Interdisciplinary Management Research - IMR XIV

ISSN 1847-0408
FACULTY OF ECONOMICS IN OSIJEK

POSTGRADUATE STUDY MANAGEMENT
JOSIP JURAJ STROSSMAYER UNIVERSITY OF OSIJEK
HOCHSCHULE PFORZHEIM UNIVERSITY
IMR 2018
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
INTERDISZIPLINÄRE MANAGEMENTFORSCHUNG XIV
THE JOSIP JURAJ STROSSMAYER UNIVERSITY OF OSIJEK
FACULTY OF ECONOMICS IN OSIJEK - CROATIA
HOCHSCHULE PFORZHEIM UNIVERSITY
_____________________________________________________________

INTERDISZIPLINÄRE MANAGEMENTFORSCHUNG XIV
Under the auspices of the President of the

Republic of Croatia
Opatija, 2018
Published by:
Josip Juraj Strossmayer University of Osijek, Faculty of Economics in Osijek Croatia,
Postgraduate Doctoral Study Program in Management
Hochschule Pforzheim University
Croatian Academy of Sciences and Arts
For the Publisher:

Thomas Cleff, Ph.D., Dean, Germany
Boris Crnković, Ph.D., Dean, Croatia
Editors:
Dražen Barković, Ph.D., Faculty of Economics in Osijek,
Boris Crnković, Ph.D., Faculty of Economics in Osijek,
Karl – Heinz Dernoscheg, Ph.D., International Business School Styria, Austria,
Norbert Pap, Ph.D., University of Pecs, Hungary,
Bodo Runzheimer, Ph.D., Pforzheim University, Business School, Germany,
Dirk Wentzel, Ph.D., Hochschule Pforzheim University, Germany
Technical editor:
Jerko Glavaš, Ph.D., Editor, Faculty of Economics in Osijek, Croatia
Aleksandar Erceg, Ph.D., Editor, Faculty of Economics in Osijek, Croatia
Design:
Krešimir Rezo, graf.ing.
Krešendo, Osijek
Print:
Studio HS internet d.o.o. Osijek
ISSN 1847-0408
Previous proceedings are indexed in: Web of Science, EBSCOhost, RePEc, EconPapers,
Socionet
Program Committee:
Željko Turkalj, Ph.D., Faculty of Economics in Osijek, chair
academician Vlasta Piližota,
academician Brano Markić,
Zoran Jašić, Ph.D., Former Ambassador of the Republic of Croatia to the Republic of Austria,
Gordana Deranja, Croatian Employers’ Association,
Luka Burilović, Croatian Chamber of Economy,
Ljubo Jurčić, Ph.D., Croatian Economic Association,
Mladen Vedriš, Ph.D., Faculty of Law, University of Zagreb
Ivan Miloloža, Ph.D., Faculty of dental medicine and health,
Vedrana Jelušić Kašić, EBRD
Thomas Cleff, Ph.D., Pforzheim University, Germany
Organizational Committee:
Jerko Glavaš, Ph.D., Chair
Ivana Barković Bojanić, Ph.D., deputy chair
Antun Biloš, Ph.D.
Davorin Turkalj, Ph.D.
Martina Briš Alić, Ph.D.
Nataša Drvenkar, Ph.D.
Ivan Kristek, Ph.D.
Aleksandar Erceg, Ph.D.
Ivan Kelić, Ph.D.
Martina Harc, Ph.D.
Jelena Legčević, Ph.D.
Katica Križanović, univ.spec.oec.
Tin Horvatin, mag.oec.
Jelena Franjković, Ph.D. student
Dina Liović, Ph.D. student
Ana Pap, Ph.D. student
Ana Trusić, Ph.D. student
Ivana Unukić, Ph.D. student
Zvonimir Savić, Croatian Chamber of Economy
CONTENTS
VORWORT........................................................................................................................... XV
FOREWORD........................................................................................................................ XVI
Management
Dino Bruža and Andreja Rudančić
INFLUENCE OF INFORMATION-COMMUNICATION TRENDS
ON BUSINESS COMMUNICATION IN HOTEL INDUSTRY..................................3
Nemanja Milanović, Lena Đorđević and Nela Milošević
IMPLEMENTING SPREADSHEETS IN MANAGEMENT ACCOUNTING
COURSE: AN EXAMPLE OF BUDGETING AND SCENARIO ANALYSIS.... 23
Željka Kadlec, Josip Hetrih and Mladena Bedeković
ATTRACTING INVESTMENTS IN THE ENTREPRENEURIAL ZONES
OF SMALL TOWNS BY CREATING PRECONDITIONS FOR THE
DEVELOPMENT OF SMALL AND MEDIUM ENTERPRISES...............................44
Zlatko Barilović
EMPLOYER PERCEPTION OF THE DEVELOPMENT OF PROJECT
COMPETENCIES IN PROJECT MANAGEMENT GRADUATES.........................64
Ivana Šandrk Nukić and Blanka Gigić Karl
IMPORTANCE OF STRATEGIC PLANNING IN CULTURE:
THE CASE OF MUSICAL EVENTS..................................................................................80
Kristina Brščić, Tina Šugar and Drago Ružić
TOURISTS’ PERCEPTIONS OF DESTINATION – EMPIRICAL STUDY
OF DESTINATION POREČ................................................................................................97
Igor Pureta and Tanja Pureta
THE ROLEs OF LEADERSHIP STYLES AND ENTREPRENEURIAL
ORIENTATION IN DISTINGUISHING MORE FROM LESS
UCCESSFUL ORGANIZATIONS................................................................................... 112
Branimir Dukić, Goranka Majić and Stojanka Dukić
STRUCTURAL MODEL OF THE FORMS OF BUSINESS
ORGANIZATION IN THE REPUBLIC OF CROATIA.......................................... 131
Aleksandar Erceg and Vice Gulam
IMPORTANCE OF ALIGNMENT OF ORGANIZATION’S STRATEGY
AND PROJECT MANAGEMENT................................................................................. 155
Martina Briš Alić, Martina Harc and Dino Vida
PATIENT’S WILLINGNESS TO CO-FINANCE HIGHER
LEVELS OF HEALTHCARE............................................................................................ 172
Dijana Kozina, Vedrana Vukadinović and Marko Tadić
THE IMPORTANCE OF MANAGEMENT AND COST
ESTIMATION IN MANAGERIAL DECISION MAKING...................................... 184
V
Dina Đelmo Smajlović
AN ANALYSIS OF THE STATE OF ATTITUDES OF THE
LOCAL COMMUNITY TOWARDS TOURISM DEVELOPMENT
IN THE CITY OF RIJEKA.................................................................................................. 208
Dejan Balić, Kristijan Šimičić and Vinko Samardžić
STRATEGIC POTENTIAL OF THE OSIJEK ZOO FOR CONTINENTAL
TOURISM OF THE REPUBLIC OF CROATIA........................................................... 228
Nataša Rupčić and Domagoj Švegar
DETERMINANTS OF CONFLICT MANAGEMENT BEHAVIOR:
DOES THE CHOICE OF MAJOR AND STUDY PROGRESS
PLAY A ROLE?....................................................................................................................... 244
Emina Bačevina, Zrinka Malešević and Domagoj Pavić
EUROPEAN SOCIAL FUND IN THE REPUBLIC OF CROATIA,
GOOD GOVERNANCE - RESULTS ACHIEVED AND PLANS AHEAD......... 264
Ante Orlović
POLICE MANAGEMENT– POLICE OFFICERS’ PERCEPTION OF THE
STATUS (QUALITATIVE LEVEL) OF FUNDAMENTAL FUNCTIONS OF
MANAGEMENT IN THE POLICE ORGANIZATION........................................... 286
Waldemar Osmólski, Adam Koliński and Davor Dujak
METHODOLOGY OF IMPLEMENTING E-FREIGHT SOLUTIONS
IN TERMS OF INFORMATION FLOW EFFICIENCY............................................ 306
Ivana Nobilo, Ivan Herak and Dejan Laninović
THE MARKETING ORGANISATIONAL STRUCTURES TOWARDS
THINK-FEEL-DO MODEL.............................................................................................. 326
Bahtijar Berisha and Ivan Kristek
THE DEMAND FOR AUDIT SERVICES FROM NON-GOVERNMENT
ORGANIZATIONS: EVIDENCES FROM THE KOSOVO.................................... 340
Edvard Badurina
KNOWLEDGE ACQUISITION FROM DATA IN BUSINESS
INTELLIGENCE MODELS AS A SOURCE OF COMPETITIVE
ADVANTAGE
O+C14F COMPANIES........................................................................................................ 353
Anna Borucka
FORECASTING OF FIRE RISK WITH REGARD TO READINESS
OF RESCUE AND FIRE-FIGHTING VEHICLES...................................................... 373
Martina Bienefeld, Zrinka Stanić and Helena Štimac
THE IMPORTANCE OF ESTABLISHING HUMAN RESOURCE
OFFICES IN CROATIAN HEALTHCARE INSTITUTIONS –
A KEY TO THEIR SUBSISTENCE................................................................................ 396
Zdenko Prohaska, Bojana Olgić Draženović and Ivan Uroda
VALUATION OF ZERO COUPON BONDS IN EXCEL........................................ 409
VI
Zorislav Kalazić, Damir Butković and Andreja Hašćek
FROM CAMERA OBSCURA TO IPHONE: WHAT IS THE
FUTURE OF DIGITAL STOCK PHOTO INDUSTRY?........................................... 420
Mario Dadić, Ante Bačić and Iva Mihanović
THE ROLE OF MOTIVATION IN HUMAN
RESOURCES MANAGEMENT....................................................................................... 440
Maja Šimunić, Ljubica Pilepić Stifanich and Marina Perišić Prodan
THE LEVEL OF HOTEL RESERVATION SYNCHRONIZATION
PROCESSES USING INFORMATION TECHNOLOGY TOOLS........................ 451
Ivan Miloloža, Aleksandar Včev and Damir Šebo
MARKET SUCCESS OF CROATIAN ENTERPRISES:
IMPACT OF LEADERSHIP STYLES............................................................................. 471
Joško Dvornik, Vice Mihanović and Ante Mihanović
MARITIME POTENTIALS OF THE REPUBLIC OF
CROATIA WITH THE PARTICULAR EMPHASIS ON THE
CITY OF SPLIT..................................................................................................................... 493
Ivan Miškulin, Boris Crnković and Maja Miškulin
TYPES OF LEADERSHIP IN MANAGEMENT BOARDS OF
UNIVERSITY CONSTITUENT UNITS AND THEIR IMPACT ON
KNOWLEDGE MANAGEMENT................................................................................... 504
Ante Belamarić, Goran Ledinščak and Željko Holik
FINANCIAL BENCHMARKING OF CROATIAN OFFSET
PRINTING INDUSTRY..................................................................................................... 523
Željko Vojinović, Sanja Živković and Dragan Vojinović
THE CONCEPT OF INTEGRATED MARKETING
COMMUNICATIONS OF FINANCIAL INSTITUTIONS OF
BOSNIA AND HERZEGOVINA IN THE FUNCTION OF
MANAGING RELATIONS WITH CONSUMERS.................................................... 544
General Economics
Damir Ribić and Nikolina Pleša Puljić

EDUCATION AS A FACTOR OF SUCCESS IN AGRICULTURAL
PRODUCTION OF TOBACCO....................................................................................... 563
Ljubo Jurčić and Anita Čeh Časni
GOVERNMENT SPENDING BEHAVIOUR: HOW BIG PUBLIC
SECTOR DO WE REALLY NEED?................................................................................. 579
VII
Microeconomics, Macroeconomics and Monetary Economics
Faruk Hadžić and Dino Hadžialić

NEW ECONOMIC POLICY – MACROECONOMIC REFORMS
FOR ACCELERATED ECONOMIC GROWTH OF BOSNIA
AND HERZEGOVINA....................................................................................................... 595
Ružica Lončarić, Tihana Sudarić and Jadranka Deže
CONSUMER ENTNOCENTRISM ON GLOBAL FOOD MARKET................... 618
Zvonimir Savić
ARCHITECTURE OF INSTITUTIONAL FRAMEWORK FOR EU
COHESION (REGIONAL) POLICY IMPLEMENTATION IN SLOVENIA,
HUNGARY AND SLOVAKIA - ROLE MODELS FOR CROATIA?...................... 636
Amir Fejzić and Jasmina Osmanković
UNEMPLOYMENT DYNAMICS: THE CASE OF THE
SEE5 COUNTRIES............................................................................................................... 662
International Economics
Dražen Holmik
ECONOMIC DIPLOMACY IN THE TIME OF GLOBALIZATION.................... 685
Magdalena Klopott
HOW BREAKING THE INTEGRITY OF THE COLD CHAIN MAY
CONTRIBUTE TO GLOBAL WARMING?................................................................. 703
Financial Economics
Branko Matić, Maja Vretenar Cobović and Mirko Cobović

HARMONIZATION OF THE CROATIAN PENSION SYSTEM WITH
A EUROPEAN SOCIAL MODEL - PERSPECTIVES AND CHALLENGES...... 725
Izabela Pruchnicka-Grabias
STOCK MARKETS REACTIONS TO NEGATIVE DECISIONS OF
STANDARD & POOR’S RATING AGENCY - EIGHT CASE STUDIES......... 743
Ivana Bestvina Bukvić, Marija Šain and Maja Haršanji
PROJECT FINANCING OF CULTURAL AND CREATIVE INDUSTRIES
IN CROATIA - ANALYSIS OF THE CREATIVE EUROPE PROGRAMME
(2014-2020) RESULTS......................................................................................................... 763
Mustafe Hasani, Sakip Imeri, Ramadan Kryeziu
“DOING BUSINES” WB REPORT AND IMPACT ON FDI IN
BALCAN COUNTRIES WITH FOCUS IN KOSOVO............................................. 782
VIII
Marina Stanić Šulentić, Tin Horvatin and Milan Stanić
COMPARATIVE FINANCIAL ANALYSIS OF RAILWAY WORKSHOP........... 796
Markus Hafele and Sarah Katharina Stiegeler
DIE BEHANDLUNG VON KONZERNUMLAGEN –
PROBLEME IN DER PRAXIS........................................................................................... 806
Public Economics
Mladen Vedriš, Nataša Drvenkar and Damir Butković

PUBLIC PROCUREMET STRATEGY – POLICY REMARKS AND
CHALLENGES FOR THE REPUBLIC OF CROATIA.............................................. 823
Velma Pijalović and Lejla Lazović-Pita
SHOULD EXCISE DUTIES ON SOFT DRINKS IN BOSNIA AND
HERZEGOVINA BE INCREASED?.............................................................................. 842
Health, Education and Welfare
Tena Čačić
CONCEPT OF EDUCATIONAL INSTITUTIONS AS SUSTAINABLE
ORGANIZATIONS............................................................................................................. 867
Suzana Obrovac Lipar
THE ECHOES OF GLOBALIZATION AT THE UNIVERSITIES IN
CROATIA: THE ANALYSIS OF WEB SITES AND TRENDS IN THE
STUDENT EXCHANGE.................................................................................................. 881
Tihana Škojo and Renata Jukić
THE LEADS’ OF ART ENSEMBLES PERCEPTION OF NECESSARY
COMPETENCES.................................................................................................................. 897
Ivana Barković Bojanić, Dajana Džeba and Mate Perišić
SILVER ECONOMY AND AGING POPULATION: MYTHS,
REALITIES AND BUSINESS OPPORTUNITIES................................................... 912
Agneza Aleksijević
PUBLIC PERCEPTION OF PRIMARY HEALTH CARE QUALITY
IN THE REPUBLIC OF CROATIA................................................................................ 927
Sanja Španja and Sara Pejaković
EDUCATION FOR HANDLING CONFLICT IN THE ORGANIZATION..... 953
Mirko Pešić, Sanja Pešić and Marija Baban Bulat
FREE MOVEMENT OF WORKERS: THE CASE OF HEALTH
CARE WORKERS MIGRATING WITHIN THE EU................................................ 969
IX
Law and Economics
Emina Jerković
REDUCING THE TAX COMPLIANCE GAP BY IMPROVING
TAX ADMINISTRATION................................................................................................. 983
Nenad Rančić, Winona Wenning and Ozren Pilipović
ECONOMIC ANALYSIS OF ECJ JUDGEMENT IN JOINED
CASES C-503/13 & C-504/13: PRODUCT RECALLS REGARDING
MEDICAL DEVICES.........................................................................................................1001
Vesna Škare Ožbolt and Igor Bojanić
THE EFFICIENCY OF THE CRIMINAL PROCEDURE AND
POSSIBILITIES OF ITS IMPROVEMENT..............................................................1018
Dubravka Klasiček
DIGITAL INHERITANCE..............................................................................................1050
Pavao Gagro, Duško Ljuština and Ante Baran
DATA MANAGEMENT AND KNOWLEDGE MANAGEMENT
IN NOTARY PUBLIC SERVICE..................................................................................... 1069
Business Administration and Bussines Economics
Jose Vargas-Hernández
INTERCULTURAL BUSINESS MANAGEMENT DEVELOPMENT A
ND EDUCATION PROGRAMS IN BUSINESS SCHOOLS..............................1099
Urban Bacher and Torsten Winkler
AMAZON – GESCHÄFTSMODELL UND SWOT-ANALYSE........................... 1130
Marketing
Gabrijela Žalac, Ana Odak and Mario Banožić

CROATIAN VIEWS ON THE FUTURE OF COHESION
POLICY POST 2020........................................................................................................... 1147
Dejan Tubić, Rikard Bakan and Juralj Randelj
THE MARKETING ACTIVITIES AND BARRIERS OF THE
AGROTOURISM ECONOMIES OF CONTINENTAL REGION OF
THE REPUBLIC OF CROATIA: TFF OWNERS PERCEPTION......................1162
Dominik Paparić, Jesenka Ricl and Dražen Ćućić
THE ISLAND OF RAB-TOURISM POSITIONING AND
DESTINATION BRANDING......................................................................................... 1175
X
Thomas Cleff, Laura Marie Hansmann and Nadine Walter
The Quantified Self – A Theoretical Framework and
Empirical Study on Marketing Opportunities within
the Self-Tracking Environment..............................................................1198
Željko Turkalj, Tihomir Vranešević and Tajana Marušić
SOCIAL MEDIA AND IT`S IMPACT ON CLASSICAL MARKETING
CHANNELS OF COMMUNICATON......................................................................... 1225
Žarko Stilin, Jasen Mesić and Ivan Ružić
THE INFLUENCE OF E-MARKETING ON VOTERS.......................................... 1244
Lidija Nujić, Tonina Palić and Martina Herak
THE IMPACT OF SOCIAL MEDIA INFLUENCERS ON
TOURISM INDUSTRY..................................................................................................... 1258
Ivana Lacković and Eugen Ferenček
THE ROLE OF DIGITAL MARKETING AND MARKETING
AGENCIES IN MODERN BUSINESS......................................................................... 1276
Zlatko Rešetar, Zdravko Tolušić and Nikolina Pavičić Rešetar
IMPACT OF CONSUMER PREFERENCES ON PRODUCT
AND PRODUCT................................................................................................................. 1290
Kenan Mahmutović
IMPACT OF E-MARKETING ORIENTATION ON MARKETING
PERFORMANCE: CASE OF EUROPEAN REAL ESTATE
BROKERAGE INDUSTRY............................................................................................... 1308
Accounting
Bodo Runzheimer
DER NEUE STANDARD IFRS 16 DER EUROPÄISCHEN UNION
ZUR LEASINGBILANZIRUNG.................................................................................... 1337
Ivo Mijoč, Marija Ileš and Biljana Brocić
THE ROLE OF INTERNAL AUDIT IN INCREASING QUALITY OF
BUSINESS OPERATIONS OF INSURANCE COMPANIES................................ 1358
Ivana Dražić Lutilsky, Dina Liović and Matej Marković
THROUGHPUT ACCOUNTING: PROFIT-FOCUSED COST
ACCOUNTING METHOD............................................................................................. 1382
Dubravka Pekanov Starčević, Ana Zrnić and Emil Mihalina
ENVIRONMENTAL ACCOUNTING IN CROATIA:
A REVIEW OF CORPORATE REPORTING PRACTICES................................... 1396
XI
Economic Development, Technological Change, and Growth
Radul Milutinović, Slađana Benković and Biljana Stošić

THE REVIEW OF EXTERNAL SOURCES OF
INNOVATION FINANCING......................................................................................... 1413
Ivana Sataić
THE ROLE OF EUROPE 2020 STRATEGY IN CROATIAN ECONOMY
AND THE ECONOMY OF THE EUROPEAN UNION........................................ 1432
Josip Jukić, Dražen Barković and Ivona Blažević
ANALYSIS OF THE IMPACT OF SHORTENING / EXTENDING OF
PROJECT DURATION ON TOTAL COSTS............................................................. 1447
Ivana Varičak and Silvija Vitner Marković
THE ROLE OF SECTORAL SPECIALIZATION IN THE CREATION
OF SMART TOURISM DESTINATION..................................................................... 1460
Višnja Bartolović and Danijela Vinković
ACTIVE LABOR MARKET POLICIES - FINDINGS FROM
BROD-POSAVINA COUNTY........................................................................................ 1472
Zrinka Starešinić and Mia Duška Franić
STRUCTURAL AND INVESTMENT FUNDS AND THEIR IMPACT
ON THE DEVELOPMENT OF THE REPUBLIC OF CROATIA........................ 1489
Jerko Glavaš, Tibor Santo and Biljana Tuševski
BUSINESS PROCESS MANAGEMENT AS A PRECONDITION OF
PRINTING INDUSTRY DEVELOPMENT............................................................... 1504
Ivan Ambroš, Josip Faletar and Domagoj Kurtović
CASCADE USE OF WOOD: CASE STUDY OF SPAČVA...................................... 1515
Michał Kuzia
NEW URBAN MOBILITY MODEL IN SHARING
ECONOMY CONTEXT................................................................................................... 1526

Sofija Adžić and Branka Mihailović
SMALL COUNTRIES` ECONOMY EFFICIENCY -
LESSONS AND POSSIBILITIES................................................................................... 1545
Zlatko Zelenika and Drago Pupavac
MATHEMATICAL MODELLING OF THE DEVELOPMENT
FACTORS IN THE PORT OF RIJEKA......................................................................... 1558
Urban, Rural, and Regional Economics
Katarina Marošević
REGIONAL IMBALANCE OF THE REPUBLIC OF CROATIA
THROUGH A DEMOGRAPHIC FRAMEWORK: STATE AND TRENDS..... 1571
XII
Branislav Peleš, Nedeljko Knežević and Krešimir Starčević
THE IMPACT OF TOURISM ON RETAIL TRADE IN FOODSTUFFS
MAINLY, IN THE REPUBLIC OF CROATIA, COMPARED FOR THE
PERIOD 2010-2016.............................................................................................................1586
Radmila Tatarin, Ana Gavran and Ivana Deže
THE CURRENT POSITION OF FAMILY FARMS IN CROATIA-
ORGANIC VS. CONVENTIONAL PRODUCTION............................................... 1600
Karolina Gwarda
SELECTIVE MUNICIPAL WASTE COLLECTION AS PART OF
THE ZERO WASTE CITY CONCEPT.......................................................................1616
Anamarija Delić and Dora Perić
INFLUENCE OF BUSINESS ECOSYSTEM ON RURAL
TOURISM DEVELOPMENT.......................................................................................... 1636
Davorin Turkalj, Antun Biloš and Ivan Bogović
IMPLICATIONS OF COASTAL CROATIA TOURIST ATTRIBUTES ON
THE DEVELOPMENT POTENTIAL OF CONTINENTAL CROATIA........... 1652
Ivan Kelić, Sofia Turjak and Ivana Unukić
GLOBAL AGRICULTURAL ENVIRONMENT AND CROATIAN
AGRICULTURAL CHALLENGES – CAN BRANDING HELP?.......................... 1667
Mirela Kljajić-Dervić, Šemsudin Dervić and Selma Gutlić
MOTIVATION AND SATISFACTION OF EMPLOYEES:
A CASE OF BOSNIA AND HERZEGOVINA PUBLIC SECTOR........................ 1681
Miscellaneous Categories
Dražen Vitez, Marko Prpić and Marin Pucar

POLICE MANAGEMENT FOR COMMUNITY POLICING:
CASE OF CROATIA...........................................................................................................1701
Mladen Jurišić, Ivan Plaščak, Sanela Ravlić
APPLICATION OF GEOGRAPHIC INFORMATION SYSTEMS (GIS)
AND MULTI-CRITERIA DECISION ANALYSIS (MCDA) IN THE
NATURAL RESOURCES MANAGEMENT...............................................................1705
Ulrich Föhl, Carina Siefert:
A TYPOLOGY OF CONSUMER BRAND RELATIONSHIPS..............................1722
Wolfgang Gohout:
MARKMALSREDUNDANZ AM BEISPIEL EINER
UHRENMARKEN-BEWERTUNG...............................................................................1738
XIII
Vorwort
Es ist uns ein Vergnügen, das Konferenzband “Interdisciplinary Management Re-

search XIV/ Interdisziplinäre Managementforschung XIV” vorstellen zu können.
Ein Buch aus dieser Reihe ist zum ersten Mal 2005 erschienen, als Resultat der
Zusammenarbeit zwischen der Wirtschaftsfakultät in Osijek, Kroatien und der
Hochschule Pforzheim, Deutschland, und insbesondere durch das Magisterstudi-
um des Management. Die Zusammenarbeit der zwei genannten Partnerinstitutio-
nen ist unter anderem durch jährliche wissenschaftliche Symposien gekennzeichnet,
auf welchen interessante Themen aus verschiedenen Bereichen der Wirtschaft und
des Managements vorgestellt und folglich in einem Band veröffentlicht werden. Je-
des Jahr ziehen die wissenschaftlichen Symposien Akadamiker anderer kroatischer,
sowie ausländischer Universitäten, einschließlich Australien, Deutschland, Ungarn,
Polen, Rumänien, Slovenien, Montenegro, Bosnien und Herzegovina, Serbien, In-
dien, Irland, Czechien, Israel, Italien, Sudafrica, Belgien, Schweiz, USA, Slowakei,
Dänemark, Mazedonien, Mexico, Zypern und Großbritannien an, die ihren wissen-
schaftlichen und profesionellen Beitrag zur Diskussion über zeitgenössische Fragen
aus dem Bereich des Managements leisten. Die Aktualität der behandelten Fragen,
der internationale Charakter im Hinblick auf Themen und Autoren, die höchsten
Standards der Forschungsmethodologie sowie die Kontinuität dieser Konferenz-
reihe wurden auch von der internationalen akademischen Gemeinde erkannt, wes-
wegen sie auch in internationalen Datenbanken, wie Web of Science, Thomson ISI,
RePEc, EconPapers und Socionet, zu finden ist.
Die neueste Ausgabe von “Interdisciplinary Management Research XIV/ Interdis-

ziplinäre Managementforschung XIV” umfasst 95 Arbeiten geschrieben von 217
Autoren. Der Erfolg früherer Ausgaben ging über die Grenzen der Länder hinaus,
deren Autoren schon traditionell Teil der Reihe waren. Jedes der Autoren leistete
einen bedeutenden Beitrag zu diesem fachübergreifenden Managementforum.
Als Herausgeber dieses Bandes hoffen wir, dass diese Reihe auch weiterhin Akade-
miker und Profesionelle dazu bewegen wird, in Forschung und Beruf die höchsten
Standards zu beanspruchen, und dass es weiterhin als Ansporn zu weiteren Formen
von Zusammenarbeit unter Teilnehmern dieses Projektes dienen wird.
Dražen Barković, professor emeritus

Prof. Dr. Bodo Runzheimer
XV
Foreword
It is our pleasure to introduce the book “Interdisciplinary Management Research

XIV/ Interdisziplinäre Managementforschung XIV” to you. The first volume ap-
peared in 2005 as a result of co-operation between the Faculty of Economics in
Osijek (Croatia) and Pforzheim University (Germany), particularly through the
postgraduate programme “Management”. The co-operation between these partner-
ing institutions has been nurtured, amongst else, through annual scientific colloqui-
ums at which interesting topics in various fields of economics and management have
been presented and later published in the proceedings. Over the years, the scientific
colloquiums have drawn the attention of academic scholars from other Croatian
universities, as well as from other countries including Australia, Germany, Hungary,
Poland, Romania, Slovenia, Montenegro, Bosnia and Herzegovina, Serbia, India,
Ireland, Czech Republic, Israel, Italy, South Africa, Belgium, Switzerland, USA,
Slovakia, Denmark, Macedonia, Mexico, Cyprus and the United Kingdom each
making a contribution in academic and professional discussion about contemporary
management issues. Actuality and importance of the issues discussed, the interna-
tional character of the book in terms of authors and topics, the highest standards of
research methodology and continuity in publishing have been recognized by the in-
ternational academic community, resulting in the book now being indexed in world-
known data bases such as Web of Science, Thomson ISI, RePEc, EconPapers, and
Socionet.
The latest edition, i.e. ““Interdisciplinary Management Research XIV/ Inter-

disziplinäre Managementforschung XIV” encompasses 95 papers written by 217
authors. The success of former editions has echoed beyond the traditionally partici-
pative countries and authors.
As editors we hope that this book will continue to encourage academic scholars
and professionals to pursue excellence in their work and research, and to provide
an incentive for developing various forms of co-operation among all involved in this
project.
Dražen Barković, professor emeritus

Prof. Dr. Bodo Runzheimer
XVI
Management
INFLUENCE OF INFORMATION
COMMUNICATION TRENDS ON
BUSINESS COMMUNICATION IN
HOTEL INDUSTRY
Dino BRUŽA, mag.oec., Ph.D. student

Faculty of Economics in Osijek
E-mail: dino.bruza@efos.hr
Andreja RUDANČIĆ, Ph.D. assistant professor

Libertas International University
E-mail: arudancic@hotmail.com
Abstract
Hotel management needs to follow world trends, in order to be capable of meet-
ing all the challenges that appear on a global scale and to be ready for adjust-
ments and permanent investments. For a hotel system, to be integrated into the
global market, there must be an informational and communicational system
that will successfully link all elements, absorb all data, filter out useful informa-
tion and deliver them to hotel management at the right time. Today’s busi-

ness is based on such networks where information is key to success. The hotel
industry is the most relevant basis for the growth and development of tourism,
due to the complexity and volume of business. Therefore, it is very important
to monitor, harmonize and implement contemporary industry hotel standards,
which can be compared with the success of a business. In order to achieve it, it
is important to keep the track of where, how much and when to invest. Hotel
management must be capable of being up to date with all the changes in the
tourism market. The indicator, that is significant in this information and com-
munication system, is the quality of business communication, especially among
the hotel staff. The purpose of this paper is to point out the current level of
business communication quality in the hotel system, without which the transfer
of information would not have a value, and it would be useless. The aim of
the research is to recognize the level of influence of informational and com-
3
municational trends on the level of development and quality of business com-
munication of hotel employees. By analyzing the level and quality of business
Dino Bruža  Andreja Rudančić: INFLUENCE OF INFORMATION-COMMUNICATION TRENDS ON BUSINESS COMMUNICATION IN HOTEL INDUSTRY
communication, it will be presented how the information-communication tools

are represented and what is the influence on the interaction of all involved in
the hotel organization.
Key words: business communication, information and communication trends,
ICT, hotel management, hotel industry.
JEL Classification: M41
1. INTRODUCTION
The foundation of good business cooperation is based on successful com-
munication, which is of crucial importance for the efficiency of the enterprise
organization. Adversely, poor communication, which promotes interpersonal
conflicts, creates problems for the positive business climate of the company,
whether it is internal or external. This is precisely the point of business psy-
chology or psychology of work, whose role is also the role and significance of
psychology in business communication. Communication is nothing but the
process of transferring information, i.e. exchange of information and data from
sender to recipient. It is important to emphasize that there must be feedback
in the process, that is, that the recipient becomes the sender, and the original
sender becomes the recipient, thus creating a communication system. The ba-
sic types of communication are divided into two-way and one-way, oral and
written, verbal and non-verbal. The basic communication model is divided into
several elements. The first element is the sender, or the person who directs the
information and sends the message to the recipient or the receptor. Then, there
is the message itself, which includes the entire system of symbols that convey
the meaning of the information that the sender places on the communication
channel. This system consists of a series of pronounced words, written words
and sentences or simply displayed. Then, it comes to the recipient, or the re-
ceptor, the person to whom the message was sent. The last link of the basic
communication model is a return link. In expert terminology, it is referred to as
the original English word “feedback”. It plays a major role, as it serves to check
the success of a sent message or information, but it also means transmitting a
new message and changing the status of the original participants in the entire
system, so the receptor becomes the sender or emitter while the original sender
4
becomes a receptor. In this section, it is important to note that a message sent
as feedback, or a kind of feedback, does not represent what the sender sent at
the beginning of the communication process, but what the receptor received
or understood by the receipt of that message. Described elements can also be
graphically displayed, and for the purpose of this paper and research, a descrip-
tion of communication interaction in the hotel company is shown in figure 1.
Figure 1. Information system in a hotel company
Source: Z. Cerović: Hotel management, FTHM, Opatija, 2003., p. 716
2. THEORETICAL BACKGROUND OF BUSINESS

COMMUNICATION

.. Definition of business communication
The conversation involves the process of sending a message, and receiving a
message effectively in a direct contact. It is not just content that the interlocu-
tors pronounce, but it also includes the relationship with others involved in the
conversation, as well as the relation of the sender according to the content of
the message he sends. It can be concluded that the conversation encompasses
multiple levels, and the importance of business communication is that the use
of clear, all-comprehensible and supposed words is required. In business com-
munication, short, clear and timely information should be sent. The sent mes-
sage often gives the recipient the knowledge of whether the emitter is honest or
conceals its rightful face and emotions. Of course, everyone is aiming to give a
positive impression to the interlocutors at the beginning of the business com-
5
munication. In this regard, the importance of the role of a psychologist in vari-
ous companies is understood. Business psychologists specifically observe the
body language, the expression and colour of the face, tone and colour of voice,
various movements and other behaviours that reveal the real situation in which
the interlocutor is located. Therefore, in order for business communication to
be successful and even more to be successfully completed, it is necessary to con-
sider all of these aspects and elements and implement them in the analysis of
business communication. But the ultimate outcome of business communication
interaction is not always successful, and the main reasons are identified in two
causes. Communication is a complex process whose success, despite the best in-
tention of the participant, is not always guaranteed: the sent and received mes-
sages are never identical; the form and content of the message depend on the
skill of the sender and the recipient (Fox, 2001, p. 15). Sent and received mes-
sages are never identical, which in fact reflects that the significance and impor-
tance attached by the interlocutors are not always the same, which is why there
is a misunderstanding in communication and problems in the communication
channel. In addition, the form and content of the message largely depend on
the skill of the sender, which transforms his message into the communication
symbols, but also the skill of receiving that message, and interpreting all com-
munication symbols. The role and significance of psychology in business com-
munication are visible in the way of understanding of communication, based on
and achievable by various means. From the aspect of resources all communica-
tions can be divided into (Cerović, 2003, p. 717):
- verbal communication
- nonverbal communication
- written, visual communication.
Verbal communications are characterised by the fact that in this type of
communication the main and only meaning is a word, which can indicate a
number, a character or set of letters, and a combination of words, consisting
of a sent message or information. It covers many forms, such as face-to-face
conversation, group interviews, and telephone conversations, broadcast mes-
sages via television, radio, or voice. Non-verbal communication represents the
process of transmitting the message without words, and it actually appears as
the incidental effect of verbal and written communications. At the same time,
it represents a two-way transmission of messages, comprising the behaviour
6
of the interlocutor’s body, mimicry, views, gesturing, touching, dressing, outer
circumstance, and spatial behaviour, where it is important to know that a cer-
tain inter-party intimacy zone is defined between 0.80 and 1 meter distance
between the interlocutors. Written or visual communication is the transmission
of information in a written word, which includes written and graphic messages,
sentences, text, tables, pictures and sentences.
.. Impact of business psychology on manager

communication in a hotel system
Communication management is far more complex, so it needs to be specifi-
cally explained. Namely, it covers all forms of interpersonal communication, all
types of communication, and various ways and styles of communication man-
agement in the enterprise, whose activities and outcomes are accompanied by
business psychology. These outcomes can manifest positively, but also include
a number of problems, as the enterprise is a complex human reality. There are
also conflicts that appear in all their forms, with certain dynamism, triggered by
a cause, with certain consequences. The essential feature of this is intrapersonal
communication, which is considered as strategic knowledge of contemporary
management. Intrapersonal communication is a contemporary scientific disci-
pline dealing with the problem of interpersonal communication (Brajša, 1993,
p. 22). Intra-personal communication is just a part of that discipline, and it
includes sending, receiving, and responding to messages through direct face-to-
face contact. It can be planned and unplanned, intentional and accidental, both

aware and unconscious. Regarding the type of communication in managerial
communicology, it is divided according to the principle of the basic division of
communication types, but it is further classified as professional or non-commu-
nicative communication, that is the result of knowledge, degree of education,
competence and acquired skills of communicating between the employees and
hence can be studied and as a part of human resource management. Cause-
effect factors can help in understanding a certain relationship, and in resolving
all potential issues it in the future. A successful manager is successful only if
he knows how to manage others, and especially himself. Most managers lack
business psychology education, and the business owner expects the manager
to be successful in communicating with employees, knowing how to motivate
employees to teamwork, to successfully resolve the conflict or quarrel, and to
recognise the motivational factors of employees. The manager should first of all
7
be aware of his technical skills, and then be capable of working with employees,
and to apply acquired knowledge to the development program of the company
he is employed in. During the research and conceptualising of content for de-
termining the subject of this work, one thought has been recorded, which is as
follows (Rijavec, 1994, p. 7): “Do not start thinking about people when they
become a problem.”
3. INFORMATIONCOMMUNICATION
TECHNOLOGY ICT AS A TOOL OF BUSINESS
COMMUNICATION
.. Definition of information management
In order for the information to arrive from the sender to the recipient, it
is necessary to collect and process the data in a timely and valid manner, after
storing it in the form of information and passing it in the right way to the end
user. This process of collecting, processing and delivering information today is
elaborated through the information system. Information has existed since the
beginning of mankind, but in modern business, it is more important than ever.
That is precisely why there are different perspectives, hence more definitions
of the term information, depending on which context is mentioned. The word
information comes from the Latin word for information, which means inform-
ing (Galičić, Šimunić, 2006, p. 14). The purpose of information management
is precisely to provide timely and accurate information for a specific end-user,
and minimising costs. This can recognise the value of information as a very
important resource, whose use in business increases value, reduces the risk of
decision making and directly affects the business’s own economy. If the manage-
ment information is able to identify and process user data and transform them
into useful information and then forward them to the right recipients, this will
make the strategic decisions made more effective to better align goals. This same
information may, to a lesser or greater extent, affect a certain direction of execu-
tion of particular tasks, so it is essential to carry out cyclic analysis and checks
and to collect feedback that will serve as useful data for analysis, processing
and thus provide new information with added value. As was mentioned earlier,
information is one of the major resources in decision-making, and with technol-
ogy, knowledge and man, it should be considered on both sides. By its existence
8
and implementation in the business of the company, it is directed towards the
enterprise and beyond the company. When looking at the impact of company
orientation, it needs to be integrated at all levels, networked with all depart-
ments and have the freedom of flow of internal information. At the same time, if
the focus is on the influence of direction outside the enterprise, it should involve
collecting data and information from the entire market, i.e. from competitors
on the one hand and from customers on the other, and moreover, as well as the
information that indirectly affects the market. Today’s management of the hotel
industry has its own distinctiveness, which can be distanced from the general
approach of management’s understanding, and this is in support of the next
definition. Hotel management is a system of processes of creating, directing
and harmonising all factors, affecting the status of hotel services, and in which
individuals efficiently realise the predetermined objectives of hotel business
(Cerović, 2010, p. 82). Management information has evolved and improved in
the course of business development, especially in the hotel industry, which con-
tributed greatly to the collecting, processing and distribution of information
from and to the right place at the right time. Information is the most important
managerial resource (Cerović, 2010, p. 786). As the data represent a set of facts
about a particular occurrence, their transformation into information is the area
of information management. It is well known that there is a large number of
data on the market. Therefore, the role of the information management is to ob-
tain these data and to filter them, in order to obtain valid information that will
be used for further business. Today, there are business intelligence models that
support this part to maximise the use of all the data, obtained and thus become

useful in the form of information. These key data become key information at
the moment when the manager assigns a certain value, so they can predict future
market trends. The use of information technology intensifies communication,
reduces costs and supplies, improves procurement and marketing through IT
infrastructure, enables real-time information management, and encourages the
development of new activities (Stipanović, 2006, p. 205). The purpose of infor-
mation management is precise to provide timely and accurate information for a
specific end-user, minimising costs. This can recognise the value of information
as a very important resource, whose use in business increases value, reduces the
risk of decision making and directly affect the business’s own economy. For a
successful implementation of the IT support system, it is important to meet
several basic requirements. Technology investments in information systems are
an indicator of the success of adapting the hotel industry to the challenges of
9
modern demand. For a rational application and development of information
technology in hotel businesses, several preconditions need to be met (Galičić,
Šimunić, 2006, p. 98):

- To perceive the need for application of information technology.
- Plan the construction and development of the business system as a whole.
- Standardise equipment, documentation and methods of using information
technology.
- Organise the process of managing and managing the conditions of applica-
tion of information technology.
Of course, besides the mentioned types of systems, information manage-
ment in the hotel industry also includes other systems that collect and process
data, store and distribute information. These are all information systems that
are directed to the guest, and today they use the abbreviation CRM (Customer
Relations Management). The guest is the centre of interest and business, so it’s
important to invest in that cause. Management information must monitor the
wishes and needs of guests, both potential and existing. Based on their prefer-
ences, wishes, travel motives, and the perception of the experiences they expect
on their journey, they will create a kind of offer that will be put on the tourism
market. They must groom loyalty and relationship with every guest. Addition-
ally, gathering data from competitors and potential guests on the market can
also create new trends in tourist offerings, which will surely be different. To
achieve this, the information that is being gained by analysing and processing
a huge amount of data is important. In addition to CRM, there is also TQM,
or Total Quality Management. It is well known that it is fully market-oriented,
driven by a tourist. These two systems are increasingly associated with the con-
temporary concept known as IQM - Integral Quality Management, i.e. Integral
Quality Management. Management information has its own specifics, and they
are conditioned by multiple elements. Specificity of tourism activities, such as
simultaneous delivery and consumption of services, has contributed to the ne-
cessity investment in new technological innovations. In addition, the tourist of-
fer, in particular in the hotel industry, is homogeneous, static and non-elastic,
which means that it can be difficult to adapt in the short term to sudden chang-
es in the tourism and global markets. There is important timely information
that would have the effect of reducing the level of surprise or anticipating future
trends and information that is being influenced in response to the contempo-
10
rary challenges. In addition, the specificity is also in the way of communicating
with the market, which is changing faster and more frequently. By implement-
ing information management in the hotel industry’s business, competitiveness
is achieved. A large number of information and data is collected, which can be
processed and exploited in the best possible way with the help of up-to-date IT
decision support systems. This is also supported by Bakarić (2010) research,
who states that “modern information systems and web portals include all rel-
evant information updated on time” and that “the next step in creating a tourist
destination is networking various tourist, services, manufacturing, cultural and
historical tourism sources through information technology and information
systems” (Bakarić, 2010, p. 32).
.. Relation between business communication,

marketing and ICT
ICT-abbreviated in English for Information and Communication Tech-
nology is of paramount importance for any major contemporary company. By
designing and implementing a technology development strategy, as part of its
operating strategies, the company has a strong influence on business communi-
cation in the field of marketing. Marketing is nothing but business communica-
tion with the market. This is where marketing activities play a major role and
they need to be conducted in the right place at the right time (Bruža, Lugarić,
2017, p. 126). The segmentation strategy of the company easily finds its market
niche and is more easily oriented to the target segment. By positioning strat-

egy, the company actually positions its product assortment into consumer’s
heads. In this strategy, it is imperative to understand the wishes and needs of
the consumer, which is not an easy task. When a manager cannot identify the
internal psychological phenomena occurring in consumers then a psychologist
intervenes. This is in favour of the fact that experienced psychologists work in
American companies in the marketing department. Additionally, there is a mar-
keting mix strategy, based on analysis of the current state of affairs, determina-
tion of goals and control of strategic results especially for each part of that mix,
specifically for promotion, distribution channels, product and price. Promotion
is even deeper, with so many special studies in the promotional sphere, which
are already mentioned in the field of business psychology in tourism and hos-
pitality. Therefore, so many subspecialties have developed: propaganda, pub-
licity, promotional sales, personal sales, public relations and patronage. Tour-
11
ism spending is a kind of process that begins before the act of buying a tourist
product. When a potential consumer decides to purchase a particular product,
that product has to fulfil all his needs and wishes. So, in the first stage of the
process, an enterprise can influence on a potential guest, by taking care of busi-
ness communication, so one part of the job will be focused on modifying the
existing product range, and in the same time using all the available information
and communication technology, in order to offer everything that a guest needs.
When a consumer develops his awareness of desire and need, he decides to en-
ter the market, whether it is a service or a commodity, and he starts searching for
the satisfaction of his inner wishes. There is a need to differentiate the degree of
consumer engagement on the market. There are consumers with a high level of
involvement that will explore all the information that is available on that mar-
ket. Then there are those with a low level of involvement, which means they are
not exploring at all, showing little interest in what they are buying and receiving
the only information from the first bidder. Regardless of which market segment
it is and what level of consumer it is, it is important to discern consumer atti-
tudes. Attitude is a relevant segment when profiling tourists since it plays a part
in marketing research and practices (Bruža, Lugarić, 2017, p. 126). Attitudes
are adaptive abstractions or generalisations of the functioning of the environ-
ment, which are expressed as predispositions for the assessment of an object,
concept, or symbol (Foxall, et al., 2007, p. 103). According to this definition, it
can be said that a consumer acquires an attitude based on the perception of the
environment and also represents a set of symbols that help in the organisation
of psychological and physical activities. The concept of consumer attitudes is
essentially related to the likes or dislikes in relation to the product, whether
it is a commodity or a service. These attitudes are important for marketing, as
they predetermine consumer intentions and behaviour toward marketing while
providing certain information that a marketing expert or a psychologist uses in
marketing strategy. Attitudes are also important to managers because of their
expected impact on behaviour, as attitudes are just used to segment the market,
develop new products, and predict their success, market power rating, or the
failure of a product placed on the market. This results in the importance of
successful communication and use of technology because no manager can find
the true desires and needs of consumers in the market if they do not use mod-
ern communications technology and quickly access key information. The fact is
that psychologists are employed in marketing departments in North America
because it is the segment where the knowledge of the reaction in business com-
12
munication and connection with the market is more important than financial
analysis. It should be emphasised that neither business psychology nor finan-
cial management can actually function without one another when it comes to
the tourist market. If the company does not look after its employees, business
partners, suppliers, and potential consumers, then it cannot be expected to ex-
perience success because it will turn the market away precisely on the basis of
psychological manipulation. To achieve this, information technology has to be
implemented, which will facilitate and speed up communication, both inside
and outside the hotel system.
4. RESEARCH RESULTS AND ANALYSIS

In order to explore the attitudes and opinions of employees in the hotel in-
dustry, a primary research was conducted. The aim was to investigate the impact
of information and communication trends on business communication in the
hotel industry. The influence of information-communication trends on busi-
ness communication is an independent variable. Also, the secondary goal was to
find out the extent to which ICT affects the quality of business communication
and how well employees in the hotel industry are aware of the interdependence
of trends in communication and information transfer at their hotel. For the
purpose of a primary research, the following hypothesis was set:
H: Information and communication trends have a significant impact on busi-
ness communication in the hotel industry.

To test this hypothesis, empirical research was carried out using a survey
methodology, whose results were processed by statistical and descriptive meth-
ods. The survey was distributed by email to employees in the hotel industry. For
the purposes of this research, a sample of 80 respondents was taken, from five
hotels in Split. Three of them are five stars hotels, and two of them are four stars
hotels. These five hotels work through all year, all of them have high standards,
and all together have 815 rooms. Considering those criteria, it was the safest
way to reach a certain number of the employees, to fill the survey. A total of 80
respondents were interviewed, namely 38.75% female and 61.25% male. Most
of the respondents were 28-38 years old (32.5%), followed by a group of 38-48
years (30%) and 48-58 years (21.3%). Regarding the status of the respondents
at the hotel, 75% are in full-time employment, while only 16.2% are in perma-
nent seasonal status. Out of the remaining 8.8%, 5% have a student contract
13
and 3.8% are employed on part-time basis in their hotel. Most of the respon-
dents live with their partner: 48.8% of them. 22.5% live with their parents, 15%
live in a community with the whole family, and 13.8% of respondents live alone.
When looking at household size, 36.3% of respondents live with 2 to 3 members,
31.3% with 3 members and more, 18.8% with one member and 13.8% are single.
Looking at their household income, the biggest number of households is in the
income group 7,000-8,500, 40% of them, followed by households with 8,500-
10,000 kuna and over 10,000 kuna, 21,3% and 11,2 % are in the income group
of 5,500-7,000 kuna. 6.3% have revenues of less than 5.500 kunas. Of the total
number of respondents, 67.5% live in a city with 100,000 inhabitants and more,
25% in the city are in the size of 50 to 100,000 inhabitants, 5% in towns with
less than 50,000 inhabitants, and only 2, 5% live in the village. Looking at the
level of education, 45.5% of them have high qualifications, 37.9% have secondary
education (high school degree) and 16.7% have a postgraduate specialist degree.
Based on the collected data, an analysis was carried out, resulting in interest-
ing results, which are in favour of the stated hypothesis, which will be outlined
below. The respondents were offered a total of 16 questions with the offered
answers, and at the end of the survey was a set of questions with short answers
of yes or no. 62.5% of respondents said they preferred the official email as a
business communication tool, while the lowest preference was for the use of a
private email for business communication purposes - only 6.3%. The most com-
mon form of business communication is directly or face to face, which depends
on the workplace and position in the hotel. But in this survey, 71.3% said that
they commonly communicate directly or face to face, while 7.5% of the others
communicate via private email. In regards to the use of official email, as a means
of business communication, 66.3% of them report it. 53.8% of the respondents
argued that without direct contact face to face they would not be able to com-
municate, while the least-used are written messages on the paper, 2.5%. Table 1
below shows the percentages of respondents’ responses in three questions, with
8 offered responses, with the possibility of choosing more answers in each ques-
tion. The preferred and most common business communication in the hotel is
done directly, face to face, while the hotel’s business needs the official email. The
least used and preferred are written messages on paper and private email. How
much the information and communication technology trends have influenced
the change of preferences and ways of business communication is visible.
14
Table 1. Frequency of Business Communication Attributes
Necessary
Frequently Preferred to
Atribute for business
used (%) use (%)
communication (%)
Private email 7,5 6,3 6,3
Official or public email (shared email used by
66,3 62,5 56,3
two and / or more employees at the hotel)
text and / or voice messages via cell phone 22,5 23,8 28,7
social network (chat, video calling, combined) 42,5 40 42,5
call (phone, cell phone) 53,8 50 46,3
directly face to face (live or via video link) 71,3 60 53,8
written messages on paper 8,8 7,5 2,5
mixed (depending on the time, place, mode,
51,2 38,8 32,5
type and content of business communication)
Source: Authors’ analysis according to research
As the respondents were able to choose more answers, 2/3 of total respon-
dents, most frequently selected official email and face to face for all three ques-
tions. The third group of attributes chosen by the frequency are social networks
and mixed (depending on the time, place, mode, type and content of business
communication). There is a visible progress in the usage of modern technology
for information transfer. In the way of means of business communication, ICT
has the most impact on official email and social networks. 57.5% of the respon-
dents indicated that information and communication trends mostly affect the
usage of official email as a means of business communication, which confirms
the percentage of responding.

Graph 1. Official or public email (shared email used by two and/or more em-
ployees) in %
15
Out of the total number of respondents, 56.3% selected social networks as
the second most common attribute that is subject to information and commu-
nication trends. It has the least impact on written messages, which is under-
standable. Graph 2 shows the degree of selection of social network attributes
for business communication purposes.
Graph 2. Social network (chat, video calling, combined) in %
It is still the most important personal contact, that is, employees in hotel
systems still mostly communicate via business directly by face to face. For each
asked question, this attribute was chosen by more than 50% of the respondents,
and the third graph shows the relationship with the frequency of usage, the pref-
erence for business communication in this way and by importance in general.
Graph 3. Directly face to face (live or via video link) in %
16
For analysing the intensity of usage of some means of business communica-
tion, the answers are weak intensity (1-3 hours), average intensity (half-time)
and intense intensity (full-time). The same attributes are offered as in the pre-
vious questions. In general, SMS and MMS on mobile and smart phones are
used with the least intensity as a mode of business communication. With the
strongest intensity, most of the respondents selected official email, which they
use for most of their working hours. Upon completion of the analysis of the
responses, it was concluded that more than 75% of respondents use most com-
monly official emails, which they prefer and most often use this for the purpose
of business communication. The least of usage are written messages on paper.
What is interesting in this part of the survey is the fact that 42.5% of respon-
dents use social networks when communicating in the hotel where they work.
40% prefer such business communication, and 42.5% think social networks are
necessary for business communication at the hotel. It also contributes to the
tested hypothesis. It may be expected that in the forthcoming researches this
percentage will be significantly higher, assuming that information and commu-
nication technology continues to develop and that trends are also present in
these areas.
Part of the questions is related to the quality of business communication, in-
fluenced by information and communication trends. To the question how satis-
fied are they with the quality of business communication in their hotel, thinking
about information and communication performance, 55% of respondents said
they were satisfied, 27.5% were very satisfied, but 13.7% were neither satisfied
nor dissatisfied. 3.7% of respondents are not satisfied with the quality of busi-
ness communication in their hotel. Furthermore, 46.3% of respondents stated INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
that business communication in their hotel was of high quality, meaning that
most information was received and sent in a time. 27.5% of respondents agree
that it is of the highest quality, while 20% think that the level of business com-
munication is average. 6.3% are dissatisfied with the quality level. Of the total
number, 58.2% of respondents said that most of the information received was
true and 31.6% of respondents believe to all received information and consider
them true. Still, 10.1% thinks that half of the information received is untruth-
ful. This is an indication that employees in hotel systems are somehow sceptical
and the truth of information is affected by trends in information and communi-
cation technology. The next question was about knowing the types and ways of
business communication at the hotel, to which 44.3% of respondents said they
17
knew all kinds and trends, but used only certain types of business communica-
tion. 22.8% state that they do not know all trends and types of business com-
munication, but of those who know, 20.3% know all trends and all types of use,
and 12.7% do not know all the trends or use all kinds of business communica-
tion they use in their hotel. Looking at the overall impression of knowledge of
information and communication trends, 42.5% know most trends, 21.3% know
half of the trends, 20% are fully aware of all trends, 15% do not know enough
trends, and 1.2% of respondents do not know what the trends are.
Also, there was a question of what type of communication is more suscepti-
ble to changes and impacts on ICT trends, i.e. in which percentage respondents
think that ICT trends in their hotel have the most influence, given the type of
communication. 52.5% of respondents think that both oral and written com-
munications are equally subject to the influence of ICT. 27.5% think that ICT
has more to do with writing communication, while 20% believe that oral com-
munication is more susceptible to changes in ICT. Further, in this part of the
survey are analyzed elements that are important of maintaining quality busi-
ness communication. The possibility of multiple responses was given. 61.3%
of respondents stated that it is important for them to get all information about
the products and services their enterprise offers to guests. For 48.8% of respon-
dents is also important the implementation and development of information
and communication technology at the hotel, while the least important element
to maintain quality communication is knowing general information from all
departments, which is confirmed by 33.8% of respondents.
18
Graph 4. Importance of receiving information regarding the type of information
At the end of the survey, there was a set of questions, with short answers to
yes or no, regarding the correlations of information and communication trends
and business communication. Given the readership of the hotel bulletin, 34.2%
read most of the year, 21.1% of respondents read each bulletin, and 22.4% read
some newsletters. 13.2% of them do not read newsletters at all, which is also
an indication of how closely they are attending events in their hotel. The re-
maining 9.2% read very few bulletins throughout the year. With regard to com-

munication media, respondents gave a grade of satisfaction with the quality of
business communication. Most of the respondents are the most satisfied with
the website of the hotel, and are very satisfied with the form and customised
settings in email, with the hotel blog largely indifferent, while dissatisfied with
mobile applications. In the final part, there was also a set of short questions,
with short answers to yes or no. The vast majority of respondents, 55 out of 80,
confirmed that their superior is competent in knowing and tracking all the in-
formation and communication trends in the hotel. The largest number of nega-
tive responses was noted on whether employees were given a commendation
in promoting information and communication trends in their hotel, with 46
responding negatively. It is concluded that there is still no developed remunera-
tion system in the hotel systems and the promotion of education in the domain
of information and communication technology as a tool for successful business
19
communication. An equal number of positive and negative answers related to
the question of whether people have talked to someone in the last half of the
year about learning and using modern information and communication trends
to improve business communication at the hotel.
The above-mentioned indicators and results imply the conclusion that busi-
ness communication systems subjects to information-communication trends,
i.e. ICT significantly affects the quality of business communication. Employees
are not fully educated about new trends, nor are their superiors. But there is
intent of expanding knowledge in this area to achieve better quality lf business
communication, creating a positive business image of their hotel. As a main
conclusion, it is a positive fact that almost half of the respondents want to re-
ceive accurate and timely information on the implementation and development
of information and communication technology in the hotel they work, as can be
seen in the previous graph.
5. CONCLUSION
Communicating is felt by the attitudes and relationships of the interlocutors
and it causes various consequences, which can be manifested positively or nega-
tively. Business psychology specifically observes the movement of the body, the
expression and colour of the face, tone and colour of voice, various movements
and other behaviours that reveal the real situation in which the interlocutor is
located. Management communication is far more complex, so it needs to be
specifically explained. Namely, it obtains all forms and types of communication,
and various ways and styles of communication management in the enterprise,
whose activities and outcomes are accompanied by business psychology. A man-
ager in the hotel system should first of all be aware of his technical skills, then
be capable of working with employees, and apply the acquired knowledge to
the development program of the company in which he is employed in. Busi-
ness psychology has the task of seeing all phenomena, defining and classifying
them, carrying out professional analysis, which can explain how hotel work-
ers can solve, reduce or completely eliminate all communication interference in
business communication in the future. As it is well known that tourism con-
sumption begins before the act of buying a tourism product, it is important
to have a quality information system. It serves as support to hotel marketers,
as well as to all hotel workers who will have access to important information
20
through it, and efficiently navigate all the needs and provide hotel guests with
everything they expect and want. As the tourism market develops following
globalisation trends, especially in the area of information and communication
technology, it is important to systematically develop a culture of business com-
munication among hotel workers. Today’s trends in this regard show that guests
dictate what kind of communication they want. In addition, it is necessary to
nurture the development of communication culture and the improvement of
communication levels among employees. For the purpose of this paper, research
was conducted among employees in hotel companies. The aim was to deter-
mine the level of influence of information-communication trends on the level
of business communication, with the aim of pointing to the importance of the
quality of business communication quality of employees in the hotel system,
without which the information system would not have any sense. The main hy-
pothesis of research is that information and communication trends have a sig-
nificant impact on the business communication. According to the results of the
research, the conclusion is that information and s trends and technologies have
a significant influence on the manner and quality of business communication.
Without the quality of business communication, it is impossible to implement
new trends. This is pointed out by the results, obtained by examining which
type, means and medium of business communication are most commonly used,
which are preferred, and which are necessary for communication in a modern
business world. It is also evident that there is still not a serious awareness of the
need of expanding the knowledge in ICT. This represents the bearer of success-
ful and high-quality business communication, since most respondents have not

been given a commendation for promoting trends in this area, during their time
working at the hotel.
21
REFERENCES
Bakarić, T. (2010). Information system in tourist offices as a tool for better coordination
between public and private sector. 7th International Scientific Conference, Management in the
Function of increasign the Tourism Consumption. Perić, J. (ur.). Opatija, Croatia. 7 October
2010, p. 23-35
Brajša, P. (1993). Management Communication, Discussion, Problems and Conflicts in the
Enterprise, Society for the Development of Information Literacy, ISBN 953-636-3011,
Zagreb
Bruža, D., Lugarić, A. (2017). Special city programs in the function of growth and develop-
ment of tourism and hospitality offer, Interdiscplinary Management Research XIII, Barković,
D. & Runzheimer, B. (ur), str. 121-137, ISSN 1847-0408, Opatija, 19-21. May 2017, Eko-
nomski fakultet u Osijeku & Hochschule Pforzheim University of Applied Sciences, Osijek.
19 May 2017, p. 121-138
Cerović, Z. (2003). Hotel management, Faculty of Tourism and Hotel Management in
Opatija, ISBN 953-619-8347, Rijeka
Cerović, Z. (2010). Hotel management, 2nd edited edition, Faculty of Tourism and Hospi-
tality Management in Opatija, ISBN 978-953-6198-76-4, Rijeka
Vujić, V. (2005). Human Capital Management, 2nd Edition, Faculty of Tourism and Hospi-
tality Management in Opatija, ISBN 953-6198-44-4, Rijeka
Fox, R. (2001). Business communication, Croatian University Fee, ISBN 953-169-055-3,
Zagreb
Foxall, G.R., et. al. (2007). Marketing Psychology in Marketing, Naklada Slap, ISBN 953-
191-330-7, Zagreb
Galičić, V., Šimunić, M. (2006). Information Systems and Electronic Business in Tourism
and Hospitality, Faculty of Tourism and Hospitality Management in Opatija, ISBN 953-
6198-57-6, Rijeka
Nierenberg, J., Ross, I.S. (2005). The secrets of successful bargaining, an effective strategy
for improving your negotiating abilities, Školska knjiga, ISBN 978-953-0-60822-1, Zagreb
Rijavec, M. (1995). A Successful Manager, Everyday Management Methods, MEP Consult,
ISBN 953-96029-0-4, Zagreb
Stipanović, C. (2006). Concept and development strategy in tourism, Faculty of Tourism
and Hospitality Management in Optija, ISBN 953-6198-90-8, Rijeka
22
IMPLEMENTING SPREADSHEETS
IN MANAGEMENT ACCOUNTING
COURSE: AN EXAMPLE OF
BUDGETING AND SCENARIO
ANALYSIS
Nemanja MILANOVIĆ, M.A.

Faculty of Organisational Sciences, University of Belgrade
E-mail: nemanja.milanovic@fon.bg.ac.rs
Lena ĐORĐEVIĆ, PH. D.

E-mail: lena.djordjevic@fon.bg.ac.rs
Nela MILOŠEVIĆ, M.A.

E-mail: nela.milosevic@fon.bg.ac.rs
Abstract

In the last few decades, there has been an ongoing discussion among research-
ers and practitioners about the growing need for universities to comprehen-
sively introduce information technology in management accounting education.
The extant literature provides evidence of the prevalent use of spreadsheets
in capturing, analysing and interpreting data in management accounting.
Even more, spreadsheets have become an important tool for simulation and
decision making. To be prepared to respond to evolving requirements of em-
ployers and accounting profession in general, students should be enabled to
develop a range of specific analytical and IT skills and competencies. This pa-
per provides some guidelines and recommendations for spreadsheet modelling
implementation, aimed to facilitate knowledge acquiring. The application of
spreadsheets in management accounting course is presented through the case
studies of cash budget creation and capital budgeting. Additionally, basic steps
23
of What-if analyses and Scenario Manager technique are described. Evidence
gathered and literature analysis suggests that implementation of spreadsheets
Nemanja Milanović  Lena Đorđević  Nela Milošević: IMPLEMENTING SPREADSHEETS IN MANAGEMENT ACCOUNTING COURSE: AN EXAMPLE ...
and spreadsheet modelling in this course provides students with more com-
prehensive insight into real-world, problem-solving and applicative business
environment.
Key words: management accounting education, spreadsheet modelling, sce-
nario analysis
JEL Classification: M41, M49
1. INTRODUCTION
In the last few decades, the accounting profession has received the immense
attention from both scholars and practitioners in the field. Nowadays, because
of technological progress and globalization, the world economy decreased the
information costs and increased the competition among different market play-
ers (Kavanagh & Drennan, 2008). Consequently, the Pathways Commission
(2012) pointed out a need for education improvement in line with the present-
day environment and growing demands on accounting professionals. Necessary
competencies of accounting professionals include quantitative methods, ana-
lytical thinking and problem solving. Technology competencies comprise high-
level skills in the development and use of spreadsheet models (Lawson et al.,
2014).
In today’s business environment, spreadsheets (e.g. Excel) are widely applied
standard calculation engine. Leong and Cheong (2008) point out that spread-
sheets have a very important role in business modelling, analysis, and decision
support. As a result, educators and students in the field of accounting today
are faced with the pressure of employers seeking a various range of skills and
competencies of new accounting graduates. Kavanagh and Drennan (2008)
examined perceptions and expectations of two major stakeholders: accounting
students and employers. Their research showed that students know what em-
ployers expect from them: good way of communication, analytical skills, team-
work orientation, as well as business awareness and real-world problem-solving
skills. In order to reconcile expectations of students and the requirements of
employers, universities should develop accounting programs that prioritize and
deliver additional skills and attributes to their students. Additionally, leading ac-
counting associations and standard setters (American Accounting Association
24
– AAA, the Association to Advance Collegiate Schools of Business – AACSB,
the American Institute of Certified Public Accountants – AICPA) invites uni-
versities to incorporate different accounting technologies used in practice into
accounting curricula in order to enhance students’ skills necessary when they
enter the accounting profession (Willis, 2016). There are many contentions
that technology is one of the prime drivers of an education paradigm change
(Polly et al. 2010). Although technology facilitates learning and teaching, there
is still an ongoing debate on the key factors of effective technology application
in education. However, there is the broad body of evidence that technology can
positively affect education efficiency when the right conditions are met (Honey,
Culp & Carrigg, 2000).
Spraakman et al. (2015) pointed out that “the role of the management ac-
countant has shifted from capturing and recording transactions to analyzing
business issues”. Nowadays, preparing financial ledgers and comprehensive re-
ports are almost impossible without information technology and spreadsheet
solutions. Spreadsheets are a very important tool for planning, budgeting, fore-
casting as well as decision-making processes (Bradbard et al, 2014). Other top-
ics within accounting those could benefit from spreadsheet solutions are “target
costing, economic order quantity, profit planning, cost–volume–profit relation-
ships, linear programming, audit sampling, and standard costing” (Togo, 2004).
Since 1979 and introduction of VisiCalc, the spreadsheet has been used
in capturing, analyzing and presenting data in accounting (Moussalli, 2005).
France (2010) investigated practices within management accounting job adver-

tisements and found that nearly 60% of advertisements insisted on knowledge
of MS Excel. In addition, Madahar (2011) proved that 77% of the interviewed
Cardiff School of Management graduates rated spreadsheets as “very impor-
tant” and “critical” in their positions. A growing stream of literature suggests
MS Excel as most common spreadsheet software in accounting education
(Hyvönen, Järvinen & Pellinen, 2006; Ringelstein, 2009; Ramachandran Rack-
liffe & Ragland, 2016; Frownfelter-Lohrke, 2017), contributing to students’
technological competencies and understanding of accounting concepts (Con-
very & Swaney, 2012). Nevertheless, Convery and Swaney (2012) suggest that
introduction of spreadsheet tools into accounting education courses is rational
and justified when the benefits to students learning to overshadow the cost of
implementation. Management sciences, particularly those related to finance, get
a new perspective thanks to different spreadsheets that can be used as a support
25
in the process of making decisions (Moncarz & O’Brien, 1988; Powell & Baker,
2004; Howcroft, 2006; Sentence, 2008).
Although education institutions use MS Office, the application of practical

tools is generally missing from MS textbooks (Markham & Palocsay, 2006).
Ramachandran Rackliffe and Ragland surveyed 245 faculty members at over
100 accounting programs, finding that MS Excel is incorporated in account-
ing classes in the majority of examined programs. Nevertheless, this study also
shows that faculties find their students not fully proficient in Excel, preparing
the stage for accounting course redesign to improve students’ technological and
analytical performance (Spiceland, Spiceland & Schaeffer, 2015). However, it
must be noted that although spreadsheet software such as MS Excel represents
a powerful analytical tool, before entering accounting profession, students still
lack programming experience critical for creation, application, and utilization of
spreadsheet models (Frownfelter- Lohrke, 2017).
The rationale for conducting this research lies in the disproportionate
presence of theoretical knowledge and practical implementation of IT-based
accounting solutions in accounting courses’ curriculum. The paper tries to
promote and explain the application of the Excel Scenarios tool within Man-
agement Accounting course. More precisely, it is based on a cash budget and
capital budgeting example in MS Excel and their explanation through the ver-
bal, graphical and mathematical model. The course’s lecturers noticed that stu-
dents are familiar with features of sensitivity analysis in terms of general theory
knowledge, but usually, they do not have an opportunity to test and apply that
knowledge in solving real-world business cases using a spreadsheet or similar
IT tools. The authors presented the processes of creating cash budget and sce-
nario analysis using MS Excel tools based on two examples from Mayes (2012),
as well as capital budgeting and profitability index calculations.
This paper is organized as follows. Section 2 provides guidelines for incor-
porating spreadsheet modelling in management accounting course and thor-
oughly explains the application of these models for the purposes of cash budget
creation and capital budgeting. Section 3 is reserved for concluding remarks.
26
2. INCORPORATING SPREADSHEET
MODELLING IN MANAGEMENT ACCOUNTING
COURSE  GUIDELINES
Some of the main issues of incorporating spreadsheet modelling in educa-
tion consider domain knowledge and implementation guidelines. Authors of
the paper argue domain planning and spreadsheet implementation based on
the cash budget and capital budgeting case studies. Often spreadsheet users,
especially novices, start spreadsheet modelling directly in a spreadsheet without
verbal, graphical and mathematical model or any plan. Consequently, relevant
facts underlying the problem can be missed out. Even more, for a student who
lacks sufficient understanding of the subject matter, it could easily become the
bane. If student misinterprets or is unable to interpret the problem assigned,
even if it is developed, his spreadsheet model will be certainly erroneous. In
order to overcome this problem, modelling should start with a verbal model.
The verbal model includes a verbal description of the model elements and their
relations. Next step of problem understanding is a graphical model (flow dia-
gram, block diagram, influence diagram etc.). Drawing diagram or picture of
the transaction should make easier recognition of all facts relevant for problem
modelling. A graphical model is followed by a mathematical model, represent-
ing transformation rules of elements by mathematical relations. Finally, based
on mathematical formulas students should create spreadsheet formulas. Even
more, in the beginning, it is desirable for students to solve the assigned problem
as homework, using only pencil and paper, and in that manner prepare them-

selves for the described spreadsheet model creation steps.
Another important question of implementation is spreadsheet model design.
The flawless design is a crucial prerequisite for updating and continuous usage
of spreadsheet over time. The most fundamental design implies a separation
of input, calculation and output sections of a spreadsheet. Input data should
be separated from formulas due to the risk of inadvertent deletion of formula
instead of data. Formulas should use cell references above or left from the cur-
rent cell in order to reduce the risk of a circular reference and improve flows
visibility. Hard coding should be avoided. Constants included in a formula are
hidden and lead to error if input data are changed. Additionally, the simulation
process is more difficult. The layout of the input section should be presented in
a consistent manner that enables easy data entry. Output section layout should
27
provide visibility and understanding of model results. Some authors suggest
cascade design, where input, calculation and output sections do not appear in
the same row or column. In this way adding or deletion of a row or a column
in one section does not affect other sections. Furthermore, students should pay
attention to absolute and relative references and order of arguments in func-
tions. Creation of functions can be facilitated by using of Insert function block
with described functions and their arguments. Data Validation and Conditional
Formatting techniques, also, have potential to reduce the possibility of error.
Described steps and guidelines represent just a small portion of recommen-
dations and rules related to spreadsheet modelling. However, usually, students
are not familiar with them. Furthermore, they are considered difficult to ap-
ply. In order to facilitate spreadsheet best practice adoption, students should
be given a step-by-step checklist for a model creation or a template for solving
the problem. The completed template, that demonstrates good spreadsheet de-
sign, can be used for exercise. Changing of inputs and observing of resulting
outputs should enable students to understand the logic behind visible spread-
sheet model elements. Another exercise for students includes deconstruction
of a final spreadsheet solution, in accordance with the model creation checklist.
After analysis of inputs, calculation (algorithm) and output sections, conclu-
sion or business decision should be made as a result of this analysis. Next level
of spreadsheet modelling exercises includes a blank template, where students
should insert the correct formula to solve the problem. This exercise is aimed at
practicing of rules about absolute and relative cell references, hard coding in a
formula and functions, Insert Function block etc. The simple testing procedure
includes a comparison of a spreadsheet model output with independently calcu-
lated results (for example, test data from a textbook). If students enter numbers
form textbook example in the model and outputs matching, that will provide
positive feedback about spreadsheet accuracy. When the model is finished stu-
dents can perform simulation in order to compare different strategies and make
a decision.
.. Case Study : Cash Budget Spreadsheet Modelling

It must be noted that cash budget is one of the most valuable budgets in the
master budget (Hansen & Mowen, 2006). In order to know when to borrow
cash and to repay the loans, the manager should know cash inflows and out-
28
flows on the regular basis. Available cash takes into account the beginning cash
balance and all collections made during the period. The primary source of cash
in any type of business is related to sales activities, where companies use past ex-
perience to define the percentage of credit sales. The cash disbursement part of
cash budget lists all planed cash outflows for the period. It is worth mentioning
that depreciation is never included as a cash disbursement. Companies strive
to keep the lowest amount of cash on hand, but minimum cash balance allows
them to make unplanned purchases or to solve unexpected financing hurdles.
On the other hand, in case of cash surpluses, there is an opportunity for repay-
ing loans or making some investments. The lack of cash will force a company to
consider borrowing the necessary amount. The last line in every cash budget is
the ending cash balance.
The example presented below has specific learning objectives, enabling stu-
dents to:
1. Make a well-designed cash budget in Excel based on the business situation;
2. Calculate an expected ending cash balance and see whether there is a need
for a short-term loan;
3. Use What-if analyses and the Scenario Manager to make a decision about
the month when capital investment should be made;
4. Know how to make a scenario summary of a cash budget.
The example used for this study is based on the one presented in Chapter
3 in Mayes (2012), dealing with the creation of a cash budget at “Mark&Co”, a
small manufacturer of barbecue grills. In order to create the proper spreadsheet,
the first step is to understand the verbal model. The firm’s employees have the INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
following set of assumptions and expectations which will be valuable for the
cash budgeting process.
• Real and assumed sales for October are presented in Table 1.
• 40% of sales clients pay in cash. Remaining 60% of sales are described
as follows, 75% is collected in the next month and 25% is collected two
months after the purchase has been made.
• Costs for raw materials inventory are 50% of the sales which will be made
in following month (e.g., July costs are 50% of expected August sales).
60% of costs are realized in the month after the purchase has been made,
and the rest is paid next month.
29
• Wages are assumed to be 20% of expected sales.
• Monthly costs of leases for equipment are $20,000.
• Interest payments of $40,000 on long-term debt should be made in June

and September.
• A $30,000 dividend will be covered in June.
• Tax prepayments of $15,000 will be realized in June and September.
• $200,000 is planed to be paid in July for a capital investment, but manage-
ment is flexible; they have not decided on a date.
• Mark&Co must keep minimum $15,000 in terms of cash because of
the arrangement with the bank. The ending cash balance for May was
$20,000.
Table 1. Mark&Co’s actual and expected sales for 2012

Apr. May June July Aug. Sep. Oct.
Sales 250,000 300,000 330,000 350,000 250,000 150,000 100,000
A simple diagram of factors which influence ending cash balance is shown

in Figure 1.
Figure 1. Ending cash balance influence factors
The broad body of management accounting literature suggests that ending

cash balance calculation can be represented by the mathematical formula (1):
ECB=BCB+TC-TD=UCB+CB (1)
30
where ECB stands for Ending cash balance, BCB for Beginning cash balance,
TC for Total collection, TD for Total disbursements, UCB for Unadjusted cash
balance and CB for Current borrowing.
Before scenarios development, it is necessary to create the best possible tem-
plate for cash budgets in Excel spreadsheet. Creating a cash budget template
enables students to learn how to use general functions, how to organise their
plan in order to get better results, and to understand how different variables
impact future decisions. An unstructured template may lead to the wrong direc-
tion and unexpected results. The case presented in this study takes into account
collections and payments as inputs, and the expected ending cash balance at
the end of each month as the first output. Additionally, it considers short-term
loan obligations. Step-by-step checklist or instructions for template (Figure 1)
creation can be given as follows:
• Input section
- The starting point for a cash budget is the sales forecast which is usually
received from the marketing department. For most firms, at least a por-
tion of sales is made on credit. In the presented example, 45% (= 0.60
× 0.75) of total sales, regardless the month when it happened, will be
collected during next month, and 15% (= 0.60 × 0.25) will be collected
in next two months.
- The row Collections presents all collections from the sales made in cash
or within instalments. Collections from the sales made in the previous
month are indicated in row First instalment, while row named the Sec-
ond instalment indicates collections on sales made two months earlier. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
- The next input refers to the payments made for inventory purchases.
The attention on credit purchases must be paid because they are not
cash outflows. Treatment of purchases and payments is based on the
same logic as collections.
- The last section of inputs does not require building complex relation-
ships between the cells besides entering remaining labels and numbers
which represent disbursements.
• Calculation section
- After completion of the input section, the problem solving proceeds
with calculating how much cash to borrow using IF formula in Excel.
31
That calculation can be defined as follows (2): “If the unadjusted cash
balance is less than the minimum, then an amount equal to minimum
cash – unadjusted cash will be borrowed. Otherwise, current borrow-

ing is zero.”
UCB, UCB  min RCB*

CB= (2)
0, otherwise
*
required cash balance
- This section is focused on paying back the short-term loan. In August,
the firm expects a large unadjusted cash balance which could be used
for paying loan obligations. For this purpose, MIN function is used in
order to calculate the required ending cash balance at the end of each
month.
- The section additionally contains all elements necessary for output
calculation.
- Part of model entitled Changing cells refers to the position intended for
simulation of values for investing.
• Output section
- The last section of the cash budget is the final result and consists of
the anticipated ending cash balance at the end of each time period
(month). This is very important part because a manager will make a
decision about a short-term loan. A mathematical model shows the
formula required for determination of the firm’s ending cash balance.
After the introduction of basic features of the template to the students, the
next step is What-if and Scenario analysis. These tools should enable students
to understand consequences of different decisions. In our example, Mark&Co
management is flexible about the capital investment of $200,000. The simu-
lation should be used in order to determine the best period for making the
investment.
32
Figure 2. Cash budget worksheet template
Scenario analysis allows students to try different things by simple varying

of the month in which the capital expenditure is planned. This tool provides a
history of several scenarios in the spreadsheet with the opportunity to display
them whenever it is needed. When inputs of the scenario are defined, students
should just choose a scenario from the list and predefined numbers will appear
into the selected part of the spreadsheet. The model will be changed automati- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
cally. Scenario manager dialog box (Figure 3) shows four scenarios which man-
agers should use in order to make this capital investment decision. Step-by-
step checklist or instructions for What-if and Scenario analysis can be given as
follows:
- To find this tool, go to the “Data tab”.
- In “Data Tools” group there is the “What-If Analysis” button and within it
“Scenario Manager”.
- When the dialog box is displayed, scenarios should be developed.
- For the beginning, choose the “Add button”.
33
- In the next dialog box write “Expenditure in June” for the “Scenario name”.
- The “Changing cells” will have different numbers for each scenario.
- Because in the first scenario the expenditure should be made in June, enter
200.000 in the first box and 0 in all other cells.
- After creating scenarios, the “Scenario Manager” dialog box will appear
(see Figure 3).
- In order to present a particular scenario, one should just choose it from the
list and press the “Show button”.
- It’s important to have in mind that Excel always shows the last selected
scenario.
Figure 3. Scenario manager dialog box
The most important benefit of the “Scenario Manager” is its ability to show
the results of all possible scenarios. This procedure has the following steps:
1. Go to the “Scenario Manager” and click on the “Summary button”. It is
important to use “Result cells”, which is a cell (or several cells) that shows
the end result of each scenario.
34
2. Press “OK button” and a spreadsheet will create a new worksheet that
summarizes the scenario results. The report is generated immediately and
can be found in a sheet named “Scenario Summary” (see Figure 4).
Figure 4. Scenario summary for cash budget
The most important limitation of scenario analysis is related to excluding

the probability of occurrence of different scenarios. It is possible to overcome
this limitation by using simulation analysis. Simulation assigns probability dis-
tributions to key parameters of the model. Cash budgeting in Excel teaches
students how to make structured plans, how to differentiate cash inflows and
cash outflows and control all budget information. Moreover, a well-organized
budget this case study provides significantly improves students’ skills in employ-
ing financial analysis in decision making process. In addition, this case study has
shown that scenario analysis is a valuable tool for instructors in terms of teach-

ing and grading students.
.. Case Study : Capital Budgeting Spreadsheet Modelling

The term budget refers to a plan for tracking all inputs and outputs during
a particular period. Capital implies long term assets used in a company. There-
fore, capital budgeting is “the whole process of analysing projects and deciding
which ones to include in the capital budget” (Brigham & Houston, 2012). Due
to its complexity and requirement for experienced and responsible managers
able to make strategic decisions, the capital budget can be differentiated as one
of the most important budgets in a company. Considering that strategic de-
cisions deal with the development of new products, services, or markets, it is
expected to last minimum 5-10 years, requiring a 5-10-year sales forecast. If the
35
value of capital investment is too high, it will increase depreciation costs. On
the other hand, if there are not enough investments, the competitors will have
the upper hand and the company risks losing not only position on the market
but also customers’ satisfaction. Effective capital budgeting is crucial for making
a quality investment in a new asset at the right time. Usually, it is very hard to
choose the best possible investment, as large amounts of money are not avail-
able automatically and, finally, every decision should be supported by strong
arguments.
The crucial thing for comparing investments is to understand cost classifica-
tion. There is a big difference between relevant and irrelevant costs within man-
agement accounting literature. Relevant costs are future costs that will make a
difference in a decision. Moreover, those costs will differ among alternatives.
Irrelevant costs are historical, sunk costs, that already exist and that would not
change the investment outcome. The purpose of the case study 2 explained in
this paper is to fulfil learning objectives presented in the diagram below:
Figure 5. Learning objectives for students
The verbal model of this case study is based on Chapter 11 in Mayes (2012)
and is given as follows: The Ecco Shoe Company discusses the purchase of an
automated machine to change a one which is manually operated. The five years
old machine that is replaced originally had an expected life of 10 years. It is
depreciated using the straight-line method from $50,000 down to $0 and now
has the price of $25,000. It needs one person to operate the machine and his
salary is $19,000 per year.
Annual maintenance and defects costs for the old machine are $8,000 and
$6,000, respectively. The new machine has a price of $95,000 and an expected
salvage value of $15,000 and it is expected to be used for five years. Shipping
and installation expenses are $5,000. The new machine will be more efficient,
36
investment in net working capital would increase by a total of $3,000. The com-
pany expects that annual maintenance costs for the new machine will be $3,000
and defects cost will be $1,000. Before taking into account this project, the com-
pany runs an analysis of current facilities to define whether other changes will
be required by the putting new machine into operation. The cost of the analysis
was $5,000 and it showed that current facilities could support this new ma-
chine without any modifications. In order to buy the new machine, the compa-
ny would have to take $30,000 debt with 10% of interest rate. This will increase
interest expense for $3,000 on the annual base. The required rate of return for
this project is 12% and the company’s marginal tax rate is 30%. Furthermore,
management has required that in maximum three years the investment should
be paid back. The most important question in this case study is: Is this project
acceptable? A simple diagram of factors which influence profitability index, a
method for ranking projects, is shown in Figure 6.
Figure 6. Factors of influence on profitability index

Step-by-step checklist or instructions for template creation (Figure 7) and
problem solving can be given as follows:
• Input section
- Constant input: list all relevant constant input data from the Ecco Shoe
problem.
- Calculated input: find out the book value of the current machine. The
book value is calculated as the difference between the depreciable base
and the accumulated depreciation. The difference column presents the
the new machine savings. The formulas are the simple difference be-
tween the current machine’s and the new machine’s costs. Excel has
37
built-in five functions for calculating depreciation: straight-line (SLN),
double-declining balance (DDB), fixed-declining balance (DB), the
sum of the years’ digits (SYD), and variable-declining balance (VDB).

Ecco Shoe uses the straight-line method for analysis purposes. There-
fore, the following function is used: SLN (Cost, Salvage, Life), where
Cost is the depreciable base of the asset, Salvage is the estimated sal-
vage value, and Life is the number of years over which the asset is to be
depreciated. In order to understand the example, students should use
Insert function block with described functions. It is worth mentioning
that straight-line depreciation distributes depreciation equally during
the expected useful life of the machine.
Figure 7. Insert function block and arguments for SLN function
38
• Calculation section
- Having in mind all inputs, we can continue with cash flow in order to
evaluate the potential investment. The initial outflow consists of the
new machine’s price, the shipping and installation costs, and the salvage
value of the old machine and all sales taxes.
- Further on, we can calculate the annual after-tax cash flows for the
project.
- The depreciation tax benefit stands for the savings in taxes because of
the extra depreciation expense. Additionally, depreciation is a non-cash
expense, so the effects of increasing depreciation are decreased taxes
and increased cash flow.
- The terminal cash flow is defined through non-operating cash flows
that will happen in the final period of the project. Usually, there will
also be operating cash flows that come during this period, but for the
simplification, in this example, these flows are defined as the final pe-
riod after-tax cash flows. The terminal cash flow will consist of the
expected salvage value of the new machine, taxes associated with the
sale, recovery of any investments in net working capital, and potentially
some shut-down costs.
Output section
- Once when annual after-tax operating cash flows is prepared, profit-
ability index method can be applied to make a decision about a par-
ticular investment.
- There are five key methods that can be used in order to decide whether
or not the project should be accepted: (1) payback period, (2) discount-
ed payback period, (3) net present value (NPV), (4) internal rate of re-
turn (IRR), and (5) profitability index. In this example, we are focused
on profitability index and its usage.
- The profitability index (PI) provides a measure of the dollar benefit per
dollar of cost. An alternative name for this ratio is a benefit-cost ratio.
This ratio consists of the present value of future net cash flows and the
initial cash outflow. It can be expressed through mathematical formula
(3) such as:
39
(3)
where PI stands for profitability index, CF for cash flow and ICO for initial
cash outflow. If the PI is greater than or equal to 1, the project should be ac-
cepted because the benefits are higher or, at least, equal to the costs. Otherwise,
the project should be rejected. In order visualize output value of PI students
should use Conditional formatting technique in accordance with the described
rule. In our case study profitability index is 1.4396, indicating that the project is
acceptable. Profitability index considers the time value of money and takes into
account the entire life span of the particular asset. Nevertheless, it is very hard
to define proper discount rate which could be considered as the main limitation
of this ratio.
Figure 8: Capital budget template
Through the capital budgeting case study, students learn how to analyse in-
vestments and come to better decisions following particular criteria. It improves
students’ knowledge and abilities and prepares them for the real-world prob-
lems. In addition, students have a guidance and support from instructors which
40
leads to more independent work and opportunities to learn faster, not only
the subject matter but also tools and functions in Excel. Nowadays, business
is becoming a very dynamic field which fosters changes and improvements in
education. Usage of spreadsheets in class provides students with active learning
experiences which will motivate them to give their best and make a difference
in the job market.
3. CONCLUSION
This paper presents spreadsheet assignment projects, which can be imple-
mented in reasonable class time and provide students with the basics of spread-
sheet usage in the field of management accounting. Furthermore, the paper pro-
vides a step-by-step checklist for spreadsheet models creation and a template
for problem solving. The template and the checklist are aimed at improvement
of spreadsheet best practice adoption. By the time students complete described
assignments, they will have acquired knowledge in management accounting and
improved their basic spreadsheet skills.
Spreadsheets could be considered as an added value in financial manage-
ment and accounting, not only for practitioners but also for students. Usually,
students find that scenario analysis is simple and understandable, but at the
same time challenging because they need to know how to use data, interpret
conclusions and come up with different decisions. Moreover, they should know
what inputs and outputs are necessary for the analysis, as well as how to de-
sign understandable and logical worksheets. In addition, most students from
business schools will have numerous opportunities to consider different asset INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
investments through their careers. It is valuable to know the available methods,

how and when to choose the most appropriate one and how to make the opti-
mal decision. The authors of the paper strongly believe that using spreadsheets
in Management Accounting courses will improve curricula and enhance stu-
dents’ knowledge.
This investigation presents some limitations that should be considered. First,
it presents simplified examples of how cash and capital budgeting can be taught
using spreadsheets. Second, results are not confirmed and tested on students. In
the future, the work will be extended through testing of exercises on students.
Finally, future studies should be focused more on research conducted on good
examples from other Management Accounting courses, which are organized at
41
well-developed universities. The previous educational experience is encouraged
to bring more insight into how faculties should enhance their curricula with
well-organized spreadsheet examples in the field of financial management. Ac-

counting specialists use spreadsheet knowledge in everyday life, so it becomes
an essential skill in business. Implementing spreadsheets in subject materials is
the way how students can develop their knowledge and skills before entering
the profession.
REFERENCES
Bradbard, D. A., Alvis, C., & Morris, R. (2014). Spreadsheet usage by management accoun-
tants: An exploratory study. Journal of Accounting Education, 32(4), 24–30. doi:10.1016/j.
jaccedu.2014.09.001
Brigham, E. F., & Houston, J. F. (2012). Fundamentals of financial management. Cengage
Learning.
Convery, S. P., & Swaney, A. M. (2012). Analyzing Business Issues—With Excel: The Case
of Superior Log Cabins. Inc. Issues in Accounting Education, 27(1), 141–156. doi:10.2308/
iace-50095
France, A. (2010). Management accounting practices reflected in job advertisements. Journal
of new business ideas & trends, 8(2), 41-57.
Frownfelter- Lohrke, C. (2017). Teaching good Excel design and skills: A three spread-
sheet assignment project. Journal of Accounting Education, 39, 68–83. doi:10.1016/j.
jaccedu.2016.12.001
Hansen, D. R., & Mowen, M. M. (2006). Management accounting: the cornerstone for business
decisions. Instructors Edition. Mason, OH: Thomson South-Western.
Honey, M., Culp, K. M., & Carrigg, F. (2000). Perspectives on technology and education re-
search: Lessons from the past and present. Journal of Educational Computing Research, 23(1),
5-14.
Howcroft, D. (2006). Spreadsheets and the financial planning process: a case study of
resistance to change. Journal of Accounting & Organizational Change, 2(3), 248–280.
doi:10.1108/18325910610690081
Hyvönen, T., Järvinen, J., & Pellinen, J. (2006). The role of standard software packages in
mediating management accounting knowledge. Qualitative Research in Accounting & Man-
agement, 3(2), 145-160.
Kavanagh, M. H., & Drennan, L. (2008). What skills and attributes does an accounting
graduate need? Evidence from student perceptions and employer expectations. Accounting &
Finance, 48(2), 279–300. doi:10.1111/j.1467-629x.2007.00245.x
Lawson, R. A., Blocher, E. J., Brewer, P. C., Cokins, G., Sorensen, J. E., Stout, D. E., … Wout-
ers, M. J. F. (2014). Focusing accounting curricula on students’ long-run careers: Recommen-
dations for an integrated competency-based framework for accounting education. Issues in
Accounting Education, 29(2), 295–317
42
Madahar, M. (2011). Spreadsheet use for strategic decision-making: An analysis of spreadsheet
use and associated risk (Ph.D. thesis). Cardiff School of Management, University of Wales
Institute Cardiff, Cardiff.
Moncarz, E., & O’Brien, W. (1988). Teaching Financial Management with Electron-
ic spreadsheets. Cornell Hotel and Restaurant Administration Quarterly, 29(2), 62–66.
doi:10.1177/001088048802900223
Moussalli, S. (2005). Accounting for the Journal’s First 100 Years: A Timeline from 1905 to
2005. Journal of Accountancy, 200(4), 43.
Pathways Commission. (2012). Charting a National Strategy for the Next Generation of Ac-
countants.Available at:
http://commons.aaahq.org/files/0b14318188/Pathways_Commission_Final_Report_
Complete.pdf
Powell, S. G., & Baker, K. R. (2004). The art of modeling with spreadsheets, Hoboken.
Ramachandran Rackliffe, U., & Ragland, L. (2016). Excel in the accounting curriculum: per-
ceptions from accounting professors. Accounting Education, 25(2), 139–166. doi:10.1080/0
9639284.2015.1126791
Ringelstein, D. (2009). An Activity-Based Costing Assessment Task: Using an Excel Spread-
sheet. E-Journal of Business Education & Scholarship of Teaching, 3(1).
Sentence, B. (2008). A New Approach to Spreadsheet Analytics Management in Financial
Markets. arXiv preprint arXiv:0802.2932.
Spiceland, C. P., Spiceland, J. D., & Schaeffer, S. J. (2015). Using a course redesign to address
retention and performance issues in introductory accounting. Journal of Accounting Educa-
tion, 33(1), 50–68. doi:10.1016/j.jaccedu.2014.12.001
Spraakman, G., O’Grady, W., Askarany, D., & Akroyd, C. (2015). Employers’ Perceptions of
Information Technology Competency Requirements for Management Accounting Gradu-
ates. Accounting Education, 24(5), 403–422. doi:10.1080/09639284.2015.1089177
Togo, D. F. (2004). Risk analysis for accounting models: A spreadsheet simulation approach.

Journal of Accounting Education, 22(2), 153–163. doi:10.1016/j.jaccedu.2004.04.004
Van Horne, J. C., & Wachowicz, J. M. (2008). Fundamentals of financial management. Pearson
Education.
Willis, V. F. (2016). A model for teaching technology: Using Excel in an accounting in-
formation systems course. Journal of Accounting Education, 36, 87–99. doi:10.1016/j.
jaccedu.2016.05.002
43
ATTRACTING INVESTMENT IN
THE ENTREPRENEURIAL ZONES
Željka Kadlec  Josip Hetrih  Mladena Bedeković: ATTRACTING INVESTMENT IN THE ENTREPRENEURIAL ZONES OF SMALL CITIES BY CREATING...
OF SMALL CITIES BY CREATING

PRECONDITIONS FOR THE
DEVELOPMENT OF SMALL AND
MEDIUMSIZED ENTERPRISES
Željka KADLEC, univ.spec.oec.

Ph.D. candidate, Postgraduate Doctoral Studies
zeljka.tai@gmail.com
Josip HETRIH, Profesional Specialist of Economics

Student of College for Management in Tourism and
Informatics in Virovitica
josip.hetrih@hotmail.com
Mladena BEDEKOVIĆ, univ.spec.occ.

Ph.D. candidate, Postgraduate Doctoral Studies
mladena.bedekovic@vsmti.hr
Abstract
The primary goal of this paper is to explain interdependency of small and
medium enterprises (SMEs) and the importance of creating an investment-
friendly environment for the development of small towns. The paper describes
the types of investment with the focus on direct foreign investment and its im-
portance for the development of small towns as well as the development of
the Croatian economy in general. The entrepreneurial infrastructure, which
includes entrepreneurial zones and supporting institutions, plays a significant
role in the development of small towns and the improvement of the investment
climate. A large number of factors, location being the most important, helps
investors make a decision in which city to invest. This paper describes ways
44
of improving the investment climate by combining these different factors. The
connectedness and quality of coordination between the national and local level
is important for creating the conditions in which SMEs can further develop
in small towns, which is the reason why the incentives and measures that help
attract investment have been described in the paper. Strategy is a document
that provides guidelines for the longterm progress of cities so the analysis of
the investment environment as well as advice for its improvement have been
made on the basis of the strategic documents of Slatina and Ivanec. This paper
helps understand the definition of small towns and gives basic guidelines for
the development of a stimulating environment for the development of SMEs,
which affects the economic and social growth of small towns and their local
communities.
Key words: small and medium enterprises, investment, small towns, entrepre-
neurial infrastructure
JEL Classification: D25, L26
1. INTRODUCTION
Small and medium-sized enterprises (SMEs) act as a main generator of de-
velopment in almost every economy of the world. The focus of the economic
policy of the European Union, as well as of the Republic of Croatia is the devel-
opment of SME sectors. Small Croatian cities are often faced with the problem
of poor traffic connection and poor economic development. Good entrepre-
neurial infrastructure is therefore extremely important for creating precondi-
tions for the development of SMEs. Since SMEs can easily adapt to changes INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
and since they are the main generator of new employments and economic devel-
opment, small cities base their strategies precisely on that sector.
The main issue of this work is directed towards the development of mea-
sures and incentives of small cities towards SMEs, with a goal of creating pre-
conditions for the development of SME sectors and attracting investment, with
the focus on direct foreign investment. The approach to this work is focused on
the development of a stimulating investment environment which is based on
“soft” measures that do not pose a great financial weight for the budget since
they come from small cities. Furthermore, the work is also focused on the well-
established coordination in all levels, from national to local, which is important
for utilizing the opportunities offered by national, as well as European funds.
45
This work is thematically divided into three main parts, the first one of which
refers to the definition and classification of investments, entrepreneurial infra-
structure and successful cases of creating preconditions for the development

of SMEs. The second part is focused on the Factors affecting the Investment
Climate and investment Attraction. The final part of the work presents a com-
parison of the investment environments of two cities, Slatina and Ivanec, that
are significantly similar in terms of their demographic features, size and natural
potential. The comparison was based on the analysis of measures and incentives
that the two cities employ to attract investment in their entrepreneurial zones,
along with a review of the successfulness of their measures.
2. INVESTMENT, ENTERPRISE
INFRASTRUCTURE AND SUCCESSFUL
EXAMPLES OF CREATING THE
PRECONDITIONS FOR THE DEVELOPMENT
OF SMALL AND MEDIUMSIZED ENTERPRISES
Investments play an important role in the business of every enterprise and
city, but their contribution to the development of Croatia is even greater when
complemented by foreign investment. According to the Ministry of Economy
(2014:7), “direct foreign investment encompasses all investment into domestic
enterprises (residents) where the foreign investor (non-resident) gains 10 or
more per cent of property over ordinary stocks of the enterprise (incorporated
or unincorporated), or an equal amount of voting rights”1. By creating the pre-
conditions for the development of SMEs in entrepreneurial zones, small cities
are able to attract such investments, but it is of a great importance to establish
a set of measures and a communication strategy in order for foreign investors
to select precisely the entrepreneurial zone of that city for their investment.
Buretin and Belčić (2013) state that foreign investment has an impact on the
increase of liquidity and balance sheet, but they also note that this impact is
1
Ministry of Economy (2014). https://www.google.hr/url?sa=t&rct=j&q=&esrc=s&sour
ce=web&cd=2&cad=rja&uact=8&ved=0ahUKEwjg2OOg4JXVAhWPSxoKHR8UBX
cQFggrMAE&url=http%3A%2F%2Fwww.mingo.hr%2Fpublic%2Fdocuments%2FSTR
ATEGIJA%2520POTICANJA%2520INVESTICIJA%2520U%2520RH%2520ZA%2
520RAZDOBLJE%25202014-2020.docx&usg=AFQjCNF20Sj49KyJhvwzfaCa58Ckb
zx_Fg (Aug 10 2017)
46
short-term. A long-term and medium-term impact can mostly be seen in terms
of innovativeness, competitiveness and the restructuring of the economy.
According to the definition of the Ministry of Economy (2014)2 greenfield
investment usually presents direct foreign investments and these can be the
establishment of new companies, investment in the establishment of mixed-
ownership companies or the opening of a new branch. According to its charac-
teristics, this investment is characterized by the management of the company by
the investor who gains control over the company and actively implements this
control. A poor intensity of greenfield investment is attributed to the lack of a
strategic frame, as well as the lack of measures and policies for a good stimu-
lation of such investments. Greenfield investment is the most desired invest-
ment due to its characteristics since it creates new production facilities, working
places and is the best driving force of the development of economy, most often
with the help of the capital that comes from foreign investors. Small cities have
certain advantages over big cities due to the great amount of the space available
in their entrepreneurial zones. In most cases, the zones of small cities are free
and can be subject to greenfield investment since big cities have expanded due to
their growth, and they lack the space available for the investment. The responsi-
bility of small cities is to influence the improvement of the investment climate in
cooperation with the country and national, as well as European non-refundable
funds, but also to influence the act of attracting greenfield investment, which is
export-oriented and which stimulates the economic growth, with the help of
concrete measures in their own strategic documents.

According to Paliaga and Strunja (2011) brownfield investment presents the
act of buying the existing production capacities or enterprise shares, i.e. the act
of co-opting. It is important to mention that the term brownfiled is relatively
new and that it has been fairly present in Europe and America in the last two
decades. Buretin and Belčić (2013) state that the act of co-opting the compa-
ny and/or the act of joining with the companies of a multinational character
present the most frequent method of investment. According to the Ministry
2
zx_Fg (Aug 10 2017)
47
of Economy (2014)3, direct foreign investment is mostly directed towards the
brownfield investment due to the insufficient elaboration of incentives and mea-
sures. One of the measures of the Act on Strategic Investment for the Republic
of Croatia until 2020 for achieving a positive effect of such investment is a plan
for the realization of brownfield investment through putting state property into
function. Croatia has an abundance of tourist, industrial but especially military
facilities that have a potential to be placed into function for carrying out an
economic activity. The stimulation of such investment will have an impact on
the revitalization of the infrastructure of settlements and towns, but also on the
protection of extremely valuable spaces that were not in function of carrying out
economic activities. According to CNB data4, the total amount of direct foreign
investment in Croatia was 26.465,1 Million Euros, 4.053,8 Million of which
was attracted in 2008, followed by a decrease in the intensity of investment,
which was best seen in 2010 when only 370,0 Million Euros were attracted.
The lowest overall intensity of both types of investment was seen in 2013 due
to the world economy crisis, while the greatest individual decrease of brownfield
investment was recorded in 2010 and the greatest individual decrease of green-
field investment in 2012.
The focus of this work is to give a review for attracting (foreign) investment
in entrepreneurial zones by ensuring the preconditions for the development of
SMEs. Since this work compares the cities of Ivanec and Slatina, what the au-
thors consider relevant is the research of one of the world’s most renowned
business magazines – the Financial Times – under the name of “Cities and Re-
gions of The Future 2016/2017”, which categorizes cities into five categories ac-
cording to the number of inhabitants (Major cities, large cities, mid-sized cities,
small cities and micro cities)5. According to the mentioned categorization, the
cities of Ivanec and Slatina belong to the category of micro cities. The Act on
Regional Development of the Republic of Croatia6 categorizes the cities into
3
Ministry of Economy (2014) https://www.google.hr/url?sa=t&rct=j&q=&esrc=s&sourc
e=web&cd=2&cad=rja&uact=8&ved=0ahUKEwjg2OOg4JXVAhWPSxoKHR8UBX
zx_Fg (Auf 10 2017)
4
https://www.hnb.hr/statistika/statisticki-podaci (Sep 7 2017)
5
FDI Magazine (2016). http://www.ivanec.hr/download/1947 (Sep 1 2017)
6
https://www.zakon.hr/z/239/Zakon-o-regionalnom-razvoju-Republike-Hrvatske (Sep 9
2017)
48
two categories – larger urban areas and smaller urban areas. Larger urban areas
are described as cities with more than 35,000 inhabitants and smaller urban
areas are cities with more than 10,000 inhabitants in their centers, which have
less than 35,000 inhabitants and/or which are the center of a county.
The Act on Promoting Entrepreneurial Infrastructure7 defines the entrepre-
neurial infrastructure in a wider sense, which implies the totality of undertak-
ing the entrepreneurial activities which are the result of developmental concepts
of local or regional self-government units or the Republic of Croatia. In a nar-
row sense, it implies the entrepreneurial infrastructure as a system of entre-
preneurial zones and entrepreneurial support institutions of the Republic of
Croatia. Funda (2011) defines the entrepreneurial infrastructure as a regulated
space whose main aim and function it is to aid small enterprises in the phase of
development and formation. The role of the entrepreneurial infrastructure is to
provide prompt information which enable a faster growth and development of
small enterprises. According to the Ministry of Entrepreneurship and Crafts8,
the term entrepreneurial support institution implies development agencies (lo-
cal and regional), business incubators, technology parks and entrepreneurial
centers. According to Glojnarić (2017:26), “the essence of entrepreneurial sup-
port institutions is to offer support to entrepreneurs in all phases of the devel-
opment of the enterprise, and the greatest part of services that these institutions
offer to entrepreneurs encompasses educations on topics of their interest in the
field that this institution covers.” Oberman Peterka, Delić, Perić (2016) also
classify the institutions in charge of decision-making in the sector of SMEs
as entrepreneurial infrastructure and they emphasize the Government of the
Republic of Croatia, the Ministry of Economy, Entrepreneurship and Crafts, INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
HBOR, HAMAG-BICRO, HUP, HGK, HOK and CEPOR as most signifi-
cant institutions. Establishing the infrastructure in terms of entrepreneurial
zones and support institutions in cities shows their focus on sustainable devel-
opment and their readiness to ensure the preconditions for the development of
SMEs and the attraction of new investment.
When it comes to successful examples of attracting investment in entrepre-
neurial zones by creating the preconditions for the development of SMEs, we
can certainly take into consideration the example of the borough Antunovac.
7
http://narodne-novine.nn.hr/clanci/sluzbeni/2013_07_93_2072.html ( Jun 12 2017)
8
Ministry of Entrepreneurship and Crafts (2013): http://www.europski-fondovi.eu/sites/
default/files/dokumenti/Strategy-HR-Final.pdf (Aug 10 2017)
49
According to Slijepčević (2016), the year 2013 saw the establishment of the
Agency for sustainable development of borough Antunovac, which in a very
short period of time implemented a series of projects that attracted investment

in the entrepreneurial zones. The entrepreneurial zone of this borough was thus
filled by more than 66% and it started to expand. The example9 refers to the
construction of a business incubator and an accelerator – the project that was
approved by the Ministry of Economy, Entrepreneurship and Crafts. The estab-
lishment of this incubator and accelerator will ensure the provision of innova-
tive services to SMEs. It can be claimed that this incubator and accelerator pres-
ent a great example from practice since they create preconditions for the open-
ing of more than 150 new working places in its highly- technologically equipped
space. When taking entrepreneurial zones into consideration, it is important to
mention the industrial zone Bakar located in Kukuljanovo, which is, according
to Glojnarić (2016) one of the most successful industrial zones in Croatia. Its
excellent equipment is what distinguishes it from other entrepreneurial zones,
which earned the industrial zone Bakar the “title” of the most equipped zone in
Croatia. There are as many as 150 companies in this zone, 23% of which are
of commercial activity, 26% of production activity and 51% of service activ-
ity, while the total number of the persons employed reaches over 3500 people.
Another successful example of creating an enticing investment area – Velika
Gorica – was described by Fijačko (2017). This zone offers reliefs such as the
reduction of utility charges and contributions and they also have an investment
companion to help the investors, which they assert to be a ubiquitous model of
help for the investors. The final example of successful entrepreneurial zones is
the EZ10 “Podi” near Šibenik. According to Glojnarić (2016), this zone is one
of the most promising zones of Croatia. Its advantages are its proximity to the
highway, railroad and port. Another reason for considering the EZ “Podi” the
most promising zone is the strong support of the local community which pro-
vides the support for the investors by means of helping them to secure permis-
sions and the relief of utility contributions for production activities.
What is important to assert is the fact that the key factor in all the men-
tioned examples of good practice, where the investment environment has been
extremely beneficial, is the support of the local self-government. Most of the
9
http://www.opcina-antunovac.hr/opcini-antunovac-dodjeljena-odluka-za-izgradnju-po-
duzetnickog-inkubatora-i-akceleratora-u-osjecko-baranjskoj-zupaniji/ (Sep 1 2017)
10
EZ – entrepreneurial zone
50
activity in the business of local and regional development agencies and other
support institutions is carried out in cooperation with the local self-govern-
ment. The incentives and measures for attracting the investment outlined in
the Strategy of investment incentive are the most significant factors for a suc-
cessful business and occupancy of entrepreneurial zones, whose formulation
is again dependent on the local self-government as the main stakeholder. Ex-
cellent cooperation and coordination with entrepreneurial support institutions
and a good management of entrepreneurial infrastructure present a successful
formula for the growth of small cities.
3. FACTORS AFFECTING THE INVESTMENT

CLIMATE AND INVESTMENT ATTRACTION
Due to the particularity and diversity of the locations of self-government
units, there is no unique formula for creating a favorable investment climate or
for attracting the investment. The creation of a favorable investment environ-
ment can be achieved through good cooperation of self-government units with
other bodies of national government, ministries and other self-government
units. “Investment environment as a factor of foreign investment is a set of in-
dicators of the economic and market power of a country, the development of
its natural and human resources, the development of its infrastructure, as well
as its political stability, which affects the country’s credit risk, and its legislative
openness and the effort of the government agencies to advance the direct foreign
investment” (Paliaga and Strunje, 2011:45). According to the Ministry of Econ-
omy11, the significance of investment in the Republic of Croatia is manifested
in its geostrategic position. Glojnarić (2016) agrees with this view and suggests
that the investors will prefer the entrepreneurial zones with a better geostrate-
gic position (e.g. the proximity of a larger city), an equipped infrastructure, as
well as the zones with a good traffic connection and traffic infrastructure. The
investors also take the availability of the working force into consideration, as
11
zx_Fg (Aug 10 2017)
51
well as the proximity of institutions of higher education, but also the local self-
government that acts proactively when it comes to attracting the investment.
Location is certainly one of the main factors that have an influence on the
investment decision. According to Paliaga and Strunje (2011), a broad range of
criteria are taken into consideration when it comes to investment decisions in
terms of location. These factors include the ratio of price and quality of work-
ing force, transport expenses, custom duties and the measures fro inciting the
investment. The investors expect that the location or infrastructure that they
invest into possesses all the concepts required for business in one location with
an affordable price. This can be achieved by a range of measures and stimuli
that imply, e.g. affordable marketing prices, as well as affordable rent, account-
ing, educations and alike, either for beginner entrepreneurs in an incubator or
for developed entrepreneurs in an accelerator or a technological park. The en-
trepreneurs inside one entrepreneurial zone can thus strengthen their offer by
means of a joint market performance and the reduction of expenses (Glojnarić,
2016). According to Investment Promotion and Development of Investment
Climate Act12, the attraction of investment is influenced by the advancement
of the investment environment which implies pre-investment, investment and
post-investment activities that influence the successfulness and the deadline of
the investment.
The Proposal of the Strategy of investment incentive in the Republic of
Croatia for the period from 2014 until 202013 defined four areas of priority for
inciting the investment: the advancement of the investment environment, the
promotion of the Republic of Croatia as an attractive investment destination,
targeted attraction of the investment and the support with the realization of
investment projects. What is crucial for this work is the targeted attraction of
the investment, more precisely the measures of production and implementation
of the Plan for attracting greenfield investment in the assisted areas of the Re-
public of Croatia. This measure is of a great importance for the city of Slatina
which is located within the assisted area, although we also have to mention
12
http://narodne-novine.nn.hr/clanci/sluzbeni/2012_10_111_2391.html ( Jun 12 2017)
13
zx_Fg (Aug 10 2017)
52
that the city of Slatina belonged to the group II of self-government units until
12/31/2017, with the development rate between 50% and 75% of the average
in the Republic of Croatia14. Since 01/01/2018, the city of Slatina belongs to
the group IV of self-government units and it finds itself in the first quarter of
units ranked below the average according to its index value15. The proposal of
the Strategy cites that the attraction of new investment in the assisted areas
is of a great significance since it encourages recovery and economic develop-
ment, while export-oriented sectors are being emphasized as targeted sectors.
The measure is directed towards connecting the investors and self-government
units, which will be realized by adjusting the activities to the developmental
strategies of the county. The focus of this measure is put on defining the po-
tential investors, informing them about the advantages of investing into the as-
sisted areas and, finally, on the realization of campaigns with the goal of con-
necting the representatives of self-government units with national and foreign
investors. In order for all goals outlined in these strategic documents to be put
into practice, what is important is the cooperation of all stakeholders that were
identified in these documents with various ministries as starting points. The
Ministry of Economy, Entrepreneurship and Crafts is undoubtedly one of the
crucial stakeholders for the realization of the strategy of investment incentive.
4. COMPARISON OF INVESTMENT
ENVIRONMENTS OF CITIES OF IVANEC AND
SLATINA
By comparing the investment environment of two cities with roughly iden- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
tical number of inhabitants and numerous similarities in their characteristics
– the city of Ivanec and the city of Slatina – the authors will define the invest-
ment environment and its potentials. Slatina is located in Virovitica-Podravina
county and it consists of 15 settlements16. “This area is bounded by the river
Drava in the north, and by the ridges of Papuk and Krndija mountains in the
south. Slatina has a role of the central settlement of the region according to
14
https://narodne-novine.nn.hr/clanci/sluzbeni/2013_12_158_3313.html ( Jan 20 2018)
15
https://narodne-novine.nn.hr/clanci/sluzbeni/full/2017_12_132_3022.html ( Jan 20
2018)
16
http://www.slatina.hr (Sep 1 2017)
53
many characteristics.”17. Ivanec is located in Varaždin county and it comprises
of 29 settlements18. “The city of Ivanec is located in the north-western part of
Croatia in Varaždin county. It stretches along the upper flow of the river Bed-
nja. It lays 20 km away from the Slovenian border, 28 km away from the in-
ternational border crossing Macelj and 60 km away from the border crossing
Goričan which is located on the border between Croatia and Hungary19. Table
1 illustrates the comparison of basic information on the cities of Slatina and
Ivanec, which are significantly similar in the number of inhabitants, the area and
population density.
Table 1. Comparative view of basic information on cities of Slatina and Ivanec

Slatina Ivanec
Area 156 km2 94.7 km2
Number of inhabitants 13,686 13,758
Population density 82 st/km2 145.28 st/km2
Source: adjusted according to the official web page of the city of Slatina http://www.slatina.
hr (Sep1 2017) and the city of Ivanec http://www.ivanec.hr/download/1256 (Sep 1 2017)
Forest potentials and agricultural lands are the most significant natural re-
sources that are of interest to entrepreneurs. According to the data from 2003,
Ivanec has a total of 3,846.81 ha of agricultural lands available, 1,991.47 ha
of which is utilized for agricultural production (51.77%). Agricultural parcels
make up an average of 0.16 ha20. Slatina has a total of 6,090.94 ha of agricultural
lands, 92.04% of which is used for agricultural production. The remaining part
of uncultivated land is made up of meadows, pastures, vineyards and orchards21.
The area of Ivanec has 4,061 ha of forest potentials, 84% of which is private
property and 16% of state property22. The city of Slatina has a slightly larger
forest area of 5,769.91 ha and the owner structure is reversed, with 94.78% of
17
City of Slatina (2016). http://www.slatina.hr/wp-content/uploads/2016/11/Strategija-
razvoja-Grada-Slatine.pdf (Sep 1 2017)
18
http://www.ivanec.hr/ (Sep 1 2017)
19
City of Ivanec (2014). http://www.ivanec.hr/download/1256 (Sep 1 2017).
20
City of Ivanec http://www.ivanec.hr/download/1256 (Sep 1 2017).
21
razvoja-Grada-Slatine.pdf (Sep 1 2017).
22
City of Ivanec (2014). http://www.ivanec.hr/download/1256 (Sep 1 2017).
54
state-owned forests and 0.24% of privately-owned forests. The remaining por-
tion of 4.98% is of unknown ownership23.
Location factors were already mentioned as some of the most significant
factors considering the investment decision, so it is of a great importance to
describe the infrastructure, traffic connection and other factors that influence
the attractiveness of this city for investors. According to the data of local de-
velopment strategy24, Ivanec has a dense road network due to the city’s dense
population. According to the data, the road infrastructure does not meet the
needs of the economy, which makes the city’s attraction weaker when it comes
to attracting investment. The need of the construction of a two-lane expressway
is emphasized as a solution for that problem. When it comes to the railroad
infrastructure, there is a single-section railroad passing through Ivanec with
trains operation in the direction of Ivanec (7 times a day) and in the direction
of Varaždin (8 times a day). According to the data from 2012, the railroad in-
frastructure, more precisely the transport of goods, was used by 7 companies.
When it comes to information and communication infrastructure, it is impor-
tant to emphasize that Ivanec has introduced a broadband infrastructure in all
its settlements, which is of a great significance to business subjects and which
put Ivanec one step forward when compared to a great number of cities. Con-
sidering the traffic infrastructure in the city of Slatina, there is one bypass and
one mini-bypass which helped to move all cargo traffic away from the city cen-
ter and increased the security and quality of life in the city. The bypass passes
through several entrepreneurial zones, which had a significant impact on the en-
trepreneurial activity of the city. However, the distance of Slatina and the whole
Virovitica-Podravina county from two-lane expressways and highways presents INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
a great problem in terms of traffic connection. The solution of this problem is
attempted through the construction of Podravina’s two-lane expressway that
will connect Slatina to Osijek and Zagreb, which is the strategic project of the
city of Slatina until 2020. When it comes to railroad infrastructure, Slatina
also has a single-section railroad. Telecommunication, i.e. low-speed Internet is
another problem of Slatina. The problem of telecommunication infrastructure
will be solved through the project of introducing a broadband infrastructure,
which is in progress at the time. Air traffic is another problem due to the great
23
razvoja-Grada-Slatine.pdf (Sep 1 2017).
24
City of Ivanec (2014) http://www.ivanec.hr/download/1256 (Sep 1 2017)
55
distance of airports. The nearest airport – the one in Osijek – is located 96 km
away from Slatina, while the Zagreb airport stands at 186 km distance from
Slatina. The nearest international airport is located near Pecs at the distance of
75 km from Slatina. According to the data from the official Internet page of the
city of Ivanec25, there is a much smaller distance to nearest airports – 22 km to
the Varaždin airport and 81 km to the Zagreb airport.
Considering the entrepreneurial infrastructure, the cities of Ivanec and Sla-
tina have both entrepreneurial zones, as well as entrepreneurial support institu-
tions. Ivanec has established two entrepreneurial zones, while Slatina has seven
entrepreneurial zones. Each zone is fully equipped when it comes to infrastruc-
ture. When it comes to entrepreneurial support institutions, Ivanec has estab-
lished a Project office and Slatina has established a City development agency.
Slatina also started the project of building a business incubator which will have
a great contribution to the development of small and medium-sized enterprises.
The unemployment rate of these cities differs significantly. Ivanec has the
unemployment rate of 6.84%, which is considerably below the Croatian average,
while the year of 2015 in Slatina saw the unemployment rate as high as 31.9%,
which is much above the Croatian average. Human resources, more precisely
the incompatibility of education with the needs of the market, are described as
one of the problems of development in strategic documents of both cities. Both
cities try to solve this problem by means of public open universities which offer
retraining in accordance with the needs of local entrepreneurs26.
Slatina and Ivanec created the measures for inciting the development of
small and medium-sized entrepreneurship and the measures for inciting the
investment in entrepreneurial zones which will serve for the purpose of com-
parison of the successfulness of certain measures in creating a favorable invest-
ment climate. For the analysis of measures and incentives, the authors of this
work used the data that is publicly available on the Internet pages and official
documents of both cities: Strategy for the development of the City of Slatina
for the period from 2014 until 202027; Strategy for the development of the City
25
26
razvoja-Grada-Slatine.pdf (Sep 1 2017) and City of Ivanec (2014). http://www.ivanec.hr/
download/1256 (Sep 1 2017)
27
razvoja-Grada-Slatine.pdf (Sep 1 2017)
56
of Ivanec for the period from 2014 until 202028; official web pages of the City of
Slatina29; official web page of the City of Ivanec30. The analysis of the data that
answer the question of why the potential investor should decide to invest in one
of these cities, Slatina has a fairly little amount of data available, while Ivanec
has a great number of specific information that can serve each investor. When
Slatina is taken into consideration, it can be seen that there are no information
in form of brochures available (there are several brochures that originate from
more than 4 years ago) and no information on entrepreneurial zones and alike.
There are several documents of public calls for the purchase of the land in en-
trepreneurial zones at the price of 4 and 5 Euros per square meter. The City of
Ivanec has a great amount of information that are of interest to investors such
as property prices, conditions of construction, privileges and reliefs available, as
well as the emphasized advantages of investment in their entrepreneurial zones.
The home page already shows a column for investors, where the potential inves-
tors can find all the information – from the entrepreneurial infrastructure to
various guides regarding the construction, as well as the base of business enti-
ties, prices, fees, expenses, etc.
Ivanec is without doubt one of the best examples from practice when com-
paring the transparency, openness and proactivity of self-government units in
the availability of information and “soft” measures for inciting the investment.
In the case of Ivanec, the entrepreneur can be informed about all the conditions
that are important for the start of the investment even before the first meet-
ing with the representatives of self-government units. Such approach not only
attracts the potential investors but also shortens the time that is required for
both sides to be informed about the investment possibilities. The availability of INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
information decreases the number of the meetings needed and shortens their
duration since both side have already been informed about all details that are
important for the investment. This led us to conclude that the representatives
of self-government units and their support institutions in Slatina still need to
invest a lot in order to take a step forward in the direction Ivanec has made.
What is needed is the change in the approach and a greater openness to poten-
tial investors who often lack the time for a great number of business meetings
or writing official e-mails and letters. Especially this approach is important for
28
City of Ivanec (2014). http://www.ivanec.hr/download/1256 (Sep 1 2017)
29
http://www.slatina.hr (Sep 1 2017)
30
57
attracting the direct foreign investment, since the investors who do not come
from Croatia find it fairly hard to find the data which are important for their de-
cision about the investment. Table 2 shows the comparison of a series of direct
measures and incentives for the investors that invest in the two cities.
Table 2. Comparative view of measures and incentives for attracting the invest-
ment on the example of Slatina and Ivanec
Slatina Ivanec
Exemption from tax payment (partly)  
Exemption from paying the fee for connection to communal infrastructure for  
wastewater and rainwater drainage and the fee for connection to communal
infrastructure for gas supply
Exemption from paying the conversion of land for obtaining a building permit  
Lower price of communally equipped land  
Land purchase service with the settlement of property-legal relations  
Communally equipped land  
Subsidy of 2 – 3 % of interest in entrepreneurial credits  
Professional help and cooperation in the development and realization of the  
investment
Aid for investors in connecting to local and regional institutions, business advisors  
and communal and infrastructural companies
Source: adjusted according to City of Slatina: http://www.slatina.hr (Sep 1 2017) and Of-
ficial web page of the City of Ivanec http://www.ivanec.hr (Sep 1 2017)
Slatina has not regulated the exemptions from paying the conversion of land
for obtaining a building permit, the land purchase service, the settlement of
property-legal relations or subsidies for credits. Communal exemptions, de-
crease of land price and the settlement of property-legal relations can be high-
lighted as some of the most significant measures. One positive measure that
needs to be introduced is the help of the local self-government in obtaining the
permits and documentation for potential investors, which makes the new in-
vestment much easier and incites the attraction of new investments. In addition
to the measures shown in table 3, we must not omit the priorities and measures
for inciting the development of SMEs and a more favorable investment environ-
ment which are stated in the strategic documents of both towns.
The strategy for the development of the City of Ivanec highlights the fol-
lowing priorities and measures for the development of SMEs and the invest-
58
ment environment: Priority 1.2. Identification of economic and developmental
potentials and removal of administrative obstacles, which is connected to the
Measure 1.1.1. Investment in key sectors and activities. Another priority that
directly influences the development of SMEs is the Priority 1.2. Increasing the
competitiveness of small and medium-sized entrepreneurships. It encompasses
three measures – the Measure 1.2.1. Establishing the infrastructure content
according to economy needs, Measure 1.2.2. Promotion of economic zones
and Measure 1.2.3. Encouraging the implementation and development of high
(contemporary) technologies, innovation and knowledge in entrepreneurship31.
The strategy for the development of the City of Slatina includes the follow-
ing priorities of measures that are important for the development of SMEs and
the investment environment: Development Priority 1.2. Consolidation of the
economic successfulness of entrepreneurs, which includes the Measure 1.2.1.
Development of small and medium-sized entrepreneurships and the Measure
1.2.2. Consolidation of the administrative and financial environment for the
development of entrepreneurship. Another development priority that is of a
great importance for the improvement of the investment environment is the
Development priority 1.2. Attracting investment based on contemporary tech-
nologies, which includes the Measure 1.3.1 Intensifying the use of renewable
sources of energy and ecologically efficient technologies and the Measure 1.3.2.
Encouraging the investment of private entrepreneurs in activities that abound
with knowledge and technologies. What is also significant for this topic in addi-
tion to previously mentioned priorities and measures in the strategy for the de-
velopment of the City of Slatina are the priorities connected to the development
of traffic connection, as well as the business and communal infrastructures, but INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
also the priority of availability and the implementation of a broad-band Inter-
net access.
Finally, it can be concluded that the cities of Ivanec and Slatina have a failry
similar size, number of inhabitants, natural resources, traffic connection and
entrepreneurial infrastructure. Their strategic documents until 2020 mention
similar priorities and measures planned to incite the development of small and
medium-sized enterprises and the investment environment. The key discrep-
ancy between these two cities can be seen in the proactivity of the local self-
government and the implementation of the strategy for development. As it was
31
City of Ivanec (2014). http://www.ivanec.hr/download/1256 (Sep 1 2017)
59
already mentioned in this work, the creation of the strategic documentation is
only the start of changes and it has to be followed by the activities and projects
that will lead to the accomplishment of the planned ideas. When capital proj-
ects are contrasted, it can be concluded that Slatina has made a step forward in
terms of the entrepreneurial infrastructure since it has a greater number and
area of entrepreneurial zones and a business incubator whose adaptation proj-
ect already started. Moreover, when it comes to traffic and communal infra-
structure, Slatina has bypasses that influenced the provision of favorable con-
ditions for entrepreneurial activities and its zones are fully equipped, as is the
case with the City of Ivanec. The greatest discrepancy between these two cities
is a series of measures that the authors of this work named “soft” measures –
the approach to potential investors through openness, information availability,
transparency and proactivity of the local self-government. On the grounds of
this, the City of Ivanec is certainly one of the most outstanding examples of
European small cities that insured almost all preconditions for the growth and
development of SMEs, as well as for the attraction of direct foreign investment.
The evidence of that is the Financial Time research “Cities and Regions of The
Future 2016/2017 that put Ivanec in the first place on the scale of small (micro)
cities in Europe.
5. CONCLUSION
The greatest challenge that small cities face is ensuring the preconditions for
the development of the economy and the increase in the employment rate in
their entrepreneurial zones since a great number of entrepreneurial zones is still
insufficiently filled. The definition of the key terms such as small and medium-
sized enterprises, investment and small cities led to the comprehension of their
mutual connection and their significance for the development of the economy
of small cities, but also the economy of the Republic of Croatia generally. All
the great economies of the world base their development policies on small and
medium-sized enterprises, which are remarkably adaptive to changes and which
are a generator of new employments. The task of small cities is to develop their
strategies for attracting investment which they will implement successfully in
coordination with and with the support of the regional and national levels.
Based on initial definitions and assumptions of this work, the authors have
indicated the most attractive measures and incentives for inciting the invest-
60
ment environment in the entrepreneurial zones of small cities through the
analysis of successful examples from practice. Furthermore, they also defined
main preconditions that need to be fulfilled by small cities when it comes to
the equipment of the infrastructure and privileges for small and medium-sized
enterprises. By comparing the investment environments of the two cities, the
authors have defined the measures and incentives that have the greatest impact
on the recognition of small towns among investors.
The first step towards the development of an enticing investment environ-
ment in the entrepreneurial zones of small cities is creating a good strategy for
the development of the city. When planning an investment, small and medi-
um-sized entrepreneurs expect good entrepreneurial infrastructure in terms of
entrepreneurial zones and especially in terms of entrepreneurial support insti-
tutions which can facilitate their business, especially in early stages of develop-
ment. By the help of business incubators, beginner entrepreneurs are offered a
great number of privileges and services that influence their quick growth and
facilitate their business, which in the end influences the development of the
small city. A good cooperation of small cities with the regional and local levels
facilitates the access to non-refundable resources both for entrepreneurs, as well
as for small cities, which benefits the development of self-government units and
SMEs, but in the end the development of the Republic of Croatia as well. It can
be concluded that successful small towns differ from less successful ones mostly
in terms of the proactivity of the representatives of self-government units, as
well as in terms of “soft” measures that are the best attracting factor for foreign
investors since the investors are offered all the information needed for making
their decisions about the investment. This work provides examples of the cit- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
ies that were successful in attracting direct foreign investment which offers the
possibility of improving the approach in terms of the methods for inciting the
investment and thus provides a positive turning point in the development of
small cities.
REFERENCES
Buretin, D. & Belčić, M. (2013). Učinci izravnih stranih ulaganja u Hrvatsku, Zbornik
Veleučilišta u Rijeci Vol.1. No.1., p. 133-149.
CEPOR (2016). Izvješće o malim i srednjim poduzećima u Hrvatskoj − 2015. [available at:
http://www.cepor.hr/wp-content/uploads/2016/06/Cepor-izvjesce-2015-HR.pdf
access June 11, 2017]
61
FDI Magazine (2016). fDi European Cities and Regions of The Future 2016./2017. rankings.
[available at: http://www.ivanec.hr/download/1947 access September 01, 2017]
Fijačko, J. (2017). Porezna i administrativna rasterećenja za poticanje gospodarskog ciklusa, BI-

