strategica

STRATEGICA INTERNATIONAL ACADEMIC CONFERENCE FIFTH EDITION. BUCHAREST, SEPTEMBER 28-30, 2017

Shift! Major challenges of today’s economy

Edited by Florina Pînzaru Alexandra Zbuchea Constantin Brătianu Elena-Mădălina Vătămănescu Andreea Mitan

STRATEGICA Shift. Major Challenges of Today’s Economy

CONFERENCE HONORARY CHAIR Remus Pricopie, Rector, National University of Political Studies and Public Administration (SNSPA), Romania CO-CHAIRS Constantin Brătianu – Professor, Bucharest University of Economic Studies, Romania Florina Pînzaru – Dean, Faculty of Management, SNSPA, Romania TRACK CHAIRS Andreia Gabriela Andrei, "Alexandru Ioan Cuza" University of Iași, Romania Lucian Anghel, SNSPA, Romania Laurențiu Anghel, Bucharest University of Economic Studies, Romania Constantin Brătianu, Bucharest University of Economic Studies, Romania Adriana Șchiopoiu Burlea, University of Craiova, Romania Georgiana Cristea, SNSPA, Romania Patrizia Gazzola, University of Insubria, Italy Bogdan Glăvan, Romanian-American University, Romania Martin Henson, University of Essex, UK Elvira Kuhn, University of Applied Sciences of Trier, Germany Andreea Mitan, SNSPA, Romania Rareș Mocanu, SNSPA, Romania Mariana Nicolae, Bucharest University of Economic Studies, Romania Cristian Păun, Bucharest University of Economic Studies, Romania Mauro Romanelli, University of Naples, Italy Laurențiu-Mihai Treapăt, SNSPA, Romania Elena-Mădălina Vătămănescu, SNSPA, Romania Ralf Wagner, University of Kassel, Germany Alexandra Zbuchea, SNSPA, Romania SCIENTIFIC COMMITTEE Laurențiu Anghel, Bucharest University of Economic Studies, Romania Nedra Bahri-Ammari, IHEC of Cartage, Tunisia Dumitru Borţun, SNSPA, Romania Nicholas Chandler, Budapest Business School, Hungary Johan Cottyn, VIVES University, Belgium Camelia Crişan, SNSPA, Romania Nicolae Dănilă, Bucharest University of Economic Studies, Romania Daniel Glaser-Segula, Texas A&M University San Antonio, Texas, US Bogdan Glăvan, Romanian-American University, Romania Joanna Jończyk, Bialystok University of Technology, Poland Omkumar Krishnan, Chonnam National University, India Raquel Meneses, University of Porto, Portugal Mariana Nicolae, Bucharest University of Economic Studies, Romania Luminița Nicolescu, Bucharest University of Economic Studies, Romania Dimitrios Nikolaidis, City College International Faculty of Sheffield University, Greece Marina Ochkovskaya, Lomonosov Moscow State University, Russia Cristian Păun, Bucharest University of Economic Studies, Romania René Schmidpeter, Cologne Business School, Germany Lajos Szabó, Corvinus University of Budapest, Hungary

Eduardo Tome, Universidade Europeia, Laureatte Group, Portugal Katarzyna Wasowska, Siedlce University of Natural Sciences and Humanities, Poland Wioletta Sylwia Wereda, Institute of Organization and Management, Military University of Technology in Warsaw, Poland ORGANIZING COMMITTEE Alexandra Zbuchea, SNSPA, Romania Lucian Anghel, SNSPA, Romania Elena-Mădălina Vătămănescu, SNSPA, Romania Andreea Mitan, SNSPA, Romania Sergiu Octavian Stan, SNSPA, Romania Georgiana Cristea, SNSPA, Romania Irina Isvoranu, SNSPA, Romania Lucian Simion, SNSPA, Romania ADDITIONAL REVIEWERS Vlad-Andrei Alexandru, University of Insubria, Italy Farhad Aliyev, University of Kassel, Germany Andreia-Gabriela Andrei, "Alexandru Ioan Cuza" University of Iași, Romania Cătălin Mihail Barbu, University of Craiova, Romania Cosmin Ionuț Băloi, University of Craiova, Romania Constantin Brătianu, Bucharest University of Economic Studies, Romania Liviu Crăciun, University of Craiova, Romania Georgiana Cristea, SNSPA, Romania Cristian Drăgan, University of Craiova, Romania Christine Falkenreck, Hof University, Germany Patrizia Gazzola, University of Insubria, Italy Elena-Alexandra Gorgos, SNSPA, Romania Ramona-Diana Leon, SNSPA, Romania Laurențiu Mihai, University of Craiova, Romania Magdalena Mihai, University of Craiova, Romania Andreea Mitan, SNSPA, Romania Radu Florin Ogarcă, University of Craiova, Romania Ioana Petrescu, SNSPA, Romania Laura Pricop, "Alexandru Ioan Cuza" University of Iași, Romania Mauro Romanelli, University of Naples, Italy Swati Singh, Vivekanand Education Society Institute of Management Studies & Research, India Laurențiu-Mihai Treapăt, SNSPA, Romania Elena-Mădălina Vătămănescu, SNSPA, Romania Ralf Wagner, University of Kassel, Germany Alexandra Zbuchea, SNSPA, Romania

STRATEGICA International Academic Conference – Fifth Edition – Bucharest, Romania, September 28-30, 2017

Shift. Major Challenges of Today’s Economy Edited by Florina Pînzaru Alexandra Zbuchea Constantin Brătianu Elena–Mădălina Vătămănescu Andreea Mitan

All the rights of this version belong to the Faculty of Management (SNSPA), 2017. Wording, contents and translation quality of the paper are entirely in the charge of authors. Articles or extracts from this book may be reprinted on condition that the names of the authors and the title of the book are clearly stated.

SNSPA, Faculty of Management 6 Povernei Street, Sector 1, Bucharest, Romania www.facultateademanagement.ro Tritonic Publishing House 5 Coacazelor Street, Sector 2, Bucharest, Romania www.tritonic.ro ISBN (E-book): 978-606-749-269-9 ISSN: 2392–702X

Contents Foreword / 13 Economics The Major Challenges of African Economies / 17 Victor Nwaoba ITUMO Is Romania Prepared for Digital Industry? An Analysis of Public Policies regarding Digitization in Romania / 29 Mihaela BUICA, Gabriela DRAGAN The Link between the Development of Multinationals and Workforce Competences. Romanian Graduates’ Career Priorities / 45 Lavinia Cornelia BUTUM Innovation – a Successful Strategy to Boost the Economic Growth in Central and Eastern European Countries? / 57 Alexandru FOTIA The Competitiveness of Romania in Terms of Unemployment / 71 Elena ZOTA The Development of High-tech Industrial Enterprises is the Path to a Competitive Economy / 83 Natalia POLZUNOVA

Management and Leadership The Impact of the Digital Era on the Human Resources Management. Social Media - Recruiting Environment for Potential Candidates / 97 Carmen NOVAC, Raluca Silvia CIOCHINĂ Policy Implementation and Human Resource Management in Local Administration / 109 Jadranka DENKOVA, Pande LAZAREVSKI Human Resources Risk as an Aspect of Human Resources Management in Turbulent Environments / 121 Edyta BOMBIAK Beyond Risk Management: Managing the Unexpected / 133 Andreas NACHBAGAUER

Exploring Precursors of Value Delivery on Organizational Capabilities through Leadership Branding Awareness / 147 George Bogdan DRĂGAN, Gianita BLEOJU, Alexandru CAPĂȚÎNĂ Deconstructing Moral Leadership: Lessons from Endurance in Antarctica / 159 Sebastian I. BURDUJA The Performance of Franchising in the Hotel Industry: A Preliminary Analysis / 173 Rosa-Maria MARIZ-PEREZ The Role of Air Transport in the Supply Chain / 183 Katarzyna WĄSOWSKA Boredom in the Workplace and Cyberloafing – An Exploratory Study Sustainability of Strategic Projects / 193 Dan Florin STĂNESCU Sustainability of Strategic Projects / 201 Lajos SZABÓ The Relationship between an Employee’s Energetic Structure and Professional Performance / 219 Andronicus TORP, Andreia Gabriela ANDREI, Anca Alexandra PURCAREA Diagnosing Organizational Effectiveness in the Albanian Mobile Phone Industry / 231 Denisa MAMILLO

Finance and Banking Trust and Transparency: Perspectives upon the Communication of the National Bank of Romania during the Financial Crisis - A Qualitative Research / 245 Raluca IACOB (BÂRA) Fighting Tax Evasion through the Use of Technology – A Solution to Counter Tax Evasion in Romania? / 257 Claudiu IONIȚĂ, Birol IBADULA, Cristina VLAD, Petre BREZEANU Development of Capital Markets in Emerging Economies. The Case for Bucharest Stock Exchange / 269 Alina Daniela MIHALCEA, Lucian Claudiu ANGHEL, Mircea PERPELEA, Alexandra VIȚELAR Understanding Emerging and Frontier Capital Markets Dynamics through Network Theory / 279 Lucian Claudiu ANGHEL, Vasile George MARICA

Corporate Lending in the Developing Market of Banking Services / 297 Marek SZTURO, Bogdan WŁODARCZYK, George H. IONESCU, Daniela FIROIU, Ramona PIRVU, Roxana BADIRCEA Deleting Zeroes and Creating Value: Psychological Impact to Control Inflation / 315 Safdar HUSAIN TAHIR, Muhammad RIZWAN ULLAH, Gulzar AHMAD, Nabeeha GHAFOOR, Faiza REHMAN

Modeling and Prediction in Economics and Business Research Interpersonal Communication, Job Satisfaction – Predictors for Organizational Citizenship Behavior? / 329 Virgil GHEORGHE Determinants of City Brand Personality - a Romanian Example / 341 Oana ŢUGULEA, Claudia STOIAN (BOBÂLCĂ) The Economic Impact of Climate Change on Crops / 351 Bianca Georgiana OLARU, Vasile ZECHERU Crisis and Financial Distress. Family vs. Non-family Firms / 361 Pietro GOTTARDO, Anna Maria MOISELLO Market-Oriented Sustainability. An Exploratory Study on a ‘Two-Tailed Relationship’ / 373 Elena-Mădălina VĂTĂMĂNESCU, Vlad-Andrei ALEXANDRU

Knowledge Economy The Decision-making Process between Simplicity and Complexity. An Epistemological Approach in Business Administration / 385 Marius-Costel EŞI Business and Entrepreneurship - Mutations and Structural Changes Due to the Transition to Knowledge Economy / 397 Oana-Georgiana CIOBANU, Daniela NEAMȚU International Migration within the EU and Its Impact on the Knowledge Economy Development / 411 Dana-Mihaela NEAMȚU, Ruxandra BEJINARU Universities in the Knowledge Economy: Strategies to Increase their Competitiveness / 427 Constantin BRATIANU Challenges for the Romanian Universities in the Knowledge Economy / 439 Ruxandra BEJINARU

Business Digitization in the Romanian Economy / 453 Shahrazad HADAD Knowledge Management Practices in NGOs / 467 Alexandra ZBUCHEA, Sotirios PETROPOULOS, Beata PARTYKA Risk in Building the Intelligent Organization Model / 477 Wioletta WEREDA, Jacek WOŹNIAK

Marketing and Consumer Behavior Key Countries for Tourism in the New Europe / 497 Maria-Irina ANA On the Importance of Defining, Classifying and Certifying the Tourist Resorts in Romania / 511 Smaranda SIMONI “Main Sins” in the Customer Service in the Contemporary Organization / 523 Wioletta WEREDA, Monika GRZYBOWSKA Analytical Review of the Pharmaceutical Industry in Romania / 537 Ana-Maria GIUREA, Iulian-Cornel LOLEA Liberty Technology Park Cluj - A Case Study of Successful Entrepreneurship / 551 Anda GHEORGHIU, Laurențiu-Mihai TREAPĂT Outsmarting the MNCs by Fitting Strategic Manoeuvres to National Framing: Evidence from India / 563 Swati SINGH, Ralf WAGNER Theory and Practice: Nation Branding in the Middle East / 573 Cornelia ZEINEDDINE, Luminița NICOLESCU Green Luxury: New Divide in Positioning Strategies Needed? / 585 Farhad ALIYEV, Ralf WAGNER The Development of a Corporate Reputation Metric: A Customer Perspective / 595 Dragoş BĂLAN, Adriana BURLEA ŞCHIOPOIU

Business Ethics and CSR Social Responsibility and Italian Listed Companies: A Web Analysis / 609 Stefano AMELIO, Claudio BATTISTINI Ethical Behavior Integrated in CSR: How to Create and Maintain the Corporate Reputation / 621 Patrizia GAZZOLA, Piero MELLA

Responsible Consumption in Food Sector. Case study: Fairtrade / 633 Luana LA BARA, Gloria FIORANI, Irene LITARDI The Companies between Value Chain and Dynamic Capabilities / 647 Elena QUERCI CSR Disclosure and Earnings Management. Evidence from Italy / 659 Giovanna GAVANA, Pietro GOTTARDO, Anna Maria MOISELLO Corporate Social Responsibility in Islamic Culture. Case Study: Islamic Reporting Initiative / 671 Irene LITARDI, Gloria FIORANI, Denise HARB, Luana LA BARA

Towards Sustainable Public Organizations Sustaining Participation: Citizenship, Technology and Public Value / 683 Mauro ROMANELLI

The Effectiveness of Policies for Integration of Vulnerable Groups in Higher Education / 695 Diana-Maria CISMARU Means of Improving the Public Management of EU Structural and Investment Funds / 709 Ștefan-Florin CORCODEL Rediscovering the Office as Vocation within Changing Public Organizations / 719 Mauro ROMANELLI Change and Organizational Development / 731 Dakhane NOUREDDINE, Ismail ZERROUGA Towards Sustainable Organizations / 743 Mauro ROMANELLI

End of Privacy & (Supra)Organizational Dynamics Surveillance 2.0 – Threads & Solutions / 755 Cătălin VRABIE The Influence of Handling Meta Data on Privacy and the Economy / 767 Elvira KUHN Social Media: A Tool for Universities to Share Their Emotions / 779 Ramona Diana LEON

Mobile Applications from Business to Social Implication / 791 Florina PÎNZARU, Alexandra ZBUCHEA Post-Crisis Response Strategies: A Combined Model to Manage Brand Crises / 801 Chiara TAMANINI, Ralf WAGNER Managing Generation Y – A Theoretical Perspective / 813 Georgiana CRISTEA, Andreea MITAN

Foreword

The International Academic Conference STRATEGICA is organized by the Faculty of Management from the National University of Political Studies and Public Administration, Bucharest, Romania, in cooperation with the National Bank of Romania. It is the only academic conference to which the Central Bank of Romania offers such support. Since 2016, the International Association for Knowledge Management is also a partner of this conference. The first edition took place in June 2013 and focused on the evolutions in the economic practices generated by technological advancement. The conference gathered 73 participants from 7 countries. The event explored the multifaceted impact generated by the latest evolutions of the strategies associated with economics, business, and communication. The second edition took place in October 2014 and focused on the strategies needed to overcome the effects of the economic crisis. The number of participants increased significantly to more than 100 academics coming from 13 countries. The third edition took place in October 2015 and focused on complex approaches of global versus local strategies. The number of participants increased to 150 academics coming from 14 countries. The fourth edition took place in October 2016 and explored the risks and opportunities of the contemporary business environment considering the complex evolutions of the contemporary society. The conference gathered over 150 participants coming from 25 countries. Laying emphasis on the major changes of today’s economy and on the dynamics of the business environment, the present edition of STRATEGICA is the reflection of the valuable contributions brought about by more than 400 academics from over 25 countries and 4 continents, as active parts of STRATEGICA International Conference community over the past four years. It succeeds in keeping the tradition alive, by challenging a numerous and varied audience to debate on hot topics and fresh ideas depicting the contemporary economy and society, from the geopolitical factors to the digital revolution in business. Also, the participants have the opportunity to listen to 6 keynote speakers, well-known international personalities in the field. This year, STRATEGICA set the scene for two compelling round tables - Policies and Strategies for Nations’ Development and Knowledge Management in the Sharing Economy - Cross-Sectoral Insights into the Future of Competitive Advantage - providing a great opportunity for interdisciplinary discussions and debates on the intricate ways for businesses, financial and public institutions, governments and nonprofit organizations to approach the new environmental conditions, to make the most of their resources and competitive advantages. In this respect, both academics and practitioners were highly encouraged to elaborate on the opportunities and constraints related to the multidimensional economic shifts. Thus, STRATEGICA affirms its mission as an international forum designed to attract scholars and experts from all over the world and to stimulate them in sharing their experience and expertise in Economics, Business, and Management. The kernel of all these debates is strategic thinking and designing strategies for turbulent times.

Focusing on the current volume, the papers included in the proceedings after double- blind peer-reviews were organized in 9 interconnected and topical sessions: (1) Economics; (2) Management and Leadership; (3) Finance and Banking; (4) Modeling and Prediction in Economics and Business Research; (5) Knowledge Economy; (6) Marketing and Consumer Behavior; (7) Business Ethics and CSR; (8) Toward Sustainable Public Organizations; (9) End of Privacy & (Supra)Organizational Dynamics. We do hope that you all enjoy the research themes and empirical approaches brought forward by the current volume! The Editors

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THE MAJOR CHALLENGES OF AFRICAN ECONOMIES Victor Nwaoba ITUMO Bucharest University of Economic Studies 6 Piața Romană, 010374 Bucharest, RO [email protected] Abstract. Many African countries remain underdeveloped or developing economic status after many years of independence. Some scholars have argued that colonization left African Economies poor and unable to develop as western counterparts. Colonialism is adjudged to be the tool the colonial masters of European countries pillaged and sabotaged the African economies. There had also been an attempt to explain the underdevelopment of many third world countries with the economic relationship of the core economies and the periphery economies. The argument was that the countries at the periphery support the countries at the core. While the countries of the core consist of the wealthy countries of the northern hemisphere, the countries of the periphery consist of the poor countries of the southern hemisphere. Before colonialism, some scholars argued that slave trade milked African countries of youthful vibrancy needed for economic growth. The slave trade was asserted to have created a huge development gap in African economies in a time Europe grew their economies through merchandize and trade relations. Despite the foregoing perceptions on economic status and performances, many African countries have had the opportunity to accelerate their economic growth and development, but failed to do so. This research presents the perspective that since Slavery and colonialism had ended many years ago; and as such, African countries have had huge opportunities for economic growth and development, some of which exceeds those of the countries blamed for their woes, but they failed to grow economically. There was also the issue of the resource curse, which affected African economies rich in natural and mineral resources. In view of the subsisting challenges of realizing high levels of economic growth and development, this article identifies and assesses some of the challenges facing African economies over the years. It reviews the academic literature on African economies, identifies their contemporary challenges and draws useful conclusions. Some of the challenges of African economies identified and discussed include leadership, import dependence, corruption, sabotage of economic efforts, lack of investment in infrastructure, concentration on primary products, etc. The research underscores the fact that the challenges are not just structurally based on economic indices, but has dimensions associated with activities which undermine and sabotage economic efforts in both short and long time periods. One of the conclusions at the end of the research is that various African leadership levels have to stir the cord of African economies aright forthwith on the inevitable path to giant economic growth and development. Keywords: African economies; challenges; resource curse; Dependency Theory; development.

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Introduction African Countries faces challenges that range in political, economic, socioeconomic, etc. This paper with a focus on economic dimensions hopes to unveil what these economic challenges of Africa economies are. Though the economic strength of the various African countries varies, the research would be assessing the average economic performance of cumulative African economies. Research methodology, statement of the research problem, research objectives, the scope of study and limits of study have all been presented in the work below. Research methodology Baxter and Jack (2008, pp.547-549) have identified different types of case research methodologies which include explanatory, exploratory, descriptive, multiple or single, intrinsic, instrumental and collective The research methodology is that of assessing African economies into a single unit of analysis as a case study. However, the descriptive case study methodology has been adopted for a qualitative and analytical assessment of research evaluations. Descriptive research methodology approach describes the situation under assessment, and with qualitative analytical measures draws useful conclusions. Sources of data for the research, in this case, would be the secondary data, from information available from reliable sources on the case under assessment. Yin (2012, p.10) observes that good case study research methodology benefits immensely from having ‘multiple sources of evidence’ as it is not limited to a single source of data, such as the use of questionnaires for carrying out a survey. Multiple sources would be used in sourcing data for the assessment of African economies’ challenges. Statement of research problem There is no doubt that there is a high level of poverty in African countries. This is the case despite the existence of abundant natural resources in Mineral and Agricultural resources in various African countries. Many African countries are still neck deep in foreign and local debts; acute infrastructural deficits, poverty, high levels of unemployment, economies plagued by corruption, natural resources theft, money laundering and diversion of public funds to private coffers, import dependent, etc. The problem of under development persists in African economies even as there continues to be an exodus of youth through various migrant routes to greener pastures in some other continents. The major challenges of the African economies would be identified in this research, assessed and analyzed with a view to proffering useful conclusions and recommendations. Research objectives In view of the subsisting major economic challenges of African countries, as highlighted in the statement of the research problem, the continued existence of high level of poverty, unemployment, underdevelopment and sluggish economic growth, this research presents the following objectives. To identify the major challenges of African economies that have perpetually kept many of the economies from commensurate economic growth with an endowment of natural resources. To

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assess and evaluate the impediments to the accelerated economic growth of African countries with a view to further understanding their subterranean causes. To draw conclusions and suggestion recommendations that may be useful for African countries in fostering rapid economic growth Scope of study The research scope would cover all African countries and assessed as a single unit. Nevertheless, various exemplary cases of some of the countries may be cited as it is hoped they would represent the larger picture of occurrences across the globe. In all, the average performance of the African economies would be highlighted and assessed. Limits of study As would be expected, when the analysis of multiple cases of many countries is been brought into a single unit of assessment, the data may not evenly be representative of all countries assessed but would be an average representation of the conditions and situations in the various countries under assessment. Sources of data may not be equally available, while some may present higher amount of data, others may present lower amount of data. However, the good aspect of the research is that the level of study undertaken would be representative enough for higher percentage explanation of the situation; which can then be subjected to further studies either as a whole or in individual cases. Literature review The literature review would look at scholarly contributions on African economic growth and development. It would cite cases on dependency theory, resource curse as affects Africa, Mainstream Economist, New Institutional Economist (NIEs) and Structural Economist views on economic growth and development. The literature review would further also look at literature that relates issues of poverty and unemployment in African countries. Dependency theory Dependency theory was developed in the late 1950s under Raul Prebish as he served as the Director of the United Nations Economic Commission for Latin America. The development of the term originated from the study that reflected the relationship between the industrialized nations of the north did not necessarily lead to economic growth and development between the developed nations and the poorer nations. It was underscored that the economic activities in developed nations altered and led to economic challenges in the economies of poor or developing nations (Ferraro, 1996). Some other scholars have contributed extensively also on the dependency theory. “[Dependency is] an historical condition which shapes a certain structure of the world economy such that it favors some countries to the detriment of others and limits the development possibilities of the subordinate economics...a situation in which the economy of a certain group of

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countries is conditioned by the development and expansion of another economy, to which their own is subject” (Santos cited in Fann & Hodges, 1971, p.226). “…historical research demonstrates that contemporary underdevelopment is in large part the historical product of past and continuing economic and other relations between the satellite underdeveloped and the now developed metropolitan countries. Furthermore, these relations are an essential part of the capitalist system on a world scale as a whole” (Frank cited in Cockcroft, Frank & Johnson, 1972, p.3). Dependency has also been described as the “explanation of the economic development of a state in terms of the external influences--political, economic, and cultural--on national development policies” (Sunkel cited in Ferraro, 1996). Dependency theory could well apply to the case of African countries as many of them are supplies of raw materials to the development nations which now process them and sale at higher cost all over the world. In the studies, it has been underscored that the relationship between the developed and underdeveloped further led to the increased development of the developed while further underdeveloping the underdeveloped. Resource curse theory The theory of resource curse points to the inability of resource rich countries to have rapid economic growth and development as some countries that do not resource rich. Scholars over the years conducted studies to draw the inference that many resources rich were plagued in what is described as ‘resource curse’, having failed to develop despite their abundance of natural resources. Auty (1993, p.200) is ostensibly seen as the originator of the phrase “natural resource curse”. Auty further observes that resource poor countries performed better than resource abundant countries over the years. Most resource-abundant countries evolved a factional political state that distorts the economy because of the pursuit of rents. Other scholars related the issue of quality of institutions. Sachs and Warner (1995) was seen as the ones who began the literature on econometrics in which they observed that dependence on economic growth based on oil and mineral resources was related to slow economic growth and development. “It has been observed for some decades that the possession of oil, natural gas, or other valuable mineral deposits or natural resources does not necessarily confer economic success. Many African countries such as Angola, Nigeria, Sudan, and the Congo are rich in oil, diamonds, or other minerals, and yet their peoples continue to experience low per capita income and low quality of life. Meanwhile, the East Asian economies Japan, Korea, Taiwan, Singapore and Hong Kong have achieved western-level standards of living despite being rocky islands (or peninsulas) with virtually no exportable natural resources” (Frankel, 2010, p.3). The resource curse theory is rightly applicable in the case of many African countries with respect to their failure to economically grow and develop even with all valuable and abundant resources available to them. Rodney (1973) pointed to the fact that there is “unquestionable fact that a large proportion of the so-called underdeveloped countries are in total stagnation, and that in some of them the rate of economic growth is lower than that of population increase” (Rodney, 1973, p.6).

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Mainstream Economists, New Institutional Economists and Structural Economists’ views on resource-based economic growth The Mainstream economists advocate countries’ economic growth through continuous production and trading of goods they have a comparative advantage over other nations. And within the mainstream economics views are the new institutional economists which though accepts the idea of comparative advantage, but however, associates low growth rates to the failure of institutions. On their part, structural economists advocate for diversification and industrialization of nations as the path to lead to economic growth and development. This view of the structural economist is based on the proposition that resource dependency does facilitate accelerated economic growth and development (Igberaese, 2013, p.6). In the case of African countries, the mainstream views may not hold true as economic growth based on comparative advantage is not very much obtainable as one country may not need what another country has and as such does not present a best economic approach to economic growth. Also, other countries may have just the same product or resource possessed by another and would, therefore, make other with similar resources redundant or unable to fund market. On the other hand, the views of the new institutional Economic scholars may hold true for African countries as there are several cases of non-quality institutions or what can be described as corruptible institutions. The political class through political leadership acquiesces to corruption and rent seeking activities and patronage in such a way that jeopardizes economic interest, investment, growth, and development. This scenario may have affected many African countries as issues of institutional involvement in activities which depict their non-performance, incapability and non-quality functioning. The theoretical views of the Structural Economist have not yet become practicable in African countries in the higher percentage dimension. Many African countries are still very much dependent on natural resources’ export for economic growth and development. Not so many African countries have properly diversified into other relevant sectors of their economies in a manner that adequately compliments major economic base, boasts it commensurably or is even able to sustain their economies as mainstay other than natural resources. African countries certainly need diversification and industrialization as serious levels of poverty, the slow pace of economic development, acute shortage of infrastructure, high unemployment rates and other low levels of socioeconomic situations exist. The case of Africa: identifiable challenges or impediments to Africa’s economic growth A number of impediments and challenges to African economic growth have been identified through occurrences, cases and situations taking place or that took place in various African countries. Some of these impediments have been discussed below with particular examples drawn.

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Leadership crisis Leadership crisis and actions had clearly become an impediment to economic development in many African countries. In many cases, various countries’ leadership had failed to muster the requisite level of political will to commit to the development of their countries economically. In some of such situations, the political leadership has been engrossed and involved in corruption cases which rather point to an interest in self-aggrandizement rather than State’s development interest. Furthermore, some of the political leadership in Africa have failed to encourage investments in sectors with reasonable economic returns to their countries, instead many pursue elephant projects with no economic values, just for self-glory or ego massage. Also, the struggle for political power control has often led to such political struggle that destroys economic interest in form of foreign direct investments (FDIs) or even investments from local sources. There is also the issue of political struggle that leads to war situations or confrontation which eventually drains away economic investments either in the long run or short term basis. There is also the issue of the political sit-tight syndrome; a situation where a political leader remains in power for decades, and even when he has lost vision and steam of relevant economic direction for the country, he continues to stay on regardless of economic retrogression. Some leadership in Africa also does not see their position as one meant for leading their nations out of poverty and economic backwardness, instead, they perceive political leadership roles as rewards and or political patronage. With such view, some political leadership in Africa does not concentrate on economic growth and development, but on the pecks of office and selfenrichment at the detriment of their countries. Some African countries which have had semblance of these situations include Sudan, South Sudan, Zimbabwe, Cameroon, Central African Republic, Equatorial Guinea, Nigeria, Ivory Coast, Congo DRC, Burundi, Egypt, Tunisia, Libya, Eritrea, Liberia, Sierra Leone, Gabon, Rwanda, Algeria, the Gambia, Mali, Niger, Somalia, Kenya, Senegal, Ethiopia, Djibouti, Chad, Republic of Congo, Mozambique, etc. Import dependence Many African countries have the capacity to task themselves appropriately and engage in manufacturing and production of several goods from local materials. Rather than do this, many African countries resorted to importing in large scales, such that several goods which could actually be produced locally are now imported. The availability of revenue from some natural resources endowments such as crude oil, gas, diamond, gold, and many others, made it possible that there were always ready funds for the importation of goods and services from overseas territories. The recurrence of import dependence over the years appears to have instilled the psychology that anything foreign is better than all things local, particularly for goods being imported from developed nations. This same psychology of import dependence and valuation of foreign goods from developed nations have eventually, it would appear, drained considerably, the inquisitive intellectualism and drive towards production and manufacturing as the mainstay of African economies. Although production and manufacturing of some sorts still take place in African countries, however, a lot more goods which can be sourced, processed and

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produced locally are still been imported. The trend is a major challenge and strain to African countries’ economic growth and development. Corruption/sabotage of economic efforts/money laundering There continue to be endless cases of corruption unveiled in many of the African countries. The issue of corruption, though a global challenge, had become endemic within the African societies. These acts of corruption in African societies include cases of bribery, money laundering, inflation of contract sums, subversion of justice with money, buying of electoral positions with money, theft of economic assets or resources, nepotism in appointments, capital flight for acquisition of properties abroad, diversion of public finds to private use, tampering with constitutional frameworks for individualistic gains, etc. all these have weighed in heavily on economic growth and development. As a matter of fact, they have undermined efforts and recorded progress towards economic growth and development. Economic resources meant for development purposes are often siphoned or fritted away to overseas territories or deployed to private use. The political class involvement and those of others in these kinds of corruption cases have included occurrences in African countries such as, Nigeria, South Africa, Tunisia, Egypt, Liberia, Equatorial Guinea, Algeria, the Gambia, Congo DRC, Togo, Somalia, Kenya, South Sudan, Libya, Angola, Ghana, Guinea Conakry, Cameroon, Zimbabwe, Lesotho, Swaziland, Central African Republic, Djibouti, Eritrea, Burundi, Mali, Niger, Chad, Burkina Faso, Ethiopia, Sierra Leone, Gabon, Tanzania, Zambia, etc. Corruption in one form or another had undermined drive towards economic growth and development in many of the African States mentioned above; as such, it constitutes a major economic challenge to African development. Lack of investment in infrastructure There continues to exist an acute shortage of infrastructure in the many African States. This is as a result of the accumulated lack of investment in infrastructural development. There is the existence of infrastructural deficits such as lack of adequate power supply, lack of good access roads, lack of good drinking water, lack of good health centers, lack of relevant educational infrastructures, inefficient transport system – no good rail transport system, airport operations, road transport, etc. the lack of political will and leadership to invest maximally in infrastructural development discourages investment drive and interest. A situation where an investor had to source his own power supply, water supply, security support, use dusty or half-hazardly done roads does not encourage higher levels of investment for an economic boost. Some African countries with lower infrastructural development levels include Nigeria, South Sudan, the Gambia, Benin Republic, Niger, Chad, Mali, Zimbabwe, Liberia, Mozambique, Central African Republic, Eritrea, Burundi, Somalia, Angola, Congo DRC, the Republic of Congo, Uganda, Djibouti, Burkina Faso, Cameroon, etc. The investment in infrastructure constitutes the investment which is truly made into the economic system of a country, while the lack of it means that the economic growth and development system absence of needed support.

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Concentration on primary products supply Just as was partly explained in the dependence theory, many African countries still concentrate their economies on primary products supply or export for revenue generation. The concentration on supply and export of natural resources meant that some of the African countries caught up in it depend on the revenue from such primary or natural resource exports to funds annual national budgets, foreign exchange revenue generation, support governments’ economic investment programs, etc. Given the theoretical frameworks associated with being the supply of a primary product, there are factors that affect the supply of primary products at both international and local levels. Such factors include lower cost of primary goods compared with the price of finished goods; price volatility leading to cases of unpredictable revenue, cases of oversupply at international markets force down the cost of primary commodities leading to leaner available resources for government expenditures, etc. All these affect the position of African countries involved in primary products supply and as such constitute a challenge to African economic progress and development. Some African countries stock in these kinds of situation includes Nigeria, Liberia, Angola, Mozambique, Equatorial Guinea, to mention a few. Lack of adequate continental economic drive There is no doubt about the existence of African Union, NEPAD and other subregional African bodies such as ECOWAS, EATC, SADC, etc., but there remains the need for higher levels of the enhanced continental drive towards economic development. The absence of such a drive constitutes an economic challenge for the African continent. The level of economic exchanges between African countries is not yet fully utilized. There is supposed to be complimentary economic support for growth and development amongst African countries, but the case is often divergent and/or different. While one African country may be involved in economic growth efforts, the neighboring country may be involved in one type of war or another, insurgency, terrorism, piracy and kidnappings, political hooliganism and leadership crisis, all of which ends up destroying or detracting from economic development efforts on the continent as a whole. This situation poses a great economic challenge to the African continent. Some of the African countries involved in some of such conflicts and other conditions that discourage continental economic drive include Central African Republic, South Sudan, Congo DRC, Liberia, Burundi, Somalia, Nigeria, Cameroon, Niger, Mali, Egypt, Ivory Coast, etc. The absence of an efficient tax and revenue collection process Many African countries lack an efficient system of tax collection. Regardless of the fact that tax revenue could reasonably support government revenue base for overall economic operations, many Africans still do not believe in paying taxes as at when due. In addition, various national governments of African countries have not evolved a good mechanism for collection of tax revenues, thus billions of dollars are cumulatively lost to the inefficient taxation system. Some international and local companies engage in such acts of tax evasion in a manner that undermines collectible tax revenues of government. This situation really poses a challenge to the economic development of many African States. The example of Nigeria readily

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come to mind, out of its over one hundred and eighty million people, the number that pays personal tax is very minimal at about 13% of those in the tax bracket. “According to the Joint Tax Board, there are ten million people (precisely 10,006,304) registered for personal income tax purposes in all the states of the federation including the FCT. Out of this, about 4.6million or 46% are registered with the Lagos State Internal Revenue Service (LIRS) indicating an average of 153,000 or 1.5% per state for others. Corruption is the most debilitating factor in the Nigerian economy, next to that is wastage. Whatever didn’t get stolen got wasted leaving very little for development. Last year we spent N64bn on travels but only N19bn on roads. Compared to the labor workforce of 77million at the end of 2015 according to the National Bureau of statistics (NBS), the number of people in the tax net is only 13%. Ironically even government as the largest employer of labor is not fully compliant in deducting and remitting taxes on the salaries of their workers. This shows why there is a very low correlation between the high public sector wage bill in the budgets and the paltry personal income tax collection nationwide” (Oyedele, 2016, pp.1-2). The inability to spur economic hope and confidence Given the extent of the periodic crisis in some African countries, there is a failure to spur economic hope and confidence. At the heart of the issue is the uncertainty that often surrounds the political processes, economic policies direction, security situation and guarantee for repatriation of investment proceeds, etc. For instance, when some African leaders refuse to relinquish political power through democratic election processes, it creates lack of stability which in turn affects economic confidence. When the economic policies are tinkered with at will and continuously, it becomes difficult to know what investment actions to take by interested investors. Sachs and Warner (1997) points to poor economic policies as having contributed to Africa’s slow economic growth. Also, the news of war, insurgency and other forms of armed conflicts scare away investors locally and internationally and lead to lower level of economic investment in parts of Countries in Africa affected by them. If grouped together, African region is perceived as the zone of conflict or as being insecure; such perception and accompanying actions pose a challenge to economic growth and development of Africa. Destruction and sabotage of economic investment/opportunities Following from the numerous cases of security challenges, economic investments and opportunities are destroyed. For instance, the insurgency in Nigerian State of Borno and the neighboring cities led to the death of more than 20 thousand people and the destruction of so many properties, in addition to the creation of internally displaced persons (IDPs). Also in the Central African Republic, the periodic crisis leads to deaths of citizens and destruction of lives and properties, besides the creation of refugee crisis. Also in South Sudan, though a young nation on the African continent, it had found it hard to make economic leap due to the continuous struggle for political power. Other activities of corruption, theft of economic resources, kidnaping of expatriate workers, failure in the obligation of citizens to government’s economic efforts, blowing up of oil pipelines as happens in Nigeria’s

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Niger delta, all constitute sabotage of economic investments and opportunities. This too poses a great economic challenge to African development in general. Conclusion and recommendations In view of the foregoing discussions, it is pertinent that decisive efforts be made towards a change of the negative major challenges in order to ensure economic growth and development for all African countries and as a continent. “Underdevelopment is characterized by dictatorship, powerlessness, joblessness, illiteracy, violence, hunger, famine, absolute poverty, disease, and untimely death” (Ashafa, 2014, p.75). Africans are still suffering and have a need for an improved standard of living. Accordingly, the following recommendations have been put forward. African countries should engage in production and manufacturing in order not be only suppliers of primary products; besides doing so would lessen the foreign exchange spent on importation of goods that can be produced locally. African countries should respect electoral processes for a change of political leadership; and also not perceive political leadership as one of patronage, but for service and delivery of dividends of governance. African countries should make concerted efforts in the promotion of economic investments and exchanges within the African States aimed at economic support for growth and development. African countries should also ensure efficient tax collection system as a way of providing support for various national governments’ revenue generation. African countries should eradicate all forms of armed conflict so as to stem the tide of destruction of lives, properties, and economic investments. African countries and those involved in any act of corruption can eschew all forms of corruption as a means of providing economic growth and development support for the African Continent. References Asafa, J. (2014). The triple causes of African underdevelopment: Colonial capitalism, state terrorism and racism. International Journal of Sociology and Anthropology, 7(3), 75-91. Retrieved from http://www.academicjournals.org/article/article1425047376_Asafa.pdf Auty, R.M. (2001). The political economy of resource-driven growth. European Economic Review, 45(4-6), 839-846. Retrieved from http://econpapers.repec.org/article/eeeeecrev/v_3a45_3ay_3a2001_ 3ai_3a4-6_3ap_3a839-846.htm. Baxter, P., & Jack, S. (2008). Qualitative Case Study Methodology: Study Design and Implementation for Novice Researchers. The Qualitative Report, 13(4), 544559. Retrieved from http://www.nova.edu/ssss/QR/QR13-4/baxter.pdf. Fann, K.T., & Hodges, D.C. (Eds.) (1996). Readings in U.S. Imperialism. Boston: Porter. Retrieved from https://pdfs.semanticscholar.org/d715/82f1a87a914036b3af3696b2b e5e8411a7c8.pdf.

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Frank, A.G. (1972). The Development of Underdevelopment. In Cockcroft, J.D., Frank, A.G., & Johnson, D. (Eds.), Dependence and Underdevelopment (p.3). Garden City, New York: Anchor Books. Frankel, J.A. (2010). Natural Resource Curse: A Survey. NBER Working Paper 15836. Retrieved from http://www.nber.org/papers/w15836.pdf. Ferraro, V. (1996). Dependency Theory: An Introduction. Retrieved from https://pdfs.semanticscholar.org/d715/82f1a87a914036b3af3696b2be5e8 411a7c8.pdf. Igberaese, T. (2013). The Effect of Oil Dependency on Nigeria’s Economic Growth. MA. International Institute of Social Studies (ISS). Retrieved from https://thesis.eur.nl/.../ITracy_l_moodledata_temp_turnitintool7939951 79._60_1384335874_2108. Oyedele, T. (2016). Guess how many Nigerians pay tax and how our government spends the money. Retrieved from https://www.pwc.com/ng/en/assets/pdf/tax-watch-june-2016.pdf. Rodney, W. (1973). How Europe underdeveloped Africa. Retrieved from http://abahlali.org/files/3295358-walter-rodney.pdf. Sachs, J.D., & Warner, A.M. (1995). Natural Resource Abundance and Economic Growth. NBER Working Paper 5398. Retrieved from http://www.nber.org/papers/w5398.pdf. Sachs, J.D., & Warner, A.M. (1997). Sources of low growth in African Economies. Journal of African Economies, 6(3), 335-376. Retrieved from http://www.cid.harvard.edu/ciddata/warner_files/. afrgrow.pdf. Yin, R.K. (2012). Applications of case study research (3rd ed.). California: Sage.

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IS ROMANIA PREPARED FOR DIGITAL INDUSTRY? AN ANALYSIS OF PUBLIC POLICIES REGARDING DIGITISATION IN ROMANIA Mihaela BUICA Bucharest University of Economic Studies 6 Piata Romana, 1st district, 010374 Bucharest, RO [email protected] Gabriela DRAGAN Bucharest University of Economic Studies 6 Piata Romana, 1st district, 010374 Bucharest, RO [email protected] Abstract. Considered to be the Fourth Industrial Revolution, the industry’s digitalization might provide the necessary tools to both revive the economic growth in all EU member states and also to better support the competitiveness of the European economy on the global market. The European Commission’s initiative on Digitizing European Industry, adopted on 19 April 2016, represents one of the most important measures assumed in the latest years at the European level. However, the last places that Romania has constantly occupied both in the European digitization and competitiveness rankings, should represent a big concern for Romanian authorities and its public policies. The gaps between objectives and results related to digitization process and competitiveness are very high and impose rapid and determined policy measures. The paper provides a brief overview of the current EU evolutions in the field of digitization process either from legislative, institutional and output perspectives. On the other hand, the paper focuses on the significant gaps between estimated and real results recorded by Romania in terms of economy digitization, in order to identify the main deficiencies of the country’s digitization strategies and policies. This comparison intends to provide a clear picture of the Romanian’s position in the field of digitization in order to respond to the secondary objective of the paper - increasing the awareness of public decision makers on this topic. The paper concludes that, taking into account, on one hand, the fact that the digitalization reality covers the entire world, proving a high degree of dynamism that imposes rapid and constant adaptation to these new realities and, on the other hand, the low national scores recorded by the Romanian digitization process, the Romanian public authorities must reanalyze its specific digital strategies and policies and better exploit the main threats and the opportunities provided by the current European and global context. Keywords: European competitiveness; digitizing European industry; Romanian public policies; management deficiency; Europe's digital progress.

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Introduction Digitization is a word which can be easily defined as a ‘subject of the day’ or even the ‘subject of the era’ due to its importance and impact. It gathers specific technological evolutions, huge expectancies in the field of economic growth and also major economic structural changes and significant social challenges, under the umbrella of the Fourth Industrial Revolution. As some authors have mentioned (Smit, Kreutzer, Moeller & Carlberg, 2016, p.72), in the process of digitization “There will be winners and losers, and adjustments to make”. Regarding the challenges digitization has implied, Schwab (2016, pp.1-2) states: “In its scale, scope and complexity, … the fourth industrial revolution is unlike anything humankind has experienced before” and “The changes are historic in terms of their size, speed and scope”. Taking into consideration the impact and the challenges of this process, without very good leaders, either individuals, businesses or even national economies will face the risk of being left behind by this new revolution (Smit et al., 2016, p.72). Therefore, “Now is the time for leaders to be responsive and responsible…” (ManpowerGroup, 2016, p.2). Among other factors, the role and quality of the policy makers’ contribution are crucial “… the ability of government systems and public authorities to adapt will determine their survival. If they prove capable of embracing a world of disruptive change, subjecting their structures to the levels of transparency and efficiency that will enable them to maintain their competitive edge, they will endure. If they cannot evolve, they will face increasing trouble” (Rose, 2015, p.8). For these new challenges, experts in the management field offered various solutions, strategies, models, and ideas of new management, leadership, innovation, and creativity. For instance, Rose (2015, p.9) recommends to decision-makers to embrace “… ‘agile’ governance, just as the private sector …”. The same solution, both for private and public sectors, is supported by Isaksen and Tidd (2006, Preface): “Under these conditions, managers must learn how to become more flexible and agile in order to respond successfully”. In their opinion “successful organizational transformation and managing change demand both leadership and management as well as creativity and innovation”. In the context of these significant and complex structural changes and challenges in the field of digitization, the latest places that Romania has constantly occupied in the European digitization official rankings should represent a big concern for Romanian authorities and their public policies. The gap between the objectives and results related to digitization process and competitiveness is very high. Although the Romanian authorities have established within a European specific framework (mainly related to the Europe 2020 Strategy) a number of very stimulating objectives, the current results and achievements are still very far from expectations. The paper is structured in two main parts. The first part is dedicated to the digitization process in the context of the European framework. How is the digitization ‘treated’ in the EU public policies, which are their main strengths, weaknesses, threats, and opportunities in the context of global trends there will be presented in this section. The second part is dedicated to the Romanian framework. It will focus on the main strategies related to the digitization process and competitiveness in terms of objectives and results achieved so far. The goal of this part is to put face to face the objectives

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established by Romania and its corresponding results in order to identify the main insufficiencies and inadequacies of the country policies and strategies. Digitization process of the industry in the EU public policies The new industrial revolution known as the Fourth Industrial Revolution is considered to be the present stage of development of the industry based on sensor technology, interconnectivity and data analysis allow mass customization, integration of value chains and greater efficiency. An image of the classification for industrial technology development is given in Table 1.

First Second Third Fourth

Table 1. Industrial revolution (Davies, 2015, p.3) Time periods Technologies and capabilities 1784 - mid 19th Water and steam powered mechanical century manufacturing Late 19th century Electric-powered mass production based on the -1970s division of labor (assembly line) 1970s-Today Electronics and information technology drives new levels of automation of complex tasks TodaySensor technology, interconnectivity, and data analysis allow mass customization, integration of value chains and greater efficiency

This new industrial revolution had been particularly triggered by the spectacular development of digital technologies that represent an opportunity for increasing the economic competitiveness. Since 2010, with the adoption of the ‘Europe 2020’ strategy (European Commission, 2010d), the EU has entered a new era, an era with ambitious plans for changing. The ‘Europe 2020’ Strategy represents, in essence, the EU response to globalization, focusing both on the immediate challenge of the economic recovery and on the longterm challenges specifically of remaining competitive at global level. To ensure the core priorities on smart, sustainable and inclusive growth, the ‘Europe 2020’ proposes seven flagship initiatives, four of which are particularly important for industry competitiveness: ‘A Digital Agenda for Europe’, ‘New Skills for New Jobs’ ‘Innovation Union’, ‘An industrial policy for the globalization era’. The other three flagships refer to the ‘Youth on the move’, ‘Resource efficient Europe’ and ‘European platform against poverty’. The flagship initiative ‘An Industrial Policy for the Globalization Era’ (European Commission, 2010c) focuses on the central objective of this policy, namely promoting the competitiveness of European industry. Following this Communication, in support of increasing the competitiveness of the industry, the European Commission intervened through a series of other Communications. In 2016, an important step in this direction was officially taken by the European Commission, through the Communication ‘Digitizing European Industry. Reaping the full benefits of a Digital Single Market’ (European Commission, 2016b).

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In May 2017, the European Parliament’s Committee on Industry, Research, and Energy (ITRE) drew up an own-initiative report which proposes to develop an integrated Industrial Digitalization Strategy (IDS) aimed at creating favorable conditions to reindustrializing the European economy (European Parliament, 2017). At the European level, a Digital Scoreboard was created, as an instrument designed to measure the progress of the European digital economy, in order to help the Member States in monitoring the implementation of their digital policies. The Digital Scoreboard includes the Digital Economy and Society Index (DESI), a composite index, calculated as the weighted average of the five main DESI dimensions: ‘Connectivity’, ‘Human Capital’, ‘Use of Internet’, ‘Integration of Digital Technology’ and ‘Digital Public Services’. Each one of the five main DESI dimensions is calculated as the weighted average of the DESI Sub-dimensions which in turn are calculated as the weighted average of the DESI Individual Indicators. The process of digitization has its own weaknesses and threats besides benefits and opportunities which everyone speaks about. Nowadays “The European social partners have recognized that digitization is not just a technological issue, but it has wider social, work and economic implications. It is also a question of economic development and social cohesion” (European Commission, 2016b, p.14). The strategic analysis of strengths, weaknesses, opportunities, and threats (SWOT) of the Industry 4.0 is presenting in Table 2. Table 2. Industry 4.0 – SWOT table (Smit et al., 2016, p.72) STRENGHTS WEAKNESSES •Increased productivity, (resource) efficiency, (global)competitiveness, revenue •Growth in high-skilled and wellpaid jobs •Improved customer satisfaction – new markets: increased product customization and product variety •Production flexibility and control

OPPORTUNITIES •Strengthen Europe’s position as a global leader in manufacturing (and other industries) •Develop new lead markets for products and services •Counteracting negative EU demographics •Lower entry barriers for some SMEs to participate in new markets links to new supply chains

•High dependence on resilience of technology and networks: small disruptions can have major impacts •Dependence on a range of success factors including standards, coherent framework, labor supply with appropriate skills, investment, and R&D •Costs of development and implementation •Potential loss of control over enterprise •Semi-skilled unemployment •Need to import skilled labor and integrate immigrant communities THREATS •Cybersecurity, intellectual property, data privacy •Workers, SMEs, industries, and national economies lacking the awareness and/or means to adapt to Industry 4.0 and who will consequently fall behind •Vulnerability to and volatility of global value chains •Adoption of Industry 4.0 by foreign competitors neutralizing EU initiatives

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Other challenges may be related to the long-term tendencies affecting the growth (European Commission, 2014) and to the global trends (ESPAS, 2016). In Table 3 there is a parallel view between long-term tendencies affecting the growth and global trends previously specified. As we can easily notice, in both documents, there are the same long-term tendencies which can affect the growth. Table 3. Parallel view between long-term tendencies affecting the growth (European Commission, 2014; ESPAS, 2016) Long-term tendencies affecting the Global Trends to 2030 growth -Social change -Widening inequalities -Globalization and trade -Vulnerability of the sustained -Productivity developments and the use development of the world economy of information and communications in front of challenges and technology (ICT) weaknesses in the globalization -The pressure on resources and process environmental concerns -Revolution in technologies involving digitization -Managing scarcity of resources -The interdependence of countries and global governance. The industrial digitization in Romania between realities and wishful thinking Because of the political situation in Romania before 1989 and the slow transition process after, the transformation of economy and society was delayed. The main tool which effectively ‘forced’ Romania, and all European countries, to initiate measures in the direction of increasing competitiveness was the ‘Lisbon’ strategy and since 2010 the ‘Europa 2020’ strategy. Since 2007, the year when Romania became officially an EU member state, the monitoring of the progress achieved in reaching the Europe 2020’ objectives was presented in the National Reform Program (NRP), a framework platform for defining structural reforms and development priorities that should guide the evolution of Romania by 2020. Digitization process of the industry in the Romanian public policies For the current analysis, we selected four relevant Romanian strategies for increasing competitiveness and digitization process of Industry, respectively: the 2020 National Strategy on the Digital Agenda for Romania (NSDAR), the Strategy of Education and Professional Training in Romania (SEPTR) for the period 2016-2020, the National Strategy for Research, Development and Innovation (NSRDI) 2014-2020, and the National Strategy for Competitiveness (NSC) 2015 -2020. These four strategies are presented below, with a particular focus on their main goals and objectives. - National Strategy on the Digital Agenda for Romania (NSDAR) 2020 approved by Government Decision no. 245/ 2015.

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The aim of the strategy is to ensure Romania's information and communication technology (ICT) development at the level of the countries in the region and to establish the prerequisites of Romania's integration into the digital single market of Europe. The strategy was developed on the basis of the ‘Digital Agenda Europe 2020’ program (European Commission (2010a), which is the reference framework for the development of the digital economy and society 2014-2020, and following a socioeconomic study starting from the current situation and context. Based on this strategy, Romania has defined four major action areas adapted to the current context: 1-eGovernment, Interoperability, Cyber Security, Cloud Computing, Open Data, Big Data and Social Media; 2 -Education, Health, Culture and e-Inclusion; 3 e-Commerce, Research, Development and Innovation; 4 -Broadband and Digital Services Infrastructure. According to the data published on the strategy website, the main targets set and assumed by Romania are: - At least 60% of citizens use the Internet regularly; - At least 30% of citizens make on-line purchases; - At least 35% of citizens use e-Governance systems; - Coverage of broadband communications networks (over 30 Mbps) of at least 80%. - The strategy of Education and Professional Training in Romania (SEPTR) for the period 2016-2020 approved by Government Decision no. 317/2016 The overall objective of the strategy is to develop a system of education and training adapted to the requirements of the labor market and the needs of the direct beneficiaries. The objectives, principles, and directions of action of the strategy are based on an analysis of the education and training system. Also, the strategy was formulated in the context of ‘Europe 2020’ and responds to the strategic objectives for the 2010-2020 decade derived from the Education and training (ET) 2020 Strategic Framework. The strategy established four strategic objectives: - Improving the relevance of vocational training systems for the labor market; -Increasing participation and facilitating access to vocational training programs; - Improving the quality of vocational training; and -Developing national and international innovation and cooperation in the field of vocational training. - National Strategy for Research, Development, and Innovation (NSRDI) 2014-2020 approved by Government Decision no. 929/ 2014 The strategy’s goal is for Romania to become competitive by 2020 at a regional and global level, through innovation-driven R & D, generating wealth for citizens. According to the preamble of the strategy, this strategic document was developed in the broader context of the Europe 2020 strategy, in particular, the flagship ‘Innovation

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Union’ and its main implementation tool Horizon 2020, as well as in the context of policy alignment of cohesion. Also, it is specified that the decisions and actions which the strategy contains are based on a critical review of strategic experiences gained between 2007 and 2013 as well as a prospective assessment of Romania's research and innovation capacity and prospects. The NSRDI 2014-2020 contains a set of principles of action supported by three main pillars: - Regional affirmation, global assertion: firms become key operators of innovation; - Excellence through internationalization: RDI sector as a space of opportunity; -"Regional Leadership" at the frontier of science and technology: Breakthroughs in strategic areas. The specific and the specific cross-cutting objectives are presented in Table 4: Table 4. The NSRDI 2014-2020 objectives (Own representation based on data from NSRDI 2014-2020) Specific objectives Specific cross-cutting objectives Create a stimulating environment for the Meeting the critical mass of private sector initiatives researchers by 2020 Developing advanced research Support smart specialization organizations Focusing a significant part of RDI activities on societal issues Supporting aspirations for excellence in frontier research - The National Strategy for Competitiveness (NSC) 2015 -2020 approved by Government Decision no. 775/2015 The vision of this strategy is to develop a competitive business ecosystem based on a stable regulatory environment centered on entrepreneurship, innovation, and creativity, focusing on trust, efficiency and excellence and placing Romania in the top 10 European economies. The strategy was developed through consultations with both the private sector and the line ministries (especially with the Ministry of Agriculture and Rural Development, the Ministry of National Education, the Ministry of Regional Development and Public Administration), in order to correlate the interventions dedicated to competitiveness. The development directions and the strategic priorities of this strategy are presented in Table 5. Table 5. The NSC 2015-2020 development directions and strategic priorities (Own representation based on data from NSC 2015-2020) NSC 2015-2020 Development NSC 2015 -2020 Strategic priorities directions Restructuring the economic sectors Improving the regulatory environment towards superior competitive positions.

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Creating a critical mass of competitive firms by creating an attractive, transparent and innovative environment. Integrate major players into a coherent economic development project Integrate society into a coherent economic development project

Partner actions between the public and private sectors Support services and factors Promoting the 10 sectors of the future Generation 2050 Training and Societal Challenges

The efficiency of the public policies regarding the industrial digitization process in Romania The Europe's Digital Progress Report (EDPR) provides a very clear image of the efficiency of public policies regarding digitization process in Europe. Figure 1 presents the 2017 Digital Economy and Society Index (DESI) ranking, included in the 2017 EDPR (European Commission, 2016e).

Figure 1. Digital Economy and Society Index (DESI) 2017 ranking ( https://ec.europa.eu/digital-single-market/en/desi) As can be seen, Romania is on the last position in the European ranking according to DESI 2017, a result of the last places in many monitored aspects, like human capital, use of the internet, integration of digital technologies and digital public services. Romania's place in the European rankings on digitization by dimensions is presented as follow (Figure 2):

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Figure 2. DESI 2017 –relative performance of Romania by dimension (https://ec.europa.eu/digital-single-market/en/scoreboard/romania) ‘Connectivity’ is the only dimension for which Romania has the best ranking among all five, occupying the 22nd place in the EU. This position is due to Romanian consumer preference for high-speed broadband, mobile, and fixed point connections. Despite this position, the coverage of fixed and mobile (4G) broadband networks remains one of the lowest in the EU: coverage 45%, rank 28. For all other four dimensions, Romania occupies the last place, 28. Despite the achieved progress in connectivity area, Romania is among the low performing countries in Europe, as can be seen in Figure 3.

Figure 3. DESI 2017 –evolution over time in Romania in comparison with the EU (https://ec.europa.eu/digital-single-market/en/scoreboard/romania) The efficiency of each of the four strategies selected for this analysis is presented below. - The efficiency of the public policies regarding Digital Agenda The efficiency of this public policies is reflected in the Europe's Digital Progress Report and as we have seen ‘Connectivity’ is the only dimension where Romania is not occupying the last place in the ranking.

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A parallel view of the Romanian results specified in the 2017 EDPR and the value of the indicators established in the Romanian National Strategy for Digital Agenda 2020 is presented in Table 6. Table 6. A parallel view of the 2017 EDPR results and the value of the indicators established in the NSDAR 2020 (Own representation based on data from EDPR, 2017 and NSDAR, 2020) Romanian National Strategy for Digital Agenda 2020 Indicators Coverage of broadband communications networks (over 30 Mbps) of at least 80%. At least 60% of citizens use the Internet regularly At least 30% of citizens make on-line purchases At least 35% of citizens use e-Governance systems

DESI Dimensions Connectivity Use of Internet Integration of Digital Technology Digital Public Services

2017 EDPR results 2016 45% (4 G coverage) 56%

2015 -

18%

18%

6%

8%

52%

Looking at regular internet users it seems that the national target is almost reached, even if this target positioned Romania from the start on the last place of the European ranking (the actual average EU percent for this indicator is 79%). An essential factor for the ‘Use of internet’ can be identified in the second dimension ‘Human capital’ and is referring to the level of preparedness of human capital with digital skills. This aspect can be a verified at the digital-agenda-data.eu/charts. Thus, after the analysis of the digital skills indicator (all individuals) and compare countries, the results for Romania, in percentages, are: 40.5% ‘No digital skills’, 31,8% ‘Low digital skills’, 19,1% ‘Basic digital skills’, and only 8,59% ‘Above basic digital skills’. These percentages are based on 2016 data. The indicator ‘No digital skills’ is 40.5% for Romania, compared to EU average of 18, 9%. These percentages reflect in large part the second dimension ‘Human capital’ and highlight the major weaknesses in the preparedness of human capital with digital skills. In the ‘Digital Public Services’ dimension, Romania continues to occupy the last place in the ranking for this indicator and even more worrying is the fact that internet users’ percent decreased by 2 p.p. in 2016 compared with 2015 (from 8% to 6%). - The efficiency of the public policies regarding Education and Professional Training The 2017 EDPR, ‘Human capital’ dimension highlights the main Romanian weakness in approaching the process of digitization, namely the low level of preparedness of the human capital with digital skills. The very low level of preparedness of human capital is corroborated with the data about the education and training system in Romania (European Commission, 2016c) (Table 7).

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Table 7. Education and training Monitor 2016 -Key indicators Romania (Own representation based on dates from European Commission, 2016c) Romania EU average ET 2020 benchmarks 2012 2015 2012 2015 Early leavers from education and training (age 18-24) Tertiary education attainment (age 30-34) Early childhood education and care (ECEC) (from age 4 to starting age of compulsory education) Data refer to 2011 and 2014 Proportion of 15 year-olds Reading with underachievement in: Maths Science Employment rate of recent graduates by education attainment (age 20-34 having left education 1-3 years before reference year) Adult participation in lifelong learning (age 25-64)

17.8%

19.1%

12.7%

11.0%

21.7%

25.6%

36.0%

38.7%

86.4%

86.4%

93.2%

94.3%

37.3% 40.8% 37.3%

38.7% 39.9% 38.5%

17.8% 22.1% 16.6%

19.7% 22.2% 20.6%

70.2%

68.1%

75.1%

76.9%

1.4%

1.3%

9.2%

10.7%

The OECD ‘Programme for International Student Assessment’ (PISA) (OECD, 2016b) is reflecting the same serious weakness in the quality of education. The PISA is testing the skills and knowledge of 15 year-old students, measuring their reading, math and science literacy. The highest performance in PISA tests was obtained by Romania in 2012 with 445 score in Maths, 439 in Science and 438 in Reading. The scores obtained in 2015 are 444 (Maths), 435 (Science) and 434 (Reading). Romania has been participating in PISA tests since 2006. The OECD 2015 averages are 490 (Maths), 493 (Science) and 493 (Reading). - The efficiency of the public policies regarding Research, Development, and Innovation The research and innovation performance of Romania can be seen in the annual ‘European Innovation Scoreboard’ (EIS), which provides a comparative assessment of the research and innovation performance of the EU Member States. In the ‘EIS 2016’ (European Commission, 2016d), Romania and Bulgaria are included in the ‘Modest Innovators’ cluster, that gathers EU Member States with an innovation performance level well below the EU average, i.e. less than 50% of the EU average (Figure 4).

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Figure 4. UE Member States’ Innovation performance (European Commission, 2016d; European Innovation Scoreboard, 2016) - The efficiency of the public policies regarding competitiveness In order to monitor and help countries to evaluate their regional performance in competitiveness, at the European level, a Regional Competitiveness Index (RCI) was launched in 2010. It is published every three years and allows the regions to monitor and assess their development over time and in comparison with other EU regions. The RCI consists of 11 pillars describing the various aspects of competitiveness, divided into three groups: elementary, efficiency and innovation. Pillars that represent the key elemental drivers of all types of economy are represented by 1 -institutions; 2 macroeconomic stability; 3-Infrastructure; 4-health; and 5-Basic education. All these five pillars are grouped in the elementary. According to with the strategy, at the time when it was elaborated, Romania's development regions occupy the last place both in terms of RCI and in almost all the rankings of indicators forming this composite index. The ‘RCI 2016’ (European Commission, 2017) reveals no improvement since 2010 (Figure 5).

Figure 5. ‘RCI 2016’ Annex –Time comparison (http://ec.europa.eu/regional_policy/sources/docgener/work/rci2016_time_comp arisons.pdf)

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Conclusion The global economy is under major transformation due to the process of digitization and the Fourth Industrial Revolution. Through a very concise SWOT analysis, the paper has presented the main benefits and challenges of this process and also the global risks it poses. Having regard the Romanian score reported to the digitization threats in the global context mentioned above, we can easily conclude that Romania risks being left behind by this new revolution, the catching up process being more than urgent to be managed by the Romanian public authorities. The analysis of the four Romanian strategies related with the digitization process and competitiveness has revealed that all strategies were elaborated based on 2007-2013 experiences and their objectives and targets were correlated with the European framework. Despite this synchronism, the results achieved so far are below expectations, especially in the field of education, although digital skills represent a ‘major priority’ for Europe. The main recommendation addressed by the Organization for Economic Co-operation and Development (Kitchen, Fordham, Henderson, Looney, and Maghnouj, 2017) to Romania is to improve the strategic planning through a longterm national strategy for education, better linked with the wider national development objectives. The EDPR 2017 (European Commission, 2016e, p.5), mentions that the Romanian Ministry of Education and Research is preparing “some initiatives to tackle this issue” in order to “increase the digital skills of the new generation”. Since Romania’s accession to the European Union (2007), the development and implementation of accurate and sustainable strategies have proven to represent a difficult task for the country decision makers. The management deficiencies have delayed Romania’s progress and were identified as main obstacles in achieving better results. For Romania and for the other EU countries in a comparable situation, the European Commission’ initiatives aiming to avoid the fragmentation of the single market are of outermost importance (Smit et al., 2016; European Parliament, 2017). Our analysis revealed that overall, Romania is still unprepared to face the changes and challenges the digital transformation implies. However, the Connectivity position in the European ranking (22 place of 28) and the adoption of new national strategies with new ambitious targets, intends to demonstrate that Romania might bridge the gap between potential and performance (measured by concrete results). In conclusion, while the potential and conditions to improve the current country status do really exist, Romania must prove determination and perseverance in the catching up process despite all threats posed by different internal and external factors. References Davies, R. (2015). EPRS Briefing: Industry 4.0.Digitalisation for productivity and growth, Retrieved from http://www.europarl.europa.eu/RegData/etudes/BRIE/2015/ 568337/EPRS_BRI(2015)568337_EN.pdf. European Commission (2010a). A Digital Agenda for Europe. COM 245 final, 19 May, Brussels. European Commission (2010b). An Agenda for new skills and jobs: A European contribution towards full employment. COM 682 final, 23 November, Brussels.

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European Commission (2010c). An Integrated Industrial Policy for the Globalisation Era -Putting Competitiveness and Sustainability at Centre Stage. COM 614 final, 28 October, Brussels. European Commission (2010d). EUROPE 2020 A strategy for smart, sustainable and inclusive growth. COM 2020 final, 3 March, Brussels. European Commission (2014). Taking stock of the Europe 2020 strategy for smart, sustainable and inclusive growth. COM 130 final/2, 10 June, Brussels. European Commission (2016a). A new skills agenda for Europe. Working together to strengthen human capital, employability and competitiveness. COM 381 final, 10 June, Brussels. European Commission (2016b). Digitising European Industry. Reaping the full benefits of a Digital Single Market. COM 180 final, 19 April, Brussels. European Commission (2016c). Education and training Monitor 2016 Romania. Retrieved from https://ec.europa.eu/education/sites/education/files/monitor 2016-ro_en.pdf. European Commission (2016d). European Innovation Scoreboard 2016. Retrieved from http://ec.europa.eu/growth/industry/innovation/facts-figures/scoreboards /index _en.htm. European Commission (2016e). Europe's Digital Progress Report (EDPR) 2017 Country Profile Romania. Retrieved from https://ec.europa.eu/digital-single-market /en/news/europes-digital-progress-report-2017. European Commission (2017). The EU Regional Competitiveness Index 2016, Retrieved from http://ec.europa.eu/regional_policy/en/information/publications/workingpapers/2017/the-eu-regional-competitiveness-index-2016. European Parliament (2017). Plenary sitting, Report on digitising European industry (2016/2271(INI)). Rapporteur: Reinhard Bütikofer, Retrieved from http: // www.europarl.europa.eu/thinktank/en/document.html?reference=EPRS_ATA(2 017)603947. ESPAS (2016). An inter-institutional EU project: Global Trends to 2030: Can the EU meet the challenges ahead? Retrieved from: http://ec.europa.eu/epsc/ sites/ epsc / files/espas-report-2015.pdf). Guvernul Romaniei (2016). Strategia Națională privind Agenda Digitală pentru România 2020 [National Strategy on the Digital Agenda for Romania 2020]. Retrieved from https://www.comunicatii.gov.ro/?page_id=3496. Guvernul Romaniei (2015). Strategia educației și formării profesionale din România pentru perioada 2016-2020 [Strategy of Education and Professional Training in Romania for the period 2016-2020]. Retrieved from https://www.edu.ro / sites/default/files/_fi%C8%99iere/Minister/2016/strategii/Strategia_VET%202 7%2004%202016.pdf. Guvernul Romaniei (2014). Strategia naţională de cercetare, dezvoltare şi inovare 20142020 [National Strategy for Research, Development and Innovation 2014-2020]. Retrieved from https://www.edu.ro/sites/default/files/_fi%C8%99iere/Minister /2016/strategii/strategia-cdi-2020_-proiect-hg.pdf. Guvernul Romaniei (2015). Strategia naționala pentru competitivitate 2014-2020 [The National Strategy for Competitiveness 2015 -2020]. Retrieved from http: //www.minind.ro/strategie_competitivitate/SNC%20aprobata%20prin%20HG1.pdf.

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Isaksen, S., & Tidd, J. (2006). Meeting the Innovation Challenge: Leadership for Transformation and Growth. England: John Wiley & Sons Ltd. Kitchen, H., Fordham, E., Henderson, K., Looney, A., & Maghnouj, S. (2017). Romania 2017, OECD Reviews of Evaluation and Assessment in Education. Paris: OECD Publishing. Retrieved from http://dx.doi.org/10.1787/9789264274051-en. ManpowerGroup (2016). The Skills Revolutions: Digitization and why skills and talent matter. Retrieved from: http://www.manpowergroup.com/wps/wcm/connect/ 5943478f-69d4-4512-83d836bfa6308f1b/MG_Skills_Revolution_lores.pdf?MOD=AJPERES&CACHEID= 5943478f-69d4-4512-83d8-36bfa6308f1b. OECD (2016b). PISA 2015 Results (Volume I): Excellence and Equity in Education, PISA. Paris: OECD Publishing. Retrieved from http://dx.doi.org/10.1787/9789264266490-en. Rose, G. (Ed.) (2015). The Fourth Industrial Revolution: A Davos Reader. Geneva: World Economic Forum. Schwab, K. (2016). The Fourth Industrial Revolution. What It Means and How to Respond. Geneva: World Economic Forum. Smit, J., Kreutzer, S., Moeller, C., & Carlberg, M. (2016). Directorate General for Internal Policies. Analytical Study requested by the ITRE: Industry 4.0. Retrieved from http://www.europarl.europa.eu/RegData/etudes/STUD/2016/570007/IPOL_ST U%282016%29570007_EN.pdf.

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THE LINK BETWEEN THE DEVELOPMENT OF MULTINATIONALS AND WORKFORCE COMPETENCES. ROMANIAN GRADUATES’ CAREER PRIORITIES Lavinia Cornelia BUTUM The Bucharest University of Economic Studies Piaţa Romană 6, District 1, 010374 Bucharest, RO [email protected] Abstract. Literature recognizes that the development of multinationals has led to a change in human resources management and to an increase in the need for competences that require communication in multicultural environment and flexibility to adapt to complex issues and projects. Multinational corporations’ existence is based on efficiency derived from setting certain activities in other countries in order to reduce the costs and to access the best resources. Based on efficiency analysis, the company’s management also decides which activities will carry out and which activities will be contracted outside the company. The “brain drain” phenomenon related to the migration of high-skilled labor force from developing countries to developed countries leads to the openness of managers to choose those employees with relevant interpersonal and professional competences. In addition, literature recognizes that the main advantage of internationalization comes from employee diversity and creativity that lead to innovation and development of the companies. The purpose of this article is to analyze the dynamics of Romanian graduates’ required competences due to the development of multinationals. The conclusion includes a comparison of students’ expectations regarding their future career and their perception of the required competences for high-skilled employees. In addition, this paper highlights the importance of students’ practical experience for their future career and the availability of graduates to take part in trainee programs in the home country or abroad. The paper also emphasizes the role of high specialization in an international environment in accomplishing strategic tasks in multinationals. Keywords: high-skilled employee; internationalization; international mobility; global competences; labor market. Introduction This article approaches students’ high specialization from the perspective of internationalization of companies. In this regard, the literature review chapter will analyze the demand for the global competences related to multinationals development and internationalization of the companies. The literature review chapter will also detail the abilities of a globally competent person and the importance of the multinational environment and team diversity in providing innovation, opening new markets, a better understanding of international customers and competitors. Thus achieving international competences has become a necessity for both companies and graduates. In order to provide competences available at the national and international

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level, the universities have a crucial role in ensuring a successful transition from student to employee status especially in this global market context. The methodology comprises, on the one hand, a secondary data analysis of selected information from Trendence Graduate Barometer – Romanian edition and, on the other hand, a qualitative research conducted in April 2017 at the National University of Political Studies and Public Administration. The findings will examine the Romanian graduates’ preference for specialization, the availability to relocate in order to develop their career and also the graduate’s preference for strategic or operational tasks and the availability to work in a multinational environment or in Romanian SMEs. The analysis will equally investigate the graduates’ perception of their competences and will find the link-up between achieved competences, their preference for MNC or SME and the need for high specialization upon graduation. Internationalization of companies, multinationals and the demand for global competences A definition from Business Dictionary approaches the process of internationalization of companies on the one hand from the perspective of international commerce and on the other hand from a marketing viewpoint. Thus, the two approaches for the internationalization of companies are: Commerce: The growing tendency of corporations to operate across national boundaries. Marketing and Computing: An approach to designing products and services that are easily adaptable to different cultures and languages. By expanding their business outside the national market boundaries, the companies have the opportunity to develop the technology using the resources from new markets. Another reason for companies to become international is to reduce costs and to take advantage of lower labor costs, lower taxation and cheaper resources. Also, the technological, economic and social development has led to increased demand for employees with higher skills and qualifications (Muller & Wolbers, 2003, p.57). Studies related to multinationals development (Gronroos, 1999; Cantwell & Janne, 2000) show that traditional obstacles in expanding the business in an international environment (lack of resources for expanding the business abroad, the lack of knowledge about export and cultural differences that creates issues regarding internationalization of business) have rather become opportunities for increasing profits by using the international resources (including the human resources) than obstacles in expanding the companies abroad. In addition, these studies have shown that not only manufactured business but also service business has become more international in recent decades following their clients across borders. This has also led to the increasing need for technological specialization in the entire production chain. Thus, technologically strong firms are more likely to be able to adopt international strategies for diversification abroad and to obtain access to local technological expertise. Globalization effects have made easier the way in which companies are designing the products and services for the global market needs. This aspect is reflected in companies’ policies regarding international services and in designing the standard products that are suitable for different cultures or nations. International companies

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usually identify the competitive advantage that is achieved by using low prices for their products, maintaining the same quality of their services and products in all the international markets. A recent study shows that this policy has been leading to positive appreciation from customers that perceive the products and services to be better than those of competitors, including local competitors (Burduş & Alpopi, 2010). The expansion of multinationals is usually considered to be the main cause of failure of the local businesses. The study also mentioned that in order to counter this effect, the small companies could develop a close contact with customers by offering personalized attention and flexibility in satisfying their needs. Another way of maintaining the standards for products and services is to know and understand the competitors’ international policies and to find those competitive advantages that can develop the local business. All the more, it means that even if the local businesses are not willing to go abroad they also need the knowledge to expand their business in an internationalized environment and they need to be costumer-centered in order to keep them loyal to the company. In terms of human resources, the internationalization of companies and the development of the internationalized business environment lead to an increased need for employees with skills and knowledge that are important for the development of the international business. Some studies (Bush & Bush, 2008, Yu et al., 2005) suggested that firms usually tend to fill positions requiring international management skills by choosing those employees with international expertise, foreign language abilities, international marketing skills and general world business knowledge. These studies also highlighted the specific skills that a graduate should possess to be successful in an international corporation that are also related to intercultural competences: the ability to solve the problems and to find information, the ability to work under pressure, to develop and coordinate multicultural teams and the ability to deal with different communication styles. Analyzing the demand for competences (Rizvi, 2007, p.393) mentioned that global competences are associated with the capacity to analyze intercultural issues from multiple perspectives and that the need to develop qualifications for the international labor market is stronger than the demand for qualifications needed for the national labor market. Also, a recent study (OECD, 2016, p. 4) highlights that “the globally competent person brings knowledge, skills, attitudes, and values together in order to work with others, to solve globally-relevant problems and to improve the collective well-being of current and future generations”. In this global labor market vision, the employee brings not only technical competences but also a diversity of cognitive and behavioral skills that are integrated into the work process and are considered important resources for the company. The demand for highly skilled employees with international competences that influence positively the interaction between members is all the more evident in high- performing international research teams where the communication issues related to customs, language, and management can be challenging (Cheruvelil et al., 2014, p.35). In order to have an integrated international team, the study mentioned that the teams’ structure should be based on efficiency derived from equally sharing the responsibilities between all the members along with the demand for flexibility and adaptability. These arguments came to confirm a similar opinion (Azim et al., 2010, p.392) related to soft and hard skills needed in complex projects. The study mentions that in complex projects an efficient employee should have a sum of competences related to communication, teamwork, leadership, conflict management, negotiation, human resource

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management, behavioral characteristics, professionalism, and ethics. Thus the development of internationalized companies or the development of international teams in different projects has led to an increased need for both technical competences and soft skills abilities in the international environment. Also, the diversity of team members is seen as the main resource for generating ideas (Vătămănescu & Andrei, 2014, pp.59-60). The authors have focused on advantages generated from the internationalization of businesses identifying four benefits resulting from the multicultural labor force and from expanding the business across national borders. These advantages are: - innovation and work creativity; - a better understanding of international customers; - opening to new markets based on international specialization of the labor force; -the international image of the company that strengthens the company’s representation. Analyzing graduates’ expectations and employers’ requirements (Nicolescu & Păun, 2009; Qiang, 2003), the authors drew important curriculum development lines by highlighting the skills desired by both students and companies. On the one hand the employers appreciate the theoretical and international experience achieved by students and on the other hand, the students estimate that the practical abilities obtained upon graduation are more valuable in finding a good job. The skills related to international business are achieved by modern teaching methods, practical activities and international experience and thus, periodically, the university needs to adapt its curricula to meet the stakeholders’ needs (companies, students, and society). The authors have focused more on identifying the differences between graduates’ qualifications and employers’ demands for both professional and interpersonal skills. Thus, the main gap between demand and supply for graduates’ skills is that related to the practical component of the studied courses and interpersonal skills. In their study, Nicolescu & Păun (2009, p.29) also mentioned that employers want adaptive employees, “people who can rapidly fit into the workplace culture, work in teams, take on responsibility, perform efficiently and effectively”. Since many employers highlight the importance of integrity, communication, and flexibility in the workplace, these interpersonal skills become equally important as technical skills (Robles, 2012, p.462). In his study, Robles suggests that the employers want employees with strong hard and soft skills that complement one another. He also analyzed the interpersonal skills and came to the conclusion that these skills should be integrated into curricula in order to create successful graduates. The internationalization of companies has brought important changes in the development of curriculum, leading universities to provide competences that ensure students’ success at both national and international level (Qiang, 2003, p.250). Also, universities have a complex role in the context of employability, having the aim to ensure a successful transition from student to employee stratus. European Commission defines employability as “a combination of factors which enable individuals …to progress during their career” (EC, 2014, pp.61-63). Also, this study mentions that not only education quality influences the employment of young graduates, but also the changes in economy and labor market, the graduates’ previous work experience and the graduates’ decision to relocate in order to take up a job opportunity. Both students and universities consider that any work is beneficial for gaining practical skills. This came to confirm also the opinion of Matthews et al. (2009,

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pp.151-162) that volunteering is becoming an important strategy adopted by students and universities to facilitate the transition from higher education to work, recognizing that important skills are gained during volunteer work. In their study Matthews et al. mentioned a range of skills related to negotiation, public speaking, dealing with information in an ethical manner, report writing that are gained by students during volunteering. Besides gaining skills, another important factor developed by volunteering is the intercommunion of students and universities with the community. Universities also have an important role in guidance and career orientation that makes students better evaluate labor market reality and the correspondence with their own competences. In this regard, not only curricula provide knowledge, but also other university departments, such as consultation service and career advice, offer directions which open the graduates’ path for a future career in the internationalized environment. Methodology The paper aims to analyze the results of 3-year statistic data from Trendence Graduate Barometer (Trendence Institute, 2014, 2015, 2016) along with qualitative research regarding Romanian students’ perception of their achieved practical competences, their international and practical experience and their availability for future specialization and relocation in order to obtain the desired job. Trendence is a European research institute that provides information regarding students’ perception of achieved skills upon graduation, analyzing collections of data from universities across Europe. The dynamic of collected data from Romanian universities in years 2014-2016 is shown below: Table 1. Survey participants in Trendence Graduate Barometer (Trendence Graduate Barometer – European edition years 2014, 2015, 2016) Number of survey participants – graduates

2014 7.376

Romania 2015 7.413

2016 12.893

This research aimed at structuring and synthesizing the collection of data in order to analyze Romanian graduates’ option for high specialization in Romania or abroad for gaining highly technical competences and achieving practical experience. In addition, the purpose of this study is to evaluate Romanian students’ appreciation for interpersonal competences achieved upon graduation. The qualitative research contains representative results of the interviews with 20 respondents, graduates of the National University of Political Studies and Public Administration. Their opinion came to confirm and to highlight the results of the secondary data analysis from Trendence Graduate Barometer.

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Findings Romanian graduates’ need for specialization in accordance with their preference for performing tasks Analyzing the dynamics of Romanian graduates’ appreciation for continuing specialization (Figures 1 and 2), the data shows that lately, it became more important for Romanian students to gain general skills and then become employees than obtain high specialization before finding a job. Thus the information provided in the figures reveals that in 2014, 43,70% of respondents’ number prefer to gain general skills before becoming an employee, the percentage growing to 53,60% in 2016.

Figure 1. Romanian Student's continuing specialization (Trendence Graduate Barometer – European edition years 2014, 2015, 2016) The students’ preference for high specialization is transferred upon becoming employees by following graduate trainee programs as seen in Figure 2. The information presented below shows that in 2016 61,50% of respondents want to gain more specific competences required by employers by completing trainee programs, workshops, obtaining international certificates and other forms of specialization. The data from the figure shows that the number of Romanian graduates who considered that they could obtain a job without any trainee program upon graduation has been reduced from 43,90% in 2014 to 38,50% in 2016.

Figure 2. Romanian students' priorities after graduation (Trendence Graduate Barometer – European edition years 2014, 2015, 2016)

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Analyzing the responses from the interviews with graduates and connecting the information with the above results, it could be concluded that Romanian students are usually connected to the work force reality and they realize that a direct entry is not always suitable for a successful career. All 20 respondents recognize the importance of a graduate trainee program and they consider that lifelong learning is beneficial for obtaining a better job. I would opt for a high specialization in my field of study for a manager position in the next 2 years. I am available for improving my competences and abilities (that are currently undergoing training) by continuous participation in workshops and interactive sessions. I want to get the PMI certification and also other relevant certification that will be beneficial for my career. According to graduates’ answers, the trainee program may vary from a high professional certification needed in accomplish strategic tasks to short term workshops required in operational tasks. Also, the respondents recognize the importance of the university prestige along with the knowledge provided by curricula. I haven’t experienced any difficulties in finding a job until now, but I hope that when I reach a different level, my diploma and my knowledge will be considered useful in finding a better job. I haven’t experienced any problems in finding a job until now. I consider that the university prestige represents a plus for the employers’ conviction. Analyzing respondents’ answers it can be observed that the graduates haven’t experienced notable problems in finding an entry job, their technical competences being appreciated by employers. Also, their answers could lead to the conclusion that many graduates want a successful career connected to the accomplishment of strategic tasks in a dynamic environment. This could also be noticed from the secondary data analysis, the information presented in Figure 3 showing that Romanian students tend more to obtain management positions and to accomplish strategic tasks. Thus, for a long-time career development, the preference for performing strategic tasks exceeds the preference for operational tasks. The data below shows that the preference for performing strategic tasks varies from 51,6% in 2014 to 61,2% in 2015 and then decreases to 51% in 2016.

Figure 3. Romanian graduates' preference to perform tasks (Trendence Graduate Barometer – European edition years 2015, 2016)

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Romanian graduates’ choice for high specialization could be also connected to their preference for a job in MNC (as will be seen in Figure 4) due to the salary package and the presumably higher opportunities to advance in their career. Romanian graduates’ career opportunities and the availability to relocate Starting with the secondary data analysis of the information presented in Figure 4, the multinational companies are by far favorites in students’ view. Thus, on the one hand, the degree of trust in a successful career in an MNC has a linear grow from 54,70% in 2014 to 56,90% in 2015 and then to 57,20% in 2016. On the other hand, the SME appears to lose importance for the development of a successful career over a long-term period, decreasing from 45,2% in 2014 to 42,8% in 2016.

Figure 4. Romanian graduates' career opportunities (Trendence Graduate Barometer – European edition years 2015, 2016) The qualitative research revealed that, in graduates’ view, the SMEs are more suitable at the beginning of their career, having the advantage of providing practical experience and the ability to become used to the employee status; once the graduates accumulate more experience, they search for a more attractive salary package and for the opportunity to advance in their career. For a start in my employee career the SME appears more suitable, for better adaptation to the work field, but after gaining experience I think that MNCs are also an option. I also think that I could develop a career even in an SME …. I also believe that the MNCs are more attractive from the salary package point of view. The selected data regarding Romanian graduates’ availability to change their residence in order to obtain a better job shows that only a small minority of respondents choose to relocate before achieving practical experience. Thus, in the analyzed years 2015 and 2016, only 17,8%, respectively 12% of respondents are available to relocate abroad without previous relevant work experience. The majority of responses mentioned that they would prefer that the first job would be in their residence town residence or region. It could also be noticed that in 2016, 49.3% of respondents prefer to have their first job in their town residence.

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Figure 5. Romanian graduates' availability to relocate (Trendence Graduate Barometer – European edition years 2015, 2016) The qualitative research revealed that the decision to relocate varies also from one student to another but usually their decision is connected more to the possibility of gaining professional experience. If obtaining a job and career advancement brings me considerable benefit, then I will be available for relocation. I think that my expectation is idealist…. I wish to have a motivating salary and the possibility to develop my career. Yes, I am available for changing my residency for a job that would benefit my professional development rather than financial development. These answers associated with graduates’ preference for MNCs and also the preference for completing strategic tasks all the more highlight the importance of a career in a multinational environment and complex teams or projects. In students’ view, it is important to have a continuing growth in career along with a motivating salary package. Romanian graduates’ appreciation for interpersonal and professional skills achieved in their university In order to analyze the appreciation of Romanian graduates for interpersonal and professional skills in the table below is presented relevant information in order to determine the students’ perception of achieved skills upon graduation. The evaluation of the dynamics of skills achieved after completing the curriculum shows that there is growing interest in both interpersonal and professional skills. Thus, in the last 3 years, the number of respondents who recognize the importance of social competences has grown from 71,1% in 2014 to 71,3% in 2015 and 79,2% in 2016. Also, other interpersonal skills such as responsibility, flexibility, achievement and aspiration and the ability to work under pressure are considered very useful by Romanian graduates. In 2016, more than 78% found these skills essential for finding a job. These results are also supported by the information provided by graduates’ answers to the interviews. The main abilities achieved are orientation towards results and communication. I have learned to better organize the working time and I have improved the capacity to present my work in front of people.

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Table 2. Graduates’ appreciation for interpersonal and professional skills (Trendence Graduate Barometer – European edition years 2014, 2015, 2016) Skills

2014

2015

2016

Responsibility

79,60%

81,60%

87,50%

Flexibility

77,40%

75,80%

82%

74,50%

74,20%

78,70%

71,10% 71,10%

72,20% 71,30%

83,20% 79,90%

67,60%

91,80%

91,90%

54%

76,60%

81,10%

Achievement and aspiration Ability to work under pressure Social competency Professional theoretical skills Professional practical skills

Analyzing the professional skills, the data from Table 2 also shows an increased interest in both theoretical and practical skills provided by curricula. Thus, the dynamics reveal that from 67,6% of respondents that found the theoretical skills are very important in finding a job in 2014, the percentage has grown at 91,8% in 2015, respectively 91,9% in 2016. Also, the dynamic of graduates’ appreciation towards practical competences has grown from 54% in 2014 to 76,6% in 2015 and then to 81,8% in 2016. The last 2 years show a clear tendency in students’ preference for obtaining relevant skills for the labor market. These results are also supported by graduates’ answers. They also mentioned that combining the practice with the theory has led to a better understanding of the work environment and their practical achievement will be considered a plus when they apply for a future job. The main abilities that I have gained upon graduation are related to optimal fulfillment of a project plan and better detection of the risk factors in projects. I participated in the project “Student’s internship, the first step for obtaining a job” a year ago and I can say that it was an interesting experience in which I obtained knowledge, I had met new people and I could observe closely how is implemented a real project financed from EU funds. I consider that I have obtained a complete and compact set of information useful in my future professional career. These answers also highlighted the importance of working in effective teams and in international projects, the necessity to identify the risk factors and to find solutions to complex issues. Conclusions The global development of markets and the growing role of MNCs in developing business all over the world have led to an increased need for adaptable employees with both interpersonal and professional competences. In this regard, the graduates tend to prefer gaining global competences during their university studies and to develop continuously their knowledge upon graduation. Also, the demand for

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specialized employees has brought into discussion how connected are the graduates with the labor market realities. This article has showed that most of Romanian graduates choose some position even if it is not related to their field of study or is lower than their competences and after they gain practical experience and complete their education with trainee programs, professional certification and other forms of lifelong learning, they usually search for an attractive salary package and for a recognized company at both national and international level. This attitude towards enrolment in a global labor market also has implications for their future career development and also in their decision to relocate. The results of the research also highlighted that, as more the graduates tend to achieve high competences and specialization, they would prefer to perform strategic tasks, rather than operational tasks. All the more graduates’ practical experience represents the way in which they could better understand the theory and appreciate more the ability to work in multicultural teams. They also tend to develop the ability to identify the risk factors and to find rapidly the solutions for the identified issues. References Azim, S., et al. (2010). The Importance of Soft Skills in Complex Projects. International Journal of Managing Projects in Business, 3(3), 387-401. Burduş, E., & Alpopi, C. (2010). The internationalization of business as an option in the marketing strategy of the entrepreneur. Management and Marketing Journal, VIII(1), 49-56. Cantwell, J., & Janne, O. (2000). The role of multinational corporations and national states in globalization and innovatory capacity: The European perspective. Technology Analysis & Strategic Management, 12(2), 243-262. Cheruvelil, K.S., et al. (2014). Creating and maintaining high-performing collaborative research teams: the importance of diversity and interpersonal skills. The ecological Society of America, 12(1), 31-38. European Commission/EACEA/Eurydice (2014). Modernization of Higher Education in Europe – Access, retention and employability 2014. Eurydice Report. Luxembourg: Publications Office of the European Union. Retrieved from http://eacea.ec.europa.eu/education/eurydice/documents/thematic_reports/1 65EN.pdf. Gronroos, C. (1999). Internationalization strategies for services. Journal of Services Marketing, 13(14/5), 290-297. BusinessDictionary.com. Internationalization. Retrieved from BusinessDictionary.com website http://www.businessdictionary.com/definition/internationalization.html. Matthews, N., Green, P., Hall, D., & Hall, I. (2009). The role of Volunteering in Transition from Higher Education to Work. In Brooks, R. (Ed.), Transitions from Education to Work New perspectives from Europe and Beyond (pp.150-166). Basingstoke: Palgrave Macmillan. Nicolescu, L., & Păun, C. (2009). Relating higher education with the Labour Market: Graduates’ expectations and employers’ requirements. Tertiary Education and Management, 15(1). Retrieved from http://www.tandfonline.com/doi/pdf/10.1080/13583880802700024.

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OECD (2016). Global Competency for an Inclusive World. Retrieved from https://www.oecd.org/pisa/aboutpisa/Global-competency-for-an-inclusiveworld.pdf. Qiang, Z. (2003). Internationalization of Higher Education: towards a conceptual framework. Policy Futures in Education, 1(2), 248-270. Rizvi, F. (2007). Internationalization of Curriculum a Critical Perspective. In Hayden, M., Levy, J., & Thompson, J. (Eds.), The SAGE Handbook of Research in International Education (pp.390-402). London: SAGE Publications. Robles, M.M. (2012). Executive Perceptions of the Top 10 Soft Skills Needed in Today’s Workplace. Business Communication Quarterly, 75(4), 453-465. Sawyer, W.C., & Sprinkle, R.L. (2003). International Economics. New Jersey: Pearson Education. Trendence Graduate Barometer (2014). European edition year 2014. Retrieved from http://qa.ubbcluj.ro/documents/satisfactia_studentilor/esb_2014/Graduate_Ba rometer_2014_Romanian_Total_Edition.pdf. Trendence Graduate Barometer (2015). European edition year 2015. Retrieved from https://www.trendence.com/fileadmin/trendence/content/Unternehmen/Ran kings/tGrad_15_EUROPE_BUS_DE.pdf. Trendence Graduate Barometer (2016). European edition year 2016. Retrieved from http://web.rau.ro/mydocuments/asociatiaabsolventilorura/2016tGRAD16_RO_Total_URA.pdf. Vătămănescu, E.-M., & Andrei, A.G. (2014). Internaționalizarea afacerilor – dinspre analiza economică și de risc către leadershipul intercultural [Business internationalization: from economic and risk analyses towards intercultural leadership]. Bucharest: Tritonic. Yu, C.-M. J., Guang, J.-L., Yang, K.-P., & Chiao, Y.-C. (2005). Developing the skills for International Business. Journal of Teaching in International Business, 16(4), 5-26.

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INNOVATION – A SUCCESSFUL STRATEGY TO BOOST THE ECONOMIC GROWTH IN CENTRAL AND EASTERN EUROPEAN COUNTRIES? Alexandru FOTIA The Bucharest University of Economic Studies 6 Piata Romana, 010374 Bucharest, RO [email protected] Abstract. Innovation, technology transfers and R&D expenditures are the key factors for ensuring the economic growth and competitiveness of a country, in today’s economy. The link between the R&D expenditures of a state and its economic performance has attracted vivid debates and a great deal of attention in the academic field for quite some time. The main purpose of this study is to show empirical evidence on the relationship between innovation and economic growth in Central and Eastern Europe. Therefore, we analyzed variables such as R&D expenditures, number of patents, the number of trademarks and the expenses on tertiary education in order to measure innovation in this set of countries. Our empirical findings provide in most cases evidence of a positive relationship between economic growth and innovation and are in line with the existing literature. Keywords: innovation; research and development; economic growth; CEE countries. Introduction It is undebatable that a wide range of contemporary economists has attributed the sustainable economic growth to the intensity of R&D activities of a country. In a more and more competitive globalized world, the increase of research and development expenditures is the key factor of a country’s progress and long-term growth. In the last decades, Central and Eastern European countries have experienced different economic growth and reconstruction phases, shifting from the socialist model based on the planned economy to the market economy model. At the beginning of their economic evolution journey, they seemed to be the “promised land” for the Western European investors due to their cheap and rather skilled labor force; in addition, they pursued extensive privatization programs and, ultimately, they offered access to a market of 100 million consumers. Their experience showed that the transition process was harder than it was imagined, that is why their economic growth did not reach its initial forecasts. However, starting with the preliminary negotiations and continuing with the accession stage, the increased economic performance of these countries has again revived economic analysts’ interest. The economists’ attention was gained especially due to significant economic growth increases based on intensive investments in the research and development activity and through technology transfer from the more developed Western EU members.

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Figure 1 shows that between 1990 and 2015, the aggregate GDP of CEE countries has continuously grown except for 2009 (a significant decrease of -4.36% compared to 2008) due to the global economic crisis. Given the big contraction in 2009, the trend of GDP growth has been negative, even though the amount of GDP was almost uninterruptedly increasing, the growth rate fluctuated from one year to another.

Figure 1. Evolution of GDP in CEE countries (Author’s calculation based on Eurostat data) When comparing the growth rate of the GDP per capita in the CEE countries with the one in EU-15, Figure 2 shows a significant difference between the two, in favor of the former. In line with our research, Aghion et al. (2010) fully support the assumption that, in general, the countries which are catching up with the more advanced economies tend to growth faster because it is usually easier to imitate technologies which were pioneered in other countries than to innovate. On the other hand, we want to research whether the CEE countries based their growth only on imitations and technology spillovers from more advanced economies or they themselves invested plenty economic resources in order to fuel their GDP per capita increase.

Figure 2. Evolution of GDP/capita growth rate (Author’s calculations based on World Bank data)

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The aim of this paper is to study the link between economic growth and innovation for the Central and Eastern European countries. In order to measure innovation, we used the following variables: evolution of R&D expenditures, number of patents, number of trademarks, expenditures on tertiary education, enrolment in tertiary education, foreign direct investments (FDI) and unemployment in the mentioned countries. The remaining of this article is structured as follows: Section 2 reviews the innovation related literature, Section 3 presents the database and the methodology, Section 4 presents the models and analyzes the empirical results obtained and Section 5 concludes. Literature review Innovation and economic growth Economic growth has been a vivid subject for the theoreticians interested in the mechanisms through which a country expands its wealth. The theme was pioneered by Smith (1776), followed by Malthus (1798) and Ricardo (Ricardo, 1817). Their theories had been the cornerstones in this field for centuries. Solow (1956) and Swan (1956) shed light on this subject, enriching the economic literature with the neoclassical model of growth. The “engine” of growth in their model was represented by the technological progress which was thought to be exogenous. This model assumed that a country’s growth resides in combining the available stock of factors of production. Consequently, a country with limited capital can grow faster through the accumulation of new capital, whereas a country which has already accumulated capital does not gain too much by increasing its rate of accumulation, because of the decreasing returns to capital. The remarkable works of Romer (1986) and Lucas (1988) managed to incorporate the technical progress into the model of growth, therefore this progress was not exogenous anymore. The significant contribution of the endogenous growth theory is linked to the possibility to explain why the technical progress is an important determinant of growth. Even though these two theories predict that the economic growth lays on the human capital accumulation (through learning by doing and investments in education), the novelty and innovation are not playing any role in growth. The second generation of endogenous theories was based on the works of Romer (1990) and Aghion and Howitt (1992). They emphasized the differences between technological knowledge and other forms of capital and analyzed technological innovation as a separate activity towards economics and education. According to Aghion & Howitt’s study (1992), economic growth is the result of innovations, skilled labor force and productivity of research. These views are grounded on the remarkable work of Schumpeter (1934) who stated that the driving force of long-run growth in the product-variety paradigm is innovation. Schumpeter’s growth theory comprises three important thoughts: growth is mainly generated by technological innovations, innovations are produced by

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entrepreneurs who seek rents and profits from them, new technologies drive out the old ones (in his view the growth model is centered on innovations whose aim is to improve the quality of the existing products considered to be obsolete, the term used by the author being “creative destruction”). Grossman and Helpman (1991) deal with the concepts of innovation and imitation and create a model of endogenous growth where the economic growth is assumed to be equal to the aggregate rate of innovation. In terms of empirical research, Nadiri (1993), using a Solow model, showed the connection between innovation, output and productivity growth, concluding that the economic growth is influenced by the growth rate of innovations, which are determined exogenously. Innovation and international trade In terms of innovation and international trade, it is necessary to classify the countries into two big categories: countries which are at the technological frontier and countries that are substantially behind it. Even though the previous research had tried to include the Central and Eastern European countries in one of the two categories, a straightforward answer was difficult to be obtained. For example, Petrariu et al. (2013) point out that the CEE countries still lag behind the Western European ones and they are still facing a catching up process in terms of innovation. It is important to note that in the analysis performed by Petrariu et al. (2013) were included some countries which do not belong to ours (e.g. Moldova, Macedonia and Serbia) – these countries are seen by the economic community as less developed (however, we acknowledge that in the recent years some progress were made in terms of approaching to the European Union’s values and principles). On the other hand, judging by the fact that the countries we analyzed (except for Croatia) have been members of the European Union for at least 10 years (Croatia became an EU member in 2013), we assume that some technology flows came from the more developed Western European countries in this meantime, but we are aware that at the group level the countries we analyzed are still lagging behind their Western European counterparts. According to Riviera – Batiz and Romer (1991), when we talk about the impact of international trade on growth in the developed countries through technological flows, the conclusions are straightforward: the technological progress is transmitted equally to all countries at the worldwide technological frontier and there is no room for variation in terms of the growth. On the other hand, the debate is more passionate when the less developed countries are subject to this analysis. Even though the economic literature is structured into three different views on this broad theme, we will discuss in more detail only the one which we consider to be appropriate for the CEE countries. These different views are as follows: “trade as the enemy of growth”, “trade as the ‘handmaiden’ of growth” and “trade as the engine of growth” (Blume & Durlauf, 2008). As previously said, judging by the United Nations’ definition of “less developed countries” it is certainly not the case of these 11 countries we analyzed in this study (United Nations, 2016). Furthermore, taken into account that since they become EU

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members these countries have experienced a continuous GDP growth compared to the period before accession (except for 2009 – the peak of the economic crisis). In addition, statistics showed that a big percentage of the international trade of this countries is made with international partners such as the United States or the Western European countries members of the European Union. To conclude, trade with more technologically advanced economies is definitely a vehicle for the flow of innovations from them to which ultimately drives growth in the countries under study. This view is consistent with the one of Romer (1993), even the question of the mechanisms through which firms in our set of countries integrates the new technologies. According to Grossman and Helpman (1991), firms develop an impressive imitative activity or buy or rent equipment which contains foreign knowledge. Coe et al. (1997) include human capital in their analysis of R&D spillovers through international trade from developed countries to developing ones. However, they ignore domestic technology activity in developing countries in their estimation of productivity effects on the grounds that domestic R&D is small in developing countries and R&D data for these countries are not available (Xu & Chiang, 2005). The most powerful countries in the world spend large amounts on R&D in order to generate innovations. Taking the United States’ example, we undoubtedly notice that R&D expenditures represented between 2.4 and 2.9 per cent of GDP every year from 1996 to 2014 (according to World Bank database). Even though, it is important to note that there are very few countries in the world that constantly produce innovations (Blume & Durlauf, 2008). In most of the countries, technology does not advance too significantly through disruptive innovations (Schivardi & Schneider, 2008), but by implementing new technologies developed in another part of the world. One important aspect to be mentioned is that even in this case, the implementation has its own costs because technologies tend to depend on the context they have been created and the knowledge tends to be tacit. Therefore, implementation brings with it an upfront investment to adapt the technology to a new environment (Evenson & Westphal, 1995). The same applies to countries. Judging from the perspective brought by Gerschenkron (1962), who proposed the term “advantage of backwardness”, the further the countries fall behind the world’s technology frontier, the faster they will grow with any given level of implementation expenditures, because the bigger is the improvement in productivity when they implement any given foreign technology. As shown by Howitt (2000), countries that will develop R&D activities will growth at the same rate, whilst those which will not perform such investments will probably stagnate. Even though there are some countries which allocate money for implementation expenditure, there is no guarantee that the technology gap between them and the rich countries will close because the innovations performed in these rich countries may not be appropriate for the needs of the implementing states (Basu & Weil, 1998; Acemoglu & Zilibotti, 2001).

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Database and methodology The outcome of this paper is to show the strong link between the level of innovation and the economic growth, based on an analysis performed in the Central and Eastern European countries. The vast literature which studied the connection between innovation and growth focused mainly on the country behavior observed mainly in the rich economies such as United States, Japan, or some Western European countries (see for example (Mansfield, 1972) or (Crafts, 2003)). The CEE region was neglected by the empirical studies especially due to the lack of information about the major macroeconomic indicators, given the fact that all the countries in this region were under the communist rule until 1989. Our study was conducted in 11 countries from CEE (Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia). The period taken into account was 1990-2015, a time span long enough in order to have an indepth analysis. The main source of data was the database provided by the World Bank. Due to the poor country reporting back in the 1990s there are some datasets which are not fully complete. However, our analysis was not biased by the missing data. The variables analyzed in this study are specified in Table 1. The descriptive statistics of the variables for the period 1990-2015 are presented in Table 2 below. Table 1. The variables analyzed in this study (Author’s calculations) Variable Explanation GDPcapita The GDP per capita for each of CEE state (constant 2011 international $) GDPgrowth GDP growth from year to year for each CEE state Education The percent of education expenditure in GDP for each CEE state TertiaryEducation Expenditure on tertiary education, as a percentage of government expenditure on education TertiaryEnrollment School enrollment in the tertiary education sector, as a percentage of total school enrollment FDI The percent of net inflow Foreign Direct Investment in GDP for each CEE state Unemployment Unemployment for each CEE state HDI Human Development Index R&D The percent of R&D expenditure in GDP for each CEE state Patents Total number of patents for each CEE state Trademarks Total number of trademarks for each CEE state GDP growth rate measures how fast the economy is growing, namely which is the annual change in GDP. GDP growth is considered to be a good measure for an economy at a given moment. Stern et al. (2000) note that GDP per capita is an estimate of the size of the technological development of a country.

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A patent represents the sole right or the title conferred by a government authority for a set period to exclude others from making, using, or selling an invention. On the other hand, a trademark is a symbol, word, or words legally registered or established by use as representing a company or product. The number of patents and the number of trademarks usually testify the innovative capacity of a country. The amount of R&D expenditure of a country is a good indicator to quantify its governmental policy towards innovations and economic progress. The higher the R&D expenditures, the more developed a country is. In the same vein, judging from a theoretical perspective, the higher the expenditures on tertiary education, the greater the capacity of a country to turn the research into innovations. Unemployment is used in our models as a control variable due to its negative correlation with economic growth and innovation, respectively. Table 2. The descriptive statistics of the variables analyzed (Author’s calculations, based on World Bank data) Variable

Mean

Median

Minimum

Maximum

Std. Dev.

GDPcapita (PPP, constant 2011 int. $)

18.361

18.280

8.002

31.138

5.901

GDDgrowth (% annual change) Education (as % of GDP) TertiaryEducation (as % of gov. expend. on educ.) TertiaryEnrollment (as % of total enrollment)

2,8532

3,5822

14,8142

11,8894

4,5156

4,6604

4,7422

2,3256

6,6874

0,8420

19,7758

19,6260

11,1425

28,9826

3,3800

47,0580

45,8411

8,4070

88,4635

20,6466

4,5907

3,5530

16,0708

50,7415

5,8031

10,5470

10,1000

1,5000

21,4000

4,0438

HDI

0,7787

0,7840

0,6630

0,8900

0,0558

R&D (as % of GDP)

0,8599

0,7424

0,3520

2,6039

0,4489

Patents (number) Trademarks (number)

686

289

12

4.676

886

3.793

2.161

1

14.708

3.759

FDI (net inflows, as % of GDP) Unemployment (as % of total labor force)

In order to capture the most from the empirical analysis and judging by the database typology, we used panel data regression models (significance level of 5%). Firstly, a pooled regression was computed in order to analyze the situation of all the CEE countries included in the model. Then, we checked for fixed effects among both crosssection and times series in order to find whether there are specific effects coming either from each country or over time between countries which can influence our findings. A number of three regressions for each model has been computed in order to check the three possible situations: cross-section series fixed effects, time series fixed

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effect and, ultimately, both cross-section and time series fixed effects. Results showed no significantly different parameters compared to the initial regression due to an approximately economic evolution of the countries under scrutiny in the period analyzed. However, we will present the full data in the results tables below. Moreover, we also checked for random effects using the same algorithm as for the fixed effects. In this case, only two regressions were computed for each model due to the unbalanced typology of the database. In order to verify the data consistency, we used the Hausman test. The results were that some regression models with random effects are more conclusive then some of the fixed effects models. Lastly, we used the Wald test in order to check whether the pooled regression or the fixed effects model was appropriate (if was the case). Models and empirical results We conducted a total of six analyses based on the recent existing literature (see inter alia Petrariu et al. (2013) or Pece et al. (2015), expanding the literature with two models grounded on the impact the tertiary education sector has on the economic growth. The models are described below: Model 1

Model 2

Model 3

Model 4

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Model 5

Model 6

*We used FDIadj instead of FDI because we eliminated from the dataset the outliers (BG 2007, HU 2007, 2008). Regarding model 1, the fixed effects regression explained better the correlation of the independent and the dependent variable. Therefore, all three models presented in Table 3 surprisingly show that there is a negative and insignificant relationship between the number of patents and the increase in GDP per capita the conclusions are in line with theory and with the empirical studies made. R&D expenditures are positively related to the GDP per capita growth, except for the cross-section and period fixed effects regression. The greater the allocation of governmental funds toward research and development, the higher the economic growth in CEE countries. Table 3. The results of the model 1 (Author’s calculations, based on computing data in Eviews) CrossCross-section Variable Period fixed Pooled section and period fixed (coefficient & effects regression fixed effects effects p-value) regression regression regression 8,860608 5,548753 9,451217 9,396509 C 0,000000 0,000000 0,000000 0,000000 -0,047672 -0,035483 0,012512 0,040946 LogPatents 0,022300 0,456400 0,440100 0,094900 0,096152 0,517514 -0,009221 0,027677 LogTrademark s 0,001100 0,000000 0,689100 0,399200 0,553551 0,414983 0,435831 -0,047169 R&D 0,000000 0,000000 0,000000 0,153400 R squared 0,494148 0,754380 0,751013 0,950927 Adjusted R squared 0,486445 0,737305 0,721803 0,941926

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For the model 2, we firstly ran a regression where we included the education expenditures itself as a percentage of GDP. This model explained only 21% of the evolution of the GDP per capita of the countries under scrutiny. Therefore, we introduced in the model the expenditures for tertiary education (as a percentage of total education expenditures). This new model explains 44% of the trend of GDP per capita. When checking the regressions with the Hausman test, the results are interesting: the random effects model is more suitable when the cross-country differences are taken into account and the fixed effects model is more appropriate when checking for variations through time. Therefore, in both cases, the expenditures on tertiary education are statistically significant and positively correlated with the GDP per capita increase, contrary to the opinion of Aghion et al. (2010) who consider that the CEE countries grew based on the investment in primary and secondary education, not in high education. The results presented by model 3 are in line with the findings made in model 2. The above situations happen again: when the cross-country differences are taken into account, the random effects are more suitable and when time variations are checked the fixed effects model is more appropriate. The conclusion after running this mode is that enrollment in tertiary education is a prerequisite in order for a country to experience economic growth Unemployment was used as a proxy in models 2 and 3. As previously demonstrated by the empirical literature, unemployment strongly affects economic growth. Models 4 and 5 focus on the link between the output of innovation (patents and trademarks) and the economic growth. These models follow the one proposed by Petrariu et al. (2013), with the only exception that we eliminated HDI from them due to the fact that GDP per capita is also taken into account when calculating HDI. Furthermore, the correlation between the two variables was 0.80. For a better estimation of the relationships in models 4 and 5, we used the random effects models. The conclusions are different for the two models; therefore, we will present them distinctly. The cross-section random effects of the model 4 show a positive correlation between the number of patents produced on one hand and the research and development expenditures, on the other. The other four independent variables have also a positive, but the insignificant relation with the number of patents (surprisingly, unemployment and FDI depict the same positive link, which is in contrast with the evidence found in the literature). On the other hand, the period random effects of the model 4 present a negative connection between the number of patens and education expenditure, FDI, unemployment and R&D expenditures (only the first two variables are significant in this case). In this case, FDI negatively affects the production of patents due to the fact that the foreign companies are not interested in focusing on local R&D activities. On contrary, they import already produced Western European technologies. The cross-section and the period random effects of the model 5 also depict contrasting findings. In the former, the number of trademarks produced is negatively related to the R&D funds allocated and the unemployment (statistically insignificant). There is a

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positive link between the increase of GDP per capita and the increase in the number of trademarks produced. In the latter, the R&D expenditures are again negative correlated with the trademarks, whereas the increase of GDP per capita impact positively the production of trademarks. The results of the model 6 are presented in Table 4. The connection between GDP growth and innovation is best explained (with an adjusted R2 is 73%) by the crosssection and period fixed effects regression which show that there is a positive correlation of GDP growth to trademarks, R&D, and FDI, surprisingly. R&D and the number of patents produced have a negative impact on GDP growth, this suggesting the existence of a catch-up process according to Petrariu et al. (2013). This is a clear sign that a large amount of innovation was actually imported from the Western European countries, not produced in-house. Table 4. The results of the model 1 (Author’s calculations, based on computing data in Eviews) Variable (coefficient & p-value) C LogPatents LogTrademarks

Pooled regression

Crosssection fixed effects regression

Period fixed effects regression

Cross-section and period fixed effects regression

17,441830

57,874330

0,730300

76,376810

0,055800

0,000000

0,940200

0,001100

-0,830844

-5,849705

-0,880390

-3,546948

0,113900

0,000000

0,010600

0,000300

0,698183

6,181159

0,911361

1,740456

0,349700

0,000900

0,078800

0,217600

-0,893982

3,768548

-1,345497

2,087425

0,418500

0,029100

0,072500

0,080500

0,213136

0,215788

0,001884

0,062584

0,018800

0,021500

0,975200

0,347600

-19,008340

-72,457080

2,282587

-73,619890

0,058300

0,000000

0,842500

0,001700

0,200218

-3,352221

0,173922

-1,396482

0,666700

0,000000

0,604400

0,011400

-0,088318

-0,135996

-0,095494

-0,334534

0,345100

0,204500

0,140700

0,000200

R squared

0,144338

0,424963

0,712409

0,793860

Adjusted R squared

0,102743

0,352010

0,658061

0,733956

R&D FDIadj HDI EducationExpenditure Unemployment

Conclusions The purpose of our study was to determine if innovation was a strategy in order to boost the economic performance of the Central and Eastern European countries. There are some empirical models which support the existing literature, but there are also differences related to the previous findings. These disparities are due to the fact that the previous studies analyzed different countries in Central and Eastern Europe, they

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focused on the shorter period of time and did not take into account the heterogeneity between countries. The conclusions of our study show that the economic growth experienced by the CEE countries during the period 1990-2015 was based on a high proportion of technology transfers and knowledge inflows from the developed countries. Even though the CEE countries were seen as being “latecomers” in the innovation process, they used the innovation strategies in order to foster the macroeconomic indicators, trying permanently to catch-up the Western European countries’ performances. Future looks as challenging as the past was: despite some progress has been made, the CEE countries still lag behind many of their European Union neighbors. They have not only to continue the imitation process in terms of innovation but to develop new strategies to boost their economic output in order to increase their competitiveness. Acknowledgements: This paper was co-financed by the Bucharest University of Economic Studies during the Ph.D. program.

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Development and Economic Growth Productivity. Washington, DC: National Science Foundation. Nadiri, I. (1993). Innovations and Technological Spillovers. National Bureau of Economic Research, Working Paper, No. 423. Pece, A., Simona, O.O., & Salisteanu, F. (2015). Innovation and Economic Growth: An Empirical Analysis for CEE Countries. Procedia Economics and Finance, 26, 461467. Petrariu, I., Bumbac, R., & Ciobanu, R. (2013). Innovation: a path to competitiveness and economic growth. The case of CEE countries. Theoretical and Applied Economics, XX(5/582), 15-26. Ricardo, D. (1817). On the Principles of Political Economy and Taxation. London: John Murray. Rivera-Batiz, L., & Romer, P. (1991). International Trade With Endogenous Technological Change. European Economic Review, 35(4), 971-1004. Romer, P. (1986). Increasing Returns and Long Run Growth. Journal of Political Economy, 94(5), 1002-1037. Romer, P. (1990). Endogenous technological change. Journal of Political Economy, 98(1), S71-S102. Romer, P. (1993). Idea gaps and object gaps in economic development. Journal of Monetary Economics, 32(3), 543-573. Schivardi, F., & Schneider, M. (2008). Strategic experimentation and disruptive technological change. Review of Economic Dynamics, 11(2), 386-412. Schumpeter, J. (1934). The Theory of Economic Development. Cambridge, MA: Harvard University Press. Smith, A. (1776). An Inquiry into the Nature and Causes of the Wealth of Nations. London: Methuen & Co. Solow, R. (1956). A Contribution to the Theory of Economic Growth. The Quarterly Journal of Economics, 70(1), 65-94. Stern, S., Porter, M., & Furman, J. (2000). The determinants of national innovative capacity. Cambridge, MA: National Bureau of Economic Research. Swan, T. (1956). Economic growth and capital accumulation. Economic Record, 32(2), 334-361. United Nations. (2016). List of Least Developed Countries. Retrieved from http://www.un.org/en/development/desa/policy/cdp/ldc/ldc_list.pdf. Xu, B., & Chiang, E. (2005). Trade, Patents and International Technology Diffusion. Journal of International Trade & Economic Development, 14(1), 115-135.

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THE COMPETITIVENESS OF ROMANIA IN TERMS OF UNEMPLOYMENT Elena Florentina ZOTA The Bucharest University of Economic Studies 6 Piaţa Romană, District 1, Bucharest, RO [email protected] Abstact. Unemployment is one of the five key objectives when economic growth is taken into consideration as well as employment, in accordance with the strategy launched in 2010 also known Europe 2020. European Union pays great attention and spares no effort to overcome the economic crisis, to promote a competitive economy, to create jobs with high employment. The main target of the Europe 2020 strategy program is the increasing of the employment rate of the labour force, up to 75%, among the population aged between 20 and 64 years. Currently, the workforce is predominantly female, because the female population share is increasing and their life expectancy is higher than that of men. Of course, higher education counts as well when it comes to the unemployment rate. The more a person is prepared, the easier they will find a job. During 2007/2008, our country occupied the 21st place among the 27 European countries, with a rate of 54%, under us being Slovakia 51%, Germany 51%, Austria 51%, and Bulgaria 50%. Also, the more developed countries have much higher rates of education, such as Finland 94%, Greece 91%, and Denmark 80%. Employment is a fundamental factor of development. The economic crisis was felt throughout Europe, including Romania as well, affecting hundreds of thousands of people. In 2014 Romania was only 4.3 percentage points away from reaching the national target employment rate of the population imposed by the Europe 2020 strategy. Keywords: unemployment; economy; European Union; youth; unemployment evolution; unemployment rate. Introduction Unemployment is the form of underemployment or inactivity, which includes all persons who require work in exchange for money, but not all individuals can practice the occupation learned in school or work in their area of residence. Unemployment is considered lack of payment, payment of money to people who do not provide any service. It differs from one country to another, while in the US, The US Central Bank (the Federal Reserve) announced that in 2014, the US recorded the lowest level of unemployment in the past six years, highlighting the strength of the global economy, things are different in the EU, as the euro area is mainly a changing indicator, because the main contributor is Germany with the northern states that have a prosperous life, but there are also countries with lower incomes, presenting a threat for the Union, since their economy growth is slow. Of course, there is a high unemployment rate in Romania as well. As in other EU countries, Romania ensures rights to every person. In addition to safety, education, health, the individual has the

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right to choose their own desired job and they have the right to unemployment insurance. The purpose of this paper is to highlight and define unemployment in our country. In 2014, Romania was only 4.3 percentage points away from reaching the national target regarding the employment rate of the population, imposed by the Europe 2020 Strategy. The main target of the Europe 2020 Strategy program is to achieve the employment rate of 75% among the population aged between 20 and 64 years. In September this year, there was recorded an unemployment rate of 4.89%. Of all these unemployed, over 15% of people are from rural areas and are illiterate or have completed only primary school. On average, 60% of existing unemployed cannot find jobs because they either have too few studies, or they do not have experience or the job is not in the area of housing, but there is no infrastructure or jobs available. With this theme, I aim at introducing the evolution of unemployment from its definition to the disadvantages presented to society in the matter. I chose the subject of "unemployment" after reading an article related to unemployment among university graduates, and how I am among those who finished college and wondering how quickly they will find a job, the news caught my attention. According to the Agency for Employment of Bucharest, at the end of June, there were registered 21 328 unemployed people, of which 5419 having graduated from university, of which only 1,200 graduates have received compensation. Although the labor market was different for the better during the previous years, wage levels remain low, with an average of 500 euros per month, and only IT sectors are better paid. Many people do not accept a salary of 500 euros, because the amount is not sufficient when they have families to support and installments to pay to banks. On the other hand, employers do not employ young university graduates because they do not have sufficient experience and training costs are very high. According to the studies, among young people aged between 15 and 24 years, one in four is unemployed, and the number is increasing because of the growing number of young people who get low grades at the baccalaureate examination. Another reason is the refusal of the unemployed to accept resettlement. Currently, the workforce is predominantly female, because the female population share is increasing and their life expectancy is higher than that of men. Of course, higher education counts as well when it comes to the unemployment rate. The more a person is prepared, the easier they will find a job. During 2007/2008, our country occupied the 21st place among the 27 European countries, with a rate of 54%, under us being Slovakia 51%, Germany 51%, Austria 51%, and Bulgaria 50%. Also, the more developed countries have much higher rates of education, such as Finland 94%, Greece 91%, and Denmark 80%. Studies have shown that we have a much higher rate of employment in the elderly of 55-64, compared to young people. In 2014, the employment rate was 43.1%, with 20.6% more than the employment rate of young people aged 15-24 years. The highest employment rate of older people with higher education was approximately 82.5%.As the level of education and employment decreases, if a person has fewer studies, they will find it more and more difficult to find a job. If the percentage for people with

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higher education is 82.5%, for those with secondary education, the percentage drops to 65.0%, for those with low education reaching 44.4%. According to John Maynard Keynes, unemployment is a major life disruption that manifests as an economic imbalance. When employees realize that the work done cannot be rewarded by a salary anymore, they become anxious, and a small financial help will only increase nervousness and desperation. Also, Keynes stresses that the state needs to balance the spending rates. Keynes also believes that voluntary unemployment is the refusal of persons with no income to have a job. The William Philips curve explains that unemployment is directly determined by reducing the expenditure, by lowering the prices of consumer goods and services. W. Philips wanted to highlight the following actions: when unemployment is rising, wages fall and unemployment decreases when income increases. According to W. Philips, unemployment is directly proportional to inflation and the decrease or increase trend. An unemployed is a person who fulfills the following conditions: - Is between 16 and 65 years old and works towards finding a job; - Is physically and mentally fit for work; - Has incomes that are lower than the benchmark of unemployment insurance; - Wishes to begin working immediately, if they would find a workplace. Unemployment is represented by the following levels: - Absolute, determined by the number of unemployed people; - Relative, calculated as the report between the number of unemployed people and the active population; - The labor market is the social economic area called the meeting point between capital owners, as buyers, and workforce holders, as sellers. The forms of unemployment are: frictional unemployment, structural unemployment, cyclical unemployment and natural unemployment. Frictional unemployment is temporary and it can be caused by relocation as well structural unemployment affects people over 45, as required professions change and are no longer useful for employers. Cyclical unemployment is caused by economic crises and temporary unfavorable circumstances, but repeated at longer or shorter intervals and is usually encountered during recession. Natural unemployment is the unemployment level when prices stabilize and meet potential national economy in a given period. Natural unemployment includes frictional and structural unemployment. Unemployment is represented by: duration (short, medium and long), intensity, structure and number of unemployed persons. Because salary, like unemployment, is flexible and varies from one period to another, we see unemployment in two forms: voluntary unemployment and transitional unemployment. Voluntary unemployment can be determined by: citizens who voluntarily want to stay home and collect unemployment benefits; category of people waiting to find a job much better paid than the market at that time; housekeepers, especially women, who prefer to wait for salary increase in order to search for a job. Involuntary unemployment, also called forced unemployment, which is a secondary effect, is characterized by: individuals who cannot become entrepreneurs or

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employers, social security contributions, legal minimum wage is too low for employees standards and studies / professional certifications, individuals who have inadequate or no education. The functions of the labor market include socio-economic, education and social protection and assistance aspects. At the household level, unemployment has a strong impact, affecting the entire income of the family, because the monthly amount received after unemployment is much lower than the salary. At a country level, unemployment has a big impact on GDP, because the goods production declines. The losses of the country regarding unemployment: expenditures on unemployment payment, loss of production of goods, costs with another training through different training course and expenditures on labor market reintegration and adaptation programs Unemployment in Romania and in the E.U. All countries in the European Union, in 2010, faced the problem of unemployment. If Spain unemployment among women was higher, at about 20% of the total population, in the Netherlands and Austria the rate was of only 4%. Most unemployed men were Spanish, and the fewest were Dutch and from Luxembourg. Romania was in mid-table with female unemployment rate of only 6% and 7% among men, from the total population. Guy Ryder, the General Director of the International Labor Organization believes that Europe is facing a real unemployment problem because the population is aging, and most young people are unemployed. He said that unemployment in Europe is twice the normal value of 6.6%, and each country must take action to change this situation.

25 20 15

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Figure 1. The unemployment in Europe in 2010 (Eurostat Yearbook, 2010, p.234)

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Starting with 2011, the unemployment rate suffered multiple fluctuations. If in December 2010 the rate of unemployment among men was of 7.6 %, and of women, of 6,3%, in December 2011, the situation was different, with 5,4% among men and 4,8 % among women of the total population. The average net monthly earnings in 2011 raised by 3,8% in comparison to 2010. In 2010, there were 70.497 unemployed persons. At the end of 2011, the number of unemployed young persons represented 19,15%, and of adults, 33,75%. The financial crisis continued both in 2010 and in 2011, but 2011 was a better year and there were fewer unemployed persons compared to 2010. According to the indicators, the unemployment rate followed a normal fluctuation, dropped during the summer and increased during winter. The main area of activity was in the service sector, with a share of 42.6%, followed by industry and construction with 28.8%, while the third position was occupied by agriculture, with a share of 28.6%.

% 8.6 8.2 7.6 7.5 7.4 7.8 7.4 6.6 7 6.6 6.3 6.1 6 5.9 6.2 5.4 5.2 5.8 5.3 5.2 5.4 5.1 5 5 5 4.9 5.4 4.9 4.8 4.8 4.8 4.6 4.5 4.6 4.7 5 4.6 4.2 3.8

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Figure 2. The unemployment rate between December 2010 - December 2011 (Adapted from the National Institute of Statistics, 2011) According to the charts in 2012, the unemployment rate in April fell slightly compared to the same month of 2011. We can see that May and June saw the lowest unemployment rates in the current year (2012), but also compared to the previous. The highest rate of unemployment among women was recorded in November and December, 5%, and among men, 6.1%, in December According to the surveys, the International Labor Office believes that most of the persons aged between 15 and 74, do not have a job, but within the last month, they searched for a job. According to research, the employment rate of the population aged between 20 and 64had a high level of employment with an employment rate of 63.8% with only 6.2 percentage points below the national target of 70%, set by the Europe 2020 Strategy. According to statistics, the highest rate of youth unemployment was located especially in higher education graduates, reaching 81.4%. Depending on the low levels of

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education, employability lowers too. The population distribution shows that 42.4% of the population worked in services, 29.0% in agriculture and 28.6% in industry and construction.

% 6.1 6.2 5.8 5.8 5.7 5.6 5.8 5.5 5.4 5.2 5.1 5.2 5.2 5.4 5 5 5 4.9 4.9 4.9 4.9 4.8 4.8 4.9 4.7 5 4.6 4.4 4.3 4.3 4.6 4.2 3.8

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Figure 3. The unemployment rate between December 2011- December 2012 (Adapted from the National Institute of Statistics, 2012) According to the chart, the first drop in the rate of2013 was recorded in April, among women, with 4,5 % and more by 1% compared to the same period of the year before. The total number of unemployed at the end of the month were 467,000 and in March, plus 25,000 more. Women worked mostly in the administrative field- 63.4% and services - 60.3%, and men, a percentage of 56.5%, were unqualified, and 52.5% worked in areas such as beekeeping, forestry and fishing. The number of employees in the social services sector represented 20.8% of all the employees of the economy. Most unemployed people, about 134,000, are aged between 40 and 50, and the fewest, around 36,000, are graduates aged between 25 and 40. In June 2013, the unemployment rate was 4.96%, with 0.07 percentage points less than in May.

% 6.2 6.6 5.9 6.3 6.3 6 5.8 6 6.2 5.7 5.7 5.6 5.8 5.3 5.3 5 5 5.1 5.1 5.4 4.9 5 4.9 4.8 4.7 5 4.5 4.3 4.3 4.5 4.4 4.6 4.2 3.8

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Figure 4. The unemployment rate between December 2012-December 2013 (Adapted from the National Institute of Statistics, 2013)

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In August 2014, the unemployment structure was divided into: 85,000 unemployed people under 25 years old, 34,000 were between 25 and 29 years old, 96,000 unemployed were between 30 and 39 years old, and approximately 250,000 unemployed were between 40 and 55 years old. In 2014, we can see that the largest increase in unemployment among men in the past three years of 6.5%, while the rate for women remains constant. According to the National Agency for Employment, in 2014, by level of education, the unemployed with no education and those with primary education, secondary and vocational education have the highest share in the total of the registered unemployed, i.e. 74.71%.Unemployed persons with upper secondary education level account for 19.24% of the total registered unemployed, and those with university education, for 6.05%. Moreover, the NIS confirms that most Romanian people work in agriculture, forestry and fishing, and another large percentage works in services. The most productive activities, followed by financial intermediation activities for women, were recorded in health and social assistance, with 79.8%, and education, with 69.6%. The county with the most unemployed persons is Vaslui (11,15%), followed by Teleorman (10,92%) and by Mehedinţi (9,75%).

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4.2 3.8 Dec Ian Feb Mar Apr May Iun Iul Aug Sept Oct Nov Dec

2013 2014 Figure 5. The unemployment rate between December 2013- December 2014 (Adapted from the National Institute of Statistics, 2014, p.69) According to statistics, the unemployment rate in 2014 was significantly lower compared to the previous year. The decrease was of 3%, with percentages of 7.1% in 2013 and 6.8% in 2014. According to the chart, women have remained at the same unemployment rate of 4.7% in August and December. The unemployed with high school degrees and postsecondary education account for 20% of the total number of unemployed persons, and 6.41% represents those who have higher education. Young people aged between 15 and 24 years accounted for 24% of the percentage of unemployed. In February 2015, the number of unemployed was down compared to the same month in 2014. According to the chart, the rate of unemployed men is with 0.6% higher than

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women. According to the Economic Growth Strategy of the EU for 2020-2014, Romania was only 4.3 percentage points of reaching the national target of the population employment rate and reached 65.7% compared to 70% as the proposed target was. According to statistics, young people aged between 15 and 24 accounted for 22.5% of the employment rate. In 2015, the employment rate of the aged population workforce between 15-64 years were 61.4%, up from the previous year by 0.4 percentage points. Also, the occupancy rate in 2015 of the population aged 20-64 was 66.0%, at a distance of 4.0 percentage points compared to the national target of 70.0% set in the context of the Strategy Europe 2020. In 2015, Romania's active population was 9.159.000 people, of which 8.535.000 were employed persons and 624.000 were unemployed. In 2015, the employment rate of the working age population between 15-64 years were 61.4%, rising compared to the previous year by 0.4 percentage points. As in previous years, the employment rate was higher at men were 69.5%, compared with 53.2% for women and for people residing in rural areas 61.7% versus 61.3% in urban areas. The employment rate of young people between 15-24 years were 24.5% and that of elderly between 55-64 years of 41.1%. Romania is in an unfavorable position when it comes to youth unemployment. Thus, according to data reported by the Institute of Statistics at Eurostat (the European Commission's statistical office), the unemployment rate among young people under the age of 25 is 24% in Romania, above the European average of 22.2%. However, the situation in Romania is better than in countries such as Spain (with a record unemployment rate among young people, 53%), Greece (52%) and Croatia (45%).

60 50 40

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Unemployment rate under 25 years of age

10

Unemployment rate between 25-75 years

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Figure 7. The unemployment rate in 2015 (Adapted from the National Institute of Statistics, 2016)

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As well, in 2016, 349.000 inactive people wanted to work, but either they were not looking for work or they were not ready to start working for various reasons. The share of undocumented persons in the total active population was 2.4% in 2016, with 0.5 % points lower than the previous year. In the additional potential workforce was 349.000 people, down 3.3% compared to the previous year. The national unemployment rate was 4.75% at the end of November, 0.01 % points lower than in October 2016 and 0.13 percentage points lower than in November 2015. Unemployed without education and those with primary, secondary and vocational education had the highest share in the total number of unemployed registered about 79,66%, while the unemployed with high school and post-high school education represented 16,09 % and those with university studies about 4.24%.

Figure 8. The unemployment depending of age (Adapted from the National Institute of Statistics, 2016) In January 2017 the seasonally adjusted unemployment rate was 5.4%, decreasing by 0.1% compared to the previous month, when it registered the value of 5.5%, according to data provided by the National Institute of Statistics on 2 March 2017. The number of unemployed aged between 15 and 74, estimated for January 2017, was 488.000 of people, down 5.000 compared to December 2016, when 493.000 of people were registered and 94.000 persons as of January 2016, when 582.000 unemployed were registered. The male unemployment rate surpassed that of women by 0.9%, with 5.8% for men and 4.9% for women. For adults aged 25 to 74, the unemployment rate was estimated at 4.3% for January 2017, with 4.8% for men and 3.7% for women. The number of unemployed aged 25-74 represented 74.6% of the total number of unemployed estimated for January 2017. In conclusion, we can see that the unemployment rate in Romania is below the European Union average of 5.4% in January 2017, down from 5.5% in December 2016 versus 9.6% in the average at European level. But at the end of April 2017, the unemployment rate registered at national level was 4.34%, lower by 0.21 % than in the previous month and lower by 0.35 % than that of April 2016. Most unemployed people were between 40-49 years of age about 115.204 of people , followed by those in the group aged 30-39 about 81.719 of people, with the opposite number being between 25-29 years about 29.846 of people.

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Under 25 years

25-29 years 30-39 years 40-49 years

50-55 years Over 55 years

Figure 9. The unemployment rate in 2017 (Adapted from the National Institute of Statistics, 2017) Conclusions According to the studies, Romania registered in July of this year a national unemployment rate of 6.8%, with 630,000 unemployed, thus occupying a favorable position among the European Union states, ranking eighth in the list of countries with the lowest unemployment rate. It is true that our country has low unemployment rate compared to other countries such as France (10.3%), Poland (9%), the Netherlands (7.4%), but when it comes to the youth unemployment rate, Romania ranks negatively. According to the Eurostat Institute of Statistics, the European average regarding youth unemployment rate is 22.2%, while Romania recorded a 24%. The percentage of the unemployed among the youth still remains high because employers increasingly focus on experience. Schools, colleges or universities do not have sufficient practical projects to help young people gain experience and improve their knowledge. Young people should acquire qualification in IT, leadership, foreign languages. The European Union also advises the Member States to encourage the study of science, technology, engineering, and mathematics, as these will be just some of the profiles that will be in high demand in the labor market in the future. During the past five years, vocational schools and vocational education regained reputation, and in 2015, more and more students opt for such schools to the detriment of universities. This is because Romanians are beginning to change their mentality; where until recently all students must have had higher education, aspire to a social position as highest as possible and retire exactly from the same place where they committed first, now things took another turn, i.e. it is not a shame to be a good worker, baker or cook, than to have many diplomas and be unemployed; moreover, the labor book has disappeared and now, there are only fixed or indefinite period contracts signed between the employers and the employees. Of course, a factor impacting the temporary employment market was the crisis, because many people have chosen to work temporarily, according to the employer’s projects.

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Research shows most temporarily employed people have secondary education – 46% – and higher education – 23%. Another survey shows that 20% of them are students, and 12% are unskilled workers. The study shows that people who choose temporary employment contracts do it either to gain experience or because they cannot find work at the moment and prefer to work temporarily until will find a steady job. The most sought temporary jobs are in services, construction and agriculture. Proposals for combating unemployment in Romania: - The State should support employers to implement multiple voluntary programs for students who wish to acquire knowledge, skills and gain experience that will help them to quickly find a job after graduation. - The State should pay bonuses or tax cuts to all companies that hire inexperienced young people. - Organizing assistance programs addressed to finding a job, mentoring, career guidance. Fostering entrepreneurship programs at school, followed by high school and college. - Supporting exchanges between students of our country and students of the EU. - Continued staff training programs and accumulating as many qualifications as possible. - Integration and implementation of a compulsory ICT. - Every citizen must know the functions of a computer. Professional orientation courses developed according to market trends. - Establishment of associations at community level for the care of sick people or babysitting, where unemployed people can adjust their skills according to market requirements. - Organization of frequent job fairs where people can search and find the desired job according to market requirements. References Eurostat Regional Yearbook (2010). Retrieved from ec.europa.eu/eurostat/documents/3217494/5786129/KS-HA-14-001-00EN.PDF. Keynes, J.M. (2007). The General Theory of Employment Interest and Money. London: Palgrave Macmillan. Legea Șomajului [Law of Unemployment]. Retrieved from https://www.ajofmcs.ro/site/info_publ/Legea-76-din-2002-actualizataianuarie-2015.pdf. Pârăianu, M. (2003). Labor market. Bucharest: Expert Publishing. The National Agency for Employment (2015). Retrieved from http://www.anofm.ro/files/BULETIN%20INFORMATIV%20NR.%206.pdf. The National Agency for Employment (2012). Retrieved from http://www.anofm.ro/files/Comunicat%20de%20presa%20somaj% 20decembrie.pdf. The National Agency for Employment (2013). Retrieved from http://www.anofm.ro/rata-%C5%9Fomajului-%C3%AEn-luna-decembrie2013. The National Institute of Statistics (2011). The world economy. Retrieved from http://www.insse.ro/cms/files/publicatii/EconomiaMondiala2011.pdf.

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The National Institute of Statistics (2011). The Romanian Statistical Yearbook. Retrieved from http://www.insse.ro/cms/files/statistici/comunicate/com_anuale/ocupsomaj/somaj_2011r.pdf. The National Institute of Statistics (2012). The Romanian Statistical Yearbook. Retrieved from http://www.insse.ro/cms/files/statistici/comunicate/com_anuale/ocupsomaj/somaj_2012r.pdf. The National Institute of Statistics (2013). The Romanian Statistical Yearbook. Retrieved from http://www.insse.ro/cms/files/statistici/comunicate/com_anuale/ocupsomaj/somaj_2013r.pdf. The National Institute of Statistics (2014). The Romanian Statistical Yearbook. Retrieved from http://www.insse.ro/cms/files/statistici/comunicate/com_anuale/ocupsomaj/somaj_2014r.pdf. The National Institute of Statistics (2016). The Romanian Statistical Yearbook. Retrieved from http://www.insse.ro/cms/ro/content/ocupare-si-somaj. The National Institute of Statistics (2017). The Romanian Statistical Yearbook. Retrieved from http://www.insse.ro/cms/ro/tags/forta-de-munca-romaniaocupare-si-somaj. The National Press Agency (2015). Retrieved from http://www.agerpres.ro/economie/2015/03/31/ins-rata-somajului-a-scazutla-6-4-in-februarie-2015. Online Business Daily. Retrieved from http://www.dailybusiness.ro/stiricariere/criza-a-dublat-piata-locurilor-de-munca-temporare-ce-industrii-facangajari-95799.pdf. Online Business Wall-street. Retrieved from http://www.wallstreet.ro/articol/Social/186611/cati-someri-cu-diploma-are-bucurestiul.html. Online newspaper. Retrieved from http://www.ziare.com/locuri-demunca/angajari/avertisment-europa-sta-pe-o-bomba-demografica-cu-ceas1255409. Online newspaper. Retrieved from http://www.gandul.info/interviurile-gandul.html.

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THE DEVELOPMENT OF HIGH-TECH INDUSTRIAL ENTERPRISES IS THE PATH TO A COMPETITIVE ECONOMY Marina FEDOTOVA Financial University under the Government of the Russian Federation 49 Leningradski Prospekt, Moscow, RU [email protected] Natalia POLZUNOVA Vladimir State University 79 Gorkogo St., Vladimir, RU [email protected] Abstract. The competitiveness of high-tech industrial enterprises should be given special attention, since only they at the present stage can maintain world leader status not on resource-based raw materials, and on a fundamentally new, innovative basis. It is advancing the development of high-tech industrial enterprises should be regarded as a powerful source of the country's modernization, improving economic efficiency and growth of well-being of the population. Low level of competitive development of hightech industrial enterprises complicates the use of innovative ways of economic development and implementation of technological breakthrough. Low investment demand, associated with low investment attractiveness and with low domestic consumption the same negative impact on the development of high-tech industrial enterprises. Deterrent effect of industrial enterprises has problems of institutional and infrastructural problems. High level of import dependence has also had a negative effect on the situation. All of the above problems development of high-tech industrial enterprises are observed in terms of becoming world processes "new industrialization", the purpose of which is to facilitate the transition to the new technological ways and build a competitive economy. So by 2020, the European Commission plans to bring: up to 20% of the industry; the share of gross fixed capital formation in GDP up to 23%; investment in equipment from the current 6-7% of GDP to 9% in the year 2020. In the United States 24 % of GNP is generated by value-added industry and another 25% of GNP through the services sector-related industry. The study used data from Industrial Development Report 2013-2016, data of the Federal State statistics service. In the course of the analysis of these indicators were applied as the dynamics and structure of hightech industry sector's contribution to GDP, the profitability of the high-tech industry, indicators of resource efficiency high-tech industrial sector. Quantitative analysis was supplemented by expert interviews with management of enterprises that use high technology, representatives of the academic community. The function of this interview was to determine the key factors of competitiveness and their trends changes. The study produced the following results: Were identified an evaluation of the condition and development tendencies. Model development of competitiveness of high-tech industrial enterprises taking into account the key factors of competitiveness, namely the level of technology and the level of cooperation. The obtained results are the basis for further research to develop strategies to ensure the competitiveness of high-tech industrial enterprises. Keywords: high-tech industrial enterprises; development; competitiveness.

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Introduction A key factor in the long-term competitiveness of any level of economy is the progressiveness of its sectoral structure. Analysis of empirical material, research findings confirm that there is a correlation between the high percentage of primary commodities and the negative effects in the economy. The economies of countries with a major share of high-tech industries are resistant to inflation, as the prices of products of technology production are only at the initial stage determined by the great costs of development and pilot production. And as production volumes increase, the costs and prices of output are reduced by economies of scale. This prejudges relatively low inflation. Commodity prices are increasing objectively because of the deterioration of the commodity base, the conditions of mining and the production of high-yielding deposits. Thus, the competitiveness of commodity industries is determined by costs, and the increase in domestic costs is an objective factor in increasing the level of socioeconomic development of any territory. "Hence, the competitiveness of only the lowtechnology industries-the developing economy." At the same time, the habit of living at the expense of commodity exports hampers innovative development. In the report "World competition." The new reality of the US Presidential Commission is to declare, "enhancing the competitiveness of the American industry" as a national goal (Kornev, 2014). According to Gardner Research metal, US enterprises are increasing the cost of new metalworking equipment (Gardner Business Media, 2015). In Europe, improvements in productivity and the introduction of new technologies should be ensured by measures to increase investment in equipment from the current 6-7% GDP to 9% in 2020 (UNIDO, 2013b). It is industry that is making a significant contribution to the development of GDP in an economically developed country, playing the role of an indicator relative to the characteristics of its economic development. The reduction of this is an obvious "sign of the country's economic decline". In this regard, the manufacturing sector, particularly the high-tech part of the economy, is promising in terms of achieving sustained economic growth. The status and development of the manufacturing sector determine the country's position in the world economy and its ability to influence world events. It is the development of the manufacturing industry that reflects the productive capacity of any country. Purpose of the study is to define lines of development of the competitiveness of high-tech industrial enterprises Research methods The aim of the research is to develop a model for ensuring the competitiveness of industrial enterprises of high-tech industries on the basis of studying the directions of development of them competitiveness. The study was carried out in three stages: 1. To identify trends in the development of high-technology industries at the current stage. 2. Assess the current state of the high-technology industrial sector of the economy and conduct a comparative analysis in the cross-country section.

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3. Identify key factors in the competitiveness of high-tech industries at the present stage. 4. Propose a model for the competitive development of high-tech industries. The main sources of data for the study were the US president's economic Report, Industrial Development Report 2013-2016, ROSSTAT data, accounting-consulting companies, expert interviews, International Yearbook of Industrial Statistics 2016. The analysis used indicators such as the dynamics and structure of the contribution of the high-tech industry to GDP, the share of the value added of the high-tech industrial sector, the average annual growth rate of the high-tech industry, the share of exports of the high-tech industry, and the profitability of the high-tech industry. The quantitative analysis was supplemented by an expert interview with senior management of enterprises using high technology, held in February 2014, 2016. The function of the interview was to identify key factors of competitiveness and trends in their evolution. The selection of candidates for the experts was based on an analytical assessment of their competence. 55 experts were interviewed in the high-tech industries of the Central Federal District of the Russian Federation. 45 per cent of the experts interviewed are employed in private companies, the rest in enterprises with public participation. A large number of experts work in enterprises operating under strong competitive pressure, primarily from foreign producers. The study of the development of high-tech industries used comparative and structural analysis, which revealed current trends in the development of high-technology industrial enterprises. Scientific, practical and analytical publications, scientific reports were also used as a source of information on significant factors and conditions for ensuring the competitive advantages of high-tech industries. Results of the study The leading sector in the world economy and the economies of highly developed countries is the high-tech sector, which in general has been in the period of 2000-2014 achieved a global 90 per cent increase in the value added of all manufacturing industries. This result was the result of a number of trends. First, there has been a gradual shift of manufacturing from the industrialized to the developing world. This has provided the latter with growth in output, which is accompanied by an increase in the share of the industry in GDP. In the developed countries, there has been a general increase in manufacturing output, with a decline in its share of GDP (Figure 1). These processes reflect an increase in the demand of national markets for manufactured goods and are due to the availability of modern production infrastructure and lower labor costs. At the same time, the low-cost labor force has recently had a less influential influence on decision-making. According to President Reshoring Initiative Moser, the average annual rate of pay increases for the Chinese worker is 15-18 %, American-3 % (Bogdanova, 2013). The productivity of the latter is higher. Moreover, cheap labor is not capable of creating high-tech and

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technologically sophisticated products produced by high-tech industries. Therefore, according to Kuchukov R.: it is now competitive not to paid, but to an expensive workforce capable of solving technically complex tasks by taking on the responsibility of design, which is capable of working with modern technologies, masteringing and embedding them in productive activities (Kuchukov, 2015). According to R.Reich China, skilled labor is the only advantage of developed countries (Reich 1982).

Figure 1. Structure and dynamics of contribution of manufacturing to GDP (UNIDO, 2016b) In the past two decades, there has been a certain loss of position by developed countries in manufacturing production. It is indicative that of the 133 countries, only 38 countries in 2011 compared to 2006 showed an increase in the share of manufacturing in world GDP, two have not lost their positions. In the list of these countries, none belongs to the economically developed. Eleven countries are territorially located in Europe. This trend is of concern to the Governments of developed countries and their political elites. In recent years more than 250 industrial productions have been returned to the US from developing countries. Secondly, developed foreign countries are returning the "technological model of economic management", which emphasizes the development of high-tech manufacturing industries (Figure 2, Table 1, Figure 3).

Figure 2. Contribution of the high-tech industry in the GVA manufacturing sector, % (UNIDO, 2016b)

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Table 1. Share of the high-tech industry in the lead countries of the enlarged region (UNIDO, 2013a) Enlarged Europe North Asia Middle East and Region America North Africa lead country Germany United States Japan Israel 2006 11,57 31,44 15,94 3,72 2011 13,25 33,20 13,74 4,89

Figure 3. Structure of the high-tech industry in the aggregated regions (UNIDO, 2013a; UNIDO, 2016b) The sum of 4 lead countries in 2006 accounted for 62.67% of the global GVA of the high-tech industry, and in 2013, it was already 65.08%. China has the highest share of manufacturing value added to GDP (Figure 4).

Figure 4. Trends in the share of manufacturing value added in GDP, % (UNIDO, 2013a) In some countries, such as the US, China, Russia, the growth rate of the high-tech sector compensates for the slow growth in other manufacturing industries (Table 2). Thirdly, there is the replacement of the labor-intensive process of capital-intensive, where the priority is Labor saving, one of whose objectives is "to transform intellectual work into a mass and predominant". It is the production of a high level of intellectuality, where new technology technologies are already involved, and, as a

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result, the high value added is the nucleus of hi-tech industries. And as technologybased competition among technologically advanced countries is being done at the expense of technologies, advanced countries are rapidly developing highly technological industries. To withstand this type of competition, developed and competitive engineering, which, along with pharmaceuticals, it is classified as a hightech industrial sector. Table 2. Contribution of the high-tech industry to changing value added in terms of country (UNIDO, 2016b) Countries

World United States Germany Japan China Russia

Value added of industry, mln. $.

Value added high tech industries, mln. $. 2000 2013

Growth rate of value added industry, %

Growth rate of value added watts, %

Contributi on of replicated to value added growth,%

2000

2013

5646338 1479920

11073421 1876317

861874 284270

1525948 416344

1,96 1,27

1,77 1,46

90,28 1,16

392551 1034091 392778 44979

711188 1169761 2436588 119799

6610 185145 37685 2755

8838 129327 364938 20882

1,81 1,13 6,20 2,66

1,34 0,70 9,68 7,58

0,74 0,62 1,56 2,85

The structure of the machinery is not homogeneous. First, it is different in its composition, which separates both the individual industries and the many specialized subsectors and industries. Secondly, it has both developing and depressed areas. Of the Russian mechanical engineering technologies that have been created in recent years, about 12 per cent have no counterparts in the world and are the same as those of the best foreign specimens (Borisov & Pochukaeva, 2011). Then almost one quarter of the new technology in mechanical engineering is a priori competitive. Thirdly, mechanical engineering is an industrial multinomenclature complex. In the economically advanced countries, the products of the engineering industry account for 35-50 per cent of the value of industrial Production (Table 3) and 25-35 per cent of industrial employment are much smaller in developing countries. The state of the economy is reflected in the dynamics of the production of metal equipment and the level of development of the machine is an indicator of development of economic and productive forces. According to the findings of Steve Kline, the production of metal equipment in developed countries almost always changes at the same rate as consumption. The stable development of key sectors of the economy, such as the aviation industry, the motor vehicle, shipbuilding, electricity and many other industries that systematically restructure and modernize production, creates a high demand for precision, high-performance and highly efficient automated equipment.

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Table 3. Share of industrial machinery in the developed world industry (UNIDO, 2016a) (Gardner Business Media, 2016) Country

Share Mechanical Engineering, %

World machining equipment production

Place in the world on the consumption of machining equipment (per) 2013 2015 20 8 24 1 7 6 16 16 17 17

Russia China Italy France United Kingdom Canada United States Japan Germany

19,5 32,9 26,4 26,1 29,6

2008 21 1 4 12 14

2013 21 3 4 15 11

2015 17 1 4 14 11

22,5 28,5

15 7

12 6

16 6

9 11

42,2 42,8

3 2

2 1

2 3

8 3

Place in the world for the export of machining equipment 30 4 3 15 14

Place in the world for the import of machining equipment 5 1 6 15 16

12 2

20 8

13 2

4 3

2 1

11 3

The statistics presented are an explanation for the fact that Russia has very modest positions among foreign countries by level of development of the high-tech industry (Table 4), after not only the developed (industrialized, technological leaders), but also some developing countries. The high-tech sector of the economy is a priori highly innovative. The technology innovation leader is a high-tech enterprise, with a share of 30.6 per cent (Figure 5). Enterprises producing radio, television and communications equipment, 33.5 per cent and aircraft manufacturing facilities, including space-33.6 percent, are very active in this sector. The manufacturing industry, classified as srednetehnologichnym, has a share of technological innovation in the range of 15.322.2%. Table 4. Selected indicators of the level of development of high-tech and mediumlevel activities of different countries (UNIDO, 2016b)

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Figure 5. Percentage of organizations carrying out technological innovations by type of activity according to 2014 (Gorodnikova & Gokhberg, 2016) An analysis of current practices of foreign high-tech industries highlighted the determinants of competitive advantages: innovation and productive capacity, as illustrated by the contents of the table 5. These same factors also draw attention and Migranyana A.: "The performance of the most prosperous economies, high competitiveness and stable economic growth are, above all, factors that encourage the diffusion of new technologies. Taking into account the fact that modern competitive advantages are almost fully realized through the benefits of production, management, product promotion technologies, the successful achievement of the competitiveness of the economic system is possible with the integrated use of modern concepts of innovative development, incorporating the theories of the cluster mechanism." (Migranyan, 2002) Table 5. Dominant factors for the competitiveness of industrial enterprises in foreign countries Japan 1. Modern technology as a result of research and development, R&D; 2. An effective system of organization and motivation for work as a technology for the management of human resources; 3. Development of productive capacity

United States 1. Promoting innovation through the development of productive and innovative capacities; 2. State support for strategically important but not profitable enterprises; 3. Support for enterprises in external markets

China 1. Effective pricing policies with low quality products; 2. Import of innovative solutions and their rapid introduction into production; 3. Building volumes through export orientation of production

Both all above, we believe that, first, competitiveness takes into account two aspects (Vetrova, 2013): external and internal, which are built on external and domestic competitiveness factors. The external dimension focuses on the ability of an enterprise to form an effective relationship with external stakeholders. The internal characterization is the ability to effectively utilize the potential of an enterprise and, on that basis, to build sustainable competitive advantages. A map of stakeholders in the competitiveness of replicated is presented in Figure 6. Secondly, the competitiveness

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of a complex concept, involving several levels of competitive superiority, replicated in the modern context. Therefore, a structured analysis of the concept of "competitiveness" includes several functional interrelated areas namely: technical (technological) competitiveness, Personnel, Social, Financial and economic, competitiveness of Management, Marketing, product competitiveness, as presented in Figure 7. One of the components of a voluminous model of replicated competitiveness is technological competitiveness, which in turn has its own structure, including scientific, technological, industrial, technological and environmental competitiveness. The problems of continuous scientific and technological upgrading are the basis for the market viability of industrial enterprises. Innovation is sometimes the decisive factor for sustainable development.

Figure 6. Map of the stakeholder model for competitiveness

Result Level

Figure 7. A multi-level model of competitiveness replicated

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It is the scientific and technical status of the enterprise and its real competitiveness that determine and implement science, technology/innovation policies and their implementation. The results of the survey reveal a mixed assessment of the technological level of the domestic manufacturing industry, with a significant lag of one parameter combined with relatively high values for other indicators. For example, the high physical wear of equipment and the inadequate level of R&D costs are combined with impressive indicators of the use of information and telecommunications platforms, organizational infrastructure: scientific laboratories and R&D units, computer and information networks, quality certification systems by ISO standards. The ability of an enterprise to withstand, fight, and Triumph in it a victory for the quality and professionalism of the workforce, capable of working using highly efficient technology and technology, is nothing less than the staff competitiveness of the enterprise. The main ingredients of the product's competitiveness are its consumer properties and price. However, the market prospects for the goods are not only related to the quality and costs of production. As important as the productive aspects of the replicated competitiveness activities are, the returns aspects of the proposed service, image and advertisement are still one of the main roles in achieving success. As a result, enterprises cannot avoid using basic marketing functions, which ultimately characterizes their marketing competitiveness. The link between all the functionally interlinked areas of replicated competitiveness is the management system, the competitiveness of which is the ability to design and implement a sound concept of competitive development. It is proved that the competitiveness of a modern organization depends on the use of new ideas and knowledge-intensive developments in the production of goods and services, and in the management system of the enterprise (Abdikeev, 2014). The author's research has demonstrated the impact of managerial effects on the competitiveness of output. Thus, the author has received and nor models of the relationship between the competitiveness indicators of different groups of equipment produced by one of the machine enterprises and the criteria for the level of management of the enterprise. Yet all the elements considered for the competitiveness of an enterprise are through the product, through its characteristics, as reflected in Figure 7. This is an objective and predetermined object of competition. In fact, as the Gelvanovsky M. rightly says, "... The competitiveness of products and firms is formed at the national cultural and historical base. Moreover, the accumulation of competitiveness takes place from macro to micro. "Products and services crown this complex process of building competitiveness" (Gelvanovsky, 2007). Professionals and managers at different levels of industrial enterprises are involved in identifying key factors for the competitiveness of high-tech industries. The evaluated results of the evaluations made it possible to calculate the ranking of the functional areas of competitiveness of high-tech industries (table 6). Rank comparisons emphasize the increasing role of scientific and technological factors and competent personnel in the process of developing the competitiveness of high-tech industries.

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Table 6. Assessing the importance of functional areas competitiveness of high-tech industries

Conclusion Our study has led to the identification of trends in the development of the high-tech sector of the economy, among which the main ones are: - the trend towards a gradual shift of production from industrialized to industrializing countries; - the return of the "technological model of economic management" by developed foreign countries; which emphasizes the development of high-tech manufacturing industries is the tendency to replace labor-intensive capital-intensive, where Labor saving is a priority. There has been some slippage in the Russian high-tech industrial sector from foreign to GDP value added of manufacturing, the share of exports of hi-tech and medium higher levels of industrial exports, production and per consumption of machining equipment, export, and import of machining equipment. However, with its significant performance in a number of competitiveness factors, Russian high-tech industries have good prospects for improving their competitiveness and competitive development. A model for developing the competitiveness of high-tech industries has been built, making it possible to highlight priorities in the formation of competitiveness policies. Further research by the authors will be related to the deepening of comparative analysis of the development of high-tech industries within the framework of the trends identified with a view to creating patterns, principles, and factors for development. References Abdikeev, N. (2014). Knowledge-based economy and innovative development. Bulletin of the Financial University, 83(5), 16–26. Bogdanova, O. (2013). Made in the USA. Business Magazine RBC. Retrieved from http://rbcdaily.ru/magazine/trends/562949988641452 Borisov, V.N., & Pochukaeva, O.V. (2011). Modernizations of Russian manufacturing on the basis of the sustainable development of domestic machine building Studies on. Russian Economic Development, 2(22), 142–147.

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Gardner Business Media (2015). Сapitals pending survey 2015: Machine tools Executive Summary. Retrieved from www.gardnerweb.com/research. Gardner Business Media (2016). Gardner Research 2016: World Machine Tool Survey. Retrieved from www.gardnerweb.com/research. Gelvanovsky, M. (2007). The role and limits of competition in raising the national economy competitiveness. Modern Competition, 4(1), 22–27. Gorodnikova, N., et al. (2016). Indicators of Innovation in the Russian Federation: 2016: Data Book. Moscow: HSE. Kornev, A.K. (2014). Business potential in Russia: Competitive growth in the manufacturing sector. Studies on Russian Economic Development, 25(5), 467–477. Kuchukov, A.K. (2015). Neo-industrial model of farming as a main factor of development of economy of Russia. The Horizons of the Economy, 2(1), 17–26. Migranyan, A. (2002). Theoretical aspects of formation of competitive clusters in countries with economies in transition. Bulletin of the Kyrgyz-Russian Slavic University, 3(1), 22–29. Reich, R.B. (1982). Why the U.S. Needs an Industrial Policy. Harvard Business Review, 1(60), 74–80. UNIDO (2013a). Sustaining Employment Growth: The Role of Manufacturing and Structural Change:/ Industrial Development Report. Retrieved from https://www.unido.org/fileadmin/user...and.../UNIDO_IDR_2013_main_report.p df. UNIDO (2013b). The industrial revolution brings production back to Europe. UNIDO in Russia, 11, 57–58. UNIDO (2016a). International Yearbook of Industrial Statistics 2016. UNIDO (2016b). The Role of Technology and Innovation in Inclusive and Sustainable Industrial Development:Industrial Development Report. Retrieved from https://www.unido.org/fileadmin/user.../EBOOK_IDR2016_FULLREPORT.pd. Vetrova, E. (2013). Management of the strategic competitiveness of the enterprise. Saarbrucken: Lambert Academic Publishing.

