The Cohesion Fund supports environmental and transport projects in the leastprosperous Member States.

5. CONCLUSIONS

While the share of services in the economy is growing, industry makes an essentialcontribution to Europe’sprosperity. Industry is, moreover, increasingly enmeshed with services andcontributes to their developme nt. European industry is clearly making encouraging achievementsand its progress in the environmental field and in some technological sectors is widelyacknowledged. Nevertheless, it is now facing major challenges, some of which come from within(increasingly rapid technological development, skills gaps), while others are external (society’sexpectations regarding consumer, environmental and health protection) and yet others international(the emergence of new global competitors).

Beyond policies aimed at enhancing innovation and entrepreneurship, which are two majordrivers of competitiveness, many other EU policies also have an impact on the businessenvironment and enterprise performance. All horizontal policies — i.e. regional policy,competition, trade, taxation, etc. — should make the best possible contribution to competitivenessin addition to pursuing their own, specific objectives.

REFERENCES:

[1] Bal, Ana, Acorduri de asociere a ţărilor est -europene la Uniunea Europeană, Ed.A.S.E., Bucureşti, 1995

[2] Costariol, M., The Development of the SME Sector in Romania , CNA Veneto&Euro-In-Library, Venice 2003

[3] Frateschi, C., The SME Factor in the Romanian Tra nsition, in The Small and Medium-Sized Enterprises in the Transition Process.the Case of Romania, CNA Veneto&Euro -In-Library,Venice 2003

[4] Goldenberg Vaida, V. , Funding of Capital Investments in Romania , Open SocietyInstitute, Budapest, 2004

[5] Nedelea, Al., Regionalization, Regional Development and Cooperation in EasternEurope, Economy and Transition, Albanian Center of Economic Research, no. 3 /2005, Tirana


49

[6] Szilagyi, G., Harmonization of regional economic and social policies within theromanian-hungarian-ukrainian border area , www.policy.hu

[7] World Bank, 2004, ”Romania: Country Economic Memorandum; Restructuring for EUIntegration – The Policy Agenda”

[8] Lecat, J., Public Utilities Liberalization a nd Romanian Accession to the EU , Pre-accession Impact Studies, Institutul European din România, 2002

[9] Stucki, E., Le developpement équilibré du monde rurale en Europe , Sauvegarde de lanature, nr. 58/1992

[10] www.europa.eu

www.policy.hu

www.europa.eu


50

SOCIAL PROTECTION AND THE CONFLICTUAL REALITY FROM ECONOMY

Assistant Ph.D. Student Gabriela-Liliana CIOBAN„Stefan cel Mare” University of Suceava, Romania

[email protected]

Abstract:The social protection reform is in full process of development, taking into account the r eal situations from our

country, in this way it were adopted some measurements regarding this issue. It was introduced after 1990 economicalreforms, which contributed to the public administration’s system modernity, the economy freelance and thedecentralization of the decisional process, but there are still some fundamental economical issues unresolved. Romanianeeds an active social protection. This means that yearly, the public expenses, but also the private ones for the socialprotection must be raised. The state that practice social policies would be a successful project if people had the proudand the morality to base on themselves and not on the others ‘help unless they really need it that. The Romanian statemust gradually allot resources for the de velopment of the human capital and for programs of professionalredeployment. Social protection means to sustain a perpetual process of qualifications and re -qualifications of thelabor force, that the credibility of our citizens to constitute a tramp on t he European work market. The European socialdemocracy managed to offer viable solutions to the economical environment development in accordance with thepromotion of social policies, very consistent with the purpose to integrate the weak social categories on a work marketof a continuum transformation.

Key words: social protection, social inclusion, solidarities, economic agents, occidental mentalities

1. INTRODUCTION

The main objective of the social protection is to help the needy ones to integrate in a normallife of society, to help them to be part of the active work, to ease them at some risks they have (e.g.illnesses, invalidity, handicap, old age, family with many children, demise, unemployment,students, family with smaller income, etc.). Soc ial protection does not mean only living conditions(labor force occupancy, the incomes, the consumes, the dwellings, the environment, etc) but alsothe social conditions as health, instruction and education, culture, conditions of recreation andleisure, the socio-political environment, the social order reorganization and that of right.

Having the problem, on what bases we can offer the people the right to benefice the socialprotection or to whom is the responsibility to ensure it we will find the follow ing responsible:family is the one that have to ensure the solidarity between generations, charity assistance (thechurch, privets) ensure help for the poor, mutual help associations and the most important is THESTATE.

T.H. Marshall realizes the analyzes of this idea, starting with the economist Alfred Marshall’sideas, that, in the last part of the 19 th century had a study on the laborer class problems. Heconsidered that through science and the raise of the economy all the people will become educated,civilized persons, some gentlemen. According to his theory and calculations these results could betangible.

T.H. Marshall, in his book “The Citizenship and Social Class” (Editor UniversităţiiCambridge, 1950) suggested that the citizenship could be effecti ve only when it ensures the accessto three main types of rights. The author identified three components of the citizenship:

- The civil component that includes the rights regarding the individual freedom;- The political component – e.g., the right to participate in practicing the political power and to

vote and to be elected in parliamentary institutions;- The social component, “the whole range of rights, from the right to a minimum economical

and security well-being [social] to the right to equally be nefit of the social patrimony and to live asa civilized person according to the predominant standards from a society. The most tied institutionsof this are the educational system and the social services” (T.H. Marshall, 1950, p.8).

[email protected]


51

The citizenship means in the same time a statute and a role. As a juridical and political statute,the citizenship means a variety of rights and liberties, which the state offers to his citizens, abalance between rights and deeds, a civically contract between state and the cit izen – as a subject ofthe right, legal norms which defines the affiliation to a political organism, the citizen’s loyalty to thestate which protects and grants him civically rights, the access assurance to the public life and thecivically participation.

As a social role, the citizenship represents one of the individual identity and presuppose thedevelopment of certain competences or of a civically culture which makes possible the effectivepractice of the citizen statute.

Some elements have proven to be essential for the social component of the citizen statute:- School: the rights to education is granted to the pupils which are not exactly citizens

because through education is formed the future adult, the future citizen. Moreover the civilian rightis combined with the public duty to exercise because parents and children could not value the socialimportance of the education. (Marshall, 1950).

- Health services and the dwellings gained importance because of the citizen needs andstate is implied in its supply.

- The guaranteed minimum income necessary for the basic needs of the citizens. The stateoffered not only a minimum of services (education, health, dwellings) but also some currency toensure the essential goods (retired pay, help for the needy person s and unemployment help) thosemoney benefices from the assurance and social assistance.

As a social role, the citizenship represents one of the persons identity and presupposes thedevelopment of some competences of some civically culture which make poss ible the effectivepractice of the citizen statute.

2. SOCIAL PROTECTION A NECESSITY FOR ROMANIA

For appliance and substantiation of the social protection measurements, the Romanian statehas respected the Romanian Constitution stipulations regarding th e human rights, as well as otherprinciples among them we mention: “ the protection of human dignity, the universality of the socialprotection measurements, the promotion of the solidarity and social justice principles, thepromotion of the social partner ship as a central mean and to make efficient all political and socialprotection measurements, the gradual pass to the decentralization and with this, the attraction tothe social protection activity to the economic agents, some local administrations, gove rnmental andnongovernmental institutions , the charity society and physical persons with money contributions ina legal framework.” (1).

The solution for the administrative problems of the social protection system, of social politicsreform, of social program efficiency remain the Government responsibility (helped by theParliament and in a smaller manner by the Presidency as institutions that participate at the ruleprocess) this influencing decisively the social politics orientation through: rule progra m; managerialand decisional competences; professional competence.

Romania needs an active social protection. This means that yearly, the public expenses, butalso the private ones for the social protection must be raised. But T ăriceanu Government allotted tothe social protection budget for 2007 only 10% of PIB. So, Romania is on last place in the EUcountries top regarding the social protection. In the following years to must have 20 -25% from PIBfor this, but to reach this target Romania needs a competitive economy. On the other hand thecompetitiveness is tied up by the state resources allotted by the state for the development of somevital segments as the research, the education and the infrastructure.

The Romanian state must gradually allot resources for the development of the human capitaland for programs of professional redeployment. Social protection means to sustain a perpetualprocess of qualifications and re -qualifications of the labor force, that the credibility of o ur citizensto constitute a tramp on the European work market. The European social democracy managed tooffer viable solutions to the economical environment development in accordance with the


52

promotion of social policies, very consistent with the purpose t o integrate the weak social categorieson a work market of a continuum transformation.

The state that practice social policies would be a successful project if people had the proudand the morality to base on themselves and not on the others ‘help un less they really need it that.But people is changing and the benefits that the state offers through social protection denudeconsciences and makes the decent morality to be less and this conclusion is granted over 2 decadesof market economy. The present generations have a new moral based on the “rights” offered by thesocial protection system, some of them being an “invention” of today. The ancient truth, theproduction conditions the consumption, is replaced by the belief that there is an undeniable huma nright of the social protection services offered by the state. Through the unions, the employers arerecompensed every time when is an opportunity to ask (elections, the beginning of the school year,changing the governors) remuneration raise disrespect o f the real productivity level, but in timethese raise seems to be a normal situation. Those that do not receive a remuneration raise considerthat the employer is bad deliberate. O person has the right to a better salary next year, as well as thisyear salary is better then the last year one. This is the today mentality. This thinking modification isthe result of a change in the value system. There is no cause in the social life. Whatever you do,this is not your responsibility but of the government, of the employer or of the state institutions. Thegeneration gap is now very obvious but few people “recognize” it. The nowadays people were notraised and educated by the parents but by the protectionist state in some nurseries, borders and thenredirected to public schools, high schools, universities. After their studies, one of us, we engaged inthe public sector and we were the beneficiaries of the educational programs due to the baby sitter -state social protection programs. The state is omnipresent and f or some is the only way of surviving,and the economical and social benefices, which derive from this, are the only possible way to gainindependence.

But the oldest are not the only one to be found at the periphery of this new type of societywhere the state is in charge of everything. This too is happening to the children, which are taken orraised (precarious conditions of growing them by the parents) by the state instead of their parentscare. The teachers and the educators confronted their children’s parents, which demand that,something to be done with their unpleasant social situation. The problems caused at home by thenaughty children and escaped from the parental guidance must be resolved in schools by theteacher‘s staff or by TV through educatio nal programs having most of the time a bad quality. Thechildren must be seen not heard and they have not interrupted their parents from their careers, longholidays abroad and modern’s events. To allow the older generation to work and to create well -being which must be taxed (the taxes rate is now about 62,126% from the income, employer andemployee) the state launches all the time social programs to protect them from incidents andproblems. This freedom is careless and without problems being offered by th e baby-sitter state. Wedo not a have a place to work, we can not find something suitable for you, no problem, we complainto the state and this will assure us the minimum income offered guaranteed by the social income. Itis a personal tragedy for many Ro manians. It is impossible to feel free and independent, to enjoylife, without having the ways to control your own life. The protectionist state created a dependenthuman being that cannot find the valuable in life; moreover, he is incapable to know typica llyhuman feelings as pride, honor and empathy. The way of administrate and resolve of the socialproblems promoted by the state creates tensions and antipathy between people from different socialor professional backgrounds. The state seems to be incapabl e to see (or it does not want to see) theproblem or to find a solution.

3. THE NECESSARY FISCAL SYSTEM REFORM TO THE ECONOMICALDEVELOPMENT

The companies have as a purpose, according to the Romanian fiscal legislation, not the raiseof the profitability and productivity, but the social protection, form the latest stadium of the WorldBank (BM) „Doing Business in 2007”. Approximate 40% of the brut profit of a company represents


53

contributions to the social assurance, health and unemployment, taxes for labor booksadministration or assurances for work accidents. As a sum, half of the brut profit of a firm takes theroad to the general consolidate budget. Although all these contributions must return as benefices tothe companies’ employers, this is not th e case – the pensions are low, the health services aredisastrous. There is a simple reason – the state is not a bad administrator, but a distributor ofpoorness. As the American president Calvin Coolidge observes, “Nothing is more easier thenspending public money. These seem to belong to no one. The irresistible temptation is to give it tosomeone”. The present government gained the elections promising a fiscal system reform. Itintroduced the unique quota of 16% tax, giving up the progressive income tax, it lower the profit taxfrom 25% to 16%. It followed a fiscal contra –revolution: it raised the propriety tax. Moreover, byinvoking the fiscal equity principle, it raised the dividend tax to 16%, as well as the one involvingtransactions with capital goods, ignoring the effect of these increased tax over the economical raise.In fact, these fiscal “revolutions” and “contra -revolutions” were done by the ear, withouteffectuating impact studies. The discussion regarding the effects, positive (the power clai ms),negative, (beliefs the oppositions) of the fiscal reform over the economy shows a mentality of asimple account, based only on the analyses of the main statistics indicators on short terms. Theproof – the most burdening fiscal way, that on the labor force it remains almost unchangeable, beingdecreased the contributions to the social assurances, health or unemployment by only 2% from49,5% to 47,5%. In exchange there is a tax of 0,75% to administrate the workbooks and a variablecontribution, between 0,5% and 4%, for the workers’ protection against the work accidents.

The World Bank research shows us the real ponder of different tax, income tax andcontributions to the brut profit of a company. Even though the profit tax was reduced by 9 %, from25% to 16%, the total sum of the taxes paid by the company, not the employers, in the brut profit,has decreased over 2004 with only 2,2% from 51,1% to 48,9%. The reason - a company firstly paysthe contributions to the social assurance budget, health, etc, and then the profit taxes. That is waythis tribute of 16%, is in reality of 9,3%, in the brut profit. In exchange, the different contributionspaid by the employee for each employer is 38,6% of the brut profit. The World Bank is not takinginto account unless the minimum wage for the accidents of 0,5% of brut wages. But it can reach to4%, depending on the dangerous grade of the activity domain. The World Bank also ignore the factthat the buildings taxes with commercial character hold by juridical persons wil l be some hugeones, by 100 times bigger then those hold by physical persons, being calculated at the market priceand not at a fixed value, contained in the Fiscal Code. Then its weight in the brut profit of thecompanies should be bigger, probably the tr ibute weight in the brut profit being more then 50%.

Instead of following some states with liberal economy, Romania preferred the road ofsocialism, of the assistance state. In the WB top of the countries where the companies are obligedto make social protection, Romania states on the 7 th place, in a selected company. This is not asurprise, on the first three places there are countries with a powerful socialist tradition, Belgium(57,3% contributions in the brut profit of the company), France (54,9%) and Italy (48,2%).According to the numbers, we are not surprised by the Russian dissident’s observation, VladimirBukovki “the socialism became an integrant part of the occidental mentality. There is enough toread the newspapers, disrespect of the tendency t o realize that from now one the industries do notbelong to produce. Their main reason is to create work placements”. Work placements and socialprotection, complete the WB study. Although the contributions are meant to be direct proportionatewith the benefits, besides that of taxes and incomes. But from the moment when on a flyer appears acontribution with only 17& of the brut wages, a payer can not estimate if the medical services or thereceived pension is or not proportionate with the paid sums in doz ens of work years. The reason-much more the company pays for an employer, almost double. And those 30% of the brut wages ofthe employer acquitted to the state by the company goes to the same pot.

„The public illusions makers”, which makes the companies to deal with the social assistance,ignores the fact that the market is the one that attenuates the best the unemployment rate. MiltonFriedman characterized the American economy by saying “ The long term solution of theunemployment is encouraging people i n their trial to make savings, to invest, to work and to employ


54

other people. In exchange, we raise the costs, which a patron had to pay for hiring people; weaccord subventions to people not to work. As a conclusion we have a system that tax aggressivelywork and subsidize non work”. The Friedman’s critics addressed to an economy where thecontributions part at the brut profit are only of 10,1% and not 38,6% as in Romania.

From the WB statistics we know that on long term the economical laws have the last word.All the rhetoric for the social assistance for the citizens well being is infirmed by the reality. Thestate governors that embraced the socialism are envious to the other countries GDP for inhabitants,countries that respect the companies’ economy and the assistant.

From the first 10 states using the GDP for each inhabitant, only one has a social contributionin the net profit resembling ours, Suede, with 38%. Next we find Finland with 29,6%. But the first 5states as a developed well being of the p opulation has reduced ponders: Norway (16,3%), Island(13,7%), Switzerland (11,5%), USA (10,1%) and Denmark (2,2%). The data confirms a very tiedconnection between the work tax and the suburb economy, comparing that between the income taxand gray economy. The Northern states with large amount of social expenses in the brut profit havealso increased suburb economies. Suede, Norway and Finland, have gray economies of 19%,whereas USA or Switzerland – only 8,8% of the total economy. In spite of reducing the income taxand those on the profit to 16%, Romania with assistance expenses of 38,6% has a suburb economyof 34,4%. It is very logical why a firm manager to be very reticent to legalize his affair, as long asdue to the “fiscal reform” it has a reduction for taxes, incomes and contributions by 2,2% of the brutprofit, and not 9% as the governors say.

The taxes, the incomes and the paid contributions by the companies are vice versaproportionate with the economical raise, the WB data also says. Italy (wit h 76% of brut profit tax),Belgium (70,1%) and France (68,2%) have an economical raise in 2005 of 0,1%, 1,2%, respective1,2%. Instead Island and Ireland, with 25% profit, had raises of 5,5%. The Central and East EuropeStates had beneficiated with bigger GDP due to their sub-development. The disparity between theeffective and potential GDP conform the theory that stipulates the lower taxes lead to a betterperformance. Whereas France, Germany and Italy had in 2005 a disparity of 2%, the Ireland’s GDPhas risen with 0,2% more then the potential one and Great Britain has situated under this with only0,3%.

The structure of the workforce taxation approaches the Romanian liberal government to thesocialist Suede more then the liberal Ireland. In the last cen tury 70’s, Ireland was “competing” withPortugal, the poorest country of the EU. His GDP on inhabitant was appreciatively 30% lower thenthe EU media. Tied up by the bankruptcy the country was in, the Irish developed reforms andreduced the general level of the taxes to one closest to the preference one, accorded to the firmsfrom special zones, and in the end it balanced the firm’s taxation to 12,5%. Doing that Irelandbecame one of the countries with the smallest fiscal burden from EU (31% of GDP, Europea nmedia of 50%). It also reduced the health expenses with 6%, education expenses with 7%, theagriculture had a smaller budget with 18%, the military expenses have been reduced with 7%, andthe roads and the dwellings have beneficiated by smaller funds wit h 11%. The result – while inSuede the GDP on inhabitants stagnates at 115% of EU media, the Ireland’s one had advanced in 20years, from 70 to 140% of EU media. The economical raise from 2005 was of 2,75 % in Suede and5,5% in Ireland.

On 19th February 2007 the European Commission has adopted the proposal of CommonAnnual Report regarding The Social Protection and the Social Inclusion, in order to be approved bythe state presidents and governs from EU. The Report is a sum of recommendations to the memberstates, which forms directive lines in the social domain for the next two years.

Based on the numbers stipulated by Euro stat in his social studies, on national reports andstrategies of social protection and inclusion from all the member states, the repor t makes aradiology of the social domain in Europe, including annexes referring to each of the 27 statesmember. This is the first time when all the states members present to the European Commissionintegrate national reports over the strategies involving the social integration, the pensions, thesanitary system and care, on long terms.


55

What says Euro-stat? The smallest percent of population that liver under the living conditionsis 9-10% in Suede or Czech, whereas the biggest one over 21% in Portugal or S lovakia. If therewere not social assistance services, where the pensions are not included, being considered incomes,the percentages would raise from 16% to 25% for the entire EU. Romania, with the preexistentsocial services, reduces its poorest populati on from 22% to 17%, Greece from 24% to 21%, Czechfrom 21% to 8% - the most spectacular reduction, as well as the northern state with 60%. As amedia, the states member of the EU spend about 28% GDP for the social services and 13% of GDPfor pensions.

Euro stat also shows that 10% of the EU citizens are living in a place where no one works.9,5% of the European children are living in such a place. All the European statistics over the socialinclusion reveals that the most exposed to the poorness risks are the children. The numbers differfrom state to state: in Cyprus or Luxemburg only 5% of the families live as unemployed, whereas inPoland and Belgium we find 13%. But the record is for Great Britain and Poland. Romania has 11%being on the same scale with Slovakia, France or Germany.

The European Commission draws his attention on his report over these discrepancies betweenthe state members and his life expectance. In Suede the life expectance is form men 78,4 years,Lithuania 65,4 years. Romania has the smallest life expectance for women from the EU, only 75,4years, but in Spain is 83,9 years. The same discrepancies are between the resources given by thestates members for health: Estonia spends only 5,5% of GDP whereas Germany 10,9% of GDP.

In 10 years, 1995-2005, the life expectance has grown with 3 years for men and 2 for womenall over the Europe. A positive aspect is also the fact that the pensions systems form the statesmember of the EU were able in 2004 to eliminate the poverty from the pensio ners, people over 65years old, with an income of about 85% from the youngest.

According to the European Syndicate Confederation, were Romania took part from 2000, inevery member state the minimum wage must represent half of the medium wage, exception Fra ncewith 60%. In our country the situation is not exactly the same. The problem is the corroboration ofthree aspects: minimum wage, its proportion with the medium wage and CCM coefficients. But forthis we need a better vision of the Work Minister, double d by a long-term strategy in this domain.But both of them are really missing. We have a country with an oldest population and the pensionsproblem will become more assiduous while the work force migration is still continuing. On a longterm leads to the raise of the fiscal grade. On short term will suffer the productivity, the efficiency,the product quality, and the Romanian work force will become a potential target for the poorest’countries’ citizens. The solution is here but (pay attention!) . The problems are not solvedpunctually and/ or in a fire manner, but negotiating with all interested parts. We speak in vain of thenational interest if we treat these aspects from adverse positions. It is a mutual interest and if wecannot deal with these problems, we will regret sooner or later.

4. CONCLUSIONS

The social protection system tries to realize a redistribution of the material and humanresources of the collectivity to the unable category of the population on the intergenerationalsolidarity principle, the youngsters solidarity to the oldest one, the employees’ solidarity versus theunemployed ones, the healthy versus sick people solidarity, those with children versus those whodon’t have, those with great incomes versus those with lower ones, etc.

The social system in Romania has proved to be inefficient, regarded as the effort/ effectreport because the most important part of the population is at the poorest level, and the actual socialprotection system can not, and it doesn’t have all the necessa ry financial resources to sustain thesocial protection of all the needy ones, to not underline more the negative effects there arecontinuous efforts from the state institution to improve the social protection system.


56

NOTES:

(1) Romanian Constitution

REFERENCES:

[1] Marian Preda, Politica Socială Românească Între Sărăcie Şi Globalizare , EdituraPolirom, Iaşi, 2007

[2] T.H. Marshall, Citizenship and Social Class (“Cetăţenia şi clasa socială”), EdituraUniversităţii Cambridge, 1950

[3] Revista Cadran Politic nr. 51 şi nr. 52, 2007


57

THE STATE OF LEGAL MARKETING IN LATIN AMERICA

Junior Research Worker Elina ZABOLOTNABukovyna State Finance Academy, Chernivtsy, Ukraine

Abstract:Legal marketing has unquestionably become an international phenomenon. While some argue that ‘marketing’

has always existed, defining it as a combination of actions which have to be executed prior to the undertaking of sellingactivities, the last 30 years have seen the purposive and organized advent of deliberate legal marketing activity. Distinctchanges in the global political, economic, social, and technological environment, such as deregulation, increasingclient expectations, and new information technology have resulted in a significantly changed, increasingly competitivemarketplace that forces law firms to compe te in new ways. Traditional conduct and approach no longer guaranteessuccess and survival. Adopting a strong client orientation and being aware of the competition becomes fundamental tothe success of the firm. Hence the idea of actively marketing a law f irm’s practice has started to spread widelythroughout the world despite many attorneys’ acknowledged aversion towards marketing.

Key words: legal marketing, Latin America, firm, competition

1. INTRODUCTION

Legal marketing in the largest economies in La tin America ranges from just emerging torelatively sophisticated. Due to each country’s unique cultural and ethnic background, stage ofeconomic development, regulatory restrictions, and competitive situation, law firms approachmarketing with different urgencies and apply different instruments. Rolling out legal marketing inoffices throughout the region in a cookie -cutter “Latin American-style” is likely to be a mistake.Despite findings that might appear relatively similar at first glance, the foreign l awyer and marketershould be aware that effective instruments in one country might be detrimental - or forbidden - inanother one, instruments deemed acceptable and effective in one may face rejection by lawyers andclients in another. Due to the relative newness of legal marketing, formal, coordinated strategicmarketing activity is generally at an early stage and will likely change as the interest for legalmarketing grows in the region. Almost a third of the largest firms in the respective markets do notyet employ a full-time marketer. Where they exist, marketing departments tend to be very smallwith tight budgets and marketers generally have little decisionmaking power. Networking amonglegal marketers has just begun, with newly created online and offl ine groups in Brazil, Peru, andChile. Despite the shared language, the amount of legal marketing content generated in the Spanish -speaking part of Latin America region is smaller than the Brazilian content in Portuguese. On thepositive side, the survey found that lawyers typically deem marketing as “important” or even “veryimportant” for their firm and just over half of the firms have strategic marketing plans. Like otherjurisdictions that experienced the unfolding and establishment of marketing in the legal profession,it is likely that firms in Latin America will gradually move from the current focus on tacticalcommunications and promotion activities by lawyers to more sophisticated, strategic activitiescarried out by seasoned marketing specialists i n growing marketing departments.

2. THE STATE OF LEGAL MARKETING

Marketers can help accelerate this process and earn their seat at the table by demonstratingthat legal marketing is not a management fad that evolves only around enhancing a firm’s visibi lityin the market, but a necessary focus on clients’ needs that results in an improved competitiveness ofthe firm. Instead of solely quantifying marketing efforts, firms will also have to measure thequalitative effects of marketing, which will emphasize results, establish marketing credibility, andincrease the probability of commitment from the lawyers. A number of respondents stated that localbar association rules forbid some marketing and promotional activities, which without any doubt


58

challenge the creativity of the lawyers and marketers. It has to be kept in mind, however, that noneof the bar associations forbid or regulate the immensely powerful marketing tools of relationshipdevelopment and word-of-mouth. Marketing needs to become an integral pa rt of the professionalculture of lawyers instead of being seen as an extra or optional task, for which lawyers will have tointerrupt their normal work.

This research is based on a quantitative study which was carried out between June andAugust 2007 among leading law firms in the seven largest Latin American economies: Argentina,Brazil, Chile, Colombia, Mexico, Peru, and Venezuela. Based on the 2006 figures from theInternational Monetary Fund (www.imf.org), these countries combined amount to almost 91 p ercentof the total GDP at current prices in Latin America. Those participating in the survey comprise asample of the leading corporate and M&A law firms in the respective national markets. The firmswere identified in terms of size and reputation/recogni tion. In Brazil, law firms were selected from:Análise Advocacia - Anuário os Mais Admirados do Direito 2006 (ranking of the 150 leadingBrazilian law firms); Valor Análise Setorial - Escritórios de Advocacia (study of the Brazilian legalmarket by a major business newspaper); and Latin Lawyer 250. Firms in Argentina, Chile,Colombia, Mexico, Peru, and Venezuela were identified in the following directories: Chambers andPartners; PLC “Which Lawyer?”; Latin Lawyer 250; Lexis -Nexis Martindale-Hubbell LawyerLocator; and Migalhas Tour Jurídico (a Brazilian legal news web site with information for LatinAmerican and Caribbean countries).The research was conducted through a web -based survey - inPortuguese for Brazil and in Spanish for the other countries. A tota l of 86 firms responded to thesurvey out of 388 law firms that were selected and invited to participate, equaling a response rate of22 percent. Brazil had the highest national response rate among all participating countries (40percent) and represented 59 percent of all received responses, possibly showing a greater interest.

A third of the firms participating in the study have 50 or more lawyers, and slightly less thantwo thirds have between ten and 49 lawyers. While the trend in Latin America points to wardsincreasing law firm size, firms still tend to be smaller than US firms. As a comparison, around 30firms in the region have 100 or more lawyers.

In line with many firms not employing full -time marketers, 59 percent of respondents in thestudy are lawyers, with most of them being partners in their respective firms. Of the totalrespondents, 26 percent are partners and 28 percent are managing or senior partners. Othermanagement positions account for 27 percent in the survey, of which 12 percent represe nt puremarketing or business development management positions.

While the findings of this study do not claim to be confidently projectable to the populationof all Latin American law firms, they are likely to be representative of the status quo and highlightcurrent developments among the leading law firms in Latin America that have started to embracemarketing and were wiling to share their experiences.

Formal law firm marketing in Latin America is a relatively recent phenomenon. Mostleading firms started about ten years ago, in the late 1990s. Some pioneering firms –few and farbetween- surprisingly stated that their firms began to market their services in the 1960s and 70s, atestimony to the fact that some lawyers accept the concept that marketing, for mal or not, is anintegral part of the business of a law firm. Because the number of participants from countries otherthan Brazil is less than ten in each case, country -specific findings should be considered directionaland suggestive – definitely not conclusive.

Venezuelan and Peruvian lawyers appeared particularly dedicated, as all responding firms inthe study from these countries rated marketing as either “very important” or “important”. This,however, might not necessary translate into active particip ation by lawyers in marketing activities,as some respondents pointed out that while lawyers should be the main force behind mostmarketing actions, they often cite a lack of time preventing them from translating intentions intopractice.

Marketing departments in Latin American law firms are “generalist” and typically includecommunications, public relations, and business development activities.Compared to marketingdepartments in firms in the US they are rather small: 24 percent have one full -time marketer, 20

www.imf.org


59

percent have two-person departments, and while 28 percent of firms in the survey stated to havethree or more full-time marketing staff, near one third of the respondents (29 percent) do not have asingle full-time marketer. The two largest economies in the region, Brazil and Mexico, appear totypically have the largest marketing departments, with often four or more full -time staff members.Legal marketers in Colombia and Chile are most likely to work in one or two -person departments,whereas half of the Venezuelan law firms have one or two marketers. Law firms in Argentina andPeru were the least likely to have a full -time marketer, and typically put lawyers in charge ofmarketing.

3. PLANNING AND BUDGETING

Latin American firms tend to engage in mark eting planning, with 56 percent stating thatthey have a strategic marketing plan. Mexican, Colombian, and Chilean firms are rather likely toplan strategically, while Argentinean and Peruvian firms generally appear to prefer a more ad hocapproach to marketing. Firms in Brazil and Venezuela show no clear preference. A marketing planwithout an associated budget makes little sense, but interestingly, more firms budget theirmarketing expenses than maintain a strategic plan. Almost 62 percent of the respondi ng firms inLatin America stated they have a budget dedicated to marketing activities, but, of the total numberof responding firms who have a budget, 21 percent do not have an associated marketing plan. Onthe other hand, of the total number of responding firms that have a marketing plan, 15 percent carryit on without a budget.

Law firms in Peru, Colombia, and Chile appear to frequently have a marketing budget.Mexican and Brazilian firms had a slight preference for budgeting, while firms in Venezuela andArgentina were ambivalent regarding their decision to determine marketing spending in advance.Latin American law firms spend on average less than two percent of the firm’s annual revenue onmarketing, excluding personnel costs and marketing -related lawyer travel expenses. Depending onwhat items one includes in “marketing”, this percentage is somewhat less than marketing spendingfound by studies in other markets, such as the US. Interestingly, about a third of the respondingfirms from Mexico and Peru and a quarter of the Venezuelan firms stated they spend over 4 percentof their annual revenues on marketing activities.

DECISION MAKINGMarketing decision-making is still very much in lawyers’ hands. By and large, marketers do

not appear to have yet earned their “seat at the table”, as have many Chief Marketing Officers(CMOs) in firms in the US. The managing or senior partner typically makes the decisions regardingthe firm’s marketing plan and budget (60 percent). Less often, the marketing partner (15 per cent), amarketing committee (12 percent), or the marketing manager (3 percent) has decision -makingpower. Marketing partners appear important deciders in Peru, Mexico, and Brazil, marketingcommittees frequently decide in Venezuela and Brazil, and only in Venezuelan firms are marketingmanagers more frequently in charge of deciding marketing issues.

TRACKING TIMEAn important, albeit not sufficient prerequisite for successful marketing activities is the

quantification of efforts. An encouraging 53 percent of responding firms in Latin America keeptrack of their time spent on marketing and business development activities. Findings suggest someregional differences. Firms based in Colombia, Chile, Argentina, and Venezuela are rather likely tokeep track of lawyers’ time spent on marketing. Mexican and Brazilian law firms do not show aprevailing trend in regards to tracking time for marketing, while Peruvian lawyers are the leastlikely to track.


60

APPRAISAL AND COMPENSATIONMore than half of the responding firms in Latin America (58 percent) take the time spent on

marketing into account for lawyers’ appraisals and compensation. Such incentives are critical toensure the active and successful involvement of lawyers in marketing activities. Venezuelan andColombian lawyers are most likely to be appraised by and compensated for their marketing efforts,followed by firms in Mexico, Brazil, and Chile. Argentinean and Peruvian law firms do not show aclear trend in regards to appraising and compensating lawyers for their time spent on marketing.

MEASURING EFFECTIVENESSDespite the rather widespread practice of quantifying marketing efforts, the survey found

that law firms in Latin America typically do not measure the other – arguably more important –prerequisite of marketing: the effectiveness of their marketing activities. Only 33 percent ofrespondents reported that they measure the effectiveness of their marketing activities.

While measuring marketing in terms of activity is generally a useful first step, the ev olutionof marketing from a tactical activity to a strategic process demands proof of effectiveness.Comments from the participants in the study, however, suggest a lack of sensitivity to this issue.Marketing still appears to be perceived mostly as a cost due to the type of marketing activities used(e.g. promotions). It will likely take some time before 15 marketing evolves to a more strategicactivity that will be seen as an investment rather than a cost. Most likely to measure effects areChilean firms (44 percent), followed by firms in Brazil, Argentina, Colombia, Mexico, andVenezuela. No Peruvian firm in the study stated that they measure the effectiveness of marketing.

4. CONCLUSIONS

A somewhat different picture presents itself when asking the firm s about the most effectivelegal marketing instruments in their respective country/market. The firm’s web site is cited as themost effective tool by two thirds of the respondents, followed by newsletters (59 percent), firmevents (48 percent), and media r elations/public relations (47 percent). 17 While currently only usedby some firms, technology tools seem to have potential in the near future as they appear to be heldin higher esteem compared to their current use. Around 29 percent rated customer relati onshipmanagement (CRM) and 8 percent rated blogs as effective. Print tools, on the other hand, appear tobe commonly used, even though deemed as relatively less effective. Almost 27 percent believe inthe effectiveness of brochures, 26 percent in director y listings, and 14 percent in law firmadvertisements. While not – yet? – commonly used, the survey suggests that Latin American lawfirms believe marketing research/competitive intelligence, client satisfaction surveys, andmarketing/sales training of lawyers can be effective marketing tools.

REFERENCES:

[1] www.imf.org[2] www.sasktrade.sk.ca/conference/2002/pdf/presentations/rene_faraggi.pdf[3] www.marketingvox.com[4] www.corporate.canada.travel

www.imf.org

www.sasktrade.sk.ca/conference/2002/pdf/presentations/rene_faraggi.pdf

www.marketingvox.com

www.corporate.canada.travel


61

THE STRUCTURAL ANALYSIS OF MODERN ECONOMIC SYSTEMS

Associate Professor Ph. D. Zoya HALUSHKADepartment of Economics, Faculty of F inance and Economics

Bukovyna State Finance Academy, Chernivtsi, Ukraine

Abstract:Opportunities of application of general scientific methods for the analysis of structure of economic systems

in conditions of their transformation are studied. The special attention is given sociocultural to elements as factorwhich determines specificity of all social systems.

Key words: analysis, economic systems, social, structure

1. INTRODUCTION

As the important condition of the analysis transformation economy search of new tools ofresearch of essence of modern economic systems, specificities of mechanisms and laws of theirfunctioning acts on the basis of those approaches which exist in other sciences for the analysis ofany systems. It is considered, that the gener al theory of systems as a scientific direction hasappeared in the beginning of XX century. Russian scientist A.Bogdanov has put in pawn a ba sis ofthis direction in work "Tektology, or a general organizational science" (term belongs to L.Bertalanfi- "the General theory of systems" (1926г.) ). According to this theory, system in general namecomplete object which supports the existence and carries out the certain functions on the basis ofinteraction of its elements. The system is always considered as proce ss. As systems cooperate withtheir environment, it is necessary to study also organizational mechanisms - positive and negativefeedback. In fact, as writes A.Bogdanov, exists tektological the law: if the system will consist ofsubsystems of the supreme a nd lowest organization its behavior is determined by the secondsubsystem [quo. For 2, c.15-16].

The system is a complete object which supports the existence and functions thankinginteractions between elements. The system has own characteristics: 1) th e behavior of systemsdepends on the law of a composition; 2) a principle system hierarchy: the system will consist ofsubsystems and most is a subsystem of system more a high rank; 3) dynamic complexity: differentconditions of elements can change propert ies of system; 4) a principle of conformism: laws ofbehavior of systems - universal. It means, that studying system of the certain type, results of thisresearch can be distributed to all systems of similar type [3, 29].

Traditionally economic science st udied linear systems which properties do not change forthe period of change of their qualitative conditions. In linearly organized (promodelled) systemstructural elements have rights only on those qualities and properties which are del egated by itsystem as whole. "The world of linear systems is the world without alternative realism, the worldwithout a choice. Such the social validity from positions of totalitarianism for which and theanalytics, accordingly, is not necessary " also is imagined, - Ukrainian philosopher M.A.Ozhevanmarks. [5]. At the same time, value of linear modeling is hard for overestimating, as it enabled toanalyze critical modes of functioning of difficultly organized systems. Linearity very importantwhen is kept in time the certai n structure where communications between its elements arecounterbalanced. And on the contrary, the more the system comes nearer to conditions of aunbalance, in it nonlinear characteristics and the less in it of attributes lines especially accrue.

In second half XX item "the theory of chaos" or a nonlinear science which has receivedpractical application in parallel in many areas of a science (A.Puankare, A.Andronov, Kh.Uintni - inmathematics began to develop so -called; I.Prigozhin - in thermodynamics; E.Janch and M.Moiseev- in a history; L.Leskov - in modelling welfare processes). Scientists have understood, that theknowledge of the social validity should be enriched due to accumulation of the knowledge extracted


62

in other sciences. In dialogue of scien ces the new research paradigm is under construction today.Nonlinear there are those systems which properties significally depend on processes which in themoccur. The essence of nonlinearity will consist in because at change of the certain managingparameter there can be determined its critical condition, beginning from which the behavior ofsystem essentially changes. There is a line of characteristics of such systems: 1) Nonlinear systemsprovide not simply different, and alternative decisions which cann ot be realized simultaneously; 2)even minor alterations around of such points can lead to significant changes in behavior of system;3) qualitative the characteristic (attribute) of nonlinearity and criticality are shown in situationsnonbalans; 4) in open systems possible evolutionary no equilibrium processes which occuralternatively; 5) at the analysis socioeconomical systems the problem becomes complicated alsothat their development submits influences of subjective decisions.

The behavior of dynamic systems supposes instability, that is why presence of a problem ofunpredictability. An interval of time during which movement remains expected, name horizon ofvision. In conditions of instability the horizon of vision becomes finished. " Final horizon of visionand own time inherent not only to chaotic systems. They characteristic for any difficult objects,including what concern to socioeconomical spheres " - are rebuked by V.M.Kostjuk [2, 14 -17].

Scientists attach great importance to functions of chaos during self-organizing and self-management. It consider as: а) the factor of updating of the difficult organization; б) the mechanismof an output on one of tendencies from a spectrum potentially possible; в) a way of synchronizationof rates of evolution of subsystems inside difficult system and by that a way of preservation of itsintegrity; г) the factor of the adaptation to change of an environment; д) a way of preparation todifferent to variants of the future development [3, 146]. In connection with these characteristicsallocate rules which it is necessary to adhere at management in conditions of chaos: 1) theindignation should not be strong; 2) management should be extremely sensitive to a condition ofsystem; 3) it is important to establish, as fa r as freedom of actions should be limited duringinstability and, at last; 4) integrity of system should not be destroyed. The ratio between the orderand chaos, harmony and disharmony all time changes. Sometimes people accept the order more, butfor the majority of the human purposes the most useful is a degree of a muddle which changes. Thetask of management consists not in eradicating chaos, and in achieving a convenient ratio betweenthe order and a muddle.

As modern method of the analysis of the self -organized nonlinear systems the socialsynergetrics acts. Synergetical the approach develops at different schools which concern to differentareas of scientific knowledge.

The main idea of use sociosynerhetical the approach consists that the society is ex amined asopen system, but such, that has one real and many potential conditions. The society can pass fromreal in one of potential conditions. For its analysis bifurkatsy - a branching when the system is in acritical nonequilibrium condition, and the fu rther development can result very important conditionor in the new order, or to disintegration of the system. It is important to take into account alsointermediate conditions and processes which very much complicate procedure of forecasting ofdevelopment of social systems. If during the stable periods as the main tendency the determinism intransformation the periods the role of fluctuation (casual changes) very grows acts, and bifurkatsiacasual character has. Sociosynergetics brings to a focus to those aspects of a social reality which inclassical theories are examined as minor and to a case though, for example, in crisis situations theycan play a leaguing role. The social synergetrics today is the most substantial and promisingdirection of research of social systems as opens new aspects and new mechanisms of their research.

2 STATEMENT OF A TASK

Using general scientific approaches, each science including the economic theory, not shouldis artificial to search and garble the facts, aspiring to confi rm presence of all characteristics ofsystem in objects of the research. Such approaches give an analysis algorithm of systems and allowto understand internal interrelations and mechanisms of their development with the purpose of


63

studying ways of effective influence on this development and its possible alternatives as influenceof various internal and external factors. In economy such approaches should underlie economicthinking both on the equal states, and at a level of separate economic subjects. The pu rpose of thegiven research is revealing features of internal structure and mechanisms of development of modernsocial and economic systems on the basis of use of methods sociosunergetics.

3. RESULTS

Structural - sunergetical the approach enables to conn ect long-term tendencies and nonlinearchanges which have temporary character in research. During modernization the society receivesnew qualitative characteristics which change the previous structures and mechanisms of functioningof political institutes. If during the evolutionary periods prevail transhistorical tendencies during theperiods bifurcatsy there are processes of self-organizing.Any social system inherently represents concrete historical education which functions with adefinite purpose or assignment. Distinguish economic, political, information, ideological and othersystems which are formed at a level of public ability to live. Each of them acts as set of the orderedand structured elements and communications which have the different purpos es of the existence. Itis very important to analyze internal logic of system, proceeding from definition of its structuralelements and the mechanism of their interaction. For stationary systems (during balance) asstandard characteristics of system act: integrity or existence of such features which are not reducedto the sum of characteristics of separate elements; structure, presence of organizational structureswhich coordinate interrelation of separate elements; the self -regulation directed on preserva tion of aproof equilibrium condition; Complexity, i.e. presence of feedback; information or presence ofliaison channels and signaling between elements of system; dynamism, ability to adaptation in newconditions and also to development.

In an opposition of tendencies of conservatism and dynamism there is a development orchange of a society. Provide integrity of system its organizational structures, their coordination andcoordination. In case of disorganization of social system its integrity is lost, dee pen disproportions,social disagreements become aggravated, there a re conflicts which can lead to significant updatingor replacement of system.

In functioning any society there is a system of norms, rules, procedures, and alsomechanisms of their realiza tion, which structuring relations between people and the organizations.These are political and social and economic institutes which act as forms of social integration,determine "game rules", the order in a society. They authorize norms and structures of socialrelations, functions of the state structures, a range of the rights and duties of individuals, themechanism of interaction of manufacture and consumption, sadly developments and forms ofcoordination of public processes. At the same time, institute s in the certain measure pawn bordersof stability of the system, scales of possible changes, act as intrasystem "terminator" of socialchanges. The majority of scientists count, that specificity institution environments is determined bymaterial conditions of existence of a society. " Any social generality can be examined as theindustrial or economic mechanism which structure will consist that refers to as social and economicinstitutes. Such institutes are usual ways of realization of process of a public life in itscommunication with a material environment in which the alive society ", - writes T.Veblen [2, 204].In a modern science more popular opposite approach. For example, F.Fukujama, the knownAmerican sociologist, considers, that various social ins titutes are built on above family as theprimary tool socialization. " In family the person receives culture and habits which values allow toexist normally to it in a society and because of which and experience of this society are transferredfrom generation up to generation ", - it writes [6, 17].Historically informal rules of public behaviorwere gradually supplemented with artificial, formal institutes. Legislative norms, and alsoestablishments, mechanisms, the organizations which create with the purpo se of the control overobservance of these rules, act as result of subjective activity of people. They rather mobile in spaceand time, and their efficiency as historical experience testifies, depends on a measure of conformity


64

to informal institutes. So, formal and informal institutes behave differently - at different levels andwith different rates. As writes D.Nort, " if formal rules can be changed for one night informal normsusually change only gradually. But norms give "legitimacies" to system of rule s and consequentlyrevolutionary changes never are so revolutionary as that their supporters "[7] would aspire.

4. CONCLUSIONS

All elements of social system are connected among themselves direct and returninterdependent, mutually determine each other. T hey cannot be imagined as a pyramid in whichthere is a precise subordination of elements like of Marks models of a socioeconomic structurewhere there is a basis as interaction of productive forces and relations of production above whichthe cultural, legal, religious superstructure rises. We suggest to consider such structure of socialsystem in which base or superlinear elements as in real processes they also change behind a roleinside system are not allocated.

For social system characteristic all fe atures which are attributed to any systems. Howeversocial systems still have own characteristics which speak specificity of the most social subjects. Asthe main characteristic of society not the structure or a production efficiency of conditions ofexistence, and system of the values embodied in its culture nevertheless acts. It successes (failures)and specificity of those countries, where significant influence of cultural factors on formation of theeconomic order, political institutes, a policy and ide ology speak. The culture is determined as acomplex of base values which dominate over public system and have the purpose of the decision ofthe certain problems or achievement of definite purposes during human dialogue and humanactivity. Thanking this to values in economic system of a society the certain level of theorganization, coordination and management of development that is why the organizational cultureshould be investigated as one of the major factors of economic policy which really provides theeconomic order is provided.

BIBLIOGRAPHY:

[1] Веблен Т. Теория праздного класса. - М.: «Прогресс», 1984. с.204.[2] Костюк В.Н. Теория эволюции и социоэкономические процессы. - М.: Едиториал

УРСС, 2004.- 176с.[3] Курдюмов С.П., Князева Е.Н. Коэволюция сложных соци альных структур: баланс

доли самоорганизации и доли управления» // Материалы Первой международнойнаучно-практической конференции «Стратегии динамического развития России:единство самоорганизации и управления». Том 1. М.: «Проспект», 2004. - С.146-150.

[4] Лесков Л.В. Нелинейная теория динамики социально -экономических систем. М.:РАГМ, 2006.-78с.

[5] Ожеван М.А. Концептуальні підходи в соціально -політичній аналітиціhttp://www.niss.gov.ua/Table/Ostrog/008.htm.

[6] Фукуяма Ф. Доверие: социальные добродетели и путь к процветанию //пер. с англ.– М.: АСТ: ХРАНИТЕЛЬ, 2006. - 730с.

[7] North D. Economic Performance through Time // The American EconomicReview.1994.

http://www.niss.gov.ua/Table/Ostrog/008.htm


65

THE DYNAMICS OF THE EXTERIOR COMMERCE OF ROMANIA IN 2007

Lecturer Ph.D. Cecilia Irina RABONTUUniversity “Constantin Brancusi” of Tg -Jiu, Romania, Faculty of Economic Sciences

[email protected] Professor Ph.D. Amelia Georgiana BONCEA

University “Constantin Brancusi” of Tg -Jiu, Romania, Faculty of Economic [email protected]

Lecturer Ph.D. Marcel ROMANESCUUniversity “Constantin Brancusi” of Tg -Jiu, Romania, Faculty of Economic Sciences

Abstract:The superior rhythms registered by Romania’s exterior commerce in 2007, as com pared with the economical

increase, leaded to the increase of the commercial deficit, situation given by the acceleration of the imports in thedetriment of exports.

Keywords: The superior rhythms, exterior commerce in 2007, product exports, export structures leads

The superior rhythms registered by Romania’s exterior commerce in 2007, as comparedwith the economical increase, leaded to the increase of the commercial deficit, situation given bythe acceleration of the imports in the detriment of exports.

We can detect certain characteristics of the exterior commerce that can be synthesized asfollows:

1. the increase of the product exports with high incidental value, making reference hereto the specific products of car building industry;

2. the Romanian offer of capital goods was compatibilized with the external demand,aspect reflected in the accentuated dynamic of these goods’ exports;

3. the improvement of the Romanian export structures leads to a sure orientationtowards the developed countries, aspect due to the overall development of thestrategies, but especially to the increase level of the investments in the toptechnologies;

4. the concentration of the exports towards the main poles represented by Italy,Germany, France and Turkey registered a small amplitud e variation, representingalmost 50% from the total exports of Romania;

5. even though the imports were situated at a higher level and accentuated thecommercial deficit, a favorable part that consists in the material sustaining of theRomanian economy’s mode rnization also appears;

6. the factors that contributed to the increase of the imports in the analyzed period areresumed to: the exclusion of the customs in EU, the economical activity registered ahigh volume, the appreciation of the national currency contr ibuted to the cheapeningof the imports;

7. the localization of the deficit at the goods for the industry’s provision and at thecapital goods, that sustained the processes of restructuring, modernization andincrease of the economy in this period, potential generative of development, exportand new places of work;

8. the value of the commercial deficit in the first months of 2007 came to 7624,5million euros as compared with the same period of 2006 when it represented 2977million euros. This reveals the fact th at the commercial deficit was with 64,1%higher in 2007 as compared to 2006;

9. if we are to refer to the EU intra commercial deficit we can say that, according to theINS data, this one was of 5665,5 million euros, 94,9% higher as compared with the

[email protected]

[email protected]


66

same period in 2006, while the EU extra commercial deficit increased with only12,6%;

10. the majority of the negative balance realized per total was sustained in proportion of92,7% by the increase of the commercial deficit from Romania’s commerce with theEU countries;

11. inside of the exterior commerce of Romania, 71,8% was represented by thecommerce with the EU countries, fact retrievable in the commercial deficit also with74,3% from the total.

In order to sustain what we’ve said above, we present the following tabl e with the degree ofconcentration of the imports and exports in the period 2004 -2007 towards the main poles. We referhere to export partner countries: Italy, Germany, France and Turkey and import partner countries:Germany, Italy, Hungary and France.

Table no. 1. The degree of concentration of the imports and exports in the period 2004 -2007towards the main poles

Year Import value-%- Export value-%-2004 51,6 42,42005 48,6 39,52006 48,9 39,620071 49,7 46,2

Source: The National Committee of Prog nosis

Sustaining as well the previous affirmations, we will present hereinafter the situations ofRomania’s intra and extra EU exterior commerce. The evolution was the one rendered in the tablebellow:

Table no. 2. The situations of Romania’s intra and extra EU exterior commerce

-millions euros-Year The evolution of the Intra-EU exterior

commerceThe evolution of the Extra-EU exteriorcommerce

Import Export Balance Import Export Balance2006 10165,0 7258,0 -2907,0 4879,4 3139,6 -1739,9

2007 13987,2 8321,7 -5665,5 5353,7 3394,7 - 1959,0

Source: The National Committee of Prognosis

According to the data given by INS, in the first five months of 2007 the EU extra commercedetained a heft of 28,2% in the total exterior commerce of Romania, concentrating here 25,7% ofthe total commercial deficit. In the first months of 2007, the conditions of commerce werefavorable, aspect reflected as well in the evolution of the external commercial exchanges. This factcan be demonstrated by the fact that for an index of import unitary value of 102,3%, the exportregistered an index of the unitary value of 111,5%, resulting an index of exterior commerce (termsof trade) of 109,4%, the highest level reached in the last few years. Moreover, we can say that d ueto a commerce index of 107,2%, inferior to the average on economy, Romania’s exterior commercewith countries outside the European Community registered more favorable conditions thanRomania’s commerce with the European Union’s countries.

We can conclude that the total amount of exports registered a deceleration of the dynamic,given the fact that the exports towards the European Union’s countries remained constant ascompared with the imports which increased with 27,9% as total amount, and the ones from EU with34,5%.

1 First four months of 2007.


67

When it comes to the export of goods in the first few months of 2007, we can remark a fewmore relevant aspects, namely:

1. was registered an increase with 12,7% when compared to 2006, totalizing the valueof 11716,4 million euros;

2. March 2007 remarks itself through the highest value of the exports, that is 2,7million euros;

3. the monthly average value of the exports was of 2343,3 million euros, as comparedto 2079,5 million euros the value they represented in the first 5 months of 2006.

4. Romania’s exports towards the extra EU countries were localized in 2007 at thevalue of 3394,7 million euros, registering an increase of 8,2% when compared to2006;

5. the increase with 14,6% of the value of the exports towards the EU countries, is to befound in the absolute value of the exports towards these countries which is of 8321,7million euros. One can observe that the increase rhythm was superior with 2,0percentual points to the one realized overall and with 6,4 percentual points to theextra communitary one.

We consider that an analysis of the exports on product groups is relevant in the demarchecarried on in this paper, context in which we can say , on the basis of the data analyzed and gatheredfrom the sites of the National Statistics Institute and the one of the National Committee ofPrognosis, the following:

34,5% of the total exports in 2007, as compared to 29,4% in the previousyear, inheres to the specific products of the car building industry which inthis way detains the major heft;

Not very far, we can find the textile and skin industry with a heft of 19,5%and common metals and articles 17,5%;

Certain groups of products registered significant increases in 2007 ascompared to the average increase of the exports of 14,9%. We refer here tocommon metals and articles of this kind 37,0%; products of the car buildingindustry (including electrical engineering) 36,7%, agro -alimentary products28,6%, chemical and plastic industry products 26,8%. The exports of thearticles of stone, gypsum, cement, glass, ceramics 11,4% and products of thewood industry, paper (including furniture) 11,4% were situated under theaverage.

If we try a classification of the exports on destinations, we can affirm that the first 10receptor countries of the Romanian exports were :

Table no. 3. Classification of the Romanian exports on destinations

Country The heft in the total exports of Romania - %-Italy 18,0Germany 17,0 France 7,7Turkey 7,0Hungary 5,1Great Britain ; 4,4 Norway 3,3Austria 2,7Bulgaria 2,3Poland 2,1The cumulated heft of these countries 69,6

The imports had a dynamic evolution, with significant levels, given some aspects regardingthe necessity to continue the modernization of the productive apparatus of the economy, as well as


68

of the degree still unsatisfying of the coverage of the consumption demand from the internalproduction, implicitly determining supplementary imports of consumption goods. The evolution canbe synthetized as follows:

1. registered in 2007 an increase with 28,6% as compared to 2006, coming to the valueof 19340,9 million euros;

2. as compared to the monthly average value of 3009 million euros in 2006, in 2007this one was higher, namely 3868,9 million euros;

3. the level reached by the value of the extra EU imports is incr easing with 474,5million euros in 2007 as compared to 2006, reaching 5353,7 million euros;

4. the increase of 37,6% of the imports coming from EU in 2007 leaded to the reach ofthe value of 13987,2 million euros, value that represents 72% from the total numb erof imports realized by Romania.

The main characteristics of the good import structure in the first few months of 2007, forwhich there are detailed statistic data, refer to superior increases as compared to the averageincrease of 30,6% of the products such as common materials and articles of this kind with 70,7%;products of the car building industry (including electrical engineering) with 48,8%, products of thewood industry, paper (including furniture) with 37,1%, products of the chemical and plasticindustry with 35,2%, articles of stone, gypsum, cement, glass and ceramics with 34,9%. We alsoobserve increases of the under the average imports realized at: agro -alimentary products with23,1%; products of the textile and skin industry with 14,5%.

If we refer to other groups of goods, we can observe that the mineral products importregistered a decrease with 16,9%, and the products of the car building industry had a significantcontribution to the increase of the national imports with circa 56%.

We should also remark the fact that the capital goods that in 2006 registered an increaserhythm superior to the average with 5,8 percentual points, in the first months of 2007 these onesbeing situated with 27,8 percentual points above the total increase of the im ports (58,4% ascompared to 30,6%).

We hereinafter present the evolution of the CIF imports on basic classes from the NationalAccounts System (NAS) the percentual modification as compared to the corresponding period.

Table no. 4. The evolution of the CIF imports on basic classes from the National AccountsSystem (NAS) the percentual modification as compared to the corresponding period

YearBasic classes

2005 2006 2007

Capital goods 24 22,5 58,4Intermediary goods 21,2 25,2 22,0Consumption goods 21,2 22,3 29,9Goods that are notcomprised in the threeclasses

58,6 31,4 57,5

Source: INS DataFrom what we presented in the anterior table, we can deduct the fact that the intermediary

goods imports for production, as well as the ones of consumption goods registered increase rhythmssituated under the average, of 22,0%, respectively 29,9%.

Making a classification of the main poles from where Romania imports, which represent intotal 70,4% from the total realized in the first months of 2007, results the fol lowing situation:

Table no. 5. The main poles from where Romania imports

Country Heft in the total export of Romania - %-Germany 17,2Italy 13,4Hungary 7,1


69

France 6,5Russian Federation 6,3Turkey 5,6Austria 4,9Holland 3,7Poland 3,1China 2,5The cumulated heft of these countries 70,4

Taking as a starting point the analysis of the imports and exports realized by Romania, wecan also analyze Romania’s commercial balance that registered the highest deficits at products as“products of the car building industry”, with a deficit of 2648,8 million euros, increasing with68,8% as compared with the value registered in the corresponding period of the anterior yearcontributing to the increase of the total deficit with 50%, “mineral products ” with a deficit level of1040,6 million euros, superior with 6,1% to the value from the first months of 2006, “products ofthe chemical value”, increasing with 40,1%, registered a deficit of 1237,2 million euros, the deficit“agro-alimentary products” inc reased with 18,5%, reaching a value of 684,3 million euros.

Together with these aspects, we can also observe the commercial deficits on classes from theNational Accounts System, observing that in the case of the intermediary goods appears a deficit ofcirca 62% close accompanied by 33% at the capital goods. We can observe an inedited fact, namelythat the consumption goods are confronted with deficit, until 2007 over registering.

If we strictly refer to one or the other of the main partners of Romania, we can observe theexistence of the most significant values of the balance deficits of the commercial exchangesregistered in the case of Germany 1023,0 million euros, Russian Federation 819,2 million euros,Hungary 600,2 million euros and Austria 484,0 mill ion euros. Also deficits were registered withAsia-Oceania 602,8 million euros (the highest being on: China 332,2 million euros; South Correa149,5 million euros and Australia 46,0 million euros) and America 168,2 million euros (Brazil 55,9million euros; Canada 30,1 million euros). The only area on which was registered an over of theinternational commercial exchanges balance is Africa and the Nearby Orient, 306,2 million euros.

