Methodological Issues

TA STRONA NIE BĘDZIE DRUKOWANA

Management Science in Transition Period in Moldova and Poland Responsible Use of Resources

Management Science in Transition Period in Moldova and Poland Responsible Use of Resources

Scientific editors: Prof. Șișcan Zorina, Ph.D. Halina Łyszczarz, Ph.D. Krzysztof Machaczka, Ph.D.

Cracow – Chișinău 2014

Scientific editors: Associate Professor, Șișcan Zorina, Ph.D. Chair of Academy of Economic Studies of Moldova Halina Łyszczarz, Ph.D. Department of International Management, Cracow University of Economics Krzysztof Machaczka, Ph.D. Department of International Management, Cracow University of Economics

Cover design: Teresa Bubak-Mitela Publication coordination: Piotr Sedlak, M.Sc. Composition and typeset: Piotr Sedlak, M.Sc. Monika Sady, M.Sc. Dominika Guja, M.Sc.

© Copyright by International Management Foundation, Cracow University of Economics, Cracow 2014

Polish ISBN: 978-83-937642-1-1 Republic of Moldova ISBN: 978-9975-75-701-0

Print: Drukarnia GS sp. z o.o. 43 Zabłocie Street 30-701 Cracow Poland

Publication Editorial Committee Prof. Janusz Teczke, Ph.D. Head of Department of International Management, Cracow University of Economics Associate Professor Natalia Lobanov, Ph.D.hab International Economic Relations Chair of Academy of Economic Studies of Moldova Associate Professor, Zorina Șișcan, Ph.D. hab International Economic Relations Chair of Academy of Economic Studies of Moldova Piotr Buła, Ph.D. Department of International Management, Cracow University of Economics Associate Professor Pisaniuc Maia, Ph.D. International Economic Relations Chair, Academy of Economic Studies of Moldova Associate Professor Larisa Dodu-Gugea, Ph.D. International Economic Relations Chair of Academy of Economic Studies of Moldova Vlad Grosu, Ph.D. Vice-rector in matters of administration and management and Vice-rector for education part-time and continuing education, Academy of Economic Studies of Moldova Halina Łyszczarz, Ph.D. Department of International Management, Cracow University of Economics Krzysztof Machaczka, Ph.D. Department of International Management, Cracow University of Economics Agnieszka Żak, Ph.D. Department of International Management, Cracow University of Economics Piotr Sedlak, M.Sc. Department of International Management, Cracow University of Economics

Scientific reviewers Corresponding member Prof. Dumitru Moldovanu, Ph.D. hab. Prof. Moldovanu Gheorghe, Ph.D. hab. Associate Professor Guțu Corneliu, Ph.D Prof. Ala Cotelnic, Ph.D. Prof. Boris Chistruga, Ph.D. hab.

Management Science in Transition Period in Moldova and Poland: Responsible Use of Resources

Contents Chapter 1: Business and Responsibility Boards of Directors in Creating and Implementing Company’s Strategy. A Literature Review and Practice

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Prof. Jan Jeżak, Ph.D.

Family Business Research – Methodological Issues

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Prof. Łukasz Sułkowski, Ph.D.

Managerial Competence as a Factor in Early Internationalization of Small and Medium-Sized Enterprises.

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Prof. Renata Oczkowska, Ph.D.

Corporate Social Responsibility Between Reality and Perceptions: Case study of Republic of Moldova

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Associate Professor Pisaniuc Maia, Ph.D.

The Influence of Corporate Social Responsibility on Employees’ Job Satisfaction

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Piotr Sedlak, M.Sc.

The Role of Logistics Social Responsibility in Gaining Competitive Advantage in Business

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Dominika Guja, M.Sc. Monika Sady, M.Sc.

Evolution and Role of the Competition Policy in the Establishment of a Business Competitive Environment

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Associate Professor Dodu-Gugea Larisa Ph.D., Associate Professor Stihi Ludmila, Ph.D.,

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Chapter 2: People and Resources Key Resources Management in Polish Enterprises of the SME sector

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Prof. Agnieszka Sopińska, Ph.D. Piotr Wachowiak, Ph.D.

The New, Human Face of the Marketing Science and Practice

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Melnic Igor, Ph.D., Associate Professor Rapcea Vitalie, Senior Lecturer

Changes in the Capital Segment Resources Management of the Pension System in Poland as one of the Methods of Budget Deficit Reduction

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Prof. Wanda Sułkowska, Ph.D.

The Impact of Informatization upon the Management of Touristic Services

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Irina Roitman, Ph.D. Candidate

The Role of Location Advantages for Transnational Corporations

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Chisca Maria, Univ.Lect.

Financial Outlays for the Protection of the Natural Environment in Poland within 2000-2012

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Prof. Kazimierz Górka, Ph. D. Agnieszka Thier, M.Sc.

Employer with a Human Face – Good Practices in HRM

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Agnieszka Żak, Ph.D.

Adjustment of Polish Enterprises to the Knowledge Based Economy. Some Results of Research Prof. Stefan Trzcieliński, Ph.D. Joanna Kałkowska, Ph.D. Edmund Pawłowski, Ph.D. Hanna Włodarkiewicz-Klimek, Ph.D.

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Energy Triangle Concept as a Solution to Overcome the Issues of Energy Security

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Prof. Chistruga Boris, Ph.D. Simonov Dumitru, Ph.D.

Foreign Trade in Goods and Services of the Republic of Moldova in the Period of Crisis and Post-crisis

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Larisa Dodu-Gugea Ass. prof., Ph.D. Popa Marina, Senior Lecturer,

Storytelling as a CSR Instrument

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Halina Łyszczarz, Ph. D.

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Preface Social breakthrough of 90s of the last century in Europe began the transformation processes of enormous impact on all areas of civilization and technology. The change with different intensity and dynamics appeared in all the countries of the former socialist bloc. Cultural issues, the degree of integration within the economic system of the Soviet system were and still are important factors for accelerated transformation. In these processes one have to consider the role of impact on the environment and the accompanying feedback. Social systems are characterized by a high degree of inertia and very rarely we can see immediate response for change. It means that as long as it is possible despite change of inputs there is lack of responsiveness of the system and output remain unchanged. The system accumulates economic and social change and is creating a hysteresis effect, the end result is an extremely violent reaction, even when the impact factors do not change, or the changes are marginal. The phenomenon of discontinuation appears. It can be argued that in the case of Polish we are in discontinuation period, while in Moldova the hysteresis is present. The individual parts of the study refer to the description of different aspects of these changes with an attempt to find the structural features of these changes and analysis its’ socio-economic impact. In the first volume the essential two parts deal with the fact the era of destabilization. In this section, we have distinguish separate research areas considered as the change agent and accompanying to this change processes of destabilization. As the systemic result we considered the adaptability of processes and organizational structures. Included in these parts scientific research touch the areas of economics, management, finance and social psychology. The prospect of research is both methodological and cognitive. It is focused mostly on the countries of Poland and Moldova. The second volume is a perspective of responsibility perceived as a cause and consequence. It included research in the areas of use of existing resources, both material and immaterial. This part of the study similarly refers to the analyzed countries, but also addressed methodological as well as functional issues. 9

The kindness of Magnificence Rector of the Cracow University of Economics Prof. Dr. hab. Eng. Andrzej Chochół and the Magnificence Rector of Academy of Economic Studies of Moldova in Chisinau Prof. Dr. hab. Grigore Belostecinic was a significant help in the preparation of studies. On behalf of the authors I would like to thank for this support. I would like to thank also the whole Editorial Committee of the first volume: Piotr Buła, Ph.D., Vlad Grosu, Ph.D. and the second volume Associate Professor, Zorina Șișcan, Ph.D. hab, Halina Łyszczarz, Ph.D. and Krzysztof Machaczka, Ph.D. who arrangement contained in the publications texts and fulfilled the function of editors. The final shape of the work is the result of the involvement of the employees of the Chair of International Management, Piotr Sedlak M.Sc., who patiently took care to unify the shape of the book and was responsible for typeset. To Monika Sady M.Sc. and Dominika Guja M.Sc. who were proofreading evaluated translation.

On behalf of the Editorial Committee Janusz Teczke Janusz Teczke Scientific editors

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Chapter 1 Business and Responsibility

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Chapter 1: Business and Responsibility

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Boards of Directors in Creating and Implementing Company’s Strategy. A Literature Review and Practice Prof. Jan Jeżak University of Lodz

Abstract The globalization and liberalization of financial markets, corporate governance scandals, and stronger demands for accountability and transparency have created a movement towards more strategic involvement of boards of directors and the board contribution to the strategic decision making. However, according to research conducted by Stiles (2001), Anderson, Melanson & Maly (2007) and Du, Deloof & Jorissen (2011), most boards are still not directly involved in formulating company strategy. Also Polish supervisory boards (the German model), investigated by the author of this paper, primarily perform monitoring and control functions, though their members believe that they should be advisory and initiating bodies as well. The objective of this paper is to provide an overview of the ongoing academic discussion on the role of boards of directors (supervisory boards) in the strategic management processes. In its initial part, the article looks at the evolution of opinions on this subject in world literature and demonstrates the latest research findings. This is followed by a presentation of the results of empirical studies conducted in Polish public companies in 2005 and 2013 – the author’s own research. At the end, key conclusions of the analysis are summarized. Introduction Through the last few decades, corporate governance systems have undergone substantial changes worldwide. A growing role of institutional shareholders, followed by increased pressure from investors to considerably strengthen the authority of ownership control bodies in companies: boards of directors (the Anglo-Saxon model) and supervisory boards (the German model), respectively. Active investors decided that passive boards were unable to satisfy their expectations in terms of control and monitoring and that more strategic involvement was needed on their part. 15


The objective of this paper is to provide an overview of the world-wide discussion on the role of boards of directors in the strategic management processes. The first part outlines the evolution of the boards’ role in companies over the last four decades. The second one presents the latest studies in this field, including the author’s own research, along with key conclusions and their implications for future studies of this kind. The main thesis of the paper is the need to create a new model of the board, playing a more active role in the strategic management processes.

Theoretical plularism in the board-strategy debate The problem of control over managerial behavior first appeared in academic research and debates in the early 1930s. It was then that two prominent American scholars, Alfred Berle and Gardiner Means, (1932) formulated, a famous thesis of separating ownership from control of a corporation, which, to all intents and purposes, separates owners from influencing their companies’ performance and allows managers to pursue their own goals. The first extensive research project in this field, conducted after World War II pointed out that boards of directors were ineffective as control structures, because they had been dominated by managers (Mace, 1971, 1976). Managers not only control the selection process, but also establish remuneration policies for board members. Furthermore, with their internal knowledge of the company’s operations, managers have considerable information and expert advantage, while board members face the challenges of limited time and scarce technical and organizational resources needed to perform their control functions. These facts were confirmed e.g. by such researchers as Pfeffer (1972: 218-229), Mizruchi (1983: 426-435), Patton & Baker (1987:10-14), as well as Lorsch and MacIver (1989). They all agreed that most boards of directors were but a “rubber stamp” for managerial decisions, serving only to formally legitimize their strategic choices. It must be added, however, that back in the 1970s and 80s, such opinions were not the only standpoint available. Numerous authors, particularly the creators of the agency theory, maintained that boards of directors were equipped – in legal terms – with sufficient instruments to effectively control managerial work. The role of the board is indeed reduced, for the most part, to evaluating managers’ performance and, if necessary, their replacement (Jensen & Meckling, 1976: 305360; Eisenhardt, 1989: 57-74). A growing theoretical debate was boosted by Fama and Jensen’s work (1983: 301-325) in which they distinguished between decision management (i.e., initiating and implementing strategic decisions) and decision control (i.e., ratifying and monitoring strategic activities). The two tasks were ascribed to the top management and the board of directors respectively.

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This brief review of the development of research into corporate control bodies indicates that in the 1970s and 1980s there emerged two opposing standpoints and research approaches. The first, based on the thesis that boards of directors are not only control bodies but also decision-making and advisory ones, and the second, resting on the assumption – the antithesis – that the role of boards of directors or supervisory boards is reduced exclusively to their control function, for which they have sufficient legal instruments. If they fail or are unable to perform their control duties, it is mostly their own fault. Instead, others have argued that board of directors are legally responsible for the strategy of firms and that boards are in an excellent position to contribute to strategy (Harrison, 1987: 109-126; Goodstein, Gautam, and Boeker, 1994: 241-250; Carpenter and Westphal, 2001: 639-660; Yawson, 2006: 7585). The 1990s saw a growing role of institutional investors in corporations and increased pressure from investment and consulting specialists on boards to be more active. If in the previous decades their passiveness was tolerated, the last decade of the 20th century was a time of much higher expectations. It was suggested that their role could no longer be reduced to the monitoring or control functions alone, but that they should be more involved in strategic decision-making and, consequently, challenge the strategic leadership gained by managers (Judge & Zeithaml, 1992: 766-794; Hoskisson, Hitt, Johnson, and Grossman, 2002: 697-716). In the end of 1990s (and in the first decade of XXI century), a thesis developed that a more active involvement of the board is a necessary prerequisite for an increased efficiency both of the board itself and of top management. A combination of a truly involved board and truly involved top executives ensures successful strategic management. Active boards not only increase their power inside corporations, but, first and foremost, contribute to the improved quality of strategic decisions made by the company (Rindova, 1999: 953-975). Moreover, empirical studies show that board capital such as directors’ expertise, experience, knowledge, and relationships with society is positively associated with firm performance (Carpenter & Westphal, 2001: 639-660; Hillman & Dalziel, 2003: 383-396; Huse, Minichilli, and Shoning, 2005: 285-297; Kim, Canella, 2008: 282-293). Most researchers studying theoretical and practical aspects of boards of directors’ participation in shaping their companies’ future point to a number of factors determining the effectiveness of this involvement. These include, first and foremost, boards’ independence, both of managers and of individual shareholders. What guarantees this independence is, according to many scholars, a suitable composition of the boards, particularly a proper ratio of inside to outside directors. The results of numerous empirical studies indicate that independent boards are more effective in monitoring managers. Boards dominated by outside directors are more focused on the long-run maximization of shareholder wealth and, consequently, they press for innovation as a long-term company strategy. On the other hand, boards dominated by inside directors are more likely to yield to risk reduction strategies favored by managers, such as diversification strategies (Hill and Snell, 1989: 577-590). 17


According to other experts, the following factors are crucial for the board’s effectiveness: the quality and comprehensiveness of information passed by the company management, the size of the board (boards of several and more members are regarded as rather inefficient), frequency and regularity of the meetings held and mutual trust and openness between the board and top executives. Rindova (1995: 953-975) pointed out that in order to increase the benefits of the board’s participation in strategic management, its members should be present at all stages of the strategic decision-making process, such as environment scanning, interpreting and analyzing the company situation and strategic choice. Forbes & Miliken (1999: 489-505), in turn, indicate the need to treat the board as a “strategic decision-making group” and stress the cohesion requirement in the board’s operations, understood as the ability of board members to work as a team. These conclussions have stimulated boards of directors to challenge CEOs, and to become more involved in strategy, an area that in the past was exclusively controlled by CEOs (Ruigrok, Peck, and Keller, 2006: 1201-1226; Monks and Minow, 2008; Pugliese, Bezemer, Zattoni, Hus, Van den Bosh and Volberda, 2009: 292-306). When discussing the board’s influence on a company’s strategy, it has to be emphasized that the decisions in question are only those concerning the company as a whole. For in strategic management there is a clear distinction between company strategy and business strategy. Company strategy defines the scope of company activity, that is, the industries and markets where the company intends to compete. Thus, company strategy is a set of investment decisions including diversification, vertical integration, mergers and acquisitions, new ventures, as well as decisions pertaining to allocation of resources among the company’s various businesses and their potential liquidation. In contrast, business strategy defines the way in which a company competes in particular areas of its activity, that is, its chosen industries or markets. Since competition typically requires gaining competitive advantage over one’s rivals, business strategy is often referred to as competitive strategy. The difference between company strategy and business strategy has yet another explanation: company strategy deals with the question of how a company intends to earn its money, meaning, what kind of business (industry) it should operate in. Business strategy, in turn, concerns the question of how management teams of particular businesses intend to build or maintain their competitive advantage (see Figure 1).

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Figure 1. Two basic levels of strategy within an enterprise INDUSTRY ATTRACTIVENESS

RATE OF RETURN ABOVE THE COST OF CAPITAL

CORPORATE STRATEGY

Which industries should we be in?

COMPETITIVE ADVANTAGE

How do we make money?

How should we compete?

BUSINESS STRATEGY

Source: Grant, 2003:23.

This is the pattern of major objectives or goals, the essential policies or plans for achieving those goals. Every strategy is developed by a consideration of the resources of the organization in relation to its environment, the prime purpose being to add value. The added value is then distributed among the stakeholders (Lynch, 2000: 7-30). Needless to say, corporate strategy is a permanent function and a fundamental choice of top executives and the board. In line with such point of the present discussion it is important to notice that corporate ROIC (return on invested capital) indices differ not only with regard to the industry where a given company operates, but even more strikingly inside particular industries and areas of activity. In the field of software development and industrial services, for example, in the years 1963-2004, the median value of the ROIC index for American public companies hovered around 18%, but the difference between the minimum and maximum levels recorded reached as much as 31% (Jiang & Koller, 2006: 14-15). This fact proves the huge importance of corporate strategy for a company’s market position and financial success. As a body that approves a strategy, the board has to be aware of the special role that strategy plays in ensuring a company’s long-term effectiveness. Strategic thinking alone, based on adaptability and exploiting business opportunities as they arise, is not enough to achieve this goal. As Dobbs, Leslie & Mendonca (2005: 6571) rightly suggest, what is needed is a package of new initiatives, mainly on the part of company management, regarding new products or services, new markets and new processes creating added value to customers. When analyzing the proposed options, 19


however, the board cannot overlook potential dangers posed by excessive optimism and aversion to risk, typical managerial qualities. For a manager’s own vested interest is not always in line with the best interest of the company (the principalagent problem); on occasion, managers deliberately resort to distortions, half-truths, or even plain lies in order to force through their “only valid” proposals (Lovallo & Sibony, 2006: 19-29). Remarkable insight and thoroughness are also qualities the board needs at the control stage of strategy implementation. The volatility of share prices of numerous companies (and often whole sectors) over the past decade has forced managers, investors and the boards themselves to rethink and reformulate their existing corporate performance measurement systems. Financial results alone, e.g. revenues or rising share prices, can no longer be synonymous with a company’s health. An equally significant measure of a company’s condition and its development prospects are non-financial indicators, such as product development, customer satisfaction levels, internal talent development, the quality of motivation systems (an attractive employer), liaison with suppliers, an open dialog with key stakeholders, etc. Only a combination of financial and non-financial indicators can provide a proper basis for the board’s assessment of the company’s health. This approach, popularized in the early 1990s by Kaplan & Norton (1992: 71-79) as the Balanced Scorecard, is currently considered a benchmark for measuring and evaluating company performance as well as monitoring strategic management processes. It includes the demand to balance short-term and long-term views on the process of creating shareholder value and obliges the board to assess the company’s ability to create economic value added in the future (Dobbs and Koller, 2005: 17-27). What this signifies is primarily recognition and assessment of the risks which may threaten the process of creating this value. Are boards of directors capable of satisfying such high expectations? Do they have a sufficient status and adequate instruments of power in corporations? According to Stiles (2001: 627-650), both the formal-legal power and the actual power of boards are limited. This limitation is mainly due to the fact that the main center of organizational power in American, Japanese, or European companies is their top management. Traditionally, top executives – the CEO in particular – not only wield considerable structural power, but also have a strong position and prestige of prominent experts in company affairs. The strong internal position and experts’ prestige enhance the power of top executives not only in their relations with staff, but also with the company’s supervisory bodies and owners. Thus, from a formal point of view, the power of boards to influence strategic decisions of corporations seems largely symbolic. The above observation is mostly true, but not entirely. After all, as corporate control bodies, boards of directors or supervisory boards are not devoid of attributes of power, be it only in the formal-legal sense. Elected or appointed by shareholders, they have a legal obligation to control the corporate capital management process.

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This type of permanent authorization granted by shareholders forces boards to perform at least four functions: – ensuring that a company achieves long-term market and financial success through a critical acceptance of its mission, objectives and strategies, as well as programs and projects leading to the implementation of these strategies; – analyzing and assessing periodic financial statements as well as overseeing the process of making them available to all shareholders and stakeholders; – selecting and employing qualified managers – members of top management – and establishing suitable remuneration policies; – on a periodic basis, assessing the quality of top management’s performance in terms of implementing the approved visions of company development. A question remains about the extent to which boards use the instruments of power at their disposal and why they are often regarded not as decision-making, but rather as decision-taking institutions. Strategic management specialists maintain that the role of the board of directors or the supervisory board should be a critical assessment of draft strategic decisions proposed by top management and their official approval (Thompson, Jr. & Strickland, III, 1998: 22; Hillman, Withers & Collins, 2009: 1404-1427). Unfortunately, in reality there may not be enough room for such constructive criticism, the fault lying with the boards themselves and top executives alike. Undoubtedly, very often top management manipulates the presented proposals, using the tactic of providing the board with information which is incomplete, too general, overly optimistic, e.g. deprived of detailed cost simulations or potential negative consequences. This tactic would require, as Luffman et al. (1996: 11) rightly observe, further meetings and analyses within the board, usually impossible due to time constraints. The boards themselves are not entirely blameless, either, since their members, in particular so-called outside directors, do not always have a specialist business background in the relevant field. Moreover, boards of directors hold relatively few meetings (in the AngloSaxon system typically once a month, in the German model less frequently). Hence, for organizational reasons, they are unable to conduct a detailed analysis of the proposed strategic decisions. Still, according to Thompson, Jr. & Strickland, III (1998: 22-23), the role of boards should not therefore be underestimated, either. After all, their key responsibility is a systematic assessment of the quality of the company’s strategic management, not participation in choosing the right strategic options and in implementing them effectively. The above-mentioned view indicates, in my opinion, a minimalist approach towards the role of boards and succumbing to the existing stereotypes. Admittedly, the boards themselves are not without fault and they often fail to use their prerogatives; on the other hand, perpetuating the traditional corporate system based on the assumption that the knowledge and power of the CEO and a few of his deputies are sufficient guarantees of the company’s success can be dangerous indeed.

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The rapidly changing context of strategic decisions and the growing significance of new sources of competitive advantage, such as human capital and intangible assets, require, in my view, a broader use of knowledge and experience of board members in strategic management processes.

Empirical debate on boards and strategy Among the research projects conducted over the past fifteen years, especially noteworthy is the analysis authored by Stiles (2001: 627-650). This comprehensive study of boards’ involvement in British public companies was based on the assumption that in order to analyze the nature and specificity of boards of directors’ activity, one has to rely to the largest possible extent on the judgment of the boards themselves. Extensive interviews were carried out with a specially selected sample of 51 members of British boards supervising the activities of a range of companies representing different sectors of the British economy. The aim of the study was to gauge how the respondents evaluated the level of boards’ involvement in strategic management processes, in what way boards contributed to these processes, how they monitored the company’s health and what measures they used for this purpose. The second research tool was a survey into the level of the board’s involvement in formulating and implementing company strategy, as well as its membership and working style. The survey was addressed to 900 directors through the British Institute of Company Secretaries and Administrators (ICSA). The response came from 121 directors, 14% of the target community. The picture which emerged from the above-mentioned studies provides reasonable evidence that British boards are not directly involved in formulating company strategy, though they are not entirely passive in this respect, either. They are active in what Stiles calls a “strategic context,” which is creating a corporate vision and mission. Stiles argues that British boards primarily perform the role of a “gatekeeper” for managerial projects and strategic ventures. Other significant areas of British boards’ activity include ethical aspects of company operations: formulating and supervising the implementation of so-called codes of ethics and adequate internal value systems (Stiles, 2001: 634-639). Another research conducted by Anderson, Melanson & Maly (2007) yielded similar results. The researchers surveyed 658 directors, 14.6% of the total number of board members representing public companies based in Australia, Canada, New Zealand and the United States. The vast majority of those questioned revealed that boards of directors were not treated as strategic assets in their respective countries and that their knowledge and business experience were not sufficiently used. Still, the respondents did observe some positive, changes to this paradigm – an increased use of directors’ expertise in the process of formulating corporate strategies (Anderson, Melanson, Maly, 2007: 780-797). Finally, the interesting survey was made by Du, Deloof & Jorissen (2011). This study was concentrated on the empirical investigating of the conditions under 22


which foreign subsidiaries maintain active boards. The authors focus on both monitoring and advising role of boards. A sample research consists of 83 foreign subsidiaries operating in Belgium. Results of this study suggest that an active board might be of strategic importance to enhance subsidiary governance. Firstly, top managers may consider maintaining an active board to govern foreign subsidiaries, as well as to deal with local issues. Moreover, in order to delegate appropriate tasks to an active board, it is important to analyze and evaluate the specific knowledge and resources of the subsidiary and the external environment. Secondly, top managers may face a tradeoff between assigning monitoring tasks and assigning advice tasks to an active board due to the conflict between different board roles (Du, Deloof & Jorissen, 2011:153-168). An interesting picture of the boards’ role in Polish joint-stock companies emerges from research conducted by a team of academics from the University of Lodz (Poland) under the guidance of the author of this paper (Jeżak, 2005: 89-142). This pioneering study, involving a group of 85 chairmen of supervisory boards of Polish public companies (around 25% of the total 2005 population), demonstrated that Polish boards devoted most of their professional time (65%) to the implementation of their control functions, that is, to supervising their company’s activity to the extent stipulated by the Companies Code and to appraising management performance. Two other functions – providing advice and using own initiative – were deemed of secondary importance. The above-mentioned research also evaluated the hierarchy of individual duties of supervisory bodies. According to the respondents, of top priority were: evaluating the performance of top management teams, approving corporate strategies, selecting new top management members and establishing executive remuneration policies. Relatively low on the chairmen’s agenda ranked such major board functions as: participation in formulating corporate strategy and investment planning, supervision of the company management development plan, as well as mediating between stakeholders, which confirms a popular hypothesis about the weakness of Polish supervisory bodies and their insufficient involvement in strategic decision- making processes. Although the supervisory function is most time-consuming for Polish boards and it is without doubt their top priority, one cannot neglect the role of supervisory bodies in providing advice to top management. Almost 72% of the chairmen questioned were of the opinion that boards should play the role of managerial advisors as well as controllers. In reality, however, these views do not translate into specific actions. A quite similar results we received from the latest survey which we have made in 2013. Our research is conducted again after eight years and as before they concerned the role of supervisory boards in the process of strategic management.

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The second study involved a group of 86 chairman of supervisory boards of Polish public companies (around 20% of the total 2013 population). The vast majority of our respondents said that their activity continues to focus on monitoring and evaluating the work of the board. The processes of strategy formulation and its implementation are the areas of responsibility of the board (Jeżak, 2014: 215-240). Similar opinions on the role of supervisory boards I. Koładkiewicz obtained in a study conducted in 2011 in the 34 largest Polish public companies (Koładkiewicz, 2013: 354-372). The results of the above – mentioned studies as well as the analysis of the present legal regulations indicate that Polish supervisory boards primarily perform monitoring and control functions, though their members themselves and management board members believe that they should also be advisory and initiating bodies. One should not be surprised, therefore, at the amount of criticism leveled at these bodies by numerous experts or the number of initiatives aiming to enhance their role, such as best practices in corporate governance. As important as institutional changes is the growing tendency to hand over supervisory functions to a specially selected team of professionals (independent supervisory board members), as recommended by world best practices and EU standards in corporate governance. Conclusions and suggestions for future research The objective of this paper was to provide an overview of the current state of worldwide knowledge and present the evolution of views on the role of corporate control bodies: boards of directors (the Anglo-Saxon system) and supervisory boards (the German system) in strategic management and decision-making processes. A review of major trends and opinions as well as the results of research studies into the role of boards of directors (supervisory boards) over the last three decades of the 20th and the first decade of 21s century showed that, with the changing face of the modern market economy and new competitive challenges facing today’s companies, the model of a passive board, dominated by managers, should be radically changed. After all, active boards not only increase their power inside companies, but, first and foremost, improve the quality of strategic decisions made by the companies. Unfortunately, in practice, this transformation is slow in coming, both in the Anglo-Saxon corporate governance model and in the German system. This fact is confirmed by the results of various empirical studies. Comprehensive research indicates that boards of directors still mainly play the role of “gatekeepers” for managerial projects and they are not directly involved in formulating company strategy. Likewise, the above-mentioned empirical studies of the author’s research team indicate that Polish supervisory boards (the German model) primarily perform monitoring and control functions, though their members believe that they should also be advisory and initiating bodies. In sum, the article has (I hope) some implications for future debate. Existing board practices emphasize, in fact, board control and independence as a rule of good governance, but these aspects may also hinder the board’s contribution to strategy 24


formulation and implementation. By relying on a clear distinction of responsibilities between boards and management some researchers have viewed the potential contributions of boards to strategy as a very limited because of their distance from day – to – day operations, the information asymmetries, and the need to remain independent (e.g. Hendry and Kiel, 2004: 500-520). Instead, some others have arqued that board of directors are legally responsible for the strategy of firms (e.g. Carpenter and Westphal, 2001: 639-660; Yawson, 2006: 303-312). I share the second point of view.

Bibliography Anderson D. W., Melanson S. J. & Maly J., The Evolution of Corporate Governance: power redistribution brings boards to life, Corporate Governance, Blackwell Publishing Ltd, 2007 Berle, A. A. & G. C. Means, The Modern Corporation and Private Property, Macmillan, New York 1932 Carpenter M.A. & Westphal J.D., The strategic context of external network ties, Academy of Management Journal, No 4/2001, p. 639-660 Dobbs R. & T. Koller, Measuring Long-Term Performance, The McKinsey Quarterly, Special Edition: Value and Performance, 2005 Dobbs R., K. Leslie & L. T. Mendonca, Building the Healthy Corporation, The McKinsey Quarterly, No. 3/2005, p. 65-71 Du Y., Deloof M. & Jorissen, Active Boards of Directors in Foreign Subsidiaries, Corporate Governance: An International Review, No 19(2)/2011, p. 153-168. Eisenhardt K. L., Agency Theory: a Review and Assessment, Academy of Management Review, 1989, 14, p. 57-74 Fama E. & M. Jensen, Separation of Ownership and Control, Journal of Law and Economics, 1983, 26, p. 301-325 Forbes D. P. & F. J. Miliken , Cognition and Corporate Governance: Understanding Boards of Directors as Strategic Decision-Making Groups, Academy of Managerial Review, 1999, p. 489-505 Goodstein J., Gautam K., and Boeker W., The effects of board size and diversity on strategic change, Strategic Mnagement Journal, 1994, 15, p. 214-250 Grant R.M., Contemporary Strategy Analysis. Concepts, Techniques, Aplications, Blackwell Publishing, Oxford 2003, p. 23-25 Harrison J.R., The strategic use of corporate board committees, California Management Review, 1987, p. 109-201 Hendry K. and Kiel G.C., The role of board in firm strategy: Integrating agency and organizational control perspectives, Corporate Governance: An International Reviewe, 2004,12, p. 500-520 Hill C. & S. Snell, External Control, Corporate Strategy, and Firm Performance in Research-Intensive Industries, Strategic Management Journal, 1988, 9, p. 577-590 Hillman A.J. & Dalziel T., Boards of directors and firm performance: Integrating agency and resource dependence perspectives, Academy of Management Review, 2003,No 28, p. 383-396 25


Hillman A.J., Witchers C. & Collins B.J., Resource Dependence Theory: A Review, Journal of Management, 2009, No 35(6), p. 1404-1427 Hoskisson R.E., Hitt M.A., Johnson R.A., and Grosman W., Conflicting voices: The effects of institutional ownership heterogeneity and internal governance on corporate innovation strategies, Academy of Management Journal, 2002, 45, p. 697-716 Huse M., Minichilli A., Shoning M., Corporate boards as assets for operating in new Europe: The value of process – oriented boardroom dynamics, Organizational Dynamics, 2005, 34, p. 285-297 Jensen M. & W. Meckling, Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure, Journal of Financial Economics, 1976, 3, p. 305-360 Jeżak J. (red.), Rola rad nadzorczych w procesach formułowania I realizowania strategii spółek, Wydawnictwo Uniwersytetu Łódzkiego, Łódź 2014, Jezak J. (ed.), Role of supervisory boards in formulation and implementation processes of the companies’ strategies, Lodz University Press, Lodz 2014, p. 215-240 Jeżak J. (red.), Struktura i formy sprawowania władzy w spółkach kapitałowych, Praca zbior. pod kier. nauk. J. Jeżaka, Wyd. Uniwersytetu Łódzkiego, Łódź 2005- Jeżak, J. ed., Structure and Forms of Governance in Polish Companies, Lodz University Press, Lodz 2005, p. 92-112 Jiang B. & T. Koller, “A Long-Term Look at ROIC,” The McKinsey Quarterly, 2006, No. 1, p. 14-15 Judge W. Q. & C. P. Zeithaml, Institutional and Strategic Choice Perspectives on Board Involvement in the Strategic Decision Process, Academy of Management Journal, 1992, 35, 4, p. 766-794 Kaplan R. S. & D. P. Norton, The Balanced Scorecard: Measures That Drive Performance, Harvard Business Review, 1992,Vol. 80, No 1, p. 71-79 Kim Y., Cannella A.A. Jr, Toward a Social Capital Theory of Director Selection, Corporate Governance. An International Review, 2008, vol. 16,4, p.282-293 Kołądkiewicz I., Rady nadzorcze. Dobre praktyki ładu korporacyjnego. Doświadczenia polskie i zagraniczne, Wydawnictwo Poltext, Warszawa 2013 Kosnik R., Greenmail: A Study of Board Performance in Corporate Governance, Administrative Science Quarterly, 1987, 32, p. 163-185 Lorsch J. W. & E. MacIver, Pawns or Potentates: The Reality of America’s Corporate Boards, Harvard University Graduate School of Business Administration, Boston (MA) 1989 Lovallo D. P. & O. Sibony, Distortions and Deceptions in Strategic Decisions, The McKinsey Quarterly, 2006, No. 1, p. 19-29 Luffman G., et al., Strategic Management. An Analytical Introduction (3rd edition), Blackwell Publishers Ltd., Oxford 1996, p. 11 Lynch R., Corporate strategy, Prentice Hall, Harlow (England) 2000, p. 7-30 Mace M. L., Directors: Myth and Reality, Harvard University Graduate School of Business Administration, Boston (MA) 1971 Mace M., Attracting new directors, Harvard Business Review, September-October 1976, p. 46-51 Mizruchi M. S., Who Controls Whom? An Examination of the Relationship Between Management and Boards of Directors in Large American Corporations, Academy of Management Review, 1983, p. 426-435. Monks R. and N. Minow, eds., Corporate Governance, Blackwell Business, Cambridge (MA) 1983 26


Patton A. & J. Baker, Why Won’t Directors Rock the Boat, Harvard Business Review, Nov./Dec. 1987, p. 10-14 Pearce J. & S. Zahra, The Relative Power of CEOs Performance, Strategic Management Journal, 1991, 12, p. 135-153 Pfeffer J., Size and Composition of Corporate Boards of Directors: the Organization and its Environment, Administrative Science Quarterly, 1972, p. 218-229 Pugliese A., Bezemer P.J., Zattoni A., Huse M., Van den Bosh F.A.J. and Volberda H.W., Boards of Directors’ Contribution to Strategy: A Literature Review and Research Agenda, Corporate Governance: An International Review, 2009, 17(3), p. 292-306 Rindova V. P., What Corporate Boards Have to Do with Strategy: a Cognitive Perspective, Journal of Management Studies, 1999, 36,37, p. 953-975 Ruigrok W., Peck S., and Keller P., Board characteristics and involvement in the strategic decision-making: Evidence from Swiss companies, Journal of Management Studies, 2006,43, p. 1201-1226 Stiles P., The Impact of the Board on Strategy: Empirical Examination, Journal of Management Studies, 2001, 38:5, p. 627-650 Thompson A. A., Jr. & A. J. Strickland, III, Crafting and Implementation Strategy: Text and Readings, Irwin/McGraw – Hill, Boston (MA) 1998 Witt P. (), Corporate Governance im Wandel, Zeitschrift Führung und Organisation, No. 3 (May/June) 2000 Yawson A., Evaluating the characteristics of corporate boards associated with lay off decisions, Corporate Governance: An International Review, 2006, 14, p. 303-312

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Family Business Research – Methodological Issues Prof. Łukasz Sułkowski, Ph.D. Academy of Management in Łódź Abstract This paper sets out to present methodological reflection used to assess the adequacy of the cognitive tests used in family organizations. This article presents also various issues of family business: the definition of a family business, qualitative methods in research concerning family businesses, and selected worldwide quantitative surveys of family businesses. Introduction Survey of family businesses presents particular methodological problems arising from the key features of this type of business entities. In many different definitions of family businesses there can be found reflected the key characteristics of this type of enterprise and therefore a strong relationship between the business entity and the family ownership. This paper focuses on methodological reflection used to assess the adequacy of the cognitive tests used in family organizations. Materials used for the analysis are derived from both the literature and the author's experience. The paper begins with the analysis of the definition of a family business, which will be linked to problems of this type of research subjects. The essence of a family business When analysing the problems of the research methodology concerning family businesses, one should first consider the definitions of this type of business entities. It is not a simple task, as many criteria can be taken into account, including: ownership, inheritance and management. The definition of a family business depends on many various factors. The crucial feature of such enterprises, both larger and small ones, is control by one family. Other characteristics of a family business may differ, but usually the following are mentioned: strategic control by the family, participation of the members of the family in management, engagement of more than one generation in the company and the family ownership structure of the entity1. According to such authors as M. C. Shanker i J. H. Astrachan, definitions of family businesses create a certain continuum. The most broad of them focus mainly on making strategic decisions by the family and maintaining the family's control over the company. 1

W. Handler, Methodological issues and considerations in studying family businesses, “Family Business Review”, no. 2, p. 257-276. 29


Other definitions suggest that the ownership control is exercised by the founder's family. The narrowest definitions include the company's management by more than one family member and its multigenerational nature. Depending on which definition we choose, it can be said that family businesses provide 12, 30 or 49% or the national income of the United States2. Thus, it becomes clear that family businesses – even according to the most strict definitions – constitute a large percentage of economic entities. Table 1. Family business and the family's degree of engagement Criterion

Broader definition

Average definition

Narrower definition

Ownership structure

Considerable interest

Controlling interest

Majority of shares

Strategic and management control

Minimal strategic control

Strategic control and participation in management

Strategic control and full management

Intergenerational structure

Not required

Anticipated family inheritance

Multigenerational nature

Engagement of family members

Low

Medium

High

Percentage of the gross domestic product produced in the United States

49

30%

12%

Employment in the United States

59%

37%

15%

Source: own work on the basis of: M. C. Shanker, J. H. Astrachan, Myths and Realities: Family Businesses’ Contribution to the US Economy – A Framework for Assessing Family Business Statistics, “Family Business Review”, vol. 9, no. 2, 1996, p. 107–119.

All definitions lead to one conclusion – the most important features of a family business are: management, ownership, the family's engagement in the company and inheritance. R. K. Z. Heck and E. S. Trent find references to the above-mentioned features in specialist literature, which has been shown in the table 2.

M.C. Shanker, J.H. Astrachan, Myths and Realities: Family Businesses’ Contribution to the US Economy – A Framework for Assessing Family Business Statistics, “Family Business Review”, vol. 9, no. 2, 1996, p. 107–119. 2

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Table 2. Family business – understanding based on definitions and research based on literature The essence of the definition according Variables analysed to the above-mentioned researchers in National Family Business Survey 1997 1. Ownership or management 2. Family's engagement in the business (interdependence of systems)

The status or the ownership structure, joint ownerships, co-owners, control, making important decisions, value of shares Number or family members engaged in the company, paid and unpaid relatives who do not live in the same household

3. Family inheritance (intergenerational transfer)

Generations in the family business, planned change of the enterprise's ownership structure in the next 5 years, intention to maintain the family ownership in more distant future

4. Number of criteria

Combination of at least two criteria mentioned in items 1, 2 and 3

Source: R. K. Z. Heck, E. S. Trent, The Prevalence of Family Business from a Household Sample, in: “Family Business Sourcebook”, ed. C. E. Aronoff, J. H. Astrachan, J. L. Ward, Family Entreprise Publishers, Georgia 2002, p. 610.

The above analysis shows that the definitions put particular emphasis on ownership and management by the family. They also quite often mention the engagement in the family business. The least crucial feature in that case proves to be inheritance. R. G. Donnelley refers to that criterion: „...with family business we deal with, if at least two generations of one family had a significant impact on the objectives and policies of the company”3. Such understanding in general does not match Polish conditions. The analysed enterprises are largely one-generation entities that has not been operating long on the market. In one of the largest research on family businesses – National Family Business Survey – R. K. Z. Heck and E. S. Trent use a broad definition, thus treating a family business as „business whose owner or manager is at least one family member”. Such understanding allows for discovering correlations between the business and the family, regardless of the participation of family members in management or ownership4. What is more, according to this definition, family businesses include also companies run by the first generation of a family (the founders), which are formally owned and managed by

R. G. Donnelley, The Family Business, in: “Family Business Sourcebook”, ed. C. E. Aronoff, J. H. Astrachan, J. L. Ward, Family Entreprise Publishers, Georgia 2002, p. 4. 4 R. K. Z. Heck, E. S. Trent, The Prevalence of Family Business from a Household Sample, in: “Family Business Sourcebook”, ed. C. E. Aronoff, J. H. Astrachan, J. L. Ward, Family Entreprise Publishers, Georgia 2002, p. 603. 3

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one member of the family, however in reality other family members participate in running the business as well. According to P. A. Frishkoff, family businesses are not limited to one specific legal form, but their capital, either whole or in considerable part, belongs to the family and at least one member of the family manages the company or has influence on its management5. Such understanding makes it easier to differentiate family businesses from other entities, when we consider the criteria of management and ownership. However, J. L. Ward and C. E. Arnoff believe that a company can be called a family business when the financial control is executed by two or more family members6. Such a definition excludes those businesses that are controlled by only one owner. For the purposes of a research conducted in 2004, a family business was defined as a business entity whose ownership control and, optionally, management are executed by the representatives of the family7. In this case it means that more than one member of the family is engaged in the functioning of the company, either by ownership, joint ownership or participation in management (holding a managerial position)8. Selected worldwide quantitative surveys of family businesses Broadly conceived surveys concerning family businesses were not conducted until the eighties and nineties of the 20th century. Most of them regarded such parts of the world as Western Europe, China, Japan, South Korea, Taiwan, Singapore, etc., but there were also some concerning Canada, the United States and Australia. Many of the surveys were described in specialist literature, but in fact only several dozen of the most important research projects, essential for theory or practice of business running, can be quoted. Some examples include: National Family Business Survey in the US9, Problems of management in the family business, conducted by the Stoy Hayward Centre in the UK10, research into family businesses conducted by R. Donckels and E. Frohlich11, research concerning the structure of 5

P. A. Frishkoff, Understanding Family Business, Austin Business Family Program, 15 April 1995. 6 J. L. Ward, C. E. Arnoff, Just What is a Family Business; in: “Family Business Sourcebook”, ed. C. E. Aronoff, J. H. Astrachan, J. L. Ward, Family Entreprise Publishers, Georgia 2002, p. 2. 7 Ł. Sułkowski, Determinanty rozwoju przedsiębiorstw rodzinnych w Polsce, Scientific Society of Organization and Management, Toruń 2005. 8 cf.: Ł. Sułkowski, A. Marjański, Firmy rodzinne – jak osiągnąć sukces w sztafecie pokoleń, Poltext, Warsaw 2009. 9 R. K. Z. Heck, E. S. Trent, The Prevalence of Family Business from a Household Sample, in: “Family Business Sourcebook”, ed. C. E. Aronoff, J. H. Astrachan, J. L. Ward, Family Entreprise Publishers, Georgia 2002, p. 599-614. 10 Stoy Hayward, Managing the Family Business in the UK, Stoy Hayward, London 1990. 11 R. Donckels, E. Frohlich, Are Family Business Really Different?, “Family Business Review”, no. 4, 1991. 32


family businesses in such countries as Switzerland by U. Frey, F. Halter, S. Klein and T. Zellweger12 and research on inheritance in family business in Canada13. Those surveys were conducted with the use of various methodology and on a various scale. They involved from several up to several dozen thousands of enterprises. National Family Business Survey was conducted in 1997 among 708 family businesses. The method used were telephone interviews14. Stoy Hayward's research in the UK were representative questionnaire surveys that involved 8000 large enterprises. 1100 small and medium European companies took part in the survey (questionnaire interviews) of R. Donckels and E. Frolich. The research of U. Frey, F. Halter, S. Klein and T. Zellweger from the Universities in St. Gallen and Trier involved over 1200 entities, analysed using the case study method and questionnaires sent by mail. T. S. Feltham, G. Feltham and J. J. Barnett surveyed over 700 companies using an Internet questionnaire. P. Sharm, J. J. Chrisman and J. H. Chua published results of empirical research referring to a broad definition of strategy15, including 77 research projects, mainly from the last twenty five years, although the oldest discussed research was conducted in 1961. Strategic goals of family businesses, along with creation, execution and evaluation of their strategies, were analysed. Research projects concerning family businesses were also described in "Family Business Sourcebook" edited by C. E. Arnoff, J. H. Astrachan and J. L. Ward. The most often used methods are questionnaires, either sent by mail or filled in online, as well as questionnaire or telephone interviews. Researchers also use secondary sources, including statistical ones, that allow to assess companies from various countries and sectors and then compare the data with information from primary sources. This is why quantitative surveys are so often used in research concerning family businesses16. Using qualitative methods in research concerning family businesses In research concerning family businesses there are also used qualitative surveys. Those surveys are examples of methodological pluralism approach that allows for use, and even combination in the same research programme, both quantitative and qualitative methods. Qualitative methods are especially important at the stage of conceptualization and understanding of the analysed phenomenon,

12

U. Frey, F. Halter, S. Klein and T. Zellweger, Family Business in Switzerland: Significance and Structure, in: S. Tomaselli, L. Melin (eds.), “Research Forum Proceedings: Family Firms in the Wind of Change”, F.B.N. 15th World Conference, Copenhagen, p. 73-89. 13 T. S. Feltham, G. Feltham, J. J. Barnett, Are Canadian family Businesses Ready for Succesion?, "Canadian Journal of Policy Research" 2001 Vol. 2 No. 4. 14 R. K. Z. Heck, E. S. Trent, op. cit., p. 602-603. 15 P. Sharma, J. J. Christman, J. H. Chua, Strategic Management of the Family Business: Past Research and Future Chalanges, in: “Family Business Sourcebook”, ed. C. E. Aronoff, J. H. Astrachan, J. L. Ward, Family Entreprise Publ., Georgia 2002, p. 88-115. 16 Ł. Sułkowski, Determinanty rozwoju przedsiębiorstw rodzinnych w Polsce, op. cit. 33


while quantitative methods allow for measurement of theoretically established constructs. Qualitative methods that are most often used to analyse family businesses include case studies that take a form of a comparative analysis or multiple case studies. Researchers also apply the methods of organizational anthropology, such as: in-depth interviews, participant observation or autoethnography. Other techniques include free-form interviews and analysis of documents made in the company. The most often applied techniques when conducting research on family businesses are: participant observation, free-form interviews and analysis of documents made or received by the company. In the case of research on family businesses, a considerably well-developed and often applied method is in-depth interview that takes various forms, such as narrative or biographical interview. The most important is to make the respondent reflect on specific issues and communicate with the researcher. Such communication will reveal important and complex cultural processes that cannot be analysed using standardized methods. Another popular method of research into small family businesses is participant observation. The participant performs a role of a scientist or consultant who participates in the work of a family organization and applies participant or nonparticipant observation methods. Data gathered in this way refer above all to activities of the company and they are not limited to communication or declarations, as in the case of interviews. One of the methods of participant observation is autoethnography, which is based on self-observation, thus allowing for taking a closer look at one's own longterm organizational experience and, as a consequence, to become aware of the social context of the occurring phenomena. Autoethnography is, in fact, a research approach that allows for describing and analysing the company (hence "graphy"), but it also concerns personal experience (hence "auto"), and leads to the understanding of cultural experience (hence "ethno")17. This method can be used in particular for effective analysis of one's own organization. It should be also noted that at every given moment the researcher is aware of his or her role, experience and the fact that it is him or her who controls and influences the research. Thus, autoethnography is not only a method, but also the content of practices used in various scientific domains18. In contrast to more standard methods, research conducted using this method is not aimed at theoretizing and taking into account

17

C. Ellis , The Ethnographic I: A methodological novel about autoethnography, Walnut Creek: AltaMira Press 2004; S. Holman Jones, Autoethnography: Making the personal political, in: N. K. Denzin, Y. S. Lincoln, (ed.), Handbook of Qualitative Research, Thousand Oaks, CA: Sage Publications, 2005, p. 763-791. 18 D. E. Reed-Danahay (ed.), Introduction. Auto/ethnography: Rewriting the self and the social., New York, Berg 1997. 34


only those results that do not place the object in context or focus on a single truth19. Benefits of the used method include taking a closer look at identity, characteristics and cultural background of a family business. It also allows the researcher to understand not only the functioning of a given business, but also – to the same degree – his or her own experience. Characteristics of research conducted in small family businesses Vast majority of the analysed family businesses are small and medium companies. This is true in all parts of the world, as a family business is almost a "natural" form of starting a company and keep it running during its first stages of development20. It can be pointed out that the obstacles in understanding small family businesses are similar to those that concern research on small enterprises in general. Several problems can be identified. 1. A frequent problem is reaching the analysed entity and obtaining the decisionmaker's consent for participation in the research. Owners of small companies are in particular afraid of possible disclosure of information because they are not aware that the research can prove useful or they lack experience in cooperation with the consulting sector. 2. A sensitive area of research on family business are relations between the enterprise and the founding family. It results from avoiding the stereotypic understanding of a family business as burdened with pathological nepotism. Hence the researchers often conceal family relations and practices. An equally sensitive subject, also due to tax issues, is the transfer of resources between the organization and the family. 3. In the case of research concerning family business that is based on materials from the representatives of the owners' family, one usually cannot count on balanced reflections. Emotional attitude of members of the founding family to the business entity they control causes that their views on managing the family business are usually simplified and idealized. 4. A frequent problem is also both quantity and quality of the available research material. Due to the size of the business entity and low degree of formalisation, the access to document materials allowing for the development of research on the basis of primary sources is limited. The quality of the obtained research material also is unsatisfactory, as there are no strict rules concerning its preparation, so it is usually not formalized enough.