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THE IMPACT OF THE DIGITAL ERA ON HUMAN RESOURCES MANAGEMENT. SOCIAL MEDIA AS RECRUITING ENVIRONMENT FOR POTENTIAL CANDIDATES Carmen NOVAC National University of Political Studies and Public Administration 30A Expozitiei Blvd., 012104 Bucharest, RO [email protected] Raluca Silvia CIOCHINĂ National University of Political Studies and Public Administration 30A Expozitiei Blvd., 012104 Bucharest, RO [email protected] Abstract. The 21st century is defined by the increased interest for the multidimensionality of the labor market. Digitalization is a process holding an important effect on the relationship established between the employer and the employee. In Romania, digitalization is becoming a relevant topic of discussion throughout various domains. The need to strengthen the Human Resources Management (HRM) in Romania represents a growing area of interest, as this is considered to be the "backbone" in any modern organization. This paper focuses on the impact of the digital era on specific HRM processes. The paper addresses recruitment and selection processes within the context of the development of social networking usage, specifically focusing on the attitudes of human resource specialists in regards to the challenges and opportunities of using online media for recruitment and selection purposes. The paper is supported by the results of the analysis of twelve interviews with human resources specialists responsible for recruitment and selection. The aim is to explore recruitment and selection opportunities, challenges and tendencies considering the continuous development of online media, which has transferred HRM activities in this new sector. The results suggest that even though online communication channels such as social networking sites include many advantages in the recruitment process, human resources specialists still lack specific objectives and a wider vision for incorporating the vast opportunities of online media into a more extensive recruitment and selection strategy. Keywords: recruitment; selection; social media; social networks; selection tools. Introduction As Social Media has become one of the biggest trends of modern society, the overwhelming development of Social Networking Sites and its increase in popularity has gained the consideration of many industries, including Human Resources. The increase in the use of social networks to 37% in 2015 compared to 35% in 2014 (Măgdălina, 2016) for staff recruitment has led to the research aim to identify the opinions of Human Resources specialists on the use of Facebook and LinkedIn for the purpose of recruitment and selection processes.

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As a business function, Human Resources has the greatest influence in conducting the business to its objectives. By harnessing the abilities, strengths, and talents of their employees, organizations can position themselves favorably before their competitors. By understanding globalization and the current business environment, one of the most challenging roles of Human Resources is to place the right person in the right role and to make sure that person constantly develops through training and coaching so they can face the constantly rapid changes (Lundby, 2010). Based on a qualitative research method, the structured interview, the present paper proposes, to highlight the characteristics of recruitment through social networks, the main forms of selection, as well as the challenges and benefits of online recruitment from a Human Resources perspective The study was conducted by interviewing twelve people employed in multinational companies from Romania, in the FMCG and IT & C industries. The FMCG industry (Fast Moving Consumer Goods) refers to specialized companies providing the most commonly bought products such as food, beverages, hygiene products, with relatively affordable prices. The IT&C (Information Technology and Communication) field includes specialized companies in the use of the technologies necessary for processing information using processors, computers, hardware and software, programming languages or data structures (Găitănaru, 2002). Literature background Whether an organization is recruiting externally or internally, Social Media has been found to be most useful. Social Networking sites and blogs began to be used as a recruiting trend since the past few years. Professional head-hunters across the world use Social Networking Sites as a recruitment strategy, especially through full access to LinkedIn accounts (Lundby, 2010) This is a new, cost-effective and developing way of recruiting top talents. Another method is web-site flipping, when recruiters can access individual home pages that are linked to organizational websites, providing valuable passive candidate information. Also, creating attractive websites and blogs can attract candidates, by providing relevant information, like news, updates, projects which are developing in real time and so on. Since 2002, when Friendster was first launched, social networking sites have been attracting millions of users. Networks like MySpace in 2003 and then Facebook in 2004 along with Twitter in 2006 developed a trend in people`s daily behavior, engaging a variety of audiences and supporting the maintenance of pre-existing social networks (Boyd & Ellison, 2007). Therefore, it was only a matter of time until Human Resources professionals started using these sites as reference checks for potential candidates. The combination between social media and recruitment process has turned into a concept called social recruiting which is defined as “harnessing the evolution of Web 2.0 technologies and social media tools to communicate, engage, inform and recruit our future talent”, allowing recruiters to connect professionals and talented people from a variety of niche communities. Social Networking Sites like Facebook, Instagram and Twitter are used by people to meet old friends, make connections, upload personal

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information, whereas LinkedIn, which focuses more on business connections, is used by people who upload job qualifications and application information. Looking at a Social Networking Site for a candidate or an employee can provide a good perspective for the employers who look for what the person is doing after work or even during work. A resume usually provides professional information, while the personal information can be found online, with many job applicants placing inappropriate, unprofessional or unappealing material on publicly accessible Social Networking sites. Over 800 human resources professionals and employers from the US have responded to a survey conducted by JobVite in 2011, with the majority admitting they always search candidate profiles, especially LinkedIn followed by Facebook, then Twitter and a blog, 2 out of 3 of them have successfully hired through social networks. Most employers believe that recruiting passive candidates is the leading strategy for competing against other employers (Jobvite, 2011). LinkedIn is probably the most popular site used by recruiters and candidates. Professionally, it is a great way to maintain one`s list of professional contacts, to establish contacts with potential employers or candidates, to recommend one`s services, to work on personal branding or PR, to do some research on a person, organization or an industry (Newson, Houghton & Patten, 2009) Social Media, as a word of mouth tool, has a powerful impact on delivering person-to-person information, providing a valuable source for human resources specialists looking to gain more personal insights about their candidates. Through Social Networking Sites, organizations can connect with current employees, retired employees, and employees on the leave, being used as a collaboration tool. Also, from a candidate`s perspective, employees are the most trusted source of information with more than 80% of candidates believing that current employees are credible sources of information about organizations (Philips & Edwards, 2008). This means that the information found on a professional or personal profile of an employee can be a factor in choosing the organization a candidate is applying for. It is true that if an employer must review information on a social network, LinkedIn would be the best choice to do so as it is constructed as a professional site for its users with job-related information and minimal personal information, describing the professional background and facilitating connection with other professionals. LinkedIn provides two advantages, a profile and a group: the profile can be used in recruiting and keeping connections with the past, present and prospective employees and the group can be used for recruiting, marketing, industry news, posting job opening, starting discussions etc. Facebook offers its users the possibility to use both a profile and a fan page: the profile can be used for HR and communication purposes, posting status updates about the organization`s HR news, internal communications, job openings, links for the blog and job description, events created for job openings to reach as many people as possible.

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Research questions With the scope of analyzing the recruitment processes as well as the selection methods used by companies for identifying and selecting the best candidates and for the purpose of formulating the best strategy for attracting human capital, the following research questions were formulated: 1. How do employers perceive the practices of recruiting via social media platforms? 2. What are the advantages and disadvantages identified by employers in the online recruitment process? 3. What are the dominant trends in the candidates' selection process? Methodology The qualitative research method used was the structured interview. Each respondent received an email with the invitation to participate in the research. Respondents who accepted the invitation were told that the interview would be recorded using a tape recorder to transcribe the conversation with the maximum accuracy to interpret responses strictly for academic purposes. For efficiency purposes, each quote was accompanied by respondent data. The R symbol replaces the name of the interviewed person and is appended to a number (from 1 to 12) which represents the number assigned to the respondent according to the chronological order of the recording interviews. The group of respondents was made up of twelve female employees, employed in Human Resources departments, aged between 24 and 35 years. From the experience point of view, the group of respondents has a working age varying from 2 to 13 years, with 8 out of 12 respondents working for more than 5 years in multinational companies, with over 500 employees in Romania. Research results The first question in the interview was designed to identify the respondents' experience ("Tell me your name and for how long have you been working within the human resources field"). 7 respondents occupy positions in IT multinational organizations, while 5 respondents work in FMCG organizations, from Bucharest. The research sample characteristics are the following: 8 respondents have over 5 years of work experience, one person has 4 years of work experience in HR and 3 respondents have about 3 years of work experience within this field. Even though experience is a sign of a better knowledge of a domain, it has been shown that respondents with fewer years of work experience have a well-defined vision, being aligned with current trends. The second question in the interview ("What do you think about building a strong image of the organization in the online environment? ") is a transition one and makes the transition from the introductory question to the key questions (Chelcea, 2007) in order to obtain information for answering the proposed research questions. Thus, the importance of building a strong image of the company on online communication

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channels is a necessary strategy, well-known by all respondents. "Being present" in the online environment is perceived by people in Human Resources as a communication tool, for brand promotion purposes (R3, R5, R8, R9, and R12). As R6 emphasizes this idea: "It is a strategy without which no business will prosper in the future", suggesting the powerful impact of social media presence from a recruitment perspective as well. In addition to this first idea, by addressing people in the Human Resources field, it is predictable to propose that the presence of the organization in the online environment has a decisive role in identifying and attracting potential employees. This perspective corresponds to R4 - R7, R10 - R12 (R12: "... defining a strong image has a decisive role in attracting candidates to the recruitment process, winning the trust of the target audience being an aspect that brings success to the organization and facilitates identifying capital with potential"). Other respondents (R2, R9, R12) compare the organization's online image with a "business card", R9: "building a strong image here can become the equivalent of a company`s business card in relation to customers, collaborators, and potential candidates". In this context, we find that regardless of the size and degree of development of a company, effective management of an online communication channel is a necessary way to present the culture of the organization, to engage audiences on different topics referring to the organization`s identity. The third question in the interview ("Taking into account the increasingly active online presence, tell me about your recruiting process using online communication channels") focuses on identifying practices and actions taken by human resources specialists in order to find the right people, but also to find what objectives they have when using online channels for recruitment purposes (such as the company's website, specialized recruitment sites, social networks like Facebook, LinkedIn or other used means). The use of specialized recruitment sites is a common practice (R1 - R3, R5, R6, R7, R9, and R12). In the recruitment process, they appreciate the use of sites such as ejobs.ro, bestjobs.ro, hipo.ro as they allow an active search of CVs in databases accessible to employers 'accounts and the storage of job candidates' potential profiles for job positions that may appear in the future, R2: "The first step in recruiting through online communication channels is posting employment advertisements by creating an account... All selected CVs will be kept in a company database for future engagements". R7 talks about using the same types of sites, but the target audience identified here has a 1-2-year experience, senior’s profiles being identified on LinkedIn: "...more specifically, we use well-known platforms like bestjobs.ro, ejobs.ro and hipo.ro, but generally here we find the junior profiles or a maximum experience of 1-2 years and for senior profiles, we get the best results from LinkedIn". Online social networks have also gained popularity in the past few years. Although Facebook is mentioned only by 5 respondents (R4, R5, R9, R10, R12), this seems to be used for posting ads that present business opportunities, an action closely connected to the stable process of positive image-building of the company in the online environment (according to R12).

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In this important process, organizations are free to choose the most effective way in which they work, but most of the interviewees prefer LinkedIn. However, employers combine recruitment channels R6, R7, R11, R12 focus on LinkedIn users, this platform being associated with experienced people, professionals, unlike sites where the audience is much more varied, R11: "We're focusing on LinkedIn for specialists and white collar (professionals)". The stages of this process are described by R2, R3, R5, R7, R9 and a classic model of online recruitment: (1) posting employment ads on the used channels, (2) selecting CVs that correspond to a job description or search in databases when people are not in the active search phase of a job, (3) contacting potential candidates to be integrated into the process and according to company policy, (4) a face-to-face interview or competence testing using an online platform and then (5) the decision to go through the next steps to get the job (R2 and R5 interventions are relevant here). The fourth question in the interview ("Can you detail how you submit a recruitment announcement referring to your keywords, message size or other aspects that you keep in mind?") and we noticed by analyzing the data that there are many items that are taken into account when posting an ad. For a clearer interpretation, we have classified these aspects into three categories: the size of the ad, the message and the design of the message. The first aspect, the size of the ad, brings 2 points of view. R3, R4, R7-R9 promotes small-sized recruitment ads with the idea that the target audience can have a highly loaded program, but also the ability to view them from smaller devices, R3 mentions: "We use short messages that can be accessed from mobile and visualized in a reduced format, in a short period of time". Other human resources people are focused on using larger size messages, from ½ - 1 page, as in R5 case ("Ad size varies between ½ and 1/3 pages... "), R6, R9. Recruitment announcements should be of small sizes but must be accompanied by a link that leads to a page with more information. In this way, only people who are interested in the information from the short message will access the link for learning more information and applying for the job. The second dimension refers to the content of the message. Eleven respondents emphasized the information in the job description - open position responsibilities, required experience, skills and working capabilities needed to accomplish tasks and details of the benefits and compensation offered by the company, R5: "... the name of the vacancy, the level of experience called entry, middle or senior level, name of the company, city where the activity takes place, knowledge of the required foreign language". In addition to providing a brief presentation of the employing firm (R5, R11, R12), we believe that a good understanding of job description is vital in deciding whether to apply it or not. The third category of features of the recruitment announcement refers to the design of the message. The message should be suitable for every communication channel, for example, you can also use suggestive images on Facebook, the audience being mostly young, experienced for a few years, but in a more professional context, like LinkedIn, should give the ad a formal look, R9: "The places where we post ads are different, so the format may need to be different".

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From our own perspective, there is no fixed formula for transmitting an effective recruitment announcement; both the size, the content and the appearance of the message are elements that are considered for successful ad delivery. As far as the perception of the practice of recruiting on Facebook is concerned, the answers raise several issues. Regarding recruiting on this social network, R2, R9 argue that Facebook is an important source of information in this process, an effective way to make the brand known (R10, R12), as well as the organizational culture and at the same time a useful resource for promoting career opportunities (R5, R9). R5 stated that: "Within companies, it is increasingly used promoting recruitment ads and checking potential candidates". In addition, viewing a candidate's Facebook profile is a way of evaluating some aspects of his personality (R2, R5, R9), as the Facebook profile acts as a self-disclosure space where individuals present information for others to see. Although it can be argued that this is not an ethical or valid evaluation tactic, as privacy is different than that of a professional profile. Others (R4, R7, R9, R11, R12) associate Facebook with a good way to reach young audiences, this being the main category of users, R4: "It is rather the gateway to reach younger people with less experience". In this respect, companies have access through this network to a category of potential candidates who can hold junior positions, although this is considered (R2, R8) a nonprofessional technique. With respect to the recruitment process using LinkedIn, all twelve interventions of respondents to this question positively pointed out the use of this platform in searching and identifying potential human capital. Almost all respondents (10 of 12) consider LinkedIn one of the best recruitment platforms, especially for seniors and niche positions, R3: "LinkedIn is clearly the most effective online recruitment channel for senior and specialist positions". The possibility to connect with people in areas of interest, belonging to professional groups (R5, R8, R9, R12), facilitates both the search process for employers (they may have Premium accounts) who find references on the professional status of users and of persons seeking employment through "LinkedIn Job Search" (R2, R5, R7, R10, R12): "Users can easily find information about their favorite companies and communication with their representatives ensures professional and social interaction". The increasing use of this network seems to have exceeded the expectations of Romanian employers through the very active presence of professionals in this environment. LinkedIn becomes a fundamental tool, focused on connectivity. Candidates and companies meet on this platform under professional circumstances and expectations; the exchange of information leading to the formation of career networks, so ensuring quality staff is streamlined. Regarding the dominant trends in candidates` selection processes, the analysis of the obtained data presents common elements used by the staff responsible for the selection of candidates; the use of interviews conducted by human resources people, followed by interviews with department managers and test batteries (R1, R2, R6, R7, R9, R11), R7: "...exactly before they come to the interview we send them some online tests on certain technologies. Following the interview with an HR representative, if everything is ok, the interview with a technician follows... If all the feedback is good to this point, the interview with the team manager is performed and then, if he is satisfied, the offer is made to the candidate".

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For completing the mix of used tools, some employers also use the assessment center, although this involves high costs and a longer time to coordinate (R3, R5): "As selection tools, structured interviews are used, skills or specifically knowledge tests, as well as the assessment center. Usually, a strong recruitment contains all three components, although in practice they are not used together because of time and money costs" (R8, R10, and R12). Interviewing with HR seems to be a good stage in filtering candidates, tests are effective ways to check the knowledge within a particular field and the interview with the department manager provides a better understanding of the role and compatibility between the two. The questions regarding the advantages and disadvantages of the online recruitment process hold relevant points of view. The positive aspects most mentioned by employers refer to low costs (R1, R2, R3, R5, R12) and time savings (R5, R9, R12), and extensive access to a much larger range of candidates, R5: "Positive aspects include accessibility, time and money costs, larger candidate pool and faster sourcing results". Also, time efficiency (R6, R7, R10-R12) accompanies the whole process of the online environment because recruiters have the possibility to directly search for the candidates (R3-R5, R8, R12) by using the desired filters and selecting the right CVs according to the desirable profile characteristics. Online platforms provide the benefits of establishing business relationships, between companies and candidates as well as between users interested in the same business area, R2: "...and the benefits of using the online environment for this process are low costs, building company credibility, wellbuilt in time and the opportunity to establish professional relationships". Recruiting in the online environment comes with its disadvantages. The biggest problem in this context is the incompatibility between CVs and reality, information about past experience or assumed responsibilities not agreeing with the true profile, R6: "...I think prospective candidates tend to over-estimate the experience they have, their current responsibilities or other abilities, things that are easy to observe in an interview and reject them". Another disadvantage refers to a large amount of CVs sent, as the applicants do not carefully read the job descriptions to assess the possible matching with the job offer. Other rarely mentioned issues focus on the lack of face-toface interaction and the lack of identification of personality traits. From our point of view, online recruitment has more positive aspects than negative because it revolutionized the classic paradigm of traditional recruitment forms (written press, information centers about available jobs), the initial connection established between companies and potential candidates being one of the factors influencing the process of joining an organization or identifying the items of interest to candidates. In terms of recommendations, human resources professionals suggest that success can be obtained by users with a high level of honesty in posting information about professional life but also choosing the most relevant aspects of their careers, as a very detailed CV will not determine the employer to call a person and invite them to the interview (R1, R3-R11), R9: "Similar to the way the recruitment announcement is created to attract candidates, candidates should also keep in mind that a disorderly profile, with incomplete information, will decrease chances of an employer's contact".

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In addition, it is crucial to understand the environment in which you operate, so the profile on LinkedIn must be a professional one. In conclusion, online social networks` presence involves presenting honest, relevant information, strategically placed for the purposes of managing one`s reputation, for one`s future career. Study limitations and future research This qualitative research presents a number of specific limits: the relatively small sample of human resources specialists who were interviewed accessing the individuals, and subjectivity in data interpretation (Chelcea, 2007). During the research activity that involved face-to-face interviews with the twelve respondents, employed in multinational Human Resources departments present in Romania, we found that the subjects involved in this research are only part of the private business sector. Therefore, a possible and future research could be done with the help of a group of respondents working in the public sector to compare the vision of private-sector employers, influenced by multiculturalism and those working in the public domain. In future research, the test-retest procedure should also be applied. The same interview grid can be applied over a period of time to record any changes that may have occurred in the Human Resources department's attitudes and behaviors regarding the use of social networks in the recruitment process. In this way, labor market saturation could be observed through the supply and demand for work in the online environment or on the contrary, a spectacular evolution may be possible by changing the vision of the networks and the selection tools currently in use.

Conclusions Following the interpretation of the results obtained after the twelve interviews, we concluded the following answers to the research questions: Employers are familiar with the recruitment practice on online social networks, but as far as Facebook is concerned, the analysis suggests some reticence regarding the identification of potential candidates through this tool. Facebook is rather seen as an important source of information, more exactly for promoting the company, for displaying organizational culture traits, in order to gain visibility and increase notoriety. The use of LinkedIn's for recruitment is preferred among employers, being considered one of the most effective channels for posting ads and active search for candidates. Unlike Facebook - specific to a less experienced audience, LinkedIn targets a more experienced business sector, occupying senior and niche positions, having the ability to connect to niched targeted networks. The process of recruiting, through the evolution of the online environment, comes with both positive and negative aspects. Advantages can be summed up in terms such as accessibility and speed of finding a wide range of candidates, the possibility of

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initiating and developing professional relationships and reduced costs. However, there may be unpleasant situations when CVs do not correspond to reality, or the department faces a large number of CVs received due to lack of attention of jobseekers. In terms of applied methods for the selection of candidates, the most common used tools are selection interviews (with a Human Resource employee) and interviews with senior management (department managers). Additionally, depending on the type of job they are recruiting (junior or senior), tests can be applied (psychometrics, of skills, technical, foreign languages) or testing candidates in assessment centers using skills and knowledge in scenarios set by employers (Furtmueller, 2013). Finally, viewed as a whole, the paper attempts to explain the recruitment and selection processes, and responsibilities within the Human Resources department, using the online environment, which is the new form of engaging with candidates on the labor market, at current times.

References Bell, D. (2009). What Should Be Done about Rising Unemployment in the UK. Bonn: IZA Discussion Paper. Boyd, D. M., & Ellison, N. B. (2007). Social Network Sites: Definition, History and Scholarship. Journal of Computer-Mediated Communication, 13(1), 210-230. Brîndușoiu, C.N. (2002). Recrutarea și selecția angajaților - Strategii pentru performanța în servicii [Recruitment and employee selection – Strategies for services performanc]. Bucharest: ASE Publishing house. Chelcea, S. (2007). Metodologia cercetării sociologice. Metode cantitative și calitative [Social research methodology. Quantitative and qualitative methods]. Bucharest: Economic Publishing house. Decenzo, D. (2002). Human Resources Management. New York: John Wiley & Sons, Inc. Florea, V.N. (2013). Acceptance of new Technologies in HR: E-Recruitment in Organizations. Proceedings of the European Conference on Information Management & Evaluation, United Kingdom. Friedman, P.A. (2010). The impact of recession on it recruitment and retention. International Journal of Knowledge, Culture and Change Management, 1(01), 99107. Fuchs, C. (2017). Social Media: A Critical Introduction. London: Sage Publication LTD. Furtmueller, E. (2013). Current Trends in Employee Recruitment Using the Internet. Berlin: Springer Berlin Heidelberg. Găitănaru, A. (2002). Calculatorul – mediu și canal de comunicare [The computer as a medium and communication channel]. Bucharest: comunicare.ro. Hedge, J.W. (2012). Personnel Recruitment, Selection, and Turnover. In Salvendy, G. (ed), Handbook of Human Factors and Ergonomics, (pp.475-485), Fourth Edition, Hoboken - New York: John Wiley & Sons, Inc. Jobvite (2011). Social Recruiting Survey. Retrieved from http://tinyurl.com/7cpvubo. Lawler, E.E. (2012). Effective human resource management: a global analysis. Stanford: Stanford University Press. Lundby, K. (2010). Going Global: Practical Applications and Recommendations for HR and OD Professionals in the Global Workplace. New York: John Wiley & Sons, Inc.

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Marinaș, C.V., et al. (2012). Managementul resurselor umane [Human Resources Management]. Bucharest: Pro Universitaria. Măgdălina, C. (2016). Cum stăm cu digitalizarea în România? [How is digitalization in Romania?]. Retrieved from www.cariereonline.ro. Newson, A., Houghton, D., & Patten, J. (2009). Blogging and Other Social Media, England: Gower Publishing Limited. Nikolaou, I. (2014). Social Networking Web Sites in Job Search and Employee Recruitment. International Journal of Selection and Assessment, 22(2), 179-189. Olivas-Lujan, M.R. (2013). Social Media in Human Resources Management. Bingley, London: Emerald Group Publishing Limited. Phillips, J. K., & Edwards, L. (2008). Managing Talent Retention: A ROI Approach. L.A.: Pfeiffer and Company.

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POLICY IMPLEMENTATION AND HUMAN RESOURCE MANAGEMENT IN LOCAL ADMINISTRATION Jadranka DENKOVA University”GoceDelcev” Stip “Krste Misirkov” No.10-A 2000 Stip Republic of Macedonia [email protected] Pande LAZAREVSKI University “Ss. Cyril and Methodius” Institute for Sociological Political and Juridical Research “Partizanski odredi” bb, 1000 Skopje, Republic of Macedonia [email protected] Abstract. The efficient human recourse management is “conditio sine qua non” for a successful organization. Therefore, policy implementation, both on national and local levels, depends to the overall organizational performance of the administrative apparatus that reflects capacity of the human recourse management to support the policy making process. In means that local authorities should have capacity to determine appropriate strategies and to develop corresponding programs, subprograms and implementation action plans. The focus of this paper is the impact of the local level human resource management to the implementation of the local policies, emphasizing the role of in-service training and continuity of knowledge and skills upgrading in local administration. Therefore, attitude of the local officials regarding the human resources management is crucial for the overall performance of local administration and effectiveness in implementation of local public policies. This claim is supported by research done over the sample of 200 local officials and public servants, regarding their training for policy design and implementation and their role in overall policy making process. Even the research resulted with finding that 80% of municipalities are equipped with competent people (from perspective of human resources management) and have established administrative units for strategic planning and policy, remains recommendation for continuity of training and education of local administration, including training of mayors regarding the policy making and strategic planning. Last but not list, policy evaluation usually is a missing link in the policy chain on local level. Consequently, developing policy evaluating capacity and establishing policy evaluation procedures on local level are imperative as well. Since 1999 in the Republic of Macedonia systematically has been initiated and implemented variety of projects aimed to public administration improvement, in general, and to human resources development and adjustment, in particular. Keywords: human resource management; policy making process; decision-making process; policy evaluation; local government.

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Introduction Policies are neither designed nor implemented out of blue. People of different knowledge, skills and values are those who are making policies, both on national and local levels. Real policymakers are people that perform different roles in policy making process. Some as a chosen to act as “government of the people, for the people and by the people” or, imposed by themselves, to govern and master the destinies of others without consent of majority. Many more serves as appointees in public office to run public affairs and to orchestrate the administrative apparatus consisted of thousands of individuals with invested authority of different kind to serves as public servants to citizens and to run day-to-day governance, including activities related to policy design and implementation (Wiersma & Jurs, 2005). Effective governance means sound policy making process supported by corresponding human resources management. Why? Because policies not only reflects goals of the holders of key positions in both executive and legislative branch of government as principal policy players, but also reflects the ability of professionals in the administration to transform political goals into sound policies elaborated with realistic time frame and consistent procedures congruent to available resources and legal boundaries. To reach this point of satisfactory policy making performance precedes appropriate human resource management as a prerequisite in providing both expertise for policy design and evaluation as well as for administering policy implementation and monitoring (Shafritz, Hyde & Parkes, 2003; Le May, 2005). In the context of governing and governance, human resource management is closely related to public administration. Public administration refers to the overall system of implementation of policies at all levels of government while human resource management might be considered as one of the pillars of public administration - the quality of human resources is essential for its proper performance (Stewart et al., 2006). In Macedonia, decisions (approvals) regarding the compliance of the policies and strategic priorities are subject of deliberation by the Government on yearly basis (usually in March-April). Strategic plans have to follow guidelines of the Strategic Plans Development & Design Act (however, immediate supervision indicators & procedures are not stipulated by this act). Ministries and other governmental agencies are obliged to estimate the fiscal implications and to justify that the acts offered comply with the principles of efficiency and effectiveness (Risteska, 2006). Administrative authorities in charge are developing above mentioned acts in regard to problem analysis done in advance, policy issue definition, as well as regarding the stated goals and objectives. This is the crucial in the respected authority endeavor to design particular policy. At this point it is important to stress the role of the variety of administrative authority actors in policy drafting with particular emphasis on transparency of the procedure, consultation with the stakeholders affected both on national and local levels, legal drafting, projections related to the organizational unites in charge with the appropriate human resources, evaluation procedures, progress indicators, etc. (Petkovic, 2003).

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The most of municipalities are semi-rural, bounded both with organizational problems that effects everyday life of the citizens. Most of them have neither sufficient stuff nor appropriate offices. Officials, both elected and employed, are mostly inexperienced and needs training. Most of the new established municipalities are facing serious problems in urban planning, water supply, sewerage management, unpaved streets, environmental problems, etc. Citizens' behavior regarding these problems is mostly inert, without faith that they can do anything serious to solve the problems. Financial sources are poor and quite insufficient. Due to the overall circumstances, the central government's support to these municipalities is very limited and insufficient. There is an association of municipalities, but it is mostly inactive and dominated by bigger municipalities that don't share the same problems as new smaller ones. In addition, communication among them is very poor. All mentioned above is the reason why on 1998 was proposed a project on "Establishing Organizational Structures for Mutual Support, Networking and Local Administration Training for New-established Municipalities in the Republic of Macedonia". The goals of this project are: local administration & municipalities needs assessment; establishing INFO-base on data related to current problems and trends in new established municipalities; establishing network among officials from new-established municipalities; organizing necessary training for officials(both elected and employed) in new established municipalities (training in public policy, local/public administration, office management, and public relations); training citizens for grass-root initiatives in new-established municipalities; establishing organizational structures for mutual support of newestablished municipalities; providing international links for new establishedmunicipalities; providing consultancy and other expert services for these municipalities. In addition to above mentioned goals, and having on mind multi-ethnic composition of many of these municipalities, we expect this project to serve as an inter-ethnic confidence building instrument in multi-ethnic society and to promote the concept of open society in practice, as well. More precisely, we expect this project to provide local authorities, regardless their ethnic background or political affiliation, opportunity to share information and ideas on "day-to-day" problems and dilemmas typical for new established municipalities, and to look together for finding solutions; to build civic awareness and to support civic culture and ethic; to promote sense of tolerance and mutual respect regardless ethnic or confessional background; to strength self-confidence and to promote critical judgment on public affairs; to provide citizens of different ethnic background an opportunity to communicate and express their views and ideas on common problems, to debate on them, and with joint efforts to look for a solution. The objective of this project was to provide the Macedonian government with two elements: a diagnostic of the public administration which is: objective and nonpartisan; thorough and complete; conducted from a management, rather than a normative perspective. Recommendations aimed at improving the management of the public administration and, in particular: governance structure and systems that

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would be more supportive of the requirements of a market-based economy, and more inclusive and representative of all interests in the Macedonian society; speed and effectiveness of decision and policy making; quality of delivery of public services to all citizens. To question number one in that project of the level of fit of the Public Administration of Macedonia indicated that the organization, overall, was not adapted to the current turbulent environment. This diagnosis does not relate to the policy decision made by the government but to the ability of the Public Administration to support the formulation and implementation of those policies. In effect, while the Public Administration has, in many areas adapted to its current environment, especially with regards to its efforts to move towards integration with the European Community, it has failed overall to succeed in meeting some of the critical challenges created by its environment (Kostov, 2005). There are many manifestations that appear to undermine the organization’s desire and aspirations to manage the challenges of the environment effectively, most notably: the absence of an incentive system for public servants that is supportive of a market-based economy; a stronger emphasis on ethnic as opposed to civic identity in the management and delivery of public goods and services; a lack of government wide understanding of policy challenges. The second question in that study was focused on the pressures related to continued ethnic problems; slow inflow of foreign investment which will delay economic development; attitudes and policies of western countries especially related to the transition towards a market-based economy. Therefore, the Public Administration of Macedonia was not structured neither was it organized to meet and manage the current, nor anticipated challenges that will flow from the turbulent environment. This is indicated primarily by: the “politicization” of the Public Administration rendering it very difficult if not impossible to separate short term interests from long term objectives; lack of independent professional policy advice capability by the Public Administration; the ineffective crisis management capability, the lack of effective monitoring, evaluation and accountability mechanisms; and, the low morale of public servants. The proposed recommendation to the Prime Minister of Macedonia was to undertake a major cultural change in the Public Administration. This cultural change would involve initiatives geared towards the three components of the organization, namely: improving structures and systems of the Public Administration (structure); reassuring and offering new challenges to individuals; altering the general mind-set of the Public Administration (culture) (Pecijareski, 2007). These initiatives pursue three strategic thrusts: The first thrust - the strategic management of change. The enormity of the task at hand requires considerable leadership at the highest levels of the State, a strong commitment to the reforms and considerable upfront investment in terms of time and energy. It requires the articulation of a vision; it requires getting all public servants excited about a reform that will make their careers more interesting while at the same time

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increasing the effectiveness and efficiency of the State. The second strategic thrust deals with governance management. This includes most of the changes in structures and systems required to establish effective relationships and decisionmaking. Finally, the third strategic thrust regards service delivery. This is to provide first line operators with the service skills to deal with citizens; to provide first line managers with the instruments, tools and information to better serve citizens. organizing necessary training for officials (both elected and employed) in new established municipalities (training in public policy, local/public administration, office management, and public relations);training citizens for grass-root initiatives in new-established municipalities; establishing organizational structures for mutual support of new-established municipalities; providing international links for new established-municipalities; providing consultancy and other expert services for these municipalities (Berman et al., 2000). In addition to above mentioned goals, and having on mind multi-ethnic composition of many of these municipalities, we expect this project to serve as an inter-ethnic confidence building instrument in multi-ethnic society and to promote the concept of open society in practice, as well (Jones & George, 2008). More precisely, we expect this project to provide local authorities, regardless their ethnic background or political affiliation, opportunity to share information and ideas on "day-to-day" problems and dilemmas typical for new established municipalities, and to look together for finding solutions; to build civic awareness and to support civic culture and ethic; to promote sense of tolerance and mutual respect regardless ethnic or confessional background; to strength self-confidence and to promote critical judgment on public affairs; to provide citizens of different ethnic background an opportunity to communicate and express their views and ideas on common problems, to debate on them, and with joint efforts to look for a solution. Findings of this research are much more interested if compared with diagnosis of study done 15 years ago, by Canadian SECOR and Sts. Cyril and Methodius University`s Institute for sociological, political and juridical research from Skopje, Macedonia. Methodology and research results The focus of this paper is the impact of the local level human recourse management to the implementation of the local policies, emphasizing the role of in-service training and continuity of knowledge and skills upgrading in local administration. Therefore, attitude of the local officials regarding the human resources management is crucial for the overall performance of local administration and effectiveness in implementation of local public policies. This claim is supported by research done over the sample of 200 local officials and public servants, regarding their training for policy design and implementation and their role in overall policy making process. Even the research resulted with finding that 80% of municipalities are equipped with competent people (from perspective of human resources management) and

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have established administrative units for strategic planning and policy, remains recommendation for continuity of training and education of local administration, including training of mayors regarding the policy making and strategic planning (Mathis & Jackson, 2010). Results of the research aimed to determine “participatory capacity and transparency of local authorities in decision making process (done by Law faculty of the University of Stip in 2015/16, among local authorities in the eastern macroregion of the Republic of Macedonia consisted of 11 municipalities) reflects personal experience of local managing stuff and public servants regarding above mentioned topic. In addition to interviews with 50 mayors and senior managing stuff, survey sample was consisted of 144 local public servants, out of which 45,1% man and 53,5% female, 74,3% with university education, 71.5% employed in the last 10 years (period of governance of the same political party on national level). All senior managing stuff has university degree, but only 19.4% of all respondents are fluent in English. IT literacy is very high (only 2.1% stated that are not familiar with computers). Asked if there are written document that guides drafts in decision making of the city council, 44.5% of respondents answered positive (67,4% also confirmed that stipulated decision making procedures are used on regular basis), and only 8.3% deny existence of such guidance in written. Strategic plans development is another topic that attracts attention in this research. Asked about planning procedures, 38.9% confirmed existence of distinct planning administrative unit, 45.8% were affirmative regarding strict strategic planning procedures and 51.4% confirmed that draft decisions and policies are developed by trained public servants (also 38.9% claimed that local administration is properly staffed as stipulated in the related laws and other local acts. Established evaluation unit as a part of the local administration has been confirmed by 22.9% of respondents. In this respect, 31.9% confirmed practicing citizen`s satisfaction survey regarding services offered by the local administration and local government in general (in addition to internal evaluation of administrative responsibility and quality performance, claimed by 41.0% of respondents that is not supported by answers of only 29.2% that local government quality standards has been established), as well as surveys among local public servants aimed in gathering ideas how to improve overall administrative performance of the local government (45.8%). However, citizen`s satisfaction also is measured with a kind of ongoing survey with “citizens complains box” that guides further steps for administrative performance improvement (as positive practice pointed by 52.1% of respondents). Regarding risk analysis, only 20.8% confirmed that it is practice performed by respectively trained public servants, result close to the answer regarding the motivation system for public servants (22.2%) supported with another answer regarding awards for public servants (29.9% said that ever has been awarded for their working attitude and achievements).As many as 62.5% respondents confirm

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that human resources department (HRD) is active as a part of local administration, emphasizing (by 48.6%) that HRD are heavily involved in local administration training and knowledge and skill improvement. Qualitative analysis of the interviews with mayors from his macro-region are presenting rather gloomy picture of reality on local level. However, mostly they point that their strong side is consisted of team work, citizen`s participation (even there are no unanimous opinion regarding this issue) and transparent decision making process. As a week point was emphasized lack of expertise, heavy burden of big administrative apparatus and procedures and limited spreading of information. Asked about the flow of policy making process, they point to 5-years plans of municipalities, to informal survey among citizens regarding the targeted issue (followed by formal Citizen`s gatherings) and finally, implementation of the particular policy. Coordination with the municipality Council is unavoidable (communication with the counselors regardless their party affiliation), followed by dye procedure stipulated by Law. Council`s committees have important role in the policy making process, even some of the counselors demonstrates lack of dye interest to participate. Citizens are involved in policy making by their forums and target groups participation. Interviewed mayors were proud to stress that their offices are open for citizens all day long, pointing that biggest interest is about communal and urbanity issues. Interesting finding was that NGO and civic initiatives are marginal (if exist at all), and all initiatives of citizens usually are articulated through the so called “Neighborhood Community Councils” that are forms of urban or rural administrative units without status of legal entity and their own budget (for some of the mayors, their legal status and lack of own budget could not be accepted as an excuse for their passiveness). Business community was presented in positive as tangible support for the local community through donations or funding projects of public importance (Gerasimova, 2006). Mayors did not say something nice regarding their cooperation with parliamentarians, since it is very poor (if exist at all), similar to their cooperation with local branches of political parties. Decentralization of authorities from the central to local level was stressed as a step in positive direction, even many of the decisions of the local authorities still depends on the approval of the designated central authorities and there no common perception nether of priorities nor for the very implementation process of the approved projects. Transparency and accountability was very high on the agenda of all mayors, pointing personal communication, web page, open-for-public sessions of the Councils, TV and local papers as information platform for citizens. Special case in this regard is the budgetary process in all stages that attracts the most of the attention both of the counselors and the citizens. National association of local authorities didn`t gain a lot of credit by interviewed mayors. Common view among mayors was that much bigger budget is needed that will be supported by the

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central government since there a very limited resources available on the local level (Wore, Miller, Wegener & Miller, 2003). Answers of counselors differ depending if respondent is from the governing side or from the opposition. For councilors from the governing side approach in policy making process is equal for all but for the mayors (who has the highest responsibility and they are initiators of proposed policies), done in good faith for the benefit of citizens. For councilors from opposition reality looks much more different, pointing that basic communication is missing between two sides and citizens are subject of interest only before the elections. Another clashing view is regarding coordination between mayor and council. Even bigger is confusion who runs committee sessions – with or without experts, proposed by opposition, invited but absent. Answers from both sides of political spectrum are closer regarding civic participation: council`s sessions are open for public, but there are no interest among citizens. If there is any interest for a meeting with some of the councilors, they have designated reception hours but nit at the premises of the City Hall, but at their party headquarters. Interviewed councilors confirmed that NGOs are marginal, realistically non-existing entities. Regarding support from business community, according the respondents, from that end are coming more requests then support. Cooperation with parliamentarians, with local branches of political parties as well as with state authorities also is not satisfactory. Councilors expressed positive perception on “Neighborhood Communities” and their role on local level, including establishing separate budget for them. Further decentralization (however is wishful target) for them might be source of more problems since local communities are weak and could not support its own local government. There are no dispute regarding the transparency and accountability, including the budgetary process that includes and public debate over the proposed draft budget and the budget execution report. Again, National association of local authorities didn`t gain a lot of credit (only “benefit” are the magazines that are sending to local authorities). Conclusions and recommendations In regard to the research results presented, the conclusion is that policy making process is not strictly following the policy procedures (Strategic Planning Methodology, Government of the Republic of Macedonia, 2007). Application in policy approach is, generally speaking, just virtual, present in documents that are describing flow of policy activities (Policy-making Guide, Government of the Republic of Macedonia, 2007). There is no appropriate policy legislation nether needed human resource support (in terms of trained policy administrators). However, in the Republic of Macedonia has been done variety of relevant projects related to effective policy implementation both on national and local levels.

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It is more than clear that the key for understanding of overall policy process are the human resources as essential of the administrative setting (there is no good policy design and implementation with poor human resources capacity). To get back to our research, the conclusion is that local governments in the eastern macro-region of the Republic of Macedonia (there are many reasons that this finding is applicable over the almost all the country) are not trained and equipped with expertise in the field of strategic planning, policy making (including policy evaluation) or human resources management. Mayors (as elected politicians) are not very much familiar with policy making procedures and policy analysis methodology, so they are not in position to give guidance to the local administration. Another problem is missing of administrative post “municipality manager” as a head of local administration (professional administrator with superior administrative knowledge and experience). In addition (or consequently) there are neither strategic plans as a base for local policies, nor information for the citizens and their participation in (nonexistent or implicit) local policies. Central government (of different reasons, with no clear criteria) is not very supportive to local authorities in terms of administrative process (where the central government is involved as stipulated by law). Recommendation of this research is supportive to local strategic plans development and policy approach application, followed by hiring appropriately trained human resources (in strategic planning, policy making, financial analysis and human resources management). Consequences analysis knowledge and skills are also needed. Motivation of local administration is another open issue, both in term of motivation for personal professional improvement as well as for working attitude and achievements. So, in-service training of local public servants (with special emphasis on strategic planning, policy making and evaluation, financial analysis and human resources management) and establishing post of municipality manager as a head of local administration (supported by necessary budget), are another highlights in recommendations of this paper. Last but not least, systematic civic involvement in local policy making (as directly affected) is baseline form good local government and prerequisite for success in policy implementation. References Berman, E.M., Bowman, J.S., West, J.P., & Wart, M. (2006). Human Resource Management in Public Service: Paradoxes, Processes, and Problems. Thousand Oaks: Sage. Bossaert, D. & Demmke, C. (2005). Main Challenges in the Field of Ethics and Integrity in the EU Member States. Retrieved from http://www.eipa.nl/Publications/Summaries/05/2005_1.pdf. Bossaert, D., Demmke, C., Nomden, K., Polet, R., & Auer, A. (2002). Civil services in the Europe of Fifteen: Trends and New Development. European Institute for Public Administration. Retrieved from http://publications.eipa.eu/en/details/&tid=1553.

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Gerasimova, M. (2006). The Liaison Office as a Tool for Successful NGOGovernment Cooperation: An Overview of the Central and Eastern European and Baltic Countries’ Experiences. Retrieved from http://www.icnl.org/research/library/files/Transnational/geras_eng.pdf. Jones, G.R., & George, J.M. (2008). Contemporary Management. Boston: McGraw Hill. Kaplan, R., & Norton, D. (2001). Strategy focused organization. How balanced scorecard companies thrive in the new business environment. Boston: Harvard Business School Publishing. Kostov, S. (2005). New public management. Skopje: Center for Quality. Law for civil servants. Official newsletter of the Republic of Macedonia 27/2014, 199/2014. Law for the employees in the public. Official newsletter of the Republic of Macedonia 199/2014, 27/2014. Le May, M. (2005). Public Administration - Clashing Values in the Administration in Public Policy. Belmont, CA: Wadsworth Publishing. Mathis, R.L., & Jackson, J.H. (2010). Human Resource Management. Skopje: Magor. Pecijareski, Lj. (2007). Selected problems of the human resource management. Prilep: Faculty of Economics. Petkovic, M. (2003). Organizational behavior. Belgrade: Faculty of Economy. Policy Analysis and Coordination Methodology, based on Article 67/2 of the Rulebook of the Government of the Republic of Macedonia. Official Gazette of the Republic of Macedonia No. 38/01, 98/02, 9/03, 47/03, 64/03, 67/03, 51/06, 13 April 2006. Risteska, M. (2006). Reform in the public administration in Republic of Macedonia creation of public value. Retrieved from http://scindeks.ceon.rs/article.aspx?artid=2334-735X1303030D. Salamon, L. (2003). Global Civil Society: An Overview. The John Hopkins Comparative Nonprofit Sector Project. Retrieved from http://ccss.jhu.edu/wpcontent/uploads/downloads/2011/09/Book_GCSOverview_2003.pdf. Shafritz, J., Hyde, A., & Parkes, S. (2003). Classics of Public Administration. Belmont, CA: Wadsworth Publishing. Stewart, B., Stewart, S.R.B., & Sunstein, C.R. (2006). Administrative Law Regulatory Policy. Wolters Kluwer. Strategic Management of Public Administration Reform in the Republic of Macedonia (1999). Project on “Strategic Management of Cultural and Ethnic Diversity in the Public Administration”, in cooperation with SECOR-Ottawa. Strategy of Cooperation of the Government of the Republic of Slovenia with Nongovernmental Organizations, April 2006. The National Program for Strengthening Civil Society, Latvia 2005-2009. The Politics of the Administrative Process, Sixth Edition, January 2014. The Politics of the Administrative Process, Sixth Edition + Public Administration Resource Center, Kettl Shrinkwrapped Pkg., January 2013. Toftisova, R. (2005). Implementation of NGO-Government Cooperation. Policy Documents, Lessons Learned. Retrieved from http://ccctck.org.ua/storage/books/eng_lesson_learned_on_implementation_csopa_cooperation.pdf. Wiersma, W., & Jurs, S.G. (2005). Research methods in education: An introduction. Boston, MA: Ally and Bacon.

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Wore, H., Miller, C., Wegener, W., & Miller, L. (2003). Effective Police Supervision. Newark, NJ: LexisNexis / Matthew Bender.

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HUMAN RESOURCES RISK AS AN ASPECT OF HUMAN RESOURCES MANAGEMENT IN TURBULENT ENVIRONMENTS Edyta BOMBIAK Siedlce University of Natural Sciences and Humanities 2 Konarskiego, 08-110 Siedlce, PL [email protected] Abstract. Contemporary organizations work under turbulent conditions, in environments featuring rapid changes which are difficult to foresee. Such surroundings not only create opportunities for development and market success but also generate significant risk. This risk applies to nearly all areas of management. Human resources management practice is also facing the issue of internal and external turbulences affecting the quality of HR processes. Human resources risk is an inherent part of company operations, whereas the social sub-system is an indispensable key factor for the smooth running of business entities. Therefore, HR risk should be managed, as any other risk type. The purpose of this study is to present the major areas of risk in human resources management based on the analysis and criticism of relevant literature. The aim of the empirical research was the identification of managers’ opinions with regards to the meaning of human resources risk for company operations. To attain it, I employed the analysis of results of both international and national studies, including own studies based on a diagnostic survey (a questionnaire). Research has shown that HR risk is perceived both as a chance and a threat to the organization. Every stage of HRM may serve as a potential source of risk that may require taking personnel-related decisions. The results of the research indicate that despite managerial staff’s awareness of HR risk, it is not considered meaningful to the operations of organizations. Polish managers, in particular, seem to underestimate the importance of HR risk for company operations. As far as Polish reality is concerned, contrary to market risks (competition) and legal risks which rank relatively high, personnel-related hazards seem to be undervalued, for they do not make their way into the list of top 10 risks threatening Polish organizations. Keywords: risk; human resources risk; human resources management Introduction Without a doubt, doing business in contemporary, turbulent environments involve risks. Needless to say, risk management is now becoming an integral part of organizational operations for many business entities. Consequently, source literature abounds in accounts of the sources of various types of risk, such as financial, insurance, or investment, and methods of their mitigation. However, the source of risk in the knowledge economy is above all the human factor. A literature review reveals a thesis that the risk related to human resources is one of the most important areas of risk (Czerska & Rutka, 2012, p.185). Still, it is one of the most unexplored areas. The risk associated with the human factor is most often considered the equivalent of fraud, occupational accidents or occupational risk. Such a narrow approach results in

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the lack of manager awareness of the nature of this unique risk type and its impact on company operations. Therefore, the purpose of this study is to present the major areas of risk in human resources management based on the analysis and criticism of relevant literature. The aim of the empirical research was the identification of managers’ opinions with regards to the meaning of human resources risk for company operations. To attain it, I employed the analysis of results of both international and national studies, including own studies based on a diagnostic survey (a questionnaire). In the course of literature review and empirical research, I attempted to answer the following questions: how should human resources risk be understood? Which stages of human resources management involve the risk of adverse events? What is the attitude of managers towards human resources risk? Risk under turbulent conditions Nowadays, organizations operate in a rapidly and continually changing environment, which predetermines their capabilities. Commonly referred to as tumultuous or turbulent, such environment features high variability which necessitates constant monitoring of its internal processes and fast reactions to incoming signals. The term “turbulent environment” refers to a number of transformations occurring in contemporary societies and economies, which become a backdrop for company operations. Viewed as a measure of the frequency of transition of unforeseen changes affecting the ability of organizations to create and maintain value (Kupik, 2011, p.37), turbulence cannot be predicted (Kotler & Caslione, 2009, pp.83–85). The following are the principal elements of turbulent environments (Matejun & Nowicki, 2013, pp.152221): low complexity and poor structure expressed as the number, degree of complexity and variability of elements; changeability expressed as the rate and dynamics of changes; uncertainty related to difficulties regarding anticipation of environments’ shapes in the future; multiple dimensions reflected by a differentiated impact of elements of the environment on individual entities operating within it; extensiveness related to the physical distance between elements and trends and the course of various phenomena and processes as part of the specific environment. The turbulent environment is characterized by strong competition, an unstable political system, and major changes to legal provisions and customer preferences. These alterations are dynamic, unforeseeable, and they strongly affect the directions in which organizations operate and develop. Such surroundings not only create potential opportunities for development and market success but also generate significant risks. These are mainly related to business entities and it may never be possible to eradicate them (Sołoma, 2011, pp.152-153). The term “risk” is commonly understood as related to adverse events (hazards) impeding the attainment of one’s goals. More and more often, it is also considered equivalent with the ability to have a desired opportunity (Jajuga, 2009, p.13). Therefore, the risk is a multifaceted category relating not only to potentially negative but also potentially positive effects determined by the manner in which the risk is managed. On the one hand, developments taking place in the turbulent environment lead to a decrease in certain risk types. On the other hand, they generate its novel forms. The

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following types of risk are referred to most frequently in source literature (Jajuga, 2009, pp.18-19; Kaczmarek, 2006, p.56; Thlon 2013, pp.31-32): production risk (related to production, quality, costs and dates), market risk (related to market demand, competition, customers, suppliers, price fluctuations), legal-political risk (related to the state’s policy and changing legal regulations), financial risk (problems involving fluidity, currency fluctuations, interest rates fluctuations, availability of loans), information risk (related to IT systems used in a company and data storage), force majeure events risk – e.g. natural disasters and accidents (floods, earthquakes), accidents originating in social conflicts and unlawful acts (strikes, arson). However, the source of risk in contemporary organizations is not only an act of God or investment in tangible or financial assets but also a personnel-related decision. Essence of human resources risk Human resources risk refers to the methods of management of one of the most valuable contemporary resources based on organizations’ knowledge – i.e. human resources. It is classified as an operational risk (Jajuga, 2009, p.270) and defined as:  the possibility of incurring a loss (financial, reputational, relational) due to human imperfection (errors resulting from insufficient knowledge, skills, suitability, employee knowingly violating company policies or laws) and imperfection of HR management processes (Bochniarz & Gugała 2005, p.98),  a function of the probability that a negative event occurs as a consequence of personnel-related decisions and the scale of negative effects of the event on normal company operations (Rutka & Czerska, 2006, p.201),  the probability of non-attainment of the aims of the human resources management process (Bizon-Górecka & Nogalski, 2009, p.30),  a potential hazard which threatens company objectives and which stems from negligence and/or improper use of human capital (Kropp 2004, pp.131-166),  the inability to establish whether certain actions undertaken at certain stages of human resources management will yield intended results, in line with the human resources strategy pursued by a given company (Lipka, 2002, p.24),  a deviation from company objectives due to human resources involvement in operational activities arising from unpredictable employee behaviors and the adoption of improper decisions with regards to human factor management or the application of imperfect procedures (Zhao & Jia 2006, pp.830-831). From a broad perspective, human resources risk refers to all intended and unintended employee-related events, which determine the level of organizational goal attainment. Hence, the risk factors could include individual characteristics of employees, their unpredictable behaviors, actions, decisions or day-to-day situations that may have a negative impact on companies (Shelest, 2013, pp.74-74). Viewed only in its narrow definition, human resources risk is related to the method of implementation of the human resources management process (Tyrańska, 2008, p.222). Analysis of above definitions shows that some researchers think of HR risk as a negative phenomenon, treating it as a hazard involving material and non-material injuries. Others, in turn, see it as an opportunity to gain an advantage in the attainment of aims. This means that company’s performance regarding human resources management may be either better or worse than expected. However, regardless of the

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way of perceiving human resources risk, it is undoubtedly interlinked with the personnel process carried out within organizations. The majority of definitions provides an organizational perspective of human resources risk. Nevertheless, it may also be viewed from an employee perspective. Employee risk is treated as an outcome of an employee’s personal decision, defined as a function of the probability that a negative event occurs as a consequence of such decision and the scale of negative effects the event will have on the employee. For instance, a decision to resign one’s post has consequences not only for the employer (the necessity to hire a new employee) but also for the employee himself (difficulties in access to new employment, financial and family problems, difficulties while adapting to new organizations) (Czerska & Rutka, 2016, pp.23-24). Human resources management as a risk plane Human resources management is a process consisting of logically intertwined actions aiming at a provision of required numbers of employees demonstrating suitable skills, and at a creation of conditions stimulating effective behaviors of the staff, in accordance with company aims at a given time and place. (Pocztowski, 1993, p. 20). In contemporary organizations, the process takes the form of more or less planned interrelations of personnel processes. The manner in which the processes are identified and classified depends on the size of the organization, its organizational structure, the branch type and adopted philosophy and strategy of management. In the general approach, the main personnel processes are: entering the organization, functioning within the organization, and exiting the organization (Pocztowski, 1993, p. 37). As part of the three processes, we may distinguish the following sub-processes (Bombiak, 2017, pp.66-67):  employment planning – including the determination of demand for human resources both in quantitative and qualitative terms;  employee selection – viewed as attracting the right pool of candidates (recruitment), evaluating their potential and choosing the candidate whose competence profile is closest to the required vacancy profile (selection), concluding employment contracts, and introducing adaptation actions for the fastest achievement of the optimum effectiveness of the new employee;  employee evaluation – acquiring information regarding employee competencies, behaviors, characteristics, and performance with the intention of developing a rational personnel policy;  employee motivation – creation of such conditions and use of such stimuli that the needs of employees are satisfied and the aims of organizations are attained concurrently;  employee development – the total of actions aimed at reinforcement and execution of the processes of employee knowledge extension and competence improvement with the intention to increase the employee level of competences, at the same time increasing their effectiveness.  dismissal – reducing human resources due to internal factors (such as structural transformations) or external factors (such as limiting one’s activities due to a drop in demand). Human resources management is an ongoing process of taking personnel decisions within different timeframes and regarding various aspects of staff potential

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development. All these different elements, however, have one thing in common: they involve risk. As each of the above stages may constitute a potential risk source, we can differentiate the following risk areas (Lipka, 2002, p.43; Golaszewska-Kaczan, 2017, p.253): employment planning risk, recruitment risk, selection risk, adaptation risk, motivation risk, evaluation risk, development risk, dismissal risk. Table 1 presents illustrative examples of risk-generating actions within each area of human resources management. Table 1. A selection of adverse personnel events in each area of HRM (Wróblewski, 2016, pp.103-154) Area of risk Adverse personnel event Employment planning Employee selection

Employee motivation

Evaluation

Development

Dismissal

- no specifications regarding employee demand - no specifications regarding employee gap - no specifications regarding posts and no competence profiles - limiting recruitment only to internal (or external) sources - no selection criteria - improper selection strategy - limiting selection to the simplest selection techniques - no adaptation process - no defined aims of the motivation process - no formalized criteria and methods of task performance - incompatibility of the motivation system and employee needs - no individualized approach to employees - the low attractiveness of motivation tools (e.g. low wages) - overestimation of the material (or non-material) dimension - incoherence between different motivation stimuli - the inflexibility of the motivation system - unfair treatment of employees on the part of their superiors - more negative than positive reinforcement - ineffective communication - conflicts and “unhealthy” competition - no precise objectives of the final evaluation - no formalized system of evaluation (arbitrariness) - unsuitable methods and techniques of evaluation - inadequate criteria for evaluation - lack of knowledge (among employees) regarding the criteria - insufficient qualifications of the evaluators - the inadequate frequency of evaluation - no feedback regarding evaluation results for employees - inadequate passing-on of results of evaluation regarding personnelrelated decisions - non-uniformity of the system of evaluation - no training needs analysis - wrong recipients of training activities - unsuitable methods and techniques of training - inappropriate conditions of training - incompetent training professionals - no evaluation of the effects of training - no career paths - no formalized promotion criteria - inconsistencies between the development policy and the personnel strategy - no promotion opportunities (horizontal, vertical) - lack of alternatives to the dismissal process (such as redeployment)

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Analysis of Table 1 reveals that human resources risk-generating factors may appear at every stage of personnel function implementation, from employment planning to employee dismissal. Risks corresponding to these stages are the so-called specific risks (Lipka, 2002, p.45), which differ from the non-specific risk in that they are associated with various personnel-related activities, such as the absence of acceptance on the part of employees, the risk of conflicting situations or cultural differences. Said risks are drawn risks (Wróblewski, 2009, p.94), as due to the high degree of interdependence between the stages of the personnel functions, the materialization of risks in one area brings about changes regarding the level of risks associated with other stages of the human resources process. Generally speaking, the risk of planning is associated with the abandonment of activities involving a comparative analysis of supply and demand. It is rarely the case that the two variables are balanced. The ignorance with regards to the personnel area and the limitation of personnel function adjustment solely to changes in the environment is an approach which may only work in small businesses operating under relatively stable conditions (Stoner & Wankel, 1997, p.232). Turbulent environments generate quite significant human resources risks. Under current conditions, organizations necessitate the scanning of major trends so that one may properly identify the threats and opportunities regarding the process of human resources development in the field of legislation, schooling and the job market. Recruitment, selection and adaptation risks may be jointly referred to as the risk of selection. A selection is a set of actions aiming at a provision of the right number of competent employees within a certain time-frame to ensure continuity, effectiveness, and efficiency of company operations. The implementation of the personnel process is mainly associated with the risk of employing an unsuitable candidate, i.e. a person whose competence potential is ill suited to the requirements of a certain position. Motivation risk is related to mistakes made during activation of the newly employed and constitutes a threat to the optimum use of human capital. The results of employee work are a combination of their competence and motivation. Both insufficient competencies and a lack of motivation could contribute to unsatisfactory work effectiveness. Still, motivation risk is associated not only with the low level of employee motivation but also with excess strain. In accordance with the YerkesDodson’s law, the motivation that is too strong is undesired, as it reduces performance (Reykowski, 1974, pp.56-58). Development risk is associated with labor investment. Investment in the main components of the human capital, i.e. knowledge and skills, may be the future source of income both for the employee and the investor. However, they also necessitate expenditure. The dynamic, turbulent environments generate higher investment risks.

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For a company which continuously needs to conduct adaptive-restructuring actions, the effects of investment in employees will also be uncertain. On the other hand, such risk occurs also when investment actions are abandoned. Employee development is, though, the underlying instrument of increasing company’s flexibility. The knowledge economy necessitates the continuous development of knowledge, as it preconditions both individual and collective success. Evaluation risk is a result of correct implementation of the system of periodic employee assessments and the proper course of the evaluation process Each personnel decision should be preceded by an employee assessment, whereas each decision should depend on the quality of evaluation data, i.e. derivative of the application of proper assessment criteria, methods, and tools and an objective interpretation of assessment results. Hence, the system of period assessments may constitute a crucial element boosting company’s effectiveness. On the other hand, the assessment process will act as the base for a number of errors, threatening the effectiveness of the whole human resources management process. Dismissal risk appears when an entrepreneur is minded to take a decision to reduce employment. Dismissals may not only reduce the cost of company operations but also generate costs related to their performance. Nevertheless, dismissal risk has a nonmaterial side, too. The method in which employees have dismissed shapes relations between former employees and employers and have an impact on the opinion of the rest of company staff, which is an element of employer branding and which affects its image (amongst its customers, contractors, and business partners). As a consequence, dismissing an employee may be a neutral, positive or a negative phenomenon for both parties, depending on process implementation. The way in which redundancies are made, in particular where the part to blame is the company, requires a clear-cut action plan which will reduce the risks associated with the field. Attitudes to human resources risk adopted by managers Analysis of international literature reveals an increasing role of human resources risk in contemporary business operations. In 2002, Marsh, a leader in risk and insurance services, surveyed 600 medium-sized European companies to assess their approach to risk (Anaraki-Ardakani & Ganjalim, 2014, pp.129-142). Amongst the most important factors were key employee loss and absences. According to yet another research conducted amongst 300 risk managers, human resources risk was one of the seven major risk categories (employee recruitment and retention and employee compensation topping the list) (Nickson, 2002, p.25). Similar results were attained in research conducted by the Human Capital Institute. The study indicates that risk associated with the human factor is viewed as the greatest threat to businesses in South Africa. This risk type was ranked first among risks affecting company operations, such as information, reputation, financial, political and market risks (Robbins, Meyer & Roodt, 2011). Moreover, in a study conducted in 2005 in India including 100 various-level managers, human capital risk ranked first among 12 risks most affecting company outcomes (Nath & Shriram, 2017, p.3). Therefore, it may be stated that the area of human resources risk is becoming one of the key types of business risk of our times.

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Despite the research cited above, human resources risk remains one of the least explored areas of risk, both in theory and in practice, as indicated by a relatively low number of domestic and foreign subject literature. In an attempt to bridge this gap, partially at least, in April 2017 the author of the present study began to identify the attitudes towards human resources risk of Polish managers. The study included 180 managers representing all levels of medium- and large-sized enterprises located within the Mazowieckie Province. The managers were asked to list risks which are key to company operations. The study outcomes are illustrated in Figure 1. The risk indicated most frequently was market risk related to market demand, competition, customers, suppliers, price fluctuations. It was regarded as crucial by 75% of the respondents. The polled also often mentioned production risk related to production, quality, costs, and dates (43% of respondents). The key risk for 39% of the managers was legal & political risk related to the state’s policy and changing the legal environment, and financial risk considered an equivalent of problems with liquidity and interest rate and currency fluctuations. The broadlyunderstood risk associated with the human factor, i.e. occupational accidents, frauds or errors in personnel policy resulting in employee rotation, difficulties related to employee recruitment and retention, was key only for every third manager (32%). Hence, the risk ranked almost last in the hierarchy of the studied risk types (only information safety risk ranked lower).

Figure 1. Risks key to company operations according to Polish managers (N=180) (own research)

Comparing the data above with global research findings presented hereinabove, we may conclude that Polish managers seem to underestimate the importance of HR risk for company operations. The thesis is confirmed by the analysis of the report on key risks for large enterprises in Poland, published by AON Poland, a consulting company. The Polish edition of the study conducted in 2016 involved 168 managers representing organizations which had dealt with risks and insurance. The results of the study are presented in Table 2. The analysis of results shows that risks (competition) and legal risks rank relatively high in the Polish reality market. Hazards associated with the economic slowdown, increased competition, and changes regarding legal environment are, apparently, a priority for Polish companies. On the contrary, personnel-related

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hazards were evaluated relatively low, for they did not make their way into the list of top 10 risks threatening Polish organizations. What is interesting to note, is the comparison between the evaluation of various risk types by Polish managers and the global study findings1. It turns out that hazard perception in the Polish environment differs significantly from the global hierarchy of risks. The risk associated with the human factor, overlooked by the Polish managers, ranked quite high among global respondents. In the worldwide study, hazards associated with the inability to attract and keep talented employees ranked fifth, whereas inability to design and implement innovation – sixth. Polish companies clearly underestimate the image risk (damage to reputation), which was considered to be the greatest hazard globally. Table 2. 10 key risks for business operations (AON Report Poland, 2016, p. 28). 10 key risks in the opinion of Polish managers 1. Increased competition 2. Economic downturn 3. Changes in legal/regulatory environment 4. Damage to reputation (image) 5. Raw material price fluctuations 6. Interruption of company operations 7. Contractors - trade receivables 8. Currency fluctuations 9. Malfunction of IT systems 10. Destruction/damage to property

10 key risks according to the global study 1. Damage to reputation (image) 2. Economic downturn 3. Changes in legal/regulatory environment 4. Increased competition 5. Unsuccessful employee retention/inability to attract skilled employees. 6. Lack of innovativeness 7. Interruption of company activities 8. Civil liability/ claims 9. Computer crime/ Hackers/ Viruses 10. Destruction/damage to property

Additionally, the global ranking of difficulties regarding keeping or attracting skilled employees advance from no. 10 in the 2009 edition, to no. 5 in the 2016 edition (Raport AON Polska, 2016, p. 28). This suggests growing awareness regarding the importance of human resources risk among business management professionals. Hence, it can be assumed that difficulties with the acquisition and retention of specialists will continue to be the most important human resources problems in the years to come due to recorded demographic changes. Since the beginning of the 90s, we have been observing the process of population aging, which is expressed by an increase in the quantity of post-production age population and a decrease of population of preworking age. The process is expected to accelerate in the next twenty years. Given the unfavorable demographic trends, we may assume that soon also Polish managers will start to appreciate the effect of this human resources risk generator on company operations. We can formulate such assumptions on the basis of prognoses of the Central Statistical Office (GUS), according to which the share of the population of post-working The global edition of the study included 1418 representatives of companies and institutions, who dealt with risks and insurance management in their professional lives. 1

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age in Poland will increase from 16.8% in 2010 (ca. 6.5 million) to nearly 27% (ca. 9.6 million) in 2035 (GUS, 2009). As a consequence, Poland will be one of the oldest countries in terms of demography (the median population age in 2010 was 37.7; in 2060 it will reach 51.21) (Kiełkowski, 2013, pp.15-20). The population of Poland, however, will decrease - from 38.2 million in 2010 to 32.6 million in 2060. In addition, many young people leave Poland to find jobs abroad, which undoubtedly will increase the human resources risk because the described demographic processes will change the quantitative and qualitative composition of human resources capital (Bombiak, 2014, p.111). Conclusions In our contemporary, turbulent environment, risk is a common occurrence associated with every type of business activity and having a potential, strong effect on its operations. Given the importance of human capital for the knowledge economy, it is clear that matters related to human resources risk deserve attention not only of the academic circles but also of practicing managers. Research shows that even though senior management is aware of human resources risk, it is not considered a key factor affecting company operations. Consequently, we may assume that it is not paid due attention. Meanwhile, in the era of intangible sources of competitive advantage, proper care and quality management of human resources seem to be priorities. To attain these objectives, conscious management of human resources risk is a prerequisite, reducing any effects of potential adverse and unexpected events, which could otherwise lead to company’s human capital loss. Every manager should be aware of hazards associated with the human factor and irregularities regarding the human resources management process, for they may materialize and distort company operations. Only proper human resources risk management may contribute to the transformation of risks into opportunities. Correct identification of human resources risk is an integral part of the conscious management within turbulent environments and, most importantly, the key stage in the process of effective risk management. As emerge from the analyses, the ongoing, inevitable changes of the demographic situation associated with the aging population, declining job resources, and increased burden on the population of working age are crucial global human resources risk factors. In order to reduce the risk, employers will need to adopt a new approach to human resources management. References Anaraki-Ardakani, D., & Ganjalim A. (2014). Human Resource Risk Management. Applied mathematics in Engineering. Management and Technology, 2(6), 129142. Bizon-Górecka, J., & Nogalski, B. (2009). Problemy ryzyka personalnego w zarządzaniu projektami inwestycyjno-budowlanymi [Human resources risk problems in the management of investment and construction projects]. In Lipka, A., & Waszczak S. (Eds.), Koszty jakości zarządzania kapitałem ludzkim a ryzyko personalne [The costs of quality of HR management vs HR risk] (pp.28-35). Katowice: Wydawnictwo Akademii Ekonomicznej. Bochniarz, P., & Gugała, K. (2005). Budowanie i pomiar kapitału ludzkiego w firmie [Developing and measuring human capital in firms]. Warszawa: Poltext.

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Bombiak, E. (2017). Aspekty marketingowe w zarządzaniu zasobami ludzkimi [Marketing aspects in human resources management]. Nowoczesne Systemy Zarządzania [Modern Systems of Management]. Wojskowa Akademia Techniczna, 12(1), 66-78. Bombiak, E., (2014). Zarządzanie różnorodnością wyzwaniem dla współczesnych menedżerów [Diversity management as a challenge for contemporary managers]. Zeszyty Naukowe Uniwersytetu Przyrodniczo- Humanistycznego w Siedlcach, 102(29), 111. Czerska, M., & Rutka, R. (2012). Ryzyko ewaluacyjne na stanowiskach programistów w przedsiębiorstwach sektora IT [Evaluation risk associated with programing jobs in IT sector companies]. In Stabryła, A., & Woźniak, K. (Eds.), Determinanty potencjału rozwojowego organizacji [Determinants of company development potential] (pp.180-189). Kraków: Mfiles.pl. Czerska, M., & Rutka, R. (2016). Metody oceny ryzyka personalnego w organizacji [Methods of human resources risk evaluation]. Studia Ekonomiczne. Zeszyty Naukowe Uniwersytetu Ekonomicznego w Katowicach, 280, 23-24. GUS. (2009). Prognoza ludności na lata 2008–2035 [Population forecast for the years 2008 – 2035]. Retrieved from www.stat.gov.pl. Jajuga K. (2009). Koncepcja ryzyka i proces zarządzania ryzykiem – wprowadzenie [The idea of risk and the proces of risk management – an introduction]. In Jajuga, K. (ed.) Zarządzanie ryzykiem [Risk management] (pp.13-15). Warszawa: PWN. Jajuga, K. (2009). Ryzyko operacyjne w banku [Operational risk in banks]. In Jajuga, K.(ed.) Zarządzanie ryzykiem [Risk management] (pp.269-273). Warszawa: PWN. Kaczmarek, T. (2006). Ryzyko i zarządzanie ryzykiem, Ujęcie interdyscyplinarne [Risk and risk management. A cross-disciplinary perspective], Warszawa: Difin. Thlon, M. (2013). Charakterystyka i klasyfikacja ryzyka w działalności gospodarczej [Characteristic features and classification of risk associated with business operations]. Zeszyty Naukowe Ekonomia, UE w Krakowie, 902, 31-32. Kiełkowska, M. (2013). Rynek pracy wobec zmian demograficznych [Job market and demographicchanges]. Zeszyty Demograficzne. cześć 1, Instytut Obywatelski, Warszawa. Kotler, P., & Caslione, J.A. (2009). Chaos. Zarządzanie i marketing w erze turbulencji [Chaos. Management and marketing in the turbulent era]. Warszawa: MT Biznes. Kropp, W. (2004). Entscheidungsorientiertes Personalrisikomanagement. In Bröckermann, R., & Pepels, W. (Eds.), In Personalbindung: Wettbewerbsvorteile durch strategisches Human Resource Management, (pp.131-166). Berlin: Erich Schmidt Verlag GmbH & Co. Kupik, K. (2011). Planowanie w turbulentnym otoczeniu [Planning in turbulent environments]. Master of Business Administration, 4, 37. Lipka, A. (2002). Ryzyko personalne. Szanse i zagrożenia zarządzania zasobami ludzkimi [Human resources risk. Hazards and opportunities of human resources management]. Warszawa: Poltext. Matejun, M., & Nowicki, M. (2013). Organizacja w otoczeniu - od analizy otoczenia do dynamicznej lokalizacji [Organization within the environments – from the analysis of environments to dynamic localization]. In Adamik, A. (Ed.), Nauka o organizacji. Ujęcie dynamiczne [Organizational behavior. The dynamic perspective]. Warszawa: Oficyna a Wolters Kluwer business.

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Meyer, M., Roodt, G., & Robbins, M. (2011). Human resources risk management: Governing people risks for improved performance. SA Journal of Human Resource Management/SA Tydskrifvir Menslikehulpbronbestuur, 9(1), Art. #366, 12 pages. Nath, V., & Shriram, U. (2017, March 21). Managing human capital risks effectively. Retrieved from www.willistowerswatson.com. Nickson, S. (2001). The Human Resources Balancing Act, Cooperation between risk management HR. Risk Management, 48(2), 25-29. Pocztowski, A. (1993). Rozwój potencjału pracy jako problem zarządzania zasobami ludzkimi w przedsiębiorstwie [Development of work potential as a problem of managing human resources in the enterprise], special series: „Monografie”. Kraków: Wydawnictwo Akademii Ekonomicznej. Raport AON Polska. [AON Report Poland] (2016). Zarządzanie ryzykiem i ubezpieczeniami w firmach w Polsce [Risk and insurance management in companies in Poland]. AON Risk Services. Reykowski J., (1975). Teoria motywacji a zarządzanie [Theory of motivation vs management]. Warszawa: PWE. Rutka, R., & M. Czerska, M. (2006). Ryzyko ewaluacyjne w zarządzaniu personelem w badanych urzędach miasta.[Evaluation risk in personel management in the study Municipal Offices]. In Stabryła, A. (Ed.), Doskonalenie systemów zarządzania w społeczeństwie informacyjnym, Materiały konferencyjne [Management system enhancement in the information society. Conference materials.] (pp.201-210). Kraków: Wydawnictwo Akademii Ekonomicznej. Shelest, O. (2013). Ocena czynników ryzyka personalnego w administracji publicznej na przykładzie Urzędu Miasta Poznania [Assessment of human resources risk factors in public authorities on the basis of the Poznań Municipal Council]. Konteksty społeczne [Social contexts], I(1), 74-75. Retrieved from http://kontekstyspoleczne.umcs.lublin.pl. Sołoma, A. (2011). Postawy właścicieli mikro i małych przedsiębiorstw wobec ryzyka w działalności gospodarczej [Attitudes of owners of micro and small enterprises to risk in business activities]. In Winiarski, J. (Ed.), Ryzyko przedsięwzięć gospodarczych [The risk of economic undertakings] (pp.150-159). Gdańsk: Fundacja Rozwoju Uniwersytetu Gdańskiego. Stoner, J.A.F, & Wankel Ch., (1997). Kierowanie [Managing]. Warszawa: PWE. Tyrańska, M. (2008). Obszary ryzyka w zarządzaniu zasobami ludzkimi w przedsiębiorstwie [Risk areas in the management of human resources in companies]. Zeszyty Naukowe Uniwersytetu Ekonomicznego w Krakowie, 772, 221-235. Wróblewski, J. (2009). Metodyka pomiaru ryzyka personalnego [Methods of human risk measurement]. In Lipka, A., & Waszczak, S., (Eds.), Koszty jakości zarządzania kapitałem ludzkim a ryzyko personalne [The costs of quality of HR management vs HR risk] (pp. 93- 103). Katowice: Wyd. Akademii Ekonomicznej. Wróblewski, J. (2016). Ryzyko personalne w zarządzaniu zasobami ludzkimi służb marketingowych przedsiębiorstw farmaceutycznych [Human resources risk in the management of marketing-related human resources in pharmaceutical companies] (Unpublished doctoral thesis). Gdańsk: Wydział Zarządzania Uniwersytetu Gdańskiego. Zhao X., & Jia, Z. (2006). Risk Analysis on Human Resource Management, School of Economy and Management. Handan: Hebei University of Engineering.

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BEYOND RISK MANAGEMENT: MANAGING THE UNEXPECTED Andreas G.M. NACHBAGAUER University of Applied Sciences BFI Vienna Wohlmutstraße 22, 1020 Vienna, AU [email protected] Abstract. Modern organizations attempt to get a grip on uncertainties and disruptive incidents by anticipating changes as early as possible. Consequently, some organizations try to manage complexity by transferring it into defined, controllable structures and processes, aiming at the ability to deliver the desired strategic outcomes in a predictable and reliable manner. Others trust a high degree of freedom at the shop-floor and team level allowing for quicker decisions and self-determined choice to successfully respond to unexpected events. Both solutions demand new procedures to manage the unexpected, focusing on the need to balance structure and flexibility. This conceptual article asks which structures make sense for organizations in complex or even chaotic environments. I will focus on the team and organizational level and foremost at the interaction between these two. By combining theoretical concepts of behavioral and organizational research, especially decision-making based on systems theory, situational awareness and sensemaking, I aim to approach a more comprehensive discourse on ways of coping with the unexpected. Beyond common rational plan and command orientation, the article stresses the importance of a unique equilibrium of structure and autonomy for each given situation, organization and team. Furthermore, I will argue that one can make use of autonomy and enable autonomous decisions on the shop-floor level just because one can rely on unquestioned structures: pre-determined communication paths, hierarchies, structures of orders, knowledge of one’s people and esprit de corps. Keywords: the unexpected; complexity; autonomy; situation awareness; sense-making; systems theory. Introduction Without a doubt we live in a VUCA world, characterized by volatility, uncertainty, complexity, and ambiguity (Bennett & Lemoine, 2014). For one thing, modern organizations attempt to get a grip on uncertainties and disruptive instances by anticipating possible changes as early as possible. Consequently, the management of complexity is often interpreted as transferring uncertainty into defined, controllable structures and processes. While trying to deliver the desired strategic outcomes in a predictable manner, some organizations nowadays increase direct control and reduce trust and transparency when faced with the unexpected. Against this trend, others believe the opposite to be promising in uncertain situations: a high degree of freedom for the parties involved allowing for quicker decisions and self-determined choice to successfully respond to unexpected events. These organizations react with internal flexibilisation, such as agile project work and ad hoc teams, expert pools and fluid organizations, resilient and adaptive structures (Busby & Iszatt-White, 2015; Snowden & Boone, 2007).

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Common to both solutions is the opinion, that new procedure must be implemented to manage the unexpected, focusing on the need to re-arrange structure and flexibility. Based on theoretical considerations this conceptual article asks, what are the challenges for organizations in complex or even chaotic environments and which configurations make sense to achieve resilience? First, we investigate the concepts of complexity and the unexpected based on organization theory inspired by decision-making and systems theory (Luhmann, 2000; March & Simon, 1958). These theories define structures as "structures of expectation" and stress the importance of shared orientation. Social construction theory informs us that the unexpected can only be understood in relation to an observer: the expected and the unexpected therefore are not entities in themselves but are "produced" by and from the perspective of an observer. By combining theoretical concepts of behavioral and organizational research, especially situational awareness and sense-making, we aim to approach a more comprehensive discourse on ways of coping with the unexpected. This article will focus on the team and organizational level and the interaction between these two. On the background of mutual arrangements of autonomy claims and structural (hierarchical) prerogatives, we will analyze the relationship between structure and autonomy in organizations, and depict some necessary foundations to enact this equilibrium. Complexity and the unexpected At the core of management is the idea of controlling outcomes and steering the organization in a rational and predictable manner. No surprise then that any (traditional) management approach is also about avoiding uncertainty. Whenever uncertainties occur, they are to be converted into risks as far as possible. The risk is understood as a probability-driven decision where the decision maker is able to assign probabilities to a known range of future events on the basis of either mathematically known chances or empirical or statistical data about such events in the past (Knight, 1921). Accordingly, processes like risk management are supposed to make it possible to transfer threats and opportunities into – basically calculable and therefore decidable – risks. Since the eve of modern times, the idea of action is dominated by rational choice based on the (full) information. A brief overview of the history of decision making seems to prove the idea of controlling uncertainty rationally with ever new instruments and methods: Market research and PESTEL, management information systems and big data, Monte Carlo algorithms, game theory and simulations approaches, to name a few. Our proposition is that neither more information nor better algorithms are sufficient to solve complex non-programmed or wicked problems within the rational framework in principle. Complexity is defined as a state where more linkages exist than we (normally) can describe or analyze (Luhmann, 1995). Complex systems are characterized by unstable input-output relationships, system boundaries changing over time, and system behavior that is not (fully) depending on the past (Checkland, 1999). In this situation,

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we, as observers and decision makers, are forced to select important and not so important causes and effects and have to decide when to stop searching for further linkages. Given there is no absolute rule to decide selection and termination, different observers will end up with different cause-effect explanations and dissenting forecast for the same observations. Any one best way is redefined to one best way for each given situation and for each given person. Recursive effects in complex environments can make the rational choice of actions impossible (Stacey, 2011). This is the case if one’s own action has implications for the other's acts, but the other's action, in turn, is made based on one’s own decision. In business reality, we can observe more recursive effects in time, e.g. the number of orders will raise revenues, which allows increasing sales force, resulting in more orders. But at the same time, the number of orders raises the size of the backlog, which extends delivery time resulting in sales difficulties – and lowering of orders (Senge, 2006). The chance to observe mutually influencing, simultaneous effects is limited within the linear perspective. From this viewpoint, clear-cut cause-and-effect links are circular and leading to unexpected outcomes. Long-term outcomes are partly emergent and partly intentional, interventions could be planned, but the outcome could not be predicted. The unexpected is that event, that one does not expect – that sounds trivial. Social construction theory informs us that the unexpected can only be understood in relation to an observer: "Everything said is said by an observer" (Maturana, 1982, p.148, see also von Foerster, 1984). But observations are not arbitrary, they are structured and these structures are based on expectations. The expected (and the unexpected) are not entities in themselves but are "produced" by and from the perspective of an observer, either an organization, an employee (Dorniok & Mohe, 2011) or a team based on sense-making (Weick, 1993). Within organizations, strategy, organizational rules, culture and so forth define what is relevant, what is important and what has to be considered as not so important. Taking a closer look, we can differentiate between events that occur totally surprising, and "outcomes or events that actors have identified as possibly existing, but do not know whether they will take place or not" (Geraldi, Lee-Kelley & Kutsch, 2010, p.553). This spectrum of growing uncertainty is frequently known under the labels of known knowns, known unknowns, unknown knowns and unknown unknowns (Cléden, 2009; Winch & Maytorena, 2012). Uncertainty can either be seen as a lack of data necessary to assign objective probabilities to an event ("unknown knowns" where expectations grounded in historical practice are used for a subjective probability) or as an inherently unknowable future ("unknown unknowns"). Duchek and Klaußner (2013) differentiate between the unexpected having a temporal ("when") or a content-related ("what”) dimension. The purely temporal unexpected is the least problematic, the organization can react by drawing on reserves, rapid access to fresh resources or attempts to shift some tasks if the organization had used better times to bulk up organizational slack – provided, the organizations resilience wasn’t killed by lean management and related managerial myths. The unexpected in purely content-related dimension allows for the delegation of the problem upwards and/or initiating a (perhaps even routine) analysis procedure that mostly includes (internal or

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external) experts. Problems occur if events are characterized by both a temporal and a content-related dimension. For surprising situations that long for a long-term reaction only, the organization will have enough time to search for additional information, calculate by advanced analysis methods, and plan in-depth and in advance. The proper time of the organization allows for an uncoupling from the external pressures of expectation, groups can "muddle through" or wait for the next "garbage can", and individuals will sense when the time for decisions (along with their own interests) is mature (Wrapp, 1967). But issues become more complicated when urgency is an issue. Time pressure might stem from environmental changes, but "urgency" has to be translated into and defined as an organizational necessity. By defining "time" importance and (peer) pressure is generated, decision processes are terminated by deadlines, not by the result, and communication (including meetings) is triggered by timelines (Luhmann, 1968). Structures, decisions and decision-making premises The complexity of the world cannot be represented within the organization, even not the complexity of life in the organization themselves. The organization is forced to restrict relations, to select. Structures of expectations accomplish that. They condense "the open complexity of possibilities to connect each element with each other into a tight pattern of "valid, common, foreseeable, repeatable, or however preferred relations." (Luhmann, 1984, p.74). Selectively re-used, cascades of decisions build up a structured history of expectations. Organizations use these structures of expectations as decision-making premises what to observe, how to decide and what to do. They provide organizations with stability and predictability, allowing for the transfer of uncertainty into risk. First structuring elements are strategic goals and plans. Purposes and plans must be translated into the language of the organization. This could be done directly by decisions based on plans. But this is a very unstable and cumbersome procedure. Plans can gain speed and stability when they condense into (Luhmann, 1988, 1993, 2000): - Decision programs (rules, regulations, procedures, standards ASO): decision programs try to predefine individual decisions. Two forms: target programs, and conditional programs. - Communication paths and hierarchies: formal and informal communication paths restrict how information circulates and which information has binding effects in the system. Furthermore, formal and informal decision-making power of a position and the power of the individual person are regulated. - Persons: in organizations, persons are a bunch of expectations, e.g., you usually know what to expect from a supervisor or an expert within an organization. - (Organizational) Culture: defines what is seen as a self-evidence and taken-forgranted matter of course that everyone who is familiar with the organization understands and accepts.

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Plans and decision programs Planning is the attempt to fix the future characteristics of the system, to formulate expectations of (positive) future states of the organization and the environment, together with a specified way to achieve this state. Controlling can be interpreted as an attempt to exert influence on perceived differences within the framework of planning and the real state and the effort to reduce them. Some might even define the unexpected with relation to plans: the unexpected is every event without a provision in respective planning. Obviously, this is a very narrow definition and it insinuates, that by simply improving planning (or controlling, if you like), we can reduce the amount of the unexpected. Only naïve people believe plans to come true, at least that is what we can experience when we go beyond simple and short-term issues. Nevertheless, plans are important. Plans set aims and thus help to select means and operations. Plans depict interactions of different actions of divergent actors, define a common sense for the organization, and enable to detect and correct deviating developments. They focus attentiveness. And paradoxically enough, they inform organizations where to expect the unexpected. But at the same time, they make organizations structurally blind for the unexpected in other areas. Earlier research on uncertainty (Dörner, 1989; Perrow, 1984) and newer investigations on wicked problems (Checkland, 1999) have shown that the advantages of (pre-)structured expectations in organizations make it difficult to handle the complex unexpected reasonably. Conditional programs, appearing in the form of (clear) instructions, application of standard procedures and programs, check lists, and so on, resemble the efficiency of a machine. Conditional programming, while at the first glance best suited for the quick response, seems to be unable to handle the unknown unknown, even more so, it can make things even worse when short term reactions are needed: Deadline pressures force a preference for socially accepted solutions and is thus hostile to innovation. Only those information is used that is easily accessible, only those decisions made where routines are available, and established co-operations are preferred, groups and individuals regress to pre-mature and emotional states. Even more so, following rules at all points may cause disaster (Cavallo & Ireland, 2012). It is not for nothing that works to rule is considered as an effective industrial action. The problem of structural blindness against the unexpected both on an organizational as well as on an individual level re-emerges when using conditional programs. Just because close control models (e.g. checklists), personal expertise and accountability, and decision-making responsibilities are normally so successful, they prevent facing the unexpected in complex situations (Luhmann, 1986). The dilemma is particularly evident when organizational regulations, which are based on the common cases and therefore the expectable, are confronted with individual perceptions in new and complex situations which would indicate countervailing measures (Busby & IszattWhite, 2015). Target programming based on definitions of objectives or soft targets, controlled by mission, vision and strategic context, empowerment, and so on, seems to be better suited to react quickly to the unexpected, and it is more open to innovation. Again, the dominance of time leads to but unwanted results: To end up with socially accepted

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decisions team-work is critical. Reflection work and downtimes should be scheduled; non-cooperative tasks socialized and made to team tasks. And maybe new teams must be formed or the set-up of existing ones to be changed, with all the (time-consuming) burden of group-dynamics. As means to meet ends are vague and have to be sought of, time would be needed, but this is a scare resource. Organizations using target programming are more open to limited predictability, risk taking, and acceptance that the existing rules of the game change continuously. But confronted with urgency, they still recourse to persons (as experts, leaders etc.), clear communication paths and culture to keep decisions efficient, quick in reaction and controllable. Communication and hierarchy All researchers agree that more and open communication is crucial to address the unexpected (Barton & Sutcliffe, 2017). The reasons for that sound obvious, as more communication allows for a better information basis, more ideas about what’s "really" going on, different views and perception frames, more expertise, more commitment to solutions, and shared burden in decision and action. Weick and Sutcliffe (2001) stress the importance of face-to-face interactions and direct communication in change or crisis situations to create a collective understanding of the situation. But the tighter the time horizon, the more restricted communication must be to avoid information overflow and allow for quick reaction. Communication is very time consuming, and gathering and analyzing information together is not acting. Rather, it inhibits fast and necessary (but maybe less sophisticated) action. To gain valuable information in a timely manner and to secure the coordinated action in response to the unexpected, it appears necessary to communicate at the same time more intense, but also to be more specific and selective. To be able to communication quick, it is important to have a clear picture of one’s (virtual) communication network in advance that could be activated in crisis situations. The form of communication should be clarified in advance, i.e. when to use one-way or two-way communication, when and how to use feed-back loops, the preferred communication cannel (oral via face-to-face or phone, written as letter, mail, SMS, social collaboration tool) for which (kind of) information, whom to inform on which aspects, to name a few. And it is equally important to have clear and comprehensive language at hand, i.e. common technical terms and concepts, mutual understanding of the semantic field and even a clear and short structure of speech acts, like in military commands or manuals. In the same vein, most authors make the case for flat hierarchies and liquid, at least adjustable responsibilities. As Weick and Sutcliffe (2001, p.160) in their renown statement put it: "When problems occur, let decision making migrate to the people who have the most expertise to deal with the problem." Approaches like Agility (Beck et al., 2001) or concepts like Holocracy (Robertson, 2015) promise to be better suited for a complex and fast-changing world with a bunch of daily surprises just because they reduce traditional hierarchies, duties, and fixed responsibilities. A closer look at these concepts shows that they do not abolish hierarchy in the original meaning, i.e.: defined area of accountability, functional responsibility and communication flow patterns (Luhmann, 1964, Weber, 1921). Rather they re-define them away from stable and formal norms to learning and adaptable structures. Just because the unexpected can disrupt structures, it is even more important to have a

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clear basis to act on: As structures serve as a guide in the minds of the members of the organization, they must continue to exist particularly in crisis situations, so that the individuals can align their actions to it meaningfully (Weick & Sutcliffe, 2001). Typically, clear communication paths, rules, and hierarchies have a relieving effect for decision makers, both subordinations and supervisors: Individuals need not care about everything that is going on in the organization, but has to consider those facts only, that are within their formal (or informal) discretion. The hierarchy also has a protective function for employees as only distinguished positions have a right to interfere and control actions: Hierarchy thus protects self-organization and relative autonomy. If delegation is taken seriously, this also includes the "right" to make mistakes. And hierarchy is a mechanism to solve conflicts between all people in the organization, and if it cannot be resolved, then for the time it can be defused (Baecker, 1999). Furthermore, these concepts react to the prevalence of informal structures: Not acting against informality, but incorporating them can be understood as an intelligent handling of informalized structures. This is by no way surprising: Previous research on micro-politics in organizations has stressed the mutual dependency of control and autonomy, formality and informality (Crozier & Friedberg, 1980). Some would even go one step further and tolerate a certain degree of illegality if this illegality is useful (Neuberger, 1995; Ortmann, 2003). In business life, "useful illegality" is widely accepted – and embedded in still clear (formal and informal) structures (Kühl, 2007). Even with flat hierarchies and open communication, coordination and common orientations are still necessary, especially in turbulent fields. Thus, reducing the impact of more formal decision-making premises must be accompanied by a growing importance of less structured premises for the decision process: these are persons and (organizational, team) culture. Persons and situation awareness Persons can act in a very timely manner. In this sense, a person is a flexible counterpart to planning. The person as an organizational member is normally connected to a position in an organization, and hence in the possession of certain responsibilities, authorized to decide and enact on programs, and controlling a distinct knot in the communication network. We ascribe the ability to provide information in the specifically defined area to "experts" and we expect certain behavior from superiors and managers. We can address persons easily, and they can address us directly. Sometimes, especially in situations of crisis, persons are chosen to convey confidence and trust, and to promote certain programs or ideas, allowing to bypass the difficulty of casting disputed values into binding targets formally. All these features make a person a valuable resource to face the unexpected. The discussion on the use of persons to help to cope with the unexpected revolves around the concept of situation awareness (Endsley, 2003; Schaub, 2012). Originating from research in military aviation, situation awareness aims at understanding how information provided by machines can be combined with personal perceptions to derive appropriate decisions. This view can be transferred to complex situations in management. A manager must also provide a comprehensive overview and quickly

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make decisions based on the data contained in an MIS and on figures showing relevant environmental trends. The most common model for the description of situation awareness was established by Endsley (2003) and distinguishes three levels or phases: In level 1 (perception phase), the environmental elements are perceived. Situation awareness is created by the perception of the state, characteristics, and dynamics of the system elements. It is important to identify the relevant influencing factors, but at the same time avoiding premature selection, so that relevant information is not faded out too early. Level 2 (comprehension phase) is about understanding the perceived elements and thus the current situation. Situation awareness is created by conceiving a holistic image based on existing patterns and interactions ("mental map"). In level 3 (projection phase), the future state of the objects is projected. Situation awareness is created by generating assumptions of what might occur in further developments, based on the knowledge gained from level 1 and level 2 (e.g. different scenarios). Perception is shaped by the perceiver, or to be more precise, by his expectations. Because we can only see what we are looking for, schemas (along with the available information) determine what is perceived (Neisser, 1979). If perception is a constructive process, we then should be critical and question, why certain information is communicated redundantly and intensively, while another one is completely overlooked. Especially in situations of operational hustle and bustle, relevant information is ignored. Then, the action is more oriented towards re-acting as quickly as possible, rather than approaching issues actively and plan-based. Reverting to wellknown procedures reassures team members and managers in dynamic situations. One moves on familiar terrain, there is neither time nor aspiration to undergo the tedious procedure of constructing full situation awareness. In the end, by setting short-term actions, people can evade being accused of not having done something. In summary, relying on people only can also have a downturn: Situation awareness is especially necessary for dynamic situations, but exactly in these circumstances, the perception will be based on reduced and well-known information only so that new data is no longer perceived. It is difficult to have an overview of a complex environment and to recognize the various sources of uncertainty, to align the expected horizons and to create corresponding situation awareness. Based on false perception, comprehension will take the quick short-cut to well-known and deep-rooted explanations, considering neither diversity nor suitability for new situations. The advantage of flexible reaction is lost, if persons set existing knowledge, beliefs, expectations, skills and so forth absolute and even do not get aware of their ignorance. This threat is especially prominent for experts, but also top management. Given that limitation, there is a need for mental models that help to portray the "real" conditions appropriately. For once, the "wisdom of doubt" protects persons to apply existing knowledge without reflection to new situations (Weick & Sutcliffe, 2001). In most cases, a better understanding can only be achieved by a diverse team with different views and approaches. Shared situation awareness allows the team to understand the initial situation in a common image and to make appropriate conjectures and take the actions the new situation requires (Schaub, 2012). A "shared situation awareness" must, therefore, be assigned a key role in managing the

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unexpected. Shared situation awareness requires three things: appropriate visual preparations which are understood by all parties concerned; the willingness to raise and to allow critical questions on the team level, and even invite team members to take the position of a "devil's advocate"; and an organizational culture that calls for contradictory observations and views and welcomes the opinions of unconventional thinkers. Culture and sense-making The concept of organizational culture summarizes the organizational "soft facts" that cannot be adequately reflected in (other) organizational structures: common values, norms, language, and behavior, to name a few. The importance of organizational culture is based on the observation that all the other structural elements are interpreted (framed) before the background of (more or less) jointly shared considerations and how the world and its events are to be understood. Reality is not perceived, but enacted (Mead, 1934; Weick, 1985). This process of sense-making is in need of constant interaction with others. The enacted reality is not random; rather, people in organizations spend much time on negotiating what is considered a decent representation of what is going on and what reality "really" is. Weick (1993) gives us an impressive example of the importance of sense-making in his famous interpretation of the Man Gulch disaster. Weick reports that several fire jumpers expected the fire to be small but then encountered a large amount of information which they could not make sense of: the fire did not act like the fire they expected and understood. Furthermore, several team members behaved in ways which the other could not reconcile with the particular situation. Weick argues that the organization’s failure was the result of a collapse of the structure, i.e. obeying orders and leadership, and this failure, in turn, resulted from a lack of common sense-making. The firemen did not manage to build on a synthesis of meanings among different group members and a joint subjectivity, further deteriorated by the crew members who failed to inform each other not only what they did, but why did what they did. The foreman failed to build his team of the smokejumpers in advance, and there simply was no time to enact a shared sense or a common situational model of what was happening in situ. These observations point to the importance of previous team building activities to be able to face the unexpected. Creating a team culture that is sensible for the unexpected is closely connected to a no-blame or just-action attitude, a high transparency of task fulfilment and permanent and joint learning. Managing the unexpected thus requires an organizational and team culture that avoids passing the buck for failure just to avoid being blamed oneself. We need a "culture of errors" that allows to talk about errors and failures rather than displace them, a culture in which mistakes are accepted, that is working with openness and through mutual feedback to avoid mistakes in the future. This culture change must be accompanied by a structural change in HRM systems, most notably reward and career systems. Any attempt to establish an error-friendly attitude will be crushed in a winner-takes-all organizational culture. Rather than concentrating on pure individual success, now so prominent both with incentives and promotion criteria based on work-hard play-hard, organizations and managers must

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concentrate on team performance and organizational reliability (Nachbagauer, 2013; Neckel & Dröge, 2008). Conclusions and implications Solutions tackling the unexpected so far have promoted EITHER more structure and planning OR a shift to towards flexible, informal management structures: adhocracy, the absence of strong formal hierarchy, decentralization, little formalization of behavior and decision-making power for specialist teams. Rationality as optimization, viewing decision-making as a fully rational process of finding an optimal choice with the given information, was long considered to be the ideal solution to decision-making. And still today we find arguments – though in a smarter form- in favor of a more formal and structured control of the unexpected: Let us take as an example project management, i.e., a discipline for which dealing with uncertainty and the unexpected is central. The ultimate aim of project management, defined by the PMBOK (PMI 2013), is to deliver the desired strategic outcomes in a predictable, controllable and reliable manner. Söderholm (2008) observes that project-oriented organizations thus seem to increase direct control, reduce trust and transparency when faced with project crises. On the modelling and algorithms wing, we see a bunch of older and more recent approaches to instruct project decision makers, e.g. Monte Carlo algorithms (Agarwall & Virine, 2017; Hulett, 2017) and simulation approaches (Chapman, 2017; Chua & Hossain, 2011; Jo, 2015), high hopes for predictability are connected to new buzzwords like big data (Galbraith, 2014; McKinsey Global Institute, 2011; Whyte, Stasis & Lindkvist, 2016). But the term of rationality has undergone a crisis. Newer approaches to managing uncertainty are now promoting "irrational" perceptions as the major source of information, of quick decision-making and of quality of actions (Gigerenzer, 2008). Information is no longer made available only through rational, analytic and conscious thought but also through sensual perception. Atkinson, Crawford, and Ward (2006, p.688) suggested that uncertainty management asks for "generic management processes associated with building trust, sense-making-organizational learning, and building an appropriate organizational culture". Especially the research on resilience and high reliability organizations have stressed the importance of near-to-shop-floor decisions and flexible structures (Duchek & Rätze, 2017; Sutcliffe & Vogus, 2003; Weick & Sutcliffe, 2001). These developments are accompanied by the search for a no-blame culture ensuring permanent and joint learning. For example, managers use retrospectives and systematic review procedures to take their team through the decision-making process and reflect on how to handle the event more mindfully. One method for reflection is the so-called after-action review built around four questions: What did we set out to do? What actually happened? Why did it happen? What are we going to do next time? Mindfulness requires people to focus on failures rather than successes, on gut instinct rather than on strategies and to acknowledge that others might know more than oneself (Weick & Sutcliffe, 2001).

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Persons are supposed to be important resources to face the unexpected, therefore people and knowledge management – both formal and informal – play a decisive role, comprising also motifs, traits, and experience. Organizational culture and sensemaking shape how all other structural elements are perceived, thus, enacting a common culture and allowing for sense-making in teams before the unexpected occurs are crucial. Ex ante team building efforts and face-to-face interactions in crisis situations help generate intersubjective meaning and develop a common situational model for action. At the same time appreciating a "culture of doubt" pays off, especially when employing experts. Rejecting the idea of mutually exclusive solutions my argument is that organizations can make use of autonomy just because they can rely on unquestioned structures: predetermined communication paths, hierarchies, structures of orders, Especially in turbulent environments, coordination and common orientation are desperately needed, responsibilities must be very clear and at the same time, they should be a shift to that level that is dealing directly with the instance. The demand for intense communication also asks for clear communication structures and a shared language when faced with high time-pressure. It remains (or is even more) important to have a clear basis to act on when faced with the unexpected. A few core cultural values, enforced by the team, combined with a flexible choice of means by which these values are realized and knowledge of one’s people and esprit de corps help to manage unexpected events. The obvious problem is to link up the culture of clear decision-making structures and responsibilities with a high degree of flexibility, open communication, and errorfriendly culture. Combining centralization with decentralization is one of the cornerstones to mindful organizing. This cannot be solved in an either-or-manner but deserves a unique equilibrium of structure and autonomy for each given situation and organization. Managing the unexpected demands thinking beyond apparent opposites: We ask both for a culture of clear decision-making structures and responsibilities AND a high degree of flexibility and open communication. References Agarwall, R., & Virine, L. (2017). Monte Carlo Project Risk Analysis. In Raydugin, Y. (Ed.), Handbook of Research on Leveraging Risk and Uncertainties for Effective Project Management (pp.109-129). Hershey: IGI Global. Atkinson, R., Crawford, L., & Ward, S. (2006). Fundamental uncertainties in projects and the scope of project management. International Journal of Project Management, 24(9), 687-698. Baecker, D. (1999). Mit der Hierarchie gegen die Hierarchie [With the hierarchy against the hierarchy]. In Baecker, D. (Ed.), Organisation als System (pp.198236). Frankfurt/Main: Suhrkamp. Beck, K., et al. (2001). Manifesto for Agile Software Development. Retrieved from http://agilemanifesto.org/. Bennett, N., & Lemoine, G.J. (2014). What VUCA Really Means for You. Harvard Business Review, 92(1-2), 27.

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Barton, M., & Sutcliffe, K.M. (2017). Contextual engagement as resilience-in-action: A study of expedition racing. Paper presented at the at the 33rd Colloquium of the European Group of Organisational Studies. Copenhagen, Denmark. Busby, J., & Iszatt-White, M. (2015). Rational Violation: Ordered Accounts of Intentionally in the Breaking of Safety Rules. Organization Studies, 37(1), 35-53. Cavallo, A., & Ireland, V. (2012). SoS in Disasters: Why Following the Manual Can Be a Mistake. Paper presented at the IEEE International Conference on System of Systems Engineering. Genova, Italy. Chapman, R.J. (2017). Complexity Theory and System Dynamics for Project Risk Management. In Raydugin, Y. (Ed.), Handbook of Research on Leveraging Risk and Uncertainties for Effective Project Management (pp.152-176). Hershey: IGI Global. Checkland, P. (1999). Systems Thinking, Systems Practice. Chichester: Wiley. Chua, D.K.H., & Hossain, Md.A. (2011). A simulation model to study the impact of early information on design duration and redesign. International Journal of Project Management, 29(3), 246-257. Cléden, D. (2009). Managing project uncertainty. Farnham: Gower. Crozier, M., & Friedberg, E. (1980). Actors and Systems. Chicago: University of Chicago Press. Dörner, D. (1989). Die Logik des Mißlingens [The logic of failure]. Reinbek: Rowohlt. Dorniok, D., & Mohe, M. (2011). Nichtwissen als vernachlässigte Variable im Verhältnis von Organisation und Umwelt [Ignorance as a neglected variable in the relationship between organization and the environment]. In Conrad, P., & Sydow, J. (Eds.). Managementforschung 21 (pp. 91-132). Wiesbaden: Springer. Duchek, S., & Rätze, S. (2017). Resilience in organizations: An integrative multilevel review and agenda for the future. Paper presented at the at the 33rd Colloquium of the European Group of Organisational Studies. Copenhagen, Denmark. Duchek, S., & Klaußner, S. (2013). Temporärer Umgang mit dem Unerwartetem [Temporal handling of the unexpected]. In Koch, J., & Sydow, J. (Eds.), Managementforschung 23 (pp.49-82). Wiesbaden: Springer. Endsley, M.R. (2003). Designing for Situation Awareness. London - New York: Taylor & Francis. Foerster, H. von (1984). Observing Systems. Seaside, CA: Intersystems Publications. Galbraith, J.R. (2014). Organization Design Challenges resulting from Big Data. Journal of Organization Design, 3(1), 2-13. Geraldi, J.G., Lee-Kelley, L., & Kutsch, E. (2010). The Titanic sunk, so what? International Journal of Project Management, 28(6), 547-558. Gigerenzer, G. (2008). Gut Feelings: The Intelligence of the Unconscious. London: Pengiun. Hulett, D. (2017). Monte Carlo Simulation for Integrated Cost-Schedule Risk Analysis. In Raydugin, Y. (Ed.), Handbook of Research on Leveraging Risk and Uncertainties for Effective Project Management (pp.29-60). Hershey: IGI Global. Jo, H., Lee, H., Suh J., Kim, J., & Park, Y. (2015). A dynamic feasibility analysis of public investment projects. International Journal of Project Management, 33(8), 18631876. Knight, F. H. (1921). Risk, Uncertainty, and Profit. Boston: Hart, Schaffner & Marx. Kühl, S. (2007). Formalität, Informalität und Illegalität in der Organisationsberatung [Formality, informality, and illegality in organizational consulting]. Soziale Welt, 58(3), 271-293.

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Luhmann, N. (1964). Funktionen und Folgen formaler Organisation [Functions and consequences of formal organization]. Berlin: Duncker & Humblot. Luhmann, N. (1968). Die Knappheit der Zeit und die Vordringlichkeit des Befristeten [The scarcity of time and the urgency of the temporary]. Die Verwaltung, 1, 3-30. Luhmann, N. (1984). Soziale Systeme [Social Systems]. Frankfurt: Suhrkamp. Luhmann, N. (1986). Ökologische Kommunikation [Ecological communication]. Opladen: Westdt. Verlag. Luhmann, N. (1988). Organisation. In W. Küpper & G. Ortmann (Eds.), Mikropolitik (pp.165-185). Opladen: Westdt. Verlag. Luhmann, N. (1993). Die Paradoxie des Entscheidens [The paradox of decisionmaking]. Verwaltungs-Archiv, (83)3, 287-310. Luhmann, N. (1995). Probleme mit operativer Schließung [Problems with operational closure]. In Luhmann, N. (Ed.), Soziologische Aufklärung 6 (p.12-24). Opladen: Westdt. Verlag. Luhmann, N. (2000). Organisation und Entscheidung [Organisation and decision]. Opladen: Westdt. Verlag. March, J.G., & Simon, H.A. (1958). Organizations. New York: John Wiley. Maturana, H. (1982). Erkennen [Recognizing]. Braunschweig, Wiesbaden: Vieweg. Mead, G.H. (1934). Mind, Self, and Society. Chicago: University of Chicago Press. Nachbagauer, A. (2015). Schöne neue Arbeitswelt? [Brave new world of work]. In Nachbagauer, A. & Ortner, G. (Eds.), Globale Projekte managen (pp. 385-404). Düsseldorf: Symposion. Neckel, S., & Dröge, K. (2008). Die Verdienste und ihr Preis: Leistung in der Marktgesellschaft [The merits and their price: performance in the market society]. In Neckel, S. (Ed.), Flucht nach vorne (pp.80-99). Frankfurt, New York: Campus. Neisser, U. (1979). Kognition und Wirklichkeit [Cognition and reality]. Stuttgart: KlettCotta. Neuberger, O. (1995). Mikropolitik [Micro-politics]. Stuttgart: Enke. Ortmann, G. (2003). Regel und Ausnahme. Paradoxien sozialer Ordnung [Rule and exception. Paradoxes of social order]. Frankfurt: Suhrkamp. Perrow, Ch. (1987). Normal Accidents. New York: Basic Books. PMI (2013): A Guide to the Project Management Body of Knowledge (PMBOK Guide). Newtown Square: Project Management Institute. Robertson, B.J. (2015). Holacracy. New York: Henry Holt. Schaub, H. (2012). Wahrnehmung, Aufmerksamkeit und "Situation Awareness" (SA) [Perception, attention and "situation awareness"]. In Badke-Schaub, P., Hofinger, G., & Lauche, K. (Eds.), Human Factors (pp.63-82). Berlin, Heidelberg: Springer. Senge, P.M. (2006). The Fifth Discipline. New York et al.: Doubleday. Snowden, D.J., & Boone, M.E. (2007). A Leader’s Framework for Decision Making. Harvard Business Review, 85(11), 68-76. Söderholm, A. (2008). Project management of unexpected events. International Journal of Project Management, 26(1), 80-86. Stacey, R. (2011). Strategic Management and Organizational Dynamics. Harlow et al.: Prentice Hall. Sutcliffe, K.M., & Vogus, T.J. (2003). Organizing for Resilience. In Cameron, K., Dutton, J.E., & Quinn, R.E. (Eds.), Positive Organizational Scholarship (pp.94-110). San Francisco: Berrett-Koehler.

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Weber, M. (1921/1972). Wirtschaft und Gesellschaft [Economy and society]. Tübingen: Mohr. Weick, K.E (1993). The collapse of sensemaking in organizations: The Mann Gulch disaster. Administrative Science Quarterly, 38(4), 628-652. Weick, K.E., & Sutcliffe, K.M. (2001). Managing the Unexpected: Assuring High Performance in an Age of Complexity. San Francisco: Jossey-Bass. Weick, K.E. (1985). Sensemaking in Organizations. Thousand Oaks, CA: Sage. Whyte, J., Stasis, A., & Lindkvist, C. (2016). Managing change in the delivery of complex projects: Configuration management, asset information and ‘big data’. International Journal of Project Management, 34(2,), 339-351. Winch, G.M., & Maytorena, E. (2012). Managing Risk and Uncertainty on Projects. A Cognitive Approach. In Morris, P.W.G., Pinto, J.K., & Söderlund, J. (Eds.), The Oxford Handbook of Project Management (pp. 345-364). Oxford: Oxford University Press. Wrapp, H.E. (1967). Good Managers Don’t Make Policy Decisions. Harvard Business Review, 45(5), 91-99.

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EXPLORING PRECURSORS OF VALUE DELIVERY ON ORGANIZATIONAL CAPABILITIES THROUGH LEADERSHIP BRANDING AWARENESS George Bogdan DRĂGAN ”Dunărea de Jos” University of Galați 59-61 Nicolae Bălcescu Street, 800001 Galați, RO [email protected] Gianita BLEOJU ”Dunărea de Jos” University of Galați 59-61 Nicolae Bălcescu Street, 800001 Galați, RO [email protected] Alexandru CAPATINA ”Dunărea de Jos” University of Galați 59-61 Nicolae Bălcescu Street, 800001 Galați, RO [email protected] Abstract. A collaborative approach to capitalize on organizational capabilities makes sense of leadership branding awareness by coordinating their deployment through the processes of fitting organizational landscape to the targeted outcome. The common fault of strategic leadership misalignment resides on the scarce propensity to pooling capabilities. This study highlights the twofold role of leadership branding: firstly, on retaining capabilities critical to success and secondly, on influencing the course of action toward sharpening delivery on capabilities. The current research explores underestimated relationships of leadership context dependency, through recognition and mapping skills to amplify the value delivery. The methodological anchor of leadership brand assessment, applied on a representative pool of knowledge intensive companies from Romanian software industry, outlines the precursors of value delivery and a balanced configuration of choices to capitalize on capabilities. Keywords: leadership branding; value delivery; foresight capability; client experience; company image. Introduction Leadership brand is one of the most effective drivers for endowing human capital with a distinct set of talents that are uniquely geared to fulfill stakeholders’ expectations. A company with a leadership brand inspires faith that employees and managers will consistently deliver value on the firm’s promises (Ulrich & Smallwood, 2007).

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This paper aims to design and test a pattern matching approach to value delivery and leadership branding awareness outlines client experience legacy and organizational reputation within target market as preliminary requirements envisioning a subset of leadership mapping skills. The pattern matching theoretical and observed constructs mirrors discovering knowledge process approach through initial requirement envisioning test driving development, to calibrate the precursors of organizational propensity behavior toward value delivery on behalf of leadership branding awareness scoring. The remainder of the paper is organized as follows. After highlighting the relevant theory for this study purposes, we outline the research framework and methodological toolkit. Then, the findings are discussed by means of relevant methods and reveal their implications on both theoretical and practical sides. Theoretical background and hypotheses development Leadership brand occurs when “leaders are clear about which results are most important, develop a general consistency about how they will achieve these results, and build attributes that align with the achievement of these results” (Intagliata et al., 2000, p.14). Leadership branding leverages strong needs of achievements in terms of sales, profit and market share by means of high tolerance of ambiguity and selfconfidence of the management team (Ahmad et al., 2012). The process of building leadership branding involves specific activities, such as development of competencies, job rotation, learning, and development, nurturing of high potential employees, talent identification through talent matrix, talent pipeline development (Bhatnagar, 2008); in order to make the whole process dynamic and responsive, the capability to enhance organizational value delivery becomes compulsory. According to Ulrich and Smallwood (2007), leadership branding is the key enabler of bridging the gaps between the corporate culture and the outside organizational brand perception by the relevant stakeholders; it has also valuable benefits in developing future leaders and strengthening the whole organization. In our attempt to understand the role of leadership branding as an antecedent of the specific outcome of client experience, it is necessary to define its role in value delivery. Leadership branding enhances value delivery by creating sustainable organizational brand differentiation, not only through the development of a consistently positive service attitude (client experience) but also through emotional values (Mosley, 2007). Leadership branding acts as a promise between an organization and its potential and existing clients; the promise is strongly associated with the value delivery and the entire organization has to be committed in this way (Foster et al., 2010). Organizations endowed with leadership branding are able to develop long term relationships with their clients, based on high confidence, being convinced that

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their needs and expectations will be addressed in an appropriate way (Martin & Burke, 2012). Exploring significant return on experience over conflicting evidence of leadership branding knowledge base, two approaches prove pertinent to leverage the pluralism of the study outcome, underlining two challenges to be addressed by interpretive research design. The first pertinent shift, suggested by the community of expertise, recognizes Petriglieri (2017, p.3) pertinent emphasize over leadership branding challenge: "A key shift occurs, when a high potential realizes that his or her role is not to deliver more than others, but to deliver more with others". The second significant shift is signaled by Petriglieri and Petriglieri (2017), which requires restructured frames of pertinent sources of tensions: using talent vs. proving talent, image vs. authenticity and postponement of meaningful work vs. the present loosing value. Examining literature tensions deriving from returns on experience on value delivery and leadership branding approaches, the study builds upon the need of moderation over organizational pooling capabilities, discovers new dimensions of the research problem and purposefully pursues toward achieving new matches of theory and reality. Minding the gap between retaining capabilities critical to success and delivering results, the research framework emphasizes significant and clear contribution, making sense of hypothesis construct to support new findings and redirection of data collection. Based on the literature mentioned above, the first hypothesis (H1) is addressed: Client experience legacy positively moderates leadership unipersonal development plan and enhances value delivery. The relationships between leadership branding and corporate reputation attract attention within business research communities in many research articles. However, in terms of assessing corporate reputation, few studies focus on the construct: leadership branding. The leaders have the key responsibility to create leadership brands that translate clients’ expectations into employee behaviors, which will finally drive to client experience legacy (Moore, 2008). Leadership branding needs to be addressed in relation to the interplay between vision and value delivery and requires ongoing dialogue between top management and external stakeholders (Balmer & Gray, 2003), based on responsive attitudes regarding the effective management of the organizational reputation within the target market. Moreover, leadership branding should induce behaviors such as articulating a unifying brand vision, acting as an appropriate role model by living the brand values (Morhart et al., 2009), offering stakeholders the possibility to

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interpret their roles as brand representatives in order to increase reputation within the target market. Leadership branding is also considered as a lever for generating organizational brand commitment, being mediated by four context factors (culture fit, structure fit, employee know-how and disposable resources), perceived as building blocks of internal brand management with high impact on organizational reputation (Burmann & Zeplin, 2005). The perspective on leadership branding recognizes the stakeholders’ implications by proposing a holistic approach whereby external and internal approaches of the organizational brand are viewed synergistically within an integrated reputationdriven strategy (Aydon Simmons, 2009). The second hypothesis (H2) is also built upon the relevant literature previously approached: Leadership branding awareness positively moderates organizational reputation within target market and enhances value delivery. Few authors have closely investigated the link between leadership branding and value delivery, and, when they have conducted such research, the approach has been mainly focused on the impact of leadership branding on firm’s performances. This paper looks more closely at how the leadership branding and value delivery are interrelated, by analyzing the practices of 80 Romanian IT companies that have been involved in this research. The paper also considers how leadership branding enables the efforts of these organizations to build their reputation and improve their clients’ experiences. Methodological toolkit deployment In its attempt to bridge leadership branding capability score and leadership branding awareness score, this study’s conceptual architecture advances the leadership branding assessment and foresights on organizational profiling rooted on leadership branding awareness adjusted score; primarily, it exposes precursors of value delivery moderated by leadership branding assessment score and secondly, it outlines pilot tests to leverage a balanced configuration of choices to capitalize on capabilities. Drawing upon construct validity literature (Bagozzi et al., 1991) and (O'Leary-Kelly & Vokurka, 1998), the current evolving case matches theory and reality, exposing some blurred boundaries on foresighted organizational capabilities, on behalf of the leadership branding knowledge base, through upgrading new findings to unexplored causal associations. Recognizing scarce propensity to pooling capabilities as a true challenge for the strategic decision, leadership branding should be explored to provide solutions to overcome these misalignments. Making sense of construct validation is a three step process outlined in Figure 1.

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Value delivery on organizational capabilities can be conceptualized as a subset of leadership mapping skills. Leadership branding awareness can be conceptualized as an organizational process purposefully channeled to capitalize upon client experience legacy. Literature review upholding the deployment of Value delivery & Items adapted from Ulrich’s LBA Leadership Brand Assessment score deployment of value delivery

Pattern matching Leadership context dependency Moderating effect test of truth H1&H2 Leadership context dependency Moderating effect test of truth

Leadership branding awareness Recognition and mapping skills to amplify the value delivery &

Recognition and mapping skills to amplify the value delivery

& Research conceptual framework

H1&H2 Figure 1. Research milestones

Exploring underestimated relationship of leadership context dependency requires a new framework (Figure 2) to fit evidence to theory and outlines a subset of leadership mapping skills to submit to a measurement model validity test. Leadership unipersonal development plan

Client experience legacy

Value delivery

Leadership branding awareness

Organizational reputation

Figure 2. Research framework Data has been collected by means of a questionnaire, providing respondents the possibility to emphasize their perceptions regarding value delivery on behalf of leadership branding awareness regarding 10 Likert scale-based items.

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In order to achieve the potential to deliver more value with the stakeholders, companies constantly have to inform them about the commitment to leadership branding. Assuming a branding leadership mission is an essential part of enhancing organizational identity and supports an organizational process for the development of future generations of leaders. Leaders’ meaningful work should leverage the improvement of the company's results and encourage initiatives to translate valuable personal interaction experiences into customer-relevant knowledge. Monitoring the image of the company on the target market consolidates organizational identity, by operationalizing the branding leadership mission through a set of specific actions, in order to counterbalance client's perspective in acquiring knowledge through unipersonal leadership development plans. To avoid losing multiplied client interactions, which strengthens leadership development, the companies must deploy experiential learning programs and align them to client perspective. The convenience sample was represented by 80 Romanian IT companies, whose managers agreed to take part in the survey and filled out the online questionnaire. Even if it is a convenience sample, we consider it purposefully targeted, as we have been tested various research design frameworks related to Strategic Intelligence. Calculating Cronbach’s Alpha has become common practice in business research when multiple-item measures of a concept or construct are employed. In this research, Cronbach’s Alpha (0,853) reveals a high level of internal consistency for the 10 item scale (Table 1).

Cronbach's Alpha ,853

Table 1. Reliability Statistics Cronbach's Alpha Based on Standardized Items ,854

N of Items 10

A debate is rising over using or not the average inter-item correlation as a measure of reliability between respondents; nevertheless, is quite obvious that the responders rate the same stimuli in the same way or even more problematic if the trend of higher a lower score for the same stimuli was followed. The correlation between a particular item and the sum of the rest of the items outlines that the best item appears to be the fifth, with an item-total correlation of r = 0,627. The item with the lowest item-total correlation is the sixth (r = .408). Analyzing Cronbach’s Alpha "if item deleted" column, we observe that none of the values is greater than the current alpha of the whole scale: 0,853, so any item we don't need to be removed (Table 2).

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Table 2. Item-Total Statistics Scale Squared Cronbach's Corrected Mean if Scale Variance Multiple Alpha if Item-Total Item if Item Deleted Correlatio Item Correlation Deleted n Deleted 32,32 31,058 ,613 ,428 ,835 32,49 31,924 ,539 ,337 ,841 32,61 31,329 ,610 ,441 ,835 32,81 30,357 ,595 ,413 ,836 32,41 30,549 ,627 ,446 ,833 32,19 33,015 ,408 ,232 ,852 32,38 31,528 ,564 ,364 ,839 32,48 32,025 ,540 ,347 ,841 32,70 31,808 ,564 ,374 ,839 32,40 31,559 ,509 ,348 ,844

Since this study advances a purposefully adapted tool for collecting data, consistent with the research outcome and mirroring at best the above conceptual architecture the validity of measures, as a compulsory part of construct validity assessment, common method bias must be excluded. To report if variations in responses are attributable to the instrument, rather than observing responses attempts to uncover, Harman’s single Factor test is returning on43,458 μ2 (mean values for the first group is higher than mean values for group 2). Then, we use regression analysis (method of maximum likelihood) to discover which variables can explain economic profitability in franchising chains. We use the independent variables described in the section above. We employ the SPSS statistical package for both the means difference and regression analysis. Results First, for the means difference test, it is necessary to check for normality and equal variances. Given that the sample includes less than 30 observations for each group, normality is checked through the Shapiro-Wilks test and significance is 0.157 and 0.138, respectively, because both levels of significance are larger than 0.05, we cannot reject the null hypothesis of normality. To confirm that variances for both groups are

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equal, the Levene test exhibits the results displayed in Table 1. Since .699 > .05, the null hypothesis is accepted and, therefore, equal variances cannot be rejected. Therefore, we can proceed with the mean difference test: F 0.152

Table1. Levene test (SPSS results) sig t 0.699 .443

sig 0.0.023

Results for the means difference test exhibit a P-value of 0.023. Since 0.023 is less than the significance level (0.05), we cannot accept the null hypothesis. Therefore, economic profitability of both groups is different and this difference is statistically significant. Given that data analysis shows that average profitability for group 1 is 0.0501 and for group 2 is 0.0489, we can say that results indicate that chains that use franchising exhibit higher rates of economic profitability and that this effect is statistically significant at the 0.05 level. Results for the regression are displayed in Table 2: Table 2. Regression results (SPSS results) Variable Model GROWTH TY SIZE YNOTF CANON YF %FRAN

32,345*** (2,657) 26,927*** (3,383) 5,714* (2,167) -15,463 (7,862) 9,565*** (19,738) 2,029** (3,076) 3,956** (1,097)

N = 1207 Maximum likelihood function (log-Hausman test)

-76,945 35,567***

***, **, * significant at 99%, 95% y 90%, respectively

Regression results show that GROWTH, TY and CANON are significant at 99% level. YF and %FRAN are significant ant 95%. SIZE is significant at 90% and that the remaining variables are not significant to explain the differences in chain profitability. All these variables have the expected sign. Therefore, GROWTH – the increase in the number of units of the chain- has a positive effect on profitability. This is, chains with higher growth rates, tend to exhibit higher rates of profitability. Or, put in another way, market saturation limits economic performance.

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Trademark value and chain reputation also have a significant positive effect on profitability. TY –the total number of years since the franchisor opened his first outletand SIZE –the total number of outlets of the chain- both have a significant and positive effect on profitability Franchisor knowledge and expertise to adequately transmit it receives partial support. Only CANON –the initial lump sum the franchisee pays to join the chain- has a positive and significant effect on profitability. YNOTF –the number of initial years during which the franchisor does not use franchising at all- is not significant and exhibits a negative influence. The last variable, monitoring costs, and capabilities, is significant to explain economic performance. Both YF –number of years the franchisor has been franchising new outlets and %FRAN –the percentage of franchised units of the chain- have a positive and significant effect onprofitability. Conclusions The basic objective of this paper is to discover if hotel chains that use franchising to expand activities present higher rates of profitability. For this purpose, we use relevant variables commonly used in the franchising literature to explain the difference between the profitability of hotel chains that employ franchising as an organizational form and those that do not. The sample of hotel chains is divided into two groups –chains that use franchising and those that do not- and a means difference test is performed to determine if economic profitability is statistically different for both groups. Results show that the use of franchising enhances performance. Second, a regression analysis is performed to discover the independent variables that are statistically significant in order to explain economic profitability of franchising chains. From a resource perspective, Influence of market saturation, chain brand name and reputation, franchisor know-how and monitoring capabilities have been analyzed. H1(+), H2(+), H3(+), H5(+), H6(+) and H7(+) are supported. Therefore, regression results show that GROWTH, TY and CANON are significant at 99% level. YF and %FRAN are significant ant 95%. SIZE is significant at 90% and that the remaining variables are not significant to explain the differences in chain profitability. This constitutes a preliminary analysis. New variables are needed (sales, advertising costs, geographical dispersion in Spanish domestic market…). A more fine-grain analysis should include specific information at the outlet level. Acknowledgements. This has received the funding of the “Program for the “Consolidation and Structuring of Competitive Research Units Research Networks (Redes de Investigación)" (Ref. ED341D R2016/014), Proxectos Plan Galego IDT, from the Department of Culture, Education and University Management, Autonomous Community of Galicia (Spain).

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References Affuso, L. (2002). An empirical study on contractual heterogeneity within the firm: the “vertical integration-franchise contract mix”. Applied Economics, 44(34), 931944. Aissa, S., & Goaied, M. (2016). Determinants of Tunisian hotel profitability: The role of managerial efficiency. Tourism Management, 52(1), 478-487. Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99-120. Bradach, J.L. (1997). Using the plural form in the management of restaurant chains. Administrative Science Quarterly, 42(2), 276-303. Bradach, J.L., & Eccles, R.G. (1989).Price, authority and trust: from ideal types to plural forms. Annual Review of Sociology, 15(1), 97-118. Combs, J., Michael, S., & Castrogiovanni, G. (2004). Franchising: A review and avenues to greater theoretical diversity. Journal of Management, 30(6), 907-931. Falbe, C.M., Dandridge, T.C., & Kumar, A. (1999). Effect of organizational context on entrepreneurial strategies in franchising. Journal of Business Venturing, 14(1), 23-140. Dant, R.P., Perrigot, R., & Cliquet, G. (2008). A Cross‐Cultural Comparison of the Plural Forms in Franchise Networks: United States, France, and Brazil. Journal of Small Business Management, 46(2), 286-311. Dierickx, I., & Cool, K. (1989). Asset stock accumulation and sustainability of competitive advantage. Management science, 35(12), 1504-1511. González Díaz, M. & López, B. 2003. Market saturation, intangible assets and agency problems: the internationalization of Spanish franchising. XIII Congreso de ACEDE, Salamanca, Spain. Grant, R.M. (1991). The resource-based theory of competitive advantage: implications for strategy formulation. Knowledge and Strategy, 33(3), 3-23. Hoffman, R., & Preble, J. (2003). Convert to compete: competitive advantage through conversion franchising. Journal of Small Business Management, 41(2), 187-204. Itami, H., & Roehl, T.W. (2009). Mobilizing invisible assets. Cambridge: Harvard University Press. Kosova´ R., Lafontaine, F., & Perrigot, R. (2013). Organizational form and performance: Evidence from the hotel industry. The Review of Economics and Statistics. 95(4), 1303–1323. Kruesi, M., Kim, B., & Hemmington, N. (2017). Evaluating foreign market entry mode theories from a hotel industry perspective. International Journal of Hospitality Management, 62, 88-100. Lafontaine, F. (1992). Agency Theory and Franchising: Some Empirical Results. Rand Journal of Economics, 23(2), 263-283. Lafontaine, F., & Kaufmann, P. J. (1994). The evolution of ownership patterns in franchise systems. Journal of Retailing, 70(2), 97-113. Lafontaine, F., & Shaw, K. (1999). The dynamics of franchise contracting: Evidence from panel data. Journal of Political Economy, 107(5), 1041-1082. Lewin, S. (1997). Innovation and authority in franchise systems: toward a grounded theory of the plural form. Ph.D. Thesis, Harvard University, Cambridge. Michael, S. C. (2000). The extent, motivation, and effect of tying in franchise contracts. Managerial and Decision Economics, 21(5), 191-201. Minkler, A.P., & Park, T.A. (1994). Asset specificity and vertical integration in franchising. Review of industrial organization, 9(4), 409-423.

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Norton, S.W. (1988). An empirical look at franchising as an organizational form. Journal of Business, 61(2), 197-218. Pénard, T., Raynaud, E., & Saussier, S. (2003). Dual distribution and royalty rates in franchised chains: An empirical analysis using French data. Journal of Marketing Channels, 10(3-4), 5-31. Peteraf, M.A. (1993). The cornerstones of competitive advantage: a resource‐based view. Strategic management journal, 14(3), 179-191. Roh, Y.S. (2002). Size, growth rate and risk sharing as the determinants of propensity to franchise in chain restaurants. International Journal of Hospitality Management, 21(1), 43-56. Schoemaker, P.J. (1990). Strategy, complexity, and economic rent. Management Science, 36(10), 1178-1192. Teece, D.J., Rumelt, R., Dosi, G., & Winter, S. (1994). Understanding corporate coherence: Theory and evidence. Journal of Economic Behavior & Organization, 23(1), 1-30. Weaven, S. & Frazer, L. (2003). Predicting multiple unit franchising: A franchisor and franchisee perspective. Journal of Marketing Channels, 10(3-4), 53-82. Wernerfelt, B. (1984). A resource-based view of the firm. Strategic Management Journal, 5(2), 171-180. Windsperger, J. (2004). Centralization of franchising networks: Evidence from the Austrian franchise sector. Journal Of Business Research, 57(12), 1361-1369. Yin, X. & Zajac, E. (2004). The strategy/governance structure fit relationship: Theory and evidence in franchising arrangements. Strategic Management Journal, 25(4), 365-383.

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THE ROLE OF AIR TRANSPORT IN THE SUPPLY CHAIN Katarzyna WĄSOWSKA Siedlce University of Natural Sciences and Humanities 2 Konarskiego, 08-110 Siedlce, PL [email protected] Abstract. The twenty first century is a time of growing globalization of markets in which supply chains and channels of distribution of goods become increasingly complex and their operational area extends beyond the country borders. All activities undertaken in the supply chain are aimed at meeting the growing needs of customers. An important link in the supply chain that influences movement of goods is air transport which offers a wide range of services tailored to customers’ expectations. The aim of this paper is to draw the attention to an important mode of transport – the air transport. The author deals with defining a role of the air transport in the supply chain. Keywords: air transport; supply chain; network structure; cost of transport; cargo. Introduction Currently, the air transport is one of the most important element of infrastructure of modern economy of a country – world. It is one of the fastest, the most expensive, and at the same time the most effective kind of transport that plays a very important role in the supply chain processes as it ensures coherence of the supply chain, guarantees an essential flexibility and the ability to adapt to rapid changes of the surrounding. Air transport is involved in creating values at particular stages of the chain while generating an added value for the customer. The air transport operating under aforementioned conditions provides an opportunity to continue and develop in an effective way because it appears as both a factor and an optimisation tool of such formed network structure. The dynamics of world trade and demand for transport services have been growing from year to year. Factors of their growth may be seen in increasing volume of transported commodity weight and in average distance of transports. Those reasons support the growth of global logistics development and the rise of global supply chains which subsequently lead to a further choice of movement of goods, forming a sort of basis for a new economic order in global terms. Functioning of modern economy depends on efficient movement of goods, services and financial flow between different markets. It is not important whether we live in times of economic crisis or whether we experience prosperity, because the air transport constitutes a key element in a local and the world market coupling, which in turn influences their development.

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General characteristics of air transport and the supply chain On 17th of December, 1903, two brothers – Wilbur and Orville Wright, made a first flight by Flyer biplane that was endowed in a front combustion-powered elevator. Historical flight took 12 seconds and the plane was launched from a primitive catapult (Rossa, 2008). This event initiated the growth of air transport, which plays a crucial role in global transport and facilitates a long –distance transport of passengers in a short time, as well as a movement of goods. Thanks to rapid changes, the air transport became a high growth global business. A role of the air transport in a global economy is substantiated with macroeconomic data. Currently “aviation contributes 7.5 % of GDP of the world economy and maintains more than 32 millions of jobs” (Chakuu, Kozłowski & Nędza, 2012, p.4). The air transport is currently one of elements of modern economy and global transport system. It is a modern, the youngest and the most dynamically developing transport mode that constitutes a basis for operating highly diversified passengers, cargo and mail transport market due to its functional, organisational and technological reasons (Rucińska, Ruciński & Tłoczyński, 2012, p.7). That mode of transport is mainly used in intercontinental connections and it is utilised in the transport of goods which are the subject of international exchange of goods. The air transport indicates the highest rate of growth among other methods of transport. Even though, air performance amounts only to about 1 % of the world freight transport, the value of transported shipment hovers around 10% (Neider, 2015, p.77). Indisputable advantages of the air transport are: a short time of transport; a wide spatial range of transport means – Table 1; a regular supply; safety. No. 1. 2. 3. 4.

Table 1. Spatial extent of planes Type of plane E Extent ATR 72 1500 km EMBRAER 170 3000 km BOEING 737 400 12600 km AIRBUS A380 14000 km when fully loaded 16200 km without a load

The air transport has also several disadvantages, which include: to little loading capacity (payload) of planes, which results in limiting the size of transported goods; heavy dependence on weather conditions; unattractive spatial distribution of transport network that enforces consignors to use other modes of transport for transportation of cargo from and to the airport; high costs – they lead to a reduction of air transport’s role only to operations related to high-valuable cargo (Neider, 2015, p.78). Costs, time or loading capacity are attributes of the air transport which make this mode of transport the best to carry a high-valuable and small-size products which are fragile, perishable or require urgent delivery. Products which are carried mainly by the air transport include: car parts and accessories; cut flowers and plants; electric al and electronic equipment, e.g. mobile phones; vegetables and fruits; machines and spare

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parts; metal items; photographic equipment and its spare parts with accessories; printed materials; clothes (Murphy & Wood, 2011, pp.315-316). While describing airports characteristics, the most important airports should be indicated – Figure 1.

Figure 1. List of airports in Poland (www.tvn24.pl, 2017) Supply chain Changing market conditions, development of globalization and technological progress had a significant impact on conceptual evolution of the supply chain, especially in terms of interpretation of its substance, aims and actors. Differences in the subjective characteristic of the supply chain gave a rise to express distinct views on objectiveness, practicality and purpose of cooperation. Therefore, the concept of the supply chain is not clearly and unambiguously (Witkowski, 2010, p.13) as proven in Table 2. Table 2. Summary of selected interpretations of the supply chain (Witkowski, 2010, p.13) No. 1.

Authors A.J. Battaglia G. Tyndall

2.

C.B. Bozarth R.B. Handfield

3.

M. Christopher

4.

M.C. Cooper L.M. Ellrama J. Witkowski

5.

Definition “Supply chain is a strategic concept based on understanding and management of sequence of activities – from a supplier to a customer – adding value to the products transferred through the supply pipeline”. “Supply chain is a network of producers and service providers who cooperate with each other to process and transport goods – starting from the raw material to the end user level. All these entities are connected with movement of goods, information and financial flow”. “A supply chain is the network of organisations that are involved through linkages with suppliers and customers in different processes and activities that produce values in the form of products and services delivered to ultimate consumers”. “Supply chain is an integrating philosophy of managing the total flow in the distribution channel”. “Supply chain is constituted by companies collaborating in different areas: mining, production, commercial and service

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6.

European Committee for Standardisation

7.

The Association for Operations Management

with its customers, between which flow the stream of products, information and financial means”. “Supply chain is a sequence of processes adding value to the product during its flow and processing from raw material, through all the intermediate forms, to form in line with end customer requirements”. “Supply chains are processes from the initial raw materials to the ultimate consumption of the finished product linking across the supplier with the customer and the functions within and outside a company that enable the value chain to make products and provide services to the customer”.

While referring to J. Witkowski’s definition of the supply chain, its core can be illustrated in the following way, as shown in Figure 2.

Figure 2. The core of the supply chain (adapted from J. Witkowski) (Słowiński, 2008, p.52) Efficient functioning of the supply chains is based on several simple rules which contribute to mitigating conflicts among the actors in the supply chain: transparency and trust – needed while sending market information to the actors that is related to demand, prudent forecast, production schedules or procurements; strategic cooperation – involves mutual planning and implementation of the supply chain strategy together with determining a place and a role of its chains; leadership – choosing a central coordinator of the flow – the main initiator of taken actions who controls their execution; mutuality – agreement of principles related to sharing the risk and also to potential benefits, resulting from joint venture (Kisperska-Moroń & Krzyżaniak, 2009, pp.35-36). A development and a shape of current supply chains depend on many interrelated factors. A number of those factors accounts for their complexity and requires efficient and effective management – Table 3.

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Table 3. Factors shaping the form and the development of current supply chains No. 1.

Factor Globalisation and internationalisation of enterprises

2.

Pressure on cost reduction

3.

Individualisation of massive production

4.

Outsourcing of logistic functions

5.

Modern information and Communications technology

6.

Changes in the structures of retail

7.

Increase in competition

8.

Reduction of held reserves and the lead time of order

Characteristics In the age of globalisation and internationalisation of enterprises, most of movements of goods are international and even global. The internationalisation is mainly favoured by outsorcing, a tendency to purchase goods or locate the production in distant coutries. Globalisation and internationalisation of enterprises also contributed to the fact that the large number of American and European undertakings produce or subcontract the production on the Asian market which is a result of the pressure on the cost reduction. This trend refers to the mass production (mass customisation) of vary diverse consumption goods, which are produced for the needs of global market and also cover individual needs of the customers. It requires establishment of effective supply chains which are oriented for the ultimate customer. It was noted that logistics operators are increasingly participating in the logistics service of the supply chains. They facilitate the flow of products between manufacturing and retail companies, therefore the latter can focus on the key competences and thereby reduce efforts to fulfill supporting functions of the business, such as transport or stock management. Increasing utilisation of advanced technologies made the integration of the supply chain in the electronic information flow easier and faster. It facilitates obtaining the information about the flow of products and enterprises which are the actors of a given supply chain. Information technologies provide an opportunity to small and medium enterprises to incorporate into global supply chains. In the recent years, there is noticeable increase of large surface shopping centres and business premises where the customer can do all the shopping in one place. Share of sales of the above mentioned trading companies is steadily growing when it comes to the value of total sales of products. Chain stores require a new approach to collaboration and partnership, as well as a modern transport and storage service in terms of its technology and organisation. The growing competition enforces enterprises to seek savings, not only in the area of product’s quality and price but also in activities increasing the value associated with purchasing and using the products by the customers. Enterprises try to cope with pressure connected with stores reduction and shortening the time between placing an order and delivery to the customer. Therefore, they organise more frequent supplies of raw materials and components, minimse transport time and improve indicators related to the reliability of supply. Carrying out these tasks is supported by services of logistics companies.

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Demand for transport services Demand for transport services is determined by many relations between bidders and recipients who are willing to purchase a service at a specified time, place and price. The transport demand results from spatial requisition for goods which are the subject of movement, whereas the factors that influence the demand size arise from a character and the number of spatial linkages between the representatives of supply and demand sides of the market. The development of an offer for providing transport services by logistics operators is based on the specification of the distribution of potential demand places and finally on specific transport needs. The factors that determine the transport demand include: a size and a structure of transport needs; a financial capacity of the recipient; the level of prices for transport services; a size and a structure of demand offer (Kauf & Tłuczak, 2015, pp.124-125). Macro – and microeconomic factors determining transport demand are: current and expected GDP; changes in the structure of economy; volume, structure and value of foreign trade turnover; the structure of households’ expenditures; changes of location and settlement; the level of implementation of modern technologies in the field of information, transports and transhipment in the transport sector; Transport Policy of the State; programmes for the development of transportation infrastructure (Mindur, 2009, p.163). Taking into account the first group of factors, it is worth to present two modes of transport for the sake of comparison and consider choosing one of them – Table 4. Table 4. The choice of transport modes Itemisation Number and nature of the shipment Net weight of the shipment Gross weight of the shipment Volume of the shipment in cubic meter Value of the shipment Packaging costs Supply costs and other elements of costs calculated at the beginning Freight Costs of load transports from the airport/seaport Custom duties Insurance Credits interest rate Transport time Global costs Cost difference Time saving

Air transport 10 cartons

Sea transport 4 trunks

2730 kg 2800 kg 9,8 m3

2730 kg 2900 kg 10,4 m3

409 200 000 PLN 220 000 PLN 80 000 PLN

409 200 000 PLN 330 000 PLN 700 000 PLN

6 630 000 PLN 180 000 PLN

2 504 000 PLN 250 000 PLN

5 475 000 PLN 230 000 PLN 152 000 PLN 1 day 12 967 000 PLN 2 163 000 PLN = 16.6% 20 days

5 512 000 PLN 744 000 PLN 761 000 PLN 21 days 10 804 000 PLN

The above table shows that the air transport is unbeatable in terms of transport time. However, the sea transport is better on price basis. Despite a fairly substantial price difference regarding carriage of goods by air, this mode of transport can be cost-

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effective in many cases, for example, when the transport route is long and the carriage has to be quickly delivered to the place of destination (www.transportbezgranic.pl). The quantity of transported consignments by Polish airports has been growing from year to year. That reflects a significant role of the air transport in the supply chains – Figure 3.

Figure 3. Transport of goods by air in Poland (www.wnp.pl, 2017) Referring to data from Civil Aviation Office, in 2015 there were nearly 82 thousands tons of cargo transferred from/to Poland by air transport, which marked a growth of almost 12 % compared to the previous year. PLL LOT, DHL, Emirates, UPS and TNT transport the biggest number of goods. The most popular destinations, in terms of transported mass, were: German, USA, United Arab Emirates, China, Belgium and recently also Iraq.

Figure 4. Air cargo transport in Poland – an amount of handled parcels (www.biznes.gazetaprawna.pl, 2017) The importance of air transport in the supply chain The 21st century raises growing challenges for transport which come from a growth of production and key competences leading to cooperation in the production and to an increase in the level of specialization. Development of transport has a crucial impact on economic growth of the country. When we consider transport as a sector of national economy, then it includes measures and actions closely related to the carriage of goods and services. However, from the logistic point of view, transport is an activity which is

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directly responsible for movement of goods within the supply chain. In case of movement of goods, the main transport task is to deliver stores to the production or finished products to the recipient. The main transport’s role in the supply chain is movement of materials, primary and finished products between differently located enterprises. The essence of functioning the above-mentioned supply chains is delivery of ordered products to the purchasers and also elimination of disparities related to the time and space. A basic element of proper functioning of the supply chains is transport. It is estimated that transport issues constitute almost 80 % of all logistic function. Transport need occurs at each level of the supply chain – Figure 5.

Figure 5. Transport in the supply chain (Own elaboration) Another factor that determines functioning of the transport, being one of links in the supply chain, is road infrastructure which enable functioning of the enterprise and individual entities in the economy. Road infrastructure enables goods to be transported and allows supply chains to operate efficiently. It also has a considerable influence on transport costs which stand at 40 % of total costs in logistic operation (Kauf & Tłuczak, 2015, pp.113-118). Conclusion The role of air transport in the supply chain results from functions that it performs in the processes of production and exchange. Transport allows products, materials and semi-finished products to be delivered after being connected in the process of production. It is also necessary in the stage of exchange in which produced finished products are delivered to sales coverage and then to the ultimate customers. It is a bond that connects all links of the supply chain, determining their efficiency of functioning.

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References Chakuu, S., Kozłowski, P., & Nędza, M. (2012). Podstawy transportu lotniczego [The basics of air transport]. Kraków-Rzeszów-Zamość: Wydawnictwo Akademickie. Ciesielski, M., & Długosz, J. (2010). Strategie łancuchów dostaw [Strategies of the supply chain]. Warszawa: PWE. Kauf, S., & Tłuczak, A. (2015). Badania rynkowe w zarzadzaniu łańcuchem dostaw [Market study on the supply chain management]. Warszawa: Difin. Kisperska-Moroń, D., & Krzyżaniak, S. (2009). Logistyka [Logistics]. Poznań: Biblioteka Logistyka. Łaniewski, F. (2016). Wybór gałęzi transportu. Obliczanie stawek przewozowych [Choice of transportation branch. Calculating shipping rates]. Retrieved from http://slideplayer.pl/slide/428717/. Majszyk, K. (2016). Transport: Tony w chmurach. Ożywienie cargo [ Transport: Tons in clouds. Cargo recovery]. Retrieved from http://biznes.gazetaprawna.pl/artykuly/951955,transport-tony-w-chmurachozywienie-cargo.html. Mindur, M. (2009). Transport Europa – Azja [Transport between Europe and Asia]. Warszawa - Radom: PiB. Murphy, P.R.jr., & Wood, D.F. (2011). Nowoczesna logistyka [Modern logistics]. Gliwice: HELION. Neider, J. (2015). Transport międzynarodowy [International transport]. Warszawa: PWE. Rossa, G. (2008). Wydarzenia w historii lotnictwa [Events in aviation history]. Retrieved from http://www.eioba.pl/a/1tet/wydarzenia -w-historii-lotnictwa. Rucińska, D., Ruciński, A., & Tłoczyński, D. (2012). Transport lotniczy. Ekonomika i organizacja [Air transport. The economics and organisation]. Gdańsk: Wydawnictwo Uniwersytetu Gdańskiego. Słowiński, B. (2008). Wprowadzenie do logistyki [Introduction to logistics]. Koszalin: Wydawnictwo Uczelniane Politechniki Koszalińskiej. Stefaniak, P. (2016). Luka w lukach – jak jest z polskim cargo lotniczym? [ Luka in the gaps – as is with the Polish air cargo]. Retrieved from http://www.wnp.pl/artykuly/luka-w-lukach-jak-jest-z-polskim-cargolotniczym, 286089.html. Szymonik, A., (2013). Zarządzanie zapasami i łańcuchem dostaw [Stock and supply chain management]. Warszawa: Difin. Wasilewska-Marszałkowska, I. (2014). Spedycja we współczesnych łańcuchach dostw [Forwarding trade in modern supply chains]. Warszawa: CeDeWu LLC. Wieczorek, Ł., (2016). Nie sądzę, żeby było tylu chętnych przylecieć samolotem obejrzeć żubry [I do not think there are so many willing to come by plane to see the bison]. Retrieved from http://www.tvn24.pl/wiadomosci-z-kraju,3/lotnisko-napodlasiu-referendum-w-sprawie-budowy-portu-lotniczego, 707629.html. Witkowski, J. (2010). Zarządzanie łańcuchem dostaw. Koncepcje. Procedury. Doświadczenie [Management of the supply chains. Conceptions. Procedures. Experience]. Warszawa: PWE. Websites http://www.transportbezgranic.pl

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BOREDOM IN THE WORKPLACE AND CYBERLOAFING – AN EXPLORATORY STUDY Dan Florin STĂNESCU National University of Political Studies and Public Administration 30A Expozitiei Blvd., 012104 Bucharest, RO [email protected] Abstract. The Internet and its expanding possibilities have brought about many benefits to organizations. However, despite the clear benefits of the Internet, its negative effects have also been taken into consideration. Some of the most important challenges that organizations have to face are mostly related with vulnerability to security weaknesses, violation of privacy, employee Internet abuse, and Internet addiction. Previous studies showed that access to the Internet has become more common for employees, and so has their propensity to use the Internet for entertainment and other non-work purposes on the job. Moreover, it is clear that nearly everyone experiences episodes of boredom at work from time to time, regardless of the nature of their job. Generally, boredom is regarded as a mental state resulting from a low challenge level as compared to individual skill level and the lack of intrinsic motivation. Individuals who score higher on boredom proneness - a specific and measurable personality trait, have higher rates of negative behaviors including substance abuse and pathological gambling. Boredom has also been linked to decreased academic achievement and increased the likelihood of dropping out of school. Cumulatively, previous studies suggest that boredom proneness has both social, and psychological repercussions, increasing the probability of a range of negative behaviors such as cyberloafing. This study aims at investigating the relationships between boredom proneness, boredom susceptibility, and cyberloafing. College students (N=78) responded to an anonymous questionnaire set containing the Boredom Proneness Scale, the Boredom Susceptibility Scale, and Cyberloafing Scale. The findings of the present study will consolidate the existing literature by providing new insights into the non-work-related Internet usage, coined here as cyberloafing, and its relation with boredom proneness and boredom susceptibility. Keywords: boredom proneness; boredom susceptibility; cyberloafing; gender differences; workplace. Introduction Urgin and colleagues (2008) coined cyber-slacking or cyberloafing as being any time that employees’ waste on the Internet. This could include behaviors such as Online shopping, engaging in social media, leisure browsing, job searching, sending and receiving personal email, downloading non-work related material (Ugrin et al., 2008, p.77). We have to take into consideration the fact that some researchers use the term cyberloafing to refer to more serious behaviors as well (Blanchard & Henle, 2008), such as hacking and spreading viruses, but in this paper we use the term cyberloafing as time-wasting behaviors such as watching YouTube, going on Facebook, and browsing the web for different non job-related reasons.

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According to some studies (Bloxx, 2008), human resource professionals estimated that employee’s waste approximately one hour engaging in non-work related activities using the Internet. Knowing this, companies are using explicit policies regarding Internet usage and different Internet surveillance programs (Bequai, 1998). Moreover, organizations currently use different solutions to block URLs for pornography content, game sites, social networking sites, entertainment sites, shopping or auction sites, and sports sites (SurveilStar.com, 2008). Despite multiple changes in the way organizations work nowadays, job boredom remains a part of the work experience. Job boredom is often described as an unpleasant state of low arousal and dissatisfaction caused by situations that do not offer adequate stimulation (Mikulas & Vodanovich, 1993). Boredom is also considered a subjective state that results from attempts to allocate attentional resources to an environment that is no longer interesting (Todman, 2003). Job boredom is usually characterized by a passive attitude, a lack of interest in tasks, and an inability to concentrate (Reijseger et al., 2013). Therefore, researchers (Loukidou, Loan-Clarke & Daniels, 2009) have found that job boredom is associated with a series of negative consequences, such as depressive symptoms, drug, and alcohol abuse, and decreased job satisfaction and job performance. Other authors (Fisher, 1993), indicates that boredom is associated mainly with negative individual and organizational outcomes such as absenteeism and poor retention. Following the Job demands-resources model (Demerouti, Bakker, Nachreiner & Schaufeli, 2001), Reijseger and colleagues (2013) found that job boredom was associated with low job demands and low job resources. More generally, job boredom is often thought to arise when employees feel that their tasks are not challenging (Csikszentmihalyi, 1975). At the same time, there is also evidence that excessively demanding tasks fostering boredom, as they usually lack tangible goals (Barbalet, 1999). Van Tilburg and Igou (2012), has also pointed out that lack of meaning in work represents a fundamental element in the experience of boredom at work. Although in the industrial and organizational psychology areas job boredom is usually defined similar to anxiety, through the state or trait components, in the current study we are focused mainly on the trait component, which refers to a relatively stable personality characteristic (Kass, Vodanovich & Callender, 2001). When boredom is considered the result of individual determinants it can be viewed as a personality characteristic that varies in degree across individuals (Todman, 2003). Literature review The topic of boredom has been mainly studied in relation to academic performance (Goetz, et al., 2007; Ruthig, et al., 2008), different types of social interactions (Leary, Rogers, Canfield & Coe, 1986), and deviant behaviour (Newberry & Duncan, 2001). Several studies showed associations between boredom proneness a lot of negative behaviors including pathological gambling (Mercer & Eastwood, 2010), alcohol abuse (LePera, 2011) or even drugs consumption (Lee, Neighbors & Woods, 2007). Furthermore, other authors found that boredom proneness is also correlated with high level of impulsivity (Watt & Vodanovici, 1992), anxiety (LePera, 2011), procrastination

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and a lack of autonomy (Vodanovici, 2003). Regarding possible relations with cyberloafing, one has to take into consideration the fact that boredom proneness is directly associated with a more frequent need for sensation seeking (Kass & Vodanovich, 1990) for which computers, and in particular internet surfing, is often used as a source of stimulation (Oulasvirta, Rattenbury, Ma & Raita, 2012). In addition, previous empirical researches have shown that boredom proneness is also associated with specific personality traits such as neuroticism (Gordon, Wilkinson, McGown & Jovanoska, 1997) and extraversion (Ahmed, 1990). Recent research suggests that job boredom has a negative impact on organizations and might be both unproductive and counterproductive (Bruursema, Kessler & Spector, 2011). Furthermore, Kass and colleagues (2001), in a study on manufacturing workers, have found that job boredom was linked to higher job dissatisfaction and absenteeism. Similar results - a positive relationship between job boredom and turnover intentions have been found in a more recent study on office workers (Reijseger et al., 2013). Methods Starting from those empirical findings, the current study aims at finding answers to the following research questions: RQ1: what is the relation between boredom proneness and cyberloafing? RQ2: what is the relation between boredom susceptibility and cyberloafing? RQ3: are there any gender differences regarding cyberloafing or boredom? Participants were employed master students from a Romanian public university, aged between 21 and 41 years (M = 23.94, SD = 3.49), 30 males and 48 females. They were invited to fill in a set of questionnaires compiling the following measures: Boredom Proneness Scale (Farmer & Sundberg, 1986), Boredom Susceptibility Scale (Zuckerman, 1979), and Cyberloafing Scale (Lim, 2002). Boredom Proneness Scale - Trait boredom was measured using the BPS (Farmer & Sundberg, 1986), a 28-item scale with responses coded using the 7-point Likert-scale (1= Highly disagree, to 7= Highly agree). Eighteen items are scored to directly reflect high boredom proneness (e.g., I am often trapped in situations where I have to do meaningless things) and ten items are reverse scored (e.g., In any situation I can usually find something to do or see to keep me interested). Higher scores on the BPS reflect higher boredom proneness. The reported reliability for the 7-point Likert scale version of the BPS is adequate (α =.86) (Vodanovich, 2003). Boredom Susceptibility Scale – dispositional susceptibility to boredom was measured using BSS (Zuckerman, 1979). The scale consists of ten pairs of sentences describing opposite attitudes to various behaviors (e.g., A. I get bored seeing the same old faces; B. I like the familiarity of everyday friends). Cronbach alpha coefficients are ranging from 0.83 to 0.94 (Zukerman, 1994). Cyberloafing – cyberloafing was measured using an adapted version of Lim’s (2002) cyberloafing scale. The scale has participants rate the frequency of 16 cyberloafing behaviors on a four-point scale (1 = hardly ever/once every few months or less to 4 =

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frequently/at least once a day). An example of an item is “Shop online for personal goods”. Askew (2012) reported an alpha coefficient of .92. Results Descriptive statistics for the measures are presented in Table 1 and the intercorrelations among the measures are displayed in Table 2. Table 1. Descriptive statistics for measures Std. N Mean Deviation Skewness Std. Statistic Statistic Statistic Statistic Error cyberloafing 78 39.8148 6.72947 -.319 .325 browsing 78 2.5030 .47138 -.292 .325 email 78 2.8830 .55390 -.539 .325 interactive 78 2.3065 .55667 -.155 .325 boredom 78 3.0741 1.91175 .648 .325 susceptibility boredom proneness Valid N (listwise)

78

4.0863

.57463

.004

.325

Kurtosis Std. Statistic Error -.038 .639 -.386 .639 .452 .639 -.327 .639 -.085

.639

-.067

.639

78

The distribution of scores on each of the measures appeared to be normal with skewness and kurtosis scores within accepted limits. In order to be able to find the answers to the current study research questions, the Pearson correlations were calculated between the selected variables: boredom proneness, boredom susceptibility, and cyberloafing. Moreover, the same Pearson correlations were calculated for the cyberloafing scales, namely, browsing, email and interactive. As presented in Table 2, the data showed significant correlations between boredom proneness and cyberloafing (r=.404, p 1, but the Scree Plot revealed that only 3-5 factors are significant. Items that loaded at least 0.3 on at least two factors were eliminated from the analysis (Costello & Osborne, 2005). Successive runs of the factor analysis with three, four and five factors led to a clear structure of three factors, with 18 items. The factors structure is represented in Table 1. Table 1. Structure Matrix – Factor Analysis Factor 2

protector

1 ,731

sociable

,672

-,525

solidary

,665

-,443

opened

,622

-,516

helpful

,607

-,527

tolerant

,577

perceptive

,565

-,507

attractive

,523

-,471

romantic

,474

-,326

familiar

,409

envious

,715

ironic

,622

proud

,602

backbit

,494

3 -,573

hardworking

,504

-,772

determined

,525

-,748

independent

,373

-,571

entrepreneur

,379 -,465 Extraction Method: Maximum Likelihood. Rotation Method: Oblimin with Kaiser Normalization

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As Table 1 indicates, the first factor has 10 items, with loadings between 0.4 and 0.74: protector, sociable, solidary, opened, helpful, tolerant, perceptive, attractive, romantic and familiar. The second factor is composed of 4 items, with loadings between 0.49 and 0.72: envious, ironic, proud and backbit. The last factor has also 4 items: hardworking, determined, independent and entrepreneur. KMO and Bartlett's Test is well over 0.7 (with a value of 0,876) indicating that the items are suitable to be combined in a factor analysis. The rule of reliability of a scale, as George and Mallery (2003) state, is: 0.9 – excellent reliability; > 0.8 – good reliability; > 0.7 – acceptable reliability; > 0.6 – doubtful reliability; > 0.5 – weak reliability; < 0.5 – unacceptable. The first dimension consists of 10 items and was named Peacefulness /Sincerity. The internal consistency measured with Cronbach-alpha is 0.844. This value of Cronbachalpha indicates that the scale has a good reliability. The second dimension we have identified consists of 4 items and was named Malignancy. The internal consistency measured with Cronbach-alpha is 0.691. The scale has an acceptable reliability, as the Cronbach-alpha value is very close to 0.7. The third dimension grouped the items about Competence and consists of 4 items. The internal consistency measured with Cronbach-alpha is 0.717. This value of Cronbach-alpha indicates that the scale has an acceptable reliability. The final items and their corresponding dimensions are presented in Figure 1.