BIBLIOGRAPHY:

[1] www.insse.ro[2] www.cnp.ro

www.insse.ro


70

SECTION 2

MANAGEMENT AND BUSINESS

ADMINISTRATION

www.cnp.ro


71

APPRECIATIONS REGARDING EXTERNAL CAPITAL IN ROMANIAN ECONOMY INTHE SECOND HALF OF THE 19TH CENTURY AND THE FIRST TWO DECADES OF

THE 20TH CENTURY

Professor Ph.D. Maria MUREŞANAcademy of Economic Studies Bucharest, Romania

[email protected] Ph.D. Oana Mihaela VĂSIOIU

Ecological University of Bucharest, [email protected]

AbstractThe study with the mentioned title outlines the specifici ty of the Romanian world related to its level of

development and to the interest of foreign capital in capitalizing the potential of the Romanian economy. In the middleof the 19th century the foreign capital penetrates the Romanian economy only in form of some state loans awardedunder onerous conditions. In the second half of the 19th century, the foreign capital is present in the Romanianeconomy in form of direct investments in the large manufacturing industry but it has not a decisive role in theeconomical evolution of our country. Foreign capital manifested an extreme interest and was very present in the oilindustry, especially after passing the Mine Law in 1895. Thus, after approximately one decade and half from enactingthe mentioned law, the capital investments in the oil industry had the following structure: German – 39,3%, French –15,0%, Dutch – 10,1%, American – 6,8%, Italian – 6,1%, Belgian – 3,6%, English – 2,7%. In this structure, theRomanian capital owned 14,1%.

The accumulation of capital, which, in our country evolved under the circumstances mentioned and throughthe known methods, determined the gradual transformation of the market economy in a capitalist economy. Theshortage of own capital, accumulation of which was limited by the fac tors reminded above, offered the foreign capitalthe opportunity to penetrate the market and at the same time it imposed the resort to this one.

The foreign capital contributed as well to maintain the Romanian economy, in the context of its gearing intothe world’s economical circuit, in a status of a peripheral and dependent economy, movement of which took place alsounder the influence of foreign economical powers. Watched in time, the consequences of the foreign capital’spenetration represented a part of the cost of modernizing the Romanian economy.

Key words: External debt, foreign investments, Romanian oil industry, internal accumulation of capital, equaladvantages for Romanian and foreign investors, market economy, modernizing the Romanian econom y.

Unlike the economies of other countries, which from political point of view, benefited fromunitary states, the Romanian economy, on its way to modern development, was burden, first of allwith state crumbling and with the fact that all Romanian Hist orical Provinces were under suzeraintyand/or foreign government.

During the rivalries between the three vast surrounding empires – the Ottoman, the Russian,and the Austro-Hungarian – the Romanian countries represented the subject of dispute and milita ryoccupations. The frequent wars between the three vast empires were occasions for devastating theRomanian territory, generated uncertainty of fortunes and persons, permanent harassment of thepopulation, favored the arbitrary acts and corruption and the drawing out over the Romanianborders of important values. All these limited the internal accumulation of financial capital, capitalthat had to contribute to the development of the economy, especially to the development of lucrativeactivities. Two other phenomena, that clearly impeded the internal accumulation of financialcapital, can be added to the already mentioned ones, the Ottoman monopoly on the external trade ofthe Romanian countries and the late maintenance of feudal rapports which limited the juridicalliberty of the labor force and hindered the development of the internal market.

The Unification of the Principalities from 1859, the secularization of monastic assets, theemancipation and assignment of land to bondsmen in conformity to the Land Law from 1864 andafterwards the institutional reform, as well as the achievement of the state independence in 1877created favorable circumstances for promoting a systematic economic policy regarding the supportof national productive forces, the accumul ation and the usage of financial capital. All these were

[email protected]

[email protected]


72

meant to lead to formation and consolidation of the modern economy’s system. The magnitude ofthis process is limited by the fact that the Romanian economy will benefit from the existence of thenational unitary state only at the end of the second decade of the 20 th century.

Until the first half of the 19 th century, the main ways of internal accumulation of capitalwere the trade, the land rent, the lease of custom -houses, of taxes and of some mine e xploitations,the exchange and lending of money, the taxation system, the acquisition of public positions, thegold and silver exploitations, and others. After abolition of serfdom, the process of internalaccumulation of financial capital expanded more in tensely than in the preceding period, the ways ofachieving it became more diverse. Among the ways of accumulation of financial capital we mentionthe damages received by the great land owners on the occasion of the land reforms in the half of the19th century, the land rent, the gold and silver exploitations, the external and home trade, themonetary speculations and monetary issue, money lending, public debt and taxation system, frauds,corruption and favoritism, and others.

The insufficient internal accumulation [3] of financial capital in the half of the 19 th centuryand the imperative of reorganizing and modernizing the Romanian economy, the entire society,imposed the intensification of own accumulation efforts but also the attraction of foreign capit al.This was accomplished, in general, through three methods: loans contracted by the state,concessions, and direct investments. Depending on the internal and external context, these werealternative or simultaneous and contributed, more or less, to the c apitalization of the internalpotential, under the circumstances of an insufficient internal accumulation of capital.

The achievement of the economic goals pronounced already in the first year of theUnification of the Principalities, in the Princely Mes sage (Mesajul Domnesc) [9], reclaimedenormous sums of money. For example, in conformity to some calculations effectuated in therespective epoch, only the construction of a railway network, the establishment of the issuing bank,of the mortgage bank and the issue of the national currency, required expenditures whichrepresented 12 times the budgetary receipts of the year 1859. The essential problem was, therefore,to find the necessary means to finance the large projects announced by the Domnitor. The publicfinances are burden by the applied taxation system and also by the public debt as beforeUnification. On the internal capital market, in conformity to appreciations done in the epoch,existed 600-700 million lei [9], except the mercantile capital, an i mportant financial resource, butthis resource represented usurious capital, which was not interested in the transition to moderneconomic structures, more than this, it fought against them. Thus, the usurious capital does notsupport the issue of a national currency because it looses an important source of profit resulted fromthe daily exchange of currencies; it does not support the establishment of a loan on mortgage andneither the one of a land credit because it risks the loss of the existing clientele , great landowners,the same as peasants ; it does not support the establishment of a bank of issue because the issue of anational currency determines a decrease of the market’s usury; it does not support a land reformgrounded on expropriation, because i t risks to diminish the collateral on the estates secured bymortgage, and so on. Under these circumstances, it is believed in the epoch, financial resources forthe edification of some structures of the modern economy can be procured by contracting extern alloans.

In the years immediately after the Unification, The Romanian Principalities have notobtained a single investment loan, not even from the Attesting Powers and therefore, projectsregarding the edification of some structures of the modern econom y have been postponed. Someloans for the state’s current needs have been obtained with major difficulty and under conditionswhich were recognized as extremely unfavorable. In this way, in august 1864, the Romaniangovernment contracts [7] with the Britis h House „Stern Brothers” a loan of 916.000 pounds, with7% interest and guaranteed by the income of customs. From this loan, recorded in history as the“Stern loan”, the Romanian state received effectively 679.244 pounds. In October 1866, the treatycalled “The Oppenheim Loan”, in value of 36.610.500 francs and with 17, 57 % interest was signedin Paris. The Romanian state received in fact 17.167.858 francs and guaranteed the loan by amortgage on the revenues from its domains [2] – [4] – [9].


73

Until achievement of the state independence, the foreign capital participates in a couple ofconcessions with monopolist character. Thus, a convention regarding the construction of 19 metallicbridges over some major rivers is concluded in 1864 with the English company „J.T. Barclay & J.Staniforth”. With the same company, a concessio n contract for building the railway Bucureşti -Giurgiu [8] is concluded in August 1866. The contract was finalized in April 1867. A year before, asimilar convention, concluded with the same company, was invalidated by the RomanianParliament. In October 1865 a financial group consisting of English, French, and Austrian banks isgiven the right to establish in Bucharest a discount and issue bank. Short time after, the respectivebank is withdrawn the privilege to issue and it continues to run as commercial b ank, named “Bankof Romania”, with a capital of 25 million lei. The first chairman of the administration board of thisbank was Ion Ghica. Essentially, the establishment of this bank meant the transformation of theBucharest subsidiary of the “Bank of the Ottoman Empire” in a native entity with English majoritycapital.

Sections of railroad have been built also through concessions to different German, French,English or Austrian bank groups and have been bought back by the Romanian state after 1880.

After achievement of Romania’s state independence in 1877 and, implicitly, after thedelineation of its European status, the participation conditions of the foreign capital were relativelyimproved, a part of the former loan contracts being renegotiated and re -echeloned, converted, underconditions, which were easier to be tolerated by the sate budget and by the Romanian tax payer.

The necessity of major long-term loans grows together with the acceleration of the processof modernizing the economical and social life; process materialized in constructions of railways,modernization of harbors and roads, constructions of public buildings, etc. As the achievement ofsuch goals exceeds the possibilities of the state budget, external loans are contracted, fact whichleads to the increase of the external public debt. In table 1, we reproduce the data regarding theexternal public debt at the beginning of the 20 th century.

Table no 1. Romania’s external public debt in 1902, in million lei

Kind ofpublicdebt

Borrowed capitalConvertedsums

Sunksums

Balance of theexternal publicdebt

Paidinterests

Paidannuities

Nominalvalue

Real value

Externaldebt 2.331,2 2.092,3 642,1 310,0 1.379,1 1.165,0 1.475,0

Source: Enciclopedia României/Romania’s Encyclopedia, Imprimeria Naţională, Bucureşti, 1943, vol. IV, p. 387

It has to be specified that, in 1902, in the total public debt of Romania, internal and external,the external public debt represented 97 % , and the payment of the annuity represented almost 40%of the total state budget income.

After 1900 the external loans of Romania tend to be monopoliz ed [5] by the financial groupsDiskonto-Gesellschaft, Bleichroder and Rotschild & Sons. Between 1990 -1914, through theirmediation, Romania contracted on the German financial market six loans, in total sum ofapproximately 1.100 million lei, conditioned by purchase from German companies of rolling stockfor the railways and of armament. It is to be mentioned that, in the course of the first decade and atthe beginning of the next one of our century, as a result of exceptional agricultural production andof the substantial increase of the exports of agricultural products and also of other products withlarger weight in its export, Romania managed to pay off an important part of the public externaldebt.

In April 1914, the external public debt of Romania was in sum of 1.652,1 million lei andwas contracted in a ratio of 47% with German banks, 32% with French banks, 10% with Englishbanks, 7% with Belgian banks, and 4% with other banks.


74

Direct investments of foreign capital started to be present beginning with the seventh andeighth decades of the 19 th century. For example, the „Lemaître” factory, with French capital, whichproduced weighing machines, measures and weights was founded in 1864, the „Freund” foundry,with Swiss capital, was founded in 1867, the en terprise „Jackson Brown & Co.” with Englishcapital, exploited and commercialized oil and was founded in 1868 but it went bankrupt only afterone year of operation, the Sascut sugar factory, with joint participation of French capital wasfounded in 1875, in the same year the Chitila sugar factory was also founded, with jointparticipation of Belgian capital, and later on, starting with 1886, with joint participation of Austro -Hungarian capital, the „Max Tonolla”, brick factory, with Italian capital was foun ded in 1873, aswell as two other factories of hydraulic lime and cement in Comarnic, in 1876, respectively 1878,etc.

At national economy level, the direct investments of foreign capital become more importantafter passing the First law for encouraging the industry, in 1887 [6], and especially after passing theMine Law, in 1895. The first law mentioned, which grants equal advantages for home and foreignentrepreneurs, in the area of founding enterprises in the manufacturing industry, determines theestablishment of many joint enterprises, with Romanian and foreign capital, and the other law, withextraordinary results in the exploitation and utilization of oil, promotes the establishment of manycompanies, in their majority, with foreign capital only.

Hereinafter, we will refer in particular to the oil business , where the foreign capital isrepresented at its best. So, in 1896 the company „Steaua Română” ( Romanian Star) is founded.Until the First World War, this is the most powerful oil company in Romania. It was establishedwith Austro-Hungarian capital, in initial sum of 2,4 million lei. It is bought by the Deutsche Bank in1903, and starting this date, it operates as company with German capital. After ten years, in 1913,the capital of the company represents 130 million lei and it extracts and refines ¼ of th e total oilproduction in the country. At the same time, through financial levers, it controlled other oilcompanies as well, for example: „Aurora”, „Aliantza” and „Danubiul”. The German capital,through the Diskonto-Gesellschaft bank, was also present in the companies „Vega”, „Carpatia”, and„Creditul Petrolifer”. The American capital is represented through the „Romanian -American”company, established in 1904, which was in fact a subsidiary of the large „Standard Oil of NewJersey” trust. The English -Dutch capital is represented through the „Astra -Română” company,established in 1910, as subsidiary of the „Royal Dutch” trust, as well as through smaller companieswith separate capital, English and Dutch. The French capital is present through the companies„Acvila franco-română”, „Lutetia”, „Odette”, „Société française Predeal -Teleajen”, the Belgian onethrough the ”Romanian-Belgian Oil Company” and the Italian one through the “Italian -RomanianCompany » .

In the first decades of the 20 th century, the capital accumulation in the industry, but as wellthe accumulation in other domains of activity, banks, trade, agriculture, etc, conform to thestatistical data of the time, embody a relatively vast picture. Thus, according to the data provided bythe Industrial Research in the years 1901-1902, the fixed capital invested in the big manufacturingindustry totalized 247,4 thousands lei, while the opening capital totalized 110,4 thousands lei.According to data provided by the Industrial Research from 1906, the bi g industry, private andstate-owned, respectively the private encouraged and non encouraged industry the state industry,counties and communes, the last one comprising only large enterprises with capital over 50.000 lei,enclosed in the mentioned year, a t otal capital of 356,9 million lei, out of which 214,3 fixed capitaland 142,6 working capital. By all means, to these data the capital of the other companies, smallerthan the mentioned margin, is also to be added. Later on, the volume of the capital in t he bigindustry increases, the data we possess, are only those regarding the fixed capital, which in 1910totalized 281 millions and in 1915, 361 millions. We are not in possession of data regarding thenationality of the capital in the big manufacturing i ndustry, but the data on the nationality of privatecompanies operating in the big industry, from the year 1906, offer us an image in this regard. Thus,from 293 companies, 152 were private ones and 141 were social ones. These last ones operatedunder different forms, more frequently as limited companies and under Romanian emblem but


75

founded, most of them, by foreign capital. Within the private firms, 81 were Romanian, 38 wereforeign ones and 33 were without protection, within the social firms, 131 were Ro manian, 10 wereforeign ones and/or subsidiaries of foreign companies.

We are in possession of data regarding the evolution of the capital investments in the oilindustry, by nationality, in the years 1904 and 1908, shown in table 2.

Table no 2.Capital investments in the oil industry, by nationality, in the years 1904 and 1908

Nature of capital Capital, thousands lei Percentage 1904 1908 1904 1908

TOTAL: 82.678 222.203 100,0 100,0German 35.600 87.506 43,1 39,3Dutch 13.840 22.388 16,7 10,1Romanian 12.488 31.259 15,1 14,1Belgian 7.250 7.900 8,8 3,6English 6.500 6.000 7,9 2,7French 3.000 33.400 3,6 15,0American 2.500 15.000 3,0 6,8Austro-Hungarian 1.500 5.150 1,8 2,3Italian – 13.600 – 6,1

Source: Axenciuc, V., Evoluţia economică a României , Cercetări statistico-istorice 1859-1947, vol. Iindustria/Economical Evolution of Romania, Statistic -historic Researches 1859-1947, volume I Industry , EdituraAcademiei Române, Bucureşti, 1992, p. 285.

The data refer to a short period of time but are very expressive regarding the evolution ofcapital investments in the area, especially when it comes to the decrea se of the Romanianpercentage in favor of the foreign one. We also want to mention that in 1903 the Romanian capitalrepresented only 21,9% of the total invested in the oil industry.

The conclusion above is confirmed as well by the data regarding share ca pital in the oilindustry, by nationality, in 1915. These data are reproduced in table 3.

Table no 3. Share capital in the Romanian oil industry, by nationality, in 1915

Nature of capital Capital,thousands lei

Percentage

TOTAL: 412.147 100,0German 110.354 26,8Dutch 97.901 23,8English 95.421 23,1Romanian 32.726 7,9American 25.000 6,1French 20.350 4,9Belgian 14.395 3,5Austro-Hungarian 8.500 2,1Italian 7.500 1,8

Source: V. Axenciuc, op. cit., p. 285.

After 1867, Transylvania did not have its own fiscal policy, budget, and public debt.Therefore, we can not make any appreciations regarding the accumulation of capital through thementioned levers. The accumulation of capital, was done here, to a large extend, through directinvestments, including through mediation of Austrian and Hungarian banks, the last ones dependingin their majority on German banks. In the last decades of the 19 th century, especially after 1900, theGerman capital had a remarkable weight. Beside Austrian and German capital, the French, Englishand Belgian capitals were also present but in a slighter proportion. The technical literature estimates


76

on the ground of some approximated calculations that in 1914, the foreign capital owned inTransylvania about 96% of the coal production, 51 % of the iron ore production, and 59% of theiron one [1].

Regarding capital accumulation before First World War in Basarabia and Bucovina, we donot own any data, not even approximated ones.

The accumulation of capital, which, in our country evolved under the circumstancesmentioned and through the known methods, determined the grad ual transformation of the marketeconomy in a capitalist economy. The shortage of own capital, accumulation of which was limitedby the factors reminded above, offered the foreign capital the opportunity to penetrate the marketand at the same time it imposed the resort to this one.

The results of the penetration of foreign capital into Romanian economy can be consideredpositive, to the extent to which this capital promoted the utilization of natural resources, theincrease of industrial production, the augmentation of exports, employment of national labor forcebut also negative, to the extent to which its main activity object here was the exploitation of animportant part of the subsoil, the manufacture of staple goods, the predatory exploitation of so menatural resources, all these being accompanied by the tendency of profits’ repatriation, fact whichdid not contribute to the expansion of the internal market.

Hereby, the foreign capital contributed as well to maintain the Romanian economy, in thecontext of its gearing into the world’s economical circuit, in a status of a peripheral and dependenteconomy, movement of which took place under the influence of foreign economical powers.Watched in time, the consequences of the foreign capital’s penetratio n represented a part of the costof modernizing the Romanian economy.

BIBLIOGRAPHY

[1] Axenciuc, V., Tiberian, I., Premise ale formării statului naţional unitar român/Premisesof the Formation of the Unitary National State of Romania , Editura Academiei, Bucureşti,1979

[2] Banu, A., Datoria publică internă a României (1863 -1946)/Internal Public Debt ofRomania (1863-1946), PhD Thesis, ASE Bucureşti, 2005

[3] Constantinescu, N.N., Acumularea primitivă a capitalului în România/InitialAccumulation of Capital in Romania , Editura Academiei Române, Bucureşti, 1991

[4] Constantinescu, N.N. (coord), Istoria economică a României. De la înc eputuri până la celde-al doilea război mondial/Romania’s Economical History. From the Beginnings untilSecond World War, Editura Economică, Bucureşti, 1997

[5] Dobrovici, G., M., Istoricul dezvoltării economice şi financiare a României şiîmprumuturile contractate 1823-1933/The Historic of the Economical and FinancialDevelopment of Romania and the Contracted Loans , Bucreşti, 1934

[6] Mureşan, M., Mureşan, D., Istoria economiei/The History of Economics , Ed.a II-a,Editura Economică, Bucureşti, 2003

[7] Giurescu, C.C., Viaţa şi opera lui Cuza Vodă/Life and Work of Prince Cuza , EdituraŞtiinţifică, Bucureşti, 1970, p.252 -391

[8] Popescu, I., Căile ferate. Transporturi clasice şi moderne/Railways. Classic and ModernTransportations, Editura Ştiinţifică şi Enciclopedică, Bucur eşti, 1987

[9] Zane, Gh., Studii/Studies, Editura Eminescu, Bucureşti, 1980


77

CUSTOMER RELATIONSHIP MANAGEMENT IN MACEDONIANTELECOMMUNICATIONS

Assistant Professor Ph.D. Lidija PULEVSKA-IVANOVSKAFaculty of Economics, “Ss. Cyril and Methodius” University Skopje, Macedonia

[email protected]

Abstract:CRM (Customer Relationship Management) simply defined, is the process of acquiring, retaining and growing

profitable customers. It is a methodology used to learn more about customers' needs and behaviours in order to developstronger relationships with them. There are many technological components to CRM, but the more useful way to thinkabout CRM is as a process that will help bring together lots of pieces of information about customers, sales, marketingeffectiveness, responsiveness and market trends.

Macedonian telecommunications is one of the biggest retail companies in Macedonia providingtelecommunication services. The CRM in the Macedonian Telecommunications can be viewed from three differentperspectives:

1. Department2. Philosophy3. IT system

This paper elaborates these three perspectives of the CRM in the Macedonian Telecommunications.

Keywords: Customer Relationship Management, Macedonian telecommunications, system

1. INTRODUCTION

CRM integrates sales, marketing and service strategies, which are based on the aim tooptimize the customer benefit and relationship at long sight (see Figure 1).

Figure no. 1. Customer Relationship Management

The primary goal of a CRM is to develop customer l oyalty and generate more business thatis more profitable. Insight Technology estimates that a 5% increase in customer loyalty cantranslate into an increase in profits of 60 –80%. CRM provides several advantages:

Provide better customer service ; Increase customer revenues; Discover and win new customers; Cross sell/Up Sell products more effectively; Help sales staff close deals faster; Make call centres more efficient; Simplify marketing and sales processes ; Reduces advertising costs ;

[email protected]


78

Makes it easier to target specific customers by focusing on their needs ; Makes it easier to track the effectiveness of a given campaign ; Allows organizations to compete for customers based on service, not on prices ; Prevents spending on low-value clients or un spending on high -value ones; Speeds the time it takes to develop and market a product ; Improves use of the customer channel, thus making the most of each contact with a

customer.

2. ABOUT THE COMPANY

AD Macedonian Telecommunications is a national telecom operator provid ing publictelecommunication services in the Republic of Macedonia. As a modern company it consistentlykeeps pace with the latest worldwide trends in order to offer its customers a comprehensive range ofup-to-date telecommunication services: telephony se rvices, telegraph and telex services, publicpayphone services, leased lines services, mobile telephony services, data transmission services,directory services, VSAT and other satellite services, value added services and more.

MT constantly seeks out and puts into action new ways of improving development andmeeting market competition. To ensure maximum flexibility and the closest possible understandingof customers' needs and demands, the company is dedicated to the implementation of newtechnology and building customer confidence.

MT is wholly committed to providing its customers with services and solutions designed tomeet all their individual communication needs and requirements. It is this crucial commitment thathas led the development of MT into a company that is truly close to its customers. AD MacedonianTelecommunications divides its customers into two main general categories:

Residential Customers Business Customers

As a result of this, MT provides different products and services to each catego ry, includingDomestic Careers also.AD Macedonian Telecommunications provides full support to its customers through severaltelephone numbers. Call centre operators are available from Monday to Saturday from 8 AM to 8PM.

171 - Free phone call for all information of MT’s services 177 – Contact telephone for reporting faults in the telephone line 182 Announcement of international calls 188 – Information 0800 12345 – Contact telephone for MT’s Internet users Number Telegrams

3. CRM IN MACEDONIAN TELECOMMUNICATIONS (MT)

CRM AS A DEPARTMENT IN MT

As a department CRM can be viewed as a bridge between sales channels and productmanagement. It is being responsible for:

o Strategic segmentationo Customer value modelo Customer satisfaction improvemento Customer bonus programso Analysis of customer behaviouro Preparation of targets lists etc.


79

CEO

CM&SO CSO CFO CHR&LO

CDoKI CM&SDMED SED

Internal Audit

SBDDStrategy &

Business Dev.

Regulatory

CorporateCommunication

MarketingResearch andDevelopment

ProductManagement

Marketing& Sales

Management

Key Customers

InternationalCarriers

DomesticCarriers

Residential/SOHO/SMECustomers

Customer Care

CSD

TechnicalService andProvisioning

CentralOperation andMaintenance

TechnicalDevelopment &Implementation

InformationTechnology

Logistics

CorporateSecurityServices

CFD

Controlling

Treasury

Accounting

Procurement

HR Systems

Legal andSecretariat

CHR&LD

HR Manager(CSA, CM&SA,

CFA, CEO)

Labor Affairs &Payroll

Administration

Tax andCorporateFinance

In Macedonian Telecommunications the CRM area is located in the Marketing and SalesManagement department. The figure below presents the Marketing and Sales Managementdepartment, along with the other functions and departments which are part of the structure of thecompany

Figure no. 2. CRM department in Macedonian Telecommunications

Some of the recent examples relating to the segment oriented actions th at CRM area takes tosatisfy and meet its customers needs include: Retention of heavy international users – direct mail Retention of ADSL Max users – contact center campaign Sales of ISDN2 for business market – contact center and direct agents campaign Sales of ADSL for business market – direct agents and KAMs campaign

CRM AS PHILOSOPHY

CRM regarded as a philosophy is responsible for: supporting the relationship marketing vs. brand or product oriented marketing can be observed as a state of organizationa l development in certain stage of development of the

companies it can be related to customer power and customer value on the competitive market and finally it can be related to customer awareness

CRM AS AN IT SYSTEM

The company has build high tech IT system which consists of software and hardware neededand essential for building strong customer relationship management, and appropriate integration of


80

Bill payment

Directoryassistance

GenevaBilling system

Reportingsystem

SAP

Stela, etc

CRM(Customer Care) DWH

all the functions in the company, providing performance of the system as a whole. Some of theapplications and software’s are: Geneva Billing system, Directory assistance, Bill payment,reporting system, Stela application for technical considerations and at the core of all the functionsthe SAP system.

Figure no. 3. CRM as an IT System

Figure 3 represents a short presentation of the CRM viewed as an IT system in MacedonianTelecommunications. Figure 4 presents the Geneva application. The Geneva application is the most“exploitable” application in Macedonian Telecommunications , meaning that each employee of theCRM department uses it many times eve ry day to find the needed customer, to add a new one, toedit or set up the given information about the particular customer, to view the account billing oraccount details and so on.


81

Figure no. 4. Geneva application

Implementation of CRM in Macedonian Telecommunications

The analytical data needed for CRM is being collected from three different sources: Sales processes data:

o Contact centero Online saleso Agents & KAMs visitso POS interactions

Marketing data:o Campaigns & promotionso Loyalty programso Customer behavior (product usage, transactions)

Customer Care data:o Customer complainso Customer requestso Customer demographic and lifestyle info

The benefits that Macedonian telecommunications company gains by the use of CRM aremultiple: Better customer service, faster contract processing, fault clearance, etc – more satisfiedcustomers, Increased effectiveness of the contact center, Cross sell – up sell management, Shortertime to market, Operational improvements, Cost savings on marketing, sales, maintenance,Retention of the most valuable customers, Different segment strategy (acquire, grow or retain)

Key Performance Indicators that the company has for CRM implement ation are: Cost per sales transactions Number of customers who repeat the sales transactions Cost per customer complain Churn decrease


82

Increased customer satisfaction Contracting ratio Increased total Customer Value

At the end it must be stated that many aspects should be taken in account regarding thesuccessful performance of CRM in a company.-First of all it is the company strategy and its focus shifted from a product to a customer-Weather yes or not the customer retention is a priority – organizational change, process change &shift of mind-The integration of marketing, sales and service – at least strong cross functional communication-It is expensive sport which is hard to justify with ROI-It must be understood that the technology can not do th e job because data input and customerrelations are primarily done by humans

The operational requirements for the CRM implementation are: Customer Care, M&S Processes management

•Customer account definition and maintenance•Customer contact management•Trouble ticket management•Billing account management•Order management• Invoice, traffic, balance and adjustments inquiries•Product and service configuration•Discount configuration•Contracting process•Debt escalation•Workflow management

Sales force automation•Sales force management•Sales and service negotiations•Product catalogue

Work force management•Service provisioning•Fault clearance•Maintenance

4. INTEGRATION WITH MT SYSTEMS

CRM system must be integrated with other systems that exist in MacedonianTelecommunications:

CTIGeneva Billing systemCredit CardsSAPTechnical inventory & Service provisioningWorkflow/Workforce Management systemABCeARB archiving systemGISFigure 5 gives a detailed explanation about the relationship and integration of the C RM

department with the Customer Financial Management and the Order and Service Management. We


83

can note that the customer is always in the focus and in the centre of the integration among alldepartments.

Figure no. 5. Integration with MT systems

5. CONCLUSION

Macedonian Telecommunications is a customer driven company, always keeping focus ontheir customers, in order to provide better approach and to satisfy customers’ wants and needs moreefficiently and more effectively.

The potential benefits of CRM are obvious and yet many of the obvious applications ofcomputerization have yet to be embraced by users.

The success in CRM space isn’t much a function of technology as it is a clear vision of thefuture of corporation, un understanding of the needs of the key stakeholders, a clear definition of theexpected outcome of the CRM initiative and leadership.

Through the success of its operations, MT contributes significantly to an improvement in thequality of life of its customers and business partners. Moreover, the company also activelyparticipates in the creation of a better environment by the assistance it offers to the community.Through its numerous sponsorship schemes, MT provides support to cultural life, sports activiti es,and general health of the society. In short, Macedonian Telecommunications is committed toproving itself an exemplary corporate citizen.

BIBLIOGRAPHY:

[1] Bryan Bergeron, Essentiaals of CRM: A Guide to Customer Relationship Management(Essentials Series), 2002, Wiley.

[2] Stanley A. Brown ; Moosha Gulycz, Performance driven CRM : how to make yourcustomer relationship management vision a reality, 2002, John Wiley & Sons Canada.

ReceivablesManagement

CreditManagement

ProfitabilityAnalysis

Marketing

PartnerRelationshipManagement

/Dealer

Management CuCUSTOMERstomer

CollectionsManagement

Sales &Contract

Management

Customer Relationship Management Customer Financials Management

CustomerCare

Billing ManagementFinancial Customer Care

Dispute ManagementCustomer&Contact Mgmt.

Contract Management Trouble Ticketing

Order & Service Management

CustomerField ServiceManagement

Logistics Management

CustomerTrouble

ManagementNetwork Inventory,

Service provisioning /Activation

OrderManagement

CustomerAnalytics

Retention/ChurnManagement

Billing Integration

CUSTOMER


84

[3] Stanley A. Brown, Customer relationship management : a strategy imperative in t he worldof e-business, 2000 , John Wiley & Sons, Ltd.

[4] Presentation CRM form perspective of MT , April 2007.[5] www.mt.com.mk


85

SOME ASPECTS ABOUT THE SMALL BUSINESS AND EU POLICY

Lecturer Ph.D. Student Mariana LUPANStefan cel Mare University of Suceava, Ro mania

[email protected]

AbstractOver the last two decades entrepreneurship and small and medium enter prises (SMEs) have emerged as the engines of

economic and social development throughout the world. SMEs are now considered as important drivers behind the growth andcreation of employment, economic growth and increased national and regional competitiveness in a globalisedeconomy. Within the European Union the SME sector is seen as a major feature of the economy. SMEs are key toentrepreneurial spirit and innovation, and therefore crucial to ensuring EU competitiveness.

Key words: small business, EU policy, internationalization, EU enlargement

1. INTRODUCTION

Historically it was believed that larger firms were the dynamic forces behind economicgrowth. Work by Caves and Teece indicated the increasing role of large-scale enterprises in bothdomestic and international economies. Given that knowledge is expensive and that there arefixed costs to be faced by all firms, particularly in the area of intern ationalisation, it is notsurprising to see large firms dominant in global markets, with SMEs at a distinct disadvantage.Despite this, entrepreneurship and the small -firm sector have emerged as major engines ofeconomic growth and social development throughout the world.

What is critical in the newer approaches to industry evolution is the role knowledgeplays and the dynamic, or flux, that occurs through this. Entry, growth, survival and the wayenterprises and entire industries change over time are linked to innovation. The dynamicperformances of regions and even entire economies are linked to how well the potential frominnovation is used and the extent of entrepreneuria l activity. There is also a two way relationshipbetween the level of dynamism in a n economy or region and innovation. More over, the moreinnovative an economy, the more likely there will be spillovers from this innovation to otherfirms, competitors and organizations in the supply chain. The SME sector also can be theinitiator of innovation, which results in the growth of some of these companies into medium -sized or large companies, or in the innovations being purchased by large companies to improvetheir competitive positions.

SME sector important for economic growth:• there are spillover effects from knowledge;• entrepreneurship has a positive impact on economic output through increased levels

of competition;• entrepreneurship generates a greater diversity of firms and output.More recent studies in the European framework found also that small firms were the

main job creators, while it was large firms that were shedding jobs.

2. SIZE AND STRUCTURE OF EUROPEAB SMES

In the European there were approximately 19 million enterprises in 2003 providing workfor almost 140 million people. There were only 40.000 large enterprises accounting for 0, 2% ofall enterprises. Therefore the great majority of enterprises in the Europel (99,8%) were SMEs[18].

In May 2003 the European Commission adopted new definitions of micro, small andmedium-sized enterprises. This updated the thresholds of the financial ceilings for turnover

www.mt.com.mk

[email protected]


86

and balance sheet totals, and therefore will help this sector to get access to national andEuropean support provisions. These new definitions came into operation on 1 January 2005and can be seen in Table no. 1.

Table no. 1 – SME definition in the EU

Enterprisecategory

EmployeesTurnover

limit (millioneuro)

1996 turnoverlimit (million

euro)

Balance sheettotal (million

euro)

1996 balancesheet total

(million euro)Micro < 10 2 Not defined 2 Not definedSmall < 50 10 7 10 5Medium <250 50 40 43 27

Source: European Commission, May 2003

Based on these definitions the great majority of business in Europe are mic ro enterprises(over 90%), with approximately half of these micro e nterprises having no employees at all (that is,they consist of one self-employed individual).

The role of SMEs in exporting is less than large organisations (with more than 250employees). European enterprises export an average of 17% of turnover, with micro enterpriseshaving the lowest share of turnover ( %) and large firms the greatest at 23% [11] . However, thearea of internationalisation and the SME sector will be considered later in this chapter. It is alsothe case that labor productivity is lower in SMEs than in large organizat ions. This may beexplained partly by the sector ial composition of firms. For example, a larger number of smallerorganizations are to be found in the retail sector, and this sector tends to exhibit lower levels ofproductivity. If this sectorial difference is taken into account, the productivity differencesbetween the small and large firm sectors almost disappear, though there is a lower level ofproductivity in micro firms.

Also tends to be lower in the SME sector, though onc e again, if sectorial differences aretaken into account there is little to distinguish the profitability of the small and largerorganizations. Once again, however, even allowing for sector ial differences the micro-firm sectorhas a lower level of profitability.

3. INTERNATIONALISATION AND SME s

During the last decade we have seen enhanced international competition both fororganizations with an export focus and for those that have focused more on their domesticmarkets. The growth in SME internationalis ation can be seen in the context of political,technological and economic changes. Through the actions of the World Trade Organization(WTO), world trade has been liberalized, while in Europe markets have become more inte -grated, enlarged, liberalized and deregulated. Technology has improved access to informationand communication, and also the management of scat tered production. More efficient and low -priced transport has also aided the growth in internationalisation by SMEs.

Although exporting has been c onsidered one of the main forms of inter nationalisation,there are other forms such as importing from a foreign supplier, the development of foreignpartnerships, foreign investments and cross -border clustering. There is further evidence fromPiggot [14] that a presence in foreign outlet markets and the possibility of delocalising part ofthe value chain allow SMEs to achieve more solidarity and durability in production than SMEsthat develop an international strategy based solely on exporting. In other wor ds the value chainhas become an increasingly impor tant aspect of the internationaltsation of SMEs.

An ENSR [10] study indicates that 18% of SMEs had a foreign supplier as their only formof internationalisation, with a further 12 % having imports in combination with exports, orforeign subsidiaries. Six per cent of SMEs were only involved in exporting, and just over 60 percent had not internationalised. More firms had both import and export activities than only


87

exported, which suggests that having a foreig n supplier somehow improves export -relatedactivities. The level of export activity is also likely to have been understated since the ENSR studydoes not include indirect export ing, that is, where a domestic organization contracts with anotherdomestic organization which then sells the product abroad.

While only 3% of SMEs noted that they had subsidiaries, branches or joint venturesabroad, the numbers were growing at a faster rate than for large enterprises. [8] Almost a thirdof those SMEs with subsidiari es abroad had no exports. Subsidiaries were therefore used notjust as sales platforms but as a means of accessing cheaper labour via sub -suppliers oraccessing knowledge and technology. In other words some SMEs are using subsidiaries as away of improving their competitiveness and enhancing their value chains.

4. EUROPEAN POLICY TOWARDS SME s

Encouraging entrepreneurship is seen to be central to creating jobs and improv ingcompetitiveness and economic growth throughout Europe. Thus the European Union has soughtto support the SME sector in a number of ways. One of its first priorities has been to expand itsknowledge of SMEs by improv ing the collection of statistics, since without knowing the size anddistribution of SMEs within the European Union the Com mission would be unable to estimate theknock-on effects of any policy changes and the cost of policy initia tives [9]. It is alsoacknowledged that SMEs have been affected by both direct and indirect policy initiatives, andthese can come through what was initially a number of policy areas. Therefore in January 2000the whole range of policies relating to the SME sector became the responsibility of the EnterpriseDirectorate-General (DG), which combines the previous directorates of Industry, SME andInformation Society Although the policy areas that affect SMEs are numerous, they can be dividedinto direct and indirect measures, and the following sections give a flavour of these.

One aspect of the changes in competition policy, such as the use of state aid, has been toreorientate state aid from sector ial and regional issues to policy deci sions that have a morehorizontal objective, such as the support provided to different-sized firms, including the promotionof SMEs. This objective was first endorsed by the Lisbon European Council in 2000, andreinforced at the Stockholm European Council in March 2001 and again at the BarcelonaEuropean Council in March 2002.

There has been block exemption for SMEs in state aid provision. This allows investment aidto be given to SMEs (15% of the total investment costs for small enterprises and 7,5% formedium-sized enterprises). SMEs can be aided with up to 50 per cent of eligible costs forconsultancy and the same figure for costs associated with the participation in fairs andexhibitions. The European Union has also allowed governments to give risk capital to SMEs, andthis is differentiated from state aid. The reasoning behind these approaches can be related to thespecial difficulties SMEs face with raising finance, netw orking and affording advice. [11]

SMEs have also been affected by employment and social policies. The employmentguidelines in the European Union following from the Treaty of Amsterdam 1997 were based onfour pillars: employability, entrepreneur -ship, adaptability and equal opportunities for men andwomen. The second pillar, on entrepreneurship, focused on the way jobs can be created. Itconcentrated on the ways businesses might be able to start up and grow. The JointEmployment Report (European Commission , 2002) considered member states initiatives toimprove entrepreneurship, with measures to facilitate business registration, encourage self -employment and to develop an entrepreneurial culture, particularly among women.

In the area of corporate responsibili ty, the changes were driven initially by largebusinesses, but this is increasing seen as being relevant for SMEs. A proj ect entitled 'ResponsibleEntrepreneurship for SMEs' (European Commission , 2002) was begun to consider the extent towhich SMEs were involved in socially and environmentally responsible practices.

In the area of environmental policy, the European Commis sion launched a best practiceproject to determine the member states' best initia tives to promote environmental management


88

systems (EMSs) in SMEs. The tools of the sixth Environmental Action Programme 2001 -2010 havebeen specifically tailored to the needs of SMEs. SMEs have also been the main beneficiary of theFinancial Instrument for the Environment (LIFE) programme. This financial support has aspecific objective to contribute to the development of innovative and integrated techniques andmethods, and to the further development of Community environmental policy, through the co -financing of demonstration projects (Infobase Europe Factsheet 2004).

Energy policy has impinged on SMEs in a number of ways. The most direct way has beenthrough the improvement in the conditions for competition in the energy markets, making energyavailable at competitive prices. The adoption of the directive on ene rgy performance on buildings islikely to lead to job creation in the SME sector, through the certification and installation of moreenergy-efficient equipment. The ALTENER programme to promote renewable energy and SAVEto develop energy efficiency both be nefit some SMEs greatly, since the renewable energy industryis mainly made up of SMEs (European Commission 2003).

As of March 2005 the Working Time Directive applies to further aspects of the transportindustry. This has imposed restrictions on the workin g time of employed drivers. Self -employeddrivers, who comprise a large part of the road transport sector, are affected but for SMEs there isa delay in bringing in the directive until 2009. The development of the Trans -EuropeanNetwork (TEN), whose guidel ines were adopted in 1995, has seen approximately €16-20billion invested every year. Contracts have gone to SMEs for a signif icant part of the programmein the area of the extension of road, rail, seaport and inland waterways. The TEN will alsoimprove infrastructure links that will aid the performance of SMEs (European Commission2003).

SMEs have further received support from EU structural funds. Around 11 per cent of thetotal structural funds have helped this sector, and this is due to rise to 20 per cent between 2000and 2006. In member states where regions have been given objective 1 status, SMEs have alsobenefited from this funding. For example, in Belgium about a quarter of the funding goes to SMEs,and in a number of countries such as Italy and France funding has been used to develop advisoryservices (European Commission , 2003).

The European Union has sought to develop entrepreneurship skills among its citizens. Ithas attempted to benchmark a range of European entrepreneur -ship training curricula,particularly concerning entrepreneurship among women and ethnic minorities. This has beenfinanced in part through the vari ous Leonardo da Vinci and Socrates support programmes. Inthis way the European Union hoped to improve the rates of start -up and development of newbusinesses.

The European Union has also been concerned more directly with start -ups. Thedifficulties experienced with starting up a business can constrain entre preneurship. Followingon from the Lisbon European Council a series of best practice exercises were undertaken withinmember states to explore ways of reducing the delays facing start -ups.

The European Union has also sought to imp rove the skills and competitive ness of theSME workforce. SMEs play an important part in lifelong learning, and a key role in EUcompetitiveness and emplo yment, yet they undertake less training than large firms. Anambitious set of goals for training and educa tion systems has been agreed and should be reachedby 2010 (European Commission 2003). In addition the European Union has sought to addresssome of the financial matters that face SMEs. A Risk Capital Action Plan has been developed,and a code of conduct for banks and SMEs is in preparation. Work on best practices in microlending is under way and a benchmarking exercise of business angel policies in me mber stateshas been undertaken (Europa 2002). With respect to financial problems, developments in theinternal market have improved the framework for cross -border payments and there have beenfurther developments to help late payment. Furthermore a benchm arking exercise of businessangel policies was undertaken in 2002, and a pan-European database of investmentopportunities has been established.


89

A number of financial instruments managed by the European Investment Fund (EIF) havebeen operational since the beginning of 2002. These are the start-up scheme, the SME GuaranteeFacility and the Seed Capital Action. In addition to these instruments there has been work on thefinancing of innovation, and the technological capacity of SMEs has been strengthened. Th e sixthFramework Programme for Research and Technological Development also attaches greatimportance to the participation of SMEs.

To overcome the barriers that some SMEs hav e with ICT and e-business, the EuropeAction Plan has been developed to highlight the actions necessary in relation to legislation, e -skills, inter-operability, and trust and confi dence that have constrained the SME sector. Finally,to help the SME sector to get the highest -quality business support services, a best procedureproject was carried out in the early part of the millennium to study the support serv ices formicro, small and sole -proprietor businesses. The Support Measures and Initiatives (SMIE)databases are an important reference tool on business support measures for SMEs and goodpractice in this area.

Therefore both directly and indirectly the European Union has sought to develop andremove the barriers faced by the SME sector, the main creator of jobs in the region (EuropeanCommission, 2003). The removal of a number of these barriers may also be apposite as theEuropean Union's SME sector faces a new challenge and a range of opportunities from the EUenlargement process.

5. SOME ASPECTS ABOUT EU ENLARGEMENT AND SME s

The impact of EU enlargement has implications for S MEs both in the EU21 and those inthe new accession countries following 1 May 2004. The enlarge ment process has resulted in theremoval of many barriers to the flow of goods, services, capital and labour, and also providednew market opportunities, increased competition in domestic markets, and permitted access tonew sources of inputs, especially low -cost labour, as the case study below indicates.

The impact of the enlargement process is however felt unequally by SMEs. It is likely tobe larger in the new entrant countries than in the original EU21, and also likely to vary by sectorand region. For example the SMEs in the new entrant countries are likely to benefit morethrough increased export oppor tunities to the EU21 as markets are opened up. This flow willgreatly exceed the flow from the SMEs in the original EU21 to the markets in the new entrantcountries. The sectors that are already benefiting are those where liberalisation of trade ruleshave taken place, and thus SMEs in the manufac turing and wholesale sectors are expected to bethe main beneficiaries from enlargement, particularly in the new entrant countries. Even inthese two sectors evidence from the European Observatory (2007 ) suggests that medium-sizedenterprises should benefit more than small en terprises, with their increased export flows.

Over time these two sectors and others can expect to lose their relative wage costadvantages as real wages increase in the new entrant countries. However, to compensate for realwage increases, the SMEs in the new entrant counties can expect to benefit from catch -up in theareas of productivity and techno logy use. This may greatly favo r medium and high-technologySMEs. SMEs in bordering regions may also be expected to benefit more than SMEs in otherareas of the European Union (ENSR 2007).

The growth in trade that will be experienced by SMEs and large companies in both the EU21and the new member countries will open up new opportunities for transport companies in thenewly enlarged Europe. SMEs in the new entran t countries might benefit from the cabotageliberalisation that has taken place in the EU21, but at the same time transport companies in the newentrant countries will now have to adhere to EU21 standards and therefore they might lose some oftheir cost advantages [1] .

For the construction sector, SMEs in the new entrants are expected to benefit frominfrastructure developments in these countries, while the SMEs in the original EU21 can beexpected to benefit from access to a great er quantity of resources as well as cheaper resources. As


90

integration proceeds it might be expected that cross -border construction services will beprovided, and this will increase competition particularly for those SMEs in border regions andthose that use low levels of technolog y [1].

The move to market -based economies and the increased requirements of data onmarketing, legal advice and translation are likely to improve the demand for professionalbusiness services. Information technology services are required to develop and mod ernise theinfrastructure in the new member countries, and there is increased demand for civil engineeringservices and recycling. The evidence from the European Observatory again indicates that theSMEs rather than the micro industries in the EU27 are likely to benefit more from enlargementin this area, since size appears to be a crucial factor in gaining contracts.

One problem for SMEs in the new entrant countries is that meeting the acquiscommunautaire can be costly, and the cost burden may threaten th e existence of some SMEs.The compliance burden associated with the acquis communautaire is also more heavily weightedon smaller firms.

Larger companies in the new member states are better prepared and informed. In thelead-up to enlargement there was a m ajor shift in the foreign direct investment (FDI) entering thenew member states (Fallon, Cook and Jones 2004). This represented a range of new clients forthese countries' SMEs through the supply chain networks, and some SMEs may have benefitedthrough improved transfer of technology and the transfer of management skills. Conversely foreigncompanies increase the competitive environment in the new member countries and may drive someof these countries' existing SMEs out of the market.

For their part SMEs in the EU27 were hoping that the enlargement process would lead toan improvement in the level of, and skills of, their work forces. Conversely, some SMEs in thenew member countries were concerned about the loss of some of their best -skilled workers,particularly those in border regions.

Enlargement of the European Union therefore provides both opportunities and threats forSMEs in the original EU27 and the enlarged union. Their busi ness environment has changed. Theintroduction of the free movement of labour and capital along with the free movement of goodsand services increases market access and the availability of new resources. At the same timecompetition in domestic markets will increase. For some countries at least there will be morewinners than losers, and various forms of SME support may have to be addressed.

6. CONCLUSION

SMEs are the most prevalent type of business unit in the developed and developing world,and their role and importance in internationalisation is increasing. It may still be th at in quantityterms, large firms dominate in the field of internationalisation, yet SMEs are increasinglybecoming the dynamic forces behind economic growth, by filling market niches, and beingassociated with supply chains and other networks. This chapte r has revealed that the level ofentrepreneurial activity varies between countries. The Lisbon Conference in 2002 put forward aproposal that the European Union was to be seen as one of the most dynamic areas by the year2010, and in this context the European Union has sought to develop a range of policies which haveboth directly and indirectly affected the level, and development, of entrepreneurial activitywithin the Union.

Enlarging the Union in 2007 also provided a number of opportunities for SMEs, though italso posed a number of threats. These opportunities and threats were not likely to be equallydistributed by country or by sector.

Many see the SME sector as providing a cornerstone of EU competitiveness for the future,and the European Union faces an important balancing act between encouraging SME activitythrough a range of support policy, allowing some derogations, and at the same time introducing arange of regulatory provisions to protect both consumers and employees.


91

REFERENCES

[1] Ahlo, K., Kaitila, V., Widgren, M., (2001), The Effects of EU Eastern Enlargement onFinnish Firms, Research Institute of the Finnish Economy (ETLA), Series B.

[2] Anderson, O., (1993), On the internationalizations process of firms: a criticalanalysis, in Journal of International Business Studies, Second Quarter, pp. 209 -31.

[3] Audretsch, D. B., Thurik, A. R., (2001), Capitalism and democracy in the 21st century:from the managed to the entrepreneurial economy , Journal of EvolutionaryEconomics, vol. 10, pp. 17-34.

[4] CEDEFOP (European Centre for the Deve lopment of Vocational Training) (2002),Internationalization and Changing Skills Needs in European Small Firms ,Synthesis Report no. 23, Luxemburg.

[5] Christiansen, H., Bertrand, A., (2003), Trends and Developments in Foreign Dir ectInvestment, OECD, Paris, June.

[6] Cook, M., Coskeran, T., Weatherston, J. (2000) The Northamptonshire ExportSurvey 2000, research report commissioned by Northamptonshire Chamber,December,

[7] Donckels, R., Aerts, R. (1992), SMEs and Internationalization s, KoningBoudewijnstichting in cooperation with the Small Business Research Institute andCERA, Brussels

[8] European Commission (2002 ), Joint Employment Report, COM Council Decision onGuidelines for Member States' Employment Policies for the Year 2002 (2002 /176/EC),

[9] Brussels European Commission (2003) , Creating an Entrepreneurial Europe: Theactivities of the European Union for small and m edium-sized enterprises,Commission Staff Working Paper no. 26, Brussels. European Economy (2003)Supplement A, May, European Network for SME Research (ENSR) (2003a)Internalizations of SMEs, Observatory of European SMEs, Office for OfficialPublications of the European Communities, Luxemburg.

[10] ENSR (2007) Enterprise Survey, Observatory of European SMEs, Luxemburg.[11] European Observatory (2003a) SMEs in Europe 2003, Office for Official Publications of

the European Communities, Luxemburg. European Observatory (2007 ) The Impact ofEU Enlargement on European SMEs, No. 6, Office for Official Publications of theEuropean Communities, Luxemburg

[12] Heshmati, A., (2001), On the growth of micro and small firms: evidence from Sweden ,in Small Business Economics, vol. 17, no. 3, November, pp. 213 -28.

[13] Hohti, S. (2000). Job flows and job quality by establishment size in the Finnishmanufacturing sector, 1980-1994', Small Business Economics, vol. 15, no. 4, pp. 265-81.

[14] Piggott, J., Cook, M. (2006), International Business Economics. A EuropeanPerspective, Palgrave Macmillan, pp. 346 -371


92

INVESTMENT PROJECTS: GENERAL PRESENTATION, DEFINITION,CLASSIFICATION, CHARACTERISTICS THE STAGES


Assistant Ph.D. Student Marcela Cristina HURJUI„Ştefan cel Mare“ University of Suceava

AbstractThe activity of investment must subscribe to the coor dinates of a economic-social development strategy

manifested through programmes or projects. Programmes have a less precise identification, with a wider spectrum and,in most cases, for their implementation it is necessary to detail one or several projects . The investment project is theconcrete motivation of some current expenses in the hope of future benefits. Its specific features, distinguishing it notonly from current activities, but also from other types of projects, are: amplitude, finality and str ucture.

Keywords: project, investment project, performance, time, cost .

1. PROJECTS: DEFINITION, CLASSIFICATION, CHARACTERISTICS

The classification of the activities performed in a company can be made into two bigcategories: operational and entrepreneuri al, project-type activities.

Operational activities are current, repetitive activities, prone to the influence of someinternal factors, controllable through executives, in which the decision -making factors are interestedmore in the optimization of the i nterdependence between the internal organizational structure andthe external medium so as to lead to the increase in the overall performance of the company.

Entrepreneurial activities of the “project” type are non-repetitive, prone to the influence ofsome exogenous variables, and the executives are hard to control completely.

In simple terms, the concept of project is used for work packages or interdisciplinary activities,in which more persons or fields are involved. Usually this is about activities with the characteristicsof a project and not about projects in the strict sense of the word. The use of the concept of projectin a broader sense may lead to the danger that any complex activity may be considered a project,which on the level of an organizati on would lead to the unjustified, bureaucratic complication ofinterior relationships.

Projects are different from operations, which represent primary, routine activities and fromprogrammes, which represent a group of projects managed in coordination, to gain benefits thatwould not result if they were managed separately. The operations can be found both in the projectactivity and in the functional, regular one in an enterprise. The correct classification of a task asproject, programme or operation is im portant from a practical perspective because - according tothis- it needs a certain structural organization, specific progress procedures, techniques and supportinstruments, resource allotment, and it produces specific costs.

Specialised literature abounds in attempts at giving the most accurate definition to theconcept of project. In the English literature there is an obvious tendency to emphasise the action,means and methods of reaching the goals, while the French specialists insist on the intentionalaspect of choosing and defining the purpose.

We estimate that the most accurate definition of project is given by Association Francaise duManagement de Projet“ according to which a project is a specific step which allows the methodicand progressive structuring of a future reality . (1).

An interesting perspective upon the field of application for projects is given by the Frenchsociologist J.P.Boutinet (2) who approaches the topic in the context of the existence of a doubleopposition between the individu al pole of intentions (identity) and the collective pole(participation), as well as between the technical pole of innovation and the existential pole of


93

looking for meaning. From this perspective results a hierarchy of projects on five levels, from themost individual to the ones of great collective involvement, thus:

Individual projects are called “individual” because they refer to the individual, but theiraccomplishment implies several factors. These projects could be: for the youth - career guidanceprojects, social integration projects, for adults - career-related projects, for the elderly- retirement-related projects.

Projects of intention are focused on research, constructions, architecture, buildingequipment and machinery, and they are oriented towar ds purposes of a technical nature toaccomplish them under a system of cost restraints, deadline and technical specifications.

Action projects deal with the acquisition of means necessary in the management of action orinteraction processes such as: fittin g out projects, health projects, educational projects etc. They arealso called “interminable” because they have long life cycles , but they automatically follow thesame duration characteristics enumerated above.

Organizational projects are meant for enterprises or institutions and they seek to combinestrategy with the culture and the spirit of the enterprise.

Social projects are regulated by reference values: urban projects, educational projects,political projects etc.

Organizational projects and social projects are of great collective involvement and usuallydo not imply technical innovation. Anyway, a project does not necessarily involve technicalinnovation, it may be built on the principle of using an old technique in a new manner or focuses onmanagement, commercial, organizational or financial innovation which imply specific techniques ofevaluation and analysis. In general a project has a certain degree of innovation which is not absolutebecause the people, techniques and regulations can cha nge before its final stage.

Practice has shown that it is precisely the lack of clearly defined, operational, quantifiable andcontrollable objectives that often leads to the wrong classification of the task as project, to theincorrect direction of the project or even its failure.

In the Explanatory Dictionary of Romanian, the concept of project is defined as follows: a plan or an intention of doing something, of organizing; the first stage of an economic, social, financial plan that is to be discussed, ac cepted and

approved in order to be applied; some technical work, devised on the basis of a given topic, established and considered

by the beneficiary of the project, which includes economic calculus, drawings and the instructionsnecessary for the execution of a contract, product, machine, pharmaceutical product etc.

Projects are unique activities, oriented towards an objective, with a high level of novelty and acomplex task, but limited from the perspective of material and human resources.

Since a project implies the performance of an activity for the execution of a new product orservice, it is necessary an interdisciplinary collaboration within some organizational structure, theapplication of special methods and the existence of specific risks. Consider ing these aspects, we canidentify the following characteristics:

the existence of a specific, precise and coherent objective;the purpose of the project which is defined by a need, a specific or potential request with

qualitative and technical-economic parameters and functionalities; the purpose of the project is incompetition with time, because this one may elope or even annihilate the results through the ageingof constructive solutions;

the cost of the project, whose size is determined by its dimension s, namely by the level ofallotted resources; the cost is in competition with time: the long delay of its creation or executionmay lead to increases in cost;

limited duration with a specific initiating moment and a specific closing moment, duringwhich there are mobilized resources, means and skills; also, there are defined the intermediate timesof processes, stages and phases of the project;

it may be evaluated on the basis of a specific methodology using criteria for costs and/ orprofitableness;


94

it has a clear geographical and temporal location;it has an administrative and management structure of its own ( head of project and team),

partly or completely autonomous from the overall activity of the entity.In this context we may say that any project is c haracterized by three categories of objectives:

performance objectives, in the sense that any project must be executed within respectingsome technical specifications regarding its execution and functioning, the future products must beon a pre-determined technical standard expressed through its feasibility, maintainability,organoleptic pro-perties etc. or a certain ability to meet the market’s demands;

time objectives, the implementing deadlines of the project, which mean hard restrictionsof the project that must be rigorously respected;

cost objectives, the translation in financial terms of the necessity and effectiveness of theproject for the initiating agent and it is a reflection of the way in which the other two categories ofobjectives are respected.

The ratio of forces between the three categories of objectives may change from a stage toanother of the project’s life -cycle. Thus, in the incipient stage of identifying the idea of the project,technical performance objectives are more important tha n the other two, and cost is more importantthan time.

In the pre-investment stages we may estimate that the three categories of objectives areequally important and the project must be devised in such a way as to satisfy the beneficiary’sdemands from all points of view. In the implementing stages, time is essential, followed bytechnical execution qualities, within the limits of the cost budgets. Periodical evaluation of theprogress of execution usually shows deviations that require supplementary costs, and the simplestway of correction means the re -evaluation of the initial cost budgets.

2. INVESTMENT PROJECTS: DEFINITION, THE STAGES OF ANINVESTMENT PROJECT

The activity of investment must subscribe to the coordinates of a economic -socialdevelopment strategy manifested through programmes or projects. Programmes have a less preciseidentification, with a wider spectrum and, in most cases, for their implementation it is necessary todetail one or several projects.

In this context the investment projec t can be defined as an optimal set of actions ofinvestment based on sector, global and coherent planning on the basis of which a definedcombination of human, material etc. resources leads to economically and socially determineddevelopment.

From the definition we notice that in order to apply a project it needs a set of means,different in their nature, which, to be operated, must rely on well -coordinated actions.

In other words, any activity must take place in a pre -established order, not too early a s thismay mean a waste of resources, but not too late, as this may compromise the project’s purposeitself.

Finally, the project must have a well defined and quantified purpose which, even if it can notbe assimilated with the purpose of the programme i t derives from, must contribute to itsachievement. The investment project is the concrete motivation of some current expenses in thehope of future benefits. Its specific features, distinguishing it not only from current activities, butalso from other types of projects, are: amplitude, finality and structure.