Zdirekt Vol. XII., No. 74., p. 38-45.
Funda, D. (2011). Menadžment malog poduzeća, Zaprešić: Intergrafika d.o.o.
Glojnarić, V. (2016). Poduzetničke zone, BIZdirekt Vol. XI., No.72., p. 13-21.
Glojnarić, V. (2017). Poduzetničke potporne institucije, BIZdirekt Vol. XII., No.76., p. 26-33.
City of Ivanec (2014). Strategija razvoja grada Ivanca 2014. – 2020. [available at: http://
www.ivanec.hr/download/1256 access September 01, 2017]
City of Slatina (2016). Strategija razvoja Grada Slatine za razdoblje 2016. – 2020. [available
at: http://www.slatina.hr/wp-content/uploads/2016/11/Strategija-razvoja-Grada-
Slatine.pdf access September 01, 2017]
HNB [available at: https://www.hnb.hr/statistika/statisticki-podaci access September 07,
2017]
Ministry of Economy (2014). Prijedlog strategije poticanja investicija u Republici Hrvatskoj za
razdoblje 2014. – 2020. [available at: https://www.google.hr/url?sa=t&rct=j&q=&esr
c=s&source=web&cd=2&cad=rja&uact=8&ved=0ahUKEwjg2OOg4JXVAhWPS
xoKHR8UBXcQFggrMAE&url=http%3A%2F%2Fwww.mingo.hr%2Fpublic%2Fdo
cuments%2FSTRATEGIJA%2520POTICANJA%2520INVESTICIJA%2520U%
2520RH%2520ZA%2520RAZDOBLJE%25202014-2020.docx&usg=AFQjCNF2
0Sj49KyJhvwzfaCa58Ckbzx_Fg access August 10, 2017]
Ministry of Entrepreneurship and Crafts (2013). Strategija razvoja poduzetništva u Republici
Hrvatskoj 2013. - 2020. [available at: http://www.europski-fondovi.eu/sites/default/
files/dokumenti/Strategy-HR-Final.pdf access August 10, 2017]
NN 132/2017 (29.12.2017.). Odluka o razvrstavanju jedinica lokalne i područne samouprave
prema stupnju razvijenosti [available at: https://narodne-novine.nn.hr/clanci/sluzbe-
ni/full/2017_12_132_3022.html access January 20, 2018]
NN 158/2013 (27.12.2013.). Odluka o razvrstavanju jedinica lokalne i područne samouprave
prema stupnju razvijenosti [available at: https://narodne-novine.nn.hr/clanci/sluzbe-
ni/2013_12_158_3313.html (20.01.2018.) access January 20, 2018]
Oberman Peterka, S., Delić, A. & Perić, J. (2016). Poduzetništvo u malim i srednjim poduzećima,
Virovitica: AD ARMA d.o.o.
Općini Antunovac dodijeljena odluka za izgradnju poduzetničkog inkubatora i akceleratora
u Osječko-baranjskoj županiji [available at: http://www.opcina-antunovac.hr/opcini-
antunovac-dodjeljena-odluka-za-izgradnju-poduzetnickog-inkubatora-i-akceleratora-
u-osjecko-baranjskoj-zupaniji/ access September 01, 2017]
Paliaga, M. & Strunje, Ž. (2011). Uloga urbanog marketinga u funkciji privlačenja direktnih
stranih ulaganja u hrvatskim gradovima, Ekonomska misao i praksa, Vol. XX., No. 1.,
p. 41-58.
Slijepčević, M. (2016). Poduzetničke potporne institucije, BIZdirekt, Vol. X., No.61., p. 29-33.
Official web page of the City of Slatina. [available at: http://www.slatina.hr access Septem-
ber 01, 2017]
62
Official web page of the City of Ivanec. [available at: http://www.ivanec.hr/ access Septem-
ber 01, 2017]
Stojanović, S., Mrvica Mađarac, S. & Glavota, M. (2016). Financiranje poduzetništva iz fon-
dova Europske unije, Obrazovanje za poduzetništvo, Vol.6. No.2., p. 161-175.
Zakon o poticanju investicija i unapređenju investicijskog okruženja, NN 111/2012. [avail-
able at: http://narodne-novine.nn.hr/clanci/sluzbeni/2012_10_111_2391.html ac-
cess June 12, 2017]
Zakon o regionalnom razvoju Republike Hrvatske, NN 147/14. [available at: https://www.
zakon.hr/z/239/Zakon-o-regionalnom-razvoju-Republike-Hrvatske access Septem-
ber 09, 2017]
Zakon o unapređenju poduzetničke infrastrukture, NN 93/2013. [available at: http://
narodne-novine.nn.hr/clanci/sluzbeni/2013_07_93_2072.html access June 12, 2017]
63
EMPLOYER PERCEPTION OF THE
DEVELOPMENT OF PROJECT
COMPETENCES IN PROJECT
Zlatko Barilović: EMPLOYER PERCEPTION OF THE DEVELOPMENT OF PROJECT COMPETENCES IN PROJECT MANAGEMENT GRADUATES
MANAGEMENT GRADUATES
Zlatko BARILOVIĆ, Ph.D., Senior Lecturer

University of Applied Sciences Baltazar Zaprešić
E-mail: zlatko.barilovic@bak.hr
Abstract
In today’s modern market the growth and development of any organisation are
based on continuous project execution. For the successful execution of a project,
it is essential to develop specific project competences in individuals participat-
ing at any stage of the project. Even though it is possible to develop project com-
petences in a number of different ways, it is the higher education system, i.e.
specialist study programmes focusing on the area of project management that
should have the key role in this. Currently, the number of such higher education
programmes in the Republic of Croatia is still insufficient but has an upward
trend. The aim of this paper is to establish how much importance employers
generally attach to individual elements of project competences and explore to
what extent these competences are developed in project management graduates
they are hiring. The research was conducted using a purposive and convenience
sample of 30 organisations hiring project management graduates. Research
results suggest a generally high level of significance that project competences
have for such employers. The expected level of knowledge corresponds to the
estimated level of the students’ competence, while the expected level of experi-
ence is statistically much higher compared to the students’ estimated level of
competence. The results of this research can be used primarily as guidelines for
further development of the given study programme and its alignment with the
current needs of the labour market in the Republic of Croatia. Furthermore,
this research may also serve as the basis for any future research in this field.
Key words: project, project management, project competences, higher educa-
tion, labour market
JEL Classification: : J21, M51
64
1. INTRODUCTION
In today’s business world, organisations daily face challenges such as rapid
and constant change, competitiveness, globalization, global strategic crises etc.
Under the conditions imposed by the modern business operation, they have to
find new solutions every day in order to maintan and increase their competiti-
veness, which is the basis of any organization’s success or failure (Porter, 2009;
Hauc, 2007; Thompson et al. 2008). Organizations that strive to outperform
their competitors in their field of activity need to come up with measures to
achieve it on a daily basis.
These measures have to be related to quality, minimum costs, minimum du-
ration, maximum or sufficient output (Hauc, 2007:12). It is necessary to re-
spond to changes that need to be taken into account (if they represent a threat)
or need to be made use of (if they represent an opportunity) by some non-
standard activities or processes (i.e. by something that is not done very often or
continuously), and these are projects (Vrečko, 2007; Hauc, 2007; Uhlir 2011;
Vrečko & Barilović, 2009). It is fair to say that successful business operation of
any organization in today’s modern market needs to be based on efficiently and
successfully executed projects.
One of the key elements of a project’s success should be competent individu-
als who run projects or participate in them in any role. Even though the need
for competent individuals to participate in projects has long been recognized,
in the Republic of Croatia there is still an insufficient number of educational
institutions (particularly in higher education) that offer specialized study pro-
grammes that might contribute to the development of such competences. In the
Republic of Croatia, the first study programme at tertiary level that is supposed
to develop project competences was launched in 2005 at the University of Ap-
plied Sciences Baltazar Zaprešić This programme is Project Management - a
specialist professional graduate study programme. The aim of this paper was
to find out how much importance employers generally attach to the level of
development of individual elements of project competences in their employees
and to explore how they perceive the level of development of such competences
in Project Management graduates they hire. Research results should help get
a better insight into specific project competences required by employers in the
Republic of Croatia who hire project management graduates. This might, in
turn, help create educational programmes that would match the current needs
65
of the labour market and would provide specific guidelines for further develop-
ment of the study programme referred to in this paper.
2. PROJECT COMPETENCES
There is an increasing number of authors who are concerned with the im-
portance of developed project competences in individuals who work on proj-
ects. Despite the large number of such authors (e.g. Crawford, 2005; Chen et
al., 2008; Clarke, 2010; Buganza et al., 2013; Ahsan et al., 2013; Barilović et
al., 2014; Jalocha et al., 2014; Stretton & Crawford, 2014; Takey & Carvalho,
2015; Nijhuis et al., 2015; Vlahov et al., 2016; Miterev et al., 2016; Ekrot et
al., 2016), it is essential to highlight that the importance of such competences
is also emphasized by all the leading world organizations involved in project
management. They include, for example, the following: International Project
Management Association (IPMA, 2018), Project Management Institute (PMI,
2018), Association for Project Management, UK (APM, 2018), Australian In-
stitute of Project Management (AIPM, 2018), Project Management Associa-
tion of Japan (PMAJ, 2018).
All the listed organisations, either directly or indirectly, describe through
their documents and/or standards the most important areas, i.e. competences
that individuals who participate in projects in any way should have. In this pa-
per, we are going to focus primarily on project competences according to Inter-
national Project Management Association (IPMA), i.e. its document entitled
IPMA ICB 3.0 (2006). According to this document and IPMA requirements,
international certification of project managers is currently being conducted.
Certification is carried out by the Croatian member of IPMA, Croatian As-
sociation for Project Management (CAPM, 2018).
IPMA ICB 3.0 integrates all elements essential to the field of project man-
agement into the so-called “Eye of Competences”, which consists of three key
areas with a total of 46 associated elements (Table 1). These areas are the fol-
lowing (IPMA, 2006:9): Technical competence range – describe the fundamental
project management competence elements. This range covers the project man-
agement content, sometimes referred to as the solid elements. The ICB contains
20 technical competence elements. Behavioural competence range – describe the
personal project management competence elements. This range covers the proj-
ect manager’s attitudes and skills. The ICB contains 15 behavioural competence
66
elements. Contextual competence range – describe the project management com-
petence elements related to the context of the project. This range covers the
project manager’s competence in managing relations with the line management
organisation and the ability to function in a project focused organisation. The
ICB contains 11 contextual competence elements.
Table 1. IPMA ICB 3.0 elements put into three key competence areas
Technical competences Behavioural competences Contextual competences
1. Project management success 1. Leadership 1. Project orientation
2. Stakeholders 2. Engagement & motivation 2. Programme orientation
3. Project requirements & 3. Self-control 3. Portfolio orientation
objectives
4. Risk & opportunity 4. Assertiveness 4. Project programme &
portfolio implementation
5. Quality 5. Relaxation 5. Permanent organisation
6. Project organisation 6. Openness 6. Business
7. Teamwork 7. Creativity 7. Systems, products &
technology
8. Problem resolution 8. Result orientation 8. Personnel management
9. Project structures 9. Efficiency 9. Health, security, safety &
environment
10. Scope & deliverables 10. Consultation 10. Finance
11. Time & project phases 11. Negotiation 11. Legal
12. Resources 12. Conflict & crisis
13. Cost & finance 13. Reliability
14. Procurement & contract 14. Values appreciation INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
15. Changes 15. Ethics
16. Control & reports
17. Information & documentation
18. Communication
19. Start-up
20. Close-out
Source: IPMA ICB – International Competence Baseline Version 3.0 (2006)
Research for this paper was conducted in accordance with the previously
presented IPMA model. The aim of the research was to establish the key ele-
ments of project competences that are generally required by Croatian employers
67
and to find out the extent to which, according to employer perception, these are
developed in Project Management graduates.
3. METHODOLOGY
In order to achieve the main aim of the research, the one-off survey was
conducted on a purposive and convenient sample of 30 organizations that hire
Project Management graduates. To facilitate subsequent processing of the re-
sponses, all questionnaires were created using a Google Forms online tool for
creating and conducting surveys, which allows online access to the questionnaire.
The sample (Table 2) included only those organizations where the gradu-
ates’ jobs matched their qualifications (degree in project management) to make
the obtained results as objective as possible. Such a sample was chosen as it is
expected that such organizations are most of the time more project-oriented
and are thus more realistic in assessing the need for specific elements of proj-
ect competences in their business. Also, they are more objective in assessing
the level of development of specific elements of project competences in their
employees (Project Management graduates) as opposed to those organizations
where those graduates are engaged mostly in continuous activities rather than
in projects.
Table 2. Description of the organization sample (employers of Project Man-

agement graduates
Characteristics of the sample made of employers of Project Management graduates (N = 30)
DESCRIPTION N %
Company/enterprise 17 57
Public institution 4 13
Association 4 13
Type of organization
Public administration 2 7
Other 2 7
Regional self-management – county 1 3
Top management 15 50
Middle management 9 30
Function of the respondent
Head of the project office 3 10
Project manager 3 10
68
Fully or predominantly owned by Croatian private 9 53
individuals
Ownershio of organization
Fully or predominantly owned by foreign private 7 41
(enterprises only N=17)
individuals
Fully or predominantly owned by the state 1 6
up to 10 12 40
10 – 49 1 3
Number of employees
50 – 249 5 17
250 and more 12 40
2 – 5 years 5 17
6 – 10 years 4 13
Age of organization
11 – 15 years 4 13
16 and more years 17 57
Finance and insurance 6 20
Education 4 14
Professional, scientific and technical activities 4 13
ICT 4 13
Other services 4 13
Area of activity
Wholesale and retail, repair of motor vehicles and 3 10
motorcycles
Art, entertainment, and recreation 2 7
Agriculture, forestry, and fishery 2 7
Construction 1 3
4. RESULTS AND DISCUSSION

After having described the sample and provided general information about
the organizations that hire project management students, we will bring the re- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
sults of the primary research related to establishing the general importance of

specific elements of project competences for the employers who participated in
the survey (N=30). Also, results regarding the perception of employers as to
the level of development of competences in their employees who completed the
Project Management study programme will be presented (in accordance with
the adapted IPMA system of project competences1).
Assessment of the general importance of specific elements of project com-
petences will be observed in terms of the importance of knowledge and experi-
1
In order to make sure that the employers have full understanding of the competence ele-
ments, they were additionally described for the purposes of the research.
69
ence, while the assessment of the level of development of specific competences
in the graduates will be expressed only through an overall “competence” grade.
The questionnaire was created in such a way due to the fact that employers
sometimes find it difficult to assess the experience aspect realistically (particu-
larly in cases when the employee has worked in the organization for a short
period of time).
The results of the part of the survey that investigated the elements of tech-
nical competences (Table 3), with the total mean grade for the knowledge of
all the related elements of M=4.21 and for the experience of those elements
of M=4.50, suggest that employers find technical project competences in PM
graduates highly important. At the same time, they assess the overall compe-
tence (in terms of technical competences) of PM graduates who work for them
with the mean grade of M=4.17 (Table3). Employers also attach a high level of
importance to elements of behavioural competences (Table 4) having assessed
the knowledge aspect with an overall mean grade of M=4.12 and the experience
aspect with M=4.54. In this category, employers assessed the competence of
PM graduates with a mean grade of M=4.16 (Table 4). Also, the results indi-
cate a high level of importance of contextual competences, which were assessed
with a grade of M=4.19 for knowledge and M=4.47 for experience (Table 5).
In terms of elements of contextual competences, the competence of employees
was assessed with a mean grade of M=3.99 (Table 5).
70
Table 3 General importance of individual elements of technical competences
and employer perception of the competence of Project Management
students
Employee
Knowledge Experience
competence
Std. Std. Std.
Technical competences N mean mean mean
dev. dev. dev.
1.01. Ambition to achieve project management
30 4.20 0.66 4.53 0.68 4.33 0.61
success
1.02. Identification of project’s stakeholders 30 4,17 0.53 4.40 0.56 4.23 0.68
1.03. Project requirements and objectives
30 4.30 0.70 4.50 0.63 4.33 0.71
management
1.04. Identification and management of project risks
30 4.30 0.70 4.60 0.56 4.23 0.73
and opportunities
1.05. Project quality management 30 4.20 0.61 4.67 0.48 4.13 0.73
1.06. Definition and maintenance of project
30 4.03 0.76 4.53 0.63 4.17 0.87
organisation
1.07. Project team management and leadership 30 4.47 0.63 4.73 0.45 4.27 0.83
1.08. Definition of tasks and problem resolution on
30 4.20 0.66 4.60 0.56 4.33 0.71
the project
1.09. Co-ordination of various project structures 30 3.97 0.67 4.37 0.61 4.03 0.72
1.10. Definition of project scope and deliverables 30 4.27 0.58 4.50 0.73 4.30 0.65
1.11. Definition of project time and phases 30 4.13 0.73 4.43 0.68 4.17 0.79
1.12. Planning. identification and resource allocation
30 4.23 0.63 4.57 0.57 4.17 0.65
on the project
1.13. Project cost and finance management 30 4.30 0.79 4.57 0.68 4.07 0.78
1.14. Identification and definition of procurement
30 4.20 0.89 4.37 0.76 3.73 1.05
and project contract management
1.15. Project change monitoring and management 30 4.17 0.83 4.43 0.68 3.97 1.03

1.16. Establishment of the reporting system and
30 4.23 0.77 4.47 0.57 4.07 0.87
project control
1.17. Information and project documentation
30 4.17 0.83 4.17 0.87 4.10 0.92
management
1.18. Ensuring effective communication on the
30 4.30 0.70 4.60 0.50 4.33 0.76
project
1.19. Project start-up 30 4.23 0.68 4.50 0.51 4.17 0.75
1.20. Project close-out 30 4.17 0.53 4.50 0.51 4.17 0.83
Average value 4.21 4.50 4.17
71
Table 4 General importance of individual elements of behavioural competences
and employer perception of the competence of Project Management students
Employee
competence
Std. Std. Std.

Behavioural competences N mean mean mean
dev. dev. dev.
2.01. Leadership (providing direction
and motivating others in their task 30 4.20 0.76 4.67 0.55 4.13 0.82
performance)
2.02. Engagement and motivation of
30 4.27 0.69 4.77 0.43 4.20 0.89
project participants
2.03. Self-control (coping with daily tasks.
30 4.03 0.81 4.67 0.55 4.07 0.74
requirements and stress)
2.04. Assertiveness (ability to state one’s
30 4.07 0.69 4.50 0.63 4.13 0.73
views persuasively and authoritatively)
2.05. Relaxation (ability to relieve tensions
30 3.93 0.98 4.43 0.63 3.80 0.76
in difficult situations)
2.06. Openness (ability to make others
30 3.97 1.00 4.50 0.68 4.23 0.94
feel they are welcome to the project)
2.07. Creativity (ability to act in an original
30 3.97 0.96 4.43 0.63 4.17 0.79
and imaginative way)
2.08. Results orientation (focusing the
30 4.07 0.83 4.47 0.73 4.27 0.83
team’s attention on key objectives)
2.09. Efficiency (ability to use time and
30 4.20 0.81 4.63 0.49 4.40 0.77
resources cost-effectively)
2.10. Consultation (ability to reason.
present solid arguments and listen to the 30 4.13 0.86 4.43 0.63 4.10 0.71
other point of view)
2.11. Negotiation (ability to resolve
30 4.33 0.84 4.63 0.67 4.00 0.83
disagreements related to the project)
2.12. Conflicts and crises (ability to
30 4.20 0.71 4.53 0.57 3.90 0.80
resolve conflicts and crises successfully)
2.13. Reliability (ability to deliver what you
have said you will to the time and quality 30 4.27 0.78 4.63 0.72 4.37 0.81
agreed within the project specification)
2.14. Values appreciation (ability to
perceive the intrinsic qualities of other
30 4.03 0.76 4.47 0.68 4.27 0.87
people and understand their points of
view)
2.15. Ethics (morally acceptable conduct
30 4.13 0.73 4.33 0.71 4.33 0.88
of every individual)
Average value 4.12 4.54 4.16
72
Table 5 General importance of individual elements of contextual competences
and employer perception of the competence of Project Management students
Employee
competence
Std. Std. Std.
Contextual competences N mean mean mean
dev. dev. dev.
3.01. Project orientation (ability to
conceive and manage a project 30 4.27 0.69 4.50 0.57 4.07 0.83
successfully in different situations)
3.02. Programme orientation (ability to
30 4.27 0.64 4.57 0.50 3.93 1.05
run a set of related projects successfully)
3.03. Portfolio orientation (ability to
manage projects and programmes 30 4.27 0.64 4.40 0.62 3.87 1.04
successfully within the organisation)
3.04. Successful management of the
implementation of major improvements
30 4.33 0.71 4.63 0.49 3.87 1.11
in the project. programme and portfolio
management
3.05. Management of the connections
between permanent and project parts of 30 4.13 0.68 4.57 0.50 3.87 1.04
the organisation
3.06. Directing the development
of project management process in 30 4.23 0.63 4.37 0.56 3.80 1.03
accordance with business requirements
3.07. Successful project management
related to the application or development
30 4.20 0.66 4.43 0.63 4.00 1.02
of the system. product and/or
technology management
3.08. Project related human resources
30 4.13 0.90 4.60 0.72 4.17 0.99
management

3.09. Directing the development
of organisational standards related
30 4.07 0.91 4.10 0.84 3.63 1.00
to health. insurance. security and
environment
3.10. Establishing connections
between the project environment
30 4.13 0.82 4.47 0.68 3.77 0.97
and organisational. financial and legal
environment
3.11. Aligning the project and business
30 4.20 0.81 4.40 0.56 3.73 1.01
operation with legal processes
Average value 4.19 4.47 3,99
73
Elements of technical competences that employers find most developed in
PM graduates (assessing them with highest mean grades) include ambition to
achieve project management success (M=4.33), project requirements and ob-
jectives management (M=4.33), definition of tasks and problem resolution on
the project (M=4.33) and ensuring effective communication on the project

(M=4.33). Elements of technical competences for which PM graduates have
received the lowest grades include identification and definition of procure-
ment and project contract management (M=3.73), project change monitoring
and management (M=3.97) and co-ordination of various project structures
(M=4.03) (Table 3).
Elements of behavioural competences that employers find most developed
in PM graduates (assessing them with highest mean grades) include efficiency
(ability to use time and resources cost-effectively) (M=4.40), reliability (ability
to deliver what you have said you will to the time and quality agreed within the
project specification) (M=4.37) and ethics (morally acceptable conduct of ev-
ery individual) (M=4.33). Elements of behavioural competences for which PM
graduates have received the lowest grades include relaxation (ability to relieve
tensions in difficult situations) (M=3.80), conflicts and crises (ability to resolve
conflicts and crises successfully) (M=3.90) negotiation (ability to resolve dis-
agreements related to the project) (M=4.00) (Table 4).
Elements of contextual competences that employers find most developed in
PM graduates (assessing them with highest mean grades) include project re-
lated human resources management (M=4.17), project orientation (ability to
conceive and manage a project successfully in different situations) (M=4.07)
and successful project management related to the application or development of
system, product and/or technology management (M=4.00). Elements of con-
textual competences for which PM graduates have received the lowest grades
include directing the development of organisational standards related to health,
insurance, security and environment (M=3.63), aligning the project and busi-
ness operation with legal processes (M=3.73) and establishing connections be-
tween the project environment and organisational, financial and legal environ-
ment (M=3.77) (Table 5).
By applying the one-way analysis of variance (Table 6) we checked whether
the assessments of the general importance of knowledge and experience by spe-
cific elements of project competences differ from the PM graduates’ competence.
74
As can be seen in Table 6, the statistically significant difference in the as-
sessment of knowledge, experience, and competence has been confirmed for
elements of technical competences (F=3840.75; df=29; p<0.01). Post hoc test-
ing applying the Bonferroni test confirmed a statistically significantly higher
result in the assessment of required experience compared to knowledge (Bon-
ferroni=0.29; p<0.05) and the assessment of competence (Bonferroni=0.34;
p<0.05) in technical competences. A statistically significant difference was also
found in the assessment of knowledge, experience and competence for the ele-
ments of behavioural competences (F=3732.74; df=29; p<0.01). Post hoc test-
ing applying the Bonferroni test confirmed a statistically significantly higher
ferroni=0.42; p<0.05) and the assessment of competence (Bonferrroni=0,38;
p<0,05) in behavioural competences. A statistically significant difference was
also found in the assessment of knowledge, experience and competence for the
elements of contextual competences (F=3628.82; df=29; p<0.01). Post hoc
testing applying the Bonferroni test confirmed a statistically significantly higher
ferroni=0.28;<0.01) and the assessment of competence (Bonferrroni=0.48;
p<0.01) in contextual competences.
As a general conclusion, we may suggest that the expected level of knowl-
edge, as assessed by the employers, matches the assessed level of PM graduates’
competence (no statistically significant difference has been confirmed). How-
ever, the expected level of experience, as assessed by the employers, was sta-
tistically significantly higher compared to the assessed levels of PM graduates’
competence. This is why the Project Management study programme should (for INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
further development and competitiveness of PM graduates in the labour mar-
ket) include more activities that would provide students with more practical
experience.
75
Table 6 Statistical significance of the assessment of the general importance of
knowledge and experience according to specific elements of project competenc-
es and the assessment of the competence of employees who have completed the
Project Management study programme
Degrees of Statistical
N MEAN Std. dev. F-ratio
freedom significance
Technical competences
Knowledge (general) 30 4.21 .52
Experience (general) 30 4.50 .39
Competence 30 4.17 .60 3840.75 29 .00**
(employee)
Behavioural competences
3732.74 29 .00**
Competence
30 4.16 .58
(employee)
Contextual competences
3628.82 29 .00***
Competence
30 3.99 .75
(employee)
5. CONCLUSION
The success of any organization in today’s dynamic business environment
undoubtedly depends on the successful and efficient execution of projects. One
of the main prerequisites for successful execution of projects are certainly indi-
viduals who need to have project competences developed to a certain degree in
addition to their expertise in their field. This is true of all employees, regardless
of how often they participate in projects (as members of project teams), and
particularly if they assume the role of project managers.
The importance of project competences in more developed countries of the
world has long been recognized, special emphasis being placed on them by the
**
Statistical significance at a risk which is less than 1% (p<0,01)
**
***
76
leading project management organizations in the world. Following such global
trends, the Republic of Croatia will also have to start taking account of the de-
velopment of such competences throughout the educational system, particularly
when it comes to higher education. The research conducted for the purposes of
this paper suggests that Croatian employers, too, consider project competences
to be essential regardless of which specific elements of the three areas of compe-
tences (technical, behavioural or contextual) are involved.
Unfortunately, for the time being, the Republic of Croatia lacks specialized
higher education study programmes that develop this type of competences.
The results of the survey have confirmed that graduates of one such specialized
study programme (in this case the referred to specialist graduate professional
study programme in Project Management at the University of Applied Sciences
Baltazar Zaprešić) have been welcomed by their employers, who have assessed
their project competences as very well developed. The results of the survey also
indicate that students of Project Management have an excellent theoretical ba-
sis (knowledge assessment), while there is certainly plenty of room for improve-
ment in terms of their practical application of competences acquired during
their studies. This certainly suggests that study programmes need to expose
students to as much work on specific projects as possible, which is quite pos-
sible to achieve through establishing better connections between employers and
students even in the course of their studies.
The results of this survey can certainly serve not only as guidelines for fur-
ther development of the given study programme in the field of project manage-

ment, but they can also help design additional educational programmes (formal
and informal) in the field of project management in the Republic of Croatia.
It is, by all means, recommended that such or similar surveys be conducted in
the coming period in order to continuously monitor the current needs of the
labour market (especially those related to project-based business), so that the
educational system can constantly adjust and respond to contemporary needs
of the labour market.
77
REFERENCES
Ahsan, K.; Ho, M.; Khan, S. (2013) Recruiting Project Managers: A Comparative Analysis
of Competencies and Recruitment Signals from Job Advertisements. Project Manage-
ment Journal. Vol. 44, No. 5, 36–54.
Association for Project Management. https://www.apm.org.uk/ [25. 3. 2018.]

Australian Institute of Project Management. https://www.aipm.com.au/ [25. 3. 2018.]
Barilović, Z.; Leko Šimić, M.; Štimac, H. (2014) Marketing orientation of educational insti-
tutions in the field of project management. Organization, Technology & Management in
Construction, Volume 6, Issue 1, June 2014, 942-948
Buganza, T.; Kalchschmidt, M.; Bartezzaghi, E.; Amabile, D. (2013) Measuring the impact
of a major project management educational program: The PMP case in Finmeccanica.
International Journal of Project Management, Volume 31, Issue 2, February 2013, Pages
285–298.
Chen, P.; Partington, D.; Ning Wang, J. (2008) Conceptual determinants of construction
project management competence: A Chinese perspective. International Journal of Proj-
ect Management, 26 (2008) 655–664.
Clarke, N. (2010) Emotional Intelligence and Its Relationship to Transformational Leader-
ship and Key Project Manager Competences. Project Management Journal. Vol. 41, No.
2, 5–20.
Crawford, L. H. (2005) Senior management perceptions of project management compe-
tence. International Journal of Project Management, 23 (2005) 7–16.
Ekrot, B.; Kock, A.; Gemunden, H. G. (2016) Retaining project management competence –
Antecedents and consequences. International Journal of Project Management, 34 (2016)
145–157.
Hauc, A. (2007) Projektni menadžment i projektno poslovanje. Zagreb: M. E. P. Consult i
Visoka škola za poslovanje i upravljanje „B. A. Krčelić“ Zaprešić
Hrvatska udruga za upravljanje projektima (HUUP). http://www.capm.hr [25. 3. 2018.]
International Project Management Association (2006) ICB – IPMA Competence Baseline
Version 3.0, Nijkerk: International Project Management Association
International Project Management Association. http://www.ipma.world [25. 3. 2018.]
Jalocha, B.; Krane, H. P.; Ekambaram, A.; Prawelska-Skrzypek, G. (2014) Key Competences
of Public Sector Project Managers. Procedia – Social and Behavioral Sciences. Volume
119, 19 March 2014, Pages 247–256.
Miterev, M.; Engwall, M.; Jerbrat, A. (2016) Exploring program management competences
for various program types. International Journal of Project Management, Volume 34, Is-
sue 3, April 2016, Pages 545–557.
Nijhuis, S. A.; Vrijhoef, R.; Kessels, J. W. M. (2015) Towards A Taxonomy For Project Man-
agement Competences. Procedia – Social and Behavioral Sciences, 194 (2015) 181–191.
Porter, M. E. (2009) Konkurentska prednost. Zagreb: Masmedia
Project Management Association of Japan. http://www.pmaj.or.jp/ENG/index.htm [25. 3.
2018.]
78
Project Management Institute. https://www.pmi.org/ [25. 3. 2018.]
Stretton, A. M. & Crawford, L. H. (2014). Bodies of Knowledge and Competency Stan-
dards in Project Management. In P. C. Dinsmore & J. Cabanis-Brewin (Eds.), The
AMA handbook of project management 4th ed., New York: AMACOM
Takey, S. M. i Carvalho, M. M. (2015) Competency mapping in project management: An
action research study in an engineering company. International Journal of Project Man-
agement, Volume 33, Issue 4, May 2015, Pages 784–796.
Thompson, A. A.; Strickland, A. J.; Gamble, J. E. (2008) Strateški menadžment: U potrazi za
konkurentskom prednošću. Zagreb: MATE d. o. o.
Uhlir, Ž. (2011) Utjecaj procesa certificiranja projektnih menadžera na razvitak projektnog
menadžmenta u Republici Hrvatskoj. Magistarski rad: Ekonomski fakultet Zagreb
Vlahov, R. D.; Mišić, S.; Radujković, M. (2016) The influence of cultural diversity on project
management competence development – the Mediterranean experience. Procedia – So-
cial and Behavioral Sciences, 226 (2016) 463–469.
Vrečko, I. & Barilović, Z. (2009). Osposobljenost projektnih menadžera u Republici
Hrvatskoj i Republici Sloveniji. In: Skledar, Nikola (ed.) Zbornik radova. Zaprešić:
Visoka škola za poslovanje i upravljanje, s pravom javnosti “B. A. Krčelić”, Zaprešić,
pp. 403–429.
Vrečko, I. (2007) Obvladovanje poslovnih in strateških kriz s projektnim managementom.
Projektna mreža Slovenije, 10 (3), 17–23.
79
IMPORTANCE OF STRATEGIC
PLANNING IN CULTURE: THE CASE
OF MUSIC EVENTS
Ivana ŠANDRK NUKIĆ, PhD, Assisstant Professor

J.J.Strossmayer University of Osijek,
Faculty of Civil Engineering Osijek
Ivana Šandrk Nukić  Blanka Gigić Karl: IMPORTANCE OF STRATEGIC PLANNING IN CULTURE: THE CASE OF MUSIC EVENTS
E-mail: isandrknukic@gfos.hr
Blanka GIGIĆ KARL, M.A.

J.J. Strossmayer University of Osijek,
Academy of Arts Osijek
E-mail: blanka.gigic@gmail.com
Abstract
Strategic planning has always been a historically important activity. In ancient
times, strategic planning was primarily a task taught of and accomplished by
military leaders. In modern times, more or less same principles apply for stra-
tegic planning done by managers in business context. It is always about thor-
ough environment analysis followed by goals setting, that would transfer the
organization from the current state of existence to the willing one in the future.
As such, strategic planning enables growth and development through gaining
competitive advantage. Recent literature provides insight into use of strategic
planning principles in managing culture events, too. However, the findings are
still scarce so with the wish to build on that body of knowledge, authors of this
paper formulated their initial research question as: What are the benefits of
strategic planning of culture events, primarily musical events. For the purpose
of theoretical framework we have done a relevant literature review. In the em-
pirical part of the paper we considered all major musical events in the city of
Osijek and have finally chosen „Osijek’s musical wednesday“ as a representative
event for our case study and SWOT analysis. As with many other case studies,
our findings have a limitied ability of generalization so future studies might re-
search a bigger sample of events. However, our findings could help both scholars
80
to gain the new perspective on the topic as well as practicioners running these
events, to be more efficient in ther work.
Key words: strategic planning, music events, SWOT
JEL Classification: O21
1. INTRODUCTION
.. Concept and historical development of strategy
Strategos is a word that originates from ancient Greece, and in translation
means a person with a high military rank, who leads the military in military
exhortations. Due to this, until mid-18th century, the word strategy referred to
the skill of organizing and conducting wars (Vrgoč; 2017).
Many of the factors have influenced the development and role of the strategy
throughout history, so in the 20th century, the word strategy is beginning to
be applied in the business context, too. In the 1960s, the strategic plan repre-
sented a business idea and a corporate identity. According to Skubik (1959),
everyday use of the word strategy refers to a kind of overall plan that a military
commander, football team or a corporation can apply when executing a specific
program. It also means dealing with something that can not be foreseen.
During 1970s the strategic plan underwent an analysis of market advan-
tages, while 1980s witnessed implementation of strategy and introduction of a
holistic approach to strategic planning. The stand of the 1980s illustrates G.C.

Singer (Božičević; 2000): the mission gives a framework, the aims define goals
within the mission, which, when realized, move the organization to fulfill the
mission, and the strategies are based on the plan of action in achieving the goals.
Singer further emphasizes that the strategy addresses the long-term goals and
paths of their realization affecting the system as a whole.
In the 1990s, attention was paid to strategic leadership and reengineering,
data collection on recurrent and missing activities, and their mutual compari-
sons with the organization’s policy and strategy. By entering the 21st century,
strategies are perceived as the necessary methods used to achieve the set goals
(Božičević; 2000).
81
.. Culture policies
Culture policy integrates government actions, laws and programs that regu-
late and support (financially and otherwise) activities related to the culture and
creative sectors, such as music industry. It entails a large, heterogeneous set of
individuals and organizations engaged in the creation, presentation, distribu-
tion, and preservation of heritage, entertainment activities and/or culture prod-
ucts (Wyszomirski; 2002).
Culture institutions, organizations, businesses and culture manifestations

create their own business policies that manage their work. A set of such indi-
vidual culture policies comprehensively denote the culture policy of a country.
When these policies are compared to each other, the similarities are noticed,
and thus concrete universal models of culture policy are formulated..
A liberal model of culture policy (Stojković & Milojević; 2018) gives a cru-
cial significance to the culture goods market. The main role undertakes the in-
dustry that generates standardized culture products intended to the majority,
mass media audiences. In such a model of culture politicy, private funds for the
development of elite forms in art (opera, theaters, and the like) play a crucial
role. The state has the role of encouraging the private sector and civil society
to invest in culture and to see their interest in it. Diffusion of culture goods is
protected by the influence of the state, which must not jeopardize its identity.
Contrary model of culture policy is a parastate model (Stojković & Milojević;
2018), in which the state gives its responsibility to the expert culture council,
autonomous in creating the culture policy. An example of such model are Unit-
ed Kingdom and Ireland where expert culture councils try to reduce and miti-
gate the impact of the art market and at the same time support the development
of culture institutions and local community projects. The goal of local commu-
nities is to encourage a wider audience to participate in culture life. Somewhat
differently, Germany has decentralized its culture policy and has delegated state
responsibility to cultural affairs in each region, so autonomous culture policies
have emerged that differ one from each other.
The model of culture policy in which the state has dominance and control
of the entire culture area is called the state bureaucratic enlightenment model
(Stojković & Milojević; 2018). Such a model was characteristic for the socijalist
countries and partly for the social democratic countries of the West. Today, this
model has remained in the countries as an autocratic model of state leadership,
82
and culture events are directed towards establishing a traditional ethnic culture
system.
France has developed a model of culture policy focused on image and pres-
tige in the world. Through culture programs, events and big projects they give
importance to culture tourism. Such a way of thinking achieved that their cul-
ture policy affects not only the neighboring countries, but also the culture policy
of the European Union as a whole. This model has been called a state prestige-
enlightenment model (Stojković & Milojević; 2018).
Despite of the nation or a particular model, governments’ culture policy ini-
tiatives generally have two aims: supporting excellence in the arts and broaden-
ing access to the arts by citizens. These aims are often trade-offs, as any increase
in emphasis on one policy objective typically has an adverse effect on the other
goal. We find that an important argument for necessity of strategic planning in
arts domain (Throsby; 2010).
2. STRATEGIC PLANNING OF MUSIC EVENTS 

THEORETICAL FRAMEWORK
This paper focuses on the strategic plans of music events that are neither
institutions nor legal entities, but have their form, vision, mission and goals in
culture activity and environment.
In the near past, the activity of culture manifestations, especially the music
ones, was not strategically organized, but was organized in an ad hoc mannor,
resulting in short-term or one-off effects of a particular event. Planning alone INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
does not produce results but is a means of achieving the ultimate goals.
In order to achieve results, a plan has to be implemented, because a well-
designed plan will increase the likelihood that planned activities will lead to
the desired effect. The plan establishes priorities and enhances the teamwork
process in achieving them. Therefore, setting up a plan can be seen through
three crucial questions: where are we now; where do we want to be and how to
get there? (Shulz Vugrin & Forčić; 2010). Additionally, while in the short-term
not achieving the goals can be tolerated, emphasis must be on their long-term
achievement, as it is the only way for reaching synergy (Stacey; 1997)
83
In this paper we assume that the long-term systematic plan i.e. strategic ori-
entation of music events is needed.
The first reason for such a presumption is to achieve economic stability.
Namely, systematic planning and realization of the planned bring about con-
tinuity and create habits of the audience, which provides the musical events’
organizers the opportunity to collect more significant financial resources. Addi-
tionally, the planned activities of continuous music events are given the epithet
of the festival or “season”, which becomes an integral part of the identity of the
culture scene. This raises their reputation from the aspect of financiers, both
public and private. Taken together, all of this provides a better financial posi-
tion, enabling the organizers to evaluate available opportunities and choose the
best alternative (Narayanan & Nando; 2007).
Another reason is to achieve the highest quality program. The quality of
the program and the established scene is important for the artists because it
increases the value of their personal references, which makes it easier to engage
the most prominent artists. Consequently, in the long run, i.e. from the strategic
perspective, organizers are in the position to more easily engage better quality
musicians.
Last but not least, the importance of strategic planning also stems from
avoiding the collision of culture events, in terms of reducing the likelihood of
simultaneous events holding, which would result in public dispersion.
.. Vision, mission and goals: strategic intent

To create a culture manifestation in the right way, it is necessary to create
some preconditions. In the first place, one should have a clear vision of the role
of culture manifestation in its environment (locally or regionally). Vision can be
defined as an organizational view of the desired future (Shulz Vugrin & Forčić;
2010), where it is essential to be clear and concise as well as inspirational and
motivating. Vision describes the future one wants to achieve and provides direc-
tion for determining the goals of the event. Most importantly, the vision has a
pragmatic rather than an abstract character, which ensures that the long-term
idea moves into action.
Once the vision of a certain culture event is determined, the question arises
as to what its mission is. The mission goes in the direction of presenting the
84
event as it wants to be, why it exists at all, what it serves and how it intends to
achieve a defined vision. The mission is characteristic of every event, especially
if a particular manifestation is performed for a long time continuously.
After Stevena Langley’s definition (Dragičević Šešić & Stojković; 2013, 73-
74) mission of culture institutions integrates 4 basic goals:
1. „The fundamental philosophy of a culture event should be outlined in one
concise sentence or a short section.
2. Mission must be unique and recognizable.
3. Mission should be exciting and inspirational to the public.
4. Mission must demonstrate the fundamental aims of the event so that its
success and progress is measurable. „
After defining the mission of a culture manifestation, the desired goals are
set as more concrete statements about what wants to be achieved by the pro-
gram of the culture manifestation in the next three to five years. Of course, the
goals should focus on the most important effects, improvements and results
that are by their nature measurable.
The great interdependence of vision, mission and goals is one of the basic
characteristics of their interrelationships. This connection is the reason that re-
cently some authors observe the vision, mission and goals as a whole and refer
to it as to “strategic intent”. Hamel and Prahalad have used the term first (after
Buble; 2005) and defined it as a “heart” of the strategy, as a possible and an
animing dream for the future.

The strategy itself can be understood as the starting point of all activities
whose design is a process that should be learned and not a result of intuition or
talent (Vrdoljak Raguž et al.; 2013)
.. Strategy of Cultural Development of the City of Osijek

The strategy of the culture events of the city of Osijek, among them the mu-
sic events which are the primary focus of this paper, is set out in the document
called Strategy of Cultural Development of the City of Osijek 2014.-2020.
(2015). This Strategy stems from a document of even wider coverage concern-
ing the overall city development, called Strategy of Osijek from the Industrial
to the Intelligent City 2014-2020 (Strategija razvoja grada Osijeka od industri-
85
jskog do inteligentnog grada 2014 – 2020.). That strategy defines vision of the
city as follows: “The City of Osijek is a desirable place to work, live and enjoy a
landscaped green city where citizens can meet their educational, cultural, social
and sports needs” (Strategija razvoja grada Osijeka od industrijskog do inteli-
gentnog grada 2014 – 2020., 32). Strategy of Cultural Development of the City
of Osijek 2014.-2020. (p. 21) specifies that vision from a cultural point of view
and says: “Citizens of all ages create identity as artists and culture workers, or
as an interested audience ... Osijek is a safe and comfortable city to the extent
of man, which also enables the realization of different, even very brave artistic,
intellectual and entrepreneurial potential “.
The mission that is intended to achieve such a vision states: “As far as culture
is concerned, the City of Osijek is responsible for the constant efforts and ad-
vancement of cultural-artistic creativity not only because of its citizens whose
culture is a part of urban content and not just because of the necessity of con-
tinuity in relation to binding cultural-historical heritage. The mission of the
City of Osijek is to develop and implement the cultural policy of promoting art,
creativity, innovation, artistic education and ensuring conditions for the devel-
opment of creative industries and public communications. It is also the task of
editing and suspending the cultural heritage and providing for its sustainable
use. The City of Osijek will encourage the networking and development of col-
laborative cultural relations between different social and cultural participants so
that culture becomes a significant developmental power of Osijek.” (Strategija
kulturnog razvitka, p. 22)
3. RESEARCH METHODOLOGY
After analyzing the relevant literature, for the empirical part of this case
study all the established music events of the city of Osijek were chosen: the
memorial “Franjo Krežma”, the memorial “Darko Lukić” and the concert cycle
“Osijek’s musical wednesday”. All these manifestations have the task of refining
the environment, developing the public, creating jobs related to culture and ul-
timately increasing the GDP.
The memorial “Franjo Krežma” has a representative, international character.
Performances are done by young talented violinists and the memorial has been
held biennally since 1968 in honor of the world famous violinist Franjo Krežmi.
The memorial includes multi-day program and has a national significance in the
86
promotion of Croatian cultural heritage. It Gathers top-class violinists from
high school age to graduated artists. The concept of the memorial consists of
three concert nights through which audience have the opportunity to hear the
best students from Croatia and abroad as well as one or two featured young
violinists in the final evening.
Memorial “Darko Lukic” has been held since 1977 in a memory of the great
pianist Darko Lukić. It gathers young talents from all over Croatia and Europe,
and brings a music-quality weekend with top artists. As the previous one, this
memorial works through three concert nights, too.
Both memorials are held every other year and are permanently sponsored by
the City of Osijek. Although all mentioned music events have an international
component and are important cultural manifestations, the third one, „Osijek’s
musical wednesday“, significantly differs from the memorials because it is the
concert cycle which functions continuously throughout the year, for the last six
years. Therefore, it was selected for a more detailed analysis in the remainder of
this paper.
Method of SWOT analysis was selected for a more detailed study of the
music event „Osijek’s musical wednesday“. With respect to the aims of this pa-
per, SWOT analysis is considered a suitable method of situational analysis of
cultural manifestations, because based on its results it is possible to generate
strategic guidelines of those manifestations.
SWOT analysis combines internal and external environmental analysis. In-
ternal analysis detects the strengths and weaknesses of the music manifestation
at the present moment, while opportunities and threats relate to external fac- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
tors that affect the manifestation and which can not be treated in the short term
but should be exploited or removed. Experienced managers say that internal
strengths and weaknesses change slowly while external opportunities change
rapidly and threats typically remain (Antolović; 2009)
Previous studies identified by Dragojević and Dragičević Šešić (2008) sug-
gest that the internal analysis starts from different strengths and weaknesses,
such as the program, its quality, information and financial resources, the quality
of the organizational process, and the like, while external analysis suggests look-
ing at areas relevant to the music event and its operation, such as:
1. European frameworks of international cultural cooperation
87
2. Regional and local cultural policy
3. The state and degree of development of the area of art and culture in
which it operates
4. State of the cultural market (cultural consumption trends, cultural mod-
els, audiences)
5. Functioning and development of the media system
In order to avoid subjectivity as the most common disadvantage of this method,
in the course of this case study the SWOT analysis has been conducted through a
series of individual interviews with the organizers and initiators of „Osijek’s musi-
cal wednesday“. Therefore its results and the proposed strategic guidelines suggest
the consensus of all relevant stakeholders in the Osijek music scene.
4. SWOT ANALYSIS OF „OSIJEK’S MUSICAL

WEDNESDAY“
Given that „Osijek’s musical wednesday“ is currently the only the concert
cycle not only in the city but in the region, authors of this paper find it impor-
tant to give it a special attention in the strategic sense of planning its work and
existence.
„Osijek’s musical wednesday“ has its mission, vision and goals in order to
acomplish the best possible interaction with its end-users – the audience. How-
ever, it still does not have defined strategic guidelines. This is a gap that should
be additionally researched and formulated.
Vision of „Osijek’s musical wednesday“ is to organize a cycle of concerts that
will be performed continuously and to provide the local community with musi-
cal quality on an artistic and social level. The program itself is not a purpose but
only a channel towards the public, hence the mission of this event points to the
development of the music culture of the audience as well as to the development
of cultural tourism. Strategic goals are in function of the realization of the mis-
sion and can be expressed through four basic categories:
1. Concerted programs should be versatile for audiences of different age
groups.
2. Particular attention should be given to the younger audience as well as
young talented musicians.
88
3. the concert activity should be expanded to other places in the region (co-
operation with the County).
4. Through the cycle of concerts, efforts should be made to foster the devel-
opment of continental cultural tourism in cooperation with tourist com-
munities of the City and the County.
Table 1. SWOT analysis of „Osijek’s musical wednesday“

WEAKNESSES STRENGTH
• Problem of an adequate concert hall • The only concert cycle in Slavonia
• Insufficient representation in the media • A quality and versatile art program
• Absence of own financial sustainability • Quality co-operation with partners
• Dependence on financing from the City and the • Free concerts
Ministry of Culture • Cooperation with musicians from abroad
• Lack of autonomy • Continuous concerts throughout the year
• The recognizable brand of Osijek
OPPORTUNITIES THREATS
• Widening of concert activity in the region • Economically unstable situation in the country
• Realization of cooperation at the international level • Undefined cultural policy
• Strengthening cooperation with state institutions in • Undeveloped habit of tracking cultural events
culture • Poor local sponsorship
• Possibility of financing from European programs • Threat of stopping the concert cycle
• Development continental cultural tourism
Source: authors’ research
.. Weaknesses INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Concert cycle „Osijek’s musical wednesday“ is encountered with the problem

of space, as there is no concert hall in Osijek. Therefore concerts are held in dif-
ferent locations that are not always adequate for the concert performance or for
the reception of numerous audience. Cultural infrastructure in terms of public
facilities is one of the crucial problems regarding development of the culture
sector as a whole. Without the available public capacities there is no high qual-
ity of life in the city (Dragojević & Žiljak; 2008).
„Osijek’s musical wednesday“ as a manifestation does not have strong enough
and developed marketing orientation in terms of continuous marketing efforts
that would be present throughout the media. The students of culture at the
89
J.J.Strossmayer University of Osijek conducted several interviews and surveys
which have revealed how well the citizens of Osijek were acquainted with the
existence of the concert cycle „Osijek’s musical wednesday“. That research was
carried out on the occasion of the artistic-cultural Colloquium on the 5th an-
niversary of the concert cycle „Osijek’s musical wednesday“. Its results showed
that citizens were not well informed about the existence of this music event but
at the same time showed interest in future concerts.
Problems also appear regarding financing the cycle. Namely, „Osijek’s musi-
cal wednesday“ does not exist as a legal entity, so there is no possibility of direct
and autonomous funding through the Structural Funds of the European Union
so the cycle currently depends on financing from the local budget of the City,
the budget of the Ministry of Culture and several local sources of funding.
.. Strenghts
„Osijek’s musical wednesday“ is the only concert cycle in Slavonia and offers
a quality and diverse art program. It shows persistence and consistency of the
concept of work and continuity in concerts. Every year 14-16 concerts are held,
which are free for the audience.
Persistence in the development of artistic standards and criteria in the field
of music culture, largely based on a positive attitude towards cooperation with
new associates and partners.
A recognizable image of „Osijek’s musical wednesday“ as a positive factor
in public, social and cultural life of the city. However, this local component has
been transformed into international through collaboration with musicians from
abroad. Since 2012, there have been 180 musicians from 12 countries (Ukraine,
Australia, Japan, Russia, Azerbaijan, Israel, USA, Serbia, Slovenia, Bosnia and
Herzegovina, Czech Republic and Hungary). International cooperation is of
utmost importance culturally, touristically and financially.
.. Opportunities
By leveraging on their own strengths, opportunities are actually the basis for
defining strategic guidelines or opportunities that can be utilized in the future.
90
Certainly, there is the possibility of expanding activities, ie holding concerts
in other town of the Osijek-Baranja County and in the region. This opportunity
is achievable through even more intense cooperation at national and interna-
tional level.
Strengthening cooperation with state institutions in culture could result in
more intensive financial support from the Ministry of Culture. At the same
time, it is an opportunity to improve the financial position and find ways to use
sources of funding from various European programs.
The development of cultural tourism is of equal importance for „Osijek’s
musical wednesday“ as well as for the realization of the mission statement of
the city of Osijek.
.. Threats
Among other, the unstable economic situation in the country causes the un-
defined cultural policy. There is an underdeveloped culture of following cultural
events.
A small number of sponsors at the local level supports cultural activities. In
the absence of financial resources that would continuously fund the concerts it
is possible to stop the concert cycle for good.
Strategic guidelines must go in the direction of avoiding such threats.
5. SUGGESTIONS OF STRATEGIC GUIDELINES INTERDISCIPLINARY MANAGEMENT RESEARCH XIV

FOR MUSIC MANIFESTATION „OSIJEK’S
MUSICAL WEDNESDAY“
Based upon SWOT analysis of the „Osijek’s musical wednesday“, one can
formulate several strategic propositions that could bring long-term benefits to
this and other similar musical manifestations.
First of all, diversification of resources is proposed, as a strategy of orienta-
tion to more sources of funding. This increases the sense of self-reliance, self-re-
sponsibility and a better understanding of the environment and its needs. This
strategy increases organizational dynamics for a longer period of time. Accord-
ing to this strategy, the financing of „Osijek’s musical wednesday“ will not rely
91
solely on the local and central budget, but solutions could be sought through
various programs within the European Union, such as Creative Europe.
Creative Europe is such a program whose aim is to support the cultural and
audiovisual sector. It provides financial and logistical support to the optimal
development of the cultural and creative sector. As such, creative Europe is pri-
marily interested in providing support to initiatives that have a real impact on
the music sector, initiatives that promote new skills within the cultural sector
itself, and initiatives that promote international co-operation within the sector.
Consequently, the Creative European Program for the period 2014-2020 was
created, a document that facilitates access to finance for the realization of proj-
ects and cultural events (European Comission).
As a second strategic guideline, a public development strategy is proposed,
which is based on a long-term, systematic engagement regardless of whether
it focuses on non-public animation, the development of a young audience, or
retaining the existing audience with a new cultural program. Organizers of
„Osijek’s musical wednesday“ are already trying to offer a more attractive and
popular program for all types of public in every new season, and such a public
development strategy should be continued in the future.
The strategy of education and transfer of knowledge is the third recommen-
dation, as it supports the development of the reputation and market position
of the music event. Given that the „Osijek’s musical wednesday“ is backed by
the Academy of Arts in Osijek, it would be possible to promote the artistic
and educational value of this event through the Association of European Con-
servatoires (AEC). The primary goal of AEC is music education and it brings
together more than 300 different cultural institutions in 55 countries. However,
as this goal is being pursued through the strengthening of communication be-
tween the music-educational institutions and the cultural-creative industry, this
is certainly a good course of long-term development for events such as „Osijek’s
musical wednesday“ (Association of European Conservatoires).
Given the SWOT analysis results, a decentralization of action is recom-
mended as another strategic guideline. It implies expanding activities to other
areas. „Osijek’s musical wednesday“ performs its concert program only in the
city of Osijek at the moment. In respect of its continuity and artistic quality, the
desire and the need to have concerts elsewhere in the Osijek Baranya county
emerged. This would enable the wider audience to attend the organized con-
92
certs. In this way, this music event would be popularized, especially if decen-
tralization would be followed by intensified marketing activities. In addition,
decentralization contributes to the realization of other goals, too, especially the
strenghtening of cultural tourism.
As far as cultural tourism is concerned, the activities that unite the areas of
tourism and culture in fact present an inter-sectoral connection. Such inter-
disciplinary activities normally generate a significant developmental impulse.
Therefore, inter-sectoral linkage strategy is also recommended. Possibly, this
could be carried out through the cooperation of „Osijek’s musical wednesday“
and the Tourist Bord.
„Osijek’s musical wednesday“ became the brand of the city of Osijek in the
area of music culture. The concerts are very well attended, and even the lack of
a specialized concert venue generated the added value: since concerts are held
at different locations in the city, certain spaces that have not been intended and
initially used for concert purposes are being popularized. Therefore, final rec-
ommendation regarding strategic guidelines is certainly the strategy of develop-
ing recognizability and public visibility.
6. CONCLUSION
Musical events are a valuable part of the cultural offer, meaning much to the
public, to the performing musicians, but also to all the inhabitants of a city and
region, as their purpose is to gather talented artists and thus promote the city

as a center of culture.
Speaking of Osijek’s cultural scene, which is not abundant with a large num-
ber of musical events, the need to engage as many people (artists, cultural work-
ers, audience) of all age groups as possible on the joint creation of the cultural
identity of the city should be emphasized.
This ambitious task can be realized starting from existing music events
whose quality justifies their development and upgrading, but only with long-
term strategic planning. The strategic planning process implies the necessity of
defining the development direction and the implementation of activities whose
performance can be measured and adjusted accordingly.
The task of management in culture is, in addition to organizational and
promotional activities, to emphasize the advantages that the city itself has if it
93
participates in certain manifestations, if it sponsors them and enables cultural
events. This tasks is important because the influence of culture on the economy
is evident, while funds for such events are often hardly available or their raising
is uncertain. Given that the effect of a one-time event is small, and a long-term
periodic recurrence needs a stable financial structure, it is necessary to specify
the financial structure and ensure partnerships for each project.
Although support from local government structures is a valuable resource,
new trends in managing events in culture are more similar to project manage-
ment postulates. In the context of funding, this means providing the financial
resources necessary for the realization of the project / manifestation for each
project separately, arguing the justification for using the funds for the very pur-
pose. At the same time, relying on the budget as the sole source of funding is no
longer sustainable, but with the demonstration of the justification of the event,
financial support should be sought on various sides such as international, state
or EU funds, private companies, various agencies, crowd-founding and the like.
Even performing additional activities, such as renting public space, can serve as
a source of funding for individual projects.
Of course, even though in real life the management of music events is mostly
limited to ensuring financial sustainability, it should not be forgotten that music
manifestations nevertheless belong to the world of art whose value is not only
financial but, above all, spiritual. Art and music enrich everyday life by pointing
us to others, to beauty, to nobility. That is why it is essential for our society to
ensure music events where young virtuosos show their talents, and the audience
rightly expects quality programs.
The results of the case study of „Osijek’s musical wednesday“ conducted by
SWOT analysis and presented in this paper suggest that achieving simultane-
ous financial and artistic prosperity of music manifestations are the main ben-
efits of strategic planning of such events, and in the same time the response to
the initial research question of this study.
94
LITERATURE
Antolović, J. (2009). Menadžment u kulturi, Hadrian, ISBN: 978-953-55288-2-1, Zagreb
Association of European Conservatoires, https://www.aec-music.eu/
Pristup: (27.03.2018.)
Božičević, J. (2000.) Strategija i taktika, Glasnik Akademije tehničkih znanosti 7,
Dostupno na: http://www.hatz.hr/hrv/glasnik/0154.htm
Pristup (30.03.2018.)
Buble, M. & Cingula, M. & Dujanić, M. (2005). Strateški menadžment, Sinergija
nakladništvo, ISBN: 953-6895-23-4, Zagreb
Dragojević, S. & Dragičević Šešić, M (2008). Menadžment umjetnosti u turbulentnim vre-
menima, Naklada Jesenski i Turk, ISBN: 978-953-222-282-1, Zagreb
Dragojević, S. & Žiljak, T. (2008). Organizacijski razvoj i strateško planiranje u kulturi,
Pučko otvoreno učilište Zagreb, ISBN: 978-953-254-013-0, Zagreb
Dragićević Šešić, M. & Stojković, B. (2013). Kultura: menadžment, animacija, marketing,
Kulturno informativni centar, ISBN: ISBN 978-953-7356-40-8, Zagreb
European Comission, https://ec.europa.eu/programmes/creative-europe/news/20170602-
music-moves-europe-8-selected-start-ups-midem-2017_en
Pristup: (27.03.2018.)
Narayanan, M.P. & Nando, V.K. (2007). Financije za strateško odlučivanje, Mate, ISBN:
978-953-246-022-3, Zagreb
Schulz Vugrin, Z. & Forčić, G. (2010). Strateško planiranje: put ka održivosti neprofitnih
organizacija, Udruga za razvoj civilnog društva SMART, ISBN: 978-953-7447-10-6,
Rijeka
Stacey, R. D. (1997). Strateški menadžment i organizacijska dinamika, Mate, ISBN: 978-
953-6070-35-9 Zagreb
Stojković, B. & Milojević, A. (2018) Uvodno predavanje u kulturnu politiku; http://prob-
ni.fpn.bg.ac.rs/studije-ii-i-iii-stepena/master-studije/master-akademske-studije-
kulturologije-master-teorije-kulture-i-studija-roda/kulturna-politika/

Strategija kulturnog razvitka grada Osijeka 2014-2020, (2014). Službeni glasnik Grada
Osijeka 13a,
Dostupno na: https://www.osijek.hr/wp-content/uploads/2017/04/Strategija-kul-
turnog-razvitka-Grada-Osijeka-2014.-2020..docx
Pristup: (14.02.2018.)
Strategija razvoja grada Osijeka: od industrijskog do inteligentnog grada 2014-2020. (2015)
Službeni glasnik Grada Osijeka 2,
Dostupno na: https://www.osijek.hr/wp-content/uploads/2017/07/57-konacni-
prijedlog-strategije-akt-1.pdf
Pristup (28.03.2018.)
Throsby, D. (2010) The Economics of Cultural Policy. Cambridge University Press, 2010.
p. 59-63
Dostupno na: http://assets.cambridge.org/97805218/68259/frontmatter/9780521868259_
frontmatter.pdf
Pristup (10.3.2018)
95
Vrdoljak Raguž, I. & Jelenc, L. & Podrug, N. (2013). Izvor konkurentne prednosti u XXI
.stoljeću, Sveučilište u Dubrovniku, ISBN: 978-953-7153-26-7, Dubrovnik
Vrgoč, D. (2017). Strategos – vojskovođa, general, strateg, Strategos 1, str. 121-124, ISSN:
2459-8771,
Dostupno na: https://strategos.morh.hr/wp-content/uploads/2017/03/Dalibor-
Vrgoc-Jezicni-savjetnik.pdf
Pristup: (30.03.2018.)
Wyszomirski, M. (2002). Arts and Culture. In: The State of Nonprofit America. Lester M.
Salamon (ed.). Washington D.C.: Brookings University Press
96
TOURISTS’ PERCEPTIONS OF
DESTINATIONS  EMPIRICAL
STUDY OF DESTINATION POREČ
Kristina BRŠČIĆ, Ph. D.

Institute of Agriculture and Tourism/Department of Tourism
E-mail: kristina@iptpo.hr
Tina ŠUGAR, M. Eng. Agr.

Institute of Agriculture and Tourism/Department of Tourism
E-mail: tina@iptpo.hr
Drago RUŽIĆ, Ph. D.

University of Osijek Josip Juraj Strossmayer/
Faculty of Economics in Osijek/ Department of Marketing
E-mail: ruzic@efos.hr
Abstract
Tourism is a very important industry in Croatia and globally, and as is indi-
cated in the WTTC report for 2017, travel and tourism is a key sector for
economic development and job creation throughout the world. Tourist destina- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
tions are invited to take account of the social, cultural, economic and environ-
mental challenges as important aspects of sustainable tourism development. In
order to measure the impact of tourism activity in relation to sustainability, the
European Commission has developed a “European Tourism Indicators Sys-
tem” (ETIS), as a management and information tool and monitoring system.
The aim of the paper was to evaluate how tourists’ perceptions of a destina-
tion are used as a management tool for the planning of sustainable tourism at
the destination level. The instrument of the research was a survey developed
according to the Visitor survey suggested by ETIS (2016), with additional
questions regarding the satisfaction level of different aspects of destinations.
The survey was carried out on the beaches in the City of Poreč, from July until
97
September 2017. The surveys were offered to the respondents in the English,
German, Italian, Russian, Slovenian and Croatian languages and in total 510
questionnaires were collected from beach users from 27 countries. The research
was performed within the Interreg Mediterranean MITOMED+ project and
the results can be useful as an information tool for future planning of sustain-
Kristina Brščić Tina Šugar Drago Ružić: TOURISTS’ PERCEPTIONS OF DESTINATIONS – EMPIRICAL STUDY OF DESTINATION POREČ
able tourism in the destination.

Key words: destination management, Istria County, tourists’ perceptions,
tourists’ satisfaction, Poreč
JEL Classification: L83, Z39
1. INTRODUCTION
Tourism in Croatia is the main fast growing industry and in 2017 achieved
the highest results of tourist arrivals and overnights. The direct contribution of
travel and tourism to GDP in 2017 is one of the highest in Europe. Given the
above, it is extremely important to develop sustainable tourism in the future
to protect the resources, to ensure the well-being of the local population and a
high level of tourist satisfaction with the destination.
On the official website of the Ministry of Tourism is mentioned, referring to
the Croatian information system for tourism e-Visitor, that from January to the
end of December in 2017 there were 18.5 million tourist arrivals and 102 mil-
lion tourist overnight stays and that most of the overnight stays were realised
in Istria County (28 million overnight stays). The largest number of overnight
stays were made by tourists from Germany (20.7 million overnights), Slovenia
(10.1 million overnights) and Austria (7.6 million overnight stays). According
to the number of overnight stays the top destinations in Croatia are Dubrovnik,
Rovinj, Poreč, Medulin, and Umag.
Since 2017 was the International Year of Sustainable Tourism for Develop-
ment sustainability in tourism has been in focus and especially issues related
to fast-growing tourism destinations around the world. WTTC (2018) points
out that according to the number of international visitors compared to the local
population, which is one of the indicators of the impact tourism may have on the
destination, Croatia was in the second place in 2016 (3.3 to 1). In the first place
is Iceland (5.1 to 1) and in the third place is Montenegro (2.6 to 1) (WTTC,
2018). According to the indicator of tourism intensity, the most popular tour-
98
ist destinations in the Mediterranean in 2016 were Malta, Croatia, and Cyprus
(EUROSTAT, 2016). It is known that as tourist arrivals grow, destinations can
be faced with social and environmental problems. Also, these can damage tour-
ist satisfaction, which is not in the interests of the destination. Tourist satisfac-
tion is recognized as one of the main indicators in the destination management
and overall satisfaction with the destination is one of the suggested indicators
by the European Commission in the indicators list “European Tourism Indica-
tors System for sustainable management of destination” (ETIS).
2. METHODOLOGY
The aim of the research was to contribute to the measurement of social indi-
cators relating to tourist perceptions of the destination Poreč in order to facili-
tate the management of the destination in the direction of sustainable tourism.
Considering the satisfaction with the destination and preferences of tourists,
the data can be also used as a tool to improve certain aspects of the destination
for the upcoming seasons. Due to the available information at regional and na-
tional levels, they are of little help in planning future activity in a tourism des-
tination. Empirical research will help to test the usefulness of the indicators of
tourist satisfaction at the local level in the planning of the tourism destination.
The research was carried out within the project Interreg Mediterranean MI-
TOMED+ (Models of Integrated Tourism in the MEDiterranean Plus) and
the main objective of the project is to enhance sustainability and responsibility
in Maritime and Coastal tourism.
As secondary data the official data of tourist arrivals and overnight stays in
the period from 2007 to 2017 for destination Poreč was used, which is pub-
lished on the website of the Istrian County Tourist Board. The data from the e-
Visitor information system we requested directly via e-mail and we used official
data from Eurostat and the Ministry of Tourism.
The survey was created according to the questionnaire “Visitor survey”, sug-
gested by the “European Tourism Indicators System” (2016). The survey was
conducted on the beaches in the City of Poreč by interviewers (students) who
were properly educated and controlled in the field. The surveys were offered to
the respondents in the English, German, Italian, Russian, Slovenian and Cro-
atian languages. The survey was carried out from July until September 2017
99
and, in total, 510 questionnaires were collected from tourists on the beach. The
questions were the closed-ended type with the possibility to mark one or more
answers. The questions were related to general information about their journey
and the main reasons and purpose of their visit to the destination. To assess the
satisfaction of certain aspects of the destination and overall satisfaction with the
destination, a 5- point Likert scale was used where grade 1 signified completely
dissatisfied, and grade 5 signified completely satisfied with the aspects. The data
were analyzed using SPSS (22) and the results were presented with descrip-
tive statistics and Principal Component Analysis (PCA) in order to explain the
difference in the level of satisfaction according to the different attributes of the
destination.
. LITERATURE REVIEW
The World Tourism Organisation UNWTO defined sustainable tourism
as: “Tourism that takes full account of its current and future economic, social
and environmental impacts, addressing the needs of visitors, the industry, the
environment and host communities” (UNWTO, 2005). As such, sustainable
tourism is highlighted to be the best way for the long-term sustainability and
preservation of natural and human resources (Bramwell & Lane, 1993). In the
last 30 years, there have been researchers dealing with the topic of sustainable
tourism (Zolfani et al., 2015) and lots of them emphasized the importance of
using sustainable tourism indicators as a tool for sustainable tourism (Miller,
2001; Tanguay et al., 2011). The reason for this is to have an evidence base
on which it can make informed decisions about the future management of the
destination. Also, by using the indicators, everybody in this set of information
is informed about the need for sustainable tourism and indirectly its influence
on the behavior towards issues of sustainable tourism. It is known that the tour-
ism industry needs to encourage positive changes in tourist behavior towards
sustainable and responsible tourism through education and the use of different
tools and strategies (Budeanu, 2007). Also, different stakeholders in the tour-
ism sector could influence tourist behavior towards sustainable tourism (Bram-
well et al., 2008).
In the paper was analyzed tourist perceptions and satisfaction as a social
indicator and as a tool in helping the destination with managing sustainable
tourism. There is extensive literature about consumer satisfaction and tourist
100
satisfaction and there are many different approaches to examining satisfaction
in tourism; for instance: “satisfied with…; pleased with…; delighted about …;
quality of the stay was…; positive to return in the future…; enjoyed myself;
feel good about…; the choice to attend was a wise one; made the correct deci-
sion; exactly what I needed;…” (Dolincar et al., 2013). In practice stakeholders
in tourism use the different tools for measurement of satisfaction levels. For
instance, some web platforms offer the possibilities to tourists to evaluate their
stay in the accommodation and destination by leaving their comments to the fu-
ture tourist and to rate their stay. Generally, tourism satisfaction as an indicator
is used very often and in many different situations. It is well known that tourism
satisfaction is important for destinations as well as consumer satisfaction as a
business goal because it is assumed that satisfied customers would buy more.
Different elements in the destinations can be involved in the formulation of
tourist satisfaction and, since attribute satisfaction affects destination loyalty,
directly and indirectly, its measurements and improvement are critical to des-
tination managers (Chia & Qub, 2008). It is evident that tourist satisfaction is
important and Buhalis (2000) emphasized that “delight visitors by maximizing
their satisfaction” needs to be in the strategic management and marketing objec-
tives of destinations.
. TOURISM IN POREČ
The city of Poreč is one of the most popular destinations in Istria County
and one of the strongest tourist centers in Croatia. Poreč is situated on the west
coast of the Istrian Peninsula. The urban area of Poreč extends over 139 km2 INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
of surface and has 16,696 inhabitants. The main economic branch is tourism,
considering that Poreč has the widest range of tourist offers for different target
groups of tourists. Due to its favourable natural and cultural tourist attractions
which include geographic position, the number of beaches and the indented
coastline, the favourable climate, number of cultural and historic monuments
and cultural events, good gastronomic offer, hospitality of hosts and the large
number of accommodation capacities, makes Poreč one of the most chosen and
visited tourist destinations in Istria County.
According to the official data of the Croatian information system for tour-
ism e-Visitor, the average duration of tourist stays in Poreč, in 2017, was 6 days.
The number of nights in commercial and non-commercial accommodation for
101
2017 was 3,392,400 (3,199,276 in commercial accommodation and 193,124
in non-commercial accommodation) and the number of tourist arrivals was
567,062. The occupancy rate for commercial accommodation in Poreč, for the
year 2017, was 31%, and the highest occupancy rates were in August (94.4%),
July (90.3%) and June (61.3%) which is expected considering the peak of the
summer season.
The largest number of overnight stays were made by tourists from Germany
(1,012,900), Austria (546,155), Slovenia (315,351), Italy (269,613), United
Kingdom (171,847), Netherlands (141,583), Russia (139,794) and Croatia
(124,687).
The number of tourist arrivals in the destination Poreč increased from the
year 2007 until 2017 and in 2017 it registered 567,062 arrivals. As the number
of tourist arrivals increases, there is also an increase in the number of overnight
stays at the destination. In the year 2017, it registered 3,392,400 tourist over-
night stays in destination Poreč, which is an increase of 718,439 overnights,
compared to the year 2007. (Figure 1.)
Figure 1. Tourist arrivals and overnights in Poreč from 2007 until 2017
Source: Official tourist portal of Istria [available at http://www.istra.hr/hr/pr/statistika/

arhiv, accessed March 28, 2018]
102
5. RESULTS
.. CHARACTERISTICS OF THE SAMPLE
In the survey, most respondents came from Germany (31.76%) followed
by respondents from Croatia (13. 92%), Italy (13.33%), Austria (12.55%) and
others as mentioned in table 1. In total, the opinions of respondents from 27
countries were collected.
Table 1. Country of origin of the respondents (n=510)

Country Share (%) Number
Germany 31.76 162
Croatia 13.92 71
Italy 13.33 68
Austria 12.55 64
Great Britain 4.71 24
Slovenia 4.31 22
Russia 2.94 15
Netherlands 2.35 12
Poland 2.35 12
Serbia 1.76 9
Switzerland 1.76 9
Czech Republic 1.57 8
Hungary 1.18 6
Sweden 0.78 4
Norway 0.59 3
Bosnia and Herzegovina 0.59 3 INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
France 0.59 3
Romania 0.39 2
Ukraine 0.39 2
Australia 0.39 2
Other 1.78 9
Source: Field research from July to September 2017.
In the sample were more women (56.19%) than men (43.81%). The sample
had representatives from all age groups and most of the respondents were from
the group of 25 - 54 years old (51.29%). According to the type of residence,
most of the respondents were tourists (82.05%) and most of them stayed in
private accommodation (43.84%) and hotels (37.15%) (Table 2.).
103
Table 2. Characteristics of respondents
Gender (n=509) Share (%) Number
female 56.19 286
male 43.81 223
Age group (507)
15-24 23.08 117

25-34 21.50 109
35-44 14.60 74
45-54 15.19 77
55-64 17.55 89
> 65 8.09 41
Type of residence (507)
local resident 7.10 36
house/apartment owner 7.10 36
tourist 82.05 416
weekend visitor 0.99 5
excursion visitor 2.76 14
Type of accommodation (n=463)
hotel 37.15 172
private accommodation 43.84 203
camp 1.51 7
private house/apartment 15.12 70
sea tourism harbor/marina 0.65 3
hostel 1.73 8
Source: Field research from July to September 2017.
.. TRANSPORT TO THE DESTINATION

Most tourist and visitors visit Poreč by car and it is known that the whole
of Istria is a so-called car destination. This was confirmed by the results of the
field study. Distances from the respondents’ home to the destination were on
average 783.91km (SD=994.6, mode were 500, median 600). On the question
about the means of transportation to the destination, most of the respondents
answered that they were coming to the destination by car (personal, friends or
company) (74.46%), then bus (12.57%), airplane (9.63%) and other means of
transport were mentioned in very small shares.1
1
It was possible to choose one or more of the answers offered
104
.. WAYS OF OBTAINING INFORMATION ABOUT THE
DESTINATION
On the question about how they found out about the destination most of the
respondents answered that they had previously visited the destination (48.71%);
the second most mentioned answer was from friends or family (35.79%) and in
the third place was the Internet (29.22%). Other offered answers were tour-
ist brochures/flyers (4.37%), newspapers/magazines (3.18%), social network
(2.39%) and tourist information centers (1.39%). On the question about the
purpose of their visit to the destination, 90.98% of the respondents answered
that the purpose of their visit was a holiday, free time and recreation. Other
answers were: visiting friends and family (7.06%), shopping (4.9%), health
and medical care (1.57%), education and training (1.18%) or something else
(5.10%).
.. TOURIST PERCEPTIONS AND SATISFACTION WITH

THE DESTINATION
As was previously mentioned Poreč is one of the most popular destinations
in Istria County and in Croatia. Poreč is mainly a “sun and sea” destination but
we wanted to know what the main features are for which respondents had cho-
sen to visit the destination. To get an answer to this question the respondents
were offered features and they could choose to select one or more answers (Ta-
ble 3).
105
Table 3. The main features for which respondents had chosen to visit the des-
tination (n=509)1
Value Share (%) Number
Beach 67.19 342
Clean sea 60.71 309
Nature 52.46 267

Peace and quiet 33.99 173
The hospitality of the host 24.95 127
Accommodation quality 22.99 117
Accessibility 20.43 104
Cultural richness 15.52 79
Destination popularity 14.54 74
Entertainment and recreation 12.97 66
Something else 8.84 45
Sport 8.45 43
Special event 1.96 10
Source: Field research, from July to September 2017.
As can be seen from table 3, the main features for visiting the destination
were the beach, clean sea, nature and peace and quietly followed by the hospital-
ity of the host, accommodation quality and accessibility.
Table 4. Tourist satisfaction with the destination

Aggregate
Relative frequency (%)
score (out of 5)
Features
totally completely
unsatisfied neutral satisfied average SD
unsatisfied satisfied
Overall satisfaction with
0.40 1.81 6.05 52.82 38.91 4.28 0.69
the destination
Destination cleanliness 0.20 3.60 7.60 48.40 40.20 4.25 0.76
Local cuisine 0.41 3.86 9.96 46.95 38.82 4.20 0.80
Accommodation quality 1.83 3.66 11.59 45.53 37.40 4.13 0.89
Tourist attractions 0.22 3.01 19.14 47.53 30.11 4.04 0.79
Information availability at
0.86 4.53 18.32 49.78 26.51 3.97 0.84
the destination
Reasonable prices 0.82 10.27 23.41 41.89 23.61 3.77 0.95
Sports activities 0.65 3.67 28.08 41.90 25.70 3.88 0.85
Cultural events 1.07 2.15 33.48 46.78 16.52 3.76 0.79
Nightlife 2.16 5.39 30.17 39.01 23.28 3.76 0.94
Facilities for children or
1.17 3.76 34.04 39.91 21.13 3.76 0.87
the elderly
Source: Field research, from July to September 2017.
106
From table 4 it can be seen that on average all the scores are very high and
that overall satisfaction with the destination has the best score compared to
the other features of the destination. The second best scores of the destination
are destination cleanliness, local cuisine and accommodation quality. The worst
scores, but also in the range of satisfied, were facilities for children or the elderly,
nightlife and cultural events.
In order to further explore the dimensions of tourism satisfaction, PCA was
conducted with 11 variables considering the different level of tourist satisfac-
tion in the destination. From the calculation was excluded the variable “Infor-
mation available at the destination” because the obtained results showed that it
could not be explained by the obtained components. In the final factorial design
10 variables were included (Table 5).
Two components (KMO=0.894, Bartlett’s Test χ2 sig. 0.000, satisfactory
reliabilities, Cronbach alpha >0.877) emerged with eigenvalues greater than 1,
satisfactorily explaining 60.25% of total variance.
Table 5. Principal Component Analysis (PCA) results, tourist satisfaction

with the destination
Pattern Matrix
Value Component
1 2
Sports activities .903
Facilities for children or the elderly .776
Tourist attractions .722
Nightlife .715
Cultural events .701 INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Destination cleanliness .834
Local cuisine .807
Overall satisfaction with the destination .786
Accommodation quality .752
Reasonable prices .626
Factor statistics
Eigenvalue 4.853 1.171
Variance % 48.531 11.713
Cumulative variance % 48.531 60.245
Cronbach alpha .826 .816
Mean 3.8394 4.1285
Extraction Method: Principal Component Analysis.
Rotation Method: Promax with Kaiser Normalisation.
a. Rotation converged in 3 iterations
107
From the results, it is possible to see that the PCA has shown that the tour-
ist satisfaction with the destination can be explained through two components.
The first component, which can be described as a destination offering, has the
following elements: sports activities, facilities for children or the elderly, tour-
ist attractions, nightlife and cultural events. The second component can be de-
scribed as destination quality and consists of the elements: destination cleanli-

ness, local cuisine, overall satisfaction with the destination, quality of accommo-
dation and reasonable prices. In the case of Poreč destination on average, quality
is rated with a higher score than the offer.
.. TOURIST PERCEPTIONS OF DESTINATION

SUSTAINABILITY
On the question “Does the destination invest enough in initiatives focused
on sustainability?” respondents have answered positively in 77.5%. In the sam-
ple, 6.83% (34) respondents traveled with a person with disabilities or with
limited mobility. Respondents were asked to evaluate if the destination takes
into account the special needs of tourists and visitors with disabilities or limited
mobility in different areas of activity - accommodation, public transport, tourist
attractions etc. In total, 128 respondents answered this question and the aver-
age score was neutral 3.06 (SD=1.04).
Although there were mostly positive answers to the question about the des-
tination initiatives directed to sustainability, it can be concluded that Poreč as a
tourism destination can do more in meeting the needs of people with disabilities.
6. CONCLUSION
In the presented research most respondents came from Germany, Croa-
tia, Italy, Austria, Great Britain and Slovenia. A large number of respondents
had already visited the destination or had been informed about the destina-
tion through their friends / family or the Internet and most of the respondents
stayed at the destination for several days. This is very good for the research
because tourists already knew the destination. The most common way to travel
to Poreč destination is by car and car is the most often used method of trans-
portation at the destination. The destination was chosen by tourists as their va-
cation destination mostly due to the following features: beach, clean sea, nature
108
and landscape, peace and quiet. Most respondents noticed initiatives focused
on sustainability at the destination and it can be assumed that they approved of
them. One of the indicators of that was overall satisfaction with the destination
which is the best-rated attribute from all the offered attributes to rate tourist
satisfaction.
The question is if destinations used only the overall satisfaction level as an
indicator, then maybe they will not have enough information for the improve-
ments in the future planning of the destination. Empirical research has shown
that the respondents in Poreč destinations rated their overall satisfaction with
the highest grades. This was to be expected but all other elements of the desti-
nation were, in principle, evaluated with lower grades. It can be concluded that
for destination planning it is useful to divide questions about satisfaction into
different questions regarding different strategic objectives of the destination. In
that case, this indicator is very useful. Also, it is important to measure tourism
satisfaction at the destination level because, if it is used at regional and national
levels, then the results are dispersed and in these cases for destinations, tourist
satisfaction as an indicator is a less useful tool for future planning.
By conducting the PCA it is evident that offered attributes for measuring
tourist satisfaction with the destination can be explained through two com-
ponents. The first component, “destination offer”, has the following elements:
sports activities, facilities for children or the elderly, tourist attractions, night-
life and cultural events. The second component, “destination quality”, consists
of the elements: destination cleanliness, local cuisine, overall satisfaction with

the destination, quality of accommodation and reasonable prices. The results
are interesting and can be used in future research in developing questionnaires
for measuring tourist satisfaction taking into account these two components.
Measurement of tourist satisfaction as a social indicator in the measurement of
sustainable tourism in the destination is very important. As an indicator overall
satisfaction with the destination does not give enough information to the des-
tination management at the local level, so it could be suggested to measure an
additional two attributes like satisfaction with the offer and/or the quality of
the offered facilities in the destination.
Considering the yearly increasing number of arrivals and overnight stays in
the destination Poreč and the growing share of tourism in the GDP in Croatia,
sustainable tourism should be a long-term goal in the concept of development
109
of the destination. As the results show, tourists are generally satisfied with the
destination Poreč and, in order to obtain a high level of tourist satisfaction in the
future, destinations have to take care of the social, cultural, economic and envi-
ronmental challenges as important aspects of sustainable tourism development.
FUNDING
The research was carried out as part of the project Interreg Mediterranean
“Models of Integrated Tourism in the MEDiterranean Plus” - MITOMED+.
REFERENCES
Bramwell B. & Lane B. (1993). Sustainable Tourism: An Evolving Global Approach. Journal
of Sustainable Tourism, 1(1), p. 1-5.
Bramwell B., Lane B., McCabe S., Mosedale J. & Scarles C. (2008) Research Perspectives on
Responsible Tourism, Journal of Sustainable Tourism, 16(3), p. 253-257.
Budeanu A. (2007). Sustainable tourist behaviour – a discussion of opportunities for change,
International Journal of Consumer Studies, 31, p. 499-508.
Buhalis D. (2000). Marketing the competitive destination of the future, Tourism Manage-
ment, 21(1) p. 97-116
Chia, C. G. Q., Qub H. (2008). Examining the structural relationships of destination image,
tourist satisfaction and destination loyalty: An integrated approach. Tourism Manage-
ment 29, 624–636
Dolnicar, S., Coltman, T., Sharma, R. (2013). Do satisfied tourists really intend to come
back? Three concerns with empirical studies of the link between satisfaction and be-
havioural intention. Journal of Travel Research, 54 (2), p. 152-178
ETIS Surveys (2016). Sample Visitor Survey [available at file:///C:/Users/tina/Down-
loads/ETIS%20Surveys%2019.2.2016.pdf access March 28, 2018]
EUROSTAT (2016). Tourism statistics [available at http://ec.europa.eu/eurostat/statis-
tics-explained/index.php?title=Tourism_statistics access April 5, 2018]
e-Visitor, Information system for check-in and check-out of tourists (2018) [accessed Febru-
ary 16, 2018]
Miller, G. (2001). The development of indicators for sustainable tourism: Results of a Del-
phi survey of tourism researchers. Tourism Management, 22, p. 351-362.
Ministry of Tourism (MT) 2018 (2017) [available at http://www.mint.hr/vijesti/rekordna-
2017-turisticka-godina-ostvareno-102-milijuna-nocenja/11589 access April 9, 2018]
Tanguay G. A., Rajanonson J. & Therrien M. C. (2012). Sustainable tourism indicators:
selection criteria for policy implementation and scientific recognition. Journal of Sus-
tainable Tourism, 21, p. 862-879.
110
The European Tourism Indicator System, ETIS toolkit for sustainable destination man-
agement (2016) [available at file:///C:/Users/tina/Downloads/ETIS%20toolkit%20
2016%20150316%20(2).pdf access March 28, 2018]
UNWTO, Making Tourism More Sustainable - A Guide for Policy Makers, UNEP and
UNWTO, 2005, p.11-12 [available at http://sdt.unwto.org/content/about-us-5, ac-
cess April 13, 2018]
Official tourist portal of Istria [available at http://www.istra.hr/hr/pr/statistika/arhiv, ac-
cessed March 28, 2018]
Zolfani S. H., Sedaghat M., Maknoon R. & Zavadskas E. K. (2015). Sustainable tourism:
a comprehensive literature review on frameworks and applications. Economic Research,
28(1), p. 1-30.
World Travel & Tourism Council (WTTC) (2018). Travel & Tourism Global Economic
Impact & Issues 2017, [available at: www.wttc.org, accessed February 13, 2018]
111
THE ROLES OF LEADERSHIP
STYLES AND ENTREPRENEURIAL
ORIENTATION IN
Igor Pureta • Tanja Pureta: THE ROLES OF LEADERSHIP STYLES AND ENTREPRENEURIAL ORIENTATION IN DISTINGUISHING MORE FROM ...
DISTINGUISHING MORE FROM

LESS UCCESSFUL ORGANIZATIONS
Igor PURETA, Ph. D. Student

Grawe Hrvatska d. d.
E-mail: igor.pureta@grawe.hr
Tanja PURETA, Ph. D. Student

Ramiro d.o.o.
E-mail: tanja.pureta@ramiro.hr
Abstract
Competitive advantage has an extremely important place in strategic thinking

both within the organization and the country. The international competitive-
ness of a country is a reflection of the ability of the organizations within it to
achieve success both on the national and international markets. The latest scien-
tific researches attribute organizational performance and consequently competi-
tive advantage to its leaders and their ability to optimally use available resources.
Sources have shown that leaders facing the ongoing globalization market chal-
lenges through their behaviour can improve the organization’s performance. Ef-
fective leaders enable it by increasing the level of entrepreneurial orientation of
the organization (nurturing its proactive, innovative and risk-taking character-
istics) through the interrelationships among its workers as well as their commit-
ment, confidence and motivation for greater work quality. All these favourable
effects are primarily enabled by transformational leadership style, first described
by Burns (1978), and elaborated in detail by Bass (1985a), whose implemen-
tation is dominantly advocated in modern organizations. This paper explores
which leadership characteristics can be used to improve the organization’s per-
formance, and whether less successful organizations can be distinguished from
the ones that are more successful. The results of this study show that there are
112
specific characteristics that the organization should nurture if it wants to be suc-
cessful and that less successful organizations can be distinguished from the ones
that are more successful according to leadership style they use.
Key words: competitive advantage, entrepreneurship orientation, organiza-
tional performance, leadership style
JEL Classification: L26, L29
INTRODUCTION
In the contemporary, increasingly more open and integrated global econo-
my, competitiveness is central to economic strategies, of both developed and
developing countries. Competitiveness based on innovations, relation of price
and performances, reduced product returns and creative destruction of existing
competencies characterises the intensive and dynamic markets of today (San-
tora et al., 1999, Venkataraman, 1997).
The OECD (2011) defines competitiveness as a measure of the country’s
ability to, under market conditions, produce goods and services that pass the
test of the international market, while maintaining and increasing the long-
term real income of the population. On the other hand, Krugman (1996) ad-
vocates an extreme view that the concept of competitiveness is not applicable to
the countries, but only to the enterprises.
In terms of the enterprise, the market share is most often used as an indica-
tor of competitiveness at a particular point of time or its change over time. Oth-
er significant indicators include profitability, sales trends on the domestic and INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
international markets and the ability of the enterprise for a long-term sustain-
ability and development under the conditions of growing global competition.
Leko-Šimić (1999) states that the international competitiveness of a country
is also a reflection of the ability of its economic entities to successfully engage
in the above-mentioned global processes. Therefore, we can say that in creat-
ing a productive and competitive economy, public and private sectors are inter-
connected. The country is in charge of establishing a good fiscal and monetary
policy, an efficient legal system and stable democratic institutions necessary for
a successful economy. At the microeconomic level of the economy (Bezić, 2008,
p. 31), wealth arises from the quality of the microeconomic business environ-
ment and operational practices and strategies at the enterprise level. Although
113
the public and private sectors differ in their basic roles, they are interconnected
in creating a productive and competitive business. Therefore, competitiveness is
a multidimensional phenomenon - necessarily present at the level of the enter-
prise, sector and country as a whole.
Competitiveness is a variable category and a challenge for organisations so

they have to, in order to achieve or retain competitive advantage, continuous-
ly improve their activities on the market and constantly create new business
rules (Carpenter and Sanders, 2007). As Galbraith et al. (2002) claim, there is
a strong link between the leadership and the company’s competitive advantage.
Spillane (2005) also claims that the competitive advantage and the leadership
are related, stating that the organisation has the ability to achieve whatever it
thinks is possible provided it knows which way to go to achieve it.
The question is why some organisations at any of the aforementioned levels,
despite the similar resources available to them or surrounding environment, are
more successful than the other organisations in using these resources. Accord-
ing to the latest findings, this advantage is attributed to the leadership of the
organisation and its ability to make better use of the resources available to them
than other organisations, gaining thus a competitive advantage.
THE IMPORTANCE OF LEADERSHIP FOR THE

ORGANISATION’S SUCCESS
The key sources of an organisation’s strength that enable people to design
and implement effective processes and thus achieve organisational success are
leadership styles, organisational culture, skills and abilities and motivation are
(Keller, 2006). Leadership is both a scientific discipline and practical skill re-
lated to the ability of individuals or organisations to lead or direct other indi-
viduals or organisations (Northouse, 2010).
The leader performs a number of important functions in the organisation
they manage. They create a vision, set group values and norms, serve as a role
and identification model, coordinate work, control internal relationships among
group members, plan task execution, mediate internal disagreements and man-
age conflicts, give praises, encourage, but also point to mistakes and poor quality
of work, present their group to others, etc. The hidden power of the leader is in
controlling their own and other people’s emotions. Great leaders are the ones
114
who are able to inspire us with their ideas, i.e. the ones who are able to, thanks
to their attractive vision, lead us to the right direction, awaken in us passion and
other powerful constructive emotions such as love, optimism, and hope as well
as direct the entire group’s energy towards achieving a common goal.
Leaders can positively inspire organisational creativity and entrepreneurial
orientation, which are prerequisites for achieving desired results. When mem-
bers of the organisation feel secure, or when they are approached with confi-
dence, the leader has the ability to stimulate their best characteristics and mo-
tivation for the devoted accomplishment of goals (Schein, 1993). Accordingly,
many authors argue that successful managers should know how to recognise
and efficiently take into account three interdependent activities that need to be
continually reviewed for the organisation to succeed (Veljić, 2011). These are:
• determining the direction of the organisation,
• designing the organisation and
• encouraging culture dedicated to excellence and ethically correct behaviour.
The interdependence of these three activities is obvious. Most failures in
today’s organisations can be attributed to the fact that the aforementioned three
activities are not viewed equally. Successful leaders will probably create such an
organisational culture that will enable rapid adaptation of the organisation to
its ever-changing environment. Such a culture requires individuals in the organ-
isation to be innovative, i.e. to constantly look for ways to improve their work as
well as positive trends from the outside. (Romero, 2012).

Well-developed leadership competencies are a prerequisite for a successful
work of organisations in today’s competitive market. The decisions of modern
managers have long-term consequences indeed, so every organisation seeks to ex-
pand and improve the competences of its leaders to enable them to make better
quality decisions. Profit and non-profit organisations, governmental and non-gov-
ernmental agencies, as well as educational institutions must deal with the complex
situations on a daily basis. They can only do so if they create effective internal
communication, emphasise a shared vision, dedication to achieving a common
goal and awareness of the importance and necessity of accepting the necessary
organisational changes. According to Ralean (2003), organisations of the 21st
century are based on knowledge and require each member of the organisation to
share their experience and knowledge with others for the organisation to achieve
success. Leadership requires all employees to reconsider their shared beliefs and
115
create those which will enable a unique way of organisation’s functioning based on
creativity, innovation and a whole new set of abilities (Meredith, 2011).
LEADERSHIP STYLES
Leadership style consists of a series of aligned activities and procedures that
make a specific, distinctive way to lead a group. Different leaders implement dif-
ferent leadership styles in line with their personality, education, but also nature,
i.e. tasks characteristics of the group they lead, so each of them has their own,
dominant leadership style. Additionally, the most successful leaders use a wide
range of leadership styles as needed, depending on the characteristics of the
specific situation and the competence level of the people they manage.
In the mid-seventies of the last century, it was noticed that many organisa-
tions have no response to the problems arising from the implementation of rad-
ical changes that should have been achieved in the short term. It was shown that
the implementation of such changes has only been successfully carried out in
organisations under the leadership of highly capable leaders. Leaders are change
agents. Their success is measured by the way they strategically implement vision
and mission.
Based on these findings, a whole series of research has been conducted with
the aim to determine which leadership styles exist and how they affect the be-
haviour of people in the organisation and consequently organisational effect.
Taking into account all the leadership styles known so far, Bass and Avolio
(1999) united them into a unique model of Full Range Leadership Develop-
ment. In it, based on the results of the research, they describe each of them in
details, in terms of characteristics used to influence people and the ability to
achieve the desired organisational effect.
In that model, the most significant ability to achieve positive influence on
people and organisational impact have transformational leadership styles.
Transformational leaders have a vision which they personally live, the ability
to inspire followers to constantly outdo themselves, i.e. they can encourage en-
trepreneurial orientation in them. In addition, they understand the need for
change, expansion, or complete transformation of organisational factors, in or-
der to lead the organisation towards a vision that others may sometimes not
even be able to imagine.
116
The transformational leadership style is related to the way a leader connects
to the members of his team, creating a relationship that increases the level of
motivation and morality both in the leader and team members. The leader takes
care of the needs and motivations of the team members and tries to help them
achieve their goals. The transformational leader has the ability to stimulate self-
actualisation, i.e., motivate the reporting members of the group to help them
to achieve more than what is expected of them. To achieve the desired goal,
transformational leaders constantly use their personal vision and energy. This
leadership style is represented by the following scales (Avolio and Bass, 2004):
• Idealised impact - attributed
• Idealised influence - behaviour
• Inspirational motivation
• Intellectual stimulation
• Individualised care
Leaders who apply transformational leadership styles to the employees in the
organisation act in a way which encourages them to achieve full potential and
more than what is expected of them. Thus, they become motivated to overcome
their own interests for the good of their organisation, because they understand
that the welfare of the organisation is also a prerequisite for their long-term
benefit. By applying this approach to leadership, an atmosphere of cooperation
is created in the organisations. This is extremely desirable because in such a way
the organisation, through engaging employees in all major activities, achieves its
maximum efficiency.
Burns (1978), in addition to the transformational form of leadership be- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
haviour, also points out the transactional form, which found its place in the
Full Range Leadership Development model. Transactional leadership style is
based on a set of different leadership theories, which focus on the interchange
between leaders and reports. Transactional leadership is reflected in tasks of a
leader who decides what the reports should do so that the goals of the organisa-
tion could be achieved and in the allocation of these tasks to the reports and,
encouragement and motivation of the reports to reach the goals set.
By paraphrasing Burnes (1978), Bass (1985a, 1985b) described transaction-
al leaders as the ones who:
117
• recognise what the subordinates want to get from their work and leaders
ensure they get it if they deserve it with respect to their efficiency
• exchange rewards and promises of rewards for the appropriate levels of
effort
• respond to the wishes and needs of the reports as long as they complete
their tasks.
The final revision of the Full Range Leadership Development model (Bass
and Avolio, 2004) speaks of two transactional styles that also make its scale:
• Conditional rewarding
• Active management by exceptions
Passive/avoidant leadership style, according to the latest revision of the Full
Range Leadership Development model (Avolio and Bass, 2004), was intro-
duced as the third leadership style, which is the most passive out of all in the
model. According to the definition (Avolio and Bass, 2004), transformational
styles are more active and more efficient than transactional, and transactional
are more active than passive/avoidant leadership style. In the model of the full
range of leadership passive/avoidant management represents the so-called non-
leadership factor and consists of a scale:
• Passive leadership by exceptions and
• Laissez-faire, or the complete absence of leadership
In modern organisations, it is certainly better to use transformational than
transactional leadership, because as described previously, transformational lead-
ership results in higher efficiency (Bass and Avolio, 1994). Transactional leader-
ship results in expected outcomes and the outcomes of transformational lead-
ership exceed the expected outcomes. The leader who uses transactional lead-
ership in modern organisations can only slightly encourage people to achieve
organisational goals because their engagement will depend on the reward they
have been promised to get if they achieve their goals. The transformational
leader has the ability to encourage people to understand that the biggest reward
lays in the constant pursuit of achieving goals which are meaningful for all em-
ployees and which accomplish a mission in which everyone wants to participate.
With such an attitude, employees are eager to accept any changes because they
understand that they need to constantly adapt to new market demands to con-
stantly achieve the desired results.
118
This leadership style matches contemporary working groups that want to be
motivated and empowered for success in times of uncertainty. Transformational
leadership is a process that changes people and includes continuous work on
emotions, values, ethics, norms and long-term goals, as well as an assessment
of the reports’ motives to meet their specific needs and to treat them as the
unique human beings, what they are indeed. Transformational leadership is a
process that describes the very essence of charismatic and visionary leadership
(Northouse, 2010).
Effective leadership is seen as a source of development of governance and sus-
tainable competitive advantage for improving organisational performance (Avo-
lio, 1999; Lado et al., 1992; Rowe, 2001). Zhu et al. (2005) indicate that visionary
leadership will result in a high level of connectivity, commitment, confidence, mo-
tivation, and thus in the performance in changing organisational environments.
Buble (2010) argues that effective leadership of a growing company requires pos-
session of skills such as self-awareness, teamwork, the ability to motivate others,
empower and delegate, stimulate communication, and lead and manage positive
changes. Each of these skills requires a combination of theory and practical action,
as well as a well-designed action plan that helps the organisation react quickly but
thoughtfully in the environment of rapid growth and uncertainty.
Mehra et al. (2006) argue that it is necessary to focus on improving leader-
ship effectiveness in situations when organisations are looking for ways to be
better than others. Team leaders are believed to play a key role in shaping collec-
tive norms, assisting with dealing with the environment and coordinating col-

lective action. This perspective provides a valuable insight into the relationship
between team leadership and performance (Guzzo and Dickson, 1996). Some
studies have explored the strategic leadership role and how to use it to improve
organisational performance ( Judge et al., 2002, Judge and Piccolo, 2004, Meyer
and Hepard, 2000, Yukl, 2002).
ENTREPRENEURIAL ORIENTATION AS A WAY OF

ACHIEVING ORGANISATIONAL PERFORMANCE
According to Lumpkin and Dess (1996) entrepreneurial orientation is an
integral part of the concept of strategic selection and refers to the intentions and
actions of key decision-makers in a dynamic process. Entrepreneurial orienta-
tion is a process that is related to the methods, practices and styles of business
119
decision-making. It promotes entrepreneurial initiatives through all levels of
management in formulating and implementing entrepreneurial strategies. So,
it is not a creation or something that top management can impose. Instead, it
represents the strategic attitude of all levels of management.
Bearing in mind its importance for the enterprise’s efficiency (McGrath et

al., 2000) entrepreneurial orientation is an important measure of how an enter-
prise is organised. Entrepreneurial orientation can explain, to a certain extent,
management processes that enable some enterprises to overcome the competi-
tion because it facilitates activity based on detecting early signs of market op-
portunities and threats and creation of effective responses to them (Lumpkin
and Dess, 1996).
According to Lumpkin and Dess (1996), entrepreneurial orientation is a
phenomenon related to processes and activities related to the design and im-
plementation of new business and includes five basic components: innovation,
proactivity, tendency to take risk, autonomy and competitive aggressiveness.
Innovation refers to the innovative activities of enterprises that include the de-
velopment of new and improvement of existing products and services and new
production methods and procedures (Antoncic and Hisrich, 2003). Proactive-
ness refers to the readiness and orientation of strategic management to take the
initiative, i.e. the willingness of the enterprise to be the market leader in key
areas of business, such as the introduction of new products or services, manu-
facturing technologies and administrative techniques (Morris et al., 2008). En-
trepreneurial orientation is a tendency of the company to act autonomously
and innovatively, to take risks and to take proactive initiatives towards potential
market opportunities (Lumpkin and Dess, 1996). Autonomy is the ability and
desire to seek for market opportunities independently, and it refers to actions
undertaken by individuals and teams with the aim of achieving a new business
concept, idea or vision (Lyon et al., 2000). Competitive aggression is the enter-
prise’s tendency to compete with its competitors, i.e. the willingness of man-
agement to assume the leading role in the market and the dominant attitude
towards the competitors.
Although entrepreneurial orientation is most often referred to as the char-
acteristic of an enterprise rather than of an individual, Frese (2009) argues that
entrepreneurial orientation should be viewed as a psychological construct. In
almost all entrepreneurial orientation research, only one person from the mana-
120
gerial structure fills out questionnaires or conducts an interview with the re-
searchers, which results in the research being reduced to the managerial percep-
tion of business operations. It is obvious that some quantitative parameters are
not examined in such a way, but organisational culture or business climate, all of
which are common variables of organisational psychology (Tonković Grabovac
and Morić Milovanović, 2015). The interest for this construct is undoubtedly
supported by the findings that there is a positive relationship between entrepre-
neurial orientation and business performance (Wiklund and Shepherd, 2003).
Engelen et al. (2012) have conducted research on 760 small and medium-
sized enterprises in six countries, and they concluded that there is a strong link
between entrepreneurial orientation and the organisation’s performance. In ad-
dition, they found that four transformational styles of management significantly
influence entrepreneurial orientation: the idealised influence - attributed and
behaviour, inspirational motivation and individualised care, regardless of the
country in which the organisation operates.
They also found that this effect is greater if the highest level of managers
behaves constantly in a transformational way, which contributes to cascading
or so-called domino effect of transferring the transformational leadership style
(or a new system for making meaning in the organisation) from the higher to
the lower managerial levels and consequent expansion of the transformational
organisational culture (Kunhert, 1994, and Bass et al., 1987). A large number
of examples of cascading transmission of transformational leadership have been
recorded in various organisational environments. The consistent logic behind

this effect is that managers at the lower levels have the feeling of taking control
and they feel capable of implementing efficient management techniques with
their associates and colleagues. Such action provides higher management with
more excellent opportunities to plan future activities, as they do not have to
spend time-solving routine problems related to tasks of the reports.
With the phenomenon of entrepreneurial orientation, researchers have
agreed that all the above-mentioned characteristics can be presented under three
stable dimensions: innovation, proactivity and willingness to take a risk. These
dimensions are also the basis for drafting an entrepreneurial orientation ques-
tionnaire (Wiklund, 1999). However, as already mentioned, it is not enough
that management alone is entrepreneurial oriented. Instead, for an organisation
to succeed, it is necessary that all of the employees have such orientation. In
121
Croatia, the problem of entrepreneurial orientation is that the employees are
much more focused on achieving their own vision of their business role and
dedicated accomplishment of their own goals than to align with their colleagues
about the common vision and goals (Pureta and Pureta, 2017). This necessarily
leads to poorer results of the organisation, because the individual efforts of the
employees in their joint work are mutually weakened, rather than multiplying
their strength through a synergistic effect.
In today’s uncertain and turbulent environment, organisations need to be-
have in an entrepreneurial fashion if they want to survive on the market. In-
creasingly faster development of new technologies and increasingly shorter pro-
duction cycles force organisations to innovate to develop new ideas, products
and processes and readiness to take certain risks because that is the only way
for them to cope with the changes mentioned before. Also, increasingly larger
competition (domestic and foreign) highlights the need for proactive market
performance. The literature clearly states that increase of competition, rapid
technological changes, growing globalisation and various other dynamic forces
have a strong impact on increasing the importance of entrepreneurial orienta-
tion (Morić Milovanović, 2012).
RESEARCH
This research aimed to determine if more and less successful organisations
in Croatia differ in terms of leadership style and entrepreneurial orientation.
The hypothesis that more successful organisations have better represented
transformational leadership styles and more developed all three dimensions of
entrepreneurial orientation than those of less successful was set in accordance
with the aforementioned previous research. If this hypothesis proves to be right,
it will be another relevant proof of the importance of developing transforma-
tional leadership styles and entrepreneurial orientation in organisations so that
they and the whole Croatian economy could become more competitive.
A whole set of measuring instruments has been drafted to measure the per-
formance of an organisation, as it is an important indicator of the quality of
work of an organisation. For this paper, the Organisational Performance Ques-
tionnaire was drafted, based on the results of Dess et al. (1984) and (1997),
who found that it was possible to use performance measures based on the per-
ception of the managers. Namely, according to the results of the research, it
122
was found that subjective performance measures correlated considerably with
the objective ones, thus confirming their validity and reliability in this context
(Dess and Robinson 1984, Venkatraman and Ramanujam 1987). For example,
Chandler and Hanks (1993) claimed that estimates of business owners or ex-
ecutives (such as earnings, business volume, and sales growth) highly correlate
with real data.
This measuring instrument of subjective assessment of organisational per-
formance is designed so that the results obtained by its application could be
compared to organisations with different industrial characteristics. It comprises
of three elements that describe the performance of an organisation in relation
to competitors in the same activity. These are growth indicators, financial indi-
cators and indicators of overall business operation. The instrument consists of
a total of 9 items researching the organisational performance of the enterprise.
Respondents are asked to compare the behaviour of their organisation with the
behaviour of other organisations of similar activity over the past three years in
the following categories:
Growth indicators
• Sales growth
• Growth of the number of employees
• Market share growth
• Financing growth from own resources
Financial Indicators

• Profit before taxation
• Liquidity
• Ratio of profit and sales (income)
Indicators of overall business operations
• Overall performance/success
• Enterprise’s image
Respondents asses the comparison of the behaviour of their organisation
compared to others based on a 7-point scale, from the “significantly worse than
the competition” response indicated by number 1, to the “significantly better
than the competition” response indicated by number 7.
123
The entrepreneurial orientation questionnaire is based on the above-men-
tioned research and comprises of three dimensions - proactivity, innovation
and risk-taking, each of which is described with three items. The respondents
are asked to compare the behaviour of their organisation with the behaviour
of other similar organisations over the past three years, given the following
statements:
Proactivity
• In each situation, it tries to take the initiative (e.g. in relation to competi-
tors, in projects, while working with others, etc.)
• It launches activities that competitors then follow
• It is often first to launch new products, services, processes, administrative
techniques, etc.
Innovation
• It actively introduces improvements and innovations into its business
operation
• It encourages employees to develop ideas to improve business operation
• It dramatically changes or introduces new products and/or services
Risk-taking
• It encourages employees to introduce new ideas and to take controlled
risks
• It is very prone to high-risk projects
• Usually, it takes a firm, aggressive attitude to achieve its goals and elimi-
nate competition
These statements are evaluated in a 5-level scale, from the “I do not agree”
response, which is marked by number 1, to the “I completely agree” response,
which is marked by number 5.
In addition to these two instruments, MLQ-5X (Avolio and Bass, 2004),
a newer version of the questionnaire, was used which was based on the Bass’
Full Leadership Range model. It consists of nine scales, five of which refer to
transformational leadership style, two to transactional leadership style, and two
to passive/avoidant leadership style.
The questionnaire consists of 45 items. Each component of the manage-
ment is represented by 4 items, while the other items are intended for measur-
124
ing organisational efficiency (satisfaction, effectiveness and motivation, or extra
effort). All items are assessed through a Likert’s 5-range scale, which reflects
self-assessment of the frequency of individual behaviour ranging from 0 (not at
all) to 4 (often).
The data was collected in June 2017 using the method of an online survey,
and respondents are invited to participate via e-mail. The sample was suitable.
The participants first got the instruction in which the research goal was de-
scribed and it was emphasized that the survey was voluntary and anonymous,
that there was no time limit or time limit for completing the questionnaire. In
the instruction, the participants were also asked to respond to the questions
as honestly as possible. Data were collected from 866 persons, and after the
incomplete responses and the responses of those who were not in managerial
positions were excluded, the final sample was obtained. It was made up of per-
sons in managerial positions in Croatian organisations (N=761). The study
involved 273 female and 483 male participants. Table 1 contains descriptive
data on participants.
N %
Age
Under 25 2 0.30
25-34 112 14.70
35-44 317 41.70
45-54 270 35.50
55-64 54 7.10
65 or above 6 0.80

Education
High school 58 7.60
Bachelor 118 15.50
Master 380 49.90
Postgraduate 204 26.80
Not answered 1 0.10
Position in organisation
Junior Supervisor 45 5.90
Middle Supervisor 135 17.70
Senior Supervisor 181 23.80
C-Level 400 52.60
Table 1: Descriptive Data on Participants in Research (N=761)
125
RESULTS
In order to determine the difference between more and less successful organ-
isations, they are divided according to the obtained results on the scale of the
organisational efficiency. Those with arithmetic mean lower than the average
are classified as less successful, and those with arithmetic mean higher than the
average are ranked as more successful. Multivariate analysis of variance was sub-
sequently performed, which showed that more and less successful organisations
differ statistically significantly with respect to the prevailing leadership styles, as
well as the general development of all three factors of entrepreneurial orienta-
tion (Wilks’ λ = 0.80; F (12.748) = 15.41; p<0.01).
Thereafter, a discriminatory analysis was carried out, in which a signifi-
cant function was obtained (Function 1 – Wilks’ λ= 0.80; Chi-square (12)
= 166.39; p<0.01) that makes a clear distinction between these two groups
of organisations. Table 2 shows the matrix of the structure of the function
obtained.
Function 1
Proactivity 0.94
Inovation 0.77
Risk-taking 0.77
Inspirational motivation 0.77
Idealized Impact (Attributed) 0.77
Conditional reward 0.77
Intellectual stimulation 0.77
Individualized concern 0.31
Idealised Impact (behaviour) 3.00
Active management by exceptions 0.22
Laissez-faire -0.21
Passive control by exceptions 0.01
Table 2: Visualisation of the Matrix of the Structure after Conducted Canoni-

cal Discrimination Analysis (N=761)
The results shown in Table 2 show that the function obtained is most satu-
rated by factors proactivity, innovation and risk-taking as dimensions of entrepre-
neurial orientation and then inspirational motivation, idealised influence (attribut-
ed), intellectual stimulation, individualised care and idealised influence (behaviour)
126
as the dimensions of transformational leadership style. This means that the
combination of transformational leadership styles and entrepreneurial orienta-
tion is an important factor in the success of the Croatian organisations as well.
In addition to these transformational leadership styles, it can be seen that more
successful organisations use one transactional style more, which is a conditional
rewarding system, which is also mentioned in the literature as a factor of success
if combined with the transformational leadership styles, which is also the case
here. This function is the least characterised, in relation to all of the above-men-
tioned factors, by another transactional leadership style, which is active man-
agement by exceptions. This is also logical because it is an active form of work-
ing with people, but it is the least effective among all the aforementioned. In the
overview of the matrix of the structure of the obtained discriminating factor it
can be seen that passive management by exception is not related to the function
obtained. Also, the laissez-faire leadership style, which represents complete ab-
sence of management, is in a negative relationship with the obtained function,
meaning that it is a more common characteristic of the less successful organisa-
tions. Such a result suggests that any management of people is more efficient
than lack of management, which can only cause a negative business result.
As it can be seen in Table 3, on the basis of subsequent classification of or-
ganisations more or less successful in accordance with this discriminatory func-
tion, 74.3% of successful organisations, or 65.8% of those less successful, were
accurately identified, further confirming its strength and validity.
Anticipated belonging to the group
Less successful More successful
organisations organisations
Real belonging to the group n % n %
Less successful organisations 235 65,8 122 34,2
More successful organisations 104 25,7 300 74,3
Table 3: Display of Enterprise’s Ranking Regarding its Effectiveness through

Discriminatory Functions (N=761)
CONCLUSION
The results of this research show that there is a statistically significant dif-
ference between more and less successful organisations, given their dominant
leadership styles and development of all dimensions of entrepreneurial orienta-
127
tion. This leads to a firm recommendation that any organisation that wants to
succeed must necessarily understand the concept of entrepreneurial orientation
and make a systematic plan to develop and maintain it. It is also important to
consider the importance of the development of all transformational leadership
styles as agents of entrepreneurial orientation development, with particular em-

phasis on inspirational motivation and idealised attributed influence. On them
the strongest transformational potential lays as confirmed by this survey as well,
i.e. for which a statistically significant association with all entrepreneurial orien-
tation scales and generally all performance parameters were found.
This research has established what organisations need to systematically de-
velop to gain and maintain a competitive advantage. In the long run, according
to the above-mentioned research, such a strategy should lead to a greater com-
petitiveness of the entire national economy.
REFERENCES
Antoncic, B. and Hisrich, R. D. (2003). Clarifying the Intrapreneurship Concept. Journal of
Small Business and Enterprise Development, 10, p. 7-24
Avolio, B. J. (1999). Full Leadership Development: Building the Vital Forces in Organisations.
Thousand Oaks: CA Sage
Avolio, B. J., Bass, B. M. (2004). Multifactor Leadership Questionnaire. Manual and sampler
set. (3rd ed.) Redwood City, CA: Mind Garden
Bass, B. M. (1985a). Leadership and performance beyond expectations. New York: Free
Press
Bass, B. M. (1985b). Good, better, best. Organizational Dynamics, 13, p. 26-41
Bass, B. M., Avolio, B. J. (1994). Improving Organizational Effectiveness Through Transfor-
mational Leadership. Thousand Oaks, CA: Sage
Bezić, H. (2008). Tehnološka politika i konkurentnost. Rijeka: Ekonomski fakultet, p. 31.
Buble, M. (2010). Menadžerske vještine. Zagreb: Sinergija nakladništvo
Burns, J. M. (1978). Leadership. New York: Harper & Row
Carpenter, M. A., Sanders, W. G. (2007). Strategy Management: A Dynamic Perspective.
New Jersey: Pearson Practice Hall.
Dess, G. G. and Robinson Jr., R. B. (1984). Measuring Organizational Performance in the
Absence of Objective Measures: The Case of the Privately-Held Firm and Conglomer-
ate Business Unit. Strategic Management Journal, 5(3), p. 265-273
Dess, G. G., Lumpkin, G. T. and Covin, J. G. (1997). Entrepreneurial Strategy Making and
Firm Performance: Test of Contingency and Configurational Models. Strategic Ma-
nagement Journal, 18(9), p. 677-695
128
Engelen, A., Vishal, G., Strenger, L., Brettel, M. (2012). Entrepreneurial Orientation, Firm
Performance, and the Moderating Role of Transformational Leadership Behaviors.
Journal of Management. 41. 1069-1097. 10.1177/0149206312455244
Frese, M. (2009). Towards a Psychology of Entrepreneurship: An Action Theory Perspec-
tive. Foundations and Trends in Entrepreneurship, 5, p. 435-494
Galbraith, N. S., Tushman, C. and Quinn, E. (2002). Diagnosing and Changing Organiza-
tional Culture. Addison Wesley
Guzzo, R. A. and Dickson, M. W. (1996). Teams in Organizations: Recent Research on
Performance and Effectiveness. Annual Review of Psychology, 47, p. 307-338.
Judge, T. A. and Piccolo, R. F. (2004). Transformational and Transactional Leadership: A
Meta-Analytic Test of Their Relative Validity. Journal of Applied Psychology, 87(4),
p.797-807.
Judge, T. A., Bono, J. E., Ilies, R. and Gerhardt, M.W. (2002). Personality & Leadership: A
Qualitative & Quantitative Review. Journal of Applied Psychology, 87(4), p. 765-780
Keller, R. T. (2006). Transformational Leadership, Initiating Structure and Substitutes for
Leadership: A Longitudinal Study of Research & Development Project Team Perfor-
mance. Journal of Applied Psychology,91(1), p. 202-210.
Krugman, P.R. (1996). Making Sense of the Competitiveness Debate, International Com-
petitiveness. Oxford Review of Economic Policy, 12(3), p. 17–25.
Lado, A. A., Boyd, N. G.and Wright, P. (1992). A Competency-Based Model of Sustainable
Competitive Advantage: Toward a Conceptual Integration. Journal of Management,
18 (1), p. 77-91.
Leko-Šimić, M. (1999). Međunarodna konkurentnost hrvatskog gospodarstva u okruženju
tranzicijskih zemalja srednje i istočne Europe. Tržište, 11(10), 69-81, p. 77.
Lumpkin, G. T., Dess, G. G., (1996). Clarifying the Entrepreneurial Orientation Construct
and Linking It to Performance. Academy of Management Review, 21, 135-172
Lyon, D.W., Lumpkin, G.T. and Dess, G.G. (2000). Enhancing Entrepreneurial Orientation
Research: Operationalizing and Measuring a Key Strategic Decision Making Process.
Journal of Management, 26, p. 1055-1085
McGrath, J. E., Arrow, H. and Berdahl, J. L. (2000). The study of groups: Past, Present and
Future. Personality and Social Psychology Reliew, 4(1), p. 95-105
Mehra, A., Smith, B., Dixon, A. and Robertson, B. (2006). Distributed Leadership in Teams:
The Network of Leadership Perceptions and Team Performance. Leadership Quar-
terly, 17, p. 232-245.
Meredith, B. (2001). Great Leaders Are Constantly Searching For Challenge. Available at:
www.bluepointleadership.com. [aproached: February 10th, 2019]
Meyer, G. D. and Heppard, K. A. (2000). Entrepreneurial Strategies: The Dominant Logic
of Entreprenenurship. New York: Irwin University Books
Morić Milovanović, B. (2012). Moderatorni utjecaj okoline na odnos između poduzetničke
orijentacije i poslovne uspješnosti hrvatskih malih i srednjih proizvodnih poduzeća.
Poslovna izvrsnost, 6(2), p. 9-24
Morris, M. H., Kuratko, D.F. and Covin, J.G. (2008). Corporate Entrepreneurship and In-
novation. Thompson, OH: South-Western College Publishers
Northouse, P. G. (2010). Vodstvo: teorija i praksa. Zagreb: Mate
129
OECD. (2011). Lessons from PISA for the United States, Strong Performers and Success-
ful Reformers in Education. OECD Publishing. str. 159. Available at: http://dx.doi.
org/10.1787/9789264096660-en. [approached: February 16th, 2018].
Pureta, I. and Pureta, T. (2017). Poduzetnička orijentiranost zaposlenika u hrvatskim orga-
nizacijama. Interdisciplinary Management Research XIII, J. J. Strossmayer University
Osijek, ur. Ulrich Jautz, p. 433

Ralean, J. (2003). The Leadership Organization: How to Bring Out Leaders in Every One?.
In: Salob, M. and Greenslade. S. (2005). How the Top 20 Companies Grow Great
Leader. San Francisco, CA: Berrett Kohler Publishers
Romero, E. J. (2012). Compete Outside the Box. New York: KMFA Press
Rowe,W. G. (2001). Creating Wealth in Organisations: The Role of Strategic Leadership.
Academy of Management Executive. 15 p. 81-94
Santora, J. C., Seaton, W. and Sarros, J. C. (1999) Changing Times: Entrepreneurial Lead-
ership in a Community-Based Nonproft Organisation. Journal of Leadership Stud-
ies,6(3-4), p. 101-109.
Schein, E. M. (2004). Organizational Culture and Leadership. (3rd. ed.). Jossy-Bass
Spillane, J. P. (2005). Distributed Leadership. The Educational Forum. 69(2), p. 143-150.
DOI: 10.1080/00131720508984678.
Tonković Grabovac M. and Morić Milovanović, B. (2015). Provjera osnovnih postavki mod-
ela poduzetničke orijentacije na hrvatskim poduzetnicima. Suvremena psihologija,
18(1), p. 21-41
Veljić, M. (2011). Formulisanje i implementacija strategije. Magistarski rad, Univerzitet
Singidunum
Venkataraman, S. (1997). The distinctive Domain of Entrepreneurship Research: An Edi-
tor’s Perspective. in J. Katz & J. Brodkhaus(eds), Advances in Entrepreneurship Firm
Emergence,and Growth. Greenwich: CTJAI
Venkatraman, N., & Ramanujam, V. (1987). Measurement of business economic perfor-
mance: An examination of method convergence. Journal of Management, 13(1):
109-122
Wiklund, J. (1999). The Sustainability of the Entrepreneurial Orientation – Performance
Relationship. Entrepreneurship Theory and Practice, p. 37-48
Wiklund, J. and Shepherd, D. (2003). Knowledge-Based Resources: Entrepreneurial Orien-
tation and the Performance of Small and Medium Sized Businesses. Strategic Man-
agement Journal, 24, p. 1307-1314
Zhu, W., Chew, I. K., Spangler, W. D. (2005). CEO Transformational Leadership & Or-
ganisational Outcomes: The Mediating Role of Human-Capital-Enhancing Human
Resource Management. The Leadership Quarterly,16(1):39-52.
Yukl, G. A. (2002). Leadership in Organisations. (5th Ed). Englewood Cliffs,NJ:
Prentice-Hall
130
STRUCTURAL MODEL OF THE
BUSINESS ORGANISATION FORMS
IN THE REPUBLIC OF CROATIA
Branimir DUKIĆ, Ph. D, prof.