Competence

Peacefullness /Sincerity tolerant, solidary, protector, sociable, opened, helpful, romantic, perceptive, attractive, familiar

City brand personality

hardworking, determined, independent, entrepreneur

Malignancy envious, proud, ironic, backbit Figure 1. Dimensions of city brand personality

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Conclusions The purpose of this research was to present a structure of the construct of city brand personality for a city in Romania. Three dimensions were identified in the Exploratory Factor Analysis. First dimension – Competence- is also a dimension of the construct of Brad Personality measured by Aaker with BPS – Brand Personality Scale (Aaker, 1997; Lee & Suh, 2011; Glińska & Kilon, 2014). One other dimension was previously identified in past researches (Malignancy) and one dimension is specific (Peacefulness/Sincerity). Research implications. This research is original as there is no research to investigate the construct of city brand personality of a Romanian city, particularly for the city of Iași. The article delivers scales to measure the dimensions of city brand personality of the city of Iași: Peacefulness/Sincerity, Malignancy, and Competence. Managerial implications. The results of this research are useful for travel agencies, in order to promote the city of Iași for offers such as city breaks according to how it is already perceived. Also, these results are useful for the local administration managers. The research provides a clear image of the personality of this city. Local administration managers may decide either to keep the image or promote it as it is or to define a strategy to modify aspects of the perceived personality of the city. Using this city brand personality scale, created for a Romanian city, more studies can be performed in different Romanian places. Comparing these results, appropriate marketing strategies can be implemented for branding and differentiation of the cities, with an effective use of the resources. A touristic destination with a strongly defined personality generates emotional ties with the tourists, leading to trust (Bobâlcă, 2011) and loyalty (Bobâlcă, 2013; Bobâlcă, 2014). Limitations of the research. One important limitation is that the research investigated only students, as both tourist and partly inhabitants. We considered they are more familiar with the investigated city and their opinion is more reliable. Yet, this research would probably bring slightly different results if only tourists’ perceptions would be investigated. One hypothesis would be that the dimension of Malignancy is not relevant for weekend tourists. The aspects composing this dimension might be revealed only to those people spending more time in the city, interacting frequently with inhabitants and local administration. Another limitation is that two scales have an acceptable reliability, with an internal consistency measured with Cronbach’s Alpha of approximate 0.7. Although these values are acceptable, they are too low to the hypothesis that these dimensions would be validated in a Confirmatory Factor Analysis. Future research. A future direction is to conduct the Exploratory Factor Analysis on a larger sample (over 600 respondents). This research would probably reshape the resulted dimensions, with an internal consistency measured with Cronbach’s Alpha over 0.8. Another future direction is to conduct a Confirmatory Factor Analysis for the resulted dimensions, in order to validate them.

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References Aaker, J.L. (1997). Dimensions of Brand Personality. Journal of Marketing Research, 34(3), 347-356. Aaker, J.L., Benet-Martinez, V., & Garolera, J. (2001). Consumption Symbols as Carriers of Culture: A Study of Japanese and Spanish Brand Personality Constructs. Journal of Personality and Social Psychology, 81(3), 492-508. Ahmad, M., Abdullah, Z., Tamam, E.B., & Bolong, J. (2013). Determinant Attributes of City Brand Personality That Influence Strategic Communication. Canadian Social Science, 9(2), 34-41. Anholt, S. (2010). Places – Identity, Image and Reputation. New York, NY: Palgrave Macmillan. Austin, J. R., Siguaw, J. A., & Mattila, A. S. (2003). A re-examination of the generalizability of the Aaker brand personality measurement framework. Journal of Strategic Marketing, 11(2), 77-92. Azoulay, A., & Kapferer, J. (2003). Do brand personality scales really measure brand personality? Journal of Brand Management, 11(2), 143-155. Bobâlcă, C. (2011). Studiu asupra loialităţi clienţilor [Study on clients’ loyalty]. Iaşi: Tehnopress. Bobâlcă, C. (2013). Study Of Customers’ Loyalty: Dimensions And Facets. Management & Marketing, XI(1), 104-114. Bobâlcă, C. (2014). Determinants of Customer Loyalty. A Theoretical Approach. Journal of International Scientific Publications, Economy & Business, 8(1), 995-1005. Brown, T.A. (2006). Confirmatory Factor Analysis for Applied Research. New York: The Guilford Press. Braun, E., Kavaratzis, M., & Zenker, S. (2013). My city – my brand: the different roles of residents in place branding. Journal of Place Management and Development, 6(1), 18-28. Costello, A. B., & Osborne J. W. (2005). Best Practices in Exploratory Factor Analysis: Four Recommendations for Getting the Most from Your Analysis. Practical Assessment Research & Evaluation, 10(7), 1-9. De Carlo, M., Canali, S., Pritchard, A., & Morgan, N. (2009). Moving Milan towards Expo 2015: designing culture into a city brand. Journal of Place Management and Development, 2(1), 8-22 Ekinci, Y., Sirakaya-Turk, E., &. Preciado, S. (2013). Symbolic consumption of tourism destination brands. Journal of Business Research, 66(6), 711–718. Ekinci, Y., & Hosany, S. (2006). Destination personality: an application of brand personality to tourism destinations. Journal of Travel Research, 45(1), 127-139. Ford, J.K., MacCallum, R.C., & Tait, M. (1986). The application of exploratory factor analysis in applied psychology: A critical review and analysis. Personnel Psvchology, B(2), 291-314. George, D., & Mallery, P. (2003). SPSS for Windows step by step: A simple guide and reference. 11.0 update (4th ed.). Boston: Allyn & Bacon. Glińska, E., & Kilon, J. (2014). Desirable traits of the city brand personality in the opinion of managers for the promotion of the city government in Poland. Procedia - Social and Behavioral Sciences, 156, 418-423. Hee-Jung, L., & Yong-Gu, S. (2011). Understanding and Measuring City Brand Personality (CPS) - In the context of South Korean market. International Journal of Tourism Sciences, 11(1), 1-20.

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THE ECONOMIC IMPACT OF CLIMATE CHANGE ON CROPS Bianca Georgiana OLARU Bucharest University of Economic Studies 2-10 Caderea Bastiliei Street, District 1, 010374 Bucharest, RO [email protected] Vasile ZECHERU University of Agronomic Sciences and Veterinary Medicine 59 Mărăşti Boulevard, District 1, 011464 Bucharest, RO [email protected] Abstract. In this article, we investigate the influence of climate change in terms of the specific internal process in agriculture and we identify the general measures of adaptation to this context. According to the researchers conducted by the experts in the field, it can be argued thorough that agriculture is strongly affected by climate change. The consequences of this situation consist of reduced production, changed organoleptic qualities of agricultural products, decreased time of harvest etc. For all this, but also, to prevent accentuation of some undesirable repercussions, we must operationalize the appropriate measures for a reasonable adjustment to climate change disruptors of the existing natural environment. Analysing the results of other studies, we observe that these are very different. They vary especially because they are based on different methods of investigation and data processing, namely, mathematical models and scenarios made under specific conditions, requirements and statistical analysis, etc. Thus, the research methodologies started either from various economic analyzes based on the evaluation of the cost-benefit analysis or investigation of data and meteorological information. The approach we propose consists of combining both theoretical, purely economic data and the database and meteorological information in Romania. Keywords: agriculture; economic analysis; climate change; adaptation measures; costbenefit analysis; climate risks; adaptation measures. Introduction The climate change has the ability to change, even radically, meteorological conditions considered to be normal. As such, it may lead to significant biophysical effects on the entire agricultural sector. In the opinion of producers and consumers, in equal measure, the general assessment of the repercussions generated by this state of affairs must be preceded by detailed assessments starting from the impact of climate change on the main activities which form the specific internal process from agriculture. So, the climate change can have a negative impact on all crops, regardless of the production cycle with direct effect in terms of productivity, quality of products and their related costs. Traditionally, agriculture is one which provides the necessary grains, vegetables, fruits etc.

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As a consequence, this sector is an important source of revenue for local and national economies by which it determines a whole "trophic chain" upstream and downstream, in the sense that there is a higher demand for scientific research, investment, employment, transport, etc. Given all this and taking into account the expected evolution of climate change, future activities of the agricultural sector, so that they can provide the necessary production and to fit into acceptable economic parameters, requires considerable scientific support, adequate forecasting and performance management. According to Lobell, in these conditions, the focus is on ”adapting to climate change in order to reduce the impact as it can lead to negative effects on crop productivity and economic viability in the agricultural sector.” (Lobell, 2014). In practice, however, as a result of everyday approaches, which do not take into account climatic changes, "in many existing projects, the impact of climate change and its adaptation is not taken into account." (White et al., 2011). On the other hand, the estimates made until this moment on the economic impact of climate change have been dominated by fluctuations and inconsistencies, in large part, of methodological approaches, which also leads to a notable challenge regarding their utility and credibility. So, for the assumption that applicable technologies and agricultural crops will not adapt to climate change, has even reached significant overestimations of probable conceits, leading them, finally, at abandoning scenarios built on premise unrealistic. Recently, the Intergovernmental Panel on Climate Change (IPCC, 2007) argued that forecasts and regional/global models predicted that temperatures would increase during the summer and will lead to drought in soil have come true as previously stated. (Kovats et al., 2014). Of course, such a scenario such as the one mentioned above indicates a high risk for the condition of the vegetation of agricultural crops in the next five years. Another notable report on climate change is convincing for ”... identifying the usefulness of systemic approaches to address the complexity of climate change and the challenges facing society today, namely, population growth and consumption, the use of resources at the maximum level, demographic change, excessive exploitation of the environment and the provision of ecosystem services. " (Ison, 2010). In connection with the increasing vulnerability of ecosystems, researchers have recently said that the term ”can be compared to a means of crossing the link between the physical effects of the climate on the adaptations of the socio-ecological systems." (Malone & Engle, 2011). Among other things, the IPCC proposes a definition for vulnerability to climate change, taking into account the degree to which a system may be susceptible and, so, it is unable to counteract the foreseeable adverse effects. Thus, it may be envisaged, inclusive, the „variability of extreme meteorological phenomena, (IPCC, 2007)”. Usually, until this moment, the vulnerability was considered to be closely related to the relationship between the geographical and temporal proximity of a hazard and the trend of exposure, this relationship may lead to unwanted negative effects for the population, society and the environment; as such, exposure/susceptibility to such a vulnerability can be kept under control through an optimal system to adapt to the phenomenon that generates the effect, in this case, climate change. Some researchers add to this definition a subjective nuance (the degree of sensitivity or, in other words, the ability to accept risks), namely, that an important role in the emergence of the vulnerability phenomenon represents... cultural dimension, such as, the perception of

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risk in relation to personal experience and trust in authority (Wachinger et al., 2012). As an illustrative element, we mention that some relatively recent research confirms that climate change may have a negative effect on corn, and wheat confirms the positive effects predicted in previous studies (Asseng et al., 2013). In general, adapting to climate change means, in fact, ”a high capacity of society to mitigate the negative consequences that may arise due to extreme weather phenomena by developing strategies and measures together with stakeholders to support the expected actions. This adaptive capacity includes various key factors, namely, ...the availability of a viable technology option for crop adaptation, the efficiency of research and development institutions, but also the availability of financial and human resources, including population awareness actions on optimal adaptation methods” (Hallegatte et al., 2011). From the point of view of adapting to climate change, socio-economic challenges are defined as social or environmental conditions which when the adaptation process is difficult leads to "increased risks arising from the combination of several types of climatic risks (increased sea level, temperature and precipitation changes, extreme weather events) and adverse effects of a geographic, socio-economic or any other nature" (Rothman et al., 2013). Methodological precisions According to the suggestions of the US Global Change Research Program, climatic factors can negatively affect food safety in any agricultural system - before, during and after harvest, as well as during transport, storage, preparation, and consumption of cereals, fruits, vegetables, etc. ”These factors (temperature, rainfall, and extreme weather conditions) can lead to the emergence of pathogens, food contamination and food illness and changes in the level of exposure to contaminants and chemical residues for crops” (USGCRP, 2014). In principle, there are two economic problems which may undermine the validity of the use of the relationship between short-term variations of time and agricultural crop profits to deduce the effects of climate change. The projected climate changes will be able to achieve a statistical and economic character that is impacting on the yields of specific crops. Firstly, the econometric model is based on an increasingly more complex approach applied differently from one country to another, because it is necessary to adjust the actors involved and to take measures according to the country and area of origin. Secondly, another potential issue with the validity of this approach is that the farmers cannot adopt the full range of adaptation measures in one year. Specifically, permanent climate change could cause them to modify their activities on their own agricultural land. Understanding the impact of climate change is based on the analysis of the effects of climate change on different levels. It varied depending on the specific environmental and economic conditions, which have specific difficulties in being accurately quantified. We mention that, we emphasize the conditions of occurrence and manifestation of climate change in the specific regional context of Romania, on the

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three fundamental axes of the interaction of the impact of climate change: physical / environmental, economic and social impacts. Provisions concerning development of climate change in the next years Using models and simulations leads to a major step towards developing a more effective climate change assessment. Therefore, the application of specialized software in correlation with information and data from the operational program provides a quantitative side for establishing weather forecasts.

Figure 1. Evolution of temperatures (Fahrenheit) from 1900 to 2100 (https://www.google.ro/search?q=Forecasts+on+climate+change&source=lnms&tbm=isch &sa=X&ved=0ahUKEwjUs_u3w4rUAhUFChoKHX5fCbAQ_AUIBigB&biw=1017&bih=1038#im grc=aVBkidmo1YkA-M:)

Globally, according to researchers in the field of climate change, it is stated that heating is likely to occur from one century to another, and this hypothesis is based on how climate conditions are manifested, but also on climate models and simulations. In this sense, it is estimated that "the average temperature could be higher, with values that can reach up to 5.4 ° C to 2100", figure 1.

Figure 2. Global annual temperature in the period 1950-2020 (°C) (Climate.gov)

Figure 2 shows an increase in annual global temperatures and temperature differences in the 1950-2020 period. As a result of climate scenarios, it is argued that global warming is differentiated according to geographic location, but at the same time, depends also on climate models. From the thermal point of view, at the national level, the changes in climatic indicators are on the current global trends and this is due to the fact that it is possible to highlight a temperature increase during the summer. According to the IPCC, in our country it is

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estimated an increase in the average annual temperature compared to the 1980-1990 period at European level, there are small differences between the results of the models for the first decades of the 21st century and higher if we refer to the end of the century, so values between “0.5°C and 1.5°C are expected for 2020-2029; between 2.0°C and 5.0°C for 2090-2099, depending on the scenario.” (IPCC, 2007). From a pluviometric point of view, over 90% of climate models forecast for the period 2090-2099 droughts pronounced during the summer in the Romanian area, especially in the south and south-east (with negative deviations from the 1980-1990 period by more than 20%). Regarding the amount of rainfall in winter, deviations are lower and the degree of uncertainty is higher. The impact of climate change on agricultural crops At the European level At European level (figure 3), it can be stated that anthropic systems and ecosystems are vulnerable to the major impacts of climate change, such as floods, droughts or landslides. There may also be positive effects, especially in northern Europe due to climate change, but in most European regions we will identify types of negative environmental impact. In particular, a high degree of threat to the agricultural sector in the south and south-east of Europe is expected.

Figure 3. The exposure types according to geographic location at European level (Climate change, impacts, and vulnerability in Europe 2012, An indicator-based report, European Environment Agency)

The term "adaptation" is different from the "reduction" because the reduction refers to minimizing the impact of climate change and adaptation has the role of minimizing the damage caused by these adverse effects for agriculture. Therefore, it is necessary to correlate the adaptation actions with the reduction ones for a high degree of efficiency and the development of solid societies based on adaptation to climate change. In another train of thoughts, adaptation is a complex

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process that refers to the variability of effects according to geographical location, but at the same time, it must be considered exposure, physical vulnerability, socio-economic development, adaptability, health services and disaster response mechanisms / solutions. Sustainable agriculture in the European Union is based on the tools used to adequately identify responses to climate change challenges through the Common Agricultural Policy. In the agricultural sector, measures are needed to improve environmental performance through more sustainable production methods, also taking into account the conservation of natural resources. In this regard, it should be noted that agricultural producers, individually, cannot "fight" against climate change. That is why there is the central public authority which, through the policies it adopts, must provide the appropriate support, so that agricultural producers take measures to adapt to climate change and take into account production methods, and through this way continues the necessary flow of services used in rural areas. Common agricultural policies have specific elements that could facilitate adaptation to climate change. Thus, opportunities can be offered to agricultural producers, namely to facilitate access to risk management tools such as access to insurance, if appear losses from natural disasters caused by climate change. Rural development policies offer chances to offset the adverse effects that climate change can cause to agricultural producers and rural economies, for example, providing support for investments in more efficient irrigation equipment. The agricultural and environmental programs to encourage better management of soil and water resources by agricultural producers are also important for adaptation. The general objectives of the Common Agricultural Policy are the following, and these, in turn, have several subordinate objectives: (i) viable production of food, contributing to agricultural income and limiting agricultural income variability to increase competitiveness in the agricultural sector and to increase its share of value in the food chain, compensating for production difficulties in areas with specific natural constraints, as there may be a major risk of land abandonment; (ii) sustainable management of natural resources and climate action to guarantee production practices, ensuring the improvement of the provision of public environmental goods, fostering green growth through innovative methods, pursuing mitigation and adaptation actions to climate change; (iii) balanced territorial development to support employment in rural areas and maintaining the social structure of rural areas, improving the rural economy and promoting diversification to allow for structural diversity in agricultural systems, improving conditions for small farmers and developing local markets. The climate change is also a real concern for the EU agriculture. Agriculture will face many challenges in the coming decades, such as i) increasing international competition, (ii) liberalization of trade policy (iii) Decrease in the alert rhythm of the rural population. The effects of climate change can be beneficial for agriculture in some regions of Europe, especially in northern areas, but often can lead to unexpected/bad events, especially in regions already under socio-economic pressure and other environmental factors. This unequal effect of global warming amplifies the economic differences between rural areas of the European Union, and at the same time, the produces a higher risk of land abandonment and regional marginalization.

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At the national level The Central Competent Authority in Romania in the area of adaptation to climate change is represented by the Ministry of Environment through the General Directorate for Green Energy, Climate Change, and Sustainable Development. The climate change affects different economic sectors, and agriculture is one of the most exposed because agricultural activities depend directly on climatic factors. This is important for the European area because 90% of this area is composed of agricultural land and forests. Adaptation is a critical challenge for agriculture and rural areas. According to statistics, in Romania, “crop production is reduced by at least 30-50% due to the expansion and intensity of extreme meteorological phenomena, and for the sustainable conservation of natural resources in the agricultural field, measures must be taken to scientifically substantiate actions and measures to prevent/mitigate adverse consequences.” (ICPA, 2014). In general terms, drought represents the natural phenomenon determined by the precipitations below the normal values, the degree of supply varying significantly depending on the stage of growth and development of agricultural plants. During the period 2005-2007, the "First National Strategy on Climate Change" was debated, which started in 2005 and was approved by Government Decision No. 645/2005. In 2008, the central competent authority elaborated the “Adaptation to Climate Change Guide” approved by the Minister's Order (No 1170/2008), this was due to the fact that the EU Green Paper needed to outline measures and strategies for “Adapting to climate change in Europe - options for EU action”. By Government Decision no. 529/2013, in 2013, the Romanian Government adopted the “National Strategy on Climate Change (2013-2020)” (according to Ministry of Environment). Through this document wanted to highlight specific post-Kyoto targets/actions for mitigation and adaptation to climate change. In this regard, adapting to climate change 2013-2020 was proposed to develop a framework for action and vision in accordance with the principles of national strategy to develop an individual action plan for each sector. Thus, the Government of Romania, in close association with the World Bank, has developed a program for two years to provide advisory services on climate change through the implementation of the National Climate Change Strategy. Meanwhile, improvements to the strategy were called for and revised in the final version in 2015, accompanied by a plan of actions, deadlines, and indicators. In Romania, the "Adaptation to Climate Effects Guide" was implemented, taking into account the actions implemented at the international and European level, and this is reflected in the following documents adopted in 2005, namely the National Strategy and the National Action Plan on Climate Change. Thus, in order to develop and promote this guide, it was necessary to set up an inter-ministerial working group on adaptation to climate change involving different representatives from several areas vulnerable to the effects of climate change.

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Consequences, trends and strategic options In all areas of activity and regions, there are different opportunities for planning and implementing climate change adaptation measures, but taking into account agricultural potential and context-based approaches. In the context of the actions on the development strategies of the European states, the emphasis is on reducing or eliminating the negative effects of climate change in the agricultural sector. Also, the global approach in terms of the interdisciplinary nature of actions refers to identifying and linking development and implementation activities of intra- and intersectoral measures with responses to the effects of climate change. However, we can highlight the fact that agricultural production varies from year to year, which is influenced by changes in climatic conditions and the emergence / producing extreme weather events. In other news, climate variability can influence the Romanian economy and the agricultural sector remains vulnerable to extreme weather phenomena, so the impact on agriculture is higher due to the fact that climatic variability is more pronounced. Thus, the effects of climate change on the agricultural sector led to the need for decision-making processes to reduce the risk of high crop production, proper harvest standardization, and sustainable agriculture promotion. Therefore, variability and climate change must be analyzed in terms of daily agricultural activities, through mitigation strategies and adaptation measures. In order to establish a cost-benefit analysis, the following elements are required: The costs related to the purchase and installation of equipment, consultancy services for the proper implementation of the measure, irrigation water supply, the use of fertilizers, etc. Benefits: decreasing losses, increasing yield, water conservation for irrigation, etc. rx (1  r ) T AC i,j,k=Ic i,j,k x , where (1  r ) T  1 I - the adaptation measure; j - culture, k - region ACi, j, k - the annual capital cost of the measure i for the culture j in the region k (€ / year) ICi, j, k: The cost of capital for measure i in culture j in region k (€) R - discount rate (%) T – time (years) The annual operating and maintenance costs of adaptation measures include the use of any additional costs, such as water irrigation, application of additional quantities of chemical fertilizers, nitrogen, etc. and other costs, as well as the cost of consulting agronomist farmers on how to properly apply adaptation measures in the agricultural sector to reduce the adverse effects of climate change. The annual cost equivalent EACi, j, k was defined by the formula: EAC i,j,k = AC i,j,k + OMC i,j,k = AC i,j,k + CWi,j,k+CFi,j,k+restOMi,j,k OMCi, j, k - the annual cost of operation and maintenance of measure i for culture j in the region k (€ / year)

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CWi, j, k: the annual cost of additional irrigation water as a result of measure i for culture j in the region k (€ / year) CFi, j, k: The annual cost of nitrogen fertilizers as a result of measure i for culture j in the region k (€ / year) RestOMi, j, k: additional cost of annual leave due to measure i for harvest j in region k (€ / year). The annual benefits Bi, j, k from the implementation of each adaptation measure and culture j in the k region are given by: Bi,j,k=BPi,j,k+BWi,j,k+BFi,j,k = (Yci,j,k-YCNoAj,k) x Pj + (WnoAj,k-Wi,j,k) x PWk + (FnoAj,k-Fi,j,k) x PFN, where YCi,j,k - crop yield j in region k, when measure i is implemented (kg / ha) YCNoAj, k -crop yield j in region k in the absence of adaptation (kg / ha) Pj - The crop production price j (€ / kg) Wi,j,k - annual irrigation water consumption for culture j in region k, when measure i is implemented (m³ / ha) WNoA,j,k - annual irrigation water use for culture j in region k in the absence of adaptation (m³ / ha) PWk - the price of irrigation water in the region k (€ / m³) Fi,j,k - annual consumption of crop fertilizer j in region k, when measure i is implemented (kgN / ha) FNoA,j,k - annual consumption of N fertilizer for culture j in region k, without adaptation (kg N / ha)PFN - price of fertilizer N (€ / kg N) Recommendations for adopting decisions with a preventative role Below, we will briefly outline the main recommendations and adaptation measures adopted in the agricultural sector, namely: (a) the selection of varieties cultivated by correlating the local environmental conditions with the degree of resistance of the genotypes to the limiting vegetation conditions (drought, excess humidity, high temperatures, cold, etc.); (b) Crop management and rational use of land are mandatory measures to preserve production potential, while maintaining a low impact of agricultural practices on the environment and the climate (c) Cultivating a greater number of varieties / genotypes, namely varieties / hybrids, each agricultural year with a different vegetation period, to better capitalize on climatic conditions, especially the humidity regime and the staging of agricultural works; (d) the choice of genotypes resistant to limiting vegetation conditions with high tolerance to "heat", drought and excess humidity; (e) selection of varieties of plants with natural resistance to specific diseases caused by pathogens. Conclusion In conclusion, this approach is based on a description of the cost-benefit analysis that is a commonly used methodology for implementing climate change adaptation plans, as it is necessary to address all aspects with efficiency and effectiveness. Agriculture is an important field of the Romanian production, which is why it is necessary to discuss issues related to the impact of climate change on it. The central competent authorities and other relevant institutions should pay particular attention to adaptation measures

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through appropriate solutions, and impact quantification and economic performance analysis help support decision-makers. References Asseng, S., & Pannell, D.J. (2013). Adapting dry land agriculture to climate change: farming implications and research and development needs in Western Australia. Climate Change, 118(1), 167–181. Climate GOV. Science and information for a climate-smart nation. Retrieved from https://www.climate.gov/news-features/understanding-climate/climatechange-global-temperature-projectionshttps://www.climate.gov/news features/understanding-climate/climate-change-global-temperatureprojections. Hallegatte, S., Przyluski, V., & Vogt-Schilb, A. (2011). Building world narratives for climate change impact, adaptation and vulnerability analyses. Nature Climate Change, 1(3), 151-155. ICPA (2014). National Research And Development Institute For Pedology, Agrochemistry And Environmental Protection. Retrieved from https://www.icpa.ro/documente/ADER%20511_ghid.pdf. IPCC (2007). Fourth Assessment Report: Climate Change (AR4). Retrieved from https://www.ipcc.ch/. Ison, R. (2010). Systems Practice: How to Act in a Climate-Change World. London: Springer-Verlag London Limited. Kovats, R.S., et al. (2014). Europe. In Barros, V.R., et al. (Eds.), Climate Change 2014: Impacts, Adaptation, and Vulnerability. Part B: Regional Aspects. Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change (pp.1267-1326). New York: Cambridge University Press. Lobell, D.B. (2014). Climate change adaptation in crop production: beware of illusions. Global Food Security, 3(1), 72–76. Malone, E., & Engle, N. (2011). Evaluating regional vulnerability to climate change: purposes and methods. Wiley Interdisciplinary Reviews: Climate Change, 2(3), 462-474. Ministry of Environment. Retrieved from www.mmediu.ro. Rothman, D.S., Romero-Lankao, P., Schweizer V.J., & Bee, B.A. (2013). Challenges to adaptation: A fundamental concept for the Shared Socioeconomic Pathways and beyond. Climatic Change, 122(Special Issue), 495–507. Wachinger, G., Renn, O., Begg, C., & Kuhlicke, C. (2012). The risk perception paradox: implications for governance and communication of natural hazards. Risk Analysis, 33(6), 1049-1065. White, J.W., Hoogenboom, G., Kimball, B.A., & Wall, G.W. (2011). Methodologies for simulating impacts of climate change on crop production. Field Crops Research, 124(2011), 357–368. Ziska, L., et al. (2016). Food Safety, Nutrition, and Distribution. The Impacts of Climate Change on Human Health in the United States: A Scientific Assessment. U.S. Global Change Research Program (pp.189–216). Washington, DC. Retrieved from http://dx.doi.org/10.7930/J0ZP4417.

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CRISIS AND FINANCIAL DISTRESS. FAMILY VS. NON-FAMILY FIRMS Pietro GOTTARDO University of Pavia 5 Via San Felice, 27100 Pavia, IT [email protected] Anna Maria MOISELLO University of Pavia 5 Via San Felice, 27100 Pavia, IT [email protected] Abstract. The prediction of a company’s status of financial distress has been a challenging issue for financial accounting studies for decades. Quantitative and qualitative information affects a company’s likelihood of incurring in financial distress and there is a need to study how the peculiarities of family firms affect their probability of financial distress. We address this topic by studying a sample of 1,137 Italian private firms for the period 2004-2013 in order to include the pre and post financial crisis periods. We analyze family firms’ financial distress likelihood taking into account some board and CEO characteristics, different measures of risk, some accounting variables and some macroeconomic indicators. We find that these variables have different significance in the family than non-family firms, and we argue that it is due to the main reference point in family firms’ behavior, i.e. the preservation of the affective returns that the family derives from the business. Keywords: financial distress; family firms; socioemotional wealth; board; family CEO. Introduction The prediction of a company’s financial distress status has been a challenging issue for financial accounting studies for decades. The pioneering studies of Beaver (1966), Altman (1968, 2000) and Altman, Haldeman, and Narayanan (1977) provide models based on accounting ratios in order to individuate which of a firm’s characteristics would provide an effective alarm for financial distress. More recently, even qualitative information related to board members’ ownership and insider holding (Chen & Du, 2009) has been taken into account. There is evidence that corporate governance characteristics significantly affect a company’s likelihood of incurring financial distress and that weak corporate governance significantly enhances this probability (Lee & Yeh, 2004). The literature claims that family firms’ system of corporate governance is a relevant source of competitive advantage (Carney, 2005). Family business literature has widely addressed the issue of performance, comparing family and non-family businesses. It provides conflicting results (Morck, Shleifer & Vishny, 1988; Anderson & Reeb, 2003; Simoes Vieira, 2014), confirming that family firms are not a homogeneous group (Corbetta

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& Salvato, 2004) and that they differ in relation to their generational stage, board characteristics and CEO type (Barontini & Caprio, 2006; Villalonga & Amit, 2006; Bennedsen & Nielsen, 2010; Gottardo & Moisello, 2015). Literature also has addressed the issue of family firms’ risk taking, pointing out that they are risk averse (Naldi et al., 2007; Huybrechts Voordeckers & Lybaert, 2013), as they pursue durability in the long run (Tagiuri & Davis 1992), but that they are prone to taking performance hazard when the family’s control is at risk, in order to preserve the non-financial returns that family members obtain through the business (Gomez-Mejia, et al., 2007). There is also evidence that they are more levered than non-family firms (Croci, Doukas & Gonenc, 2011, Gottardo & Moisello, 2014, 2016). Given the importance and dissemination of family businesses in economies around the world (Faccio & Lang, 2002; Villalonga & Amit, 2006) there is a need to study how the above-mentioned peculiarities affect a family firm’s probability of financial distress. Wilson Wright and Scholes (2013) have addressed the issue of family businesses’ likelihood of failure by analyzing a large sample of UK companies for the period 2007-2010. They point out that family firms have a higher survival probability than non-family businesses. Thus, it is interesting to develop this rather unexplored topic, analyzing family firms’ probability of financial distress, which could be a harbinger of a firm’s ultimate failure. We address this topic by studying a sample of 1,137 Italian private firms for the period 2004-2013 in order to include the pre- and post-financial crisis periods. We analyze family firms’ financial distress likelihood taking into account certain board and CEO characteristics, different measures of risk, a set of accounting variables and a series of macroeconomic indicators. We find that family ownership control, and influence by the means of a family CEO, reduces a firm’s probability to run into financial distress. However, the effect is reversed when numerous family members have a seat on the board. We argue that this reverse effect is due to the main reference point in family firms’ behavior, i.e. the preservation of the affective returns that the family derives from the business. This paper is grounded on the socioemotional wealth (SEW) framework, one that relates to the non-financial returns a family obtains by exerting its control and influence on the business (Gomez-Mejia et al., 2007). In so doing, we contribute to socioemotional wealth literature, providing empirical evidence of this perspective. Moreover, we contribute to financial accounting literature on financial distress probability by focusing on family firms. The remainder of the paper is organized as follows: section 1 introduces the theoretical background; section 2 presents the data and research methodology; section 3 provides the results and discussion and section 4 concludes. Theoretical background According to the socioemotional wealth perspective, family businesses’ uniqueness resides in having nonfinancial, as well as financial, objectives i.e. the preservation of family members’ affective endowment in the firm they own (Gomez-Mejia et al.,

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2007). It is based on the Behavioral Agency Model which claims that decision makers act in order to avoid losses (Wiseman & Gomez-Mejia, 1998). SEW literature points out that family firms behave in order to preserve and increase the stock of affect-related value that the owning family derives from the business. Socioemotional wealth utility affects family owners’ value perceptions and they subjectively evaluate their ownership stake in monetary terms, unlike a market valuation based only on financial information (Zellweger & Astrachan, 2008). There is evidence that the preservation of this value is the main reference point for family firms’ strategies, management processes, risk-taking behavior (Gomez-Mejia et al., 2007; Gomez-Mejia et al., 2011), diversification and financing decisions (Gomez-Mejia, Makri & Kintana, 2010; Gottardo & Moisello, 2014), proactive stakeholder engagement and environmental management (Cennamo et al., 2012; Berrone, Gomez-Mejia & Larraza-Kintana, 2010) and voluntary disclosure behavior (Gavana, Gottardo & Moisello, 2016, 2017). According to SEW theoretical literature (Berrone et al., 2012; Gomez-Mejia et al., 2011), a family’s affective endowments in the firm are related to five main dimensions: family control and influence; family members’ identification with the firm; binding social ties; the emotional attachment of family members, dynastic succession. The family control itself provides emotional returns to family members and, through it, a family can protect the affective values it derives from the business in terms of influence, sense of identification, social ties, and renewal of family bonds to the business for succeeding generations (Gottardo & Moisello, 2014). Therefore, the preservation of family control of the business is the main concern for family members because it is the means of exerting its influence on the firm and derive the related non-financial returns that meet family members’ emotional needs (Berrone et al., 2012; Gomez-Mejia et al., 2010). The desire to maintain family control is the reference point in addressing business risk. Family firms address risk in order to avoid losses of socioemotional wealth and, in so doing, they are both risk willing and risk adverse. Gomez-Mejia et al. (2007), in their pioneer study, point out that family firms avoid entrepreneurial risk, because bankruptcy would result in the loss of the family’s economic and non-economic stocks invested in the business. On the other hand, they are willing to bear performance risk - that in extreme consequences can lead to bankruptcy and definitive loss of SEW - in order to preserve family control as it is a key source of emotional returns for family members (Gomez Mejia et al., 2007). This apparent paradox is due to the fact that family decision-makers think that performance hazard is an endogenous risk that can be managed (Gomez-Mejia et al., 2007). Lins, Volpin, and Wagner (2013) find that, in the period 2008-2009, during the financial crisis, family firms cut investment more compared to nonfamily businesses, and these cuts are related to greater underperformance. Therefore, the authors argue that families behave in order to increase the likelihood that the firm they own, and family control on the business, survive the crisis, at the expense of outside shareholders. Families avoid financing decisions which may put at risk family control or dilute their control stakes and family’s influence, so they are more prone to endure the risks related to debt financing than non-family businesses (Gottardo & Moisello, 2014, 2016).

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Family influence may be indirectly exerted, by appointing the board, or directly by the means of a family CEO and/or the presence of family members on the board. A family CEO is a key mechanism for retaining control over the company’s assets and activity (Chua, Chrisman & Sharma, 1999) because, compared to a non-family CEO, this provides the family with more control over operations and decisions (Hall & Nordqvist, 2008). There is evidence that family CEOs are less prone to bear entrepreneurial risk than professional CEOs, but that the latter tend to assume lower venturing risk as their tenure increases and they develop stronger links with the owning family (Huybrechts et al., 2012). Family members see the business as an extension of the family as they feel a keen sense of identification with the company they own (Berrone et al., 2012) and they are aware that the way a firm behaves may affect the family image, therefore they act in order to protect the firm’s reputation (Deephouse & Jaskiewicz, 2013). A company’s financial distress and risk of ultimate failure would damage the owning family’s reputation. The sense of identification is stronger when a family directly exerts its influence on the business, by the means of a family CEO, (Gavana et al., 2017), enhancing the concern for the firm’s reputation and image (Dyer & Whetten, 2006). Conversely, this sense of identification tends to decrease in a firm’s later generational stages when different family branches are involved in the business and pursue different interests (Gomez-Meija et al., 2011). Empirical literature suggests that a family-based organizational image positively affects a family business’ ability to increase sales (Craig et al., 2008) and it positively contributes to a firm’s performance (Zellweger, Kellermanns, Eddleston & Memili, 2012). As a matter of fact, family firms’ commitment to constructing a good reputation may result in the better development of partnerships (Arya & Salk, 2006) and the capability to attract high-quality employees (Connelly, Certo, Ireland & Reutzel, 2011). The bonds between a firm and its internal and external stakeholders constitute a unique form of social capital for family firms (Sirmon & Hitt, 2003) and they are strongly committed to its preservation; in fact, there is evidence that family business is particularly concerned with social and environmental problems (Berrone et al., 2010; Cennamo et al., 2012). In response to their commitment to the community, family businesses receive loyalty and support from their stakeholders (Niehm, Swinney & Miller, 2008). These close social ties on the one hand meet the family members’ affective needs for belonging and also develop the family’s influence in the local community at large, on the other hand these bonds benefit the business in term of the availability of “timely and trustworthy information critical for business operations”, business opportunities and funding (Zellweger et al., 2012) and help the company cope with periods of crisis. There is empirical evidence that family firms benefit from lower cost of debt financing than non-family firms due to the relationships they develop with lenders across time and generations (Anderson, Mansi & Reeb, 2003) and creditors may be more prone to reschedule credit maturities in case of trading difficulties (Wilson et al., 2013). Consistently, D’Aurizio, Oliviero and Romano (2015) find significant evidence that the contraction in credit for family firms was smaller than that for non-family firms during the 2007-2009 financial crisis.

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The preservation of the business for the future generations is the last dimension of socioemotional wealth (Berrone et al., 2012). Dynastic succession is the means to preserve family control of the business and a family’s visibility, reputation and influence in the community over time. Families manage the firm as a long-term investment (Chami, 1999) and they avoid risky strategies in order to pass on a healthy business to future generations and perpetuate the business and family control over time. Moreover, the preservation of the family dynasty in the business implies the perpetuation of the family’s values through business operations (Debicki, Van de Graaff Randolph & Sobczak, 2017) and, in turn, the presence of ethics norms reinforces the development of social capital, and, in turn, performance (Sorenson, Goodpaster, Hedberg & Yu, 2009). Research question: How does a family’s indirect or direct influence affect a business’ probability of financial distress? Data and methods We collected data from the Aida database (Bureau van Dijk) for the period 20042013 to examine the above issue and test the related research question. In order to be included, a firm needed to respect four conditions: availability of at least four years of data; sales over €40 million in at least one year; a non-financial ATECO code; be a private firm. The final sample comprises 1137 firms, 138 are the firms which, in the period analyzed, entered a financial distress procedure (restructuring, voluntary liquidation, insolvency or a composition with creditors). The dependent variable is a dummy that takes value one if in a given year, a firm is in distress. The literature is not unanimous about what constitutes a family firm (e.g. Chua, Chrisman & Sharma, 1999) but we identify them using an ownership threshold, considering a firm to be a family business if a family holds more than 50% of its equity. We also consider two proxies to account for the degree of control and influence that families exert on the business, namely a dummy for the presence of a family CEO, and a measure of the number of family members as a fraction of those who sit on the board. From financial accounts, we extract information on Size (natural log of Assets), Interest Coverage, Cash Flow, Duration of Receivables, Stock Turnover, Current Ratio and Leverage (Debt/Equity), as a measure of financial risk. We also control for differences in financial risk using the sector Beta, and, for the macroeconomic situation, take into account the yearly changes in GDP (GDP) and in the availability of bank lending (Loans). To verify the impact of family control and influence on the likelihood of ending up in financial distress, we estimate a panel logistic model using the availability of firm-specific time-varying covariates over multiple periods, covering the recent recession in 2007-2010. We follow Shumway (2001) and Nam et al. (2008) estimating a duration independent model where the individual hazard rate for each firm is independent of a particular point in time. The multi-period logit model takes the form:

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where the xi,t are the time-varying independent variables. Results and discussion Table 1 presents descriptive statistics for the subsamples of family and non-family firms, distinguishing firms in healthy condition and in financial distress. Table 1. Summary statistics of firm characteristics for family and non-family firms Family Firms Non-Family Firms Healthy In distress Healthy In distress Mean (Stdev) Mean (Stdev) Mean (Stdev) Mean (Stdev) Size 17.61 (2.52) 10.93 (1.04) 17.67 (2.61) 10.52 (1.31) Leverage 1.04 (2.43) 2.20 (11.66) 0.90 (5.41) 3.10 (8.82) Interest 24.34 (51.19) 4.77 (19.53) 24.77 (51.04) 5.41 (17.94) coverage Cash Flow 0.02 (0.27) -0.16 (0.36) 0.00 (0.30) -0.10 (1.63) Receiv. 88.88 (52.26) 114.20 (113.53) 86.71 (86.00) 125.49(136.95) duration Stock 62.45 (48.70) 88.73 (74.81) 56.04 (61.17) 77.15 (82.99) turnover Current test 1.53 (0.86) 1.07 (0.56) 1.44 (0.80) 1.21 (0.98) Beta 0.77 (0.26) 0.80 (0.23) 0.85 (0.31) 0.87 (0.29) Family CEO 0.70 (0.46) 0.82 (0.38) MultiFboard 0.51 (0.34) 0.71 (0.31) In Table 2 we present the estimates of the panel logit model for the overall sample and for the family and non-family subsamples. Table 2. Duration independent hazard model with time varying covariates. Period 2004-2013 All Firms Family Firms Non-Family Firms Coeff.(p-value) Coeff.(p-value) Coeff.(p-value) Intercept 13.97 (.001) 13.46 (.001) 18.12 (.001) Independent Variables Size -1.25 (.001) -1.19 (.001) -1.63 (.001) Leverage 0.07 (.033) 0.01 (.809) 0.13 (.005) Interest -0.05 (.001) -0.03 (.002) -0.05 (.001) coverage Cash Flow -0.12 (.161) -11.79 (.001) -0.14 (.239) Receiv. 0.01 (.001) 0.01 (.001) 0.01 (.005) duration

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Stock turnover Current ratio Beta ∆GDP ∆Loans Family Family CEO MultiFboard

0.01 (.001) -0.46 (.002) 0.02 (.949) 0.04 (.262) -0.02 (.152) -0.61 (.002) -0.55 (.013) 1.92 (.001)

0.01 (.001) -0.75 (.001) -0.35 (.393) 0.11 (.077) 0.01 (.691) -1.02 (.001) 1.91 (.001)

0.00 (.014) -0.21 (.326) 0.46 (.241) -0.03 (.623) -0.03 (.288) -

Log-Likelihood Wald-test N (Obs.)

-580.32 404.58 6,032

-300.23 257.23 3,747

-233.23 150.57 2,438

Our results suggest that a family’s indirect and direct influence on the business has a significant lowering effect on a firm’s probability of financial distress. Our research, focused on a sample of firms operating in a bank-based economy, is consistent with the findings provided by Wilson et al. (2013) for a sample of companies operating in a market-based economy, providing evidence that the nature of family businesses has, ultimately, a strong influence on a firm’s survival capability, regardless of the characteristics of the economy in which it operates. Moreover, our findings suggest that, overall, a firm’s likelihood of financial distress is more significantly related to the nature of the ultimate controlling owner and its direct influence on the business, rather than to the economic situation of the country in which the company operates, in terms of changes in gross domestic product and availability of bank lending. Consistent with previous literature, we find that another firm characteristic, such as size, has a significant effect in lowering a company’s probability of financial distress, but that the effect is lower for family firms. As a matter of fact, larger firms can rely on significant capital requirements barriers, which has a positive effect on performance (Hall & Weiss, 1967). Size enhances a firm’s visibility and the concern for financial distress impacts on a family’s reputation (Gavana et al., 2016), but, at the same time, size is a socioemotional wealth moderator (GomezMejia et al., 2011). As a firm grows a family may have to share its influence on the company with other parties, experiencing a lower sense of identification and deriving a lower emotional return from the business, which may result in opportunistic behavior and in a lower venturing risk aversion (Wasserman, 2006). Family firms, although more levered than their non-family counterparts, are more skilled at managing debt financing, as non-family firms’ financing distress probability is significantly affected by leverage. This is probably due to the different role of debt financing in family and non-family firms. Family firms are not prone to open their capital outside the family and they use debt financing in order to maintain family control over the business and preserve their socioemotional wealth (Gottardo & Moisello, 2014, 2016). Families protect the control of the business as they view the firm as a long-term investment to be passed to future generations through dynastic succession

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(Berrone, 2010, 2012) and, for the same reason they are risk adverse. Further, as our results suggest, they tend to invest in industries characterized by lower beta than non-family companies. The intention for trans-generational control, and longterm orientation, develops a strong relationship with both internal and external stakeholders and among those debt financiers who are more likely to be willing to grant credit facilities to family businesses. These connections also provide operational utilities to family firms in terms of customer acquisition (Arregle, Hitt, Sirmon & Very, 2007) and the reduction of costs related to complex cooperative relationship management (Mohr & Puck, 2013): consistently, we find that cash flow has a significant effect in lowering the financial distress probability only for family firms. On the contrary, the strong ties with customers may have a negative effect on the likelihood of survival when they result in excessive payment delays, as shown by the effect of credit duration on family firms’ probability of financial distress. Our findings suggest that when a family exerts its influence directly, by appointing a family CEO, the concern for the protection of the socioemotional wealth is higher and reduces the probability of financial distress. When a firm is led by a family CEO, the sense of identification between the family and the business is higher and, in turn, the concern for the reputational drawbacks an owning family would suffer in case of financial distress or failure of the business, increases. In this case, a family would also lose the emotional returns provided by the business in terms of its social relationship with internal and external stakeholders. Conversely, our results point out that firms with larger boards, with numerous family members, suffer a higher probability of financial distress. This board characteristic is generally related to firms later generational stages (Westhead Howorth & Cowling, 2002) in which the family members sitting on boards belong to different family branches and pursue the expectations and needs of their particular nuclear family. In later generational stages the sense of identification between the owning family and the business declines, the non-financial objectives are less relevant, and short-term earnings strategies can overpower the long-term survival goal (Gomez-Mejia et al., 2007; Gomez-Mejia et al., 2011; Le Breton-Miller & Miller, 2013), putting the company's health at risk. These results are, therefore, consistent with the empirical studies of Arrondo-Gracia and colleagues (2016) pointing out that, during the 2008 global crisis, family firms in different generational stages presented different attitudes towards financial risk (ArrondoGarcia, Fernández-Méndez & Menéndez-Requejo, 2016). Conclusions This paper studies the effect of families’ indirect and direct influence on a firm financial distress probability, analyzing a sample of 1,137 Italian private firms for the period 2004-2013. Overall, our results suggest that a business’ family nature benefits a company’s survival likelihood regardless of the structural and conjunctural characteristic of the economy in which it operates. The beneficial effect of family influence is stronger when it is exerted by means of a family CEO as it implies a higher emotional return from the business for the family, which would

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decrease or fade away, respectively, in case of financial distress or bankruptcy. We find the opposite effect when family influence is explicated by the presence of numerous family members on large boards. This paper addresses family firms’ financial distress probability, focusing on the effect of family control and influence dimension. However, other SEW dimensions would also be of interest. It would be useful to broaden the analyses by taking into consideration, in the regression model, family ties with internal and external stakeholders. Moreover, given that the attitude to release company control varies from country to country (Franks et al., 2009), further research may usefully focus on a cross-national sample in order to better control for the effect of different institutional and cultural settings on a family firm’s probability of financial distress. References Altman, E.I. (1968). Financial ratios, discriminant analysis and the prediction of corporate bankruptcy. Journal of Finance, 23(4), 589-609. Altman, E.I., Haldeman, R.G., & Narayanan, P. (1977). ZETATM analysis A new model to identify bankruptcy risk of corporations. Journal of Banking & Finance, 1(1), 29-54. Altman, E.I. (2000). Predicting financial distress of companies: revisiting the Z-score and ZETA models. Stern School of Business, New York University. Anderson, R.C., Mansi, S.A., & Reeb, D.M. (2003). Founding family ownership and the agency cost of debt. Journal of Financial Economics, 68(2), 263-285. Anderson, R.C., & Reeb, D.M. (2003a). Founding-family ownership and firm performance: evidence from the S&P 500. Journal of Finance, 58(3), 13011328. Anderson, R.C., & Reeb, D.M. (2003b). Founding-family ownership, corporate diversification and firm leverage. Journal of Law and Economics, 46(2), 653680. Arya, B., & Salk, J.E. (2006). Cross-sector alliance learning and effectiveness of voluntary codes of corporate social responsibility. Business Ethics Quarterly, 16(02), 211-234. Arregle, J.L., Hitt, M.A., Sirmon, D.G., & Very, P. (2007). The development of organizational social capital: Attributes of family firms. Journal of management studies, 44(1), 73-95. Arrondo-García, R., Fernández-Méndez, C., & Menéndez-Requejo, S. (2016). The growth and performance of family businesses during the global financial crisis: The role of the generation in control. Journal of Family Business Strategy, 7(4), 227-237. Barontini, R., & Caprio, L. (2006). The effect of family control on firm value and performance: Evidence from continental Europe. European Financial Management, 12(5), 689-723. Beaver, W.H. (1966). Financial ratios as predictors of failure. Supplement to Journal of Accounting Research, 4(1), 71-111. Bennedsen, M., & Nielsen, K.M. (2010). Incentive and entrenchment effects in European ownership. Journal of Banking & Finance, 34(9), 2212-2229.

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Berrone, P., Cruz, C., & Gomez-Mejia, L.R. (2012). Socioemotional wealth in family firms: Theoretical dimensions, assessment approaches, and agenda for future research. Family Business Review, 25(3), 258-279. Berrone, P., Cruz, C., Gomez-Mejia, L.R., & Larraza-Kintana, M. (2010). Socioemotional wealth and corporate responses to institutional pressures: Do family-controlled firms pollute less? Administrative Science Quarterly, 55(1), 82-113. Carney, M. (2005). Corporate governance and competitive advantage in family‐controlled firms. Entrepreneurship Theory and Practice, 29(3), 249265. Cennamo, C., Berrone, P., Cruz, C., & Gomez‐Mejia, L.R. (2012). Socioemotional Wealth and Proactive Stakeholder Engagement: Why Family‐Controlled Firms Care More About Their Stakeholders. Entrepreneurship Theory and Practice, 36(6), 1153-1173. Chen, W.S., & Du, Y.K. (2009). Using neural networks and data mining techniques for the financial distress prediction model. Expert Systems with Applications, 36(2), 4075-4086. Chua, J.H., Chrisman, J.J., & Sharma, P. (1999). Defining the family business by behavior. Entrepreneurship Theory and Practice, 23(4), 19-19. Connelly, B.L., Certo, S.T., Ireland, R.D., & Reutzel, C.R. (2011). Signaling theory: A review and assessment. Journal of Management, 37(1), 39-67. Corbetta, G., & Salvato, C. (2004). Self‐serving or self‐actualizing? Models of man and agency costs in different types of family firms: A commentary on “comparing the agency costs of family and non‐family firms: Conceptual issues and exploratory evidence”. Entrepreneurship Theory and Practice, 28(4), 355-362. Craig, J.B., Dibrell, C., & Davis, P.S. (2008). Leveraging family‐based brand identity to enhance firm competitiveness and performance in family businesses. Journal of Small Business Management, 46(3), 351-371. Croci, E., Doukas, J.A., & Gonenc, H. (2011). Family control and financing decisions. European Financial Management, 17(5), 860-897. D'Aurizio, L., Oliviero, T., & Romano, L. (2015). Family firms, soft information and bank lending in a financial crisis. Journal of Corporate Finance, 33(C), 279292. Debicki, B.J., Van de Graaff Randolph, R., & Sobczak, M. (2017). Socioemotional Wealth and Family Firm Performance: A Stakeholder Approach. Strategic Issues in the Family Firm, 29(1), 82-111. Deephouse, D.L., & Jaskiewicz, P. (2013). Do family firms have better reputations than non‐family firms? An integration of socioemotional wealth and social identity theories. Journal of Management Studies, 50(3), 337-360. Dyer, W.G., & Whetten, D.A. (2006). Family firms and social responsibility: Preliminary evidence from the S&P 500. Entrepreneurship Theory and Practice, 30(6), 785-802. Gavana, G., Gottardo, P., & Moisello, A. M. (2016). Sustainability Reporting in Family Firms: A Panel Data Analysis. Sustainability, 9(1), 38, 1-18. Gavana, G., Gottardo, P., & Moisello, A.M. (2017). The effect of equity and bond issues on sustainability disclosure. Family vs non-family Italian firms. Social Responsibility Journal, 13(1), 126-142.

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Gomez-Mejia, L.R., Cruz, C., Berrone, P., & De Castro, J. (2011). The bind that ties: Socioemotional wealth preservation in family firms. The Academy of Management Annals, 5(1), 653-707. Gómez-Mejía, L.R., Haynes, K.T., Núñez-Nickel, M., Jacobson, K.J., & Moyano-Fuentes, J. (2007). Socioemotional wealth and business risks in family-controlled firms: Evidence from Spanish olive oil mills. Administrative Science Quarterly, 52(1), 106-137. Gomez‐Mejia, L.R., Makri, M., & Kintana, M.L. (2010). Diversification decisions in family‐controlled firms. Journal of Management Studies, 47(2), 223-252. Gottardo, P., & Moisello, A.M. (2015). The impact of socioemotional wealth on family firms’ financial performance. Problems and Perspectives in Management, 13(1), 67-77. Gottardo, P., & Moisello, A.M. (2014). The capital structure choices of family firms: Evidence from Italian medium-large unlisted firms. Managerial Finance, 40(3), 254-275. Gottardo, P., & Moisello, A.M. (2016). The Impact of Family Control and Influence on Leverage. European Journal of Economics, Finance and Administrative Sciences, 86. Retrieved from https://www.researchgate.net/publication/307865124_The_impact_of_famil y_control_and_family_influence_on_leverage. Hall, A., & Nordqvist, M. (2008). Professional management in family businesses: Toward an extended understanding. Family Business Review, 21(1), 51-69. Hall, M., & Weiss, L. (1967). Firm size and profitability. Review of Economics and Statistics, 49(3), 319-331. Huybrechts, J., Voordeckers, W., & Lybaert, N. (2013). Entrepreneurial risk taking of private family firms: The influence of a nonfamily CEO and the moderating effect of CEO tenure. Family Business Review, 26(2), 161-179. Lee, T.S., & Yeh, Y.H. (2004). Corporate governance and financial distress: Evidence from Taiwan. Corporate Governance: An International Review, 12(3), 378-388. Le Breton‐Miller, I., & Miller, D. (2013). Socioemotional wealth across the family firm life cycle: A commentary on “Family Business Survival and the Role of Boards”. Entrepreneurship Theory and Practice, 37(6), 1391-1397. Lins, K.V., Volpin, P., & Wagner, H.F. (2013). Does family control matter? International evidence from the 2008–2009 financial crisis. Review of Financial Studies, 26(10), 2583-2619. Morck, R., Shleifer, A., & Vishny, R.W. (1988). Management ownership and market valuation: An empirical analysis. Journal of Financial Economics, 20(1-2), 293315. Mohr, A.T., & Puck, J. (2013). Revisiting the trust-performance link in strategic alliances. Management International Review, 53(2), 269-289. Naldi, L., Nordqvist, M., Sjöberg, K., & Wiklund, J. (2007). Entrepreneurial orientation, risk taking, and performance in family firms. Family business review, 20(1), 33-47. Nam, C., Kim, T., Park, N., & Lee, H. (2008). Bankruptcy prediction using a discretetime duration model incorporating temporal and macroeconomic dependencies. Journal of Forecasting, 27, 493-506. Niehm, L.S., Swinney, J., & Miller, N.J. (2008). Community social responsibility and its consequences for family business performance. Journal of Small Business Management, 46(3), 331-350.

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Shumway, T. (2001). Forecasting bankruptcy more accurately: A simple hazard model. Journal of Business, 74(1), 101-124. Simões Vieira, F.E. (2014). The effect on the performance of listed family and nonfamily firms. Managerial Finance, 40(3), 234-253. Sorenson, R.L., Goodpaster, K.E., Hedberg, P.R., & Yu, A. (2009). The family point of view, family social capital, and firm performance an exploratory test. Family Business Review, 22(3), 239-253. Villalonga, B., & Amit, R. (2006). How do family ownership, control and management affect firm value? Journal of Financial Economics, 80(2), 385-417. Westhead, P., Howorth, C., & Cowling, M. (2002). Ownership and management issues in first generation and multi-generation family firms. Entrepreneurship & Regional Development, 14(3), 247-269. Wilson, N., Wright, M., & Scholes, L. 2013. Family business survival and the role of boards. Entrepreneurship Theory and Practice, 37(6), 1369-1389. Zellweger, T.M., & Astrachan, J.H. (2008). On the emotional value of owning a firm. Family Business Review, 21(4), 347-363. Zellweger, T.M., Kellermanns, F.W., Eddleston, K.A., & Memili, E. (2012). Building a family firm image: How family firms capitalize on their family ties. Journal of Family Business Strategy, 3(4), 239-250.

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MARKET-ORIENTED SUSTAINABILITY. AN EXPLORATORY STUDY ON A ‘TWO-TAILED RELATIONSHIP’ Elena-Mădălina VĂTĂMĂNESCU National University of Political Studies and Public Administration 30A Expozitiei Blvd., Sector 1, 012104 Bucharest, RO [email protected] Vlad-Andrei ALEXANDRU Ph.D. Program in Methods and Models for Economic Decisions University of Insubria Via Monte Generoso 71, 21100 Varese, IT [email protected] Abstract. Even though the concept of “sustainability” has received more and more attention in the specialized literature, limited empirical studies have been deployed about the connections between sustainability and marketing strategies. One of the main reasons may reside in the fact that the relationship between sustainability and the marketing practices finds itself in continuous progress. Here, the current theoretical endeavor strives to offer some insights into the “two-tailed” relationships between sustainability, respectively sustainable entrepreneurship, and the Contemporary Marketing Practices (CMP). It lays emphasis on the relational perspective of CMP – i.e. on Interaction and Network Marketing - given the fact that, according to the extant literature, they are more indicative of the entrepreneurs’ sustainability orientation than their counterparts. Framed within the market-oriented sustainability framework, the present approach provides further considerations on the underlying market-oriented and generally intangible constructs that precipitate sustainability efforts. Keywords: market-oriented sustainability; sustainable entrepreneurship; Contemporary Marketing Practices (CMP), Interaction and Network Marketing. Introduction The emergence of the digital economy and, inherently, of the growing competitiveness in the online marketplace have reconfigured the approaches of market-oriented sustainability, that is, a novel facet of business sustainability. In the following years, it is anticipated that consumer mindfulness and wise choice would set themselves as the norm, not as the exception, constraining organizations to adjust their entire vision. Either incrementally, or exponentially, different conditions of sustainable buying choices will spring up which should be taken into account as guidelines of the new consumption patterns and of new business models (Gorgos & Vătămănescu, 2016; Gazzola et al., 2017; Andrei et al., 2017a; Andrei et al., 2017b). Here, Crittenden et al. (2011, p.71) advance a theoretical framework fit for a better understanding of the topical phenomena, that is “market-oriented sustainability”, which refers to “incorporating sustainability into market orientation”, having as purpose the strategic alignment of sustainability with marketing strategies for competitive advantage achievement.

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Marketing for sustainability is able to apply marketing techniques with a suitable objective, by following market necessities, creating more sustainable products and identifying more convincing methods of communication to foster behavioral change, according to Font and McCabe (2017). An innovative mix of consumer-facing marketing goals and approaches developed, that enables consumers to make suitable, healthier and sustainable buying and consumption decisions and supports organizations in becoming more competitive. Framed within the paradigm of the market-oriented sustainability (Crittenden et al., 2011), a myriad of studies have addressed the interplay between sustainability, respectively sustainable entrepreneurship, and marketing practices, often considering a certain marketing strategy as a precursor of the entrepreneurs’ sustainability orientation (Hapenciuc et al., 2015) or the reversed relationship (Vătămănescu et al., 2017a). At this point, irrespective of the relationship direction, understanding how individuals and groups generate value among complex relationships and networks is pivotal in order to achieve sustainability goals (Vătămănescu, Alexandru & Andrei, 2015; Vătămănescu et al., 2016a; Vătămănescu et al., 2017a). For marketers who attempt to reach sustainability of the business, it is crucial to understand the costs and benefits to develop the right relationships and networks (Păduraru et al., 2016). Building on the market-oriented sustainability premise, the present paper strives to offer some insights into the “two-tailed” relationships between sustainability and sustainable entrepreneurship and the Contemporary Marketing Practices (CMP) as described by Coviello et al. (1997). It lays emphasis on the relational perspective of CMP, given the fact that, according to the extant literature, it is more indicative of the entrepreneurs’ sustainability orientation (Vătămănescu et al., 2017a). The endeavor has a theoretical and exploratory nature and is primarily focused on novel studies which capture the interconnections between the aforementioned constructs (Hapenciuc et al., 2015; Păduraru et al., 2016; Vătămănescu et al., 2016b; Soto-Acosta et al., 2016; Vătămănescu et al., 2017a), giving voice to the need for more developments on the matter. That being the case, firstly, some considerations on the issues of sustainability and sustainable entrepreneurship are introduced. Secondly, a concise section on CMP is developed. Thirdly, the relationships between sustainability and sustainable entrepreneurship and the relational perspective of CMP are more thoroughly addressed, giving credit to recent studies (2015-2017) on the topic. Theoretical overview The angle of sustainability and sustainable entrepreneurship Nowadays, in the 21st century economy, sustainable development is perhaps the most prominent topic of our time, with a paramount influence on entrepreneurship. Reports of ozone depletion, climate change, and destruction of biodiversity - that demonstrate the negative and potentially deadly consequences these processes have for living species – are widely approached not only by scholars, but also by experts from the international economic organizations (IPCC, 2013; UNEP, 2016). In this vein, scholars

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such as Cohen and Winn (2007) and Dean and McMullen (2007) have claimed that entrepreneurial action can preserve ecosystems, counteract climate change, reduce environmental degradation and deforestation, improve agricultural practices and freshwater supply, and maintain biodiversity if placed in a sustainability framework. The perception on entrepreneurship, according to Say (2001), is that an entrepreneur uses the three existing production factors – labor, land, and capital (which constitute the society’s welfare source) and exploits available resources to achieve the highest results, expressed in the amount of profit gained. A special attention was paid to the entrepreneurial innovation, which was connected not only to searching necessary resources and factors but also to looking into various combinations for achieving the economic and financial optimum. This point of view was widely acknowledged and was further reflected in other works on entrepreneurial theory pertaining to scholars as Hayek, Schumpeter, Drucker, and others (Korobov et al., 2017). When addressing sustainability and providing recommendations for the entrepreneurial environment, the investigation usually starts with the big companies, such as Wal-Mart or Unilever and their leaders. The enquiry inclines towards companies, and leaders, who dispose of large platforms for making their engagements public, for modifying products, procedures, and personnel as they put their optics for sustainability into practice. But, most of the times, the purpose of sustainability is associated with environmental issues, not being restricted to those, but also including social and economic issues, as well (Chebeň et al., 2015). Giving the competitiveness pressure in today’s setup, organizations cannot implement environmental policies that do not take into consideration meeting social and economic needs. Not only is entrepreneurship for sustainable development supposed to result in economic success, but sustainable entrepreneurs are prone to handle the “triple bottom line”, a concept stressed by Elkington (1997), that is, to combine social, environmental and economic imperatives in an integrative form (Kuckertz & Wagner, 2010). The Triple-Bottom-Line (TBL) was successful in interpreting the basic elements of sustainability evaluation, which are people, planet and profit. Taking into account these three components in an integrative framework, TBL has presented a new approach on the relationships between economic expansion, the effect of the judicial system on society and environmental concerns, and stressed the significance of longterm objectives (Soto-Acosta et al., 2016). Nevertheless, Kuckertz and Wagner (2010) remarked that the triple bottom line exigencies dare entrepreneurs to envision complex twofold solutions which encompass both community-centric welfare and organization-centric profitability. In this respect, there are numerous examples – such as those suggested by Easterly (2006) - of entrepreneurial action creating financial benefits for shareholders, businessmen, and economies. A multi-level perspective of sustainability transitions was approached by Hörisch (2015), integrating elements of sustainable transformations and development into the research and emphasizing the importance of growth and de-growth in the context of sustainable entrepreneurship. Weaving on the shared research interests of a community of scholars interested in sustainable entrepreneurship, Shepherd and Patzelt (2011) advanced an encompassing definition in this respect: “Sustainable entrepreneurship is concentrated

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on protecting the nature and the communities aiming to find opportunities to create future products, procedures, and services destined for growth, where growth is extensively perceived as encompassing economic and non-economic gains for the people, the economy, and the communities”. In this front, sustainable entrepreneurship entails a higher potential both for society and the environment (Kuckertz and Wagner, 2010). Here, albeit most scholars have studied sustainability and sustainable entrepreneurship from the Western countries standpoint, some steps were made towards approaching the relationships between these phenomena beyond the landscape of developed economies. A study in this respect has been conducted by Choongo et al. (2016), focusing on the factors which influence the identification of sustainable opportunities among SMEs in Zambia. Moreover, especially in the developing countries, such actions are likely to enhance education, productivity, socioeconomic status, physical health, and self-reliance of individuals and societies (Wheeler et al, 2007). Therefore, from a bird’s eye view, the process of sustainability comprehension and handling within markets, governments, and non-profit organizations will pave the way for a stronger, more prosperous, and more harmonious society. The angle of marketing practices Coviello et al. (1997) undertook an extensive review of the wider marketing literature encompassing both the traditional and relational views of marketing. They analyzed and synthesized the literature to develop an integrated conceptual framework that reflects a pluralistic view of marketing practices – the Contemporary Marketing Practices (CMP). At its core, the CMP model is formed of four marketing types: Transaction Marketing (TM), Database Marketing (DM), Interaction Marketing (IM) and Network Marketing (NM). All of them are acknowledged to be complimentary marketing practices and implicit coordinates of an integrative framework revealing diverse empirical phenomena (Brodie, Coviello & Winklhofer, 2008; Hapenciuc et al., 2015). Thus, rather than viewing traditional and relational marketing as mutually exclusive, the researchers suggest that marketing is characterized by multiple complex processes that are manifested in four different approaches to marketing practices. The key point of the framework is that various marketing approaches unfold on a continuum, the authors arguing that any or all of the approaches might be relevant to, or practiced by, an organization at a given time. At the same time, each of these approaches is distinct and can be differentiated by a series of dimensions derived from an extensive review of the literature (Coviello & Brodie, 2001, p.397), as illustrated in Table 1.

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Table 1. Four marketing approaches classified by exchange and managerial dimensions (Coviello & Brodie, 2001, p.387) Criteria Purpose of exchange

Transactional perspective Transaction Database Marketing Marketing Economic Information and transaction economic transaction

Nature of communication

Firm „to” mass market

Type of contact

Arms length, impersonal Discrete, yet perhaps overtime)

Duration of exchange

Firm „to” targeted segment or individuals Personalized (yet distant) Discrete and overtime

Formality in exchange

Formal

Formal (yet personalized via technology)

Managerial intent

Customer attraction Product or brand

Customer retention Product/ brand and customers (in a targeted market) Internal marketing assets (emphasizing communication, information and technology capabilities)

Managerial focus

Managerial investment

Managerial level

Internal marketing assets (focusing on product/ service, price, distribution, promotion capabilities) Functional marketers (e.g. sales manager)

Specialist marketers (e.g. customer service manager, loyalty manager)

Relational perspective Interaction Network Marketing Marketing Interactive Connected relationships relationships between a buyer and between firms a seller Individuals „with” Firms „with” individuals (across firms (involving organizations) individuals) Face-to-face, Impersonal – interpersonal interpersonal Continuous (ongoing Continuous and mutually (stable yet adaptive, may be dynamic, may be short or long term) short or long term) Formal and informal Formal and (i.e. at both business informal (i.e. at and social level) both a business and social level) Interaction Co-ordination Relationships between individuals External market assets (focusing on establishing and developing a relationship with another individual)

Managers from across functions and levels in the firm

Connected relationships between firms (in a network) External market assets (focusing on developing the firm's position in a network of firms) General manager

Transaction marketing (TM) was outlined as making potential customers interested and satisfied through the management of the marketing mix components. It is also acknowledged as handling the communication process “to” clients in the mass market with the goal to create discrete, arms-length transactions. Database marketing (DM) implies the use of database technology in order to shape a relation, hence granting companies to become competitors in a different way from mass transactional marketing. The aim is to keep identified buyers, even though marketing is still “directed” to the client, rather than “connected” to the client. The relation itself is not close or interpersonal and is eased and personalized by database technology (Coviello & Brodie, 2001). By shifting towards the relational perspective, Interaction marketing (IM) involves face-to-face interaction between individuals and is considered to be “connected” with the clients, since both participants in the relationship spend resources in order to

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expand reciprocally advantageous and interpersonal partnerships (Palmer & Wilson, 2009; Brodie, Coviello & Winklhofer, 2008). Analogously, Network marketing (NM) is “connected” with the clients, but takes place within and across organizations – the entrepreneurs assign resources for the development of the company’s position in a network-pattern of different businesslevel relationships (Palmer & Wilson, 2009; Hapenciuc et al., 2015). Via multilevel transactions occurring steadily, the organizational actors embrace an inter-firm approach and practice. Coordination of parties through network marketing may be conducted by the entrepreneurs themselves, general managers or by “part-time” marketers from all areas in the company (Lindgreen, Davis & Brodie, 2000; Brodie, Coviello & Winklhofer, 2008). Taking into account the previous reflections, using the relational CMP tools in exploring the processes of entrepreneurial companies appears to be very relevant because of its elaborated and holistic purpose. Moreover, in line with the present challenges, the discussion of the relational marketing strategies and practices often implies the consideration of sustainability issues, in general, and of sustainable entrepreneurship, in particular. Bridging the gap: sustainability, sustainable entrepreneurship, and relational marketing practices Even though the concept of “sustainability” has received more and more consideration in the specialized literature, limited empirical studies have been deployed about the connections between sustainability and marketing strategies. One of the main reasons may reside in the fact that the relationship between sustainability and the marketing practices finds itself in continuous progress. Placing the market-oriented sustainability framework at the core of their study, Crittenden et al. (2011, p.72) provide a preliminary insight into its scope: The market-oriented sustainability framework compiles the underlying triggers or mechanisms that precipitate sustainable actions that result in a competitive advantage for the firm. Such a framework will enable researchers to explore the underlying market-oriented and generally intangible constructs that precipitate sustainability efforts.

The strategies of interaction marketing and network marketing accentuate the evolution of the relationship between sustainability and these types of marketing, and how they can harmonize one another in order to communicate in a distinctive and original way to various stakeholders. By clearly sending this message, consumers are empowered to make wiser purchasing choices taking into consideration their own values, which assist them in making responsible and sustainable consumption decisions (Andrei et al., 2017b; Vătămănescu, Nistoreanu & Mitan, 2017; Gazzola et al., 2017). Within the development of the relationship between sustainability and interaction and network marketing, it will be captivating to follow which approaches and campaigns specific to interaction or network marketing prove efficiency and longevity, and which new strategies and tactics will take shape in the next years as consumers will turn out to be ever more informed, aware and demanding of all companies.

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Triggered by a more preeminent consciousness of both global concerns and businesses’ capability to find solutions for these issues, the process of embedding sustainability into interaction or network marketing practices can drive an increase in business benefits and also an evolution in a consumer mentality and purchase choice process. Here, IM is prone to help a company to be transparent about all the aspects related to sustainability, covering the environment as well as employees, products, and communities (Vătămănescu, Nistoreanu & Mitan, 2017; Gazzola et al., 2017). On the stakeholder engagement front, interaction marketing can support the company in various ways. For example, the online tools like blogs, newsletters, and news releases can provide regular updates, while an annual sustainability report with updates throughout the year can show the big picture of a company's sustainability efforts. Similarly, NM opens a gate to make information available across the whole company and to negotiate with customers and stakeholders, as a whole (Vătămănescu, Alexandru & Gorgos, 2014; Păduraru et al., 2016; Vătămănescu et al., 2017a; Vătămănescu et al., 2017b). For instance, when using voluntary simplicity/ sustainable consumption as actions to promote sustainable clothing, the network marketer must involve the network of stakeholders involved in the production (e.g. suppliers of raw materials and manufacturers) and consumption (e.g. distributors, retailers, and consumers). Furthermore, other stakeholders can be added to the network, stakeholders that could influence these target audiences, for example, trade unions, governments, international organizations, etc. As previously inferred, the market-oriented sustainability framework gives credit to the interconnections between the two phenomena, namely sustainability and relational marketing practices; nonetheless, the relationship direction is yet to be finally decided all the more so as recent studies have acknowledged its “two-tailed” nature. In this respect, a brief overview on several studies conducted over the past two years, on Romanian samples, is able to bring forward some relevant insights. To start with, Hapenciuc et al.’s (2015) research focused on 104 Romanian start-ups on purpose to “investigate the correlations between sustainable entrepreneurship and the marketing types articulated by the Contemporary Marketing Practices (CMP) research program” (p.938). By hypothesizing that start-ups employing a certain type of CMP are more oriented towards sustainable entrepreneurship, the research showed higher correlations between sustainable entrepreneurship (the people component of TBL) and IM and NM. At this level, the relational marketing practices are considered, to some extent, as precursors of sustainable entrepreneurship. Another study – conducted by Vătămănescu et al. (2016b) - addressed the issue of sustainability within small and medium-sized enterprises (SMEs), by pointing to the importance of capitalizing social networks and to the limitations of the transactional approaches. The study brought evidence that innovation and quality, the technological development and the social networks capitalization positively influence business sustainability – “the main driver of sustainable businesses is the innovation and quality approach that acts as a mediator bridging the firm’s orientation towards technological development and business transactions with sustainable objectives fulfilment, such as long-term profitability, customers’ loyalty, environmental footprint and improvements in community welfare” (p.270). As in Hapenciuc et al.’s (2015) perspective, the current

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research endeavor supported the positive impact of NM – in the form of social networks capitalization – on business sustainability and sustainable entrepreneurship. Concentrated on sustainability in relationship marketing in the industrial field, Păduraru et al.’s (2016) undertaking rely on “an articulated body of research and knowledge on the relational perspective and inter-organizational networks, reflecting the dynamics of industrial markets and supply relationships management” (p.1636). Adopting a dynamic and somehow coalesced vision on relationship marketing and sustainability rather than a definite relationship direction, the authors discuss the role of the entrepreneurs’ traits, attitudes, and behaviors as antecedents of relationship marketing sustainability. Here, the entrepreneurs’ orientations “ have a significant predictive power on the number of partners and business profitability achieved through international partnerships, together contributing to the relationship marketing sustainability” (p.1644). A similar approach was brought to the fore by Soto-Acosta et al.’s (2016) article which assumed and confirmed that sustainable entrepreneurship leads to business performance. Through the lens of SMEs, the research addressed the entrepreneurs’ approaches towards people, planet and profit and on their prioritization within business dynamics. These dimensions were deemed as “important factors engendering business performance in terms of turnover, customer attraction and retention and market share” (p.1). Although the issue of marketing practices was not analyzed as such, the findings supported that sustainable entrepreneurship approaches towards the people and profit dimensions (e.g., building long-term cooperative relationships with partners in our market(s); operating within business networks for achieving tenable economic goals) have a significant positive influence on business performance. As in the previous case, Soto-Acosta et al. (2016) give credit to an integrative perspective in that sustainable entrepreneurship encapsulates IM and NM in its genuine rationale. Assigning the relationship direction from the entrepreneurs’ sustainability orientation towards the relational marketing practices (i.e., IM and NM), the brand-new investigation of Vătămănescu et al. (2017a) showed that “the entrepreneurs’ orientation towards sustainability accounts for almost 35% of variance in interaction marketing practices and 16% of variance in network marketing practices, thus positing a higher influence on the former” (p.1). In this front, business sustainability – objectivized through the entrepreneurs’ overall approach – is considered an antecedent of IM and NM, positing that business philosophy in term of sustainability significantly determines the selection of relational marketing practices. Conclusions Given the aforementioned theoretical avenues, the current paper aimed at exploring recent undertakings regarding the relationship between sustainability, respectively sustainable entrepreneurship, and the relational marketing practices. The focus was on different studies published between 2015 and 2017 which envisioned twofold interconnections between the constructs, termed as “two-tailed relationships” in accordance with their bidirectionality. The scope of the exploratory endeavor was limited to the case of SMEs, as most of the cited researches concentrated on the Romanian business environment from the perspective of start-ups.

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By corroborating the extant literature on the topic, the paper intended to provide an insight into the state of the art. Also, it assumed the relevance of a phenomenological overview all the more so as few studies have approached the two-tailed relationship by placing it within a market-oriented sustainability framework. Subsequently, it aimed to provide an answer to the deficit of preoccupation for the sustainable entrepreneurship in developing or emerging countries which have emerged as prominent over the past years. References Andrei, A.G., Zaiț, A., Vătămănescu, E.-M., & Pînzaru, F. (2017a). Word of mouth generation and brand communication strategy: findings from an experimental study explored with PLS-SEM. Industrial Management & Data Systems, 117(3), 478-495. Andrei, A.G., Gazzola, P., Zbuchea, A., & Alexandru, V.-A. (2017b). Modeling socially responsible consumption and the need for uniqueness: a PLS-SEM approach. Kybernetes, 4, in press. Retrieved from https://doi.org/10.1108/K-03-20170103. Brodie, R., Coviello, N., & Winklhofer, H. (2008). Contemporary marketing practices research program: a review of the first decade. Journal of Business and Industrial Marketing, 23(2), 84-94. Chebeň, J., et al. (2015). Towards Sustainable Marketing: Strategy in Slovak Companies. Amfiteatru Economic, 17(40), 855-871. Choongo, P., Van Burg, E, Paas, L.J., & Masurel, E. (2016). Factors influencing the identification of sustainable opportunities by SMEs: empirical evidence from Zambia. Sustainability, 8(1), 81. Cohen, B., & Winn, M.I. (2007). Market imperfection, opportunity and sustainable entrepreneurship. Journal of Business Venture, 22(1), 29–49. Coviello, N., & Brodie, R. (2001). Contemporary marketing practices of consumer and business-to-business firms: how different are they? Journal of Business and Industrial Marketing, 16(5), 382-400. Dean, T.J., & McMullen, J.S. (2007). Toward a theory of sustainable entrepreneurship: Reducing environmental degradation through entrepreneurial action. Journal of Business Venture, 22(1), 50–76. Easterly, W. (2006). The white man’s burden. Why the West’s efforts to aid the rest have done so much ill and so little good. New York: The Penguin Press. Elkington, J. (1997). Cannibals with forks: The triple bottom line of 21st century business. Gabriola Island: New Society Publishers. Font, X., & McCabe, S. (2017). Sustainability and marketing in tourism: its contexts, paradoxes, approaches, challenges and potential. Journal of Sustainable Tourism, 25(7), 869-883. Gazzola, P., Colombo, G., Pezzetti, R., & Nicolescu, L. (2017). Consumer empowerment in the digital economy: availing sustainable purchasing decisions. Sustainability, 9(5), 693. Gorgos, E.-A., & Vătămănescu, E.-M. (2016). Forecasting consumers’ standpoints on European e-commerce. In Brătianu, C., Zbuchea, A., Pînzaru, F., Leon, R.D., & Vătămănescu, E.-M. (Eds.), Strategica. Opportunities and Risks in the Contemporary Business Environment (pp.359-369). Bucharest: Tritonic.

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Hapenciuc, C.V., Pînzaru, F., Vătămănescu, E.-M., & Stanciu, P. (2015). Converging Sustainable Entrepreneurship and the Contemporary Marketing Practices. An Insight into Romanian Start-Ups. Amfiteatru Economic, 17(40), 938-954. Korobov, S.A., et al. (2017). The substance of a rational approach to entrepreneurship socio-economic development. In Popkova E.G. et al. (Eds.), Integration and Clustering Sustainable Economic Growth, 1st ed. (pp.207-225). Springer International Publishing. Kuckertz, A., & Wagner, M. (2010). The influence of sustainability orientation on entrepreneurial intentions - Investigating the role of business experience. Journal of Business Venture, 25(2010), 524-539. IPCC (2013). Intergovernmental Panel on Climate Change Report. Retrieved from http://www.ipcc.ch/report/ar5/wg1/. Lindgreen, A., Davis, R., Brodie, R.J., & Buchanan-Oliver, M. (2000). Pluralism in contemporary marketing practices. International Journal of Bank Marketing, 18(6), 294-308. Palmer, R., & Wilson, H. (2009). An Exploratory Case Study Analysis of Contemporary Marketing Practices. Journal of Strategic Marketing, 17(2), 169-187. Păduraru, T., Vătămănescu, E.-M., Andrei, A.G., Pînzaru, F., Zbuchea, A., Maha, L.G., & Boldureanu, G. (2016). Sustainability in Relationship Marketing: An Exploratory Model for the Industrial Field. Environmental Engineering and Management Journal, 15(7), 1635-1647. Say, J.B. (2001). A treatise on Political Economy, 7th ed. Ontario: Batoche Books. Shepherd, D., & Patzelt, H. (2011). The new field of sustainable entrepreneurship: studying entrepreneurial action linking “what is to be sustained” with “what is to be developed”. Entrepreneurship Theory and Practice, 35(1), 137-166. Soto-Acosta, P., Cismaru, D.-M., Vătămănescu, E.-M., & Ciochină, R.S. (2016). Sustainable Entrepreneurship in SMEs: A Business Performance Perspective. Sustainability, 8(4), 342. UNEP (2016). Annual Report. Retrieved from http://www.unep.org/annualreport/2016/index.php. Vătămănescu, E.-M., Gazzola, P., Dincă, V.M., & Pezzetti, R. (2017a). Mapping Entrepreneurs’ Orientation towards Sustainability in Interaction versus Network Marketing Practices. Sustainability, 9(9), 1580. Vătămănescu, E.-M., Andrei, A.G., Nicolescu, L., Pînzaru, F., & Zbuchea, A. (2017b). The Influence of Competitiveness on SMEs Internationalization Effectiveness. Online versus Offline Business Networking. Information Systems Management, 34(3), 205-219. Vătămănescu, E.-M., Nistoreanu, B.G., & Mitan, A. (2017). Competition and Consumer Behavior in the Context of the Digital Economy. Amfiteatru Economic, 19(45), 354-366. Vătămănescu, E.-M., Andrei, A.G., Dumitriu, D.-L., & Leovaridis, C. (2016a). Harnessing network-based intellectual capital in online academic networks. From the organizational policies and practices towards competitiveness. Journal of Knowledge Management, 20(3), 594-619. Vătămănescu, E.-M., Pînzaru, F., Andrei, A.G., & Zbuchea, A. (2016b). Investigating SMEs sustainability with partial least squares structural equation modeling. Transformations in Business & Economics (TIBE), 15(3), 259-273. Vătămănescu E.-M., Alexandru, V.-A., & Andrei A.G. (2015). The relational leader. A preliminary framework for corporate intercultural accommodation. In

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Brătianu, C., Zbuchea, A., Pînzaru, F., Vătămănescu, E.-M., & Leon, R.D. (Eds.) (2015). Strategica. Local versus Global (pp.303-312). Bucharest: Tritonic. Vătămănescu, E.-M., Alexandru, V.-A., & Gorgos, E.-A. (2014). The Five Cs Model of Business Internationalization (CMBI) – a preliminary theoretical insight into today’s business internationalization challenges. In Brătianu, C., Zbuchea, A., Pînzaru, F., & Vătămănescu, E.-M. (Eds.), Strategica. Management, Finance, and Ethics (pp.537-558). Bucharest: Tritonic. Wheeler, D., et al. (2007). Creating sustainable local enterprise networks. Sloan Management Review, 47(1), 33–40.

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THE DECISION-MAKING PROCESS BETWEEN SIMPLICITY AND COMPLEXITY. AN EPISTEMOLOGICAL APPROACH TO BUSINESS ADMINISTRATION Marius-Costel EŞI Stefan cel Mare University of Suceava 13 Universitatii Street, 720229 Suceava, RO [email protected] Abstract. This paper aims to analyze in epistemological terms the idea of decisionmaking process as found in the business administration domain. Thus, we consider an epistemological analysis of the ways in which the decision making process is encoded, decrypted and forwarded by decision makers at the level of business organizations. By the epistemological analysis we want to highlight some theoretical and practical approaches on the idea of decision-making process. In those circumstances, the starting point of our work is aimed at the idea that any business organization the decision makers have a relevant role in terms of assuming strategies and implicitly in the decision-making. In other words, the managerial dimension of the business organization overlaps the very dimension of the decision-making processes within it. In our approach we are interested on how such an approach is possible that will try to explain in epistemology terms while making reference to a logical process of the managerial action. We believe that such an attempt may prove to be effective to the extent that a number of issues that can be integrated and validated at economic and social levels in conjunction, of course, with the logical algorithm of the decision-making process are considered. Moreover, the present study aims to examine how the decision making process becomes reality depending on its simple or complex nature. The research methodology envisages on the one hand, a comprehensive analysis of the methods of enunciation and the materialization of the decision-making process, and on the other hand, those which explicit the practical results validated at the business organization level and at socio-economic level. The synthesis of the main ideas that express the concretization of the decision making process within business organizations involves a form of valorization of information by the very logic of action of decision makers (founders / top-managers). Therefore, we will try to provide details and develop at the same time a number of conceptual and theoretical approaches on the subject by relating to the ideas of simplicity and complexity. Keywords: decision-making process, business administration, simplicity, complexity, decision-making reasoning. Introduction The research direction that we take in this approach focuses on what represents or may represent a decision-making process at the business administration level. In other words, we are interested in seeing to what extent we can provide sense and meaning both pragmatic and epistemic in nature to such an idea. At the same time, the direction of research undertaken by us follows an exhaustive analysis of the structuralfunctional dimension of what constitutes a decision-making process. Of course, when

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we talk about decision-making and implicitly about the decision-making process, our analysis focuses on the way in which business organization management is understood, implemented and developed. Moreover, the decisions developed and applied by the decision makers represent nothing else but the quantifiable result in terms of performance, efficiency, yield, profit, etc. For these reasons, we can speak of a (managerial, economic, etc.) decision as an action approach that has emerged from a choice and which has as a goal the assumption and the accomplishment of some (managerial, organizational, etc.) objectives through different specific strategies. A key resource that managers base on their decision making is knowledge. ‘'The results of the strategies implemented by an organization depend on the decisions taken and they depend to a large extent on the knowledge available to the managers. The more knowledgeable they have, the better they will decide on the future strategies.'’ (Bejinaru, 2017; Bejinaru & Iordache, 2011) Starting from the dimension of social and economic reality, we notice that at the level of the business organization the decision-making process can be explained in relation to a series of philosophical (humanistic, moral) and pragmatic hypostases. In these circumstances, we believe that at the level of business organizations, the analysis of such philosophical or pragmatic perspectives concerning the ways to implement a decision-making process must aim at a whole process of re-evaluation and the theoretical/practical re-contextualization of what the strategic thinking is (Bratianu, 2007). In other words, beyond the enunciation and implementation of the decisionmaking process at the level of business organization, and taking into account the idea of antinomy between management and anti-management (Bratianu, 2015, pp.72-103), both the founders and the decision-makers should consider both the pragmatic correspondence between the competition and performance, as well as the specific modalities of action, the deployment of the main activities within the organization. Decision-makers should consider the implementation of knowledge strategies because they are tools of transforming the potential intellectual capital into operational capital, and thus increase organizational performance (Bratianu & Bejinaru, 2017). The concretizing of a decision-making process in the business environment can thus be customized according to how the identity of the organization is built, but also perceived both internally and externally. Perhaps, this is the reason why a decisionmaking process is seen as one that involves “the activities of goal formulation, problem identification, alternatives generation, and evaluation/selection” (Schwenk, 1984, p.11). The imposition of a new paradigm that of the epistemological management within the new economy reveals that any form of strategy adopted in a business must frame a specific algorithm. Thus, the correspondence of the strategies set and assumed by the decision-makers must be in close concordance with the way in which the desirable coordinates of the active value sequences within the business organization are established, i.e. with a decisional logic (Bolisani & Bratianu, 2017; Bratianu et al., 2011). Such a process of pragmatic reassessment at the level of the business organization is to be found in the attempts to epistemologically substantiate what the organization represents as a systemic and dynamic entity. Such an approach represents the way in which a decision-making process is implemented in relation to the organizational profile of the business community. At the same time, the existence of causal relations between the way in which the decision-making process is formulated and what it

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represents in a business organization reflects sine qua non the managers' vision of the purpose and objectives assumed. Therefore, the assumption we are considering is that we claim that the pragmatic approach to the way in which a decision-making process is conceived, formulated and implemented in a business organization is transposed into the epistemic plane through a process of modeling and synthesis of the organizational strategy, taking into account the corporate social responsibility idea (Deetz, 2007). The decision-making process: a strategic reconfiguration of the organization's profile in the business environment As we analyze the two types of (philosophical and pragmatic) perspectives when we look at how to enact and implement a decision-making process, we believe that such reporting should also be achieved on the organizational behavior. We especially refer in this context to the axiological benchmarks adjacent to the organizational performance evaluation criteria. Moreover, the resource optimization and management (material, financial, human) is a relevant aspect of implementing a decision-making process at the business organization level. The decision-making process itself in relation to the strategies assumed by the founders/decision-makers, expresses beyond the desideratum of efficiency itself, a specific picture of how to speak/accept an organizational philosophy, a strategic thinking. The establishing and implementing of such a process represents a stage whereby the responsibility of all employees should be directed in the current society and the social responsibility. In this sense, by the simple method of enunciation of such an idea, its putting into practice proves to be a complex task, given the levels of reality to which it reports. In this context, given mainly the main transformations that are visible at the level of the managerial dimension. It is an attempt to (de)construct an epistemological profile of the current management, but also to relate it to a process of scientific knowledge. In addition, this analysis focuses in particular on the roles and connections between the different levels of reality, namely, the organizational levels, characteristic to the managerial dimensions. Also, in an analysis of such roles and connections between different levels of reality, we believe it necessary to highlight the nature of ethical decisions in business management. Thus, starting from the idea of profitability (the classic sense of success of a business organization) and reaching the idea of benefit in its many forms, we can conclude that an important role in the enactment and implementation of a decisionmaking process is hold by the decision-making logic. Such a decisional logic can only be understood and validated to the extent that the strategic thinking succeeds in passing from a logic of simplicity (with alethic values of truth and false) to a polyvalent logic (where, in addition to the true and false values, there may be others such as: uncertain, possible, necessary, probable, etc.). An example in this sense can be given by the applicability of a decisional logic in game theory (Aplak & Sogut, 2013). Moreover, in a decision-making process, we note that formal conditioning becomes an adequate and necessary indicator in the passage from a level of reality to a different level of reality. Such conditioning expressed in formal language (p→q) or in natural language (in the form "if p, then q") translates in application terms at least one step specific to the decision-making process at the level of business organization. Therefore, the capitalization by the decision-makers of the experiences in relation to a strategic

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thinking corroborated with a whole modeling process (Schwenk, 1985), with a decision-making logic (Scaletti, 2014), a logic of action (Frenkel & Kuruvilla, 2002), we believe that can be the starting point for the quality and success of a business organization. However, beyond the achievement of performance results regarding the implementation of a decision-making process, the literature and practice reveal the fact that in the current business organizations the success is not "guaranteed", taking into account only the application of an action-type logic on a single niche activity. In other words, today's successful businesses are those that make full use of a number of niches and which, at the same time, transcend more places in space and time. The simplicity of the decision-making process itself becomes a complex approach to action. The long tail theory is actually known. “The long tail theory” represents the image of a successful business, especially in the virtual space. To sell a little of everything represents a successful business according to this theory (Anderson, 2006). We notice that the strategic dimension of the actual business development and implicitly of the decision-making process is multilaterally channeled, on various development niches, depending on the possibility of gaining benefits in relation to a series of needs and requirements (Wong & Leow, 2016). Or, the way itself to impose/accept the strategic principles assumed at the level of the higher management presupposes, on the one hand, the existence of principles and standards according to which the decision-making processes are materialized, and, on the other hand, to design a reference model of the development process (Kalpic & Bernus, 2002). It is obvious that even in the case of such business one can speak of a specific dimension of the organizational culture encountered in this situation. It remains to be seen, however, whether the development of such a business on various niches of development can reveal a certain type of (general) organizational culture or several other forms, types of organizational cultures (emerged/formed as a result of the business development on various niches of development). It is a fact that the statement of the organizational mission must be found in the subsequent development of the very business by making full use of the economic niches on which it operates. Therefore, the implementation of specific justifiable strategies in such a decisionmaking process can be correlated in our opinion with the type of business anchored in the entrepreneurial dimension by the very enunciation/content of the organizational mission. From the point of view of the ways to operationalize the objectives resulting from the managerial strategies, and implicitly from the strategic thinking, the decision-making process can be analyzed from both epistemological and pragmatic points of view (in the economic sense). However, we believe that an absolute, gross dissociation between the two dimensions (epistemic and pragmatic) could not be accepted at the theoretical and practical levels. We could rather talk about an approach that allows a conceptual, methodological, theoretical transfer of good practice from one dimension to another. Perhaps this may also be justified by the leap from philosophy to pragmatism, from simplicity to complexity as well as a legitimate connection between such dimensions/approaches. However, we believe that pragmatism should not be confused for practice or applicability, but rather with the functions related to the socioeconomic utility. An example of this is the one that Oghojafor et al. (2011) explains, which shows that we can talk about the successful outcome of a decision-making

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process in terms of achievable, useful, efficient and profitable. Or, such terms can find epistemological and pragmatic explanations by their reporting in time and space. In this respect, we consider that, starting from a pragmatic approach and taking into consideration the concept of organizational knowledge (Nonaka & Takeuchi, 1995), we can set an epistemic connection between decision-making process, knowledge management and knowledge management systems. This kind of relation proves itself more than useful, especially when we take into account the implementation of these two concepts (Tiwana, 2000) within a business organization structural format. Incidentally, in specialized literature and practice, knowledge management is defined as "a source of power to outmaneuver business competitors" (Thierauf, 1999) or like a dynamic and continuous organizational phenomenon that can be found mainly in the business organizations (Alavi & Leidner, 2001, pp.107-136). Therefore, when we speak about knowledge management and knowledge management systems it is required to consider the various studies on the diversity of meanings and significations that these concepts acquire in the business dynamics. We bear in mind that the enunciation and implementation of a decision-making process can be determined, on the one hand, by the historical-philosophical context to which the business organization and its decision-makers relate. On the other hand, such a process of strategic reconfiguration of the business organization profile, which is based on the stability-durability-efficiency triad, should, in our opinion, reveal aspects related to an economic reality regarded as a social project. It is perhaps the moment when the strategic reconfiguration of the organization's profile in the business environment (considering a decision-making logic) must materialize in an age-society of consumerism and continuous transformation. It is the moment when the professionalization of the managerial act has to materialize by remodeling the conceptions and behaviors of all the actors of the business organization and, implicitly, by the continuous re-evaluation of the decision-making process at the level of the business organization. In fact, this initiative is not entirely new at the level of scientific substantiation both theoretically and practically. We have in mind those very exceptional situations where the transformations on the economic market are paramount (crisis situations, economic/social/political reforms, the reorientation/reconfiguration on the market). Such phenomena, more or less unpredictable events at the level of the society have led to a rethinking and reevaluation of the ways of enacting and implementing the decision-making process at a business organization level. The decision-making process as a sequence or as a desirable project in launching and developing a business? A connection between what is a simplistic and complex approach to understanding, enacting and implementing a decision-making process could, in our opinion, be a point of reference in terms of managerial conditioning at the level of a business organization. In this way, taking into account both the epistemic and pragmatic hypotheses involve a reassessment/resizing of the criteria of appreciation of what constitutes the very decision-making process. Such an image reflects the idea of a process of assuming/accepting managerial strategies and, implicitly, organizational philosophy. Under these circumstances, the interrogations which occur concerning the enunciation

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and implementation of a decision-making process at a business organization level can be summarized as follows: (a) Is establishing and implementing a decision-making process at the level of business organizations a mere sequence of business development and deployment? (b) Is the enunciation and implementation of a decision-making process at the level of business organizations a project in itself of how a business is being built and developed, that is, a complex approach? Of course, the answers to both questions can generate more or less relevant issues in the validity process of an argument. We note, though, that no clear line can be drawn between the two "attributes": sequence and project. However, we can conceptually sense the fact that the two "attributes" reflect in a way or another different way of how to operate the very process of the enunciation of an organizational mission. The analysis of the two interpretations is as follows: (a) Is enunciating and implementing a decision-making process at the level of business organizations a mere sequence of the business development and deployment? Thus, by sequence we understand a succession of phenomena/events that form a unit; we can schematically represent what such a unit can include (Figure 1). A number of decision-making units generate the actual implementation of the organizational mission. The mission itself should reflect the intellectual capital of the company and its nonlinear integrators able to transform efficiently the potential intellectual capital into the operational form (Bratianu, 2009; Bratianu, 2011). DECISION-MAKING UNIT E DECISION-MAKING UNIT D DECISION-MAKING UNIT C DECISION-MAKING UNIT B B DECISION-MAKING UNIT A

Establishing and implementing the decision-making process at business organization level Pragmatic approach Epistemic approach

Figure 1. Enunciating and implementing a decision-making process at the level of business organizations on organizational reality levels (Range of decision units) (Author’s own elaboration) Our analysis starts from a simplistic approach, taking into account the idea of an organizational mission perceived as a fundamental component of the philosophy of the business organization (Pearce & Fred, 1987). Thus, we will take for example the PepsiCo Company, whose mission is expressed in the following words: "Our mission is

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to be the world’s premier consumer products company focused on convenient foods and beverages. We seek to produce financial rewards to investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate. And in everything we do, we strive for honesty, fairness and integrity". (http://www.pepsicointernship.ro). Starting from Figure no. 1, we can "decrypt" the content of the organizational mission found at the level of the PepsiCo Company, by identifying the following decision units (Figure 2): - the orientation towards the economic market in the field - "Our mission is to be the world's premier consumer products company ..." - Decision-making unit A - the global orientation - "... in the world ..." - Decision-making unit B - the identification of the market/resource/goods and services niche "... focused on convenient foods and beverages". - Decision-making unit C - the orientation towards stakeholders - "We seek to produce financial rewards to investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate". - Decision-making unit D - the orientation towards values - " And in everything we do we strive for honesty, fairness and integrity" - Decision-making unit E By exemplifying the above, in the case of this company's mission, we could identify more decisional units that make it possible to state and substantiate the decisionmaking process in relation to the idea of an organizational mission. In other words, the realization of the organizational mission is expressed in our opinion in a simplistic way, considering a number of aspects of the social life that can be corroborated with those of a pragmatic nature as they are related to ideas such as: competition, performance and so on. As an explanation of what we have suggested in Figure 1, we argue some aspects that are deductible: (1) some decisional/declarative units of the mission structure of firms have a predominantly philosophical/humanistic character, while other decision-making units are and must be "marked" by economic pragmatism; (2) one or more decision-making units in the structure will form the essence of the decision-making process, while other decision-making units will subsequently have, as they undergo implementation, a relative subsidiary importance (even if the company publicly engages equally to all the decision/declarative units); (3) there is no generally applicable "recipe" and by which the decision-maker can mix or combine philosophical decision-making units with pragmatic ones, namely the essential units with the subsidiary ones (the company situation, the time spent, the education of managers, the social pressure and other similar contexts will impress upon how the mission of different companies materializes). (b) Is the enunciation and implementing of a decision-making process at the level of business organizations a project in itself of how a business is being built and developed, that is, a complex approach? Through project, we understand a calculated effort that an economic decision-maker is doing over time, assuming a risk with the goal of gaining a benefit. Thus, we can appreciate that the statement of the mission is a relevant part of a larger project assumed by the decision-makers (Figure 2).

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Enunciating and implementing a decisionmaking process as a desirable project The enunciation and implementing of the decision-making process as a sequence

Implementation decisionmaking process

Figure 2. The enunciation of the mission of business organizations as a relevant part of a wider project (Author’s own elaboration) The development of a business is a project that anchors the organizational mission in the enunciation and implementation of the decision-making process, taking into account the current economic and social context. The importance given to such a (whole-part) approach expresses the fact that the statement of the mission of business organizations in relation to the idea of a decision-making process implementation process acquires a pragmatic connotation when it has a positive entrepreneurial result (achievement of objectives and implicitly, of the organizational mission itself). In this way, we can state that the enunciation and implementation of a decision-making process is a projection of the way in which the business organization's life is intended to materialize in relation to the mission, objectives and strategies assumed by the decision-makers. In other words, the enunciation and implementation of a decisionmaking process as a managerial project but also as a projection over time is a desirable element in the development of the business organization. We can bring to this end a number of arguments to support such as the above assumptions: (1) A first argument we bring is that any form of content of a decision-making process is a construction based upon the rationale of the existence of the organization and the implications it generates over time; (2) A second argument is that the issue of moral/ethical implications within the organization and that referring to the idea of organizational behavior involves a reconsideration of the specific ways of reconfiguring the decision-making process as such; (3) A third argument is that the retrieved normative (and sometimes even implied) at the managerial level involves a degree of direct conditioning of the information associated with the substantiating the content of a decision-making process. (4) One last argument is that the format of the pragmatic and epistemic implications reveals an administrative as well as operational component in relation to the existing relationships between the top management representatives and the employees. Such arguments that we bring to highlight the (lack of the) need to standardize the formulation and implicitly the decision-making process reveal virtual representations (in an ideological sense) of what constitutes (or could constitute) the strategy of development and growth of an organization. The efficiency of organizational philosophy assumed in a pragmatic way transposes the process of practicability of the strategies assumed on a totally different level of reality. Therefore, the image highlighted in the theoretical and conceptual terms reveals the need for specific “readjustments” and reinterpretations of the communication and action sequences in the managerial plan regarding the necessity of the decision-making process.

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Conclusions and implications The pragmatic and spiritual coordinates (the call to a system of values) of the business organization expresses de facto the intentions of the founders and decision-makers regarding the development / growth of the organization and, implicitly, of the business. However, as shown throughout our research, the decision maker who "projects" the future of the business should take into consideration a managerial balance in assuming an exponential growth in both the turnover and the profitability of the organization. Therefore, it is imperative that the decision maker really knows the concepts utilized to formalize the true image of the business organization. (Steven et al., 2011), eliminating any form of ambiguity that affects the decision-making logic (Eisenberg, 2007). The management with a maximum balance of such a situation is justified by the fact that the emergence of new technologies and the existence of social, political, and economic transformations generate effects whose purposefulness is not always positive. The transformations in recent years both technologically and socially have determined a reshaping of the society and the human relationships. We can notice that at the level of the society there is also a reconfiguration of the axiological criteria. In this way, the decision-making process at the business organization level has undergone a number of transformations in terms of its thinking, enunciation and implementation. We also notice that the ways to initiate and develop a business are totally different in today's society compared to those at least 15-20 years ago. The businesses themselves are described as activities whose development is based, on the one hand on a humanistic approach (the interests of the society come first) and, on the other hand, a purely pragmatic approach (the emphasis is placed on the development of organizations), whereby the staff with a high potential can be attracted. Thus, it is possible that the decision-making process reflects the coordinates on which the organization’s own growth and growth strategy is guided in relation to the (philosophical and/or pragmatic) approach assumed by the decision-makers. Moreover, by taking these aspects into account, the decision-makers (both founders and top managers) try to provide solutions to the realization of objectives that can be corroborated (theoretically, not always practically) with the assumed decision-making process. Under these circumstances, we believe the need for a thinking/elaboration strategy of a decision-making process is considered to be a priori justifying the development of a business. However, such an image expresses the need to reconsider the context in which the thinking, enunciation and implementation of a decisionmaking process takes place, namely the conditions in which it is about to materialize, by reference to the specificity of the way to understand and to have an insight in pragmatic, real terms of how a successful business should be run. Therefore, the decision-making process may reflect the strategy of the organization's own development and growth strategy in relation to the (epistemological and/or pragmatic) approach assumed by the decision-makers.

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References Alavi, M., & Leidner, D.E. (2001). Knowledge Management and Knowledge Management Systems: Conceptual Foundations and Research Issues. MIS Quarterly, 25(1), 107-136. Anderson, C. (2006). The Long Tail: Why the Future of Business is Selling Less of More, New York, NY: Hyperion. Aplak, H.S., & Sogut, M.Z. (2013). Game theory approach in decisional process of energy management for industrial sector. Energy Conversion and Management, 74, 70-80. Bejinaru, R. (2017). Universities in the knowledge economy. Management Dynamics in the Knowledge Economy, 5(2), 251-271. Bejinaru, R., & Iordache, Ş. (2011). Intellectual Capital Dynamics within the Learning Organization. European Conference on Intellectual Capital, 18-19 April 2011, Cipru –Nicosia, 70-77. Bolisani, E., & Bratianu, C. (2017). Knowledge strategy planning: An integrated approach to manage uncertainty, turbulence, and dynamics. Journal of Knowledge Management, 21(2), 233-253. Bratianu, C. (2007). Thinking patterns and knowledge dynamics. In Remenyi, D. (Ed.). Proceedings of the 8th European Conference on Knowledge Management (pp.152156). Bratianu, C. (2009). The frontier of linearity in the intellectual capital metaphor. In Stam, C. (Ed.). Proceedings of the European Conference on Intellectual Capital, Inholland University of Applied Sciences, Haarlem, Netherlands, 28-29 April 2009 (pp.97-103). Reading, UK: Academic Conferences and Publishing International. Bratianu, C. (2011). A new perspective of the intellectual capital dynamics in organizations. In Vallejo-Alonso, B., Rodriguez - Castellanos, A. & Arregui-Ayastuy, G. (Eds.). Identifying, measuring, and valuing knowledge-based intangible assets: new perspectives (pp.1-21). Hershey: IGI Global. Bratianu, C. (2015). Organizational knowledge dynamics: Managing knowledge creation, acquisition, sharing, and transformation. Hershey: IGI Global. Bratianu, C., Agapie, A., & Orzea, I. (2011). Knowledge dynamics modeling using Analytic Hierarchy Process. In Turner, G., & Minnone, C. (Eds.). Proceedings of the 3rd Intellectual Conference on Intellectual Capital, University of Nicosia, Cyprus, 1819 April 2011 (pp.94-102). Reading, UK: Academic Conferences and Publishing International. Bratianu, C., & Bejinaru, R. (2017). Knowledge strategies to increase IC of universities. In Lopes, I.T., & Serrasqueiro, R. (Eds.), Proceedings of the 9th European Conference on Intellectual Capital, Instituto Universitario de Lisboa, Lisbon, Portugal, 6-7 April 2017 (pp.34-41). Reading: Academic Conferences and Publishing International. Deetz, S. (2007). Corporate governance, corporate social responsibility, and communication. In S.May, G. Cheney, & J. Roper (Eds.). The debate over corporate social responsibility (pp.267-278). New York: Oxford University Press. Eisenberg, E.M. (2007). Ambiguity as strategy in organizational communication. In Eisenberg, E.M. (Ed.). Strategic ambiguities: Essays on communication, organization, and identity (pp.3-24). Thousand Oaks, CA: Sage. Frenkel, S., & Kuruvilla S. (2002). Logics of action, globalization, and changing employment relations in China, India, Malaysia, and the Philippines. Industrial and Labor Relations Review, 55(3), 387-412.

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Kalpic, B., & Bernus, P. (2002). Business process modelling in industry - the powerful tool in enterprise management. Computers in Industry, 47(3), 299-318. Nonaka, I., & Takeuchi, H. (1995). The Knowledge-Creating Company: How Japanese Companies Create the Dynamics of Innovation. New York: Oxford University Press. Oghojafor, B.E.A., Olayemi, O.O., Okonji,P.S., & Okolie, J.U. (2011). Enhancing organization's performance through effective vision and mission. Chinese Business Review, 10(11), 1071-1075. Pearce, J.A., & David, F. (1987). Corporate mission statements: The bottom line. Academy of Management Executive, 1(2), 109-116. Scaletti, A. (2014). The evolution of decisional logic in the healthcare system. In J.K. Tan (Eds.), Evaluating investments in health care systems. Springer Briefs in Health Care Management and Economics (pp.1-17). Cham: Springer. Schwenk, C.R. (1984). Cognitive simplification processes in strategic decision-making. Strategic Management Journal, 5(2), 11-128. Schwenk, C.R. (1985). The use of participant recollection in the modelling of organizational decision processes. Academy of Management Review, 10(3), 496503. Steven, C.H., Wheeler, A., DeWolf, J., & Brodkep, M. (2011). Mission, vision, and values: What do they say?. Management Faculty Publications. 29(1), 76. Thierauf, R.J. (1999). Knowledge Management Systems for Business. Westport, CT: Quorum Books. Tiwana, A. (2000). The Knowledge Management Toolkit: Practical Techniques for Building a Knowledge Management System Upper Saddle River, NJ: Prentice Hall. Wong, W.J., & Leow, C.S. (2016). The relationship of corporate social responsibility and employee retention. International Journal of Economics, Commerce and Management, IV(10), 911-921. Website http://www.pepsicointernship.ro/about-us/mission-and-vision/?lang=ro

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BUSINESS AND ENTREPRENEURSHIP. MUTATIONS AND STRUCTURAL CHANGES DUE TO THE TRANSITION TO KNOWLEDGE ECONOMY Oana-Georgiana CIOBANU “Ștefan cel Mare” University of Suceava 13 Universitatii Street, 720229 Suceava, RO [email protected] Daniela NEAMȚU “Ștefan cel Mare” University of Suceava 13 Universitatii Street, 720229 Suceava, RO [email protected] Abstract. A booming subject in the current socio-economic context is the "knowledge" issue. Along with the evolution of the society and of the knowledge economy, the business environment and the organizations also underwent structural changes. The 1960s, 1970s and even 1980s was characterized by major economic changes. It was the period Schumpeter called as a period of "creative destruction" in which the new technologies have gained ground, replacing industrial bases. This scientific approach is complementary to other work in the economic field and aims at a multidisciplinary approach in order to travel the trajectory of society, but especially of the economy, of the business environment and of the company with all its specific sub-assemblies, in the context of change and conversion from the informational specific to the one based on knowledge, dominated by the new technologies and innovations, in particular pursuing the industrial revolution trajectory from Industry 1.0 to Industry 4.0. The present paper aims to make a temporal incursion and a dynamic analysis of the stages that have been made in the last years in the literature regarding the subject proposed for research. In this context, the temporal incursions of the business environment in the global context are presented, from the First Industrial Revolution to the present, when we are faced with the Fourth Industrial Revolution, along with the changes brought by these transformations in the form of entrepreneurship, organization, and resources, as well as the changes that the local and the global administrative bodies should adopt in order to keep up with societal changes. Keywords: entrepreneurship; knowledge; business environment; knowledge economy; the new technologies. Introduction More and more common in literature and in scientific circles there are concepts that derive from the „knowledge economy”, such as the „knowledge society”, the „enterprise of knowledge”. Syntaxes such as the "information society", "intelligent enterprise" etc. also join them. If, three or four decades ago, these terms were used only by researchers, analysts, or found in academic writings, and seemed to be visionary and bold aspects, now their transformations and applicability in practice

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began to materialize by capturing an outline and enveloping normality. The natural question came to meet the contextual changes, namely whether the need to create a "knowledge society" in particular is reasonable, given that history and anthropology have taught us that since ancient times, all societies were perhaps each in their own way, knowledge-based societies? The current spread of new technologies and the emergence of the internet as a public network seem to be a chisel that carries new opportunities to broaden this forum to the public. Could now be the time to have the means to achieve equal and universal access to knowledge and equidistant sharing? This should be the cornerstone of genuine knowledge-based societies that are a sustainable source of human development. Currently, as a result of the in-depth integration of national economies following the globalization process, fueled more and more by the engine generated by the ever-increasing revolutionary advances in information technology (IT) breakthroughs, the demand for information, the provision of knowledge following their processing, and their increasingly diverse application areas have become a necessity and have led to major changes in terms of challenges as well as opportunities for both emerging and developed countries. In order to keep up with the transformations induced by the new trend and to effectively create and sustain a knowledge economy, the countries, the companies around the world and the society all need to become competitive at the level of knowledge (Shibata, 2006). Fundamental concepts related to entrepreneurship and business The development and dynamics of any society, economy, or organization require actors at a micro level - individuals - who have the ability and persistence of making the change. Institutions, as well as market and organizational structures, do not create a change in the absence of human actors. It is about unique knowledge, perceptions and the goals of the human beings that are endowed with the ability to take action accordingly, which initiates novelty. For such entrepreneurial initiatives to have a lasting impact, they need to be value-creating. The question is in this case, how should these people, who undertake entrepreneurial activities, be characterized, and how should these entrepreneurial activities be defined? Richard Cantillon was the first economist to use the term "entrepreneur" in his paper called Essai sur Nature de Commerce en Général (1755/1999). In his conception, the entrepreneur had three meanings: the capitalist landowner, the entrepreneur he called the referee and the paid manager (Tanţău, 2011). A bold approach to entrepreneurship is met at Kent et al. (1982) in the Encyclopedia of Entrepreneurship: "The launch of new products and technologies that better meet the consumer's demands and increase productivity has been the most prominent force in the entire long and thorny history of man's ascension from underdevelopment to prosperity "(Vaduva, 2004). This definition brings entrepreneurship to one of the most important positions of society, from which one can easily observe the scale and contribution it has in the development of a region or community. Theoretical definitions of entrepreneurs include a wide and varied range of nuances. For example, Wennekers and Thurik (1999) mention 13 different definitions, while

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Glancey and McQuaig (2000) limit their enumeration to five. Most contemporary entrepreneurial theories are based on the contributions initiated either by Schumpeter (1911), Knight (1921) or Kirzner (1973). Joseph Schumpeter emphasizes the role of innovation in addressing the entrepreneurial activity. His analysis puts the economy in the context of a temporary general equilibrium and focuses on the market as a dynamic process driven by "creative destruction". In his vision, the entrepreneur determines the emergence of some industries, leading to major structural changes in the economy. Indeed, Kirzner treats the role of innovation in entrepreneurship by insisting on its "coordinating" rather than "destructive" character, that is, innovative as it appears in Schumpeter. "The entrepreneur represents any new or already existing entity that offers a new product or service or develops and applies new methods in order to produce and distribute the already existing goods and services at a lower price" (William, Baumol, Litan & Schramm, 2009). French economist Jean Baptiste Say said of entrepreneurship that "it refers to a manifesto and a proclamation of disagreement: the entrepreneur overturns and disorganizes." All economists who wrote about entrepreneurship, however, agreed that the core of entrepreneurial activity is judgment, reason, and therefore awareness of actions to be taken (Casson, 2000). Entrepreneurs should develop new ways of thinking and an adequate understanding of knowledge and intellectual capital (Bratianu, 2007; Bratianu, 2009; Bratianu, 2010). The current context of the entrepreneur in relation to the knowledge era and new technologies That knowledge plays an important role in the economy is not a new idea or finding. Technologies have always been underpinned by knowledge, but an economy run on knowledge is characterized by a critical role for information and communication technology (ICT), a high proportion of knowledge-intensive activity and intangible capital that amounts to more than tangible capital in the economy’s capital stock (Atkinson & Court, 1998; Foray, 2004). Wealth creation increasingly depends on the generation and exploitation of knowledge involving not only science and technology but also knowledge of practice required to create economic value (Gibbons et al., 1994). Today, we witness together to a new revolution, that this time completely destabilizes and restructures everything that was known about the entrepreneur, the business environment, and entrepreneurship. The Internet era has progressed amazingly and passed itself through some evolutionary stages, its own "Toffler" waves. The first Wave of the Internet focused on the establishment of the infrastructure and foundation of the online world. The second wave of the Internet occurred at the beginning of the 21st century in time for hyper-utilization of the window "dot com" up to closing - the first important event of eradication from the Internet age. Many entrepreneurs and investors have lost fortunes. But those who resisted were given a lesson regarding how

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to lead the new round of innovation on the Internet. The second wave included building based on the internet. The third wave is when the Internet ceases to belong to Internet service companies. It's when products need the internet, even if it does not define them. Entrepreneurs of this era will question the largest industries in the world and those that most affect our daily lives. They will restructure the health system and re-enter the education system, create products and services to ensure that food is healthier and that transport is done in a simpler way. But as this new generation of entrepreneurs succeeds, the methods used so far are not enough, but continuous development and systematization based on the consolidation brought about by the knowledge era are needed (Case, 2017). The New Technologies and the Fourth Industrial Revolution (4.0 Industry) Recent advances in technology, particularly in the communications and information sectors, are revolutionary both for the environment and nature and for the economy. In this way, information and knowledge are spreading quantitatively and becoming accessible. Also, the new technologies tend to use new economic relations in qualitative terms, to the detriment of the quantitative one, which results, from the saving of resources to the individualization and specialization of production and consumption. The chain reaction has the effect of conserving resources and increasing the role of the consumer. However, we must point out that these changes in technology may be the most important reason for the increasing and strengthening the entrepreneurial opportunities that are more numerous at the end of the 20th century and the beginning of the 21st century. These new technologies have the potential to generate new goods and services and thus create new firms. The new technologies have reduced transaction costs and lowered the threshold of minimum efficiency in many areas. This fact stimulated the SME sector, who had little chance in front of the big corporations so far, but it may be too early to determine whether current technologies will have similar results to those achieved by technologies implemented after the first two industrial revolutions (Văduva, 2004). The ability of a society to increase wealth and well-being over time directly depends on its potential to develop, exploit and diffuse knowledge, thereby influencing growth. The most pronounced developments in human history have been preceded by nonlinear periods, discontinuities or barriers augmented by knowledge and technical progress. Figure 1 shows the 4 industrial revolutions that have taken place over time.

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Figure 1. The four industrial revolutions (adaptation after the German Research Center for Artificial Intelligence – DFKI, 2011)

More than the revolutions that preceded it, the Fourth Industrial Revolution has the potential to raise global income levels and improve the quality of life for the population around the world. So far, those who have benefited most from it have been those consumers that have capital, who can afford access to the digital world; technology has made it possible to create products and services that aim at increasing the efficiency and well-being of our personal lives. From ordering a taxi to booking a flight, purchasing a product, making a payment, and working from anywhere in the world, videoconferencing between foreign business partners, any of these can now be made remotely. Impact of industry 4.0 on the business environment A key trend is the development of technology-based platforms that combine both demand and supply in order to change the existing industry structures such as "on demand" savings or exchange savings. These technology platforms, easy to use both on the phone or tablet, combine people, assets, and data, creating new ways of consumption. In addition, they reduce the barriers to creating wealth for businesses and individuals, while changing the personal and professional environment of workers. These new forms of platform-based business are rapidly multiplying into even more new services, adjacent to the base one. In Table 1 we can see a comparison of the business environment characteristics in the context of the industrial era versus the knowledge era.

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Table 1. Comparisons and benchmarks of the business environment in the industrial era versus the era of knowledge (Nicolescu & Nicolescu, 2005) Features of the business environment: Industrial Era * Protected markets, monopolies Focus on the capital in technicalmaterial and financial assets

Knowledge Era** Globalization, international competition Focusing on capital represented by human resources and knowledge

Rigorous, hierarchical organizations Savings at national scale, large factories Mass production Creating wealth, with profit being the main motivation

Flexible organizations Flexibility in production, savings on a global scale Personalization and localization Distributing wealth, corporate responsibility

Routine based environment

Innovation-based environment

Note: * Based and consolidated on the first three industrial revolutions ** In development and consolidation today Overall, there are four main effects that the last industrial revolution has on business, namely: changes in customer expectations, development of "accessory products" and services related to the mother business, the promotion of collaborative innovation and changes in the organizational form of an enterprise. Whether it's consumers or producers, customers are becoming more and more in the epicenter of the economy, which is more and more concerned with the way they are served. Both products and services, more than ever, can now be enhanced with the help of digitization, which also increases their value. New technologies make the goods more durable and more resilient, based on the data and analyzes of how they are maintained. A world of customer experience, data-based services, and performance metrics rendered through analysis, also require changes in collaborative forms that take into account the speed at which innovation and creative destruction occur. Change Factors in the 4.0 Industry The World Economic Forum International Organization developed and led in 2015 and published in 2016 a study entitled "The Future of Jobs" which sought to understand the impact of current and future key transformations produced at the level of companies and economies in employment levels, skill sets and worker recruitment patterns across industries and countries. According to the developed study, there are several demographic and socio-economic factors and of a technological nature, which influence these transformations and contribute to the structural changes of the industrial and business domains and can be traced in Figures 2 a, b.

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Figure 2a. Factors contributing to the structural changes of the business environment in Industry 4.0 - Demographic and socio-economic (adaptation after the World Economic Forum, The future of Jobs, 2016)

Figure 2b. Factors of change, Technology (adaptation after the World Economic Forum, The future of Jobs, 2016)

The classification is made according to the share resulting from the answers in the study and represents the trends, which the representatives of large companies expect to be created in the next period up to 2020. With the emergence of the global interconnection platforms, of new business areas, and some business models tailored to the new context, it appears that talent, skills and capabilities, culture and the forms of organization at the level of the business environment, at the level of companies and even at the level of the individual will have to be rethought and restructured. Figure 3 shows the development directions on temporal sections, until 2020, based on the change factors impacting on the knowledge revolution (Industry 4.0) according to the World Economic Forum (WEF, 2016). In general, the inexorable transition from simple digitization (the third industrial revolution) to technology-based innovation (the fourth industrial revolution) forces companies to rethink the way they do business. However, the fundamentals remain the same: business leaders and executives need to understand the changing environment, to face the assumptions by which their working teams are redefined and constantly and continually rely on innovation.

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Figure 3. Directions of temporal development of new business models in the knowledge revolution (adaptation after the World Economic Forum, The future of Jobs, 2016)

Variations and reflections of the company in the context of the business environment of knowledge Technology-based firms have an innovative role in the emerging economy of knowledge, especially at international level. Indeed, the efficient use of technological innovation is considered to be a prerequisite for business survival. It has long been recognized that technology-based entrepreneurship is important for economic growth and it has been noticed that an international focus is needed on businesses that have access to international markets. Against this background, it was realized that business development and assistance programs should allow businesses to take advantage of innovative global technologies (OECD, 2005). Significant opportunities are present for companies through the adoption of new technologies that must remain the awareness of the barriers interfered with by their applying and implementation, and this has led the academic environment to focus on adoption factors (Parasuraman, 2000). In fact, there was a tiny link between the determinants of adopting new business technologies and the expected outcomes such as innovation, except for the sectors based on development research. Growth and development of businesses through incremental models or the development of new revenue in relation to Industry 4.0 Regarding the growth and development of a business, two of the most important requirements are business operations and business growth. The organizations focused on the first condition can use the technologies brought by the Industry 4.0 primarily to improve productivity and reduce risks, while those focused on growth can apply and implement new technologies in order to build incremental growth or generate new forms of revenue.

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Table 4 illustrates the transformation processes required especially for the goods industry but can also be adapted to the service industry. These strategic objectives can be pursued at different stages of the productive chain as well as in combination with each other. Technology-based firms with an over-average absorption capacity tend to present experience, knowledge, and a skill base, in order to create new knowledge and adopt exchange processes (Cohen & Levinthal, 1990; Zahra & George, 2002). An approach, close to technology-based companies, is reflected through the technology transfer policies, innovation diffusion, technology clusters, business incubators from university centers, collaborations and business partnerships with the academic environment, thus creating the technological concept of business. According to analyzes conducted by the Deloitte consulting company, the changes brought by the Industry 4.0 related to business growth are linked to two components of the productive chain. On the one hand, companies can develop new offers or enhance the breadth of existing ones through research and development (CD) of advanced materials and specialized products. On the other hand, digital technologies allow companies to interact with customer preferences and to personalize their products, expand them with information and services in a way that allows them to charge additional costs and sometimes increase prices, or develop new business models as outlined in Table 5. Table 4. The structural transformations brought by Industry 4.0 at the business level (adaptation after the Deloitte analysis) The structural transformations brought about The produced impact Key objectives Transformations produced  Production Improving production  Supply chain planning Risks Reducing Business operations Grow Generating new revenue Business Growth

 

Research and Development Smart products services

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The produced impact

Increasing additional revenue

Generating new revenue

Key objectives and transformations produced for business growth in 4.0 Industry

Research&Development

Smart products and services

Necessary transformations and their description Additional production section for testing new goods and services Advanced analysis processes for material selection 4D printing to create advanced materials Developing smart products and services for explicit domain applications Providing data services to increase existing revenue Building new revenue models, geared to integrating customers into operations

Turning to the native knowledge resources, analyzing the work of Professor Nicolescu O. in 2005, we can observe in Table 6 some specific characteristics of knowledge-based firms. We note the similarity that parallels previous knowledge studies and current ones, regarding development trends among businesses. Table 6. Characteristics of knowledge-based company (Nicolescu & Nicolescu, 2005) No. crt. 1 2 3 4

5

6 7

8

Characteristics Restructuring by reducing the size of physical assets, the activities performed, and the number of employees and the development of the internal knowledge base and expanding relationships with partners such as suppliers or external experts. Outsourcing the activities that hinder business productivity and internalization of those who are closely related to the process of developing the essential knowledge for the organization. Reforming external human resources relationships in the sense of collaborating with specialized firms or independent persons for those activities such as organizational maintenance or functional activities. The basis for strategic development will be to expand both in depth and in the broad the knowledge of the organization in order to reach a point where it will able to produce its own knowledge and recognize the opportunities through which this knowledge can be produced. The organizational chart of the company is also restructured from hierarchical to models similar to the cognitive human model, which contains semi-autonomous structures, with an emphasis on experts that make room for organizational and individual resources for lifelong learning structures. Efficiency and effectiveness are given by team structures in which cohesion is enhanced and collaboration is diminished. With the downsizing of hierarchical levels in a company, the need for inferior and intermediate hierarchical managers is also diminishing, and there is a growing need to include "knowledge" managers, who are usually at first-stage collaborators or consultants on the issue of change within the organization. Modeling the company's managerial and economic goals to focus on the value of knowledge.

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Channeling investments towards the formation and training processes for the external workforce in order to replace one’s own staff that does not progress and does not integrate. Restricting investment funds in training peripheral staff does not directly contribute to the transformation of the firm Designing a new incentive model for employees based on their performance and merit for all company personnel, increasing the method of rewarding peripheral staff for individually produced results, the concurrent use of rewarding methods for the performance both globally, in groups, or individually, of promoting staff both internally and externally on a large scale. Developing an open culture, involving both customers and suppliers, to make decisionmaking more effective. Practicing partnerships and collaborations with other companies to exchange experience and cost efficiencies. Removing barriers between different categories of human resources, between working from home or working in the company Paying a major focus on the acquisition, use, protection, and valorisation of intellectual capital.

In the not too distant future, however, technological innovation will also bring a miracle of supply chains, with long-term gains and with serious implications in terms of efficiency and productivity. Transport and communication costs are shrinking, logistics and global supply chains are becoming more and more effective, and the cost of the trade is diminishing, all of which will open up new markets and stimulate economic growth. At the same time, however, as economists Erik Brynjolfsson and Andrew McAfee have pointed out, the revolution could lead to an even greater inequality, especially through its potential to disrupt labor markets if it is not properly regulated from the outset. Since the form of robotization and automation tends to replace labor throughout the economy, replacing people with cars could exacerbate the gap between capital and unemployment figures. On the other hand, it is also possible that worker substitution by technology results in a net increase in safe and rewarding jobs. Conclusions The application of knowledge, manifested in entrepreneurship and innovation, research and development, is one of the main sources of growth in the world economy. It can be said that data is the core of the knowledge society; the information refer to its description, definition or perspective, and answer the questions what, who, when, where; knowledge includes strategies, practices, methods or approaches and answers the question how; and wisdom completes the picture of knowledge and includes principles, judgments, ethics, or archetypes answering the question why. Now, at the beginning of the fourth industrial revolution, the developments in some previously less-developed areas, such as artificial intelligence and machine programming, robotics, nanotechnology, 3D and even 4D printing, genetics and biotechnology, are brought under the spotlight, consolidated and developed together. Intelligent home systems, factories, farms or entire cities will support tackling all issues, from the supply chain management to the climate change.

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Concomitantly with these technological revolutions, the socio-economic, the geopolitical and the demographic developments also materialize, and each link in the chain interacts in several directions and intensifies the other. While these changes bring a promise for future prosperity, the reconfiguration of economic areas and economic activities, and the restructuring and job creation in the new system, they still present major challenges that require proactive adaptation by corporations, governments, societies, and individuals. In this context, existing industries are adapting and new ones are born. Many occupations will thus undergo fundamental transformations. Together, the technological, the socio-economic, the geopolitical and the demographic developments and interactions between them will generate new categories of occupations and jobs that will partially or even totally replace the existing ones. Neither technology nor the creative destruction that comes with it is an exogenous force over which control cannot be exercised. Mankind is responsible for guiding its evolution through the decisions taken daily, both as citizens, consumers or investors. Thus, there is the obligation but also the right to take advantage of the opportunity and power brought about by this newly created context and to lead it towards a future that reflects common goals and values. In order to do this, we need to develop a comprehensive and world-wide picture of how technology affects life and remodels the economic, social, cultural and human environments. There has never been a more promising but at the same time more dangerous time. However, current decision makers are too often trapped in the traditional linear thinking, or too absorbed by the multiple crises that require their attention to think strategically about the disruptive forces and the innovation that supports the modeling of our future. References Atkinson, R.D., & Court, R.H. (1998). The New Economy Index: Understanding America’s Economic Transformation. Progressive Policy Institute Technology, Innovation, and New Economy Project, Washington DC. Baumol, W.J., Litan, R.E., & Schramm, C.J. (2009). Good Capitalism, Bad Capitalism and the Economics of Growth and Prosperity. Library of Congress Cataloging, USA. Bratianu, C. (2007). Thinking patterns and knowledge dynamics. In Remenyi, D. (Ed.), Proceedings of the 8th European Conference on Knowledge Management, (pp.152156). Consorci Escola Industrial, Barcelona, Spain, 6-7 September 2007. Bratianu, C. (2009). The frontier of linearity in the intellectual capital metaphor. In Stam, C. (Ed.), Proceedings of the European Conference on Intellectual Capital (pp. 97-103). Inholland University of Applied Sciences, Haarlem, Netherlands, 28-29 April 2009. Bratianu, C. (2010). A critical analysis of Nonaka’s model of knowledge dynamics. In Rodigues, S. (Ed.), Proceedings of the 2nd European Conference on Intellectual Capital (pp.115-120), ISCTE Lisbon University Institute, Polytechnic Institute of Leiria, Portugal, 29-30 March 2010. Brynjolfsson, E., & McAfee, A. (2016). The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies. Retrieved from

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https://www.amazon.com/The-Second-Machine-AgeTechnologies/dp/0393239357. Cantillon, R. (1755/1999). Essai sur la Nature du Commerce en Général. Retrieved from http://oll.libertyfund.org/titles/cantillon-essai-sur-la-nature-du-commerce-engeneral-7. Tanțău, A.D. (2011). Entrepreneurship Gândește inovator și pragmatic [Think innovative and pragmatic]. Bucharest: C.H. Beck. Case, S. (2017). Al treilea val. Viitorul în viziunea antreprenorului [Third wave. The future in the entrepreneur's vision]. Bucharest: Niculescu Publishing. Casson, M. (1997). Information and Organization: A New Perspective on the Theory of the Firm. Oxford: Clarendon Press. Casson, M. (2000). An Entrepreneurial Theory of the Firm, in Nicolai J. Foss and Volker Mahnke (Eds.), Competence, Governance and Entrepreneurship: Advances in Economic Strategy Research (pp.116-145). Oxford: Oxford University Press. Cohen, W.M., & Levinthal, D.A. (1990). Absorptive Capacity: A New Perspective on Learning and Innovation. Administrative Sciences Quarterly, 35(1), 128-152. Drucker, P. (1969). The Age of Discontinuity; Guidelines to Our Changing Society. New York: Harper and Row. Drucker, P. (1993). Post-Capitalist Society. Oxford: Butterworth Heinemann. Drucker, P. (1999). Societatea post-capitalistă [Post-capitalist society]. Bucharest: Image Publishing House. Foray, D. (2004). The Economics of Knowledge. Cambridge, MA: MIT Press. Glancy, K.S., & McQuaig, R.W. (2000). Entrepreneurial Economics. New York: Palgrave. Gibbons, M., Limoges, C., Nowotny, H., Schwartzman, S., Scott, P., & Trow, M. (1994). The New Production of Knowledge: The Dynamics of Science and Research in Contemporary Societies. London: Sage. Kahneman, D. (2011). Thinking, fast and slow. New York: Farrar, Straus and Giroux. Kent, C.A., Sexton, D.L., & Vesper, K.H. (1982). Encyclopedia of Entrepreneurship. Retrieved from https://www.researchgate.net/publication/228314999_Encyclopedia_of_Entre preneurship. King, G., Keohane, R., & Verba, S. (2000). Fundamentele cercetării sociale [The fundaments of social research]. Bucharest: Polirom. Kirzner, I.M. (1973). Competition & Entrepreneurship. Chicago: University of Chicago Press. Nanoka, I., & Takeuchi, H. (1995). The Knowledge creating company. New York: Oxford University Press. Nicolescu, O., & Nicolescu, L. (2005). Economia, firma și managementul bazate pe cunoștințe [Economics, business and knowledge-based management]. Bucharest: Economica Publishing. OECD (1996). Head of Publications Service. Paris: OECD. Parasuraman, A. (2000). Technology Readiness Index a Multiple-Item Scale to Measure Readiness to Embrace New Technologies. Journal of Service Research, 2(4), 307357. Schumpeter, J.A. (1939). Business Cycles: A theoretical, historical and statistical analysis of the Capitalism process. New York – Toronto - London: McGraw-Hill. Shibata, T. (2006). JAPAN Moving Toward a More Advanced Knowledge Economy, Assessment and Lessons, Volume 1.

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Smith, A. (1776). An Inquiry into the Nature and Causes of the Wealth of Nations. Retrieved from https://eet.pixelonline.org/files/etranslation/original/The%20Wealth%20of%20Nations.pdf. Văduva, S. (2004). Antreprenoriatul. Practici aplicative în România și în alte țări de tranziție [Entrepreneurship. Applying practices in Romania and other transition countries]. Bucharest: Economica Publishing House. Wennekers, S., & Thurik, R. (1999). Linking Entrepreneurship and Economic Growth. Small Business Economics, 13(1), 27-55. World Economic Forum (2015). The future of Jobs. Employment, Skills and Workforce Strategy for the Fourth Industrial Revolution. Retrieved from http://www3.weforum.org/docs/WEF_Future_of_Jobs.pdf. Zahra, S.A., & George, G. (2002). Absorptive capacity: A review, reconceptualisation, and extension. Academy of Management Review, 27(2), 185-203.

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INTERNATIONAL MIGRATION WITHIN THE EU AND ITS IMPACT ON THE KNOWLEDGE ECONOMY DEVELOPMENT Dana-Mihaela NEAMTU “Stefan cel Mare” University of Suceava 13 Universitatii Street, 720229 Suceava, RO [email protected] Ruxandra BEJINARU “Stefan cel Mare” University of Suceava 13 Universitatii Street, 720229 Suceava, RO [email protected] Abstract. The number of migrants has increased rapidly in the past few years due to various causes: job opportunities, labor shortages resulting from falling birth rates, internal conflict and war, natural disasters, climate change, and improved access to information through phone and the Internet. This phenomenon can be an opportunity for development because it is a factor of human and economic change and also because it allows people to achieve their aspirations. This paper provides a comprehensive picture of emigration, immigration, and remittance flows for European countries and territories, drawing on authoritative, publicly available data. The study was based on the experience of the authors in the areas addressed and was carried out through a rigorous analysis of the trends in the field of migration. International migration is a reality that will continue to exist as long as there are welfare and development disparities between different regions of the world, as there will be economic, political and social problems. In order to achieve this, we have analyzed data collected from various sources, including national censuses, labor force surveys, and population registers. Within the paper, we also approach some perspectives regarding the interaction between the phenomena of migration and features of the knowledge economy. Another section of the paper argues the effects of migration at the family-community level, presenting the negative influence of migration on the demographic structure and the positive influence in terms of economic and developmental aspects. In addition, for each country and regional grouping from the World Bank’s World Development Indicators (World Bank 2015), it provides selected socioeconomic characteristics such as population, labor force, agedependency ratio, gross national income per capita, and poverty headcount. Keywords: knowledge economy; international migration; emigrant; immigrant; migratory flows; economic development. Introduction The phenomena of globalization and technological revolutions transform the contemporary economy into what is called the “knowledge economy”. Within the context of this “knowledge economy”, there are being targeted new requirements for organizations and employees in the world of business, ‘demanding the rapid development of skills, solid knowledge and greater responsibility’. The global society thus transforms itself becoming a learning society, adapting to the new, and in this

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context ‘educational systems must aim at the formation of people able to contribute to the development of their own competencies, to integrate fully in the socio-cultural context in which they live’ (Hadad, 2017, pp.203-204). Knowledge economy or knowledge-based economy has been defined by OECD (1996, p. 7) as follows: “knowledge-based economies are directly based on the production, distribution, and use of knowledge and information”. In the knowledge economy, people who possess, use and transfer knowledge are important. That is why people, knowledge, and technology need to be integrated and synergized to facilitate the enhancement of added value at the level of the organization, local community and/or macroeconomic level (Bejinaru & Hapenciuc, 2016; Hadad, 2017; Hapenciuc et al., 2016). Unlike tangible resources, knowledge is intangible and is characterized by different features. By processing knowledge is transformed into intellectual capital, which is highly nonlinear (Bratianu, 2009; Bratianu, 2010). Migration is the phenomenon that has accompanied the human being throughout life, people looking for places suitable for living, being recognized in history as the main mechanism that has led to the development of today's human society. Nowadays, the concept of migration is different from the point of view of the factors that determine it, but the main reason for migration remains welfare. In the European Union, the free movement of workers was one of the first rights granted to citizens by Community law. However, the Member States of the European Union have faced specific migration situations by adopting different policy positions on the migration phenomenon. Migration and economic development Lately, there has been a particular concern in the optimism and general interest of remarkable rebirth of migration and development issues by decision-makers and scientists. Thus, after decades of pessimism and concerns about brain drain, governments in their countries of origin have put renewed hopes on targeted and trans-national migrants. In the opinion of the authors Jones (1998), Kapur (2003), Ratha (2003) the diasporas are often regarded by potential investors and development actors, more effective tools for income distribution, poverty reduction, and economic growth. Scientific debates on migration have tended to separate the causes of development (determinants) and the effects (impact) of artificial migration from the more general processes of social and economic change. The neo-classical migration theory perceives migration as a form of optimal allocation of production factors to the benefit of both countries. In this perspective of balanced growth, the reallocation of labor from rural, agricultural to urban, industrial sectors (inside or outside borders) is considered as a prerequisite for economic growth and therefore as a constituent part of the whole process development (Todaro, 1969). In the same vein, this neo-classical theory tends to see migrants as atomized individuals of maximum utility and not to consider other migratory motives such as belonging to social groups such as households, families, and communities. These ‘stakeholders’ expect them not to bring back just money, but also new entrepreneurial ideas, knowledge, and attitudes. In this sense, migrants played a positive role in socio-

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economic development by contributing to the accelerated spatial dissemination of modernization in developing countries. Also, remittances have played an important role in stimulating economic growth (Massey et al., 1998). In his review, Lipton (1980, p.12) concluded that beneficiaries use remittances in the first place to pay their debts contracted in the field of financing migration or to educate their children. Findings from empirical studies are clearly contradictory. In some cases, migration has a positive effect on the different dimensions of economic and social development but in other cases, it seems to have no effect or even negative effects. Structural constraints, such as unequal access to employment, markets, education and power, matter in the everyday lives of many people in poor countries, and drastically limit their ability to overcome poverty and underdevelopment. The interaction migration-development in knowledge economy Starting from this perspective and analyzing the changes brought about by the Industrial Revolution, the Productivity Revolution, and the Managerial Revolution, Drucker considered at the time that the definition of knowledge was based on information as a vector of the process towards results. "These results are seen outside the person with a role in society and economy or in promoting knowledge itself" (Drucker, 1999, p.39). Knowledge has always been perceived as the main pillar of economic growth. Major economists such as Adam Smith, Karl Marx, Alfred Marshall, and Joseph Schumpeter have highlighted the importance of knowledge through its components: skills and competences, organizational processes, development of new technologies and innovations to increase productivity and economic growth in a sustainable way. In the last period, the importance, magnitude, scope, and domain of knowledge in economic growth seem to have intensified. The world economy has changed from an industry-based economy to a knowledge-based economy, where the competitive advantage of organizations is based on the ability to exploit knowledge resources (Drucker, 1993). The new knowledge economy is reflected in the emergence of new firms and new industrial branches, in a context of real time interconnections of global influences and speed. The main activities of creating wealth are represented by productivity and innovation, both representing the application of knowledge at work. The economic challenge of post-capitalist society will, therefore, be the productivity of knowledge-based work and knowledgeable workers (Drucker, 1997). The uncertainty and dynamics of the new turbulent economy need a new approach towards strategic thinking and strategies (Bolisani & Bratianu, 2017; Bratianu, 2007). To understand fundamentally the heterogeneous nature of the migration-development interaction, we need to study this interdependence in the context of socio-economic development in which they are an intricate part. Migration is not an independent variable that causes development (or vice versa), but it is an endogenous variable, an integrant part of change itself and a factor that could allow for later change. This is why it is more appropriate to refer to the mutual relationship between migration and broader development processes instead of one-way - migration impact on development.

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Figure 1 describes this relationship of reciprocity of migration and development interactions. The analysis of the factors underlying the differentiation of the relationship between migration and economic development can be between: (I) - the general development context at macro level (national, international); (II) the context of local or regional development; and (III) factors related to the migrant and the social and economic environment directly at the community level, household, family. These three sets of variables are mutually linked through various direct functional relationships and feedback mechanisms.

Figure 1. Interaction between migration and economic development (De Haas, 2010) The first step (a): Contextually determines local development through public infrastructure, policies, social facilities, legislator, taxation, market access or regional development programs. The second step (b): the macroeconomic context largely determines migratory migration, either internally or internationally, through immigration policies, labor demand, and income levels. Such structures of opportunity affect the scale, nature (without documents, legal, labor, politics, family), and (initially) migration selectivity. The third stage (c): The context of local development determines to what extent people are able to lead a better life and increase the background choices they have through local activities. Thus, people's inclination to migrate is seen as a function of their aspirations and capabilities. Fourth stage (d): Migration processes affect the context of local development through their effects (system feedback) on labor supply, consumption, investment, inequality, social stratification, relative deprivation, local culture and aspirations. Last step (e): Changes in the context of local development - for example as a result of migration - may ultimately affect the macroeconomic development context, albeit to a limited extent, due to the limited size of migration and remittances, mainly individual, and family ownership. Another widespread hypothesis in migration and development literature is that migrants and their families do not invest their money productively but rather spend money on "ostentatious consumption," such as imported consumer goods, and the so-called nonproductive enterprises, such as housing.

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General development is a complex, multifaceted process involving and requiring social, political and institutional reforms that cannot be realized realistically by individual migrants or remittances alone and requires active state intervention. If states fail to implement general social and economic reform, migration and remittances are unlikely to contribute to national sustainable development. International migration Migration of domestic and international labor has been seen as an integrative part of this economic development process by contributing to a more optimal spatial allocation of production factors, and thus to much better aggregate outputs. Governments in developing countries have actively encouraged emigration, being considered one of the main tools to promote development (Antonescu, 2011). Domestic and international migration can be perceived as a response to income risk, as migrant remittances provide income insurance for households of the home population. The idea is that for households as a whole, it may be a superior Pareto strategy to have members to migrate elsewhere, either as a risk-sharing tool and/or as an investment in accessing higher earning flows (Rapoport, 2016). Recently analysis suggests that migrants can shape the comparative advantage of nations, a relationship that has not been documented in the literature so far. This new perspective argues that migrants who are serving as international drivers of productive knowledge can shape the comparative advantage of nations. According to this new theory, we can better understand some known characteristics of knowledge diffusion. „First, the short-ranged character of knowledge diffusion can be explained by the fact that knowledge is partly embedded in people, which tend to move in a more localized manner than goods or capital. Second, the fact that the diffusion of knowledge and technology is more widespread today than decades ago (i.e., the diffusion process has accelerated over time) can be explained by the fact that people flows, such as migration or short term travel, have also increased rapidly” (Bahar & Rapoport, 2016, p.29). Research methodology In order to achieve our research objectives, we collected data from various sources, including national censuses, labor force surveys, and population registers to undergo analysis. In addition, for each country and regional grouping of the World Bank's World Development Indicators (World Bank, 2015), we provide selected socioeconomic characteristics such as population, labor force, age-dependency ratio, gross national income per capita, and poverty.

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Figure 2. Conceptual Framework of the “Migrant Syndrome” ( De Haas, 2010) Figure 2 summarizes various negative feedback mechanisms, through which migration increases rather than decreases underdevelopment issues and therefore deepens inequalities between host and destination countries. Although brain drain has attracted the most attention, nowadays, young people with poor qualifications, working in rural areas, are more relevant in the context of migration (De Haas, 2010).

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Figure 3. Number of international migrants by major area of destination, 20002015 (United Nations, 2015a) Asia and Europe host the largest number of migrants worldwide. Nearly two thirds of all international migrants worldwide live in Europe or Asia. In 2015, 76 million international migrants were living in Europe, compared to 75 million in Asia. Northern America hosted the third largest number of international migrants (54 million), followed by Africa (21 million), Latin America and the Caribbean (9 million), and Oceania (8 million). Between 2000 and 2015, Asia added more international migrants than any other major area. Asia gained some 26 million international migrants during this period or 1.7 million additional migrants per annum. Europe added the second largest number of international migrants between 2000 and 2015 (20 million, or 1.3 million per year), followed by Northern America (14 million, or 0.9 million per year) and Africa (6 million, or 0.4 million per year). In 2015, over 51 per cent of all international migrants in the world were living in ten countries. The largest number resided in the United States of America, which hosted 47 million migrants in 2015, or 19 per cent of the world’s total figure no. 3. Germany and the Russian Federation hosted the second and third largest numbers (12 million each), followed by Saudi Arabia (10 million), the United Kingdom (nearly 9 million) and the United Arab Emirates (8 million).

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Figure 4. Ten countries hosting the largest number of international migrants in 2015, 1990-2015 (millions) (United Nations, 2015b)

Figure 5. Structure of internal migration flows caused by home change (Adaptation after INSSE, 2016)

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We can appreciate that our present situation justifies the phenomenon of migrating for a part of the active population towards the European Union and towards other directions of the world. In short, it makes some economic obstacles overwhelming. According to figure 5, Spain ranks first in the top of the countries by destination in 2015, followed by Germany, Italy, and Canada. However, even in the context of the global economic crisis and rising unemployment, Italy and Spain still attract a number Important of Romanians. According to Eurostat, Romania is the EU country with the largest number of emigrants, 46% of whom go to Italy and 19% to Spain.

Figure 6. Romanian emigrants settling their domicile abroad (Elaboration after INSSE, 2016) If we were to make an analysis by discussing other variables such as age groups, sex, and nationality of Romanian citizens who have permanently settled their domicile abroad, at the level of 2012-2015, we underline the following: - There are a total of 152,350 permanent emigrants, of whom 87.140 females and 65.210 male. Both women and men have carried out economic activities below their formal training in the country. Despite the low social status associated with occupations of construction or domestic workers, most migrants have a positive perception of their experience in the host country. By age groups, we emphasize that most of the definitive emigrants are aged 20-39. These people are young, therefore, in the economically active phase of the course of life, followed by the age between 0-19 years and 40-59 years respectively. Romania is, for the time being, a country with a recent history of emigration, unlike other countries where such studies already exist. Consequences, benefits - and its economic impact When supported by appropriate policies, migration can contribute to inclusive and sustainable economic growth and development in both home and host communities. In 2014, migrants from developing countries sent home the estimated US $436 billion in remittances; a 4.4 percent increase over the 2013 level (World Bank, 2015), far exceeding official development assistance and, excluding China, foreign direct

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investment. These funds are often used to improve the livelihoods of families and communities through investments in education, health, sanitation, housing and infrastructure. Countries of destination can also benefit from migration. In countries of destination, migrants often fill critical labor shortages, create jobs as entrepreneurs, and contribute in terms of taxes and social security contributions. Migrants, as some of the most dynamic members of society, can also forge new paths in science, medicine, and technology and enrich their host communities by promoting cultural diversity (World Bank, 2015). The effects of migration at the family-community level presented positively-negative show the negative influence of migration on the demographic structure, but positive in terms of economic and developmental aspects (Table 1). Table 1. The migratory consequences (adaptation after Badea, 2009, p.125) Consequences Positive Negative - Migrants send remittances to the - Loss of work can reduce domestic investment country. by private companies. - Remittances sent to the country - Migrants returning to their country of origin by economic migrants can be used may find it difficult to find a job due to lack of to fund education and improve competence, demand for too much income, etc. health services. - The marriage rate decreases → there is a - Migrants bring new skills to the generation of single mothers. country (such as the ability to - Increasing social costs for retired retired speak a foreign language). migrants. - Improving the quality of life → - The skills acquired by retired migrants may improving family relationships. not match the requirements of the home country's labor market. Once with the return of Romanians from abroad, Romania can have a dynamic and entrepreneurial workforce with the capital and experience gained in years of work abroad and with the desire to put it into practice (at the time of returning to the country). Also, students from Central and Eastern Europe who go to studies in EU countries and who later return (at least some of them) to their countries of origin can bring know-how, skills, and innovation that would impulse the Romanian economy and society, would turn the brain drain phenomenon into a brain gain type. Their return to the national labor market has beneficial effects - it helps to increase economic performance, stimulates the absorption of technological progress, promotes modern working relations, competition, contributes to the development of a working culture compatible with the West European one. There are economic and social benefits that free labor migration can bring to the European Union or elsewhere in the world. Migrants returning to their native country bring currency to the country, come up with a new model of life and civilization, come with a sense of rejecting a life based on material promiscuity and are often returning to the country with a start-up capital necessary to initiate a small business. Such actions are sometimes supported by some knowledge of the business they have acquired as a result of migration and the pursuit of various activities in the European Union or in other developed countries of the world.

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From the point of view of the macroeconomic effects of emigration, this segment of the active population is creating jobs without private or public investment in the national economy. The revenues created by this sector join the internal consumption fund, development funds and, to a certain extent, the budgetary resources of the economy. These revenues, which they have acquired through their activities in other countries, are transferred to the monetary economy through the foreign exchange market. It is estimated that the amount of this category of income, registered and unregistered, which enters our economy amounts to approximately 5 billion annually. The transfer of foreign currency by Romanian workers from abroad can be considered as one of the major advantages of emigration that reflects on the national currency in terms of its evolution on the foreign exchange market (Coste, 2005). Financial transfers are often considered in migration literature as an indicator of transnationalism and immigrant orientation towards the country of origin. In general, household orientation is assumed to be even more intense as the transfers are more important in volume and vice versa. As can be seen in Table 2, remittances in the country have experienced a steady increase until 2009. This has multiple explanations: the effect of the increase in the number of Romanian migrants, the declared intention of returning some, the wider access to formal money transfer channels and the longer call reduced to informal channels, those used in the 1990s mainly (from hand to hand, by relatives or trustworthy people in the same home community), lower taxes imposed by bankers for financial transfers. In 2009, there is a halving of these transfers over the previous year, possibly due to the global financial crisis and the decline in construction jobs in Italy and Spain, where most of the Romanian migrants are present (Held, et. al., 2010, pp. 348-349). Romanians who have worked abroad have sent over 36 billion euros in the country in recent years. They sent money even in times of crisis. In figure no. 6 are presented the amounts that entered Romania during the years 2005 - 2015. Romanians from the diaspora sent home 1.58 billion euros in 2014, down from the previous year, when the sum amounted to 1.755 billion euros. Romania is ranked third in this statistic (Eurostat statistics showing how much money the European citizens working abroad have sent to the country of origin) of the money sent home by European citizens who are not in their native country in 2015, being just overtaken Portugal and Poland. The two countries recorded 3.6 billion and 2.6 billion euros respectively.

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Table 2. Evolution of money amounts sent to Romania Year Amounts entering the country 2005 3,9 billion euro (January-August: 2,42 billion euro) 2006 5,2 billion euro (January-August: 3,15 billion euro) 2007 6,2 billion euro (January-August: 4,15 billion euro) 2008 6,6 billion euro (January-August: 4,35 billion euro) 2009 4,3 billion euro (January-August: 2,89 billion euro) 2010 4 billion euro (January-August: 2,43 billion euro) 2011 3,7 billion euro (January-August: 2,33 billion euro) 2012 January-August: 2,49 billion euro 2013 1,755 billion euro 2014 1,58 billion euro 2015 1,43 billion euro The data is contained in the Eurostat statistics showing how much money the European citizens working abroad have sent to the country of origin

National data show that over the last five years, a significant part of Romania's population is buying sustainable goods: 50% of Romanians buy household goods, 37% opt for extension/modernization of homes, and 16% buy cars. In any case, irrespective of the purchased goods, about 10% of the amounts spent are procured from migratory activities. If we restrict the analysis at the level of individuals acquiring goods to the money obtained from international migration, we may notice that more than 50% of them spend in order to expand/modernize their dwelling and a similar percentage is allocated to the purchase of the goods for use household. A significant percentage (about 21%) is households that spent the last five years buying one or more cars (Contineanu, 2011, p.237). Migration of workforce and entrepreneurship are two very closely related life components. Work experience gained abroad alongside entrepreneurship is correlated when a person wants to develop a business. As the migrant accumulates financial, human and relational capital and meets its basic needs, it will tend to invest in productive activities, becoming an entrepreneur. The creative dimension of business activity means abandoning the old (routine and tradition) and moving the emphasis on the new (represented by innovation, originality, diversity). Since young people have, generally, a particular inclination towards the use of new technologies, they must be geared to channel their talent to develop their potential and, more importantly, the creative manifestations (Hadad, 2017). For a significant part of Romanian migrants, cross-border work is an intermediary strategy for entrepreneurial strategy, which is related to the strong link between the experience gained in foreign territory and the entrepreneurial orientation, both at the behavioral and intention level (Prada, 2015, p.161). Conclusions and perspectives The migration process is, in fact, a triangle between a person, a state of origin and the state of destination. The dimensions of migration are generally controlled and governed by the laws of the State of destination which lay down the conditions for obtaining employment contracts, visas and work permits, entry conditions, expulsion, etc., all in coordination and in accordance with the required rules of the origin

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countries of citizens wishing to migrate for work. Romania can be considered as a country of emigration and one of the most important labor force providers for the European market. It is clear that migratory movements generate important economic consequences. Multivariate analysis models show that significantly higher chances of returning from work abroad have young migrants (18-45 years) with a medium or higher education level who have been looking for work or have worked in more than one country, who are returning from Italy or Spain where they worked in agriculture and did not have support networks to facilitate integration into the country of destination. Migration can, therefore, increase aspirations much faster than local livelihoods. The Romanians' migration to the EU has seen a number of structural changes over the past two decades. At first, the Romanians were illegal migrants looking for a job within the European Union and later became legal migrants. As we have mentioned, currency transfers represent a positive effect of migration, with strong implications at both microeconomic and macroeconomic level. The National Bank of Romania estimates for these transfers amount to 4.51% of Romania's GDP. Repatriated groups can bring back an excellent leadership and other skills and experience. Temporary work abroad has a positive effect on the income that migrants receive when returning to their home country. The theme of knowledge-based societies has become extremely relevant in the debates on globalization, migration, and brain-drain, but also in the activities of the main international organizations. Increasing the awareness of its importance for social and economic progress and the formation of such a society is a global priority issue, globalization becoming another characteristic of the knowledge economy (Hadad, 2017, p.207). The migration process is, in fact, a triangle between a person, a state of origin and the state of destination. The dimensions of migration are generally controlled and governed by the laws of the State of destination which lay down the conditions for obtaining employment contracts, visas and work permits, entry conditions, expulsion, etc., all in coordination and in accordance with the required rules of the origin countries of citizens wishing to migrate for work. Romania can be considered as a country of emigration and one of the most important labor force providers for the European market. It is clear that migratory movements generate important economic consequences. Multivariate analysis models show that significantly higher chances of returning from work abroad have young migrants (18-45 years) with a medium or higher education level who have been looking for work or have worked in more than one country, who are returning from Italy or Spain where they worked in agriculture and did not have support networks to facilitate integration into the country of destination. Migration can, therefore, increase aspirations much faster than local livelihoods. The Romanians' migration to the EU has seen a number of structural changes over the past two decades. At first, the Romanians were illegal migrants looking for a job within the European Union and later became legal migrants. As we have mentioned, currency transfers represent a positive effect of migration, with strong implications at both microeconomic and macroeconomic level. The National Bank of Romania estimates for these transfers amount to 4.51% of Romania's GDP. Repatriated groups can bring back

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an excellent leadership and other skills and experience. Temporary work abroad has a positive effect on the income that migrants receive when returning to their home country. The theme of knowledge-based societies has become extremely relevant in the debates on globalization, migration, and brain-drain, but also in the activities of the main international organizations. Increasing the awareness of its importance for social and economic progress and the formation of such a society is a global priority issue, globalization becoming another characteristic of the knowledge economy (Hadad, 2017, p.207). References Antonescu, D. (2011). Noile perspective teoretice ale dezvoltării economice la nivel regional [New theoretical perspectives of economic growth at regional level]. Retrieved from http://econpapers.repec.org/. Bahar, D., & Rapoport, H. (2016). Migration, Knowledge Diffusion and the Comparative Advantage of Nations. CESifo Working Paper Series No. 5769. Bejinaru, R., & Hapenciuc, C.V. (2016). Valorization Of The Learning Organization’s Principles In The Business HES. In Bratianu, C., et al. (Eds.), Strategica. Local versus Global - Opportunities and Risks in the Contemporary Business Environment (pp.600-611). Bucharest: Tritonic. Bolisani, E., & Bratianu, C. (2017). Knowledge strategy planning: an integrated approach to manage uncertainty, turbulence, and dynamics. Journal of Knowledge Management, 21(2), 233-253. Bratianu, C. (2007). Thinking patterns and knowledge dynamics. In Remenyi, D. (Ed.), Proceedings of the 8th European Conference on Knowledge Management (pp.152156). Consorci Escola Industrial, Barcelona, Spain, 6-7 September 2007. Bratianu, C. (2009). The frontier of linearity in the intellectual capital metaphor. In Stam, C. (Ed.), Proceedings of the European Conference on Intellectual Capital, Inholland of Applied Sciences (pp.97-103), Haarlem, Netherlands, 28-29 April,. Bratianu, C. (2010). A critical analysis of Nonaka’s model of knowledge dynamics. In Rodrigues, S. (Ed.), Proceedings of the 2nd European Conference on Intellectual Capital (pp. 115-120.), ISCTE Lisbon University Institute, Polytechnic Institute of Leiria, 29-30 March 2010. Contineanu, D.S. (2011). Influența fenomenului de migrație [Influence of migration phenomena]. Bucharest: Universității Naționale de Apărare “Carol I” Publishing. Coste, V., (2005). Efectele migrației asupra economiei naționale [Effects of migartion upon the national economy]. Iași: Analele Știintifice ale Universității Alexandru Ioan Cuza. De Haas, H. (2010). Migration and Development: A Theoretical Perspective. International Migration Review, 44(1), 227-264. Drucker, P. (1969). The Age of Discontinuity; Guidelines to Our Changing Society. New York: Harper and Row. Drucker, P. (1993). Post-Capitalist Society. Oxford: Butterworth Heinemann. Drucker, P. (1999). Societatea post-capitalistă [Post-Capitalist Society]. Bucharest: Image. Friedman, J. (1972). A general theory of polarized development, Growth Centers on regional Economic Development. New York: Free Press.