L. Crawford, Personal ethnography, “Communication Monographs”, 1996, Volume 63, Issue 2, p. 43–62; N. K. Denzin, Interpretive ethnography: Ethnographic practices for the 21st century, London: Sage 1997. 20 Ł. Sułkowski, Strategie sukcesji w przedsiębiorstwach rodzinnych MŚP w Polsce, „Zarządzanie strategiczne”, ed. A. Kaleta, Wrocław University of Economics, 2012. 19

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5. Also problematic is research based on representative samples of family businesses, mostly because of the lack of access to sampling frames that cover this type of business entities. The research process requires filtering of the small and medium companies sample and reaching family businesses. However, large number of definitions and identification criteria of family businesses does not facilitate the task. In addition, a declaration of a company that consider itself a family business may be very confusing. All those methodological problems concerning research into family businesses make it difficult to obtain reliable results and can lead to the creation of research artefacts. Hence the key to understanding the functioning of family businesses is methodological awareness, i.e. knowledge about limitations of the applied research method and openness to other methods. Summary 1. Qualitative research provides deep insight into the functioning of family businesses and allows for better understanding of their strategies, power structure, culture and organizational identity. On the other hand, quantitative methods can be used to evaluate and estimate the meaning and characteristics of family businesses in comparison with other types of business entities. 2. Methodological pluralism approach should contribute to greater openness to various research methods and techniques that can be used to analyse problems of family businesses. 3. Taking into account the complex nature and, in many cases, sensitivity of the analysed problems, it is recommended to apply methodological triangulation that allows for combing complementing research techniques and methods within one research programme. 4. Qualitative methods prove more effective in gathering reliable data concerning "sensitive" issues than quantitative methods. Also important is providing information about complex social processes. In this case open methods are more suitable. 5. In respect to qualitative methods, it is worth to develop and test less wellknown research methods. Currently, the dominating method in research into family businesses is case study (comparative analysis and multiple case studies). In the case of applying organizational anthropology, an interesting method may be autoethnography. Other useful qualitative methods include text and discourse analysis and participation research.

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Bibliography Crawford L. Personal ethnography, “Communication Monographs”, 1996, Volume 63, Issue 2, p. 43–62. Denzin N. K. Interpretive ethnography: Ethnographic practices for the 21st century, London Sage 1997. Donckels R., Frohlich E. Are Family Business Really Different?, “Family Business Review”, no. 4, 1991. Donnelley R. G. The Family Business, in: “Family Business Sourcebook”, ed. C. E. Aronoff, J. H. Astrachan, J. L. Ward, Family Entreprise Publishers, Georgia 2002, p. 4. Ellis C. The Ethnographic I: A methodological novel about autoethnography, Walnut Creek: AltaMira Press 2004. Feltham T. S., Feltham G., Barnett J. J. Are Canadian family Businesses Ready for Succesion?, "Canadian Journal of Policy Research", Vol. 2 No. 4., 2001. Frey U., Halter F., Klein S., Zellweger T., Family Business in Switzerland: Significance and Structure, in: S. Tomaselli, L. Melin (eds.), “Research Forum Proceedings: Family Firms in the Wind of Change”, F.B.N. 15th World Conference, Copenhagen, p. 7389. Frishkoff P. A. Understanding Family Business, Austin Business Family Program, 1995. Handler W. Methodological issues and considerations in studying family businesses, “Family Business Review”, no. 2, 1989, p. 257-276. Heck R. K. Z., Trent E. S. The Prevalence of Family Business from a Household Sample, in: “Family Business Sourcebook”, ed. C. E. Aronoff, J. H. Astrachan, J. L. Ward, Family Entreprise Publishers, Georgia 2002, p. 603. Holman S. Autoethnography: Making the personal political, in: N. K. Denzin, Y. S. Lincoln, (ed.), Handbook of Qualitative Research, Thousand Oaks, CA: Sage Publications, 2005, p. 763-791. Reed-Danahay D. E. (ed.). Introduction. Auto/ethnography: Rewriting the self and the social., New York, Berg 1997. Shanker M. C., Astrachan J. H. Myths and Realities: Family Businesses’ Contribution to the US Economy – A Framework for Assessing Family Business Statistics, “Family Business Review”, vol. 9, no. 2, 1996, p. 107–119. Sharma P., Christman J. J., Chua J. H. Strategic Management of the Family Business: Past Research and Future Chalanges, in: “Family Business Sourcebook”, ed. C. E. Aronoff, J. H. Astrachan, J. L. Ward, Family Entreprise Publishers, Georgia 2002, p. 88-115. Stoy Hayward. Managing the Family Business in the UK, Stoy Hayward, London 1990. Sułkowski Ł. Determinanty rozwoju przedsiębiorstw rodzinnych w Polsce, Scientific Society of Organization and Management, Toruń 2005. Sułkowski Ł. Strategie sukcesji w przedsiębiorstwach rodzinnych MŚP w Polsce, „Zarządzanie strategiczne”, ed. A. Kaleta, Wrocław University of Economics, 2012. Sułkowski Ł., Marjański A. Firmy rodzinne – jak osiągnąć sukces w sztafecie pokoleń, Poltext, Warsaw 2009. Ward J. L., Arnoff C. E. Just What is a Family Business, in: “Family Business Sourcebook”, ed. C. E. Aronoff, J. H. Astrachan, J. L. Ward, Family Entreprise Publishers, Georgia 2002, p. 2.

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Managerial Competence as a Factor in Early Internationalization of Small and Medium-Sized Enterprises.

Prof. Renata Oczkowska, Ph.D. Cracow University of Economics

Abstract The paper presents a new approach for small and medium-sized enterprises to the process of internationalization – namely, the concept of being born global. The various attempts to define “born globals” are listed. The considerations include a presentation of favorable conditions for rapid internationalization of enterprises, which replace the traditional sequential model. Particular attention was paid to the required competences of managers in born global companies. The characteristic of business managers from companies that are gradually internationalized and have chosen fast-track international expansion path is also included.

Introductory notes The internationalization of the economy and the sectors of activity of enterprises depend on the willingness and motives of managers in companies aiming at foreign expansion and investments in the development outside the home country. A new trend in internationalization of enterprises is the new phenomenon of their early internationalization, which is the result of new market conditions, changes in manufacturing technology, transportation, communication, and higher qualifications of people, particularly broadly defined managerial competences. Setting up an enterprise as international or global since its inception is typical for small and medium-sized companies which are usually associated with high-tech industries produce innovative and unique products. The bases for the success of a rapidly internationalized company in foreign markets primarily involve a bold vision, initiative, entrepreneurship and competence of founders/managers. 39


The aim of the article is to present the essence of the accelerated internationalization of enterprises, an indication of the factors affecting the way the internationalization of small and medium-sized enterprises, and in particular the importance of competence of managers of these companies. The concept of rapid internationalization of small and medium-sized enterprises Internationalization, according to many authors, means any type of economic activity undertaken by a company abroad [R. Helm, 1997, p. 12-13; Rymarczyk, 2004 p. 19]. D. F. Kuratko and H. Welsch believe that internationalization of economic activity can be seen as the result of a gradual chain process of adaptation to changing conditions in business units and their surroundings. The process is gradual, with increasing risk and engagement of enterprises acquiring knowledge through experience by entrepreneurs. The best known model that describes the process of internationalization of a company is the Uppsala model. This approach is associated with the Uppsala school (J. Johanson, J. Vahlne) [Rymarczyk J, 2004, p. 20-22]. According to that model, internationalization is seen as a learning process of the enterprise and is based on the assumption that the firm is gradually gaining market knowledge and experience enhancing its internationalization, moving from small to ever greater commitment of resources abroad. This theory was confirmed in empirical research conducted in Swedish companies, as well as Finnish, American and German ones. Casson M., 2000, p. 33; Sznajder A., 1995, p. 76-78]. According to the Uppsala conceptual model, the internationalization process is a sequence which indicates the gradual involvement in foreign markets. This process is hampered by: lack of sufficient knowledge about foreign markets, lack of resources for expansion into foreign markets, risks associated with entering a foreign market, psychological and geographical distance between the home country and the market expansion, and costs or tariff barriers or non-tariff [Gorynia M., 2007, p. 64]. The basic premise this sequential model is the principle that market knowledge that takes into account, among others, perceptions of market opportunities in the enterprise, can be acquired mainly through experience from current operations in foreign markets. The possibility of transferring this knowledge to other market participants is largely limited. Thus, knowledge based on experience is individualized and cannot be used by another entity in an equally effective manner. Internationalization, depending on the situation in the environment as well as in the company itself, or the motives behind the expansion into foreign markets, can take place in a different way. Economic practice provides examples indicating that internationalization can proceed in an unusual way. For example, in models of simultaneous expansion to foreign markets, it is done in parallel on many markets. The new trend among small and medium-sized businesses is in fact starting as an international or global business since the company’s inception. They are “born globalists”. Intensification of this trend is the result of: new market conditions, 40


changes in manufacturing technology, transportation, communication, and higher qualifications of people, particularly broadly defined managerial competences. These companies are usually associated with high-tech industries that produce innovative and unique products [Hollensen S., 2001, p. 65-69; Duliniec E., 2004, p. 32]. In the literature there is formulated precise definition and criteria to consider a company's “born global”. With reference to the research, it is considered that small and medium-sized enterprises employing up to 500 employees, typically in the sectors of advanced technology, reach a significant share of sales in foreign markets in their total sales within a few years since their foundation [Oviatt B.M., McDougall P.P., 1994, pp. 48]. International competitive advantage, for those companies, is based on innovative technologies, offering unique products (e.g. computer programs) or flexibility. It is believed that “born globals” are mainly in knowledge-based industries and operate highly specialized and modern technologies (IT, biotechnology). However, E. Duliniec notes that this approach is highly simplistic and gives examples of rapidly internationalized companies from traditional sectors (low-tech), among others, food, clothing, furniture or handicraft manufacturers [Duliniec E., 2011]. Most customers of these businesses constitute a niche international segment. These can include transnational corporations. Operations of born globals have a wide geographical range, which necessitates effective coordination. Born globals engage in various forms of cooperation with foreign partners and benefit from offshoring – mainly in services [Hollensen S., 2001, p. 65-69]. Flexibility of their activities in foreign markets means, among other factors, fast response times – which important due to changing needs of buyers, the shortening of product life cycles and efficient adaptation to the expectations of buyers, suppliers or subcontractors. Companies must be flexible enough to be able to quickly adapt to the changing environment, and predict ahead of emerging changes. The literature defines “born globals” in different ways. It takes into account, primarily, the scale and nature of international operations, their location, and the time from the enterprise’s founding until the moment a certain size should be achieved. When it comes to the type of transactions in foreign markets, it is assumed that it is sufficient for a “born global” company to realize exports, which is considered the easiest and least risky way to international expansion. The literature proposes different levels of a minimum scale of foreign operations allowing a company to qualify as a born global. Some authors estimate this threshold at very low values, others see it as very high – from 10% [Zhou L., Wu W., Luo X., 2007] even to 70% [Rasmussen E.S., Madsen T.K., Evangelista F., 2001], however, most see it at 25% of revenue from foreign exports [Anderson S., Wictor I., 2003; Moen O., 2002; Knight G.A., Madsen T.K., Servais P., 2004). Another criterion taken into account is the time at which the company should achieve 41


the specified limits of foreign income. The period proposed by different researchers varies from 2 to 15 years. Most often, it is a period of 2-3 years. G. A. Knight and S. T. Cavusgil found that the share of exports in the turnover of companies recognized as born globals should be at least 25% in the first two years since the establishment of the company [Knight GA, Cavusgil, 1996]. Some authors believe that born globals, in addition to the assumed level of income realized abroad at a given time, should operate in at least three foreign markets, while others say that it is the number of countries on at least two continents that makes a company a born global [Pock, M., 2010, p. 21-22]. Loustarinen R. and M. Gabrielsson indicated the following distinguishing features born globals, who:  start operation on foreign markets before or simultaneously with the domestic market,  base their strategic vision and mission from the beginning mainly on global markets and customers  plan their products, structures, systems and finances globally  develop rapidly in foreign markets  want to become global market leaders  use other than traditional strategies for enterprise development  utilize global marketing strategies [Luostarinen R., Gabrielsson, M., 2002, as quoted in: Witek-Hajduk K., 2010, p. 62]. The results of research conducted in Australian companies, are considered as the first confirmation of the existence of such companies, when M.W. Rennie used the term “born global” for the first time in the 1980s [M.W. Rennie, 1993]. Afterwards, the existence of born globals was confirmed by research carried out in the Nordic countries, USA, Canada, Switzerland, Ireland, the Netherlands, Germany, France, Spain, Israel, New Zealand, and Taiwan and Vietnam [Duliniec E., 2011]. The competence of managers as a key internal factor in the development of born globals Early internationalization, especially in small and medium-sized enterprises, is the result of dynamic changes in their environment in the global markets. The stimulation of accelerated globalization of enterprises is primarily affected by changes in the market conditions and changes in political conditions for the functioning of the global economy and technological progress. Mutual reinforcing and complementing of these processes produces a synergy effect and results in new themes encouraging internationalization and globalization of companies. The liberalization of international economic relations, which found expression in the elimination of trade barriers, free currency exchange and freedom of capital movements make barriers to market allocation mechanism across borders disappear. 42


The accelerated internationalization of small and medium-sized enterprises is affected by the development of information technology, which has enabled them to access to information that previously, due to the high costs, was available only to large companies. The development of information technology not only speeds up the international flow of information and reduces its costs, but also allows contacts with suppliers, customers and cooperators around the world. It is possible to quickly extract information on foreign markets and efficiently implement international operations. Market information, its scope, reliability and speed of movement is a key condition for the rapid internationalization of a company. With information and communication technologies in the modern economy, the geographical distance between companies located in different regions of the world is not a barrier to cooperation. Therefore, there are almost unlimited possibilities of entering into cooperative relations on a global scale. Rapid technological development in the field of transport and logistics allows a product to reach distant foreign markets, and activities being coordinated at the international level. The significant achievements of scientific and technical progress include flexible specialization. By using software and automated equipment, it is possible to reduce the scale of production and increase the diversity of products, which in turn allows customization to the needs and expectations of customers. Flexible specialization has contributed to the fact that production has become much more dispersed, and thanks to the development of means of transport and telecommunications it has become possible to move production into different parts of the world. Flexible manufacturing systems have enabled fragmentation of the production process, followed by relocation of fragments of mass production to countries with the most favorable locations. In view of the fact that following the increasingly rapid changes in the environment, more and more challenges for managers of companies emerge. The must not only understand the phenomena of unpredictability and irregularity, but also show flexibility and ability to manage change. Important issues in analyzing the factors of development of “born globals” are internal factors, especially global orientation of the managers of these companies. Managers must have the appropriate competencies, which include: knowledge, skills and attitudes. In terms of internationalization and globalization of the fundamental areas of expertise these are: industry knowledge, knowledge of the international conditions of doing business and an understanding of change, knowledge of management, law or finance. The key skills should indicate organizational, strategic and interpersonal skills. In contrast, the attitude of managers should be characterized by flexibility, adaptability, and focus on quick learning. Managerial competences define the ability of a manager to implement the managerial functions. A consequence of globalization is changing the requirements for the managers who must be able to use their knowledge and experience to solve complex problems of international markets. The desired competence profile takes into account the global manager’s both traditional skills resulting from their role and 43


management functions carried out, and a set of characteristics related to the specificity of the international market. The global manager has, among others, a high sensitivity to cultural needs, and a degree of adaptability/acculturation and learning, entrepreneurship, communication in terms of cultural diversity [Pocztowski A., 2002, p. 32]. According to A. Rialp, J. Rialp, D. Urbano and Y. Vaillant, the founders and managers of born globals are characterized by: – a global vision from the start (global orientation), – previous international experience, – commitment towards internationalization, – extensive use of personal and business contacts [Rialp A., Rialp J., Urbano, D., Y. Vaillant, 2005]. M.T.T. Thai and L.L. Chong, with reference to the results of the study, presented the following characteristics of founders or managers of early internationalized businesses: – a young age, – higher education, – experience in setting up companies, – considerable experience related to the industry arising from prior business practice – large international experience, resulting from current activities in foreign markets, – an international network of personal and business contacts – strong entrepreneurial skills with a clear global vision [Thai MTT, Chong LL, 2008]. It can, therefore, be concluded that managers of born globals are usually educated people who know foreign languages, are mobile and open to intercultural contacts, keep up with the news, have previous experience of working or studying abroad, and are ready for continuous learning. Undoubtedly, in today's global economy, there are a growing number of managers with global orientation who courageously take global challenges. The characteristics of business managers in gradually internationalized enterprises and those choosing fast-track international expansions are presented in Table 1.

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Table 1. Characteristics of founders/managers of traditionally internationalized entities and “born globals” Specification

“Born globals” managers

“Made globals” managers

Vision and way of thinking

Conditioning of further Global vision since the course of beginning, small internationalization on the significance of domestic results on the domestic meaning market

Prior international experience

Extensive professional experience of the Previous international founder/originator in foreign experience not required markets

Managerial involvement

Strong focus on early internationalization, thus entering many countries at approximately the same time

Approach to the cultural differences between countries

Cultural distance does not Starting entry to a country matter when choosing culturally close to home foreign markets market

Acquiring knowledge and skills during international operations

Fast acquisition of knowledge about foreign Slow and systematic, by the markets (most commonly accumulation of experiences these are high-tech product with new foreign markets markets

Cooperation with foreign business partners – networking

Use of personal and business contacts nationally and internationally Incompact international Fast increase in the degree private and business of internationalization contacts activities requiring a dense network of international partners

Fast internationalization of operations

Fast – time to achieve a high degree of internationalization determines the success in the market

Increasing internationalization gradually “country country”

by

Slow – speed of internationalization is not a decisive factor for market success

Source: [Chetty S., Campbell-Hunt C., 2004, p. 66; Rialp A., Rialp J., Urbano D., Vaillant Y., 2005, p. 140-141, M. Pock, 2010, p. 78-80].

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The evolution of the company towards internationalization starts with the realization, by its managers, of opportunities posed by operating in foreign markets. An important moment is to assess the ability to use the perceived opportunities for enterprise management and the assessment of the international potential of the company’s offer. Another important aspect is to have appropriate financial resources, human resources, and information enabling action in foreign markets. Conclusion The changing methods of management are a consequence of the challenges of globalization, which involves acceptance of rapid changes in the environment, departure from schematic action in favor of flexibility, and improving the competences of the organization. The extension of the geographical enterprise requires educating new, globally oriented managers able to take responsibility for the construction and configuration of international competences, as well as for the coordination of their activities abroad and ensuring the company's active presence in selected markets. Although the sequential model of internationalization is still relevant and a large number of companies internationalize their activities based on its basic assumptions, one can expect an increase in the number of companies choosing the path of rapid and extensive global internationalization from the start, due to the changing nature of the determinants of the development of enterprises. An important factor in the rapid internationalization of enterprises is competencies, and therefore the knowledge, skills and mindset of managers who are not focused on a selected foreign market but treat the world as one global market. In the literature other than Polish, results of research on this issue are presented, while in Poland it was only recently that attention started to be paid to the way the internationalization of companies takes place. It is going to be an interesting field of research in the near future, especially in the context of organization, managers and employee competences.

Bibliography Anderson S., Wictor I., Innovative Internationalization in the New Firms: Born-Globals the Swedish Case, “Journal of International Entrepreneurship”, Vol. 1, 2003, Iss.3. Buckley P.J., Foreign market entry: a formal extension of internalization theory, in: M. Casson, Economics of International Business, Edward Elgar, Massachusetts, 2000 Chetty S, Campbell-Hunt C., A Strategic Approach to Internationalization: A Traditional Versus of a Born Global Approach, “Journal of International Marketing”, 2004, No.1 Duliniec E., Koncepcje przedsiębiorstw wcześnie umiędzynarodowionych. Rozważania terminologiczne, „Gospodarka Narodowa”, 2011, Nr 1-2 Duliniec E., Marketing międzynarodowy, PWE, Warszawa, 2004 46


Duliniec E., Przedsiębiorstwa wcześnie umiędzynarodowione – uwarunkowania i rozwój, „Gospodarka Narodowa”, 2011, nr 5-6 Gorynia M., Strategie zagranicznej ekspansji przedsiębiorstw, PWE, Warszawa 2007 Helm R., Internationale Markteintrittsstrategien, Josef Eul Verlag, Köln 1997 Hollensen S., Global Marketing, Pearson Education Limited, 2001 Knight G.A., Cavusgil S.T., The Born Global Firm. A Challenge to Traditionel Internationalization Theory, “Advances in International Marketing”, 1996, No. 8 Knight G.A., Madsen T.K., Servais P., An Inquiry into Born-global Firms in Europe and the USA, „International Marketing Review”, 2004, Vol. 21, Iss. 6. Luostarinen R., Gabrielsson M., Globalization and global marketing strategies and born globals in SMOPECs, w: proceedings of the Annual Conference of the European International Business Academy, Athens, 8-10 December 2002 Międzynarodowe zarządzanie zasobami ludzkimi, A. Pocztowski, Ed. Oficyna Ekonomiczna, Krakow 2002 Moen O., The Born Globals: A New Generation of Small European Exporters, “International Marketing Review”, 2002, Vol. 19, Iss. 2. Nowak-Far A., Globalna konkurencja. Strategiczne zarządzanie innowacjami w przedsiębiorstwach wielonarodowych, PWN, Warszawa 2000 Pock M., Born Globals. Internationale Wachstumsstrategien junger Unternehmen, Gabler Verlag, Wiesbaden 2010 Rasmussen E.S., Madsen T.K., Evangelista F.,The Founding of the Born Global Company in Denmark and Australia: Sensemaking and Networking, “Asia Pacific Journal of Marketing and Logistics”, 2001, Vol. 13, Iss. 3. Rennie M.W., Global competitiveness: Born global, „The McKinsey Quarterly”, 1993 Rialp A., Rialp J., Urbano D., Vaillant Y., The born-global phenomenon: a comparative study research, “Journal of International Entrepreneurship”, 2005, Vol. 3, Iss.2. Rymarczyk J., Internacjonalizacja i globalizacja przedsiębiorstwa, PWE, Warszawa, 2004 Sznajder A., Strategie marketingowe na rynku międzynarodowym, PWN, Warszawa 1995 Thai M.T.T., Chong L.L., Born-global: the case of four Vietnamese SMEs, “Journal of International Entrepreneurship”, 2008, Vol. 6. Witek – Hajduk M. K., Strategie internacjonalizacji polskich przedsiębiorstw w warunkach akcesji Polski do Unii Europejskiej, Szkoła Główna Handlowa w Warszawie, Warszawa 2010 Zhou L., Wu W., Luo X., Internationalization and the performance of Born Global SMEs: The Mediating Role of Social Networks, “Journal of International Business Studies”, 2007, Vol. 38, Iss.4.

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Corporate Social Responsibility Between Reality and Perceptions: Case study of Republic of Moldova Associate Professor Pisaniuc Maia, Ph.D. Academy of Economic Studies Abstract Corporate Social Responsibility (CSR) is an indispensable factor for sustainable development in a society with a global economy, the present article proposes an exploration of the realities and trends in CSR's. Article provides an analysis of results derived from researching the way organization, coordination and evaluation of CSR activities is made within Moldovan companies, as well as the benefits they have as a result of involvement of social responsibility in the communities in which they operate. In this article were highlighted the way of communication and the degree of transparency in CSR activities of companies and were detected perceptions on the peculiarity of local CSR. Article Corporate social responsibility is a concept that has developed and enriched in the last half century. Since '53, when Bowen first used the term "modern CSR" as an obligation of companies "to pursue those policies, to make those decisions, or to follow those action lines which are desirable in terms of the objectives and values of our society" (Bowen, in Thomas, 2006, p.4). CSR has been enriched with other internal and external dimensions, such as: employees, consumers, other stakeholders, environmental protection, poverty alleviation and society’s concerns. The increasing pressure upon large firms due to globalization and increasing concerns related to the growth of power equilibrium between society and companies, have turned CSR, over the years, in a discussed matter in economic, political, ethical, social etc. terms. The current financial crisis has strengthened the debate on CSR. More than ever, this recession has focused on the role of profit in appearance of crises in general, but also on the relationship between the market and the public sector. Supporters of CSR see in this crisis a confirmation of the need to strengthen the social responsibility of companies, as a way to avoid major turmoil in the future. The main source against CSR is the argument of Friedman developed in 70s, under which a business should take care of creating profit, respecting the laws and ethical principles imposed by society. Companies do not have moral rights, they are not 49


persons, and any attention of the firm on the effect of its external actions is not relevant and therefore should not be a concern for the company's management (Crowther and Martinez, 2004, p 103). This position seems to gain special attention during the current crisis. Liberal point of view, according to which repeated interventions on the market and new obligations created for the companies (such as CSR) have diverted businesses from their main objective of earning money. "The best way to ensure a positive role for business is to extend the scope and improve the functioning of markets" (Henderson, 2001, p 31). CSR - as a set of volunteering actions, places companies that are engaged in such activities, in a disadvantageous position, compared to those that do not carry out CSR activities. Therefore, the current crisis is the result of intrusion into the market mechanism; and CSR proves its failure, both for companies and for society. Various studies, showed a negative relationship between CSR and aspects related to corporate performances: environmental performance has a negative effect on the financial statements (Ingramand Frazier, 1983 Souto, 2009), CSR and shareholder value does not coincide (Freedman and Jaggi,1982 Souto, 2009), social and economic performance have opposite consequences on financial statements (Waddock and Graves, 1997 Souto, 2009), social constraints and responsible social behavior can work against value maximization (Jensen, 2001 Souto, 2009), investment in CSR isnegatively reflected upon domestic owners (Barnea and Rubin, 2005, Souto, 2009), strong evidence against the idea that CSR initiatives have universal or systematic positive financial impacts (Mittal etal., 2008 Souto, 2009). As a consequence, economic recovery cannot be expected if firms are asked to deal with other issues than those related to their intrinsic activity. Many authors sustain that the current crisis is due to irresponsible behavior of companies. Porter and Kramer (2002) highlights the need to review the entrepreneurial model, focusing more on integrating social aspects in corporate objectives, Stiglitz (Souto, 2009) emphasizes that financial issues have lagged behind social needs, Scherer and Palazzo (2007 ) consider CSR not concerned with public issues, but more, but more of a marketing exercise (Maignan and Ferrell, 2001 Gond and Matten, 2007)and Jonker and De Witte (2006) argues that the crisis is an expression of lack of maturity of the present. Problems created by Enron, Union Carbide, the collapse of Arthur Andersen (Crowther and Martinez, 2004, p. 102), greedy and irresponsible banks, irresponsible financial sophistications developed only for speculations and for profit reasons, irresponsible corporations and irresponsible managers, and, finally, irresponsible capitalism (Visser, 2008; Reich, 2008), are causes of the present financial crisis. “In 2009, we are discovering business responsibility through the effects of irresponsibility, [embodied by] the likes of Madoff and Lehman Brothers” (GlobeScan, 2009). And, as an irony, the rescue plans developed by governments starting with 2008 were designated to save those large companies that demonstrated an irresponsible behavior in conducted business and ignored any social and moral values! For the CSR supporters, this crisis is a new, more powerful reason for reinforcing 50


CSR. Those in favor of CSR have stronger arguments in pledging for approaching CSR more vigorously than ever. In the opinion of those that sustain CSR as a viable dimension of businesses (Crowther and Caliyurt, 2004, Gond and Matten, 2007, Visser, 2008, Thome, 2009, Vermeer and Clemen, 2009, Souto, 2009), there are no evident oppositions between business activity and responsible behavior. What the economic crisis is asking from companies is similar to what CSR needs, such as: innovation, that in term of responsibility means a CSR that is stronger, embedded in the corporate goals and strategy, a long term vision on CSR that is more related with social goals, a communicative, motivated atmosphere. These are all meant to increase the employees’ productivity, the partnerships with stakeholders, to reconnect them to the business purposes, create a long term sustainable business strategy, based on CSR, that would rebuild investors’ confidence, public trust, good image and reputation. Behind theoretical approaches, the attitude that managers have against CSR sustains the idea that responsible behavior of companies is strongly influenced by the economic cycle and efficiency, as a concept related to prove it, leads to diminish the budgets for CSR. Managers do not conceal the difficulties that companies faced and that they have to reconsider their CSR practices. Janet Blake, Head of Global CSR, BT and Stefan Crets, General Manager of CSR, Toyota affirmed that a lot of pressure is on companies and managers allocate less time to CSR, focusing on the short term, with committees on cost reduction. Another pressure on CSR activities was seen to be a more cautious approach to CSR in companies. With major job cuts hitting junior through to senior staff, heightening the “emotions of the company,” and “having a significant impact on senior (CSR) decisions,” Blake observed new “risk-aversion among senior staff”, and a determination to look after their own parts of the business. Such narrow thinking could complicate CSR decisions, which require a companywide perspective (GlobeScan, 2009). A study carried on by The Economist Intelligent Unit in 2008 showed that companies reduced a lot their budget designated to CSR, despite declarations of their management to remain committed to CSR. The survey of more than 560 business people found that despite a majority of respondents saying their business depends on effective corporate citizenship, only about one-quarter believe it is “very important” to overall business strategy, and only 28 percent of respondents characterized their CSR strategy as proactive (EIU, 2008). A survey of U.K. businesses by KPMG and “Business in the Community” found that a third of companies cut their corporate social responsibility budgets in 2009. Companies that developed CSR based mostly on philanthropic ac tions will cut out the funds (Visser, 2008). According to a study by the Giving USA Foundation, charitable donations by U.S. companies fell by 8% in inflation-adjusted terms in 2008 (Evans, 2010). A major obstacle in invigorating is the trust that consumers, investors and other categories of stakeholders have in companies. This trust is a consequence of the corporate responsible behavior and the society expectations that were very high. Poor corporate responsibility performance would be exposed during crisis. “We will see who is not behaving responsibly for core reasons,” argued 51


Rob Cameron, Chief Executive, Fairtrade Labeling Organizations International. “In 2009, we are discovering business responsibility through the effects of irresponsibility, [embodied by] the likes of Madoff and Lehman Brothers” (GlobeScan, 2009). A survey of 130,000 Facebook users conducted by Ge orgetown University and the World Economic Forum found that only a quarter of respondents believed corporations have a "values-driven" approach to business (Evans, 2010). Rebuilding the trust in the companies’ behavior can be very difficult to achieve. Data collected by GlobeScan on 10 industries, across 32 countries shows that expectations on CSR are increasing, while CSR performance is perceived as being lower. Consumers are increasingly punishing irresponsible companies and rewarding responsible ones, most markedly in the USA and Canada, but also in large developing economies (GlobeScan, 2009). The first step in the analysis presented below was consultation of annual and sustainability reports of each company from the sample, for the financial year 2008-2009, to effectively identify social responsibility actions towards partners of economic entities. After content analysis of company reports, preliminary results consisted of an extremely rich material, presenting a wide range of corporate responsibilities in relation with the two stakeholder groups: employees and customers. This material has been filtered to create a synthetic image for each group of partners, including as many of the identified responsibilities as possible. Table nr. 1: The final sample, indicating the country of origin and classification by sectors Nr. Sector of activity Automobiles and 1. components Banking 2. Raw Materials 3. Chemical industry 4. Food industry 5. Pharmaceutical products 6. Industrial goods and 7. services Insurance 8. Oil and gas 9. 10. Retailing

Company Daimler

Country Germany

HSBC BHP Billiton Bayer Nestlé Roche Holding Siemens

UK UK Germany Switzerland Switzerland Germany

Allianz Royal Dutch Shell Tesco

Germany UK UK

Source: elaborated by the author based on companies reports, 2010

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CSR practices are marked by two essential attributes: voluntary character and a wide diversity. In addition, it is difficult to determine the boundary between mere compliance with legislation and those initiatives that go beyond legal requirements, providing to their social partners a guarantee that companies have actually learned the social and environmental responsibilities. Most social responsibility initiatives do not have a major negative impact on the profitability of the company; in fact, they are integrated in core products and services, as elements of economic efficiency. Instead, these initiatives may have an extremely important positive impact, when employees and consumers consider company as a fair and generous player who gains profit by selling products and services, not by violating rights of the social partners. A successful company is not just a company that registers substantial profits, has thousands of customers or represents a brand of millions. A successful company is first and foremost a company that has a responsible attitude towards its employees, customers, community and partners, and in general has a responsible attitude towards the society in which it activates and develop its business. In European Union is mandatory that every company develop its own programs of social responsibility, this criteria is being introduced in European policies. Moreover, the government support and provide certain facilities, in particular to the companies that promote social responsibility. In this way, the business, along with the state, contribute to the creation of a healthy environment and society. Some studies indicate that the practice of CSR brings some benefits to companies, at least for some economic sectors. The most obvious can include: • reduction of the production costs; • companies that offer benefits to employees (such as flexible working hours, working with trade unions) have a highly motivated personnel; • international certification standards and the implementation of the code of ethics at the company level, generates the growth of technological innovation within the institution; • there is also a strong correlation between practicing certain CSR activities (code of ethics, external audit) and attracting new customers and partners. Although CSR is a relatively new concept for the business environment in Moldova, many companies state that they are interested in understanding of this concept. Many of them are still in the process of clarifying the differences between philanthropy and CSR. Some of them (but very few) are at the stage of institutionalization of the concept, while others are already looking for the right model that can be used in the interaction with the company's internal and external environment (suppliers, customers, partners and employees), and some companies are at the more advanced level (development code of ethics, developing a strategy and annual budget for CSR activities, etc.). The majority of managers of the companies do not understand what RSC actually means, while most of them do not even consider that the integration of these principles and values in current practice to happen soon and do not realize the benefits that it can bring to the company. Thus for the Moldovan reality, at the moment CSR remains a more declarative 53


practice, since too few companies are likely to transpose the principles of CSR in their activity. Profile of the companies interested in integrating CSR as part of their business model is different from the ones that practice philanthropy: there are big companies, members of international networks that understand the long-term benefits that social responsibility brings. They are aware of the benefits and follow exact goals. • While CSR is a term apparently difficult to understand for most of the companies surveyed, philanthropy seems to be very well integrated into the business culture of Moldova. Companies often consider donations as a "tribute" they pay to the society. However, companies experience difficulties since most of the times, institutions requesting donations are not transparent, and the donor have no way to check the use of funds. Precisely because of this reason, companies prefer to donate money consistently to the same "verified" institution. • Independent business networks are currently the most pro-active group of respondents regarding the organization and support of philanthropic activities. Moreover, IBN is trying to inform public authorities about the difficulties encountered by economic agents in performing philanthropic activity. However, independent business networks have a great potential in promoting CSR that remains untapped. • Although in following the study were identified some progress regarding the practice of philanthropic activities, the essence of the CSR term still remains relatively obscure to all interested social actors. Large majority of respondents tend to assimilate CSR with philanthropy. • The category apprehending to a certain extent the distinction between these two types of activities is represented by officials from the ministries. Unfortunately, the study shows that some of these respondents are the most uninterested in implementing and promoting CSR. This lack of interest is partly explained by the fact that public authorities do not realize the opportunities that would open a wider application of CSR principles. As a result, public authorities have not developed policies that would aim to promote or at least to support the activities of the RSC. • In the case of philanthropic activities, we identify a problem of institutional management that constitutes a barrier in attracting funds. Therefore, economic agents that want to run some philanthropic activities often waive these initiatives simply because they do not find an official who would direct them. • Some government agencies have a number of initiatives, both philanthropic and CSR, which often are not supported by public officials at higher hierarchical levels. At this level, can be detected once more, the lack of interest in promoting CSR of the authorities.

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Conclusion A feature of the SR in the Republic of Moldova is the fact that the most responsible are large companies, or monopolies. Their practice is based on sponsorship. Among the SR companies are commercial banks and companies like Orange, Moldcell, Bioprotect - in fact the most profitable ones, etc. The question that arises is wouldn’t it be more responsible to reduce taxes to services to be more responsive to social needs, but not to provide some philanthropies at their discretion. We could say that CSR is currently a method to clear errors made to the society, but not to be a simple collector of profits.

Bibliography: Toma, G.S., Social Responsibility and Corporate Citizenship in the 21st Century.Amfiteatru Economic, 2008.X(23), pp. 80-85. Todt, H.,. Some aspects of the economic crisis. Amfiteatru Economic, XI(3), 2009. pp. 667674. Reich, R.B., The Case Against Corporate Social Responsibility, Goldman School Working Paper Series, University of California, Berkeley, [e-journal] 2008. Available on: SSRN database [Accessed on March 22nd, 2010]. Thome, F., Corporate Responsibility in the Age of Irresponsibility: a symbiotic relationship between CSR and financial crisis? A IISD Commentary. [online] 2009 Available at : [March 2010]. Barnett, T.. Corporate social responsibility, Reference for Buisness, Enciclodedia for Business, [online] Available on: [March 22nd, 2010]. Evans, J.,. Good Intensions, The Wall Street Journal, [online] Available on: http://online.wsj.com/article/SB10001424052748704878904575031330905332468. html> [ 2010]. Expert-Group Report regarding CSR of companies from RM., 2011 www.expert-grup.org

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The influence of Corporate Social Responsibility on Employees’ Job Satisfaction Piotr Sedlak, M.Sc. Cracow University of Economics The article is prepared as a result of resarch grant „Strategia adaptacji Społecznej Odpowiedzialności Biznesu w okresie społeczno-gospodarczej destabilizacji.” Number 2011/03/B/HS4/01972 founded by Narodowe Centrum Nauki.

Abstract The article describes the idea of Corporate Social Responsibility (CSR) and Job Satisfaction (JS). Important part of the text is devoted to tools used to measure JS. The author looks for connection between CSR activities and employee satisfaction. In the article there are both theoretical deliberations an practical research review.

Definitions Both concepts of Corporate Social Responsibility (CSR) and job satisfaction are present in management science for many years. Most of the author’s students when asked a question about the beginning of CSR answers that it is relatively new idea that has been invented in 2000. Except it is not true. The idea of CSR in said to be popular in a 1970’ 21 but it was born and named much earlier. The oldest publication connected with the subject that the author found was in Social Responsibilities of the Businessman from 195322. Other researchers found even

21

Gavon J., Maynard W.S.; Perceptions of Corporate Social Responsibility; Personnel Psychology 1975; 28; p. 377. 22 Bowen, H. R., Social Responsibilities of the Businessman, 1953 New York:Harper & Row. 57


earlier works, dating back to 1932.23 Since that time the topic have been more and more often in the point of interest of researchers. Many definitions have been created. When we look at the term of corporate social responsibility from the linguistic point of view the world “responsible” is explained as “something that it is your job or duty to deal with”24 and the world social express the duty is toward other people. Bowen H.R. defined CSR as „the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society”25 Carroll A.B. in 1975 in his meta-analysis gathered definitions of CSR that were used at that time. CSR was described as “Going beyond profit making (Davis, Backman); Going beyond economic and legal requirements (McGuire); Voluntary activities (Manne); (…) Concern for the broader social system (Eells and Walton); Responsibility in a number of social problem areas (Hay, Gray and Gates); Giving way to social responsiveness (Ackerman and Bauer, Sethi)”26. Carroll A.B. himself defined Corporate Social Responsibility as consisting of 4 elements: Discretionary (or Volitional) Responsibilities, Ethical Responsibilities, Legal Responsibility and Economic Responsibilities.27 In recent definition, often instead of society the world and the idea of stakeholders appears. For example Turker D. writes that “CSR is defined as corporate behaviors which aim to affect stakeholders positively and go beyond its economic interest”28. Other example gives Ching-Sing You and saying that CSR appears when “an enterprise, in addition to pursuing the maximal interest of a shareholder, should also take care at the same time the interests of related persons (…) that includes the employees, consumers, suppliers and the community environment”29 Freeman E. which by many is believed to be the father of 23

Ching-Sing You and others; The Relationship between corporate social Responsibility, Job Satisfation and Organizational Commitment; International Journal of Organizational Innovation; Vol 5; April 2013; p68. 24 Cambridge English-English dictionary; http://dictionary.cambridge.org/dictionary/english-polish/responsibility?q=responsibility 25 Bowen H.R. quoted in Rahman S.; Evaluation of Definitions: Ten Dimensions of Corporate Social Responsibility; World Review of Business Research Vol 1. No. 1; March 2011; p. 167 26 Carroll A.B.; A Three-Dimensional Coceptual Model of Corporate Perdormance; Academy of Management Review 1979 Vol 4 No. 4 p. 499 27 Ibid. 28 Turker D.; How Corporate Social Responsibility Influences Organizational Commitment; Journal of Business Ethics 2009 (89) ; p. 191 29 Ching-Sing You; op.cit. p. 68 58


Stakeholder Theory by the term of stakeholder understood “any group or individual who is affected by or can affect the achievement of an organization’s objectives”30. Although some researchers tend to use Freemans’ stakeholder term it does no change much in the CSR meaning. The society in which the company operates will be stakeholder and individual stakeholders will be members of the society. So looking from the perspective of time we may say that the CSR definitions still has the same meaning. Often in corporate definitions one can encounter the “going beyond” part which is connected to the approach when as CSR are considered only actions which are not result of law obligations of company’s own interest. In this research CSR will be understood similar to Turker D. definitions as corporate actions which bring positive influence to society or its members. However the author of this article believes that all the positive actions may be called socially responsible. For example paying taxes is also socially responsible because generates positive results for society (at least theoretically should). So CSR activities will be both the one which are required by law and those who are voluntary and “goes beyond”. The other significant term in this study is Job Satisfaction (JS). Every manger would agree that it is important matter in his company. But what does employee satisfaction really influence? It considered as important predictor of job engagement31. What maybe a surprise it does not always influence productivity directly. Schwab D. P. i Cummings L.L.32 gathered result of research of Scott, Brayfield and Crockett, which does not confirm connection between satisfaction and work results. Also Porter i Lawler33 says that satisfaction not always bring positive work results but shows if the company pays its employees right.

30

Freeman R. E.; Strategic management: A stakeholder approach; Boston 1984; Pitman Juchnowicz M.; Satysfakcja zawodowa pracowników; Polskie Wydawnictwo Ekonomiczne; 2014; p.7. 32 W.E. Scott i LL. Cummings; Zachowanie człowieka w organizacji; PWN; Warszawa 1983; p. 187 33 Porter L.W.; Lawler E.E.; What job attitudes tell about motivation; Harvard Business Review nr 48; 1968 31

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Satisfaction itself can be defined as “feeling of pleasure and contentment” 34 or “the pleasant feeling you have when you get something that you wanted or something that you wanted to do”35. It is connected with our evaluation of external situation36. Some also connect it with positive attitude towards work environment and work duties.37 Important definition is created by Locke E.A. he defines JS as “a pleasurable or positive emotional state resulting from appraisal of one’s job or job experiences”38. Not only he defines the term but also gives explanation of its origins. Most of the researchers agree that Job Satisfaction is, in general, a multidimensional concept, which is confirmed by already developed questionnaires which are described in further part of the article. Juchnowicz M. presents 3 aspects of job satisfaction:   

Cognitive – employee knowledge about work and its conditions on which he builds his opinion Emotional – feelings towards work Behavioral – attitude and behavior at work39

Juchnowicz M. also differentiate contentment and satisfactions. She defines contentment as positive attitude at work which is result of work conditions and satisfaction as a higher level when both contentment is present and also when employee can use his skills, face various challenges, feels autonomy at work.40 Her concept is similar to Herberg F theory, which is reminded later in this article.