The execution of any investment project is under the pressure of two factors: time and cost.For managers, but also for the other factors involved in the project, respecting the periods forexecution and the consumption of resources: human, material, financial, technical etc. is apermanent preoccupation during execution. But for this they need adequate tools and techniques,both for the correct dimensions of the time and resource parameters and fo r later monitoring andcontrol on site.


95

The shaping of the execution process is based on a specific trait of projects, namely thattheir execution is a complex structure of activities in a specific technological and constructiveinterdependence, characterized by:

assimilation with a certain role during the execution of the project; not performing anactivity may affect execution, the finalizing time or may compromise quality or cost objectives;

strict time delimitation, with a clear beginning and ending;consumption of resources: material, financial, human and time, with a specific cost and

available within limits;connection with at least another activity through a relation of anteriority which,

technologically speaking, shows that it cannot start even if only one of the previous activities is notcompleted- possible partial superimpositions are accepted in particular circumstances.

The activities which contribute to the execution of a project are of three types: actual - consuming resources and

time; expectations- consuming only time ( for example hardening the concrete); fictitious- consuming neither time nor resources, being just technological conditioning

between certain activities in the first two categories.For an investment project to succeed it is firstly necessary a common conception of the

problem and its definition together with the beneficiary, a conception that implies:the clarification of the positions of those involved and the clear definition of the project

theme, which means defining the o bjectives of the project, elaborating the strategy, planning thenecessary means, tools and stages. The clear, quantifiable results of the different stages of theproject will allow qualitative and quantitative evaluation, as well as an evaluation of reach ing theobjectives;

the setting of ways and rules of cooperation with the beneficiary all along the project, anaspect that will allow clarification of language misunderstandings, interpretation of tasks, avoidanceof conflicts, re-evaluation of different problems concerning the execution of the project al minimalexpenses. Solving conflicting situations that occur in any project is easier if there is a basis formutual trust, partnership and understanding the position of each participant in the project;

access to information and provision of quality information by promoting informationpolicies on the progress of the project that must be open, clear, unbiased for negative interpretation.The information must be fairly complete, accurate, sent in adequate fo rm and in due time to thoseusing it in making decisions or in performing an activity, so that it allows a correct estimate of thesituation at any time;

a realistic evaluation of the resources available for the initiation and performance of theproject.

The execution of an investment project cannot start on the idea that the source for certainfacilities will appear later, when its use is urgent.

In the opinion of the PhD candidate, the life -cycle of investment projects includes severalstages, namely the stage of devising the concept, the stage of executing it and the stage ofimplementing it, which are characterized by clear results, their analysis and decision -making for thenext stage. This staging of performing any investment project is utterly important for theintroduction of evaluation, control and decision -making stages after each important stage. Theprogress of an investment project requires specific work methods and adequate principles, oncondition of a systemic approach.

A systemic approach of the whole process of executing an investment project is presentedin figure 1.


96

Figure no. 1- The stages in accomplishing an investment project

The possibility of introducing moments of decision -making after each stage, of exertingcontrol while executing a project, of establishing clear responsibilities and of allotting adistinguished budget is permitted precisely by the execution of the project in clear structures- stagesand processes, and its main purpose is the decrease in uncertainty of executing projects. The clarification and description of those methodological elements which allow a decrease inpractical complexity, through a very c lear organization both of the structure of investment projectsand of the processes of accomplishing them, has practical relevance (3).

In the opinion of the PhD candidate, the correspondence between the stages of the projectand the processes in an investment project is represented as in figure 2.

Figure no. 2- The correspondence between the stages and processes of an investmentproject

Basically, in an investment project, the progress and stages of the project appear as fol lows:the project initiative originates in a stage anterior to the progress of the project and can be

formulated by the primary organization or by other initiators. The objective of this stage is given bythe acceptance of the project by the decision -making factors who must consider the resourcesnecessary to accomplish the project, synthesized mainly in the financial resources, but also reachinga decision upon the benefits of initiating the project. After a verification of the components of thisstage, the analysis of the results of the verifications already done and the implementation of the

Project initiativePreliminary study

Main studyDetailed study

Devising the conceptImplementation

The stages of aninvestment project

The processes within aninvestment project

InitialisingControl

PlanningControl

ExecutionControlClosing

The life-cycle of an investment project

Project initiative

Preliminary study

Main study

Detailed study

Devising a solution

Implementation

Maintenance

Project interruption

Dev

isin

g th

e pr

ojec

t- c

orre

spon

ding

toth

e pr

e-co

ntra

ctua

l sta

geP

roje

ct e

xecu

tion

-co

ntra

ctua

l sta

geP

roje

ct u

se-

post

-co

ntra

ctua

l sta

ge

Eva

luat

ion,

con

trol

, dec

isio

n


97

resulting corrections, the result of this stage is finalized, consisting in establishing the theme, thegeneral objective of the project and the resources allotted fo r the accomplishment of the project.

the preliminary study implies the analysis of the potential of the project, the establishmentof the fields to be approached and of the results to be obtained, the establishment of alternativesolutions and of

the possibilities of its accomplishment from a economic, political and social perspective.Also, this stage implies the identification and establishment of limits, the analysis of the medium,the verification of the project’s feasibility and its global planning. T he results of this stage, afteradequate verification and

analysis, lead to a proposal of progress of the project, which will then involve costs and theinvolvement of the organization in a field that may only be abandoned with loss.

the main study implies the elaboration of a complex concept illustrated by the choice ofthe most adequate option from the perspective of feasibility and of the balance between cost andprofit, the defining of detailed projects, the detailing of sub -projects, the establishment of theirinterfaces with the context of the overall project, the elaboration of recommendations for all sub -projects. All these stages of this phase include a systemic approach, namely monitoring throughadequate types of control and the influence of the final decisions with the results of control.

the stage of the detailed study implies the detailing of procedures of building, the detaileddescription of all sub-projects, of tasks for each participant, including the calculus and theestablishment of budgets.

centralizing the results of the specific stages of the projects, presented above, appears in thestage of elaborating the concept of the investment project , which implies the identification andestablishment of solutions, of adjacent paperwork, establi shing the organizational structures andregulations with a focus on following the main cost -profit objective.

implementation represents the last stage of the investment project, and it implies thepractical application of all the accomplished stages and ph ases. Now it can be seen whether theproject’s paperwork and concept are comprehensible for the user. Along the implementation andpractical application of the project there may occur situations in which the entire system of theproject is prone to one or several re-evaluations, which are imposed by the control systems adequateto this stage.

NOTES :

(1) AFITEP – AFNOR – Vocabulaire de gestion de projets. Ediţia a 2 a, ed. AFNOR, Paris, 1992, p 218(2) Boutinet J.P. – Psychologie des conduites a projet. Collection “Que sais-je ?,nr.2770, 1993, p 126.(3) Mariana Mocanu, Carmen Schuster – Managementul proiectelor, Ed. All Beck, 2001

BIBLIOGRAPHY

[1] AFITEP – AFNOR – Vocabulaire de gestion de projets . Ediţia a 2 a, ed. AFNOR, Paris,1992

[2] Boulescu Mircea, Bârnea Corneliu, Ispir Ovidiu, Control financiar intern şi audit internla entităţile publice , Editura Economică, 2004

[3] Boutinet J.P. – Psychologie des conduites a projet . Collection “Que sais-je ?,nr.2770,1993

[4] C. Russu- Management, Editura Expert, Bucureşti, 1993[5] Cucui Ion, Man Mariana – Costurile şi controlul de gestiune , Editura Economică,

Bucureşti, 2004[6] Dan Drosu Şaguna - Drept financiar şi fiscal , Editura Oscar Print, Bucureşti, 1994[7] Elena Dobre – Controlul şi auditul proiectelor , Editura Economică, 2007[8] Ioan Bogdan, Strategii de control, Editura Nemira, Bucureşti, 1995


98

[9] Ion Ionaşcu, Andrei Tiberiu Filip, Stere Mihai, Control de gestiune, Editura Economică,2003

[10] Ion Florea, Radu Florea, Controlul economico-financiar, C.E.C.C.A.R. 2000[11] Ion Oprean, Control şi audit financiar-contabil, Ed. Intelcredo, Deva, 2002[12] H.Fayol- Administration industrielle et generale , Dunod, Paris, 1925[13] Lazăr M. Cistelecan, Iordachi I. Dumitru, Anghel I. Nicolae, Vladimir T. Bunea,

Eficienţa şi finanţarea investiţiilor , Editura Didactică şi Pedagocică, Bucureşti, 1980[14] Marcel Ghiţă. Audit intern, Editura Economică, 2005.[15] Mariana Mocanu, Carmen Schuster – Managementul proiectelor , Editura All Beck,

2001[16] N. Feleagă, Îmblânzirea junglei contabilitălii, Editura Economică, Bucureşti, 1996[17] P.A.Samuelson- L’Economique, Librairie Armand colin, Paris, 1997[18] Petre V. Popeangă, Controlul financiar contabil , Editor, Tribuna Economică, Bucureşti,

1999[19] Popa Stefan, Dragan Gheorghe - Money laundering and terrorism financing – global

threats on financial routs, Expert Publishing House, Bucharest 2005[20] Popa Stefan, Cucu Adrian “ Underground Economy and Money Laundering”, Expert

Publishing House, Bucharest, 2000[21] Radu Ciurileanu, Controlul propriu al agentului economic , Editura Economică,

Bucureşti, 1996[22] Titus Aslău, Controlul de gestiune dincolo de aparenţe , Editura Economică, 2001[23] *** Culegere de acte normative după documente oficiale.


99

THE CONTROL OF INVESTMENT PROJECTS: TYPES OF CONTROL, THE STAGESOF THE PROCESS, CONTROL SYSTEMS


Abstract:The execution of any investment project is under the pressure of two factors: time and cost. For managers, but

also for the other factors involved in the project, respecting the periods for execution and the consumption of resources:human, material, financial, technical etc. is a permanent preoccupation during execution. But for this they needadequate tools and techniques, both for the correct dimensions of the time and resource parameters and for latermonitoring and control on site.

In these circumstances, a problem that project management faces is finding those methods that would allowdimensioning and controlling the balance between expenses and incomes.

Keywords: investment projects, risks, control system, strategic control, tactical control, operational control.

Thus, while financial control helps in monitoring important aspects of the performance ofan investment project, its sub-projects and components, budgetary control offers the quantitati vetools of monitoring the superimposition of performed incomes and expenses with the planned ones.The control of quality offers means of evaluation for the quality of products and services, with thepurpose of increasing the project’s competitiveness. T he control of each stage of executing theproject offers the possibility of checking the availability of entries for the next stage, in the situationof minimal costs.

The types of control used differ according to their degree of use on different l evels ofaccomplishing the investment project. Thus, financial control is mainly used on a hierarchicallyupper level, as it especially focuses on the financial aspects of the project. Monitoring the financialaspects which affect the activity on the mediu m and lower levels is primarily done with the help ofbudgetary control, as this type of control allows the analysis of activities from the perspective ofallotted budgets.

The issues previously presented empha -sise a different stress on coordinati on, which refersto the way in which control is applied before, during or after the process of accomplishing a stage orphase of the investment project. Financial control repre -sents a post-activity control mechanism,because the information is generally e valuated at the end of the reporting periods. But exertingcontrol at the end of the project may result in the impossibility of making any changes that wouldmodify a certain situation in a phase or sub -phase of the project. On the contrary, budgetary cont rolcan be used to adjust the ongoing activity, which would lead to attaining the objectives regardingthe budget level, considering the fact that information is useful in planning some changes that mayaffect the future performance and results of the proj ect. If the budgets are analysed only at the endof certain periods, budgetary control is close to post -activity control.

With reference to the control system of investment projects, I consider it is necessary tofollow these stages:

the establishment of stages and operations that must be controlled : before the beginningof the process of control, there must be a decision on the most important operations, processes,stages of the project to be controlled, a necessary option because the control of each aspec t in theactivity of the project is virtually impossible to do, and the employees hate the idea of beingcontrolled at every step. It is necessary to base control on the objectives of the investment project,on the ongoing activities and the process of pla nning.

the establishment of standards : in the process of control, standards play a special partbecause they provide the specific criteria of evaluating the employees’ performance and attitude.Although such standards are included in the objectives settled in the phase of devising the project,for the necessity of change to be relatively low, during the application of control there is a


100

possibility that these standards be revised. Generally, standards serve some important purposesrelated to the attitude of the human factor involved in the project. Thus, first of all, standards offerthe employees the possibility of estimating the results of their work and of knowing the way inwhich they will be evaluated, a fact that allows them to perform their work effic iently. Secondly,standards offer a starting basis in detecting the difficulties of the post, regarding the personallimitations of the project’s members. These limitations may be based on lack of ability, expertise orexperience, or other types of deficie ncies related to the work performed, which prevent employeesfrom performing their tasks properly. The detection of these deficiencies on time allows theapplication of corrections before the difficulties become serious or even unsolvable. Eventually,standards help in reducing the possible negative effects of the incompatibility of objectives, whichsignal the situation in which there are important disagreements between the individual objectives ofthe employees and those of the project.

the measurement of performance constitutes the next step after establishing thestandards: for a fixed standard, there must be a decision on how performance must be evaluatedand how often this is facilitated. The means of evaluating performance depend on the establishedstandards. Once the means selected, there must be decided the frequency of evaluating theperformance through control. In some cases, data is necessary daily or even more often, eventhough the specific of investment projects is monthly, quarterly, half -yearly or even annualreporting. The period of evaluation generally depends on the importance of the respective objectivefor the project, on the likelihood of a sudden change of situation, on the difficulty of correcting aproblem that may appear and on its c ost.

comparing performance with standards consists in comparing performance, evaluated inthe third phase, with the standards established in the second phase. This comparison is often basedon the information provided by reports emphasizing the planned lev el and the results, respectively.Such reports could be presented orally, in writing or automatically provided by different specialsoft. Through computer networks there can be obtained every minute reports regarding differentquantitative evaluations of performance.

acknowledgement of performance . When performance reaches or surpasses establishedstandards, there should be known the positive results obtained, both in non -verbal language and inoffering substantial rewards in the form of bonuses, training o pportunities or pay rises, in the caseof a special result or of appropriate accomplishment of work tasks. This approach is compatiblewith the theories of motivation, such as the theory of expectances and the theory of support, whichstress on the importance of rewarding performance to support and encourage these results as muchas possible.

taking necessary measures to correct the errors. When standards are not respected, theremust be a thorough analysis of the causes and quick correction. During this ev aluation, there isusually a verification of the standards and of appropriate results to check if they are realistic. It canoften be concluded that sometimes standards are inadequate, generally because of the changes in theconditions of executing the act ivity, and that corrective actions are paramount for the purpose ofattaining the established standards.

adjusting the standards according to necessities is imposed by the fact that standardsmust be checked periodically to ensure that their association wi th the evaluation of performance isrelevant for the future. The existing standards and the evaluation of performance may beinappropriate, on one hand because they were incompatible from the beginning or, on the otherhand, because there were changes in t he conditions of performing the activity. In the same sense,surpassing standards may signal the existence of unsuspected opportunities, even if standards wereattained. In such cases there must be a change in conditions, an improvement of the employees’level of training, with the possibility of rising standards in future stages and phases.

There may also be situations in which attaining a standard consumes too many resources,and there is made a decision of lowering it, using control to accomplis h different activities in theproject on time and within corresponding parameters, but there must be consideration for the factthat it is necessary an analysis of the process itself, to make sure it corresponds to the current needs.


101

Well-formulated objectives, strategic plans and sustained purposes offer an image of what isimportant for an investment project, so that we can obtain the expected results of the project.

In making the decisions on what must be controlled, there must be considered the reliabilityon resources of the specific field, which implies an approach of control especially in areas in whichthe accomplishment of the activity depends on others. In this context, resources includeinformation, services, funds or any other type of re sources that are necessary to attain theobjectives.

As a conclusion, we may classify the control systems of projects into two large categories:the extrinsic and the intrinsic system.

The extrinsic system implies exerting control by specialized organs fro m the outside,entrusted by law to exert control on investment projects. The objectives of these activities are inmost cases of a juridical or financial nature.

At the same time, extrinsic control is done internally too within the management proce ss ofthe investment project through a series of mechanisms specific to any organization. Into thiscategory fall the control processes of entries, exits and processes adjacent to the project. Althoughinternal, this control appears as extrinsic in relatio n with the employees.

As a specific trait of this extrinsic system there is preventative control, which representsan antefactum process focused on the analysis of entries. It consists in the examination ofinformation in the external medium and of the quality of the entries of resources in the system, theircomparison with the established standards and the proceedings to actions upon entries that wouldensure the prevention of eventually inappropriate results.

Preventative control is performed both on the objectives proposed and on the modalities toaccomplish them, so as to minimize the possible human errors. Preventative control is closelyrelated to the management of risk, in the sense of evaluating probable risks and their negativeconsequences. In other words, through preventative control there is an attempt at exerting control onthe uncontrollable.

Also, still in the extrinsic system, there is corrective control, which focuses on the analysisof exits, namely of products or se rvices. It is postfactum control, consisting in the measurement ofactual performance of the process of production and of exits, comparing them with the establishedstandards and triggering corrective actions upon all the elements of the system, to ensure theanticipated performance.

In this context there are also activities of control with an economic character and a juridicalcharacter.

Diagnostic control focuses on the components of the project and its analysis by consideringdifferent prisms of performance.

Control through budget focuses on the analysis of economic values that syntheticallydescribe the process of the project and its performance. Budgets, as value expressions of the planselaborated by managers, contain the objec tives established to be attained and the financial valuesassociated to different stages of execution. Control through budget represents an important aspect ofthe process of budgeting and allows the comparison between the results obtained and the onesexpected, the establishment and reporting of deviations, with the purpose of keeping expensesbetween the established limits.

In these circumstances, a problem that project management faces is finding those methodsthat would allow dimensioning and c ontrolling the balance between expenses and incomes. Sincebudgeting represents a systematic economic practice which implies a formal process of allottingfinancial resources, with the purpose of attaining some objectives established for the next periods,budget can become an instrument of correlation and especially of improving the connectionbetween the expenses and the incomes related to the project.

Budget is, in the current view, a financial plan through which there can be foreseen infinancial form the shares of the financial whole which are adjacent to attaining an objective by acertain organizational subdivision, complying several functions:


102

it presents the foreseen values of incomes, expenses and future profits, so they can beused as real financial standards;

it represents a useful tool in planning because it expresses the future objectives andanalyses the ways of attaining these objectives;

it reflects the limited character of the resources owned by an organization andestablishes the limits that must be considered when allotting resources to the organization;

it represents a useful tool for managers in the process of evaluating the financialperformance of the company.

Budget can be elaborated by the top management of the organizat ion and transmitted tobe applied to its lower levels or may be elaborated by the managers on lower levels and transmittedfor approval to the top management.

For investment projects, characterized by various activities, adapting budgeting to thissituation is done by establishing flexible budgets, elaborated on different levels, considering thefollowing characteristics:

planning and coordinating, it implies elaboration not only of the main budget, but also ofsecondary budgets. This makes managers consider the connection between the functions of budgetsand the diverse departments in the formal structure of projects for which they are meant, andanalyse the way in which these departments contribute to attaining the objectives establishedthrough budgets;

authority and responsibility, meaning authority for all plans of activity and allowsmanagement application in exception, that is an employee is given a well -defined role, with theauthority of accomplishing the given tasks. When their activity does not take place according tobudget planning, the situation is reported and analysed on a higher hierarchical level;

communication, representing a way of establishing relations between the upper levelmanagement of the project and the one on lower levels, for the purpose of applying the objectives.Another side of communication is represented by reporting approved plans which can be found inthe overall budget;

motivation, a mobilizing factor for the involvement of the manager on the medium andlower levels in attaining the objectives that will be compared with the performance.

Budgeting allows the presentation of all previsions on the activity of the project anddecentralizing management through dividing activities on centres of responsibility investe d withauthority and responsible for the administration of resources with the purpose of attaining theforeseen objectives.

The intrinsic system is represented by self-control on the level of each employee, based onthe value system of the organizati onal culture and on workplace education focused onprofessionalism and professional ethics. Intrinsic control is done by psychological mechanisms onthe level of each employee of the institution, being the most efficient control system, but also themost difficult to exert.

Control processes of a project must not be started only when errors occur and they must becorrected. From a short analysis there can be deduced which points in the project are to becontrolled, what is to be controlled, how measu rements are to be made, what the level of acceptederrors is compared with the plan, how we will intervene and the likelihood of avoiding possibledeviations.

Control through limits is exerted upon each employee by the establishment of somebehavioural limits. This type of control starts from the idea that when an employee behavedaccording to the requirements of his position in the organization, without crossing the limits indecision-making and ethical competences, he will successfully accomplish the wor k task given. Inthis case control becomes self-control, each employee being interested in the successfulaccomplishment of the company’s objectives. These limits are established as principles orbehavioural rules, which appear in the set of internal regul ations.

Control through values is similar to the previous one, but the stress is not on establishingbehavioural and action limits, but on the development of a set of fundamental values regarding life


103

and work in the company. This is part of the evolutio n of an organizational culture which isstimulating and responsible, and ensures motivation in all employees to accomplish the mission ofthe project. The effectiveness of this control depends on the degree of culture and education of eachemployee, as well as on the efficiency in developing an organizational culture that includesfundamental values, reflects professionalism, performance, quality, innovation of the team spirit,fairness, trust and self-confidence, respect for value, time, people and their o pinions. Theimplementation of total quality management is a superior form of developing control through valueson an overall level.

Cyber control (also known as control of reactions), although by far the best known controlsystem, is the least used in investment projects because its components and results actuallyrepresent compulsory elements to include in the next stages or to revise the stages performed inaccomplishing the project. The basic idea of cyber control is that entries are turned int o exits whichare entries for the next stage of the project.

The differences between the real result and the standards are transmitted to a decision -maker, who will decide if they need correction or not, if any. If the differences are significantenough to need corrections, a signal is transmitted to the executor, who will intervene on theprocess or the entries so that the process creates exits closer to the established standards.

Cyber controls can be organized differently according to how sophisticated the standardsare, as follows:

first-order control, which implies establishing the standard and adopting a mechanismto monitor the objective, without any changes brought to this, except for external interventions;

second-order control, also named a learning system, which implies a mechanism ofchanging the standards, being programmed to identify models and react to them;

third-order control, which considers the fact that objectives may change without anyspecific reprogramming, with the possibility of rethinking performance and making decisions whenidentifying unknown or unmentioned actions.

Go/No-go control can be used especially in evaluating projects, mainly from an economicperspective. The project planning, its budget and cal endar represent documents of control on whichit can be exerted on any level of detailing that can be supported by them. Although this type ofcontrol operates regularly, periodically, on intervals pre -established on the basis of a calendar, thereshould be considered the fact that the control points of the project do not appear as ordered periodicintervals. This requires a revision of the markers at certain intervals to keep up with all the aspectsof the project, directly or through the participants on t he lower levels. That is why there must becreated a system of early warning so that possible problems could be identified and solved beforethey turn into hazards and disasters. A way of building such a system is the use of a prognosis tablein which the outputs and the progresses are timed for different periods, they creating a basis forcomparison with exits and prognoses corresponding to each period. (3).

In the opinion of the PhD candidate, this control system is the best to use in controllinginvestment projects, because it has a positive effect on the project team by the fact that the mainconcern is the quality of the project overall, which is mainly provided by the team’s performanceand not by aspects of individual work.

Post-control, also named post-performance, post-process or post-project control, is appliedafter the project is finalized. It does not represent an attempt at correcting what already happenedand is actually an acknowledgement of George Santayana’s observation, say ing that “Those whoforget the past are doomed to repeat it. “

While cyber control and go/no -go control are concerned with accomplishing the objectivesof an ongoing project, post -control is concerned with accomplishing the objectives of futureprojects and is applied through a relatively formal document.

Planning control on investment projects from the perspective of performance, cost and timederives from different causes, factors that may later become hazards in failing to accomplishprojects, including fundamental objectives in view.


104

The function of control implies the implementation of certain methods that must address thefollowing problems:

correct quantification of the connection between real and planned results; the identification of means through which the comparison could be made between these

results; establishing recommended collective action and the person authorized to do it.

In the opinion of the PhD candidate, control of investment projects considers the followingmethods of control:

pre-control methods, offering the possibility that results in the near future coincide withthe planned ones. The different policies, as long as they define future actions too, representimportant pre-control methods which involve human, material and financial resources;

concurrent methods, consisting in supervising the employees’ work. The use of theauthority of function to exert concurrent control has become - in time- more and more difficult, dueto the rapid changes of markets and technologies, which led to an increase in the importance of theinfluence of project managers to the employees to the damage of authority in itself. Operationaldecisions based on methods of concurrent control determine how many products are made a ndwhen. These decisions are named operative production programmes, or usually models in a net areused, or models of linear programming.

In the second category there are the models that help in determining foreseen values ofvariables that affect the results. The project manager may exert a certain control upon thesevariables, named linear control, because the mathematical equations used in describing these specialsystems are linear in shape.

In the category of concurrent methods there are also methods of financial control that allowmanagers to allot and evaluate the use of financial resources necessary for a product. At the sametime, they provide project managers with acceptable, solvable cash and standards of profitability.This way there are created budgets that allot funds for each major category of expenses, andplanning and budgeting are ineffective unless supported by policies and procedures that define thetransactions to be done. Concurrent control of the financial resources is main ly implemented through internal control.

post-control methods use past results as a basis for coercion in future actions. Thesemethods focus on: the analysis of the employees’ performance, quality control, the analysis ofstandard costs and the evaluation of employees’ performance. As a control technique in general, control comparison can be used within control ininvestment projects, through which it is established the legal basis and the effectiveness ofeconomic and financial operations and activities, in the examination of documents and synoptictables, of recording in the technical -operative and accountancy balance. Within control of investment projects there can be successfully used the method ofcomparing technical consumption of materials, raw materials and semi -manufactured goods withthe ones recorded in the accountancy balance on the basis of devised documents. To make a comparison it is necessary that the accountancy balance is kept properly so itwould ensure that all parties involved accomplish their pre -established tasks. Accountancy must accurately present all the aspects of a project, all the entries and exits ofresources involved in the project, and the detailed costs of the project. At the sam e time, theaccountancy of the project must include details referring to the project manager, to the person whomade the estimates, to the supplier, the contractor and of course the client, namely the ultimateusers of the project. In the accountancy of the investment project there must be found analytically the recordingof data according to economic paperwork, the objective of investment, on specifications of works (for example the specification on investment objectives) or on the basis of t he overall specificationsof the investment ( the balance of expenses to obtain and preparation of the area, expenses on theinfrastructure of the objective, expenses on planning and technical assistance, expenses on theprimary investment, on exploitation and other expenses).


105

All methods of control (pre -control, concurrent and post -control) must not be regardedseparately, but they must be joined within an integrative control system that ensures standards,information and corrective actions on every step from entering the system to exiting it. We are of the opinion that , irrespective of the level on which it is exerted and of thepursued objectives, the system of financial control of investment projects includes three distinctmoments, between which there are connections:

a comparison between the situation on paper and the real one is a process throughwhich there is a focus on presenting the real situation starting from the ideal situation or theproposed one, based on the entries in the system derived from norms, rules and directions of themanagement system. The process has three stages: establishing the ideal situation, establishingdifferences that may be considered in comparing the real situation with the ideal one, as well asestablishing the real situation on the basis of entries in the system that is economically and sociallycontrolled.

the analysis and evaluation of the results and deviations consists in establishing thedeviations of the real situation from the ideal one and from the differences accepted, and thenevaluating the corrective measures to be taken. Also in this stage there must be established thecauses that led to the deviations.

the use of the findings is the process through which there are established exits fromthe system in the form of corrective measures of the deviations that can be used for the properfunctioning of the controlled economic -social system, measures of improving the legislative systemand devising recommendations to the management system of the economic-social activity. Since in accountancy balance there must be a record of the material, human and financialresources of the organization, the process is different for each separate case, this way:

the control of material resources - implies the control, be it corrective or preventative -of the way of using and maintaining them, but also of planning maintenance and replacements sothat the ongoing activities are not affected.

For the project it is important to finalize preve ntative maintenance before the last stagein the project’s life-cycle. Planning this preventative maintenance can be very difficult becauseoften in execution it is not known exactly the moment of finalizing the project. The techniques ofcontrol of material resources are: physical inspection, reception, storage, as well as the way ofrecording these in accountancy.

the control of financial resources is much simpler, motivated by the fact that validfinancial- accountancy regulations led to the appearance o f adequate methods and instruments forfinancial control in accountancy and for the use of the financial resources of an organization. Mostfinancial control focuses simultaneously on conserving financial resources and on their regular usedue to the difficulties encountered in separating the two processes. It can be noticed that the system of financial control is directly connected to the system ofmanaging the economic-social activity, to the system of objective economic rules, to the economic -social process as well as to the accountancy balance. The objective economic rules can influence theorganization and functioning of financial control. These largely depend on the way in which themanagement of the economic - financial activity, as well as that of the financial control, succeeds increating a better connection between the two systems. Between the system of managing the economic -social activity, the financial control systemand the accountancy system there are connections of interf erence in the sense that the first systemprovides the purposes, objectives and norms, control establishes if the economic and financialactivity is organized and carried out according to established principles or rules, and accountancythrough its system of markers allows the evaluation and provision of information for the correctionof the entire process of the investment project. The essential moment of the process of control is the comparison. Comparison in controlpresents specific aspects depending on the nature of the controlled economic -financial operationsand activities, the methodology in calculus and the evidence system. The compared operations oractivities must be homogeneous, calculated and expressed according to the same methodolog y.


106

Methodologically, the system of financial control is a process of acknowledgement thatimplies several moments: knowing the established situation, knowing the real situation, knowingthe deviations by comparing the real situation with the est ablished one, conclusions, proposals,measures.

the control of human resources focuses on the four main activities in the field ofpersonnel: planning human resources, recruiting, selecting, guiding. Control applied in the field ofhuman relations can appear also as a system of reaction in which there are many diverse activities,which constitute the so-called “evaluation of performance”. The processes and evaluationprocedures of performance accomplish two major objectives: of judgement and of development.

To conclude, in the opinion of the PhD candidate, planning control of investment projectsderive from the three main factors that influence any project and that may later become hazards ofpartial or total failure of the project:

resources: control must consider the regulation of the intensity in resourceconsumption during execution, with or without observing specific restrictive conditions - especiallythe analysis concerns the “problematic” resources for the investor;

cost: there will be considered the analysis and optimization of the cost/ durationfunction, the analysis of the total cost concerning the avoidance of the projected level of expensesand the optimum use of funds;

time: control focuses on solving the problems regarding the execution t ime of theproject, the time reserves of each activity in the schedule, the identification of activities that formthe critical path etc.

In most cases, projects take place exactly as planned, but sometimes they changecomponents: size, objectives, budget, schedule, plan, priorities, hired personnel etc. Since change isinevitable, the management of the impact these changes have represents a key aspect of projectcontrol.

Although any change needs re -planning, re-approval and then a new execu tion, I considerthat the best approach of change in a project is announcing it to the members of the team or only tothe project management team, and asking for their opinions on the ways of implementing thechange in the project.

NOTES:

(1), (2), (3) Elena Dobre – Controlul şi auditul proiectelor, Bucureşti, Editura Economică, 2007

BIBLIOGRAFIE

[24] AFITEP – AFNOR – Vocabulaire de gestion de projets. Ediţia a 2 a, ed. AFNOR,Paris, 1992

[25] Boulescu Mircea, Bârnea Corneliu, Ispir Ovidiu, Control financiar intern şi auditintern la entităţile publice , Editura Economică, 2004

[26] Boulescu Mircea, Marcel Ghiţă, Expertiza contabilă şi audit financiar , EdituraDidactică şi Pedagogică, Bucureşti, 1999

[27] Boutinet J.P. – Psychologie des conduites a projet. Collection “Que sa is-je ?,nr.2770,1993

[28] Briciu Sorin, Ioan Dobra, Nicolae Todea, Control-Expertiză-Audit- Noţiuni generale,Editura Şcoala Albei, 1998

[29] C. Russu- Management, Editura Expert, Bucureşti, 1993[30] Cucui Ion, Man Mariana – Costurile şi controlul de gestiune, Editura Economică,

Bucureşti, 2004[31] Dan Drosu Şaguna - Drept financiar şi fiscal , Editura Oscar Print, Bucureşti, 1994[32] Elena Dobre – Controlul şi auditul proiectelor, Editura Economică, 2007[33] Ioan Bogdan, Strategii de control, Editura Nemira, Bucureşti, 1995


107

[34] Ion Ionaşcu, Andrei Tiberiu Filip, Stere Mihai, Control de gestiune , EdituraEconomică, 2003

[35] Ion Florea, Radu Florea, Controlul economico-financiar, C.E.C.C.A.R. 2000[36] Ion Oprean, Control şi audit financiar -contabil, Ed. Intelcredo, Deva, 2002[37] H.Fayol- Administration industrielle et generale, Dunod, Paris, 1925[38] Lazăr M. Cistelecan, Iordachi I. Dumitru, Anghel I. Nicolae, Vladimir T. Bunea,

Eficienţa şi finanţarea investiţiilor, Editura Didactică şi Pedagocică, Bucureşti, 1980[39] Marcel Ghiţă. Audit intern, Editura Economică, 2005.[40] Mariana Mocanu, Carmen Schuster – Managementul proiectelor, Editura All Beck,

2001[41] N. Feleagă, Îmblânzirea junglei contabilitălii, Editura Economică, Bucureşti, 1996[42] P.A.Samuelson- L”Economique, Librairie Armand colin, Paris, 1997[43] Petre V. Popeangă, Controlul financiar contabil , Editor, Tribuna Economică,

Bucureşti, 1999[44] Popa Stefan, Dragan Gheorghe “Money laundering and terrorism financing – global

threats on financial routs”, Expert Publishing House, Bucharest 2005[45] Popa Stefan, Cucu Adrian “ Underground Economy and Money Laundering”, Expert

Publishing House, Bucharest, 2000[46] Radu Ciurileanu, Controlul propriu al agentului economic , Editura Economică,

Bucureşti, 1996[47] Titus Aslău, Controlul de gestiune dincolo de aparenţe, Editura Economică, 20 01[48] *** Culegere de acte normative după documente oficiale.


108

THE IMPACT OF LEADERSHIP ON THE ORGANIZATIONAL LEVEL

Eng. Claudia FRĂŢILĂ„Ştefan cel Mare”University of Suceava, Romania

[email protected]

Abstract:The transition to free enterprise is defini tely conditioned by the implementation in all economy’s components

of the high performance management, executed by the professional managers. In the last decade, leadership took theform of a major management component, presenting yet a special specificity and autonomy, having a major influenceand not rarely even definitely over the organizations performances. As a result, the knowledge and taking intoconsideration the base elements as concerns the leadership presents an especial usefulness, by all those exercising orbeing trained, within the managerial processes of trade companies, public administration, ministers.

Keywords: leadership, enterprise, management

The transition to free enterprise is definitely conditioned by the implementation in alleconomy’s components of the high performance management, executed by the professionalmanagers. In the last decade, leadership took the form of a major management component,presenting yet a special specificity and autonomy, having a major influence and not rarely evendefinitely over the organizations performances. As a result, the knowledge and taking intoconsideration the base elements as concerns the leadership presents an especial usefulness, by allthose exercising or being trained, within the manageri al processes of trade companies, publicadministration, ministers etc.

The leadership – one of the most frequent elements examined and actual of the management– behaves a wide range of approaches. On the leadership’s basis, the team spirit stands to; thispresents a great pragmatic importance.

The leadership represents the process by which a person establishes a goal or a direction forone or more persons and determines them to act together with competence and full dedication overtheir achievement.

Basically, the team spirit is defined as that state reflecting the people wish for harmonicallythinking, feeling and behaving with the other managers of the group of which they are part to, witha view of carrying out a common aim. We can thus materializ e by the fact that within the goal’sexecution process, the leader is “followed” by other persons in conditions of a strong, competent,affective and acting involvement, those that determine achieving the foreseen results.

Related to the interface betwee n leadership and management and implicitly between theleader and manager, the specialists’ opinions are different. Thus, Jim Harris (1), co-author of TheBest Companies to Work in Canada volume considers that there is an obvious delimitation betweenmanagement and leadership. Other authors consider that, especially from pragmatic reasons, thedifferentiation of management by leadership (2) isn’t recommended.

The leadership has especially in view the human part of the management, moreover that partof involvement or training a group of persons by a leader. As most of the specialist says, themanagement includes a wider area of managing aspects, the leadership representing in fact acomponent of it, formed especially by involvement of a group of people’s man ager on executingcertain tasks.

Stephen Clement and Elliot Jacques consider that it cannot be brought into discussion thesimple leader, but the managerial leader, the political leader etc. Considering the managerialleader, it is emphasized (3) that the leadership has in view the parts functionality, which come tomanager on his quality of official to leading position exercised.

Properly, as those two mentioned American specialists, “the basis of the managerialhierarchy is under the functions of mana ger, which always contain, as one of its major elements, theleadership. A good management includes a leadership responsible as integral part of it , without

[email protected]


109

which the manager as such does not exist” (4) . If the character of general manager is taken intoconsideration for a company, then it will clearly result the leadership’s position within themanagement.

The leadership assumes a minimum number of native qualities, that by an adequate trainingcan be sensitively benefited, fact that reflects on substanti al amplifying of leader’s influencetowards others, subordinated for reaching certain objectives.

The content, the mean of manifestation and efficacy of the leadership are the result of manymajor or determinant factors. Through leadership, we will designate a leader’s ability, a managingrepresentative for determining a group of persons of co -working together with a view to achieve anobjective on the basis of their strong affective and functional involvement.

The native characteristics of a person or l eader represent a prior determinant. Withouthaving a claim of being exhaustive, we mention some of the most important personal qualities thatleadership base upon. The intelligence is the first among these. The native intelligence is reflectedon the ability of forming efficient and attracting objectives for the others, on capacity ofestablishing the mobilization means of attracting other persons on achieving the objectives, onobserving those arguments that, once presented, attract and convince others to involve on necessarywork processes carrying out. As an essential quality – other quality – the charisma - less approachedwithin managerial literature in Romania is also considered.

By charisma one can understand the ability of a person to inspire or amp lify other persons’involvement on carrying out certain actions.

The training received by the leader represents another determinant of the leadership.Training related to its contribution on developing the leadership is treated on at least three parts:general training, specialty training and managerial and the situation where the leader is or islocated. By its parameters, by the needs and embedded conditions, the situation on which the leaderacts will condition in many ways the practiced leadership. As a matter of fact, we can differentiate adouble conditioning of the leadership.

First is the general contextual conditioning that reflects the basis characteristics of theorganization in which the manager works.

The second conditioning of the leadership has the strictly managerial nature.The point of starting on understanding the leadership’s mechanism is represented by the

axiom: there are no good leaders without good quality persons that have to follow. Thus, theessence of leadership’s mechanism consists on determining to follow the leader, those persons ableto contribute on objective achievement had in view.

Synthesized, the mechanism of leadership summarizes to:• exerting the leadership as concerns the goals establishment, means of execu tion, of self trust andof volunteer and affective availability with a view to carry out the set of necessary actions, using aspecific behavior;• manifesting the leader’s capacity of listening and concomitantly, of creating ideas and emotionson potential participants over carrying out the aimed goal;• connecting the leader’s goals, ideas and opinions with the others goals, ideas and opinions; it hasto be mentioned that on starting stage there are rarely differences or even oppositions between theleader and persons subordinates or involved;• determining the persons to believe, feel and behavior on an appreciable level related to leader’spoints of view; upon the basis of these evolutions and results, is the capacity of leader for“inspiring” the other;• of carrying out and maintaining the dedication of approached persons with a view to achieve theresults corresponding to the aimed objectives.The content and proper means of carrying out these stages depend on significant measure of theavailability or “matureness” of persons had in view as leader. Considering this point of view, withinthe specialty literature, four classes of persons are distinguished (5) : those that cannot and do notwish to get involved; those that cannot, but wish to involve; th ose that can, but do not wish to getinvolved; those that can and wish to involve.


110

Depending on the met class of persons, the leader uses different types of power. The contentand efficacy of the leadership sensitively depend upon the organizational cul ture characteristicsinvolved and by the capacity of the leader to understand and take into consideration.

On exercising the leadership, the representatives of managing take into consideration a widerange of methods, techniques and means that carry on i n different ways, depending on the involvedmanagerial situation parameters. Among these, we mention:• the accurate definition of objectives of execution by leadership;• transmitting of information to sensitizing, knowledge, attracting, convincing, insp iration, acting ofsubordinates within certain meetings and individual sessions;• programming of leader’s and subordinates tasks, depending on the leadership’s objectives;• frequent calling to method if tasks, competences and authorities delegation;• adviser’s quality represent a specific technique, visible in the last decades within developedcountries, among which the managers promote the leadership;• negotiating with informal leaders with a view to achieve the intensive participation on exercisingthe leadership;• calling to different methods of reducing the leader’s stress based upon relaxing, diet and physicalexercises;• executing of unions with certain subordinates in a view to increase the leader’s power, with aview to accomplish the aimed goa ls.

A particular category of techniques refers on evaluating the efficacy of carry out theleadership.Of this class, we can mention the technique proposed by P. Hershey and K. Blanchard (6), namedLEAP (Leader Effectiveness and Adaptability Profile) based upon taking into consideration ofrelation between the leader and those persons’ class delimited depending on their availability forachieving the leadership. Another technique B.S.E. (Behavioral Style Evaluation) can identify,depending on a specific criterion set, types of leaders – analysts, relations performers, social anddynamic – that sensitively and different materializes the leadership.In the last decade, as a result of observing the importance and especial efficiency of leadership,creating of special programs of developing the managerial leadership within the organizations wasadopted.

Obviously, the styles of leadership are connected to managerial styles of which theysignificantly overlap, but towards which present certain specific e lements. A first classifying, themost used on specialty literature and depending on the managerial and psychological characteristicsinvolved delimitates four styles of leadership :a) the autocratic, characterized by a strictly supervise of subordinates by the chief, informationalflows directed preponderantly from up to down, creating the fear within the subordinates, the fearacting as a control mean.b) the bureaucratic, on which communication is executed in an appreciable measure for written,that emphasizes the documents and stamps as main execution and control means of activities,discouraging the initiative and innovation, frequently and negatively affecting the employeesethical.c) the “laissez-faire”, among which the actions established by the superior management, the wide

acting freedom is offered to subordinates, their control being almost null; it is used especially nsmall beginning companies ant to organizations based upon high techniques, that use highqualification specialists, passionat e of their work.d) the democratic, whose main sizes are sociability, flexibility, cooperation, good communications– ascendant, descendant – and horizontal, the spirit of managing and friendly climate within theorganization.

A novelty element on Mark Edwards specialist point of view is represented by the symbolicleadership. Its base is constituted by the mutual trust between and among the manager, subordinatesand other persons within the organization.


111

Another delimitation of leadership styles is that depending on the enclosing area oforganizational staff. Considering this point of view, the main inter -personal leadership and theorganizational leadership are delimited.

The inter-personal leadership has as area of enclosing the relation between the managers ofwork collective – team, office, laboratory etc. – and the personal that is subordinated to.

The organizational leadership reports either to an organization on its generality or to majorcomponents of it, but not considering only the employees subordinated without conditions to amanaging body.

Within the organizational leadership , many categories can be delimited, depending onhierarchical levels and of departments that organization encloses. The most frequently delimited isthe general organizational leadership – that has in view the main departments groups or areas oforganization.

Taking into consideration the major problem on managerial practice, related to leadership,consists on growth of its efficacy subordinated to achieving certain r esults, as much as of highperformance by the organization. A first major aspect involved is represented by the choice of anefficient leadership. In the specialty literature, it is considered that a certain structuring as concernsthe leadership content in function and especially on work tasks involved by the concerning intensityfor their functionality and respectively by the inter -personal relationships, considered in attentiongiven.

With a view to deeply emphasize what the leadership brings in addition to a manager withinthe present times and why this is necessary, the professor Katzenbach (7) submitted in a syntheticmean the “classical” good manager characteristics with those of the “leader” manager in present,whose activity lies on promoting the changes. Conceiving and making functional the changesrepresents the requirement and prior difficulty that is met by the companies’ manager at the end ofthe second millennium.

Naturally, especial problems are brought on the leadership level, when within anorganization great changes are performed . In this situation, is necessary that leadership should takeinto consideration those three stages specific to any process of change (8) : “unfreezing” the presentsystem, its effective change and “freezing it”, by decisions, rules etc. Approaching the leadershipupon the basis of presented elements has the character of determining the organizationperformances amplifying concerned multi -dimensionally. As results from the presentedinformation, the leadership sets up all the fields and major performances of an organization.

More than that, high reputation specialists, as the Belgian professor Philippe De Woot, saythat (9) “on the tumultuous present world, the leadership becomes more important than themanagement methods and techniques”.

NOTES:

[1] J. Harris ş.a., The Best Companies Work in Canada , Strategic Advantages Toronto, 1995[2] O. Nicolescu, I. Verboncu, Fundamentele managementului organizaţiei (The basis of the organization’

management), Editura Economică, Bucureşti, 2002[3] J. Clement, Executive Leadership, Casai Hall, Arlington, 1991[4] O. Nicolescu, I. Verboncu, Op. cit.[5] O. Nicolescu, I. Verboncu, Op. cit.[6] Hershez, K, Balanchard, Situational Leadership, Prentince Hall, New York, 1988[7] J. Harris ş.a., The Best Companies Work in Canada , Strategic Advantages Toronto, 1995[8] O. Nicolescu, I. Verboncu, Op. cit.[9] x x x Organizează-ţi bine timpul (Organize well your time ), Editura Rentrop & Straton, Bucureşti, 1998

BIBLIOGRAPHY:

[1] Hershez, K, Balanchard, 1988, Situational Leadership, Prentince Hall, New York[2] J. Harris ş.a., 1995, The Best Companies Work in Canada , Strategic Advantages Toronto


112

[3] J. Clement, 1991, Executive Leadership, Casai Hall, Arlington[4] O. Nicolescu, I. Verboncu, 2002, Fundamentele managementului organizaţie i, Editura

Economică, Bucureşti[5] . x x x, 1998, Organizează-ţi bine timpul (Organize well your time) , Editura Rentrop &

Straton, Bucureşti


113

ROMANIA COHESION POLICY

Assistant Ph.D. Student Marcela Cristina HURJUIŞtefan cel Mare University of Suceava, Ro mania

[email protected]

Abstract:As established in the National Strategic Reference Framework for Romania the EU funding will be invested in

order to reduce the economic and social development disparities between Romania and the EU Member States, bygenerating 15-20% additional growth of the GDP by 2015. For the 2007 -2013 period, Romania has been allocatedapproximately €19.2 billion under the Convergence objective and € 455 million under the Territorial Co -operationobjective. Romania’s contribution ( including private sources) to complement the EU investments will reach at least €5.5 billion bringing the total investments in structural and cohesion policy to approximately € 25.2 billion over the nextseven years.

Key words: Structural fund, cohesion, strategy, financial perspective, European standards

1. INTRODUCTION

This, the Fourth cohesion report, provides, fi rstly, an update on the situation and outlookwith regard to economic, social and territorial cohesion and, secondly, an analysis of the impact ofpolicy at national and Community level on cohesion in the Union. Particular emphasis is given to:1) the preliminary assessment of the impact of European cohesion policy in the 2000 –2006programming period and 2) to a first assessment of the preparation for the new period 2007 –2013,based on the national strategies and draft operational programmes submitted to the Commission byMember States up to the end of April 2007 There ar e a range of factors which infl uence theeffectiveness and the impact of European cohesion policy. An economic context characterised byprice stability and sound budget balances will benefi t from lower interest rates. This, in turn,stimulates investment and capital accumulation, increasing both productiv ity and employment. Italso helps to increase the rate and diffusion of innovation and reduces the cost of capital. [3]

The efficiency and effectiveness of public administrations on national, regional and locallevel is another critical factor. Finally it is often external factors, notably globalisation, that are themain driving factors of structural changes at all levels and which have a large impact on economicdevelopment and job creation. However, as a result of a rigorous approach, cohesion policy h assucceeded in making a difference to standards of living and levels of opportunity across the Union.

As a group the major financial benefi ciaries of European cohesion policy programmesduring the period 2000–2006 have continued to exhibit impressive grow th rates. At the regionallevel, strong economic performance in regions with low GDP per capita over the past decade hasmeant that, across the EU, regions have been in a process of convergence measured in terms ofGDP per capita.[3]

2. THE STRATEGIC OBJECTIVES

The Social and Economic Cohesion Policy of the European Union has as its purpose, on onehand, the decrease of advancement dissimilitudes between various regions, and, on the other hand,to put an end to the economic decline of those regions who are very disadvantaged, including therural ones. Therefore, for the planning period 2007 -2013, at the european level, have beenestablished three targets: "Convergence" target; " Regional competitivity and the occupancy ofmanpower" target; "Teritorial cooperation" target.

The financial instruments of thes e politics are generic called “ Structural and CohesionFunds” (SCF).

[email protected]


114

The entire Romanian teritory is eligible regarding “Convergence” target, fulfilling,according to the E.U. rules, the financial criteria of t he European Regional Development Fund(ERDF), Social European Fund (SEF) and the Cohesion Fund (CF). In order to reflect thesignificant needs of the new State Members regarding the transport and environment infrastructure,the share of financial from the Cohesion Fund represents almost a third from the total financialassignement for the new state membres during 2007 -2013. At the same time, Romania will obtainfinance from the E.R.D.F., and in “European Teritorial Cooperation” framework, for regional,national and international cooperation.

In Romania, the institutional sistem of programming and implementation of Structural andCohesion Funds is in a full process of consolidation, starting from the stipulation of theComplementary Positions Document in cha pter 21 “ Regional policy and the coordination ofstructural instruments” and those of Comunitary rules which regulates the Social and EconomicCohesion policy of the E.U. The role of national coordinator of SCF’s management is provided bythe Ministry of Public Finance, through the Management Authority for the Communitary SupportFramework.

Government’s decision no. 497/2007 with its further changes and supplements, names theinstitutions designed as Management Authorities (public organisms which ensure th e managementof financial asistence from SCF), Intermediary Organisms (institutions designed by the managementautorities who, by task delegations from these and / or from the payment authorities, introduces theactions from the operational programmes) a P ayment Authority, as well as programming documentstrough which SCF is introduced.

Regarding the National Development Plan Strategy, taking into consideration the globalobjective of reducing developement gaps compared to the E.U., and starting from a bro ad analysisof the social and economical present s ituations, , six national development priorities have beenestabilished which gather a multitude of pri oritary domains and subdomaines: [5]- The growth of economic competitivity and development of economy b ased on knowledge;- The development and the modernisation of transport infrastructure;- The protection and the improvement of environment’s quality;- The development of human resources, the promotion of occupancy and of social inclusion, and thestrengthening of administrative ability;- The development of rural economy and the productivity growth in the agricultural area;- The dimnishing of development dissimilitudes between the country’s regions.Starting from the main objective the six national dev elopment priorities and the three Priorities fromthe Comunitary Strategic Orientations regarding Cohesion, have been established five ThematicPriorities: [4] a) Development of Basic Infrastructure to European Standards – Infrastructure investment willimprove road and rail networks, and navigation on the River Danube (TEN -T priority axes no. 7, 18and 22) and support business growth and job creation. Investments will also improve accessibilityand the inter-connectivity of the national, county and local roads, railways, airports and riverservices including improved links to TEN -T routes. Investment will increase access to widermarkets and all actions will reduce travel time and transport costs. The environment infrastructuresupport will improve drinking water and waste management to meet EU standards. Improvedenergy efficiency in the entire energy chain – production, transportation, distribution and end -use –will enhance economic competitiveness, improve air quality and support sustainable development .Efforts will focus on improved management of the natural environment and more sustainable use ofnatural resources.b) Increasing Long-term Competitiveness of the Romanian Economy – The strategy will helpbuild a dynamic entrepreneurial and productive b usiness base, support business start up and growth– particularly, through investment in higher added value products and services. Innovation will beencouraged as well as the application of R&D to market opportunities; access to finance and ICTconnectivity will be improved. SMEs will benefit of investment aid and will be supported with


115

quality business advice and the services they require to expand and create jobs. Tourism will also beencouraged as an important driver of development. [5]c) Development and More Efficient Use of Romania’s Human Capital – The strategy aims atsupporting the education and training systems to provide flexible and better education and skills toindividuals, at increasing access and participation to education and training and at ensuring thateducation and training deliver the knowledge and skills needed by Romania’s modern andexpanding economy. Increased adaptability, entrepreneurship and life long learning will be at theheart of the policies and business will be encouraged to invest in their human capital. Themodernisation of the education and CVT infrastructure, including the provision of schoolequipment and ICT will be required to provide quality education and training systems. Actions willbe supported to tackle social exclusion and promote social inclusion of vulnerable groups (women,ethnic minorities, disabled persons) who are at disadvantage in the labour market, so they canbenefit from the new jobs being created. Improved health care and related services will assis teconomic regeneration by reducing costs and the number of lost days from work.d) Building an Effective Administrative Capacity – The strategy will improve governance in thepublic sector. Investment will help to improve policy formulation and public m anagement decisionmaking processes, to develop a modern, flexible and responsive civil service system and to improvethe quality and efficiency standards in the delivery of public services. Actions will be targeted to thesectors of the administration whe re the greatest impact can be achieved to aid economic and socialdevelopment, support business growth and to fight deficiencies of the Romanian economy.e) Promoting Balanced Territorial Development – The aim is to stop and hopefully reverse thewidening trend of regional development disparities by supporting and promoting a balancedeconomic and social development of the Regions. The actions will support Regions’ developmentby creating the necessary conditions to stimulate economic growth in the laggin g behind regionsand restructure the urban and rural areas. Investments will be targeted at improving infrastructureand ensuring local connections to the national, European and intercontinental networks connectingRomania to European and wider markets. Ac tions will target existing or emerging developmentcorridors or centres and create the conditions for integrated development, with connections toregional, national and trans -European networks. Support will help to consolidate the local andregional business environment and enhance the natural and cultural heritage to support tourism andurban development. The achievement of territorial cohesion will benefit from the long -termframework of the Strategic Concept of Spatial Development and Integration into th e EuropeanSpatial Structures 2007-2025. [5]

For the programming period 2007 -2013, Romania elaborates 7 Operational Programmesinside “Convergence” Objective (The growth of economic Competitivity, Environment, Transport,Regional development, the Develop ment of human resources, the Development of administrativeability and Technique Assistance) and cooperates with the neighbour countries and other E.U.members to develop other 7 Operational Programmes under the objective “European TeritorialCooperation”.[4]

The list of these programmes, the institutions designed as Management and the funds theyare financed are presented in the next chart .

3. THE FINANCIAL PERSPECTIVE

According to the Financial Perspective 2007 -2013 established at the European Councill inDecember 2005, the state Membres whose medium PNB for a person during 2001-2003 has beenunder 40% from the E.U. media - 25 will get transfers from the Structural and Cohesion Funds ofmaximum 3,8% from the value of the national PIB. As a consequence, the indicative allocation ofSCF given by E.U. to Romania after adhering, coresponding each objective of the Cohesion policyfor the programming period 2007-2013 is:[5]


116

Table no 1. The allocation of structural and cohesion funds for cohesion objectivesmil. Euro -

2007 2008 2009 2010 2011 2012 2013 TotalConvergenţa 782 1,123 1,499 1,773 1,875 1,979 2,083 11,115Fondul de Coeziune 419 590 778 915 966 1,018 1,070 5,755Cooperare Teritorială 56 56 56 56 56 56 56 394TOTAL 1,258 1,769 2,333 2,744 2,898 3,054 3,209 17,264

Source:The Ministry of PublicFinance

According to the new acquis on the Cohesion Policy of the EU, each Membe r State preparesa National Strategic Reference Framework (NSRF), as reference document for the programming ofthe Structural and Cohesion Funds.This document will not serve as a management tool, but as a strategic document that sets theintervention priorities for the Structural and Cohesion Funds during the reference period. The NSRFcreates the links between the national development priorities, as set out in the NationalDevelopment Plan 2007-2013 and the priorities at European level – the Community StrategicGuidelines (CSG) on Cohesion 2007 -2013 and the Integrated Guidelines for Growth and Jobs 2005 -2008.

The CSNR strategy takes over the Strategic Vision from NDP 2007 -2013, establishing asmain target the reduction of development dissimilitudes be tween Romania and E.U’s statemembres.. For 2007-2013, NDP aims at increasing PIB per inhabitant from 31% of E.U. average -25% in the present to aproximatively 41% in 2013.

The overall Structural and Cohesion Funds allocation for Romania is 19.668 bn Euro ofwhich 12.661 bn Euro represent Structural Funds under the Convergence Objective, 6.552 bn Euroare allocated under the Cohesion Fund and 0.455 bn Euro under the European TerritorialCooperation Objective (including transfers to the Instrument for P re-accession Assistance – IPA,and to the European Neighbourhood and Partnership Instrument - ENPI).The financial table presents the Indicative annual allocation by Fund 2007 -2013 which amount tothe total of 19.213 bn Euro. [5]

Table no 2. Indicative annual allocation by Fund 2007-2013- euro-

2007 2008 2009 2010 2011 2012 2013

TOTALall Funds2007-2013

1,275,078,763 1,854,301,662 2,513,352,998 3,027,219,265 3,263,730,029 3,511,772,361 3,767,581,634

TotalERDF 596,997,534 857,599,510 1,161,409,989 1,416,911,312 1,528,800,585 1,628,040,133 1,786,707,003

Total CF 444,944,443 638,417,107 858,507,216 1,030,210,429 1,109,470,097 1,192,582,076 1,278,291,660

Total ESF 233,136,786 358,285,045 493,435,793 580,097,524 625,459,347 691,150,152 702,582,971

EAFRD 741,659,914 1,023,077,697 1,319,261,544 1,236,160,665 1,234,244,648 1,235,537,011 1,232,563,266

EFF 15,127,527 22,157,050 30,156,234 36,391,468 39,257,052 42,262,575 45,362,301Source: Adapted after the National Development Plan

4. THE EXPECTED IMPACT OF THE NEW COHESION POLICY

Isolating the precise impact of the Structural Funds is difficult in a situation such as thiswhere the country and economy are already in rapid transition, but macroeconomic and otherimpact studies have produced the following indicators, among others. These will be monitored andverified over the lifetime of the interventions, and also once all the money has been spent. [6]- GDP should increase by 15-20% more than would otherwise have been the case ;- Gross Capital Formation should grow by 28% more than the baseline scenario ;


117

- GDP per employee should increase by 5.5% annually ;- Employment in the tradable sector should rise by 23%;- Jobs created and maintained – at least 150,000 – 200,000 In addition, specific indicators have beenidentified for each of the thematic priorities, including the following:- Basic infrastructure – 1,400 km of new or rehabilitated roads; increase from 52 to 70 percentage ofpopulation liked to water services; reduction of p rimary energy intensity by 40 -50% compared with2001.- Competitiveness of economy – R&D expenditures to rise from 0.41% of GDP to 2.0%; broadbandpenetration to increase from 3.5% to 40% of the population.- Human capital – employment rate from 57.4 to 64 % of population (15- 64); activity rate to risefrom 62.4% to 68.5%; proportion of age -group with upper secondary education to rise from 70.5 to80%.- Administrative capacity – increase in trust in public administration to reach 33% (central) and60% (local) of the public.