Economics Faculty in Osijek
E-mail: bdukic@efos.hr
Goranka MAJIĆ, univ.spec.oec

Kruna 2011 d.o.o
E-mail: goranka.majic@gmail.com
Stojanka DUKIĆ, Ph. D. Asistent professor

duxMission Ltd. Osijek
E-mail: dumissiox-n@os.t-com.hr
Abstract
According to positive legal regulations, the Republic of Croatia does not allow
any unregistered business activities. However, when it comes to legal grounds
referring to types of business entities, it becomes clear that there is a broad regu-
latory frame for business activities in Croatia. That variety, however, becomes INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
an issue when defining business forms and business models which can further
complicate any result of scientific research as well as the official statistics. For
example, the term company has become frequently used in journalism and re-
search, when it has not been made clear neither what the business model is nor
has it been specified what business activities the term itself covers. Furthermore,
various research results often use the terms micro, small, medium and large
business entities, which is, according to the positive legal regulations, accurate
only for some business entities, i.e. only for some types of business entities in
the Republic of Croatia. Finally, research results often display the total sum of
business activities in Croatia, without considering non-profit organisations or
public and non-business organisations. In order to solve this confusion, a clear
131
system of terms for the forms of business organisation following ontological
principles should be determined. The structural model of the business organisa-
Branimir Dukić  Goranka Majić  Stojanka Dukić: STRUCTURAL MODEL OF THE BUSINESS ORGANISATION FORMS IN THE REPUBLIC OF CROATIA
tion forms in the Republic of Croatia is the result of that research.

Key words: social reproduction system, regulatory frame, companies, crafts,
non-profit organisations
1. INTRODUCTION
The Republic of Croatia is a relatively young state that gained its indepen-
dence less than 20 years ago and during that process it has gone through a dif-
ficult homeland war and a complex transition from a socialist autarchic social
order to an open market capitalist society. Apart from the war and the transi-
tion, the economic circumstances in the Republic of Croatia are burdened by
a number of issues, among those that should be noted are the high dynamism
and instability of the relatively underdeveloped social reproduction system that
has difficulties coping with global competition and even more difficulties with
the influence of global economic and political circumstances. There is a general
assessment that the economy of the Republic of Croatia is in an almost perma-
nent state of crisis, and that there are great disparities in the system of social re-
production, which are even at risk of an economic collapse of the system. Some
of the major issues stem from unstable and inconsistent regulatory frames that
lead to the problem of adjustment and understanding of the framework for
the functioning of the social reproduction system. Given such conditions, both
natural persons and legal entities that wish to operate in the Republic of Croatia
have an extremely hard time to navigate, understand and adjust to the regu-
latory framework, and when taking into account the inertia of the system of
red tape that implements the same regulatory framework, it becomes clear why
both foreign and domestic natural persons and legal entities show little interest
in doing business in the Republic of Croatia. It is clear that, in the long-term,
the model for the functioning of the social reproduction system in the Republic
of Croatia will have to be modified in terms of simplification and stabilisation in
order to avoid the economic collapse scenario, but until then, specifically for the
purposes of professional and scientific circles, it is necessary to form a consistent
ontological model of a social reproduction system from the massive regulatory
framework that will unambiguously define the underlying structure and pro-
132
cesses in the social reproduction system. In that sense, it is first necessary to
research and determine the structural model of a social reproduction system,
i.e. to define which business organisations forms are present in the Republic of
Croatia, and what sort of mutual relationship they have, as well as their position
and impact on the totality of social circumstances in the Republic of Croatia.
In accordance with the stated need for initial efforts that science should
make in terms of defining the structural model of the social reproduction sys-
tem, research on regulatory and practical business organisations forms in the
social reproduction system of the Republic of Croatia was conducted and the
results of the conducted research offered a structural model of a standardised
vocabulary of terms for structural organisational business forms in the Republic
of Croatia. The purpose of the model is to eliminate the inconsistency in un-
derstanding the structure of the system of social reproduction in the Republic
of Croatia. Specifically, due to inconsistent definitions of the terms referring
to the structure of the social reproduction system in the Republic of Croatia,
the comparability and therefore the validity of all research results, both at the
professional and the scientific level, are questionable. An example of this is the
concept of an enterprise that is in regular use both in professional and scientific
circles. Specifically, it is a concept that has no consistent meaning, therefore, dif-
ferent authors use it from different perspectives, so that the research involving
the concept of enterprise as the entity for which the information was collected
is incomparable or inconsistent. One of the possible interpretations of the term
enterprise is to identify this concept with the legal personality of a company.
Furthermore, any business entity or natural person oriented towards achiev-
ing a positive operating result, either in the form of profit or revenue, may be INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
observed as an enterprise. Among the more important interpretations of the
concept of enterprise is the one which views the concept of enterprise from the
perspective of the root of that word, i.e. enterprise can be seen as a result of
entrepreneurial activity because the word enterprise is at the root of the word
“entreprendre/entrepreneur”. However, when looking at the concept of enter-
prise through the prism of entrepreneurship, the focus is usually on business
entities concentrated on earning a profit or an income, while at the same time
neglecting the fact that entrepreneurship is also present in the non-profit part
of the social reproduction system, where the primary motive for doing business
is not achieving a positive business result but the production of socially benefi-
cial effects. There are more examples such as these and they indicate the pres-
133
ence of an anomaly in the form of inconsistency in the definition of the basic
structural terms related to the social reproduction process in the Republic of
Croatia, which all brings into question the relevance of the research results both
in the professional and the scientific sphere of activity. By solving this problem,
that is, by unambiguously defining the fundamental structural elements of the
social reproduction system, the explained inconsistencies would be eliminated
and the conditions for further construction of a stable and consistent business
model in the Republic of Croatia would be created.
The thesis, which defines the nullity of the research results if the initial pa-
rameters are incorrectly defined or defined with insufficient precision, is axiom-
atically acceptable. It is precisely this issue that the professional and scientific
circles whose focus of study is the system of social reproduction in the Re-
public of Croatia have to deal with. The inconsistency in defining the initial
parameters of the structural model of the social reproduction system in the
Republic of Croatia is mostly a consequence of the dynamic and turbulent his-
tory through which the Republic of Croatia has gone through over the past
twenty years as well as of complex, massive, inconsistent and unclear regulatory
frameworks defining the structure of the social reproduction system of the Re-
public of Croatia. To avoid a complete collapse of the economic system of the
Republic of Croatia, the entire regulatory framework will certainly be changed
in the foreseeable future, but until these changes take effect, at the ontological
level it is necessary to define the structure of the social reproduction system of
the Republic of Croatia in a relevant and consistent manner. In accordance with
the above-mentioned issue, the aim of this research was to explore and define a
structural model of the business organisation forms in the Republic of Croatia.
The results of the research are presented in this paper. For the purpose of de-
fining the structural model of the business organization forms in the Republic
of Croatia, the regulatory framework of business organisation in the Republic
of Croatia was explored, and the pragmatic forms as well as their properties,
which are accepted by the business practice in the Republic of Croatia, were ex-
amined. In the course of the research, a considerable number of scientific meth-
ods was used, among which the following should be highlighted: the method
of deduction, the method of analysis and synthesis, the method of causal in-
134
ference, the method of abstraction, the method of classification, the method
of specialization, the method of composition, the method of abrogation, the
method of analogy, the historical method as well as the method of descriptive
inference. The results of the research are presented as a model of the business
organisation form in the Republic of Croatia based on ontological principles.
.. Research results

In 2011, the Prohibition and Prevention of Unregistered Activities Act
(Zakon o zabrani i sprječavanju obavljanja neregistrirane djelatnosti, Narodne
novine 61/11) was adopted in the Republic of Croatia, defining what is meant
by the term “performing unregistered activity”, as well as the exemptions to this
act. Pursuant to Art. 5 of the aforementioned Act, the performance of unregis-
tered activities means: (Zakon o zabrani i sprječavanju obavljanja neregistrirane
djelatnosti, 2011)
• when a legal entity performs an activity, which is not registered in a court
registry or in any other appropriate registry,
• when a legal entity does not possess legally required documents attesting
to the fulfilment of the conditions for performing the registered activity,
• when a natural person performs an activity that has not been registered
with the competent authority or filed with the tax authorities,
• when a natural person does not possess legally required acts attesting to
the fulfilment of the conditions for performing the registered activity,

• when a legal entity or natural person performs an activity in spite of a ban
on performing the activity.
The same Article of the Act defines the exceptions, so that the performance
of unregistered activity does not mean: (Zakon o zabrani i sprječavanju obavl-
janja neregistrirane djelatnosti, 2011)
• performing other activities that serve the activity registered in the court
or other appropriate registry of the competent authority, if they are per-
formed to a lesser extent or are usually performed along with the regis-
tered activity.
135
• occasionally performing activities for which it is under a special act not
obligatory to register the activity with the competent authority and report
to the tax authorities.

• working for own needs and family aid, friendly help and neighbourly assis-
tance, if the work is performed without payment or other material benefit
and if the work is not performed on a regular basis.
• performing the necessary work to prevent accidents or remove conse-
quences of natural or other disasters and volunteering in accordance with
special regulation.
The business activity system in the Republic of Croatia, as in every other
regulated social community, consists of business activities in the sphere of eco-
nomic and non-economic activities. The differentiation between the economic
and non-economic activities, i.e. the differentiation between the economic and
non-economic subsystem of the social reproduction system is, in principle, a
differentiation between the fundamental motives of business activity. The eco-
nomic as well as the non-economic subsystems, by market relations, consist of
interconnected business systems that have their own subjectivity in the form
of a name or a title in the function of social reproduction, and accordingly, eco-
nomic and non-economic subsystems consist of registered and active business
entities. Specifically, all business systems, just like biological systems, share a
common struggle for survival, and therefore, the struggle for survival should be
considered the fundamental goal of every business system. In order for a busi-
ness system or business entity to survive it is necessary to meet the objectives
derived from the basic business objectives, and these are: (Dukić, 2012, 114)
• growth
• efficiency/effectiveness and
• flexibility
While growth and flexibility are objectives commonly derived for both eco-
nomic and non-economic entities, they are primarily different with regard to
efficiency or effectiveness. For economic entities to survive, they need positive
market valorisation of their business activities, and it is manifested as a posi-
tive difference between the receipts earned by realising business effects on the
market and the invested expenditures in business activities. The positive dif-
ferences in the Republic of Croatia appear in the form of profit or income, but
colloquially this can be discussed as positive business results. Business entities
136
that operate with a positive business result are, as a rule, efficient. By contrast,
non-economic entities survive by virtue of their effectiveness, or positive so-
cially beneficial effects for which the efficient part of the community is willing to
give up part of their positive results in order for business entities that generate
positive socially beneficial effects to survive. Therefore, while economic entities
that are part of the economic subsystem are oriented towards creating a positive
business result, business entities in the non-economic subsystem are oriented
towards meeting social needs. However, these days it is not easy to differentiate
business entities according to this criterion, as more and more business enti-
ties are oriented towards creating socially beneficial effects, while an increasing
number of non-economic entities are oriented towards doing business with a
positive business result. The reason for this lies in the change of fundamental
business paradigms in the second half of the twentieth century, when the sphere
of the economy less often strives to maximize positive business results, but is
rather focused on the long-term optimal business result with socially respon-
sible operations being in the function of sustainable development. On the other
hand, non-economic entities are expected to have greater autonomy and more
rational conduct, which among other things, implies participation in business
activities that lead to positive business results. If we wanted to differentiate the
business entities on a symbolic level in the economy and outside the economy,
then the principle division might look like the one in Figure 1.
Figure 1 Symbolic division of the social reproduction space in regulated busi-
ness conditions
137
The driving force of business activities in a healthy social reproduction sys-
tem is entrepreneurship. According to Kružić: “Entrepreneurship is the ability
to initiate certain actions, to take action aimed at achieving the desired goal,
while at the same time presuming readiness to counteract the obstacles, includ-
ing readiness for uncertain outcomes and risk.” (Kružić, 2007, 168) According
to Drucker, the essence of entrepreneurship is contained in: “the creation of a
new organisation capable of profitable business and the possibility of self-sus-
tainability”. (Kružić, 2007, 172) Therefore, entrepreneurship in the full sense of
the word implies the establishment of one’s own business entity as well as the
business operation of that business entity in such a way as to ensure its survival
through doing business. The motives for entrepreneurial behaviour in people
are most commonly linked, on the one hand, to the need to ensure their own
survival with minimal loss of freedom and, on the other hand, the need for so-
cial valorisation, i.e. the need for power. However, what also should not be over-
looked is the psychological profile of the entrepreneur who carries his entre-
preneurial “talent” with him and draws it from differentiated views of business
compared to people who do not have entrepreneurial drive. Even though entre-
preneurship is commonly associated with the existence of an entrepreneurial
idea as the primary driver of entrepreneurial activity, it should be borne in mind
that the motive for earning a profit which would not only secure survival of the
entrepreneur, but also provide him with power and social valorisation, to say the
least, is not negligible. An entrepreneur may or may not be a manager, therefore,
an entrepreneur may or may not manage his own entrepreneurial venture. In
many cases, entrepreneurship is linked to a differentiated approach to growing
capital, where it is emphasized that the entrepreneur is a person willing to invest
capital, instead of into safe capital growing systems such as interest in a bank or
a foundation, in a more risky, but in case of a return more lucrative, investment
in business ventures that return an adequate profit on the invested capital, i.e. in
the Republic of Croatia, an appropriate profit or income. But such an approach
and view of entrepreneurship ignores the fact that entrepreneurship is present
outside the economic subsystem of the social reproduction system that does
not secure a return on capital investment. Accordingly, entrepreneurship must
primarily be viewed as a tendency of people to embark on business ventures and
thus participate as an active factor of the economic subsystem in particular, but
also outside the economic subsystem of the social reproduction system. Figure
2 shows the relationship between entrepreneurship and management.
138
Figure 2 The relationship between entrepreneurship and management
An individual can generally participate in four ways in the business process,

or in the process of social reproduction, which is shown in Figure 3, and entre-
preneurship is only one of the forms of participation in the social reproduction
process. Therefore, when it comes to a general understanding of business in the
Republic of Croatia, particularly in the domain of the economic subsystem, it is
questionable whether it is correct to use the term “enterprise”.
139
Figure 3 Ways for the individual to participate in the social reproduction system
Source: Sall, D. (n.d.) Am I Investing in a Business or a Job?, http://www.financialsumo.

com/am-i-investing-in-a-business-or-a-job/ (1.3.2018)
The term enterprise, both in professional and scientific circles, as well as

among the population of the Republic of Croatia, is used as a general term for
a registered business entity operating in the sphere of economic activities. As
the term “enterprise” has no statutory bearing in the Republic of Croatia, i.e. it
is not a strictly defined term, the universality of its meaning is often questioned.
Colloquially, in the broader circle of users, the term enterprise is associated with
entrepreneurship because of the root of the word enterprise that comes from
the word entreprendre. What certainly had an impact on the use of this con-
cept was the Enterprises Act (Zakon o poduzećima,Službeni list SFRJ 77/88,
40/89, 46/90 and 61/90), which was adopted by the former Yugoslav State of
which the Republic of Croatia was part until 1991, and which was in force from
1988 until 1 January 1995 when the Companies Act came into force (Zakon
o trgovačkim društvima,Narodne novine 111/93). Specifically, the Enterprises
Act (Zakon o poduzećima) was taken over by the Republic of Croatia in 1991
by adopting the Act on Taking Over Federal Acts in the Field of Organisa-
tion and Operation of Economic Entities Applicable to the Republic of Croatia
140
as Republican Acts (Narodne novine 53/91). Due to the general similarity of
the regulatory frameworks that defined the concept of an enterprise and later a
company, there is also the view that enterprises may be called companies.
The issue of non-uniform understanding of the concept of enterprise is not a
trivial issue because its use, especially in professional and scientific circles, leads
to inconsistencies in understanding the subject matter of research, and thus
to incomparable and incorrect research results. The problem is that, without a
concrete definition of the concept of enterprise, the term is used even in official
statistics research in the Republic of Croatia. For this reason, it is of utmost
importance that the experts and scientists are decisively determined towards
the contents and the official terminology when it comes to organising business
activities in the Republic of Croatia.
As far as the economic subsystem and the non-economic subsystem of the
social reproduction system are concerned, the basic legal organisational forms
of business organisation are the following: (Pejić, n.d.)
1. Companies: Simple Limited Liability Company (j.d.o.o.), Limited Liabil-
ity Company (d.o.o.), Joint Stock Company (d.d.), Limited Partnership
(k.d.)
2. Crafts and Liberal Professions
3. Cooperatives, Partnerships, Family Farms (OPG), Associations, Institu-
tions, Trusts, Foundations
It should be noted that this division of companies is somewhat different
from the current one because it is made according to the earlier provisions of
the Companies Act. A contemporary division will be presented in further con-
siderations. It should also be noted that these are not the only business entities
involved in doing business that are defined by the process of social reproduc-
tion. The division of business entities into those which are profit-oriented, as
well as income-oriented or mainly do business within the framework of eco-
nomic activities, and those which mainly do business in the domain outside
economic activities, reflect the division into types of accounting. Taking into
account the positive legal regulations in the Republic of Croatia, there are four
types of accounting or four accounting systems: (Belak, 2006,3)
1. accounting for entrepreneurs
2. accounting for non-profit organisations (fund accounting)
141
3. state budget and budget beneficiaries accounting
4. accounting for crafts and liberal professions
The regulatory framework for such an accounting division currently consists

of:
1. Accounting Act (Zakon o računovodstvu, Narodne novine, br. 78/15,
134/15, 120/16)
2. Financial Business and Accounting of Non-Profit Organisations
Act (Zakon o financijskom poslovanju i računovodstvu neprofitnih
organizacija,Narodne novine 121/14)
3. Article 100, paragraph 1 of the Budget Act (Članka 100.svka 1. Zakona
o proračunu, Narodne novine 87/08 and 136/12) based on which the
State Budget Accounting and Accounting Plan Rulebook was adopted
(Pravilnik o proračunskom računovodstvu i računskom planu, Narodne
novine 124/14, 115/15, 87/16 and 3/18)
4. Income Tax Act (Zakon o porezu na dohodak, Narodne novine 115/16)
and the Income Tax Rulebook (Pravilnik o porezu na dohodak, Narodne
novine 1/2017)
In the sphere of economic activities, the Companies Act (Zakon o trgovačkim
društvima, Narodne novine 111/93, 34/99, 121/99, 52/00, 118/03, 107/07,
146/08, 137/09, 125/11, 152/11, 111/12, 68/13, 110/15) defines business
entities in the Republic of Croatia as legal entities, and their registration is in
the domain of Commercial Courts by entering a company into a court registry.
In Part 1 Title 1 Section 1, the Act itself differentiates: (Zakon o trgovčkim
društvima, n.d.)
• Traders as legal entities or natural persons independently performing an
economic activity in order to obtain profit by producing or selling goods
and services on the market. Traders include persons who perform liberal
professions whose activities are regulated by special regulations if it is de-
termined in those regulations. Traders do not include individual farmers.
• Companies as legal persons whose establishment and organization are
defined by the Companies Act. A company is established for the purpose
of performing an economic activity or any other activity. Also, pursuant
142
to this Act, a company is a trader, regardless of whether it is engaged in
economic or other activities.
• Sole proprietors as natural persons who independently perform economic
activities in accordance with the regulation of crafts and is registered in
the court registry as a sole proprietor. Specifically, a natural person doing
business pursuant to the crafts regulations may apply to be entered in the
court registry as a sole proprietor if their annual income exceeds HRK 2
million and is obligated to request that entry if their annual income ex-
ceeds HRK 15 million.
The focus of the Companies Act are companies whose forms are: (Zakon o
trgovačkim društvima, n.d.)
• General partnership
• Limited partnership
• Joint Stock Company
• Limited Liability Company and
• Economic Interest Association
Furthermore, pursuant to the Companies Act, a general partnership, a lim-
ited partnership and an economic interest association are partnerships, while a
joint-stock company and a limited liability company are share-capital compa-
nies. The basic motive for establishing and operating capital companies is to
grow the invested capital through the achievement of positive business results
in the form of profit.
Apart from the Companies Act, in the sphere of economic activities there
is also independent business performed by natural persons whose activities
are registered pursuant to the Crafts Act (Zakon o obrtu, Narodne novine
143/2013), and are registered with the competent state administration offices
in the counties according to local affiliation, i.e. crafts from the area of the City
of Zagreb are registered at the competent office of the City of Zagreb. Pursuant
to the Crafts Act, crafts can have the following forms: (Zakon o obrtu, 2013)
1. liberal crafts for which a qualification or master’s examination is not re-
quired as a condition
143
2. associated crafts for which an examination of professional qualification
is required, associated crafts for which secondary school education is re-
quired, and associated crafts for which a master craftsman’s examination

is required.
3. privileged crafts which the craftsman may only perform based on a priv-
ilege or permit issued by the competent ministry or another authority
whose competency is prescribed by a special regulation depending on the
activity.
A special group includes traditional and artistic crafts that require special
knowledge of craftsmanship skills and know-how in performing their activities.
The Crafts Act provides for the possibility of registering seasonal crafts busi-
ness and activities within the scope of a household industry and the scope of a
subsidiary occupation (Part 3). The basic motive of a natural person for doing
business is to earn income, i.e. be self-employed.
Apart from craftsmen in the Republic of Croatia, pursuant to positive legal
regulations, there is a greater number of possible forms of self-employment, i.e.
organisation and business of natural persons. A group of income jobs that are
performed in accordance with separate acts are liberal professions. Liberal pro-
fessions include: (Oporezivanje djelatnosti slobodnih zanimanja, n.d.)
1. self-employed activity of health professionals, veterinarians, attorneys, no-
taries, auditors, engineers, architects, tax consultants, bankruptcy manag-
ers, interpreters, translators, tourist workers, and other similar activities,
2. self-employed activity of scientists, writers, inventors and other similar
activities,
3. self-employed lecturing activity, educational activity and other similar
activities,
4. self-employed activity of journalists, artists and athletes.
In the Republic of Croatia, along with liberal professions, and pursuant to
positive legal regulations, agriculture and forestry are business activities equal to
crafts. Thus, the Family Farm Act (Zakon o obiteljskom poljoprivrednom gos-
podarstvu, Narodne novine 29/18) establishes the conditions for performing
the economic activity of agriculture and its related ancillary activities performed
on a family farm. The Family Farm Act defines natural persons as holders who,
in the organizational form of a family farm, perform the economic activity of
144
agriculture and its related ancillary activities in the territory of the Republic of
Croatia.
Among the previously mentioned forms of organisation and doing business
predominantly in the subsystem of economic activities, where the business of
legal and natural persons is clearly differentiated, and where the derived objec-
tive of business operations is to ensure business efficiency by achieving positive
business results in terms of profit or income, there are great similarities but also
great differences. Table 1 shows a comparison of the properties of crafts and
companies.
Table 1 Comparison of crafts and companies in the Republic of Croatia

CRAFT (R-2) COMPANY
Share capital: None HRK 20,000.00
Cost of establishment: approx. HRK 1,000.00 approx. HRK 6,000.00
Time necessary to open/establish: max. 15 days max. 40 days
Place of registration: Competent state administration office Commercial Court
in the County or the City
Liability: Against all assets Up to the amount of the share capital
Accounting: Simple accounting Double-entry accounting in
accordance with the Accounting Act
(Official Gazette 78/15, 134/15,
120/16)
Membership of chambers: Croatian Chamber of Trades and Croatian Chamber of Commerce
Crafts
Activities: All authorised activities subject All authorised activities
to the possession of the relevant

professional qualifications for qualified
crafts and/or privileges for privileged
crafts
Tax rates: Progressive 24% and 36% 20%
(depending on income)
Employees: No restrictions No restrictions
Payment of value added tax: After the invoice is paid After the invoice is issued
Sale of products and services Receipt is recognised once the Recognised as income when the
amount is collected delivery is made or the invoice sent
Received advance Recognised as receipt following Recognised as income when the
collection delivery is made or the invoice sent
Accruals and deferred income Recognised as receipt in the accruals Payments are recognised pro rata for
period regardless in which future the period in which the income was
period they appear generated
145
Expenditures-liabilities (costs) Recognised as expenditures at the Recognised as costs at the moment
moment of payment of sale of products, performance of
service, and use of reserves
Advances Recognised as expenditures at the Recognised as expenditures only

moment of payment when the products are delivered or
service performed and the invoice is
received
Prepayments and accrued Recognised as expenditure at the Recognised as costs pro rata to
income–expenditures of a future time of payment regardless that they the part for the period in which they
period relate to future periods appear
Payments of employees Recognised as expenditure at the Recognised as cost of the accounting
time of payment period
Reserves Recognised as expenditure when they Recognised as cost when they are
are paid to the supplier regardless realised–in the sold product or
when they will be used or sold commercial products
Long-term reservations No impact, because there are no Recognised as liabilities:
payments for repairs within the warranty period,
severance pay under the Labour
Act (Zakon o radu, Narodne novine
93/14, 127/17), costs arising from
ongoing court disputes, renewal and
rehabilitation of natural resources
Chamber contributions - lump-sum payments and - 1st category of enterprises
- in the percentage of 0.40% of HRK 42.00 monthly
income or profit - 2nd category of enterprises
HRK 1,083.00 monthly
- 3rd category of enterprises
HRK 3,973.00 monthly
Forest ecosystem services Exempt from payment 0.0265 % of income
remuneration
Membership of tourist Based on place and activity Based on place and activity
communities
Direct monument annuity Paid in an annual amount set in a Paid in an annual amount set in a
ruling by the municipality or town in ruling by the municipality or town in
an annual amount. From HRK 3.00 to an annual amount. From HRK 3.00 to
10.00 per sq.m. of useful business 10.00 per sq.m. of useful business
area. area.
Source: Adjusted from http://poslovni-plan.hr/trgovacka-drustva/, (10 Sep 2016) and
http://www.isplate.info/obracun-place-novi-izracun.aspx; (24 Nov 2016)
As evident from Table 1, companies keep accounting books according to

the principle of double-entry accounting and pursuant to the Accounting Act,
while crafts and related forms of businesses keep their books according to the
principle of simple accounting and pursuant to the Income Tax Act and the
Ordinance on Income Tax. As opposed to economic operators that are most-
ly engaged in the economic subsystem of the social reproduction system and
146
maintain their business books according to the enterprise accounting principles,
i.e. the accounting of crafts and liberal professions, economic operators from the
non-economic subsystem maintain their business books according to the prin-
ciples of accounting for non-profit organisations that are defined in the Act on
the Financial Operation and Accounting for Non-Profit Organisations (Zakon
o financijskom poslovanju i računovodstvu neprofitnih organizacija, Narodne
novine 121/14). Pursuant to Article 2 of this Act, the following economic
operators are included in the group of non-profit organisations: (Zakon o fi-
nancijskom poslovanju i računovodstvu neprofitnih organizacija, n.d.)
1. domestic and foreign associations and their federations, trust funds,
foundations, institutions, art organisations, chambers, trade unions, as-
sociations of employers, and all other legal entities whose main goal of
establishment and activity is not to acquire profit and whose non-profit
nature follows from special legislation
2. political parties
3. religious communities
4. units of local and regional self-government and other budgetary users
5. institutions founded by natural persons and other legal entities
As evident from the list above, and as derived from the Act on the Financial
Operation and Accounting of Non-Profit Organisations, the implementation
of this act depends on the source of financing of a non-profit organisation. Ac-
cordingly, we should differentiate between the following:
- non-profit organisations mostly funded from the state budget, and INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
- non-profit organisations mostly funded from extra-budgetary sources.

Accounting of the first group of non-profit organisations, pursuant to Ar-
ticle 100, paragraph 1 of the Budget Act (Narodne novine 87/08 and 136/12),
is defined in the Ordinance on Budgetary Accounting and the Accounting Plan
(Narodne novine 124/14, 115/15, 87/16 and 3/18). The Ordinance Estab-
lishing Budgetary and Extra-Budgetary Users of the State Budget and Bud-
getary and Extra-Budgetary Users of the Budgets of Local and Regional Self-
Government and Concerning the Keeping of the Register of Budgetary Users
of Budgetary and Extra-Budgetary Users (Narodne novine 128/2009) defines
which organisations are regarded as the users of budgetary funds, i.e. whose
147
businesses are funded from the state budget and whose from the budget of local
government and self-government. Article 4 of the aforementioned Ordinance
defines the following budgetary users (Pravilnik o utvrđivanju proračunskih i

izvanproračunskih korisnika, 2009)
a) Budgetary users of the state budget are users:
1. founded by the Republic of Croatia, and
2. generating income from the state budget and/or further to public
authorisations, acts and other legislation, where such income ac-
counts for 50 percent of total income or more, and
3. the users included in the Register defined in the Ordinance.
b) Budgetary users of the budgets of local and regional self-government
are users:
1. founded by the unit of local and regional self-government, and
2. those whose source of income is the budget of local and regional
self-government in an amount of 50 percent or more, as well as
3. the users included in the Register defined in the Ordinance.
The same Ordinance defines extra-budgetary users of the state budget and
extra-budgetary users of the budget of local and regional self-government:
(Pravilnik o utvrđivanju proračunskih i izvanproračunskih korisnika, 2009)
1. users in which the Republic of Croatia and/or the unit of local and re-
gional self-government has a decisive impact on management,
2. users having as one of their sources of financing either contributions and/
or ear-marked income, and
3. users who are included in the Register defined in the Ordinance.
The accounting for the second group of non-profit organisations is defined in

the Ordinance on Non-profit Accounting and the Accounting Plan (Narodne
novine 1/2015). This Ordinance is derived from Article 9, paragraph 6 of the
Act on the Financial Operation and Accounting for Non-Profit Organisations.
It can be concluded, albeit indirectly, that all non-profit organisations that do
not use budgetary funds, and are included in Article 2 of the Act on the Finan-
cial Operation and Accounting for Non-profit Organisations, keep their busi-
148
ness books in accordance with the Ordinance on Non-Profit Accounting and
the Accounting Plan.
It is a common feature of economic operators from the non-economic sub-
system within the social reproduction system, regardless of the group to which
they belong, that they are oriented towards effectiveness as the derived goal of
their business, i.e. towards satisfying a certain set of social needs of the popu-
lation. We should point out that there is no clear distinction, in terms of the
form of organisation, whether a non-economic operator belongs to the group
of budgetary or non-budgetary economic operators, but that this depends on
their business organisation. For example, certain art associations are funded in
full from the state budget, while others are funded from non-budgetary sources.
This situation creates a confusing situation and leads to possible corruption in
the system of state finances, and this is one of the issues making it impossible to
create a clear ontological differentiation between the forms of extra-economic
organisation of business in the Republic of Croatia.
The classification into two major groups of economic operators that enables
business and, consequently, the social reproduction process does not exhaust
all forms of business organisation possible in the Republic of Croatia. The next
instance in the structure of business organisation in the social reproduction
system in the Republic of Croatia are the co-operatives that are established and
that operate pursuant to the Co-operatives Act (Zakon o zadrugama, Narodne
novine 34/11, 125/13, 76/14). The co-operatives are established and they op-
erate as “a voluntary, open, independent, and autonomous company that is ad-

ministered by its members who realise, improve and protect their individual and
joint economic, social, educational, cultural and other needs and interests and
implement the goals of the co-operative through their work and other activities
or through the use of its services, based on togetherness and mutual assistance.
A member of the co-operative is a person who directly participates in the work
of the co-operative, does business via the co-operative or uses its services, or
participates in the realisation of goals of the co-operative in another manner.”
(Što je zadruga i kako je osnovati?, n.d.). Although in terms of co-operatives
it is necessary to ensure efficiency, i.e. to realise positive business outcomes for
the co-operative to survive, by their very nature the co-operatives are primar-
ily oriented towards effectiveness, i.e. the protection and meeting of the needs
and interests of its members that are not primarily oriented towards profit, i.e.
income. Accordingly, we can cite as follows: “It is evident from the definition of
149
the co-operative and its member that co-operatives and members actually form
a single economic entity that rests precisely on the work of its members. The
purpose of co-operatives is to realise and promote the economic interests of

its members, and not to acquire profit, which is the case with the share-capital
companies. Share-capital companies maximise the operating result, while co-
operatives maximise the results of each of its members.” (Što je zadruga i kako
je osnovati?, n.d.). Therefore, co-operatives can be classified into the category of
mixed, i.e. hybrid economic operators.
In addition to the above-mentioned forms of establishment and activity of
economic operators defined by the Legislative Framework of the Republic of
Croatia, it is necessary to add the form of association and activity of natural
persons defined in the Civil Obligations Act (Zakon o obveznim odnosima,
Narodne novine 35/05, 41/08, 125/11, 78/15, 29/18), which does not have
legal capacity. It is a partnership, defined in Article 637 of the Civil Obligations
Act as a community of persons and products without legal capacity, where the
relationship between the partners is defined by a partnership agreement. In
that agreement, partners undertake to combine their work and/or assets to
achieve their common goal. The common goal is defined in Article 650 of the
Civil Obligations Act, which is profit. Naturally, depending on the extent to
which partners are successful, other than profit, partnerships can also generate
loss. That is why Article 650 states as follows: (Zakon o obveznim odnosima,
2015)
• Profit is that part of the assets of a partnership that remains after the value
of the stake in the partnership, joint debts, and expenses are deducted.
• Loss occurs when the assets of a partnership fall below the value of the
stake.
In view of the defined goal of the partnership, this type of association and ac-
tivity of natural persons should be observed as part of the economic subsystem
of the social reproduction system. Accordingly, partnerships agree to realise the
goal of efficiency, i.e. to create personal gain for persons who are stakeholders in
the partnership agreement.
Further to the previous analyses, we can define a structural model of the so-
cial reproduction system in the Republic of Croatia based on ontological prin-
ciples. This model is shown in Figure 4.
150
Figure 4 Structural model of business organisation in the social reproduction
system in the Republic of Croatia
151
3. CONCLUSION
If we listen to the persons participating in business activities in the Republic
of Croatia, we soon realise that one of the most significant issues is the one re-
ferring to enormous, complex, and incomplete legislation that blocks entrepre-
neurship and opens the door to corruption and intensive meddling of political
elites in the social reproduction process. The research conducted, which focused
on the structure of business organisation in the social reproduction system,
confirmed the aforementioned position taken by pragmatic practicing business
circles. The defined model shows all the complexity of legislative frameworks
that define the forms and content of business activities in the Republic of Croa-
tia as well as the inconsistencies that prevent consistent and unambiguous clas-
sification of all forms of organisation of economic operators into appropriate
classes and grades. If the intention is to generate an affirmative climate for ef-
ficient business of economic operators in the social reproduction system in the
Republic of Croatia, it is necessary to proceed with the overall scientific analy-
sis and reorganisation of the legislative frameworks for business organisation.
In that sense, inter alia, it is necessary to scientifically define an ontologically
consistent and unambiguous model for regulating the system of social repro-
duction that could serve as the basis for re-engineering legislative frameworks
connected with business practices in the Republic of Croatia.
In such conditions, the business practice would not employ generic names,
such as “enterprise” or “firm”, whose ambiguity further complicates the under-
standing of what is already a complex and inconsistent system of legislative
business organisation in the Republic of Croatia. Instead of generic terms, un-
til clear legislative frameworks for new organisation of the social reproduction
system in the Republic of Croatia are defined, it is necessary to differentiate
between economic business systems and non-economic and mixed, i.e. hybrid
business systems. Within the economic subsystem of the social reproduction
system, we should primarily differentiate the legal from the natural forms of
business organisation, and within the legal forms of business organisation we
should differentiate between the share-capital companies and other organisa-
tional forms. In that sense, share-capital companies could be called enterprises
because, in pragmatic terms, such companies are most frequently identified
with this generic term. In the domain of non-economic business, it will be ex-
tremely important to make a clear distinction between economic operators that
152
are financed from state and local budgetary funds and those systems funded
from extra-budgetary sources.
The results of this research have, on the one hand, defined the platform for
further attempts at modelling the structure and processes in the social repro-
duction system and, on the other, showed that it is necessary to undertake sig-
nificant actions to define the social reproduction system in a simpler and bet-
ter fashion. In that sense, a large number of issues was raised that should be
resolved through interdisciplinary efforts of social sciences in the period ahead.
REFERENCES
Belak, V. (2006.): Profesionalno računovodstvo prema MSFI i hrvatskim poreznim propi-
sima, Zagreb: Zgombić&Partneri, p. 3
Dukić, S. (2012) E-Marketing humanitarnih i vjerskih organizacija , Ekonomski fakultet u
Osijeku, Osijek
Oporezivanje djelatnosti slobodnih zanimanja (n.d.) Porezna uprava , https://www.porez-
na-uprava.hr/HR_publikacije/Prirucnici_brosure/173%20zanimanja%20za%20
WEB.pdf [12.5. 2017]
Kružić, D. (2007): Poduzetništvo i ekonomski rast: restrukturiranje uloge poduzetništva u
globalnoj ekonomiji , Ekonomska misao i praksa , God XVI, No. 2, Zagreb.
Pejić, M. (n.d.) Pravni oblici poduzetništva , http://www.ekonos.hr/porezi/pravni-oblici-
poduzetnistva-i-dio/ [15.2.2018]
Pravilnik o utvrđivanju proračunskih i izvanproračunskih korisnika državnog proračuna i
proračunskih I izvanproračunskih korisnika proračuna jedinica lokalne i područne (re-
gionalne) samouprave te o načinu vođenja registra proračunskih korisnika proračunskih
i izvanproračunskih korisnika (2009), Narodne novine, https://narodne-novine.
nn.hr/clanci/sluzbeni/2009_10_128_3152.html [25.3. 2018]
Što je zadruga i kako je osnovati?, n.d.), Hrvatski centar za zadružno poduzetništvo, http://
zadruge.coop/hr/o-zadrugarstvu/sto-je-zadruga-i-kako-je-osnovati/1 [26.3.2017]
Zakon o financijskom poslovanju i računovodstvu neprofitnih organizacija (n.d.), Za-
kon.hr, https://www.zakon.hr/z/746/Zakon-o-financijskom-poslovanju-i-
ra%C4%8Dunovodstvu-neprofitnih-organizacija [25.5.2017]
Zakon o obrtu (2013), Narodne novine, https://narodne-novine.nn.hr/clanci/sluzbe-
ni/2013_12_143_3065.html [11.5.2017]
Zakon o obveznim odnosima (2018), Zakon.hr, https://www.zakon.hr/z/75/Zakon-o-
obveznim-odnosima [25.3.2018]
Zakon o trgovačkim društvima-pročišćeni tekst zakona (n.d.), Zakon.hr, https://www.za-
kon.hr/z/546/Zakon-o-trgova%C4%8Dkim-dru%C5%A1tvima [20.3.2018]
Zakon o zabrani i sprječavanju obavljanja neregistrirane djelatnosti, Narodne novine,
61/2011 [21.3.2018]
153
Petrović, S. (2006) Pravni oblici pravnih osoba za obavljanje djelatnosti – pretpostavke i
posljedice Zbornik PFZ, 56, Poseban broj, 87-127, pp. 87-127 https://hrcak.srce.hr/
file/9734 [1.2.2018]
Pravilnik o neprofitnom računovodstvu i računskom planu (Narodne novine 1/2015)

Pravilnik o porezu na dohodak (Narodne novine 1/2017)
Pravilnik o proračunskom računovodstvu i računskom planu (Narodne novine 124/14,
115/15, 87/16 i 3/18)
Pravilnikom su o utvrđivanju proračunskih i izvanproračunskih korisnika državnog
proračuna i proračunskih i izvanproračunskih korisnika proračuna jedinica lokalne
i područne(regionalne) samouprave te o načinu vođenja proračunskih korisnika
proračunskih i izvanproračunskih korisnika (Narodne novine 128/2009)
Zakon o financijskom poslovanju i računovodstvu neprofitnih organizacija (Narodne no-
vine 121/14)
Zakon o obiteljsko poljoprivrednom gospodarstvu (Narodne novine 29/18)
Zakon o obveznim odnosima (Narodne novine 35/05, 41/08, 125/11, 78/15, 29/18)
Zakon o poduzećima (Službeni list SFRJ 77/88, 40/89, 46/90 i 61/90)
Zakon o porezu na dohodak (Narodne novine 115/16)
Zakon o računovodstvu (Narodne novine 78/15, 134/15, 120/16)
Zakon o radu (Narodne novine 93/14, 127/17)
Zakon o trgovačkim društvima (Narodne novine 111/93)
Zakon o zabrani i sprječavanju obavljanja neregistrirane djelatnosti (Narodne novine 61/11)
Zakon o zadrugama (Narodne novine 34/11, 125/13, 76/14)
Zakon o peuzimanju saveznih zakona iz područja organizacije i poslovanja gospodarskih
subjekata koji se primjenjuju kao republički zakoni (Narodne novine 53/91)
Zakon o proračunu (Narodne novine 87/08 i 136/12)
Zakon o obrtu (Narodne novine 143/2013)
154
IMPORTANCE OF ALIGNMENT
OF STRATEGY AND PROJECT
MANAGEMENT
Aleksandar ERCEG, Ph. D., Assistant Professor

J. J. Strossmayer University of Osijek,
E-mail: aleksandar.erceg@efos.hr
Vice GULAM, Ph. D. Candidate

Ustanova upravljanje sportskim objektima, Zagreb
E-mail: Vice.Gulam@sportskiobjekti.hr
Abstract
Traditional project management starts from the assumption that each pro-
posed project is in line with the organization’s strategic goals and contributes
in a certain way to the achievement of the goals and positive results of the
organization. However, some projects entirely support the organization’s stra-
tegic goals, some support only in some parts, and some do not support them at
all. The problem arises when the organization’s strategic goals are not clearly
expressed or measurable or because a certain number of managers do not un-
derstand them or do not understand them in the correct way. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Thus, it is necessary to establish a strong connection between clearly set business

strategy and correctly chosen projects and that the relationship is continuously
strengthened and maintained during project implementation. Tis is enabling
to achieve optimal results in the realization of each project and optimal results
on the organization level as well. This is representing a new approach to the
development of the project management - strategic project management. Its
task is to assure the alignment of the realization of strategical organizations’
goals and implementation of organizations’ projects.
This paper is presenting basic elements of this new approach in project man-
agement which connects organizations strategy and implementation of a set of
projects. Authors will show the link between strategic goals and project man-
155
agement on the example of the Zagrebački holding. Finally, we will present the
research results and propose further research to understand the importance of
alignment project management with fulfilling organization’s strategy.
Key words: strategy, project management, alignment, Zagrebački holding.
1. STRATEGIC MANAGEMENT
Management as a process is a very complex term, consisting of five main
functions: planning, organization, human resources management, management,
Aleksandar Erceg Vice Gulam: IMPORTANCE OF ALIGNMENT OF STRATEGY AND PROJECT MANAGEMENT
and control. Every organization should also have a strategy as a part of those
functions.
Strategic management creates an overall view which directs decisions, ac-
tions, and people in the organization. The goal itself (Kadec, 2013) of the stra-
tegic management is to determine missions and goals, without neglecting means
necessary for success.
Sikavica et. al. (2008) said that strategic management can be defined as the
art of guiding or managing the development of a company, i.e. several manage-
rial decisions and actions that determine long-term business performances of
an organization.
According to Buble (2009) strategy is a term that was studied by different
authors throughout the history, and the most common term could be that it
comes from the word strategus, an ancient Greek term describing a person with
a high ranking.
All this together according to Buble (2009) brings several essential charac-
teristics of strategy:
- that strategic management is a consistent process, which means it has con-
tinuity, even though some activities are more and some less in focus
- manager’s engagement in the strategic management must come in a series
of stages which begin with the analysis of the environment, setting the or-
ganization direction, forming and implementing the strategies, concluding
with control and evaluation
- managers bring many decisions and take a whole range of actions that help
them in reaching the goals they have set
156
- strategic management must enable the company to organize and prepare
so that it can respond to challenges of a dynamic, complex and unpredict-
able environment, any given moment
- strategic management is iterative, which means it begins with the first
stage and ends with the last and continues in these cycles.
Although the definition of the strategic management seems simple, static
and clear at first sight, the real integration of the strategic management is com-
plicated, complex and dynamic, which is confirmed by following tasks per-
formed by strategic managers.
According to Thompson et. al., (2006) it is a process of bringing decisions
and performing activities through which it is endeavored to coordinate abilities
and possibilities of a company with the circumstances of the environment and
thus gain advantage i.e. a better result.
In this process managers should identify their internal and external strategic
factors (elements) which are crucial for the business, because they determine
internal and external environment whose interaction shapes the business envi-
ronment. A good knowledge of this environment and successful management of
all the important factors can result in a more successful business.
Managers can in most cases influence the forming of internal factors and
business environment, however they usually are not able to influence the exter-
nal factors and environment. However, by planning, following and analysing,
managers can timely observe different business risks and threats, thus by good

decisions prevent or at least alleviate negative events and trends. Timely observ-
ing and quick responding increase chances of survival and greater successfulness.
The environment includes internal, close business and general environment.
Analyzing business environment of a company (Buble, 2005: 34-36) uses fol-
lowing methods: scanning of the business environment, analysis of the competi-
tion, analysis of those interested in the company or stakeholder analysis, as well
as PEST and SWOT analysis.
The key features of the internal environment of a company are its strengths
and weaknesses, which can be described through different material and non-
material resources, such as different assets owned by a company, the level of
technological-technical equipment, liquidity, indebtedness, tradition, quality,
human resources and knowledge etc. On the other side, business environment
157
usually includes suppliers, creditors, buyers, shareholders, employees, competi-
tors etc, while the general environment includes geographical, demographic,
cultural, infrastructural, political, economical legal and all other frameworks.
Through the analysis of the environment the managers should determine (plan)
and conduct the strategy through which they intend to complete the set goals.
Strategic planning is quintessential for the defining and successful comple-
tion of the strategy. A strategy is a long-term plan for better use of their own
resources, unlike the tactics which are primarily focused on conducting the
strategy. Just like any other plan, strategy is a decision, and completing every
decision is susceptible to the risk of not completing it. Those managers who
choose a strategy should have necessary knowledge and skills, so that the risk is
brought down to a minimum.

In large companies highly positioned managers are engaged in strategic man-
agement, while middle- and lower-ranking managers are usually in charge of op-
erational or tactical tasks. In smaller companies all activities mentioned above are
conducted by a small number of persons, or even only one manager. The task of
making and conducting the strategy of a company is the core of managing a busi-
ness enterprise and victory on the market. The strategy of a company is a game
plan which the board uses for business growth, gaining market positioning, at-
tracting customers and pleasing them, successful competition, leading operations
and gaining organization goals. The essence of strategy is making moves to build
and strengthenlong-term competition advance over the competitors, which then
becomes a competition entrance ticket for a superior profitability.
A strategy of a certain company evolves and changes it with time, in the first
place because of proactive and purposeful actions on behalf of the company
manager, and due to reactions to unexpected events and new market conditions.
Next to the concept of strategy is a concept of a business model. Through a
business model of a company, the board presents how and why will the offer of a
product and competitive approach generate income and have related cost structure
which will give attractive profit and return of the investment. Kuratko (2017: 280)
defined a business model as a description of how a venture will create and deliver
value, while Osterwalder and Pigneur (2010: 14) conclude that the business model
describes the rationale of how an organization creates, delivers, and captures value.
To put it simply, the business model exposes economic logic for gaining money in
certain business, with regards to the actual strategy of the company.
158
The winning strategy is in tune with the circumstances of the external situ-
ation and the internal resource powers and computing skills of the company,
builds competitive advance and enhances the effectiveness.
The making and conducting of a strategy are basic managerial functions.
Victory or defeat on the market depends directly upon the quality of a company
strategy and in the skill of conducting it, i.e. the ability of management to react
timely and correctly any given moment.
2. PROJECT MANAGEMENT
The largest number of activities in a company is performed within the frame-
work of projects, so the success of a company depends upon the success of each
individual project or a program.
According to Omazić and Baljkas (2005: 52), regardless of a situation, a
project is something which has its defined beginning and end, given goals that
should be achieved, a budget that shouldn’t be exceeded and quality that should
be satisfied. Successful project is the one that meets all expectations of a client
or a principal, i.e. the one that met all the criteria (Reveal, 2014):
1. completed on time
2. goals met
3. quality achieved
4. budget not exceeded

According to Radujković et. al. (2012.) managing a project is applying knowl-
edge, skills, tools and techniques to project activities, to satisfy project goals. Every
project marks a new beginning, in every phase of the project all aspects are ap-
plied – knowledge, skills, methods, tools and techniques, however it is also very
important that every next project includes skills acquired on the previous projects.
According to Buble (2010) a life cycle is a kind of framework for managing
a project. It consists of five phases:
1. Initiation of a project
2. Planning a project
3. Performing a project
4. Supervision and controlling of a project
5. Closing a project
159
Kerzner (2009) state on the phase of initiation a project, apart from the
evaluation of a project, one must define volume and goals planned, tasks to be
done to reach the goal, realistic time frame, means, risks, limitations and obsta-
cles which can influence the success of a project. Internal and external interested
sides are identified, who will be actively involved in the project. Initial financial
means are being alloted and a project manager is being assigned.
Buble (2010) said that planning includes detailed planning of the volume
of the project, detailed defining of goals of the project, planning of all neces-
sary activities and defining of their schedule. This phase also includes prepara-
tion of the complete documentation necessary for performing the project. All
necessary work and tasks are assigned to certain team members who have to
execute them in a certain framework, using available resources and tools. Plan-
ning improves understanding of goals and tasks of the project, and increases the
effectiveness taking into consideration distribution of work. Planning considers
volume, time, costs, resources, quality and risks of the project.
Through the phase of performing the project all planned activities are being
performed. Specific resources necessary for performing tasks are being defined,
as well as their schedule and coordination according to planned activities. The
expected time frame of a certain activity is being defined, with the exactly de-
fined beginning and the end. During the performance it is necessary to control
whether everything goes according to the plan, so that all possible irregularities
can be corrected, all specifications of the project are satisfied, and the project
finished on time and with planned costs.
Supervision and controlling continuously measures and follows a progress
of the project, which enables the project team a constant insight into the state of
the project. Deviations from the plan are being identified and corrective activi-
ties are being suggested. As previously mentioned, the most part is conducted
in the performing phase.
Closing phase means formal acceptance of the project and closing of all ac-
tivities. Throughout the phase of closing the project, the whole project is being
evaluated as well, so that the evaluation becomes the source of information and
knowledge for the upcoming projects.
Every project marks a new beginning, in every phase of the project the total-
ity of knowledge, skills, methods, tools and techniques is being applied, but it
is also very important that on every new project one applies knowledge gained
160
throughout the previous project. Phases of managing a project follow one after
another, except for the process of supervision and control which happen along
with all other phases.
The project begins with creating an idea about its performance and defining
goals, as well as with beginning of the performance planning. During planning
strategies of performance are being analysed, calculations are being drawn, as
well as researches and checks, risks are being estimated, analyses prepared, and
grounds are being made for a successful implementation.
In this phase goals are being determined and set, through which activities
are simultaneously connected, which will bring to achieving goals. Depend-
ing upon the complexity of the project, activities are being divided into special
tasks, which are then distributed to team members. Such a procedure in com-
posing a project and planning the performance also enables timely planning of a
necessary team of experts and other team members of certain profiles who will
enable a successful implementation of every single task and phase. After the dis-
tribution to individuals and teams, timing of tasks and phases is being planned.
There is a difference between strategic and tactic planning, however both
should receive necessary attention. To put it simply, strategic planning will set
higher and lower goals, while tactic planning will bring methods for its fruition,
and do its best to neutralize any possible risks, through special measures.
It is an unwritten rule that those who will take part on the project should
also be actively included in the process of its planning. The next rule of an ef-
ficient planning is that there should always be readiness to change these plans.
During the process of planning a project it is always advisable to reverse in every
step and thus control the compatibility of all planned resources and necessary
time to fulfill every one of these tasks.
It is necessary to manage the project from several segments; the most im-
portant ones are: managing time of performing a project, managing costs of a
project, managing quality of a project, managing human resources, managing
communication on a project and managing risks of a project.
Starting a project in organizations or in surroundings without any formal
procedures or frameworks for handling a project can often go unnoticed. Ab-
sence of certain documents in the later phases can cause problems, ranging from
non-existing dana on done and planned costs to spending resources on feasible
projects or those who serve no purpose to an organization.
161
3. PROJECT STRATEGY ALIGNMENT
Mankins and Steel (2005) found in their research that 63% of companies
realize the potential value of their strategies while Johnson (2004) conclude
than 2/3 of corporate strategies were never implemented. While the process of
strategy implementation was neglected in research in relation to strategy for-
mulation (Moriss and Jamieson, 2005), its importance can be seen in the fact
that is it more difficult to implement strategy than to formulate it (Hrebiniak,
2006). The idea of alignment is not new in literature and there are more than
several studies which examined alignment idea. (Table xx) Fonvielle and Law-
rence (2001) state the alignment is a crucial effort for the success of the orga-
nization. For them, alignment is an agreement between all three strategy levels
(functional, business and corporate) in relation to means and goals.

Table 1. Alignment studies
Field Researchers
Tasks, policies and practices alignment Kathuria and Davis, 2001
The relationship between alignment and performance Papke-Shields and Malhotra, 2001
Functional strategies (R&D, production, human
resources and information technology) alignment with Srivannaboon, 2006
the business strategy
Source: customized according to Srivannaboon, 2006
This is a situation where project portfolio management is needed. The stra-

tegic importance of project management worldwide is being increasingly rec-
ognized especially in corporate world. On the reason for this increase is strong
confidence of corporate managers that alignment between project management
and corporate strategy can significantly increase the accomplishment of compa-
nies’ goals, strategies, and performance. Srivannaboon (2006) state that project
management should be also in alignment with business strategy since it is very
similar to functional strategies. Project portfolios and project are significant
strategic weapons since they are an essential structure block in executing the
proposed strategy (Dietrich and Lehtonen, 2005). Milošević and Srivanna-
boon (2007) examined current research on the alignment of project manage-
ment and business strategy and found that still, the literature is vague. (Table 2)
162
Table 2 Alignment of project management with business strategies
Field Researchers
The link between business strategy with project
Hartman, 2000
management and project selection
Ensuring strategic alignment of business strategy and
Turner & Simister, 2000
project management
Choice of business strategy which drives project
Cooper et. al., 1998
portfolio management
Project portfolio management which aligns the project
Cooper et. al., 1998
with the business strategy
Managing rough-cut resource capacity Harris & McKay, 1996
Project balancing with business strategy Archer & Ghasemzadeh, 1999
Source: customized according to Milošević and Srivannaboon, 2007
According to Shenhar et. al., (2007) there is a major challenge in the process
of alignment of project management and business strategy - a missing link and
according to authors, this is a project strategy (Figure 1).
Figure 1. Missing link
Source: Shenhar et. al., 2007: 63
Shenhr et. al. (2007) state that carefully defining and evaluating project ac-
complishment is a significant strategic management concept that can help in
aligning the project efforts with the organizations’ short- and long-term goals.
Due to the increasingly rapid changes and growing global competition com-
panies need to be quick in responding to be more competitive on the market.
Thus, projects should be perceived as strategic weapons that were created to
maintain and increase competitiveness. Authors also state that project man-
agers need to become a strategic leader by taking accountability for business
results of projects. With this project are becoming driving force for new di-
163
rections of strategy. Aubry et. al. (2007) found several models for alignment
between strategy and projects but there is no in-dept studies of the corporate
strategy implementation down to the project management level throughout the
project execution. Project portfolio management literature encourages choos-
ing and ranking projects in accordance with the companies’ strategy (Marinsuo
and Lehtonen, 2007). Approach to project portfolio selection should be ad-
justed to the organization’s environment characteristics and strategy (Englund
and Graham, 1999; Stawicki and Müller, 2007). This was confirmed by Müller
et. al. (2008) who found a positive correlation between portfolio project selec-
tions and company’s strategy. Meskendahl (2010) examined the effect of stra-
tegic orientation on business success and its correlation with project portfolio
structuring and success. According to Killen et. al (2008), the strategic method
could result in the improved alignment of projects and business strategy. An-
sari, Shakeri and Raddadi (2014) proposed framework and processes for proj-
ect strategy alignment which is based on a model created by Srivannaboon and
Milošević (2006). (Figure 2)
Figure 2. A theoretical framework for aligning project management with busi-
ness strategy
Source: Milošević and Srivannaboon, 2007: 50
According to the framework business strategy, competitive characteristics

determine the emphasis and the content of the project management essentials.
164
For establishing and maintaining alignment of business strategy and project
management elements, Milošević and Srivannaboon (2007: 50) proposed that
companies use strategic planning and project portfolio management at the strategic
level to interpret their business strategy in the context of project management. In
addition to the framework, Ansari, Shakeri and Raddadi (2014: 4) identified
five main processes of the framework: i) strategy formulation, which manages the
development of a sound strategy; ii) strategy implementation, which provides the
subprocesses needed to achieve organizational goals, including in the areas of op-
erations and logistics; iii) project portfolio management, which provides the sound
composition of projects; iv) project management, which deals with the completion
of operations needed to achieve goals; and v) alignment evaluation between project
management and organizational strategies. (Figure 3)
Figure 3. Framework main processes
Source: Ansari, Shakeri and Raddadi, 2014: 3
It is important for organizations to focus aligning their business strategy

and project to create successful direction for both projects and strategy. This
alignment is challenging due to the business strategy goals are not clear or well-
communicated between the business strategy and the project management or
consistent with the project management actions. One of the major tasks of
effective project management process is to understand the alignment. To un-
derstand the alignment, large projects need to be executed within formulated
strategy’s implementation and with the involvement of project managers and
not only managers at high management levels.
4. PROJECT S STRATEGY ALIGNEMENT IN CASE

OF ZAGREB HOLDING
The key function of Zagreb Holding is providing communal services, estab-
lishing and maintaining city infrastructure in Zagreb City. The main principles
in providing those services are effectiveness and eligibility of costs.
Zagreb Holding is facing direct business challenges under the influence in
surrounding as long-term challenges of business upgrading of all its members,
165
according to the demands of the competition business, with stimulating techno-
logical advancement and raising general quality of its services.
In market circumstances of a strong competition, globalization, technologi-
cal innovations and quick social changes, a successful company must have a clear
vision and goals of development, defined development programs and projects
to perform these goals, as well as indicators of performance od these set goals
through which it will follow the efficiency of program and project activities. For
the strategic development and projects that Zagreb Holding is planning to per-
form it is necessary that they are synchronized with the superior strategic docu-
ments of the Republic of Croatia, especially concerning the fact that Zagreb
Holding is counting on the financial aid at least partially from the EU funds.
Membership of the Republic of Croatia in the EU gives Zagreb Holding a

possibility of co-funding of development projects from structural and invest-
ment EU funds (ESI funds). Following the given priority areas of funding de-
velopment projects for the Republic of Croatia in the period until 2020, Zagreb
Holding has recognized the necessity to create a Strategy of development of
Zagreb Holding 2015-2020. This strategy ensures a framework for prepara-
tion and performance of development projects with the possibility of their co-
funding from the European funds.
This strategy will serve as a framework for a future development and a base
for preparation and suggestion of development projects. Within the framework
of the project, following steps have been taken:
1. Analysis of development problems and assessment of situation in all key
areas of Zagreb Holding business, with the special accent on limitations
and possibilities for efficient management and business, as well as on
strenghtening of human resources.
2. Suggestion of vision, strategic goals and priorities of development in the
period 2015-2020.
3. Suggestion of measures and project activities which lead to achieving pri-
orities, as well as adequate development goals of the Strategy of develop-
ment of Zagreb Holding 2014-2020.
4. Creating an Action plan with the purpose of operationalization and per-
forming the Strategy of development of Zagreb Holding 2015-2020.
166
In the making of Strategy, in all tasks and activities, all representatives of
relevant stakeholders have been taking part, so the performing of the project
enabled raising competence of officers in Zagreb Holding for the strategic plan-
ning of development.
Zagreb Holding is currently preparing for the application of more than 20
projects for financing through grants of EU funds. Internal educations and
trainings for employees are being put into action, and about a hundred of them
have completed it.
Apart from that, a Team for managing the projects financed by grants of
EU has been formed, consisting of 15 employees who oversee development and
projects in their subsidiaries. Their task is to follow EU policies on waste man-
agement, environment protection, sustainable development, traffic and suggest
projects in tune with the national and EU directions and experiences.
Projects started for candidating for EU funds include areas of traffic infra-
structure, water supply and drainage, gas supply, light distribution network,
waste management, ecology and energetic efficiency. Zagreb Holding in the
project Zagreb on the Sava river takes part as one of the partners, and currently
there is a phase of adjustment of a spacial plan documentation.
Along with the large infrastructure projects, Zagreb Holding is also active
on following projects:
• promotion of environmentally friendly driving in communal companies
and reaching the level of responsible behavior of the communal companies

in use of fuel when using their own vehicles – the aim is to save up to 5%
fuel and education of drivers
• education of users/citizens on reasonable usage of energy (natural gas,
waste management) – the aim of the project is a more efficient energy
management to approach the directions of the EU 20/20/20 by 2020
• the initiative of the project of preservation of buildings has been set in mo-
tion – restoration of residences/buildings run by GSKG (city residential
company)
Zagreb Holding takes part in the competition Intelligente Energy Europe
2012, as well, as the partner in two projects (Greenpool – energetic efficiency
and reduction of wasting energy in closed swimming pools; Bin2Grid – in-
167
crease of parts of renewable sources of energy using biological waste). Further-
more, it takes part in 3 EU projects as the partner on the projects:
• Project Clean Fleets – project from the program CIP IEE 2011, together
with 12 more partners from 9 countries. The program is based on the
„Clean Vehicles Directive“. The goal of the project is to help public trans-
port companies in choosing the ecologically friendliest and energetically
most efficient vehicles (criteria being energetic consumption of a vehicle
and CO2 emission and other harmful gases). Subsidiaries ZET (public
transport company) and Čistoća (waste management company) are active.
The European Commission has granted 20 000 Euro to Zagreb Holding,
through the mentioned project. According to the development strategy
of Zagreb Holding 2015-2020, this is one of the operational projects of

Zagreb Holding, i.e. subsidiaries ZET and Čistoća in the period from
2017 to 2020.
• Project UrbanBioGas or CIty Waste for production of biogas and using
bio-methane for including in the gas supply network and traffic in the
urban areas – project from the program CIP IEE. Next to Holding, 5
partners from 5 countries are taking part in it. The aim of the project is
to collect bio-waste in urban settings with the aim of using biogas. Za-
greb Holding gained 85 000 Euro on this project, which is in tune with
the Strategy of development of Zagreb Holding 2015-2020, although the
beginning of the project was one of the strategic plans of the precedent
Strategy of development for the period from 2010 to 2015.
• An ongoing project related to clean traffic in Zagreb City, under the name
Civitas Elan. The project started in 2008, gone through 3 five-year strate-
gies of development of Zagreb City and Zagreb Holding, and is finally
coming to an end. The aim of the project is the improvement of the quality
of life through promotion and inducing sustainable, clean and energetical-
ly efficient ways of taking part in the traffic. Zagreb Holding, subsidiaries
ZET and Čistoća, together with the City are active on the project, along
with 4 other cities: Ljubljana, Gent, Porto and Brno. ZET took part on
the project by purchasing energetically effective and less noisy trams and
by purchasing buses that use bio-diesel or natural gas as fuel. Čistoća took
part by purchasing waste transport vehicles and cleaning vehicles that use
bio-diesel as fuel. The result is already satisfying, shown through parame-
168
ters – 5% air pollution reduction and 3-5 decibels noise reduction. Zagreb
Holding received about 1,200 000 Euro on this project.
The key driver of ongoing transformation is adapting strategy to active proj-
ects and to create a more flexible and efficient system that will be long-term
sustainable and competitive. The key risk of each project is the evaluation of
the project’s efficiency, its success or failure, which implies whether the target
will be achieved or whether it will be in line with the predefined strategy. In
Zagreb Holding is in the process of fulfilling the goals set out in the Develop-
ment Strategy 2015-2020. Currentle the most successful parts of the strategy
are ones connected to the corporate sustainability strategy (socially responsible
business and social, economic and ecological aspect) participatory management
(cooperation with users and citizens, co-operation with the local community)
and environmental protection (improvement of environmental parameters of
existing products and provision of services, introduction of new green business
technologies). By the end of 2020, most of the Strategy project will be launched,
which will be completed in the period of the Strategy for the Development of
the Zagreb 2020-2025, which is already being prepared.
5. CONCLUSION
Development of project management as a special management discipline
brings new concepts of managing, among which strategic project management
has a special role. The essence of strategic project management is balancing be-
tween the development strategy of a company and correct choice of projects. It
is necessary to establish a strong relationship between the clearly set business INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
strategy and correctly chosen projects – only through constant maintaining of

this relationship there can be a successful closure of a project.
Connection between project management and strategy manageement is
done within project strategy alignment. This alignment is challenging due to
the business strategy goals are not clear or well-communicated between the
business strategy and the project management or consistent with the project
management actions. To understand the alignment, large projects need to be ex-
ecuted within formulated strategy’s implementation and with the involvement
of project managers and not only managers at high management levels.
169
Zagreb Holding is a good example of a successful balancing, where clear
development strategy of a company and correct choice of projects following the
strategy gets results which improve the quality of life of Zagreb inhabitants. For
further development of the City of Zagreb and Zagreb Holding it is necessary
to continuously ensure new projects and perform all the projects set out by the
Development Strategy of Zagreb Holding in the period from 2015 to 2020.
For understanding the need for project strategy alignment, we propose fur-
ther research in Zagreb Holding to continue following influence of project ex-
ecution on fulfillment of strategy in Zagreb and the alignment is being done.
REFERENCES
Ansari, R., Shakeri, E. and Raddadi, A. (2014) Framework for Aligning Project Manage-
ment with Organizational Strategies, Journal of Management in Engineering, vol. 31,
no. 4, pp. 1-8.
Aubry, M., Hobbs, B. and Thuillier, D. (2007) A new Framework for Understanding Or-
ganisational Project Management through the PMO, International Journal of Project
Management, vol. 25, pp. 328-336.
Buble, M. (2010) Projektni Management, Minerva – visoka poslovna škola, Dugopolje
Buble, M. (2009) Menagement. 2. izdanje. Split: Ekonomski fakultet
Buble, M., Cingula, M., Dujanić, M., Dulčić, Ž., Gonan Božac, M., Galetić, L., Ljubić, F.,
Pfeifer, S. and Tipurić, D. (2005) Strateški menadžment. Singergija, Zagreb
Dietrich, P. and Lehtonen, P. (2005) Successful management of strategic intentions through
multiple projects — reflections from empirical study, International Journal of Project
Management, vol. 23, no. 5, pp. 386–391.
Englund, R. L. and Graham, R. J. (1999) From experience: Linking projects to strategy, Jour-
nal of Product Innovation Management, vol. 16, no. 1, pp. 52–64.
Fonvielle, W. and Lawrence, P. (2001) Gaining Strategic Alignment: Making Scorecards
Work, Management Accounting Quarterly, vol. 3, no. 1, pp. 4-14.
Hrebiniak, L. G. (2006) Obstacles to effective strategy implementation, Organizational Dy-
namics, vol. 35, no. 1, pp. 12–31.
Johnson, L. K. (2004) Execute your strategy — without killing it, Harvard Management
Update, Vol. 9, no. 12, pp. 3–6.
Kerzner, H. (2009): Project Management: a systems approach to planning, scheduling, and
controlling, 10th edition, USA
Killen, C. P. and Kleinschmidt, E. J. (2008) Project portfolio management for product in-
novation, International Journal of Quality & Reliability Management, vol. 25, no.1,
pp. 24–38.
Mankins, M. C. and Steele, R. (2005) Turning great strategy into great performance¸ Har-
vard Business Review, vol. 83, no. 7, pp. 64–72.
170
Martinsuo, M. and Lehtonen, P. (2007) Role of single-project management in achieving
portfolio management efficiency, International Journal of Project Management, vol.
25, no. 1, pp. 56–65.
Milošević, D. Z. and Srivannaboon, S. (2007) A Theorethical Framework for Aligning Proj-
ect Management with Business Strategy in Shenhar, A. J., Milošević, D. Z., Dvir, D.,
Thamhain, H. (eds,) Linking Project Management to Business Strategy, Project man-
agement institute, pp. 35-56.
Morris, P. W. G. and Jamieson, A. (2005) Moving from corporate strategy to project strategy,
Project Management Journal, vol. 36, no.4, pp. 5–18.
Müller, R., Martinsuo, M. and Blomquist, T. (2008) Project portfolio control and portfolio
management performance in different contexts, Project Management Journal, vol. 39,
no. 3, pp. 28–42.
Omazić, M. A. and Baljkas S. (2005) Project Menagment, Sinergija nakladništvo, Zagreb
Rajduković, M. et. al. (2012) Planing and control of project, Sveučilište u Zagrebu,
Građevinski fakultet, Zagreb
REVEAL (2014) Raising Effectiveness of Volunteering in Europe through Adult Learning,
available at: http://www.revealvolunteering.eu, accessed on March 20, 2018
Shenhar, A.J., Dvir, D., Guth, W., Lechler, T., Milošević, D., Patanakul, P., Poli, M. and
Stefanović, J. (2007) Project strategy: missing link, in Shenhar, A. J., Milošević, D.
Z., Dvir, D., Thamhain, H. (eds,) Linking Project Management to Business Strategy,
Project management institute, pp. 57-75
Sikavica, P. Bahtijarević-Šiber, F. and Pološki Vokić, N. (2008). Foundations od manage-
ment. Zagreb, Školska knjiga. pp. 2-24
Srivannaboon, S. (2006) Linking project management with business strategy, paper pre-
sented at PMI Global Congress 2006—North America, Seattle, available at https://
www.pmi.org/learning/library/linking-project-management-business-strategy-8076,
accessed on February 20, 2018
Stawicki, J. and Müller, R. (2007) From standards to execution: Implementing program and
portfolio management, Poland IPMA World Congress
Thompson Jr. A. A., Strickland III. A.J. and Gamble, J.E. (2006) Strateški menadžment - u
potrazi za konkurentskom prednošću, Zagreb: MATE
171
PATIENT’S WILLINGNESS TO CO
FINANCE HIGHER LEVELS OF
HEALTHCARE
Martina BRIŠ ALIĆ, Ph. D.

J.J. Strossmayer University of Osijek,
Faculty of Economics in Osijek, Republic of Croatia
Martina Briš Alić Martina Harc Dino Vida: PATIENT’S WILLINGNESS TO CO-FINANCE HIGHER LEVELS OF HEALTHCARE
E-mail: mbris@efos.hr
Martina HARC, Ph. D.

Croatian Academy of Sciences and Arts,
Institute for Scientific and Artistic Work in Osijek
E-mail: harcm@hazu.hr
Dino VIDA, Ph. D. Student

General County Hospital Našice, Republic of Croatia
E-mail: dino.vida@gmail.com
Abstract
The existing financing system of the healthcare of the Republic of Croatia poses
challenges to all stakeholders involved in the process of treatment. Modern
medicine develops daily and offers new, better, more efficient and less unpleas-
ant procedures for diagnosis and treatment. The development also influences
on increased costs of healthcare. Healthcare providers at the primary, second-
ary and tertiary levels are scarcely paying and thus generate financial losses in
the health sector. Public health financing in the Republic of Croatia is imple-
mented according to the Bismarck model based on the principles of solidar-
ity and reciprocity and is collected through compulsory contributions to health
insurance paid to the Croatian Health Insurance Fund. Partial co-financing is
collected through a complementary health insurance system. It is anticipated
that the current gap between the available financial resources and the cost of
health services will continue to increase in the future. In order to reduce the
existing gap, one of the possible solutions is voluntary co-financing of higher-
172
level of healthcare within the patient’s own resources. The aim of this paper is to
investigate whether patients treated at the Našice County General Hospital are
willing and interested to co-finance an additional - a higher level of healthcare
than the one available from existing health insurance. The study was conducted
on an example of 206 patients treated at the Našice County General Hospital
during January and February 2018. Survey questionnaires were set for 206
patients. According to the financial situation in the micro-region that gravitates
to hospitals, the level of services provided by the hospital, the habits of patients
(consumers), age etc., expected results of the research point at unconcerned co-
financing of treatment by most of the patients.
Key words: healthcare, public health, financing of healthcare, treatment
JEL Classification: I13, I18
1. INTRODUCTION
Over the last few decades, the overall health status of people around the
world has significantly improved. On average, people live longer than ever be-
fore, regardless of their income level. According to World Health Organization,
the life expectancy at birth (LEAB) has increased for 20% in last few decades,
precisely, 71.4 years was the average life expectancy at birth of the global popu-
lation in 2015. In Croatia 81. 2 years was the average life expectancy at birth
of the female population in 2015 and 74.7 of the male population. Further,
the global population aged 60 years could expect to live another 20 years on
average in 2015. According to Fujii (2017) in high-income countries, the life
expectancy at birth has increased from about 70 years in 1970 to around 80 INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
in 2010. During the same period, low-income countries and middle-income
countries have achieved an even larger increase in the life expectancy at birth
(see more at World Health Statistics 2017, WHO life expectancy). Similarly,
the under-five mortality rate has dropped substantially. This improvement is
particularly apparent in low income and middle-income countries. The author
emphasizes few (plausible) reasons for this remarkable improvement. First, the
advancement of medicine has enabled the prevention and treatment of diseases
that were previously not possible. Second, higher standards of living have also
contributed to the improvement in health, people can get more and better food
and clean and safe drinking water. According to Pritchett and Summers (1996),
richer people tend to be healthier and live longer on average. Moreover, richer
173
people and people in richer countries also tend to enjoy better public health and
sanitation and receive a better education, which in turn help people to avoid
contracting preventable diseases and live a healthier life overall. Undoubtedly,
according to the World Health Organization (WHO), there are considerable
variations in health across individuals and countries even at a similar level of
income.
Healthcare is financed through different sources. Most typically are pub-
lic health insurance and private health insurance. Both sources have different
strengths and weaknesses. Emery (2010) explained differences between public

health insurance from private health insurance. According to the author, public
health care finance has two features that differ from private health insurance.
First, while the prices and levels of insurance benefits of private contracts can
differ according to individuals’ income and risk of needing health care services,
public health insurance provides a single level of coverage for everyone. Second,
the price of that single level of coverage through the tax system varies accord-
ing to individual income and health care needs. Further, one-size-fits-all public
coverage means, that some individuals will find the level of public health insur-
ance more generous than they need, while others will find it insufficient to meet
their needs or wants and, if offered the opportunity, might choose to purchase
additional insurance coverage through a private insurer. Moreover, how much
coverage they might want would depend on the price of supplemental private
insurance and on the level of public coverage. According to World Health Orga-
nization, public health expenditure is an important source because it can poten-
tially improve the health of millions of people, who are prevented from receiving
health care by the obligation to pay directly at the moment of need. Finally, pri-
vate health expenditure includes out-of-pocket expenditure and private health
insurance. Out-of-pocket expenditure refers to consumers (patients) who have
an incentive to pay health-care expenses out of pocket only when the private
marginal cost of health care is no greater than the private marginal benefit. Pri-
vate health insurance refers to consumers (patients) individuals who are able to
share the risk of unexpected medical costs and allow them to receive expensively
but rarely needed life-saving health-care services when they are necessary (Fujii,
2017).
In Croatia, increasing costs of healthcare that healthcare providers at the pri-
mary, secondary and tertiary levels are scarcely paying generates financial losses
in the health sector. It is anticipated that the current gap between the available
174
financial resources and the cost of health services will continue to increase in the
future. In order to reduce the existing gap, one of the possible solutions is volun-
tary co-financing higher-level of healthcare within the patient’s own resources.
With this model patients will be offered to co-finance better, more efficient and
less unpleasant procedures for diagnosis and treatment and, of course, more
expensive service. By patients co-financing healthcare, the health care providers
would be able to reduce or even completely avoid negative financial performance
at the end of the business year. This paper analyzes whether patients treated at
the Našice County General Hospital are willing and interested to co-finance
an additional - a higher level of healthcare than the one available from existing
public health insurance.
After the introduction, Section 2 provides a brief overview of the related
literature and stresses the importance of public and private health insurance. In
Section 3 we present the data and introduce the methodology adopted. Section
4 displays results. Finally, the concluding remarks are presented in Section 5.
2. LITERATURE OVERVIEW
Health insurance refers to insurance against financial loss caused by illness,
body injury and birth or death of the insured person. Individuals with health in-
surance are provided with social security against uncertainty if an insured event
occurs. Healthcare is a fundamental component of European welfare state. Al-
though the EU Member States regulate this area differently, all regulations have
a common feature of pursuing the universal access to healthcare, which is based
on the principle of solidarity (Nikolić, 2015). According to Kirillova (2016), the INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
level of national health care development is an indicator of the quality of living

of the population. Further, the health of citizens, possibilities of its support
and strengthening are very important for the economic growth of a country.
As healthcare has the social character the state must guaranty granting of basic
medical services free of charge and the possibilities to get alternative paid medi-
cal services. In addition to that, the 2030 Agenda for Sustainable Development
provides an opportunity to build better systems for health – by strengthening
health systems in order to achieve universal health coverage (UHC), and by
recognizing that health depends upon productivity in other key sectors such as
agriculture, education, employment, energy, the environment and the economy.
In order to achieve the Sustainable Development Goals, WHO is promoting
175
six main lines of actions. Achieving universal health coverage lies at the cen-
ter of Sustainable Development Goals. According to WHO, making progress
towards UHC is an ongoing process for every country aiming to ensure that
all people receive the health services they need without experiencing financial
hardship (World Health Statistics 2017, Monitoring health for the SDGs).
The main models of a healthcare, based on the source of their funding are
usually defined by four models: the Beveridge model, the Bismarck model,
the National Health Care Insurance and the Out of Pocket model. Beveridge
model, called after William Beveridge, is a healthcare model financed through

the budget by tax collection, first implemented after World War II in Great
Britain and named National Health Service (NHS). In this model, healthcare
budgets compete with other spending priorities. The countries using this model
are the UK, Italy, Spain, Sweden, Denmark, Norway and Finland (Lameire,
Joffe, & Wiedemann, 1999.) The Bismarck “mixed” model is financed mainly
from social / compulsory insurance fund and collects funds from fees and is
usual in countries like Germany, France, Austria, Switzerland, Benelux, and Ja-
pan This model results with a mix of private and public healthcare insurance
providers and allows more flexible consumption of healthcare. Wallace (2013.)
states that Bismarck’s model uses the insurance system and is usually funded
by employers and employees through wage cuts. Unlike the American form of
insurance, the profit is not the main goal of Bismarck’s health model. Wallace
(2013.) describes The National Health Insurance model with elements of both
the Beveridge and Bismarck models. It uses private-sector providers, but pay-
ment comes from a government-run insurance program that all citizens fund
through a premium or tax. These universal insurance programs tend to be less
expensive and have lower administrative costs than American-style for-profit
insurance plans. National Health Insurance plans also control costs by limiting
the medical services they pay for and/or requiring patients wait to be treated.
The classic National Health Insurance system can be found in Canada. World
Health Organization (2018.) defines Out-of-pocket payments (OOPs) as di-
rect payments made by individuals to health care providers at the time of service
use. This excludes any prepayment for health services, for example in the form
of taxes or specific insurance premiums or contributions and, where possible,
net of any reimbursements to the individual who made the payments.
Croatia Healthcare system, according to Zrinščak (2007.) is mostly financed
(around 80%) from contribution paid by the insured, which is putting Croa-
176
tia in a group of countries belonging to the Bismarck model. The contribution
rate is calculated on the salary and is 15%. The same rate was at the beginning
of the 1990s, back then it was shared between workers and employers. In the
later years, there is a rise in the rate (for example, 18% in 1998), and then its
declining (declaratively because of the need to reduce labor costs) and the re-
distribution of contributions (where contributions for pension insurance are
calculated from wages and contributions for health and employment on wages).
Also, since 2002, contributions are no longer collected by the Croatian Health
Insurance Fund (HZZO), but they are collected through the state budget and
then are passed on to the HZZO, which partly changes the original charac-
ter of the autonomous social security system. In May 2012, the contribution
rate for health insurance was down to 13%, and in 2014 the rate was increased
and returned to the previous 15% rate. On the first day of 2015, the Croatian
Health Insurance Institute has emerged from the State Treasury and the funds
are collected independently. This way allows better management of healthcare
resources in the Republic of Croatia. According to Smolić (2014.) less than a
20% of the total Health spending in Croatia comes from private sources, and
the share of public financing Healthcare is one of the largest in Europe. Despite
a challenging economic context and major fiscal pressures on health expendi-
ture, Croatia has kept publicly funded health services accessible to its popula-
tion. Although health expenditure per capita is among the lowest in Europe, the
share of public expenditure is comparable to the EU average and the benefits
package is broad, including most health services. According to European Com-
mission, Croatia has pursued a number of important health reforms in recent

years, aimed at improving the effectiveness and efficiency of its health system.
Building on and implementing these reforms could help to further improve the
performance of its health system (European Commission, State of Health in
the EU, Croatia Country Health Profile 2017). In Slovenia, the healthcare sys-
tem is financed through two sources, public and private funds. The largest pub-
lic share, around 75%, represents social or compulsory health insurance. Private
financing is mostly represented by voluntary health insurance (around 50% of
private funds), of which complementary health insurance represents more than
90% (Nikolić, 2015).
Kirillova (2016) analyzed the development of the national healthcare sys-
tem after the introduction of market reforms in Russia. Before 1991, there was
no paid medical service in Russia. According to author, the necessity to reform
177
health care system has several reasons: increasing the quality of medical servic-
es, a substantial gap in the incomes of people, high cost of technological medi-
cal care, the increase of the life expectancy at birth, the need for healthier life
and breaking up the monopoly of the state system of health care. The research
indicated the necessity to increase the volume of money for the development of
healthcare on the higher level. The lack of the state financial resources should
be compensated through the mechanisms of attraction the additional financial
resources aimed at the development of paid medical services and widening the
range of medical services. Finally, the author concluded that widening the range
of paid services could be viewed as a strategy to improve the efficiency of health
care. Paid medical services could become a premise to increase medical services
quality through increasing the income of the medical personnel in order to create
an effective health care system. Fujii (2017) analyzed whether and how different
sources of health spending affect health outcomes. Although, health spending
affect and poor and rich countries, because neither of them can not afford to
waste health resources and efficient provision of health-care service, is critical
for both rich and poor countries. The author found that health expenditure on
average tends to have a higher health-promoting effect when it comes from a
private source than when it comes from a public source. Results indicate that
taking advantage of private sources of health expenditure is important. Further,
the author also found that the differential health impacts of private and public
health expenditure depend on the quality of the government because main re-
sults are driven by the presence of countries with ineffective governments. With
a restricted sample of a set of countries with effective governments, the author
found no evidence that private sources have a higher health-promoting effect
than public sources. Therefore, results indicated that a larger involvement of
private sector in health is desirable particularly in countries with an ineffective
government.
Finally, Bassani et al. (2018) analyzed healthcare crowdfunding as one of
the alternative sources of raising money by using websites to raise money from
donors to pay for medical care or related expenses. Authors also analyzed the
success of healthcare crowdfunding platforms (as measured by the number of
successfully funded healthcare projects) in relation to the state-level health ex-
penditure of countries where these platforms are based. Crowdfunding is an
open call on the Internet for the provision of financial resources in the form
of donations, a future product, service, or some other reward, or exchange
178
for shares or debt securities of a company. There are, therefore, three types of
crowdfunding: donation-, reward-, and investment-based crowdfunding. Au-
thors revealed several figures. The United States counts the highest number
of successfully funded projects in healthcare. Up to October 2017, 76 medical
crowdfunding platforms have operated worldwide and raised over $132 million
13,633 health projects with the domination of donation-based crowdfunding
focused only on healthcare projects. Further, the number of successfully funded
health projects is higher in those platforms based in countries where financial
resources allocated to health are high, but at the same time where the pub-
lic health coverage is lower, suggesting a substitution effect between medical
crowdfunding and public health insurance.
3. DATA AND METHODOLOGY

The study was conducted on an example of 206 patients treated at the
Našice County General Hospital during January and February 2018. Survey
questionnaires were set for 206 patients. For the purpose of our analysis, we
used SurveyGizmo tool.
4. EMPIRICAL RESEARCH AND RESULTS

In order to evaluate whether 206 patients are willing to pay for particular
medical service or an earlier appointment for a medical service in Našice Coun-
ty General Hospital, patients are questioned through survey questionnaires.
Further, patients who answered positively are additionally questioned to de- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
termine whether medical service (among offered) are they willing to pay extra.
Before any necessity for extra paying service, patients are questioned to evaluate
the quality range of offered medical service at the County General Hospital in
Našice.
Among the interviewees, as Figure 1 presents, there are no big differences in
a number of interviewed patients in each of the age group, around forty in each.
179
Figure 1. Age groups among interviewed patients
AGE Frequency Percent Valid Percent Cumulative Percent
<= 35 42 20,4 20,4 20,4
36 - 51 44 21,4 21,4 41,7
52 - 58 38 18,4 18,4 60,2
59 - 68 42 20,4 20,4 80,6
69+ 40 19,4 19,4 100,0
Total 206 100,0 100,0
Source: Authors’ Survey
Further, 39,3% of interviewed patients were male, while 60,7% were female,
the average age of 52, where 67 % of them were married, while 15% were un-
married and 11,2% of theme were widowed persons. Furthermore, among in-
terviewed patients, 44,7 were employed, while 19,4% were unemployed and
35% were pensioners.
From Figure 2 is visible that 50 employed patients are willing to pay for par-
ticular medical service or an earlier appointment for a medical service in Našice
County General Hospital, while 42 of them are not. It is interesting to note that
majority of pensioners are not willing to pay extra money for particular medical
service or an earlier appointment for a medical service. Finally, 47% of patients
are willing to pay an extra money for particular medical service or an earlier ap-
pointment for a medical service, while 53% are not.
Figure 2. Patient’s willingness to pay medical service or an earlier appointment
Note: Q11: Are you willing to pay for particular medical service or an earlier appointment
for a medical service in Našice County General Hospital?
180
Figure 3. Rating the willingness to co-finance specific services
Note: Q12. If you are willing to pay for particular medical service or an earlier appoint-
ment for a medical service in Našice County General Hospital, which medical service are
you willing to pay and in which intensity? (1-completely not ready to pay, 2- not ready to
pay, 3- neither ready nor willing to pay, 4- willing to pay, 5- completely prepared to pay, I can
not evaluate)
Those patients who answered positively on the prior question are asked to
answer, which particular medical service among offered are willing to pay, and in
which intensity. Most of the examined patients are not at all willing to extra pay
for any treatment in either of offered medical service, meaning that another (not
offered) medical service would be more interesting for extra payment. Treat-
ment and examination at specialist are willing to pay 26% of patients, although
not completely prepared to pay. Minor surgery is willing to pay 28% of patients
but not also completely prepared to pay. The most of patients (17,7%) are com-
pletely prepared to pay for anesthesia for some procedures beyond the current
funding system, which is expected as the anesthesia reduces the inconvenience
of the procedure and for endoscopic examination (16%). Before any necessity
for paying an extra money for an extra medical service, patients are questioned
to evaluate the satisfaction with the service provided at the General County
Hospital in Našice. Figure 4 shows that 120 of 206 patients are fully satisfied
with the expertise of medical personnel, and 118 of patients expressed full sat-
isfaction with medical service. A minority expressed complete dissatisfaction.
181
Figure 4. Patient’s satisfaction with the services provided in the General county
hospital Našice
Note Q16: Provided medical service at Našice General Hospital, please rate 1-5, where the
grade 1 indicates complete dissatisfaction, and the grade 5 is full satisfaction (1 completely
dissatisfied, 2- partial dissatisfaction, 3- neither satisfaction nor dissatisfaction, 4- partial
satisfaction, 5- full satisfaction – 5)
5. CONCLUSION
According to the conducted survey, most interviewed patients are not inter-
ested in additional service charges. Within more detailed analysis of the survey
responses, we can conclude that reasons are primarily in patient’s satisfaction
with the services provided in the General county hospital Našice and weak finan-
cial status among the interviewees. However, it is clearly visible that a part of the
patients (46.9%) are willing to invest their own financial resources to get a better
service or earlier term in the process of diagnosis and treatment. If qualitative
pricing and value-for-money healthcare systems would be provided, additional
funding would be provided to improve the financial image of the business and
open the way for a possible increase in the quality of services. Most patients are
willing to pay anesthesia for some of the procedures beyond the current fund-
ing system, which is expected as the anesthesia reduces the inconvenience of the
procedure. Specialist examination and treatment do not record higher willing-
ness rates, hence we can conclude that the waiting lists are in acceptable waiting
timeframes. Also, special diet and special health care recorded lower rating.
This form of financing brings some risks that can potentially be achieved:
extending the waiting list for those who are not willing to co-finance, reducing
investment into a basic medical service package as well as increasing the gap in
182
the quality of the public health sector relative to the co-financed form. Prior to
the introduction of the mentioned model, further research is needed as well as
the definition of the price level of certain medical services.
REFERENCES
Wallace, L. S. (2013). A view of health care around the world. The Annals of Family Medi-
cine, 11(1), 84-84.
Lameire, N., Joffe, P., & Wiedemann, M. (1999). Healthcare systems—an international re-
view: an overview. Nephrology Dialysis Transplantation, 14(suppl_6), 3-9.
World Health Organization (2018.) Health financing for universal coverage. available at:
http://www.who.int/health_financing/topics/financial-protection/out-of-pocket-
payments/en/ (March 23, 2018)
World Health Organization (2018.) available at http://www.who.int/gho/mortality_bur-
den_disease/life_tables/en/ (March 2018)
World Health Organization (2018.) available at http://apps.who.int/gho/data/node.
main.688 (March 2018)
World Health Organization (2018.) available at http://www.who.int/gho/mortality_bur-
den_disease/life_tables/en/ (March 2018)
Zrinščak, S. (2007). Zdravstvena politika Hrvatske. U vrtlogu reformi i suvremenih
društvenih izazova. Revija za socijalnu politiku, 14(2), 193-220.
Smolić, Š. (2014). Razvojni potencijali i izazovi za javno zdravstvo u Hrvatskoj. EFZG Oc-
casional Publications (Department of Macroeconomics), 1, 289-306.
Pritchett, L., and L.H. Summers (1996) `Wealthier is healthier.’ Journal of Human Re-
sources 31(4), 841-868
Fujii T. (2017). Sources of Health Financing and Health Outcomes: A Panel Data Analysis.
available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3047674 (March

2018)
Emery, J.C.H. (2010). Understanding the political economy of the evolution and future
of single-payer public health insurance in Canada. available at: https://www.poli-
cyschool.ca/wp-content/uploads/2016/03/emery-technical-paper.pdf (March 2018)
Kirillova L.K. (2016). Strategies to Improve Health Care Services. International Review of
Management and Marketing. 6(S5) 243-248.
Nikolić, B. (2015). Slovenian Complementary Health Insurance as a Service of General Eco-
nomic Interest. International Public Administration Review, Vol. 13, No. 1/2015
Bassani, G., Marinelli, N., Vismara, S. (2018). Crowdfunding in healthcare.
available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3126177 (March
2018)
World Health Statistics 2017, Monitoring health for the SDGs, Sustainable Development
Goals.
OECD/European Observatory on Health Systems and Policies (2017), Croatia: Country
Health Profile 2017, State of Health in the EU. Brussels.
183
THE IMPORTANCE OF
Dijana Kozina Vedrana Vukadinović Marko Tadić: THE IMPORTANCE OF MANAGEMENT AND COST ESTIMATION IN MANAGERIAL DECISION MAKING
MANAGEMENT AND COST

ESTIMATION IN MANAGERIAL
DECISION MAKING
Dijana KOZINA, Ph. D. Candidate

J.J. Strossmayer University of Osijek
E-mail: dijana.kozina@zagreb.hr
Vedrana VUKADINOVIĆ, Ph. D. Candidate

E-mail: z.vedrana88@gmail.com
Marko TADIĆ, Ph. D. Candidate

E-mail: matadic@gmail.com
Abstract
The topic that’s been chosen is one of the top of the reasons that some people
in management business are successful or unsuccessful. It’s about the power of
the acknowledgement, education and, of course, the experience. Cost analysis
and its estimation, is major role in making managerial decisions and is closely
related to the price of the products themselves. The costs are trivial to manage
to achieve long-term benefits from the expense they have incurred to achieve the
manager’s business at a lowest cost without long-term negative consequences on
the business result and competitive position. Most commonly, companies are
faced with a combination of different cost management models, which will be
discussed in final paper.
Key words: cost management, strategy, planning, managing, upgrading, pro-
fessional satisfaction
184
1. INTRODUCTIONCOSTS
Modern companies are operating in very complicated conditions. Due to
major global business changes, they meet the demands for high profitability,
environmentally friendly products and higher quality, as well as the pleasure
of all business participants. Because of the large global changes, the companies
are based on efficient use, knowledge, information and managerial skills for the
purpose of gaining profit and creating new value (Rupčić, 2016,2)
It is very important to follow the justification of the costs incurred during
the performance of the management assignments. For the beginning, it is neces-
sary to consider that the costs cannot be completely eliminated, but should be
learned to manage them, using models and methods to optimize costs. Making
all decisions, first and foremost, using various methods of managing and al-
locating costs. For a successful business, companies need to spend their human
resources and others, while paying attention to the costs to gain profitability.
Costs allow a realistic assessment of the company’s performance. Costs repre-
sent resource of consumption for product development. As everyone can spend
and make the money, we look at it as a central economic category, which is an
important factor in managerial decisions. The demands of business processes
that cause the costs are reflection of the overall intent, goals and relationships
in running the business in the company. Costs should always be controlled as it
cannot be avoided but can be successfully managed. In order to make cost esti-
mates and analyses as efficient as possible, it is necessary to focus at the area of
resource cost management. The company should focus on cost control in order

to know the underlying conditions in which costs appear, how much they can
and how they can be efficiently managed (Kolar, Koletnik, 2005, 46). Managers
persist to achieve an optimization in efficiency and effective cost management.
In each company, costs are always linked to the portfolio of products and servic-
es, including clients and the responsibilities within the company or managers.
Development of economic science resulted in the division of costs.
The most common criteria for cost sharing are (Belak, 1995, 146):
1. Natural costing:
• Long - term property expenses
• Non - material expenses
• Service Costs
185
2. Distribution of costs by production site (Belak,1995,148):
• Costs of production: current expenses such as materials and supplies di-

rectly related to the project, indirect costs
• non - production costs: Administrative expenses, selling expenses
2.1. Cost allocation to bearers (Trcović, 2012, 60)
• Direct costs of products and services
• Indirect cost of products and services
3. Division of costs according to business dynamics (Belak 1995, 154):
• Fixed costs
• Variable costs
• Combination of costs (fixed and variable)
• Discretionary costs
4. Costs from the point of view of the others in comparison and prediction
(Belak,1995,159)
• Standard costs
• Planned costs
• Actual costs
• Average Costs
• Marginal Costs
5. Costs from the point of view of managerial decisions (Belak,1995,164)
• Eligible and unjustified costs
• Remaining and inevitable costs
• Transaction costs
• Opportunity costs
• Competitiveness costs
• Internal cost - cutting costs
6. Costs in regard to the calculation scope (Belak,1995,162)
• Absorbed costs
• Preapsulated costs
• Neutralized or undercapsed costs
186
.. Labour costs
Work is the ability of a man to produce the useful value. For completed work
a worker receives a salary and it represents the labour cost for the employer.
The labour cost is the most important element of assessment and management
according to the elements of the work process. To perform any economic activ-
ity it’s necessary to wear the three fundamental elements of the work process:
labour, objects of labour and means of work.
These items are consumed and their value is the cost of production.
Their wear can be expressed in neutral or money - based indicators (financial
indicators).
A neutral indicator is the consumption that represents the physical expres-
sion of the wear of individual elements (hours of machine operation, quantity
of consumed materials, etc.) The financial statements of the individual work
process elements are the costs. They are also referred to as natural costs because
they appear in each product.
Labour costs are of huge affection to total costs and their size changes due to
the influence of: pay rates, employee qualification structure, labour productivity
and others. The salary level is a fundamental factor of labour costs.
Huge role in the function of the economy has the factor - labour. The divi-
sion into natural types of costs are considered fundamental division of the costs
to which belongs and the cost of work on which will be written in the remain-
der of this paper. Labour costs include compensation of employees (including

salaries in cash and in- kind wages, social security contributions), the cost of
vocational training and other expenses (such as employment costs, expenses for
work clothes and taxes on employment, that are considered operating costs net
of received subsidies). These components of labour costs and their elements are
defined by Regulation 1737/2005 of 21.st of October 2005.
From the point of view of labour cost accounting and accounting coverage
labour costs are divided into two groups: (Gulin et al. 2011, 86-87)
1. The first group are the costs of production work - it comprises salaries
and allowances and other payments and benefits to workers who work in pro-
duction departments or related to the production function in a business entity.
In the purpose of monitoring costs, costs of production work are divided
into:
187
• Direct labour costs (direct variable production costs) - can be directly
associated with cost bearers. Only that works up is directly related to the
production of the product
• Indirect labour costs (indirect production costs) – can take on the char-
acteristics of the fixed and variable costs. They are deployed through ac-
counting methods to cost carriers but cannot be directly linked to them.
These include tasks of workers who do not work on the production line
itself but in the manufacturing departments of the subject.
2.The second group includes the costs of non - productive labour - there
are salaries and allowances and other benefits that the employer provides to
employees who are not working in the production departments of the business
entity. They decline over the expense of the period and are included in the ex-
penditures in the period in which they were incurred.
Following figure gives clear picture of how labour costs are structured.
Figure 1. Components of labour costs
Source: Eurostat
(http://ec.europa.eu/eurostat/statistics-explained/index.php/Wages_and_labour_costs/hr
(15.03.2018.)
In figure 2. statistical results say as follows:

The average labour cost per hour in the EU-28 group amounted to EUR
25.40 in 2016 and EUR 29.80 in the euro area (EA-19). However, behind this
average there are significant differences between EU member states because la-
188
bour costs per hour range from EUR 4.40 in Bulgaria to EUR 42.00 in Den-
mark. The average was even higher in (50.20 EUR) in Norway.
Labour costs consist of salaries and wage costs, such as social contributions
of employers. The share of expenditures on salaries in total labour costs was
2016 in the EU-28 group of 23% and in the euro area by 26.0%. The share
of costs accruing on wages has also varied considerably among EU member
states. The highest share of wage billing was recorded in France (33.2%), Swe-
den (32.5%), Belgium (27.5%), Lithuania (27.8%) and Italy (27.4%, with the
lowest share recorded in Malta (6.6%), Luxembourg (13.4%), Ireland (13.8%),
Denmark (13.9%) and Croatia (14.9%).(Eurostat,2018)
Figure 2. An estimated hourly labour costs, 2016 (EUR)
Source: Eurostat
http://ec.europa.eu/eurostat/statistics-explained/index.php/Wages_and_labour_costs/hr
(15.03.2018.)
“The Euro-Plus Pact(EPP), adopted in March 2011, is based on the Open

Method of Coordination (OMC)between the 17 Eurozone members and six
other countries (Bulgaria, Denmark, Latvia, Lithuania, Poland and Romania).
189
Aiming at better economic policy coordination, it focuses on competitiveness,
employment and financial sustainability, including a structured discussion on

tax policy issues. It is a new initiative that has been layered onto the existing
EU institutional framework. The EPP specifies objectives that primarily fall
in areas that are under the competence of the Member States including wage
monitoring, labour market reforms, tax reforms, pensions, health care and so-
cial benefits, fiscal rules and banking regulations. In labour market policy, some
objectives touch upon core labour market issues, including decentralising wage-
setting agreements as well as revising wage indexation mechanisms (Barnard,
2012). The EPP penetrates into sensitive national welfare state issues, speci-
fying objectives to a high degree. It is integrated into the European Semester,
where Member States should report on progress made towards the main aims:
surveillance is medium through analysis of progress made to issues that are cen-
tral in the EPP, alongside the assessment of progress made in other processes.
The EPP is voluntary, using the OMC, and surveillance as well as enforcement
is therefore as low as it is for Europe 2020. While each Member State has the
discretion to select their own national measures to achieve the common goals,
and to decide how far-reaching reforms should be, national commitments
should be integrated in the National Reform Programme (NRPs) that are cen-
tral for Europe 2020 and Stability or Convergence Programmes in the frame-
work of the Stability and Growth Pact (SGP). The Commission then assesses
implementation by Member States of ‘EPP commitments’ together with the
assessment of other country specific recommendation (CSRs.) Compared with
the new institutional architecture around the Economic and Monetary Union (
EMU) and even Europe 2020 with its headline targets and flagship initiatives,
the EPP objectives are not likely to make headway via an OMC process, since
they require domestic political commitment.”( de la Porte,Heins, 2015,14).
190
Graph 1. Public expenditure on labour market policies, by type of action
(source: DG EMPL)
% of GDP
Source: http://ec.europa.eu/eurostat/tgm/graph.do?tab=graph&plugin=1&language=en
&pcode=tps00076&toolbox=type (23.03.2018.)
Expenditure on labour market policies (LMP) is limited to public interven-

tions which are explicitly targeted at groups of persons with difficulties in the
labour market: the unemployed, the employed at risk of involuntary job loss
and inactive persons who would like to enter the labour market. Total expen-
diture is broken down into LMP services , which covers the costs of the public
employment service (PES) together with any other publicly funded services for
jobseekers; LMP measures, which covers activation measures for the unem-
ployed and other target groups including the categories of training, job rotation
and job sharing, employment incentives, supported employment and rehabili-
tation, direct job creation, and start-up incentives; and LMP supports , which
covers out-of-work income maintenance and support (mostly unemployment
benefits) and early retirement benefits.(Eurostat,2018)
.. Cost management

“Cost management is a special way of managing and running a business that
is the most important in achieving organizational goals, and it provides cost of
an optimization “. (Cingula, Klačmer, 2003,20)
The concept of cost management is the realization of some management
objectives based on optimum cost engagement.
Activities of cost management are (Belak, 1995, 130):
191
• forecasting, planning, budgeting and cost control;
• analysis that show the behaviour of the cost, depending on the changing
circumstances in which they were incurred;
• analysis of the cause deviations from the predicted values;
• keeping costs within acceptable limits;
• providing information to managers so that they can choose between alter-
natives in order to achieve optimal economic results
It is also of worth to mention the cost accounting that provides the most
important information for cost management to be successful. Namely, cost ac-
counting provides information needed to manage costs using cost - accounting
methods.
There are numerous of models, or different procedures and methods that
management companies provide information necessary for making different de-
cisions for cost optimization based on fact (Factual approach to decision mak-
ing) (Hele, 2003, 36-40):
• methods of traditional management of production costs
• the model of cost management based on processes
• the model of cost management based on activity
• the model of target costs
• activity - based budgeting
• the achievement balance model
• “Kaizen” costs,
• value analysis
• cost-control model of quality
In managing costs, each model can be used separately, but also in combina-
tion with two or more models.
It should be noted that the cost management should not be seen only from
the traditional approach, share costs only on fixed and variable, and ignore other
costs such as the costs of the activities and products that they have generated.
Such a method could lead to completely misguided routing and allocating costs.
To ultimately reach managers positive outcomes, or succeed in positively
and successfully manage their costs, they need to know the existing overall cost
192
structure of the enterprise in order to know which management models should
be applied. It should be emphasized that the goal of the manager is to optimize
costs (maximizing volume high quality effects to minimize total costs).
2. RESEARCH OF COST OF WORK IN

NKD NATIONAL CLASSIFICATION OF
ACTIVITIES2007 GROUP 08.1QUARRYING OF
STONE, SAND AND CLAY IN CROATIA
This research paper focuses on determining business entities in the group
08.1 – Quarrying of stone, sand and clay in Croatia, their importance in Croa-
tian economy and influence of cost of work on their cost structure. Out of HRK
655 billion revenue, which entrepreneurs which do business pursuant to NKD
2007 classification realized in 2016, share of the total mining and quarrying
amounts to HRK 3 billion, i.e. 0.45%. The entire group 08 realized revenue in
2016 in the amount of HRK 1 billion. These figures clearly show that it is not
a relevant area for Croatian economy, but it is ideal for monitoring cost of work
and its replacement by machine work.
Group 08.1 – Quarrying of stone, sand and clay pursuant to NKD 2007
Pursuant to NKD 2007, group 08.1 – Quarrying of stone, sand and clay
includes (source: URL: https://e-obrt.minpo.hr/dokumenti/nkd2007_s_ob-
jasnjenjima.pdf as at 8 March, 2018)

08.11 Quarrying of decorative stone and construction stone, limestone,
plaster, chalk and schist
This class includes:
– quarrying, scabbling and sawing of decorative and construction stone like
marble, granite, sandstone, etc.
– crushing of decorative and construction stone
– quarrying and crushing of limestone
– quarrying of plaster and anhydrite
– quarrying of chalk and non-limed dolomite
This class excludes:
– quarrying of minerals for chemicals and fertilizers
193
– production of burned dolomite
– stone cutting, shaping and scabbling outside a quarry

08.12 Activity of gravel pits and sand pits; quarrying of clay and hydro-
silicate clay
This class includes:
– excavating of industrial sand, sand for construction and gravel
– gravel crushing
– sand excavating
– clay, fireclay and hydrosilicate clay excavating
This class excludes:
– excavating of bitumenized sand
It is clearly an industry which is engaged in exploitation of mineral resources
on surface excavations, which includes more or less complex primarily mechani-
cal raw material processing in order to get final product for the market. „Mineral
resources include all organic and neo-organic mineral raw materials which can
be found in solid, liquid or gaseous state in their primary deposits, pits, smelt-
ing slags or natural resolutions” (Mining Act, Article 4). All mineral resources
are owned by the Republic of Croatia. In general, this industry is mostly stipu-
lated by the Mining Act and Concessions Act, as well as by-laws. In order to
create conditions for stabile and regular exploitation of mineral resources on a
specific location, all prior activities have to be carried out, which takes several
years – prior activities and studies, research permit, research work which have
to prove or contest grounds for exploitation, and afterwards obtaining all neces-
sary permits for forming exploitation field and obtaining concession for exploi-
tation (resolving property-law relations, capability proof, environmental impact
studies, mining project, location permit, etc.). Upon obtaining everything that
is necessary, preliminary works start so that exploitation of the target raw mate-
rial could start (e.g. with stone exploitation preliminary works include removing
and disposing of top soil and waste-rock). After all these activities have been
completed and equipment purchased and mounted, all working processes are
defined and work cost can be monitored as something stable and time compa-
rable. Next to legal and time barrier, capital barrier (high cost of initial invest-
ment for starting a business) make this industry considerable risky and not so
attractive for new entrepreneurs. It is necessary to point out that main product
194
consumers are primarily a construction industry, which uses these products
from exploitation as a final product, but also agricultural and chemical industry,
which mostly use products from exploitation as a reproductive material for fur-
ther processing or production of final products with increasing value.
.. Research methodology

Main data resource for this research was a tool SmartVision of the Bisnode
company, which is „a unique macroeconomic tool for monitoring a situation in
Croatian economy”. In fact, this tool uses data which all entrepreneurs in the
Republic of Croatia are legally bound to submit to the Financial Agency on an-
nual basis in the scope of annual financial report. Last available data are from
2016.
With the help of this tool authors chose the group 08.1, and as criteria (fil-
ters) defined the following:
- To present all business entities with a revenue exceeding HRK 10.000,00
in 2016
- To present all business entities with 1 or more employees (because work
costs cannot be analysed if a company doesn’t have any employees)
Companies filtered in such a way represent 97% of income of the group 08.1,
and they certainly make a representative sample for drawing any conclusions.
Table no. 1 shows all these companies given in 2016 and ordered per income
criteria (from the companies with the highest income to companies with lowest
income). Also, we conclude from table no. 1 that selected companies together INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
in 2016 employed 1539 employees, and realized a net profit in the amount of
HRK 76,6 million (profit margin of 7.85%), created new values HRK 274 mil-
lion and paid average monthly gross salary in the amount of HRK 5.777,02, i.e.
average net salary in the amount of HR 4.263,24.
195
196
Table 1. List of all companies from the group 08.1 per set criteria (in HRK)
197
Source: database research: https://www.bisnode.hr/proizvodi/bisnode-smart-vision/

(08.03.2018.)
Research methods which were used here for data processing are comparison
and monitoring.
.. Hypotheses
Main hypotheses which were controlled by this research are the following:
a) Share of the annual gross work cost in respect of annual income is less
than 15% of income
b) Average annual net salary is lower than average net salary in Croatia for
2016
c) The lowest income level per employee which ensures profit in business
operations is HRK 100.000,00 HRK annually or more
d) Entrepreneurs from controlled group with more than 30 employees are
certainly profitable
These hypotheses are tested further in the paper and certain conclusions
were drawn.
198
3. RESEARCH RESULTS
In this chapter research results for each hypothesis will be presented.
.. Share of the annual gross work cost in respect of

annual income is less than  of income
Set hypothesis says that to realize income in the amount of HRK 1, it is
necessary to invest HRK 0.15 or less into work cost for realizing this income.
Namely, due to technological improvement, less work is required, i.e. work cost
is more and more replaced by machine work, and share of work cost has been
decreasing for decades, but this is not the subject of this paper.
Based on given data for sample, annual work cost can easily be calculated for
each employer by multiplying average monthly gross salary and number of em-
ployees, and multiplying that number with 12 months in a year. As a final and
key indicator for this hypothesis, serves the ratio between annual cost of gross
salary and total annual income. Table no. 2 shows all these indicators calculated
for sample.
Table 2. Share of annual cost of salary in incomes for 08.1
Source: database research https://www.bisnode.hr/proizvodi/bisnode-smart-vision/

(08.03.2018.)
199
200
Based on this analysis, it can be concluded that the hypothesis is confirmed.
Namely, all entrepreneurs from the sample had in 2016 total work cost in
the amount of HRK 127,5 million, and share of work cost in the total in-
come was 13.05%. Moreover, it can be noticed that entrepreneurs with higher
income from the upper half of the Table no. 2 have generally lower share of
work cost in the total income than entrepreneurs from the lower half of the
Table, due to better organization and equipment which enables them to realize
more income with the same or less cost.
201
.. Average annual net salary is lower than average net
salary in Croatia for 

Based on data provided by Croatian Bureau of Statistics (OG 21/2017,
document number 506, dated 10 March, 2017), average gross salary in legal
entities in the Republic of Croatia in 2016 amounted to HRK 7.752,00, and
average net salary in legal entities in the Republic of Croatia amounted to HRK
5.685,00.
Based on data on chosen sample which were previously described in chapter
2.2, and in which we indicated that entrepreneurs from the sample paid out
average monthly gross salary in the amount of HRK 5.777,02, i.e. average net
salary in the amount of HRK 4.263,24, we have come to the conclusion that
average paid gross salary in entrepreneurs in the sample is by 34% lower
than the state average, and that average net salary is by 33% lower than the
state average.
There is a significant difference, and it is clearly an industry without high
personal income. If annual salary cost of analysed entrepreneurs would be in-
creased by 34%, it would reduce their profit by HRK 42,1 million and average
profit margin would be 3.5%, which would not make this industry very profit-
able (taking into consideration risks and initially necessary significant capital
investments) and probably inactive for entrepreneurs.
.. The lowest income level per employee which ensures

profit in business operations is HRK ., HRK or
more.
To check these hypothesis, it was necessary to calculate income per employ-
ee and profit per employee. Table no.3 shows that and controlled entrepreneurs
are ordered per profit per employee (from the highest to the lowest).
202
Table 3. View of controlled entrepreneurs per profit per employee
Source: database research: https://www.bisnode.hr/proizvodi/bisnode-smart-vision/

(08.03.2018.)
203
The Table shows that a profitable entrepreneur with the smallest income per
employee realized income in the amount of HRK 54.681 per employee, and
other six entrepreneurs were profitable and had income per employee less than
HRK 100.000,00. This means that the hypothesis was not confirmed.
Furthermore, the Table shows that there is no some general or proportional
rule (e.g. several entrepreneurs with over 1 million incomes per employee oper-
ated with a loss), which is understandable since there are many other factors
(and costs) which have influence on profitability of a company, besides work
costs. By analysing profitable entrepreneurs, their average income per employee
amounts to HRK 533.792,00, and average income per employee amounts to
HRK 78.988,00 (profit margin of 14.8%) which shows that profitable entre-
preneurs realize significantly higher profit margin than risk free interest rate in
Croatia.
. Entrepreneurs from controlled group with more than

 employees are certainly profitable
Main basis for this hypothesis is that entrepreneurs with greater number
of employees evidently know what they are doing, they are properly organized
and equipped and that they use other resources efficiently. By sorting controlled
entrepreneurs per criteria of number of employees, it is immediately evident
that the hypothesis is not correct. Out of 17 entrepreneurs with 30 or more
employees, two entrepreneurs were not profitable. Therefore, we can conclude
that greater number of employees gives bigger chance for profitability of the
company, but it is not the rule. As it was mentioned in previous chapters, other
factor has also an influence on profitability of a company, therefore those other
factors have decided for these two companies.
4. CONCLUSION
Costs are normal consequence of producing effects. In situations when costs
are seriously approaching realised profits, the company management begins to
resort to various methods of cost reduction.
Cost management has a tremendous impact on managerial decision - mak-
ing. In order to be productive and deliver successful management decision, it is
necessary to be minutely coped as well as informed with the existing structure
204
of the organization’s total costs. Cost estimation and management is possible
to realise with different methods. Of course, an accent should be based on cost
optimization. Costs are supposed not to be eliminated, but therefore to be op-
timised. The best combination of costs will enable the highest quality and the
highest production at the lowest possible cost. When the manager draws a line
at last, the most important is the business outcome, that is considered as an ob-
jective benchmark for the company’s success is the relationship between mana-
gerial decision – making.
Planning - adequately structured system - paying attention to the costs
are of the greatest importance to success for each manager. Cost managing of
work is perhaps the most demanding task for entrepreneurs because it influenc-
es to many factors (legal, social, location, traditional, etc.) and one of the must
constantly seek balance between these factors even on a daily basis. Successfully
balanced system definitely assures successful entrepreneurial venture.
Although the costs of labour in some industries are below 15% of revenue
(where the studies have shown for group 08.1 - Extraction of stone, sand and
clay). The fact is, without workers and human capital there is no income, nor
any other costs. Human capital is the starting point for every entrepreneurial
venture, but also for its completion. Likewise, labour costs are the first cost of
every venture, but also its last expense before liquidation.
No matter the fact, how technology intensively changes, production process-
es faster than ever and it is certain that, in the next few decades, it will/would
be possible to eliminate human labour from the cost structure of a branch. Of
course, there will always be possibility for this scenario, but maybe it never hap-
pens. The things are quite clear. The area of research was taken to extract stone,
sand and clay in Croatia, because an average person would say that it was a safe
work-intensive activity, and actually the share of labour costs according to the
latest available data for 2016 “only” 13.05%. Certainly, 30 years ago, the share of
work was closer to 50%, but the time for technology development would not
be repeated. One thing is for sure, an entrepreneur must be more closely moni-
tored and respond to market changes because without that “tomorrow” can do
business with loss and it is well known that a profitable company is “easy” to
make a loser, but it is difficult for a loser to make a successful firm.
205
REFERENCES
Books:
Belak, V. (1995): Menadžersko računovodstvo, RRiF, Zagreb
Cingula, M. ,Klačmer M.(2003):Pregled nekih metoda i postupaka upravljanja troškovima,
RRiF, Broj 8, Zagreb
Drljača, M.(2003)Karakteristike troškova kvalitete, Kvaliteta, , Infomart, Zagreb
Gulin, D., Janković, S., Dražić Lutilsky, I., Perčević, H., Peršić, M., Vašiček, V. (2011):
Upravljačko računovodstvo, HZRFD, Zagreb
Hele, J.(2003) :The eight Quality Management Principles – a practical approach, ISO Man-
agement System, Vol. 3, No. 2, Geneva, Switzerland
Kolar, I., Koletnik, F. (2005): Dugoročno upravljanje troškovima poduzeća, RRiF, Vol. 9,
Zagreb
Markovski, S. (1983): Troškovi u poslovnom odlučivanju, Informator, Zagreb
Potnik Galić, K., (2015): Primjena modela ciljnih troškova u analizi upravljanja troškovima,
RRiF, Vol. 7, Zagreb
Rupčić,N.(2016):Upravljačka ekonomija-teorija i praksa,Ekonomski fakultet,Sveučilište u
Rijeci
Trcović, E. (2012): Primjena dodatne kalkulacije u proizvodnji, RRiF, Vol. 7, Zagreb
Živković S., Vrkljan D. (2002.): Površinska eksploatacija mineralnih sirovina, Rudarsko-
geološko-naftni falultet Zagreb
Scientific articles:
Barnard, C. (2012) The financial crisis and the euro plus pact: A labour lawyer’s perspective.
Industrial Law Journal 41(1): 98–114.
de la Porte, C., & Heins, E. (2015). A new era of European Integration? Governance of La-
bour market and social policy since the Sovereign debt crisis. Comparative European
Politics, 13(1), 8-28. DOI: 10.1057/cep.2014.39
Laws:
Zakon o rudarstvu, članak 4., NN 75/2009 iz 30.06.2009.
Objava Državnog zavoda za statistiku, NN 21/2017, broj dokumenta 506, iz 10.03.2017.
Internet site:
https://e-obrt.minpo.hr/dokumenti/nkd2007_s_objasnjenjima.pdf.(08.03.2018.)
https://www.bisnode.hr/proizvodi/bisnode-smart-vision/ (08.03.2018.)
206
Eurostat: http://ec.europa.eu/eurostat/statisticsexplained/index.php/Wages_and_la-
bour_costs/hr#Dodatni_podaci_Eurostata)(15.03.2018.)
http://ec.europa.eu/eurostat/statistics-explained/index.php/File:Estimated_hourly_la-
bour_costs,_2016_(EUR)_YB17.png) (15.03.2018.)
http://ec.europa.eu/eurostat/statistics-explained/index.php/Wages_and_labour_costs/
hr (15.03.2018.)
http://ec.europa.eu/eurostat/tgm/graph.do?tab=graph&plugin=1&language=en&pcode
=tps00076&toolbox=type(23.03.2018.)
207
AN ANALYSIS OF THE STATE
OF ATTITUDES OF THE LOCAL
Dina Đelmo Smajlović: AN ANALYSIS OF THE STATE OF ATTITUDES OF THE LOCAL COMMUNITY TOWARDS TOURISM DEVELOPMENT IN THE CITY...
COMMUNITY TOWARDS TOURISM

DEVELOPMENT IN THE CITY OF
RIJEKA
Dina ĐELMO SMAJLOVIĆ, mag.oec.