34

Polish Language Dictionary PWN; http://sjp.pwn.pl/szukaj/satysfakcja electronic access 03.2014 35 Cambridge English-English dictionary; http://dictionary.cambridge.org/dictionary/english-polish/satisfaction?q=satisfaction 36 Paille P; Citizenship in the Workplace: Examining Work Attitudes as Predictior among Drench Employee; International Jurnal of Business and Management Vol. 5, No. 4; April 2010; str. 55 37 Kłosowska J., Taradaj M.; Kwestionariusz do pomiaru satysfakcji z pracy; http://badaniahr.pl/kwestionariusz_do_pomiaru_satysfakcji_z_pracy; accesed 04.2014 38 Locke E.A. The Nature and Causes of Job Satisfaction; Handbook of Industrial and Organizational Psychology (chapter 30). p. 1300 39 Juchnowicz M.; op.cit. p.11 40 Ibid. P. 15 60


Measuring Job Satisfaction If we look for the answer if Job Satisfaction is influence by CSR it will be extremely useful to understand how JS is measured. „Satisfaction is measured usually based on questionnaires covering contentment and pleasure which person feels because of work or its parts.”41. To the most popular satisfaction questionnaire is Minnesota Satisfaction Questionnaire (MSQ) created by D.J.Weiss-a in 1967 and JDI (Job Descriptive Index) developed by the team Smith, Kendall, and Hulin 2 years later. The newest version of JDI was published in 2008.42 The MSQ questioner consists of 100 statements which build 20 scales (ability utilization, achievement, activity, advancement, authority, company, compensation, co-workers, creativity, independence, moral values, recognition, responsibility, security, social service, supervision (HR and technical), variety, working conditions)43. JDI is shorter and consist of 72 statements which gathers into 5 dimensions (work, salary, promotion possibility, supervision and co-workers)44. Among validated questionnaires it is also worth to mentioned Job Satisfaction Survey (JSS) created by Spector P.E.45 Why are we using scales in social research? Górniak J. suggest that using single questions is much more prone for error than summary scale.46

Woźniak J.; Współczesne systemy motywacyjne; PWN; Warszawa 2012; str. 52-53 Society for industrial & organizational psychology; http://www.siop.org/tip/july10/06jdi.aspx; dostęp 07.2013 43 Bochyńska – Śmigielska E.; Badanie satysfakcji z wynagrodzenia – metody kwestionariuszowe. Część I.; http://wynagrodzenia.pl/artykul.php/wpis.1729, accesed 07.2013 44 Ibid. 45 Spector P.E.; Measurement of Human Service Staff Satisfaction: Development of the Job Satisfaction Survey; American Journal of Community Psychology;1985; Vol. 13, No. 6. 46 Górniak J.; My i nasze pieniądze; Aureus; Kraków 2000; p. 67 41 42

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The connection of CSR and Job Satisfaction - theoretical deliberations In this part of a text author tries to find theoretical links between CSR and JS. To start let’s look at already mentioned Job Satisfaction definitions. Most of them use world contentment and pleasure. Each of this feelings may result from seeing own company or organization to be socially responsible. When we look at Locke E.A. definition – which says that JS is a result of one’s job appraisal the thing get more complicated. If we consider only evaluation of particular employee duties and rewards it would mean that external CSR companies activities does not influence Job Satisfaction. When we look at MSQ questioner we may noticed that CSR activities may influence some of the satisfaction’s dimensions which the questioner measures: moral values, recognition, responsibility. So MSQ shows us that there is an area when CSR can influence JS. Looking for other research it is worth to notice Herzberg F. work, which is sometimes considered more connected with satisfaction than motivation. He was asking participants of his research when they feel really good and when really bad47. That is why for example Oleksyn T. says that: „Herzberg confused motivation with satisfaction”48. When we look at Herzberg research we can see that in the answer of his interlocutor many people mentioned company policy and administration. What need to be added is that they mentioned it among factors which caused dissatisfaction. So one can put assumption that Corporate Social Responsibility may not be mentioned as factor causing satisfaction so often. The detailed result of Hezberg survey is presented on the Picture 1.

47

Shields J.; Managing Employee Performance and Reward; Cambridge University Press 2007; str. 71 48 Oleksyn T; Zarządzanie Zasobami Ludzkimi w Organizacji; Oficyna Wolters Kluwer; Kraków 2008; p. 222 62


Picture 1. Factors revealed by Herzberg F. research

Source: Herzberg F.; How to Motivate Employees; in Harvard Business Rev.; I 2003; p. 90

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The connection of CSR and Job Satisfaction - empirical evidence Fortunately, we do not have to base only on theoretical evidence. There are research which were focused only on influence of Corporate Social Responsibility. The author of this text after literature studies decided to present 4 chosen empirical research from different part of word. Tziner A.49 and others surveyed 110 employees from two organizations. They used CSR questionnaire developed by Turker and short version of Minnesota Satisfaction Questionnaire. They found statistical evidence that CSR is connected with JS, although the strongest links were found rather between dimensions of CSR that the CSR in general. Another study done by Ching-Sing You and others50 on the sample of 234 shows that there is positive correlation between CSR and Job Satisfaction and also organizational commitment. The positive connection was also discovered by Valentine S. and Fleischman G.51 Using paper questionnaires they surveyed 313 people. The put forward a concept of perceived CSR and emphasis that the most easy to see for employee activities influence him the most. For example presence of ethical code. One of the biggest studies the author of this text reached was the one done by Tamm K., Eamets R and Motsmees P.52 who gathered sample of 3637 responses from Estonia, Latvia and Lithuania. They created own CSR index and proved that the companies in companies with low CSR employees are less satisfied. One of the most essential factors for JS were basic pay and working conditions (which authors qualified as CSR part).

49

Tziner A. and others; Corporate Social Responsibility, Organizational Justice and Job Satisfaction: How do They Interrelate, If at All?; Revista de Psicologia del Trabajo y de las Organizaciones Vol. 27 no.1; 2011; p. 67-72. 50 Ching-Sing You and others; op.cit. 51 Valentine S., Fleischman G.; Ethics Programs, Preceived Corporate Social Responsibility and Job Satisfaction; Journal of Business Ethics; 2008 (77); p. 159-172 52 Tamm K., Eamets R, Motsmees P; Relationship between Corporate Social Responsibility and Job Satisfaction: The Case of Baltic Countries; SOURCE University of Tartu - Faculty of Economics & Business Administra;2010, Issue 76 64


Summary Both Corporate Social Responsibility and Job satisfaction are important issues for stakeholders and managerial world. They influence environment and in case of JS indicators which are crucial for management and business owners. Corporate Social Responsibility and Job Satisfaction have been proved to be multidimensional concepts. In both cases there are also many definitions, fortunately not so different from each other. The theoretical deliberations suggested that there should be a visible link between CSR and JS, as Job satisfaction is a result of for example working condition and pay level which can be part of internal CSR. External CSR if perceived by employee may influence pride from being part of such company and also be consistent with employees ethical expectations. The author after literature studies presented also 4 empiric research confirming CSR influence on Job Satisfaction.

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Bibliography Bochyńska – Śmigielska E.; Badanie satysfakcji z wynagrodzenia – metody kwestionariuszowe. Część I.; http://wynagrodzenia.pl/artykul.php/wpis.1729 Bowen, H. R., Social Responsibilities of the Businessman, 1953 New York:Harper & Row. Cambridge English-English dictionary; http://dictionary.cambridge.org Carroll A.B.; A Three-Dimensional Coceptual Model of Corporate Perdormance; Academy of Management Review 1979 Vol 4 No. 4 Ching-Sing You and others; The Relationship between corporate social Responsibility, Job Satisfation and Organizational Commitment; International Journal of Organizational Innovation; Vol 5; April 2013; p68. Freeman R. E.; Strategic management: A stakeholder approach; Boston 1984; Pitman Gavon J., Maynard W.S.; Perceptions of Corporate Social Responsibility; Personnel Psychology 1975; 28; Górniak J.; My i nasze pieniądze; Aureus; Kraków 2000; Juchnowicz M.; Satysfakcja zawodowa pracowników; Polskie Wydawnictwo Ekonomiczne; 2014; Kłosowska J., Taradaj M.; Kwestionariusz do pomiaru satysfakcji z pracy; http://badaniahr.pl/kwestionariusz_do_pomiaru_satysfakcji_z_pracy Locke E.A. The Nature and Causes of Job Satisfaction; Handbook of Industrial and Organizational Psychology (chapter 30) Oleksyn T; Zarządzanie Zasobami Ludzkimi w Organizacji; Oficyna Wolters Kluwer; Kraków 2008; Paille P; Citizenship in the Workplace: Examining Work Attitudes as Predictior among Drench Employee; International Jurnal of Business and Management Vol. 5, No. 4; April 2010; Polish Language Dictionary PWN; http://sjp.pwn.pl Porter L.W.; Lawler E.E.; What job attitudes tell about motivation; Harvard Business Review nr 48; 1968 Scott W.E., Cummings L.L.; Zachowanie człowieka w organizacji; PWN; Warszawa 1983; Shields J.; Managing Employee Performance and Reward; Cambridge University Press 2007; Society for industrial & organizational psychology; http://www.siop.org/tip/july10/06jdi.aspx Spector P.E.; Measurement of Human Service Staff Satisfaction: Development of the Job Satisfaction Survey; American Journal of Community Psychology;1985; Vol. 13, No. 6. Tamm K., Eamets R, Motsmees P; Relationship between Corporate Social Responsibility and Job Satisfaction: The Case of Baltic Countries; SOURCE University of Tartu Faculty of Economics & Business Administra;2010, Issue 76 Turker D.; How Corporate Social Responsibility Influences Organizational Commitment; Journal of Business Ethics 2009 (89) ; Tziner A. and others; Corporate Social Responsibility, Organizational Justice and Job Satisfaction: How do They Interrelate, If at All?; Revista de Psicologia del Trabajo y de las Organizaciones Vol. 27 no.1; 2011 Woźniak J.; Współczesne systemy motywacyjne; PWN; Warszawa 2012 Valentine S., Fleischman G.; Ethics Programs, Preceived Corporate Social Responsibility and Job Satisfaction; Journal of Business Ethics; 2008 (77); 66


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The Role of Logistics Social Responsibility in Gaining Competitive Advantage in Business Dominika Guja, M.Sc. Monika Sady, M.Sc. Cracow University of Economics The article is prepared as a result of resarch grant „Strategia adaptacji Społecznej Odpowiedzialności Biznesu w okresie społeczno-gospodarczej destabilizacji.” Number 2011/03/B/HS4/01972 founded by Narodowe Centrum Nauki.

Abstract Entrepreneurs, in order to deliver high quality products, social and environmental standards, should pay attention to what is happening throughout the whole supply chain, from which the materials needed in the production process come. It is important to realize, that manufacturers are responsible not only for the final product, but the whole process of delivering goods. It seems that the concept of Logistics Social Responsibility facilitates the verification and monitoring processes in the supply chain. The article portrays the issue of Logistics Social Responsibility and its impact on competitive advantage of companies. Social Responsibility as an idea Nowadays the idea of Social Responsibility is attracting increased curiosity in corporate activities because of interest groups, which began paying much attention to social aspects of business life. It is still very common for companies to take actions which will be both, economically effective and socially responsible in the area of community or environment. This is the result of changes in the modern society, changes based on degradation of environment, social matters, disproportions in division of wealth in the world, evolvement of technology and teleinformatics. Big companies require their employees to be involved in projects connected with social and environmental issues in order to improve their image among customers, suppliers, local community and authorities. These actions may consist of donating 69


money to charity, recycling, building schools, planting trees, waste separation, and many other projects focused on doing something more than just being profitable. Many international organizations have introduced CSR guidelines, criteria and indices, which are supposed to show companies of different sizes and industries on how to be socially responsible towards local communities, the environment and act respectfully towards their employees. Best known examples like: Global Sullivan Principles, the United Nations Global Compact, the Green Book of the European Union, The European Union Charter of Fundamental Rights, the OEDC Guidelines on CSR, The Caux Round Table, Accountability standards (SA 8000, AA 1000) all aim at enabling implementation of good practices of social responsibility into company’s management process. Each organization, before implementing social responsibility should carefully identify the areas in which it wants to be responsible in and then choose a CSR model which would suit its organizational structure, culture and values. CSR activities usually concern such areas as: employment and work relations (in terms of work safety, ban of discrimination, working hours, salaries and other benefits, freedom of associations and collective negotiations), relations with stakeholders (owners and investors, clients, suppliers, competitors, allies), relations with local communities, environment preservation and products and services. 53 The UN Global Compact-Accenture CEO Study on Sustainability 2013 has studied the opinions on CSR of 1000 CEO’s of the biggest international companies. The study has shown that a majority of CEOs (67%) believe that the business sector is unable to afford sufficient actions to ensure sustainable development. According to the recipients, the most important factor for clients is still the price of the product – not social responsibility of the producer. This study shows a distressing tendency of doubting in CSR as a way to conduct business. In the times of financial crisis and economical discontinuation processes, companies tend to start cutting costs with CSR activities. CSR activities are the first to be cut out of the budget, because they do not have a direct impact on sales. Another reason is the fact that CSR in most cases is not rooted into company’s organizational culture, being its inviolable component, but a project aiming at creating bonds with employees, clients and local communities.

Social Responsibility In Poland The idea of Social Responsibility has been brought to Poland by international companies, which already had their CSR corporate programs developed and functional. This steady group of companies is still present in the most socially – active group of companies and is eager to be presented in many CSR reports, case studies and publications. They are the ones who have the CSR know-how and budget funding, the ones who are the leaders is good practices and role models in those 53

http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture-UN-GlobalCompact-Acn-CEO-Study-Sustainability-2013.PDF 70


terms. In Polish smaller and medium companies CSR is still perceived as a questionable idea, bringing doubts about the necessity to perform CSR activities. This attitude shows the urgent need to broadly explain the idea among Polish companies and concentrate on the smaller and medium businesses. In Poland CSR is often perceived as a remedy for company’s marketing problems, a tool that will help the company create common value. That is why when analyzing Polish CSR reports, one can easily notice that instead of creating CSR programs that could seriously help to fix urgent social and civilization problems, they concentrate on creating easy and relatively low-cost projects aiming only to create a Public Relations statement. When clients notice these dealings, they tend to lose trust in this kind of activities and start treating CSR as a marketing tool. If the business world will continue to treat CSR as a part of their marketing strategy, it will lose credibility in the eyes of their clients and the society. Stakeholders nowadays not only demand from their companies to be socially responsible, but also to report transparently their actions, employees demand written work standards, consumers demand honest communication of business strategy and socially responsible actions. Polish society needs CSR in order to keep business world close to the society. Another case is environmental responsibility. Shrinking natural resources force countries to search for alternative sources of energy and water. In Poland environment preservation is becoming a more and more popular topic for discussion. Climate changes, air contamination, water pollution are becoming more important than social issues. Both the European Union and The Polish State are trying to enforce laws that will help preserve natural resources, but still considering the amount of companies having negative impact on environment, more than that has to be done. That is why the Polish society started to pay more attention to products labeled “eco”, citizens are starting to live in a more ecologically conscious way. This means that the Polish business must pay great attention to environmental issues and stimulate technological innovations (eg. in production and transport) that will both bring financial profits, but also will not have the negative impact on the environment. A big impact is also put on recycling and economizing water, electricity and paper. A Strategic Approach to Corporate Social Responsibility CSR is often perceived as an element of a marketing strategy, therefore both – the employees and the management of the company – must identify themselves with the idea of their company being socially responsible. If it is not a part of the strategy, but only an additional project or activity, it will not last. Managing social responsibility inside a company is a challenge. CSR should be included in the organizational structure, must be implemented properly, controlled and verified in regular basis. Realization of CSR assumptions will therefore influence management processes and help the company influence its environment. This way the company formally declares to all the stakeholders, that 71


social responsibility is not only a marketing slogan, but a fully integrated idea of doing business. The CSR idea is not a solution to all the world’s problems, but the companies might benefit greatly through implementing it. Although in this perspective CSR might seem to be a big and problematic implementation project, it is easier than one might think. Implementing CSR should start with educating employees and management, taking care of local community and the environment. Companies often realize those ideas not calling it CSR, but treating those actions as something normal. A very simple and easy to implement CSR practice is implementing environment friendly solutions inside the offices. These are undertakings leading to minimalize negative influence on natural environment, such as waste segregation (not only paper, but also kitchen garbage, light bulbs, electronic equipment), e-mail instead of paper correspondence , introducing necessity to print on both side of a paper sheet, recycling of production components, keeping optimal office temperature control, installing corridor and stairway lamps with movement sensors etc. All those simple solutions lead to CO2 emission reduction even up to 9% a year. While using less energy and recycling waste, companies are able to cut maintenance costs. Being socially responsible forces companies to be more innovative in their products and services (offering eco products and services requires research and implementation of new technologies). This might also lead to later cost reduction due to more effective production processes or using renewable resources. Another important issue is education, but not only in terms of employees, but also education of clients, distributors, suppliers, local communities and other stakeholders. This education should consider not only natural environment issues, but also ethics, operational good practices, human rights, consumers’ responsibility, evolvement of local communities, sustainability etc. Education campaigns bring the company brand differentiation and create a its positive perception. Positive associations with the company’s name is one of the most common factors to start CSR actions. Engaging customers in the education campaign or any CSR activities creates a bong between the customer and the brand. Most companies, while implementing CSR, forget to inform their stakeholders what innovations they are adapting into their strategy, which unnecessarily neglects customers’ right to be informed about the company’s strategy. Engaging clients and employees is the easiest and most effective way to create a highly informed, motivated and engaged environment. What is also very important, CSR forces long-term thinking and strategic thinking. This long-term planning ensures company’s survival and sustainability. It creates advanced corporate culture and broadens corporate scope of interest, which will enable the company to better monitor the environment and react to the incoming changes.

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Development of the concept of Logistics Social Responsibility Regardless of the type of activities, companies begin to understand that they are expected not only to provide products and services but also to take active part in the functioning of their environment - in social, economic and ecological terms. The premises for undertaking responsible actions may differ - the pressure from consumers, the requirements of business partners or simply the company's good will and initiative. Regardless of the motivation, the implementation of the LSR concept will give companies the possibility to generate competitive advantage on the market and becomes a standard in the functioning on the local and global market. Analyzing the concept of LSR54 (Logistics Social Responsibility) we analyze, first of all, such issues as work safety and employee rights, relations with the society, the safety of products, a balanced process of purchase, transport and storage as well as disposal and recycling. Thus, we may distinguish three main areas of LSR: the economic, social and environmental (ecological). When considering the LSR concept, the company's awareness as to its impact on the environment is extremely important, as it is to define the indexes of the measurement of this impact and the preparation of specific solutions making it possible to reduce the harmful impact. In the area of logistics, the level of awareness towards the social responsibility of actions increases systematically which results from a very competitive nature of the market as well as a growing awareness of consumers. The need to adjust to standards as well as legal requirements governing the logistic industry - both on the domestic and the international market - also affects the awareness of market participants and motivates to act according to the guidelines of LSR.

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The discussion of Logistics Social Responsibility may be based on the standard SA 26000 as well as SA 8000 which regulate the principles of the operation of companies focused on responsible cooperation with stakeholders; the main element of SA 8000 is the idea of corporate social responsibility taking into account social and ecological aspects in company management as well as all other factors which may apply to the employee of a given company, http://www.iso.org.pl/ 73


Picture 1 Logistics Social Responsibility

environment

• way of material acquiring • energy- consumption • polution • transport • packaging • recycling • high technologies, efficiency

LSR society

economics

• human rights • labour law • work-life balance • products' safety • reliable information • relations with local community

• fair competition • repayment of liabilities • clear communication in supply- chain • solvency

Source: prepared by the authors

Balanced supply chain The concept of balanced development is based on three basic dimensions the environmental (ecology), social and economic. Regarding the logistic industry and supply chain management, balanced development may be brought down to the following components55: − the reduction in packaging and the introduction of a structure for goods facilitating re-use (recycling); − the reduction in costs of health protection and ensuring safety, costs of fluctuations and recruitment due to better protection for storage and transport processes as well as the improvement of working conditions; − the reduction in labor costs as a result of a higher level of motivation and efficiency as well as lower absences due to the improvement of working conditions; − lower costs, shorter periods of waiting for deliveries, the improvement in product quality as well as lower costs of waste resulting from the implementation of standards ISO 14000 as well as a structure of goods facilitating dismantling and reuse;

55

Carter C.R., Rogers D.S.: A framework of sustainable supply chain management: moving toward new theory, International Journal of Physical Distribution & Logistics Management 2008, no. 5, s. 360-87 74


− the improvement of the company's reputation which may increase its attractiveness for customers and suppliers. In the age of progressing globalization, which manifests itself not only in an intensive flow of goods and services but also in an efficient flow of information, caring for the clarity of actions is one of the key elements of functioning for companies. Despite an elongated supply chain, customers are able to verify information not only on the final supplier but on each previous cell. The responsibility for honest practices and ethical conduct is thus distributed on all participants of the logistic chain, although the biggest risk is borne by the company which offers the final product. As a result of irresponsible conduct, the company's reputation may be damaged which, in turn, affects the loss of consumer trust, a drop in sales and a drop in profit. The LPP company, a manufacturer of clothing locating its production plants in Bangladesh, may be an example. When one of its manufacturing plants underwent a construction disaster it turned out that the agent managing the production as requested by LPP did not observe the labor code and safety requirements. As a result of the disaster, LPP's image suffered, consumers organized numerous campaigns aimed at encouraging the company to undertake actions regarding CSR, along with boycotting the brands belonging to LPP. As a result of consumer pressure, the company decided to join an agreement on safety in clothing factories signed by the largest Western manufacturers. This case is an excellent illustration of the great significance of CSR in a company's strategy and the significant role played by consumers in the process of implementing this concept. The primary objective behind the implementation of the LSR concept is "to use the principles of social responsibility to manage the supply chain and establish a permanent partnership based on bilateral benefits"56. The premises for using socially responsible actions in logistics may be divided into three groups: aimed at reducing risk (protecting the company's image, reducing negative impact on the environment in all three areas), aimed at increasing the effectiveness of functioning (increasing productivity, reducing costs, increasing flexibility of the logistic chain) and resulting from relations company - consumer (satisfying customer requirements by ensuring appropriate quality as well as introducing innovative solutions)57.

56

Sisco C., Blythe Chorn B., Pruzan- Jorgensen P.M, Supply Chain Sustainability. A Practical Guide for Continuous Improvement, UN Global Impact Office and Business for Social Responsibility, 2010, s.5 57 ibidem 75


Areas of the implementation of the LSR concept A special challenge for the logistic industry is the protection of the natural environment. Production processes, acquisition of raw materials, transport and recycling of goods, despite stricter and stricter regulations, are still significantly affecting the environment in which companies function. Caring for the condition of the environment, minimizing the quantity of waste generated during production, proper management of waste as well as an appropriate transport and storage policy resulted in the establishment of the eco-logistics concept. Environmental impact related to harmful emission is the basis for pressures exerted on companies not only by regulatory authorities, e.g. the European Commission but also by consumers who demonstrate a growing ecological awareness. Also the approach of business partners to the issue of socially responsible practices is also significant - analyzing their own supply chain, they cannot ignore the problem of the emission level generated by the product's transport, because extra costs related to reducing the adverse environmental impact may also be imposed on them. We should also mention the fact that these costs are usually indirectly included in the price of the final product which is reflected on consumers. Therefore, a question arises to what extent consumers are able to accept an increase in the cost of purchasing goods or environmental services. In addition, business customers are also sensitive to the perception of their brand by consumers. If they want to introduce a safe product, they will look for a company which will meet their ecological standards. In this situation, companies are facing strategic decisions on reducing emission, e.g. through greater load capacity, better route planning or changes in the means of transport in order to establish an environmentally friendly brand among the customers. It is beyond doubt that the environmental perspective contributes to improving the company's competitive position by introducing operational changes, generates innovations, contributes to the growth in intangible value (e.g. the brand). As a result, it directly affects the company's financial result. According to a report by Euler Hermes (2013) approx. 80% of carriers declares that they undertake actions aimed at protecting the environment. Unfortunately, the declarations do not always agree with the actual state in the transport industry.

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Picture 2 Greenhouse gas emission

Source: GUS, "Poland in EU", 2013

According to IPCC data58 (2013) transport contributes to 13% of the total emission of CO0>2. The energy consumption of transport in combination with the growing volume of cargo flows resulted in the need to implement more restrictive standards regarding the use of means of transport. Adjusting the fleet to Euro 5 (or even Euro 6), the application of IT systems optimizing routes, the application of eco car washes, aero-semitrailers or training drivers in Eco Driving - may initially be a significant investment expenditure for companies. In the long run, however, they are reflected in financial benefits such as, for example, lower road fees or reduced fuel consumption. Similarly, the use of modern technologies in warehouses - e.g. electrical or gas trucks or appropriate lighting, makes it possible to achieve 58

Intergovernmental Panel on Climate Change 77


measurable financial benefits and reduce the harmful environmental impact. It should also be emphasized that any similar actions affect the company's image in the eyes of consumers, who are more and more aware of the power of the impact of their consumer decisions on the environment. Since road transport has specific environmental restrictions, the trend in logistics is to use other branches of transport. The environmental strategy of the European Commission59 covering the period until 2050 contains various objectives for particular transport areas. For instance, the European Commission assumes that 30% of cargo transported by trucks on distances above 300 km will be moved to the railway and ships by 2050. Thus, such great attention is paid to the development of a high speed railway network in Europe as well as the development of the TENT project. In addition, all main airports in the EU should be connected to railway junctions by 2050. The aim of the European Commission is also to connect the EU's sea ports to the network of cargo railway transport and inland water transport. It may thus be assumed that the primary objective of the European Commission is to adapt the infrastructure to the requirements of intermodal transport ensuring the optimum transport of goods. Investment expenditures necessary to create such transport system are assessed at EUR 1.5 trillion. In the social aspect, logistics is based on such elements as safety - both in terms of working conditions and the product, reliability and clarity in relations with business partners, ethical behaviour, respect for the expectations of stakeholders, compliance with legal regulations, compliance with international standards of conduct, compliance with human rights as well as principles of cooperation with the local environment. Social responsibility of the supply chain is thus a result of the concept of Corporate Social Responsibility and Social Corporate Governance. Social Corporate Governance is the emergence of a product (corporate business) from the entire supply chain which will take over the role of the leader and will draw other elements of the chain towards corporate values essential for itself. The definition of standards of actions and encouraging business partners to comply with them positively affects the entire logistic chain. That is why codes of suppliers appear more and more often. The implementation of requirements contained in these documents allows companies to operation at a higher level of service quality and thus to participate in the leading company's competitive advantage. Recently, more and more is said about the conflict between the implementation of the financial result and the compliance with the principles of CSR, in particular regarding the labor code in Asian countries (the case of LPP referred to above). More and more companies decide to adjust working conditions to international standards, even at the expense of reducing their profit. This is, to a large extent, the result of social pressure and consumer requirements, namely social responsibility but on the part of the buyer.

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Report on the transport strategy of the European Commission. in 2050 Brussels, March 28, 2011 78


The main determinants of socially responsible supply chains include60:  the attitude of companies in the entire supply chain to achieve social and environmental benefits;  the right and possibility to present and enforce one's own position through each link of the chain;  a partner approach;  the acceptance of various ethical aspects, typical of various organizational forms appearing in the supply chain In the economic perspective, logistics social responsibility does not differ from the general concept of CSR. The main aspects of LSR include fair competition, observing the terms of payment, clear communication in the supply chain and solvency. The basic assumption motivating socially responsible companies is the condition that financial benefits do not obscure social aspects and do not interfere with the requirements of CSR during the delivery of goods or services. The social responsibility of the supply chain requires decisiveness and actions exceeding the financial, legal or technical dimension since its purpose is to achieve benefits which are significant for all participants of the supply chain to the same degree as economic benefits. Summary Creating balanced logistic systems is a noticeable trend on the global market. The traditionally understood supply chain is being transformed into a system of mutually related elements, the purpose of which is not only a profitable financial result but, first of all, the satisfaction of customers' needs in a socially responsible manner, namely taking into account the basic aspects of LSR - the economic, social and ecological aspect. Due to the implementation of the Logistics Social Responsibility concept companies are able to achieve competitive advantage and effectively fight for consumers, making decisions in a more and more conscious manner.

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Spence L., Bourlakis M.: The evolution from corporate social responsibility to supply chain responsibility: the case of Waitrose, Supply Chain Management: An International Journal 2009, no. 4, pp. 291–302 79


Bibliography Adamczyk J., Społeczna odpowiedzialność przedsiębiorstw, Polskie Wydawnictwo Ekonomiczne, Warszawa 2009 Bernatt M., Społeczna Odpowiedzialność biznesu. Wymiar konstytucyjny i międzynarodowy, Wydawnictwo Naukowe Wydziału Zarządzania Uniwersytetu Warszawskiego, Warszawa 2009 Carter C.R., Rogers D.S., A framework of sustainable supply chain management: moving toward new theory, International Journal of Physical Distribution & Logistics Management 2008, nr. 5 Harvard Business Review, Business Review on Corporate Responsibility, 2003 Nakonieczna J., Społeczna odpowiedzialność przedsiębiorstw międzynarodowych, Wyd. Difin, Warszawa 2008 Odpowiedzialny biznes 2009. Czas próby, Harvard Business Review Polska, Warszawa 2009 Paliwoda-Matiolańska A., Odpowiedzialność społeczna w procesie zarządzania przedsiębiorstwem, Wyd. C.H.Beck, Warszawa 2009 Plawgo B., Społeczna Odpowiedzialność Biznesu raport z badań, Wyższa Szkoła Administracji Publicznej im. Stanisława Staszica w Białymstoku, Białystok 2009 Piekarz H., Idea społecznej odpowiedzialności we współczesnym przedsiębiorstwie, Zeszyty Naukowe Akademii Ekonomicznej w Krakowie, Kraków 2006 Raybak M., Etyka menadżera – społeczna odpowiedzialność przedsiębiorstwa, PWN, Warszawa 2004 Smith N.C., Lenssen G., Odpowiedzialność biznesu. Teoria i praktyka, Studio Emka, Warszawa 2009 Sisco C., Blythe Chorn B., Pruzan- Jorgensen P.M, Supply Chain Sustainability. A Practical Guide for Continuous Improvement, UN Global Impact Office and Business for Social Responsibility, 2010 Spence L., Bourlakis M.: The evolution from corporate social responsibility to supply chain responsibility: the case of Waitrose, Supply Chain Management: An International Journal 2009, nr 4, The Future Supply Chain 2016. Serving Consumers in a Sustainable Way, rapport by GCI and Capgemini, 2008 Wierzbowska T., Mądry, odpowiedzialny biznes, Piar.pl (7.2006) Żemigła M., Społeczna odpowiedzialność przedsiębiorstwa, Oficyna Wolters Kluwer business, Kraków 2007 Żemigła M., Społeczna odpowiedzialność przedsiębiorstwa, Wyd. Wolters Kluwer Polska, Kraków 2007 http://www.iso.org.pl/

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Evolution and Role of the Competition Policy in the Establishment of a Business Competitive Environment “When a competition policy is efficiently enforced, the consumers enjoy the full benefits. In a time of change, the enforcement of the competition policy and the interests of consumers represent a stable relationship.” Mario Monti, Former European Commissioner for Competition Policy

Dodu-Gugea Larisa Ph.D., Associate Professor Academy of Economic Studies of Moldova Stihi Ludmila, Ph.D., Associate Professor Academy of Economic Studies of Moldova

Abstract

This article analyses the evolution and the role of the competition policy, it reviews the anticompetitive practices, and the importance of the institutions regulating competition, of anticompetitive practices identified in the EU, namely of the Competition Council in creating a favorable business environment in the Republic of Moldova by exploring the content of anticompetitive practices revealed in the Republic of Moldova. Article The competition policy represents a set of regulations, objectives and institutions acting to ensure a normal competitive climate, enabling the businesses to freely develop, based on their own decisions and behaviours aiming at acquiring value advantages, as an expression of their efficient market activity.

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The goal of a competition policy is to improve social welfare by ensuring the better functioning of market mechanisms. Therefore, it will basically focus on two aspects:  Regulation of stakeholders’ behaviour on the market.  Involvement of the authority with the market.  [competition environment in order to gain a more efficient allocation of resources in an economy;  to improve consumers’ social welfare by the normal functioning of the market, so as to safeguard the necessary quantity and the best quality and price of a product;  to protect competitors, especially small and medium enterprises against anticompetition actions promoted by market dominating companies (agreements on price, production volume, exclusive contracts, abuse of a dominant position, focus on seizure of an important part of market etc.);  to reallocate the revenues in economy;  to have regional social or sector considerations by regular use of competition policy as a tool to gain non-competition effects such as decrease of unemployment and maintenance of declining sectors;  to focus on a market integration process, a phenomenon which implies various responses that can be amplified or mitigated by an appropriate competition policies.[2] Having analysed the items described above, we found that major objectives of the European competition policy are:  to hamper enterprises from establishing artificially or through arrangements the distribution of markets;  to ban robust concentrations of economic power, which can lead to abuse of a dominant position by damaging the interests of other enterprises or consumers;  to mention the plurality of economic decision centres in order to ensure loyal competition and markets fluidity;  to impede the provision of national public aid to enterprises that distort competition on single markets. Besides objectives, the competition policy applies the following principles: • transparency of adopted decisions on anti-competition behaviours; • non-discrimination of businesses participating in international economic exchanges; • stability of an international competitive framework; • cooperation between different national and international competition authorities on enforcing the legislation in the area.

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For a competition policy to become important, the legislative and institutional mechanisms in force are essential, along with such decisive factors as resources, responsibility and the power to translate into practice, but also the credibility of businesses’ conveyed message and information about the policy content. Emphasis should be put on the fact that these factors can have an efficient impact on the national level, though as a response, they become complex at the regional or integrational level. A distinction should be made between what can be deemed plausible in an ideal world that forms the fundaments for the theoretical models and what is probable in a real, economic world. Development of Competition Policy The goal of a competition policy is to put in practice and present a system allowing a distortion-free competition within an economic space. In a liberal economic theory, the competition policy aims at establishing markets with a perfect competition and preventing the creation of monopolies and oligopolies which impose their prices, disadvantaging the consumers. The European Union has been witness of state monopolies in such areas as: transports, postal services and telecommunications. Investigating the objectives and mechanisms of the European policy in the area of competition, we found that at various periods of its existence, it set different priorities. Therefore, we have identified four consecutive stages of the historical development of the European competition policy. I Stage covers the first 15 years of the competition policy (1957-1972). During this period, a series of legislative documents regulating the competition was developed and enhanced. It is also the time when community competition institutions were created – the Directorate General IV/General Department IV. The main features of the competition policy of that period were the hostile attitude towards agreements (Art. 81), state aid and monopolies being basically neglected. This policy dominated until the end of ’70s, when the shift to the second stage of integration occurred – customs union – a period that revealed the need to regulate the state subsidies. II Stage (1973-1980) was hugely influenced by external factors (oil crisis in 1973-1974). At that time, the basic tools of the General Department IV were established: control over state aid and use of import quotas to protect the European industry against external competition. In mid ’70s, the European Commission would have already a more tolerant attitude towards state aid as a means of fighting against unemployment and supporting declining sectors. As a consequence, there was a trend to ignore the regulations on state aid, which led to sensitive situations that started being remedied in the second half of the ’80s. III Stage (’80s-present) this is the current stage that is characterised by the shift to a new type of competition policy, representing a balance between the neoliberal and interventionist approaches. In spite of pressures coming from those in favour of more protectionist interventions, requesting positioning competitiveness 85


before competition in the hierarchy of objectives fostered by the Commission, the Directorate General IV carried on the promotion of a policy, according to which, the competition inside the EU is the best condition to face the external competition.[1] IV Stage (2007- present) is dominated by the idea of increasing the role of economic analysis in the decision making process in the area of fighting against anticompetition practices and provision of state aid to overcome the consequences of recession. To sum up, the development of the European policy in the area of competition is a “concurrence of passive and active periods”, of “cumulative periods of policy areas expansion, through the development and thoroughness of the objectives to achieve within the policy”. The most important role of the Competition Policy is to identify the anticompetition practices. These practices represent a large range of business practices used by a company or a group of companies which commit to limit the market competition, aiming at maintaining or strengthening their position on the market and increasing their profits, without the effort of reducing costs or increasing the quality of a product:  abusive practices or deals, including the ones determined by the dominant position, close to that of monopoly;  economic concentrations generating strong positions and tendentious behaviours in market dominance;  state aid provided to the privileged advantage of some business operators;  behaviours of enterprises representing the state monopoly or other exclusive rights granted by public authorities. [3] A specialized institution having the role to intervene when the competition rules are broken on the market supports the competition policy by removing deviations from law and stimulating the competition culture among businesses. There are different cases of competition rules violations: a business operator can, for instance, fix a high monopolist price, can discriminate a smaller business operator, can abuse from a dominant position. It also happens that more business operators have a deal regarding a higher price or engage in cartel activities. At the community level, the European Commission is the institution in charge with the enforcement of competition policy. It adopts formal decisions through simple majority, similar to a collective body. The decisions are prepared by the General Department of Competition which reports to the Commissar for Competition Policy. The Commission can be approached on an issue on competition by notification or when an enterprise or a state lodges a claim, or can act ex officio, to investigate specific situations or even the entire economic sector. The Commission can apply sanctions against any breech of competition rules, the penalties constituting up to 10% of the incriminated company’s revenues. Each European country has such a specialised institution active in this area. Below we introduce the procedure of lodging a claim:

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Picture 1. The procedure of lodging a claim

• Application with the European Commission • Market share of at least 25% of the total production • The claim shall contain clear information on the specific product Source: prepared by the author. Source: http://ec.europa.eu/competition

Within the European Union the investigation procedures are the following: • 45 days to examine the complaint; • An investigation normally takes 15 months; • Within nine months, the Commission imposed provisional duties • Final fees are valid for five years. According to an EU report for the year 2010, the competition policy, in particular the enforcement of norms on state aid played a crucial role as a response to crisis: the Member States were allowed to provide subsidies, the number of competition distortion cases dropped and the incentives for excessive assumption of risks were limited. Starting with 2011, the EU Banks supported by the state (capital, measures related to depreciating assets) shall submit a reorganisation plan. The following measures as a matter of competition were taken for recovery:  Fair competition conditions in Europe. For instance, to guarantee that the aid provided to car industry doesn’t come together with the conditions related to plants localization.  Prevention of bankruptcies through a temporary framework allowing Member States providing funding access to viable companies – a framework available in 2011, but having a more limited scope and more rigid conditions and, special attention provided to Small and Medium Enterprises (SMEs)  Promotion of “smart investments”, as for example, through Broadband State Aid Guidelines, to support economic recovery on short term and to gain benefits on a long term for the European competition. As described above, the main body that regulates competition in the EU is Directorate General, which holds executive power in the field. Directorate General in the competition field can intervene only if it holds evidence of breach of competition rules and its decisions can be challenged before the Court of Justice of the European 87


Union. The main activity is not as focused on the development of legislative proposals, but rather on taking actions against companies or member states in case of law infraction commited by them. This body subordinates itself to European Commission, that ensures proper implementation of EU competition rules. Below in Table 1, we can analyze the number of investigations conducted by the European Commission and the number of decisions taken depending on detected cases. [7] Table 1. Cases per Member State in the period 1 May 2004 - February 28, 2013 Nr. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27.

Member state Austria Belgium Bulgaria Cyprus Czech Republic Danemark Germany Greece Estonia Finland France Hungary Irland Italy Latvia Lithuania Luxemburg Malta Netherlands Poland Portugal Romania Slovakia Slovenia Spain Sweden United Kingdom

Investigations 39 44 18 7 13 70 163 39 7 4 218 92 15 99 15 18 5 4 94 26 49 38 13 28 110 42 64

Decisions 6 11 16 1 8 39 84 32 3 10 91 22 2 85 5 15 2 41 12 15 23 14 22 75 17 16

Source: elaborated by the author based on ec.europa.eu/competition/index_ro.html

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Analyzing Table 1, we see that institutions governing the competition and create a favorable environment for businesses and also for consumers were very active in the analyzed period, carrying out a lot of investigations and taking some decisions. An important contribution is that the EU, simplifies the state aid for enterprises as part of revision process of the regulations intended to stimulate the economic growth and to encourage the research and innovation. One of the main objectives of the reform is resources’ concentration on investigating the cases of state aid that have the greatest potential to affect competitors. In the future, the enterprises will be able to benefit from different types of aid for a broader range of activities and larger amounts, and their projects projects will not be cheked prior by the EU authorities. With the simplification of rules, it is estimated that member states will have to notify 10-25% of cases of state aid to the Commission, compared with 40%, as it is notified at present. This decrease will be due to the reduction of number of criteria that trigger an official notification. About three quarters of the current state aid and about two thirds of the subsidies will no longer be notified to the Commission. In this way, it will be reduced the administrative burden supported by enterprises, public officials from national administrations and, implicitly, the European institutions’ staff. Instead of it, member states will have to publish on-line the information regarding any financial support that exceeds EUR 500 000 granted to the enterprises by the public institutions. Thus, the other countries, other enterprises and the general public will be able to check the state aid granted to the economic sector on the entire territory of the EU. The new rules will allow member states the possibility to invest, for example, in clusters of innovation, in broadband infrastructure or in cultural heritage when the aid is clearly intended to create jobs and stimulate competitiveness. It is hoped that these changes will generate, by 2020, an increase of 50% of the money spent in Europe for research, development and innovation. Currently, the EU invests in this area about 2% of the disposable resources. If it will reach 3%, it will be the same level with the U.S. and Japan. This thing would help companies to launch new products on the market and to create jobs. The reforms that will come into force on July 1, 2014, are part of a wider package of measures intended to accelerate the decision making process in matters relating to competition. In recent years, there have already adopted specific rules for a wide range of sectors - including regional development, risk finance and airports. The European Commission is concerned that the Russian gas producer Gazprom could abuse of its dominant gas distribution markets position in the states of the Central and Eastern Europe. The representative of the EC claim the Russian giant could breach the legislation. Last year, the European Commission made inspections at the headquarters of Gazprom and companies in the region that procure gas from the Russian Group, including the Hungarian subsidiaries of the RWE German Groups and E.ON Ruhrgas - the Austrian Group. In 2012, the Russian natural gas producer, Gazprom, exceeded Exxon Mobil and became the company 89


with the highest revenue in the world: 44.46 billion dollars, potrivit RIA Novosti. In May 2012, the Russian Government decided to increase the exploitation fees imposed by Gazprom and other gas producers. Starting with 2015, they have to pay approximately 1.000 roubles (34 dollars) for one thousand m3: four times more compared to the current level. [7] As it is known, each country has established an institution regulating competition. In the Republic of Moldova this institution is called the Council for Competition, previously known as the National Agency for the Protection of Competition. That just as in the EU, after investigation, the Council for Competition

may establish a penalty of 5% - 10 % of turnover. [6] Subsequent to carrying out investigations, the Council for Competition has identified cases of abuse of a dominant situation of 138 businesses, out of whom: in 2007 - 5 businesses, in 2008 - 68 businesses, in 2009 - 43 businesses, in 2010 - 12 businesses and in 2011 - 10 businesses. Between 2007 and 2011, the Council for Competition identified cases of abuse of market dominant position: external vehicle civil liability insurance market “Carte Verde” (by: “Moldasig” Ltd, “Asito” Ltd, “Moldova Astrovaz” JSC, “Grawe Carat Asigurări” JSC); average retail cigarettes price market (by: FCC “Business Market” Ltd and FCC “Comontel Grup” Ltd). Between 2007 and 2011, after the investigations, electric and thermal energy, water and gas sector was mostly affected by the abusive behaviour of dominant businesses, followed by transports and communications and financial activities sectors. The most important investigations are those having a social impact, i.e. those investigations that can be recognized by every citizen. One of those investigations that were carried out is the “Insulin” case. It is the anti-competition agreement between two businesses – “DIDIADI- PRIM” Ltd and ME “ISEPS-FARMA” Ltd, which artificially increased the price during a tender within the National Program “MoldDiab”. Subsequent to this agreement of companies, only 80% of the population could be covered with insulin, while if the rules were observed, the national need would have been fully met. The Council for Competition intervened with this case, and the business operator was applied a 60 thousand penalty, the decision being unappealable and irrevocable. We shall mention that deals occur on markets that are characterized by a high concentration and regulation degree. The reduced number of market participants contributes to easing the arrangements. Therefore, these markets shall make the subject of competition authorities’ surveillance. The areas mostly affected by unfair competition and publicity in the RM are: the processing industry; wholesale and retail trade; ITC, especially electronic communication and the activities on programs production and broadcasting; cultural and recreational activities, gambling and bets. Among the most serious breaches were the unauthorized use by “Licaon-Lux” Ltd and “Hidrochim” Ltd of foreign companies’ brands. As a result of interventions of the Council for Competition, the consumers benefit from the opportunity of choosing between local products and 90


those imported in Moldova. A problematic aspect is their low level of competition culture, as well as some gaps in the legislation in the area. In certain cases, the intervention of the local public authority administration can lead to the market monopolization and restriction of market competition. Such an example is the case on the anti-competition of Chisinau Municipal Council which concluded an agreement of sanitation services provision with one single business operator - ME “Regia Autosalubritate”, thus monopolizing the market of these services. The Council for Competition suggested the organisation by the local public administration authority of a tender for the procurement of sanitation services by Chisinau municipality. Thus, between 2007 and 2008 decisions were adopted for the establishment and expansion, etc. of associations of businesses, and since 2009, decisions were issued on the operations of shares/quotas procurement in the social capital of businesses. [5] Unfortunately, we found that the biggest competition issues are present on regulated markets. The businesses active on certain markets are not engaged in competition activities especially because of excessive regulations, which have a direct impact on prices and quality of the products they provide to their customers. According to the authority monitoring the competitive environment, the most serious problems were identified on regulated markets, especially, the market of oil products, insurances, energy and medications, etc. As a rule, this situation does not relate to non-observance of competition legislation, but to excessive regulation limiting or excluding competition. [4] Demonopolization of the internal market and removal of anti-competition practices are among the major objectives of the Activity Programme of the Government of the Republic of Moldova “European Integration: Freedom, Democracy, Welfare” for the years 2011-2014. A step-wise liberalization of the markets will lead to the competition increase and finally, to a price reduction. In order to increase the level of competition culture in the Republic of Moldova, it is necessary to permanently undertake competition measures (round table, workshops, and conferences) by actively involving all the stakeholders. In general, only business operators are subjects of competition laws, however, the consumer benefit from the settlement of competition breaches. The National Agency for the Protection of Competition (ANPC) has been cooperating since 2007 with the following international organisations:  International Competition Network;  OECD Regional Centre for Competition in Budapest  Interstate Council for Antimonopoly Policy of CIS countries  Bilateral Cooperation: cooperates with competition authorities from abroad and international institutions. With some of them, it has established bilateral cooperation agreements: 1. The Austrian Competition Authority 2. The Bulgarian Commission for the Protection of Competition 91


3. The Romanian Council for Competition 4. The State Commission for the Protection of Economic Competition of the Republic of Armenia 5. The Hungarian Competition Authority Moreover, the Council for Competition has implemented the Twinning Project “Support for the Implementation and Enforcement of Competition and State Aid Policy” in partnership with a series of European Union institutions. Within the project, the experts from Romania provided specialised consultancy in the following areas: development and implementation of secondary legislation in the area of state aid; development of the regulatory framework in the area of competition; development and implementation of secondary legislation; building ANPC institutional capacity (currently, the Council for Competition), inclusively through support for the implementation of Agency’s strategic objectives, increase of the efficiency of case investigation procedure and personnel training; training of judges and senior staff from regulatory authorities and other public authorities on subjects of competition and state aid; and promotion of competition culture in the Republic of Moldova. The Council for Competition, with the World Bank support, organised on 1 July, 2014 the international conference “New Competition Opportunities through the Implementation of State Aid Policy”, which launched the Information System “Register of State Aid Register in Moldova” (SIRASM). This system, which was developed with the WB support, shall contribute to the improvement of notification and reporting processes on state aid: decrease of the time for the examination of notifications, registration of data on suppliers, beneficiaries and state aid measures, monitoring of public money, etc.[8] On 27 June 2014, the Council for Competition signed a Bilateral Cooperation Agreement with the State Agency for Intellectual Property (AGEPI). The document provides for the cooperation between the Council for Competition and AGEPI in the process of market research and analysis, with view to know precisely the markets in the areas of common interest; to ensure an efficient enforcement of competition legislation; to prevent and discourage anti-competition practices which can have as an objective as a consequence the limitation, hampering and distortion of competition; mutual consultations on current issues that have emerged in relation to the enforcement of legislation in the competence area of the two parties, etc.