5. CONCLUSIONS

The reform of cohesion policy should also provide an opportunity to bring greaterefficiency, transparency and political accountability. This requires, first and foremost, the definitionof a strategic approach for the policy spelling out its priorities, ensuring coordination with thesystem of economic and social governance and allowing for a regular, open review of progressmade. [1]

The corollary of the above is the need to reinforce institutional capacities at all levels ofgovernment throughout the Union, building on one of the key strengths of cohesion policy.

In the public debate on the future of cohesion policy referred to above, a general conclusionwas that there are a number of matters which are important for cohesion in the Union as a whole.

These elements are key to understanding the proposal below on future priorities. In effect,the Commission proposes that actions supported by cohesion policy should focus on investment in alimited number of Community p riorities, reflecting the Lisbon and Gothenburg agendas, whereCommunity intervention can be expected to bring about a leverage effect and significant addedvalue.

These priority themes would be valid for the Union in general, but they would need to becompleted and expanded to take account of the specific needs of the less developed regions andMember States, where additional needs persist, for example, in relation to the provision ofinfrastructure and to institutional capacity building. These aspects are dealt with below (see alsofirst Box at the end of this section for details). [2]

The pursuit of the priority themes would be organized around a simplified and moretransparent framework with the future generation of programmes grouped under three headings :convergence, regional competitiveness and employment; territorial cooperation.

BIBLIOGRAPHY:

[1] Violeta Puşcaşu, Regional Development, Ed. Economică, Bucureşti,2000;[2] European Commission, A new partnership for cohesion, Luxenbourg, 2004;[3] European Union, Growing Regions, Growing Europe, Fourth report on economic and

social cohesion , Luxembourg, 2007;[4] Regional Operational Programme , 2007- 2013, Bucureşti, 2007;[5] National, Development Plan 2007 -2013;[6] http://anaf.mfinante.ro


118

ANALYSIS OF CROSS-BORDER COOPERATION AS THE WAY OF EUROPEANINTEGRATION OF UKRAINE

Rector, Doctor of Sciences, Professor Volodymyr PRYADKOVice-rector, Ph.D. Associate Professor Pavlo SHYLEPNYTSKYI

Bukovyna State Finance Academy, Chernivtsi, Ukraine

Abstract:The article deals with the problems of cross -border cooperation of Ukraine with neighboring countries. It

also highlights problems of functioning of Eu roregions. On the basis of analysis, proposals concerning improvement ofcross-border cooperation are given.

Key words: cross-border cooperation, integration, Ukraine, regions

Involvement of economy of Ukraine in the global economic system, as shown in thebigravity model of integration of Ukraine, supposes two alternatives: European Union and CommonEconomic Space. However, coming from interests of national economy, taking into considerationlevel of economic development of EU countries and prospects fo r the Ukrainian economy, inopinion of many economists, choice should be made in favour of European, and consequently worldeconomic patterns.

Analyzing formation of European Economic Community, and then European Union, wecan conclude that this was not s imply realization of political will of governments of the states -participants. The European processes of integrations became successful also because, beginning stillfrom times of the Roman agreement which put beginning the European association of coal andsteel, they were carried out not only on macro -, but also engulfed mezo- and micro-level. Thatmeans for the integration to be successful, it is needed that desire of governments of the states mustbe supported with connections at the level of their regio ns by realization of cross-bordercooperation and between direct participants of economic processes – enterprises and organizations.

Because of fact that Ukraine now is at the beginning of the eurointegration way, shenecessarily must take experience of ot her European countries which became the members of EU. Inparticular, it concerns development of cross -border cooperation between contiguous territories ofneighbouring countries. Among other reasons which underline actuality of this problem for our stateare as follows:

19 from 25 regions of Ukraine are boundary. It in its turn specifies on that it is necessary todevelop strategy of cross-border cooperation at the level of the state;

historical traditions of coexistence of people of contiguous territories , economic, culturaland family bonds between them;

approaching of borders of European Union directly to Ukraine. It means denouncing earlymade agreements with the countries of East and Central Europe which will turn around forUkraine with complication of economic connections with them. That is why through cross -border cooperation it seems possible to decrease to some extent negative influence of suchevents, to adapt national economy to the new terms and engage to the European economicprocesses;

tendencies of decentralization of power which suppose transference of powers from a centerinto regions. It will promote mobility of administrative decisions of local authorities, that inan eventual account will be resulted in the increase of efficiency of the u se of local resourceson the basis of joint efforts;

realization of joint venture projects on the basis of local resources and opportunities; development of other forms of collaboration. It means realization of general cultural,

educational, social and other projects, gaining positive experience in this sphere; exchange of experience in the sphere of state administration;

http://anaf.mfinante.ro


119

opportunities of the use of resources of European Union, designed for development of cross -border cooperation, resolving of urgent proble ms of local communities.

Many domestic and foreign scientists were engaged in the problems of development ofcross-border collaboration. But because of new phase and terms of development of relationsbetween European Union and Ukraine, this scientific pr oblem has put new tasks before researchers.

One of the features of modern world and, in particular, European integration processesbecame development of cross -border cooperation. “European framework convention on cross-border cooperation of territorial com munities and authorities” (1980) defines cross -bordercooperation as any actions, directed on strengthening and deepening of good -neighbourly relationsbetween territorial communities or authorities, which are held under jurisdiction of two or morestates, and concluding to that of necessary agreements or achieving arrangements”[5]. According toanother approach, a cross-border (boundary) collaboration can be defined as a complex of formsand instruments co-operations between partners, which carry out co -operation in the spheres ofindustry, agriculture, transport and communications, recreation and protection of environment, carryon trade activities, are investors and recipients of capitals, and also implement other forms ofmutually beneficial socio-economic partnership on geographically near territories [9].

To our opinion, the drawback of the resulted definitions is absence of accenting ofattention on that territories of the neighbouring states must be contiguous, otherw ise advantage ofcollaboration is lost above other types of international cooperation. That is why it is possible to givethe following determination of this concept: a cross -border cooperation is an aggregate of forms andmethods of collaboration between contiguous territories two or mor e states in cultural, social,scientific and other economic spheres, which takes place at the level of governments and societiesand is based on historical traditions, international division of labour, specialization and cooperation.

Such collaboration was founded in the middle of twentieth century in the countries ofWestern Europe. Ukraine was attached to such processes in 1993 by creation of CarpathianEuroregion.

The basic tasks of cross-border-cooperation are as follows: stimulation of increase of mutual trade volumes, development and support of economic,

cultural and humanitarian connections between boundary regions; saving of historical cultural legacy; creation and effective development of socio -economic infrastructure in boundary regions; creation of terms of the simplified regime of crossing of commodities through a custom

border, improvement of a transport infrastructure, bonded warehouses, terminals; increase of efficiency of the use of production and social base of boundary territories; creation of conditions for co-operation of the systems of warning and liquidation of

consequences of extraordinary situations of contiguous boundary territories; increase of efficiency of the use of local resources; working out problems of development of boundar y territories on the basis of joint efforts; other measures, directed on activation of integration processes on mеzо - and micro-level.

The most widespread form of realization of cross -border collaboration is establishing andfunctioning of the European regions. The European region is a form of cross -border betweenterritorial communities or local authorities of boundary regions of two or more countries, that havea common border, which is directed on co -ordination of mutual efforts and realization by them theconcerted measures in the different spher es of vital functions in accordance with nationallegislations and norms of international law for resolving general problems and in interests of peoplewhich inhabit its territory on opposite sides of state frontier [10]. In accordance with Law ofUkraine „Of cross-border cooperation”, the European region is an organizational form ofcollaboration of administrative -territorial units of the European states, that is carried out inaccordance with bilateral or multilateral agreements about cross -border [1]. At this moment thereare more than 150 such regions in the countries of Western, Central and Eastern Europe. In Ukrainethere are six such integrative associations: Carpathian (1993), Bug (1995), Lower Danube (1998),


120

Overhead Prut (in 2000), Dnepr (in 2003), Slobozhanshchyna (2003); work is conducted oncreation of euro of regions Donbas and Yaroslavna.

In Ukraine activity of such integration formations of mezo -level is regulated the norms ofEuropean framework. convention on cross -border cooperation of terri torial communities andauthorities (1980), European Charter of local self -government (1985), Declaration about cross -border cooperation in Europe (1989), Law of Ukraine „Of cross -border cooperation (2004),interstate and intergovernmental agreements of Ukr aine with other states which concern thequestions of collaboration between the boundary regions of Ukraine and territories of contiguouscountries.

Financing of the European regions is provided by both the state budget and donors. At themoment projects and programs of cross-border cooperation are financed through the structure of theEuroregions from local budgets, domestic backing funds, and also by international organizations.The major part of financing is provided by EU. Among sponsoring organization s there are also theCanadian International Development Agency, Swiss Agency for Development and Collaboration,Agency for International Development of the USA, Institute „East -West”, and also foundations:Eurasia, Soros’, Charles Stewart Моtt’s, Conrad Ad enauer’s etc. Also assistance was given by theprograms of TACIS CBC and CADSES. Since 2004 financing of the programs of cross -bordercollaboration is provided according to Neighborhood programs of „Poland -Belorus-Ukraine”,„Slovakia-Hungary-Ukraine”, „Romania-Ukraine”.

A positive sign here is that the question of development is taken under the control of thestate by „The state program of cross -border collaboration development on 2007 -2010”. Purpose ofthis program is activization of development of socio -economic, scientific and technical, ecological,cultural and other connections between the participants of cross -border collaboration.

Participating of Ukraine in the Euroregions is instrumental in expansion of mutuallybeneficial trade and economic collab oration, allows boundary administrative units independently tocontact with the European structures for the receipt of technical and financial assistance forrealization of projects of cross -border collaboration, facilitates in international integration of thestate and decreases negative consequences from an entry of central and eastern european countries.During time of existence of the Euroregions with participation of Ukraine it was realized near 500projects of cross-border collaboration.

At the same time, analysis of cross-border cooperation and Euroregions allowed to definefactors which restrain this development. They are as follows:

low level of socio-economic development of regions and Ukraine on the whole; considerable disproportions in the models of administrative-territorial division of Ukraine

and contiguous European states. There is difference in structure and in volume of plenarypowers of local authorities;

problem of legal division of powers and functions between local and central authoritie s.Besides, it concerns differentiating of plenary powers of local self -government of differentadministrative-territorial level also (village, settlement, district in town, district, region);

problem of state support of cross -border collaboration. A methodology and legal basis ofelaborating of projects and programs, which are supposed to be financed from the statebudget, do not work;

shortage of financial resources of local and regional budgets; low level of cooperating with the European structures, whic h supervise questions of regional

development (Congress of local and regional authorities of Europe, Association of theEuropean boundary regions, Assembly of the European regions);

strengthening of legal, economic, technical barriers of customs, complicat ing of proceduresof border crossing, which are related to expanding of European Union;

incompleteness of process of delimitation and demarcation of state boundary of Ukraine; lack of information about the results of activity of subjects of cross -border collaboration

with participation of Ukraine, and foreign experience; low activity of nongovernmental agencies in cross -border collaboration;


121

establishing this process by will of authorities when initiative must come from the directparticipants of cross-border cooperation;

low level of development of infrastructure in the boundary regions.That is why, coming from the results of analysis of cross -border cooperation in Ukraine,

the ways of its improvement will be the following: development and introduction of state policy of cross-border collaboration; involvement of all boundary regions of Ukraine in cross -border cooperation, forming on

their basis the new Euroregions; elaboration of government programs of economy development of boundary regions; implementation of administrative reform which will enable to inculcate the reasonable

model of administrative-territorial division of Ukraine and to share power between local andcentral state bodies leaving more power and financial resources for the first ones;

introduction of mechanism of state financing of the programs and projects of cross -bordercollaboration;

activization of cooperation with the European structures, responsible for regionaldevelopment;

simplification of different kinds of barriers and procedures of crossing of state boundary bypeople, capitals and other resources which concern realization of projects of cross -bordercollaboration;

resolving the problems of delimitation and demarcation of state boundary of Ukraine is withother countries;

activization of informative policy which concerns the questions of cross -bordercollaboration;

involvement of public organizations to participating in processes of cross -bordercooperation as members of administrative bodies of the Euroregions;

improvement of infrastructure of cross-border collaboration of boundary regions of Ukraine.Introduction of these measures, to our opinion, will enable to activate a cross -border

cooperation which will be instrumental in realization of eurointegration strategy of our state.

REFERENCES:

[1] Закон України „Про транскордонне співробітництво” від 24.06.2004 р. №1861 -IV.[2] Бородіна О.М. Механізми розвитку спільної підприємницької діяльності в межах

прикордонного співробітництва // Актуальні проблеми економіки. – 2006. - №12 –с. 98-101.

[3] Волошко В.В. Реалії та перспективи транскордонного співробітництва України //Регіональна економіка. – 2005. - №4 – с. 121-131.

[4] Гарасюк О,А. Проблемні моменти розвитку транскордонного співробітництва вУкраїні // Формування ринкових відносин в Україні. – 2006. - №9 – с. 14-18.

[5] Європейська рамкова конвенція про транскордонне співробітництво міжтериторіальними общинами та владами .

[6] Жук М.В. Альтернативи регіонального розвитку в Україні в контексті інтеграції усвітове господарство // Актуальні проблеми економіки. – 2006. - №12 – с. 102-109.

[7] Мікула Н. Міжтериторіальне та транскордонне співробітництво: Монографія. –Львів: ІРД НАН України, 2004.

[8] Нікіфоров П.О., Чемісова Н.А. Чинники активізації транскордонногоспівробітництва в регіоні // Регіональна економіка. – 2007. - №1 – с. 35-43.

[9] Новицький В.Є. Міжнародна економічна діяльність України: Підручник. – К.:КНЕУ, 2003. – 948 с.


122

[10] Студенніков І. Феномен єврорегіонів в контексті методології історико -регіональних досліджень // Історія України. Маловідомі імена, події, факти. - Вип.22-23. - Київ, 2003. - С. 190.

[11] Філіпенко А. Інтеграційні перспективи України: бігравітаційна модель //Економіка України. – 2005. - №6 – с.11-21.

[12] Філіповська О.О. Транскордонне співробітництво: Україна -Польща-Білорусь(інструменти фінансового забезп ечення) // Регіональна економіка. – 2007. - №1 – с.43-55.

[13] www.euroregio.org.[14] www.ukrstat.gov.ua.

www.euroregio.org

www.ukrstat.gov.ua


123

SECTION 3

ACCOUNTING - FINANCES


124

THE ACCOUNTING HARMONIZATION IN THE PROCESS OF NATIONAL REFORMIN BASE OF THE IAS / IFRS STANDARDS

Economist Ph.D. Camelia DOGARIUWest University of Timisoara, Faculty of Economic Studies , Timisoara, Romania

Master Student Enathe MUREKABIRI URIMUNBESHIFaculta di Economia e Comerc io Della Universita di Parma, Italia

[email protected] Ph.D. Student Muvuny BONAVENTUREFaculty of Economy, University of Kigaly, Rwanda

[email protected]

Abstract:The harmonization of the economic -financial report at an international level is, today, in the context of the

globalization and integration of the world’s financial markets, an important demand and an urgent desideratum. Infact, it is needed a necessary prerogative for the comparability of the international enterprises’ performances, for thetransparency, efficiency and development of the wo rld financial markets.“The harmonization of the accounting rules and the usage, in general, of a common accounting language represents thenecessary conditions for homogenous, intelligible, and transparent financial reports, indispensable for the credibi lityand the comparability in the balance sheet and especially the trust given to this informative document from the part ofthe investors.“

Key words: harmonization, globalization, financial markets, accounting language, annual financial situations

1. INTRODUCTION

The growth of internationalization in enterprises which see “the global market” as thestrategic place where they compete and where their finance takes place, the growth of the investors’demands in the geographical diversification of their own investments, the awareness that the valuesfrom the balance-sheet are still in great measure influenced by the accounting language adopted inits expression, have determined the making obvious of the disharmonized situations come fromsocieties and from the financial markets in a common accounting language that may consent tosafer investments’ possibilities from the part of the economic and finances entities involved ininternational contexts.

2. THE EVOLUTION OF THE INTERNATIONAL ACCOUNTING STANDARDS

The evolution and the extension of the globalization over the financial markets havedetermined the European Commission to initialize a convergence process at community’s level inwhat concerns the drawing up of norms related to the balance -sheets and the financial reports of theenterprises.

So, the European Commission elaborated in 2002 a Regulation (no.1606 -2002 from 19th

July 2002), which was meant to create, starting with 2005, an accounting harmonization and toimpose to the current on exchange s ocieties from the European Union the application of theinternational principles IAS/IFRS in the drawing up of the consolidated balance -sheet. Such aprocess has as main objective to offer to the accounting information given by the trade societies,credibility and high quality, such as to favour the development of competence and markets and toprotect the customers.

The international standards are elaborated by IASB (International Accounting StandardsBoards), an international independent organically stru cture whose main purpose is development, inthe public interest, of the accounting high -quality norms. The status above quoted (no 1606/2002from 19th July 2002) stipulates that these principles have to be ratified by the European Commissionand published in the European Union’s Official Newspaper.

[email protected]

[email protected]


125

In December 2004 principle 39 concerning financial instruments was particularly modifiedbecause of its profoundly innovative character different from the previous principles used by themajority of countries and it took a great effort from the part of the national and communitarianorganically structures to reach its ratification. Some themes from IAS 39 have been eliminated evenfrom the homologation phase.

In Romania the main objective of the accountancy, to gether with the development of theaccountancy system, was the alignment of the Romanian accountancy regulations to the Europeandirectives in order to accomplish the conditions to join the European Union as well as theconvergence with the International A ccountancy Standards, situation imposed by the economicglobalisation and the development of the stock markets. The reforms made in the field ofaccountancy determined the establishment of certain specific concepts as: normalization,harmonisation, convergence, conformity.

In Romania the accountancy normalization presents another powerful institutionalsupremacy because the authorities of the state are those which issue regulations like: The RomanianParliament – that adopts organic and ordinary laws in eve ry field and particularly in the accountingand financial field; the Government – that issues governmental decrees and decisions to apply them;the Public Finances Ministry – which issue methodological regulations to apply the governmentaldecisions.

Until the 1990, the Romanian Accounting System had been influenced by the experience ofmany other European countries. Starting with 1990, the intense changes of the Romanian economylead to the initiation of the accounting reform process. This progress had bee n also supported by acontinuous growth in the demand for relevant and realistic information, from the investors andsponsors, in order to fulfill their needs of evaluating their inerrant investment risks. Before the 90’s,the accounting system served the demands of the central economy, and after 1990, it met thedemands of the transition economy.

The phase 1991-1993 was associated with many controversies connected with theaccounting principles. The accounting reform was catalogued as superficial, because some accountswere eliminated and then replaced by new ones, and some accounts were modified. In 1991, theaccounting law was introduced, and it controls the activity and procedures of the accounting system.

Between 1991 and 1993, a new dualistic account ing was initiated, inspired from theexperience of the European countries, especially France, which also ensured professional support.In 1999 started a new phase of the accounting reform in Romania, simultaneously with the nationalaccounting harmonization with the European Directives and with the International AccountingStandards.

A more consistent development of the Romanian accounting system takes place in 1999,once it starts a harmonization process together with the European Directives and the Intern ationalAccounting Standards, on ground of the Order of the Public Finance Ministry No. 403/1999, givenfor large and very large enterprises, and the Order of the Public Finance Ministry No. 306/2002 forsmall and middle enterprises. Subsequently, Order No . 403/1999 was replaced by Order No.94/2001.The first two phases of the Romanian accounting reform suffered quantifiable changes, such as:

- in 1990, the Law No. 82/1991 – Accounting Law, together with its ApplicationRegulation (in 1993)

- in 2001, the elaboration and publication of Order No. 94/2001, which consists in a packof harmonized regulations with the European Directive VI, especially with theInternational Accounting Standards (IAS)

The Order of the Public Ministry No. 94/2001, for large and very l arge enterprises, also includedmany accounting principles from France and Great Britain, the IV Directive, and IAS. It wasn’tonly addressed to the large and very large enterprises, but also to all large enterprises, as opposed tothe European countries, were this law was addressed only to the stock exchange enlisted companies.

As for the communitarian documents of the accounting system, the introduction of the IVEuropean Directive contributed to the accounting reform process in Romania.


126

In 2002, the Public Finance Ministry published Order No. 306/2002, for the approval of thesimplified and accounting regulations, which had been harmonized with the European Directives.

These regulations were set for small enterprises, which did not fulfill 2 of the 3 si ze criteria,referring to: sales volume, total assets, and average number of employees.By the Order No. 1827/2003, the Public Finance Ministry took an important decision within thereform process of the national accounting system. The Ministry reques ted the Romanian companiesto apply the International Accounting Standards starting with 2005.In Romania, all the stock exchange enlisted companies, bank institutions, insurance companies andother companies which fulfill specific size related criteria, m ust adopt the IFRS.

As opposed to the former legislation in the accounting domain, this specific order is precise,in relation to the demand of full adoption of the IFRS, inclusively the standards referring to theconsolidated financial sheets.A new phase in the development of the Romanian accounting system started with the Order No.907/27.06.2005, which brought new statements referring to the accounting rules and regulations.

Starting with the 2006 financial year, the juristic persons referred to in Ar t. 1 from theaccounting law No. 82/1991 must apply the accounting rules and regulations according to theEuropean Directives. These rules are also applicable to Romanian enterprises, which have foreignholders.

Starting with 2006, law no. 82/1991 request s the financial institutions to provide a set offinancial data, according to the rules of the European Directives and to the specific bank directives.Beside this set of data, the financial institutions are requested to present another portfolio consistin gin data according to IFRS, so that other users can use this information.The Order of the Public Finance Ministry is also applicable for public interest companies, whichcan also provide another set of financial information accordingly with the IFRS; als o, on purposethat other users, other than the government, can use this information. This is possible only if thecompanies are compatible with the IFRS implementations.

Consequently, the Public Finance Ministry released Order No. 1752/17.11.2005, whichconsists in accounting regulations in compliance with the European Directives. The order isapplicable starting with the 1 st of January 2006.Once this order becomes applicable, Order No. 94/2001 and Order No. 306/2006 are beingabolished.

This order specifies which categories of juristic persons must follow this order: entitiesreferred to in Art. 1 of law no. 82/1991, foreign sub -entities without juristic character which belongto Romanian juristic persons, as well as Romanian companies which belong to fore ign juristicpersons.

Carried out bookkeeping reforms after 1990, determined a connection of some specificconcepts, such as: normalization, harmonization, conformability etc. Accountancy normalization = defined as a process which presents general conc epts and principlesand bookkeeping norms based on a précised terminology, identical for all the users and producers ofaccountancy information, fully or partially applicable in a assemble of countries, enterprises oraccountants.

The purpose of accountancy normalization consists in bookkeeping norm elaboration, as areference system for the production of accountancy information, and the social validation offinancial situations.

Accountancy harmonization = represents the process that harmonizes the r ules or normsdifferent from a country to other, in order to be concluded, and to be interpreted all the same.

In our country, the harmonizing process is carried out in 2 levels:- The European level – by implementing the directives 4 th, 7th and 8th.- The international level, for big and very big entities, by implementation of International

Standards of Financial Reporting (IAS/IFRS).These 2 harmonizing landings have as a basis 2 levels:

- The European level – by implementing the CEE directives 6 th, 7th and 8th;


127

- The international level, for big and very big entities, by implementation of InternationalFinancial Reporting Standard.

These two harmonizing landings have as basis different practices, based on two differentbookkeeping cultures:- Latino – European (continental);- Anglo – Saxon.

Latino – European culture created and promoted by European countries with an extendedeconomy, as: France, Italy, Germany is characterized through:- priority orientation to state’s interests ;- It is strongly standardized and controlled through regulations which are part of so -called

general accounts plan;- Applies a dual bookkeeping, respectively into 2 circuits: financial and administrative ;- The true image it is known to be an fundamental objective of bookkeeping realized through:

conformity, regularity and honesty- The bookkeeping information is strongly influenced by juridical aspects.

The Anglo – Saxon accountancy culture especially developed by the United Kingdom andUSA, it is characterized by:- protecting the investor’s interests by promoting the economical liberalism ;- it is less rigid, based on summing a non -precedent compulsory general accountant plan, for all

the entities;- patterning the incomings and the expenses by destination/product/ department/services, and not

by their economical content ;- the true image is known to be a essential principle;- the bookkeeping information is dominated by the economics’ pre -valence principle, over the

juridical one.The accountancy convergence presumes the focalization of all the bo okkeeping activities in

the same direction, but most of all the drawing of the annual financial activities, at the end of theexercise, these being targets depending on the databases adoption for the financial year.

The accountancy convergence consists in orientating the whole activity into producing thoseinformation that are useful in elaborating financial situations, and which includes parameters,variables and unitary indicators for all the economical entities.

Accountancy conformity pictures the adaptability that national standards, concerning thebookkeeping domain, can take it to other similar (ex: European Directives), which are highlygeneralized, representative and acceptable.

The Romanian regulations concerning accountancy, firstly picture s the CEE directivesconformation, (4 th, 7th, 8th), and then The International Standards of Financial Reporting.

The 4th directive, adopted in 1998, refers, through its articles, to evaluation rules, publishedfinancial situation formats, and the demands concerning the financial communication, aspects thatcover the problematical of un-comprised companies to financial groups, but analyzed individually.

Following the adoption of the 4 th directive, and knowing the financial globalizationphenomenon, and the international standards evolution, the European device included in the 7 th

section new rules that are relying on the evaluation system, based on the true value.The 7th directive, adopted in 1983, aims the consolidated accounts, namely the drawn

financial studies, presented and published in order to offer information about the financial position,performances and evolutions of companies and groups – which are a weight in the world -wideeconomy.

The European regulations foresees that accountancy di rectives will continue to apply toquoted companies, which will publish financial situations in accordance to The InternationalStandards of Financial Reporting (IFRS).

As consequence, there was necessary a revision of accountancy directives, in order tomodernize them and to be compatible with the present and future International Standards ofFinancial Reporting.


128

So, the European Parliament and the European Union’s Council, adopted, in 2003,2003/51/CE Directive which refers to European accountancy tex ts modernization and actualization,supplementing the European regulation IFRS 2005, being transposed into the national rights of allthe EU members, starting with January 2005.

The former accounting regulations had a strong prescriptive character, and by emphasizingthe information input only for the fiscal authorities and central institutions, discouraged theprofessional logic when implementing these regulations.Subsequently, a reorientation in stating financial information had become necessary, so tha t itwould comply with the demands of some information users, such as shareholders, potentialinvestors, clients, suppliers.

3. CONCLUSION

Applying the IFRS in Romania amplifies the responsibilities of the authorities which aredirectly involved in this process (institutions which have an important role in elaboratingaccounting regulations, such as the Public Finance Ministry, Commission of Movable Property).The most important role of these institutions is to create an optimal legislative frame for app lyingthe IFRS. The managers of the companies will need to be trained not only for these new accountingregulations, but they will also need to train their accounting staff for the new accounting programs.

The professional accounting training companies als o play a major role in the process ofdevelopment of the national accounting system (CECCAR, AGER, CAFR).The reform of the Romanian accounting system is a complex process, enforced by the globalizationprocess, the integration in the European Union, the n eed of ensuring in-time and spatialcomparability of the financial sheets, as well as upgrading to a global common accountinglanguage.

BIBLIOGRAPHY:

[1] Paolo Andrei, Anna Maria Fellegara - Contabilità Generale e Bilancio D’Impresa[2] P.Andrei, S. Azzali, G. Gavana, A. Lai, L.Rinaldi, C.Saccon, R. Vigano - Il Bilancio

Consolidato, Ed. Il Sole 24 Ore, Milano, 2006[3] Stefano Azzali- L’informativa di Bilancio secondo i Principi contabili nazionali e

internazionali, Ed. Giappichelli Editore, Torino2 006[4] Stefano Azzali, Marco Allegrini, Alessandro Gaetano, Michle Pizzo, Alberto Quagli - Principi

Contabili Internazionali, Giappichelli Editore, Torino, 2006. [5] Regulation (CE) nr.2238/2004 of the European Commission from 29.12.2004 that modifi es

Regulation (CE) 1725/2003, that adopts principles of international accountancy according toReg.(CE) 1606/2002 of the European Parliament and the Council, with regard to IFRS 1;IAS from 1 to 10; from 12 to 17; from 19 to 24; from 27 to 38, 40, 41; and SIC from 1 to 7;from 11 to 14; from18 to 27 and from 30 to 33.

[6] Regulation (CE) nr.2237/2004 of the European Commission from 29.12.2004 that modifiesRegulation (CE) 1725/2003, that adopts principles of international accountancy with regardto Reg.(CE) 1606/2002 of the European Parliament and Council qith regard to IAS 32 andIFRIC 1.

[7] Regulation (CE) nr.2268/2004 of the European Commission from 29.12.2004 that modifiesthe Regulation (CE) 1725/2003, that adopts principles of international accou ntncy accordingto Reg.(CE) 1606/2002 of European Parliament and Council with regard to IFRS1, IFRS3,4, 5; IAS1, 10, 12, 14 from 16 to 19; 22, 27, 28 and from 31 to 41 and the SIC interpretation(Standard Interpretation Committee) 9, 22, 28 and 32.

[8] Regulation (CE) nr.2086/2004 of the European Commission from 19.11.2004 that modifiesthe Regulation (CE) 1725/2003, that adopts the principles of international accountancy withregard to Reg.(CE) 1606/2002 of the European Parliament and Council with regar d to IAS39.


129

SPECIFIC FEATURES ABOUT COMMUNICATION AND THE IMPORTANCE OF THEANNUAL FINANCIAL STATEMENTS IN THE PROCESS OF COMMUNICATION

Professor PhD. Elena HLACIUC“Stefan cel Mare” University of Suceava , Romania

[email protected] PhD. Camelia MIHALCIUC

“Stefan cel Mare” University of Suceava , Romania [email protected]

„Communication is a deed of nature. When we have succeeded to reach acommunication, the way it was conceived from the start, we are talk ing about an action of culture”

Goethe

Abstract

The quality of communication and dialogue, both in the process of production and of using the accountingproducts, depends on the culture, more specific on the accounting culture, in the position of crucial vectors in theeconomical – social system, with impacts in the group behavior, both inside the system and in the relations between thesystems. The annual financial statements represent a social system of information, intensified by a practice of manycenturies, in order to fulfill the quest of information for those using the information, requests determined by social andpolitical stakes.

The varied socio- professional categories build and use in a total different manner the annual financial reportsof an industrial unit. Due to the fact that their demands and the interests are contradictory, it is necessary to createstandards to establish a common language in order to describe the accounts, financial operations in the evolution of theindustrial unit.

The structural elements of annual financial statements are actually the means to facilitate the conveying ofinformation required by the users.

The image of the annual financial statements influenced by the need of knowledge and administrationalmanagement become communicational ground b oth within the industrial unit and among the external relations,becoming the main source of supplying the national statistics as well as of the economical politics of the state,providing the useful information for adopting the chosen strategies.

Keywords: communication, financial communication, accounting information, the annual financial statements ,financial decisions

1. INTRODUCTION

The problem of the annual financial statements that represent the basis of this paper is animportant subject, a topica l interest, constantly tackled in the present talking on a nationally andinternationally level.

The annual financial statements represent the fundament for publishing the accountinginformation, the basis for determining the conditions an industrial unit develops its activity andgrows in time and a fundamental tool for adopting the economical – financial decisions at the levelof managing the industrial unit.

The paper tackles, like in any other matter, the special position possessed by the annualfinancial statements on the whole of the economical informational system.

The international experience has proved that the main factors which influenced reaching theeconomical success or any kind of improvement and which divides, according to its performances,countries, fields of activity, companies and other organizations are mainly the management , thetechnologies and the ability to smartly use the human and informational resources. No natural orsocial system cannot function without the exchange of informat ion, both within the system, betweenits components and between the system and other external organizations.

[email protected]

[email protected]


130

2. MATERIAL AND METHODS

The major financial statements are designed to provide a picture of the overall financialposition and performance of the bu siness. In order to provide this overall picture, the accountingsystem will normally produce five major financial reports on a regular recurring basis. Thesefinancial statements, taken together, provide on overall picture of the financial health of thebusiness.

It says that who has the information has the power, and the way that it gets from the receiveris communication. From an accounting point of view, the communication is represented byfinancial statements, witch are regulated by IASB through IAS 1. Its objective is to prescribe thebasis for presentation of general purpose financial statements, to ensure comparability both with theentity’s financial statements of previous periods and with the financial statements of other entities.

The financial statements must present the information in a manner that helps a user assessthe liquidity of an entity’s assets and liabilities, in a manner the portrays a cohesive financial pictureof an entity and is comparative and consistent from one period to another , for helping investors,creditors, and others understand an entity’s financial position and changes in that position and usethat information to assess the amounts, timing, and uncertainty of an entity’s future cash flows.

3. RESULTS AND DISCUSSION

The notion of „communication” has many acceptations (meanings): according to the explanatory dictionary , the following meanings are being associated with this

notion: notice, report, to bring something to somebody’s notice, etc, the common sense beingthat of to inform, to notice, to make known or to be in relation with..., to have a connectionwith...., to bring to...;

sociologically talking, this notion signifies the fundamental pattern of psychical - socialinteraction between persons, made in the articulated language or through other codes, in order toconvey a piece of information, to obtain stability or some individual or group behavior changes.

according to the definition given by François Gondrand, communication is a process by which apiece of information is transmitted through a transmitter to a receiver;

communication is a feature of lively systems, more specific of those complex systems, like thehuman society

communication is a complex fact, that ensures the representation of reality, starting with da testhat are organized and selected and that are processed in intelligible information, through aspeech (language);

Celine Michailesco defines communication as a stable connection between two partners througha means of transmission that allows the exchan ge of information symbolized between thosecorrespondents.

the management of an industrial unit presents communication as a galvanized element of themanagerial process and, at he same time, a condition of an organizational and motivationalclimate, in accordance with the achievement of the obje ctives.

In the case of the accountancy, we are talking about an accounting communication or financialcommunication, in which the connection is established between the industrial unit, as atransmitter of information and those interested in it, in the position of beneficiaries ofinformation or receivers. Thus, the annual financial reports represent the main means ofconveying information, the spread information being obtained as a result of the representation ofthe industrial units’ economical situation by using a specialized language (technical notions),specific rules and principles.

The accounting information and the financial information for the external side of the industrialunit are being supplied through the financial communication.


131

According to the French writer J. Durand , the accounting information is considered to be ameans of communication that has a message and a code, in which the addressee must be able todecode the message.

Other opinions about accounting communication consider it an en masse (in a body)communication by which different categories of beneficiers obtain information about the industrialunit or its development.

Appealing to one of the sides that characterize the status of accountancy, that is the art oftransmitting financial information, information that define the affairs of an entity and is directed to awide range of users, first of all to the investors and the managers.

Recurrently, the existing investors , as well as the potential ones, demand information,required then by the managers to accounting experts, in order to better know the resources of theentities subordinated to them, these information facilitating the estimate of the manages’ leadingperformances..

The accounting information is raised with the help of a specialized language, of rules thatallow to code and decode the represented dates, the language and the accounting rules providing theclear and intelligible representation of the economical state. Thus, the use o f accounting informationwithin the financial communication may be verified in the case when the receivers use it tounderstand the economical state of the industrial unit and to take decisions.

In order to present the objectives of the annual financial s tatements, we have first resorted toconceptual accounting frameworks, that appeared during three significant moments of the evolutionof the accountancy, in the last fifteen years.

1. American accounting framework , the result of the American accounting medi ummeditation in a time (1973 – 1985) when they search the investment of accountancy with objectivesto approach the information through their significance to the decisions about the investments, thefinancial resources and the operation activities of an i ndustrial unit, a fact that meant the creation ofa means to allow the working out of strong accounting standards.

The first statement, out of six, from „Statement of Financial Acc ounting Concepts” isentitled: “ The objectives of the financial informatiz ation published by the industrial units” andpresents the great challenges of the American accountancy starting with the ´70’ s: the role ofassistance accountancy in the process of taking economical decisions, the impor tance offered to theinvestors in their position of using information, the investitures rather use the cash – flowinformation than the final result information in their standards of taking a decision and theFinancial Accounting Standard Board (FASB) didn’t hesitate to acknowledge „the vi rtues of thistype of information”.

2. The international accounting framework, also called Framework for the Preparationand Presentation of Financial St atements, was published in July 1989, inspired from the essence ofthe American accounting framework, but being specified by the fact that it “ doesn’t want” toaddress only to one category of users ( more specific the investors, the way its “predecessor” did),but to a wide range of users and that indicates its “ more social” nature . According to thisframework, the objective of the financial statements is to provide a preview about the financialposition, the performances and the development of the corresponding financial state of the industrialunit.

3. The British accounting framework , also called Framework for the Preparation andPresentation of Financial Statements, being published in December 1999. This frameworkrepresents the most subtle process in terms of conceptualizing the accountancy on an internationallevel; at the same time, it is the beneficiary of both the previous meditations of the American andinternational entities of normalizing, and the British entity’ struggles for normalizing (ASB), forimproving the hole framework of its referential.

According to the first chapter of this framework enti tled “The Objective of FinancialStatements”, reference is made to the persons for whom the financial statements are made, thosepeople’s information and the position rhea financial statements possess within the accomplishment


132

of those necessities. In simple words, the purpose of the financial statements is to provide usefulinformation for those related to the subject

Thus, the aim of the financial statements is to provide information about the performancesand the financial position regarding the entity or reports, information that must certificate their usefor a wide range of beneficiers, within the examination of the management style, assured by themanagement of the industrial unit and within the process of taking economical decisions. Thefinancial performance of an entity regards the profits they obtain from the resources they audit, theyrefer to the components of these benefits and to the features of these components. As regarding thefinancial position of the entity, this includes the economical resources that it audits, its financialstatement, its liquidity and capacity to adjust to the changes in the area it operates.

The role of the annual financial statements comes from their objectives, that are very varyedand that require a thematic analys is.

To reach its objectives, the financial statements are worked out according to thecommitments accountancy. Thus, the elements of the transacti ons and other events, areacknowledged when the transactions and the events take place (and not as the cash or its equivalentis collected or paid) and are registered in accountancy and reports, in financial statements of the due(corresponding) period. The financial statements worked out according to this principle offer thebeneficiers information both about t he past transactions that involved payments and cashing andabout the payment obligations that are going to be made in the future and about the resourcesregarding the future cashing.

According to Lauzov, the most significant objectives to influence the qu ality of informationfrom the annual financial statements are those that regard the involvement of the external users andmore specific of the investors and creditors, providing the information useful for taking decisionsabout the way the industrial unit is watching and considering the completion of the protection forthe invested money.

This information is for the users able to understand the information presented in the annualfinancial statements and possessing the required knowledge.

Although the information required by the beneficiers are varied, each having a differentinterest, a fundamental objective of the financial statements results and that is to offer informationabout the financial position, the performances and the changes of the financial p ositions of theindustrial unit, changes that are useful for a wide category of users in the process of takingdecisions. The main purpose of the financial statements come s from the fact that the economicaldecisions taken by the users of the financial statements, require the examination of the industrialunit’s capacity to offer cash or its equivalents and examination of the period and the safety of itsoffer. Essentially, on that relies the industrial unit’s capability to pay its employees and suppliers,the banking interests, to reimburse the loans and to pay its owners.

According to the Trueblood Report, made in 1971, by the committee entitled by theAmerican accounting organization, a list of objectives has been established:

to supply information useful for taking economical decisions; to supply information useful to estimate the economic activity of the industrial unit; to supply information in order to evaluate the cash – flow and the potent ional one (for the

investors and creditors); to supply information in order to evaluate and compare the performances of the industrial

unit ( its ability to produce profit); to supply information about the manner of efficiently administrate the industrial unit’s

resources; to supply information about the activiti es of the industrial unit, that may be described and

evaluated.FASB appreciates that the summary documents must offer useful information for the

decisions taken by the investors and creditors, although admits in the Trueblood Report thenecessity of supplying information also towards other beneficiers: managers, state, employees. It is


133

also specified that the information from the summary documents is aimed to help those who want toevaluate the affair and is not pointed towards a direct use in the process of estimate the affair.

IASC (International Accounting Standard Committee) that became International AccountingStandard Board, as a result of an accounting strategy and managerial reformation, mentions that theinformation contained in the annual financia l statements (the summary documents) have thefollowing objectives:

the checking of the business’s administration; the determination of the industrial unit’s ability to pay those who took part at the activity the estimate of the guarantees offered by the industrial unit; the establishment of the period to invest the money ; the settlement of the dividends; the determination of the economical, commercial and fiscal politics; the establishment of the industrial unit’s welfare ( of one country) and taking deci sions for

the use and distribution of the national resourcesAs the IASB Council estimates, almost all the beneficiers take economical decisions in order to:

to decide when to buy, to keep or to sell a money investment; to estimate the responsibility or th e administrational management to estimate the industrial unit’s ability to pay and offer other benefits for its employees to estimate the guarantees for the credits offered to the industrial unit; to determine the taxing politics; to determinate the profit and the dividends that can be distributed; to elaborate and use information about the national income; to regulate the activity of the industrial unit.The objectives of the annual financial statements are different from count ry to country, in

accordance to the importance given to different categories of users, more specific the external andinternal users (those who are also the producers of the annual financial statements, as pos sessing atrump in favour, comparing with other external users).

Two problems related to the annual financial statements are considered by David Cairns:

- the objectives of the financial statements should emphasize the loyal image of thefinancial statement, its performances and the modification of the financial position?

- should the objectives of the financial statements emphasize the results of themanagement or its responsibility for the manner in which the resources are used?

To conclude, we may say that the objectives of the annual financial statements depend onthe users’ needs and those may be synthesized in three categories:

1. objectives regarding taking economical decisions. Thus, the economical decisions takenby the beneficiers of the financial statements require the examination of the industrial unit’s abilityto generate cash or its equivalents, of the period and the safety of its generation.

2. objectives regarding the introduction of a report in order to evaluate the future treasury –flows. According to these objectives, the information about the performances of the i ndustrial unitis useful to anticipate its capacity to generate treasury -flows, using the existing resources and tostate the judgments about the industrial unit’s efficiency to use new resources.

3. informing objectives about the financial statement of the i ndustrial unit, itsperformances, the debts, the solvency, the financial liquidity, exigibility and flexibility.

To obtain a loyal image about the financial position, the performances and changes of thefinancial position represent the main purpose of the accountancy. To achieve such a desideratumdoes not always suppose the focus on details, but more specific their inclusion in a global image,that comprises the real life and the prospects of the whole.

To decide efficacious and in a correct manner means t o be all the time informed, and theworking out of the economical decisions and equally, the assessment of the past activity, are beingessentially grounded on the accountancy information, and the structures and the inclusion of


134

information alike taking thus place in the synthesis documents and accountancy reporting ( in theannual financial statements of the industrial unit).

4. CONCLUSIONS

To conclude, we may say that the annual financial statements are a structured financialrepresentation of the financia l position, and the transaction made by the industrial unit; their generalaim is to offer information about the financial position, the performances and the cash - flow of theindustrial unit, useful for a wide range of users in the process of taking economical decisions, theannual financial statements also presenting the results of the administration of the resourcesentrusted to the management of the industrial unit.

The importance of the annual financial statements, its functions, the sources that form thebasis of the information useful for their elaboration establish their elaboration in certain purposes, atcertain periods.

In different situations imposed by the legal settlements, the information from the annualfinancial statements are being supplem ented by financial or non financial information presented indifferent documents related to:

foreseeing accounts, aimed at informing about the expe ctations of the industrial unit (example: in the case of considering a banking financing of a financing thro ugh differentother authorities or organizations)

the protection of the environment, in order to emphasize the advantages and prices from theindustrial unit, all related to the environment ( example: in the case of obtaining differentnotifications and environmental licenses);

the human resources for knowing the quantitative potential of the human resources of theindustrial unit;

the technology, the products of the industrial unit for estimate the innovation struggle,inventions of the industrial unit, f or the registration of the trade or commerce mark, in orderto register the licenses and inventions.

The needs of different users have determined many disputes in the accounting literature, amongwhich – considering the singleness of the annual financial s tatements – it was sustained theelaboration of many series of annual financial statements:

aimed at serving the juridical concept to be a model of the accountancy for the shareholders; economical, to be dominated by the concept of the economical reality ( the annual account of

the groups of societies); fiscals useful for determining the fiscal result „fiscal and social balance sheet for the information regarding work and the staff; foreseeing inclined towards the needs of the investors and creditors, subj ugated to the

examination according to the treasury – flows given the examination according to thehistorical costs;

to serve the administrational interests of the management of the industrial unit (analyticalaccountancy).The features of the accounting i nformational system, regarding their connection to the

economical decisions may be thus structured : the accountancy quantifies the economical activities registering the dates related to them

for a following use; the dates are being stored and then processe d in order to become useful information; The information is being communicated through reports (accounts) of the decisional

factors. The objectives of the informational system is to offer the managers information useful for

controlling the process of adop ting decisions and efficiently run the activity of the industrial unit.


135

The starting point accepted by most of the authors who have analyzed the economicalfunction of the accounting information bring together opinions that consider that the main functionof the accountancy is to provide the information that would loyally present true and fair thefinancial position, the performances and the changing of the financial position, in a state and shapeas useful as possible for those using the accounting informa tion in order to solidify the decisions.

The technologies of information and communication have a more efficient part within theindustrial unit, and this is why I considered necessary presenting in the first chapter the tendenciesin the field of informational and communicational technologies and also the consequences for theaccounting informational system.

The objective of an accounting system is to provide financial information about the analyzedindustrial unit. Those pieces of information are aimed at the financial statement and theperformances of an industrial unit are being directed to the users for taking decisions. Theaccounting information is the raw material for the financial analyst or, on the whole, of theeconomical – financial analyst.

The accountancy provides the required language to transpose the activity of an industrialunit in a way that facilitates the businessmen to adopt the economical decisions, being theconnection between the investor and the activity of the industrial unit, th e similar speech of thebusinessmen. By the activity they develop, any businessman has a certain financial purpose and foraccomplishing it, it is imposed to employ this language and to continue improve it.

REFERENCES

[1] Cairns, D. (1998) - A View from the European Community, The European AccountingReview.

- Conturile anuale, Editura Dacia, Cluj-Napoca.[3] Durand, J. (1981)- Les formes de la communication, Dunod, Paris.[4] Feleagă, N., Malciu, L. (2004) - Provocările contabili tăţii internaţionale la cumpăna

dintre milenii.Modele de evaluare şi investiţii imateriale, Editura Economică, Bucureşti.[5] Feleagă, N., Malciu, L. (2002) - Politici şi opţiuni contabile, Fair Accounting versus Bad

Accounting,Editura Economică, Bucureşti.[6] Georgescu, I.(2004) - Elemente de contabilitate aplicate în societăţile comerciale şi

instituţiile publice,Editura Sedcom Libris, Iaşi.[7] Gondrand, F.(1981)- L’information dans les entreprises et les organisations , Les

éditionsd’organisation, Paris.[8] Iacob, C.(2000) - Sistemul informaţional contabil la nivelul firmei, Editura Tribuna

Economică,Bucureşti.[9] Lauzon, L., P.(1990) - Fondements conceptuels de la comptabilité financière. Exposé

critique, GaëtonMorin Editeur.[10] Minu, M.(2002) - Contabilitatea ca instrument de putere, Editura Economică,

Bucureşti.[11] Nica, E. (2006)- Managementul performanţei .Perspectivă umană, Editura Economică,

Bucureşti.


136

THE PLANIFICATION OF AN AUDIT OF ANNUAL FINANCIAL SITUATIONS FROMTHE VIEWPOINT OF THE INTERNATIONAL STANDARD OF AUDIT 300

Professor Ph.D. Viorel ŢURCANUAcademy of Economic Studies of Moldova, Republic of Moldova

[email protected] Ph.D. Ionel BOSTAN

University Stefan cel Mare Suceava, Faculty of Economics and Public Admi nistration, Suceava, [email protected]

Doctor of Science Professor Dorel MATEŞWest University of Timisoara, Faculty of Economic Studies, Timisoara, Romania

[email protected] Marian SOCOLIUC

University Stefan cel Mare Suceava, F aculty of Economics and Public Administration , Suceava, [email protected]

Assistant Veronica GROSUUniversity Stefan cel Mare Suceava, Faculty of Economic and Public Administration , Suceava, Romania

[email protected]

Abstract:The annual financial situations are represented by a set of documents (situations) that are meant to be a

structured representation of the financial position, of the performances, of the modification of the financial position, ofthe treasury flows and of the way of adm inistration of the ressources of the entity that regards the closed financialexercise. The plannification of an audit supposes the settlement of the general strategy of audit for the engagement andthe elaboration of an audit plan in order to reduce the a udit risk at an acceptably low level. The aim of thisinternational audit standard (ISA) is to establish rules and to offer reccomendations regarding the aspects and theactivities that are applicable for the planification of an audit of the financial situ ations. The auditor must planify theaudit activity in such a manner that the audit activity should be developped in the most efficient way. The adequateplanification comes to support and to ensure the efficiency of an audit activity, the identification of the possible issuesand their solutions in due time and that the audit engagement is organized and managed adequately for it to be efficientin an effective manner.

Key words: annual financial situations, plannification, audit plan, the audit risk, international audit standard(ISA).

1. INTRODUCTION

An adequate planning of the audit activity supports the adequate delimitation of thereponsibilities for each member of the audit team, it facilitates the management and the supervisionof the members of the team of engagement. Planning does not represent only one of the steps of theaudit process, but it represents a continous and repetitive process that starts short after the end ofanother audit and it continues to the end of the current audit engagement (Mateş 2006) .

The purpose of this international standard of audit is to establish rules and to offerrecommendations regarding the concept of the degree of significance as well as to the connectionbetween the degree of significance and the risk of a udit.

The degree of significance is defined in “General terms for establishing and presentation offinancial situations”, issued by the Committee for the International Standards of Accountability asfollows (Pîntea 2006).

“Information is significant if t he omission or the erroneous declaration of this informationcould influence the economical decisions taken by users in base of these financial situations.

The auditor must take into consideration the degree of significance and its relation to therisk of audit when the auditor develops an audit engagement.

“The objective of an audit of financial situations is that of allowing an auditor to express anopinion according to which the financial situations have been established, with all the significantaspects, within a frame of financial reporting applicable.” The assessment of what is significant isan aspect that regards the use of the professional reasoning.

[email protected]

[email protected]

[email protected]

[email protected]

[email protected]


137

In the elaboration of the plan of the audit, the auditor takes into consideration an acceptablelevel of the degree of significance in order to detect the significant distortions from the quantitativepoint of view. But, both the quantitative quality and the nature (quality) of the distortions must betaken into consideration.

The auditor must plan the audit in such a manner to assure that the mission will be fulfilledin conditions of economical, efficiency, and at the established term. (Example of qualitativedistortions could be the inadequate description of a accountancy policy, when it is probable that auser of financial situations could be mislead by it.)

The auditor is preoccupied by the significant distortions and he is not responsible withdetection of distortions that are not significant for the situations audited considered as a whole. Theauditor is the one that must consider if the effect of distortions incorrectly identified, both individualand cumulated, is significant for the situations as a whole.

Income- represents more economic advantages, during the financial year, in the form ofinputs or outputs of assets, or debts diminuations, which have as a result the growth of own capitalsunder other forms that the growths that come from the participants inputs to the capitals. Thedefinition of the income contains the own income as well as other income and complementaryvalues. In the counterpart of the income there may appear different types of assets, as a consequenceof entering or growing its value: liquidities, debts, goods, and services received in exchange for thesupplied services.

The expenses- represent diminuations from the economical advantages, during the financialyear, as outputs or diminuations of assets, that have as a result the diminuation of own capitals inother ways than the distributions in favour of the participants a t the own capitals.

Expenses also mean losses and decreases of value, as well as the expenses that refer to theordinary activities of the company. The expenses that occur during the ordinary activity refer to thecost of sales, the expenses with the pers onnel, amortisations, etc. Usually they take the form of anoutput or decrease in the value of assets, for example, liquidities and liquidities equivalents, stocks,real estate, equipments.

The losses and the decreses in value can reveal or not current a ctivities of the company.They represent diminuations of economical advantages and in this quality they are not differentfrom the point of view of nature, from other expenses. In the category of losses we find suchconsequences as those of some phenomena (natural or not); the definition of losses includes in thesame time all the losses that are generated by the effects of raisings in the course exchange of aforeign currency, when the company contracted external loans in that currency. In the internationa laccounting standard IAS 1 reviewed „The presentat ion of the financial situations” there are someobservations made regarding the presentatin of the profit and loss account. Concerning the content,as it is in the case of the balance sheet, the standard p resents a minimal list of information that haveto be present in this situation.

As it is the case for the balance sheet, there are two categories of elements. The elements thatare in the profit and loss account are the following: incomes, financial ex penses, part in the result ofthe affiliated company and of the associates in participation put in equivalence, the earning or theloss before the impositation found on the occasion of the active sale or the discount of theobligations relative to the abandonned activities, the imositations of the benefit, the 1winning andthe loss after impositation on the activities abandonned, the result of the financial year.

We can say that the level of service of the customers of the company is the result of thewhole system of logistics. Its direct impact on sales and profits imposes the establishment of thelevel of service as an objective of the logistic strategy of the company. In an intense businessenvironment with a high level of competitivity, the level of se rvice is an important means ofdiferentiation from the competitors and the decrease of the loyalty of the customers.

A first group of approaches regards the models corresponding to the dispositions of the IVthe European Directive.

The IV th directive has forseen four presentations schemes of presentation of the profit andloss account. The structures of the four models and the conclusions drawn from the analysis of these


138

have made the object of more specialty studies. The financial, economical, juridical , and culturalparticularities of each european country have made that the normalization authorities and thecompanies choose the model that corresponds the best with the informational requests of the users.

The structure of realization of the profit and loss account after the French pattern allows itsuse for drawing up the tables of the intermediary balance of the financial administration and thevalorization of the information held by these balances and in this manner the opening of theaccountancy of the company towards the calculation of some macro economical aggregates.

As it is the case of the balance sheet, for the Romanian standardizes and accountants, thefinancial situations (the annual accounts) have been analyzed only from the procedural po int of view(final products of the accounting) and of the control needs of the public administration and not asinformation instruments; of facilitating the financial analysis and of assistance of the economicaldecisions.

The pattern of the structure of the expenses after their nature are appropriate in an adequatemanner to the small, middle or big companies, that do not overpass some lines of the indicators inthe european delimitations : the turnover, the total of the assets and the number of the empl oyees. Ina paradox manner, the Romanian standardizes have generalised the structure on the nature base forall agencies, the function based structure being included in an explication note. « not to mention thefact that the model of this explication note shows us how a kitsh accountant can be elaborated andpromoted : the number of functions chosen combine the information found in the internationalpractice (the cost of the goods sold and of the services offered, the selling expenses, the generaladministration expenses) with information that remind us of the accounting thinking before 1989(the expenses of the basic activity, the expenses of the auxiliary activities, the indirect expenses ofproduction.)

How could the size of the cost of the goods sold and of the services, which is a cost of thesales, be calculated by adding the expenses of the main activity, of the auxiliary activities and ofthose indirect of production, when these last 3 categories of expenses do not refer to a soldproduction, the principle of the connection of the expenses to the income makes no sense anymore.The anglo-saxon approach of the profit and loss account presents a different structure of thecontinous operations of the abbandonned or interrupteds activities. The latter ac tivities includeextraordinary results and the cumulated effect of the method change.

Unlike the system presented before, in this pattern the exploitation expenses are analysed bytheir function. In this way, the purchasing function leads to regrouping u nder the same group of themerchandise, the products and the services sold or offered cost the cost of this function, cost thatdeducted from the net income generated by sales, allow to reveal, in an explicite way the grosmargin. The commercial function r egroups the costs generated by the sale and the promotion ofgoods, wages or other personnel expenses, certain taxes and impositations, certain payments. As faras the amortisations are concerned, these can be analyzed on the functions presented before or canbe cumulated sometimes in a specific lin e of the „operational expenses”.

The expenses on the provisions regarding the deducted strange credits, sometimes directlyfrom the exploitation income. The financial results are mentioned, generally distinctive ly: thefinancial income and expenses, the dividends cashed, the part that belongs to the society in the resultput in equivalence. In a separate manner, the impositation on the result of the current activities ispresented, so it underlines the net result of the current operations. The distinction between theresults of the current operations and those of the abandonned activities has especially the role toseparate the activities for which the principle of continuity does not operate from the other activi ties.In the result of the abandonned activities or of those interrupted, the part that comes from theceasing of the exploitation must be distinguished from that that is connected with the cession.

The notion of the result of the extraordinary elements m ust be understood in a restrictivemanner: the extraordinary element has to be unusual by its nature, that is abnormal in comparisonwith the current activities and not frequent in comparison with its appearance. That is why the plusand the minus in value from the cession of the elements of active are not qualified, in general, asextraordinary elements. Beside the definition above, some transactions must bepresented at the


139

extraordinary elements, so they are significant. They includ the cessions for the r ecently acquiredsectors of activity, the profits connected with the restructuration of debts, the majority of activeexpropriations. The incidence of adopting new accounting rules about the Balance of opening mustbe presented in its net impositation size , after the extraordinary elements.

The second important financial situation for the customers is the balance of the suppliercompany. The accounting referential analyses the balance in the concept of the IAS 1 standard „Thepresentation of the financial situations” in its reviwed form. The internation concept defines andcharacterizes the elements that describe the financial position of a company, the assets, the passive,the debts and the capitals. The balance makes a distinction between the current and the non-currentelements, except the situation when a classification on the degree of liquidity is more relevant. Theactive and the current debts are the treasury, the elements held with the purpose of transactions, theones to be received or to be paid in the normal cycle of exploitation and those which have the duetime less than 12 months. The balance has to contain at least: tangible assets, short term financialinvestments, intangible assets, financial assets, participations put in equivalence, biolo gical assets,stocks, customers, and other debitors, treasury, suppliers and other creditors, provisions financialdebts, assests and debts regarding the current impositations, assets and debts of postponedimpositations and the own capitals (minoritary/pa rt of the group). Moreover, the balance mustpresent also the total of the assets and the debts destined to be transactioned, according to the IFRS5 standard. The strategy of logistics service of the customers is part of the logistics strategy of thecompany.Through the strategic operations regarding the logistics, the company aims to satisfy therequirements of the customers, in the conditions of the biggest contributions to the profit. Theobjectives of growth of the profits are fulfilled not necessarily by attracting new customers, but bydevelopping relationships with companies that have already acquired the title of supplier costumerof the company.

2. PRELIMINARY ACTIVITIES OF THE ENGAGEMENT

The activities that the auditor must develop at the begin ning of the current audit engagementare:

- Establishing the procedures concerning the continuity of the customer’s relationsand the specific audit engagement ( ISA 220 );

- Evaluation of the conformity with the ethical demands including independence;- Establishing an understanding of the engagement terms ( ISA 210 ).