PhD Student, Faculty of Economics in Osijek
Email: ddelmosmajl@gmail.com
Abstract
Starting from the hypothesis that tourism is an economic activity, but also a
way of life in a city, the city of Rijeka, thanks to its historical and cultural sights,
architecture of industrial heritage, recognisable cultural and sports events, can
be grouped among cities that develop urban tourism. In addition to cultural
and historical heritage, Rijeka prides itself on its rich industrial heritage that
needs to be valorised, preserved, transformed, and incorporated in the tourist
offer of the city. Nowadays, this destination is at a specific developmental turn-
ing point and its inhabitants are aware of the opportunities that high-quality
and planned tourism development might bring. Apart from meeting the needs
of tourists, tourism development must at the same time meet ever more com-
plex needs of the domicile population and have a positive impact on the quality
of their lives. Furthermore, in the planning of tourism development in a desti-
nation, it has become common practice to determine the attitudes of the local
population towards its development. Where tourism is not supported, popu-
lation’s resistance to such investments is to be expected. On the other hand,
hospitable hosts are one of the key factors in the forming of overall satisfaction
with the visit, by which they indirectly contribute to word-of-mouth advertising
and encourage revisiting. In view of the above, this paper presents the research
conducted by a survey on the attitudes of the local community regarding tour-
ism development in the city of Rijeka. This analysis of the conducted research
provides an opportunity to discover the strongest positive and negative impacts
of the level of tourism development on the quality of life in the destination of
Rijeka.
208
Key words: tourism, tourism development, tourism policy, city of Rijeka
JEL Classification: Z32, Z38
1. INTRODUCTION
Rijeka has been positioning itself as a city of events and a recognisable desti-
nation of urban tourism. Urban tourism has been gaining significance, because
cities benefit from tourism both economically and socially; it helps preserve cul-
ture and contributes to raising people’s awareness of the need for environmental
protection. Namely, urban tourism is anything that makes the experience beau-
tiful and the stay in the city pleasant. Except for typical tourist infrastructure
such as hotel accommodation, complementary offer or transport, urban tourism
also consists of many interrelated details such as, for example, cleanliness of
the city, decorated facades, marked cultural sights, quality brochures, traditional
cuisine, and enjoyable public spaces. Rijeka is a port, an industrial city, but its
specific combination of the sea and the hills stretching from the Učka mountain
over the hills of Gorski Kotar to the Velebit makes Rijeka one of the most in-
teresting tourist destinations in the world. To the west of the city is the Opatija
Riviera, the oldest and the most elite tourist region of this part of the Adriatic,
and Gorski Kotar nearby provides Rijeka top-quality fresh mountain water and
air. In the vicinity of Rijeka is Platak, the favorite destination of skiers from Ri-
jeka during the winter months. Rijeka is also very close to the Kvarner islands,
Krk, connected with land by a bridge, as well as Cres, Lošinj, and Rab. Rijeka is
very well-connected with the islands and cities along the Adriatic coastline; it
has a bus station, a railway station, and the Rijeka Airport located on the island INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
of Krk. Rijeka is on its way to create a recognisable tourist product due to its
historical and cultural sights, architecture of industrial heritage, recognisable
cultural and sports events. To achieve improvement, current facilities and events
should also include the offer of the entire Rijeka area so that all resources – eco-
nomic, cultural, social – could be economically valorised and have an impact on
the improvement of quality of life in all segments of the city.
209
2. CHARACTERISTICS OF RIJEKA AS A
DESTINATION
Rijeka is the administrative centre of the Primorje-Gorski Kotar County.

Back in the 19th century, the city developed into one of the largest Central
European ports and a large industrial centre, conditioned by its favourable geo-
graphic position as well as depth of the sea in the bay. Rijeka, a city and port
in the Bay of Rijeka, is located on the north part of the coastline of the Bay of
Kvarner, deeply embedded in the mainland. Due to its connections with the
hinterland, modern port devices and strong maritime and trade tradition, it is
fair to say that Rijeka has developed into the largest port in Croatia. It is a city
with a specific combination of the sea and the hills stretching from the Učka
mountain over the hills of Gorski Kotar to the Velebit. On the west of Rijeka
is the Opatija Riviera, the oldest Croatian tourist region, while the Crikvenica-
Vinodol Riviera is on the other side. The most preserved part of the country,
Gorski Kotar, provides Rijeka with top-quality potable water and clean air. In
the vicinity of Rijeka is Platak, the favorite destination of skiers from Rijeka
during the winter months. Rijeka is also very close to the Kvarner islands, Krk,
connected with land by a bridge, as well as Cres, Lošinj, and Rab. Rijeka is very
well-connected with the islands and cities along the Adriatic coastline; it has
a bus station, a railway station, and the Rijeka Airport on the island of Krk.
With its interesting cultural life, historical and cultural heritage, its position and
Mediterranean flair, the City of Rijeka definitely complements the rich tourist
offer of the entire Kvarner Riviera. Proof of its rich history are numerous mon-
uments, churches, squares, and other cultural heritage. The Rijeka coastline of-
fers a variety of sports events such as regattas, spear-fishing, swimming, water-
polo, while the surrounding hills and mountains offer the possibility of hiking,
hunting, and excursions. Although Rijeka has not developed beach and leisure
tourism due to its strong industrial history, it is fair to say that it has been po-
sitioning itself as an urban tourism destination. Cultural, historical and indus-
trial heritage are the reason of successful development of this form of tourism.
The main problem is lack of accommodation facilities. However, this problem
can be solved by reconstructing the old and constructing new accommodation
facilities. Except for its cultural and historical heritage, the City of Rijeka is
also marked by exceptionally valuable and unique industrial heritage. Lately,
there have been attempts to present the industrial heritage in a new way; it has
become an important element of the city’s tourist offer. Due to its favourable
210
Mediterranean climate, growing inclusion of the local population, their kind-
ness and hospitality, more and more tourists have recognised Rijeka’s potential
as a future tourist destination (Dujmović, 2014, p.133).
The arrivals and overnights in the City of Rijeka have been continuously
increasing. Numerous events taking place in the city all year round, better trans-
port connections, reconstruction of current accommodation facilities and in-
crease in accommodation quality, as well as opening of new accommodation
facilities, especially in private accommodation, have surely contributed to this
trend. An important factor is also Rijeka’s re-orientation towards urban tour-
ism. Development of accommodation facilities in the City of Rijeka is the basis
for achievement of positive tourist results year after year. In 2016, the City of
Rijeka had 2.680 average available beds. In comparison with 2013, when there
were 2.141 average available beds, the increase is 25,18%. (https://www.rijeka.
hr/ accessed on 15/03/2018).
Table 1. Overview of the number of beds according to structure for the City of
Rijeka in the period 2013-2016
No. CATEGORY 2013 2014 2015 2016
1. HOTELS 554 554 554 554
2. HOSTELS 448 429 424 467
3. PRIVATE ACCOMMODATION 411 573 739 1263
4. CAMP 350 350 350 -
5. GUESTHOUSES 370 378 392 396
6. STUDENT COMPLEX - 116 - -

TOTAL 2141 2400 2459 2680
Source: Rijeka Tourist Board data (information on tourism indicators in the City of Rijeka
and investment of the City of Rijeka in the development of the tourist destination
from 2013 to 2016)
In 2016, four hotels opened with 554 beds, two guesthouses with 396 beds,
16 hotels with average 467 beds and private accommodation with 325 accom-
modation facilities and 1263 beds. In the past four years, stable progress has
been made in increasing the number of beds, and there is noticeable continua-
tion of trends of structural changes in accommodation facilities. The largest in-
crease in the number of beds was recorded in the category of private accommo-
dation, which grew over 3 times in the observed period in relation to the base
year 2013. Private accommodation also holds the largest share of 47,13% and
211
has become a predominant type of tourist accommodation in the City of Ri-
jeka. Hotels hold the share of 20,67% in the total number of beds, followed by
hostels with 17,43% of the share, while guesthouses kept their share of 14,78%.
The performance of each tourist destination is monitored primarily through
realised tourist arrivals and overnight stays. These are the indicators represent-
ing a combination of factors such as current tourist offer and accommodation
infrastructure, and it is an important indicator of current trends followed by
domestic and foreign visitors. The achieved annual results in the City of Rijeka
indicate growth trends and exceptional resilience of tourism as an economic
activity.
The number of overnights is closely related to the number of arrivals of do-
mestic and foreign tourists and also shows a positive multi-annual growth trend
for the City of Rijeka.
Table 2. Overview of the realised arrivals of domestic and foreign visitors for
the period 2013-2016
ARRIVALS INDEX
YEAR
Foreign Domestic Total Foreign Domestic Total
2013 58646 17653 76299 111 106 108
2014 69541 21176 90717 118 120 119
2015 82288 23768 106056 118 112 123
2016 90233 24514 114747 110 103 121
Source: Rijeka Tourist Board data (information on tourism indicators in the City of Rijeka
and investment of the City of Rijeka in the development of the tourist destination
from 2013 to 2016)
Every year in the observed period, foreign tourists realised an increased num-
ber of overnights in relation to the previous year. Annual percentage growth in
foreign tourists’ overnights ranged from 10% to 26%. An identical trend is evi-
dent in case of domestic tourists whose number of overnights increased from
33.521 in 2013 for as much as 56,90% to 52.595 realised overnights in 2016.
The cumulative result of positive trends indicates that the growth rate of the
total realised number of overnights in Rijeka area was at very high 21,58% per
year in 2016, which clearly indicates increased attractiveness of the city as a
tourist destination. The total number of overnights increased from 146.177 to
260.558 overnights (78,24%).
212
.. Advantages of tourism development in Rijeka
The idea of connecting mountain and sea tourism of the Kvarner and its hin-
terland appeared already in 1960. A study had been made according to which
the plan was to connect the Kvarner Riviera, Grobnik Field, Platak, Snježnik,
that would connect the region of Gerova through Lazac (Matejčić, 2007, p.33).
The plan was also to connect the Risnjak National Park through this project,
and this concept was called “Planimor”, derived from “Platak-Rijeka-More”
(Cro. more = sea) or Platak_Risnjak-More or “Platak-Lazac-Risnjak-More”
with other possible combinations. (Tumara & at.al.; 2000, p.335-345). The
world-famous Carnival of Rijeka attracts many visitors to Rijeka. It is one of the
five most famous carnivals in the world, attracting growing number of domestic
and foreign tourists every year. Rijeka has lately been developing congress tour-
ism with the accompanying offer. Congress tourism is a specific form of tourism
in which the main travel motive is not vacation, but participation of individuals
in different kinds of conferences. Although congress tourism travels are in the
domain of business travels that are often obligatory and conditioned by a work-
place, a task or a project, all tourist countries gladly group these travellers among
tourists, adding revenues from congress tourism to total tourism revenues. By
developing urban tourism, the City of Rijeka aims to improve the city’s tour-
ist offer, encourage development of a variety of tourist products and services,
increase employment and prolong the tourist season, by which also improve
the development of congress tourism. Except for congress tourism, Rijeka has
also positioned itself as a cruise destination (Lukežić, 2005, p. 131). By build-
ing and arranging the Rijeka’s passenger terminal, Rijeka placed itself on the
map of cruising destinations; the first cruise ships arrived at the port in 2011. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Another advantage is also the traditional “Fiumanka Regatta” taking place in
the Kvarner Bay on the occasion of celebration of the patron saint of the city,
St. Vitus. The regatta has become a sort of a brand over the years, the so-called
„sea and sailing holiday “. Rijeka is also famous for its races at the Grobnik Field.
Growing number of racers, tourists from Europe and all around the world visit
the “Grobnik Automotodrome”, at which trainings, tests or special events take
place on a daily basis. This destination is marked by its rich cultural and histori-
cal heritage, different architecture, religion, sports, culture, and urban lifestyle.
While its cultural and historical heritage has not been adequately presented nor
valorised through tourism, the City of Rijeka presents its industrial heritage
in a very valuable and unique manner (Lukežić, 2009, p.86). The first Rijeka
213
industries, such as the Torpedo factory, paper factory, and sugar factory are only
some of them. There have been attempts lately to present industrial heritage
in a new way; it has become a significant element of the city’s tourist offer. In
the period of deindustrialisation of cities, the tertiary sector has grown, entre-
preneurship has become stronger, and cities have entered a new development
cycle of significantly different characteristics than typically industrial. In this
transition phase, a strong shift towards tourism cannot be expected, because
of the barriers – objective factors, i.e. lack of tourism supra-structure, but also
subjective factors, i.e. lack of awareness of the population that tourism may be
important for economic and social development of the city.
.. SWOT analysis of the City of Rijeka

As one of qualitative methods, SWOT analysis indicates key strengths,
weaknesses, opportunities and threats based on strategic review. Managers need
to identify the main opportunities for their company or destination. The pur-
pose of this analysis is to force the management to predict important events that
might have an impact on the company. Strengths and weaknesses do not include
all the characteristics of the company or destination analysed, but only those
strengths and weaknesses that have the most important impact on their perfor-
mance. Strengths and weaknesses are measured in relation to the competition.
The analysis can be used in the assessment of adequacy of spatial and market
preconditions for tourism development in the area or adequacy and state of the
current offer in relation to demand, as well as specific marketing research, etc.
It should be noted that it is a subjective assessment of ratings of the elements
of the analysis, without utilising the necessary analytical and methodological
instruments.
214
Table 3. SWOT analysis of the City of Rijeka
STRENGTHS (+) WEAKNESSES (-)
Rich cultural and historical heritage Lack of accommodation facilities and low quality of the
Offer of traditional events existing ones
Quality gastronomy Lack of parking spaces
Authenticity of the city Arranged beaches and promenades
Geo-traffic position, accessible by land, sea, air Insufficient promotion
Preserved tradition, historical heritage Lack of amenities that would increase consumption
Variety of offer Destination management
Unique event locations
Good transport connections
Industrial heritage
Climate
Human resources
Hospitality
Attractive natural resources
OPPORTUNITIES (++) THREATS (--)

Prolongation of the tourist season Competition of the neighbouring destinations
Investment in accommodation facilities Recession
Promotion of local cultural identity Bad weather
Creation of a competitive tourist offer Environmental issues
Conversion of industrial heritage buildings
Improvement of existing products
Sustainable development
Possibility of congress tourism development
Source: Author’s proposal INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
The above SWOT analysis of the City of Rijeka identifies strengths and
weaknesses of the current state of the City of Rijeka, i.e. its current business
activities and management. It also presents opportunities and threats that could
occur in future business activities of the city. Urban tourism has become a very
significant motive of arrival to a certain destination in the modern tourist offer.
Research have confirmed that various events attract mass arrivals of tourists,
which has motivated tourist destinations to organise growing number of fes-
tivals, mega-spectacles, sports events, especially those related to tradition, local
customs and culture. The existence of tourism resources and attractions is no
longer sufficient; they should be linked with recognisable storytelling events,
i.e. something that will attract attention and raise expectations and make this
215
cultural, entertaining, sports, or another event a priority in their travel itiner-
ary. The City of Rijeka offers such events. It can be concluded that the City
of Rijeka organises profitable events such as “Rijeka Summer Nights”, “Rijeka

Carnival”, “St. Vitus’ Days”, etc., not only for the organisers, but also inhabitants
of Rijeka. Rijeka offers events that attract a great number of visitors from other
parts of Croatia and this also has an impact on booking private accommodation
during various events. Private accommodation is a very broad term that im-
plies all the possibilities for accommodation of guests from target markets who
are looking for social interaction with the local population. This target group
seeks authentic environment that offers more possibilities for contact with lo-
cal population during the vacation. This target market needs, through various
types of accommodation (rooms, apartments, vacation houses, etc.), an offer of
local customs and active inclusion; they should have the opportunity to learn
about lifestyle specificities, especially with local cuisine and gastronomy. Also,
numerous events in Rijeka are a synonym for recognisable and unique tradi-
tional offer. One of the strengths of the City of Rijeka is quality gastronomy
that includes home-made and traditional delicacies and dishes. Because of all
advantages of the City of Rijeka, disadvantages, i.e. weaknesses are negligible,
but should nevertheless be considered. Naturally, due to increased number of
people, each event creates a problem of waste and waste management. They
also cause traffic jams and lack of parking spaces. One of the weaknesses is
also insufficient number of promotional materials such as various brochures in
tourist centres. Also, greater investment is needed in the promotion of “Rijeka
Summer Nights” and “St. Vitus’ Days” as the most renowned events in the city
of Rijeka, in the entire country and in the foreign market, so they could also
become popular outside of Rijeka and the Primorje-Gorski Kotar County. One
of the limitations in the organisation of events that cannot be influenced is bad
weather. This is very important because events in Rijeka are mostly open-air,
on the one hand due to lack of auditoriums and other spaces, but on the other
hand, because of authentic open-air environment in which each event creates a
unique experience. Since advantages are more significant than disadvantages, it
is concluded that the events are very profitable in the city of Rijeka, not only in
financial terms, but also in terms of meeting the needs of guests and more atten-
tion should be devoted to events in the future. It can be concluded that the City
of Rijeka has the most strengths, that it is an interesting location with a qual-
ity offer, such as various events and festivals. The analysis has also shown that
the City of Rijeka has numerous opportunities that should be used to extend
216
the offer and make it available year-round, to increase booking of accommoda-
tion facilities and develop new forms of the offer such as congress tourism and
improve the existing services. The main weaknesses of the City of Rijeka are
reflected in shortage and low quality of accommodation facilities and lack of
parking spaces, especially during events. Threats that cannot be influenced are
recession and bad weather that is often a problem during the summer months
when open-air ambience events are organised. Environmental issues that could
happen could be for instance problems with LNG-terminal Krk gas hub for
Central and South-eastern Europe.
3 ATTITUDES OF THE LOCAL POPULATION

TOWARDS TOURISM DEVELOPMENT IN
RIJEKA  RESEARCH RESULTS
In the planning of tourism development in a destination, it has become
common practice to determine the attitudes of the local population towards its
development. Where tourism is not supported, population’s resistance to such
investments is to be expected. On the other hand, hospitable hosts are one of
the key factors in the forming of overall satisfaction with the visit, by which they
indirectly contribute to word-of-mouth advertising and encourage revisiting.
The primary purpose of this paper is to include local population and analyse
their attitudes towards tourism development of Rijeka. This analysis provides
the opportunity to detect positive and negative impacts of the level of tourist
development on the quality of life that are most pronounced in the destina-
tion of Rijeka. For the purpose of this paper, a survey was conducted of the INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
local population of the city of Rijeka in the period from 1 to 25 March 2018.
Full data processing and analysis were conducted on the sample of 100 respon-
dents who have anonymously wanted to participate in the survey. The main
objective of the research was obtaining reliable and latest basic information on
the attitudes of local population towards elements of the offer in the tourist
destination and impacts of tourism. The obtained research results will help es-
tablish the characteristics of the tourist offer in the destination of Rijeka and
continuous monitoring of trends in a longer period of time. The basic instru-
ment of data collection in the research were questionnaires. The first part of the
questionnaire includes questions specific for satisfaction of the population with
the elements of the offer in the tourist destination, while the second part of the
217
questionnaire is related to the assessment of the mentioned impacts of tourism.
The personal interview method was mostly used in the collection of data. Since
starting points are based on real issues and modern trends, the results of this
research should provide users a theoretical background, but also relevant practi-
cal answers, which will ensure higher level of effectiveness in tourism activities.
The results of this research should also encourage tourism policy makers to im-
prove the organisation of tourism in the city of Rijeka as well as create the best
destination image possible. Attitudes of the local population can surely change
the current image of Rijeka as a tourist destination, i.e. help in the creation of a
recognisable offer and to stand out on the highly competitive market.
Table 4. Age of the interviewed population

Age (%)
16* – 25 25
26 – 35 27
36 – 45 19
46 – 55 15
56 – 65 14
66 and more 0
TOTAL 100
Source: Data analysis according to filled-in questionnaires, * randomly selected popilation
Age is very important because of different reactions and perception of dif-

ferent tourism phenomenon’s by different segments. The analysis established
that most respondents are aged 26-35 (27%), followed by 16-25 (25%), 36-45
(19%), 46-55 (15%), 56-65 (14%), and the population over 66 (0%). The struc-
ture shows that the questionnaire was filled in by younger population (52%
of the population younger than 35 was interviewed), which can deviate the
real image of satisfaction of the population with elements of the tourist offer.
Younger population prefers different forms of fun and experiences, while older
population is focused on a more peaceful way of coexistence with tourists. Re-
garding the gender of survey respondents, there were somewhat more women
among the respondents (56%) than men (44%).In all completed questionnaires
were not found population at age 66 which tells researchers that were not inter-
ested in anonymous research.
218
Chart 1. Occupations of the interviewed population

'LUHFWO\ HPSOR
R\HG LQ WRXULVVP

(P
PSOR\HG LQ RWKHU
R DFWLYLWLHHV

8QHPSOR\HG

3HHQVLRQHU KRX
XVHZLIH
6WWXGHQW SXSLO
Source: Data processing according to filled-in questionnaires
The analysis has shown that only 6% of the population is directly employed
in tourism, while 56% is employed in other activities. The rest of the inter-
viewed population are students and pupils (17%), the unemployed (16%), and
pensioners and housewives (5%). The data show that only 62% are working-age
population, while 38% are students, the unemployed and pensioners. The oc-
cupation analysis is important, because people in different occupations have a
different understanding of tourism phenomenon.

Furthermore, the majority of the interviewed population graduated from
a college or university (54%), followed by secondary school graduates (43%).
The population who have completed primary school or with basic qualification
participated with 1%, while 2% of the population are highly educated masters
and PhD holders. Education structure should be examined because different
profiles of the population have different attitudes towards tourism. Knowledge
and human resources are one of imperative competitive advantages of this tour-
ist destination that should be encouraged and systematically improved. For
successful tourism development, qualitative trends in tourism management are
a necessity. The interviewed population defined the responsibility of tourism
management in the destination and assessed the performance of the tourist
board in the destination. The population believes that the tourist board is the
219
most responsible for the quality of tourism management (56%), followed by
state administration (23%), commercial management (15%), and other (6%).
The results indicate relatively small significance of commercial management

that should be the main generator of changes and agent of development of the
tourist destination, in this case the City of Rijeka. Since the population deems
the tourist board the most responsible for destination development, their atti-
tude on the performance of the tourist board should be analysed. Thus, 45% of
the population assessed the insufficient work of tourist board Rijeka, 43% posi-
tive, and 12% negative, which means that tourist board of Rijeka doesn’t do to
much effort to improve development destination of Rijeka. It can be concluded
that there is a thin line between positive and negative attitude of the population
on tourist board performance in the City of Rijeka. Interaction of local manu-
facturers and caterers in the creation of a quality offer for tourists is important
for destination development. In each tourist destination, including Rijeka, tra-
ditional products should be included in the tourist offer and make it unique.
Traditional, local elements should be used to surpass the standard offer and
achieve a competitive advantage. The population (51%) believes that traditional
products are insufficiently included in the tourist offer and that they should be
more promoted, thinking that traditional products might be more emphasized
as part of the offer in destination’s offer, while 30% of the population believes
that the products are sufficiently included, and 19% deem this unsatisfactory.
The example of insufficient use of traditional products is lack of original souve-
nirs and offer of quality wines, which the population mentioned in the remarks.
The population has a similar opinion in terms of satisfaction with the tourist
offer that is also used by local population. 45% of the population deems that
they have been insufficiently included, followed by sufficiently included (29%),
and unsatisfactory (26%). The conclusion can be derived that there should be
more promenades, cycling routes, and sports facilities that can be used both by
the local population and tourists. Also, the survey has shown that industry has a
negative impact on tourism development in Rijeka. The population agrees that
the destination has been partially threatened by industrial development (39%),
37% of the population gave a positive answer, while 24% think that tourism is
not threatened by industrial development. Except for industry, saturation of
space i.e. excessive building on the coast is also a problem in the destination.
More than half of the respondents, 55% of the population, thinks that the City
of Rijeka is not threatened by excessive building. 31% of the population thinks
that the destination is partially threatened, while 14% thinks that the destina-
220
tion is threatened by the construction of apartments and flats, which is not
in line with the general image and perception of this problem in the public.
Whether due to industry or some other negative factors that the destination
is trying to improve, as much as 57% of the population thinks that Rijeka has
not exceeded its carrying capacity during the summer months, while 17% of the
population believe the contrary. 26% of the population think that the destina-
tion is partially overcrowded with tourists during the summer months, which
affects the quality of their stay. The population is unsatisfied with dissemina-
tion of information and inclusion in decision-making in tourism. Since they are
an important factor in tourism activities, they have to be the imperative factor
in decision-making. Destination development must be based on the synergy of
the tourist destination and local population. As much as 66% of the popula-
tion believe they need to be informed and included in decision-making, 33%
believe that they should be partially included, and only 1% believe the contrary.
Local population has a positive attitude towards tourism development and the
destination (70%), negative attitude (29%), and neutral attitude (1%). It can be
concluded that, except for positive attitude towards tourism development in Ri-
jeka, a large part of the population has no opinion on tourism development, i.e.
has a neutral attitude. The population should be included in public activities in
the function of tourism, be informed and included in the making of important
decisions in tourism to form a positive attitude in the future, without negative
and neutral attitudes.
Survey of the local population indicated strengths and weaknesses of the
tourist offer of Rijeka. The population provided their opinion by marking 1 as
the worst to 7 as the best the following elements: space, resources and the envi- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
ronment, facilities, destination organisation, recognisability, safety and informa-
tion level, population, and employees.
221
Table 5. Satisfaction of the population with elements of the tourist offer of the
City of Rijeka
10 elements of the tourist offer with which 10 elements of the tourist offer with which the
the population are satisfied the most population are satisfied the least
1. Beautiful landscape 6.10 1. Parking spaces 3.14
2. Climate 5.55 2. Crowded beaches 3.14
3. Historical and cultural heritage 5.21 3. Health tourism facilities 3.41
4. Local gastronomy 5.08 4. Price-quality ratio 3.79
5. Cleanliness of the sea 5.04 5. Foreign language skills of employees in tourism 3.80
6. Arrangement of the destination 4.96 6. Souvenirs 3.82
7. Preserved environment 4.94 7. Facilities for children 3.86
8. Events 4.90 8. Conferences and congresses 3.88
9. Shops 4.87 9. Tourist signalisation in the destination 4.02
10. Kindness of employees in tourism 4.77 10. Arrangement and cleanliness of beaches 4.04
The table shows 10 elements of the tourist offer of the City of Rijeka with
which the population are satisfied the most and 10 elements with which the
population are satisfied the least. The table shows that the population are most
satisfied with the beautiful landscape, climate, and historical and cultural heri-
tage. The population are very unsatisfied with parking spaces and crowded
beaches; these two elements were rated lowest, i.e. identically, but health tour-
ism facilities were also rated lowest. It can be concluded that the elements rated
highest by local population should be pointed out and that their potentials
should be recognised, while the elements rated lowest should be improved and
great efforts should be made to correct these weaknesses. Destination devel-
opment should be based on the synergy of the tourist destination, all tourist
suppliers, and local population. Furthermore, tourism significantly changes the
life of the local population, whether in a positive way, by improving the quality
of life in the destination, or negative, by negative impacts on the quality of life
of the population. The total assessment of the local population of the level of
tourism development consists of 30 indicators. These criteria can be classified
into positive and negative impacts.
Theses of the a positive impact of tourism on the quality of life of the lo-
cal population are: current tourism development has significantly improved
the population’s standard, local population should be included in the adoption
of tourism development plans, tourism development has increased the level of
kindness of the population, benefits from tourism exceed the accompanying
222
negative aspects, tourism development has increased the construction and qual-
ity of recreational facilities also available to the local population, tourism has a
positive impact on the arrangement of roads and parking spaces, tourism has
encouraged investment in infrastructure, tourism development has improved
the appearance and arrangement of the destination, the population are satis-
fied with the manner of planning of tourism development of the destination,
the interest of tourists has encouraged revitalisation of customs and traditional
activities of the local population, tourism influences changes in the behaviour of
the population, tourism helps preserve cultural identity and heritage, tourism
significantly changes traditional culture of the population and system of val-
ues, encounters with tourists promote intercultural exchange, by creating jobs
and generating income, tourism has an impact on the improvement of social
welfare of the population, the population changes occupations and becomes
more oriented to tourism-related occupations, tourism has already significantly
improved the state of economy in the destination, the population has been ad-
equately informed of the possibilities of entrepreneurial activities in tourism.
Theses of a negative impact of tourism on the quality of life of the local
population are: the population’s safety has been jeopardised by tourism devel-
opment, increase in tourist traffic will cause traffic jams, growing number of
tourists will cause animosities between the local population and tourists, con-
tacts between the population and tourists are a potential health hazard, tourism
will encourage increase in taxes and other levies, tourism has an impact on the
rise of organised crime, tourism significantly increases traffic problems in the
destination, the destination records significant increase in noise, tourism has
caused more waste on the streets, Few inhabitants enjoy economic benefits from INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
tourism.
223
Table 6. The population’s assessment of the level of tourism development and
its impact on quality of life
POSITIVE IMPACTS OF TOURISM ON QUALITY OF LIFE

Arithmetic
Assessment
mean
Current tourism development has significantly improved the population’s standard. 4.65
Local population should be included in adoption of tourism development plans. 5.33
Tourism development has improved the level of kindness of the population. 4.78
Benefits from tourism exceed the accompanying negative aspects. 4.54
Tourism development has increased construction and quality of recreational facilities also available
4.72
to the population.
Tourism affects arrangement of roads and parking spaces. 4.89
Tourism has encouraged investment in infrastructure. 5.04
Tourism development has improved the appearance and arrangement of the destination. 5.64
The population is satisfied with the manner of planning of tourism development of the destination. 4.20
Interest of tourists has encouraged revitalisation of customs and traditional activities of the local
5.71
population.
Cultural events have been improved due to tourism. 5.21
Tourism significantly changes traditional culture of the population and system of values. 3.62
Encounters with tourists promote intercultural exchange. 4.68
By creating jobs and generating income, tourism affects the growth of social welfare of the
4.98
population.
The population changes occupations and becomes more oriented on tourism-related occupations. 4.38
Tourism has significantly improved the economy of the destination. 4.51
The population has been adequately informed on the possibilities of entrepreneurial activities in
3.66
tourism.
NEGATIVE IMPACTS OF TOURISM ON QUALITY OF LIFE
Tourism development had jeopardised safety of the population. 2.95
Increase in tourist transport will result in crowds at significant facilities. 4.43
Growing number of tourists will cause animosities between the local population and tourists. 2.65
Prices grow due to tourism development, which causes a negative reaction of the population. 4.17
Contacts between tourists and the population are a potential health hazard. 2.48
Tourism will encourage increase in taxes and other levies 3.96
Tourism has an impact on the rise of organised crime. 3.73
Tourism significantly increases traffic problems in the destination. 4.99
The destination records a significant increase in noise. 4.28
Tourism has caused more waste on the streets. 3.63
Few inhabitants enjoy economic benefits from tourism. 3.96
224
A majority of the local population agrees the most with the following positive
impact of tourism development on quality of their life: interest of tourists has
encouraged revitalisation of customs and traditional activities of the local popu-
lation (5.71), tourism development has improved the appearance and arrange-
ment of the destination (5.64), local population should be included in adop-
tion of tourism development plans (5.33). The following were assessed worst
elements: the population has been adequately informed of the possibilities of
entrepreneurial activities in tourism (3.66), the population is satisfied with the
manner of planning of tourism development of the destination (4.20), the pop-
ulation changes occupations, and becomes more oriented on tourism-related
occupations (4.38). The local population agrees the most with the following
theses on the negative impact of tourism on quality of life of the local popula-
tion: tourism significantly increases traffic problems in the destination (4.99),
increase in tourist traffic will result in crowds at significant facilities (4.43), the
destination has recorded a significant increase in noise (4.28). The population
agrees the least with the following negative elements: contacts of tourists and
the population are a potential health hazard (2.48), growing number of tourists
will cause animosities between the local population and tourists (2.65), tourism
development has jeopardised the population’s safety (2.95). Local population
differently assessed the level of tourism development and its impact on quality
of life in the tourist destination of Rijeka. The analysis provides the opportunity
to identify which positive and negative impacts of the level of tourism develop-
ment on quality of life are most pronounced in the tourist destination of Rijeka.
The population’s assessments on the level of tourist development and its impact

on quality of life enables analysis of the current state of the level of impact of
tourism development on quality of life of the local population in the observed
destination, and the starting point for tourism development aiming to point out
the positive impacts and limit the negative impacts of tourism on quality of life
of the local population. The local population must be included in and informed
about making of important decisions in tourism in the observed destination. It
is important to manage changes in the tourist market, consider strong competi-
tion and point out the positive impacts of tourism development on quality of
life of the local population and avoid the negative impacts.
225
4. CONCLUSION
Through tourism development, the City of Rijeka has established recogni-
sability of the tourist destination, transformed into a recognisable destination

of unique experiences and events created as a combination of urban rhythm,
culture, and tradition. Tourism development in the City of Rijeka includes de-
velopment of all its segments such as sports tourism, religious tourism, and
cultural tourism. Taking into account rapid change of tourist trends, new de-
mands of modern tourists and opening of new tourist markets, it is necessary
to continuously monitor the existing facilities and complement all activities re-
lated to culture, sports, entertainment, and catering that make the tourist offer
of the city with new facilities. In the planning of tourism development in the
destination, it has become common practice to determine the attitudes of the
local population towards its development. The indicator shows the level of sat-
isfaction of the local population that is directly or indirectly affected by tourism
development. In this research, the local population positively assessed tourism
development in the City of Rijeka. The population have provided their opinion
on the performance of the tourist board and rated its work insufficient. The
elements of the offer rated best are beautiful landscape and the climate, while
parking spaces and crowded beaches were rated lowest. More than half of the
respondents deem that the local population should be informed and included
in the making of important decisions in tourism. There were not many negative
comments regarding the offer of the tourist destination, but the respondents
who decided to voice their opinion predominantly pointed out lack of accom-
modation facilities and parking spaces as the main disadvantage, but also lack
of souvenirs and traditional products. The results of this research should en-
courage tourism policy makers to improve tourism organisation in the City of
Rijeka and create the best destination image possible. The attitudes of the local
population can surely change the current image of Rijeka as a tourist destina-
tion, i.e. help in the creation of a recognisable offer and to stand out on the
highly competitive market.
226
REFERENCES
Dujmović, M. (2014). Kultura turizma, Sveučilište Jurajn Dobrile u Puli, Pula, ISBN
978-953-7320-17-1
Lukežić I. (2005). Nebo nad Kvarnerom, Izdavački centar Rijeka, ISBN 953-6939-06-1
Lukežić I. (2009). Robert Whitehead-engleski tvorničar torpeda iz rijeke, Izdavački centar
Rijeka, ISBN 978-953-6939-41-1
Matejčić R. (2007). Kako čitati grad: Rijeka jučer, danas, Adamić, Rijeka, ISBN
9789532193480
Rijeka Tourist Board data (information on tourism indicators in the City of Rijeka and in-
vestment of the City of Rijeka in the development of the tourist destination from 2013
to 2016)
Tumara M., Matić B., Zdunić S. (2000). Hotel 2000, Valorization of the Kvarner Hinter-
land: New tourism product, Faculty of Tourism and Hospitality Management, Opati-
ja, ISSN 1330-7533
https://www.rijeka.hr/ accessed on 15/03/2018
227
STRATEGIC POTENTIAL OF THE
ZOOLOGICAL GARDEN OF OSIJEK
AS AN IMPORTANT DETERMINANT
OF CONTINENTAL TOURISM IN
Dejan Balić Kristijan Šimičić Vinko Samardžić: STRATEGIC POTENTIAL OF THE ZOOLOGICAL GARDEN OF OSIJEK AS AN IMPORTANT...
THE REPUBLIC OF CROATIA
Dejan BALIĆ, M. Eng.

Josip Juraj Strossmayer University of Osijek
E-mail: dejan@balic.org
Kristijan ŠIMIČIĆ, mag. oec.

Josip Juraj Strossmayer University of Osijek
E-mail: kristijan.simicic@gmail.com
Vinko SAMARDŽIĆ, ec. s.

Law Office Split
E-mail: vinko@ouvs.org
Abstract
Zoological Garden of the City of Osijek has a sixty-year-old tradition. In the pa-
per is presented the strategic tourist potential of the zoological garden and its sig-
nificance in tourism of the Republic of Croatia, especially for its poorly developed
continental tourism. Moreover, it also analyses the fact of how much the Osijek
Zoo has used a positional advantage over the long-standing competitors: Zagreb,
Sarajevo, Belgrade, and Budapest Zoo, all of which are placed in the city and have
no expansion possibility as oppose to the Osijek Zoo. By completing the C5 traffic
route, new markets are opening in Osijek when it comes to one-day tourists. In this
paper, by using systematic analysis and projection, it is shown how many visitors
gravitate towards the Osijek Zoo, i.e. if it is economically justified to invest in.
Key words: strategy, potential, tourism, zoological garden (zoo)
JEL Classification: Z30, Z32
228
1. INTRODUCTION
Over its sixty-year-old tradition, Osijek Zoo has had its ups and downs ac-
cording to the situations in its immediate surroundings (economic growth, war,
etc.). Previous and current functioning has been relying on the visitors from
its close surroundings. The particularity of Osijek Zoo with regard to the rival
ones – Zagreb, Belgrade, Sarajevo, Budapest – is that this zoo is situated near
the city which gives it the possibility of expansion as oppose to the competitors
which are limited by their zoo location in the city.
Over the last 20 years, except the existing competition in Hungary, new
competitors are emerging who, with their serious work and the use of European
Union funds, are building high-quality zoological gardens with a large number
of species and individuals. If we observe a good connection of Hungarian and
Croatian strong traffic routes toward northeast and northwest of Croatia, do
the given zoological gardens represent a new challenge to the Osijek zoo posi-
tion or not? Does Osijek Zoo use the potential of their micro region and how
much does it exploits the potential of their macro region?
This paper gives the answers to the afore-mentioned questions, but it also
affirms today’s position of the Osijek Zoo with regard to the competitors and
the number of potential visitors, and it puts it into the context of Croatian con-
tinental tourist offer. When we talk about continental tourist offer, it is crucial
to point out that it has been recognized over the last few years, which has been
manifested through the number of newly-opened family run farms which, in
addition to the natural wealth, also provide a rich gastronomic offer. Day after
day, they attract more and more visitors from Croatia, but also from neighbour-
ing countries. By comparing the continental tourism in Eastern Croatia, i.e. in
Slavonia and Baranya County, we can conclude that the number of visitors is
still negligible as oppose to the tourism in Istria and Dalmatia.
Inductive and deductive method is used throughout this paper, as well as
the method of analysis and synthesis, and the comparative method for the com-
parison of “desk research” derived secondary data with the global results and the
results from the surroundings.
229
2. OSIJEK  THE GEOPOLITICAL CENTER OF
REGION
The city of Osijek has good transport connections with road, railway, river,
and air traffic. In the last 50 years, it has not used its influence inside the region
and has not become an intersection of transport networks, nevertheless, it is

near all of the bigger transport hubs and the four types of transportation inter-
sect in it: road, river, railway, and river traffic.
Construction of the 5C traffic corridor which passes through Slavonia and
Baranya County, and Osijek is in progress. Advantages of the 5C corridor are
visible in the European Union initiative through the quality connection between
cold and warm seas (Baltic and Mediterranean). This traffic route is significant
for the cargo traffic as well as it is for the passenger traffic. Osijek gets the addi-
tional tourist market of 80 million people who now easier and more often travel
from cold seas from the north of Europe to warm seas of the South Europe.
Osijek and its region should achieve recognition on those markets in order
to attract part of the traffic from those countries. This paper wants to show,
inter alia, how with boosting one of them in European proportions of recogniz-
able tourist factor – Zoological Garden of Osijek – Eastern Croatia can attract
tourists who travel in this part of Europe.
3. ZOOLOGICAL GARDENS TODAY

Today, zoological gardens have become the places of species conservation,
places of education about biological diversity, and educational and research cen-
tres. Founded in approximately late 50s of the last century, they hold 250 spe-
cies and 2000 animal individuals (table 1). They are owned by the local govern-
ment that co-finance them. They also get part of the means for conservation of
species from EU incentive funds. In the sense of marketing, they are focused on
the family with children and on the children of pre-school and school age. Cur-
rent trends are organised children visits of the above mentioned ages, and also
education camps for children.
Zoological gardens in Europe contribute to the rescuing of endangered ani-
mal species. They have succeeded with their long-standing work to rescue doz-
ens of species from extinction. By exchanging experiences between the interna-
tional organizations of zoological gardens, the quality and efficiency of work is
230
being raised which has resulted with longer life span of animals in zoological
gardens than in the nature. In recent years, the special focus has been put on the
education of visitors about biological diversity.
In the work of zoological gardens, there are trends like joint cages for pri-
mates and birds who are separated by this merely noticeable net or like popu-
larity of meerkats or warthog after the animated movie “The Lion King” etc.
Therefore, the offer of a zoological garden during the years also has had to adapt
to the visitors’ wishes, of course, by taking care of the wellbeing of animals which
they are looking after.
Nowadays, zoological gardens are also present in new shapes like, for ex-
ample, safari-park where visitors travel through them in their own vehicles or
organised transport with the aim to admire the big animals like lions, tigers,
giraffes, and similar from the nearest perspective.
4. ZOOLOGICAL GARDEN OSIJEK

Zoological garden Osijek was founded in 1955. It is located on the left bank
of the Drava River, and extends over an area of 11 hectares. Access to the garden
is enabled by road, pedestrian, and river routes (a ferry in Osijek). The city cen-
tre is a 30-minute walk or 5 minutes by car. It is also connected by the city bus
line, and its particularity is that it has the biggest area of all the other zoologi-
cal gardens around. What is more, it is greenery-rich which makes the whole
area suitable for the animal life, and also it is relaxing for the visitors. In recent

years, the Osijek Zoo has had about 100 animal species. Animals are obtained
through the exchange with the other zoological gardens. Within the zoological
garden there is an education provided, both for individuals and for organised
groups. Special attention is paid to the children of kindergarten and school age.
The peculiarity and potential advantage of the zoological garden in Osijek
considering the traditional competitors (Zagreb, Budapest, Belgrade, Sarajevo)
is the fact that it is located outside the city and is not surrounded by urban
areas, so it has the perspective of quality surface enhancement for the needs of
development and new content.
During the Homeland war, Osijek Zoo was significantly endangered, but at
the end of the war the animals were returned into the zoological garden which
was gradually renovated with the addition of a small number of attractive con-
231
tent for tourists. Besides, the conditions for animals were also improved, but the
concept of the zoo has not changed for the last 40 years. The number of visually
attractive animals such as an elephant has been reduced, there is also a smaller
number of big animal individuals like bison etc. A new, less demanding species
have been added, with whom they tried to maintain attractiveness for the visi-
tors (meerkats and similar).

This zoological garden is present in Osijek marketing through the visually
attractive commercials around the city, branded trams, and city buses. The zoo-
logical garden is a frequent destination for relaxation and education, both for
Osijek inhabitants and for the visitors from the surrounding area.
5. THE REVIEW OF THE COMPETITIVE

ZOOLOGICAL GARDENS TO THE
ZOOLOGICAL GARDEN IN OSIJEK
For the review of competition to the Zoological Garden of Osijek, all the
zoological gardens that are 300 km from Osijek have been analysed. Consider-
ing the good traffic connections, we estimate that potential visitors are within
200 km of Osijek because, in that case, a visit to the zoo can be done in one day,
whilst the review of zoological gardens from 200 to 300 km distance is seen as
the potential for a growth if in the future the zoo extends the boundaries of a
zoological garden which offers only two hour content for their visitors, i.e. if the
region becomes interesting enough for a several-day visit and stay.
232
Table 1. Overview of zoological gardens in the region
(1 – Distance in kilometres, 2 – Country, 3 – Established, 4 – Size in hectares, 5 – Number
of species, 6 – Number of animals, 7 – Visitors in 100,000/year, 8 – Visit duration in hours,
9 – Budget in million euros/year)
Name 1 2 3 4 5 6 7 8 9
ZOO Osijek 0 HR 1955. 11 100 650 1.00 2.00 0.51
Pécs ZOO 70 HU 1960. 3.5 199 1,037 1.00 2.00
ZOO Palić 104 RS 1949. 10 50 450 1.60 0.75 0.71
Szeged ZOO 135 HU 1989. 45 140 600 1.80 1.50 0.80
Zoološki vrt grada Beograda 160 RS 1936. 7 211 2,000 3.50 2.00 0.27
Kittenberger Kalman Noveny-Es
184 HU 1958. 6 86 3.20 1.50
Vadaspark
ZOO Sarajevo 187 BA 1996. 8.5 38 2.50
Budapest ZOO 221 HU 1866. 18.4 1 072 11.00 1.50 4.16
Zoološki vrt Zagreb 222 HR 1925. 7.0 275 2,225 2.60 2.00 3.87
Jaszbereny ZOO 233 HU 1979. 4.5 138 2.50 0.01
ZOO Gyor - Xantus Janos Allatkert 251 HU 1967. 2.0 68 1.50 0.52
Tierwelt Herberstein 291 AT 1960. 23.0 83 722 2.26 2.00 2.70
AVERAGE: 1953. 12.2 205 1,098 3.11 1.8 1.51
TOTAL: 145.9 7,684 27.96 13.55
Source: created by authors based on (Tportal.hr; 2016) (Budapest Zoo & Botanical Gar-
den; 2018) (Cairns; 2018) (Eberhard; 2018) (Google LLC; 2018) (Hungarian Tourism
Agency; 2018) (IRK Kereskedelmi Kft.; 2018) ( Jászberényi Vagyonkezelő; 2018) (Kami-
cová; 2018) (Kantonalno javno komunalno preduzeće “Park” d.o.o. Sarajevo; 2018) (ORF
Steiermark; 2018) (Pécs Zoo; 2018) (SUCOM Media Subotica; 2018) (Szegedi Vadaspark
Nonprofit Kft.; 2018) (Tierwelt Herberstein Steirischer Landestiergarten GmbH.; 2018)
(Veszprémi Állatkert turisztikai honlapja; 2018) (Xantus János Állatkert; 2018) (Zoološki INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
vrt grada Beograda; 2018)
233
Picture 1. Location of zoos and distance from the city of Osijek
Source: created by authors based on (Budapest Zoo & Botanical Garden; 2018) (Eberhard;
2018) (Google LLC; 2018) (IRK Kereskedelmi Kft.; 2018) ( Jászberényi Vagyonkezelő;
2018) (Cairns; 2018) (Kamicová; 2018) (Kantonalno javno komunalno preduzeće “Park”
d.o.o. Sarajevo; 2018) (ORF Steiermark; 2018) (Pécs Zoo; 2018) (SUCOM Media Sub-
otica; 2018) (Szegedi Vadaspark Nonprofit Kft.; 2018) (Tierwelt Herberstein Steirischer
Landestiergarten GmbH.; 2018) (Veszprémi Állatkert turisztikai honlapja; 2018) (Xantus
János Állatkert; 2018) (Zoološki vrt grada Beograda; 2018)
Shown are those zoological gardens which are owned by the local self-
governments who finance them, while in the case of Hungarian and Austrian
zoological gardens they use EU funds for preservation of animal species. The
information has mostly been downloaded from their websites where they usu-
ally have annual financial reports too.
234
The overview of zoological gardens on the map shows that south of the Zo-
ological Garden of Osijek, there is only the Sarajevo Zoo, which is the smallest
zoological garden in the region. Therefore, all the inhabitants south of Osijek
naturally gravitate to the zoological garden of Osijek. There is only one question
left, the question of opportunity cost. The Zoological Garden of Osijek cannot
be the only reason for coming to the destination. There is a need for co-operation
between tourist board of the city, county, and state in order to take advantage
of mutual positive effects and other content on the destination (Nature park
Kopački Rit, Bizovacke Toplice Spa, Museum of Slavonia, Croatian National
Theatre Osijek, branded eno-gastronomic destination, „shopping“ centres, etc.)
6. CURRENT USE OF THE MARKET POTENTIAL

OF THE ZOOLOGICAL GARDEN OF OSIJEK
For evaluation of potential number of visitors to the zoological garden, we
estimate the data according to the research (Gusset & Dick; 2010, 567) which
have shown that in 2008, 142 million visitors visited zoological gardens in Eu-
rope. As there was 734 million inhabitants in Europe in 2008 (United Nations;
2018) we have come to the conclusion that annual visiting rate of zoological
garden per year totals 19.35% of inhabitants.
The Zoological Garden of Osijek has up to 100 thousand visitors per year.
The Osijek-Baranya County along with three neighbouring counties has a
greater number of potential zoo visitors (122 thousands) than the Zoologi-

cal Garden of Osijek has visitors today (table 2). From the same fact we can
conclude whether the offer is interesting enough as to attract visitors from close
range or not, that is if it is able to attract or not to attract visitors from other
counties and countries as well. Likewise, we can also conclude if they are or are
not informed of what is being offered to them.
Today, the Zoological Garden of Osijek is the only public zoo along with the
zoological garden of Zagreb with a total number of 360 thousand visitors (100
thousand Osijek and 260 thousand Zagreb) of the potential 770 thousand
visitors. Further analysis of the data from table 1 shows that the Republic of
Croatia has not yet risen awareness that zoological gardens also have significant
strategic tourist potential.
235
In Croatia, there are also three smaller private zoological gardens: Zoologi-
cal garden of the family Bizik, Zoological garden of the family Milec, and The
Križevci tiger conservation which are questionable whether they can be classi-
fied in the same group as public zoological gardens in Croatia.
It is interesting to observe the number of visitors per days, and hence we

show the graph with the number of visitors per day and hour. Graph 1 shows
the number of visitors on Wednesdays where there is no noticeable significance,
which is the characteristic of other days of the week as well. Only on Saturday
and Sunday there is a difference in the number of visitors which we can notice
is significantly increased, as well as their distribution during the day. It is es-
pecially interesting that on Saturday and Sunday, the distribution of visitors
shows greater number of visitors even in the late afternoon, i.e. evening hours
until the end of the zoological garden working hours, or until 8 pm.
Graph 1. The distribution of visitors per hours for Wednesday, Saturday, and
Sunday
Source: (Google LLC; 2018)
236
Below, we will give an overview of the number of inhabitants in the observed
regions and the potential number of zoological garden visitors in one year.
Table 2. The number of inhabitants in the observed regions and the potential
number of zoological garden visitors
Population Potential Zoo visitors
Region
(in millions of people) (in thousands of visitors)
City of Osijek 0.11 21
Osijek-Baranya County 0.31 60
Osijek-Baranya County + three neighbouring
0.63 122
counties
Surrounding area 100 km around Osijek 2.87 555
Surrounding area 200 km around Osijek 11.63 2 250
Surrounding area 300 km around Osijek 24.83 4 805
Source: created by authors based on (European commission, 2018)
The authors estimate the surrounding area of 200 km around Osijek as the
zone of potential visitors who can easily visit the Osijek Zoo for a one-day
visit (up to three hours driving in one direction). The distances greater than
those mentioned above are interesting for several-day tourist visits, but are
then related to additional tourist attractions which is not the author’s subject
of observation.
When we compare the potential number of visitors with the actual number
of zoological garden visitors in one year, it can be seen that in the surrounding
of 200 km from Osijek there are one million visitors (table 3) who have not yet
visited the zoo but were prone to.
Table 3. The comparison of potential and actual number of zoological garden
visitors in the region around Osijek
Zoo visitors Potential Zoo visitors
Region
(in thousands of visitors) (in thousands of visitors)
Surrounding area 100 km around Osijek 200 555
Surrounding area 200 km around Osijek 1,210 2,250
Surrounding area 300 km around Osijek 2,796 4,805
Source: created by authors based on (European commission; 2018)
In the wider surroundings of Osijek (300 km away), 2.8 million tourists

visits the zoo during the year, but also two million potential visitors do not visit
the zoo.
237
One third of realized visits are the ones to the Zoological Garden in Buda-
pest – 1.1 million tourists (table 1). Budapest is visited by four million tourists
annually (Hungarian Central Statistical Data, 2018) who increase the number
of potential visitors up to 770 thousand. When we take into account that the
average visit time lasts 1.5 hours, the question which then arises is how many
of the Budapest Zoo visitors are the actual zoo enthusiasts, and how many just
found themselves visiting the Hungarian metropolis.
7. POTENTIAL OF THE ZOOLOGICAL GARDEN

OF OSIJEK
The Republic of Croatia is visited by 15.5 million tourists annually (table
4) of which only 196 thousand is prone to continental tourism in Slavonia and
Baranya County – 1% (table 4). Should the Republic of Croatia, as a strategic
goal, set raising the offer of zoological garden in Osijek in order to create quality
offer for one million visitors from the surroundings of 200 km from Osijek (two
hours’ drive by car), it would raise the total tourism in the country up to 6%, and
the one in Slavonia and Baranya to 510%.
In its “Croatia’s Tourism Development Strategy by 2020” (Official Gazette
55/2013) the Republic of Croatia does not even recognize the Osijek Zoo, but
also the zoological gardens in general, as a part of the tourist offer even though
it has the potential of a strong positive effect on tourism.
Table 4. The number of tourist in 2016. (Data for Slavonia and Baranya
County are the sum of tourists for five Slavonian counties and Ba-
ranya County)
Region Domestic tourists Foreign tourists Total
The Republic of Croatia 1,785,625 13,808,532 15,594,157
Slavonia and Baranya County 137,973 58,137 196,110
Source: (Bureau of Statistics; 2018)
Given the possibilities of easy spatial expansion of the Zoological Garden

in Osijek, the presence of 20 thousand students during the academic year, Fac-
ulty of Agriculture in Osijek, simplicity, speed and affordability of additional
content construction (mostly civil engineering), sixty-year-old tradition, and a
calculated number of potential visitors, the authors consider that the Zoologi-
238
cal Garden of Osijek should be regarded as an important determinant of the
Republic of Croatia’s continental tourism.
The Zoological Garden of the City of Osijek could use the vicinity of the
nearby Zoological Gardens of Pécs, Szeged and Palić to exchange animal spe-
cies, as well as to improve the educational-ecological content and to maintain
the interest of local visitors.
The challenge of today’s zoos is to provide educational content to visitors
who mostly come for fun, but when they are offered educational content that
can be consumed independently, they acquire knowledge as much as the visi-
tors whose primary purpose of visit was – education. (Ballantyne & Packer &
Hughes & Dierking; 2007, p. 378). In this direction, the Zoological Garden
of Osijek should actively cooperate with neighbouring zoos, therefore their ac-
tions are not competition and they can achieve better results working together,
with synergy, than with individual efforts.
Maintaining the interest of visitors for the zoo depends on new content,
which are primarily new animal species. For the same reason successful coop-
eration between neighbouring zoos could be reflected in the periodic exchange
of animal species in order to maintain the interest of visitors.
Joint participation in cross-border cooperation projects would enable bet-
ter use of European funds participating in the development of the previously
mentioned programs.
The Zoological Garden of the City of Osijek can activate the potential with

the change of market approach. From an independent approach, a company
owned by the City of Osijek in a cluster. In the cluster, the zoo could fully ac-
tivate its potentials. In a modern interpretation of the cluster, a union of five
different systems/forces is recognized (Table 2): the academic community, the
economy, the legislator/state administration, the public and the environment.
Where the Zoo of Osijek could be linked to the tourist community of the city,
county and state, universities, media, food producers, breeders, ecological as-
sociations and the rest.
Today the European Union recommends clusters as a method for stimulat-
ing innovation, increasing competitiveness and achieving excellence, which is
the lack of today’s Zoological Garden of Osijek in its existing business form.
239
Picture 2. Quintuple helix model
Source: (Carayannis & Barth & Campbell; 2012)
8. THE IMPACT OF ADDITIONAL CONTENT ON

THE ATTENDANCE
From the collected data (table 1) for the zoological gardens in the surround-
ings we cannot calculate the significant correlation between variables, but by
comparison we can generalise that the total number of visits is affected by a
number of animal species and the budget more than it is by the size of the zoo.
The zoological garden of Osijek does not have the additional content like
souvenir shops, restaurants, coffee shops, specially organized lunch places, play-
grounds, etc.
From the length of visit, we can conclude that in the region there is not
a single zoological garden which offers a full-day visit. It also represents the
potential direction of development which could be helpful when it comes to at-
tendance and could turn around the opportunity cost in the direction towards
a decision to visit.
9. CONCLUSION
The Zoological Garden of Osijek has a strategic potential to be a continental
tourist destination in the Republic of Croatia. Given that the zoological gar-
den is not a financially independent legal entity, it should be seen as a way to
raise tourist competitiveness of the Slavonia and Baranya region, and also as an
240
important positive addition when choosing destinations for a family vacation,
socializing, and education.
From the example of Budapest, where they achieve 1.1 million visits to the
zoological garden and stay in it only hour and a half, we can see that zoological
garden is both the additional content and a reason of arrival.
In todays’ ecologically aware society, zoological gardens can represent an ex-
ample of excellence which will be recognized by the visitors only if they provide
good animal conditions and attractive educational content.
In the current strategy for the development of continental tourism in the
city, county, or perhaps state, zoological garden is not at all recognized as a stra-
tegic potential even though it provides a growth potential in the number of
tourist of 510% for Slavonia and Baranya County. With such a rise in the num-
ber of tourists, it would have the positive effect on the other activities too, which
would also trigger a new wave of employment in Slavonia and Baranya County.
The challenge in activation of the existing potential of the Osijek Zoological
Garden (location, possibility of expansion…) is in the need for a new infra-
structure, content and construction changes which also need to have a closed
financial model in order to use EU funds as well. Local and state policy should
be able to recognize that co-financing of a well-organized zoological garden is
restored by the increased turnover of local businessmen.
In branding of Slavonia and Baranya County the Osijek Zoological Garden
could be helpful with its new, international character as a focal point which

will change the stereotypical branding of a region on the basis of geographic-
historical-gastronomic attributes.
REFERENCES
Moss, A.& Jensen, E. &Gusset, M. (2014). Global Evaluation of Biodiversity Literacy in
Zoo and Aquarium Visitors, Retrieved from: http://www.waza.org/files/webcon-
tent/1.public_site/5.conservation/un_decade_biodiversity/WAZA%20Visitor%20
Survey%20Report.pdf Accessed: (01-03-2018)
Ballantyne, R. & Packer, J & Hughes, K. & Dierking, L.D. (2007). Conservation learning in
wildlife tourism settings: Lessons from research in zoos and aquariums, Environmen-
tal Education Research , Vol 13., No 3, pp. 367 – 383, ISSN 1350-4622
Budapest Zoo & Botanical Garden (2018) Retrieved from: http://www.zoobudapest.com/
en Accessed: (01-03-2018)
241
Carayannis, E.G. & Barth, T.D.& Campbell, D.F.J. (2012). The Quintuple Helix innovation
model: global warming as a challenge and driver for innovation,
Retrieved from: https://innovation-entrepreneurship.springeropen.com/articles/
10.1186/2192-5372-1-2 Accessed: (01-03-2018)
Cairns, J. (2018). Szeged Zoo Retrieved from: http://www.livinginhungary.info/visit-mora-
varosi-krt-szeged-zoo-city-hungary.html Accessed: (01-03-2018)

Državna geodestka uprava. (2018). Geoportal DGU. Retrieved from: https://geoportal.
dgu.hr/ Accessed: (01-03-2018)
Državni zavod za statistiku. (2018). Dolasci i noćenja domaćih i stranih turista, Hrvatska,
mjesečno Retrieved from: https://www.dzs.hr/ Accessed: (01-03-2018)
Eberhard, N. Z. (2018). Najsuvremeniji zoovrt u regiji na 70 km od Osijeka
Retrieved from: http://www.glas-slavonije.hr/242848/9/Najsuvremeniji-zoovrt-u-regiji-
na-70-km-od-Osijeka Accessed: (01-03-2018)
European commission (2018). GEOSTAT Retrieved from: http://ec.europa.eu/eurostat/
web/gisco/geodata/reference-data/population-distribution-demography/geostat Ac-
cessed: (01-03-2018)
Google LLC (2018). Retrieved from: http://www.google.hr Accessed: (01-03-2018)
Hungarian Central Statistical Data (2018). Tourist arrivals and tourism nights at accom-
modation establishments (2000–). Retrieved from:https://www.ksh.hu/docs/eng/
xstadat/xstadat_annual/i_oga011b.html Accessed: (01-03-2018)
Hungarian Tourism Agency (2018). Zoo Jászberény (animaland plants garden). Retrieved
from: http://gotohungary.com/about-hungary/-/netaview/44382/zoo-jaszbereny-
animal-and-plants-garden- Accessed: (01-03-2018)
IRK Kereskedelmi Kft. (2018). Cukiságban és látogatószámban is rekorder a veszprémi
állatkert Retrieved from: https://veszprem.offmedia.hu/hirek/allatkert Accessed:
(01-03-2018)
Jászberényi Vagyonkezelő (2018).Zoo Jászberény Retrieved from: http://www.jaszbereny-
zoo.hu/ Accessed: (01-03-2018)
Kamicová, J. (2018). ZOO Hodonín. Retrieved from: http://www.hrady.cz/?OID=3038
Accessed: (01-03-2018)
Kantonalno javno komunalno preduzeće “Park” d.o.o. Sarajevo. (2018). Pionirska dolina Re-
trieved from: https://www.park.ba/pionirska-dolina/ Accessed: (01-03-2018)
M.A. Snijder&Larenstein V. H. (2013). The Modern Zoo: Foundations for Management
and development Retrieved from: https://www.eaza.net/assets/Uploads/images/
Membership-docs-and-images/Zoo-Management-Manual-compressed.pdf Ac-
cessed: (01-03-2018)
Gusset, M. &Dick, G. (2010). The global reach of Zoos and Aquariums in Visitor Numbers
and Conservation Expenditures, Zoo Biology, 30, 566-569, ISSN: 1098-2361
Knežević, M. & Žučko, I. & Ljuština, M. (2016). Who is visiting the Zagreb Zoo: Visitors
Characteristics and Motivation, Sociologija i prostor : časopis za istraživanje prostor-
noga i sociokulturnog razvoja, 54, 169-184, ISSN: 1846-5226
242
ORF Steiermark (2018). Herberstein: Two million visitors in eleven years Retrieved from:
http://steiermark.orf.at/news/stories/2876073/ Accessed: (01-03-2018)
Pécs Zoo. (2018). Retrieved from: http://pecszoo.hu/ Accessed: (01-03-2018)
Strategija razvoja turizma Republike Hrvatske do 2020. godine, Narodne novine 55/2013
SUCOM Media Subotica (2018).160.000 poseta Zoo vrtu na Paliću tokom 2012. godine.
Retrieved from: https://www.subotica.com/vesti/160.000-poseta-zoo-vrtu-na-pali-
cu-tokom-2012.-godine-id14169.html Accessed: (01-03-2018)
Szegedi Vadaspark Nonprofit Kft. (2018). Retrieved from: http://www.zooszeged.hu Ac-
cessed: (01-03-2018)
Tierwelt Herberstein Steirischer Landestiergarten GmbH. (2018). Retrieved from: https://
www.tierwelt-herberstein.at/ Accessed: (01-03-2018)
Tportal.hr (2016). Prva faza modernizacije Zagrebačkog ZOO-a završena. Retrieved from:
https://www.tportal.hr/lifestyle/clanak/prva-faza-modernizacije-zagrebackog-zoo-a-za-
vrsena-20161003 Accessed: (01-03-2018)
United Nations (2018). World Population Prospects. Retrieved from: https://esa.un.org/
unpd/wpp/DataQuery/ Accessed: (01-03-2018)
Veszprémi Állatkert turisztikai honlapja. (2018.). Retrieved from: http://www.veszprem-
zoo.hu/ Accessed: (01-03-2018)
Prijedlog godišnjeg izvještaja o izvršenju proračuna Grada Osijeka za 2016. godinu, Osijek:
Gradsko vijeće.
Xantus János Állatkert. (2018). Zoo Győr. Retrieved: http://www.zoogyor.com/index.php/
en/ Accessed: (01-03-2018)
Young, D.R. & Searing, E.A.M & Brewer, C.V. (2016). The Social Enterprise Zoo: A Guide
for Perplexed Scholars, Entrepreneurs, Philanthropists, Leaders, Investors, and Policy-
makers, Edward Elgar Publishing, 978-178-471-606-6, Cheltenham
Zoološki vrt grada Beograda. (2018). Retrieved from: http://www.beozoovrt.rs Accessed:
(01-03-2018)
243
DETERMINANTS OF CONFLICT
Nataša Rupčić Domagoj Švegar: DETERMINANTS OF CONFLICT MANAGEMENT BEHAVIOR: DOES THE CHOICE OF MAJOR AND STUDY PROGRESS ...
MANAGEMENT BEHAVIOR: DOES

THE CHOICE OF MAJOR AND
STUDY PROGRESS PLAY A ROLE?
Nataša RUPČIĆ, PhD Associate Professor

University of Rijeka, Faculty of Economics
E-mail address: natasa.rupcic@efri.hr
Domagoj ŠVEGAR, PhD

University of Rijeka,
Faculty of Humanities and Social Sciences
E-mail address: domagoj.svegar@uniri.hr
Abstract
The main goal of this study was to examine the differences in employing con-
flict management strategies with regard to the study program and the study
progress. In total, 437 students from two faculties from the University of Ri-
jeka, Croatia participated in the research. Dutch Test for Conflict Handling
(DUTCH) was used to measure students’ conflict management preferences.
The results showed that students of both majors used strategies of compromis-
ing and problem solving the most. Analysis of variance (ANOVA) revealed the
main effect of the study program on the students’ preferences for compromising.
It was found that the students of psychology reported using compromising more
often than the students of economics and business. The interaction of the study
program and the study progress on compromising was also significant. It was
found that the seniors of psychology preferred compromising significantly more
than the seniors of economics and business. Another ANOVA showed that the
main effects of the study program and the study progress on forcing were sig-
nificant with no interaction: preferences for forcing were higher among senior
students than among freshmen as well as among the students of economics and
business than among the students of psychology. The results provide guidelines
for the future design of study programs relative to the needs of the labor mar-
244
ket and social needs for integrative solutions and inclusiveness. Despite the
validity of our findings, the results cannot serve as an accurate predictor of the
student behavior in the workplace. It is possible that college students would use
a combination of conflict management strategies once they enter the workforce.
In addition, our results are based on self-report data. That is why we suggest
that future studies include experimental design as a more accurate way of data
collection.
Key words: conflict management strategies, Dutch Test for Conflict Handling
(DUTCH), study of psychology, study of economics and business
JEL Classification: D74, H83
1. INTRODUCTION
Human behavior is manifested in a wide variety of behavioral patterns and
social scientists are continuously trying to identify its determinants. Special em-
phasis is given to investigating human behavior in social relations. Behavior in
social relations is especially important due to an increase in the importance of
teams, which are formed to find solutions for various social problems. Members
of teams can encounter conflicting situations regarding goals that should be ac-
complished, means and methods necessary to accomplish them, distribution of
workload and responsibilities as well as benefits and rewards (Wageman, 1995).
Teamwork is also a context for emergence of intrapersonal conflicts. Work in
virtual teams poses a special challenge. A survey by the Garther Group showed
that at the beginning of the century more than 60 percent of professional em-
ployees worked in virtual teams (Kanawattanachai & Yoo, 2002). Furumo INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
(2008) found a correlation between deadbeats and those who deserted the vir-
tual team and the intensity of conflict. Those respondents were found to experi-
ence more conflict and less trust, group cohesion and satisfaction when working
in teams. It can be concluded that a more effective conflict management could
prevent members from deserting teams and result in greater teamwork satisfac-
tion and progress.
A widespread concern for economic and social sustainability is accompa-
nied by discussions regarding university efforts in shaping student behavior. It
is undisputed that universities play a significant role in shaping student behav-
ior and personal preferences. When studying adolescent peer conflicts, Opotow
(1991) found that the surveyed students lacked skills to manage conflicts in
245
constructive ways and were generally limited to two extreme reactions - fight
or flee (Opotow 1991). Longaretti & Wilson (2006) found that the surveyed
students had an inadequate level of conflict management skills. They also found
that teachers did not enact constructive conflict management. Research regard-
ing student conflict management behavior relative to their study program and
study progress is lacking. To fill this research gap, we explored what role the
choice of the study program or major and study progress play in shaping the
behavior of university students. We focused our research efforts on revealing
behavioral preferences of students majoring in psychology and economics and
business at the beginning and near the completion of their studies. We believe
that the efforts of the university staff to model the behavior of students has a
substantial influence on their later work and social engagements.
We used the Dutch Test for Conflict Handling (DUTCH) as a proxy to ex-
amine behavioral preferences of students of two different majors. In this work,
we had several objectives: (1) to identify in which areas of life university stu-
dents experience conflicts the most; (2) to examine if students differ in experi-
encing conflicts in certain areas of life with regard to their major; (3) to look for
differences in the frequency of experiencing conflicts in students relative to their
study program; (4) to identify which conflict management strategies students
employ the most relative to the study program and the study progress; (5) to
examine if there are differences in employing conflict management strategies
with regard to the study program and the study progress.
In light of the current developments in the social and economic sphere, our
research falls within the scope of the contingency view, which regards certain
conflict management approaches as more effective that others (Rahim, 1997).
In that way, our research integrates the micro level (psychological) with the
macro level (sociological) along with the economic view and the process of ne-
gotiations (Lewicki et al. 1992). In addition, approach to social relations and
conflict management depends on the value system of a specific society. Under-
standing conflict management in different contexts and cultures has become
increasingly important. In this regard, our study aims to fill the gap regarding
student conflict management behavioral preferences in general and in the spe-
cific cultural context.
246
2. EXPLAINING HUMAN BEHAVIOR
Students majoring in economics and business are under the strong influence
of the standard economic model which states that people are “rational utility
maximizing beings” (Paton & Wilson, 2001, p. 289) whose behavior is aimed at
maximizing their own self-interests. That is why it is expected that economics
and business curricula emphasize the rationality assumption reflected in the
maximization of self-interests as the desired economic behavior. Some previ-
ous studies seem to confirm this assumption. For example, Frank & Schulze
(2000) found that German students of economics were more likely to recom-
mend a plumber that charged higher prices if they had a financial incentive to
do so, compared to other students. Brown et al. (2010) have also found that
business students are more driven by self-interests compared to other gradu-
ates. Consistent with previous findings, it is expected that the behavior of eco-
nomics and business majors is more competitive. Competition can be defined
as “mutually exclusive goal attainment”, where the one party’s success implies
the other party’s failure (Kohn, 1986). In order to pursue competitive interests,
these students are more likely to force their views on others. The study progress
in economics and business is likely to exacerbate these behavioral tendencies,
which our study tries to explore. Frank (2004) found that students of other ma-
jors showed an increase in cooperative behavior as they reached the end of their
studies, contrary to the economics majors. In this regard, it is interesting to note
that Frank et al. (1993) found an increase in self-interested behavior measured
by a decline in honesty even after taking an introductory course in economics
compared to students taking an introductory course in astronomy. This finding
is consistent with the conclusion by Sims (1993) who demonstrated that busi- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
ness students learn selfish behavior through the course of their studies. In this
study, we wanted to discover whether students of economics and business dif-
fer with regard to their behavior preferences from their colleagues majoring in
psychology measured at the beginning of the studies and by approaching their
completion.
Little is known about the characteristics of students who choose to enroll
in psychology, which was also the motivation for our research. However, some
information is available about the characteristics of professional psychologists.
Goodyear et al. (2016) surveyed counselling psychologists in eight countries
and asked them to rate the extent to which each of suggested values guide their
work. The results showed that values could be clustered in three groups. The
247
highest rated cluster was related to the focus on clients’ strengths and assets,
attention to issues of diversity, focus on person-environment interactions and

maintaining a developmental focus. This research showed that counselling psy-
chologists put the greatest emphasis on people’s strengths, which was the top
rated value and showed the least variability across countries. Such an orienta-
tion requires that counselling psychologists cooperate with their clients by en-
gaging in long-lasting dialogues and testing with the purpose to find solutions
that integrate their characteristics and aspirations. Consistent with these find-
ings, we expect that our respondents majoring in psychology show inclination
toward cooperative and integrative behavior.
3. APPROACHES TO CONFLICT MANAGEMENT

Conflicts occur when the behavior of one person or persons interferes or
obstructs the action(s) of another person or persons (Deutsch, 1973). Conflicts
occur for a number of reasons, including ethics (Soutar et al., 1994). Organi-
zational conflict consumes up to 20% of employees’ time (Song et al., 2006).
In order to solve conflicts and ensure accomplishment of goals and personal
satisfaction, individuals should employ conflict management strategies. Con-
flict management refers to behavioral patterns that participants use to resolve
conflicting situations. Generally, in conflicts individuals could exhibit concern
for self and/or concern for others. Combinations of these behavioral orienta-
tions result in five distinct conflict management styles or strategies: dominating,
obliging, integrating, avoiding and compromising (Rahim & Bonoma, 1979).
Xie et al. (1998) validated these five strategies in the cross-cultural context en-
compassing four countries.
Dominating (forcing, contending) reflects a high concern for self and a low
concern for others. Involved parties perceive their interests to be completely
conflicting or negatively related. Each party not only promotes their own goals
at the expense of the goals of others (Huang, 2010) but also tries to force their
views on others. That is why this approach to resolving conflicting situations
is also referred to as the competition style (Paul et al., 2014) or the “win-lose”,
control and zero-sum approach (Song et al. 2006). By using dominating, a party
can quickly resolve the issue of dispute. However, the solution is usually short-
lived and ensures compliance but not commitment. Morris et al. (1998) found
that those who value self-enhancement and power prefer forcing, while those
248
who value self-transcendence prefer intervention of a third party. In addition,
this approach often has a high probability of being unethical.
Obliging (yielding) reflects a low concern for self and a high concern for oth-
er. It is also referred to as the accommodating (Paul et al., 2014), nonconfron-
tational, obedient and losewin style (Song et al., 2006). The party employing
this approach purposefully decides to neglect their interests and focuses on the
interests of the other party. The obliging party also puts emphasis on areas of
agreement instead of conflicting aspects of the interaction in order to smooth
over differences. That is why information mostly flows in one direction. Such
behavior can occur in situations characterized by high power imbalance (Rahim,
1983). However, change in likely to occur once the power imbalance is no longer
present. This approach is also sometimes referred to as exercise of generosity,
selflessness, charity (Song et al., 2006) and self-sacrifice (Rahim et al., 2000).
Avoiding is an approach in which a party shows a low concern for both the
self and the others. The party in a conflicting situation tries to withdraw from
the situation and refrain from action, which could be achieved by ignoring the
problem. It has been associated with passing-the-buck or “see no evil, hear no
evil, speak no evil” attitude. By choosing avoiding, an individual could signal
that a certain problem should not be dealt with or that it is not yet time to deal
with the situation. An individual might also pretend the problem does not exist.
Avoiding is often associated with situations characterized by power imbalance.
In this regard, it was found that managers use avoiding less frequently than oth-
ers (Rahim, 1983). Huang (2010) found that conflicts could not be resolved by

avoiding, despite the intention of participants to maintain harmony.
Integrating reflects both a high concern for self and a high concern for oth-
ers. Parties behave cooperatively and strive toward a mutually beneficial solu-
tion that integrates perspectives and interests of everyone involved. They engage
in the exchange of information, issues are discussed freely and openly, expres-
sion of thoughts and feelings is welcome and efforts are made to maximize the
benefits of all parties (Prein, 1984). The process of integrating views and inter-
ests is very demanding. It can only be conducted in true dialogue, supported by
a high level of commitment, trust and patience of the involved parties. That is
why it is also referred to as cooperation, collaboration, negotiation or problem
solving (Edwards & Walton, 2000; Paul et al., 2014). This approach is consid-
ered ethical in all circumstances (Rahim et al., 1999).
249
In compromising, parties exhibit moderate concern for both the self and the
others and are interested in reaching the so-called “middle ground” or a com-
mon and mutually acceptable outcome. In the process, parties resort to trad-
eoffs and give up some of their interests (give-and-take) to reach a solution that
addresses everyone’s interests. Compromising usually does not bring a lasting
solution due to partial mutual dissatisfaction with the solution. However, this
approach is suggested when resources, including time, are scarce, when the issue
under dispute is complex and when perspectives show significant divergence. In
these circumstances, parties agree to maintain the mutually acceptable solution
for a certain period of time. Further negotiations regarding the matter of dis-
pute often follow on another occasion. It is interesting to note that Gobeli at al.
(1998) found that compromising was ineffective at the project level but it was
effective at the organizational level.
Usage of conflict management strategies could either solve the problem or
further exacerbate the situation and cause additional disputes. It is especially
problematic when ethics-related issues are handled by forcing or dominating
and even avoiding. In accordance with the two dimensions, conflict manage-
ment strategies can be divided in two groups – cooperative and competitive
(Tjosvold & Chia, 1989). Strategies that presume moderate to high levels of
concern for others can be classified as cooperative. Such strategies are obliging
(yielding), compromising and integrating. Collaborative approach to conflict
management has been found to favorably affect group performance (Farmer
& Roth, 1998; Miranda & Bostrom, 1993/94). Similar results were found for
the performance of virtual teams (Montoya-Weiss et al., 2001). More precisely,
Chen & Tjosvold (2002) found on the sample of MBA student respondents
that the cooperative approach to conflicts leads to distributive, procedural and
interactive forms of justice, which promotes team effectiveness. On the other
hand, avoiding was found to be a determinant of distributive, procedural, and
interactive injustice as well as team ineffectiveness. However, a competitive ap-
proach was not related to injustice as consistently as avoiding. It is interesting
to note that the employment of conflict management strategies is related to the
types of conflicts. Conflicts can be constructive or destructive. Song et al. (2006)
found that the greater the use of integrating and accommodating conflict-han-
dling strategies, the higher the level of constructive conflict would be. On the
other hand, the greater the use of forcing and avoiding, the higher would be the
level of destructive conflict. In addition, the greater the use of compromising,
250
the lower would be the level of destructive conflict. With regard to the previous
argumentation, we posit the following research hypotheses:
H1: There are statistically significant differences in experiencing conflicts in cer-
tain areas of life between students majoring in psychology and economics and
business.
H2: There are statistically significant differences in the frequency of experiencing
conflicts between students majoring in psychology and economics and business.
H3: There are statistically significant differences in employing conflict manage-
ment strategies between students majoring in psychology and economics and
business.
H4: There are statistically significant differences in employing conflict manage-
ment strategies between students majoring in psychology and economics and busi-
ness with regard to the study progress.
4. METHODOLOGY
.. Sample and procedure
The study was conducted at a public university in Croatia. In total, 437 stu-
dents from two faculties from the University of Rijeka, Croatia participated in
the research. The subjects were volunteers enrolled in the study programs of
psychology and economics and business. The sample consisted of 87 psychol-
ogy students and 350 students majoring in economics and business. 61 stu-
dents of psychology were enrolled in the first and 26 in the last year of study.
Our sample consisted of 243 freshmen and 107 senior students of economics
and business, respectively. In total, 321 respondents were female (75.7%). The
response rate for students of economics and business was 63.7%, while the re-
sponse rate for students majoring in psychology was 69.6%. First year students
were surveyed prior to the introductory lecture in order to make sure they had
no significant information regarding the course content. Seniors were surveyed
during the last week of their last semester, prior to working on their final thesis
( January 2017). Data collection was performed in class on paper by permis-
sion of the instructors and included those students who attended the class and
were willing to participate. The participants did not receive any extra credit for
participating in the research. Participants were asked to state their opinion and
251
were instructed that there were no right or wrong responses. Participants were
not aware of the purpose of the study or the research hypotheses.
.. Measures
To examine student behavior relative to two dimensions – concern for
self and concern for others, we used the Dutch Test for Conflict Handling
(DUTCH), which was updated and revised by Carsten et al. (2001). This par-
ticular measurement instrument was selected due to its excellent psychometric
qualities, which was verified in previous research. The questionnaire consists of
20 items grouped in five sections pertaining to five independent conflict man-
agement factors, as verified by Carsten et al. (2001): problem solving, yielding,
forcing, avoiding, and compromising. Questions were presented in random or-
der. Respondents were asked to rate each statement on the five-point Likert
scale where one indicated “not at all” and five “absolutely yes”. Scores on each
of the factors could range between 5 and 20. The questionnaire started with a
series of introductory questions examining respondents’ demographic profile in
terms of their study program, career ambition, areas in life in which they expe-
rience conflicts and the frequency of experiencing conflicts. The latter ranged
from “almost daily”, “several times a week”, “several times a month”, “several times
a year” to “almost never”. Career ambition as a control variable was measured on
the single-item scale ranging from one to five, with five signifying the highest
degree. Research instrument was pilot-tested with a group of students to ensure
that the wording of the items were aligned with the researchers’ intent. As a
result of their feedback, the wording of some items was revised.
.. Analyses
Structure of DUTCH questionnaire was evaluated by using exploratory
factor analysis (principal component analysis, PCA) with Varimax rotation and
eigenvalue>1 extraction criteria along with scree plot to determine the number
of factors. Internal consistency of DUTCH factors was determined via Cron-
bach’s alpha coefficients. Hypotheses were tested by using Chi-square tests
(Hypothesis 1), t-test (Hypothesis 2) and two-way between-subject analyses
of variance accompanied with partial eta squared coefficients (Hypotheses 3
and 4). Newman-Keuls tests were used to explore significant interactions. T-
test was also applied to examine if the students of two majors differed relative
252
to the career ambition. Analyses were performed by using software packages
STATISTICA 7 and IBM SPSS 21.
5. RESULTS
The majority of respondents indicated “family” as the area of life in which
they experienced conflicts the most, followed by “friends”, “emotional relation-
ships”, “faculty”, and “work” (Table 1). In order to examine differences in the
frequency of experiencing conflicts within specific areas of life of the surveyed
students, five Chi-square tests with continuity correction were performed. Chi-
square analyses revealed that students of psychology and economics and busi-
ness significantly differed in experiencing conflicts in only one area of life. It was
found that significantly more students of economics and business compared
to their counterparts majoring in psychology experienced conflicts at work. In
other areas of life, there were no significant differences between the surveyed
students of psychology and economics and business (Table 1). Hypothesis 1
was therefore confirmed.
Table 1. Differences between students of economics and business (N=350)
and psychology (N=87) in experiencing conflicts with respect to con-
flict areas
Area of conflicts Study Program Frequency (%)1 χ2c df
Economics 270 (77.14)

Family .618 1
Psychology 63 (72.41)
Economics 226 (64.57) INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Friends 2.246 1
Emotional Relationships .127 1
Faculty .000 1
Work 7.596* 1
Psychology 7 (8.05)
1
Frequency of participants who experience conflicts in certain areas of life (percentages are
shown in parentheses)
* p< .05
Source: authors’ calculations
253
Independent samples t-test was conducted to examine differences in the ca-
reer ambition with respect to the study program. No differences in career ambi-
tion were found (t=.20; df=435; p>.05) between the students of economics and
business (M=3.92; SD=.82) and students of psychology (M=3.94; SD=.89).
Differences in the frequency of experiencing conflicts with respect to the
study program were also analyzed by calculating independent samples t-test.
The analysis revealed no significant differences (t=1.13; df=435; p>.05) be-
tween the students majoring in psychology (M=3.30; SD=.92) and those
majoring in economics and business (M=3.15; SD=1.12). Hypothesis 2 was
therefore not confirmed.
Factor analysis (principal component analysis, PCA) was conducted by us-
ing Varimax rotation in order to inspect the structure of DUTCH. According
to scree-plot criterion (Cattell, 1966) as well as eigenvalues criterion (Kaiser,
1960), DUTCH questionnaire was found to have the five-factor structure.
Scree-plot indicated five dominant factors and in conformity to that finding,
there were five eigen-values greater than 1 that explained 55.7 percent of the
total variation in the data set. It can be concluded that the five-factor solution
constitutes a good representation of the interrelations among 20 items of the
DUTCH model. These results are consistent with the previous research con-
ducted by using the Croatian version of the DUTCH questionnaire (Rupčić
& Švegar, 2017) as well as with empirical results of some other studies (e.g.
Rahim & Magner, 1994; Carsten et al., 2001).
Internal consistency for the five DUTCH scales was determined by calcu-
lating reliability coefficients (Cronbach’s alpha). Cronbach’s alpha for problem
solving, yielding, forcing, avoiding, and compromising was 0.77, 0.69, 0.67,
0.48, and 0.70, respectively. Only the scale referring to obliging had the alpha
coefficient bellow the benchmark established by Nunnally (1978). However,
this result is consistent with the research results by Song et al. (2006).
Means and standard deviations for each conflict management strategy with
respect to the study program and study progress are shown in Table 2.
254
Table 2. Means and standard deviations for each conflict management strategy
with respect to the study program and the study progress
First year students Last year students
Strategy Study Program
Mean (SD) N Mean (SD) N
Economics 11.93 (3.01) 243 12.30 (2.63) 107
Yielding
Psychology 11.77 (3.47) 61 12.19 (2.71) 26
Economics 15.93 (2.55) 243 15.30 (2.65) 107
Compromising
Psychology 15.97 (2.50) 61 16.65 (2.08) 26
Economics 12.62 (2.81) 243 13.83 (2.89) 107
Forcing
Psychology 12.30 (2.89) 61 12.58 (2.97) 26
Economics 15.79 (2.69) 243 15.32 (2.62) 107
Problem solving
Psychology 15.80 (2.76) 61 16.46 (2.25) 26
Economics 13.35 (2.55) 243 13.43 (2.62) 107
Avoiding
Psychology 13.07 (2.64) 61 13.19 (3.16) 26
Effects of the study program and the study progress were tested via five be-
tween-subject two-way analyses of variance (ANOVA) one for each of conflict
management strategies (Table 3). In all analyses, test scores regarding conflict
management strategies were set as the dependent variable. Partial eta squared
(part. η²) coefficients were calculated to determine the effect size.
As presented in Table 3, neither the study program nor the study progress af-
fected yielding, problem solving and avoiding. The main effect of the study pro-
gram on the use of the strategy of compromising was significant (F1,433=4.42;
p<.05). It was found that the students majoring in psychology (M=16.17;
SD=2.39) reported using compromising more often than the students ma-
joring in economics and business (M=15.73; SD=2.59). Hypothesis 3 was INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
therefore confirmed. Furthermore, two-way interaction between the study pro-
gram and the study progress on compromising (Figure 1) was also significant
(F1,429=3.91; p<.05). Newman-Keuls post-hoc tests revealed that freshmen of
economics and business (M=15.93; SD=2.55) did not significantly differ from
their counterparts studying psychology (M=15.97; SD=2.50) in their prefer-
ences for compromising. However, 5th year economics and business students
(M=15.30; SD=2.65), preferred compromising significantly less than 5th year
psychology students (M=16.65; SD=2.08), according to Newman-Keuls post-
hoc analysis (Figure 1). This finding is consistent with Hypothesis 4.
The main effect of the study program (Figure 2) on the use of the strategy
of forcing was significant (F1,429=4.52; p<.05). It was found that the students
255
of economics and business (M=12.99; SD=2.88) reported employing forcing
more often than the students of psychology (M=12.38; SD=2.90). Further-

more, the main effect of the study progress (Figure 2) on the use of the strat-
egy of forcing was also significant (F1,429=4.02; p<.05): seniors of both majors
(M=12.56; SD=2.82) reported using forcing significantly more often than
their freshmen counterparts (M=13.59; SD=2.93). These results are also in
conformity with Hypothesis 3.
Table 3. Effects of study program and study progress on conflict management
strategies (N=437)
Yielding Compromising Forcing Probl. solving Avoiding
Effects
F1,433 part. η² F1,433 part. η² F1,433 part. η² F1,433 part. η² F1,433 part. η²
Year of study (YS) 1.035 .002 .008 .000 4.022* .009 .075 .000 .095 .000
Program (P) .117 .000 4.417* .010 4.516* .010 2.788 .006 .572 .001
YS x P interaction .005 .000 3.910* .009 1.557 .004 2.625 .006 .004 .000
* p<.05
Figure 1. Effects of study program (economics: black solid line; psychology:

grey dotted line) and study progress (1st and 5th study year) on com-
promising (N=437). Vertical bars denote 0.95 confidence intervals.
18.0
17.5
17.0
Compromising
16.5
16.0
15.5
15.0
14.5
First Last
Year of study
Source: author’s calculations
256
Figure 2. Effects of study program (economics: black solid line; psychology:
grey dotted line) and study progress (1st and 5th study year) on forcing
(N=437). Vertical bars denote 0.95 confidence intervals.
15.0
14.5
14.0
13.5
Forcing
13.0
12.5
12.0
11.5
11.0
First Last
Year of study
6. DISCUSSION AND CONCLUSION

The study showed that the most widely used conflict management strategies
for students of both majors were problem solving and compromising, followed

by avoiding and forcing, while yielding was used the least. Findings for the stu-
dents majoring in psychology regarding their conflict management preferences
are partially consistent with the results by Goodyear et al. (2016), who investi-
gated values most favored by counselling psychologists. The highest rated clus-
ter of values was related to the focus on clients’ strengths and assets. Psycholo-
gists deal with various life situations and try to help their clients find acceptable
solutions and develop their character. Both freshmen and seniors majoring in
psychology showed a strong inclination towards the strategies of compromising
and problem solving. Their preference towards the strategy of compromising
was even more pronounced by the end of their studies. The finding that seniors
of psychology favored compromising more than seniors majoring in economics
and business was expected. However, by reaching the end of their studies, the
students of psychology increased their preference for the strategy of forcing,
257
which was unexpected. The reason for such behavioral preference could be ex-
plained by the confidence they gained by mastering the study program. How-
ever, further studies are needed in this regard. It is interesting to note that senior
adolescents were found to perceive conflicts as beneficial. In her examination of
adolescent peer conflicts, Opotow (1991, p. 420) got an interesting statement
from a student: “Without conflicts and fights you will never find out who you
are and what type of person you like and what you want out of life.” In enticing
conflicts for that purpose, forcing could be found beneficial.
The fact that the students majoring in economics and business decreased
their preference for compromising and increased their preference for forcing by
reaching the end of their studies shows that they were under the influence of the
postulates of the neoclassical economic theory based on the rational choice the-
ory, which encourages behavior based on self-interests and competition. How-
ever, the complexity of business operations often calls for inter-organizational
cooperation based on negotiations and dialogue. The business model that can
enable survival and competitiveness by integrating partially conflicting interests
of competitors is called coopetition, which is based on simultaneous competi-
tion and cooperation (Kotzab & Teller 2003). Kohn (1992) showed that coop-
erative environment produces better results than competition in all aspects of
business and social interactions. It is therefore suggested that course holders of
economics and business put emphasis on identifying various perspectives and
their integration during problem solving exercises. Course holders should stim-
ulate scenario and contingency planning and stakeholder analysis in various
business situations and encourage students to identify consequences of specific
actions on the stakeholders’ interests. This approach could have beneficial ef-
fects on the students’ future ethical and socially responsible behavior. Davidson
& Versluys (1999) found that training in cooperation and problem solving leads
to the increased expectations of win-win solutions in students. In this regard,
it is beneficial to introduce the term “concern”, instead of the term “interests”
(Davidson & Wood, 2004), which indicates the intention to approach the nego-
tiations and dialogue more comprehensively. This approach is beneficial for all
study programs. In addition, it is interesting to note that Rahim and Psenicka
(2002) found that motivation is positively associated with the subordinates’ use
of problem solving conflict management strategy.
Our results confirmed that five-strategy model is a useful framework for
investigating conflict management and that a simpler conceptualization would
258
not be able to reveal the nuances of human behavior relative to perceived incom-
patibilities. However, the results in our study raise concerns about common-
method bias or common-method variance (Podsakoff et al., 2003) due to the
fact that data were obtained by using self-report measures. We tested for that
problem by conducting a post hoc Harman’s one-factor analysis in which the
unrotated solution to an exploratory factor analysis is examined. The problem
of common method bias may be present if a single factor emerges from the
analysis or when one factor accounts for the majority of the variance of the da-
taset. The analysis revealed that one factor accounted for only 25 percent of the
total variance. In addition, the five-factor solution obtained with eigenvalue>1
extraction criterion accounted for 55.70 percent of the total variance. While
Harman’s single-factor test has its limitations, these results indicate that com-
mon method variance should not be considered an issue in this study. In addi-
tion, other research indicated that self-reported data do not show significant
limitations (e.g. Spector, 1994).
Despite the validity of our findings, our results cannot serve as an accurate
predictor of student behavior in the workplace. It is possible that college stu-
dents would use a combination of conflict management strategies once they
enter the workforce. The most important reason is power asymmetry that the
students as future workers would encounter. Depending on the role of the op-
ponent/other party (supervisor, a colleague or a subordinate), they may find
themselves switching between styles. It has been found that people use differ-
ent conflict management strategies relative to the level of authority that they
encounter in the other party (Rahim, 1992; Holt and DeVore, 2005). In the
context of large power distance, employees are more likely to use the strategy INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
of yielding (obliging); the superiors are more likely to force their views on em-
ployees, while peers usually resort to compromising. That is why future research
could focus on the behavior of interns and new recruits to gain more accurate
results regarding the student actual behavior once they enter the labor market.
In this regard, it is interesting to note that Drory & Ritov (1997) found that
experienced subjects showed considerable sensitivity to the potential power of
their opponents, while subjects without work experience did not tend to adjust
their tactics to the opponent’s power condition. They found that the reaction
of inexperienced subjects under both conditions was similar to experienced
subjects to low opponent power. They concluded that experienced subjects are
more familiar with organizational dynamics and therefore acknowledge the per-
259
sonal risk associated with their dependence on a powerful opponent. Experi-
enced subjects therefore perceive higher risk, which has an intimidating effect
and urges them to be less dominating and more obliging. However, any conclu-
sions regarding actual future conflict management behavior of our respondents
may be premature.
Along with previously stated limitations, our results are based on self-report
data. Our respondents stated their subjective perception of their employment
of conflict management approaches, while that may be different from how the
other party may have perceived their behavior. That is why we suggest that fu-
ture studies include experimental designs as a more accurate way of data col-
lection. For instance, individuals could be assigned to dyads to participate in
negotiation exercises followed by assessments of each other’s behavior. Other
variables could be included in such research designs such as time pressure, re-
source availability, likelihood of future interactions, short-term vs. long-term
orientation, previous personal history etc. We believe that these future studies
could elucidate students’ behavior even further and provide valuable insight that
could be used in the future design of study programs.
REFERENCES
Brown, T. A., Sautter, J. A., Littvay, L., Sautter, A. C. & Bearnes, B. (2010). Ethics and Per-
sonality: Empathy and Narcissism as Moderators of Ethical Decision Making in Busi-
ness Students, Journal of Education for Business, 85(4), p. 203–208.
Carsten, K., De Dreu, W., Evers, A., Beersma, B., Kluwer, E. S. & Nauta, A. (2001). A The-
ory-Based Measure of Conflict Management Strategies in the Workplace, Journal of
Organizational Behavior, 22(6), p. 645–668.
Cattell, R. B. (1966). The Scree Test for the Number of Factors, Multivariate Behavioral
Research, 1(2), p. 245–276.
Chen, G. & Tjosvold, D. (2002). Conflict Management and Team Effectiveness in China:
The Mediating Role of Justice, Asia Pacific Journal of Management, 19(4), p. 557–572.
Davidson, J. & Wood, C. (2004). A Conflict Resolution Model, Theory Into Practice, 43(1),
p. 6–13.
Davidson, J. A. & Versluys, M. (1999). Effects of Brief Training in Cooperation and Problem
Solving on Success in Conflict Resolution, Peace and Conflict, Journal of Peace Psychol-
ogy, 5(2), p. 137–148.
Deutsch, M. (1973). The Resolution of Conflict, New Haven, CT: Yale University Press.
Drory, A. & Ritov, I. (1997). Effects of Work Experience and Opponent’s Power on Conflict
Management Styles, International Journal of Conflict Management, 8(2), p. 148–161.
260
Edwards, C. & Walton, G. (2000). Change and Conflict in the Academic Library, Library
Management, 21(1), pp. 35–41.
Farmer, S. M. & Roth, J. (1998). Conflict-Handling Behavior in Work Groups: Effects
of Group Structure, Decision Processes, and Time, Small Group Research, 29(6), p.
669–713.
Frank, B. & Schulze, G. G. (2000). Does Economics Make Citizens Corrupt?, Journal of
Economic Behavior and Organization, 43, p. 101–113.
Frank, R. H. (2004). What Price the Moral High Ground, Princeton, NJ: Princeton Univer-
sity Press.
Frank, R. H., Gilovich, T. D. & Regan, D. T. (1993). Does Studying Economics Inhibit Co-
operation?, Journal of Economic Perspectives, 7(2), p. 159–171.
Furumo, K. (2008). The Impact of Conflict and Conflict Management Style on Deadbeats
and Deserters in Virtual Teams, Proceedings of the 41st Hawaii International Conference
on System Sciences, p. 1-10.
Gobeli, D. H., Koenig, H. F. & Bechinger, I. (1998). Managing Conflict in Software De-
velopment Teams: A Multilevel Analysis, Journal of Product Innovation Management,
15(5), p. 423–435.
Holt, J. L. & DeVore, C. J. (2005). Culture, Gender, Organizational Role, and Styles of Con-
flict Resolution: A Meta-Analysis, International Journal of Intercultural Relations, 2(2),
p. 165–196.
Huang, J.-C. (2010). Unbundling Task Conflict and Relationship Conflict, International
Journal of Conflict Management, 21(3), p. 334–355.
Kaiser, H. F. (1960). The Application of Electronic Computers to Factor Analysis, Educa-
tional and Psychological Measurement, 20(1), p. 141–151.
Kanawattanachai, P. & Yoo, Y. (2002). Dynamic Nature of Trust in Virtual Teams, Journal of
Strategic Information Systems, 11(3), p. 187–213.
Kohn, A. (1992). No Contest: The Case Against Competition, New York, NY: Houghton Mif-
flin Company.
Kotzab, H. & Teller, C. (2003). Value-Adding Partnerships and Co-Opetition Models in the INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Grocery Industry, International Journal of Physical Distribution and Logistics Manage-
ment, 33(3), p. 268–281.
Lewicki, R. J., Weiss, S. E. & Lewin, D. (1992). Models of Conflict, Negotiation, and Third
Party Intervention: A Review and Synthesis, Journal of Organizational Behavior, 13(2),
p. 209–252.
Longaretti, L. & Wilson, J. (2006). The Impact of Perceptions on Conflict Management,
Educational Research Quarterly, 29(4), p. 3–15.
Miranda, S. M. & Bostrom, R. P. (1993). The Impact of Group Support Systems on Group
Conflict and Conflict Management, Journal of Management Information Systems, 10(3),
p. 63–95.
Montoya-Weiss, M. M., Massey, A. P. & Song, M. (2001). Getting it Together: Temporal
Coordination and Conflict Management in Global Virtual Teams, Academy of Man-
agement Journal, 44(6), p. 1251–1262.
261
Morris, M. W., Williams, K. Y., Leung, K. & Larrick, R. (1998). Conflict Management Style:
Accounting for Cross-National Differences, Journal of International Business Studies,

29(4), p. 729–747.
Nunnally, J. C. (1978). Psychometric Theory, 2nd Edition, New York: McGraw-Hill.
Opotow, S. V. (1991). Adolescent Peer Conflicts: Implications for Students and for Schools,
Education and Urban Society, 23(4), p. 416–441.
Paton, D. & Wilson, F. (2001). Managerial Perceptions of Competition in Knitwear Produc-
ers, Journal of Managerial Psychology, 16(4), 289–300.
Paul, S., Samarah, I. M., Seetharaman, P., Mykytynjr, P. P. (2004). An Empirical Investiga-
tion of Collaborative Conflict Management Style in Group Support System-Based
Global Virtual Teams, Journal of Management Information Systems, 21(3), p. 185–222.
Podsakoff, P. M., MacKenzie, S. B., Lee, J. & Podsakoff, N. P. (2003). Common Method
Bias in Behavioral Research: A Critical Review of the Literature and Recommended
Remedies, Journal of Applied Psychology, 88(5), p. 879–903.
Prein, H. C. (1984). A Contingency Approach for Conflict Intervention, Group and Organi-
zation Studies, 9(1), p. 81–102.
Rahim, M. A. & Bonoma, T. V. (1979). Managing Organizational Conflict: A Model for
Diagnosis and Intervention, Psychological Reports, 44(3), p. 1323–1344.
Rahim, M. A. (1983). A Measure of Styles of Handling Interpersonal Conflict, Academy of
Management Journal, 26, p. 368–376.
Rahim, M. A. (1992) Managing Conflict in Organizations, 2nd Edition, Westport, CT:
Praeger
Rahim, M. A. (1997). Styles of managing organizational conflict: A critical review and synthesis
of theory and research. In Rahim, M. A., Golembiewski, R. T. and Pate, L. E. (Ed.). Cur-
rent topics in management, Vol. 2. Greenwich, CT: JAI Press, pp. 61-77.
Rahim, M. A., Buntzman, G. F. & White, D. (1999). An Empirical Study of the Stages of
Moral Development and Conflict Management Styles, International Journal of Conflict
Management, 10(2), p. 154–171.
Rahim, M. A., Magnet, N. R. & Shapiro, D. (2000). Do Justice Perceptions Influence Styles
of Handling Conflicts With Supervisors? What Justice Perceptions, Precisely?, Inter-
national Journal of Conflict Management, 11(1), p. 9–31.
Rahim, M. A. & Psenicka, C. (2002). A Model of Emotional Intelligence and Conflict Man-
agement Strategies: A Study in Seven Countries, The International Journal of Organiza-
tional Analysis, 10(4), p. 302–326.
Goodyear, R., Lichtenberg, J., Hutman, H., Overland, E., Bedi, R., Christiani, K., Di Mat-
tia, M., du Prezz, E., Farrell, B., Feather, J., Grant, J., Han, Y.-J., Ju, Y., Lee, D.-G., Lee,
H., Nicholas, H., Jones Nielsen, J., Sinacore, A., Tu, S. & Young, C. (2016). A global
Portrait of Counselling Psychologists’ Characteristics, Perspectives, and Professional
Behaviors, Counselling Psychology Quarterly, 29(2), p. 115–138.
Rupčić, N. & Švegar, D. (2017). Conflict Management Strategies: What to Expect from
Economics and Business Students in the Workplace?, Proceedings of the 6th Internation-
262
al Scientific Symposium, The Economy of Eastern Croatia – Vision and Growth, Mašek
Tonković, A. (ed.) Ekonomski fakultet u Osijeku, Osijek, p. 405-414.
Sims, R. L. (1993). The Relationship Between Academic Dishonesty and Unethical Busi-
ness Practices, Journal of Education for Business, 68, p. 207–212.
Song, M., Dyer, B. & Thieme, R. J. (2006). Conflict Management and Innovation Perfor-
mance: An Integrated Contingency Perspective, Journal of the Academy of Marketing
Science, 34(3), p. 3417–3356.
Soutar, G., McNeil, M. M. & Molster, C. (1994). The Impact of the Work Environment on
Ethical Decision Making: Some Australian Evidence, Journal of Business Ethics, 31, p.
327.
Spector, P. E. (1994). Using Self-Report Questionnaires in OB Research: A Comment on
the Use of a Controversial Method, Journal of Organizational Behavior, 15, p. 385–392.
Tjosvold, D. & Chia, L. C. (1989). Conflict Between Managers and Workers: The Role of
Cooperation and Competition, Journal of Social Psychology, 129(2), p. 235–247.
Wageman, R. (1995). Interdependence and Group Effectiveness, Administrative Science
Quarterly, 40, p. 145–180.
Xie, J. X., Song, X. M. & Stringfellow, A. (1998). Interfunctional Conflict, Conflict Reso-
lution Styles, and New Product Success: A Four-Culture Comparison, Management
Science, 44(12), p. 192–206.
Acknowledgements
The authors wish to thank Edita Gaica for her invaluable help in coordinating students dur-
ing the pursuit of data collection and Petra Guberina for her technical assistance. This
work has been fully supported by the University of Rijeka under the project number
13.02.1.3.06.
263
EUROPEAN SOCIAL FUND IN
THE REPUBLIC OF CROATIA,
Emina Bačevina  Zrinka Malešević  Domagoj Pavić: EUROPEAN SOCIAL FUND IN THE REPUBLIC OF CROATIA, GOOD GOVERNANCE - RESULTS...
GOOD GOVERNANCE  RESULTS

ACHIEVED AND PLANS AHEAD
Emina BAČEVINA, MA
Ministry of Labour and Pension System, Head of Department
Faculty of Economics in Osijek, PhD student of Management
E-mail: emina.bacevina@gmail.hr
Zrinka MALEŠEVIĆ, mag. oec.

Ministry of Labour and Pension System, Head of Sector
E-mail: zrinka.malesevic@gmail.hr
Domagoj PAVIĆ, mag. oec.

VODOVOD-OSIJEK d.o.o.,
E-mail: dopavic@gmail.com
Abstract
The Republic of Croatia joined the European Union on 1st July 2013, and has
become 28th Member State. In last five years of membership, the country has
the access to Structural and Investment funds of European Union, which have
been largely contributing to many programmes that have become available by
using various grant schemes. This paper analyzes programmes that the Repub-
lic of Croatia has used so far within the European Social Fund, which finances
4 thematic objectives - high employment and labour mobility, social inclusion,
education and lifelong learning, good governance - and the benefits it gained
from it. It is an ongoing process of programing, implementation and monitor-
ing, but the added value is substantial. The paper presents the results achieved
264
in the area of good governance and the impact the European Social Fund in
Croatia had so far as well as it discusses future plans.
Key words: Good governance, European Social Fund, Structural and Invest-
ment funds of European Union, EU membership, Croatia
JEL Classification: M10,M19
1. INTRODUCTION
The Republic of Croatia implemented a number of European Union’s pro-
grammes during the pre-accession period of becoming a Member State of the
European Union (EU). The main aim of those programmes was to prepare the
country for EU membership, and to fulfil all the criteria required. During the
pre-accession decade, prior to 1st July 2013, Croatia was using pre-accession EU
funds, in total around 750 million euros, and some of the projects from that pe-
riod are still being implemented. The benefits of the funding are major and they
contributed to the development of the country in all important areas and fields,
but they are only an introduction to the funds that became eligible to Croatia
with the beginning of EU membership.
European Structural and Investment funds (ESI funds), available for all EU
Member States, include numerous thematic funds, adjusted for the needs of
each specific country, and are set for the seven year period. The last financing
period was for the years 2007-2013, and the Republic of Croatia gained the ac-
cess to the part of the funds of that period as its EU membership covered last
six month of the period. However, Croatia gained the access to major funds in
the current financing period of 2014-2020 in which the EU membership covers
the whole seven year period.
The European Social fund (ESF) is European Union’s main fund that aims
to create more and better jobs for all EU citizens, to improve their job opportu-
nities and to create socially inclusive society. The goals of the ESF have basis in
the Europe 2020 strategy, which is EU’s agenda for generating smart, sustain-
able and inclusive growth in the EU, for improvement of the EU competiveness
at the global market. The ESF priorities are enhancement of the adaptability of
workers through development of required skills, improved access to employ-
ment and lifelong learning opportunities, helping people integrate better into
society and everyday life (EUROPE 2020, p. 17). The ESF is funding many
265
local, regional and national employment-related projects in the EU, from small
projects run by charities to help local disabled people find suitable work, to
projects on a national level that promote vocational training among the whole
population. Its main focus is on people.
European Union is based on a democratic principles where civil society and
good governance are at its core. Therefore one of the priority axes of the ESF
finances primarily programmes and projects whose aim is contribution to the
development of the good governance, at the national and local level. Priority
axis 4: Good governanace, that this paper analyses, finances programmes and
projects that are focused on improving the institutional capacity of public au-
thorities and stakeholders and an efficient public administration.
2. COUNTRY SPECIFIC RECOMMENDATIONS

CSR
The Council of the European Union recommended that Croatia should un-
dertake the measures regarding the implementation of the National Reform
Programme and the Convergence Programme in 2014 and 2015 (Council
Recommendation of 8 July 2014 on the National Reform Programme 2014 of
Croatia and delivering a Council opinion on the Convergence Programme of
Croatia, 2014). The Council recommended the reinforcement of the budgetary
strategy, including budgetary planning process, by improving the accuracy of
macroeconomic and budgetary forecast and the design of fiscal rules, as well as
taking measures to reinforce the control over the expenditure. Property taxation
strategy reform also had to be developed.
Regarding the retirement conditions, although Croatia had taken measures
to improve the sustainability and adequacy of pensions and the pension system,
further steps were needed in order to reduce the access to early retirement, to
accelerate the planned harmonisation of statutory retirement ages of women
and man, and to advance the planned increase of the statutory retirement to 67
years.
Employment rate was amongst the lowest in the EU in 2014. The first phase
of the labour law reform had been accomplished by Croatia in 2013, and the
second phase was ahead, including strengthening of the labour market effec-
tiveness and administrative capacities of the public employment services and by
266
increasing the coverage of the young, long-term unemployed and older workers.
Measures for the improvement of the labour market relevance and quality of
education outcomes also had to be taken.
Croatia was recommended to reorganize tax administration, strengthen the
effectiveness and transparency of the social protection system, and to improve
the effectiveness and adequacy of social assistance benefits through their better
targeting.
Complex regulatory framework for doing business in Croatia was continu-
ously being a high burden on businesses. Hence, Croatia was recommended
to take further measures to improve the business environment, offer more e-
services to taxpayers, set targets for considerably lowering administrative re-
quirements, including para-fiscal charges and improvement of the administra-
tive capacity and strategic planning of units entrusted with the management
of European Structural and Investment Funds and ensuring adequate level of
educated human resources and its continuity and stability.
The Council also recommended strengthening the transparency and effi-
ciency of public procurement and reviewing tax expenditure and the tax and
benefits system, ensuring that management of the companies under state con-
trol is performed in a transparent and accountable manner. Recommendations
were also given for the improvement of the efficiency and work of the Croatian
judicial system.

3. OPERATIONAL PROGRAMME EFFICIENT
HUMAN RESOURCES
The ESF Operational Programme Efficient Human Resources 2014-2020
(OPEHR) follows given CSRs through its defined priority axes, whose aim is
to contribute to the improvement of Croatian socio-economic conditions and
development. OPEHR is based on the concentration of investments in 4 the-
matic objectives (TO) of the Common Strategic Framework and their specific
investment priorities, which are:
• High employment and labour mobility;
• Social inclusion;
• Education and lifelong learning;
267
• Good governance.
The major issues that investment priorities are derived from are following:
• Croatian employment and activity rates are amongst the lowest in the EU,
particularly for young and elderly people;
• High unemployment and low labour market participation;
• The public finances are not able to cover the public budget needs;
• Despite many initiatives to improve the process of the public administra-
tion reform and the effectiveness of the justice system, further substantial
investments in HRD and business processes are needed.
Equal opportunities and non-discrimination are the core principles of ESF.

Croatian legal framework highlights these issues through the Constitution (fun-
damental values of the constitutional order), the Act on gender equality and the
Anti-discrimination act. Special operations are envisaged for developing the ca-
pacities of CSOs for providing free legal aid leading to the improved access to
human rights of all citizens, with special emphasis on vulnerable groups.
Relevant authorities responsible for the OPEHR are:
- Managing authority: Ministry of Labour and Pension System
- Certifying authority: Ministry of Finance, National Fund
- Audit authority: Agency for the Audit of European Union Programmes Implementation System
Number of Intermediate Bodies are also included in programing, contract-

ing, monitoring and other relevant activities, in all areas that are necessary for
the financing and certifying of a particular programme. The main aim of distri-
bution of tasks and responsibilities is decentralisation of processes and usage of
funds in most efficient manner. It is also a principle of the good governance that
is nurtured in general through the process of EU funds management.
4. PRIORITY AXIS 4: GOOD GOVERNANCE

There are five principles necessary for the good governance: openness (active
communication about decision making within the society, understandable to
public), partnership (policy process in which all relevant parties are included),
accountability (clear roles and defined responsibilities on legal and executive lev-
268
el), efficiency (delivering results on time) and coherency (between politics and
activities performed). (Bežovan, 2004, p. 90).
One of the priority axes of the ESF is primarily foreseen for programmes
and projects whose aim is contribution to the development of the good gover-
nance, at the national and local level.
Priority axis 4: Good governanace finances programmes and projects of the
specific target 11 - Enhancing institutional capacity of public authorities and
stakeholders and an efficient public administration.
There are two investment priorities that are financed: investment in insti-
tutional capacity and in the efficiency of public administrations and public ser-
vices at the national, regional and local levels with a view to reforms, better
regulation and good governance (11i), and capacity building for all stakeholders
delivering education, lifelong learning, training and employment and social poli-
cies, including through sectoral and territorial pacts to mobilise for reform at
the national, regional and local levels (11ii).
This paper analysis both investment priorities, stating their goals, objectives,
planned results, result indicators, and the current sitution with contracting and
implementation of the projects. It is important to stress that, although the ab-
sorbtion of funds within this priority axis is still not substantial, real program
results will be messured at the end of the 2023, which is the end of this pro-
gramme’s period.
5. INVESTMENT PRIORITY 11.I INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Public administration is one of the most important strategic areas and mod-
ern governance must reflect the harmonization of the Croatian and European
legal system, as well as adoption of European administrative standards.
.. Analysis and recommendations

Bertelsmann Stiftung report for Croatia, states that ”introduction of strate-
gic-management tools has just begun in Croatia’s public administration. At the
central-government level, strategic planning over the last decade has been domi-
nated by the goal of EU accession. Since joining the EU in 2013, strategic plan-
ning capacity has increased substantially, in part due to the learning process that
269
took place during the accession period, but also thanks to Croatia’s inclusion
in the EU strategic planning exercise organized within the framework of the
European Semester. The most recent examples of improved strategic planning

can be found in the National Reform Program which sets out the structural
reform measures undertaken by the government to comply with the recommen-
dations of the European Council, and the convergence program of April 2016
which aims to align Croatia’s economic policies with the jointly defined goals
and provisions of the EU in the field of macroeconomic policy“ (Croatia Report
Sustainable Governance Indicators 2017, p. 25).
An analytical basis for the progress report on the implementation of the
Agreement between the Republic of Croatia and the European Union, Institute
for Development and International Relations (IRMO), 2017 stated that “good
and efficient public administration and justice represent an important part of
the overall institutional framework for the creation and effective implementa-
tion of national reform sectoral policies that lay the foundations for the long-
term stable social and economic development of the country” (IRMO, 2017, p.
75).
The Global Competitiveness Index 2017–2018 Rankings covering 137
economies and measures national competitiveness — defined as the set of insti-
tutions, policies and factors that determine the level of productivity.1 According
to „Executive Opinion Survey“ findings, in the frame of global competitiveness
research, presented in the Global Competitiveness Report World Economic
Forum 2017-2018, most problematic factors for doing business in Croatia is
Inefficient government bureaucracy, as undoubtedly the biggest business prob-
lem in Croatia , ranking with highest score, following policy instability, complex
tax regulations, corruption and high tax rates.
1
The Global Competitiveness Index (GCI) tracks the performance of close to 140 countries
on 12 pillars of competitiveness. For more details visit: www.weforum.org
270
Table 1. Most problematic factors for doing business in Croatia
Inefficient government bureaucracy 21.8
Policy instability 13.4
Tax regulations 12.4
Corruption 11.5
Tax rates 11.0
Insufficient capacity to innovate 5.2
Access to financing 5.0
Restrictive labour regulations 5.0
Inadequately educated workforce 3.7
Government instability/coups 3.3
Poor work ethic in national labour force 3.2
Crime and theft 2.4
Inadequate supply of infrastructure 1.4
Foreign currency regulations 0.3
Poor public health 0.3
Inflation 0.0
Source: made by author based on data found at The Global Competitiveness Report 2017-
2018, p. 98 available at www.3.webforum.org (accessed 15.03.2018.)
According to Country Report Croatia 2017 Including an In-Depth Review

on the prevention and correction of macroeconomic imbalances, prepared in
the framework of the 2017 European Semester2, which refers to an assessment
of progress on structural reforms in 2016. European Commission also esti-
mated that weak public administration holds back the implementation of the
reform agenda as also in the previous years there has been no concrete progress
in addressing the shortcomings of public administration, that is, that there was
no firm political will in the adoption and implementation of ambitious reform INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
plans in this area.
Also, European Commission considers that Croatia achieves much lower
scores than other EU members in terms of capacity of state bodies for the im-
plementation of sound policies and active participation and oversight compe-
tencies of social factors.3
2
https://ec.europa.eu/info/sites/info/files/2017-european-semester-country-report-croa-
tia-hr.pdf
3
The Sustainable Governance Indicator (SGI) combines analysis of policy performance, de-
mocracy and governance for 41 EU and OECD countries. Executive capacity includes fac-
tors such as strategic capacity, inter-ministerial coordination, societal consultation, policy
communication, effective implementation, adaptability, and organisational reform capacity.
Executive accountability includes factors such as citizens’ participation, legislative actors’ re-
271
In the context of EU funds, it is said that upon EU accession, Croatia has al-
located significant part of the ESF for the period 2014-2020 for improving the
quality and efficiency of its public administration. In order to create the prereq-
uisites for the allocation of these funds, a very ambitious Public Administration
Development Strategy for the period 2015-2020 was adopted, but it was subject
to several revision of the Action Plan for its implementation, which was finally
adopted in December 2016. The Action Plan for the period 2017-2020 covers
three very important areas of policy: developing an efficient public administra-
tion system, depoliticizing and effectively managing public resources in the public
sector and digitalization of public services. The European Commission considers
that the success of this reform will depend significantly on the extent of the politi-
cal will as well as on the administrative capacity for its implementation.
Member States set targets at the national level and the European Commis-
sion evaluates progress and makes recommendations for each member state. The
European semester, known as the process of aligning economic policy with objec-
tives and provisions defined at EU level, as a key instrument of the EU economic
governance, is a framework for policy implementation and integrated supervision,
including supervision and assessment of the implementation of the General Eco-
nomic Policy Guidelines and Employment Guidelines. Participation in the Eu-
ropean Semester is the responsibility of each EU Member State, and the main
obligations are the development of the annual National Reform Programs and the
Convergence Program, i.e the Stability Program for the Eurozone Member States.
The Republic of Croatia fully participates in the European semester process
since 2014. In April 2015, Croatian Government has accepted its second Na-
tional Reform Program 2015 which adopted three packages of measures that
are in line with the measures foreseen in the Public Administration Develop-
ment Strategy for the period 2015-2020.
The European Commission’s recommendations to Croatia especially em-
phasize need to development an effective public administration. In this respect,
the European Commission follows the efforts of the Republic of Croatia to
strengthen administrative capacity and recommends reform and modernization
of public administration.
sources, the role of media, political parties and interest associations for more details visit:
Bertelsman Stiftung, 2016.
272
The European Commission’s recommendations were also taken into account
during the process of developing the Operational Programme Efficient Human
Resources 2014-2020 which in particular emphases development of quality
systems, e-government and human resource management.
.. Key documents for the implementation of activities

financed from ESF under the Investment priority i
According to relevant documents, public administration reform is based on
two key documents: Strategy for Development of Public Administration 2015-
2020 and the Action Plan for Implementation of the Strategy for Development
of Public Administration 2015-2020 as also Strategy for e-Croatia 2020 and
Action plan for the implementation of the Strategy for e-Croatia 2020. Mea-
sures from both strategies are complementary and mutually connected.
The Croatian Parliament has adopted Strategy for Development of Public Ad-
ministration 2015-2020, in June 2015, (Public Gazette 70/15), as basic act that
defines the long-term goals and guidelines for the modernization of public admin-
istration in the Republic of Croatia, representing comprehensive framework for
development of public administration as a strategically important area directed to-
wards improving administrative capacities and modernization and more effective
organization of public administration with the aim to provide quality, reliable and
timely public services as a precondition for creating encouraging entrepreneurial
environment, as well as ensuring a better living standard of its citizens.