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Conclusions Competition policy is a public policy of a horizontal nature having its own dynamics, influenced by developments in economic theory. However, effective implementation of competition policy is carried out at the sectoral level, there are areas where it needs to be harmonized with the specific policies of the regulatory authorities. The role of the European Commission is to ensure a proper application of EU competition rules, mainly by monitoring and, when it is necessary, blocking: anticompetitive agreements (particularly of cartels, abuses of dominant position, mergers and acquisitions, state aid). Knowing that in every member state, there is an institution that governs competition and ensures a favorable environment for businesses, as well in our country, the Competition Council can be defined synthetically as being that to protect and stimulate competition on the Moldovan market in order to develop a normal competitive environment, to ultimately ensure the best possible promotion of consumer interests. Monitoring of the economic sectors that provide production factors or services which are vital for the whole national economy, namely banks, energy, transport and insurance, represents a priority of the Competition Council. On the other hand, sectors such as retail food or retransmission of audiovisual programs presents a sighnificant importance for individual consumers, having a high degree of relevance form the social point of view. Ensuring of a free and fair competition in all the economic sectors can be achieved by: use and consumer information on clemency policy; elimination of political favoritism in the allocation of aid offered to enterprises by the state; comprehensive and effective functioning of the Competition Council, independent of political and economic elites of the country.

Bibliography Cratsias K and Seabright P. – “Regulation in the European Community”, 1989, Oxford Review of Economic Policy, vol.5, nr.2. Dumitru Miron, "Economia Uniunii Europene", Ed. Luceafărul, Bucureşti 2002 Gavrilă Ilie, Gavrilă Tatiana "Competitivitate şi mediu concurenţial”, Editura Economică, Bucureşti 2009 Lupușor Adrian "Piața produselor petroliere din Moldova: analiza reglementării, concurenței și a prețurilor", raport elaborat de Expert-Grup, Chișinău 2011 Raportul Consiliului Concurenţei a R. Moldova în perioada 2007 - 2011 Legea Republicii Moldova nr. 1103-XIV din 30.06.2000 cu privire la protecţia concurenţei, modificată în 2012 http://ec.europa.eu/competition www.competition.md

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Chapter 2 People and Resources

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Chapter 2: People and Resources

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Key Resources Management in Polish Enterprises of the SME sector Prof. Agnieszka Sopińska, Ph.D. Piotr Wachowiak, Ph.D. Warsaw School of Economics

Abstract The article presents a detailed description of key resources management in Polish SME entities, drawn up on the basis of empirical research carried out on 380 enterprises operating on the Polish market in 2013. Additionally, changes in the key resources management process are analysed in the discussed entities, as well as main factors affecting the process of managing these resources. The term "key resources" means resources that are most significant (priority resources) from the point of view of functioning of a given enterprise.

Introduction The issue of key resources management in enterprises from the SME sector was a subject of broader research on resource-related conditionings of enterprises' strategic choices, carried out under the direction of A. Sopińska in 20131. The aim of the research was to learn about the problems of resource-related conditionings of enterprises' strategic choices in the SME sector, particularly to analyse the resource potential of SME (including key resources management); to analyse SME strategies and to examine the dependencies between the SME resource potential and their strategies.

Zasobowe uwarunkowania wyborów strategicznych przedsiębiorstw. Problem pozyskiwania i wykorzystania zasobów przez przedsiębiorstwa”, (2013), Raport z badań statutowych KZiF/S/16/2013, SGH, Warsaw, pp. 1-64. 1

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In order to identify key resources management by SME, 5 parameters were analysed: the time horizon of key resources planning; the sources of obtaining key resources; the scope of key resources use; the scope of key resources protection and the scope of providing resources. Additionally, it was examined whether during the last several years significant changes in key resources management in the Polish SME have occurred, and if yes - what have they consisted in, and what factors, according to the Polish SME, affect key resources management. The term "key resources" means resources that are most significant (priority resources) from the point of view of functioning of a given enterprise. The choice of SME to be included in the research was based on two reasons: firstly, enterprises from the SME sector are relatively insufficiently explored in the field of strategic management; secondly, SME are still underestimated, although their potential and significance for the economy is enormous2. The research was carried out using the Computer Assisted Telephone Interview (CATI) method, in cooperation with the external company named "Indicator. Centrum badań marketingowych" Sp. z o.o. The choice of the research sample was equinumerous and stratified. The sampling frame was the base of Hoppenstedt&Bonnier (HBI) as of the end of 2010. 380 interviews were carried out. The rate of answers was 0.93%. The respondents were the owners, presidents or deputy presidents, general directors/ department directors or their deputies, as well as authorised persons. Each parameter describing the key resources management process in the Polish SME is discussed below, as well as its determinants and possible changes in recent years. The descriptions are preceded by a short description of the analysed enterprises.

Description of the analysed SME The research covered 380 enterprises from the SME sector. The choice of research sample in respect of the size of an enterprise (measured by the number of employees) was balanced. Micro-sized enterprises accounted for 33.4% of the sample, small enterprises accounted for 33.7% of the sample, while medium-sized enterprises accounted for 32.9 of the sample (see figure below). The age of the enterprises was the parameter that significantly differentiated the sample. Since the age range of the analysed entities was large (the oldest enterprise declared that it had existed for 146 years, the youngest had been present Małe i średnie przedsiębiorstwa a dobre zarządzanie – Raport o stanie sektora MSP w Polsce, (2012), Raport PARP, Warsaw 2

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on the market for 2 years; the average age of enterprises covered by the sample was 21 years; the median was 18 years), the enterprises were grouped according to periods typical for the Polish economy development. Enterprises established in the analysed period accounted for the biggest percentage in the examined sample (66.3%). So called "EU entities" accounted for 14.2%, while enterprises established before the transformation - 19.5%. The analysed SME were also differentiated in respect of the industry they operate in. 325 various answers about the kind of business carried out were given by 380 examined entities. Production companies accounted for 39.7%, trade companies - 33.4%, service companies - 20.5%, administration companies - 6.4%. In respect of organisational and legal form, the analysed enterprises were not very differentiated. Limited liability companies were prevailing, as they accounted for almost 64% of the analysed sample. The second big group covered individual enterprises - almost 23% of the analysed sample (mostly micro-sized enterprises), and the third group covered joined stock companies - almost 8% of the sample. Other types of business entities were represented in a very limited scope. Among the 380 examined SME enterprises with national capital were definitely prevailing (73%), while next 12.4% were SME with international capital. Only 15.3% of the examined SME are entities with exclusively foreign capital. The sample was relatively balanced in respect of the size of income. 35% of the enterprises declared income below PLN 8 million, 32.9% - between PLN 8 and 40 million and 30.5% declared income between PLN 40 and 200 million. Only insignificant percentage of enterprises declared income exceeding PLN 200 million. The reason is that the analysis covered micro-, small and medium-sized enterprises. To sum up, it can be stated that the analysed SME covered, to equal extent (approximately in 1/3) entities from all the three categories: micro-, small and medium-sized enterprises; they were very differentiated in respect of their age, although as much as 2/3 of them are entities established before the transformation; most of the analysed SME (over 70%) carried out their businesses with national capital; the legal form of most analysed SME (about 2/3) was limited liability company; the analysed SME carried out very differentiated types of activities, mainly production and services.

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Planning horizon for key resources and their sources The research makes it possible to state that key resources are subject to planning in most Polish SME. Only 4% of all the analysed SME do not plan their key resources. The other entities (96%) intentionally plan their key resources (fig. 1). Interestingly, the largest number of entities that do not plan their key resources was in the "medium-sized" category (7.2%), while the smallest was in the "microsized" category (only 1.6%). This rate in the "small enterprises" category was 4.7%. It can be stated that the smaller the entity, the more it is prone to plan its key resources. The time horizon for planning resources in the analysed SME was usually described as long-term (47% of all the respondents). Other enterprises described their resources planning horizon as one year (32% of all the indications) or several months (17%). Also in this case a certain dependency is visible between the size of an enterprise and the percentage of indications of a long-term planning horizon. The smaller the entity, the more probably it opted for a long-term key resources planning. The rate of such indications for micro-sized enterprises was 48.8%, for small ones it was 47.7%, while for the medium sized ones it was 43.2%.

Figure 1

Time horizon for planning key resources in SME

Source: own study, n=380 (question 2.6).

Almost half of all the examined SME (44%) uses equally internal and external sources of resources, whereas those which are most prone to use these sources in a balanced way are micro-sized entities (50.4%) and small enterprises (37.5%). This rate in the medium-sized category was 44%. The determination to use only internal sources of resources was indicated by 17% of all the examined SME, and this rate is increasing along with increasing size of SME (it was 11% for the micro-sized category, 19.5% for the small entities category, and 21.6% for the medium-sized category). The determination to use external sources of resources was reported for 18% of all the analysed SME (fig. 2). 100


Figure 2

Main sources of obtaining key resources in SME


It should be highlighted that the analysed SME definitely opted for owning their own key resources, not just having access to them. Irrespective of the source of obtaining key resources, the examined enterprises were determined to have full rights to have key resources at their disposal. For 88.7% of SME the form of ownership of resources was "the enterprise's legal property". The remaining 11.3% SME either rented resources (6.6%) or leased them (4.7%) as a dominating form of key resources ownership. None of the entities indicated other two forms, i.e. franchising or free of charge use of resources. It is worth noticing that the percentage of entities having their own key resources was the largest in the micro-sized category of SME (91.4%), Leasing as a main form of ownership of key resources was relatively more frequently used by small enterprises (7.8%), while rental was mainly used by medium-sized enterprises (8.8%). Detailed distribution of answers of each SME categories regarding the main form of key resources ownership is presented in table 1.

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Table 1

Prevailing form of key resources ownership depending on the SME category Form of ownership (%)

SME category

Total: Legal property

Rental

Leasing

micro-sized

91.4

4.7

3.9

100%

small

85.9

6.3

7.8

100 %

medium-sized

88.8

8.8

2.4

100 %


1. Scope of use and protection of key resources Key resources were not fully used in the analysed SME. As much as 65% of all the entities reported reserves in the resources (63.8% of micro-sized enterprises; 64.8% of small enterprises; 66.4% of medium-sized enterprises) Only 34% of all the examined SME reported full use of key resources (35.4% of micro-sized enterprises, 35.2% of small enterprises and 32.8% of medium-sized enterprises). Incomplete use of key resources in sustainable conditions could be perceived as a symptom of wastage and mismanagement of an enterprise, but in the conditions of considerable instability, unpredictability and discontinuity of external processes, interpretation of such situation is not so simple. Certain reserves in the scope of use of resources owned by SME can be caused by two reasons: firstly, an enterprise intentionally keeps reserves to be used when opportunities occur, secondly, economic crisis necessitates restricted use of resources (fig. 3). Figure 3

Scope of use of key resources in SME

Source: own study, n=380 (question 2.8). 102


Based on the results, it can be stated that the majority of analysed enterprises was aware of the need to protect key resources (fig. 4). Only 8% of respondents admitted that no key resources are protected in their enterprises. Interestingly, relatively the largest percentage of entities that do not protect their key resources was in the "medium-sized" category (as much as 12%), while the smallest was in the "micro-sized" category (only 4.7%). Additionally, taking into account the value of this rate in the small SME category (which is 6.3%), certain dependency between the size of SME and the scope of protection of key resources can be observed. The smaller the entity, the more prone it is to protect its key resources.

Figure 4

Scope of protection of key resources in SME


Scope and forms of making key resources available Although the majority of the analysed SME had their own key resources, and did not use them fully, they were also very reluctant to make them available (fig. 5). As much as 77% of the examined entities answered "definitely no" or "rather no" for the question whether they make their key resources available, and those from the micro-sized category were most reluctant. Only 20% of all the enterprises make their resources available. The medium-sized enterprises are most eager to do it (26.6%).

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Figure 5

Making key resources available by SME


Those entities who decided to make their key resources available chose rather one of the forms of sales (ordinary sales agreement, sale of patent, sale of licence or sale in the form of franchise). Answers for the question about the form in which an entity makes its resources available indicated mostly sales in the form of a licence (26% of indications). Due to the structure of key resources (it was deemed that resources in the form of research infrastructure were not of key importance), the small number of indications of making key resources available in the form of sale of patents is not surprising. The percentage rate of each form of making resources available, compared to the total number of answers, is presented on fig. 6. Figure 6

Forms of making key resources available by SME

Source: own study, multiple answer question, total number of answers n=78 (question 2.10). 104


The analysed entities evidently were not interested in making their key resources available to their competitors from the same industry (only 9.2% of answers), even for a payment. The providers also were not recipients of key resources made available by the analysed SME (11.8% of answers). The biggest category of entities to which SME made their key resources available included: recipients (67.1% of answers) and other contractors with which SME had already cooperated (25% of answers). The percentage rate of entities to which key resources were made available, compared to the total number of answers, is presented on fig. 7. Figure 7

Entities to which SME make their resources available

Source: own study, multiple answer question, total number of answers n=86 (question 2.11).

Changes in key resources management in SME A change in key resources management should be a response to the changeability and unpredictability of the environment. For the analysed entities from the SME sector no such tendency is reported, as most of these entities (63%) have not made significant changes in the way of managing their key resources during the last few years. Only 25% of the analysed entities have made changes in their key resources management during the last few years, while other 12% were not able to answer this question. In those entities where changes in the resource management were introduced, they consisted mainly in increasing the share of external sources in obtaining resources and broadening the scope of resources protection. The following management parameters were the least prone to change: the scope of making key resources available to other entities and the scope of use of key resources. SME were 105


still reluctant to make key resources available, in spite of large reserves of possibilities to use them (the scope of their use was still not increased). Detailed description of changes in key resources management is presented on fig. 8. Figure 8

Changes in key resources management in SME


Relatively the biggest number of changes in managing key resources were introduced by small enterprises (30.5%), while the average for the entire population was 25%. In comparison, this rate for the micro-sized and medium-sized enterprises was 22.8% and 22.4% respectively. Determinants of resources management in SME The lack of significant changes in key resources management in SME is striking in the context of evaluation of impact of particular resources management determinants. For the analysed SME regarded "crisis intensity" as one of the key determinants of resources management (as much as 45.4% of entities). Each change in the crisis intensity should therefore cause a change in managing resources, including key resources, which however did not happen in the case of the analysed SME. The analysed SME regarded industry conditionings as the most significant determinant of resources management (58.9% of answers). In respect of the number of indications, this determinant was followed by: the type of implemented strategy (35%) and the level of innovation (32.1% of answers). 106


Figure 9

Determinants of resources management in SME

Source: own study, multiple answer question, total number of answers n=704 (question 2.15).

Not regarding "affinity to the network of enterprises" as an important determinant of key resources management can be explained by a low level of "networking" of the analysed SME.

Conclusions

Description of particular components of key resources management processes in the analysed Polish SME makes it possible to draw the following general conclusions: 1. Almost all Polish SME plan their key resources, and most of them do it in a longtime perspective. Polish SME use both external and internal sources of obtaining key resources to equal extent. 2. In spite of having large reserves of key resources, Polish SME entities are very reluctant to make them available. If they do make their key resources available, they usually do it in the form of sales of a licence. The addressees of key resources in the analysed SME are most of all the enterprises' recipients. 3. The majority of the examined Polish SME are aware of the necessity to protect their key resources. 4. Most Polish SME opt for possessing their own key resources. 107


Bibliography Zasobowe uwarunkowania wyborów strategicznych przedsiębiorstw. Problem pozyskiwania i wykorzystania zasobów przez przedsiębiorstwa”, (2013), Raport z badań statutowych KZiF/S/16/2013, SGH, Warsaw, pp. 1-64. Małe i średnie przedsiębiorstwa a dobre zarządzanie – Raport o stanie sektora MSP w Polsce, (2012), Raport PARP, Warsaw

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The New, Human Face of the Marketing Science and Practice Melnic Igor, Ph.D., Associate Professor Rapcea Vitalie, Senior Lecturer the Academy of Economic Sciences of Moldova

Abstract After Charles Lamb, marketing has two sides one side is that of a philosophy or orientation, and the second is given by the activities and processes which lead to the realization of the business philosophy. Both philosophy and marketing management practices have continuously evolved. Marketing is probably the most dynamic economic concept. Today, both the philosophy and the managerial activities are passing through a period of redefinition. XXI century brings new challenges to the science and practice of marketing. This study aims to identify these challenges and provide scientifically answers for both the philosophy and managerial practices.

Introduction Professor Oltean Valerică mentions the interdependence between the evolution of marketing theory and practice, the markets and the economy as a whole3. Each new stage in the evolution of marketing theory and practice can be treated as the response marketing has to give to a certain market situation. The present economic turmoil that affects the global economy requires the knowledge and practice of marketing to better investigate the opportunities and risks of the market environment. We live in the "Knowledge Age", which provides marketing science the information that it needs to formulate the answer to the new challenges.

Valerică Oltean, „Tendințe în dezvoltarea marketingului în economia bazată pe cunoaștere”, pag 26 http://www.managementmarketing.ro/pdf/articole/2.pdf (visited 28.05.2014) 3

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The knowledge era facilitates the transition from product orientation to the customer orientation. Thus, marketing research and the information regarding consumer time preferences allows a rapid adaptation of manufacturers offer to the immediate requirements of the customers. The "Knowledge Economy" is redefining the marketing environment, that becomes extremely difficult and challenging, the new marketing environment is one with an unprecedented dynamics. The new changes that occur include reducing the number of competitors in tandem with the increase in the number of marketed brands, product life cycles have decreased dramatically while the number of product variants have increased in a spectacular way, markets are hyper - fragmented and marketers ability to find free space in the consumer's mind diminished4. These conditions requires a new conceptual response that science and practice of marketing has to give in response to the new economic and social realities. Material and method The secondary data analytical research method was used for the study of the new trends in the marketing science and practice. The scientific argumentation of the research conclusions is based on the publications of well-known authors such as: Philip Kotler, Seth Godin, Charles W. Lamb, J.Hair, Barry Schwartz, MM Tseng, Chase Richard, J. Pine, И.С Березин, Robert Palmatier, W. Chan Kim, Renee Mauborgne, Justin Levi, Valery Oltean and behavioral studies conducted by the world class marketing research company "Trend watching". The study complies with the principles of a genuine scientific research such as the principle of causality, the principle of observability and the principle of correspondence. All the phenomena identified by the author in the development of marketing science and practice are accompanied by explanations and scientific arguments. Results And Discussion The classic marketing segmentation and positioning model generated a lot of alternatives for the consumer. The very same need can be satisfied today by a large number of products. This variety of alternatives generates a lot of problems for the consumers, reducing their level of satisfaction. Barry Schwartz notes in his book, "The paradox of choice"5 that a wide variety of alternatives makes the consumer dissatisfied with whatever product he decides to purchase, this is because of the awareness of the existence of many alternative products with a greater satisfaction potential, but because of the lack of time or patience the customer didn’t evaluate them as an alternative in his buying process. Thus, in a world that abound in various 4

Kotler Philipe, Keller L Kevin., Marketing Management 14th edition, Pretince Hall, New Jersey, USA 2012, pag. 1-14 5 Barry Schwartz, The paradox of choice, why more is less, , Harper Collins Publishers, USA, 2005, pag 9. 112


product alternatives there is always the feeling of dissatisfaction that accompanies the buying decision, and the bigger the choice, the greater becomes the anguish that causes the consumer dissatisfaction. The classical marketing model based on: segmentation, positioning and marketing planning becomes insufficient to satisfy consumers. This vertical marketing model is losing its potential, proving its limits in saturated markets, a new offer on such markets will only increase the angst that the customers are already feeling. Given the condition of an atomic offer, differentiation becomes the strategy that allows the detachment from everything else that is offered on the market. When the accent is made on the uniqueness of the product, the consumer is facing two choices, either a differentiated product or all other similar alternatives offered on the market. Consequently, there is a new marketing phenomenon taking place, the one called “mass customization”6, which means a product differentiation for every consumer to the most advanced supply network level7. In other words, the concept is deciphered as follows: customizing products and services to individual consumers at a mass production price. The parenthood of this concept is attributed to Stan Davis and his masterpiece "The perfect future", Joseph Pine in his book "Mass Customization The New Frontier in Business Competition" further developed this concept. Mass customization or mass personalization can take four distinct forms 8: Collaborative customization or personalization this is when the product is the result of the collaboration between producers and consumers, it is also known as a co-creation. Adaptive customization occurs when firms produce the same standard products for all consumers while they on their behalf personalize the products as they wish. In case of a transparent customization businesses provide consumers with products tailored to their needs without explicitly mentioning it. The Cosmetic Customization is occurring when companies generate standard products for all customers, but promote it for each client differently. In 1989, Francis Fukuyama stated that the end of history is approaching. After him the end of history lies in dismantling, at the global scale of the authoritarian regimes and replacing them with liberal democracies. In the very same token, we believe that the latest attempt to revive the vertical marketing model is the customerization version of micro-segmentation.

6

M.M Tseng, J. Jiao, Mass Customization, in: Handbook of Industrial Engineering, Technology and Operation Management (ediția a 3-a), Wiley&Sons, New York, SUA 2007, pag. 685 7 Chase Richard B., Jacobs F. Robert; Aquilano Nicholas J., Operations Management for Competitive Advantage (a 11-a ediție). McGraw-Hill/Irwin, New York, SUA 2006, pag. 419 8 Pine B.J., Davis Stan, Mass Customization: The New Frontier in Business Competition., Harvard Business School, Boston, SUA 1999, pag 33-77 113


Despite all the benefits brought by the customization, it is a difficult and relatively expensive process; these limitations raise questions regarding the applicability of the model, its universality and feasibility. Technological and scientific progress provides tools that facilitate the adaptation of a product to the specific customer needs, which continues to support product customization phenomenon. However, in the context of the classical marketing model, product customization for each individual customer is the final destination of the segmentation process and hence the upper limit of the vertical marketing. . A better knowledge of the customer’s wants and needs led to the modernization of the marketing paradigm. Thus, the concept of consumer and customer orientation are replaced by the concept of person and the orientation towards the person and its feelings. The need to change the paradigm with regard to the customer is motivated by the need of a conceptual new approach with respect to the exponents of the market demand. The consumer is an entity that satisfies two conditions it has needs and financial potential to satisfy these needs, while a person is a very complex system, composed of a whole amalgam of emotions, feelings, experiences, attitudes, etc. The new 3.0 marketing model targets the human soul as a concept that summarizes all the factors that shape a person. The mission of the new marketing paradigm focuses on the idea of making the world better. According to this model, social responsibility and gain of the whole community prevails the individual profit maximization approach. As the authors of this concept put it we are witnessing the evolution of the "values era"9. The 3.0 marketing concept is not limited to creating value for customers, but for all consumers and community at the same time. In this context, social responsibility is more present and even more valid than ever before. For the enterprise to be able to target the customer’s "soul", it must establish a "relationship" with him. The new person oriented marketing techniques, have the goal of creating, developing and maintaining effective relationships, long lasting and mutually beneficial for consumers and sellers10. The existence of the relationship determines the consumer involvement, this lead to the increases of the trust between participants, while reducing the level of conflict, leading ultimately to a better mutual understanding and a relational attachment between the individual and the enterprise. A better knowledge means better solutions proposed to the consumers which leads to customer attachment to the seller that can determine an irreversible investment in that relationship. Marketing practice uses for this purpose the social media tools that help maintaining and developing relationships with consumers. The phenomenon of social networks allows people to stay connected to groups of relationships, fostering communication both real-time and asynchronous11. In some 9

Березин И.С. Маркетинговый анализ. Рынок. Фирма. Товар.Продвижение., Вершина, Москва 2008, pag 23. 10

Palmatier Robert, Relationship Marketing, Marketing Science Institute, Cambridge Massachusetts, SUA 2008, pag 9. 11 Levi Justin, facebook marketing, Que Publishing, SUA 2010, pag 14. 114


cases the presence and activity of the consumers on line is greater and more active than off line. Using these new innovative tools, companies can create their own communities, engaging in creating sustainable relationships with consumers. Relational marketing does not require the modification of the vertical marketing model that has proven its methodological limits. Given these limitations, Philip Kotler and Fernando Trias de Bes proposed to augment the classical model by including in the instrumental patrimony of marketing new tools: creativity and innovation. The lateral marketing involves the following itinerary: choosing a product or service, choosing a focus of interest for the marketing process, generating marketing discontinuities and realization of the connectivity12. The innovations that give consistency to the lateral marketing concept are given just by the content of the processes it defines. Applied to the product the lateral marketing has as a starting point - an existing product that is offered on a market. Viewed in sequence, the process includes product dissection, the selection of the access points and performing the lateral jumps. As techniques for performing the lateral jump can be considered: substitution, combination, inversion, elimination, exaggeration and reordering. This solution has as an endpoint realization of new connections – connecting of the new product to a potential market13. Lateral marketing applied to other elements of the mix involves innovation that has to occur at the level of distribution, price and promotion. Such an alternative has much in common with the vertical marketing model, the essential difference being the performance of the lateral jump followed by the realization of a new connection with the other elements of the mix. In this sense the most commonly used technique is the "takeover of the mix of other products"14. The lateral marketing concept enriches not only the notion of marketing, but also that of the marketing management given the fact that in its area are placed the implementation aspects of the lateral marketing. It is important to note that the corresponding system is composed of subsystems such as the ideas market of the company and its talent market. The names of these subsystems are particularly significant for understanding the mechanism innovation within a company. The presence of the specified subsystems allows businesses to walk along the 3 stages of lateral marketing: the selection of the focus, shifting focus or the lateral move, the realization of the link between the product and the market.

12

Ph. Kotler, F.T. de Bes, Lateral Marketing, John Wiley&Sons, New Jersey, SUA, 2003, pag. 101 13 Ibidem pag. 165-181 14 Ibidem, pag. 191 115


Almost simultaneously with the Trias de Bes and Philip Kotler , W. Chan Kim and Renee Mauborgne attack the subject of a new marketing approach as immutable recipe for success. Thus, the authors launch metaphorical concepts of blue and red oceans15. Red oceans are represented by numerous companies that have a classical approach to their marketing activity, companies that are fighting each other for the same segment of consumers, conditioning massive spills of "blood" without significant amendments to the value perpetuated to end users. Blue Oceans are those oases generated by companies that are not consumed in the struggle with competitors, companies that are trying instead to identify market niches to penetrate. These niches are addressed through unique products, absolutely different from the existing ones. These companies became a true oasis of tranquility in the ocean of a fierce and bloody competition. This approach is considered by the authors as the only successful strategy that allows businesses to open new market dimensions, previously untapped. The need for differentiation for the exploitation of unvalued market segments is encouraged by Seth Godin and his concept of "purple cow"16 In his opinion, lateral movement is possible only through the eradication of the routine, through business concepts that are very different from what is offered on the market. Marketing approach needs to shock as much as a purple cow does. As a result of the above discussions we can conclude that marketing as a science and entrepreneurial activity is passing through a categorical change. All of these changes are a response to the challenges of the external environment. Thus, a better understanding of phenomena with an impact on the science and practice of marketing will help us to better understand the future development of the marketing concept. The research company "trend watching," established in 2014 the main trends affecting the marketing environment in the years to come17. Trend watching developed and conducted 2600 local studies in over 100 countries around the world; as a result it determined 7 consumer behavior changes that will require future adaptive changes in the science, especially the practice of marketing. The top three factors that will influence consumer behavior in the coming years are: 1. The guilt free status describes the desire of the customer to consume without the resentment of guilt. Customer values are increasingly focused on care for the environment, a fact noted by the study specialists. Thus, for these customers is extremely important to minimize the contradiction between consumption and the adverse impact that it has on the environment. Removing this constraint means removing the feeling of guilt. Chan W. Kim, Mauborgne Renee, ”Blue ocean strategy”, Harvard Business School Publishing Corporation, Boston, SUA 2005, pag. 3-46 16 Godin Seth, ”Purple cow”, Penguin Group, NY 2009, pag. 2-10 17 Trend watching, „7 consumer trends to run with in 2014”, http://trendwatching.com/trends/7trends2014/ (vizitat 28.05.2014) 15

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This marketing preoccupation will be the number one in the XXI century. Therefore we can conclude that to increase the sales effect marketing practice should insist on an environmental friendly business style. 2. Crowd shaped Thanks to technological progress, people are becoming more interconnected and organized in conglomerates based on their interest. Thus, consumers become easier to segment the old segmentation criterion are now supplemented by criterion such as membership to a particular interest group. 3. Made green by/for China In the following years we’ll witness a change that is happening in China and that will affect the entire world. China will turn its production style in one environmentally friendly. It will be the last high barrier limit for the commercial potential of China. It will not only produce in a more environmentally friendly way, but will also become an example of innovation and technological progress. Consumer perception regarding products originating from China is about to change. Conclusions In conclusion, we can state that the new trends in the evolution of the marketing concept reflects a different scale from which are viewed and analyzed the market phenomena. Today, sales are not regarded as a purpose but as being the result of the actions with impact on the consumer. Societal marketing activities, relational and communicational marketing activities create assets that can change a “person’s” behavior which ultimately may lead to financial results. Through this new approach has been eliminated the myopia: marketing activity - financial result. New marketing concepts, freed from the immediate financial result handicap allow marketers to exceed the limits of the consumer’s black box and perform a lateral move of the marketing focus. Today, "blue oases" are starting to become a standard for companies that are focused on medium – long term. The marketing science and practice got rid of its ugly face of a concept that aims to determine the consumption at any cost, despite the product quality or even neglecting ethical and moral principles. According to Octave Bibere "marketing remained apparently the only science that deals with the human being, other sciences dealing with marketing" Today a segmented marketing approach is no more sufficient. The marketing mix elements such as price, promotion and placement have now to be regarded only as a system not individual entities. The overall effect of marketing activities is greater than the local effects of each element of the mix. Targeting this specific synergetic effect will continue to sculpt the forms of manifestation of marketing in the near future.

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Bibliogrphy Charles W. Lamb, J.Hair,C. McDaniel, Marketing 10e, South-Western Cengage Learning OH, SUA 2010 741 pag. Kotler Philipe, Keller Lane Kevin, Marketing Management 14th edition, Pretince Hall, New Jersey, 2012, SUA, 657 pag. Schwartz Barry, The paradox of choice, why more is less, Harper Collins Publishers, USA, 2005, 304 pag. Tseng, M.M.; Jiao J., Mass Customization, in: Handbook of Industrial Engineering, Technology and Operation Management (ediția a 3-a), edited by Gavriel Salvendy, John Willey and sons, New York, SUA:, 2007, 2796 pag. Chase Richard, Jacobs F. Robert; Aquilano Nicholas J. , Operations Management for Competitive Advantage (a 11-a ediție), McGraw-Hill/Irwin, New York, SUA 2006, 806 pag. Pine B.J., Davis Stan, Mass Customization: The New Frontier in Business Competition, Harvard Business School, Boston, SUA, 1999, 333 pag. Березин И.С. Маркетинговый анализ. Рынок. Фирма. Товар.Продвижение. – Москва: Вершина, 2008, 480 pag. Robert Palmatier, Relationship Marketing, Marketing Science Institute, Cambridge Massachusetts, SUA 2008, 84 pag. Justin Levi, Facebook marketing, Que Publishing, SUA, 2010, 235 pag. Ph. Kotler, F.T. de Bes, Lateral Marketing, John Wiley&Sons, New Jersey, SUA, 2003, 207pag. Kim W. Chan, Renee Mauborgne ”Blue ocean strategy”, Harvard Business School Publishing Corporation, Boston, SUA 2005, 256 pag. Seth Godin, ”Purple cow”, Penguin Group, New York, SUA 2009, 224 pag. Electronic documents Valerică Oltean, ”Tendințe în dezvoltarea marketingului în economia bazată pe cunoaștere”, ASE București 2007. http://www.managementmarketing.ro/pdf/articole/2.pdf. Trend watching, „7 consumer trends to run with in 2014”, http://trendwatching.com/trends/7trends2014/.

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Changes in the Capital Segment Resources Management of the Pension System in Poland as one of the Methods of Budget Deficit Reduction Prof. Wanda Sułkowska, Ph.D. Cracow University of Economics

Abstract Introducing in Poland, in 1999, a capital segment within the pension system, as part of the general reform of the social security system, after several years, turned out to be a very heavy burden on the state budget. Assigning a relatively large portion of pension contributions, even more than one third, to investing in open pension funds heavily reduced inflows to the Social Insurance Fund financing the PAYG segment of pension insurance and the deficit coverage sources provided before proved to be ineffective. Given the need to reduce public debt, decisive action was taken regarding management of resources within the capital segment. Changes were made in two stages, under subsequent amendments to laws that are directly or indirectly associated with this segment of the pension system, in March 2011 and December 2013. The changes were far-reaching, contested by many economists as a practical elimination of the capital segment - the main (flagship) enterprise of the reform in 1999. Currently, there is no sufficient time distance, even for a preliminary assessment of the effects of the above-mentioned changes. For now, it is being carried out on the basis of prognostic calculations and simulation. Some of them are cited in the article. For this reason, the publication is more a report on the current state of law than an analysis of the economic impact of changes in this regard.

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Introduction Introducing in Poland, in 1999, a capital segment within the pension system, as part of the general reform of the social security system, after several years, turned out to be a very heavy burden on the state budget. Assigning a relatively large portion of pension contributions, even more than one third, to investing in open pension funds heavily reduced inflows to the Social Insurance Fund financing the PAYG segment of pension insurance and the deficit coverage sources provided before proved to be ineffective. Given the need to reduce public debt, decisive action was taken regarding management of resources within the capital segment. Problems of the modern public pension system in Poland resulting from a failure to realise its underlying assumptions The contemporary social security system is a result of centuries of development of various forms of supporting people whose ownership, just because of their birth in a particular environment or a loss, or a significant reduction of material resources as a result of random events, or their state of health, various types of dysfunctions, including mental, made it impossible for them to provide themselves and their close relatives with the subsistence minimum. They are usually confined to charity resulting from moral and religious reasons. The failure, however, of these forms of support during the birth of capitalism and subsequent intensive development of this system meant that extreme poverty was attempted to be counteracted by implementing new legal systems. The beginning was the decision adopted by the Parliament of England in 1601 as the Poor Law Act18 and another dated 1834, known as the New Poor Law Act. In the Act of 1601, the Parliament of England classified the poor and established rules of dealing with the problem of poverty. In contrast, the later act, that of 1834, was largely influenced by the liberal doctrine, according to which the state's role should be limited only to providing internal and external security. The consequence of this approach was quite a restrictive approach to the poor. An individual’s inability to find, perform and maintain a job was considered to be a result of their moral weakness.19 Actions taken during the tough period of the World War II were crucial for the creation of a modern system of social insurance in the United Kingdom. William Beveridge saw a cardinal role in the creation of a new legal order in this regard, he prepared his Report20 for the Parliament. The report recommended social protection 18

The Act for the Relief of the Poor 1601, also known as the Elizabethan Poor Law or the Old Poor Law Act. 19 Jędrasik-Jankowska I., Pojęcia i konstrukcje prawne ubezpieczenia społecznego, LexisNexis publishing house, Warsaw 2012, p. 23 20 Sir William Beveridge (1897-1963). He published his Full employment in a free society in1944. Earlier, in November 1942, in the Parliament, he presented the Report. Publication of the Beveridge Report was considered the beginning of the welfare state. 122


by guaranteeing income security and, consequently, protecting against the effects of random events (such as: illnesses, unemployment, old age or death of the principle wage earner), resulting in poverty. Sir W. Beveridge concluded that, due to the fact that most people tend to underestimate risks, poverty reduction requires state intervention forcing individual citizens to insure against the negative effects of social risks. In accordance with the provisions contained in the Report, during absence of income opportunities of individuals, the state should ensure their benefits at the level necessary to exist. On the basis of the Beveridge Report, at the end of 1942, the Conservative government of Winston Churchill in the UK introduced the so-called Beveridge Plan21, a system that combined social insurance, social assistance and voluntary insurance. The project could be realized through the introduction of a specific provision (flat-rate) at a level that would ensure the subsistence minimum; financed by contributions paid jointly by employers and the insured and subsidized by the state. The Plan assumed that insurance should cover the entire population, while unifying and centralizing social assistance payment of benefits from the system. The concept of introducing benefits the amount of which would depend on previous income was rejected as well as the concept of premium payments dependent on income; benefits were guaranteed to be at the same level for all the eligible. It should be reiterated that the primary goal of social policy enshrined in the Plan was to reduce poverty22. In contrast, protection of the earlier standard of living was dependent on individual decisions. Maintaining the standard of living was to be ensured by a voluntary insurance. Great emphasis was placed on individual forethought, which should be continually growing. Similar assumptions regarding individual forethought were adopted in the system established in the years 1887 - 1989 in Germany, united under the rule of Otto von Bismarck. Initially, the structure of the system, in which there was a single pensioner per seven or eight of the insured, despite relatively low premiums (at about 15% of earnings), made the system - adopted in many countries – become selfsufficient. This was, among other things, due to the early age of starting work (several-dozen years) and late age of acquisition of pension rights (in the Bismarck model - 70 years of age), a low replacement rate (initially approx. 15%) and short life in retirement. Similar pension schemes - assuming intergenerational solidarity partly concerning the basic pension (from the compulsory system) and concomitant regular savings, whether individual or with the help of employers, usually in the context of the so-called occupational programs - have been taken over and gradually implemented in the vast majority of Western Europe. 21

Social Insurance and Allied Services. Report by Sir William Beveridge. Presented to the Parliament by Command of His Majesty, November 1942; http://www.fordham.edu/halsall/mod/1942beveridge.html, date of access: 12.06.2014 22 Czajka Z., Systemy emerytalne w Niemczech i Wielkiej Brytanii wobec nowych wyzwań, the Publishing House of the University of Lodz, Lodz 2003, see also: Europejski model społeczny. Doświadczenia i przyszłość, ed. Dariusz K. Rosati, PWE, Warsaw 2009, 123


The system discussed above was also applied in Poland until the end of 1998; it was a PAYG model assuming that current inflows from the contributions paid entirely by employers were intended to cover current benefits for current beneficiaries. Shortages appearing with time were entirely covered by the state budget.23 The Social Insurance Institution mainly served as an authority collecting premiums from payers (mostly socialized enterprises) and paying the benefits owed to the eligible, payment registration was in most cases collective in nature. Incidentally, many companies, especially those that provided a significant economic mission, but also a political role (as mines, steel mills, shipyards - often referred to as "deficit planned") had a lot of reasons for exemption or deferral of payments of due premiums. The amount of pension was only partially dependent on the number and value of contributions paid; the maximum pension amount was limited. Employers were obliged to pay full contributions and employees were not even informed of the insurance payments in respect of them. On the other hand, low wages, and thus very modest financial surplus and almost no possibility of efficient investment, meant that state was seen as the only guarantor of security in old age. This had a very negative impact on public awareness of insurance and still - 25 years after the onset of political changes - the expectations of the majority of Polish citizens concerning pension benefits from the compulsory pension insurance scheme are excessive in the context of the contemporary socio-economic situation. The role of individual forethought is definitely underestimated. Rapid demographic changes taking place in the last decades of the twentieth century, consisting of an increase in life expectancy, declining fertility rates and delaying motherhood and, consequently, rapid aging of the population of the rich world, gradually joined by the society states of Central and Eastern Europe, with simultaneously intensifying economic problems related to crises and their consequences being sharp increase in unemployment, forced the government with increasing public spending to maintain a stable level of social security. The financial crisis that hit the world in the early twenty-first century exposed the disastrous state of public finances in many countries and made us aware of the absolute necessity of breaking through with the state policy of "living on credit", which is associated with a reduced spending budget, among other things, subsidizing social security systems and, in particular, the insurance system, mainly in the field of pension insurance. A thorough reform of the social insurance system in Poland, started in 1999, took into account the new philosophy of social policy adapted to the market economy. Civil society construction and cheap state were assumed. The new system adopted pension retirement age as the only condition for entitlement and a rational, and clear for all, manner of determining the amount of pension benefits, based on a defined contribution principle. This means that the amount of pension of a person is dependent on the amount of contributions paid into the scheme in respect of their pension insurance.

23

This system was based on the principle of defined benefits.

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The Act of 17 December 1998 on Old-Age and Disability Pensions from the Social Insurance Fund24 indicated that the amount of pension would depend on the number and amount of pension contributions paid by the insured for Social Security and registered on an individual "account" of a participant in the Social Insurance Fund (SIF) to be indexed, and on their retirement, and actually the age of the insured at the time of such a decision, owing to, the dependent on it, average life expectancy expressed in months that the above-mentioned capital is divided into. Establishing clear, equal for all, rules governing the acquisition of rights to future pension benefits would constitute one of the fundamental conditions for the safety of the new order. Meanwhile, a very high percentage of persons receiving pensions in relation to the total number of insured, poses a serious threat to the stability of the system25. Benefits resulting from the implementation of mandatory segments of the general social security system – according to the intention of the creators of the system - should ensure pension benefits at a level sufficient to cover basic needs. It was initially estimated that in the group of workers with average income, replacement rate would be accounted for approximately 40 - 50%, so their income would be lower by approx. 60 - 50% of the income before retirement. For those receiving high and very high earnings - considerably in excess of the statutory income levels loaded with pension and disability premium - it means low replacement rate, and so - drastic reduction in income after retiring (then limited to retirement benefits) up to the level of 10 - 15 % of working life. The financial situation of current and future retirees The foregoing considerations lead to a clear conclusion that a reasonable standard of living of pensioners is not able to be ensured only with income from social security and that there is a need for, and in the future it will become even necessary, to have additional financial security of retirees for the period of old age. Every citizen should be aware that the possibility of obtaining a larger pool of funds available at retirement age will only be ensured by individual forethought during professional activity. It is therefore recommended to have a look at the recently published data showing the financial condition of Polish pensioners. The materials published by the Social Insurance Institution26 indicate that, during the last decade, 2003 - 2013 (Table 1, Figure 1) the level of pension benefits was still relatively high, taking into account their relation to the average wage.

24

Journal of Laws 162 item 1118, as amended. Bielawska K., Czynniki wzrostu deficytu FUS po 1998 roku, in: Ubezpieczenia gospodarcze i społeczne. Wybrane zagadnienia ekonomiczne, ed. W. Sułkowska, Wolters Kluwer business publishing house, Warsaw 2011, p. 224. 26 Informacja o świadczeniach pieniężnych z funduszu ubezpieczeń społecznych oraz o niektórych świadczeniach z zabezpieczenia społecznego za lata 2003 – 2013, http://www.zus.pl, date of access:14.06.2014. 25

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Table 1. The amount of the average pension from the Social Insurance Institution and the average wage in Poland in the years 2003 - 2013 and their relationship

Year

Average pension*) [PLN]

Average wage**) [PLN]

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1196.62 1237.38 1 256.53 1 310.75 1 346.42 1 471.30 1 596.46 1 698.35 1 783.06 1 872.32 1 970.39

1829.24 1903.03 1977.2 2059.92 2275.37 2578.26 2716.71 2822.66 2974.69 3080.84 3191.93

Ratio of the average pension to the average wage [%] 66.4 65.0 63.6 63.6 59.2 57.1 58.8 60.2 59.9 60.8 61.7

Source: Own calculations based on information on cash benefits from the social insurance institution and certain social security benefits for the years 2003 - 2013, http://www.zus.pl, date of access: 14.06.2014. *) Pensions paid by Social Insurance Institution are presented together with periodic capital pensions (from 1 May 2011, financed from the resources of open pension funds and the SIF from the resources evidenced on a subaccount). The data does not include information on early retirement, teacher compensation benefits and retirement benefits under international agreements and pensions of persons who are also entitled to agricultural benefits. **) Average monthly wage, less the part of mandatory social insurance contributions paid by the insured

The ratio of the average pension to the average wage, the highest at the beginning of the period (66.4%) steadily decreased until 2008 (57.1%), but in the following years, there was a slow growth, and between 2012 and 2013 it reached the level of approximately 62%.

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Figure 1. Ratio of the average pension from the Social Insurance Institution to the average wage in the years 2003-2013 4000

66,4

65

63,6

63,6

3000

59,2

57,1

58,8

60,2

59,9

60,8

70

61,7

60

2000 50

1000 0

40 2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Average pension [PLN] Average wage [PLN] Ration of the average pension to the average wage [%]

Source: Own calculations based on information on cash benefits from the social insurance institution and certain social security benefits for the years 2003 - 2013, http://www.zus.pl (date of access: 17.06.2014)

The structure of pensions is also far more beneficial than the expressed popular opinion. It has been illustrated in Figure 2. The largest group of retirees, excluding the gender factor, with benefits paid by the Social Security Institution, constituting 12.2%, are people receiving the amount in the range of PLN 1400.01 1600, while the share of people with pension benefits from another interval PLN 1600.01 - 1800 is 12.1%. It can be concluded that after the indexation of pensions made in March 2014, almost one-quarter of retirees (24.3%) receive benefits in the amount of PLN 1400.01 to 1800. On the other hand, as many as 51% of retirees obtain the benefits higher than PLN 1800. Extremely low retirement benefits, PLN 1000 and less, are paid to 6.3%. The popular opinion on very low level of pensions in Poland contradict the data on pensions of public social insurance (Figure 2).