The purpose of establishing these preliminary activities of the engagement is to helpensuring that the auditor has taken in consideratin any event or circumstance that may affect in anegative manner the capacity of the auditor to planify and realise the mission of audit in order toreduce the risk at an acceptably low level.

3. GENERAL STRATEGY OF AUDIT

The general strategy of audit settles the area of applicability, the length of the audit ac tivity,the moment when the activity of audit must start, the management of an audit activity and finallythe elaboration of a more detailed audit plan.

Establishing the general audit strategy means:- Determining the engagement characteristics that defin e its area of applicability

such as the general frame used for financial reporting;- Evaluation of the reporting objectives of the engagement in order to plan the

moment of the audit and the nature of the requested communication;- Taking in consideration the important factors on which the efforts of the audit

team are going to focus on, like determining the adequate levels of signification:also identifying the initial fields where the risk of significant denaturations wouldbe higher.


140

The process of elaboration of a general audit strategy helps the auditor to establish anddetermine in the same time the nature, the moment and the dimension of the necessary ressourcesfor the audit engagement to have an adequate finality, that is the objectives of the to be f ulfilled. Asfar as the ressources involved in the development of the audit activities, these are represented byexperienced members in the areas that present a higher degree of potential risk as well as involvingexperts for the more complex aspects, and also the quantity of ressources allocated to other specificdomains of audit.

It is also very important the time when these ressources are hired, that is the intermediarystage of the audit or the final stage of this one, as well as the manner in which the y areadministrated and supervised during the development of the mission of audit.

Once established the general strategy of audit, the auditor can start elaborating a moredetailed plan of audit in order to approach the specific aspects in the general stra tegy of audit,taking into account the purpose of the audit, that is to meet the objectives of the audit by efficientlyusing the ressources of the auditor.

Although the auditor usually establishes first the general strategy of audit before elaboratinga detailed plan of audit, the two planning activities are not necessarily separated as fixed processes,but they are well connected processeses, interdependant processeses, as a modification in one ofthese two activities cause the modifications in the seco nd one.

In the case of small and medium companies the audit can be realized by a small team, thisteam can be formed by an independant practician and a member of the engagement team, thecommunication between the members of the team being easier. The est ablishment of the generalaudit strategy for small companies depends primarily of the size of the entity and the complexity ofthe audit.

4. AUDIT PLAN

The fundamental objective of realizing an audit plan is to reduce the audit risk to anacceptably low risk.

The audit plan is more detailed than the general audit strategy and it includes:- Nature of audit procedures;- Moment of developing of the audit procedures ;- Length of the audit procedures;

All these stages are developped by the members of the team of audit in order to obtainsufficient audit proves adequate in order to reduce the audit risk to an acceptably low level.

The audit plan includes:

- A description of the nature, of the time and of the length of the plannedprocedures for evaluating the risk sufficiently to evaluate the risk of sig nificantdenaturations (ISA 315);

- A description of the nature, of the time and of the length of ulterior auditprocedures at the level of assertion for each significant class of transactions,accounts balance and presentations (ISA 330);

- Other such other procedures requested to be developped during the engagemnt inorder to be in concordance to other ISA.

Planning these audit procedures takes place during performing the audit, as far as the auditplan is being developped.

If the situation demands, the general audit plan and the audit programme must be reviewedany time it is necessary during the audit.

Before establishing an initial engagement the following need to be done- The auditor must fulfill the procedure s concerning the acceptance of the relations

with the client and the specific audit engagements (ISA 220);


141

- To communicate with the previous auditor if an auditors’ meeting took place; inaccordance with the ethical demands.

This standard was applicable for the audit of the financial situations from the period startingthe 15th of December 2004.

The purpose and the objective of planning the audit are the same no matter if the audit is aninitial audit or an recurrent one.

Due to the lack of experience of the auditor, in the initial audit, the auditor can extend theplanning activities of the audit. The supplementary aspects that the auditor cand take intoconsideration refer to:

- Reviewing the audit file of the internal auditor;- The planned audit procedures in order to obtain sufficient adequate audit proves

regarding the initial balance;- Also to the women personnel with adequate competences and abilities to answer

to significant risks;- other procedures requested by the quality control system of the company for the

initial audit engagements.

5. CONCLUSIONS

We can state that an adequate planning comes to ensure that the important areas of the auditare attentively analyzed, that possible issues are identified and solved in due time and that the auditengagement is organized and conducted in an adequate manner so it could be developped in anefficient way. The annual financial situations drawn up by the economical qualities that overcomethe specified size criteria are audited according to the law.

BIBLIOGRAPHY:

[1] Mateş Dorel - Contabilitatea financiară a entităţilor econimice, Ed. Mirton, Timişoara2006.

[2] Pîntea Iacob Petru – Contabilitatea financiară românească conformă cu directiveleeuropene Editura Intelcredo, Deva, 2006.

[3] Standardul Internaţional de Audit (ISA) 300 – Planificarea unui audit al situaţiilor.Financiare anuale.

[4] Standardul Internaţional de Audit ISA 315 – Cunoaşterea entităţii şi mediului său şievaluarea riscurilor de denaturare.

[5] Standardul Internaţional de Audit ISA 220 – Controlul calităţii pentru auditorii informaţieifinanciare istorice.

[6] Standardul Internaţional de Audit ISA 210 – Termenii angajamentului de audit .


142

THE EVOLUTION OF THE INTERNATIONAL STANDARDS OF ACCOUNTANCYIAS/IFRS, AREA OF APPLICATION AND THE MECHANISM OF ADOPTION

Professor Ph.D. Viorel ŢURCANUAcademy of Economic Studies of Moldova, Republic of Moldova

[email protected] of Science Professor Dorel MATEŞ

West University of Timisoara, Faculty of Economic Studies , [email protected]

Professor Ph.D. Ionel BOSTANUniversity Stefan cel Mare Suceava, Faculty of Economics and Public Administration , Suceava, Romania

[email protected] Veronica GROSU

University Stefan cel Mare Suceava, Faculty of Ec onomics and Public Administrat ion, Suceava, [email protected]

Assistant Marian SOCOLIUCUniversity Stefan cel Mare Suceava, Faculty of Economic s and Public Administration, Suceava, Romania

[email protected]

Abstract:Unifying the economical-financial information at an international level represents today, within the context of

the globalization and integration of the financial markets around the world, an important and urgent demand(necessity). Actually, we are talking about a necessary prerogative for the comparabil ity of the internationalcompanies’ performances for the transparency, efficiency and the development of the financial markets across theworld.

Unifying the accountancy rules and the general use of a common accountancy language constitutes thenecessary condition for a homogenious financial information circulation, understandable and transparent, necessaryfor a higher credibility and a better possibility to compare balances, and most of all that the investor trusts thisaccountant information document. (the balance sheet).EU = unifies the financial information of the societies at the stock market, for the protection of the investments.

Key words: International Accounting Standards (IAS), International Financial Reporting Standards (IFRS),IASB (International Accounting Standard Board), financial information

1. INTRODUCTION

Starting with 1st January 2005, country, as all the other countries of the European Unionstarted to apply a certain system based on International Financial Reporting Standards ( IFRS) forthe rated companies and especially groups, which will allow the implementation of the bestpractices at the world level. Therefore, at the national level, the normalizes have to give up their oldaccountancy techniques and practices in order to f acilitate the continuation of the reform inaccountancy and of its evolution. The accountancy system in Romania proves nowadays to bebroader regarding the national and international accountancy field in order to elaborate certaineconomic and accounting models and balances at a macro-economic level.

Applying the international accountancy standards, they try to gain confidence on thefinancial markets, making easier in the same time the international and transborder negociations ofreal estate values. In 2002, the first Regulation is established regarding the application of theinternational accountancy rules.

Regulation nr.1606/2002 (CE) of the European Parliament and of the Council, from 19 th ofJuly 2002, regarding the application of international accountancy rules.

The Communication of the Commission from13th of June 2000, called “EU Strategyregarding the financial information : accomplishment module” – proposes that all the EU societies(that make public appeal to economies) starting 2005, must publish and elaborate the consolidated

[email protected]

[email protected]

[email protected]

[email protected]

[email protected]


143

balance sheet, according to international accountancy principles, better said ”InternationalAccenting Standards (IAS).

The great majority of the member states have accepted favourably the communication ofthe European Comission, underlying the fact that the comparability of the quoted societes’ balances,of the financial institutions, of the insurance companies constitutes an essential factor for theintegration of the financial markets.

The societes interested have accepted in a favourable manner the application of the IASpriciples, as they would make easier the comercialisation of the real estate, fusions and transbordersacquisitions as well as the financing operations.

The communitary accountancy legislation of the 70s had to be updated so that the system ofthe financial situations of the quoted societies could satisfy the demands of the actual investors.Very often the titles of the societies are held by more investors, of different nationalities, so, itseems only logic- having the quoted societies to publish the balance in conformity to internationalaccountancy priciples.

2. DEFINITIONS

The international accountancy principles defined as”IAS” – are adopted by internationalorganisms of accountancy regularization IASB (International Accounting Standard Board), with theheadquarters in London, but represented by the European Commission.

The common standards are called IFRS – (International Financing Reporting Standards).Prioritiesa) – Installing the conditions for a market of integrated and efficient, establishing balances

that are in the great part comparables on the unique market, favorizing the competitionand the circulation of capitals;

b) – the necessity to apply a rule that could help us know if a ll the societies quoted in EUhave corectly applied the IAS (credi bility, evaluation, competence).

3. APPLICATION AREA

Staring 2005, all the societies quoted in EU (including the banks and the insurancecompanies.) have made balances of high quality, ap plying international accountancy principles.In the same time, the member states can authorise or determine some societies to apply theinternational accountancy system on the annual accounts.

So, the new standards can be imposed to the societies that do not have titles negociated onthe public markets.

Calendar and status of the european directivesEven if the deadline was established for 2005 The Regulations proposed leave to the

member states the time to get used to the new accountancy system in a pro gressive manner. In thesame time, the legislation of the IAS come to complete the demands from the accountancydirectives: finally the member states can request some societies starting 2007 to apply certaindispositions for the societies that have the ti tles negociated on a public market from the EuropeanCommunity or on a reglemented market of some country.

4. THE MECHANISM OF ADOPTION

In order to apply an international accountancy principle, this application has to lead to anauthentic and correct vision on the financial position and on the activities of a company; it shouldcontribute to the European public interest and to respect the criteria regarding the quality of theinformation in it.


144

The European Comission will establish together with the Com mittee for European Authorityfor Regulation of the Real Estate (CAERVM), a common way for the application of internationalaccountancy

The present Regulation is adopted following a mechanism structured on two levels:a) – a normative level – through the institution of a Committee for The

Accountancy Regulation, formed by the representatives of the European Commission, who willdecide the adoptions of the principles of IAS, based on the propositions made by the Commission.The aim is to guarantee a total tra nsparency and to assume responsibility in the confrontationswith the Council and the European Parliament.

b) – a technical level = by a technical Committee of Accountancy, the ConsultativeGroup for the financial information in Europe (EFRAG) – formed by expertaccountants from the private sector from different countries; that will supply at theright moment the necessary assistance and competence for the evaluation of theprinciples IAS – and for the counseling the European Union regarding themodification (advantageous or not) of the operative legislation.

5. OBJECTIVE OF THE REGULATION (CE)

The Regulation applies directly and it does not need changes in the member states. Itstipulates that the European Commission examines the functioning of mec hanisms and proceduresmet in place after having been updated, at the latest until the half of 2007.

Taking into consideration the favourble opinion expressed by the Committee of accountantRegulation of EU, the European Commission adopts the relative Reg ulation of internationalaccountancy principles IAS 39. Such a standard is valid for all EU societies, except for twotemporary exclusions. The first exclusion refers to the application of „the fair value” for all theelements of the balance of a quoted so ciety.

We remind that the method „the fairs value” refers to the evaluation of the elements of thebalance to the market value of the moment (and not at their acquisition value) and to thecontabilization of derivates, that is of the complex financial pro ducts, used by banks for coveringrisks.

The European Commission states that the Directive 78/660 CEE egarding the rights of thesocieties, does not consent to the application of the options of „fair value ” to the elements ofpassive and most of all to the shares and own parties (capitals) of the society.

The second exclusion refers to the application of some dispositions with regard to thecovering accountancy, which, to the majority of the european banks, would provoquedisproportional and expensive m odifications regarding the financial administration of theactive/passive of their accountancy system.

During 2005, IASB presented some propositions for total acquiry of IAS 39.Regulation (CE) nr.707/2004 of the European Commission from 06.04.2004 that modifiesRegulation (CE) 1725/2003, that adopts the principles of international accountancy according toReg.(CE) 1606/2002 of the European Parliament and Council.

In order to make easier the transition towards the international accountancy principlesIAS/IFRS, IFRS1 was realized, the first application of international accountancy principles offinancial information.

This (IFRS1) substitutes the interpretation SIC 8, which imposed tasks and conditionsextremely difficult for societies and which at their turn would have rather had the IAS to theaccountancy standards admitted at national level.

The new standard IFRS1 (the first application of international accountancy principles forfinancial information) takes in consideration the needs of the EU societ ies quoted at theStockexchange, that applies the IAS for the first time from 01.01.2005.


145

This standard indicates the procedures that must be respected in the case which it is aboutthe first application of IAS, especially to what regards the patrimony si tuation (balance) at opening,the start point, for the application of IAS/IFRS.

On the other hand, this standard guarantees transparency, imposing to the entity to publishthe information in the balance sheet, to explain the effects that the passing to I AS will produce tofinancial situations, on the results and cash flow and at least to take into account the limitation ofthe market reactions.

Regulation (CE) nr.1725/2003 of the European Commission from 29.09.2003 that adopts theprinciples of international accountancy principles according to Reg.(CE) 1606/2002 of theEuropean Parliament and Council.

This regulation refers to the approuval of the international accountancy principles IAS andto the connex interpretations SIC, confirming the so- called mandatory application starting with theexercise of 2005, according to General Regulation on the principles of IAS (Reg CE nr.1606/2002).

The adoption of this Regulation takes place as a follow -up of the unanimous approuval ofIAS principles by the Committee of Accountant Regulation.

These approuvals include all the principles of international accountancy and theirinterpretation, except for the IAS 32 and 39 and of SIC 5, 16 and 17.

The principles IAS 32 and 39 that treats accountancy and the publicit y of financialinstruments, have not been introduced because they are the object of reviewing by the IASB, incollaboration with the european expert acountants and most of all EFRAG (European FinancialReporting Advisory Group).

The directive 2003/51/CE of the Parliament and Council from 18/06/2003 that modifies theDirectives 78/660/CEE, 83/349/CEE, 86/635/CEE and 91/674/CEE regrding the annual accountsand the consolidated accountsof different types of societies, banks and other financial institutions,insurance companies.

This directive aims to unify the accountancy principles applicable to the societies and otheorganisms that are not object of the Regulation (CE) 1606/2002 of European Parliament andCouncil regarding the application of accountancy pr inciples by the societies quoted at theStockexchange (around 5 million societies ).

6. CONCLUSIONS

In this case this directive suppresses any discordance between the accouncy directives andthe regulation regarding the application of the international accountancy principles (IAS) as itconsents to reveal the accountancy options IAS applicable by the companies, that mantain theaccountancy directives as the basic legislation. Except this, the directive mentioned classifies thetreatment of the financing outside the balance sheet (debits and loans ) and it extends outside thefinancial aspects the analyse of the risks in the financial administration relations of the company. Itstates also the mandatory content of the relations of the accounts revisors .

Regulation (CE) nr.108/2006 of the European Commission from 11.01.2006 that modifiesthe Regulation (CE) 1725/2003, tht adopts the principles of international accountancy according toReg.(CE) 1606/2002 of the European Parliament and Council with regard to IFRS1, 4, 6 şi 7;principles of international accountancy IAS1, 14, 17, 32, 33 and 39 and interpretation IFRIC 6.

Regulation (CE) nr.708/2006 of the European Commission from 08.05.2006 that modifiesthe Regulation (CE) 1725/2003, that adopts the principles of international accountancy according toReg.(CE) 1606/2002 of the European Parliament and Council with regard to the internationalaccountancy principles IAS21 and interpretation IFRIC.

IASB: „International Accounting Standard Board” – is the international organism thatdecides the international accountancy principles IAS/IFRS. It has its headquarter in London but it isrepresented by the European Commission. It was created on the 01.04.2001.

IASC: „International Accounting Committee” – international organism that has decided theinternational accountancy principles IAS. Starting 2005 it is called IASB.


146

IFRS: „ International Financial Reporting Standards” – represents common standards, thisdefines the principles set by IASB.

„International Financial Reporting Interpretation Committee” represents the committeeIASB, that decides the official interpretations of the main international accountancy principles.IAS. „International Accounting Standards” – defines the principles set at first by IASC.SIC: „ Standards Interpretation Committee” – represent illustrative documents of interpretation ofIAS principles.EFRAG: „European Financial Reporting Advisory Group” – is an international organism having thefollowing functions:

a) It contributes actively and in a pro-positive manner to the activity of the IASBb) It offers consultancy to the European Commission for the modification of the directivesc) It offers the technical support in order to confirm or not the application of the IFRS, as well

as the interpretation of accountancy principles of EU.

BIBLIOGRAPHY:

[1] Regulation(CE) nr.1864/2005 of the European Commission from November 15 th 2005 –it brings modifications to the Reg. Nr. 1725/2003 that adopts principles of internationalaccountancy in conformity with Reg.(CE) nr.1606)2002 of the European Parliament andof the Council as far as IFRS is regarded nr.1 and international accountancy principles IAS32 si 39.

[2] Regulation(CE) nr.1751/2005 of the European Commission from 25 oct. That modifiesReg.(CE) nr.1725/2003 of the Commission that adopts international accountancyprinciples in accordance with the regulation (CE) nr.1606/2002 of the EuropeanParliament and Council with regard to IFRS 1, IAS 39 si SIC 12.

[3] Regulation(CE) nr.1073/2005 of the C ommission from 07.07.2005 that modifies theregulation (CE) 1725/2003 that adopts the principles of internal accountancy according toReg.(CE) 1606/2002 of the European Parliament and Council, with regard toIFRIC 2

[4] Regulation (CE) nr.211/2005 of the European Commission from 04.02.2005 that modifiesthe Regulation (CE) 1725/2003, that adopts principles of international accountancyaccording to Reg.(CE) 1606/2002 of the European Parliament and Council with regard toIFRS 1 and 2; the principles of international accountancy IAS 12, 16, 19, 32, 33, 38, 39.

[5] Regulation (CE) nr.2238/2004 of the European Commission from 29.12.2004 that modifiesRegulation (CE) 1725/2003, that adopts principles of international accountancy accordingto Reg.(CE) 1606/2002 of the European Parliament and the Council, with regard to IFRS1; IAS from 1 to 10; from 12 to 17; from 19 to 24; from 27 to 38, 40, 41; and SIC from 1to 7; from 11 to 14; from18 to 27 and from 30 to 33.

[6] Regulation (CE) nr.2237/2004 of the Euro pean Commission from 29.12.2004 that modifiesRegulation (CE) 1725/2003, that adopts principles of international accountancy withregard to Reg.(CE) 1606/2002 of the European Parliament and Council qith regard to IAS32 and IFRIC 1.

[7] Regulation (CE) nr.2268/2004 of the European Commission from 29.12.2004 that modifiesthe Regulation (CE) 1725/2003, that adopts principles of international accountncyaccording to Reg.(CE) 1606/2002 of European Parliament and Council with regard toIFRS1, IFRS3, 4, 5; IAS1, 10, 12, 14 from 16 to 19; 22, 27, 28 and from 31 to 41 and theSIC interpretation (Standard Interpretation Committee) 9, 22, 28 and 32.

[8] Regulation (CE) nr.2086/2004 of the European Commission from 19.11.2004 thatmodifies the Regulation (CE) 1725/2 003, that adopts the principles of internationalaccountancy with regard to Reg.(CE) 1606/2002 of the European Parliament and Councilwith regard to IAS 39.


147

THE IMPORTANCE OF MODERN E-BANKS FOR DEVELOPMENT OF NEWECONOMY

Lecturer Ph.D. Camelia Catalina [email protected]

Lecturer Ph.D. Student Anisoara Niculina [email protected]

“Stefan cel Mare”University, Suceava, RomaniaAssistant Ph.D. Student Muvuny BONAVENTUREFaculty of Economy, University of Kigaly, Rwanda

[email protected]

Abstract:The new economy, also called e -economy, is the most frequently used term in economic and technical

literature, discussions of scientists, businessmen and politicians beside globalization and information technologysociety. Three planes of understanding of the new economy can be distinguished: as a system of new principlesexplaining how economic subjects function on the market; as activities of economic subjects in the strongly changedconditions. Owing to the dynamic development of technical progress, especially in information technology economicsubjects change completely strategy of their activities many times. Information and knowledge as main economiccategories, which are the basis of the contemporary business, are the foundation of acti vity another term is assigned tothis understanding, namely knowledge -based-economy. The third plane, new economy treated as a subject, namelydetermining activities of an enterprise in the IT sector.

Therefore, the new economy, also called cyber-economy, constitutes a new paradigm of business. On thisvirtual market E-business is a new form of an exchange of resources by means of information technology systems andinternet technologies, conducted on-line through electronic connections and an informatio n exchange by use ofelectronic multimedia such as Internet, cable and satellite television, telephony, electronic cards, Intra and Extranet atthe national and international level.

Key words: e-economy, e-business, e-banks, dynamic development, e -product, e-service.

1. INTRODUCTION

Nowadays, the human society meets the most profound transformations from itsentire existence, in which information technology plays a determinant part and has begun totransfer to the networks most of the common activities. Along with the entrance in the Internet andin the e-business age, of the new economy, in general, certain fundamental transformations of thesocial-economical structure are produced.

The new economy or the digital one resulting from the interaction between thepersonal computer, telecommunications, Internet and electronics, is characterized by a range offeatures completely different from the traditional economy and is subjected to the principleaccording to which .the more people involved the bigger the benefit for everyone involved .

Along with the entrance in the Internet and in the e -business age, of the new economy, ingeneral, certain fundamental transformations of the social -economical structure are produced. Thedevelopment of the interconnectivity of computers in the internet, in all segments of society, has ledto a more obvious tendency of companies to use these networks in order to carry out a new type ofcommerce, the electronic commerce, through the int ernet.

The Internet is still more present everywhere, its increasing presence changes also theway business is done. The banking is no exc eption. The euphoria witnessed towards the end of lastdecade surrounding the use of the Internet in service provisi on was based primarily on the notion ofinfinite scalability (the ability to serve increasing numbers of customers at low incremental costs).This notion justified high valuations of Internet firms from venture capitalists. E-banking within theinformation-based environment of financial services made infinite scalability appear even morepromising compared to other types of e -commerce. The often unrealistically optimistic projections

[email protected]

[email protected]

[email protected]


148

regarding Internet use, however, led to the dot.com shakeout that ca me with the dawn of thenew millennium. The Internet has become a part of everyday life with tens of millions online everyday engaging in various Internet activities, 50% of which include e-commerce. Bankingorganisations have been delivering el ectronic services to consumers and businesses remotely foryears. Electronic funds transfer, including small payments and corporate cash management systems,as well as publicly accessible automated machines for currency withdrawal and retail accountmanagement, are global fixtures. However, the increased world -wide acceptance of the Internet as adelivery channel for banking products and services provides new business opportunities for banksas well as service benefits for their customers.

Electronic banking (e-banking) is the newest delivery channel of banking services. Thedefinition of e-banking varies amongst researches partially because electronic banking refers toseveral types of services through which a bank’s customers can request information and c arry outmost retail banking services via computer, tel evision or mobile phone. Electronic banking can alsobe defined as a variety of the following platforms: internet banking (or online banking, telephonebanking, TV-based banking, mobile phone banking, and PC banking (or offline banking).

In new economy conditions managing financial institutions is connected with the changeof the ways of services selling, providing information to clients as well as with the change oftheir function and noticing the key competence. The standard of work in banking area has beenrelated to the usage of solutions based on information, knowledge and new technologieswhich give the clients access to financial means collected on the bank accounts and the possibilityto make different transaction there. It has led to distinguishing great variety of e -banking channelssuch as: cash dispensers, phone banking; banking based on separate network - home banking(Corporate banking), call Centre, voice-IVR, internet banking (with the type, limited to virtualsphere, virtual banking), mobile banking (SMS banking. make possible to manage the bank accountby means of textual news SMS as well as WAP banking . allowing for interactive contact of th eclient with the bank by means of mobile phone using protocol WAP.

With the development of e -economy new payment instruments were introduced on themarket. These new instruments made it possible to conduct transactions on the Internet and in themobile environment.

The end of the 20th century is the period of impetuous changes ongoing in the wayof functioning in Europe and in the world. This is a period of continuous challenges, economicco-operation and implementation new ways of manage ment.

The changes include reducing time of carrying out business processes, their wider scope,more flexibility and reliability of operations, and increasing level of client service. In thenear future, e-economy will revolutionize business activities in almost all sectors ofeconomy. In fact, three channels of influence of those technologies on the economy can bedistinguished:

- accelerating an increase in work productivity in sectors manufacturing equipment of newtechnologies and an increase of their share in the National Gross Product;

- fall in prices and an increase in demand for this type of equipment, what results inan increase in investment level and the National Gross Pro duct;

- changes in a way enterprises function in new market conditions and accelerating workefficiency and capital productivity.

Therefore, the new economy, also called cyber- economy, constitutes a new paradigm ofbusiness. On this virtual market E-business is a new form of an exchange of resources by means ofinformation technology systems and internet technologies, conducted on-line through electronicconnections and an information exchange by use of electronic multimedia such as Internet,cable and satellite television, telephony, electronic cards, Intra and Extranet at the national andinternational level. It consists of electronic trading, business intelligence and technologicalcapacities to self-service business processes conducted. For that reason e -business is a newsource of speed, innovation initiatives, efficiency and new ways to create values in theorganization.


149

Generally we appreciate that there are three levels of e -banking business:- Basic information e-banking/web sites that just disseminate information on banking

products and services offered to bank customers and the general public;- Simple transactional e-banking/web sites that allow bank customers

to submit applications for different services, make queries on their account balances, and submitinstructions to the bank, but do no permit any account transfers;

- Advanced transactional e -banking/web sites that allow bank customers toelectronically transfer funds to/from their accounts pay bills, and conduct other banking transactiononline.

Modern e-banks take a particular place in e -economy. Their importance for development ofnew economy has been emphasised in the e-Europe programme that is one of the Lisbon Strategyprinciples. E-banking makes it possible to perform such services as: electronic tax clearings,unemployment benefit or scholarship payments.

The electronic commerce (e -commerce) offers the consumers and the companies alikeinformation regarding the merchandise and the services available in the whole world, pricesand sale conditions, giving them the option to take the best decisions in management.

The development of electronic business takes place in phases. In the first phase theInternet is web enabled to conduct activity, whereas in the second one business is web basedtotally. The fact to which phase countries belong to depends on the internet i nfrastructure andcommunication channels they have. Europe comparing to the USA is backward about two years andit is still in the phase of building infrastructure.

Continuing technological innovation and competition among existing banking organisationsand new market entrants has allowed for a much wider array of electronic banking products andservices for retail and wholesale banking customers. These include traditional activities such asaccessing financial information, obtaining loans and opening depo sit accounts, as well as relativelynew products and services such as electronic bill payment services, personalised financial “portals,”account aggregation and businessto -business market places and exchanges. Notwithstanding the significant benefits of technologicalinnovation, the rapid development of e -banking capabilities carries risks as well as benefits and it isimportant that these risks are recognised and managed by banking institutions in a prudent manner.

Electronic business is a complex and dy namically developing sector. It is not only limitedto access to World Wide Web and information exchange. In order to achieve success in it,different requirements must be met, and they are such as: safe information processing concer ningtransactions, winning customers trust, skillful management of intangible products. Electronicbusiness is of particular importance in the finance sector. It comprises both a scope of customerservice and a transfer of funds and mutua l co-operation of institutions. Necessity to introducecomprehensive electronic business results from, among others, a level and scope ofcompetition present on world financial markets nowadays. Banks wanting to maintain anappropriate position on the market face challenges which force them to use solutions increasingeffectiveness of their activities.

Management of finances becomes more and more management of information aboutcreditability, purchasing power and financial position of persons and institutions . Newtechnologies are directed to manage relations with customers, to improve internal integration ofsystems and internal operations of banks, but not as in the previous period to increase innerefficiency and development of distribution channels. Those factors cause that the bank sectoris prepared best to function in the electronic environment and develop electronic economy.Information and communication technologies (ICT) can b e used in any type of bank activity andthey are the main factor of changes in the whole sector of financial services. In that economicsituation only those banks, which will use different distribution channels and variety of services andmodern technological solutions will be basis of their long -term strategy, will achieve success.Problems of electronic economy became a key element of initiatives undertaken by EuropeanUnion within the framework of the Lisbon Strategy.


150

The main aim of the Lisbon Strategy, within the e -Europe initiative accepted in Seville inJuly 2002, is to transform the Eur opean economy to 2010 into the most competitive world.sknowledge-based economy.

The main goal of any company is to maximize profits f or its owners, and banks are noexception. Automated e-banking services offer a perfect opportunity for minimizing costs.

To protect banks against business, legal and reputation risk, e -banking services must bedelivered on a consistent and timely basis in accordance with high customer expectations forconstant and rapid availability and potentially high transaction demand. The bank must have theability to deliver e-banking services to all end-users and be able to maintain such availability in allcircumstances. To meet customers’ expectations, banks should therefore have effective capacity,business continuity and contingency planning. Banks should also develop appropriate incidentresponse plans, including communication strategies that ensure business con tinuity, controlreputation risk and limit liability associated with disruptions in their e-banking services.

In many ways, e-banking is not unlike traditional payment, inquiry, and informationprocessing systems, differing only in that it uses a different delivery channel. Any decision to adopte-banking is normally influenced by a number of factors. These include customer serviceenhancement and competitive costs, all of which motivate banks to assess their electroniccommerce strategies. The benefits of e-banking are widely known and will only be summarisedbriefly in this document.

CONCLUSIONS

E-banking can improve a bank’s efficiency and competitiveness, so that existing andpotential customers can benefit from a greater degree of convenience in effec ting transactions. Thisincreased level of convenience offered by the bank, when combined with new services, can expandthe bank’s target customers beyond those in traditional markets. A bank may be faced with differentlevels of risks and expectations ari sing from electronic banking as opposed to traditional banking.Furthermore, customers who rely on e -banking services may have greater intolerance for a systemthat is unreliable or one that does not provide accurate and current information. Clearly, thelongevity of e-banking depends on its accuracy, reliability and accountability. The challenge formany banks is to ensure that savings from the electronic banking technology more than offset thecosts and risks involved in such changes to their systems. Whi le financial institutions have faceddifficulties over the years for a multitude of reasons, the major cause of serious banking problemscontinues to be directly related to lax credit standards for borrowers and counterparties, poorportfolio risk management or a lack of attention to changes in economic or other circumstances thatcan lead to a deterioration in the credit standing of a bank’s counterparties.

An increase in social expectations in relation to subjects rendering financial services,dissemination of new technologies, more developing technical culture of society, an increasein importance on information technology in economy, business globalization, consolidation ofbanks and an increase in competitiveness are only a f ew reasons which had an influence on a typeand quality of services rendered by banks.

It leads to a necessity of bank strategies modification imposed by cost s reduction, changeof clients, consumption patterns, dynamic development of new technol ogies, and polarizationof clients because of their ability to use the Internet and positive attitude towards electronicmedia. As a result, clients will gradually change their perception of bank sector institutions. A newquality of bank services is being provided, where a client becomes a subject and not an object as itused to be in traditional banking.

REFERENCES:

[1] Berheci, I., Contabilitatea societăţilor bancare , Sedcom Libris, Iaşi, 2003.


151

[2] Binda, Jacek, Selected problems of e -economy in banking, session Banking Servicesand Payment Systems, Conference “Future of the banking after de year 2000 in theworld and in the Czech Republic X Finance and Banking”, 2005, Karvina, Cehia.

[3] Booz, A., Allen, S., Hamilton, C., Internet Banking: A Survey of Current and FutureDevelopment, 1996. Access from: www.khang.com/banking/online-bank b751361.php

[4] Butiri, A., Niţchi, Ş., Mobile Banking, in Vol. International Symposium Works,Specialization, Development and Integration , S.C. Roprint S.R.L., Cluj Napoca.

[5] Haag, S., Cummings, M., Mccubbrey, D., Management Information Systems for theInformation Age, 4th Edition, McGraw Hill Irwin, 2004.

[6] Hof, R., Noua putere în tehnologie, article Business Week, taken in .Biz, no 108, 8 - 20July 2005.

[7] Manolescu, G., Sârbea, A., Management bancar, Publishing house Editura FundaţieiRomânia de Mâine, Bucharest, 2001.

[8] Mallat, N., Rossi, M., Tuunainen, V. K., Mobile Banking Services, in the magazineCommunications of the ACM., May 2004, Volume 47, Number 5 .

[9] Vasilache, D., Plati electronice. O introducere , Rosetti Educational Publishing House,Bucharest, 2004.

[10] Stoica, M., Risk management foe E-banking, International Workshop IE&SI, Timisoara,2003.

www.khang.com/banking/online-bank


152

LIQUIDATION BY AND OUTSIDE THE LAW OF BANKRUPTCY AND OFINSOLVABILITY

Lecturer Ph.D. Irina-Ştefana CIBOTARIUŞtefan cel Mare University of Suceava, România

[email protected]

Abstract:The trading society is constituted so that it has to develop an activity whose duration is established within the

constitutive documents. Sometimes, the duration is lengthened even after the associates’ decease, which formed thesociety. Since the antique duration, the problem of reaction towards a trader, whose inadequate activity affects theeconomic life, has appeared. In this way, the Roman law introdu ced the first regulations, which determined later thematerialization of institution’s bankruptcy, respectively the gross sale of debtors’ goods in favor of creditors.

The bankruptcy represents an absolutely normal market phenomenon, in our country it did n’t reached yet to bepart of “game’s rule”; any investor wishes to know not only the manner of entering within a business, but also of goingout of it, the business being carried out with a society which is at bankruptcy. The number of bankruptcy is an es sentialindicator on evaluating the functionality level of an economy. “The economists show that it is normally within a marketeconomy with percent of 2-6% for all companies to suffer bankruptcy within a year”.

For establishing a financial decision in cas e of bankruptcy, the financial service proceeds on determining themost of financial information.

At the beginning, by the legislation research as concerns the companies, the bankruptcy law and other judicialprovisions, the methodological information is established. Upon their basis, the information as regards the financialexpenses and financial incomes are determined. The information as concerns the financial expenses refers toexpenditure made in the view of process managing of bankruptcy and to event ual organizations and restructuring,being thus determined by the procedure of quotation. The payment obligations refer to amounts payment towardscreditors and their proportion, the payment of wages for the staff and to the level foreseen by the law of ba nkruptcy, thepayment of taxes remained towards the central and local budget.

The information as concerns the financial incomes are determine by the market value of the asset sold by publicauction by the bankruptcy process managing. The financial decision as concerns the bankruptcy makes part of thedocumentation that attaches the company’s bankruptcy, being the last financial distribution in the name of economicagent in discussion.

Keywords: bankruptcy, state of failure, financial decision, creditor, judicial reorganization, insolvency andinsolvability;

1. INTRODUCTION

In the view of assuring not only the survival, but also the development, an enterprise needsfinancing sources on long term. For this thing, an economical entity refers either to inte rnalfinancing or self-financing, or to an external financing, by the call to stockholders creditors. Thosetwo solutions presented dispose of own financing modalities. The external financing, by means ofstockholders performs two characteristic features:

1. is residual, because attracting the capital by transmission of shares occurs as being moreexpensive due to the risk assumed; at the same time, remuneration of own capital is residual,and the remuneration of stockholders is not considered a deductible exp enditure; moreover,distribution of dividends is considered by some financial executives as being against self -financing, thanks to the fact that, both distribution of dividends, and self -financing have thesame accomplishing basis – the net profit;

2. is conjuncture, because the economic entity has to own the moment of increasing the capital,in the sense of advancing or delaying the date of transmission of new shares and ofestablishing the value to which increasing will be performed.Within a company’s economic life, certain recessive and of failure moments can appear,

which lead to putting under financial supervision, reorganization/restructuring and finally toliquidation. The failure can be interpreted in more ways, depending of problems involved or not by

[email protected]


153

the collapse and dissolving that company, associated with a loss in total investment of creditors. Inthis way, clarifying the following terms becomes necessary:

• the economic failure signifies the fact that a company’s incomes do not cover the tota lcosts, including the capital’s cost;

• the company’s failure refers to any company which stop its activity, having as result aloss for creditors;

• technical insolvency. A company will be considered technically insolvable if it cannotrespect the current observations on their becoming payable. A company being in this situation isconsidered in technical stopping of paying the obligations. The technical insolvability denotes thelack of financial difficulties to customers;

• the insolvency in bankruptcy appears when within an enterprise, the total of dutiesexceeds the real value of assets. This situation is much more severe than the technical insolvency,because it generated the company’s liquidation.

Within the Romanian regulations for the judicial reorganiz ation and bankruptcy procedure,distinction is made between the insolvency and insolvability. The insolvency (inability of payment)comes when the debtor do not have necessary liquidities for paying his real, liquid and due debts.The insolvency or debtor’s stopping of payment has to be delimitated of so that called “financialconstraint”, which consists on just being lack of necessary liquidities for duties acquit. It is possiblethat, in short time, the debtor to cash the debts from his own debtors and to financially redress.

The insolvency doesn’t mean insolvability, for as long as the debtors maintains in hispatrimony goods which can be enforced executed, in the view of paying the duties towards thecreditors. The insolvability consists on debtor’s i mpossibility of respecting his obligations towardsthe creditors, both from liquidities’ lack and other goods among which the creditors’ debts have tobe satisfied. Practically, the passive (duties) is bigger that the active (rights) of patrimony. In thisway, the insolvability state regulated by the Romanian legislation is the same as the bankruptcyinsolvability, while the insolvency is the same with technical insolvability, previously approached.

The economic failure of a company is caused by more fa ctors, among which the followingcan be presented:

1. incompetence and managing failure (60%);2. the unfavorable evolution of the market (about 20%);3. the natural phenomenon, fire, calamities, Earth quakes (10%);4. other causes (10%).It can be observed that the main cause has in view the failures of managing processes and of

knowing the market. Therefore, the managers have to identify in time the signals of deterioratingthe financial situation of enterprise, such as:

achieving the negative net financial result s; existence of a negative working capital; the impossibility of reimbursement the credits to their normal date of payment; the bankruptcy of some providers or main customers for the enterprise; the reduced impossibility or non -availability of a manager; persistence of strikes.

The legal frame as concerns the commercial companies functioning, as well as the Law ofenterprises’ insolvability foresee the impossibility of declaring the bankruptcy state for thecompany, which is carried out, firstly by superv ising activities, of reorganizing and restructuring -readjustment.

The bankruptcy is a judicial procedure in the view of reorganizing or liquidation of acompany, when reorganizing or liquidation is organized by special courts. The bankruptcy can be oftwo types:

voluntary, when the bankrupted company presents to judicial instance a request and noorder of supervising exists, and the manager of real patrimony/syndics is directlynamed;


154

involuntary, when the company’s creditors presents to judicial instan ce a request andprove that the debtor do not respect the duties on date of payment. In this case, theinstance institutes the order of supervision over the debtor and names the patrimonymanagers.

The creditors can anticipate the incapacity of debtor for respecting the obligations to date ofpayments, upon the basis of bankruptcy deeds, which this committed, being the following:

the false pretences transfer represents a transfer of properties towards a third party, oninadequate conditions, with intention of prejudicing the creditors;

the preferential transfer represents the money or assets transfer by a insolvable debtortowards a creditor, giving to creditor a bigger part of duties unto other creditors willreceive to liquidation. The preferential transf er is also called “false pretencespreference”;

hiding or removal. Hiding refers to hiding certain properties on intention ofprejudicing the creditors; removing the properties also has in view the creditors’prejudicing;

assignation. If a debtor makes a general assignation on creditors’ benefit, there will bean act of bankruptcy. This will allow to creditors that do not trust within the assignationprocess to transform this transaction into an involuntary bankruptcy;

sudden leaving. If the debtor disappears in the view of cheating or delaying towards thecreditors, then a request of bankruptcy can be submitted;

admittance to a creditors’ meeting. The debtor will commit a bankruptcy act if at ameeting of creditors, he presents a declaration of assets and duties which show that he isinsolvable or admits in write that is unable of paying the duties;

communication towards the creditors . If the debtor communicates to any creditor thathe suspended or will suspend the duties’ payment, a bankruptcy act will ta ke place;

order of officer of the court . If the debtor do not redeem the goods that weresequestered by an execution order issued against him, there will be a bankruptcy act;

the technical insolvability is the most commonly act of bankruptcy and takes pla cewhen the debtor is unable of respecting, in generally, the conditions of indebtedcontracts to date of payment.

In case a company reached to far in the view of rehabilitation, then it has to be closed. It isindicated that liquidation has to take place when the company values more dead than alive or whenthe possibility of achieving the profit is much more distanced. The clearance can take place bothoutside the Law of bankruptcy and by the procedure performed under the jurisdiction of abankruptcy court.

A) Liquidation outside the law of bankruptcy and of insolvabilityBy this procedure, the costs as concerns the bankruptcy procedure are gained in time.

Liquidation can be made on two ways: the mandate and voluntary liquidation.1. The mandate represents an informal procedure in the view of c learing the duties and

assures, usually to creditors, a greater amount in comparison to liquidation by law of bankruptcy.By mandate, the title over the debtors’ assets has to be transferred to a third person, name dmandatory or trustee. The mandatory has the task of liquidating the assets by private sale orpublic auction and then of distributing the creditors’ encashment, proportionally. The mandate doesnot automatically absolve the debtors from obligations. If a company does not exist anymore andgets out of business world, it will not mean that it stops all the pretences about it.

The persons associated with the company can organize another enterprise, without previousduties and obligations, but maintaining p ermanently the danger that judicial instance to punish thosepersons. Form this reason, is important to achieve a declaration from the creditors, by which theydeclare that pretences were fully compensated.


155

The mandate presents certain advantages, meaning : more reduced time of solving and thelack of expenses and formalities, characteristic to an injustice activity. The mandatory disposes ofproperties with much more flexibility than a bankruptcy manager. The measures can be takensooner, before those stocks be used or the equipments to become rusty. Also, because themandatory is often familiar to the business relations of the debtor’s company, better results areachieved.

2. Voluntary liquidation. In case a company reaches the bankruptcy, it can take a seri es ofdecisions. Such a possibility consists in performing a voluntary liquidation, without involving thebankruptcy process, accompanied by certain costs.

By understanding the voluntary way, the management takes a deliberate decision of sellingthe company, either to other company, or to a concern. If the managers take decisions towardsstockholders interest, the voluntary decision has to be the most advantageous for the stockholders.This fact can be possible, in measure when managers own a certain num ber of company’s stocks.As result, to a voluntary liquidation analysis, the percentage of liquidation is greater than the marketvalue of company’s stocks, which would continue the activity.

If the liquidation offers the best results for the owners of common stocks, then the stockprice should increase on liquidation announcement. There are often certain leaks of information asconcerns the liquidation and rumors concerning the possible fusions, fact that determines the growthof stocks’ price before the effective date of the announcement. The scientific research proved thatthe price of stocks can grow with at least 20% over the general tendency of market, in a period ofone month before the announcement date. Therefore, the voluntary liquidations repre sent also thepatrimony’s stocks growth.

B) Liquidation by the law of bankruptcy and of insolvabilityThe law of bankruptcy has three main functions during liquidation, meaning:

assures the protection against the debtor’s fraud; assures an equitable distr ibution of debtor’s stocks towards the creditors; allows to insolvable debtors to be absolved of all duties and to establish new companies,

whiteout the hardness of previous debts.By all these, liquidation consumes a lot of time, is expensive and has as effect the

enterprise’s closing. Putting an enterprise in liquidation status supposes accomplishing thefollowing activities:

managing the bankruptcy procedures by the experts within judicial and financial field; evaluating and selling the company’s assets ; establishing the priority order and of customers’ satisfaction proportion.

Within any reorganization of financial duties by the Law of bankruptcy, the rule of absolutepriority is applied, in accordance to which the financial duties which come to credi tors with greaterpriority have to be totally closed, before any payment to creditors/owners with less priority.

If the reorganization is performed outside this law, the priority rule used will depend on thepower of negotiating of duties and stocks own ers.

These activities have a common character, as regards the manner of managing the requestedservices, by the process of liquidation and financial distribution, in measure of accomplishing thecompany’s obligations towards the owners, budget, suppliers , and employees.

No matter the way chosen, reorganization or bankruptcy, recovering the activity for acompany imposes with obligation type the selling, integral or partial, of the company’s patrimonyfor the passive performing . A very sensitive problem is represented by the order in which the dutiesof debtors are paid, much more important as it is very possible that a part of the passive will remainunpaid and after the integral end of the patrimony and social capital.

Closing the passive has to be done in accordance to the reorganization plan, from the incomesachieved if continuing the activity, form the amounts achieved form selling of goods or from bothsources. The debts payment has to be done on terms, in manners and in accordance to the measureestablished by plan. The payment program has to respect the order of satisfying the debts foreseen


156

by law. The payment program foreseen by program represents a concrete application of legalpriority order for satisfying the debts.

The debts will be paid in the following order: taxes, postmarks and any other expenses afferent to procedure, including those for

preserving and managing of goods form debtor’s patrimony, as well as of remunerationscoming form persons employees for accomplishing the procedure of judicialreorganization and o bankruptcy;

the debts representing the credits, with afferent interests and expenses, offered to bankcompanies after the opening of procedure, as well the debts that result from continuingthe activity of debtor;

debts coming form work reports, for at most six months previous to opening theprocedure;

budgetary debts; debts representing the amounts given by the debtor to third parties upon basis of certain

obligations of maintenance, allocations for minors or of payment ce rtain periodicalamounts intended for assuring the existence means;

debts representing the amounts established by the magistrate -syndic for the maintenanceof debtors and of his family, if he represents physical person;

debts representing the bank credits with the expenses and interests afferent to thoseresulted from delivering of products, services performing or other works, as well as fromrents;

other debts; debts subordinated, in preference order established by the law. The debts subordinated

come from credits given to the debtor judicial person by an associate or stockholderowning at least 10% of the social capital, respectively of vote rights, within the generalmeeting of associates, depending on situation, by a member of economic interest group.Simultaneously, there are debts subordinated to those coming from acts with free title;

debts of members, associates and stockholders, debtor judicial persons, coming from theresidual right of their quality, in accordance to legal and statuary provisions.

The debts can be: debts of first degree (bank credits), named as guaranteed debts with insurance of first

degree; debts of second degree (commercial credits, duties), named as guaranteed debts upon

basis of the active left after paying the previous obli gations.The amounts had to be distributed between the creditors of the same priority degree will be

proportionally offered with the amount for each debt, mentioned in the definitive table of creditors’debts.

On applying the liquidation procedure, two principles are aimed: fastness of operations; liquidation of goods in more advantageous manner, for satisfying the creditors’ debts;The last liquidation act is represented by the net asset’s distribution between the associates.

Such an operation is possible only if after the payment of company’s entire passive, assets ofcompanies left, whose value cannot be shared. Ulterior, the final accountant balance of liquidationwill be done; which includes all the operations related to liquidation. It has t o be signed byliquidator and accompanied by a report of censors. The balance sheet and the censors’ report asconcerns the liquidation are mentioned in Registry of Commerce and are published in MonitorulOficial.

The bankruptcy mechanism doesn’t have to be abuse used, in the view of making easycertain taking of control. The signs for staring the bankruptcy have to be also adequately establishedfor not forcing the bankruptcy start of certain companies potentially available. The instances have tomanifest a careful, responsible and professional attitude, thus offering to the enterprise time


157

interval, in the view of saving by reorganization, thus increasing the chances of supervising thebusiness.

In the view of analyzing the efficacy of own efforts, w e will succinctly present some resultsthat come from paper analysis:

1. The enterprises have access to two types of financial resources: own and loan. The mannerof combining of these two types of resources define the financing structure, both performinga cost.

2. Establishing a target financial structure has to base upon strategic financial decisions. In theview of defining it adequately, the behavior anticipations belonging not only to capitalproviders have to be taken into consideration, but also of finan cial decisional of theenterprise, which may manifest a larger or smaller opening towards the risks related to eachfinancing source.

3. In the view of accomplishing an optimization of the financial structure of an economicentity, there have to be prelimina rily certain preoccupations for improving the financingstructure – especially of current financing.

4. Trying to accept a financial structure generally -available for all enterprises occur to besuperflue, this because the multitude of factors that perform o ver the financial structuremodify and individualize each enterprise.

CONCLUSIONS

For establishing a financial decision in case of bankruptcy, the financial service proceeds ondetermining the most of financial information.

At the beginning, by the legislation research as concerns the companies, the bankruptcy lawand other judicial provisions, the methodological information is established. Upon their basis, theinformation as regards the financial expenses and financial incomes are determined. Theinformation as concerns the financial expenses refers to expenditure made in the view of processmanaging of bankruptcy and to eventual organizations and restructuring, being thus determined bythe procedure of quotation. The payment obligations refer to amou nts payment towards creditorsand their proportion, the payment of wages for the staff and to the level foreseen by the law ofbankruptcy, the payment of taxes remained towards the central and local budget.

The information as concerns the financial incomes are determine by the market value of theasset sold by public auction by the bankruptcy process managing. The financial decision asconcerns the bankruptcy makes part of the documentation that attaches the company’s bankruptcy,being the last financial distribution in the name of economic agent in discussion.

REFERENCES:

[1] Aglietta, M. - Macroeconomie financiară, Editura Coresi SA, Bucharest, 2002;[2] Halpern, P. - Finanţe manageriale , Editura Economică, Bucureşti, 1998;[3] Lepage, H., Wajsman, P. - Vingt économistes face a la c rise, Édition Odile Jacob, Paris,

1999;[4] Onofrei, M. - Finanţele întreprinderii , Editura Economică, Bucharest, 2004;[5] Pasca, V. - Bancruta frauduloasă, Editura Lumina Lex, Bucharest, 2005;


158

ECONOMIC ENTITY PERFORMANCE APPROACH CONSIDERING THERELATIONSHIP BETWEEN EFFICENCY – PROFITABILITY – COMPETITIVENESS

Lecturer PhD. Student Anişoara-Niculina APETRI„Ştefan cel Mare” University Suceava, Romania

[email protected] Ph.D. Gheorghe SANDU

„Ştefan cel Mare” University Suceava, [email protected]

Lecturer PhD. Irina-Ştefana CIBOTARIU„Ştefan cel Mare” University Sucea va, Romania

[email protected]

Abstract:Defined as being the degree in which a nation, on conditions of free and honest market, can produce goods

and services that have to pass international markets’ testing, succeeding concomitantly to maintain and incr ease thereal income of its citizens: in this way, concurrency represents a challenge applied not only on nations case, but also onall the regions and cities/resorts of the world.

A nation’s concurrency is influenced by the level of concurrency to each o f the actors’ level participating onnational economy. In a different way said, on performing a nation’s concurrency, all national economy sectors bringtheir contribution, and implicitly all national economy branches, respectively all the organizations wi thin each branch.

Progress of every society decisively depends on the efficiency of the use of her own human ,natural andfinancial resources .Measurement of efficiency -this meaning measurement of costs and returns -manifests as anobjective requirement for every company. Profitability is a problem that concerns every economic company as thetarget of her activity is that of obtaining profit and carry out a profitable activity. Process of the economic activityaiming to obtain a profit as high as possible has to be based on a coherent economic theory that has the task oforienting the material ,human and financial efforts of the company within the competition environment .

Key words: Efficiency, Profitability, Productivity, Competitive advantage, Economic decision;

The objective of Michael Porter’s paper, Competitive Advantage of Nations, isdetermination of causes and factors which lead to international success of companies specialized oncertain branches, so as to theory to further extend over nations, also. Analyzing the situation ofgreat international companies, the American economist makes a connection between their successon world level’ certain sectors and nations among which Nation, production factors, technological,natural, human and financial resources proceed from, being constituted within a developmentmatrix of companies, which using the national advantages, will distinguish on international level.

“The nations, says M. Porter, contrive in those industries which have valuable advantagesto other nations and where innovations and improving come towards meeting international needs” .The assembly of factors and connections existing for creating a national matrix, able to launchcompanies on international level, has the name of “national diamon d”. Connected to this, thedeterminants of national advantage are:

factors of production (human, natural, material resources, scientific knowledgerelated to certain fields, volume and cost of capital etc.);

the nature of request (the request structure on segments, the behavior of consumers,the anticipative needs of buyers);

the connecting and supplying industries; the internal concurrency, structure and strategy of company.

All these individual factors form an extremely dynamic system, which continuouslydevelops, the national “diamond” becoming thus a national “system”. The national advantagesresult even from this evolution , generating in every country a matrix of own development, due tomultitude of considered variables. This matrix is responsible of d eveloping the competitive nationaladvantages, thus by concurrency of some national activity sectors.

Essentially efficiency expresses the capacity of the economic activity to use rationally theproduction elements of a company . This is a fundamental req uirement for the economy and

[email protected]

[email protected]

[email protected]


159

permanently it has to guide the actions and economic decisions . Efficiency is perceived as anevaluation term , a value concept that is measured by the ratio between value of the obtained outputand value of the input resources . The higher the economic or social effect is , under the terms of acertain economic effort, the higher the efficiency is minimization of effectuated expenses for theobtainment of a unit of returns has the same signification. Notice of costs and returns c omplexitywith the help of a system of indexes involves foundation of the economic calculation on anensemble of principles aimed to represent the theoretical - methodological base of economicphenomena and processes measurement . Beginning with the exigencies of economic processes andphenomena we appreciate that measurement of the expenses and returns of the company firstlyimplies true settlement of basic principles. Mainly this is referring to :

consideration of the integral effort in all stages of the ec onomic structure –it is anecessity generated by the fact that performance of every social -economic activity involvesallotment, use and consumption of resources, reflection of effects complexity

efforts and effects delimitation in time and space as wel l as their comparison ,conversion of all efforts in economic effects ;

compatibility of indexes that express the efforts and the effects ; consideration of astandard for profitability level appreciation , veracity of information regarding the costs and returnsof the economic activity .

Within carrying on an economic activity, reflection of the integral effort as principle ofefficiency measurement has to consider the primary elements of any economic deed : labor, naturalresources, capital. Efforts and effects are differentiated not only according to their nature and modeof transformation from allotted resources in consumed resources ,respectively according to contentand express mode but according to the space and manifestation time ,too, thus appearin g thenecessity of delimitation of efforts and effects in time ad space and delimitation of the efforts fromeffects .

Basing on this delimitation of the effects and efforts in time and space there may beguaranteed the premises of comparison of the indexes that dimension these . Homogeneity aims toguarantee comparison of received and/or utilized resources with consumed ones this beingdetermined by different categories of resources that have different functions in the economicactivity ,by the different modality of transformation of received resources in used resources and bythe mode they participate in formation of the integral effort. In order to compare the economicreturns with done efforts at the level of economy, branches, economic units as well as of thecorrelation settled in time and space between effect and effort there are used some value categories :price, profit, credit ,interest these leading to producers’ stimulation for the achievement of maximreturns .

Profitability is a problem that concerns every economic company as the target of heractivity is that of obtaining profit and carry out a profitable activity. Process of the economicactivity aiming to obtain a profit as high as possible has to be based on a coherent economic theorythat has the task of orienting the material ,human and financial efforts of the company within thecompetition environment .

Obtainment of a growing profit may be guaranteed by reduction of incertitude and riskassumed in the economic activity . If incertitude should not exist all elements that lead to profitachievement are known ,the economic companies will have the certitude that incomes are higherthan expenses and it will be registered the offer increase in comparison with the demand thisassuring an equilibrium between incomes and costs and profit will be null . In reality the incertitudegenerates profits and risk existence and they do not become null due to competition . As in a worldwithout incertitude profits and losses would not exist we may consider th at profit or loss are aconsequence of incertitude .

Therefore profit is not a payment that has to be done in order to obtain a resource but it is arest remained after total costs are covered from incomes ,it is the result of future forecasting donewith higher accuracy than the other competitors did. It is an unwitting income and not a forfeited


160

one this determining every economic company to achieve a better anticipation of the circumstancesof her activity .

In conclusion it results from those above pres ented that the requirements of economicefficiency are regarding maximization of returns concomitantly with expenses’ minimization aswell as optimization of labor, material and money resources’ use .In fact criteria of economicefficiency should govern any field of the human activity including the social one, too. On the otherhand profitability represents activity efficiency at the microeconomic level by comparing thefinancial returns-the profit-with the expenses effectuated in order to obtain the return s. Economicefficiency has a more complex content ,it reflects how much an activity produces positive economiceffects per effort unit , achieved in the market by the ratio between demand-offer .

Performance is qualitative appreciation of a company being m easured by economic-financial indexes of liquidity, creditworthiness, activity ( labor productivity, efficiency of assets use ,etc), profitability ( rate of profit , relative and absolute profitability). Profitability may be defined as„ a state of competitiveness of the company reached by a level of efficacy and productivity thatguarantee a durable presence in the market “. Thus according to the definition above mentionedperformance claims simultaneous and complementary presence of the two „ingredients” butseparately approached these are necessary but not sufficient conditions of performance .This is animportant aspect as a global vision upon performance is possible only by correlation of the dynamicof the two indexes.

Efficacy defines the extent according to which the returns obtained by a companycorrespond to wanted performances. Therefore is measured by the comparison of the returnseffectively obtained with the proposed returns. Economic efficacy is referring to the level or degreeof fulfillment of economic targets settled for a period of time in order to be achieved by thecompany . In case that the target was 100% reached it is about maxim efficacy and on the contrarywhen it is partially reached we may speak about partial degrees of efficacy . In conclusion efficacyis a ratio between the effective effects and those proposed this showing the aptitude of a company toachieve successfully the proposed targets .

Productivity is the capacity of a production element of contributing to goods and servic eselaboration under the terms of maintaining a constant perfection level of the others productionelements . The basic form of productivity recognized by economic literature is labor productivitybut productivity does not refer only to live labor . Michael Didier affirmed in his work “Economie.Les regles du jeu /Economy. Rule of the game “ that labor productivity is an important index but it isa partial one“. Productivity is the result of the ensemble of the production elements and theircombination and it is not only the result of labor. Considering this the globa l productivity thatexpresses “the ensemble performance or global efficacy of the production elements” is determinedat the microeconomic level as well as at macroeconomic level.

It may be asserted that a company characterized by performance is productive, too thesebeing effects( results) . In the same time efficacy and productivity are ca uses that determineperformance. If efficacy is intelligible by the level of satisfying the external exigencies - customers,state, suppliers, employees (on labor motivation and safety increase basis ), shareholders-,productivity is measurable by accomplishment of the expectations of the companies’ internalenvironment .The tight connection between the internal e nvironment and the external one justifiesthis double approach and invokes the following technical aspect: coherent judgment of an index thatmay be quantified (productivity) and quantification of the other one that is subjectively too(customers satisfaction degree) . Data sources necessary for the analysis of the results an dperformances of a company are: business plan , incomes and expenses budget, commercial statistics,synthetic and analytical accounting, other operative records data . There are equally useful someexternal information that have as sources statistical year books, laws and other normativedocuments, international statistics, market studies , etc.