Public administration within the scope of the strategy concerned includes
state administration bodies, local government units and (regional) self-govern-
ment units and legal entities with public authority. The Strategy also aims at
aligning the development of public administration with the goals of the Europe
2020 strategy.4
According to Strategy for Development of Public Administration 2015-
2020, the Republic of Croatia has obliged itself that public administration will
act on the principles of reliability and predictability (legal certainty); openness
and transparency; responsibility; effectiveness and efficiency and coherence.
The public administration reform in the Republic of Croatia must enable ef-
4
The Europe 2020 Strategy is a ten-year European Union Strategy for Growth and Employ-
ment, for more details visit: www.vladagov.hr/Europa-2020
273
fective law enforcement and create transparent, user-oriented, rational, profes-
sional, efficient and efficient public administration whose scope of public law
covers almost all segments of community life and has an impact on effective
business environment, social and economic development, and it is a base for
democratic processes.
Action Plan for the Implementation of the Strategy for Development of Pub-
lic Administration 2015-2020, was adopted by the Croatian Government in De-
cember 2016, and it is contains all implementation activities starting or ending by
the end of 2020. Envisaged measures foresee rules simplification and speeding up
the work of public administration, increasing legal certainty, digitalization of all
processes with aim to extend e-services to citizens and entrepreneurs, connecting
all government administrative bodies and well as establishing a unified communi-
cation method between citizens and government administrative bodies.
For the implementation of previously mentioned activities, Action plan con-
tains indicative list of 24 projects (IPA/TF 2012 /ESF 2014-2020. /EFRR
2014-2020), of total value for financing 894.4 million HRK. Eighteen (18)
project will be financed in the amount of 580.4 million HRK of which from
European Social Fund in the amount of 493.3 million HRK.
e-Croatia 2020 Strategy was adopted by the Croatian Government in May
2017, presenting an overview of the development of informatization and e-servic-
es in public sector as also presenting goals towards further development. e-Croatia
2020 Strategy was prepared according to the Digital Agenda for Europe (DAE)
and in cooperation with all relevant public sector bodies and representatives of the
academic community, ICT industry and citizens through public survey.
According to e-Croatia 2020 Strategy, the Internet of Things5, the vision of
today, the reality of tomorrow, the fourth industrial revolution, the goal is to
ensure that public administration functions within the framework of the future.
The purpose of the Strategy is to create strategic framework for a coherent, logi-
cal and efficient information system of the state by providing high quality and
cost-effective electronic services at both national and European level. Activities
will be implemented according to Action Plan for the implementation of the
5
The Internet of Things (IoT) is a concept which describes the incorporation of microelec-
tronic circuits and programming support into devices which are not computers by nature,
in such a way to ensure the possibility of interconnection and communication with other
devices. e-Croatia Strategy 2020, Ministry of Public Administration, May 2017. (page 1.)
274
e-Croatia 2020 Strategy, and funds allocated for implementation of the activi-
ties are in the amount of 2.6 billion HRK, of which 1.8 billion HRK from EU
funds and 800 million HRK from national budget. Financing from ESF funds
is in the amount of 435.5 million HRK.
.. RESULTS ACHIEVED AND PLANS AHEAD

According to OPEHR in regards to the Investment priority dedicated to
Good governance the investment focuses on the two areas is identified: reen-
gineering of the business processes in public administration and its horizon-
tal integration and upgrading existing and designing and implementing new
e-government services, as the basis for public administration reform as well as
enhancing further development of human resources capacities. Under specific
objective, activities in the judiciary area are aimed towards enhancing the qual-
ity and performance by design and implementation of the framework for im-
provement of the judicial services structure, improvement of the efficiency and
quality of justice procedures
Investment priority 11i - Investment in institutional capacity and in the ef-
ficiency of public administrations and public services at the national, regional
and local levels with a view to reforms, better regulation and good governance
- allocated funds – 961.2 million HRK:
• Specific objective 11.i.1 - Increase effectiveness and capacity in the public
administration through improving service delivery and human resources
management – allocated funds – 769.9 million HRK
• Specific objective 11.i.2 - Enhancing capacity and performance of the judi- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
ciary through improving management and competences – allocated funds

- 191,2 million HRK.
Specific objective 11.i.1 – aims at public administration reform and achieve-
ment of the goals and values of the Strategy for Development of Public Admin-
istration 2015-2020, which is also the reference framework for all ESF project
within this specific objective. European Structural and Investment funds will
support investments in strengthening administrative and institutional capac-
ity of public administration, IT system development and services to develop a
modern, professional and efficient 21st century public administration that will
benefit and serve the citizens of the Republic of Croatia. Also, ensures frame-
275
work for solving the issues in two main areas, which are supported by European
Structural and Investment funds, change of hierarchically organized services
into horizontally-integrated services accompanied by the IT solutions and con-

tinuous education of the public administration.
Target group: employees of public administration institutions (national/re-
gional level), citizens, civil servants.
Beneficiaries: central state bodies, Ministry of Finance, Ministry of Public
Administration, public administration at local/regional level, Croatian Bureau
of Statistics, National School for Public Administration, CSOs.
In the PEHR, it is planned that the projects, in regards to relevant specific
objective, will contribute to the achievement of the target values expressed by
indicators: Number of services supported for development or improvement
(52), Number of bodies supported to improve work (178), Number of staff
participating in training to improve their professional competence (20 300). In-
dicators are expected to be achieved by the end of the year 2023.
Specific objective 11.i.2 – aims to improve the capacity and functioning of
the judiciary through improved management and competencies. It also aims
at improving the efficiency of the judicial system, through developing/updat-
ing and implementing business processes and case management techniques at
courts and training the judges and court staff on their use, supporting ICT
component by further development and outspread of e-registers, improving
coordination and interoperability of the integral judicial information system,
followed by training, education and by exchange of best practice and knowledge
in the ICT area. The aim is to create an environment that promotes develop-
ment and quality, independence, professionalism, expertise and motivation of
judicial staff, and the work of the courts because without good quality justice
there is no effective public administration and good governance emphasized in
The Strategy of the Development of the Judiciary for 2013-2018 and National
Reforms Programs.
Target group: judges, prosecutors, courts staff, judiciary employees.
Beneficiaries: Ministry of Justice, Judicial academy, other judicial bodies
(courts, state attorneys).
In the OPEHR , it is planed that the projects, in regards to relevant spe-
cific objective, through ESF will encourage activities and achievement of target
276
values expressed by indicators: number of courts supported that developed/
upgraded business processes and/or case management techniques in view of
improving their efficiency (22), number of judiciary staff participating in train-
ing related to quality and efficiency of justice (1 400), number of continuous
training schemes supported for development voluntary alternative dispute reso-
lution mechanisms supported for development and implementation (7). Indica-
tors are expected to be achieved by the end of the year 2023.
Table 2 and 3 presents the total number of project approved for financing
from ESF funds and from State Budget funds, regards Specific objective 11.i.1
and 11.i.2, in the period from December 2016 until April 2018.
Table 2.
Investment priority Good governance –
Specific objective 11.i.1.
Beneficiary Total amount (ESF &
No. Name of the operation
Institution State Budget funds)
Technical training on tools, monitoring and monitoring Ministry of finance –
1 6,846,832.00 HRK
of e-commerce and procurement of equipment and tools Tax administration
Strengthening knowledge and skills of human resources Croatian firefighting
2 9,901,637.81 HRK
of the firefighting organizations in the Republic of Croatia association
Ministry of
Modernization of the Customs Administration’s business
3 Finance – Custom 14,401,633.00 HRK
in the Republic of Croatia
Administration
Central State Office
Establishment of the Integrated System for Management
4 for the Development 12,856,124.93 HRK
of Official Documentation of the Republic of Croatia
of the Digital Society
Development of a competence framework for public Ministry of Public

5 13,092,015.91 HRK
administration employees Administration
Ministry of Public
6 Implementation of quality system in public administration 40,524,202.55 HRK
Administration
Establish an effective evaluation and approval system for
investment projects funded or co-financed by the state
7 Ministry of Finance 3,993,485.60 HRK
budget and budget of local and regional self-government
units
Strengthen the capacity of public authorities, associations, Information
8 media and citizens to implement the Act on the Right of Commissioner for the 599,922.00 HRK
Access to Information republic of Croatia
A more efficient system of financial and statistical
9 Ministry of Finance 3,969,630.67 HRK
reporting
106,185,484.47
Total amount of project contracted
HRK
Source: made by authors based on data available at www.esf.hr (accessed on 15.3.2018)
277
Table 3.
Investment priority Good governance –
Specific objective 11.i.2.

Beneficiary Total amount (ESF & State
No. Name of the operation
Institution Budget funds)
Introduction an implementation of a foreign-
1 language education program for judicial Judicial academy 4,738,325.00 HRK
officers and counselors in judicial bodies
Total amount of project contracted 4,738,325.00 HRK
Source: made by authors based on data available at www.esf.hr (accessed on 25.3.2018)
Table 4 present planned amount allocated for Specific objective 11.i.1 and
11.i.2, in the period 2014-2020., vs total amount approved for financing in the
period from December 2016 until April 2018.
Table 4. Planned amount allocated for Specific objective 11.i.1 and 11.i.2, in
the period 2014-2020.
Investment priority 11.i.1. 11.i.2 11.i.1. and 11.i.2.
Approved for financing 106.185.484,47 kn 4.738.325,00 kn 110.923.809,47 kn
Planed in the OP 769.792.490,56 kn 191.406.000,00 kn 961.198.490,56 kn
Allocated in % 14% 2% 12%

Source: made by authors based on data available at www.esf.hr (accessed 30.3.2018)
The Government’s program in the 2016 to 2020 mandate is planning to

build a functional and accessible public administration, so in the forthcoming
period, further stronger momentum in implementation of the activities, in line
with the relevant strategies and activities envisaged in relevant action plans, is
expected. In that sense, Ministry of Public Administration, at the beginning of
2018, announced the preparation for two new projects “Establishing methodol-
ogy and indicators to measure the progress of public administration reform”
as also one of the most strategically and financially important project “Human
resources management in public administration” which will be, as well as pre-
viously mentioned project, financed from European Structural Fund in the
amount of 203,8 million HRK. Also, as one of the most important project in
the process of digitalisation, envisaged for the implementation in the next 36
278
months, is Shared Service Centre worth 305,0 million HRK (www.uprava.hr,
2018).
6. INVESTMENT PRIORITY 11.II

Specific objective of this investment priority is developing capacities of civil
society organisations, especially NGOs and social partners, and enhancing civil
and social dialogue for better governance (OPHR2014-2020).
Effective, sustainable and continuous social dialogue between Government
and civil society is important factor for implementation of reforms. It contrib-
utes to development of the healthy civil society, to decentralisation, and to posi-
tive changes both on national and local level.
Subsidiarity principle is one of the basic principles of the social market econ-
omy (Bežovan, G., 2004, p. 32-34). It means that problems are solved where
they occur. It is a bottom-up principle. If a local community can solve a situa-
tion, than it should. Issues are only forwarded to a higher organisational level
if necessary. Cooperation between all parties involved in the development of
the healthy civil society is very important. The roll of citizens in the process is
higher than they are often aware.
Civil society organisations (CSOs), as the most widespread type of non-
governmental organisations (NGOs), are important for increasing transpar-
ency and trust in public administration. In a modern democratic society, CSOs
are valuable partners in shaping and implementing public policies. Although
national and local public finances are also available and distributed to CSOs, INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
measures are being taken to strengthen their sustainability through funding of
various EU programmes and projects. CSOs are inevitable partners in the pro-
cess of developing and strengthening good and transparent national and local
governance.
Development of individual and corporate philanthropy in Croatia is also an
essential prerequisite for long term sustainability of CSOs and for a healthy civ-
il society. Its benefits start from the individual level, from volunteers doing com-
munity work, helping other individuals, helping their local society and neigh-
bourhood. Its effects, as little as they may seem to be at first, make changes. By
rising the awareness of benefits of philanthropy and with more common and
279
widespread volunteering, positive results are gained – for individuals, for local
society and for civil society of the country as such.
Volunteering, one of the tools of the healthy civil society, is still underde-
veloped in Croatia. Law on Volunteering (NN 58/07, 22/13) defines rights
and duties of volunteers and volunteer organizers, benefits and values gained.
Volunteering leads to the improvement of the quality of life, development of so-
cial capital, personal development, inclusion of individuals in society, in general
development of a more humane and more equitable democratic society.
In order to ensure contribution of CSOs to public policy development and
to create preconditions for durability of reforms in key policy areas related to so-
cio-economic growth, strategic long term approach to investments in strength-
ening capacities and sustainability of CSOs needs to be formed and maintained.
Investment priority 11.ii of Good governance is used to increase capacities
of CSOs in effectively using data provided by public administration, with par-
ticular focus on building their advocacy, analytical, monitoring and evaluation
skills, training programmes for civil servants and officials on conducting timely
and effective multi-stakeholders policy dialogue. Projects and programmes fi-
nanced through this priority primarily focus on capacity and partnership build-
ing, innovative measures to enhance CSOs potential for mobilizing citizens and
volunteers, reinforcement of local, regional and national structures for open dia-
logue of CSOs, social innovation models for solving local problems, civil-public
partnerships, fighting corruption and conflict of interest, strengthening the role
in civic education programmes, helping citizens in accessing their rights, im-
proving recognition of CSOs and other stakeholders as valuable partners in
shaping and implementing policies at all levels, contributing to increase of trust
and transparency of public administration.
Structural reforms undertaken by the Government require general consen-
sus of social partners on the implementation of reforms and continuous so-
cial dialogue in all spheres of economic and social development, from regional
and local social partners and stakeholders to the dialogue on the national level.
Quality participation of social partners in European social dialogue and in de-
cision making processes is highly important for the long term results of ESF
agenda.
Results of the investment priority 11.ii will be messured by following indica-
tors: number of CSO implementing successfully projects contributing to the
280
socio-economic growth and democratic development (target number 950) and
by number of social partners organizations that have increased their capacities
in the specific area (target value 70). Indicators are expected to be achieved by
the end of the year 2023.
This investment priority therefore supports funding of the following actions:
• Actions supporting capacity building of CSOs, supporting the establishment
of national, regional and local structures, actions for cooperation between
civil society and public administration in order to build citizen orient-
ed public services, capacity building for local (community based) CSOs,
actions supporting balanced regional socio-economic growth through
the development of capacities of CSOs in islands and in less developed
regions;
• Transparency and Active Citizenship - public, business and civic partner-
ships for improved transparency, openness, accountability and effective-
ness of public administration, innovative re-use of public sector data, ca-
pacity building of CSOs for effective mobilization of volunteers and citi-
zens in policy development processes at local, regional and national levels,
promotion of innovative forms of philanthropy as a support mechanism
to the sustainability of CSOs
• Education - CSOs effective involvement in implementing civic education
programmes that include topics related to introducing concepts of active
citizenship, democratic decision-making, engagement for public good,
human rights protection, social skills development, fight against preju-
dice and stereotypes, intercultural dialogue, entrepreneurship skills, ac- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
tive involvement of children and youth in sustainable development; Fight
Against Corruption and Antidiscrimination Activities of CSOs - thematic
networking of CSOs and other socio-economic partners for fighting any
form of discrimination, addressing fight against corruption and conflict
of interest at different levels of administration, strengthened capacities of
CSOs for providing free legal aid, stakeholders education in Alternative
Dispute resolution (ADR);
• Dialogue, partnerships and capacity building of social partners - promotion of
social dialogue, research and analytical projects on subjects like industrial
relations and working conditions in Croatia; capacity building of social
partners related to specialisation according to different areas, developing
281
standards for enhanced cooperation among social partners and building
their capacities for partnerships; trainings, workshops, seminars, public/
expert discussions, trainings, research activities, and activities related to

internationalisation of Croatian social partners.
Target groups of the investment priority 11ii are: CSO beneficiaries and
employees, groups at risk of poverty and social exclusion, volunteers, citizens,
wider public, local and regional self-government employees, public administra-
tion employees, social partners.
Beneficiaries: CSOs active in the field of providing services of general in-
terest (fight against the corruption, public procurement, health services, social
services, education, environment, antidiscrimination, culture, tourism, philan-
thropy); local and regional self-government units, development agencies (re-
gional and local), social partners.
Within Priority Axis 4. Good governance, Investment Priority 11.ii of the
OPHR 2014-2020 so far several operations have started.
Projects within the Call for Proposals “Support to the volunteering orga-
nizers for the improvement of volunteer management and the implementation
of volunteering programmes” are aimed at improving the capacities of volun-
teering organizers for efficient volunteer management in order to better the
services of public interest and increasing the number of quality and sustain-
able volunteering programmes, as well as programmes for school volunteering
and education for volunteering. For their implementation, which contributes
to the achievement of the general objective, improvement the contribution of
volunteering to the implementation of reforms for social and economic growth,
around 25,000,000 HRK was allocated and the applicants and partners are not
required to provide co-financing from their own resources. There is a wide circle
of institutions implementing projects within this programme. There are 70 as-
sociations, 44 educational institutions, 14 health and social welfare institutions
and three local and regional self-government units, in whose activities will par-
ticipate 3,840 primary and secondary school students and 1,561 volunteer who
will do 67,444 volunteer hours on socially useful activities. The total value of
volunteer work will amount to 2,225,652 HRK.
Under the Call for Proposals „Support to development of CSO and high-
er education institutions partnerships for implementation of service learning
programmes“ so far 27 projects of the associations were funded, amounting to
282
27,000,000 HRK. The implementation of projects under this operation started
in March 2018. It is expected that 1,785 students will be involved in the imple-
mentation of project activities, the capacities of 192 civil society organizations
will be strengthened and 369 volunteers will be involved in the implementation
of the projects with 19,673 volunteer hours.
The aim of the Call is to increase the number of students with acquired prac-
tical knowledge and skills to address specific social problems and for commu-
nity development. The Call emphasizes the importance of cooperation between
higher education institutions and civil society organizations in the education of
socially responsible and active citizens, which affects the overall development
and improvement of the community.
Within the framework of the Call for Proposals „Culture in the Centre -
Support for the development of public-civil partnership in culture”, which is in
the process of evaluation (April 2018) and its preparation and implementation
in the charge of the Ministry of Culture, is intended to support the activities of
strengthening the capacities of target groups in the area of participatory man-
agement culture and of raising public awareness of good governance in culture,
as well as to support development and establishment of participatory manage-
ment model in culture, preparation and implementation of cultural and artistic
programmes, and development of co-operation and networking in the field of
participatory management in culture.
The size of the envelope for this Call is 50,000,000 HRK and the applicants
and partners are not required to provide co-financing from their own resources,
given the fact that the share of funding is 100%. Potential applicants are civil so-
ciety organizations working in the area of culture and art, local self-government
units with a population of less than 10,000 and a public institution in culture
founded by local or regional self-government units.
The general objective of the operation is the development of good gover-
nance in culture by strengthening cooperation between civil society organiza-
tions and the public sector. The call is based on the recommendations of the
Council of the EU aimed at encouraging participatory governance and empow-
ering civil society organizations in the management of culture.
The implementation of 15 projects under the “Social Dialogue Phase III” Call
for Proposals started in March 2018. The projects under this Call should contrib-
ute to increase of the efficiency, sustainability of results and the continuity of social
283
dialogue in Croatia, as well as to improving the quality of social dialogue through
the development and strengthening of administrative and professional capacity of
social partners at international, national, regional, local and sectoral levels.

The funds allocated for the implementation of the Call for Proposals are
in amount of 16,996,070 HRK. Activities will be carried out are related to
strengthening the sectoral social dialogue and sectoral social councils, strength-
ening the professional, analytical and advocacy capacities of social partners and
analysis, research and monitoring of the social dialogue, as well as strengthening
the capacities of Croatian social partners through international co-operation.
Under this investment priority there will be a number of the relevant Calls
for Proposals within the current year and the years ahead. The Government of
the Republic of Croatia, in cooperation with all relevant institutions included,
plans to continuously support sustainable development of social dialogue and
thus foster implementation of the activities within this thematic area.
7. CONCLUSION
Taking into account the fact that the basis point for a systematic and com-
prehensive public administration reform was set up in June 2015 by adopting
the Public Administration Reform Strategy, after several revision of the Public
Administration Reform Action Plan, finally adopted in December 2016, ab-
sorption of funds allocated for financing project from the ESF, can be seen in
the frame of small but strong steps.
However, in order to achieve real progress and fulfilment of the objectives
envisaged within the relevant programmes and strategies, and on the basis of
all previously mentioned analyses and recommendations, for more effective and
efficient achievement of further results, the thesis is confirmed that for the suc-
cess of the reform of public administration as well as enhancing the efficiency
of the judiciary, strong political will and support is of outmost significance as
well as clear orientation towards the strengthening of administrative capacities,
the holders of the implementation of the activities envisaged in following years.
Also, developing sustainable capacities of civil society organisations, especially
NGOs and social partners, and enhancing social dialogue is of utmost impor-
tance for good governance. Both investment priorities together contribute to
the good governance in the Republic of Croatia.
284
REFERENCES
EUROPE 2020, A European strategy for smart, sustainable and inclusive growth, available at
http://ec.europa.eu/eu2020/pdf/COMPLET%20EN%20BARROSO%20%20%20
007%20-%20Europe%202020%20-%20EN%20version.pdf (accessed 17.3.2018)
Operational Programme Efficient Human Resources 2014-2020
Bežovan, G.: „Civilno društvo“, Zagreb, 2004
Analitička podloga za izvješće o napretku provedbe sporazuma o partnerstvu između Re-
publike Hrvatske i Europske unije, Institute for Development and International Rela-
tions – IRMO, 2017, available at https://www.weforum.org/reports/the-global-com-
petitiveness-report-2017-2018 (accessed 27.03.2018)
Croatia Report Sustainable Governance Indicators 2017, Bertelsmann Stiftung, 2017
Council Recommendation of 8 July 2014 on the National Reform Programme 2014 of
Croatia and delivering a Council opinion on the Convergence Programme of Croatia,
2014, available at http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%
3A32014H0729%2810%29 (accessed 18.3.2018.)
The Strategy of the Development of the Judiciary for 2013-2018, Narodne novine 44/12
Law on Volunteering, Narodne novine 58/07, 22/13
https://udruge.gov.hr/vijesti/svecana-dodjela-ugovora-za-projekte-iz-esf-poziva-podrska-
organizatorima-volontiranja-za-unaprjedjenje-menadzmenta-volontera-i-provedbu-
volonterskih-programa/4127 (accessed 21.3.2018)
http://www.esf.hr/27-milijuna-kuna-iz-europskog-socijalnog-fonda-za-podrsku-razvoju-
partnerstava-organizacija-civilnog-drustva-i-visokoobrazovnih-ustanova-za-proved-
bu-programa-drustveno-korisnog-ucenja/ (accessed 21.3.2018)
http://www.esf.hr/natjecaji/dobro-upravljanje/kultura-u-centru-potpora-razvoju-javno-
civilnog-partnerstva-u-kulturi/ (accessed 21.3.2018)
http://www.esf.hr/uruceni-ugovori-o-dodjeli-bespovratnih-sredstava-za-jacanje-socijal-
nog-dijaloga-faza-iii/ (accessed 21.3.2018)
https://vlada.gov.hr/europski-semestar/19453 (accessed 30.3.2018)

https://ec.europa.eu/info/sites/info/files/2017-european-semester-national-reform-pro-
gramme-croatia-hr.pdf (accessed 25.3.2018)
https://ec.europa.eu/info/sites/info/files/file_import/nrp2015_croatia_hr_0.pdf
(accessed 25.3.2018.)
Strategija razvoja javne uprave za razdoblje od 2015. do 2020. (www.uprava.hr, accesed
10.3.2018)
Akcijski plan provedbe Strategije razvoja javne uprave za razdoblje 2015. do 2020. (www.
uprava.hr, accessed 10.3.2018)
Strategija e-Hrvatska (www.uprava.hr, accessed 10.3.2018)
Akcijski plan za provedbu Strategije e-Hrvatska 2020. (www.uprava.hr, accesed 10.3.2018)
285
POLICE MANAGEMENT POLICE
OFFICERS’ PERCEPTION OF THE
Ante Orlović: POLICE MANAGEMENT– POLICE OFFICERS’ PERCEPTION OF THE STATUS (QUALITATIVE LEVEL) OF FUNDAMENTAL FUNCTIONS...
STATUS QUALITATIVE LEVEL OF

FUNDAMENTAL FUNCTIONS OF
MANAGEMENT IN THE POLICE
ORGANIZATION
Ante ORLOVIĆ, Ph. D.

Ministry of the Interior, Police Academy,
Zagreb, Republic of Croatia
E-mail: aorlovic@fkz.hr
Abstract
The efficiency of the police organization substantially depends on police management
and its characteristics. There are five fundamental functions of management – plan-
ning, organizing, human resource management, leading and controlling. Each of these
functions has its role and specific significance in the managing process or management
system. Functions of management include a series of sub-functions. This paper deals
with and explains three sub-functions within each of indicated functions. Evaluation
of fundamental functions and sub-functions of management by the police officers (with
significant professional knowledge and work experience) is of great heuristic relevance.
Empirical research was carried out with regard to the above-mentioned, using the
method of survey, by means of a Questionnaire on Fundamental Functions of Man-
agement in the Police Service. The research included students (respondents) of the Pro-
fessional Graduate Study of Criminal Investigation (128 police officers). Respondents
evaluated the status (qualitative level) of fundamental functions of management and
their sub-functions in the police service by giving certain grades. The grading instru-
ment was a rating scale with a five-level range – from bad to excellent. Research results
indicated the existence of almost unanimous – extremely negative – police officers’
perception of a qualitative level of all fundamental functions of management in the
police service, as well as their sub-functions. When it comes to respondents’ perception,
almost all functions and sub-functions of management in the police service are at a very
low qualitative level, i.e. at a “satisfactory” level (level 2, on a scale from 1 to 5). Within
286
indicated (extremely negative) level, the function of human resource management was
rated as the worst, while the least bad function was the function of controlling. The aim
of this research was to obtain a preliminary diagnosis of the status of the police manage-
ment, as well as to emphasize its relevance and the necessity of prompt development of
all its functions and sub-functions.
Key words: police management, fundamental functions of management, police

officers’ perception.
JEL Classification: H00, H80
1. INTRODUCTION
The efficiency of the police system depends on different factors and circum-
stances that can be internal and external. When it comes to internal factors, the
most important factor is human resources (police officers and police executives)
and when it comes to internal circumstances, the most important circumstances
are police organization and police management. Management is a process which
consists of a series of system, standard and mutually independent managing ac-
tivities that are usually called fundamental functions of management. All speci-
fied functions have its own role and significance in the process of management
and each of them consists of several essential and typical components – sub-
functions of management.
This paper deals with and explains three sub-functions within each of in-
dicated management functions. Strategic planning, tactical planning, and opera-

tional planning are explained within the function of planning; division of work
and specialization, rationalization and coordination and hierarchy and responsibil-
ity within the function of organizing; following, motivation and communication
within the function of leading; recruitment and selection of candidates, motivation
and awards and education and career development are explained within the func-
tion of human resource management; as well as managerial (direct) control, hier-
archical (professional) control and specialist (internal) control within the function
of controlling.
The focus of this paper is empirical research and its results. Explanation of
research includes short and appropriate digressions related to the legal context
and grounds for individual functions and sub-functions of management in the
police service. The research was conducted by means of a Questionnaire on
287
Fundamental Functions of Management in the Police Service. A sample of re-
spondents was appropriate since the respondents were police officers (128 of
them), who are currently attending the Police College in Zagreb, Profession-
al Graduate Study of Criminal Investigation. Processing and analysis of data

were carried out mainly using descriptive statistical methods. Inferential sta-
tistics were used only in an exceptional and targeted manner, in one analytical
procedure.
The essence of empirical research was to determine the police officers’ per-
ception of fundamental functions and sub-functions of management in the po-
lice service. Purpose of determining respondents’ perception of the qualitative
level of functions and sub-functions is reflected in cognitive (research) results
that can serve as an important indicator of status in the police management,
as well as an orientation point for its systematic research and improvement in
the future. Results obtained by this research are preliminary but may become
relevant in terms of incentives and guidelines for further research of the relevant
subject matter that should be permanent, thorough, more comprehensive and
more systematic.
Police officers are active stakeholders of business processes in the police ser-
vice. As executors, they are direct providers of police services and their opinion
on the police management should be considered extremely relevant – not just
in terms of determining (detecting or diagnosing) the status, but also in terms
of necessary changes within the system that should follow.
2. POLICE OFFICERS’ PERCEPTION OF

MANAGEMENT IN THE POLICE SERVICE 
RESEARCH METHODS
Empirical research was conducted by means of a questionnaire. Survey took
place in March 2018 at the Police Academy – Police College in Zagreb.
. Sample of respondents

The survey included 128 respondents (police officers), 1st and 2nd year stu-
dents of the Professional Graduate Study of Criminal Investigation. All stu-
288
dents/respondents are active police officers (employees of the Ministry of the
Interior). They are employed at different organizational units – police stations,
police administrations or General Police Directorate.
The questionnaire asked the respondents on their demographic character-
istics, which are relevant in the context of expressing respondents’ opinions/
attitudes regarding the issues of this research. Indicated respondents’ character-
istics are shown in Table 1.
Table 1. Respondents’ demographic data

Demographic data (N=128) N %
Male 96 75.0
Sex
Female 32 25.0
Up to 25 years of age 1 0.8
25-30 years of age 53 41.4
Age
30-35 years of age 44 34.4
35-40 years of age 19 14.8
40 and more than 40 years of age 11 8.6
Police station 106 82.8
Current organizational unit - level Police administration 6 4.7

Ministry of the Interior – General Police
16 12.5
Directorate
1st category 22 17.2
2nd category 15 11.7
Police administration - category rd
3 category 49 38.3
4th category 27 21.1

Up to 5 years -- --
5-10 years 68 53.1
Years of service in the police
10-15 years 33 25.8
15-20 years 17 13.3
More than 20 years 10 7.8
Executive 11 8.6
Current position
Officer 117 91.4
Nothing 104 81.3
Up to 1 year 4 3.1
Total years of service as an executive 1-3 years 4 3.1
3-7 years 2 1.6
More than 7 years 7 5.5
289
The relevance of the sample is based on its biological dimension (respondents’
average age is 31.95 years of age), empirical dimension (respondents’ average
length of service in the police is 11.32 years) and on the educational dimension
(all respondents have completed undergraduate professional study – in the

most cases study of Criminal Investigation). Representativeness of sample is
expressed through the dimension of sex (ratio of men and women is 75%: 25%),
as well as through dimension of territory and category (respondents came from
police administrations belonging to all four categories – dispersed throughout
the territory of the Republic of Croatia). Asymmetry of sample comes from its
hierarchical imbalance (a large number of respondents – 83% of them are em-
ployees of police stations) and managerial insufficiency - current (the vast major-
ity of respondents (91.4%) currently works as an official, not as an executive),
as well as cumulative insufficiency (a large number of respondents (81.3%) has
never held an executive position in the police service).
. Research instruments (Questionnaire)

The process of determining the perception of status (or qualitative level)
of fundamental functions of police management was carried out by means of
the Questionnaire on Fundamental Functions of Management in the Police Service,
which was filled in by police officers (students of Criminal Investigation). The
questionnaire consisted of the introductory and the main part. Introductory part
included the following information – a brief description and purpose of the
survey, an explanation of the role of respondents and what they are expected
to do about manner and approach of completing the questionnaire, statement
on voluntary participation and assurance on data confidentiality, as data were
used exclusively for the research purposes. The main part of the questionnaire
consisted of questions on the demographic characteristics of the respondents,
an indicative and orientation question about the level of efficiency of the police
system and of a set of questions on fundamental functions (and sub-functions)
of management in the police service.
Regarding the perception of the efficiency of the police system, the respon-
dents were offered a rating scale with a range of grades on seven levels (1-2 =
low level, 3-4-5 = average level, 6-7 = high level). Respondents expressed their
opinion by circling the corresponding number.
290
Regarding the fundamental functions of management (planning, organizing,
leading, human resource management, controlling) and their sub-functions – the
respondents were offered a rating scale with a range of grades on five levels (bad,
satisfactory, good, very good, excellent). Respondents expressed their opinion on
the status (qualitative level) of fundamental functions and sub-functions of
management in the police service by circling the corresponding number.
. Statistical analyses

Processing and systematization of data collected by this research were car-
ried out by using statistical software for sociological research SPSS 17 (Statisti-
cal Package for the Social Sciences). Descriptive statistical procedures were mainly
used for data analysis, and research results were presented by descriptive indica-
tors - statistical (mean) values (Mo, Me, M, SD, Rang). For determining possible
differences in attitudes/opinions of different groups of respondents (differenti-
ated by the length of service in the police) regarding the management function
with the worst perception of its qualitative level – analytical and mathematical
statistical technique, belonging to inferential statistics were used (Mann-Whit-
ney U test).
3. POLICE OFFICERS’ PERCEPTION OF

MANAGEMENT IN THE POLICE SERVICE 
RESEARCH RESULTS AND DISCUSSION
. Efficiency of the police system

The police service is a specific national organization, the mission of which is
citizens’ safety. The police service provides protection of citizens’ fundamental
constitutional rights and freedoms and protection of other values protected by
the Constitution of the Republic of Croatia (Police Act, Article 2). The highest
values of the constitutional order of the Republic of Croatia are freedom, equal
rights, national and gender equality, peace-making, social justice, respect for hu-
man rights, inviolability of ownership, conservation of nature and the environ-
ment, the rule of law and a democratic multiparty system - they are also the
291
basis for the interpretation of the Constitution (Constitution of the Republic
of Croatia, Article 3). Police efficiency should correlate to the importance of the
police in the society and in the country.
Service of security provided by the police to the citizens essentially consists

of various police tasks prescribed by law (Act on Police Tasks and Police Pow-
ers, Official Gazette 76/09, 92/14; Article 3). Police tasks are performed by po-
lice officers by using police powers. Therefore, police officers are security service
providers, i.e. direct executors of police tasks. Based on the above-mentioned,
police officers’ opinion on the level of efficiency of the police system (and the
qualitative level of fundamental functions and sub-functions of management
in the police service) is relevant. Efficiency of the police system can also be as-
sessed by other subjects. For example, citizens (as security service users), police
management, expert and scientific community, political authorities, comple-
mentary state institutions (State Attorney’s Office of the Republic of Croatia)
and international police organizations (EUROPOL, INTERPOL).
Police officers’ perception of the level of efficiency of the police system was
indicated by a grading instrument – rating scale, which consisted of two ranges
of grades: attributive (low-average-high) and numeric (1 to 7).
Survey results are shown in Table 2.
Table 2. Level of the efficiency of the police system – police officers’ perception
Level of efficiency N % Mo Me Mean SD
1 1 0.8
Low
2 7 5.5
3 48 37.5
Average 4 40 31.3 3 4 3.76 0.980
5 27 21.1
6 4 3.1
High
7 -- --
Survey results showed that police officers’ perception of the efficiency of the
police system is at an average level (Mo = 3; Me = 4; M = 3.76). If grade 1 stands
for minimum efficiency (0%) and grade 7 for maximum efficiency (100%) - it
can be concluded that respondents perceived police efficiency as average. They
considered it is at a level of about 50% of its actual or hypothetical capability1.
1
Relevant perceived level of the efficiency of the police system of 50% cannot be directly
related to the coefficient or percentage of solved criminal cases referred to in the police sta-
tistics. Assessment of the efficiency of the police service in this survey was general and pre-
292
Level of police efficiency perceived in this way is ambivalent. On one hand, it
implies insufficient or inadequate efficiency of the police system while, on the
other hand, it explains the existence of a relatively significant room for improv-
ing the police efficiency. Police efficiency primarily depends on police officers
(their knowledge, abilities, skills, motivation, and responsibility), but also on
police management (the qualitative level of fundamental functions and sub-
functions of management in the police service).
. Fundamental functions and sub-functions of

management in the police service
Police organization is an extensive and complex system which needs ade-
quate management. Organization and management in the police service are of
significant internal (institutional) and external (social) importance, primarily
because of social significance and extensibility of police tasks, as well because of
the number of organizational units and positions of police officers.
Functions of management include a series of sub-functions. The question-
naire used in this research identified three sub-functions, which can be consid-
ered crucial for each of five fundamental functions of management.
Evaluation of each function and sub-function of management by the police
officers (with significant professional knowledge and work experience) is of great
heuristic relevance. It was carried out by means of a grading instrument – “rat-
ing scale”. The respondents gave their opinion on the status (qualitative level)

of the relevant functions and sub-functions of police management by giving a
certain grade for each of them. The range was as follows: bad (1) - satisfactory
(2) - good (3) - very good (4) - excellent (5).
liminary. It included all police tasks and the opinions referred to the general impression of
the efficiency of performing these tasks. In addition, data on percentage of solved individual
criminal cases or types of crime in the official statistics of the Ministry of the Interior (Sta-
tistical Overview of Fundamental Safety Indicators and Work Results in 2016 http://stari.mup.
hr/main.aspx?id=180991, accessed on 15 March 2018) require a special methodological
approach in terms of analysis and explanation. For instance, the rate of solved criminal cases
or types of crime for 2016 are as follows: aggravated theft (22.1%); robbery (38.2%); motor
vehicle stealing (34.8%); economic crime (97.6%); criminal offences of corruption (99.7%);
drug abuse (99.7%); organized crime (97%).
293
3.2.1 Planning
Apart from reacting, the police service also tries to act proactively. Both ap-
proaches include the performance of police tasks in a way that objectives and
ways of their achieving are set ahead. Planning anticipates the future and op-
timization of spending limited human and material resources that are harmo-
nized with it (Buble, 2006:88).
General Police Directorate assesses the status of safety, anticipates the prob-
able development of safety situation, assesses the risks, defines the priorities
of action, and plans measures, actions, and needed resources, based on which
Strategic Assessment as a fundamental document from the police scope at the
national level is made. Strategic Plan of the Police Work is made based on the
Strategic Assessment (Police Act, Article 9, paragraph 1, items 1 and 2). The
same act similarly defines strategic planning of police administrations (Article
11), whereby in this situation it is tactical police planning since the strategic
plans of police administrations are subordinated to the strategic plans of the
General Police Directorate. Operational planning is carried out within the
scope and context of tactical and strategic planning. It includes plans for imple-
mentation of specific operational activities of the police service at a level of a
police station or police administration (for example, securing public gatherings
and conducting criminal investigations).
Survey results regarding respondents’ perception of planning as a function of
management in the police service are shown in Table 3.
Table 3. Planning as a fundamental function of management– police officers’
perception of the status (qualitative level) of planning in the police
service
Mo Me Mean SD
Planning 2 2 2.14 0.792
Strategic planning 2 2 1.94 0.829
Tactical planning 2 2 2.27 0.801
Operational planning 3 3 2.57 0.953
Police planning is at a satisfactory level according to the police officers’ per-

ception (M = 2.14). Regarding the range of possible ratings, the qualitative level
of planning in the police service is rather poor. The reasons for this may be
the lack of education and incompetence of managers (personal factors) or pre-
294
dominant presence of improvisation and inactivity in the system functioning
(institutional factors).
Strategic planning (long-term plans, top management, and General Police Di-
rectorate) is seen as the worst in terms of quality, while operational planning
(short-term plans, operational management, and police stations) is rated with the
highest mean grade and is seen as good (M = 2.57). Tactical planning (medium-
term plans, middle-level management, and police administrations) is perceived to
be worse than operational planning, but somewhat better than strategic plan-
ning and is rated as satisfactory.
An important influence on this perception of respondents can result from
the fact that the clear majority of them (83%) are employees of police stations.
They are familiar with operational planning and find it specific, while they are
not familiar with strategic planning and find it complex. They participate di-
rectly and actively in operational planning, as well as in the implementation of
operational plans. On the contrary, they are only indirectly related to strategic
planning and it only has a periodic and minor impact on their everyday work.
3.2.2 Organizing
The police service is a central service of the Ministry of the Interior. It per-
forms tasks prescribed by law and other regulations (Police Act, Article 2,
paragraph 1). The Ministry of the Interior has about 25,000 employees, out of
which about 20,000 police officers and about 5,000 governmental employees

(Ministry of Interior, 2018). The police service is organized at three hierarchical
levels: 1. General Police Directorate; 2. police administrations, 3. police stations
(Police Act, Article 8, paragraph 1).
Organization of the police service is of great importance in terms of assign-
ing roles and tasks (type and scope) to all organizational units and their em-
ployees. There are two important dimensions of organizing. One is static - it
implies the establishment of adequate organizational structure (which can be
redesigned over time). The second is dynamic - it implies a division of the overall
task of organizational units, as well as the allocation of tasks and activities to
employees (optimization of the use of human and material resources). In terms
of organizing, apart from the Police Act, the following secondary legislation is
also important: Regulation on the Internal Organization of the Ministry of the
Interior, Regulation on Areas, Seats, Types and Categories of Police Adminis-
295
trations and Police Stations, Ordinance on the Internal Order of the Ministry
of the Interior.
Survey results regarding respondents’ perception of organizing as a function of manage-

ment in the police service are shown in Table 4.
Table 4. Organizing as a fundamental function of management – police officers’

perception of the status (qualitative level) of organizing in the police
service
Mo Me Mean SD
Organizing 2 2 2.06 0.852
Division of work and specialization 2 2 2.07 0.924
Rationalization and coordination 2 2 2.04 0.788
Hierarchy and responsibility 2 2 2.07 0.974
According to the respondents’ perception, organizing as a management func-

tion in the police service is at a satisfactory level (M = 2.06). Given the range of
possible grades, the qualitative level of organizing in the police is relatively poor.
As in the case of planning, the reasons for this may be subjective (lack of educa-
tion and incompetence of managers) and “objective” (inactivity, complexity, and
inflexibility of the system).
Respondents rated sub-functions of organizing equally low (satisfactory) as
fundamental functions of management in the police service. The sub-functions
and their brief explanations in the questionnaire were as follows: division of
work and specialization (precise allocation of tasks, duties, and activities) (Sikavi-
ca, 2011:582-586), rationalization and coordination (optimum engagement and
compliance of actions), hierarchy and responsibility (relations and roles of subordi-
nate and superior levels).
3.2.3 Leading
The police system is based on the work of police officers and police execu-
tives, as well as on their interaction. Leading is the most important function of
management in the police service because it includes interpersonal communica-
tion and mutual motivation between leaders (police managers) and their follow-
ers (police officers who are ranked below managers).
Police Act (Article 43) stipulates classification of the police officers’ posi-
tions. Depending on tasks complexity, education, personal vocation, degree
296
of responsibility and authority to make decisions, as well as independence in
performance of tasks, the police officers’ positions are classified into three cat-
egories as follows: 1. executive police officers’ positions; 2. upper-level police of-
ficers’ positions; 3. lower-level police officers’ positions. Executive police officers’
positions are the ones that include planning, organizing, leading and supervising
of work processes in the police service, as well as directing, coordinating and su-
pervising of the police officers.
Survey results regarding respondents’ perception of leading as a function of
Table 5. Leading as a fundamental function of management – police officers’
perception of the status (qualitative level) of leading in the police
service
Mo Me Mean SD
Leading 1 2 1.69 0.782
Following 2 2 2.14 0.986
Motivation 1 1 1.56 0.761
Communication 2 2 1.88 0.819
When it comes to police officers’ perception, leading as a function of man-

agement in the police service is at a very poor (unsatisfactory) level (M = 1.69).
From the police officers’ point of view, a lack of knowledge, abilities, and skills
related to leading is evident in case of police managers (Regulation on Job Clas-
sification of Police Officers, 5/18). This survey included 91% of respondents
working as officers (non-executive positions) and 81% of them have never been
employed at executive positions in the police system. Evaluation of the function
of leading, performed by officers whose job includes or should include following INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
of their leaders is very important and indicative.

Sub-functions of leading are also poorly rated. Respondents’ perception is
the worst when it comes to the qualitative level of motivation (directing the moti-
vation of people towards the achievement of organization objectives), which should
be encouraged by the leaders (Bahtijarević-Šiber, 1999: 556-557). Communica-
tion (transfer of information, ideas, and attitudes between the leaders and employ-
ees) is also rated negatively – between bad and satisfactory levels. Sub-function
of following (readiness and willingness of people to do what the leader said or or-
dered) is rated more positively, although still somewhat low.
297
3.2.4 Human resource management
Human resources are the highest value of the police organization. They are
security service providers, which the police provide to the citizens (Bahtijarević-
Šiber, 2014:6). Human resource management is an extremely important func-
tion of management in the police service. It includes securing an optimal num-
ber of employees of the appropriate professional profile and with adequate mo-
tivation, which is sufficient for successful performance of police tasks or for the
effective functioning of the police system (Marčetić, 2007: 101-102).
Human resource management (Police Act, Article 44) enables harmoniza-
tion of police officers’ knowledge and skills with the required knowledge and
skills necessary for the performance of tasks of a certain position. It also enables
development and cooperation between services and hierarchical levels in the
Ministry, as well as the promotion of professional values in the performance of
service. Human Resource Management is based on professionalism and sup-
port for officers and on career development according to the principle of compe-
tency management (Sikavica, Bahtijarević-Šiber and Pološki Vokić, 2008: 596).
Survey results regarding respondents’ perception of human resource manage-
ment as a function of management in the police service are shown in Table 6.
Table 6. Human resource management as a fundamental function of manage-

ment – police officers’ perception of the status (qualitative level) in the
police service
Mo Me Mean SD
Human resource management 1 1 1.59 0.732
Recruitment and selection of candidates 1 1 1.52 0.710
Motivation and awards 1 1 1.45 0.697
Education and career development 1 2 1.76 0.885
When it comes to the perception of surveyed police officers, human re-

source management in the police service is at an extremely low qualitative level
(M=1.59). Their perception can be taken as relevant and sufficiently indicative,
given the number of respondents (128), their average age (32 years of age) and
the average length of service in the police (11 years).
Sub-function of motivation and awards (material and non-material incen-
tives for good work) is rated the worst, which results in a significant level of ac-
tual or latent dissatisfaction and demotivation of police officers regarding their
work and working status (Bahtijarević-Šiber, 1999:605-606). Sub-function of
298
recruitment and selection of candidates (attracting and selecting appropriate per-
sons) is also rated rather poorly. Sub-function of education and career develop-
ment (professional education, gaining of tasks and positions) is also rated nega-
tively, but slightly better than the rest (between bad and satisfactory levels).
With respect to the function of human resource management, which was
perceived as the worst of all function of management in the police service re-
garding the qualitative level - Mann-Whitney U test was used to see if there is
a difference in perception among the police officers, regarding their length of
service in the police. Test results are shown in Table 7.
Table 7. Mann-Whitney U test – testing the difference in the respondents’ per-

ception with regard to their length of service in the police
Management Length of service in the Mean Med. Mann-

N z p
function police Rank (Md) Whitney U
Up to 10 years 54 46.80 1
–.967
Human resource
.334
10 years and more 43 51.77 2 1042
management
Total 97
Mann-Whitney U test did not reveal a statistically significant difference (p>

0.05) with regard to the perceived qualitative level of human resource manage-
ment (as a management function) between the respondents with up to 10 years
of service (Md = 1, n = 54) and those with 10 years of service and more (Md =
2, n = 43), U = 1042, z = -0.967, p = 0.334, r = 0.1. By observing mean (aver-
age) values of group ranks, negative perception is slightly more emphasized in

respondents with a shorter length of service than in those with a longer length
of service. In the case of respondents with the shorter length of service, the me-
dian result (Md = 1) is extremely low, while in the case of respondents with the
longer length of service it is slightly higher (Md = 2).
Research showed that police officers perceive the function of human resource
management highly negatively and that there is no significant difference in their
perception regarding their length of service in the police. The above-mentioned
fact results in a potential danger for the level of efficiency of the police system,
given the fact that utilization of human resources in the police is limited. Hu-
man resources are managed in a way which is not adequate in terms of quality,
analytics, and system, i.e. they are managed in unsatisfactory and demotivating
manner (Turkalj, Orlović, Milković, 2016:405).
299
3.2.5 Controlling
Controlling is the last of five fundamental functions of management. It has a
special significance as it interacts directly and permanently with other functions

of management. The purpose of function of controlling is manifested through
two key dimensions: evaluative and corrective. Evaluation implies a comparison
of achieved results and planned objectives. Correction implies neutralization or
depreciation of factors that cause negative deviations between what is realized
and what was planned.
Apart from other types of controlling, internal controlling plays an impor-
tant role for proper operation and functioning of the police service. In order
to create working conditions for the police (Police Act, Article 7, paragraph 1,
item 6), the Ministry organizes and conducts internal controlling and super-
vision of work of police officers and organizational units (Ordinance on the
manner of conducting internal control and supervision of work of officers and
organizational units of the Ministry of the Interior, Official gazette 146/11).
Managerial control arises from the legal definition of positions of executive po-
lice officers (Police Act, Article 43), a description of which includes phrases
such as “supervision of work processes in the police” and “supervision of police
officers” ( Jurina, 2008: 298-299, 307). The foundation of hierarchical control
also arises from the Police Act (Article 9, paragraph 1, item 3), based on which
General Police Directorate “supervises work of police administrations”, while
police administrations (Article 11, paragraph 1, item 3) “supervise work of po-
lice stations”.
Survey results about respondents’ perception of controlling as a function of
Table 8. Controlling as a fundamental function of management – police of-
ficers’ perception of the status (qualitative level) of controlling in the
police service
Mo Me Mean SD
Controlling 2 2 2.31 0.876
Managerial (direct) control 2 2 2.43 0.848
Hierarchical (professional) control 2 2 2.38 0.843
Specialist (internal) control 2 2 2.45 0.912
When it comes to respondents’ perception, the function of controlling in

the police service (similar to other functions) is only at a satisfactory level (M
300
= 2.31). Given the range of possible ratings, qualitative level of controlling in
the police is relatively low. Although controlling is evaluated with the least bad
grade - this function, the last in the management process, is also rated quite
negatively and does not significantly differ from the negative grading of other
functions of management.
Respondents rated sub-functions of controlling equally low (satisfactory).
Sub-functions and their brief explanations in the questionnaire were as follows:
managerial (direct) control – control of employees by executives, hierarchical (pro-
fessional) control - control of lower organizational units by higher organization
units and specialist (internal) control - control of professionalism and legality of
work.
3.2.6 Aggregate and comparative overview of respondents’ perception

Management is a process or system, each component of which (function and
sub-function) has a specific value - individual and correlative. Evaluation of fun-
damental functions of management, apart from an individual context, should
also be analyzed in a common context (aggregate and comparative). Research
results point out to a preliminary status of management in the police service
and point out to its relevance, as well as the need to look at the perspective for
development of its (individual) functions and sub-functions (Table 9) (Orlović,
Labaš, Gudelj, 2015: 106).
301
Table 9. Fundamental functions and sub-functions of management – police
officers’ perception of the status (qualitative level) of management in
the police service
Rank M SD
PLANNING (4) 2.14 .792
Strategic planning 6 1.94 .829
Tactical planning 11 2.27 .801
Operational planning 15 2.57 .953
ORGANIZING (3) 2.06 .852
Division of work and specialization 8 2.07 .924
Rationalization and coordination 7 2.04 .788
Hierarchy and responsibility 9 2.07 .974
LEADING (2) 1.69 .782
Following 10 2.14 .986
Motivation 3 1.56 .761
Communication 5 1.88 .819
HUMAN RESOURCE MANAGEMENT (1) 1.59 .732
Recruitment and selection of candidates 2 1.52 .710
Motivation and awards 1 1.45 .697
Education and career development 4 1.76 .885
CONTROLLING (5) 2.31 .876
Managerial (direct) control 13 2.43 .848
Hierarchical (professional) control 12 2.38 .843
Specialist (internal) control 14 2.45 .912
AVERAGE RATING – TOTAL --- 2.02 .838
Fundamental functions (and sub-functions) of management in the police

service are at a “satisfactory” qualitative level (average rating M = 2.02). Given
the range of possible grades (from 1 to 5) and the fact that the “satisfactory”
level is just above the “bad” level, which is the lowest - the respondents’ percep-
tion of the status of fundamental functions of management can be considered
extremely negative.“ (Orlović, Velić, Harambašić, 2015: 534).
All functions and sub-functions of management in the police service are rat-
ed within “satisfactory” level (the exception is sub-function of “operational plan-
ning”, the average rating of which is within a “good” level). The worst perceived
function is human resource management, followed by the function of leading.
The function of organizing is at a middle level, with the function of planning
above it and the best-perceived function is a function of control. When it comes
to sub-functions of management, the worst perceived sub-functions are moti-
vation and awards and recruitment and selection of candidates, and the best per-
302
ceived are operational planning (as already pointed out) and specialist (internal)
control (the average grade of which is a border between a “satisfactory” level and
a “good” level).
Research has shown that motivation is essentially the most negative factor of
management in the police service – both system or institutional (which should
be achieved through the function of human resource management), as well as
individual or personal (which should be achieved through the function of lead-
ing) (Bahtijarević-Šiber, 1999: 555).
4. CONCLUSION
Management is important for every organization in terms of meeting or-
ganizational objectives, in a way in which human and material resources of an
organization are utilized optimally. The dominant holders of organizational
values in all organizations are human resources. They are divided into execu-
tors and executives. The success of an organization depends on both (as well as
on their interaction), but with the responsibility of management being primary
and the highest.
Police officers’ perception of police management, i.e. the qualitative level of
fundamental functions of management in the police service - is the essential
part of this research, the results of which may be indicated in terms of diagnos-
ing the status of police management, but also stimulating in terms of initiating
prospective for development of its functions and sub-functions.
Research results indicated the existence of almost unanimous - extremely INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
negative – police officers’ perception of the qualitative level of all fundamental
functions of management in the police service, as well as their sub-functions.
According to respondents’ perception, almost all functions and sub-functions
of management in the police are at a very low qualitative level – “satisfactory”
level. This level is just above “bad” level, which is the last on the scale (from 1 to
5). The reasons for this status of management in the police are primarily institu-
tional (inactivity, complexity, extensiveness, and inflexibility of the system), but
also personal (lack of education, incompetence, and the inability of managers).
The qualitative deficit of police managers and police management implies the
existence of significant limitations in achieving objectives of the police orga-
nization. The negative repercussions of the above-mentioned are not only of
303
an intra-institutional character. They are directly or indirectly reflected on the
entire social community (situation related to safety).
Respondents’ perception in this research is also indicated when it comes to

the efficiency of the police system being at the average level, while the qualita-
tive level of functions and sub-functions of management in the police are at
an extremely low level. The above-mentioned discrepancy between the level of
efficiency of the system and the level of management quality results in the la-
tent fact (or respondents’ latent attitude) that police officers (executors) con-
tribute more to the results of the police system that police managers or police
management.
Executive positions in the Croatian police are counted in thousands, in dif-
ferent categories and at different hierarchical levels - lower, middle, high. In its
entirety (but also individually), they imply a great responsibility for managing
the police organization. The need for permanent research of police manage-
ment arises from the above-mentioned responsibility and social relevance of
the police organization, primarily when it comes to applying research results in
the police practice. Improvements in characteristics of police management are
necessary both at a personal and institutional level. They should be extensive
and systematic, as well as prompt.
REFERENCES
Bahtijarević Šiber, F. (1999). Human Resource Management, Golden marketing, Zagreb
Bahtijarević-Šiber, F. (2014). Strategic Human Resource Management: Contemporary
Trends and Challenges, Školska knjiga, Zagreb
Buble, M. (2006). Fundamental Management, Sinergija nakladništvo, Zagreb
Jurina, M. (2008). Organization and Management, “Baltazar Adam Krčelić” Accredited Col-
lege of Business and Management, Zaprešić
Marčetić, G. (2007). Human Resource Management in Public Administration, College of
Social Sciences in Zagreb, Zagreb
Orlović, A., Labaš, D., Gudelj, A. (2015). Stress in the Police – Perceived Sources of Stress
of the Police Officers (Profession, Organization, Management), 10th International Sci-
entific and Professional Conference Management and Safety – Proceedings, pp. 106-
118, The European Society of Safety Engineers, Zagreb
Orlović, A., Velić, A., Harambašić, S. (2015). Perception of Individual and Formal Charac-
teristics of Police Management from the Point of Police Officers, Proceedings, 4th In-
ternational Scientific and Professional Conference “The Police College Research Days
in Zagreb”, pp. 534-553, Ministry of the Interior, Police Academy, Zagreb
304
Sikavica, P., Bahtijarević-Šiber, F. i Pološki Vokić, N. (2008). Foundations of Management,
Školska knjiga, Zagreb
Sikavica, P. (2011). Organization, Školska knjiga, Zagreb
Turkalj, Ž., Orlović, A., Milković, I. (2016). Motivation for Work – Perceived Sources of
Work Motivation of Police Officers (Profession, Organization, Management), Inter-
disciplinary Management Research XII – Proceedings, pp. 404 – 415, University of
Osijek – Faculty of Economics and Pforzheim University – Business School, Opatija
Ministry of the Interior of the Republic of Croatia, Statistical Overview of Fundamental
Safety Indicators and Work Results in 2016, (website: http://stari.mup.hr/main.
aspx?id=180991)
Ordinance on the manner of conducting internal control and supervision of work of offi-
cers and organizational units of the Ministry of the Interior, Official Gazette 141/11,
146/11
Ordinance on the Internal Order of the Ministry of the Interior, document classified as “re-
stricted” – not publicly available
Civil Servants Act, Official Gazette 92/05, 140/05, 142/06, 77/07, 107/07, 27/08, 34/11,
49/11, 150/11, 34/12, 49/12, 37/13, 38/13, 01/15, 138/15, 61/17
Police Act, Official Gazette 34/11, 130/12, 89/14, 151/14, 33/15, 121/16
Act on Police Tasks and Police Power, Official Gazette 76/09, 92/14
Regulation on Job Classification of Police Officers, Official Gazette 129/11, 82/12, 140/13,
32/15, 40/15, 115/15, 11/17, 102/17, 129/17, 5/18
Regulation on Areas, Seats, Types and Categories of Police Administrations and Police Sta-
tions, Official Gazette 117/11, 50/14, 32/15, 11/17
Regulation on the Internal Organization of the Ministry of the Interior, Official Gazette
70/12, 140/13, 50/14, 32/15, 11/17, 129/17, 5/18
Constitution of the Republic of Croatia, Official Gazette 56/90, 135/97, 8/98, 113/00,
124/00, 28/01, 41/01, 55/01, 76/10, 85/10, 05/14
Website of the Ministry of the Interior of the Republic of Croatia (website: https://www.
mup.hr/ministarstvo/)
305
METHODOLOGY OF
IMPLEMENTING EFREIGHT
Waldemar Osmólski Adam Koliński Davor Dujak: METHODOLOGY OF IMPLEMENTING E-FREIGHT SOLUTIONS IN TERMS OF INFORMATION...
SOLUTIONS IN TERMS OF
INFORMATION FLOW EFFICIENCY
Waldemar OSMÓLSKI, Ph. D.

Institute of Logistics and Warehousing, Poznan, Poland
E-mail: waldemar.osmolski@ilim.poznan.pl
Adam KOLIŃSKI, Ph. D.

Poznan School of Logistics, Poznan, Poland
E-mail: adam.kolinski@wsl.com.pl
Davor DUJAK
Faculty of Economics in Osijek,
Josip Juraj Strossmayer University of Osijek, Croatia
E-mail: ddujak@efos.hr
Abstract
In today’s markets around the world, in the face of rapid changes, it is neces-
sary to accelerate the flow of information streams generated by communication
between enterprises, public utility entities or business organizations, based on
both applied and newly developed standards. For this reason, in recent years,
many EU-funded research and development projects have dealt with informa-
tion and communication technologies in various spheres of the economy, and
especially in the area of public administration. Based on the solutions created
there, a program was launched that would address exactly the same topic but
in the area of logistics. One of the initiatives taken by the European Union has
been the launch of the e-Impact project, aimed at leveraging e-Freight solutions
and, in particular, the definition of common frameworks that contain the defi-
nitions the package of messages supporting the exchange of business documents
between several entities in the logistics and transport industries. This approach
306
required a rigorous procedure method for implementing the standard, which
would make it possible to deploy solutions in a flexible manner and allow ant
user to apply the same path. This article presents a methodology for imple-
menting the e-Freight standard in terms of the scientific research into the ef-
ficiency of the information flow process.
Key words: e-Impact, e-Delivery, Access Point, communication standards,
implementation methodology
JEL Classification: D80, G14
1. INTRODUCTION
The constantly changing market and competitive conditions of companies
force the management staff to continuously search for new projects optimizing
the process of end-customer service. Therefore, one of the most important fac-
tors determining the competitiveness of companies is an efficient and respon-
sive decision-making process, in a short time and based on current data. The
managerial decision-making process is directly dependent on the effectiveness
of information flow in the company. An effectively prepared information flow is
aimed at supporting the decision-making process, which will directly affect the
speed and accuracy of the decisions being made, also in economic terms. To this
end, IT systems are developed in companies, which together with the develop-
ment of IT and communication technologies, as well as globalization, are sup-
ported by IT tools and systems supporting company management.

The analysis of the efficiency of information flow is not a simple matter,
mainly due to the fact that the definitions of the concept of efficiency are not
elaborated properly. This causes not only a scientific problem but also a problem
in economic practice. IT tools supporting company management and supply
chain management are helpful, but the effectiveness of the application depends
on the process approach when creating the company’s information system.
The main goal of this paper is the development of a research methodology
for analyzing the possibilities of using e-Freight solutions in logistic processes.
Concerning complexity of different process approaches and e-freight concept,
the main research question is how to implement efficient information flow when
using different e-Freight solutions in logistics processes? Based on relevant
previous researches and knowledge gained through project “e-Impact”, for this
307
purposes new research methodology framework was developed and analysed in
chapter 2. The purpose of the e-Impact project is to implement the e-Freight
standard and e-Delivery infrastructure developed in EU funded projects like
e-Freight and iCargo in real operations along 3 corridors of the TEN-T Core
Network: The Atlantic, Mediterranean, and Baltic / Adriatic corridors. As a re-
sult of research methodology framework, propositions for efficient implemen-
tations of e-Freight actions are stated. The final chapter concludes by giving
implementation benefits of proposed research methodology for the company
and its supply chain.
2. RESEARCH METHODOLOGY FRAMEWORK

As lack of clear and efficient methodology for analyzing the possibilities of
using e-Freight solutions in logistic processes was noticed, this scientific study
has been based on newly developed methodological assumptions presented in
Figure 1.
Figure 1 Research methodology
Source: Own study
308
This methodology provides for a multi-criteria analysis of the issues at stake,
taking into account both a review of literature and observations of business prac-
tice, as well as research and development works carried out by other research
institutions in Europe. The research was of a long-term nature and presented
the Authors’ long-term research work on information integration in the supply
chain and efficiency of logistic processes taking place in them. This research
process was aimed at developing a methodology for the implementation of e-
Freight solutions taking into account their impact on the efficiency of logistics
and information processes in supply chains in terms of strategic management.
3. SPECIFICITY OF COMMUNICATION
STANDARDS IN LOGISTICS PROCESSES
.. Literature review
Effective information flow in a company directly affects the accuracy of deci-
sions made by management staff. The specificity of the information flow process
hinders the already complex efficiency issue. The concept of efficiency has not
yet been clearly defined. In the reference literature, there are different interpreta-
tions and approaches to the efficiency of company processes (Rummler, Brache,
1995) and supply chains (Mishra 2012; Lichocik and Sadowski 2013; Geunes
et al. 2016; Brandenburg 2016; Sohrabpour et al. 2016). The presented defini-
tions and concepts of efficiency do not usually exclude one another but con-
stitute a complementary whole or inclusion of another analytical aspect. This
causes not only a scientific problem but also a problem in economic practice.
IT tools supporting company management and supply chain management are INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
helpful; however, the efficiency of application depends on the process approach

when creating the company’s information system. Integration of information
in the supply chain generates a number of additional problems related to real-
time information transmission along the chain (Bottani, et. al., 2010; Liu, et. al.,
2016a), which has a direct impact on the implementation of logistic processes
(Silva, Carvalho, 2013; Maiga, et. al. 2015). One of the key information prob-
lems is the integration of the production and logistics system with partners in
the supply chain (Golinska, et. al., 2011; Adamczak, et. al., 2016, Varela, et. al.,
2017; Trojanowska, et. al., 2017), including also the sustainable supply chain
aspect (Cyplik, et. al. 2014).
309
These considerations are confirmed by the Author’s research concerning,
among other things, the identification of key functionalities necessary for the
comprehensive analysis of the efficiency of logistic processes (Bigaj, Koliński,
2017). Table 1 shows the percentage of identified key functionalities of a com-

prehensive analysis of logistic processes efficiency.
Table 1. Basic functions necessary for a comprehensive analysis of the efficiency

of logistic processes.
Percentage of
Functionality
indications
Computerization of analyses of process efficiency 92.76%
Real-time acquisition of data 79.61%
Monitoring of the progress of processes 87.50%
The use of mobile technologies for process control 72.37%
Comparison of current data with historical data 98.03%
Other 10.53%
Source: Bigaj, Koliński, 2017.
These practical and theoretical considerations encourage further research on

communication standards in logistics processes. Studies in the literature based
on both theoretical analyses (Ross, 2011; Shi, Chan, 2007; Ramos, Lazaro,
Girbau, Villarino, 2016) and R&D analyses (Nakatani, Chuang, Zhou, 2006;
Nam, Yeom, 2011; Śliwczyński, Hajdul, Golińska, 2012; Dujak, Zdziarska,
Koliński, 2017) prove a significant split of the possibilities of implementation
of various communication standards in business practice. Communication
standards that are effectively applied in business practice should, therefore, be
reviewed at a later stage of the research work.
.. Application of communication standards in business

practice
In today’s world markets, in the face of rapid changes, it is necessary to ac-
celerate the flow of information streams generated in communication between
enterprises, public utility entities or business organizations, based on both
the already applied and newly developed standards. This entails, among other
things, the elimination of development barriers and the use of knowledge, digi-
310
tization and innovation. The electronization of the processes taking place in
enterprises requires a holistic approach to the construction of IT systems or
common data exchange platforms, connecting each other through the structure
of Access Points. Such solutions can increasingly be found in the area of data
exchange, applied by public or social institutions, as well as private companies.
An example may be the logistics industry, which covers tens of millions of enti-
ties operating worldwide. If we tried to consolidate at least some of them into
smaller industry organizations, focusing on the selected area of activity (vehicle
parts handling, refrigerated food products, cosmetics, etc.) or the geographical
area of the selected transport corridors, the number of electronic messages sent
would appear to be very high. Apart from their number, attention should also
be paid to the variety of standards used in the exchange of electronic messages
(GS1, SMDG, ODETTE, etc.).
This state of affairs very often implies the occurrence of differences in in-
terpretation in the selection or use of electronic data exchange messages used
by the parties to the process. In particular, this affects the logistics industry,
which is forced to use a wide range of communication standards in the area
of services for companies from multiple industries. They are thus required to
be highly advanced in the IT infrastructure. The result of this measure is nar-
rowing down the potential group of service providers with sufficient financial
resources to develop IT infrastructure, thus restricting access to the market for
small and medium-sized enterprises. Increasingly, a significant number of large
companies involved in the conventional data exchange process also find them-
selves in a similar situation. Despite many attempts to standardize some of the
messages in the form of standards, such as ISO/IEC 19845, which covers the INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
standardization of documents flows in intermodal transport services, it has to
be said with an utmost firmness that the vision of dominance of one type of
communication over another is becoming unimaginable. For this reason, it has
become justified to build an IT infrastructure that would enable interoperable
communication based on a set of various electronic messages, thus enabling en-
terprises to combine their IT systems at different stages of development of their
IT infrastructure.
311
4. ANALYSIS OF THE APPLICATION OF ACCESS
POINTS IN BUSINESS PRACTICE
The first step towards achieving the goal was a detailed analysis of the solu-
tion developed, based on an electronic message exchange infrastructure, which
does not require any centralized management or authentication of the informa-
tion sent by users. This solution was inspired by the results of the PEPPOL (
Pan-European Public Procurement On-Line)1 research and development proj-
ect, whose essence was the creation of an IT infrastructure for the exchange
of electronic messages related to procurement, exchange of product catalogues
and invoices in the area of public procurement. This was extremely important
from the point of view of public institutions and companies as regards the pro-
cess of opening up the European market to the public procurement sector. The
transition from the process of local actions, in this scope, to international ac-
tions, required a completely different system approach. In order to streamline
and facilitate the electronic circulation of messages, the PEPPOL project fo-
cused on two areas:
a) The area I – the development of a common standard for the exchange
of public procurement information (including e-catalogs and e-invoices).
These electronic documents were created in UBL 2.1 standard and are
now included in ISO/IEC 19845.
b) Area II – the establishment of an electronic information exchange in-
frastructure with the possibility of ensuring interoperability between na-
tional standards applicable in different European countries.
As a result of the works carried out, an IT infrastructure was created based
on the SOA (Serwice Oriented Architecture) model (Łagowski, 2009), con-
necting with its users via Access Points. They operate in a manner that is very
similar to the functioning of e-mail servers, so the exchange of messages is
based on similar principles as in the process of sending and receiving e-mail
messages. Their security mechanisms and protocols ensure a reliable exchange
of information, and their functional structure allows them to handle structured
documents and provide value-added services, such as e.g. converting documents
from one format to another. The accessibility and openness of the Access Point
specification mean that everyone can develop its structure in a way that suits
1
www.peppol.eu
312
their requirements and, after the software has been verified in terms of applica-
ble standards, connect it to the existing infrastructure. It should be emphasized
here that the Access Points specification is strictly regulated by the OpenPEP-
POL organization, and the only central network resource, which is the Access
Point directory called SML (Service Metadata Locator), as well as the elements
of the central structure, are supervised by the European Commission. This does
not change the fact that the openness and the possibility of functional changes
give the author an opportunity to sell Access Point software as a service or as a
finished product.
The first project to develop a specific solution for the application of Access
Points in the logistics industry, developed in the PEPPOL project, was the e-
Freight project which defined communication standards based on the following:
a) the e-Freight structure – a reference model for transport and logistics
that describes the processes supporting the electronic exchange of mes-
sages between the parties in all types of transport;
b) the e-Freight platform – a comprehensive software infrastructure, re-
flecting the e-Freight framework and facilitating the development and
implementation of e-Freight solutions. This platform has three options:
• provides a repository (set) from which e-Freight solutions and e-
Freight services can be downloaded;
• acts as a run-time environment that supports the operations and inter-
actions of e-Freight solutions;

• provides a programming environment for the development of addi-
tional e-Freight services and solutions;
c) e-Freight services – they are the basic elements of the software used as
components of e-Freight solutions. e-Freight services are fully interoper-
able software products coming directly from the e-Freight structure;
(d) e-Freight solutions – A2A and A2B, as well as B2A and B2B appli-
cations, systems consisting of software components and data exchange
channels (e.g. traffic volume, weather, freight flows) which have a signifi-
cant impact on the transport and logistics sector.
The first logistic process supported by this solution was the booking of
transport services by ferries of two well-known logistics operators – DSV Road
313
and Stena Line in Sweden. During the implementation of this project, it was
concluded that:
a) a booking process is a synchronous object, i.e. requiring immediate feed-
back from the party receiving the message (e.g. message confirming the
reservation);
b) the time needed to obtain the appropriate certificates (security certifi-
cates) connecting to the network was too long.
These actions are not acceptable in logistic processes because of the need to
obtain information on real-time process implementation. The PEPPOL archi-
tecture is an asynchronous structure, which means that the generation of an
immediate return message cannot be guaranteed. For this reason, it was neces-
sary to introduce necessary modifications of PEPPOL Access Points in order
to support the required response times. As a result of the actions undertaken,
necessary modifications have been made to enable the achievement of the as-
sumed objectives. It has also been concluded that the functioning of logistic
companies, some of which are medium-sized and small enterprises, differs from
the activities taking place in entities involved in the public procurement process.
It is, therefore, necessary to create a structure that will ensure the proper func-
tioning of the logistics industry.
5. SPECIFIC TO EDELIVERY INFRASTRUCTURE

.. Analysis of the application of e-Delivery infrastructure
in research and development projects
The above assumptions have been taken into account in the iCargo proj-
ect, which aimed to create an infrastructure based on Access Points facilitating
electronic document exchange, and on the development of Connectors linking
them with user applications (CEF, 2016). This approach was to ensure that any
applications of external users cooperating with each other could be connected,
based on the use of universal communication interfaces. In this case, an ap-
proach based on base information was used, defining the unit as the center of
action allowing for the collection, storage and sharing of information on indi-
vidual units (package, pallet, etc.), which proved to be a suitable solution for the
communication format. By using this technology, each participant becomes a
node in the information exchange network, using standard transmission proto-
314
cols based on a security policy. It also provides a basis for direct communication
between participants without the need to create closed, bilateral data exchange
channels. This type of solution helps to overcome the barriers to the technical
integration of computer systems, thereby accelerating the exchange of informa-
tion between companies, while reducing their operating costs. This can be seen
above all in international communication, where a huge amount of data requires
fast and reliable ways of redistribution. The structure of the standard is shown
best in Figure 2, which shows the so-called 4-Corner model.
Figure 2. e-Delivery standard (4-Corner model)
Source: Own study.

The most important elements of this standard are:
• Access Point – provides standard protocols for the exchange of
information;
• Connector – ensures proper interaction between the Access Point and
the end user;
• Certificate – ensures the security of information exchange between end
users in the network.
Access Point can contain software that transforms data from one standard
to another in a way that is unequivocally identifiable by the parties involved in
the information exchange process. In this structure, each entity that is connect-
ed to the data exchange infrastructure has its own profile. One of its elements
315
is a format that uses the entity for electronic data exchange. If the sender and
receiver use different formats of electronic documents, the information from
the sender is converted by the Access Point to which it is connected into the
e-Delivery infrastructure standard and then sent to the recipient’s Access Point,
where it is converted to the standard format it uses. Figure 3 shows the conver-
sion of LOGINK standard to other formats (e.g. SMDG).
In recent years, many EU-funded R&D projects have dealt with informa-
tion and communication technology issues in transport and logistics (Pedersen,
2012). One of these projects is e-Freight, and one of its results was defining a
common framework with definitions of a package of messages supporting the
exchange of business documents between several entities in the logistics and
transport industries.
Figure 3. Diagram for converting the LOGINK standard to other formats.
Source: Own study.
This framework has been incorporated into ISO/IEC 19845 –Information

technology – universal version of business version 2.1 (UBL v2.1) (OASIS,
2013). UBL v2.1 models processes and defines documents supporting interac-
tions between logistic entities. In order to be able to implement a solution in the
field of practical solutions, three key issues need to be considered:
316
a) e-Freight defines extensions in UBL v2.1 by itself, both in terms of exist-
ing UBL messages and additional messages, as not all common frame-
works are included in UBL v2.1.,
b) simultaneously, the e-Freight messages contained in UBL v2.1 are a sub-
set of corresponding messages in UBL v2.1, because not all elements of
the standard are used in e-Freight,
c) the definitions of e-Freight are difficult to apply in practice, mainly in
terms of the actual process of data exchange, lack of knowledge or experi-
ence in the process of adopting standards and limited resources.
To address these problems, one of the goals of the e-IMPACT project
(INEA, 2015a; INEA, 2015b) was to develop a set of tools and methods to
implement standard information exchange messages. Thanks to this, an e-
Freight user is able to use the proposed solutions contained in the toolkit to the
extent it deems convenient. One of the solutions identified is a set of rules and
recommendations that will help users cope with the wide range of possible ap-
plications of e-Freight. This methodological approach will enable participants
of the information exchange chain, both existing and new, to implement strictly
defined rules of conduct enabling an identical understanding of the applied so-
lutions by all process users.
Another objective is to provide additional elements for the process of ex-
change of messages. These elements facilitate the interpretation of message
content mainly in “dialog situations” and allow the use of effective procedures
for processing incoming messages. An example could be the fact that in Trans-
portStatus messages both UBL v2.1 and e-Freight contain an element used to
identify the TransportStatusRequest file, but its use is optional. This can be
useful for a requester (“inquirer”) to be able to easily identify the context used
for the status obtained, without having to go through the entire content of Traf-
ficStatus program.
. Proposed actions to support the implementation of the

e-Freight structure
When analyzing the above theoretical and practical issues, one should con-
sider what are the elements of a toolkit and what methodology of its implemen-
tation should be adopted in the process of adopting the described solutions.
317
An analysis of the contents of the e-Freight toolkit, taking into account its
implementation, is a very important aspect (Figure 4).
Figure 4. e-Freight tool package
Source: Own study.
The tool package consists of two basic groups:

1. Basics, that contain initial information about e-Freight, a set of e-Freight
principles and how to use them, the definition of e-Freight messages and the
specification and way of using Access Points. They include:
a. Code lists, which are a tool consisting of a set of codes. Each list contains
codes and corresponding descriptions to be used in data elements speci-
fied in the Map Templates and refer to a specific code list. The code lists
are based on standards, recommendations from certification bodies gen-
erally accepted references or specific codes,
b. Validation rules, containing a set of rules, conditions, and values, en-
suring interoperability between partners at the level of the process and
technical conditions,
c. Tests to be carried out at the final stages of e-Freight principles imple-
mentation. If the expected test results are achieved, this means that the
user is ready to interact using the e-Freight framework.
318
d. Position evaluation questionnaire – this tool contains a list of questions
grouped by category (e.g. technical, process, business, etc.), aimed at po-
tential users to indicate the point where they are currently in the process
of implementing a given solution. It is also necessary from the point of
view of determining the path to be taken in order for the implementa-
tion to succeed. The questionnaire shall be supplemented by evaluation
criteria for each category. They set out the exact progress of the user’s uti-
lization of e-Freight solutions (examples: ready-to-use e-Freight, minor
changes required before the adoption of e-Freight, etc.).
e. Access Point – specification – this tool illustrates the specification ad-
opted in the e-Impact project for Access Point, guidelines for the develop-
ment of Connectors and how they interact with Access Point.
2. Examples, that aim to present practical applications of the solution on the
example of individual cases developed in the e-IMPACT project and by the
history of a hypothetical company implementing a given solution in practice.
Tools in this group include:
a. Map Templates, designed to help each user with the process of exchange
of messages within e-Freight in the context of their own business. In brief,
the templates present the data structure of e-Freight messages and their
components, organized in a tabular layout. Rows contain data elements,
while columns have a different structure (characteristics/data definitions,
notes, the quantity of set, application and source/destination of data),
b. Access Point – software, a tool being a part of the software that pro-
vides interconnection between internal applications of interested entities INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
and the e-Freight infrastructure and enables connections between Access
Points based on messages based on the e-Freight structure. The structure
of Access Point is based on the implementation of the source code of
the open e-SENSE4 structure called Domibus. The source of this im-
plementation is made available under a public license of the European
Union V1.1,
c. Principles and Recommendations, containing a set of instructions that
define the rules of conduct within e-Freight and instruct the user what
is needed to use e-Freight for existing or new processes. In addition, it
contains a description of recommended practices in the implementation
of e-Freight or descriptions of changes to the current use of e-Freight,
319
including recommendations for mapping messages between users based
on e-Freight rules.
d. Connector – a software that connects internal applications of users or
other message systems with Access Point.

Figure 5 shows a chain of activities, the methodological application of which
is a guarantee of the proper implementation of the e-Freight structure and
which has been used and verified in the e-Impact project.
Figure 5. e-Freight structure implementation chain.
Source: Own study.
This methodology is the result of research work and expert consultations

carried out within the e-Impact project. The experts were representatives of
companies taking part in a practical implementation of the concept of the pro-
posed solution. The methodology of implementing the e-Freight structure pre-
sented in the figure above consists of 8 stages, consecutive in a logical sequence.
In a detailed analysis of the methodology developed, attention should be paid
to the following details of individual stages.
The first step that each user should take before implementing e-Freight is to
familiarize oneself with the tool package contained in the Basics. There we will
find a full specification of the requirements, examples of applications, as well as
320
concepts and definitions used in specific areas of logistics and data exchange,
such as:
• Role in logistics and transport,
• Set of e-Freight principles and its use
• Definitions of e-Freight messages
• Specification of Access Points and their application
• The applied standards and relations between e-Freight and ISO 19845
(UBL v2.1)
The second step should be to complete the Position Evaluation Ques-
tionnaire. Using this tool will help the user to determine the exact position of
their organization in the implementation process of e-Freight solutions, and in
particular:
• define the role of the organization in the area of logistics, taking into ac-
count e-Freight implementation requirements
• specify the type of messages that can be used in data exchange between
participants in the area of e-Freight framework requirements,
• determine a list of codes they can use, etc.
The third step is to analyze the Map Template for maps included and de-
scribed in the e-Impact Mapping Template Manual. This will give the user the
opportunity to familiarize oneself with templates, composites and business ele-
ments enabling them to:
• map the e-Freight data elements to their own data structures of the ap-
plications used, INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
• analyze the data structure, which elements of e-Freight are actually re-
quired in a given information exchange process,
• analyze the data structure, in terms of eliminating some e-Freight
components,
• make several working copies of selected mapping templates.
The fourth step is to use tools allowing to obtain guidance and recommen-
dations on the use of message types, as well as the exchange process.
The fifth step is to use tools verifying the usability of an already existing and
classified Access Point model, supporting interoperable data exchange between
different systems. This solution is represented by the implementation of the
321
e-SENS4 source code called Domibus, made available by the European Com-
mission under the public license V.1.1.
The sixth step is to develop a module called Connector, which acts as the
intermediate server between the user’s IT system and Access Point. It will be
used to convert a message coming out of the user’s application to an e-Freight
framework consistent message standard and then it will be sent to the end user
via Access Point.
The seventh step is the process of installing and testing Access Point on the
user’s server. This can be done on the basis of the methodology contained in the
Access Point Installation Guide.
The last, eight step is verification of the Connector’s structure in terms of
functionality and compliance with e-Freight standards. These actions will indi-
cate whether a message modification is required or the implemented structure
is sufficient to communicate with external IT systems.
6. CONCLUSION
The aim of this article was to present the possibilities of using the e-Freight
standard as a factor significantly affecting the efficiency of information flow in
the supply chain. The efficiency of information flow depends directly on the
communication standards applied by individual links in the supply chain. Ap-
plying the presented framework of the procedure methodology in the process of
implementing e-Freight solutions will allow:
• precise determination of the company’s IT advancement level for the im-
plementation of messages consistent with the e-Freight standard,
• the appropriate choice of communication protocols responsible for data
exchange,
• seamless and functional transition through all stages of implementing the
solution,
• universal and standardized approach to developing information exchange
solutions in the logistics industry, based on international standards,
• unification of business processes,
• improving the functioning of enterprises, shortening the service time and
reducing the costs of business activity,
322
• creating an integrated ecosystem based on the transparency of processes
taking place between the entities involved,
• merging various business applications created as a set of independent
components into one ecosystem.
In this article, the authors focused on the conceptual assumptions of using
the e-Freight standard and this, at the same time, presents main research limita-
tion. As part of the realization of the e-Impact project, the implementation of
a practical application of the proposed solution in business practice is currently
in progress. Further research of the Authors is aimed at presenting the analysis
of the implementation of the e-Freight standard and its impact on the efficiency
of implementation of logistic processes.
Acknowledgments:
This work has been fully supported/funded by Connecting Europe Facility
TRANSPORT under Grant No. 2014-EU-TM-0686-S “e-Freight Implemen-
tation Action (e-Impact)”.
REFERENCES
Adamczak M., Domanski R., Hadas L., Cyplik P. (2016). The integration between the pro-
duction-logistics system and its task environment-chosen aspects. IFAC-PapersOn-
Line, 49(12), 656-661.
Bigaj Z., Koliński A. (2017). The analysis of the effectiveness of the cold supply chain with

the use of mobile technology. LogForum, 13 (1), p. 77-90.
Bottani E., Montanari R., Volpi A. (2010). The impact of RFID and EPC network on the
bullwhip effect in the Italian FMCG supply chain. International Journal of Production
Economics, 124(2), 426-432.
Brandenburg M., (2016). Supply chain efficiency, value creation and the economic crisis –
An empirical assessment of the European automotive industry 2002–2010. Interna-
tional Journal of Production Economics, 171 (3), p. 321-335.
CEF eDelivery (2015). Introduction to the Connecting Europe Facility - an eDelivery build-
ing block, Directorate-General for Informatics, European Commission, Brussels;
[available at http://ec.europa.eu/inea/sites/inea/files/building_block_dsi-introdoc-
ument_edelivery_v1_00.pdf, access January 21, 2018]
CEF Projekt & Architecture Office, (2016). eDelivery Tutorial. How can CEF help you set-
up your eDelivery infrastructure?, European Commission, Brussels
323
Cyplik P., Hadas L., Adamczak M., Domanski R., Kupczyk M., Pruska Z. (2014). Measur-
ing the level of integration in a sustainable supply chain. IFAC Proceedings Volumes,
47(3), p. 4465-4470.
Dujak D., Zdziarska M., Koliński A. (2017). GLN standard as a facilitator of physical loca-
tion identification within process of distribution. LogForum, 13 (3), p. 247-261.
Geunes J., Romeijn H. E., van den Heuvel W. (2016). Improving the efficiency of decentral-
ized supply chains with fixed ordering costs. European Journal of Operational Research,
252 (3), p. 815-828.
Golinska P., Fertsch M., Pawlewski P. (2011). Production flow control in the automotive
industry–quick scan approach, International Journal of Production Research, 49(14), p.
4335-4351.
INEA (Innovation and Networks Executive Agency), (2015a). Project: e-Freight Implemen-
tation Action (e-Impact), Connecting Europe Facility, [available at: https://www.eim-
pactproject.eu/ , access January 21, 2018]
Innovation and Networks Executive Agency, (2015b). Project: e-Freight Implementation
Action (e-Impact), Connecting Europe Facility; [available at: https://ec.europa.
eu/inea/en/connecting-europe-facility/cef-transport/projects-by-country/multi-
country/2014-eu-tm-0686-s, access January 21, 2018]
Lichocik G. & Sadowski A. (2013). Efficiency of supply chain management. strategic and
operational approach, LogForum 9 (2), 119-125.
Łagowski, J. (2009). SOA–Ideologia nie technologia. 15th PLOUG Conference, Kościelisko.
Maiga A. S., Nilsson A., Ax C. (2015). Relationships between internal and external informa-
tion systems integration, cost and quality performance, and firm profitability. Interna-
tional Journal of Production Economics, 169, p. 422-434.
Mishra R. K. (2012). Measuring Supply Chain Efficiency: a Dea Approach. Journal of Opera-
tions and Supply Chain Management, 5 (1), p. 45-68.
Nakatani K., Chuang T. T., Zhou D. (2006). Data synchronization technology: standards,
business values and implications. Communications of the Association for Information
Systems, 17(1), p. 44.
Nam T. & Yeom K. (2011). Business-aware framework for supporting RFID-enabled ap-
plications in EPC Network. Journal of Network and Computer Applications, 34(3), p.
958-971.
OASIS Standard (2013), Universal Business Language Version 2.1; [available at: http://
docs.oasis-open.org/ubl/UBL-2.1.html, access January 21, 2018].
Pedersen J. T. (2012). One common framework for information and communication systems
in transport and logistics: Facilitating interoperability. In Golinska P., Hajdul M. (eds),
Sustainable transport, Springer Verlag, Berlin Heidelberg, p. 165-196
Ramos A., Lazaro A., Girbau D., Villarino R. (2016). RFID and Wireless Sensors using Ultra-
Wideband Technology, Elsevier.
Ross, D. F. (2011). The Introduction to Supply Chain Management Technologies, 2nd Edition,
Boca Raton, FL, United States of America: CRC Press, Taylor & Francis Group.
324
Rummler G. & Brache A. (1995), Improving performance: how to manage the white space
on the organization chart, Jossey Bass Business and Management Series.
Shi, X., & Chan, S. (2007). Information Systems and Information Technologies for Supply
Chain Management. in Waters, D. & Waters, D. (Ed.), Global Logistics - New Direc-
tions in Supply Chain Management, 5th Edition, The Chartered Institute of Logistics
and Transport, Kogan Page Limited, p. 177-196.
Silva R. S. & Carvalho M. F. (2013). Evaluation of Information Integration in Supply Chain:
A Case Study of Automotive Sector. IFAC Proceedings Volumes, 46(24), p. 65-70.
Sliwczynski B., Hajdul M., Golinska P. (2012). Standards for transport data exchange
in the supply chain–pilot studies. In KES International Symposium on Agent and
Multi-Agent Systems: Technologies and Applications. Springer Berlin Heidelberg, p.
586-594.
Sohrabpour V., Oghazi P., Olsson A. (2016). An Improved Supplier Driven Packaging De-
sign and Development Method for Supply Chain Efficiency. Packaging Technology and
Science, 29 (3), p. 161-173
Trojanowska J., Varela M.L.R., Machado J. (2017). The Tool Supporting Decision Making
Process in Area of Job-Shop Scheduling. In: Rocha Á., Correia A., Adeli H., Reis L.,
Costanzo S. (eds) Recent Advances in Information Systems and Technologies. World-
CIST 2017. Advances in Intelligent Systems and Computing, vol 571, p. 490-498.
Varela M.R.L, Trojanowska J., Carmo-Silva S., Costa N.M.L., Machado J. (2017). Com-
parative simulation study of production scheduling in the hybrid and the parallel flow,
Management and Production Engineering Review, 8(2), p.69-80.
325
REDESIGN OF THE MARKETING
ORGANIZATIONAL STRUCTURES
Ivana Nobilo van Herak Dejan Laninović: REDESIGN OF THE MARKETING ORGANIZATIONAL STRUCTURES TOWARDS THINK – FEEL – DO MODEL
TOWARDS THINK  FEEL  DO

MODEL
Ivana NOBILO, univ.spec.oec.

Postgraduate doctoral study ‘Management’
Faculty of Economics, Osijek
E-mail: ivananobilo@gmail.com
Ivan HERAK, Ph.D., Assistant Professor

Faculty of Economics, Osijek
E-mail: i.herak@yahoo.com
Dejan LANINOVIĆ, univ.spec.oec.

Postgraduate doctoral study ‘Human Resources Management
College of Modern Science, Mostar
E-mail: laninovic@gmail.com
Abstract
The authors wanted to present the Think - Feel - Do management model as a
potentially appropriate base for a new model of managing tasks and produc-
tion processes in a marketing - oriented companies that operate in accordance
to the digital age market demands, where the user‘s experience has become a
centre of business, and the speed of the reaction has become the key to the busi-
ness survival. Internet and accompanied technology have accelerated this pace
of doing business, so the place of doing business is no longer important because
the global market is available from every corner of the world and imposes
virtual skills when managing tasks, projects and in organizations in general.
All this requires a rapid flow of information’s, quick adaptation, and also
multiplying channels of communication and participation in the execution of
326
various tasks. The key to the success lies in the people, so the successful team
management has become an obligate task to follow.
Key words: think – feel – do model, management, team management, busi-
ness optimization.
INTRODUCTION
The digital world exists everywhere around us. The use of social networks is
growing daily. Their impact on the marketing and the businesses is enormous. A
whole new set of channels has shifted from the focus of communicating of such
messages towards a balanced mix of cross – channel dialogue, where listening,
inclinations and data for the key users are of the most importance. For market-
ing, such evolution represents a tremendous opportunity, but also a great chal-
lenge. Dialogue and content now have an endless stream. People will talk about
the product or a brand name, as they always do, but on the Internet, anyone can
see them or read about them permanently. People can choose whether to dis-
seminate such information without having to engage in a dialogue or still they
want to talk about them. They can choose whether they’ll stay anonymous or
they want to reveal their identity. Now, time and place do not matter anymore.
Internet users actively create and share relevant contents and information. Be-
cause people prefer to share their information’s with others via direct contacts
or via their social networks, they’ll become an integral element of the marketing

process. People talk using various media and channels. They no longer consume
communication messages passively, but they actively participate in a mutual
communication. So there is a need for crossc-channel interaction.
As a result, there is an ever increasing pressure on the leadership for the
purpose of redesigning the marketing organizational structure in such a way
that the customer or the customer’s experience will be at the centre of observa-
tions and for the customer, based on the analytics database, to create a personal
marketing, - intended just for him. All will be in function with the customer in
focus; all of his thinking will be at the centre of our attention.
The relationship marketing is part of a new approach to the customer re-
lationship management that aims to the mutual role of trust and loyalty of
buyers and also the sellers of products or services. This is inter - functional,
327
consumer - oriented business strategy, which is directly focused on achieving
the entire customer satisfaction, and it represents the final stage in the string
of the development of loyalty programs between consumers and their profit-

able customers. The term relationship marketing is used to promote the idea
that the main objective of such business is building the stable and long - term
relationships with all the market factors that will contribute to the company’s
success. It is considered as the highest vision of cooperation between consumers
and the businesses. It is impossible to achieve such kind of relationship if such
communications and activities have to go deeply, through the organisational hi-
erarchical structure.
ORGANIZATIONAL STRUCTURE
The name ‘organization’ comes from an ancient Greek word organon that
stood for a tool, instrument or a musical instrument. The word ‘structure’ comes
from the Latin verb struere which denotes concordance or concurrence. Accord-
ing to Drucker, the organizational structure represents a unique system of all
organizational parts that make the company.
The organization allows the realization of the most complex tasks and the
realization of the effects of synergy; shortens the time of their execution and
rationalizes the utilization of the necessary production factors.
The classical organizational theory dates back to the beginning of the twen-
tieth century, the neoclassical theory to the mid - twentieth century, and the
contemporary organizational theory belongs to the end of the twentieth cen-
tury. Classical organizational models certainly have their own advantages but
usually carry on problems, such as a distorted flow of information’s due to pro-
found hierarchical set - up, because of the lack of accountability, low degree of
introduction of innovation, and hard and slow introduction of changes. The
types of classical or traditional organizational structure are recognised as linear,
functional, semi - linear and divisional.
Neoclassical organizational theory or the theory of interpersonal relation-
ships is characterized by the dominance of sociological and psychological ap-
proaches when shaping organizational theories. Social theories its centre of
gravity usually set from formal to informal aspects of the organization (March
and Cyert, 1963). When mentioned the formal character of the organisation,
328
the greatest number of people and, above all, the laymen, thinks of the hier-
archy. But when mentioned the informal organisational aspects, people often
thought of the spontaneous interaction of people that is formed by itself as that
form of relationships in such a way contributes to the organizational structure.
Neoclassical organizational structures are semi - compliant and, above all, here
we think of the matrix of the organizational structure, and also that applies to
the modern organic structures.
Hierarchy is mostly linked to a vertically placed organizational structure
that coordinates relationships and tasks based on formal superiority that makes
such chain. The depth of the hierarchy is expressed by the number of instances
in that chain. If the horizontal coordination was not carried out at the same
level in width, we are talking about a centralized organizational structure, with-
out control of superiors in the hierarchical structure, but if the horizontal co-
ordination exists, we are talking about a decentralized organizational structure.
The organizational structure is usually associated with the organization,
which is wrong, because the organizational structure is narrower than the or-
ganization, and, along with the organizational tools and organizational proce-
dures, makes the constituent elements of the organization (Dabić et al., 2013).
The essential aspects of the organizational structure are differentiation that can
be horizontal, vertical, simple and complex, as well as an integration and chain
of command. Integration refers to the lines of responsibility, the formal com-
munication channels, formal work groups, and relationships towards authority
and responsibility, while at the same time the chain of command refers to the

task grouping in the organizational units as well as care for the size of the same
(Dabić et. al.2013).
The elements of the organizational structure are as follows (Dabić et al.,
2013):
1. The operative part that is made up of all employees.
2. The strategic part that constitutes the members of the top management.
3. The middle part that constitutes the members of the middle management
level.
4. Tech – work framework structure, made up of specialists with the gained
specific knowledge and skills, who are often positioned outside the formal
structure.
5. Staff members supporting the management.
329
The quality structure must reflect corporate goals and plans; they must de-
fine management competencies, and ensure effective performance of jobs and
tasks throughout the team collaboration. For every company, no organizational

structure is perfect and such structure is not ‘a dead organism’ and needs to be
adapted to the human resources it possesses and to the surrounding environ-
ment of influence.
BUSINESS OPTIMIZATION
In today’s rapidly changing market environment, management and leader-
ship have become increasingly difficult and demanding, and from the managers
have been asked to fulfil more goals in increasingly short terms. Due to increas-
ing competition, the companies need to optimize their businesses. Each day
the new tools, methods, and approaches arise that allow for increasing business
efficiency and profitability. One such approach is also focused on the business
processes, the symbol of modern doing business (Hernaus, 2006). Since this
era does not belong to the era of the great inventions, but technological progress
is more ‘cosmetic’ and commercially oriented, the only difference is possible to
draw if you constantly keep with the training and posses good reflexes. Today
win those who can manage the cycles of procurement and implementation of
information’s, services, materials, and products during the shortest period of
time (Nobilo, 2017). One of such approaches is also aforementioned orienta-
tion on business processes that today require such decisions which have to be
taken at the level of work i.e. the occurrence of the problems, because the com-
petition destroys organizations that think they have the ability to make deci-
sions managing through a deep hierarchy (Tenner and De Toro, 1996, p.14).
The company should be organized in such a way that allows the vertical and
horizontal flow of information’s necessary for the achievement of organizational
goals (Daft, 2004, p.88).
If we want to understand the important concept in, above all, traditional,
classical organizations, and also in all other forms of organizations - is the un-
derstanding of hierarchy. The hierarchy gives them structure ‘which is a form
of a protection that keeps them away from the dangers of the outside world’
(Leavitt, 2003, p.102). New and more efficient, control concepts are constantly
sought for, but any model would hardly survive without the organization. The
hierarchy becomes shallower, and the most successful practices are even com-
330
pletely abolished or the vertical organization becomes the horizontal one and
sets a completely new view of the management itself.
People are the key constituents of the project and/or organization success.
They bring knowledge, innovation, and competence, and they are the source of
competitive advantage on the basis that it is then possible to distinguish suc-
cessful from unsuccessful organizations (Galetić, 2011, 103). Human potential
influences on determining the profile of the organization with their knowledge
and ability. With their actions, they bring to life the formal organization, but
they also shape the informal organization (Žugaj, Šehanović and Cingula,
2004, p.154).
INTELLECTUAL CAPITAL
The most developed economies in the world, more than half of their gross
domestic product based on knowledge. High tech industries have almost dou-
bled their share in their output over the last twenty years, while the services
based on knowledge and innovation has beed growing even faster.
Unfortunately, there is no single and accepted the definition of intellectual
capital as an economic, untouchable value. Nevertheless, one group of authors
and prof. Sundać who is also among them defines intellectual capital as one of
the three essential components of which synergies can result in solid intellectual
capital i which can then become a source of competitive advantage:
Human capital - skills, knowledge; skills and accumulated experience of the
company’s employees and managers reflect dynamics of intelligent organization INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
activities when applied in the competitive environment.
• Structural capital – offer support to the human capital, which includes
systems of information technology, corporate images, owners databases,
organizational concepts, documents, patents, licenses, and copyrights.
• Consumers’ capital - interrelation of the company and its clients.
People are the key element of a project’s and/or organization’s success. They
are the carriers of knowledge, innovation, and competence, and they are also a
source of competitive advantage on the basis that it is possible to distinguish
successful from unsuccessful organizations (Galetić, 2011, p.103). Human re-
sources influence the organization with their knowledge and ability. With their
331
activities, they bring to life the formal set organization, but they also shape the
informal organization (Žugaj, Šehanović, Cingula, 2004,p.154).
Instead of a business based on tangible assets, companies need to develop a

sense of creating, transferring, integrating, protecting and exploiting their in-
tangible intellectual property, i.e. the most valuable form of capital they possess
today: their intellectual capital (Kolaković, 2003, p. 3).
Since everything is circling around the people, it is necessary to know them
well, whether it is about managing the human resources or communicating with
the consumers. If we make a mistake when addressing or when assigning tasks,
we will not achieve the success and the default goals will remain unachieved. The
removal of barriers that can complicate the relationships or introduce noise into
the communication channels, the exclusion of mediators and the establishment
of direct, loyal relationships are the main tasks of all business segments, from
the management of the human resources, internal communications, through
external communications and marketing, to sales.
THINK  FEEL  DO MODEL

Today’s modern marketing organization is complex and requires a purpose-
ful planning and a combination of talent, technology, and insight into the need
of the consumers. Experts with the general knowledge managed the tradition-
al marketing in organizations. But with the development of social and digital
marketing, the development of a range of new specialized roles was ushered
in. Therefore, marketing leaders are no longer effective if they manage projects
through a hierarchical structure, but from them is expected to be in the position
of a coordinator, or better the ‘conductor’ who supervises the talents who have
at that moment gathered around a common idea that brought them together,
and that they want to put into action. This gathering may relate to individuals
within the company, outside of it, in parts of companies or in the several inde-
pendent companies.
332
Figure 1: Think - Feel - Do Model explained.
THINK FEEL DO
The focus on data and analytics The focus on inclusion and Focus on content and production
consumer experience
Source: Author
Eminent authors, like Ordanini, Dedrick and Kraemer point out that is a
better relationship ‘orchestra – conductor’ but ‘subordinate – superior’. This
model is called ‘The Orchestrator Model’ and it doesn’t categorize roles in mar-
keting by the job name, but instead classifies them into three major groups as
follows, to ‘think’ marketing, ‘feel’ and ‘do’ marketing. In the ‘thinking’ group
there are people involved with analytical skills for the purpose of taking over
of tasks, such as the analysis on optimizing the return on investment, or the
analysis of the personal data safety policy. In the ‘do’ group are those individuals
with the skills to develop working content, while the third, ‘feel’ group is focused
on the interaction with the consumers, as they usually do in customer services
on social networks. Depending on the task, the proportion of participation of
each of the three groups is subjected to changes, as can be seen in Figures 2 and
3. The formation of teams with regard to the task uses the best companies, such
as Google, Amazon, Nike or the Red Bull but it requires a specified culture in
which the central leadership has been convinced that local teams understand
their strategy and they are willing to cooperate in order to execute the job. It
works well only when everyone in the team is inspired by the purpose and clear-
ly understands the previously set goals.
333
Figure 2. De Swaan Arons-Van den Driest-Weed Case: An example of using
Think – Feel – Do model in the company Liberty Global when re-
solving the problem of reading the first account.
Source: Harvard Business Review, 2014.
334
Figure 3. De Swaan Arons-Van den Driest-Weed Case: An example of using
Think – Feel - Do model in the company Liberty Global to resolve
problems when installing converters.
Source: Harvard Business Review, 2014

JUNG’S THEORY OF TEMPERAMENT
With only a superficially glance at the distribution of tasks that are assigned
to the certain ‘Think’, ‘Feel’ or ‘Do’ groups suggests that the model can be linked
to psychological theories of personality traits or temperament, and when we
add colours that regularly appear in the graphics models: Think (blue), Feel
(green) and Do (red), by this we only confirmed the aforementioned. The only
difference that appears is evident lack of a single, yellow colour, and in accor-
dance with the author, it’s one of the main criticisms of this theory.
Based on his research, Hippocrates has identified four different types of per-
sonality, and when he, together with colleagues identified which group a person
belongs to, he could predict the response of such person. Hippocrates thought
335
they could determine the personality type of one person based on the differ-
ent proportions of his or her body fluids. Today we know that this part of his
theory that encompasses bodily fluids was inaccurate, but his observations of
the behaviour of an individual were so accurate that they formed the foundation
for many personality theories of today.
Based on the work of Hippocrates, the Swiss psychologist Carl Jung has
defined the four temperaments that he characterized by the following colours:
cold blue, earthy green, sunny yellow and fiery red. Each individual has embed-
ded in his personality the energies of the entire colours, but presented in differ-
ent proportions.
Figure 4. The four temperaments by Carl Jung.
Source: Bradway, K. (1964), “Jung’s Psychological Types”, The Journal of Analytical Psychol-
ogy, Vol. 9, No. 2, pp. 129-135.
Depending on the situation, our different energy colour and behavioural

characteristics associated with them will be present, so cold blue shows detach-
ment; it is aimed toward the goals and is analytical, while earthly green gives a
peaceful character, resolves the situation and it’s compassionate. Bright yellow
336
gives cheerful and witty character which lifts and inspires, and the red hot co-
lour is positive, determined and persistent. Hence, this would be some of the
characteristics of each of the four groups of characters: blue suggests cautious,
precise people who care for formality, green colour describes a caring and re-
laxed people who like to share; yellow describes dynamic, persuasive people that
are easy to excite and the red colour accordingly competitive minded, demand-
ing people of the strong will. Of course, here are not listed all of the features, but
this brief overview will serve us to easier connect theory and practice, as well as
a mini - guide for the constitution of formation depending on our needs, i.e. for
the task for which the same has been formed.
CONCLUSION
In today’s digital, globally networked world, all processes have accelerated.
This acceleration has not overlooked marketing but it is clearly seen in the mar-
keting. Not only is there a multitude of available information’s, but all the infor-
mation’s are coming to us through the multiple channels; it is more proper to
say that they are breaking through and constantly testing our time and curiosity.
Although more messages and contents are produced than ever before, thought
peoples interest in them actually falls. All people can almost find and know all
requested facts. We can say that general knowledge is available and therefore
less appreciated in the business world. That is not enough. The secret of success
lies in the specialization. We are constantly looking for ways to ‘be better than
other’ and to come up with the different approaches. Today, many tactics and
tools that have recently been considered as ‘the latest and experimental’ are now
common practice. Neither the marketing departments have been bypassed as
they see a clear need for the redesign of the organizational structures that can
go hand in hand with today’s business requirements.
Let’s imagine, for a moment, in today’s world of social networks and on-
line media, the situation of a traditional organizational structure, considering
a deep hierarchy, whose public relations department should properly respond
to an income crisis situation, respond to the provocation from the competition
campaign, design and realize any marketing, sales or improvement action, but
need agreement of five or even more people who were positioned higher in the
company’s hierarchical order. Today, for the abovementioned to consider more
than one person can be too much.
337
Modern approaches to the management cited approach based on the charac-
teristics, access based on skills and style, situation access and team leadership as
a possible model of leadership and Think – Feel – Do model has been derived
from the individual characteristics of each of these approaches. Some individual
authors like Debellis indicate the fourth, yellow colour that is lacking in the
basic Think – Feel – Do model that would form a ‘Create’ group and accord-
ingly, it would be responsible for developing the new products, improving exist-
ing products and general planning and innovation development. The authors of
this study agree with the need for the introducing of this fourth category beside
other groups, which would represent the characteristics of the ‘sunny yellow’
temperament, but the more appropriate name would be ‘inspire’ or ‘innovation’,
so the members of this category would be, in addition to the abovementioned,
in charge for the new ideas, to promote innovation and inspiration of consum-
ers outside the company, or for the members of the team within the company.
When creating teams of specialists in accordance with the particular task, and
once we’ve involved them in sufficient numbers, but also in a way that is best for
the given situation, they will produce the best results during the shortest period
of time. The ‘orchestra’ that consist of the blue, red, green and yellow colours is
the future model that has already begun today.
Authors of this paper think that Think Do Feel Inspire Model alone or com-
bined with some other techniques may also be a possible good tool for recruit-
ment and help in the personal development plan of employees run by human
resource departments. A possible way of researches may focus on proving that
personality can help or aggravate doing the job because there is small chance
that Sunny Yellow can enjoy working in Research and Development Depart-
ment or to find out that caring Earth Green is great for customer support. A
great team is made of all “four colours” but on the right spot for them.
REFERENCES
Bradway, K. (1964). Jung’s Psychological Types. The Journal of Analytical Psychology, [online]
9(2), pp.129-135. Available at: http://onlinelibrary.wiley.com/doi/10.1111/j.1465-
5922.1964.00129.x/full [Accessed: 13.02.2017].
Cyret, R.M. and March, J.G. (1963). A Behavioural Theory of the Firm. New Jersey:
Prentice-Hall.
Dabić, M., Potočan, V., Nedelko, Z. and Morgan, T. R. (2013). Exploring the use of 25
leading business practices in transitioning market supply chains. International Journal
338
of Physical Distribution and Logistics Management, [online], 43(10), pp.833-851. Avail-
able at: https://doi.org/10.1108/IJPDLM-10-2012-0325 [Accessed: 03.03.2017].
Daft, R. L. (2004). Organization Theory and Design. Mason, OH: Thompson, p.88
Debellis, M. (2014). Think, feel, do – the new pillars for marketing success. CUInsight,
[online]. Available at: https://www.cbinsight.com/think-feel-do-the-new-pillars-for-
marketing-success.html [Accessed: 01.03.2017].
De Swaan Arons, M., Van den Driest, F. and Weed, K. (2014). The Ultimate Market-
ing Machine. Harvard Business Review, [online] pp.55-63. Available at: https://hbr.
org/2014/07/the-ultimate-marketing-machine [Accessed: 03.03.2017].
Galetić, L. (2011). Organizacija velikih poduzeća. Zagreb: Sinergija, p.103
Heineman, P. (1995). History of Temperament and Temperament Theory. [online] Person-
ality Project. Available at: http://personality-project.org/others/heineman/HISTO-
RY.HTM [Accessed: 16.02.2017].
Hernaus, T. (2006).Transformacija klasične organizacije u organizaciju orijentiranu na poslovne
procese. MPhil. Faculty of Economics Zagreb. Available at: http://web.efzg.hr/dok/
OIM/thernaus/HERNAUS%20-%20Transformacija%20klasicne%20organizaci-
je%20u%20organizaciju%20orijentiranu%20na%20poslovne%20procese.pdf [Ac-
cessed: 04.03.2017].
Kolaković, M. (2003). Teorija intelektualnog kapitala. Ekonomski pregled, [online], 54 (11-
12) pp. 925-944. Available at: https://www.google.com/url?sa=t&rct=j&q=&esrc=s
&source=web&cd=1&ved=2ahUKEwjn7o2I-fPaAhXM16QKHQwGC58QFjAA
egQIABAn&url=https%3A%2F%2Fhrcak.srce.hr%2Ffile%2F40500&usg=AOvVa
w2ZBINlrmEw7gkNrbMNY4A4 [Accessed: 08.03.2017.]
Leavitt, H. J. (2003). Why Hierarchies Thrive. Harvard Business Review, [online] Vol. 81,
3, pp.102. Available at: https://hbr.org/2003/03/why-hierarchies-thrive [Accessed:
06.03.2017].
Nobilo, I. (2017). Marketing je žensko?! In Magazin, [online]. Available at: http://www.
inmagazin.net/ivana-nobilo-marketing-je-zensko/ [Accessed: 19.03.2017].
Ordanini, A., Dedrick, J. and Kraemer, K.L. (2006). Medion: The “Orchestrator” Business
Model. [online] UC Irvine: Center for Research on Information Technology and Organi-
zations. Available at: http://escholarship.org/uc/item/3m7659m2#page-8 [Accessed:
05.03.2017].
Tenner, A.R. and De Toro, I.J. (1996). Process Redesign: The Implementation Guide For Ma-
nagers. New Jersey, NY: Prentice Hall, New Jersey, p.14.
Žugaj,M., Šehanović, J. and Cingula,M.(2004). Organizacija. Varaždin: TIVA Tiskara
339
THE DEMAND FOR AUDIT
SERVICES FROM NON
Bahtijar Berisha  Ivan Kristek: THE DEMAND FOR AUDIT SERVICES FROM NON-GOVERNMENT ORGANIZATIONS: EVIDENCE FROM THE KOSOVO
GOVERNMENT ORGANIZATIONS:
EVIDENCE FROM THE KOSOVO
Bahtijar BERISHA, Ph. D. student

Audit BB L.L.C.
Ph.D. Student at Faculty of Economics in Osijek
E-mail: baberisha@hotmail.com
Ivan KRISTEK, Ph. D.

E-mail: ivan.kristek@efos.hr
Abstract
This paper aims to identify the factors that determine the demand for audit
services from NGO-s in Kosovo. From a theoretical point of view, the main
purpose of auditing of financial reports is to provide an opinion on the ac-
curacy, reliability and whether the financial position and performance of the
organization materially represent a true and fair view of the organization, so
that this opinion is available for interested parties.
From this view, the audit can be treated as an added value of the organization
that goes through the audit process and makes the audited financial reports
available to the interested parties. Although in most countries, including Koso-
vo, the audit is mandatory and regulated by law, voluntary audits should be
the requirement of each organization, so that the audited financial statements
increase transparency and credibility of stakeholders for this information and
so would indirectly increase the value of the organization.
Therefore, the main purpose of this paper is to measure the factors that affect
the demand and supply of audit services for NGOs in Kosovo. In our study,
we have chosen the NGO sector in Kosovo, because they are among the first
340
organizations that have gone through the audit process in Kosovo. The authors
investigated this topic but did not find any research that covered this issue.
The study is generally based on data collection through a questionnaire, de-
signed to collect relevant data about the qualitative assessment of the impact of
the factors theoretically known such as; legal obligation, the obligation to donors
and voluntary choice to audit the financial statements of NGOs in Kosovo.
From the results of the analysis, related to the importance of the variables of the
model, it resulted that the legal obligation and the obligation from the donors
prevail over the voluntary choice to audit the financial reports of NGOs in
Kosovo.
Key words: NGO-s, External Audit, Financial Reports, Kosovo.
JEL Classification: J20, L00
1. INTRODUCTION
Financial and audit services are quite essential to the life of any business that
involves the use of financial and human resources. NGOs as part of business
life, as heterogeneous groups possessing varying size, age, sector, location, with
non-profit target, driven by motivations for creating of values benefited from
business, government and other social and economic sectors in form of dona-
tions, grants, other revenues from economic activities, revenues in kind, etc. for
distributing them to different public beneficiaries in different time and location
in the form of humanitarian aid and services.

This process involves the use of public financial and human resources, there-
fore the role of accounting, financial reporting and auditing is essential for
transparency and reliably use of these resources.
NGOs play an important role in supporting the socio-economic develop-
ment of the country, so the financial reports presented by them are within the
overall social and economic interest of each country.
From this point of view the NGO board members must determine how best
to spend organization resources in a way that promotes both accountabilities, as
well as transparency, so they prepare financial reports which represent a struc-
tured form of the financial position of the organization on a certain date and
also the results of their operations for a certain period of time.
341
These financial reports are usually prepared by management, but due to dif-
ferent interests among stakeholders, these reports may not represent properly
the financial position of the organization and the results of its operations, one
of the reasons why the board of directors and the management of NGOs en-
gage a third party auditor, which through the methodical, professionally and in-
dependently verifies the accuracy of these financial statements and thus provide
to the audience with a higher level of assurance.
According to the theoretical concepts, the audit is generally defined as, a
planned and documented activity performed by qualified persons and that
through investigation, examination or evaluation of objective evidence, determi-
nation of suitability and compliance with pre-established procedures, or docu-
ments applicable and the effectiveness of their implementation, a definition that
can refer to auditing in accounting, financial reporting, internal control, quality
management, project management, human resource management, operations
etc.
Whereas, according to American Accounting Association, auditing is a sys-
tematic process of objectively obtaining and evaluating the evidence regarding
assertions about economic actions and events to ascertain the degree of corre-
spodence between those assertions and established criteria and communicating
results to interested users (Auditing Concepts Committee, 1971).
In Kosovo, audit as an economic activity is considered relatively as a new
field, its experience and development are generally related to the stages of birth
and development of the state of Kosovo after the last war of the dissolution of
the former Yugoslavia.
Therefore, our aim is focused on practices and audit development after the
year 1999, and specifically, our research will focus on the research and impact of
factors affecting the demand of audit services and as well audit benefits with in
NGO sector in Kosovo.
Given the fact that in Kosovo as a new State with emerging economy, audit
and assurance services are a new area, in our knowledge, it hasn’t been done any
research study regarding the demand for audit services within NGO sector.
Many scientific types of research and publications have been made in this
area, most of the possible factors that have an impact directly or indirectly to
the determination of the demand for audit and assurance services have been af-
342
fected and discussed, depending on the social circumstances, structure and level
of economic development of different countries of the world.
The external audit of publicly owned companies may be viewed as a public
good in that each party may use the audited information in the financial state-
ments without either contributing to its cost or reducing it’s availability to other
users.
The outcome of the audit is informative to suppliers of capital and credit, as
well as to all other current and potential stakeholders in a company (Dedman
E. at al.,2014, 1–23 ).
From this view, the audit can be treated as an added value of the organiza-
tion that goes through the audit process and makes the audited financial reports
available to the interested parties, so in this paper our focus will be on analysing
the perceptions of accounting professionals and auditors on the issue of how
NGOs are interested in making voluntary audits of their financial statements.
In a word in this study we specifically pursued two main objectives: (1) as-
certain the determinants of demand for audit services among NGO-s in Koso-
vo and (2) to determine whether audit services have a significant effect on the
success of NGO-s.
The remainder of this paper proceeds with a general overview of accounting
practice and audit services in the Republic of Kosovo and institutional regula-
tion regarding financial reporting and auditing with in NGOs in, legal frame-
work of NGOs in the Republic of Kosovo continuing with literature review and

development of the hypotheses related to the demand for audit services within
NGO sector. In section 4, we describe our methodology data analyses, analysis
of data and presentation of results, the conclusions and limitations are drawn
in section 5 and 6.
2. GENERAL OVERVIEW ON ACCOUNTING

PRACTICE AND AUDIT SERVICES IN THE
REPUBLIC OF KOSOVO.
After the dissolution of the former Yugoslavia and the end of the War in
1999, Kosovo has developed its accounting, financial reporting, and auditing
profession in accordance with the best practices of the accounting, financial re-
343
porting and auditing system applied by most developed countries of the world.
These countries in the economic literature of this field are considered the birth-
place of the accounting and auditing system.