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Figure 2: Structure of retirees with retirement paid by the Social Security Institution, according to the value of benefits (as of March 2013 and March 2014) Po waloryzacji w marcu 2014

After indexation in March 2013

14,0 12,0 11,2 11,2 10,4 9,6

10,0

7,4

7,2

5,6

12,212,1 10,6 10,3

6,0

4,3 8,8

3,1 8,1

4,0 2,0

3,2 6,9

2,2

5,2 3,7

0,04 0,0 0,8

2,5

3,9

2,0 1,7 1,7 1,4 1,1 0,9 0,8 0,5 3,0 2,3 1,9 1,6 1,4 1,2 2,3 1,2 0,7

2800,01 - 3000,00

8,0

2600,01 - 2800,00

Odsetek emerytów [%]

12,0

1,8

5000,01 i więcej

4500,01 - 5000,00

4000,01 - 4500,00

3800,01 - 4000,00

3600,01 - 3800,00

3400,01 - 3600,00

3200,01 - 3400,00

3000,01 - 3200,00

2400,01 - 2600,00

2200,01 - 2400,00

2000,01 - 2200,00

1800,01 - 2000,00

1600,01 - 1800,00

1400,01 - 1600,00

1200,01 - 1400,00

1000,01 - 1200,00

900,01 - 1000,00

700,01 - 900,00

do 500,00

500,01 - 700,00

0,0

Przedziały wartości emerytury [PLN] Source: own study based on the structure of pensions and annuities paid by the Social Insurance Institution after indexation in March 2013, and similarly for 2014, Department of Statistics and Actuarial Forecasting of the Social Insurance Institution; http://www.zus.pl/default.asp?p=5&id=3507 *) Pensions paid by Social Insurance Institution are presented together with periodic capital pensions (from 1 May 2011, financed from the resources of open pension funds and the SIF from the resources evidenced on a subaccount). The data does not include information on early retirement, teacher compensation benefits and retirement benefits under international agreements and pensions of persons who are also entitled to agricultural benefits.

Sources of the problems of the social security system The primary cause of the lack of stability of the system of social insurance is the need to carry out the obligations arising from the previous and the current laws. In respect of pension rights acquired under the provisions of law applicable to the end of 1998, a decisive majority of beneficiaries currently receive benefits from the old system, guaranteeing beneficiaries numerous, very costly privileges. In addition to that, activities under the new system are carried out (implemented from 01.01.1999 onwards). This duality of tasks and activities is a major source of 128


imbalance of payments and withdrawals from the SIF Pension Fund. As a result of this, supplying the SIF with high subsidy from the state budget is necessary. The current deficit of the FIS is a commitment of the modern generation of the working towards the generation of the retirees from the old system. The second important factor limiting the amount of revenue for the Social Security Fund is, in force since 1 January 1999, the principle of limiting the contribution base27. Under the new pension system it was decided to reduce the load of employers' with social insurance contributions, and at the same time avoid too large differences in the amount of future pension benefits. It was assumed that monthly pension contribution scheme shall be calculated from the amount of the base being not higher than 2.5 times the projected average monthly wage in the national business for the calendar year. Accordingly, the Act introduced the principle of limiting the annual basis of contributions to the pension scheme of insured persons, which, in a given calendar year, may not exceed the amount equivalent to thirty times the projected average monthly wage in the national business for the calendar year28. Consequently, revenues of the Social Insurance Institution due to insurance of people with relatively high income decreased. The loss of revenue due to the SIF pension contribution resulting from introducing the base limit is illustrated in Figure 3. Figure 3. Loss of the SIF revenue due to the pension contribution as a result of introducing the base limit (PLN billion)

Loss of the SIF revenue in billion PLN

8 6 4

2 0

Source: on the basis of Security by balancing. Synthesis review of the functioning of the pension system, the Ministry of Labour and Social Policy, Warsaw 2013, p 2

27

By introducing the principle of limitation of benefits in the new system, The thirty times is a consequence of the product of the monthly limit and the number of months in a calendar year (2.5 x 12 = 30). The projected wage is specified in the Budget Act, the Act on the interim budget or their projects - and in their absence – wage is determined on the basis of the average monthly wage in the third quarter of the previous year. The limit amount of the annual contribution base is announced by the Minister responsible for social security by way of a notice in the Polish monitor. For 2014 – PLN 112 380 (PM 2013.1028) 28

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Another reason for the SIF deficit was the introduction of a mixed pension insurance model, supported by the creation of a capital pillar. The main task of the reform of the pension system, as part of a comprehensive system of social insurance in Poland, was the diversification of sources of funding retirement benefits. The PAYG segment (the first pillar), under which the financing is done on the basis of funds raised to date by contributions from professionally active insured persons, has been supplemented by a capital segment (the second pillar), under which the given retiree benefit comes from the funds collected and multiplied by them during the period of insurance (professional activity), by investing part of the pension insurance contributions paid into the Social Insurance Institution to an individual account for a selected open pension fund (OPF). In order not to increase the already relatively high social security contributions, it was decided not to introduce an additional premium, but to allocate part of pension insurance contributions for payment to pension funds, which previously funded pensions paid by the Social Insurance Institution. Since 1991, from each pension contribution from a person insured both under the I and the II pillar29, representing 19.52% of the base, the Social Insurance Institution was obliged to transfer to the open pension fund an amount corresponding to 7.3% of the base, which is 37.4% of the premium. The result was obvious. Inflows into funds, already insufficient for the payment of current pensions, were significantly reduced30. Offsetting the shortage was to be obtained from the privatization of parts of the national wealth31, and through the elimination of pension privileges for different occupational groups, but for various reasons, this condition was not met. As a result, the shortage had to be financed every year with a special grant from the state budget. The state, to meet the growing needs of the social security system, was forced to issue bonds whose principal customers were open pension funds. They also benefited mainly from the profits earned by virtue of their interest. The Government considered this to be unreasonable and decided to counteract it. Also an important factor contributing to the increase in a the SIF year-onyear deficit is a systematic increase in the life expectancy of retirees, projecting over the length of the period of receiving pension benefits. Figures for this period are given in Table 2. The described phenomenon, coupled with the non-growing or even declining number of people employed, reduces the value of the index calculated as the ratio of the number of economically active persons whose contributions finance the current retirees benefits to those receiving these benefits. Assuming a constant 29

The responsibility of additional insurance in the second pillar was borne by those born after 31 December 1968, and those born after 31.12.1948 and prior to 01.01.1969 were to decide themselves whether to join the second pillar or stay only in the first pillar. 30 In the years 1999 – 2012, the Social Insurance Institution transferred to open pension funds the total of PLN 187 624 096 845.98. Source: Annual Bulletin. OPF Market, 2012. Financial Supervision Authority, Warsaw 2013. 31 The Act of 25 June 1997 on the use of proceeds from the privatization of part of the state treasury property for purposes related to the reform of the social security system, Journal of Laws No. 106, item 673 130


relationship of the average pension to average wages (more precisely - the basis for calculating pension contributions), the lower the ratio value the greater the imbalance of the pension system. This problem was visible with its high intensity also because of the diversity of the retirement age for men and women, set at 60 years for women and 65 for men. In 2011, the average period in retirement from the Social Insurance Institution amounted to a total of 16 years and 2 months, respectively: for women 17 years and 6 months, and for men - 15 years and 4 months32. Table 2. The average age of the end of old-age pension from the Social Insurance Institution by gender Specification Total Women Men

2000 75.0 75.7 74.5

2005 75.6 75.9 75.4

2011 76.6 76.8 76.4

Source: own study based on the Results’ analysis of the study on periods of retirement, the Department of Statistics and Actuarial Forecasting of the Social Insurance Institution, Warsaw 2012, p 23

The need for permanent subsidizing the pension system of public social insurance has become one of the major causes of the rapidly growing budget deficit, dangerously impending to the constitutional limit of 60% of GDP33, and therefore actions aimed at reducing it by changes in the system of public social security were seen as a priority. An important, from a number of initiatives relating to changes in the functioning of the pension system in Poland, while the most contested, mainly by the trade unions, was moving the age of eligibility for retirement to achieve 67 years and adopting the same level for both sexes34. Starting from 1 January 2013, there has been gradual lengthening of retirement age by one month every four months, every year, the retirement age will be increased by three months. This will cause the assumed retirement age of 67 years to be reached by men in 2020 and by women in 2040. The SIF shortage problems were to be definitely limited by changes of several provisions of certain laws introduced by the Act of 25 March 2011 amending certain 32

According to the Analysis of the results of the study on periods of retirement benefits, the Department of Statistics and Actuarial Forecasting of the Social Insurance Institution, Warsaw 2012, p 16 33

The maximum size of the public debt to GDP is covered in paragraph 5 of article 216 of the Polish Constitution of 2 April 1997 (Journal of Laws No. 78, item 483), and specific thresholds are set in 86b of the Act on Public Finance of 27 August 2009 (Journal of Laws No. 157, item 1240) 34 The Act of 11 May 2012 to amend the Act on Old-Age and Disability Pensions from the Social Insurance Fund (Journal of Laws of 2012, item 637), provisions defining a new age for retirement benefits: Article 24, para. 1a - age for women and 1b - age for men, entered into force on 1 January 2012. 131


acts relating to the functioning of the social insurance system35, which entered into force on 1 May 2011. The amendment of the Article 22 Paragraph 3 of the Act on social insurance system strongly reduced part of the contribution transferred to open pension funds: from 7.3% to 2.3%36. At the same time, art. 40 found that, under accounts of the insured the Social Insurance Institution creates sub-accounts where payment of the remaining portion of the premium allocated to the second pillar was evidenced (respectively, in 2011 and 2012 - 5.0%, in 2013 - 4.5%, in 2014 - 4.2% , in 2015 and 2016 - 4.0%, and from 01.01.2017 - 3.8%)37. In accordance with Art. 40c of the aforementioned act, premiums evidenced on the subaccounts shall be subject to annual indexation by multiplying by a factor equal to the average annual growth rate of GDP at current prices for the last five years preceding the date of indexation. Legislature, with the presented legislation, limited the influence of open pension funds in the first phase by about 68%, and ultimately by about 52% compared to the level assumed at the time of the reform of the social security system, 01.01.1999. Reducing social security contributions transferred to open pension funds, reduced state budget borrowing needs, increasing the sustainability of public finances, and thereby also the credibility of the state. As a result of this change of regulations, deficit of the government and self-government institutions (according to the EU methodology) decreased from 7.9% of GDP in 2010 to 3.9% in 2012, an increase of 4 percentage points of GDP38. Government sources state that if, in 2011, the pension contribution transferred to open pension funds had not been decreased, public debt would have been higher in 2011-2012 by, respectively, PLN 9.4 billion and PLN 28.7 billion, i.e. in relation to GDP, by 0.6% and 1.8%.. This means that the ratio of public debt to GDP at the end of 2012 would be 54.5% instead of the level reached - 52.7% and the one of the debt of the government and self-government institutions (according to the EU definition) 57.4% instead of 55.6%39. Under the law in force from 2011, part of premiums evidenced on the Social Insurance Institution subaccount is indexed according to the medium-term GDP growth. Restricting the outflow of contributions to open pension funds introduced under the provisions of the Act of 25.03.2011 did not result in going out of concerns about the stability of the pension system, and thus the public finances. It was 35

Consolidated text, Journal of Laws No. 75, item 398. It was assumed that the level of interest of the contribution be allocated to open pension funds in subsequent years will be increased and was 2.8% in 2013, 3.1% in 2014, 3.3% in 2015 and 2016, and from 1 January 2017 will be equal to 3.5% of the base of the pension insurance contributions and pension benefits. 37 This provision was changed in a short time, it is discussed later on in the article. 38 More than ¼ of the deficit decrease resulted from the reduction of the size of the refund of contributions due to their transfer to open pension funds (about PLN 17.8 billion, in relation to GDP in 2012 amounting to about 1,1% of GDP). 39 It was estimated that costs of debt servicing in 2012, associated with higher borrowing needs and higher yields on debt instruments, would be higher by PLN 2.4 billion (0.1% of GDP). 36

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therefore necessary to introduce further changes. This was done by the Act of 6 December 2013 on amendments to certain acts in connection with determination of principles for old-age pensions payments from funds collected in open pension funds40. This Act introduced further significant changes in the pension system. Below, the most important of them are discussed. In the Act of 6 December 2013, it was assumed that people starting economic activity will no longer have an obligation to join any open pension fund. However, if they decide to choose to do so, the contract with the pension funds must be concluded within 4 months of starting the activity causing social insurance obligation. When the contract is not concluded in such a period of time, the Social Insurance Institution will not transfer part of the contribution to open pension funds, but the whole part of the pension contribution shall be allocated to the second pillar of the on the Social Insurance Institution subaccount. Voluntary membership in open pension funds was also adopted for those who are already members of the fund. The insured being members of open pension funds can decide whether their contribution still have to be transferred to the OPF, or evidenced on the Social Insurance Institution subaccount in their entirety. People who want to remain in an OPF are obliged to submit to the Social Insurance Institution, in the period from 1 April to 31 July 2014, a statement concerning further transfer of contributions to open pension funds. If they do not, part of the premium, which is currently subject to transfer to open pension funds, beginning with the premium paid for July 2014, will remain in the Social Insurance Institution and will be evidenced on the subaccount. Each of OPF members and individuals who resigned or were not even members of OPF will be able to change their decision on the membership in OPF. Such a possibility will happen every 4 years, in the period from 1 April to 31 July, starting in 201641. Introducing the principle of voluntary membership in open pension funds has provided an opportunity to change the previously discussed rules on the part of the premium allocated to open pension funds. After the amendment under the Act of 6 December 2013, in accordance with Art. 22, Paragraph 3 of the Act on social insurance, as of 01.02.2014, in the case of persons who are members of open pension funds, 2.92% of the base premium will be transferred to their chosen fund, while the remainder of the contributions to the second pillar, i.e. 4.38% evidenced in the Social Insurance Institution on subaccounts. However, if the insured is not a member of any 40

Journal of Laws of 31 December 2013, item 1717 A great deal of controversy is raised over art. 197a of the amended Act on the operation of open pension funds, which stipulates that, starting from 2016, from the year in which decisions can be taken regarding membership in open pension funds, from 1 January to 31 July it is prohibited to have advertisements containing information about open pension funds or information suggesting that the ad refers to the open pension funds. Violation of this prohibition may result in the open pension fund’s penalty in the amount of PLN 1 000 000 to PLN 3 000 000. 41

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open pension fund, the entire amount of the contributions goes to the second pillar in the amount of 7.3% of the base premium and is subject to being evidenced on the Social Insurance Institution subaccount. The rules concerning indexation of records on the subaccount have not been changed. The next step in the efforts to alleviate the situation of public finances have become the provisions contained in the discussed Act relating to the fundamental change in the possibility of open pension funds to invest their assets and the requirement concerning the transfer of funds from open pension funds to the Social Insurance Institution. Under the new law regulations, Art. 141, Paragraphs 1 and 2 of the Act of 28 August 1997 on the organization and operation of open pension funds, among other things, introduced a ban on open pension funds to invest their assets in bonds, treasury bills and other securities issued by the Treasury or the National Bank Polish and by governments or central banks of member countries of the European Union or parties to the agreement on the European Economic Area, or members of the Organisation for Economic Cooperation and Development, as well as loans and credits, granted to these entities, as well as bonds and other debt securities, amounting to cash benefits guaranteed or underwritten by the Treasury or the National Polish Bank and by governments or central banks of the countries listed above, as well as deposits, loans and credits, guaranteed or underwritten by these entities, as well as deposits, loans and credits, guaranteed or underwritten by these entities. The prohibition on investments made by open pension funds also includes bonds issued by the Bank of National Economy under the terms of the Act of 27 October 1994 on toll motorways and the National Road Fund and bonds other than those mentioned above, bank securities or bonds issued by the National Economy Bank. At the same time, to force open pension funds to change their very far underwriting investment policy, the legislature, in Art. 35 of the discussed Act of 6 December 2013, introduced minimum total values of investments in OPFs listed on a regulated market in Poland and in other countries as well as bonds convertible into shares of these companies, as well as, listed on the Polish market and other markets, pre-emptive rights and rights to shares as well as shares, pre-emptive rights and rights to shares which are the subject of a public offer on the Polish territory and in the countries of the European Union or parties to the agreement on the European Economic Area, or members of the Organisation for Economic Cooperation and Development. This level is at least: up to 31.12.20914, 75%, and in subsequent years, decreases by 20% per year and, consequently, in the fourth year, i.e. up to 31.12.2017 amounts to 15%. Closely connected with the ban on investment by OPFs in bonds, treasury bills and other debt securities issued or guaranteed by the Treasury, there exists an order specified in Art. 23 of the aforementioned act, according to which OPFs, on 3 February 2014, were required to transfer the following assets to the Social Insurance Institution: 1) bonds and bills issued by the Treasury; 2) bonds issued by the Bank of National Economy under the terms of the Act of 27 134


October 1994 on Toll Motorways and the National Road Fund42, guaranteed by the State Treasury; 3) other securities amounting to cash benefits guaranteed by the State Treasury; 4) cash denominated in Polish currency, by the redemption of units of account on the account of each member in the amount of 51.5% of the units according to the account balance as of 31.01.201443. After the operation, resources equivalent to the redeemed units were being evidenced on the subaccount of each insured person – an OPF member. However, according to Art. 23, Paragraph 10 of the Act the assets listed in point 1 were presented by the Social Insurance Institution to the acquisition of the Treasury and the assets listed in points 2 - 4 transferred to the Demographic Reserve Fund. The remaining number of account units, representing 48.5% of the account balance on 31.01.2014 open pension funds’ members remained, as a rule, on the accounts. The Act of 6 December 2013, however, provides that, in certain cases, also this part will be fully transferred to the Social Insurance Institution. This is the case of women who, on the day of entry into force of the Act, have their right to a periodic funded pension already established, people who, until the entry into force of the Act, had not yet had their right to a pension from the Social Insurance Fund established, but had completed the prescribed retirement age for women or had established their right to a partial retirement and people submitting an application for partial retirement44. All funds transferred at one time OPF to the Social Insurance Institution are, as a rule, being evidenced on the subaccount45. A new important solution was introducing the so-called security slider, designed to reduce the loss of value of the units on the account of the insured during the period of their approaching retirement age. In accordance with Art. 110c, paragraph 1 of the above amended Act of 28 August 1997 on organisation and operation of Pension Funds, in connection with the achievement by the insured an age 10 years lower than the retirement age, open pension funds are obliged to progressively transfer the collected funds to the Social Insurance Fund. Technically, this involves monthly redemption of a number of accounting units that are quotient of the number of account units accumulated on the member's account and, expressed in months, the difference between retirement age and the age of the member on the day of redemption and the transfer of an amount equivalent to the Social Security 42

(Journal of Laws of 2012, item 931, as amended), Redemption followed in order of assets referred to in the text, until the value corresponding to 51.5% of the units of account on the day 31.01.2014 44 The Social Insurance Institution does not transfer contributions to open pension funds for persons who established their right to a pension or partial retirement. In their case, the entire contribution is evidenced on the account of the insured. An exception applies to people who have an established right to a periodic funded pension, a bridging pension or teachers' compensation benefits. The people will still have part of their contribution evidenced on the subaccount. 45 An exception is to apply to persons entitled to a partial pension or applicants for the grant of the benefit for which the funds will be ultimately saved on the account of the insured. 43

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Fund redeemed units. This amount is evidenced on the Social Insurance Institution subaccount of the insured. During this period, part of pension insurance premiums is also transferred to OPF. Conclusion Changes made to the general pension scheme under the Act of 6 December 2013 on amendments to certain acts in connection with determination of principles for old-age pensions payments from funds collected in open pension funds are yet another attempt to seek opportunities to solve problems of public finances. Previous changes made since 1.05.2011. under the Act of 25.03.2011 on amendments to certain acts related to functioning of the social security system have not yielded satisfactory results and effects. The new way of managing resources from the socalled second pillar established in 2014, due to the threat of destabilisation of the social security system, reduces the capital segment in the pension system to the minimum. It is hoped that the next step will be to strengthen incentives for individual savings, we should put great emphasis on individual forethought, which should constantly be growing.

Bibliography Bezpieczeństwo dzięki zrównoważeniu. Synteza – przeglądu funkcjonowania systemu emerytalnego, Ministerstwo Pracy i Polityki Społecznej oraz Ministerstwo Finansów, Warsaw 2013, Bielawska K., Czynniki wzrostu deficytu FUS po 1998 roku, in: Ubezpieczenia gospodarcze i społeczne. Wybrane zagadnienia ekonomiczne, ed. W. Sułkowska, Wolters Kluwer business publishing house, Warsaw 2011, Czajka Z., Systemy emerytalne w Niemczech i Wielkiej Brytanii wobec nowych wyzwań, Publishing house the University of Lodz, Lodz 2003, Europejski model społeczny. Doświadczenia i przyszłość, ed. D.K. Rosati, PWE, Warsaw 2009, Gałecka M., Nowe zasady korzystania z OFE od 1 lutego 2014r., „Monitor Prawa Pracy i Ubezpieczeń” 2014, no. 2 Informacja o świadczeniach pieniężnych z funduszu ubezpieczeń społecznych oraz o niektórych świadczeniach z zabezpieczenia społecznego za lata 2003 – 2013, http://www.zus.pl, Jędrasik-Jankowska I., Pojęcia i konstrukcje prawne ubezpieczenia społecznego, LexisNexis publishing house, Warsaw 2012, Commentary on the Act of 25.03.2011 on amendments to certain acts related to functioning of the social security system, red. J. Strusińska – Żukowska, C.H. BECK, Warsaw 2011. Kruszalski P., Nowe zasady obowiązujące w zakresie członkostwa w OFE, „Monitor Księgowy” 2014, no. 4. Council of Ministers Regulation of 26 April 2011 on the determination of the maximum portion of the assets of open pension funds that can be invested in different investment categories, Journal of Laws of 2011, No. 90, item 516. 136


Sławińska E., Reforma OFE, „Monitor Księgowy” 2014, no. 1. Social Insurance and Allied Services. Report by Sir William Beveridge. Presented to Parliament by Command of His Majesty, November 1942; http://www.fordham.edu/halsall/mod/1942beveridge.html, Struktura wysokości emerytur i rent wypłacanych przez ZUS po waloryzacji w marcu 2013 roku i analogiczne za 2014 r. Department of Statistics and Actuarial Forecasting of the Social Insurance Institution; http://www.zus.pl/default.asp?p=5&id=3507 Struktura wysokości emerytur i rent wypłacanych przez ZUS po waloryzacji w marcu 2013 roku i analogiczne za 2014 r. Departament Statystyki i Prognoz Aktuarialnych ZUS; http://www.zus.pl/default.asp?p=5&id=3507, The Act of 27 October 1994 on Toll Motorways and the National Road Fund, Journal of Laws of 2012, item 931, as amended., The Act of 28 August 1997 on the organization and operation of open pension funds, Journal of Laws No. 139, item 934, The Act of 17 December 1998 on pensions from the Social Insurance Fund, consolidated text Journal of Laws of 1998, No. 162 item 1118, as amended. The Act of 21 November 2008 on capital retirement, consolidated text, Journal of Laws of 2008r. Nr 228, item 1507, as amended. The Act of 25.03.2011 on amendments to certain acts related to functioning of the social security system, consolidated text, Journal of Laws of 2011 no. 75 item 398. The Act of 6 December 2013 on amendments to certain acts in connection with determination of principles for old-age pensions payments from funds collected in open pension funds, Journal of Laws of 31 December 2013, item 1717

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The Impact of Informatization upon the Management of Touristic Services Irina Roitman, Ph.D. Candidate, AESM, Director of “Racurs-Tour” Turistic Agency Abstract The author has undertaken an investigation of the impact of informatization as a megatrend of contemporary international business upon the management of touristic services. The various aspects of informatization and the complex character of its impact upon the management of touristic services have been argued. Article Informatization is one of the megatrends of the contemporary world economy. The term “megatrend” was introduced into operation by John Naisbitt [1] who figured out number of significant directions of the development of the contemporary society. Alongside with the world economy researchers, the MoldoRomanian scientific community has also paid attention to the term. Zorina Shishcan [2], for example, precised its definition as follows: “a megatrend is an energoinformational flux which manifests itself not in a separate economy or in a group of economies/countries but embraces, gradually, all countries/economies of the world; it acts not in a single or few cultural domains but changes the character of the development of all domains of world culture; it is not occasional by its manifestation but constant and stable in a long period of time” [2, p. 223-224]. Informatization as a megatrend is based on the transition from industrial society and economy to the postindustrial, informational, ones. In the very context it was studied by number of researchers of the contemporary society, world economy and management (D. Bell, P. Drucker, I. Dijmarescu, B. Chistruga etc.). The purpose of this article is to reveal an impact of the Informatization megatrend on the management of touristic services. In spite of the fact that such an impact is evident, it is not quite conceptualized and systematized in the specialized literature. At the same time, there are many articles devoted to the different aspects of the ICTs application in tourism. Iulian Condratov has noticed, in this respect, that “beginning with the 80s, the ICTs transformed the domain of tourism globally” [6]. Having not pretended for an exhaustive outcome, I am going to bring my contribution to the process of the research of the impact of the ICTs on touristic domain in the limits of the article. The attention will be drawn, first, to the impact of informatization, that is wider than just the ICTs application in the domain, upon the management of touristic services, and secondly, to the impact of informatization upon the management of touristic services. Both aspects have less been paid attention 139


to in contemporary articles. The significance of revealing the impact mentioned above is in outlining the ways which increase or can increase the competitiveness of the companies in touristic domain. Informatization of management of touristic services means, first of all, the application of the information and telecommunication technologies (ICTs) into domain. Due to the ICTs, planning operation in touristic management has become in times more effective and efficient. In order to do, for instance, a Global Market Opportunity Assessment [3] for touristic services, it takes much less effort and time then if not applied the ICTs. The latter provide fast access to the recent national and international reports, research, statistical data, achievements and state of affairs of competitors. The ICTs allow overcoming national boundaries and globalizing touristic business within half of the year or even less. Management soft wares give opportunity to economize time in elaboration of plans and organization of communication and work in the office. They also allow economizing office space owing to reduction of the paperwork. In order to benefit the most from the application of the ICTs in management of touristic services, it is important to “install” and develop an Economic intelligence. The concept was specially developed by Ion Dijmarescu [4] in the context of informational economy, structured in nets. Having generalized the main ideas and adapted them to the domain of investigation, one can mention the following: first, managers and subordinates should get the specialized knowledge in order to be able to use the ICTs and the respective software. More than that, the periodical specialized training should be included in plan of a touristic agency to update the economic intelligence of management and personnel as well as the spending for a renewed ICT office equipment should also be foreseen in the plan to keep the firm competitive; secondly, economic intelligence is linked with the ability of managers to plan and organize the information and communication channels within an organization. It presupposes the design and installation of an Intranet which speeds up the communication within a touristic agency, allows circulation of a confidential organizational information, blocks spam and gives possibility to be focus only on relative work information; an Extranet which connects agency with the elements of specific organizational environment as well as with other touristic agencies, in case of strategic and synergetic alliance or being a subsidiary of a global touristic company. The impact of the information upon the touristic office management will be positive in case a manager is able to organize and control the channels of communication through informational technologies for the full benefit of the company. In case the ICTs are used by the personnel for whisper blowing or wasting time and office resource when playing games, using social nets and mobile phones for socializing with friends or family members etc., the impact of informatization upon such a touristic agency will be negative. Controlling operation of management is also easier to be exercised by the means of the ICTs. Having installed, for example, cameras in the office, manager 140


can be in the picture of a current situation in it in an online regime, using his laptop or mobile with Wi-Fi or another Internet access. The impact of the informatization upon the tourism management has also been displayed through the appearance of a new kind of tourism – e-tourism. According to Arturo Montejo-Ráez [5], e-tourism is a way of establishing commercial relationships using the Internet for offering tourism related products: flights, hotel reservation, car rental and so on. Concerning e-commerce applications, this kind of services are classified into the business-to-consumer category. Having leaned upon my research and practice in domain, I can distinguish two main dimensions of e-tourism. First is based on the usage of the ICTs by touristic agencies and touristic infrastructure (hotels, transport companies, restaurants, touristic objectives etc.), on the one side, and the usual customers, on the other side, developing a virtual market, services of which are resulted, finally, in real travels. Second is also based on virtual offers and demands but touristic services are consumed within virtual market, not being entailed by real travels. The sense is that customers enjoy virtual travels. Such services are especially consumed by disabled people, old or poor, by pregnant women or those with many children who have not possibility to real travelling. Two kinds of problematic zones arise here for management of touristic services. On the one hand, such categories of potential customers are involved in etourism which I would define here as an activity of replacing in virtual space with the purpose of sightseeing and entertainment. On the other hand, they are limited, as a rule by video promotions and other materials, occasionally found in the Internet. This means they are not so much involved in commercial e-tourism and do not contribute, so far, to the development of such kind of business. In this case, such categories of population should be supported by management of non-commercial touristic services which can be provided by specialized programs/projects of the NGOs and governmental agencies. At the same time, no artificial reality can replace a real touch with nature, vivid sightseeing etc. Thus, the management of touristic services should not ignore such categories of potential customers and should use the ICTs to more extent to create a systematized market of touristic services in both virtual space and real space, elaborating also the specialized packages of offer and, probably, in cooperation with the NGOs and governmental agencies or as a part of charity programs, projects for corporate social responsibility etc. As it has been mentioned in international specialized reports, one of the important areas in future of management of touristic services will be to make travel and tourism information more accessible on the internet, for example, for blind and deaf people. Tourist board websites, however, generally fail on this front, according to an ENAT survey [6; 7]. Besides, the hospitality industry must be aware that the market segment formed of people with disabilities or aged people is increasing. Thus, the assistance technologies, such as the vocal browsers, can offer a higher degree of assistance to these customers who access the information online (Puhretmair, 2004). 141


The systematized virtual tourism will be good for ordinary customers too, especially when people would like to visit touristic objectives in the places of high risk (under the war, epidemic zones etc.). Services in virtual 3D travelling are welcome here. At the same time, for the places of low risk only virtual promo tours will be welcome as they have to stir an interest, a need, and boost a real travel afterwords. In this case the ICTs should be used more for guiding and facilitating this real travel. Developing further the logic of the article, I would like to emphasize the idea that the Informatization of touristic industry and market entailed the development of the existing touristic services and the appearance of those new ones. Thus, for example, the 3D and 4G mobile telephony allowed obtaining the touristic information that the tourists need without any constrains of time or geographic location. The mobile services give opportunity to the tourists to arrange accommodation before their arrival to the hotels, to book airplane tickets, to rent cars and to access easier to the guides of touristic information. In general, the ICTs often change the format of touristic services. Thus, for instance, the smart phones users have a multitude of applications which can be installed on this dispositive so that a tourist can visit a touristic destination without any guide. Using computers and smart phones the customers can visualize the touristic information within the digital maps with aerial perspective in both 2D and 3D representations (see [6]). According to the ITB World travel trends report, the internet has clearly established itself as the main place to buy travel with 54% of bookings, well ahead of travel agencies which have slipped to 24% [7]. Alongside with the ICTs application and the development of Economic intelligence, Informatization manifests itself through the sharp increase of information volume for both managers of touristic agencies and potential customers/tourists. They both face with the problem of filtering this information, to get the adequate and valid information. The creation of the websites of touristic agencies and touristic infrastructure allowed structuring the global and local information regarding the touristic services. The searching engines contribute to the systematization of this information. Both processes facilitate the management of touristic services of the companies and the process of taking decisions of potential consumers. Potential customers become more and more independent and sophisticated in using a large set of instruments through which they are planning their trips. Among these, one can enumerate the reservation systems and the online touristic agencies (as Expedia, for instance), the browsers (as Google and Kayak), the systems of management of the destinations (as visitbritain.com), the social webs and the web search portal 2.0 (Wayn and Tripadvisor), the sites that offer the possibility to compare prices (as Kelkoo) [8]. A special attention should be paid by touristic agencies, first, to updating their sites, to make them vivid as “in the domain of touristic promotion an image will always have a bigger value than one thousand words” [6]; secondly, to reserve room on their websites for the customers’ feed-back. Such a feed-back, also compared with 142


that given to competitors, can be received from the social networks as well. Such social media platforms as Facebook, Twitter, You Tube are widely used and increasingly felt in the travel and tourism sector. About 40% of travelers said that the social network comments influenced their travel planning, while 50% actually based their travel plans on other people’s reviews, according to a Google survey in 2011 [6]. Bloggers cultivate trust by interacting with their readers via social media, making them recommendations based on their personal experience [7]. One of the most successful social webs in touristic sphere is regarded to be Trip Advisor. It gives the possibility to evaluate the hotels all over the world as well as to unite its users from the forums. The impact of informatization upon management of touristic services by the use of social media platforms can be appreciated as positive at the extent of giving possibility to economize on market situation research, to get objective information about the proper agency, about competitors in comparison by the means of the feedback of customers, to reveal the trends in customers’ behavior, preferences and even to re-evaluate, sometimes, the customers. Thus, for example, it was a touristic management stereotype that choosing a holiday destination is the priority of the adults in the family. Recent research, including data from the social media platforms, showed, however, that role of the children in family decision-making process is increasing. “The managers of touristic destinations who target the young public should offer, using the online means, a content as adequate as possible to this public, like the interactive games in order to attract this kind of public in visiting their sites” [8]. The impact of informatization upon a touristic agency, with respect to the social media platforms, can be negative in case if an agency does not invest enough time, financial resources, creative resource in developing its website, originality of its touristic services, quality of their providing. It happens because social media platforms multiply in times negative image of a company or vice-versa. In case of paying necessary attention to these informatization instruments, they can synergize the efforts of a touristic agency and satisfied customers, and develop a strong touristic brand, the fact that will economize company’s resources in future and allow it to capitalize on its intellectual capital.

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Bibliography Naisbitt John. Ten New Directions transforming Our Lives. Warner Books Edition. Toronto 1986 Şişcan Zorina. Fundamentarea de noi abordări metodologice ale managementului strategic şi cros-cultural în contextul megatendinţelor socio-economice. Editura ASEM. Chişinău, 2009 Cavusgil, Knight, Riesenberger. International Business: Strategy, Management, and the New Realities. New York 2009 Dijmarescu, Ion. Managementul inteligenţei economice. Bucureşti 1998 Ráez, Arturo Montejo. Otium: A web based planner for tourism and leisure. Expert Systems with Applications (38), 10085-10093, 2011 Condratov, Iulian. E-tourism: concept and evolution. Ecoforum. Vol. 2, 2013, Issue 1(2), 58-61. International IPK. ITB World Travel Trends Report 2012/2013. Messe Berlin Gmbh, Berlin 2012 Buhalis, Dimitrios. Progress informational technology and tourism management: 20 years on and 10 years after the Internet – The state of e-Tourism research. Tourism management (29), 2008, 609-623. Puhretmair, F.. It’s time to make e-Tourism accessible. Paris ICCHP, 2004, 272-279.

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The Role of Location Advantages for Transnational Corporations Chisca Maria, Univ.Lect., Academy of Economic Studies of Moldova

Abstract The article provides an overview of the key insights resulting from international business research on the interactions between location advantages and the competitiveness of transnational corporations and FDI. It describes the relative contribution of home country specific advantages and host country specific advantages to transnational corporations’ competitiveness; it concludes that host country specific advantages, and in this case particularly Republic of Moldova’s country specific advantages, may become increasingly important to achieve global competitiveness and to attract FDI.

Article Stephen Hymer (in 1960) was the first author to focus on foreign direct investment as a tool used by transnational corporations (TNCs) to transfer and exploit abroad proprietary resources. His view was that they would face location disadvantages vis-à-vis indigenous firms in host countries such as language and cultural barriers, lack of knowledge on the local socio-economic and business system, expropriation risks, which have been synthesized under the heading of “liability of foreignness”. This implies that TNCs producing in host countries would not benefit to the same extent as indigenous firms from localized network spillover effects or synergies from the combination of firm level and host country location advantages. [1] At the beginning of XXI-st century, John H. Dunning’s eclectic paradigm, also known as OLI Model, has become the leading conceptual framework for the analysis of international expansion patterns of business firms. The idea behind the Eclectic Paradigm is to merge several isolated theories of international economics in one approach. Three basic forms of international activities of companies can be distinguished as: Export, FDI and Licensing. The so-called OLI-factors are three categories of advantages that Dunning added to the Internationalization Theory (the 147


theory says that transactions are made within an institution if the transaction costs on the free market are higher than the internal costs. This process is called internalization.), namely the ownership advantages, location advantages and internalization advantages.  Ownership advantages (trademark, production technique, entrepreneurial skills, and returns to scale) refer to the competitive advantages of the enterprises seeking to engage in Foreign Direct Investments (FDI). The greater the competitive advantages of the investing firms, the more they are likely to engage in their foreign production.  Location advantages (existence of raw materials, low wages, and special taxes or tariffs) refer to the alternative countries or regions, for undertaking the value adding activities of TNCs. The more the immobile, natural or created resources, which firms need to use jointly with their own competitive advantages, favor a presence in a foreign location, the more firms will choose to exploit their Ownership specific advantages by engaging in FDI.  Internalization advantages (advantages by own production rather than producing through a partnership arrangement such as licensing or a joint venture) refer when Firms may organize the creation and exploitation of their core competencies. The greater the net benefits of internalizing cross-border intermediate product markets, the more likely a firm will prefer to engage in foreign production itself rather than license the right to do so.[1, p.157] One of the problems with Dunning’s eclectic paradigm is that it is too eclectic. Indeed, in many ways, each of the three motives for FDI is overdetermined. This is especially true for Ownership advantages. According to Dunning, these include not only the firm’s intangible assets, such as knowledge, brands, organizational structure, and management skills, but also natural factor endowments; manpower; capital; the cultural, legal and institutional environment; and industry market structure. Obviously the latter set of Ownership advantages is easier to analyze as country factors. However, Dunning argues that such country factors can somehow be turned into Ownership advantages. Going one step further, Dunning (in 1993) argued that Ownership advantages could explain the ability of TNCs to form alliances. TNCs do this by taking advantage of common governance structures across borders, such that relational assets are created which allow firms to access resources controlled by partners. This is a form of business networks or alliance capitalism, driven by a very broad interpretation of Ownership advantages. In a similar manner, Dunning has a very broad definition of location advantages. Here it is host country Location advantages that matter, including market size, natural resources, aspects of the infrastructure, the education system, governance structures, and other aspects of political and government activity. Given that firms can lobby governments to obtain shelter type Ownership advantages, the distinction between Location and Ownership advantages is difficult to make. For example, when a TNC is given access to natural resources (ownership of an oil well, a forest, or a mine), a host country Location advantage is transformed into an Ownership advantage. 148


Finally, Internationalization advantages are clearly strongly linked to Ownership advantages. Indeed, without the institutional form of the TNC it is difficult to see how Ownership advantages could exist on their own without being owned (internalized) by the firm. In their essence, intangible knowledge assets are an example of the firm replacing the market [4]. Dunning seems to argue that the Internationalization advantage only relates to transaction costs, such that an Ownership advantage is needed to explain organizational, financial, and institutional advantages. This distinction between transactional ownership advantages and asset ownership advantages was introduced by Dunning and Rugman (in 1985). An important contribution of this theory is that the specific location characteristics which contribute to competitive advantage vary for different countries, sectors and firms (Dunning, 1992). It is interesting to observe that, at the firm level, the location advantages appear to include several elements such as the firm’s experience with foreign involvement, psychic distance variables and attitudes to risk diversification. Another contribution of Dunning’s paradigm (1998) is that it allows identification of the key location advantages of four different types of international production, such as: 1. natural resources seeking, 2. market seeking, 3. efficiency seeking, and 4. strategic asset seeking. One of the great strengths of the model is that it highlights the complexity of determining the practical implications for managers and public policy makers of specific location advantages.[1] Analyzing these four types of international production, we can see that natural resource seeking FDI occurs when firms identify specific host country locations as an attractive source of natural resources at the lowest real cost. However, even in this case, additional location advantages such as good transport infrastructure, an effective institutional and legal framework has been identified as needed too. In this case, FDI is usually associated with the exports of resource based products from the host country. However, in return, this may improve the location advantages of the home country both for the production and exports of goods which use the imported resources as a low cost or high quality input. As intra-firm trade replaces inter-firm trade, an unfavorable taxation regime in a specific countrywhether the home or host nation – can be overcome as a location disadvantage by shifting profit, but not the production itself from the nation with the unfavorable regime. FDI should therefore not be viewed only as an outcome of existing location advantages but it may be helpful to the creation of new location advantages. So, we can see that the identification of location advantages becomes much more complex during the involvement of international production, however, the home country will export capital intensive goods with high technology content and the host country will mainly export resource or labour intensive products with a low knowledge content. 149


The second type of international production, market seeking FDI, has an effect of immediate import substitution and often leads to trade creation [Rugman 1990]. This can occur when the newly established subsidiary uses intermediate outputs from the home country in its own production process and it becomes a mechanism for additional exports in other product areas for the home country, and the final product can also serve for the export to third country markets. Efficiency seeking FDI, as the third type of FDI, leads to even higher complexity as regards the location advantages of the countries involved. This type of FDI is usually trade creating at the firm level, because it reflects a rationalization of the TNC’s operations and a specialization of the subsidiaries in its internal network. This increases the intra-firm knowledge and goods flows, and the international exposure of the subsidiaries. It is important to understand the importance of location advantages to the firm, because the Firm specific advantages (FSA) and location advantages meet at the subsidiary level, and it influences the specific role given or earned by the subsidiary in the firm [Rugman 1990]. The subsidiaries may act as “globally rationalized”, performing a particular set of activities in the vertical chain or they can have a regional product empowerment. In the case of a vertically integrated chain, intra-firm trade is likely to increase, building upon the location advantages benefiting each subsidiary, thereby leading to an increase of both intermediate goods trade and international production [Cantwell 1994]. Regarding the forth main type, strategic asset seeking FDI [Weson 1993], we observe that the assets of foreign firms are secured by new plants and acquisitions or joint-ventures, to create synergies with the existing pool of assets through common ownership. A good example is the R&D performed in host countries rather than the home country which constitutes the key location advantage which leads to FDI. Due to the fact that the acquired assets sourced from the host country are linked to a localized innovation system and the TNC as a whole may get access to at least some spillovers from that innovation system, so backwards, the localized innovation system may benefit from being associated with the foreign TNC. In addition to the four main motives for FDI, there are some motives that appear related to location factors, such as escape investments (made to avoid home country restrictions), which obviously reflect the absence of government restrictions in the host country; and trade supporting investments with the goal to facilitate home country imports or exports through building on host country location advantages (for example, to help in purchasing of inputs, logistics activities, after sales service, etc). So, as a conclusion, we may observe that it is precisely the nature of a company’s specific advantages and the type of country specific advantages it faces, that will determine whether a particular production activity will be located in a foreign country through FDI and internationalization will occur. The reasons why individual firms engage in international activities are the centre concern. And the key seems to be market imperfections, which prompt companies to internalize cross border activities. In many respects, this is not very different from what firms do inside national borders. [Dunning and Narula (1996b: pp.7-9)] As such, internationalization can be seen as just another dimension of the growth of the firm (Buckley, 1993b). Nonetheless, this is a dimension unlike the 150


others. On the one hand, countries differ in their legal, political and cultural characteristics, which generates a whole set of managerial problems. On the other hand, transnationality changes the very nature of the firm, and can be in itself a source of competitive (ownership) advantages. As any disadvantage faced by any firm, those associated with doing business in a foreign country are neither permanent nor universal. Internationalization is a learning process. It can be managed through a process of progressive commitment of resources, starting in more familiar countries and moving to ever more distant ones. If the internalization of ownership advantages explains why TNCs exist at all (Dunning, 1991), only this dynamic approach to internationalization can describe the process of the development of a transnational corporation. However, in order to understand the way international production is organized worldwide a last critical element is needed. And that is the importance of locational factors. Only the interaction between the internalization of ownership advantages with location advantages can explain the configuration of TNCs’ activity worldwide. This seems to be a description of the eclectic paradigm (Dunning, 1979), except that it cannot be dissociated from the dynamic elements of the investment development trend. A TNC engages in foreign direct investment (FDI) as it realizes some types of advantages from investing in foreign countries. Ownership of specific advantages drives national firms' involvement in international expansion. Firms with specific advantages also find it in their interest to locate their production overseas where the host country has certain location-specific advantages, and to internalize the value-adding activities of international production where (structural and/or transactional) market imperfection exists (Kindleberger, 1969; McManus, 1972; Buckley and Casson, 1976; Hymer, 1976; Dunning, 1981; Rugman, 1981).[1] The Republic of Moldova has an untapped FDI potential, which ranges from agriculture and agri-business, through ITC and other services, to a number of manufacturing industries. Most of these industries are strongly export-oriented, with exports growing in most cases rapidly during the past decade and testifying to Moldova’s international competitiveness in a range of products. Export-orientation does not put limits on the market size as long as competitiveness continues. The Republic of Moldova has for many years to come a unique advantage, not shared by many countries: a secured access to two large regional markets, those of the EU and CIS countries. Its key asset for export-oriented production includes competitive semi-skilled and skilled human resources. FDI potential extends to infrastructure services such as energy generation and distribution and, notably, to renewable energy. It also includes future infrastructure projects, where foreign investors can be attracted to public-private partnerships. Yet the existing FDI potential does not necessarily equal investment opportunities for foreign investors. In some cases these opportunities are pretty straightforward, such as in manufacturing industries, while in others, such as in agriculture and agribusiness, they are not. If the Republic of Moldova wants to attract more FDI, it has to transform the potential into opportunity and to exploit opportunities where they already exist. This will require concerted actions on many fronts. At the same time, the Republic of Moldova should start 151


building potential for better, higher value added FDI, and, for that matter, for better domestic production in the future. So far, with few exceptions such as IT services, the country has relied in export-oriented production on attracting FDI into rather simple operations, benefitting from semi-skilled or unskilled human resources. Such production is characterized by low value added and products competing on price rather than on quality. The Republic of Moldova has a comparative advantage in such operations, which will hold for some time, and therefore should exploit its potential to the full, as it at present has hardly any other potential. But such operations are footloose; they stay in a country as long as its human resources are cheap and move to other countries when they become too expensive. Therefore, they are not sustainable in the long term and they have to be gradually replaced with higher grade operations, for which the country should prepare ground. In other words, the Republic of Moldova has to move up the value chain of industries and activities, existing and new ones.[3] So, to see how the Republic of Moldova can integrate into the internationalization process we should remark what are the main country’s location advantages are [5]:  Favorable geographical position at the crossroads of commercial routes;  Proximity to large world markets (European Union and Commonwealth of Independent States);  Platform for manufacturing and exporting both to CIS and to the EU;  Competitive general corporate income tax (CIT) rate in the region – 12%;  Tax and customs framework close to the EU one;  Considerable network of operational Double Tax Treaties and Investment Protection Agreements;  Market access trough 42 Free Trade Agreements including: » WTO members (worldwide) » EU-Moldova Association Agreement (EU countries) » CEFTA members (most Balkan countries) » CIS members (except Tajikistan)  Entrepreneurial activities under preferential terms and conditions developed in free economic zones (FEZ)  Well skilled / multilingual workforce  Relatively low employment costs  Improved legal framework regulating entrepreneurial activity  Starting a business – fast and easy to handle  Investment opportunities through privatization of public property and public-private partnership. As a general rule, countries that offer TNCs what they seek stand a greater chance to attract FDI, or more FDI. While investing abroad, TNCs seek access to natural resources and national and international large and dynamic markets. They also seek cost reductions from production abroad, enabled by access to competitive inputs in host countries, notably, but not only, to unskilled and skilled labour. And finally they seek national enterprises, they can acquire, fitting into their strategies. As a result, natural resources, markets, competitive production inputs and strategic assets are key four economic attractions of host countries seeking to attract 152


FDI. What are key Moldova’s attributes in light of these attractions? The Republic of Moldova hardly has any natural resources, apart from fertile land and good climate, suitable for competitive agriculture. Its domestic market is small, but Moldova is centrally located, between two large regional markets, to which it has relatively free access. Access to two large markets determines FDI potential in export-oriented manufacturing, tradable services and agriculture. This potential is enhanced by the availability of cheap, semi—skilled and in some activities skilled, trainable work force and investment opportunities in Free Economic Zones, where incentives and utilities are offered to exporting manufacturing investors and in Industrial Parks, which offer infrastructure. Small domestic market does not rule out the possibility of attracting investors into small scale manufacturing and services catering to domestic market. The lack of natural resources can be seen as an opportunity: Moldova can import raw materials from where they are cheapest and process them for exports or domestic market (where scale would be sufficient), or both.[3] The German Economic Team Moldova (GET Moldova), during its analysis of FDI attraction to Moldova, advises the Moldovan government and other Moldovan state authorities such as the National Bank on a wide range of economic policy issues in order to improve country’s location advantages. Competition for foreign direct investment (FDI) is tough as many potential investment locations try to attract scarce and increasingly footloose foreign capital. The data on Moldova’s FDI inflows and stock suggest that the country has only been partly successful in attracting foreign investors. The level of foreign capital invested per capita lags behind other peer economies and the structure of FDI is biased towards services. Manufacturing industries – which are usually more capital intensive and require thus a higher commitment from investors – are yet underrepresented and agriculture almost completely failed to attract FDI. In the opinion of the investors, business associations and other stakeholders, there are a number of issues that inflate the cost and/or increase the risk of investing in Moldova. Thus, removing such problems is the key for increasing FDI to Moldova. The German Economic Team Moldova emphasized several recommendations in order to help Moldova to improve its country location advantages. Firstly, there is a need to improve legislation. One of such issues is the ban of land purchasing for foreign investors. While there are many workarounds for insiders and established investors, this ban is deterring new potential investors and increases the cost, and the risk, of doing business for existing ones. Indeed, given the many ways of circumventing the ban, aligning legislation with reality would be quick win and low cost recommendation for improving the FDI climate. More complex, nevertheless important, is the issue of labour laws. Despite high headline spending on education investors have difficulties to find and retain skilled workers. A major problem is a lack of options to tie workers to the company and, thus, provide the incentives for employers to invest in training and education. Consequently, knowhow transfer, a crucial aspect of FDI, is severely inhibited. Furthermore, curricula and methods of further education are partly outdated. Secondly, the problematic 153


relationship between government and business is a major barrier for FDI. The risk of investing in Moldova is particularly high due to the frequent arbitrary implementation of legislation by state bodies. Furthermore, often and sudden changes in legislation, which are not consulted with stakeholders, increase the cost and risk of running a business. Thirdly, the current “personalized approach” of attracting investments, where high level policy makers would champion investors, is not without problems. While policy makers have a role to play in facilitating FDI, an “institutional approach” centred on a well-resourced MIEPO would reduce the risk for potential investors. [2] Most of the German Economic Team Moldova recommendations could be implemented in the short term and at a very low cost. This means that Moldova could in fact significantly improve its investment climate soon and inexpensively, thus inducing higher FDI inflows. At the current moment, the Republic of Moldova has a chance to take all the advantages from signing the EU-RM Association Agreement and benefit of its location advantages. Neighboring with the European Union, the main source of foreign direct investments in Moldova offers advantages that should be used correctly and for that, the following should be taken as recommendations:  To enhance European course;  Continue to promote the regulation reform;  To create a clear concept referring to the role of TNCs and FDI for the Republic of Moldova’s economy;  To elaborate strategies and policies for attracting TNCs according to country’s location advantages;  To define and approve the economic spheres which require investments, meanwhile not to reject investments in other sectors;  To invest in infrastructure and find a permanent source for investments in this field;  To evaluate occasionally the policies for attracting FDI and TNCs in our country for optimizing the benefits;  To assure that Moldova’s performances in improving the investment climate are observed by investors from the entire world. There are diverging views about the attractiveness of Moldova as an investment destination. On the one hand, existing foreign investors seem to consider Moldova as a satisfactory investment destination. While there is ample room for improvement of the business climate, those businesses largely maintain their presence and, in some cases, even expand their ventures. Moldova continues to take steps toward developing a stronger economy, reforming a cumbersome regulatory framework, combating corruption and adopting reforms aimed at improving the business climate. Poor physical infrastructure, cumbersome licensing procedures, excessive permit requirements, and proliferation of fee-for-services to public authorities and commercial organizations all contribute to a business environment that remains among the most challenging in the region.