In order to characterize the dimensions of the activity of the company , to appreciate thereturns and measure her commercial performances there are followed the above mentioned indexesand any evaluation begins with complex investigation of these indexes in dynamic and in


161

comparison with settled targets , in total and for diverse specific structures . A pertinent judgmentcapable to point out the real situation requires correlation of above mentioned indexes andespecially of the turnover with three essential elements of a market e conomy: inflation rate, positionof the company in the market, prices and tariffs policy .

In conclusion, performance of the company involves knowledge of :a) targets, strategies and current policies of the company ;b) fulfillment degree of economic targets established for a period of time in order to be

achieved by the company this meaning the reached degree of economic efficacy ;c) productivity level of production elements ,especially of labor productivity ;d) obtained performances reflected in the m ain economic-financial indexes: profitability,

liquidity, creditworthiness , profit/share , investments redeem , owned market share ,etc.Performance represent an economic category by which quality of the economic activity is

appreciated by companies with indexes such as: turnover, added value, profitability, laborproductivity, gross and net profit, etc .

The profit may not represent aim of the company but it is necessar y in order to reach thetargets. Generally the most powerful competitors :

create value ; obtain competitive advantages and distribute optimally the created va lue; improve the ratio efforts/effects .Obtainment of a superior performance claims fulfillment of all three conditions previously

mentioned as it is possible that a company to carry out an efficient activity without obtaining anycompetitive advantage or certain goods/services to have a certain competitive advantage even ifthey belong to and are produced by inefficient companies. Wording differently it means that acompany may be efficient but not competitive in the market and in this case we can not mention theperformance at a global level or we can state that it is competitiveness at the level of the companybut not efficient this leading again to the absence of performance .

Competitiveness of a company presumes a diagnosis or a critical inventory of her capacityrespectively of strengths and weaknesses of all components of the company with special referenceto the key elements of success and competition. She depends on good function of her componentsensemble. In the existent circumstances when market elements are leaders of the system ofvariables that explain the results of a company , analysis of turnover is essential for the appreciationof company position within her field of activity as well as her position in the market ,her abilities tolaunch respectively to develop different activities in a profitable manner .

Depending on the turnover level it may be stated if the co mpany is sufficiently important , ifit is significant to compare her results with those of the sector , if her share market is negligible, thusstrategic decisions being taken accordingly .

REFERENCES:

[1] Aglietta, M., Macroeconomie financiară , Editura Coresi SA, Bucharest, 2002;[2] Halpern, P. - Finanţe manageriale , Editura Economică, Bucureşti, 1998;[3] Lepage, H., Wajsman, P. - Vingt économistes face a la crise, Édition Odile Jacob, Paris,1999;[4] Onofrei, M., Finanţele întreprinderii, Editura Economică, Bucharest, 2004;[5] Porter, M., The Competitive Advantage of Nations , McGraw Hill, New York, 1995;[6] Pralea, Spiridon, (coord.), Teoria comerţului internaţional , Editura Universităţii”Al. I.Cuza”, Iaşi, 2006;


162

THE ROLE OF RESPONSIBILITY CENTERS IN THE OVERALL PERFORMANCE OFTHE ENTITY


AbstractIn a big, multi-productive company, spread upon a large geographical area, with advanced hierarchies and

typical of modern business- a miniature economy, the managers must decide who inside the organization is responsiblefor making a certain decision and how this will be evaluated and rewarded. The central objective information and organizational planni ng is that of creating a balance between benefits andcosts in making the decision, by a decentralized system.

Keywords: cost- bearer, expense departments, responsibility centre, efficiency, efficaciousness, cost centers,centers for discretionary expenses, turnover centers, profit centers, responsibility centers.

1. INTRODUCTION

In organizing accountancy and cost calculation, the choice of expense departments and ofcost- bearers is vital for the monitoring and collecting the costs, on one hand, and for t he fulfillmentof the established aims, on the other.

The cost- bearer may be defined as a production unit or a service the costs refer to. Forinstance, production units, namely cost - bearers, could be: an order, a tonne of finite product, adecalitre of beer. Service units: the distance in kilometers, kilowatts/ hour, the time of consultationetc.

By expense departments (also known as places, centers or areas of expense/ cost) weunderstand “the subdivisions of the technical -productive, managerial and adm inistrative frames ofthe enterprise in relation with which there is organized the planning, programming and analyticalmonitoring of the expenses forming the production cost.” (1)

In the evolution over the last ten years of the Romanian enterpris es there is a more andmore obvious tendency that the activity of their managers should be centred upon the

client and the change. This leads to the search of those management methods that could ensure theactivity of the enterprises in conditions of com petitiveness and profitability, which however impliesorganizational activities, able to allow the use, as easily as possible, of modern methods andtechniques in organization and management.

In this context, the structure of the enterprise’s activity into responsibility centers hasbecome a priority in satisfying the clients’ requirements and in fulfilling a profitable activity.

Arguments: the possibility of establishing responsibility for the expenses; the monitoring and accurate founding of expenses eve n on the original spots; the delimitation of expenses that do not strictly depend on the production activity from

those strictly connected to this process; the establishment of deviations from the pre -established levels of these expenses; the establishment of a system of rules that would allow the emphasis on each agent’s

responsibilities; the introduction of a system of allotment of resources and of monitoring their use, by

establishing expense budgets specific for each responsibility centre.


163

2. THE REQUIREMENTS OF DIVIDING INTO RESPONSIBILITY CENTERS

The division of the enterprise activity into responsibility centers must take into considerationthe following requirements:

a. it must rely on the existing organization within the enterprise and mu st be updated onlywhen sharing responsibilities must change;

b. within responsibility centers there must be included all the enterprise’s fields of activity,without a superimposition of activities performed in several different responsibility centers;

c. a responsibility centre cannot be managed by more than one person in charge.The problem of division into responsibility centers is not a serious one in small enterprises,

where the owner is the main decision - maker. In this case the enterprise has one respons ibilitycentre whose performances will be analysed with the help of the factors of profit and profitableness.

In big and medium enterprises, the activity is structured into responsibility centers on severalhierarchical levels, so that the general budget of the enterprise will be divided into correspondingsub-budgets for each responsibility centre.

A responsibility centre represents a division of the enterprise with the followingcharacteristics:

it is placed under the authority of a person in charge;it carries out one or more missions with well established quantitative and value

objectives;is possesses a set of resources necessary to fulfill the pre -established aims;it has a certain relative autonomy within the resource budget.

Keeping a responsibility centre under control consists of: determining and evaluating the objectives; foreseeing and evaluating the necessary consumption to reach the objectives; controlling its efficiency and efficaciousness.

Efficaciousness represents the relationship between the production and its objectives. It issaid that a responsibility centre had an efficacious activity when it reached the pre -establishedobjectives.

Efficiency is a relation between the effects and the effort performed by the responsibilitycentre. It is said that a centre is efficient if it consumes few resources for a specific given amount ofproduction and if it produces more for an identical consumption of resources.

The efficiency of an administration of the enterprise is measured by comparing t he real costswith the standard ones. In this situation, a responsibility centre may be efficacious but can not beefficient. It is the situation of that centre which reaches its production objectives but consumes moreresources than the consumption norms established.

In this context in an enterprise we can find the following sub -budgets: the budget of products or takings; the budget of expenses; the budget of margins.It is obvious that enterprises do not always come into direct contact with their surround ings,

that is why they do not have a turnover in the sense of accountancy. In such cases there must beestablished separate responsibility centers, considering the fact that the centers will not possess abudget structured in the form presented above.

3. RESPONSIBILITY CENTERS: DEFINITION, CLASSIFICATION, FEATURESAND OBJECTIVES

The activity of an entity can be structured into units independent from a budgetary point ofview, also called responsibility centers.


164

The responsibility centre may be defined as “a set of elements dependent on each other,which form an organized whole, having a degree of autonomy in the use and optimization of theresources they possess”. (2)

Responsibility centers include:the revenue centre represents the organizational link in w hich the activity is appreciated

as value according to the revenue acquired, such as the sales department within an organization.The revenue is planned on the basis of the accomplishments in the previous year and of theiranticipation for the year on cour se. The management periodically analyses the revenue budget andthat of anticipation, and intervenes in the case of deviations.

the cost centre represents the organizational link in which products/ services are obtainedwhich generate expenses (costs) with the help of which there can be measured the efficiency andefficaciousness of the centers’ activity.

The cost centers are “subdivisions of the technical - productive, organizational andadministrative frame of the enterprise in relation with which there is organized the analyticalprogramming and monitoring of the production expenses.”

The cost centre may be an enterprise, a department, a section, a functional service whichcollects indirect expenses. This one may be also organized at a workplace, if e xpense budgets canbe elaborated.

the profit centre is the operational subdivision which performs its activity by attractingresources which generate revenue.

The profit centre is the organizational centre within which profit can be calculated.Within profit centers there are produced subsystems, finite products or there are executed

services which are sold outside and for which a selling price is calculated.If deviations appear, especially by not accomplishing the proposed profit, there are identified

the causes which led to this situation and measures are taken to improve the situation.the investment centre is the organizational link in which there can be emphasized the

relationship/ difference between the revenue obtained from product sales and the inve stment madefor all the resources necessary in production.

The advantages of responsibility centers are as follows: they facilitate the control of some financial factors by specialists in budgets who do not

need to know technological details; they allow identification of the contribution from each responsibility centre towards the

entity’s profit.The responsibility centre has the following characteristics: it has a well-defined type of activity through its statute or its founding contract, having

competences in keeping, developing, replacing and reducing the assets; it administers an asset; it has an organizational, functional and productive structure, with competence in defining

it; it plans and changes its own set of rules for organization and functioni ng; it has its own tasks in production; it devises its own expense budget; it evaluates and administers its own budget resources; it emphasizes its own financial results; it devises monthly accounting balances or, if necessary, the final balance; it emphasizes its own savings and/ or profit; it takes responsibility for the results obtained; it is not responsible for the unprofitable activities of other centers within the entity; it cooperates with other centers to accomplish activities by signing collaborat ive

conventions; it uses its resources to get performance;


165

it may attract partners but it does not have competence in signing economic agreements; it has a manager who is responsible for the performances of the responsibility centre.The activity of a responsibility centre is established by its statute or its founding contract,

after analysis, studies and decisions concerning its organizational structure.Following the diagnosis analysis, responsibility centers may be constituted:

on production activity ( manufacturing a product, a range of products or reference marks);on technological processes;on a field of activity (planning, information services etc.);on auxiliary activities (repairs, utilities, analysis etc.).

Responsibility centers are establi shed inside basic, auxiliary, servicing and functionaldepartments.

According to the field of activity established by the statute or by the founding contract therecan be defined the activity of each centre which may be the initial one or it may be deve loped byincluding other activities as well, or it may be replaced, in relation with the market and the future.These operations are performed while accomplishing and integrating them with the entity’s strategicmission and objectives.

Within each responsibility centre there is devised the expense budget, there are monitoreddeviations from the planned budget in an operative way and corrective measures are taken.

The responsibility centre is a complex structure which can settle its own multiple objectives,according to the strategy of the organization it is part of, as follows:

devising its own programmed activities (satisfying the needs of the clients, respecting thedelivery deadlines, promoting creativity etc.);

optimizing the way of using the resourc es for the improvement of the entity’s globalperformance and that of the responsibility centre;

establishing the systems of evaluation and control of performance (financial, operational,personnel, management, marketing etc.);

establishing valid procedures of devising the expense budgets corresponding to theresponsibility centre with the possibility of integrating and emphasizing within the general budgetof the entity, separating and allotting expenses for fix and variable costs;

simplifying the system of emphasizing the procedures for communication, reporting andcooperation, amplifying the operating speed by installing information procedures;

introducing and perfecting procedures for financial - accountancy balance; increasing the capacity to adjust prod uction to the requirements of the clients in terms of

quality; changing the employees’ mentality in the sense of increasing awareness of the need for

them to be active, participatory, efficient.

4. TYPES OF RESPONSIBILITY CENTERS

In specialized books, responsibility centers classify in the following categories:cost centers;discretionary expense centers;turnover centers (revenue centers);profit centers;profitability centers.

Cost centers (standard) are typical for production departments or workshops.The objective of the department or workshop manager consists of the production of an

amount of products with minimum consumption of material or human resources. In practice, theconsumption norms are established by the technical departments in the form of consumptionstandards, and the objective of the department or workshop manager consists of minimizing thedeviations between the real and standard costs.


166

In such a centre, efficiency and efficaciousness are expressed in measurable factors.The process of devising the set of expenses for the cost centers is presented in figure 1.

Figure no. 1. The process of devising the set of expenses for the cost centers

Discretionary expense centersDiscretionary expenses are those expenses which can not be established according to a

planning of the production activity.These expense centers are characterized by the fact that the result of their activity is not

directly measurable. In such centers it is difficult to have a separation of var iable expenses fromthose related to the structure. That is why all the expenses of such a centre will be considered asstructural expenses.

These centers are called “discretionary expense” centers due to the fact that their budget isestablished on the basis of the experience of the people in charge: their objective consists ofexecuting high quality services while sticking to a pre -established budget.

It is important to note the fact that the services of these centers can not be measured directly.This leads to the idea that the budget of discretionary expense centers represents a budget of

authorizing expenses or, in other words, it is a budget of administration.The expenses of these centers are available to the people in charge with them, and the way of

monitoring the use of the budgets is as follows: limiting to the maximum the number of responsibility centers within functional services; monitoring the tendency to increase the level of these centers’ expenses.

It must be mentioned the fact that effi ciency and efficaciousness are not measurable in thecase of centers whose people in charge has no authority over the level of prices, but which mustrespect the fees established by the management.

Also, the person in charge with these centers has no con trol over the distribution expenses.Under such circumstances, the person in charge must limit to the budget allotted to increase thelevel of sales as much as possible.

Turnover centers (revenue centers) are created with the purpose of organ izing marketingand distribution activities.

If the turnover centre is also credited to establish the sale price, then it can be responsible for therevenue it generates.

If the policy concerning prices is determined outside the centre, the manager is onlyresponsible for the amount and structure of sales.

When measurement of performance is chosen for a turnover centre, there must also beincluded the notion of cost of the product, so that the centre is motivated to maximize the roughmargin, not only the revenue from sales.

If there is evaluated only the revenue from sales, the managers will be stimulated to reducethe prices to increase the sales, to spend excessively on publicity or to promote the products for

Productionobjective

Activityexpenses

Resourcesavailable for

the centre

Structureexpenses


167

reduced profits. Each of these act ions may increase the total sales, but will decrease the overallprofitability of the company.

Profit centers are centers whose people in charge must find the best connections betweencosts and takings.

This situation can be best found with a p roduction line or a shop selling finite products at apre-established production cost (standard costs) which is responsible for the profit resulting fromthe activity performed in the centre; the profit thus gained is measurable in terms of “margin” whichis defined as a difference between the turnover, on one hand, and the sum of production costs of theproducts sold and the distribution expenses, on the other.

Profitability centers (investment centers) are centers whose responsibility is orientedtowards the assets used.

Profitability centers represent a variant of profit centers in a more elaborate form.Thus, profitability centers are profit centers whose person in charge has an objective of

profitability depending not only on sales but also on th e capital used. In reality there can beconsidered two different levels of profitability centers:

The level which actively takes part in the choice of the type of investment and whoseobjective is expressed in the form of a ratio:

Result (or margin) of the centreGross fix means+ the needs of the

center’s circulating funds

The level of departments responsible with the administration of circulating assets, whoseobjective is represented as such:

Margin of the centreThe needs of the centers circulating funds

The scheme of the synthesis of different types of responsibility centers can be represented asfollows:

Table no. 1 the synthesis of different types of responsibility centers

Centre type Examples Responsibility ObjectiveDiscretionary expensecenters

Administrative services Using the budgets to obtain the bestservices (not measurable directly)

No profit objectives

Turnover centers Sales departments Sticking to the objective of theturnover or maximising the amount ofsales

No profit objectives

Profit centers Production units Minimising deviations betweenconsumption done and consumptionproposed

Maximising profit

Profitability centers Some production units Maximising the overall result bymaking the best correlation betweencosts and turnover. Maximisingprofitability of the capital used.

Capital profitability

5. INFLUENTIAL FACTORS UPON THE ACTIVITY OF RESPONSIBILITYCENTERS

The main factors that influence the activity of responsibility centers are: the owner: influences the strategy and the obj ectives of the organization and, implicitly,

of the responsibility centers. He/ she influences the amount of resources. the general management of the company : establishes the strategy and the objectives of the

organization leading to the objectives of the centre. They negotiate the system of rewards and thecontrol procedures.


168

the size and complexity of the enterprise : influences by the amount of resources of theenterprise, according to which the budget can be established and the number of centers. Itinfluences the acceptance or refusal of the change represented by the reorganization of the activityin responsibility centers,.

the technical endowment: performance; sticking to the budget. the human resources: professional training, age, motivation, working capacity. the economic-financial status: the amount of funds on the level of each centre; success in

business; the strategy of responsibility centers. the culture and behaviour of the enterprise : the behaviour norms of the employees;

measuring performance and establishing rewards.The main characteristics of a responsibility centre are:

self-stabilization- the characteristic of the centre to maintain itself in a specific state byadjusting to the changes that influence it;

self-organisation- the characteristic of the centre to create stable structures for newsituations.

6. THE ROLE OF RESPONSIBILITY CENTERS

In a big, multi-productive company, spread upon a large geographical area, with advancedhierarchies and typical of modern business - a miniature economy, the managers must decide whoinside the organization is responsible for making a certain decision and how this will be evaluatedand rewarded.

The central objective information and organizational planning is that of creating a balancebetween benefits and costs in making the decision, by a decentralized system.

Alfred Chandler, in his studies on the development of the American industrial enterprises,presented in a very expressive way his request for decentralization of the organizations, supportingthis process with the role of responsibility centers, mainly including the following:

permanently monitoring the key variables of the external medium in which the companyoperates so it can take action before the external events take place;

much easier identification of market opportunities, of possibilities and constraints relatedto production, of conceptions and possibilities of the workforce, of the quality and feasibility of thegoods and services provided by the local suppliers;

diminishing the time of reaction in making decisions under unexpected circumstances; increasing the time for central management to make long -term strategic decisions which

are vital for the company;establishing general instructions by the central management, when the managers of re sponsibilitycenters keep the liberty of making decisions related to the centers’ activity, overlapping the overallobjectives of the company.

NOTES:

(1) Oprea Calin, Gheorghe Carstea, Contabilitate de gestiune si calculatia costurilor , Editura Genicod, 2000,pag. 68;(2) Costache Rusu, Monica Voicu, Managementul pe baza centrelor de responsabilitate, Editura Economica,Bucuresti, 2001, page 15;

BIBLIOGRAPHY

[1] Bouquin, H., Comptabilité de gestion, 3 e édition, Editura Economică, Paris, 2004[2] Briciu Sorin, Vasile Burja, Contabilitate de gestiune. Calculaţia şi analiza costurilor,

Editura Ulise, Alba Iulia, 2004[3] Budugan Dorina, Georgescu Iuliana, Berhea Ioan, Beţianu Leontina, Contabilitate de

gestiune, Editura CECCAR, Bucureşti, 2007


169

[4] Costache Rusu, Monica Voicu, Managementul pe baza centrelor de responsabilitate,Editura Economică, Bucureşti, 2001

[5] Cristea, H., Contabilitatea şi calculaţiile în conducerea întreprinderii , Ediţia a 2-a,CECCAR, Bucureşti, 2003

[6] Cucui I., Horga V., M. Radu, Contabilitate de gestiune , Editura Niculescu, Bucureşti, 2003[7] Dorina Budugan, Contabilitate şi control de gestiune, Editura Sedcom Libris, Iaşi, 2002[8] Dumitru Corina Graziella, Ioanăş Corina, Contabilitatea de gestiune şi evaluarea

performanţelor, Editura Universitară, Bucureşti , 2005.[9] Oprea Călin, Contabilitatea de gestiune, Editura Tribuna Economică, Bucureşti, 2002[10] Oprea Călin, Gheorghe Cârstea, Contabilitate de gestiune şi calculaţia costurilor, Editura

Genicod, 2000[11] Sucală, L., Contabilitatea de gestiune – între reglementare şi necesitate, în condiţiile

procesului de convergenţă în România , în volumul Congresul profesiei contabile dinRomânia, Editura CECCAR, Bucureşti, 2004


170

POSSIBILITIES OF OPERATIONAL PURSUIT OF RECALCULATEDCOSTS (PREVIOUSLY ESTABLISHED, STANDARD) WITHIN THE FIELD OF

MANAGEMENT


AbstractThe standard costs method it places the cost control directly to economic processes executives, who se

administration bookkeeping supplies them predictions about deflections just in time. The standard cost method stands,simultaneous, at the root of decision substantiating and optimizing and it simplifies the evaluation work in the course ofproduction. The standard costs can be taken into consideration by establishing the products sale prices.

The rigidity of standards constitutes one of the standard -cost method limits due to the fact that while the entityand the environment in which its activity takes place is evolving continuously, the standards are revieweddiscontinuously, on the other way, they are submitted to the reviewing operations any time it is needed.

Keywords: standard, calculation article, negative deviations, positive deviations, costs, value deviations,quantity deviations, fixed costs, variable costs.

1. THE STANDARDS: CONTROL INSTRUMENTS OF THE COSTS

The action area of the instruments used in the administration control is extremely vast,starting with the ones that hint at the info rming of the decisional factor (the costs) and ending withthe ones that hint at the behavioural control (the centres of responsibility). At the junction of the twotypes of instruments are placed the standards.

On one side, their use endows the managers w ith a powerful control instrument of the costs(especially the ones generated by the paid prices and the quantities that had been used), byestablishing certain ‘norms’ that are to be obtained in the exploitation process.

On another side, the analysis of t he deviations (exceptions) from these norms and the settingof the responsibilities strongly influence the employees’ motivations, substantially modifying theirbehaviour.

A standard is a reference or a norm in measuring the performance 2.To come forward to the needs of the management in the control activity, the standard cost

needs to be fundamented based on the knowledge of the actual conditions of the entity, to beaccepted by the managers of the responsibility centres and to present a motivational chara cter.

The determination of the standards raises one question: how ‘exigent’ must the standardsbe? Actually, must the standards reflect the total exploitation capacity of the company or thecapacity that must be reached? Depending on the answer to these qu estions, the specialty literature3

makes the difference between the ideal standards and the practical (real) ones.The ideal standards are the ones that can be reached under the optimal circumstances. They

have the disadvantage of discouraging even the be st employees, while the variations of thesestandards do not supply with an informational plus.

The practical standards account on the periods of interruption within the production process,as well as the deviations and losses inherent to this process.

The deviations from such standards are extremely useful to the managers, because theyrepresent deviations that exit the range of normality, requiring the attention of the managers andallowing the anticipation of the treasury tides and the planning of the supplies’ administration.

The standards are established at the level of the three main categories of costs attachable tothe process of production:

direct materials;

2 R.H. Garrison, Management Accounting. Concepts for Planning, Control, Decision making, Fifth Edition, BPI/IRWIN, 1988, pag. 383;3 Ion Ionaşcu, Andrei Tiberiu Filip, Stere Mihai, Control de gestiune, Editura Economică, 2003, pag. 75;


171

direct manual labour;indirect production costs.

For each of the three categories of co sts, the standards are calculated as ‘price’ and‘quantity’ standards, even if, semantically, these make sense only for direct materials. But thestandards refer to the cost and quantity of the input used in the process of production, no matter if itis about direct materials, direct manual labour or overhead charges.

Besides the establishment of the materials, the administration control perspective requirestheir comparison to the actually obtained results. Only by comparing the actual cost to the standa rdone, at the level of each operation or of each responsibility centre for a period of time, can thecontrol function be accomplished in an adequate manner. The difference between the standard costand the actual one is named deviation or variation in specialty literature.

The negative deviations (the exceeding) may have the following causes: the non observance of the technological process; the effectuation of supplementary operations in reconditioning machine parts; the replacement of certain materials with others; other deficiencies within other activity sectors in the entity.The positive deviations (the savings) are due to the rationalizations within the production

process.

2. THE DETERMINATION AND ANALISYS OF THE DEVIATIONS FROM THESTANDARD COSTS

Considering the fact that the primary function of standard costs is that of measurement andcomparison standard for the actual expenses, exerting a systematic control over them, the use of thestandard cost method implies:

the registration of the costs during the production process applying to the sorts, placesand generative causes;

the analysis of the deviations considering their size and causes;drawing up the measures which should be applied to eliminate the negative deviations

and to place the actual costs between the set standards.The analysis of the deviations from the standard costs is realised by the application of the

principle of exceptions.According to this principle, for each leading level the significant positive or negative

deviations would be set, both as value and as quantity, that require immediate measures to eliminatethe causes that generated them (for the negative aspects) or to maintain the existing situation.

The deviations which have been considered insignificant at first, wou ld be subsequentlyanalysed considering the locations where they occurred because it has been observed that, on thewhole, there are significant deficiencies which can not be ignored.

Within each sector (department, workshop, etc.) of expenses, the calcula tion and theanalysis of the deviations are done with the calculation articles specific to the standard cost method,as follows:

a. the deviations from the standard costs for raw materials and for direct materials ;b. the deviations from the standard costs for manual labour;c. the deviations from the standard indirect expenses .

a. The deviations from the standard costs for raw materials and for direct materialsThis category of deviations comprises the following types:

Quantity or expenditure deviations (Qed)

Qed = (Aq-Sq) * Sp * Q

where:Qed = antity expenditure deviation;


172

Aq = actual quantity (or actualexpenditure) for each productunit;

Sq = the standard quantity (or expenditure) for each product unit;Sp = the standard price (unit price)

of the raw material;Q = the quantity of product

obtained through a specifiedperiod of time.

We notice that the deviations from the used quantities are calculated based on the standardprices (Sp), in an attempt to isolate the effect that the use of materials has.

Considering the actual price (Ap) may lead to alter the informational conte nts of thisdeviation regarding elements due to the provisioning department.

The deviations of the quantities must be determined when the materials enter theexpenditure.

They can be determined by factors as: mistakes in the production process; the insufficient qualification of workers; the week superintendence; the low quality of the materials; changes within the production process, etc.Generally, the responsibility for these deviations falls upon the manager of the production

line. But there are cases when the responsibility for these deviations also falls upon the manager ofthe provisioning department, when he purchases materials of inferior quality, which prove to beinadequate in the production process

Price deviations (Pm)

Apm = (Pe-Ps) * Ce * Q

where:Pm = the price deviation;Ap = the actual price (unit price) of

the raw material, also named effective price or supply price;

The provisioning prices may fall under the influence of factors such as: the extent of the purchased lots; the delivery method that is used; the discount system of the suppliers; the quality of the purchased materials; the terms of delivery; the level of the taxes practiced by the taxation system.To the extent where the manager of the provisioning department may be able to control these

factors, the responsibilities for the price deviations fall upon him.But, if the actual prices surpass the standard ones due to certain alterations of the market

conditions which generate the r ise of the prices, the price deviation can not be controlled by theprovisioning manager.

But, if no changes happen within the market conditions, the unfavourable deviationsrepresent, most times a failure of the managers to find reasonable supply sources. A favourableprice deviation may represent the result of successful negotiation with the suppliers, as well as theresult of the acquisition of lower quality materials than the ones necessary in the production


173

process, and this may lead to an increase of dissipation or the lower level of quality for finiteproducts.

The determination of the price deviations should be realised at the moment of the acquisition,no matter the moment when the materials would be used.

b) The deviations from the standard costs for manual labourThe cost of labour is determined by the price paid for the carried out labour (the salary) and

the quantity of carried out labour (the time). To conclude, the calculation of price and quantitydeviations also applies in the case of dire ct labour.

This category of deviations comprises the following types:Quantity or time deviations (Qd)

Qd = (at-st) * Spl * Qwhere:

Qd = the time deviation;at = the actual time needed for the

production of each unit product;st = the standard time needed for the

production of each unit product;Spl = the standard price of labour (or

salary price) per time unit;Q = the quantity of produced

products.

The efficiency of using labour within the production process is mostly assigned to theproduction department and depends on a series of factors. The inefficiency in the use of labour maybe generated by:

the use of materials of inadequate quality; various degrees in the qualification of workers; the impossibility to maintain the equipments in appropriate conditions; the insertion of new equipments and instruments; changes in the structure of the process of production etc.Though, these deviations can not always be controlled by the manager of production.For example, they may be due to the faulty planning of productionor to the changes that

occurred in the standards of quality control.The review of the standards may be determined by the favourable deviations that occurred as

a result of the training programmes that the employees had attended.

Cost deviation (Cd)

Cd = (Alc - Tss) * at * Qwhere:

Cd = the cost deviation;Alc = the actual labour cost (the salary

cost) per time unit.

In the case of deviations from the standard labour costs , the actual cost and the standardlabour cost are being corrected with the additions to the salaries (the contribution to the socialsecurity fund, the contribution to the unemployment fund, the contribution to the medical insurancefund).

The deviation from the tariff salary may be the result of increases in negotiated salaries, whichhad not been considered when the new standards had been established. Und er such circumstances,


174

the deviation can not be regarded as being under control, and, as a result, no responsibilities can beset.

Part of or the whole unfavourable deviation may be the result of defective allotment of labourwithin a responsibility centre due to the fact that the production manager had not associated thedifficulty degrees of the unfolded operations to the qualification levels of the employees. Forexample, excessively qualified manpower is used in activities that do not require suchqualifications.

c) The deviations from the standard overhead expensesThe determination of the deviations of the standard overhead costs is influenced by the

differential behaviour of costs reported to the volume of production.The calculation and the analysis of these deviations is realised based on the following

information: fixed overhead standard costs ( Fsc ) and actual standard costs ( Asc ); variable overhead standard costs ( Vsc ) and actual variable costs ( Avc ); the variable overhead from the flexib le budget cost ( Vfbc ); the planned quantity of products ( Pq ) and the actual quantity of products ( Aq ); the total standard time ( Ts ) and the actual standard time ( As ); the standard time for the production of each product unit ( st ); the actual time for the production of each product unit ( at ); the rate of the fixed overhead costs for standard labour hours ( rf ); the rate of the variable overhead costs for standard labour hours ( rv ).

regular overhead charges swoops (Acf)The determination of such swoops is influenced by the following variables: the actual overhead cost is different from the standard overhead cost; the actual production differs from the standard production.Considering these two variables, we will distinguish the following o verhead charges

swoops: swoops that due to the regular overhead charges modification ( Acf )

Acf = Cfe – Cfs

From the international point of view, the calculus of this swoop is insignificant.If we consider heterogeneous char acter of the regular overhead costs (they consist of

different cost types) , a relevant analysis of this swoop would ask for its deduction into afferentswoops of each element.

As a matter of fact, there can be a multitude of elements that would determine the swoopssize and direction.

Generally, it is considered that this swoop is uncontrollable, because in order to set straightthe responsibilities we need to ascertain the variations' cause, by comparing the elements atindividual level.

swoops that due to production volume towards output standard volume or volumeswoops ( Acfq )

Acfq = (Qe * ts – Qs * ts) * rf

The volume swoops reflect the fact that the regular overhead charges does not fluctuate dueto the production, at least for a short term.

As long as the actual production is inferior to the standard production, the sum of regularcosts allocated to production will be inferior to the standard ones, so the swoop will be inauspicious.


175

The changes in production volume towards the sta ndard value can be generated by multiplecauses, like:

modifications in the demands' structure; conflicts between employees; scarcity of some materials; a defective production planning; work efficiency; the low quality of production process projection, e tc. Only a couple of these elements are

controllable by the production manager.Volume swoop can be analyzed from the angle of two “sub -deflections”, which are output

deflections ( Acfqr ) and capacity deflections ( Acfqc ).Output deflections are measured by the calculus:

Acfqr = (Qe * ts – Te) * rf

The content of this deflection is dependent on work efficiency, therefore, the counted factors inthe case of this deflection.

Capacity deflections ( Acfqc) are measured with the help of the calculus:

Acfqc = (Te – Qs * ts) * rf

This deflection reflects the efficiency which the production capacity is being used with.The impossibility of the standard production capacity level reaching can due to multiple

factors, like: lack of some materials, equipment and gear deteriorations, defective productionplanning, employees conflicts, decreasing request of products etc.

Variable overhead charges swoops (Acv)

Acv = Qe * ts * rv – CveThis deflection can be analyzed from the angle of two “sub -deflections”:

deflections that due to variable overhead charges swoops level modification

Acv = Cvbf – Cve = Qs * ts * rv – Cve

Globally calculated, this deflection is relevance lacked in the decisional activity, becau se itis not split on each particular element.

The budget values are calculated considering the prices and consume rates expected forevery variable price element.

Practically every combination is possible between modifications in these factors.

For example, if the indirect materials cost is bigger than the budget cost, the difference canbe determined by the increase of indirect materials price or by the increase of usage percent of theimplied materials, or a combination between these two.

Similarly, modifications of variable overhead costs towards the budget ones can result fromthe interference of variations in tariff wages level, or from production time.

Simultaneously, maintenance and repairs, expenses with illuminating and electricity, orother cost elements can influence the level of such deflections.

In consequence, we cannot obtain a relevant interpretation without deflections analysis fromthe angle of its component elements.


176

output deflections

Acv = (Qe * ts – Te) * rv

This type of deflection results from work efficiency, therefore the previously mentionedfactors, in the case of direct manufacture deflection stay valid.

Synthesizing, it can be observed that, comprising the three previously mentioned deflectiontypes (deflections from the standard costs of raw materials, deflections from the standardmanufacture costs and the deflections from regular overhead and variable overhead chargesstandard costs) results the difference between the standard cost afferent to the obtained productionand the actual cost of obtained production.

The deflections can be synthesized in the next figure:

Figure no. 1. Deflections from the standard costs of raw materials, deflections from thestandard manufacture costs and the deflections from regular overhead and variable overhead

charges standard costs

3. CONSIDERATIONS ABOUT ADVANTAGES AND DISADVANTAGES OFSTANDARD COSTS METHOD IMPLEMENTATION

The standard costs method has the advantage of favorable influencing the organization an dmanagement method of economic processes and especially production technology.

Another advantage refers to the fact that standard cost method conducts towardsinformational system simplification, at all the enterprise levels, increasing its operability bysimultaneous informing of all hierarchic scale of ranks about every type of deflection.

Also, the possibility to take correction measures in the moment of appearance and to analyzethe standard costs deflections and of the causes that generated them.

Simultaneously, it places the cost control directly to economic processes executives, whoseadministration bookkee-ping supplies them predictions about deflections just in time. The standardcost method stands, simultaneous, at the root of decision substantia ting and optimizing and itsimplifies the evaluation work in the course of production. The standard costs can be taken intoconsideration by establishing the products sale prices.

Total production cost deflections

Materials deflections Direct manufacture deflection Standard overhead costs deflections

Pricedeflections

Quantitydeflections

Tariff wagesdeflections

Time unitdeflections

Variable overheadcosts deflections

Regular overheadcosts deflections

Var

iabl

e co

sts

defl

ectio

ns

Var

iabl

e co

sts

outp

ost

defl

ectio

ns

Reg

ular

cos

tsde

flec

tions

Vol

ume

defl

ectio

ns


177

The rigidity of standards constitutes one of the standard -cost method limits due to the factthat while the entity and the environment in which its activity takes place is evolving continuously,the standards are reviewed discontinuously, on the other way, they are submitted to the reviewingoperations any time it is needed.

The reality of predefined standards is affected by the fact that a deflection does not undergothe correction action only if this is significant. Thus, the fixing of signification rate becomesambiguous.

We estimate that in the increasing degree of action comp lexity, the administrationaccounting must hold to some superior requests. But this thing can be made only in the conditionsof combining the advantages of different methods depending on the activity features, so it canpermit the administration to manage the costs in the operative phase of the managing process.

The standards harnessing are limited by deflections which are induced after the events takeplace. Still, as long as people know already that their work will be later analyzed; it is very probablethat they act in a different manner than they would act if their work wouldn’t be monitored.

Most of all, even though the manager cannot modify an employees results, an analysis of theway in which he has evolved in the past, can indicate, as for the design ated employee, as for hissuperior, methods of performance increase for the future. Such analysis is realized by standards andswoops utilization.

4. BIBLIOGRAPHY

[1] Bouquin, H., Comptabilité de gestion , 3 e édition, Editura Economică, Paris, 2004[2] Briciu Sorin, Contabilitate analitică şi de gestiune , Editura Ulise, Alba Iulia, 2002[3] Briciu Sorin, Burja Vasile, Contabilitate de gestiune. Calculaţia şi analiza costurilor ,

Editura Ulise, Alba Iulia, 2004[4] Budugan Dorina, Georgescu Iuliana, Berhea Ioan, Beţia nu Leontina, Contabilitate de

gestiune, Editura CECCAR, Bucureşti, 2007[5] Caraiani, C., Dumitrana, M., Contabilitatea managerială între realitate şi oportunitate ,

în Congresul profesiei contabile din România, Editura CECCAR, Bucureşti, 2004[6] Cristea, H., Contabilitatea şi calculaţiile în conducerea întreprinderii , Ediţia a 2-a,

CECCAR, Bucureşti, 2003[7] Căpuşneanu Sorinel, Contabilitatea de gestiune şi calculaţia costurilor , Editura

Economică, 2003[8] Cucui I., Horga V., M. Radu, Contabilitate de gestiune , Editura Niculescu, Bucureşti,

2003[9] Cucui I., Horga V., M. Radu, Control de gestiune, Editura Niculescu, Bucureşti, 2003[10] Dumitru Corina Graziella, Ioanăş Corina, Contabilitatea de gestiune şi evaluarea

performanţelor, Editura Universitară, Bucureşti , 2005.[11] Diaconu, P., ş.a., Contabilitate managerială aprofundată , Editura Economică Bucureşti,

2003[12] Ebbeken Klaus, Possler, Ristea Mihai, Calculaţia şi managementul costurilor , Editura

Teora, 2000[13] Ion Ionaşcu, Dinamica doctrinelor contabilităţii contemporane. Studii privi nd

paradigmele şi practicile contabilităţii , Editura Economică, 2003[14] Ion Ionaşcu, Andrei Tiberiu Filip, Stere Mihai, Control de gestiune, Editura Economică,

2003[15] Oprea Călin, Contabilitatea de gestiune , Editura Tribuna Economică, Bucureşti, 2002[16] Oprea Călin, Gheorghe Cârstea, Contabilitate de gestiune şi calculaţia costurilor ,

Editura Genicod, 2000[17] R.H. Garrison, Management Accounting. Concepts for Planning, Control, Decision

making, Fifth Edition, BPI/IRWIN, 1988


178

[18] Sucală, L., Contabilitatea de gestiune – între reglementare şi necesitate, în condiţiileprocesului de convergenţă în România , în volumul Congresul profesiei contabile dinRomânia, Editura CECCAR, Bucureşti, 2004


179

ROMANIAN FINANCIAL SYSTEM AND ECONOMIC GROWTH

Lecturer Ph.D. Student Bogdan F ÎRŢESCU“Al. I. Cuza” University of Iaşi, Romania

[email protected]

Abstract:This paper wants to emphasize t he relation between financial system and economic growth, as part of

sustainable development. Recent papers stress the correlation between the financia l system as a promoting factor toeconomic growth. Economic literature also discusses the issue related to some types of financial system (such as bank– based or market - based) and economic expansion. The article intends to summarize the debate on financ ial systemdevelopment, financial system types and financing manners in promoting economic growth. The actual stage ofRomanian financial system, related to banking system, financial institutions and financial market, is taken intodiscussion. The latest structural transformation of Romanian financial system since EU Accession is presented.

Key Words: financial system, economic growth, sustainable development, banking system, financial market.

1. THE APPROACH OF FINANCIAL SYSTEM AND GROWTH

“Does finance make a difference . . .? “ , Raymond Goldsmith (1969)

The relationship between financial system and economic growth appears to be debated sinceXIXth century. During time, the authors came with pro and against arguments if the financial systemtruly have impact on sustaining the economic growth.

Some authors such W. Bagehot, in 1873, and more recently, J. Hicks, in 1969, emphasizethat financial systems played a critical role in igniting industrialization in England by facilitating themobilization of capital. At the beginning of XX th century, J.Schumpeter, in 1912, argues that well -functioning banks encourage technological innovation by identifying and funding entrepreneurswith the best chances of successful innovation.

On the other hand, many author s, such as J. Robinson, in 1952, argue that financial systemsdo not matter for growth and financial development simply follows or reflect anticipation ofeconomic development. It is relevant the citation of the J. Robinson “ “where enterprise leads financefollows”(1)

”In addition, the role of finance is often simply ignored in development economics. Forexample, N. Stern’s review of development economics, in 1984, does not take into discussion thefinancial system.

The traditional neoclassical approach in literature related to growth does not take finance indiscussion, suggesting that financial system is not important. The approach on money, viewed as acover on real process supports the idea.

In this literature there are two main sources of growth: 1 st – economic growth appears withinthe technological frontier caused by factor accumulation; 2 nd - innovation causes the technologicalfrontier to move outwards.

Innovation (such as research and development) is necessary for an economy to experiencesustained growth for a long period of time. However, factor accumulation can still be a largecomponent of growth particularly for emerging economies that are a long way from thetechnological frontier.

Economic models from the 60’s – G. Solow (1956), M. Swan (1956), D. Cass (1965) and J.Koopmans (1965) - focus on factor accumulation as the bases of growth. In these models,reproducible inputs, such as physical and human capital, ultimately show diminishing returns.

This feature leads the models to predict the convergence of economies towards a steadystate. Growth based on factor accumulation stops eventually. Long run growth takes place as aresult of exogenous technological progress.

[email protected]


180

Moreover, some economists just do not believe that the finance -growth relationship isimportant. R. Lucas, in 1988, asserts that economists “badly over -stress” the role of financial factorsin economic growth, while development economists frequently express their skepticism about therole of the financial system by ignoring it – A. Chandavarkar, in 1992. For example, a collection ofessays by the “pioneers of development economics,” including three Nobel Laureates, does notmention finance as suggested by G. Meir and D. Seers, in 1984.

The next step was to try and model how innovat ion occurs rather than assuming that it isexogenous. Endogenous growth models usually contain an innovation “production” process.Innovation is the crucial source for long -run growth. Innovative activity requires the use of scarceresources, and the incentives for innovation are provided by monopoly profits. Because of thisimperfectly competitive market structure, the market solution is not usually Pareto -optimal.(2)

The majority of theoretical studies and empirical evidence suggests a positive, first -orderrelationship between financial development and economic growth, as R. Levine concluded.

2. FINANCIAL SYSTEM’S CLASSIFICATION, FUNCTIONS AND ROLE

"Finance is, as it were, the stomach of the country, from which all the other organs take their tone ." William Gladstone (1858)

Approaches of “different” financial systems

In the financial system funds flow from those who have surplus funds to those who have ashortage of funds, either by direct, market -based financing or by indirect, bank -based finance. Theeconomic literature indicate that t he financial system comprises all financial markets, instrumentsand institutions. Romanian literature describes the financial system through its relationshipsbetween participants, through financial institutions, thro ugh financial funds, or through plans,viewed as management instrument (3), or like flow of funds.

Many economists view markets as the ideal mechanism fo r allocating resources. The mostimportant markets in this matter are the stock markets and other financial markets. In the UnitedStates and United Kingdom, where many of the ideas concerning the desirability of markets weredeveloped, financial markets are indeed important, and at first sight this characterization seemsappropriate.

On the other way, there are a number of different approaches: in most countries, stockmarkets are unimportant. Financial markets are primarily markets for government debt. Often theexternal funds firms need for investing are obtained from banks. A second problem is that in allcountries, including the United States and United Kingdom, inte rnally generated funds are veryimportant. In countries such Japan, France or Germany (4) , named as bank – based, the importanceof finance and channeling the funds refers to banks.

A comparison of different countries ’ financial systems indicates that the focus of standardeconomic models on financial markets as a means of al locating resources is misplaced. Financialsystems are crucial for the allocation of resources in a modern economy, They channel householdsavings to the corporate sector and allocate investment funds among firms. They allow smoothingof consumption by households and expenditures by firms. They allow both firms and households toshare risks.

An overview of financial system could be represented as follows:

Table no. 1 – Overview of financial systems

United States UnitedKingdom

Japan France Germany

Financialmarkets

Central Central Developed Fairly Unimportant

Banks: Competitive concentrated External Hostile Hostile bank Main bank Hausbank


181

corporategovernance

takeover system system

Source: F. Allen, D. Gale – Comparing Financial systems, MIT Press, 2000, p. 4

These functions appear to be common to most developed economies. When we Differentcountries, however, have very different financial systems, which we describe in some detail in laterchapters. The United States and Germany can be viewed as polar extremes. In the Uni ted Statesfinancial markets play an important role in allocating resources, while in Germany they arerelatively unimportant. When it is referred refer to "financial markets," the literature meansorganized markets for securities such as stocks, bonds, fu tures contracts, and options.) Instead, inGermany banks play by far the most important role. The three major universal banks - Deutsche,Dresdner, and Commerzbank dominate the allocation of resources in the corporate sector. Incontrast the United States has long pursued a vigorous policy of promoting competition amongbanks. As a result, the banking system is less concentrated than in Germany, particularly withregard to providing services to the corporate sector. Universal banking is prohibited by the Gl ass-Steagall Act, so the commercial and investment bunking sectors have been separate.

As table 1 indicates, other major industrial countries fall in between these two extremes. Inthe United Kingdom financial markets hive a long history and also play a ce ntral role, but incontrast to the United States, the domestic banking industry is highly concentrated, wilh four majorbanks—Barclays, National Westminster, Midland, and Lloyds —traditionally dominating themarket. Although there is no equivalent to the Gl ass-Steagall Act and universal banking is allowed,commercial and investment banking are in practice separate in the United Kingdom. Japan hassophisticated financial markets, but for most of the past fifty years, a concentrated banking systemhas played the dominant role in allocating resources. Finally, France is much like Germany in thatbanks have traditionally dominated and markets have been unimportant for the corporate sector.The main difference in France is that the government has been much more im portant than in othercountries through its direct ownership of major banks and other financial institutions at varioustimes.

The differences in institutions and markets across countries also have implications forcorporate governance. In the United State s and United Kingdom, the equity markets provide amarket for corporate control. In particular, the possibility of takeovers is assumed to be a device fordisciplining managers. A raider can buy up the shares of a badly managed company, replace themanagement, and make a capital gain. Hostile takeovers are legally possible in Japan and Germany,but they do not occur in practice. It has been widely suggested that monitoring by the banksperforms the same external oversight rule as hostile takeovers. In Japan this is known as the mainbank system, and in Germany it is called the “hausbank system”.

The current trend is toward market -based systems. As a matter o policy, France hasdeliberately chosen to increase the importance o financial markets since the mid -1980s. Japan isplanning a "Big Bang reform of its financial system to make it more efficient and enable the Tokyomarkets to compete with those in New York and London. The European Union is moving toward asingle European market, which will increase compet itiveness and exposure to financial markets.Latin American countries, such as Brazil, are implementing changes to create US like financialsystems.(5)

Financial System Functions

In actual modern economies, financial systems can have two main functions: 1st – theallocation of savings to investment opportunities and 2nd - distribution and allocation risk betweeneconomic agents. I will address each in turn before concluding with some thoughts on the role ofcentral banks.

It is generally recognized that financial development contributes to higher long -runeconomic growth. There is a debate however, as to whether some financial structures are moreefficient than others in allocating savings to investment.


182

Funds can move from lenders to borrowers by a secon d route, called indirect financebecause it involves a financial intermediary that stands between the lender -savers and the borrower-spenders and helps transfer funds from one to the other. A financial intermediary does this byborrowing funds from the lender-savers and then uses these funds to make lo rower -spenders. Afunction attributed to financial system, generally speaking, is to reduce the cost of financing .Financial intermediaries can substantially reduce transaction costs because they have develop edexpertise in lowering them and because their large size allows them to take advantage of economiesof scale, the reduction in transaction costs per dollar of transactions as the size (scale) oftransactions increases. But some problems occur: asymmetric information, moral hazard andadverse selection.

The presence of transaction costs in financial markets explains, in part, why financialintermediaries and indirect finance play such an important role in financial markets. An additionalreason is that in financial markets, one party often does not know enough about the other party tomake accurate decisions. This inequality is generally called asymmetric information .

Moral hazard is the problem created by asymmetric information after the transaction occ urs.Moral hazard in financial markets is the risk (hazard) that the borrower might engage in activitiesthat are undesirable (immoral) from the lender's point of view because they make it less likely thatthe loan will be paid back. Because moral hazard l owers the probability that the loan will be repaid,lenders may decide that they would rather not make a loan.

The problems created by adverse selection and moral hazard ar e important impediment towell-functioning financial markets. Again, financial intermediaries can alleviate these problems (6).

3. ROMANIAN FINANCIAL SYSTEM – STAGE OF DEVELOPMENT ANDINDICATORS

“Nevoia de capital a unei economii nu poate fi judecata in termeni abstracti, ci prin raportareala PIB-ul pe locuitor sau nevoia de infrastru ctura”, Mugur Isarescu (2008)

The Romanian financial system is still a bank – based one. Te explanation can be found intransition and poor development of financial market. But the situation can change over time.Probably, like other EU countries, moving toward a single European market could transform theseattributes. The actual stage of Romanian Financial system can be summarized as follow:

Table no. 2 – Stage of Romanian Financial System Structure

Percentage in GDP (%)

2002 2003 2004 2005 2006

Credit institutions (1) 31,0 30,8 36,6 44,6 50,6

Insurance Companies (2) 1,5 1,8 1,9 2,2 2,5

Investment Funds (3) 0,1 0,1 0,2 0,2 0,3

Financial investment companies (4) 1,4 1,4 1,3 1,8 2,3

Leasing companies (5) 1,5 1,8 3,0 3,6 3,4

Other financing institutions (6) 0,4 0,4 0,6 0,9 1,3

Total 35,9 36,3 43,6 53,3 60,4

Other credit institutions

BVB (7) 6,1 6,2 13,9 19,5 21,5

RASDAQ (BER) (7) 4,0 4,0 3,2 2,9 3,1

Sources: BNR, CNVM, CSA, ALB, INS (provisory data for 2006)

The evolution of internal credit is expressed in the table below, that express an increase overthe analyzed period:


183

Table no. 3 –Evolution of Romanian Domestic Credit

Year 2000 2001 2002 2003 2004 2005Total 11288.6 14324.5 20022.1 30122.6 36518.7 54592.3

Non-government credit - total 7500.7 11825.5 17872.8 30287.9 41762.4 60672.8

Lei credits - total 3041.1 4753.4 6.7279 13504 16386.7 27910.7

Short term credits - total 296.4 3990.5 5042.4 7296.4 8191.5 12128

Medium and long term credits - total 521.7 762.9 1630.5 6207.6 8195.2 15782.7

Medium-term credits - total 411 631.7 1404 5735 7412.1 10554

Long-term credits - total 110.7 131.2 226.5 472.6 783.1 5228.7

Convertible currency domestic credits 4459.6 7072.1 11199.9 16783.9 25375.7 7072.1

Government credit, net - total 3787.9 2499 2149.3 -165.4 -5243.7 -6080.5

Source: INSSE, Chapter 21 – Finance, www.insse.ro

The latest development on financial market is presented on the table that follows, suggestinga market growth in latest time:

Table no. 4 –Evolution of Romanian Capital Market Indicators

Year Volume Value Transactions Capitalization2007 14.234.962.355 13.802.680.643,7700 1.544.891 85.962.389.148,602006 13.677.505.261 9.894.294.096,7200 1.444.398 73.341.789.545,862005 16.934.865.957 7.809.734.451,6048 1.159.060 56.065.586.984,762004 13.007.587.776 2.415.043.849,1847 644.839 34.147.400.000,002003 4.106.381.895 1.006.271.130,0979 440.084 12.186.600.000,002002 4.085.123.289 709.765.149,5788 689.184 9.158.000.000,002001 2.277.454.017 381.277.021,0330 357.577 3.857.300.000,002000 1.806.587.265 184.291.655,0130 496.887 1.072.850.800,00

Source: B.V.B., www.bvb.ro

These tables suggest that Romania, as European trend, there is an increasing in the role offinancial market in financial system structure. Also, Romanian financial system remain an bank -based one, but for the future, the circumstances could change, because of financial marketexpansion.

Economic growth expressed in the evolution of GDP is shown in the tab le below:Table no. 5 – Economic Growth in Romania (GDP variation)

Year 2000 2001 2002 2003 2004 2005

GDP Value 80377.3 116768.7 151475.1 197564.8 246468.8 288047.8

Growth (7) - 45.28% 29.72% 30.43% 24.75% 16.87%

Source: INSSE, www.insse.ro, personal c alculations

Some correlation has been calculated: between GDP and internal credit the value is0.97462; between GDP and market capitalization the value is 0.93616; both values suggests astrengthen relation between variables taken into discussion.

The maximum growth of GDP was took place in 2001, and the minimum in 2005, thatsuggest the descend trend in latest years.

For financial development, some steps must be taken to build an institutional infrastructurethat will ensure a well-functioning financial system.

There are some requirements for a sound financial system, regarding financial institutionsapproach and restructuring:

Develop strong property rights . Strong property rights are needed to encourageproductive investment because it will not be u ndertaken if the returns on investmentare likely to be taken away by the government or others ;

www.bvb.ro

www.insse.ro


184

Strengthen the legal system . A legal system that enforces contracts quickly andfairly is an essential step in supporting strong property rights and financialdevelopment;

Reduce corruption. Government is often the primary source of financial repressionin developing countries;

Improve the quality of financial information . High-quality financial information isessential to well-functioning financial markets ;

Improve corporate governance . For people to be willing to buy stocks, another wayto channel funds to business, rules must be established to ensure that the managers ofcorporations act in the stockholders’ interest ;

Develop sound, prudential regulation and supervision of the banking system . Banksare the main institutions that allocate credit in developing countries. The skillsnecessary for bank officers to assess risks and make good lending decisions arecritically important and often scarce .

One of the most powerful weapons for stimulating institutional development isglobalization. Wealth is not something that can be attained by remaining closed off to the rest ofthe world. Poorer countries would do better by embracing globalization --that is, opening theirfinancial markets and their markets for goods and services to other nations so that funds, goods,and, often, the ideas that accompany them can flow in. Such inflows can help them achieve reformsthat build productivity and wealth that will bene fit all their citizens. Of course, countries need totake care that the foundations of the fundamental institutions discussed above are in place, and theymust monitor the pace of reform. (8)

Financial globalization is still now far from complete, but as the FED Governor Frederic S.Mishkin emphasizes: “international capital generally does not flow to poor countries … creatingthe necessary financial infrastructure in developing countries -better property rights, institutionallyand oversight - would not be an easy task”.

NOTES:

(1) Levine, R. - Financial Development and Economic Growth: Views and Agenda, Journal of EconomicLiterature Vol. XXXV (June 1997) pp. 688–726, p. 2(2) Allen, F., Oura, H. - Sustained Economic Growth and the Financial System. IMES Discussion Paper Series2004-E-17, p. p. 1-3(3) see Filip, Gh. – “Finante publice”, Editura Junimea, Iasi, 2002, Vacarel I, - “Finante publice”, EdituraDidactica si Pedagogică, Bucuresti, 2000 e.g.(4) latest literature suggests that Germany could not have a bank – based system, Krahnen, J.P., Schmidt,R – TheGerman Financial System, Oxford University Press, 2004, p. 21(5) Allen, F., Gale D. – Comparing Financial systems, MIT Press, 2000, p. 2-4(6) Mishkin, S.F. – The Economics of Money, Banking and Financial Markets, 6 th Edition, Columbia University,p. 33 – 35(7) calculated by the formula: (GDP t+1- GDPt)/GDPt, in percentages(8) Mishkin, F.S. To the New Perspec tives on Financial Globalization Conference in Washington, D.C.(Governor Mishkin presented identical remarks at the Econometric Society at Duke University Lecture, Durham,North Carolina, on June 23, 2007)

BIBLIOGRAPHY:

[1] Allen, F., Gale D. – Comparing Financial systems , MIT Press, 2000[2] Allen, F., Oura, H. - Sustained Economic Growth and the Financial System . IMES

Discussion Paper Series 2004-E-17[3] Dăianu, D. – Stabilitatea sistemului financiar, http://www.bloombiz.ro/

business/stabilitatea-sistemului-financiar[4] Duisenberg, W.- The role of financial markets for economic growth (Central Bank

Articles and Speeches), http://www.bis.org/review /r010601b.pdf


185

[5] Demirguc – Kunt, Levine, R. – Financial Structure and Economic Growth, MIT Press,2000

[6] Filip, Gh. – “Finante publice”, Editura Junimea, Iasi, 2002[7] Levine, R. - Financial Development and Economic Growth: Views and Agenda , Journal of

Economic Literature Vol. XXXV (June 1997) pp. 688–726[8] Mishkin, S.F. – The Economics of Money, Banking and Financial Marktes, 6 th Edition,

Columbia University[9] Mishkin, F.S. To the New Perspectives on Financial Globalization Conference in

Washington, on June 23, 2007[10] Noyer, C – Financial System for Economic Growth, www.bundesbank.de

http://www.bis.org/review


186

THE ACCOUNTANT INFORMATION. DEMAND AND OFFER

Assistant Irina CHIRIŢĂ“Stefan cel Mare “University, The Economy and Public Administration Faculty, Suceava, Romania

[email protected] Ioana ZAHEU

Romanian American University, Bucharest, [email protected]

Abstract:The present paper is trying to correlate what Demand and Offer mean, from the economical point of view,

which in the end tends towards the demand and offer of the accountant information.The objective of the demand and offer of accountant information is to promo te an efficient financial

communication, objective that might be reached through the confrontation of the informational offer with the user’sdemand.

The information given by the enterprises are the basis of numerous economical and political decisions of aconsiderable importance, reason for which the elaboration of the production rules and the release of the accountantinformation interests a large group of users.

The paper is structured on two important parts The Demand of accountant information: users, h ierarchy,informational needs; and The Offer of accountant information, who is giving us the necessary accountant informationinside an organization. The offer of accountant information debates the objectives of the synthesis documents andmakes suggestions regarding the information that should be released to allow an efficient accomplishment of theseobjectives.

The end of the paper represents the conclusions of the study, conclusions that point out the necessity ofaccountant information for all the user s, whether they are external or internal user.

Key words: demand, offer, demand of accountant information, financial analysts, creditors

INTRODUCTION

The information released by the enterprise is the basis for numerous economical andpolitical decisions of a considerable importance. For this reason, the elaboration of the productionrules and the release of the accountant information interest a large group of users. The objective ofthe demand and offer of accountant information is to promote an efficie nt financial communication.

The problem of the financial communication is that of deciding which the minimum ofinformation that must be included in the synthesis documents. Solving this problem depends onfinding pertinent answers to these questions: Who are the users of the accountant information?What are their informational needs? How do they use the accountant information? What are therights of different users in attaining the accountant information?