In this premise, the accounting system, financial reporting, and auditing
system in the Republic of Kosovo generally is regulated by GAAP (Generally
Accepted Accounting Principles, IAS (International Accounting Standards),
IFRS (International Financial Reporting Standards) and ISA (International
Standards on Auditing).
As in most countries financial reporting and auditing is mandatory and reg-
ulated with law, in Kosovo as well this issue is regulated by law since 2001, in
this aspect we mention UNMIK Regulation No. 2001 / 30 which the purpose
was to establish the Kosovo Board on Standards for Financial Reporting and
a regime for financial reporting of business organizations in Kosovo, including
the certification of accountants and licensing of auditors (UNMIK, 2001).
Following the promulgation of Kosovo’s independence, this regulation was
replaced by the Law on Accounting, Financial Reporting and Auditing No. 04
/ L - 014 in 2010. This law regulates the accounting and financial reporting
system of commercial companies, the KCFR’s (Kosovo Council for Financial
Reporting) competences, and responsibilities, audit requirements, qualifica-
tions for professional accountants, licensing of domestic and foreign auditors
and audit firms.
. Overview of the legal framework of NGOs in the

Republic of Kosovo
In the world economic literature there are many definitions about NGOs,
we can find them as; Not-for-Profit Organisations (NPOs) which are also of-
ten referred to as Development Organisations, Private Voluntary Organisations
(PVOs), Civil Society Organisations (CSOs), or Charities and other similar
terms as Public Benefit Organizations (PBOs).
In Kosovo, the NGOs may be an “Association” or a “Foundation” established
to pursue issues of general public benefit or mutual interest. NGOs, as a sepa-
rate sector of Kosovo’s economy and society, have a non-profit character and act
on the principle of membership and overall public benefit.
344
After the war of the dissolution of the former Yugoslavia, NGOs have played
one of the key roles in reconstructing the social life and economy in Kosovo.
Under the legal framework, NGO means a non-governmental organization
registered in accordance with the provisions of the legislation in force. NGOs
operating in the territory of the Republic of Kosovo may be local and interna-
tional NGOs.
The functioning and reporting of NGOs in Kosovo were initially regulated
by UNMIK Regulation No. 1999 / 22, on the year 2009 this regulation was re-
placed by Law No. 03 / L - 134. In generally NGO should implement internal
accounting and administrative procedures necessary to ensure the transparent
and proper use of its financial and other resources.
According to the applicable law, the NGOs that hold the status of the public
beneficiary are obliged to keep proper books of accounts and other records in
relation to its operations and report annually on their activities as well prepare
the financial statements and submit to the NGO Liaison Office.
The financial statements are comprised of the balance sheet and the state-
ment of income, while the annual activity report should describe the aims and
objectives set by the organization, and the strategies and activities are under-
taken to achieve them, the report may also, where relevant, explain how the
objectives set for the year relate to longer term strategies and objectives set by
the organization.
Those NGOs having the public beneficiary status with an annual income
over 100,000.00 Euro the financial statements prepared and submitted, should
include an opinion signed by an independent audit as for whether the financial INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
statement presented fairly in all material respects, the organization financial po-
sition for the year ended.
We mention that NGOs in Kosovo may be considered the backbone of an
economy as they are a major contributor of job creation and play an important
role as efficient providers of intermediate goods and services between govern-
ment activities, commercial societies, and general public benefit.
3. LITERATURE REVIEW
Since our focus has to do with the financial reporting and the demand for
auditing of the financial statements of the business society, part of which is
345
the NGOs as well, we have reviewed the existing literature in this area and
we found a lot of research on this matter where we find the conclusions that
from the audit of the financial statements the companies have many benefits,
such as Auditing is one of the control mechanisms to reduce problems arising
from the separation of ownership and control ( Jensen & Meckling, 1976, 305-
360), audits affect the reliability of financial information by reducing the risk
of investments (Fallatah, 2008), the audit encourages management to engage
in internal monitoring by improving the internal control system (Ghosh, 2007,
1-15), the audit gives credibility to financial statements by reducing uncertainty
and risk (Broadley, 2006), the audit enables error correction in financial state-
ments (Hylas & Ashton’s 1982, 751-765), According to (PCAOB, 2013) some
business benefits from the audited financial statements are as the following: Re-
liable financial statements, including related disclosures, assurance about inter-
nal control, going concern warnings, robust audit committee communications.
As a summary from the reviewed literature we can understand that, a finan-
cial statement audit provides numerous benefits to the long-term health and
continued success of companies, especially non-profit organizations, a fact that
from promoting such an environment for the government, current and prospec-
tive donors and as well the general public, assures the establishing and main-
taining adequate processes of the organization.
According to Hayes, it is existing four audit theories (Ittonen, 2010):
Policeman Theory – An auditor’s job is to focus on arithmetical accuracy
and on the prevention and detection of fraud,
Lending Credibility Theory – Audited financial statements are used by
management to enhance the stakeholder’s faith in management’s stewardship,
Theory of Inspired Confidence - The demand for audit service is the direct
consequence of the participation of outside stakeholders in the company. These
stakeholders demand accountability from the management, in return for their
contribution to the company. Since the information provided by the manage-
ment might be biased, becouse conflict of interests, an audit of this information
is needed,
Agency Theory – A company is viewes as the result of contracts, in which
several groups make some kind of contribution to the company. A reputable au-
346
ditor is appointed not only in the interest of third parties but also in the interest
of management.
From previous studies and based on the Hayes theories, we may read that
the demand for an audit of NGO financial statements is incentive under agen-
cy and contracting theory, assurance, and organizational control. The findings
from the literature and the critical incidents obtained from the interviews have
served us to develop the following hypotheses:
H1 – NGOs perform an audit to meet contractual requirements with
donors.
H2 - NGOs perform an audit to meet law requirements.
H3 - NGOs perform a voluntary audit even when not required by law or
donors.
The concept that audited NGOs have more credible financial statements,
where auditing encourages improvement of internal control, enables error cor-
rection and increases transparency, helps on fund raising and receiving govern-
ment grants, etc., is our main objective in this paper to test the perceptions of
accountants and auditors regarding the fact that how much NGOs are inter-
ested to perform voluntary audit of their financial statements.
4. METHODOLOGY, DATA ANALYSES AND

FINDINGS
Unavailability to make analyzes, assessments and statistics based on pub-
lished data that do not exist in Kosovo, which would be a good basis and a
reliable source in analyzing and quantifying the possible factors that influencing
the request for the audit of NGOs financial statements in Kosovo, we have used
the survey method, which through a research questionnaire enables us to have
a good empirical basis in collecting data from responses, statements, behaviors
and perceptions of the professional group of this field, regarding the factors that
influence the determination of the demand for auditing financial statements of
the NGOs in Kosovo.
The questionnaire was developed and designed in ‘Google drive forms’ and
was sent to the members (statutory auditors, certified auditors and certified
accountants) of Society of Certified Accountants and Auditors of Kosovo
347
(SCAAK), the delivery of the questionnaire as well as received responses are
managed electronically, the selected sample consists of Statutory Auditors (61),
Certified Auditors (106) and Certified Accountants (232). From the group of
respondents, we received a total of 73 valid answers or 18.29%, while from legal
auditors 24, certified auditors 19 and certified accountants 30.
The data collected by the respondents reflect critical assessments and their
behaviour on the core issues addressed in this paper, which provide us with an
empirically significant and sufficient basis to explain the phenomenon. We will
analyse the data through a descriptive method that enables us to measure the
impact of the attributes influencing the request and determine the type of audit
of NGO financial reports.
For data analysis, we use the EXCEL software package. The data is consis-
tent with the literature findings and preliminary interviews. Descriptive data
analysis shows that the hypotheses put forward are supported by data obtained
from empirical research.
Regarding the identification and qualitative assessment of the factors affect-
ing the demand for voluntary audits of NGO financial statements, respondents
are asked to respond declaratively to one of the following questions:
Based on your experience as an auditor and accountant, which of the fol-
lowing factors have an impact on the decision-making of NGOs to audit or not
their financial reports:
- Size, complexity, and nature of the operations,
- Improving internal control,
- Improve the wealth structure and increase of funds,
- Increasing credibility of financial reports,
- Increase the transparency of performance and financial reporting,
- Other
348
Table 1. Analysis of datas on identifying factors that affect voluntary audits of
NGO Financial Reports
Influencing factors Incidents Percentage
Size, complexity and nature of the operations 2 2.74%
Improving internal control 13 17.81%
Improve the wealth structure and increase of funds 3 4.11%
Increasing credibility of financial reports 23 31.51%
Increase the transparency of performance and financial reporting 31 42.47%
Other 1 1.37%
Total 73 100.00%
Source: (the authors’ calculation)
The analysis of empirical data from the field, related to the impact of factors
related to the demand of NGOs for the voluntary audits of their financial state-
ments, deriving from the respondents’ responses reflected in Table-1 consists of
the following findings:
- From the 73 respondents, 31 or 42.47% of them think that the voluntary
audits of NGOs financial statements will increase their transparency of
performance and financial reporting.
audits of NGOs financial statements will increase credibility and financial
reporting.
audits of NGOs financial statements will impact on improving internal

control.
From the above gained result we have identified three factors influencing the
demand of NGOs to audit their financial statements even when this is not com-
pulsory because they would gain ground for the public and interested parties,
being more reliable and transparent in doing their business. To identify what
kind of audit and assurance services are usually required from NGOs besides
mandatory audit, out of 43 or 43.67% of the population (on the survey are
included only auditors) we received the following answers as shown in Table 2.
349
Table 2. Analysis of data’s on identifying the type of audit and assurance ser-
vices is usually required from NGOs
Type of audit and assurance services Frequency Percentage

Audit of financial statements for internal needs or publication 13 30.23%
Expenditure verification as per contractual agreements 27 62.79%
Other non - audit services 3 6.98%
Total 43 100.00%
Source: (the authors’ calculation)
The above results show that 27 or 62.79 % of respondents think that NGOs
performs the audit for the donor needs, while only 13 or 30.23% think that
NGOs performs an audit of their accounts for the internal needs and their
publication.
5. CONCLUSION
Consistent with our findings and the previous findings, the motive of the
demand for audit turns out to be closely connected with the legal requirements,
agreement with donors and provision of funds by NGOs, concluding that com-
pulsory audits of NGO financial statements and audits to meet the donors re-
quirement prevail over voluntary choice to audit the financial reports of NGOs
in Kosovo.
As a summary, the results do not support the explanation for voluntary au-
diting in this setting. Among the findings with special emphasis from this paper
we highlight:
Although the findings on this paper related to the factors which support
the concept that audited NGOs have more credible financial statements, au-
diting encourages improved of internal control, facilitates error correction and
increases transparency, helps raise funds and all of these presuppose voluntary
auditing, they do not do this, which in our opinion represents a hypothetical
condition and we consider it to be studied in the future.
6. STUDY LIMITATIONS
This study is based on the analysis of the data collected through the survey
conducted with auditors and accountants, we conducted interviews with them
350
and we have taken their perceptions and views regarding the reasonableness of
the audit of the financial reports of the NGOs. However, regarding the infor-
mation presented in the audited financial reports, many other stakeholders such
as state institutions, donors, board, management, broader members, workers,
analysts and others are also interested, so it would be very important to study
their perceptions and perspectives on this issue.
REFERENCES
Abdel-Khalik, A.R. (1993). Why Do Private Companies Demand Auditing: A Case for
Organizational Loss of Control, Journal of Accounting, Auditing and Finance. 34(1), p.
31-52.
Chow, C.W., (1982). The Demand for External Auditing: Size, Debt and Ownership Influ-
ences, The Accounting Review. 57(2), p. 272-291.
DeAngelo, L. E. (1981), Auditor Size and Audit Quality, Journal of Accounting and Econom-
ics, 3(3) p. 183-199.
Dedman E., Kausar A. & Lennox C. (2014), The Demand for Audit in Private Firms: Re-
cent Large-Sample Evidence from the UK, European Accounting Review, 23(1), p. 1
– 23.
E. R. & Ashton H. R. (1982), Audit Detection of Financial statement Errors, The Accounting
Review, 7(4), p. 751-765.
Firth M. (1980), A note on the impact of audit qualifications on lending and credit decisions,
Journal of Banking & Finance, 4(3), p. 221-313.
Ghosh S. (2007), External Auditing, Managerial Monitoring and Firm Valuation: An Em-
pirical Analysis for India, International Journal of Auditing, 11(1), p. 1-15.
Hay, D. & D. Davis (2004), The voluntary choice of an auditor of any level of quality, A

Journal of Practice and Theory 23(2), p. 39–55.
Hylas, E. R. & Ashton H. R. (1982), Audit Detection of Financial statement Errors, The
Accounting Review, 57(4), p. 751-765.
Jensen, M.C. & Meckling, W.H. (1976). Theory of the firm: Managerial
behaviour, agency costs, and ownership structure. Journal of Financial Economics 3, p. 305-360.
Guillamon, A.G., (2003), The usefulness of the audit report in investment and financ-
ing decisions, Managerial Auditing Journal, 18( 6/7), p.549-559.
Semiu B. A., Sunday O. & Ini E.U. (2015), Determinants of demand and supply of account-
ing and audit services in SMEs: Evidence from Nigeria, Accounting and Management
Information Systems, 14(3), p. 546-574.
Shelton, W. S. & Whittington O. R. (2008), The influence of the auditor’s report on inves-
titors’ evaluation after the Sarbanes-Oxley Act, Managerial Auditing Journal, 23(2),
p.142-160.
Mazlina M. & Chia H.Y. (2013), Demand for voluntary audit by small companies in Malay-
sia, Malaysian accounting review, 12( 2).
351
Broadley D. (2006). Auditing and its role in Corporate governance FSI Seminar on Corpo-
rate Governance for Bank [available at http://search.oecd.org/daf/ca/corporategover-
nanceprinciples/37178451.pdf, access March 15, 2018]
Fallatah Y. (2008), “The role of asset reliability and auditor quality in equity valuation”, 8th
Global Conference on Business & Economics, Florence, Italy [available at http://www.
gcbe.us/8th_GCBE/data/confcd.htm, access March 18, 2018]
Kim I., (2010), A Theoretical Examination of the Role of Auditing and the Relevance of
Audit Reports, University of Vaasa 2010 [available at https://www.univaasa.fi/mate-
riaali/pdf/isbn_978-952-476-298-4.pdf, access March 10, 2018]
SCAAK (Society of Certified Accountants and Auditors of Kosovo [available at https://
www.scaak.org/ access March 3, 2018 access March 25, 2018]
Unmik/reg/2001/30 [available at http://www.unmikonline.org/regulations/unmikgazette/02
english/E2001regs/RE2001_30.pdf access March 5, 2018]
Law no.04/l –014 On Accounting, Financial Reporting and Audit [available at https://gzk.
rks-gov.net/ActDocumentDetail.aspx?ActID=2755 access March 4, 2018]
PCAOB (Public Company Accounting Qversigh Board) [available at https://pcaobus.org/
news/events/documents/05152013_sagmeeting/audit_quality_indicators.pdf, access
March 31, 2018]
352
KNOWLEDGE ACQUISITION FROM
DATA IN BUSINESS INTELLIGENCE
MODELS AS A SOURCE OF
COMPETITIVE ADVANTAGE OF
COMPANIES
Edvard BADURINA, mag.oec.

PhD Student
Email: edvard.badurina@gmail.com
Abstract
Today, in the 21st century, the main resources to be utilised are timely informa-
tion and knowledge obtained based on this information, because knowledge
well-used can lead to innovation, the main competitive advantage, i.e. what
the market demands and wants, and thus positioning on the market consid-
ering the expressed aspiration and determined objective. Information in the
right place at the right time is in this electronic business era one of the most
important resources that could mean the difference between company surviv-
al or failure. Strategic advantages of companies are no longer based solely on
physical resources or good management, but on the company’s knowledge and
information that the company acquires from the market. This information has
to be processed to become part of the company’s knowledge or the basis for
decision-making in the company. Companies need to rely more on business
intelligence systems to be able to keep up with the competition. The emphasis
in this paper is the presentation of knowledge acquisition from data in busi-
ness intelligence models. The two main knowledge acquisition models are data
mining and OLAP (OnLine Analytical Processing) which will be the main
subjects of analysis. The aim of the paper is to point out the importance of busi-
ness intelligence that is, along with benchmarking, focused on the competition
and visions of the future. The starting point of the paper is to point out the
objective of business intelligence directed to the collection and processing of data
and information on current and future activities of the competition in order to
353
optimise concept of development and improve protection of one’s own data, all
in order to create competitive advantage in the economic market.
Edvard Badurina: KNOWLEDGE ACQUISITION FROM DATA IN BUSINESS INTELLIGENCE MODELS AS A SOURCE OF COMPETITIVE ADVANTAGE...
Key words: business intelligence, data mining, OLAP tools, competitive ad-
vantage of companies
JEL Classification: I80, M15
1. INTRODUCTION
The essence of business intelligence is data – information – knowledge
transformation process. Data processing provides information. In order for a
datum to become information, it needs to have a new meaning for the recipi-
ent i.e. it must have an impact on increasing the recipient’s knowledge. Thus,
information is a result of analysis and data organisation aiming to provide new
knowledge to the recipient. Information is a variety of messages from sender to
recipient. It becomes knowledge when interpreted, i.e. placed into a context, or
when it is added meaning. Knowledge represents information and data linked
with the process of insight and experience, i.e. ability to use the information. At
the end of this process is intelligence that represents the ability to use knowl-
edge in a certain context. Thus, business intelligence represents strategic ori-
entation of a modern company that synthesises tools for collection, analysis,
transformation, and distribution of information about the competition and this
should, as a rule, be the beginning of business decision-making to increase busi-
ness performance.
2. ASPECTS OF BUSINESS INTELLIGENCE

The term business intelligence includes methodologies, technologies, and
data warehousing, OLAP data processing (On-Line Analytical Processing) and
data mining that enable companies to create useful management information
from business data dispersed in various transaction systems and that come from
different internal and external sources. The aim of business intelligence is col-
lecting data and information on current and future activities of the competition
and thus optimise the concept of development while protecting one’s own data.
The very term business intelligence has become omnipresent and more signifi-
cant in professional and publicist literature, even in daily press. However, there
are many doubts, disagreements, and evidently completely wrong approaches in
354
the interpretation of the true meaning of this term. It is an irrefutable fact that
the phenomenon of business intelligence can be approached from two points of
view: macro aspect and micro aspect (Panian, Klepac, 2003, p.21).
From the point of view of the macro aspect, business intelligence is a com-
plex category that is created or built by systematic collection of data on mac-
roeconomic trends in a certain geopolitical environment, their organised and
structured recording, i.e. storing, querying, and logical or computer data pro-
cessing in order to detect macroeconomic trends or tendencies or predict and
forecast processes and events in macroeconomic systems and their future states.
An organisation may create business intelligence about its own environment,
but will nevertheless most often refer to other environments, i.e. narrower or
broader parts of geopolitical environment. This is why the process of business
intelligence creation in the macroeconomic sense sometimes has some elements
of conspiracy, so at a first glance, it seems like espionage, but identifying mac-
roeconomic business intelligence with espionage is an inappropriate simplifica-
tion, even vulgarisation of this phenomenon, because motivation and objectives
are in this case exclusively related to the strengthening of economic position of
a certain geopolitical community in a competitive environment. In this context,
methods used to create macroeconomic business intelligence have almost no
elements of conspiracy; they are usually generally well-known.
.. Business Intelligence Features

Taking into consideration the quantity of generated information, the con-
cept of business intelligence is based on the following basic ideas: INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
a) The intention of the business intelligence concept is not creation of a

larger quantity of information, but generation of better information of
higher quality necessary in business decision-making.
b) Business intelligence gives users only the information they need, but
timely and presented in the way that suits them best.
Basic or core features of business intelligence are the following (Panian,
Klepac, 2003, p.25):
a) It is based on personalisation.
b) It is proactive.
c) It stems from operative data.
355
The fact that it is based on personalisation means that it applies technolo-
gies in the sense of proactive collection, organisation and delivery of informa-
tion to individuals. For example, public weather service will publish information
that are especially important to boaters, and public health service will publish
information about possible pollution of potable water in a town or a region.
Business intelligence automatizes delivery of information to the recipients us-
ing special terms and deviations from planned activities as motivation for such
communication (Panian, Klepac, 2003, p.28). Traditional decision-making sup-
port systems do not personalise information; this is why they should be altered
or edited to some extent in each new application. Business intelligence paves the
way for the so-called „new wave of decision-making support system “, i.e. knowl-
edge management systems, by functioning according to the model that consists
of five main components (Panian, Klepac, 2003, p.26):
a) information
b) analysis and segmentation
c) personalisation
d) information delivery through a multitude of channels
e) action, interaction and transaction.
Image 1. Creation of Business Intelligence
Source: Author’s proposal
When they are correctly configured and synchronised, the above-mentioned

components make a strong, flexible, and adaptable basis of business intelligence.
Such applications turn traditional decision-making support systems, that func-
tion according to the principle of questions and answers, into knowledge man-
agement systems. Specifically, information reveals new knowledge and expands
insights aiming to make business decisions that increase the opportunity for
future success of the company in a dynamic environment. Information need to
be analysed and segmented accordingly, i.e. it should be defined which infor-
mation need to be directed to which users. Information gain importance only
if they are personalised, i.e. directed to the right user with emphasis on data
protection and information. The real information must use all information so-
lutions and achievements and, with a multiplication of channels, i.e. delivery
through a multitude of channels, needs to be delivered to key users. Ultimately,
356
the information should be used in modelling of the development concept of the
company as a response to changes in demand and activities of the competition
on the turbulent market of the 21st century.
.. Business intelligence in business decision-making

Business decision-making is a process of making business decisions aiming
to improve business performance. It is defined as a continuous flow of trans-
formation or processing of the collected internal and external information to a
relevant business decision with a specific application, i.e. as a process of identi-
fication and solution of problems. Time represents the decision-making basis,
speed of the decision is what creates a competitive advantage, i.e. only a timely
decision based on timely information brings advantage. On today’s market, on
which the competition is growing stronger on a daily basis, making good deci-
sions means providing the clients better services, rising above the competition,
being a leader in your business and, of course, increasing profit. Many theorists
have covered the decision-making process; according to P. Drucker, the deci-
sion-making process is divided into 5 phases (Stipanović, 2006, p.63):
a) Definition of the problem – setting up diagnosis based on the symptoms,
desired goals, principles established earlier, guidelines, rules.
b) Analysis of the problem – collection of facts, classification of the problem
and analysing each of the facts.
c) Elaboration of different solutions – finding and analysing alternative so-
lutions includes the following criteria: cost-effectiveness of the results,
availability of strengths and resources, ratio between advantages and risks. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
d) Decision on the best solution – finding the best solution includes the fol-
lowing criteria: cost-effectiveness of the results, availability of strengths
and resources, ratio between advantages and risks.
e) Practical implementation of the decision – the decision that is according
to the location of the adoption closest to the enforcers will be best ac-
cepted, while strategic decisions are made in a centralised manner. The
employees need to be informed about the essence of the decision, so they
would accept it more easily and implement it more effectively.
357
Effectiveness of business decision-making is influenced by decision-mak-
ing principles implemented in successful companies and ventures (Stipanović,
2006, p.63):
a) Selection among different alternatives – it is necessary to analyse all pos-

sibilities and company activities as a response to market stimuli. It is
crucial to select the alternative that provides the greatest possibility of
company success.
b) Decisions should be based on opinions – in a decision-making process,
it is necessary to include as many professionals of different profiles and
orientations as possible who can analyse validity of decisions from several
aspects.
c) Delegate decision-making – the authorisation and decentralisation pro-
cess delegates decision-making to lower levels who can promptly and ap-
propriately respond to requirements of demand.
d) Avoid crisis decisions – a precondition is to eliminate possible crisis con-
ditions at the very start, i.e. not to allow escalation of crisis.
e) Make generic or strategic decisions – they are basic decisions that gener-
ate future business activities of the company.
f ) Use the Hippocratic method – examine all the symptoms to make an
optimal decision on which company development will be based.
g) Move on from average data – explore all data based on sample theory and
transform marginal data into information, because poles can determine
future trends of business factors and detect problems in current business
activities.
h) Define whether a decision is necessary – stop at making decisions that
are crucial for future business activities instead of burdening yourself
with irrelevant decisions.
Business decision-making is the hardest part of business activities, i.e. the
greatest challenge, because it is very hard to select among several alternatives the
one that will suit the company best. Decision-making is thus based on selection
of the best solutions. It is necessary to achieve synergy of strategic and tactical
decisions valorising the possibility of development in a turbulent environment.
The quality of decision-making does not only depend on decision-making,
which is the shortest phase. Decision-making quality depends on the following
criteria (Stipanović, 2006, p.63):
358
a) Working conditions influencing a business decision, because the com-
pany lives and operates in these conditions.
b) Quality of decision makers on development reflected in expertise and
professional conduct of decision makers and their capacity and knowl-
edge on deciding and organising effective preparation and implementa-
tion of the decision.
c) Quality of preparation of a decision on development reflected in time
and quality of collection of information and their analysis, and study and
analysis of company development and development effects (various so-
lutions are considered, and several alternatives are proposed to decision
makers).
d) Quality of implementation of decision on development, because even the
best decision may lose its value if it is poorly implemented, and selection
of employees who will implement company development policy is also
important.
A business intelligence model has a purpose only if it contributes to com-
pany business. Potential benefits of this model are (Panian, Ćurko, 2010, p.63):
a) Increase in revenues
b) Increase in profit
c) Improvement of clients’ satisfaction
d) Savings
e) Increase in market share

f ) Improvement of internal communication
3. OLAP TOOLS
The name of this group of tools for knowledge acquisition from data –
OLAP – originates from an acronym of the full English name On-Line Ana-
lytical Processing. The term was “invented” by the British mathematician E. F.
Codd, who had set up the basics of the so-called Relational Calculus and in
1970 presented the Relational Data Model. This data model is the basis of to-
day’s most popular type of databases – relational databases. The name was not
selected randomly, because the name and its acronym point out the difference
in relation to previously known on-line transaction processing tools, i.e. OLTP.
359
In 1993, Codd defined a broad set of criteria to which databases in which or on
which OLAP tools will be applied should adapt (Panian, Ćurko, 2010, p.65).
Software vendors soon realised the potentials and possible revolutionary im-
pacts of the application of Codd’s theory on data management practice and

started developing adequate software solutions for analytical data processing.
It should be noted that back then, relational databases had been used often and
in fact became the leading model in the field of data storage, but they were used
solely for on-line transaction processing. Although they had been developed
before the appearance of the business intelligence concept, OLAP tools can in a
way be considered a „predecessor „of this concept. The argument for this thesis
are the following possibilities offered by modern effective OLAP systems (Pan-
ian, Ćurko, 2010, p.83):
a) OLAP is a conceptual and intuitive model which can be easily under-
stood and quickly applied even by users who are not trained and special-
ised for performing analytical tasks. The model is based on the methodol-
ogy of multidimensional analysis, which means that it can „look“ at data
through a multitude of filters at the same time; they are in professional
terminology called dimensions. Some examples of questions requiring
multidimensional answers are the following:
• What is the index of coverage of imports by exports by regions and by
branches of industry, i.e. activities?
• What is the amount of achieved sales in comparison with predicted
sales according to types of products, sales areas and months in a year?
• How many revolving stocks are there according to materials, ware-
houses and suppliers?
b) OLAP tools enable the performance of very fast analyses. The fastness of
OLAP system performance allows managers and experts to pose ques-
tions and obtain answers in a time shorter than ever before, i.e. before
the appearance of these tools which, of course, has a positive impact on
the quality of their decisions. Systems work at the „speed of thought“, so
it comes to creation of the so-called „endless questions syndrome“, which
means that every interesting sample and useful segment of information
in a database can be theoretically analysed.
c) OLAP tools include very robust calculating possibilities necessary for
meeting specific budget requirements set up by a multidimensional
360
structure. Theoretically, the number of dimensions according to which
relevant phenomena can be analysed is unlimited, and in practice there
are often cases when in sophisticated analyses this number rises to ten or
even more. This exceeds even cognitive abilities of an average human, so it
is fair to say that quality OLAP tools to some extent represent an expan-
sion or complementation of human intelligence. Budget possibilities of
OLAP tools allow men, business analysts, to write simple formulas that
will be applied through a multitude of dimensions, and they only have to
write a few simple programme instructions, i.e. code lines.
Therefore, OLAP tools encompass a wide spectrum of possibilities, from
simple search and browsing through budget (calculations) to more serious
analyses such as time series analysis and complex modelling. In this way, they
can „cover“ the entire hierarchical chain, which is a basis for informed deci-
sion-making – a chain that starts with data, continues with information, and
ends with business intelligence. A typical OLAP infrastructure consists of the
OLAP server placed between the user and data warehouse who relates to them
on-line as presented on Image 2.
Image 2. OLAP Architecture
Source: Panian, Ž., Klepac, G. (2003): Poslovna inteligencija, Masmedia, p. 238.
Basic possibilities provided by OLAP are (Stipanović, 2006, p.86):

a) Selection of a dimension – a descriptive category that has its hierarchy
– this technique can be used to select from a multitude of hierarchical
values of individual dimensions to select the values that are constant for
further analysis.
b) Rotation of dimensions – using this technique, it is possible to observe
the same measure in different ways, by substitution of places or selection
of dimensions describing the observed measure. This changes the values
assumed by the observed measure and the meaning of the information.
361
c) Top-down view – using this technique, it is possible to observe the values
of the same measure at the lowest level of hierarchy, i.e. aggregation. This
provides a more detailed view of the data.
d) Bottom-up view – Diametrically opposed technique to the previous

one. This technique is oriented towards a higher level of hierarchy, i.e.
aggregation.
In the framework of OLAP, the following components are mentioned that,
in fact, make OLAP (http://office.microsoft.com/hr-hr/excel-help/pregled-
mrezne-analiticke-obrade-olap-HP010177437.aspx accessed on 16/03/2018):
a) Cube – data structure in which measures are collected according to lev-
els and hierarchies of each dimension to be analysed. Cubes encompass
several dimensions, such as time, geographical area and product line, with
summarised data, such as numeric indicators of sales or stocks. Cubes are
not „cubes“ in the literal mathematical sense, because they do not neces-
sarily need to have sides of the same size. However, they are an appropri-
ate metaphor for a complex concept.
b) Measure – a set of values in a cube based on columns in the data table
of the cube, and they are usually numeric. Measures are central values in
the cube that are processed, collected, and analysed in advance. Common
examples cover sales, profit, revenue, and expenses.
c) Member – an item in the hierarchy representing one or more data appear-
ance. A member can be unique or non-unique. For example, 2010 and
2011 represent unique members at the level of year, on time dimension,
while January represents a non-unique member at the level of month,
because in the time dimension that contains data for several years, there
can be more than one January.
d) Calculated member – member of a dimension whose value is calculated
during derivation using an expression. Values of a calculated member can
be derived from the values of other members. For example, the calculated
member Profit may be determined by subtracting the value of member
Cost from the value of member Sale.
e) Dimension – a set of one or more organised level hierarchies in a cube the
user understands and uses as a database for data analysis. For example,
geographical dimension may include levels for state/region, state/county,
362
and town. Or, time dimension may include a hierarchy with differences
for a year, a quarter, a month and a day. In a pivot table report or a pivot
chart report, each hierarchy becomes a set of fields that can be expanded
and summarised for detection of higher or lower levels.
f ) Hierarchy – a logical tree structure organising members of dimensions
in such a way that each member has a superordinate member and zero or
more subordinated members. A subordinate member is a member in the
next lower level of hierarchy that is directly connected with the current
member. For example, in the time hierarchy containing levels Quarter,
Month, and Day, January is a subordinate member of Quarter 1. A su-
perordinate member is a member in the next higher level of hierarchy
directly linked with the current member. Superordinate value is usually
consolidation of values of all subordinate values. For example, in the time
hierarchy containing the levels Quarter, Month and Day, Quarter 1 is a
superordinate member to January.
g) Level – data in a hierarchy can be organised in more or less detail, such as
level of year, quarter, month, and day in the time hierarchy.
.. Data dimensions and dimensional analysis of OLAP

Simply put, a dimension is affiliation of a data-related entity to a certain
category, class or a group. Thus, all members of a dimension, like products or
buyers, can be classified into a group according to some of their characteristics.

Affiliation to a group can be verified, i.e. tested, in two ways (Panian, Klepac,
2003, p.238):
a) Membership data have to be comparable. For example, present and future
members of the group, i.e. dimension can be compared.
b) Membership data must be aggregable into summary members. For ex-
ample, members of time dimension “Monday”, “Tuesday”, “Wednesday”,
“Thursday”, “Friday”, “Saturday”, and “Sunday” can be aggregated in value
„week“.
Data sets structured by dimensions can be subject to analysis according to
these dimensions or dimensional analysis. An example: we assume that pro-
curement is the functional area users are interested in. Dimensions of analysis
could in this case be products and suppliers. Thus, a requirement may be set
363
that procurement is to be analysed according to products and according to sup-
pliers. This requirement can be figuratively presented by a three-dimensional
geometric shape, and the most suitable shape in this respect is cube, as shown
in Image 3. The observed area is procurement, and the three relevant axes, i.e.
dimensions are: product, supplier, and time.
Image 3. OLAP cube; three-dimensional data display
Source: http://www.ealliancebusinessintelligence.com/using_oracle_olap11g_with_obiee.
php (accessed on 16/03/2018)
The dimension of time has not been mentioned yet, but it is considered a nec-
essary dimension in each analysis and it is always relevant. This means that the
procurement process may be analysed according to products and suppliers over
time. Each element of the cube (or „mini-cube“) contains the value (or quantity)
of procurement of a certain product from a certain supplier in a certain point
in time. Multidimensional matrix (cube) from Image 3 shows procurement as
a functional area with three possible dimensions of analysis. It should be noted
that there are no limitations regarding the number of model dimensions. In
terms of dimensional data analysis, its basic methods are layering and intersect-
ing. Multidimensional data sets can be analysed horizontally (layering) and ver-
tically (intersecting). The basic quality of the layering and intersecting method
is that people can easily understand it. Modern OLAP tools perform layering
and intersecting very fast and usually offer users attractive and easily compre-
hensible graphical interfaces, which show data relations by cubes or star-shaped
diagrams. This is why they are common and very popular among business users.
The possibility of gaining a practically momentarily and intuitively easily com-
prehensible perspective, i.e. data display, is their main advantage.
364
.. Hierarchical Structures of OLAP
OLAP systems enable organisation of data into hierarchical structures so
that detailed data could be aggregated into new data of higher levels of ab-
straction. For example, data on daily proceeds can be summarised into data on
weekly proceeds, and they again into data on monthly proceeds. Similarly, data
on sales of an item in individual shops can be summarised according to sale
areas, countries, continents, etc.
Image 4. Rotation Procedure
Izvor: Panian, Ž., Klepac, G. (2003): Poslovna inteligencija, Masmedia, p. 242
Multidimensional analysis is applicable because hierarchical organisation of

each dimension enables analysts to start from the top of the hierarchy and move
towards lower data levels to find interesting samples or anomalies (irregulari-

ties). This procedure is called drill down in the professional jargon. This top-
down approach to analysis is similar to the approach applied by, for example,
police investigators in the questioning of a suspect for a felony or misdemean-
our. They usually start the questioning with general questions, and during the
procedure become more and more focused on details that will provide them a
deeper insight into a possible connection between the suspect and the felony or
misdemeanour. However, this is not only the procedure of the police or court
investigators; they are only a typical example. In general, natural way of thinking
when people are trying to organise complex organisations is the one based on
top-down approach. For example, when they are preparing a business trip, their
first thought is that they have to reserve accommodation in the city they will
stay in, and later think about type of accommodation, price, location, parking
options, additional services, etc (Panian, Klepac, 2003, p.243). Hierarchically
365
organised multidimensional data represent an intuitively acceptable and com-
fortable manner of analysis of a multitude of data offered by systems for on-line
transaction processing, i.e. OLTP systems. The mechanisms offered by OLAP
systems through user application interfaces, and this primarily refers to drill-
ing down possibilities mentioned earlier, provide very fast analyses. This opens
new horizons for managers in decision-making processes – possibilities of
conducting occasional or ad hoc analyses besides routine and periodic analyses
conducted earlier. Periodic and routine analyses, usually based on conventional,
paper reports that managers receive „on their desk“ are usually rather limiting
and do not allow managers to completely exhibit and utilise their creativity and
resourcefulness. People who prepare analytical reports try to guess or anticipate
what kind of information the managers will need or managers tell them them-
selves in advance. However, in a dynamic business environment, neither experts
nor managers can foresee everything the future brings, and therefore, these pe-
riodic, routine analytical reports in time become limiting and inadequate for
new situations. They thus become insufficiently informative. Occasional or ad
hoc analyses do not have such limitations or disadvantages, because (Panian,
Klepac, 2003, p.243):
a) A good OLAP system can generate a response to practically any query in
real time. It takes only a few seconds or minutes of drilling down.
b) Virtually any report can be adequately formatted or presented graphically
by applying the rotation or pivoting function.
c) Virtually any company employee, including managers at all levels, but also
executive employees, can learn quickly and easily how to conduct ad hoc
analyses and use them in performance of their tasks.
A good design of OLAP cubes, i.e. good decisions on which dimensions
to include, how detailed information to extract from the OLTP system, how
to define hierarchies, etc., will have a positive impact on the acceptance of the
OLAP system among users and its utility in practical application. Most OLAP
systems usually use one or more of the following three types of OLAP for stor-
ing to support multidimensional analysis. These three types of OLAP are: RO-
LAP, MOLAP, HOLAP, and DOLAP. In MOLAP, the letter M refers to mul-
tidimensionality; it is thus called multidimensional OLAP. Multidimensional
OLAP (MOLAP) stores aggregate value into multidimensional structures on
the OLAP server. Aggregate value is calculated in advance using a cell within
the OLAP cube, defined according to the definition of multidimensionality.
366
Aggregates are data summary calculated in advance that shorten the time of
response to the query by keeping responses ready before questions are posed.
For example, when a data warehouse contains hundreds of thousands of lines,
and data in question are, for example, total weekly sales of a certain product, if
the fact is not ready, the response can take a long time because of scanning of
all data.
Image 5. Presentation of the functioning of MOLAP
Source: http://thebusinessintelligence.blogspot.com/2009/12/online-analytical-process-
ing-olap.html (accessed on 16/03/2018.)
One of the ways to better understand MOLAP is, for example, to consider
the request for sales of organisation database. This type of database often con-
tains key information on the client. These information can include items such as
names of contacts, physical address, type of goods and purchased services, dates
of purchase, etc. By using MOLAP, sales manager can create a report sorted by
manager account, sorted by client names, and recognise all the realised revenues
linked with a specific seller from account to account in the given period. Ac- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
cording to the same logic, MOLAP can generate a list of clients based on cer-
tain location, which can be helpful in preparing meetings when the seller makes
plans for a specific area. Basically, MOLAP can catch and sort data according
to any area contained in the database. The most successful vendors of OLAP
tools based on this model are companies Applix, Cognos, Comshare, Hyperion
Solutions, Microsoft, Oracle, and SAS.
367
Image 6. MOLAP
Source: http://thebusinessintelligence.blogspot.com/online-analytical-processing-olap.
html(accessed on 18/03/2018).
Relational OLAP or ROLAP, as the name says, uses relational model as

basis for its database. As any relational database model, this one can also be
defined as a very faithful reflection of the real world, which is a great advantage
of ROLAP in comparison with MOLAP. However, there are still problems
with practical application of MOLAP. Namely, each vendor of such tools wants
to include a specific feature in its product to present it as a special quality of its
solution. This, however, aggravates the application of standard query languages,
such as SQL, which the users are used to, so they do not consider some other
forms of interaction with the database as an advantage, but rather a disadvan-
tage of such systems. The ROLAP market segment is nowadays dominated by
companies IBM, Microsoft, MicroStrategy, and Oracle.
Image 7. Presentation of ROLAP
Source:http://thebusinessintelligence.blogspot.com/online-analytical-processing-olap.
html (accessed on 18/03/2018.)
Hybrid OLAP or HOLAP is a compromise solution. The idea of its cre-

ators was to combine the advantages of MOLAP and ROLAP. Some have suc-
368
ceeded (for example, Applix, Microsoft, and Oracle), so this hybrid version of
OLAP is the most commonly used tool. The combination used by HOLAP is
more comprehensible by Image 8.
Image 8. Presentation of the combination used by HOLAP
Source: Author’s proposal
DOLAP or Desktop OLAP is adapted to personal computers with far

smaller memory capacity and processing options, unlike large server computers.
DOLAP does not support multi-user applications, but only smaller applica-
tions intended for meeting the needs of individual users.
4. DATA MINING
Data mining implies organisation of databases by data cleaning to gain ac-
cess to knowledge and acquire knowledge based on existing data in databases.
Development of technology, computers, the Internet, significantly contributes
to easier data organisation, but in order for them to become useful, they need
to be transformed into information and knowledge. The term mining is often
identified with two different processes: detection and prediction of knowledge. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
The detection process implies the user’s understanding of explicit information

that need to be legible. Prediction refers to future events and can in some ac-
cesses be legible and transparent, while in others non-transparent. Data mining
is a very young area and there is a range of methodological approaches regarding
this subject and preferences regarding the application of methods oriented to
a certain area depending on the authors covering the subject matter. Preferred
methods often also depend on the area of application; for example, analyses
based on data mining applied in criminology and telecommunications are more
oriented to link analysis, unlike some other areas of application. Likewise, cur-
rently very dynamic scientific activities in this area should not be disregarded,
as well as production of an entire series of new methods of which some will
369
surely gain such popularity in the future that they will become standard data
mining methods. On the one hand, research in this field are directed towards
seeking original methods for solving specific problems, and on the other hand,
new methodological solutions for improvement of the existing and used meth-
ods are proposed as research results. It is interesting that in many cases, in-
exhaustible source of inspiration for scientific research in this area are papers
by mathematicians from earlier periods, from the 16th century onwards. These
papers were mostly based on processing a large number of data to obtain a solu-
tion. Such solutions were presented declaratively as an idea, and there was no
deeper elaboration due to physical impossibility of processing of such a large
quantity of data in earlier periods. The central point of interest of scientists
of that period was avoiding processing of large quantities of data, and finding
more elegant methods that could be used to avoid this type of activity. The areas
in which data mining can be successfully applied: economics, mechanics, medi-
cine, genetics, data micromining regardless of the area of application, biology,
pharmaceutics, economics, telematics, marketing (creation of a client’s profile,
segmentation, retaining clients, price optimisation, placing products on shop
shelves), in banking (predictions of slow payers of loan interest rates, predic-
tions of value of shares), insurance (predictions of numbers and values of dam-
age compensations, predictions of malversations). Data mining is applicable in
all areas where there is a great mass of data from this domain and if the aim is
to detect certain regularities, relationships and laws based on these data. Taking
into consideration that there are numerous factors that might affect the out-
come of an event, the task of data mining is to detect the most significant factors
and their characteristics considering target conditions. Regardless of the area of
application, well-used data mining methods are capable of detecting regularities
from a large mass of data, so the area of application becomes secondary. The
power of the application of data mining methods also originates from the fact
that data mining is independent from area of application, because emphasis
is placed on data, not on analyses. Research have shown a great need for data
mining experts. The position in companies to which they are employed is not
identical, but the most common positions are manager (20%), data mining ex-
pert (16%), statistician or operation explorer (12%), marketing analyst (10%),
and software engineer/architect (10%).
370
5. CONCLUSION
The purpose and goal of this paper is to open theoretical aspects of the busi-
ness intelligence model, its appearance as well as the meaning, as the expanding
expansion of information technology and the emergence of globalization are
constantly changing in the business market.Business intelligence is very im-
portant in business decision-making, because if a decision is made based on a
quality information, it is more likely that this decision will offer the very best
solution, i.e. some of the above-mentioned potential benefits of the business
intelligence model and further successful development in the conditions of risky
and turbulent market. Companies need to rely more on business intelligence
systems to be able to keep up with the competition. Business intelligence users
started demanding business intelligence in real time, i.e. data analysis in real
time. Fresh information originating from data processing need to be available
at any moment. Furthermore, strategic advantages of companies are no longer
based solely on physical resources or good management, but knowledge that
exists in the company and information the company obtains from the market.
This information need to be processed to become part of company knowledge,
or to be the basis for decision-making in the company. Some of these decisions
could be ordinary, for example, increasing or decreasing the production of a
product, and they are made on the basis of simple information that can serve
as inputs to such decisions in unchanged form, like information on last week’s
sales of this product or stocks in an outbound warehouse. The companies will
need to change business processes in order to use business data flows, because,
unfortunately, many companies do not perceive business intelligence as a tool
that will help them achieve successful business performance in the future. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
According to some researches, there are still some resistance to the applica-
tion of new technologies in Croatian companies. What remains an open ques-
tion for thinking is the following, to what extent and how much the Croatian
companies and companies use some of the business intelligence models, ie why
do Croatian companies no longer use business intelligence as a modern tool for
quick market responses, or are they all available resources and potentials used
to achieve their competitiveness?
371
LITERATURE:
Panian, Ž., Klepac, G.: Poslovna inteligencija, Masmedia, Zagreb, 2003
Panian, Ž., Ćurko, K.: Poslovni informacijski sustavi. Element, Zagreb, 2010.
Stipanović, C.: Koncepcija i strategija razvoja u turizmu - Sustav i poslovna politika, Fakultet
za menadžment u turizmu i hotelijerstvu u Opatiji, Opatija, 2006,
http://www.ealliancebusinessintelligence.com/using_oracle_olap11g_with_obiee.php (ac-
cessed on 16/03/2018)
http://office.microsoft.com/hr-hr/excel-help/pregled-mrezne-analiticke-obrade-olap-
HP010177437.aspx (accessed on 16/03/2018)
http://www.ealliancebusinessintelligence.com/using_oracle_olap11g_with_obiee.php (ac-
cessed on 16/03/2018)
:http://thebusinessintelligence.blogspot.com/2009/12/online-analytical-processing-olap.
html (accessed on 16/03/2018.)
372
FORECASTING OF FIRE RISK
WITH REGARD TO READINESS
OF RESCUE AND FIREFIGHTING
VEHICLES
Anna BORUCKA, Ph. D.

Military University of Technology/ Faculty of Logistics
Warsaw, Poland
E-mail: anna.borucka@wat.edu.pl
Abstract
Fire protection is an extremely important element of the State security system.
It consists of undertakings, which implementation is aimed to protect human
life and health, as well as property and natural environment against the danger
of fire, natural disaster or other local threat. In Poland, the National Fire and
Rescue System operates on three functional levels, corresponding to the admin-
istrative structure of the country. The lowest is executive level. Next, there is a
voivodeship level, and the highest is central (national) level. Fire risk analyses
are conducted at the central level in the scale of entire country and concern
mainly forest fires. Data covering other fires (also national) are compiled by
the Headquarters of the State Fire Service. They also have an aggregated form.
However, there are no specific studies on the phenomena occurring at the lowest INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
functional level, for individual entities. Their implementation would allow not
only for description and analysis of occurring fires but also for forecasting and
capturing the relation that affect them. Thus commanders of individual units
would be able to assess their resources, both human and technical, estimate
their own capabilities in relation to existing phenomena and make necessary
modifications by adapting their base to predicted threats. In this way, the readi-
ness of such a unit would increase, and as a result the chance for the quick and
effective rescue operation.
The article proposes a mathematical model for forecasting fire risk on the ex-
ample of selected rescue and fire-fighting unit. The presented model will enable
to appropriately shape the readiness of primarily available transport means and
373
human resources, which is particularly important in systems where the safety,
health, and life of people depend on the efficient and timely execution of tasks.
Key words: forecasting, multiple regression models, fire risk
JEL Classification: D81, C53
1. INTRODUCTION
The strength and scale of the phenomenon of fires are enormous. Losses
Anna Borucka:FORECASTING OF FIRE RISK WITH REGARD TO READINESS OF RESCUE AND FIRE-FIGHTING VEHICLES
caused by them and number of victims taken every year are terrifying. There-
fore new solutions are constantly sought to combat this situation. They concern
the organizational sphere in which the most important is the fast detection of
danger, immediate alarming and effective extinguishing action, as well as techni-
cal sphere associated with searching for new materials with high fire resistance,
the introduction of modern rescue and firefighting equipment or equipment of
fire brigade units.
Development of computer systems is also intensive, which allow for analysis
of the causes of threat and mechanisms of its development. These issues are
difficult to investigate due to the complicated course of the phenomenon and
multidimensional nature of the processes occurring in it and their mutual per-
meation. Simulation techniques aimed to describe a fire in many dimensions
also provide a very useful tool. The possibility to carry out complex calculations
taking into account the influence of various factors allows to obtain precise cal-
culations concerning e.g. danger level, its intensity, changes taking place in the
place covered by the fire, as well as to describe parameters directly related to
situation, such as the range of visibility, temperature, concentration of flamma-
ble gases, safety of the structure, which is important during the fires of objects,
especially if they are occupied by people.
Such models also allow for simulation of large-area fires, especially forests.
Using the detailed information on air temperature and humidity, atmospheric
pressure, wind direction, and strength, as well as terrain topography, location
and type of vegetation, and general characteristics of the forest complex, it is
possible to determine potential directions of threat development. Thanks to
this, they significantly facilitate firefighting operations, but also have an impor-
tant preventive role, as they are able to identify fire hazard spots, which enable
374
for their more effective protection and optimization of forces and means neces-
sary to carry out rescue operations.
The literature analysis shows that most of the scientific research activities
undertaken in the field of fires concern prevention, detection, and prediction
issues, but mainly the issue of occurrence and spread of the phenomenon in
relation to a specific area or object. Although there are carried out statistical
analyses concerning the number of existing hazards, their aim is a quantitative
and qualitative analysis of fires on the national scale, presented primarily for
information and prevention purposes.
Data on the scale of threat in Poland are collected independently by the Head-
quarters of the State Fire Service and the State Forests, which makes their
analysis difficult. Reports and statements are not used for forecasting purposes,
because such a summary forecast would not be useful. On the other hand, se-
lective research on specific groups of problems or on a specific territory is also
not useful for fire brigades, as it does not describe the phenomenon evolution.
And such an analysis, which indicates the shape, nature, and development of
danger in the future, would be valuable information for firefighters, who must
be constantly prepared for the rescue operation. Their readiness to take action
is recognised by the public as a kind of status quo, but in order to guarantee an
adequate security level, it is necessary to undertake certain measures. First of
all, spatial accessibility is important, adequate to the number of threats arising
in a given area, influencing above all the most important parameter of action,
i.e. time of arrival. People and vehicles must also be prepared and available. This

requires the coordination of firefighter’s attendance schedules, as well as proper
planning of necessary equipment maintenance and repairs. Therefore, informa-
tion on the number of forecast fires within the scope of territorial responsibility
of the fire brigade would enable to manage the resources in such a way that it
guarantees the maintenance of proper potential in relation to the phenomenon
scale, which changes throughout the year. Exactly such a mathematical model
that allows for quantitative analysis of fires, supports planning and preparation
of rescue operations in a selected rescue and firefighting unit, is presented in
this article.
375
2. CHARACTERISTICS OF FIRES IN POLAND
Fire is a spontaneous and uncontrolled spread of fire, causing material dam-
age (Hołyst, 1962, p. 7), which occurs against the will of man or goes beyond
the boundaries of mankind (Grzywaczewski, 1951 p. 114). It is one of the big-
gest natural disasters on earth. This makes it an issue of particular concern in
many countries, including Poland, where although the total number of fires has
decreased over the last two years, it still remains at around 125 000 per year,
of which around 400 are very large and large, with disastrous consequences.
The number of fires recorded in Poland between 2010 and 2017 was shown in
Figure 1.
Figure 1. Number of fires in Poland in 2010-2017
Source: Own elaboration based on statistical data of the Headquarters of the State Fire
Service
Differences in the number of fires occur not only over the years but also over
the months, as this is a phenomenon characterized by high seasonality, deter-
mined by the season and metrological conditions that shape it. Diagram of fires
occurring in individual months in 2010-2017 was presented in Figure 2.
376
Figure 2. Total number of fires in 2010-2017 with the division into months
Service
As can be seen, there are months when the number of fires is much higher
and this correlation is repeated throughout the presented period. The highest
risk occurs in early spring, March, and April (Figure 3).
Figure 3. Boxplot of the number of fires in individual months of 2010-2017
Service
377
The characteristic of fires is also important, depending on the phenomenon
scale. According to this criterion we distinguish :
Very large fires, which occur as a result of burnt or destroyed objects or its
parts, movable property, material storage sites, machinery, equipment, raw ma-
terials, fuels, etc., covering an area of more than 1001 m2 or a volume of more
than 5001 m3, as well as forests, crops, grasses, peat bogs and wastelands, with
an area of more than 101 hectares. Furthermore, such fires are characterized by
the application of over 37 firefighting jets.
Large fires, which occur as a result of burnt or destroyed objects or its parts,
movable property, material storage sites, machinery, equipment, raw materials,
fuels, etc., covering an area of between 301 and 1000 m2 or a volume of between
1501 and 5 000 m3, as well as forests, crops, grasses, peat bogs and wastelands,
with an area of more than 10 hectares, but not more than 100 hectares. Such
fires are characterized by the application of 13 up to 36 firefighting jets.
Average fires, which occur as a result of burnt or destroyed objects or its
parts, movable property, material storage sites, machinery, equipment, raw ma-
terials, fuels, etc., covering an area of between 71 and 300 m2 or a volume of be-
tween 351 and 1500 m3, as well as forests, crops, grasses, peat bogs and waste-
lands, with an area of more than 1 hectare, but not more than 10 hectares. Such
fires are characterized by the application of 5 up to 12 firefighting jets.
Small fires, which occur as a result of burnt or destroyed objects or its parts,
movable property, material storage sites, machinery, equipment, raw materials,
fuels, etc., covering an area up to 70 m2 or a volume up to 350 m3, as well as
forests, crops, grasses, peat bogs and wastelands, with an area up to 1 hectare.
Such fires are characterized by application up to 4 firefighting jets.
In Poland, small fires dominate, which are the most common in the whole
phenomenon scale (Fig. 4). However, regardless of the intensity and extent of
each fire, they cause specific economic and environmental losses and require the
intervention of the fire brigade, which must be ready to respond to any type and
intensity of the phenomenon.
378
Figure 4. Number of fires in 2012-2012 with the division into phenomenon
scale
Service
The fire risk in Poland is mainly associated with forest fires, which represent
almost 30% of the country’s area and grow on an area that is over 9.2 million
hectares (Directorate-General of National Forests 2016). The number of fires
in forests is strongly determined by the geographical location of forest and pre-
vailing meteorological conditions. It is influenced by air temperature, precipita-
tion intensity, litter moisture, relative air humidity, cloudiness, the presence of

wind, but also susceptibility to ignition, directly related to the state of humidity
of forest materials. On the basis of above factors, the Forest Fire Protection
Laboratory determines the fire hazard, defined in 4 steps ( Journal of Laws No.
2006.58.405):
0 – no risk,
I – low risk,
II – high risk,
III – catastrophic hazard (it is not allowed to light a bonfire even in desig-
nated areas)
The greatest fire risk concerns summer time and it is caused by strong sun-
light. High temperatures and lack of precipitation cause litter to dry out, despite
the peak vegetation of plants and the risk of fire increases dramatically. The
379
second most important period is spring, and the time before the beginning of
forest vegetation development when it is dominated by a large number of flam-
mable materials. It is estimated that in these periods about 80% of all fires in the
forest occur (Piwnicki, Szczygieł 2018). Therefore, in a period from the begin-
ning of April to the end of October, the fire hazard is monitored particularly
carefully and the measurements of pine litter moisture are conducted on a daily
basis and in situations of increased risk the results are reported to the radio and
television along with the forest fire hazard level.
Figure 5. Forest fires in relation to all fires
Service
On the other hand, it turns out that forest fires constitute only a small per-
centage of all fires recorded in the country (Fig. 5). Of course, their scale is of-
ten very large and their effects drastic for the functioning of forest ecosystems.
However, for the readiness of individual fire brigades, every threat is important
and requires a proper and quick response. Therefore, analyses carried out at
the national level, or only on selected risks, such as forest fires are not suffi-
cient for such units. Geographical diversity and specificity of individual Polish
regions require an individual approach at the lowest level of intervention. This
article proposes a method of forecasting the number of fires for a selected rescue
and firefighting unit, defining a model that will allow for forecasting events and
thus adjusting the available resources, both technical and human, to potential
hazards.
380
3. RESEARCH SUBJECT
The subject of study is an organizational unit of the State Fire Service, which
operates in the south-western part of Poland. It consists of two rescue and fire-
fighting units. Each of them has three shifts. In total, it has about one hundred
firefighters. It covers 9 municipalities with an area of 628 km2 and more than
60,000 inhabitants. The agricultural land in the studied area constitutes about
38%, while forests and forest land constitute over 45%. Such high forest cover
is conducive to fires, especially in periods of drought. The undoubted advantage
of the analyzed area is its tourist attractiveness, which arouses great interest due
to rich offer and possibilities not only in the field of hiking but also in gliding,
paragliding, canoeing, cycling or mountain climbing. Increased tourist traffic,
especially in summer, is unfortunately also conducive to fires.
The analysis of selected fire rescue unit begun with the analysis of a total
number of fires in 2012-2016. It turns out that this characteristic differs from
indications for the whole country, where a significant decrease has been record-
ed over the last two years, while here the number of fires increases (Fig. 6).
Already at this stage, it can be seen that there is a justification for conducting
detailed analyses, as they may differ from the national trends. Firefighters from
the studied area explain that such a tendency is connected with a significant
number of small fires resulting from the deliberate action of the man. They

point to unfavourable changes in society, resulting in an increase in arson and
vandalism attacks leading to fires in small objects, such as rubbish bins. At the
same time, they emphasize that the number of large-scale incidents decreases
due to more effective prevention and the fact that fire protection systems are
increasingly improved. This is also due to strict legislative requirements, in par-
ticular with regard to issues that require providing necessary conditions for the
technical protection of immovable and movable property. Moreover, application
of appropriate structural solutions of the building, equipping it with appropri-
ate technical devices (alarm systems, fire water supply devices, fixed fire ladders,
etc.), as well as ensuring proper evacuation conditions, improve effective rescue
operations and reduce the effects of fire. It is also extremely important to raise
public awareness by conducting effective fire propaganda through lectures and
practical classes in the field of fire protection, as well as to popularize issues, to
381
shape appropriate habits and attitudes conducive to both fire prevention and
proper behaviour at the time of threat occurrence.
Figure 6. Number of fires in 2012-2016 in the analyzed unit

Source: Own study
A significant increase in the number of fires is confirmed by the calculated

correlation coefficient between the year and sum of fires, which is 94%. This al-
lowed the construction of a simple regression function that enables to estimate
the average number of fires per year (1).
‫ ݕ‬ൌ ͳͷǡͶ ‫ ݎܽ݁ݕ כ‬െ ͵ͲͶ͵͹ǡͶ (1)
The above function means that with a change of the calendar year, the num-
ber of fires in analyzed rescue and firefighting unit increases on average by about
16 fires. The forecast for 2018 based on regression function shows that there
will be about 582 fires. This is very general information, useful only for global
analyses of the phenomenon over the years, but also points to a worrying ten-
dency of its increase.
5. ANALYSIS OF MULTIPLE REGRESSION

For firefighters, carrying out tasks aimed to ( Journal of Laws No. 18.138)
382
- organize and conduct rescue operation during the fire-fighting and liqui-
dation of local threats,
- support rescue activities,
- identify fire hazards and other local threats,
- personnel management for the purposes of the State Fire Service and fire
protection,
more detailed forecasts would be more useful for proper preparation of equip-
ment and necessary human resources for the fight against fire. Therefore, for the
next study, detailed monthly data collected over 2012-2017 were used, which
was shown in Figure 7. Once again, the analysis begins with a visual inspection
of the diagram showing the number of fires in each month of 2012-2016, which
took place in the studied area of rescue and firefighting unit. This time there is a
noticeable analogy to the diagram drawn on the basis of information from the
whole country. There is also a clear seasonality related to the increased risk in
spring months, confirmed by boxplot (Fig. 8).
Figure 7. Number of fires per month in 2012-2017
Source: Own study
On average, the highest number of fires took place in March, followed by

fires in February and April. The increase noted in February differs from the na-
tional trend, for which the month did not stand out from other months, which
again points to differences between global and detailed analyses. Winter fires are
383
usually the result of problems with heating devices or improperly maintained
electrical or ventilation infrastructure in buildings, e.g. (soot fires in chimney
ducts). Early spring fires are caused by the wind-dried soil layer, which is not
yet protected by the protection provided by plant growth. Moreover, this is a
period in which fires of grasses, forests, and wastelands near them predominate,
associated with the start of the season for the careless and thoughtless burning
of grasses. At the time of writing this article on only one Sunday, 11.04.2018,
on the studied area of rescue and firefighting unit there were as many as 10 fires.
Figure 8. Box diagram of fires
Source: Own study
Based on Figure 6 it is difficult to indicate whether there is a developmental

trend in the analyzed period, as a large amplitude of seasonal fluctuations dis-
turbs a clear picture. In order to assess the occurrence of a trend in the average
value of series, it was proposed to use a mechanical method of its determina-
tion with moving averages. Simple 3-term, 6-term and 12-term moving averages
were determined and diagrams of Fig. 9, Fig. 10, Fig. 11 were obtained.
384
Figure 9. 3-term moving averages
Source: Own study

Source: Own study
385
Source: Own study
Already in practice, in Figure with 6-term moving averages, we can clearly

see the existence of trend and its increasing nature, which is finally confirmed by
the diagram with 12-term moving averages. Therefore, the above analyses indi-
cate that the model should describe long-term trend and short-term seasonality
for individual months. This model can be written as (2):
௤
‫ ݕ‬ൌ σ௞ୀଵ ߜ௞ ‫ܦ‬௞ (2)
where:
δk – parameters of the seasonality model defining the value of phenomenon
deviations from the average level only due to seasonal variations,
q – the number of subperiods, phenomenon levels,
Dk – binary variable.
Independent variables, in this case, are not quantitative, but qualitative.
Therefore, they need to be translated into dummy variables. Due to the fact
that their number is limited, in the process of model estimation, they cannot be
treated in a way that is adopted for continuous variables in the regression, be-
cause they have no economic sense and the estimated coefficients of the model
have no economic interpretation.
Then such a qualitative or discrete variable, which has a few or more cat-
egories, is encoded into an appropriate number of k binary variables, which are
used in the regression equation. However, in order to be able to use the method
of least squares, the model should be estimated using k-1 dummy variables, as
the introduction of binary variables in a quantity equal to the original explana-
tory variable will cause the linear relation between the regressors, and X’X ma-
trix will be peculiar and there will be a mathematical problem with its reversal.
386
This is due to the fact that dummy variables add up to a unity. Moreover,
it would be difficult to assign, what part of the variability of a dependent vari-
able is explained by a given qualitative variable, due to an excessive amount of
information introduced into the model. Such a phenomenon is described in the
econometric literature as a dummy variable trap. This model cannot be estimated
and therefore the number of dummy variables must always be reduced by one
in relation to the number of q category (levels) identified for the given attribute
(features). Only then, the estimated model is valid and consists of absolute term
β0, the sum of the products of structural parameters and binary variables Dk
number k=1; q, representing the seasonality, and the random component ε (3).
‫ ݕ‬ൌ ߚ଴ ൅ ߚଵ ‫ ݐ‬൅ ߜଵ ‫ܦ‬ଵ ൅ ‫ ڮ‬൅ ߜ௞ ‫ܦ‬௞ ൅ ߝ (3)
According to the above analysis, the set of explanatory variables in the model
includes time (i.e. variable responsible for the linear trend) and q-1 (12 months
minus one) of the binary variables: dummy. The month of March, when the
number of fires was the highest, was not taken into account in estimation. This
means that estimates of seasonal parameters will refer to “March” level. There-
fore, all values of parameters for individual months will be negative, as each of
them will be lower than March level.
Results of estimation parameters of multiple regression functions and esti-
mation errors were presented in Table 1.
Table 1. Estimation results of the multiple regression models

N=72 b SE δ% t(59) p

absolute term 92,0175 1,035469 1,13 88,8656 0,000000
t 0,1231 0,014944 12,14 8,2367 0,000000
January -69,4205 1,309981 -1,89 -52,9935 0,000000
February -41,5436 1,309725 -3,15 -31,7193 0,000000
April -24,6231 1,309725 -5,32 -18,8002 0,000000
May -66,9128 1,309981 -1,96 -51,0793 0,000000
June -58,5359 1,310407 -2,24 -44,6700 0,000000
July -56,6590 1,311003 -2,31 -43,2181 0,000000
August -62,7821 1,311770 -2,09 -47,8606 0,000000
September -60,5719 1,312706 -2,17 -46,1428 0,000000
October -60,0283 1,313811 -2,19 -45,69-02 0,000000
November -63,1514 1,315085 -2,08 -48,0208 0,000000
December -62,6078 1,316528 -2,1 -47,5552 0,000000
Source: Own study
387
Corrected coefficient of determination, which determines what percentage
of variability of the dependent variable (Y – explanatory) is explained by inde-
pendent variable (X – explanatory), is satisfactory and it is almost 99%, errors
of estimated parameters are small, only for the time amount 12%, which is also
not too great value and therefore fully acceptable. Moreover, the quality of the
model is provided by the fact that all estimated parameters are statistically sig-
nificant, which is satisfactory also due to the model’s substantive interpretation
and lack of the need to remove insignificant explanatory variables. The standard
error of estimation was 2.2684, which means that the predicted values for the
number of fires differ from the empirical values by an average of 2.3‰. Diagram
of empirical and predicted values was presented in Figure12.
Figure 12. Diagram of empirical and predicted values
Source: Own study
6. MODEL DIAGNOSTICS
The analysis of differences between empirical and theoretical values, known
as model residuals, is the basis for assessment of the adjustment accuracy
of theoretical function to empirical data. Therefore, in order to confirm the cor-
rectness of regression model, it is necessary to check the basic assumptions con-
cerning residuals, which include the analysis of outlier observations, the nor-
mality of residuals distribution and the existence of significant correlations of
the autocorrelation functions. In regression analysis, it is important to eliminate
388
the influence of individual observations in the estimation process, which values
are different from those typical for the sample.
Figure 13. Scatter diagram of model residuals
Source: Own study
This ensures that the model is not overly conditioned by untypical observa-
tions, which could significantly distort the calculation results and lead to incor-
rect conclusions. Although there are no observable outliers in boxplot (Figure
8), precise knowledge about their existence and impact on the estimated model
can be obtained by studying its residuals, which is definitely a better and more INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
elaborated tool, as they reflect inconsistencies between observed values and pre-
dicted by the model.
In a correctly estimated model, the residual values should be small. The op-
posite results are obtained by untypical observations, which are easy to detect
with diagnostics of the model residuals. Such observations may significantly
disturb the regression equation, due to the fact that their influence on the equa-
tion coefficients values is significant. It is assumed that if a given residual value is
more than 3 standard deviations from the average value, then such observations
may be considered as outliers. Then it is necessary to remove it, re-estimate and
diagnose the model. In the estimated model, all the residual values are within a
range of 3 standard deviations from the average value, and therefore it was con-
389
cluded that there are no significant outliers that affect the observation model.
The next stage of model diagnostics is to check the normality of its residuals
distribution. Analysis of the scatter diagram in Figure 13 shows that distribu-
tion is close to normal distribution, confirmed by the histogram in Figure 14
and calculated statistics of Shapiro-Wilk test, which calculation value is 0.9468
and the test probability p=0.0629. This means that there are no grounds for
rejecting the H0 hypothesis at the significance level of alpha=0.05, which in-
dicates that distribution of our variable is close to normal. Similar results were
obtained for the Lilliefors test, for which the calculated value is 0.0782259, with
p = 0.33 confirming that residuals distribution is normal.
Figure 14. Histogram of model residuals
Source: Own study
390
Figure 15. Charts of the autocorrelation function
Source: Own study
Figure 16 Charts of the partial autocorrelation function
Source: Own study
391
Another factor determining the correctness of this model is lack of correla-
tion between all the residual values, i.e. confirmation that there are no unex-
plained dependencies. For this purpose, the diagrams of autocorrelation and
partial autocorrelation functions, presented in Figure 15 and Figure 16, were
provided with the study. It turns out that all values of functions are statistically
insignificant, which confirms the correct construction of the model.
Satisfactory results of the model diagnostics enabled to move to the last
stage of verification, which is to check its reliability in forecasting.
7. FORECASTING
The model estimated on the basis of a set of empirical observations from
the time interval [0, T] has positive forecasting properties if the forecasts deter-
mined on its basis are satisfactorily reliable for t>T.
In order to check the accuracy of the proposed regression function, the Janu-
ary and February 2018 observations will be used as test observations. They were
not involved in the model construction. Despite a small set of test observations,
the prediction can be considered satisfactory. The relative error of forecast for
January was 7% (forecast was overestimated by 1.5 fire), while the relative error
of forecast for February was 0.9% (Table 2).
Table 2. Relative forecasts errors for the regression model

Month Day of week Regression model Empirical data Forecast relative error Ψ [%]
January 5 22.597 21 7.60499339
February 1 50.474 50 0.94791667
April 2 92.141
May 3 67.394
June 4 25.105
January 5 33.482
Source: Own study
The average forecast error is 4.2765, which allows the estimated model
to be considered satisfactory. It is highly probable that the number of fires will
occur in consecutive months (Fig. 17).
392
Figure 17. Diagram of empirical values and forecasts according to the regres-
sion model
Source: Own study
It is worth to note that in the analyzed process such a reliability of forecasts

showing the general characteristics of the phenomenon is completely sufficient,
as it will be the basis for qualitative decisions concerning the organization func-
tioning in terms of its resources. Proper planning and preparation of fire-fight-
ing activities are extremely important in the fight against such threats. It deter-
mines the speed and efficiency of taken actions and thus directly affects the ef-
fectiveness of control over fire. For this purpose, a good organization of work is

necessary. This includes not only ensuring a high level of staff training, but also
ensuring their readiness to react in a number of ways appropriate to occurring
events. Precisely for this purpose presented above forecasts can be used. They
will enable to adjust the human available resources to the degree of expected
danger, to properly plan the duration of holidays and inform neighboring units
about the possibility of their need for support in situations of increased risk.
Determination of the fire risk will allow not only to ensure necessary per-
sonnel needs but also to plan the proper operation process of possessed techni-
cal resources.
It is important that all hardware units are operational and ready in the most
critical time. The guarantee of reliability and effectiveness of technical facili-
ties is the constant maintenance of their potential by carrying out repairs and
393
renovations in accordance with the requirements, at the right time and in the
right scope. In organizations aimed to protect human life and health, as well
as property, it is important that such operations are carried out with a view
to maintaining a certain level of preparedness, preferably at the lowest risk of
occurring danger. The definition of such a term again promotes the presented
prediction method.
The model presented in this article is based only on a temporary analysis
of the studied phenomenon. However, it can be improved and supplemented
in subsequent stages by other parameters affecting the number of fires, such as

metrological conditions, moisture content or tourist traffic. In addition, it can
be complementary to fire simulation techniques used e.g. in forests.
Its functionality will be useful both in the process of fighting a real threat,
as well as during exercises or training that concern planning and preparation of
rescue operations in which the accuracy of risk assessment is crucial for the life
and health of people, and the protection of property. Information on the num-
ber of potential fires will not cause that there will be less of them, but it may
change the scale of damage.
8. CONCLUSIONS
There are many definitions of fire, but in each of them, it is identified with
unintended and uncontrolled threat of damage, economic, environmental and
social loss and the need for emergency services to intervene. Therefore, it is not
surprising that the aim of the fight against fire is to undertake multidirectional
actions. They concern mainly preventive actions aimed to shape appropriate
attitudes and behaviors among the society. It also involves research to develop
new solutions for early and reliable fire detection, to implement the right stan-
dards in rescue tactics and to search for effective technical solutions. It is also
important to implement necessary legislative changes, and finally to constantly
acquire and train personnel ensuring not only proper knowledge and physical
condition of firefighters, but also appropriate psychological resilience.
In this difficult struggle against the unpredictable situation, what counts is
every possibility that is conducive to its success. That is why mathematical tools
and methods are equally important to describe and analyze such phenomena,
and the probability of their occurrence, course, and determination of fire risk.
394
The method presented in this article becomes a part of this last group. It al-
lows describing the phenomenon of fires in a mathematical way, based only on
information from the past concerning their number. The fact that it does not
require any additional data is its undoubted advantage. In this form, it can be
successfully used in the operational planning of rescue forces. It is also a devel-
opment method that allows for taking into account additional factors that may
influence the number of fires and thus increase the reliability of predictions that
are one of elements of the fight against a powerful and very dangerous situation.
REFERENCES
Grzywaczewski, Z. (1951). Fight against fires on ships, Gdańsk, Naval Publishing Company.
Holtys, B. (1962). Forensic fire issues, Warsaw, Publishing Company of the Forensic
Department.
Regulation of the Minister of Environment of 22 March 2006 on detailed principles for the
fire protection of forests Journal of Laws No. 2006.58.405 of 2006.04.07
Act on the State Fire Service of 24 August 1991, Journal of Laws No. 18.138 of 2018.02.01
Strawiński, P. (2007). Quality and discreet variables in the regression model [available at
http://coin.wne.uw.edu.pl/pstrawinski/notatki/dummy.pdf access March 16, 2018]
Directorate-General of National Forests (2016). Polish forests 14.07.2016 [available at:
https://www.lasy.gov.pl/pl/nasze-lasy/polskie-lasy access March 16, 2018]
Piwnicki, J. & Szczygieł, R. (2018). Effect of fires on forests
https://www.ibles.pl/documents/17150/28287/pozary-2015-2016.pdf
Piwnicki, J. & Szczygieł, R. (2015). Effect of fires on forests – Poland 2015
https://www.ibles.pl/documents/17150/28287/pozary-2015-2016.pdf
395
THE IMPORTANCE OF
ESTABLISHING HUMAN
RESOURCE OFFICES IN CROATIAN
HEALTHCARE INSTITUTIONS  A
Martina Bienenfeld Zrinka Stanić Helena Štimac: THE IMPORTANCE OF ESTABLISHING HUMAN RESOURCE OFFICES IN CROATIAN ...
KEY TO THEIR SUBSISTENCE
Martina BIENENFELD, Ph. D. candidate

Zagreb Tourist Board, Croatia
E-mail: martina.bienenfeld@infozagreb.hr
Zrinka STANIĆ, LLM. Ph. D. candidate

Doctoral School “European Studies”
E-mail: zrinkag5@gmail.com
Helena ŠTIMAC, Ph. D. Associate Professor

J. J. Strossmayer University of Osijek, Faculty of Economics
E-mail: helena.stimac@efos.hr
Abstract
A number of highly educated specialists who have left the Republic of Croatia
since it entered the European Union, is growing rapidly. Well-trained special-
ists such as medical doctors, dentists, pharmacists, nurses, etc. are moving to
other European countries in search of better working conditions. In the main
receiving countries, it is normal that each hospital, healthcare centre, pharmacy
store or even home for elderly has their own human resource office with the
primary task of keeping their employees happy and taking care that the work-
ing conditions are good. The main reason for Croatian “Brain-Drain” isn’t low
salaries, but the lack of human resource specialists who could improve the work-
ing conditions and help in the social development of the healthcare institutions
in Croatia. Notably, a high salary appears to have a lesser relevance compared
to the quality of working conditions. Investments into the social sector of health
396
institutions in Croatia and investment into Human Resource Management
carry the potential to decrease the number of leaving specialists and to increase
their productivity in managing their tasks as well as increasing their inner
satisfaction and motivation.
Key words: Human Resource offices, Croatian healthcare institutions, Croa-
tian “Brain-Drain”, Human Resource Management
JEL Classification: O15, H51
1. INTRODUCTION
Since the Republic of Croatia entered the European Union, more and more
people are moving to other EU countries in search of better jobs and better
living conditions. Medical doctors and medical staff are one of the most signifi-
cant categories in this social phenomenon. According to the Croatian Medical
Chamber (CMC), 1 468 medical doctors have filed a request to leave CMC
and to move abroad. (Croatian Medical Chamber, 2018, The number of doctors
who are leaving). Since the Republic of Croatia entered the EU on 1st July 2013,
518 nurses (Kukovec, D., et. al., 2017, 3) and 525 doctors have left the country
to work abroad (Croatian Medical Chamber, 2018, Demographic Atlas). The
research done in the Demographic Atlas of Croatian medicine states that there
are 14 394 medical doctors in the Republic of Croatia from which almost 4 000
will be retired in the next 10 years. At the same time, there will be the highest
numbers of graduated medical doctors in the past decade. According to Trpi-
mir Goluža, president of CMC, if the trend of growing retired population and
growing brain-drain population continues, serious problems will ensue in the INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Croatian healthcare system. In the research done in 2016, from 1 531 partici-
pants, 58% said that they would leave Croatia and go to work abroad if they had
a chance to do that. Participants’ average age was 32 years (29 to 35) and most
of them were young medical professionals who were residents or young special-
ists with less than 5 years of experience working as a specialist (Babacanli, A.,
et.al., 181).
397
Image 1. Leaving the Republic of Croatia in search of a career abroad.
:RXOG\\RXOHDYHWKKH5HSXEOLFRI&URDWLDDQGVWDUWDFFDUHHUDEURDDGLI
RIIHUHGWWKHRSSRUWXQQLW\"
Ed
΀WZE
'΁
΀WZ
ZEd
΀WZ
ZEd '
'΁
'
'΁
GD\\HV QHQRR QH]QDDPGRQ

WNQQRZ
Source: Babacanli, A., et. al., Satisfaction of young doctors in Croatia: Are we heading in the
right direction? Liječnički Vjesnik, 2016 (138), p. 180
2. REASONS FOR LEAVING THE REPUBLIC OF

CROATIA
Reasons, why Croatian doctors, nurses, medical technicians and other
healthcare specialists are leaving the country, vary from low salaries to bad
working conditions in Croatia. One of the main reasons for their leaving is also
the lack of possibilities to progress further in their career (Babacanli, A., et.al.,
2016, 180). There are many young doctors who don’t have any chances to get
the specialization or even if they do get the specialization they would be bound
to work in the same hospital for years. Labour contracts for getting the special-
ization in Croatian healthcare system are very strict towards doctors who sign
them. After signing them and becoming residents, doctors are obliged to work
for the hospital during the time of specialization and the same amount of time
after they become specialists, no matter what the working conditions in the hos-
pital are and no matter whether they are satisfied with their workplace. Usually,
this period lasts between 8 to 12 years during which one is obliged to work for
the hospital. If one decides to quit their employment earlier, in order to transfer
398
to some other hospital, regardless whether in Croatia or abroad, they need to
repay high sums to the hospital.
Moreover, the Croatian Constitutional Court expressed its opinion that
those kinds of contracts are against the Croatian Constitution. Nevertheless,
the contracts are still in force, violating one of the four freedoms given to the
citizens of the European Union, namely the freedom of movement for work-
ers. The Constitutional Court in Croatia has decided in its decision from 2015
that Minister of Health isn’t authorized to regulate the obligations between the
resident and the hospital, the length of the obligation for the resident to stay
and work for the hospital after becoming a specialist, the amounts which are
applicable for resident or young specialist to pay to the hospital, the amounts
which are applicable for hospital to pay for young specialist coming from a dif-
ferent hospital neither is he authorized to determine costs of the specialization
which specialists need to repay to the hospital (Constitutional court in Croatia,
decision U-II-187/2015 - U-II-4649/2016). It is important to emphasize that
only medical doctors, residents or young specialists, are in the category of work-
ers whose fundamental right has been violated.
The research done by the authors of this paper states that the main reasons
why medical doctors and medical staff are leaving are bad working conditions
in Croatian healthcare institutions, bad inter-personal relations at healthcare
institutions, feeling of dissatisfaction and depression at workplace, low sala-
ries, the unsustainability of the Croatian healthcare system, no possibilities for
practical or scientific progress, questionable pension funds, no opportunities for

their children and other. From 500 examinees, in a survey with multiple-choice
questions, 85% declared that the intention or reason for leaving was bad work-
ing conditions in Croatian healthcare institutions, 76% bad inter-personal rela-
tions at healthcare institutions while only 32% named low salaries as the main
reason. Having in mind this outcome, in which 500 medical doctors, nurses,
and technicians from all around Croatia gave their reasons to leave Croatia, the
problem mainly arises from dissatisfaction at the workplace.
399
Image 2. Reasons for leaving the Republic of Croatia (multiple-choice response)
ϰϮϱͬϴϱй
ĂĚǁŽƌŬŝŶŐĐŽŶĚŝƚŝŽŶƐŝŶƌŽĂƚŝĂŶ
ŚĞĂůƚŚĐĂƌĞŝŶƐƚŝƚƵƚŝŽŶƐ
ϯϴϬͬϳϲй
ĂĚŝŶƚĞƌƉĞƌƐŽŶĂůƌĞůĂƚŝŽŶƐŝŶƌŽĂƚŝĂŶ
ŚĞĂůƚŚĐĂƌĞŝŶƐƚŝƚƵƚŝŽŶƐ
&ĞĞůŝŶŐƵŶƐĂƚŝƐĨŝĞĚĂŶĚĚĞƉƌĞƐƐĞĚĂƚ
EƵŵďĞƌŽĨƋƵĞƐƚŝŽŶĞĞƐсϱϬϬ
΀s>h΁ ͬϲϬй ǁŽƌŬƉůĂĐĞ

>ŽǁƐĂůĂƌŝĞƐ
΀s>h΁ ͬϰϳй
dŚĞƵŶƐƵƐƚĂŝŶĂďŝůŝƚǇŽĨƌŽĂƚŝĂŶ
ŚĞĂůƚŚĐĂƌĞƐǇƐƚĞŵ
EŽƉŽƐƐŝďŝůŝƚŝĞƐĨŽƌƉƌĂĐƚŝĐĂůŽƌƐĐŝĞŶƚŝĨŝĐ
΀s>h΁ ͬϯϮй ƉƌŽŐƌĞƐƐ
YƵĞƐƚŝŽŶĂďůĞƉĞŶƐŝŽŶƐ
ϴϬͬϭϲй ϴϱͬϭϳй
EŽŽƉƉŽƌƚƵŶŝƚŝĞƐĨŽƌƚŚĞŝƌĐŚŝůĚƌĞŶ
΀s>h΁ ͬϭϭй
KƚŚĞƌ
΀s>h΁ ͬϯй
Source: Authors
.. Opportunities and offers in other EU countries

The biggest difference between health care system in Croatia and some other
EU countries is the existence of Human Resources offices, which are available
in the hospitals of other European countries. The main task of those offices
is to keep the employees happy and satisfied with their working place. Those
tasks are easily accomplished through regular meetings of the HR-personnel
where they plan future projects for the working community. They are in con-
stant contact with the employees, so they are familiar with their needs and
wishes (Barković Bojanić, Gugić; 2017, 375). With that knowledge, they can
offer further practical education, congresses, and seminars to those employees
who showed interest in doing that, they can offer further scientific development
to all those employees who wish to get their Ph.D. or who already have it. By
talking to their employees, they are familiar about all the possible dissatisfac-
tions employees might have and can hence design measures to try and prevent
further dissatisfaction and a potential decrease in productivity and work qual-
ity, as well as help employees, feel satisfied and motivated again. The measures
range from simple ones such as offering a special menu for vegetarians in the
hospital kitchen to more complex ones that tackle more serious problems such
as dissatisfaction with inter-personal relations at the Department.
400
Precisely because of the complexity of inter-personal relations between work
colleagues, the HR-offices are giving their best to avoid and prevent conflicts
by organizing teambuilding events each month, talking to each employee once
a month, doing many personality tests and conversations with potential new
employees and then deciding on the team set-up of every working community
of the Department (Barković Bojanić, Gugić; 2017, 375). If an employee’s per-
sonality does not match the rest of the team at the Department and employing a
particular candidate might cause consequences such as disrupted working rela-
tions at that Department, the HR-office will decide not to employ that person
no matter how excellent expert he/she is.
How come that all the developed countries such as Sweden, Norway, Den-
mark, Germany, etc. realised the importance of human capital management
while Croatia still fails to comprehend the value of this management practice?
According to Mujić and Legčević, by specializing professionals of different pro-
files for coordination and harmonization of human resources and by efficient
planning, organizing, coordinating and managing of human capital, it is pos-
sible to achieve a significant contribution to the development of the country.
The development of the human capital needs to be looked upon as the develop-
ment of a new wealth of the whole nation (Mujić, N., Legčević, J.; 2008, 201).
This transition from the industry-based society to informatics-based society is
the key difference between developed countries and countries in the transition.
Only after realising and starting to implement this knowledge in the Croatian
society, will we start to move towards becoming a developed country in which
people are satisfied to live and want to stay here? The modern phenomenon of
Croatian “Brain-Drain” can be slowed down or perhaps even entirely stopped INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
if we invest in our human capital and join the list of developed countries in the
world.
2.1.1. Human Resource Management in Swedish hospitals

One of the good examples of how Human Resource Management functions
within health care institutions is the Kingdom of Sweden. Each health care
institution in Sweden has special Departments for HR-specialists, so called
“Personalavdelning”1 whose main task is to keep track of all the employees of
that institution. People working in that department are mainly psychologists,
1
The translation of the Swedish word Personalavdelning is “Department for HR-specialists”
401
jurists and economists and they need to collaborate with one another so that ev-
erything functions well. The Swedes understood a long time ago that the wealth
of a country lies in its human capital. In Sweden, the biggest part of GDP is in
the services they provide, and not in natural resources, agronomy, industry, etc.
A total of 65% of GDP comes from services, while 33% comes from industry
and the rest from agronomy and other sectors (Repecki, M.; 2018). They apply
Total Quality Management (TQM) which implies taking initiatives to achieve
better results in today’s business surroundings. Those initiatives, same as work-
ing force, became main tools in fulfilling organizational concurrency, strategic
routing, innovations, adaptability and maximum utilization of human capital
available to the organization ( Jurčević, J.; 2007, 100). It seems that employ-
ers in Sweden follow Richard Branson’s recommendation to “take care of your
employees and they will take care of your business. It’s as simple as that. Loyal
Employees are Assets – Not Liabilities.”2
3. THE NECESSARY INVESTMENTS IN

CROATIAN HEALTHCARE SYSTEM
Learning from all those healthcare systems, towards which Croatian and
many other healthcare specialists strive; the first step would be to lower the
pressure made on Croatian healthcare employees by lowering the number of
patients per healthcare specialist. In some EU countries, there are legal acts
which provide protection to healthcare professionals by limiting the number
of patients per working day. For example, Sweden is on the fifth place when it
comes to a density of patients per doctor, with 4,1 doctors per 1.000 patients.
The World Health Organization (WHO) estimates that at least 2.5 medical
staff per 1.000 people are needed to provide adequate coverage with primary
care interventions (WHO, World Health Report 2006). A fulltime employed
doctor in Sweden handles around 704 patients in a year, while that number in
some other EU countries is around 2 145 patients per doctor per year. It means
that a doctor in Sweden on a normal working day has 3.2 patients, divided with
220 working days per year, while in some other EU countries doctors have 9.8
patients per day also divided with 220 working days per year (Antti, N., Köhler,
2
Sir Richard Charles Nicholas Branson is an English business magnate whose wealth is estimated
at US$ 5.1 billion in Forbes magazine in November 2017. He founded the Virgin Group and was
knighted for his services to entrepreneurship.
402
J.; 2017, 1). The situation in Croatia is a little bit different. Regarding the num-
ber of doctors per 100 000 people, Croatia is below EU average. The reason
why the WHO estimated the minimum of medical staff per 1.000 people is be-
cause of the fact that doctors do intellectual work and need to dedicate a specific
amount of time to each patient giving the patient an opportunity to feel secure
and taken care for. They also need time for themselves to think about patient’s
case, research and maybe consult with their colleagues. This pressure can be
lowered by employing more specialists and residents in hospitals, closing all the
small hospitals which are, generally speaking, in surplus, opening more General
Practice offices where those smaller hospitals were closed and investing savings
into different measures to improve conditions at workplace (new devices and
equipment, further education of their employees, renovation of departments,
etc.). By doing so doctors, medical staff and patients would be much happier
with service provided because the waiting lists would be much shorter, patients
would feel more secure and would be more patient, doctors would not bear the
constant feeling of rushing and working off their limits. It is expected that 4.000
Croatian doctors, from the current 14.394, will retire in the next 10 years which
will make the working conditions of Croatian doctors and medical staff even
more unbearable (Demographic Atlas of Croatian medicine, Croatian Medical
Chamber, 2017). Croatian health care system cannot allow further losses of hu-
man capital within its institutions. It is urgent to satisfy the number of needed
doctors in each department so that doctors and patients are satisfied.
It would also be good to start the preparedness when being on duty. There
are many departments where there is no need for 24 hours shifts at the hos-
pital and could be replaced with preparedness in which doctor is at home and INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
prepared to come to the hospital in a short time if needed (Antti, N., Köhler,
J.; 2017, 37). This possibility would also increase the satisfaction of medical
professionals at their workplace.
After undertaking those measures, the healthcare institutions can continue
with improving the working conditions for their employees by investing in the
further education of their employees, by taking them to seminars, congresses or
workshops around the world or even organize such events in their own health-
care institution, organizing teambuilding activities and monthly communica-
tion with each department. This is a good way to make the hospital administra-
tion familiar with the current situation at each department, with their needs
and level of satisfaction. The doctors participating in such events would feel
403
much happier, confident and eager to use all the new knowledge they receive in
their department.
.. Benefits from Human Resources Management in

Croatian healthcare institutions

How significant would Human Resources (HR) Management be in Croa-
tian healthcare institutions? What would be its benefit? How would it be orga-
nized and who would work on such jobs?
Having an HR office in a healthcare institution does not only mean keeping
your employees happy and satisfied but also the patients. HR offices in Croatian
healthcare system would start by introducing a wide variety of measures which
would help improve the sustainability of the system. The key role of HR offices
in this question would be to estimate which hospitals in Croatia are surplus (not
that many interventions, the high percent of patients sent to bigger hospitals
nearby, etc.), to close them and replace them with General Practitioner offices
which would take care of the patients. Those who cannot be handled by the Of-
fices would be sent to bigger hospitals. Of course, that that means that Croatian
General Practitioners (GP) would have more responsibilities than they have
now, but long-term this would be a better and more sustainable solution than
the current healthcare system. It would also mean an increase in a number of
GPs in Croatia. Current researches state that there are 15.283 visits per GP in
a year, which means, divided with 220 working days, around 70 visits per day
(Vrcić Keglević, M., Daus Šebeđak, D.; 2015, 34). After initial steps have been
taken, a more comprehensive transition led by the idea that people working in
healthcare institutions are the most important asset of that institution can take
place. Each hospital can decide how big its HR office should be, depending on
the number of employees at the hospital. Regardless of the number of people
within HR office of a specific hospital, each office should be composed of a
jurist, economist, and psychologist. Those three professions are very important
for each employee with jurist taking care of legal questions, economist taking
care of the financial part and psychologist helping the employees to feel happy
and satisfied at their workplace.
Not only that, by having an HR office each healthcare institution can use
it to gain some extra profit. For example, in today’s modern world there are
many services which can be provided by healthcare specialists and earn some
404
extra money for the healthcare institutions. The importance of medical tour-
ism is growing. HR offices can help the healthcare institutions to promote its
services to some foreign markets and attract foreigners who are in need of spe-
cific healthcare procedures. That is also a very good way for Croatian healthcare
professionals to learn about the functioning of foreign healthcare systems and
at the same time implement all more advanced ideas directly onto the Croa-
tian system. A yet another opportunity is to start online doctor services which
are very popular in Scandinavian countries, United Kingdom and Germany.3
Online doctor services give patients the opportunity to get the medical advice
about his/her health condition without coming to the hospital. The hectic way
of life leaves us too little time and each minute is very important. Many people
are hence ready to pay more money for more effective service and the medical
advice they need right away. These are just some of the tasks which HR offices
in healthcare institutions can perform. There is a wide variety of opportunities
and benefits that establishment of HR offices can have for healthcare institu-
tions in Croatia.
4. CONCLUSION
According to the research done in 2006, there was a shortage of various
specialists in Croatian health care system. This included a shortage of 328 inter-
nists, 319 surgeons, 209 gynaecologists, 69 paediatricians and 179 general prac-
titioners (Bagat, M., Sekelj Kauzlarić, K., 2006, 376-382). In the past 12 years,
that shortage of specialists has grown additionally and there is a lack of even
higher number of doctors of different specialties. For example, the standard
time which a General Practitioner should dedicate to each patient is around
20 minutes per patient. It means that a GP in Croatia should not have more
than 35 visits in a day if he/she wants to keep his satisfaction at workplace and
patients satisfaction with service provided. With the current number of GPs
in Croatian health care system, this is not possible. Croatia would need many
more GPs to reach the above-mentioned standard (Croatian Medical Chamber,
Minister Nakić’s speech, 2018). Croatia is not only lacking specialists in pri-
mary health care segment but in other specialties as well. According to the De-
3
Some of the examples of online doctor sites is MediCheck web site, there you can get oral or
written advice about some health problem you have. Link: https://medicheck.se/doctor-online/,
pristup: (23-03-2018)
405
mographic Atlas of doctors in Croatia, 525 doctors left the Republic of Croatia
by December 2017. There are 14.394 doctors currently working in the Croatian
health care system. It is expected that at least 4.000 doctors will be retired in
the next 10 years. Counting on a current deficit of specialist doctors in Croatia,
rapidly growing “Brain-drain” trend and future retirements, the subsistence of
Croatian health care system is seriously in question. More than 50% of doc-
tors employed in the Republic of Croatia had more than 250 overtime hours
in a year and the number of doctors who stay to work after retirement has also
increased significantly (Croatian Medical Chamber, 2018, Demographic Atlas
of doctors in Croatia).
When talking to residents and young specialists they have dissatisfied with
health care system overall, especially with bad working conditions, bad inter-
personal relations at the workplace, low salaries, no possibilities for practical
and scientific progress, etc. The measures which would keep residents and
young specialists in Croatia are regulations of the health care system, better
salaries, better working conditions, better education and the possibility for fur-
ther education, better programs of specialist training and mentoring systems
(Babacanli, A., et.al., 2016, 183).
By starting HR offices in the health care institutions in Croatia all these dis-
satisfactions could be decreased or even eliminated and the further shortage of
doctors would be prevented. We are living in a period when there are a lot of
young doctors graduating from Medical faculties and it is the task of the system
to keep them in Croatia instead of allowing them to be a part of the Croatian
“Brain-Drain”. Each person counts and each person contributes to the effective
functioning of the country as a whole. Giving the opportunity to young doc-
tors to choose a specialization which they prefer instead of limiting their op-
tions, as well as improving the management strategies, would have an impact on
them and would keep them in Croatia. Improving the whole health care system
with various reforms, which could be carried out by HR offices and giving them
more time to each patient are the first steps towards success. If these strategies
are maintained, there is a good chance of stopping the Croatian “Brain-Drain”
of health care specialists.
406
REFERENCES
Antti, N. & Köhler, J. (2017) Varför tar Sveriges läkare emot så få more patient? Tre empiris-
ka studier om läkare som har svaga eller inga gränser, Luleå Technical Faculty – Insti-
tute for Economy, Technology and Society, 2017, p. 1–95. [Available at: http://www.
diva-portal.org/smash/get/diva2:1110565/FULLTEXT02 , access: 20-03-2018]
Babacanli, A., et. al. (2016) Satisfaction of young doctors in Croatiain the Republic of Croa-
tia: Are we going in the right direction?, Liječnički Vjesnik Vol.138, p. 179–188 [Avail-
able at https://hrcak.srce.hr/index.php?show=clanak&id_clanak_jezik=255096, ac-
cess: 12-03-2018]
Bagat, M. & Sekelj Kauzlarić, K. (2006) Physician Labor Market in Croatia, Croatian
medical journal, Vol.47 No.3, p. 376-384 [Available at https://hrcak.srce.hr/index.
php?show=clanak&id_clanak_jezik=6605, access: 23-03-2018]
Barković Bojanić, I. & Gugić, Z. (2017) Theory and practice of Human Resource Manage-
ment: The case of medical staff recruitment in the Kingdom of Sweden, Ekonomski
vjesnik: Review of Contemporary Entrepreneurship, Business, and Economic Issues, Vol.30
No.2, .p.371-382
Constitutional Court in Croatia, Decision U-II-187/2015, U-II-2180/2016, U-II-
3654/2016, U-II-4440/2016, U-II-4523/2016, U-II-4649/2016, July 11th, 2017.
[Available at: http://upuz.hr/file/files/Odluka%20Ustavnog%20suda%2C%20
Pravilnik%20o%20specijalisti%C4%8Dkom%20usavr%C5%A1avanju%20dokto-
ra%20medicine.compressed.pdf , access: 13-03-2018]
Croatian Medical Chamber (2017), “Demographic Atlas of doctors in Croatia” [Available at
https://www.hlk.hr/EasyEdit/UserFiles/priop%C4%87enja/priopcenje-demografs-
ki-atlas.pdf, access: 10-03-2018]
Croatian Medical Chamber (2018) Ministar Nakić: “Family doctors should devote the nec-
essary amount of time to every patient and not approximately 20 minutes to every
patient” [Available at https://www.hlk.hr/ministar-nakic-obiteljski-lijecnici-svakom-
pacijentu-trebaju-posvetiti-vremena-koliko-treba-a-ne-tocno-20-minuta-svakom-

pacijentu.aspx, access: 24-03-2018]
Croatian Medical Chamber (2018) The number of doctors who are in process of leaving the
Croatian Medical Chamber [Available at https://www.hlk.hr/, access: 10-03-2018]
Jurčević, J. (2007) The role of human resource management in imprivng quality systems,
Poslovna izvrsnost, Znanstveni časopis za promicanje kulture kvalitete i poslovne izvrs-
nosti, , p.99-109 [Available at https://hrcak.srce.hr/index.php?show=clanak&id_cla-
nak_jezik=60556, access: 15-03-2018]
Kukovec, D., et. al. (2017) Planning human resources in health care, Zbornik radova
Međimurskog veleučilišta in Čakovec, Vol.8 No.2, .p.47-51 [Available at https://hrcak.
srce.hr/index.php?show=clanak&id_clanak_jezik=283340, access: 14-03-2018]
Mujić, N. & Legčević, J. (2008) Development of human capital, a new wealth of the
nationInformatologia, p. 196-202 [Available at https://hrcak.srce.hr/index.
php?show=clanak&id_clanak_jezik=54463, access: 15-03-2018]
Repecki, M. (2018) How they made it: Sweden, Index.hr [Available at: http://www.index.
hr/vijesti/clanak/kako-su-uspjeli-svedska/1031334.aspx , access: 18-03-2018]
407
Vrcić Keglević, M. & Daus Šebeđak, D. (2015) Differences in organization and function-
ing of family medicine in the Brodsko-posavski district compared to the Republic of
Croatia, Medicina familiaris Croatica: journal of the Croatian Association of Family medi-
cine, , p.30-38 [Available at https://hrcak.srce.hr/index.php?show=clanak&id_cla-
nak_jezik=219712, access: 22-03-2018]
World Health Organization, The World Health Report (2006) [Available at http://www.
who.int/whr/2006/whr06_en.pdf, access: 22-03-2018]
408
VALUATION OF ZERO COUPON
BONDS IN EXCEL
Zdenko PROHASKA, Ph. D., Full Professor

University of Rijeka, Faculty of Economics, Rijeka, Croatia
E-mail: zdenko.prohaska@efri.hr
Bojana OLGIĆ DRAŽENOVIĆ, Ph. D., Assistant Professor

E-mail: bojana.olgic.drazenovic@efri.hr
Ivan URODA, Ph. D., Assistant Professor

E-mail: ivan.uroda@efri.hr
Abstract
The valuation of zero coupon bonds, or bonds which are paying no coupons or
interests and are selling at a discount, is a straightforward discounting problem.
To analyze zero coupon bonds, it is necessary to determine their present value,
yield to maturity and duration. Since zero coupon bonds do not pay any interests
the yield to maturity and present value are calculated by discounting the nominal INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
value of such a bond. The duration is a measure of the average life of a bond and can
be defined as the weighted average of the times until each payment is made,
with weights proportional to the present value of the payment. To solve this valuation prob-
lem for annual and semiannual compounding of zero coupon bonds new models
were developed and a special spreadsheet programmed using only plain vanilla
Excel with its basic financial functions.
The reason for using only plain vanilla Excel is a better compatibility and
portability of such spreadsheets, for students and other users, on different plat-
forms or computers.
Key words: valuation, bonds, zero coupon, Excel
JEL Classification: Q51, M15
409
The presented results are part of the research project Development and Per-
spectives of Institutional Investors in the Republic of Croatia, financially sup-
ported by the University of Rijeka, for the project ZP UNIRI 3/17.
1. INTRODUCTION
Educational software is often used in finance courses for students, so they
could better understand the investment process in securities, like bonds. It is
also necessary to apply the methods of calculating prices, rates of return of fixed
income securities in everyday practice. Because students at Universities espe-
cially at faculties of economics are trained to use Excel, it is possible to use such
a spreadsheet program and its built in financial functions to calculate and evalu-
Zdenko Prohaska Bojana Olgić Draženović Ivan Uroda: VALUATION OF ZERO COUPON BONDS IN EXCEL
ate interest rate risk in bond investments in general and especially in the case of
zero coupon bonds. Besides that, very good books about Using Excel in Finance
and Business do exist. (Benninga, 2014) (Underdahl, 1996)
For valuation of zero coupon bonds (zero bonds) in this article, the basics of
ordinary or coupon bearing bonds will be presented first and after that the case
of zero coupon bonds will be illustrated. After these theoretical considerations
an Excel spreadsheet with examples is elaborated and the results are discussed
like in an article published earlier. (Prohaska, Olgić Draženović & Šarić, 2013)
2. ORDINARY OR COUPON BEARING BONDS

Since bonds are securities and listed on secondary capital markets they can
be traded like shares and it is therefore necessary to understand beside their
nominal or face value, nominal interest rate and maturity, such categories as
yield to maturity and present value or price. After that, more sophisticated as-
pects of bond investments like annual and semiannual compounding and dura-
tion will be discussed.
.. Yield to maturity and present value of bonds

The yield to maturity is a measure of the rate of return that will be earned
on a bond if it is bought now and held until maturity. To calculate the yield to
maturity (y) it is necessary to solve the bond price equation for the interest rate
410
given the price of the bond. In the case of annual compounding the formula or
equation is: (Bodie, Kane & Marcus, 2009)
C C C FV
PV = + +…+ + (1)
(1+y) (1+y)2 (1+y)n (1+y)n
where:
PV - present value of the bond
C - coupon
n - number of years
y - yield to maturity/rate of return
FV - future value of the bond
For semiannual compounding of interests the adequate model is: (Choudry,

2006)
C/2 C/2 C/2 FV
PV = + 2
+…+ 2n
+ (2)
1+0.5y (1+0.5y) (1+0.5y) (1+0.5y)2n
where:
C - coupon
n - number of years
FV - future value of the bond INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
According to the equations presented above it is possible to prepare an Excel

spreadsheet using built in financial functions to determine the yield to maturity
of a bond given the current purchase price. This is the true rate of return on a
bond in the case that all coupons are reinvested at the rate of return when the
bond was bought.
The present value of a bond is the sum of present values of coupons and the
present value of the par or nominal value of a bond. It means that the equations
presented above (1) and (2) are to be solved by calculating the present value
or PV given the yield to maturity or rate of return in both cases, i.e. for paying
interests annually or semiannually.
411
In an Excel spreadsheet presented later and developed especially for zero
coupon bonds, the present value of coupon bonds can also be determined at the
rate of return selected by the student. It is necessary to prepare basic input data,
like the nominal interest rate and other necessary financial information on the
bond. After that the present value can be calculated, but coupon bearing bonds
are not in the focus of this article.
.. Duration of bonds

The duration is a measure of the average life of a bond, defined as the weight-
ed average of the times until each payment is made, with weights proportional
to the present value of the payment: (Fabozzi, 2015)
N N
‫ݐ‬C NF C F
.D = ൥෍ + ൩ : ൥෍ + ൩ (3)
ሺ1+yሻ ሺ1+yሻ
t N ሺ1+yሻt ሺ1+yሻN
t=1 t=1
where:
D - duration of a bond
N - maturity in years
C - coupon
F - face value
y - rate of return/yield to maturity
t - year when the payment is made
Using duration instead of maturity it is possible to minimize interest rate
risk affecting investments in bond portfolios. In the Excel spreadsheet (ZBonds.
xls) presented later, duration can be calculated not only for zero coupon bonds,
but also for coupon bearing bonds, both for annual and semiannual payments
of interests.
With semiannual payment, interests on bonds are paid out faster than with
annual payments, so duration of the bond has to be a smaller number.
However, any change in the size of y, i.e. the rate of return or yield to maturi-
ty, in the denominator of equation (3), e.g. by dividing by 2 in order to calculate
the interest payment on a semiannual basis, would mean essentially a reduction
in the rate of return or yield to maturity, which would increase the duration of
the bond, what is not true.
412
Therefore, quite the opposite has to be done. To get the correct solution for
the duration of coupon bonds paying interests semiannually, Macaulay’s duration
formula has to be corrected, namely: (Prohaska, 1994)
D
D'= (4)
1+0,5y
where:
D’ - duration corrected for semiannual payment of coupons
D - duration according to equation (3) for annual payment of coupons
Besides that, the most important general characteristics of duration are:

a) The duration of a bond with coupon payments will always be less than
its term to maturity because duration takes into account these interim
payments.
b) An inverse relationship exists between coupon and duration. A bond with
a larger coupon will have a shorter duration because more of the total
cash flows are paid sooner in the form of interests.
c) There is a positive relationship between term to maturity and duration, i.e.
all other factors being the same, a bond with longer term to maturity will
almost always have a higher duration.
d) The relationship between the yield to maturity and duration is an inverse
one. A higher yield to maturity of a bond reduces its duration.
3. ZERO COUPON BONDS

Zero coupon bonds (zero bonds) are bonds which are not paying any cou-
pons, they are selling at a discount and provide payment of the nominal or face
value only at maturity.
The main advantages for investors are the reduced probability to call and the
ability to lock in a return. There is also no reinvestment problem for received
interests, because if an investor buys a zero coupon bond, e.g. with a yield to
maturity of 10%, than he will actually secure that return if he holds this bond
to maturity.
413
.. Yield to maturity and present value of zero coupon
bonds
Since zero coupon bonds do not pay any interests, the yield to maturity and
present value are calculated by discounting the future value or nominal value of
this bond. In the case of annual compounding equation (1) has to be reduced
to the following form:
FV
PV= (5)
(1+y)n
where:
n - number of years

Equation (5) implies that the price of a zero coupon bond is simply the
present value of the so called maturity value or future payment to be made at
maturity.
For semiannual compounding equation (2) has also to be reduced and trans-
lated into a different form, namely:
FV
PV= (6)
(1+0,5y)2n
where:
n - number of years
According to equation (6) it is evident, that in the present value calculation the
number of periods used for discounting is not the number of years to maturity of
the bond, but rather double the number of years. The discount rate had also to
be corrected and is now one half of the yearly yield to maturity or rate of return.
Examples for both cases, i.e. for zero coupon bonds with annual and semi-
annual compounding will be presented in the Excel spreadsheet section of this
article.
414
.. Duration of zero coupon bonds
It was already stressed that duration is a measure of the average life of a bond
or in different terms a time- and value- weighted measure of a bond`s maturity.
By using duration instead of maturity it is possible to minimize interest rate risk
affecting investments in bond portfolios.
In the case of zero coupon bonds with annual compounding, duration in
equation (3) can be transformed and according to relevant literature reduced
to the fact that duration for zero coupon bonds is always exactly equal to the
maturity of zero coupon bonds or: (Chance, 1990) (Wilmott, 2001)
D=N (7)
where:
D - duration of a bond
Concerning zero coupon bonds with semiannual compounding illustrated
in equation (4) above, it can easily be seen that by inserting 0 for variable y in
this equation, the corrected duration D’ is equal to duration with annual com-
pounding or D:
D D
D'= = =D (8)
1+0,5y 1
Therefore, according to equation (7) corrected duration D’ is also equal to N

or the maturity in years of zero coupon bonds:

D'=N (9)
where:
D’ - corrected duration of a zero coupon bond
Duration D and corrected Duration D’ will also be calculated in the following Excel
spreadsheet and illustrated by adequate examples.
At the end two specific characteristics of zero coupon bonds should be noted.
First, compared with coupon bonds of similar maturity and yield, zero cou-
pon bonds show much stronger percentage price changes when market interest
rates or yield to maturities change. This is obvious since the duration of a zero
coupon bond which is equal to the bond`s maturity is always larger than an
415
otherwise similar coupon bearing bond. With the zero coupon bond nothing is
paid or received until maturity, while in the case of a coupon bond the present
value or the price is a function of both the periodic coupon interest payments
and the bond`s nominal or par value.
Second, the longer or shorter the maturity of the zero coupon bond, the
more or less the percentage price changes as market interest rates fluctuate. This
is also obvious since the duration of shorter maturity zero coupon bonds is less
than the duration of zero coupon bonds of longer maturity.
4. EXCEL SPREADSHEET  ZERO COUPON

BONDS
For determining the value and duration of zero coupon bonds, both for an-
nual and semiannual compounding, an ordinary or plain vanilla Excel spread-
sheet was developed applying custom made formulas by authors and standard
financial functions built in Excel. (Holden, 2014) For explanation of the models
two examples are presented below.
.. Zero coupon bonds with annual compounding

According to the following data about a zero coupon bond with annual com-
pounding, the present value and duration of the bond are calculated.
Maturity - 5 years
Bond`s par or nominal value (FV) - 100 kn
Yield to maturity - 5.4%
Compounding – annually
After typing all necessary data in the “input data” field of the spreadsheet
model (ZBonds.xls) the results for this bond, i.e. the present value or market
value and duration are displayed in the “output data” field. (Figure 1)
416
Figure 1 Spreadsheet screenshot of a zero coupon bond with annual
compounding
Source: created by authors
The results show that the present value or market value of the zero coupon
bond is kn 76.88 and the duration is 5 years. That means that the duration of a
zero coupon bond with annual compounding equals the maturity of this bond
in years.
.. Zero coupon bonds with semiannual compounding

Given the same basic information about a zero coupon bond, but this time
with semiannual compounding, the present value or market value and duration
of the bond are calculated again.
Maturity - 5 years
Bond`s par or nominal value (FV) - 100 kn
Yield to maturity - 5.4%
Compounding - semiannually
After typing all requested data in the “input data” field of the spreadsheet
model (Zbonds.xls) the results for this zero coupon bond with the same general
data, but with semiannual compounding are displayed in the “output data” field.
(Figure 2)
417
Figure 2 Spreadsheet screenshot of a zero coupon bond with semiannual
compounding
Source: created by authors
Taking into account semiannual compounding of this zero coupon bond,

the results show that the market value of the bond is lower and amounts to kn
76.61, but the duration is again 5 years. That means that the duration of zero
coupon bonds as a measure of interest rate risk, always matches the maturity of
these bonds regardless of the compounding method, annually or semiannually.
On the other hand, the price or market value of a zero coupon bond com-
pounded semiannually is always lower than the price of such a bond com-
pounded annually, because it pays back sooner, what is consistent with bonds
paying interests.
Comparing zero coupon bonds with coupon bearing bonds it can be con-
cluded that the duration of zero coupon bonds which equals their maturity is
always larger, or to be more precise, longer than the duration of coupon bearing
bonds regardless of the compounding method. This implies that zero coupon
bonds are more exposed to interest rate risk than coupon bearing bonds, or in
other words, their price will fluctuate more up and down than the price of cou-
pon bearing bonds when interest rates are falling or raising.
418
5. INSTALLATION OF THE EXCEL SPREADSHEET
Since all mentioned procedures and calculations are implemented in one Ex-
cel spreadsheet (ZBonds.xls), it is recommended to copy this file in the working
directory of the PC where Microsoft Excel program can access it. Of course,
Excel Analysis Toolpak Add-In can be installed to speed up eventually some
specific financial functions or calculations, but is not necessary.
6. CONCLUSION
In this article the valuation of zero coupon bonds (zero bonds) was elabo-
rated both for annual and semiannual compounding. For this purpose, an Excel
spreadsheet was developed using only plain vanilla Excel, i.e. by using only cus-
tom-made formulas developed by authors and usual financial functions already
integrated in basic Excel.
The theoretical models of present value or market price and duration of zero
coupon bonds implemented in the Excel spreadsheet (ZBonds.xls) show that
even more sophisticated discounting problems can be solved efficiently using
Microsoft Excel program. In addition, it should be emphasized that by using
only plain vanilla Excel, better compatibility and portability of such a spread-
sheet, on different platforms or computers is also provided.
REFERENCES
Benninga, S. (2014). Financial Modeling, Cambridge: MIT Press

Bodie, Z., Kane, A. & Marcus, A. J. (2009). Investments, New York: McGraw-Hill
Chance, D. M. (1990). Default Risk and the Duration of Zero Coupon Bonds,
The Journal of Finance, 45(1), p. 265-274
Choudry, M. (2006). An Introduction to Bond Markets, Chichester: John Wiley & Sons
Fabozzi, F. (2015). Bond Markets, Analysis and Strategies, New York: Pearson
Holden, C. W. (2014). Excel Modeling in Investments, New York: Pearson
Prohaska, Z., Olgić Draženović, B. & Šarić, V. (2013). Calculating Duration and Convexity of
Bonds Using Excel, 36th International Convention MIPRO 2013, Biljanović, P., Butković,
Ž., Skala, K., Golubić, S., Čičin-Šain, M., Sruk, V., Ribarić, S., Hutinski, Ž., Baranović,
M., Tijan, E., Mauher, M., Bombek, I.. (ed.) MIPRO, Opatija, 20-24 May 2013, p. 13-21
Prohaska, Z. (1994). Uvod v finančne trge - metode analize in instrumenti, Ljubljana: Univerza
v Ljubljani, Ekonomska fakulteta
Underdahl, B. (1996). Excel Expert Solutions, Indianapolis: Que Corporation
Wilmott, P. (2001). Paul Wilmott Introduces Quantitative Finance, New York: Wiley
419
FROM CAMERA OBSCURA TO
IPHONE: WHAT IS THE FUTURE
Zorislav Kalazić Damir Butković Andreja Hašček: FROM CAMERA OBSCURA TO IPHONE: WHAT IS THE FUTURE OF STOCK PHOTOGRAPHY ...
OF STOCK PHOTOGRAPHY IN THE

VISUAL MEDIA INDUSTRY
Zorislav KALAZIĆ, M.Sc.

Faculty of Economics Osijek, Phd student
E-mail: zorislav.kalazic@gmail.com
Damir BUTKOVIĆ, M.Eng.

Faculty of Economics Osijek, Phd student
E-mail: butkovic.db@gmail.com
Andreja HAŠČEK1
Hanfa
E-mail: andreja.hascek@gmail.com
Abstract
The first 150 years of photography were marked by analog photography. The
visible product - analog photograph on paper was preceded by a complicated,
delicate and time-consuming procedure, which required specific knowledge, feel-
ing and skill. In the last 20-some years, photography has been undergoing a
digital revolution where both the technology and the concept of doing business
are completely changing. In addition to the technological procedure of creation
of photographs, the entire photo industry has changed, and one of the derivates
of the newly created digital economy is digital stock photography, which has
grown into a global business with a gross turnover of about US$ 5 billion
annually.
1
Andreja Hašček is an employee of the Croatian Financial Services Supervisory Agency. The views
expressed in this paper are those of the author and do not necessarily reflect the views of the Croa-
tian Financial Services Supervisory Agency.
420
However, stock photography today is faced with difficult challenges, because
with low price and high quality of cameras, modern technology has made pho-
tography extremely popular and readily accessible, literally to everyone. With
high technical quality of digital photographs, amateurs have seriously endan-
gered the existence of professional photographers.
This paper will try to answer the question whether digital stock photography
will survive the latest challenges of the future and the trends in the visual media
market.
Key words: Creative industry, Stock image market, Digital stock photography,
Digital visual media, Digital image
1. INTRODUCTION
Even Aristotle mentions the camera obscura that can be considered a precur-
sor to the photographic camera, and on whose principle of operation, basically,
works every photographic camera, even the most modern ones. It was used by
the Arabs in the 11th century to observe stars and Leonardo da Vinci described
this device in detail. Since then, painters have been using it more and more in
order to achieve a more faithful representation of reality. In 1826, with the aid of
a camera obscura, the first permanent photograph was created, when Nicephore
Niepce used multi-hour exposure and recorded the View from the window at
Le Gras. Afterwards, the pioneers of photography tried various photographic

procedures. Probably the biggest advance was made by George Eastman with
his invention of roll film in 1888, when photography begins to conquer the
world and becomes more and more popular as a visual medium for recording
events, but also as a means of expression and communication.
Photography is a new narrative instrument, thanks to the ease with which
millions of clickers relentlessly produce images by photographing. This ritual is,
though unknowingly, directed toward unarticulated longing to take hold of the
world that slips like sand through the fingers of a man. (Flusser, 2007)
Stock image market as part of the creative industry can be defined as a mar-
ket of visual content produced in advance, which is meant for business through
licensing of this content for specific purposes. Three stakeholders of this indus-
try are:
421
• 1st creators of images (photographers, cameramen, graphic designers),
• 2nd intermediaries – agencies that enable the sale of usage rights in ex-
change for payment for copyrights,

• 3rd users of images –buyers (graphic and web designers, advertisers and
publishers)
Stock photography serves as a basis for creating visual content for mass dis-
tribution. Frosh (2002) sees stock photography as the wallpaper of consumer
culture.
Stock photography permeates our visual media which reflect and shape our
culture and societal values. With the change in our culture and our values, the
industry of visual content changes as well. Stock photography enables conve-
nient licensing and usage of digital images for use by designers and advertisers,
and its use is becoming more and more common. On the other hand, Frosh
(2002) writes about negative aspects of the stock photo industry: the stock pho-
tography industry encourages conservatism and the constant reproduction of
stereotypical and formulaic ‘generic’ images […] designed to be reused in diverse
contexts and to promote different products. Stock photography can, according
to the price of the final product and means to license usage rights, be divided
into two large groups: macrostock photography and microstock photography.
Kalazić et al. (2015) concluded that production and distribution of stock
photographs is one of the derivates of the digital age in which business in the
domain of production of photographs is expanded to their distribution to users
of websites and/or digital communication channels. In doing so, websites are at
the same time used as distribution channels for photography as a creative prod-
uct. Such symbiosis of photography – means of communication and network
space – communication space – allows business association of these communi-
cation subjects and their new perspectives in the digital age. The Internet is be-
coming a bridge for photography, which allows it to cross into a new dimension,
thus expanding its production and sales capacities.
2. MACROSTOCK PHOTOGRAPHY
Miller (2003) describes how the macrostock business model was known
since the end of the 19th century, when the American company Underwood
& Underwood, which sold photos to printed media, was founded. It did not
422
take long for competitors to enter this growing market. One of them was H.
Armstrong Roberts, who offered his clients a new solution in the form of a
printed catalog. This catalog, published in 1920, is considered the beginning of
the stock photography business model and Roberts’ agency still does business
under the same rules as on day one. In the beginning, the term ‘agency’ was not
used. The first companies which sold rights to use the pictures from their cata-
logues in the early 20th century were called picture libraries. They were often
private collections of photographers and collectors.
The macrostock agencies and traditional photobanks were at ground zero
of the online photo-selling industry. Such giants as Corbis or Getty Images offer
a variety of images but prices start at several hundred dollars and might reach
thousands. For these prices, customers who buy images from such agencies buy
exclusive rights to use these files, i.e. a right managed license (RM).
Stock agencies in the beginning of the 1970s decided to reduce costs and
sought alternative technological and business solutions, which leads to the ap-
pearance of a distinct industry defined as producing pictures for advertising.
The recognized generic stock image, which can be used in various industries,
was also established. The year 1990 is the beginning of the modern digital phase,
characterized by drastic changes in business activity of the industry, tied to fi-
nances, organization and technology. The market prices, however, were still very
high. Uchańska (2015) writes that picture prices ranged from a couple hundred
to even 700 hundred dollars: this was the price of professionalism. Despite the
growing number of agencies, the demand for generic stock images was high,

which resulted in record earnings and spread of the business to a global level.
Redefining the potential buyer was very important for agency status. While the
main customers of the agencies in the 70s were printed media, this role was
taken by the advertising industry and corporations in the 90s.
3. MICROSTOCK PHOTOGRAPHY
Until the 70s, the stock photo industry was not aware of its existence. There
were numerous small agencies on the market that offered various image catego-
ries, e.g. for publishing, historical, scientific, educational, geographic, journalistic
and commercial. These agencies acted independently, without a common vision,
and would usually take rejected images that the original purchaser did not want.
However, they had the idea to categorize these images and offer them to other
423
buyers, along with the payment of a small fee to the author of these photographs.
Photographers gladly accepted the new business model because it meant sell-
ing existing images which were left as unnecessary for the second time. With
the mass usage of digital photography after the year 2000, an interesting niche
was identified on the stock image market, comprised of advertising agencies,
publishers, graphic designers, entrepreneurs, and bloggers. On the other hand,
the creative potential of amateur photographers was recognized, since they had
access to relatively cheap, yet technologically powerful equipment.
According to Schmieder (2015), the German stock photo agency Plainpic-
ture, for example, was one of the first stock agencies in the new millennium to
recognize the value of amateur photography. Roman Haerer and Astrid Her-
mann, directors and founding members of the photo agency, attributed the in-
clusive approach to the demand for more personal-looking photographs, which
can be used for illustrative and creative purposes. Frosh (2002) somewhat ironi-
cally comments on the amateurs in the stock photo business: “However, they
stressed that they do differentiate between high and low picture quality. Thus,
the amateur partly blends into the large pool of standardized stock photographs
and becomes almost invisible.”
Microstock photography was created through the crowdsourcing business
model that uses the idea of networking, and that initially had the form of a
platform for image exchange within the existing community. Stock photogra-
phy fits perfectly into the crowdsourcing business model because it can cover a
large number of creative people who work remotely, do not have to be employed
full-time, and anyone interested can become an associate. Smith (2015) writes
about crowdsourcing as the best business model in the digital age. Selling im-
ages on the web has become, for amateurs, a relatively simple way of achieving
extra profit. Uchańska (2015) writes that the recipe for an efficient and suc-
cessful agency was to observe three rules: the high quality of pictures, the best
photographers, and the ability to create a professional image. The Image Bank
added one more component: global orientation.
Using resources of photo agencies based on the microstock model is now
becoming the standard source of image contents in media and the advertis-
ing industry. The images are good, cheap, and can be used in various contexts.
Initially, this model caused criticism in the photography industry because it
forced traditional photo agencies to drastically lower their prices. A common
424
complaint is that images are often unoriginal, generic, and clichéd, or, as Frosh
(2002) writes repeatedly produced and performed as ordinarily familiar and
ordinarily desirable. Microstock agencies sell files provided by their contribu-
tors for prices starting as low as 0.10–0.15 USD per image. Files offered by
microstock agencies are sold under a so-called royalty-free license (RF), and
the customers do not get exclusive rights to use them. Microstock changed the
perception of amateur photography. Taking pictures is not just a pleasure now,
it is business. The winning strategy is to best recognize the expectations of cus-
tomers and adjusts one’s pictures says Uchańska (2015).
Four basic categories keep their popularity in microstock: lifestyle, health/
healthy lifestyle, and beauty & spa. The appearance of microstock photography
can be considered a natural consequence of the development of modern media.
It is difficult to imagine digital media, as well as the advertising industry, with-
out microstock photographs.
4. MOBIOGRAPHY STOCK PHOTOGRAPHY

People in the present day are likely to attach to the online services. Today,
social networking is said to be an important part of our life. As technology im-
proves, we are most likely to engage ourselves more to electronic devices. Now,
with the invention of smartphones, we are in the time of mobile social network-
ing (Bergstrom & Backman, 2013).
When the first model of the iPhone was produced in 2007, it was difficult to

even imagine that this mobile phone would change the world of photography. It
had a relatively low resolution (2 MP), a fixed focus, and the application could
not zoom a photo. It seemed that it was just another mobile phone with a cam-
era. However, the iPhone could connect directly to the internet and had a large
touch screen – it was the platform for the camera of the digital age. Over 100
million iPhones were sold in the first four years.
Even though they refused them for a long while, stock photography agencies
realized that photographs shot with an iPhone are good enough and that they
present a solid commercial potential, even if they are not shot using an expensive
professional DSLR camera. The key potential of the iPhone is that the owners
carry their camera with them all the time. Therefore, they can be at the right
place in the right time to record a certain situation. After that, the image needs
425
to be processed using an application and forwarded to a stock image agency that
will take care of its sale. This way, a completely new expression is created for the
movement of smartphone creators of digital visual content – mobiography.
Society6 is an agency that accepts iPhone photographs and, according to

buyers wishes, prints them on clothes, furniture, etc. The end buyer pays 16
USD for a print of a photograph on a certain medium. Similar agencies include
Red Bubble, Fine Art America and Crated. However, they do require some sig-
nificant file preparation, and they do not allow direct uploads from a mobile
phone.
The webpage Instaprints has their own business philosophy: they print up-
loaded photographs that need no processing in advance, and their slogan is:
Transform your photos into wall art, home decor, phone cases, and more!
5. IPHONEOGRAPHY AS A PART OF
MOBIOGRAPHY
Digital technology brought a revolution to photographs. A photograph, as a
medium, has become democratized and available to the largest number of peo-
ple ever. Digital cameras become high quality devices that enable their users to
shoot technically acceptable photographs in most cases. This reality encourages
owners of digital cameras to acquire more expensive and more sophisticated
cameras. Since the appearance of the first commercial digital cameras in the
90s, the increase in sales has been constant until 2011. According to CIPA data,
115,500,000 cameras were sold worldwide in 2011. (Graph 1)
Jeffries (2013) says that hotography has never been so popular, but it’s get-
ting destroyed. There have never been so many photographs taken, but photog-
raphy is dying.
However, in 2012, the sales fell below 100 million. The prevailing opinion at
the time was that the cause of the fall was a devastating earthquake and tsunami
in Japan. However, sales fell in the following years as well: in 2013. they were
63 million, in 2014. they were 44 million, and in 2015. only 35 million digital
cameras were sold. The year 2016. seems the worst so far for the digital camera
market, with a total decrease in sales of an astonishing 81% compared to 2010.
The question that arises is how to explain the sudden recession that started in
the digital camera market in 2011.
426
Graph 1, Worldwide digital camera shipments by CIPA members
Source: http://www.businessinsider.com/iphone-7-plus-digital-camera-sales-chart-2016-9
The answer lies in the fact that during 2011, the mobile phone called iPhone
4S became available. A resolution of 8 megapixels along with a high dynamic
range of the image made the iPhone 4S an object of desire. Additionally the
iPhone 4S recorded video in Full HD resolution at 1080p. The mighty camera
of this smartphone led to the conclusion that users no longer needed a sepa-
rate camera. Jeffries (2013) wrote that Annie Leibovitz helped put the nails in
the coffin of such middle-market cameras by saying that the iPhone was the
snapshot camera of today. How could it come to pass that a device for mobile
communication, whose camera is one of its additional features, enters the digital
camera market niche, becomes a competitor and seriously endangers produc-
tion and survival? It seems that the main advantage of the iPhone was a good
and simple way of transferring content over the Internet. Apple presented a
product that people really wanted and that encouraged the growth of social
networking. It seems that this was of crucial importance for the success of the
product. From a marketing perspective, smartphone manufacturers like Apple
adopted the old Kodak’s philosophy, focusing on capturing the moment and
recording experiences, instead of shooting a technically perfect photograph. You
press the button, we do the rest was the old Kodak marketing slogan. Thanks
to similar smartphones, more images are shot than ever before (Graph 2.). The
new iPhone uses circuits, software and algorithms to create images that look as
if they were shot using advanced DSLR cameras. According to Apple’s senior
vice-president of marketing, Phil Schiller, iPhones perform one hundred billion
427
operations in twenty-five milliseconds; he described it as a supercomputer for
photos.
Graph 2, Number of photos taken worldwide 2013-2017.
Source: https://www.statista.com/chart/10913/number-of-photos-taken-worldwide/
The newest iPhone X enables shooting in the professional RAW format,

has top quality HDR photography, and shoots excellent portraits with depth
of field control. Jon Oringer, the founder of Shutterstock, stated, while talk-
ing about the new iPhone: Just like our two eyes can be used to detect depth,
two lenses can do the same thing. By using the disparity of pixels between two
lenses, the camera processor can figure out how far away parts of the image are.
This new dual-lens system, he said, will change photography forever.
6. VISUAL CONTENT IN SOCIAL NETWORK

MARKETING
Sontag wrote way back in 1977. that the image world affects our experience
of reality because it provides a new visual code, a grammar and ethics of see-
ing. Photography alters and enlarges the scope of what is worth looking at and
what we have a right to observe and what serves as evidence. That is why pho-
tography is an inevitable visual part of marketing. Mangold and Faulds (2009)
428
write that that social media is a hybrid element of the promotion mix because
in a traditional sense it enables companies to talk to their customers, while in
a nontraditional sense it enables customers to talk directly to one another. The
content, timing, and frequency of the social media-based conversations occur-
ring between consumers are outside managers’ direct control. As a consequence
of the sudden development of Iphoneography and the global phenomenon of
using social networks, influencer marketing emerges. Today, the digital market-
ing landscape is more complex than ever. The following social networks can be
considered the most significant marketing channels in the field of visual media.
.. Instagram
Hird (2013) wrote that social media has turned to one of the most favored
marketing strategies used by business people around the world. The point that
makes Instagram different from other social media is that Instagram is applying
a visual based strategy. Using images is a natural way of attracting attention. It
is the perfect motivational force that encourages visitors to follow and explore
content in more detail. Instagram quickly became a popular way for individu-
als and companies to share images with their audience and it is growing more
quickly than Twitter and Facebook grew in their beginnings. In September
2017, Instagram has 800 million users (Diagram 3). This network of social
media has an undeniable influence on our culture, which influences the photog-
raphy industry as well. Instagram changes the way in which people produce and
consume visual media.
429
Diagram 3, Number of montly active Instagram users from January 2013 to
September 2017 (in millions)
Source: https://www.statista.com/statistics/253577/
number-of-monthly-active-instagram-users/
The concept is creative and fun, with a high level of interaction between
companies and consumers. It is also the perfect tool for building customer rela-
tions by giving them first insight into the company and its employees. Including
consumers in a marketing campaign is an excellent way to establish loyalty and
build promoters of a certain brand. This makes it an ideal tool for low-budget
marketing.
.. Pinterest
Pinterest’s success is largely based on its simplicity and aesthetic attraction.
Instead of an abundance of text, it focuses on a clear, bright background with
images. Pinterest mostly revolves around the exchange of ideas using visual con-
tent and does not have a lot of interaction with other users. Publishing content
is simple, which makes it perfect for connecting to like-minded people. About
70 percent of users are female. This makes Pinterest perfect for companies
whose niches are home décor, fashion, food industry, art and crafts.
430
.. Tumblr
Tumblr is a web-location for microblogging used mostly by artists and cre-
ative people. The main content is visual, it has a simple interface and is very
popular with younger people older than 25, which makes it ideal for companies
trying to reach a young audience. Its minimalist look eases management and
navigation is very intuitive. Since it is the platform of choice for many trendset-
ters, it is also useful to update on current trends. Tumblr is not completely satu-
rated with competition and is still below the radar of many marketing experts.
(Facebook has been left out since, apart from visual content, textual content is
largely represented on it.)
7. NEW BUSINESS MODELS IN THE MARKET OF

VISUAL CONTENT
Cook (2015) cited the CEO of Eyeed „We have seen a considerable increase
in the numbers of people both submitting and purchasing stock images from
our website. Our forecasts predict that this will continue to grow in the years
ahead due to the ease of taking good photographs via smartphones. “
.. Snapwire
Snapwire introduces a completely new business model to the market of digi-
tal visual content. Aside from the agency model, it sells stock photographs that

were shot earlier and archived. The novelty is that the customer can hold a com-
petition with a detailed description of the wanted future photograph. Interested
visual artists, of which there were 515,682 registered in January 2018, can see
this order and participate if they are interested. The novelty is also that Snap-
wire offers as much as 70% of the amount charged for the ordered photograph
as profit. For a classic stock photograph that was not ordered, Snapwire offers
as much as 50% commission, which is more than the usual commission of about
20%.
.. Scoopshot
Scoopshot has its own specific business model where, instead of photos,
its database offers hundreds of photographers from all over the world, along
431
with their portfolios. The buyer chooses a certain photographer through their
portfolio and sends them a briefing as precise as possible so they could deliver
their offer. The usage license is usually exclusive – RM. It is visible from this
statement of a Scoopshot user why Scoopshot is growing. One satisfied user

on their website says: „My aim is to have 50% of our photos delivered by Scoop-
shot. We want to move away from the big press agencies who all sell the same
generic images. Smartphone cameras are getting better and better. We want to
be different.”
8. DISCUSSION
Analysis of the market of cultural goods by Whatley (2014) presents some
key dimensions that have an influence on the distribution of photography as a
digital cultural good:
• development of the ICT sector (information and communication
technologies);
• development of an economy of knowledge;
• globalization
The appearance of available digital cameras oriented toward consumers
introduced several technological innovations for amateur photographers that
contributed to drastic changes in practicing photography. The first digital cam-
era with a digital display enabled viewing the photograph before it was taken,
and the digital camera also received a delete button, which enabled deletion of
unwanted photographs from the memory. With these two innovations, digital
technology overcame two significant obstacles for greater engagement of ama-
teur photographers:
1. delay between shooting and the visible result
2. high costs of development of photography.
Digital innovation completely changed the process of learning because it is
now possible to improve skills faster using the method of trial and error, which
leads to smaller differences between professionals and amateurs.
Professional photographers, especially form the older generation, are often
embittered by the appearance of digital photography because it took away their
432
key competitive advantages over amateur photographers: the skill of selecting
the optimal frame, managing depth of focus, and the precise selection of screen
and exposure. The technical quality of the photograph depends on these as-
pects. Amateurs try to compensate the lack of expert competences with a large
number of shots, which increases the chance of shooting a successful one. Other
skills, like chemical processing of negatives and positives or the skill of manipu-
lation in dark chambers, that photographers developed for years, seem like they
have become forever unnecessary.
.. Suggestions for innovations in the future of stock

photography
8.1.1. Shooting with multidimensional cameras

Shooting with a multidimensional camera that could simultaneously shoot
from all angles in a high resolution, the photographer could later select the most
optimal shot among thousands of shots on the computer screen. An experi-
enced photographer today needs to have the rare ability to see the motive in its
best edition, from the best angle, and needs to simultaneously perform a techni-
cally successful shot in a split second. Instants in time as short as 1/125 or even
1/1000 of a second are extremely short and the quality of a future photograph
depends on whether the photographer managed to press the shutter button in
this “crucial moment”. A split second too early or too late and this important
moment is lost forever. Innovative multidimensional photography would enable
other professions from the field of visual media (e.g. graphic designers) to se- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
lect an optimal shot, because it could be viewed image by image on a computer

screen. This concept could be compared to storing nearly perfect digital infor-
mation about a visual content. The content would be recorded with an ultra
high-resolution camera that would be like an advanced Google Trekker camera
which records a visual angle of 360 degrees. Using an application, it would be
possible to return to the moment of shooting, with the option of reproduction,
zooming and subsequent framing. Future multidimensional cameras would re-
cord an object simultaneously from all possible angles in very high resolution
and store into the archives of stock image agencies.
New computer applications will be able to incorporate new technologies
such as virtual reality, semantic reality, and artificial intelligence in order to
433
enable combination of more than one object recorded in this way in multiple
places at a different time, but in a way that these images would ultimately seem
completely natural, as if they were actually recorded in the same moment. All
this will take us to a new visual culture with expectations that far surpass simple
documentation. The results of editing in Photoshop today can still seem un-
natural to an experienced eye and can therefore cause an opposite effect. Today,
most problems in editing appear due to different perspectives of shooting ob-
jects that will alter be combined, due to different types of lighting, resolutions,
image file formats… All these problems appear because those photographs were
initially not meant to be combined. Insufficient education of users should also
not be neglected, nor should imperfection of the application itself.
Multidimensional way of shooting would, as a consequence, have great
savings of all resources. There would be no need to travel to a certain area for
shooting, because multidimensional records would already exist in stock agency
databases. If, for example, we needed the photograph of one lemon, one perfect
multidimensional shot would be sufficient, and could be edited as necessary. In
this way, lighting conditions would be changed from daylight to artificial light,
color temperature and characteristics from hard light to soft light, and shading
would be added or diminished in a digital image. Managing depth of focus of
an image, as an important element of composition, could be taken over by a
graphic designer instead of the photographer. Therefore, designers will be able
to compose their perfect image according to the customer’s ideas.
8.1.2. Need for new channels of sale

New channels of sale, whose mechanism would determine a more realistic
price of stock photographs, would be like auction sales in Ebay, or a visual con-
tent exchange. The visual content industry needs new market creators. Existing
mechanisms for buying and selling photographs have a lot of room for improve-
ment. Currently, selling prices are determined by administrators in agencies so
photographs are often too cheap. A large number of stock agencies ultimately
means price reduction due to competition, which reduces prices on the entire
stock image market. Therefore, probably the most efficient business model for
stock photography would be based on an actual stock exchange, where buyers
would be ready to bid for the value of a photograph they want. When people
hear the word “stock”, many of them immediately think of a stock exchange, but
434
stock photography only contains the word in the term, while financial principles
of a stock exchange are not applied. Instead, agencies determine the price they
believe buyers would be willing to pay. An exchange should create a platform
through which the end buyers would buy directly from the author, and where
more valuable photographs would have higher prices. Stock agencies today se-
lect images editors consider to have the best commercial potential. The current
model is inefficient because it wastes the time of potential buyers on agency
websites and is of no use to anyone. Moreover, the price is similarly arbitrary,
which is also inefficient. Online sales of digital files today do not ensure equal
status for photographers and it seems that amateurs are better of at the moment
due to the law of large numbers.
8.1.3. Paying authors’ fees for the subscription model

A special problem for stock photographers is that they miss out on part of
the profit that agencies collect through the “subscription” model for a certain
time period and buyers often do not use what they paid for. Thus, agencies
avoid paying authors their part. This problem could be solved by paying pho-
tographers who gave the agency a large number of photographs part of a fixed
fee as a bonus or granting them a higher sales rating in the agency. The buyers
pay a fixed fee, a subscription, based on the photographs they have seen in data-
bases. Even if customers have not bought a specific photograph, authors should
receive a fee because even these passive, unsold photographs serve as a market-
ing tool for the agency, enriching its offer and its market strength.