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Bibliography Alan M. Rugman, Thomas L. Brewer / the Oxford Handbook of International Business/ Oxford University Press, 2003, p.151-177. FDI Attraction to Moldova: Facts, Potential and Recommendations./Ricardo Giucci, Jörg Radeke; Berlin/Chişinău, April 2012. FDI Potential of the Republic of Moldova; Zbigniew Zimny/ Investment Policy Review. Republic of Moldova (2013), New York and Geneva: United Nations. Jean-Francois Hennart, A Theory of Multinational Enterprise, The University of Michigan Press, Cambridge, Mass., 1982, p.201. Investing Guide Moldova 2012. MIEPO. Moldova: Investment Guidebook 2014. (www.chamber.md/invest/images/files/MoldovaInvestmentGuidebook.pdf) The White Book, Proposals for Improving the Investments Environment in Moldova; Chisinau, 2006, The Association of Foreign Investors. World Investment Report 2007, Transnational Corporations, Extractive Industries and Development, UNCTAD. World Investment Report 2008, Transnational Corporations, and the Infrastructure Challenge, UNCTAD. World Investment Report 2009, Transnational Corporations, Agricultural Production and Development, UNCTAD.

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Financial Outlays for the Protection of the Natural Environment in Poland within 2000-2012 Prof. Kazimierz Górka, Ph. D. Agnieszka Thier, M.Sc. Cracow Univeristy of Economics

Abstract The article presents the tendencies within the changing volume and structure of financial outlays on environmental protection in Poland. The outlays have been devided into fixed assets outlays (investments), current costs and household expenditures. The investment outlays have been quite close to those observed in Western Europe, but lastly we noted a slowdown in this field. Introduction The economists have been for quite a long time preparing and fine-tuning the system of economic instruments aimed to support the environmental policy (ecological policy) and stimulate the environmental protection programs. They have been also analyzing the efficiency of various sources of financing earmarked funds. In Poland, that process has been going on since the onset of the 1970s. However, the studies on the volume and the structure of outlays expended to the protection of the natural environment were commenced at a later date, particularly in the realm of current expenditures and the household expenditures, which still remain as pure estimates. It is worth noting that the issue of indispensible outlays initially raised most controversy. Hence, at the outset those outlays were estimated at 20 – 30% of GDP (at times even more), which doomed such challenging task to failure, and that figure dropped to 3 – 4% in the 1990s. Amongst the developed economies that index reached at that time 3 – 4% of GDP. The drop of “ecological” investment in proportion to GDP was attributable to various factors; the improved methods of assessment, the change of priorities, the implementation of improved technologies of the environmental protection, overcoming the most vexing issues (even though the stepped up fight with global warming and global poverty may bring further changes). This article is aimed at analyzing and assessing the tendencies within the changing volume and structure of financial outlays on environmental protection in Poland. It might be inferred that the declining proportion of those outlays to GDP, and by the same token to overall investment within national economy may be 157


attributable on the one hand to the lowering of emissions detrimental to the natural environment, and on the other hand to the weakening role of environmental policy within social and economic programs of national development. Changes within the environmental policy Within the 1970s and the 1980s, the environmental policy in Poland consisted mostly in environmental protection programs that stipulated detailed investment objectives within environmental protection area and the outlays allocated from the budget, as well as other subsidies (that was characteristic under the central economy system). At that time, there was created an elaborate system of economic instruments for the environmental protection including, first of all, numerous charges and fines for the emission of pollutants, the use of natural environment and making changes in it (dumping waste, cutting trees and shrubs). Those charges and fines were transferred to earmarked ecological funds such as the national fund, voivodship funds, county and gmina funds for the protection of the natural environment and water resources management. Following the changes of the political system, it was decided to replace those programs with a state issued document “State environmental policy” passed by the Parliament, and amended every five years, particularly the executive acts (as a supplement to the document). That document sets out the objectives for the environmental protection and the instruments for their implementation (rarely listing the important individual tasks). The implementation of the EU directives has been attributed a major role in enforcing the ecological policy. The current system of economic instruments based on numerous, and relatively high, charges for the emissions has been sustained (to be included in the costs of parties remitting them) as well as the relatively low fines for breaching environmental laws (charged to the P&L Account). It has been ascertained that the Western countries favour environmental taxes, not charges, and that is why the EU was initially advocating changes to be made in this area in Poland. However, following an analysis and Polish comment it was decided to consider the Central European solution as a proper one; it was even set as an example to be followed by other countries. After 2000 there was a significant increase in the charges for storing waste, while other charges were merely indexed to the inflation rate. Following the example of other western countries Poland introduced product charges, nevertheless most revenue to date has been generated by a new charge levied on the manufacturers and dealers of cars for the absence of a recycling system of condemned cars. Environmental funds allowed to finance as much as 40% of investment outlays on environmental protection in Poland within 1991 – 1995. Consequently, those outlays grew from the initial 0.3% of GDP to over 1% of GDP (comparable to countries of western Europe). Presently those funds seem to have lost some significance (14 – 18% of investment outlays) and financing has been shifted to enterprise resources. National and voivodship funds have the registered status of artificial person, and they grant subsidies and low interest loans earmarked for 158


environmental projects, while the county and gmina funds were included in the budgets of those local government entities in 2010. Currently, the outlays allocated to environment al protection in Poland amount to 44 billion PLN (about 11 billion euro), i.e. 3.0 – 3.5% of GDP. That sum is broken down into investment outlays (23%), current costs (maintenance costs of protection facilities, 26-37%), household expenses (40-51%). The investment outlays grew from 9.3 billion PLN in 2010 to 10-12 billion PLN in 2011-2012 (almost 3 billion euro), while the required sum amounts to 15 billion PLN p.a. It might be ascertained that Poland has shown a satisfactory level of adherence to the EU environmental directives. Following Poland’s accession to the EU, the Polish government has negotiated an additional 3-7 year transition period to fulfill some obligations. Most noxious industrial plants have been either shut down, or restricted and modified. Once the list of such plants included over 500, then 80, and finally such ranking was abandoned. Nevertheless, the EU has been introducing more and more stringent controls. Hence there are some difficulties in adjusting to new standards within management and disposal of toxic waste. The biggest challenge ahead of the industrial, energy and environmental policy of the state seems to be the modernization of the power generation industry, which is based in Poland on coal (90%). Such power plants emit large volume of sulphur dioxide, carbon dioxide, and other pollutants. Poland has had significant success in the reduction of CO2 emissions, more than satisfying the stipulations of the Kyoto Protocol on the reduction of greenhouse gases, the cause of global warming. Due to this Poland has profited from selling the greenhouse gases emissions rights. Nevertheless, the ambitious plans of the EU regarding reducing emissions by further 20% by 2020 (and by 80% by 2050) put Poland in a difficult situation as it spells accelerating costly investment in power generation industry and purchasing additional emission rights. That in turn will substantially increase the cost of power generation, and may hinder economic development. In line with the modernization of coal fired power plants, attempts have been made to supplement power plant fuels with natural gas and biomass (willow wood and wood refuse) Poland is also implementing the program of construction of small water power plants (water resources in Poland are not abundant), and quite recently the wind turbines. Power saving programs are gaining momentum, particularly within the housing sector, In turn, public facilities should need negligible volume of energy after 2019.

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Outlays for the environmental protection The author of this paper launched an empirical study on economic outlays expended to protect the natural environment by the industrial enterprises as early as the 1970s. Within 20 years he managed to collect (in the later period with the assistance of his collaborators) fairly detailed data from a few dozen of enterprises noxious to the natural environment.46 The proportion of investment outlays earmarked for the protection to total investment outlays proved to be quite diverse across the enterprises and the timeframe. Nevertheless, the proportion of current expenditures on maintaining protection equipment to enterprise own costs was usually contained within 0.5 – 5%. More comprehensive studies on the methodology of researching the natural protection outlays (ecological costs, environmental costs) along the guidelines formulated by Eurosat as well as the volume of those outlays across various industries, were commenced by the Białystok center, by agreement or commission of the Main Census Office (MCO). The research resulted in a few publications edited by Elżbieta Broniewicz and Bazyli Poskrobko.47 Nevertheless, to this day the standards of recording, measurement and accounting for the outlays on the environmental protection (environmental outlays) have not been unified, even though there are some guidelines and reporting procedures to be observed by the enterprises and other entities (e.g. a form for current expenses OŚ-29/k). Within the Main Census Office (MCO) practice, to give an example, it is not usual to account for the depreciation costs, concession and exploitation fees in mining, and other charges considered as environmental (ecological), including the excise tax levied on consumables toxic for the environment. The EU regulations are bound to enforce the provision of more detailed reports consistent with the Eurosat methodology. This article aims to present the volume and structure of the natural protection outlays in Poland in more detail than found in the literature and more recent data. Hence, the economic outlays that have been expended to protect the natural environment in Poland since 2000 will be shown on the basis of the MCO data. Table 1 presents the outlays along fixed prices so that to show their dynamics, albeit relatively low. Within 12 years the investment outlays have grown by 8.7%, and current costs by 11.3%, with the large decline in household expenditure, particularly in 2012. Total outlays on the environmental protection reached a peak at 53.2 billion PLN in 2011. Within the researched period, the outlays per capita dropped from 1206 K. Górka: Badanie skutków ubocznych rozwoju techniki. „Problemy Ekonomiczne” 1978, issue 1; K. Górka: Koszty ochrony środowiska w przemyśle.”Aura”1984, issue 3; K. Górka, Z. Kękuś: Kształtowanie nakładów gospodarczych na ochronę środowiska w przemyśle. Zeszyty Naukowe AE issue 292, Kraków 1989. 47 E. Broniewicz, B. Poskrobko: Nakłady na ochronę środowiska. Metodyka i wyniki badań. Wyd. Ekonomia i Środowisko, Białystok 2003; E. Broniewicz (ed.): Rachunek nakładów na ochronę środowiska w Polsce. GUS and Fundacja Ekonomistów Środowiska i Zasobów Naturalnych, Warszawa-Białystok 2005. 46

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PLN to 1127 PLN, and their share in GDP slipped from 4.5% to 2.7%, which is a significant decrease (Table 4). Table 2 shows the structure of total economic outlays on the environmental protection, indicating a relatively high contribution of household expenditures, even though they noted a drop from 50% to 40% in 2012. It is worth noting that once we consider just the structure of investment and current expenditures, the share of investment outlays amounts to 40% (it used to be even 70%), and the share of current costs reaches approximately 60% (just like in well developed countries, well endowed with the protection equipment). Table 1. Outlays on the environmental protection in Poland within 2000-2012 in billion PLN in current prices

Specification Total outlays Fixed assets outlaysa) Current costsb) Household expendituresb)

2000

2005

2010

2012

Changes 2012 2000

45.87 9.32 14.33 22.22

37.54 7.42 9.35 20.78

51.14 11.82 13.15 26.17

43.42 10.13 15.95 17.34

94.7 108.7 111.3 78.1

a) Investment outlays excluding the first furnishing with equipment and current b)

assets. Normally, excluding enterprises with fewer than 9 workers. Approximate values.

Source: Author’s own on the basis of: Ochrona środowiska. MCO, Warszawa 2013, p. 399.

Table 2. The structure of environmental protection investment outlays in Poland in %

Specification Fixed assets outlays (investment autlays) Current costs Household expenditure Total

2000

2005

2010

2012

Changes 20002012

20.3

19.8

23.1

23.3

+3.0

31.2 48.5 100

24.9 55.3 100

25.7 51.2 100

36.7 40.0 100

+5.5 -8.5 -

Source: See Table 1. Author’s own calculations.

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Table 3. The structure of household expenditure for the environmental protection in %

Specification Sewage disposal Waste disposal Purchase and installation of protective equipment - including air protection Total

2000

2005

2010

2012

Changes 20002012

18.8 7.8 76.4

21.9 9.5 68.6

18.7 8.7 72.6

38.7 21.0 40.3

+22.9 +13.2 -36.1

55.3 100

53.2 100

56.4 100

32.0 100

-23.3 -

Source: See Table 1. Author’s own calculations.

Table 4. The share of natural environment protection outlays in GDP and total investment in Poland in %

Specification Total environmental protection outlays in proportion to GDP Investment outlays in proportion to GDP Share of those outlays in total national economy investment Current costs in proportion to GDP Household expenditures in proportion to GDP

2000

2005

2010

2012

4.5

3.1

3.8

2.7

0.9

0.6

0.8

0.6

4.9 1.4 2.1

4.6 0.8 1.7

5.0 0.9 7.7

4.3 1.0 1.1

Source: See Table 1.

As shown by Table 4, the proportion of investment outlays of the environmental protection to GDP dropped from 1 – 1.5% recorded in the mid1990s, to 0.6 -0.8% within 2005 – 2012. The drop is significant, which is an alarming signal. However, due to the rising GDP, the outlays per capita rose from 244 to 263 PLN. A significant drop from 581 to 450 PLN was noted within households. Table 5 presents the structure of the environmental protection outlays. As it can be observed, most resources are allocated to the protection of waters, which is evidenced by the decreasing length of rivers whose waters do not comply with the prescribed standards. In comparison with the western countries, the outlays on waste management are relatively low. The biggest increase was recorded in noise reduction 162


outlays, mainly due to the installation of sound screens along expressways and highways. Table 5. The structure of investment outlays on environmental protection in Poland within 2006-2012 in % Specification

2006

2008

2010

2012

Sewage management and water protection Air and climate protection Waste management, soil protection Biodiversity and landscape protection Noise and vibration reduction Ionizing radiation protection Unaccount for expenditure 4.5 – 5% / Total

57.3

63.7

69.4

55.8

Changes 20062012 -1.5

26.2 10.5 0.2

23.1 8.0 0.004

20.2 9.0 0.2

22.9 9.2 2.0

-3.3 -1.3 +1.8

1.1 0.01 100

1.7 100

1.2 0.01 100

5.1 100

+4.0 -

Source: See Table 1. Author’s own calculations. Table 6. The structure of investment outlays on environmental protection by the source of financing in % Specification

2006

2008

2010

2012

1.Gmina (commune) and enterprise own funds, including 15-17% generated by gmina (in the industry 80-90%) 2. Ecological funds (1991-95 approx. 40%, 1999-2005 approx. 21-25%) 3. Credit and loans (mainly bank loans) 4. Budget allocations (mainly gmina and state budget) 5. Foreign sources (1991-2000 approx. 3-5%, in 2004; 12.2%) 6. Others unaccounted for Total

45.5

50.2

44.2

48.0

Changes 20062012 +2.5

17.6

16.6

13.9

13.9

-3.7

11.4 2.75

9.6 3.8

13.8 3.6

6.1 9.8

-5.3 +7.1

19.2

16.3

22.0

20.8

+1.6

3.6 100

3.5 100

2.5 100

1.4 100

-2.2 -

Source: Ochrona środowiska. MCO, Warszawa 2009, pp. 434-436 and 2010, p. 422-425 and 2013, p. 402 and 404.

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Table 6 presents the changes in the ways of financing environmental protection. Over time the funds allocated by the environmental protection and water management were subject to the largest change. It was due to those funds that 30 – 40% of investment outlays were financed, and their share in GDP rose from 0.3 – 0.5% to approx. 1.5%. Currently the share of these funds dropped to 14%, yet it is still substantial and is characteristic of Poland. It is worth noting that the share of foreign aid has grown from 3 – 5% to staggering more than 20%, even though that index may go down within the EU perspective due to the economic development and upcoming Poland’s participation in the EU budget. In line with the provisions of the market economy, enterprise own funds combined with credit should constitute a much higher proportion of investment outlays on environmental protection than the current index of 55%. This is the consequence of a prudent use of leveraging with bank credit and popular public support from municipal enterprises, where the competition principles do not have to be strictly observed. However, according to the author’s estimates, the proportion of own funds and credit in commercial enterprises, mostly industrial ones, is dominant, as it reaches approximately 90%. Using the EU budget for financing environment al protection Poland has been financing 18 – 20 % of investment earmarked for the environmental protection from the EU subsidies. The program “Infrastructure and the environment” has been targeted on that objective. In practical terms, the countries that are the beneficiaries of the program pay more attention to infrastructure investment than environmental projects (including Poland), yet it does not discredit high opinion about the program. The budget of the EU obtains revenue mainly from payments from the treasuries of the member states set at about 1% of GDP. “The Financial Perspective for 2007 – 2013”, i. e. the budget of the EU amounted to above 995 billion euro, that is about one trillion euro. The budget for 2014 – 2020 has been cut due to the economic downturn experienced throughout the EU and the declared need for savings. A draft of the budget, to be presented to the European Parliament by the European Commission, quotes 960 billion euro (payings 908,4 billion euro). Despite a smaller budget, according to a new financial perspective, Poland as the main beneficiary - is to receive 105.8 billion euro, i.e. approximately 441 billion PLN. That sum allocated to Poland is by 4 billion euro bigger than what it received within 2007 – 2013. The funds received by Poland are to be broken down as follows: 72.9 billion euro allocated to cohesion fund, and 32 billion euro to common farming policy and the development of rural areas. The terms of allocation of those funds stipulate that usually they do not cover all costs of a project, but in most cases co-finance 50 – 70% thereof. Hence enterprises of local government entities must provide their own share. Another important ecological stipulation of the new budget is the so-called green prerequisite for projects amounting to 20%. Hence, 1/5 of total outlays on economic projects must be related to the protection of the natural environment. 164


Conclusions In conclusion it might be said that in relative values, i.e. in proportion to GDP, the investment outlays allocated to the environmental protection have been quite close to those observed in Western Europe (with the exception of low share of the private sector in the investment outlays) over quite a long time. Yet, the outlays per capita are still significantly lower in Poland. Even though the analysis of the statistical data allows to infer quite apparent slowdown in the natural protection investment in Poland, it is still difficult to prove the theses set at the beginning, due to the limited confines of this paper. The question remains to what extent can the slowdown in the investment outlays is attributable to the changes in the environmental and industrial policy, or is it simple that the most important issues have already been dealt with. In addition, the issue Poland has to put on its agenda is the high power consumption in creating GDP, and high emissions of power generation which are due to basing that industry on coal. Hence, it may be inferred that the slowdown in natural environment protection investment is premature, and some changes should be postulated within the priorities of the national economy.

Bibliography E. Broniewicz, B. Poskrobko: Nakłady na ochronę środowiska. Metodyka i wyniki badań. Wyd. Ekonomia i Środowisko, Białystok 2003; E. Broniewicz (ed.): Rachunek nakładów na ochronę środowiska w Polsce. GUS and Fundacja Ekonomistów Środowiska i Zasobów Naturalnych, Warszawa-Białystok 2005. K. Górka: Badanie skutków ubocznych rozwoju techniki. „Problemy Ekonomiczne” 1978, issue 1; K. Górka: Koszty ochrony środowiska w przemyśle.”Aura”1984, issue 3; K. Górka, Z. Kękuś: Kształtowanie nakładów gospodarczych na ochronę środowiska w przemyśle. Zeszyty Naukowe AE issue 292, Kraków 1989. Ochrona środowiska. MCO, Warszawa 2009, pp. 434-436 and 2010, p. 422-425 and 2013, p. 402 and 404.

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Employer with a Human Face – Good Practices in HRM

Agnieszka Żak, Ph. D. Cracow University of Economics The article is prepared as a result of department statutory resarch.

Abstract At the heart of responsible business lies a dialogue with stakeholders, that is entities who have direct or indirect impact on the company's activity and whom the company itself also affects, directly or indirectly. A special place on the map of internal stakeholders is occupied by employees of companies, due to strategic role that they play. Thus, corporate social responsibility should, in the first place, be demonstrated by performing activities which include needs and expectations of this very group of stakeholders. The problem is that not all companies undertake socially responsible actions in regards to their employees. This article presents one of certification programs, enabling assessment of the principles and standards binding in companies, as well as specifying which of them meet high HR standards.

Employee as internal stakeholder Corporate Social Responsibility (CSR) is an integrated approach to management organization. It includes responsibility for comprehensive functioning of the company, relations with the environment and key stakeholders and impact of the company's operations on both the external and internal environment. It is now especially significant for businesses to focus on the most important stakeholders and key issues, also in the context of working environment48.

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In management, stakeholders are understood as entities (persons, communities, institutions, organizations, offices) who can affect the company and who are also influenced by the company's activity. In other words, these are persons and institutions that create the environment, and entering into direct or indirect relations with the company49. Every company (as well as any organizations of other types) has its stakeholders, as none of them works in "a vacuum" – a company is always subject to the influence of other entities, or affects other companies. But each of the stakeholder groups mentioned above is equally important for the organization. Stakeholders have been distinguished due to the nature of their relations with the company. In the traditional perspective the most common differentiation is between internal stakeholders (e.g. employees) and external ones (e.g. customers, suppliers), because they represent contradictory goals. In a different perspective, also two groups of stakeholders are distinguished - those with complementary, and not competitive purposes – primary stakeholders and secondary stakeholders, defined also as stakeholders internal and external to the market. In the first group we can distinguish, among the others employees, customers, competitors and suppliers. In the second –local community, as well as regional and global community, represented by institutions, local and international governments and the media50. Yet another typology is indicated by J. Adamczyk, who distinguishes the following groups51: o Stakeholders creating the company through contribution of work capital and competences. o Stakeholders in direct market relations with the company, that is customers, suppliers, collaborators, and competitors. o Stakeholders in the environment, that is local community, regional community and global community. In the case of organizations that have extensive structure and complex network relations, the number of stakeholder groups may be considerably high. In order to facilitate the management of those relations, A. Paliwoda – Matiolańska distinguishes three following groups of stakeholders52: 1. Constitutive stakeholders – included in this group are the entities that create the company, by investing their capital or workload. These are shareholders, owners, employees, i.e. such entities whose relations with a company are constitutive. Without these entities the company would not exist. 49

M. Grzybek, Zarządzanie relacjami z interesariuszami jako jeden z elementów społecznej odpowiedzialności, http://odpowiedzialnybiznes.pl/artykuly/zarzadzanie-relacjami-zinteresariuszami-jako-jeden-z-elementow-spolecznej-odpowiedzialnosci-biznesu / 50 K. Łudzińska, M. Zdziarski, Interesariusze w opinii prezesów zarządów polskich przedsiębiorstw, "Kwartalnik nauk o przedsiębiorstwie", SGH, no. 2/2013 (27), p. 41-42 51 J. Adamczyk, CSR, Polskie Wydawnictwo Ekonomiczne Warszaw 2009, p. 77 52 A. Paliwoda-Matiolańska, Odpowiedzialność społeczna w zarządzaniu przedsiębiorstwem, Wydawnictwo C.H. Beck, Warszawa 2009, s. 59 168


2. Contracted stakeholders – these are entities associated with the company whose formal relations and relations with the company are based on contracts. This group includes: customers, suppliers, competitors, strategic allies. 3. Contextual stakeholders -These are communities of various kinds, for example local, social and governmental organizations which expect that the company cares for common goods such as: environment, safety, and freedom. If companies care for these goods and their operations are accepted by contextual stakeholders, they have good reputation in their environment. An important division from the point of view of corporate social responsibility is the difference between stakeholders and shareholders. For shareholders the most important purpose of the company's activity is generating profit. From the point of view of stakeholders: an equally important problem lies in the way in which the creation of profit is conducted. The issue of stakeholders: is thus so important from the point of view of corporate social responsibility. It emphasizes not only interest of the owners, but also broader social interest, whose consideration contributes to sustainable development. Special place on the map of the internal stakeholders is occupied by companies' employees. As correctly pointed out by K. Gadomska – Lila53, owing to the strategic role that employees play, corporate social responsibility should in the first place be demonstrated in securing interests, satisfying needs and meeting expectations of this very group of stakeholders. Effectiveness of employees, the level of their involvement, the degree of their integration within the company depend to a significant extent on the way they are treated, whether their rights are respected and on the terms the HR policy relies on. Research demonstrates that implementation of socially responsible activities is reflected in the growth in motivation, productivity and the desire to stay at the workplace. Additionally, in companies socially responsible towards their employees we find less unethical behaviours, decreased absence ratio, and less fluctuations. Corporate social responsibility towards employees has effect on positive efficiency of operation of the company and achieved results. Mutual integration of sectoral strategies business, as well as CSR strategies guarantees long-term financial effectiveness of the employer, and consistent organizational and personnel development. This process is a significant factor affecting competitiveness companies, and stabilization of the organization’s functioning54.

K. Gadomska – Lila, Społeczna odpowiedzialność biznesu wobec pracowników, "Management and Business Administration. Central Europe" 2/2012 (115), p. 41–52, http://www.kozminski.edu.pl/fileadmin/wspolne_elementy/Jednoski/Czasopismo_MBA/Ga domska-Lila_mba_2012_02_041_1_.pdf 53

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The most often mentioned benefits coming from implementation of socially responsible activities towards employees, are growth in trust as well as growth in involvement in company's activities and in achieving the company's goals. A company which is socially responsible towards employees, may count on growth in loyalty, greater responsibility, as well as generosity and initiative on their part. Employees' engagement and innovativeness increases, there are fewer conflicts between employees and their superiors. Employees are able to collaborate as a part of one team. Control costs are lower and people in such companies often agree to lower earnings, because they are going to work in company with better atmosphere. Implementation of socially responsible activities towards employees does not require any investments. Even if it does, the expenses involved are small (disproportionate to the benefits). We are referring here mainly to financial costs, relating e.g. to implementation of training courses or material purchase, and also to costs related to additional time devoted to an employee as a person55. With regard to undertaking socially responsible activities towards employees, also very important is the role of leaders and the example that they give to workers. Responsibility of senior managers for the morale in the organization was confirmed by research. It was proven that senior management has the greatest impact on ethical behaviour of managers and employees. The most important task of the company's President is to show to all that senior managers will be liable for shortcomings of ethical nature in the same way they are liable for unachieved financial goals – and that high morale is expected even more so from generals that from their soldiers56.

Stakeholders relations management Proper stakeholder relations management gives measurable benefits to a company – from minimizing risks related to e.g. strikes of the employees to ideas for product innovations. For example systematic communication with employees improves all processes in the company and provides proper coordination of activities. This is particularly important in the course of introduction of changes or in the periods of more challenging economic situation. Then the demand for information, motivation and engagement increases –on the part of both the management staff and of the employees. Faster development of effective communication methods will enable more effective company management at unstable times. Depending on the size of the company, the nature of its operations as well as the identified stakeholders, management of stakeholder relations can take various K. Gadomska – Lila, op. cit, s.10 Żak A., Tworzenie wartości przedsiębiorstwa [w:] Etyka przywództwa. Ujęcie interdyscyplinarne, red. I. Kuraszko, wyd. Difin, Warszawa 2014 55

56

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forms and it may have various degrees of formalization or intensification. However, regardless of the way in which the company communicates with its stakeholders, correct identification of relations should be the first stage of relation management. It involves separation of all the entities operating inside the company, on whom the company has impact or who affect the activity of the company. This stage includes creating the list of possible stakeholders of the company. When preparing the list we commonly use the following methods: Observing the situation inside and around the company, analysis of documents and other written information (e.g. press articles), as well as maintaining dialogue with the employees and entities from outside the company57. Accurate identification of key stakeholders is necessary for their effective involvement in of the company's operations. It is possible to distinguish four main forms of engagement58: o Communication o Consultations o Partnership o Dialogue Communication is relatively the simplest and most often applied tool to involve stakeholders. A company may send information on its functioning or on undertaken initiatives both to internal stakeholders, as well as external ones. Most often applied tools used for internal communication are: workforce training, reports, newsletters, intranet sites. On the other hand, external communication can be kept through: thematic conferences, websites, open meetings, press information, marketing communication. It is important that the communication language be adapted to a given group of recipients. Consultations with stakeholders are intended to discover their opinion about being the object of consultations. This may be a new product, advertising message or evaluating philanthropic activities. The tools used for consultations are e.g. survey, focus groups, meetings with stakeholders, acquisition of on-line feedback. Partnerships are the form of creating relations with stakeholders, requiring the strongest commitment. Because the relation between partners is usually a longterm one and is characterized by a great work expense, it is important that the partners be aware of mutual expectations and be able to meet their obligations. Sample forms of partnerships are: Common projects for sustainable development, common initiatives with different groups of stakeholders, associations characterized by strategic cooperation. The most mature approach to relations with stakeholders assumes establishing a systematic dialogue with them and common planning, characterized by implementation of various kinds of scientific projects related to corporate social P. Wachowiak, Jak prowadzić dialog z interesariuszami, E-mentor nr 1 (43) / 2012, www.e-mentor.edu.pl/artykul/index/number/43/id/898 58 M. Grzybek, Zarządzanie relacjami z interesariuszami jako jeden z elementów społecznej odpowiedzialności; http://odpowiedzialnybiznes.pl/artykuly/zarzadzanie-relacjami-zinteresariuszami-jako-jeden-z-elementow-spolecznej-odpowiedzialnosci-biznesu / 57

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responsibility. It is first and foremost the company that should initiate the dialogue, although it may also be a response to initiative of stakeholders. The dialogue should be based on effective multilateral communication considering different positions of stakeholders. In the case of limited possibility to and availability of the groups of key stakeholders, a dialogue with them may be completely informal. However, in the case of larger organizations whose list of stakeholders is not limited to a few items, it is worth structuring the dialogue process to ensure that the company's communications will reach all key stakeholder groups. Another reason for doing so is to make sure that all key stakeholders have the same opportunities to take part in this process. The tools that can be used in this respect include: advisory panels, stakeholder forums, summary meetings with key stakeholders, virtual involvement in the Internet. The correct identification of stakeholders, as well as the need to start dialogue with them contribute to more effective way of achieving goals as formulated in corporate social responsibility strategy. However, it should be borne in mind that undertaking dialogue with stakeholders may also prove risky for the company. Reliable conversations can reveal that e.g. activities implemented thus far, do not provide solutions to needs of the groups to which they are directed or that they are negatively evaluated by key stakeholders. The company should also be ready for such a feedback59. In Poland in recent years corporate social responsibility has become more and more popular. A number of research institutions or trade institutes follow and analyse the scope and frequency of CSR initiatives. This is because the implementation of the program activities related to social responsibility creates many advantages that can be examined both in regards to external aspects: improvement of the company's reputation, greater opportunity for long-term success, larger interest in utilities increase of the customer loyalty, and in internal aspects: increase in the level of organizational culture, obtained and characterized by keeping best employees, increase in motivation of managers and employees, trade institutions and improvement in management quality.

59

Ibidem

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Top Employers certificate60 In uncertain and variable conditions of contemporary business the position of a company is determined by good relationship with particular groups of stakeholders. As it has been mentioned above in recent years a number of research institutions or trade institutes have been following and analysing the CSR initiatives undertaken by various companies. This includes the ones addressed to employees of the company. Some of them are of a more global scale. Some apply to companies operating in a given country or a region. One of such international projects is the Top Employers programme described below. From amongst other companies, we can distinguish, for example, Best Companies To Work For (see more: fortune.com/best-companies), Great Place To Work (see more: greatplacetowork.pl) Best the Employer (see more: ceplb03.hewitt.com/bestemployers/europe/poland/polish/pages/index.htm) or Reliable Employer of the Year information (see more: solidnypracodawca.pl/). Those initiatives have recently become more popular in Poland - Poles, in particular in the era of global crisis, often seek some attractive occupations. As a consequence, projects like that are received with great interest. Accreditation of the Top Employers has a form of independent research which indicates and certifies the leaders in the field of perfect human resource management basing on international standards. The title of Top Employers and the related CRF Quality Seal distinguish companies on the labour market and are an important sign for both present and future organization, as well as other stakeholders. They serve as a clear message that high quality standards are observed in the company. The tests are conducted by the Corporate Research Foundation (previously known as CRF Institute). The foundation was established in 1991 as a shared initiative of academic environment, business journalists, associations led by them, researchers and international publishers in order to promote best practices from the field of HR management. Right now the Top Employers institute is present in 65 countries on all the continents. A number of foundations is planned to be set up in September 2014, with the aim of sharing knowledge and good practices with smaller companies, mainly from poorer countries.

60

This part of article has been prepared on the basis of the information contained in pages http://www.top-employers.com and http://www.top-employers.com/pl/

173


International research conducted every year by Top Employers Institute indicates top global employers. This group can be identified as "employers with human face" – and includes the companies that care for working conditions, support talents and their development at all levels of the organization, and that aim at continuous improvement of practices related to the employment. To join the Top Employers certification program, the company should employ at least 250 employees in the country or - in the case of an international organization - at least 2500 employees worldwide. Accession to the study is payable and the share in the study does not guarantee obtaining the certificate (for instance in 2012 11% of the companies participating in the new survey failed to obtain the certificate). In order to obtain the Top Employers certificate, all participants must go through the process of the detailed investigation and meet the standards specified therein. Testing of the companies comes in two stages. Each participant of the tests receives an online questionnaire to be filled in, with questions related to practices of HR applied in the company. The questionnaire assesses the area of HR organization: The strategy, implementation policy, measuring and communication of working conditions and development. The detailed questions relate, among others, to the amount of remuneration, of the additional benefits offered and professional development opportunities (see tab.1). The process of studying includes: analysis of static sources, interviews with high-level managers, with young specialists of the middle-level and a summary results questionnaire. Moreover, in the randomly selected group of companies, the representatives of the organizer appear, to verify information. All delivered information is regarded as strictly confidential and it is not disclosed to third parties. In the next stage all answers are supported by documents audited by an external company. The Top Employers certificate is received only by companies that fulfil standards of the survey. The certified Top Employers can use certification sign in their offices, on web pages and in job advertisements for a year. The logo of the Top Employers certificate is an international trade mark. In addition, the Dutch Ministry of Economy stated that certification logo is credible and reliable in 100%61.

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Table 1. Criteria according to which employment policy is evaluated in the ranking of the Top Employers certificate. Elements

factors taken into account

basic benefits

any remuneration in cash (salary, retirement, share options)

additional services and working conditions

all intangible factors (e.g. holiday allowance, flexible working hours) and working conditions (communication channels, innovations, policy with regard to well-being, absence ratio)

training development

and

availability, participation, usefulness and efficiency of initiatives as well as development programmes)

professional development

career

priority in talent management, career path, succession, management results

management in organizational culture

company's ability to establish strong organizational culture - factors strengthening the culture e.g. vision, awareness, communication, networking within local community, CSR, diversity

Source: http://management.log.pl/top-employers/articles/298701, top-employers-Polish2010.html.

Organizations operating in at least five countries of a given region may participate in regional certification of the Top Employers and, by doing so, to obtain an award for the best employers of the world. These regions are as follows:  Top Employers Africa  Top Employers Asia Pacific  Top Employers Europe  Top Employers Latin America  Top Employers Middle East  Top Employers North America Every national unit must fill in the questionnaire in regards to best practices in HR and pass through the whole process of regional certification. The regional certificate of Top Employers is granted to the companies which manage to successfully combine the offer for employees with the possibilities of career development on the international scale and which will get certificate in at least five countries of the given region. The main benefits from the tests include, among others, obtaining a benchmark report and company profile, which determines development and innovation opportunities in HR area and which will allow to make relevant changes in its strategy. Other advantages include strengthening the employer’s brand (because it supports recruitment activities), maintaining talents and commitment of employees, and the possibility to use for a period of one year CRF Quality Mark. Certainly yet another benefit related to obtaining the certificate is promotion of the 175


company. Media partners - domestic and international - guarantee presence of Top Employers certificate in printed and electronic mass media. The Institute of Top Employers certificate cooperates, among others, with international "Financial Times", which is widely read in the business circles by more than 1.5 million of management employees. Public partnership means annual publication of Top Employers, round table sessions, online articles and newsletters. All Top Employers are also present in local media, thanks to cooperation with local media partners (varying for each country). The Institute of Top Employers certificate in Poland has been operating since 2009. The companies’ interest to participate in accreditation programmes increases each year. The following table (tab.2) presents all companies which in the period of 2010-2014 obtained the title of Top Employers Poland. Table 2 Companies that obtained the Top Employers certificate Poland Year

Number of companies

Companies names

2010

14

2011

20

2012

32

2013

29

Bank Pekao S.A., Capgemini Polska, CHI Polska S.A., Deloitte Polska, Deutsche Bank PBC S.A., Grupa ITI, Henkel Polska Sp. z o.o., ING Bank Śląski S.A., JTI Polska Sp. z o.o., Netia S.A., Polska Telefonia Cyfrowa Sp. z o.o., RWE w Polsce, Samsung Electronics Polska Sp. z o.o. ,Volvo Polska Sp. z o.o. ArcelorMittal Poland S.A., Bank Pekao SA, Citi Handlowy, Citibank International, Deloitte Polska, Elica Group Polska, Grupa ITI, Henkel Polska, Imperial Tobacco Polska S.A., ING Bank Śląski S.A., JTI Polska Sp. z o.o. The Lorenz Bahlsen Snack-World Sp. z o.o., McDonald’s Polska Sp. z o.o., Netia S.A., Polkomtel S.A., Polska Telefonia Cyfrowa Sp. z o.o., RWE w Polsce, Samsung Electronics Polska Sp. z o.o., Telekomunikacja Polska S.A., Volvo Polska Sp. z o.o. ArcelorMittal Poland, Bank BPH, Grupa GE Capital, Bank Pekao SA, Boehringer Ingelheim Polska, BSH Sp. z o.o. , Capgemini Polska, CEMEX Polska, CGI Information Systems and Management Consultants (Polska) Sp. z o.o., CHI Polska S.A. Citi Handlowy, tibank International, GAZ-SYSTEM S.A. , GTECH POLAND Sp. z o.o., IMPERIAL TOBACCO POLSKA SA , Infosys BPO Poland , ING Bank Śląski S.A. , Grupa ITI , JTI Polska Sp. z o.o. , LIDL Polska , MAN , Netia S.A. , P4 Sp. z o.o. , Polski Koncern Naftowy ORLEN S.A., PKO Bank Polski , Polska Telefonia Cyfrowa, Raiffeisen Bank Polska S.A.. RWE w Polsce, Samsung Electronics Polska, SAS Institute Polska, Telekomunikacja Polska, Valeo Polska, Volvo Polska ArcelorMittal Poland, Avon Cosmetics Polska, Bank Pekso SA, BSH Sprzęt Gospodarstwa Domowego Sp. z o.o., CHI Polska S.A., Citi Handlowy, Citi Service Center w Polsce, Operator Gazociągów Przesyłowych GAZ-SYSTEM S.A., Grupa Goodyear Polska, GTECH POLAND Sp. z o.o., Grupa MAN w Polsce, Henkel, IMPERIAL TOBACCO POLSKA SA, Infosys BPO Poland, ING Bank Śląski S.A., ista Shared Services Polska Sp. z o.o., JTI Polska Sp. z o.o. , LIDL Polska , McDonald’s Polska Sp. z o.o., Mleczarnia Turek, Netia S.A. , Orange Polska, P4 Sp. z o.o. , Polski Koncern Naftowy ORLEN S.A., Polska Telefonia Cyfrowa, Provident Polska S.A., Samsung Electronics Polska, Valeo Polska, Volvo Polska

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39

Avon Cosmetics Polska, Bank Pekao SA, BNP Paribas Bank Polska SA, BSH Sprzęt Gospodarstwa Domowego Sp. z o.o., CHI Polska S.A., Chiesi Poland sp z o.o., Citi Handlowy, Citi Service Center Poland, DHL Express Poland, ELICA GROUP POLSKA sp. z o.o., Finmeccanica (PZL Świdnik / Augusta Westland) ., Grupa Goodyear Polska, Grupa Saint-Gobain, GTECH POLAND Sp. z o.o., Heineken Global Shared Services sp. z o.o., , IMPERIAL TOBACCO POLSKA SA, Infosys BPO Poland, ING Bank Śląski S.A., ISTA Shared Services Polska Sp. z o.o., JTI Polska Sp. z o.o. , LIDL Polska , McDonald’s Polska Sp. z o.o., Mleczarnia Turek, MTU Aero Engines Polska sp. z o.o., Netia S.A. , Operator Gazociągów Przesyłowych GAZ-SYSTEM S.A., Orange Polska, P4 Sp. z o.o. , Philip Morris International, Polski Koncern Naftowy ORLEN S.A., Provident Polska S.A., PZU, Robert Bosch sp. z o.o., Roche Polska sp. z o.o., Samsung Electronics Polska, Tchibo Warszawa sp. z o.o., T-Mobile Polska SA , Valeo Polska, Volvo Polska

Source: prepared by the author

The review of reports and rankings concerning implementation of the principles of social responsibility indicates that most companies which perform actions related to social responsibility towards employees are companies with foreign capital share62. In this group of entities, the awareness of the importance of the CSR concept is significantly higher, and thus the applied instruments are also more extended. A positive fact is the decrease in the distance between companies with foreign capital share and national enterprises. This observation is confirmed by results of the analysed research - from among 39 companies that won the Top Employers certificate in 2014, 35 are corporations present in a few dozen countries worldwide. Other organizations which operate only in Poland, also belong to the largest on the Polish market. An average Polish Top Employer hires over 3600 employees. The majority of awarded companies regularly take part in the study – seven of them received the certificate, already fifth year in a row. It is also worth mentioning that 16 out of 39 companies in 2014 received the above regional Top Employers certificate Europe. They include two organizations – Japan Tobbaco International (JTI) and Orange which won the certificate both in Poland, and in Moldova. When analysing the criteria according to which employment policy is evaluated in the ranking of the Top Employers as well as research results of 2014, it is possible to note socially responsible actions towards employees of distinguished companies. The process of integration of new employees may proceed in different ways. Five most often offered actions undertaken by employers are: induction training (including information on mission, vision and value of the company), employee manual, available in hard copy or electronic form manual, containing the HR policy 62

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and regulations, meeting with the HR employee to discuss the binding procedures, formal meetings concerning targets and tour in the company. Polish Top Employers, like European ones, eagerly grant additional benefits to the employees i.e. a business car or special bonuses. The most popular cash and additional benefits offered by the employer to employees include: medical care (90%) insurance (84%), financial aid in learning (73%), free leaves/other longer leaves (71%), research leave (44%), laptop (43%), subsidies to board or subsidized canteen for employees (42%) free subscription cards entitling to use sports classes (38%), lump sum for the phone (34%). Slightly less popular are such incentives as: representative fund, lump sum for business car/business trips, a business car, home Internet connection, nursery/kindergarten for employees' children or objects of religious worship (e.g. special room to pray). Moreover, listed below are methods of supporting networking activities inside the companies which won the Top Employers certificate 2014: sports events (92%), discussions/instant messaging (74%), profiles/ social networking portals (69%), blogs and Internet forums (62%) sport facilities (54%), flexible workplace (51%), informal corporate meetings (28%) or former employees associations (13%). The decision of an employee regarding whether or not to stay with a particular employer for a longer period depends first and foremost on prospective career path and professional development opportunities offered by an employer. Development programmes available to employees include: general (97%), individual (92%), as well as sector-related training programmes (90%) talent management (87%) coaching/mentoring programmes (72%) international exchange (67%) graduates training (64%) job rotation (41%), as well as peer-assistance programmes (31%). Furthermore, the following are the most popular communication channels which employees may use to give feedback to the employers:  Studies conducted among employees-as conducted in 97% of the surveyed companies  Formal meetings (e.g. individual meetings between employees and their superiors – as in 87% of the companies)  Organizations (e.g. a council of employees –as acting in 82% of companies)  Idea box (also e-mail) –as in 77% of the surveyed companies  Special direct communication channels which enables communication between the directors and managers – 59%

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A compromise between company's requirements (resulting from the company's goals and needs) and employees' expectations can be achieved by using flexible forms of labour. Some of the applied solutions include: the possibility to accept overtime, flexible working hours, part time work, working remotely/from home, individual work, free leaves (career breaks). The popularity of the latter has increased, as noticed in 2011 by Steven Veenendal, CEO of the CRF Institute. When commenting on the challenges to be tackled by HR professionals in the forthcoming years, he said: "There are three basic factors needed to tackle the challenges of the today's job market: Flexibility, flexibility and once again, flexibility. What is interesting, the flexible approach to employees gains a different dimension, depending on whether we apply it to the generation of baby boomers, still present on the labour market, or to generation X whose engagement we want to stir and maintain, and yet another one – when applied to generation Y. For instance – 70% of the employees from generation Y plan, inter alia, a-six month career break in the form of sabbatical leave, which they intend to take already during their first professional job. Something that was unthinkable for generation X – that is where the differences between the generations are”63. In reality the Top Employer programme serves in a sense as a paid audit for the company's staffing policy. The companies need to pay for participating in the programme, but, the organizers ensure that the certificate can be received only by those companies whose high HR standards are verified during the verification process. To be granted a certificate as a result of any of the contests available currently on the market confirms that a company observes the labour law, and offers stable working and salary conditions or stable career. However, it is necessary to note that the programmes assessing employers (especially those programmes which charge their participants) relate only to the companies which can financially afford to participate in them. Thus, these programmes are relevant only to a small part of the market. If it turns out that any of the companies does not meet the criteria and does not deserve the certificate, such information will probably never be revealed. This article has been prepared as a part of broader research funded by the National Science Center – application 2011/03/B/HS4/01972 entitled: Corporate Social Responsibility Adaptation Strategy at Times of Socio-Economic Destabilization.