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UNIVERSITIES IN THE KNOWLEDGE ECONOMY: STRATEGIES TO INCREASE THEIR COMPETITIVENESS Constantin BRATIANU Bucharest University of Economic Studies 6 Piata Romana, Sector 1, Bucharest, Romania Academy of Romanian Scientists 5 Splaiul Independentei, Sector 5, Bucharest, Romania [email protected] Abstract. The purpose of this paper is to analyze the role of universities in the knowledge economy and the designed strategies to increase their competitiveness. Universities are knowledge intensive organizations characterized by high densities of knowledge and intelligence, whose role in the knowledge economy becomes dominant in society. As a result of this challenge universities should adapt their governance and mission to the new requirements and to increase their competitiveness in the global market of higher education services. This is a conceptual paper, but it is based on a critical analysis of the literature in this domain, a high level of personal experience and expertise in academic management, and a significant research performed in the fields of knowledge management and intellectual capital in organizations. In the knowledge economy, knowledge becomes a strategic resource and universities should be aware of this new development and focus their visions and missions on increasing efficiency in knowledge creation, knowledge transfers toward students and community, and in developing strategic thinking models in the mind of students. That means that students should become active participants in the knowledge processing and develop their skills for strategic thinking and decision making. The paper presents also the problem of evaluating the intellectual capital of universities and shows the shortcomings of many models proposed so far for intellectual capital measuring and reporting. The main shortcomings come from the metaphorical approaches used for explaining the concept of knowledge and that of intellectual capital. The paper presents the organizational knowledge dynamics and the intellectual capital dynamics frameworks. Based on understanding these frameworks, the paper discusses three main strategies designed by universities to increase their competitiveness: introducing new knowledge management programs and degrees, increasing knowledge creation and transfer toward the business environment, and intergenerational learning. For each strategy the paper presents its purpose and specific way of implementation. Keywords: knowledge; knowledge economy; knowledge management; intellectual capital; university; learning organization; knowledge strategy. Introduction Universities are knowledge intensive organizations, with high densities of knowledge and intelligence (Bratianu, 2010a; Bratianu & Bejinaru, 2017; Duderstadt, 2000; Secundo et al., 2015). Universities are among the oldest institutions, solving creatively the paradox of continuity for many centuries. The paradox is generated by the mission

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of the university which integrates conflicting tasks ranging from knowledge preservation to knowledge creation: “Their survival, often in the same locations, even in the same buildings, with many of the same activities, may on one level be proof of their conservatism. I believe that on another level it is also proof of the ability of the university to anticipate, to generate or incorporate new knowledge and new ways of thinking – sometimes hesitantly, sometimes slowly, but always with its essential intellectual values and mission intact” (Mayor, 1997, p.143). In the knowledge economy, universities face new challenges and they have to adapt to the new contexts. First, knowledge life cycle is decreasing and the focus of teaching and learning processes should shift from knowledge transfer to the students toward developing thinking skills (Bratianu & Vătămănescu, 2016), which will increase the employability of graduating students. In the same time, knowledge consumption increases exponentially and universities should generate new knowledge and transfer it to the community (Secundo et al., 2017). Knowledge is a strategic resource and companies need new knowledge to achieve competitive advantage (Bratianu & Bolisani, 2015, Bolisani & Bratianu, 2017). Third, knowledge economy and knowledge management should become new subjects in the university curriculum to prepare students for new jobs in the future. Having in mind these issues, the research question for the present paper is the following: RQ: What are the main strategies designed by universities to increase their competitiveness in the knowledge economy? The next section of the paper presents a critical review of the organizational knowledge dynamics aiming at understanding the main knowledge processes within a university. Then, we discuss the knowledge strategies designed to increase the university’s competitiveness in the global market of higher education services. Organizational knowledge dynamics Knowledge is an abstract concept which can be understood by using metaphors. As Andriessen and Boom (2007, p.3) remark, “Knowledge is not a concept that has a clearly delineated structure. Whatever structure it has it gets through metaphor. Different people from different cultures use different metaphors to conceptualize knowledge. They may be using the same word; however, this word can refer to totally different understandings of the concept of knowledge”. Different meanings and interpretations come also from people working in different fields of activity and using the concepts of information and knowledge. For instance, people working in the information technology consider the concept of information of being fundamental and the concept of knowledge as an extension of it. People working in knowledge management consider knowledge as a result of processing information, which is a result of processing data (Becerra-Fernandez & Sabherwal, 2010; Choo, 2006; Davenport & Prusak, 2000; Tiwana, 2002). Pinker (2008, p.241) posits that “Conceptual metaphors point to an obvious way in which people could learn to reason about new, abstract concepts. They would notice, or have pointed out to them, a parallel between a physical realm they already understand and a conceptual realm they don’t yet understand”. In the beginning, many

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authors consider that knowledge is like objects or stocks: “The idea of dealing with knowledge as an object has been already exploited in a variety of areas across KM and information technology” (Borgo & Pozza, 2012, p.229). That means that knowledge gets attributes of physical objects (Andriessen, 2008). For instance, knowledge is conceived as being in pieces which can be accumulated, stocked, added, packaged and processes like finite tangible entities. Although it is easy to conceive knowledge as such an entity, the metaphor induces the idea of a linear logic which is completely erroneously because knowledge is an intangible nonlinear entity (Bratianu, 2009). The process of objectification of knowledge based on the knowledge as an object metaphor comes mainly from authors working with information systems where data and information can be processed by computers, stored in databases, retrieved from these databases, incorporated into computer codes, distributed through communication channels, and used to solve production and managerial problems. A special case of this category of metaphors is the knowledge as an iceberg metaphor. It is special because it allows the representation of both explicit and tacit knowledge (Nonaka & Takeuchi, 1995). Explicit knowledge is that which can be expressed using a natural or artificial language, while tacit knowledge is that which cannot be expressed in words (Davenport & Prusak, 2000). According to this metaphor, explicit knowledge is represented by the visible part of the iceberg, and the tacit knowledge is represented by the hidden part of the iceberg which is under the water. The iceberg metaphor has been frequently used by Nonaka (1991, 1994), Nonaka and Takeuchi (1995), and many other authors although it limits the understanding of knowledge (Bratianu, 2010b). An advanced metaphor is a knowledge as flows or knowledge as stocks-and-flows (Nissen, 2006; Nonaka, Toyama & Hirata, 2008). Knowledge as flows introduces the idea of motion of knowledge throughout a company, replacing a static metaphor with a dynamic one. Nissen (2006, p.XX) explains the need for such a view “To the extent that organizational knowledge does not exist in the form needed for application or at the place required to enable work performance, then it must flow from how it exists and where it is located to how and where it is needed. This is the concept knowledge flows”. The metaphor enlarges the semantic field of the knowledge concept and it allows a better interpretation of the knowledge motion through the organization. However, knowledge as flows or stocks-and-flows metaphors keep the tangible and linear attributes of the physical objects. Bratianu and Andriessen (2008) introduced the energy metaphor which places knowledge in a non-substantial realm. Thus, the concept is not limited anymore by the tangibility and linearity attributes of the physical objects. The metaphor places energy in the source domain as being known and knowledge in the target domain, as being unknown. Attributes of energy are analyzed and mapped to the target domain, enriching this way the semantic domain of knowledge. The most important attribute is that energy is a field and not a substantial body. That approaches knowledge to its understanding as an intangible entity which is nonlinear. The metaphor is not based anymore on the Newtonian logic but on the thermodynamics logic (Bratianu, 2011). The key attributes taken from the energy domain and mapped to the knowledge domain are presented in Table 1.

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Table 1. Key attributes transferred from energy to knowledge Attributes of energy Attributes transferred to knowledge Energy is a field (non-substance) Knowledge is a field The field is a continuum in space and The knowledge field is a continuum time throughout the organization Energy manifests in different forms Knowledge manifests in three basic (e.g. mechanical energy, thermal forms: rational knowledge, energy, electrical energy) emotional knowledge, and spiritual knowledge One form of energy can be One form of knowledge can be transformed into another form of transformed into another form of energy knowledge

These attributes are valid for both personal and organizational knowledge. Although knowledge can be created only by people, we can use the concept of organizational knowledge as a construct to indicate the resulting process of integrating all the employees’ knowledge during their work and the intangibles created at the organizational level like organizational culture, regulations, intellectual properties products and the working spirituality (Bratianu, 2015; Nonaka & Takeuchi, 1995). In the knowledge economy, most of the firms are knowledge organizations since knowledge represents the most important resource in creating the competitive advantage. The key attributes presented in Table 1 are the pillars of the new multifield theory of knowledge developed by Bratianu (2013). This theory defines three fundamental fields of knowledge at the level of any organization: the rational knowledge field, the emotional knowledge field, and the spiritual knowledge field. These fields constitute together the generic triple helix of any organization. Each knowledge field can be transformed into another field of knowledge contributing the managerial decision making and to the production process. The rational knowledge field contains all the explicit and tacit personal knowledge embedded in collective forms of knowledge. It is the most important field of knowledge, especially in companies based on high technologies. For a long time, this field of knowledge was considered the only one, rational knowledge being equated to knowledge. That is true especially about universities, where knowledge creation is focused on scientific and technological knowledge. Unfortunately, even today evaluating the intellectual capital of universities is based most on evaluating rational knowledge field and the artifacts related to it (Bratianu & Bejinaru, 2017; Bratianu, Iordache-Platis & Prelipcean, 2016). The emotional knowledge field emerged in the knowledge management especially with the works of Nonaka and his colleagues, based on the Japanese oneness philosophy about knowledge. Working together, people communicate through their emotions using the nonverbal languages. According to Nonaka and Takeuchi (1995, p.9), “Highly subjective insights, intuitions, and hunches are an integral part of knowledge. Knowledge also embraces ideals, values, and emotions as well as images and symbols”. Emotional knowledge constitutes the key factor in motivating people to work and to create new knowledge. Also, students’ motivation to learn is based on emotional knowledge and their aspirations. It is the hidden part of the knowledge iceberg

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(Bratianu & Orzea, 2013). Emotional knowledge contributes directly to the formation and change of the organizational culture. The spiritual knowledge field integrates values and beliefs about life and about our own existence (Zohar & Marshall, 2000, Zohar & Marshall, 2004). Spiritual knowledge is embedded in the vision and mission of any organization and constitutes the main driving force of the strategic thinking. The field of spiritual knowledge is the genesis of the spiritual capital of any organization. According to Zohar and Marshall (2004, p.27), “Our spiritual capital is our shared meaning, our shared purpose, our shared vision of what most deeply matters in life – and how these are implemented in our lives and in our behavioral strategies. It is the capital that is increased by drawing on the resources of human spirit”. Universities have always demonstrated a high level of spiritual knowledge by comparison with any other type of organization because of their vision built on value creation for society and not on profit making. Organizational knowledge dynamics can be approached by two convergent ways: knowledge transformation from one field into another field, and analyzing the balance between knowledge generation and knowledge loss. The first approach has been already discussed. The second approach can be formulated like an equation for the variation of the organizational knowledge level (ΔOK): ΔOK = knowledge creation + knowledge acquisition – knowledge loss Although knowledge sharing does not appear in this equation, it is an important factor in organizational knowledge dynamics, especially in universities in stimulating knowledge creation and reducing knowledge loss (Bratianu, Agapie & Orzea, 2011; Bejinaru & Hapenciuc, 2016). All the knowledge strategies we shall present in the next section are rooted in this equation. Knowledge strategies Knowledge creation in universities In the knowledge economy, knowledge creation becomes a pressing problem because the knowledge life cycle is shortening (Davenport & Prusak, 2000; Nonaka & Takeuchi, 1995; Vătămănescu et al., 2016). Knowledge is created by people and then embedded in new products and services through innovation. Universities play an important role in knowledge creation, especially the fundamental knowledge for science and technology according to the Humboldtian paradigm (Duderstadt, 2000). The most challenging ranking of world universities – Academic Ranking of World Universities (ARWU) performed since 2009 by the Shanghai Ranking Consultancy established performance indicators based on knowledge creation and results in publication in top international journals. The ranking system considers: number of alumni and staff winning Nobel Prizes and Field Medals, number of highly cited researchers selected by Thomson Reuters, number of articles published by Nature and Science, and number of articles indexed in Science Citation Index. More than 1200 universities from all over the world compete to be included in the top 500 universities in the world. For 2016, the top 10 universities are presented in Table 2.

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Table 2. Top 10 Universities in the world in 2016 according to ARWU Rank Universities (Country) 1 Harvard University (USA) 2 Stanford University (USA) 3 University of California at Berkeley (USA) 4 University of Cambridge (UK) 5 Massachusetts Institute of Technology (USA) 6 Princeton University (USA) 7 University of Oxford (UK) 8 California Institute of Technology (USA) 9 Columbia University (USA) 10 University of Chicago (USA) However, more and more universities create knowledge for solving practical problems of their communities in concordance with so called the third mission, which is related to the generation, use, application and exploitation of knowledge with external stakeholders and society in general (Secundo et al., 2017). The strategy of knowledge creation contributes directly to the increasing competitiveness of the university and toward a better integration in its community. As remarked by Secundo, De Beer et al. (2017, p.4), “Knowledge produced in universities can spur business innovation, foster competitiveness, and promote economic and social development through the creation of academic entrepreneurship”. It is important to underline the fact that knowledge creation depends essentially on the motivational system built in the university, which is designed in concordance with the emotional and spiritual knowledge fields. If these fields have a low profile, the motivational system is based on financial rewards. However, a powerful motivation comes from a rewarding system based on emotional and spiritual knowledge. Promoting new academic programs in Knowledge Management The knowledge economy demands new university programs for students to prepare them for new jobs dealing with knowledge management and intellectual capital. Thus, many universities around the world introduced new courses in the Management curriculum dealing specifically with Knowledge Management. The most dynamic universities developed new Master programs of Knowledge Management, and some of them opened Ph.D. research for this new domain. However, in some countries where universities are not fully autonomous in their curriculum decisions, these changes are very slowly. By introduces, new degrees for Knowledge Management universities prepare their students for new jobs requesting knowledge and skills in information and knowledge management. Table 3 presents top 10 American universities offering Master degrees in Knowledge Management and Table 4 presents top 10 UK universities offering master degrees in Knowledge Management. The universities are presented in a random order, without any ranking so far. Most of these universities offer also doctoral degrees in Knowledge Management. Due to the flexibility of choosing the major and minor fields of studies, in many western universities students can get a lot of courses dedicated to Knowledge Management even if the degree is in Management, Business Administration or Industrial Engineering. The Hong Kong Polytechnic University offers a MOOC – Massive Open Online Course in Information and Knowledge Management which attracts each year thousands of students from all over the world.

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Table 3. Top 10 American universities offering degrees in Knowledge Management No. Universities 1 George Washington University 2 California State University – Northridge 3 University of Massachusetts – Boston 4 University of Texas – San Antonio 5 George Masson University 6 Kent state Universities 7 Illinois Institute of Technology 8 University of Connecticut 9 University of Michigan – Dearborn 10 Dominican University Table 4. Top 10 UK universities offering degrees in Knowledge Management No. Universities 1 Oxford University 2 University of Warwick 3 Cranfield University 4 University College London 5 Manchester University 6 University of Bristol 7 University of Reading 8 University of Brighton 9 Edinburgh Napier University 10 De Montfort University In Canada, University of Toronto and McGill University offer degrees in Knowledge Management, and in Europe University of Lappeenranta (Finland), University of Amsterdam (The Netherlands), and University of Lyon (France) among others offer degrees in Knowledge Management. In Romania, only three universities offer one semester courses in Knowledge Management, a situation that shows the difficulty of introducing new topics when there is a strong curriculum standardization imposed by the accreditation agency and there is limited university autonomy. It is necessary for all stakeholders of the Romanian universities to become aware of the new requirements imposed by the knowledge economy and to find adequate policies and strategies for satisfying them. Knowledge sharing and intergenerational learning This is a strategy designed to increase the average level of knowledge in a university and its organizational entropy. The direct result of this phenomenon is increasing research activity and knowledge creation. Universities are knowledge intensive organizations which are structured on age layers. This nested structure stimulates intergenerational learning (IGL) through knowledge sharing. It is a process which contributes also to the decrease of knowledge loss due to professors’ retirement (Bratianu, 2014; Lefter et al., 2011). Evidence-based research shows that there are three important ways of developing IGL in a university: intergenerational mentoring, intergenerational training and workshops, and intergenerational teams. All of these approaches depend heavily on the emotional and spiritual knowledge existing in the

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university, and on their transformation into rational knowledge. Mentoring is a wellknown phenomenon in a university since professors work with their younger colleagues in designing and delivering courses and applications. The key success factors in implementing intergenerational mentoring in a university are the following: a high level of awareness of all internal stakeholders of the need for implementing mentoring, elaborating policies at the university level aiming at stimulating IGL, elaborating a rewarding system for all professors who accept to be mentors for their younger colleagues, elaborating a long term vision for academic carriers of the young faculty staff, such that the relationship mentor-mentee to be a lasting one. Intergenerational training and workshops represent a quite common practice in the academic environment. During these events, professors can share their experience in research to the younger participants and stimulate debates to focus attention on some specific topics. For instance, in the European Conference on Knowledge Management, an annual event organized by Academic Conferences and Publishing International together with a certain university, there are workshops organized before the main conference for stimulating IGL, and doctoral sessions during the conference for helping doctoral students to advance their research in the field of knowledge management. These are excellent opportunities for IGL. Intergenerational teams represent excellent means for assuring critical organizational knowledge retention in universities, stimulating and developing sustainable innovation, and increasing older professors’ employability. Intergenerational teams are created especially for research projects, where knowledge exchange between generations is needed. The motivation of creating and working in intergenerational teams comes from the need of younger faculty staff to be integrated into research teams by their professors. Otherwise, their chances for learning and participation in performing research grants, in writing papers for international journals and conferences are rather small. Bratianu et al. (2011) performed an analysis using Analytic Hierarchy Process (AHP) in the Bucharest University of Economic Studies, Bucharest, Romania, in order to determine what activities are mostly preferred by the academics in creating and working in intergenerational teams. They considered three main activities: research grants, elaborating papers for international journals, and writing textbooks for students. The conclusion is that most preferred intergenerational teams are for performing research. Conclusions The purpose of this paper is to search for policies and strategies developed by universities in adapting to the new business dynamics of the knowledge economy. The research approach we used is based on a critical literature review, on metaphorical thinking, on personal valuable experience in academic management and governance, and on the evidence-based logic. Our research focused on two key issues: understanding organizational knowledge, and identifying the best strategies to adapt universities to the knowledge economy demand. The first part of this paper discusses knowledge metaphors and presents three generations of such metaphors: knowledge as objects or stocks, knowledge as flows or stocks-and-flows, and knowledge as energy. Metaphors from the first two generations

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induce tangible attributes to the knowledge concept and linear metrics in its evaluation, directly or through the intellectual capital. Only the energy metaphor overcomes these limitations and associates to the knowledge concept intangible attributes. The metaphor suggests considering three basic knowledge fields: rational, emotional, and spiritual. Each knowledge field can be transformed into another one contributing this way to the whole organizational knowledge dynamics. The second part of this paper presents three main knowledge strategies universities can develop in alignment to the knowledge economy requirements: knowledge creation through research, promoting new academic programs in Knowledge Management, and intergenerational learning. All these strategies are based on the integrated dynamics of the organizational knowledge and depend on an adequate governance and academic leadership of universities. Knowledge creation and knowledge sharing are strongly dependent on the rewarding system for the faculty staff, which implies powerful fields of emotional and spiritual knowledge. Best world universities have always been characterized by challenging visions and missions which integrate rational, emotional, and spiritual knowledge. References Andriessen, D. (2008). Stuff or love? How metaphors direct our efforts to manage knowledge in organizations. Knowledge Management Research & Practice, 6(1), 5-12. Andriessen, D., & Boom, M.d. (2007). Asian and Western intellectual capital encounter. Paper presented at IC-Congress 2007, Inholland University of Applied Sciences, Haarlem, The Netherlands. ARWU (2016). Academic Ranking of World Universities. Retrieved from www.shangahiranking.com/ARWU2016.html. Becerra-Fernandez, I., & Sabherwal, R. (2010). Knowledge management: Systems and processes. New York, NY: M.E. Sharpe. Bejinaru, R., & Hapenciuc, C.V. (2016). Valorization of the learning organization’s principles in the business higher educational systems (HES). In Bratianu, C., Zbuchea, A., Pinzaru, F., Vatamanescu, M.E., & Leon, R. (Eds.), Proceedings of the 4th International Academic Conference Strategica (pp.600-611). Bucharest: Tritonic. Bolisani, E., & Bratianu, C. (2017). Knowledge strategy planning: An integrated approach to manage uncertainty, turbulence, and dynamics. Journal of Knowledge Management, 21(2), 233-253. Borgo, S., & Pozza, G. (2012). Knowledge objects: A formal construct for material, information and role dependence. Knowledge Management Research & Practice, 10(3), 227-236. Bratianu, C. (2009). The frontier of linearity in the intellectual capital metaphor. In Stam, C. (Ed.), Proceedings of the European Conference on Intellectual Capital, (pp.97-103). Reading, UK: Academic Conferences and Publishing International. Bratianu, C. (2010a). Knowledge dynamics in organizations. In Bratianu, C., Lixandroiu, D., & Pop, N.A. (Eds.), Proceedings of the 5th International Conference on Business Excellence (Vol.1, pp.79-82). Brasov: Infomarket Publishing House. Bratianu, C. (2010b). A critical analysis of Nonaka’s model of knowledge dynamics. In Rodrigues, S. (Ed.), Proceedings of the 2nd European Conference on Intellectual

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Capital (pp.115-120). Reading, UK: Academic Conferences and Publishing International. Bratianu, C. (2011). Changing the paradigm for knowledge metaphors from dynamics to thermodynamics. Systems Research and Behavioral Science, 28(2), 160-169. Bratianu, C. (2013). The triple helix of organizational knowledge. Management Dynamics in the Knowledge Economy, 1(2), 207-220. Bratianu, C. (2014). Strategies to enhance intergenerational learning in universities. In Rooney, J., & Murthy, V. (Eds.), Proceedings of the 11th International Conference on Intellectual Capital, Knowledge Management and Organizational Learning (pp.83-90). Reading, UK: Academic Conferences and Publishing International. Bratianu, C. (2015). Organizational knowledge dynamics: Managing knowledge creativity, acquisition, sharing and transformation. Hershey, PA: IGI Global. Bratianu, C., Agapie, A., & Orzea, I. (2011). Knowledge dynamics modeling using Analytic Hierarchy Process. In Turner, G., & Minnone, C. (Eds.), Proceedings of the 3rd Intellectual Conference on Intellectual Capital (pp.94-102). Reading, UK: Academic Conferences and Publishing International. Bratianu, C., Agapie, A., Orzea, I., & Agoston, S. (2011). Intergenerational learning dynamics in universities. Electronic Journal of Knowledge Management, 9(1), 1018. Bratianu, C. & Andriessen, D. (2008). Knowledge as energy: A metaphorical analysis. In Harorimana, D., & Watkins, D. (Eds.), Proceedings of the 9th European Conference on Knowledge Management (pp.75-82). Reading, UK: Academic Conferences and Publishing International. Bratianu, C., & Bejinaru, R. (2017). Knowledge strategies to increase IC of universities. In Lopes, I.T., & Serrasqueiro, R. (Eds.), Proceedings of the 9th European Conference on Intellectual Capital (pp.34-41). Reading: Academic Conferences and Publishing International. Bratianu, C., & Bolisani, E. (2015). Knowledge strategy: An integrated approach for managing uncertainty. In Massaro, M., & Garlatti, A. (Eds.), Proceedings of the 16th European Conference on Knowledge Management (pp.169-177). Reading: Academic Conferences and Publishing International Conferences. Bratianu, C., Iordache-Platis, M., & Prelipcean, G. (2016). The role of legislation and organizational culture in shaping academic leadership. In Pinzaru, F., & Bratianu, C. (Eds.), Proceedings of the 12th European Conference on Management, Leadership, and Governance (pp.17-23). Reading, UK: Academic Conferences and Publishing International. Bratianu, C., & Orzea, I. (2013). Emotional knowledge: The hidden part of the knowledge iceberg. In Janiunaite, B., & Petraite, M. (Eds.), Proceedings of the European Conference on Knowledge Management (Vol. 1, pp.82-90). Reading, UK: Academic Conferences and Publishing International. Bratianu, C., & Vătămănescu, E.M. (2016). Studentsț perception on developing conceptual generic skills for business. In Moffett, S., & Galbraith, B. (Eds.), Proceedings of the 17th European Conference on Knowledge Management (pp.101-108). Reading: Academic Conferences and Publishing International. Choo, C.W. (2006). The knowing organization: How organizations use information to construct meaning, create knowledge, and make decisions, 2nd ed. Oxford, UK: Oxford University Press. Davenport, T.H., & Prusak, L. (2000). Working knowledge: How organizations manage what they know. Boston, MA: Harvard Business School Press.

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Duderstadt, J.J. (2000). A university for the 21st century. Ann Arbor, MI: The University of Michgan Press. Lefter, V., et al. (2011). Intergenerational knowledge transfer in the academic environment of knowledge-based economy. Amfiteatru Economic, 13(30), 392403. Mayor, F. (1997). The universal university: The university – the crucible of Europe. CRE-CEPES UNESCO Papers on Higher Education, 111, 143-151. Nissen, M.E. (2006). Harnessing knowledge dynamics: Principled organizational knowing & learning. London, UK: IRM Press. Nonaka, I. (1991). The knowledge creating company. Harvard Business Review, 69(6), 96-104. Nonaka, I. (1994). A dynamic theory of organizational knowledge creation. Organization Science, 5(1), 14-37. Nonaka, I., & Takeuchi, H. (1995). The knowledge creating company: How Japanese companies create the dynamics of innovation. Oxford, UK: Oxford University Press. Nonaka, I., Toyama, R., & Hirata, T. (2008). Managing flow: A process theory of the knowledge-based firm. Houndmills, UK: Palgrave Macmillan. Secundo, G., Elena Perez, S., Martinaitis, Z., & Leitner, K.H. (2015). An intellectual capital maturity model (ICMM) to improve strategic management in European universities. Journal of Intellectual Capital, 16(2), 419-442. Secundo, G., Elena Perez, S., Martinaitis, Z., & Leitner, K.H. (2017). An intellectual capital framework to measure universities’ third mission activities. Technological Forecasting & Social Change. Article in press. Secundo, G., De Beer, C., schutte, C.S.L., & Passiante, G. (2017). Mobilising intellectual capital to improve European universities’ competitiveness: The technology transfer offices’ role. Journal of Intellectual Capital, 18(3), 1-21. Tiwana, A. (2002). The knowledge management toolkit: Orchestrating IT, strategy, and knowledge platforms, 2nd ed. Upper Saddle River, NJ: Prentice Hall. Vătămănescu, E.M., Gorgos, E.A., Andrei, A.G., & Alexandru, V.A. (2016). The technological advent and dynamics of the network society. The ”Middle-Aged Approach”. Brain-Broad Research in Artificial Intelligence and Neuroscience, 7(3), 16-30. Zohar, D., & Marshall, I. (2000). SQ: Spiritual intelligence. The ultimate intelligence. London, UK: Bloomsbury. Zohar, D., & Marshall, I. (2004). Spiritual capital. Wealth we can live by. San Francisco, CA: Berrtett-Koehler.

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CHALLENGES FOR THE ROMANIAN UNIVERSITIES IN THE KNOWLEDGE ECONOMY Ruxandra BEJINARU Academy of Romanian Scientists 15 Splaiul Independenței, 05009 Bucharest, RO “Ștefan cel Mare” University of Suceava 13 Universitatii Street, 720229 Suceava, RO [email protected] Abstract. The present paper represents an analysis of the topical issues regarding universities world-wide and some approaches for the case of Romanian universities. The first section reviews the implications of universities within the knowledge economy in terms of their changing roles, opportunities, and shortcomings. The second section focuses on presenting the challenges for universities on different dimensions of the knowledge economy in order to understand what strategies to apply for ensuring their global adaptation and growth. We argue the relevance of this analysis throughout the idea that universities focused on entrepreneurship, technology and research have a dramatic impact on their economies, through the entrepreneurial ecosystem created in these universities, start-ups created by students, and spin-offs developed from university research. Within the third section, we present a series of strategies and models to be applied by universities which strive to become more entrepreneurial. Throughout the fourth section, we point out some directions for the case of how can Romanian universities improve their entrepreneurship capabilities. Keywords: entrepreneurship; knowledge strategies.

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Implications of universities in the knowledge economy The new order of the knowledge economy has led to considerable changes at organizational and national level. The accomplishment of the knowledge economy’s standards is being evaluated through well-developed tools like Knowledge Assessment Methodology, developed by World Bank, and Lisbon Scorecard, elaborated by World Economic Forum, and Innovation Union Scoreboard, developed by the European Union (Leon, 2017). Some components of these metrics concentrate on analyzing what is happening at the national level while others focus on determining companies’ contribution and reaction to its development. The final conclusion of Leon (2017, p.246) was that “despite the changes that have been made regarding their name and structure, Knowledge Assessment Methodology, Lisbon Scorecard, and Innovation Union Scoreboard have the same explanatory power. Their use may be redundant since they provide very similar results after using various variables and sources of data. However, they bring forward the progress made at the national level towards developing a sustainable knowledge economy.” The existing tools for assessing universities in the knowledge economy should continuously be innovated according to the changing global environment.

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Universities work, similar to business entities, in a context of unpredictability, an area marked by developing a rivalry in order to attract in and hold the best talents, and also the rise of new needs which must be immediately satisfied. The significant and pressing modernization of the university - considered as a prerequisite for the university's assumption of a crucial role in society and the knowledge-based economy (Hadad, 2017) - has constrained the reconfiguration of the university. Strategic thinking and understanding the importance of knowledge as strategic resources become imperative for universities (Bratianu, 2007; Bratianu, 2010; Bratianu & Bejinaru, 2017). The stake was the capacity of higher education to wind up noticeably focused in the worldwide knowledge society, on the premise of its adjustment to significant changes, for example, expanding interest for higher education graduates, expanding the need to grow close participation between the college and industry, redesign of learning (Lefter et al., 2011) - the need to adjust the techniques for research of the interdisciplinary character of some real issues of contemporary society, for example, feasible improvement (Hapenciuc et al., 2016). The competitive advantage of a few universities, to integrate the teaching activities with research, is behind the benefit of creating leverages through university-industry partnerships, on the way of speeding up of technological development. For all intents and purposes each industrialized nation tries to change the networks between these two segments into a target item of the innovation system, and the idea of "triple helix" speaking to the cooperative connection between government, universities, and business - has turned out to be topical. Research in the field recommends that there are four components required in the show, not just on the suspicion that colleges can be drivers of development and advancement: national administration, sub-national administration, business-organizations, and universities (Hapenciuc et al., 2016). Universities are viewed as the nucleus of innovation development in all nations that need to unite their national advancement framework. Recently, most innovative advances that have affected the economy can be directly or indirectly connected to universities, either by giving knowledge research and dissemination or through university-industry partnerships that have permitted employees and organizations to cooperate in order to create innovation (Esi & Nedelea, 2014). Challenges on different dimensions of the knowledge economy In order to give their best to the world, universities must find the way of transforming their potential into real results and according to Times Higher Education – during the next five years, HEI’s must face a series of global challenges. Research grows geopolitically and critical research questions require substantial national spending plans and working groups keeping in mind the end goal to share differing viewpoints and propelled mastery. States should center their investments towards vital interests and reinforce transnational systems and networks which can give the important abilities. The significant issue for any analyst is to exhibit how wide people in general effect of their work is. Now colleges must acknowledge the test of putting resources into the essential fields that yield (deliver) long-run returns. It is clearly the momentum for inter-nations competition for students worldwide. Countries will seek proficient workforce and universities will compete to recruit the

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best understudies and keep the best graduates. The test of the both nations and universities is to discover the approaches to exhibit the esteem outputs from working and studying with them (ROI – rate of investment). What is the real worth of academia and how is it valued? Many studies have demonstrated that the academic environment creates enormous value yet it is still fairly hard to persuade others about these advantages. For this situation, the test is to discover the methods for making individuals recognize the value of research in higher education by connecting with them inside the community. Transformations in markets, institutions, and technologies are driving progressive changes for the educational programs and teaching process. Data on education results will turn out to be all the more broadly accessible, changing the paradigm about what higher education contributes. The roles of the academic work are changing, and perhaps expanding, as per the worldwide financial and social changes. Scholars are endeavoring to build up their mastery in different specialty territories keeping in mind the end goal to conform to however many demands as could reasonably be expected. The challenge is to attract the best capable scholars keeping in mind that the profoundly gifted scholars should work within a prosperous and liberal environment. To confront the future challenges is essential the broadening of leadership capability. Intellectual and visionary leadership is required for two noteworthy reasons: first, to expel ideological boundaries related with the entrepreneurial worldview and the university idea; and besides, to bring this through in the specific setting of the idea of the university itself and its current culture, mission, and strategy. (Shattock 2009) Entrepreneurial change is accomplished by action, not by strategy statements and maybe in academe, leadership is an idea to be earned not formally assigned (Watson 2010). A key challenge will be to make entrepreneurial good examples inside offices and bit by bit to assemble a culture of compensating innovation in each division, as opposed to a culture of protection. This will request the ability to distinguish potential change specialists and assemble groups around them, empower chance, and secure them. Shared purpose is thus built by example and reward. New types of leadership are required to grasp future difficulties (Gibbs et al., 2012). National experts are seeing new points of confinement of their energy and the challenge is set by the need to co-creating new contributions with the groups they speak to. So as to acquire authenticity, the accreditation offices must give clear norms of consistence. The financing change is an immense issue to address, which drives rapidly to inquiries concerning the cost of educating and research, and touchy issues around cross-sponsorships and executive incentives. Much should be done to make more maintainable and equitable social orders, looking at disadvantaged groups and also across generations. The transparency of academic leadership plays a crucial role in making a good future. To engage best, institutions also need to address their own challenges and take leadership over communicating the value they create. Leadership transparency is no longer an option for the organization but a must. Ensuring transparency for your subordinates and all stakeholders provide a better reciprocal understanding and trust and lead to more efficient cooperation (Bejinaru, 2017).

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The challenge of the entrepreneurial university Entrepreneurship is an idea for which are being used many definitions. However, two regular viewpoints are that entrepreneurship applies both to people and organizations and that it concerns the innovative, forward looking and value-creating use of resources. A helpful working definition of the entrepreneurial advanced education establishment (HEI) has been given by Gibb (2013): “Entrepreneurial higher education institutions are designed to empower staff and students to demonstrate enterprise, innovation and creativity in research, teaching and pursuit and use of knowledge across boundaries. They contribute effectively to the enhancement of learning in a societal environment characterized by high levels of uncertainty and complexity and they are dedicated to creating public value via a process of open engagement, mutual learning, discovery, and exchange with all stakeholders in society – local, national and international” (Gibb, 2013). The definition stresses the empowerment of individuals in their utilization of advancement, inventiveness, and undertaking in their reaction to learning and social engagement. Being an entrepreneurial higher education organization depends, to a great degree, upon people and creative methods for getting things done. The definition is valuable in operationalizing the entrepreneurial HEI and has suggestions over every single hierarchical capacity and disciplines containing the establishment (Jameson & O’Donnell, 2015). All through the battle of HEIs another kind of organizations see business openings and offer alleged answers for less demanding access into the world class group. Another pattern is to get the title of entrepreneurial and engaged university. Throughout this Accreditation Council, it is obtained the recognition of accomplishments, advance hierarchical improvement and join a worldwide gathering of universities commending excellence in entrepreneurship and engagement. Strategies and models for developing the entrepreneurial university The emergence of the approach of entrepreneurial universities is not random but is well-grounded. Universities are „nurturing innovation and entrepreneurship in unique ways – from creating educational value and outlets for their students to providing new economic opportunities for their local economies” (Nadu, 2017, p.20). Universities are awarded a major role in the economic development by providing highly-knowledgeable and skilled young entrepreneurs as well as new know-how and technologies. They offer entrepreneurship education „as a way to develop the entrepreneurial mind-set of graduates, encouraging university students to become self-employed, and are setting-up technology transfer mechanisms” (Mudde et al., 2016). The unique and unmistakable principle of the entrepreneurial university is that it enables all staff, students, outside partners and groups to impact important change in their general surroundings, and does as such by directly engaging in such change through its own particular actions. The focus is on creating hierarchical DNA which empowers the university to act entrepreneurially over all disciplines, at all levels, and in all capacities. „The creation of an entrepreneurial university represents a transformational opportunity to develop a truly relevant and innovative organization

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capable of responding flexibly to the needs of stakeholders and society in ways that have a real and lasting impact while enhancing the graduate attributes the student experience” (Jameson & O'Donnell, 2015, p.72). Thus in order to become entrepreneurial, active learning is necessary. Various contemporary pedagogies (e.g. project-based, active learning or independent learning) should be applied. There are different methods thorough which they can be delivered like: specific programs; emerging good practices should be shared amongst educators to eventually become embedded in day-to-day pedagogy. Also, non-traditional learning environments (real-life situations, out of the classroom) should be available for all students (Nadu, 2017). An OECD document “Entrepreneurship Education: A Guide for Educators” argues some attributes of entrepreneurial teachers: • They reward individual initiative, responsibility taking and risk taking. • They are ready to accept failure and integrate it during a learning process. • They teach how to mitigate risks. Failure is an integral part of the entrepreneurial process but it can also be a costly waste of time, skill, and commitment. • Entrepreneurial teachers have a strong team working skills. • Entrepreneurial teachers are networkers. They frequently exchange with and consult with their peers, external collaborators and meet up regularly. • Entrepreneurial teachers use a variety of creative methods as pedagogical tools. • They let students take responsibility for their own learning process, for instance by letting them create their own lessons. In their assessment methods, entrepreneurial teachers acknowledge not only the solution but also the process of how to get there. • Entrepreneurial teachers use technology and social media in the classroom to support learning. They explore new solutions, production techniques, and computing tools which support the learning process. • They also use social media for their own peer learning and exchange of information. (Nadu, 2017) According to the previously presented features, the entrepreneurial university is perceived to be able to cope with societal challenges by innovation in research, knowledge exchange, teaching and learning, governance and external relations (European Commission and OECD, 2012). A different and more economic approach that has turned out to be overwhelming in the talk on entrepreneurial colleges supports the emphasis on their role in innovation and regional financial improvement through transposing of research into business results. From a traditional perspective, innovation is derived from academic knowledge but today a contrasting perspective states that problems in society are researched in search for scientific solutions. Etzkowitz (2000, 2004) positions universities in a so-called triple helix innovation system in which academia, businesses, and government cooperate. In this knowledge infrastructure, entrepreneurial universities are institutions that transform themselves into entrepreneurial enterprises of innovation, knowledge transfer, and technology commercialization (Mudde et al., 2016). However, it is obvious that a university can't wind up noticeably entrepreneurial in one day. Research revealed that it is an authoritative change procedure of ten to 15 years. In a subsequent report at 20 universities, Gjerding et al. (2006) reasoned that for such a procedure to be successful requires a top-down leadership drive that empowers bottom-up initiatives, "supporting a culture of intrapreneurship".

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Furthermore, Nelles and Vorley (2009) stated that an entrepreneurial transition should be managed throughout five components. They argue that building an entrepreneurial architecture needs the advancement of authoritative structures, communication and coordination systems that provide assistance in adequately relating the diverse activities, initiative – including vision, strategies, and consideration for the hierarchical culture which is the hardest to change. According to some non-conventional opinions, the entrepreneurial university is a public–private entity in scale and scope equivalent to a venture-capital entity (VC). “In good times, the private side of the model predominates; in bad times, the public side comes to the forefront. In all times, the global convergence to an entrepreneurial university is the reverse side of the same coin: the transmutation of academic knowledge into economic advantage” (Guerrero & Urbano, 2010).

Figure 1. Conceptual model of entrepreneurial universities (Guerrero & Urbano, 2010) In this context, we conclude that a modern university can only preserve its cultural mission if it adopts an effective model of the entrepreneurial university, which: - is based on the principles of a comprehensive university, which is similar to a corporation; - leverages the adaptive potential of its organizational transformation while assessing the risk of losing its historical cultural mission; - reduces the gap between the innovative existence (form) and traditional essence (substance) of university education; - combines the educational and entrepreneurial functions of education. This model is the most competitive since it provides a better chance of successful interaction between the education market and labor market.

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Many studies and reviews focusing on the concepts and practice of entrepreneurial universities and academic entrepreneurship relate them to the commercialization of science. Indeed, there is a strong causal relationship between university-led scientific innovation and economic benefits. In this sense, the novel entrepreneurial strategy must motivate this kind of academics to closely collaborate with industry in order to build entrepreneurial mindset within university and community on all levels and components (Jarohnovich & Avotiņš, 2013, p.124). Triple Helix model belongs to regional innovation framework as the universities assume a focal part as knowledge – producers, and disseminators. No matter the policies developed according to the triple-helix model very little changes in the conduct of government were accomplished because the triple-helix approach was connected more in a static way, similar to "a holistic measure", not as a basis for real and required strategy statements. As indicated by the triple-helix hypothesis in an emerging knowledge economy those spots with entrepreneurial universities ought to progressively exhibit developing an interest for knowledge exchange to industry and society. In reality, we can observe deviations from this rule and very an unequal R&D spread. The third role of universities – to cooperate with surrounding ecosystem in addition to teaching and performing world class research still stay on top of academic-industry relations thus narrowing earlier projected in triple helix approach of wider private – public interaction. The arrangement may be the expansion of this third role to creativity and cross-disciplinary helpful condition for gifted individuals. This requires likewise for new reexamined activities throughout more dynamic and closer, long-run university-industry collaboration effort on a base of entrepreneurial mindset (Jarohnovich & Avotiņš, 2013). The entrepreneurial university in its simplest model interlinks its three missions: education, research, and societal advantages (see figure 2). The general business model incorporates fundamental fields and players of collaboration: education and research, government, industry, however it doesn't present in points of interest all conceivable directions of knowledge creation and elements of business enterprise space in the university environment. “There can be two different approaches to university business model: -wider view to the university as a creator of intellectual and social capital for and in society, -narrower view to the university as economic value producer from created in campus knowledge as revenues-rising function” (Jarohnovich & Avotiņš, 2013, p.30).

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Figure 2. The model of university with three strategic priorities (Jarohnovich & Avotiņš, 2013) A university’s primary function has always been to teach, which provides society with graduates who become both jobseekers and job creators. Its secondary function has been to conduct research, which, within the new knowledge-based economy, not only generates published academic findings but also innovations for new companies. Now, entrepreneurial activities link research results to their practical implications for society. Knowledge spillover appears to transmit university research via several conduits. Based on that, new companies are generated by the commercialization of research outputs of multidisciplinary research (Schulte, 2004). The entrepreneurial university must fulfill three missions simultaneously that otherwise might be at odds with one another: teaching, research, and entrepreneurship (Mahdi, 2016). An entrepreneurial university is a natural incubator that endeavors to simultaneously fulfill its missions (teaching, research and entrepreneurial activities) while providing an adequate atmosphere in which the university community (academics, students, and staff) can identify, explore and exploit innovative and creative ideas that could be transformed into new ventures (Kirby et al., 2011).

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Figure 3. Functions of the 3G University (Mahdi, 2016) Romanian universities in the context If we consider the question ‘Why do we need the entrepreneurial type of universities in Romania?’ we might discover serious arguments. To start with the creation and growth of new business underpin innovation and economic growth. The speed with which these businesses are created and disappear, grow or decrease is what economists do call the economic dynamism, a critical factor for improving the standard of living. Among the factors that can sustain this dynamism are culture and entrepreneurship education. Also, both can be critically influenced by a university education. We already know that universities have an important economic impact on education and research (Matei et al., 2015). But to support economic growth through entrepreneurship, universities must create a cultural environment within them promoting entrepreneurship through programs, courses, competitions, relationships with investors and business people, etc. Universities focused on entrepreneurship, technology and research have a dramatic impact on the economies throughout the entrepreneurial ecosystems created in these universities, start-ups created by students and spinoffs emerged from university research. The entrepreneurial behavior of the Millennials was analyzed and findings may be relevant for creating national strategies. The Millennials generation is the new generation (defined by researchers as the population born between 1980 and early 2000), which comes with a paradox in terms of entrepreneurship. On the one hand, those in this generation are the most educated generation so far and have had exposure to entrepreneurship: both abroad and inside the country. The success stories of entrepreneurs such as Mark Zuckerberg, the founder of Facebook, or children who have become entrepreneurs before going to school, have become popular. On the other hand, this generation has crossed the great recession that has made its first signs felt in

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Romania since the end of 2008. That's why this generation faces negative career prospects. Against this background and in the absence of accelerated economic growth, the number of new firms is declining in Romania. If we look only for the first 10 months of 2014, compared to the same period in 2013, the number of registered companies fell by 20%, while the number of created companies decreased by 6%. These facts are not just the case of Romania. Even in the country considered the most entrepreneurial in the world, the United States, the rate of new business creation has declined over the past decades. According to Brookings Institution, quoted by Forbes, and in Silicon Valley, fewer firms are being set up. In the United States, the number of launches fell by almost 28% between 1977 and 2011, according to the Census Bureau. Explanations of the state of affairs in Romania are many and different from those of the US, including low risk aversion, an unfriendly culture with entrepreneurs, a lowgrowth economy, lack of start-up capital, and lack of entrepreneurial education and strategic thinking (Matei et al., 2015). It is widely known and accepted that there is a direct relationship between investment in education and the growth of Gross Domestic Product (GDP). This should be even more acknowledged as this education is directing and developing the knowledge, aspirations, and attitudes needed by an entrepreneur. The only positive perception of the Romanian entrepreneurs responding to the 2013 study is education. According to the barometer, entrepreneurship education improved in 2013 in Romania, with 58% of entrepreneurs sustaining this perception. The positive impression on entrepreneurship education is the same and segmented by age, with a higher percentage for young entrepreneurs (under 40) (Matei et al., 2015). Universities are fundamental for the development of an entrepreneurial ecosystem, including venture capital investors, entrepreneurship support organizations, incubators, and a skilled specialist base. The importance of universities in creating an entrepreneurial environment cannot be denied if, for example, are taken into account Silicon Valley and Stanford University's crucial roles in creating such an effective entrepreneurial context in the Valley. This role is not limited to creating the ability to write a business, marketing or finance plan or another kind of course. Although these are equally important, entrepreneurial universities transfer more than this knowledge, becoming a factory of entrepreneurs. For instance, in the United States, in 2006, out of 1,250 business incubators, one-third were organized in universities, generating startups and businesses for the real economy. In Romania, young students consider that faculty is preparing them to an average degree to become entrepreneurs (44%) (Matei et al., 2015). This answer indicates that steps have been taken to support entrepreneurship in Romanian universities, but there is still much to go in this direction. Following we briefly present what we have learned that Romanian universities should do in order to improve their entrepreneurial capabilities. In this age, when progress and well-being are increasingly the product of thought, all faculties of the university have to be involved in the process. The entrepreneurial discussions in which they must be involved from the beginning, the employees of all the faculties must be extremely important in implementing the new programs dedicated to entrepreneurship and must be a decisive factor in cultural change within universities, which leads to promoting entrepreneurship. It is critical to have support from university leaders. The help coming from the university leaders is underlined as being a major one regarding

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financial support and to ensure the implementation of entrepreneurial programs in all faculties of the respective university. Another strategy is to make entrepreneurship as visible as possible. Many universities have applied the principle of ubiquitous entrepreneurship, organizing events about entrepreneurship that have involved the entire university. Faculties and departments in Romanian universities can define entrepreneurship according to their own needs and applicability. This definition should apply to the respective discipline and to the faculty mission, up to the department level (Matei et al., 2015). Concluding remarks In a globalized world, benchmarking universities to each other in the global territory of education and research is turning into a decent institutional practice. However, there is no single solution to transform into an entrepreneurial university, precisely because this type of education is not of the same nature as classical theoretical subjects. To be successful, this type of education must involve the community, investors, mentors and other business people and must create an ecosystem in the true sense of the word, i.e. a system flexible to changes in students' expectations, changes in the economy and community needs. To conclude with we remind briefly, the necessary set of changes, the point of which are to modernize the university: increasing the relevance of education and research, transferring knowledge and training the skills required for graduates to successfully practice their profession; strengthening the knowledge triangle - education, research, business; increasing the capacity to meet the needs of the economy, creating selffinancing mechanisms. Finally, in order to encourage entrepreneurship throughout our universities, this domain must be perceived as a valuable and respected career choice, and those who proceed in the way of entrepreneurship must feel that they are not stigmatized in case of failure. These two very important aspects of the development of entrepreneurship belong to the entrepreneurial culture of the Romanian society, built also by the university education and they must be correctly and thoroughly approached. Acknowledgements. We would like to acknowledge the financial support received for this research from the Academy of Romanian Scientists, Romania, within the Research Program no.11/2017: “Developing strategies to implement knowledge economy in Romania”.

References Bejinaru, R. (2017). Universities in the knowledge economy, Journal of Management Dynamics in the Knowledge Economy, 5(2), 51-271. Bratianu, C. (2007). Thinking patterns and knowledge dynamics. In Remenyi, D. (Ed.), Proceedings of the 8th European Conference on Knowledge Management (pp.152156). Consorci Escola Industrial, Barcelona, Spain, 6-7 September 2007. Bratianu, C. (2010). A critical analysis of Nonaka’s model of knowledge dynamics. In Rodrigues, S. (Ed.), Proceedings of the 2nd European Conference on Intellectual

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BUSINESS DIGITIZATION IN THE ROMANIAN ECONOMY Shahrazad HADAD The Bucharest University of Economic Studies 2-2A Calea Grivitei, sector 3, 010731 Bucharest, RO Academy of Romanian Scientists, Romania 5 Splaiul Independentei, 05009 Bucharest, RO [email protected] Abstract. Lately, digitization has become a popular term characterized by opportunities and challenges that are more and more present in business activities, in developed and developing nations and consequently, also in the Romanian economy. The aim of this research paper is to gain insight in the field of digitization and the digital economy, with a particular interest in business digitization. In the first part of the paper, we analyzed the “Digital Economy and Society Index 2017 for Romania”, which measures the progress of the EU states in terms of the evolution of the digital economy and society. The second part of the article is made up of a quantitative research, focusing on the business digitization in the Romanian economy and trying to answer several research questions: (1) Is business digitization relevant for Master’s students? (2) Are Master’s students interested in business digitization? (3) Do respondents have digital skills? (4) Are digital investments welcome in Romanian businesses or not? Through a questionnaire addressed to Master’s students, the current study aims to reveal the respondents’ perception on the impact of digital economy on Romanian businesses. This research identifies at the same time challenges and specific practices that certain firms use. The findings underline the increased awareness of respondents in business digitization, their high digital literacy as well the low digital investments that companies are ready to make. Another important aspect revealed by the research is that respondents perceived digital technologies as processes which add value in enterprises (95% of them) and they are unaware of the career opportunities within this field. What is important to be observed here is that women totally rejected this question, by answering particularly with strongly disagree and disagree (67% out 74.1%). Apparently, barriers still exist, especially for women less represented in computer courses of higher education, and within the entire industry. Keywords: digitization; digital economy; digital skills; business; impact. Introduction In recent years, digitization modified and challenged the whole society, (Newell & Marabelli, 2015), creating new working skills, modern cultural conditions and innovative communication and entrepreneurial tools (Galliers et al., 2015). In a fast changing knowledge-economy where knowledge becomes a strategic resource (Bolisani & Bratianu, 2017), digitization connects not only the intellectual capital (Bejinaru & Iordache, 2011; Bratianu, 2011; Bratianu & Orzea, 2013a, b) of organizations but also of corporations, services and states smoothing business processes, partnerships, interaction, ultimately, leading to complex networks (Pînzaru,

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2015). This results in the emergence of a new economy, where individuals become “walking data generators” (McAfee & Brynjolfsson, 2012, p.5) not only socially speaking but also from an organizational stand point. The new economy is based on intangibles which are nonlinear (Bratianu, 2009, 2010) and thinking models which go beyond linear thinking (Bratianu, 2007). The hereby research highlights mainly the role of digitization and digital economy on businesses, but also its impact on the business environment in Romania, especially if we take into account the societal changes. Pros and cons can easily be found in the academic literature on this theme, particularly in recent studies, some shedding light on the advantages and some on the disadvantages of digitization (Galliers et al., 2015; Markus, 2015). Scholars, practitioners, and literature in the field “describe and analyze complex and sometimes controversial issues concerning the consequences of enterprise digitization on individuals and work” (Koch et al., 2012). Loebbecke and Picot refer to these benefits which emerge “from the jettisoning of routine work, the growing availability of flexible work hours, and better work-social life balance, to the challenges of being always online (and risking ‘burnout’) and a ‘freelance economy’ where individuals have to struggle for paid work” (2015, 150). All in all, business digitization represents actually, innovative business models (Loebbecke & Picot, 2015, p.150) involving digital data (Tapscott, 2015). The global business community is moving towards accelerating digitization. The current state of knowledge regarding business digitization and digital economy The hereby research is centered on two major concepts: business digitization and digital economy. In order to gain a broader understanding, both of them will be carefully analyzed and explained. The present research is aligned to the pillars of knowledge management. The concept of digitization emerged once Gottfried Wilhelm Leibniz’s Explication de l’Arithmétique Binaire was published, in 1703. If at first, this meant two symbols, later on, the concept was developed and highly accelerated (Bounfour, 2016), moving from personal computers to the ‘World Wide Web’ (Vogelsang, 2010), this last discovery changing completely the speed of the evolution of digitization (Collin, 2015). From that moment on, the process of digitization, alongside with all its following effects, referred to, in the academic literature as “digital transformation” (Berman, 2012; Chew, 2015), increased contemporary business scholars’ interest on the matter, business digitization being debated in conferences and in business reviews by academics, policymakers, private and public organizations. Currently, digitization represents a “global megatrend that is fundamentally changing existing value chains across industries” (Collin et al., 2015, p.29) influencing businesses, employees, customers, beneficiaries, and stakeholders. From the point of view of the socioeconomic impact of the concept, the following framework can be drawn:

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Figure 1. Digitization’s socioeconomic impact (World Bank; World Economic Forum)

As the EU admitted in the working paper Expert Group on Taxation of the Digital Economy, “defining what constitutes the digital economy has proven problematic, because of the ever-changing technologies of the ICT sector and because of the widespread diffusion of the digital economy within the whole economy, it can no longer be described as a separate part, or subset, of the mainstream economy” (European Commission, 2014, p.3). If scholars did not succeed in agreeing on a standard definition for digitization, they did, however, admit that it represents a major provocation for organizations and particularly for managers (Westerman et al., 2014), bringing dramatic improvements for the economy, society, and governance. If we refer to digitization in terms of the last two decades innovation waves, several new technologies can be mentioned: “the internet, e-commerce, mobile broadband, social media and Big” (McKinsey Global Institute, 2016, p.3). All the above mentioned innovations transformed technologies, infrastructure, and most importantly, business practices. Digitization and digital economy are however interrelated, the central role in both of the concepts being played by ICT (Blum, 2015, p.314). Bearing in mind the above study on digitization, the attention will further shift to the definition of digital economy, as accepted and recommended by OECD: “The digital economy is the result of a transformative process brought by information and communication technology (ICT). The ICT revolution has made technologies cheaper, more powerful, and widely standardized, improving business processes and bolstering innovation across all sectors of the economy” (OECD, 2015, p.11). In fact, as Gaoua (2014) states, the digital economy stands as a business model relying mainly on ICT. In this vein, traditional business models transform themselves with the help of data and networks into innovative business models, undergoing an organizational reshaping process (Rogers, 2016).

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The digital development currently dominates all the economic areas. According to Accenture, if in 2005, the global digital economy totaled 15%, in 2015 it reached 22%, being forecasted to grow up to 25% by 2020 (2016).

Figure 2. Forecasts for 2020 in the case of digital economy (Accenture, 2016, p.4)

From the organizational point of view, Westerman et al. (2014) state that businesses, in order to become “digital masters” should (1) correctly operate and implement digitization and (2) rely on leadership skills. At the same time, another important aspect underlined by researchers in the field was the necessity for corporations to “embrace digital, […] empower their people – consumers, employees and ecosystem partners – to continuously learn new skills to do more with technology and thus generate bigger and better business results. That demands a digital corporate culture enabling people to create fresh ideas, develop cutting-edge products and services and disrupt the status quo. In an age where technology is in the spotlight, the success mantra for digital businesses: Place People First” (Accenture, 2016, p.4). Indeed, scholars agree that intellectual capital is paramount for gaining “a competitive advantage and for the capacity of an organization to create value” (Bratianu, 2009, p.63). Digital economy can be analyzed only in the larger context of the Digital Agenda for Europe, part of the Europe 2020 Strategy, one of the seven initiatives of the UE addressing particularly digitization, whose provisions are applied to Romania under the name of Digital Agenda for Romania 2020 (Rada, 2015, p.36). The National Strategy on the Digital Agenda for Romania implies the following areas of action as mentioned in Figure 2:

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Figure 3. Areas of action for the National Strategy on the Digital Agenda for Romania (Stratulat & Ciobanu, 2016, p.349)

In this vein, several problems of development of the digital economy in Romania emerge, the most important of all being that there is no national strategy for the digitization of businesses. According to the “Digital Economy and Society Index 2017 – Romania”, which measures the progress of the EU states in terms of the evolution of the digital economy and society, there are five major items regrouping more than 31 indicators which are to be found in the table below: Table 1. DESI Indicators (https://ec.europa.eu/digital-single-market/en/desi)

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As it can be seen, if we compare Romania with the rest of EU Member States, our country ranks 28th, the last rank according to the DESI indicators. Thus, out of five indicators, Romania occupies the last rank for four of them. This means that the only indicator with better performances for our country is Connectivity, where Romania reaches 12.5%, which places Romania on the 9th position. For all the rest of dimensions, Romania is listed last. In spite of the progress made during the last years, the gap between the other EU States is still considerable, and up to a certain point, we can also mention the digital divide, which keeps Romania away from digital progress.

Figure 4. Main Dimension of the DESI for Romania 2014-2017 (Europe’s Digital Progress Report, EDPR, 2017). Country Profile Romania (https://ec.europa.eu/digital-single-market/en/desi)

Further on, a general analysis on the five main dimension of DESI for Romania will be conducted. Thus, in terms of the Connectivity indicator, Romania gains particularly from urban areas, where are mostly fast broadband connections, translating into the maximum subscriptions share from the European Union to the detriment of rural areas. Along with this, there is also high interest in mobile broadband, this development being both stimulated and accelerated. In spite of all these, the digitization of our economy is still low and in line with the EU average which is also notably lower. For this dimension, it should also be mentioned that 4G broadband network of our country is the lowest in the whole EU. The second indicator, Human Capital, which focuses mainly on individuals’ digital skills and handling of the internet, remains for our country the second lowest of the 28th Member States. More people are online, and digital skills levels are improving but remain the second lowest in the EU. Digital literacy in Romania is, therefore, one of the weakest in the EU, which is worryingly and could convert into a skills crisis (House of Commons Science and Technology Committee, 2016). As Andreica et al. (2016, p.343) argue, it is important for our state “to address severe e-skills gap in order to fully develop the digital economy and digital society, develop digital skills of citizens”, especially since “a little more than half of Romanians are regular internet users (56%) compared with 79% in the EU. 28% of Romanians possess above basic levels of digital skills” (the EU level is 56%). (Europe's Digital Progress Report (EDPR), Country Profile Romania, 2017, p.5) The incredibly low percent of 28% of Romanians, possessing basic

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digital skills may turn into an important economic barrier for the development of our state. As far as the Use of Internet is concerned, Romanian online users accede to a wide typology of activities on the Internet. However, there is a general reluctance to online transactions, no matter if we refer to banking or e-commerce. Indeed, we should consider that “it is widely accepted that e-commerce improves efficiency through four essential factors: cost reductions, more competition, a better organization of production processes, and greater access to different varieties of products.” (United Nations Economic Commission for Europe, 2011, p.251). Another important dimension of the DESI is Integration of Digital Technology, of major importance for the hereby research. This indicator focuses particularly on businesses, which unfortunately failed even in 2017 to digitize their work. Thus, if in 2016 only 6% of the firms were using social media, this year there is a small raise of 2%, which, however, places our country, again, on the last rank for this dimension. This small increase comes in contrast with the high percentage of social media users. Also, the report mentions that: “no progress has been registered in terms of SMEs selling online (7%) and a decrease can be seen for use of cloud services (-5%) and eCommerce turnover for SMEs (-4.3%)”, (Europe's Digital Progress Report (EDPR), Country Profile Romania, 2017, p.7), which is even more worrying, since these parts of the digital economy can provide competitive advantage for each sector and industry, since they can improve the productivity, performance, and profitability of each business. The widespread “Integration of Digital Technology” stands as a major opportunity for businesses and the economy as a whole. Several investigations which examined the relationship between digitization and improved productivity agreed on the idea that high IT&C investments are important factors for “doubling the productivity growth rates” (Miller & Atkinson, 2014). At the same time, Miller and Atkinson (2014) confirmed that research undertaken on multinational firms in the United States conducted to the result that these corporations were “with 8.5% more productive on average than UK domestic owned firms”, the main explanation being the impact of ICT on the respective businesses. However, in spite of the existence of the Romanian National Digital Agenda Strategy, its focus seems to be more on the social measures than on the business area, especially since elements such as cloud computing, open data and e-commerce are hardly addressed. Indeed, as Europe's Digital Progress Report (EDPR) for Romania states, “there seems to be a lot of room for adopting policy measures that support the uptake of digital technologies in the day to day life of companies. Companies in Romania do not seem to see digital technology as a tool to boost productivity and create growth. ICT technology and cloud services are seen as a significant additional investment, rather than a pre-requisite for a successful business” (2017, p.7). The last dimension of the DESI is “Digital Public Services”, where, again, Romania’s performance is weak, below EU’s rate, with some improvements at the online public services for firms and citizens.

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Research, methodology, objectives, and limits This study was designed to investigate the perception and awareness on business digitization in Romania. The research method used was the quantitative one, being also used exploratory and descriptive statistics. The data was collected with the help of an online survey structured in two parts: the first one providing data on the participants (gender, age, employment type), and the second part, focusing on business digitization, more precisely on: degree of familiarity with the subject of digitization; digital skills; digital investments. The questionnaire was completed by master’s students, being accepted only those questionnaires completed by students working in private firms. A total of 394 questionnaires completed by master’s students of The Bucharest University of Economic Studies were considered as fulfilling the initial request (private job). The objectives of the research referred to: -Determine the relevance of business digitization for Master’s students; -Identifying how interested are Master’s students in business digitization; -Measuring the level of digital skills; -Determine the most degree to which digital investments are welcome or not. As for the limits of the research, the studied population is limited to Master’s students working in private companies and coming from the Bucharest University of economic Studies, and the results can be biased since 74.1% of respondents are women. The sample Master’s students can be found in the table below. Table 2. Respondents’ features (total = 394)

When respondents had to answer whether they are familiar with the terms digital economy and digitization, more than half (54.0%) stated that they strongly agree, meanwhile 37.0% said that they agree. Only 8% did not provide an answer stating that they neither/nor agree, and 1% disagreed to the statement. The lack of knowledge regarding these key concepts was reflected later on in a lack of digital skills, as we shall see further on.

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Figure 5. Distribution for I am familiar with the terms digital economy and digitization

In our research, the respondents consider digital technologies as processes which add value in enterprises (95% of them).

Figure 6. Distribution for Digital technologies and processes which add value in enterprises

When asked whether they think that they have basic digital skills, on the one hand, 72% answered that they strongly agree, and 19% that they agree; on the other hand, the rest of 9% stated that they disagree. This means that, even if young individuals living in urban areas tend to have digital skills, there are also some who are not familiar with the digital world. This translates into a major risk to business growth and societal development because lately, more and more knowledge-intensive sectors are developing, becoming highly digitized.

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Figure 7. Distribution for I have basic digital skills

Another question of the research focused on the possibility of respondents to consider an IT job offer. Their answers proved a lack of awareness of career opportunities within this field. Either they are not informed on this matter, or they do not have the necessary studies or skills. An important aspect observed here is that women totally rejected this question, by answering particularly with strongly disagree and disagree (67% of 74.1%). Apparently, barriers still exist, especially for women less represented in computer courses of higher education, and within the entire industry.

Figure 8. Distribution for I would consider an IT job offer

The last question of the research dealt with the willingness of enterprises to invest in digital technologies. For this answer as well, most answers were negative. Respondents consider that their managers have no desire or have a little wish for digital investments. Proper business digitization implies considerable investment in time and effort. In order to increase competitiveness, flexibility, in order to better adapt to clients’ needs and therefore implement new business models, companies must invest: in employees, processes, technology and so on.

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Conclusions and implications The present study aimed to make an innovative contribution to the existing literature on the business digitization in the Romanian economy. The outcomes of the hereby analysis state that our economy, society, and government do cope with upcoming changes and challenges regarding the digitization processes, making permanent and constant progress. The quantitative research also proved that respondents are familiar with the subject of digitization, considering digital technologies as processes which add value in enterprises (95.2% of them). At the same time, they do have good and very good digital skills, meaning that they own digital literacy. On the other hand, when asked about digital investments and whether their managers are taking into consideration this type of investments, the answers were negative. Another question on which the research focused was the possibility of respondents to consider an IT job offer. Their answers proved a lack of awareness of career opportunities within this field. An important aspect observed here is that women totally rejected this question, by answering particularly with strongly disagree and disagree (67% of 74.1%). Apparently, barriers still exist, especially for women less represented in computer courses of higher education, and within the entire industry. Acknowledgements. The present paper has been financially supported by the Academy of Romanian Scientists, Programme No. 11/2017 “Strategies for Implementing Knowledge Economy in Romania”.

References Accenture (2016). Technology Vision. Executive Summary. People First: The Remedy to Digital Culture Shock. Retrieved from https://www.accenture.com/usen/insight-it-tech-trends-summary. Andreica, R., Andreica, A., & Popescu, M.Ec. (2016). Problems of Development of the Digital Economy in Romania. PEEC2016 Quality – Access to Success, 17(S1), 343346. Bejinaru, R., & Iordache, S. (2011). Intellectual capital dynamics within the learning organization. In Turner, G., & Minnone, C. (Eds.), Proceedings of the 3rd European Conference on Intellectual Capital (pp.70-77). Reading: Academic Conference and Publishing International. Berman, S.J. (2012). Digital transformation: opportunities to create new business models. Strategy & Leadership, 40(2), 16–24. Bolisani, E., & Bratianu, C. (2017). Knowledge strategy planning: an integrated approach to manage uncertainty, turbulence, and dynamics. Journal of Knowledge Management, 21(2), 233-253. Bounfour, A. (2016). Digital Futures, Digital Transformation. Cham: Springer International Publishing. Bratianu, C. (2007). Thinking pattern and knowledge dynamics. In Remenyi, D. (Ed.), Paper presented at the 8th European Conference on Knowledge Management. Consorci Escola Industrial, Barcelona, Spain, 6-7 September 2007. Bratianu, C. (2009). The frontier of linearity in the intellectual capital metaphor. In Stam, C. (Ed.). Proceedings of the European Conference on Intellectual Capital (pp.97-103). Reading, UK: Academic Conferences and Publishing International.

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Bratianu, C. (2010). A critical analysis of Nonaka’s model of knowledge dynamics. In Rodrigues, S. (Ed.). Proceedings of the 2nd European Conference on Intellectual Capital (pp.115-120). Reading, UK: Academic Conferences and Publishing International. Bratianu, C. (2011). A new perspective of the intellectual capital dynamics in organizations. In Vallejo-Alonso, B., Rodriguez-Castellanos, A., & ArreguiAyastuy, G. (Eds.), Identifying, measuring, and valuing knowledge-based intangible assets: new perspectives (pp.1-21). Hershey: IGI Global. Bratianu, C., & Orzea, I. (2013a). The entropic intellectual capital model. Knowledge Management Research & Practice, 11(2), 133-141. Bratianu, C., & Orzea, I. (2013b). Emotional knowledge: the hidden part of the knowledge iceberg. In Janiunaite, B., Pundziene, A., & Petraite, M. (Eds.), Proceedings of the 14th European Conference of Knowledge Management (pp.8290). Reading, UK: Academic Conferences and Publishing International. Chew, E.K. (2013). Value Co-creation in the Organizations of the Future. In Collin, J., et al. (2015). IT Leadership in Transition - The Impact of Digitalization on Finnish Organizations. Research Rapport, Department of Computer Science, Aalto University. European Commission (2014). Expert Group on Taxation of the Digital Economy. Working Paper: Digital Economy - Facts & Figures. Digit/008/2014, Brussels. Galliers, R., Newell, S., Shanks, G., & Topi, H. (2015). Call for papers for the special issue: the challenges and opportunities of ‘datification’; Strategic impacts of ‘big’ (and ‘small’) and real time data – for society and for organizational decision makers. Journal of Strategic Information Systems, 24(3), II–III. Gaoua, N. (2014). Taxation of the Digital Economy: French Reflections. Journals IBFD, 54(1), 10-15. House of Commons Science and Technology Committee (2016). Digital skills crisis. Second Report of Session 2016–17. Koch, H., Gonzalez, E., & Leidner, D. (2012). Bridging the work/social divide: the emotional response to organizational social networking sites. European Journal of Information Systems, 21(6), 699–717. Leibnitz, G.-G. (1703). Explication de l’arithmétique binaire, qui se sert des seuls caractères O et I avec des remarques sur son utilité et sur ce qu’elle donne le sens des anciennes figures chinoises de Fohy. Mémoires de mathématique et de physique de l’Académie Royale des Sciences. Académie Royale des Sciences, 1703. HAL Id: ads-00104781. Retrieved from https://hal.archives-ouvertes.fr/ads-00104781. Loebbecke, C., & Picot, A. (2015). Reflections on societal and business model transformation arising from digitization and big data analytics: A research agenda. Journal of Strategic Information Systems, 24(3), 149-157. Markus, M.L., & Topi, H. (2015). Big Data, Big Decisions for Government, Business, and Society. Report on a Research Agenda Setting Workshop Funded by the U.S. National Science Foundation. Award# 1348929. McKinsey Global Institute (2016). Digital Europe: Pushing the frontier, capturing the benefits. Retrieved from http://download.eu-servicebb.de/download/001555/mgi-digital-europe-in_brief-june-2016.pdf. McAfee, A., & Brynjolfsson, E. (2012). Big Data: The Management Revolution. Harvard Business Review, 90(10), 59-68. Miller, B., & Atkinson, R.D. (2014). Raising European Productivity Growth through ICT. Information Technology & Innovation Foundation, June 2, 2014. Retrieved from

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http://www.itif.org/publications/raising-european-productivity-growththrough-ict. Newell, S., &Marabelli, M. (2015). Strategic opportunities (and challenges) of algorithmic decision-making: a call for action on the long-term societal effects of ‘Datification’. Journal of Strategic Information Systems, 24(1), 3-14. OECD (2015). Addressing the Tax Challenges of the Digital Economy, Action 1 - 2015 Final Report, OECD/G20, Base Erosion and Profit Shifting Project, OECD Publishing, Paris. Retrieved from http://dx.doi.org/10.1787/9789264241046en. Pînzaru, F. (2015). Managing in the digital economy: an introductive discussion, Pannon Management Review, 4(2), 9-31. Rada, C.I. (2015). Digital Agenda for Romania, Progress towards 2020 Targets. Studia Europaea, 4(1), 35-66. Strategia Națională privind Agenda Digitală pentru România. (2015). Retrieved from https://www.comunicatii.gov.ro/?page_id=3496. Stratulat, O., & Ciobanu, Gh. (2016). Romanian IT&C Industry Development in the Context of Development of the Digital Economy. Bucharest PEEC2016 Quality – Access to Success, 17(S1), 347-352. Tapscott, D. (2015). The Digital Economy. Rethinking Promise and the Peril in the Age of Networked Intelligence. New York: McGraw-Hill. United Nations Economic Commission for Europe (2011). The Impact of Globalization on National Accounts. New York and Geneva: United Nations (UN). Vogelsang, M., (2010). Digitalization in Open Economies. Contributions to Economics. Heidelberg; Physica-Verlag HD. Westerman, G., Bonnet, D., & McAfee, A. (2014). Leading digital: turning technology into business transformation. Boston: Harvard Business Press.

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KNOWLEDGE MANAGEMENT PRACTICES IN NONPROFIT ORGANIZATIONS Alexandra ZBUCHEA National University of Political Studies and Public Administration 30A Expozitiei Blvd., Sector 1, 012104 Bucharest, RO [email protected] Sotirios PETROPOULOS University of the Peloponnese 15 Viktoros Ougko St., 104 37 Athens, GR [email protected] Beata PARTYKA Foundation for the Support of Nongovernmental Organizations «Umbrella» ul. Legnicka 65, 54-206 Wroclaw, PL [email protected] Abstract. The paper investigates to what extent the membership in umbrella organizations helps NGOs improve their knowledge management strategy. Umbrella organizations are nonprofit structures, developed to support the development of the nonprofit sector by providing information, resources, promoting good practices in various ways and contributing to knowledge and skill development in the member organizations. Therefore, intra-organizational and inter-organizational knowledge management is at the core of the activity of umbrella organizations and they could be a positive factor in shaping knowledge management strategies. Some authors recommend that knowledge management should be approached in a similar manner in NGOs compared to firms, due to the existence of the same set of subsystems to be considered – people, technology, task, and structure. Some others, quite on the opposite, support the need for an adaptation, necessary due to the existence of specific stakeholders and beneficiaries. The 12 interviews undertaken in Greece, Poland, and Romania show that access to information and networking are key elements in being a member of umbrella organizations. These would support a more effective knowledge management in the nonprofit organizations in all countries considered. Keywords: NGOs; umbrella organizations; knowledge management in NGOs. Introduction Knowledge management is a theme increasingly more present in academic research. Most of the articles published in this domain refer to knowledge management approaches in business organizations (Centobelli, Cerchione & Esposito, 2017; Cerchione, Esposito & Spadaro, 2016; Heisig, 2016; Patil & Kant, 2014). Some of them investigate the specific strategies of public organizations (Amayah, 2013; Garlatti et al., 2014; Massaro, Dumay & Garlatti, 2015). The academic interest in the approaches knowledge management strategies adopted by NGOs is relatively recent, and the

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number of studies is not so large as in the case of corporations, or even public organizations. Nevertheless, we could mention a list of studies which draws a relevant framework for further research: Bebensee, Helms & Spruit, 2012; Corfield, Paton & Little, 2013; De Vasconcelos et al., 2007; Guldberg et al., 2013; Hasnain & Jasimuddin, 2012; Hume & Hume, 2008, 2015; Hurley & Green, 2005; Matschke, Moskaliuk & Cress, 2012; Ragsdell, 2013; Rathi, Given & Forcier, 2014; Renshaw & Krishnaswamy, 2009; Kwon, 2012; Zbuchea & Leon, 2015. Many of these studies investigate knowledge management practices in NGOs compared to the ones in a corporation, identifying specific aspects for this type of organizations. Qualitative research predominates the investigation in knowledge management (Patil & Kant, 2014), which could be explained also by the need to better understand the processes related to this relatively new domain of investigation. The studies which have been developed up to now do not present a complete puzzle of the domain, focusing more on knowledge management systems, knowledge sharing and the digital side of knowledge management (Mariano & Awazu, 2016). Also, the research concentrates on internal processes, rather than on inter-organizational processes and systems related to knowledge management. The present paper investigates knowledge management related processing in NGOs. The framework considered is inter-organizational – how is the knowledge transfer and control mediated by umbrella organizations. These are private nonprofit structures, assuming the mission to support the development of the nonprofit sector, the professionalization of a specific domain or the capacity development of (specific) NGOs. Literature review – an outline De Vasconcelos et al. (2007) show that, in the context of digital society, knowledge management is a useful tool for non-governmental organizations to achieve their civic mission, to share with the society knowledge and practices, to give back. In this way, NGOs would contribute to the development of communities and citizens. In addition, knowledge management strategies impact positively the internal environment of an NGO. Corfield, Paton, and Little (2013) posit that personnel evaluates and reacts positively to such approaches. Knowledge management could be a means to facilitate learning, to develop a learning organization (Guldberg et al., 2013). Knowledge management strategies could create an environment proper for learning, for the creation, the share and the reuse of knowledge, for collaboration and for innovation (Bratianu, 2014; Bratianu & Bolisani, 2015; Lefter et al., 2011). The effectiveness of knowledge management strategies in non-commercial contexts was investigated by Corfield, Paton, and Little (2013). Their research helps NGO implementing such approaches, cautioning them to the need to be selective. Hume and Hume (2008) draw the attention on the need for a personalized approach to knowledge management. In order to prove effective, formal knowledge management strategies should be supported. The knowledge of the members of an NGO is its most valuable resource (Matschke, Moskaliuk & Cress, 2012). Top-down strategies facilitate the sharing and development of knowledge, but the voluntary involvement of staff and experts is also valuable.

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Various studies point out the constraints associated with knowledge management in NGOs (De Vasconcelos et al., 2007, pp.124-125; Hasnain & Jasimuddin, 2012; SoakellHo & Myers, 2011) such as lack of specific and personalized information related to the environment in which NGOs are operating, dysfunctional communication inside an NGO and/or between NGOs, communication with stakeholders – including beneficiaries, or a weak knowledge network. Inadequate funding is also a barrier to innovative and effective knowledge management. Volunteer management and better management of organization culture could contribute to better knowledge management in NGOs (Soakell-Ho & Myers, 2011). A study of Hume and Hume (2015) documents that knowledge in NGOs is mostly tacit. Therefore, it is not formalized and documented, being related to individuals and working groups. In this framework, knowledge sharing is opportunistic in many situations and people should be stimulated to share. Knowledge sharing is critical for operational knowledge management (Holzer et al., 2016). Another relevant aspect is the insufficient resources of NGOs which limit their options for complex knowledge management practices. In this context, the internet and new technologies offer a strong support (Matschke, Moskaliuk & Cress, 2012). An investigation of Bebensee, Helms, and Spruit (2012) reveals that web 2.0 is used in a knowledge management framework in nonprofits create knowledge, to innovate and for better asset management. The internet and social media are also systematically used by NGOs to develop and manage partnership, involving also knowledge sharing (Rathi, Given & Forcier, 2014). The typology of knowledge sharing covers all options: uni-directional, bi-directional and multi-directional knowledge. The sharing could be informal, formal, as well as semi-formal. The study evidenced eight partnership categories: business partnerships, sector partnerships, community partnerships, government partnerships, expert partnerships, endorsement partnerships, charter partnerships and hybrid partnerships. Even if the staff of NGOs would openly and voluntarily participate in knowledge sharing, the role of managers and outside experts would facilitate the development of these processes (Hume & Hume, 2015). Managers could enable a more intense learning and valorization of experience and expertise inside and outside a nonprofit organization, mediated by personal and community narratives and storytelling (Wenger et al., 2011). Methodology Aim of the research The present investigation is part of a larger study related to the cooperation and sharing practices of NGOs members of umbrella organizations. In the context of knowledge management, the main research question aims the understanding of the extent and how umbrella organizations facilitate knowledge sharing and knowledge management processes in NGOs.

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Method Semi-structured interviews have been developed with members of 3 umbrella organizations in 3 different countries: the Higher Incubator Giving Growth and Sustainability - HIGGS (Greece), the Foundation for the Support of Nongovernmental Organizations "Umbrella" (Poland) and the Romanian National Network of Museums RNNM (Romania). All these umbrella organizations are dynamic structures, with diverse activities aiming a large number of beneficiaries relevant for their environment. The youngest of the three organizations is HIGGs, which was launched in 2015 to support the initiation and development of NGOs operating in Greece. The members of RNNM are museums, which in Romania are mainly public non-profit organizations. Sample 12 persons representing non-profit organizations affiliated with the specified umbrella organizations were interviewed. Table 1. Profile of the interviewees ID G1 G2 G3 G4 P1 P2 P3 R1

Position in the organization

Educational level

Less than 3 Less than 3 Less than 3 Less than 3 5-10

Type of nonprofit Small Small Small Small Small

Top management Top management Top management Top management Execution

B.A. B.A. B.A. M.A. High-school

5-10

Medium

Top management

B.A.

5-10

Medium

Top management

M.A.

5-10

Large

Umbrella org.

Years of experience

HIGGS HIGGS HIGGS HIGGS Umbrella Foundation Umbrella Foundation Umbrella Foundation RNNM

Middle M.A. management R2 RNNM 5-10 Medium Top management Ph.D. R3 RNNM Less than 3 Small Top management M.A. R4 RNNM 5-10 Small Middle Ph.D. management R5 RNNM 3-5 Medium Top management B.A. Note: All HIGGS members are young NGOs, considering the history and the aims of the organization. We considered small organizations those with up to 15 employees/volunteers, medium - 16-100 employees/volunteers, respectively large with more than 100 employees/volunteers.

Findings All the organizations evaluate positively the membership in the umbrella organizations primarily because of the access to information and additional knowledge they gain. The umbrella organizations help members connect and be more effective in knowledge management.

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The membership allows access to material about NGOs (project management, volunteers, fundraising, marketing, legal & accounting issues). Also, members can arrange weekly meetings with consultants about legal, marketing and accounting problems they face. (G1) Knowledge of experts’ network (…in very important for us…) – there's also a network of experts (from academic sectors, specialists in social fields, local politicians, representatives of local institutions) around Umbrella. (P1) … knowledge about good practices – membership in UO gives much more possibilities to know better good practices from another organization, as well as to present own good practices to other organizations and institutions. (P2) … because being a member facilitated the communication and collaboration with other similar institutions, implied access to knowledge and the latest information in the field, professional training… (R1) Access to knowledge offered by HIGGS on its online platform/ via the Internet, provided as part of counseling or during training sessions is specified by all the respondents. The knowledge valued most by the members of HIGGs is mostly operational in nature. This could be related to the characteristics of the members: very young organizations, eager to be initiated into the specificity of the NGO sector, looking for support to gain experience and to successfully implement projects in a context of little previous experience. The other respondents connect more knowledge sharing to networking. The members of the umbrella organizations interviewed would probably appreciate a more complex knowledge sharing. Access to information is the most common benefit. Organizations share knowledge, information, material things, networks, but in our opinion, information is the most shared by use of communication channels. (P1) Not only access to information is important, but also to the bearers of information or the timing. For instance, see the following observation: I had access to knowledge until then, but sometimes valuable information was received late. (R2) Networking was a main benefit specified by most of the interviewees. The valueexchange in such framework is mostly informational. Than without networking, there will be harder to exchange knowledge and ideas. (P1) We are finding out more and more promising news about the network from other colleagues in the country. In addition, we felt the need to belong to a larger group, amid the increase in local autonomy and the disappearance of the centralized system. In the years following the accession, we have benefited directly from the offers. (R2)

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Additional, interviewees from all three countries mentioned a strengthened competitive advantage, in relation to networking and know-how. The HIGGS’ staff is very popular and respectful in the NGO ecosystem, so the HIGGS’ members are more trustworthy than others. (G1) Of course, it is a competitive advantage to be membership in HIGGS because took so many knowledge and good practices to be able to support people and society. (G3) We are very satisfied with this membership because Umbrella offers a complex help to other organizations. First, the working space, then knowledge as training, individual consultations, advising, promotion, possibility to participate in a very big number of events. Without this help probably we would develop much slower than we do. (P1) It gives knowledge advantage, especially in the dynamically changing market, makes easier the transfer of knowledge. (P2) RNNM offers the opportunity to develop relationships with important museums and institutions in the sector… RNNM is connected to the latest trends in the European museum sector. (R3) The stress on know-how was put mostly by young organizations. Sharing of knowledge and a systemic view are related rather with older organizations active in the framework set by umbrella organizations. On the other hand, young organizations are also open to sharing, expecting a quid pro quo from other organizations, which would lead to increased resources and higher effectiveness. Further research could investigate is there are significant differences related to the attitude to knowledge sharing and knowledge management practices between NGOs active in umbrella organizations and “lonely’ nonprofit organizations, meaning NGOs which chose not to be formally affiliated to various types of professional and sectoral organizations. The perspective of middle management and executive staff could be a bit different from the top-management respondents. Those on the lower hierarchical levels might consider they benefit less from the information and knowledge sharing associated with the umbrella organization. I think the RNNM lacks a bit in terms of vertical communication, namely the distribution of information between museum management (that often takes part in RNNM meetings and discussions) and other employees... R4 Conclusions Most respondents stressed the opportunity to be informed, to gain additional skills and to network with organizations from the same country or from Europe as main drives for membership. Therefore, access to information and sharing knowledge are key elements, helping nonprofit organizations in developing their activities. The nonprofit organizations do not formally assume a strategy for knowledge development in the context offered by umbrella organizations. We could observe an

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assimilation and sharing of knowledge among members in a rather tacit knowledge framework. It is accumulated by individuals and used for the benefit of the organizations. Knowledge sharing among and even inside organizations seems to be informal. Access to best practices and counseling are two other praised benefits by the interviewed organizations. This type of knowledge helps NGOs to deal mainly with operational aspects, gives them points of reference for activity development. Umbrella organizations are considered a resource of knowledge, including know-how by many respondents. Networking is another positive aspect related to the membership in umbrella organizations which was stressed by most respondents. Networking is associated with even deeper benefits, such as (professional) community integration, access to information and know-how, opportunity identification, project development, etc. Networking is, therefore, directly and in-directly related to knowledge development and knowledge sharing. The formal knowledge sharing in the framework investigated is designed and controlled by the umbrella organizations. Therefore, their strategies and activities are the ones which have the greatest impact on the effectiveness of sharing process between organizations and towards members. This process could be facilitated by proactive knowledge management from the part of the members, but the undergone interviews show a rather opportunistic and in some cases passive approach from the part of the member organizations. Knowledge development and sharing are key elements in connection with the membership of nonprofit organizations in umbrella organizations. In order to maximize their benefits, we recommend an integration of the knowledge management strategies within NGOs with the management of information and knowledge available in the framework of umbrella organizations. A more strategic approach of the membership, not only an operational one, would lead to increased benefits and a more complex valorization of available knowledge generated by the strategy of umbrella organization and its inner dynamics. Acknowledgments. This paper has been partly based on research generated by the Erasmus+ project "Advancing the Third Sector through Innovation and Variation" (Grant Agreement No.: 2016-1-EL01-KA204023550). The European Commission support for the production of this publication does not constitute an endorsement of the contents which reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein.

References Amayah, A.T. (2013). Determinants of knowledge sharing in a public sector organisation. Journal of Knowledge Management, 17(3), 454-471.

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Bebensee, T., Helms, R., & Spruit, M. (2012). Exploring the Impact of Web 2.0 on Knowledge Management. In Dudezert, B.A. (Ed.), Knowledge Management 2.0: Organizational Models and Enterprise Strategies (pp.17-43). Hershey: IGI Global. Bratianu, C. (2014). Strategies to enhance intergenerational learning in universities. In Rooney, J., & Murthy, U. (Eds.), Proceedings of the 11th International Conference on Intellectual Capital, Knowledge Management and Organizational Learning, (pp.83-90). Reading: Academic Conferences and Publishing International. Bratianu, C. & Bolisani, E. (2015). Knowledge strategy: an integrated approach for managing uncertainty. In Massaro, M., & Garlatti, A. (Eds.), Proceedings of the 16th European Conference on Knowledge Management (pp.169-177). Reading: Academic Conferences and Publishing International. Centobelli, P., Cerchione, R., & Esposito, E. (2017). Knowledge management in startups: Systematic literature review and future research agenda. Sustainability, 9(3), 361. Cerchione, R., Esposito, E., & Spadaro, M. (2016). A literature review on knowledge management in SMEs. Knowledge Management Research & Practice, 14(2), 169177. Corfield, A., Paton, R., & Little, S. (2013). Does knowledge management work in NGOs?: a longitudinal study. International Journal of Public Administration, 36(3), 179188. De Vasconcelos, J.B., Seixas, P. C., Lemos, P.G., & Kimble, C. (2007). Knowledge management in non-governmental organisations. In Enterprise Information Systems VII (pp.121-130). Dordrecht: Springer. Garlatti, A., Massaro, M., Dumay, J., & Zanin, L. (2014). Intellectual Capital and Knowledge Management within the public sector. A systematic literature review and future developments. In International Conference on Intellectual Capital, Knowledge Management & Organizational Learning (pp.175-184). Reading: Academic Conferences and Publishing International. Guldberg, K.R., Mackness, J., Makriyannis, E., & Tait, C. (2013). Knowledge management and value creation in a third sector organisation: Knowledge management and value creation in an NGO. Knowledge and Process Management, 20(3), 113-122. Hasnain, S.S., & Jasimuddin, S.M. (2012). Barriers to knowledge transfer: Empirical evidence from the NGO (non-governmental organizations)-sector in Bangladesh. World Journal of Social Sciences, 2(2), 135-150. Holzer, A., et al. (2016). Gamifying Knowledge Sharing in the Humanitarian Context. In Proceedings of the 7th Annual Symposium on Computing for Development (Art. no. 21). ACM. Retrieved from http://dl.acm.org/citation.cfm?id=3006630&CFID=987389718&CFTOKEN=890 51903. Hume, C., & Hume, M. (2008). The strategic role of knowledge management in nonprofit organisations. International Journal of Nonprofit and Voluntary Sector Marketing, 13(2), 129-140. Hume, C., & Hume, M. (2015). The critical role of internal marketing in knowledge management in not-for-profit organizations. Journal of Nonprofit & Public Sector Marketing, 27(1), 23-47. Hurley, T.A., & Green, C.W. (2005). Knowledge management and the nonprofit industry: A within and between approach. Journal of Knowledge Management Practice, 6(1), 1-10. Retrieved from http://www.tlainc.com/articl79.htms.

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Heisig, P., et al. (2016). Knowledge management and business performance: global experts’ views on future research needs. Journal of Knowledge Management, 20(6), 1169-1198. Kwon, H.J. (2012). Systems Design and Strategies Development for Knowledge Management in Non-Governmental Organisations. Journal of Information & Knowledge Management, 11(1), 1250004. Lefter, V., et al. (2011). Intergenerational knowledge transfer in the academic environment of knowledge-based economy. Amfiteatru Economic, 13(30), 392403. Mariano, S., & Awazu, Y. (2016). Artifacts in knowledge management research: A systematic literature review and future research directions. Journal of Knowledge Management, 20(6), 1333-1352. Matschke, C., Moskaliuk, J., & Cress, U. (2012). Knowledge exchange using Web 2.0 technologies in NGOs. Journal of Knowledge Management, 16(1), 159-176. Massaro, M., Dumay, J., & Garlatti, A. (2015). Public sector knowledge management: A structured literature review. Journal of Knowledge Management, 19(3), 530558. Patil, S.K., & Kant, R. (2014). Methodological literature review of knowledge management research. Tékhne, 12(1-2), 3-14. Ragsdell, G. (2013). Voluntary Sector Organisations: Untapped Sources of Lessons for Knowledge Management. In Proceedings of the International Conference on Intellectual Capital, Knowledge Management & Organizational Learning (pp.349355). Washington, DC: ICICKM. Rathi, D., Given, L., & Forcier, E. (2014). Interorganisational partnerships and knowledge sharing: the perspective of non-profit organisations (NPOs). Journal of Knowledge Management, 18(5), 867-885. Renshaw, S., & Krishnaswamy, G. (2009). Critiquing the knowledge management strategies of non-profit organizations in Australia. Proceedings of the World Academy of Science, Engineering and Technology (WASET), 37, 456-464. Soakell-Ho, M., & Myers, M.D. (2011). Knowledge management challenges for nongovernment organizations. Vine, 41(2), 212-228. Wenger, E., Trayner, B., & De Laat, M. (2011). Promoting and assessing value creation in communities and networks: a conceptual framework. Rapport 18, Ruud de Moor Centrum, Open University of the Netherlands. Zbuchea, A., & Leon, R.D. (2015). Knowledge sharing barriers in cultural organizations. In Spender, J.C., Schiuma, G.m., & Albino, V. (Eds.), IFKAD 2015: 10th International Forum on Knowledge Asset Dynamics: Culture, Innovation and Entrepreneurship: Connecting the Knowledge Dots (pp.1716-1727). Matera: IKAM. Umbrella organization websites: HIGGS – https://higgs3.org RNNM – www.muzee.org Umbrella - http://fundacja-umbrella.org.pl

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RISK IN BUILDING THE INTELLIGENT ORGANIZATION MODEL Wioletta WEREDA Military University of Technology 2 Kaliskiego St., 00-908 Warsaw, PL [email protected] Jacek WOŹNIAK Military University of Technology 2 Kaliskiego St., 00-908 Warsaw, PL [email protected] Abstract. Contemporary organizations are focused on continuous improvement of their business. One of the possible measures in this area is the evolutionary structure of the corporate structure of the smart organization, starting with the model of the learning organization, through a model of agile (and partly creative) organization. There are different ways to build an intelligent organization. This article focuses on risk analysis as one of the pillars of raising the "intelligence" of an enterprise. The purpose of this paper is to show how risk analysis can be the basis for building and developing a smart organization model within an enterprise. The basic research method is an in-depth personal interview, based on case study of UniGlass Polska Sp. z o.o. The choice of the enterprise for the study was deliberate – the selection criterion was the company's "intelligence" level and the availability of data and the ability to conduct an in-depth interview with the management staff of the company. The interview was conducted during May and June 2017 period using a standardized questionnaire. The study indicated that building and improving the intelligent organization model should be systemic and include both the business model and its relationship with the wider environment. The systemic approach gives rise to the deployment and development of integrated risk management in the enterprise, which enables a holistic perception of the risk factors that influence the building and improvement of the intelligent organization model. The case study used a risk map tool to identify the key risk areas for a company's business (both the opportunities to be strengthened and the risk factors to be weakened), ranging from least impacted areas to areas with the greatest impact. Keywords: risk; risk map; risk factors; intelligent/smart organization; stakeholders. Introduction In the contemporary world, a competitive business model that works properly in nowadays reality may be inadequate in a few days, and moreover, it may show elements of "antiquity". Consequently, every organization must continually learn about the environment, its stakeholders, the direction of its further development and the limits of risk that it can incur. Naturally, no enterprise can be certain of the future and precisely because of the uncertainties and potentially various breakthroughs that are constantly evolving in the ever-changing business reality. Creating a specific model of the intelligent organization, which is all about defining its risks limits in micro- and macroeconomic conditions, is, of course, the most desirable in building the competitive

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business model in every sector. The complexity and variability of the contemporary environment have significantly changed the relationship along the organizationenvironment line and require flexible and creative organizations to adapt to the needs of stakeholders and possess the ability to anticipate the future. To be successful in this increasingly competitive global market, the organization must undertake its activities based on the current interdisciplinary knowledge, creativity, "intelligence" 1, as well as in the frameworks of Internet of Things (IoT) and the circular and sharing economy (Wereda & Korneć, 2016, p.125). The aim of the paper is to present, from the theoretical perspective, the role of building intelligent organization model based on the process of estimating risk. The paper is also a trial of the description of the risk factors in the intelligent organization and the importance of the creation of intelligent enterprises in achieving success, from a general perspective of preventing risk areas in the turbulent environment. Attributes of intelligent organization The first descriptions of the intelligent organization took place in the 1990s in the publications of G. Pinchot and E. Pinchot, as well as J.B. Quinn. According to the first two authors, the requirement for an intelligent designation is to use the intelligence of their employees (Pinchot & Pinchot, 1990, p.19). By contrast, according to J.B. Quinn (1992, p.48) intelligent organization transforms intellectual resources into a service chain that creates an offer for a certain group of customers with the most useful features. On the other hand, B. Dayyani (2009, p.973) considers the intelligent organization to be the one that managed to create a knowledge base and competitive advantage in the area of customer value creation and information input. A number of interpretations of the concept of intelligent organization exist in the literature of the subject. It is also worth noting that the various aspects of its functioning are exposed, starting with the management of human capital, through learning, knowledge acquisition, and ending with gaining competitive advantage in the market (GodlewskaMajkowska, 2013, p.11). The intelligent organization can also be considered a learning organization that has the ability to create, organize, acquire and share knowledge and use to improve its performance and increase its competitiveness in the world markets (Krawczyk-Sołtys, 2016, p.69) as well as expanding the pro-innovative character of the business. Nine principles of intelligent organization can be distinguished according to D. and J. Matheson (1998, p.111): the creation of values, disciplined decision-making system, open information flow, continuous learning, strategic thinking, system thinking, development of alternative solutions, uncertainty management, and partnership between all employees. On the other hand, the characteristics of intelligent organization describe (Krawczyk-Sołtys, 2016, p.70): "Intelligence" of an organization is defined in this study as the ability to take action in a changing environment, to create and maintain relationships with stakeholders, confidence and trust-building, as well as the ability to adapt to the environment, mainly with the use of information and communication technologies (this is, among other things, about optimization of the basic processes and automation of decision-making processes). Each entity functioning on the basis of the model of intelligent/smart organisations may have a different level of "intelligence". 1

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Figure 1. Basic attributes of learning, agile and intelligent/smart organization – incremental view (Own study based on Wereda & Woźniak, 2015, p.65)

 adaptability, or adjustment of relevant business indicators (profit, costs, revenues) to short-term business climate change;  self-awareness and market awareness;

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 border fluidity and network-like structure; this organization is able to change its scale of operation to adapt to rapidly changing needs;  ability to transform into better and new forms (this is a long-term process where no final state is assumed);  agility, i.e. ability to adapt to the market and needs of stakeholders;  self-improvement and innovation;  using automation of processes and information technology in current operations. Figure 1 shows the author's model2 by Wereda and Woźniak (2015, p.65) showing the main attributes of an intelligent organization. This model also highlights the differences between intelligent and learner-agile models, while pointing out that the basic model is learning organization – this framework introduces the basic mechanisms for creating and diffusing knowledge within the organization and between the organization and its external stakeholders. In the model of the intelligent/smart organization - in relation to the basic models of learning and agile organization – the main emphasis is put on the improvement of process management. It's not just about process optimization with the use of information and communication technologies and the automation of decision-making processes, but also (if not primarily) a thorough understanding of these processes and their location in the system of the organization. Willing to build a model of a smart organization it is necessary to draw the attention to the maturity of the management of the different classes of processes, including also risk management. Risk management in the model of smart organizations, on the one hand, gives grounds to avoid the risks and, on the other hand, allows to increase resources of knowledge and understanding of mechanisms within the organization and its relationships with external stakeholders. Risk management (especially in terms of integrated process) gives grounds to raise the level of trust between the organization and entities in its surroundings, thus creating lasting bonds with stakeholders (not just external, but also internal ones). On this basis in the model of a smart organization leadership can be developed, as well as these organizations are able to both participate in network structures and actively build/establish and shape these types of structures. Models of learning and agile organization are mostly passive (adaptive) models, whereas a smart organization model is an active model (having influence on the environment), prepared for the actions in the terms of the uncertainty (Figure 1). Risk factors in the intelligent organization The activities of contemporary organizations are determined by a number of different factors, which relate elements and relationships identified on the micro, medium, macro and mega-economic levels. This approach to identifying, specifying, analyzing and evaluating the determinants of the functioning of different types of organizations The model was developed on the basis of literature analysis of the subject, among others: Quinn, 1992, p.213 et seq.; Wassermann, 2001, p.43 et seq.; Delic & Dayal, 2002, pp.3-4; Sydänmaanlakka, 2002, p.7 et seq.; Mikuła, 2008, pp.15-19; Walczak, 2010, pp.348-356; Senge, 2012, p.21 et seq.; Zaskórski, 2012, pp.27-31; Kaczmarek, 2013, pp.157-162; Sajdak, 2013a, pp.70-78; Sajdak, 2013b, pp.204-211; Sajdak, 2013c, pp.250-259; Mezgár, 2005, p.246 et seq.; Weiß & Trunko, 2002, p.615 et seq.; Looise, 2016; Al-Kasasbeh, Al-Kasasbeh & AL-Faouri, 2016, p.106 et seq.; Caporarello, Di Martino & Martinez, 2014; Khan & Haleem, 2015, p.807 et seq. 2

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is consistent with both holistic approaches and network thinking. The potential risk factors may determine the transition of the organization to new, innovative business models, based on, inter alia, in the model of smart organization. Among the basic risk factors for the model of intelligent organization, the following should be mentioned:  changes in the perception of the human factor in the context of the possessed and developed competences (especially at higher levels of management), the role and importance of employees in creating added value for stakeholders or the improvement of organizational culture aimed at creating trust and, on the other, supporting the proinnovative attitude (on the base of Paliszkiewicz, 2010, pp.6-13);  continuous growth in the role and importance of information resources and socalled useful knowledge (i.e. the knowledge that is really needed in the organization and the application of which will increase the efficiency, efficacy and effectiveness of the processes) (see e.g. Wawrzynek, 2013, p.187 et seq.; Wąsowicz, 2013, p.130 et seq.; Wesołowski, 2009, p.275 et seq.); the key issue for information and decision processes (including knowledge management) is the efficiency account, which includes not only the processes of storing, processing and sharing information resources, but also their acquisition, among other things, from internal and external stakeholders – the acquisition of data and low information utility results in the need to calculate alternative costs;  establishing long-term relationships across organizations with different classes of actors (business, social, and public), e.g. in clusters or other types of network structures (see e.g. Pakulska & Poniatowska‑Jaksch, 2015, p.90 et seq.); in this case, the primary source of risk, in this case, is the ability of the organization to participate in the overarching goal of the entire network structure, as well as the need to protect its own resources (e.g., expertise), and maintain its internal capacity to meet its own goals by the organization while participating in the network structure (see e.g. Łobejko, 2010; Łobejko, 2015, p.149 et seq.);  the progressive processes of the specialization of the organization and the need to delegate tasks to external entities, often geographically remote; today's smart organizations see the negative implications of offshoring and decide to keep some (or even all) processes in their own structure – to support native/national/regional industries and clusters (Woźniak, 2015, p.236 et seq.);  changes in the socio-economic, legal and cultural conditions of the location of the organization; for some factors, the organization may have no influence, which may, in turn, result in limiting the scale and scope of processes and reducing the effectiveness of the actions. It is important to remember that smart organizations, despite having the means and the power to do so, are not always able to do so in order to consciously shape their environment to optimize the benefits (not only financial but also social) by internal and external stakeholders. In order to fully utilize the potential of the intelligent organization model, it is necessary to implement and refine risk management processes, with particular emphasis on identifying and evaluating risk factors as well as subsequent risk management (see ISO 31000:2009). In the case of the intelligent organization model – given the complexity of processes and relationships – it is appropriate to develop an integrated approach to risk management (on a base of Przetacznik, 2016, pp.42-47), as well as the perception of risk not only as a source of threats and losses but also opportunities and benefits (Kasiewicz & Rogowski, 2006, p.34). In a smart organization – in the context of the specific "management" of risk factors – the importance of risk appetite takes on the importance of risk-taking in

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order to achieve future benefits (on a base of Danielsson, Shin & Zigrand, 2009, p.3 et seq.). Intelligent organizations can in some sense talk about "planning" risk factors, organizing resources for the constructive use of these risk factors, motivating employees to show risk aversion, or monitoring the extent to which goals are met, to achieve the expected benefits of taking the risk. A case study of Uniglass Polska Sp. z o.o. Methodology of the research The main objective of the study is to indicate that risk analysis can be the basis for shaping and developing a model of smart organization. Applied research methods are the individual in-depth interview and the case study. In the development of the study was applied the so-called typical case study, which is partly the basis for the generalization of the processes. A typical case study has been selected as a research methodology relevant to the issued raised, as the principal goal of the case study is to identify the characteristics of the class of enterprises based on the smart organization model. Uniglass Polska Sp. z o.o. it is the case study, “rich” with information, as it is a benchmark in terms of business development and risk management for other businesses with a similar business profile, and it is a market leader. The selection of the type of case study as a research method was based on the classification included in (Karaś, 2014, pp.334-336; Flyvbjerg, 2004, p.426). The study concerns the so-called individual case study - the main aim of the study is to understand the application of risk analysis processes in the development of the intelligent organization model, taking into account the specific situational context (based on Brycz & Dudyk, 2010, p.26). This method was used, modelling (with simplicity) on the scheme of the research process, using the case study method proposed by K. Eisenhardt (Brycz & Dudycz, 2010, pp.2630). The case study was based on a total of 7 interviews with middle and top managers in the period of May-June 2017. A standardized questionnaire with 10 open questions was used in the interviews. The average time taken for each interview was about 1.5 hours. Interviews were conducted by W. Wereda and jointly developed with J. Woźniak. The basic questions in the questionnaire are: 1. What factors determine the success of your company? 2. In which areas your company grows fastest? 3. Do you react to changes in the market environment? What do these changes mean? Does adjusting to these changes require your investment outlay? 4. How do you approach to risk management issues in your company? Do you make a current analysis of risk factors in your company? 5. What are the risk factors most likely to occur in your business? Do they only produce negative or also positive effects? 6. Is the risk analysis linked to the strategic management processes in your company? If so, in what way? Based on interviews, risk maps have been developed (both for opportunistic and hazard factors) that have led to the identification of those factors that are critical in shaping and improving the intelligent organization model in UniGlass Polska Sp. z o.o.

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Company history UniGlass Polska Sp. z o.o. headquartered in Łomża, Poland, manufactures glass panels and is proud of professional glass and mirrors processing. The history of the founding of the organization dates back to 2001, but the idea itself was born much earlier, as it was already in 1998. It was then that two colleagues, who for many years worked in a prestigious building company, decided to establish a joint venture. Since complex glazing is a costly undertaking, they have begun to raise funds for future investments through overseas trips for profit. Half of the year 2000 is a vigorous effort to start a business – building simple machines on their own, finding the market for the latest professional equipment – the most critical in the industry, finding premises for business activities with a production profile and adapting rented premises. The date was 27 April 2001, when the business partnership was registered under the name of UNIGLASS Radosław Florczyk, Adam Wieczorek s.c. based in Łomża. Since its inception, all legal aspects have been fulfilled:  in the long-term and costly procedure supervised by the Institute of Glass and Ceramics in Warsaw, a security mark was obtained, confirming the high quality of the products;  the composite glass was subjected to so-called preliminary type tests, which had passed all tests positive at the Institute of Glass and Ceramics in Cracow. The partners knew the industry well and were aware of the constant competition in the market, but they were young, enthusiastic and self-confident. At first, they were skeptical of both the suppliers and local customers who did not believe in the success of the venture. Most fear, however, aroused the specter of potential product complaints. All doubts were, however, mistaken, since there were no significant complaints about the quality of the glass produced during this period. With their industriousness and resourcefulness, the shareholders have proven that they are able to meet the goals and, to everyone's surprise, thrive on their plant. The year 2006 brought further changes to the company – the company was transformed into a capital company with an entry in the Register of Entrepreneurs of the National Court Register launched a new division of life under the name of UNIGLASS Polska limited liability company. Poland's accession to the European Union provided the potential for additional funding for further investments, i.e. further innovative development of the company. The significant period for the company was 2010, when one of the partners, Adam Wieczorek left the Company and Dariusz Florczyk took his place. The situation was even more motivated by the actions of shareholders, especially Radosław Florczyk, under whose hand the company has evolved exponentially. From the beginning of the consistently implemented activity an investment and innovation program aimed at dynamically increasing the quality of offered goods and services. Glazing production takes place on the world's highest-class machines and equipment, using the highest quality raw materials and production materials. The quality was constantly verified by all current and potential suppliers and constant inspection of the quality of goods offered was conducted. Interoperational quality control of the manufactured products resulted in the creation of a brand not only in Poland, but also abroad (Quality Book of UniGlass Polska Sp. z o.o., 2011, pp.3-4).

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Company success factors From the very beginning, the owners of the company have set up a strategy of quality and relationship building with all interest groups, especially customers and suppliers. Due to the fact that the company evolved rather quickly, due to process innovativeness, at the end of 2016 the company employed almost 100 people, of which about 85% were production workers. Management personnel in individual interviews highlighted the following key success factors and strengths of the company (Wereda, 2015, p.227):  long-term experience of owners in glass processing and business;  very good organization of work within the organization;  highly qualified (internally) production and managerial staff;  professional customer service and good customer relations;  good technical condition of buildings and production lines;  modern machine park;  world-class technology and co-creation of new technological infrastructure;  production only with the best raw materials and materials for production from reputable national and European suppliers;  high quality and pro-innovative nature of the offered products;  good and long-term relationships with stakeholders;  knowledge of customer needs and building a permanent customer base;  variety of main product offer: composite glass with heat shield, protective glass (laminated, reinforced, hardened), decorative glass with different degree of transparency and light transmission, sunscreen and self-cleaning and using interlaced louvers and shutters;  gradual expansion of the product offering in the area of growing demand;  brand recognition among company stakeholders;  export business (distribution of products across Europe);  short delivery times tailored to customer needs;  own transport fleet;  technical support for high efficiency and productivity;  implemented quality, environmental and occupational safety management systems;  experience in the use of European Union aid programs;  major investments in human capital and staff development through training and courses within and outside the organization;  outsourcing services for competition. It can be noted here that UniGlass Polska Sp. z o.o. key success factors, on the one hand, led the company to success; on the other, they were seen as key areas of improvement. Systematically incurred capital expenditures and supervision of the implementation of the objectives were key success factors at the beginning of UniGlass Polska Sp. z o.o. and they took the form of risk factors – mostly pejoratively. The company was forced to "fight" for product quality, customer and supplier trust, financial resources, professionals, etc. Only in the long run risk factors (i.e. threats) have become a factor of chance. It is also important that the owners/founders of the company have a specific appetite for risk and did not act only conservatively. In addition, the key success factors are the image of UniGlass Polska Sp. z o.o. in a systemic way – they combine different classes of resources (human, financial, material, etc.), process types (e.g., primary and auxiliary), as well as stakeholder classes with which the company entered or enters into relationships.

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UniGlass Sp. z o.o. risk factors Based on direct interviews with management, administrative and production staff, specific conclusions may be identified that underlie the specification of groups of risk factors, as well as estimates of the impact of specific risk factors on the business of the audited company, both positive and negative (Table 1). At this point, it is worth mentioning that at UniGlass Polska Sp. z o.o. an official formalized paper version of the risk management system is officially not available, however, there is a formalized form of verbal representation by senior management to all department managers. The paper form of risk management rules is created only for the purpose of acquiring new funds for innovative projects from EU funds. Table 1. Basic groups of risk factors in a company UniGlass Sp. z o.o. (Own study3 based on company sources; Wereda, 2013, pp.243-248) Group of risk factors 1

Risk in IT area

Risk in the area of human resources

4

Estimated risk value (negative impact)** * 5=3*4

Estimated benefit value for the company** 6

Estimated risk value (positive impact)** * 7=3*6

3

5

15

0

0

3

1

3

4

12

3

2

6

4

12

2

5

10

1

2

2

3

6

1

2

Selected risk factors

Probability of risk factor*

Estimated value of losses for the company**

2

3

Breaking into the company's IT system by outsiders Development and commercializati on of own IT systems (sales to competitors) Implementation and development of decision process automation Rotation of specialized managerial staff Rotation of administrative

The table was developed according to the Risk Score methodology. Due to the trade secret of UniGlass Sp. z o.o. full descriptions of the probability, impact and risk scales are not included in the paper. However, it should be added that the probability value and the value of the effects have been estimated on the basis of opinions of respondents (interviews) referenced to historical data (frequency of occurrence of risk factors) and the company's forecasts. On this basis, quality scales were developed (from 1 to 5). For the value of the probability of occurrence of these risk factors on the level "1" was assumed to the range 0-10%, for "2" there was a range of 11-30%, for "3"there was a range of 31-50%, for "4" there was a range of 51-80% and for "5" there was a range of 81-100%. For the value of results (losses and benefits) there was developed the estimated scale that refers to the share of the potential benefits and losses in the value of the current, average per month, company`s revenue from the core business. For losses on the level "1" was assumed a range of 0-5% of the value of the current revenue, which means that if the risk factor occurs, it will generate losses of up to 5% of the revenue, so the enterprise does not feel strong negative effects. For losses on the level "2" was assumed a range 6-10%, on the level "3" there was a range of 11-20%, and on the level "4"a range of 21-50%, while on the level "5" a range of 51-100%. For the benefit on the level "1" was assumed a range of 0-5% of the value of the current revenue, which means that if the risk occurs, it will generate benefits of maximum value of 5% of the revenue, so the company does not feel strong positive effects of this factor. For the benefit of the "level “2" was assumed a range of 6-10%, on the level "3" a range of 11-20%, on the level "4" a range of 21-50%, while on the level "5" a range of 51-100%. 3

486

Risks in the area of technical infrastru cture

Market risk

Financial risk

Risk

Strategica 2017 staff Rotation of production workers Successful implementation of mechanisms for triggering trust between employees at managerial level Improving production staff Line failure Keeping up with technological developments in the industry Maintaining continuity of production processes (good state of machine stock) Establishing lasting relationships with new customers Maintaining lasting business relationships with regular customers Maintaining lasting relationships with new suppliers Maintaining lasting relationships with regular suppliers Active business of competitors Training subcontractors The effectiveness of the company's targeted policy Maintaining financial liquidity Timely settlement of tax and social security obligations Timely receipt of receivables from new customers Timely receipt of receivables from fixed customers Providing information to

3

1

3

1

3

3

3

9

4

12

3

1

3

2

6

4

5

20

0

0

4

4

16

4

16

3

5

15

4

12

5

4

20

3

15

4

3

12

5

20

3

5

15

4

12

4

2

8

3

12

4

3

12

4

16

4

3

12

5

20

3

3

9

4

12

4

1

4

5

20

4

1

4

4

16

3

3

9

4

12

5

1

5

4

20

2

5

10

0

0

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competitors by in knowemployees how Risk in the area Launching innovative 5 2 10 5 25 of products innovatio n Ensuring Risk in product marketin 4 3 12 5 20 visibility in the g market * The following qualitative scale is accepted for probability: very low (estimate 1), low (estimate 2), average (estimate 3), high (estimate 4) and very high (estimate 5). ** The following qualitative scale is used for the effects (losses/benefits): very low (estimate 1), low (estimate 2), average (estimate 3), high (estimate 4) and very high (estimate 5). *** The risk estimate is the product of the estimated probability and level of effects.

Table 1 lists selected risk factors that are included in UniGlass Polska Sp. z o.o. it is worth noting here that the basic areas of analysis of risk factors are: human resources (human resources processes management), technical infrastructure (including ICT), innovation processes, know-how, financial management, marketing and market environment. In addition, the identified groups of risk factors reflect the structure and scope of these key success factors for UniGlass Polska Sp. z o.o. Risk factors in building the intelligent/smart organization model in UniGlass Sp. z o.o. Building a model of smart organization requires paying attention to the specific components of this model (see Figure 1) and gradually incorporating these elements into the structure of the company. Such an approach may stem from the specificity of risk management processes and refer to two perspectives of risk perception: 1. positive – connected with creation by UniGlass Polska Sp. z o.o. defined opportunities or the use of opportunities occurring spontaneously; these types of activities should result in the identification of new "building blocks" that, by incorporating them into the organization's operating system and improving over time, can raise the company's "intelligence" – e.g. by increasing the degree and scope of process automation, company relationships with external stakeholders, or the scope of experimentation in management and virtual creation of a company, and so on; 2. negative – associated with the identification of such risk factors that can be a source of loss; such an approach should serve the specification of the company's "building blocks", which should be reduced or eliminated in order to increase the "intelligence" of the company. A tool to help raise the "intelligence" level of UniGlass Polska Sp. z o.o. may be a risk map – developed for both losses (Figure 2) and benefits (Figure 3). Both risk maps have been developed based on the estimated value of the parameters: the probability of a particular risk factor, the effects of the risk factor (both positive and negative), and the risk value assigned to the risk factor. Both maps have a standardized internal structure and consist of the following areas (Figures 2 and 3):  two negligible risk areas (N1, N2) – the risk factors located in these areas (both in the context of losses and benefits to the company) do not have a significant impact on the design and/or enhancement of the smart organization model;

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 two risk tolerance areas (T1, T2) – the risk factors located in these areas (both in the context of losses and benefits for the company) may have an impact on the construction and/or enhancement of the smart organization model, although this is not strong;  one key risk area (K1) – risk factors located in this area (both in terms of losses and benefits for the company) has a fundamental and strong impact on the design and/or strengthening of the smart organization model. It is also worth noting that each of these areas is further subdivided into sub-zones (Figures 2 and 3) in order to clarify the analysis and specification of more precise proposals and recommendations for the management staff:  the N1 and N2 areas are divided into two sub-zones;  the areas T1, T2 and K1 are divided into three sub-zones.

Figure 2. Sample risk map for selected risk factors (i.e. threats), resulting in losses for UniGlass Polska Sp. z o.o. (Own study)

Analyzing risk maps for selected risk factors, resulting in losses for UniGlass Polska Sp. z o.o. it can be noticed that the smallest influence on shaping and building a model of smart organization in this company have: rotation of specialized managerial staff,

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providing information to the competition of employees, improvement of production staff, rotation of production staff, development and commercialization of own IT system, timely regulation of tax and social security obligations, maintenance of financial liquidity and implementation of innovative products and timely receipt of receivables from fixed customers (Figure 2). This does not mean, however, that these factors have no impact at all on the foundations and development of an intelligent organization. Among the risk factors (as sources of potential losses) located in the N1 and N2 areas, the company should pay attention mainly to: the provision of information to competition by employees, the rotation of specialized managerial staff, the launch of innovative products and the timely receipt of receivables from regular customers – those risks are assigned the highest risk values in the N1 and N2 areas. It is clear to note that in order to build and perfect a model of intelligent organization in UniGlass Polska Sp. z o.o. risk should be minimized in the areas of innovation (including know-how), finance, and stakeholder relations.

Figure 3. Sample risk map for selected risk factors (chance factors), resulting in benefits for UniGlass Polska Sp. z o.o. (Own study)

In the T1 and T2 areas, the following risk factors play a major role (Figure 2): breakdown of the production line, break-in of the IT system, maintenance of durable

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relationships with new suppliers, continuity of production processes, establishing of durable relationships with new customers, training of subcontractors, activity of competitors, ensuring product visibility on the market, and maintaining lasting business relationships with regular customers. In the case of T1 and T2, the key areas are relations with stakeholders (mainly external ones), market activity and IT infrastructure. In area K1, a key risk factor affecting UniGlass Polska Sp. z o.o., that should be limited in the first place because it is the most "blocking" of building and developing a model of intelligent organization, is keeping up with technological innovations (Figure 2). In the case of risk map analysis for opportunity factors (Figure 3), it can be observed that the least attention in building and improving the model of intelligent organization UniGlass Polska Sp. z o.o. must pay to factors located in the N1 and N2 areas. The main factor in these two zones is the rotation of production workers. This factor is primarily a source of dangers, but it can also generate certain benefits, such as "refresh" of teamwork, gaining new experience, rejuvenating employees, improving productivity, etc. This is not a benefit category that significantly enhances the model of intelligent organization in the study company. Other factors in the N1 and N2 areas do not generate any potential benefits for the company – such as the breakdown of the production line and break-in of the IT system. In T1 and T2, the more important opportunities that a company should enhance and use are (Figure 3): ensuring product visibility in the market, maintaining liquidity, training subcontractors, maintaining durable relationships with customers, developing trust among employees, maintaining lasting relationships with new suppliers, maintain continuity of production processes, implement pricing policy, develop automation of decision making processes and establish lasting relationships with new customers and suppliers. It can be noted that in areas T1 and T2 the key to improving the level of "intelligence" of the company are areas of: relational capital formation, development of ICT infrastructure, as well as the company's activity in the market. On the other hand, in K1, the key opportunities for UniGlass Polska Sp. z o.o. are (Figure 3): introducing innovative products to the market, active competitors, keeping up with technological innovations in the industry and timely settling tax and social security obligations. Therefore, the core areas in this zone responsible for building and improving the smart organization model in the company are the relational capital and innovation processes. Discussions and implications By analyzing both risk maps, it can be seen that some factors in the context of threats/losses are irrelevant or insignificant, while in the context of opportunities/benefits they play a key role (and vice versa). This situation indicates that the following actions should be taken in relation to these factors: at the same time weaken their negative effects and create conditions that will allow them to reorient on the desired effects (positive). One strategy should not apply, either to mitigate risk factors or to reinforce opportunities. This is because concentration on only one perspective of perception of risk factors (either positive or negative) can lead to the uncontrolled development of these factors in the direction undesirable for the

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company. For example, maintaining financial liquidity is not a significant risk factor, but a significant factor of opportunity. This does not mean, however, that this factor should be considered only as a source of benefit, for example in terms of creating and implementing innovation, establishing relationships with external stakeholders, or developing technical infrastructure. It is important to keep in mind that this factor can cause certain risks. If there is no systematic monitoring of this factor, it may become a key risk factor and move, for example, into area K1 (Figure 3). At UniGlass Polska Sp. z o.o. there is a combination of several organizational models, i.e. the model of the learning organization (internal and external training of human resources, clients and subcontractors as well as competition, etc.), agile organization model (fast adaptation to market and needs, competition, etc., intelligent organization model (pro-innovation activities in the field of automation of contact with stakeholders, use of own IT in production processes, etc.), or part of the model of creative organization, which is a part of the agile organization model (creation of new products and patents, productive co-creation, active impact of products on the market environment, etc.). It seems that in the "road" to reach the stage of smart organization, the company has gone through the previous stages. In addition, the company implements risk management processes, although they are not always fully formalized. Combining these processes with the identification of key success factors (emerging from the business model) creates a systematic and integrated image of the company. On this basis, it is possible to specify the factors of opportunities and threats that allow the company to go through the stages of strengthening its "intelligence". Based on a risk analysis using the risk map tool, it was noted that UniGlass Polska Sp. z o.o. with the intention of strengthening and developing the model of smart organization, should limit the negative impact of factors located in the areas of relationships with external stakeholders, management of management staff, as well as innovation and know-how. These areas should be subject to continuous evaluation in order to be restructured and refined. For example, the company should find ways to mitigate the loss of new customers or the unreliability of new suppliers, or to limit the negative consequences of leaving a specialized managerial staff. Among the opportunistic factors that should be strengthened, of the key importance are: to bring attractive products to the market, the activities of competitors that stimulate the innovation of UniGlass Polska Sp. z o.o., as well as keeping up with technological innovations in the industry. An important activity for the company in building and improving the model of intelligent organization is, among others, increasing the effectiveness and efficiency of innovative processes, while at the same time cooperating with internal and external stakeholders and applying certain ICTs and manufacturing technologies. Conclusions Building and developing the intelligent/ smart organization model in the enterprise is a complex, multifaceted and long-lasting process. It also often requires substantial investment. Therefore, such activities should be systemic (holistic) and refer to both the basic elements of the business model, such as technological processes, pricing strategies, customer relationships, distribution, etc. and to the location of the company in the environment, mainly in context of relations with basic groups of external

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stakeholders, i.e. designation of the so-called boundaries of the organization. Building a model of an intelligent organization is not a single action, but a continuous and incremental activity, i.e. a "way" to a model of intelligent organization, which should consist of the following steps: the learning organization with the stages of learner organization and agile organization. In addition, the improvement of risk management system should take place at each of these stages. This is due to the fact that each of the next steps in building a smart organization model involves an increasing number of factors and conditions as well as the need for greater integration of the internal company and the integration of the enterprise into the wider environment. Generally speaking, risk management is an activity that provides the basis for identifying those factors affecting the business that may have the greatest impact on increasing its "intelligence" level. These factors can be viewed in two ways: as potential sources of loss/threat – these factors should be weakened or eliminated because they limit the building of a smart organization model and potential sources of benefits/opportunities – these factors should be strengthened and constructive as they can strongly support development of "intelligence" of the organization. References Al-Kasasbeh, M.M., Al-Kasasbeh, S.A.M., & AL-Faouri, A.H. (2016). Smart Organization Characteristics and its Impact on Social and Environmental Performance: An Empirical Study on Jordan Phosphate Mines Company. International Journal of Business and Management, 11(8), 106-115. Brycz, B., & Dudycz, T. (2010). Case study jako popularna metoda w naukach o zarządzaniu [Case study as a popular method in Management Sciences]. Kwartalnik Nauk o Przedsiębiorstwie, 3(16), 23-31. Caporarello, L., Di Martino, B., & Martinez, M. (Eds.) (2014). Smart Organizations and Smart Artifacts: Fostering Interaction between People, Technologies and Processes. Springer International Publishing. Danielsson, J., Shin, H.S., & Zigrand J.-P. (2009). Risk Appetite and Endogenous Risk. Retrieved from http://www.lse.ac.uk/fmg/researchProgrammes/paulWoolley Centre/pdf/second%20Confernc%20Papers/Zigrand.pdf. Accessed 20 April 2017. Dayyani, B. (2009). Structured analytics. The creation of the intelligent organization. World Academy of Science, Engineering and Technology, 50, 973-988. Delic, K.A., & Dayal, U. (2002). The Rise of the intelligent enterprise. Retrieved from http://delivery.acm.org/10.1145/770000/764009/k_delic_4.pdf?ip=193.105.35. 129&id=764009&acc=OPEN&key=6AF5E6E07E3D4A13.C8CCBDFBA1366FDD.4 D4702B0C3E38B35.6D218144511F3437&CFID=722097361&CFTOKEN=756379 21&__acm__=1445013328_e8d8020b101a3bb663317507daa479ac. Flyvbjerg, B. (2004). Five misunderstandings about case-study research. In Seale, C., Gobo, G., Gubrium, J.F., & Silverman, D. (Eds.), Qualitative Research Practice (pp.420-434). London and Thousand Oaks, CA: Sage. Godlewska-Majkowska, H. (Ed.) (2013). Inteligentna organizacja – dystrybucja wiedzy, kompetencje pracowników, miejsce na rynku [Intelligent organization – distribution of knowledge, competencies of employees, place on the market]. Warsaw: Wydawnictwo Związku Pracodawców Warszawy i Mazowsza. Kaczmarek, B. (2013). Tworzenie organizacji inteligentnej jako nowej wartości firmy Creation of smart organization as a new goodwill]. Zeszyty Naukowe Uniwersytetu Szczecińskiego: Finanse, Rynki Finansowe, Ubezpieczenia, 64(1), 157-162.

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Karaś, M. (2014). Studium przypadku jako narzędzie badawcze [Case study as a research tool]. In Kuciński, K. (Ed.), Naukowe badanie zjawisk gospodarczych. Perspektywa metodologiczna [Scientific study of economic phenomena. The methodological prospect] (pp.321-342). Warsaw: Wolters Kluwer. Kasiewicz, S., & Rogowski, W. (2006). Risk and Growth in Company Value. Kwartalnik Nauk o Przedsiębiorstwie, 1(1), 34-41. Khan, U., & Haleem, A. (2015). Improving to smart organization: An integrated ISM and fuzzy-MICMAC modelling of barriers. Journal of Manufacturing Technology Management, 26(6), 807-829. Krawczyk-Sołtys, A. (2016). Koncepcje organizacji i metody zarządzania. Możliwości i ograniczenia [The concepts of organization and management methods. Capabilities and limitations]. Warsaw: Difin. Księga Jakości UniGlass Polska Sp. z o.o. [Quality Book of UniGlass Polska Sp. z o.o.]. (2011). Wydanie III, Rozdział I. Łobejko, S. (2010). Przedsiębiorstwo sieciowe: Zmiany uwarunkowań i strategii w XXI wieku [Network enterprise: Changes of conditions and strategies in the 21st century]. Warsaw: Warsaw School of Economics Publishing House. Łobejko, S. (2015). Zarządzanie strategicznymi relacjami sieciowymi [Strategic network relationships management]. In Poniatowska‑Jaksch, M. (Ed.), Nowe myślenie w zarządzaniu strategicznym przedsiębiorstwem [New thinking in a strategic management of a company] (pp.149-171). Warsaw: Warsaw School of Economics Publishing House. Looise, J.K. (2016). Smart organizations/HRM: really something new? Continuity and change of organizations from a historical perspective. Retrieved from https://research.utwente.nl/en/publications/smart-organizationshrm-reallysomething-new-continuity-and-change. Matheson, D., & Matheson, J. (1998). The Smart Organization. Boston, MA: Harvard Business School Press. Mezgár, I. (2005). Security Technologies to Guarantee Safe Business Processes in Smart Organizations. In Leondes, C.T. (Ed.), Intelligent Knowledge-Based Systems (pp.246-287). Boston, MA: Springer. Mikuła, B. (2008). Kultura organizacji inteligentnej [The smart organization culture]. Zeszyty Naukowe Uniwersytetu Ekonomicznego w Krakowie, 765(1), 15-28. Pakulska, T., & Poniatowska‑Jaksch, M. (2015). Przegrupowania przedsiębiorstw w procesie internacjonalizacji [Regrouping of enterprises in the process of internationalization]. In Poniatowska‑Jaksch, M. (Ed.), Nowe myślenie w zarządzaniu strategicznym przedsiębiorstwem [New thinking in a strategic management of a company] (pp.89-148). Warsaw: Warsaw School of Economics Publishing House. Paliszkiewicz, J.O. (2010). Zaufanie a wyniki działalności przedsiębiorstw – przegląd literatury [Trust and the results of the activities of enterprises – a literature review]. Zeszyty Naukowe SGGW w Warszawie. Ekonomika i Organizacja Gospodarki Żywnościowej, 82(1), 5-16. Pinchot, G., & Pinchot, E. (1990). The Intelligent Organization. Executive Excellence, 7(12). Przetacznik, S. (2016). Zintegrowane zarządzanie ryzykiem w przedsiębiorstwie – moda czy konieczność? [Integrated enterprise risk management – fashion or necessity?]. Zarządzanie. Teoria i Praktyka, 17(3), 41-49. Quinn, J.B. (1992). The Intelligent Enterprise a New Paradigm. The Academy of Management Executive, 6(4), 48-63.

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Zaskórski, P. (2012). Wirtualizacja organizacji w „chmurze” obliczeniowej [Virtualization of organization in the Cloud Computing]. Ekonomika i Organizacja Przedsiębiorstwa, 3(1), 24-33.

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KEY COUNTRIES FOR TOURISM IN THE NEW EUROPE Maria-Irina ANA Bucharest University of Economic Studies 6 Piața Romană, 010374 Bucharest, RO [email protected] Abstract. The tourism industry in the New Europe, region represented by the New Member States of the European Union (the thirteen countries that acceded the European Union after 2004) was highly influenced by the European integration process. The European Union policies and guidance, as well as market oriented policies, have had a great impact on tourism development in Central, East, and Southeast Europe. Schengen Agreement is one of the greatest advantages brought by the membership of the European Union, as it ensures market openings, visa policies harmonisation, easier border crossing procedures and free movement of persons. Besides, people’s curiosity and tendency to explore new destinations, non-traditional and unique places, the lower prices compared to the West, the increasing global interest in tourism, the higher wages and standard of living or the more frequent business-related trips contributed to the 20.5% increase in the number of EU arrivals in the New Member States in the period 2007-2015. The topic of the tourism sector in the Old Member States has been intensively researched, but incomparably less study has been undertaken for the case of the New Member States. Therefore, this paper provides an examination of tourism in the New Member States of the European Union. Data such as the number of international arrivals or overnight stays, number of tourism establishments and bed places in tourism establishments are considered to be one of the most relevant indicators for measuring a country’s competitiveness in tourism and will be the basis of our research. To capture various perspectives and create a comprehensive paper, the research methodology will be multimethod, including both secondary and primary sources of data. European tourism has undergone significant changes in the past years, and sustainable tourism has become one of the key issues in the sector. In this regard, major trends, threats, and opportunities for tourism in the European Union will be sketched, as the paper to better serve not only participants in the academic community, practitioners in the tourism business or the financial market parties and consultants, but any individual with an interest in this topic. Keywords: New Europe; the New Member States; tourism trends; marketing strategies; tourism marketing. Introduction Since 2004, the European Union has expanded its economic and territorial space towards Central, Eastern, and South-Eastern Europe. Three new accession waves took place (in 2004, 2007 and 2013) and tourism is one of the sectors most impacted by this expansion. The latest report published by the World Tourism Organization – UNWTO (2016, p.7), highlights that 51% of the international tourist arrivals (5% increase in 2015 compared to 2014) and 36% of the international tourism receipts were recorded in Europe (3% increase in 2015 compared to 2014), Europe currently being the most important continent for tourism, both in terms of incoming and outgoing tourist flows.

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Plus, roughly 80% of the international tourist arrivals and approximately 83% of the international tourism receipts in Europe were reported in the EU-28. As per the latest publication from Eurostat (Bourgeais & Lewczuk, 2017), in absolute terms, Spain, Italy, France and the United Kingdom recorded the highest number of nights spent by non-residents at the destination, but, in terms of percentage increases, four of the New Member States performed best, namely Bulgaria (approximately 18% increase), Slovakia (up 16%), Poland (roughly 12% increase), and Cyprus (approximately 11% increase). The only countries that reported smaller figures compared with the previous year were France and the UK, most probably as a consequence of terrorist attacks and threats. Hence, this paper aims to provide an analysis of tourism sector in the thirteen New Member States (NMS-13) of the European Union, focusing on the countries identified as key destinations. Indicators such as the number of international tourist arrivals or overnight stays, number of tourism establishments and bed places in tourism establishments are taken into consideration in order to identify the most important countries for tourism among the region indicated, Central, Eastern, and South-Eastern Europe. The main research questions this paper is based on are: Which of the New Member States performed best tourism-wise in the period 2007-2015? What type of tourism and tourism products do these countries offer? Which are the main sources of tourists for the countries identified? Are there any particularities regarding the tourism sector in these countries? In order to be able to answer these questions, the paper will be structured as follows: it will start with a brief overview of the current state of the literature on this topic, section followed by a presentation of European Union programs and policies in the travel and tourism field. A quantitative analysis precedes, this enabling us to identify the key countries for tourism in the NMS-13, for which specific trends, factors, and touristic offerings will be depicted. Literature review The latest Travel & Tourism Council Report (2016) reveals that the total contribution of the tourism sector to the New Member States region’s GDP is approximately 12%, while the direct contribution of tourism to the area’s GDP is roughly 5%. Forecasts are positive and predict that the travel and tourism sector’s direct contribution in the next decade in the NMS-13 will grow by 2.8%, which outperforms the growth rate for the whole Europe – 1.9%. According to Weiermair (2003), e-tourism expansion and increasing competition that enabled product offerings innovation are some of the factors that led to the recent tourism boost in the region, together with exchange rates fluctuations, deregulation of international air transport and the development of low-cost airlines, event particularly frequent in Europe (Sharpley & Telfer, 2015) or even the changes in income (higher standard of living) and lifestyle, as travel has become more popular and is being perceived as a mean to “escape” daily routine or a stressful living (Hudman & Jackson, 2003, p.25).

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The European Union Barometer on Europeans preferences towards tourism (European Commission, 2015) indicated that sun and beach tourism is the main motivation for travel in the European Union, followed by visiting friends or relatives. Additionally, the main reason for choosing the same holiday destination is represented by the natural features of that place. On average, more than 70% of the European Union citizens are travelling for at least one night, this percentage increasing yearly. A trend towards holidays outside one’s country of residence has also been identified, but the final destination is still a place located in the European Union, only one-fifth of the Europeans spending their main holiday outside the European Union territory. Studies referring to the evolution of tourism in Central and Eastern Europe address it from various perspectives: political, strategic, branding, investments etc. A selective collection of works includes: Aubert et al. (2015), Copacenaru (2017), Dinu and Zbuchea (2010), Hall (2011), Rosenbaum (2015). Most of the research included in the mainstream literature concentrate on specific destinations and forms of tourism. Little focus has been put on the entire region, including comparative research. European Union bodies & policies in the travel and tourism field Even though tourism’s contribution to the economy has been increasing over the last decades, it has been just recently that the European bodies started to pay attention to this sector. It cannot be discussed about a genuine common tourism policy at EU level, but rather about a series of policy initiatives and strategies for tourism, mainly sets of actions and directions at the national level, that European Commission has published since 2001. This particularity is seen by some scholars, as for example by Halkier (2010) as one of the main weaknesses of the EU tourism industry. Another important challenge for the European tourism is represented by the behavioural, technological and demographic changes that are currently taking place, as the elderly population, people over 65, is expected to reach 20% of the total EU population by 2020. Social, political and environmental security, safety and quality of food and accommodation establishments or socio-cultural sustainability are also considered as key challenges for tourism in the EU (Bâc, 2012), but issues such as seasonality, taxation, and regulations in the tourism sector, the difficulty of finding and retaining skilled staff or bureaucracy should not be neglected either (Fouloy, 2015). To overcome these threats and any other that might occur in the tourism sector, the European Commission adopted in autumn 2011 a strategy called “Europe, the world’s no. 1 tourist destination – a new political framework for tourism in Europe”, initiative that focuses on four main goals: “to stimulate competitiveness in the European tourism sector, to promote the development of sustainable, responsible, and high-quality tourism, to consolidate Europe's image as a collection of sustainable, high-quality destinations, to maximise the potential of EU financial policies for developing tourism” (European Commission, 2010, p.7). Taking everything into consideration, it can be concluded that European Union bodies are more and more aware of tourism sector’s importance for the economy, but the Member States should also be more actively involved, more open and willing to cooperate not only with the European Institutions but also among themselves for their common well-being. Continuous efforts should be made in order for the NMS-13 to be able to align to the developed countries’ level of quality and prestige, to increase

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tourists’ confidence in the products offered, to identify and exploit their competitive advantages, and be able to compete with key players in the market. In the sections that follow, a quantitative analysis for the countries in the region will be conducted in order to determine the most important countries and destinations for tourism among the New Member States. These will be then discussed in more detail, from a perspective that includes specific trends, factors, and touristic offerings. Context and methodology Approximately 80% of the total arrivals in Europe (609 million tourist arrivals in 2015 according to the latest UNWTO Report (2016)) can be attributed to EU-28 and roughly 15% to the New Member States, which are, after the date of accession, in chronological order, the following: Czech Republic, Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia in 2004, Bulgaria and Romania in 2007, Croatia in 2013. The main source of data for these countries was Eurostat, but, whenever information was missing, statistics were collected from the World Tourism Organization. After studying different research papers related to tourism and based on the availability of data, we found that, in order to be able to identify the key countries for tourism in the New Europe and to determine specific trends, factors and touristic offerings that make these successful, the following indicators were relevant: - number of arrivals and number of overnight stays – these two related indicators include visitors entering the economic area of the Member States taken into consideration. The number of arrivals includes tourists and same-day non-resident visitors. Additionally, the overnight stays correspond to the number of nights spent by guests, non-resident tourists in all kinds of accommodation establishments (hotels, holiday and other short-stay accommodation, camping grounds, recreational vehicle parks and trailer parks). - number of tourism establishments and number of bed places in tourism establishments – a tourist accommodation establishment is a local kind-of-activity unit providing as a paid service (although the price might be partially or fully subsidised) short-term or short-stay accommodation services. The number of bed places is determined by the number of persons who can stay overnight in the beds set up in the establishment, ignoring any extra beds that may be set up upon customer request The number of arrivals and overnight stays was considered to be relevant for countries’ popularity and attractiveness. As per Dupeyras and MacCallum (2013, p.22), “measuring visitor numbers is a direct and objective means of assessing success in tourism, with the difference between one year’s figure and the next being a transparent and easily conveyed way of showing growth or decline”. On the other hand, the number of tourism establishments and of bed places in tourism establishments are important indicators which reflect the potential of tourism consumers and measure the tourism phenomena (Balan & Birsan, 2010).We will analyse time series, because, as a year-on-year indicator, growth in number of arrivals and overnight stays reflect international appeal and awareness, while the evolution of tourism establishments and number of bed places indicate the tourism business sector advancement and help us identify trends more easily.

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Main statistical findings In this section we will analyse the tourism statistical indicators previously mentioned, with the purpose to identify the countries with the biggest number of arrivals and overnight stays, but also the Member States with the largest number of tourism establishments and bed places in tourism establishments, more precisely the key countries for tourism in the New Europe. International tourist arrivals and overnight stays in the NMS-13 2007-2015 According to Eurostat (2017), the number of international arrivals in the NMS-13 increased 1.4 times in 2015 compared to 2007, from 75 million international arrivals to 105.5 million tourists, while the number of overnight stays follows a similar trend, rising 1.3 times in 2015 compared to 2007. The evolution of these two indicators is presented in Figure 1.

Figure 1. Evolution of International Tourist Arrivals and Overnight Stays in the NMS-13 2007-2015 (author’s conception, based on data from Eurostat)

The international tourist arrivals for the period 2007-2015 are illustrated year-by-year for all the countries in the region in Figure 2.

Figure 2. Evolution of International Tourist Arrivals in the NMS-13 2007-2015 (author’s conception, based on data from Eurostat)

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In the period 2007-2015, the number of international tourist arrivals was the highest in Poland (247.7 million arrivals), Czech Republic (138.5 million arrivals) and Croatia (116.6 million arrivals), while in terms of number of overnight stays in the NMS-13 in the period 2007-2015 (illustrated in Figure 3), the top is pretty similar to the previous once, Poland ranking first, 542.4 million overnights, followed by Croatia, 454.7 million overnights, and Czech Republic, 368.5 million overnights.

Figure 3. Evolution of International Tourist Arrivals in the NMS-13 2007-2015 (author’s conception, based on data from Eurostat)

Considering the results provided by the number of international tourist arrivals and the number of international overnight stays, it can be noticed that Poland, Czech Republic, and Croatia are key countries for tourism in the New Europe. Number of tourism establishments and number of bed places in tourism establishments in the NMS-13 2007-2015 In what regards the number of accommodation establishments and bed places in accommodation establishments in the time-frame considered, looking at Figure 4 and Figure 5, it is easily noticeable that Croatia, Poland, and the Czech Republic are the countries with the highest development level among the New Member States. However, it must be mentioned, that the huge increase in the number of establishments that can be noticed for the year 2012 in Croatia is probably related to the changes in scope or revised reporting methodologies (Eurostat, 2017). In terms of accommodation establishments, this sector increased by almost 1.5 times in Poland and by roughly 20% in Czech Republic (for Croatia a 4 times boost was reported) in 2015 compared to 2007, while the number of bed places in tourism accommodation establishments was the largest in the Czech Republic – 6.2 million bed places, Croatia – 5.8 million bed places and Poland – 5.7 million bed places.

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Figure 4. Number of Accommodation Establishments in the NMS-13 2007-2015 (author’s conception, based on data from Eurostat)

All the indicators considered, the number of international arrivals, the number of international overnight stays, the exports in travel and the number of accommodation establishments and number of bed places in accommodation establishments pointed out that the same three countries, namely that Poland, Czech Republic, and Croatia were key countries for tourism in the New Europe in the period 2007-2015.

Figure 5. Number of Bed Places in Tourism Accommodation Establishments in the NMS-13 2007-2015 (author’s conception, based on data from Eurostat)

Key countries for tourism: Poland, Czech Republic, and Croatia In this section, the three Member States identified as key countries for tourism in the New Europe will be analysed from the tourism industry point of view. Main sources of

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tourists, the most important destinations, types of tourism, branding and tourism policies in place are some of the features that will be approached. Poland As per the Organization for Economic Co-operation and Development (2016, p. 250), tourism’s contribution to Poland’s GDP is approximately 5%, and the number of international tourists arrivals is increasing yearly. Hence, Poland was the 16 th most visited countries in the world in 2015 (Salamanca, 2015) and the 10th in Europe (World Tourism Organization, 2016). According to Euromonitor International (2016), the main reasons for which Poland’s tourism sector is so successful are: the welldeveloped air travel industry – the number of passengers travelling by air to and from Poland is expected to triple (Goettig, 2017), the diversified and of good quality accommodation establishments, conferences infrastructure, but also the country’s stable economic and political environment. E-tourism is also well advanced and provides great opportunities for the tourism business environment in Poland. The marketing campaigns currently on going in Poland are relevant examples of “best practices” not only for the European travel and tourism industry but at international level. Poland’s tourism strategy in place focuses on competitiveness, innovation, and sustainable development. For the period 2007-2015, business tourism was the centre of attention for Poland, followed by urban and cultural tourism, rural tourism, recreational and active tourism. For the same period, the Polish Tourism Organization prepared the “Marketing Strategy in Polish tourism sector”, a document that set directions and forms of actions in the Polish tourism sector. Conferences, congresses and business travel, tourist products that belong to business tourism were aimed attention at, followed by religious tourism, health tourism (wellness and spa), urban and cultural tourism, rural tourism (ecotourism and agro-tourism), recreational tourism (sea and sand, mountains, lakes, hiking) and active tourism (horse riding, cycling – supported by the EuroVelo Carpathian Cycle Route, winter sports, windsurfing, sailing) (Piotrowski, Soliński, Pacholska, & Warzybak, 2010, p. 16). According to OECD (2016, p. 253), the main source markets for the inbound tourism in Poland are Germany, Ukraine, Russian Federation, Belarus, and Lithuania, with Warsaw and Krakow ranking 73rd and 75th in the Top 100 City Destinations Ranking (Geerts, 2017). Małopolska, region that includes Cracow, the historical capital of Poland and the Auschwitz concentration camp is the most visited region in Poland according to Eurostat regional database. Some of the main programs and initiatives for Małopolska region’s tourism development were Małopolska Region UNESCO Route, Wooden Architecture Route, Małopolska Traditional Craft Route, the expansion of Cultural Air-Park in Cracow or the organization of periodic festivals such as Małopolska Cultural Heritage Days (Piotrowski, Soliński, Pacholska, & Warzybak, 2010, p. 20). In what regards the support received from the EU, Poland is and used to be the largest beneficiary of EU funds, more than half of the money necessary for the projects undertaken so far coming from the EU. According to the official information portal of the Republic of Poland, run by the Ministry of Foreign Affairs (2017), the largest share of funds went to building express roads and motorways and the second largest recipient was the Polish railways, which most certainly contributed to tourism development in Poland. Tourists of Poland are able to commute more easily, are more willing to pay for transportation services, and the incentive to travel inside Poland’s

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territory is greater. Plus, historic buildings were restored, and sports facilities, science, technology parks and sewage treatment plants were built, all predominantly with EU funds. A good example of touristic attraction modernized with EU funds is represented by the GrotyNagorzyckie caves, the remaining of a sand mine located near glassworks, which were adapted for tourism. Roughly two-thirds of the total cost of the project was co-financed by the EU. Czech Republic In what regards Czech Republic, considerable income is generated by tourism businesses, sector that makes up 7.8% of country’s GDP (Knoema, 2016), with Prague ranking 22nd in 2015 in top 100 destinations in the world and being the 4th most visited city in the EU (accounts for roughly 62% of the total number of nights spent by international non-residents in the Czech Republic according to Eurostat (2017)), after London, Paris and Rome according to a report published by Euromonitor International (Geerts, 2017). Except for Prague, other popular destinations in the Czech Republic are Severozápad and Severovýchod – 22% of the total number of nights spent by international non-residents in the Czech Republic (Eurostat, 2017), regions that include the Karlovy Vary, Mariánské Lázně and Františkovy Lázně spa towns, the Ore Mountains, the Czech Switzerland national park, the Lusatian Mountains and Jizera Mountains, protected landscape areas. According to the Czech Tourism Office (2017), cultural heritage, health, and spa (both for relaxation and medical tourism), hiking, skiing and clubbing are the main reasons for travel to the Czech Republic, while business tourism accounts for almost ¼ of the total number of international incoming tourists in the Czech Republic. The main sources of tourists for the Czech Republic are, by market share, according to Eurostat (2017) and the Czech Tourism Office (2017), Germany, United Kingdom, Russia, Italy, USA. By the amount of average daily expenditure, key markets are Russia (roughly 70 EUR per day), the USA, the UK, Italy and Japan (OECD, 2016). In what regards the Czech Tourism Authority’s objectives, they mainly aim to “rebrand” the whole country, as it is apparently still seen as a communist destination but also focus on increasing the repetition of visits and the satisfaction of tourists (Czech Tourism Office, 2017). In promoting the Czech Republic, a marketing campaign called “Czech Republic: A Country Full of Stories” was put in place, focusing on journeys of discovery the country through unique cultural elements, gastronomy, traditions, and customs. The current National Tourism Policy until 2020 is “Destination Czech Republic – number one in the heart of Europe”, with a global objective to increase the competitiveness of the tourism sector at the national and regional levels and maintain its economic performance as a result of achieving a balance between economic, socio-cultural, environmental and regional development (Czech Tourism Office, 2017, p.150). Croatia Croatia is the 28th and latest member of the EU, acceding on the 1st of July 2013. Here, the service sector accounts for 70% of Croatia’s GDP, with tourism playing a significant role in Croatia’s development (20% contribution to GDP) (OECD, 2016, p. 326). According to Eurostat (2017), most of the foreign visits in Croatia are from the EU,

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Germany ranking first in the period 2007-2015 (13 million tourist arrivals), followed by Italy (8.5 million tourist arrivals) and Slovenia (8.3 million tourist arrivals). Croatia’s tourism is greatly impacted by seasonality, being mainly based on sea and sand type of tourism. Therefore, the latest tourist campaign launched in July 2014 by the Croatian National Tourist Board, suggestively called “Croatia 365”, struggles to make Croatia a four-season destination. The Foreign Direct Investments in tourism and auxiliary infrastructure, the great variety of touristic product offerings, the rise in the number of protected tangible and non-tangible attractions throughout the country, and the fact that Croatia has been starred in “Game of Thrones”, a famous HBO TV series are several factors that contributed to the impressive growth in the tourism industry in Croatia. The current tourism strategy was launched in 2013 and seeks EUR 7 billion in new investments in tourism by the year 2020, mainly directed to private and public accommodation establishments, able to attract tourists outside the summer months, but also to increase tourism expenditure, create new jobs, improve quality of tourism services and decrease the turnover rate. Diversifying touristic offerings, organizing cultural, gastronomic and sport events, as well as setting up and promoting thematic parks and cycling routes are among the Croatian tourism industry’s priorities. An innovative project developed by the Ministry of Tourism (2016) that acknowledged the high influence e-tourism and Social Media has had recently, was the implementation of a HOT-SPOT programme, able to support free internet access in tourist destinations in Croatia. Adriatic Croatia attracts roughly 90% of the total number of tourists in Croatia, the most popular cities in the area being Dubrovnik, Split and Zadar, destinations where plenty of UNESCO Heritage Attractions can be found. One of the main touristic spots in Croatia, Plitvice Lakes, reports more than 1 million visitors per year, while the capital city, Zagreb is an important competitor for cities such as Prague or Budapest. Furthermore, cultural tourism is one of the main reasons for travel in Central Croatia, as Zagreb is the city with the most museums per square foot in the world (Zgorelec & Zgorelec, Zagreb, 2016). Croatia is also famous for the presence of naturist resorts (Lonely Planet, 2017), more than 1 million visitors yearly coming to Croatia (approximately 10% of the total according to Eurostat (2017)) being involved with naturism. Last, but not least, Croatia has 116 Blue Flag beaches (certification that a beach meets stringent standards imposed by the Foundation for Environmental Education) and numerous nature reserves. The main relevant criteria in evaluating the tourism industry in the three New Member States identified as key countries in the region are summarized in Table 1. Table 1. Criteria for evaluating the tourism industry in Poland, Czech Republic and Croatia (author’s conception) Criteria/Country

Poland

Czech Republic

Croatia

Tourism contribution to GDP Comparative advantage

5%

7.8%

20%

well-developed air travel industry, the diversified and of good quality

unique cultural heritage attractions and protected landscapes

Blue Flag beaches, many nature reserves, and UNESCO Heritage

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Main tourism forms Main source market (by market share)

accommodation establishments, conferences infrastructure, the country’s stable economic and political environment Business tourism Germany

507 Attractions

Cultural heritage & business tourism Germany

Sea and sand Germany

Conclusions One of the most important aspects to be highlighted and remembered is that tourism in the New Europe is one of the most challenging sectors of the economy, but provides the countries in the area with great benefits, accounting for approximately 12% of their GDP, total contribution. There is huge, still unexploited potential, but the European Union official bodies seem to be increasingly aware of it and have been launched and implemented various policies and programs meant to support, develop and exploit New Member States’ comparative advantages in the sector. The main factors that affect the tourism industry in the NMS are the European integration process, the continuously changing tourism preferences, the growing desire to travel and higher budgets designated for this activity, but this topic is yet to be explored and provides a great potential for further research. Hence, the main conclusions drawn based on the analysis conducted for the period considered, 2007- 2015, reflect the following: a. Among the NMS, Poland, the Czech Republic and Croatia recorded the highest number of incoming tourist, highest number of international overnight stays and reported the largest number of accommodation establishments and bed places in tourism accommodation establishments in the period 2007-2015. Most of the tourists come from the EU, from neighborhood countries, as a consequence of geographical proximity, reasonable, affordable prices and presumably higher cultural similarity. The best performers in relative terms among the New Member States could also be an interesting topic for further research. b. The tourism sector in the New Member States is as on a continuously ascending path, and in the period 2007-2015 high levels of growth for all the studied indicators were recorded. It looks like the New Member States are catching up and take great advantage of the opening of new markets and of the existing EU projects, funding, and policies. c. Poland, Czech Republic, and Croatia differentiate themselves by offering unique experiences. These countries travel and tourism policies tend to focus on niche markets rather than on mass-market tourism. Besides, they benefit of natural heritage landmarks, most of them already UNESCO-listed attractions, to which the tourism bodies worldwide pay high importance.

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References Aubert, A., Jónás-Berki, M., Marton, G., & Pálfi, A. (2015). Region specific characters of tourism in East-Central Europe. Acta Geographica Universitatis Comenianae, 59(1), 21-33. Bâc, D.P. (2012). Endogenous Challenges for the Tourism Industry. Quaestus Multidisciplinary Research Journal, 1(1), 231-239. Balan, A., & Birsan, M. (2010). Impact of economic crisis on the tourism industry in Romania. An econometric analysis of overnight stays. The Annals of The "Ştefan cel Mare" University of Suceava. Fascicle of the Faculty of Economics and Public Administration, 10(1), 110-116. Bourgeais, V., & Lewczuk, R. (2017, January 24). Tourism Publications. Retrieved from http://ec.europa.eu/eurostat/documents/2995521/7822893/4-24012017-APEN.pdf/922150f7-b642-418d-ab42-9867347d5439. Copacenaru, O. (2017). Tourism and geopolitics. Issues and concepts from Central and Eastern Europe. Journal of Urban and Regional Analysis, 9(1), 101-118. Czech Tourism Office. (2017). About CZT. Retrieved from https://www.czechtourism.com/about-czt/. Dinu, M., & Zbuchea, A. (2010). Evolutions of International Tourism in Romania and Bulgaria. In Kaynak, E., & Harcar, T.D. (Eds.), Critical issues in global business: lessons from the past, contemporary concerns and future trends (pp.214-223). Retrieved from https://www.academia.edu/4898882/Evolutions_of_International_Tourism_in_ Romania_and_Bulgaria. Dupeyras, A., & MacCallum, N. (2013). Indicators for Measuring Competitiveness in Tourism: A Guidance Document. OECD Tourism Papers, 2013/02, 20-24. Euromonitor International (2016). Travel in Poland. London: Euromonitor International. European Commission (2015). Flash Eurobarometer 414 "Preferences of Europeans towards tourism 2015". European Commission - TNS Political and Social, Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs. Brussels: European Commission. European Commission (2010). Overview of EU Tourism Policy. Retrieved from https://ec.europa.eu/growth/sectors/tourism/policy-overview_en. Eurostat (2017) Main Tables. Retrieved from http://ec.europa.eu/eurostat/web/tourism/data/main-tables. Fouloy, C.D. (2015). Challenges for the European Tourism Industry. Retrieved from http://www.aalep.eu/challenges-european-tourism-industry. Geerts, W. (2017). Top 100 Destinations Ranking. London: Euromonitor International. Goettig, M. (2017). Ryanair CEO sees Poland as Europe's fastest growing airline market. Retrieved from http://www.reuters.com/article/ryanair-poland-outlookidUSL8N1G052Q. Halkier, H. (2010). EU and Tourism Development: Bark or Bite. Scandinavian Journal of Hospitality and Tourism, 10(2), 92-106. Hall, D.R. (2011). Tourism development in contemporary Central and Eastern Europe: Challenges for the industry and key issues for researchers. Human Geographies, 5(2), 5. Hudman, L.E., & Jackson, R.H. (2003). Geography of Travel and Tourism. New York: Delmar Learning.