8.1.4. SWOT analysis of smartphones as a tool for shooting stock
photographs
The characteristics of smartphones, as opposed to DSLR cameras, as a tool
for shooting stock photographs will be researched, since the smartphone be-
came a new paradigm for producing visual materials for the new generation of
marketing – influencer marketing. Thus, it directly opened up possibilities for
new business models in the creative industry. In a strictly technical sense, it is
very difficult to compare two completely different devices because of their dif-
ferent construction and purpose. However, considering their final product, the
digital image, is the same and since smartphones seriously jeopardized sales of
digital cameras and directly entered the segment of stock photography produc-
435
tion, as well as production of visual content for newest social networks, the
comparison and analysis is both possible and necessary.
Table 1. SWOT analysis of smartphones as a tool for shooting stock

photographs
Strengths Weaknesses
Photographer always has access to the camera Battery often cannot be replaced, only charged, which
Investment into a separate device is not necessary, limits the length of a shoot
ultimately lowering price No possibility of simple operation during manual
A computer is not always needed shooting mode
Low weight and small size, there is always room for it No possibility of use of numerous additional equipment
(lens hood, electronic flash, interchangeable lenses,…)
Better wireless connection capabilities
Inability of quickly shooting a large number of shots in a
Photographs can have solid depth and color
single second (continuous shooting)
reproduction, even without additional computer editing
Not suitable for more demanding professional
Does not look “as dangerous as a real camera”, making
assignments
it much more suitable for shooting some documentary
motives Inability to control perspective deformation (crash lines)
Opportunities Threats
Quick and simple uploading of images to a network Inability of simultaneously saving on two memory cards
Shooting several seconds of video, with the option of for backup
using the optimal moment from it The camera can lose power in a critical moment due to
The newest iPhone has the option to manage depth of low battery capacity
field using digital algorithms There are not many smartphones that use the RAW
Simple shooting of HDR photographs format, which gives great possibilities of subsequent
editing and development of large format photographs,
Processor and RAM performance are better in
as well as better cropping
smartphones than in DSLR cameras – main advantage
Optical characteristics of the lens are limited by
An abundance of applications for editing on the device
smartphone dimensions
itself
Large full frame sensors can not be incorporated into
today’s smartphones due to size
Source: own research
Even though the DSLR camera is much better in many segments, it seems
that the day is nearing when the difference will completely disappear or become
so minor that the only people investing into DSLR equipment will be people
who live from photography. Abbot (2018) says “that the toughest question in all
of this is whether it really matters that smartphone image quality is inferior to
436
DSLRs and mirrorless cameras...It’s often said that the best camera you have is
the one you have with you.
9. CONCLUSION
Technological development leads to dramatic consequences in terms of ef-
fectiveness and efficiency, that thoroughly change organization and business
models of the visual product market. A combination of technology and the
speed with which new applications spread among consumers creates hyper pro-
duction of applications, as well as new business opportunities. The economy
of knowledge, greatly enabled by sudden technological development, signifies
a new dynamic relationship between the physical product (a photograph on
paper) and its virtual content (a photograph as information). Digitalization of
photography also defines new forms of consuming and delivering visual content
on the web, which do not imply sale of property, but enable use through pay-
ment for usage rights – licensing.
Technological progress enables very small buyer segments to express their
wishes and service providers to serve their needs through business. This phe-
nomenon is visible in the development of stock photography when buyers find
very specific or rare content at a lower price than would be possible using the
on demand model, where the buyer would need to pay significantly more. This
business model has important implications in the digital cultural field because
it enables a greater business potential to bridge supply and demand for certain
content. Thus, both professional and amateur photographers will continue to
coexist in the stock image market side by side. The group of mobiographers be- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
comes more significant and better equipped with each passing day. The iPhone,
due to its advanced photography options, creates a symbiotic relationship with
social networks such as Facebook, Twitter and especially Instagram. The ques-
tion that arises is how long people will want to shoot using large, heavy, ex-
pensive, and complicated DSLR cameras when they have a super high quality
smartphone camera as an alternative.
Will amateurs and professionals ultimately use the same shooting tools in
the future? Will photographers completely disappear at the end of the evolu-
tionary development of photography, because every object will be constantly
recorded and transformed into a new virtual reality Matrix world? The answer
remains to be seen in the not too far future.
437
REFERENCES
Abbot J. 2018., Smartphones vs cameras: do you still need a DSLR?, https://www.techradar.
com/news/smartphones-vs-cameras-do-you-still-need-a-dslr, access Mart 09, 2018]
Bergstrom, T. & Backman, L. 2013. How the utilization of Instagram builds and maintains
customer
relationships. Marketing and PR in social media. Retrieved from http://urn.kb.se/resolve?u
rn=urn:nbn:se:su:diva-90410, access Januar 07, 2018]
Chaffey, D. (2016,), Global Social Media Research summary[available at: http://c.ymcdn.
com/sites/www.productstewardship.us/resource/resmgr/Phone_Books/Global_So-
cial_Media_Statisti.pdf, access Januar 12, 2018]
Cook J. (2016), How the photo-sharing app EyeEm is staying relevant in an Instagram world,
http://uk.businessinsider.com/interview-with-eyeem-ceo-florian-meissner-2015-2, access
Januar 11, 2018]
Flusser V., Filozofija fotografije, Scarabeus naklada, 12/2007., ISBN 9789537387037
From creativity to content: The Role of Visual Media in Impactful Brand Storytelling, CMO
Council 2015.
Frosh, P 2002, ‘Rhetorics of the overlooked: on the communicative modes of stock advertis-
ing images’, Journal of Consumer Culture, vol. 2, no. 2, pp. 171-196.
Glückler J., Panitz R., (2013) Survey of the Global Stock Image Market 2012. Part I: Players,
Products, Business. Heidelberg: GSIM Research Group
Glückler J., Panitz, R., 2016., Unpacking social divisions of labor in markets: Gen-
eralized blockmodeling and the network boom in stock photography, Social
Networks, Retrieved from: https://www.sciencedirect.com/science/article/pii/
S0378873316302714?via%3Dihub
Gómez-Cruz E., Meyer E., Creation and control in the photographic process : iPhones and
the emerging fifth moment of photography, Photographies 2012: pp. 1–19, ISSN 1754-
0763 © 2012 Taylor & Francis
Hird, C. 2013. Social media marketing: A best practices analysis of selected destination mag-
azines. [available at: http://digitalcommons.calpoly.edu/rptasp/54/, access Januar 15,
2018]
Hochman, N., Schwartz, R. (2012). Visualizing Instagram: Tracing cultural visual
rhythms. In Proceedings of the Workshop on Social Media Visualization (SocMed-
Vis) in conjunction with the Sixth International AAAI Conference on Weblogs and
Social Media (ICWSM–12) (pp. 6-9).
Jeffries S. (2013), The death of photography: are camera phones destroying an artform?
https://www.theguardian.com/artanddesign/2013/dec/13/death-of-photography-
camera-phones, access Januar 09, 2018]
Kalazić et al.,(2015) “The Stock Photography As A Part Of Cultural And Creative Indus-
tries Of The Digital Age,” Interdisciplinary Management Research, Josip Juraj Stross-
mayer University of Osijek, Faculty of Economics, Croatia, vol. 11, pages 189-203.
438
Oringer J. (2016), Opinion: Will the iPhone 7’s Dual-Lens Camera Change Photography as
We Know It, https://www.shutterstock.com/blog/apple-iphone7-dual-lens-camer, access
Januar 11, 2018]
Smith M. (2012), Crowdsourcing: The Best Business Model In The Digital Age, https://www.
nasdaq.com/article/crowdsourcing-the-best-business-model-in-the-digital-age-
cm185040, access Januar 06, 2018]
Malik O., (2016), With the iphone7 apple changed the camera industry forever, https://www.
newyorker.com/business/currency/with-the-iphone-7-apple-changed-the-camera-
industry-forever access Januar 14, 2018]
Mangold W., Faulds D., Social media: The new hybrid element of the promotion mix, Busi-
ness Horizons (2009) 52, 357—365
Miller J., Pictures for rent. From stereoscope to stereotype, in Design. Writing. Research, ed.
E. Lupton, London 2003, p. 120–124.
Schmieder K. (2015), The sourcing of amateur photographs in the professional news media, PhD
Thesys, The Swinburne Institute of Social Research
Sontag, Susan. On Photography. Penguin Books Ltd., London, 1977. Print.
Sukhdial A., Aiken D., Kahle L., Are You Old School?, Journal of Advertising Research, 2002,
42 (4) 71-81; DOI: 10.2501/JAR-42-4-71-81
Uchańska A., Photography in media and advertising - new trends, Media Studies, 2015, Vol.
60 Issue 1, p28-40. 13p.
Whatley S. (2014), Europeana Space - Spaces of possibility for the creative reuse of Europeana’s
content , CIP Best practice network , project number 621037
http://www.europeana-space.eu/wp-content/uploads/2014/04/
EuropeanaSpace-D5-1-Market-Analysis-v2.1.pdf
439
THE ROLE OF MOTIVATION
IN HUMAN RESOURCES
MANAGEMENT
Mario DADIĆ
Department for professional studies University of Split
E-mail: mdadic@oss.unist.hr
Ante BAČIĆ, Ph.D. student

Mario Dadić  Ante Bačić  Iva Mihanović: THE ROLE OF MOTIVATION IN HUMAN RESOURCES MANAGEMENT

E-mail: bacic.ante@gmail.com
Iva MIHANOVIĆ, Ph.D. student

E-mail: batinic.iva@gmail.com
Abstract
This paper shows the role of motivation in human resource management. Hu-
man resources, their knowledge, skills, abilities are the key factor in successful
business operations and the creation of the competitive advantage of each or-
ganization. Nowadays, one of the most important business functions of each
organization is the management of human potentials and motivation and the
perception that people are of the highest value to every organization. Manag-
ers are a human resource link between people and organizations, and their
function is to achieve an effective system of mutual satisfaction and fulfill the
company’s established plans and goals. Communication between managers and
employees is the key to understanding the wishes and plans of managers and
the possibilities for achievement by the workers themselves.
One of the most important tasks and factors of human resource management
is motivating employees, encouraging employees to achieve their personal goals
and the goals of the organization. A motivated employee is the most valuable
440
part of each organization, and we will demonstrate the importance of motiva-
tion in human resource management in our work.
Key words: human resources, organization, management, motivation
JEL Classification: E24, O15
1. INTRODUCTION
Human Resource Management consists of several related activities and
tasks of management and organizations aimed at ensuring the adequate num-
ber and structure of employees, their knowledge, skills, interests, motivations,
and forms of behavior necessary to achieve the current, developmental and
strategic goals of the organization. (Obradović et al., 2015, p.13.) The human
resource management is an essential segment of any organization because it
makes the organization’s advantage over the competitor. With ever-increasing
competition among organizations, today’s particular emphasis is on quality
human resource management. High-quality Human Resources Management
system with the focus on motivation makes the selection among organiza-
tions. Today’s cadre is one of the fundamental values of every organization, it
is a fundamental resource, but it is also a vital resource for every organization.
Therefore, the primary activity of the manager should be directed to the proper
selection of staff, and to encourage and maintain a high level of motivation of
staff within the organization, which in fact means a better practical effect of
the same, and then the contribution to the organization’s business goals. The

task of human resources management is to find professional, competent, high
quality and highly motivated staff and keep it within the organization as well
as to encourage performance as it leads to success in business. Human resource
planning becomes an increasingly important activity of any organization in the
struggle with competition and the creation of market advantage. Motivation is
a principal problem in the field of human resources management. Its employees
condition the success of each organization, their qualities they possess such as
knowledge, skills, abilities, motivations and many others for which the organi-
zation creates a competitive advantage and mutual satisfaction, both employee,
and administration. It is essential that human resource manager manages the
work performance more efficiently, recognizes the needs of the workforce so
that it can better organize planning, selection, and motivation of both current
and future employees by achieving the company’s planned goals and plans. Hu-
441
man resource management needs to be taken care of and to take care of em-
ployee satisfaction and motivation in order to make the best of your employees.
Employees. Employee motivation is one of the human resource management
techniques for achieving company goals and which methods will be applied de-
pends on a manager’s decision with the aim of reaching organizational plans
and goals. Everyone is different and does not act on any of the same motivation
techniques, and not all employees have the same work and life goals.
2. HUMAN RESOURCES MANAGEMENT

THROUGH MOTIVATION
Motivation is every effect that triggers, directs and maintains the target be-
havior of people (Buble, 2006, p. 485). It can be said that motivation is an incen-
tive for people to fulfill their personal goals, and then at the same time meeting
the goals of the organization. Individual goals, as well as their needs, are subject
to constant change and constant progress. Their behavior and character show
differences between people and the necessity of applying various motivational
factors to maximize their reasons for successful work performance. Managers
should be primarily good psychologists and manage staff by choosing the right
people for a particular job, then appropriately motivating the same people and
then letting them do the job they are in charge of doing. Therefore, managers
should devote themselves to creating a natural motivational system that would
affect all dimensions of the workforce’s performance and thus make the staff
more productive and more successful. Motivation is influenced by numerous
factors, in particular: individual characteristics, job characteristics, and organi-
zational characteristics. Personal characteristics indicate the needs, values, at-
titudes, and interests that individuals have. They differ from person to person,
because money motivates someone, and someone is competent to do business,
etc. Characteristics of the job are certain job attributes, such as complexity, au-
tonomy, complexity, and so on. Organizational characteristics of rules and pro-
cedures, personnel policy, management practice, and a system of awards that
contribute to the company’s efficiency. (Buble, 2006, p. 336). The interaction of
motivational factors occurs and includes three elements mentioned, and manag-
ers should guide it when developing the appropriate motivation system in the
organization.
442
3. THEORY OF MOTIVATION
Since motivation is a complex concept, numerous theories are included in its
explanation, which can be divided into two groups: content theory and process
theory. In content theory, the emphasis is placed on the behavior and needs of
individuals as motivating people to work, and when it comes to the process
theory focus is on the reasons that affect and lead to such behaviors of individu-
als. It can be said that today the three theories are predominant: Maslow’s hier-
archy of needs; Victor Vroom’s Expectancy Theory of Motivation and Theory
of Value (McClelland’s Motivation Theory).
Theory of needs is the most popular theory in management practice. The
complexity of the human personality and the needs that Maslow ranked and
grouped into five categories was the basis:
1. Physiological needs mean meeting the basic needs of every human being
for air, food, drinks, a roof over the head;
2. Requirements for security means meeting the need for work, safe retire-
ment, and effective health care;
3. Need for love means making friends, getting in love relationships and
connection;
4. Need for respect means empathy, extremely high self-esteem and respect
for others.
5. Self-actualization needs mean personal development, realization, and ful-
fillment of individual potentials in full.

This theory is the starting point for two basic theoretical assumptions
(Bahtijarević and Šiber, 1999): the emergence of a need is usually conditioned
by the fulfillment of some other important needs, and no need or desire can be
observed isolated, because each is related to the condition of satisfying or failing
to meet other needs. What is important for this theory of managers is knowl-
edge of the needs of employees and their more satisfying satisfaction with the
successful management of personnel in fulfilling their work performance. The
need theory stops explaining why people are responding to certain things but
not explaining how these needs can be met, i.e., the steps that need to be taken
to meet the needs (Marušić, 2006, p. 321-324.).
Vroom’s cognitive model of motivation is based on a man’s action that in ev-
ery situation in which he is found makes a reasonable choice between different
443
types of behavior. In that election, it also valorizes the effects and significance
of these effects for him, by resorting to one, while avoiding other alternatives.
Therefore, Vroom makes the main problem an explanation of individual choic-
es, i.e., the answers to the reasons for the commitment to a particular alterna-
tive, and the rejection of the other. Therefore, Vroom develops the concept of
valence, the concept of expectation and idea of instrumentality.
The concept of valency means that deciding motivational power is the mean-
ing that an individual attaches to that effect. The concept of expectation means
that an individual will choose the alternative he can expect to achieve his de-
sired goals. The concept of instrumentality means that the chosen alternative
assumes the expected connection between the various effects. Vroom’s theory
holds that the environment has a significant impact on the behavior of individu-
als alone, ie on the successful fulfillment of all goals, whereby the individual’s
attention is primarily focused on the determination of the main goal and then
on the sub-targets for which value means and instrumentality, and actually de-
termines whether the goals and the performance enforceable.
The value theory contains three types of needs: the need for achievement,
the need for power, the need for connectivity. It is considered that the first need
is related to the need for success, and individuals who have an intense fear of
failure. The other will need to be satisfied when individuals have complete con-
trol or influence on other individuals or things as long as they are in need of
harmony, love, and care (Certo, 2008, p. 387-388). However, this theory is more
relevant to managers than to task executives.
4. MOTIVATION OF EMPLOYEES AND TASKS OF

HUMAN RESOURCES MANAGER
One of the essential tasks and factors of human resource management is
employee motivation. In today’s increasingly marked competition, managers
who want to be successful should continuously point out new ways to boost
employee satisfaction and morale, maximize their productivity, creativity, and
always invent new ways of motivating. In today’s increasingly marked competi-
tion, managers who want to be successful should continuously point out new
ways to boost employee satisfaction and morale, maximize their productivity,
creativity, and constantly invent new ways of motivating. Today, in the business
world, the focus is on employee motivation and full emphasis on maintaining
444
various education and seminars where the importance of the motivational role
for employees and their satisfaction lies. Managers should also be aware that
attitudes of their subordinates and those of themselves about what motivates
them are probably very different. If you set up a beacon the question of what
drives his employees, he will most likely say that it is decent and good pay, the
ability to progress and the job security itself, as well as right working conditions.
If you are addressing the subordinates with the same question, there is a possi-
bility that they will respond to their praise and acknowledgment for the job, es-
pecially for employees who are passionate and loyal to their work, participation
in decision making, as well as high-quality interpersonal relationships within
the enterprise and empathy from strangers.
The first task of the manager is to effectively select the staff, then raise the high
level of motivation within the staff, and then maintain such a level of motivation.
Therefore, managers should use primarily good knowledge of human psychol-
ogy and thus draw from each employee individually the best quality to achieve
maximum performance. Today, most managers are very aware of and attached
to the importance of finding the right people and the quality of their motivation.
The basic task of human resources management becomes, after finding the “right
people”, to make them capable of common and successful work or to successfully
“carry” the problems that are ahead of them on and that their power is effective
and weaknesses irrelevant. A capable person must not become weak or insecure,
because weakness and insecurity are a constant source of dissatisfaction and a
direct threat to the people employed by the organization if the organization itself.

( Jambrek and Penić, Human Resources Management in Enterprises - Hu-
man Factor, Employee Motivation as the Most Important Factors of Business
Performance of a Business, Proceedings of the Faculty of Law, University of
Rijeka, Vol.29, No.2, pp.1181-1206)
To encourage staff to more successful performance, and consequently, im-
proved productivity managers use different strategies to motivate their employ-
ees. These strategies can be divided into two groups: the material strategy of
rewarding and non-material reward strategy.
While material reward strategies are aimed primarily at satisfying human
needs, non-material reward strategies are focused on meeting the needs of the
hierarchy of a higher order. Under the material, motivation strategy involves fi-
nancial compensation for work that employees receive in cash, in which case we
445
speak of direct material compensation. While indirect material compensation is
what those employees receive in the form of benefits, not directly in cash. Direct
compensation is always in cash, while indirect ones may be different from pen-
sion to social and health insurance, and so on to paid annual leave and sick leave
or various benefits when raising a housing loan and the like. Material benefits
that employees receive for their work in the organization may be related to the
outcome of the work and membership of the organization itself.
These are generally the following three forms of compensation: salaries, al-
lowances, benefits.
The basic salary as the primary form of compensation is usually determined
using a work evaluation process that continues to analyze the job and its re-
sults - job description and job specification. Job evaluation is carried out using
two sets of methods, one focusing on quality work analysis and the other on
job classification. By combining these methods, there are up to four job evalua-
tion procedures. In the case that the goal of using a job evaluation process is to
improve the organization’s work, not just evaluation, then more complex pro-
cedures and methods will be used. For example, whether a ranking procedure
with a single ranking list was used without a systematic analysis of some partial
business features or a more complex pointing procedure for determining the
relative value of each business in the company expressed in the points, comes to
a common goal, which is the basic wage makes the foundation for most other
parts of the salary. (Buntak, et al., Material Motivation in the Function of Hu-
man Potentials, Technical Gazette 7, 1 2013, Zagreb, page 61.) The stimulus
part of the salary is a stimulating and stimulating incentive to optimize the busi-
ness and to achieve the business results of the organization both as a whole and
individually. This is part of the salary that always depends on the performance,
savings and the like. Fees often depend on the practice of the organization itself
and the collective agreement applicable to the industry, and we will mention
only some remunerations such as wages paid during the period of sick leave,
compensation for the use of annual leave, reimbursement of transport costs and
so on. Amounts paid are paid when under certain conditions, and are entitled to
an increased base. Considering the different conditions under which we work,
we will list only a few more important things: a supplement for shift work, a
nighttime supplement, a surplus for overtime work, a supplement for work on
public holidays and holidays and others. The share of the profit that can be real-
ized most often at the end of the year’s business for good business and financial
446
results. If managers opt for the system of material rewarding and motivating ef-
fects on the pay system, some general guidelines and assumptions of action that
warn of process motivation theory are expressed and which managers should
know to be able to serve them appropriately. In fact, it is decided to follow the
setting of the material factor’s impact on the efficiency of the work effect, in
the way: material rewards must be linked to those performance indicators that
an individual can affect, and working standards must be feasible. Furthermore,
there must be a clear link between the results of the work and the rewards, the
reward system must be based more on the positive than on the negative conse-
quences of working behavior, the increase in the material reimbursement must
be large enough to justify the additional effort invested, the salary increase must
be direct and immediate to follow increasing work performance and improving
work performance, material benefits must be adequate to invested work and fair
compared to others, the pay gap between good and bad workers must be signifi-
cant in order to stimulate good work. (Buntak, et al., Material Motivation in the
Function of Human Potentials, Technical Gazette 7, 1 2013, Zagreb, page 60.)
The share of the profit that can be realized most often at the end of the
year’s business for good business and financial results. If managers opt for the
system of material rewarding and motivating effects on the pay system, some
general guidelines and assumptions of action that warn of process motivation
theory are expressed and which managers should know to be able to serve them
appropriately. In fact, it is decided to follow the setting of the material factor’s
impact on the efficiency of the work effect, in the way: material rewards must be
linked to those performance indicators that an individual can affect, and work-
ing standards must be feasible. Furthermore, there must be a clear link between INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
the results of the work and the rewards, the reward system must be based more
on the positive than on the negative consequences of working behavior, the in-
crease in the material reimbursement must be large enough to justify the ad-
ditional effort invested, the salary increase must be direct and immediate to
follow increasing work performance and improving work performance, material
benefits must be adequate to invested work and fair compared to others, the pay
gap between good and bad workers must be significant in order to stimulate
good work. (Buntak, et al., Material Motivation in the Function of Human Po-
tentials, Technical Gazette 7, 1 2013, Zagreb, page 60)
As far as non-material motivation is concerned, managers are using the im-
material strategies of Immaterial Strategy of Motivation are strategies that are
447
stimulating for the work of an individual because they meet the hierarchical
higher order needs such as the need for environmental approval, the need for
personal development and the realization of personal potentials, achievement,
respect, and status, need for power, connectivity. So far, many intangible strat-
egies have been developed such as flexible working hours, goal-management,
career development and development, feedback delivery, and more. Flexible
working hours are the most well-known and most relevant strategy for working
hours. It is about the ability of employees to set their working hours within the
given frames for themselves. Weekly working hours are required, but a com-
bination is allowed in one day to work less, and another day more. In fact, the
employees themselves choose when they will come to work and when they will
leave the job. Objective management as an intangible strategy means planning

technique in which both superiors and subordinates are involved, which often
results in higher quality of goals and their achievement by all participants. Very
motivating, especially for employees who are just starting their work cycle, is a
possibility of learning and development at the workplace. Have the opportunity
to learn from the best in their field and to constantly improve and develop an
excellent approach to motivation. A very important and important motivational
approach is to provide feedback to employees. It is extremely effective to point
out how an individual employee works, how important his work is, and what is
the result of his own work as an immaterial strategy of motivation. Employees
can be motivated and the way in which the job is shaped, that is, diverse tasks
and the ability of self-determination and creativity in decision-making are far
more stimulating and motivated ways of doing business.
5. CONTEMPORARY TRENDS IN HUMAN

RESOURCES MANAGEMENT
In the contemporary business conditions of organizations, the emphasis is
also placed on the effective management of human resources. The general in-
crease in the meaning of human resources, which today is considered to be a
key factor in economic development and changes occurring in the environment,
emphasizes the importance of human resources and the need for their planned
and well-organized management. (Goić, 1998, p 347). Consequently, organiza-
tions make changes both in content and in the methods themselves in the field
of human resource management. Actually, it’s very logical if we consider that
448
the aim of the management is a maximum contribution to the achievement of
successful and productive performance and the organization’s business. Con-
temporary human resources trends are primarily based on the assumption that
human resources are the decisive factor in the organization’s business success,
which makes the difference between successful and unsuccessful organizations.
More successful organizations are those that bring human resources to a strate-
gic, long-term and planned way. Such a way and dedication to managing human
resources means a competitive advantage.
Secondly, there is a significant degree of outsourcing of human resources
management, i.e., a single volume of management tasks entrusted to external
associates, or organizations that are just specialized in such affairs. Of course,
only strategic decision-making should not be the subject of such co-operation,
while the recommendation is to use such co-operation when it comes to highly-
specialized jobs when there is no adequate staff available in the organization
itself. Furthermore, the increasingly significant contribution and importance of
human resource management have line managers who, through their manage-
ment, make an effective contribution to the achievements of the organizational
goals themselves and thus perform a significant part of the work, while the
staffing within the organization strives for all the specialization of business. Of
course, according to the company’s computerization, human resources manage-
ment is also present in the trend of using information technology, which enables
progress in efficiency, but also in the quality of human resources management,
of course, the increasingly specialized staffing services that focus on more cre-
ative jobs and the progressive performance of the tasks obtained.
In Croatia, the contemporary trends of human resources management are INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
still in its infancy, actually, make them yet to be raised to a level that will ad-
equately respond to the demands posed by modern discourse situation in the
business world. In particular, it is emphasized in large organizations. Large or-
ganizations are mostly engaged with destroyed and destroyed personnel depart-
ments that mainly carry out administrative tasks, especially in areas where their
creativity and creative way of doing business should be most pronounced. It
is, in fact, necessary to strategically define and form staffing departments and
to coordinate and link the fragmented parts of the personnel. Exceptions are
foreign multinational companies that have branches in Croatia and which suc-
cessfully operate by modern trends of human resources management.
449
6. CONCLUSION
A satisfied and motivated employee is the foundation of every organization’s
success nowadays. This paper shows how much motivation means to every em-
ployee and ultimately leads to better performance for each company. Despite
the recession, the competition is growing every day, by entering the European
Union, trade borders have disappeared, and the door to EU-wide competition
companies is open wide. Competitive advantage is the key to success, and em-
ployees are just that factor that separates successful firms from unsuccessful.
Though relatively late, the impact of human resources has entered the focus of
science and every promotion of man as a key factor contributes to the better
position of company workers. The employee is essential to motivate. Unfor-

tunately, it is commonly believed that pay is the only factor, but in the paper,
it has proved to be not the only and exclusive factor. Many factors affect the
employee’s satisfaction, and therefore the productivity of the employee himself.
Management must firstly be a proper example for its employees who will follow
it. A satisfied worker will never work for his company, and it will be of great
importance to him and his team work to be part of a successful team that leaves
excellent business results.
REFERENCES
Buble, M. (2000). Menagement, Ekonomski fakultet u Splitu, ISBN 953-6024-81-0, Split
Buntak, et al (2013) Materijalna motivacija u funkciji upravljanja ljudskim potencijalima,
Tehnički glasnik 7, 1; str. 56 -63, Zagreb dostupno na: https://hrcak.srce.hr/101178
pristup (03-03-2018)
Certo, S. C. & Certo, S. T. (2008). Moderni menadžment, Zagrebačka škola ekonomije i
managementa Mate, ISBN 978-953-246-062-9, Zagreb
Goić, S. (1998). Suvremeni trendovi u organizaciji upravljanja ljudskim resursima, Ekonom-
ski fakultet u Splitu, ISBN 953-6024-24-1, Split
Jambrek I. &. Penić (2008) Upravljanje ljudskim potencijalima u poduzećima : ljudski fak-
tor, motivacija zaposlenika kao najbitniji čimbenici uspješnosti poslovanja poduzeća,
Zbornik Pravnog fakulteta Sveučilišta u Rijeci, 2 ; str.1181-1206 dostupno na: http://
hrcak.srce.hr/file/63808 pristup (03-03-2018)
Marušić S. (2006). Upravljanje ljudskim potencijalima, Adeco, ISBN 953-97228-7-X,
Zagreb
Obradović et al (2015) Menadžment ljudskih potencijala u poslovnoj praksi, Plejada, ISBN
978-953-7782-32-0, Zagreb
450
THE LEVEL OF
HOTEL RESERVATION
SYNCHRONIZATION PROCESSES
USING INFORMATION
TECHNOLOGY TOOLS
Maja ŠIMUNIĆ, Ph. D.

Liburnia Riviera Hotels, Opatija, Croatia
E-mail: maja.simunic@remisens.com
Ljubica PILEPIĆ STIFANICH, Ph. D.

University of Rijeka
Faculty of Tourist and Hospitality Management, Opatija
Department of Informatics
E-mail: ljubicap@fthm.hr
Marina PERIŠIĆ PRODAN, Ph. D.

University of Rijeka
Faculty of Tourist and Hospitality Management, Opatija
Department of Marketing
E-mail: marinap@fthm.hr
Abstract
The purpose of this paper is to research hotel reservation synchronization process-
es if the reservation is made throughout a hotel website or if it is booked through
the online travel agency (OTA) distribution channels. The subject of the research
will certainly be the individual sales channel whose growth directly affects online
booking and has a direct impact on the hotel sales revenue growth. The purpose
of this paper is also to try to answer the question whether the real-time booking
in the hotel sales is at all possible and which information technology tools hotels in
Croatia commonly use to connect to different hotel reservation platforms. Empiri-
cal research based on the level of hotel synchronization reservation process was
451
carried out on a sample of 130 hotels in the Republic of Croatia belonging to one
of the 11 renowned hotel chains. In the processing and analysis of the data de-
scriptive statistics were applied. The results clearly show that 100% real-time syn-
Maja Šimunić Ljubica Pilepić Stifanich Marina Perišić Prodan: THE LEVEL OF HOTEL RESERVATION SYNCHRONIZATION PROCESSES USING...
chronization has not yet been achieved when reservations download to the hotel
property management system (PMS), including sending a booking confirmation
and special wishes listing information of guests. This research offers an overview
of the available modern channel management systems offered in today’s hotel
market and provide a better link between PMS’s with the central reservation
system, hotel websites and various online distribution channels such as the global
distribution system and OTA partners. The limitations of the conducted research
can be seen in the spatial restriction as the research was conducted in Croatia and
includes hotel chains, so the obtained results do not refer to the complete Croatian
hotel industry but to the best practice in the hotel industry in Croatia. Thus, the
previous limitations are of no significance as they can represent guidelines and
challenges for future scientific research.
Key words: hotel reservation systems, data synchronization, hotel property
management systems, hotel website, booking engine, channel
managers, OTA
1. INTRODUCTION
The online travel sales worldwide have increased by double digit every year
and the online booking market reached the scale of $189.62 billion USD in
2017 (eMarketer 2017). The hotel industry is developing new ways of accom-
plishing their missions by leveraging the power of information and applying
network-centric concepts (Chawta 2013, 754). A new challenge for hotel man-
agers in the 21st century is how to integrate the new, complex and varied ser-
vices and IT systems into their existing business operations (Law & Jogaratnam
2005, 178).
Developing a new web application to handle online booking from many
marketing channels such as OTAs, GDSs, social networks and walk-in to
check-in. In the market, there are various hotel reservation platforms with an
integrated interface for different distribution channels and two-way communi-
cation for entering and processing reservations with hotel websites in the PMS
452
system. The main categories of information that need to be distributed are: ho-
tel rates (frequency changing, dynamic), hotel availability (frequency changing,
dynamic), hotel information such as room types, package types, amenities, loca-
tion, contact information, meeting space (infrequency changing, static), and rich
contents such as photos and videos (some dynamic and some static), which is a
category that is growing in importance. According to Forgacs (2010), Guillet &
Mohammed (2015), Schütze (2008), dynamic pricing means that a hotel will
change its room rates daily or even within a day if up-to-the-minute market
information reveals the need for adjustments. It is based on the recognition that
the right rate to charge for a room night is what the customer is able and willing
to pay.
Effective and high-speed ICT infrastructure and software applications in
the hotel industry are crucial for tourism development. Management within
tourism companies uses ICTs to undertake a range of tasks that enhance the ef-
ficiency of employees in the workplace, notably online reservations (ILO 2010,
41). The hotel industry implements the latest in IT to improve productivity,
the services offered to clients and to increase customer satisfaction (Werthner
& Klein 1999). The use of an information system is indispensable to deal ef-
ficiently with the high competitiveness of the market and offer the high quality
services demanded by the clients of a hotel (Caro et al. 2003).
Reservation systems are a particularly interesting area of information tech-
nology in hospitality. Their first feature is the importance they have for the hotel
as the aim of each hotel is to fill accommodation capacities, in order to increase

sales and profit. Another important feature of reservation systems is that they
connect the hotel to an external environment or to a client (guest or agencies)
located in an external system compared to the hotel. Due to these two features,
hotel managers are paying great attention to reservation systems as technologi-
cal progress is the most dynamic one in this field and the new, innovative ways
are constantly looked for to connect guests to hotels in the tourist market. The
online technology is the most applicable here. The Internet is getting faster and
more complicated. The hoteliers are trying to keep up with the changes. They
monitor and analyze market trends and are constantly associating with new
partners. There are currently hundreds of portals and agencies, and so many
software solutions and hoteliers choose the ones which produce the most res-
ervations. No matter who and when a new agency comes to the market, hotels
must always be present everywhere.
453
The subject of this paper is the information related to the processing and
confirmation of reservations through hotel websites and OTA portals. The
authors researched and followed how the information is entered in Property
Management Systems (PMS) in reservation’s modules, the ability to send reser-

vation confirmations, as well as the entry of special guest’s wishes at hotel PMS.
The following systems have been analyzed for communication between hotel
website to PMS (reservations entry in PMS from hotel’s own website), hotel
website to guest (sending reservation confirmation from hotel’s website), hotel
website to PMS (entry of special wishes from hotel’s website to PMS), OTA
portals to PMS (reservation entry from OTA portals to PMS), OTA portals
to PMS (sending confirmation from OTA portals to PMS), OTA portals to
PMS (entry of special wishes from OTA portals to PMS).
An overview of the current research on the use of ICT in tourism and the
hotel industry is given in the second chapter, with special reference to online
booking. The third chapter contains an overview of the research methodology
and the analysis of the research results on the synchronization of the reserva-
tion processes in real time. Finally, the conclusion includes the notes on the role
of online booking and the level of synchronization of reservation processes us-
ing IT tools. There are also some limitations of this research, and Authors have
suggested guidelines to Croatian hoteliers which will enable them to adhere to
the world’s online reservation trends and compete with the other participants
on the online tourism market.
2. LITERATURE BACKGROUND
The development of ICT technology in tourism and the hotel industry and
its application has a long history since the first reservation system has emerged
and continues in to the future. According to Pease & Rowe 2005, Bilgihan &
Bujisic 2015, Law & Jogaratnam 2005, Murphy & Chan 2014, three major
waves of technological development have established ICT in hotel companies:
(1) the development of Computer Reservation Systems (CRS) in the 1970’s;
(2) development of Global Distribution Systems (GDS), 1980’s and (3) Inter-
net development in the 1990’s of the last century. Chronological overview of
previous research focused on the development and use of ICT in hotel compa-
nies is presented in Table 1.
454
Table 1. An overview of current research on ICT application in tourism and
hotel industry
Authors Research focus
Law, R. & Jogaratnam, G. (2005) A study of hotel information technology applications
Users’ perceptions of two types of hotel reservation
Morosan, C. & Jeong, M. (2008)
Web sites
Crnojevac, I.H., Gugić, J. & Karlovčan, S. (2010) eTourism: A comparison of Online and Offline Bookings
Bilgihan, A., Okumus, F., Nusair, K.K. & Kwun, D.J.-W. IT applications and competitive advantage in hotel
(2011) companies
Estis Green, C. & Lomanno, M. (2012) Distribution Channel Analysis: a Guide for Hotels
Gulmez, M., Ajanovic, E. & Karayun, I. (2014); Cloud technology in hotels, cloud based PMS vs.
Seresceanu, R. & Rus, R.V. (2014) classical PMS,
Smartphone’s Application Adoption Benefits Using
Anuar, J., Musa, M. & Khalid, K. (2014) Mobile Hotel Reservation System (MHRS) among 3 to
5-star City hotels in Malaysia
Murphy, H.C., Chen, M.M. (2014) Online information sources used in hotel bookings
Bemile, R., Achampong, A. & Danquah, E. (2014) Online Hotel Reservation System
The progress of information and communication
Law, R., Buhalis, D. & Cobanoglu, C. (2014).
technology (ICT) in tourism and hospitality industry
Multiple devices and information sources in the hotel
Murphy, H.C., Chen, M.-M. & Cossutta, M. (2016)
booking process
IT-enabled customer service systems on service
Piccoli, G., Lui, T.-W. & Grün, B. (2017) personalization, customer service perceptions, hotel
information systems, direct and intermediated channels
Source: author’s research
The hotel industry is very competitive, and customers are become increas-
ingly sophisticated and discerning, demanding a high level of quality and value.
According to Piccoli et al. (2017), IT-enabled service personalization creates

financial benefits for the hotel via revenue share-shift from costly intermediated
to direct distribution channels and information system enhances the efficiency
of the service personalization process.
The potential tourist surfs through so many websites and promotional mes-
sages before making a final decision on which hotel to book such as chain web-
sites, third-party websites, social media channels, search engines, mobile search.
(Aggarwal & Aggarwal 2010, 20). It depends on the hotel and its marketing
strategies and activities to determine which of those stops will move the guests
to generate business in its hotel. According to Murphy & Chen (2016) how the
guest will book accommodation presents critical information for hotel market-
ers who have to decide where to invest their marketing budget, develop apps
and invests in smartphone friendly platforms and strategic partners.
455
Based on a review of papers published in tourism and hospitality journals
between 2009 and 2013, Low et al. (2014) provide an overview of current re-
search in the field of ICTs in hospitality and tourism from the perspectives of
consumer and supplier. Content analysis showed that hospitality and tourism
industries use ICT in different functional units and for different applications.
Of 107 journal papers, there are very few papers dealing with the problem of
online hotel booking and its synchronization through rate and revenue manage-
ment using modern ICT tools.
In raising its competitiveness, the hotel must invest in the development of a
modern reservation system. The Central Reservation System (CRS), the reser-
vation system on hotel’s websites, the mobile version of the online reservation
system must enable customers to book for whatever they need from wherever
location they are before lodging into the hotel (Bemile et al. 2014, Anuar et al.
2014).
The CRS Mobile Version automatically identifies if the guest to connects to
the system via a mobile phone, and adjusts the CRS interface to mobile view-
ing. US mobile travel sales will total $75.85 billion in 2017, up 16.7% over the
2016 year. On the flip side, desktop and laptop travel sales will decline 1.6% this
year to $113.77 billion. Meanwhile, desktop/laptop’s share of all digital travel
sales will shrink to 60.0%. And by 2021, mobile will represent nearly half of all
digital travel sales (eMarketer 2017).
The smart phone market has also enabled the creation of a smartphone ap-
plication market that creates value for customers in a number of areas, includ-
ing the hotel industry (Vigar-Ellis & Bredican 2014). The mobile application
allows the guest and hotel staff to interact and offers a variety of hotel facilities
using a digital platform. Hotel guests are therefore offered the ability to create
a digital mobile key for entering the room and other areas in the hotel, opening
parking ramps, accessing additional amenities such as saunas and swimming
pools, booking excursions, ordering transportation, purchasing items from
the hotel’s web services etc. At the same time, the hotel can track guest habits
through the use of mobile apps, and then monitor the efficiency of the hotel
employee’s work and with targeted marketing to increase service sales and hotel
partner products (Ćosić 2017).
The use of cloud technology has not stalled hotel business either. Cloud
based PMS has many advantages over desktop PMS, such as: developing per-
456
sonalized service awareness; its features can be developed or improved easily
high security control; more open to the end users (enhanced CRM); online
reservations received are directly connected to the PMS and easy follow up on
online reservation. Even though keeping up with the modern developments in
IT sector is crucial for the success and competitiveness of a hotel, it is usually
very hard for new technologies to be accepted and implemented (Gulmez et al.
2013, Sereseanu et al. 2013).
Using Web solutions, the booking sales cycle often includes various interme-
diaries on the path from the hotel to the customer, resulting in the emergence
of the negative aspects of increased technological capabilities. In some cases,
the number of intermediaries between a hotel room and guest would climb up
to five, making the distribution more complex and expensive (Crnojević et al.
2010). Therefore, hotels have to carefully choose distribution channels or com-
bination of booking channels, and by that not ignoring hotel websites and direct
online marketing. Many hotels rather choose reservations through their own
website because they primarily save money on agency fees and commissions.
Guests booking through hotel web sites are more loyal, generate more rev-
enue and are in the habit of travelling more often. This is the way how it is sup-
posed to work, but because of OTA’s investment in marketing campaigns, ho-
tels are forced to spread their rates and inventory to third party websites to drive
volume to their hotel. Morosan & Jeong (2008) evaluate users’ perceptions of
two different channels for hotel online reservations – hotel websites and third-
party websites. Overall, users had more favourable attitudes and higher inten-

tions to revisit OTAs websites than hotel-owned websites.
The Complex Hospitality Reservation Network consists of the major com-
ponents of the distribution system: Central reservation system (CRS), Prop-
erty management system (PMS), connectivity to Global distribution system
(GDS), Online travel agency (OTA), search engine, Channel management,
Branded websites for hotel, Revenue management tools (RMS) and Content
management system (CMS). The primary types of connections between dis-
tribution partners are from a hotel’s CRM to GDS and to OTA. While most
use an industry switch/channel partner for this link (such as Pegasus, HBSi
or Derbysoft), some include a channel management tool to permit a hotel to
update in one place for multiple connections to smaller third party vendors.
The switches use their extensive databases to populate many websites, and they
457
related changes from GDS and Internet sites back to the hotel central reserva-
tion system (CRS) so that the hotels can service the business (Estin Green &
Lomanno 2012, 49).
Some individuals hotels have direct relationships with OTAs by using con-
nections with some manual intervention, such as an extranet, or there is still
widespread use of email or fax. Some OTAs also store rates and inventory and
then send a message to the hotel CRS for booking only. Many hotel groups or
independents use a third party reservation company, such as iHotelier, Micros-
Fidelio or Synxis, to provide most connections, but they may still maintain a
few extranets to OTA’s for which the updating is often streamlined by the use
of a channel management tool, often incorporated into the reservation system
(Pilepić et al. 2015).
3. EMPIRICAL RESEARCH
In the following part of the paper research methodology and the results are
described.
.. Research methodology

In this study, survey method was used. The research instrument was a struc-
tured questionnaire consisting of four parts as follows: (1) general information
and characteristics of the hotel chain, (2) sales channels, (3) online room book-
ing, (4) ICT tools. The first set of questions was related to some of the basic fea-
tures of hotel chains, such as the number of hotels in the company, the category
of hotels, the total number of rooms and employees in the hotel chain. The sec-
ond set of questions related to the occupancy share per individual sales channel
(individual, group, congress, and allotment), and subsegments of the individual
channel (OTA, own web, direct sales, coupons). This set of questions pertains
to three consecutive years, 2012, 2013 and 2014, to analyze (note) the trends
of a certain occurrence through the three-year business period of a hotel. The
third part of the questionnaire contained identification questions about online
booking and synchronization of the hotel reservation processes. The questions
are about how to enter information about processing and booking reservations
through hotel websites and OTA portals, sending reservation confirmations, as
458
well as entering special guest wishes. The last part of the questionnaire contains
questions related to the type of system used.
The results were analysed by using the software package SPSS (Statistical
Package for the Social Sciences). The data were analysed by using the method
of descriptive statistics. The research was conducted in the period from March
2015 to January 2016 and included 130 hotels throughout Croatia belonging
to one of 11 reputable hotel chains. The research was conducted by Sales Man-
agers, Reservation department or in Revenue Management department. In the
sample of 130 hotels, the hotels of the hotel chain Valamar Hotels & Resorts
(32.3%) have the largest share, followed by the Maistra Hotels & Resorts hotel
chain with 13.8% and Remisens Hotels & Villas with 13.1% (Table 2).
Table 2. Hotel chains covered in the empirical research

Number of
Hotel chains (%)
hotels
Arenaturist / Park Plaza Hotels &
7 5.4
Resorts
Remisens Hotels &Villas 17 13.1
Crvena Luka Hotel & Resort 1 0.8
Falkensteiner Hotels & Residences 8 6.2
Hilton Hotels & Resorts 2 1.5
Lošinj Hotels & Villas 8 6.2
Aminess Hotels & Camps 4 3.1
Maistra Hotels & Resorts 18 13.8
Laguna Poreč Hotels Resorts &
13 10.0
Camping

Starwood Hotels & Resorts Worldwide 6 4.6
Valamar Hotels & Resorts 42 32.3
Vienna International Hotels & Resorts 4 3.1
Total 130 100.0
The sample consists of hotels of all categories, while the most prominent are
4 stars hotels (49.2%), followed by 3 stars (28.5%) and 2 stars (11.5%) hotels.
The smallest share is made up of 5 stars hotels (9.2%).
459
Table 3. Average number of rooms in a chain by hotel category
Number of hotel rooms Min Max Mean Std. Deviation
Number of rooms in 5stars 0 655 191.75 201.820

Hotel chains have on average 831 4 stars category rooms, while category 5
stars on average 192. In addition, hotel chains have on average 638 category 3
stars and 259 category 2 stars.
The subject of the research is the individual sales channel, which has a signif-
icant growth in the appearance of the Internet and OTA distribution channels,
and which directly influences hotel revenues for higher / higher rates. Individ-
ual sales channels are on the average occupancy rate of 47.27%, with the low-
est occupancy rate being 15% and the highest average occupancy rate of 64%.
Looking at the occupancy rate of individual channels in the period from 2012
to 2014, the increase in average occupancy rate from was 31.28% to 38.11%.
Additional benefits of individual channel sales are: functionality (possibility
of comparing a larger number of hotels and rates, viewing of guest comments –
incentive for booking or not, the possibility of dynamic service creation, greater
market reach – visibility on a large number of markets); efficient marketing
channel (fast response to market change, distribution support and know-how,
result-based collaboration, monitoring and reporting on performance, co-exis-
tence with corporate reservation systems) and the cheapest distribution channel
(business control is on the side of the hotel because pricing policy, brand iden-
tity and direct customer relationship, and thus controlling profitability).
.. Research results

The results of the survey on the hotel reservation synchronization process
are presented below, according to individual subsegments of the individual sales
channel – via the hotel website or through OTA portals (Šimunić 2017).
460
3.2.1. Contemporary department organization of receiving and processing of
reservations – subsegment hotel website
Booking methods will be clearer through the results of the research that
follows and show how to make online reservations from the web site by steps.
The following table shows ways of entering information in the PMS from the
website of the hotel.
Table 4. How information is entered in PMS from hotel website and type of
system used
Number of
Hotel website to PMS %
hotels
Person 4 3.1
System 120 92.3
Person and system 6 4.6
Total 130 100.0
Name of system
PHOBS 41 31.5
Trust 8 6.2
My Fidelio 8 6.2
Opera /Valhalla 6 4.6
Sabre / SynXis 54 41.6
No answer 13 10.0
Total 130 100.0

Table 4 shows that information from the hotel website is most commonly
entered by the PMS system (92.3%). Very rarely this is done by only a person or
a combined person and system. Information from the web in PMS is most com-
monly introduced through the PHOBS (31.5%) and Sabre (41.6%) systems.
The PHOBS system is a Croatian product well known outside Croatia. As
virtual sales office (VSE) for hotels, resorts, camps, and villas, it offers revenue
generating solutions for hospitality: property management interfaces, booking
engine, yield manager, channel manager, revenue management interface, busi-
ness intelligence & analytics, B2B manager, another (PHOBS, 2018). What is
important is that it integrates a different PMS interface for direct downloading
to PMS.
461
Sabre is one of the world’s largest software companies. What started as a
joint initiative between American Airlines and IBM to create the world’s first
computerized airline reservation system in 1960 has since evolved into a tech-
nology ecosystem that touches almost every stage of your travel experience (Sa-
bre 2018). Their most famous product SynXis Central Reservations (CR) is
the most robust, flexible, easy-to-use rate and inventory management SaaS ap-
plication. These tools enable hoteliers to support a multitude of rate, inventory
and distribution strategies to achieve their business goals. In addition to direct
channels, SynXis delivers rates and inventory to all major GDS systems (Sabre,
Amadeus, and Travelport), as well as online travel agencies through direct con-
nections and switch partners.
Myfidelio.net is a business unit of Oracle Hospitality Ireland Ltd, which is
a subsidiary of MICROS Systems Inc. MICROS is the only full systems solu-
tions provider for all market segments with a global distribution and service
network in place for major chains, regional chains, local independents, table
service, and the quick service market. FIDELIO Software offering software sys-
tems and specializing in the development of Property Management Systems.
Myfidelio.net offers Software as a Service business model for hotels and hotel
groups as an alternative business option to purchasing licenses. Myfidelio.net is
based on OPERA Reservation System (ORS) and hosted in a MICROS data-
centre environment in Frankfurt am Main, Germany. It helps to generate hotel
revenue by enabling consumers to conveniently book hotel reservations online
through the most cost effective and successful channel, the hotels’ website It
provides real time direct access to the 4 major GDS and over 500.000 travel
agencies globally. It links directly to a number of important Internet portals and
online travel agencies (Myfidelio.net 2018).
Trust International is now part of Sabre Hospitality Solutions, providing
the industry’s leading technology for hotels around the world (Trust-Sabrehos-
pitality 2018).
According to del Rio (2016), a former SVP of Technology Solutions for
Starwood, Valhalla is a highly customizable hotel modern Reservation, Call
Center, eCommerce Web, Property Management and Revenue Management
systems integrated with the Loyalty system via SOA interfaces and open system
frameworks.
462
The following table shows how hotel reservation confirmations are down-
loaded from the hotel website and system types.
Table 5. Ways of reservation confirmation sending from hotel website and
name of the system used
Number of
Hotel website to guest %
hotels
Person 1 0.8
System 129 99.2
Total 130 100.0
Name of system
Synxis* 17 13.1
PHOBS 40 30.8
Trust 8 6.2
My Fidelio 8 6.2
Sabre 37 28.5
CRS 6 4.6
WBE** 4 3.1
No answer 10 7.7
Total 130 100.0
* Synxis and Sabre are the same software, Sabre is the company name, Synxis is a program.
** WBE – product of the company wbe.travel, web booking expert – an innovative travel book-
ing software providing reliable booking engines to travel agents tour operators and hotel service
providers (Web booking expert 2018).
In almost all hotels in the sample booking confirmation from the hotel, web-
site is sent to the system. To send a booking confirmation from the hotel website
system PHOBS (30.8%) and Sabre (28.5%) - Synxis (13.1) are the most com-
monly used.
463
Table 6. Ways of downloading special wishes from hotel website and name of
the system used
Number of
Hotel website to PMS %

hotels
Person 14 10.8
System 116 89.2
Total 130 100.0
Name of system
Synxis* 17 13.1
PHOBS 23 17.7
Trust 8 6.2
My Fidelio 8 6.2
Sabre 37 28.5
MISH** 4 3.1
CRS/Valhalla 6 4.6
No answer 27 20.8
Total 130 100.0
* Synxis and Sabre are the same software, Sabre is the company name, Synxis is a program.
** MISH – the product of ISTRA TECH Pula, Hotel System and Catering Modular Informa-
tion System, a software package for the entire business of hotel and catering companies, represent-
ing ERP (Enterprise Resource Planning) solution (Istra Tech 2015).
In almost 90% of hotels in the sample, the special wishes of guests with
hotel websites are entered through the system. Hotels have well-developed res-
ervation systems but still all guest wishes entered the hotel website have to be
processed further by processing all comments in online reservations within 48
hours, depending on the day of arrival.
In the case of selling extra services/costs (upgrade, extra beds, additional ser-
vices), and if the guest confirms it – the person (hotel reservation agent must, in
any case, enter the information in the PMS through the note in the reservation.
The special wishes of the guests from the hotel website are most often down-
loaded through the Sabre system (28.5%) – Synxis (13.1) and PHOBS (17.7%).
3.2.2. Contemporary department organization of receiving and processing of

reservations – subsegment OTA portals
This subsection shows the method of distributing reservations and process-
ing them through various OTA portals that hotels use.
464
Table 7. Ways of downloading information from OTA portals and name of the
system used
OTA portals to PMS Number of hotels %
Person 4 3.1
System 126 96.9
Total 130 100.0
Name of system
Synxis-XML-MISH* 17 13.1
PHOBS 41 31.5
Trust 8 6.2
My Fidelio 8 6.2
Valhalla 6 4.6
Sabre 37 28.5
No answer 13 10.0
Total 130 100.00
* Synxis-XML-MISH –direct two-way XML connections between Synxis software and the
PMS. This provides constant updates and availability to the OTAs.
Information from OTA portals is most commonly downloaded through

the system (96.9%) in PMS. The most commonly used systems are PHOBS
(31.5%) and Sabre (28.5%).
Table 8. Ways of reservation confirmation sending from OTA portals and

Person 13 10.0
System 117 90.0
Total 130 100.00
Name of system
OTA 95 73.1
PHOBS 5 3.8
Trust 8 6.2
No answer 22 16.9
Total 130 100.0
465
The results in Table 8 show that 90% of the hotels use the system to send
a reservation confirmation from OTA portals. The OTA’s software (73.1%) is
most often used to send a reservation confirmation from OTA portals.
Table 9. Ways of downloading special wishes from hotel OTA portals and
Person 66 50.8
System 64 49.2
Total 130 100.0
Name of system
Synxis-XML-MISH 17 13.1
PHOBS 28 21.5
Trust 8 6.2
Valhalla 2 1.5
No answer 75 57.7
Total 130 100.0
The practice of entering/downloading special wishes of guests from OTA

portals is similar. Approximately 50% of the hotel uses the system, and the rest
is performed by the person. For downloading special wishes from OTA portals,
most commonly used are PHOBS (21.5%) and Synxis-XML-MISH (13.1%).
4. DISCUSSION AND CONCLUSION

Today’s market and hotel software solutions development as well as web
portals participating in the sales process of hotels or hotel chains completely
determine the concept of rate distribution and sales strategies, especially mar-
keting activities and sales promotion of services offered. One of the greatest
challenges for hotels is to regularly set up the current rates on booking portals
and to update the reservation status in real time. The goal is to reduce manual
entry and have up-to-date rates, accurate room occupancy levels – ARI (avail-
ability, rates, and inventory) (Ling et al., 2015). If the ARI connection is not
well set up and synchronized to the maximum as current technology allows,
there is a risk of overbooking as well as rate parity policy violations.
This research details the steps required for online reservations, booking con-
firmation, as well as the special wishes of guests entry either through the ho-
466
tel website or OTA that reflect the level of synchronization of the reservation
process of today’s hoteliers. Today, every serious hotel company has its own
reservation center, which is part of centralized sales, which is responsible for
individual sales channel, especially for its subsegment – Online. As far as the
online segment is concerned, it is the largest subsegment of the individual sales
channel. Hotel reservation agents are responsible for receiving and process-
ing online (OTA) and web reservations and requests, receiving and processing
coupon reservations and requests, and placing and contracting coupon bids. In
addition to the above mentioned responsibilities, reservation centers provide
support to guests in providing information about facilities, services, and offers.
Reservation center deals with OTA booking entry in PMS, checking the
accuracy of reservations entered through the interface, and processing reserva-
tions in terms of special conditions or answering comments – guest requests.
Agent manually enters the PMS reservation of those non-WML-related por-
tals to PMS. Reservations are entered directly into the PMS according to the
parameters of the OTA confirmation received. If the OTA portals and the hotel
website are interfaced with the PMS, reservation is automatically downloaded
to the PMS via the interface, and such booking agents do not enter. Modifica-
tions are made directly to the PMS when portals are not interfaced with the
PMS.
In hotels in Croatia, the information from the hotel website in PMS is most
commonly entered through the PHOBS and Sabre systems. In almost all hotels
in the sample booking confirmation from the hotel, the website is sent by the

system (PHOBS and Sabre). Guest special wishes entered in hotel website are
almost completely entered through the system. To send a reservation confir-
mation from OTA portals, the system is most often used. The practice of en-
tering/downloading special wishes of guests from OTA portals is similar. Ap-
proximately 50% of the hotel uses the system, and the rest is performed by the
person. It can be concluded that 100% synchronization of the booking process
in real time is not yet reached when downloading the reservation in the PMS,
sending a confirmation of the booked reservation and entering special wishes.
Although research has been carried out in detail, limitations of the conduct-
ed research may be reflected in the fact that research has been carried out at ho-
tel chains in Croatia, and therefore research has a spatial limitation, since it has
been implemented uniquely on one country example and no comparison with
467
other, similar or different destinations in the world. Furthermore, the research
carried out only covers hotel chains, and the results obtained do not refer to the
complete Croatian hotel industry but only to the best business practice in the
hotel industry in Croatia because the results are based on the characteristic ICT
equipment of hotel chains in Croatia.
It should be noted that hotel software takes over people’s work due to au-
tomatization of processes, and hotel business continues to struggle since hos-
pitality in the hotel business is the most important thing that no software can
provide.
REFERENCES
Aggarwall, B. & Aggarwall, A. (2010). From Hotels to HTMLs, A Complete Guide to Internet
Marketing for the Lodging Industry, third edition, AHLEI, AH&LA.
Anuar, J., Musa, M. & Khalid, K. (2014). Smartphone’s Application Adoption Benefits Us-
ing Mobile Hotel Reservation System (MHRS) among 3 to 5-star City hotels in Ma-
laysia, Procedia – Social and Behavioral Sciences, 130, pp. 552-557.
Bemile, R., Achampong, A. & Danquah, E. (2014). Online Hotel Reservation System, IJI-
SET - International Journal of Innovative Science, Engineering & Technology, 1(9), pp.
583-588.
Bilgihan, A. & Bujisic, M. (2015). The effect of website features in online relationship mar-
keting: a case of online hotel booking, Electronic Commerce Research and Applications,
14(4), pp. 222-232.
Bilgihan, A., Okumus, F., Nusair, K.K. & Kwun, D.J.-W. (2011). Information technology
applications and competitive advantage in hotel companies, Journal of Hospitality and
Tourism Technology, 2(2), pp. 139-154.
Caro, J.L., Guevara, A., Aguayo, A., Galvez, S. & Carrillo, A. (2003). Formal workflow speci-
fication applied to the hotel management information systems, Information and Com-
munication Technologies in Tourism 2003, Conference Proceedings, (Eds.), Frew, A., Hitz,
M. & OConnor, P., pp. 220-226.
Chawla, N. (2013). Online information monitoring for utilize hotel occupancy rate, Proceed-
ings of ICCT2013, 15th IEEE International Conference on Communication Technology,
November 17-19, 2013, Guilin, China, pp. 751-758.
Crnojevac, I.H., Gugić, J. & Karlovčan, S. (2010). eTourism: A comparison of Online and
Offline Bookings and the Importance of Hotel Attributes, Journal of Information and
Organizational Sciences, 34(1), pp. 41-54.
Ćosić, K. (2017). Aplikacija One Suite Hotel, Otključavanje hotelske sobe s mobitelom,
[available at:
http://www.mobil.hr/operateri/otkljucavanje-hotelske-sobe-s-mobitelom, access February
21, 2018]
468
Sel Rio, I. (2016). The Marriott/Starwood “Back to the Future” Technology Decision, HT
Hospitalitynet, [available at:
https://www.hospitalitynet.org/opinion/4078764.html, access February 25, 2018]
eMarketer (2017). Mobile Drives Growth of Online Travel Bookings [available at:
https://www.emarketer.com/Article/Mobile-Drives-Growth-of-Online-Travel-Book-
ings/1016053, access March 1, 2018]
Estis Green, C. & Lomanno, M. (2012). Distribution Channel Analysis: a Guide for Hotels,
an AH&LA and STR Special Report [available at:
http://www.hsmai.org/trends/Book.cfm?ItemNumber=5016, access October 25, 2017]
Forgacs, G. (2010). Revenue Management: Dynamic Pricing, Hospitality.net
[available at https://www.hospitalitynet.org/opinion/4045046.html, access February 15,
2018]
Guillet, B.D. & Ibrahim Mohammed, I. (2015). Revenue management research in hospitality
and tourism: A critical review of current literature and suggestions for future research,
International Journal of Contemporary Hospitality Management, 27(4), pp.526-560.
Gulmez, M., Ajanovic, E. & Karayun, I. (2014). Cloud technology in hotels: comparison
with the current software solutions, Proceedings of the International Conference Entre-
preneurship in the Hospitality Industry, third edition, Trends in Hospitality, October 9-11,
2014, Cluj-Napoca, România, pp. 98-104.
Ham, S., Kim, W.G. & Jeong, S. (2005). Effect of information technology on performance in
upscale hotels, Hospitality Management, 24, pp. 281-294.
ILO (International Labour Organization) (2010). Sectoral Activities Programme, Develop-
ments and challenges in the hospitality and tourism sector, Issues paper for discussion
at the Global Dialogue Forum for the Hotels, Catering, Tourism Sector, 23-24 No-
vember 2010, Geneva [available at:
http://www.ilo.org/wcmsp5/groups/public/@ed_norm/@relconf/documents/meeting-
document/wcms_166938.pdf, access October 5, 2017]

Law, R., Buhalis, D. & Cobanoglu, C. (2014). Progress on information and communication
technologies in hospitality and tourism, International Journal of Contemporary Hospital-
ity Management, 26(5), pp. 727-750.
Law, R. & Jogaratnam, G. (2005), A study of hotel information technology applications,
International Journal of Contemporary Hospitality Management, 17(2), pp. 170-180.
Ling, L., Dong, Y., Guo, X. & Li, L. (2015). Availability management of hotel rooms under
cooperation with online travel agencies, International Journal of Hospitality Manage-
ment, 50, pp. 145-152.
IstraTech (2015), MISH poslovni ERP [available at:
http://www.istratech.hr/proizvodi/mish, accessed December 1, 2017]
Morosan, C. & Jeong, M. (2008). Users’ perceptions of two types of hotel reservation Web
sites, International Journal of Hospitality Management, 27, pp. 284-292.
469
Murphy, H.C., Chen, M.-M. & Cossutta, M. (2016). An investigation of multiple devices
and information sources used in the hotel booking process, Tourism Management, 52,
pp. 44-51.
Murphy, H.C. & Chen, M.-M. (2014). Online Information Sources Used in Hotel Book-
ings: Examining Relevance and Recall Hilary, Journal of Travel Research, 55(4), pp.
523-536.
Myfidelio.net (2018) [available at:
http://www.myfidelio.net/mf/micros.html, accessed January 12, 2018]
Pease, W., Rowe, M. & Cooper, M. (Eds.) (2007). Information and Communication Technolo-
gies in Support of the Tourism Industry, Idea Group Publishing.
PHOBS (2018) [available at:
http://www.phobs.net/en/index.php, access February 1, 2018]
Piccoli, G., Lui, T.-W. & Grün, B. (2017). The impact of IT-enabled customer service sys-
tems on service personalization, customer service perceptions, and hotel performance,
Tourism Management, 59, pp. 349-362.
Pilepić, Lj., Šimunić, M. & Car, T. (2015). Online hotel’s sales strategies with emphases on
web booking, Journal of Technology Research, 6, pp. 1-12 [available at:
http://www.aabri.com/jtr.html, accessed December 10, 2017]
Sabre (2018) [available at:
https://www.sabre.com/about, accessed January 12, 2018]
Trust – Sabrehospitality (2018) [available at:
https://www.sabrehospitality.com/trust-now-sabre, accessed January 23, 2018]
Schütze, J. (2008). Pricing strategies for perishable products: the case of Vienna and the
hotel reservation system hrs.com, Central European Journal of Operations Research, 16,
pp. 43-66.
Sereseanu, R. & Rus, R.V. (2014). The Hotelier in the clouds, Proceedings of the International
Conference Entrepreneurship in the Hospitality Industry, third edition, Trends in Hospital-
ity, October 9-11, 2014, Cluj-Napoca, România, pp. 75-81.
Šimunić, M. (2017). The synchronization of hotel reservation process through rate and revenue
management using information and communication technology, doctoral disertation, Uni-
versity of Rijeka, Faculty of Tourism and Hospitality Management, Opatija.
Valhalla [available at:
https://www.hospitalitynet.org/opinion/4078764.html). access December 12, 2017]
Vigar-Ellis, D. & Bredican, J. (2014). Smartphone Applications – Idea sourcing, and app de-
velopment: Implications for firms, South African Journal of Economic and Management
Sciences, 17(3), pp. 232-248.
Web booking expert (2018) [available at:
https://www.wbe.travel access January 8, 2018]
Werthner, H. & Klein, S. (2010). ICT and the Changing Landscape of Global Tourism
Distribution, Electronic Markets, 9(4), pp. 256-262.
470
MARKET SUCCESS OF CROATIAN
ENTERPRISES: IMPACT OF
LEADERSHIP STYLES
Ivan MILOLOŽA, Ph.D.

University of Osijek, Faculty for Dental Medicine & Health
E-mail: ivan.miloloza@fdmz.hr
Aleksandar VČEV, Ph.D.

E-mail: aleksandar.vcev@fdmz.hr
Damir ŠEBO, Ph.D.

E-mail: damir.sebo@fdmz.hr
Abstract
Clients represent one of the key factors of an enterprise success, especially those
clients that are loyal to the enterprise. When designing and manufacturing
new products/services, it is important that enterprises are guided by their cus-
tomers’ requirements and desires. However, the leadership of the enterprise INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
often affects the process of discovering, tracking, and fulfilling the customers’
needs. The goal of this research is investigation of the impact of different lead-
ership styles to market success of Croatian enterprises, measured by the non-
financial indicators.
Key words: leadership style, market success, survey, linear regression
JEL Classification: A11, L32
471
INTRODUCTION
The market perspective implies defining strategic goals in accordance
with answering customer requests, all with a goal to achieve financial success
(Osmanagić Bedenik, 1993). In this way, by achieving goals of the clients’ per-
spective, the goals of the financial perspective will be achieved as well.
Ivan Miloloža Aleksandar Včev Damir Šebo: MARKET SUCCESS OF CROATIAN ENTERPRISES: IMPACT OF LEADERSHIP STYLES
Despite top technology and product quality, success will not be attained if
the needs of key clients are not satisfied. What is most important is the value
provided to clients, which consists of a new product/service, price, image and
advertising (Rašić, et al., 2016; Terzieva et al., 2016). An enterprise can achieve
competitive advantage if it is differentiated from the competition and achieves
success through one of three possible strategies: operational excellence, custom-
er engagement, or product leadership (Ženko et al., 2017).
The market perspective focuses exclusively on customers and the relation-
ship they have with the enterprise. Aside from high-quality product/service
and favourable price, customers also expect other benefits. If an enterprise re-
ally wants to be a market leader, it must define key customers and its own role
in satisfying their needs.
A leader is a person who has the ability to influence others not by controlling
them, but by approving and accepting their associates. The main goal of a leader
is to help their team achieve enterprise’s goals by encouraging team members to
use their own competencies and potentials. A successful leader must align the
three H (Head, Heart, Hand), i.e. achieve the balance of head, heart, and hands
(Nicholls, 1994).
The role of a leader is to accomplish tasks of an enterprise by creating high-
quality interpersonal relationships within the team (Giessner et al., 2013). In
order for a leader to be efficient when performing tasks as well as when working
with their associates, they have to harmonize three areas of activity: (i) perform
a task, (ii) harmonize needs of their associates with tasks, and (iii) build and
maintain a team spirit.
Previous research has shown that leadership styles have a different impact
on enterprise success in the area of knowledge management (Miloloža 2015a,
2015b, 2015c). The contribution of this research will be to explore the impact
of leadership styles on enterprise’s market success.
472
MEASURING MARKET SUCCESS
Measuring market success is extremely important because in this way enter-
prises can improve their relationship with clients. Enterprises gather informa-
tion on customer satisfaction by complaints, repeated orders, the frequency of
new orders, and clients’ attitude. Indicators of customer attractiveness are cus-
tomer satisfaction, customer complaints, number of new customers, customer
profitability, lost customers, order delivery time, number of delays in delivery.
A key factor in any business strategy is the value proposition to a customer,
which is made of a product/service, client relationship, and the image that the
enterprise has in the public. In this way, enterprises can differentiate among each
other, attract new customers, as well as maintain and deepen their relationship
with existing customers. A value proposition is based on selecting one of the
following strategies: performance excellence, product leadership, or customer
engagement (Treacy, 1995). In most cases, enterprises specialize in one of the
three strategies, while achieving standard performance in the other two areas.
Enterprises focusing on the operational excellence strategy must be leaders
in the following business segments: (i) competitive prices, (ii) product quality,
(iii) fast order execution, and (iv) deliveries within a given period. Enterprises
focusing on the customer engagement strategy must be leaders in the following
business segments: (i) high-quality relationship with clients, (ii) high level of
service and (iii) completeness of product/service offering. Enterprises focus-
ing on the product leadership strategy must be leaders in the following busi-
ness segments: (i) functionality, (ii) features, and (iii) overall product/service
performance.
Within the area of market perspective, enterprises must focus on a double
perception of the analysis of their business and customer relationship. The first
part refers to clients and their opinion of the enterprise, i.e. the attitude of a cli-
ent towards the enterprise, while the other part refers to the enterprise, namely
how the enterprise thinks about its clients, i.e. in which way the relationship
with the clients could be improved. In order to collect data on customer percep-
tion, a customer survey is conducted, with the number of complaints and the
number of new orders being analysed.
Below are described three ways in which benefit can be provided to custom-
ers: operational excellence, product leadership, and customer engagement.
473
Operational excellence
Enterprises trying to ensure operational excellence are constantly trying
to eliminate inefficiencies from their business, in other words, to increase ef-
ficiency. The offer of these enterprises is based on low price, standard products
that are constantly available, orientation towards a larger segment and not only
towards individual customer and satisfying individual needs.
Product leadership
Enterprises trying to secure competitive advantage using product leader-
ship strategy must provide their customers constantly with new and innova-
tive products/services that they cannot get from the competition (Meler and
Turkalj, 1997a, 1997b). The goal of these enterprises is to create a product/
service that will meet customer requirements.
Customer engagement
Enterprises focusing on customer engagement try to provide their custom-
ers with complete service in every business segment in order to maximize the
benefits of using the product/service. Indicators of the customer engagement
strategy are the following: customer knowledge, offering a complete product,
number of products and long-term relationship management (Niven, 2007).
Parmenter (2010) cites the following measures in order to manage custom-
er’s perspective successfully: (i) Customer satisfaction and customer loyalty, (ii)
Customer complaints, (iii) Customer retention, (iv) Hours spent with a cus-
tomer, (v) Brand identity, (vi) Number of clients, (vii) Customer service costs,
(viii) Quality adjustment costs, (ix) Number of orders per day/month.
The goals for a customer’s perspective, that is, the importance of market suc-
cess depends on who the target customers are and what value has been added to
meeting the requirements of the targeted customers. Benefit to customers dif-
ferentiates an enterprise from the competition. It is important to emphasize that
there are three categories of benefit: (i) operational excellence, (ii) product lead-
ership, and (iii) customer engagement (Niven, 2007). Each enterprise will choose
one category in which it will be the best, while the other two will remain within
standard values. The first category of benefit in meeting customer requirements
refers to operational excellence. Enterprises focusing on the first category must
meet the following criteria: low prices, excellent selection, error elimination, and
474
growth in the chosen market. The second category of benefit in meeting custom-
er requirements refers to product leadership. Enterprises focusing on the second
category must meet the following criteria: offering the best product/service on
the market, and constant work on the innovation of products/services. The third
category of benefit in meeting customer requirements refers to customer engage-
ment. Enterprises focusing on the third category are striving to ensure long-term
relationships with customers in order to satisfy their needs.
MEASURING LEADERSHIP STYLES

Future leaders, i.e. leaders of the 21st century, will have to be adaptive, dy-
namic and willing to change, just as business is like nowadays. Fast information
flow and market changes, as well as strong competition, require that enterprises
have a high-quality leadership (Analoui et al., 2012). Successful leaders within
different business areas contribute to enterprise growth and overcoming prob-
lems that the enterprise faces, and thus determine future business direction.
In addition, a successful leader motivates their associates and encourages
them to work and educate, as well as to use their own potentials; they spread
optimism within the company and harmonize needs of the team and interper-
sonal relationships, thus achieving a number of business benefits (Vermeeren
et al., 2014). These approaches materialize through leadership styles, such as:
autocratic, democratic and laissez-faire style of leadership. Given the advantages
and disadvantages that exist in all three leadership styles, one can conclude that
there is no single best leadership style, but that leaders must adapt to the situa-
tion and their associates in order to achieve the best result. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
RESEARCH METHODOLOGY
The Leadership Styles Questionnaire, taken from the book Introduction to
Leadership by Northouse (2012) was used as a research instrument. In addi-
tion, a questionnaire for measuring enterprise success in terms of four dimen-
sions of success was used. Table 1 shows the market success of all companies
together. It can be noticed that respondents from all enterprises believe their
enterprises to be more successful than competitors on average, as measured by
items T1. Customer satisfaction and T3. Quality of a product/service within
dimension Market success (average rating 4,200). Item T2. Market share has a
475
somewhat lower average rating of 3.883. Cronbach’s alpha is greater than 0.7,
which indicates that the market success indicators are consistent.
Table 1. Market success of all enterprises together

N Min Max Average St.dev. Cronbach’s alpha
Market success
T1. Customer satisfaction 60 2 5 4,200 0,684

T2. Market share 60 1 5 3,883 1,027 0,710
T3. Quality of a product/service 60 2 5 4,200 0,755
Source: Author’s work
The survey was conducted on a stratified sample of 60 Croatian enterprises

total divided into 6 sub-groups. Of this, there were: (1) 10 small and medium-
sized enterprises in the growth phase (sub-code: SME-growth); (2) 10 small
and medium-sized enterprises in the maturity phase (sub-code: SME-maturity);
(3) 10 small and medium-sized enterprises in the stagnation phase (sub-code:
SME-stagnation); (4) 10 large enterprises in the growth phase (sub-code: Large-
growth); (5) 10 large enterprises in the maturity phase (sub-code: Large-maturity)
and (6) 10 large enterprises in the stagnation phase (sub-code: Large-stagnation).
Comparison of average ratings of the presence of leadership styles in all enter-
prises together is as follows. The respondents agree mostly with the attitudes that
reflect democratic leadership style, while they agree the least with the attitudes
that reflect laissez-faire leadership style (the lowest average ratings are recorded).
RESULTS
Impact of leadership styles on all enterprises together
Table 2 shows a regression model with the dependent variable Market suc-
cess. All items of measuring leadership styles, which refer to the autocratic,
democratic and laissez-faire style, were used as independent variables. Step-
wise multiple regression analysis was used to form the model. A model with a
determination coefficient of 0.370 was established, indicating that the selected
model implied 37.0% deviation from the dependent variable.
There are four statistically significant independent variables in the model that
reflect the autocratic style – L1. Employees need to be supervised closely, or they are
not likely to do their work (statistically significant at 1% level), L4. It is fair to say
476
that most employees in the general population are lazy (statistically significant at 5%
level), L10. Most employees feel insecure about their work and need direction (statis-
tically significant at 1% level) and L13. The leader is the chief judge of the achieve-
ments of the members of the group (statistically significant at 5% level). Variables
L1 and L13 have a positive impact on the dependent variable Market success in
all enterprises, while variables L4 and L10 have a negative inpact.
There are two statistically significant independent variables in the model
that reflect the laissez-faire style – L9. As a rule, leaders should allow subordi-
nates to appraise their own work (statistically significant at 5% level) and L12.
Leaders should give subordinates complete freedom to solve problems on their own
(statistically significant at 10% level). Variable L9 has a positive impact on the
dependent variable Market success in all enterprises, while variable L12 has a
negative impact.
Table 2. Regression model with the dependent variable: Market success and
the independent variables: items of leadership styles – all enterprises
together
Non-stand. Standard Standardized
Market success t P-value
coefficients error coefficients
Constant 3,424 0,565 6,062 0,000***
Autocratic style
L 1. Employees need to be supervised closely, or
0,207 0,074 0,384 2,801 0,007***
they are not likely to do their work.
L 4. It is fair to say that most employees in the
-0,195 0,077 -0,313 -2,529 0,014**
general population are lazy.

L 10. Most employees feel insecure about their
-0,236 0,076 -0,393 -3,091 0,003***
work and need direction.
L 13. The leader is the chief judge of the
0,236 0,099 0,276 2,376 0,021**
achievements of the members of the group.
Laissez-faire style
L 9. As a rule, leaders should allow subordinates
0,171 0,074 0,270 2,303 0,025**
to appraise their own work.
L 12. Leaders should give subordinates complete
-0,125 0,067 -0,216 -1,856 0,069*
freedom to solve problems on their own.
Model fit
R2 0,370
Adjusted R2 0,299
Source: Author’s research, May, 2014.

Note: * 10%, ** 5%, *** 1% probability
477
IMPACT OF LEADERSHIP STYLES ON SMALL AND
MEDIUMSIZED ENTERPRISES
cess in SME enterprises. All items of measuring leadership styles, which refer
to the autocratic, democratic and laissez-faire style, were used as independent
variables. Step-wise multiple regression analysis was used to form the model. A
model with a determination coefficient of 0.742 was established, indicating that
the selected model implied 74.2% deviation from the dependent variable.
There are five statistically significant independent variables in the model that
reflect the autocratic style – L1. Employees need to be supervised closely, or they
are not likely to do their work (statistically significant at 1% level), L4. It is fair to
say that most employees in the general population are lazy (statistically significant
at 5% level), L10. Most employees feel insecure about their work and need direc-
tion (statistically significant at 10% level), L13. The leader is the chief judge of the
achievements of the members of the group (statistically significant at 10% level)
and L16. Effective leaders give orders and clarify procedures (statistically signifi-
cant at 5% level). Variables L1, L4 and L16 have a positive impact on the depen-
dent variable Market success in SME enterprises, while variables L10 and L13
have a negative impact.
There are three statistically significant independent variables in the model
that reflect the democratic style – L2. Employees want to be a part of the decision-
making process (statistically significant at 10% level), L11. Leaders need to help
subordinates accept responsibility for completing their work (statistically significant
at 5% level) and L17. People are basically competent and if given a task will do a
good job (statistically significant at 1% level). Variables L2, L11 and L17 have a
positive impact on the dependent variable Market success in SME enterprises.
that reflect the laissez-faire – L6. Leadership requires staying out of the way of
subordinates as they do their work (statistically significant at 5% level), L9. As
a rule, leaders should allow subordinates to appraise their own work (statistically
significant at 10% level) and L18. In general, it is best to leave subordinates alone
(statistically significant at 5% level). Variables L6 and L9 have a positive impact
on the dependent variable Market success in SME enterprises, while variable
L18 has a negative impact.
478
Table 3. Regression model with the dependent variable: Market success and the
independent variables: items of leadership styles in relation to the size
of the enterprise SME
Market success – SME t P-value
Constant 0,429 1,108 0,387 0,703
Autocratic style
L 1. Employees need to be supervised closely,
0,238 0,071 0,516 3,352 0,004***
or they are not likely to do their work.
0,352 0,127 0,522 2,771 0,013**
-0,151 0,076 -0,316 -1,983 0,063*
-0,391 0,186 -0,554 -2,105 0,050*
L 16. Effective leaders give orders and clarify
0,213 0,081 0,512 2,617 0,017**
procedures.
Democratic style
L 2. Employees want to be a part of the
0,216 0,107 0,301 2,010 0,060*
decision-making process.
L 11. Leaders need to help subordinates accept
0,403 0,173 0,473 2,325 0,032**
responsibility for completing their work.
L 17. People are basically competent and if
0,309 0,106 0,539 2,932 0,009***
given a task will do a good job.
Laissez-faire style
L 6. Leadership requires staying out of the way
0,250 0,094 0,434 2,669 0,016**
of subordinates as they do their work.
0,161 0,077 0,298 2,096 0,051*
L 18. In general, it is best to leave subordinates

-0,296 0,110 -0,498 -2,706 0,014**
alone.
Model fit
R2 0,742
Adjusted R2 0,584
IMPACT OF LEADERSHIP STYLES ON LARGE

ENTERPRISES
cess. All items of measuring leadership styles, which refer to the autocratic,
democratic and laissez-faire style, were used as independent variables. Step-
479
wise multiple regression analysis was used to form the model. A model with a
determination coefficient of 0.477 was established, indicating that the selected
model implied 47.7% deviation from the dependent variable.
There are two statistically significant independent variables in the model that
reflect the autocratic style – L4. It is fair to say that most employees in the general
population are lazy (statistically significant at 5% level) and L13. The leader is the
chief judge of the achievements of the members of the group (statistically significant
at 1% level). Variable L4 has a negative impact on the dependent variable Mar-
ket success in large enterprises, while variable L13 has a positive impact.
that reflect the democratic style – L2. Employees want to be a part of the decision-
making process (statistically significant at 5% level) and L8. Most workers want
frequent and supportive communication from their leader (statistically significant
at 5% level). Variable L2 has a positive impact on the dependent variable Mar-
ket success in large enterprises, while variable L8 has a negative impact.
There is only one statistically significant independent variable in the model
that reflects the laissez-faire style – L9. As a rule, leaders should allow subordinates
to appraise their own work (statistically significant at 5% level). Variable L9 has
a positive impact on the dependent variable Market success in large enterprises.
480
Table 4. Regression model with the dependent variable: Market success and the
independent variables: items of leadership styles – large enterprises
Market success – Large t P-value
Constant 1,471 1,223 1,203 0,241
Autocratic style
-0,245 0,098 -0,405 -2,490 0,020**
0,524 0,156 0,520 3,349 0,003***
Democratic style
0,330 0,149 0,348 2,211 0,037**
L 8. Most workers want frequent and supportive
-0,295 0,161 -0,306 -1,836 0,079*
communication from their leader.
Laissez-faire style
0,293 0,113 0,409 2,586 0,016**
Model fit
R2 0,477
Adjusted R2 0,368
IMPACT OF LEADERSHIP STYLES ON

ENTERPRISES IN THE GROWTH AND MATURITY
PHASE LEADERS INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
cess in enterprises in the growth and maturity phase (leaders). All items of mea-
suring leadership styles, which refer to the autocratic, democratic and laissez-
faire style, were used as independent variables. Step-wise multiple regression
analysis was used to form the model. A model with a determination coefficient
of 0.694 was established, indicating that the selected model implied 69.4% de-
viation from the dependent variable.
that reflect the autocratic style – L4. It is fair to say that most employees in the
general population are lazy (statistically significant at 1% level), L10. Most em-
481
ployees feel insecure about their work and need direction (statistically significant at
1% level) and L13. The leader is the chief judge of the achievements of the members
of the group (statistically significant at 1% level). Variables L4 and L10 have a
negative impact on the dependent variable Market success in market leader en-
terprises, while variable L13 has a positive impact.
that reflects the democratic style – L14. It is the leader’s job to help subordinates
find their “passion” (statistically significant at 10% level). Variable L14 has a
positive impact on the dependent variable Market success in market leader
enterprises.
There are four statistically significant independent variables in the model
that reflect the laissez-faire style – L6. Leadership requires staying out of the way
of subordinates as they do their work (statistically significant at 5% level), L9. As
a rule, leaders should allow subordinates to appraise their own work (statistically
significant at 10% level), L12. Leaders should give subordinates complete freedom
to solve problems on their own (statistically significant at 10% level) and L18. In
general, it is best to leave subordinates alone (statistically significant at 1% level).
Variables L6 and L9 have a positive impact on the dependent variable Market
success in market leader enterprises, while variables L12 and L18 have a nega-
tive impact.
482
the independent variables: items of leadership styles in relation to the
growth phase of the enterprise – Enterprises in the growth and matu-
rity phase (leaders)
Market success – Enterprises in the growth and Non-stand. Standard Standardized

t P-value
maturity phase (leaders) coefficients error coefficients
Constant 3,585 0,586 6,115 0,000***
Autocratic style
-0,220 0,076 -0,363 -2,898 0,007***
-0,303 0,075 -0,557 -4,037 0,000***
0,378 0,104 0,449 3,621 0,001***
Democratic style
L 14. It is the leader’s job to help subordinates find
0,146 0,084 0,234 1,735 0,094*
their “passion”.
Laissez-faire style
L 6. Leadership requires staying out of the way of
0,175 0,081 0,304 2,152 0,041**
subordinates as they do their work.
L 9. As a rule, leaders should allow subordinates to
0,119 0,062 0,219 1,904 0,068*
appraise their own work.
-0,126 0,065 -0,238 -1,943 0,063*
-0,222 0,070 -0,412 -3,169 0,004***
alone.
Model fit

R2 0,694
Adjsuted R2 0,603
Source: Author’s research, May 2014.


ENTERPRISES IN THE STAGNATION PHASE
FOLLOWERS
cess in enterprises in the stagnation phase (followers). All items of measuring
leadership styles, which refer to the autocratic, democratic and laissez-faire style,
483
were used as independent variables. Step-wise multiple regression analysis was
used to form the model. A model with a determination coefficient of 0.900 was
established, indicating that the selected model implied 90.0% deviation from
the dependent variable.
reflect the autocratic style – L1. Employees need to be supervised closely, or they are
not likely to do their work (statistically significant at 1% level), L7. As a rule, em-
ployees must be given rewards or punishments in order to motivate them to achieve
organizational objectives (statistically significant at 1% level), L10. Most employ-
ees feel insecure about their work and need direction (statistically significant at 1%
level), L13. The leader is the chief judge of the achievements of the members of the
group (statistically significant at 1% level) and L16. Effective leaders give orders
and clarify procedures (statistically significant at 10% level). Variables L1, L7 and
L13 have a positive impact on the dependent variable Market success in market
follower enterprises, while variables L10 and L16 have a negative impact.
that reflect the democratic style – L8. Most workers want frequent and supportive
communication from their leader (statistically significant at 5% level) and L14. It
is the leader’s job to help subordinates find their “passion” (statistically significant at
1% level). Variables L8 and L14 have a negative impact on the dependent vari-
able Market success in market follower enterprises.
reflect the laissez-faire style – L3. In complex situations, leaders should let subor-
dinates work problems out on their own (statistically significant at 1% level), L6.
Leadership requires staying out of the way of subordinates as they do their work
(statistically significant at 5% level), L12. Leaders should give subordinates com-
plete freedom to solve problems on their own (statistically significant at 5% level),
L15. In most situations, workers prefer little input from the leader (statistically
significant at 1% level) and L18. In general, it is best to leave subordinates alone
(statistically significant at 5% level). Variables L6 and L12 have a negative im-
pact on the dependent variable Market success in market follower enterprises,
while variables L3, L15 and L18 have a positive impact.
484
growth phase of the enterprise – Enterprises in the stagnation phase
(followers)
Market success – Enterprises in the stagnation Non-stand. Standard Standardized
t P-value
phase (followers) coefficients error coefficients
Constant 1,428 0,729 1,958 0,076*
Autocratic style
L 1. Employees need to be supervised closely, or
0,295 0,051 0,771 5,743 0,000***
they are not likely to do their work.
L 7. As a rule, employees must be given rewards
or punishments in order to motivate them to 0,411 0,095 0,717 4,335 0,001***
achieve organizational objectives.
-0,432 0,068 -0,847 -6,313 0,000***
0,656 0,165 0,966 3,979 0,002***
-0,166 0,081 -0,412 -2,036 0,067*
procedures.
Democratic style
-0,273 0,107 -0,294 -2,540 0,027**
L 14. It is the leader’s job to help subordinates find
-0,464 0,122 -0,632 -3,809 0,003***
their “passion”.
Laissez-faire style
L 3. In complex situations, leaders should let
0,356 0,070 0,762 5,049 0,000***
subordinates work problems out on their own.
L 6. Leadership requires staying out of the way of
-0,203 0,065 -0,353 -3,101 0,010**
subordinates as they do their work.
-0,225 0,081 -0,467 -2,786 0,018**
L 15. In most situations, workers prefer little input
0,306 0,068 0,611 4,465 0,001***
from the leader.
0,213 0,096 0,429 2,213 0,049**
alone.
Model fit
R2 0,900
Adjusted R2 0,792
485
ENTERPRISES ORIENTED TOWARDS DOMICILE
MARKETS
cess in enterprises oriented predominantly towards domestic market. All items
of measuring leadership styles, which refer to the autocratic, democratic and

laissez-faire style, were used as independent variables. Step-wise multiple re-
gression analysis was used to form the model. A model with a determination
coefficient of 0.209 was established, indicating that the selected model implied
20.9% deviation from the dependent variable.
that reflects the autocratic style – L10. Most employees feel insecure about their
work and need direction (statistically significant at 1% level). Variable L10 has a
negative impact on the dependent variable Market success in enterprises ori-
ented predominantly towards domestic market.
international orientation of the enterprise – Predominantly domestic
market
Market success – Predominantly domestic Non-stand. Standard Standardized

t P-value
market coefficients error coefficients
Constant 4,861 0,282 17,267 0,000***
Autocratic style
L 10. Most employees feel insecure about
-0,295 0,096 -0,457 -3,082 0,004***
their work and need direction.
Model fit
R2 0,209
Adjusted R2 0,187

486
ENTERPRISES ORIENTED TOWARDS
INTERNATIONAL MARKETS
cess in enterprises oriented predominantly towards foreign market. All items
of measuring leadership styles, which refer to the autocratic, democratic and
laissez-faire style, were used as independent variables. Step-wise multiple re-
gression analysis was used to form the model. A model with a determination
coefficient of 0.951 was established, indicating that the selected model implied
95.1% deviation from the dependent variable.
reflect the autocratic style – L1. Employees need to be supervised closely, or they
are not likely to do their work (statistically significant at 1% level), L4. It is fair to
say that most employees in the general population are lazy (statistically significant
at 1% level), L10. Most employees feel insecure about their work and need direc-
tion (statistically significant at 1% level), L13. The leader is the chief judge of the
achievements of the members of the group (statistically significant at 1% level) and
L16. Effective leaders give orders and clarify procedures (statistically significant at
1% level). Variables L4, L7 and L13 have a positive impact on the dependent
variable Market success in enterprises oriented predominantly towards foreign
market, while variables L10 and L13 have a negative impact.
There are four statistically significant independent variables in the model
that reflect the democratic style – L2. Employees want to be a part of the deci-
sion-making process (statistically significant at 10% level), L5. Providing guidance INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
without pressure is the key to be a good leader (statistically significant at 1% level),
L8. Most workers want frequent and supportive communication from their leader
(statistically significant at 1% level) and L14. It is the leader’s job to help subordi-
nates find their “passion” (statistically significant at 1% level). Variables L5, L8
and L14 have a positive impact on the dependent variable Market success in
enterprises oriented predominantly towards foreign market, while variable L2
has a negative impact.
that reflect the laissez-faire style – L3. In complex situations, leaders should let
subordinates work problems out on their own (statistically significant at 1% level),
L6. Leadership requires staying out of the way of subordinates as they do their work
487
(statistically significant at 1% level) and L18. In general, it is best to leave subordi-
nates alone (statistically significant at 5% level). Variable L6 has a negative impact
on the dependent variable Market success in enterprises oriented predominantly
towards foreign market, while variables L3 and L18 have a positive impact.
international orientation of the enterprise – Predominantly foreign

market

Market success – Predominantly foreign market t P-value
Constant -11,648 2,314 -5,035 0,001***
Autocratic style
L 1. Employees need to be supervised closely,
1,872 0,342 3,973 5,477 0,000***
or they are not likely to do their work.
0,788 0,144 1,180 5,458 0,000***
-1,314 0,233 -2,471 -5,640 0,000***
-1,874 0,436 -2,319 -4,301 0,002***
0,840 0,150 1,898 5,611 0,000***
procedures.
Democratic style
-0,386 0,173 -0,506 -2,233 0,052*
L 5. Providing guidance without pressure is the
1,547 0,257 2,568 6,021 0,000***
key to being a good leader.
2,776 0,516 2,634 5,379 0,000***
L 14. It is the leader’s job to help subordinates
0,684 0,142 0,886 4,836 0,001***
find their “passion”.
Laissez-faire style
L 3. In complex situations, leaders should let
0,535 0,079 1,215 6,797 0,000***
subordinates work problems out on their own.
L 6. Leadership requires staying out of the way
-0,537 0,072 -0,862 -7,428 0,000***
of subordinates as they do their work.
0,178 0,062 0,406 2,847 0,019**
alone.
Model fit
R2 0,951
Adjusted R2 0,886
488
DISCUSSION AND CONCLUSION
Table 9 shows the impact of different leadership styles on the aggregate mar-
ket success variable. The last three lines of the table show the dominant impact
of a particular leadership style.
Autocratic leadership style

It can be noticed that variable L1 has a statistically significant positive impact
on the market success in all enterprises together, SME enterprises, enterprises
in the stagnation phase and enterprises oriented towards international market,
and the same goes for variable L7 and enterprises in the stagnation phase (fol-
lowers). On the other hand, only variable L10 has a negative impact on virtually
all enterprises, except on large enterprises.
Democratic leadership style

It can be noticed that variables L11 and L17 have a statistically significant
positive impact on the market success in small enterprises, and the same goes
for variable L12 and small and large enterprises. Only variable L8 has a negative
impact on large enterprises and enterprises in the stagnation phase.
Laissez-faire leadership style

It can be noticed that variable L9 has a statistically significant positive im-
pact on the aggregate variable of market success in all enterprises, regardless of INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
their size, as well as on enterprises in the maturity phase and the same goes for
variable L3 and enterprises in the stagnation phase (followers) and enterprises
oriented towards international market. On the other hand, variable L12 has a
negative impact on all enterprises together, as well as on enterprises in the stag-
nation phase and enterprises in the maturity phase.
489
Table 9. Impact of different leadership styles on the aggregate variable of mar-
ket success
Growth and Stagnation
All All
SME Large maturity phase phase International Domicile
together together
(leaders) (followers)
L1 1% 1% 1% 1%
L4 -5% 5% -5% -1% 1%
L7 1%
L10 -1% -10% -1% -1% -1% -1%
L13 5% -10% 1% 1% 1% -1%
L16 5% -10% 1%
L2 10% 5% -10%
L5 1%
L8 -10% -5% 1%
L11 5%
L14 10% -1% 1%
L17 1%
L3 1% 1%
L6 5% 5% -5% -1%
L9 5% 10% 5% 10%
L12 -10% -10% -5%
L15 1%
L18 -5% -1% 5% 1%
Autcr.s. ∅ + ∅ - + + -
Demo.s. ∅ + ∅ + - + ∅
Laiss.s. ∅ ∅ + + + + ∅
Note: The table shows the levels of significance and the direction of impact of independent
variables
CONCLUSION
The research results point to the following differences in market success.
For the purpose of the conclusion, only the difference taken together variable
of market success will be analysed. The impact of the autocratic style is as fol-
lows: (i) a negative impact is present in enterprises in the growth and maturity
phase, as well as in enterprises oriented predominantly towards domicile and
international markets; (ii) a neutral impact is present in large enterprises; (iii) a
positive impact is present in small enterprises and enterprises in the stagnation
phase. The impact of the democratic style is as follows: (i) a negative impact is
present in enterprises in the stagnation phase; (ii) a neutral impact is present
490
in large enterprises and enterprises oriented towards domicile markets and (iii)
a positive impact is present in small enterprises, enterprises in the growth and
maturity phase and enterprises oriented towards international markets. The
impact of the laissez-faire style is as follows: (i) a negative impact is present in
enterprises in the growth and maturity phase; (ii) a neutral impact is present
in small enterprises, as well as in enterprises oriented towards domicile mar-
kets and (iii) a positive impact is present in large enterprises, enterprises in the
stagnation phase and enterprises oriented towards international markets. It can
be concluded that: (i) small enterprises are more successful market-wise in the
presence of the autocratic and the democratic style, while laissez-faire style has
a positive impact on large enterprises; (ii) enterprises in the stagnation phase
are more successful in the presence of the democratic style, while the autocratic
and the laissez-faire style have a positive impact on enterprises in the growth
and maturity phase; (iii) enterprises oriented towards international markets are
more successful market-wise in the presence of the democratic style and the
laissez-faire style, while enterprises oriented towards domicile markets are less
successful market-wise when using the autocratic style.
REFERENCES
Analoui, B.D., Hannah Doloriert, C., Sambrook, S. (2012). Leadership and knowledge
management in UK ICT organisations. Journal of Management Development, 32(1),
pp. 4-17.
Griffin, D. (2002). The emergence of leadership: Linking self-organization and ethics. Lon-
don: Psychology Press.

Meler, M., Turkalj, Ž. (1997a). Marketing organization problems in the transition condi-
tions in Croatia. 2nd International Conference on Enterprise in Transition, Proceed-
ings, Goić, S. (ur.), Split: Faculty of economics, pp. 650-654.
Meler, M., Turkalj, Ž. (1997b). Organization of marketing in the new economic conditions:
case of the Republic of Croatia. Marketing & management, 31(3), pp. 71-74.
Miloloža I., (2015a). Relation of leadership and business performance: balanced score-
card perspective, Interdisciplinary Management Research IX, Ekonomski fakultet u
Osijeku, Hochschule Pforzheim University, Osijek, Pforzheim 2015. ISSN: 1847-
0408, pp. 159-171.
Miloloža, I. (2015b). Impact of Leadership Style to the BusinessPerformance: Balanced
ScorecardApproach, Proceedings of theENTERNOVA - ENTerprise REsearch In-
NOVAtion Conferece / Baćović, M.; Milković, M.; Pejić Bach, M.; Peković, S. (ur.).
- Zagreb: Udruga za promicanje inovacija i istraživanja u ekonomiji , 2016, Rovinj,
08-09.09.2016. pp. 222-227. ISSN: 1849-7969.
491
Miloloža, I. (2016). Leadership Differences: Internationalization, Size and Development,
Proceedings of the ENTERNOVA - ENTerprise REsearch InNOVAtion Conferece
/ Baćović, M.; Milković, M.; Pejić Bach, M.; Peković, S. (ur.). - Zagreb: Udruga za
promicanje inovacija i istraživanja u ekonomiji, 2015, Kotor, 10-11.09.2015. pp. 339-
346. ISSN: 1849-7969.
Nicholls, J. (1994). The “heart, head and hands” of transforming leadership. Leadership &
organization development journal, 15(6), pp. 8-15.
Niven, P. (2007). Balanced Scorecard: Korak po korak. Zagreb: Masmedia.

Northouse, P.G. (2012). Leadership: Theory and practice. Thousand Oaks, CA: Sage.
Osmanagić Bedenik, N. (1993). Potencijali poduzeća. Zagreb: Alinea.
Parmenter, D. (2010). Key performance indicators (KPI): developing, implementing, and using
winning KPIs. New York: John Wiley & Sons.
Rašič, K., Mulej, M., & Čančer, V. (2016). The Influential Knowledge Factors of Companies’
Performance in Slovenia. Business systems research journal, 7(1), 46-58
Terzieva, M., & Morabito, V. (2016). Learning from Experience: The Project Team is the
Key. Business Systems Research Journal, 7(1), 1-15.
Treacy, T.B. (1995). Use of alternative dispute resolution in the construction industry. Jour-
nal of Management in Engineering, 11(1), pp. 58-63.
Vermeeren, B., Kuipers, B., Steijn, B. (2014). Does leadership style make a difference? Link-
ing HRM, job satisfaction, and organizational performance. Review of Public Personnel
Administration, 34(2), pp. 174-195.
Ženko, Z., Mulej, M., & Potočan, V. (2017). Knowledge-cum-values Management belongs
to the Way out from Global Crisis. Business Systems Research Journal, 8(1), 113-123.
492
MARITIME POTENTIALS OF THE
REPUBLIC OF CROATIA WITH THE
PARTICULAR EMPHASIS ON THE
CITY OF SPLIT
Joško DVORNIK, Ph. D., Full Professor with Tenure

Faculty of Maritime Studies, University of Split, Croatia
E-mail: joskodvornik@yahoo.com
Vice MIHANOVIĆ, Ph. D.

Split Port Authority, Croatia
E-mail: vice.mihanovic@gmail.com
Ante MIHANOVIĆ, Ph. D. Candidate

University of Osijek, Faculty, Faculty of Economics, Croatia
E-mail: ante.mihanovic@yahoo.com
Abstract
Every economy wants to improve their competitive advantage in the world

market game using their available resources. These resources may include oil,
minerals, cultivated land and less tangible assets such as cultural diversity and
specific knowledge. These resources are unevenly distributed between countries
that optimally, or less than optimally, use them for their own progress. Evers
and Karim (2011:118) find that there is a trade-off: non-natural nations can
compensate for human resources, talents and knowledge in order to maintain
and enhance economic and socio-political performance.
The purpose of this study is to present the maritime potentials of the Republic
of Croatia with a special focus on the city and port of Split. The paper provides
a short theoretical overview of Croatia’s maritime economy and port activities
as well as its maritime potentials, since the Adriatic Sea represents one of the
most important national strategic resources. The particular and practical focus
will be placed on the city of Split and its port whose activities have had a great
493
impact on the economy of the city. The paper will offer several policy proposals,
suggesting what the ports should do in order to make a greater influence on the
relevant economic development.
Joško Dvornik Vice Mihanović Ante Mihanović: MARITIME POTENTIALS OF THE REPUBLIC OF CROATIA WITH THE PARTICULAR EMPHASIS ...
Key words: maritime economy, blue growth, ports, Republic of Croatia, Split
JEL Classification: F43, O00
1. FUNDAMENTAL MARITIME POTENTIALS OF

THE REPUBLIC OF CROATIA
Maritime domain represents Croatia’s important economic and strategic
resource that may serve as the groundwork for the future economic prosper-
ity. It should be remembered here that the Croatia’s maritime domain, as the
public domain, is the area extending towards the land from the middle between
low-tide line and high-tide line, encompassing the strip of coastline that is not
less than six meters in width, with variations and exceptions defined by law
(Mihanović, V., 2018.). It also encompasses coastal sea waters and territorial
seas, their seabed and underground, thus covering more than a third of the na-
tional territory, including about 6200 kilometres of coastlines. Owing to the
indentedness of the coastline, Croatia has significant maritime potentials that
should be used for developing the national competitiveness.
The overall length of the Croatia’s mainland and insular coastlines amounts
to 6278 km. According to the Hydrographic Institute1 of the Republic of Croa-
tia, along the coast there are 79 islands (out of which 49 inhabited), 525 islets
and 642 rocks and rocks awash. The total area of the Republic of Croatia covers
87,661 km², including 31,479 km² of the sea area (12,498 km² of the inner seas
and 18,981 km² of the territorial waters).
In December 2016 Croatian seaports handled almost one million passen-
gers, which is a 4.00 % increase compared to December 2015. Compared to the
year of 2015, the intra-national traffic among ports rose by 3.20 %, while the
international traffic increased as much as by 178.80 %. Ove the same period,
cargo transhipment increased by 46.70 %. Busier cargo traffic was reported in
1
The list defined in early 2000s by the Hydrographic Institute conforms to IHO categorization of
all landforms surrounded by water, according to their surface area. Rocks are defined as landforms
smaller than 0.1 km², islets are between 0.1 and 1.0 km² and islands are larger than 1.0 km².
494
the ports of Omišalj, Bakar, Rijeka and Split. The data referring for the years
2015 and 2016 are presented in Table 1.
Table 1. Turnover of vessels, passengers and cargo in Croatia’s seaports

2015. 2016. Indexes
I. – XII.
Unit XII. 2016. 2016.
XII. I. – XII. XII. I. – XII.
XII. 2015. I. – XII.
2015.
Arrivals of ships Number of 17 344 314 145 17 775 332 047 102,5 105,7
Traffic of passengers Thousand 960 28 513 998 30 983 104,0 108,7
thousand
Traffic of goods 1 262 18 930 1 851 18 551 146,7 98,0
tonnes
Source: Mihanović, V., 2018.
Busier cargo trafic reported in December 2016 resulted from international

loaded goods that increased by 37.4 % and international unloaded goods that
increased by 67.4 %, compared to December 2015. According to Croatian Bu-
reau of Statistics, the overall traffic of goods through Croatia’s seaports included
liquid cargo (62.9 %), and containerised cargo (7.7 %) (Mihanović, V., 2018.).
Croatia’s seaport system meets, to a large extent, the needs of the interna-
tional traffic; therefore it is necessary to focus further development on the needs
of local maritime traffic and recreational segment of the national traffic, i.e. nau-
tical tourism. Indeed, benchmarking Croatia as one of the most important nau-
tical destination in Europe and in the Mediterranean could significantly affect

the growth of maritime economy, particularly in the sector of tourism.
As a coastal country, Croatia features all prerequisites required for develop-
ment and transformation into a modern maritime nation. This would be fea-
sible through the exploitation of all available resources in a careful and sustain-
able way, by gradually enhancing and upgrading the already existing maritime
economy activities. Moreover, owing to the long maritime tradition, favourable
geographical position with regard to the national and international hinterland,
and due to the influence of the latter on tourism, shipbuilding and traffic in-
frastructure, the development of the national merchant and passenger tonnage
seems almost inevitable.
Given the fact that the maritime domain is, by definition, a very complex
system that cannot be managed partially by disparate policies, experts are unan-
495
imous in their opinion that it is essential to establish and implement an inte-
grated management system with the purpose of achieving maximum benefits
from the maritime domain, while protecting maritime resources at the same
time (Kundih, 2013). It is crucially important to define legal, transparent con-

cession models on maritime domain area.
Croatian sea-related industries have still been addressing serious issues such
as inappropriate technical and technological tools, lack of efficient maritime
policy, non-compliance with European and global trends and uncoordinated
development of individual segments of the maritime system (Horvat, 2014: 28).
All these factors indicate that there is quite a lot of room for improvement and
development.
2. IMPORTANCE OF MARITIME POTENTIALS

Maritime potentials should be studied through the prism of intensifica-
tion of global economy and international labour distribution. As a result of the
growing expansion of the world trade, the sea-borne shipping is now one of the
fastest growing industries. Advanced integration processes, reduction of trade
barriers and the expected growth of economies across a number of regions
throughout the world, affects and will keep on affecting the world trade and
maritime industries, especially the sea-borne shipping of goods and passengers.
Seaports are fundamental units of maritime systems and the major bearers of
the traffic flow and progress of numerous economic activities. The development
of seaports at global level indicates the trend of concentrating the maritime traf-
fic towards a smaller number of larger ports, agglomeration of disparate eco-
nomic functions within a port, construction of modern traffic links to the hin-
terland, and autonomous management of the modern ports.
Therefore, given the available resources, the existing hinterland and global
trends, Croatian ports of Omišalj, Rijeka and Ploče should continue to develop
as cargo ports, whereas the ports of Rijeka, Zadar, Split and Dubrovnik should
grow as macro-logistics centres.
Table 2 presents the traffic of goods in selected Croatian seaports in De-
cember 2016. The list includes the ports that handled the total annual traffic
of goods greater than or equal to 1 million tonnes in the previous three years.
496
Table 2. Traffic of goods in Croatia’s seaports in December 2016.
Indices
Total traffic of goods, in tonnes XII 2016
XII 2015
Omišalj 847,961 315.6
Bakar 338,788 119.4
Rijeka 219,677 110.5
Ploče 152,891 86.8
Split 143,089 102.9
In December 2016, Croatian seaports reported almost 18,000 ship arrivals,

which represented an increase by 2.5 % compared to December 2015. Over the
entire year, throughout January-December 2016, arrivals of ships in Croatia’s
seaports increased by 5.7 % compared to the previous year. In the year of 2016,
the total traffic of passengers amounted to 31 million, i.e. 8.7 % more than in
2015. At the same time, from January to December 2016, the total traffic of
loaded and unloaded goods amounted to 19 million tonnes, which was by 2.0 %
less than over the same period in 2015. (Mihanović, V., 2018.).
3. MARITIME POTENTIALS OF THE CITY OF

SPLIT
The maritime potentials of the city of Split arise primarily from the mari-
time potentials of the city port. This is the largest port in Croatia’s coastal re-
gion of Dalmatia. It is indented into the shoreline and has a number of large
islands lying ahead, so that it can be approached from the mainland by road
and rail, and from the sea through the Straits of Šolta, Drvenik Channel, Brač
Channel and through the Straits of Split (Croatian: Splitska vrata), the passage
between the islands of Brač and Šolta.
1. Basin of City Port (Gradska luka) extends in a semi-circular shape across
the sea area of 182 ha, with a 600 m radius, and the entrance width of 470 m.
The basin has 27 berths distributed over four piers. The length of the quay is
3643 m. The maximum draught is 10.5 m, accommodating vessels of maxi-
mum 320 m in length. The advantage of the City Port is its position enabling
vessels to be moored within a 5-minute walking distance from the ancient city
core. Customs procedures are reduced to minimum. The port efficiently handles
daily ferry traffic to Dalmatian islands and Italy (Mihanović, V., 2018.).
497
2. Basin of Vranjic-Solin is primarily used in national and international
cargo shipping, for mooring laid-up ships and other services. The total length of
the quay is around 1854 metres, allowing the maximum ship’s draught of 10.3
m. The basin has eight berths (Mihanović, V., 2018.).

The Port of Split features five terminals. Each of them is specialised for han-
dling specific cargo and has suitable cargo handling and other facilities. The
Port of Split terminals include:
• general cargo terminal,
• bulk cargo terminal,
• refrigerated cargo terminal,
• terminal for specialised and heavy cargo,
• container terminal,
• ro-ro terminal.
When studying the flow of goods and passengers through the Port of Split,
growing trends can be noticed. Graphs 1 and 2 show the flow of passengers and
vehicles through the City Port in 2016.
Graph 1. Passenger traffic from 1990 to 2016.
498
Graph 2. Traffic of vehicles 1990 – 2016.
Traffic of passengers, both national and international, has been increasing

regularly over the years, as well as the traffic of vehicles. On the other hand,
there has been a decline in the cargo traffic, partly due to the policies of the
state and local governments that have recognised the Port of Split primarily as a
passenger node, pushing aside the cargo potentials of the port. Here it is worth
noting that this aspect of port activities should be additionally evaluated and
given the role it deserves.
Graph 3. Cargo traffic 1991 – 2016.
Cruise ships have been increasingly calling at the port. Their arrivals are
shown in Graph 4.
499
Graph 4. Cruise ship arrivals 2002 – 2016.
Graph 5. Cruise ship – passengers
Graph 6. Cruise ships – port calls
The season of accommodating cruising ships has been obviously extended

by the construction of a dedicated pier at the southern outer part of the City
Port, resulting in a growing traffic of these vessels and passengers. In the year of
2016, almost 280,000 passengers disembarked from 286 cruise ships. It should
500
be noted that almost all major cruise companies called at Split, including Car-
nival Cruises, Royal Caribbean Cruises, MSC Cruises, Costa Crociere, Cunard
Line, Radisson Cruises, Celebrity Cruise, Fred Olsen Cruise Line, Club Med
Cruises, Thomson Cruises, P & O Cruises and others. In addition to all the
above discussed activities, the Port of Split handles the growing nautical tour-
ism traffic. In 2016 Croatia reported the total 769 million kuna in revenues from
nautical tourism industry, of which 539 million kuna, or 70.1%, were earned by
yacht accommodation and berth rental. When compared to the previous year
(2015), the total revenues increased by 2.1 %, while the berth rental revenues
increased by 3.8 % (Croatian Bureau of Statistics, 2017b). In 2016 the entire
Split-Dalmatia County experienced growth in all segments of nautical tourism.
.. Development of maritime potentials and their role in

the economic growth of Split
Since the establishment of the Port of Split Authority in 1997, there have
been serious investments in the port’s infrastructure and its six basins. Ever
since, the port operations have been managed efficiently in terms of investment
and results. Further development of the port should be based on creation of
top-quality value-added services in national traffic all year round, because of
the number and size of the islands gravitating to the city of Split (Perović, 2016:
58). In addition to improvements of domestic liner traffic, the Port of Split de-
velopment strategy should also include the establishment of faster, more com-
fortable and more frequent international runs between Split and Italian and

other Mediterranean ports.2 Now that Croatia has become a member state of
the European Union, it is likely to expect an increase in international ro-ro pas-
senger traffic by 2 % per year on average (Spatial-traffic elaborate of the wider ur-
ban area of the Split City / Prostorno-prometna studija šireg područja grada Splita,
2010: 81). The fastest growth has been recorded in cruise shipping industry.
Unfortunately, in summer months the growing and varying port activities have
already started to stretch the sustainable port capacities. Traffic jams frequently
occur, emphasising the importance of addressing the traffic infrastructure is-
sues. One of the possible solutions is the construction of the Lovrinačka street,
2
In 1990s there was a line running to the ports of Patras and Igumenitas in Greece and the book-
ing was good. More in: Spatial-traffic elaborate of the wider urban area of the Split City / Prostorno-
prometna studija šireg područja grada Splita (2010: 60).
501
from the junction at Bilice to the marina at Žnjan, which would allow to shift
the ferry line to Supetar on Brač Island from the city core to the suburban area
of Žnjan during summer season. This would considerably disburden the traffic
within the City Port, as the Split-Supetar line makes up to 50% of the overall
national liner traffic (Perović, 2016: 49).
4. CONCLUSION
A well designed traffic system is one of the major prerequisites for the ef-
ficient economic development and represents an important factor of inter-
state connections and international bonds. Maritime shipping makes part of
the overall transport system and is considered to have great strategic value for
coastal countries. Therefore it is important to enable a consistent and high-
quality development of the maritime traffic and transport aimed at valorisation
and benefiting from the favourable geographical position and unobstructed ac-
cess to the sea.
The fundamental premise of the maritime development is the network of
port systems; hence, their design and growth is of national interest. The estab-
lishment of the Port of Split Authority was one of the legal and institutional
measures aimed at efficient maritime domain management. This has resulted in
the continuous growth of maritime development indicators as well as develop-
ment indicators in other maritime-related industries.
The findings of this study have produced several guidelines for increasing
the economic effects of the maritime traffic and transport:
• To follow global trends in maritime affairs and sea-related industries;
• Planned and sustainable growth of port capacities, in line with the needs
of the seaport traffic and transport;
• To develop communication among all traffic stakeholders, especially in
maritime sector;
• To encourage the diversification of maritime traffic;
Strong state support;
• Growth of sea-borne passenger traffic contributes to the development of
tourism;
• Investments in port infrastructure and superstructure.
502
REFERENCES
Kundih, B. (ur) (2013). Upravljanje i gospodarenje pomorskim dobrom - kako dalje, Hrvatsko
prometno dobro, http://www.pomorskodobro.com/aktualno/412-kako-dalje-si-
jecanj-2013.html
Perović, K. (2016). Opće geografske odrednice razvoja splitske luke, Sveučilište u Zadru, Odjel
za geografiju Jednopredmetni diplomski sveučilišni studij primijenjene geografije,
Zadar
Mihanović, V. (2018), The economic impact of maritime traffic and transport in service of eco-
nomic development, (Doctoral Thesis), Josip Juraj Strossmayer University of Osijek,
Faculty of Economics in Osijek, Croatia
Strategija pomorskog razvitka i integralne pomorske politike Republike Hrvatske za razdo-
blje od 2014. godine do 2020., http://www.mppi.hr
Nakić, J., Pomorsko dobro - opće ili javno dobro, znanstveni rad, http://www.pomorskodobro.
com/fokus-nakic-kolovoz-2016.html
Program državnih potpora za razvoj luka otvorenih za javni promet Republike Hrvatske za
razdoblje 2017. - 2020. godine, Zakon o pomorskom dobru i morskim lukama (NN
br. 158/03, 141/06, 38/09, 56/16), http://arhiva.strukturnifondovi.hr
Dundović, Č, Kolanović, I., (2016), Morske luke-činitelji logističkog i prometnog razvitka Re-
publike Hrvatske, Rijeka
503
TYPES OF LEADERSHIP IN
MANAGEMENT BOARDS OF
UNIVERSITY CONSTITUENT
Ivan Miškulin Boris Crnković Maja Miškulin: TYPES OF LEADERSHIP IN MANAGEMENT BOARDS OF UNIVERSITY CONSTITUENT UNITS AND...
UNITS AND THEIR IMPACT ON

KNOWLEDGE MANAGEMENT
Ivan MIŠKULIN, Ph. D.