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Conclusion There is no doubt that employees are one of the key stakeholder groups and their competencies, experience, involvement, innovativeness etc. have crucial influence on the organization's efficacy and efficiency. The key element differentiating the socially responsible companies is that the employers never forget that their employees are human beings. It is necessary to emphasize that the relation of responsibility must be reciprocal - not only should the company be socially responsible towards its employees, but also the employees should feel responsible for their company. Talented and ambitious people are the basis for success of any organization. Potential employees are actively looking for companies in which they can develop their talents and pursue their professional aspirations. Thanks to the projects such as e.g. Top Employer programme, various stakeholders learn in which companies human capital is seen as the most valuable resource.

Bibliography Adamczyk J, CSR, Polskie Wydawnictwo Ekonomiczne 2009, p. 77 Gadomska – Lila K. , Społeczna odpowiedzialność biznesu wobec pracowników. "Management and Business Administration. Central Europe" 2/2012 (115), p. 41–52, http://www.kozminski.edu.pl/fileadmin/wspolne_elementy/Jednoski/Czasopismo_M BA/Gadomska-Lila_mba_2012_02_041_1_.pdf Grzybek M., Zarządzanie relacjami z interesariuszami jako jeden z elementów społecznej odpowiedzialności; http://odpowiedzialnybiznes.pl/artykuly/zarzadzanie-relacjamiz-interesariuszami-jako-jeden-z-elementow-spolecznej-odpowiedzialnosci-biznesu / Łudzińska K, Zdziarski M, Stakeholders w opinii prezesów zarządów polskich przedsiębiorstw "Kwartalnik nauk o przedsiębiorstwie", SGH, no. 2/2013 (27), p. 4142 Paliwoda-Matiolańska A, odpowiedzialność społeczna w zarządzaniu przedsiębiorstwem, Wydawnictwo C.H. Beck, Warszawa 2009, s. 59 Wachowiak P, Jak prowadzić dialog z interesariuszami, E-mentor no. 1 (43) /2012, www.ementor.edu.pl/artykul/index/number/43/id/898 Żak A., Tworzenie wartości przedsiębiorstwa [w:] Etyka przywództwa. Ujęcie interdyscyplinarne, red.. I. Kuraszko, wyd.. Difin, Warszawa 2014 http://www.top-employers.com http://kariera.pracuj.pl/recruitacja/pracodawca z -ludzką -twarza-przedstawiamy-topemployers-polska-2014/ http://www.energiaisrodowisko.pl/spoleczna-odpowiedzialnosc-biznesu/Teoria% 20interesariuszy.pdf http://hrstandard.pl/2011/06/16/praktyki-hr-realizowane-przez-najlepszych-pracodawcowpracodawcow/ http://www.egospodarka.pl/78505, top-employers-polska-2012,1,39,1.html 180


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Adjustment of Polish Enterprises to the Knowledge Based Economy. Some Results of Research Prof. Stefan Trzcieliński, Ph.D. Joanna Kałkowska, Ph.D. Edmund Pawłowski, Ph.D. Hanna Włodarkiewicz-Klimek, Ph.D. Poznan University of Technology

Abstract The Europe 2020 strategy that has its roots in Lisbon Strategy aims to creating such environment that is commonly called as the Knowledge Based Economy (KBE). This publication presents some findings how, if any, Polish enterprises adopt themselves to the conditions of KBE and change their strategy, organization, human capital and ICT.

Introduction Early in 2010, the European Commission proposed the Europe 2020 strategy which was launched as the EU’s strategy for smart, sustainable and inclusive growth. The aim was to improve the EU's competitiveness while maintaining its social market economy model and improving significantly its resource efficiency. When it was launched the Europe 2020 strategy was a front runner in advocating a growth model going beyond simply increasing GDP. Today many bodies promote smart, sustainable and inclusive growth as a crucial element of economic development. The Europe 2020 strategy puts forward three mutually reinforcing priorities (European Commission, 2010): - Smart growth: developing an economy based on knowledge and innovation. - Sustainable growth: promoting a more resource efficient, greener and more competitive economy. - Inclusive growth: fostering a high-employment economy delivering social and territorial cohesion.

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The first priority financed from the Structural Funds is directly aimed for development of Knowledge Based Economy (KBE). Making the transition to KBE requires effective action within a four-pillared framework that expresses the prerequisites for effective use of knowledge for economic growth. The pillars are: - An economic and institutional regime to provide incentives for the efficient use of existing and new knowledge and the flourishing of entrepreneurship. - An educated and skilled population to create, shares, and use knowledge well. - Information and communication technology to facilitate the effective creation, dissemination, and processing of information. - An efficient innovation system of firms, research centers, universities, consultants and other organizations to tap into the growing stock of global knowledge, assimilate and adapt it to local needs, and create new technology. The above actions lead to situations that, for the presumption, favour the development of innovativeness and therefore the competitiveness of enterprises and European economies. Because of this it seems to be rational to ask a question if the conditions created by knowledge based economy are recognized by the enterprises as opportunities and help them to convert themselves into knowledge based enterprises. To get an answer for the question a research project has been undertaken at the Faculty of Engineering Management at Poznan University of Technology (project N N115 293838). The changes that take place in the enterprises are investigated in the following cross sections: the strategic focus, organizational innovativeness, human capital, and the information and communication technologies (ICT) of the enterprise. The subject and the method of the research A hypothesis has been put forward that in the increasingly changeable environment the enterprises enhance their agility. The agility is defined by four features of the enterprise which are brightness, flexibility, intelligence and shrewdness (Trzcieliński and Trzcielińska, 2011, Trzcieliński 2011). The brightness of the enterprise is its ability to perceive the events that happen in the environment, match them and categorize into favourable or unfavourable situations that is either opportunities or threats. Flexibility is a feature of achievable resources that depends on the possibility of extending the scope of their use, and the same on extending the repertoire of the task which can be executed with use of these resources. The intelligence of the enterprise is its feature that depends on the enterprise ability to cumulate the knowledge, benefits from the knowledge and develop it in the purpose to adopt itself to the changes in the environment. The shrewdness of the enterprise is its feature to use the appearing opportunities effectively and efficiently. In this paper only some preliminary results of the survey are presented. The scope of the research refers to finding out if:  the changes of the firms’ strategy enhanced their agility (Trzcieliński, 2014b),  the organizational innovativeness of the enterprises are correlated with their size (Pawłowski, 2014), 184


 the human capital changes on the society level resulting from the development of KBE influence on behaviours of organizations in the area of shaping the human capital (Włodarkiewicz-Klimek, 2014),  the trends of ICT development are adopted by the enterprises (Kałkowska, 2014). The research was done on a sample of 150 enterprises in Poland including 30% of small, 40% medium, and 30% big firms. The data were collected from the owners or top levels managers with use of paper and pencil interview. The research was done in August and September 2012. The strategic focus of the enterprises The model of the analysis of the relations between the strategy and the agility of the enterprise consists of: - Areas of strategic decisions which are (Pierścionek, 2003, Lynch, 2012): developing the resources and competencies of the enterprise, appointing new directions and scope of utilization of the resources and competencies, shaping the organization of the enterprise, and affecting the environment to make some of its components favour with the enterprise objectives. - Features of the enterprise’s agility i.e. brightness, flexibility, intelligence and shrewdness. - The relationships between the areas of strategic decision and the features of the agility. In this paper the analysis has been limited to the changes of the enterprise flexibility, intelligence and shrewdness. Flexibility of the enterprises Flexible enterprise is able to adapt to the changing environment. Thus flexibility can be assessed by the enterprise involvement into implementation of actions that adapt it to the changes. The adaptability of the enterprise can be described by: implementation of concepts and methods to manage the business in the changeable environment, initiatives in adjustment the structures, procedures, technologies and resources as well as by orientation on using the short life time opportunities. The implementation of such managerial concepts and methods was analyzed as: process management, workflow systems, principles of lean enterprise, TQM, JiT, empowerment, network structures and continuous improvement. At present any involvement in implementation of the above concepts and methods is observed by 22,22% of small and 20% medium enterprises. Comparing with 2007 this percentage decreased in group of small, medium and big enterprises by 11,11%, 1,67% and 2,22% appropriately. The small and big enterprises are the most involved in implementing continuous improvement (51,11 % and 80%) when among the medium firms the most common is process management (58,33%). The involvement of the firms was measured in scale from 0 (lack of involvement) to 5 (fully 185


implemented). Comparing with 2007 the involvement has been increased of 11,11%, and 13,33% in small and medium enterprises appropriately. To adapt to the changing environment the enterprises inspect and adjust their personal, procedures, and organizational structures. In this scope any activities are present among 22,22% of small and 18,33% medium enterprises and no changes in this percentage were evidenced from 2007. Another symptom of adaptability of the firms to the changing environment is when they undertake short life time opportunities (Trzcieliński and Trzcielińska, 2011; Trzcieliński, 2011). The move towards shorter life time opportunities can be evidenced by increase of: small value contracts, short term contracts, diversity of used technologies and number subcontractors (see Table 1). Table 1. Change of some features of flexibility in 2007-2011 - percentage of firms The change

No. of small value contracts

Decrease No change Increase

13,33 39,13 37,78


8,33 56,67 20


20 28,26 35,56

Diversity of used technologies Small enterprises 2,22 63,04 22,22 Medium enterprises 3,33 55 25 Big enterprises 2,22 41,30 35,56

No. of subcontractors

No. of short term contracts

8,89 54,35 11,11

4,44 52,17 17,78

6,67 61,67 16,67

6,67 63,33 15

4,44 43,48 31,11

6,67 43,48 26,67

Source: Trzcieliński, 2014a.

Intelligence and shrewdness of the enterprises By the end of 90’ of XX century a concept of intelligent organization was introduced to the management science in result of development of the concept of learning organization. As March (1999) says, it is confirmed by numerous studies that learning can improve the performance, and thus the intelligence of organization. The ability to learn is a condition the organizational intelligence. The learning organization is that one that cumulates the knowledge. According to Nonaka and Takeuchi (1995) “knowledge is created by that very flow of information, that is anchored in the beliefs and commitment of its holder”. The intelligent organization not only cumulates the knowledge but benefits from it and develops it intentionally to cope with changes that appear in the environment. 186


To increase its intelligence the firm can employ highly competent specialists as well as staff with basic competencies who next are trained. As it is presented at the Picture 1, particular the SMEs lead rather conservative human resource development policy and during a period of 5 years no significant changes took the place. In big enterprises the policy oriented on strengthening the intelligence was found in almost 50% of them mostly by employment of highly competent staff. The SMEs personal policy does not support the development of the firms’ intelligence. The percentage of small and medium enterprises that employ no less than 20% of highly competent staff is no bigger than 47% and these that employ at least 50% of the specialists is lower than 35% Particularly the disadvantageous situation concerns the employment in functions like R&D and marketing and sale. Picture 1. The percentage of firms which changed the staff employment policy a) Employment of staff with basic competences and training them; b) Employment of highly competent staff

Source: Trzcieliński, 2014a

Although by the end of 2011 the state of human capital was not satisfying, it seems that from the view point of the future the more important is how it has been changed since 2007. The improvement has been found in 24,4% small, 21,7% medium, and 42,2% of big enterprises. The increase is partly affected by the employment of specialists in functions that are crucial for shaping the intelligence of the enterprise. As it is presented at Picture 2, among the enterprises that employ no less 50% highly competent specialists in particular function, there is no more than 7% small,12% medium, and 23% of big enterprises.

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Picture 2. The percentage of firms that increased employment of highly competent staff; the share of the staff is no less than 50%

Source: Trzcieliński, 2014a

The intelligent enterprise develops its resources and competencies to use them for products innovations and enter new markets. The percentage of firms that during the 5 years period at least once did extend the line of product and entered new sector not exceeds 14%, 15% and 25% appropriately small, medium and big enterprises. The percentage of these that did this at least four times is about three times smaller. The intelligent and shrewd enterprise is able to influence on its environment. One of symptoms of such influence is the change of bargaining power against its customers and suppliers. The crucial competencies for that are connected with strategic management. The percentage of firms that increased their bargaining power and employ no less than 20% specialists in the function of strategic management is presented at Picture 3. Picture 3. The percentage of firms that increased employment of highly competent staff; the share of the staff is no less than 50%

Source: Trzcieliński, 2014a 188


Size of the enterprise and organizational innovations An organizational innovation is the implementation of a new organizational method in the firm’s business practices, workplace organization or external relations. Organizational innovation can be divided into two types - structural and procedural. Each of them can further be considered in the context of intra-organizational or interorganizational innovation. Structural innovations relate to changes in the organizational structure (eg. reducing the number of hierarchical levels, the introduction of divisionalization of activities, changes in the division of powers, responsibilities and decision-making authorities). Procedural innovations refer to routines of processes realization in an organization, change or introduce new organizational rules and procedures such as concurrent engineering, principles of zero inventories, continuous improvement of processes. While intra-organizational innovations show their effects within the organization, the inter-organizational innovation create new structures and procedures between the organization and its environment (e.g., strategic alliances, outsourcing and partnership in supply chains). Size of enterprise and organizational innovations in literature Attempts to explain the relationship between company size and organizational innovations are a part of two opposing theoretical concepts (Pawłowski, 2014): 1. A resource-based view, deriving from "Schumpeterian hypothesis", implies that large companies, having more resources, have also a greater capacity for innovation, both technological and organizational (Kimberly and Evanisko, 1981; Damanpour, 1987) 2. Inertia theory, indicating that the increase in size of the company increases standardization and formalization of procedures and relationships inside the organization. The structures become stable, inflexible and create resistance against organizational change (Hannan and Freeman, 1984, Kelly and Amburgey, 1991, Downs, 1967, Carroll and Hannan, 2000). Empirical studies of organizational innovation in the context of the size of companies have been conducted based on the Eurostat methodology and data, but there are also other studies, based on individual methodologies. A. Stabryła and his team (2009) conducted in 2007 their own comparative study of Polish knowledge-based businesses and companies operating in conventional form. One of the main features of knowledge-based enterprises is their organizational innovativeness. In the group of 275 surveyed companies, a high index of the level of knowledge (category A) was found in 21 companies. The percentage of large enterprises in category A was significantly higher than in other categories (B - average, and C - weak). It was also found that the leading business sector for companies of Category A was services (53%) and to a smaller extent production 189


(32%). An important factor was the geographical coverage; 63% percent of enterprises of category A operated on international market. Innovativeness of companies in category A was by far superior to other categories of enterprises in all analyzed criteria: organizational, product, process and marketing. Product innovations were introduced by 85% of companies, process innovations by 78% of companies, innovation in marketing strategy by 62% of companies, changes in organizational structures by 62% of companies, changes in the strategy of the enterprise management - 66%, implementation of advanced management techniques - 42%. K. Sapprasert (2008) using a dataset based on the firm-level Norwegian CIS (1999 – 2001 and 2002 – 2004) and financial accounts, has examined the determinants and performance effects of organizational innovation within the firm. The research indicated, that organizational innovation is greatly constrained by many factors, particularly firm age and size. More than one third of firms in the sample are organizational innovators, having introduced at least one type of organizational innovation during 2002 – 2004, with a higher percentage of larger firms (13% of small firms, 17% of medium and 19% of large firms). CIS 2008 reports have shown an increase of organizational innovation of enterprises in Europe. Just as in studies of K. Sapprasert, the share of innovative firms by size shows the dominant position of large companies (56%) and relatively less innovativeness of medium-sized (40%) and small (30%) companies. It is also worth noting that the percentage distributions of marketing, product and process innovation are similar (KNOWINNO 2012). The results of empirical studies presented in the literature confirm the "Schumpeterian hypothesis" also in regard to organizational innovation. The size of company determines its physical, financial and human resources, and thus also affects the scope of implemented organizational innovation. On the other hand, studies confirm the presence of symptoms of petrification of organizational structures and inertial behavior (Stabryła and others 2009). Declared in CIS surveys changes introduced by companies illustrate the quantitative aspect of innovation. Number of changes does not imply however the qualitative growth, understood as modernity and organizational efficiency of the company. A study conducted in 2003 in the German industrial sector has shown that only a small group of companies fully applied certain organizational innovations. For example, more than 60% of companies declared implementation of teamwork, but only 10% reported that it took advantage of this innovation, and only 7% have used this innovation throughout the entire enterprise. (Armbruster, Kirner, Lay, 2006)

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Some findings of own research The following hypotheses in the area of research on organizational innovation of enterprises were formulated: 1. The organizational innovation of enterprises increased in the period 2007 – 2011 both in the aspect of their structure and from the perspective of processes. 2. Structural innovation manifests itself with and increased flexibility of organizational structures. 3. The flexibility of the organizational structure is different in different functional areas of the company. 4. The process innovation manifests itself with a higher level of application of modern concepts and methods of management. 5. The innovative character of enterprises depends on the size of the company. The below presented analysis of research results has a strictly introductive character and it refers only to presented hypotheses; however, it mainly concerns the last hypothesis: whether and how the innovation depends on the size of a company. The table 2 illustrates the activity of enterprises in the process of implementing modern methods of management and changes in their organizational structures and processes. Respondents were determining the level of activity and the stage of advancement in the implementation of particular methods, using the scale from 0 to 5. „0” in this scale meant ignorance of the method and / or lack of its implementation, while „5” was for complete implementation of the determined method. The table presents values representing the average result in particular group of enterprises. The level of innovative activity of examined enterprises is low and reaches values from 1.3 to 2.7 point in the five pointscale. There is an explicit differentiation of innovative activity depending on the size of the company. The highest innovative activity was reported in big companies (indicators from 1.9 to 3.8; however indicators higher than 3.0 were dominant), next were medium enterprises (indicators from 1.2 to 2.5) and small companies (indicators from 1.2 to 2.0). The order on the list of activity of large, medium and small firms is the same for all examined methods and processes of change. The lowest indicators of innovative activity were observed in reference to Lean Management and TQM. Such small activity and efficiency of implementation can be explained by the complexity of these methods consisting of many detailed techniques, as well as costs and time needed for the complete implementation.

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Table 2. The intensity of innovation activities of Polish enterprises in 2011; figures represent the intensity from the scale from 0 (lack of angagement) to 5 (full implementation) Methods and Processes Process Management

Total (N=150) 2,1

Small firms (N=45)

Medium firms (N=60)

Large firms (N=45)

1,4

2

3

Work flow (IT systems)

2,3

1,5

2

3,5

Lean Management

1,3

0,8

1,2

1,9

TQM

1,5

1

1,5

2,3

Just in Time

1,6

1,6

1,5

2,6

Kaizen

2,2

1,2

1,6

3,1

Network organization

1,8

1,2

1,6

2,8

Assessment and changes in organizational structure

2,7

1,9

2,6

3,6

Assessment and changes in procedures

2,7

2

2,5

3,8

Source: Pawłowski, 2014.

The changes of human capital structure While initiating the research the assumption has been set up that the human capital changes on the society level, resulting from the development of KBE, influence the behaviours the development of human capital in the enterprises (Włodarkiewicz-Klimek, 2014). There were established three research’s levels. The first level enclosed the key macroeconomic factors that identify the dynamics of the economy’s development in the scope of the human capital. Under the second research level there were defined such features of human capital in the enterprise, which are sensitive on the influence of factors of KBE. At the third level there were defined direct areas of analysis that enable the evaluation of the degree of adaptation of the enterprises’ human capital to the KBE dynamics (Picture 4).

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Picture 4. Dependencies between research areas on human capital Independent variables

Dependent variables Opening to the education and the life-long learning

Research area of the human capital adaptation to the changes of KBE The organization’s and its participants attitude to changes in the environment Expenses on external trainings

Life-long learning and the competence and abilities on-the-job development

Saturation of the society with knowledge

Labour market

Social and professional migrations The standard of living and the health level

Personnel policy Competence management

Awareness of participation in the knowledge management process Openness for management systems stimulating the motivation and awarding the innovation, creativity and professionalism

Approval of the personnel policy set to the learning and development

Meaning of the human resources in achieving business success

The structure and the specialization of tasks in which managerial decisions are being made The structure and the specialization of tasks in which there are undertaken executive activities Participation of high qualified employees

Knowledge management Openness for the flexibility of forms and working hours and the team work

Forms of work (including: team work, flexible time of work, outsourcing) Stimulating innovative activities

Ability of functioning in a global work place

Care about the psychical and physical balance of the staff

Motivation and reward systems Changes in the level of employment

Health and psychical balance of the staff

Source: Włodarkiewicz-Klimek, 2014.

Below only some findings concerning the first 8 areas of the third research level are presented. • The organization’s and its participants attitude to changes in the environment The examination included the evaluation of the attitude of the organization and its participant towards changes occurring in the macro-environment which included: political-legal, economic, social-demographic and technological environment. The study enclosed the attitude towards changes within the period of five years, starting from the year 2007. Its results are as follows: - in the area of the political and legal environment 20% of enterprises declared a growing positive attitude toward changes, the attitude of 70% of firms staid at the same level and in case of circa 9% - it decrease, - in the area of the economic environment 17% of enterprises declared a better attitude toward changes, in 63% of enterprise the attitude staid the same and in 18% it decrease, 2% of firms did not give a response to this question, - in the area of the social and demographic environment 21% of examined firms stated an increasing positive attitude toward changes, 73% of organizations declared that their attitude did not change, and in case of circa 4% - it decrease. - in the technological area 27% of enterprises pointed at a growing positive attitude toward changes, 69% of firms declared the same level of attitude and in 3% it decreased, 1% of enterprise did not give a response to this questionThe most significant increase of the positive orientation on changes was noticeable in case 193


of examinations related to the technology (27%). Worse results were founded on the economic ground (decrease of the positive attitude reached 18%). • Expenses on external trainings The medium level of expenses on external training of own staff in examined enterprises in the year 2011 reached circa 14.5 thousand PLN. The analysis of changes of the level of the budget for trainings, in relation to general costs/expenses until 2007 was as follows: 55% of firms participating the study did not change the level of expenses on external training for their staff in the period of examined 5 years, 13% of companies increased the level of expenses and 14% reduced these expenses. The medium growth of expenses for trainings between years 2007 and 2012 was 25%. However, the average decrease of the costs level was 46 %. One of the five examined enterprises was not able to show the changes direction for the level of costs spend on external trainings. • Personnel policy The study of the personnel policy realized in organizations enclosed the identification of enterprises’ methods in the process of recruiting employees and providing them development possibilities. Following models have been used as an input versions: model of employing people with basic competences and developing their skills within the enterprise, model of employing high qualified staff and minimizing the stage of learning, mixed model. In 50% of examined enterprises the currently conducted personnel policy was based on the mixed model, 35% of examined enterprises chose the policy, in which they mostly focus on employing high qualified personnel and minimize costs of training for employees, 11% of examined firms decided to apply the personnel policy based on employing people with basic competences and developing their skills within the enterprise. The examination of changes within the realization of the personnel policy in years 2007-2012 showed that 25% of firms increased their level of employment within the analyzed period of five years. Only 11% of companies that increased employment since the year 2007, employed people with basic competences. 73% of examined firms did not change their personnel policy in a view to the fact of employing both types of staff and in 11% of cases enterprises additionally reduced the number of employed staff with basic competences. • Competence management The evaluation of the competence management included the identification of the possession and using by the organization the system of the development of employed employees competence (the development of competence was interpreted as a development of all features that could support the development of the enterprise like: knowledge, skills, experience and styles of acting). The research showed that in the analyzed period the number of enterprises using the competence management grew from 39% in 2007 to 49% in 2012. In the same time, the share of firms without the competence management system became smaller: from 55% to 50%. The same was observed in case of enterprises that were not able to determine own behavior in this sphere: from 6% to 1%. 194


48% of enterprises declared that the analysis of own competencies in reference to the demand resulting from the development of the organization and from changes occurring in the environment was the most important instrument of competence management. Other useful tools were: examination of staff expectations in the scope of own professional development – 30%, projects and programs of cooperation with the institutions of professional development and education programs (trainings) related to specialization and diversification of activities – 29%. In the analyzed period using such tools as: projects and programs concerning the cooperation with the education and professional development institutions, analysis of owned competences in relation to the demand resulting from the organization development and the study on employees’ expectations toward their professional development, increased in case of circa 16% of enterprises. The examination of the competence management also included the assessment of the characteristics and competences of candidates that entrepreneurs determined as an important in the process of recruitment. In the process of recruitment employers stated that they value most following characteristics: the attitude and willingness to work and develop own competencies – 90%, professional experience – 89% and specialist knowledge from the domain – 80%. The second group of most often enumerated important competences includes characteristics like: type of major study graduation, general knowledge and communications and interpersonal skills – 70%. • Significance of the human resources in achieving business success The analysis of the human resources importance in the process of achieving success in the business was evaluated in the context of the scale of impact of issues related to the human resource management on the way of running the business. The average result had the value 3.5 (near to a high grade) in a scale, where 5 meant a very strong impact and 1 – very small impact. 75% of examined units declared that in the year 2012 the importance of the human capital was the same as in 2007, 19% companies stated that the importance of this area grew; 2% declared that the importance of the human capital decreased. • The structure and the specialization of tasks in which managerial decisions are being made The analysis of tasks and departments of the organizations, in which decisions affecting the management of the entire firm are being made, showed that 59% of decisions is being made within highly specialized posts responsible for a narrow scope of organization’s tasks (directors, department managers, specialists), 27% of decisions was being made by other task teams (for example: a part of tasks is realized in the organization in form of projects), 17% of decisions depend from mobile task teams initiated for period of realization of the project, 3% of decisions was made within other occupations. The share of tasks made by specialized posts in the enterprise in the period from 2007 to 2012 grew in the opinion of 14% of participants of the study – 79% declared that it stayed the same. In case of assessing changes on the level of permanent task teams: 10% enterprises pointed at the growing share of this form of 195


making decisions, 79% declared no changes. Mobile teams increased their participation in the process of making managerial decisions in 11% of cases, 71% firms stated that the participation of this form did not change and 4% declared the decreasing share of the participation of this form. • The structure and the specialization of tasks in which there are undertaken executive activities Tasks are mainly made by specialists or by permanent employee teams. 54% of the work is made by highly specialized employees on managerial posts. 30% of realized work is being delegated to permanent task teams. Only 17% of executive tasks are being realized in mobile teams that after making it return to their formerly established post in the structure of the organization. During the last 5 years examined enterprises did not introduce changes in the way they divide executive tasks between different types of posts. In circa 14% of firms, the share of tasks realized both by employees on specialist workstations and by mobile and permanent teams, grew. In the examined period, about 80% of companies did not change the share of tasks realized by individual groups of employees and circa 4% declared that the share of tasks realized by types of posts and teams mentioned before decreased. • Participation of high qualified employees The research has showed that the average share of high-qualified employees in the total amount of employed staff was 47%. In the course of the research period the share of both high-qualified employees and others, slightly changed. In 67% of examined firms the share of both types of employees in the total number of employees maintained at the same level. 29% of enterprises increased the participation of high-qualified employees, reducing at the same time the share the rest, less qualified staff. The medium increase of the share of high-qualified employees in enterprises reached 18%. Only 2% of firms in the examined period reduced the share of high-qualified employees in the total of the staff and the average difference was 25%. The changes of ICT The influence of ICT development on changes in the knowledge-based economy can be analyzed in macroeconomic (independent variables) and microeconomic dimensions (dependent variables). The below presented results refers only to changes of ICT technologies that occur in the enterprises and are analyzed in a cross section of following dependent variables (Kałkowska, 2014): Type of technologies and software Concerning the use of technology by the enterprise the most popular is the wire network (80%), then the wireless network is used by 65% of enterprises. The mobile internet access is used by 51%. An email account registered with an enterprise domain have about 64% of enterprises. Moreover, the research results shows, that more and more enterprises use diverse software. A lot of enterprises use 196


operation systems – 73%. Then, the most exploited systems are record-transaction systems (63%), Business Intelligence systems are applied at 5% - 7% researched enterprises. The enterprises used also authors’ software (studied by enterprises’ workers – 26%), as well as free software obtained from trade journals and internet (49%). The changes in infrastructure and software The changes analysis of infrastructure point out that in comparison with 2007, 69% enterprises have increased the amount of computers and laptops, in 29% of enterprises the amount of computers hasn’t changed, while 1% of enterprises observed that the amount of computers has reduced. Concerning the changes in software that is already being used, the situation looks as follows: about 61% of researched enterprises report an increasing use of specialist software, dedicated software and systems. In 37% the number of exploited software has not changed, while 1% of enterprises observed that the diversity of applied software has reduced. The influence of ICT technologies on gaining the competitive advantage The research shows that in comparison with 2007, about 34% enterprises have increased their territorial area through exploitation of advanced information technologies and systems influencing at the same time their competitive advantage. The increasing importance of the internet as source of knowledge as well as environment monitoring in order to obtain a knowledge about new ICT technologies At present, internet is treated as a comprehensive knowledge source. It is also reflected in carried out research. Among the enterprises, which carry out the monitoring in order to obtain knowledge about new available technologies ICT; most of them do this using the Internet - 86%. Other way of that process is to following the trade journals – 83%, analysis of potential suppliers – 72%, participation in trade fairs and conferences – 69% as well as permanent market analysis paying special attention to available new technologies – 66%. Monitoring of environment concerning ICT technologies and obtaining knowledge about them is carried out in every fifth enterprise. The e-commerce policy The enterprises interest in e-commerce development has increased. The internet sales are delivered by the 16% of researched enterprises and another 6% is going to run electronic distribution channel in the near future. At present, about 54% of investigated enterprises carrying out all services or sales of whole assortment through internet. The importance of www for the e-business development A lot of enterprises attribute their success in e-commerce to the very high interactivity and functionality of internet webpage. Most of investigated enterprises express an opinion that a properly designed webpage has a positive influence on an enterprise’s image. About 49% of enterprises confirm that the information included on their webpage has an influence on obtaining new customers.

197


Information management In the age of dynamic technical progress development, the research enterprises attribute the most important meaning to the information management as well as they notice the need of information management because the amount and diversity of information which has to be transformed is increasing. The respondents also said that the aiming to effective information management it is required to apply advanced information technologies enabling for effective communication and supporting management and design. The increasing importance of management through information technology The importance of the information technology management process demonstrates a tendency towards growth compared with 2007 it has increased in 32% enterprises, has not changed in 61% enterprises and none of enterprises has noticed a decrease in the tendency of problem discussed. Staff specialization in IT area In 2007, about 21% of research enterprises had the position of an IT Manager. The research period shows relatively stable situation in that matter. The amount of IT specialist share in enterprise structure is rather stable. It results from the enterprise size and profile and place of IT area in organizational structure. The sources of financing the purchase of IT infrastructure The researched enterprises have not displayed the activities concerning IT infrastructure development. Most enterprises do not invest in the purchasing of new technologies. Moreover, about 88% of enterprises did not apply for financial support for purchasing technologies at all. Some of enterprises applied for financial support from structural funds and national public resources. Depending on funds for financial support applied to about 6% to 9% of researched enterprises. Some of enterprises applied for more than one support. Finally, about 5% to 7% of enterprises have received financial support from one of external resources mentioned. IT outsourcing There is evidently an increasing interest amongst enterprises in IT outsourcing services. The main premises of IT outsourcing are the following: cost reduction, data safety, development of information services or lack of well-educated staff. Concerning IT outsourcing, enterprises most often use external services to maintain the software and infrastructure (87%), a fewer enterprises use the network administration and antivirus software (61%), less than half of enterprises use data backup (48%) and specialist software installed on external servers (44%). Supporting the processes of knowledge management The analysis point out, that in the research period, all tools of knowledge management have developed. The highest growth dynamic of usage concerned organizational processes management (19%). The most used tools of knowledge management were the following: electronic documents management, customer relationship management and electronic work management. In evaluating the process of knowledge management in organizations the possibility of knowledge management tools development was also researched. The development of tools actually used was reported by about 25% of respondents, 46% do not undertake any activities aiming to develop these tools. About 20% use applied tools at a very low 198


level. The selected enterprises which declare knowledge management tools development concentrate on improving the electronic documents management processes, work processes as well as relations with customers. Moreover, the enterprises are working on creating knowledge bases and improving the best practices program. Conclusions The Polish enterprises reorient their strategy towards agility in very moderate way. In the period from 2007 to 2011 their flexibility, intelligence and shrewdness has been increased but they rather still look for long life time opportunities and the same for economic scale by performing repetitive activities (production and services). From this point of view they hardly ever adopt themselves to the KBE. The undertaken research confirmed that the innovative activity of large firms is much stronger that the activity of medium and small enterprises in the scope of process and structural innovations. Changes of dimensions in the configuration and centralization increase the flexibility of organizational structures. However, the higher level of specialization, standardization and formalization reduces the flexibility of the organizational structure in examined enterprises and moves them away from the theoretical model of the knowledge-based enterprise. The reduction of flexibility of the structure confirms in a way the Inertia theory. Hence, it is important to notice that such trends of stiffening structures take place not only in large enterprises, but also in medium and small companies. The petrification of organizational structures is not related to the size of the business unit. The slightly appearing adaptation processes to the KBE that are observed in relatively low percentage of enterprises are supported by positive changes that are especially noticeable in the spheres related to competence management, knowledge management and stimulating innovation activities (in organizations that initiated the innovative activities) as well as ICT development. They confirm the assumption on existing dependency between changes in the environment resulting from the realization of objectives of the KBE and activities adapting the potential of the organization.

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Energy triangle concept as a solution to overcome the issues of energy security Prof. Chistruga Boris, Ph.D. Simonov Dumitru, Ph.D. Academy of Economic Studies from Moldova Abstract This article addresses the importance of the energy triangle and its role in the Moldova’s economic and energetic security. The study analyzes the significance of energy triangle in terms of energy economic growth and development, energy access and security, environmental sustainability. The article focuses on the analysis of three index - which are the "sides" of the energy triangle, linking its sectors between them, being in strong correlation with energy security. This article highlights the complex trade-offs and dependencies that beset attempts to secure an energy system that performs well across all key objectives. Introduction Currently, the economy is the most dynamic and comprehensive potential factor that ensures the national welfare, prosperity and security of their citizens. In fact, economy represents a key structure of power, an architecture generating security and stability. A country having a strong economy is able to take political and strategic action on a geopolitical scale and will always be a country influencing international relations. [1] Economic and financial instability of recent years, especially their negative effects on the state, community and individuals reignited debate about economic security. Currently, economic instability problem is transferred from the field of national economies to the regional and international well defined economic complexes and reaching a certain level of economic security depends on the ability of the state to aggregate resources domestic and gain or maintain access to external economic resources. Concept of energy security A special place among the different types of security (social, ecological, demographic, political, military, scientific-technological, informational, energetic, cultural) occupies economic security. This is conditioned by the fact that all types of security cannot be achieved in full measure without economic security. 203


The economic security is an increasingly complex and dynamic concept that derives from the multitude of political, economic, financial, social, environmental implied processes and phenomena. In the context of globalization, the economic security can no longer be perceived than in connection with the national security, economic policy promoted by the state, and, especially, with the degree of openness and participation in international economic activities. [2] Energy security as a subdivision of economic security is an umbrella term that has no single generally accepted definition. There are different dimensions of the concept of energy security, including the economic dimension - which refers to the diversity of energy supplies and low volatility of prices; environmental dimension - which refers to technologies that use energy or social dimension dealing with aspects of access to energy by the poor. Picture 1: Energy Security: An Umbrella Term

Source: World Economic Forum – „The New Energy Security Paradigm”, Geneva, 2006, p. 8 [3]

Energy is not only one of the major production factors of modern economies, but it is also a major driver of the well-being of society. The secure, economically efficient and environmentally sound provision of energy is a major objective of industrial nations in order to increase social welfare. Security of supply, competitiveness of economies and environmental sustainability in energy markets are the key points of the European climate and energy targets and are often referred to as the „triangle of energy policy” (European Commission, 2010). In this day and age, energy generation requires resource and capital-intense technologies. Therefore, the efficient provision of energy depends on an efficient deployment and allocation of these inputs as well as an efficient usage of the technologies. [4] In economic theory, perfect markets are considered to be able to attain an efficient allocation of goods. However, four standard causes of market failure may 204


impede an efficient allocation: market power, incomplete information, externalities and public goods. All of these market failures are common issues in energy market analyses. The role of energy markets in providing both essential production factors and consumer goods indicates that market failures within energy markets may cause significant welfare losses and are thus an important economic subject to consider. Market failures may counteract the objectives of the triangle of energy policy that industrial nations strive to achieve. In terms of energy security of supply (SoS), the pursued level may exceed the level that is provided from the plain market mechanism. Regarding the environmental sustainability of energy provision, externalities, such as greenhouse gas emissions, may occur that are not internalized by market players. The economic energy market analyses conducted in the presented dissertation address these two topics in energy markets, namely security of supply and greenhouse gas abatement. Moldova’s energy profile The energy sector is strategic infrastructure of the national economy, which is based the whole development of the country, while energy is a public utility with a strong social impact. Moldova's energy security issue is one of most important and susceptible, the share of imports of energy resources is accounted for 95.3% (in 2012). The energy industry in Moldova was conceived during the Soviet period as part of integrated energy systems in the former USSR, the infrastructure being designed and built, taking into account other factors than creating an integrated energy sector within the territorial limits of Moldova. From the organizational point of view, the energy infrastructure was exploited by monopolistic state enterprises, which operated on the principle of vertical integration, production volume and prices being established administratively.

900 800 700 600 500 400 300 200 100 0

Ukraine Moldova Russian Federation Romania United States World

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

kg o.e. / USD (PPP 2005)

Picture 2: The evolution of the energy intensity of Moldova and neighbors countries

Years

European Union

Source: Adapted from World Bank data 205


With the collapse of the USSR and the transition to market economy principles, became imminent the reorganization of the energy sector, following the model applied in other sectors of the economy through deetatization and introduction of free competition. The deetatization was achieved through privatization of state enterprises. The introduction of free competition has been done by opening market access for private enterprises and liberalization of prices, which are set by supply and demand market. The restructuring process of the energy sector was driven by the overall reform of national economy in the beginning of 1990s, which was based on the introduction of the competitive market, but this process was done differently in each energy subsector, according to their particularities . A higher energy intensity than european or global average (picture above), under conditions of relatively low share of primary and secondary sector in GDP can be explained by the inherited infrastructure from the soviet energy sector. The Energy Triangle - a new energy architecture Fundamental transitions across global energy systems are underway, characterized by unprecedented complexity – technology advances and discoveries have opened the doors to a range of energy sources and are changing the way energy is consumed. Markets are increasingly affected by shifts in global demand and supply patterns; all the while energy decisions are being underlined by the urgency of addressing the climate debate. As demand for energy is surging worldwide, the requirement to adopt new approaches and strategies to fundamentally change the energy architecture is a top global priority. The importance of securing a sustainable future is clear, and this goal has to be set against the more than one billion people around the world who have no reliable access to power, and the continued growth and industrialization of economies transforming global energy markets and creating new challenges for supply and demand management. The World Economic Forum defines energy architecture as the integrated physical system of energy sources, carriers and demand sectors that are shaped by government, industry and civil society. The “energy triangle” – sometimes known as the „energy pyramid” or „energy tri-lemma” – frames the inherent objectives central to every energy system: the ability to provide a secure, affordable and environmentally sustainable energy supply. The Energy Architecture Performance Index (EAPI) conceptualization of energy architecture can be seen in Picture 3. While this is a greatly simplified view, it highlights the complex interactions and systems that will need to be factored into the transition process. More specifically, energy architecture should:  Promote economic growth and development… Reliable energy promotes economic and social development by boosting productivity and facilitating income generation. Price signals must reflect the true associated costs of energy production to ensure consumption is economically viable and producers remain lean and responsive to an undistorted market. 206


 …in an environmentally sustainable way… The production, transformation and consumption of energy are associated with significant negative environmental externalities. Energy architecture remains the main contributor to global warming. Environmental degradation (for instance, particulate matter pollution and land-use impact) and the energy sector’s reliance on other constrained resources (e.g. water and metals) highlight sustainability as a critical energy architecture priority.  …while providing universal energy access and security The supply of energy is subject to a number of risks and disruptions. But energy security is also about relations among nations. Security of supply from trade partners, the risks of energy autarchy and uncertainty over prices – all creating volatility – are critical concerns that must be managed. Picture 3: Energy Architecture Conceptual Framework

Source: The Global Energy Architecture Performance Index Report 2014

The World Economic Forum defines energy architecture as the integrated physical system of energy sources, carriers and demand sectors that are shaped by government, industry and civil society. The “energy triangle” – sometimes known as the “energy pyramid” or “energy tri-lemma” – frames the inherent objectives central to every energy system: the ability to provide a secure, affordable and environmentally sustainable energy supply. The Energy Architecture Performance Index (EAPI) conceptualization of energy architecture can be seen in Picture 3. While this is a greatly simplified view, it highlights the complex interactions and systems that will need to be factored into the transition process. 207


Universal energy access is vital to fostering lasting social and economic development and to achieving the United Nations Millennium Development Goals. In low-income economies, energy is responsible for a larger portion of monthly household income. Over the past century, affordable energy has been a significant component of global economic growth and development. But the past decade alone has seen a series of significant changes impact the global energy system. Table 1: Energy Architecture Performance Index (EAPI) Indicators How successfully does the country's energy system perform in terms of promoting economic growth and development, whilst being environmentally sustainable, secure and allowing universal access to consumers?