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Knoema (2016). Czech Republic - Travel & Tourism Total Contribution to GDP - Travel & Tourism Total Contribution to GDP - % share. Retrieved from https://knoema.com/atlas/Czech-Republic/topics/Tourism/Travel-andTourism-Total-Contribution-to-GDP/Total-Contribution-to-GDP-percent-share. Lonely Planet (2017). Croatia Travel Guide. Retrieved from https://www.lonelyplanet.com/croatia. Ministry of Foreign Affairs of Poland (2017). EU Funds in Poland. Retrieved from https://poland.pl/economy/investments-projects/eu-funds-poland/. OECD (2016). OECD Tourism Trends and Policies 2016. OECD Tourism Committee, Secretary-General of the OECD. Paris: OECD Publishing. Piotrowski, M., Soliński, T., Pacholska, M., & Warzybak, B. (2010). Analysis of the Situation of the SMEs in Tourism Sector in Malopolska and Podkarpackie Regions. Warsaw: Bench Tour. Rosenbaum, A.T. (2015). Leisure travel and real existing socialism: New research on tourism in the Soviet Union and communist Eastern Europe. Journal of Tourism History, 7(1-2), 157-176. Salamanca, A. (2015). 25 Most Visited Countries in the World. Retrieved from http://list25.com/25-most-visited-countries-in-the-world/2/. Sharpley, R., & Telfer, D.J. (2015). Tourism and Development: Concepts and Issues. Bristol: Channel View Publications. The Ministry of Tourism of Croatia (2016). Annual Report on Tourism Croatia. Annual Report. Zagreb: The Ministry of Tourism, Croatian National Tourist Board. United Nations World Tourism Organization (2016). UNWTO Tourism Highlights. Tourism Market Trends Programme. Madrid: World Tourism Organization. Weiermair, K. (2003). Product Improvement or Innovation: What is the Key to Success in Tourism. *** (Ed.), Innovation and Growth in Tourism Conference Papers (pp.53-67). Lugano: OECD Publishing. World Travel & Tourism Council (2016). Economic Impact Analysis Country Reports. Retrieved from http://www.wttc.org/research/economic-research/economicimpact-analysis/country-reports#undefined. Zgorelec, A., & Zgorelec, A. (2016). Zagreb. Retrieved from http://www.visitcroatia.co.uk/index.php/croatia-destinations/zagreb/.

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ON THE IMPORTANCE OF DEFINING, CERTIFYING AND CLASSIFYING THE TOURIST RESORTS IN ROMANIA Smaranda SIMONI Bucharest University of Economic Studies 6 Piața Romană, 010374 Bucharest, RO [email protected] Abstract: The tourist resort is considered the center of tourism activity and therefore a proper terminology would be helpful for all stakeholders. The Romanian legislation regarding the definition and classification of tourist resorts is not clear and complete. A proper and single terminology would be useful when adopted by businesses, professional organizations and federations in tourism, as well as by the ministries concerned. At present, Romania has a significant number of 100 certified tourist resorts, out of which 43 of national interest and 57 of local interest (plus other three smaller resorts that have received only the status of the spa). The most numerous are the mountain resorts (53), followed by hill and plateau resorts (28), seaside resorts (12) and plain resorts (10). Romania has a high climatic and balneological potential, proven by the existence of 59 spa and climatic resorts, 37 climatic resorts, and 6 spas. In addition, these resorts have rest and leisure functions, offering the possibility of practicing various forms of tourism. Since 2003, the State, through the Ministry of Tourism and favorable legislation, has involved more and more in programs of national interest to develop winter sports tourism, seaside or spa tourism, allocating sums to rehabilitate and revive many declining resorts. The 40 tourist resorts certified in the period 2003-2017 have had the opportunity to attract non-reimbursable financing to develop tourism infrastructure and promote themselves as tourist destinations; because most of them are small localities, tourism would contribute significantly to the welfare of local communities. This study is based on researching the bibliographic sources, the normative and legislative acts in the field, and a good knowledge of Romanian tourist resorts. This paper contributes scientifically through an appropriate definition of the tourist resort, the history of tourist resort certification and the certification criteria under the legislation in effect, a complete and up-to-date list of the certified tourist resorts in Romania, as well as a complex and combined classification of Romanian tourist resorts. Keywords: Romania; tourist resort; definition; certification; classification. Introduction The tourist resort is considered the center of tourism activity and therefore a proper terminology would be helpful for all stakeholders. The Romanian legislation regarding the definition and classification of tourist resorts is not clear and complete and there are some reasons for this situation. A proper and single terminology would be useful when adopted by businesses, professional organizations and federations in tourism, as well as by the ministries concerned. We made a review of the Romanian literature in this field, attempting to obtain some unanimously recognized concepts or opinions on defining and classifying tourist resorts.

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It is necessary to adapt the legislation to practice in order to answer tourists’ demands. We consider the classification criterion of location (geographic) used in practice to be the most important, while the remaining criteria (tourism resources, tourism function, size, tourism forms, attractiveness, etc.) may vary and could be combined in different ways. This paper contributes scientifically through an appropriate definition of the tourist resort, the history of tourist resort certification and the certification criteria under the legislation in effect, a complete and up-to-date list of the certified tourist resorts in Romania, as well as a complex and combined classification of Romanian tourist resorts. Materials and methods This paper is based on researching the bibliographic sources mentioned therein (specialty books of Romanian researchers or university professors, normative and legislative acts in the field, publications of the National Institute of Statistics and the National Institute for Research and Development in Tourism) and a good knowledge of the tourist resorts in Romania (author’s field experience). The data were synthesized (also using Microsoft Excel application) and further processed into pertinent conclusions. Research results The importance of defining unitarily the tourist resort The tourist resort is the center of tourism activity, “a complex territorial system of production and distribution of tourism goods and services” (Țigu, 2001), and therefore a proper terminology is helpful for all stakeholders. The Romanian legislation on tourist resorts is sometimes doubtful and confusing and it does not match the tourist demand or the practice in the field. The shortcomings we noticed refer to (Simoni, 2015): uncertainty and confusion in tourist resort terminology (in literature and legislation in effect); the lack of an updated, complete and clear legislation in this field (the latest law is the Government Decision no. 852 / 2008, while the Project (draft) of Tourism Law has been amended even since 2010, being recently considered for approval and public debate); the Project Tourism Law 2015 (the latest version) fails to clarify many aspects, but it is certainly the most comprehensive by now; disparity between practice (tourists, travel agencies, tourist resorts’ offer, statistical data provided by the National Institute of Statistics) and legislation in the field. The causes of these uncertainties and disparities are (Simoni, 2015): the frequent changes of the names and responsibilities of the Ministry of Tourism during the postrevolutionary period; the repeated establishment and dissolution of some institutions or organizations such as the National Authority for Tourism, the Office of Licensing and Control in Tourism, or the Tourism Promotion Office; the poor collaboration with the experts in the field from Romania and abroad (researchers, university professors) in preparing legislative acts on tourist resorts, their classification and certification; the

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lack of a tourism law in effect (there are a number of governmental decisions and orders in effect and a long-debated and yet unapproved law project); the inability of decision-makers in tourism to create sustainable policies. The Ordinance no. 58/1998, representing the legislation in effect, defines the tourist resort as "a locality or part of a locality with specific tourist functions, in which the economic activities exclusively support the achievement of the tourism product." The Dictionary of Geographic Terms (Posea, 1986) defines the tourist resort as "a locality specialized in receiving tourists (including those who come for treatment), having appropriate treatment, sport, and entertainment facilities, etc. The resort is most often accompanied by an important commercial activity and organizes transport (access) and trips." In the Dictionary of Human Geography (Erdeli et al., 1999), the tourist resort is defined as "a locality that has balneological potential (mineral waters, mofettes, therapeutic muds), climatic resources (natural factors for treating some diseases) and natural and anthropic tourism resources, arranged and endowed to value them." The book “Lexicon of Tourism Terms” (Stănciulescu, 2002) defines the tourist resort as "a locality (village or city) situated in a region with great tourism potential and equipped with various facilities for receiving tourists. It is an organized territorial unit, with equipment offering a diverse range of performances, assimilated to a settlement or a service sales center, grouping different businesses. In many tourist countries, including Romania, a locality must meet certain criteria, determined by national legislation, in order to gain this status." The university course "Tourism Facilities" (Erdeli & Gheorghilaş, 2006) is one of the few works having chapters dedicated to tourist resorts. The authors take the definitions of UNWTO and the International Academy of Tourism as follows: the tourist resort is a "locality having a number of attractions, equipped with accommodation units for tourists. It may be, for example, a seaside resort, a climatic, thermal or grape cure resort, if it additionally offers specific features of these resorts". This definition confirms the multiple functionalities of a tourist resort. The authors conclude that in practice (strategies, programs, statistical reports and promotion), the tourist resorts in Romania are classified into three categories (after the main motivation of the offer, the specific tourism functions and the three main segments of tourism) - seaside resorts, spa resorts, and mountain resorts. The Project Tourism Law 2015 is the first document in the last 25 years providing an appropriate definition of the tourist resort: "a locality or part of it that has tourist heritage and tourist infrastructure, where the economic activities support mainly the tourism product, being certified by governmental decision on a proposal of the county administrative authority responsible for tourism, if it met cumulatively the mandatory minimum criteria for certification, approved by governmental decision." The certified tourist resorts in Romania and the importance of their certification Certification of tourist resorts is made by the Ministry of Tourism, at the request of the local public administration authorities, and it is approved by a Government decision. Certification as a tourist resort does not change the rank of the respective locality established under the law. The norms and criteria of certifying tourist resorts (of national or local interest) were established by Decision no. 852 / 2008, and belong to the following categories, for

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which a certified tourist resort has to achieve a minimum score: natural environment, natural treatment factors and environment quality (the natural and anthropogenic resources must be entered in the Tourist Heritage Register, and in case of natural treatment factors, there must be documents attesting their value); access and roads to/ in the resort; urban utilities; accommodation and leisure facilities (minimum 500 accommodation places for the national resorts, minimum 100 accommodation places for those of local interest, minimum 30% accommodation units ranked 3-5 stars); tourist information and promotion; additional criteria of certifying a tourist resort. The Government Decision no. 1122/2002 certified 29 tourist resorts of national interest and 36 tourist resorts of local interest. Annex 4 of the Government Decision no. 852/2008 mentioned 83 certified tourist resorts, 37 of national interest and 46 of local interest. By Order no. 1016/2011, the National Tourism Authority added other 4 tourist resorts of national interest (Petroşani-Parâng, Târgu Neamţ, Piatra Neamţ, Râşnov) and 2 local resorts (Vişeu, Baia Sprie). Decision no. 1072/2013 added to this list the localities certified as spa and climatic resorts (Băile Felix, 1 Mai, Geoagiu-Băi, Nicolina, Călimănești-Căciulata, Mangalia, Vatra Dornei, Slănic-Moldova, Târgu-Ocna, Sângeaorz-Băi, Eforie, Năvodari, Covasna, Pucioasa, Băile Tușnad, Sovata, Slănic Prahova, Ocna Sibiului, Buziaș, Băile Olănești, Moneasa, Bazna). Recently, Decision no. 58/2017 has certified 12 new tourist resorts, of which two of national interest (Borsec in Harghita county and Sucevița in Suceava county). Also, a number of 10 localities or parts of some localities have been certified as tourist resorts of local interest: Baia de Fier - Gorj county, Boghiș - Sălaj county, Colibiţa - Bistriţa-Năsăud county, Moisei Maramureş county, Negreşti Oaş - Satu Mare county, Pojorâta - Suceava county, Sângeorgiu de Mureş - Mureş county, Băile Banffy - Topliţa municipality - Harghita county, Băile Ocna Dej – Dej municipality, Cluj county, Moineşti-Băi – Moineşti municipality, Bacău county) – Table 1. Promoted as tourist resorts of national or local interest, these localities may have a high chance of attracting non-reimbursable financing, given that some financing programs require certification as a tourist resort. Therefore, at present (Tables 1 and 2) Romania has 43 tourist resorts of national interest (of which 23 spa and climatic resorts and 3 spas) and 57 local tourist resorts (including 7 spa and climatic resorts). There are also three other smaller resorts that have received only the status of spa and climatic resort (Nicolina, Bizușa-Băi, Năvodari): Table 1. The evolution of certified tourist resorts in Romania Year 2002 2008

Total number of certified tourist resorts 65 83

Tourist resorts of national interest 29 37

Tourist resorts of local interest 36 46

2011

89

41

48

2013

98

41

57

2017

103

43

60

Legislative acts attesting the status of tourist resort Government Decision no. 1122/2002 Government Decisions nos. 867/2006 and 852/2008 Government Decisions nos. 848/2009, 1204/2009, 1205/2009, 511/2010, 1181/2011 and 1016/2011 Government Decisions nos. 1161/2012 and 1072/2013 Government Decision no. 58/2017

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Table 2. The certified tourist resorts in Romania (2017), according to the legislation in effect Pos. 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 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 Notes:

Certified tourist resorts of national interest Amara (S) Azuga Buşteni Buziaş (SC) Băile Govora (S) Băile Felix (SC) Băile Herculane (S) Băile Olăneşti (SC) Băile Tuşnad (SC) Câmpulung Moldovenesc Cap Aurora (SC) Călimăneşti-Căciulata (SC) Costineşti Covasna (SC) Eforie Nord (SC) Eforie Sud (SC) Geoagiu-Băi (SC) Gura Humorului Jupiter (SC) Mamaia Mangalia (SC) Moneasa (SC) Neptun-Olimp (SC) Poiana Braşov Predeal Pucioasa (SC) Slănic (SC) Saturn (SC) Sinaia Sângeorz-Băi (SC) Slănic-Moldova (SC) Sovata (SC) Târgu Ocna (SC) Techirghiol (S) Vatra Dornei (SC) Venus (SC) Voineasa Petroşani-Parâng Târgu Neamţ Piatra Neamţ Râşnov Borsec Sucevița

Location (county) Ialomiţa Prahova Prahova Timiş Vâlcea Bihor Caraş-Severin Vâlcea Harghita Suceava Constanţa Vâlcea Constanţa Covasna Constanţa Constanţa Hunedoara Suceava Constanţa Constanţa Constanţa Arad Constanţa Braşov Braşov Dâmboviţa Prahova Constanţa Prahova Bistriţa-Năsăud Bacău Mureş Bacău Constanţa Suceava Constanţa Vâlcea Hunedoara Neamţ Neamţ Braşov Harghita Suceava

Certification of localities as tourist resorts of national or local interest by Government Decisions nos. 1122/2002, 867/2006, 852/2008, 848/2009, 1204/2009, 1205/2009, 511/2010, 1181/2011, 1161/2012, 1072/2013. (S) – the status of spa, according to the law (Government Decisions nos. 1016/2011 and 1072/2013) (SC) – the status of spa and climatic resort, according to the law (Government Decisions nos. 1016/2011 and

Pos. 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 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53

Certified tourist resorts of local interest 1 Mai (SC) Albac Bughea de Sus Arieşeni Balvanyos Bazna (SC) Bălţăteşti Băile Homorod Băile Turda Băile Băiţa Borşa Bran Breaza Călacea Cheia Crivaia Durău Harghita-Băi Horezu Izvoru Mureşului Lacu Roşu Lacu Sărat Lipova Moieciu Ocna Sibiului (SC) Ocna Şugatag (SC) Păltiniş Pârâul Rece Praid Săcelu Sărata Monteoru Secu Semenic Snagov Stâna de Vale Straja Soveja Tăşnad Timişu de Sus Tinca Trei Ape Vălenii de Munte Vaţa de Jos Zona Fântânele Zona Muntele Băişorii Vişeu de Sus Șuior-Baia Sprie Baia de Fier Boghiș Colibița Moisei Negrești Oaș Pojorâta

Location (county) Bihor Alba Argeş Alba Covasna Sibiu Neamţ Harghita Cluj Cluj Maramureş Braşov Prahova Timiş Prahova Caraş-Severin Neamţ Harghita Vâlcea Harghita Harghita Brăila Arad Braşov Sibiu Maramureş Sibiu Braşov Harghita Gorj Buzău Caraş-Severin Caraş-Severin Ilfov Bihor Hunedoara Vrancea Satu Mare Braşov Bihor Caraş-Severin Prahova Hunedoara Cluj Cluj Maramureş Maramureş Gorj Sălaj Bistrița-Năsăud Maramureș Satu Mare Suceava

516 1072/2013) Please note that the table contains only the certified tourist resorts, the actual list of all Romanian resorts and tourist centers being larger.

Strategica 2017 54 55 56 57 58 59 60

Sângeorgiu de Mureș Băile Banffy (Toplița) Ocna Dej Moinești-Băi Nicolina (SC) Bizușa-Băi (SC) Năvodari (SC)

Mureș Harghita Cluj Bacău Iași Sălaj Constanța

Since 2003, the State, through the Ministry of Tourism and favorable legislation, has involved more and more in programs of national interest to develop winter sport tourism, seaside or spa tourism, allocating sums to arrange and revive many declining resorts. The 40 tourist resorts certified in the period 2003-2017, have had the opportunity to attract non-reimbursable financing to develop tourism infrastructure and promote themselves as tourist destinations; because most of them are small localities, tourism would contribute significantly to the welfare of local communities. The importance of classifying the Romanian tourist resorts Other shortcomings result from the classification (and thus definition) of tourist resorts by different criteria (Simoni, 2015): the location (geographic) criterion is used in practice by tourists, travel agencies, resort offers, statistics, specialists’ studies; the criterion of tourism function is used in legislation; the criterion of attractiveness and level of organization and equipment is also used in legislation to certify tourist resorts. The National Institute of Statistics uses the location (geographic) criterion combined with the tourism function in its statistics (Statistical Yearbook of Romania, Tourism chapters; Tourism Series; Romanian Tourism. Statistical Abstract), but does not define these terms: spas, seaside resorts, mountain resorts, Danube Delta, Bucharest and county capitals, other localities and tourist routes. The legislation uses the criterion of attractiveness and level of organization and equipment, as well as the criterion of tourist function – the Project Tourism Law 2010-2015 (and other previous provisions such as the Government Decisions nos. 112/2002, 867/2006, 852/2008), distinguishing three types of resorts: spa resort, climatic resort and spa and climatic resort. To summarize, the Romanian tourist resorts were classified according to various criteria by different authors and authorities, but the most important criteria for classification are: the geographical criterion (of location, reflecting the natural tourism potential), the tourist function (the forms of tourism) and the size and importance of the tourist resort (resulting from the level of organization, certified tourism facilities, degree of attractiveness). It is difficult to classify the tourist resorts because of the variety of the classification criteria: the tourist potential, the degree of tourism development, the forms of tourism practiced, the character of the tourist activity (permanent, seasonal), the size of the resort (accommodation capacity), etc. We propose a combined classification that would be useful, although in practice (tourists, statistics, travel agencies) it is preferable to work with fewer categories. Thus, we will use some categories (based on the geographic criterion, from which result the characteristics of the natural tourism potential and implicitly the forms of tourism practiced), each broken down by subcategories, depending on the particularities of the tourism potential of each resort.

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One classification criterion is not enough to describe the complexity and diversity of Romanian tourist resorts, so a combined classification would be useful (a tourist resort should be characterized by using more classification criteria), as we have done in Tables 3 and 4. Table 3. Model of combined classification of tourist resorts in Romania (2017)

for practicing water sports

to visit natural and anthropic tourist spots nearby

of national interest

of local interest

permanent

seasonal

Mountain resorts Hill and plateau resorts Plain resorts

D. Character of tourism activity

for practicing winter sports

A. Geographic

for rest and leisure (including sports)

C. Size and importance

Spa

climatic

Classification criterion

spa and climatic

B. Tourism function (form of tourism)

-

39

5

53

19

34

50

3

1

4

-

28

10

18

27

1

5

-

1

6

3

7

8

2

-

-

12

12

11

1

8

4

6

43

18

99

43

60

93

10

Total

53

3 2

28

5

10

-

Seaside resorts

12

-

Total

103

3 7

2 1 2 2 4 1 2 5 9

Certainly, things can be simplified as follows (Table 3): Romania has 103 certified tourist resorts, 43 of national interest and 60 of local interest. The most numerous are the mountain resorts (53), followed by hill and plateau resorts (28), seaside resorts (12) and plain resorts (10). Romania has a high climatic and balneological potential, proven by the existence of 59 spa and climatic resorts, 37 climatic resorts and 6 spas (note that not all of them are certified as spas or climatic resorts yet). In addition, these resorts have rest and leisure functions, such as one or more of the following: hiking to admire landscapes or protected areas (including ecotourism), practicing sports (winter sports, water sports, mountaineering, caving, paragliding, etc.), hunting and fishing, visiting anthropic tourist spots (including those related to rural tourism) nearby. For example, (Table 4), a resort such as Vatra Dornei can be characterized in a complex and proper manner, by fitting it to several classification criteria (Table 4, xmarked cells): it is a mountain tourist resort of national interest (large), permanent, spa and climatic, for practicing winter sports, for rest and leisure.

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A.1. Mountain resorts 1.Azuga (Prahova) 2.Bușteni (Prahova) 3.Băile Herculane (Caraș-Severin) 4.Băile Tușnad (Harghita) 5.Câmpulung Moldovenesc (Suceava) 6.Covasna (Covasna) 7.Geoagiu-Băi (Hunedoara) 8.Gura Humorului (Suceava) 9.Moneasa (Arad) 10.Poiana Brașov (Brașov) 11.Predeal (Brașov) 12.Sinaia (Prahova) 13.Slănic Moldova (Bacău) 14. Vatra Dornei (Bacău) 15.Voineasa (Vâlcea) 16.Petroșani-Parâng (Hunedoara) 17.Râșnov (Brașov) 18.Borsec (Harghita) 19.Sucevița (Suceava 20.Albac (Alba) 21.Arieșeni (Alba) 22.Balvanyos (Covasna) 23.Borșa (Maramureș ) 24.Bran (Brașov) 25.Cheia (Prahova) 26.Crivaia (Caraș-Severin) 27.Durău (Neamț) 28.Harghita-Băi (Harghita) 29.Izvoru Mureșului (Harghita) 30.Lacu Roșu (Harghita) 31.Moieciu (Brașov) 32.Ocna Șugatag (Maramureș) 33.Păltiniș (Sibiu) 34.Pârâul Rece (Brașov) 35.Secu (Caraș-Severin) 36.Semenic (Caraș-Severin) 37.Stâna de Vale (Bihor) 38.Straja (Hunedoara) 39.Soveja (Vrancea) 40.Timișu de Sus (Brașov) 41.Trei Ape (Caraș-Severin) 42.Vața de Jos (Hunedoara)

x x

x x x x

x x x x x x x x x x x x x x x x x

x x x x x

x x x x x x x x x x x x x x x

x x x x x x x x x x

x x x x x x x x

x

x

x x x x x

x x x x

x

x x x

x x x

x x

x

x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x

D. Character of tourism activity

permanent

x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x

seasonal

C. Size and importance

of local interest

to visit natural and anthropic tourist spots nearby

for practicing water sports

for practicing winter sports

A. Geographic

for rest and leisure (including sports)

spa

climatic Tourist resort (county location)

spa and climatic

B. Tourism function (form of tourism)

Classification criterion

of national interest

Table 4. The combined classification of all certified tourist resorts in Romania (2017)

x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x

Marketing and Consumer Behavior 43.Zona Fântânele (Cluj) 44.Zona Muntele Băișorii (Cluj) 45.Vișeu de Sus (Maramureș) 46.Șuior-Baia Sprie (Maramureș) 47.Boghiș (Sălaj) 48.Colibița (Bistrița-Năsăud) 49.Moisei (Maramureș) 50.Negrești Oaș (Satu Mare) 51.Pojorâta (Suceava) 52.Băile Banffy – Toplița (Harghita) 53.Băile Homorod (Harghita) A.2. Hill and plateau resorts 1.Băile Govora (Vâlcea) 2.Băile Olănești (Vâlcea) 3.Călimănești-Căciulata (Vâlcea) 4.Pucioasa (Dâmbovița) 5. Slănic (Prahova) 6.Sângeorz-Băi (Bistrița-Năsăud) 7.Sovata (Mureș) 8.Tg.Neamț (Neamț) 9.Târgu Ocna (Bacău) 10.Piatra Neamț (Neamț) 11.Bughea de Sus (Argeș) 12.Bazna (Sibiu) 13.Bălțătești (Neamț) 14.Băile Turda (Cluj) 15.Băile Băița (Cluj) 16.Breaza (Prahova) 17.Horezu (Vâlcea) 18.Ocna Sibiului (Sibiu) 19.Praid (Harghita) 20.Săcelu (Gorj) 21.Sărata Monteoru (Buzău) 22.Vălenii de Munte (Prahova) 23. Baia de Fier (Gorj) 24.Sângeorgiu de Mureș (Mureș) 25.Ocna Dej (Cluj) 26.Moinești-Băi (Bacău) 27.Nicolina (Iași) 28.Bizușa-Băi (Sălaj) A.3. Plain resorts 1.Amara (Ilfov) 2.Buziaș (Timiș) 3.Băile Felix (Bihor) 4. 1 Mai (Bihor) 5.Călacea (Timiș) 6.Lacu Sărat (Brăila) 7.Lipova (Arad) 8.Snagov (Ilfov) 9.Tășnad (Satu Mare) A.4. Seaside resorts 1.Cap Aurora (Constanța) 2.Costinești (Constanța) 3.Eforie Nord (Constanța) 4.Eforie Sud (Constanța) 5.Jupiter (Constanța) 6.Mamaia (Constanța)

519 x x

x x

x x x x x x x x x x x

x x

x x x

x

x x

x x x x

x x x

x x x x x x x x

x x x x x x x x x x

x x

x

x x x x x x x

x

x x

x x x x x x

x x x x

x x x x x x

x

x x x x x x

x x x x x x x x x x

x x x x x x

x x x x x x x x x

x x x x

x x x x x x

x x x x x x

x x x x x x x x x x x

x x x x x x x x x x x x x x x x x x x x x x x x x x x x

x x x x x x x x x x x x x x x x

x x x x x

x x x x x x x x x x x

x x x x x x x x x x x x x x x x x x

x x x x x x x x x

x x x x x x

520 7.Mangalia (Constanța) 8.Neptun-Olimp (Constanța) 9.Saturn (Constanța) 10.Techirghiol (Constanța) 11.Venus (Constanța) 12.Năvodari (Constanța)

Strategica 2017 x x x x x x

x x x x x x

x x x x x x

x x x x x

x x x x x x

x

The mountain resorts are the most numerous (over 50% of total tourist resorts), due to the great natural potential of the Romanian Carpathians (alpine and mountain landscapes, rivers and lakes, bioclimate, mineral waters, ski areas, karst relief, national and natural parks, Biosphere reserves, fishing and hunting). The 53 mountain resorts can also be classified as large resorts (19 of national interest) or small resorts (34 of local interest), most of them being permanent (50); depending on the form of tourism practiced, they can be classified in climatic, spa and climatic, and rest and leisure resorts. We mention that all mountain resorts are climatic by definition (the mountain bioclimate favors climatotherapy). 21 of them are a spa and climatic resorts because they developed starting from their mineral and thermal waters, some of them being used since antiquity. Before the Revolution in 1989, there were fewer ski slopes, concentrated in the area Prahova Valley - Poiana Brașov and several resorts around the country. In recent years (10-15 years), we have witnessed an unprecedented development of facilities for winter sports not only in traditional resorts, but also in smaller resorts, located in mountainous and even peri-mountainous areas, but close to major cities emitting tourists. Beginning with 2003, the State, through the Ministry of Tourism and favorable legislation, got involved more and more in programs of national interest for winter sports tourism development, allocating money to develop ski slopes and trails for hiking and recreation (Simoni, 2017). At present, there are 186 certified ski slopes throughout the country (37 new ski slopes were certified last year), 39 resorts for winter sports, some of them being new ski resorts (Șureanu, Rânca, Colibița, Pojorâta). The hill and plateau resorts are mostly balneo-climatic, with permanent activity, due to the rich mineral water resources (most of them are salty and sulphurous waters, plus iodate, sulphate, ferugine waters, etc.), sedative bioclimate, and additional therapeutic salines. These resorts have old traditions in balneotherapy, and some of them are world renowned. They developed especially in the second half of the 20th century, and after the Revolution in December 1989, some of them continued to grow, but a few declined due to lack of investors and faulty management. Several resorts have recently been certified; they are only climatic resorts, but being located close to the mountains, they have developed leisure functions such as ski slopes, visiting natural or anthropic (including religious) tourist attractions in the area, or knowing the local traditions (Baia de Fier, Piatra Neamț, Târgu Neamț, Horezu, Vălenii de Munte). The 10 resorts located in the plains are spas or spa and climatic resorts, linked either to the mineral (carbonated or thermal) waters in the western plains or to the salty lakes in the southern ones, to which we add Lake Snagov for recreation. Most of them (7) are small resorts and the majority are open permanently. The 12 seaside resorts are, of course, all spa and climatic resorts (based on some valuable therapeutic resources: sea water, seaside bioclimate, and therapeutic mud from the lakes Techirghiol and Mangalia), seasonal, and all but one of national interest

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(their attractiveness and size result from the high number of accommodation places, compared to other types of tourist resorts). Eight of these resorts operate at low capacity throughout the year (mainly hotels with treatment base). Conclusions and implications At present, Romania has a significant number of 103 certified tourist resorts, out of which 43 of national interest and 60 of local interest. The most numerous are the mountain resorts, followed by hill and plateau resorts, seaside resorts and plain resorts. Romania has a high climatic and balneological potential, proven by the existence of 59 spa and climatic resorts, 37 climatic resorts, and 6 spas. In addition, these resorts have rest and leisure functions, offering the possibility of practicing various forms of tourism. The Romanian legislation regarding the definition and classification of tourist resorts is not clear and complete. A proper and single terminology would be useful when adopted by businesses, professional organizations and federations in tourism, as well as by the ministries concerned. We made a review of the Romanian literature in this field, attempting to obtain some unanimously recognized concepts or opinions on defining and classifying tourist resorts. This paper contributes scientifically through an appropriate definition of the tourist resort, the history of tourist resort certification and the certification criteria under the legislation in effect, a complete and up-to-date list of the certified tourist resorts in Romania, as well as a complex and combined classification of Romanian tourist resorts. References Erdeli, G., et al. (1999). Dicționar de geografie umană [Dictionary of Human Geography]. Bucharest: Corint. Erdeli, G., & Gheorghilaş, A. (2006). Amenajări turistice [Tourism Facilities]. Bucharest: University of Bucharest Publishing House. Ministry of Tourism (2010 / 2015). The Project Tourism Law. Retrieved from www.turism.gov.ro. National Institute for Research and Development in Tourism (2000). Project of amending norms and criteria to certify tourist resorts and areas in Romania. National Institute of Statistics (2005-2016). Statistical Yearbook of Romania, Tourism chapters. Retrieved from www.innse.ro. National Institute of Statistics (2014-2016). Romanian Tourism. Statistical Abstract, Bucharest. Retrieved from www.innse.ro. National Institute of Statistics (2014-2016). Tourism Series. Retrieved from www.innse.ro. National Tourism Authority (2014). List of localities certified as tourist resorts. Retrieved from www.turism.gov.ro. Posea, Gr. (coord.) (1986). Dicționar de termeni geografici [Dictionary of Geographic Terms]. Bucharest: Scientific and Enciclopedic.

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Romanian Government (1996). Decision no. 77/1996 for approving the norms to certify tourist resorts, published in the Official Gazette no. 38 of February 22, 1996. Romanian Government (1998). Ordinance no. 58 of August 21, 1998, regarding the organization of the tourism activity in Romania, published in the Official Gazette no. 309 of August 26, 1998, approved by Law no. 755/2001 and completed by GEO no. 84/2014 and Decree no. 420/2015. Romanian Government (2002). Decision no. 1122/2002 for approving the norms and criteria to certify tourist resorts and to declare some localities as tourist resorts of national or local interest. Romanian Government (2006). Decision no. 867/2006 for approving the norms and criteria to certify tourist resorts. Romanian Government (2008). Decision no. 852/2008 for approving the norms and criteria to certify tourist resorts. Romanian Government (2009). Decisions nos. 848, 1205, 1205/2009 on certifying localities as tourist resorts of national or local interest. Romanian Government (2010). Decision no. 511/2010 on certifying localities as tourist resorts of national or local interest. Romanian Government (2011). Decision no. 1181/2011 on certifying localities as tourist resorts of national or local interest. Romanian Government (2011). Decision no. 1016/2011 on granting of the status of spa and climatic resort for some localities and areas that have natural factors of treatment. Published in the Official Gazette of Romania, Part I, no. 743 of October 24, 2011. Romanian Government (2012). Decision no. 1161/2012 on certifying localities as tourist resorts of national or local interest. Romanian Government (2013). Decision no. 1072 of December 11, 2013 amending Annex no. 1 to the Government Decision no. 1016/2011, on granting the status of spa and climatic resort for some localities and areas that have natural factors of treatment. Published in the Official Gazette of Romania no. 825 of December 23, 2013. Romanian Government (2017). Decision no. 58 of February 16, 2017 certifying certain localities or parts of localities as tourist resorts of national or local interest, and amending Annex no. 5 to the Government Decision no. 852/2008 approving the norms and criteria of certifying tourist resorts. Published in the Official Gazette no. 138 of February 23, 2017. Simoni, S. (2015). The Mountain Tourism Resort – Pleading for a Single and Clear Terminology, Scientific Research. Agricultural Management, XVII (4), 16-21. Simoni, S. (2017). New Trends in Winter Sport Tourism in Romania, Scientific Research. Agricultural Management, XIX (1), 215-220. Stănciulescu, G. (coord.) (2002), Lexicon de termeni turistici [Lexicon of Tourism Terms]. Bucharest: Oscar Print. Țigu, G. (2001). Turismul montan [Mountain tourism]. Bucharest: Uranus.

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“MAIN SINS” IN THE CUSTOMER SERVICE IN THE CONTEMPORARY ORGANIZATION Wioletta WEREDA Siedlce University of Natural Sciences and Humanities 2 Konarskiego, 08-110 Siedlce, PL [email protected] Monika GRZYBOWSKA Warsaw School of Economics, Collegium of World Economy 162 al. Niepodległości, 02-554 Warsaw, PL [email protected] Abstract. The purpose of this article is to present the customer service process as yet imperfect part of the sales practice in contemporary international organizations. The pre and after sales process so-called the Sales Cycle is still underestimated. Consumers increasingly indicate what has the greatest impact on their satisfaction or dissatisfaction. Many international studies prove that consumers’ satisfaction increases when companies meet their four key needs: the personnel professional competences, the ease of purchase, the initiative from the customer service employees in relation to the customer and the personalization of the offer. Consumers, in the majority, expect more initiative from the customer service side and the organization as a whole and this may cause some mistakes. The authors defined them as "main sins" in the customer service, based on the secondary and own researches. These sins can be viewed from the point of the sales process and from the overall organizational management. It has been discussed in various researches that the fewer mistakes made during the sales process the higher customers’ retention and larger profit growth in the organization. Based on the limitations of this study, future research could expand by conducting a much larger survey across other Voivodships in Poland and a greater number of organizations in different activity areas. Keywords: customer service; client dissatisfaction; failures in customer service; contemporary organization. Introduction International researches show that the essential element of sales in the contemporary organization is the customer service in the broad meaning (Schlesinger & Heskett, 1991, pp.35-38). The way to distinguish yourself from the competitors is to add extra value for the customer who will see excellence in the buying process (Griffiths, Elson, & Amos, 2005, p.59; Grönroos, 1994, p.8). It has been also noticed that mistakes made by the customer service and management can negatively affect the customers’ experience (Tax, Brown & Chandrashekaran, 1998,

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p.60). In consequences, organizations may lose the buyers and thus their revenue can also decrease (Kim, 1997, p.77). The purpose of this article is to present knowledge, in both theoretical and practical terms, about the role of the customer service in the contemporary organization, analyze it and identify mistakes that can cause an undesirable impact on sales results. It has been argued in various researches that the higher standard of the customer service in the organization, the fewer mistakes made during the sales process and thus the higher customers’ retention and profit growth. (Verhoef, 2003, p.33; Williams & Naumann, 2011, p.31; Kim, 1997, p.77). Customer service – the real source of enterprises The role of the customer service is to satisfy clients` needs during the whole purchase process (Oloruntoba & Gray, 2009, p.487). The excellent customer service is the service that makes a positive and long-lasting impression and it is much more than a simple courtesy. It also means to go beyond their expectations in such a way that the organization is being recognized as the one which is worth doing business with. The excellent customer service means to look for unusual and unexpected ways of pleasing customers and surprising them, so they keep only a positive experience with the organization (Wereda & Grzybowska, 2014 p.192). The customer service is a broad subject which is a part of the sales process. Particularly, it is important in relationship sales, because it allows to maintain existing customers and to establish new contacts with prospective buyers. This topic is too broad to be ignored (Sobczak-Matysiak, 1998, p.7). The customer service from the customer's perspective should be something special and unforgettable for them. It's much more than a good impression or a nice attitude. The customer must feel honored (Zemke, 2005, p.9). The fulfilment of customers’ needs has to be done in such a way that they feel that the seller is not only an ordinary trader but that he/ she wants all the best for them, even in the process of warranty or complaint. In general terms, customer service covers all kinds of activities a seller takes to satisfy a customer. All these activities greatly influence the value of the customer relationship with the seller. Services provided by the seller to the customer in order to meet their expectations include, but are not limited to, credits, guarantees, invoices, packaging, product availability, delivery, claims, guarantees, etc. (Futrell, 2004, p.472). If the customer returns to the point of sale and still has confidence in the seller, then the organization can conclude that it approaches customers, professionally. Many companies note that today's customers have much less time than they used to, so if the seller does not get their trust quickly, potential buyers will go to the competition (Baird & Gonzalez-Wertz, 2011, p.20). Still, a large number of companies are interested in maximum current sales without thinking about what will happen next. Meanwhile, with more attention paid to its customers, the existing results would improve significantly (Williams & Naumann, 2011, p.25).

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According to a study presented by Marshall, Goebel and Moncrief (2003) sales managers when asked to identify the skills and knowledge required to be successful in customer service and selling, indicated the following skills: follow-up skills, listening skills, ability to adapt sales style from situation to situation, tenacity – sticking to the task, organizational skills, verbal communication skills, proficiency in interacting with people at all levels within an organization, demonstrated ability to overcome objections. Closing skills. Personal planning and time management skills (Marshall, Goebel & Moncrief, 2003, pp.247-255). Due to the process of selling there is a diverse nature of the buying situation. Representatives of the organization can perform many types of selling jobs. Figure 1 shows that there is a fundamental distinction between order-takers, ordercreators, and order-getters.

Figure 1. Phases of customer service relations in the selling process (Jobber & Lancaster, 2009, p.8)

Jobber and Lancaster (2009) describe that order-takers respond to already committed customers; order-creators do not directly receive orders since they talk to specifiers rather than buyers; while order-getters attempt to persuade customers to place an order directly. There are three types of order-takers: inside order-takers, delivery salespeople and outside order-takers. Order-creators are termed missionary salespeople. Finally, order-getters are either front-line salespeople consisting of new business, organizational or consumer salespeople, or sales support salespeople who can be either technical support salespeople or merchandisers (Jobber & Lancaster, 2009, pp.8-9). Therefore, all of the representatives should cooperate with customers and provide professional customer service to create relationship and trust between clients and organization. Additionally, they all should be aware of the costs of losing customers if they make mistakes.

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“Main sins” in the customer service – general description Customers have become more aware of any organization’s offer. They have an access to all sources of information thanks to the global net. Therefore, the market has become challenging for companies (Rundh, 2011, p.260). But, there is one thing that may decide on winning the customer – it is a professional customer service which enables avoiding mistakes (Walsh & Gordon, 2010, p.225). As per Report (2009) by Genesys Telecommunications Laboratories, international consumer surveys conducted in 16 industrialized countries shows that insufficient customer service has resulted in losses of up to $338.5 billion annually. They are associated with the complete abandonment of the company's services or the passing of customers to the competition due to their bad experiences. In the surveyed countries, the most vulnerable sectors are financial services, cable and satellite TV providers, and telecommunications companies. According to the study, the average value of each lost customer is $243 per year. Losses are defined as the transfer of transactions to competition (63% of consumers) and the abandonment of services (37% of consumers). Consumers were asked about their expectations and suggestions for changes needed to improve the quality of their customer service experience. The study was conducted in 16 countries: Australia, Brazil, China, Czech Republic, France, Netherlands, India, Canada, Mexico, Germany, New Zealand, Poland, Russia, USA, UK and Italy. The survey covered 8,800 consumers from 16 countries, representing each age and income group (minimum 500 people in each country surveyed). Based on the answers the report: “The Cost of Poor Customer Service: The Economic Impact of the Customer Experience and Engagement" was created. During the survey, consumers were asked about the frequency of business contacts via websites, Contact Centers or mobile devices. They were also asked to identify the impact of these contacts on their purchasing decisions and how important direct customer service is. Of course, all respondents pointed out that the biggest improvement they expect is customer service and this form is most suitable for them in the customer-seller relationship (Figure 2).

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Figure 2. Most sought improvements (Genesys Telecommunications Laboratories, 2009, p. 8)

Moreover, consumers are remarkably consistent in citing key reasons that they leave. Assisted service is well developed, with the overwhelming majority of consumers say their most satisfying experience occurred because of a capable and competent customer service representative. But self-service that is not intelligently integrated with assisted service is a key area of concern. Consumers feel the most significant root causes of poor service are: being trapped in automated self-service; being forced to wait too long for service; repeating themselves; representatives that lack the skills to answer their inquiry (Genesys Telecommunications Laboratories, 2009, p.9). Poor service in customer care leads to making mistakes in this process. These mistakes become “main sins” of the organization that can result in customer outflow and profit loss. The “sins” in the customer service can be viewed from two aspects: the sales process, and the overall management of the organization. “Sins” from the aspect of the sales process In order to have a good relationship between the customer and the seller, it is important to be aware what are “dos and don’ts” in these contacts. If the seller knows them, they can be easier avoided (Zemke, 2005, pp.23-24). These “sins” are as follows:

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No product information. The worst of possible statements from the salesmen's mouth is the phrase "I do not know" (Peel, 1993, p.17). This leaves the customer unanswered and with the impression of lack of professionalism within the organization. Even if the seller does not know the, he/she should ensure that get from the other colleague and passes it on to the customer instantly. No interest. Every customer would like to feel the focus of the seller. If the seller, when talking to customers, makes it clear to them that he/she is somewhere else or would prefer to be somewhere else, the customer automatically does not want to pay attention to the product. If the client is treated with attention, it confirms one’s opinion that he/she make a good choice using services of this seller. Lack of attention. Customers often want to draw attention to being in the spotlight, and if the seller is disdainful, this relationship leads to failure. Private phone conversations or conversations with co-workers are forbidden. If this is the case, the customer feels neglected and in this case is right. Disregard and lack of friendly attitude. Clients more than we seem are to pay attention to the indirect and direct signals we send them (Anaza, 2012 p.619). The seller should put aside his/her subjective opinion about the client. Showing negative attitudes cannot take place in the customer-seller relationship. The customer will remember the seller's negative behavior rather than the positive, which may directly affect their subsequent relationship. Failure and arrogance. The seller should not rush the sales process. Such seller can be considered intrusive and even arrogant. Rude attitude. The seller must be polite and kind to the client at all times. If the seller expresses disapproval or anger with the clients, because clients cannot determine their needs, the client will definitely go to the competitor that will show more patience. No equal treatment. Regardless of a degree of affluence client represent, at what age they are, or with what education, they want to be treated professionally. The seller should not treat people in smart suits better than people in a casual outfit. The same applies to the general appearance. It turns out that at the first glance the inconspicuous and poorly promising customer will buy from us more than a middle-aged, rich businessman. No re-invitation. Every seller should behave in such a way that the customers know they can always return to the company. There should be no situation where the customers feel as unwanted visitors. They will not comeback. Different opinions from the customer and the seller. The worst thing to do is to have a discussion between the seller and the customer when they are different. Although the customer is not always right, it is better not to persuade to change his or her mind because the client may feel offended.

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No respect for the customer. Every person has only twenty-four hours per day, so every minute is precious. Respecting the time of another person, being not late for meetings, etc. will make customer reciprocate. “Sins” from the aspect of the overall management errors From the aspect of the overall management errors, it can be seen that customer service standards depend on many factors. It is not enough to hire a professional and pleasant staff. Excellent customer service is a result of creating a vision, strategy, and tactics for the organization as a whole (Mancini, 2010, pp.1-5). Although, companies understand what customer service is and the importance of its high standard, it is not always easy to achieve the main goals of the organization. Hyken (2016) lists several main reasons for the inability to reach the company’s goal, due to overall management error. They become "major sins" in a contemporary organization and these include: No vision and mission. Vision and mission should be clearly and briefly defined so that employees understand them, try to identify and direct themselves throughout the customer service process. The vision and mission that comes to their mind should help to make the right decision in critical situations. A customer service vision can be included in the company’s mission. In the restaurant, the vision can be a picture of a customer who comes up with the opinion that he/ she has never eaten such a great dinner, before. The mission, therefore, will be to prepare an excellent quality meal combined with a high level of service throughout the customer's stay in the restaurant. In a medical company, the vision may be a better health for people, and the mission the thinking of "my behavior can influence the patient's health." Making the employee aware of the vision and mission of the company will have a positive impact on the decision making, and therefore the perception of the customer as an important link for the organization. The company does not employ customer-oriented people. In the customer service department, where the most important element is building long-term relationships, it is important to attract people who have the personality traits necessary to work with clients (Lin, 2008, p.270). These qualities are called soft skills as they are elements of an employee's personality. They include communication and empathy and a value system that is positive and open to other people. They become more important than formal competencies such as education, certificates gained during training on the use of systems, projects or applications. No training in the area of customer service standards. Companies usually implement hard skills training such as: using computer systems: e.g.: CRM, MS Excel, SAP, etc. They forget about training, which is aimed at providing clients with positive experiences and improving the standards and quality of their service. This training helps to develop behaviors that bring positive impressions to the customer. Proper client greetings in the workplace, combined with a nice smile, followed by a phone call and email communication, builds an image of the company.

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This image will influence the buyer's decision whether he or she wants to continue working with the company or leave it for the competition. Training only at the beginning of work. Companies that take a new employee for work, usually carry out initial training. However, they forget that this knowledge can vanish with time. “The sales department and sales representative are highly independent individuals, so their self-efficacy might only be motivated via continuous training and pressure of performance” (Lin, 2008, p.282). The business environment is constantly changing: its customers, competitors, market conditions, or stakeholders. Therefore, cyclical training should be provided to refresh this knowledge, remind of the vision and mission of the organization, and continuously improve the way of working with clients. There is no leader who is a model and example. Many companies forget that in order to achieve excellent customer service, the managers responsible for quality should be an example to the group (Lin, 2008 p.270). They should be prepared for this role and, above all, have appropriate predispositions of personality. They should be able to answer difficult customer service questions, be supportive in problematic situations in which an employee is involved, and above all the customers themselves. The leader should have such characteristics as the ability to focus around and directing the group, knowledge of the merits, honesty, reliability, and certainty that builds the confidence within the group. A leader with such qualities can improve service standards to the highest levels because the customer will feel secure and trustworthy. Companies forget the achievements of employees. Companies should not forget about celebrating the successes of their employees (House, 2003, p.24). Big and little accomplishments are equally important. Compliments from customers are very important achievements as well as from managers who set the path that workers should follow to contribute to the success of the entire organization. The organization should remember that not only the dedicated customer service department is responsible for customer service. Every department and person in a company that directly or indirectly meets with the customer represents the customer service (Grzybowska, Radźko & Wereda, 2012, pp.169-170). The seller who goes to the customer with the offer and the way he/she looks and speaks builds the image of the company in the customer's head. The marketing department that compiles the trade offers must take into account not only the business interest but also the customers. The financial department that communicates with the customer about unpaid invoices or payment inaccuracies, must also deal with the issue without conflict. In general, every employee who encounters a customer in his/ her work is a customer service member, and this should be a standard adopted by the entire organization. Companies treat employees inadequately and expect from them good customer treatment. Employees who work in a bad atmosphere and are not treated adequately will not be able to provide customers with a positive experience. This

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means that within the company there must be very high standards of communication and a respectful organizational culture so that employees can translate the same pattern into customer treatment (Jeon & Choi, 2012, p.336). Companies should remember that the customers will feel the atmosphere inside the company and on this basis will decide whether they want to continue the cooperation with the organization, or not. Companies feel they have good customer service standards, contrary to their customers' views (Bandy, 2003, p.323). Business well-being can be built when the company relies solely on its own guess without conducting any customer satisfaction surveys. Negative results are much better than none, as the first one shows a room for improvement. Losing contact with the reality can lead to customers’ outflow. It is therefore important to conduct periodic surveys of customer satisfaction and even customer experience, analyze their results, and submit requests to all stakeholders. This will allow to maintain those processes that have been rated positively and to improve those that have had insufficient results. Only systematically conducted research and their analyses will keep up with the needs of customers and thus maintain a competitive advantage in the market. Companies are focused on quick profit, not on building relationships with customers. If the purpose of a company is to exist in a long run, it should build longterm relationships with customers (Kim, 1997, p.78). Long-term relationships are based on building trust in the organization and its brand in the eyes of customers. The organization cannot think about doing so-called "fast money". Concentrating on short-term effects mean manipulating the customers in a way that only organization will benefit. This may involve rapid sales and contracts, which are difficult to withdraw for the customer. Such customers most probably will never come back to place another order. A company that works in line with its long-term customers’ satisfaction strategy builds a good reputation in their eyes and thus strengthens trust and loyalty among customers. The customers become the best marketing and PR department that the business can afford at the low cost of promotion (Hyken, 2016). Mistakes and failures in the sale and the customer service – a case study of the own research For the purpose of the article, the authors conducted interviews addressed to sales managers (top and middle level) of medium and large enterprises from the Mazovian Voivodship, Poland. The research was carried out between January and February 2017. To determine the role and the importance of errors made in the sales process in the study conducted, the following were diagnosed: whether the managers know the customer service code and whether it is implemented in their companies; whether the respondents are able to identify professional customer service; are managers aware of salespeople customer service errors?

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As a result of conducted research, 20 interviews were used to analyze and draw conclusions. Table 1 shows the details of the study performed. Table 1. Description of the case study (own research) Area Description Scope of the Errors committed in the customer service process. presented study Research tool Direct interview. Period of the 2 months (from 10.01.2017 to 21.02.2017). research Managers from the Polish enterprises of the highest and Study population middle level from the Mazovian Voivodship, who make decisions in marketing and sales. Criteria for selecting Availability of respondents. a trial sample 20 top and middle-level managers of production and Sample size service companies. By criteria such as type of business (large 10 managers, Types of enterprises middle enterprises 10 managers). All researched managed by the managers were sales and customer service managers or surveyed managers CEOs. Twenty interviews were conducted during fairs, scientific Methods of conferences and directly at the managers’ workplaces. conducting research Respondents personally answered questions, meaning that the survey was appropriate. Managers answered questions honestly, giving their own Results of the study suggestions and examples from their own experience. Some interviewees noted that they knew the customer service code, but in the context of the interviews, they were fluent in their work because they did not appear in the written format. In addition, when defining professionalism in the customer service, the following were the main elements enlisted: General skills, including soft skills: impeccable external image neat appearance building trust; ability to build relationships and very good communicativeness; customer focus and listening; ability to deal with stress and conflict in the workplace; negotiating skills with each client (non-conflict, passive, aggressive, etc.); ability to manage their own time and punctuality; ability to actively listen to employees and customers; respond to customer feedback and promptly handle complaints; build trust in the team in which you work; auto-determination and discipline in sales; friendly and cultured approach to the client; honesty and respect towards the customer as a human being, not a profitmaking person; impatience in pursuit of the goal; sense of humor and attitude towards the client and not for his own benefit.

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Additional skills: knowledge of the company and its marketing information; knowledge of the product offer on a regular basis; ability to gain knowledge of competition; obtaining information from the market and changing customer needs; knowledge of foreign languages; availability for participation in fairs, exhibitions; fast learning ability and willingness to improve their qualifications; and willingness to improve their qualifications. An in the area of errors, mainly concerning sales and the customer service elements, respondents emphasized three types of them: organizational, interpersonal and economic. Figure 3 shows these errors:

Figure 3. Errors committed in the sales process and the customer service (OEorganizational errors; IE - interpersonal errors; EE - economic errors) Organizational errors were mainly: conducting business conversations with the wrong customer; promising beyond the possibilities – e.g. offering deadlines for the execution of the order not in line with the actual time required to prepare the product (no contact with the production department in cases of very unusual orders); dealing with customers who have never had any orders or orders were only symbolic (e.g. too difficult to do for the current supplier); lack of working time organization and large arrears in the sales process; failure to meet the contract time from acceptance of the order to deliver the goods to the customer; hastening the customer to make a purchase decision; lack of knowledge of the offer; asking too many closed questions when researching customer needs. Interpersonal errors according to the surveyed managers are: improper communication between the seller and the customer; arrogance and lack of

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diplomacy in the communication process; lack of control of own behavior and reaction (often too much irritation and even frustration of the seller); lack of sensitivity and little patience in the sales process; lack of attention and chaotic behavior; too much "ego" of the seller and exuberant self-confidence; lies in sales promises. Economic errors: focus on a quick one-off result rather than building loyalty; inadequate prices for product/service quality; focus on the performance of sales tasks and own commission; the sale of low-cost products (so-called "massive products") to which customers have claims and frequent complaints; accepting individual orders for products that require a significant amount of time and labor at a relatively low price level for the product.

Conclusions With the various ways of selling, attention should be paid on the quality of services. This quality is built on a number of factors, ranging from the high standards of materials that product is made its functionality and ease of use, the sense of security, and what follows – of an excellent and professional customer service (Burnett, 2006 pp.89-90). The results of good customer service are the increase in sales and in numbers of customers. In a global, competitive market, a major focus should be placed on customers’ needs and the quality of customer service. Meet their requirements, strive to achieve their satisfaction and, create an excellent experience are the most effective way to achieve the above mentioned. To achieve such service, the organizations, have to provide constant training for modern sellers to reduce the number of mistakes made in customer service that can discourage clients from placing purchase orders, next causing the customers outflow and eventually profit decrease. References Anaza, N.A. (2012). How organizational and employee-customer identification, and customer orientation affect job engagement. Journal of Service Management, 23(5), 616–639. Baird, C.H., & Gonzalez-Wertz, C. (2011). How top performers achieve customerfocused market leadership. Strategy & Leadership, 39(1), 16–23. Bandy, N.M. (2003). Setting service standards: A structured approach to delivering outstanding customer service for the facility manager. Journal of Facilities Management, 1(4), 322–336. Burnett, K. (2006). Relacje z kluczowymi klientami [Relations with key customers]. Kraków: Oficyna ekonomiczna.

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Dempsey, W., & Lancioni, R.A. (1990). How to Improve Your International Customer Service. Management Decision, 28(3). Eboli, L., & Mazzulla, G. (2009). A New Customer Satisfaction Index for Evaluating Transit Service Quality. Transit, 12(3), 21–37. Futrell, Ch.M. (2004). Nowoczesne techniki sprzedaży [Modern selling techniques]. Kraków: Oficyna Ekonomiczna, 472. Genesys Telecommunications Laboratories (2009). Report “The Cost of Poor Customer Service: The Economic Impact of the Customer Experience and Engagement in 16 Key Economies”. Griffiths, J., Elson, B., & Amos, D. (2005). A customer-supplier interaction model to improve customer focus in turbulent markets A customer-supplier interaction model to improve customer focus in turbulent markets. Journal of Managing Service Quality, 11(1), 57-67. Grönroos, C. (1994). From marketing mix to relationship marketing: towards a paradigm shift in marketing. Management Decision, 32(2), 4–20. Grzybowska, M., Radźko, N., & Wereda. W. (2012). The Customer - a Main Asset of the Organization. In Solek, C. (Ed.) Management dillemas in the information technology era (pp.169-177). Warsaw: Publishing House of Military University of Technology in Warsaw. House, T. (2003). It’s No Great Mystery! - A study of the mystery shopping process– Reviewing service standards using mystery shopping techniques Sponsored by the National Assembly ForWales - Housing, Inspection & Innovation Unit July 2003 (July). Hyken, S. (2016). 10 Reasons Organizations Fail To Trending Now Deliver Great Customer Service. Forbes, 3–9. Retrieved from https://www.forbes.com/sites/shephyken/2016/03/19/10-reasonsorganizations-fail-to-deliver-great-customer-service/#1cd0121c3110 Jeon, H., & Choi, B. (2012). The relationship between employee satisfaction and customer satisfaction. Journal of Services Marketing, 26(5), 332–341. Jobber, D., & Lancaster, G. (2009). Selling and Sales Management. New York, NY: Pearson Education Limited. Kim, G.-S. (1997). The Service Recovery Strategies, Customer Satisfaction, Customer Loyalty. Review Literature and Arts of the Americas. Lin, W.-B. (2008). Factors enhancing the intentions of employees toward customeroriented behaviors. International Journal of Commerce and Management, 18(3), 267–288. Mancini, D.J. (2010). Building organizational trust in virtual teams. Journal of Behavioral Studies in Business, 2(1), 1–5. Marshall, G.W., Goebel, D.J., & Moncrief, W.C. (2003). Hiring for success at the buyerseller interface. Journal of Business Research, 56(1), 247-255. McColl-Kennedy, J.R., & Smith, A.K. (2006). Chapter 10 Customer Emotions in Service Failure and Recovery Encounters. Research on Emotion in Organizations, 2(6), 237–268. Oloruntoba, R., & Gray, R. (2009). Customer service in emergency relief chains. International Journal of Physical Distribution & Logistics Management, 39(6), 486–505. Peel, M. (1993). Customer Service. Marketing Intelligence & Planning, 8(7), 16–20.

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Rundh, B. (2011). Development of customer value in a supply chain: managerial thinking about strategic marketing. Journal of Business & Industrial Marketing, 26(4), 260–272. Schlesinger, L.A., & Heskett, J.L. (1991). The service-driven service company. Harvard Business Review, 69(5), 71–81. Signetzki, J. (2011). Relacje partnerskie z klientami a konkurencyjność przedsiębiorstw budowlanych w Polsce. [Partner relationships with customers and the competitiveness of construction companies in Poland]. PhD thesis. Poznan. Sobczak-Matysiak, J. (1998). Psychologia kontaktu z klientem. [Psychology of contact with the client]. Poznan: Wydawnictwo Wyższej Szkoły Bankowej. Tax, S., Brown, S., & Chandrashekaran, M. (1998). Customer evaluations of service complaint experiences: implications for relationship marketing. The Journal of Marketing, 62(April), 60–76. Verhoef, P.C. (2003). Understanding the Effect of Efforts on Customer Retention and Customer Share Development. Journal of Marketing, 67(October), 30–45. Walsh, K., & Gordon, J.R. (2010). Understanding professional service delivery. International Journal of Quality and Service Sciences, 2(2), 217–238. Wereda, W., & Grzybowska, M. (2014). MYSTERY CLIENT AND THE CUSTOMER SERVICE IN MODERN. Modern Management Systems, WAT, Warsaw, 1–6. Williams, P., & Naumann, E. (2011). Customer satisfaction and business performance: a firm-level analysis. Journal of Services Marketing, 25(1), 20– 32. Zemke, R. (2005). Jak zapewnić znakomitą obsługę klienta [How to provide excellent customer service]. Kraków: Oficyna Ekonomiczna,

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ANALYTICAL REVIEW OF THE PHARMACEUTICAL INDUSTRY IN ROMANIA Ana-Maria GIUREA The Bucharest University of Economic Studies 6 Piata Romana, 010371Bucharest, RO [email protected] Iulian-Cornel LOLEA The Bucharest University of Economic Studies 6 Piata Romana, 010371Bucharest, RO [email protected] Abstract. The paper aims to analyze the medicines’ consumption by taking into consideration the Anatomical Therapeutic Chemical Classification System (ATCCS) and the evolution of the pharmaceutical products` prices in Romania. The analysis brings to the forefront the relationship between the main “allies” in the pharmaceutical supply chain (supplier–distributor–drugstore). Innovation in the pharmaceutical industry had an upward progress in the recent years. Pharmaceutical companies have kept their loyalty to consumers’ needs and invested huge amounts of money in the research and development field. In Romania, one of the main regulatory measures refers to imposing maximum limit prices lists for prescription pharma products, called CaNaMed report (The national catalog of prices for human use medicines issued by medical prescription). The report is issued three times a year, and it shows maximum limit prices for suppliers, distributors, and drugstores. Ever since the introduction of regulations on the pharma market, suppliers have tended to channel their efforts on their main activity object. Consumers could benefit from the regulation for prescription pharma products this could be a coercive measure for suppliers. The final consumer`s access to pharma products remains essential and R&D should keep pace with the consumer’s needs. Huge budgets are annually allocated for more advanced and innovative products; these high amounts can lead to bad debts for the pharma companies. The channels of the product distribution terminals within a commercial chain are passed from one firm to another in accordance with their proper specialization. Pharma companies could benefit in many ways from transferring certain tasks’ costs to other specialized companies. However, the Romanian pharmaceutical market remains a booming industry, being full of opportunities and attractiveness for foreign suppliers. Furthermore, the dismissal of the clawback tax could greatly stimulate research and development in Romania, taking into consideration that this tax affects the suppliers’ budgets. As a conclusion related to the drugs consumption value in 2016, the total value decreased from one quarter to another. The increases in RON were generated by increasing prices and not by the quantities of consumed units. Regionally speaking, Romania has been and will remain a long-term challenging business and an attractive market for foreign

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pharma suppliers, allowing them to "juggle" costs more easily on Romania’s territory compared to their home market. Keywords: pharmaceutical products; clawback; CaNaMed; consumption; ATCCS; RX. Introduction Until recently, the pharmaceutical market in Romania was considered to be a fragmented market, but lately wholesale and retail segments have brought together their forces in order to achieve important commercial consolidation. Fragmentation is recalled from the perspective of the administrative organization and not from the operational process’ point of view. In the pharma industry, the operational process is complex and has to involve several business units in order to accomplish highlevel standards required by the European Union (EU). In order to sell a certain medical product, an entire commercial chain (production of drugs – supplier, transportation – distributor, the point of sales perceived as proximity points – drugstores) will have to satisfy the consumer’s needs. In our opinion, the fragmentation is perceived as being under the specialization tutelage, therefore the need for close collaboration between main links became mandatory for the operation of the entire mechanism. According to Gautam (2016), the convergence of IT and healthcare is another area that would impact the big pharma model over the coming years. Big data and mobile health are starting to transform healthcare and diagnostics in a significant way, with new players such as Apple and Google acting as increasingly disruptive catalysts. According to the research of Schuhmacher, Germalann, Trill, and Gassmann (2013), in the pharmaceutical industry, the increasing complexity of the industry, new technologies, and the availability of highly qualified experts, increasing pressure and costs can lead to open innovation development. Multinational pharmaceutical companies began to realize what is the full potential of open innovation through which they began to build external sources of ideas, technologies and R&D products (Hunter & Stephen, 2010). The competitively of a pharmaceutical company is determined by its capacity to innovate and develop new drugs, which ensures its leading position on the market (Chu, Sun & Liang, 2010). Every company aims to evolve on the market or to strengthen its position. Until the ‘70s, the companies were struggling with their direct opponents in order to gain a greater market share, but nowadays, they adopt an opposite strategy, directly seeking the opponent’s support. Companies are beginning to realize that the need to survive on the market is becoming increasingly important; they react promptly to the consumer’ needs which are constantly changing.

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Romanian pharmaceutical industry overview From the point of view of economic agents, they have to specialize in different fields in order to ensure cost reduction, the efficiency of operations and market performance. Considering that the pharmaceutical sector is exposed to strict and undifferentiated regulations, companies with heterogeneous specializations are no longer reluctant to establish cooperation with other market players. Mutual support and use of each other’s experience in a fixed mechanism that can balance the power of decision-making related to product pricing and other decisions regarding substances used for new drugs without the law’s consent. From the outside of the industry, everything seems regulated and well set-up, but in essence, direct players are the ones that suffer from these regulations. It is not a bad thing to protect human life, but when several unnecessary taxes are imposed by the government with significant impact on the R&D area, additional costs may cause unreliability on the market. The relationship between supplier – distributor drugstore must be sustained by cooperation. Without trust and collaboration, the relationship can generate extra costs for each partner. Thus, survival in a market with a high degree of applicable regulations remains illusive. In the pharmaceutical industry, the partners should not concentrate on short term objectives for immediate profit. The lack of product, price and distribution strategies and also the lack of specialists and management performances can lead the company to an early end. On the pharma market, there are three main types of economic agents: suppliers, distributors, and drugstores. Under authorizations, they sell two types of pharmaceuticals products: RX – authorized drugs that are sold only by means of a medical specialist's prescription and OTC (over the counter) – drugs that are sold without issuing a medical prescription. Similar to any market within a democratic territory, local and foreign suppliers with locally rooted factories exist. In some countries, foreign agents are more numerous than local suppliers and become increasingly more interested in local sales and strategic exports where competition is not very intense compared to their home market. This is also the case of Romania, where the rules of the commercial chain are mostly “made” by foreign economic agents. Thus, the local suppliers’ market share remains infallible and insignificant. Usually, at a national level, foreign suppliers reunite in cluster organizations. As an example in this regard, in order to piece together their common objectives, the international pharmaceutical companies, present on Romania’s territory, created an association that supports the interests of pharma companies in relation to the local government. It also facilitates the access of Romanian patients to the technological advances of the pharmaceutical industry related to new drugs in the R&D area. According to the official site, the common spectrum was established in 1995 under the name of the International Association of International Medicine Suppliers (ARPIM), which currently has 29 international members, including: Amgen, AstraZeneca, Bayer, Bristol-Myers Squibb, GlaxoSmithKline, Johnson & Johnson, Merck Sharp & Dohme, Novartis, Pfizer, Sanofi and so on.

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Besides locating various factories at the national level, foreign suppliers aim to reduce their consistent costs with the use of cheap local labor force. Thus, the most important costs are redirected to the research and development area. By placing their factories in Romania and benefiting from the cheap labor force and the fairly good geographic location of our country, the foreign suppliers go even further, exporting directly from Romania to the nearest countries in Europe, only to eliminate extra costs related to distance. The Romanian pharma cluster has some strategic economic connotations such as shrinking the distance between supplier and final consumer both physically and emotionally from a marketing point of view. Also, according to Sherry Ku (2015), “big pharma is also keen on in-licensing technology or projects from specialty pharma to extend product life cycles, in order to protect their blockbuster drug franchises”. We consider the pharma industry to be slightly different compared to other industries. This is not about the customers’ preference for choosing a single supplier, rather it is about choosing a medication prescribed by doctors/ recommended by pharmacists for different diagnoses. People talk to each other about different health issues in order to treat them and they express their opinion regarding various drugs that benefited them. Marketing occurs differently in the pharmaceutical sector. People don’t take medication because they enjoy taking it; they use drugs only to improve their health. In the pharma industry, a drug’s composition is more important than the company itself, as long as the substances used in the composition help improve the condition of the patient. According to Bartfai and Lees (2013), “competition forces companies to do both: improve drugs in a class and open new markets for novel classes of drugs that treat as yet untreated diseases or treat diseases by utilizing a novel mechanism of action, i.e., being ”. Another reason identified by us refers to the costs generated by different market regulations. In 2016, the Romanian pharmaceutical market had over 330 manufacturers, of which only 30 were local companies. The top 10 companies easily cover more than half of the total market share. A large number of local suppliers have left Romania because they have failed to combat the huge cost of good manufacturing practice and EU standards. Good manufacturing practice (GMP) describes “the minimum standard that a pharmaceutical supplier must meet in its production processes. The European Medicines Agency (EMA) coordinates inspections to verify compliance with these standards and plays a key role in harmonizing GMP activities at European Union (EU) level”. When we refer to the pharmaceutical market legislation in Romania, we recall two measures that have a major impact on this industry, namely: a) Clawback fee - suppliers that have been authorized to sell medicines must pay a fee on a quarterly basis. Among the three categories of players on the pharma market, the suppliers are the only ones that have a disadvantage. In addition to allocating enormous amounts in the R&D field, they are bound to pay a fee that has reached up to 19.86% in Q1 2017. In 2016, The Romanian Association of International Medicine Suppliers has urged the government to increase its budget

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related to pharmaceutical industry and revise its clawback tax policy as soon as possible. According to a case study from Hare, “clawback system requires pharmaceutical market players to contribute to the public health system with an amount determined on the basis of the turnover obtained on public funding (either reimbursement, hospital consumption or another type of use sponsored by State) (...). However, due to the critical situation faced by the public health system in the last year months, authorities have undertaken several steps for the implementation of this type of expenditure containment mechanism for the Romanian pharmaceutical market”. However, in Romania, the clawback charge was adopted as a temporary control measure, in order to surpass 2011’s crisis situation. Since its imposition, the clawback tax has been paid quarterly, which significantly impacts on suppliers' revenues. According to the Government Emergency Ordonnance no. 77/2011, the quarterly contribution is reimbursed to the National Health Insurance Fund as a genuine partnership between Government and Marketing Authorization Holders’ (MAH) companies in the interest of public health. According to the National Institute of Statistics, Romania recorded an economic growth in 2016. Thus, suppliers have demanded the authorities to eliminate this tax as it no longer justifies its significance. The percentage generated by the clawback tax is calculated as follows: P = (CTt-BAt) / CTt x 100 where CTt represents the total quarterly consumption of medication for which there is an obligation to pay from the National Health Insurance Fund and the budget of the Ministry of Health(...); BAt budget is approved quarterly in relation to the quarterly approved budget.

This percentage applies to total sales made by the pharma suppliers. The total consumption value is calculated with the help of monthly reports submitted by drug stores and hospital units with beds or dialysis centers. b) The second regulation is the imposition of prices for RX drugs. The drugs with a special regime are those in the category of "toxins and drugs". These drugs can be sold only to authorized hospitals and pharmacies. The drugs have standard prices, which are mentioned in the CaNaMed reports. This official list is published every quarter by the Ministry of Health. The company is informed about these official modifications of medication prices, through ANM (National Medication's Agency). The list is usually issued quarterly, but there are cases when the price list is released over a long period of time and there are also other situations where prices for certain drugs change in less than three months. The last CaNaMed list was issued on April 2017. According to the Business Monitor Information (BMI) report from 2016, in line with Romania's economic outperformance in Europe, the country's pharmaceutical and healthcare markets will face a strong growth given the increased consumer spending power and higher healthcare contributions. The Romanian local drug manufacturing industry gets taken over by the private sector and foreign companies. The strengthening of wholesale and retail trade signals a high degree of maturity on the market. BMI expects sales of RX drugs to increase to RON 11.42bn (USD3.01bn) by 2019, and to RON 16.86bn (USD4.39bn) by 2024.

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Regarding worldwide prescription drug sales, according to Evaluate Pharma consensus forecasts, the pharmaceutical industry is set to grow at 6.3% per year (CAGR) reaching $1.12tr by 2022. By nature, drugs are divided into two categories: generic and innovative. According to the US Food and Drug Administration, “a generic drug is identical or bioequivalent to a brand name drug in dosage form, safety, strength, and route of administration, quality, performance characteristics and intended use (…) generic drugs are chemically identical to their branded counterparts, they are typically sold at substantial discounts from the branded price”. We expect the growing take-up of generic drugs and patented drug substitutions to impact sales in the future; we think that the demand for innovative medicines will drive growth. Nonetheless, declining spending on generics will free up expenditure for newer, innovative medicines. Generic drugs will not be the key to drive overall market growth, given the severe constraints stemming. A specific feature of the pharmaceutical products market is the existence of a classification system through which the drugs are grouped by functional substitution, i.e. according to the therapeutic indications. The AnatomicalTherapeutic-Chemical (ATC) system is hierarchically organized and contains 16 categories (A, B, C, D, etc.), each category contains up to four levels. The first level (ATC1) is the most general and the fourth level (ATC4) is the most detailed. This classification system has been designed by the European Pharmacist Marketing Research Association (EPhMRA) and it is widely recognized as Intercontinental Medical Statistics (IMS). The best-selling OTC drug in 2015 and 2016 is Nurofen. In 2016, it was followed by ParaSinus and No Spa. The ATC* codes for these medications are as follows (Table 1)**: Table 1. Top 3 OTC sales- pharma products (according to Anatomical Therapeutic Chemical Classification System) Nurofen – MO1AE01 M Musculo-skeletal system

Parasinus – N02BE51 N Nervous system

M 01 Anti-inflammatory and antirheumatic products M 01 A Anti-inflammatory and antirheumatic products, nonsteroids M 01 AE Propionic acid derivatives M 01 AE 01 Ibuprofenum

N02 Analgesics N02B other analgesics and antipyretics N02BE Anilides

No Spa – A03D02 A Alimentary tract and metabolism A03 drugs for functional gastrointestinal disorders A03A Drugs for functional gastrointestinal disorders A03AD Ppaverine and derivates A03D02 droverine

N02BE51 Paracetamol, combinations excl. psycholeptics *National Health House’s site: http://www.cnas.ro/page/consum-medicamente.html **WHO Collaborating Centre for Drug Statistics Methodology https://www.whocc.no/atc_ddd_index/

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We further analyzed the total value of prescription drugs used in 2016 based on ATC levels. The databases are downloaded from the National Health House’s site and contain the consumption of drugs borne by the FNUASS and the Ministry of Health including VAT (without the value of consumption for drugs issued in 2016 for Q1, Q2, Q3 and Q4 which are subject to volume/cost resulting volume contracts). Following the analysis that we made on these databases, we reached the following conclusions: All four quarters of 2016 have the following dominant classes: L Class Antineoplastic and immunomodulation agents RON mil. 2,016, A Class - Alimentary Tract and Metabolism with RON mil. 1,251, C Class - Cardiovascular System with RON mil. 984, N Class - Nervous System with RON mil. 894, J Class - Anti-infective for systemic use with RON mil. 757, B Class - Blood and blood forming organs with RON mil. 501 and R Class - Respiratory system with RON mil. 280. As seen below, the first quarter of 2016 registered almost the same value (RON mil. 1,794) as the second quarter, the third quarter decreased slightly with RON mil. 15 to RON mil. 1,779 and the fourth quarter recorded the highest value of all quarters for the year 2016 RON mil. 1,865. For further details, please see Table 2. We have excluded the databases formed by ATC4 classes that were not found in CaNaMed lists. Table 2. Q1-Q4 2016 total RX consumption (data downloaded from National Health House’s site, processed by the authors) ATCCS Antineoplastic and immunomodulation agents Alimentary tract and metabolism Cardiovascular system Nervous system

Class L

Q1* 490,445,78 9

Q2 * 502,405,330

Q3* 508,412,92 7

Q4* 514,996,10 1

Total 2016* 2,016,260,147

A

306,923,19 3 241,628,38 5 223,016,85 3 195,156,11 9 120,453,58 7 77,336,679 39,773,266

307,830,661

312,054,81 7 244,059,86 2 219,312,05 5 178,598,29 4 124,587,73 4 59,023,917

324,956,28 4 253,925,40 4 228,660,32 1 196,004,01 8 131,656,33 9 77,789,936

1,251,764,954

133,189,94 5

137,999,52 3 1,865,987,9 27

C N

Anti-infective for J systemic use Blood and blood B forming organs Respiratory system R Other ( H, M, S, G,V, D, P)

244,909,523 223,813,394 187,588,596 124,859,459 66,005,495 37,467,394

Total 1,794,733,8 72

1,794,879,853

1,779,239,5 50

984,523,174 894,802,624 757,347,028 501,557,119 280,156,028 139,773,266

7,234,841,202

* without VAT (9%), the values are stated in RON In order to see how each class’s percentages related to total consumption in 2016, we represented graphically the main classes of the Anatomical Therapeutic Chemical Classification System. L Class covers 28% of total drug use in 2016 (Figure 1).

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Figure 1. 2016 RX Consumption (%) (made by the authors) Through data processing, we have obtained the results from Table 3. Hence, the classes that had increased are the following: Respiratory System (R) - variation that reached 32% in Q4 compared to Q3; Class of Anti-Infectious Systemic Use (J) variation that reached the 10% threshold over Q3. The classes that decreased the most are the following: Respiratory system class in Q2 compared to Q1, and the same class decreased by 11% in Q3 compared to Q2. Table 3. Q1-Q4 Variations - absolute and percentage values (made by the authors) ATCCS Antineoplastic and immunomodulation agents Alimentary tract and metabolism Cardiovascular system Nervous system Anti-infective for systemic use Blood and blood forming organs Respiratory system Other ( H, M, S, G,V, D, P)

L

Variation Q1 – Q2 11,959,541

A

907,468

4,224,156

12,901,468

0%

1%

4%

C N J

3,281,138 796,541 (7,567,523)

(849,661) (4,501,339) (8,990,303)

9,865,541 9,348,266 17,405,725

1% 0% -4%

0% -2% -5%

4% 4% 10%

B

4,405,872

(271,725)

7,068,606

4%

0%

6%

R

(11,331,183) (2,305,872) 145,982

(6,981,578) (4,277,450) (15,640,303)

18,766,018 4,809,578 86,748,376

-15% -8%

-11% -12%

32% 15%

Class

Total

Variation Q2-Q3 6,007,596

Variation Q3-Q4 6,583,174

Var Q1Q2 % 2%

Var Q2Q3 % 1%

Var Q3Q4 % 1%

Although Q2 balance did not vary greatly from Q1, it can be noticed that things were different at the class level. L class variation closed with R class variation, also B and C classes closed with J class; a closing balance of only RON mil. 0,145 remained. Onward, the average price/unit for RX was calculated according to the CaNaMed prices list for each class published by the Ministry of Health between September 2015 and October 2016 in correlation with data downloaded from the National Health House’s website. For Q1, we correlated the price list published in September 2015; for Q2 we used the CaNaMed list published in April 2016, for Q3 we used the

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CaNaMed list published in July 2016 and last but not least for Q4 we used the price list published on October 2016. As a summary, the average prices varied from one class to another (Figure 2), exerting an impact on the medicine market value. It can be seen that Class L is on top of the list and Class P - Antiparasitic products fall to the queue of the ranking with an average price of RON/unit 8. As it can be seen in the chart below there is an increase in drug prices from one quarter to the next. The highest prices` increase was recorded in the following classes: - Blood and blood forming organs (B): 602 units from Q3 to Q4; - Varia (Various) (V): 321 units from Q3 to Q4; - Systemic hormonal preparations, excluding sex hormones and insulins (H): 247 units from Q1 to Q3; - Sensory Organs Class (S): 289 units from Q2 to Q3. The biggest drops in unit prices were registered in the following classes: - Sensory Organs (S): - 289 units from Q1 to Q2; - Respiratory system (R): - 203 units from Q3 to Q4.

Figure 2. Q1-Q4 2016 RX average price (made by the authors) Following Figure 3, the highest RX drugs consumption was registered in class C with 39% of total ATC classes, class A ranked second with 22%, followed by class N with 13% and class R with 5% of total ATC year value.

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Figure 3. 2016 RX Total Consumption value (percentage) (made by the authors) The quantity expressed in units for each class was calculated as the ratio between total value without VAT per ATC – level 3 (i.e. A02A) and the average unit price calculated for each ATC3 based on the CaNaMed lists. As a review of the quarterly evolution (Figure 4), we can see that the highest absolute consumption increase was recorded in Q4 with approximately 759K units compared to Q3 in Respiratory System (R) and the highest decrease can be found in Q2 vs. Q1 in N- Nervous System class with approximately 1644K units. The percentage of the largest decrease per class was recorded in Q2 by -35% compared to Q1 in R class and the highest increase was registered in class R by 45% in Q4 compared to Q3.

Figure 4. Q1-Q4 2016 RX Total Consumption values based on ATC classes (made by the authors)

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Conclusions and implications As a conclusion related to the drug consumption value, the total value decreased from one quarter to another. The increases in RON were generated by the price increases and not by the quantities of units bought by the final consumer. Between September 2015 and October 2016, there were 6033 RX drugs settled in CaNaMed lists. The most regulated drugs remain in class N, followed by class C and class J. The number of the regulated drugs increased from 5223 to 5547 including new/removed drugs (Table 4). Table 4. Number of RX drugs based on CaNaMed lists (made by the authors) CaNaMed Sep-15 Apr-16 Jul-16 Oct-16 list Total 5223 5392 5418 5547 N 1047 1123 1137 1158 C 1009 988 993 992 J 653 683 682 699 L 590 620 627 647 B 397 416 416 431 A 412 422 420 427 M 279 285 283 281 G 220 242 245 248 R 200 202 203 202 V 93 97 97 139 S 103 102 103 111 D 115 106 106 105 H 84 86 87 87 P 21 20 19 20 According to Table 5, we can see that generic drugs are more numerous than innovative ones. Innovative drugs are more expensive compared to generic drugs. Table 5. Total RX drugs categories (made by the authors) CaNaMed Sep-15 Apr-16 Jul-16 Oct-16 list Generic 3381 3456 3475 3578 Innovative 1714 1835 1834 1856 Others 128 101 109 113 Total 5223 5392 5418 5547 The pharmaceutical market remains a booming industry in Romania, being full of opportunities and attractiveness for foreign suppliers. Furthermore, the dismissal of the clawback tax could greatly stimulate research and development in Romania, taking into consideration that this tax affects the suppliers’ budgets. As a repertory of this phenomenon, if we look at the macroeconomic level, it would also have an impact on the life expectancy indicator. According to the National

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Institute of Statistics’ publication in 2016, "medical factors (prevention, important advances in the diagnosis and treatment of diseases as well as in the development of surgical interventions, new generation drugs), economic factors (costs associated with chronic healing and reforming health systems) and social factors (...) have been the basis for increasing life expectancy in recent years, but developed countries have made a stronger advance from this point of view". This topic will be approached in another scientific paper that we aim to develop. References Bartfai, T., & Lees, G.V. (2013). The Future of Drug Discovery, Who decides which diseases to treat? Retrieved from http://www.sciencedirect.com/science/article/pii/B978012407180300007 6. Chu, S., Sun, C., & Liang C. (2010). Pharmaceutical Enterprises' R&D Strategic Alliance - the Road for Small and Medium Sized Pharmaceutical Enterprises' R&D in China, International Business Research, 3(1), 131-135. Evaluate Pharma Worldwide Preview (2016). Outlook to 2022, 9th Edition September. Retrieved from http://info.evaluategroup.com/rs/607-YGS364/images/wp16.pdf. Hare, Clawback - Either RO or HU is the lesser of the two "evils"? (case study). Retrieved from http://www.hare.linkresource.ro/public/articles/case_study_details/59. Hunter, J., & Stephens, S. (2010). Is open innovation the way forward for big pharma? Nature Reviews Drug Discovery. 9(2), 87–88. Gautam, A., & Pan X. (2016). The changing model of big pharma: impact of key trends Drug Discovery Today, 21(3), 379-384. Good manufacturing practice (GMP) – European Medicines Agency. Retrieved from http://www.ema.europa.eu/ema/index.jsp?curl=pages/regulation/general/ general_content_001205.jsp&mid=WC0b01ac0580027088. National Health Insurance Fund and the Ministry of Health budget (2017). Q1 2017 Drugs consumption. Retrieved from http://www.cnas.ro/media/pageFiles/ATC3%20consum%20Clawback%20 T1%202017.pdf National Institute of Statistics (2017). Gross Domestic Product grew by 4.8% in 2016 compared to 2015, Press release, 42/14 February. Retrieved from http://www.insse.ro/cms/sites/default/files/com_presa/com_pdf/pib_trim 4r2016_0.pdf. National Institute of Statistics (2016). Healthy life expectancy. Retrieved from http://www.insse.ro/cms/sites/default/files/field/publicatii/speranta_de_vi ata_sanatoasa.pdf. Schuhmacher, A., Germann, P.G., Trill, H., & Gassmann O. (2013). Models for open innovation in the pharmaceutical industry, Drug Discovery Today, 18(23-24), 1133-1137. Sherry, Ku, M. (2015). Recent trends in specialty pharma business model, Journal of Food and Drug Analysis, 23(4), 595-608.

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553/05.08.2010 Official Gazette of Romania 77/2011 General Emergency Ordonnance. Retrieved from http://lege5.ro/Gratuit/gi3dcnrvgi/ordonan-a-de-urgen-nr-77-2011privind-stabilirea-unor-contribu-ii-pentru-finan-area-unor-cheltuieli-ndomeniul-s-n-t-ii. Websites International Association of International Medicine Suppliers – official site: http://arpim.ro/. National Drug Agency’s official site, http://193.169.156.200/app/nom1/anm_list.asp?s_den_com=&s_dci=&s_fir m_tar_d=&anmOrder=Sorter_firm_tar_d&s_forma_farm=&s_cod_atc=&s_cim= &anmDir=DESC&anmPage=375. National Health House’s official site, http://www.cnas.ro/page/consummedicamente.html. US Food and Drug Administration (2015). Retrieved from https://www.fda.gov/drugs/resourcesforyou/consumers/buyingusingmedic inesafely/understandinggenericdrugs/ucm144456.htm. WHO Collaborating Centre for Drug Statistics Methodology. Retrieved from https://www.whocc.no/atc_ddd_index/.

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LIBERTY TECHNOLOGY PARK CLUJ A CASE STUDY OF SUCCESSFUL ENTREPRENEURSHIP Anda GHEORGHIU National University of Political Studies and Public Administration, Romania 30A Expozitiei Blv., Sector 1, Bucharest 012104, RO [email protected] Laurențiu TREAPĂT National University of Political Studies and Public Administration, Romania 30A Expozitiei Blv., Sector 1, Bucharest 012104, RO [email protected] Abstract. Science parks are a true foundation of entrepreneurship that promote innovation, by providing a setting in which public entities, research centres, universities and private companies cooperate, in order to accomplish scientific discoveries, transfer, and commercialization of technology. They encourage economic growth and competitiveness of regions that finance themselves from fees from rental of space (land, infrastructure, and building) grants, investments, or payments by big companies for R&D contracts, especially if the techno parks associated with universities. The scientific and technological parks promote the economic development of regions and cities by: creating new business opportunities and adding value to existing companies, entrepreneurial supervision and incubation for newly established companies, creating jobs in the scientific field, increasing collaboration between universities and companies. The aim of this paper is to examine if Liberty Center Science Park located in Cluj Napoca, a city located in Romania, can be considered as a benchmark for technological developers. The methodology used is data collection, by examining the existing data in the form of databases (notably, public financial data), reports, newsletters, press releases, etc. regarding the science park Liberty Center Cluj. The purpose of this study is to examine what are the strengths and weaknesses of the project and proffer possible solutions for management of the future science park. Another purpose of this study is to investigate what are the strengths and weaknesses of the project and offer possible solutions for the management to improve their performance. The conclusion of the study is that Liberty Technology Park Cluj is a case study of successful entrepreneurship. Almost or financial indicators support this assertion-profits and turnovers have continuously increased in the following three years after the inauguration. Similar trends have had the current assets and the number of employees. A weak point is that the local university cannot cope with the pace of demand for young IT specialists, especially for the reason that the number of undergraduates is still too small and that the lecturers are not enough financially motivated. Keywords: Science Park; Liberty Center; Cluj; entrepreneurship; information technology.

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Introduction The Science and Technology Parks are groups of legal entities established on the basis of association agreements, which includes organizations in the field of science, innovation, and technology transfer, economic agents that use scientific results and innovations in their economic activities. These entities act as links between scientific researchers, industry, and entrepreneurs, for their mutual benefits, turning innovative ideas into added value for communities. One of the main objectives of this form of organization is the promotion of high-tech entrepreneurial knowledge. Businesses developing within these platforms benefit from technical facilities, services and a dynamic environment for research. Science parks habitually finance themselves from fees for rental of space (land, infrastructure, building) and grants, investments, or payments by big companies for R&D contracts with universities and/or research institutes (Oxford, Cambridge, Stanford, etc). After Stanford University started a research park in the early 1950s (the oldest in the world), Silicon Valley community boomed. Nowadays, there are over 400 science parks worldwide. There are various typologies of science parks, such as: technological parks, research parks, science and technology parks, innovation centers, technological incubators, business incubators, etc. The objectives of scientific parks are the following: • the technological transfer of research results from innovative entities to companies interested in manufacturing products or packages of competitive products and services; • market capitalization of scientific research results; • creating new jobs in advanced technologies and stimulating the innovative and technical-scientific potential of academic, university, researchers and students; • attracting new financial sources for higher education institutions and R & D organizations, development of the scientific, technological and economic potential at regional level. According to UNESCO, the number of Science Parks in Europe is 230, as follows: Table 1. The number of Science Parks in Europe Western Europe Eastern Europe Belgium 6 Austria Denmark 5 Czech Republic Finland 24 Estonia France 60 Latvia Germany 13 Poland Greece 4 Russia Ireland 2 Italy 6 Luxembourg 1 Norway 2 Portugal 1 Spain 5

1 2 1 1 4 3

Marketing and Consumer Behavior Sweden Switzerland The Netherlands Turkey United Kingdom Total Western Europe

12 7 6 1 63 218

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Own calculations after the data provided by UNESCO in the “Science Policy and Capacity-Building” report

There is certainly an imbalance in the number of science parks in Western Europe in comparison to those located in Eastern Europe, due to the historical gap in terms of economy and management, after the II-nd World War. After the fall of the iron curtain, Eastern European states entered have applied a hyper-centralised research system, run by the state, without any private scientific parks. After 1990, the place of the former industrial platforms was taken by scientific and technological parks, where top companies are operating. In the European Union, the innovative clusters are an "engine" of economic development and innovation. They have grown enormously from the French Industrial Districts Club founded in 1998, or the Cambridge High-Tech Cluster, to industrial organizations such as: automotive, biotechnology, eco-innovation, optical technologies, computer and telecommunication technologies, space technologies, etc. In the last two decades, the trend is to develop the old industrial districts into industrial clusters or science parks. Literature review The new millennium started with the evident reality, that the industrial sector is absolutely reliant on science developing, so the universities are the heart of intersectoral research production, having as outcome the growth of the number of products developed and commercialized by companies (Zucker et al., 2002, pp.138–153) in research-intensive industries. In 2004, Shane and Venkataraman defined technological entrepreneurship as „the processes of assembling resources, technical systems and strategies by an entrepreneurial venture to pursue opportunities (Shane & Venkataraman, 2004, p.32).” Previous studies have revealed that the success of science parks in the USA such as Silicon Valley, Route 128, Triangle in the US and Cambridge Science Park in the UK have been the global benchmarks that influenced other countries such as Kuwait, Brazil, Russia, Israel, India, Taiwan, and China to acknowledge the benefits resulting from a science park policy (Ratinho & Henriques, 2010, pp.278–290). Starting from 2007, after the adhesion to the European Union, Romania became attractive for IT business for many reasons, including a generous resource of graduates from a university system strong in math and physics; rather low costs; a time zone and distance favourable to European companies; and an enthusiastic, polyglot work force. Much of the software activity is taking place in Cluj-Napoca,

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which is quickly becoming Romania's technopolis. as one-third of Cluj's 300,000 inhabitants are students. More than that, people from Cluj are renowned for their seriousness. "You can find local talent with a higher work ethic than in Bucharest," said Roman Foeckl, managing director of CoSoSys, a Cluj-based developer of software for portable storage devices and endpoint security in an article published in 2008 by www.informationweek.com (Romania Proving Popular As Software Outsourcing Destination, on 1/30/2008). In 2016, in Romania only, revenues from IT companies exceeded 2.4 billion Euros. Over 86,000 programmers work in IT, which means about half that of people working in Silicon Valley. Information and communication technology (ICT), which encompasses activities such as the manufacture of electronic components or of computers and consumer electronics, as well as telecommunication, information technology services, web portal activities, currently generates about 6% of Romania's GDP. More and more world-renowned IT companies are opening offices in Romania, both because of well-trained graduates and professionals who know foreign languages and because of low costs compared to Western Europe, the US or Asia. Brainspotting has published in 2016 its annual IT & C Talent Map, which identifies Romanian IT & C trends, the most sought after areas and specializations, candidates' expectations, average salaries, and the most attractive cities. According to the study, Romania has the best ratio for IT&C professionals per capita among Central and Eastern Europe countries, and cca 110,000 professionals, followed by Poland, with 100,000 IT specialists. There are 20,000 companies working in the IT&C field, and more than 100 companies have over 200 employees. There is a need for 12,000 new specialists/ year to meet the market requirements, while in fact there are approx. 8,500 IT graduates per year and approx. 1,800 telco graduates. Talent is spread among 12 cities, with 4 large hubs, 2 secondary and 6 small contenders for marginal talent which are targeted more and more for either small operations or secondary centers. The main centers are Bucharest, ClujNapoca, Iasi and Timisoara, followed by Sibiu and Brasov. Craiova, Piteşti, Ploieşti, Galati, Constanţa and TârguMureş are becoming more and more attractive to companies.There are 1,500 IT graduates and 410 telecoms in Cluj, and the most sought after companies are Google, Emerson, Endava, Bosch, Microsoft. 20% of developers are here (Brainspotting-IT Talent Map Romania 2016). Methodology The aim of this paper is to examine if Liberty Center Science Park located in ClujNapoca, a city located in Romania, is a benchmark for technological developers. The methodology used is data collection, by examining the existing data in the form of databases (notably, public financial data), reports, newsletters, press releases, etc. regarding the science park Liberty Center Cluj. The purpose of this study is to investigate what are the strengths and weaknesses of the project and offer possible solutions for management of the future science park.

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Findings In Romania, the Business Incubators are financed from both private and public sources. The first Technological Business Incubators were established in the 90’s, with financial support from PHARE Programme, The Ministry of Research and managed by the Romanian Centre for Small and Medium Enterprises. According to Law no. 50/2003 on Technology and scientific parks, in Romania, Science and technology parks are an area where developed activities as teaching, research, research are results dissemination, and where these are exploited by economic activities. This was the start for an ambitious project, which was the Multiannual Program of Establishment and Development of Technological and Business Incubators in Romania (2002-2012), coordinated by The Agency of Implementation of Projects and Programs for Small and Medium Enterprises (A.I.P.P.SME’s), and implemented by The United Nations Development Program (P.N.U.D.), Romania. In June 2016, the Law no. 102/2016 on business incubators entered into force. According to this act, founders of business incubators are entitled to a series of tax incentives to be granted under aid schemes: exemption from land tax, exemption from tax on buildings, exemption from payment of any taxes due for release any urban planning certificates, building permits and / or demolition of buildings for land and buildings related to the business incubator, with the approval of local authorities. In July 2017, the President of Romania promulgated the Law approving the Government Emergency Ordinance no 3/2017 for amending and completing the Law no. 227/2015 regarding the Fiscal Code. Employees of IT companies benefit from tax exemption on wage and wage income as of 1 July. In order to benefit from these tax incentives, they must hold a post-graduate degree or a postgraduate diploma awarded by an accredited higher education institution after the completion of the first cycle of undergraduate studies, a computerized compartment, and the activity of each income tax-exempt programmer has generated revenue of at least 10,000 Euros per year. These provisions also benefit employees of newly established IT companies, companies that will not have to prove that they have earned € 10,000 / programmer. Also, if during a fiscal year a micro-enterprise earns more than 500,000 euros or the share of consultancy and management revenue in total revenues is more than 20% inclusive, it owes profit tax, starting with the quarter in which it was exceeded any of these limits. In June 2017, a joint order of Ministers of Labour and Social Justice, Public Finance, National Education, and Communications and Information Society, was published. It provides facilities for IT employees (the Order no. 409/4020/737/703/2017 regarding the assignment in the activity of creation of computer programs). This Order has corrected the previous published Ministerial Order no. 872/2016, which could prevent programmers in service centres from benefiting from the 16% income tax exemption. The main problem generated by Order 872/2016 was to restrict the application of the exemption only to companies that could demonstrate

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that they directly marketed software or contributed to the realization of a product for sale. If the interpretative paragraph was not modified, it would have affected more than 30,000 people working in the IT service centres in Romania. In order to benefit from these tax incentives, people working in the field of computer software development have to meet a number of minimum conditions specific to this economic branch, namely: to be employed in the IT industry, the job to be part of a specialized department which is distinctly recorded in the employer's organizational chart, the employee has a higher degree in computer science, the payroll for the employees benefiting from the tax exemption to be done separately, and the activity of each programmer must have generated at least income 10,000 euros per year. Also, IT employees of newly established firms also benefit from these provisions, companies that will not have to prove that they have earned EUR 10,000 for each programmer. In the previous form, the order created practical difficulties in applying tax exemptions to employees of IT companies that only provided software development services and to software developers who were in charge of software maintenance. Cluj has the highest density of IT specialists compared to the active population in Romania and is internationally known as an IT HUB and constantly attracts new companies. In 2012 it ranked 96th in Tholons’ top 100 outsourcing sites. Cluj is attractive by: critical mass of specialists, over 12,000, support universities: UBB, UTCN, infrastructure (airport, internet, etc.), the number of young people (25% of the city's population) field, culture of work, educated in the IT industry by external clients for whom they are working and that have high quality standards, standards that have been taken over and local, ecosystem of collaboration on universities companies (through clusters, etc.). Unfortunately, the current demand for IT talent surpasses the candidate pool, even if the Faculty of Mathematics and Computer Science currently has 660 graduates, and the Faculty of Automation and Computer Science at the Technical University has more than 700 graduates annually. Liberty Technology Park Cluj was launched on December 5, 2013 and means over 17,000 square feet of office space. The investment amounts to more than 15 million euros and is an initiative of Fribourg Capital under the patronage of businessman Ion Sturza, former Prime Minister of the Republic of Moldova. The technological park has now 33 companies and start-ups, both Romanian and foreign, with over 1,700 employees. Of these, almost 200 are expats, and by the end of the year 2017, a total of 2,000 employees are expected to work at Liberty Center. 70% of Liberty Technology Park residents are IT companies, and more than half have software development and R & D departments (R & D). At present, the technology park is 100% occupied, and most of the residents are IT companies such as Siemens, IBM, Halcyon Mobile, Altran, Iron Mountain Romania, Control Data Systems, Digital Ventures Development, Luminos Software, Voquz, SmartUp. The Technological Park also hosts the Spherik accelerator as well as start-ups, including Planable, SuppOffice. The technology park has a high-level of energy, efficiency and has received many distinctions for both design and functionality. The facilities of Liberty Technology Park Cluj are the following:

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-8 buildings with 565 parking units and, in addition, bicycle parking racks, facilities for people with disabilities; -Green areas with interior gardens and a lake, retail area, leisure & relaxation area: gym and multifunctional ground, coffee Shop, restaurant with terrace facing a lake; -Event area with conference rooms, a business Accelerator and Server spaces. We have analysed the evolution of the main economic indicators of IT companies located on Liberty Technology Park Cluj in the period 2013-2015. For this purpose, we have used the public data base of the Romanian Ministry of Finance (Economic agents and public institutions - identification data, tax information, and balance sheets, retrieved on the official website http://www.mfinante.gov.ro/pjuridice.html?pagina=domenii). This database contains information from the Romanian Ministry of Finance on the registration of taxpayers, legal entities and public institutions, tax returns (VAT, excise duties, etc.), the balance sheets of the last six years of commercial companies and operative records of overdue liabilities to the state budget. Table 2. The evolution of the main economic indicators of IT companies located on Liberty Technology Park Cluj in the period 2013-2015 Current Assets

Employees

408.711

1.604.991

36

565.949

159.065

1.187.116

30

1.982.644

380.274

99.682

447.049

23

790.024

4.976.990

542.694

182.904

2.365.950

9

2014

701.997

5.087.102

315.527

198.231

1.269.526

6

2013

575.161

3.837.693

365.320

89.024

908.159

4

Regal Beloit SRL

2015

35.083

552.251

964.793

403.334

672.549

11

GTS Telecom

2015

-1.566.307

80.371.448

60.592.215

39.449.612

43.742.475

121

2014

-1.921.262

79.137.887

63.790.903

50.245.338

37.560.378

126

2013

-1.910.413

85.036.652

65.854.395

62.469.034

28.957.384

128

2015

399.403

938.154

112.723

14.695

675.062

8

2014

250.202

253.344

16.203

0

258.886

0

2015

72.595

764.072

76.071

287

130.766

4

2015

-63.449

113.113

357.778

41.553

245.149

1

2015

910.396

5.319.898

166.045

119.624

1.883.874

0

2014

787.772

4.516.212

158.743

80.579

1.133.418

0

2013

559.529

3.509.552

154.574

72.797

491.089

0

Company Halcyon Md

Control Data Systems SRL

Makronetz Development SRL Luminos Software SRL Voquz IT Solutions SRL Altran Romania SRL

Year

Profit

Turnover

Debts

2015

1.280.615

5.558.225

758.752

2014

921.146

3.603.712

2013

159.305

2015

Fixed Assets

Source: own calculations after the data provided by the Romanian Ministry of Finance on the registration of taxpayers

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The evolution of profits for the IT companies located on Liberty Technology Park Cluj was positive in the period 2013-2017; profits rose from a loss of lei -616.418, to lei 739.855 in 2014 and lei 1.858.360 in 2015.Such evolution can be explained by the increasing ratio between capital allocation and sales. IT companies that use a high performance IT system need fewer human resources to manage and run the company. Also, IT companies benefit from profit tax exemptions and, occasionally, from increased borrowing power, cheaper lending methods. Table 3. Evolution of Profits of IT companies located on Liberty Technology Park Cluj in the period 2013-2015 2,000,000 1,500,000 1,000,000

2013

500,000

2014

0

2015

-500,000

2013

2014

2015

-1,000,000 Source: own calculations after the data provided by the Romanian Ministry of Finance on the registration of taxpayers

A similar trend had the turnovers, which increased from lei 94.366.541 in 2013 to lei 98.041.900 in 2015. Although current assets had a growing trend (from lei 30.803.681 to lei 51.320.81651.320), fixed assets decreased from lei 62.730.537 in 2014 to lei 40.620.720 in 2015. The causes can be the sell or abandon of assets, loss of value caused by re-evaluation of obsolete or outdated assets. Debts have decreased, from lei 66.754.563 in 2013 to lei 63.571.071 in 2016. This situation is typical for start-ups or for companies in their first years of activity-they usually start business with borrowed money and gradually they pay their debts from their incomes. Table 4. Evolution of fixed assets and current assets of IT companies located on Liberty Technology Park Cluj in the period 2013-2015

Fixed assets 100,000,000 0

2013 2014 2015 Source: own calculations after the data provided by the Romanian Ministry of Finance on the registration of taxpayers

One encouraging thing is that the number of employees has steadily increased, of course, not in a quick way, because the field is work-intensive. Additionally, some

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of the IT experts work as freelancers, usually from home. Remote work is a loyalty and motivation tool for IT people; therefore youngsters require a flexible program and the opportunity to develop their career, while seniors are looking for stable firms, big salaries and benefits. Regrettably, the retention rate of IT specialists has fallen over the last years. The reason for the labour force crisis in information technology in Cluj, lies in the problems of the public funded university that prepares the specialists (BabeșBolyai University). This institution of higher education has unoccupied organizational charts. Besides, the basic salaries for university assistants are very small, completely unattractive for young specialists, who can easily find a private job, much better paid. Even if for lecturers and professors, salaries are bigger than those of young assistants, they are still undersized in comparison to wages for senior IT specialists. For instance, a junior programmer may have a salary of 1,000 Euros, while senior developers, can have 3,000 Euros per month if not more; they are much higher than wages of people working for the academia. In Cluj, companies crave to hire programmers specialised in desktop applications or android applications. Table 5. Evolution of employees of IT companies located on Liberty Technology Park Cluj in the period 2013-2015 200 0

Employees

2013 2014 2015 Source: own calculations after the data provided by the Romanian Ministry of Finance on the registration of taxpayers

Thanks to the encouraging trends of Liberty Centre, IBM opened in Cluj in July 2017, the fourth business services centre in the country, after Bucharest, Brasov and Timisoara in Liberty Technology Park in Cluj. Conclusions Liberty Technology Park Cluj is a case study of successful entrepreneurship. Almost or financial indicators support this assertion-profits and turnovers have continuously increased in the following three years after the inauguration. Similar trends have had the current assets and the number of employees. The good location of this technology park in the heart of Transylvania and the relative cheap and qualified workforce that works in IT domain have turned Cluj-Napoca in a true attractor for both IT companies and specialists, for the quality of life and health services in the city, university education, jobs, the dynamic cultural and artistic environment, the economically active environment, especially on high added value services such as IT, pharmaceutical industry, and consultancy. Most probably, IT companies will continue to move to Cluj and also to Liberty Center, a top location for corporations. Due to the growing demand for human resources, companies will

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have to increase wages. So that the companies with high added value will stay in Cluj, and those with low added value (outsourcing of IT experts) will be reduced. A larger number of companies will be more and more involved in innovative projects generating own products Certainly, in Cluj the IT industry evolves from a low valueadded one (outsourcing, ie hire of IT experts) to a high added value (innovative / specialized services, own products), implicitly higher revenue for companies. Hopefully, more students will have the chance to be trained in high-tech domains. Babeş-Bolyai University (UBB) in Cluj-Napoca launched in 2016 the Institute of Advanced Studies in Science and Technology (STAR-UBB), the first of its kind in Romania, which aims to create mechanisms for BBU's entry into the top the best 500 universities in the world. The program was accredited in 2016 by the Ministry of National Education, and the students will be part of an international program where the courses are supported by NTT DATA Romania academic staff and specialists, as stated by the official website of the Institute of Advanced Studies in Science and Technology (http://starubb.institute.ubbcluj.ro). The Romanian state should continue to encourage the advancement of the technological Entrepreneurship under the Agenda 2000 of the European Union, exempting from some taxes the technological start-ups and helping them to develop by establishing an innovative and collaborative framework especially for start-ups, for SMEs. References Agenţi economici şi instituţii publice - date de identificare, informaţii fiscale, bilanţuri. Retrieved from http://www.mfinante.gov.ro/pjuridice.html?pagina=domenii. Brainspotting - IT Talent Map Romania (2016). Retrieved from http://www.brainspotting.ro/wpcontent/uploads/2017/03/Brainspotting_ITC-Talent-Map_Romania-1718.pdf. Institute of Advanced Studies in Science and Technology. Retrieved from http://starubb.institute.ubbcluj.ro. Liberty Park Cluj - Residents. Retrieved from https://www.libertytechpark.com/liberty-technology-park-cluj-residents Official Monitor of Romania. collection of legislation (2000-2016). Ratinho, T., & Henriques, E. (2010). The role of science parks and business incubators in converging countries: evidence from Portugal. Technovation, 30(2), 278–290. Romania Proving Popular as Software Outsourcing Destination. Retrieved from https://www.informationweek.com/romania-proving-popular-as-softwareoutsourcing-destination/d/d-id/1063969. Shane, S., & Venkataraman S. (2004). Guest editors introduction to the special issue on technology entrepreneurship. Research policy, 32(1), 181-184. UNESCO. “Science Policy and Capacity-Building” report. Retrieved from http://www.unesco.org/new/en/natural-sciences/science-

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technology/university-industry-partnerships/science-parks-around-theworld/science-parks-in-europe/#c99655. Zucker, L.G., Darby, M.R., & Armstrong, J.S. (2002). Commercializing Knowledge: University Science, Knowledge Capture, and Firm Performance in Biotechnology. Management Science, 48(1), 138–153.

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OUTSMARTING THE MNCS BY FITTING STRATEGIC MANEUVRES TO NATIONAL FRAMING: EVIDENCE FROM INDIA Swati SINGH Vivekanand Education Society Institute of Management Studies & Research 495/497 Maharashtra, 400074 Mumbai, IN [email protected] Ralf WAGNER University of Kassel Möncheberg St., 34125 Kassel, DE [email protected] Abstract. This paper focuses on how Indian home-grown companies captured MNCs market in India with the help of strategic maneuvering and understanding their own capabilities. Seizing the framework of Porter’s National Diamond this research follows a caselet approach for illustrating these strategies. The study’s originality springs from understanding changes in demand pattern brought by home-grown companies in the Indian market. A key implication of this paper is that the demand conditions and firm strategy (by means of targeting and developing the customers systematically) are the key components of success as learned from Porter’s Diamond. The study provides insights into understanding Indian middle class perception and behavior towards MNCs offerings and later for home-grown companies. Keywords: home-grown; MNC; Porter Diamond Model; emerging economies; India.

Introduction Indian companies have revolutionized their business models and, in doing so, created a benchmark for emerging economies in the globalized world economies. Liberalization brought transformation leading to customer upliftmenting the Indian market with MNCs at the helm of market change (Enderwick, 2012). Affiliated with its adaptable nature, Indians learnt a new style of living from MNCs and their product offerings (La Ferle et al., 2013) making Indian market a growth haven for both MNCs and home-grown companies wishing to get maximum share of Indian market. This revolutionized competition in Indian markets and changed consumer’s perceptions. This also gave a huge boost to innovation centers and incubation cells and in turn empowering home-grown companies to offer better products more suited to market needs (Subramanian & Gopalakrishna, 2001). Thus, India not only provided a fruitful ground to established MNCs but also emerged as a paradise for innovation, resulting in its growth and stability. Kim et al., 2011, stated that born-global companies, especially from India and

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China, are emerging as forerunners in international marketplace armed with a high degree of customer orientation, flexibility, and innovative product offerings. India shares many similarities in a socio-cognitive perspective with other emerging economies rather than transition economies making it easier to understand its growth pattern (Rosa et al., 1999; Wagner, 2005). Resultantly it makes it one of the leading market for MNCs to get interested and invest a substantial amount to capture it. The literature related to emerging economies focus majorly on MNCs contribution in changing demand patterns of these countries (La Ferle et al., 2013; Wagner 2005). But a gap was found in understanding the contribution of their home-grown companies in understanding this demand pattern and rebuilding their potential to capture the Indian market. Our study builds upon this gap by identifying Indian home-grown companies’ contribution in identifying and meeting an actual set of needs rather than superfluous need met by MNCs for that segment who only want societal projection and are willing to pay any price irrespective of value derived from it. The structure of the paper is as follows: a review of the literature provides an understanding of emerging Indian middle class with their new found aspiration and different style of living. Then a caselet of Patanjali bring forth the nuances that helped home-grown company give tough competition to market leading MNCs. The conclusion is mapped using Porter’s diamond model to understand the winning strategies in the Indian market. Tussle of Home-grown and Multi-national Companies (MNCs) in Indian Market Post liberalization, there has been no stopping for Indian consumer who became more aware of their needs and desires the best available products and brands (Bharadwajet al., 2005). Indian consumers have grown and changed with increased-disposable income, changing consumption patterns and increased brand consciousness (Mukherjee et al., 2012). A set of new antecedents have marked a dramatic change in Indian demographic profile. Major factors leading to this change are improved educational structure, more working women, urbanization, tech-savvy consumers, more international exposure, and extensive media exposure (Ghosh, 2010). These factors gave substantial impetus to MNCs to woo India and helped in providing a haven for them to extend their fading products, declining product life cycle or to launch new offerings as per market conditions (Enderwick, 2009). But these offerings were solely designed to cater elite class and upper middle class, vastly ignoring the lower strata of society which was served majorly by homegrown companies. Notably, over the period, the home-grown companies emerged as big winners encapsulating all the social classes. They have made a turnaround from poor quality association to being radical innovators equipped with better offerings thus emerging as big players amongst a host of different MNCs.

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Indian Middle Class: Growing Aspirations and Desires One of the key antecedents for an incandescent change of emerging economies is the growth of their middle class (Varma, 2007) with better spending power and changing lifestyle (Shukla, 2010). With the increase in GDP, there has been a conscious shift in buying pattern and willingness to pay (Shukla et al. 2004). India’s middle class is characterized by a blend of divergent perceptions, heterogeneous beliefs, interests and most importantly–buying patterns. This led to the emergence of social ladders within this middle class. Earlier research brings out a pattern in the understanding of Indian middleclass based on their consumption pattern, lifestyle and behavior in respect to their income parameter. They are aspirational and have a fondness for organized retail. Though Indian middle class looks for value for money products they also love the western ambience which gives high satisfaction especially in terms of social upliftment and self-esteem (Jayasankara Prasad & Ramachandra Aryasri, 2011). Tata’s Nano made its mark by foraying in MNCs dominated automobile market with the best offering for this segment especially lowers middle class, keeping in mind their aspirations as well as value for money product (Singh & Srivastava, 2012). Brand loyalty for this genre of customers is tenuous as new product offerings easily divert them. Most of the MNCs want to capture the Indian middle class, especially the upper segments who have high disposable income, more western exposure and easily understand brands. They also provide a huge opportunity to home-grown companies as it is easy to lure them away from cheap-quality locally made products and a poor version of MNCs offerings (Sinha, 2011). However, now many home-grown companies strive to create a price-value-quality product and keep them attuned to current market offerings. This study focuses on Indian middle class where both MNCs and home-grown companies are at loggerheads to get maximum share of the pie and acceptability by the consumers for Indian vs. international products/services. The major comparison comes in terms of better product offering by Indian brands or low frill version with basic offerings of MNCs. MNCs have more enduring effects on these consumers whereas home-grown companies work hard with their positioning and service offerings to gain a stronghold in this segment. Emergence of India’s new societal structure In the last few decades, increased GDP, better educational pattern, growing nuclear families and young population changed the demand structure in terms of different consumption patterns, increased brand consciousness and the acceptance of everything international. India’s middle class had better spending power and reflected the world-wide changing lifestyle. India’s social structure is based on its societal identity leading to various social ladder with a different set of attitudes, behaviors, and perceptions (Bandura, 1986). These, in turn, leads to new sets of social innovations sparking a new range of needs and desires for each social ladder (Cajaiba-Santana, 2014).

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These newly found desires played an important role in buying and consumption pattern of consumers reflecting their choice of products and brands (White & Argo, 2009) thus, reflecting consumer’s identity. As a consequence, new industries entered the Indian market with their global brands and we could register a growth of malls in this emerging economy. The home-grown companies could not avoid a change in their own strategies, declining products life cycles or launch new and better offerings. They also needed to improve supply chain management, to keep up with the technological innovation. There is no demarcation/border in understanding these social ladders and every level has aspirations to merge into the higher level of society, thus marking a huge change in their lifestyle projection and consumption pattern (Marjit et al., 2015). A gap is recognized in terms of these middle class Indian consumers’ behavior and attitude towards different product offerings and how they nurture their core or make-believe identities through various consumption patterns. Research methodology To understand the growth pattern of home-grown companies the paper builds upon the diamond model proposed by Porter (1990). The framework ensures completeness of the description and avoids overemphasizing of focuses elements while neglecting the other facts of the cases. In the study, we embed the caselet with the reflection of India’s psychosocial functioning leading to social laddering. Matching the managerial perspective this study seizes results of Ni & Wan (2008) who compared how MNCs with their competitive advantages establish their dominance in the emerging markets like China and how home-grown companies took them head-on with their specially designed offerings through critical evaluation of their branding capabilities. The research design adopts an eclectic approach in identifying changing consumer behavior and their adaptability pattern. Earlier literature focused on changed demand pattern brought by MNCs in emerging economies and not on later part whereby home-grown companies carve a space for themselves with specially designed improved products and innovative strategies. The caselet is selected to understand a holistic view of the changing face of Indian middle class. The case of “Patanjali” is selected as it is the most talked about company in India today for its take on MNCs and making them relook their strategies to capture Indian market. Patanjali Patanjali came into being in 1997 as a pharmacy. Ramkrishna Yadav (popularly called as Baba Ramdev), a yoga instructor started it with Acharya Baklakrishnan, an Ayurveda practitioner. Later in 2006, Patanjali Yogpeeth, was founded which reconnected India to Yoga and provided an ayurvedic healing solution. It also started selling ayurvedic medicines and herbal and mineral enriched over-the-counter products in various categories like personal care, food & home care.

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Liberalization led to major shifts in Indian economic scenario resulting in both increased purchased levels and indulgence for everything new and better. But gradually Indians started understanding the harsh side of this new lifestyle. Processed food, MNC-fast food chains, and beauty industry also lead to many health disorders and skin diseases bringing them back to their roots as they realize the concept of health and wellness with “Yoga” acting as the biggest mediator. After a slow start, Patanjali showed phenomenal growth to become Rs 5,000-crore (US$670 million) company in 2015. The competition from Patanjali made decades old Colgate-Palmolive rework its product offerings to tap the newly evoked need of Indians. It launched toothpaste with natural ingredients to counter Patanjali’s toothpaste which is its flagship product. It also forced HUL into foraying in natural segments by reworking on its market strategies. By 2015, Patanjali manufactured and sold 400 SKU’s including medicinal, cosmetic, and food products. Their strength lies in offering high quality, competitively priced products in FMCG market. Patanjali started posing a threat not only to Indian FMCG companies like Daubur, Godrej, and Emami but also to multinational FMCG companies such as Colgate, P&G, and HUL. Patanjali shied away from strategies used by other companies to create their own novel approach to the market. With telecast on Sanskar channel of Ramdev’s yoga in 2002, millions of people across the country connected with him. The company ignored the biggest promotional tool of having brand ambassadors to create a fake image for its brands. They also relied on a direct method of advertising using yoga camps and Baba Ramdev’s appearances to create brand awareness. These in turn also helped in cost management for the company. Patanjali created its own identity with novel strategies like its “Made in Bharat” tag and invoking “Nationalism” in terms of economy and banked on ethnocentric consumer groups to connect with upper middle class. Its product portfolio also includes western food like pasta, oats, muesli to stay relevant with today’s style of living. In order to venture deep into the market, it has successfully created its ecommerce presence and has also partnered with Future Group and other homegrown companies for promotion and distribution of its products. With its numerous distribution outlets and international presence with centers in the UK, the USA, Nepal, Canada, and Mauritius, Patanjali is at the pinnacle of glory. Its vociferous approach towards Indian ethos successfully made connect with the societal levels. Baba Ramdev has now become “Baba Cool”, especially among upper class due to their latest aficionado towards health and wellness industry. The lower class is also able to understand this brand as it is priced lower than MNC products and is desired by upper class segment. With his plans to launch 30 lakh shops by 2018 and venturing into new arenas like baby care, education, “Paridhaan”-casual-wear (Swadeshi jeans) / office wear / sports-wear (yoga wear), religious items, “Parakram” (security agency), fast-food retail and many more, industry is skeptical of these moves and the success of these new offerings are still speculated.

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Patanjali’s connect with Indians was majorly due to the fact that though Indians adapted westernized style, they still nurture their traditions and values. Connecting Indians with their roots and making them realize the power of their culture lead to a new wave of self-actualization, empowerment, and contentment. Summarizing the case in Diamond Model Framework: Demand conditions - High disposable income - Indulgence for everything new and better - Balance between healthy products and Western offerings - Yoga- the biggest connect with middle class - Ethnocentric consumer groups - New market adapted consumerism but never forgot their traditions Factor conditions - Yoga and provided ayurvedic healing solution - Herbal and mineral enriched offerings - Indian ethos Related and supporting industries - Health and wellness and fast food industry are growing - Yoga centers in the UK, the US, Nepal, Canada, and Mauritius - Ventures like baby care, education, casual-wear, sports-wear, religious items… Firm strategy, structure, and rivalry - Partnership with Future Group - Differentiation of products: personal care, food, home care products and medicines - Use of nationalism (keeping our money in our country) to foster ethnocentrism - Brand priced lower than MNC products - Focus on natural products - E-commerce and distribution outlets Conclusions The study highlights the power of home-grown companies over MNCs in terms of better market understanding and realistic offerings best suited to their needs. The paper focus on changes in Indian middle class post-liberalization, especially in terms of its consumption patterns, changing lifestyle, and aspirations. With the help of a caselet, we identify how home-grown companies understood the changed mindset of people and won back MNCs’ developed markets. Patanjali shows that home-grown companies can successfully create products and at the same time maneuver the positioning to become more identifiable with targeted group thus, bringing an impact on changing demand patterns. We identify its potential to explore the unknown terrains of various market segments and rework with unique local solutions.

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Our results are mapped with Porter’s National Diamond model. The determinants of the diamond are meant to find out which factor conditions composed the pool of resources that help the country’s economy, and therefore the company, to develop innovative businesses (e.g. technology, infrastructure, human capital etc.). Jointly with the demand conditions, that is the nature of the customer which pushes firms to innovate faster and better, the companies could change their business models so that the markets could stand international competition. Indeed, we also look at the related and supporting industries that produced positive inputs in facilitating the Indian innovation and internationalization. These factors are supported by the firms’ strategies, structures, and rivalries that needed to be adapted at the international competition, to enhance production and technological innovation. As an additional component, the government influenced the determinants through some interventions that surely made possible a big change in the market outlook. For instance, the liberalization of 2000 and the growth of urbanization can be considered fertile terrain for the home-grown businesses development. Patanjali indicates a conducive to change in buying pattern of Indian consumers. It showcases indescribable market upheaval created by a home-grown company in MNC ruled Indian market through innovative strategies of self-preservation and ethos. It successfully maneuvered the entire middle class from lower to upper levels to rethink MNC offerings and adapt health and wellness as the new style of living. Contribution of this study The study contributes to understanding social-psychological component and the role it plays in capturing the market. Also, study brings out how core competency can be mapped internationally for the home-grown companies with the successful maneuvering of the market conditions. Patanjali showed us the way to connect with the world is to ride on health and wellness wave which has created an elusive power. Implications and limitations This study helps practitioners in understanding changing behavior of Indian middle class. An indication of social acceptance and individual well-being helps in changing consumer’s perception thus giving a new identity to brands. A key implication of this paper is that the demand conditions and firm strategy (by means of targeting and developing the customers systematically) are the key components of success as learned from Porter’s Diamond. The study provides insights into understanding Indian middle class perception and behavior towards MNCs offerings and later home-grown companies. An extension to the explanation of home-grown companies in foreign markets using the Double Diamond approach is straightforward. The basic limitations of a caselet are that it bends towards positive angels of the case. The use of Porter’s (1990) National Diamond facilitates a systematic description taking a national perspective. For describing and analyzing the

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internationalization success of the home-grown business models the Double Diamond extension (Rugman & D´cruz, 1993; Li & Oh, 2016) provides researchers with a suited framework. The study opens up various avenues for further research in terms of nationalism in emerging economies and its power in changing customer’s perception, thus creating new horizons for the market. References Bandura, A. (1986). Social Foundations of Thought and Action: A Social Cognitive Theory. Englewood Cliffs, NJ: Prentice-Hall, Inc. Bharadwaj, V.T., Swaroop, G.M., & Vittal, I. (2005). Winning the Indian consumer. McKinsey Quarterly, Special edition, 42-51. Cajaiba-Santana, G. (2014). Social innovation: Moving the field forward. A conceptual framework. Technological Forecasting and Social Change, 82(1), 42-51. Enderwick, P. (2009). Large emerging markets (LEMs) and international strategy. International Marketing Review, 26(1), 7-16. Enderwick, P. (2012). Understanding emerging markets: China and India. London, UK: Routledge. Ghosh, J. (2010). Poverty reduction in China and India: Policy implications of recent trends. DESA Working Paper No.92. Retrieved from https://www.researchgate.net/publication/237529223_Poverty_reduction_ in_China_and_India_Policy_implications_of_recent_trends. Jayasankara Prasad, C., & Ramachandra Aryasri, A. (2011). Effect of shopper attributes on retail format choice behaviour for food and grocery retailing in India. International Journal of Retail & Distribution Management, 39(1), 6886. Kim, D., Basu, C., Naidu, G.M., & Cavusgil, E. (2011). The innovativeness of bornglobals and customer orientation: Learning from Indian born-globals. Journal of Business Research, 64(8), 879-886. La Ferle, C., Kuber, G., & Edwards, S.M. (2013). Factors impacting responses to cause-related marketing in India and the United States: Novelty, altruistic motives, and company origin. Journal of Business Research, 66(3), 364-373. Li, J., & Oh, C.H. (2016). Research on emerging-market multinational enterprises: Extending Alan Rugman’s critical contributions. International Business Review, 25(3), 776-784. Mukherjee, A., et al. (2012). Are Indian consumers brand conscious? Insights for global retailers. Asia Pacific Journal of Marketing and Logistics, 24(3), 482499. Ni, N., & Wan, F. (2008). A configurational perspective of branding capabilities development in emerging economies: The case of the Chinese cellular phone industry. Journal of Brand Management, 15(6), 433-451. Porter, M.E. (1990). The competitive advantage of nations. Harvard Business Review, 68(2), 73-93. Rosa, J.A., Porac, J.R., Runser-Spanjol, J., & Saxon, M.S. (1999). Socio cognitive dynamics in a product market. Journal of Marketing, 63(Special Issue), 64– 77. Rugman, A.M., & D'cruz, J.R. (1993). The" double diamond" model of international competitiveness: The Canadian experience. MIR: Management International

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Review, 33(2), 17-39. Shukla, R. (2010). How India Earns, Spends and Saves: Unmasking the Real India. New Delhi: Sage and NCAER. Shukla, R.K., Dwivedi, S.K., Sharma, A., & Jain, S. (2004). The Great Indian Middle Class: Results from the NCAER Market Information Survey of Households. National Council of Applied Economic Research Report (in association with Business Standard). Retrieved from www.ncaer. org/Downloads/PublicationsCatalog.pdf. Sinha, D. (2011). Consumer India: Inside the Indian mind and wallet. Hoboken: Wiley. Sinha, D. (2016). India Reloaded: Inside India’s Resurgent Consumer Market. Berlin: Springer. Singh, S., & Srivastava, P. (2012). The turnaround of Tata Nano: reinventing the wheel. Vision: The Journal of Business Perspective, 16(1), 45-52. Subramanian, R. and Gopalakrishna, P., 2001. The market orientation–performance relationship in the context of a developing economy: An empirical analysis. Journal of Business Research, 53(1), 1-13. Varma, P.K. (2007). The Great Indian Middle Class. New Delhi: Penguin Books. Wagner, R. (2005). Contemporary marketing practices in Russia. European Journal of Marketing, 39(1/2), 199-215. White, K., & Argo, J.J. (2009). Social identity threat and consumer preferences. Journal of Consumer Psychology, 19(3), 313-325.

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THEORY AND PRACTICE: NATION BRANDING IN THE MIDDLE EAST Cornelia ZEINEDDINE The Bucharest University of Economic Studies 6 Piața Romană, 010374 Bucharest, RO [email protected] Luminița NICOLESCU The Bucharest University of Economic Studies 6 Piața Romană, 010374 Bucharest, RO [email protected] Abstract. Nation branding concerns the nation’s image as a whole and the manner in which is depicted to other nations. Simon Anholt, one of the leading authors in nationbranding, considers a nation brand as the most valuable asset of a country in order to acquire a competitive advantage and a strategic position in the international arena. The present paper tries to identify how the conceptual framework of nation branding developed by Anholt fits into the concrete actions taken in some countries in the Middle East. Traditionally, the nations of the Middle East have been reluctant to operate with the concepts of nation branding when compared to the Western world. However, an exception can be considered to be the Gulf Cooperation Council bloc (GCC) - a region of great wealth positioned between the Persian Gulf and the Arabian Peninsula. Even though initially these countries did not have as a purpose to create a particular nation brand, they took concrete actions for their economic development that resulted in a positive country image for some of them. The United Arab Emirates (UAE) and Qatar are two Middle Eastern countries that certainly acknowledged their role in the competitive global economy and recently started to apply nation-branding techniques. The cities of the UAE and Qatar were almost unknown to the world until three decades ago. Today UAE has become Middle East’s strongest brand, while one of its main cities- Dubai has gained the reputation of one of the most extravagant and cosmopolitan cities in the world. At the same time, Doha is consolidating its reputation on the international sports circuit. Only recently, UAE and Qatar have developed strategies for branding attractions that individualize their image and gives an impetus to internationalization. The analysis uses Anholt’s nation branding conceptual framework and will follow two directions: a) a chronological direction that looks in both countries to the different stages of economic development and associated actions that resulted in the present country images and b) a comparative direction that looks at the two countries trying to identify elements of commonality and elements of differences in the ways how their existing images have been built. The paper concludes that the two countries in the Middle East built successful country brands using initially strategies aimed mainly at economic development and later on strategies aimed specifically to country branding. Keywords: nation branding; competitive identity; place branding; the Middle East.

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Introduction The GCC bloc - (members: UAE, Qatar, Saudi Arabia, Bahrein, Kuwait, and Oman) - a region of abundant resources (the richest region in hydrocarbon reserves) is positioned between the Persian Gulf and the Arabian Peninsula. The region is situated at the crossroad of continents: the Middle East, Africa, and the Far East. The cities on the shores of the Persian Gulf (Dubai, Manama, and Muscat) have been for years ports of call for the boats crossing the Middle East to Africa, India and/or China. This alone represents a geostrategic advantage for a nation branding strategy meant to enhance the nation building process, as well. On the other hand, GCC countries are positioned in a harsh climate (with the limited natural appeal). Hence, they need to focus on selling synthetic attractions or promote prominent events for steering investment and further economic growth. Such activities must be sustained by a proper infrastructure and utilities; while enabling a financial stimulus plan to make them happen (Kotler & Gertner, 2002). It can be compared to a domino effect that contributes to the overall growth of trade and investments. However, it is a laborious task to build attractions with the view to constructing a brand, along with conveying a coherent message for the brand. The coherence may be one of the greatest challenges for decision makers of the 21st century (Anholt, 2006). Despite the difficulties to form a unitary branding strategy, the GCC countries are developing an emphatic branding strategy focused on tourism development, aviation, real estate and international events and exhibitions/conferences, meant to place their countries and capitals (Abu Dhabi-UAE and Doha-Qatar being the capitals considered for the study) on the map of the world economy. The practical implication of nation branding is that an effective strategy for nation branding helps a country to attract tourists, investors, and talented workforce. Findings indicate that the key indicators in the formation of a brand comprise national elements (country name, the mental perception of it, geostrategic location, people, culture, etc.) and infrastructure (security and safety, economic soundness, technology, tourism targets, destination marketing, and promotions). Any strategy you would put in place (after you identified the most striking features of the country) needs corresponding infrastructure, as highlighted by Kotler and Gertner (2002). All the factors together contribute to an effective visibility of a brand and its corresponding benefits. The most successful product of branding from the Persian Gulf region, namely the UAE, has encompassed the aforementioned elements. In order to strike success to this extent, the UAE has followed closely the specialists’ view and tried avoiding mistakes, reputational risks and negative implications that can have a damaging effect on the branding process (Gilmore, 2002). The paper compares UAE and Qatar’s nation branding, analyzing the timeframe associated with the processes and the distinctive, yet different results in both cases. Ultimately, the paper draws the conclusions regarding nation branding in the region, noting both its limits and its success. The study stresses the particularity of nation branding in the region and evaluates future prospects of its evolution.

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Aim/added-value: Nation branding has received a narrow focus when it comes to emerging markets, notably in the Middle East. This is the first study with a view to understanding Anholt’s framework vis-à-vis nation branding in the Gulf region. The findings will likely help policymakers, brand managers, and communication professionals, generally speaking. Literature review Simon Anholt, the leading author in matters of nation branding encompassed the whole concept in a six-layer explanation, see Figure 1. Therefore, the nation brand is the sum of people’s perceptions of a country across six areas of national competence. According to Anholt, the cumulative effect of each element of the six-layer figure creates the nation brand. Simon Anholt proposed the channels through which you can enhance a country’s reputation: tourist promotion; exporting brands; government policies (domestic or aimed at the foreign sector); the population’s reputation; cultural heritage; the power to attract investment and skilled workforce. In 2007, he added the importance of the performance the country’s leaders’ attainment in the international arena (Anholt, 2007). Simon Anholt considers a nation brand as “the most valuable asset: it is national identity made robust, tangible, communicable, and – at its best – made useful” (Anholt, www.superbrands.com). Simon Anholt goes further with describing a successful nation brand as competitive identity, put briefly as: “(...) the synthesis among brand management, public diplomacy, trade, investments, tourism and export” (Anholt, 2006). Simon Anholt fathered the concept of competitive identity in 1996 and published the first paper on the subject in 1998. Keith Dinnie (2007) defined the competitive identity of a nation as “the unique, multidimensional blend of elements that provide the nation with culturally grounded differentiation and relevance for all of its target audiences.” According to Dinnie (2009), competitive identity represents the mixture of the best features of a nation, encompassing the political, economic, social, and cultural capabilities. Anholt ranked competitive identity among competitive factors in a globalized economy. Being able to strike competitive identity, means the accomplishment of a successful branding strategy. It shall be made possible with the collaboration decision makers, the private sector, in partnership with the local population. A country’s international reputation is managed and changed for the better, as long as there exists cooperation between the various sectors within a country (Anholt, 2011). Subsequently, branding places gained visibility, a practice that goes hand in hand with the globalization as the products, services; assets merge with the markets and culture in a global community (Anholt, 2005a). Therefore, [...] “the reputations of countries (by extension, of cities and regions too) behave rather like the brand images of companies and products, and they are critical to the progress, prosperity, and good management of those places” (Anholt, 2013). Place branding is primarily focused on attractions and the image of a location that might attract events, tourists, investors, skilled workforce (Anholt, 2010). In particular,

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in the tourism market, there is an emphasis on cities, as place branding (Zenker, 2009). Place branding serves the purpose of marketing tourist destinations, an appealing instrument for visitors and tourists alike (Balakrishnan, 2009). Nation branding can be compared to a cardinal self-presentation of a country. The domain of nation branding extends beyond touristic promotion/marketing, including crucial sectors as investment, exports and matters related to work force- professionals, students, qualified exported and not the least, governance. In short, nation branding should be constructed in such a way to check all the points enunciated by Anholt in his six-layer figure.

Figure 1. Nation Brands Hexagon (http://nation-brands.gfk.com/) Although the most modern literature on the competitive identity of a nation presents classical studies- i.e. USA, China, Western countries - there is a shortage of integrated study on the Middle East. Without a systemic study, the research can be rendered difficult (Fouroudi et al, 2016). The past experiences indicated that the examination of the competitive identity of a nation requires a comprehensive approach (Freire, 2005; Szondi, 2007) that stresses both the reality and the process of nation building (Anholt, 2007; Caldwell & Freire, 2004). The competitive identity of a nation describes the ways in which a whole country differentiates, communicates and relates to the wide world (Blair et al., 2015). As Dinnie (2008) argued, the substance of brand identity and brand image are perfectly transferrable from the context of marketing of products and companies to the national and regional/local level. By that, the competitive identity of a nation can be viewed as a marketing strategy for nations. It could help a nation not just enhance its identity and image, but it also will improve its overall global standing.

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A nation’s image and reputation are the reflections of the perception of an entity. The Middle East is generally afflicted by prejudice in the consumer’s/receiver mind, therefore a complete strategy on nation branding can bring a significant advantage to whom might reap first its results. This is why the GCC is a leading example in the Middle East for considering nation branding. Nation branding in the case of UAE and Qatar Why is it relevant in this context? Anholt (2005) explained that when one works on branding, it should be done consistently and harmoniously. The best result is when you can communicate the value of all the products, brands, sub-brands and the activities, which are designated for the same purpose. The GCC countries needed a communication strategy primarily because its nations’ history is incipient, but also since their constraints and problems could be answered with a justified response- a strategy of branding the state for endurance and growth. They are small states and very young nations (independence acquired in 1971) and the physical size, the population (especially as the national population is a minority in the UAE and Qatar), or the geopolitical situation cannot be altered. They met rapid economic development and one can highlight that nation branding is of critical importance to developing nations, which do not have the time to wait for the national image to match the rapid pace of development (Anholt, 2006). The GCC economy is one of the fastest growing in the world and the region needed the corresponding image for its wealth and resources. A competent response was seriously needed, because there appears a predilection in people’s behavior when they make choices: “The clichés and stereotypes- positive or negative, true or untrue- (and stereotyping is frequent in the case of the Middle East) fundamentally affect our behavior towards other places and their people and products” (Anholt, 2007). Economic development and branding UAE UAE has a government typical to the Arabian Peninsula: absolute monarchy (founded as a federation of seven emirates since 1971). It lies in Western Asia, on the Persian Gulf shores and in the southeast point of the Arabian Peninsula. Abu Dhabi and Dubai are the economic engines of the federation. As a country brand, UAE is known as the Middle East most valuable brand, in one of the world’s fastest growing economies. UAE has become the third strongest brand in 2016 (worth over US$400 billion) (www.brandfinance.com, 2016), after years of modest ranking/not in the tops. When one analyses UAE’s branding process, we come across the flagship project- Dubai, despite the fact Abu Dhabi is the capital city. Probably because Dubai policy makers have been quicker than their counterparts to understand the need for diversification and to limit dependency on oil (Reuvid, 2007), the branding strategy has a longer history. Back in 1990, the oil resources were estimated to last 30 years. This evaluation pushed for a coordinated correlation of these resources. Dinnie has advocated for correlation of resources for effective worldwide competition, and in order to do that you need excellent branding management techniques that can be refined until the process progresses (Dinnie, 2009), matters addressed cogently in the case of Dubai.

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Dubai started with enabling the Department of Tourism and Commerce in the 1980s. After a few decades of hard work, Dubai became the fifth most visited city in the world in 2014- 11.95 million visitors, 12.84 million international overnight tourists in 2015 and 13.34 million in 2016. (www.visitdubai.com, 2017), while the target for 2020 is 20 million. Most of those (86%) who visit Dubai stand in the 20-40 years age group and are practiced international travelers (Lee and Jain, 2009), an indication for the attractiveness of the destination. The number of expat residents is a sign for the openness and for the allurement of the place. Dubai is known worldwide, for its extravagant architectural projects, including the tallest building in the world, Burj Khalifa, and many other superlatives in estate and luxury tourism. The worldwide fame is not confined to tourism but also implies being an initiator in becoming a smart city, while maintaining its Middle Eastern cultural specificity. Dubai is a regional domineer in technology, commerce, and transportation links that enjoys a cosmopolitan setting. It displays an incredible potential for investors, travelers, traders, and expats, practically rendering Simon Anholt’s six-layer approach possible (plus a factual standing in international relations by virtue of public and cultural diplomacy). The second most known emirate of the UAE, Abu Dhabi, needed its own branding strategy for international recognition (Haider, 2008). The strategy was initiated in the late 2000s with the creation of the Office of the Brand of Abu Dhabi (Al Ayedrous Bani Hashim, 2012). Its first product was a slogan and a logo for Abu Dhabi -“travelers welcome” – has been vividly enforced in different campaigns and activities (for strategies in the region also see Karolak, 2017). However, advertisement campaigns are just one element of the overall strategy, and at best produce a short-term effect, according to Dinnie (2008). Abu Dhabi branded itself with the logo “travelers welcome” but it turned to be part of a broader strategy (Formula 1 events, building world-known museums in the recent years). Anholt stated that it comes naturally to less well-known countries to start with a signpost logo for differentiating themselves. Moreover, an accomplished strategy means they identify a sharp point in order to penetrate consumer consciousness, to the extent it remains in his/her mind (Anholt, 2009). It is an attempt to tick the boxes of Anholt’s hexagon-figure for rendering the nation branding process successful. Thus, Abu Dhabi has constructed more than a logo, rather an identity, with the help of different means: media, website, international advertisement campaigns that promote the manufactured attractions of the Emirate. This is why Abu Dhabi’s identity is clearly different from Dubai, with cultural events at the forefront (having an island for cultural entities, such as The Louvre and The Guggenheim), the quiet, sunshine-blessed place and fit for events such as Formula 1 or awards ceremony. It is pertinent when we compare it to Dubai, (Balakrishnan, 2009) which is known for its appetence for the Guinness Book of records – a “city of superlatives” (Beauregard, 2003). Abu Dhabi has managed a cumulative branding strategy, coming second to Dubai’s international reputation (when you analyze the UAE) (Zeineddine, 2017). Economic development and branding Qatar The achievements of UAE in the field of nation branding have surely augmented the competition level in the GCC bloc. Qatar is located in Western Asia, is a small peninsula (separated by the island of Bahrein), in the Persian Gulf, independent since 1971. Qatar

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- the sheikdom1 of the Persian Gulf developed prosperously in the last ten years, reaching the highest GDP per capita in the world (www.indexmundi.com, 2016) – this wealth had to be reflected in a nation brand. Qatar is very active in the international and regional organization (GCC and Islamic organizations). Therefore, Qatar has gained worldwide prominence (Peterson, 2006). Qatar has achieved international exposure through hosting major international conferences/meetings, as well. For sure, the World Trade Organization ministerial meetings are known as “Doha Round” are included in Qatar’s reputation by now. Just like the UAE (only that appeared later), Qatar designated plans for promoting itself in the wider world, with events, cultural forums, university campuses and media networks. Qatar has started to remove the label of a dormant desert city when it established the Al Jazeera media network in 1996. It was unthinkable back at that time to acquire so much regional influence through it. The realizations fueled further ambitions, thus Qatar, through long-term goals operated mainly through its National Vision 2030, is trying not only to place its capital city Doha in the upper tier, Doha is already in the business and regional policy arena, but also intends to have a global assertiveness. As a distinctive approach, Qatar wants to associate itself with top services rather than with mass tourism (Karolak, 2017). In the quest to rise up to UAE’s reputation, Qatar adopted a nation branding strategy with impact on its capital Doha that transformed from the desert city to the host of top universities, forums, sports and cultural events (Hazime, 2011) in a decade or so. In the process of establishing a branding strategy, Qatar has met with the UAE’s already consolidated success. Sporting events, international universities and cultural festivals may broaden Qatar’s appeal but Qatar has yet to witness a more radical economic diversification. The oil and gas sector makes up roughly 50% of its GDP (www.forbes.com, 2016), compared to 6% in Dubai. Qatar has the chances to become a stronger competitor for UAE in tourism and economic diversification if it continues improving steadily the grandeur of the events hosted (FIFA World Cup 2022 is an important stake in this sense) and with the top educational facilities. Differentiating strategies of nation branding Dubai’s approach gives sense to the advance of avoiding negative impacts on the image at all cost. This strategy was possible since it was building a nation brand almost simultaneously with nation building. As an indication of a coherent and comprehensive strategy as suggested by Anholt, Dubai allowed more time (when compared to fellow emirates) for the nation branding strategy to come into place, starting with establishing a Department of Tourism and Commerce Marketing in the 1980s. Abu Dhabi realized it is time to differentiate itself from Dubai in the late 2000s, whilst Qatar has started branding post-1996 (coinciding with launching Al Jazeera). Dubai has already an international fame (being visible for already three decades in the market, while Abu Dubai and Doha were almost invisible to wider audiences) and may be the success story of branding in the region (reflected in the number of tourists, new investments and events it attracts annually), whereas Abu Dhabi is attempting to build 1a

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its own way. In order to manage image campaigns effectively, Anholt pleads for longterm nation-brand planning and strategy. Such strategies emphasize the role of continuity, simplicity, coherency, and accuracy- when referring to a country (Anholt, 2003, 2005b). Dubai’s image as a destination of superlatives has been constructed from the early 1980s, receiving a strong stimulus in the early 2000s that were accelerated once the economic diversification was enforced (in the perspective of drying resources and a global lower price for oil since 2014). Dubai is targeting a declared ambition to be a “Global Arab City”, meaning a consolidated heritage, while connected to the global trends. Abu Dhabi is reinforcing an image (the welcoming sunshine destination) that can be an alternative to Dubai’s superlatives. It keeps linking to the accelerated cultural resurgence in the region. Dubai and Abu Dhabi, the two facets of UAE’s nation brand, have risen up to international standards, with the help of a communication strategy, comprising accurate elements that are received by the consumer’s mind- Gulf’s capital of superlatives and the quieter capital city of a sunshine/resource- blessed region. In the case of Qatar, possibly the most distinctive in its patterns for branding so far is that it strengthened the image as a setting on the international sports circuit. The efforts made by Qatar have been noteworthy; however, it is difficult to compile a strategy that does not “copy” Dubai’s fashionable trends in terms of urban planning, events, and record-breaking activities. Its extraordinary economic growth is nourished by its oil and mostly gas resources (the National Vision also invokes Qatar being a hub an innovator in LNG supply), seconded by cultural and sports activities. Touristic plans cannot yet correspond to UAE’s results. Nonetheless, when we study the National Vision, we observe an overarching strategy that matches Anholt’s vision. A strong economic image that is desirable for both public and private sector is essential for the UAE and Qatar in their attempts to advance beyond the oil economy. Their competitive identity (in the terms used by Anholt) is a success story for a developing region. We should emphasize the strategies’ success, as formulating a nation brand is a costly and strenuous process. Findings, limits of the study and future research A qualitative approach was used to investigate the multiplicity of perspectives related to branding nations/countries/places. Given the under-explored nature of this research theme, the qualitative research has its limits. In the case of the region specifically examined, the ultimate goal is to cement a distinctive nation brand while boosting the nation building process. As such, the paper identified: - It is possible even when coming from emerging markets to gain international visibility, without forgetting to stress the importance of the country’s heritage, as long as decision makers and locals collaborate in elaborating a coherent message about the nation; - It is possible to enhance the country’s international relations and its image abroad through nation branding. Adversely, Anholt’s approach does not detail how the international impact plays into the equation of nation branding. We should note that in

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the globalization and post-globalization era (fake) news spread quickly and their impact is visible internationally; - You should allow time to identify the best (and most at the same time accurate) features for ultimately creating a competitive identity; - If you can manage well the competitive identity advantages, the fellow contenders will be also motivated and it is mostly for the benefit of overall economic growth. The study acknowledges its limitations. The qualitative nature of analysis has the potential for generalization; therefore, further study is recommended. In addition, the study was restricted to a general approach of a country nation’s brand. Therefore, the private sectors and the communication sector might respond differently to the topic. The research did not consider tourists’ perceptions. Furthermore, there is a possibility to investigate and build technical conclusions, based on statistics, reports and other confirmatory techniques. Conclusions Each GCC country has to find the means to distinguish itself from its neighbors while confronting challenges to newfound wealth and emerging power and influence derived from the wealth. As the decision makers try to assert their roles, they have demonstrated more interest in international marketing techniques that can augment international visibility. A country’s nation brand is increasingly evoked as a means to gain prominence on the world map. Whoever is persistent in nation branding would manage to achieve results (Nicolescu et al., 2007). It makes some features of the country robust and visible. Nation brands are met with increasing receptiveness in international circles, as they represent channels for public diplomacy. It is also true that a sound nation branding represents a tool to limit the reputational risks emerging from events exposed negatively and excessively in the media (a feature of the interconnected, globalized world). Many leaders in the Western world (Diaconescu, Nicolescu & Pînzaru, 2009) have already understood the significance of branding your country’ assets. The instrument of nation branding can be particularly beneficial for emerging, newly industrialized nations in the vigorous competition in the global marketplace. The paper evaluates the efforts made through time and strategies used by two emergent nations- UAE and Qatar. Their challenges to match the goals of nation branding and public diplomacy. These objectives are occasionally inconsistent, but the countries have to form a coherent communication strategy: images/messages (Ham, 2008). The salient message circulated by both UAE and Qatar is that they are open for international business, welcoming tourists and investors alike, adjusted to the global marketplace, offering competitive advantages. In addition, Anholt (2005a) explained that novelty and the interest to invest in innovations make the difference in nation branding. UAE, Qatar and all the GCC countries have limited resources except for oil (and gas); hence, the arduous competition for finding niches for diversification. In the nation branding process, the competition can be summed up as such: whoever comes first with a distinctive strategy (and Dubai seemed to do so) not only takes the lead but also holds the

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competitive identity advantage. This is why Dubai became the flagship of branding in the GCC region and the driver for change for the fellow Emirates. Nation branding should be analyzed in a future study from an interdisciplinary perspective, combing both international marketing and foreign policy. UAE and Qatar offer a perfect pattern in this sense, as their nation building process is almost overlapping the nation branding processes. Therefore, this study can provide with a starting point in the assessment of branding processes in the broader Middle East and offer guidance for the eventual in-depth examination of the region. In the Middle East there are many places still unknown, or known for the wrong reasons (especially given the damaged image generated in the aftermath of the “war on terror”). The bias can prejudice the opportunities one can encounter when we examine the plentiful of resources in the Arab Gulf region. Against all odds, the UAE and Qatar illustrate a positive facet of the region and the great potential that can be unlocked through adequate nation branding. References Al Ayedrous Bani Hashim, A. (2012). Branding the Brand New City: Abu Dhabi, Travelers Welcome. Place Branding and Public Diplomacy, 8(1), 72-82. Al-Sharabani, A. (2007). Modernizing the United Arab Emirates. The McKinsey Quarterly, 3(1), 45-52. Anholt, S. (2003). Brand New Justice: The Upside of Global Branding. Oxford: Butterworth Heinemann. Anholt, S. (2004). Branding places and nations. Brands and Branding. London: Profile Books Ltd. Anholt, S. (2005a). Some important distinctions in place branding. Place Branding and Public Diplomacy, 1(2), 116-121. Anholt, S. (2005b). Anholt Nation Brands Index: How Does the World See America. Journal of Advertising Research, 45(3), 296-304. Anholt, S. (2005c). Nation brand as context and reputation. Place Branding, 1(3), 224228. Anholt, S. (2006). Why brand? Some practical considerations for nation branding. Place Branding, 2(2), 97-107. Anholt, S. (2007). Competitive Identity: the New Brand Management for Nations, Cities and Regions. London: Palgrave MacMillan. Anholt, S. (2008). Place branding: Is it marketing, or isn’t it? Place Branding and Public Diplomacy, 4(1), 1-6. Anholt, S. (2009). Should place brands be simple? Place Branding and Public Diplomacy, 5(2), 91-96. Anholt, S. (2010). Definitions of place branding - working towards a resolution. Place Branding and Public Diplomacy, 6(1), 1-10. Anholt, S. (2011). Beyond the Nation Brand: The role of Image and Identity in International Relations. The Journal of Public Diplomacy, 2(1), 1-7. Anholt, S. (n.d.). What is a Nation Brand. Retrieved from http://www.superbrands.com/turkeysb/trcopy/files/Anholt_3939.pdf. Anholt, S. (2013). Beyond the nation brand: the role of image and identity in international relations. The Journal of Public Diplomacy, 2(1), 1-12. Balakrishnan, M.S. (2009). Strategic branding of destinations: a framework. European Journal of Marketing, 43(5/6), 611-629.

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Balakrishnan, M.S. (2008). Dubai-A star in the East, A case study in Strategic Destination Branding. Journal of Place Management and Development, 1(1), 62-91. Beauregard, R. (2003). City of Superlatives. City and Community, 2(3), 183-199. Blair, T., Kung, S., Shieh, M., & Kuo-Hsiang, C. (2015). Competitive Identity of a Nation. Global Studies Journal, 8(1), 13-30. Dinnie, K. (2007). Nation Branding: Concepts, Issues, Practice. Chicago: ButterworthHeinemann. Dinnie, K. (2008). Nation Branding: Concepts, issues, practice. London, New York: Rutledge. Dinnie, K. (2009). Destination branding for small cities: The essentials for successful place branding. Journal of Brand Management, 17(2), 159-161. Fan, Y. (2005). Branding the nation: What is being branded? London, UK: Brunel Business School. Freire, J.R. (2005). Geo-branding, are we talking nonsense? A theoretical reflection on brands applied to places. Place Branding, 1(4), 347-362. Foroudi, P., Gupta, S., Kitchen, P., Foroudi, M., & Nguyen, B. (2016). A framework of place branding, place image, and place reputation. Business And Economics-Marketing and Purchasing, 19(2), 241-264. Gertner, D. (2007). Place branding: Dilemma or reconciliation between political ideology and economic pragmatism? Place Branding and Public Diplomacy, 3(1), 3-7. Gilmore, F. (2002). A country - Can it be repositioned? Spain - The success story of country branding. Journal of Brand Management, 9 (4/5), 281-293. Haider, D. (2008). The Age of Branding. Borderless Culture. Retrieved from http://www.borderlessculture.com/2008/04/age-of-branding.html Ham V.P. (2008). Place Branding, the State of the Art. ANNALS of the American Academy, 616(1), 1-24. Hazime, H. (2011). From City Branding to E-Brands in Developing Countries: an Approach to Qatar and Abu Dhabi. African Journal of Business Management, 5(12), 4731-4745. Karolak, M. (2017). Tourism in the Arabian Gulf: Emergence of a Tourist Destination. In Zbuchea, A., Bratianu, C., & Pinzaru, F. (Eds.), Economic Behaviour. Economy, Business, and People (pp.25-47). London: Cambridge Scholars Publishing. Kotler, P., & Gertner, D. (2002). Country as a Brand, Product and Beyond: A Place Marketing and Brand Management Perspective. The Journal of Brand Management, 9(4), 249-261. Kotler, P., Haider, D., & Rein, I. (1993). Marketing Places attracting Investment, Industry and Tourism to Cities, States and Nations. New York: Free Press. Lee, H., & Jain, D. (2009). Dubai's Brand Assessment Success and Failure in Brand Management-Part 1. Place Branding Public Diplomacy, 234-246. Diaconescu, M., Nicolescu, L., & Pînzaru, F. (2007). The European Identity – between reality and hope. In *** (Ed.). Romania within the EU: opportunities, requirements and perspectives, International Conference Proceedings, Volume 1 (pp.135-141). Sibiu: Lucian Blaga University. Nicolescu, L., Cojanu, V., Popescu, A.I., & Drăghici, A. (2007). Developing Country Branding: A Key Factor for International Competitiveness. Paper presented at the International Conference Globalization and Policies of Development, 17-19 May 2007, Bucharest, Romania. Peterson, J. (2006). Qatar and the World: branding for a Microstate. The Middle East Journal, 60(4), 732-748.

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Reuvid, J. (2007). The Handbook of Country Risk 2006-2007. London: GMB Publishing. Szondi, G. (2007). The role and challenges of country branding in transition countries: the Central and Eastern European experience. Place Branding and Public Diplomacy, 3(1), 8-20. Zeineddine, C. (2017). Nation Branding in the Middle East- United Arab Emirates (UAE) vs. Qatar. Paper presented at ICBE, 30-31 March, 2017, Bucharest. Zenker, S. (2009). Who’s your target? The creative class as a target group for place branding. Journal of Place Management and Development, 2(1), 23-32. Websites http://brandfinance.com/news/press-releases/uae-home-to-the-middle-easts-mostvaluable-brands/ https://www.forbes.com/places/qatar/ http://www.indexmundi.com/g/r.aspx?v=67 http://www.visitdubai.com/en/tourismperformance-report

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GREEN LUXURY: NEW DIVIDE IN POSITIONING STRATEGIES NEEDED? Farhad ALIYEV University of Kassel Möncheberg St., 34125 Kassel, DE [email protected] Ralf WAGNER University of Kassel Möncheberg St., 34125 Kassel, DE [email protected]

Abstract. A basic and commonly shared implicit definition of luxury is “something superfluous.” Consuming such products and services contradicts the modern paradigm of sustainable consumption. However, luxury vendors are frequently introducing new technologies and better working conditions on a large scale, including natural colors and fair treatment of labor in the fashion industry, as well as fully electric-fueled cars, which Tesla has been producing. Previous research suggests that luxury and sustainability are incompatible. The values underlying sustainability are altruism, restraint, and moderation, whereas the main components of luxury are hedonism, aestheticism, uniqueness, affluence, and surplus. The motives of luxury consumers are likely to vary with their cultural framing. Compared with individualists, members of collectivistic cultures have been known to behave more prosocially. However, they are also more prone to buying luxury goods to enhance their status. This study examines whether the motives of dominance or prestige status encourage individuals from collectivistic societies to choose more luxurious or sustainable products, respectively. This study provides evidence from more than 200 experiments with collectivists and individualists, and it introduces distinctiveness between dominance- and prestige-seeking behaviors via underlying status motives in prosocial or luxury-product choices that previous research has not differentiated. Our results underline the association of status motives with individualistic and collectivistic cultures. Previous research shows that ethical issues are not considered in luxury-buying decisions, even though many luxury companies have developed corporate social responsibility (CSR) programs and offer new sustainable luxury products. Additionally, they increasingly inform the public about their prosocial activities. This is most likely the result of the positioning of conspicuousness that negatively influences purchase intentions of sustainable luxury products. Therefore, avoiding conspicuous strategies in marketing is one of the managerial implications of this study. Keywords: dominance status; experiments; luxury products; prestige status; sustainable products. “Power tends to corrupt, and absolute power corrupts absolutely. Great men are almost always bad men.” - Lord Acton, 1887

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Introduction Both the promotion and consumption of luxury products have been criticized for creating social differences (Davies, Lee & Ahonkhai, 2012) and for directing a lot of resources to satisfy the desires of only a few consumers, encouraging worldwide social inequality (Kapferer, 2010). In response, some luxury producers have aimed to sponsor CSR activities. However, consumers may view such activities by luxury companies as inappropriate in some cases (Torelli, Monga & Kaikati, 2012). Moreover, some researchers (Beckham & Voyer, 2014; Davies et al., 2012; Kapferer & MichautDenizeau, 2014) have even claimed that sustainability and luxury are incompatible. They have argued that consumers who use luxury products, such as luxury cars with high carbon emissions, care less about the environment. In this sense, luxury, because of its conspicuousness, is often associated with less-prosocial purchases (Kapferer, 2010). According to Piff, Stancato, Côté, Mendoza-Denton, and Keltner (2012) and Piff, Krauss, Côté, Cheng, and Keltner (2010), individuals with high status were less involved in lavish activities compared with individuals with low status. In addition, compared with low-status individuals, high-status individuals tend to perform less prosocial behavior, which is “costly, directing resources away from the self toward others” (Piff et al., 2010, p.773). Lab experiments have shown that individuals who gain status through contributions are more entrusted (Barclay, 2006), are chosen more often as interaction partners (Barclay & Willer, 2007) and leaders (Milinski, Semmann & Krambeck, 2002), are considered more often for long-term relationships (Barclay, 2010b), and have greater social status (Van Vugt & Hardy, 2010). Griskevicius, Tybur, and Van den Bergh (2010) found that a desire to gain higher status can lead to more altruistic behavior. In this respect, individuals can gain status by conducting prosocial activities or through obtaining the resources or social capital necessary for status competition (Barclay, 2010a). These different schools of thought have provided contradictory results, opening new opportunities for further investigation. Following the definitions of Henrich and Gil-White (2001), we distinguish two types of status: prestige and dominance. In the first case, individuals increase status by gaining respect and distributing benefits to others. Meanwhile, in the case of dominance, status is obtained by using force and imposing costs on others. While altruism, restraint, and moderation are sustainability values, conversely, the components of luxury often include hedonism, aestheticism, uniqueness, affluence, and surplus (Carrier & Luetchford, 2012). Kapferer and Michaut-Denizeau (2014) found that conspicuous consumption increases the contradictions between luxury and sustainability. Notably, previous research has not differentiated the underlying status motives for seeking dominance or prestige status by choosing luxury or prosocial products. This distinction between seeking dominance or prestige during conspicuous consumption likely relates to consumers’ cultural framing. Collectivistic individuals are more concerned with the perceptions of others and with maintaining their own status (Wong & Ahuvia, 1998). Fitting into these societies, with an emphasis on the implications of one's behavior toward others, luxury brands would be well-advised to build their brand essence around prestige status (Leung & Bond, 1984; McCarty & Shrum, 2001). Conversely, in individualist societies, luxury brands should emphasize dominance when positioning products (Oswald, 2010). Griskevicius et al. (2010) argue

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“going green” can be a “costly signal” associated with status, inducing consumers to purchase pro-environmental products, rather than non-green products. This may be one reason why collectivists are more inclined toward prosocial activities. However, although somewhat counterintuitive, collectivist consumers also have been shown to believe that one’s place in society is largely defined by economic advancement or displays of wealth (Miller & Volker, 1985). Therefore, they tend to seek luxury products that convey status and prestige (Phau & Lau, 2001). As stated by Kafashan, Sparks, Griskevicius, and Barclay (2014, p.15), “The costs and benefits of prosociality may also be different for status based on prestige vs. dominance”. Based on the above discussion, greater evidence is required to explain the motives behind dominance or prestige, especially those that encourage collectivistic people to choose prosocial or luxury products. Thus, the current research objective is to examine whether seeking dominance status elicits a preference for luxury goods or, in contrast, whether the prestige motivation encourages the purchase of green products. In Section 2, we discuss previous literature, providing a basis for our research propositions. In Sections 3 and 4, the methodology and the results of the study are described. Finally, we conclude the article with a discussion, including theoretical and managerial implications. Definitions and hypotheses According to Cheng, Tracy, Foulsham, Kingstone, and Henrich (2013), group contributions are more correlated with the prestige type of status rather than with dominance. Prestige status is perceived to be associated with more public and prosocial behavior compared with dominance (von Rueden, Gurven, & Kaplan, 2008). Moreover, prestige is positively correlated with prosocial activities such as altruism, cooperativeness, helpfulness, and ethics. However, such behavior is negatively associated with dominance (Maner & Mead, 2010; Mead & Maner, 2012). Because people from collectivistic societies, compared with members of individualistic cultures, tend to be more status-oriented (e.g., Wong & Ahuvia, 1998), they are accordingly more prosocial than members of individualistic societies (e.g., McCarty & Shrum, 2001). Collectivism implies altruistic motivations to benefit a group (Dawes, Van De Kragt & Orbell, 1988). Behavior, in the case of collectivists, is mainly driven by social norms, and people from these cultures often show a willingness to share scarce resources (Sinha & Verma, 1987). In a similar vein, Ng and Burke (2010) found that collectivism is positively associated with attitudes that favor sustainability. Recently, Vitell et al. (2016) found that collectivism fostered an inclination toward an ethical predisposition among individuals. On this basis, the following proposition has been formulated: Proposition 1: Seeking prestige status leads individuals from collectivistic cultures to choose green products more often than individuals from individualistic cultures. Like Griskevicius et al. (2010), we aim to compare people from individualistic and collectivistic societies with respect to their preferences for sustainable products, even if they are more expensive than non-sustainable luxury products.