THE DEMAND OF ACCOUNTANT INFORMATION

The relationships of an economical entity with the economical environment from which itcomes give birth to several informational needs. Satisfying these needs translates itself in thenecessity of producing relevant and objective information. The accountants are tho se who must seeto the producing of this information which must respond to the needs of different users. Otherwise,the trust in the methods they use and towards the competence of the accountant professionalsdiminishes.

Regarding the different categories of users of the accountant information, the accountantdoctrine offers a lot of point of view influenced by the cultural, economical, political and juridicalenvironments.

The American Normalization Organism - FASB, although admits the existence of more tha none category of users of the accountant information, adopts a restrictive vision, by giving privileges

[email protected]

[email protected]


187

to the investors and creditors. Regarding the internal users of the accountant information,represented here by managers and administrators, the need o f accountant information appearsbecause of the fact that they request supplementary information as to those made public, themanagers and administrators having the obligation of assuring coherency between the externalinformation and the supplementary inf ormation of which they dispose of.

About the external users, we can say that they don’t represent an omogen category. Thus,there are external users, that dispose o the power and resources necessary to be able to impose thenature of information that is communicated to them (for example the administration through its taxcollectors, credit institution, important suppliers) and external users that don’t dispose of sufficientpower and resources.

The accountant information must be easy to understand for those users that do not havesufficient knowledge regarding business and economical activities, but never the less want to studythis information. “The accountant information is an instrument, and like most instruments it can notbe of a direct usefulness to those who are incapable or willing to use it. The technique of using theinformation can be taught, which means that the financial statements could give out usefulinformation for all those willing to learn how to use them”.

The experience of some countries shows that unbalances in satisfying the demand forfinancial information, in the exclusive benefit of a certain group, incites other groups to exercisepressure on satisfying their needs as well. For this reason, the past few years, the accountingnormalization organisms are demonstrating more flexibility in the making of the privileged userslist. It is the case of France, who included the personnel, of Germany, who included the ecologists,and of Canada, who included the category “other third persons”.

Regarding the internal users, they must not enjoy a privileged status, because they don’t usethe accountant information for primarily administration purposes, but for communication.Exceptions are the managers of small and middle enterprises, for which, in the absence of theadministrative accountancy, the accountant information is extremely useful in the decisionalprocess.

The conceptual accountant environment of the International Accounting StandardsCommittee (IASC) states the satisfaction of the informa tional needs of a multitude of categories ofusers: share holders, financial analysts, creditors, employees, clients, managers and audience.

The share holders are the ones that wish to measure the ratability and the risk of theinvestments, according to which they will take the decision of maintaining, increasing or decreasingtheir shares. Knowing the financial situation of an economical entity requires accurate synthesisdocuments which will reflect a correct image. For this reason, the quality of the fin ancial andaccountant information is in the centre of the share holders’ attention. Concretely, the share holdersare interested on the enterprises capacity to generate future benefits. The notion of capacity togenerate future benefits refers to the meas ure in which the economical entity will adopt a strategywith the purpose of converting the benefits into liquidities. Although the share holders may seemthe first victims of self-financing, in reality, its growth contributes to the growth of the net acti vesand of the theoretical value of the shares, which might lead to a growth of the stocks on the share’svalue on the market or a free distribution of shares. Thus the share holder recovers through capitalthe part that he has lost in dividends.

Another preoccupation of the share holders is the risk. According to the financial theory, thetotal risk of an active is composed of: specific risks, which doesn’t depend on the specificcharacteristics of the title, and systemic risk, which measures the sensibili ty of the title to themarkets fluctuation. On a balanced market, only the systemic risk is remunerated.

The share holders differ in regards to their capacity of interpreting the accountantinformation. Thus, the demand of the professional investors is dif ferent from that of theunprofessional investors.

The investor adopts a passive or active strategy. Usually, the passive investor buys adiversified portfolio, which he holds on to until the liquidation on consumption reasons, withoutbeing interested, during the ownership, about specific accountant information. On the contrary, an


188

active investor searches for information which will allow him to anticipate the fluctuations in themarket value of the shares, and the development of a speculative commerce.

Regarding the financial annalists, they can be seen as an “enterprise” that produces analyzesand interpretations. The financial annalists are the ones that take the brut information and transformit into another kind of information, which reflects their abil ity to understand, synthesize andinterpret the information as prime materiel. The financial annalists do not represent a group; theyare similar to economical and financial journalists. The economical journalist practices in a generalinformation support and is defined as a field journalist, whose mission of economical and financialinformation obligates him to make his writings legible to any person who owns a portfolio and forany potential share buyer.

Also interested on the demand of accountant informa tion are the creditors, which as thirdparties that give loans (financial resources) to the entity, for a pre -established period of time, inexchange of a fixed remuneration from it, called an interest, and with the obligation from it torefund the amounts received, usually by installment, until a known date named time limit.

Regarding the suppliers, their man interest is that of appreciating in what measure the entitywill be able to fulfill its financial obligations.

Employees are another category of pers ons interested on the financial and accountantinformation, them wanting to have access to the “counts” of the entity. Their wish might bemotivated in more than one ways: the accountant information are relevant in order to appreciate thefuture perspective of the firm, of the security of their work places and of the validity of theirretirement plans; accountant information allow the appreciation of the fairness of the salaries paidby the entity; information helps increase employees involvement in the fir m’s activity and its workinterest; information is a natural right of the employees.

The problem of the accountant information released to the employees has not made theobject of special attention, and in consequence there are few things known about the s pecial needsof this particular group. Macintosh mentions that the reasons for which they proceed to theinformation of the employees are: improving the relationship between managers and employees,proves the openness of the administrative approach and cre ates the necessary conditions for theemployees to understand the business of the economical entity.

The managers are the main category of users of accountant and financial information. Theirinformational needs are covered, in essence, by the unpublished reports.

These reports are made, in general, on the basis of administrative accountancy informationas well as on the financial accountancy information. The more the activity of the economical entityis more complex and divers, the more the managers need a dditional information. Also the nature ofthe economical activity of the entity affects the informational needs of the managers. Managers usethe information from the synthesis documents not in order to make decisions regardingadministration, but in order to communicate.

According to Foster, the demand of accountant information depends on its potential toreduce uncertainty and on the availability of other sources of information.

Regarding the potential of the accountant information to reduce uncertainty, there are someuncertainties regarding the future profitability of the firm, the quality of management, the capacityof a third party to fulfill its contractual obligations.

The availability of other sources of information refers to the fact that accountan t informationis not the only source available of information for the groups of users. There numerous ways ofmonitoring the activity of the economical entity and of the managers. Thus, CEEO, creditors andfinancial annalists can supply information on the activity of the economical entity.

THE OFFER OF ECONOMICAL INFORMATION

The offer of accountant information depends on many factors among which also the size ofthe economical entity. Numerous arguments favor the existence of a positive relationship betwe enthe size of the enterprise and the volunteer publication of the accountant information, arguments


189

that can be presented as costs and advantages. Regarding the costs, their importance usuallydecreases as the size of the economical entity increases. Thus , on one side, the publication ofdetailed information is less expensive for large entities, because they have already accumulated thisinformation for internal use. On the other side, small entities have a reduced capacity to reactagainst competition, and in consequence the release of “sensible” information situates them in adisadvantaged competition.

The financial statements are the result of the interaction of three main groups: economicalentities, the users of information and the accountant professio n. The economical entity is the primegroup involved in the accountant process. They are not just subjects of whose activities are theobject of financial information, but also the only supplier of financial statements, without theapprovement and action, it wouldn’t be possible for a third person to release synthesis documentswith a satisfying degree of relevance.

The users represent a group, whose needs and interests influence the production ofaccountant information.

A question to which we are trying to find an answer in the following is: Are the synthesisdocuments useful?

The economical entities are obligated to make and release a set of synthesis documents ofwhich is said to be useful to the external users.

In the following we set as objectives to ve rify if the external users can analyze, on the basisof the released information: the profitability, the liquidity and solvability of an economical entity.The information from the synthesis documents must be used in correlation to the following factors:the size of the enterprise; the economical, social, political and cultural environment, the risk of thebusiness, the tendencies of the fielding which the economical entity is acting.

Treated from a general perspective, both the offer and the demand of fina ncial andaccountant information are two much debated problems lately from the following perspectives: whoare these users of accountant information? What are the synthesis documents that offer informationto the users? To these two aspects the present pap er has tried to find answers to, in order to clarifythem.

CONCLUSION

This article wants to present the offer of economical information and the demand ofaccountant information, that are very important for one organization . The users of offer anddemand are present in this article, their importance and place. It is important for one organization toknow internal and external users, what information they need and what they can obtain in aorganization. It is important also offer of economical information to be real, and also theinformation it self it’s important and we need to now this aspect.

BIBLIOGRAPHY:

[1] FASB, Objectives of financial reporting by business enterprises,1978[2] G.Foster,”Financial statement analysis”, Prentice Hall International Edition, 1986[3] N.Feleagă, „Îmblânzirea junglei contabilităţii”, Ed. Economică,1996[4] N.Feleagă, I.Ionaşcu „Tratat de contabilitate financiară”,vol I, Ed. Economică,1998[5] T. Burns, H. Hendrickson, „The accounting sampler”,Mc Graw Hill Book

Company,1998


190

SECTION 4

STATISTICS, DATA PROCESSING

(INFORMATICS) AND MATHEMATICS


191

ANALYSIS OF REPARTITION FORM IN DISTRIBUTIONS OF FREQUENCIES


[email protected]

Abstract:The paper „The Analysis of Repartition Form in the Distributions of Frequencies” presents an introduction in

the study of distribution of frequencies, which have some characteristic features by the nature and the group degree ofdata, by which existing classifications and variation series, unidimension and multidimension series etc. The paperemphasizes that the statistical analysis of series of distributions is based on the comparison of the empiricaldistributions with theoretical distributions, o n the comparison of parameters of theoretical distributions with thecomputed values by using the empirical distributions data. The paper presents the indicators of interquartilical andinterdecilical variation, the principal methods of asymmetry analysis such as the graphic method and the analyticmethod based on the estimation and the interpretation of asymmetry coefficients established as relations between theindicators of central tendency or between the individual values and central tendency indicators . Also are presentedsome aspects concerning the computing and analysis the indicators of peakedness/arching.

Key words: interquartilical and interdecilical variation, symmetrical and asymmetrical series, coefficients ofasymmetry, absolute and relative densities of frequencies, degrees of peakedness.

INTRODUCTION

In the analysis of the economic and social phenomena from the whole used statisticalmethods are remarked the group method which allows to form the statistic series. The nature andthe systematization degree of the presented data are elements which differentiate the statistic series,those than are the object of this study being the distributions of frequencies. The analysis ofdistributions of frequencies has a particular character after how t hese presents the variation of aqualitative characteristic under the form of classifications or the variation of a quantitativecharacteristic under the form of variation series, after how these result from a simple group formingone dimension series or f rom a combined group forming multi dimension series. Generally, theanalysis of statistic series are based on the theoretical distributions, elaborated on the basis of ahypothesis of distribution of frequencies so that to be possible to establish mathemat ics relationswell determined between the studied values and their frequencies of apparition, interpreted as afunction of probability and also based on empirical distributions obtained from the observed datausing the absolute and relative frequencies, th e comparison of the two forms being achieved on thebase of parameters of the theoretical distribution.

The statistical analysis of series of distributions consists of the determination of typicalvalues of series, the explanation of the level differences between the individual terms and typicalvalues with the aim of interpretation the form and the degree of variation of the studiedcharacteristic and realization of the dynamical and territorial comparisons. The problemsdetermined by the variability, the distribution form, the homogeneity, the independence orinterdependence of series terms are analysed by estimation and interpretation of the average,variation and asymmetry indicators, by analysis of variance etc. In the analysis of distributions offrequencies the asymmetry study is a part from the problems of form of distributions analysis, nearby the indicators of interquartilical and interdecilical variation and the indicators ofpeakedness/arching. [6], [3]

[email protected]


192

INTERQUARTILICAL AND INTERDECILICAL V ARIATION

In a perfect symmetrical series the three basic indicators of centrale tendency: the average -x , the mode - oM , the median - eM occupied the same place, between they being a relatio n ofequality, such as:

eo MMx (1)

If we compute the deviations between the values of position means and the median we caninterpret the tendency of distribution for frequencies of characteristic variants. [1], [4]

In the series in which are compute the values of quartiles, the deviation between the inferiorquartile and the median is equal with the deviation between the superior quartile and median andinside of them there are 50% from the number of individual values.

In a perfect symmetrical series this equality can be wrote:

ee MQQM 31 (2)

In this situation the arithmetic means of the two extreme quartiles is equal with the value ofthe second quartile or with the median of series, such as:

eMQQQ

Q

221

2(3)

When the two relations didn’t verified, which we can write: ee MQQM 31 and respective

eMQ result that the series presents a certain degree of interquartilical variation which must bestatistical measured.

The indicators of interquartilical variation can be computed using absolute and relativeindicators.

The interquartilical deviation dQ is computed as a mean of the two deviations of theextreme quartiles comparative with the centrale quartile such as:

22

1331 QQMQQMQ ee

d

(4)

As an absolute indicator, the interquartilical deviation is expressed in the unit of measure ofthe studied characteristic and it isn’t used in the direct comparison between more statistic series. Inthis last aim in statistics can be compute the interquartilical deviation coefficient.

The interquartilical deviation coefficient qV is computed as a ratio between theinterquartilical variation and the median value such as :

ee

dq M

QQ

M

QV

22

13

(5)

This coefficient take values in the interval [0, 1] and it is appreciated that the interquartilicaldeviation is more significant as its value is increased.

When the series presents a great degree of asymmetry is nec essary to compute also theinterquartilical variation.

The indicators of interdecilical variation are based on the same grounds as in case ofinterquartilical variation, which means that in a perfect symmetrical series the distances between theextreme deciles and median are equal such as:


193

as>0M0 = x

ee MDDM 91 (6)

The interdecilical deviation is equal with the arithmetical average of the deviation ofextreme deciles to the centrale quartile of series such as:

ee

dd M

DD

M

DV 2

19

(7)

As a rule, the computing of interdecilical variation is applied for the statistical series with agreat number of groups and with an obvious tendency of asymmetry.

The value of this coefficient is sub -unit and positive as in case of interquartilical var iation.

SYMMETRICAL AND ASYMMETRICAL SERIES

In the statistics, the series are the result of application of group method according one ormore characteristics, obtaining two lines of data, in which the first line represents the variation ofgroup characteristic and the second line is the result of appeared frequencies centralization or of thevalues of other characteristic with which the first is correlated. In these conditions, the statisticsseries can be considered a mathematical function in which the s ystematized values of frequencies orthe values of the characteristics are dependent on the values of group characteristics. Being amathematical function, the statistical series permits the graphic representation and the analysis ofdistribution form of frequencies according with their line of distribution or in comparison withtheoretical distributions.

The practice of economical and social statistics had demonstrated that there are symmetricaldistributions, easy asymmetrical distributions and distributi ons with pronounced tendency ofasymmetry.

In case of a symmetrical variation in comparison with the central value of characteristic, thecompensation of the deviations is made also on the whole series and inside of it as a result of theappeared frequencies of variants are equal on the both sides of central value (Figure 1a). If theappeared frequencies of variants didn’t follow this regularity this means that the series presents anasymmetrical tendency to the greatest values of characteristic (Figure 1b) or to the smaller values ofthe characteristic (Figura 1c). For the description of the degree of asymmetry are compared thevalues of the three indicators of central tendency: the average, the median and the mode, as theyresult from Figure 1. [2], [5]

Figure no. 1. Symmetrical and asymmetrical distributionsa) Symmetrical distribution Distribution is skewed Distribution is skewed

to the right to the left

M0 x

0

y

x

0

y

x

0

y

x

as<0as= 0 x M0


194

The three presented cases emphasize that the degree of representation of the average isincreasing for a symmetrical distribution and it has a more reduced field of variation ofcharacteristic. The knowledge of the intensity of asymmetry supposes the application of the anal yticmethod by the computing of specific indicators and their interpretation according with the principalproperties of normal distributions.

THE ESTIMATION AND THE INTERPRETATION OF THE ASYMMETRYCOEFFICIENTS

The analysis of distribution form is achievi ng using the graphic method or the analyticmethod and by computing the coefficients of asymmetry. In the case of application of graphicmethod are used the histogram, the polygon of frequencies and the cumulative curve of frequencies.The polygon of frequencies is used for the graphic representation of distributions of frequencies.The graphic representation supposes that on the axis Ox will be represented the centres of intervalswhich in the case of equal intervals is distributed at equal distances on th e axis. In this case on thegraphic will be represented the line which unite the points with co -ordinates given by the values ofcentres of intervals and their frequencies. [3], [6], [10]

If the polygon of frequencies will be designed on the basis of histo gram, than it is obtainedby union the centres of columns. If the group intervals are unequal than the frequencies are reducedproportional and than the results are represented on the graphic by the dimension of intervals.

A histogram for an equal interval s distribution was used for the data concerning theemployment with professional status employee, by age groups in Romania in 2006 from the Table 1and was obtained the graphic from Figure 1.

Table no 1. Employment (professional status employee), by age g roups in Romania, in 2006

Cumulative relative frequencies[%]

Groups of employmentby age

Employment in

[persons]Increasing Decreasing

0 1 2 3

15-24 481.026 481.026 6.167.00025-34 1.874.768 2.355.794 5.685.97435-44 1.825.432 4.181.226 3.811.20645-54 1.566.418 5.747.644 1.985.77455-64 407.022 6.154.666 419.356

65 ani şi peste 12.334 6.167.000 12.334Souce: Romanian Statistical Yearbook , National Institute of Statistics, Bucharest, 2007

Figure no. 1. Employment (professional status employee), by age groups in Romania, in 2006

481026

18254321566418

407022

12334

1874768

0

200000

400000

600000

800000

1000000

1200000

1400000

1600000

1800000

2000000

15-24 25-34 35-44 45-54 55-64 65-74

Age groups [years]

Em

ploy

men

t(p

rofe

ssio

nal s

tatu

s em

ploy

ee)

[per

sons

]


195

For the same data, the drawing of cumulative curve of frequencies supposes the successivetotalizing of frequencies in both senses of distribution, the result being the graphic from Figure 2.

Figure no. 2. Cumulative curve of frequencies for employment (professional statusemployee), by age groups in Romania, in 2006

By the graphic drawing obtains a suggestive image about the asymmetry but not aquantitative value as a measure of the degree of as ymmetry. [12] To establish the type ofasymmetry but without to give emphasis to intensity of this we are computing the centrate momentof three orders using the formula:

12

1

12

1

3

3

ii

iii

n

nxx

(8)

In comparison with the sign of the centrate mo ment of three order we can appreciate thetype of asymmetry. So we can distinguish three cases:

- if 03 than the distribution is skewed to the right;- if 03 than the distribution is a symmetrical one (for a symmetrica l distribution all

the centrate moments of odd order are null);- if 03 than the distribution is skewed to the left.For computing the intensity of asymmetry are used also the indicators of asymmetry,

expressed in absolute and relative d imensions. A first information concerning with the degree andthe sense of asymmetry is based on the computing values for the density of distribution offrequencies, computing by comparison each of frequency and the dimension of proper interval ofvariation.

The absolute density of frequencies ad is obtained as a report between the absolutefrequency in at the size of interval h , according with the formula:

h

nd i

a (9)

0

1000000

2000000

3000000

4000000

5000000

6000000

7000000

15-24 25-34 35-44 45-54 55-64 65-74

Age groups [years]

Em

ploy

men

t(p

rofe

ssio

nal s

tatu

s em

ploy

ee)

[tho

u pe

rson

s]


196

The relative density of frequencies rd is obtained as a report between the relative

frequency *in and the size of interval h , according with the formula:

h

nd i

r

*

(10)

On the base of density of distribution we can establish analogies with the density ofprobabilities, considered as a theoretical model for the empirical density. If the values of theseindicators show an increased tendency to the central value of characterist ic, this means that thedistribution is with normal tendency and the average is a representative value for the mostcharacteristic values. The necessity of estimation of these indicators appears especially for thedistributions on great or unequal interval s.

The asymmetry of a distribution will be much great as the difference between the arithmeticaverage and the mode will be bigger and inverse. [7], [12] In the case of one mode perfectsymmetrical distribution, the two indicators are equal such as: OMx . This means that we can forma first image about the degree of asymmetry for a distribution by comparison the arithmetic averagewith the mode such as:

0Mx (11)

where:

ondistributilsymmetricafor

leftthetoskewedondistributifor

rightthetoskewedondistributifor

___0

______0

______0

The principal drawback of this absolute asymmetry indicator is the expression in the sameunits of measure with the characteristics of distributions so that it can’t be used for comparison thedegree of asymmetry of some distributions expressed in different units of m easure.

Frequently, for the interpretation the asymmetry are used the indicators proposed byPearson, which can measure how oblique is the distribution. [3], [8]

These are:- the coefficient of asymmetry asC , which is computed as a report between the absolute

asymmetry 0Mx and standard deviation , according with the formula:

0Mx

Cas

(12)

The coefficient of asymmetry asC can take values between -1 and +1 and how smaller it isin absolute value so smaller is the asymmetry. In a perfect symmetrical distribution, asC is zerobecause the average coincides with the value of mode. If the average is bigger than the mode, thecoefficient of asymmetry takes values between 0 and +1, so the distribution is skewed to the rightand if the mode is bigger than the average, the coefficient of asymmetry take values between -1 and0, so the distribution is skewed to the left.

- the coefficient of asymmetry 'asC , which is computed as a report between the deviation

of the median from the average taken three times and the standard deviation, according with theformula:


197

eas

MxC

3' (13)

This formula is used for easy asymmet rical distributions in which for a great number ofcases the following formula which defines the asymmetry in absolute size is real:

MoxAs or MexMox 3 (14)

The asymmetry coefficient 'asC takes values in the interval [-3, +3] and shows the greatest

degree of asymmetry at the values zero.The estimating the asymmetry coefficients proposed by Karl Pearson are based on the

relation between the three indicators of central tendency: the average, the medi an and the mode. Butthe asymmetry can be analysed used also other average indicators of position, so that there are othermethods to measure the asymmetry. Also, for taking into consideration the influence of quartiles inthe asymmetry study is used the Bowley’s coefficient, estimated as a ratio of the difference betweendeviances of two extreme quartiles from the median and the sum of these, by the relation:

12

12

qq

qqAs

(15)

where: eMQq 32 ; 11 QMq e .Bowley appreciated that if the value of this coefficient is near 0,1 than the series has a

moderate asymmetry and if the value is over 0,3, the series has a pronounced asymmetry.The coefficient of asymmetry Yulle -Kendall is an indicator estimated on the base of the three

quartiles of the series using the relation:

13

31' 2

QQ

xQQAs

or

13

13'

QxxQ

QxxQAs

(16)

The value of coefficient is contained in the interval [ -1, +1] and its interpretation is similarwith the value of asymmetry coefficient asC .

The Bowley’ coefficient of asymmetry can be computed also on the base of two deciles ortwo centiles placed at equal distance from median, for example 1D and 9D or 10C and 90C or 1C and

99C etc.In the case of using the intercentilical deviations equal distanced from the median the

indicator of asymmetry will be:

1090

1090

CC

CMeMeCS k

o

1090

9010 2

CC

MeCCS k

(17)

T. Kelley has proposed a coefficient of asymmetry with a most important theoreticalsignification computed on the base of centiles 10C and 90C after the following formula:

21090

50

CCCS k

(18)

For the measuring of the degree of asymmetry are also used the coefficients 1 , proposed byKarl Pearson and 1 , proposed by Ronald A. Fisher, which are based on the central moment of theseries.(1) [6], [12]


198

The calculus formula for the coefficient 1 is:

32

23

1'

'

(19)

where:

n

xx

2

'2 (centred moment of order 2) (20)

n

xx

3

'3 (centred moment of order 3) (21)

The statistical interpretation of this coefficient is based on the properties of normaldistribution. In the symmetrical distribution, the odd centred moments are equals with zero, but forthe asymmetrical distributions its values indicate the size of asymmetry. So, as the value of 1 isdeviated from zero, the degree of asymmetry is bigger.

The coefficient 1 is obtained starting from 1 by formula:

11 (22)

or

3

31

, with 3

23 . (23)

The interpretation of the value of coefficient 1 is the following:- if 01 than the coefficient indicates the asymmetry of left because the sum of

partial positive differences xxi taken in absolute value is predominant;- if 01 , than the coefficient indicates symmetry, because the positive and negative

sums xxi are equals;- if 01 , than the coefficient indicates the asymmetry of right, because the sum of

negative differences xxi taken in absolute value is bigger than the sum of positive differences.These two methods: the graphic method or the analytic method, permit the representati on,

the establishing of the sense and the intensity of asymmetry in the distributions of frequencies.

THE PEAKEDNESS/ARCHING IN DISTRIBUTIONS OF FREQUENCIES

The description of the degree of peakedness in distributions of frequencies is made bycomparison with the graphic of mesokurtic curve. [3], [9], [11] So, a distribution has a great degreeof peakedness if a great variation of the studied characteristic trains a small variation of frequenciesand inverse. This reasoning is represented in Figure 3.


199

Figure no. 3. Three degrees of peakedness

The platykurtic curve is an approximation of the graphic representation of Studentdistribution (known as t distribution too). The Student rule is used for the description the samplesdistributions in the case of sample of small size 30n and the graphic representation of thisdistribution take the form of normal curve with tendency of peakedness.

The leptokurtic curve is an approximation of the graphic representation of Fisher – Snedecordistribution.

For the measure the degree of peakedness of the curves of frequencies are used theindicators 2 and 2 . The Pearson’s coefficient 2 is computed with the formula:

2'2

4'4

2

(24)

where:'4 represents the centrate moment of order four and is determined with the formula:

n

xx

4

'4 (25)

For a normal distribution the value of coefficient 2 is equal with 3 and the interpretation ofthe degree of peakedness of the curve is made after how the computed value, for an empirical seriesis bigger or smaller than 3 (as much the value of coefficient is smaller so the curve of freque ncies ismuch platykurtic.

The Ronald A. Fisher’s coefficient 2 is computed using the formula:

2'2

4'4

22 3

(26)

The interpretation of the coefficient 2 in the description the degree of peakedness for thecurves of frequencies is the following:

- if 02 , than the distribution is normal;- if 02 , than the distribution is leptokurtic.The computing the coefficients 2 and 2 as measures of peakedness is difficult about the

operations involved, so that in many case is made an analysis of the graphic representations ofdistributions of frequencies (the histogram, the polygon of frequencies etc.

0

ni

xi

0

ni

xi

0

ni

Platykurtic curve Mesokurtic curve Leptokurtic curve xi


200

CONCLUSIONS

It can be ascertained that the statistical analysis of asymmetry is based on the analysis of theevolution shape of empirical data using the graphic representation, on the basis of histogram andfrequencies polygon and the comparison of th is with the normal distribution graphic and also on thecalculus and interpretation of different indicators of asymmetry, which are based on the relationbetween the central tendency (mean, median, mode, quartiles) or between the individual values andthe central tendency indicators. The conclusions of application of these methods are refer to theform of distribution of frequencies, the sense of asymmetry (at the left or at the right) and theintensity of asymmetry (distributions more asymmetric or distrib utions near by normal).

NOTES:

(1) In statistics are used three types of moments:a) initial moments of different orders, then the origin point of deviations is equal with zero:

n

xM

ki

k

for simple series and

i

iki

kn

nxM for the series with frequencies;

where:

kM represents the initial moment of order k . For xMk 1,1 .

b) ordinary moments, when the origin point of deviations is considered an arbitrary value A .The formulas of computing are:

n

Ax ki

k

for simple series and

i

ik

ik

n

nAx for the series with frequencies.

c) centrate moments, when the origin point of deviations is the arithmetic average of series. The formulas of computingare:

n

xx ki

k

' for simple series and

i

ik

ik

n

nxx' .

So: 0'1 and 2'

2 dispersia .

BIBLIOGRAPHY:

[1] Andrei, T., Stancu, S., Pele, D. T., Statistica. Teorie şi aplicaţii , Editura Economică,Bucureşti, 2002

[2] Anghelache, C., Statistică generală, Editura Economică, Bucureşti, 1999

[3] Baron, T., Biji, E. M., Tövissi, L., et al., Statistică teoretică şi economică , EdituraDidactică şi Pedagogică – R.A., Bucureşti, 1997

[4] Bădiţă, M., Baron, T., Korka, M., Statistica pentru afaceri , Editura Eficient, Bucureşti,1998

[5] Biji, M., Biji, E. M., Lilea, E., Anghelache, C., Tratat de statistică aplicată , EdituraEconomică, Bucureşti, 2002

[6] Biji, E. M., Lilea, E., Roşca, R. E., Vătui, M., Statistică aplicată în economie , EdituraUniversal Dalsi, Bucureşti, 2000

[7] Isaic-Maniu, Al., Mitruţ, C., Voineagu, V., Statistica pentru managementul afacerilor ,Editura Economică, Bucureşti, 1999

[8] Jaba, E., Statistică, Editura Economică, Bucureşti, 1998

[9] Keller, G., Warrack, B., Bartel, H., Statistics for Management and Economics. ASystematic Approach, Wadaworth Publishing Company, Belmont, California, 1988


201

[10] Levin, I., R., Statistics for management , Fourth Edition, Published by Prentice -Hall, Inc.,Englewood Cliffs, New Jersey, 1987

[11] Loftus, G. R., Loftus, F. E., Essence of Statistics, Second Edition, Published by Alfred A.Knopf, Inc., New York, 1988

[12] Ţarcă, M., Tratat de statistică aplicată , Editura Didactică şi Pedagogică R. A., Bucureşti,1998

* * * Romanian Statistical Yearbook , National Institute of Statistics, Bucharest, 2007


202

ANALYSIS OF VARIANCE USED IN THE STUDY OF THE RELATIONSHIP BETWEENVARIABLES


[email protected]

Abstract:The paper “Analysis of Variance Used in the Study of the Relationship between Variables” presents an

introduction in ANOVA, which has a different methodology depending on the number of factors taken into study. Thepaper emphasizes that ANOVA can be used in the case in which for the independent variable has used a simple group,but the dependent variable is presented under the form of variants in case of each group or when was used a combinedgroup for both variables. The ANOVA involved also the used of Fischer -Snedecor test for testing the signification ofgroup factors. The paper present the basic concepts and metho dology of ANOVA and the unifactorial and bifactorialmethodology of analysis of variance.

Key words: analysis of variance (ANOVA), estimations of population variance, variance among samplemeans, variance within the samples, total, factorial or residual v ariances, one-factor or two factors analysis of variance.

INTRODUCTION

The analysis of variance (ANOVA) was introduced by the statistician R. A. Fisher and oneof its use is for verification the measure in which the real values of the characteristic divert from thetheoretical values, calculated as a rule as means and as regression equations, as well the measure inwhich these variances are depended on the group factor or not. The analysis of variance has at thebase of group method, which allows the sep aration of the influence of the essential factors from theinfluence of random factors, on the resultant characteristic. [7], [9]

Depending on the number of factors (one, two or more) which has an influence about thevariation of resultant variable there a re unifactorial, bifactorial or multifactorial models of analysisof variance.

ANALYSIS OF VARIANCE – BASIC METHODOLOGY

The analysis of variance is a method which permits the study of the relationship betweenvariables by testing the signification of di fference between means of many samples. Using thismethod we can make inferences, if the samples are extracted from populations which have the samemean. In this context, in practice the analysis of variance can be used for the comparison thedistance going through by consuming some different brands of gasoline, the testing of somedidactic methods after their performances in teaching, the comparison of incomes obtain in the firstyear by the graduates of some faculties of same profile etc. In such kind of cases we will comparethe means of some samples and the analysis of variance is used to decide if the samples were extractfrom population with equal means. So, if we write down the means of populations with: ,...,, 321 ,the hypothesis which must be tested are:

...: 3110 H the null hypothesis,...,,: 3211 H are not all equal the alternative hypothesis

If we consider, for example, the case of using the three didactic methods in a faculty, bytesting we can draw the conclusion that between the samples means are not significant differencesand so the option for a method will not determine the increase of the efficiency of teaching, but ifwe will find significant differences between samples means, too gre at to be determined by changethe standard error, the conclusion is that the didactic method has an influence about theperformances in teaching and as a result the method can be improved. [16], [17], [19].

[email protected]


203

For using the analysis of variance we must to co nsider the assumption that each sampleextracted from a normal population and each of this population has the same variance, 2 . If thesample volumes are enough great is not necessary the assumption of normality. [15], [16].

In the context of the previous presentation, the analysis of variance is based on thecomparison of two different estimations of variance for total population, 2 . One of theseestimations can be computed using the variance between the sample means and the other can bedetermined from the observed values of samples. The two estimations of the variance of totalpopulation are compared and they must be about equal as value when the null hypothesis is true. Ifthe null hypothesis is not true, then the two estimations will have considerable different values. Inthe application of analysis of variance are three steps, namely:

1. the determination of an estimation of variance of population on the basis of variancebetween the sample means;

2. the determination of an estimation of variance of population on the basis of observedsample values;

3. the comparison of the two estimations. If they are equal in value the null hypothesisis accepted.

So the first step supposes the computing the variance from the sample means. If we computethe sample variance with the formula:

1

2

2

n

xxs (1)

where:n represents the number of units from the sample.

If we consider k samples, which have the means wrote dow n x and the mean of samplesmeans wrote down x , the variance between the sample means is computed with the formula:

1

2

2

k

xxS x (2)

The standard error of mean is defined as standard devia tion of all possible samples of agiven volume and it is computed with the formula:

nx

(3)

where: represents the standard deviation of total population.

If we square up this formula then the varianc e of population, 2 is determined with theformula:

nx 22 (4)

where:2x represents the square of standard error (the variance between sample means - 2

xS ).

The indicator 2xS can be calculated from the observed values in samples and can replace the

value 2x in the equation 4 , which gives the possibility to estimate the variance of population

using the formula:


204

1

2

22

k

xxnnS xx (5)

In the case in which are used the samples with different volume, noted jn , the estimation of

variance for population on the basis of variance between samples means will make with theformula:

1

ˆ2

2

k

xxn j (6)

As we can observe, the second step in the application of analysis of variance consist ofdetermination an estimation for the variance of population on the base of observed values ofsamples.

The variance inside the samples can be calculated with the formula:

1

2

2

n

xxS (7)

If we assume the premise already established that the population from which are extract thesamples have the same variance we can use any variance of sample as the second e stimation ofvariance of population. In a statistical way, we can obtain a better estimation of the variance ofpopulation by using the weight mean of sample variance. In this case, the general formula forcomputing of the second estimation of the variance of population based on the variance inside thesamples is:

221

ˆ jj

js

kn

n

(8)

where:

jn represents the dimension of sample j ;2js represents the variance of sample j ;

k represents the number of samples; jT nn represents the total sample size.

Such a formula for estimation has the advantage that it used all the information we have, notonly a part of these.

The third step in the application the analysis of variance consist of the comparison the twoestimations of variance of population by computing their F ratio using the formula:

samplesthewithiniancestheonbased

iancepopulationtheofestimateSecond

meanssampletheamongiancetheon

basediancepopulationtheofestimateFirst

F

___var___

var_____

____var__

_var_____

(9)

The numerator and the denominator will be equal if the null hypothesis is true and as muchthe value of F ratio is close by 1 such we are inclined to accept the null hypothesis. If the F ratiobecomes great we are incl ined to reject the null hypothesis and to accept the alternative hypothesis.The logic meaning of statistic test F is that for different populations the estimated variance on thebasis of sample means tend to be greater than the estim ated variance on the basis of variancesinside the samples and the value of F ratio tend to increase. This brings us to the rejecting the nullhypothesis. [16], [17], [19]


205

In the context of general methodology of analysis of variance is important to analyse if thestatistic test F has a particular sample distribution, if the null hypothesis is true. In reality, the Fdistribution is a whole family of distributions, each of them being identif ied by a pair of freedomdegrees, different from the distributions t and 2 , which have a single value for the number offreedom degrees. The first number from the pair of freedom degrees is the numerator of F ratio andthe second number is the denominator.

The F distribution is one single mode distribution. The characteristic of the curve ofdistribution F depend on the number of freedom degrees f rom the numerator and the denominatorof F ratio. But generally the F distribution is skewed to the right and tends to become moresymmetrical as the number of freedom degrees is increased.

Also, another problem is the establishing of the variance of population on the basis of

variance between sample means, for which is required the computing of the expression 2 xx ,the number of terms of this being equal with the number of samples. So, the num ber of freedomdegrees for the numerator of F ratio is always smaller with 1 face to the number of sample that is:

1________deg___ samplesofnumerratioFtheofnumeratorinreesfreedomofnumber (10)

For the computing the variance inside the samples are used all the samples. So, if we have j

samples, we use jn values xx for the computing the sum xx for each sample. The numberof freedom degrees for the numerator of F ratio is computing with the formula:

knnratioFtheofatordenoinreesfreedomofnumber Tj 1____min__deg___ (11)

where:

jn represents the volum of sample j ;

k reprezents the number of samples; jT nn represents the total sample size.

For the application the test F we must have a table of distribution F in which the colonsrepresent the number of freedom degrees for numerator and the lines represent the number offreedom degrees for the denominator. For each level of significance there are different tables. So,according to a certain freedom degrees and a certain level of significance is selected the value of F

ratio from the table and is compared wi th the computed value. If tabelarcalculat FF then the nullhypothesis is rejected and if not then the null hypothesis is accepted. [15], [16], [17]

The methodology of analysis of variance must be applied with much discrimination becausefor it has the ability to be on the base of some significant decisions it must to exist the certainty thatall the factors are effective controlled. The presented methodology is referred at one single factorwhich has an influence about a process (we used, for example, the case of using of more didacticmethods with different efficiency) but the method of analysis of variance can be used also for studythe influence of more factors about a process. So, we continue with the unifactorial and bifactorialanalysis of variance. [14], [20]

THE UNIFACTORIAL ANALYSIS OF VARIANCE

Unifactorial analysis of variance has at the base the group depending on the factor iX .Starting from the hypothesis that the conditioned means by the group factor, that is ii yxy / ,represents the typical values which are forming at the level of each group and the general mean y isthe typical value for the whole population, it can be formulated two conclusions such as:

a) the variation of resultant variable Y is dependent by the group factor ix ;b) the variation of resultant variable Y is independent by the group factor ix .


206

To specify which conclusion is real is nece ssary to take into consideration the measure inwhich the individual values iy are diverted from the conditioned me ans by the group factor andfrom the general mean y . These deviations are synthetic reflections of the result of the way ofassociation of factors which determine the variation of variable Y . [1], [5], [10]

The basic idea of analysis of variance is that to arrived at one of previous formulatedconclusions is necessary to decompose the sum of squares of the deviations from the general mean

m

j iij

jijjj nyynnyy

1

2

.2 into a number of component s, where each part

corresponds to a real or suppositional source of variation of means.For this we consider that the resultant variable Y with the individual values distributed on

the groupsinyyy ,...,, 21 is influenced by the independent variable iX , which has the individual

values rxxx ,...,, 21 . The observed data was distributed on r groups, where each group contains alsothe individual values of variable Y , about that in the model exist the hypothesis that it is a normaldistribution. So we obtain the conditioned distribution from the Table no 1 .

Table no 1. The conditioned distribution of variable Y

The groups of populationby the independentcharacteristic X

Values of resultcharacteristic Y

Number of individualvalues of characteristic

Y

Group means(conditioned by ix )

ii yxy /

0 1 2 3

1x nj yyyy 111211 1n 1y

2x nj yyyy 222221 2n 2y

ix inijii yyyy 21 in iy

rx rnrjrr yyyy 21 rn ry

Note: injri 1;1

On the base of conditioned distribution of variable Y , it can compute:- the mean of values ijy from each group i (the mean of Y conditioned by iX ), using

the formula:

i

n

jij

i n

y

y

i

1 , ri 1 (12)

- the general mean of values ijy using the formula:

r

ii

r

i

n

jij

n

y

y

i

1

1 1 =

r

ii

r

iii

n

ny

1

1 =n

yn

ji

1 (13)

where:


207

r

ii nn

1

which means the number of units from population (or from the random selected sample)

distributed on r groups.The measure in which the individual values ijy are diverted from y as a result of the action

of whole factors of influence can be written so:

2y =

r

i

n

jij

i

yy1 1

2 = 2

1 1

r

i

n

jiiij

i

yyyy =

=

r

i

n

jiij

i

yy1 1

2 +

r

i

n

ji

i

yy1 1

2 +2

r

i

n

jiiij

i

yyyy1 1

=

=

r

i

n

jiij

i

yy1 1

2 +

r

iii nyy

1

2 +

r

i

n

jiiij

i

yyyy1 1

(14)

S2 S1 ii zx ,covwhere:

2y =

r

i

n

jij

i

yy1 1

2 (15)

represents the total variance which emphasized the influence of essential factor X and unessentialfactors iZ about the variable Y ;

2/ xy =

r

i

n

ji

i

yy1 1

2 =

r

iii nyy

1

2 (16)

represents the factorial variance (systematic) between groups, which emphasized the influence ofvariation of group factor X (the factor with systematic action) about the resultant variable Y ;

2/ zy =

r

i

n

jiij

i

yy1 1

2 (17)

represents the residual variance inside the groups, which emphasized the influence of unessential,residual factors (included in iZ ) which operate inside of each r groups;

ii zx ,cov represents covariance between the essential group factor X and the rezidual factors iZ .In the hypothesis in which 0,cov ii zx , then:

2/

2/

2zyxyy (18)

Considering:- 2

/ xy = 21S which represents the sum of squares of the deviations of group means from

the general mean weighted with the frequencies of groups;- 2

/ zy = 22S which represents the sum of squares of the deviations between the

observed values in each group i and its group mean in the general population;- 2

/ xy şi 2/ zy are independent values;

22

21

2 SSS y (19)


208

The three variances 2yS , 2

1S and 22S are square forms of the deviations of variants ijy . It can

be proved that 2yS can became a sum of squares

1

1

2n

jjy with the rank not bigger than 1n .

21S is a sum of r liniar forms with the rank not bigger than 1r and 2

2S is the sum of n

liniar forms which fulfil r independent relations, what allows to obtain a rank not bigger rn . So,

the rank (the number of freedom degree s) of total variance is the sum of variances 21S and 2

2S , thatis:

rnrn 11 (20)

The rank or the number of freedom degree s emphasizes the number of independent elementsnecessary to define an ensemble. The number of freedom degree s is obtained, generally, bysubtraction from the number of elements con sidered simultaneous the number of condit ioned meansestablished for the population (for example, if for the calculus of total variation is taken intoconsideration only the general mean, for the residual variance are taken into consideration r groupmeans). [1], [4], [6]

By reporting the three variance ( 2yS , 2

1S , 22S ) to the number of freedom degree s proper with

each of them are obtained corrected variances ( 2is ) or estimations of variances (the general variance,

the variance between groups and the variance inside the group). On, to verify the signification ofgroup factor is computing the ratio between the corrected dispersion between groups (the factorialvariance) and the corrected dispersion inside of groups (the res idual variance).

Table no 2. The model of unifactorial analysis of variance

The type ofvariance

The variation (thesum of squares of

deviations)

The number offreedom degrees

The estimations ofvariances

(the correctedvariances)

computedF

A 1 2 3 4The factorial

variance(systematic or

between groups)

r

iii nyyS

1

221

1r1

212

1

r

Ss 2

2

21

s

sF

The residualvariance

(inside the groups)

r

i

n

jiij

i

yyS1 1

222

rn rn

Ss

222

2 -

The total variance

r

i

n

jij

i

yyS1 1

22

1n 1

22

n

Ss -

From presented elements result that the scheme of calculus for the model of unifactorialanalysis of variance with the date systematized on the base of simple group can be syntheticpresented as in the Table no. 2. For a level of signification , selected according to the number offreedom degrees 1r şi rn , is searching in the table of distribution Fischer -Snedecor , the value

rnrF ;1; named tabelar value. [3], [9]The interpretation is made like that:

- if between the computed value and value taken from the table exist the relatio n: rnrF ;1 >

rnrF ;1; , than the hypothesis that the resultant variable Y is significant dependent by the group

factor X is accepted;


209

- if between the computed value and the value taken from the table exist the relation

rnrF ;1 < rnrF ;1; , than the hypothesis that the resultant variable Y is independent from X is

accepted.Generally this type of model for analysis of variance is possible to be applied when for the

individual values of variable X was used a simple group of data and for the variable Y theindividual values were centralized conditioned by the group from which they ar e part, as distinctindividual values, the models being possible to be applied by two or more characteristics for whichwere elaborated bifactorial or multifactorial models of analysis of variance. Such kinds of modelsmust emphasize the separate influence of each factor about the factorial characteristic and therelationship between factors. [2], [8], [11]

THE BIFACTORIAL ANALYSIS OF VARIANCE

In the model of bifactorial analysis of variance the observed data are group by two variables.So, it is considered an experiment in which is followed the comparison of the effects of r differenttreatments. The total number of experiments is devided in p blocks of equal volums. Each block isdevided in r equal objects of experience about will be applied the r different treatments. The value

ijy obtained at the object of experience about which was applied the treatment i and which is

included in the block j is noted ijy . At the same time is supposed that the variants ijy areindependent and they have a normal distributi on. [13], [18]

From the obtained data it can be computed arithmetic means, using the formula:

p

jiji y

py

1

1 the mean for treatment i; (21)

r

iiji y

ry

1

1 the mean for block j; (22)

ij

ijyrp

y1 the general mean of selection. (23)

The total variation is decomposed in the variation determined by each of these two groupfactors and the variation determined by the re sidual factors. So, is valid the identity:

2222 ij

jiijj

ji

iij

ij yyyyyyryypyy (24)

or

321 SSSST (25)

where: 2 ij

ijT yyS ; 2

1 i

i yypS ; 22 j

j yyrS ; 23 ij

jiij yyyyS

The ranks of variances 321 ,,, SSSST are respective: 1rp ; 1r ; 1p ; 11 pr , from whereresults the equality:

11111 prprrp (26)


210

By dividing the variance at the number of freedom degrees we obtain the followingundisplaced dispersions: 2s , the general dispersion; 2

1s the dispersion for the factor „treatment”; 22s

the dispersion for the factor blocks; 23s the residual dispersion.

The interpretation of the results can be made using the test F, respective:

22

21

11;1s

sF prr is compared with 11;1, prrqF

and

23

22

11;1s

sF prp is compared with 11;1; prpqF .

The possible conclusions are that a significant i nfluence can have the both group factors(“treatments” and respective “blocks”), one single group factor or any of these factors to have asignificant influence.

By generalization, we can say that in the case of bifactorial analysis of variance theregistered data are grouped by two variable s A and B. So, are obtained r groups after one variable, pgroups after other variable and rp subgroups. [12], [18]

The scheme of bifactorial analysis of variance is presented in Table no. 3.

Table no 3. The model of bifactorial analysis of variance

The kind ofvariance

The sum of squaredeviation

(the variance)

The number offreedom degrees

The correctedvariance

Fcalculated

A 1 2 3 4Factorul A 2

1 j

i yypS 1r 21s 2

321 / ss

Factorul B 22 j

j yyrS 1p 22s 2

322 / ss

Reziduală 23 ij

jiij yyyyS 11 pr 2s 1

Total 2 ij

ijT yyS 1rp 2s -

In the practice are frequent the cases in which the data are presented under the form ofgroups, case in which intervene the frequencies and the calculus formulae are proper adapted tothese cases.

CONCLUSIONS

Near by the utility in the verification of the form and the degree of interdependence betweenvariables, the analysis of variance i s length used in the verification of the signification of the groupfactor, in the programming of the experiments with the aim to improve the performances of anindustrial, agricultural processes etc., the model having an increasing complexity as the groupbecomes more complex.

BIBLIOGRAPHY:

[1] Andrei, T., Stancu, S., Pele, D. T., Statistica. Teorie şi aplicaţii , Editura Economică,Bucureşti, 2002


211

[2] Anghelache, C., Statistică generală, Editura Economică, Bucureşti, 1999

[3] Anghelache, C., Statistică. Teorie şi aplicaţii, Editura Economică, Bucureşti, 1998

[4] Baron, T., Anghelache, C., Ţiţan, E., Statistică, Editura Economică, Bucureşti, 1996

[5] Baron, T., Biji, E. M., Tövissi, L., et al., Statistică teoretică şi economică , EdituraDidactică şi Pedagogică – R.A., Bucureşti, 1997

[6] Baron, T., Ţiţan, E., Matache, S., Ciuchiţă, L., Manual practic de statistică , EdituraExpert, Bucureşti, 1999

[7] Bădiţă, M., Baron, T., Korka, M., Curs de statistică, Editura Sylvi, Bucureşti, 1993

[8] Bădiţă, M., Baron, T., Korka, M., Statistica pentru afaceri , Editura Eficient, Bucureşti,1998

[9] Biji, M., Biji, E. M., Lilea, E., Anghelache, C., Tratat de statistică aplicată , EdituraEconomică, Bucureşti, 2002

[10] Biji, E. M., Lilea, E., Roşca, R. E., Vătui, M., Statistică aplicată în economie , EdituraUniversal Dalsi, Bucureşti, 2000

[11] Biji, E. M., Lilea, E. Voineagu, V., Statistică, Universitatea Creştină „DimitrieCantemir” Bucureşti, 1994

[12] Isaic-Maniu, Al., Mitruţ, C., Voineagu, V., Statistică, Editura Universitară, Bucureşti,2004

[13] Isaic-Maniu, Al., Mitruţ, C., Voineagu, V., Statistica pentru managementul afacerilor ,Editura Economică, Bucureşti, 1999

[14] Jaba, E., Statistică, Editura Economică, Bucureşti, 1998

[15] Keller, G., Warrack, B., Bartel, H., Statistics for Management and Economics. ASystematic Approach, Wadaworth Publishing Company, Belmont, California, 1988

[16] Levin, I., R., Statistics for management, Fourth Edition, Published by Prentice -Hall, Inc.,Englewood Cliffs, New Jersey, 1987

[17] Loftus, G. R., Loftus, F. E., Essence of Statistics, Second Edition, Published by Alfred A.Knopf, Inc., New York, 1988

[18] Roşca, R. E., Aplicarea analizei varianţei în studiul dependenţei modificării unuifenomen sau proces de condiţiile în care se desfăşoară. Partea I -Metodologia de bază deanaliză a varianţei , în volumul Conferinţei cu participare internaţională “Tehnomus”,Universitatea „Ştefan cel Mare” Suceava, 1997

[19] Roşca, R. E., Utilizarea metodei ANOVA în cercetarea statistică , în volumul Sesiuniiştiinţifice internaţionale „Economia românească -prezent şi perspective”, EdituraUniversităţii Suceava, 2002

[20] Ţarcă, M., Tratat de statistică aplicată , Editura Didactică şi Pedagogică R. A., Bucureşti,1998


212

ECONOMIC MODELS THAT LEAD TO LINIAR PROGRAMMING PROBLEMS

Lecturer Ph.D. Student Anamaria G. MACOVEI"Ştefan cel Mare" University Suceava , RomâniaFaculty of Economics and Public Administration

[email protected]

Abstract:In a modern market economy a manager for technical management of activities - economic prosperous must

know optimization theory alongside other modern techniques such as computer science, analysis system etc. Problemsoptimization helps us to determine an optimum solution if it exis ts. We observe that the correct formulation optimizationproblems is important. Linear programming is used to determine the best of resources to achieve a minimum c ost or amaximum benefit. In this article are presented some economic models that lead to problems of linear programming. Onthe basis of solving these problems lies Simplex method. The first step in solving such problems is mathematicalmodeling, namely respect for the general form of mathematical model.

Keywords: linear programming, depending end system restrictions, the general form of a linear programmingproblems.

I. GENERAL CONSIDERATIONS REGARDING THE PROBLEM OFOPTIMIZATION

The economic modelling - mathematically represented by a linear programming problemcontains a number of variables and parameters. Some of these variables are known, called variableentry, and others are unknown, called vari able output. Interconditions, links between systemcomponents restrictions transposing into the mathematical model of functional relationships,namely equations and / or inequations . The model is a mathematical function objective which linksvarious variables and measuring a specific performance.

The goal is to model variables determine output depending on variables entrance so that itmet performance criteria, that is to be resolved system. These problems with the conditions and alogical algorithm can deal with the computer.

Broad issues of a mathematical programming is:

1 2max / min , , , nf x x xK (1)

1 2, , , / / 0 , 1,i ng x x x i m K (2)

1 2, , ,t n

nX x x x D K ¡ (3)

where:- relationship (1) represents the objective function, efficiency or purpose and function depends onvariables decision;- relationship (2) represents the restrictions on the optimization problem expressed with decisionvariables and is composed of conditions t o be met when determining the values of variablesdecision.

A linear programming problem consists of two distinct parts:- a number of restrictions linear:

1 2, , , , 1,i n ig x x x b i r K

1 2, , , , 1,i n ig x x x b i r s K (4)

1 2, , , , 1,i n ig x x x b i s m K

0, 1,jx j n expressing the problem;

[email protected]


213

- a linear function, 1 2, , , nf x x xK , the objective of the problem, namely maximizing or

minimizing it.They say that we have a linear programming problem if all the f unctions gi of the system

restrictions (2) function and efficiency f are linear, and the variables xi first occur in power anddecision variables.

Starting from economic examples, will introduce the concept of linear programmingproblem which consists in finding an optimum functions under certain conditions. This problemmay occur under various forms, where the restrictions may be a lot f inished or not, or not borderedsolutions admissible. Therefore, plays an important role solutions basic admissible and optimalsolutions.

Linear programming available at present, a treatment unit and has applications in variousfields of science and social study economic phenomena. Linear programming is one of the maintools of economic analysis, as incorporated ideas Maximization, minimize or determination of apoint “şa”.

See that the mathematical models of economic problems associated presents somesimilarities, so they can be incorporated into a general model.

Broad a model of linear programming problem is:

1 21

min / max , , ,n

n j jj

f x x x c x

K (5)

1

1

1

, 1,

, 1,

, 1,

n

ij j ij

n

ij j ij

n

ij j ij

a x b i r

a x b i r s

a x b i s m

(6)

0, 1,jx j n (7)

where:- relationship (5) represents the objective function of efficiency or function end;- relationship (6) represents the restrictions on the optimization problem;- relationship (7) represents the nenegativity variables and ensure the achievement of a feasiblesolution in terms of economic logic.

In the Romanian economy in recent years several changes have occurred both on the social,political and economic. Economy represents a complex and dynamic system, so operators of small,medium and large are in a continuous adjustment to the requirements of market economy, where theneeds and desires of consumers for products and services are without limit. All these programs havea single purpose such as: a program produced by the big profits with little expense or in a shorttime.

To determine the minimum cost and maximum benefits will use optimization theory.Optimization theory is used if a causal relationship stoc hastic and consists inside set of methods thathelp us to take decisions occur when several factors influence. The main t heory that characterizeyourself are:

research systems that are organized influenced by various factors; rationalization decisions, when you know certain scientific data and analysis; the application of scientific methods that show the links of interdepend ence, and bring

them to a form of mathematics known when certain weights for each item or factor.This theory encompasses minimize problems and maximize.Examples will be presented to show three elements that characterize a model of linear

programming problem: a linear function in all the arguments to be minimized or maximized, a


214

system of restrictions linear format of equality or inequality not strict and conditions imposednenegativity model variables.

II. ECONOMIC MODELS THAT LEAD TO LINEAR PROGRAMMIN GPROBLEMS

II.1. The issue concerning the optimal allocation of tasks of production

In an enterprise, different departments may produce different with the same efficiencyproducts, besides subjective conditions that determine the effectiveness, May and a cting objectivefactors which the organization responsible for scientific production must take into account in ord erto achieve economic optimum. We will use notations following:

Ai - represents the products manufactured, 1,i m ;

Bj - represents producing polling, 1,j n ; aij – represents coefficients technological; cij - represents the price of a unit cost of product Ai made in section Bj; bi - represents the planned quantity of the product Ai; tj - represents working time available in department Bj, or the total number of workers, or the

total equipment available in department Bj etc.; xij - represents quantity of the product Ai what will be done in the department Bj, so that the

total expenditure to be minimal.To solve such a problem must to build first mathematical model of the problem of optimal

allocation of production tasks. Mathematical model is:

1 1

1

1

min

, 1,

, 1,

0, 1, , 1,

m n

ij iji j

n

ij ij

m

ij ij ji

ij

f x c x

x b i m

a x t j n

x i m j n

(8)

II.2. The issue regarding the use of rational investment

Suppose that for a particular branch of production know: S - represents the total amount that can be invested in various activities;

cj - represents the benefit provided by investment in business j, j =1, n ; S1 - represents the minimum amount to be consumed by activities 4,5,6; investment activity j = 1,2,3 must not exceed the amount of investment in the rest of the

activities; investment activity j = 2 , the lack of technical conditions, may not exceed p% of the total

activity.It is required to determine the amount xj to be invested in each activity, so that the amount

allocated to ensure the achievement of a total maximum benefit.To solve such a problem must to build first mathematical model of the probl em regarding the

use of rational investment. Mathematical model is:


215

1

1

4 5 6 1 1

1 2 34

2

max

,

,

100

0, 1,

n

j jj

n

jj

n

jj

j

f x c x

x S

x x x S S S

x x x x

p Sx

x j n

(9)

II.3. The problem of determining the structure plan production units design

Whether an enterprise in which different sub unities performing the same work with differentcosts and consumption of a different time, as a result of differentiation in terms of experience,equipping and technical material, preparing designers. Not ation:

Ai - represents the work of the design plan institution, i =1,m ;

Bj - represents subunit design, j = 1, n ; aij - coefficients technological means, representing the number of hours required to design a

performing works by Ai design subunit Bj; cij - represents the cost price of paper Ai done Bj ; bi - represents the amount of work planned Ai ; tj - represents the number of hours of design that has subunit design Bj; xij - represents part of the work Ai to be performed by Bj so that production costs are

minimal ( xij unknown).To solve such a problem must to build first mathematical model of the problem of

determining the structure plan production units design. Mathematical model is:

1 1

1

1

min

, 1,

, 1,

0, 1, , 1,

m n

ij iji j

n

ij ij

m

ij ij ji

ij

f x c x

x b i m

a x t j n

x i m j n

(10)

II.4. The issue on the sale of goods

Suppose that a business unit wants to set plans for sellin g a certain period of time. Theconditions under which the disposal are characterized below.

Pi - represents the type of merchandise i, i =1, n ;

ai - represents the lower limit of the plan of selling goods Pi during considered (i = 1, n );

bi - represents the upper limit of the plan of selling goods Pi during considered (i = 1, n );


216

ci - represents the benefit secured a unit of merchandise Pi expressed in currency units; di - means necessary storage space (warehouses, shelves etc.) for a unit of merchandise Pi; ti - represents the time required for the dissolution of a unit of merchandise Pi; d - represents the total capacity of the space, storage; t - represents the total sales of goods.