Energy Architecture Performance Index (EAPI) Indicators

Economic growth and development

QUANTITATIVE

Objectives

KPIs

• Energy Intensity (GDP per unit of energy use (PPP USD Efficiency per kg of oil equivalent)) • Degree of artificial distortion to gasoline pricing (index) • Degree of artificial distortion to diesel Affordability pricing (index) • Electricity Prices for Industry (USD per Kilowatt hour) • Cost of energy imports (% GDP) Supportive / detracts • Value of energy exports (% GDP) from growth

Environmental sustainability

Objectives

KPIs

Energy access and security Objectiv es

• Efficiency of electricity production - C02 from Diversity of electricity generation/ supply kWh • Nitrous oxide emissions in energy sector (thou. metric tons of C02 equivalent) /Total Emissions Population impact • Methane emissions in Level energy sector (thou. and metric tons of C02 quality equivalent)/Total of access Population • Emissions intensity PM10, country level (mg per m3) • Alternative and • Ratio of Nuclear energy as low carbon share of total Self fuels in the consumption (%) sufficiency • energy mix

KPIs • Diversity of Total Primary Energy Supply (Herfindahl index) • Electrification (% of population) • Quality of electricity supply (Survey score between 1-7) • Percentage of population using solid fuels for cooking (%)

Import Dependence (Energy Imports, net % energy use) Diversification of net import counterparts by country (HHI)

Source: The Global Energy Architecture Performance Index Report 2014

The concept of Energy Triangle use a set of indicators to highlight the performance of energy architecture, determining to what extent nation have been able to create affordable, sustainable and secure energy systems. Also, this indicator helps stakeholders as they look for performance areas to improve and to prioritize opportunities for improvement across the energy value chain. In creating a one-stop shop for stakeholders to easily access transparent and robust datasets and the resulting analysis, the triangle aims to promote a dialogue about the steps that can be taken to enable an effective transition to a new energy architecture. 208


The indicators inform the score across the individual corners of the triangle; these are ultimately aggregated to provide an overview of the overall state of a country’s energy system, as well as an overarching score and rank. Picture 3 shows the conceptual framework behind the indicators, while Table 1 details the indicators which underlie each dimension of the energy triangle. The Energy Triangle of Moldova For Republic of Moldova the concept of Energy Triangle is relatively new, but it has a positive perspective in terms of energy and economic security. This concept can face for national policy makers the ranking of Moldova in the world through the energy security, its strengths and weaknesses. Picture 4: Energy Triangle for the Republic of Moldova (2014) Economic growth and development 0,60 0,40 0,20 0,00 Energy access and security

Environmental sustainability

Source: Adapted by the author based on World Economic Forum Database 2014 [8]

In order to characterize actual situation in Moldova the main components of the energy triangle, we analyze in detail each indicator. 1. Economic growth & Development. The Republic of Moldova faces with two major problems: on the one hand a large share of energy imports in the national energy balance; on the other hand, the high energy intensity, resulting in a higher consumption of energy with limited economic effects. As a result, a significant share of foreign resources is intended for the import of energy resources. The imported energy represents about 20-25% of the total imports of Moldova and 209


that about 15-18% of GDP. The high energy intensity is due to the inheritance of energy infrastructure from the Soviet Union. 2. Environmental sustainability. At the moment the environment side of triangle is not the priority for the policy makers from the country. Republic of Moldova has problems with this index because are not efficiently used imported resources, impact of technologies on environment is not minimized. At the same time are not created conditions for enabling the benefits of the economic growth to improve an environmental sustainability. For this vision to become true, much work needs to done by Moldova itself in terms of defining sustainable development enabling policy tools, refining its domestic institutional framework to support a more integrated and coherent policymaking and of adopting specific actions needed for “greening” the country’s economy. 3. Energy access and security. Efficient use of resources is of key importance. Correct prices reflecting the scarcity of resources and a lack of distorting subsidies are the best policy tools to increase in the long-term the efficiency in using resources. In Moldova, this has been clearly seen in the case of energy use. Adjustment of the energy tariffs to cost recovery levels and gradual elimination of the cross-subsidies (a process which is still ongoing) have created the necessary incentives for the private agents to adopt more energy-saving measures and more energy-efficient technologies. Between 2003 and 2013, this policy resulted in a 17 percent improvement in the overall energy efficiency of the Moldovan economy. In this regard, continuous gains in energy efficiency will bring about important contributions to a more sustainable development of Moldova. The detailed indicators of Moldova's energy triangle is shown in the following spider chart. Picture 5: Spider chart of the Moldova`s energy triangle 1.01 Energy Intensity 3.05 Diversity of TPES (Herfindahl index) 3.04 Energy imports, net

0,20 0,15

1.02 Fuel Imports (% GDP) 1.03 Fuel Exports (% GDP)

0,10 3.03 Percentage of population using solid fuels for cooking

0,05

1.04 Super Gasoline - Price

0,00 3.02 Quality of Electricity Supply

1.05 Diesel - Price

2.01 Alternative and nuclear energy

3.01 Electrification rate (%) 2.06 CH4 emissions in energy sector

2.02 NO2 emissions in energy sector 2.03 CO2 emissions

Source: Adapted by the author based on World Economic Forum Database 2014 [8] 210


No country achieves top scores against any basket. This reflects the fact that, although some countries score relatively high and balance the requirements of the energy triangle well in comparison to other countries, not one has managed to do all that can be done. Conclusion Energy resources are crucial for the sustainable development of any country, having a direct influence on the GDP growth and the wellbeing of the population. Taking into account the deficit of traditional energy sources and the increasing price for energy on the global market, efforts of public authorities in Moldova are focused on increasing energy efficiency in terms of generation, delivery and consumption. In this article has been approached the energy triangle concept as a solution to overcome the issues of energy security for Republic of Moldova. The final EAPI result is below 0,40, which ranks Moldova on 110th place in the world. The importance of the EAPI consists in the fact that it can identify not only the vulnerabilities of the energy security, but at the same time it can be an opportunity to attract foreign investments. Finally, the Energy Triangle promotes economic growth and development in an environmentally sustainable way, while providing universal energy access and security. So, the Energy Triangle is a way to go and not a terminus station.

Bibliography Ioan-Franc V., Diamescu M.A. Some Opinions on the Relation between Security Economy and Economy Security, Romanian Journal of Economics nr. 2, 2010, p. 131 Băhnăreanu Cristian. Securitatea energetică a României în context european, Bucureşti, Editura Universităţii Naţionale de Apărare „Carol I”, 2010, p. 8-9 World Economic Forum. The New Energy Security Paradigm, Geneva, 2006, p. 8 Felix Hoffler. Essays on the Economics of Energy Market. Security of Supply and Greenhouse Gas Abatement, , 2013, p. 1 UN. National Report for UN CSD 2012 Rio+20, Bons Office, Chişinău, 2012, p. 23 National Bureau of Statistics Database, online: http://www.statistica.md/index.php?l=en World Bank Database, online: http://data.worldbank.org/ World Economic Forum Database, online: http://www.weforum.org/issues/new-energyarchitecture/eapi-platform World Economic Forum. The Global Energy Architecture Performance Index Report 2014, Industry Agenda. December 2013, p. 14

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Foreign Trade in Goods and Services of the Republic of Moldova in the Period of Crisis and Post-crisis Larisa Dodu-Gugea Ass. prof., Ph.D. Popa Marina, Senior Lecturer, Academy of Economic Studies of Moldova Abstract The trade expansion of goods and services is an essential tool to overcome economic stagnation. In this way to maintain the openness markets and to avoid the use of economic protectionist measures, both at the domestic and at the international level, is a requirement for the EU countries and for the Republic of Moldova. Moldova needs to increase the net exports of goods and services that contribute to the stabilization of GDP growth. But in order to revive the economy it is important to increase in general the trade flows of goods and services of imports and also of exports. Article Beginning with 1991, there were registered a lot of changes in the geographical orientation of the foreign trade of the Republic of Moldova. Becoming an independent state, the Republic of Moldova got the possibility to draw independently the trade and economic relations with all the countries in the world. In its relations with other countries, the Republic of Moldova set as a basis the principle of respecting the independence and national sovereignty, principle of equality in rights and of getting the mutual advantages. The agreements concluded by the Republic of Moldova are performed in conformity with the Law on way of conclusion, application, ratification and denunciation of treaties, conventions and international agreements nr. 1137-XII from 4 august 1992, and in accordance with the international practice. The conclusion of bilateral agreements at the government level is made on: short-term (1 year), medium-term (5 years), long-term (10 years) or unlimited period. The most common types of concluded agreements are: Agreement on trade and economic cooperation, Free Trade Agreement, Agreement on promotion and mutual protection of investments. By signing these agreements one intends the diversification of markets and creation of easier conditions for Moldovan goods entering these markets. The number of countries included in the cooperation relations of the Republic of Moldova increased from 42 countries, in 1992, to more than 100 countries today. The most trading partners by groups of countries are: European 213


Union, Commonwealth of Independent States and Central and Eastern European Countries. CIS countries had the highest share over the years, but nowdays they yield position in favour of European Union. Economic relations with these countries are carried out under bilateral and multilateral agreements. In order to accelerate the economic reforms and increase the standard of living, the CIS countries decided to form an Economic Union to assure the free movement of goods, services, capitals and labour force; common policies such as: monetray, credit, budgetary, fiscal, price, economic, currency and customs policy; a harmonized legislation and existence of a common statistical basis. Agreement on the creation of Economic Union was signed in Moscow on 24 September 1993, but was not implemented. Although the CIS concluded a big number of multilateral agreements in the economic field, however, bilateral agreements continues to be the most effective. Moldovan trade with CIS countries has both advantages and disadvantages. The advantages of CIS relations refers to satisfaction of necessities of branches of raw materials and materials and keeping of traditional markets. The disadvantages related to CIS cooperation are imperfect mechanism regulating agreements and lack of guarantees from the government on their achievement.[9] After independence, the Republic of Moldova has tried to diversify its markets, one of these being the European Union. In the view of intensifying the economic relations with these countries was signed on 28 November 1994 the Partnership and Cooperation Agreement between the Republic of Moldova and European Union. The Partnership and Cooperation Agreement entered into force on 1 July 1198 for 10 years period. The Agreement represents the basic political document that establishes the general collaboration framework between the Republic of Moldova and European Union in all respects. The development of collaboration relations facilitates the promotion of investments and trade, sustains the process of reforms in the Republic of Moldova and creates the necessary conditions for a future establishment of Free Trade Area between the European Union and Moldova. In the Partnership and Cooperation Agreement there is not included the trade in textiles, because it is regulated by a special agreement, operating from 1993. According to the stipulations of the Agreement on trade in textiles, are not applied restrictions on Moldovan exports of industrial and agricultural products on the European Union market. Also, there are not quantitative exports restrictions for industrial and agricultural products, the exports being performed on the basis of export licenses and certificates of origin of goods. The Partnership and Cooperation Agreement consolidate the advantages that Moldova benefits within the Generalized System of Preferences. The main partners of the Republic of Moldova from the European Union are: Germany, Italy, France, and Austria. Another group of countries with which the Republic of Moldova has economic relations are those from Central and Eastern Europe. From this group Romania has a special place with regard to relations with Moldova.[7]

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Further, we can state that the evolution of the foreign trade of the Republic of Moldova in the 1997-2012 period was influenced by the following factors: - The accession of the Republic of Moldova to the World Trade Organization (26.07.2001); - Benefiting from Generalized System of Preferences Plus that was established on 1 January 2006, being the successor of Generalized System of Preferences (GSP), established in 1998. GSP provided the access of products without levying customs duties on import for approx. 7200 groups of Moldovan products. This regime was replaced by Autonomous Trade Preferences (ATP), provided beginning with 1st March, 2008; - From 14 March 2008, the Republic of Moldova benefits from a new scheme of trade preferences, provided by the European Union, known as Autonomous Trade Preferences (ATP), that permits the access of 12 000 groups of products on the EU market, without quantitative restrictions and customs duties, the only exception being imports of wine, veal and some fish products, on which tariff quotas are applied; - The signing of the Agreement of amendment and enlargement of CEFTA to CEFTA 2006 on 19th of December, 2006. The Agreement entered into force on 26th of July 2006 for 5 signatories countries (Albania, Macedonia, Moldova, Montenegro, UNMIK/Kosovo), entered into force thereafter for Croatia (22.08.2007), Serbia (24.10.2007), Bosnia and Herzegovina (22.11.2007); - The volatility of the process of implementation of free trade agreement within the CIS with Russian Federation, manifested by an embargo on imports of meat, vegetable products (in May 2005) and wines (in March 2006) from Moldova. There are, also, other factors which had an impact on the foreign trade of the Republic of Moldova: the launch of the oil terminal within the International Free Port Giurgiulesti receiving the first payload oil tanker (12.09.2007); establishment of the system of origin certification of the exported goods in accordance with the EU requirements; the accession of Romania and Bulgaria to the EU on 1 January 2007.[7] Moldova’s government key foreign policy goal is to accelerate integration with the European Union (EU). Moldova has recently signed the Association Agreement with the EU and the DCFTA, which provides for cooperation in a wide variety of spheres, including a free trade agreement. From 1997-1998, the volume of the external trade of the Republic of Moldova experienced the first decrease in the 2009 years, following the global trend in this domain. According to the official data provided the National Bureau of Statistics, the decrease of the volume of the external trade during 2009 exceeded the value of 29.4 %, being less sensitive, but comparable with the decrease in 1999 (36.5 %). The annual growth rate for the period 1997-2012 constituted 6.94 %. The statistical data for the 2009 year shows that the exports had a smaller tendency 215


to decrease than the imports, so that the decline constitute more than 23 % in comparison with more than 34 % decrease in imports. [12] The exports bring a huge contribution to the country’s economy: economies of scale, which is difficult to achieve in the case of a small internal market, as well provides inflows of foreign currency in the economy and improvements, but also determine an important social role-multiplying the work places, etc. So, the structural changes and the dynamics of the exports are feasible indicators for evaluating the national firms’ competitiveness on the external markets. The volume of the external trade increase is one of the factors boosting the economic growth and national economy competitiveness. In order to define the influence of the external trade it is necessary to make the dynamic and structure analyze. Figure 1: The evolution of the export of the Republic of Moldova by group of country

Source: Developed by the author, based National Bureau of Statistics data 2012

The external trade during the 2000-2012 periods was determined by the fast increase of the imports in comparison with the exports. The trade balance deficit increased from 305 million US dollars in 2000, till 2.974 billion USD, in 2011. During the 2000-2011 periods, Republic of Moldova had a negative trade balance. This tendency was caused by a low competitiveness level of the Moldovan exports on the international markets, the excessive geographic concentration, the increase of the fuels’ price and the intensification of the internal consumption. The trade balance was negative in the European Union countries, but has a slow increase trend. Only in 2009 year, the trade balance decreased with 58.7 % in comparison with the previous year. This was due to the fact that the decrease of the value of the imports advanced the total export value decrease, the values being 32.7 % and 19.1 % respectively. The external trade with goods increased with 16.4 % in 2010 in comparison with the previous year. The following indicator (the share of the exports in the GDP) 216


shows the capacity of the Republic of Moldova to sell commodities on an international market, in our case, on the European market. On average, during the examined period, this indicator was 14.4%. The share of the imports in the GDP expresses the dependence of the national economy on the external markets. On average, the share imports/GDP is 76 % in our country. The ratio: trade balance/GDP in 2010 decreased with 9.5 % and consitute 45.5%. In the European Countries, this indicator decreased with 5.6 procentual points and was 19.6 %. Analyzing the evolution of the imports of the Republic of Moldova by groups of country, we can observe that the biggest share is hold by the EU and CIS countries.[4] In 2012 the exports of goods totaled 2161,8 mil. USA dollars, lower volume that in 2011 by 2,5%. The export of domestic goods amounted 1389,6 mil. USA dollars (64,3% of total exports), registering an increase of 14.4% over 2011, that contributed to enhancing the exports by 7.9%. Figure 2: The evolution of the imports of the Republic of Moldova by groups of country

Source: Developed by the author, based National Bureau of Statistics data 2012

By the geographical concentration, the biggest share of exports and imports is concentrated in EU and CIS countries. During the 2011 year, the share of exports and imports are relatively stable in and from this major groups: EU- 43 % from imports, CIS-33 %, and EU-49 % from exports and 41 % to CIS. 24 % from imports are directed from other countries, and 10 % from exports to other countries. The import of goods performed in December 2012 amounted to 504.5 mln., USD, with 5.6% more than the previous month and with 5.7% less than in December 2011. In 2012 the imports amounted 5213.1 mln., USD, higher volume than that achieved in 2011 by 0.4%. The imports from EU countries (EU-27) amounted to 2318.7 mln. USD (2.8% more than in 2011), with a share of 44.5% of total imports (43, 5% in 2011). Imports of goods from CIS countries amounted to 1623.8 mln. USD (5.2% less than in 2011), which is equivalent to a 31.1% share of total imports 217


(33.0 % in 2011). Considerable gap in exports and imports resulted in 2012 with negative trade balance amounting to 3051.3 mln. USD, with 76.8 mln. (+ 2.6%) higher than the recorded in 2011. With European Union (EU-27) the trade balance ended in a deficit of 1305.3 mln. USD (1173.3 mln. USD), and with CIS countries 695.8 million USD (794.2 million USD in 2011). This trends shows that during the examined period, the structure of the exports have remained stable and our country competes with cheap factors of production-low prices and less special qualitative products. The country’s capacity to integrate in the economic circuit was made possible by benefiting from the GSP(General System of Preferences) with EU, from the concluded agreements regarding the investments’ promoting with member countries of the EU, that foster the geographic reorientation of the trade of the Republic of Moldova from East to West. The external trade is one of the important indicator of the international competitivness of a country. This shows the areas were the products of an economy are competitive. The direct link between the exports and the economic growth is relevant. Concluding the analizys concerning the evolution of the trade, we can see that although have been lots of problems (2008, 2009, 2010, 2011, 2012), there is a progress, consisting in the reorientation of the production to the EU market, aproximately 49 %, which shows a qualitative improvement, diversification and increase of the competitiveness.[12] The external trade in services of the Republic of Moldova The trade in services is another important component of the external trade of the Republic of Moldova. During the 2011, the balance of the services has registered a decrease with 62.9 % from the dificit, which constituted 25.87 million UDS. The deficit of the services balance reported to GDP constituted 0.4 %. This fact can be observed from the following diagram.[13] According to the data, in 2011 year, the volume of the external trade in services increased with 19.8 %, being 1.764 49 million USD, from which 26.2 % is allocated to the trade with the CIS countries and 73.8 % with other world countries. The rendered services to the non-residents have been evaluated to 868.81 million USD, the volume being similar to the amount received from non-residents-894.68 million USD.

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Figure 3. Contribution of economic sectors to the GDP growth (p.p.)

Source: NBM Repport, 2013

The highest share in trade in services is hold by the transport services. The value of the transport services rendered to the non-residents is 343.14 million USD, with an increase of 40.4% comparing to the previous year, but for the imported transport services-363.68 million USD, with an increase of 27.5 %. This increases were caused by the rise of the volume of the transported gooods, which grew with 40.9 % in comparison with the previous year. The volume of the travel services were evaluated at the value of 500.18 million USD, from which 194.31 million rendered to the non-residents and 305.87 received from non-residents. The negative balance increased with 22.3 %, being determined by the personal trips (for leisure, training, etc) as well by the rising spending of the residents working abroad. The communication services registered an exceeded value of 86.50 million USD. The services rendered by the non-residents were evaluated at 128.96 million USD, and those received-at 42.46 million USD. Analysing the exports in services of the Republic of Moldova during the 2011 year, we can conclude that the highest share is represented by the transport services 39.5 % and travel 22.4 %, following the communication services, professional, technical, business, informatics and informational. Regarding the import of services, during the 2011 year, we can observe that the highest share is represented by the transport services-40.6 %, travel-34.2 %, being followed by other services-6 %, then professional services, technical and business-5.4 % and informatics and informational services-4.5 %. Obviously, the worsening of the balance is not uniform on all sectors. The most damaged sector during the last 2 years is the transport sector that was transformed from an exporter to an importer with a commercial surplus of 32.12 million USD in 2008, getting into a deficit of 3.21 million USD in 2009, 40.68 million USD in 2010. It is worth mentioning, that the transport sector was influenced 219


negatively as well by the external factors, as the implementation of the protectionist measures applied by some of the partners of the Republic of Moldova, which remained unsolved by our trade diplomacy. Another worrying factor is the migration of some transport Moldovan companies to Romania, starting with 2009 year, and as a result of a more favourable regulatory regime in the neighbouring country. In 2012 year, the situations have changed and the highest share is hold by the trade with services, which registers a deficit of 1.1%.[5] In all the sectors, besides “Communication services” and “Informatics and informational services” we can observe a negative trend, even though not so dramatic as in the sector of service in transport. And it is not only about worsening of the trade balance, but as well the decrease of the absolute value of the exports in services in majority of the sectors. And if the negative trend was mainly explained by the impact of the world economic crisis, then the maintaining of this negative trend during 2012 speaks about the influence of the internal factors from the Republic of Moldova. More recent, the services have become an important matter on the agenda of the international meetings, emphasizing the foreign competition. For a long period of time, the sector of services were neglected by the economists and were framed into the unproductive sphere. This situation changed pretty much during the last decades and have been drawn the following conclusions:  the services can create wok places, contributing to the decrease of the unemployment,  the tertiary sector is subjected to numerous regulations,  the supply of differentiated and adapted to the demand services, constitutes an element of the firms’ competitiveness, For the amplification of the trade in services, Republic of Moldova has to focus on:  identification of the barriers that might existing in the trade in services,  connection of the national statistics with the global one,  regional liberalization of the trade in services and participation at the multilateral negotiations within GATT,  ensuring alliances with other countries in this domain,  harmonization of the national laws to the GATT laws.[3] In conclusion, for the Republic of Moldova are vital some structural and qualitative changes of the exports, as the national economy during the last decade is based on consumption (an indicator proving this facts, is the difference between imports and exports, the last being exceeded with more than 3 times) and is not oriented to exports and investments. The Moldova’s commitments in WTO made its customs tariffs to be at a reduced level, so the impact of the DCFTA with EU on the state budget would be relatively reduced. Republic of Moldova, being a small economy and with modest perspective for growth, how was proven during the transition period, in order to assure a sustainable level of development, needs to orient toward an economic model based on developing the exports and investments. The National enterprises have to go external in order to increase the efficiency of the production process, to attract new 220


technologies, to produce goods with a higher value added, which finally will enable the growth of the standards of living. The assurance and maintenance of the competitiveness of the exports is an imperative demand for the strengthening the national economy. The strategy of the Republic of Moldova should be focused on export, attraction of foreign direct investments and quality improvement according to the international standards. So sustained growth contribution of external trade in goods and services to the GDP, the employment and the expansion of international trade and investment flows is a major coordinated structural adjustment processes taking place currently in the world and course Moldovian economy.

Bibliography Gershuny J, and Miles I „New services economy”, France Printer, London, 1983 Kotler P. And Armstrong „Marketing Financial Services”. Ed. Butterworth Heinemann 1995 Mattoo, Aaditya, Sauve, Pierre "Domestic regulation and service trade liberalization, Development", Washington 2003 Luecke, M., Oprunenco, A., Prohnitchi, V. (2011) Options for a Deep and Comprehensive Free Trade Agreement between Moldova and the EU, German Economic Team Moldova, Policy Paper Series [PP/02/2011], Berlin/Chisinău, May 2011, pp. 7-10 Hristev E., „Comerţul şi dezvoltarea umană”, Programul Naţiunilor Unite pentru Dezvoltare, Chişinău 2011 Hamzescu Ion Rosu „Comerţul internaţional cu servicii”. Editura ştiinţifică-enciclopedică, Bucureşti 1989 Popa, A. and others "A free trade area between the Repbulic of Moldova and the European Union: feasibility, perspectives and potential impact", Expert Grup: Centru Analitic Independent, Chisinau 2009, pp. 32-75. Suta N., Comerţ Internaţional şi Politici Comerciale, ASE, Bucureşti, 2009; Stratan A. „Analiza competitivităţii naţionale prin prisma indicatorilor de performanţă a exporturilor”, Institul de Economie Finanţe şi Statistică, Chişinău 2011 www.wto.org www.unctad.org www.statistica.md

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Storytelling as a CSR instrument Halina Łyszczarz, Ph. D. Cracow University of Economics The article is prepared as a result of resarch grant „Strategia adaptacji Społecznej Odpowiedzialności Biznesu w okresie społeczno-gospodarczej destabilizacji.” Number 2011/03/B/HS4/01972 founded by Narodowe Centrum Nauki.

Abstract Storytelling is an instrument for management whose importance increases in current conditions for running business activity, being characterised by, among others, a change in the stakeholders’ expectations towards the companies as well as the development of communications technology, especially social media, due to which the stakeholders become more aware of an offer of companies and more active. Currently, stakeholders expect from companies an offer enriched with additional values of a more than functional nature, such values which refer to higher values being commonly recognised. Such enriching may be activities defined as social responsibility which normally bring a competitive advantage to the company, only if the stakeholders were informed about it. Analysis carried out demonstrates that storytelling may be evaluated as more effective than a traditional instrument for communication about socially responsible activities. Introduction The objective of this discussion is to assess storytelling as an instrument for management of corporate social responsibility. Here, it is being assumed that storytelling is a concept consistent with postmodernism, currently widely popularised in management, as well as adequate to contemporary conditions for running the business activity. A significant element of those conditions is the technological development, especially as regards communications technologies, as well as a change in the stakeholders’ expectations towards the companies. Communications technologies, especially social media, significantly facilitate stakeholders to influence how the company is perceived in the surroundings, which together with increase in awareness of the consumer and other stakeholders proves increase in importance thereof for company's success and should be respectively included in the activities of that company. A basic hypothesis of this discussion is that storytelling is a more perfect instrument for CSR management in the company 223


than the one traditionally used, especially for informing about activities within the scope of CSR, and the hypothesis shall be checked by evaluating those two types of tools mainly from the perspective of complying with objectives of their use. The essence and objectives of storytelling Storytelling is defined as the process of developing a message, which either forms a new point of view or reinforces existing opinions or behaviour, which is achieved through the use of narratives about people, organizations, past, visions of the future, social bonding and the work itself.64 It is a story about the events, occurrences or activities presented in the form of text or art. Organizational stories are not the history of an organization. What differentiates chronological history of an organization from storytelling is that history is based on facts and usually consists in giving plain data, is focused on the objective presentation of events. On the other hand, organizational stories are, rather, metaphors, which are supposed to help in the interpretation of events and in the formation of a suitable emotional attitude. The primary goals of organizational stories include: - induction of emotional commitment and a positive attitude towards the organization, its products or activities - inspiring the recipient to develop stories and / or transfer it to anyone else, and to taking actions consistent with the values to which the story refers. These objectives are achieved through an appropriate impact on emotions of both internal and external stakeholders of the organization. Conditions for the development of storytelling The story itself is of course not a new phenomenon. Stories existed long before the invention of writing. It can be recognized, however, that their role in the management began to be emphasized particularly during the last quarter of the century. Considerations aimed at identifying factors that contribute to the development of storytelling within the said period direct their attention primarily on the following often mutually interacting factors: - Technological development particularly in the field of communication technology - Increase of awareness and activity of consumers and other stakeholders - Intensification of the diffusion of technology and innovation - Reduction in the efficiency of traditional forms of communication with the market - Increased pressure to form new knowledge - Development of postmodernism in management - Globalization of business activities.

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Gill R., An integrative review of storytelling: Using corporate stories to strengthen employee engagement and internal and external reputation, PRism 8(1), www.prismjournal.org/homepage.html p. 3; 224


Technological development offers increasingly advanced tools for communication, dialogue, telling and spreading stories. For example, social networking websites like Twitter and Facebook or mobile phones can be seen as a space for different types of storytelling. It can be assumed that access to such tools intensified social activity in terms of telling stories, expressing opinions, discussing, sharing knowledge or information also about companies and their actions. Increasingly common and easy access to information, including the opinions of others about the manufacturer and its practices, product, competitors offer, contribute to a rise of consumer awareness and to an increased expressing and disseminating of opinions on the offer and the bidder.65 This increase in awareness causes modern consumers to react sceptically to traditional marketing techniques, to easily detect false information and any actions intended to mislead consumers or manipulate them. This entails a continuous reduction in the effectiveness of traditional methods of communication with the market. For example, as research indicates, in 1960s about 35% of advertisements were noticed while in 1990s only 8%.66 Instead, tools that make the recipient interested, entertain or inspire him, raise issues important to him, gain importance. Hence companies in their marketing efforts should focus on the client and on what is important to him, and storytelling is a response to those needs. The globalization of business activities entails the need for communication with stakeholders of different cultural backgrounds. Communication is facilitated by, typical for storytelling, referring to archetypes common to all people, regardless not only of their cultural affiliation, but also of age, gender, religion, education or life experience.67 At the same time increased diffusion of technology and innovation, and thus also increasingly shorter periods of technological monopoly, contribute to the standardization of the methods used by companies to create value, and this in turn results in the similarity of the offers of different companies both in terms of their physical parameters At the same time intensifying the diffusion of technological and innovation, and thus also increasingly shorter periods of technological monopoly 65

This means spinning stories in the public space and thus creating the image of the organisation not only by it itself, but also independently of it which, on the one hand, emphasises strength of storytelling, but on the second poses a threat for of the organisation, about which I shall mention further in this discussion 66 Mistewicz E., Marketing narracyjny. Jak budować historie, które sprzedają. [Narrative marketing. How to build up stories that sell]. Helion, Gliwice 2011, p. 28 67 Archetypes are unanimously defined as deeply embedded primary patterns of figures, events and behaviour universal for of all people in the world. Those patterns, manifested by symbols, myths, motives determine the manner the world is perceived. Mark M. and Pearson C., detail the following types of archetypes: hero, rebel, creator, caretaker, guard, tempter, magician, clown, innocent, discoverer, wise man, companion, Source: Mark M, Pearson C., The Hero and the Outlaw. Building Extraordinary Brands through the Power of Archetypes, Mc Graw-Hill, 2001, They assume that all great stories which dominated human imagination are based on archetypes, Source: as above, p. 3 225


contribute to the standardization of the methods used by the company to create value, and this in turn results in the similarity of the quotes of different companies both in terms of their physical and functional parameters. In such conditions, the importance of price as a basic criterion for assessing the bid and bidder selection is reduced, and non-price factors, especially those that relate to the client's value system, are gaining importance. It can be argued that in such a situation traditional sense of consumer rationality is lost. It can be considered that each type of stakeholder makes decision based on emotions rather than the traditional notions of rationality. Hence the importance of the impact on emotions of stakeholders, a tool for which is storytelling. Storytelling can also be perceived as a tool for knowledge sharing, especially the so-called tacit knowledge. Under the conditions of accelerated technological development and destabilization it causes, rapid obsolescence of knowledge takes place. In order to cope with these new, more complex conditions there is a need for new innovative solutions and creativity that leads to them. Unfortunately expertise can be an obstacle to reaching creative solutions - changes can occur so quickly that the acquired knowledge becomes an obstacle to achieving creativity and flexibility. Hence the need to not only learn, but also, what can be considered a kind of paradox, the need for unlearning the learned ways of perceiving reality and learned behaviour, in other words, the need for openness to other ways of perceiving reality, the diversity, return to the symbolism, meanings and their interpretation, but also creativity, intuition. This opening requires sharing of knowledge, experiences, associations, feelings, which can be achieved through storytelling. To better convey the thought contained in the story, to be understood better, all the more so since the story can be addressed to very different audiences, the language is especially important, both as the meaning of the terms used for description and as a reference to symbols that are based on common values, associations that stimulate reflection.68 The reference to the symbolism not only increases understanding, but also engages emotionally, increases concentration, makes it easier to understand and remember, makes it easy to identify with the message and / or its sender.69

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This linguistic approach and acceptance of diversity of perceptions of the world are the qualities of postmodernism; more: Łyszczarz H., Importance of the Postmodernism Approach in Contemporary Conditions of Business Management, [in:] Czekaj J, Syzdykbayeva B., Buła P., Łyszczarz H., Management Sciences in Kazakhstan and in Poland.at the Beginning of the 21sth Century. Perspectives for Development and Cooperation, Kraków, Astana, 2012, p. 329 - 344 69 As Jencks stated, something which is deprived of symbols and meanings is uninteresting, it is dead, Source: Jencks Ch., The Language of Postmodern Architecture, Academy Editions, London, 1991 226


Elements and characteristics of effective storytelling Analysis of the relevant literature and above all, practical examples of the application of organizational storytelling shows some basic elements that the story should include70: - an appropriate message, moral, emotional content - an interesting plot - the hero and - the problem, which the hero must deal with. Messages should refer to the recipient's value system, to what is important to the recipient. They should indicate how the organization enriches, enhances, makes the lives of stakeholders fuller. And it's not just about features directly relating to the offer, its functional characteristics or the price, but additional factors external to the offer, and referring to certain ideals relevant to the recipient. In general, it includes widely accepted, important values such as justice, welfare, health, freedom, security, etc. The story should convince you that the organization represents the same values as the recipient, and that it seeks to implement and improve these elements of reality that are related to these values, that is not interested only in their particular interests, but also seeks to implement higher goals, achieve the vision of a better world. This kind of message arouses positive emotions towards the organization, respect and trust. If the recipient comes to the conclusion that the organization represents the same values as himself or herself, this entails the emergence of a kind of relationship with the organization, to identify with it, arouses loyalty to it, but also interest in its activities and cheer it that it was able to achieve these lofty goals. The narrative should not so much appeal to logic as to the emotions of stakeholders, cause them emotional involvement, so that the recipient identify with the organization and wanted to become partakers of the story, became a kind of apostles or ambassadors of the organization and as such attracted and convinced others to form a sort of network of supporters of the organization and spreading the positive image. The effectiveness of communication increases, if it is repeated regularly, even though it serves the story may change. Of course, the story will not be effective if there is a mismatch between the transmission and the actual activities of the organization. In this situation, the organization loses credibility in the eyes of the recipient, who may feel cheated and far from it reversed.

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On the basis of: Signorelli J., StoryBranding. Creating stand-out brands through the power of story, Greenleaf Book Group Press, 2012, p. 39; Sole D., Gray Wilson D., Storytelling in Organizations: The power and traps of using stories to share knowledge in organizations, Harvard Graduate School of Education, 2002, www.providersedge.com; Kaye B., Jacobson B., True Tales and Tall Tales: The Power of Organizational Storytelling, Training and Development, March 1999, pp. 45 - 50 227


A story line of the story should be interesting, expressly differ from other organisations’ stories and thus attract the attention. It should affect imagination and emotions of the recipients, which facilitates remembering the message thereof by them, as human memory operates mainly based on associations, and stories activate the right hemisphere, where images and representations are created. Values a given organisation is being guided by should not be thus communicated to the recipients directly, but the story should be formulated in the manner that makes the recipients reach desired conclusions on their own while interpreting the story 71. Effectiveness of a story increases when it bears signs of authenticity, credibility and demonstrates something which may happen in real world. A story may indeed contain elements of fiction but, above all, it should express the 'spirit' of the organisation. Importance of influencing the recipients’ emotions draws attention in the characterisation of the storytelling. That influence should be enhanced if, in the storyline, a hero appears, especially the one, who represents organisational values, but has problems with their implementation because something or someone disturbs him/her in this. Those obstacles may be opponents, adversaries of the hero, as well as various types of problems, difficulties, conflicts with which the hero must struggle, but also s/he himself/herself with her/his weaknesses. Introduction of a motif of the hero struggling with problems builds up tension, normally triggers friendliness towards the hero and support towards her/his struggles, which additionally enhances involvement of the recipients. Yet, an improperly formulated story may generate counterproductive effects. The recipient may interpret the message otherwise and assess the storyline differently, s/he may even feel affected or offended by the story, and his/her reaction to that state of affairs may consist in popularising of an unfavourable or mocking image of the organisation. In general, it should be taken into consideration that an appearance of a specified message normally inspires the appearance of a story of an opposite message. Such stories can be spun by both internal and external stakeholders, and also by entities with which our organisation competes. Thus, it is important to formulate our story in the manner that leaves as small room for manoeuvre for opposite stories as possible. Taking advantage of storytelling is not, therefore, a simple task; it requires from the organisation to have at its disposal concrete information (especially on the subject of the stakeholders) and appropriate skills. Storytelling as an instrument for management Demonstrated qualities of storytelling indicate that it can be seen as an instrument for management both shaping intra-organisational relationships, and influencing the surroundings.

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If the organisation directly communicates to the recipients that it fights for justice, i.e. imposes him/her an opinion about itself, then the effectiveness of such action shall be most likely far smaller than in the case the recipients reached such belief themselves. 228


As part of the organisation, taking advantage of storytelling, among others, serves: - presentation of the mission and vision of the company - shaping of an organisational culture - motivating the employees and raising the degree of their identification with the organisation - sharing knowledge (especially the so-called quiet knowledge) and raising creativity, innovation and flexibility of the company. While, influencing the surroundings, among others, serves: - communication with the stakeholders and shaping of the desired image of the organisation - increasing of the loyalty level of a customer - building up permanent bonds with the stakeholders as well as - highlighting the company and the offer thereof. In general, storytelling contributes to increase in the interest in the organisation and the offer thereof, is an instrument for creation of positive associations, feel, responses and assessments of the organisation, but also is an instrument for activating the recipients, involving the community to which it is addressed, and this involvement is of both an internal (i.e. it concerns the offer in the true sense of the word), and external (it concerns the idea to which the organisation refers in its story) nature. Due to stories, the loyalty and involvement of the stakeholders result mainly from positive emotions that are given rise to because the organisation represents values consistent with the values of the recipients who are willing to participate in implementation of those values. Essence and objectives of CSR By analogy, as it is in the case of storytelling, fast development of a concept of social responsibility of companies also fell within the last quarter of the century although, of course, this issue was a subject of consideration and practical applications earlier. In many publications analysis of reasons for development of the CSR concept can be found. Among them, we may mention increase in awareness of the consumers and other stakeholders as well as increase in importance of more than useful factors in an offer of companies as well as intensification of globalisation processes which often are of a microeconomic nature and related to it weakening of strength of state institutions for the benefit of large corporations. As a result thereof, difficulties in implementation of social objectives traditionally assigned to it may appear.72 It also involves increasing expectations concerning activities of a CSR nature which are put before companies by various social groups73. Szymański W., Interesy i sprzeczności globalizacji. [Interest and contradictions of globalisation]. Wprowadzenie do ekonomii ery globalizacji, Difin, Warszawa, 2004 73 Łyszczarz H., Analysis of the public expectations for Corporate Social Responsibility in Poland, [in:] Teczke J., Terblanche N., Management Science in Transition Period in South Africa and Poland, Kraków, Stellenbosch, 2013, pp. 343 - 356 ; also, analysis of reasons for development of CSR contained therein 72

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There are a plenty of CSR definitions, but both classic ones, and contemporary ones manifest normally joint qualities. Not only do they emphasise the need to take into consideration in activities of the companies social interests and expectations as well as freedom of initiatives in that respect being undertaken by the organisations (e.g. the European Commission definition74), but also they pay special attention to make the activities of the organisation fit the values important for the society. For example, H. Bowen states in his work published as early as in 1953 That the obligation of a businessman is to conduct such a policy, make such decisions and follow such directions which are desired in terms of objectives and values important for the society75. Also, contemporary CSR definitions emphasise those aspects. For example, M. Hopkins assumes that CSR means treating all of stakeholders in the ethical and responsible manner, and a broader objective of the social responsibility is to create progressively higher standard of living of all of the stakeholders, preserving the profitability of corporations. 76 Involvement of the stakeholders as a CSR element is contained in the definition given by the World Economic Forum which, in 2005, defined business social responsibility as: 'contribution of a company for the benefit of the community, being implemented through basic activity of companies, social investments, programmes within the scope of philanthropy and involvement in public activity. This is the manner the company shapes its economic and social relationships as well as relationships with respect to the natural environment. Also, this is the manner in which the company involves its stakeholders (including shareholders, employees, customers, business partners, the government and local communities).'77 B. Rok pays attention to the majority of the above-mentioned CSR objectives Who in his study: "Odpowiedzialny biznes w nieodpowiedzialnym świecie" ['Responsible business in irresponsible world'] states that CSR, among others, is: - running business activity in the manner that allows to take into consideration ethical values, law, respect for the employees, the society and the natural environment, - running business activity so that the effects of that business are consistent with social expectations and values, - bringing in contribution to the sustainable development by co-operating with the employees, local and global community in order to improve the quality of living of all citizens, 74

According to the European Commission, CSR is a concept according to which the companies voluntarily take into consideration social interests and environmental protection in their action strategies on the market as well as in relationships with different groups of stakeholders"; Source: KOM (2011), 681, p. 4;http://eur-lex.europa.eu?LexUriServ.do?uri= COM:2011:0681:FIN:PL:PDF 75 ISO Advisory Group on Social Responsibility, Working Report on Social Responsibility, 2004 76 Hopkins M., Corporate Social Responsibility: an issues paper, Międzynarodowa Organizacja Pracy [International Labour Organisation], Geneva 2004, number 27 77 Światowe Forum Ekonomiczne (WEF) [World Economic Forum], Partnering for Success: Business Perspective on Multistakeholders Partnerships, Geneva 2005 230


- sense of responsibility for a consumer, investor, society, natural environment, for success of the economy - voluntary consideration of social, ethical and ecological aspects in the business activity and in contacts with the stakeholders, - building up of a competitive advantage strategy on the market based on provision of a permanent value for both the shareholders as well as for other stakeholders78 The last of the elements mentioned indicates that CSR is also an instrument for raising the competitive advantage of the company, which may be understood as the sum of values and strengths of a given company, which constitute the value for the market. It can be assumed that the company reaches that advantage if it, owning to activities thereof corresponding to social expectations and values, improves the image thereof. It is even of greater importance owing to the fact that the tendency mentioned earlier for offers to become like in terms of usable qualities thereof, and even the price thereof, the manner to highlight the offer, to improve the image and to enhance the customer loyalty, and thus to enhance the competitive advantage may be CSRrelated activities indeed. Yet, those objectives may not be achieved if the information that a given company is socially responsible has not reached the stakeholders. CSR Instruments The main problem that needs to be solved in order to ensure that CSR will become an instrument for achieving the competitive advantage is informing and convincing the stakeholders that a given organisation represents and operates in accordance with the social values. Companies take advantage of different CSR instruments, while only some of them are of a directly communications nature. From among the CSR instruments, the most often mentioned are 79: - eco-labelling- placing on labels information on use by the producer specific principles of the social responsibility, - cause marketing and cause-related marketing - the latter differs from the former in the fact that it is of a directly commercial nature – it usually involves selling of products. While using this type of activities, consideration has to be given to additional costs of informing the stakeholders about such activities, - ethical programmes for employees, which may take form of the code of ethics, ethical education programmes especially of the management personnel, promotion of ethical behaviour, e.g. through bonuses, distinctions, monitoring of compliance with the ethical standards e.g. by ethical commissions formed for that purpose, taking into consideration ethical aspects in the assessment process and rewarding the employees etc.

Rok B., Odpowiedzialny biznes w nieodpowiedzialnym świecie [Responsible business in irresponsible world]; Akademia Rozwoju Filantropii [ Academy for the Development of Philnathropy], Warszawa, 2004 79 on the basis of: B. Rok, op.cit. 78

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- corporate governance focused on ensuring transparency of activities, but also taking into consideration in decisions and activities of the company interests of all stakeholders (including e.g. minority shareholders, employees or the local community), which may be important for existing and potential investors for whom not only the financial result, but also the policy towards the stakeholders, including the natural environment may be important while taking investment decisions, - social responsibility in marketing – concerning, among others, reliable informing about qualities of the product (not misleading the stakeholders, e.g. through unfair advertising, proper marking), using of ecological packaging, fair price practices etc. - philanthropic activity, consisting in direct supporting those in need or indirect by non-profit organisations. Philanthropy is for companies much less time-consuming than e.g. cause-branding; it does not require from them promotional campaigns, and despite that brings them positive social reaction because the society believes that helping others should be caused by emotional reasons or heart reflex, and not by scheduled social campaign - social reporting being informing about the company activities within the scope of corporate social responsibility, which primarily comes down to issuing annual reports and publishing information on webpages, - corporate community involvement includes various activities undertaken both in response to social expectations, and proposed by the company. This type of activities normally mean that the company is not only a donor, but also in a longer period of time takes advantage of improvement of the environment in which it operates - environmental management meaning undertaking of activities oriented at minimization of negative impact of the company on the environment and implementation of the environmental protection programmes. From among the above-mentioned instruments, only eco-labelling and social reporting are the instruments of direct informing of the stakeholders about the CSR activities undertaken. Other tools are more oriented at implementation of activities improving the social reality – they can be thus called CSR strategies - however, for the information about such activities to reach the stakeholders normally additional activities of communications nature are normally necessary. Storytelling as an instrument for CSR communication Demonstrated characterisation of storytelling and CSR indicates many similarities – important elements of both concepts are values important socially, in both attention is paid to mobilisation and involvement of the stakeholders, although emphasis on this aspect in storytelling is much greater. Both concepts are focused on improving the image of organisations among the stakeholders and thus on highlighting and obtaining a competitive advantage. Therefore, what is the relationship between those concepts? In order to make storytelling credible and effective, it must refer to actual organisation activities, which earn social approval and respect, so a name of socially responsible can be used towards them. In its essence, storytelling is, above all, an instrument for communication with the stakeholders and although it can inspire 232


activities important from the point of view of the organisation and the society, it is not such activity in itself. Yet, as mentioned before, this means that we can consider storytelling as an instrument for management, including an instrument for communication about CSR activities of a given organisation and this term shall be used in this discussion with such importance. Relying on prior characterisation, storytelling in comparison with traditional CSR communication instruments shall be assessed (Table 1). The assessment shall be made according to criteria recognised earlier as important for achieving the competitive advantage. Table 1. Assessment of storytelling in comparison with traditional CSR communication instruments Criterion

Assessment of storytelling

creation of a Easier due to greater credibility of the organisation in the eyes positive image of customers - direct informing about activities typical of traditional instruments which serve noble objectives is commonly perceived as a treatment used to improve the company situation; furthermore, it happens that the data about the fact that the costs of informing about CSR activities undertaken significantly exceed amounts allocated for the activities themselves are disclosed, which very negatively affects the reputation of the organisation mobilisation of Significantly greater due to emotional involvement of the stakeholders recipients, identification with values represented by the organisation. This leads to developing and popularising of stories by the recipients as well as to developing social responsibility of a consumer loyalty of the Significantly greater due to emotional involvement and stakeholders identification with the organisation system of values no difficulties in remembering information control over the image

Significantly greater due to an effect on imagination, and not providing directly plain facts, as well as due to emotional involvement, can be reduced due to mobilisation of the stakeholders who can interpret the message and easily popularise undesirable stories about the organisation otherwise than assumed

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effectiveness of much greater than in traditional forms of communication (it communication is estimated that the word-of-mouth marketing is from 3 to 10 times more effective than traditional advertising) not only due to referring to emotions and lack of imposing the information directly, but also due to easier in comparison e.g. with reporting access to information costs of significantly smaller, among others, due to mobilisation of communication the recipients

Source: prepared by the author

The analysis carried out confirms that storytelling may be recommended as more effective than a traditional instrument for informing about the values represented by a given organisation, including about the social responsibility thereof mainly because stronger effect on emotions of the recipients, increasing their loyalty as well as mobilisation. Owing to taking advantage of effective storytelling, information about internal and external qualities of the company offer are popularised, which contributes to highlighting that offer, increasing the loyalty of the stakeholders and increasing the competitive advantage of the company.

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Acknowledgements       

Committee on Organizational and Management Sciences of the Polish Academy of Sciences Academy of Economic Studies of Moldova Cracow University of Economics Conference Scientific Committee Conference Organizational Committee, Department of International Management, Cracow University of Economics Cracow School of Business at Cracow University of Economics International Management Foundation, Cracow

Project carried out under statutory research in the Department.

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