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Proposition 1a: Seeking prestige status leads individuals from collectivistic cultures to choose green products more often than individuals from individualistic cultures, even if green products are more expensive than non-green products. Dominance status relates to an egocentric neglect of group well-being. Dominant leaders are more concerned about prioritizing their own interests over those of group members’ when having to choose between personal gains or collective well-being (Maner & Mead, 2010; Mead & Maner, 2012). Because people with high status are more independent, they are less attentive to the needs of others. Consequently, these individuals’ behaviors tend to help others less often (Kafashan et al., 2014). In complementary studies, Piff et al. (2010) and Piff et al. (2012) suggested that individuals from upper classes are less likely to make charitable donations and more likely to endorse unethical behavior compared with people from lower classes or with less status. Luxury consumption is a communicative act that signals status, wealth, class, and, consequently, social and economic power. Power is defined as the ability to affect others and simultaneously confront external impositions of influence (Hogg & Vaughan, 1995). In this sense, consumers buy luxury goods and services to increase status and power in the eyes of others, which leads to the breaking of sustainabilityrelated social norms (Beckham & Voyer, 2014), thereby putting luxury and sustainability motives at odds with each other (Kapferer & Michaut-Denizeau, 2014). Moreover, conspicuous consumption plays a more important role in collectivistic societies compared with individualistic ones (e.g., Wong & Ahuvia, 1998). Hence, we propose the following proposition: Proposition 2: Seeking dominance status leads individuals from collectivistic cultures to choose luxury products more often than those from individualistic cultures. Methodology Our experimental research design covers more than 200 experiments. After the elimination, due to missing values and implausibility checks, we gathered evidence from 86 participants embedded in collectivist societies and 109 embedded in individualist societies. Most participants (70.3%) hold bachelor’s or master’s degrees, and level of education is a good indicator and a positive antecedent for prosocial purchases (Tilikidou & Delistavrou, 2005). The gender distribution of the participants was 52.3% male and 47.7% female. We randomly assigned the 195 participants to six groups, according to their culture. Two control groups were formed for the collectivistic (27 participants) and individualistic (33 participants) cultures (see Fig. 1). Two experimental groups, which were labeled “individualist + status (37 participants)” and “collectivist + status (28 participants),” evaluated a luxury product and its sustainable alternative at an equal price. The remaining two experimental groups, which were labelled “individualist + status + price (39 participants)” and “collectivist + status + price (31 participants),” evaluated a luxury product and its sustainable alternative at an unequal price. For the latter group, the stated prices of the green products were 10% higher than the luxury products’ prices.

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Individualist + status Collectivist + status Individualist + status + price

Status manipulation

Collectivist + status + price Individualist control group Collectivist control group

Luxury/ Sustainability Purchase Intention

No manipulation

Figure 1. The structure of the study As a manipulation, the participants read a short story of roughly 700 words that successfully elicited motives on status. A previous study (Griskevicius et al., 2009), through extensive pilot testing, demonstrated that, compared with control groups, this manipulation elicited the desire for status, i.e., “showed that relative to the control story, the status story elicits a ‘desire for social status’…. and a ‘desire for prestige’” (Griskevicius et al., 2010, p. 395). In the current study, participants in the control groups read a story of similar length that does not elicit status motives. After the reading session, participants filled out a short survey regarding their preferences for luxury products or sustainable alternatives. The participants then were placed in a shopping situation in which they had to choose among branded luxury products and their alternatives. In total, the participants rated eight luxury brands and their green alternatives (i.e., two brands of cars, two brands of bags, two brands of shoes, a brand of eyewear, and a brand of wallet). Mercedes, Porsche, Louis Vuitton, Mulberry, and several brands of the Kering Group (e.g., Gucci) were used in the questionnaire. To provide a realistic scenario, product images, as well as product details and prices, were provided. Results A descriptive analysis of the collectivistic and individualistic treatment groups is presented in Table 1. Notably, collectivists preferred luxury products more often than individualists. ccording to a t-test, collectivists (x 3.18) significantly preferred (p=0.005) luxury products, following the dominance-status manipulation, compared with individualists (x 2.57). owever, the difference in preferences for sustainable products between collectivists (x 3.57) and individualists (x 3.64) was not significant (p=0.360). Moreover, the analysis was conducted within the same cultural group (i.e., collectivists). The combined results for collectivists from the treatment group and control group, considering all luxury and sustainable products, showed that they had a significant preference (p=0.006) for luxury products. In contrast, the control group (x 3.80) preferred more-sustainable products compared with the treatment group (x 3.57), although the difference was not significant (p 0.128). dditionally, no significant differences were found between the individualistic treatment group and the control group. This and the aforementioned analyses support the contention that dominance status promotes luxury preferences. In summary, the data support

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Proposition 2, which asserts that seeking dominance leads to the purchase of luxury products, but do not support Proposition 1, which asserts that seeking prestige status leads to the purchase of sustainable products. Table 1. Mean differences in preferences for luxury and sustainable products Groups Experimental Collectivistic+Status

N 28

Mean 3.18

Individualistic+Status

37

2.57

Green luxury

Collectivistic+Status

28

3.58

Individualistic+Status

37

3.64

Luxury product

Collectivistic+Status

28

3.18

Collectivistic+Control

27

2.61

Green luxury

Collectivistic+Status

28

3.18

Collectivistic+Control

27

2.61

Luxury product

Individualistic+Status

37

2.57

Individualistic+Control

33

2.43

Green luxury

Individualistic+Status

37

3.64

Individualistic+Control

33

3.62

Luxury product

Collectivistic+Status+Price

31

2.74

Individualistic+Status+Price

39

2.82

Green luxury

Collectivistic+Status+Price

31

3.85

Individualistic+Status+Price

39

3.77

Luxury product

t test 0.005 0.360 0.005 0.128 0.263 0.453 0.322 0.329

The next step is reviewing the results of the experiments, in which luxury products were cheaper than their prosocial alternatives. The aggregated results show that sustainable products were preferred more often by collectivists (x 3.85) than individualists (x 3.77) when sustainable products were 10% more expensive, while luxury products were preferred by individualists (x 2.82 vs. x 2.74). owever, in both cases, the differences are not significant (p=0.329 for sustainable products; p=0.322 for luxury products). Notably, in this experiment, collectivists preferred more prosocial products compared with previous experiments for treatments in which product prices were equal. Furthermore, there were no significant differences (p=0.397 for sustainable products; p=0.251 for luxury products) between the treatment collectivistic group, in cases when sustainable products are 10% more expensive, and the collectivistic control group. Additionally, the ANOVA results for collectivists indicated a significant difference (p=0.022) between groups in luxury preference. Furthermore, the Bonferroni correction demonstrated a significant difference in preference for luxury products between the treatment group that evaluated the equal-price condition and the control group (p=0.026). According to the results, individualistic members showed an almost equal level of preference for both types of products. Only the experimental group under the unequal price condition demonstrated a significant difference (p=0.014) in

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luxury-product choice compared with the control group (x 2.82 vs. x 2.43). Additionally, the ANOVA results did not reveal any significant differences in preferences for luxury (p=0.127) or sustainable products (p=0.615). This tendency signifies that status motives, especially those of dominance, mainly impacted the individuals from collectivistic societies. As a final step in the analysis, the significance of mean differences between product preferences was examined considering the context of the cultural groups. In all cases, sustainable products were preferable, and the mean differences are significant. After applying an ANOVA with a Bonferroni correction for multiple comparisons, a significant difference (p=0.44) for the equal-price condition was detected between the collectivist + status group (x 3.18) and the individualistic + status group (x 2.57), supporting Proposition 2. Additionally, based on the MANOVA analysis, the interaction between collectivism/individualism and treatment/control groups was significant (p=0.048). This indicates that, in the case of collectivists, for the treated groups, the luxury preference was higher compared with the control groups. This also held true for comparisons between the individualist treatment and control groups. Discussion and implications This study aimed to fill the gap left by previous luxury research that did not differentiate among underlying status motives in conspicuous consumption. We can conclude that dominance status plays a more important role among collectivists than individualists in the case of conspicuous consumption. We assume that because of a lack of knowledge on sustainability among collectivists, the results of the study did not support P1. For an external validation of our experimental results, we reviewed the top 10 hybrid and electric car markets in 2016 in terms of sales. Only two collectivistic countries were ranked on the list: China (No. 1) and Japan (No. 8). Other markets from the list represented individualistic societies, such as the U.S. (No. 2), Norway (No. 3), the Netherlands (No. 7), and Sweden (No. 9) (Cobb, 2016). Although China holds first place in terms of sales, with more than 351,000 cars sold in 2016 (Cobb, 2016; Pontes, 2016), most of those sold cars were locally manufactured by non-luxury brands such as Geely, Chery, or BYD. The literature on luxury marketing suggests that consumers have different motivations for purchasing luxury products, and they differ in terms of their luxury-value perceptions (Tynan, McKechnie, & Chhuon, 2010). For a long time, luxury-brand positioning has been linked to motivations, such as the signaling of social status and prestige (Belk, 1988; Han, Nunes, & Dreeze, 2010), hedonism (Dubois, Czellar, & Laurent, 2005), and the need for social conformity (Batra, Homer, & Kahle, 2001). Nowadays, luxury consumers are prone to ethical consumption, not only because of the effect of luxury purchases on their own lives, regarding their social groups, but also the effect on the planet (Davies et al., 2012). Therefore, extended self has a positive effect on intentions to buy sustainable products. Accordingly, brand managers may yield negative results when applying conspicuous branding strategies for sustainable luxury products, as conspicuousness helps achieve self-enhancement goals. Furthermore, consumers who perceive their self-identities as being extravagant do not associate conspicuous brands with their self-identities (Janssen, Vanhamme, &

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Leblanc, 2017). Therefore, it is recommended that marketers not use conspicuous branding strategies in promoting luxury brands with a sustainable orientation. Future research could conduct similar experiments on luxury and sustainable services rather than products. Moreover, the influence of dominance and prestige status on luxury and sustainable purchase behavior among a wider range of different cultures could be investigated. Additionally, the similar studies could be examined among high status and low status individuals. References Barclay, P. (2006). Reputational benefits for altruistic punishment. Evolution and Human Behavior, 27(5), 344-360. Barclay, P. (2010a). Reputation and the Evolution of Generous Behavior. Hauppage, NY: Nova Science Publishers. Barclay, P. (2010b). Altruism as a courtship display: some effects of third-party generosity on audience perceptions. British Journal of Psychology, 101(11), 123135. Barclay, P., & Willer, R. (2007). Partner choice creates competitive altruism in humans. Proceedings of the Royal Society of London B: Biological Sciences, 274(1610), 749-753. Batra, R., Homer, P.M., & Kahle, L.R. (2001). Values, susceptibility to normative influence, and attribute importance weights: A nomological analysis. Journal of Consumer Psychology, 11(2), 115-128. Belk, R.W. (1988). Possessions and the extended self. Journal of consumer research, 15(2), 139-168. Beckham, D., & Voyer, B. G. (2014). Can sustainability be luxurious? A mixed-method investigation of implicit and explicit attitudes towards sustainable luxury consumption. Advances in Consumer Research, 42, 245–250. Carrier, J.G., & Luetchford, P. (2012). Ethical Consumption: Social Value and Economic Practice. New York: Berghahn Books. Cheng, J.T., Tracy, J.L., Foulsham, T., Kingstone, A., & Henrich, J. (2013). Two ways to the top: Evidence that dominance and prestige are distinct yet viable avenues to social rank and influence. Journal of Personality and Social Psychology, 104(1), 103–125. Cobb, J. (2016). Top 10 Plug-in Vehicle Adopting Countries of 2016. Retrieved from http://www.hybridcars.com/top-10-plug-in-vehicle-adopting-countries-of2016/. Dawes, R.M., Van De Kragt, A.J., & Orbell, J.M. (1988). Not me or thee but we: The importance of group identity in eliciting cooperation in dilemma situations: Experimental manipulations. Acta Psychologica, 68(1), 83-97. Davies, I.A., Lee, Z., & Ahonkhai, I. (2012). Do consumers care about ethical-luxury? Journal of Business Ethics, 106(1), 37-51. Dubois, B., Czellar, S., & Laurent, G. (2005). Consumer segments based on attitudes toward luxury: Empirical evidence from twenty countries. Marketing letters, 16(2), 115-128. Griskevicius, V., Tybur, J.M., Gangestad, S.W., Perea, E.F., Shapiro, J.R., & Kenrick, D.T. (2009). Aggress to impress: hostility as an evolved context-dependent strategy. Journal of Personality and Social Psychology, 96(5), 980.

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Griskevicius, V., Tybur, J.M., & Van den Bergh, B. (2010). Going green to be seen: status, reputation, and conspicuous conservation. Journal of Personality and Social Psychology, 98(3), 392. Han, Y.J., Nunes, J.C., & Drèze, X. (2010). Signaling status with luxury goods: The role of brand prominence. Journal of Marketing, 74(4), 15-30. Henrich, J., & Gil-White, F.J. (2001). The evolution of prestige: Freely conferred deference as a mechanism for enhancing the benefits of cultural transmission. Evolution and Human Behavior, 22(3), 165–196. Hogg, M.A., & Vaughan, G.M. (1995). Social Psychology. Harlow: Pearson Education Limited. Janssen, C., Vanhamme, J., & Leblanc, S. (2017). Should luxury brands say it out loud? Brand conspicuousness and consumer perceptions of responsible luxury. Journal of Business Research (articles in press). Kafashan, S., Sparks, A., Griskevicius, V., & Barclay, P. (2014). Prosocial behavior and social status. In Cheng, J.T., Tracy, J.L., & Anderson, C. (Eds.). The psychology of social status (pp.139-158). New York: Springer. Kapferer, J.N. (2010). All that glitters is not green: The challenge of sustainable luxury. European Business Review. Retrieved from http://www.theluxurystrategy.com/site/wp-content/uploads/2011/01/ EBR.JNK_.NovDec2010_All-that-Glitters-is-not-Green. SustainableLuxury.pdf. Kapferer, J.N., & Michaut-Denizeau, A. (2014). Is luxury compatible with sustainability? Luxury consumers’ viewpoint. Journal of Brand Management, 21(1), 1-22. Leung, K., & Bond, M.H. (1984). The impact of cultural collectivism on reward allocation. Journal of Personality and Social Psychology, 47(4), 793. Maner, J.K., & Mead, N. (2010). The essential tension between leadership and power: When leaders sacrifice group goals for the sake of self-interest. Journal of Personality and Social Psychology, 99(3), 482-497. McCarty, J.A., & Shrum, L.J. (2001). The influence of individualism, collectivism, and locus of control on environmental beliefs and behavior. Journal of Public Policy and Marketing, 20(1), 93-104. Mead, N.L., & Maner, J.K. (2012). On keeping your enemies close: Powerful leaders seek proximity to ingroup power threats. Journal of Personality and Social Psychology, 102(3), 576-591. Milinski, M., Semmann, D., & Krambeck, H.J. (2002). Donors to charity gain in both indirect reciprocity and political reputation. Proceedings of the Royal Society B: Biological Sciences, 269(1494), 881–883. Miller, P.W., & Volker, P.A. (1985). Economic progress in Australia: An analysis of occupational mobility. Economic Record, 61(1), 463-475. Ng, E.S., & Burke, R.J. (2010). Predictor of business students’ attitudes toward sustainable business practices. Journal of Business Ethics, 95(4), 603-615. Oswald, L.R. (2010). Marketing hedonics: Toward a psychoanalysis of advertising response. Journal of Marketing Communications, 16(3), 107-131. Phau, I., & Lau, K.C. (2001). Brand personality and consumer self-expression: single or dual carriageway? The Journal of Brand Management, 8(6), 428-444. Piff, P.K., Stancato, D.M., Côté, S., Mendoza-Denton, R., & Keltner, D. (2012). Higher social class predicts increased unethical behavior. Proceedings of the National Academy of Sciences, 109(11), 4086-4091. Piff, P.K., Krauss, M.W., Côté, S., Cheng, B.H., & Keltner, D. (2010). Having less, giving more: The influence of social class on prosocial behavior. Journal of Personality and Social Psychology, 99(5), 771-784.

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THE DEVELOPMENT OF A CORPORATE REPUTATION METRIC: A CUSTOMER PERSPECTIVE Dragoş-Alexandru BÃLAN University of Craiova 13 A.I. Cuza St., 200585 Craiova, RO [email protected] Adriana BURLEA ŞCHIOPOIU University of Craiova 13 A.I. Cuza St., 200585 Craiova, RO [email protected]

Abstract. Corporate reputation is generally described as having positive effects on firm’s efforts to achieve superior economic performance. Being held in high regards helps firms to build, maintain and foster long lasting relationships with different groups of stakeholders, including customers. Despite this evidence, little research has been conducted in the sphere of measuring corporate reputation exclusively from a customer point of view. The present paper contributes to the reputation debate regarding the need for greater theoretical and scientific clarity in developing a customer-based metric for corporate reputation. Specifically, the primary aim of this article is to develop and validate an alternative instrument for measuring customer-based corporate reputation of service firms. The rationale of selecting service industry as research context is justified by the emphasized role that reputation plays in economic sectors with a higher level of lack of tangibility. In the absence of physical evidences of the quality of the services provided, customers make their purchasing choices relying on signals or cues received from companies. In this context, reputation reduces the information asymmetry and turns into a filter which assists customers’ decisions. Hence, the article proposes a customer-based reputation model adapted to the service industry in Romania. We found that reputation in a purchasingdecision context is driven by firm's capability to adopt a customer-oriented strategy. The results indicate that offering value for money services, with superior quality, is no longer enough to be remembered by customers and, therefore, portfolio of services is, by no means, the only reputation factor that matters. We found that companies are required to combine behavioral and emotional metrics to capture the customers’ true attention and remain competitive. In the service context, what has emerged in this study is the need to enhance the customer experience by making them feel respected and important when interacting with the company. Keywords: corporate reputation; measurement; scale; customers; service industry. Introduction Corporate reputation is generally described as having positive effects on firm’s efforts to achieve superior economic performance. Recent studies conducted in this area of interest have attempted to explain the influential role that good reputations have on altering customer purchasing behavior. For example, corporate reputation is found to support

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customers’ choice by 1) providing signals about the quality of products and services and generating trust in the company (Roberts & Dowling, 2002), 2) increasing loyalty and commitment (Bartikowski & Walsh, 2011), 3) enhancing credibility in advertisement initiatives (Helm, 2005), 4) and leaving companies with an opportunity to charge higher prices without affecting the transactional volumes (Rindova et al., 2005). Against this background, the existing body of literature recognizes customers as being one of the most important category of stakeholders of every company (Walsh & Beatty, 2007; Walsh, Beatty & Shiu, 2009; Walsh et al. 2009; Puncheva-Michelotti & Michelotti, 2010; Terblanche, 2014). In the modern business environment, a new type of customer has emerged. It is the customer empowered by technology to make better purchasing decision and to actively influence the way companies are perceived (Burlea Schiopoiu, 2014). Despite this evidence, little research has been conducted in the sphere of measuring corporate reputation exclusively from a customer point of view. The study of Walsh and Beatty (2007, p.127) appears to be the first thorough attempt to adequately examine corporate reputation “of the most important stakeholder group, customers”. Investigating corporate reputation from the end-user perspective answers the call to clearly differentiate reputation against specific issues and different groups of stakeholders: reputation “for what” and reputation according “to whom”? (Lewellyn, 2002, p.451; Wartick, 2002; Walker, 2010). Even though the measurement scale developed by Walsh & Beatty (2007), and later, the shortened form proposed by Walsh, Beatty and Shiu (2009) have been tested in different industries and contexts, showing acceptable threshold validity, they have received criticism from other practitioners (Boshoff, 2009; Sarstedt, Wilczynski & Melewar, 2013; Wepener & Boshoff, 2015) casting the findings into doubt. The present paper contributes to the above debate regarding need for greater theoretical and scientific clarity in developing a customer-based measure for corporate reputation. Specifically, the primary aim of this article is to develop and validate an alternative instrument for measuring corporate reputation of service firms, from a customer point of view. The rationale of selecting service industry as research context is justified by an emphasized role that reputation plays in economic sectors with a higher level of lack of tangibility. In the absence of physical evidences of the quality of the services provided by companies, customers make their purchasing choices relying on market signals or cues. In this context reputation reduces the information asymmetry and turns into a filter which assists customers in making their purchasing decisions. Corporate reputation Corporate reputation is a concept of a great multidisciplinary richness and many efforts to define this notion can be identified in the existing literature. Definitions of reputation are found in various academic disciplines, such as economics, strategic management, sociology, organizational behavior, accountancy or marketing (Fombrun & van Riel, 1997; Mahon, 2002; Schwaiger, 2004; Helm, 2005; Chun, 2005; Rindova et al., 2005; Barnett, Jermier & Lafferty, 2006; Walker, 2010). Corporate reputation has become therefore a compendium of theoretical definitions and terms. Most of the approaches describe reputation as an aggregation of perceptions or representations of a given firm in the eyes of its stakeholders. Concurrent with the resource-based approach, corporate reputation is

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viewed as a valuable, rare, intangible and a difficult to imitate organizational resource providing sustainable competitive advantage over time (Barney, 1991). Other theoretical perspectives conceptualize the term of corporate reputation as market signals provided by firms to enhance their attractiveness and alter customers’ normal behavior (Fombrun & Shanley, 1990). For this study, corporate reputation is defined as a stakeholder specific set of subjective evaluations, built over time, whether favorable or not, of a firm’s ability to create value relative to competitors. The key point in conceptualizing the corporate reputation in this way is the term of “creating value” which becomes a required condition for companies today to differentiate and achieve growth. Existing measures for corporate reputation Larkin (2003, p.5) suggested that “the biggest hurdle in making the case for building, maintaining and managing reputation is how to measure it effectively”. Yet, the lack of a common agreed theoretical basis (Lange, Lee & Day, 2011) has led to the creation of fragmented and diverse academic perspectives of corporate reputation measurement (Walker, 2010) and often, with limited business application (Bromley, 2002). Consequently, various corporate reputation scales have emerged during the past two decades, although no researcher seems to have managed to offer so far commonly accepted measure of the concept (Smith, Smith & Wang, 2010). Berens and van Riel (2004) have identified three types of associations through which corporate reputation is modelled. The most frequently used method to investigate corporate reputation is the one based on social expectations. The social expectationsbased approach concentrates on the expectations that the public audience has on different elements that described firms’ behavior (Fombrun, Gardberg & Sever, 2000). The second approach is built around the hypothesis per which, organizations, like individuals, develop over time character traits that are reflected in their behavior on the market (Davies et al., 2003). The third approach views reputation as a signal of the level of the trust and honesty that organizations have in the eyes of beholders (Newell & Goldsmith, 2001). Other research studies extend the efforts and integrate the various reputation elements existing in the literature in a different view to capture new reputation facets and, thus contributing to a better understanding of the concept. The most prominent work in this area of research appears to be the scale developed by Dowling (2004) who combines the theory of personality traits with the social expectations perspective. Recently, a new line of thinking has focused on measuring corporate reputation from the point of view of customers only (Walsh & Beatty, 2007; Walsh, Beatty & Shiu, 2009; Walsh et al., 2009; Puncheva-Michelotti & Michelotti, 2010; Wepener & Boshoff, 2015). Customer-based corporate reputation measures A relative new workstream in measuring corporate reputation interprets the concept from the perspective of one group of stakeholders only, namely the customers. Using a combination of qualitative and quantitative methods, Walsh and Beatty (2007) developed

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a 28-item scale to measure the customer-based corporate reputation (CBCR) in the service context, consisting in a 5-dimension scale: 1) Customer orientation, 2) Good employer, 3) Reliable and financially strong company, 4) Product and service quality, and 5) Social and environmental responsibility. Boshoff (2009, p.41) argued that the results reported by Walsh and Beatty (2007) in developing the reputation scale are “a cause of concern” and suggested that the instrument suffers from lack of methodological validity. Furthermore, Wepener and Boshoff (2015) closely examined the fit indices of Walsh and Beatty’s confirmatory factor analysis model and concluded that it shows certain limitations. Starting from Walsh and Beatty’s reputation scale (2007) and using a sample of 340 business students, Boshoff (2009) proposed an alternative measuring scale. The shortened version of the initial CBCR instrument (17-item) was appreciated as providing superior construct validity than the original one. Although using fewer items, the scale developed by Boshoff (2009) measures the corporate reputation by referring to the same five major components initially identified. The research work to develop a valid and reliable customer-based corporate reputation was continued by Walsh et al. (2009b). Similar to Boshoff (2009), they shortened Walsh and Beatty’s original CBR scale from 28 to 15 items, using the same five dimensions and demonstrated its validity by conducting surveys in Germany and UK. Terblanche (2014) tested the 15-item measurement scale to conduct a study among the customers of one supermarket in South Africa and his findings revealed that only “customer orientation” and “competitiveness of the firm” dimensions were valid. Despite these efforts, developing a customer-based reputation measures remains a challenging and controversial debate, which requires further attention. Methods Item generation and customer-based corporate dimensions For this study, the empirical data was collected from customers of various companies operating within two different service sectors in Romania, the banking and mobile phone sector, respectively. The research was designed in a two-step approach, with a quantitative phase being preceded by a qualitative exploration of the concept of corporate reputation. The process of building the measurement scale followed the steps proposed by Churchill (1979). The first step in examining the dimensions that define the reputation in the service industry was to collect a large pool of items by reviewing the attributes captured in existing reputation models. At the end of this process, a list of 37 reputation items was built. The list of attributes was enriched through in-depth interviews with end customers (Churchill, 1979). Ten Romanian clients of banking and/ or mobile phone services were selected to participate in the discussion based on a convenience sample, from authors’ personal and business network (Helm, 2005). Using a discussion guide, participants were asked to describe in few words their understanding of the term of corporate reputation, what criteria they would use to evaluate whether a firm holds a good or a bad reputation.

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All responses provided were collected, noted, analyzed, and coded to identify common themes in the sphere of corporate reputation in the service industry in Romania. Based on the insights obtained, one additional cluster of reputational items emerged, labelled corporate empathy. This category included statements closely related to the care or attention that customers expect to receive from the service provider. Empathy is not a new concept and has been long discussed and even considered in developing measurement scales, especially in evaluating perceptions of service quality. Perhaps, the most popular example in this sense is the SERVQUAL approach introduced by Parasuraman, Zeithaml & Berry (1988) to examine the customer perceptions of service quality in service and retailing organizations. However, this finding it is interesting because it is until recently that the concept of empathy has emerged in the corporate space (Parmer, 2015). The empathy category was operationalized using three attributes which were added to the already-identified list of items (see Table 1). Also, during the qualitative refinement, the decision to remove seven other items was taken with the scope to reduce redundancy in defining the conceptual model and improve its consistency. In total, a list of 33 attributes was retained for the next phases of the scale development process. Item refinement and validation Following the generation of the items, the authors proceeded with scale refinement and validation. For this, we conducted an online quantitative research to survey customers in two service industries. The questionnaire was programmed online and distributed to the respondents using a link. Each participant to the survey rated one supplier in the banking industry and one mobile phone provider. All items were measured on a 5-point Likert scale and the data collection process lasted for about three weeks. In total, 126 questionnaires were returned, resulting in 252 unique evaluations with persons responsible in selecting the service supplier to work with. The first step in the quantitative data analysis stage of the research was to assess the suitability of the items selected to capture the concept of corporate reputation (Churchill, 1979). To test the structure of the scale and reduce the pool of items to easier handle factors (Tabachnick & Fidell, 2007), an exploratory factor analysis (EFA) has been completed in SPSS, version 20. Having in mind the scope of simplifying the conceptual model, the investigation was conducted using the principal components method (PCA) with Varimax rotation (Widaman, 1993). Following the recommendation found in the existing literature, we built the reputation model in a reflective approach due to its better applicability for intangible constructs (Ponzi, Fombrun & Gardberg, 2011). An iterative process of obtaining a conclusive exploratory analysis was adopted and multiple factor results were carried out before choosing the solution that best described the reputation dimensionality. During these procedures, a series of statistical steps were considered. Firstly, the aim was to identify those variables with a high degree of collinearity. Two reputation items showed high correlations (r=0.9), therefore, one attribute was removed. The second type of purification consisted in determining whether the factor loadings meet the minimal level for interpretation of the proposed structure. In this sense, factor loadings higher than 0.4 were considered as acceptable (Hair et al., 2009). Five items, however, did not pass the test of significance point and they were

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eliminated. A final CFA analysis was carried out on the remaining 27-item scale. The final exploratory analysis led to a 7-dimension structure of corporate reputation, explaining 65.97% of the variance, with all factors showing a minimum eigenvalue of 1 (Hair et al., 2009). While the measure of sampling adequacy indicated the value of 0.92, allowing moving further with the factor analysis (Kaiser, 1974), Bartlett's Test of Sphericity proves the suitability of the method (Hair et al., 2009). The second step in the process of purifying and validation was to test the reputation scale through a confirmatory factor analysis conducted in SmartPLS, version 3. Before proceeding further, the construct reliability was inspected to ensure the consistency of the model. Two items (see Table 1) were identified as having standardized indicator loadings smaller than the recommended value of 0.7 (Garson, 2016) and therefore, were removed from the analysis. The elimination procedure was completed by removing one item at a time, starting with the lowest item-to-total loading. After each elimination, a new confirmatory analysis was conducted. The final indicators suggest a suitable reputation model that describes in a satisfactory manner the input data. Table 1. Customer-based corporate reputational behaviors Item code

Dimension/ Item

Customer centricity and empathy CCE1 CCE2 CCE3 CCE4 CCE5 CCE6

Makes me feel important when I interact with the firm’s representativesa A company that is forthright in giving correct and complete information Makes me feel respecteda A company that cares about the needs and complaints of its clients A company that is honest/ easy to approacha Has employees who treat customers courteously

Competence and expertise CE1 CE2 CE3 CE4 CE5

It is a strong company, top competitor in the market It is a company I would work for Looks to be a strong, financially stable companyb A company that is successful in attracting highquality employees Looks like a lower risk investment, compared to its competitors

Market leadership CGL1 CGL2

A company that recognizes and takes advantages of market opportunities A company that has a clear vision about its

EFA Loadings γ=10.01

CFA Loadings AVE=0.65; CR=0.92 α Cronbach=0.89

0.78

0.79

0.77

0.86

0.69

0.83

0.67

0.86

0.64 0.63

0.71 0.77 AVE=0.57; CR=0.84 α Cronbach=0.75

γ=1.93 0.73

0.71

0.67 0.59

0.74 -

0.57

0.77

0.57

0.80

γ=1.36

AVE=0.67; CR=0.86 α Cronbach=0.76

0.75

0.86

0.71

0.72

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future A company that establishes new trends, rather than to follow them

Products and services PS1 PS2 PS3 PS4

Offers high quality products and services Offers products and services adapted to my needs Offers products and services that are good value for money Develops innovative products and services

Corporate attractiveness CA1 CA2 CA3

Has attractive symbols and logos I like the physical appearance of this company Has credible ads

Emotional bond EB1 EB2 EB3

I admire and respect this company I trust this company It is a company I can identify better than with other companies

Social and environmental responsibility

601

0.57

0.83

0.79

AVE=0.58; CR=0.85 α Cronbach=0.77 0.70

0.66

0.72

0.51

0.83

0.49

0.85 0.66

0.81 AVE=0.63; CR=0.84 α Cronbach=0.71 0.84 0.71 0.83 AVE=0.63; CR=0.84 α Cronbach=0.70 0.85 0.71

0.62

0.81

γ=1.01

AVE=0.78; CR=0.88 α Cronbach=0.72

γ=1.24

γ=1.19 0.77 0.69 0.58 γ=1.08

Looks like a company that respects its legal 0.56 obligations, follows the lawb SER2 Seems to be environmentally responsible 0.53 0.86 SER3 Looks like a company that supports good causes 0.47 0.90 Notes: γ = Eigenvalues AVE = Average Variance Extracted; CR = Composite Reliability; α Cronbach = Cronbach Alpha a Items developed in this study; b Items removed after running confirmatory factor analysis SER1

The consistency of the reflective measurement model was determined based on two criteria such as construct reliability and validity (Garson, 2016). Construct reliability was examined by analyzing a series of coefficients such as composite reliability and Cronbach’s alpha. As illustrated in Table 1, both coefficients showed values greater than 0.7 for all dimensions, suggesting an adequate model for confirmatory purposes (Garson, 2016). Evidences of validity were analyzed by means of two additional types of measures: convergent validity and discriminant validity. Convergent validity was determined by reviewing the average variance extracted for each identified latent factor. All measures passed the significance test, with all values being higher than 0.5, as indicated by Fornell and Larcker (1981). Discriminant validity was firstly established by examining the square root of AVE of a latent variable with its correlation with any other latent variable. The

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variance inside the latent factor exceeds the variance shared with the rest of variables, meaning that the discriminant validity is achieved (Fornell and Larcker, 1981). Secondly, we examined the cross-loadings to make sure that each indicator loading assigned to the latent factor are higher than all other cross-loadings (Henseler, Hubona & Ray, 2016). The condition was met, thus, we proceeded with the third analysis, the heterotrait-monotrait ratio of correlations (HTMT) which had a value smaller than 0.9, the discriminant validity is confirmed (Henseler, Ringle & Sarstedt, 2015) Discussion The results of modelling the reputation from a customer point of view show that winning in a reputation-driven economy comes down to a few crucial factors. Seven corporate dimensions, evaluated based on 25 items, describe in a comprehensive manner the way customers form their perceptions about service firms in Romania: Customer centricity and empathy, Competence and expertise, Market leadership, Products and services, Corporate attractiveness, Emotional bond, and Social and environmental responsibility. The reputation model was found to provide a reliable and valid measure to examine the corporate reputation. Our findings confirm that reputation in a purchasing-decision context is driven by firm's capability to adopt a customer-oriented strategy. While previous research findings (Walsh & Beatty, 2007; Terblanche, 2014) focused on evaluating the customer experience based on competence and benevolence of the employees, the present study extends this view and integrates the concept of empathy as evaluation criteria. Moreover, it calls upon the need for companies to enable an emotiondriven mindset to the way the business is conducted, especially in the relationship with the customers. Competence and expertise, from one side and market leadership, from another one, are also viewed as important reputation facets. In the context of services, these findings are explained by the nature of the business relationship. For both banking and mobile phone sectors, the service is usually framed by a long-term, formal contract between businesses and customers. Hence, it becomes essential for companies to communicate about their competence and expertise or to disclose their technical developments, as signal of promise of quality. Competence and expertise dimension reflects the capacity of the company to deliver the service according to the expectations, while market leadership is a must have reputational behavior because it provides the customers with a corporate level assurance that the firm has a keen interest to continuously expand and enhance the portfolio of products and services, thus taking a leading positioning in the market. An interesting debate can be developed around the corporate attractiveness factor. Being operationalized using three items - attractive symbols and logos, company’s physical appearance and credible ads, this reputation dimension reveals the importance of building a coherent visual corporate identity, which can be, ultimately, extended to create an attractive market image (Hatch & Schultz, 1997; Melewar, 2003). As expected, emotional bond (Wepener & Boshoff, 2015) and socially responsible behavior (Walsh & Beatty, 2007; Wepener & Boshoff, 2015) have also emerged as corporate reputation behaviors, describing service firms from a customer point of view. While emotional bond enhances the relationship with customers and complements the

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customer centricity and empathy dimension, the social engagement is defined as supporting good causes and protecting the environment. Limitations and future research directions The findings revealed in this study need to be discussed taking into consideration a set of limitations. First, the study was restricted to the evaluation of the reputation of companies within two service sectors only: banking and mobile phone services. The model needs, therefore to be validated in other service contexts or business sectors, including manufacturing goods, to prove its applicability. Secondly, the reputational model should be replicated on a larger base of respondents to test its consistency. Besides the above limitations, the model developed in this study broadens the understanding of the customer-based corporate reputation in Romania. Future research directions should consider replicating the model in other industry sectors to determine the impact of corporate reputation on altering customer purchasing behavior. Another possible future path of research can also consider the introduction of mediating variables such as satisfaction in testing the reputation effects, to create a better understanding of how customers perceive companies. Conclusion Being held in high regard in the eyes of customers is viewed as an essential prerequisite for the long-term success of every company. While corporate reputation impacts both top-line and bottom-line growth of every company – from charging more for its products to strengthening the emotional bond with customers, a complete consensus on how it is best to measure it has not been achieved, yet. Moreover, the challenges faced by academic and practitioners alike in defining the construct of corporate reputation in such a way that truly guides the decision making have recently translated into a gap in the measurement process. This paper examined the process of developing a metric to evaluate the corporate reputation of service firms, from a customer perspective. The framework presents the sequence of steps followed to develop the scale and contributes to the debate surrounding the concept of reputation. The research work resulted in a reliable, valid and comprehensive reputation model which helps companies to identify those business areas that require further improvement. The reputation model conveys actionability by portraying a nuanced view of customers’ perceptions about any given company in the context in which it operates. Our research suggests that offering value for money services, with superior quality, is no longer enough to be remembered by customers and, therefore, portfolio of services is, by no means, the only reputation factor that matters. We found that companies are required to combine behavioral and emotional metrics to capture the customers’ true attention. In the service context, a key insight emerged in this study is the need to enhance the customer experience and to make customers feel respected and important when interacting with the company.

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Lange, D., Lee, P.M., & Dai, Y. (2011). Organizational Reputation: A Review. Journal of Management, 37(1), 153-184. Larkin, J. (2003). Strategic Reputation Risk Management. Basingstoke, UK: Palgrave Macmillan. Lewellyn, P.G. (2002). Corporate Reputation: Focusing the Zeitgeist. Business Society, 41(4), 446-455. Mahon, J.F. (2002). Corporate Reputation: Research Agenda Using Strategy and Stakeholder Literature. Business & Society, 41(4), 415-445. Melewar, T.C. (2003). Determinants of the corporate identity construct: a review of the literature. Journal of Marketing Communications, 9(4), 195-220. Newell, S.J., & Goldsmith, R.E. (2001). The development of a scale to measure perceived corporate credibility. Journal of Business Research, 52(3), 235-247. Parasuraman, A., Zeithaml, V.A., & Berry, L.L. (1988). SERVQUAL: A Multiple-Item Scale for Measuring Consumer Perceptions of Service Quality. Journal of Retailing, 64(1), 12-40. Parmer, B. (2015). Corporate Empathy Is Not an Oxymoron. Harvard Business Review. Retrieved from https://hbr.org/2015/01/corporate-empathy-is-not-an-oxymoron. Ponzi, L.J., Fombrun, C.J., & Gardberg, N.A. (2011). RepTrak ™ Pulse: Conceptualizing and Validating a Short-Form Measure of Corporate Reputation. Corporate Reputation Review, 14(1), 15-35. Puncheva-Michelotti, P., & Michelotti, M. (2010). The role of the stakeholder perspective in measuring corporate reputation. Marketing Intelligence & Planning, 28(3), 249274. Rindova, V.P., Williamson, I.O., Petkova, A.P., & Sever, J.M. (2005). Being Good or Being Known: an Empirical Examination of the Dimensions, Antecedents, and Consequences of Organizational Reputation. The Academy of Management Journal, 48(6), 1033-1049. Roberts, P., & Dowling, G.R. (2002). Corporate reputation and sustained superior financial performance. Strategic Management Journal, 23(12), 1077-1093. Sarstedt, M., Wilczynski, P., & Melewar, T.C. (2013). Measuring reputation in global markets – A comparison of reputation measures’ convergent and criterion validities. Journal of World Business, 48(3), 329-339. Schwaiger, M. (2004). Components and Parameters of Corporate Reputation – An Empirical Study. Schmalenbach Business Review, 56(1), 46-71. Hatch, M.J., & Schultz, M. (1997). Relations between organizational culture, identity and image. European Journal of Marketing, 31(5/6), 356-365. Smith, K.T., Smith L.M., & Wang, K. (2010). Does Brand Management of Corporate Reputation Translate into Higher Market Value?. Journal of Strategic Marketing, 18(3), 201-221. Tabachnick, B.G., & Fidell, L.S. (2007). Using Multivariate Statistics, 5th ed. Boston, MA: Pearson/Allyn & Bacon. Terblanche, N.S. (2014). Validation of the customer-based corporate reputation scale in a retail context. International Journal of Market Research, 5(5), 655-671. Walker, K. (2010). A Systematic Review of the Corporate Reputation Literature: Definition, Measurement, and Theory. Corporate Reputation Review, 12(4), 357387. Walsh, G., & Beatty, S.E. (2007). Customer-based corporate reputation of a service firm: scale development and validation. Journal of the Academy of Marketing Science, 35(1), 127-143.

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SOCIAL RESPONSIBILITY AND ITALIAN LISTED COMPANIES: A WEB ANALYSIS Stefano AMELIO University of Insubria 2 Via Ravasi, 21100 Varese, IT [email protected] Claudio BATTISTINI University of Insubria 2 Via Ravasi, 21100 Varese, IT [email protected] Abstract. The aim of this paper is to analyze the level of acceptance of social responsibility practices in Italy and in particular to evaluate the degree of social responsibility arising from the websites of Italian listed companies. CSR communication contributes to a corporation’s corporate social disclosure, whose main purpose is to enhance a corporate image in order to promote customer and community relations and indirectly promote products to customers. To reach this goal, transparency is crucial. However, transparency in the field of CSR is a difficult matter for two reasons: there is not uniformity in social reporting and the preparation of this document is not mandatory (except that large company forced by the UE Directive 2014/95/UE to prepare a nonfinancial statement). The research is divided into two sections and the approach used is mainly descriptive: in the first part, the concept of social balance as a means to interact with all the stakeholders of a firm is exposed. In the second part the paper analyses the web sites of a panel of selected listed Italian companies. The data are able to demonstrate that we can still identify a CSR divide among the country according to 2 different points of view: 1. The size of the company, it still represents a barrier to CSR reporting and communication since require efforts and investment in term of time and resources, and 2. the geographical localization of the selected companies, the concentration of corporates identifying CSR as part of their strategy is still centralized in specific region of the country, mainly due to historical reasons of the country, the openness of those company to the international market and the managerial approach of the company. The research is also able to demonstrate that those companies identified as “best practice” in the selected panel have a common strength, besides financial reporting, social and environmental responsibility is becoming more and more relevant and considered. The higher the level of CSR acceptance of the company, the best is the image from the perspective of the multiple stakeholders. Keywords: listed companies; social balance; sustainable development; social responsibility; websites.

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Introduction In recent years, numerous publications have been published concerning corporate social responsibility (Amelio, 2016; Arru & Ruggieri, 2016; Battistini & Gazzola, 2015; Gazzola & Mella, 2017; Hąbek & Wolniak, 2016). Nevertheless, in both the corporate and the academic side there is uncertainty as to how CSR should be defined (Dahalsrud, 2008). In particular, as Dahalsrud (2008) demonstrated the definitions of CSR have one common characteristic; they all refer to five dimensions: the stakeholder dimension, the social dimension, the economic dimension, the voluntariness dimension, the environmental dimension. It is also complex to provide a single definition for the terms “social balance” (Amelio, 2016). The term balance can have different meanings depending on the purpose for which the document is drawn up and the objects that have been taken into account. In fact, we can have corporate balance, extraordinary balance, consolidated balance, the balance of mission, social balance, sustainability reports. The social balance is the output of a process of social responsibility reporting and it allows to make known the value created in the face of the social costs incurred (Di Stefano, 1990). It often happens that the documents resulting from the reporting process are named differently, but with similar content, or, on the contrary, that documents with the same designation present completely different content. In relation to the names used in the operational reality, we can find in particular the following expressions: social balance, balance of mission, balance of mandate, sustainability report, balance of participation, environmental report. To conduct a comprehensive assessment of a company, it is not enough to rely solely on the values deriving from the corporate balance (the compulsory financial statements required by IAS 1). To evaluate the overall impact of the firm’s activity on the community (Hill & Jones, 1992), it is important to adopt a stakeholder’s approach by expanding the audience of these documents. The companies, in fact, are not only systems for the production of value but also economic social actors which operate in a social environment to which they belong and with which they interact, not only through a system of monetary and financial exchanges but also through physical, human and communication flows that produce knowledge, trust and reputation (Gazzola & Mella, 2004). From the perspective of CSR, it is necessary to move from shareholder theory (Friedman, 1970) to stakeholder theory (Freeman, 1984) but to do this it becomes important to consider companies as social systems. In this sense, the companies have to meet the interests of shareholders and that of the various stakeholders with whom they interact; only by this way the company will have a durable life and will create value over time (Du, Bhattacharya & Sen, 2010, Gazzola, 2012). For this reason, companies go beyond their economic obligations and are particularly meticulous in considering and accounting their activities’ impact on the environment (Bravo, Matute & Pina, 2012). Consequently, managers understood that to achieve the success they have to support the corporate balance – with the statements required by IAS 1, par. 10 (Amelio, Gavana & Gazzola, 2014) – with a new document, the social balance (Cardillo & Molina, 2011; Cavicchi, Dalledonne, Durand & Pezzato, 2003; Wilson, 1999) in a perspective of social responsibility reporting. In such a way, companies integrate the ethical dimension within their own activities (Maggi, 1992).

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The social responsibility request is joining that of dividends and economic values (Hinna, 2002). Socially responsible behavior requires the spread of a corporate culture oriented to dialogue with stakeholders (Kotter & Heskett, 1992), with the aim to create an environment that will inspire confidence and the satisfaction of each other's needs (Chirieleison, 2002). CSR communication contributes to a corporation’s corporate social disclosure, whose main purpose is to enhance a corporate image in order to promote customer and community relations and indirectly promote products to customers (Bravo, Matute & Pina, 2012). To reach this goal, transparency is crucial. However, transparency in the field of CSR is a difficult matter for two reasons: there is not uniformity in social reporting and the preparation of this document is not mandatory. Starting from this second assumption, IAS 1 (European Union International Accounting Standards), par. 14 states that many entities could present, outside the financial statements, social reports, and social statements. The main problem is that these documents are outside the scope of IFRSs (Amelio, 2016) and for this reason, the drafting of social balance is not mandatory and it does not meet a standardized regulation that would allow reaching a socially international comparability of social statements. Companies reporting on a voluntary basis may (Lydenberg et al., 2010): choose different time periods in which to report, report on different key indicators, a report in different formats and using different metrics. Only in 2014, the UE has issued the Directive 2014/95/UE which has introduced the obligation of non-financial information for certain categories of companies. What is relevant in the Directive of 22 October 2014 “amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups” are the articles 19a “Non-financial statement” and the article 29a “Consolidated non-financial statement” inserted under the Directive 2013/34/EU. The first one states: “1. Large undertakings which are public-interest entities exceeding on their balance sheet dates the criterion of the average number of 500 employees during the financial year shall include in the management report a nonfinancial statement containing information to the extent necessary for an understanding of the undertaking's development, performance, position and impact of its activity, relating to, as a minimum, environmental, social and employee matters, respect for human rights, anti-corruption and bribery matters”. The second one states: “1.Public-interest entities which are parent undertakings of a large group exceeding on its balance sheet dates, on a consolidated basis, the criterion of the average number of 500 employees during the financial year shall include in the consolidated management report a consolidated non-financial statement containing information to the extent necessary for an understanding of the group's development, performance, position and impact of its activity, relating to, as a minimum, environmental, social and employee matters, respect for human rights, anti-corruption and bribery matters”.

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With this important document, the UE has forced some simple private entrepreneurs to provide non-financial information, thus contributing to the transformation of these subjects into social entrepreneurs (Amelio, 2016). CSR and the Internet Modern times characterized by the economic crisis and the crisis of confidence towards the general economic system require business managers to improve the company image by overcoming the traditional lack of transparency that connotes corporate communication. CSR helps companies to improve their images towards external and internal stakeholders thus communicating the desired identity (Hong & Rim, 2010; Maignan & Ralston, 2002). The internet is one of the key tools for communicating with stakeholders in relation to company’s social responsibility (Capriotti & Moreno, 2007). Several studies demonstrate that the internet is an important media of communication (Cooper, 2003; Douglas et al., 2004; Esrock & Leichty, 1998, 2000; Maignan & Ralston, 2002; Patten & Crampton, 2004; Snider et al., 2003; Williams & Pei, 1999). In this scenario, the corporate website is a communication channel that companies employ to explicit their identity “Corporate identity is what the company is” (Balmer, 2001), to reveal their personality and to communicate their internal culture. In particular, companies use their websites to publish the social balance, in order to legitimate corporate behavior towards stakeholders through CSR reporting (Hooghiemstra, 2000; Patten 2002; Pollach 2003; Tagesson, Blank, Broberg & Collin, 2009). The web site could be used not only to provide commercial information but also to make public social information targeted to different stakeholders and also to obtain feedback from them (Esrock & Leichty, 2000). The final result is the corporate reputation (Biloslavo & Trnavcevic, 2009). As Fombrun and van Riel say corporate reputation is “a collective representation of past actions and results of a company which describes its ability to deliver results to different groups of stakeholders. It communicates the relative position of the company in its competitive and institutional environment both inwards – in connection with the employees – and outwards – in connection with other stakeholders” (Fombrun & van Riel, 2004). In literature, there is a gap in the analysis of the level of acceptance of social responsibility practices in Italy (Zeghal & Ahmed, 1990) and, in particular, in the evaluation of the degree of social responsibility arising from the websites of Italian listed companies. For this reason, in order to evaluate the level of acceptance of CSR practices in Italy, the second part is developed in the following steps: selection of the companies surveyed, selection of the documents to be analyzed, definition of standards and indicators to determine the level of CSR acceptance, analysis of the main result upon the objective of the research.

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The companies surveyed are selected panel from the Italian companies, able to satisfy the following requirements: they have listed companies in the Italian Stock Exchange “Borsa Italiana SpA”, with more than 250 employees, and with an overall annual turnover higher than 50 MLN € and total assets higher than 40 MLN €. The main idea behind the analysis is to map the Italian AS-IS situation with regard to CSR acceptance and communication. The analysis will then go deeper identifying the level of CSR acceptance among corporates, analyzing their reporting documents and communication strategy. Research methodology Italian entrepreneurial model has some specifics that make it unique as in European context as well as in World context. The key features of it are the following: high number of small and familiar companies, concentration in districts with synergies exploitation, high flexibility and innovation potential. What’s the consequence of such model established in the last century? Is it a sustainable model or requires some structural changes? Are country policies able to sustain the international competition? A lot of discussions have been carried on about it and economists are trying to influence a change of mindset in the country. The latest statistical reports show Italian economy no more growing from 2008, compared with European average and world trends; they report around 6 Million companies, 63% of them unipersonal company and overall an average of 3.9 employees per company. This is reflected also in the standard categories of the companies in Italy (Table 1), where as a matter of fact “micro-companies” represent 95% of the total, “small and medium companies” represent less than 5%, whereas “big companies” represent around 0.1%. This is a proof of how unbalanced the picture is. Table 1. Companies’ Category (Ministero delle Attività Produttive, Gazzetta Ufficiale della Repubblica Italiana - DECRETO 18 aprile 2005) Employees Turnover Company Assets Big Company

≥ 250

> € 50 mln

> € 43 mln

Medium Company

< 250

≤ 50 mln

≤ 43 mln

Small Company

< 50

≤ 10 mln

≤ 10 mln

Micro-company

< 10

< 2 mln

≤ 2mln

Regardless economic theories behind these numbers and the pros and cons that the author would leave the reader having an own opinion and are not the main purposes of this paper, what about the Corporate Social Responsibility Strategy and Reporting of

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such entrepreneurial structure? What kind of visibility can it have in the global competitive context? Our main purpose with this research is to give an answer to these questions, and evaluate the level of acceptance of CSR practices in Italy with a map of the current situation and communication strategies (the research period considered is 2015-2016, in order to analyze the present condition). The panel of company to be surveyed requires the following three entry criteria: they are part of the category “Big Company”: which, as above mentioned, means ≥ 250 employees, > € 50 mln yearly turnover and > € 40 mln of assets, they are listed in the FTSE MIB index of Milan, they are part of industrial sectors. The main reasons for the selections criteria: at time being they are companies with mindset, resources and market visibility to carry on CSR strategy and reporting; at time being they are companies that allow establishing best practices for international benchmarking being able to evaluate the distributed value from their CSR activity, also in term of environmental impact of production processes. The research method of the quantitative part of the paper is performed considering the following steps: database from university archives in partnership with Italian national institutions, a map of the current situation in Italy, the definition of criteria analysis and KPIs, website analysis and CSR reports of selected companies, findings and results in interpretation.

Current situation Speaking about CSR strategy and reporting, the size and resources of the company still matter, and a map of the current status of Italy is quite clear. There is a disequilibrium in the size of the companies: 0.1% of them are classified as “big companies”, with a certain standard of resources and a certain ability of attraction. In addition to this, there is a disequilibrium in the regional distribution of the companies (Figure 1): 56% of the company within the panel is in the north part of the country, 40% in the center part and only around 4% in the south part and islands.

Figure 1. Regional Distribution of selected Panel

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The companies that are socially or environmentally responsive have also to be able to appropriately report their initiatives, to communicate with stakeholders, to receive the attention of institutions and investors who are becoming more and more interested in these companies and willing to promote their development. Reporting is the official communication channel through which the company creates a commitment, a relation with the internal and external stakeholders, it represents, therefore, a key driver of development. Often happens that, being either socially and environmentally responsible is a good starting point that ensures a sustainable development of the country; but being able to report it appropriately and the quality of the reporting are catalysts, factors of differentiation for the country and its entrepreneurial structure to growth and get recognized at international level. Analysis criteria, KPIs, and findings The opportunity to study the selected panel gives a very well defined picture of the Italian CSR acceptance and best practice in the country, opening cross-countries opportunities for benchmarking. We selected KPIs to understand the perimeter of their CSR strategy and reporting in order to define their integration of CSR in the strategy, their ability to report a wide range of KPIs both financial, social and environmental and to integrate this reporting being able to open the communication to a wide range of stakeholder. The selected KPIs are divided into qualitative KPIs, in order to define a qualitative assessment of their CSR acceptance and the presence of vision and mission disclosure, and quantitative KPIs, in order to define the number of document and indicators there are able to produce and the disclosure about the value generated and distributed The research has been conducted through a website analysis of the selected panel and the results give evidence that the companies believe in Corporate Social Responsibility, these companies are able to commit a wide range of stakeholder in their reporting and that they are able to distribute value in the society. Among all, the feeling is that the communication campaign of the social balance covers a primary role. When we get to the key findings of the quantitative KPIs, what we can gather is that (Figure 2): 70% of the selected panel present in the website a section dedicated to CSR. For an external stakeholder, this is an evidence of the importance the company gives to the point and often documents, text, pictures, and videos complete the section for a deep understanding of the practices carried on. 93% of the selected panel has a disclosure of vision and mission. This is a key indicator of transparency of the commitment of the company in the creation of a long-lasting relationship with stakeholders and sustainable development of the business. While all of them, being listed companies, present disclosure about economic and financial reporting, 80% present a disclosure about their socially responsible activity and more than 70% of their environmental responsible activity. As mentioned before this is

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something that can differentiate one company from another from the perspective of the internal and external stakeholder. It is not something strictly required by the legislation (for example the compulsory financial statements required by IAS 1). It is a disclosure the companies are performing in the interest of the stakeholders, to invest in the relationship with them and to invest in the image of the whole organization. On average all the companies present 2 documents dedicated to CSR, one is usually referred to social responsibility and one to environmental responsibility, with more than 100 pages each on average, and 15 KPIs about their performance in the social and environmental responsibility. Around 15% of the surveyed company are able to disclose the generated and distributed value.

Figure 2. Key Findings of Selected Panel (in % of companies from selected panel)

Conclusions and implications The analysis, performed by a deep understanding of the company and the website disclosure, gives evidence of the presence in Italy of socially responsible companies. The companies studied represent that portion of the Italian entrepreneurial structure that has a mentality, an approach and international mindset that allows them to compete at a global level among the top in class socially responsible companies; the fact that Italy is starting having companies listed in the Down Jones Sustainability Index is an evidence of it. Many companies, as a matter of fact, represent best practices in the European and World context, this is the case of Brunello Cucinelli, whose company located in the center part of Italy employee around 800 people and is often listed in the best company to work for and mentioned in newspaper for the practices of its entrepreneur. To be underlined is the relevance these companies are giving to the communication of their practices, also in terms of investments and resources. All of them are communicating to stakeholder not only via the website but also blogs and social media. The companies analyzed present in the social media institutional page their activity and sustainable practices and are able to interact with external stakeholders and engage them, establish a partnership with international non-profit organizations for the promotion of sustainable development and engage their own workforce in such projects. This is the case of Eni S.p.A that in the section of the website dedicated to

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Corporate Social Responsibility present a map of the location where is carrying on sustainability projects, mainly third world countries or Autogrill S.p.A who is developing mentorship programs to educate people to gender balance in order to promote the value of gender and cultural difference within organizations. But there is the other part of the story. These companies represent less than 1% of the Italian entrepreneurial structure. Stakeholders have no visibility about the socially responsible behavior of the other part of the entrepreneurial structure. This means that more than 95% of the companies in Italy are not able to attract from CSR perspective stakeholders and investors and that the Italian entrepreneurial structure is not ready to compete with other countries at international level. This represents a strategic and important gap to be filled for the future of the entrepreneurial structure in Italy and the attractiveness of the country. From the legislative scenario, institutions are trying to move companies’ reporting through the so called integrated reporting (IR), which is already performed by thousands of business globally. Academic researchers are able to demonstrate that is a catalyst for the creation of trust among businesses and investors, that are used to suffer from too many financial data without visibility of other effects of the activity of the companies. Integrated reporting represents a strategic and future oriented communication about the relation of the resources the companies deployed for the activity and the output generated both for the business and the society, creating value over time. Whether it will become a compulsory reporting in the near future or not and the key element of it are still to be clarified, the certainty is that there is a strong international movement behind it pushing business to enhance the integrated reporting approach and Italy, with a good basis, has still a long way to go. The main limit of this analysis, which could be overcome by future analyzes, is that the sample only considers large companies and therefore excludes "the other part of Italy" (which is desirable, however, for future studies). By limiting this extent (for future research), it can be stated that, considering large companies, the level of acceptance of socially responsible practices in Italy is very high. In particular, and this is the most important aspect of the article, big companies believe in Corporate Social Responsibility, they are able to commit a wide range of stakeholder in their reporting and to distribute value in the society. In addition, the communication campaign of the social balance covers a primary role. Big companies represent the best Italian practices and for this reason, they should be imitated by smaller companies. It is also important for these companies to increase the level of CSR and to follow the footsteps of large companies.

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Maggi, B. (1992), Gestione d’impresa e valori sociali [Business management and social values]. In Fabris, R., (Eds.). Impresa e città dell’uomo [Business and human city]. (pp.1-11). Padova: Cedam. Maignan, I., & Ralston, D.A. (2002). Corporate social responsibility in Europe and the US: insights from businesses’ self-presentations. Journal of International Business Studies, 33(3), 497-514. Patten, D.M. (2002). The relation between environmental performance and environmental disclosure: A research note. Accounting, Organizations and Society, 27(8), 763–773. Patten, D.M., & Crampton, W. (2004). Legitimacy and the internet: an examination of corporate web page environmental disclosures. In Freedman, M., & Jaggi, B. (Eds.). Advances in Environmental Accounting and Management, volume 2 (pp. 31-57). Oxford: Elsevier. Pollach, I. (2003). Communicating corporate ethics on the World Wide Web. Business and Society, 42(2), 188–277. Snider, J., Hill, R.P., & Martin, D. (2003). Corporate social responsibility in the twenty first century: a view from the world’s most successful firms. Journal of Business Ethics, 48(2), 175-187. Tagesson, T., Blank, V., Broberg, P., & Collin, S.O. (2009). What explains the extent and content of social and environmental disclosures on corporate websites: a study of social and environmental reporting in Swedish listed corporations. Corporate Social Responsibility and Environmental Management, 16(6), 352-364. Williams, S.M., & Pei, C-A.H. (1999). Corporate social disclosures by listed companies on their web sites: an international comparison. The International Journal of Accounting, 34(3), 389-419. Wilson, A. (1999). Social Reporting. Developing Theory and Current Practice. In Bennett, M., James, P., & Klinkers, L. (Eds.). Sustainable measures: evaluation and reporting of environmental and social performance (pp.130-169). Sheffield: Greenleaf Publishing. Zeghal, D., & Ahmed, S.A. (1990). Comparison of social responsibility information disclosure media used by Canadian firms. Accounting, Auditing & Accountability Journal, 3(1), 38-53.

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ETHICAL BEHAVIOR INTEGRATED INTO CSR: HOW TO CREATE AND MAINTAIN THE CORPORATE REPUTATION Patrizia GAZZOLA University of Insubria 71 Via Montegeneroso, Varese 21100, IT [email protected] Piero MELLA University of Pavia 5 Via San Felice, 27100 Pavia, IT [email protected] Abstract. The objective of this study is to point out how the Corporate Social Responsibility (CSR) and the Ethical Behavior are linked and represent the conditions of existence for the corporate system, understood as a long-lasting organization of individuals or institutions which produces outcomes for the external stakeholders. We think that ethical behaviors are pivotal in determining the success or failure of an organization. They affect a company’s reputation and help to define a business model that will thrive even in adversity. Organizations can consider ethical behavior a way to differentiate themselves through the relationships that they create with stakeholders. This study aims to describe ways of identifying the principles of Corporate Social Responsibility that allow a more meaningful understanding of the Ethical behavior of modern corporations. The interest in the researches in all areas of ethical behavior and CSR is growing. Ethical behavior and CSR drive the activities of an organization and the value systems that underlie their business activities. We have studied CSR through the framework of the stakeholder theory of the organizations and posit that CSR, as practiced today, is connected with ethical behavior with other dimensions of an overall reputation framework still uncovered. The analysis of the international literature will be accompanied by the case study of the company L’Oréal. The L’Oréal company's behavior is as important as its economic performance or the quality of its products. In these regards, L’Oréal’s ambition is to be an exemplary company worldwide and integrates ethics into the very heart of its business practices. In 2017, the group was recognized for the eighth time by the Ethisphere Institute as one of the “World’s Most Ethical Companies”. The values of L’Oréal and ethical principles guide the company in the everyday actions. L’Oréal is also in 1st place of France’s CAC 40 companies ranks for the Observatory on corporate reputation. Keywords: Corporate Social Responsibility; ethics; corporate reputation; behavior; stakeholders. Introduction In the global word, the business models are changing. Globalization, climate change, social inequality and demographic changes are changing the traditional business model, which was founded on the increasing of shareholder value. The international crisis and the massive corporate scandals, of the last years, create a climate of loss of trust in business. Nowadays organizations need to demonstrate the ethical and

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transparent business practices. The organizations need to answer to the increasingly demanded by consumers, employees, corporate investors, governments and other stakeholders (Gazzola & Colombo, 2014). In the past, the generally accepted view on morality and business was that they were separated. To act morally was to act weakly, and in the business environment, this means that companies were dead companies. Now we are facing a new situation. In today’s business environment, organizations are finding that immoral behavior can become dangerous. In these years, business ethical behavioral is becoming more and more important and complex. Organizations, as social systems (Mella, 2014), are subject to the action of international organizations and of governments, as well as to pressure from civil society, which asks with increasing insistence that they set forth the conditions of accountability for their own actions, so that they are judged not only for the “effects” of these actions but for their “intentions” as well. Consumer boycotts, organized actions by citizen groups of entire local communities, protests by nongovernmental organizations (such as Greenpeace or Amnesty International), collective movements such as those by environmentalists, press campaigns that become particularly widespread and virulent in the wake of natural catastrophes or egregious violations of human rights: these all represent expressions of an increasingly louder “voice” of civil society, which can influence business decisions (Mella & Gazzola, 2015). Although some research show that a responsible behavior always generates profits for corporations, the customers and the public are attentive and react to CSR strategies in the benefit of the responsible organizations (Zbuchea, 2013). The research shows how ethics serves to build a good reputation and how it serves as a firewall that limits damage when something goes wrong. This paper uses a multistakeholder perspective. The research methodology is based on the theoretical analysis which, shifting from a general conceptual framework on the topic, analysis of the available literature on sustainability frameworks, as well as methodologies for the integration of the ethical behavior, reputation, and the conditions for the firm’s existence while taking into consideration the literature of reference (among other works: Evan & Freeman, 1988; Bowie, 1991; Clarkson, 1995; Windsor, 2002; Phillips, 2003; Werhane, 2007; Goodstein & Wicks, 2007). For the research, the authors use some of the basic methods of the scientific research to obtain the information necessary to the complex systemic processing of the issue. The authors predominantly use methods of qualitative research. The first part is about the literature review. The authors describe and synthesize the literature on the topic of CSR, ethics, and reputation because the concepts are very wide and varied. The literature and definitions research was conducted analyzing the lines of thought retrieved in the major and specialized journals. The second part is about the ethical behavior. The main contribution of this line of research is to explain the important relation between ethical behavior and reputation. The work explains how this relation is the conditions of existence for the corporate system. The result of the research shows that when stakeholders think highly of an organization, it is more likely to receive the benefit of the doubt when addressing a controversy or crisis. The work explains that ethics gives the importance of ethical behavior and integrity in building trust, in this way ethics can play a vital role in sustaining an organization’s reputation. However, reputation management also requires a thoughtful

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communications program to inform key audiences about an organization’s values and performance. Literature review The changes in the economic and social context have led to greater attention to the satisfaction of stakeholder expectations since this will impact the success of the firm (Gazzola & Mella, 2015). According to the stakeholder approach, organizations should be accountable not only to their shareholders but also to all “people at stake” (Freeman, 1984: 46). Freeman described stakeholders as “any group or individual who can affect or is affected by the achievement of the organization’s objectives”. Carroll (1991) suggests that business has a social role in society. This is normally understood as the economic, legal, ethical and philanthropic responsibilities that organizations may have. Blaga (2013) analyses the development of CSR and the increased focus on the need for organizations to demonstrate the socially desirable behavior. He considers CSR a business strategy for achieving sustainable growth, in this way organizations can do well by doing good for communities. According to Porter and Kramer (2006) organizations may find themselves caught between the demand for a new, more “ethical” approach to business and the idea of investors for maximum short-term profits. The concept of ethics and reputation has been a major concern of researchers since the 1950s. There is a consensus among scholars and practitioners alike that the way in which the public perceives a company influences corporate success (Fombrun, 1996). However, there is no common definition of ethics for business and reputation constructs; several scholars have adopted different, even contradictory definitions of them (Barnett et al., 2006). Organizations should recognize the importance and need to consider concepts such as ethical, moral, ethical programs, ethical behavior, social responsibility and equity, and also try to implement these in their organizational culture (Nunes & Simescu, 2010). These factors have led to a growing interest in, and to the evolution of, the concept of social responsibility, with a shift from the respect of stakeholder expectations to the responsible behavior of firms, which is intended to bring out and strengthen the social citizenship of the firm and the “rectitude of the firm” (Keeley, 1988). Consumers and stakeholders create an influential social network, which reacts to the (i)responsible actions of a company (Crisan & Zbuchea, 2015, pp.205-207). This paper considers the definition of ethics according to Miesing and Preble (1985): “Ethics are frameworks for human conduct that relate to moral principle and attempt to distinguish right from wrong”. Also, Mason, Bearden, and Richardson (1990) defined ethics in a similar way, as the “inquiry into the nature and ground of morality, in which morality is defined in the context of moral behavior. Gbadamosi (2004) considers business ethics as a set of rules that stipulate how businesses and their employees ought to behave. The perception of business ethics in a company generates an ethical climate. The third definition we used is reputation. Reputation is clearly a concept held in the minds or cognition of stakeholders (Brower & Shrader, 2000; Rhee & Haunschild, 2006). As Fombrun defines it: “a corporate reputation is a perceptual representation of a company’s past actions and future prospects that describe the firm’s overall appeal to

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all of its key constituents when compared with other leading rivals” (Fombrun, 1996). Alternatively, Gray and Ballmer display corporate reputation as a valuation of a company’s attributes performed by the stakeholders, where affective components are almost completely excluded (Gray & Balmer, 2006; Brown & Perry, 1994). The most important stakeholders that effect corporate reputation are customers and employees (Kitchen & Laurence, 2003). According to Roberts (2003: 168) the firms “maintain good reputation if they continue to meet the expectations of their key stakeholders, which for most companies includes a high level of corporate social responsibility”. Fombrun and van Riel (1997) propose an integrative definition of the reputation construct by describing it “as a collective representation of a firm’s past actions and results that describe the firm’s ability to deliver multiple stakeholders. Deephouse, (2000), Roberts and Dowling (2002) view reputation as a unique resource since it is hard to imitate. Rindova et al. (2005) consider that reputation reduces the uncertainty for stakeholders by signaling positive attributes of the companies, such as product quality. Corporate reputation is also interconnected to intellectual capital, the influence being mediated by responsibility, communication, cooperation, collaboration and self-confidence (Leon, Pinzaru & Zbuchea, 2015). Little has been written so far about the correlation between CSR, ethical behaviour, and reputation, which can be shown by inserting the three concepts into a systemic business context. The organization’s behavior Organization’s behavior is fundamental for organization’s success and it’s becoming a much more important concept in practice and a central part of corporate governance. It defines the relationship between organization and stakeholders. The behavior is connected with ethics and CSR base in order to refer to that behavioral aspect. Corporate behavior involves legal rules, ethical codes of conduct and social responsibility principles (figure 1). We consider the relativity of ethical behavior by interpreting the firm as “a system open to the environment and governed by subjects that live in given contexts and who bring with them, in carrying out their business management functions, the needs, culture and morality that characterizes them as part of an organization which desires or promotes such values and which expresses these more or less forcefully and consciously. The ethics in a firm is composed of the same features as that which one finds in the socio-economic context in which the firm operates. This initial awareness introduces the concept of the relativity of ethical behavior in time and space” (Cavalieri, 2007, 31). Ethical organizations carefully consider the implications of what they are doing and the effect it might have on the community and the environment. Ethics is about doing the right thing. Ethical behavior requires organizations to act in ways that stakeholders consider to be both fair and honest. Managers making ethical decisions need to consider the impact of the decision if affect or harm and if the decision is considered fair by those affected. Some entrepreneurs believe that acting ethically increases costs and so reduces profits. In the past, for example, some companies cut costs by hiring child labor at very low wages in developing countries reducing the firm's total costs. Other companies have built an ethical brand image, believing that customers are prepared to pay more for products that consider the environment and pay a

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reasonable wage. Higher sales compensate for higher costs. Profits from acting ethically could be higher than firms that only consider their own narrow self-interest. To be a socially responsible corporation, an organization must be more than a legal and ethical person. These companies avoid also the risks of scandals. CSR is not always a legal necessity; increasingly it is an obligation. However, a company has to be socially responsible even though it is not a legal obligation (Aras & Crowther, 2008) - which is one of the most important characteristics of CSR. At this broader level, ethical behavior and CSR are very interconnected. Carroll (1979, p.500) describes CSR in these terms: "the social responsibility of business encompasses the economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time". After his definition, Whetten et al. (2002, p.374) defined CSR as "societal expectations of corporate behavior; a behavior that is alleged by a stakeholder to be expected by society or morally required and is therefore justifiably demanded of a business". Following from the first definition, the CSR definition expanded and covered more corporate behavior and stakeholder expectation. On the other hand, some broad terms - especially society - have been narrowed to stakeholders.

Figure 1. Organization behavior Does ethical behavior increase reputation? We consider business ethics to be the moral principles that guide the way a business behaves toward its internal and external stakeholders. The same principles that determine an individual’s actions also apply to business (van der Merwe, Berthon & Pitt, 2003). Business ethics has now become an important component of CSR. Over the past decade, CSR has emerged from its philanthropic foundations and broadened with respect to its narrow association with instrumentalism. It has shifted from a “corporate-centered” to a “corporate-oriented” concept extended to “new accountability” principles (McBarnet, Voiculescu & Campbell, 2007), and it has become an important part of new governance systems. CSR now involves government, business and civil society (Scherer & Palazzo, 2007) and is necessarily connected with business ethics. Ethics offers a way to attract and retain the talented people who are going to

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drive the ethical behavior of the organization. A good ethics policy will also mitigate the stress that can generate health problems or lead people to leave the company. The ethics of a business depends on the company’s culture. The decision to do activities ethically is an example of moral behavior. All corporations have to decide what to do and how to do it in order to align their behavior with their ethical values. Philippa Foster Back (2015), Director of the Institute of Business Ethics (IBE) identifies three essential levels when establishing the ethics policy: to identify the company’s values to be able to explain the vision to employees and stakeholders; to create a code of ethics that provides practical guidelines for employees to follow day by day and to bring that policy to life for every employee. It’s important to align ethical standards to the company’s way of doing business. Building a positive and strong corporate reputation is very challenging. A company can initiate to develop strategies, beginning with identifying and defining the vision, mission, and values of the firms, highlighting the firm’s ethical behavior. Each stakeholder has a particular perspective and different degree perception towards an organization. Stakeholders are affected by the actions of the organization and in turn, their reactions can affect the organization. When stakeholders trust, admire and respect a company, empathy is built providing affirmation towards the company’s corporate actions, such as strategic investment, joining its programs/ campaign, buy their products, etc. The concept connected with organization behavior, which is of growing importance for business management, is the corporate reputation. Nowadays organizations focus on intangible factors in order to compete and differentiate their services and products in an environment, which is characterized by rapid changes. The reputation of the organizations is often the most important factor in gaining a competitive advantage as well as building financial and social success. The corporate reputation generally refers to how stakeholders, customers, employees, shareholders, local communities as well as the industry perceive a company. Reputation can explain why customers choose one product or service in preference to somebody else and can make the difference between success and failure of the business. “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently” (Buffett, 1995, p.109). A well-deserved reputation has been diligently built up over many years and can be damaged in a day by circumstances that are relatively insignificant when seen against the overall picture. Sometimes a company’s reputation may be harmed by adversity, but the same company can emerge from the episode with its reputation enhanced. It depends on the way it manages the situation. Martín de Castro et al. (2006) divided the reputation concept into two components: business reputation and social reputation. The first includes different aspects of corporate reputation related to stakeholders closely tied to business activity, such as customers and employees. The second involves the insights and perceptions of stakeholders not so close to the daily operation of a firm, who is known as the community. This reputation would be based on social and green actions and policies. There are many benefits claimed for being perceived as having a good corporate reputation. One of the main is concerned with the fact that it improves shareholder value; a strong corporate reputation inspires confidence in investors, which in turn leads to a higher stock price for a company. It brings increased customer loyalty to the products of the company. A positive customer perception of a company extends to its products. Equally a strong corporate reputation is an influential factor for forming

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partnerships and strategic alliances as the partner company has the potential to improve its own reputation by association. Similarly, a company with a solid reputation is more influential on legislative and regulatory governmental decisionmaking. Employee morale and commitment are higher at corporations with a good corporate reputation. At a time of a crisis, a good corporate reputation can shield the company from criticism and even blame and can help it communicate its own point of view more easily to audiences that are willing to listen to its point of view. A good example is the Pepsi Cola tampering case according to which products on sale were found to contain material injected by hypodermic syringes. Pepsi dealt effectively with the crisis by defusing public alarm with a public relations campaign that highlighted the integrity of its manufacturing process and its corporate credibility.

Figure 2. Corporate reputation L’Oréal L’Oréal Group is the largest cosmetics and beauty corporation in the world (Rooney, 2014). It offers beauty product innovation to women and men with regards to their diversity through its large portfolio brand that is present in 140 countries with 89.300 employees (L’Oréal, 2017). According to Abnett (2015), L’Oréal has strong growth. The group achieved a significant growth in sales and robust profits in 2016. Operating margin and cash flows have set new records, confirming that L’Oréal’s business model is set to deliver robust performance and create significant value (L’Oréal, 2017). A company’s behavior is as important as its economic performance or the quality of its products. In this regard, L’Oréal’s ambition is to be an exemplary company worldwide and integrate ethics into the very heart of its business practices. In 2000, L’Oréal was one of the first companies in France to establish a Code of Business Ethics and to appoint, in 2007, a Chief Ethics Officer. In 2008, L’Oréal’s Chairman and CEO, Jean-Paul Agon, received the prestigious Stanley C. Pace Leadership in Ethics Award. In 2003 L’Oréal signed the United Nations Global Compact, it is one of the 100 companies included in the Global Compact 100 stock index and is a signatory of the Women’s Empowerment Principles, an initiative of UN Women and the Global Compact. L’Oréal organizes an annual Ethics Day where employees from around the world can chat online with L’Oréal’s Chairman and CEO and their country General Manager about ethics. In 2014, L’Oréal launched the 3rd edition of its Code of Ethics, which is now

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available in 45 languages and in Braille in English and in French, as well as a new ethics e-learning in 22 languages. L'Oréal named as a 2017 world's most ethical company by the ethisphere institute for the 8th time. L’Oréal’s approach to ethics is about having a large international staff adhere to a common set of ethical principles, engaging them, and helping them to make good decisions in situations where there are no clear-cut solutions. This goes beyond simple compliance with rules and, to emphasize this, its ethics and compliance departments are separate, with its chief ethics officer reporting directly to the chief executive. The company has four ethical principles: integrity, which enjoins people not to lie or cheat; respect, which reminds them to treat others as they would wish to be treated themselves; courage, which recognizes that ethics is not always easy and so encourages them to speak up if they have concerns, recognizing that for many people this is very difficult; and transparency, which promotes an open environment in which there is less need for formal procedures and controls. L’Oréal’s Ethics Days programmer enables employees to ask questions to Group management through an online chat system, calling it “a perfect example of participative communication”. Group training is another fun way to get people working together. L’Oréal is in first place of the “reputation quotient” that was used this year for the first in France to evaluate the reputation of companies. The ranking, which singles out the largest French and international companies (Danone, Microsoft, Peugeot-Citroën, Carrefour, Air France, etc.). L’Oréal received the top marks in 4 of the 6 selection criteria: financial performance, appeal, vision, and leadership, products and services. The company ranked 2nd for human resources and 3rd for social responsibility. Generally speaking, it seems that Europeans – and especially the French - judge their companies more harshly than Americans. Conclusions Organization ethical behavior influences not only stakeholders and shareholders but also the entire economy. If an organization acts ethically and socially responsibly in the business decisions and strategic planning, the organization will be more sustainable (Gazzola et al., 2017; Vătămănescu et al., 2017a; Vătămănescu et al., 2017b; Andrei et al., 2017). Ethical organization behavior is increasingly seen as essential to CSR and reputation than for long term survival of the organization. The reasons that push companies to voluntarily disseminate information about their ethical behavior (Michaelson, 2010) and their relationship with the social and natural environments are characterized by the consequent advantages in terms of economy, image and credibility that increase their overall value (Siegel, 2009; Skrabec, 2003; Orlitzky et al., 2003). Reputation is focused on a medium/long-term result. It takes time, effort and money to develop a positive and strong reputation in return increasing the company’s value (Ma & Osiyevskyy, 2017), strengthen the company’s position and provide sustainable competitive advantage (Păduraru et al., 2016; Vătămănescu et al., 2016). In all size of businesses, reputation is the most valuable asset in promoting an organization. Employee morale and commitment are higher at corporations with a

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Miesing P., & Preble J.F. (1985). A Comparison of Five Business Philosophies. Journal of Business Ethics, 4(6), 465-476. Nunes, C.S.S.M., & Simescu, A.S. (2010). Ethics and corporate social responsibility - a strategic approach within the organization. Studies and Scientific Researches Economic Edition, 15, 467-472. Orlitzky, M., Schmidt, F.L., & Rynes, S.L. (2003). Corporate social and financial performance: A meta-analysis. Organization studies, 24(3), 403-441. Păduraru, T., Vătămănescu, E.-M., Andrei, A.G., Pînzaru, F., Zbuchea, A., Maha, L.G., & Boldureanu, G. (2016). Sustainability in Relationship Marketing: An Exploratory Model for the Industrial Field. Environmental Engineering and Management Journal, 15(7), 1635-1647. Phillips, R. (2003). Stakeholder Theory and Organizational Ethics. San Francisco: Berrett-Koehler Publishers. Porter, E., & Kramer, M.R. (2006). Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility. Harvard Business Review, 84(12), 78-92. Rhee, M., & Haunschild, P.R. (2006). The liability of good reputation: A study of product recalls in the U.S. automobile industry. Organization Science, 17(1), 101–117. Rindova, V.P., Williamson, I.O., Petkova, A.P., & Sever, J.M. (2005). Being Good or being Known: An Empirical Examination of the Dimensions, Antecedents, and Consequences of Organizational Reputation. The Academy of Management Journal, 48(6), 1033-1049. Roberts, P.W., & Dowling, G.R. (2002). Corporate Reputation and Sustained Superior Financial Performance. Strategic Management Journal, 23(12), 1077-1093. Roberts, S. (2003). Supply Chain Specific? Understanding the Patchy Success of Ethical Sourcing Initiatives. Journal of Business Ethics, 44(2), 159-170. Scherer, A.G., & Palazzo, G. (2007). Toward a political conception of corporate responsibility: Business and society seen from a Habermasian perspective. Academy of Management Review, 32(4), 1096-1120. Siegel, D.S. (2009). Green management matters only if it yields more green: An economic/strategic perspective. The Academy of Management Perspectives, 23(3), 5-16. Skrabec, Q. R. (2003). Playing by the rules: Why ethics are profitable. Business Horizons, 46(5), 15-18. van der Merwe, R., Pitt, L., & Berthon, P. (2003). Are excellent companies ethical? Evidence from an industrial setting. Corporate Reputation Review, 5(4), 343-355. Vătămănescu, E.-M., Pînzaru, F., Andrei, A.G., & Zbuchea, A. (2016). Investigating SMEs sustainability with partial least squares structural equation modeling. Transformations in Business & Economics (TIBE), 15(3), 259-273. Vătămănescu, E.-M., Nistoreanu, B.G., & Mitan, A. (2017a). Competition and Consumer Behavior in the Context of the Digital Economy. Amfiteatru Economic, 19(45), 354-366. Vătămănescu, E.-M., Gazzola, P., Dincă, V.M., & Pezzetti, R. (2017b). Mapping Entrepreneurs’ Orientation towards Sustainability in Interaction versus Network Marketing Practices. Sustainability, 9(9), 1580. Werhane, P.H. (2007). Corporate Social Responsibility/Corporate Moral Responsibility. Is There a Difference and the Difference It Makes. In May, S., Cheney, G., & Roper, J. (Eds.), The Debate over Corporate Social Responsibility (pp.459-474). Oxford: OUP.

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RESPONSIBLE CONSUMPTION IN FOOD SECTOR. CASE STUDY: FAIRTRADE Luana LA BARA University of Rome Tor Vergata 2 Via Columbia, 00133 Rome, IT [email protected] Gloria FIORANI University of Rome Tor Vergata 2 Via Columbia, 00133 Rome, IT [email protected] Irene LITARDI University of Rome Tor Vergata 2 Via Columbia, 00133 Rome, IT [email protected] Abstract: This research analyzes the result of the initiative adopted by public and private organizations to improve the Fairtrade consumption and the responsible production linked to seventeen goals of SDGs (Sustainable Development Solution Network Report, 2016). This paper is structured as follows: a) section 1 provides a literature review on sustainable consumption; b) section 2 describes the Tor Vergata’s experience: it provides an analysis of the case study of Fairtrade big challenge; c) Finally, section 3 concludes with some consideration of the experience. The public and private partnerships are important because they make possible sustainable development in the environment through the cooperation and the know-how exchange. This exchange leads to economic development, but above all, it adds value in disadvantaged societies; the result is a reduction of the poverty, an increase of the work gender equality and a reduction of inequalities. The case study analysis concerns an initiative suggested by a group of students in collaboration with “Next-Nuova Economia per tutti” (a no profit organization that deals with sustainable territorial development) and the Department of Management and Law (University of Tor Vergata). The initiative has been nominated for the “Prepararsi al Futuro Lazio 2015-2016” award and it won as Best Etic Cash Mob. Keywords: sustainable consumption; business ethics; fair trade; SDGs; CSR. Introduction The economic crisis which has struck the European and international economy has led the EU member states to implement policies based on three growth priorities (Europe 2020): an intelligent (through the development of knowledge and innovation), sustainable (based on a greener, more efficient in resource management and more competitive economy) and inclusive (to promote employment, social and territorial cohesion) growth. The goal of this strategy is to get out of the crisis and lay the foundations for a global economy, providing the basis for a sustainable development

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with a high quality of life resulting from the interaction between employment, efficiency and social cohesion (Europe 2020). To reinvigorate the economy, therefore, it is necessary to adopt a new strategy aimed at enhancing the potential of the internal market and new needs by promoting a sustainable global economy, respecting human rights, protecting the environment and by fighting against corruption. To more fully explain this process, then, it seems necessary to ask the following research questions: 1) What is the role of an Organization to promote a responsible consumption? 2) What would be the impact on the academic community if the University promoted responsible consumer actions? The aim of the research is to understand which stakeholders can engage in a responsible consumer initiative promoted by an organization and to look at the degree of consumer awareness on sustainability issues. The paper is structured as follows: a) a framework of the role of the Organization in the implementation of sustainable consumption; b) a case study analysis of “World Fairtrade Challenge”; c) some considerations about the experience and the results. The case study has been conducting using a both qualitative and quantitative research methodology. Firstly, it provides an overview of the initiative, and then it focuses on the main events at Italian national level, with a particular focus on the "cash mob" which took place at the University of Tor Vergata. The case study is supported by the re-elaboration of data contained in questionnaires given to participants and not participants in the initiative, in order to study the consumer's sensitivity to this initiative and in general of sustainable topics. Theoretical framework: sustainable consumption Globalization (Barnett et al., 2011) has stimulated the socio-economic phenomenon of consumerism, typical of industrialized societies, which leads companies to try to reduce their production costs more and more to deliver products at lower prices by encouraging a "reckless purchase" of goods, ignoring the logic of responsible production. The strategy for limiting this phenomenon is to create awareness and social responsibility (Caruana & Crane, 2008) in the consumers, in order to influence their behavior towards responsible consumption. In the 1960s the first environmental movements encouraged people to adopt environmental protection policies, which was followed by the beginning of a multidisciplinary debate. So in 1972 the first formal manifestation on Human Environment- the United Nations Conference on Human Environment, UNCHE-took place in Stockholm. The theme of Corporate Social Responsiveness (Sethi, 1975) has been introduced, according to which companies do not just have to assume responsibility for social obligations deriving from their business, but, according to a proactive approach and thus to a social responsibility behavior, they have to consider the different social partners (Friederick, 1978). The sensibility to the topic has increased so several work-plans have been established and national, European and International organizations have been set up. The strong diffusion of CSR and the new environmental issues lead to a revision of the three dimensions identified by Carroll in 1979, shifting focus from "economic, legal, ethical and philanthropic" to "economic, social and environmental" areas. These three areas are connected to the model of the three P-"people, planet, profit", Triple Bottom Line approach (Elkington, 1995). "Unsustainable patterns of production and consumption

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increasingly affect the natural environment, society, the economy and the business world. We need to live more sustainable, that is, to do more with less "(European Union, 2010). As defined by the Oslo Symposium in 1994, sustainable consumption and production (SCP) regards "the use of services and related products, which respond to basic needs and bring a better quality of life while minimizing the use of natural resources and toxic materials as well as the emissions of waste and pollutants over the life cycle of the service or product so as not to jeopardize the needs of further generations”. The manifested need for a triple bottom line approach is declared by the action plan defined by Agenda 2030 in September 2015 by the governments of the 193 UN member states. It encompasses 17 Sustainable Development Goals (SDGs) - in a major action program for a total of 169 targets, where Objective 12 is precise to Ensure sustainable models of production and consumption. To do this, it is necessary to transform the environmental challenges into economic opportunities by expanding the market for sustainable products and services through consumer involvement, which must be helped to make informed choices "(Enea, 2008). The impact on the economic system of the SCP (OECD, 1997), could be analyzed: A) microeconomic vision is about market structure, production, and distribution; B) a macroeconomic vision is about the daily consumer practices of individuals (Cavallo & Paltrinieri, 2010). Already in 1997, the OECD report on consumption and production stated that a greater awareness of the importance of involving more stakeholders in development policies and a greater public support for private sector initiatives and modify the patterns of consumption and production that are harmful to the environment. The stakeholder theory goes beyond the narrow view that the sole purpose of the company is to maximize the economic value for shareholders (Freeman, 2008). Value maximization for all stakeholders is achieved by overcoming the traditional "economic value" approach with a broader concept where different types of values are generated in a cooperative way, at least to the extent that goods and services that produce a business Social (Argandoña, 2011). As sanctioned in “Globalizing Responsibility: The Political Rationalities of Ethical Consumption” (Barnett et al., 2011), it is possible to change their behavior through the exercise of a responsible choice. They argue that the emergence of ethical consumption can be more appropriately defined as a political phenomenon that merely as a market response to changes in consumer demand? This is because it reflects shared strategies and repertoires of a wide range of governmental and non-governmental actors, and puts the emphasis on the competent, active and creative role of consumers in the face of rising ethical consumption. The ethical-social dimension has become an increasingly important component in determining buying and consumption behaviors. The importance of ethical considerations in purchasing and consuming behaviors is also due to the greater awareness that consumers have of/about their own rights and contractual strength (Cavallo & Paltineri, 2010). Consumers are more aware of the possibility of acting individually or joining in organized groups, so as to influence the decisions of the productive apparatus. Those who buy do not passively accept the conditions imposed by manufacturers and sellers but can advance the demand for more collateral and protection for the individual and the community. How to say that today, besides the "power of consumption", it is necessary to consider the power of consumers "(Di Nallo

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& Paltrinieri, 2006). Several studies, such as Ethos (Socially Responsible Business Services) in 2008, and Antonio Valente, Chairman of Ethos and Lorien consulting- WPP (Consultancy and Market Research), have analyzed consumers by differentiating them according to their consumer attitudes. By using these classifications, we can analyze the evolution of consumer behaviors that from an indifferent consumer, who do not consider ethical aspects and corporate social responsibility in its buying behavior, becomes a consumer who weighs his purchases on the basis of conscious ethics and Aware of his purchasing power. A market in fair trade (Viganò, 2008) is defined by a partnership between producers and consumers, based on dialogue, transparency, and respect. Citizens use their purchasing power by choosing which activities to sustain, defined by the term "vote with the portfolio" (Becchetti, 2008), which expresses the sovereignty of the consumer who decides to use his purchasing power and savings to reward Companies and/ or countries that are socially and environmentally responsible and to punish those who do not fall within these parameters. This is possible because voting with the portfolio has a comparable political value when it comes to electoral polls. Citizens' choices have a tremendous impact on business choices, citizens are the market demand. It is a vote that is hidden in the portfolio of every citizen because choosing to buy everyday fair trade products or shifting their savings to an ethical bank directly affects the quality of life of millions of people. This instrument represents a pragmatic gesture: the gesture does not take on an ideal value, rather it goes to reward those subjects who prove to be able to reconcile the creation of new economic value with sustainability. Another fundamental aspect is the viral spread that the vote with the portfolio may have (Becchetti, 2008), thus becoming "Consumers". In fact, if adhering to a responsible behavior was not just the individual consumer but an organization made up of individuals, the power of the "portfolio rating" would multiply as well as the impact on the market. Case study: the World Fairtrade Challenge Fairtrade is an international organization that through FAIRTRADE's certification ensures better living and working conditions for farmers and workers in developing countries (http://www.fairtrade.it/). The certification Fairtrade assures the Fairtrade Minimum Price and Premium. The purpose of Fairtrade Minimum Price is to cover production costs and provide economic support when the market price falls below the level of economic sustainability. Fairtrade Premium is an added bonus to the Fairtrade Minimum Price paid to producers to invest in social, health and business development projects through a participatory and democratic program. In fact, they are the same producers who decide how to use the Fairtrade premium. Eg Fairtrade Premium has been used by some farmers to invest in productive efficiency through technologies that help address soil erosion, water scarcity, and temperature rise. In other cases, farmers have used Premium to plant trees or counteract the rise in temperature, to build water-gathering dams, to invest in water conservation (http://www.fairtrade.it/areastampa/fairtrade-lancia-grande-sfida-chi-ama-caffe-). In 2016, Fairtrade launches the first edition of "The World Fairtrade Challenge" a worldwide campaign to raise consumer awareness of responsible consumption and support coffee makers in developing countries in their fight against the climate change

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effects. Following this great success, in 2017 Fairtrade launched a larger second edition. The aim of this initiative is on the one hand to raise awareness among governments and public administrations in applying production criteria that can counter the effects of climate change, on the other hand, to promote to consumerscustomers the awareness that they can make a difference through their consumer choices. This is because coffee plantations are one of the most affected crops because of the rising temperatures and rains, floods and droughts. Millions of coffee makers around the world are struggling to defend their crops and ensure the livelihood of their respective households. The first edition of the worldwide initiative took place from 13 to 15 May 2016 with the purchase of Fairtrade certified coffee. The "provocative coffee break" challenge launched by Fairtrade consist of 100 million Fairtrade coffee cups to buy worldwide. The result of the Challenge was lower than the predetermined target but saw the consumption of 5.7 million Fairtrade coffee cups with 20 countries participating. Italy has contributed to the biggest Coffee Break launched by Fairtrade against climate change with 48 events (coffee and school breaks organized by schools and universities, in their office together with colleagues, in supermarkets or at the bar) and beyond 8,000 participants. From Turin to Messina, a total of 11,500 Fairtrade coffee cups consumed from Friday 13 to Sunday 15 May 2016 (Sferrazza, 2016) were registered on FairTradechallenge.org. Fairtradechallenge.org was the site where every subject who wanted to participate in an event was to register. This is to allow the monitoring of the number of promoted events, cups purchased and participants. With the sole aim of showing that consumers are attentive to rewarding sustainable products, the actors involved are both public and private stakeholders (Figure 1).

Figure 1. Stakeholder mapping

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Four bars in Milan, Turin, Rome, and Naples have been challenged to decree Fairtrade Coffee Maker. During the three days of the Great Challenge they involved their customers with moments of animation and deepening, and at the end of the week was Farmers Sosteria Agricola of Tiburtina Station in Rome to win the competition, totaling the largest number of Fairtrade coffee sold (703 cups) (Figure 2).

Figure 2. “Sfida Tra Bar”1 Fairtrade Challenge, Edition 2016 (REPORT “LA GRANDE SFIDA FAIRTRADE”, 2016)

Among the initiatives that are part of the Great Challenge Fairtrade, it should be emphasized the tasting of fair coffee in the cafeteria of the Senate of the Republic. "On Thursday, May 12, Fairtrade Italia organized a fair coffee tasting at the cafeteria of the Senate of the Republic... From 10 am to 11 pm, all the Senators will be offered coffee from the fair trade circuit, as a chance to raise awareness on a vital issue for millions of small producers who need to adapt their farming practices to new climatic conditions... The role that is recognized by the first national law governing fair trade, endorsed last March 3 at the House and currently being examined by the Senate" (Sferrazza, 2016). Focusing on the Italian Universities, we note that the event organized in Rome Tor Vergata has contributed more than 300 cups, followed by the Ca 'Foscari University of Venice, for a total of 150 cups and the University of Padua with 130 (Figure 3).

Figure 3. The contribution of universities of Italy

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The Promoters of the Initiative in the Roman University were a group of students in collaboration with the Government and Civil Society (GCS) research group Department of Management and Law - with profit and nonprofit organizations (Next, Ecozema, VeioGas, Fairtrade). Hence on April 14, 2016 the first Cash Mob Ethical University took place in the Faculty of Economics of the University of Roma Tor Vergata. To involve a large participation of people, students and faculty members promoted a viral digital marketing campaign using Social Network, such as Facebook and Twitter. A strategic role has had the choice of the partners because that made possible both to expand the event's announcement both to offer 100% Bio coffee in the eco-sustainable cup to participants. In order to study the sensitivity of the participants and non-participants of the initiative, an anonymous questionnaire was provided both during the CashMob and online. The questionnaire has been structured with 17 questions about the acquisition of the degree of interest in the theme of sustainability, knowledge of initiatives and their thoughts. It should be noted that the data analysis was developed by reducing the observed sample to a significant data sample of 215. When analyzing the sample, it was important to emphasize the difference between the internal and external participants in the faculty in order to observe the value of both the marketing campaign and the collaboration with the private partners (table 1). Table 1. Synthesis of the Ethics Cash Mob at Tor Vergata Participants at the initiative

159

of which: a) Inside the faculty of economics

155

b)External to the faculty of economics

44

Participant at the event(payers)

40

of which: a)Inside the faculty of economics

29

b)External to the faculty of economics

11

Participant at the event (payers and not)

175

of which: a) Inside the faculty of economics

145

b)External to the faculty of economics

30

Coffee purchased

161

of which: a)Inside the faculty of economics

90

Single purchase

66

Group purchase

24

b)External to the faculty of economics

71

Contribution to the project “The World Fairtrade Challenge” 740,6 of which: a)Inside the faculty of economics

414

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303,6

Group purchases

110,4

b)External to the faculty of economics

326,6

From the sample analysis, we note that 63% of the total is composed of subjects within the Faculty of Economics, so partnerships with private partners and marketing campaigns have been quite effective. Data analysis allows us to say that the consumer of our sample is a very sensitive subject to the theme of sustainability and we see a real contribution. The feedback obtained is positive; in fact, 68% of the sample reported a high degree of susceptibility to sustainability, the 72% bought coffee and the 94% confirms the merit of the initiative. Given the voluntary nature of Fairtrade certification, it was considered important to understand the sample's perception of the usefulness of the Fairtrade Standards. In fact, not all fair trade products have the Fairtrade trademark; for example, " botteghe del mondo " whose products come from some of the historic importers of fair trade that have chosen not to rely on external and independent certification for their products. The analysis of the results of the question on the utility of certification has achieved a positive result for the 59% of the total, specifically: 37% believes that the Fairtrade Standards are a form of protection for small coffee makers; 32% believes that the standard is useful for promoting fairer trading conditions, not just related to market trends; 16% supports its usefulness in promoting respect for ethical principles at work; 14% feels in this way safer in the purchase; 1% other. It was also decided to analyze the awareness that the consumer has about its role as a consumer, able to operate in the market through the portfolio's vote (see part1). Data analysis shows a greater awareness of the female consumer (72% of female subjects recognize the importance of “consumAttore”) than male (57% of male subjects recognize the importance of the consumAttore”). These data are fortified by the feedback of 70% of future affiliations by the subject and 72% who consider the role of the consumer in the initiative an important contribution. Finally, attention should be paid to the fact that the sensitivity towards the material increases with age (Table 2).

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Table 2. Relationship between age and degree of sensitivity to the theme of sustainability (1-least sensitivity to the topic of sustainability, 5-highest sensitivity to the topic)

As said by Francesco G., Director of Fairtrade Italia: "The fantastic response to the Great Challenge launched by Fairtrade shows how all coffee enthusiasts of all ages, nationalities and social extraction want to do everything possible to help those who produce their drink favorite ". The campaign undertaken in 2016 has been so successful that it will be re-launched. The second edition launched from 12 to 14 May 2017, however, broadens its goal of "organizing the world's largest Fairtrade event: an opportunity for consumers to feel part of a global movement, with the awareness that through their own Consumer choices can be supported by producers in developing countries "(Press release Fairtrade Italy). Fairtrade, this time, has invited everyone to eat, at breakfast and beyond, certified trade fair products such as coffee, tea, sugar, biscuits, dried fruit, chocolate and jams to support those who produce them. The World Fairtrade Challenge has been successful with the consumption of more than 2 million people in 20 countries, for a total of 4175 events (Figure 4).

Figure 4. Participants to the great 2017 challenge and the number of organized events.

Sweden is the closest to sustainability with a number of events in net advantage with the second (table 3) and unquestioned as numerous events for each type of organization (table 4). However, it is noteworthy that the largest number of participants are seen in the Netherlands, although they have organized a small number of events and are tenth in the standings.

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Table 3. Fairtrade Challenge 2017 ranking for total participants and total events Participants Participants N° total participants N° total events 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Netherlands Sweden Norway Germany Finland Belgium Australia Denmark Italy Canada USA Spain China Poland Luxembourg New Zeeland Chile South Korea UK South Africa

874858 515569 124502 119140 72102 50501 49163 45850 37589 29480 21673 10550 10100 6302 5573 5473 5000 4330 1369 1263

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Sweden Germany Belgium Finland Norway Italy Australia New Zeeland USA Netherlands Spain Denmark Luxembourg South Korea Poland Canada South Africa UK Ireland Austria

2622 329 198 162 155 122 118 117 101 99 89 66 50 37 35 31 19 15 13 12

Table 4. Fairtrade Challenge 2017 Ranking for Different Organizations and Events Number of events Organizations

1st place Sweden

School

Sweden

University

Sweden

Workplace

Sweden

Accommodation

Sweden

Sale Point

Sweden

Association

Sweden

Private

Sweden

2nd place Germany 762 76 Germany

3rd place Spain 51 32 Poland

34 Germany 364 Belgium

7 Austria 38 Netherlands

624 Norway 380 Germany 192 Germany 189 Belgium

84 Germany 116 Finland 29 Netherlands 92 Denmark

47 25 5 21 52 112 16 42

Conclusion and implication The objective of FAIRTRADE is greater fairness in international trade, which is achieved by offering better commercial conditions and guaranteeing the rights of producers and workers in areas of higher poverty, especially in developing countries. It can be achieved through the contribution of the citizens of the advanced countries who intend to activate a process of self-development of producers in the poorest areas of the world. The implementation of sustainable consumption, therefore, requires a multidisciplinary and multinational approach, thus requiring the involvement and participation of public and private stakeholders (individuals, government, non-

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governmental organizations, trade associations, educators, research institutes, decision-makers, economists, business, industry) to implement a sustainable form of consumption. Establishing innovative ways of partnerships between public and private is crucial: to implement innovative mechanisms to combine flexibility and security; to meet the needs of new types of collaborations and to encourage the mobility of the collaborators; to build the competences of the future together with the public sector and stakeholders, and to foster the exchange of knowledge between the business world and the training system. The responsible company, through interactions with other actors operating in the territory, contributes to increasing the cognitive capital (knowhow and knowledge of both employees and the territory), social capital (social cohesion, income, quality of life) and infrastructure (urban redevelopment, development of new services, creation of new networks). Consumers become more and more aware of their power of influencing the market and their ability to plunge it. This power cumulated with increasing susceptibility to sustainability, CSR, respect for the environment, the willingness to help developing weights make it a responsible consumer and a threat to companies that interfere with knowledge and Plunged to its dependencies. The agricultural sector is closely related to climate, in long-term prospects, where precipitation and medium temperatures determine productivity and spatial distribution of crops, as well as in the short-term prospects with the onset of drought, flood, waves Heat, frost and other extreme events. To minimize adverse impacts of climate change and develop solid adaptation strategies, it is crucial to integrate the results of physical and agronomic sciences with local farmers' knowledge. Equally important is to strengthen the capacity of regional institutions to use the appropriate tools to tackle climate change. Partnerships between national and regional research institutes, consultancy services and social partners in agriculture as well as the creation of regional networks that can provide information to agricultural communities will help to design an appropriate strategic plan. Sales have been the most important development driver by providing producers' organizations with the revenue they need to provide workers with decent salaries and improved living and working conditions (De Peña, 2015). Clearly, Fairtrade is the son of a movement born to promote greater justice in world trade. In addition, partnerships between public and private institutions are important, making it possible to develop sustainable development towards the land and suburban areas through co-management of funding and projects for local growth, but also on global. Through these and the exchange of know-how, not only it brings to economic growth, but also creates added value in disadvantaged societies, helping to reduce poverty, job growth, gender equality, and reducing inequalities. Fairtrade is considered a best practice in its industry as it provides technology support that allows farmers to increase yields and quality by offering the market a safe and sustainable coffee and encouraging the use of sustainable farming practices and conversion to organic through the recognition of an additional margin for this type of product. The welfare of companies participating in the Fairtrade System improves considerably by finding a clear response among many who point out that Fairtrade apologizes for

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change and promotes a way of being, which works precisely because it involves people at every level of the decision making system making it an active part. References Barnett, C., Cloke, P., Clarke, N., & Malpass, A. (2011). Globalising responsibility: The political rationalities of ethical consumption. Oxford: Wiley. Becchetti, L. (2008). Il Voto nel Portafoglio. Cambiare consumo e risparmio per cambiare l'economia. Trento: Il Margine. Becchetti, L., Bruni, L., & Zamagni, S. (2010). Microeconomia Scelte, relazioni, economia civile. Bologna: Il Mulino. Becchetti, L., Di Sisto, M., & Zoratti, A. (2008). Il voto nel portafoglio. Cambiare consumo e risparmio per cambiare l'economia. Trento: Il margine. Becchetti, L., & Paganetto, L. (2003). Finanza etica. Commercio equo e solidale. Roma: Donzelli. Carson, R. (1962). Silent Sprin. Boston, MA: Houghton Mifflin Harcourt. Caruana, R., & Crane, A. (2008). Constructing consumer responsibility: Exploring the role of corporate communications. Organization Studies, 29(12), 1495–1519. Di Nallo, E., & Paltrinieri, R. (2006). Cum sumo. Prospettive di analisi del consumo nella società globali. Milano: Franco Angelini. European Commission (2010). Più intelligenti e più ecologici: Consumare e produrre in maniera sostenibile. Retrieved from http://sceglisostenibile.com/negozi/images/kg006508IT_2.pdf. Fiorani, G., Janelli, J., & Meneguzzo, M. (2012). CSR 2.0 proattiva e sostenibile. Tra i mercati globali e gestione della crisi. Milan: EGEA S.p.a. Freeman, R.E., Harrison, J.E., & Wicks, A.C. (2007). Managing for Stakeholders: Survival, Reputaton and Success. New Haven, CT: Yale University Press. Freeman, R.E., et al. (2010). Stakeholder Theory. The State of the Art. Cambridge: Cambridge University Press. Giarandoni, A. (2008). La responsabilit sociale nel settore agroalimentare. Policy report of I-CSR Foundation. Hog M.K. (1998). Anti-Constellations: exploring the impact of negation on consumption. Journal of Marketing Management, 14(1-3), 133-158. Hubert, A. (2010). Empowering people, driving change: social innovation in European Union. Retrieved from http://ec.europa.eu/DocsRoom/documents/13402/attachments/1/translation s/en/renditions/native Hudson, R. (2008). Creating the innovation economy, Policy challenges in the open innovation approach. Report to the bureau of European policy advisors. Retrieved from https://www.dur.ac.uk/geography/staff/geogstaffhidden/?id=345. Organisation for Economic Co-operation and Development (OECD) (2008). Promoting Sustainable consumption. Retrieved from https://www.oecd.org/greengrowth/40317373.pdf. igano, E. (2008). he cos il commercio equo e solidale. Roma: Carocci. Westley, F., & Antadze, N. (2010). Making a Difference: Strategies for Scaling Social Innovation for Greater Impact. The Innovation Journal: The Public Sector Innovation Journal, 15(2), 2-19.

Business Ethics and CSR Websites http://www.fairtrade.it/ http://www.fairtrade.it/area-stampa/fairtrade-lancia-grande-sfida-chi-ama-caffe-

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THE COMPANIES BETWEEN VALUE CHAIN AND DYNAMIC CAPABILITIES Elena QUERCI Insubria University 71 Via Montegeneroso, Varese 21100, IT [email protected] Abstract. Low-cost high-value companies have shifted their view of the individual sector business to the value system in which all stakeholders, internal and external, should work to create shared value. Low-cost high-value health care businesses are the first movers in a new field. This paper explores these shifts. Business strategies must have the ability to catch the opportunities presented by the external environment. The needs of the population in the quality health sector have increased, and it’s necessary to ensure an appropriate response to the needs with the highest productivity in terms of overall service rendered. The health services must adapt to changing needs in order to develop, manage, measure and control the flow of knowledge. Low-cost high-value healthcare comapnies have the ability to sense the needs (ex-ante) and the satisfaction (ex-post). The economic and monetary sacrifice is opposed to the benefits derived from the service received and the satisfaction of the proposed requirements. The final objective of the study is to analyze the different strategic choices from value chain to dynamic capabilities developed by two companies that have adopted low-cost high-value strategies: the Centro Medico Santagostino and Odontosalute situated in Northern Italy. By comparing the two cases, we highlight their business model. Keywords: value chain; dynamic capabilities; low-cost high-value; first mover; healthcare. Introduction Austerity policies, following the economic crisis that began in 2008, have played a substantial role in social spending. Such choices have made the access to social services, particularly health services, more difficult. The main tools used are the increased out-ofpocket payout for patients and the cost containment of centers providing health services. Expenditure sharing levels have often increased, along with a revision of exemption conditions. On the contrary, little or nothing has been done in extending the service offered. Some lightweight healthcare companies have chosen low-cost high-value strategies. These companies are committed to innovate more quickly and to manage business costs, from supplies to production and logistics, to reduce and contain inefficiency and provide high-quality but low-price health services. The purpose is to offer consumers goods and services with high levels of real and perceived value, at fair prices. In the health sector of low-cost high-value, we note that the introduction of new methodologies or revision of existing ones have a central role in all stages of the programing and management control for value creation (Mella & Gazzola, 2017).

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The economically excellent enterprise must also be socially able to "take such action goal and daily practice as the joint pursuit of economic and social value of value" (Butera, 1999). The creation of the health value can be regarded as a return on invested capital, which must be measured in terms of health outcomes obtained. The conditions necessary to create health value are numerous, involving different stakeholders. There are sometimes conflicting objectives including access to services, profitability, high quality, cost containment, safety, convenience, patient centeredness, and satisfaction (Porter, 2010). The growth of new business ventures is very important; new entrepreneurs and new ideas entering into an economic-productive system lead to new goods and production techniques and encourage the interaction between people, ideas, and capital that results in the inception and development of new fields of business. This, in turn, sparks a virtuous cycle, leading to the growth of technical and organizational skills that makes it possible to recreate the pattern in other businesses operating in the same field. The scope of this paper focuses on the study of strategy from the value chain to dynamic capabilities and its impact on business choices. The fundamental concepts emerging from the discussion in the literature and the greater contributions to the company's performance will be highlighted. In addition to this, this paper explores the different strategic choices from the value chain to the dynamic capabilities developed by two companies that have adopted low-cost high-value strategies to catch the opportunities presented by the external environment: the Centro Medico Santagostino and Odontosalute situated in Northern Italy. Organization of the work and research method The specific objective and final aim which we have pursued through the study of these cases is to create a benchmark analysis that can be used as a guide for anyone wishing to follow it or to improve their company’s business policies aiming the low-cost highvalue approach. The general purpose of this research is to formulate a theory, specifically aimed at describing the main points of a problem, rather than merely clarifying alternatives, or studying the relationship between two or more alternatives. Using case studies focused on quality is a rather recent approach for which two authors, Kathleen Eisenhardt (1989) and Yin (1981), laid down the guidelines. They consider this form of research preferable to determine “why and how” certain phenomena develop and evolve in specific contexts. Yin (1981), in particular, described a case study as ”a research strategy, the distinguishing a characteristic of the case study is that it attempts to examine: (a) a contemporary phenomenon in its real-life context, especially when (b) the boundaries between phenomenon and context are not clearly evident. Experiments differ from this in that they deliberately divorce a phenomenon from its context. Histories differ in that they are limited to phenomena of the past, where relevant informants may be unavailable for an interview and relevant events unavailable for direct observation.” Hartley (1994) states that research based on a case study is “a detailed investigation, often with data collected over a period of time, of one more organizations, or groups within organizations, with a view to providing an analysis of the context and processes, involved in the phenomenon under study”. When it is deemed useful to use more than one case study, each one should be developed separately. This allows both to evaluate the final results and to determine the diverse

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elements that confirm the original hypothesis. In our case, the “literal replication” model was chosen, since three companies operating in low-cost high-value health services were analyzed for their similarities, in order to outline a low-cost high-value business model for health services. In the business model we want to see some value propositions who may be innovative and represent a new or disruptive offer or may be similar to existing market offers, but with added features and attributes (Osterwalder & Pigneur, 2009). The cases studied are the “Centro Medico Santagostino” in Milan and the “OdontoSalute” in Gemona, Friuli-Venezia Giulia, in Italy, these are companies that have adopted the low-cost high-value philosophy by concentrating on improving their internal organization and the useof scale economies to lower their costs, thus making health services accessible to a wider variety of people. By value chain to dynamic capabilities In this approach, the intention is to achieve a defensible competitive advantage in the medium - long term. The strategy is a response to environmental stimuli, perceived in terms of threats and opportunities, by taking advantage of the strengths and of weaknesses. Through the strategy, the company, aware of strengths and weaknesses, dynamically adapts to environmental turbulence and analyses the competition and anticipates the evolution. So the forecast analysis of weak signals and the harmonization conduct of enterprise external environment play a prominent role in identifying the necessary capacity to respond to or anticipate change (Ansoff, 1974). Porter (1980) exceeded the analysis of product - market towards the identification of the sources of competitive advantage. His model is considered a bridge from the previous strategy studies that focused on the competitive spaces and the different types of competitive advantage. Although focused on industrial activities, Porter's work develops a dynamic theory of strategy explaining how is the success of a company over another through the analysis of the links between environmental circumstances and behavior of the company. The theory is focused on the maximization of the value generated by the performance of its economic activity through a specific value chain. The company's strategic planning has found in Porter's value chain (1985) the most appropriate tool for the analysis and breakdown of the value creation process. The value chain aims at identifying the costs, in a context of overall enterprise strategy, highlighting the costs broken down by elementary activities. The division of tasks allows the processing of alternative decisions in terms of efficiency and effectiveness. The representation of the model of the value chain has the shape of an arrow where the primary activities are placed in sequence technique. The process of generating value margin is decomposed into primary and support activities. Primary activities describe the process of acquisition of inputs, processing, distribution and after-sales product while the support activity has the task of supporting the process of integration and linking mechanisms between the primary activities. The competitive forces interacting in the company's structural dynamics are five: competitors, potential entrants, producers of substitutes, customers and suppliers. The value chain helps to represent the range of activities undertaken by a company to acquire, design, manufacture, sell, distribute and support its products, considering their competitive advantage and therefore the value generated in its chain, with activities better than their competitors.

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Profitability of the activity improved means getting a lower cost for the same output, or get a more palatable output on the market. Porter and Kramer (2011) exceed the enterprise-centric approach, promoting a vision in which the production of value is determined by the synergy of a constellation of actors (other companies, local and national institutions, civil society, the supply chain components, etc.) that they operate in a territorial ecosystem. The context in which the company operation is characterized by a strong segmentation and diversity, so it becomes crucial to the development (or qualification) of networks between the stakeholders, giving them a necessary focus. This approach emphasizes that the firm is in a context of relationships with its stakeholders that determine, to the outside, the ability to create value for the territory and, inland, the effects on the value chain of the firm itself. In fact, businesses need a territory and a prosperous community, in terms of infrastructure, services, application, talents, etc. Conversely, a social and territorial context in healthcare depends on the presence of companies able to provide jobs, adequate wages, and salaries, buy quality goods and services, pay taxes, protect the environment, use resources efficiently, etc. Companies must take steps to reconcile business and society along the road to the creation of shared value, economic and social while addressing the needs of the company and the social needs of its territory. The focus is therefore on the utilization of the know-how of the company and the reconfiguration of relationships along the value chain: companies have to create or strengthen the bond with the territory and the communities that surround them, also by promoting new and closer forms of cooperation with the other actors of the territory, so as to allow an increase of social progress. Bidirectional logical approach towards enterprise stakeholders moves toward a multidirectional logic (business, partners, stakeholders, companies), focusing on open and informal processes that activate collective intelligence and collaborative economies. In summary, there are three main ways according to Porter and Kramer (2011) with which companies can create shared value opportunities: redefining products and markets, redefining productivity in the value chain and enabling the development of local clusters. The tune with the evolution of the environmental context is the Resource Based Theory (later referred to as RBV). The rapid success of the RBV paradigm is indicated as a reaffirmation of influential past work (Ansoff, 1965, Penrose 1959) to take back the role of resources and organizational and relational capabilities (Teece, Pisano & Shuen, 1997). Over the last twenty years, many theories and analysis perspectives have created a set of knowledge aimed at pointing out and eliminating elements of ambiguity or confusion in terminology and concepts (Barney et al., 2001; Barney 2001a, 2001b; Day & Wensley, 1988; Dierickx & Cool, 1989; Eisenhardt & Martin, 2000; Mahoney & Pandian, 1992; Nelson & Winter, 2009; Priem & Butler 2001a, 2001b; Zahra & George, 2002; Zollo & Winter, 2002). The evolution of the RBV goes from a substantially static approach, where resources and opportunities are given, and the strategy is to identify the use of resources more coherent with opportunities, to a more advanced RBV. For the resource-based view, the reasons for the competitive advantage must be sought in the possession and availability (not necessarily ownership) of resources, with certain characteristics. Wang and Ahmed (2007) argue that an enterprise with higher levels of dynamic

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capacity focuses on development capability as its strategic choices. Conversely, when adopting a cost leadership strategy, the company can focus on high production and on cutting overall costs. Eisenhardt& Martin (2000) state that the common characteristics of dynamic capabilities across firms are identifiable and dynamic capabilities demonstrate the nature of “commonalities in key features, an idiosyncrasy in details" and are three the main component factors of dynamic capabilities, namely adaptive capability, absorptive capability and innovative capability. Development of new healthcare services from the value chain to the dynamic capabilities The demand for healthcare services will increase in the future due to an ageing population and new treatment possibilities. These rising costs have increased the attention to find more efficient ways of delivering healthcare. Innovation can play a vital role in this challenge to deliver qualitative health care more efficiently to patients. The fiftieth CENSIS Report on the Social Situation of Italy highlights that Private healthcare in Italy weighs more on those who have less. The elderly population spends more than 46 euros for healthcare compared to the average private spending per capita, so every 100 euros the elderly spend 146. An elder spent on the health out of pocket more than twice than a millennial and almost 50% more than a baby boomer. Inadequate treatment due to insufficient staff and long waiting lists, inefficient bureaucracy, poor management and general disorganization that contribute to rising costs are the causes that lead to private healthcare instead of the use National Health Service. It is to be considered that most of the Italian private healthcare is out-ofpocket, that is, not through funds or insurances. Estimates provided by key industry operators for 2015, the spending is around 4.5 billion euros, appears to some 10 million people who have entered into supplementary health insurance, with a growing trend (Del Vecchio, Fenech & Rappini, 2016). The opening of new market areas in healthcare, particularly those in lightweight care areas, has allowed the creation of new companies that apply low prices but ensure high quality. They are low-cost high-value companies. They are businesses characterized by slim organization, with extensive use of IT for booking online visits, and for information. They are characterized, by applying a small surplus to the National Health System ticket, by short or no waiting lists. For all these reasons they are also correspondent privileged for volunteer healthcare funds (Querci & Gazzola, 2017). The cost and quality of a healthcare benefit include a component of the product (for example, the clinical outcomes of a medical treatment regime) and a service component (for example, delivery of treatments, ease of access to care and possibility of choice), so good value can be defined as an optimal point on a cost and quality curve. The creation of a value-based healthcare system implies a significant restructuring of the delivery of healthcare and not incremental improvements. Set the goal as value for patients, not containing costs so the quality improvement is the key driver of cost containment and value improvement, where quality is health outcomes. Care delivery should be organized around the patient’s medical over the full cycle of care (Porter & Teisberg, 2006).

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Figure 1. The Virtuous circle in Healthcare Delivery (Porter & Teisberg, 2006)

In these areas, Dynamic Capabilities are focused on an innovator or service company. It is a fact that innovation does not occur in isolation. Many of the dynamic capabilities are related to other system actors, such as users or partner organizations. It is therefore fundamental that interaction with other actors is identified as important for the development of new services (den Hertog, 2010). From this point of view, the success of an innovation depends on many organizations and the dynamic service capabilities they involve. In the healthcare organization, the consumer/ patient has shifted from a passive subject of care to an active subject situation thanks to the access to information provided by IT. So the patient has to take into account, for the future, different hierarchical implications. The different participants complement each other in the innovation process by collaborating. The integration of the access to information around healthcare options, costs, and quality will empower healthcare consumers to make better-informed choices around care delivery channels and providers and the alternative in the offer between public and private health care. To maximize the value, they receive from the healthcare system, consumers/ patients must take responsibility for their health. Consumers need to adapt to health changes by adopting approaches in line with Health literacy. Health literacy "represents the cognitive and social skills that determine the motivation and ability of individuals to gain access to, understand and use information in ways that promote and maintain good health” (Nutbeam 2000). Table 1 shows the good practices that the consumer has to implement in order to obtain the best value from the healthcare offerings including manage, create, maintain and maintain a personal health record (PHR) and automated and integrated information management processes (EHMR). In order to always have relevant and accurate clinical and health information, implement a healthy lifestyle, educate yourself, take an active /activist relationship with the healthcare system.

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Table 1. Implications for consumers (Adams et al., 2015)

Businesses that have taken advantage of the opening up of the healthcare market to private individuals implement open and informal processes that activate collective intelligence and collaborative economies. As stated by Porter and Kramer (2011), companies create value through the redefinition of products and markets, the redefinition of productivity in the value chain and the development of local clusters. These companies have a high dynamic capacity both in terms of development capability and its strategic choices, Wang and Ahmed (2007) chose to adopt a cost oriented leadership strategy by expanding the service offering Healthcare, both for the number of clinical specialization and for the timetables as well as for the territorial diffusion. The company can focus on high production and reduce overall costs. Eisenhardt and Martin (2000) state that the common characteristics of dynamic capabilities in all companies are identifiable and there are mainly three factors/ components of dynamic capabilities: namely adaptability, absorption capacity and ability to innovate. Santagostin Medical Center and Odontosalute reconfigured the healthcare market. They have created a new offer of how to take advantage of health care. Competitive prices, often no waiting lists to access visits contrary to what is happening in the accredited healthcare and the National Healthcare System. They are companies that have started their activity navigating in a blue ocean creating new demand and profitable growth. Santagostin Medical Centre and Odontosalute have looked at the boundaries of a mature system to offer service care at the same time implementing a cost and differentiation strategy (Kim & Mauborgne, 2015). The companies Santagostino Medical Centre and Odontosalute, are companies that offer lightweight health services, the first through multiple clinical specializations, the

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second one deals with dental care. Both operate above all in those health services where the National Healthcare System is not present or there are long waiting lists for access to care. The Santagostino Medical Centers are located in Northern Italy while Odontosalute operates through a franchise network throughout Italy. Their company mission is to provide low cost quality healthcare high quality to a wide customer base spread across the territory. They were born in the years 2008 and 2009. They have come across the light market with innovative strategies. They are prime mover (Normann & Ramirez, 1998), they have ambidextrous skills (O’Reilly & Tushman, 2004) and use CSR (Gazzola, 2013). The Santagostino Center is committed to cooperating with associations and adheres to and supports environmental and recovery projects such as Santagostino patients can donate free medical visits and medical care to people in economic and social difficulties reported by territorial associations such as Caritas Ambrosiana, Bethany Group Associazione, Asspi and others; the company has launched a blood collection campaign in collaboration with Avis, a blood donation association; it has a partnership with the municipality of Sesto San Giovanni (Mi) for the upgrading of the square in front of one of the centers with the realization of an urban garden and in 2016 there were organized 4 laboratories for children, on nutrition, Creativity, sensory and respect for green. Santagostino Medical Center uses widely all the most innovative technologies in order to make the service faster, easier and more effective to provide patients with not only performance but a system that best addresses all aspects of their care experience and hence of their health. All this through reduced rates, price transparency, feedback with stakeholders. Over the decade, the business expanded the number of medical centers and to revenue in continuous growth. The headquarters have become ten, revenue from 2019 to 2017 has gone 631,348 euros to 10,954,247 Euros, with a yearly growth of about one million Euros (Figure 2).

Figure 2. Development of activity on eight years (Annual report 2016 Santagostino Medical Center)

In 2016, the technology adaptation process was completed, all servers were deleted with a full cloud system, figure 3 All back office and front office activities are automated, patients can book, dial up with doctors, communicate clinical information across the internet and using the cloud technology.

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Figure 3. Development of IT (Annual report 2016 Centro Medico Santagostino)

Odontosalute was born out of the need to counter dental tourism to Croatia and Slovenia and to solve the problem of falling patients. After the implementation of the Association of Dentists of group purchases and the application of the same price for everyone, a concept of dental clinics was actually transformed into reality. The first one was set up on March 30, 2008. At present, there are 35 clinics, distributed across national territory, of which 6 are direct property and the others through franchise contracts. The strategies to contain costs benefit patients who are offered quality services at lower prices than those of the competition, with minimum waiting lists and easy access to care. Through business replication, sales over the years have risen exponentially (Figure 4). An efficient organization and support of a digital center whose purpose is supporting clinics for standardizing the service offering through the internet of things allow offering quality care across the national territory at low prices. Odontoslute created a market that did not exist, including market changes, implementing and directing the change itself (Normann & Ramirez, 1998).

Figure 4. Forecast sales revenue clinic end 2014 Odontosalute (infodent.it)

Conclusions The dynamic capabilities of Santagostino Medical Center and Odontosalute are related to other system actors, such as users or partner organizations for the development of new services. The different participants complement each other in the innovation

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process by collaborating. The integration of the access to information about healthcare options, costs, and quality will empower healthcare consumers to make better informed choices around the care delivery channels and providers and the alternative in the offer between public and private healthcare. Thanks also Information transparency, large IT space and the possibility of dialogue through social media. In a society where welfare is suffering, and political choices are shifting towards multiple providers in health care, the volume of services and revenues of the companies considered, indicates that people consider it the answer to their demand for treatment at fair prices but quality. So the market for health services has had a gradual transformation, with a network of professionals to offer healthcare services to meet the needs of patients who pay for their own pocket. As Porter and Kramer (2011) say, the two companies have a vision in which the production of value is determined by the synergy of a constellation of actors (that is, other companies, local and national institutions, civil society, supply chain components, etc.) that they Operate in a territorial ecosystem. Santagostino Medical Center collaborates with the environment in which it operates through different Projects in collaboration with communities where they work. Odontosalute has entered into favorable agreements with suppliers for large quantities of purchases. For Odontosalute, the reshaping of supplies and work on large numbers of customers it transforms in low prices without diminishing quality. The revenue of the two companies, with unchanged own capital, is important and through business, replication is growing. Scale economics, value creation for all stakeholders, innovation in processes and products are key to allowing the cognitive and social skills to individuals to gain access and understand and use the information to promote and maintain good health. References Adams, J., Bakalar, R., Boroch, M., Knecht, K., Mounib, E.L., & Stuart N. (2015). Win-win or lose-lose? A portrait and a path to successful transformation. Retrieved from https://www-935.ibm.com/services/us/gbs/bus/pdf/healthcare2015-winwin_or_lose-lose.pdf. Ansoff, H.L (1974). La strategia d’impresa [Business strategy]. Milan: Franco Angeli. Barney, J.B. (2001a). Is the resource-based ‘view’a useful perspective for strategic management research? Yes. Academy of Management Review, 26(1), 41–56. Barney, J.B. (2001b). Resource-based theories of competitive advantage: a ten-year retrospective on the resource-based view. Journal of Management, 27(6), 643– 650. Barney, J.B., Wright, M., & Ketchen, D. Jr. (2001). The resource-based view of the firm: ten years after 1991. Journal of Management, 27(6), 25–641. Butera, F. (1999). Economia e Società nell'impresa: l'impresa eccellente socialmente capace [Economy and Society in the Enterprise: the excellent socially capable]. Studi Organizzativi, 1(1), 11-39. Censis (2016). Cinquantesimo Rapporto sulla situazione sociale del Paese 2016 [ Fiftieth Report on the Social Situation of the Country 2016]. Milan: Franco Angeli.

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Centro Medico Santagostino (2016). Centro Medico Santagostino Annual report 2016. Retrieved from https://www.cmsantagostino.it/news-ed-eventi/scaricaannual-report-2016. Day, G.S., & Wensley, R. (1988). Assessing advantage: a framework for diagnosing competitive superiority. Journal of Marketing, 52(2), 1–20. Del Vecchio M., Fenech L., & Rappini, V. (2016). I consumi Privati in Sanità. In Rapporto OASI 2016 [Private Healthcare Consumption in OASI 2016] (pp.265-287). Milan: Egea. Den Hertog, P., Van der A.W., & De Jong, M. (2010). Capabilities for managing service innovation: towards a conceptual framework. Journal of Service Management, 21(4), 490-514. Dierickx, I., & Cool, K. (1989). Asset stock accumulation and sustainability of competitive advantage. Management Science, 35(12), 1504–1511. Eisenhardt, K.M. (1989). Building Theories from Case Study Research. Academy of Management Review, 14(4), 532-550. Eisenhardt, K.M., & Martin, J.A. (2000). Dynamic capabilities: what are they? Strategic Management Journal, 21(10-11), 1105 –1121. Gazzola, P., & Colombo, G. (2013). Stakeholder engagement between managerial action and communication. The Annals of Faculty of Economics. The Annals of the University of Oradea Economic Sciences, XXI(2), 97-10. Gazzola, P., Colombo, G., Pezzetti, R., & Nicolescu, L. (2017). Consumer Empowerment in the Digital Economy: Availing Sustainable Purchasing Decisions. Sustainability, 9(5), 693, 1-19. Infodent (2015). Mensile d’Informazione Dentale [Monthly Dental Information]. Retrieved from http://infodent.it/focus/odontosalute. Hartley, J.F. (1994). Case studies in organisational research. In Cassel, C., & Symon, G. (Eds.), Qualitative methods in Organizational Research: A Practical Guide (pp.208-229). London: Sage Publications. Helfat, C.E., & Peteraf, M.A. (2013). The Dyanamic Resource-Based View: Capability life cycles. Strategy Management Journal, 24(10), 997-1010. Kachaner, N., Lindgardt, Z., & Michael, D. (2010). The new Low Cost. Retrieved from https://www.bcgperspectives.com/content/articles/growth_business_unit_strat egy_the_new_low_cost/. Kim, W.C., & Mauborgne, R. (2015). Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant. Boston, MA: Harvard Business Review Press. Mahoney, J.T., & Pandian, J.R. (1992). The resource-based view within the conversation of strategic management. Strategic Management Journal, 13(5), 363–380. Mella, P., & Gazzola, P. (2017). The holonic view of organizations and firms. Systems Research and Behavioural Science, 34(3), 354–374. Nelson, R.R., & Winter, S.G. (2009). An evolutionary theory of economic change. Cambridge, MA: Harvard University Press. Normann, R., & Ramirez, R. (1998) Designing interactive strategy: From value chain to value constellation. Chichester: John Wiley & Sons. Nutbeam, D. (2000). Health literacy as a public health goal: a challenge for contemporary health education andcommunication strategies into the 21st century. Health Promotion International 15(3), 259-267. O'Reilly III, C.A., & Tushman, M.L. (2004). The ambidextrous organization. Harvard Business Review, 82(4), 74-81.

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Osterwalder, A., Pigneur, Y., & Tucci, C.L. (2005). Clarifying business models: Origins, present, and future of the concept. Communications of the Association for Information Systems. 16(1), 1-25. Penrose, E.T. (1959). The Theory of the Growth of the Firm. New York: John Wiley & Sons. Porter, M.E. (1980). Competitive Strategy. New York: The Free Press. Porter, M.E. (1985). Competitive Advantage. New York: The Free Press. Porter, M. E., & Teisberg, E. O. (2006). Redefining health care: creating value-based competition on results. Boston, MA: Harvard Business Press. Porter, M.E. (2010). What Is Value in Health Care? The new England Journal of Medicine, 363(26), 2477-2481. Porter, M.E., & Kramer, M.R. (2011). Creating Shared Value. Harvard Business Review 89(1-2), 62-67. Priem, R.L., & Butler, J.E. (2001a). Is the resource- based ‘view’ a useful perspective for strategic management research? Academy of Management Review, 26(1), 22–40. Priem, R.L., & Butler, J.E. (2001b). Tautology in the resource-based view and the implications of externally determined resource value: further comments. Academy of Management Review, 26(1), 57–66. Querci, E., & Gazzola, P. (2017). A New Business Model in Health Care Between Public and Private: Low Cost High Value Healthcare. In Contemporary Trends and Challenges in Finance: Proceedings from 2nd Wroclaw international Conference in Finance (pp.235 -246). Springer. Retrieved from http://eujournal.org/index.php/esj/article/viewFile/9210/8751. Teece, D.J., Pisano, G., & Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal, 18(7), 509-533. Wang, C. L., & Ahmed, P. K. (2007). Dynamic capabilities: a review and research agenda. The International Journal of Management Reviews, 9(1), 31-51. Yin, R. K. (1981). The case study crisis: Some answers. Administrative Science Quarterly, 26(1), 58-65. Zahra, S.A., & George, G. (2002). Absorptive capacity: a review, reconceptualization, and extension. Academy of Management Review, 27(2), 185–203. Zollo, M., & Winter, S. (2002). Deliberate learning and the evolution of dynamic capabilities. Organization Science, 13(3), 339–351. Websites http://www.odontosalute.it

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CSR DISCLOSURE AND EARNINGS MANAGEMENT. EVIDENCE FROM ITALY Giovanna GAVANA University of Insubria 71 Via Monte Generoso, 21100 Varese, IT [email protected] Pietro GOTTARDO University of Pavia 5 Via San Felice, 27100 Pavia, IT [email protected] Anna Maria MOISELLO University of Pavia 5 Via San Felice, 27100 Pavia, IT [email protected] Abstract. This paper studies how the ultimate controlling owner affects the relation between earnings management practices and the extent of a firm’s CSR disclosure. In so doing we analyze a sample of 216 Italian listed firms, comprising family, non-family and state owned companies for the period 2006-2015. Our results suggest a relation between earnings management and CSR disclosure for State-controlled firms as they present the highest extent of CSR disclosure and discretionary accruals. Keywords: CSR disclosure; earnings management; ownership; non-financial returns; stakeholders. Introduction Firms engage in meeting the expectations of their relevant stakeholders in order to ensure the durability of their operations over time. Companies undertake Corporate Social Responsibility (CSR) disclosure with a growing commitment in order to supply a systematic information on its social and environmental behavior (Adam & Frost, 2008). As a matter of fact, not only shareholders and creditors but also other stakeholders call for information on a firm behavior as they are aware of the relevance of environmental and social consequences of business activities (Van der Laan Smith, Adhikari & Tondkar, 2005). Firms may use different strategies in order to demonstrate that their behavior is in accordance with institutionalized norms (Suchman, 1995). They may set their goals and actions in accordance with stakeholders’ expectations or shape their perception through communication (Dowling & Pfeffer, 1975). CSR disclosure is perceived as an indicator of a firm’s concerns for societal and environmental issues (Chan, Watson & Woodliff, 2014) and society attaches great relevance to firms that provide social and environmental reporting (Fisher, Gunz & McCutcheon, 2001). Therefore, a firm would use disclosure in order to communicate that it takes care of CSR issues or to manipulate the perception of its social and

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environmental performance (Ling & Mowen, 2013) and change the public perception of its legitimacy (Deegan, Rankin & Voght, 2000). Firms are increasingly seeking to reinforce their competitive advantage by the means of social and environmental communication (Hooghiemstra, 2000). The information on CSR activities has a significant effect on consumers’ brand valuation and purchase intent (Pomering & Dolnicar, 2009; Zbuchea, 2013). Communication of a firm’s social and environmental activities also results in better employee commitment, consumer loyalty, and financial performance (Maignan et al., 1999). Moreover, there is evidence that CSR announcements influence stock prices as they are positively considered by investors (Arya & Zhang, 2009) and companies are more committed in CSR disclosure when they are engaging in equity and bonds issues (Gavana, Gottardo & Moisello, 2017b). Companies may also try to change investor perception of their financial performance, by the means of earning management. Patten and Trompeter (2003) demonstrated that firms in the chemical industry, facing the risk of a more stringent regulation consequent to a chemical accident, tended to lower reported earnings and that firms showing a higher level of environmental disclosure in the pre-event year showed a lower need to manage downward reporting earning, providing evidence of the complementary use of these practices as a response to the increased political pressure. Yip, Van Staden, and Cahan (2011) find a significant relationship between CSR disclosure and earning management pointing out the political environment as a relevant contextual factor. Finally, Sun, Salama, Hussainey, and Habbash (2010) do not find significant evidence that firms engaged in earning management would be more inclined to provide environmental disclosures, in order to reduce the risk that stakeholders suspect the manipulation of earnings. Empirical research points out that the nature of a firm’s ultimate controlling owner family, non-family and state - influences a company commitment to the prevention of social concerns (Dyer & Whetten, 2006) and the extent of its CSR disclosure (Gavana, Gottardo & Moisello, 2016), resulting in a higher disclosure engagement in state and family than non-family businesses. There is also evidence that a family endowment in the business has a positive effect on earnings quality (Pazzaglia, Mengoli & Sapienza, 2013). However, to the best of our knowledge, no research has yet studied how the nature of the ultimate controlling owner affects the relation between CRS disclosure and earnings management. We address this gap analyzing a sample of 216 Italian listed firms for the period 20062015 and, building on the Socioemotional wealth framework (Gómez-Mejía, Haynes, Núñez-Nickel, Jacobson & Moyano-Fuentes, 2007), we study the differences between family and non-family businesses (state and non-state controlled). We aim at verifying whether sustainability reporting is used to mask earnings management, that is a device to detract attention from low quality earnings or, on the contrary if sustainability reporting and financial information are viewed as synergic tools so that higher sustainability disclosure comes with higher earnings quality. We contribute to CSR disclosure/earnings management studies focusing on family firms and to family business literature answering the call for empirical research grounded in the Socioemotional wealth framework. We find that all in all family firms

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present a lower earnings quality and a higher extent of CSR disclosure than their nonfamily counterparts. State-controlled firms show the highest extent of this type of disclosure but they present a higher level of discretionary accruals than non-family firms. The reminder of the paper is organized as follows: section 1 provides the theoretical framework and the literary review; section 2 describes data and methods; section 3 points out the results and the related discussion; section 4 concludes highlighting limits and venues for further research. Theoretical framework and literary review “Earnings management occurs when managers use judgment in financial reporting and in structuring transactions to alter financial reports to either mislead some stakeholders about the underlying economic performance of the company or to influence contractual outcomes that depend on reported accounting numbers.” (Healy & Wahlen, 1999, p.368). During the last few decades, literature widely analyzed the motivations underlying a firm’s engagement in earnings manipulations but few studies focused on the relation between ownership nature and this practice. Empirical studies on Chinese firms suggest that privately-owned listed firms are more prone to upward earnings than the state owned counterpart (Ding, Zhang & Zhang, 2007). A number of studies concentrated on privately-owned firms (listed and unlisted) compared family firms with non-family firms using agency theory arguments to explain the differences in their earnings management behavior, reaching nonconclusive results and different conclusions (among others: Wang, 2006, Yang, 2010, Prencipe & Bar-Yosef, 2011, Chi, Hung, Cheng & Lieu, 2015). More recently literature addressed this topic from the Socioemotional wealth perspective (among others: Stockmans, Lybaert & Voordeckers, 2010, Pazzaglia et al., 2013, Achleitner, Günther, Kaserer & Siciliano, 2014, Martin, Campbell & Gomez-Mejia, 2016), which claims that the concern for the preservation of families’ non-financial returns is the reference point for family firms behavior and explains the differences in behavior between family and non-family firms and within family companies (Gomez-Mejia et al. 2007, Cruz, Justo & De Castro, 2012). This non-financial goal influences firms’ governance mechanisms, management processes (Gomez-Mejia, Cruz, Berrone & De Castro, 2011), strategies (Gomez‐Mejia, Makri & Kintana, 2010), risk-taking choices, business venturing (Gomez-Mejia et al., 2007) capital structure (Gottardo & Moisello, 2014, 2016), proactive stakeholder engagement and environmental management (Berrone, Cruz, Gomez-Mejia & Larraza-Kintana, 2010, Cennamo, Berrone, Cruz & Gomez-Mejia, 2012) and CSR disclosure behavior (Gavana, Gottardo & Moisello, 2017a, Gavana et al., 2017b). SEW relates to different non-financial aspects of the business which provides emotional returns to owning families (Gomez-Mejia et al., 2011). The socioemotional wealth is meant as “the stock of affect-related value that a family derives from its controlling position in a particular firm” (Berrone, Cruz & Gomez-Mejia, 2012, p. 259). Several dimensions characterize a family’s affective endowment in the company and the different relevance they assume in individual firms results in family businesses’ heterogeneity (Gomez-Mejia et al., 2011).

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Theoretical literature highlights five main dimensions: family control and influence on the firms, sense of identification with the company, binding social ties, emotional attachment of family members and renewal of family bonds to the firm through future generations (Berrone et al., 2012). Family control, on the one hand, is the necessary condition in order to exert family influence on the business, indirectly, by appointing a professional CEO, or through the direct involvement of the family in business management; on the other hand, it is itself a relevant source of emotional returns for the owning family. Families experience a strong sense of identification with the company, and the family image and the company’s one are strictly related. Family firms are particularly concerned with their reputation; they are aware it reflects on family members image as stakeholders see the company as an extension of the owning family (Berrone et al., 2010). Family members’ emotional attachment affects not only the ties between family members involved in the business but also the links between the firm, its employees, lenders and the community at large, developing strong social ties (Berrone et al., 2012). This social capital is itself a source of emotional return for the family and family firms behave in order to preserve this source of socioemotional wealth also for future generations (Cennamo et al., 2012). The “renewal of family bonds” dimension attains the company’s principal’s purpose to pass the business to future generations. Earning management in family firms Regarding the effect of family ownership on earnings management, empirical findings are divergent. Wang (2006) finds founding family ownership is negatively associated with the level of abnormal accruals; differently, the study of Yang (2010) reveals that the level of family ownership negatively affects earning quality, providing evidence of the entrenchment of controlling families to minority shareholders. Research also shows that board independence, expressed by the proportion of independent directors on the board and/or by the absence of CEO duality, reduces the magnitude of earnings management, but this effect is less pronounced in family-controlled firms than in nonfamily controlled firms, in particular when the CEO is a family member. This result supports the view that in family-controlled firms also independent directors are, to some extent, under family control (Jaggi, Leung & Gul, 2009, Prencipe & Bar-Yosef, 2011). There is also evidence from the high tech industry in Taiwan that the level of board independence lowers the propensity to engage in earnings management in family firms, while the effect is reversed in case of CEO duality (Chi et al., 2015). More recently, research relies on the socioemotional wealth approach (Gómez-Mejia et al., 2007) to explore earnings management practices in family and non-family firms and within family firms. For the purpose of preserving the firm’s value to the benefit of future generations and protecting the stock of non-financial values that the family derives from its controlling position, family firms are more prone to decrease earnings by reporting higher negative discretionary accruals and are less inclined to use real earning management than their non-family counterparts (Achleinter et al., 2014). This behavior would allow family firms to pay out lower dividends and turn resources into investments that increase firm’s future value, which is also protected from the detrimental effects that real management generates in the long term (Roychowdury, 2006). Other studies, basing on the socioemotional wealth framework, have shed some light within family firms, demonstrating that non-acquired family firms exhibit higher earnings quality relative to acquired family firms, especially when the CEO is a family

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member (Pazzaglia et al., 2013). Martin et al. (2016) suggest that a firm’s generational stage affects earnings quality as they find that listed family firms leaded by the founder present a lower engagement in earnings manipulation. On the other hand, Stockmans et al. (2010), focusing on private family firms, point out that a firm’s generational stage and CEO type, i.e. family or not family, enhance a firm’s attitude to resort to earnings management when financial performance decreases in order to preserve the socioemotional wealth from lenders constraints. Earning management and non-financial disclosure Research has investigated how a firm’s need to reduce political costs can model the relationship between earnings management and non-financial disclosure. Findings reveal that firms facing the risk of a more stringent industry regulation consequent to a specific accident tend to lower reported earnings and that firms showing a higher level of environmental disclosure in the pre-event year show a lower need to manage downward reporting earnings, providing evidence of the complementary use of these practices as a response to the increased political pressure (Patten & Trompeter, 2003). More generally, the relationship between earnings management and CSR disclosure would be context-specific, because firms in industries that bear higher political costs (i.e. oil and gas industry) exhibit a negative relationship between CSR disclosure and earning management, that is disclosing firms are characterized by higher quality earnings, whilst firms in industries characterized by lower political costs (i.e. firms in the food industry) use CSR disclosure as a substitute for low quality earnings (Yip et al., 2011). According to legitimacy theory arguments, firms engaged in earnings management might be more inclined to provide environmental disclosures in order to induce the perception that they are acting responsibly towards society and environment and reduce the risk that stakeholders closely scrutinize financial information to seek for earnings manipulations, but literature has not found significant statistical evidence supporting this motivation (Sun et al., 2010). All in all, empirical findings, on the one hand, suggest that the nature of the ultimate controlling owner affects the motivation and the extent of CSR disclosure, on the other hand, they point out that governance characteristics have an influence on a firm’s earnings quality. No studies have yet addressed how the nature of the ultimate controlling owner affects the relation between CRS disclosure and earnings management. In order to contribute to filling this gap we address the following research question: R.Q.: How does the nature of the ultimate controlling owner affect the relation between CSR disclosure and earnings management? Data and methods We collected the data from the stand-alone CSR reports for the Italian non-financial listed firms. The data refer to the period 2006-2015. Each firm/year has a disclosure score that ranges from 0 to 1. We define a family firm as one where a family owns at

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least 20% of common shares. A firm is state controlled if the state, or some other public body, owns at least 50% of common shares. We aim to investigate the relationship between CSR disclosure, controlling shareholders and earning management. To analyze this topic, we take into account accruals and several control variables. We measure financial performance with the return on total assets ratio (Roa). Leverage (Lev) is measured with the book value of the financial debt-to-equity ratio. Sgrowth measures sales growth from t-1 to t. We measure size as the log of total assets. Government and family ownership are likely to affect disclosure. State is a dummy to control if the firm is owned by public bodies. Family is a dummy to control for concentrated ownership. We assume discretionary accruals as the proxy for earnings management and draw upon the modified Jones model (Dechow, Sloan & Sweeney, 1995) for their estimation. We use the cross-sectional version of the model (DeFond & Subramanyam, 1998, Peasnell, Pope & Young, 2000, Bartov, Gul & Tsui, 2001) and, according to the ATECO industry classification, we group our sample firms in ten classes, retaining the observations only if in each year-class there are at least ten observations. Discretionary accruals (DA) are the difference between total accruals (TA) and nondiscretionary accruals (NDA). We compute total accruals through the balance sheet approach (Healy, 1985, Jones, 1991, Bartov et al., 2001, Martin et al., 2016), as stated below: TAi,t = ∆CAi,t - ∆CASHi,t - ∆CLi,t + ∆STDi,t - DEPi,t

[1]

where TAi,t = total accruals ∆CAi,t = change in current assets between period t-1 and t ∆CASHi,t = change in Cash and cash equivalents between period t-1 and t ∆CLi,t = change in Current liabilities between period t-1 and t ∆STDi,t = change in short term debts included in current liabilities between period t-1 and t DEPi,t = depreciation and amortization expenses The second step is the estimation of non-discretionary accruals, that is the expected component of total accruals. Non-discretionary accruals are estimated using the following model: TAi,t/Ai,t-1 = α0(1/Ai,t-1) + α1[(∆REVi,t - ∆RECi,t)/Ai,t-1] + α2(PPEi,t/Ai,t-1) + εi,t

[2]

where Ai,t-1 = lagged total assets ∆REVi,t = change in revenues between period t-1 and t ∆RECi,t = change in trade receivables between period t-1 and t PPEi,t = gross property, plant and equipment Coefficients α0, α1, α2 are estimated by regressing consolidated financial statements values from each firm in the same industry in each period. The industry-year regression coefficients from equation [2] are applied to estimate the non-discretionary accruals for firm i in period t

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NDAi,t/Ai,t-1 = a0(1/Ai,t-1) + a1[(∆REVi,t - ∆RECi,t)/Ai,t-1] + a2(PPEi,t/Ai,t-1)

[3]

Finally, discretionary accruals for firm i in period t are calculated as the difference between total accruals and non-discretionary accruals (all variables are scaled by lagged total assets) DAi,t = TAi,t – NDAi,t Results and discussion Table 1 reports descriptive statistics for total and discretionary accruals, disclosure score and control variables for the full sample and the family, non-family and statecontrolled subsamples. The disclosure index has a mean value that is lowest for nonfamily firms (0.05) and highest for the state-controlled firms (0.51), while family firms have a mean disclosure score of 0.09. The ratio of total accruals to lagged assets (TA) is -3.51%, with a small difference in mean values between family and non-family firms and a significantly lower value for state-controlled firms. The ratio of discretionary accruals to lagged assets is on average -0.87%, the higher value is found for family firms, -1.08%, and the lowest for non-family firms, -0.70%. In the period analyzed firm performance (Roa) is high for state-controlled and family firms and low (negative) for non-family firms. Leverage (Lev) is higher for family firms than for non-family or statecontrolled firms. In the full sample, family firms represent 51% of the data and statecontrolled firms another 8%. Table 1. Descriptive statistics All firms Mean Median (STD)

Family Mean Median (STD)

Non-Family Mean Median (STD)

State-controlled Mean Median (STD)

TA DA

-3.51 -2.65 (24.49) -0.87 -0.66 (19.39)

-3.62 -3.23 (21.37) -1.08 -0.93 (17.87)

-3.64 -2.04 (28.62) -0.70 -0.14 (21.38)

-2.22 -1.54 (18.44) -0.95 -1.19 (17.75)

Size Sgrowth

12.54 12.46 (1.96) 14.27 0.92 (93.36)

12.65 12.55 (1.50) 4.63 0.60 (50.34)

11.85 11.96 (1.90) 25.70 1.82 (142.4)

15.15 15.59 (2.09) 24.99 0.61 (144.1)

Lev Roa

0.85 0.36 (4.98) 1.01 0.54 (12.05)

0.95 0.46 (4.54) 1.65 0.52 (8.39)

0.79 0.28 (5.86) -1.84 0.47 (16.09)

0.37 0.31 (0.48) 2.00 1.36 (4.29)

CSR Family

0.11 0.00 (0.27) 0.51 -

0.09 0.00 (0.24) -

0.05 0.00 (0.17) -

0.51 0.64 (0.40) -

State

0.08

-

-

-

-

-

Our research question focuses on the effect of the ultimate controlling owner’s nature on the relation between CSR disclosure and earnings management. More specifically if different controlling owners use this type of disclosure with different purposes. CSR disclosure may be used to detract attention from low quality earnings or, on the contrary, CSR disclosure and financial information may reflect together a firm effort to be transparent and to build a faithful relationship with investors and other groups of stakeholders so that higher CSR disclosure comes with higher earnings quality. Our preliminary analysis does not give evidence of a positive correlation between discretionary accruals and level of disclosure for family firms, as they present the lowest CSR disclosure extent and a lower earnings quality than other firms. These findings suggest that family firms are not likely to resort to CSR disclosure in order to

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hide earnings management. As a matter of fact, family firms may be prone to downward earnings in order to retain resources into the firm (Achleinter et al., 2014) because they avoid resorting to non-family equity capital in the future to preserve family control (Gottardo & Moisello, 2014). On the other hand, they may also upward earnings in order to facilitate the relations with lenders and debt financing (Stockmans et al., 2010). Consistently with previous research (Gavana et al., 2017a), our results point out that family firms are not likely to preserve reputation and gain legitimacy by the means of CSR disclosure. State-controlled firms present the highest extent of CSR disclosure, but in mean they present a lower earnings quality than non-family firms suggesting that State-controlled firms are more likely to use CSR disclosure in order to divert attention from their earnings manipulation practices. It is consistent with the observations of Tagesson, Blank, Broberg and Collin (2009, p. 360) pointing out that for cultural reasons state-controlled firms try to demonstrate that they “serve as good examples” therefore they are more prone to mask unethical accounting practices bringing stakeholders attention on their social and environmental commitment. As a matter of fact, State-owned firms are in mean more visible because of their size and they are more subject to public scrutiny. Therefore, these firms more actively engage in showing that they behave consistently with society’s expectations and CSR reporting is a valuable tool for disclosing a firm’s socially-responsible behavior. Citizens are the ultimate controlling owner for state-controlled firms. The positive return they derive depend on these firms’ social performance (Gavana et al., 2017a) and the negative one consists of the cost they are likely to bear in fiscal terms if these firms do not produce an acceptable financial return. For this reason, social performance disclosure might be an effective means for diverting attention from earnings quality especially when a state controlled firm is lowering earnings, by the means of accounting manipulation, in order to reduce dividends. Family firms are more committed to CSR disclosure than their non-family counterparts. They are concerned with the business image as it affects the owning family’s reputation (Berrone et al. 2012), therefore they are more prone than nonfamily companies to disclose that they operate consistently with societal values (Berrone et al. 2010, Gavana et al., 2017a). On the other hand, these results suggest that family firms are more prone to lower earnings than non-family firms (Achleinter et al., 2014). This is likely to be due to the strong long term orientation of family firms, related to the desire to pass a healthy business to future generations (Berrone et al., 2012), that might result in reported earnings being managed downward in order to lower dividends or taxes and enhance internal financing. All in all, our findings show that earnings management in family firms is not significantly higher than in statecontrolled firms, but the level of CSR disclosure is significantly lower, suggesting that, in mean, family businesses are not likely to use CSR disclosure as a means for hiding earnings management. Conclusions This explorative study addresses the issue of the ultimate controlling owner nature effect on the extent of a firm’s CSR disclosure, also taking into account its earnings quality, by analyzing a sample of 216 Italian listed firms for the period 2006-2015.

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The findings suggest a significant role of the ultimate controlling owner nature in combining or not CSR disclosure with earnings management practices in order to hide the latter by the means of the former. This study has some limitations because it takes into account only the ownership nature without controlling for the effect of management characteristics. Therefore, more research is needed in order to verify the suggestion of this analysis taking into account other governance features which may highlight the possible heterogeneous behavior within firms with the same ultimate controlling owner nature. References Achleitner, A.K., Günther, N., Kaserer, C., & Siciliano, G. (2014). Real earnings management and accrual-based earnings management in family firms. European Accounting Review, 23(3), 431-461. Adams, C.A., & Frost, G.R. (2008). Integrating sustainability reporting into management practices. Accounting Forum. 32(4), 288-302. Arya, B., & Zhang, G. (2009). Institutional reforms and investor reactions to CSR announcements: Evidence from an emerging economy. Journal of Management Studies, 46(7), 1089-1112. Bartov, E., Gul, F.A., & Tsui, J.S. (2000). Discretionary-accruals models and audit qualifications. Journal of Accounting and Economics, 30(3), 421-452. Berrone, P., Cruz, C., & Gomez-Mejia, L.R. (2012). Socioemotional wealth in family firms theoretical dimensions, assessment approaches, and agenda for future research. Family Business Review, 25(3), 258-279. Berrone, P., Cruz, C., Gomez-Mejia, L.R., & Larraza-Kintana, M. (2010). Socioemotional wealth and corporate responses to institutional pressures: Do family-controlled firms pollute less? Administrative Science Quarterly, 55(1), 82-113. Cennamo, C., Berrone, P., Cruz, C., & Gomez‐Mejia, L.R. (2012). Socioemotional Wealth and Proactive Stakeholder Engagement: Why Family‐Controlled Firms Care More About Their Stakeholders. Entrepreneurship Theory and Practice, 36(6), 11531173. Chan, M.C., Watson, J., & Woodliff, D. (2014). Corporate Governance Quality and CSR Disclosures. Journal of Business Ethics, 125(1), 59-73. Chi, C.W., Hung, K., Cheng, H.W., & Lieu, P.T. (2015). Family firms and earnings management in Taiwan: Influence of corporate governance. International Review of Economics & Finance, 36(C), 88-98. Cruz, C., Justo, R., & De Castro, J.O. (2012). Does family employment enhance MSEs performance?: Integrating socioemotional wealth and family embeddedness perspectives. Journal of Business Venturing, 27(1), 62-76. Dechow, P.M., Sloan, R.G., & Sweeney, A.P. (1995). Detecting earnings management. Accounting Review, 70(2),193-225. Deegan, C., Rankin, M., & Voght, P. (2000). Firms' disclosure reactions to major social incidents: Australian evidence. Accounting forum, 24(1), 101-130. DeFond, M.L., & Subramanyam, K.R. (1998). Auditor changes and discretionary accruals. Journal of Accounting and Economics, 25(1), 35-67. Ding, Y., Zhang, H., & Zhang, J. (2007). Private vs state ownership and earnings management: evidence from Chinese listed companies. Corporate Governance: An International Review, 15(2), 223-238.