To solve such a problem must to build first mathematical model of the problem on the sale ofgoods. Notation xi represents the quantity of goods disposed of Pi for the benefit of total gross f isthe maximum. Mathematical model is:

1

1

1

max

, 1,

0, 1,

n

i ii

n

i ii

n

i ii

i i i

i

f x c x

d x d

t x t

a x b i n

x i n

(11)

II.5. The problem of storing the goods

Whether a wholesale commercial enterprise that handles the purchase and distribution ofgoods trade organizations subordinate. Assume that this undertaking is a number m of deposits they

note Dj ( j = 1,m ) and that is subordinate p commercial organizations noted Ck (k = 1, p ). Whether,as well:

Pi - represents sorts of goods i = 1, n ; aij - represents coefficients technological (area occupied by a unit of cargo Pi total capacity

of the store Dj );

bik - represents the quantity of goods Pi necessary trade organization Ck (i =1, n ; k = 1, p )

Cijk - represents a unit cost of transport of goods Pi (i = 1, n ) stored in the center Dj ( j =

1, m ) the trade organization Ck ( k = 1, p ) xijk - represents the quantity of goods Pi stored in the center Dj and transported to

commercial organization Ck.We want to determine the quantities xijk that transport costs are minimal.

To solve such a problem must to build first mathematical model of the problem of storing thegoods. Mathematical model is:

1 1 1

1 1

1

min

1, 1,

, 1, , 1,

0, 1, , 1, , 1,

pn m

ijk ijki j k

pn

ij ijki k

m

ijk ikj

ijk

f x C x

a x j m

x b i n k p

x i n j m k p

(12)


217

III. CONCLUSION

In a modern market economy where the complexity of human activity grows, managers of acompany, according to existing resources, in the attainment of a minimum cost of resources usedand also achieve a maximum benefit. Managers must also meet the proposed objectives, namelyperformance management, based on existing resources. Quantities optimal allocation of resources toachieve a minimum cost is one of the issues most important economy, which is based on linearprogramming. This will analyze a problem with a practical example, so the results can beinterpreted in terms of their practical and could be carried out an alyses of various sensitivityoptimal solution. In the same way you can solve other more complicated patterns similar to the oneshown.

BIBLIOGRAPHY

[1] Ciobanu, Gh., Ţigănescu, E., „Cercetări operaţionale cu aplicaţii în economie –Optimizări liniare”, Editura A.S.E, Bucureşti, 2002;

[2] Purcaru, I., „Matematici generale şi elemente de optimizare Teorie şi aplicaţii” , EdituraEconomică, Bucureşti, 2004;

[3] Ţigănescu, E., Mitruţ, D., „Bazele cercetării operaţionale” , Editura A.S.E, Bucureşti,2003.


218

ECONOMIC MODELING PROCESSES USING MATLAB

Lecturer Ph.D. Student Anamaria G. MACOVEI"Ştefan cel Mare" University Suceava, RomâniaFaculty of Economics and Public Administration

[email protected]. Ec. Ph.D. Student Sorin T. SIRETEAN

"Ştefan cel Mare" University Suceava, RomâniaFaculty of Mechanical Engineering, Mechatronics and Management

Abstract:To study economic phenomena and processes using mathem atical modeling, and to determine the approximate

solution to a problem we need to choose a method of calculation and a numerical computer program, namely thepackage of programs MatLab. Any economic process or phenomenon is a mathematical description of h is behavior,and thus draw up an economic and mathematical model that has the following stages: formulation of the problem, theanalysis process modeling, the production model and design verification, validation and implementation of the model.This article is presented an economic model and its modeling is using mathematical equations and software packageMatLab, which helps us approximation effective solution. As data entry is considered the net cost, the cost of direct andtotal cost and the link between them. I presented the basic formula for determining the total cost. Economic modelcalculations were made in MatLab software package and with graphic representation of its interpretation of the resultsachieved in terms of our specific problem.

Keywords: economic modeling, numerical modeling, the net cost, direct cost, the total cost, MatLab

1. INTRODUCTION

Economic processes and phenomena have a wide variety of forms. So, is characterized bythe fact that their expression is very complex due to many f actors which depends on the specificcontext.

The book's aims to contribute to deepening the economic process es and phenomena andsystematization knowledge related economic and numerical models that underpin them.Composition of economic and mathematical m odel is a very important and must be taken of the sixstages. On the basis of these types of problems is mathematical analysis, which helps us to elaborateefficient methods of approximation of the solution or solutions as appropriate.

We have a problem with some economic data entry and exit, and the link between total costand direct costs and the net is based on the MatLab software package. I made a program based onthe data that was saved under the name ec.m, and the graphical representation of the total cost andnet helps us determine the best solution.

2. ECONOMICS AND NUMERICS MODELS

Mathematical modeling is an effective tool used to study economic phenomena andprocesses necessary today in the scientific approach in almost all fields. Mathematical M odellingrepresent the description of the behavior of phenomena in a synthetic form, logical andmathematical formalized by surprise legations, and interdependences existing functionalities andsaw a remarkable development.

A research tool, indispensable to any scientific work is geometry. The computer is necessaryin the process of analyzing the data, forecasting activity in any mathematical modelling andprocessing of a large volume of information through the use of algorithms complexes underconditions of high precision. Data processing computer lead to an approximate solution.

Due to their table, economic phenomena and processes are characterized by:- Regularly- Stability.

[email protected]


219

Extent to which they carried out these phenomena make it possible formulation ofconclusions with high accuracy and significance of their movement in time and space.

Any phenomenon or economic process allows a mathematical description of his behavior,from an economic theory and for developing a mathematical model to economic take the followingsteps:

1. Formulation of the problem.2. The analysis process modeling.3. Realization model.4. Checking the model.5. Validation model.6. Implementation model.

Spectacular progress in the field of computers have influenced the development ofnumerical methods of calculation, namely the package of programs MatLab. Computers modernmachinery is available for different categories of users.

If we have an economic transposed mathematical problem, then using numerical analysiswill develop effective methods for appro ximation of the solution or solutions to this problem. Butbefore you solve a problem with economic aid numerical analysis we need a "q ualitative measure" aadjustment by meshing or iterative methods, after which, taking into account the theorems ofexistence and uniqueness of the solution, an algorithm that allow us to solve the problem with ourcomputer.

he method of calculating the number of programs MatLab package helps us determineapproximate solution of economic problems. The criteria underpinning of such methods are:

- precision results;- control errors;- consistency, stability and convergence method;- simple formulas for calculating etc.

3. MODELING ECONOMIC IN NATURE

Whether a company is n sections. To note with i the department:- Di – Direct cost,- Ti – the total cost,- Ni – the net cost.

We will use the following formula:

1

n

i i ji jjj i

T D P T

, 1,i n (1)

1 1

i n

ji j i ji j ij j i

P T T P T D

, 1,i n (2)

Direct link between cost and the total cost is:

1AT D T D A (3)

The link between cost and total net cost is:

i ii iN P T , 1,i n (4)

where


220

- Vector total cost is:1,

( )i i nT T

- Vector is a direct cost:1,

( )i i nD D

- Vector net cost is:1,

( )i i nN N

We believe a company with five sections: research, development, production, accountingand IT, know where the direct cost for each ward namely:

1 3D , 2 4D , 3 7D , 4 0,6D and 5 0,4D .

The link between direct cost and the total cost for the five sections is:

Table no. 1

1 2 3 4 51 0.7 0.3 0 0.2 0.32 0.3 0.6 0.3 0.3 0.33 0.2 0.3 0.8 0.3 0.24 0 0 0 0.2 0.45 0.1 0 0 0.1 0

Based on the theory we have:

1 10.7N T , 2 20.6N T , 3 30.8N T , 4 40.2N T , 5 0N .

To solve such a problem will use MatLab software packag e.Thus, with known data, using MatLab software package is th e economic problem were

introduced following data:

Figure no. 1

Since economic problem that the data were saved in MatLab as the ec.m, and if this problemget appeal:


221

Figure no. 2

Graphic representation of the total cost is:

Figure no. 3

And the graphical representation of the net cost is:


222

Figure no. 4

Finally, takes place interpretation of the results from the viewpoint that specific issue isresolved. It is noted that all costs are influenced best production, which reached the maximum leveland less than IT, which reached the minimum level.

4. CONCLUSION

The package of programs MatLab is a complex computer program which is based onmathematical modeling, and numerical calculation in which we can study economic phenomena andprocesses complex. Any economic process or phenom enon is a mathematical description of hisbehavior, and thus draw up an economic and mathematical model that has the following stages:formulation of the problem, the analysis process modeling, the production model and designverification, validation and implementation of the model . It presented an economic model and itsmodeling is using mathematical equations and software package MatLab, which helps usapproximation effective solution. Data entry is the net cost, the cost of direct and total cost and thelink between them. I presented the basic formula for determining the total cost. With the package ofprograms to perform calculations MatLab economic model and graphical representations from theviewpoint specific problem and notes that the production influences most costs.

BIBLIOGRAPHY

[1] Ghinea, M., Fireţeanu, V., „MATLAB, Calcul numeric, Grafică, Aplicaţii”, Editura Teora,2003;

[2] Purcaru, I, „Matematici generale şi elemente de optimizare”, Editura Economică, 2004.


223

SECTION 5

LAW AND PUBLIC ADMINISTRATION


224

COMPARATIVE ANALYSIS OF LOCAL FINANCIAL AUTONOMY IN THEEUROPEAN UNION COUNTRIES

Ph. D. Student Elena RUSU“Al. I. Cuza” University, Faculty of Economics and Business Administration, Iasi, Romania

[email protected]

Abstract:The comparative analysis of local financial autonomy in the European Union countries suggested there is no

universal model of local government finance applicable to all European Union countries. They each have their ownspecific needs and solution to raise the local financial autonomy. At the same time, local government must be in accordwith European Union legislation as European Charter of Local Self -Government and Maastricht Treaty.

For making the comparative analysis, it must be used univ ersal indicators as follows: local financial rate,local public revenues and local public expenditures in gross domestic product (GDP), local public investments , theevolution of local public expenditures, local public expenditures covered by local own rev enues, the level of localborrowing, etc.

Key words: local financial autonomy, European Union, local budget, own revenues, competences,expenditures

1. INTRODUCTION

Local authority financing is currently at the heart of the political debate. All the Cou ncil ofEurope’s member states are faced with the challenge of reconciling the need to control and reducepublic spending with greater financial autonomy in local government. They are accordingly seekingways of achieving an equitable distribution of finan cial resources among the different levels ofgovernment in a context of budgetary cutbacks at every level of public administration.

This study is primarily intended to provide the comparative analysis of local financialautonomy in the European Union count ries with the help of its relevant indicators and theestablishments of legislation limits.

The framework of this paper is based on a set of research programs and papers made bydifferent Romanian and foreign institutions as Council of Europe, Central and Local publicadministrations, Romanian Institute for Public Policies, DEXIA – France, Universities etc.

2. LEGISLATION LIMITS OF LOCAL FINANCIAL AUTONOMY

Legislation is a key factor in the process of implementation of local financial autonomy. Thecomparative analysis of local financial autonomy in the European Union countries suggested adiversity of national rules. However, Article 9 of the European Charter of Local Self -Governmentlists certain general principles concerning the financial resources of loc al authorities and Article 3proposes that local authorities should have the right to regulate and manage a substantial share ofpublic affairs. At the same time, fiscal policy has to be judged in the light of the Maastricht criteria[1], which say that candidates for the monetary union must – among other things – not run anexcessive deficit (a general government deficit of more than 3% of national gross domestic productand a general government debt of more than 60% of national gross domestic product). Wh ere localauthorities enjoy some degree of freedom in their fiscal policy and where their deficits or surplusesform a larger part of the deficit of the General State, the necessity of close coordination among thedifferent levels of the state will arise. This might, at least in some cases, the reduction of financialautonomy of local governments.

[email protected]


225

3. INDICATORS OF FINANCIAL AUTONOMY

a. Local financial autonomy rateFinancial autonomy rate of local public administration is determinate as own local revenues

in total local revenues:Local financial autonomy rate = (Own local revenues / Total local revenues) * 100

How bigger is this indicator, the local public administration demonstrate a high capacity togenerate revenues and the possibility to sustain its c ompetences.

17

45

5 5

33

50

10

43

57

23

31

14

2628

18

9

33

0

7

37

51

19 19

32

54

13

0

10

20

30

40

50

60

Austria

Belgium

Bulgary

Czech

Rep

ublic

Cyprus

Denmark

Estonia

Finlan

d

France

German

y

Greece

Hunga

ry

Irelan

dIta

lyLa

tvia

Lithu

ania

Luxe

mburg

Malta

Netherl

ands

Poland

Roman

ia (20

05)

Slovenia

Slovakia

Spain

Sweden

United

Kingdo

m

Figure no. 1: Local financial autonomy rate in EU countries in 2002 -2005 (%) Source: [2]

As data from the figure no.1 shows, in the period 2002 -2005, local financial autonomy rateis under 30% in majority of ex-communist countries (Bulgaria, Czech Republic, Estonia, Latvia,Lithuania, Slovenia, Hungary, Slovakia), and, also, in countries as Austria, Germany, Ireland,United Kingdom. The local financial autonomy rate between 30% and 50% is in Cyprus, Greece,Luxemburg, Poland, Portugal, Spain, and Finland.

The biggest rates of own revenues in total local revenues are in Finland (57%), followed bySweden (54%), Romania (51%) and Finland (50%). Romania has a high local financial autonomyrate because in local financial law is mentioned as own revenue of local budget the income tax rateshare.

Almost all countries have left it to local authorities to collect very small taxes, such as doglicence fees or entertainments tax. Very few counties have provision for genuine local taxes thatyield an appreciable amount and for full autonomy to collect them. In Romania, United Kingdomand France, the main taxes levied are the various forms of property tax. In most cases, the rates canbe determined either freely or within specified limits by the local authorities.

In a number of countries, e.g. France (taxe d’habitation) and the UK (council tax), citizens,who are responsible for a considerable proportion of the expenses incurred by the local authority,have had to pay a separate tax, owing to the limited possibilities of distinguishing between onepayer and another, only yields a relatively small amount or else provokes a great deal of resistance.


226

b. Local public revenues and local public expenditures in gr oss domestic product(GDP)

Important for to see how local public administrations can cover with their revenues the localpublic expenditures due of their exclusive, share or delegate competences, is to identify local publicrevenues and local public expend itures in gross domestic product (GDP) and the differencesbetween revenues and expenditures.

Any examination of local public expenditures and local public revenues in relation to GDPimmediately highlights significant discrepancies between the countries, partly due to their varyinglevel of decentralization and also to the varying financial weight of the responsibilities devolved tolocal public administrations tiers. As data table shows, the majority of European Union membershave deficit in the period mentioned, excepting Latvia, the Czech Republic (before being EuropeanUnion members) and Ireland and Sweden as member countries of European Union.

Table no. 1: Local public revenues and expenditures/GDP in 2001

No.

I

Country2005

II

Total local governmentrevenue

% of GDPIII

Total local governmentexpenditures

% of GDPIV III-IV

1 Austria 8 7,85 0.152 Belgium n.a. n.a. n.a3 Bulgaria n.a n.a. n.a4 Czech Republic 11,96 11,72 0.245 Cyprus 1,78 1,88 -0.16 Denmark 32,66 32,91 -0.257 Estonia n.a. n.a. n.a8 Finland 19,31 20,05 -0.749 France 10,94 11,05 -0.11

10 Germany 7,23 7,31 -0.0811 Greece 3,14 3,13 0.0112 Hungary n.a. n.a. n.a13 Ireland 7,01 6,85 0.1614 Italy 14,69 15,42 -0.7315 Latvia 9,69 9,69 016 Lithuania 8,08 8,13 -0.0517 Luxemburg 5,22 5,50 -0.2818 Malta 0,71 0,70 0.0119 Netherlands n.a n.a n.a20 Poland 13,33 13,54 -0.2121 Portugal 6,15 6,35 -0.222 Romania n.a n.a. n.a23 Slovenia n.a n.a. n.a24 Slovakia 6,76 6,96 -0.225 Spain 5,80 5,94 -01426 Sweden 25,55 25,03 0.5227 United Kingdom 13,04 13,23 -0.19

Source: [3]

c. Local Public Investments

In countries where territorial governments have extended responsibilities, investmentusually represents less than 10% of their budget as most of their e xpenditure relates to operationalcosts. This is the case in the three Nordic countries, as well as the United Kingdom, Lithuania andEstonia. Teaching personnel costs take up the lion’s share of the budget in the latter three, since


227

education represents 60% of local expenditure in Lithuania, 45% in Estonia and 38% in the UnitedKingdom.

In France, Malta and Greece investments represent more than 20% and in Cyprus,Luxembourg, Ireland and Portugal, investments represent more than 30% of local and regionalpublic expenditures. In these countries the scope of responsibilities falling to local and regionalauthorities is smaller and they focus on financing public infrastructure and utilities [4].

Local public investments expressed as percentage of GDP differs greatly from one countryto the other. On average, the local and regional public investment/GDP ratio is higher in the EU 15member states than in the new tem member states (see Figure no 2, secondary axis). However,Ireland and Check Republic have the hi ghest percentages of the local public investments (2.9 % and2.7%, respectively). The smallest values for the local public investments are observed for Malta(0.2%), Austria (0.5%), Belgium, Greece and Cyprus (0.7%).

The majority of new Member States have been implementing very dynamic investmentpolicies through the period 2000 -2005, showing a growth rate of +4.2% per year on averagecontrasting with +2.9% for the EU15.

Local and regional investment had negative growth in six countries, in particular Austr ia (-6.9%), Germany (-5,7%) and Portugal (-1.4%). Cuts were mostly linked to falling territorialgovernment income and to restrictive budgetary policies, which had an impact on investmentdecisions. This was the case in Portugal, which restrained municipal debt accumulation.

0

200

400

600

800

1000

1200

Ger

man

y

Aus

tria

Bel

gium

Den

mar

k

Spa

in

Fin

land

Fra

nce

Gre

ece

Irel

and

Italy

Luxe

mbo

urg

Net

herla

nds

Por

tuga

l

UK

Sw

eden

Cyp

rus

Est

onia

Hun

gary

Latv

ia

Lith

uani

a

Mal

ta

Pol

and

Cze

ch R

epub

lic

Slo

veni

a

Slo

vaki

a

EU

25 0

0,5

1

1,5

2

2,5

3

3,5

Local Public Investments (Euro/habitant) Local Public Investments (% of GDP)

Figure no. 2: Local public investments in EU countries in 2005 Source: [5]

In 2005, local and regional public investment was back on track, but at a slower pace of+1.4%, below the growth of GDP (+1.7%). Several countries experienced a significant rise ininvestment (sometimes spectacular at over +50%). This happened mostly in the EU10, whereinvestment progressed on average at +10.2%, in sharp contrast with a +0.8% growth for the EU15.

If we consider the level of the local public investments as percentage of the localexpenditures (see figure no. 3), the highest values are observed in Cyprus (33%), Luxemburg(31.8%), Portugal (31.2%), Malta (27.6%), and Greece (25.1%). In Denmark, local p ublicinvestments represent only 3.6% of the local expenditures.

In Latvia, investment increased due to more flexible borrowing protocols for territorialgovernments: an amendment to the budgetary law of 2005 raised the ceiling on local and regionalgovernment borrowing by 45%.


228

In Slovakia, the trend is also linked to municipal elections being held in December 2006.The same electoral cycle phenomenon is at work in almost all countries where local or regionalelections are due in 2006, for instance Belg ium (+24.6%), Greece (+18.2%), Poland (+17.2%) andSlovenia (+15.1%).

In Italy, investments were included in the expenditure budget for the first time in 2005. Thishad an immediate sobering effect: -9% to be compared with +8.3% in 2004.

In 2005, in Romania, the process of integration to the European Union imposed thedevelopment of local public investments as capital expenditures in local public budget.

01020

30405060

708090

Ger

man

y

Aus

tria

Bel

gium

Den

mar

k

Spa

in

Fin

land

Fra

nce

Gre

ece

Irel

and

Italy

Luxe

mbo

urg

Net

herla

nds

Por

tuga

l

UK

Sw

eden

Cyp

rus

Est

onia

Hun

gary

Latv

ia

Lith

uani

a

Mal

ta

Pol

and

Cze

ch

Slo

veni

a

Slo

vaki

a

EU

25

0

5

10

15

20

25

30

35

Local Public Investments (% of Public Investment) Local Public Investments (% of Local Expenditures)

Figure no. 3:Local public investments in EU countries in 2005Source: [5]

d. The evolution of local public expendituresMunicipal responsibilities have been extended and the impact is very strong because it has

significantly increased local government expenditure. The evolution in European local publicexpenditures was continuously positive through the period 1998 -2005 (see figure no. 4).

Local public expenditure growth is most dynamic in the new Member States of theEuropean Union, the EU 10 showing a growth rate of +5,3% in 2005 contrasting with +2,9% forthe EU 15.

A strong increase was in 2002 (+5,8%) following the transfers of responsibilities fromcentral government to autonomous communities in Spain and in 2003 in Ireland due to the positiveimpact of European structural funds (+13,5%).

The highest increase was witnessed in Slovakia (+25,7% on yearly average), wheremunicipalities and the new regions created in 2002 now finance most public infrastructure andservices (education, hospitals, social aid, public transport and roads).

The expenditures growth in the Czech Republic (+8,3%) is largely the consequence of atransfer of responsibilities to regions (created in 2000) and to municipalities (social aid, hospitals,retirement homes, culture).

In Estonia, education personnel management was transferred to munic ipalities in 2001,inducing a +21,3% rise that year, and an average growth rate of +7,5% per year over the 2000 -2005period.

Average annual growth rates ranged from 2,6% in Denmark to 3,8 in Finland in the period1998 – 2003. Finland and Sweden have witnessed steady growth in local and regional expenditureunder the influence of rising operating expenditure (especially personnel management, social aid,education and health).


229

In the United Kingdom, after a decade of continuous decline in local and regional s pending,then deemed excessive, a reversal of trends intervened in 1997. The UK is now strengthening itscollective infrastructure and services, thus raising territorial expenditure (+5,6 per year on average)with large investments in public services and e ducation, one of the main responsibilities of Britishterritorial authorities.

Evolution of local public expenditure was more moderate in Greece and Netherlands(+2,1% for both countries) as well as in Sweden (+1,4) and was negative in Austria (-0,2%),Germany (-3,2%) and Portugal (-1,9%) in 2003. This trend was quit new for Portugal and usmainly due the implementation of debt capping measures at local level in an attempt to reduce thenational budget deficit.

Figure no. 4: Evolution of local public expenditures in 2005Source: [4]

German territorial expenditures (Sub-national public finance in the European Union, Dexia,November 2006, p. 10) have rebounded in 2005 (+2,8%) after decreasing several years in a row.This is partly due to Hartz IV, a reform of the labor market which extended the municipalities’social responsibilities.

In Belgium, local public expenditures remained robust (in the region of 3,5% in value ofordinary expenditure) thanks to the good progression in local tax revenue and the significantincrease in regional to Wallon municipalities.

French local public expenditure has increased, exceeding 7% in value thanks to theadditional responsibilities handed over to local governments in several areas (man agement ofminimum insertion wage and professional training). The Acte II de la decentralization (August2004) launched a gradual transfer of State responsibilities and personnel to the regions and thedepartments from 2005 onwards: for instance, regions n ow monitor vocational training andapprenticeship and departments are in change of social aid. That law triggered a rise in localexpenditure by +3,3% in 2005.

The progression in local public expenditures in Sweden (in the region of +3% in value)resulted to a great extent from an increase in social welfare and medical spending.


230

In Italy, the growth of expenditures is more moderate because local public expenditures areaffected not only by continuing freeze on the tax rates for regional business tax and t he localsurcharge on national income tax but also by the capping of local expenditures set out the tagliaspese decree of July 2004 (Local finance in the European Union, Dexia, November 2004, p.7).

In Portugal, local public expenditures have recorded mod est growth due to the continuingrestrictions on local government borrowing in 2004.

A growing number of countries are involved in structural reforms which allow them tooutsource spending (through financial dealings with satellite bodies which do not appe ars as publicexpenditure), to private local public companies or to transfer certain public utilities – like waterservices, electricity or municipal waste – to the private sector (Austria, Belgium, Denmark,Germany, Portugal, Sweden, Spain).

4. CONCLUSION

The local financial autonomy represents an important issue in the global context ofeconomic development and a result of implementation of local autonomy principle anddecentralization process. The legislation of European Union and the evolution of Europ ean Unionsociety are oriented to raise the local financial autonomy.

There are differences between countries even the convergence criteria are applied to thestates and both to the state and to the local communities until the total economic integration, the laststep in the European Union integration process.

REFERENCES:

[1] Protocol No. 5 to the European Union Treaty, on the procedure concerning excessivedeficits, Article 1,

[2] World Local Authorities on www.almwla.org[3] Eurostat, date of 2001, n.a.= not available[4] Dexia, Sub-national public finance in the European Union (November 2006)[5] Dexia, L’Europe des 25, (Dexia Crédit Local, 2005)

BIBLIOGRAPHY:

[12] Bauer, Helfried; Rudorf, Christina, Local finance in Europe (An Overview 2000/2005,Centre for Public Administration Research, Innsbruck, 2006

[13] Dafflon , Bernard, Local Public Finance in Europe: Balancing the Budget andControlling Debt, Edwarrd Elgar Publishing Limited, UK, 2002

[14] Manole, Tatiana, Finanţe publice locale, Ed. Epigraf, Chişinău, 2003[15] Voinea, Gheorghe, Finanţe locale, Ed. Junimea, Iaşi, 2002[16] Voinea, Gheorghe, Managementul financiar al colectivităţilor locale , suport de curs[17] Report by Steering Committee on Local and Regional Democracy (CDLR) prepared with

the collaboration of Mr. Jean-François, Budgetary Procedures and Budget Managementat Local Authority Level, Council of Europe, 27-29 May, 2002

[18] ***Local Finance in the Fifteen Countries of the European Union , 2nd edition, DEXIA,June, 2002

[19] ***Local finance in the European Union, Dexia, November 2004, on www.dexia-clf.fr[20] *** Local finance in Europe, Council of Europe, 1997[21] ***Sub-national public finance in the European Union, Dexia, November 2006, on

www.dexia-clf.fr[22] *** World Local Authorities on www.almwla.org[23] ***European Charter of Local Self -Government

www.almwla.org

www.dexia-clf.fr

www.dexia-clf.fr

www.almwla.org


231

THE ROLE OF POLITICAL ADVISORS IN EUROPEAN UNION COUNTRIES

Lecturer Ph.D. Răzvan VIORESCU“Stefan cel Mare” University of Suceava, Romania

[email protected] Professor Ph.D. Diego VARELA PEDREIRA

University of A Coruna, [email protected]

Abstract:Political advisors are not an entirely new phenomenon in Europe an countries, but they have been adopted by

an increasing number of countries in recent decades, and in countries where they are well established, their numbershave tended to increase. This has led to debate about their purpose, their relationship to ministers and to the civilservice, their effectiveness, and the legal and ethical framework within which they should operate. This paper reviewsthese issues, and considers what lessons may be drawn.

Key Words: political advisor, civil service, public administration , european administrativeprinciples

1. DEFINING “POLITICAL ADVISORS”

Most European political systems also make provision for political advisors to members ofthe legislature, or at least to its leading members, or to its main political parties. Some co untries alsomake provision for political advisors in regional or municipal government.

Political advisors are best defined in relation to the two groups with whom they work mostclosely: ministers and civil servants. They are assistants to ministers, to whom they offer advice andsupport, usually of a political nature. Their appointment is essentially an “appointment of trust”,which is personal to the minister and lasts only as long as he holds office. Political advisors can bedistinguished from the min ister’s personal support staff (who in some countries are also non -civilservice appointments), who are responsible for schedule -keeping, logistical support and similarmatters. The distinctive function of political advisors is to offer advice.

Political advisors differ from regular civil servants in three crucial respects. First, since theyare personally nominated by the minister, they are exempt from the usual civil service entryrequirements (although sometimes they may previously have served as civil servants). Otherwise,there is rarely any qualification required for appointment as a political advisor. Ministers obviouslylook for people of competence, although it has to be said that considerations of political affiliationsometimes take precedence over this. Second, they stand outside the normal hierarchy of theministry. Usually they are responsible only to the minister and take their instructions from him/her.Third, they are exempt from the requirement imposed on civil servants to act with politica limpartiality; the whole point of a political ad visor is, precisely, that he can give politically loadedadvice that the minister cannot request of the civil service.

The legal position varies: in some countries, political advisors are treated as a speci alcategory of civil servant, whereas in others they are specifically excluded from the ambit of the civilservice law; in some their position is uncertain. Poland has extensive regulation, although there arevariations between ministries as far as the fun ctions of political advisors are concerned. In Swedenand the United Kingdom, political advisors are a clearly defined, separate category of publicemployees, but otherwise legislative provision is minimal. Strongly accepted “norms” have sufficedto make the innovation work — although in the United Kingdom in the past decade these normshave proved inadequate and are increasingly supplemented with quasi -legislative arrangements,such as a code of conduct and standard employment contracts. In Portugal and Sp ain, as the countrypapers in this publication show, the absence of legislation or norms clearly creates seriousdifficulties, and as a consequence Spain is moving towards regulation. In France, legislativerestrictions are frequently overridden by politic ally accepted norms of behaviour.

[email protected]

[email protected]


232

There are three possible models across the European countries: Political advisors working alongside a politically neutral civil service (Denmark,

Sweden, the United Kingdom): In this system the civil service is usually th e dominant element inadvising and supporting the minister, and the role of the political adviser is confined to offering aseparate stream of political counsel.

Political advisors working alongside a civil service of which the top tier is alsopoliticised: This creates a more muddled system, as the Spanish country paper shows.

Cabinets ministériels (France, Italy, until recently Belgium), consisting usually of amixed group of political advisors and civil servants on temporary secondment, who both advise t heminister and exercise strong control over the ministry in his/her name: In such systems there isusually some distance between the minister/ cabinet and the civil servants who make up theremainder of the ministry.

In all of the countries whose experienc e is reflected in this paper, three basic questions arisewhen considering the relationship between political advisors and civil servants.

First, whether the political advisor has the right to issue instructions to civil ser vants: Inmost countries, he does not, because (a) it would interfere in the civil service chain of command andaccountability and expose civil servants to pressures to breach their political neutrality; and (b) therole of an advisor is to advise — in this case specifically to advise t he minister — not to command.(Controversy recently arose in the United Kingdom over proposals to allow political advisors to“communicate” ministers’ instructions to civil servants, since there was a fear that political advisorsmight add their own gloss to those instructions.)

Second, whether a demarcation of functions between the two categories of staff is needed:Where the boundary is drawn between them is a secondary (although important) issue; the essentialrequirement is that there should be a bound ary that is understood and respected by both groups.(The author’s experience of working with eastern European countries is that a misunderstandingeach other’s role and the absence of such a boundary and working relationship usually lie at theheart of frictions between political advisors and civil servants).

Third, whether the two groups can develop a good working relationship that allows thecrossing of that boundary without compromising the role of either group: This applies particularlyto the role that each should play in policy formulation. In some countries, there is a tendency toconfine civil servants to a more legal and technical role; amongst the country studies that follow,that tendency comes out most clearly in the study from Portugal .

In a number of Eastern European countries this has been taken to an extreme, due to atendency to equate “policy” with “politics” and to exclude the civil service from both. This is not,on the whole, a constructive tendency. It causes the burden of policy -making to fall on a smallnumber of political advisors, who consequently become overburdened, while the civil service isunderused by being confined to tasks of administration and implementation.

2. RECRUITMENT AND ROLE OF POLITICAL ADVISORS

The rule in most European countries, however, seems to be that most ministers are allowedone, two or three advisors, with the common exception of the prime minister, who is often alloweda larger number. Regulations setting a limit on the number of advisors seem rare, al though thereasons vary greatly between countries. In the United Kingdom, the government resists theimposition of any limit, which has allowed an expansion to some 25 advisors in the PrimeMinister’s Office and 10 in the Ministry of Finance, although in m ost ministries only two advisorsremains the norm. In Denmark, on the contrary, the government has resisted recommendations froman external commission to set a limit of two or three advisors, since the government wants topreserve the existing limit of on e per minister. In cabinet systems the figures are much higher:limits exist in France and are routinely ignored. Spain has an oddly asymmetrical arrangement, withbetween 4 and 11 in most ministries, but 69 in the Prime Minister’s Office and 106 in the Mi nistryof Public Administration.


233

In reality, the main restriction on the number of advisors appears to be public tolerancerather than legislation. In Poland, criticism has led to restrictions, and in Spain and the UnitedKingdom it seems to have braked t he expansion of numbers. The number of political advisors canalso be affected by more general criticisms of the administrative system; attempted reforms inBelgium and Italy have been the consequence of public scandals over wider issues of administrativefailure or corruption.

By definition, a political advisor will be expected to have strong political affinities w ith theminister for whom he works. This does not necessarily mean that he must be a member of theminister’s party — although usually that is the case — but the advisor must be sufficiently in tunewith the minister’s views to ensure that the advice provided accords with the minister’s generalpolitical outlook and values.

The practice, occasionally encountered, of appointing a political adviso r from one party inthe coalition to “keep an eye” on a minister from another coalition party is inherently unstable andusually leads to tension and destructive dynamics.

Within these limitations, there are three main types of advisor: the expert, the ge neralist, andthe press aide. The experts are usually in the minority. They are recruited because of theirknowledge or experience of a particular issue of importance to the minister. They usually have arelevant professional background or academic special isation, and are often in the middle or at theend of their career. They will tend, within the ministry, to focus fairly narrowly on these areas,although they are commonly asked to “take an interest” in other areas as well. (In many countries ofEastern Europe, a common phenomenon in recent years has been a relatively high proportion ofexpert advisors, brought in to compensate to some extent for a deficiency of policy -making capacityin the evolving civil service).

Since the selection of political advisor s is personal to each minister, recruitment is oftenunsystematic and random, almost always undertaken through informal political contacts. It seems tobe rare for political parties to try to identify potential advisors for their ministers, although onoccasion a party employee may be suggested as a candidate. It is usually left to ministersthemselves and, one can assume, ministers prefer to keep control over their selection.

In some countries such a posting may form part of a longer -term political career; in Franceone or several spells as a ministerial advisor or cabinet member is a more or less essential stage inthe upward progress of a politician or senior civil servant, while in Great Britain a growingproportion of members of parliament and minister s have previously served as political advisors(including, at the time of writing, the Foreign Minister and the Leader of the Opposition). Being apolitical advisor seems to have become a profession only in cabinet systems, such as in France,where promotion to cabinet membership is effectively the main pass key to political promotion forcivil servants (see the section on cabinets below). In Belgium, until recent changes, studies showthat members of ministerial cabinets tended to remain in post longer tha n the ministers they served,becoming as a consequence a more durable influence on the policy areas in which they wereworking than the ministers themselves. Ireland shows a different variant on this pattern, where thedevelopment of funding for opposition parties has created a “revolving -door” pattern, in whichpolitical advisors whose ministers have lost an election take up party posts and then becomeministerial advisors again when electoral fortunes change.

3. COMPETENCES

Regulations governing the work of political advisors — where they exist — seem toconcentrate mainly on their formal legal status and line of accountability, and they do not often seekto define what the advisor will do. This definition of functions is left to the minister to determine. Inpractice, the following is a list of functions that a political advisor might be asked to undertake:

Relations with the party — with party officials, parliamentarians, regional andmunicipal councillors, party supporters, and possibly political par ties in other countries: Bydefinition, this is an area in which civil servants are usually prohibited from supporting the minister.


234

Relations with other ministers: Any effective government will have an efficientsystem for inter-ministerial co-ordination on policy-making and administrative issues, whichusually will be operated by civil servants. However, there will be party matters on which civilservants cannot work, and there may be issues of such political sensitivity that the minister willprefer to have them handled by someone he/she trusts very closely.

Advice on current issues: The minister will want to discuss, and have advice on,immediate pressing political issues — very often on something in that day’s media headlines.

Commentary on proposals prepared by civil servants in the ministry . Relations with the party’s supporters in the legislature: This function involves

briefing these supporters on the minister’s proposals and prompting them to make helpfulinterventions in debates or to ask the m inister favourable questions.

Helping the minister to prepare for public appearances — debates in parliament,appearances before committees of the legislature, major speeches or media interviews: Ministersfind this easier to do with someone they know wel l and trust politically.

Briefing the minister on government proposals outside his responsibilities: Theminister may attend meetings of the government or of ministerial committees in which some issueswill not affect the interests of his/her ministry but on which he/she may, as a member of thecollective government, wish to express an opinion. Since such an intervention is likely to bepolitical in nature, the minister is likely to turn to his/her political advisors for assistance.

Proposing their own new policy ideas or “working up” ideas by the minister for newinitiatives: Civil servants are often cautious and keen to protect their minister from treading oncontroversial ground. Political advisors, in contrast, can suggest ideas that civil servants migh tdismiss as outlandish.

Acting as informal emissary to outside groups: This task involves contacts withinfluential party supporters, pressure groups, friendly academic organisations or think tanks,business leaders or trade unionists.

4. RELATIONS WITH THE CIVIL SERVICE

As stated above, the roles of civil servants and political advisors and their assessment of agiven situation may differ; these differences, together with the perception by civil servants thatpolitical advisors have too prominent a rol e, may well be a source of tensions.

To some extent it is conditioned by the overall relationship between the politi cal class andthe civil service. The cabinet systems of France, Belgium and Italy, in which the cabinets have invarying degrees usurped the functions exercised in other countries by the senior civil service,contain the potential for similar frictions, although this varies between ministries, depending on themodus operandi of each cabinet. In Denmark, Spain, Sweden and the United Kingdom, w here thecivil service has long been accorded a significant policy/tactical role and where the function ofpolitical advisors has been more restricted, co -operation has been much easier. Indeed, the UnitedKingdom (as described in the study), since the gre at expansion of political advisors in the late1990s, gives an oddly mixed picture, with accounts of serious clashes between political advisorsand civil servants in some ministries and the simultaneous development of a much closer workingrelationship between the two, where they work together on the elaboration of policy proposals. Sucha relationship does not exist even in Sweden.

Potential difficulties in the relationship are legion. At one extreme — alleged in the Portugalstudy — but fairly rare is the illegal political interference in administrative decisions. Morecommon are difficulties rooted in a difference in outlook. Political advisors are usually moreinterested in short-term results, officials in long-term consequences. Political advisors are in ahurry; civil servants can afford to give more time to thought. Political advisors have an eye on theelectoral dimension, civil servants much less so. Political advisors are apt to be more innovative;civil servants are more cautious, partly by nature , partly because they have to live with theconsequences. In addition, beyond question, the introduction of political advisors into a system of


235

decision-making complicates the already complex process of getting a decision out of thegovernment machine.

Overall, however, civil servants in Europe seem to have become habituated to the idea ofpolitical advisors. Their appointment has not resulted in the politicisation of the civil service.(Indeed, although the number of OECD countries with political advisors has increased, and thenumber of political advisors in those countries has risen, a recent OECD survey suggests that inmost countries the trend has been towards less political control of the civil service. Politicaladvisors have not, on the whole, suppl anted civil servants as the main source of policy advice to theminister. As time has passed, they have become an accepted part of the system. It is true that theychallenge the monopoly of civil service advice to ministers. However, they are one of the nu merouschallenges that have arisen in recent decades to the supremacy of the traditional Weberian civilservice. The challenge to civil service monopoly of policy advice is paralleled by challenges to theadequacy of civil services in many areas, including economic management, service delivery and thebureaucracy’s management of itself. Challenge and contestability have become part of the toolkit ofpublic sector modernisation, and there is no reason for policy formulation to be exempt from thesepressures. Indeed, politicians seem to welcome and demand multiple channels of policy advice;political advisors are only one manifestation of this trend and, beyond question, they add to policyadvice a political dimension that civil servants are disqualified from offering. The more thoughtfulcivil servants realise that this added dimension strengthens rather than weakens policy -making (or,at least, increases ministers’ satisfaction with the policy -making process).

Second, the existence of political advisors can shield civil servants from demands to carryout party political tasks for ministers. In the absence of political advisors, ministers are likely to askcivil servants to assist them with issues that fall outside the civil service boundaries of neutrality,such as helping with preparations for a party meeting, drafting letters to party officials, or brokeringagreements between coalition parties. Political advisors were introduced in Denmark in the late1990s precisely because civil servants were being drawn quite deeply into political work. It wascommon, for example, for civil servants to attend political party meetings, and they were drawn intointer-party brokering on coalition issues. Pressure from the Folketing (the Danish Parliament) led tothe creation of a separate cadre of political advisors to undertake such duties.

More generally, the political advisor will obtain the best co -operation from the civil servicein just the same way as one gets the best co -operation from anyone: by politeness, professi onalismand consideration.

The political advisor who is arrogant or aggressive will simply alienate people whoseco-operation he needs. This is asking for trouble, since a civil service that wants to make anadvisor’s life difficult can do so, in defiance of the minister.

The foregoing seems to imply that success or failure in the relationship is largely in thehands of the political advisor. Beyond question, there is an equal obligation on civil servants towork collaboratively with political advisors, a nd the common experience across EU countries is thatcivil servants do co-operate (although there will always be a few awkward personalities who regardpolitical appointees as a personal affront). As a former British political advisor (who in his time hadclashed with civil servants) said in a parliamentary debate, “everything depends on the personality,expertise, strength and integrity of the political advisor and developing a healthy, honest,professional relationship with permanent officials and ministe rs”.

5. CONCLUSIONS

It is extremely difficult to assess the effectiveness of political advisors. Impact on policy isalways difficult to discern. There are occasions on which an advisor can point to a particulardecision and claim credit for a decisive influence, but these incidents are rare. More often, when thepolitical advisor thinks he has achieved something, he may find that he was pushing on a door thatwas already opening, or that his advice simply coincided with advice coming from elsewhere.Another possible measure of effectiveness is ministerial satisfaction. This is difficult to gauge, not


236

least because a minister is unlikely to admit publicly that he has made a bad appointment. Perhapsthe best indicator if success is survival. A high propor tion of innovations in the machinery ofgovernment do not last long. Political advisors, as a species, are a relatively recent innovation inmost countries and have usually endured where they have been tried.

BIBLIOGRAPHY:

[1] Ben-Gera, M. (2003), Co-ordination at the Centre of Government: the Functions andOrganisation of the Government Office - A Comparative Analysis of OECD, CEEC andBalkan Countries, Sigma, Paris.

[2] Ben-Gera, M and S. James (2004), A Comparative Analysis of Government Offices inOECD Countries, GOV/PCG/MPM/RD/(2004)1, OECD, Paris.

[3] Bigaut, C., Les Cabinets ministériels , Ed.LGDJ, Paris,1997[4] King, S. (2003), Regulating the Behaviour of Ministers, Special Advisers and Civil

Servants, University College London, London.[5] Service Public Fédéral — Personnel et Organisation (2004), Copernicus: au centre de

l’avenir, SPF, Brussels.[6] Sigma (1996), Civil Service Legislation Contents Checklist , Sigma Paper No. 5, Sigma-

OECD, Paris.[7] Sigma (1998), Management Challenges at the Cen tre of Government: Coalition

Situations and Government Transitions , Sigma Paper No. 22, Sigma-OECD, Paris.[8] Sigma (1999), European Principles for Public Administration , Sigma Paper No. 27,

Sigma-OECD, Paris.[9] Sigma (2007), Political Advisors and Civi l Servants in European Countries , Sigma

Paper No. 38, Sigma-OECD, Paris.


237

THE NATURE OF THE POLITICAL RESPONSIBILITY OF THE ADMINISTRATIONAND OF ITS MEMBERS

Lecturer PhD. Student Gabriela NEMŢOIThe Faculty of Economic Sciences and Public Administration

“Ştefan cel Mare” University of Suceava, [email protected]

Abstract:The political class which administers by applying the effective legislation is the esse ntial component which

must square up to guidance defined by means of integrity and political authority. As a right institution the responsibilityis broached of the sundries right branches, beginning with the civil right, penal etc. and ending with the co nstitutionalright. It must be conceived the fact that whatever guidance regardless if it’s liberated by a natural single person in acertain circumstance or of the exertion of a public service, it implies a dose of responsibility, a fact that leads toconversation, hypothesis or possibilities of argument as restricted juridical character as well as factual. The concept ofstate or organized society brakes out the responsibility mechanism on perpetrated guidance.

Key words: political nature, juridical nature, political responsibility, ministerial responsibility, politicalresponsibility, public authority

1. INTRODUCTION

The modern government involves the reaching of a system approachable, which is able torespond to all requirements that appear while functioning of law state. The concept of law state isconstituted in essence upon the form of government regime type, and the government form willimplicitly invoke representative elements, the political class that represents the nation’s interest.We have to understand by the government phenomenon that the representatives are submittedboth to political and juridical responsibility, towards the electorate.

With a view to the responsibility phenomenon, assigned to Government, to have authority,the Constitution represents the unanimous act, by which is stipulated about the politicalresponsibility existence, but only by existing also the possibility of penal responsibility.

As bodies with public character, the Government, the President, the People’s Lawye r,instituted by the Constitution adopted in December 1991 and reviewed in 2003, represents theessential factors that are determined by a juridical regime of the responsibility. In this sense, thetype of responsibility has to be in view, which will be fo und more efficient for each publicauthority. Therefore, a juridical responsibility can be managed, but also a political one, and alsothe liable responsibility can be brought into discussion, as concerns the Government members,that represent a political institution and also an individual responsibility of each member of thegovernment, having eminently a juridical nature.

As consequence, the presented paper tries to bring into first sight the responsibilityphenomenon, under all its manifestation criteria .

2. THE RESPONSIBILITY OF GOVERNMENT RULERS

The doctrine is not unitary in qualifying the political responsibility as a proble m whichappertains or not of the juridical. It is or not the political responsibility a form of juridical liabilities?Thus it is shown that “The idea of the Administration’s political liability is not foreign with the ideaof juridical liability, political liability, when we report to the public authorities, it doesn’t representnothing else but a form of juridical responsibili ty, public right institution, by this evoking thecollocation Constitutional right and Administrative right” [1],( Antonie Iorgovan, 1996).

Another author [2],( Cristian Ionescu,1999) was showing that the Parliament was exertionon the executive a control essential and exclusive political, the parliament control instruments andprocedures, as well as the subsequent applying sanctions, having as well a s exclusive political

[email protected]


238

character. How one of the control procedures is the one linked by the placement in d iscussion thepolitical liability, as the author shows, the exclus ion from the juridical responsibility field of theadministration’s and its members political liability in his opinion. The administr ation’s liability canbe identified by an open minded not ion as the ministerial responsibility, as it appears in theconception of the special ty literature. [3],( Dan Claudiu Danisor,2007) Thus in the subsequentcontext it can be specified that the administration’s responsibility in a strictly meaning it relegat esto the collective liability of the administration, and the ministerial liability, an individualresponsibility of every member which apperta ins to the collective organ and which is in anindependent position by the responsibility engagement of the other members.

The ministerial liability terminology eliminates the risks of the executive’s responsibilityconfusion in front of the legislative, with the administration’s liability. The ministerialresponsibility in considered as being a complement which app ears as a counterweight of thedissolution right. Thus as a consequence the two notions “the ministerial responsibility andadministration liability” do not function than in a compensation, their separate existence createsmalfunctions which lead to the co nstitutional equilibrium destruction. The ministerial or theadministration’s liability in the essence is a political liability, the political power is not exoneratedof giving account of its disclaimers and as a sequel it is put in the situation of undert aking theconsequences of these disclaimers.

In the display of motives in a pre -project of ministerial [4],( C. L. Popescu) responsibilitylaws it is shown that such a law must regulate both forms of juridical liability provided by theConstitution, that as the penal one as well as the political one, more accurate “constitutional –politic”, how is named by some specialty authors.

In spite of the juridical responsibility forms diversity, in the specialty literature regarding theright’s general theory identifies a series of principles which include conceptions or common notescharacteristic to all of the liability forms. [5], (N. Popa, I.Dogaru, Danisor, 2002).A muster takes us to the conclusion that the political responsibility does not situate itself in thegeneral model of the juridical liability, having a special nature.

The political responsibility has a special nature manifested by “the presumption existence ofthe incriminating fact”[6], which comes in contradiction with the innocence presumption pr incipleand with the fact that the sanction is purely political, consisting in the obligation which imposesupon the minister or upon the administration in its ensemble to withdraw if it loses the Parliamenttrust. The reports between the Parliament and th e Administration are reports of juridical andpolitical nature from where the idea that the Administration’s liability has a double nature, politicalbut at the same time a juridical nature [7], (Muraru I.,2003). Thus, although there are recognizedcertain juridical consequences of political liability it is specified the fact that in the moment it’s setin discussion the Administration’s and its members juridical liability, it is regarded the civil,administrative or penal responsibility, that is to say in a complex context the strictly juridicalresponsibility, with all the meanings.

The inter-war juridical doctrine made the distinction between the juridical and politicalliability, the distinction having as start the first one was advanced on the politica l game, withoutstipulating the necessity of encroaching a text o assertive right, as the juridical responsibility isdeveloping itself included in the civil right with consequences in the penal right, or with evaluationforms which directed to penal sanct ions.

Thus, Anibal Teodorescu identifies in the administrative right doctrine three points of viewregarding the qualification of the ministerial responsibility notion: pure political liability, penal andcivil liability. From this author’s point of view t he political responsibility is the one that the ministerattracts to himself when from a political point of view he made a mistake or he made something thatcan be considered a mistake or an illegal fact which implies to sanction applying. [8], (Dan Claudi uDanisor, 2007). In one opinion it is shown that the Administration’s members juridicalresponsibility has its constitutional frame in the article 114 instructions from chapter IV regardingthe Parliament’s reports with the administration from the III t itle of the Romanian Constitution [9]


239

(Mihai Constantinescu, Antonie Iorgovan, etc. 2004) The responsibility engagement of theAdministration represents a parliamentary procedure through which it reclaim the settlement ofurgent measures which are of the p arliament competence. In this case the Administration pursuitsthe adoption of a program of a penal political declaration with the support of the parliamentarymajority on which its established and in maximum rapidity.

For the liability commitment the admi nistration is submitted to the formulation and adoptionof the censorship motion, the fact is determining by the presentation of the program, of the generalpolitical declaration or of the law project in front of the Deputy and Senate room, in commonmeeting.

In case in which the administration does not succeed to realize its program of administeringand the legislative program, thanks to the fact that the parliamentary majority does not function orit’s not piecework with this function the institution we a llude to, which functions on the base of aadministering contract, it can dispose by the initiative of the unilateral denouncement. Thesesituations appear after determining a political conflict between the Administration and theparliamentary majority situation which is regulated by the traditional institution of the censorshipmotion.

In this context it can be argued about the Administration’s liability regarding the parliament,when the administration is consecrated as a public authority organism, but th e responsibility isendorsed and in the case when the administration is identified by administers as spokesmen of thepeople’s will.

The second situation is regulated by Romania’s Constitution 108 and 109 article, firstparagraph “The Administration pol itical answers only in front of the Parliament for its entireactivity. Every Administration’s member political answers is in accordance with the other membersfor the Administrations activity and for its acts.

The political liability concept hadn’t loom v ery easy. There have been authors like Frenchconstitutionalist J. Barthelemz which absolutely denied that we would be in the presence of aresponsibility form, then there were authors, including us, which sustain th at “the ministerialliability” includes a political form and a juridical form, and the last one being classified in penalliability and civil liability.

The political responsibility is invoked in the wrongful guidance case of the Administrationin its ensemble. The forms that generate the admin istration’s and it’s members politicalresponsibility are shades of the obligation of answering to questions interpellations, making reportsetc.

The Administration’s liability call must not be confused with the liability call of a partywhich can be administer dominating by the elective by voting the opposition parties, the situationitself in this context makes relegation and the power competence and has no bond with theadministration’s liability call. Also with a responsibility in front of the electi ve or in front of theParliament does not incubate the same desires regarding the administration’s responsibility in itsensemble of its members in case of doing wrong actions or contraventions.

The contravention regarding the political liability which the administration can receive isdismissal, pursuant to trust withdrawal, given at the investiture. The administration politicalanswers in front of the parliament, althoug h the state power are equal, thanks to the parliament’sdegree of representation, “the Romanian people supreme representative organ”. Each ministersituates himself in his activity in two conditions: Administration’s member and leader of the publiccenter organ administration, that is minister. Starting from this dissociation, an author [10 ], (V,Priscaru, 1996) shows that depending on the regarding situation, the minister will answer with oneform or the other of social liability: the political responsibility as the Administration’s member andthe juridical responsibility as a minister.

An argument in favor of sustaining the liability’s political character as the Administration’smember, it could be the Administration’s institution political character, which issues from itsparliamentary origin and from its dependence on the parliament acce pted program, the parliament


240

vote representing its trust as in the administering team, a s well in the program which it has to doduring the mandate.

The Administration’s political responsibility is a public right institution and when its set indiscussion by the parliament it can have at basis juridical motives, consisting in violating some rightprinciples and norms. Not least, the reality demonstrates that the political game is the true engine oflaying in discussion the Administration’s political liabili ty, and the right does nothing else but torecognize this institution, and not to create it. Besides it is the motive for which 113 article in theconstitution referring to the censorship motion has an exclusive procedural content, to regulate thecases in which the political responsibility to be engaged representing an initiative which overlooksthe political realities. The Constitution recognizing the political liability existence does nothing butthe regulate from a procedural point of view, in this man ner to limit as possible any possibility ofcommitting abuses for ensuring stability indemnities for the Administration. Thus it can be saidthat the Administration’s political liability is juridical only by procedure, from a substantial pointof view the situation in which is set in discussion not having necessary a juridical foundation.

The political responsibility, “although is established on the same principles as the penal orthe civil liability, that is to say on the fact that political power is k ept to give account for its actionsand to undertake their consequences this form of responsibility has a special nature distinct fromthe pure political, or moral and political [12],( Genoveva Vrabie,1993) engaged in front of thepeople or parties and based as it is known, on the idea of guilt of the one who answers.

On an Administration’s members dual responsibility formula it can be accepted the idea thatthese submit to a political liability and at the same time they can be absolved of the possibility of apenal responsibility known being the fact that the second type of liability can be initiated only in theDeputy Room, Senate and the President of Romania.

The penal responsibility of the Administration’s members is established only for the actionsdone by them while the public service. The penal pursuit is made by a special commission, with theRomanian President approval. Thus in the case in which the penal pursuit was asked, the Presidentof Romania can dispose the function suspension of that membe r of the Administration and thearraign is made by the High Court of Cassation and Justice. The condemned Administration’smember by a court of law decision will be dismissed by the President of Romania, at the firstminister proposal.

Nowadays the Administration dispose of the 115/1999 Law regarding the ministerialresponsibility, changed by the 253/2002 Law, normative deed which develops the ministerialresponsibility principle by distinct onset between Administration’s political liability entirely as aunitary trunk, as public authority organism and the responsibility of every single member,individually, for its own sanctions.

The ministerial responsibility implicates by the announced law the penal responsibility. Thelaw 253/2002, incriminates a series of facts which if are done by the Administration’s members intheir service exertion, constitute contraventions (for example The bad - faith of inaccurate datapresentation of the Parliament or Romanian President, the unjustified refuse of presenting to theDeputy Room, the Senate or to the permanent commissions of these the solicited information, thenormative orders issuance or discriminating character instructions etc.) {13], (Călinoiu Constanţa,Duculescu Victor, 2005).

As a consequence of those said the po litical responsibility nature, coordinates as theparliamentary representative guidance as power capitalization element, as well as the legal andmoral guidance towards the society, which is sanctioned by means of penal law.

Conceived in a generous frame the political liability can collaborate with many rightbranches, starting with the constitutional, penal, administrative work etc. right because it finds itselfin the entire activity displayed by the parliamentary as a public authority representative.


241

3. CONCLUSIONS

As a result of those argued above, the responsibility of the representatives is liberatedonly at the democratic point of view.

Therefore, in accordance to Constitution, the Government can assume the responsibilitytowards Lower House and Senate, reunited in common meeting over a program, of adeclaration of general policy or of a law project, but in accordance with this phenomenon, thepaper has in view the individual responsibility, of each member.

From the concise presentation, it will result that the Government rulers’ responsibility forthe facts related to mandate exercise, the Constitution gives precise solutions, without doubts.As concerns the responsibility of common law, for the facts that are not related to mandateexercise, the Constitution will offer immunity, without detailing.

NOTES:

[1] Antonie Iorgovan , Tratat de drept administrativ român.Partea generala. Ed. All, 1996,ed. a doua revazuta siadaugita, Editura, p. 501.[2] Cristian Ionescu – Institutii politice si drept constitutional , Ed. Fundatiei “România de mâine”, Bucuresti,1999, p. 285.[3] Dan Claudiu Dănişor, Drept constituţional şi instituţiile politice, vol. I. Teoria generală, Editura C.H.Beck,Bucureşti, 2007, p.468.[4] Idem, p. 469.[5] C.L. Popescu – art. citat, p.62.[6] N. Popa, I.Dogaru, Dănişor. Ghe. Dănişor. D.C. Filosofia drept ului,Marile Curente, Editura ALL Beck,Bucureşti, 2002. p.324.[7] Dan Claudiu Dănişor, Drept constituţional şi instituţiile politice, vol. I. Teoria generală, Editura C.H.Beck,Bucureşti, 2007, p.385.[8] Muraru.I, Drept constituţional şi instituţiile pol itice, vol.I, editura ALLBeck, Bucureşti, 2003.[9] Dan Claudiu Dănişor, op.cit., notă după Anibal Teodorescu.[10] Vezi Mihai Constantinescu, Antonie Iorgovan, Ioan Muraru, Elena Simina Tănăsescu, ConstituţiaRomâniei, revizuită – comentarii şi explicaţi i, Editura ALL Beck, 2004.[11] V. Priscaru, Tratat de drept administrativ român.Partea generala. Ed. All, 1996,ed. a doua revazuta şiadaugită, p.79.[12] Dan Claudiu Dănişor, op.cit.,p.385.[13] Genoveva Vrabie, Organizarea politico -etaticã a României,Ed. Cugetarea, Iasi, 1993, p. 302.

BIBLIOGRAPHY:

[1] Constituţia României revizuită[2] Mihai Constantinescu, Antonie Iorgovan, Ioan Muraru, Elena Simina Tănăsescu,

Constituţia României, revizuită – comentarii şi explicaţii, Editura ALL Beck, 2004.[3] Cristian Ionescu – Institutii politice si drept constitutional , Ed. Fundatiei “România de

mâine”, Bucuresti, 1999 .[4] Constanţa Călinoiu Victor Duculescu , Drept Constituţional şi instituţiile politice , ed.

Lumina Lex, 2005.[5] Antonie Iorgovan , Tratat de drept administrativ român.Partea generala . Ed. All,

1996,ed. a doua revazuta si adaugit ă.[6] Muraru.I, Drept constituţional şi instituţiile politice , vol.I, editura ALLBeck, Bucureşti,

2003.[7] N. Popa, I.Dogaru, Dănişor. Ghe. Dănişor. D.C. Filosofia dreptului, Marile Curente ,

Editura ALL Beck, Bucureşti, 2002.[8] V. Priscaru, Tratat de drept administrativ român.Partea generala . Ed. All, 1996,ed. a

doua revazuta şi adaugită[9] Genoveva Vrabie, Organizarea politico-etaticã a României,Ed. Cugetarea, Iasi, 1993.


242

Documents

ANNALS of Tourism 2008 Fulltext