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Dowling, J., & Pfeffer, J. (1975). Organizational legitimacy: Social values and organizational behavior. Pacific sociological review, 18(1), 122-136. Dyer, W.G., & Whetten, D.A. (2006). Family firms and social responsibility: Preliminary evidence from the S&P 500. Entrepreneurship Theory and Practice, 30(6), 785802. Fisher, J., Gunz, S., & McCutcheon, J. (2001). Private/public interest and the enforcement of a code of professional conduct. Journal of Business Ethics, 31(3), 191-207. Gavana, G., Gottardo, P., & Moisello, A.M. (2017a). Sustainability Reporting in Family Firms: A Panel Data Analysis. Sustainability, 9(1), 38. Gavana, G., Gottardo, P., & Moisello, A.M. (2017b). The effect of equity and bond issues on sustainability disclosure. Family vs non-family Italian firms. Social Responsibility Journal, 13(1), 126-142. Gavana, G., Gottardo, P., & Moisello, A.M. (2016). Controlling owner nature, visibility and sustainability disclosure. European Journal of Economics, Finance and Administrative Sciences, 88(4), 73-84. Gomez-Mejia, L.R., Cruz, C., Berrone, P., & De Castro, J. (2011). The bind that ties: Socioemotional wealth preservation in family firms. The academy of management annals, 5(1), 653-707. Gómez-Mejía, L.R., et al. (2007). Socioemotional wealth and business risks in familycontrolled firms: Evidence from Spanish olive oil mills. Administrative science quarterly, 52(1), 106-137. Gomez‐Mejia, L.R., Makri, M., & Kintana, M.L. (2010). Diversification decisions in family‐controlled firms. Journal of management studies, 47(2), 223-252. Gottardo, P., & Moisello, A.M. (2014). The capital structure choices of family firms: Evidence from Italian medium-large unlisted firms. Managerial Finance, 40(3), 254-275. Gottardo, P., & Moisello, A.M. (2016). The Impact of Family Control and Influence on Leverage. European Journal of Economics, Finance and Administrative Sciences, 87. Healy, P.M. (1985). The effect of bonus schemes on accounting decisions. Journal of Accounting and Economics, 7(1-3), 85-107. Healy, P.M., & Wahlen, J.M. (1999). A review of the earnings management literature and its implications for standard setting. Accounting horizons, 13(4), 365-383. Hooghiemstra, R. (2000). Corporate communication and impression management–new perspectives why companies engage in corporate social reporting. Journal of Business Ethics. 27(1-2), 55-68. Jaggi, B., Leung, S., & Gul, F. (2009). Family control, board independence and earnings management: Evidence based on Hong Kong firms. Journal of Accounting and Public Policy, 28(4), 281-300. Jones, J.J. (1991). Earnings management during import relief investigations. Journal of Accounting Research, 29(2), 193-228. Ling, Q., & Mowen, M.M. (2013). Competitive strategy and voluntary environmental disclosure: evidence from the chemical industry. Accounting and the Public Interest,13(1), 55-84. Maignan, I., Ferrell, O. C., & Hult, G. T. M. (1999). Corporate citizenship: Cultural antecedents and business benefits. Journal of the Academy of Marketing Science, 27(4), 455-469. Martin, G., Campbell, J.T., & Gomez-Mejia, L. (2016). Family control, socioemotional wealth and earnings management in publicly traded firms. Journal of Business Ethics, 133(3), 453-469.

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Patten, D.M., & Trompeter, G. (2003). Corporate responses to political costs: an examination of the relation between environmental disclosure and earnings management. Journal of Accounting and Public Policy, 22(1), 83-94. Pazzaglia, F., Mengoli, S., & Sapienza, E. (2013). Earnings quality in acquired and nonacquired family firms: A socioemotional wealth perspective. Family Business Review, 26(4), 374-386. Peasnell, K.V., Pope, P.F., & Young, S. (2000). Detecting earnings management using cross-sectional abnormal accruals models. Accounting and Business research, 30(4), 313-326. Pomering, A., & Dolnicar, S. (2009). Assessing the prerequisite of successful CSR implementation: are consumers aware of CSR initiatives?. Journal of Business Ethics, 85(2), 285-301. Prencipe, A., & Bar-Yosef, S. (2011). Corporate governance and earnings management in family-controlled companies. Journal of Accounting, Auditing & Finance, 26(2), 199-227. Roychowdhury, S. (2006). Earnings management through real activities manipulation. Journal of Accounting and Economics, 42(3), 335-370. Stockmans, A., Lybaert, N., & Voordeckers, W. (2010). Socioemotional wealth and earnings management in private family firms. Family Business Review, 23(3), 280294. Suchman, M.C. (1995). Managing legitimacy: Strategic and institutional approaches. Academy of Management Review, 20(3), 571-610. Sun, N., Salama, A., Hussainey, K., & Habbash, M. (2010). Corporate environmental disclosure, corporate governance and earnings management. Managerial Auditing Journal, 25(7), 679-700. Tagesson, T., Blank, V., Broberg, P., & Collin, S.O. (2009). What explains the extent and content of social and environmental disclosures on corporate websites: a study of social and environmental reporting in Swedish listed corporations. Corporate Social Responsibility and Environmental Management, 16(6), 352-364. Van der Laan Smith, J., Adhikari, A., & Tondkar, R.H. (2005). Exploring differences in social disclosures internationally: A stakeholder perspective. Accounting and Public Policy. 24(2), 123-151. Wang, D. (2006). Founding family ownership and earnings quality. Journal of Accounting Research, 44(3), 619-656. Yang, M.L. (2010). The impact of controlling families and family CEOs on earnings management. Family Business Review, 23(3), 266-279. Yip, E., Van Staden, C., & Cahan, S. (2011). Corporate social responsibility reporting and earnings management: The role of political costs. Australasian Accounting Business & Finance Journal, 5(3), 17. Zbuchea, A. (2013). Are Customers Rewarding Responsible Businesses? An Overview of the Theory and Research in the Field of CSR. Management Dynamics in the Knowledge Economy. 1(3), 367-385.

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CORPORATE SOCIAL RESPONSIBILITY IN ISLAMIC CULTURE. CASE STUDY: ISLAMIC REPORTING INITIATIVE Irene LITARDI University of Rome “Tor Vergata” Via Columbia 2, 00133 Rome, IT [email protected] Gloria FIORANI University of Rome “Tor Vergata” Via Columbia 2, 00133 Rome, IT [email protected] Denise HARB University of Rome “Tor Vergata” Via Columbia 2, 00133 Rome, IT [email protected] Luana LA BARA University of Rome “Tor Vergata” Via Columbia 2, 00133 Rome, IT [email protected] Abstract. The aim of this paper is to explore the state of the art of Corporate Social Responsibility in Islamic culture. This topic is interesting not because CSR is a relatively new concept, but because some corporate sustainability reporting values developed in Western Countries, as GRI Standard, are not focused on Islamic values and beliefs. In fact, Sustainable Development is not a new concept, but it is embedded in the fundamental codes of conduct in Islamic Societies and Laws through Shari’ah. The objectives are: a) a literature review of Islamic CSR b) a qualitative comparative analysis between Islamic CSR (ICSR) and conventional CSR c) a documental analysis of the Islamic network that implements CSR strategies, policies, and practices in Islamic Societies (IRI- Islamic Reporting Initiatives) supported by an ad-hoc interview held with an IRI’s Staff member. The conclusion of this research discusses the perspective of Islamic view in sustainability reporting by incorporating the concept of Tawhid which provides a holistic guidance based on Islamic beliefs, values and concepts and, in specific, the main differences between western and Islamic Corporate Sustainability Reporting perspective. The findings of the paper are to be useful to integrate and develop sustainable strategies for Islamic companies. Keywords: corporate social responsibility; reporting; Islamic CSR; Islamic reporting initiatives.

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Introduction Although the expression Corporate Social Responsibility (CSR) was coined in the West, CSR is not as an exclusively Western notion. According to Taman (2011), despite that there is nothing in the Islamic faith or law that dictates that corporations should be “socially responsible” in those terms, if CSR means conducting your business while preserving the environment, treating your workers well, being fair to your competitors and honest in your dealings, caring about the society and its less fortunate members, and looking after stakeholders’ interests without undermining those of the shareholders, than the notion of CSR lies at the very heart of the Islamic faith and law (Taman, 2011). The aim of this research is to explore the state of the art of Corporate Social Responsibility in Islamic culture, particularly of the reporting activities rising from the Islamic Reporting Initiative. This paper aims: to explore the existing literature concerning the Islamic CSR (Section 1.1) and the differences between the latter and conventional CSR (Section 1.2); to provide an analysis of the case study focused on the Islamic Reporting Initiative (Section 3), considering its goals, mission and vision, and the creation of reporting standards able to integrate cultural and religious aspects typical of the Islamic culture, since there seems to be a gap by other widely adopted Western standards, such as the Global Reporting Initiative. Theoretical background According to Elasrag (2015), CSR could be defined as the voluntary integration of environmental, social and human rights considerations into business operations, over and above legal requirements and contractual obligations; CSR is the commitment of an organization to act in a manner that serves the interests of its stakeholders and is concerned with the ways that companies generate profits and their impact on the broader community; it is about “how” companies manage their business processes to produce an overall positive impact on society. This responsibility is very much felt in the Islamic religion. In terms of accountability, Muslims believe that they will be accounted for whatever they do in this world in the hereafter. Individuals (and businesses, as a group of individuals) are expected to feel socially responsible for others in the community. In general, the aim of the Islamic economic system is to allow people to earn their living in a fair and profitable way on the basis of Shari’ah without exploitation of others, so that the whole society may get benefits. Islam also emphasizes the welfare of the community over individual rights (Shamim & Karim, 2010). Islamic Corporate Responsibility: Shari’ah’s remarks about the CSR themes Shari’ah, or Islamic Law, is intended to regulate all aspects of a Muslim’s life. It is broadly divided into two sets of rules: one relates to the obligatory worship of God (ibadah) and the other relates to daily life outside the context of obligatory worship (muamalat), including commercial and financial dealings (Elasrag, 2015). The Islamic system is based on two essential concepts: human well-being (falah) and good life (hayat tayyibah), both of which stress universal brotherhood and socio-economic

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justice, as well as a balance between the material and spiritual requirements of all himand being that is necessary to preserve and enrich faith, posterity and wealth (Mohammed, 2007). Shari’ah refers to the sum of legal rules that God has legislated and sent to the people through Prophet Muhammad. It consists of three primary sources: Quran, Sunnah, and Ahadith (Taman, 2011; Elasrag, 2015). Shari’ah’s secondary sources are Qiyas, Ijma, and Ijtihad. Qiyas represents the process of reasoning whereby the principles found in the Quran and Sunnah are extended to new cases by analogy. Ijma represents the consensus of the Islamic community on a particular issue. Ijtihad is the interpretation and the opinion of Islamic jurists on a particular issue (Elasrag, 2015). Over time, Muslim scholars have surveyed the Quran and Sunnah and concluded that there is a set of main purposes that God intended for Shari’ah. These underlying purposes include providing for the well-being of humans, diminishing hatred and disputes, and setting limits to human freedom, which generally ends where the freedoms of others start (Muhammad, 2007). The purposes of Shari’ah also include eliminating hardship and protecting the Earth’s population. Last, but most important, is the purpose of promoting justice, as the main pillar of Islamic Law and the only way to eternal peace (Taman, 2011). In Islam, the business activities fall under the jurisdiction of Muamalat, which has to do with the man-to-man relationships. Trade (al-tijarah) is strongly encouraged and businessmen are highly praised (Muhamad, 2007). Islamic Law provides a set of key principles, duties and prohibitions related to social responsibility towards people and the environment, and to financial and commercial transactions. They concern both individuals and businesses (Table 1). Table 1. Shari’ah’s remarks about the CSR themes (author’s elaboration) Zakah e Sadaqah The references in the Quran and ahadith highlight the (Philanthropy and importance of charity, gift, alms, generosity, and payment of charity) tithing, specifying the need for such gestures to be sincere and not aimed at personal gain. Caring for Orphans The Quran explicitly states who should be the legitimate and for the Needy recipients of beneficial care and donations, identifying those figures in all the needy members of the community, with particular reference to the orphans. Caring for the The environment issue in the Quran is recalled with reference Environment to the importance of agriculture. The ahadith, however, emphasize the importance of Allah’s creation. In these, there is a strong tendency to protect and safeguard the environment, even in the most difficult circumstances (for example, during a conflict). Caring for Animals The theme of animal protection, as an integral part of the environment, is mainly dealt with in the ahadith, where numerous stories describe the need to treat animals with dignity and respect. Fair Trade, The Quran calls concepts related to fair trade, ordering not to Fulfilling behave improperly in trade agreements and to refrain from Covenants, and Free adopting deceptive behaviors under any circumstances (strong Competition is the promotion of the concept of justice, even in this context). Fair Treatment of In the Sacred Scriptures, a worker is compared to a brother.

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Workers Al Riba (Usury)

Al Gharar (Speculative Activities) Al Maysir (Gambling) Prohibited Products

Arbitrarily Fixing the Prices Accumulation of Food Exploitation of the ignorance of others Cheating and Defrauding Al Quard Al Hassan

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The most important indications, therefore, support honest and fair behavior in relation to the amount of work to be imposed and to the wage scale. Perhaps one of the best-known concepts in modern times, al riba, which means “usury”, is one of the most explicit prohibitions the Quran expresses. The ban is to prohibit the application of interests (favoring rather the total nonrepayment of the debt, which becomes a donation - sadaqah) The Quran, in its verses, prohibits corruption and forbids trade based on the uncertainty of the well-traded good. The verses relative to al maysir refer to the prohibition of gambling because the wealth derived from it is the result of “luck” rather than the benevolence of Allah (and as such represent a shame). It is well known that, within the Islamic religion, there are a number of products whose trade and consumption are forbidden. Among them are alcoholics and narcotics, idols, animals dead in a non-halal way. According to Mohammed’s statement, the market trend is decided by Allah, so those who set prices arbitrarily commit a sin. The practice of collecting products has common features with the prohibition of price fixing in an arbitrary manner: retaining goods until the price rises up is strongly prohibited according to numerous ahadith. The most famous hadith regarding the exploitation of information asymmetry leads the example of city traders who should not sell the products of a foreign merchant on their behalf (as they would benefit from their informed status at the expense of the foreign merchant). Fraud and deceit are recalled in many verses, often referring to the correct calibration of the “balance”, which must tell the truth and not deceive the buyers. In general, those who deceive are condemned by the Sacred Scriptures. A practice that has to do with both the alms and the prohibition of usury, Al Quard Al Hassan was born as a response to the verses of the Quran that invite to be lenient in calling the loans back. This “financial” practice is an interestfree loan.

Islam fully recognizes the legitimacy of economic and commercial activities1 and argues that there is nothing wrong with fair trade, provided it is in line with the Islamic Code of Conduct. Islamic Law prescribes specific guidelines for the governance of business, based on legality (halal: legal and permissible) of transactions. Halal economic activities consist mainly in trading with mutual consent, truthfulness,

1

“[…] Allah has permitted trade […]” Quran, 2:275

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generosity, and clemency; being trustworthy, honoring debts and fulfilling obligations (Uqud); treating workers fairly. As to haram transactions (unlawful and forbidden), they relate to the practice of usury and charge interest (Al Riba), trading prohibited items, sell in the presence of uncertainty and risk (Al Gharar) or speculation (Al Maysir), fix prices arbitrarily, accumulate food (Ihtikar), exploit others’ ignorance of market conditions, cheating and defrauding (Al Najsh). Because of the prohibitions discussed above, the people of Islam are facing the dichotomy between the need to trade with the West and to follow the commands of Islam (Taman, 2011): this is the reason that led to the emergence of Islamic Financial Institutions (IFIs), which offer alternatives to the commercial activities which Shari’ah forbids, including: a) murabaha, an agreement between a bank and a client in which the first becomes a commercial intermediary for the second (Lewis, 2008); b) musharaka, a contract that involves the creation of a company where partners contribute with capital and/or work, sharing risks, profits and losses; c) mudaraba, a form of partnership in which one of the partners (the rabb al-mal, literally “the money lord”) provides capital, while the other (muḍarib) manages it; d) takaful (which literally means “solidarity”), an alternative to conventional insurance based on the concept of social solidarity, co-operation and mutual compensation of losses - an idea that comes from the so-called “Aaquilah”, a fund existing at the time of the Prophet, to which each member of a particular tribe gave a contribution, in order to indemnify those, also belonging to the tribe, who had had to deal with unexpected disasters (Ayub, 2003); e) Al Quard Al Hassan, an interest-free loan whose only debtor’s obligation is to repay the amount of the loan. Islamic corporate social responsibility and comparison with conventional CSR Social responsibility refers to the obligation for companies to protect and make a contribution to the society they work in: in this sense, CSR is considered to be crucial in Islamic businesses. It encompasses a wider meaning that embraces the concept of taqwa2, which refers to God’s conscience, for which an enterprise, as a group of individuals, must assume the role of servant and vicar (of God), and the responsibilities arising from it, always. This concept should occur naturally in economic activities and relationships with all stakeholders (Siwar & Hossain, 2009). In the Islamic context, therefore, CSR is a religious and moral initiative based on the belief that a company should do “good” regardless of the financial consequences, whether positive or negative. From an Islamic perspective, social responsibility exercised by a business organization is seen as a benefit, rather than as a cost, and is not only a matter related to legal obligations or material rights of stakeholders: it is a moral duty and a matter of survival for both the organization and society, because each depends on the other (Khatun & Alautiyat, 2012). With reference to the guidelines of the Shari’ah, we can deduce that according to Islamic Law is certain that any benefits brought to the company will represent, over

Takwa implies making a deliberate effort to achieve the Shari’ah’s goals in the manner prescribed by the Shari’ah itself; it guarantees the social fabric, because people become voluntarily engaged in achieving the central goals of human well-being; it also plays a unifying role, linking the community together and constituting a source of equality, solidarity and freedom (Kamali, 1989b). 2

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time, an even greater future benefit for the organization and for the individuals who compose it (Parvez & Ahmed, 2004). The Ummah3 concept shows that society has a “right” and a kind of “participation” in anything a Muslim possesses and, wishing to extend this principle, to any activity and operation undertaken by an Islamic enterprise. Organizations are considered a human institution, part of the Islamic Community (Ummah Islamiyyah, precisely). Moderation and concern for the needs of others, as well as for their own, therefore, become an integral part of Islamic Corporate Social Responsibility. Individuals and businesses are encouraged to sacrifice, give and spend their wealth for the poor and needy, in view of the afterlife recognition. This sense of duty, responsibility, and spirit of sacrifice, nourished by the Islamic religion, serves to remove egocentrism and greed and to promote the compassion, care, cooperation and harmony of the community (Dusuki & Abdullah, 2007). The Tawhid paradigm is to carry out actions in line with faith (Aqidah), worship (Ibadah), and ethics (Akhlaq). It provides guidelines for business management in accordance with the principles of Shari’ah and Islamic ethics. Hence, according to the Islamic view, economic organizations should adopt a wider vision of CSR, deriving from the Tawhid paradigm, which indicates three relationships: the relationship with Allah, the relationship with man, and the relationship with nature (Spiee & Ali, 2001). These three dimensions represent the framework governing corporate practices in Islam and, hence, corporate social responsibility. The fulfilment of Islamic requirements over these three business relationships guarantee, in the Islamic view, healthy, just and sustainable social and economic development. The conventional CSR adopts the so-called Triple Bottom Line (Elkington, 1997) approach (TBL), a reporting framework that incorporates three dimensions of corporate performance: the social, the environmental and the financial dimension. The dimensions of the TBL approach are also identified as the three “P”: People, Planet and Profit. Andrew Savitz (2012) adopts a general definition for the Triple Bottom Line expression, according to which this approach captures the essence of sustainability by measuring the impact of an organization’s activities in the world, taking into account both its profitability and the value of its shareholders, and its social, human and environmental capital. The “3P” approach is inherent in Islamic Law and religion, presenting similarities and differences to conventional CSR (Table 2). Table 2. Conventional CSR vs Islamic CSR (source: author’s elaboration) Conventional Corporate Social Islamic Corporate Social Responsibility Responsibility People People Fair and beneficial business practices Care for women, orphans, the elderly towards the workplace, the community and and the needy; fair treatment of the region in which a company carries out workers; prohibition of the its business; prohibition of the exploitation exploitation of people or their of child labor; fair treatment of workers; ignorance; honesty towards suppliers honesty towards suppliers and customers. and customers; promotion of fair trade; respect for free competition. Planet Planet Sustainable environmental practices; Protection and safeguard of Earth; the The concept of Ummah embodies the universality of Islam and provides a framework for religious unity, which houses the cultural diversity of believers (Hassan, 2006). 3

Business Ethics and CSR reduction of carbon footprint; careful management of energy consumption and non-renewable resources; reduction of the waste in production; reduction of waste toxicity before disposal. Profits The real economic impact the organization has in its own environment; the benefit derived from the socially responsible activities of the enterprise/organization. Philanthropy Very marginal role; superficial approach to social responsibility; Green washing; Blue washing.

677 illegality of dumping toxic waste into rivers and oceans, manufacturing of ozone depleting products, indiscriminate oil spills, hunting of endangered species, unnecessary or irresponsible interference with the ecosystem, etc. Profits Economic and commercial activities alternatives to haram activities: al murabaha, al musharaka, al mudaraba, takaful e al quard al hassan. Philanthropy Central role; Holistic approach; Philanthropic activities: Zakah, Sadaqah, Bayt Al-Mal.

The most contrasting aspect between conventional CSR and Islamic CSR is the role of philanthropy. CSR has been defined as “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis” (European Commission, 2001). This definition of the European Commission intrinsically links CSR practice to commercial operations, thus excluding mere philanthropy and linking CSR to the core of business operations. In Western CSR, therefore, philanthropy is linked to a limited degree of social responsibility, in the absence of a well-structured and far-sighted environmental and social action plan, and the fear is to fall into the trap of green washing or blue washing. In the Islamic context, however, philanthropy acquires a completely different meaning (Thibos et al., 2011). The Quran and the Sunnah promote with emphasis charity and philanthropy, and provide very specific acts to fulfil these duties, both individually and at the organizational level: Zakah, a compulsory financial act that promotes charity for the needy; Sadaqah, a voluntary action of various kinds - not necessarily financial - that encourages the help towards others; and the Bayt Al-Mal, a practice that is not so widespread today, but which originally acted as a “State Treasury” and welcomed the Zakah and the Sadaqah so that those in need would know who to turn to get help. Thibos and Gillespie (2011) investigate how Islamic religion influences social reporting in the Arab world. The authors note conflicting results due to the fact that, on the one hand, there seems to be a strong awareness of the managers of large Arab companies regarding the importance of CSR and social reporting, on the other hand, there is very little evidence of a real practical commitment in that sense. Selvik (2013) explores the promotion and adoption of CSR in the Arab world, analyzing the case of Syria and the case of Dubai. The author notes that, although there are governmental organizations working to promote CSR, the difficulties they face in entrenching the concept among local entrepreneurs are many. The latter, according to the author, tend to remain faithful to a typically Islamic framework of social responsibility that appears to be in conflict with CSR as promoted by the organizations.

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Research methodology After a brief background on Islamic CSR, the research focused on a case study analysis on IRI. The case study analysis is enriched by a qualitative research methodology such as documental analysis for reviewing and evaluating electronic documents (Bowen, 2009) from IRI’s website. Moreover, the authors conducted ad hoc interviews to an IRI’s staff member about the Organization and its activities. The interview was created with a view to understanding the story behind the Organization, its goals, and purposes. The interview is composed of 14 questions on general information about the interviewed; general questions about Islamic Reporting Initiative; specific questions about the relationship between Islamic Reporting Initiative and Western CSR; on Islamic CSR standards; the last question aims to investigate the future implications of introducing integrated Islamic standards for Islamic Corporates. In conclusion, a comparative analysis with the Global Reporting Initiative. Case study: Islamic Reporting Initiative The Islamic Reporting Initiative (IRI) is a non-profit organization that works to create a framework of guidelines that integrates CSR reporting with Islamic principles and values, working towards achieving international best practice standards. The framework will enable organizations to evaluate, verify and certify their corporate social responsibility and philanthropy programs in an inclusive manner, supporting the United Nations Sustainable Development Goals. The Organization seeks to achieve the above through a culturally relevant and “impact-oriented” methodology. This approach is based on those studies according to which companies around the world are not always comfortable with the current CSR reporting tools, since they do not fully reflect the cultural context in which they operate. IRI sees the values of peace, compassion, tolerance, justice, environmental management and human dignity as the foundations on which to implement enterprise sustainability and social responsibility on a universal scale. Currently, IRI is in the first of three stages of development, in which the organization is mainly involved in gathering support, by welcoming signatory members and partnerships that are capable of representing all sectors. IRI already welcomes members from all over the Middle East and North Africa, Central and South-East Asia, and Europe, representing different economic sectors, including the health, the financial, the education and the environment sectors. The Islamic Reporting Initiative (IRI) drives the creation of an independent reporting framework based on Islamic values, for the measurement and evaluation of sustainability and corporate social responsibility. Recognizing and embracing the features of Islamic business practice, IRI will enable organizations to report more effectively than their CSR and philanthropy efforts, so as to speed up the achievement of sustainable value and growth. IRI’s Mission is to enable organizations around the world to look at the values that drive their activities and to express their contribution to sustainability in society and the environment with clarity and simplicity. The Vision is a sustainable global economy that contributes actively to society and the environment, integrating the values of peace, compassion, tolerance, justice, human dignity and environmental management within the corporate culture.

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IRI conceives CSR in a broader way, including four dimensions: economic, legal, ethical and philanthropic. There is a consensus that the current main frameworks (including the GRI framework) are largely based on Western literature and practice, leaving many context-sensitive factors, such as philanthropy, out. These frameworks tend to affirm the first two or three dimensions (economic, legal, ethical) and recognize the role of philanthropy in CSR less, despite their compatibility. Existing reporting standards, such as those proposed by the Global Reporting Initiative among others, are not always practical or relevant in a particular cultural and local context. IRI and GRI have common features, but also some significant differences (Table 3). IRI faces a reality where social reporting and CSR are already well-known and internationally diffused notions and practices and collides with a different problem: the absence of a reporting tool that integrates CSR disclosure with the cultural and religious component that local contexts refer to in their activities.

   



      

Table 3. Global Reporting Initiative vs. Islamic Reporting Initiative (author’s elaboration) Global Reporting Initiative Islamic Reporting Initiative Boston, 1997  Dubai, 2015 Western context, post Middle Eastern/Eastern Context industrialization  Local and Religion-oriented approach to CSR Secular approach to CSR Mission: Empowering decision-makers  Mission: Allowing organizations around the world through their around the world to review the values sustainability standards and their that drive their activities multi-stakeholder network, with the  Vision: a sustainable global economy goal of acting towards a more that actively contributes to society and sustainable economy and the world. the environment, integrating values of peace, compassion, tolerance, justice, Vision: Creating a future where sustainability is an integral part of the environmental management and decision making processes of each human dignity within the corporate organization culture Presence of an organizational firewall  Absence of an organizational firewall between principle-setting activities between principle-setting activities and other organizational activities and other organizational activities Multi-stakeholder approach and  Multi-stakeholder approach and indispensable relevance of indispensable relevance of stakeholders stakeholders Importance of strategic partnerships  Importance of strategic partnerships Great number of Western  Modest number of partnerships partnerships (growing), both Arab-Islamic and Western Skeptical approach to charity and philanthropy  Positive and inclusive approach to charity and philanthropy Exclusion of activities that serve to publicize the image of the business  Exclusion of activities that serve to and generate visibility only publicize the image of the business and generate visibility only Creation and implementation of a standard framework, accompanied by  Creation and implementation of a related services, already in place standard framework, accompanied by related services, not yet in place

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Conclusion and discussion The Islamic approach to Corporate Social Responsibility is holistic, and it provides an integrated spiritual vision, founded on religious teachings of the Quran and Sunnah, with the intention of providing a “better alternative framework” in the belief that moral principles and ethics deriving from divine revelations are more enduring, eternal and absolute, and as such, they are best placed to provide guidance to companies in the conduct of their business and their social responsibilities at the same time. Although there is a match between Triple Bottom Line approach and Islamic Law, the Islamic CSR considers another methodology: according to the Islamic view, the economic organizations should adopt a broader conception of CSR, resulting from the Tawhid paradigm, indicating three relationships - the relationship with God, with men and with nature (which in a way are also found in TBL, except for the religious component). Islamic principles serve to permeate individuals and organizations of responsibility for the care of society, and influence society through various practices and perspectives. There is a general recognition that companies operating in accordance with Islamic principles tend to embrace an organizational culture based on assumptions and notions of trust, morality, and responsibility. These are the cultural nuances that influence and shape the behavior of an enterprise and therefore sculpt its CSR strategy, which is no longer a mere economic initiative, but a moral one, since it is based on the understanding that an organization must aspire to be a “good citizen”. The Islamic Reporting Initiative (IRI) is the first integrated sustainability reporting standard that provides a framework built on Islamic principles and aspires to embrace culture compatibility in achieving the goals of CSR. Among the intentions of IRI are:  Providing culturally relevant support in measuring and advancing organizational sustainability, CSR and philanthropy;  Respecting the environment and life in all its diversity;  Creating an international business tool to support organizations in reporting consistent with the regions and cultures they serve;  Promoting the use of the Triple Bottom Line (People, Planet, and Profit) approach;  Providing metrics and methods to measure and report on projects that support health delivery and promotion, invest in society and young people, strengthen and empower labor, minimize waste and develop mobility of skills and knowledge;  Strengthening cooperation between countries through CSR business partnerships to develop a global economy, society and a green and sustainable environment. IRI’s Vision and Mission reflect the desire to bring an inclusive set of values to corporate social reporting. IRI wants organizations to not only spend their profits responsibly but also create them responsibly. In this sense, IRI recognizes the intrinsic relationship between philanthropy and CSR and understands that philanthropy is a key pillar of CSR. CSR reporting increasingly demanded at the legislative level, allows organizations to gain valuable information about their overall performance, giving management the power to optimize the business strategy for an inclusive economy.

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References Ayub, M. (2003). An introduction to Takaful–an alternative to insurance, Islamic Banking Department, State Bank of Pakistan. Retrieved from http://e1.mbri.ac.ir/userfiles/file/Islamic%20Banking/%D8%A8%D8%A7%D 9%86%DA%A9%20%D9%85%D9%82%D8%A7%D9%84%D8%A7%D8%AA/ Takaful/An%20Introduction%20to%20takaful.pdf. Bowen, G.A. (2009). Document Analysis as a Qualitative Research Method. Qualitative Research Journal, 9(2), 27-40. Dusuki, A.W., & Abdullah, N.I. (2007). Maqasid al Shari’ah, Maslahah and Corporate Social Responsibility. The American Journal of Islamic Social Sciences, 24(1), 2545. Elasrag, H. (2015). Corporate Social Responsibility: An Islamic Perspective. Retrieved from https://mpra.ub.uni-muenchen.de/67537/1/MPRA_paper_67537.pdf. Elkington, J. (1997). Cannibal with forks: the Triple bottom line of 21st Century Business. Oxford: Capstone. European Union (2001). Green Paper: Promoting a European Framework for Corporate Social Responsibility. Luxembourg: European Commission. Khatun, K.M., & Alautiyat, H. (2012). Corporate social responsibility: An Islamic perspective. Int. I. Bus. Technopreneurship, 2(3), 415-423. Hossain, M.T.B., & Siwar, C. (2009). A Comparative Analysis Between Islamic Concept On Corporate Social Responsibility And Malaysia Mangers Opinion. Management of Environmental Quality: An International Journal, 20(3), 290-298. Lewis, M.K. (2008). In what ways does Islamic banking differ from conventional finance. Journal of Islamic Economics, Banking and Finance, 4(3), 9-24. Mohammed, J.A. (2007). Corporate Social Responsibility in Islam, Ph.D. Thesis, Auckland University of Technology. Mohammed, J.A. (2013). An Islamic Perspective of Corporate Social Responsibility. Paper presented at the Global Conference on Business, Economics and Social Sciences Research (GBSR). Selvik, K. (2013). Business and Social Responsibility in the Arab World: the Zakat vs. CSR models in Syria and Dubai. Comparative sociology, 12(1), 95-123. Shamim, M., & Karim, N. (2010). Corporate social responsibility: contemporary thought and Islamic perspectives. Thoughts on Economics, 21(1), 45-66. Sopiee, N., & Ali, R.M. (2001). Business Ethics and Politics. In Kahlid, A., & AbulHasan, M.S. (Eds.), Ethics in Business and Management: Islamic and Mainstream Approaches (pp. 113-134). London: Asean Academic Press. Taman, S. (2011). The Concept of Corporate Social Responsibility in Islamic Law. Indiana International & Comparative Law Review, 21(3), 481-508. Thibos, C., & Gillespie, K. (2011). Islam and corporate social responsibility in the Arab world: reporting and discourse. In Sandıkçı, Ö., & Rice, G. (Eds.), Handbook of Islamic Marketing (pp. 300-18). London: Elgar. Retrieved from http://www.academia.edu/4181013/Islam_and_corporate_social_responsibility _in_the_arab_world_reporting_and_discourse.

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SUSTAINING PARTICIPATION: CITIZENSHIP, TECHNOLOGY AND PUBLIC VALUE Mauro ROMANELLI University of Naples Parthenope Via G. Parisi 13, 80132 Naples, IT [email protected] Abstract. Technology is opening up to public organizations sustaining democracy, restoring public trust and promoting public interest as responsive institutions fostering citizenship and collaboration in order to uphold citizens’ participation in front of citizens feeling unheard and disenchanted by traditional representative and democratic institutions. Technology is driving public institutions and citizens to act as active coproducers of social, democratic and public value. Rediscovering citizenship by eparticipation can contribute to democratic development of society leading public organizations and citizens to proceed to build participatory, open and inclusive communities creating social and public value. Public organizations embracing new technologies tend to sustain and enhance the participation of citizens by making participatory and democratic government agencies and public administration. Keywords: technology; democracy; public organizations; participation; citizenship. Introduction Technology is leading public organizations to sustain public trust and promote public interest as responsive institutions encouraging active citizenship and collaboration enhancing the interaction between citizens and government, fostering democratic participation (Denhardt & Denhardt, 2003; Vigoda, 2002). Public organizations and institutions coping with a growing disengagement of citizens pay attention to causes of the decline of public trust embracing Internet technologies in order to connect and communicate with citizens by enhancing participation of citizens for creating and maintaining public value. Technology is driving public organizations to build and sustain dialogue and partnership between public and governmental organizations, citizens and various stakeholders as active co-producers of social, democratic and public value (Moore, 1995). The aim of this paper is to elucidate how technology opens up to new opportunities for increasing access to information and rediscovering the participation of citizens as an important attribute of citizenship. Rediscovering citizenship by e-participation can contribute to the democratic development of society leading public organizations and citizens in order to build participatory, open and inclusive communities creating social and public value. E-democracy as the use of ICTs to support the democratic decisionmaking processes relates to e-participation as knowledge, interactive and collaborative process (Sæbø, Rose & Flak, 2008). Technology is leading to enable and restyle democracy opening up to a renewal of public participation within a ‘mixed polity’ embracing elements of representative and direct democracy strengthened by

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democratic and participatory potential of technology able to challenge representative institutions and democracy (Raab & Bellamy, 2004). New technologies are leading public organizations to behave as responsive and collaborative institutions proceeding towards sustainability, strengthening forms of democracy and encouraging the participation of citizens by engaging them in contribution to public policies choices ranging from information to active participation for upholding the values of democracy. This study is based on archival and qualitative data by analysis and review of the literature on the public sector investigating how new technologies are driving to promote democracy and participation connecting citizens with public administration. Understanding the relationship between participation and citizenship The concept of citizenship is normally related to a broad set of social and civic responsibilities that also refer to the right of participation in decision-making about social, economic and cultural life. Citizenship as participation tends to express the human agency in the political arena enabling people to act as agents (Lister, 1998). Gaventa and Valderrama (1999) elucidate a shift in quality and characteristics of participation moving towards citizen, policy, decision-making, and implementation. Citizenship as the right of participation implies that citizens tend to influence and exercise control in governance. Citizenship as an enabler of participation and inclusion requires designing new modes of building the relationship between civil society and the State (Gaventa & Valderrama, 1999). Participation serves to support important democratic values: legitimacy, justice and the effectiveness of public action (Fung, 2006). Sustaining participation can contribute to contrast with a growing apathy of citizens feeling unheard or abandoned by politics. Five purposes justify participation (Innes & Booher, 2004): participation is legally and formally established by law; the decision makers consider the preferences of the public before and for making their decisions; the decision makers can improve their decisions by incorporating information, knowledge, and inputs emerging from voices and contributions of citizens. Participation permits to ensure fairness and justice and gets legitimacy for public decisions. It is necessary to understand and define the concept of participation. It is no possible to understand the value and the meaning of participation considering the participation only as a stage in which citizens and government meet in a formal interaction (Innes & Booher, 2004). Participation should be fair, representative and transparent requiring that citizens are committed to making difference and administrators to behave as professionally responsible. «Participation should be seen as a multi-way interaction in which citizens and other players work and talk in formal and informal ways to influence action in the public arena before it is virtually a foregone conclusion» (Innes & Booher, 2004, p.429). It is necessary to move toward a collaborative participation as more representative practice leading administrators to connect with their communities and enabling citizens to understand public affairs and questions about debating and becoming more integrated into the polity, helping the building of civic capacity. Collaborative participation enables participants to discover how they benefit by improving resources (Innes & Booher, 2004).

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Public participation is mainly about having a positive impact on final decisions (Lowndes, Pratchett & Stoker, 2001, p.213). Citizen’s learning is a valid outcome of participation. It is necessary: to recruit citizens as active participants; to involve and engage different citizen groups and issues; to link the issues of participation to decision making by keeping citizens well informed about the outcome produced (Lowndes, Pratchett & Stoker, 2001, p.454). Today, public organizations promote citizenship and shared responsibilities encouraging both public discussion with community and involving citizens in government activities (Bourgon, 2007). Improving public participation relies on changing administrative processes and rethinking about the redesign of roles and relationships between citizens and administrators. Decision making without public participation is ineffective. Authentic participation relies on citizens and administrators building trust, commitment, developing an open and honest discussion. It is necessary to overcome some barriers to participation: the nature of life in contemporary society characterized also by lack of education within families and communities, in the schools and by market and consumerist economies driving apathy and non-participatory attitudes; the administrative processes limit the capacity of citizens to participate because of flowing in one way from the administrator to citizen feeling that information is controlled by administrators; techniques of participation do not enable an authentic participation (King, Feltey & Susel, 1998). Technology helps communication with citizens leading public organizations to rediscover citizenship Public organizations as responsive institutions serve the public interest as issue emerging from the dialogue with citizens based on shared leadership and respect for people. Public organizations tend to develop sustainable policies making a meaningful contribution for community through a process of effective collaboration opening up to learning and change by interacting with citizens as proactive partners in the work of government, making possible greater access to the policy process and enhancing quality of citizens’ participation towards a higher degree of collective action as a principle of governance (Bryer, 2006; Denhardt & Denhardt, 2003; Denhardt & Denhardt, 2000; Fiorino, 2010; Vigoda, 2002). Technology is leading to open and responsive public organizations serving the interest of citizens (La Porte, Demchak & Jong, 2002), driving transformational changes in the public sector by enhancing democratic processes for learning and action in order to improve an interactive relationship between government and citizenry (e-governance) (Dawes, 2008). Information and communication technologies (ICTs) lead public institutions to involve citizens in policy-making (Bingham, Nabatchi & O’Leary, 2005), to restore and improve interaction between government and citizens engendering public trust (Tolbert & Mossberger, 2006), developing e-government initiatives, enforcing democratic public values as impartiality, equity, honesty and fairness of government (Cordella & Bonina, 2012), opening up to new forms of governmental legitimacy and governance (Navarra & Cornford, 2012). Gov 2.0 strategies necessarily rely on citizens’ participation (Ferro & Molinari, 2010).

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In the following sections, it is elucidated the role technology can play in order to help democracy and reinforce e-participation. The characteristics of e-participation are presented. In the last section, the dark side of participation and some limits for employing technology for democracy and participation are elucidated. Technology helps democracy and reinforces e-participation ICTs should lead governments and public institutions to become more and more democratic and participatory organizations through new channels of democratic involvement and empowerment by developing policies through processes of information, consultation, and active participation. Technology helps increase the amounts of informal communication for sustaining the creation of social capital in communities for encouraging public participation (Komito, 2005), driving political systems towards new participatory, deliberative, associative and direct forms of democracy (Anttiroiko, 2003). ICTs contribute to rediscover the role and the importance of democratic practices and values. Technology seems to be putting the democracy first (Denhardt & Denhardt, 2003), leading to decentralized, accessible and responsive representative systems (Zittel, 2003), making accessible data and information about parliamentary institutions and the legislative process, leading citizens to exert influence on policy making (Grönlund, 2001) and enhancing quality of democratic governance by providing better information to citizens (Kakabadse, Kakabadse & Kouzmin, 2003) approaching their parliamentarians before the vote (Milakovich, 2010). Technology opens access to information and enhances lateral communication among citizens leading towards a direct and strong democracy (Barber, 1999). The information technology is deployed in order to improve the effectiveness and efficiency of democracy that requires both a flow of information between citizenry and government sustaining effective citizen participation in the political process (Watson & Bundy, 2001). Technology contributes to developing democratic processes enabling new forms of publicness within a public sphere (Tsagarousianou, 1999; Tsagarousianou, 1998). In the information era, democracy is developing along a continuum between the parliamentary chain of steering and new kinds of democratic practice (Bellamy, 1999). ICTs contribute to foster the public voice and reconcile the disconnection between people and governmental institutions (Cavanaugh, 2000). ICTs offer opportunities for removing barriers to information access and to active participation in public life. Different scenarios tend to emerge. ICTs help reinvigorate representative democracy, establish more direct forms of democracy and reinforce the power of political elites giving powerful tools (Bellamy, 2003). E-democracy initiatives and projects should be considered as a process sustaining dialogue and facilitating ongoing civic participation (Freeman & Quirke, 2013) taking different shapes and confirming that technological and democratic linearity does not exist (Grönlund, 2003). E-democracy relates to e-participation as knowledge, interactive and collaborative process relying on the use of ICTs to support the democratic decision-making

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processes (Sæbø, Rose & Flak, 2008). There are different definitions about the meaning of e-participation. «Electronic participation, or eParticipation, is the use of ICT to facilitate political participation by enabling citizens to communicate with each other, civil society, their elected representatives, and their government. Much more than the government simply consulting citizens through surveys and petitions, eParticipation actively involves citizens in the policy process so that they can raise issues, modify agendas and change government initiatives» (Davies, 2015, p.19). According to Tambouris et al. (2015) e-participation refers to the use of ICTs relating mainly to policy and decision-making for political or public policy purposes, as embedded in particular governance regimes, in the context of different political cultures, having a direct impact and relations to policy goal and democracy. Rediscovering both meaning and value of participation should contribute to reinforce citizenship and enhance civic engagement and citizens’ participation in the democratic life and public affairs. ICTs can play a relevant and critical role for involving people to participate in public affairs and public democratic life. ICTs permit to sustain democracy in order to improve quality of information exchange government-citizens and to enhance degree and quality of public participation in government (Kakabadse, Kakabadse & Kouzmin, 2003) coherently with the development of deliberative and strong democracies enabling citizens to participate in the discussion about public affairs (Ǻstrom, 2001; Päivärinta & Sæbø, 2006). Understanding the characteristics of e-participation Online citizen participation can enrich and revitalize democratic processes in order to fight political apathy and build public trust by engaging citizens and increasing transparency and accountability. In developed countries, governments tend to sustain e-participation initiatives and adopt e-government strategies (Tambouris, Macintosh, Smith, Panopoulou & Tarabanis, 2012) in order to build a new dialogue between citizens and politicians. Participation of community should be related to government policies that encounter the will of people (King, 2006). E-participation initiatives should empower citizens for stimulating contribution to greater cohesiveness and inclusion (Ahmed, 2007) as to strengthen representative democracy facilitating a way of communication between citizens and politicians (Trechsel, Kies, Mendez & Schmitter, 2003). New technologies encourage participation of citizens in policy making an in terms of services delivery and outcome, quality, efficiency and equity, civic engagement, deliberative and democratic effects (Sæbø, Rose & Flak, 2008). Citizens can be better informed and included in decision making processes acting petitions, submitting enquiries, employing e-consultation and discussion, participating to policy debates. Internet-based petitions can be interpreted as a response to declining trust of a citizen in the political system (Lindner & Riehm, 2008). New technologies offer greater opportunities for encouraging citizens to participate in decision-making processes. It is necessary to develop models of democratic engagement and embed participation in the organizational and cultural infrastructures of modern governance systems (Luehrs & Molinari, 2010).

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According to Macintosh (2004) three levels of participation are identified: e-enabling to support the access to the internet taking advantage of the large amount of information available; e-engaging as concerned with consulting a wide audience to enable contributions and support debate on policy issues; e-empowering to support active participation of citizens as producers of policy and to facilitate bottom-up ideas exerting influence on policy formulation according to a growing scale over time in relation to OECD framework (2003) to take part in the decision-making and influence the policy agenda: information as a one-way relationship in which government make available information for citizens; in the consultation level citizens are encouraged to contribute their views on a particular issue; in the active participation citizens are empowered by actively participating in the policy making process (partnership). Tambouris, Kalampokis and Tarabanis (2008) identify five levels of participation between one-way or two-way channels: e-informing as prerequisite for citizens willing to contribute and e-involving as the one-way channel for providing information on policies ensuring that public concerns are considered; e-consulting and e-collaborating as a two-way channel for collecting public feedback, for a partnership with citizens actively participating in the developing alternatives and preferred solutions; eempowering for implementing what citizens decide. ICT tools as web portals, consultation platforms, e-petitioning systems can be implemented to change or reinforce parliamentary institutions governed by path depth processes, to support more participatory forms of citizenship and facilitate a two-way dialogue reinforcing participatory forms of citizenship and public involvement based on a two-way dialogue. Web portals contribute to bridging representation and communication functions. E-petitioning system is citizenship oriented and focuses on the interaction between citizens and public institutions like econsultations (representation oriented) (Pratchett, 2007). The dark side of the use of technology for sustaining democracy and participation Thereby, some risks and limits tend to emerge. Technology can be used as a rhetorical ad illusionary means for opposing a civic engagement (Maherer & Krimmer, 2005) emphasizing the role of citizens as effective decision makers (Fuchs, 2009) and following a managerial model of interaction between government and citizens as customers (Chadwick & May, 2003) that reinforces the existing patterns of authority and social structures (Rethemayer, 2006; Parvez & Ahmed, 2006). Thereby, public institutions seem to be mainly interested in one-way information provision to citizens without searching for the feedback of citizens about legislation or policies (Östling, 2011). E-participation initiatives seem to support e-participation as an alternative communication channel without challenging institutionalized centers of power (Tambouris, Macintosh, Smith, Panopoulou & Tarabanis, 2012). Technological strategic design and evaluation methods for participatory activities do not ensure effective deliberative participation without engagement and inclusion of citizens in the political decision making (Rose & Sanford, 2007). While the use of coherent ICT tools for different e-participation objectives at different phases of the policy making processes increases the effectiveness of e-participation initiatives (Phang & Kankanhalli, 2008) there are no clear guidelines that effectively contribute to

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implementing a sustainable participatory process (Islam, 2008). Research combining stakeholders with methods, tools, and environment, integrating both different disciplinary contributions seems to be lacking (Susha & Grönlund, 2012) and should consider social, political and technical perspectives (Macintosh & Smith, 2002). Conclusions Technology opens up to new opportunities leading citizens and public institutions to proceed towards public value creation within communities. Technology offers public administration opportunities for connecting with citizens by building new forms of democracy and enhancing the active participation of citizens. Technology is leading public organizations to behave as responsive institutions engaging aware and active citizenship for policy contribution, engaging citizens in public policy choices, rediscovering citizenship as a relevant attribute of civic and public life. Sustaining an authentic democratic participation of citizens relies on ensuring an equalized access to technology to involve people into political and democratic decision-making processes (Krueger, 2002). It is necessary to select strategic choices in order to value the contribution of citizens that can be listened about their preferences on policymaking (Cardoso, Cunha & Nascimento, 2006) avoiding that the most of the people are excluded because of the digital literacy divide (O’Donnell & Henriksen, 2002). Building open, accessible and authentic participatory public organizations rely on embracing technology for engaging people and rediscovering the participation of citizens in public affairs and policy. Thereby, the design and the implementation of eparticipation initiatives seems to be still in its infancy. Public organizations strengthening the channels of two-way communication for active participation and following an approach based on citizen-centered collaboration have the opportunity to encourage and foster a participatory democracy technology-driven by linking forms of representative and direct democracy opening up to the contribution of citizens through co-production of social and democratic values. References Ahmed, N. (2006). An anthology of e-participation models. In DESA (Ed.), EParticipation and E-Government: Understanding the Present and Creating the Future (pp.27-28). New York: United Nations. Anttiroiko, A.-V. (2003). Building strong e-democracy – The role of Technology in developing democracy for the information age. Communications of the ACM, 46(9), 121-128. Ǻstrom, J. (2001). Should democracy online be quick, strong or thin? Communications of the ACM, 44(1), 49-51. Barber, B. (1999). Three scenarios for the future of technology and strong democracy. Political Science Quarterly, 113(4), 573-589. Bellamy, C. (2003). Moving to e-government: the role of ICTs in the public sector. In Bovaird, T., & Löffler, E. (Eds.), Public Management and Governance (pp.113125). London: Routledge.

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Bellamy, C. (1999). Modelling electronic democracy. Towards democratic discourses for an information age. In Hoff, J., Horrocks, I., & Tops, P. (Eds.), Democratic Governance and New Technology. Technologically mediated innovations in political practice in Western Europe (pp.33-53). London: Routledge. Bingham, L.B., Nabatchi, T., & O'Leary, R. (2005). The new governance: practices and processes for stakeholder and citizen participation in the work of government. Public Administration Review, 65(5), 547–558. Bourgon, J. (2007). Responsive, responsible and respected government: towards a New Public Administration theory. International Review of Administrative Sciences, 73(1), 7-26. Bryer, T.A. (2006). Toward a relevant agenda for a responsive public administration. Journal of Public Administration Research and Theory, 17(3), 479-500. Chadwick, A., & May, C. (2003). Interaction between States and citizens in the age of Internet: e-Government in the United States, Britain, and the European Union. Governance: An International Journal of Policy, Administration, and Institutions, 16(2), 271-300. Cardoso, G., Cunha, C., & Nascimento, S. (2006). Bridging the e-democracy gap in Portugal. Information, Communication & Society, 9(4), 452-472. Cavanaugh, J.W. (2000). E-democracy: thinking about the impact of technology on civic life. National Civic Review, 89(3), 229-234. Cordella, A., & Bonina, C.M. (2012). A public value perspective for ICT enabled public sector reforms: a theoretical reflection. Government Information Quarterly, 29(4), 512-520. Davies, R. (2015). eGovernment. Using technology to improve public services and democratic participation. European Union, EPRS. Retrieved from http://www.europarl.europa.eu/RegData/etudes/IDAN/2015/565890/EPRS_I DA(2015)565890_EN.pdf. Dawes, B. (2008). The evolution and continuing challenges of e-governance. Public Administration, 68(s1), s86-s101. Denhardt, R.B., & Denhardt, J.V. (2000). The new public service: Serving Rather than Steering. Public Administration Review, 60(6), 549-559. Denhardt, R.B., & Denhardt, J.V. (2003). The new public service: an approach to reform. International Review of Public Administration, 8(1), 3-10. Ferro, E., & Molinari, F. (2010). Making sense of Gov 2.0 strategies: “No citizens, no party”. JeDEM, 2(1), 56-68. Fiorino, D.J. (2010). Sustainability as a conceptual focus for public administration. Public Administration Review, 70(s1), s78-s88. Freeman, J., & Quirke, S. (2013). Understanding e-democracy. JeDEM, 5(2), 141-154. Fuchs, C. (2009). Information and communication technologies and society: A contribution to the critique of the political economy of the Internet. European Journal of Communication, 24(1), 69-87. Innes, J.E., & Booher, D.E. (2004). Reframing public participation: strategies for the 21st century. Planning Theory & Practice, 5(4), 419-436. King, J. (2006). Democracy in the Information Age. Australian Journal of Public Administration, 65(2), 16-32. King, C.S., Feltey, K.M., & Susel, B.O.N. (1998). The question of participation: toward authentic public participation in public administration. Public Administration Review, 58(4), 317-326. Komito, L. (2005). e-Participation and governance: widening the net. Electronic Journal of e-Government, 3(1), 39-48.

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Korac-Kakabadse, A., Korac-Kakabadse, N.K., & Kouzmin, A. (2003). Reinventing the democratic governance project through information technology? A growing agenda for debate. Public Administration Review, 63(1), 44-60. Krueger, B.S. (2002). Assessing the potential of Internet political participation in the United States. A resource approach. American Politics Research, 30(5), 476-498. Gaventa, J., & Valderrama, C. (1999). Participation, citizenship and local governance. Background note prepared for workshop on ‘Strengthening participation in local governance’. Institute of Development Studies, June 21-24, 1999. Retrieved from http://www.participatorymethods.org/sites/participatorymethods.org/files/pa rticipation%20citzienship%20and%20local%20governance_gaventa.pdf. Grönlund, Ǻ. (2001). Democracy in an IT-framed society. Communications of the AICM, 44(1), 23-27. Grönlund, Ǻ. (2003). Emerging infrastructures for e-democracy: in search of strong inscriptions. E-service Journal, 2(1), 62-89. Islam, M.S. (2008). Towards a sustainable e-Participation implementation model. European Journal of ePractice, 5(10), 1-12. La Porte, T., Demchak, C., & De Jong, M. (2002). Democracy and bureaucracy in the age of the web. Empirical findings and theoretical speculations. Administration & Society, 31(1), 411-446. Lindner R., & Riehm U. (2009). Electronic petitions and institutional modernization, JeDEM, 1(1), 1-11. Lister, R. (1998). Citizen in action: citizenship and community development in a Northern Ireland context. Community Development Journal, 33(3), 226-235. Lowndes, V., Pratchett, L., & Stoker, G. (2001). Trends in public participation: Part 1 – Local Government perspectives. Public Administration, 79(1), 205-222. Lowndes, V., Pratchett, L., & Stoker, G. (2001). Trends in public participation: Part 2 – Citizens’ perspectives. Public Administration, 79(2), 445-455. Luehrs, R., & Molinari, F. (2010). Sustainable e-participation. JeDEM, 2(2), iv-xii. Macintosh, A. (2004). Characterizing E-Participation in Policy-Making. Paper presented at the 37th Hawaii International Conference on System Sciences, January 5-8, 2004. Retrieved from https://www.computer.org/csdl/proceedings/hicss/2004/2056/05/20565011 7a.pdf. Macintosh, A., & Smith, E. (2002). Citizen participation in public affairs. In Traunmuller, R., & Lenk, K. (Eds.), Electronic Government (pp.256-263), LNECS 2456. Berlin Heidelberg: Springer-Verlag. Mahrer, H., & Krimmer, R. (2005). Towards the enhancement of e-democracy: identifying the notion of the ‘middleman paradox’. Information System Journal, 15(1), 27-42. Milakovich, M.E. (2010). The Internet and increased citizen participation in Government. JeDEM, 2(1), 1-9. Moore, M.H. (1995). Creating Public Value. Strategic Management in Government. Cambridge: Harvard Business Press. Navarra, D.D., & Cornford, T. (2012). The State and democracy after New Public Management: exploring alternative models of e-governance. The Information Society, 28(1), 37-45. OECD (2003). Promise and problems of E-Democracy: Challenges of Online Citizen Engagement. Paris: OECD.

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O’Donnell, D., & Henriksen, L.Bo (2002). Philosophical foundations for a critical evaluation of the social impact of ICT. Journal of Information Technology, 17(2), 89-99. Östling, A. (2011). How democratic is e-participation? A comparison between epetition and e-parliament cases in four European countries. In Parycek, P., Kripp, M.J., & Edelmann, N. (Eds.), CeDEM11, Proceedings of the International Conference for E-Democracy and Open Government (pp.60-70). Krems: Danube University of Krems. Päivärinta, T., & Sæbø, Ø. (2006). Models of E-Democracy. Communications of the Association for Information Systems, 17(1), 818-840. Parvez, Z., & Ahmed, P. (2006). Towards building an integrated perspective on edemocracy. Information, Communication & Society, 9(5), 612-632. Phang, C.W., & Kankanhalli, A. (2008). A framework of ICT exploitation for eparticipation initiatives. Communications of the ACM, 51(12), 128-132. Pratchett, L. (2007). Comparing Local e-Democracy in Europe: A preliminary report. In DESA (Ed.), E-Participation and E-Government: Understanding the Present and Creating the Future (pp.128-146). New York: UN. Raab, C.D., & Bellamy, C. (2004). Electronic democracy and the ‘mixed polity’. Symbiosis or conflict? In Gibson, R.K., Römmele, A. & Ward, S.J. (Eds.), Electronic Democracy: Political Organisations, Mobilisation and Participation Online (pp.1742). London: Routledge. Rethemayer, R.K. (2006). Policymaking in the age of Internet: Is the Internet tending to make policy networks more or Less inclusive? Journal of Public Administration Research and Theory, 17(2), 259-284. Rose, J., & Sanford, C. (2007). Characterizing eParticipation. International Journal of Information Management, 27(6), 406-421. Sæbø, Ø., Rose, J., & Flak, L.S. (2008). The shape of eParticipation: characterizing an emerging research area. Government Information Quarterly, 25(3), 400-428. Susha, I., & Gronlund, A. (2012). eParticipation research: systematizing the field. Government Information Quarterly, 29(3), 373-382. Tambouris, E., Kalampokis, E., & Tarabanis, K. (2008). A domain model for eParticipation. In ICIW '08 Proceedings of the 2008 Third International Conference on Internet and Web Applications and Services (pp.25-30). Washington, DC: IEEE. Tambouris, E., et al. (2012). Understanding eParticipation state of play in Europe. Information Systems Management, 29(4), 321-330. Tambouris, E., et al. (2015). eParticipation in Europe: Current State and Practical Recommendations. In Gil-Garcia J.R. (Ed.), E-Government Success Around the World: Cases, Empirical Studies, and Practical Recommendations (pp.118-134), USA: IGI Global. Tolbert, C.J. & Mossberger, K. (2006). The effects of e-government on trust and confidence in government. Public Administration Review, 66(3), 354-369. Trechsel, A.H., Kies, R., Mendez, R., & Schmitter, Ph.C. (2003). Evaluation of the use of new technologies in order to facilitate democracy in Europe. E-democratizing the Parliaments and parties of Europe, EP. Retrieved from http://www.europarl.europa.eu/thinktank/en/document.html?reference=IPOL -JOIN_ET%282003%29471583. Tsagarousianou, R. (1998). Electronic democracy and the public sphere. Opportunities and challenges. In Tsagarousianou, R., Tambini, D., & Bryan, C. (Eds.),

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Cyberdemocracy. Technology, cities and civic networks (pp.167-178). London: Routledge. Tsagarousianou, R. (1999). Electronic democracy: rhetoric and reality. Communications, 24(2), 189-205. Vigoda, E. (2002). From responsiveness to collaboration: governance, citizens, and the next generation of public administration. Public Administration Review, 62(5), 527-540. Watson, R.T., & Bundy, B. (2001). A strategic perspective of electronic democracy. Communications of the ACM, 44(1), 27-30. West, D.M. (2004). E-government and the transformation of service delivery and citizen attitudes. Public Administration Review, 64(1), 15-27. Zittel, T.A. (2003). Political representation in the networked society: the americanisation of European systems of responsible party government? The Journal of Legislative Studies, 9(3), 32-53.

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THE EFFECTIVENESS OF POLICIES FOR INTEGRATION OF VULNERABLE GROUPS IN HIGHER EDUCATION Diana-Maria CISMARU National University of Political Studies and Public Administration 30A Expozitiei Blvd., 012104 Bucharest, RO [email protected] Abstract. The paper explores the effectiveness of policies for the integration of students from vulnerable groups in higher education. The method used was the secondary analysis on the data obtained in a project funded with European funds, implemented in 20142015. The data were collected in eight Romanian universities (distributed in all regions and with different specialization) by interview and online questionnaire (respondents: 50 executive managers in the universities selected). The interviews were applied on several members of management in universities and of academic staff. The questions addressed to the general issue of vulnerable groups, and tested the opinions and knowledge of respondents regarding the criteria of defining a vulnerable group, the premises of success of different disadvantaged categories in higher education and the opportunity of different support measures. The findings allowed the analysis of implementation of the policy on five dimensions: the perspective of the university, the procedures of access, monitoring of the students' evolution, attitude of staff, and satisfaction of beneficiaries. Keywords: higher education; access; equity; vulnerable groups. Introduction Several studies linked the educational performance to GDP (Duru-Bellat & Suchaut, 2005), while underachievement was seen as a huge cost and a potential threat to the economic development of a country. On this emerging need to increase economic competitiveness and reduce inequalities, appeared the interest for the field of equity and social cohesion. Green, Preston and Sabates (2003) identified two ways in which the learning effects influence social cohesion: the traditional way, of improving socialization and community capital of trust by learning and education, and the second way (the main way in the present) by reducing income inequality and finally, in improving educational outcomes. The perspective in higher education changed slowly towards a commitment to affirmative action for increasing access of underrepresented groups to higher education - groups which were defined accordingly to the social diversity of each country (Clancy & Goastellec, 2007). Some scholars consider equity one of the most important principles for developing an effective higher education system, along with quality and efficiency (James, 2007). Meanwhile, studying the topic of implementation of equity policies, authors were concerned about the disparate approaches of equity mediated by factors as implicit school goals, low access to material resources, collective responses to sociocultural differences (Artiles, Kozleski & Waitoller, 2011). Some authors (Harbour & Jaquette, 2007) emphasized that the marketization perspective, focused on the satisfaction of beneficiaries (sometimes neglecting the final aim of education to improve skills and

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learning capacity on long term), undermine equity, creating the need of a strategic agenda. More optimistic, other authors observe that, in the new context of marketization of university, the field of equity evolved and gained in value, being one of the components in the strategic objectives of policies, near the economic competitiveness (Savage, Sellar & Gorur, 2013, p.163). While the early approaches centered on the identification of some characteristics of vulnerable groups (for example, poverty, difficult living conditions, discrimination and lack of possibilities of employment), the later perspectives placed the emphasis on the risk notion and social exclusion (Popescu, 2011, pp.9-11). In this regard, the vulnerability was defined as the exposure to uninsured risk leading to a socially unacceptable level of well-being” (Hoogeveen, Tesliuc, Vakis & Dercon, p.5). In 2009, one third of the Romanian population was severely deprived at the material level (Popescu, 2011, p.23), a rate fourth times bigger that the similar rate at the level of European Union. Until 2015, this rate decreased to 22,7%, but the country has still one of the highest levels of poverty in Europe, after Bulgaria. These rates show the proportion of the issues of disadvantaged groups in Romania. The most frequently mentioned disadvantaged groups were: children in risk situation (orphans, with parents, left abroad), children and adults with disabilities, homeless adults, victims of family violence. As from social-economic categories, the most mentioned were: poor families, Roma people, families with many children, aging people, single parent families, people with chronic diseases, jobless people. The lack of strategies and of material resources made the measures in support of these categories to be ineffective so far. Some children and adults from these categories might and should be subjects of inclusive policies in education (and in particular in higher education). Therefore, in order to create the base for enlarging access to higher education, it is necessary to investigate the dimensions of implementation for education policies that targeted the increase of access for some of the disadvantaged groups. Methodology The data were collected by half-structured interviews during study visits at the eight universities (placed in all areas of the country and having different specialization profiles). The interviews were organized with Rectors, Vice-Rectors, Deans, General Administration Directors, Campus Directors, Coordinators of Center of Orientation and Counseling, teachers, students. A total of 149 persons have been interviewed, from which 64 students. The topics investigated by interview and questionnaire were targeted to evaluate the impact of the policy of special reserved places for Roma candidates, but the data were relevant for all the vulnerable groups. The online questionnaire included 16 questions, using symmetrical ordinal scales with five options, for showing the intensity of opinions. The questionnaire was applied by monkeysurvey.com to Vice-Deans or Heads of Department of the faculties from the universities selected in the sample. 52 responses have been recorded, from which 24 men and 28 women and age structure: 1 under 35, 20 between 35-45 years, 21 between 45-55 years, and 10 over 55 years.

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The results of the interviews In order to build the frame of analysis, five variables have been considered: the university’s approach to the access of vulnerable groups to higher education, the procedures of information and access, the monitoring procedures for students coming from vulnerable groups, but also the attitude of staff and the perspective of beneficiaries. Each of these variables has been operationalized in a set of criteria which, in sum, reflect the profile of each university (Appendix 1). Managerial standpoints for the access of vulnerable groups to higher education The analysis of interviews allowed the identification of several types of standpoints concerning the implementation of equity policies in university. (a) Specific profile universities (with restrained majors of specialization) – showed either vaguely knowing the problems of disadvantaged groups and search of individual solutions per each case (U3) or exclusively defining disadvantaged groups depending on material assets (U2). On the other hand, U8 placed at the opposite extreme, being the most advanced university as for the level of equity policies within the field of access. (b) Universities with generalist profile showed a difference of attitude according to the type of environment they are located: a university of big urban environment (U5) showed having included the problems of disadvantaged groups and implicitly of policies within equity field in the university insight, by making concrete steps towards a diversification of the education offer and having education accessible. The other three universities located in disadvantaged environments (U1, U7, U4) made the proof of either passive implementation of the policy (U1), or non-homogeneously knowing the aspects related to the integration of vulnerable groups in higher education (U4) or a visible removal of problems of vulnerable groups out of the university strategy correlated to individual treatment of cases (U7). Mechanisms of information and access The interviews in the universities detected no special measures for informing the beneficiaries. They were expected to inform themselves. When asked about the low proportion of accessing the specially reserved places, the respondents placed the cause in in their lack of will or in the cultural background of the candidates: First of all, they have problems of communication – they are refused by the social environment from small ages. Secondly, the problem is not of those who enter in high school on special reserved places, but of those who cannot access this support because they cannot finish the inferior secondary school. (Responsible for admission, U5) In our investigation, we had also two positive cases (U5 and U8). The first university (U5) created a special section on the site for the policy and organized meetings with the potential candidates. The other case (U8) initiated contacts with the local communities of Roma people, in order to persuade a greater number of Roma candidates to access the specially reserved places.

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Thus, the perceived barriers vary among different academic environments, from psycho-social causes as lack of interest or labeling to objective causes as decreasing the percentage of high school diploma, or lack of attractiveness of some profiles or lack of promotion activities. Monitorization of the evolution of beneficiaries Although the integration of the beneficiaries of the specially reserved places has been described as good, the proportion of finalization of studies is different from case to case (from 50% in U4 to 80% in U7). Dropout has not been described as being more important for the beneficiaries of the specially reserved places in comparison with the other students’ level. As for the monitorization of their evolution, there are no formal mechanisms implemented, neither for dropout and neither for their potential problems of accommodation. A sensitive aspect in the post-admission assistance is represented by the orientation of students from vulnerable groups to the centers of counseling, which could offer them solutions and support for the problems they face. Unfortunately, many of these centers were recently founded or they existed with limited resources (no independent projects, no permanent counselors) and confessed they were rather passive, making nothing to attract students. As a consequence, several respondents said they never asked the services of these centers: “Their services are not popular, are not visible at all – and also, the center is too far from the buildings in which we study, which is a problem of accessibility“ (Students, U5). “We know they exist, however, we never requested their services” (Students, U4). There were two positive exceptions from this situation: a center of counseling well developed in U7 (more developed in socio-psychological studies) and in U8 (more developed in individual counseling and preventing dropout): Yes, we send them to this center, especially those who think of dropout, for motivation and support. Around 20-30% of students reach the center at least once. Students ask also services of orientation for specialization, in the last year of study (60-70% from the students). (Vice Rector, U8) In conclusion, the mechanisms of monitorization after the admission of students from vulnerable groups could be improved in all cases – and also, the general services of counseling and orientation could be improved. The attitude of teachers and staff The attitude of teachers and technical staff varied between acceptance and unacceptance, with a greater percentage in favor of unacceptance (identified in six of the eight universities in the sample). The refuse of a policy of special reserved places was more obvious in case of executive directors of technical staff in comparison with the members in the management of universities. Some of the respondents qualified negatively the policy:

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The other students are discriminated by these policies. To us, all students are treated equally. (General secretary, U3) We consider it a discrimination policy because the beneficiaries could enter on normal places. They have access to elite this way. (General secretary, U4) It is discrimination for the other students, from my point of view. I don’t see why we should have a special concern for them. (Responsible with admission, U7) The perception of beneficiaries The interviews with the beneficiaries of the special reserved places included 19 persons (6 females, 13 males) in four of the universities in the sample (U2, U5, U6, U8). In all cases, it was reported that the family supported them during academic studies, offering them a place to stay (at home or by renting – five case from 19). The number of students who have the family in another city that the university was small. These elements traced the table of a conditioned access to higher education: family with residence in the same city of the university, parents with a medium or higher level of instruction and without material difficulties. The results of the online questionnaire The passive or reluctant attitude identified during the interviews has been confirmed by the results of the online questionnaire. The most frequent categories indicated as vulnerable were the children coming from institutions (orphans), candidates with disabilities and children from very poor families. Other categories are not considered vulnerable: single parent families, children with parents for working abroad, Roma children (Figure 1).

Figure 1. Vulnerable groups (several choices) Children from poor families and children with disabilities are considered with the most rights in receiving support, in the view of respondents (Figure 2).

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Figure 2. Evaluation of the need of support for vulnerable groups’ candidates, from 1 (small) to 5 (intense) Another question referred to the types of disability which should be considered for according support for the admission contest (Figure 3):

Figure 3. Priority of different categories of disadvantaged groups to support for admission in higher education Adults and children with a physical or psychological disability should receive support, in the view of respondents (by stressing that only people with reduced mobility should receive this support, with priority. The next category that should have priority, in the opinion of respondents, are the candidates with visual and hearing disability, and the last should be the students with nervous and psychological disabilities. In the view of respondents, candidates have different chances to finish the academic studies (Figure 4). Roma students, chronic disease students and students with nervous diseases are considered as having the smallest chances in finish the studies and integrate with success in the professional environment.

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Figure 4. Chances of different categories to graduate higher education, from 1 (small) to 5 (big) Among factors which limit the success of Roma people in the academic environment, the first three which were considered by respondents are: dropout in previous cycles of study, lack of support from families and lack of good examples (Figure 5).

Figure 5. The perceived intensity of factors which limit the access of Roma candidates to higher education These answers to the above question (Figure 5) show the persistence of stereotypes to respondents, the majority identifying limits in the cultural environment, while objectives limit as poverty and discrimination are less mentioned.

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For the candidates from disadvantaged groups, respondents proposed a variety of measures, with an accent on ensuring an elementary living level by hosting in campus and free meals (Figure 6), but less by facilitation of employment or specially reserved places:

Figure 6. Measures proposed for students from different categories As it follows, the respondents have been asked what disadvantaged groups benefit by special measures in their university and which these measures were. The perception has been too large in comparison with the situation described in interviews. Thus, a variety of disadvantaged groups were presented as beneficiaries of an extended assistance (Figure 7):

Figure 7. Categories of students perceived as beneficiaries of support measures The responses to this question show either incorrect information, either an oversized perception, either responses given from conformity. Thus, some categories which are not beneficiaries of public measures or university measures are still mentioned: unmarried single mothers, victims of family violence, students from single parent families. From the types of support measures, the respondents know that some are introduced by public authorities (Figure 8):

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Figure 8. Perceived intensity of support measures from the state At the question of what measures are implemented by their institution, respondents indicated a variety of measures: counseling and adaptation of study materials, priority at places in holiday recreation programs, special scholarships, assistance to sustaining exams, support with food, clothing, money for study materials, cutting admission taxes, tutors for monitoring of performances. However, some of these responses confused the public measures with the measures adopted by the university. A majority of measures indicated by respondents placed themselves at the level of material support, scholarships or cutting taxes or of support measures for all students (not only for the students coming from vulnerable groups or families). Interpretation of results The qualitative and quantitative results revealed the lack of interest shown by the academic management in the issue of equity in several cases (vaguely knowing the problems of disadvantaged groups, lack of vision concerning them), lack of pro-activity and passive attitude concerning the implementation of policies within equity field. Also, the interviews identified in some cases the belief that policies for reserved places (or other measures for increasing equity) takes from the right of regular candidates or students. This type of antagonist thinking belongs to the model of “limited resources” and to the paradigm of competition in the detriment of cooperation and does not take part in the principles of an advanced management. The background for implementation of the policy is represented by the issue of vulnerable groups’ access to higher education. The lack of interest of university management for the topics of equity as well as for enlarging access shows a general lagging behind of Romanian universities versus the present-day trend to the European level. The sense of direction declared by several respondents towards “overachievement” in the detriment of equity is associated with the fact that many Romanian universities do not stand out for any index on the level of institutional performance (reflected in the level of training, involvement in research or employability). A quality higher education works for both increase in social capital in its assembly and lowering the lagging behind to social level and for stimulation of tops and preparation of quality experts. When comparing the five dimensions of the implementation of policy, the university standpoint, the access and information procedures, the monitoring, the attitude of staff

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and the satisfaction of beneficiaries (Figure 9), they have different levels, as resulted by applying the criteria. Thus, the procedure dimension is the most advanced (the procedure of admission is flexible and the collaboration with the non-profit organizations is fine) while the standpoint of the university varied from advanced (U5 and U8) to conservative (U7, U6, U3). The monitoring mechanisms were not present in most of the cases, remaining at the level of occasional information. Inside the psychosocial frame, there was a contrast between the satisfaction of beneficiaries of the equity policy and the neutral or even hostile attitude of some respondents and even students.

Figure 9. Implementation of policy, on dimensions Thus, if we consider a continuum in which at „plus” is situated the acceptance of the policy and the completion with internal policies from own resources, six from the eight universities that composed the sample are at the beginning of the road in the inclusion of vulnerable groups. Only two universities (U5 and U8) prove understanding and alignment to the issues of equity (Figure 10). U5 addressed generally to vulnerable groups, while U8 targeted especially Roma candidates as a vulnerable group.

Figure 10. The implementation of policy (specially reserved places for Roma people) in the eight universities The obstacles which limited the effectiveness of the politics of increasing equity and access to higher education have their routes in several causes. On one hand, the demographic decrease and the decrease of a number of high school graduates determines the decrease of the number of potential candidates. Another aspect refers to the decrease of the social value of education, the distinction between education and success models in society. On the other hand, there are increasing gaps between minorities and majorities, and decreasing chances of the vulnerable groups to finish

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secondary school; labeling, social exclusion, and discrimination are still active and might discourage the initiatives of entering in a university. Finally, universities show their limits by a passive attitude, treating cases as individual and circumstantial. The results of the online questionnaire revealed a lack of information in the problems of vulnerable groups, and also a latent hostile attitude (stronger that expressed in interviews). Conclusions After evaluating the implementation of a policy (special reserved places for Roma students) and the identification of the general attitude towards equity and access of vulnerable groups to higher education, we can draw some conclusions about the implementation of equity policies: (a) There is a lack of strategy to the vulnerable groups, even if these groups are persistent in Romania. There was an artificial opposition between equity and performance, even if the recent European recommendations redefine the social role of the university and its performance, including new variables (as the increase of access of disadvantaged groups); (b) Lack of consistency in the implementation of some policies, which are introduced formally, as a procedure, but are not accompanied by a significant change in attitudes, which are more important for the final result of the policies. Interviews showed the tacit exclusion of vulnerable groups, with the motivation of “orientation to performance” (which, in these conditions, is only a mask for the “law of natural selection”); (c) As a positive conclusion, the elimination of bureaucracy and introduction of flexible procedures may be considered an improvement in the implementation of policies with the scope of increasing access and equity in higher education. Recommendations are addressed not only to universities in approaching the disadvantaged categories but to the institutions that want to implement policies for increasing access and equity in higher education. For the universities, recommendations are to change the perspective on vulnerable groups – from nonrelevant, assisted people, or categories without any relevance for the solving of material issues that universities face in present, to the important social resource. The demographic decrease affected school fundamentally and will stress more and more the necessary management of a diversity of students and candidates. To invest resources in assisting disadvantaged groups is a resource in building the reputation of the university and in strengthening its social role. The change in perspective should be accompanied by two important consequences: (a) the education of teachers in the spirit of tolerance and opening to candidates and students from disadvantaged groups; (b) elaboration of specific internal measures for different vulnerable groups would eliminate the lack of persistence and the individual treatment of cases. These measures would include also additional procedures of monitoring the cases.

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Recommendations of the institutions refer, on one hand, to the follow-up of the implementation of public policies for increasing access to higher education, and also to generating enforcers for the best practice cases in the academic environment (for example, awarding distinctions or facilities for universities who prove a greater opening or concern about the field of equity). Policies should be correlated with procedures and norms for implementation, or with additional support measures (for example, as it was suggested in interviews, the building of complete educational packages), which would increase their effectiveness. There should be emphasized two more aspects important in the construction of equity policies. On the one hand, there is possible that some policies stimulate only the advantaged category inside a larger disadvantaged social group (for example, only the ones who live in large cities or in traditional academic centers). The effectiveness of a policy might be obtained also by adequate targeting of beneficiaries and by measures who increase the access of persons truly disadvantaged in higher education. On the other hand, our research discovered that many disadvantaged groups are ignored by all the actors and have extremely low chances of entering in a university. A real orientation to the increase of equity means to build policies adapted for all the categories of people who need them. For the institutions and for the universities, the challenges will refer, in the next years, to offering solutions in increasing access to higher education, even if the priorities seem to be placed in other areas, as the internationalization, increase of quality or the effective administration and development. References Artiles, A.J., Kozleski, E.B., & Waitoller, F.R. (2011). Inclusive Education: Examining Equity on Five Continents. Cambridge, MA: Harvard Education Press. Clancy, P., & Goastellec, G. (2007). Exploring access and equity in higher education: Policy and performance in a comparative perspective. Higher Education Quarterly, 61(2), 136-154. Duru-Bellat, M., & Suchaut, B. (2005). Organisation and Context, Efficiency and Equity of Educational Systems: what PISA tells us. European Educational Research Journal, 4(3), 181-194. Eurostat (2017). Material deprivation rate for the 'Economic strain' and 'Durables' dimensions, by number of item of deprivation - EU-SILC survey. Retrieved from http://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=ilc_sip8&lang=en. Green, A., Preston, J., & Sabates, R. (2003). Education, equality and social cohesion: a distributional approach. Compare: A Journal of Comparative and International Education, 33(4), 453-470. Harbour, C.P., & Jaquette, O. (2007). Advancing an equity agenda at the community college in an age of privatization, performance accountability, and marketization. Equity & Excellence in Education, 40(3), 197-207. Hoogeveen, J., Tesliuc, E., Vakis, R., & Dercon, S. (2004). A guide to the analysis of risk, vulnerability and vulnerable groups. World Bank. Washington, DC. Retrieved from http://siteresources.worldbank. org/INTSRM/Publications/20316319/RVA.pdf.

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James, R. (2007). Social equity in a mass, globalised higher education environment: the unresolved issue of widening access to university. University of Melbourne, Centre for the Study of Higher Education. Retrieved from http://web.education.unimelb.edu.au/news/lectures/pdf/richardjamestransc ript.pdf, accessed at 1.08.2017 Popescu, R. (2011). Grupurile vulnerabile și economia socială. Romi și femei în dificultate – manual de intervenție [Vulnerable groups and the social economy. Roma people and women in difficulty]. Bucharest: Expert Publishing. Savage, G.C., Sellar, S., & Gorur, R. (2013). Equity and marketisation: Emerging policies and practices in Australian education. Studies in the Cultural Politics of Education, 34(2), 161-169. Appendix 1. Frame of analysis (criteria) A. 1. 2. 3. 4. 5. 6.

The standpoint of the university in approaching the vulnerable groups There is a correct identification of vulnerable groups. There is a strategic approach of university of one or more of these groups. The policies and measures for vulnerable groups are considered legitimate and useful. The university initiates additional support measures for vulnerable groups (implemented with own resources). There is a set of procedures to implement policies addressed to vulnerable groups, applied in a unified way in faculties and departments. There is a correlation of state policies for disadvantaged groups with other available facilities (meals, hosting etc.)

B. Procedures of information and access 1. There are efforts to promote the measures for the beneficiaries. 2. The staff cooperates with intermediate actors in the process of occupying special places or in according other social stimuli (scholarships, facilities). 3. There is a flexible procedure of distributing the facilities (reserved places, or other). 4. The procedure is simple, avoiding bureaucracy. 5. The percentage of occupying places and using other resources (social scholarship fund) is more than 75%. 6. The rate of retention of beneficiaries is more than 80%. 7. The barriers for the implementation of policy and other measures are reduced to minimum. 8. The actors involved make recommendations of improvement. C. 1. 2. 3. 4.

Evolution and monitoring of the evolution of beneficiaries Faculty/university has procedures of monitoring the route and performance of the beneficiaries. The responsible factors inform themselves about the situation of beneficiaries. The candidates who apply for special reserved places benefit of consultancy and orientation Dropout rate for the beneficiaries of the policy is not higher that the dropout rate of the other students.

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There is a consensus on the reasonable chances to success of the beneficiaries of the policy.

D. Attitude of teachers, technical staff and students 1. They understand and agree with the need to support vulnerable groups. 2. They support, if needed, the inclusion of the members of disadvantaged groups. 3. They don’t manifest behaviors of labeling and exclusion of the members of disadvantaged groups. 4. They have a positive attitude and show a reduced level of stereotypes addressed to vulnerable groups. 5. They facilitate, according to their institutional role, the solving of punctual problems of the beneficiaries of equity policies. E. The perception of beneficiaries 1. They appreciate the policies and measures applied to vulnerable groups as being useful. 2. They appreciate the transparency and the flexibility of institution in the implementation of policy. 3. They evaluate the admission procedure as being simple. 4. They have a low intention of dropout, and a high level of confidence in their possibility to graduate. 5. They self-evaluate their performance as being close to the colleagues’ performance. 6. During the admission or learning process, they don’t feel labeled or discriminated. 7. They evaluate the behavior of teachers and colleagues as positive or neutral. 8. They feel supported by families and by the university staff for graduating studies.

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MEANS OF IMPROVING THE PUBLIC MANAGEMENT OF THE EU STRUCTURAL AND INVESTMENT FUNDS Ștefan-Florin CORCODEL Bucharest University of Economic Studies 6 Piața Romană, Bucharest, RO [email protected] Abstract. The current research paper aims to highlight a series of measures proposed by the author, measures that will contribute to the development of an effective and efficient mechanism dedicated to using European structural and investment funds, in the field of human resource development measures and strategic actions. The most significant problems in using EU funds in Romania, since the adherence to this structure in 2007, have been met within the programs that are dedicated to the development of the human resources, namely within the Sectorial Operational Program Human Resource Development 2007-2013 (SOP HRD) and the Operational Program Human Capital 20142020 (OP HC). Both programs aim to develop the abilities and competencies of Romanian human resources through professional training and associated support services, entrepreneurial training, financial support for the development of start-ups, internships for students, doctoral scholarships and other similar activities. The current paper looked to identify the major weaknesses of how both programs are implemented, from the perspective of actual beneficiaries, and to elaborate a series of practical measures that will contribute to a more efficient management of these funds from the public institutions that are responsible. The analysis will refer to all of the relevant processes associated with the relationship within the Management Authority of the programs and the organizations that act as beneficiaries. The research is based on the results gathered through the questionnaire method, applied to a relevant sample of experts that have worked on human resource development projects. Keywords: cohesion policy; European management; public institutions.

funds;

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Introduction The research presented within this article aims to highlight the perspective of beneficiaries that were involved in human resource development projects on the public management system of these projects. The reasoning behind this analysis resides in the ability to present a series of improvement measures in the parts of the management system that have presented the most significant weaknesses. The relatively low rate of absorption in the 2007-2013 programming period is possibly the best indicator one can evaluate in order to assess how the management system of European funds functioned over the nine years in which projects could be implemented (2007-2015). By the 31st of March 2017, Romanian authorities have sent statements for payments to the European Commission for only 89.08% of the total budget that was allocated for Romania in the programming period, on different programs (Romanian Government, Ministry of Regional Development, Public

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Administration and European Funds, 2017). This level is the maximum effective absorption rate that can be achieved due to the fact that no payment statements could be sent to the European Commission after that date. For the Sectorial Operational Program Human Resource Development 2007-2013 (SOP HRD), the absorption rate stands at 90.81%. By comparison, according to the website of the European Commission (2017, I), the EU-28 average for the absorption rate associated with the European Social Fund (the fund out of which SOP HRD and OP HC are financed) is 94.57%, with most EU member states having an absorption rate of over 95% since the end of 2016. In terms of overall absorption (regardless of the general financing fund) the EU-28 average stands at 94.45%, while Greece is the only EU member state that has a full absorption over the 2007-2013 period. These differences have frequently attracted critics from different stakeholders, from the general media and from multiple European institutions involved in this system. Out of all of the stakeholders involved in this system, we have decided to analyze the perspectives of experts that have actually been involved in drafting a project proposal and implementing a project with financing from the two human resources development programs - Sectorial Operational Program Human Resource Development 2007-2013 (SOP HRD) and the Operational Program Human Capital 2014-2020 (OP HC). Their role within the programs is clearly decisive and, thus, their feedback and perspective on the subject at hand are invaluable for elaborating improvement measures and increasing the absorption rate for these programs. Current state of knowledge The Romanian experience in terms of European non-refundable funds began before the actual adherence to the European Union and implied the usage of multiple preadhesion funds (PHARE, SAPARD, and ISPA), with significant results in terms of the absorption rate. After the official adherence to the EU, on the 1 st of January 2007, Romania would benefit from approximately 19 billion Euro in the 2007-2013 programming period that effectively ended in 2015 (Romanian Government, Ministry of Regional Development, Public Administration and European Funds, 2017). This sum was associated directly with the major European funds – the Cohesion Fund, the European Social Fund and the European Regional Development Funds. The financial aid was implemented through seven major operational programs, the most significant programs in terms of EU funds allocation being: Sectorial Operational Program for Environment (4.4 billion Euro), Sectorial Operational Program for Transport (4.2 billion Euro), the Regional Operational Program (3.9 billion Euro) and the Sectorial Operational Program Human Resource Development (with an initial allocation of 3.4 billion Euro, lowered in 2015 to 3.2 billion Euro). The final payment statements for all seven operational programs were sent to the European Commission at the end of March 2017 with only three programs having declared payments of 100.00% of their allocation. Only one of these programs had an allocation of over one billion Euro – the Sectorial Operational Program for Increasing Economic Competitiveness. The final effective absorption rate for the 2007-2013 period will be determined after the end of administrative and technical evaluation for each payment statement

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currently under evaluation at the European Commission. Thus, the final effective absorption rate will increase from the current confirmed level for this rate of 79.23% to an estimated level of 88-89% for all programs. The focus of this research paper, the Sectorial Operational Program Human Resource Development 2007-2013, can be characterized by the most significant increase of the absorption rates (current and effective) in the final period of the programming period. At the end of 2015, this program had an effective rate of absorption of only 49.26%, while the average value for all programs stood at 58.86%. By the end of 2016, the Human Resource Development program reached an effective absorption rate of 73.37%, while the average value for all programs was of almost 80%. After the final payment statements were sent to the European Commission, as mentioned before, the program overpassed the most important program in terms of allocation (Environment and Transport) and reached a declared rate of 90.81%, pending the evaluation process form the European institutions responsible for these actions. In the period between 2014 and 2020, even though the performance registered in the previous period was considered relatively low, the budget allocation is significantly higher, rising to over 30 billion Euro (Romanian Government, Ministry of European Funds, 2014, I), excluding the national contribution, ranking Romania in the first quartile among European states from this perspective (European Commission, 2017, II). The allocation for the 2014-2020 period from the European Social Fund reaches a level of 4.6 billion Euro with the Human Capital Operational Program 2014-2020 receiving most of the allocation. This program has a total allocation (from the European Social Fund and from complementary European Funds) of 4.326 billion Euro (Romanian Government, Ministry of European Funds, 2014, II). In terms of previous research in this field of study, one study (Zai, 2015) highlights the fact that a special attention needs to be given to resolving fundamental problems regarding the modernization and development of the system. In this respect, the author states that the acceleration of the public administration reform process is essential. This reform can be carried out by creating a core of competent, specialized and politically independent civil servants, as opposed to the current defective system operating in Romania, a system which is largely a result of corruption, nepotism and/or political involvement. In addition to this, the cited research states that all decision-making factors must be aware that both programming periods (2007-2013 and 2014-2020) can achieve significant performances only by setting the foundations of an effective management system, by adopting measures for simplifying the accessing and management process. Another study on the barriers in terms of accessing EU Funds in Romania (Corcodel et al., 2016) highlighted a series of relevant conclusions. Bureaucracy and the lack of stability in terms of regulations have had over the 2012-2016 period an alarming rise in terms of their importance and were the most significant barrier seen by Romanian entrepreneurs in accessing EU funds. Another interesting conclusion of the cited study saw the confirmation of a significant decrease of interest in accessing EU funds over the period of analysis (2012-2016), as an aggregate indicator of the state of the EU Funds system in Romania. However, this study does not focus on human capital

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development programs – thus, the results cannot be considered as valid for these programs and research must be continued. One reason for the lower level of interest in accessing this type of financing scheme might reside in the low level of information available to the general public in regards to these financing opportunities, as highlighted in the 2016 White Charter of Romanian SMEs (National Council of Small and Medium Sized Private Enterprises from Romania, 2016) – a main obstacle for beneficiaries is the low level of information publically available about these financing opportunities, as 44.25% of questioned entrepreneurs highlighted this obstacle. Finally, the second intermediary evaluation of the Sectorial Operational Program Human Resource Development 2007-2013 (Archidata, 2014) presented a series of decisive issues that influenced the implementation of the program and the associated measures for overpassing them. The decisive issues highlighted in this evaluation were: assuring a proper structure of the human resources within the managing authority and the intermediary organizations that are involved in managing and controlling project, both through their active structures and by using external experts; carrying out an analysis, with aid from the Audit Authority, on the regulations related to the implementation of the program; setting up a proper methodology for reporting program indicators; implementing a continuous submission system for project proposals, alongside fixed-term calls for projects (based on identified needs). All of the highlighted issues within this chapter represent the base for this research paper, as there is a clear need for measures to improve the public management system of EU Funds in the field of human resource development. All of the proposed measures will be defined by taking into account the perspective of experts that were involved in drafting project proposals and implementing the successful ones within human resource development programs in Romania. Research methodology The scope of this research was to illustrate the main perspectives and opinions of Romanian beneficiaries in regards to the management system associated with the two human capital development programs from the 2007-2013 and 2014-2020 programming periods. The end result of the research is related to proposing a series of improvement measures to be implemented by public institutions in Romania in order to increase the effectiveness of funds used to develop the human resource and the general absorption rate for this type of program. The research, as mentioned before, analyzed the most significant processes related to the project that was and can be financed by the described programs. Thus, for each area of analysis, we have set a research hypothesis, as presented in the following paragraph. The first hypothesis refers to the evaluation process of project proposals submitted within the two human capital development programs: we suppose that, even though the duration of the evaluation process is lengthy, its quality is appreciated as being over the average by beneficiaries that have been involved in such projects. The second

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hypothesis of the research refers to the implementation phase of the selected projects: the changes made by public authorities in terms of regulations have had a negative effect on the implementation phase, due to a lack of proper prior public consultation of the beneficiaries. The third hypothesis refers to a certain extent to all processes related to projects financed from the two ESF programs: beneficiaries have had a better relationship with intermediary organizations than with the management authority of the program they have obtained financing from. The fourth and final hypothesis of the research looks into the most negative element related to the analyzed projects: we suppose the fact that beneficiaries consider the high volume of work related to reporting activities to be the most negative element associated with projects dedicated to human capital development in Romania. The methodology of the research involved a primary research, based on the questionnaire technique, disseminated electronically to the experts that have worked on human resource development projects, in the first months of 2017 (January – May 2017). The questionnaire contains 25 questions out of which only a part was used in the current research – the questionnaire is available at http://bit.ly/2sCQyGn. The sample for this research was formed out of 184 experts, with a heterogonous distribution in terms of certain characteristics (age, education, work experience, type of institution represented, number of projects in which they were involved, average budget of the projects). These experts were contacted within the professional network of the author of the paper – the response rate is over 90%, a value that is justified by the approach used for including the sample in the research (direct contact). The total number of experts that have worked on projects of this type has not been officially confirmed by the Romanian Government – thus, the research population and sample cannot be correctly determined. However, an estimation can be realized by analyzing the number of financing agreements signed within the two programs. For the Sectorial Operational Program Human Resource Development 2007-2013, according to the final implementation report (Romanian Government, Romanian Government, Ministry of Regional Development, Public Administration and European Funds, 2017, II), within 195 project calls, the management authority signed 4.102 financing agreements with public and private beneficiaries, out of which 307 agreements were terminated within the implementation phase. Based on the fact that a person could have worked within multiple projects over the 9-year period of this programs’ implementation we can estimate the fact that the total number of experts that have worked in the management or implementation teams is situated between 25 and 30 thousand. In terms of the 2014-2020 period program, by the end of May 2017, no relevant financing agreements were signed with a public or private organization, with the exception of a small number of technical assistance projects. Public data about these financing agreements were not available in due to time to be included in this research. Thus, taking into account the sample involved in the research and the estimated research population, the research has a significant relevance for the areas it analyses.

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Research results The first hypothesis of the current research refers to the evaluation process of project proposals submitted to the two human capital development programs. We supposed that, even though the duration of the evaluation process is lengthy, its quality is appreciated as being over the average by beneficiaries that have been involved in such projects. The collected results highlight the fact that no questioned expert considered the duration of the evaluation to be very short, only 3.3% considered it to be short and 12% appreciated the duration as being only decent. 54.3% of the answers highlighted a long duration of the evaluation process, from the perspective of the beneficiaries, while 30.4% stated that the evaluation process had a very long duration, confirming the first part of the hypothesis. In terms of the quality of the evaluation process, the gathered results highlight the fact that no expert considered this characteristic to be at a very high level. Exactly 25% of responders stated that the quality of evaluation was high, 50% considered it to be of a decent level, 18.5% appreciated the quality of evaluation to be reduced. Finally, only 6.5% of the questioned experts considered the quality of the process to be very low. Taking into account the average evaluation of this characteristic, the first hypothesis is infirmed – the quality of the evaluation process of project proposals within the human resource development programs is below the average on the used scale. The second hypothesis of the current research refers to the implementation phase of the selected projects. We supposed that the impact of changes made by public authorities in terms of regulations has had a negative effect on the implementation phase, due to a lack of proper prior public consultation of the beneficiaries. Gathered results highlight the following: no expert considered that changes made by public authorities as very good or useful for the efficiency of the implementation process, 26.1% considered these changes to be good (positive), 29.3% considered that the changes did not have any effects, 35.9% stated that these changes had a negative effect on their projects, while 8.7% declared that changes made by public authorities have had a very negative effect on the activities carried out within EU-funded projects. Thus, the overall impact of the framework changes made by public institutions can be appreciated as a negative one – the hypothesis is confirmed. The third hypothesis refers to a certain extent to all processes related to projects financed from the two ESF programs and is related to the public institutions that have the most significant impact on projects financed from these programs. We supposed that beneficiaries have had a better relationship with intermediary organizations than with the management authority of the program they have obtained financing from, as intermediary organizations were more close to the needs and activities of beneficiaries and their own activity was, sometimes, negatively influenced by decisions taken by the managing authority. In terms of the relationship within intermediary organizations, the following results were obtained: 4.3% of experts stated that the relationship with IOs was very good; 47.8% of experts stated that the relationship with IOs was good; 22.9% of experts stated that the relationship with IOs was decent (of an average quality); 13% of experts stated that the relationship with IOs was bad; 5.4% of experts stated that the

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relationship with IOs was very bad; 6.5% of experts could not evaluate this relationship. In terms of the relationship between the management authority, the following results were obtained: 1.1% of experts stated that the relationship with this authority was very good; 19.6% of experts stated that the relationship with this authority was good; 25% of experts stated that the relationship with this authority was decent; 25% of experts stated that the relationship with this authority was bad; 5.4% of experts stated that the relationship with this authority was very bad; 21.7% of experts could not evaluate this relationship. No evaluation Very good Good Decent (average)

Intermediary organization Management authority

Bad Very bad 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00%

Figure 1. Quality of the relationship between beneficiaries and the public institutions involved in managing EU-funded projects, from the perspective of the beneficiaries (author’s research)

Thus, the third hypothesis is confirmed – the relationship of beneficiaries with the intermediary organizations that directly managed and verified their project activity was better than the one with the management authority, on average, within the research sample. If a quantitative scale of 1-to-5 is associated with the used qualitative scale (1 with a very bad evaluation of the institution, 5 with a very good evaluation), the weighted average for intermediary organizations stands at 3.13, while for the management authority it stands at only 2.14. The difference is, from my perspective, a significant and alarming one. This confirms a state that I have personally met within the implementation phase of projects in which I, as an expert, was involved. Decisions of the managing authority have had a significant impact on the work processes within intermediary organizations and, on certain occasions, these decisions were not properly understood by intermediary organizations. Needless to say, this occurrence has also had a profound negative effect on the project beneficiaries and their stakeholders. The fourth and final hypothesis of the research looked into the most negative element related to the analyzed projects - we supposed that beneficiaries considered the high volume of work related to reporting activities within their projects to be the most negative aspect associated with their activities. The results gathered on this issue are the ones presented in the figure below.

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Delays in payments to beneficiaries

2.20%

High volume of work for reporting Changes of legal framework in implementation

8.70% 39.10%

Lack of real proper beneficiary consultation High duration of reimbursement checks

8.70%

Lack of transparency Low quality of the electronic reporting system

16.30%

Competition with other beneficiaries 17.40%

High duration of approval for changes in the financial agreement Other

Figure 2. Negative aspects (author’s research)

The final hypothesis is only partially confirmed as the high volume of work related to preparing reporting documents was selected as the second-most frequent option (by 17.4% of questioned experts). The most important negative aspect related to this type of projects, according to the perspective of beneficiaries, is the fact that the managing authority has had significant delays in the payments it was and is obliged to do in favor of the project beneficiaries. Conclusions and recommendations The current research paper highlighted a series of weaknesses related to the activity of public authorities that are responsible for implementing human capital development programs funded through EU Funds in Romania. The first weakness highlighted is related to the evaluation process of project proposals – research results showed that the duration of this process is very long and the quality of the evaluation results is considered to be under the average. A solution to this problem can be the usage of external assistance just for the evaluation process, through the technical assistance axis that each operational program currently includes. A disadvantage of this method resides in the relatively long process needed in order to sign the contracts for these external services, as the Romanian public procurement laws have significant flaws and the implementation of contracts is usually delayed by appeals to the initial decisions. Another solution would be to use more internal resources for evaluation, but a balance must be assured as this staff will not be able to evaluate the same projects in their implementation phase.

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The second element confirmed by the current research is the fact that changes made within the implementation of the program have had a generally negative effect on the efficiency and effectiveness of financed projects. The lack of proper public consultation is the main cause for this situation and, thus, the solution for this weakness is relatively simple – the managing authority should correctly consult all stakeholders involved in the program they manage, including actual and potential beneficiaries. By applying this, potential changes to technical or financial aspects related to program implementation would be better adapted to the needs of the beneficiaries and their motivation in proposing and implementing projects would be higher. The difference between the qualities of the relationships with the most important public authorities involved in implementing ESF-funded has been determined to be significant, in favor of the intermediary organizations. Even though this difference is significant, the overall level of appreciation from beneficiaries for both types of institutions is relatively low and must be improved by better services – the most important actions should target a higher level of support in terms of technical and financial implementation and a faster and better evaluation of project proposals and of reimbursement requests from beneficiaries. The research carried out in order to evaluate the fourth hypothesis highlighted the fact that the most important negative influence on project implementation is associated with the delays in payments from the management authority to beneficiaries. Two interconnected measures can be taken in order to improve the speed of payments within the 2014-2020 period program: financial resources must be permanently assured (the first), by using professional planning tools for payments (the second measure). The most facile way of assuring financial resources is by taking our loans from the State Treasury and returning these sums when reimbursements from the European Commission are made. The perspectives in terms of continuing this line of research are related to evaluating other processes associated with implementing the ESF-funded project in Romania. Some interesting areas of research are related to evaluating the sustainability of these projects and other ex-post actions. Acknowledgement: This paper was co-financed by The Bucharest University of Economic Studies during the Ph.D. program.

References Archidata Seral (2014), A doua evaluare intermediară a POS DRU 2007-2013. Raport pentru Guvernul României, Ministerul Fondurilor Europene. Archidata S.r.l., Italy. Corcodel, Ș.F., Tănase, I.A., & Urîtu, D. (2016), Main Barriers of Accessing EU Structural Funds in Romania. In Proceedings of the 28th IBIMA Conference (pp.1371-1381), Seville: IBIMA Publishing. European Commission (2017, I). European Structural and Investment Funds – Absorption rates 2007-2013. Retrieved from https://cohesiondata.ec .europa.eu/dataset/2007-2013-Funds-Absoption-Rate/kk86-ceun. European Commission (2017, II). European Structural and Investment Funds – EU Overview. Retrieved from https://cohesiondata.ec.europa.eu/overview.

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National Council of Small and Medium Sized Private Enterprises from Romania (2016). White Charter of Romanian SMEs 2016, Bucharest (pp. 159-160). National Council of Small and Medium Sized Private Enterprises from Romania through Signum Publishing House. Romanian Government, Ministry of European Funds (2014, I). Acordul de parteneriat 2014-2020. Bucharest: Ministry of European Funds. Romanian Government, Ministry of European Funds (2014, II). Programul Operațional Capital Uman 2014-2020. Bucharest: Ministry of European Funds. Romanian Government, Ministry of Regional Development, Public Administration and European Funds (2017, I). Absorption rate status for 2007-2013. Retrieved from https://www.fonduri-ue.ro. Romanian Government, Ministry of Regional Development, Public Administration and European Funds (2017, II). Programul Operațional Sectorial „Dezvoltarea Resurselor Umane” 2007-2013. Raport final de implementare, Bucharest: Ministry of European Funds. Zai, P.V. (2015). The Latest Approaches Regarding Structural Funds Absorption – Romania vs. Central and Eastern European New Member States. Journal of Eastern Europe Research in Business and Economics, 2015(2015), Article ID 178521. Retrieved from http://ibimapublishing.com/articles/JEERBE/2015/178521/.

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REDISCOVERING THE OFFICE AS VOCATION WITHIN CHANGING PUBLIC ORGANIZATIONS Mauro ROMANELLI University of Naples Parthenope Via G. Parisi 13, 80132 Naples, IT [email protected] Abstract. Rediscovering the office as a vocation should drive public management reform leading to organizational change within public administration and institutions moving towards a better responsiveness. Promoting and sustaining training and education tends to emerge as a necessary stage to drive public employees to rediscover the office as a vocation for serving citizens and communities. Public organizations have to rediscover the importance of public interest as result of dialogue and respect for people sustaining the motivation of public employees for managing change and promoting collaborative relationships with citizens. Training and education contribute to hybridize the administrative and organizational culture of public institutions exerting influence on ethics and behaviors of public employees for driving change. Keywords: office as vocation; organizational change; public organizations; training and education. Introduction Public sector organizations serve the interest of national community and differ from private sector organizations mainly with regard to objectives and setting (Lane, 2009): governments accomplish social objectives delivering services in the interest of a national community, whereas private enterprises do business to make money by maximization of profit for their owners; private management is oriented towards the market that shapes the success of enterprises determining opportunities for profitability. Differences between private and public sector with regard to human resource management, organizational policies and practices rely on the persistence of a public service ethos among public employees (Boyne, Jenkins & Poole, 1999). Public sector management reform driving strategic and organizational change within the public administration is leading public organizations to pay attention to the human side of public management and to rediscover the meaning and the role of public office as a vocation for developing effective and cultural changes driving behaviors and acts of public employees. Public organizations sustaining efforts and paying attention to the respect of citizens should value the bureaucracy as forms of organization preserving ethic values, impartiality, equity and justice in governing the relationship between public bodies, citizens, businesses and no profit organizations (du Gay, 1996; du Gay, 2005).

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Effective government agencies tend to have high attractive mission and valence, high levels of public service motivation as a general motivation to serve the interests of a community of people in terms of contribution to general and valuable public service. The perceived linkage of the mission to public service values can contribute to enhancing mission valence and mission motivation. Different factors contribute to enhance public service motivation (PSM) (Kim & Vandenabeele, 2010; Perry & Wise, 1990; Rainey, 1982; Wright, 2007): high mission valence or attractiveness; strong organizational culture; effective leadership behaviors in terms of commitment to mission, effective goal setting and administrative and political coping (Rainey & Steinbauer, 1999). Creating public value relies on public manager sharing responsibility with other officials and citizens to decide what is valuable to produce with public resources by interacting with people to determine and organize ends and means of service delivery and production (Moore, 1995). Public institutions have to respect the people and serve the public interest as result of shared leadership moving towards a better responsiveness and effective collaboration with citizens as partners in the work of government sharing ideas and knowledge with public officials (Vigoda, 2002a; Vigoda, 2002b). The public interest is better advanced by public servants committed to attend to law, community values, professional standards and citizen interests, to make a meaningful contribution to society by helping citizens to meet their shared interests (Denhardt & Denhardt, 2003; Denhardt & Denhardt, 2000). Public organizations building collaborative relationships with citizens involved in government activities tend to encourage shared responsibilities and understanding of public values (Bourgon, 2007). Rediscovering bureaucracy as an organizational and necessary pattern to ensure equity, justice, and correctness of administrative action is leading to rediscover the office as a vocation. The ethical attributes of a good bureaucrat in terms of strict adherence to procedure, acceptance, and commitment to the purposes of the office tend to be considered as a positive moral achievement (du Gay, 1996; du Gay, 2005; Olsen, 2005). The aim of this paper is to explain that the issue of public sector reform is to rediscover the office as vocation by investing in training and education as drivers for managing and addressing strategic and organizational change within public organizations that follow the public interest by providing services and information to citizens working for the community within society. Investing in education and training helps the dynamics of functioning and governance within public administration and contributes to better enhance the building of civic awareness and tradition (Crozier, 1988), reinforcing the orientation of public employees to engage in a meaningful public service as related to work satisfaction too (Rainey, 1982). Rediscovering the office as vocation helps address and drive public management reform leading to organizational change within public administration and institutions. Promoting and sustaining training and education tends to emerge as a necessary stage to drive employees to rediscover public offices as a vocation in the service of citizens and communities. Training and education initiatives and activities should contribute to hybridize the administrative and organizational culture of public institutions and

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organizations overcoming legalistic and bureaucratic logics by exerting influence on ethics and behaviors of public employees for driving change. Public organizations tend to sustain the value of human capital by promoting training and professional education of public employees in order to support public sector reform for driving organizational and cultural change. Education and training lead employees to learn values coherently with new public service and interest as a mission of public organizations. The study is based on archival data relying on a literature review to sustain the discussion with regard to rediscovering the office as vocation within public organizations; understanding change within public organizations rediscovering responsiveness and public interest beyond promises of New public management (Npm); developing training and education of public employees as strategic source in order to sustain motivation of public employees for leading government to restore trust with citizens.

Rediscovering the office as vocation within public organizations Fredrickson and Hart (1985) refer to the patriotism of benevolence as the love of one’s country and non-instrumental of the others, founded on knowledge of and belief in democratic values and important motivation for driving public organizations. Public servants and public administrators have to drive and manage a responsible organization by reconciling bureaucracy, administrative processes, and democracy (Burke & Clark, 1989). Reinventing government implies to rediscover principles of democratic governance, citizenship, and equity (Deleon & Denhardt, 2003). Responsiveness of public administration relies on the quality of human resources system and public servants (Vigoda, 2000) and implies a listening administrator in order to promote democratic accountability and administrative effectiveness driving public servants to engage in reciprocal communication with the public (Stivers, 1994). Despite negative label concerning the term bureaucracy, maybe it time to rediscover bureaucracy (Olsen, 2005). Bureaucracy tends to appear as evolving, many-sided, diversified and organizational device and necessary instrument to ensure equity, justice, and correctness of administrative action (du Gay, 1996; du Gay, 2005). Public sector organizations need reform even if it is not clear how reform should address change, to what extent and in what direction to drive change. The ethical attributes of the good bureaucrat in terms of strict adherence to procedure, acceptance of sub-and super-ordination and commitment to the purposes of the office should be viewed and considered as a positive moral achievement in their own right, the way through which individuals develop the disposition and ability to conduct themselves according to the ethos of bureaucratic office (du Gay, 1996). The task of democracy is to preserve the balance between the capacity to sustain the public interest and the democratic accountability of governance (Lynn, 2001). Thereby, transforming public organizations in entrepreneurial and managerial organizations takes the risk of both undermining some principles of public provision as equity and making public organizations as no capable institutions to serve public mission and identity (du Gay, 1996) leading to a disconnection between legal values and practices embedded (Moe & Gilmour, 1995), driving public managers to play an entrepreneurial leadership role tends to conflict with constitutional values concerning

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fairness, justice, representation and participation (Terry, 1998). The Npm paradigm seems to require a new paradigm of democratic accountability in order to restore and enhance the trust of people and citizens in government’s performance through public managers seeking to produce results that citizens request (Behn, 1998). Understanding change within public organizations rediscovering responsiveness and public interest In 1980s-1990s, Npm doctrines have driven cultural and managerial change within public sector organizations emerging as theoretical and managerial response to inefficiency of the traditional model of managing res publica leading public organizations to import managerial practices from the private sector, focusing on reorganization of public bureaucracies disaggregated into agencies more flexible and output oriented, on financial efficiency and performance measurement, on separation of politics from management, reducing government functions through privatization (Hughes, 1994): stressing the private sector styles of management practice towards flexibility in hiring and rewards; a stress on greater parsimony and discipline in use of resources doing more with less, by cutting direct cost and resisting to union demands (Hood, 1991). Thereby, public management reforms driven by Npm ideas have shown difficulties of applying, some limits and contradictory effects. There are some constraints of the management state (Lane, 2009): neglect of meaning, no preservation of intangible values, unresponsiveness to requests and demands of citizens, democratic deficit within institutions. Npm reforms stimulating competition mechanisms increased the chances of unethical behaviors associated with individualistic values reversing equity and legality as traditional values of public servants (Maesschalck, 2004). Npm doctrines contributed to deteriorate the corporate culture, the traditional work ethos and non-functional values, increasing a decline in motivation and work satisfaction, greater workload and stress (Diefenbach, 2009). Reformers should take account of the value implications of reforms in order to correctly assess the ethical value and value consequences of public sector management reforms (Kernaghan, 2009). The need of achieving efficiency, efficacy, and effectiveness does not comprise all values and principles informing dynamics and life of public organizations. Innovation and traditional values of public service tend to coexist within public management reform. Thereby, public management reforms tend to be also inspired by postmodern values that emphasize the demand for greater social equity as justice as fair treatment, inclusiveness, and equity in compensation, policies to harmonize the differences in the conditions of employment between government and the private sector; the humanization that refers to the employee as an individual manifesting specific needs as growth and development and implies to support programs for training/educational opportunities for sustaining the human resource development as related to lifelong learning for a better quality of life in which learning is a shared goal between the employee and the employer; the democratization and empowerment relate to expand access to power and influence on decision-making by engaging citizens, promoting participative decision-making (Wise, 2002).

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Even if the interaction between public and private organizations is leading to a new public service ethos concerning honesty, community service, and competition, consumer choice (Brereton & Temple, 1999), lawfulness, incorruptibility and impartiality tend to emerge as prevailing and specific values within context of public organizations (Van der Wal, De Graaf & Lasthuizen, 2008). Governments exist for market and society acting to correct problems created by market dynamics and to maintain law, justice, individual rights, social organization, security, and stability, to promote prosperity, to provide direction for communities. Governments tend to protect public values as psychological and social constructs existing independently of production processes for outcomes (Rainey, 2009). «Public values consist of outcomes based on what a government entity is supposed to be doing, and based on what citizens want it to do» (Rainey, 2009, p.70). Creating public value relies on public manager sharing responsibility with other officials and citizens to decide what is valuable to produce with public resources by interacting with people to determine and organize the ends and means of service delivery and production (Moore, 1995). Public institutions have to respect the people and serve the public interest as result of shared leadership moving towards a better responsiveness and effective collaboration with citizens as partners in the work of government sharing ideas and knowledge with public officials (Vigoda, 2002a; Vigoda, 2002b). The public interest is better advanced by public servants committed to attend to law, community values, professional standards and citizen interests, to make a meaningful contribution to society by helping citizens to meet their shared interests (Denhardt & Denhardt, 2003; Denhardt & Denhardt, 2000). Public organizations building collaborative relationships with citizens involved in government activities tend to encourage shared responsibilities and understanding of public values (Bourgon, 2007). The role of training and education as means of promoting change and sustaining motivation to public service The nature of public service demands a sense of loyalty on the part of public employees. Public employees tend to manifest higher attention to service than private employees. The importance of the organizational mission may increase employee work motivation in the public sector. Public organizations should support the motivational power of public service (Wright, 2007) and create an environment in which employees feel they can contribute both to the public goal and to an organization performing valuable services (Moynihan & Pandey, 2007). People represent an important resource driving public administration to serve the public interest (Todres, 1994). The competitive advantage of organizations relies on the quality of human resources and capacity to manage human resources (Pfeffer, 1995). Human resources practices permit to improve and achieve high performances in public sector organizations and to communicate to employees the extent to which organizations trust employees (Gould-Williams, 2003). Sustaining successful change within public organizations relies on providing resources in terms of training employees, developing new processes and reorganizing the structure, on employees able to learn new behaviors drawn by new policies or innovation in order to effectively

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institutionalize change as embedded in the institutional context (Fernandez & Rainey, 2006). Reinventing government relies on investing in human resources and professionalism of public employees by sustaining education and training in order to improve quality of public services for citizens and society (Crozier, 1988). Change may proceed through the people educated to values, beliefs, and ideas that effectively serve to restore the relationship of confidence with people as co-producer of public value. Change cannot proceed merely by laws but requires new professional skills and behaviors of public employees to ensure coherent processes and available outcomes (Dente & Lo Schiavo, 1999). Change occurs as new organizational behaviors experienced by people are introduced and implemented through explicit and tacit tasks (Solari, 2007). Education and professional socialization tend to exert influence on levels of public service motivation of employees feeling to contribute to the public goal (Moynihan & Pandey, 2007). Competences and expertise of personnel help to improve the responsiveness of public administration being positively related to citizen’s satisfaction with public services quality. Citizens are likely to perceive public administration as more responsive and sensitive to their demands when believing that public policy is implemented coherently with clear ethical standards. These findings stimulate to better design and improve training systems for public administrators (Vigoda, 2000). Quality of personnel in terms of competences, motivation, and commitment to goals and mission of public organizations constitute a strategic resource in order to develop and sustain a responsive public administration. Training and education as a fundamental dimension of human resource management should help to stimulate processes of innovation to ensure high quality of public services. Reforming public administration and reorganizing structures and processes should be accompanied by the adoption of training strategy in order to support the organizational change processes (Valotti, 2000) by modifying attitudes and behaviors (Bonti, 2000). Training and education processes should permit to acquire new professional skills and capabilities in order to increase satisfying productivity and performance opening up to new career perspectives for employees and senior officials. Training and education programs should be considered as ordinary initiatives to support the psychological and professional development of individuals and employees. The adoption of training programs should permit to remove obsolescent behaviors consistently with managerial and cultural trends for governing and driving public administration. New public administrators should be trained in principles of public administration that provide the necessary foundation for growing administrative system (Moe & Gilmour, 1995). New public managers should follow a different style in terms of values, orientations, and attitudes, being able to formulate strategic goals and programs, identify citizen needs and actively communicate, including politicians in the management process, advising political decision makers and motivating their staff and employees. Cultural, professional and social values tend to drive strategic and organizational change with a learning process by sustaining civil service personnel aware to actively contribute to increasing both motivations of personnel and effectiveness of public service delivery (Rebora, 1988). Sustaining change relies on competencies, on enforcing motivation and commitment of personnel as a strategic resource for building more and more responsive public organizations (Valotti, 2005).

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The attention to the role of training and education within the public administration is emerging in the early 1990s. A renewal attention on the role and task of training and education within public sector organizations is the signal that the season and the wave of public sector reform were entering a new stage more related to maintaining and consolidating the issues and consequences of managerial logics and principles introduced than sustaining new innovation and need to change. The attention on training and education tends to be different from the past and related to rediscover the capacity to engender and stimulate creativity, accountability and problem solving focusing on the acquisition of skills and capabilities than technical knowledge to learn and to apply (Fontana, 1998). It should be necessary to promote a network of new public management teachers through the exchange of information about programs, their organization and success as the first step for a common understanding about appropriate subject areas (Reichard, 1998). Sustainable management education relies on involving students, educators, organization and societies willing to participate in interdisciplinary innovative and external communications (Starik, Markus & Clark, 2010) following some principles (Stachowicz-Stanusch, 2011): generation of sustainable value for business and society; effective learning experience for responsible leadership; interacting in a partnership with scientists, business and local government for meeting social and environmental responsibilities and jointly facing these challenges; facilitating the debate and dialogue among government, civil society, business, interest groups and other stakeholders about the issues and questions regarding social responsibility and sustainability. Employee training and development should be part of a long-term learning strategy including reflection about the expansion of organization knowledge systems (Haugh & Talwar, 2010). Training and education contribute to driving change being oriented to sharing knowledge among participants, focused on the individuals in order to build a collective memory and based on the assessment and evaluation client driven (Quaglino & Rossi, 2007). Reinventing government implies to design a professional path for governing and managing both the education and training programs and methods (Fontana, 1998) leading personnel to assume new tasks learning new values and playing coherent behaviors and roles following the trajectories of change and modernization within public administration (Sinatra & De Martiis, 2004). Different approaches for designing training and education initiatives tend to emerge (Borgonovi, 2004). Training as strategy of change for services delivery: training and education initiatives serve to share competencies, knowledge, skills, and behaviors to implement processes of innovation and improve the quality of service delivery. Training as origin or stimulus for change helps to weaken old patterns of behavior within public administrations where resistance to change is dominant and organizational inertia are pervasive of behaviors and mindset. Training as a response to specific needs and demands: by introducing new decrees or act, the disengagement and compliant of citizens for the low quality of services lead to the development of new knowledge, renewing competencies and skills of personnel. Changing and increasing professional skills of public servant contribute to redesigning work organization. Training as a driver for diffusion of innovation and creativity sharing and cultural orientation in order to stimulate and foster the creativity of people.

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Conclusions Public institutions serve the public interest as result of dialogue and respect for people. Changing public organizations should rediscover the importance of public interest. Considering bureaucracy in positive terms by looking at duties and prerogatives of the bureaucrat rediscovering the office as vocation should permit to understand, rethink and redesign processes of public management reform looking at the human side of processes by re-launching values as honesty, competence, fairness, equity and justice that contribute to better govern the relationship among the individuals within communities and between citizens and public institutions. The issues of public sector management reform concern the forging of a new public employee rediscovering the office as a vocation in the interest and service of citizens and communities. Developing the meaning of the office as vocation relies on sustaining public service motivation of employees for driving change and designing collaborative relationships with citizens. Public organizations should behave as responsive institutions in order engage citizens relying on employees strongly motivated and committed to public service. Public organizations tend to create public value and build transparent public administration by sustaining education and training of public employees as a strategic source to drive change and improve the relationship between public institutions and citizens. Public management reform leading to change requires investments on human capital in order to improve professional competencies and education of public employees. Training and education of employees to public values and ethical principles drive cultural and managerial change and contribute to sustaining within employees PSM a specific motivation to public service and individual predisposition to respond to motives related to public institutions and organizations (Kim & Vandenabeele, 2010; Perry & Wise, 1990). Training and education may exert influence on ethics and behaviors of public servants as agents of change. Training and education initiatives should be focused more and more on principles and values coherently with the new public service rather than on merely management techniques. Training and education programs can be planned and oriented to hybridize the administrative culture by breaking bureaucratic logics for sustaining the cultural change of norms, values, and behaviors. Further and research should investigate the relationship between recent public management reform and the orientation to address and reinforce the rediscovery of office as a vocation within public administration. References Behn, R.D. (1998). The New Public Management paradigm and the search for democratic accountability. International Public Management Journal, 1(2), 131164.

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Kim, S., & Vandenabeele, W. (2010). A strategy for building public service motivation research internationally. Public Administration Review, 70(5), 701-709. Lane, J.E. (2009). State Management. An enquiry into models of public administration and management. London: Routledge. Lynn, L.E. (2001). The myth of the bureaucratic paradigm: what traditional public administration really stood for. Public Administration Review, 61(2), 144-160. Maesschalck, J. (2004). The impact of New Public Management reforms on public servants’ ethics: towards a theory. Public Administration, 82(2), 465-489. Moe, R.C., & Gilmour, R.S. (1995). Rediscovering principles of public administration: the neglected foundation of public law. Public Administration Review, 55(2), 135146. Moore, M.H. (1995). Creating Public Value. Strategic Management in Government. Cambridge: Harvard Business Press. Moynihan, D.P., & Pandey, S.K. (2007). The role of organizations in fostering public service motivation. Public Administration Review, 67(1), 40-53. Olsen, J.P. (2005). Maybe it is time to rediscover bureaucracy. Journal of Public Administration Research and Theory, 16(1), 1-24. Perry, J., & Wise, L.R. (1990). The motivational bases of public services. Public Administration Review, 50(3), 367-373. Pfeffer, J. (1995). Il vantaggio competitivo attraverso le persone. Sviluppo&Organizzazione, 147(1), 42-56. Quaglino, G.P., & Rossi, A. (2007). La formazione nelle organizzazioni pubbliche: leva a sostegno delle scelte di cambiamento. In Quaglino, G.P., & Periti, E. (Eds.), La formazione del management delle università (pp.31-42). Bologna: IlMulino. Rainey, H.G. (1999). Understanding and managing public organizations. San Francisco: John Wiley & Sons. Rainey, H.G., & Steinbauer, P. (1999). Galloping elephants: developing elements of a theory of effective government organizations. Journal of Public Administration Research and Theory, 9(1), 1-32. Rainey, H.G. (1982). Reward preferences among public and private managers: In search of the Service Ethic. American Review of Public Administration, 16(4), 288-302. Rebora, G. (1988). Il cambiamento organizzativo nella pubblica amministrazione. Azienda pubblica, 1(1), 47-102. Reichard, C. (1998). Education and training for New Public Management. International Public Management Journal, 1(2), 177-194. Shachter, H.L. (1995). Reinventing government or reinventing ourselves: two Models for improving government performance. Public Administration Review, 55(6), 531-537. Sinatra, A., & De Martiis, E. (2005). Il ruolo della formazione nel processo di cambiamento della Regione Lombardia. In Sinatra, A., & Alberti, F. (Eds.), Cambiamento strategico e legittimazione istituzionale. Il caso della Regione Lombardia (pp.143-193). Milano: Guerini e Associati. Solari, L. (2003). Viaggiare nel cambiamento. In Solari, L. (Ed.), Cambiamento organizzativo (pp.3-10). Milano: Este. Stachowicz-Stanusch, A. (2011). The implementation of principles for responsible management education in practice – research results. Journal of Intercultural Management, 3(2), 241-257.

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CHANGE AND ORGANIZATIONAL DEVELOPMENT Dakhane NOUREDDINE University of Mohamed Boudiaf 341 Enasser, 28000 M’sila, Algeria [email protected] Ismail ZERROUGA University of Mohamed Boudiaf 341 Enasser, 28000 M’sila, Algeria [email protected] Abstract. Changes must be recognized and dealt with. This imposes the reorganization of its structure and management, as well as many other changes in order to maintain its position in the community. These changes may lead to the resistance of individuals; it is well known that workers, in general, resist any change. The present paper tries to answer a question: do you duplicating the goals the long-term strategy with the programs of change and development department of the translation of the strategic directions to the reality of the fact, as the key to the success of any organization to ensure growth and prosperity and to continue to work even survival is primarily that are then able to parts of the change in the light of the many powers that surround it. Change is a constant presence in the organizations in the present times. The scientific and technological progress in the world generates changes, developments, and challenges in various aspects of life. There is no doubt that these changes and developments had a significant impact on the workers, either considered as individuals or groups of individuals, in addition to its impact on organizations. This impact varies from one organization to another, generating to organizations internal changes in its activities, its objectives, the technology used or their administrative procedures - all keep pace with modern developments in addition to the response to the pressures of the changes in the external environment. Most of the programs of change in organizations is a mixture of means and goals; the solution here lies in the focus on results and not the activities only. In order to adapt an organization to the environment in which it operates beyond the obstacles to its path, Keywords: organization; development; internal changes; management. Introduction Where each organization during the practical life internal changes both in their activities or goals or the technology they use or regulations and administrative procedures, and keep pace with modern developments, in addition to their response to the pressure of the changes in the external environment. In present times, change is a constant presence in all organizations. The scientific and technological progress in the world generates changes and developments that have a significant impact on individuals or groups of workers, in addition to its impact on organizations. This impact varies from one organization to another.

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Most of the programs of change in organizations differentiate between means and ends. The solution here lies in the focus on results and not in activities only. Managers are responsible for taking the difficult strategic decisions for the organization's success and prosperity. No need to start the implementation of the programs measured goals as a key step for the development and change measured the results. And in order to adapt the Organization to the environment in which it operates and beyond the obstacles in its path, it is essential to understand these changes and deal with the matter, which imposes upon the reorganization of its structure and its administration and make many changes. In order to maintain its position in the community in which they live, however, these changes may lead to resistance from individuals. It is known that workers, in general, are resisting any change. It is through the combination of long-term strategic objectives with the programs of change. The development department could translate the strategic directions of the reality and truth. The key to the success of any organization, in order to ensure growth and prosperity, to continue to work and even survive, is to be able to change in the light of the many forces that surround it. The concept of change and organizational development In the light of the continuing changes in the organizations and did not remain static because the environments in which they live continuous changes, which requires the organizations change in response to various environmental changes of the policy and economic and social, cultural and continuous technical as a result of the interaction between the organizations and their environment, the organization does not remain static, but constantly changing. Many people wonder about the reasons for change as the consistency and stability and change a factor of instability and, thus, the change of the phenomenon of exceptional, but seems to be that change is the law of life, and is not flat. Humanity and society and the continuous changes in nature and also to change values and attitudes and behavioral changes must be accompanied by an analysis of change has become a dominant trend in research and organizational development (Summers, 2005, p.85). The change in the external circumstances such as competition and patents and applications for society and government policies, requiring the creation of strategies and the methods of work and outputs of the Organization to continue in its present operational only the internal factors that lead to change also, managers and the organization other affiliates can look not only to the survival of the Organization but also to growth to ensure improved the benefits and raising the level of satisfaction for themselves (Rue & Byars, 1995, p.101). In the phenomena of growth and development and change, Starbanck pointed out that growth means change in the size of the Organization and where it is measured by the size of the membership (any number of individuals) or the size of the use and this means that the change of the change of the Organization could be increased or a shortage.

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The change means any change or modification in one of the sub-systems from one form to another and take new forms in the organization and the officials will respond to contemporary forms and different ways as to change a dynamic move methods and new methods resulting from physical and intellectual innovations by virtue of intellectual progress and material, the change derives from a variety of sources may be individuals and groups from outside the organization or from within, or both, it may be comprehensive and change (in part) and (physically and morally and fast and slow and routine and gradually and radically). The objectives of the change and development Change and organizational development efforts are linked to a variety of objectives and technical terms the objectives may be written in some cases but it can also be derived from the acts and conduct of the management of the Organization and the common goals and known: high level of performance, and achieving a high level of absenteeism and turnover rates defense work, and a minimum of conflict and low costs Keep modifying the organizational behavior of strategies directed to serve the organizational goals and the service of the workers and had summarized the goals of organizational change as follows: 1. to create an atmosphere of confidence among employees across levels in the organization; 2. to find the openness in the climate of the Organization can all workers to address all the problems that are explicitly and not to conceal it (Chester, 1976, p.73); 3. to provide the necessary information to resolution continuously and without distortion; 4. to work on finding compatibility between individual goals and organizational objectives; 5. to create reciprocal relations and the complementarity between the workers as individuals and groups, and encourage the spirit of competition within the team spirit, which increase the effectiveness of the groups; 6. increased understanding communication processes and leadership styles and the conflicts and their causes through increased awareness of the dynamism of the group; 7. to help the supervisors to adopt democratic administrative methods in supervision such as management by objectives; 8. to accustom people to exercise self-censorship and rely on the basis of external control and complement to them. The forces and the reasons for the change and development We have dealt with many of the writers and researchers and the reasons why the Organization for change and development, and many of them tried to the division or the tab for these forces and causes, but among the most acceptable and widespread divisions is the division of powers and the causes into two major groups: - The first group / internal forces and the variables associated with the nature of the organization and its climate and organizational structure and the methods and policies and procedures in achieving the goals or methods adopted in addressing the problems associated with the work and the personnel and of the most important (change in the goals of the organization and its message and its purposes, input and new equipment, the scarcity of labor, the introduction of systems address Advanced Information,

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integration with other organizations, the low morale of the staff,1 the high rate of job turnover, low level of profit and of wills, an emergency internal crisis) (Resser, 1973, p.225). In the category of intellectuals Kreitner/Kinicki internal forces in the organization of two types: 1. The problems (related to the workforce and potential problems arising from the realization of the Organization with regard to how to treat them; 2. Conduct/decisions of managers and friction much conflict between the presidents and the subordinates require the development of skills in dealing with everyone. And we have pointed out Al-qarioti to those forces: 1. The development of the awareness of workers and increase their aspirations and their needs; 2. To increase the awareness of the relationship between the administrative environment and between the desire of the working group in harnessing the potential of all its work; 3. Recognize the link between the way of dealing with the working group and to allow him to participate in decision-making and productivity (Drucker, 1982, p.159). - The second group (foreign powers) - the changes in the external environment surrounding the organization, has classified the two writers Bowditch, use these powers to the following: 1. The knowledge revolution and accelerated growth in all areas and fields of science and knowledge; 2. The limitation of ways and methods of work, where these methods quickly become obsolete with the acquisition of new knowledge, is the development and the discovery of new methods and soon become obsolete; 3. Change the composition of the workforce (increasing the proportion living in cities and the high proportion of managers and professionals and technicians); 4. The increasing attention to issues and social issues and increasing awareness of the organization of social obligations; 5. The increasing phenomenon of globalization in the business. Strategies for organizational change in organizations With increasing planned changes, some researchers in the area of organizational change developed several strategies and several entrances to achieve the planned change in organizations and were classified as follows: 1. Change the organizational construction strategies and techniques and individuals, fall into three categories: a. Change the organizational construction: we have used by the supporters of the traditional school in the organization, management, and was the focus of the strategy to improve the management of labor through the creation of business relationships and the identification of the authorities and the scope of supervision (Dale, 1976, p.96);

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b. The entrances of technical change: the strategy focused on operations research and information processing systems and this strategy did not succeed in the department in the 1930s and 1940s; c. The stages of change individuals: by amending and changing the behavior of individuals working in the organization. 2. Strategies of rationality and re-learning and coercion: a. Strategies for change of rationality and pilot phase: adopt the strategy that the individual is a good mind Rashid and balanced ideas and proposals that work is done and that it responds to the proposed changes if convinced of their utility; b. The values and strategies of education: based on the change in the style and particular practice will happen when to change the values and standards of the individual toward a Neutralizer and practices and the ways these curricula focus on learning and re-learning the individual, openness, and trust between individuals, and within these strategies improve the Organization's ability to solve problems and the development of individuals (Koontz & O'Donnell, 1968, p.69). c. The force and coercion: strategies and within the two groups, namely: the group focused on political and economic measures in the exercise of influence; what the group focuses on the moral force of using several methods such as guilt and shame. 3. Strategies for how to change: the class for post-conflict change on the basis of the method change and three strategies. A strategy that depends on one party: a. the changes that emphasize the individual and his power of events changes such as the promulgation of laws or amend the organizational structure, b. participation strategies in force: using decision-making with the participation of the group or solve the problems also with the participation of the group; c. the strategies of delegated authority, where he pledged the responsibility of identifying the problems and addressed the group through the study of the case, and sensitivity training and the training of the group, where the staff who are the mandate of the Force for them in the change program. 4. Strategies for change: areas of the world have been classified areas of change in the following: a. The empowerment and accountability is working on the development of individuals and their commitment to and accountability for the results of their work; b. Build teamwork, where the restructuring of the group, instead of assigning a specific part of the work of every individual, and help to improve the performance and satisfaction of the workers (Dale, 1965, p.142). c. Re-engineering / any reconsideration of the manner in which the fragmentation of labor to simple tasks and instead of re-integration of the major tasks in the coherent operations, so that the Organization begin from scratch in the Re-design of the operations; d. Total quality management; e. The systematic comparison of distinct organizations in the same area; f. Autonomy and decentralization; g. Change the culture of the Organization; h. Change in the operations of the organization leadership, decision making, and communications).

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5. Organizational development strategies in organizations: a. Team Building: which aims to increase the effectiveness of groups through improving labor relations and to clarify objectives and roles of the staff and takes the form of groups of work and the focus is on the group to increase its effectiveness as a unit from the individual's need to be a member of the group and their awareness of the impact of the behavior of the group and their capacities to access for around better because of the exchange of ideas and views that could see the problems. b. Survey Feedback: to the members of the organization that combines information on the realities of the Organization through questionnaires and provide the results of these surveys through meetings where the discussion of this information with a view to proposing changes required for this method depends on the collection of real information than what is provided by the various team members here to use interviews or questionnaires the best method in the light of the required cost and extent of the importance of the inclusion or non-inclusion and what is the quality of the questions that will be raised in the discussion of these problems. c. Total Quality Management: The goal of this method of continuous improvement in the quality of services provided by the organization and by: - ensuring client satisfaction; - finding good relations with others; - continuous improvement in various operations; - reduce errors in the work; - continuing training for workers; - the increased participation of employees and encourage team spirit (Hersey & Blanchard, 1974, p.149). d. Reengineering: is one of the entrances of management development, which focuses on the highway and the root cause of the administrative processes of value-added strategy and also the systems and policies and organizational structures with a view to improve performance and increase productivity in the organization development focuses on the development of method j operations through the achievement of the objectives and results of high value (Likert, 1961, p.62). e. Laboratory Training: this training program is training as a laboratory, and that the employees are the test material are subject to a set of regulations and standards with a view to reach a particular result is supposed to leave their impact on the future organizational behavior or after the training and the aim of this type of training the treatment of many of the administrative problems and behavioral in nature, such as the problems related to the process of making decisions. f. The style of Role-Playing games: this method to assist trainees to understand all the influences on the decisions taken by the people through the representation of the positions reflect the problems of the process in a dramatic way to identify the various dimensions of the role of the trainees and this method aims to increase awareness of the roles of others and their determinants such as sister between presidents and subordinates, leading to contribute to the identification of problems and the definition in a manner of treatment and to reduce potential conflict and died of an atmosphere of confidence between the workers. Phases and steps for change: the change process in several stages and steps according to the model of the world as follows: 1. Melting or ice liquefaction, unfreezing, and include this stage destabilization and cancel the trends and values, customs and current per capita behavioral practices,

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including allowing the creation of a feeling of need for something new. It helps to break the ice and then to find ready and defensive individual ways of resistance to change. 2. Change (Changing) at this stage, effective change in duties or functions or performance, technology or organizational structure. This requires providing staff with information and knowledge, and the working methods and new ideas, that this stage includes the personnel in the bodies of the initiative for change and to impersonate the role of mediator of change and integrate the benefits of change (McGregor, 1960, p.35). 3. The Freeze (Refreezing). This means achieving ways to the relative stability of the organization after any change to what the individual ideas and skills and new trends in stage of change be merged and consolidated in the actual practices. At this stage is considered a fundamental step where the Calendar provide data of individuals with regard to the benefits and costs of change and helps provide opportunities for constructive amendments to change with time. Practical steps to manage change and development in organizations: it may be useful to refer in this regard to the important study by "Lawrence" in its analysis of patterns or the management of change and development, discussed these values contained in the study and included in the change in relation to the three major dimensions is the achievement of the purposes or objectives, and achieve self-development and achieving social consent, if I want to change to be perfect, it should contribute to the achievement of these dimensions are referred to, and this requires the following steps (Dale, 1978, p.10): 1. The involvement of individuals in change: the reduction of individual resistance to change can be done if they participated actively in the change which afflict them and their participation should be by making them recognize when, and why the change, that the participation of individuals and makes them feel that they are part of a system, and that the administration does not hide anything about them, and that participation can show some good ideas from individuals may suffer from problems that require such a change, it may be the most appropriate ways of participation is in the diagnosis of problems, and discuss the work diseases and symptoms and consequences, it was easy for individuals to carry out the diagnosis, it would be easy for them to propose or accept treatment. 2. To provide individuals with information continues: the withholding of the individuals in the darkness of the lack of knowledge including urges, and giving them limited information, or inadequate information or incomplete information is an index of the start of the concern of what is happening. 3. Taking into account the customs and values of the work: the planning and organization of the change process that takes into account only spoil or harm the working habits and values, and which might affect the cohesion of the groups and sections and departments of labor, and friendships working n and dates of attendance and leave, and the habits of central Baltimore, rooted in the behavior of workers to summarize if it harmless and non-malicious in nature. 4. Provoke Hamas: Hamas to raise the workers lead the desire of the individual to participate in the commitment to change, as it should, and can be jobs enthusiasm in many ways, for example, to provide an opportunity for self-expression, and achieve self-reliance, and the desire to get information, and The desire to learn to work with new colleagues, and a sense of belonging to the creative work and the work of the product, and the desire for growth and development through innovation and development, and other Allergy-free room enthusiasm and motivation.

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5. The use of the method of resolving problems: it is said that the process of development and change is a continuous process, the degree to which the plant specific conduct in the hearts of the workers is the possibility to accept any development in the future, laying the desire to discuss the things that need to change, and the development of awareness and sensitivity of the existence of the problems surrounding, and this usually happens when it can be to convince the managers and staff of the need to use scientific logic in the solution of problems and the adoption of the resolution, which begins with learning to identify problems, and then to address the identification of alternatives to the solution and evaluate alternatives and decision-making or access to the best alternative to the durable solutions, and finally the implementation of and follow-up to the solution, as it can be beside this encouraging collective decisionmaking (Likert, 1961, p.162). Resistance to change and organizational development: Change management is one of the most difficult things which interested in administering Powers to deal with them, for the simple reason that individuals prefer to what they were used to, and therefore the natural reaction to change is often resisted strongly in the beginning, because individuals’ threat of patterns and methods of the list of relations and fear that affects their interests, but in this context is the transition and positive development, which aims to improve the ability of a system to carry out his duties, by increasing its ability to take the right decisions, and by increasing its capacity for adaptation and renewal until does not become unusable and lose the support of the environment, as the good organization must be Consider himself an organic entity affects and is affected by the environment. And the change from this perspective must not meet the resistance of the largest number of workers because in the end will be the beneficiaries of this change. Therefore, the management of change to attempt to explain the reasons for the change and its objectives for workers, the lack of understanding of the motives and goals is that there is a spirit of resistance to change and not the change itself. And do not get resistance to change spontaneously, there are multiple causes that lead to the appearance, the most important: a. Aware of the optional protocol: any that the individual nature of mental things of COMPOSITIONAL aware of negative trends toward the organization, recognizing the choice for change and development will be negative and will try to resistance. b. The habit: often the individual to deal with things in a certain way, one is satisfied because they do not have to think about all the new position in a radical way, but becomes routine and programed to some extent, in a radical way, but becomes routine and programed to some extent, if the change requires new patterns of behavior, the individual usually tends the resistance because it will have to abandon the habits and patterns of behavior, known and identified him, and this needs to physical and psychological power and new mentality so that air-conditioning with the new situation. c. Satisfaction power and fear of the Unknown: individuals usually tend to love the things familiar to them because it made them feel satisfied, and uncommon per capita is the situation in which the behavior and expectations and reactions and his predictions known results and the Organization of the change faces new individuals to unfamiliar, where forecasts are difficult behavior and opaque, most often, the interference of the situation raises in people feelings of anxiety and fear and may push them to resist change and development.

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d. Misunderstanding: when individuals do not understand change and development objectives and modalities of the implications of them clearly they tend to resist and raise negative rumors around it, and play the wrong information or not available play a role in the events of this misunderstanding (Steers, 1972, p.259). e. Personal interests: that the change and development may threaten some interests of workers such as administrative centers and their powers and their powers, and thus resist change for fear of loss of those vested interests. f. Conflict of Interest: resistance to change when an individual or group feels that there is a contradiction between reconciliation and its commitments and its relations and with the requirements of the new situation. g. The sunk costs: There is an investment in the current situation of some of the veterans in the organization in terms of a long period of learning in certain ways to work and in the development of the positions and specific trends, and that the change is causing such a feeling of loss long effort exerted by them to reach the current situation. h. Community standards in the Organization: the criteria is a social system of information each group its own standards agreed upon by the members of the group. They determined the pattern of behavior of the individual in the group, these standards help and facilitate interaction and dealing between the members of the group through the commitment to behaviorally, and difficult to change these criteria from the outside and therefore the acceptance or resistance to change depends on the extent of the organization's success in changing the criteria for the group which rejects the new changes. i. The obligations or previous engagements: individuals or organizations that might be contrary to the new changes due to commitments and previous engagements with individuals or other organizations such as contracts signed by the organization and its members with the trade unions, or contracts with suppliers. j. The intensity of diversity and disparity in the system of values: some empirical research has demonstrated the following (Davis, 1972, p.93): - The greater the diversity and disparity in the system of values among employees in the organization, the more likely the perception of important changes in the organization; - The greater the diversity and disparity in the system of values of the employees in the organization, the more likely to make proposals for change and development; - Whenever the differences and diversity in the system of values of the employees in the organization whenever an uncommon difficult the adoption of the proposals for change and development . Why fails management of change and development in organizations - in many organizations fail to change efforts in achieving the targeted results, and the reason is that these companies commit errors when tolerating change and these mistakes: 1. Satisfaction about the current situation, the occurrence of a type of inaction the change requires a sense of urgency, and the Organization satisfied with themselves does not mobilize the efforts and do not break the promises for change. 2. The absence of a strong alliance between the administration and the individual needs to change the alliance between people who have the power through their positions and their experience and their relationships to transform the process of change from words to deeds.

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3. Lack of vision: without a vision to decompose change efforts on the list of projects and non-compatible cumbersome and time-consuming and that move in opposite directions, or to go without guidance. 4. The Vision: The big change requires the people willing to sacrifice and able, but individuals not been changed, unless it is the reason for their sacrifices (Herzberg, 1968, p.116). 5. The Administrative obstacles: the big change requires action from a large number of individuals, and many initiatives fail because of the obstacles put in the way of these people, and there are no fundamental challenges, partnership bureaucracy based system, and the existence of strong centers of influence opposed to the change (Argris, 1964, p.105). 6. Failure to achieve rapid successes: lose the complex efforts to change or restructuring are an organized cover-up for, strategies, a short motive to be achieved and the celebration of that and invoked as evidence of deep divisions on the preference change, without victories in the short term, the people lose faith and join the ranks of the passive resistance to change. 7. The speed of the Declaration of the great victory: after work hard to implement the program of change, the employees can be TEMPTED imprecatory victory with or a significant improvement in performance, then relax their focus and their commitment and return to the existing corrupt practices of the past. 8. The non-arrival of change to the roots of the culture of the Organization: Stop change when we hear the words, "This is the way in which the work here," if it is not inherent in change and take root in the culture of the organization will die in the Nativity. Conclusion Among the success factors in the management of change and development in organizations, the most important are: - to provide the appropriate climate to accept the change and resistance and the development of the skills of individuals to establish training programs and stimulate their talents and abilities through interest and promote proactive opportunities and development and encouraging proposals and activities and initiatives and innovative and creative, and create an environment in which accept such efforts studied and rewarded, giving workers the opportunity to form a new strategy of growth and change and the development of their organizations. - to support and administrative leadership in the organization's support for the efforts of change and development which induce individuals and workers in the organization to accept the change. - the presence of agents of change from the advisers specialists have the necessary technical skills and for change and development actually with persuasion and clarification of workers to prepare them for change and development. - the participation of employees in change: there must be the participation of workers who will be affected by the executed by and that they have sufficient information on the causes and consequences of change and you have adequate information on the reasons for the change and its benefits expected results subscribing stimulate employees and reduce their resistance (Steers, 1983, p.82). - focus on groups: where the group's values affect the patterns of behavior of its members and must work with the skill groups to support the change.

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- knowledge of the sources and the level of dissatisfaction of the workers or the resistance to change, which helps to diagnose problems in a scientific manner to support change (Robbins & Coulter, 2006, p.56). - the provision of human resources and the technical material and create change and development and assist in its implementation. - timing of change: it is necessary to examine a range of factors relating to the organization and the workers and the environment for the timely introduction of change and also a suitable plan for change and development. - the feedback: The change to be successful there must be an information system that allows employees to express their reactions and their feelings and their problems of change and development, this information must be up to the supreme court, that the presence of the feedback from the important factors that help in determining the effectiveness and feasibility of change plans and problems. - the temporary entry of change: intended by the presence of the trial period for the application of the proposed change in the staff during the interaction with the changes and show the reactions around. References Argris, C. (1964). Integrating the Individual and the Organization. New York: Wiley and Sons Inc. Chester, F. (1976). Manpower and Management. London: The English University Press. Dale, E. (1976). Organization. New York: American of management Association. Dale, E. (1965). Management: Theory and Practice. New York: McGraw Hill Book Co. Davis, K. (1972). Human Behavior at Work Human Relations and Organizational Behavior. San Francisco: McGraw Hill Book Co. Drucker, P. (1982). The Practice of Management. New York: Harper & Row. Hersey, P., & Blanchard, K.H. (1974). So You Want to Know Your Leadership Style. Training and Development Journal, 28(2), 22-37. Herzberg, F. (1968). One More Time: How you motivate Employee. Harvard Business Review, 46(1), 53-62. Koontz, H., & O'Donnell, C. (1968). Principles of Management. New York: McGraw Hill Book Co. Likert, R. (1961). New Patterns of Management. New York: McGraw Hill Book Co. McGregor, D. (1960). The Human Side of Enterprise. New York: McGraw Hill Book Co. Resser, C. (1973). Management Functions and Modern Concepts. Glenview, IL: Scott, Foresman and Co. Robbins, S.P., & Coulter, M. (2006). Management, 8th ed. Englewood Cliffs, NJ: Prentice Hall. Rue, L.W., & Byars, L.L. (1995). Management: Skills and Application, 7th ed. Boston: McGraw-Hill Irwin. Summers, D.C.S. (2005). Quality and Quantity Control. Upper Saddle River, NJ: PrenticeHall. Steers, R., & Porter, L. (1983). Motivation. A Work Behavior. New York: McGraw Hill Book Co.

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TOWARDS SUSTAINABLE ORGANIZATIONS Mauro ROMANELLI University of Naples Parthenope Via G. Parisi 13, 80132 Naples, IT [email protected] Abstract. Organizations proceed towards a sustainable development rediscovering ethics as value driving management and human resource choices for building sustainable organizations. Human resource systems drive organizations to follow ethical approaches, values, and culture in starting entrepreneurial ventures and doing business for building and developing sustainable organizations encouraging ethical behaviors at work, creating organizational environments ethics-oriented, by managing, valuing people and developing the human resources capabilities. Designing sustainable organizations relies on: defining the employment relationships ranging from the psychological contract to designing contractual architectures; governing and managing human resources; promoting ethics by sustaining organizational culture ethics oriented. Keywords: ethics; sustainability; organizations; culture; human resources; psychological contracts. Introduction Organizations proceeding towards a sustainable development have to rediscover ethics as value driving management and human resource choices, building an organizational culture ethics-oriented. Human resource systems lead organizations to follow ethical approaches, values, and culture in doing business. The human factor is able to drive organizations as communities of people to build sustainable organizations (Pfeffer, 2010). Rediscovering ethics in designing organizations is leading to new entrepreneurial ventures socially responsible and to design the organizational structure and human resource governance and management choices coherently with the development of society by enhancing both the value and the capabilities of human capital by managing the psychological growth of the employees as individuals. Considering ethics is becoming more and more an opportunity to improve economic and social performances of organizations by achieving financial and economic gains, realizing positive issues for communities within society. Organizations aiming to promote sustainable behaviors and actions should pay attention to their performance on three dimensions: by ensuring economic performance, social equity, and ecological preservation. Organizations tend to follow and embrace a business approach to sustainability that refers to economic, environmental and social long-terms issues that benefit for future generations (de Lange, Busch & Delgado-Ceballos, 2012). The aim of the study is to identify the dimensions driving organizations to proceed towards sustainability. Rediscovering ethics is leading the organizations to value human resources capabilities and strengthen the potential of the human capital. Three

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areas of investigation for building sustainable organizations ethics oriented are elucidated: defining the employment relationship ranging from the psychological contract to designing contractual architectures; governing and managing human resources; promoting ethics by sustaining a corporate culture. The study relies on analysis and review of literature in the field of the relationships between ethics, organization, individuals and human resource management.

Building sustainable organizations: the role of the human side and the task of human resource management Sustainable organizations should pay attention to their performance on three dimensions: by ensuring economic performance, social equity, and ecological preservation. Organizations tend to follow and embrace a business approach to sustainability that refers to economic, environmental and social long-terms issues that benefit for future generations. (de Lange, Busch & Delgado-Ceballos, 2012). According to Jabbour and Santos (2008), sustainable organizations contribute to development by investing in human capital and valuing human resource management practices and strategies. Sustainability within organizations as integrated into corporate strategy, processes, and products requires organizations ready for change significantly redesigning business. Sustainable organizations should support and enact enduring and good relationships with present and future stakeholders ensuring economic, social and environmental performances, providing innovation in developing environmentally friendly products, managing and strengthening diverse human resources (Jabbour & Santos, 2008). Sustainability is an emerging and evolving construct; a broad theme of research. Human resources contribute to developing sustainability. Building sustainable organizations rely on paying attention to human resources (Pfeffer, 2010). Human resource management practices contribute to build sustainable organizations as communities of people that develop over time structures and behaviors and the way to make the entrepreneur as a sustainable employer (Aggerholm, Esmann Andersen & Thomsen, 2011) valuing the human capital of people by creating collaborative relationships and helping all the processes for engendering learning and innovation within work units, developing the involvement of employees by sustaining dialogue by communication and collegiality. Sustainability implies to pay attention to people as human resources for creating value within organizations, internal stakeholders and useful actors for creating sustainable behaviors and enabling values for ethics and sustainability (Colombo & Gazzola, 2013). Organizations integrating sustainability into their processes and products tend to adapt and re-design business and structures selecting policies that embody principles of economic, social and environmental sustainability (Haugh & Talwar, 2010). Organizations behave as sustainable organizations keeping the responsibility in order to support social justice and ensure environmental protection, to produce benefits and maintain the quality of human resources in a long time (Leon, 2013).

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Rediscovering the ethical dimension for identifying the areas of investigation leading to sustainable organizations Ethics relates to the distinction between what is right and wrong. The ethical climate within an organization tends to evolve as a new venture develops and grows with the entrepreneur actively playing an important role in defining the ethical climate in the early stages of the life cycle. The nature of entrepreneur and venture, the stage of business development tend to influence the introduction of mechanisms guiding the ethical environment of the firm (Morris, Schindehutte, Walton & Allen, 2002). Building the working relationship between individuals and organizations is an ethical task and the first stage for constructing a path for introducing and affirming sustainability and ethical values within organizations. Building an ethical culture relies on having at disposal an ethical leadership driving the employees to recognize ethical issues in their work and to develop cognitive capacities to make the right choice and be supported by the organizational environment (Treviño & Brown, 2004). Corporate leaders should influence the organizational outcomes in order to support and reward ethical behaviors and the organizational ethics for sustaining favorable job attitudes and behaviors (Koh & El’Fred, 2001). Investing in ethics for doing business and entrepreneurial ventures help the design and the building of sustainable organizations as institutions following and applying principles of ethics in managing and structuring processes. Three areas of investigation and critical potential for building ethical organizations as organizations are elucidated: defining the employment relationship ranging from the psychological contract to designing contractual architectures; managing human resources; promoting ethics by sustaining a corporate culture. Managing the relationship between the employer and employees building work relationships: from the psychological contract to designing contractual architectures human capital was driven Building the working relationship between individuals and organizations is an ethical task and the first stage for constructing a path for introducing and affirming sustainability and ethical values within organizations. Organizations seeking flexible ways for managing work force have to select different and alternative ‘new’ and ‘traditional’ forms of designing work relationships for structuring the modes of collaboration with employees: sub-contracting and dual internal market as traditional forms for managing flexible work force; new forms of structuring work relationships: agency relationships based on a triangular relationships between employer, employee and the company providing work force; work relationships ICTs-enabled and driven (Ferrara, 1996; Ferrara, 2008). Organizing and defining work relationships between enterprise and employees tends to emerge as an ethical activity that implies to consider the future expectations of both contractual actors stipulating an employment agreement: the future expectations of enterprise about commitment and efforts employees decide to sustain the interest of the organization; the expectations of the individual about what kind of benefits and rewarding the enterprise could and should decide to give to the individual for

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rewarding the inputs and contributions for ensuring a satisfying organizational performance. The formal-legal and juridical contract signed between the enterprise and the individual implies that the evaluation of the expectations in terms of benefits and constraints occurred between the parts stipulating the agreement. Benefits and constraints on the part of the employee about the future work relationships are related to the concept of a psychological contract. The psychological contract can be defined as a set of unwritten reciprocal expectations between the employee and the organization. The employment is based on an implicit exchange of beliefs and expectations about the actions of the individuals vis-à-vis the organization and the organization vis-à-vis the individual. The psychological contract is based on an exchange of contributions and inducements (Sims, 1991). «A psychological contract is an individual's belief in mutual obligations between that person and another party such as an employer (either a firm or another person). This belief is predicated on the perception that a promise has been made (e.g., of employment or career opportunities) and a consideration offered in exchange for it (e.g., accepting a position, foregoing other job offers), binding the parties to some set of reciprocal obligations» (Rousseau & Tijoriwala, 1998, p.679). Psychological contracts differ from other types of contracts and may contain thousands of items. The parties may be aware of only some or few items. The balance of the psychological contract depends on the degree to which the employee expectation of what the organization will provide and what is owed in return match the organization’s expectation of what it will give and get; on the agreement on what is actually to be exchanged. A balanced psychological contract is necessary for a harmonious relationship between the employee and the organization. Violating the psychological contract can signal to the participants that the parties no longer or never share a common set of values or goals (Sims, 1994). The psychological contract as what employees and employer want and expect from each other is changing. Organizations need to develop a new kind of commitment through the creation of meanings and values by individuals and groups (Hiltrop, 1995). The notion of the psychological contract requires understanding how the relationship between the individual and the organization is forming and being built over time. Thereby, organizations should govern the psychological contracts of their employees by designing and structuring appropriate contractual architectures relying on both short or long term relationships and the value and skills provided from human resources to the organizational performance. While the transactional approach to organizational economics tends to emphasize the best size and the one best way as based on the economic value of the organizational arrangements considering more the price and cost of people as productive factor than the value of people as human resources, the organizations selecting strategic choices based on human resources and human capital tend to follow ethics and equity as guidelines and principles driving the choice about contractual and organizational architectures.

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Lepak and Snell (1999) provide a theoretical framework explaining how the companies have to strategically design different contractual architectures and human resource configurations (commitment, market based, compliance and collaborative) with regard to characteristics of human capital (value and uniqueness), employment modes (develop and acquire internal; contract and alliance vs external), to employment relationships (organizational, symbiotic, transactional and partnership). Organizations tend to select different quadrants in relation to the low or high uniqueness of human capital and with regard to the high and low value of human capital. Organizations tend to select internal development as employment mode having to manage high uniqueness and value of human capital, by building employment relationships organization-focused and relational by encouraging significant investments on the part of employers and employees in developing critical firm skills, by strengthening the organizational commitment of employees. The strategic choice of the internal development tends to reinforce the mutual exchange between individual and organization reinforcing the expectations deriving from the psychological contract as relational framework leading to an enduring work relationship between the employee and the organization. The strategic choice of companies about the contractual and organizational architectures is leading the individual to make the right decision with regard to the dilemma of entering or not in a relationship. Different forms of human capital can emerge as a source of competitive advantage today and in the future. Employee training and education contribute to preserve the integrity and quality of human capital driving the employees to move from transactional and contracting modes and relationships that lead to compliance towards more organization and relation focused modes of employment encouraging and stimulating the search of commitment, loyalty and trust between the employee and the organization (Lepak & Snell, 1999). Developing and aligning human resources management practices with ethics Achieving competitive advantages relies on the legs of people and on capabilities of human resources involved to contribute for entrepreneurial and organizational projects. Human resources management practices contribute to building an environment encouraging cooperation and human and social capital development. Human resource policies and practices should help sustain human resources capabilities (Kamoche, 1996). Human resource systems may be a means for promulgating an ethical culture in that ethics pervade selection and staffing, performance appraisal, compensation, and retention decisions (Buckley et al., 2001). According to Schumann (2001), five complementary moral principles tend to emerge. «First, the results of the action must be ethical in terms of doing the best and the last harm for everyone who is affected by the action. Second, the person performing the action must have a moral right to take the action. Third, the action must produce a fair distribution of good and harm for all the people who are affected by the action. Fourth, the action must show care for the web of people who are affected by the action and must nurture the relationship among the affected people. Finally, the action must be describable as virtues and not vices» (Schumann, 2001, p.96).

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Ethical duties are related to strategic human resource management. Caldwell, Truong, Link, and Tuan (2011) state that the task of human resource professionals as ethical stewards is to help organizations to sustain the building of trust and commitment in long-terms. Human resource professionals strategically and ethically provide a contribution to organizations. Human resource function should play an important role in integrating ethics programs into the design of performance appraisal systems and management training (Weaver & Treviño, 2001). «HR staff are more likely to be viewed as representing employees' concerns and treating them fairly. In addition, HR functions can play a key role in developing ethics programs with a proper balance of values and compliance orientations, and in integrating ethics programs into important organizational activities, such as the design of performance appraisal systems, management training, and disciplinary processes» (Weaver & Treviño, 2001, p.130). HR staff and departments need to play a more central role in ethics management initiatives if those initiatives are to provide real benefits for both organizations and their members (Weaver & Treviño, 2001, p.131). «HR plays a crucial role in determining an organization's overall ability to treat people fairly» (Weaver & Treviño, 2001, p.131). Human resource management practices as selection, organizational socialization, training and mentoring seem to ensure the continuity of a strong ethical culture existent within the organization (Sims, 1991). Organizations integrating principles of ethical leadership with a strategic approach to human resource management tend to achieve results in terms of values and outcome in long term. Institutionalizing the ethics within organizations implies to influence or change behaviors introducing ethics into daily business life (Weber, 1993) by helping to positively influence the job satisfaction, organizational commitment and the esprit de corps leading to a more positive organizational climate (Vitell & Singhapakdi, 2008). Developing an ethical culture within organizations Organizations should solve internal conflicts between business and higher levels of morality (Carroll, 1984). Integrating ethics formally and explicitly into daily business life, decision-making and work practices for all employees should appear as a useful mission and task of entrepreneurs building both new business and organization (Weber, 1993). The ethical climate of an organization is defined as a shared set of norms, values, and practices of organizational members regarding appropriate behavior in the workplace. Building an ethical culture relies on having at disposal an ethical leadership driving the employees to recognize ethical issues in their work and develop cognitive capacities to make the right choice and be supported by the organizational environment (Treviño & Brown, 2004). «Executives should manage the ethical conduct of their employees as they manage any important behavior» (Treviño & Brown, 2004, p.80). The role of executive leaders is crucial in managing ethics and human resources within organizations. Building a strong ethical culture relies on strong ethical leadership. The executive leaders should provide ethical guidance and prescribe some guidelines for effectively managing ethics: let employees understand the existing ethical culture transmitting culture within organization; to communicate and explain the importance of ethical standards because the employees need messages about the ethics is really

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important and linked to the business model and the long-term success of the business training employees to know the ethical issues and about ethical conduct; the reward and compensation system should influence behaviors of employees and communicate messages about the expected ethical behaviors. «In the longer term, ethical behavior can be rewarded by promoting and compensating people who are not only good at what they do, but who have also developed a reputation with customers, peers, subordinates, and managers as being of the highest integrity. The best way to hold employees accountable for ethical conduct is to incorporate evaluation of it into 360degree performance management systems and to make this evaluation an explicit part of compensation and promotion decisions» (Treviño & Brown, 2004, p.79); to promote ethical leadership in terms of making ethical values visible and showing how decisions tend to affect many stakeholders «making transparent the struggles about how to balance competing interests» (Treviño & Brown, 2004, p.79) The organizational ethics is the capacity for an organization to reflect on values in the corporate decision-making process as to establish how managers tend to use these observations in the management of the organization (Carroll, 1987). Organizations tend to enhance the institutionalization of ethics by managing the psychological contract between employees and the organization, reinforcing the organizational commitment of employees and encouraging an ethically-oriented organizational culture seeking employees that aspire their own career compatible with the desire to eliminate unethical behaviors (Sims, 1991). Organizations can utilize different means and policies to foster and encourage ethical standards (Sims, 1991): avoiding to employ people with personalities prone to unethical behavior blocking unethical tendencies; making public statements that ethical behavior is important; develop organizational policies that specify ethical objectives and a code of ethics describing the general value system of the organization, defining the organizational purposes. Human resource systems help organizations move toward an ethical approach to conducting business coherently with most successful organizations following a culture embracing necessarily ethical values. Organizations effectively facing the challenge of survival and competitiveness have to promote behaviors of employees able to deal with ethical issues in daily working. Organizations facing the challenge of integrating ethics within daily behaviors of employees and corporate culture should not promise what cannot be delivered, choose values that represent the views of employees, open up to understanding of diversity and dissent, encouraging whistle-blowing behaviors, provide ethics training programs, integrate ethical decision-making in processes of performance appraisal (Sims, 1992). «Ethical cultures and ethical leaders go hand in hand. Building an ethical culture can’t be delegated» (Treviño & Brown, 2004, p.80). Leaders should represent a key resource in order to drive organizations towards ethical ends and provide ethical guidance for employees. Ethical leadership is related to honesty, trust in leader, interactional fairness and socialized charismatic leadership (Brown, Treviño & Harrison, 2005). Transformational leaders exert influence on the ethical performance of organizations as to develop the organizational mission and policies, reward systems for encouraging ethical behaviors (Carlson & Perrewe, 1995). Ethical values and awareness should be institutionalized at individual, subunit, organization, industry levels of analysis. Ethical training, codes of ethics grounded in specific role-based situations, can foster the

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awareness of ethical issues. The individual should be accountable for means and ends. Effective sanctions should occur in order to encourage ethical behavior and contrast corruptive behaviors (Ashforth & Anand, 2003). Managing ethics in business organizations implies to behave ethically, develop and reinforce the ethical behavior by providing ethical training, by developing a meaningful code of ethics as the most visible sign of a company’s ethical philosophy accepted by the employees who are required to implement it (Stead, Worrell & Stead, 1990). Organizations prescribing clear ethical norms and having a strong ethical climate tend to successfully deal with ethical problems and issues (Bartels, Harrick, Martell & Strickland, 1998) Organizations creating ethical values at the corporate level lead to higher levels of ethical behaviors of the employees. Organizations should develop and communicate their ethics codes because the ethics code awareness is believed to exert influence on the level of organizational commitment of employees (Valentine & Barnett, 2003). High levels of ethical behavior seem to be positively associated with more organizational citizenship behaviors desired by organizations playing a critical role in leading to higher levels of ethical behavior (Baker, Hunt & Andrews, 2006). Conclusions Organizations surviving by maintaining economic and social performances have to proceed towards sustainability. Today, rediscovering the importance of ethics in doing business and starting new entrepreneurial ventures for building competitive organizations creating value for market and society is strictly related to issues and questions about shaping the organization as a community of individuals based on equilibrium among inputs and incentives for developing effective and positive cooperation. Rediscovering ethics tends to emerge as a core capability guiding principles and source for creating economic, social and public value. Organizations proceeding towards sustainability and ethics tend to build and design appropriate work relationships developing fitting human resource management practices and policies for building and maintaining a corporate and organizational culture helping individuals adopt ethical and sustainable behaviors coherently with values and ideals emerging in the development of the relationship between employees and companies, between individuals and organizations. The re-appreciation of the concept of sustainability as applied to the organizational dynamics tends to emerge as a necessary means of gaining and sustaining competitive advantages, realizing profitable financial and economic results by valuing and rewarding the human dimension of business activity and seed for designing and implementing an organizational renewal. Sustainability within organizations should refer to the design of organizational structures in order to improve processes and implement human resource management systems and policies. Sustainable organizations contribute to enhancing sustainable, economic, financial, social and environmental development creating organizational and work environments valuing the institutionalization of ethics at all levels of the organization. Sustainability implies to design the organizational architecture relying on

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valuing the psychological contract between parties to developing and managing human resources systems rewarding ethical behaviors and sanctioning unethical behaviors, on fostering the development of the community as value, sustaining corporate or organizational citizenship within company independently of the exchange between incentives, input, and inducements. Organizations proceeding towards sustainability should pay attention to a strategic approach looking at jointly rediscovering the importance of human relationships, the task and role of human resource management practices and policies, reconsidering ideas, values of the organizational and corporate culture relying on principles of ethics or organizational culture ethics-driven. References Aggerholm, K., Easmann Andersen, S., & Thomsen, C. (2011). Conceptualising employer branding in sustainable organizations. Corporate Communications: An International Journal, 16(2), 105-123. Ashforth, B.E., & Anand, V. (2003). The normalization of corruption in organizations. Research in Organizational Behavior, 25(1), 1-52. Baker, T.L., Hunt, T.G., & Andrews, M.C. (2006). Promoting ethical behavior and organizational citizenship behaviors: the influence of corporate ethical values. Journal of Business Research, 59(7), 849-857. Bartels, L.K., Harrick, E., Martell, K., & Strickland, D. (1998). The relationship between ethical climate and ethical problems within human resource management. Journal of Business Ethics, 17(7), 799-804. Brown, M.E., Treviňo, L.K., & Harrison, D.A. (2005). Ethical leadership: a social learning perspective for construct development and testing. Organizational Behavior and Human Decision Processes, 97(2), 117-134. Buckley, M.R., et al. (2001). Ethical issues in human resource systems. Human Resource Management Review, 11(1), 11-129. Caldwell, C., Truong, D.X., Link, P.T., & Tuan, A. (2011). Strategic Human Resource Management as Ethical Stewardship, 98(1), 171-182. Carlson, D.S., & Perrew, P.L. (1995). Institutionalization of organizational ethics through transformational leadership. Journal of Business Ethics, 14(10), 829-838. Carroll, A.B. (1987). In search of a moral manager. Business Horizons, 30(2), 7-15. Carroll, A.B., & Smith, H.R. (1984). Organizational ethics: A stacked deck. Journal of Business Ethics, 3(2), 95-100. Colombo, G., & Gazzola, P., (2014). Aesthetics and ethics of the sustainable organizations. European Scientific Journal ESJ, 9(10), 291-301. de Lange, D.E., Busch, T., & Delgado-Ceballos, J. (2012). Sustaining sustainability in organizations. Journal of Business Ethics, 110(2), 151-156. Ferrara, M. (2008). La gestione del lavoro flessibile. Torino: Giappichelli. Ferrara, M. (1996). Flessibilità del lavoro e relazioni di agenza. Torino: Giappichelli. Haugh, H.M., & Talwar, A. (2010). How do corporations embed sustainability across the organization?. Academy of Management learning & education, 9(3), 384-396. Hiltrop, J., (1995). The Changing Psychological contract: The Human Resource Challenge of the1990s. European Management Journal, 13(3), 286-294.

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Jabbour, C.J.C., & Santos, F.C.A. (2008). The central role of human resource management in the search for sustainable organizations. The International Journal of Human Resource Management, 19(12), 2133-2154. Kamoche, K. (1996). Strategic human resource management within a resourcecapability view of the firm. Journal of Management Studies, 33(2), 213-233. Koh, H.C., & El’Fred, H.Y. (2001). The link between organizational ethics and job satisfaction: a study of managers in Singapore. Journal of Business Ethics, 29(4), 309-324. Leon, R.D. (2013). From the sustainable organization to sustainable knowledge-based organization. Petroleum-Gas University of Ploiesti Bulletin, Technical Series, 65(2), 63-73. Lepak, D.P., & Snell, S.A. (1999). The human resource architecture: toward a theory of human capital allocation and development. Academy of Management Review, 24(1), 31-48. Pfeffer, J. (2010). Building sustainable organizations: the human factor. Academy of Management Perspectives, 24(1), 34-45. Schumann, P.L. (2001). A moral principles framework for human resource management ethics. Human Resource Management Review, 11(1), 93-111. Sims, R. (1992). The challenge of ethical behavior in organizations. Journal of Business Ethics, 11(7), 505-513. Sims, R. (1991). The Institutionalization of Organizational Ethics. Journal of Business Ethics, 10(7), 493-506. Stead, W.E., Worrell, D.L., & Stead, J.G. (1990). An integrative model for understanding and managing ethical behavior in business organizations. Journal of Business Ethics, 9(3), 233-242. Treviňo, L.K., Weaver, G.R., & Reynolds, S.J. (2006). Behavioral ethics in organizations: A Review. Journal of Management, 32(6), 951-990. Treviňo, L.K., & Brown, M.E. (2004). Managing to be ethical: debunking five business ethics myths. Academy of Management Executive, 18(2), 69-81. Valentine, S., & Barnett, T. (2003). Ethics code awareness, perceived ethical values, and organizational commitment. Journal of Personal Selling & Sales Management, 23(4), 359-367. Vitell, S.J., & Singhapakdi, A. (2008). The role of ethics institutionalization in influencing organizational commitment, job Satisfaction, and esprit de corps. Journal of Business Ethics, 81(2), 343-353. Weaver, G.R., & Treviňo, L.K. (2001). The role of human resources in ethics/compliance management. A fairness perspective. Human Resource Management Review, 11(1), 113-134. Weber, J. (1993). Institutionalizing ethics into business organizations: a model and research agenda. Business Ethics Quarterly, 3(4), 419-436.

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THE INFLUENCE OF HANDLING META DATA ON PRIVACY AND THE ECONOMY Elvira KUHN University of Applied Sciences Schneidershof, 54294 Trier, DE [email protected] Udo BURCHARD University of Applied Sciences Schneidershof, 54294 Trier, DE Abstract. Nowadays, we produce a lot of Meta Data - hidden behind the primary proper data records - by using any kind of IT-equipment. We are using the primary proper data records exclusively, sometimes sending these to other people in a direct way or sharing the information on social media. Many people do not know about the existence of hidden personal information. But what is the reason for the existence of such information? The manufacturers themselves can make a lot of money in the tens of billions by collecting the data records, then consolidation and sell of the information. They themselves do not know exactly what the clients do with this data. The motivation of the buyers is to assess, monitor and influence the behavior of their clients or to send information about new products selectively to them. At last, the range of new products, as well as the innovation process, are influenced by this knowledge, too. But is all of this for the benefit of the private person? Or only of businesses? What is new? As a result of the handling process relating to Meta Data drafted above, we think that the discussion about the ownership of data records has to take into account the influence on privacy as well as on the economy. We show that this influence may shift if all actors know about the purposes of the hidden data and know what to do if they want to have leverage in this business. In this paper, we discuss these facts by using a study on private data sets as an outcome of using mobile phones, searching machines, and discount coupons. Based on this study we suggested a new definition of privacy under different aspects like privacy protection, intimacy, tracking life activities or well-being. At last, we offer a solution for the discussion on the ownership of data records, especially concerning the future of privacy and the loss of trust concerning the handling Meta Data by companies. For companies, we offer several possibilities to retain the trust of their clients. Keywords: privacy; data mining; meta data; profile oriented marketing; ownership of data records. Introduction In daily life, we use multiple kinds of IT-equipment, like a mobile telephone, Smart Phone, Laptop, tracking equipment, (for instance counting number of steps), facility equipment, like controllers for rolling shutter, door openers. The appeal to use these services is the comfort, similar to not having to go to the market but buying from your sofa whatever you want. Or even simply setting marks about what could be interesting. Even if you do not mark something, the time your cursor rests on an object reveals the

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interest on the object. Sometime later you will find the object on another page of another website, for instance, presented on the page of your email-account. This is called profile oriented marketing. By seeing the object, we are remembered of our wish, and in many cases, the client will buy it. It seems so easy. And so comfortable. We accept this data transfer because we think we have nothing to hide. On the other hand, we see that it is sometimes dangerous to give away private data sets. We know about bullying attacks on the internet against children. Sometimes it happens that we have just sent a picture from our holiday to friends, and then a short time later we find these pictures from our holidays posted on the social media platform sites of complete strangers without being asked for permission to publish. In this moment everybody can see and establish the connections between our friends, the places that we have visited, for example by scanning your face and then filter it out from all pictures existing on the internet, to figure out where you have been, at what time and with whom. After doing this, the person knows what you prefer, your special hobby, and they can sell this information to companies who use it to enable profile oriented marketing as has been shown (Reschreiter, 2017). Selling the collected information of different IT-platforms and other digital equipment connected via the internet about special groups of persons or about an individual person is the first step of the attack with marketing information or manipulation of the customer. We show that a private person is not helplessly at the mercy of providers and players in internet technologies. On the other side, we also show that the careless handling of profile oriented marketing may be risky for businesses. At the end, we give a summary of measurements to avoid risks for both – for the individual as well as for the enterprise. Methodology approach Our aims are, on the one hand, to help a private person not to lose privacy by using IT based equipment, on the other hand, to open up undreamt-of possibilities for Business Management with these new technologies. To achieve our aims, the first step is to illuminate the technologies based on Web 4.0 as seen in several studies (Augusto & Huch, 2012; Dale, Higgins & Carolan-Rees, 2015; Mueller-Mielitz, 2016; Völkel & Lorbach, 2015). We show the State of the Art of the information market, which means answering these questions: What ways already exist to produce information, who is the seller and who is the client to buy this information? What is the motivation for both to deal with people’s private information? As a result of this short market description, we have a base to discuss what is new. Secondly, we discuss the trade of information and how much money an expert can make if there is no complete data set available. We show you that experts can draw conclusions on the basis of other data. For more details, see Frickel (2012) and Jewett (2017). Going on from this explanation report, we can discuss the dangers of losing privacy and the opportunities for Business Management to offer services for potential or existing clients. In step three, we deal with the question of the influence of this knowledge on products and innovation processes. In this context, we give also answer to these questions: Is all of this for the benefit of the private person? Or only for businesses? At the end of step

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three, we merge both aspects, losing privacy vs. losing trust in IT and draw conclusions for the handling of Meta Data. In addition, we discuss more risks concerning daily life. At last, we explain the consequences and draw conclusions of what we can and have to do as a private person or as a manager. The results for an individual and for companies summarizes the cautious handling of Meta Data. State of the art We use IT based equipment in our daily life, and in doing so we produce Meta Data. Most users do not know about these data records and what is happening with these. Therefore, the users cannot decide who is allowed to use their data records and for what purpose. Some companies, such as METRO as Koch (2017) demonstrated, are newcomers on the information market. To avoid losing the trust placed in them by their clients, newcomers, as well as established companies like Amazon, Google, Facebook, need to recognize megatrends in the behavior of their clients. Two ways to get information From the point of view of companies, there is an easy way to get information: To collect it themselves by using so-called tags or to buy it from another company. We explain now the collection of information by companies themselves, exemplified by a picture taken with a digital camera (Figure 1).

Figure 1. A Photo was taken with digital camera (author’s own caption) You can see a picture that we would like to send to our friends. But what kinds of information does it show? What will other people be able to infer about the owner of this picture, if somebody sent it to them? We upload the picture to http://regex.info/exif.cgi2. After a few seconds, this page shows us a map with our own position, and many other pieces of information, like the type of camera we use, GPS Latitude and Longitude, the date and time when we made this picture. In Fig. 2,

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you can see this information called META DATA behind the picture – produced by the camera software itself.

Figure 2. Hidden Information behind a digital photo by using tags (EXIF, 2016) Many people have used this trick to commit crimes. The perpetrators have gathered information from the picture about the exact position of the vehicles, which are for sale on special online pages. Then, the vehicles were stolen at certain times when the owners did not indicate any accessibility, arguably, because they are currently not at home. As you can see, if the data set will fall into the wrong hands, it will be dangerous for you or your possessions. There are many ways to access Meta Data. This is a type of data, which was never intended for the use of human agents, but for the purpose of digitally automated indexation, processing or cataloguing the message/picture/clip/audio file etc. In many cases, this concerns so-called header data. For music, images, and videos, EXIF headers are often attached to the actual file. The build of the header is structured in tags and contains information about the recording source, the recording location, the recording time and the creator. The data is saved automatically and unsolicited by the recording device (e.g. smartphone camera), without the knowledge, approval or admission of the

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user. The visualization of this information with special tools is fairly easy even for laymen and might be used in committing cybercrimes. The second way to gather information concerning the behavior of clients is to buy it. With the daily use of search engines and IT equipment, data of the users is logged and summarized to a data set. These data sets do not only generate a financial added value for marketing purposes in-house but can also be sold to target groups linked with external companies. Information leadership is an enormous competitive advantage. Based on this knowledge, we have created a database with different tables to collect data, such as GPS-Data integrated into each Smartphone or mobile telephone, in combination with a time stamp, SSID Dataset, name, EC-card, address – which you have to give to retailers when buying with an EC-card.

Figure 3. Platform with the table of data (Sterk & Eichhorn, 2016, p.5) Figure 3 shows one of the tables created within our studies. These tables contain data sets which you will produce alongside when using your mobile telephone, google as a search engine for the internet or trading stamps. In our study with the objective to learn more about the private life on weekends, we wanted to know which Apps the students use, which google seeking words they insert or which numbers they call with their mobile telephones or Smartphones and how they would usually transmit information. For example, when using mobile telephones, they can send SMS or connect to WLANs. We thought that if all of this information will be protocolled, we could make conclusions about their behavior. By using Apps like Facebook or WhatsApp, everybody can find out who our friends are and they can develop a notion about our social life. Often many people publish their social and political opinions on forums or social media sites like Facebook. When doing this, the whole world can see and retrieve it. We wanted to collect data from browser sessions to see their interests, too. As an example, the use of Apps, like Deutsche Bahn or means of public traffic reveal where we want to travel. Logging all of these actions in combination with a time stamp and IP address, we can infer the daily life rhythm of a person. Unfortunately, it

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was too much work to collect the data by hand, so we have not had a lot of data but only some. Here, we only want to show what you can do with the daily produced data from your usage of IT. The collected information on interests e.g. in books, shows or events allows for more than just generating APPS-attacks. A company’s marketing department is able to pool this information with intel facilitated by the provider (such as GOOGLE) and the client´s profile. From the point of view of the company the client is lucent The new information market With the access to certain websites, and especially in the area of e-commerce, user behavior and user data are continuously saved. On the one hand, personal data like names, addresses, account information, and on the other hand accompanying data like geo-coordinates, interests and purchase behavior are recorded and evaluated. When using discounts or participating in collection campaigns, also numerous data is collected. The participants already consented to the transmission of their data in the participation form. Also, common knowledge in this regard is the selling of user data with the highest possible profit to third parties, whereby the customer only gets a small benefit. Most of the normal users only access the primary proper data records, they do not know about the existence of hidden personal information. The market for this is estimated to be in the tens of billions. The sellers only collect the data records and sell them without asking about the intended usage. Nobody outside of the companies buying the data sets knows what will happen with the data, how it is stored and archived, and who has knowledge of it. The company ElevenPath offers a tool called FOCA (Fingerprinting Organizations with Collected Archives) to collect META DATA from documents in DOCX and PDF format, as described by Kuksov (2017). The usage of this tool can be seen by the owners of homepages as cybercrime. The new relationships between different data sets In order to decide whether the creation of new data relations between different data bases and the new conclusions based on them is dangerous or not, we explain the main methods and techniques in data sciences. The term BIG Data designates the collection of data from various areas, like e.g. the Internet, mobile communication, social media, credit cards, customer cards and smart meeting systems and vehicles, as well as their processing and evaluation (see, for instance, Crisan, Zbuchea & Moraru, 2014). The data volume increases climactically faster, because not only manual data is included, but in the frame of digitalization also automatically generated Meta Data is saved. Consolidation Data Set is a data set which contains not necessarily only original data but also data estimated or deduced from BIG Data sets. The idea is to use consolidation, evaluation, and correlation in order to transform the data into an appropriate format regarding the context. These data packages are called data sets. The clustering of data can be an appropriate form of consolidation. Here, data sets are summarized and evaluated again according to defined characteristics.

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The gathering techniques in networks result in completely new types of structures, interfaces, and links between world wide data bases and services. With the help of Data Mining, you can descry new relationships between known data sets. To spot new relations between different data sets opens a vast great treasure chest of knowledge about the individual. Data Mining is a set of statistic methods on big data sets with the target to create new relations and trends. The IT provides the appropriate resources in the form of numerous tools for this purpose. The goal is to process the data from the most various sources with the most various formats. For this purpose, corrupt or incorrect data is recorded as fast as verified data by the algorithms. Due to the consolidation process, errors can be located and rectified, missing data can be interpolated or logically incorrect data can be removed. Digression: How reliable are the processes? If they are reliable, what happens with incorrect or corrupt data? Based on inaccurate data sets, we are employing exact analyses processes, but the result is still incorrect. For security-relevant data - as in medicine - or under the aspect of high availability (by Six Sigma, as has been shown Rowlands, Price, George and Maxey (2016), a smaller, but more reliable data base should be used. For less vulnerable analysis, the easier and not verified evaluation is conceivable, for example with e-mail advertising campaigns. New conclusions can be compared to Chinese whispers. What is the result at the end? The currently possible conclusions are not more reliable than before. A bigger amount of data, especially in the most various formats, is not necessarily the basis of more reliable data. As seen in Kessel and Vogt (2016, p.157) especially for BIG DATA, “the effort to verify the data is very high”. The frequent occurrence of incorrect information can lead to a false sense of reliability, a common danger. A current example would be the fake news that can be found circulating in social networks. With the help of specific information, a profiling will be undertaken, that serves the purpose of manipulating coherent target groups with precision, e.g. by advertisements. By the acquisition of person-related data, weak points are utilized by criminal groups. A few years ago, collecting exact keywords, keys and also indexing people, were activities that had to be carried out during searches on the Internet and when storing data in databases. Today similar and identical products and contents of the same group are represented by intelligent algorithms, but also complementary and combinable results are displayed, which are similar and easily supplemented. Discussion As you can read in (Sterk & Eichhorn, 2016), in the first part of our study we have discussed the consequences of one person knowing all of this information and how they can employ it. All students had thought that everybody might as well have all of their information because they have nothing to hide. But in a discussion only a week later, concerning the wanted information from all students some declined because they did not have any trust in the person who would be able to discern individuals reversely from the data set. Later, as we solved this problem by using a secret web side, they

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were disgruntled about the lecturer knowing too much about their private lives. The provider who is collecting the data in real life is perhaps unknown, but the people who are buying this data from providers like Amazon, Google, Facebook to analyses it with business intelligence techniques, could be someone you know of your time at the University. The next problem was the storage of the data set and the guarantee of administrated data access. This is a very new problem with the internet, mobile phone or selling marks. The new information market What is new in this market? We do not know which data will be saved and generated while using the software at any point. We do not know where the data is saved. We do not know who the owner is. We do not know what happens with it. We do not know; in the case, we wish to delete the data that this will be done or whether it is even possible to execute. We do not know whether the data set is adequately secured and access is only possible with authentication. The market is very non-transparent. The new information market is not made for the common citizen. Therefore, we demand more transparency. For these reasons, we no longer employ the phrase anonymization of data, but pseudonymisation, according to Ganslandt (2017). It seems that the market will be manipulable. Recently, we learned that GOOGLE has manipulated the offered shops on their web pages, rigging them in their favor as Kottasová (2017) demonstrated. An old saying goes: Money corrupts. Companies with money monitor the innovation process and shape with this the future, too. So, the whole economy will be influenced. If the great players on the information market have a wish they are able to push it. Still, they have the power to put pressure on all citizens. Because of so much unknown handling, we cannot say what is true and what is not. But who is the falsifier? As we have shown, the answer lies in the methods and handling of data. Handling means that the data set is generated covertly and without any guarantee of effectual precautions against data abuse. Conclusions Now it´s time to think about what we all can do against this horrible reality. Looking at the questions written in the discussion section, we deduce consequences from these. One consequence for data security officers within companies is the necessity of using all available resources to secure all handling by using specialized software. For example, certain functions within Microsoft Office, like Document inspector (Microsoft Virtual Academy, 2017) can help with that objective. With the help of this function, the user can see all data included in the file. The data set can now be deleted on demand, but not the embedded data. In the rules of action, the data security officer should be state and communicate that you have to be careful when inserting pictures and diagrams. As seen in Kuksov (2017), with the help of DLP (Data Loss Prevention) module in Kaspersky Total Security for Business, Kaspersky Security for Mail Server and Kaspersky Security for Collaboration Platforms, one can delete confidential Meta Data like change protocol, comments, and embedded objects.

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In our handling of IT or with our private data set, we follow the rules of action. There is a need for a platform to help in the case of and warn about cyberattacks (for example with generated emails) and inform people about what steps to take when it happens. Better yet would be to install preventive measures and to prohibit the producing or collecting of data, for example with cookies. Also, it is helpful to tout as written in Danezis, Domingo-Ferrer & Hansen (2015) as well as in Dratwa (2014). Possible consequences for the political handling could be the augmentation of fines and combining them with a personal imprisonment for data providers if they do not disclose openly what they collect. It should be legally clarified that the producer is the sole sovereign decision maker on distribution. If they cede the right to preside over data, then immediately there has to be a check on whether the data may be used as an aggressive tool against the freedom of anybody. In this case, if there is any possibility to fill out the lack within a data set as explained before, it is not allowed to use this data anymore. To observe the right handling of data sets there is the necessity to install some observers to control whether the memory places are pursuable and known. If there is any upload of data the owner has to know it (if not, it is a theft), but as said before not only they. Before any transfer can happen, the provider has to declare to whom he will give the data, and the seller has to report what he will do with it, and later on what he has done, where the archive is and at what time he will delete it. It must be forbidden to trade with third parties, and only consolidated data can be tradeable. In Heidrich and Hansen-Oest (2016) we have found the statements about the rights of deleting data directly by the record place. Actually, the European court has only postulated the right of the block from personal results of seeking machines. If a company has data from a person published by itself, it has the obligation to inform all stations about the claim of cancellation of the person concerned. In Article 22 EU Law (2016) is written: „Any processing of personal data in the context of the activities of an establishment of a controller or a processor in the Union should be carried out in accordance with this Regulation, regardless of whether the processing itself takes place within the Union. Establishment implies the effective and real exercise of activity through stable arrangements. The legal form of such arrangements, whether through a branch or a subsidiary with a legal personality, is not the determining factor in that respect.” In new information market, democracy is receding. The reason for that is that the distribution of information is carried out in a profile oriented manner. Today, the price of shoes, flies and everything else is dependent on your profile, depending on the profile you might get information or not. This means to paternalism and patronizes citizens. The trust in IT is diminished. “We need data sovereignty” as seen in Dräger (2017, p.84.) For business managers, it is important to “see the mega trends” (Gernandt, 2017, p.68). He is discussing the addictiveness of the business strategy on new behaviors and expectations of clients in this article, and says “because to do the right things decide the market”. “According to Darwin’s On the Origin of Species as found in (van Wyhe, 2002), it is not the most intellectual of the species that survives; it is not the strongest that survives; but the species that survives is the one that is able best to adapt and adjust to the changing environment in which it finds itself.” We recommend business managers to use an open communication standard on profile oriented marketing.

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Summary and outlook Trepte and Masur (2017) sustain that privacy is a very important value for the individual as well as for the society We have reached the end of privacy, because of our fundamental law in according to Kant „My freedom ends, where I touch upon the freedom of another“ (in Vieweg, 2016). Therefore, I cannot trade with any Meta Data generated through my actions, since the consequences on whose rights may be violated are unforeseeable. Take away their power. The same way you would react to a real world situation, in which someone tries to sell you a product you do not want or need, with classical advertising, letters, annoying phone calls and others, by ignoring them completely, is how we as consumers can get rid of this problem once and for all. By using a spam filter, never participating in any discount campaigns or filling out loyalty cards we can take back our own informational sovereignty. Nothing is free in this world, the massive profits of the information industry pale our meagre deductions. Elucidation on the consequences of our daily actions changes people’s behavior in handling their data, according to our study. It is essential for business managers to keep empowerment, adaptiveness, and megatrends in mind. An open communication about the information market or the selection of another form of acquiring new clients are possibilities of securing the future of the company. Acknowledgements. We give many thanks to the students, visiting the seminar of Prof. Kuhn, University of Applied Sciences, in 2016, because this paper is based on unpublished presentations by students and the results of their studies.

References Augusto, J.C., & Huch, M. (2012). Handbook of Ambient Assisted Living, Technology for Healthcare, Rehabilitation and Well-being. Amsterdam, Berlin, Tokyo, Washington, DC: IOS Press. Crișan, C., Zbuchea, A., & Moraru, S. (2014). Big Data: The Beauty or the Beast. In C. Bratianu, et al. (Eds.), Strategica: Management, Finance, and Ethics (pp.823-840), Bucharest: Tritonic. Dale, M., Higgins, A., & Carolan-Rees, G. (2015). Sherlock 3CG® Tip Confirmation System for Placement of Peripherally Inserted Central Catheters: A NICE Medical Technology Guidance. Applied Health Economics and Health Policy, 14(1), 41-49. Danezis, G., Domingo-Ferrer, J., Hansen, M., Hoepman, J.-H., Metayer, L., Tirtea, R., & Schiffner, S. (2015). Privacy and Data Protection by Design. Retrieved from https://www.enisa.europa.eu/publications/privacy-and-data-protection-bydesign.pdf/ Dräger, J. (2017) p.84., Individuelles Lernen durch Digitalisierung. in Palais Biron, Baden Badener Unternehmer Gespräche, Nr. 25, Sommer 2017. Dratwa, J. (2014). Ethics of security and surveillance technologies, European group on ethics in science and new technologies to the European Commission. Retrieved from http://www.forum-privatheit.de/forum-privatheit-

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wAssets/docs/literaturhinweise/2014EuropeanGrouponEthicsinScienceandN.p df. EU Law (2016). On the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation). Regulation (EU) 2016/679 of the European Parliament and of the Council. Retrieved from http://eurlex.europa.eu/legalcontent/DE/TXT/?uri=uriserv%3AOJ.L_.2016.119.01.0001.01.DEU&toc=OJ%3A L%3A2016%3A119%3ATOC. Frickel, C. (2012). Der Datenkrake: Was Google schon jetzt alles über Sie weiß, Fokus online. Retrieved from http://www.focus.de/digital/internet/google/tid27798/datenkrake-was-google-ueber-sie-weiss-was-weiss-google-alles-uebersie_aid_843777.html. Ganslandt, T. (2017). Aufbau von Datenintegrationszentren. Paper presented at CONHIT 2017, MIRACUM-Konsortium, Berlin. Gernandt, K. (2017). Das Ende der Strategie. Palais Biron, Baden Badener Unternehmer Gespräche, 25, Sommer 2017, 68. Heidrich, J., & Hansen-Oest, S. (2016). Welche Änderungen die neue EU-DatenschutzRegulierung in Deutschland bringen wird. Retrieved from https://www.heise.de/ct/ausgabe/2016-9-Welche-Aenderungen-die-neue-EUDatenschutz-Regulierung-in-Deutschland-bringen-wird-3166896.html 166. Jewett, E. (2017). Voraussetzung für erfolgreiche Big-Data-Analyse: Korrekte Daten und Transparenz. Retrieved from http://www.searchenterprisesoftware.de/sonderbeitrag/Voraussetzung-fuererfolgreiche-Big-Data-Analyse-Korrekte-Daten-und-Transparenz. Kessel, T., & Vogt, M. (2016). Fit für die Prüfung: Wirtschaftsinformatik, Lernbuch, UVK Verlagsgesellschaft mbH, Konstanz und München. 157. Koch O. (2017). Wege in die digitale Welt. Palais Biron, Baden Badener Unternehmer Gespräche, Nr. 25, Sommer 2017, 72. Kottasová, I. (2017). EU slaps Google with record $2.7 billion fine. Retrieved from http://money.cnn.com/2017/06/27/technology/business/google-eu-antitrustfine/index.html. Kuksov, I. (2017). Wie flüchtige Metadaten für echte Probleme sorgen können. Retrieved from https://blog.kaspersky.de/office-documents-metadata/9915/ Microsoft Virtual Academy (2017). Document inspector. Retrieved from https://msdn.microsoft.com/en-us/vba/office-shared-vba/articles/using-thedocument-inspector. Mueller-Mielitz, S. (2016). Assistenz-Erleben – das Spiel-Konzeption einer nutzerzentrierten Alltagsunterstützenden Assistenz-Lösung (AAL), IEKF GmbH. Reschreiter, R. (2017). New Insights of Profile Oriented Marketing and Adaption Management for a Future-Oriented City Development. Retrieved from http://researchleap.com/new-insights-profile-oriented-marketing-adaptionmanagement-future-oriented-city-development/. Rowlands, D., Price, M., George, M.L., & Maxey, J. (2016). Das Lean Six Sigma Toolbook, Werkzeuge zur verbesserung der Prozessgeschwindigkeit und–qualität. Münich: Verlag Franz Vahlen GmbH.

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Trepte, S., & Masur, P. (2017). Privacy attitudes, perceptions, and behaviors of the German population: Research Report. In Friedewald et al. (Eds.), Forum Privatheit und selbstbestimmtes Leben in der digitalen Welt. [Forum Privatnes and self- determined live in the digital world]. Retrieved from https://www.forumprivatheit.de/forum-privatheit-de/texte/veroeffentlichungen-desforums/Trepte_Masur_2017_Research_Report_Hohenheim.pdf. Perghel, R., & Psychogios, A.G. (2013). Making sense of crisis: cognitive barriers of learning in critical situations. Management Dynamics in the Knowledge Economy, 1(2), 179-205. Pew Research Center (2012). Social networking popular across globe. Retrieved from http://www.pewglobal.org/files/2012/12/Pew-Global-Attitudes-ProjectTechnology-Report- FINAL-December-12-2012.pdf. Sterk, I., & Eichhorn, D. (2016). Gefahren durch Datenmissbrauch, Thema: Datengewinnung durch Analyse von Internetnutzung und Mobilfunk [Studies about the handling of private data records.] Intern paper, University of applied science, Trier, Department of Economy, Seminar Organisation und Informationsmanagement. van Wyhe, J. (2002). The Complete Work of Charles Darwin Online. Retrieved from http://darwin-online.org.uk/ Vieweg, K. (2016). Die Philosophie in Star Trek. Ludwigsburg: Amigo Grafik. Völkel, F., & Lorbach, I. ( 2015). Smart Home - Bausteine für Ihr intelligentes Zuhause. Freiburg: Haufe Verlag.

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SURVEILLANCE 2.0 – THREADS & SOLUTIONS Cătălin VRABIE National University of Political Studies and Public Administration 30A Expoziției Blvd., 012104 Bucharest, RO [email protected] Abstract. Among the most important inventions of the last century, we find the Computer, the Internet, and the Mobile phone. They changed the world in such a manner that today we rely on them almost intimately. Their capabilities to collect data about anything turned them into surveillance tools. Specialists agree with one aspect: “to be used in order to reduce crime and increase public safety” – In these situations, there is no doubt about the morality. The intelligence agencies are seeing things differently. They turned surveillance into a mass surveillance operation. Quite often lately, we assist to, what it is called into the mass-media, leaks – we found that data and information who supposed to be private are not anymore. The president of Brazil, Ms. Dilma Rousseff, said after she was informed that her e-mail was read by the US Intelligence Agencies: “In the absence of the right to privacy, there can be no true freedom of expression and opinion, and therefore no effective democracy.” Surveillance has the power to change the political and economic relation between countries and therefore it should be used with care. This article is aiming to present the most notorious examples of information thefts and to provide suggestions regarding data-protection. Keywords: privacy; security; mass-surveillance; data-protection; data breach. Introduction In the first half of 2013, Edward Snowden (former CIA employee and governmental defense contractor for Booz Allen Hamilton) publicly disclosed inside information from within information agencies of the United States and Great Britain – information classified as top secret (Greenwald, 2014). Thus, people began to hear about projects such as PRISM, XKeyscore and others alike – examples of programs that the US Intelligence Agencies carry out today worldwide. If we look back at the predictions made by George Orwell on surveillance (Orwell, 2012), we realize that he was an optimist. Today we are witnessing surveillance of individuals on a scale far greater than Orwell could have imagined (Webb, 2007). The next photo shows the buildings of the NSA (National Security Agency) Data Centre in Utah, the United States, which is known as the first unit for Intelligence Community Comprehensive National Cyber-Security Initiative Data Center and has started its activity on May 14, 2014 (Domestic Surveillance Directorate, 2015). This base, as it is described on the official website, is both a super performant data processing center and a huge data warehouse capable of storing up to a yottabyte – one trillion terabytes, being the first data storage of this kind in the world that has such a large volume of data storage (Herbert, 2012).

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That is actually an enormous area dedicated to data collection and analysis. According to the official website, only the buildings occupy a ground area of 140000 m2 of which 9000 m2 are for the data center and the rest is for tech support. Only the electricity bill amounts to 40 million dollars per year (defensesystems.com, 2011; wired.com, 2012), the entire project costing over 1.5 billion dollars (Domestic Surveillance Directorate, 2015). This means that organisms such as the NSA can collect data about each of us and can, practically, store them for unlimited periods of time. This is what is called an „engross surveillance of the whole world” (Nyst & Crowe, 2014) – activity which obviously comes with a set of new risks, to which we all are exposed.

Figure 1. Utah Data Center (source: https://nsa.gov1.info/utah-data-center/)

The context The United States has the legal right to supervise and monitor foreigners whose data and information get in or transit US (Department of Justice, 2001; DNI, 2013). Surveillance of foreigners is not bad in itself – that until we realize that each of us is „a foreigner” according to the US legal system vision. Therefore, we are really talking about wholesale, permanent and on every one of us surveillance – of all of us who use telecommunication systems and the Internet. However, we must not be misunderstood. There are types of surveillance that we agree with. Some individuals, for instance, love freedom, but even those can agree on the fact that surveillance is necessary for certain situations: when police forces try to find a criminal or to prevent a terrorist attack, if they have clues of any kind, it is justified to listen to those individuals’ phones and to intercept their communication over the Internet. In these situations, there is no doubt about morality. But projects such as PRISM are not developed for this. They are not made to oversee people for which there are reasons to act in this manner. They supervise people who are known to be innocent. We will further present some arguments to support this statement.

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The first and perhaps most important argument is that when we begin to argue the supervision's injustice, there are voices that want to minimize the effects of it, saying that „we knew, we knew all this, there is nothing new about this thing”. We asked on Facebook if the world knows that when we search for something using the most conventional searching engines, that information probably gets to the United States’ Intelligence Agencies. Nine minutes later, we received a reply from a former student of mine, who told us that this is neither surprising nor new. Moreover, another participant in the discussion responded that „it would be a shame to be otherwise”. But that is not true. Even though most of the people we spoke with are saying "we already knew that" it is not true – no one knew. Our most terrible thoughts could have been about something similar, but we did not expect that something like this could be happening. Nobody knew anything about PRISM or XKeyscore or any other project driven and maintained by the US Information Agencies. Now we know and it is certain. (Wall Street Journal, 2013a; Washington Post, 2013; The Guardian, 2013a, 2013c, 2014; ZDNet, 2013). But we did not think that the US Intelligence services will go so far as to infiltrate a standardized code in order to sabotage the encryption algorithms (The Economist, 2013; The Guardian, 2013b; Der Spiegel, 2014; Reuters, 2014). That means that they took something that was perfectly secured, a security algorithm that was so sure that if one uses it to encrypt a file, nobody can decrypt it. Even if every computer in the world were used only to decrypt that file, it would take tens of years to succeed (PGP, 2009). So basically that file was 100% safe – uncrackable. They take over something that is so good and they weaken it intentionally, thus shaking the security of every citizen. The equivalent in the real world would be that the intelligence services would have a secret PIN code for every alarm system in our homes in order to enter unhindered anywhere, explaining this by the fact that the villains could also have such alarms at home. This though makes us all more vulnerable. The existence of such a short cut in an encryption algorithm is at least surprising and such thing creates confusion in the minds of all individuals. But of course, the intelligence services are doing their job. These are the tasks that have been assigned to them: to monitor communications, to monitor Internet traffic, to react to signals detected along the communication channels. That is what they are trying to do. And since most of the today’s Internet traffic is encrypted, then they have to find loopholes – and the easiest is to sabotage encryption algorithms. This is a great example of how the US intelligence agencies are losing ground in the struggle with technology. They have lost control and now they are struggling to gain it once again. Data breach and information leeks So what actually is known about the information leaks? Everything is based on the files provided by Edward Snowden. In the header of the PRISM project’s first slide, which was made public by him in June 2013 (Figure 2, left), there are details about a suite of Internet and data providers, which the project is designed to monitor and to has access to.

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In addition, it can be seen (Figure 2, right) that there is accurate information about when they began collecting information for every provider of these services. For example, the date September 11, 2007, is mentioned as the debut of collecting data from Microsoft; from Yahoo – March 12, 2008, and then others: Google, Facebook, ending with Apple – October 2012. Interestingly, each of these companies denies any involvement – they say that something like this is simply not true, that they give no one access to their data.

Figure 2. Some of the slides provided by Edward Snowden (source: http://www.washingtonpost.com/wp-srv/special/politics/prism-collectiondocuments/)

"Yahoo! takes users' privacy very seriously. We do not provide the government with direct access to our servers..." — Tim Bradshaw, June 7, 2013 (Yahoo, 2013) "Google cares deeply about the security of our users' data. We disclose user data to government in accordance with the law, and we review all such requests carefully. From time to time, people allege that we have created a government 'backdoor' into our systems, but Google does not have a 'backdoor' for the government to access private user data." (Bloomberg, 2013) “We do not provide any government organization with direct access to Facebook servers. When Facebook is asked for data or information about specific individuals, we carefully scrutinize any such request for compliance with all applicable laws, and provide information only to the extent required by law.” (TechCrunch, 2013) "We [Apple] do not provide any government agency with direct access to our servers, and any government agency requesting customer data must get a court order." (Wall Street Journal, 2013b) "We [Microsoft] provide customer data only when we receive a legally binding order or subpoena to do so, and never on a voluntary basis. In addition, we only ever comply with orders for requests about specific accounts or identifiers. If the government has a broader voluntary national security program to gather customer data, we don’t participate in it.” (The Verge, 2013)

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Those statements contradict the existence of Snowden’s files, which means that either someone is lying or, as an alternative explanation, these service providers have been sabotaged. That would explain everything. They do not cooperate with the US government. They were sabotaged by it. The involvement of your own government might be, at first, hard to believe, but it would not be the first time something like this happens overseas. We can give as example the Flame malware app, strongly believed to be authorized by the US government (GlobalResearch 2013; The Intercept, 2014) and which, to spread around, undermined the network security systems of Windows Update (Arstechnica, 2012; ComputerWorld, 2012; C|net 2012) – which means that Microsoft was sabotaged by its own government. Der Spiegel (2013a) published information on operations undertaken by teams of elite hackers which operate within the Intelligence Agencies. In the NSA, this team is called TAO – Tailored Access Operation (The Guardian, 2013c). In the GCHQ (Government Communications Headquarters – British Intelligence and Security Agency) it’s called NAC – Network Analysis Centre (Der Spiegel, 2013b). After this information leak, it was possible to identify operations carried out by the Intelligence Agency in Great Britain – GCHQ, which targeted a Belgian mobile phone company – Belgacom. This operation was called Socialist (Der Spiegel, 2013b). This means that an intelligence agency of a European country intentionally sabotages the security of a phone network from another EU country. In addition, according to the materials which are now public, this thing is being done nonchalantly – business as usual. „This is the main target, this is the secondary target (Figure 3, left), this is the team...” and so on – probably these were the discussions within a weekend teambuilding meeting. They even used Clip Arts specific to PowerPoint, such as SUCCESS (Figure 3, right) when the slide shows the steps taken and thanks to which they were able to obtain access to this information.

Figure 3. Slides posted by Der Spiegel on the cyber-attack on Belgacom – the Socialist Operation (source: http://www.spiegel.de/fotostrecke/photo-gallery-operation-socialistfotostrecke-101663.html)

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A different approach – same results Of course, it can be counter-argued by lines such as: „OK, it is true, but the other countries act similarly. All countries are spying”. And this is partially true. Most countries undertake espionage operations. Let though take the example of Romania. Regarding the set of legal rules on data protection, this is more or less similar to the US, of which we talked above. When the data come in or transits Romania, the Romanian Intelligence Agency is legally entitled to intercepting that data: „The specific activities provided in par. (1) may consist of: a) the interception and recording of electronic communications made in any form”. (Law no. 51 of July 29, 1991, in the consolidated version – September 11, 2014, regarding the national security of Romania, article 14, para. 2, letter a). However, this question is raised: how many businessmen, politicians or other Romanian officials are using daily data services provided by companies from the United States such as Google, Yahoo, Facebook or LinkedIn, or store their data in cloud systems such as ICloud or Dropbox. How many of them use Amazon, eBay or similar Web platforms for values transfer - not to mention the use of Windows? The answer is: all. All leaders from the political, social or business environment use daily at least one of those services. Let’s see how things are from the other point of view. How many US leaders use Romanian Webmail or cloud services? The answer is zero (or very close to this value). Along researches made, we have never found information to disprove this hypothesis, which is why we believe that it is true. So there is a lack of balance. The situations are not even by far comparable. Though, when we occasionally have European or even national success stories, such as RAV antivirus, produced by a Romanian company, GeCAD Software, even these end up being sold to large companies in the United States – in this case, Microsoft (Ziarul Financiar, 2003). Skype was created by a joint team of Swedes and Estonians programers, which was very well secured at the beginning – communication was encrypted from end to end, it ended up being the property of Microsoft (BBC, 2011). Today we have every reason to doubt even Skype – we said it previously in this article, what channels were used by the Flame virus to spread. So, once again, something secure is taken over and intentionally weakened, making us all more vulnerable. Conclusions and implications Another argument in favour of the surveillces agencies is that the United States is fighting against terrorists (The Guardian, 2013d). This reason should strengthen our confidence that these projects are meant to protect us. We do have strong reasons to accept these explanations. Part of the existence of such projects is justified by the terrorism acts we are witnessing in recent years, horrible acts, which often result in many dead and even more wounded persons, some of them remaining permanently disabled. Allied forces have to fight with these individuals and the organizations they represent.

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However, following the actions of people like Edward Snowden or journalists from Der Spiegel, we know that the Information Services we speak about use the same techniques to listen to the European leaders’ phones (The Guardian, 2013e; Independent, 2013) or to intercept emails of Mexico and Brazil’s citizens (USA Today, 2015). Moreover, it reached the level in which they read the emails sent within the European Parliament (The Guardian, 2013d; CBSNEWS, 2015). In these cases, we do not think that the intention is to identify terrorists. Are they members of the European Parliament? No. It is not a war against terrorism. A part of this surveillance, as we said, could be, but can we think of terrorism as a threat so great that we must do everything to fight it? Are American citizens willing to throw away their constitutional rights just because terrorists exist? Also true for Europeans citizens, do they all agree to throw away the protocol no. 11 and the protocol no. 14 of the Convention for the Protection of Human Rights and Fundamental Freedoms or does any other citizen on this planet agree for the Universal Declaration of Human Rights to be ignored? It is true that most people are afraid of terrorists, and so they might think that this form of surveillance is legitimate because they have nothing to hide. Statements such as „you are free to control me if that helps” are often encountered among citizens. But whoever says that he/she has nothing to hide simply did not think this about that long enough. We have what is called privacy. And if someone really believes that he/she has nothing to hide, that means that the respective individual cannot be trusted with a secret because he/she certainly cannot keep it. People today are incredibly honest on the Internet. When the information leaks we referred to earlier became the topic of all newspapers in the world, many have reacted by saying that they have nothing to hide, they do not do any harm to anybody or take any illegal action. "Normally honest people would have no need to fear anything they have said, or written, could be used against them." — user Inglenda2, 31/12/2013 (Der Spiegel, 2013a) "If it helps stop another 9/11, then I am very happy for the NSA to trawl through my e-mails." — user Stelvio 28/12/2014 (Der Spiegel, 2014) “As expected a long time ago. Key words being scrutinised.” – user allislost, 31/07/2013 (The Guardian, 2013a) "As a frequent traveller I am happy that someone from the land of the free is looking after my interests and the majority of normal peace loving citizens. Going back to the 1950's to a TV programme called Dragnet they started by saying Democracy might not be the best for all but it’s better than the rest.... yes, before 9/11 the two Gulf Wars... it was a different world... thanks I feel safer knowing your on my side." – user James Hamilton-Bird, 27/03/2015 (Washington Post, 2013) “Majority of this information is as old as the hills. Majority of all American Internet and most foreign Internet users probably already knew this. Especially when you have Internet crashes, hackers etc. and you have to have your computer fixed and you data drives cleaned. More power to NSA to use my email and data. Maybe they will catch real terrorists, would be terrorists etc. I thankful they are working to keep the majority of the world safe.” – user Penny Middleton, 26/12/2014 (Washington Post, 2013)

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However, none of those users have a specific topic that they want to talk about with the Intelligence Services – especially those from abroad. If we really need Big Brother, we would still prefer one of ours, a national one. However, we need to talk about privacy too. This is not negotiable; it should be natively implemented in all the systems we use. At the risk of repeating ourselves, it must be understood that we are overly honest with the searching engines on the Internet. We dare all those who claim they have nothing to hide to make their Web browsing history public. We bet that someone will find something, either incriminating or embarrassing in a matter of minutes. We are more honest with the searching engines than we are with our families. Searching engines know more about us than our family members know (Andrews, 2012). We provide all these types of information to the US Government – so we should think again. Surveillance has the power to change the course of history. Take for example the US President Nixon – what he could have done if he had the tools of today (Greenberg, 2012). This is what it is about. Privacy is one of the pillars on which a democracy is built and supported. Edward Snowden, and others like him, was accused of many things. Some accused him of shaking the software and cloud industry through his actions. But accusing him of these things is like blaming environmentalists for global warming. What can be done? Should we be worried? No, this is not enough. We must be angry because what it is happening is not good. These methods are barbaric, clumsy and should not be accepted and promoted. According to the saying: „Without knowledge action is useless and knowledge without action is futile”, only by knowing what is happening, the situation will not change. It will change if we move away from systems developed in the United States. How? That’s difficult indeed. No country in the world can develop systems to replace the existing ones overnight. But cooperation can bring good results, and we refer here to Open Source platforms. These are developed as a result of collaboration, mostly of international kind. They are open systems, free and well secured (InfoWorld, 2015). Thus, existing surveillance systems can be bypassed. Malcolm Gladwell (2004), a Canadian sociologist, said that is enough to make a small wave and then, through collective efforts, it might turn into a tsunami which would have the power to replace current systems. One such example is the Moodle e-learning platform, developed by a group of ten Australians, but that cooperates with more than seventy software development companies worldwide (Moodle, 2015). Let’s take them as an example and act accordingly. References Andrews, L. (2012). I Know Who You Are and I Saw What You Did: Social Networks and the Death of Privacy. New York: Free Press. Arstechnica (2012). Flame malware hijacks Windows Update to spread from PC to PC. It's hard to patch a machine when the update mechanism is compromised.

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Retrieved from http://arstechnica.com/security/2012/06/flame-malwarehijacks-windows-update-to-propogate/. BBC News (2011). Microsoft confirms takeover of Skype. Retrieved from http://www.bbc.com/news/business-13343600. Bloomberg (2013). NSA Spying, The Companies' Lines on Prism. Retrieved from http://www.bloomberg.com/bw/articles/2013-06-07/the-companies-lines-onprism. C|net (2012). Flame virus can hijack PCs by spoofing Windows Update. Retrieved from http://www.cnet.com/news/flame-virus-can-hijack-pcs-by-spoofing-windowsupdate/ Castells, M. (2010). End of Millennium. The Information Age. Economy, Society, and Culture. Hoboken, New Jersey: Wiley-Blackwell. CBSNEWS (2015). IN DEPTH. NSA surveillance exposed. A secret government surveillance program targeting phone calls and the Internet is revealed. Retrieved from http://www.cbsnews.com/feature/nsa-surveillance-exposed/. ComputerWorld (2012). Researchers reveal how Flame fakes Windows Update, Bogus certificates key, but espionage malware also spoofs Microsoft's update service on a network. Retrieved from http://www.computerworld.com/article/2503916/malwarevulnerabilities/researchers-reveal-how-flame-fakes-windows-update.html. Damien, J. (2011). Introduction to Computers and Application Software. Burlington, Massachusetts: Jones & Barlett Learning. defensesystems.com (2011). Work commences on $1B NSA 'spy' center. Retrieved from https://defensesystems.com/Articles/2011/01/07/NSA-spy-cyberintelligence-data-center-Utah.aspx. Department of Justice (2001). The USA PATRIOT Act: Preserving Life and Liberty. Retrieved from http://www.justice.gov/archive/ll/highlights.htm. Der Spiegel (2013a). Inside TAO: Documents Reveal Top NSA Hacking Unit. Retrieved from http://www.spiegel.de/international/world/the-nsa-uses-powerfultoolbox-in-effort-to-spy-on-global-networks-a-940969.html. Der Spiegel (2013b). Belgacom Attack: Britain's GCHQ Hacked Belgian Telecoms Firm. Retrieved from http://www.spiegel.de/international/europe/british-spyagency-gchq-hacked-belgian-telecoms-firm-a-923406.html. Der Spiegel (2014). Prying Eyes: Inside the NSA's War on Internet Security. Retrieved from http://www.spiegel.de/international/germany/inside-the-nsa-s-war-oninternet-security-a-1010361.html. DNI [Office of the Director of National Intelligence] (2013). Facts on the Collection of Intelligence Pursuant to Section 702 of the Foreign Intelligence Surveillance Act. Retrieved from http://www.dni.gov/files/documents/Facts%20on%20the%20Collection%20o f%20Intelligence%20Pursuant%20to%20Section%20702.pdf. Consolidated form (September 11, 2014) of the Law no. 51 of July 29, 1991 regarding the national security of Romania. Retrieved from https://www.sri.ro/fisiere/legislatie/Legea51.pdf. Gladwell, M. (2004). The Tipping Point: How Little Things Can Make a Big Difference. Bucharest: Andreco Educational. Global Research (2013). Digital Warfare: Stuxnet and Flame Viruses could have Three “Sister Viruses”. Retrieved from http://www.globalresearch.ca/digital-warfarestuxnet-and-flame-viruses-could-have-three-sister-viruses/5305160.

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Greenberg, I. (2012). Surveillance in America: Critical Analysis of the FBI, 1920 to the Present. Boulder, Colorado: Lexington Books. Greenwald, G. (2014). Edward Snowden: the whistleblower behind the NSA surveillance revelations. Bucharest: Litera. Hartmann, M., Rössler, P., & Höflich, J. (2008). After the Mobile Phone? Social Changes and the Development of Mobile Communication. Berlin: Frank & Timme. Independent (2013). NSA spying scandal: Merkel and Hollande demand talks as US is accused of listening in on phone calls of 35 world leaders. Retrieved from http://www.independent.co.uk/news/world/americas/nsa-spying-scandalmerkel-and-hollande-demand-talks-as-us-is-accused-of-listening-in-on-phonecalls-8901065.html. InfoWorld (2015). The state of open source security. Retrieved from http://www.infoworld.com/article/2901893/security/the-state-of-opensource-security.html. Nyst, C., & Crowe A. (2014). Unmasking the Five Eyes’ global surveillance practices, Global Information, Society Watch 2014, Communications surveillance in the digital age. In Global Information Society Watch 2014 (pp.51-56). Association for Progressive Communications (APC) and Humanist Institute for Cooperation with Developing Countries (Hivos). Retrieved from https://www.giswatch.org/sites/default/files/gisw2014_communications_surv eillance.pdf. Orwell, G. (2012). Nineteen Eighty-Four. Bucharest: Polirom. PGP Corporation (2009). An Introduction to Cryptography by Jon Callas. Retrieved from https://symwisedownload.symantec.com/resources/sites/SYMWISE/content/l ive/SOLUTIONS/149000/TECH149738/en_US/introcrypto.pdf?__gda__=145006 9900_622d724685e5df327ff5d4fb6460a357. Reuters (2014). Exclusive: NSA infiltrated RSA security more deeply than thought – study. Retrieved from http://www.reuters.com/article/us-usa-security-nsa-rsaidUSBREA2U0TY20140331#VDXbhGdgmf4IET4T.97. Serviciul Român de Informații – SRI [Romanian Information Service] (2015). Legislation. Retrieved from https://www.sri.ro/legislatia.html. Shuman, B. (2001). Issues for Libraries and Information Science in the Internet Age. Santa Barbara, CA: Libraries Unlimited. Techcrunch (2013). Google, Facebook, Dropbox, Yahoo, Microsoft, Paltalk, AOL And Apple Deny Participation In NSA PRISM Surveillance Program. Retrieved from http://techcrunch.com/2013/06/06/google-facebook-apple-denyparticipation-in-nsa-prism-program/. The Economist (2013). The NSA's crypto "breakthrough". Retrieved from http://www.economist.com/blogs/babbage/2013/09/breaking-cryptography. The Guardian (2013a). Brazilian president: US surveillance a 'breach of international law'. Retrieved from http://www.theguardian.com/world/2013/sep/24/brazil-president-unspeech-nsa-surveillance. The Guardian (2013b). Revealed: how US and UK spy agencies defeat internet privacy and security. Retrieved from http://www.theguardian.com/world/2013/sep/05/nsa-gchq-encryptioncodes-security. The Guardian (2013c). NSA 'hacking unit' infiltrates computers around the world – report. Retrieved from http://www.theguardian.com/world/2013/dec/29/derspiegel-nsa-hacking-unit-tao.

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The Guardian (2013d). Codename 'Apalachee': How America Spies on Europe and the UN. Retrieved from http://www.spiegel.de/international/world/secret-nsadocuments-show-how-the-us-spies-on-europe-and-the-un-a-918625.html. The Guardian (2013e), Angela Merkel's call to Obama: are you bugging my mobile phone? Retrieved from http://www.theguardian.com/world/2013/oct/23/usmonitored-angela-merkel-german. The Guardian (2013f). XKeyscore: NSA tool collects 'nearly everything a user does on the internet'. Retrieved from http://www.theguardian.com/world/2013/jul/31/nsa-top-secret-programonline-data. The Guardian (2014). Prism - The latest news and comment on Prism the national security electronic surveillance program operated by the United States National Security Agency. Retrieved from http://www.theguardian.com/us-news/prism. The Intercept (2014). How the NSA plans to infect ‘millions’ of computers with malware. Retrieved from https://theintercept.com/2014/03/12/nsa-plans-infectmillions-computers-malware/. The Verge (2013). Apple, Google, Microsoft, Facebook, Yahoo, and more deny providing direct access to PRISM surveillance program. Retrieved from http://www.theverge.com/2013/6/6/4404112/nsa-prism-surveillance-applefacebook-google-respond. The Wall Street Journal (2013). 1 U.S. Official Releases Details of Prism Program. Retrieved from http://www.wsj.com/news/articles/SB1000142412788732429910457853380 2289432458. USA Today (2015). U.S. secretly tracked billions of calls for decades. Retrieved from http://www.usatoday.com/story/news/2015/04/07/dea-bulk-telephonesurveillance-operation/70808616/. Utah Governor Gary Herbert – 2012 Energy Summit. Retrieved from http://blog.governor.utah.gov/2012/02/2012-energy-summit/. Wall Street Journal (2011). Document Trove Exposes Surveillance Methods. Retrieved from http://www.wsj.com/articles/SB100014240529702036114045770441926074 07780. Wall Street Journal (2013). Tech Firms' Data Is Also Tapped. Retrieved from http://www.wsj.com/articles/SB100014241278873247989045785299122803 47482 Washington Post (2013). NSA slides explain the PRISM data-collection program. Retrieved from http://www.washingtonpost.com/wpsrv/special/politics/prism-collection-documents/. Webb, M. (2007). Illusions of Security: Global Surveillance and Democracy in the Post9/11 World. San Francisco: City Lights. Wired.com (2012). The NSA Is Building the Country’s Biggest Spy Center (Watch What You Say). Retrieved from http://www.wired.com/2012/03/ff_nsadatacenter/all/1. Yahoo (2013). PRISM Companies Start Denying Knowledge of the NSA Data Collection Program. Retrieved from http://news.yahoo.com/prism-companies-startdenying-knowledge-nsa-data-collection-004541590.html. ZDNet (2013). PRISM: Here's how the NSA wiretapped the Internet. Retrieved from http://www.zdnet.com/article/prism-heres-how-the-nsa-wiretapped-theinternet/.

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Ziarul Financiar [Finance Newspaper] (2003). Tranzacție istorică: Bill Gates cumpără un antivirus românesc [Historic Transaction: Bill Gates Buys a Romanian Antivirus]. Retrieved from http://www.zf.ro/prima-pagina/tranzactie-istoricabill-gates-cumpara-un-antivirus-romanesc-2981166/. Websites https://nsa.gov1.info/utah-data-center/ https://moodle.com/partners/?keywords=§or=&country=&service=

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SOCIAL MEDIA: A TOOL FOR UNIVERSITIES TO SHARE THEIR EMOTIONS Ramona – Diana LEON National University of Political Studies and Administration 30A Expozitiei Blvd., 012104 Bucharest, RO [email protected] Abstract. The research concentrates on describing how emotions are shared on the public online social network of a business faculty. Since the focus is on answering to “how” questions, a case study strategy is employed; this is the most appropriate research strategy for analyzing a real phenomenon within its natural framework. So, the current article aims to analyze the type of emotions and the emotional flows that cross the Facebook page of the Faculty of Management (FM) from the National University of Political Studies and Administration, Bucharest, Romania. The posts and comments posted on faculty’s Facebook page, during the academic year 2016/2017, are extracted; thus, 456 posts and 118 comments are analyzed. These are processed using both social network analysis and sentiment analysis; the former concentrates on the relationship established between FM and the members of its online community while the latter brings forward the type of emotions that are disseminated within FM online community. The main results show that FM’s Facebook page acts more like a communication tool than as a social network that supports knowledge sharing among community’s members. Therefore, it can be argued that FM’s Facebook page serves as a tool for the faculty to share its achievement and events, and although it supports members’ interactions these do not occur very often. Besides, the emotional content of FM’s posts and comments range from negative to positive while FM’s members distribute mainly neutral emotions; still, FM remains the main generator while its members act as receivers. These findings have both theoretical and practical implication. On the one hand, it links the social network theories with the ones from the educational area and knowledge management field. On the other hand, it offers a tool for the educational institution management and it sheds light on the emotional content of posts and comments. Keywords: social network analysis; sentiment analysis; emotions; emotional flows; Facebook; business faculty; Romania. Introduction The post-industrial economy switches rapidly into an Internet driven economy where millions of people join one or more online communities in order to satisfy their need for communication, information, and entertainment (Wang, Yu & Fesennaier, 2002). Within the continuing development of Internet and Web 2.0, social networking gains popularity and sites like Facebook, MySpace, and Twitter represent more than a quarter of all Internet traffic (Hollenbeck & Kaikati, 2012; Nel & Halaszovich, 2015). They manage to attract more than 90 per cent of young adults and teens (Hollenbeck & Kaikati, 2012) due to the fact that they overcome all the physical boundaries, foster intercultural communication, and transcend age, race, culture, and geographical differences (Graham, Faix & Hartman, 2009). Basically, the social network sites create

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a virtual reality where its members can express, more or less freely, what they feel and think about products, services, brands, persons, and personalities, or any other issues. Against this backdrop, practitioners and academics start to be interested in exploring and exploiting social media. So far, various studies have been conducted and they mainly focus on two lines of research, namely: (i) who tends to use social networks (Glynn, Huge & Hoffman, 2012; Mazman & Usluel, 2010; McAndrew & Jeong, 2012), and (ii) why are they using social networks (Ajjan & Hartshorne, 2008; Baek, Holton, Harp & Yaschur, 2011; Lee & Ma, 2012).The former state that social network sites like Facebook, Twitter, Flickr, Veoh, Dailymotion, MySpace, and Friendster are preferred by young adults and teens (Hollenbeck & Kaikati, 2012), and they represent an excellent marketing (Coulter & Roggeveen, 2012; Glynn et al., 2012; Leung & Baloglu, 2015), and educational tool (Junco, 2012). The scholars who concentrate on the second stream of research bring forward social networks’ capacity of facilitating interaction, active participation, resource sharing, status seeking and critical thinking (Ajjan & Hartshorne, 2008; Baek et al., 2011; Lee & Ma, 2012). In other words, they focus on social network’s users and effects, and neglect the internal processes; they emphasize who uses social networks and why, and oversight what happens within the boundaries of the social networks. Thus, the research regarding what happens within the social networks is still in its infancy. A few attempts have been made (Leon & Dămășaru, 2016; Leon et al., 2017) but they concentrate on the business environment and overlook the fact that social networks are also used by higher education institutions since they support knowledge creation, dissemination, and use. At the academic level, they can foster intergenerational communication, and also the creation of an emotional connection between the faculty and its students. Just like a business unit, a higher education institution can use a social network site in order to get closer to its stakeholders, to establish an affective relationship with the members of its community, to capture and share emotions, information, and knowledge among the members of its community. This gap is filled by the current article which aims to emphasize how emotions are shared on the public online social network of a business faculty, and it is organized around five sections. In the next section, several studies and articles are analyzed in furtherance of determining what type of emotions are usually disseminated among social networks and how do the higher education institutions use online social networks. Further, the methodological approach is brought forward and then the main results are highlighted. More exactly, section four underlines the type of emotions and the emotional flows that cross the Facebook page of the Faculty of Management (FM) from the National University of Political Studies and Administration, Bucharest, Romania. In the end, the article closes by drawing several conclusions and indicating the main theoretical and practical implications of this research.

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Literature review The faster pace of technological progress facilitates communication across boundaries and, at the same time, increases individuals’ and companies’ connectivity. Due to Web 2.0 development, information not only travels from one continent to another in just a couple of milliseconds but data, information, knowledge, feelings, and emotions are shared in a virtual environment between individuals and organizations. Social network sites, wikis, chat rooms, forums, and blogs start to act as a bridge between individuals and organizations; on the one hand, they bring their members closer, and on the other hand, they provide a relatively safe collaborative environment in which their members can post what they think and what they feel, and they can share various media files (Xiang & Gretzel, 2009). Among these, Facebook is currently the most influential social network (Joo, Joung, Lim & Lee, 2015; McCole & Rivera, 2014; Stankov, Lazic& Dragicivic, 2010) and 85% of its users do not feel that their privacy is invaded by those who encourage its use for educational or business purposes (Roblyer et al., 2010). In fact, various studies have been conducted in this area and they mainly focus on two lines of research, namely: (i) who tends to use social networks (Glynn et al., 2012; Mazman & Usluel, 2010; McAndrew & Jeong, 2012), and (ii) why are they using social networks (Ajjan & Hartshorne, 2008; Baek et al., 2011; Lee & Ma, 2012). Those from the first line of research state that social network sites like Facebook, Twitter, Flickr, Veoh, Dailymotion, MySpace, and Friendster are preferred by young adults and teens (Hollenbeck & Kaikati, 2012), and they represent an excellent marketing (Coulter & Roggeveen, 2012; Glynn et al., 2012; Leung & Baloglu, 2015), and educational tool (Junco, 2012). Since Smith and Caruso (2010) proved that more than 90% of college students use online social networking sites and of these 97% use Facebook, more and more practitioners and academics started to engage in using social networking sites for educational and business purposes. Thus, Moran, Seaman and Tinti-Kane (2011) argue that 77% of the academics are using social media in their personal lives and only 4% of them have incorporated social networks into their courses curricula; however, McCole and Rivera (2014) go further and state that educators use Facebook to improve the pedagogical objectives of their courses. Although social network sites are mostly used for entertainment, they have already crossed the organizational boundaries and started to be used as business tools. Employees are using Yammer in order to share best practices among the team members (Leon et al., 2017) while brand managers adapted their advertising strategy so that it exploits the value added generated by Facebook and Twitter (Alba & Stay, 2008; Inside CRM, 2009; Stankov et al., 2010). So, those from the first line of research emphasize that social network sites are used by both individuals and business unites; the reasons that lie behind their actions are brought forward by the academics who concentrate on the second research direction. Hence, the scholars from the second stream of research bring forward social networks’ capacity of facilitating interaction, active participation, resource sharing, status seeking and critical thinking (Ajjan & Hartshorne, 2008; Baek et al., 2011; Lee & Ma, 2012). Unlike, Pempek, Yermolayeva and Calvert (2009), who analyzed individuals’ behavior, emphasize that people usually tent to look at others’ profile (69.57%), read their news feed (54.35%), and read posts on others’ walls (32.61%), they go further and concentrate on the motives that lie behind this behavior. Therefore, at the individual level, they argue that people: (i) write comments in order to relax, entertain and

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interact with others (Smock, Ellison, Lampe & Wohn, 2011); (ii) share news links for information sharing motivation (Baek et al., 2011) and status seeking (Lee & Ma, 2012); (iii) like a post if its content contains similar personal experience, for social acceptance or for displaying belongingness (Shoenberger & Tandoc, 2014); and (iv) become members of an online community if they are loyal and committed to the firm, are open to receiving more information, and are more likely to engage in positive word-of-mouth (Hollenbeck & Kaikati, 2012).At the organizational level, they prove that human resources managers and marketing managers tend to use Facebook and other social networks sites in order to: (i) keep track of their employees (Alba & Stay, 2008; Leon et al., 2017); (ii) stay up with their competition (Alba & Stay, 2008; Coulter & Roggeveen, 2012; Leung et al., 2015); (iii) attract potential customers (Alba & Stay, 2008; Leung et al., 2015; Palmer & Koenig-Lewis, 2009), and (iv) virally spread brand image and advertisement (Alba & Stay, 2008; Inside CRM, 2009; Stankov et al., 2010). Synthesizing, the research developed so far focus on social network’s users and effects, and neglect the internal processes; they emphasize who uses social networks and why, and oversight what happens within the boundaries of the social networks. They disregard the fact that people are involved in using social network sites and each person is a sum of attitudes, emotions, and feelings. In other words, once they become part of an online community, they post or comment on a page, they are not just sharing information but they are exposing their emotions, feelings, and beliefs. At the same time, once they access the page of another user or an organization they expose themselves to an “emotional contamination”; they get in touch with the emotional content of the post, process it based on their internal cognitive structure and then react. The emotional connection is even more important within the educational framework due to the fact that higher education institutions aim to foster individuals’ intellectual and personal development. This process of development requires the creation of an environment in which the future human resources feel that they are psychologically safe; this feeling must be endured within and behind the classroom boundaries since learning occurs in both real and virtual environments. If several studies have been conducted about students’ psychological safety in the classroom (Baeva & Bordovskaia, 2015; Williams, Woodson & Wallace, 2016; Zinsser & Zinsser, 2016), not the same can be claimed about the online educational communities. So, since this issue is not yet addressed in the specialized literature, the current paper aims to fill this gap by analyzing the emotional flows that cross an online social network of a higher education institution. Research methodology The research concentrates on describing how emotions are shared on the public online social network of a business faculty. In other words, it aims to: (i) identify the relationships established among the members of an educational online community; (ii) analyze the emotional content of the faculty’s posts and the comments of the online community’s members; (iii) determine the type of emotions that are shared on the Facebook page of a business faculty; and (iv) analyze how the emotional flows cross the public online social network of a business faculty.

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Since the focus is on answering to “how” questions, a case study strategy is employed; this is the most appropriate research strategy for analyzing a real phenomenon within its natural framework (Järvensivu & Törnroos, 2010; Yin, 2014). Furthermore, due to the fact that the purpose is exploratory and the research focuses on determining what is possible rather than what is common (Antai & Olson, 2013; Mook, 1983), a single case study is undertaken. As Eisenhardt and Graebner (2007, p.30) state “single cases can enable the creation of more complicated theories than multiple cases because single-case researchers can fit their theory exactly to the many details of a particular case”. Against this backdrop, the current article aims to analyze the type of emotions and the emotional flows that cross the Facebook page of the Faculty of Management (FM) from the National University of Political Studies and Administration, Bucharest, Romania. The posts and comments posted on faculty’s Facebook page, during the academic year 2016 – 2017 (from October 1, 2016, until June 30, 2017), are extracted. Thus, 456 posts and 118 comments are analyzed based on a content analysis. Both posts and comments are processed by using social network analysis and sentiment analysis; the former is used for emphasizing the relationships established between FM and the members of its online community while the latter brings forward the type of emotions that are disseminated within the FM online community. Results: Sharing emotions on faculty’s Facebook page Analyzing the messages and comments posted on FM’s Facebook page, during the academic year 2016 – 2017, it can be noticed that FM’s online community is highly active (Figure 1). More than 3.739 connections are developed and organized around 62 topics.

Figure 1. The general relationships established among the posts and comments published on FM’s Facebook page, during the academic year 2016 – 2017

If members’ appreciation is taken into account, a top ten list of topics can be extracted (Table 1). All these posts are made by FM and although they aim to share mainly good

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news (students’ career achievement, faculty’s events, and organizational progress), their emotional content ranges from negative to positive. For example, the post regarding the progress made by FM in October 2016 had a negative emotional content despite the fact that it mainly celebrated an institutional development; it basically brought forward the fact that: (i) several entrepreneurs were invited to a master program; (ii) an international conference was organized; (iii) a lecture was given by an international partner; (iv) a new issue of faculty’s international journal was launched; (v) two new courses were introduced at the master programs; and (vi) a workshop on digital marketing was performed. Each and everyone of these represents a milestone in the development of any business school. However, the message was constructed in such a manner that its overall emotional impact was negative. This result appeared due to the excessive use of words with neutral (like, “numbers”, “talk” etc.) and negative background (such as, “a/ an”, “single” etc.). Table 1. The most appreciated posts that appeared on FM’s Facebook page, based on the number of likes they received Sentiment Number Emotional Topic Analysis of likes content Score Faculty Open Days 780 0.981 Positive Selfie from the future contest 517 1.418 Positive Secret Santa. Christmas party! 349 0.409 Positive Promoting an international conference: 264 0.484 Positive Entrepreneurs. Entrepreneurship. Challenges and Opportunities in the 21st Century October 2016 month review 183 -0.699 Negative New master programs launching 177 0.000 Neutral Students’ career achievements 168 0.300 Positive Freshman career achievements 165 0.000 Neutral Graduation Day 132 0.500 Positive Culture Mix launching 114 0.400 Positive On the other hand, it must be taken into consideration the fact that most of the messages posted on FM’s Facebook page do not remain there as if they were distributed into a private community; on the contrary, they are shared outside FM’s community boundaries. Against this background, the posts intensively shared outside FM’s community are analyzed, and as it can be noticed from Table 2, most of them have a positive emotional content and focus on the opportunities students have for their personal and professional development. Nevertheless, FM’s online community should support members’ connections and interactions; its members should act as both receivers and generators. They should assimilate the emotions and content distributed by FM but they should also express their own ideas, thoughts, and emotions. In line with this, the interactions established among FM and its members are brought forward (Figure 2). First of all, it must be noticed that, from a total of 3200 members, only 60 persons actually interact with FM and with one another by posting their comments, thoughts, and ideas. As a consequence, network’s diameter equals 3 and the average path length is 1.821 (Table 3); the former emphasizes the largest distance between two members while the latter

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highlight the average distance between the two. Within this framework, it may be stated that information circulates easily from FM to its members; in the worst case scenario, in order for the information shared by FM to get to its final receiver, it must pass only through one intermediate member. Table 2. The posts that appeared on FM’s Facebook page and were highly shared by community’s members Topic Number Sentiment Emotional of Analysis content shares Score Faculty Open Days 22 0.981 Positive Selfie from the future contest 17 1.418 Positive Events 13 0.000 Neutral Students’ projects 11 0.600 Positive Secret Santa. Christmas party! 11 0.409 Positive Students’ academic conference 10 0.000 Neutral Promoting the master programs 10 0.000 Neutral Round table: Private sector perspective: new 10 0.227 Neutral business models in the digital age Workshop on digital marketing 10 0.000 Positive

Figure 2. The relationships established among the members of the FM community, based on their posts and comments

Second of all, FM remains the main emotional and content generator while its members act almost exclusively as receivers; network density is 0.026 and the average clustering coefficient equals 0.029. Therefore, it may be argued that FM’s online

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community is a “small world” in which only 2.60% of the potential connections are established. Table 3. Network’s characteristics Characteristic Value Average Degree 3.115 Average Path length 1.821 Diameter 3.000 Density 0.026 Average Clustering Coefficient 0.029 In this “small world” represented by the active part of FM’s online community, neutral, negative and positive emotions are shared. Except for FM and four other members who share all three types of emotions (neutral, negative and positive) through their posts and comments, all the other members maintain constant the emotional content of their posts and comments (Figure 3); they are either distributing neutral or positive emotions. Still, a special attention should be given to the emotional flows that appear on the left side of Figure 3; if there is a high similarity between the emotions distributed by FM and those shared by the members who are directly linked to it, not the same happens with the “satellite” member. He/ She is a member of FM’s online community but he/ she does not comment on FM posts; he/ she is among the ones who use FM’s online community in order to interact with other members and not with FM. Regarding the emotional content of his/her posts, it can be remarked that both the received and distributed emotional flows are positive.

Figure 3. The emotional flows that cross FM’s Facebook page

Synthesizing, FM’s Facebook page represents a safe environment in which emotions flow from one member to another. However, when it comes to emotional content, FM remains the main generator while its members act as receivers. Only 60 members

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(1.87% from the total community) use the platform to express their emotions, ideas, and thoughts, and only 18 persons (0.56% of the total community) interact with other members through FM’s Facebook page. Besides, most of them chose to distribute neutral emotions. Conclusions and further research directions The research concentrated on describing how emotions were shared on FM’s Facebook page, during the academic year 2016 – 2017. It basically aimed to: (i) identify the relationships established among the members of FM’s online community; (ii) analyze the emotional content of the faculty’s posts and comments; (iii) determine the type of emotions that are shared on FM’s Facebook page; and (iv) analyze how the emotional flows cross FM’s online community. The results proved that FM’s Facebook page serves as a tool for the faculty to share its achievement and events, and although it supports members’ interactions, these do not occur very often. From a number of 3200 members, only 60 of them used FM’s Facebook page to share their ideas and thoughts through posts and comments and only 18 of them commented on other members’ posts. Therefore, it can be argued that FM’s Facebook page acts more like a communication tool than as a social network that supports knowledge sharing among community’s members. Second of all, it had been noticed that all the posts and comments have an emotional content. The emotional content of FM’s posts and comments range from negative to positive while the members distribute mainly neutral emotions. Still, FM remains the main generator while its members act as receivers. These results have both theoretical and practical implications. On the one hand, it links the social network theories with the ones from the educational area and knowledge management field. On the other hand, it offers a tool for the educational institution management and it sheds light on the emotional content of posts and comments. As it had been demonstrated what should have been a positive post turned to have a negative emotional impact due to the excessive use of words like “only”, “a/an” etc.; although these aimed to emphasize the unique character of the event, their emotional background is negative since it is easily linked with loneliness. Starting from these, further research directions are identified, namely: (i) to analyze how emotions flow outside the online community boundaries; (ii) to determine how does the emotional content of members’ posts and comments influence their behavior; and (iii) to bring forward how does the social media activity of a business school affect its visibility and performance. References Ajjan, H., & Hartshorne, R. (2008). Investigating faculty decisions to adopt Web 2.0 technologies: Theory and empirical tests. The Internet and Higher Education, 11(2), 71-80.

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Alba, J., & Stay, J. (2008). I’m on Facebook – now what? How to get personal, business, and professional value from Facebook. Silicon Valley: HappyAbout.info. Antai, I., & Olson, H. (2013). Interaction: a new focus for supply chain vs supply chain competition. International Journal of Physical Distribution & Logistics Management, 43(7), 511-528. Baek, K., Holton, A., Harp, D., & Yaschur, C. (2011). The links that bind: Uncovering novel motivations for linking on Facebook. Computers in Human Behavior, 27(6), 2243-2248. Baeva, I.A., & Bordovskaia, N.V. (2015). The psychological safety of the educational environment and the psychological well-being of Russian secondary school pupils and teachers. Psychology in Russia: State of the Art, 8(1), 86-99. Coulter, K.S., & Roggeveen, A. (2012). Like it or not: consumer responses to word-ofmouth communication in on-line social networks. Management Research Review, 35(9), 878-899. Eisenhardt, K.M., & Graebner, M.E. (2007). Theory building from cases: opportunities and challenges. Academy of Management Journal, 50(1), 25-32. Glynn, C.J., Huge, M.E., & Hoffman, L.H. (2012). All the news that’s fit to post: A profile of news use on social networking sites. Computers in Human Behavior, 28(1), 113-119. Graham, J., Faix, A., & Hartman, L. (2009). Crashing the Facebook party. Library Review, 58(3), 228-236. Hollenbeck, C.R., & Kaikati, A.M. (2012). Consumers’ use of brands to reflect their actual and ideal selves on Facebook. International Journal of Research in Marketing, 29(4), 395-405. Inside CRM (2009). The Facebook marketing toolbox: 100 tools and tips to tap the Facebook customer base. Retrieved from http://it.toolbox.com/blogs/insidecrm/the-facebook-marketing-toolbox-100tools-and-tips-to-tap-the-facebook-customer-base-53513. Järvensivu, T., & Törnroos, J.A. (2010). Case study research with moderate constructionism: conceptualization and practical illustration. Industrial Marketing Management, 39(1), 100-108. Joo, V.J., Joung, S., Lim, E., & Lee, M. (2015). Analysis of factors influencing Facebook persistence. International Journal of Innovation, Management and Technology, 6(2), 105-108. Junco, R. (2012). The relationship between frequency of Facebook use, participation in Facebook activities and student enjoyment. Computers & Education, 58(1), 162171. Lee, C.S., & Ma, L. (2012). News sharing in social media: The effect of gratifications and prior experience. Computers in Human Behavior, 28(2), 331-339. Leon, R.D., & Dămășaru, C. (2016). TripAdvisor: a virtual community of practice. In Oprean, C. & Ţîţu, M.A. (Eds.). Proceeding of the 2nd International Scientific Conference SAMRO 2016. News, challenges and trends in management of knowledge-based organizations (pp.216-223). Bucharest: Tehnica. Leon, R.D., Rodríguez-Rodríguez, R., Gómez-Gasquet, P., & Mula, J. (2017). Social network analysis: A tool for evaluating and predicting future knowledge flows from an insurance organization. Technological Forecasting & Social Change, 114(1), 103-118. Leung, X.Y., & Baloglu, S. (2015). Hotel Facebook marketing: an integrated model. Worldwide Hospitality and Tourism Themes, 7(3), 266-282.

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Mazman, S.G., & Usluel, Y.K. (2010). Modelling educational usage of Facebook. Computers & Education, 55(2), 444-453. McAndrew, F.T., & Jeong, H.S. (2012). Who does what on Facebook? Age, sex, and relationships status as predictors of Facebook use. Computers in Human Behavior, 28(6), 2359-2365. McCole, D., & Rivera, J. (2014). Integrating Facebook into College Classroom: Student Perceptions and Recommendations for Faculty. NACTA Journal, 58(3), 244-249. Mook, D.G. (1983). In defense of external invalidity. American Psychologist, 38(4), 379387. Moran, M., Seaman, J., & Tinti-Kane, H. (2011). Teaching, learning and sharing: How today’s higher education faculty use social media. Boston, MA: Pearson Learning Solutions. Nel, J., & Halaszovich, T. (2015). The influence of satisfaction on Facebook fan page ‘Like’ intention. Management Dynamics, 24(1), 26-40. Palmer, A., & Koenig-Lewis, N. (2009). An experimental, social network-based approach to direct marketing. Direct Marketing: An International Journal, 3(3), 162-176. Pempek, T., Yermolayeva, Y., & Calvert, S. (2009). College students’ social networking experiences on Facebook. Journal of Applied Developmental Psychology, 30(3), 227-238. Roblyer, M.D., et al. (2010). Findings on Facebook in higher education: A comparison of college faculty and student uses and perceptions of social networking sites. The Internet and Higher Education, 13(3), 134-140. Shoenberger, H., & Tandoc, E. (2014). Understanding Facebook use through explicit and implicit measures of attitudes and motivations. Online Journal of Communication and Media Technologies, 4(1), 217-244. Smith, S.D., & Caruso, J.B. (2010). Research study. ECAR study of undergraduate students and information technology. Boulder, CO: EDU-CAUSE Center for Applied Research. Smock, A.D., Ellison, N.B., Lampe, C., & Wohn, D.Y. (2011). Facebook as a toolkit: A uses and gratification approach to unbundling feature use. Computers in Human Behavior, 27(6), 2322-2329. Stankov, U., Lazic, L., & Dragicivic, V. (2010). The extent of use of basic Facebook usergenerated content by the national tourism organizations in Europe. European Journal of Tourism Research, 3(2), 105-113. Wang, Y., Yu, Q., & Fesennaier, D. (2002). Defining the virtual tourist community: Implications for tourism marketing. Tourism Management, 23(4), 407-417. Williams, J.D., Woodson, A.N., & Wallace, T.L. (2016). "Can We Say the N-word?": Exploring Psychological Safety During Race Talk. Research in Human Development, 13(1), 15-31. Xiang, Z., & Gretzel, U. (2009). Role of social media in online travel information search. Tourism Management, 31(2), 179-188. Yin, R.K. (2014). Case studies: design and methods. Thousand Oaks, CA: Sage. Zinsser, K.M., & Zinsser, A. (2016). Two Case Studies of Preschool Psychosocial Safety Climates. Research in Human Development, 13(1), 49-64.

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MOBILE APPLICATIONS: FROM BUSINESS TO SOCIAL IMPLICATION Florina PINZARU National University of Political Studies and Public Administration 30A Expozitiei Blvd., Sector 1, 012104 Bucharest, RO [email protected] Alexandra ZBUCHEA National University of Political Studies and Public Administration 30A Expozitiei Blvd., Sector 1, 012104 Bucharest, RO [email protected] Abstract. Mobile applications (apps) seem to be the new Holy Grail of business, especially for marketing, but not only. With the technology development, new features become available almost on daily basis, and it is common to discuss, at least in the professional environment, about how firms can make use of the mobile apps to conduct market research, to redefine more sophisticated segmentation criteria, to promote new services, to increase the loyalty level of customers or to involve at social level. Almost all companies wanting to be perceived as modern and fresh or preoccupied with the value delivered to the consumers, propose their own apps or are listed on existing apps, platforms with new business opportunities. In this empirical exploratory paper, based on literature insights, interviews with managers, and case studies, we summarize the major challenges for companies when launching their own apps, their limits, and the surprising mix between business and social innovation. Keywords: mobile applications; digital business models; digitalization; digital marketing; social innovation. Introduction Paradoxically, mobile computing is not a new research topic, being discussed technically since the 1990s (Forman & Zahorjan, 1994), but it became a mainstream topic with the commercial development of smartphones and tablets. The mobile applications’ market is at present dominated by the social and entertainment apps, developed both by major IT corporations such as Google, Apple, Facebook or by independent developers, as new businesses or new services proposed by existing companies. Some of the applications proved such a success that they have been bought by apparent non-direct competitors, to strengthen these ones’ market positions. It is the case of WhatsApp, purchased by Facebook and which became the 3rd social media application used worldwide in 2015 (Statista, 2015a). Technically speaking, there are three types of mobile applications: native apps, mobile web apps, and hybrid apps. Native apps are created especially for mobile

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devices, being independent of the Internet browsers and installed only on application stores, such as Google Play, Apple App Store or Microsoft Store. The native apps allow users to take advantage of full characteristics of the mobile devices, such as geolocation, lists of contacts, camera, gestures and so one. The web apps are mobile websites looking like native apps, being programmed in HTML5 language, but not installed directly on mobile devices and allowing access directly from the Internet browsers. The hybrid apps are part native, part web based apps, being installed on app stores, but has also an Internet extension programmed in HTML5. Companies used to develop hybrid apps both for facilitating mobile Internet traffic of customers and for converting part of the traffic towards app stores to increase the number of apps downloads. Nevertheless, with the current dominant proportion of individuals who spend their online time mostly on mobile devices – 71% for USA and China or 91% for Indonesia in 2017 (Chaffey, 2017) and the decrease of costs for native apps, these ones tend to become dominant. Apps’ development, favored by the rise of the mobile Internet Approx. 3 billion Internet users were reported globally for May 2015, and the global Internet penetration is expected to reach 71% by 2019, while 192 countries report 3G and/or 4G networks, covering almost 50% of the worldwide population (Internet Society Global Internet Report, 2015). These data show the amazing mobile Internet adoption ratio. However, its history is very recent, considering that the first smartphone, iPhone, has been launched only in 2007. Since 2007, smartphones and other new smart devices (tablets, smart watches etc.) connected to the Internet, allowed users instant connectivity and full mobility as never. More than a technical revolution, the rise of the smart devices (also called generically as ‘the third screen’, following the TV and the PC) is a behavioral one, changing profoundly the consumers’ behavior: the untethered consumers (Martin, 2011) are the individuals always connected, consuming content especially from smartphones, relying on their peers for recommendations, and not on classic advertising. The individuals’ changing behavior could be understood a direct result of the smart devices’ adoption and has been facilitated by very specific technical functionalities unavailable on previous computers (desktops and laptops), e.g. sensors to measure environment and motion. Even if mobile browsers are getting increasingly performant in accessing some specific smart devices functionalities (as camera or GPS), the full technical possibilities of smart devices can be developed, at least for now, mostly through native apps (Internet Society Global Internet Report, 2015). This could be one of the facts that influenced the launch of more than 1 million apps reported for 2015 (idem). At the same time, the increasing adoption of mobile Internet changes the consumers’ expectances on instant services, available on the go, and with short and clear information. Even more, it empowers individuals ‘to voice their beliefs and preferences continuously and instantaneously’ (Lin et al., 2014), which puts supplementary pressure on customer relationship management processes of firms.

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People with tablets and smartphones tend to use the Internet less and less from specific web browsers (Edwards, 2014). Smartphones are used worldwide to access e-mail (72%), social media platforms (67%) and online banking (36%), to watch movies and videos (36%), to download files (31%), to access instant messaging and video calling (41%), for online gaming (31%) etc. (Statista, 2016). Mobile Internet is now almost synonym to apps: as of March 2017, there were some 2.8 million apps in Google Play alone. The Apple Store, on the other hand, had gone from 800 apps the month of its launch in July 2008 to 2.2 million in January 2017. However, 2016 data show that many downloaded apps are not used more than once in the first six months. The most popular Apple App Store category is gaming with about 25 percent of available apps belonging to this category (Statista, 2017). The continuous development of apps launched worldwide is pushed therefore by the usage of the mobile Internet, as well as by the specific IT development costs’ decrease. Even if statistics show that consumers tend to download, to keep and to use only a limited number of apps companies launch continuously their own apps for smartphones and tablets. Mobile apps for business: insights from empirical research The amazing development of the mobile applications’ market is favored now, as we’ve seen above, by technology, decreased costs and major changes in consumers’ behavior. Applications generate revenue in several different ways, such as charging users a small amount of money for the use, charging for access to premium features of an otherwise free app, simply selling ad space or charging fees to services providers listed on the app (Statista, 2017). Apps are real business opportunities when considered as marketing instruments or platforms that cover specific parts of markets. As marketing instruments, apps are developed and owned by the company itself. As platforms favoring coopetition, apps are usually developed by one company, and it becomes profitable only when both services and products’ providers and consumers use it more and more as. It is the case of Airbnb, Uber and other similar peer-to-peer platforms, apps-based, that challenge traditional business models and markets (Mackin, 2015; Lunden, 2016). In Romania, there were estimations of only 6% of companies using in 2015 mobile applications for business (Yoda.ro, 2015), with a very limited number of firms using them for increasing their efficiency by real-time monitoring of assets, employees, and processes. As technology becomes even more accessible, important changes in this aspect can be expected, by surpassing the sole marketing purposes of using apps and by integrating Internet of Things for reading data and signaling activities’ delays, especially for companies with numerous subsidiaries or geographically dispersed teams and projects. Aiming to understand if apps are at present a valuable opportunity for businesses, beyond the successful case studies present already in the business media and the

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academic literature, we’ve conducted an empirical research in 2017, interviewbased with entrepreneurs from Romania. Even if limited by the panel of respondents (two multinational corporations’ managers and five entrepreneurs, owners of SMEs, Bucharest-based), some important insights should be considered as follows. For managers of multinational corporations, with corporate objectives and budgets, a mobile app is mainly a marketing instrument. Therefore, apps are a way to create relations with customers, preferably emotional: "In my opinion, the main role of an app is to construct brand engagement. When someone downloads, and install an app, and then use it, an unconscious dependence is created, which could become even emotional afterwards" (marketing manager, male, 35 y.o., multinational energy corporation). Used for marketing purposes, mobile applications are a leverage for the brand communication, and an effective way to collect instantaneous data on consumers and to be in contact with them: „ In our case, we use apps mainly for collecting consumers’ data, to send them commercial notices with lower advertising costs and to create a continuous relation with the brand" (communications middle-level manager, female, 36 y.o., FMCG corporation). Being under a constant financial pressure, SME’s entrepreneurs tend to see mobile applications as cash cows. Therefore, they consider that apps shouldn’t be very expensive: "I wanted to develop my own app for food home delivery, but I found out that it could cost me up to 50.000 euro, plus annual maintenance. I gave up and decided to list my restaurant on two existing integrative apps of food delivery, along with other restaurants and to pay a percentage for any order (to the app owners). It is more efficient this way: I don’t make a lot of money, but I gain both visibility and new customers." (restaurant owner, male, 44 y.o). The financial issue is a real problem for some SMEs entrepreneurs, especially when their customers are still offline buyers: "I would invest in my own app in the future, but my current clients still buy our products mainly in the shop and just occasionally online: the development costs of our online shop on the website are still not covered, one year after its launch." (concept store owner, female, 42 y.o.). When the business itself is app-based, other issues appear, mainly at the logistics and human resources’ levels: "Our company’s objective is to be a sort of Romanian Uber for home care. To create the app itself and to promote it was not as difficult as to recruit serious plumbers, painters, and carpenters for providing the services listed on the app." (corporate entrepreneur of a corporate start-up in energy and home care services, male, 28 y.o.). Existing apps remain, afterwards, a solution for SME’s to gain visibility and new customers when listed on their platforms: " There are already, in Bucharest, firms with more than 5 cars acting for Uber: this is just another form of entrepreneurship. Moreover, these firms don’t need marketing, as they relate only to Ubers ranking system – and it works." (training company entrepreneur providing mainly consultancy services on mobile marketing, male, 27 y.o.). These insights, even limited, confirm that there is a trend in developing applications, as statistics show, both for marketing and market penetration objectives (or to delay their development because of financial issues), but still not for business efficiency development. However, mobile applications are not only

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about costs and profits – sometimes, social innovation is created through apps and we will present furthermore two relevant case studies. Social innovations though apps. Case studies: Uber and WowApp Uber is one of the best well-known apps of the sharing economy. Uber has become famous world-wide due to its new business model, providing convenient and safe taxi services in many countries. This new business model, its reputation, the quality of services proposed to the customers, its competitive advantage due to less regulation, as well as the diversification of services offered have made Uber one of the most popular companies and apps. Nevertheless, in 2016 the company registered a financial loss. Moreover, scandals have been lately associated with the company and critical investigation emerged from various perspectives: legal, economic, social etc. (see, for instance, Fowler, 2017; Rogers, 2015; Wong, 2017). Nevertheless, Uber remains a relevant example for the new digital business models, and the problems associated with this approach of business should be more carefully considered (Geradin, 2017; Wong, 2017). Part of the reputation of the company is associated with its social activities. Although getting involved and giving back to the society (corporate social responsibility) is not part of the company’s backbone, Uber regularly and quite systematically develops social initiatives, presented mainly in charitable campaigns. We mention only some of the most popular such campaigns: Uber – No Kid Hungry or Uber – Ride for a Cause in the States, Uber & Volkswagen – Charity drive with stars in Malaysia, or Uber Kittens in US and Romania. These are only some examples, which show in many cases the “adoption” of causes from the States to some other countries. Investigating the charitable campaigns of Uber, we observe the following strategy: in most cases, Uber considers a celebrity endorsement scheme. Either the partner is a strong organization, such as Red Cross the Australia, SMURD in Romania, various known NGOs in the US, or various personalities are involved, as in the case of No Kid Hungry or Charity with stars’ campaigns. Therefore, it seems that an economic goal drives Uber. This hypothesis is strengthened by the absence of an official CSR strategy, as well as by the inclusion of all the charitable activities in the ‘promotions’ section of the company’s website and app. Nevertheless, Uber has a long-term charitable involvement, called Uber giving – active in 65 cities and 31 countries around the world. The promise behind this campaign developed around Christmas is that the company gives back to the community. When charitable campaigns are developed in Muslim countries, the period chosen is Ramadan. In addition, Uber promotes as a social contribution to its communities the positive impact it has. Uber presents how the company is “helping cities thrive”, by impacting positively the cities where it operates: more business opportunities, less drunk drivers, the larger area covered by transportation, stronger economies, and sustainable cities. Sharing is also supported by Uber using UberPOOL, contributing to more sustainable transportation. Uber would be also part of some planning and

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better public management actions, to improve the transportation in the cities (CityMetric, 2015). The impact of Uber is both positively (Feeney, 2015; Geradin, 2017), as well as negatively evaluated (Moon, 2015; Rogers, 2015). A relevant social initiative of Uber could be the Button for Good (a charity option in the app, for every ride), announced at the TechCrunch’s Hackathon at Disrupt New York in the beginning of 2017 (Roof, 2017). Up to now, this button has not been integrated into the app. If and when it will happen, might mark a significant increase in the charitable contribution facilitated by Uber, since the buttontechnology already included in the app for other purposes ensures an increased interaction within the app and it has been successful in increasing the traffic and the usage of the app (Uber Developers, 2017). A successful social initiative as such could become an example of good practice to be implemented on other apps. If Uber integrates charity buttons directly linking its commercial activity to charity would not be the first company doing this, but it would be very visible at international level, due to its worldwide coverage. For instance, Ebates has such option, as well as various charity apps – some of them developed by businesses, such as Donate a Photo by Johnson and Johnson. A unique app is WowApp, an instantaneous communication peer-to-peer application, which shares money with the users, via an interesting mechanism that we will briefly present further. WowApp users accumulate money from all their activity associated with the app – discussions with friends, playing the games offered by the app, shopping though the app etc. A percentage of the gains are automatically redirected by the app towards an NGO chosen by the user. The rest of the money could be totally or partially withdrawn by the user or donated to NGOs. The sums accumulated are generally small, and since withdrawal might generate additional costs, people might be interested to better donate all the money. Both business and social involvement are therefore developed via WowApp: more than 2000 charities around the world are associated with the app. The sums accumulated to each activity are not significant for each user and therefore, the impact of the system is highly dependent on the number of users and on how intensely they use the app. Up to the moment of our research, WowApp has been downloaded by more than 1 million people in the world, but probably not all of them use it regularly. This influences the funds donated to charities. For instance, in Romania, in less than a year, the donations reached 50k USD. This relatively low impact could be related to the resistance to change, the non-interest of users in charity and the skepticism which determine people not to use the app. Conclusions and discussions Even if statistics show that consumers tend to download, to keep and to use only a limited number of apps, from which a large part are social or entertainment apps, companies continue to invest in developing apps, mainly for marketing reasons, such as a closer connection with customers, deeper understanding of consumers, increased loyalty and, sometimes, more efficient promotion for new services or products. Social involvement through apps is still scarce, with some notable

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exceptions as the charity campaigns of Uber or trials of differentiation on the apps’ market, as WowApp. For apps’ owners, these platforms are profitable if they support the achievement of specific marketing objectives or, in the case of open apps, if there is an important number of simultaneous users of the apps’ services, and therefore, advertising could be sold on the app or listing fees of services’ providers could be taken into consideration. The current predominant use of mobile Internet and its consequences on the consumers’ behavior put pressure on brands and companies to use apps, but to closely monitor their performances. Adding the relationship between the quality of a customer’s experience on the app and his/her opinion of the brand (Salz, 2014), a potential problem for SME’s struggling with an initial investment in potential apps’ development and in afterwards maintenance and updates can be observed. The insights from the interviews and the two case studies presented above prove that apps could be connected to both new and old business models, contributing to the achievement of both business and social goals, with a specific difference of approach between large companies and SMEs (marketing orientation vs. business – financial orientation). However, although they are largely used and are a familiar instrument, used daily, the use of apps in business strategies might be overevaluated in terms of benefits. Therefore, even if some apps have redefined markets by their impact, companies investing in apps must integrate them in current business strategies and carefully evaluate the associated costs and risks. On the Romanian market, individual apps are mainly used for brand engagement and for gathering information about consumers and for direct communication with them, but business efficiency increasing apps can be expected to be adopted in the future by more firms. Compared to owned apps by individual brands, collaborative platforms apps-based are more suitable to generate direct sales. Therefore, businesses look for opportunities to develop profitable apps, but the ROI indicator is considered in some cases not satisfactory. As for the social involvement of apps users, despite some singular mechanism as the one of WowApp or some campaigns as the ones of Uber, results of such initiatives are modest, being partially explained by the people’s lack of education and the use of inappropriate positioning strategies and tactics. A direct product of the social economy, mobile apps can allow more exposure for small firms without important financial investments, can favor entrepreneurial activities, but the social impact remains limited, as well as the social innovation largely diffused. References Chaffey, D. (2017). Mobile Marketing Statistics Compilation. Smart Insights. Retrieved from http://www.smartinsights.com/mobile-marketing/mobilemarketing-analytics/mobile-marketing-statistics/. CityMetric (2015). Uber is sharing its data to help city governments improve their traffic management. Retrieved from http://www.citymetric.com/transport/uber-sharing-its-data-help-citygovernments-improve-their-traffic-management-640?page=67.

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Donate a Photo - http://www.donateaphoto.com. Edwards, J. (2014). Mobile apps are killing the free web, handing a censored duopoly to Google and Apple. Business Insider. Retrieved from http://www.businessinsider.com/mobile-web-vs-app-usage-statistics2014-4. Feeney, M., & Companies Uber, R. (2015). Is Ridesharing Safe?. Retrieved from http://www.memphistn.gov/Portals/0/pdf_forms/CATO.pdf. Forman, G.H., & Zahorjan, J. (1994). The challenges of mobile computing. Computer, 27(4), 38-47. Fowler, S.J. (2017). Reflecting on One Very, Very Strange Year at Uber. Retrieved from https://www.susanjfowler.com/blog/2017/2/19/reflecting-on-onevery-strange-year-at-uber. Geradin, D. (March 13, 2017). For a Facts-Based Analysis of Uber's Activities in the EU: Addressing Some Misconceptions. TILEC Discussion Paper No. 2017-019. Retrieved from SSRN: https://ssrn.com/abstract=2932098. Glover, A. (June 4, 2017). 'Absolutely sickening': Social media erupts as Uber's prices rocket in aftermath of London terror attack - but company says it immediately removed 'automatic increase' as horror unfolded. Daily Mail. Retrieved from http://www.dailymail.co.uk/news/article-4570020/Uberslammed-price-surges-London-terror-attack.html. Internet Society (2015). Internet Society Global Internet Report 2015. Retrieved from http://www.internetsociety.org/globalinternetreport/assets/download/IS_ web.pdf. Lin, J., Wang, B., Wang, N., & Lu, Y. (2014). Understanding the evolution of consumer trust in mobile commerce: a longitudinal study. Information Technology and Management, 15(1), 37-49. Lunden, I. (2016). Wallapop and LetGo, two Craigslist rivals, merge to take on the U.S. market, raise $100M more. Retrieved from https://techcrunch.com/2016/05/10/wallapop-and-letgo-two-craigslistrivals-plan-merger-to-take-on-the-u-s-market/. Mackin, S. (2015). Could Wallapop Be Barcelona’s First Billion Dollar Startup? Retrieved from http://www.barcinno.com/could-wallapop-be-barcelonasfirst-billion-dollar-startup/. Martin, C. (2011). The third screen: marketing to your customers in a world gone mobile. Boston: Nicholas Brealey. Moon, Y. (2015). Uber: Changing the Way the World Moves. Harvard Business School, Case, 9-316, 101-110. Nielsen (2014). An era of growth: the cross-platform report Q4 2013. Available online at http://www.nielsen.com/us/en/insights/reports/2014/an-era-ofgrowth-the-cross-platform-report.html. Rogers, B. (2015). The social costs of Uber. University of Chicago Law Review Dialogue, 82(1), 85. Roof, K. (May 14, 2017). Buttons for Good donates to charity every time you take an Uber. Tech Cruch. Retrieved from https://techcrunch.com/2017/05/14/buttons-for-good-donates-to-charityevery-time-you-take-an-uber/. Salz, P. A. (2014). Monitoring mobile app performance. Journal of Direct, Data and Digital Marketing Practice, 15(3), 219-221.

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Statista (2015). http://www.statista.com/statistics/272014/global-socialnetworks-ranked-by-number-of-users/. Statista (2016). https://www.statista.com/statistics/249761/most-popularactivities-carried-out-on-mobile-internet-devices/. Statista (2017). https://www.statista.com/statistics/276623/number-of-appsavailable-in-leading-app-stores/. Uber – No Kid Hungry: https://newsroom.uber.com/uber-no-kid-hungry-workingtogether-to-drive-out-childhood-hunger/; https://www.uber.com/blog/uber-no-kid-hungry-working-together-todrive-out-childhood-hunger-2. Uber – Ride for a Cause: https://www.uber.com/blog/new-york-city/givemeaning-to-your-commute-ride-for-a-cause/ (in the States); https://newsroom.uber.com/us-pennsylvania/give-meaning-to-yourcommute-ride-for-a-cause-2/ (in the State); https://newsroom.uber.com/us-idaho/give-meaning-to-your-commuteride-for-a-cause-boise/ (in the States); https://www.uber.com/enEG/blog/ride-for-a-cause/ (in Egipt); https://www.uber.com/enPK/blog/ramadan-ride-cause/ (in Pakistan); etc. Uber & Smurd. Retrieved from https://newsroom.uber.com/romania/ubersmurd/ (in Romania). Uber & Volkswagen – Charity drive with stars: https://www.uber.com/enMY/blog/kuala-lumpur/uber-volkswagen-on-demand-charity-drive-withthe-stars/. Uber Developers (January 26, 2017). Button gives developers a way to offer Uber rides with just a few lines of code. Available online at https://uberdevelopers.news/button-gives-developers-a-way-to-offer-uber-rides-withjust-a-few-lines-of-code-bf4fa2d0e772. Uber Giving - https://www.uber.com/promo/ubergiving/. Uber Helping Cities - https://www.uber.com/en-BG/helping-cities/. UberKittens: https://newsroom.uber.com/uberkittens-are-back/ (50 cities around the world); https://www.uber.com/ro/blog/uberkittens-sau-15-minute-desmotoceala-la-comanda-cu-un-pisoi/ (in Romania). UberPuppies. Retrieved from https://www.uber.com/blog/chicago/puppybowl2016/ (in the States). Wong, J.C. (March 28, 2017). Uber diversity report paints overwhelmingly white, male picture. The Guardian. Retrieved from https://www.theguardian.com/technology/2017/mar/28/uber-diversityreport-white-male-women-minorities. WowApp - https://www.wowapp.com/. Yoda.ro (2015). Doar 5% din companiile din România folosesc aplicații mobile pentru afaceri, față de 60% afară. "Pierdem un val tehnologic". Retrieved from http://www.yoda.ro/online/doar-5-din-companiile-din-romaniafolosesc-aplicatii-pentru-afaceri-fata-de-60-in-strainatate-pierdem.html.

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POST-CRISIS RESPONSE STRATEGIES: A COMBINED MODEL TO MANAGE BRAND CRISES Chiara TAMANINI European Master in Business Studies 5 Via Inama, 38122 Trento, IT [email protected] Ralf WAGNER University of Kassel 1 Mönchebergstraße, 34125 Kassel, DE [email protected] Abstract. Brand crises negatively affect customers’ perception of the brand’s ability to deliver expected functional or symbolic benefits. Post-crisis response strategies should be implemented to restore brand trust and diminish the effect of reputational threat, since these strategies act as critical determinants of the actual impact of the crisis on consumers’ evaluations and consequently on repurchase intentions. A categorization of the nature of the crisis, distinguishing between ‘performance-related’ and ‘values-related’ — based on a deep understanding of the affected benefits — may serve as a discriminator to select the appropriate response strategy. A contingency-based view suggests that the effectiveness of a crisis response depends on various contingent factors, which may mediate and moderate consumers’ post-crisis brand evaluations. Thus, moderators such as brand identification and positive brand reputation (e.g. for CSR activities) may be enhanced and exploited to reduce the level of accommodation of the strategy and to maximize efficiency. The present study aims to elaborate a combined model able to provide mechanisms to anticipate consumers’ reactions to a crisis and to propose different approaches for the brand to take in response. Keywords: crisis response strategies; brand crisis; situational crisis communication theory; nature of the crisis; CSR; brand trust. Introduction Brand crises are unexpected events negatively affecting a brand’s perceived ability to deliver expected benefits and consequently reducing brand equity (Ahluwalia, Burnkrant & Unnava, 2000, Dawar & Lei, 2009, Dawar & Pillutla, 2000, Dean, 2004, Dutta & Pullig, 2011, Pullig, Netemeyer & Biswas, 2006). As brands represent key assets for market-oriented firms, brand-related adverse events may result in negative outcomes affecting financial performance (Dawar & Lei, 2009, Laufer & Coombs, 2006); expected consequences include a weakened company reputation (Coombs, 2007), poorer relationships with consumers (Tsarenko & Tojib, 2015) and reduced brand equity due to negative impacts on brand confidence and a reduced likelihood of brand consideration and choice (Dutta & Pullig, 2011). Post-crisis response strategies may be implemented to restore confidence, to minimize consumers’ dissatisfaction, to maximize repurchase intentions, customer loyalty and brand trust (Janssen, Sen &

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Bhattacharya, 2015), and to diminish the effect of reputational threat (Benoit, 1997; Coombs, 2007; Coombs & Holladay, 2002). The present work combines the situational crisis communication theory (SCCT) (Coombs, 2007; Coombs & Holladay, 2002) with the definition of crisis proposed by Dutta and Pullig (2011), which suggests a categorization of the nature of the crisis into ‘performance-related’ and ‘values-related’. This combining is done for two main reasons: (1) SCCT is temporarily prior to Dutta and Pullig’s categorization and (2) values-related crises are not specifically considered in the SCCT; hence we question how denial, diminish and rebuild response strategies would apply in values-related scenarios. A second purpose is to verify whether corporate social responsibility (CSR) may act as a moderator in a crisis setting, hence being leveraged by brands to lessen the impact generated by the crisis. The SCCT only recognises two factors — crisis history and prior relation reputation — with respect to the ability to trigger an upward or downward adjustment when designing a crisis response strategy; hence we question whether it is possible to include CSR among the intensifying factors. The paper is organized as follows. First, the theoretical framework is outlined, focusing on post-crisis response strategy (especially the SCCT model), the classification of a crisis and the mediating role of CSR. An explanation of the experiment and a discussion of the results follow. To conclude, we propose a combined model to manage brand crises; this model may serve as a useful mechanism to design the appropriate and most effective response strategy to a determined crisis. Theoretical framework and development of hypotheses Post-crisis response strategies Applying the attribution theory (Kelley, 1973, Kelley & Michela, 1980) to the crisis management field helps one understand and predict stakeholders’ reactions to events. When a brand crisis occurs, consumers evaluate all available information and based upon it, they draw conclusions regarding the entity, organization or persons to be blamed. The attribution model (Weiner, 1985) also contributes by stating that responsibility is generally assigned when events occur, especially if they are sudden and negative. And according to the discounting principle (Dean, 2004; Kelley, 1973), only if an alternative, plausible explanation is provided will the perceived causal inference be discounted. Hence, a brand is likely to be held responsible for any outcome unless an appropriate response strategy is implemented (Bradford & Garrett, 1995; Dean, 2004). It is crucial for brands to react promptly to crises through an adequate and efficient strategy able to trigger positive outcomes, among which are (1) minimized dissatisfaction; (2) maximized forgiveness; (3) maximized repurchase intentions; (4) increased brand equity; (5) regained or even increased consumer loyalty and (6) increased positive word-of-mouth (Dawar & Pillutla, 2000; Keller, 1993; Laufer & Coombs, 2006; Tsarenko & Tojib, 2015). Theories and models were developed to

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help assess the appropriate strategy. The present study focuses on the situational crisis communication theory (Coombs, 1995, 2007; Coombs & Holladay, 2002). The SCCT is defined as ‘a comprehensive, prescriptive, situational approach for responding to crises and protecting the organizational reputation’ (Coombs & Holladay, 2002, p.167). This theory organizes thirteen crisis situations into three clusters (victim, accidental, preventable), matches each of them with the appropriate response strategy and provides a mechanism to predict stakeholders’ reactions towards the organizational reputation (Coombs, 2007). The choice of the response strategy is based on an evaluation of the reputational threat level (i.e. the amount of damage which may affect the organizational reputation) specifically by assessing crisis type, initial crisis responsibility and the two intensifying factors — crisis history (whether the organization has already had similar crises in the past) and prior relational reputation (actual or perceived relationship between brand and stakeholders). The theory recognizes ten reactive measures and clusters them into four groups of response strategies: (1) Denial, attempting to remove any connection relating the organization to the crisis; (2) Diminish, aiming to reduce such connection and/or diminish stakeholders’ negative perceptions of the crisis to limit its harmful effects; (3) Rebuild, attempting to increase the organizational reputation level by offering material and/or symbolic forms of aid to affected parties and (4) Bolstering, i.e. secondary strategies used to enhance the effects of the previous three (Coombs, 2007). These response strategies can be ordered along with an adapted version of the defensive-accommodative continuum (McLaughun, Cody & O'Hair, 1983), ranging from defensive strategies, focusing on organizational interests, to accommodative strategies, prioritizing victim concerns. The level of accommodation involved in the response strategy is related to the crisis responsibility, as this is itself directly linked to the reputational damage (Coombs, 2007). An evaluation of the intensifying factors allows an upward or downward adjustment, which is relevant in terms of efficiency. Although defensive strategies have proven to be less effective (Laufer & Coombs, 2006), highly accommodative strategies involve legal and financial liabilities; they may create alarmism (Coombs, 2007; Kim, Kim & Cameron, 2009; Laufer & Coombs, 2006), their financial costs increase with the level of accommodation (Dutta & Pullig, 2011; Laufer et al., 2005) and they weaken the brand’s legal position in lawsuits, as they imply the assumption of responsibility (Coombs & Holladay, 2002). Nature of the crisis: performance-related vs. values-related A contingency-based view suggests that an effective strategy should be designed considering the factors shaping the circumstances, as they influence customers’ perceived relevance of the crisis, i.e. the extent to which brand associations are affected (Dawar & Lei, 2009). One of the most important and comprehensive contingent factors is the nature of the crisis (Dawar & Pillutla, 2000; Dutta & Pullig, 2011; Kim et al., 2009; Tsarenko & Tojib, 2015). Dutta and Pullig (2011) differentiate between performance-related crises, which involve defective products, and valuesrelated crises, which implicate social or ethical issues related to the values promoted by the brand. The fundamental difference lies in the consumers’ perception of the brand’s ability to deliver benefits they associate with the product or service offered by

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the brand or company (Keller, 1993). Performance-related crises negatively impact functional benefits (Dutta & Pullig, 2011; Pullig et al., 2006), namely the more intrinsic advantages arising from consumption of the product or service (Keller, 1993). Conversely, values-related crises affect symbolic benefits, i.e. those which are more extrinsic. Interestingly, whereas symbolic and psychological benefits are likely to increment the probability of brand choice, functional benefits are needed for the brand even to be taken into consideration (Dutta & Pullig, 2011; Keller, 1993). In fact, empirical evidence has proven that a performance-related crisis is likely to require a more accommodating response strategy, addressing consumers’ concerns of reoccurrence likelihood and restoring their confidence in the brand’s ability to deliver functional benefits (Benoit, 1997; Kim et al., 2009; Tsarenko & Tojib, 2015). As far as valuesrelated crises are concerned, the most important finding was that a reduction of offensiveness (a diminish response strategy) is as effective as a corrective action (a rebuild response strategy), since the additional level of assurance is not required (Dutta & Pullig, 2011; Kim et al., 2009). The present study aims to apply the more recent definition of performance-related and values-related crises conceptualized by Dutta and Pullig (2011) to the denial, diminish and rebuild primary response strategies proposed in the SCCT. In line with previous considerations, the following hypotheses are proposed: H1a: In cases of performance-related crises, the rebuild response strategy will be the most successful. H1b: In cases of performance-related crises, the denial response strategy will be the least successful. H2a: In cases of values-related crises, the diminish response strategy is as successful as the rebuild response strategy. H2b: In cases of values-related crises, the denial response strategy will be the least successful. The moderating role of CSR Positive prior brand expectations tend to insulate a brand from the impact of negative events (Dawar & Lei, 2009; Dean, 2004; Hess, 2008; Pham & Muthukrishnan, 2002; Pullig et al., 2006). This shielding effect is even stronger when customers feel identified with the brand, that is, they have developed a sense of connection with it, thanks to overlapping identities (Janssen et al., 2015). Identification may trigger an assimilation effect, with customers defending the brand, blaming it less, seeking for alternative plausible explanations and possibly forgiving it. Nonetheless, it may also result in a contrast effect, especially when crises are severe or they attack motives for identification. Corporate social responsibility embodies one of the primary triggers of corporate or brand identification (Bhattacharya & Sen, 2003; Janssen et al., 2015). CSR is defined as the status and activities a company promotes with regard to its perceived obligations towards the society (Sen & Bhattacharya, 2001). Its purpose is to minimize negative externalities produced by a company’s activities and to maximize shared value, thus generating economic value for both corporation/brand and society/environment (Janssen et al., 2015; Mohr, Webb & Harris, 2001) and enhancing

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corporate or brand reputation (Klein & Dawar, 2004). CSR influences consumers’ attribution of responsibility for a crisis (Janssen et al., 2015; Klein & Dawar, 2004), hence representing a significant moderator of consumers’ evaluations and posttransgression behavioural intentions towards a crisis response strategy; in fact, stakeholders more often tend to forgive a brand with a past including CSR records (Tsarenko & Tojib, 2015), likely due to the halo effect on these stakeholders’ overall brand evaluations generated by the positive reputation (Beckwith & Lehmann, 1975; Klein & Dawar, 2004). Thus, an important consequence for the purposes of this study is that a less accommodative post-crisis response strategy is sufficient to reach a successful outcome, hence minimizing the investment and maximizing efficiency (Laufer & Coombs, 2006; Tsarenko & Tojib, 2015). A positive CSR reputation, though, does not always represent an ‘insurance policy’ (Tsarenko & Tojib, 2015) and provide a positive return on investment (Kim et al., 2009). Indeed, consumers’ high expectations of the brand’s response strategy may be difficult to meet (Dean, 2004), requiring a higher level of accommodation. Nevertheless, customers are likely to suspend their judgement and give the brand the benefit of the doubt; this provides the brand with the desired chance to respond and recover customers’ trust, which subsequently triggers consumers’ repurchase intentions (Kim et al., 2009). Despite recognizing the moderating power of the two intensifying factors (crisis history and prior relation reputation), the SCCT does not refer to the influence of CSR during the design of the strategy. Thus, the present study aims to assess whether CSR may be considered a third type of intensifying factor impacting the defensiveaccommodative continuum. Brand trust is here appraised as a measure of the success of the response strategy. In line with previous considerations, we hypothesise that: H3a: The success of a crisis response strategy is positively affected by CSR activities performed prior to the crisis. H3b: The success of a crisis response strategy is negatively affected by a negative CSR reputation prior to the crisis. H4a: A positive CSR reputation enhances consumers’ identification with a brand and increases brand trust. H4b: A negative CSR reputation reduces consumers’ identification with a brand as well as brand trust. H4c: A positive CSR reputation prior to the crisis limits the negative impact of a brand crisis on brand trust better than a negative CSR reputation. Methodology Research design Four hundred and twenty-four respondents (65.7% female; mean age of 31.8 years) participated in the experiment and survey. The study was run as a 2 [CSR brand vs. non-CSR] x 2 [nature of the crisis: performance-related vs. values-related] x 3 [response strategy: denial vs. diminish vs. rebuild] factorial design. Projective techniques were used to create fictitious scenarios, which were inspired by real situations to enhance likelihood and credibility but were not based on major well-

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known brand crises nor on existing brand names in order to prevent respondents’ associations with reality and/or conscious or unconscious biases in their evaluation process. Four observations were eliminated as not meeting the minimum age threshold of 16 years, rendering a sample size of 420 observations. Outliers were highlighted using a single-linkage cluster analysis, then were investigated and rejected. Additional analyses through scatter plots confirmed this result. The high reliability of the collected data was proven by Cronbach’s alpha tests computed on all constructs (.923) and on the single factors highlighted by a factor analysis. Procedure Respondents to the online survey were divided into twelve groups according to three randomly assigned stimuli. After a brief presentation of the fictitious food producer ‘Brand X’, information regarding its social commitment was provided, which was either positive — performance of CSR activities — or negative — bad behaviour affecting local communities. The second manipulation involved the nature of the crisis, being either performance-related — a discovery of possibly toxic GMOs in the products — or values-related — racism in the workplace. The third manipulation involved tailored press releases by the brand’s CEO, i.e. the crisis response strategies; in line with suggestions from Dean (2004) and the SCCT (Coombs, 2007; Coombs & Holladay, 2002), both denial response strategies exploited the state of ambiguity of the situation and blamed the brand’s commercial partner. Diminish response strategies offered excuses and claimed good intentions whilst not providing any information on eventual remedying actions. Finally, rebuild response strategies implied an admission of culpability and offered forms of remedy to improve the situation. After every manipulation, respondents’ reactions were assessed using eight items on a 5-point Likert scale (1=Strongly disagree to 5=Strongly agree). The items were: (1) Identification with the brand; (2) Perception of CSR; (3) Brand trust; (4) Emotional reaction (negative); (5) Customer revenge behaviour; (6) Satisfaction with an outcome; (7) Attribution of blame and (8) Repurchase intentions. All constructs were formulated using validated marketing scales. Pretests were performed on a group of 15 people from different age groups. Results The original set of variables was first reduced to a smaller set of composite variables through a factor analysis. The factor labelled ‘Success of the strategy’ — defined by the variables testing satisfaction with the outcome and repurchase intentions — was selected to compute factor scores estimated for each respondent to serve as a dependent variable in the regression analysis. The model (R2=.154, F=9.450) highlights linear relationships among the dependent variable and the independent ones (which also included interactions among them). Variables were encoded into binary code, thus also making it easy to deduce when they were not explicitly mentioned (Table 1). As inferable from the results, the nature of the crisis has a highly significant negative effect on the success of the post-crisis response strategy (p=.000, β=-.771). Performance-related crises also have a greater negative impact compared to values-

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related crises. Significant results from a second model show that the performance of CSR has a very positive effect on the overall success of the brand’s response to the crisis (β=.885; p=.000). Additionally, the denial response strategy has a clear negative effect on the dependent variable, explained by the negative coefficient and the skewness of the slope (β=-.618, p=.001). Conversely, another model computed proves that the rebuild response strategy positively influences the success of the strategy (p=.016, β=.373). Generally, denial was perceived as the least successful response strategy, with high post-crisis levels of non-satisfaction with the strategy (44%) and low post-crisis brand trust (6%) and repurchase intention (15%). The diminish strategy follows with slightly more successful outcomes, whereas the rebuild is considered the most effective post-crisis response strategy. Table 1. Regression analysis: coefficients Coefficientsa

Model

Unstandardized Coefficients

Standardized Coefficients

t

Sig.

1.643

.101

(Constant)

.208

Std. Error .127

CSR

.423

.172

.211

2.453

.015

Nature (Performancerelated) Denial response strategy

-.771

.175

-.386

-4.413

.000

-.618

.185

-.283

-3.337

.001

Diminish response strategy

-.194

.183

-.093

-1.059

.290

1.373

.170

-.481

.631

1.713

.088

.790

.430

2.690

.007

B

Beta

CSR-Denial response .312 .227 .105 strategy CSR-Diminish response -.104 .216 -.041 strategy CSR-Nature (Performance.311 .181 .128 related) Nature (Performance.171 .216 .066 related) -Diminish response strategy Nature (Performance.609 .226 .215 related) -Denial response strategy a. Dependent Variable: REGR Factor scores ‘Success of the strategy’

Interactions between variables allow interesting post hoc considerations. A first interaction, being marginally significant (p=.088), may relate CSR activities and the nature of the crisis (performance-related); the overall effect is positive (β=.311), which proves that CSR activities performed ex ante represent a powerful buffer able to absorb part of the shock triggered by a brand crisis (even more in the case of valuesrelated crises, which are perceived as less severe than performance-related). The same conclusion may be drawn for the interaction between CSR and the denial response strategy; despite the negative impact of the denial strategy (-.618), the overall effect is positive (.117), because both CSR activities and the interaction ‘CSR-Denial’ have a

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relatively greater effect on the outcome (respectively, .423 and .312), proving the strong beneficial effect of ex ante CSR activities. In a CSR scenario, 67% of respondents identified with the brand; symmetrically, 73% did not identify with it in the opposite situation. Data analysis proves that every response strategy is always perceived as more successful if combined with CSR performed ex ante. This trend is recognizable in all four items proposed after the third manipulation, i.e. (1) respondents’ satisfaction with the strategy; (2) post-crisis brand trust; (3) blame on the brand and (4) repurchase intentions. Results from these items also show that the diminish response strategy always scores better than denial in nonCSR scenarios but scores worst in CSR scenarios; in the case of denial, respondents may be more inclined to trust the claim of non-culpability due to their esteem for and identification with the brand prior to the crisis. Conversely, customers may feel disappointed and/or deceived by the admission of culpability implied in the diminish and rebuild strategies. The same items considered regarding the interaction between nature and the response strategy show that performance-related crises always have a stronger negative impact than values-related crises on customers’ evaluations; for example, in the case of the rebuild strategy, significantly more respondents (75%) would not repurchase the brand’s products when performance-related crises occur compared to values-related crises (34%).

Figure 1. Brand trust and response strategies: CSR and non-CSR brand comparison (values in %)

Questions on brand trust were asked after the first and third manipulations, allowing the identification of a clear negative variation in levels of brand trust pre- and postcrisis (Figure 1). Also, brand trust levels in pre- and post-crisis CSR situations are always higher than in non-CSR (even prior to the crisis), highlighting the strong beneficial effect of CSR on brand trust. The variation is more significant in CSR scenarios than in non-CSR, which may be explained by the respondents’ expectations of a well-behaving brand not to be involved in a crisis, where the perceived inconsistency triggered disappointment. As far as CSR scenarios are concerned, the diminish response strategy is the least successful (-51.7%) compared to denial (-30.5%) and rebuild (-29.7%). Consistently, a non-CSR scenario presented a negative variation in brand trust (Denial: -5.7%; Diminish: -2.1%; Rebuild: -0.6%), and denial was perceived as the least effective strategy. Thus, the diminish strategy is the least successful response strategy in limiting a loss in brand trust after a crisis, whereas

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rebuild is the most successful. Denial performs quite well if CSR is performed ex ante but not in the opposite scenario. Discussion Denial was always perceived as the least successful strategy, followed by diminishing, whereas rebuild was the best performing. The same trend was recognizable in both the performance-related and values-related natures of the crisis, which allows us to accept hypotheses H1a, H1b and H2b but to reject H2a. The results also highlight the fact that performance-related crises have a stronger negative impact on successful outcomes produced by a strategy than values-related crises. Thus, we can assume that a lower level of accommodation is acceptable when designing a response strategy to a valuesrelated crisis. The positive impact of CSR activities performed prior to the crisis was even higher than expected; also, considering the interactions with the nature of the crisis and the response strategies, all outcomes were more successful in a positive CSR scenario. CSR could absorb most of the shock caused by the crisis occurrence and provided the brand with a good basis upon which to rebuild its image through an effective response strategy. Its positive impact on brand trust was also remarkable on the level of brand trust post-crisis, which, in a CSR scenario, was not only generally higher than in a nonCSR but was even higher in a post-crisis situation than in a pre-crisis non-CSR situation. Conversely, in the presence of a negative CSR reputation, consumers did not feel identified with the brand and had considerably lower levels of brand trust, which negatively impacted the outcome and provided the brand with significantly less margin of manoeuvre. These considerations allow us to accept H3a, H3b, H4a, H4b and H4c. Most important, we believe CSR should be included among the intensifying factors of the SCCT, as it has proven to have the moderation power to positively or negatively influence the dependent variable ‘Success of the strategy’. Thus, its presence or absence, respectively, should be considered to adjust upward or downward the initial assessment of the reputational threat. Contributions and implications The results provide evidence that the three response strategies are also efficient when applied to Dutta and Pullig’s more recent classification of a crisis based on its nature. The nature of the crisis has also proven to be a very strong and negative factor, able to cause intense reputational damage to a brand. Although performance-related crises appear to have a stronger negative impact on the success of the outcome than valuesrelated crises, we are convinced that both natures should be considered and included in a comprehensive model. For these reasons, we believe that designing a post-crisis response strategy based on the nature of the crisis is to be considered an effective and efficient practice. This study proposes a combined model based on Dutta and Pullig’s classification of crisis and the response strategies elaborated in the SCCT (Figure 2). The model is

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enriched by the inclusion of CSR among the intensifying factors, as it may enhance the effectiveness of the response strategy and allow the implementation of a less accommodative, i.e. more cost-efficient, strategy.

Figure 2. A Combined Model to Manage Brand Crises Limitations and future research A limitation of the present work is linked to the low significance of the results of the regression analysis regarding two of the three response strategies. This is a consequence of using a 5-point Likert scale, as a considerable number of answers concentrated on the middle choice (‘Neither Agree nor Disagree’), which does not help the analysis. Future research may consider developing the experiment using an existing brand instead of a fictitious one. In the present study, all respondents had access to the same information, in terms of both quality and quantity, which prevented biased evaluation and allowed measurement of the real extent of the manipulations. Nevertheless, it would be interesting to evaluate the impact of consumers’ brand identification and familiarity, which are likely to insulate the brand from the impact of negative publicity by positively influencing consumers’ reactions to a crisis, i.e. triggering favourable behaviours such as consumers’ defence of the brand, the active seeking for plausible and alternative explanations, the generation of counterarguments, etc. Interesting outcomes may arise from an evaluation of the influence of the interaction between various types of media on brand crises. Social media have become increasingly important sources of information, spreading both true and false stories (aka ‘fake news’). Considering the vast audience reached, the impact of negative news circulating on social media may trigger harmful consequences on brands if not addressed with adequate measures. Another future development may be an evaluation of the role of culture in consumers’ reactions to a brand crisis; one example is represented by people’s level of uncertainty avoidance, which influences costumers’ blame attribution (Laufer & Coombs, 2006). Thus, culture seems to exert an influence on the perception of a crisis and should,

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therefore, be taken into consideration during the decision-making process of a crisis response strategy. The present study represents a good starting point for interesting considerations as well as for future investigations. References Ahluwalia, R., Burnkrant, R.E., & Unnava, H.R. (2000). Consumer Response to Negative Publicity: The Moderating Role of Commitment. Journal of Marketing Research, 37(2), 203–214. Beckwith, N.E., & Lehmann, D.R. (1975). The Importance of Halo Effects in MultiAttribute Attitude Models. Journal of Marketing Research, 12(3), 265. Benoit, W.L. (1997). Image repair discourse and crisis communication. Public Relations Review, 23(2), 177–186. Bhattacharya, C.B., & Sen, S. (2003). Consumer-Company Identification: A Framework for Understanding Consumers’ Relationships with Companies. Journal of Marketing, 67(2), 76–88. Bradford, J.L., & Garrett, D.E. (1995). The effectiveness of corporate communicative responses to accusations of unethical behavior. Journal of Business Ethics, 14(11), 875–892. Coombs, W.T., & Holladay, S.J. (2002). Helping Crisis Managers Protect Reputational Assets: Initial Tests of the Situational Crisis Communication Theory. Management Communication Quarterly, 16(2), 165–186. Coombs, W.T. (1995). Choosing the Right Words The Development of Guidelines for the Selection of the “Appropriate” Crisis-Response Strategies. Management Communication Quarterly, 8(4), 447–476. Coombs, W.T. (2007). Protecting Organization Reputations During a Crisis: The Development and Application of Situational Crisis Communication Theory. Corporate Reputation Review, 10(3), 163–176. Dawar, N., & Lei, J. (2009). Brand crises: The roles of brand familiarity and crisis relevance in determining the impact on brand evaluations. Journal of Business Research, 62(4), 509–516. Dawar, N., & Pillutla, M.M. (2000). Impact of Product-Harm Crises on Brand Equity: The Moderating Role of Consumer Expectations. Journal of Marketing Research, 37(2), 215–226. Dean, D.H. (2004). Consumer Reaction to Negative Publicity: Effects of Corporate Reputation, Response, and Responsibility for a Crisis Event. Journal of Business Communication, 41(2), 192–211. Dutta, S., & Pullig, C. (2011). Effectiveness of corporate responses to brand crises: The role of crisis type and response strategies. Journal of Business Research, 64(12), 1281–1287. Hess, R.L. (2008). The impact of firm reputation and failure severity on customers' responses to service failures. Journal of Services Marketing, 22(5), 385–398. Janssen, C., Sen, S., & Bhattacharya, C.B. (2015). Corporate crises in the age of corporate social responsibility. Business Horizons, 58(2), 183–192. Keller, K.L. (1993). Conceptualizing, Measuring, and Managing Customer-Based Brand Equity. Journal of Marketing, 57(1), 1–22.

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Kelley, H.H., & Michela, J.L. (1980). Attribution theory and research. Annual review of psychology, 31(1), 457–501. Kelley, H.H. (1973). The processes of causal attribution. American Psychologist, 28(2), 107–128. Kim, J., Kim, H.J., & Cameron, G.T. (2009). Making nice may not matter: The interplay of crisis type, response type and crisis issue on perceived organizational responsibility. Public Relations Review, 35(1), 86–88. Klein, J., & Dawar, N. (2004). Corporate social responsibility and consumers' attributions and brand evaluations in a product–harm crisis. International Journal of Research in Marketing, 21(3), 203–217. Laufer, D., & Coombs, W.T. (2006). How should a company respond to a product harm crisis?: The role of corporate reputation and consumer-based cues. Business Horizons, 49(5), 379–385. Laufer, D., Gillespie, K., McBride, B., & Gonzalez, S. (2005). The Role of Severity in Consumer Attributions of Blame. Journal of International Consumer Marketing, 17(2-3), 33–50. McLaughun, M.L., Cody, M.J., & O'Hair, H.D. (1983). The Management of Failure Events: Some Contextual Determinants of Accounting Behavior. Human Communication Research, 9(3), 208–224. Mohr, L.A., Webb, D.J., & Harris, K.E. (2001). Do Consumers Expect Companies to be Socially Responsible?: The Impact of Corporate Social Responsibility on Buying Behavior. Journal of Consumer Affairs, 35(1), 35–72. Pham, M.T., & Muthukrishnan, A.V. (2002). Search and Alignment in Judgment Revision: Implications for Brand Positioning. Journal of Marketing Research, 39(1), 18–30. Pullig, C., Netemeyer, R.G., & Biswas, A. (2006). Attitude Basis, Certainty, and Challenge Alignment: A Case of Negative Brand Publicity. Journal of the Academy of Marketing Science, 34(4), 528–542. Sen, S., & Bhattacharya, C.B. (2001). Does Doing Good Always Lead to Doing Better?: Consumer Reactions to Corporate Social Responsibility. Journal of Marketing Research, 38(2), 225–243. Tsarenko, Y., & Tojib, D. (2015). Consumers’ forgiveness after brand transgression: The effect of the firm’s corporate social responsibility and response. Journal of Marketing Management, 31(17-18), 1851–1877. Weiner, B. (1985). An attributional theory of achievement motivation and emotion. Psychological Review, 92(4), 548–573.

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MANAGING GENERATION Y – A THEORETICAL PERSPECTIVE Georgiana CRISTEA National University of Political Studies and Public Administration 30A Expoziției Blvd., 012104 Bucharest, RO [email protected] Andreea MITAN National University of Political Studies and Public Administration 30A Expoziției Blvd., 012104 Bucharest, RO [email protected]

Abstract. The European labor market faces unprecedented challenges today: four generations that have different work ethics and, at times, colliding working styles meet in the workplace. Moreover, in many regions of the European continent the population is aging at a fast pace, and a shortage of qualified work force that has not been common in the last ten to fifteen years can now be observed. Younger employees tend to leave the organizations they get hired by before celebrating four years since their employment date, yet many do not even stay with a company for one full year. This behavior puts tremendous pressure on the human resources specialists and on the human resources budgets, as the costs related to recruiting new employees and the costs of employee training increase. Human resources management has become perhaps more provocative than before, as working with a team that does not have time to mature due to personnel changes might create disruption of the workflow. The generation Y, which would soon become dominant in the labor market, is known to have some particularities that might influence in a negative way the already difficult situation that more and more employers face. In an attempt to offer human resources specialists a tool to understand what motivates generation Y employees and how could employee retention rate increase within a company, this theoretical paper presents the main characteristics of generation Y as employees and their expectations in a work-related environment. Keywords: generation Y; management; labor market.

Millennials;

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retention;

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resources

Introduction The pace at which the world changes and evolves increased dramatically during the last century. In a fast moving environment where competition for resources is sharpening, both people and companies have to learn constantly. As technology develops, innovations are embraced by commoners, reshaping their way of thinking and influencing their ways of acting. For a company wanting to survive in this competitive market it is mandatory to adapt to the new requests of the workforce, and to make them valuable resources. This fact is determined by an empirical reality: members of generation Y – the generation said to differ significantly from the previous ones – entered the labor market in 2000 and until 2025 they will represent 75% of the global workforce (Delloite, 2016).

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In Romania, Millennial employees already represent 45% of the workforce and the largest percentage of them are aged 35 to 37 (INSSE, 2017). This also points to the fact that the employment rates of younger generation Y members are yet far from ideal but also to the fact that there has been a dramatic decrease of births since the early 90s, which is coupled with the significant migration of the younger Romanians. At the same time and perhaps paradoxically, there are companies in IT, retail and Call Centers where the predominant working population belongs to this generation. The managers who work with these youngsters are either part of the same generation and understand empirically how they should act in order to increase their teams’ productivity and maintain equilibrium, or they feel a more and more acute need to change their approach and the practices related to communication and leadership in order to be able to perform their designed role in the organization (Hobart & Sendek, 2016). The demands and motivators in the case of older generations have been studied and are generally known to managers. This is rarely the case with Millennials employees. Their expectations and values concerning the relationship with their manager have only begun to be understood. This article aims to present a comprehensive theoretical framework regarding the characteristics of the generation Y members that interfere with their actions as employees and that can enhance or worsen the relation with their managers. Literature review Generational cohorts and generational research The study of generations has initially attracted marketing specialists, who tried to use it in order to segment the markets and target specific groups of consumers (Arsenault, 2004). The theory regarding generations is based upon the idea of cohorts, which are groups of people with similar beliefs and attitudes, who experience similar problems and share similar experiences in a certain period of time. According to Jenkins (2008), the members of each generation have their own characteristics, values, and attitudes based on events that have shaped their lives. Each generation is believed to have been shaped by powerful external forces (that is, not intrinsically linked to the personality of each member): media, economic and social events, popular culture, values shared by families and friends and used as guidance in action, etc. These forces create unique sets of values that help researchers understand the differences between various generations (Pînzaru et al., 2016). The literature presents several generations, considering their birth-year periods (even if sometimes they can vary slightly). According to Twenge, Campbell, Hoffman and Lance (2010, p. 1118) there are four generations at work in today’s workforce: The Silent Generation (1925–1945), Baby Boomers or Boomers (born 1946–1964), Generation X or GenX (born 1965–1981), and Generation Y (born 1982–1999). It must be noted that this result is based on a U.S. sample and does not necessarily reflect the situation globally (Festing & Schafer, 2014). In addition to this, the people who are born at the beginning of a generational cohort or at the very end of it share experiences with both their own cohort and the previous or the next generational cohort (Benson & Brown, 2011).

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Characteristics of Generation Y Most of the authors present Generation Y members as people born roughly between 1977 and 2000. Twenge, Campbell, Hoffman and Lance (2010, p. 1120) refer to the years between 1982 and 1999 when giving the generational span, and Tapscott (2009, p. 16) points to the ones between 1977 and 1997. It is notable that authors who have addressed this topic have come with a variety of names for the age group. The more frequently used denominations are “Millennials”, “Echo-Boomers” or “Thumb Generation” (Huntley, 2006) and “NetGeners” (Tapscott, 2009). The different denominations are mostly due to the criteria considered by the authors relevant to diferentiate between generations. Most research on this generation was conducted in the United States of America resulting in detailed reports on many representative aspects of Generation Y in this country: demography, ethnicity, lifestyle, political beliefs, religion, technology, and social media usage (Pew Research Center, 2010). Thus, the characteristics depicted in the following section of this paper are mostly representative for the people in this generation who live in the American culture. In Romania, there are few studies to relate to, but the global environment where this generation grew encourage us to state that these youngsters share similar values to the ones in the US, or in other parts of Europe, Asia or Australia. To support this assertion, we refer to a recent research that shows that Romanian youngsters feel that they share certain characteristics with their worldwide peers (Petre avulescu, 20 ). Some specificities that have resulted from the fact that some Romanian members of the generation Y lived in the communist era (1977-1989) would be wise to be acknowledged, but a study concerning these potential differences has not been conducted yet. Overall, many authors consider this generation different enough from all other generations before them (Broadbridge, Maxwell & Ogden, 2009; Pînzaru et al., 2016; VanMeter, Grisaffe, Chonko & Roberts, 2013). However, there are researchers who find them similar enough to other generations at their age (Deal, Altman & Rogelberg, 2010; Guillot-Soulez & Soulez, 2014; Murray, Toulson & Legg, 2011). However, there is at least one important reason for an in-depth study of generation Y: they are the generation with the biggest employee fluctuation (Hobart & Sendek, 2016, Pew Research Center, 2010). Regardless of the debate surrounding the terminology used to name members of this generation, there is general consensus when it comes to a few characteristics of these people. First and foremost, it is said that they are technology savvy. This generation is gifted on this domain, and if they are asked to solve something in this area, they’ll do it quickly and efficiently. This could be an asset for the companies they work with, and some studies even revealed the benefits of practicing the Reverse Mentoring (Hobart & Sendek, 2016), where young employees were mentors for the older ones for technical tasks. Secondly, they are known to be always connected to their social media accounts, even at work (Millennialbranding, 2013). Trough social media use, Millenials gravitate towards a Social Circle comprising of advisors that they have chosen as guides for them in various domains (The Millennial Mindset, 2017). These advisors come from various

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backgrounds, and they are equally people they meet online, and people they know personally. Thirdly, they are favoring transparency both from the brands they choose to purchase, and from the companies they work for (Millennialbranding, 2013). Through their Social Media accounts, they share their opinions and use the opinions of their peers to influence their decision-making. Being transparent with company policies, and inner workings can go a long way in establishing a sense of confidence. They trust their peers, and they need to trust the leader to become loyal (Millennialbranding, 2013). Fourthly, they ask for a flexible program, because they need time for their hobbies, for their families, and for volunteering. They are the first generation more interested in making the job fitting to their family and personal life (Spiro, 2006). Accelerated development of technology, the ability to access the information anytime and anywhere (Meier, Austin & Crocker, 2010), their capacity of multi-tasking, make possible for this generation the work from anywhere and anytime (Treuren & Anderson, 2010). The research made on a population of 1000 employees from the USA, showed that almost 70% of the employees stated that being in an office regularly is unnecessary and 25% thought that working from home can increase their productivity (Millennialbranding, 2013). Social consciousness is the fifth characteristic they exhibit. They would prefer to work for a Socially/ Environmentally Responsible company. They volunteer more than any other previous generation and they want to see the impact they have on society and the environment. Millennial consumers expect their favorite brands to help them make their communities better and provide them with the tools they need to impact their world (Hobart & Sendek, 2016; The Millennial Mindset, 2017). The sixth characteristic is related to thinking globally: they understand the global markets and they are used to interacting with brands and companies from different parts of the world (Hobart & Sendek, 2016). They are also flexible: they could start the college in one country, and finish it in another country, only to choose then to get a job in a different part of the globe. They understand their competition is global and they have to fight to be the best in their domains. Hobart and Sendek (2016) reveal further enlightening aspects concerning this generation mindset: generation Y members are not indolent, they just refuse to work extra hours at their workplace because they accept to take work at home. Also, they ask colleagues when they need pieces of information and do not search for it themselves because they believe this way they would be more productive and not waste time. They see their career as a marathon, not as a sprint. They have been accustomed to receive participation prizes and rewards for anything they do, since childhood, so they expect appreciation for everything they do and feedback. As regarding their supposed lack of loyalty to companies, one could understand their choice of changing jobs two to three times more than elder generations as a means to gain extensive work experience and use their talents. When they perceive their role as important for the organization and when this role is more important in the hierarchy, they tend to remain longer with the employer (Hobart & Sendek, 2016, Pew Research Center, 2010).

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Twenge (2009) insisted upon the fact that generation Y members are egocentric, narcissistic and centered on their own needs. If we look at their behavior in a different light, we see that the way they were raised by their partners taught them to reject the idea that one measure fits all. They see themselves as owners and builders of their personal brand and thus they seek to express their individuality (The Millenium Mindset, 2017). Sometimes they seem spoiled and over-confident (Twenge, 2009; Pînzaru et al., 2016), but in fact they just want authentic leaders to work with them instead of imposed authority figures they cannot respect just because of hierarchical reasons (Pînzaru & Mitan, 2015). The heterogeneity of Generation Y preferences The firms today are looking for the best ways to attract employees belonging to Generation Y and to know if the stereotypes or myths associated with this Generation are true, because individuals belonging to the same generation are supposed to have similar attitudes that are also different from other generations (Deal et al., 2010). However, the issue is not only whether employees from different generations should be managed differently, but also whether employees from the same generation have similar attitudes. The authors below found through their studies that the members of Generation Y do have some similarities, but the whole group is enough heterogenic. If the attitudes of members of a generational cohort are not homogeneous, one may question the value of the concept of generation as a relevant criterion for human resource management (Guillot-Soulez & Soulez, 2014). In the same line of thought, Costanza, Badger, Fraser, and Severt (2012) present a meta-analysis of generational differences in job satisfaction, organizational commitment and turnover intentions and conclude that generational differences probably do not exist in these regards. Some differences have been, however, identified by other authors among members of the same generation – namely generation Y. For example, Maxwell and Broadbridge, (2014) demonstrated that for the UK graduates population, there are differences between men and women when it comes to career transition after graduation. Gendered nuances were found in several aspects of the respondents’ views on their career transition, including statistically significant differences: more women continuing their student job after graduation; women being more accepting of starting after graduation in a non-graduate level job; and more women than men encountering gender discrimination in the workplace. The identified nuances and differences appear to be setting the genders on diverging career tracks as early as the transition from university, in that they seem to signal more career progress, even advantage, among the men than the women. A study conducted in France (Guillot-Soulez & Soulez, 2014) on a population of 592 new graduates with a professional BA in business studies, aged 20 to 26 (41 percent men and 59 percent women), demonstrated using a conjoint analysis that if the whole young graduates from Generation Y prefer job security and a relaxed work atmosphere, their preferences are heterogeneous. The authors describe four different classes of employees regarding the future employer, type of contract and atmosphere at work (Guillot-Soulez & Soulez, 2014, pp.327-328): Class ( 2.3 percent), “security seekers,” is essentially formed around the work contract attribute. These are applicants that are looking above all for job security, and, to a lesser degree, regular working hours. Class 2 (53.5 percent) comprises of the “career-minded,” who stand

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apart from other classes by their desire to work in a prestigious company in which they can climb the corporate ladder. A high salary and permanent contract are also sources of utility for them. The “balance seekers” make up class 3 (28.6 percent). They are interested in the quality of working life and achieving work-life balance, a motivation illustrated by the strong utility associated with a relaxed work environment, a job close to home, regular working hours and varied tasks. Class 4 (5.6 percent) was named “easy-going” due to the significant weighting of atmosphere; the “easy-going” are looking above all for an informal work environment. urprisingly, they see utility in several levels that were viewed in a negative light by the other respondents: they value low-profile firms, non-management positions and jobs involving routine tasks. For Romanian population, a study conducted by Mitan (2014b) using Schwartz Value Inventory (the 52 items variant) brought to light the idea that there are two categories of Romanian generation Y members: the Revolutionaries and the Guardians. Revolutionaries want to discover the world; they are dominant, curious and independent, with a great deal of self-esteem. They do not expect help from others and they want to become influential in the society. They are prepared to work a lot and to create a desirable public image for themselves. They are hedonistic and they search for unusual life experiences, so the author called then daunting thrill seekers. They reject any constraint that religion and culture could impose over them, they distance themselves from their cultural roots, but they also value security and stability. They are pragmatic people and they have a utilitarian approach to life. Guardians are moderate individuals who accept their place in the world, who do not have professional ambitions and who focus mainly on the community they come from. They respect religion and tradition and they do not search for adventure. They are disciplined, they value wisdom and they search for beauty in everything around them. They believe in friendship and they are willing to work for the good of their families and of the communities they belong to. They are open-minded, they love nature, they are tolerant and they do not understand the need for social status. To them, security is the most important thing and they believe that belonging to a hive is the best way to be secure. As regarding the particularities Romanian youngsters have in a working environment, there are some differences from the profile Tapscott made in 2009 (Mitan, 2014a). There are at least three profiles: The Enthusiasts, the Rebels and the Pessimistic Individualists. The Enthusiasts are attracted by the use of technology and they share the characteristics of generation Y members as pointed out by foreign literature: they are keen on using technology; they are always connected online, even when they relax, they have chaotic work schedules and they do not respect formal hierarchy, but they prove to be competent. They need constant feedback from their managers and they need leaders. Rebels are attracted by ITC and they are keen on using it, but they are idealistic individuals who want to work for CSR oriented companies and they want their work to bring a change in the world. They are more independent than Enthusiasts and less interested in receiving feedback at work. Pessimists are passive, disconnected from the ITC world and not interested in personal development. They do not understand technology well and they use it only superficially. They do not expect managers to trust them and they do not ask for feedback, they are most likely invisible employees, conformists who respect formal hierarchy and do not want to do teamwork.

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Instead of conclusions: challenges of managing generation Y For the first time in history, four different generations (Veterans, Baby Boomers, Generation X and Generation Y) need to work, collaborate and be productive together. After the retirement of Veterans and Baby Boomers, Generation Y is the most recent cohort to enter the workforce. “Workplaces are being redefined and organizations are being pressed to adapt as this new wave of workers is infused into business environments” (VanMeter, Grisaffe, Chonko & Roberts, 2013). The first challenge managers have in working with generation Y would then be defined by the reality that they have to create a work environment in which generations that differ visibly, at least regarding the way they understand authority, have to collaborate. A second difficulty comes from the fact that generation Y members tend to change jobs rather frequently. According to a study made by LinkedIn (2016), on 3894 human resources and talent specialists from different countries (Canada, USA, Mexico, Brazil, Great Britain, France, Italy, Spain, Germany, China, India, Australia and New Zeeland), the average time spent in a job by young people from the Generation Y is four years. Thus managers face a double pressure: to work with generation Y members and to retain them. These tasks might be even more difficult than estimated, as studies conducted in the United States and Australia demonstrated that Millennials are emotionally detached from the companies they work for (Rawlins, Indvik & Johnson, 2008). However, Kaliprasad (2006) pointed out that the ability to retain employees depends significantly upon the ability to manage them. As human resources specialists stated that employees are leaving managers, and not the companies they work for (LinkedIn, 2015), the exigencies imposed upon managers seem to be ever-growing. To make things even more complicated, there is only a small number of specific studies that would reveal ways to retain generation Y employees more within a company, although insightful studies presenting their attitudes as consumers and their values have been published (e.g. Deloitte, 2016; Pînzaru et al., 2016; Manpower, 2017). Having in mind the important role played by the manager for the sanity of the company and for the equilibrium at the workplace, and taking into consideration the characteristics of the employees from this generation, the role of the manager is currently changing: the leader should be a coach and a mentor for his employees (Honore & Schofield, 2012; Miller, Hodge, Brandt & Schneider, 2013). This is the third and perhaps the most personally challenging task for managers to rise to. Because Millennials are the most educated generation until now and because of their supposed tremendous growth potential (Pew Research Center, 2010), they are not necessarily looking for a manager with very good technical skills, or who has all the answers. They are known as problem solvers, they know where to find the answer, even if they don’t have it, they are used to look for it in real time and that is why they are looking for a manager to trust and to respect for his experience and for his ability to understand the employees, a manager who treats them as individuals and not as standard parts of a mass. Future research based upon this theoretical framework would present the results of a survey-based research conducted in Romania, with generation Y employees from the major cities as respondents.

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References Benson, J., & Brown, M. (2011). Generations at work: Are there differences and do they matter? International Journal of Human Resource Management, 22(9), 1843– 1865. Broadbridge, A.M., Maxwell, G.A., & Ogden, S.M. (2009). Selling retailing to Generation Y graduates: recruitment challenges and opportunities. The International Review of Retail, Distribution and Consumer Research, 19(4), 405-420. Costanza, D.P., Badger, J.M., Fraser, R.L., Severt, J.B., & Gade, P.A. (2012). Generational differences in work-related attitudes: A meta-analysis. Journal of Business and Psychology, 27(4), 375-394. Deal, J. J., Altman, D. G., & Rogelberg, S. G. (2010). Millennials at work: What we know and what we need to do (if anything). Journal of Business and Psychology, 25(1), 191–199. Deloitte (2016). The Deloitte Millennial Survey 2016. Winning over the next generation of leaders. Retrieved from http://www2.deloitte.com/global/en/pages/aboutdeloitte/articles/millennialsurvey.html. Festing, M., & Schäfer, L. (2014). Generational challenges to talent management: A framework for talent retention based on the psychological-contract perspective. Journal of World Business, 49(2), 262-271. Guillot-Soulez, C., & Soulez, S. (2014). On the heterogeneity of Generation Y job preferences. Employee Relations, 36(4), 319-332. Hobart, J.W., & Sendek, H. (2016). Generația Y: Generația mileniului 3 și evoluția leadershipului. Bucharest: BMI. Honore, S., & Schofield, C.P. (2012). Generation Y and their managers around the world. Hertfordshire: Ashridge Business School. INSSE (2017). Anuarul Statistic 2017. Retrieved from: http://statistici.insse.ro/shop/. Jenkins, J. (2008). Strategies for managing talent in a multigenerational workforce. Employment Relations Today, 34(4), 19-26. Kaliprasad, M. (2006). The human factor. I: Attracting, retaining, and motivating capable people. Cost Engineering, 48(6), 20-26. LinkedIn (2016). Global Recruiting Trends 2016. Relationship at the core. Retrieved from: https://business.linkedin.com/content/dam/business/talentsolutions/global/en_us/c/pdfs/GRT16_GlobalRecruiting_100815.pdf. LinkedIn (2015). 4 reasons people quit managers, not companies. Retrieved from: https://www.linkedin.com/pulse/4-reasons-people-quit-managers-companiescameron-morrissey. Maxwell, G.A., & Broadbridge, A. (2014). Generation Y graduates and career transition: Perspectives by gender. European Management Journal, 32(4), 547-553. Meier, J., Austin, S.F., & Crocker, M. (2010). Generation Y in the Workforce: Managerial Challenges. The Journal of Human Resource and Adult Learning, 6(1), 68-78. Millennialbranding (2013). Millennial Branding and American Express Release New Study on Gen Y Workplace Expectations. Managers reveal criteria for advancement and impressions of their Gen Y workers. Retrieved from http://millennialbranding.com/2013/gen-workplace-expectations-study/. Miller, M., Hodge, K., Brandt, A., & Schneider, E. (2013). The young and the restless: Gen Y’ers in the workplace: are you prepared? FDCC Quarterly, 63(3) 226-250. Mitan, A. (2014a). Digital Natives Coming of Age: Challenges for Managers. Management Dynamics in the Knowledge Economy, 2(2), 335-355.

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