Josip Juraj Strossmayer University in Osijek,
Faculty of Medicine Osijek, Croatia
E-mail: ivan.miskulin@mefos.hr
Boris CRNKOVIĆ, Ph. D.

Faculty of Economics Osijek, Croatia
E-mail: bcrnko@efos.hr
Maja MIŠKULIN, Ph. D.

Faculty of Medicine Osijek, Croatia
E-mail: maja.miskulin@mefos.hr
Abstract
Knowledge management is the process of creating, sharing, using and manag-
ing the knowledge and information of an organization in order to achieve or-
ganizational goals. Universities and its constituents as organizations are quite
unique and because of that, they require special approach in institutional man-
agement as well as in leadership that becomes even more important. The aim
of this study was to identify types of leadership in management boards of uni-
versity constituent units of Croatian universities and their impact on knowl-
edge management within these institutions. This cross-sectional questionnaire
study was conducted from June to September 2015 among 80 members of
management boards of university constituents of two Croatian universities.
504
The study showed that among all study participants there were 98.8% of par-
ticipants who practiced one out of five possible leadership roles (21.5% edgy
catalyser, 16.5% visionary motivator, 6.3% measured connector, 12.7% tena-
cious implementer and 43.0% thoughtful architect) while there was 1.2% of
those who did not practice any leadership role during his/her work within the
management board of university constituent. Unique characteristics of each
previously mentioned leadership role strongly influence the knowledge manage-
ment in Croatian universities. Taking into account that in different phases of
knowledge management process, a leader performs different tasks it is neces-
sary for him or her to adjust his/her individual leadership role to the particular
ongoing phase of this process. In order to be able to do that each member of
university constituent management board needs additional education about
leadership in general as well as about possible leadership roles and also needs
to be aware of his/her dominant leadership role. Only by following all that,
Croatian universities and its constituents will surely be prepared for all pos-
sible challenges and changes that can affect such organizations and be sure that
constant and continuous growth and development can be certainly achieved.
Key words: leadership role; knowledge management; university; leadership;
Croatia
JEL Classification: D80, D83
1. INTRODUCTION
Successful management is a source of comparative advantages of the mod-
ern, rapidly changing organizations such as today’s universities (Miškulin et al.;
2016, 261). Considering the unique characteristics which distinguish universi-
ties from most of the other organizations they certainly require a different ap-
proach in institutional management, governance, and administration (Miškulin
et al.; 2017, 368-369). Along with the change management, the leadership has
become one of the two key areas of today’s modern management (Nilakant &
Ramnarayan; 2006, 19). For leadership, which majority of experts describe as
highly complex, it has been emphasized that it is needed for successful manage-
ment of change and that leadership requires a large number of skills and com-
petences (Miškulin; 2016, 133). It is especially interesting to point out the huge
difference between management and leadership where it is said that to manage
means to help the realization of what is supposed to happen anyway, while,
505
by contrast, to lead means to accomplish what was never supposed to happen
(Green; 2007, 228). In the context of above mentioned unique characteristics
of universities as organizations, the leadership becomes even more important.
It is believed that knowledge is the only meaningful economic resource

(Drucker; 1995, 54-62). Following that concept, the processes by which knowl-
edge is created or acquired, communicated, applied and utilized must be effec-
tively managed (Quintas et al.; 1997, 385). Clearly knowledge management in
an organizational context does not mean managing everything that is known. It
is concerned with creating and mobilizing certain knowledge (some of which an
organization may not even know it has) for certain purposes (such as compara-
tive advantage or greater efficiency) (Quintas et al.; 1997, 390).
The aim of this study was to identify types of leadership in management
boards of university constituent units of Croatian universities and their impact
on knowledge management within these institutions.
2. MATERIALS AND METHODS

This cross-sectional study was conducted in two out of eight (i.e. 25%) of
public universities in the Republic of Croatia, including the Josip Juraj Stross-
mayer University of Osijek and Juraj Dobrila University of Pula, in the period
from June to September 2015. The above-mentioned universities had been se-
lected to accomplish representativeness of the sample and coverage of universi-
ties of different ages, structure, size and geographic location in the Republic of
Croatia, thus considering all additional variables that can affect the results of
the research.
The research tool for this study was specially designed anonymous ques-
tionnaire. The study was conducted on an appropriate sample of management
board members of the two mentioned Croatian universities. The participation
in the study was voluntary, and every potential participant - management board
member of one of the scientific and teaching constituent units, or rather artis-
tic and teaching constituent units of the mentioned two Croatian universities
received the questionnaire by post in printed form and received also detailed in-
structions on how to complete it, as well as a return-addressed envelope for the
return of the completed questionnaire. Altogether 105 questionnaires were dis-
tributed, from which 80 were returned, i.e. the response rate in this study was
506
76,2%. Sociodemographic and occupational characteristics of the participants
– management board members of scientific and teaching constituent units, or
artistic and teaching constituent units of Josip Juraj Strossmayer University of
Osijek and Juraj Dobrila University of Pula, were determined by means of the
anonymous questionnaire that contained questions about age, sex, the length of
work experience within management board of university constituents, respec-
tive scientific field of the university constituent unit at which the participants
are employed, as well as existence of formal education and work experience of
the participants in the field of organization and governance. Within the ques-
tionnaire, there was also leadership role part of the questionnaire developed
by Cameron and Green that has been used for the identification of the type
of leadership of each management board member of university constituents
(Cameron & Green; 2008, 129-135).
All the collected data were analyzed using appropriate statistical meth-
ods. Descriptive statistical methods were used for the description of the
frequency distribution of the investigated variables. All the variables were
tested for normality of distribution using the Kolmogorov-Smirnov test.
Mean values of continuous variables were expressed as mean and stan-
dard deviation for normally distributed variables and as the median and
interquartile range for variables which are not distributed normally. The
categorical variables were described in absolute and relative frequencies.
The 2-test was used for comparison of categorical variables between the
groups. The level of statistical significance was set at p<0.05. Statistical
analysis was done using the statistical package Statistica for Windows
2010 (version 10.0, StatSoft Inc., Tulsa, OK, USA). INTERDISCIPLINARY MANAGEMENT RESEARCH XIV

Mean age of all study participants was 47.5±9.0 years (range 32.0 – 68.0
years). Among all of them, there were 55.0% (44/80) males and 45.0% (36/80)
females. According to the age group among all participants, there were 58.7%
(47/80) of those who belonged to the younger age group (30-49 years) and
41.3% (33/80) of those who belonged to the older age group (50-69 years). Ac-
cording to the scientific field they are belonging to there were 12.5% (10/80) of
participants from the field of natural sciences, 8.8% (7/80) of participants from
the field of biomedicine and health, 23.8% (19/80) of participants from the
507
field of social sciences, 17.5% (14/80) of participants from the field of technical
sciences, 13.8% (11/80) of participants from the field of biotechnical sciences,
12.5% (10/80) of participants from the field of humanities, 5.0% (4/80) of
participants from the interdisciplinary field of science and 6.3% (5/80) of par-
ticipants from the artistic field.
The study participants have been further divided into two large groups:
STEM group (natural sciences, biomedicine, and health, technical sciences,
biotechnical sciences) and non-STEM group (social sciences, humanities, in-
terdisciplinary field of science, artistic field). According to described division,
there were 52.5% (42/80) participants in STEM group and 47.5% (38/80)
participants in the non-STEM group. According to the length of work experi-
ence within management board of university constituents, there were 41.3%
(33/80) of participants with shorter (1-4 years) and 58.7% (47/80) with lon-
ger (5 or more years) work experience within management board of university
constituents.
According to the existence of formal education of the participants in the field
of organization and governance among all of them, there were 17.5% (14/80)
of those who had formal education in the respective field and 82.5% (66/80) of
those who didn’t have such education. Considering the existence of work expe-
rience of the participants in the field of organization and governance there were
36.3% (29/80) of participants who had such experience and 63.7% (51/80) of
participants who didn’t have work experience in the field of organization and
governance.
Using leadership role part of the questionnaire developed by Cameron and
Green each participant according to his/her type of leadership has been clas-
sified in one out of five possible leadership roles that are: edgy catalyzer, vi-
sionary motivator, measured connector, tenacious implementer and thoughtful
architect.
The edgy catalyzer focuses on creating tension between what is and what
could or should be and sees the process of facing uncomfortable truths as a pre-
cursor to healthy change. The key characteristics of this type of leaders are: they
ask the difficult, penetrating questions; they spot dysfunction and resistance;
they create discomfort and unease when things aren’t improving; they focus on
“discomfort”. The edgy catalyzer spends his or her time to go and see the people,
to talk to the people on the phone, to analyze the facts, to walk somewhere near
508
the front line, to have fierce conversations, and to be frank. The situations where
edgy catalyser achieves best leader results are the situations when something
difficult needs to be faced when there is a lot of pressure to change quickly, when
traditions are getting in the way or when there is a crisis (Cameron & Green;
2008, 35-46).
The visionary motivator focuses on harnessing the human resources and tal-
ent around the organization. He or she inspires, motivates and engages people
in the organization’s future by employing emotionally charged language and
using metaphor to create a vibrant and collective sense of potential. The key
characteristics of this type of leaders are: articulates a compelling picture of
the future; energizes groups of people and engages them; holds the vision long
enough and strong enough for others to step into; focuses on the “buy-in”. The
visionary motivator spends his or her time in groups, talking energetically, with
friends and colleagues, having dinner with people. The situations where vision-
ary motivator achieves best leader results are the situations when there is a big
transition to make: cultural and strategic, when growth and risk-taking are
needed or when morale is low (Cameron & Green; 2008, 47-59).
The measured connector believes that people in successful and responsive
organizations are constantly communicating with each other, rather than wait-
ing for directives from above. He or she pays attention to connectivity by bring-
ing people together and helping the organization to understand its sense of pur-
pose and important ground-rules. The key characteristics of this type of leaders
are: reinforces what’s important and establishes a few simple rules, calmly in-

fluences complex change activity through focused reassurance, connects people
and agendas. The measured connector spends him or her time introducing
people, reflecting either alone, or in small groups, talking about purpose, letting
people know what the boundaries are and reaching out to stakeholders. The
situations where measured connector achieves best leader results are the situa-
tions in which stakeholders and partners need to bring together, the situations
when morale is low, when cultural change is required or when the change is
complex (Cameron & Green; 2008, 60-71).
The main focus of tenacious implementer is delivery to time, quality, and
budget. This type of leaders believes that when day-to-day delivery is on track,
organizations tend to experience success. He or she doggedly pursues the plan,
holds people to account, leads by driving a project to completion and focused on
509
the project. The tenacious implementer spends his or her time in studying the
plan, asking people where they are on the plan, coaching people (fairly forcibly),
re-planning (reluctantly), calling teams together to discuss progress or influ-
encing the key customer. The situations where tenacious implementer achieves
best leader results are critical projects, legislation and compliance challenges or
technology-led change (Cameron & Green; 2008, 72-83).
The thoughtful architect focuses on creating the concepts that lie behind
strategic plans and designing new processes and operating models. This type of
leader is principal architect and designer of strategies. He or she crafts seem-
ingly disparate ideas into a way forward scan the environment, see what’s hap-
pening in the environment and create an organizing framework and focus on
“the design”. The thoughtful architect spends his or her time thinking, reading,
talking one to one with trusted confidants, sketching out designs, musing over
options, occasionally presenting a grand plan that is carefully prepared. The
situations where thoughtful architect achieves best leader results are complex
organizational change, long-range strategic change and difficult process change
(Cameron & Green; 2008, 84-94).
The experts believe that good leader needs to have an ability to play each of
above mentioned leadership roles in different volume in situations when they
are faced with significant changes in institutions that they are leading (Cameron
& Green; 2012, 174).
This study showed that among all study participants there were 98.8%
(79/80) participants who practiced one out of five above mentioned leadership
roles while there was 1.2% (1/80) participant who did not practice any lead-
ership role during his/her work within the management board of university
constituent. When analyzing the frequency of practiced leadership roles among
study participants this study revealed that among all of them there were 21.5%
(17/79) of those who dominantly were in the role of edgy catalyzer, 16.5%
(13/79) of those who dominantly were in the role of visionary motivator, 6.3%
(5/79) of those who dominantly were in the role of measured connector, 12.7%
(10/79) of those who dominantly were in the role of tenacious implementer
and 43.0% (34/79) of those who dominantly were in the role of thoughtful
architect.
Further analyzes determined the average value of certain leadership role
(which can range from 0 to 120 points) where values of 0-9 suggest that the
510
particular role in certain person is very poorly developed, values of 10-19 sug-
gest that the particular role in certain person is poorly developed, values of 20-
29 suggest that the particular role in certain person is moderately developed,
values of 30-39 suggest that the particular role in certain person is very well
developed while the values of 40 or more suggest that the particular role in cer-
tain person is exceptionally well developed. Following that Figures 1-5. shows
the level of development of each leadership role within the group of participants
who dominantly used this role during their work in the management board of
university constituent.
Figure 1. The level of development of edgy catalyzer leadership role within the
group of participants who dominantly used this leadership role
ϳϬ͕Ϭ
ϲϰ͘ϴ
ϲϬ͕Ϭ
ϱϬ͕Ϭ
ϰϬ͕Ϭ
ϯϬ͕Ϭ
ϭϳ͘ϲ ϭϳ͘ϲ
ϮϬ͕Ϭ
ϭϬ͕Ϭ
Ϭ͕Ϭ
DKZ
d>z s
sZzt>>s
s>KW y
yWd/KE>>zt>>
s>K
KW s>KW
WƌŽƉŽ
ŽƌƚŝŽŶŽĨƉĂƌƚŝĐŝƉĂŶƚƐ;йͿ INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Source: Author’s calculations
511
Figure 2. The level of development of visionary motivator leadership role with-
in the group of participants who dominantly used this leadership role
ϳϬ͕Ϭ ϲϵ͘Ϯ
ϲϬ͕Ϭ
ϱϬ͕Ϭ
ϰϬ͕Ϭ
ϯϬ͕Ϭ Ϯϯ͘ϭ
ϮϬ͕Ϭ ϳ͘ϳ
ϭϬ͕Ϭ
Ϭ͕Ϭ
DKZ
d>z s
sZzt>>s
s>KW y
yWd/KE>>zt>>
s>K
KW s>KW
Figure 3. The level of development of measured connector leadership role with-

ϭϬϬ
ϭϬϬ͘Ϭ
Ϭ
ϵϬ
ϴϬ
ϳϬ
ϲϬ
ϱϬ
ϰϬ
ϯϬ
ϮϬ
ϭϬ
Ϭ
sZ
Zzt>>s>K
KW
512
Figure 4. The level of development of tenacious implementer leadership role
within the group of participants who dominantly used this leadership
role
ϲϬ ϲϬ͘Ϭ
ϱϬ
ϰϬ
ϯϬ͘Ϭ
ϯϬ
ϮϬ ϭ
ϭϬ͘Ϭ
ϭϬ
Ϭ
DKZdd>z sZzt>>s>KW y
yWd/KE>>zt>>
s>KW s>KW
Figure 5. The level of development of thoughtful architect leadership role with-

ϳϬ͕Ϭ
ϲϰ͘ϴ
ϲϬ͕Ϭ

ϱϬ͕Ϭ
ϰϬ͕Ϭ
ϯϬ͕Ϭ
ϭϳ͘ϲ ϭϳ͘ϲ
ϮϬ͕Ϭ
ϭϬ͕Ϭ
Ϭ͕Ϭ
DKZ
d>z s
sZzt>>s
s>KW y
yWd/KE>>zt>>
s>K
KW s>KW
513
In further analysis of our data in Tables 1-5. we had firstly showed the so-
ciodemographic characteristics of each group of participants who dominantly
practiced one out of five leadership roles during their work within the manage-
rial board of university constituents.

Table 1. The sociodemographic characteristics of study participants (members
of the managerial board of university constituents) who dominantly
practiced edgy catalyser leadership role
Number of
Sociodemographic characteristics
participants (%)
Male 13 (76.5)
Sex
Female 4 (23.5)
Younger (30 - 49 years) 8 (47.1)
Age group
Older (50 - 69 years) 9 (52.9)
STEM group 14 (82.4)
Scientific field
non-STEM group 3 (17.6)
Shorter (1 - 4 years) 10 (58.8)
Length of work experience
Longer (5 or more years) 7 (41.2)
Yes 2 (11.8)
Formal education in the field of organization and governance
No 15 (88.2)
Yes 6 (35.3)
Work experience in the field of organization and governance
No 11 (64.7)

practiced visionary motivator leadership role
Number of
participants (%)
Male 8 (61.5)
Sex
Female 5 (38.5)
Younger (30 - 49 years) 8 (61.5)
Age group
Older (50 - 69 years) 5 (38.5)
STEM group 5 (38.5)
Scientific field
Shorter (1 - 4 years) 3 (23.1)
Yes 3 (23.1)
No 10 (76.9)
Yes 7 (53.8)
No 6 (46.2)
514
practiced measured connector leadership role
Number of
participants (%)
Male 3 (60.0)
Sex
Female 2 (40.0)
Younger (30 - 49 years) 1 (20.0)
Age group
Older (50 - 69 years) 4 (80.0)
STEM group 3 (60.0)
Scientific field
Yes 0
No 5 (100.0)
Yes 2 (40.0)
No 3 (60.0)

practiced tenacious implementer leadership role
Number of
participants (%)
Male 5 (50.0)
Sex
Female 5 (50.0)

Younger (30 - 49 years) 6 (60.0)
Age group
Older (50 - 69 years) 4 (40.0)
STEM group 2 (20.0)
Scientific field
Yes 3 (30.0)
No 7 (70.0)
Yes 5 (50.0)
No 5 (50.0)
515
practiced thoughtful architect leadership role
Number of
participants (%)
Male 14 (41.2)
Sex
Female 20 (58.8)
Younger (30 - 49 years) 23 (67.6)
Age group
Older (50 - 69 years) 11 (32.4)
STEM group 14 (41.2)
Scientific field
Shorter (1 - 4 years) 23 (67.6)
Yes 14 (41.2)
No 20 (58.8)
Yes 23 (67.6)
No 11 (32.4)
In further analysis of gathered data we consider that the majority of study

participants dominantly practice thoughtful architect leadership role thus we di-
vided all participants into two groups: the group of those who dominantly used
thoughtful architect leadership role (43.0%; 34/79) and the group of those who
dominantly used one out of four other possible leadership roles (57.0%; 45/79).
The study showed that female board members of university constituents
more frequently used thoughtful architect leadership role as dominant role in
comparison to males (χ2=4.227; df=1; p=0.044) (Table 6).
Table 6. The study participants according to the sex and dominantly practiced
leadership role
Dominantly practiced leadership role
Total
Sex Thoughtful architect Other possible leadership roles p*
N (%)
N (%) N (%)
Male 14 (41.2) 29 (64.4) 43 (54.4)
Female 20 (58.8) 16 (35.6) 36 (45.6) 0.044
Total 34 (100.0) 45 (100.0) 79 (100.0)
N – number of participants; *χ2-test

516
The study revealed that there was no statistically significant difference in
dominantly practiced leadership role according to the age group of study par-
ticipants (χ2=2.177; df=1; p=0.171). There was also no statistically significant
difference in dominantly practiced leadership role according to the scientific field
of work of study participants (χ2=0.001; df=1; p=1.000). The study showed
that there was no statistically significant difference in dominantly practiced
leadership role according to the length of work experience of study participants
(χ2=0.135; df=1; p=0.819). Finally, the study demonstrated that there was no
statistically significant difference in dominantly practiced leadership role ac-
cording to the existence of formal education of study participants in the field of
organization and governance (χ2=0.133; df=1; p=0.769), as well as that there
was no statistically significant difference in dominantly practiced leadership role
according to the existence of work experience of study participants in the field
of organization and governance (χ2=3.703; df=1; p=0.062).
By analyzing the leadership skills of the members of the board of scientific-
teaching or art-teaching constituents of the university, this study showed that
among all participants 98.8% of participants were practicing some type of the
leadership role and 1.2 % of participants weren’t practicing any of these roles in
their work and as members of the management board of university constituent
didn’t act as leaders. The most frequent leadership role practiced by the study
participants was the role of the thoughtful architect (43.0%) while all other
roles practiced 57.0% of participants.
The present study showed that males still prevails as members of the man-

agement board of university constituent of Croatian universities, and among
45% of females as members of the management in this study, most of them
were secretaries of each constituent, while the much smaller proportion of fe-
males acted as vice-deans or deans. This situation is in line with the situation in
the majority of European universities, and according to the European Commis-
sion’s 2012 report, there are in average about 15.5% of EU-funded higher edu-
cation institutions at European level that had been led by females (European
Commission; 2013, 114-115).
Contrary to previously mentioned aspect of gender representation among
the members of the management board of scientific-teaching or art-teaching
university constituents, that although following European trends, cannot be
evaluated as satisfactory, the surely positive aspect is age structure of univer-
517
sity management board members, whereby most of them belong to younger age
group (30-49 years). Later, itself represents the power of university manage-
ment structures and great potential for further progress and the introduction
of changes in these institutions that are unusually resistant to change and are
largely resisted by the same (Brown; 2013, 89). On the other hand, the nega-
tive aspect is the fact that this study has shown that as many as 41.3% of the
participants had more than eight years of work experience within the manage-
ment board of university constituents, that points to the rigidity of the higher
education system which is why the implementation of changes at universities is
one of the most intimidating challenges that high-level management is facing in
today’s organizations (McMurray; 2001, 74).
When analyzing the existence of formal education of members of manage-
ment boards of scientific-teaching or art-teaching constituents of the university
in the field of organization and governance (completed undergraduate or gradu-
ate study, postgraduate study, a course of continuous training for at least one
month at a higher education institution in Croatia or abroad) this study showed
that among all participants there were only 17.5% of those who had some form
of formal education in organization and governance. This information is par-
ticularly troubling given the fact that experts agree that formal education in
the field of organization and governance is the foundation of managerial skills
necessary for all those who are in the real world facing the challenge of manage-
ment or leadership, in which circumstances they need to teach when and how to
apply the acquired basic knowledge in performing their everyday duties (Kintu;
2002, 18).
Regarding the competences and the previously acquired knowledge and ex-
perience in the field of organization and governance of the management board
members of the scientific-teaching or art-teaching constituents of the universi-
ties participating in this study, it is important to point out that today there is
difference between the term of managerial education and the term of manage-
rial development which represent two different entities (Ahonen; 2012, 7). Bur-
goyne and Reynolds emphasize that managerial education is the term primarily
related to the education provided by the faculties of economics and schools of
management within the university, while the managerial development is a set
of knowledge and skills that a person acquires through work, by attending vari-
ous forms of lifelong education and trainings organized by the human resource
department with the support of various consultants, whether individuals or
518
companies specializing in training and education in this area that serves as a
way for the development of managerial skills (Burgoyne & Reynolds; 1997, 21).
Because of the concept of lifelong education that has nowadays lived in all uni-
versities in the world, it is clear that the boundary between the aforementioned
informal forms of education (provided by individuals or companies specializing
in training and education in the area of organization and governance) and for-
mal education from these areas that can be acquired through various university
programs and its scientific-teaching constituents are actually very foggy (Aho-
nen; 2012, 7). Concerning the latter, it is important to point out that this study
revealed that 36.3% of participants had managerial experience before they were
employed as management board members of a particular university constituent.
When analyzing the interdependence between the gender of the partici-
pants and their dominant leadership role, the latter being divided into two
groups (a group of those who dominantly use the role of thoughtful architect
and a group of those who dominantly use one out of four possible leadership
roles), this study showed that there was a statistically significant difference be-
tween males and females in terms of the leading role they are predominantly
practiced in their work, where females have more often practiced the role of a
thoughtful architect. Possible reason for this lies in the fact that the leading role
of the so-called thoughtful architect (Cameron & Green; 2008, 84-94) is the
most appropriate transformational form of leadership, whereby this form of
behavior of a transformational leader is in line with female gender role, which
is characterized, among other things, by the need for support and considerate
behavior (Nica; 2013, 191). In this light, it is particularly important to point
out that some studies conducted at universities have shown that the practice INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
of transformational leadership is particularly well-received and thus successful
within the academic community (Yusuf et al.; 2015, 280), which the majority
of higher education institutions in Croatia and abroad had somehow find out,
and accordingly, there is an increasing number of females in such leadership
positions. The main reason for this is the fact that, according to some studies,
females as executives often lead organizations in a way that specialists dealing
with this area find particularly effective, which is the way of transformational
leadership (Nica; 2013, 191).
Skyrme (2001) defines knowledge management as the explicit and system-
atic management of vital knowledge – and its associated processes of creation,
organization, diffusion, use an exploitation in pursuit of business objectives.
519
The process of knowledge management is completed through phases and it is
disseminated through the whole organization. The experts emphasize seven
phases of management learning process, and these are identification, storing,
sharing, using, learning, improving and creating (Evans et. al.; 2014, 91). To
fully use each of mentioned phase of knowledge management and to achieve
ultimate goal leader needs to adjust its behavior and act i.e. leadership role to
the ongoing phase of knowledge management. Considering the unique char-
acteristics of universities as organizations it is clear that the usage of different
leadership role is not only desirable but necessary in order to manage knowl-
edge adequately and to ensure the continuous growth and development of uni-
versities in today’s world.
4. CONCLUSION
In conclusion, one can say that unique features of each analyzed leadership
role most certainly strongly influences the knowledge management in Croatian
universities. Bearing in mind that in different phases of knowledge management
process, a leader performs different tasks it is necessary for him or her to have
adequate characteristics, skills, and abilities. Moreover, it is also clear that each
phase of knowledge management demands a different approach and because
of that, the successful management board of university constituents needs to
be able to adjust individual leadership roles of its members to the particular
ongoing phase of this process. To be able to do that each member of university
constituent management board needs to have adequate knowledge about lead-
ership in general as well as about possible leadership roles and needs to be aware
of his/her dominant leadership role. Following all that, university constituent
will surely be prepared for all possible challenges and changes that can affect
such organization and be sure that constant and continuous growth and devel-
opment can be certainly achieved.
REFERENCES
Ahonen, M. (2012). Non-formal Management Education: Some Evidence from Manage-
ment Training Businesses Websites in Estonia, Problems of Management in the 21st
Century, 4, ISSN 2029-6932, 7-20
Brown, S. (2013). Change management in higher education: an empirical approach, Pro-
ceedings of the International Conference on Information Communication Technologies
520
in Education, Morris, L. & Tsolakidis, C. (ed.), p. 89-98, ISBN 978-99957-0-533-6,
Crete, Greece, 4.-6.7.2013., Southampton Solent University & The Justice Institute of
British Columbia, Crete
Burgoyne, J. & Reynolds, M. (1997). Management Learning Integrating Perspectives in Theory
and Practice, Sage Publications, ISBN 978-0803976443, London
Cameron, E. & Green, M. (2008). Making Sense of Leadership. Exploring the Five Key Roles
Used by Effective Leaders, Kogan Page, ISBN 978-0749450397, London/Philadelphia
Cameron, E., Green, M. (2012). Making Sense of Change Management, 3rd edition, Kogan
Page, ISBN 9780749464356, London/Philadelphia/New Delhi
Drucker, P. E. (1995). The information executives truly need, Harvard Business Review,
ISSN 0017-8012, 54-62
European Commission. (2013). She Figures 2012 – Gender in Research and Innovation, Publi-
cations Office of the European Union, ISBN 978-92-79-27642-2, Luxembourg
Evans, M., Dalkir, K. & Bidian, C. (2014). A Holostic View of the Knowledge Life Cycle:
The Knowledge Management Cycle (KMC) Model, Electronic Journal of Knowledge
Management, 12 (2), ISSN 1479-4411, 85-97
Green, M. (2007). Change Management Masterclass. A Step by Step Guide to Successful Change
Management, Kogan Page, ISBN 978-0749445072, London/Philadelphia
Kintu, E. (2002). Top Management Teams and Total Shareholders Returns: the Association
Between Top Management Team Education and Heterogeneity and Total Shareholders
Returns in the North American Insurance Industry, Webster University, ISBN 978-
1581121537, Saint Louis
McMurray, D. W. (2001). The importance of ‘goodness of fit’ between organisational culture
and climate in the management of change: a case study in the development of online
learning, Association for Learning Technology Journal, 9 (1), ISSN 0968-7769, 73-83
Miškulin, I. (2016). Značaj upravljanja promjenama u visokom obrazovanju u razvoju kom-
parativnih prednosti sveučilišta, Ekonomski fakultet u Osijeku, [doctoral thesis], Osijek,
available at https://urn.nsk.hr/urn:nbn:hr:145:543580 (accessed 21-01-2018)
Miškulin, I., Legčević, J. & Crnković, B. (2017). Managerial Education of Governing Struc- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
tures of University Constituent Units and Quality Assurance in Higher Education,
Book of papers of the Interdisciplinary management research XIII, Barković, D. & Run-
zheimer, B. (ed.), p. 367-378, ISSN 1847-0408, Opatija, 19.-21.05.2017., Faculty
of Economics in Osijek, Josip Juraj Strosmayer University in Osijek & Hochschule
Pforzheim, University of Applied Sciences, Osijek
Miškulin, I., Turkalj, Ž. & Crnković, B. (2016). Change management and developmental
strategies of Croatian universities, Book of papers of the Interdiscplinary Management
Research XII, Barković, D. & Runzheimer, B. (ed.), p. 255-262, ISSN 1847-0408,
Opatija, 20.-22.05.2016., Faculty of Economics in Osijek, Josip Juraj Strosmayer Uni-
versity in Osijek & Hochschule Pforzheim, University of Applied Sciences, Osijek
Nica, E. (2013). The Importance of Leadership Development within Higher Education,
Contemporary Readings in Law and Social Justice, 5 (2), ISSN 1948-9137, 189-194
521
Nilakant, V. & Ramnarayan, S. (2006). Change management. Altering Mindsets in a Global
Context, Response Books, ISBN 978-0761934684, New Delhi/Thousand Oaks/
London
Quintas, P., Lefrere, P. & Jones, G. (1997). Knowledge Management: a Strategic Agenda,
Long Range Planning, 30 (3), ISSN 0024-6301, 385-391

Skyrme, D. (2001). Capitalizing on knowledge: From e-business to k-business, Butterworth-
Heinemann, ISBN 978-0750650113, Oxford
Yusuf, W., Nabatanzi, A. & Mujabi, S. (2015). Investigating the influence of Leadership on
Change Management at Makerere University, Global Advanced Research Journal of
Management and Business Studies, 4 (7), ISSN 2315-5086, 279-284
522
FINANCIAL BENCHMARKING OF
CROATIAN OFFSET PRINTING
INDUSTRY
Ante BELAMARIĆ, Ph.D. Candidate

Auto Hrvatska d.d.
E-mail: anbelamaric@gmail.com
Goran LEDINŠČAK, Ph.D. Candidate

Radin print d.o.o.
E-mail: goran.ledinscak@radinprint.hr
Željko HOLIK, Ph.D. Candidate

Ministry of Public Administration
E-mail: holik.zeljko@gmail.com
Abstract
Benchmarking is a tool that can be used by any company to compare its perfor-
mance against another company and to identify key areas in which the business
can improve. Our hypothesis is that the benchmarking is a powerful business
tool that isn’t used enough which can enable companies to measure their own INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
performance to others and to draw conclusions on the direction in which a
company’s management strategy should go. In this paper, we offered the meth-
odology for drafting a financial benchmarking analysis of a chosen company. In
that context, we presented the choice of a relevant sample, data sources used for
comparison and we suggested key indicator groups. The purpose of the paper is
to establish key measures and the extent used for the comparison of the indus-
try against the accomplishments achieved by our company. After we determine
the range for every chosen indicator, as well as the best practices, we want to
establish if there is room for improvement in terms of each parameter. By look-
ing at the picture of the industry in its entirety, we distance ourselves from the
subjective assessment of our own company’s business and we form our opinion
523
according to the position that we take in relation to what is achieved by our
competitors on the market.
We tested our research by forming benchmarking model of the offset printing
industry in the Republic of Croatia, and the subject of observation is the com-
pany Radin Print. The choice of a relevant sample was based on the size and
primary type of the print. All data was compiled from annual financial state-
ments of chosen companies. The time period of monitoring is 5 years, which
should be long enough to monitor the trends of used indicators. The chosen in-
Ante Belamarić Goran Ledinščak Željko Holik: FINANCIAL BENCHMARKING OF CROATIAN OFFSET PRINTING INDUSTRY
dicators represent only part of key performance indicators and the analysis can
be further elaborated in accordance with the methodology presented, depending
on the users’ needs.
Key words: Benchmarking, competitor analysis, KPI
JEL Classification: E44, G00
1. INTRODUCTION
Benchmarking is ‘the process of learning from others’ and involves compar-
ing one’s own performance or methods against other comparable operations. It
is a broader issue than setting performance targets and includes investigating
other organizations’ operations practice in order to derive ideas that could con-
tribute to performance improvement (Slack at al; 2009., 433).
One of earliest books on benchmarking was written by Robert C. Camp:
The Search for Industry Best Practices That Lead to Superior Performance is-
sued in 1989. by Quality Press. As an approach to benchmarking he propose
twelve step methodologies:
• Select subject
• Define the process
• Identify potential partners
• Identify data sources
• Collect data and select partners
• Determine the gap
• Establish process differences
• Target future performance
• Communicate
524
• Adjust goal
• Implement
• Review and recalibrate
There are many types of benchmarking and different authors are giving dif-
ferent classification. For instance, types of benchmarking can be classified as
Internal, External, Non-competitive, Competitive, Performance and Practice
(Slack at al; 2009., 433-434). Another classification is suggested as Internal,
Competitive, Functional, Generic (Halevi, 2001,73). Our intention is to build
up the model in a field of performance benchmarking, specifically in financial
benchmarking. We will try to answer if this tool is used in Croatian business
environment, and if there is preferred or unique model and methodology used
in benchmarking process.
By choosing the company from the industry, when building financial bench-
marking model, we can practically talk about the competition analysis. If the
companies we choose for comparison are our biggest competitors that will basi-
cally form one segment, we can obtain trends and the extent of all relevant key
indicators within that segment for chosen indicators. The companies often only
observe themselves and, by doing so, they potentially subjectively assess their
own performance. In addition to that, even when the performance is above the
average performance within the industry, we may potentially ignore the fact that
the market warns us about the decline and that it is time to diversify the prod-
uct portfolio. Finally, even if we are the market leaders, there’s a great possibility
that we could further develop certain segments of our business.

When benchmarking, we seek answers to three questions:
1. Where is our organization situated in terms of the market?
2. Why do other organizations operate better?
3. How can our organization become better in its area of work?
Our model is built on offset printing industry in the Republic of Croatia,
and the subject of observation is the company Radin Print. The choice of a
relevant sample was made based on the size and primary type of the print. In
terms of the size, the companies chosen were those with more than 50 employ-
ees in 2016 and with primary orientation on the offset print.
The benchmarking can encompass the width according to our needs and
possibilities, and for this paper, we chose indicators that should serve as a basis
525
for any financial benchmarking. During the drafting of the benchmarking it is
necessary to choose the relevant sample because by choosing the inadequate
sample, we can create a distorted picture of key indicators and subsequently
make wrong conclusions. Apart from the relevant sample, the time period can
also have an impact on the research conclusions. If we use a longer time period,
we will more easily distinguish trends from extraordinary events that could
impact the results obtained by the research. In that regard, we took over data
from annual financial reports from the portal Fininfo for chosen companies and
we set the time period of monitoring for 5 years. That period should be long
enough for adequate monitoring of trends of used indicators. The chosen in-
dicators represent only part of key indicators, and the analysis can be further
elaborated in accordance with the proposed methodology, depending on the us-
ers’ needs. The greater analysis should certainly consist of the structure of assets
and liabilities, more detailed liquidity indicators, leverage and activity ratios in
terms of a turnover of certain asset categories.
We tried to offer a simple solution for usage because of specifics of Croatian
business environment. The concept is simplified so it can be used by any compa-
ny with scares resources. By researching if benchmarking is used in Croatia, we
found out that research was conducted in 2017. by Meter M. The results where:
Figure 1. Usage of strategic controlling tools
Source: Meter M, Kontroling u praksi: Instrumenti kontrolinga; Poslovna učinkovitost,

2017., p13-14
526
Figure 1. is showing usage of strategic controlling tools measured by a Lick-
ert scale from 1 to 5 where 1 represents the lowest grade and 5 highest grade.
Research conducted in 2017. showed that Benchmarking is most used strategic
tool for controlling (3,2). This wasn’t surprising as the author indicates because
this is tool demands least effort and methodologic preparation. But, as is stat-
ed before it should be carefully treated because of potentially different aspect
among selected competitors. Although this research shows that benchmarking
is used in Croatian business environment, we believe that the sample is to small
(104 participants) and also oriented on companies with controlling department.
This means that if the company has a controlling department, it will mostly use
this tool. But looking from the perspective of companies without controlling
department (mostly SME) than results would be different.
When we tried to build up our financial model, we found out, that although
the methodology is more or less used in a way defined by R. Camp, types of
benchmarking and models build around this methodology are various and con-
stantly changing. Usually benchmarking is looking at the wider picture and is
not connected solely to financial benchmarking. As a very strong industry in
Croatia, Tourism has it’s own indicators. For instance: Capacity utilization,
the share of foreign guest nights, duration of season and seasonality (Štoković,
2004., 66-84). Other authors are connecting production cost of software with
working hours based on a sample of different projects in the banking industry
(Pereira & Teixeira, 2017.). For instance, indicators of efficiency in operational
processes could have common weight, but also one can make it flexible if it’s as-
sumed that individual circumstances are different (Cook at al; 2016., 901-910).
We conducted financial benchmarking in several stages, and we followed INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
shortened methodology introduced by R. Camp. First of all, it is necessary to

choose the relevant sample. In that context, it is essential to be familiar with
the line of business in which our organization is operating. By choosing the
adequate sample we can avoid wrong conclusions that most often occur because
of the wrong choice of company or because of the too small sample in relation
to the entire segment.
In case of the wrong choice of the company, there’s a possibility that the cho-
sen company makes profit from other activities as well, and in that way the ob-
tained performance indicators are distorted, and they stand out from the range
of motion of the selected line of business, that is they impact the formation of
527
the average of the industry with their achievements. If a chosen sample is not
relevant in terms of the size of the sample, the conclusions may not be adequate
because the motion on certain companies does not picture the real state of the
line of business that we work in. The abovementioned can lead us in a direction
that will not bring adequate business results in the long term.
After choosing the sample, it is necessary to choose the data sources and the
time frame. We suggest financial statements as the basis for financial bench-
marking analysis. The said statements are available on various financial portals,
and for this research, we used the database from the Fininfo portal. For a qual-
ity research, it is essential to establish a monitoring period that is long enough.
When the monitoring period is longer, the model is more “immune” to single
extraordinary events. Namely, if we choose longer time periods, we will have
bigger opportunity to identify anomalies that can happen at certain companies
on an annual basis.
After that, we need to choose key indicators that will enable us to exam-
ine how the company operates in relation to other companies within the same
segment.
There is no unique definition how the model should be introduced, but
we choose indicators based on the ones explained in books “Analiza poslovne
uspješnosti” (Belak, 2008.) and on a 5C model developed internally by Cinnoti
Revizija (Cinnoti, 2011.). The literature, of course, mentions a great number
of indicators, but we chose a dozen that we think should be included in every
financial benchmarking. Of course, the larger the number of indicators included
in the benchmarking, the higher the possibility of obtaining adequate and rel-
evant conclusions. Every company should make a decision on the scope of the
benchmarking for itself, depending on the number of resources and on the pur-
pose of such process.
3. RESEARCH OF CROATIAN OFFSET PRINTING

INDUSTRY
The printing industry is an integral part of the processing industry and ac-
cording to the National Classification of Activities, it is listed under the group
of paper production and processing and under publishing and printing activi-
ties. The printing industry has a character of the supporting industry and as
528
such it complies with the needs of other industries it relies on. This industry is
characterized by a specific production process in all its segments, from the pro-
duction planning to the delivery of finished products. The development of other
industries, subject to external business factors, constantly imposes the need for
the development of new products, use of new materials and use of technologi-
cally developed work instruments with the purpose of satisfying numerous re-
quests of buyers.
The printing industry today shares the destiny of the rest of processing in-
dustry, both in the country and abroad. The economic crisis that occurred at the
end of the last decade caused some intense transformation processes within the
publishing industry and the advertising industry, which are closely linked to the
printing industry. The imperative for rational business operations of business
entities caused a drastic reduction of prices of advertising space in printed me-
dia with the parallel migration to electronic media, which led to the reduction
of editions and the decrease in quality of printed editions. The abovementioned
changes led to express rationalization in terms of costs for the publishers, adver-
tisers, as well as for other users of printing services, which subsequently led to
cost reduction of graphic services. In such circumstances, the printing industry
was forced to answer with a new management strategy, which is extremely im-
portant for the business sustainability and growth.
The offset printing represents the printing technique because of the simple
preparation process, quality print, and low printing prices. Considering the fact
that it is currently the most used printing technique in the Republic of Croatia,

we decided to choose the subject company and the observed sample among the
companies that use this technique.
The key performance indicators that we examined are divided according to
the business segments.
.. Total revenue

The total revenue is an indicator that informs us on the potential of the mar-
ket and its trend. If the total revenue of the industry gets higher, the potential is
obviously growing, and in that case, the company should determine if the revenue
growth is adequate to the growth of the industry. It is often the case that the com-
panies are satisfied with the revenue growth, but in the end, it can happen that the
529
revenue growth does not follow the revenue growth of the entire industry and in
that case, despite the revenue growth, the company actually loses its market share.
In the reverse situation, if the revenue of the industry decreases, we can talk about
a potential problem in the future and it is necessary to think about the diversifica-
tion of the portfolio. The company does not have to notice the decline in the rev-
enue straight away, because maybe some inferior competitors left the market race,
and the company took over a part of their potential. However, such situation only
slows down the fact that the potential to generate revenue declines.
In our example of a five-year monitoring, we can talk about the stable

potential.
Figure 2. Total Revenue (in mil kn)
Source: made by authors based on the research results
The depiction of the market share according to the sales revenue shows sta-
bility for our subject company, but it can be noticed that other competitors still
managed to take over a part of potential that was created with the decline of
revenue of the company Vjesnik.
530
Figure 3. Market share
.. Net profit

The net profit does not give enough information on the business quality, but
rather on the business performance, however, we’re presenting it to determine
the absolute difference in revenues and expenses of certain companies, that is
the line of the business in general, and to compare the participation of the com-
pany in the line of the business as a whole. By looking at the net profit in rela-
tion to other economic sizes we can compare certain segments of the quality of
achieved business results, but those indicators are analysed further on.

Figure 4. Net profit
531
By looking at our line of business we can establish that the trends are posi-
tive for most of the companies, and the only company that has a negative busi-
ness result is the company Vjesnik (although the loss declines every year).
.. Gross profit margin

The gross margin shows how much gross profit is obtained per one unit of
operating income (100 units of operating revenue if the indicator is shown in
percent). It maintains the turnover profitability. Each growth in the value of this
indicator is assessed as a favourable movement, and the decrease in the value
indicates the existence of difficulties in the company’s operations and can be
one of the indicators of business crisis. The basis for the calculation of the gross
profit margin is the profit and loss statement.
Figure 5. Gross profit margin
In the context of the calculation, we compare the difference between the rev-
enue and the purchase price of goods and the total revenue. That means that if
our gross profit margin is lower than the one from our competition or our line
of business, we have problems either with the prices under which we sell the
goods (which can easily be compared in terms of the market) or our procure-
ment is not efficient enough.
From the abovementioned information, we can conclude that the line of
business average varies, but that it is also in a three-year positive trend. What
needs to be additionally pointed out is that part of the companies has signifi-
532
cantly better average than the line of business, so it would surely be recom-
mended for our subject company to check the procurement requirements, that
is the check of the product portfolio in which the focus obviously could be on a
significantly more profitable segment.
This is also an indicator of how much room a company has for covering all
other business expenses. If in this part the company does not generate enough
profit, even if it is cost-effective, it may not be enough to obtain positive (or
satisfying) business results.
.. EBITDA margin

The EBITDA margin shows the results percentage in terms of earnings be-
fore the interest, taxes, amortization in relation to the business revenue of the
company, that is this indicator measures how much the company has left after
the settlement of all regular business expenses. The higher value of the indicator
is more favourable for the company because such companies have a better cost
structure, meaning that they maintain the higher amount of the revenue after
the settlement of operating expenditures.
Figure 6. EBITDA margin
The EBITDA tries to neutralize the impact of various amortizations and

interests on the results and it largely represents free cash flows, that is the net
profit and amortization. EBITDA really shows the earning power of the com-
533
pany. The average rate of the EBITDA margin realised within the line of busi-
ness is 13% and it indicates a growing trend. In 2016, the observed segment
shows a wide range of achieved EBITDA margin. We can also conclude that
our subject company falls behind the line of business and the leading competi-
tors, but the backlog is not as important as in the observation of the indicators
of the gross profit margin. This means that the company has a satisfying cost
efficiency and that the discrepancy occurs during the forming of the purchase/
selling price of the product or in the product that is being sold.
.. ROE
The return on equity shows how much revenue a company generates for
each unit of equity in the company.
Figure 7. ROE
The profitability of own capital is higher in cases where there is a significant

share of debt capital (which leads to a situation where it is earned more per unit
of own capital). That confirms the theory that a company that has a higher rate
of profit should finance a part of its operation with a borrowed capital because
the return per unit of own invested capital is higher than in the case it finances
itself only with its own capital. The average of the line of business in 2016 is 8%,
which means that per 100 invested units, the line of branch generated 8 HRK
of profit. Those companies that can generate high rates of return and that have
534
a certain amount of debt capital bring to their owners a higher return on their
investments. That kind of policy is also riskier (interest rate risk and foreign ex-
change risk) because it is not only important to assure the return for the owner,
but also to pay back the borrowed amount along with the interests, and it can
make a problem for a company in case it comes to a significant drop in revenues.
The line of business itself shows the recovery of this indicator during the last
two years, and the situation varies depending on each company. This indicator
also shows that the best companies still manage to maintain stability, that is, the
adequate return on invested capital.
The company Kerschoffset has the highest rate of return, because of the
extremely low level of its own capital. As mentioned before, this approach is
risky because a company is extremely susceptible to negative market effects. In
this context, by maintaining the profit every business year, and due to positive
trends of the industry in last three years, the company managed to achieve the
higher level of capital adequacy and the lower business stability risk level. This
was surely an example of company development based on the use of borrowed
assets.
.. BCG Matrix

The BCG matrix chart shows three dimensions of business for a chosen year,
namely the level of turnover (size of the circle), the growth rate in relation to the
previous year (vertically) and the rate of profitability of sales (horizontally). By

looking at this indicators through time we can determine the movement of the
entire line of business.
535
Figure 8. BCG Matrix
Depending on the quadrant in which the company operates, the theory cites
four types:
536
Question marks – companies that are growing rapidly but have a lower rate
of profit or a loss. They try to generate profit using the economy of scale. There
is not a lot of such companies because almost no company generates the profit
from the turnover but from the price difference. In our line of business, there is
practically no such company.
Stars – high-growth companies with high rates of profit.
Most of the observed companies are in this category. By comparing the
graph for 2015 and 2016, it is obvious that the companies that had the star sta-
tus maintained that status. The difference is in the deceleration of the growth,
but with a bit higher rate of sales profitability. Overall, the picture is vertically
flattering, but also slightly moved to the right, which means that the companies
from the border areas-initiated growth in 2015 with an eventual light growth of
sales profitability, and the companies that grew already in previous periods now
slowdown that growth and the focus are on the profitability growth.
Cash cows - mature, low-growth companies with high rates of profit.
The company Tiskara Zagreb, which had a revenue decline in relation to the
previous year with a slightly positive rate of sales profitability, is located in this
category. Considering the indicators, this company shows a tendency to move
to the dog segment.
Dogs – companies in weak positions because they also have low profits. The
company can consider its withdrawal from the market or to invest even more in
the aggressive breakthrough of new profitable investments. The business result

of the companies from this category is a loss. The company Vjesnik is in this
category. Although in a somewhat better situation than the previous year, it is
evident that there are great difficulties and the question is if the company will
have enough strength to repair the current situation.
Our company practically holds the central place in the quadrant during both
years observed. Since the line of business obviously goes through some changes,
the success of decisions brought by the management will push the company in
one of the quadrants. In any case, the line of business continues to show the
potential for stable business which should be used by the company in the future.
537
.. Net working capital
The new working capital is the difference between current assets and cur-
rent liabilities. It is used to mark a part of the working capital financed from
long-term sources. The net working capital is a requirement for liquidity and
financial stability of the company and it reflects the number of liquid assets at
the company’s disposal for maintaining and expanding the business. The value
of net working capital depends on the asset structure and debts of the company.
The companies that have a higher level of net working capital are considered
to operate better in the long-term since they are capable to expand, improve or
change their business at any time. The working capital also directly shows the
efficiency ratio of the company’s business, since the assets that are tied up in
inventory, or production in process and claims from the buyers, cannot be used
by the company to pay off its liabilities. In the short term, the company can
have positive business even with the negative working capital, but to establish
the long-term business stability it is necessary to actively manage the working
capital and get him to the positive value.
Figure 9. Net working capital
As it was mentioned in the explanation, the working capital is a requirement

for company’s liquidity and financial stability. Unfortunately, it is obvious that
the whole line of business is in the negative trend for the last three years, and
the liquidity deteriorates significantly. The observed company is the one that
shows the biggest problems, and most of the line of business still manages to
538
maintain the positive working capital, even with the worsening situation. Only
Tiskara Zagreb and printing house Znanje managed to maintain the high level
of liquidity throughout the entire observation period. Other companies have
either negative working capital or they show a trend that indicates that in the
near future the negative working capital will occur if the business continues to
be the same.
.. Altman Z-score

The Altman Z-score model combines five different financial ratios to deter-
mine the company’s probability of bankruptcy. Generally speaking, the lower
the result, the higher the odds of bankruptcy. The companies with coefficient
above 3 are considered healthy companies and probably won’t enter bankruptcy.
The companies with coefficients between 1.8 and 3 are in the grey zone.
Figure 10. Altman Z-score
By looking at the entire segment we can conclude that, at the level of the
sample, the line of business is situated in the longer term at the border line of
the companies that are in the bankruptcy zone. But, by looking at individual
companies, it is clear that except the company Vjesnik, most of the companies
depict a healthy company, namely the companies that have growing rations to-
wards the zone of healthy and stable companies during the last three years.
539
Unfortunately, according to this indicator, our subject company shows the trend
that indicates, in the long term, the high risk of the unstable business. Consider-
ing the rest of the line of business, the assumption is that there is still potential
for the business stability of this line of business and that it is necessary to initi-
ate changes that will bring the business stability in the future.
.. Revenue per employee

The revenue per employee is one of the indicators of company’s activities,

in terms of efficient use of resources. However, caution is needed for this part
because certain functions of the company can potentially be outsourced. On
the other hand, if comparable companies have more revenue sources than this
indicator can significantly vary and the comparison may not give the adequate
information. In any case, in terms of similar companies, the ratio can give the
correct information on the efficiency of the business.
Figure 11. Revenue per employee
The line of business as a whole shows a slight decline in revenue per em-
ployee. However, most of the observed companies show relative stability of this
ratio. The highest revenue per employee, with the stability through the entire
observation period, is shown by our chosen company.
540
.. Staff costs per employee
The average monthly staff costs per employee for the observed line of busi-
ness are continuously and slightly growing in the period from 2012 to 2016.
This indicator informs us on the expected range of salaries. Also, if the specific
industry is in question, we can assume which competitors in the line of business
can offer more attractive conditions for our employees. We can also observe
which competitors have lower staff costs and can potentially be the source of
the quality work force during new employment. In the end, if we significantly
stand out from the average of the line of business (positively or negatively), we
still need to question if the policy of determining the level of personal revenue
is adequate.
Figure 12. Staff costs per employee
As with the previous indicator, it is clear that we are practically at the top in INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
terms of the costs per employee, meaning that, on average, our employees have
revenues which are higher than those of the rest of competitors in the line of
business. That means that we are probably one of the most desired employers
within the line of business in terms of the personal revenue.
4. CONCLUSION
After the conducting research on financial benchmarking, we can confirm
the hypothesis cited at the beginning of this paper. Even simplified financial
benchmarking can be a good starting point for determining how is our com-
pany doing, comparing it to other competitors. However, it is clear that deeper
541
analysis varies from industry to industry, and apart from financial benchmark-
ing every industry has it’s own specific indicators. Furthermore, although the
methodology is pretty much the same, models are different in dependence to
chosen industry and are dynamically changing. Our hypothesis that tool isn’t
used enough wasn’t confirmed. Research showed us that, among other control-
ling tools, benchmarking is business tool most often used by the company
With a suggested model for analysing the industry, we got some valuable
insight on how the entire industry operates and what are the positions taken by
the subject company within that industry. The industry still maintains the sta-
ble revenue level and that most of the competitors show signs of a better busi-
ness in the last three years. That means that the industry is still characterized by
sustainable business. In terms of operative costs, the subject company operates
more efficiently that the competition despite higher costs per employee. On the
other hand, the higher revenue generated per employee implicates the most ef-
fective use of that resource in the industry. The biggest problem is in the gross
profit margin, where the company generates a significantly lower margin in rela-
tion to the rest of the competitors. Unfortunately, that also impacts the overall
performance of the company, which eventually leads to the low level of overall
profit and liquidity problems. It will surely be recommended to the manage-
ment to check if there is any room for the correction of sales prices, that is the
correction of input prices of raw materials. If there are no significant deviations
in both parameters in relation to the market, then the problem is probably re-
lated to the portfolio of buyers and products. If we are oriented towards the
“big” buyers, then we enable the generation of high revenue per employee, but
we sacrifice the margin. By increasing the number of small buyers, the efficiency
per employee decreases according to the revenue per employee measure, but the
latter would clearly be compensated with a significantly higher profit margin.
Market leaders, despite the lower revenue per employee, still make higher profit
margins. In the end, a more detailed research analysis would show if it would be
necessary to change the product portfolio and navigate towards more profitable
product lines.
The abovementioned conclusions based on financial benchmarking confirm
our theory that the benchmarking can be used as an excellent tool to analyse
the business performance, of not only one company, but also of the industry.
Except obtaining valuable information on the positioning and performance of
the companies based on historical data, the benchmarking represents a great
542
tool to make business decisions, by providing the management with possible
business guidelines.
REFERENCES
Belak, V. (2014). Analiza poslovne uspješnosti, Zagreb: RRIF plus
Camp, R. (1989), The Search for Industry Best Practices That Lead to Superior Performance,
Quality Press
Cinotti K. (2011). Što poduzetnici moraju znati o financijama. Zagreb: Tile financije
Cook at al, (2016), Within-group common Benchmarking using DEA, European Journal
of Operational Research, 256, p901-910
Halevi, G. (2001), Handbook of Production Management Methods, Oxford; Butterworth-
Heinnemann, p73
Slack at al, (2009), Operations and Process Management, Essex: Pearson Education Limited,
p433.
Meter, M. (2017), Kontroling u praksi: Instrumenti kontrolinga; Zagreb: Poslovna učinkovitost,
p13-14
Pereira L. & Teixeira C., (2017), Benchmarking of software production costs: Results & Rec-
comendations, International conference on Engineering, Technology, and Inovation
Šćepanović B. (2016). Biblija controllinga. Beograd: MCB Edukacija
Štoković, I. (2004), Benchmarking u turizmu., Journal Ekonomski pregled, p66-84
Žager K., Sačer Mamić I., Sever S. & Žager L (2008). Analiza financijskih izvještaja. Zagreb:
Masmedia
https://www.fininfo.hr/ (access March 5, 2018.)
Valdes-Perez, R. (2015). Smart Benchmarking Starts with Knowing Whom to Compare
Yourself To [available at https://hbr.org/2015/10/smart-benchmarking-starts-with-

knowing-whom-to-compare-yourself-to?autocomplete=true (access March 1, 2018.]
Atom Content Marketing (2008). 10 Ways to... Benchmark your business [available at
https://www.icaew.com/archive/library/subject-gateways/business-management/
performance-management/benchmarking/small-business-update/10-ways-to-
benchmark-your-business access March 1, 2018.]
543
THE CONCEPT OF INTEGRATED
MARKETING COMMUNICATIONS
Željko Vojinović Sanja Živković Dragan Vojinović: THE CONCEPT OF INTEGRATED MARKETING COMMUNICATIONS OF FINANCIAL INSTITUTIONS...
OF FINANCIAL INSTITUTIONS OF
BOSNIA AND HERZEGOVINA IN
THE FUNCTION OF MANAGING
RELATIONS WITH CONSUMERS
Željko VOJINOVIĆ, Ph. D.

University of Novi Sad, Faculty of Economics,
Department of Finance, Banking, Accounting and Auditing
E-mail: zeljko.vojinovic@ef.uns.ac.rs
Sanja ŽIVKOVIĆ
Erste Bank AD Novi Sad
E-mail: sanja.sz.zivkovic@gmail.com
Dragan VOJINOVIĆ, Ph. D.

University of East Sarajevo, Faculty of Economics,
Department of Business Economics and Management,
E-mail: draganvojinovic123@gmail.com.
Abstract
Business of the entities in the sector of financial services is determined by the
intensity of market changes and the specifics of financial institutions determine
behavior and attitude towards their clients, who already have the knowledge,
power and skill of choice according to their personal preferences and affilia-
tions. Selection and development of communication strategies with clients in-
stitutions should conceiv on total synergistic effect, which should be greater than
the sum of the effect of certain elements. Communication targets of financial
institutions are equally directed towards the outside and internal environment
and are related to the development of the brand and image, achieving competi-
544
tive advantage, stimulating of demand, capacity management, services reposi-
tioning, informing, training and motivating of the consumers. The aim of this
study is to determine the impact of marketing communications of financial
institutions to many different customer segments in the process of long-term
relationships built through two-dimensional research that defines the proce-
dures for the supply and application feedbacks from the customers/consumers.
Research shows diversification of selected market segments toward marketing
communications and their impact in managing of relationships with consum-
ers. On the B&H financial market, there is a small but still insignificant prog-
ress regarding investment in communications, which usually result in absence
of the most important positive effects when it comes to managing of relation-
ships with consumers.
Key words: banks, integration, communications, insurance, synergies.
JEL Classification: D18, M31
1. INTRODUCTION
Looking at the trends on the financial market manifested in globalization,
strong competitive relations, technological innovations, uncertainties and busi-
ness risks, radical changes in attitudes and behavior of customers, constant
striving for growth and development, shorter life span of products and services
and the speed of decision making, marketing orientation of financial institu-
tions inevitably involves the creation of an effective and efficient communica-
tion concept based on the optimum level of planned and feasible business goals.
Successful operations of financial institutions are determined by the ability to INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
anticipate needs and desires of targeted market segments and the level of their
satisfaction, by creating and delivering products and services of expected value.
In communication with the environment, financial institutions are oriented
on determining and defining the consumers’ needs, desires and motives likewise
the possibility to reach maximum of their satisfaction. For financial institutions
it is not a matter of choice whether or not to communicate (promote) with their
current and future clients, since there are not many products that can survive on
the market without effective promotion (Lamb, Joseph, McDaniel, 2013; 246),
but what to say/promise, whom to say/promise, in which manner, through
which channels, how often and when.
545
Optimal integration of marketing communication becomes more important
(Batra, Keller; 2016). The communication mix is represented by instruments
and any kind of forms of communication and correspondence, having institu-

tions, employees and stakeholders at the disposal in creation of communication
strategy and it includes: propaganda, personal sales, public relations, sponsor-
ship, sales improvement, direct marketing, events and experiences.
In theory we come across many different definitions of the integrated mar-
keting communications (IMC). Integrated marketing communications repre-
sent a system that companies use for coordinating their marketing in order to
announce clear, consistent, convincing and competitive message about organiza-
tion and its products ( Jober, John (2006; 234). Marketing communications are
seen as a management process through which organization establishes contact
and build relationships with their different target audience (File, C. 2005; 5),
and as a coordination and concept of various promotional elements and oth-
er marketing activities that communicate with clients in the process of plan-
ning and executing of marketing messages tracking (Belch 2004; 8, Kliatchko
2005;7-34,Thorson 1996;1). No message is contradictory to another, but mu-
tually supported or supplemented, and consistent with redundancy limited to a
level considered as appropriate (Hulbert, 2003; 38) Otherwise, marketing com-
munication messages will sound empty (Ouwersloot 2008; 15). Each of the
communication elements differs and distinguishes according to its specificities
and the effects that leave on the massage recipients. In order to achieve orga-
nizational goals, IMC passes the company’s positioning strategy to its target
markets (consumers, employees, partners, suppliers) (Bateson, Hoffman 2012;
171). There is a need for coordination between different communication disci-
plines directed towards different target audiences (Ognjanov 2009; 29), in order
to increase their efficiency, which is being achieved by reducing the number of
lost messages and by increasing their impact on the recipient (Brkić 2003; 56).
Economics, as one of the basic postulates of business success, ensures the
integration of communications, saying that any communication tool should
integrate or rely on as many other communication tools as possible, in order
to achieve the highest possible economy and enhance a clearly defined image
(Smith 2002; 24).
The goal of IMC is to influence or direct the behavior of the selected audi-
ence. IMC covers all brands or businesses which consumers or potential custom-
546
ers need or are interested in, including products or services as potential holders
of future messages. Furthermore, IMC uses all forms of communication rel-
evant to consumers and potential customers, which are acceptable (Kesić 2003;
29). Integrated marketing communications can produce both greater message
consistency and productivity. Accordingly, the optimum, that is, an ideal setting
of communication elements is that the efficiency of the elements are to be inte-
grated in their joined effect that is to be larger than the sum of their individual
effects (Vasiljiev, Vojinovic 2016; 88). A synergetic effect in sales efforts, is also
obvious in Totten and Block research which shows that only a promotional
price reduction led to an increase in sales by 15%, while the integration with
advertising led to a 24% of increase (Totten, Block 1994; 69). Finally, the IMC
process begins with consumer or potential buyer and is directed backwards to
determine and define forms and methods through which a persuasive commu-
nication process will be developed.
The quality of services is difficult to separate from customer satisfaction
(Lovreta et al., 2010; 121; 121) and it represents an unavoidable, we can say the
most important determinant of achieving the basic business objectives of finan-
cial institutions; market participation, productivity, conquest of new consum-
ers (Cui et al., 2003, p. 191), customer value management (Fos, Stone 2008;
214), achieving unattainable competitiveness achieved by price, capability,
meeting customer needs in short term, including quality ( Juran, Gryna 1999;
240). Consumers often judge product quality based on a variety of informa-
tion indicators linked with the product (Schiffman, Kanuk, 146). Services as
non-material products provide education, accommodation, financial, medical
and public needs (Heizer, Render 1999,). Without going into a deeper analysis INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
of the quality service components-functional and technical (Gronroos, 1984;
1-36), we will try to determine that integrated marketing communications sig-
nificantly influence the expected and perceived quality of services.
According to the nature and importance of the topic, our goal is to analyze
the implementation of the IMC concept in Bosnia and Herzegovina, and its
efficiency in achieving quality of services towards clients’ attitudes. The real-
ization of this study ranged in two directions. The first was to define attitude
of financial institutions towards this issue through the expression of the com-
547
munication channels structure, their value and degree of integration in survey
research. At the same time, throughout a questionnaire survey of consumers of
financial services (physical and legal entities) by the method of direct, personal
contact, it was tried to conclude that determines this topic. Although the re-
search was carried out in the financial market of B&H, we can say that the same
principles apply to the wider, European market, because the European financial
institutions in bank and insurance sector have dominant role, applying the prin-
ciples of doing business to their home offices.
Research of the use of integrated marketing communications of financial
institutions was carried out by personal interview and sending questionnaires
via e-mail addresses. Questionnaires were delivered to a total of 33 financial
institutions, 18 banks and 15 insurance companies. Studies did not provide an
adequate amount of data, because only 6 institutions (2 insurance companies
and 4 banks) submitted a response. Because of that, the sample of the survey is
considered as random. Due to insufficient volume, data analysis was not carried
out by statistical methods. Those kinds of researches in Bosnia and Herzegovi-
na are complex. There is a lack of interest for these types of researches, so we can
only assume whether it is a result of ignorance, distrust, or simply an attitude
of business policy. Basic information about the surveyed institutions (manag-
ing staff, people responsible for marketing, their names and surnames, phone
numbers and emails) were taken from their website. Although the content of
questionnaire did not disturb business confidentiality, some institutions replied
that there is no consent of managers for respond, or that they cannot answer
due to discomfiting the principle of a business secret.
The paper presents the results and conclusions of the analysis of financial
institutions service consumers’ attitudes towards the communication activities
of the supply sector in the financial market of B&H.
The research with the aim to establish or to refute the hypothesis that in-
tegrated marketing communications have the appropriate level of impact on
establishing and maintaining relationships with customers was conducted with
clients of financial institutions in Bosnia and Herzegovina. The aim of this
study was to determine whether there is a difference in the reactions of con-
sumers of financial services toward addressed messages and ways of performing
the communication process depending on sex differences, level of education and
source of income.
548
Communications of financial institutions are oriented towards their clients,
so we tried to determine the attitudes and opinions of users of financial services
by a study based on the survey. The research was conducted with the help of
the interviewer volunteer, and the survey contained 16 questions referred to
the way of communication and establishing business relations, type of media,
sources of information, criteria that prevail in decisions of clients and to whom
clients trust.
Empirical research related to attitudes of 235 financial institution clients. It
is being confirmed that the portfolio of financial institutions clients represents
the totality of the population. There was no respondent (without considering
the biological inadequate persons) who does not consume financial servic-
es. The complexity of market relationships and characteristics of consumer be-
havior, which is in the domain of research and other fields such as sociology and
psychology, initiated the importance of the role of perception of the financial
services quality and the impact of sociodemographic characteristics of clients
on communication channels to be emphasized in the research.
Research of clients’ attitudes towards the quality of financial services, which
is the basis of long term relationships and trust and/or distrust is based on
the use of a modified SERVQUAL model (Parasuraman 1988). The original
model is based on the dimensions of tangibility, reliability, responsibility, secu-
rity and empathy, while relevant research is designed on tangibility, reliability,
safety and communication. In the past, model was subjected to criticism (Buttle
1996), but it has already been applied in a number of research in the financial

sector (Babić, Mehić 2005).
3. RESEARCH RESULTS
Based on modified SERVQUAL model, respondents answered the ques-
tionnaire consisting of 22 pairs of statements and defined quality characteristics
of institution services, in accordance to their own perception, with the help of
scale rating attitudes from 1 (not important) to 5 (completely important).
549
Table 1. Sample structure
N (%)
Male 128 (54,5%)
Gender
Female 107 (45,5%)
SS 162 (68,9%)
The level of education UD 63 (26,8)
Other 10 (4,3%)
Employment 183 (77,9%)
A source of income Retirement 35 (14,9%)
Other 17 (7,2%)
Source: Autors’ research
The highest expectations relate to communication (4.90 ± 0.13). It is worth

to say that all expectations are high. Safety is perceived as a dimension by which
respondents were the most satisfied (4.54 ± 0.42). The lowest satisfaction of
obtained service is in the sector of reliability (3.28 ± 0.45).
SERVQUAL model includes the possibility of calculating the difference
between the perceived and the expected level of service quality. This difference
is negative in all dimensions of quality. The worst situation is with dimension
Reliability (-0.67 ± 0.63). The gap between the expected and perceived service
quality level is the highest on this dimension.
Questionnaire factorization was done by the method of principal compo-
nents. Principal components analysis (PCA) is the process of simplification of
data by reducing the number of variables. It represents objective way of finding
the principal components which can describe variations of data as simply as
possible and observed number of variables reduce to a small number of com-
ponents that are linear combinations of the initial variables. We used Direct
Oblimin rotation as the rotation method.
Table 2. Descriptive indicators
Quality of service
Service expectation Perceived quality of
(perceived - expected service)
(m±sd) service (m±sd)
(m±sd)
Palpability 4,87±0,29 4,22±0,67 -0,65±0,73
Reliability 4,75±0,26 3,28±0,45 -0,67±0,63
Safety 4,82±0,22 4,54±0,42 -0,27±0,48
Communication 4,90±0,13 4,28±0,52 -0,61±0,53
550
To verify that the data set is suitable for factor analysis, we have done KMO
and Bartlett’s Test. As the Kaiser-Meyer-Olkin Measure of Sampling Adequacy
is greater than 0.6 and is 0.921 and the Bartlett’s Test of Sphericity value is sta-
tistically significant (p = 0.000), the factor analysis is being justified.
According to the Kaiser-Guttman criterion there are four factors having
characteristic value greater than 1. These four components explain 61.69%
of variance (cumulative% = 61.69). The first principal component explains
45.08% of the total variance, the second principal component explains 7.36% of
the variance, the third major component of variance explained 4.9%, while the
fourth component explained 2.63% of the variance.
The rotated factorial matrix shows good factorial organization of the items
in the questionnaire. The first factor is related to questions with ordinal num-
bers 1 to 6. This is the Palpability factor. The second factor is related to ques-
tions from 7 to11 - reliability factor. The third factor is related to questions
from12 to15, - factor of security and the fourth factor is related to questions 16
to22, - a factor of communication.
Table 3. The rotated factor matrix

Faktor
1 2 3 4
The location of financial institutions is affordable with appropriate access and
,769
parking
The exterior is attractive, with a clearly prominent promotional tool ,743
The interior of the office is visually attractive, neat and modern ,608

The employees are uniformed and tidy ,584
A variety of materials that are associated with the services look nice ,575
The employees are always ready to help the client ,555
Employees understand the specific needs of clients -,742
Records shall be kept without fail -,698
When the institution promises that the service will be performed at a specific
-,686
time, it will do so
Transactions are carried out quickly and safely -,680
Customers having a problem, get help in solving them -,649
The employees are always courteous and inspire confidence -,815
Clients feel safe when performing financial transactions -,814
Requirements for elimination of any kind of risk in terms of safety rating are
-,751
fulfilled
551
When conducting a transaction, the privacy of clients and the obligation to store
information and their unauthorized use by employees and other persons is -,427
respected
Working time is adapted to the needs of clients -,839
Employees consider the interests of clients -,837
The employees provide clients with timely and accurate information about
-,772
services
All complaints are being received and answered -,738
They provide all clients with due, personalized attention, regardless of the value
-,721
of the transactions they perform
Technological equipment enables clients to communicate without the spatial and
-,497
temporal limits
Services are always performed with the same level of quality -,473
Table 4. Quality of service and control variables

Palpability Reliability Security Communication

(M±SD) (M±SD) (M±SD) (M±SD)
Male -0,87±0,75** -0,74±0,58* -0,31±0,51 -0,72±0,54**
Gender
Female -0,38±0,61** -0,57±0,68* -0,23±0,44 -0,48±0,49**
The level of SS -0,67±0,80 -0,61±0,64 -0,27±0,48 -0,64±0,57
education UD -0,59±0,54 -0,83±0,61 -0,30±0,49 -0,60±0,41
Employment -0,66±0,77 -0,64±0,63* -0,26±0,47* -0,63±0,56*
A source of income
Retirement -0,68±0,58 -0,95±0,60* -0,42±0,55* -0,66±0,37*
** Statistical significance at a level of 0.01

* Statistical significance at a level of 0.05
T test was used as statistical technique
We investigated whether the quality of the received services vary on the bas-
es of gender, level of education and income. Tangibles, as a dimension of service
quality is significantly different for men and women (p <0.01). Women have a
better perception of the tangibility than men, the gap between perceived and
expected quality is lower.
Reliability is significantly different for men and women (p <0.05) and with
respondents who are employed and retired (p <0.05). Women and employees
have better assessment of reliability.
Employees and retired are statistically significantly satisfied with safety (p
<0.05). Employees are also more satisfied with this dimension.
552
Satisfaction with communication is significantly different for men and wom-
en (p <0.01) and the employees/retirees (p <0.05). Again, employees are more
satisfied with this aspect of service in relation to pensioners.
By Linear regression analysis, we examined which of the independent vari-
ables are previously being determined as statistically significant predictors of
quality services dimensions. Gender proved to be the only statistically signifi-
cant predictor. Namely, the gender affects the tangibles (p <0.01), explain-
ing 15% of variance of the dependent variable. Gender affects the reliability
(p <0.05), explaining 11% of dependent variable, while explaining only 4% of
communication. However, it affected it significantly (p <0.01).
Security is the only dimension in the quality of services which is not influ-
enced by any of the tested variables.
In addition to the presented result of research we give a description of the
observed characteristics and processes in the communication of financial insti-
tutions and their clients. According to the degree of utilization, the most com-
mon services are:
- bank services, with 58%;
- services of insurance companies, 26%;
- services of microcredit organizations, 7%;
- services of leasing companies, 6%;
- services of investment funds, 3%.

Table 5. Gender and source of income as predictors of satisfaction with service
quality
Dependent Independent Standardized Adjusted R
p F (p)
variables variables Coefficients Beta Square
Palpability Gender 0,34 0,00 29,66 (0,00) 0,15
Gender 0,14 0,03
Reliability 22,2 (0,00) 0,11
A source of income -0,04 0,59
Security A source of income 0,02 0,72 18,21 (0,00) 0,10
Gender 0,21 0,00
Communication 6,60 (0,00) 0,04
A source of income 0,07 0,33
553
This kind of relation on financial market is realistic and expected. Banks are
holders of payment transactions and credit policy, having legislation on their
side, so their competitive advantage in relation to other institutions is not a

result of their relationship with the market and clients, but the result of system-
atic solutions to negative trends in economy and underdevelopment of financial
markets. The competitive relations within the banking sector are extremely
strong, dynamic, with many challenges and quantity of portfolio without suf-
ficient capacities for the number of banks existing in Bosnia and Herzegovina.
In such constellation of relations, the uniformity of products and services, IMC
represents a reasonable base for achieving customer affection.
Depending on the core business of the application of products and services,
the specifics of internal organization, financial and technological opportunities,
the development of e-business, in addition to traditional, personal communi-
cation, communication has developed through advanced technologies, which
eliminated spatial and temporal boundaries and enabled clients’ unrestricted
access to financial services. According to client’ needs and preferences, deciding
between personal and impersonal communications is just a matter of choice.
Despite all the values provided by the impersonal communication, 92% of re-
spondents decided for personal communication. This is a signal for financial
institutions to align capacities of employees with the needs of the market, to
train employees, develop internal communication and service culture, and de-
velop a corporate design. Obviously, there is not enough trust and habit to use
technology among clients.
Despite all the efforts of institutions to invest in activities attracting their
clients, according to the executive survey, 88% of the clients decided for corpo-
ration with the institution based on its own initiative. Effects of promotional
activities and their role in an opened level of sales are hardly measurable, so this
data, according to us, is not a sign for institutions to just ‘wait for the clients’.
During marketing campaigns, in communicating with clients, institutions
usually use paid form of advertisement. The program of economic propaganda
is based on the motives of clients and on determining the target market. In ad-
dition to advertising goals, sum of the budget, and the concept of the message,
it is important to define the transmissions, respectively, the media that, in their
audiences, have a sufficient level of capacity, range, frequency and influence. In
addition to the characteristics of products, services and the content of messages,
554
which is a determining factor for choosing the media, we were interested in the
level of use of certain type of media by clients of financial institutions.
According to the attitudes of users of financial services, the highest level of
use has the:
- Internet, which participates with 57%;
- radio with 16%;
- TV with 15%;
- newspapers with 8% and,
- magazines with 4%;
The orientation of the promotional efforts and resources of the institutions,
with mandatory definition of the target groups, should be built on the above-
mentioned client attitudes. Users of financial services make decisions based
on information collected from various sources. That can be only one source or
combination of more.
Users opting for the following:
- combined sources use 50% of clients;
- commercial sources, 24% of clients;
- recommendations of family and friends, 12% of clients;
- information from public sources, 7% of clients;
- recommendations of business partners, 5% of clients;
- opinion of an expert, 2% of clients;
Such a commitment of the clients confirms the assumption that the inte- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
grated effect of communication elements is necessary for access to a market and

an individual client.
Out of the total portfolio of financial services consumers, 14 % of them have
been visiting institutions as a ‘secret customer’. Definition of the term ‘secret cus-
tomer’ created dilemmas with certain clients, because some of them included
visits with the aim of collecting information about the offers and services they
need.
Financial institutions dispose the technological equipment which enable cli-
ents the implementation of e-business. However, only 22% of the clients usethis
555
technology to perform transactions, while 78% of them do it in a physical, di-
rect contact with employees.
The client’s choice of financial institution is based on the following criteria:

- recommendation of others decides in 43% of clients;
- the cost of services by 33%;
- brand institutions with 17% and,
- public attitude, 7%.
Positive experience of existing clients and price elements in almost 2/3 of
clients play a decisive role in the choice of institutions.
Propaganda messages represent promises to customers for the future, while
their post-buying experience gives a realistic picture of the quality of products,
services and resulting customer satisfaction. To the question: ‘Do you believe
in the propaganda of financial institutions?’, only 34% of respondents gave a
positive response. It is obvious that for most clients, institutions did not meet
the expectations, or they just exaggerated their promises to attract more cli-
ents. 1/3 of clients are personally contacted, while others are treated by mass
communications.
Institutions in the communication process use:
- advertising material and gifts at 68% of clients;
- promotional rates at 15% of clients;
- discounts included at 14% of clients
- the call for events and celebrations at 3% of clients.
The trust that is being built in interactive relations between clients and in-
stitutions and between clients and employees is not evenly. Answering the ques-
tion: ‘Whom do you trust more, institution or employees?’ 88% of the clients
replied they have more trust in employees rather than in institution. ‘Satisfied
employee-satisfied client’ must be the basis of developing internal relations of
institution.
Basic slogans of most institutions and their messages are related to the care
of institutions to meet the needs of clients, but still 78% of them consider that
institutions are oriented toward satisfying their own needs. Institutions, via
their surveys, explore attitudes and satisfaction of clients, but half of them are
not ready to participate in it. As a proof, we will use a statement of an unsatis-
556
fied customer who closed his account. Bank procedures require the client clos-
ing account to answers the questions in the questionnaire and explain reasons
for closing his account. Six clients answered: ‘If you were previously interested
in what I think about you, we would not get to the questionnaire.’
3. CONCLUSION
IMC were created because of the application of various forms of communi-
cation with current and potential customers in different periods of time, with
the aim of direct channeling of their behavior and actions. It can be said that,
in their creation, the largest contributions had the marketing communications
agencies started to coordinate their activities in the effective promotion of prod-
ucts and services for their clients. On the other hand, the structural approach
of financial institutions to the development of new products and services shows
their strategic adjustment to the client via marketing functions, where commu-
nication plays a key role, which should provide a two-way flow of information
in the relationship between the institution and the client. The success or failure
of financial institutions directly depends on the attitude of the environment
towards them, but we can say that investing in effective and efficient messag-
ing and marketing communication is the key of profitable relationships with
customers.
The concept of IMC has been adopted by most of the institutions in the fi-
nancial market of Bosnia and Herzegovina, with bigger or less success depend-
ing on their capacities, aptitudes, skills and tremendous influence of manage-
ment structures. Establishing a market position and customer relations requires INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
not only financial resources, but also the art of using marketing tools, business
experience and a good knowledge of its customers. In communication with the
market, all the elements of communication mix are being used, but mostly they
rely on advertising or paid advertisement, and to a less extent on personal sales,
PR, sales promotion and sponsorship.
Financial institutions are burdened by generating as much revenue as pos-
sible and with a smaller amount of costs in the balance sheet positions, so we
have to conclude that the premise on the role of the client in the asset has not
yet found its place, and whether it is a “marketing short-sightedness” or a wrong
business policy of a Management should be defined by shareholders and own-
ers. Clients have their own needs, requirements, attitudes, choices and deci-
557
sions. In the survey of attitudes and relationships of clients towards financial
institutions, full cooperation with respondents was achieved. All respondents
answered to questions, and even offered additional suggestions and reflections,

with an enlightened demonstration of the knowledge of the financial market,
institutions, their products and services, although they differed according to
the biological, educational and economic status respondents were answering the
survey questions, even presented additional suggestions and thoughts, with an
enviable knowledge of financial markets, institutions, their products and ser-
vices, although they differed according to biological, educational and economic
status. The most used are banks and insurance companies. In addition to the
achieved technological progress, they are more oriented towards personal, di-
rect communication and visits to the organizational units of the institution.
They mostly use Internet, TV and radio. Information on which they make de-
cisions is collected from combined sources, and in the election of institutions
the most believed are “the recommendation of others.” Most of them received
advertising material from institutions.
We would especially like to point out that customers of financial institutions
believe more to employees than the institution and their opinions is that the
institutions are used for achieving their own goals, rather than satisfying the
needs of clients. Personal sellers and direct marketing burden the most institu-
tional costs. However, they are certainly the most efficient communication with
clients. Although mobile bankers are in the service of converging services to the
client, their concept is commercial and short-term oriented.
The optimal combination of communicative elements aiming to attract cus-
tomers and build long-term, profitable relationships takes time, skill and knowl-
edge. We think that unique approach and defined recipe do not exist. Employ-
ees are the base of cooperation with customers and the first line of competitive
struggle.
REFERENCES
Amstrong, J. S. (2007) „Significance tests harm progress in forcasting“, International Journal
of Forecasting
Anderson, D.R., Burnham, K.P. and Thompson, W.L. (2000) „Null hypothesis testing:
problems, prevalence an alternative“, Journal of Wildlife Management
Bateson, J.E.G. I Douglas Hoffman, K., (2012) Marketingservices, Beograd, Data Status
558
Carver, R.P. (1978) „The case against statistical significance testing“, Harvard educational
Review
Gummesson, E. (2008) Total Relationship Marketing, Oxford, Butterworth Heinamann.
Hadživuković, S., Zegnal, R., Čobanović, K. (1982) „Regression Analysis“, Privredni pregled
Beograd.
Jobber, D., John, F. (2006) Based marketing, Beograd, Data Status
Jonson, D.H. (1999) „The insignifance of statistical significance testing“, Journal of Wildlife
Management
Kalakota, R. i Robinason, M. (2002) E-business 2.0, Zagreb, Mate.
Kesić, T. (2003) Integrated marketing communications, Zagreb.
Kotler, P., Keller, K.L. (2006) Marketing management, Beograd, Data Status.
Lovrić, M., Komić, J., Stević, S. (2006), Statistical Analyis – methods and applications, Banja
Luka, Ekonomski fakultet Univerziteta u Banjoj Luci.
Mann, S. (1955) „Statistics for business and ekonomics – solution manual“, John Wiley and
Sons, New York, USA.
Maričić, B. (2005) Consumer behavior, Beograd, Ekonomski fakultet u Beogradu.
McCloskey, Deirdre (2008) „The Cult of Statistical Significance“.
Ognjanov, G. (2013) Integrated marketing communications, Beograd, Ekonomski fakultet u
Beogradu.
Parasuraman, A., Zeithaml, V.A. and Berry, L. SERVQUAL - A Multiple Item Scale for
Measuring Consumer Perceptions of Service Quality, Journal of Retailing, Vol. 64, No.
1. 1988
Petz, B. (1981) Basic statistical methods for non-mathematicians, Zagreb, Liber.
Smit, P.R. (2002) Marketing communications, Integrated approach, Beograd, Clio.
Stephens, P.A., Buskirk, S.W., Hayward, G.D., and Martinez del Rio, C. (2005) „Informa-
tion theory and hypothesis testing: a cal for pluralism“, Journal of Applied Ecology.

Stojković, M. (2001) Statistics, Subotica, Ekonomski fakultet Subotica.
Šošić, I.(2006) Statistics, Zagreb, Školska knjiga.
Vojinović, D. (2011) “Managing relationships with customers in financial institutions” PhD
diss., Univerzitet u Istočnom Sarajevu.
Wilson I. (2009) Customer relationship management – happy or reality? International Jour-
nal of Customer Relationship Management
Zikmund, W. G, Mcleod, R. and Gilbert, F. W. (2003) „Customer relationship management“,
John Wiley and Sons, New York, USA
559
General
Economics
EDUCATION AS A FACTOR OF
SUCCESS IN AGRICULTURAL
PRODUCTION OF TOBACCO
mr.sc. Damir RIBIĆ, v.pred.

College for management in tourism and informatics in
Virovitica, Department of economics,
Email: damir.ribic@vsmti.hr
Nikolina PLEŠA PULJIĆ, mag.oec.

College for management in tourism and informatics in
Virovitica, Department of economics,
Email: nikolina.plesa.puljic@vsmti.hr
Abstract
Agricultural production has a very significant share on Croatian economy. As
in most developed countries of the world, it is of strategic importance to encour-
age and stimulate agricultural producers to achieve the maximum added value.
Alongside other crops in Croatia, tobacco has, for several decades, occupied an
important position in terms of added value, concerning the income it generates
for its producers and for the processing tobacco industry. Despite the harmful
effects of cigarettes on human health, tobacco is still a very important crop, and INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
all forecasts predict that it will remain so for a long time.
To maintain competitiveness in the production of cigarettes and other products,
processing tobacco industry in Croatia must pay full attention to the quality of
produced raw materials and yields, to be able to compete with the most devel-
oped countries of the world. With the application of modern techniques such as
crop protection, fertilizing and modern irrigation systems, another important
element in the production of tobacco is the human factor, i.e. the knowledge
and expertise of the producers. Knowledge of production methods and new
technologies cannot be possible without a certain level of education every to-
bacco producer should attain to be able to follow current trends and achieve a
satisfactory level of production.
563
The aim of the paper is to investigate the interrelationship between the quantity
and quality of produced products and the level of education of tobacco produc-
ers in the cooperative base of Croatian tobacco Inc. Since it is one of the largest
tobacco buyers in Croatia, it will be investigated how, and to what extent, the
education of agricultural producers has an impact on their production volume
and quality. The influence of this factor on the overall agricultural production
of tobacco in Croatia will be analyzed, showing its high importance for the
entire national economy.
Damir Ribić  Nikolina Pleša Puljić: EDUCATION AS A FACTOR OF SUCCESS IN AGRICULTURAL PRODUCTION OF TOBACCO
Key words: level of education, tobacco production, agricultural production

JEL Classification: J43, Q13
1. INTRODUCTION
In the modern economic environment, education and lifelong learning are
the foundation of modern agricultural production. It is precisely on these foun-
dations that we can build a competitive agri-business that must follow trends
in industry development and sustainable development. Agricultural production
in the Republic of Croatia occupies a significant share of the national economy,
while tobacco production has occupied an important position for more than a
decade regarding added value but also the income it generates to its producers
and to the processing tobacco industry. Although various health campaigns are
trying to raise awareness among people about harmfulness of cigarettes on hu-
man health, the tobacco industry is still a significant agricultural culture in the
Republic of Croatia. To maintain its importance in the economy, the tobacco
industry must constantly pay attention to tobacco quality and yields. In addi-
tion to the more significant use of modern technologies in tobacco production,
human capital is also relevant to the knowledge, skills and experience of tobacco
producers. Such human capital is generated by raising the level of education,
continuous training and education, by which we can follow modern trends and
achieve a satisfactory level of production.
Since 2015 company Croatian tobacco Inc. is part of a multinational British
American Tobacco company as one of the leading multinational tobacco com-
panies in the world. The power of the global BAT Group ensures to Croatian
tobacco producers a step forward from the domestic market, and through sys-
tem of Croatian tobacco it provides safe exports to the very demanding western
markets. Namely, Croatian tobacco Inc. deals with the contracting of tobacco
564
production with agricultural holdings, and thus manages this production, all
with the aim of obtaining the finest finished product with the least cost of pro-
duction. All the data used in the thesis were obtained from Croatian tobacco
Inc., and were used solely for this research. Specifically, these are the current
data for 2017, that include the base of the producers for the year 2017, their
yields and the quality of the tobacco itself. Accordingly, the thesis shall inves-
tigate whether the degree of education of the producers of Croatian tobacco
Inc. influence the quantity of produced products and their quality. It shall also
explore to what extent these factors influence the total agricultural production
of tobacco in the Republic of Croatia, how important are they for the national
economy, and in which direction the efforts of Croatian tobacco Inc. must go to
achieve the most efficient business that is reflected in higher returns and main-
taining competitiveness on the demanding world market.
2. THE SIGNIFICANCE OF EDUCATION FOR

AGRICULTURAL ECONOMY
Man is an unfinished being who is open to learning and acquiring knowledge
throughout his life. People learn from the very beginning by imitating adults
and their course of acquiring knowledge continues with formal and compul-
sory education in schools and ultimately non-compulsory education at high
schools or universities. In today’s conditions and in accordance with the needs
of the market, we can say that higher education has become a prerequisite for
economic growth. Namely, the “neoclassical economic growth model (Solow-
Swan) goes a step further, defining the economic growth of a country as a func-
tion: of labor, capital, natural resources, but also non-material factors, namely
knowledge” (Škrtić & Mikić, 2011, 290). According to the above definition, the
creators of neoclassical model of economic growth found that about 75% of
economic growth can be attributed to education as one of the forms of hu-
man capital. Therefore, it is not surprising that wealthy countries are considered
as having high-quality human potential and use it in solving international and
global world problems (Pastuović, 1999). It is this knowledge that is today wit-
nessing how much knowledge is essential to every form of activity. It is gained
or strengthened by learning and experience, but in the present and future we
can expect that priority shall be the first, learning (Vajić, 1994). It is therefore
important to note that “learning is the broadest concept that involves uninten-
565
tional, so-called, natural or spontaneous learning, and organized learning which
is also base for education and training. According to the level of education or-
ganization, it is possible to distinguish education from non-school education/
upbringing that can be formal and non-formal. Such conceptualization of the
core concepts of lifelong education and upbringing is now generally accepted”
(Pastuović, 1999, according to Dohmen, 1996). For people to have the oppor-
tunity to learn out of compulsory education, they must first and foremost have
the desire and willingness to adopt knowledge. This thesis focuses on the educa-
tional structure of the population involved in agriculture, and later on research

results and more specifically on tobacco production.
When talking about farmers’ education, it is primarily thought of high school
agronomy institutions that provide theoretical and practical knowledge, thus
gaining a good precondition for future farmers. We can say that the old system
of taking over experience of older has become an inadequate form of educa-
tion. Unfortunately, this system is still largely based on our farming economy
where younger generations feel that it is enough to observe older people and
work with them to gain enough experience for self-employment in agriculture.
The situation is further complicated by the inadequate organization of state
institutions which should encourage the education of farmers. However, de-
spite all the above-mentioned obstacles, a positive attitude towards the need for
professional education of farmers still penetrates the awareness of agricultural
producers (Štambuk, 1977).
These aware, working-active farmers must be able to use their knowledge
and skills to be able to compete successfully with their family economy, but
also to increase the competitiveness of Croatian agriculture, in particular in
line with European market demands (Svržnjak et al., 2006). Accordingly, the
National Competitiveness Council prepared a document of 55 recommenda-
tions for increasing Croatia’s competitiveness (2004)1, in which one can see that
recommendations from 1 to 11 relate only to education for growth and devel-
opment. It is also interesting to note that the first and for this thesis the most
important recommendation refer to increasing the inclusion of adults in the
additional education program to increase the competitiveness of the labor force,
employment opportunities and mobility of individuals in the labor market. The
above mentioned suggests that it really is a significant recommendation that
ultimately affects the competitiveness of the national economy.
566
Similarly, the National program for agriculture and rural areas (2003)1 em-
phasizes the need to improve the educational structure of rural and agricultural
populations and to create a larger supply of vocational education and training
programs for adult education, especially the agricultural population (Svržnjak
et al., 2006). Namely, according to 1991 data, the secondary school had only
8.6%, while higher or college education had only 0.6% of active farmers. Also,
among the peasants there are many who have completed high school, but for
non-agricultural occupations. Educational structure of active farmers is unfa-
vorable compared to other groups of population. This problem, although from
1991, is still present in the agricultural education structure of the Republic
of Croatia, thus directly affecting the lower utilization of scientific and tech-
nological achievements in agriculture, especially in peasant economies, as evi-
denced by the census of 2011 according to the educational characteristics of the
population.
According to the 2011 census, there is a noticeable difference in the educa-
tional structure of the population, which is most pronounced in primary and
higher education. First, we can observe the scale of the education structure of
primary schools. In urban settlements, 27.3% of women and 16.2% of men have
completed only elementary school, while in other settlements it is noted that
50.1% of women and 33.0% of men base their education only on elementary
school. Observing data for high school in urban settlements there are 49.5% of
women and 60.9% of men with secondary education, while in other settlements
the percentage is slightly lower, i.e. 41.3% of women and 58.9% of men. And
ultimately, the key to this thesis is that 23.1% of women and 22.8% of men who
finished high school live in urban areas, while in other settlements only 8.4% of INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
women and 7.9% of men have higher education. From the above data we can
notice a significant difference between primary and higher education. In con-
clusion, we can say that the educational structure in urban settlements is more
favorable than in the other, which is a real indicator of the need to work on en-
couraging education especially in the agricultural population. Moreover, to keep
pace with developed countries, we need to work on improving human capital,
i.e. to encourage farmers to engage in formal/informal education systems or life-
long learning programs. This change shall impact on more successful business
results, increased competitiveness, increased involvement of modern machining
systems on working surfaces and ultimately economic growth.
567
The lifelong learning program is a relatively new term in the literature but is
also increasingly used and emphasized in public speaking. At its general assem-
bly, in the 1970, UNESCO made a proposal to member states on accepting the
concept of lifelong education as a necessary educational reform. Subsequently,
in 1973, the International Commission for the Development of Education pro-
duced a series of recommendations for corrective actions in the area. Since then,
the concept of lifelong education and upbringing has been theoretically elabo-
rated and gradually introduced into the practice of education and is regarded as
an important factor for sustainable development (Delors 1996; 1998). Lifelong

education also covers formal, non-formal and informal forms of education, and
is characterized by its flexibility as regards time, space, content and learning.
With the term lifelong education, we can mention the term development of hu-
man resources, which is important for the subcontractors of Croatian tobacco
Inc. as one of the additional training methods for improving business results.
Namely, “the development of human resources can be defined as the training1 of
employees through which individuals and groups are trained for the develop-
ment of the organization and personal development” (Pastuović 1999, 55). This
kind of education would improve the educational structure of the subcontrac-
tors but also the most important, provide the necessary knowledge that would
be paid in multiple ways.
3. CROATIAN TOBACCO INC. AND BRITISH

AMERICAN TABACCO
The long tradition of tobacco production dates to the 1850’s, while the to-
bacco company, Viržinija, the predecessor of Croatian tobacco, was founded
in 1957 in Virovitica1. Thus, the Croatian tobacco Inc. was formed by the
merger of three tobacco production companies (Duhanprodukt Inc., Pitomača,
Viržinija Inc., Virovitica, Rovita Ltd., Kutjevo). The merge of these companies
happened due to the restructuring process of the Croatian tobacco industry
because of war events and these companies ceased to exist on July 23rd, 2003.
The majority owner of the Company is TDR Ltd. with headquarters in Rovinj,
whose main activity is cigarette production, while TDR Ltd. is 100% owned by
British American Tobacco Investments (Central & Eastern Europe) Limited,
London, United Kingdom, whose ultimate owner is British American Tobacco
p.l.c., London, United Kingdom. Thus, since 2015 Croatian tobacco run busi-
568
ness as a part of the multinational British American Tobacco company as one
of the leading multinational tobacco companies in the world with over 200 of
their own brands present in almost all markets. We can say that this event had a
significant impact on the small “local” company Croatian tobacco Inc. and posed
challenges and risks to leading managers.
Namely, company Croatian tobacco Inc. deals with the contracting of tobac-
co production with the farms and manages this production, all with the aim of
obtaining the finished product with the least cost of production. The purchased
tobacco from Croatian fields is processed at a tobacco processing plant in Vi-
rovitica, after which it is placed to tobacco manufacturers throughout Western
Europe, but also to a domestic factory in Istria, more precisely Kanfanar. Based
on the production contract, the farms have permanent support from the pro-
fessional services of Croatian tobacco Inc. and are funded and supplied with
reproductive material. It is of importance that the company constantly invests
in improving technology and optimizing business processes, increasing produc-
tivity, cost management, employee care, community relationship, and require-
ments for sustainable development.1 Also, due to the above-mentioned merge,
Croatian tobacco Inc. must constantly monitor and implement BAT standards
to be as successful as possible. Following the procedures of the largest leaders in
the production of tobacco, they adopt new knowledge, examine the possibilities
of applying them and refer them to the farms of their tobacco producers. These
methods can accumulate the knowledge and experience of the largest leaders
in tobacco production and provide the same knowledge to domestic farmers
engaged in tobacco production.
When we talk about tobacco production or any other agricultural activity, INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
we can find that for good results, we certainly need excellent weather conditions
that unfortunately cannot be affected. Additionally, we have two of the most
important problems facing the tobacco producers of Croatian tobacco Inc.,
which is the lack of labor force for harvesting and illegal tobacco trade. Also, we
are witnessing today that every other vegetation year is dry or extremely rainy,
and in tobacco production this is an unfavorable factor. However, when it comes
to drought, the use of irrigation systems can cope with this problem. Because of
the instability of key performance factors, we need to work on those factors that
we can influence. For this reason, it is necessary to continually educate tobacco
producers about the benefits of irrigation and other mechanization and to use
569
incentives for such a type of investment to achieve the key of sustainability that
is primarily reflected in the quality of tobacco.1
4. RESEARCH OF EDUCATIONAL STRUCTURE OF

TOBACCO PRODUCERS SUBCONTRACTORS
OF COMPANY CROATIAN TOBACCO INC.
The survey covered all tobacco producers of “ Flue Cured Virginia”who con-
cluded a contract with Croatian Tobacco in 2017 and had certain quantities of
tobacco produced. In the year 2017, there were a total of 356 tobacco producers.
The producers are widespread in the whole of Eastern Croatia, i.e. in 6 counties.
The total surface area of the tobacco planted in the observed year of 2017
was 2,951.08 hectares representing 0.22% of the total agricultural production in
the Republic of Croatia. On these surfaces, a total of 6,604,806 kilograms of to-
bacco was produced, generating income to the amount of HRK 84,799,787.06
at an average price of HRK 12.84 per kilogram.
The average size of the land on which the tobacco is planted is 8.29 hectares,
which is quite significant, since the average size of the farm in the Republic of
Croatia is only 5.6 hectares. These are farmers whose total surface area is big-
ger, because it is not possible to grow obacco on all available surfaces every year,
since it is important to take care of crop rotation. The average size of the farm is
28 hectares, which shows that they are agricultural producers that handle larger
areas even from the European average, which currently stands at 14.3 hectares
per single producer.
According to data for 2017 out of the total number of producers, 207 of
them have secondary vocational qualifications, qualified workers, with complet-
ed secondary school 71, unskilled workers with elementary school or without
elementary school 69, while producers with completed higher or high school
- 9. This relation shows a very low level of education among agricultural produc-
ers, which is a low level of awareness of the importance of education in agricul-
ture, the legacy of socialism and the long-term intellectual devastation of rural
areas, and the consequences of poor education systems and labor market needs
with education system can be seen.
570
Figure no. 1: Educational structure of tobacco producers in 2017
250
200
150
100
50
69 71 207 9
0
Unskilled worker Skilled worker High school University
Source: authors
Average yield of tobacco per hectare in dry farming in years without extreme
weather conditions ranges from 2,100 kg to 2,500 kg. If land is irrigated, yields
can grow up to 3,000 to 4,000 kg per hectare of surface. Despite the high dif-
ferences in yields and quality of tobacco, there is still a very small number of
irrigation areas in the Republic of Croatia, primarily due to the high costs of
investing in irrigation systems. However, it is impossible to exclude the possi-
bility of correlating the level of education of farmers with the awareness of the

necessity of applying new technologies and abandoning the traditional ways of
treating the land. This relation certainly requires further research.
Nevertheless, it is important to point out that the irrigation area is growing,
so that in 2015, total irrigation area of tobacco areas was 11%, and in 2017 13%.
Progress is slow, but there is still a visible shift in the positive direction.
The average yield per hectare of the area for the observed 356 producers in
2017 was 2,263 kg. This yield level falls below the average because the longest
dry season and adverse weather conditions are recorded in the most intensive
period of tobacco leaf growth. Such an extreme year, as it was in 2017, provides
an additional incentive to modernize business, and makes a significant step for-
ward in the application of new technologies, primarily through irrigation sys-
571
tems. The awareness of the mentioned can also be correlated with the degree of
education of the holders of agricultural holdings.
Table no. 1: Educational structure of tobacco producers, and crop yield per
hectare in 2017
EDUCATION Number of Total number of Total produced Average yield per
producers hectares (ha) amount (kg) hectare (kg)
Unskilled worker 69 574,18 1.197.364 2.085,35
Skilled worker 71 618,76 1.408.915 2.276,62
High school 207 1.690,34 3.834.264 2.268,34

University 9 67,8 164.263 2.422,76
TOTAL 356 2.951,08 6.604.806 2.263,27
Source: authors
If the average yield per hectare of the area is observed according to the quali-
fication, significant differences and deviations are observed. Agricultural pro-
ducers with secondary education and skilled producers (level of education at
the same level as high school) generally have a similar level of yield, close to the
average for the observed period. However, producers educated at elementary
school level and lower realize yields far below the average of all other producers.
It should not be neglected the fact that these producers account for 19% of the
total number of producers and handle 19% of total surface area with tobacco.
On the other hand, in case of producers who have higher education and higher
education levels, they also noticeably deviate more than the average because
they have a yield of 2,422.76 kilograms per hectare. This is by 159.5 kg more
than the average of all manufacturers together, and even 337.41 kg more than
the average producer with lower level of education.
572
Figure no.2: Average yield per hectare and degree of education in 2017
2.500,00
2.400,00
2.300,00
2.200,00
2.100,00
2.000,00
1.900,00
Source: authors
One of the benchmarks for the success of tobacco production, and perhaps
the most significant, is the quality of the leaf of cured tobacco. When purchas-
ing, considering the quality, tobacco is sorted into 6 classes. Depending on the
tobacco class, there is a different purchase price for each class, and in 2017 it
ranged from HRK 5.61 for the lowest sixth grade, up to HRK 19.67 for the
highest first class. The average price achieved for all producers in all classes to-
gether in 2017 was HRK 12.84 per kilogram. The aim of each producer should
be as much as possible the amount of tobacco in the highest classes, and the less INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
possible in the lowest classes, i.e. the fifth and sixth class. Also, the percentage,
i.e. the amount of tobacco that has been rejected and which is classified in out-
grade is also important and is not suitable for further processing.
According to the data obtained in 2017, the average quantity per hectare of
tobacco produced in the first four best classes was 2,210.51 kilograms of cured
tobacco. On the other hand, the average amount of fifth and sixth grade was
52.75 kilograms of tobacco. If we look only at the fifth and sixth grade of to-
bacco, deviations from the level of education are not very significant and are very
close to the average. However, when looking at the first 4 classes, which gener-
ate the highest profit, the differences are significant. For farmers with a higher
or high qualification, production per hectare in the first 4 classes of tobacco is
573
higher by 159.22 kg than average, but it is higher by 333.52 kg than the farmers
with the lowest level of education or with completed elementary school. This
ratio is significant when compared with farmers who have qualification “skilled
worker” and is higher by 190.17 kg per hectare, and compared to farmers with
high school, the production of the first four classes is higher by 173.49 kg per
hectare.
The number of farmers with a qualification at primary or lower level is ex-
tremely significant, and such farmers are also processing large areas. By raising
the level of education for only one level, i.e. to the level of high school, with
the average realized price of tobacco in 2017, we reach the amount of HRK
1.264.108 per annum of lost profits on only a small part of agricultural produc-
tion in the Republic of Croatia.
Table no. 2: Average amount of tobacco produced per hectare and class in 2017
average quantity per average percentage
average quantity per hectare
EDUCATION hectare in the classes 5-6 of out-class per
in the classes 1-4 /in kg
/in kg manufacturer
Unskilled worker 2.036,22 49,13 3,88%
Skilled worker 2.226,39 50,23 3,87%
High school 2.209,71 58,63 3,87%
University 2.369,74 53,02 3,85%
AVERAGE 2.210,51 52,75 3,87%
Source: authors
The average percentage of rejected tobacco was 3.87%, which is not insig-
nificant. If we look at the absolute figures, a total of 260,543 kilograms of to-
bacco has been rejected, which is rejected to the producers and is not paid for,
because of the high level of impurities, fragmentation, quality and the like. If
this amount is multiplied by the average price realized, we reach the amount of
HRK 3.3 million of lost profit by agricultural producers in just one year. Ac-
cording to this indicator, unskilled farmers deviate 0.01% of the average, and
0.03% of farmers with a higher or high education level or, in absolute terms, a
lost profit of HRK 100,360 per year. This is a production segment that all pro-
ducers should do regardless of the degree of education, as significant savings can
be made, and reducing one-off deductions in each of them can make a difference
between profitable and unprofitable production.
If we look at the data on the realized average price per kilogram of tobacco,
this data shows something better for unskilled agricultural producers. The av-
574
erage price achieved among the farmers with the lowest level of education was
the highest and amounted to HRK 13.10 per kilogram of submitted tobacco,
while for the highest educated farmers amounted to HRK 12.45, which makes
a difference of only HRK 0.65 per kilogram in favor of the unskilled agricul-
tural producers. However, when these prices are in relation to the total amount
of tobacco produced in 2017, the quality of tobacco delivered and the differ-
ence in the quantity per hectare, the differences are more than obvious. Namely,
per hectare of tobacco production, the average farmer with the lowest level of
education earns revenue of HRK 27,321.40 while the farmer with the highest
level of education achieves significantly higher HRK 30,156.16 per hectare of
tobacco. This is the difference of HRK 2,834.76 per hectare of planted area,
which is very much and makes the difference between profitable production and
production that is by no means profitable. When the data is shown graphically,
the difference becomes even more pronounced.
Table no. 3: Total revenue and average revenue per hectare in 2017
Average
realized
Total number Average
price for total Total produced Total revenue
EDUCATION of hectares revenue per
delivered quantity (kg) / in kn
(ha) hectare / in kn
quantity /
in kn
Unskilled worker 13,10 1.197.364 15.687.400,41 574,18 27.321,40

Skilled worker 12,85 1.408.915 18.108.410,50 618,76 29.265,64
High school 12,77 3.834.264 48.959.388,49 1.690,34 28.964,23

University 12,45 164.263 2.044.587,66 67,80 30.156,16
TOTAL 12,84 6.604.806 84.799.787,06 2.951,08 28.735,17
Source: authors
575
Figure br. 3: Average income per hectare of tobacco production in 2017
30.500,00
30.000,00
29.500,00
29.000,00
28.500,00
28.000,00
27.500,00
27.000,00
26.500,00
26.000,00
25.500,00
Source: authors
From all the above, it is very easy to conclude to what extent the impact of
level of education has on the producers of tobacco in the Republic of Croa-
tia, and especially in the part of Podravina and Slavonia. It is well known that
generations of families built up economies and maintained families of farm-
ers in prosperity, which meant good and pleasant life on earth and from the
land. Modern technology, the pressures of the global economy, cheaper overseas
transport costs have led to competition being global, and survival means steady
investment in education, application of new knowledge and maximum savings
in all business segments. The agricultural producer as one of the key factors in
the economic progress of the country can no longer be uneducated and with-
out knowing the most modern methods of soil cultivation, monitoring trends
in mechanization, irrigation and plant protection. A modern farmer must be a
highly trained expert who follows technology, is familiar with all current trends
in the development of agricultural production, and is ready for lifelong learn-
ing and the changes that are brought to it by the challenges of globalization.
Croatian tobacco company, if it wants to maintain the level of raw material pro-
duction, or to increase it, must select the base of the producers, and to invest in
their education, exchange of knowledge and experience on a global scale, which
through linking with the BAT that took place in 2015, surely can.
576
5. CONCLUSION
By researching and analyzing the data obtained, it is quite clear that the de-
gree of education of the agricultural producer is directly correlated to its success
and the added value it generates. The conducted research has clearly shown the
direction of Croatian tobacco’s efforts in the selection of producers, but also in
their orientation and strategic efforts to achieve as efficiently as possible, higher
yields, better quality and to maintain competitiveness in an increasingly de-
manding world market.
This is the first research of this kind carried out in company Croatian to-
bacco Inc. and during the collaboration with the company it was concluded that
after this research the management recognized this as an important fact and
that it shall continue to be relevant and significant and shall be considered in
further strategic considerations in the business segment with producers. This is
the way to prompt the state institutions, particularly Ministry of Agriculture, to
further develop policies that shall contribute to the development of agriculture,
and thus the development of the entire economy of the Republic of Croatia.
The analyzed data considered the total number of tobacco producers of Cro-
atian tobacco Inc. in 2017, so the data obtained is relevant, and leaves no room
for statistical errors. Research of one segment of agricultural production can be
significantly mapped to other segments of agricultural producers. Given that
only 0.22% of the total agricultural area in the Republic of Croatia is concerned,
and the differences in revenues and lost profits are huge, we can only speculate
how the agricultural production in the Republic of Croatia would look like if
the education level of all agricultural producers processing 1,3 million hectares
of agricultural land would be raised only by one level. GDP growth rates would
surely be more numerous, and emigration would not be the main topic of daily
political debate.
Education has no alternative, and only education is a way to lead to eco-
nomic growth and prosperity of the entire territory of the Republic of Croatia.
LITERATURE:
Delors, J. (1996). Learning: The treasure within. Paris: UNESCO. Croatian translation: De-
lors, J. (1998). Learning: Treasure in us. Zagreb: Educa
National program for agriculture and rural areas, Zagreb, 2003., Available on: www.mps.hr
Access: (11/2/2018)
577
National Competitiveness Council (2004): 55 Recommendations for increasing Croa-
tia’s competitiveness, editors Mira Lenardić et al., Zagreb Available on: http://
konkurentnost.hr/wp-content/uploads/2018/01/NVK-55-Preporuka.pdf Access:
(13/2/2018)
Pastuović, N. (1999). Educology, Zagreb: Znamen, ISBN 953-6008-04-1, Zagreb
Population, Household and Housing Census 2011. Population by educational characteris-
tics Available on: https://www.dzs.hr/Hrv_Eng/publication/2016/SI-1582.pdf Ac-
cess: (10/2/2018)
Svržnjak, K. (2006): Informal education of beekeepers. Croatian bee, year 124, no.1
Svržnjak, K., Kamenjak, D., Kantar, S. (2006): Education of farmers through specialist sem-
inars. Agriculture, Vol.12, No.2 December Available on: https://hrcak.srce.hr/index.
php?id_clanak=7701&show=clanak Access: (12/2/2018)
Škrtić, M., Mikić, M. (2011): Entrepreneurship, Zagreb: Sinergy, ISBN 978-953-6895-43-
4, Zagreb
Štambuk, M. (1977): Attitudes about the need for professional education of farmers. So-
ciology and space, Sociology of the village Available on: https://scholar.google.hr/
scholar?hl=en&as_sdt=0%2C5&q=6.%09%C5%A0tambuk%2C+M.+%281977%
29%3A+Stavovi+o+potrebi+stru%C4%8Dnog+obrazovanja+poljoprivrednika&bt
nG Access: (12/2/2018)
Vajić, I. (1994): Management and entrepreneurship, 1000 investment programs for small
and medium-sized enterprises, Zagreb: Mladost, ISBN 953-96161-0-7, Zagreb
INTERNET SOURCES
http://www.monitor.hr/clanci/agropedija-wikipedija-hrvatske-poljoprivrede/162722/
(6-2-2018.)
http://www.vpz.hr/2017/11/05/zlatko-plesa-direktor-hrvatskih-duhana-d-d-virovitica-
duhan-ove-godine-losije-kvalitete-zbog-nepovoljnih-vremenskih-prilika/ (6-2-2018)
578
GOVERNMENT SPENDING
BEHAVIOUR: HOW BIG PUBLIC
SECTOR DO WE REALLY NEED?
Ljubo JURČIĆ, Ph. D.

University of Zagreb, Faculty of Economics and Business
E-mail: ljjurcic@efzg.hr
Anita ČEH ČASNI, Ph. D.

University of Zagreb, Faculty of Economics and Business
E-mail: aceh@efzg.hr
Abstract
The size of the “state” or the public sector is discussed among theoretical econo-
mists, practical economic politicians, lawyers, philosophers and other profes-
sions, but also among common people. Some advocate for the minimum role of
the state, while others support a greater role of the state in social and economic
development. Between these two extremes, there are many other, different,
opinions, theories, models and ideologies.
The size of public spending, the state budget deficit, the size of the public debt,

the structure of state revenues and expenditures, both in absolute and relative
terms are fundamentally economic and starting political indicators in analys-
ing the size, role, and efficiency of the state.
In this paper, the share of government spending as a percentage of GDP is ana-
lysed and compared for Croatia and selected peer countries. According to the
empirical analysis, most EU Member States have public consumption of over
40% of GDP, where as in old (developed) EU member states, that number is
about 45%, which puts Croatia within the EU average. In addition, the trend
of public spending in EU countries clearly shows an increase with the begin-
ning of the crisis in 2008. In addition, a decline is noticeable since 2010 when
the crisis stopped. This has resulted in an increase of private consumption and
investment, which is the reason why public spending could return to the pre-
crisis period values.
579
The efficiency of the public sector and public enterprises is not measured by the
size of their profits, but by the growth rate of the economy, full employment,
real income growth and its even distribution among the citizens, low inflation,
budgetary equilibrium in the long-run, export and import balance and negli-
gible external debt. The state is efficient, as far as it can efficiently organize the
public sector in accordance with social goals.
Key words: public sector, structure of government expenditure, Croatia, EU
JEL Classification: E60, H00
Ljubo Jurčić Anita Čeh Časni: GOVERNMENT SPENDING BEHAVIOUR: HOW BIG PUBLIC SECTOR DO WE REALLY NEED?
1. INTRODUCTION
The modern state cannot be successfully developed without an efficient and
successful public sector, or, in other words, a successful state. Within the public
sector, financial and non-financial public companies that meet the public needs,
whether for public goods, building a physical or institutional infrastructure,
market regulation and its deficiencies, nature protection, or otherwise creating
conditions for a safe life of its citizens, are known as stable and developed econ-
omies. The efficiency of the public sector and public enterprises is not measured
by the magnitude of their profits, but by the growth rate of the economy, full
employment, real income growth and its equal distribution among the citizens,
low inflation, budgetary equilibrium, export and import balance and negligible
external debt. The state is efficient, as far as it can efficiently organize the public
sector in accordance with the social goals, and within that, the public compa-
nies. The inevitable condition for achieving the efficiency of public companies is
the automatic, invisible, day-to-day control of their business.
The role of the state in history has spread and increased. Measured by its
catching up in GDP growth rate, its size has risen from about 12% at the begin-
ning of the last century to an average of 45% today, in most developed European
countries. Its role has expanded from the classic functions such as administra-
tion, external and internal security, and economic and social development. The
welfare state, which began to emerge in the early sixties of the last century, be-
came more involved in health and social protection, education, protection of
labour rights and the building of physical and institutional infrastructure. For
(sustainable) development in the long- run, its functions extend to nature pro-
tection, climate change, demographic development, new technology develop-
580
ment and new manufacturing sectors. Considering all this, the state remains,
even in this 21st century, the most dominant political institution.
2. THE SIZE OF THE STATE: BIG VS SMALL

For a better understanding of the role and the size of the state, it is probably
best to study the views of famous philosophers of the state of different orienta-
tion and to analyse the development of the state through history, its size, and
the development of its functions. To appreciate different views on the state, it
is necessary to have a good understanding of the historical circumstances in
which the state we are analysing is in, both theoretically and practically. These
circumstances always include the military force of a country, the country’s en-
vironment, demography, technological level and technological development, so-
cial organization, and type of society, religion, culture, tradition, but also the
climate change.
Due to changed circumstances, history, attitudes, scientific views, ideologies,
the practical organization of the state was changed. However, the modern and
most intense discussion on the size of the state begins after the Second World
War. Discussion on the size and the role of the state in past, present, and fu-
ture is not even near its end. On the contrary, it will continue and probably
intensify. The process of globalization, climate change and demographic change
over the last few decades will undoubtedly continue in the next few decades,
are the greatest challenges faced by modern states. Regardless of the powerful
process of globalization, through which the obstacles and boundaries between
the states are increasingly diminishing, and the progressive independence of the INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
state is transferred to global institutions; most of the academic and political

world is of the opinion that in the next hundred years, the state will remain
a central political institution. The one thing that will surely change is its role
through adaptation to new circumstances.
The size of the public spending, the state budget deficit, the size of the public
debt, the structure of the state revenues and expenditures, both in absolute and
relative terms, relative to the gross domestic product, are the basic economic
and starting political indicators in the analysis of size, role and efficiency of the
state.
581
The quality of life of millions of people in modern states depends on knowl-
edge, skills, efficiency, loyalty and moral, based on which the public administra-
tion carries out its duties and achieves the goals entrusted to it with the pursuit
of public interests and the promotion of the common good. Over the last half
century, the role of public administration has been increasingly reaffirmed as
the driving force behind various policies that address specific social problems.
Public administration is defined as the body that has received political author-
ity and resources needed to meet general interests and whose ultimate purpose
is the general interest or, rather, the promotion of the common good. Thus, the
notion of public administration is not limited to state administration, which is
a very powerful part of it but also applies to regional and local self-government,
state-owned companies and so on.
Modern societies and states are developing, inter alia, based on the indus-
trial and technological revolution. The structure of society, the structure of the
economy and the structure of the state are interrelated and dependent. Devel-
opment of one structure encourages the development of others. Their relation-
ship and development are co-dependent. Stopping development in any of these
structures limits the progress of other structures, and hence the development of
the whole society or the state.
By observing the development of society in general, economically speaking,
it is dependent on the complexity of the product. Greater complexity means
higher added value in production and higher gross domestic product of the
country. The greater complexity of products allows for innovations and newer
technologies and, of course, the education that is a precondition for them. If we
observe this process through a physical product, this complexity increased in
the visible area and was dominant since the beginning of the industrial revolu-
tion in the eighteenth century until the mid-sixties of the last century. Com-
plexity continued to develop even after this period, but dominance overcome
complexity in the intangible area (digital, semiconductor, nano and software
technology) and today that gives the largest contribution to the newly created
value. This is the result of education and technological development.
Increasing the complexity of a product changes the product structure, but
not only its structure but also the structure of the overall economy. These
changes must also be accompanied by changes in the social and state structure.
Sometimes, it is necessary to make changes in state and social structure to align
582
with technological progress and create space and other conditions for changes
in the economic structure. At times, it is necessary to make changes in the state
structure in order to generate the conditions for creating and producing more
complex and “more technological” products thus boosting the progress of the
economy and the development of the society.
The task of the public administration, the public sector or the state, is to cre-
ate the conditions for the quality of life of people, or of society as a whole, but
also to constantly increase that quality. The emphasis is on the quality of life
for all people, not just some of them. Some individuals, some families or busi-
nesses, can increase their wealth and offer the high quality of their lives even in
a deprived society. The task of the private sector is not to ensure a better quality
of life for everyone. It is not even the goal of their activities. Creating a better
life for all people in society is the goal and task of the public administration, or,
more generally speaking, the public sector that the state organizes.
The market mechanism does not allow for the creation of all the necessary
goods. The goal of the private sector is not in producing everything that society
needs. The private sector is led by its own interests, as Smith described it. The
market mechanism does not always give optimal economic and social results.
The market mechanism by automatism does not prevent or regulate negative
market extensions. Market inefficiency requires government intervention with
the goal of achieving potentially feasible, maximum income, and its constant
increase.
The efficiency of the overall economic activity depends on the efficiency of
allocation of both private and public goods. The private sector is more efficient
in allocating private, and public sector in allocating public goods. Tax policy
is a mechanism for collecting revenues for financing public goods. Taxes are
a linkage between the state and public goods. Taxes and public goods are the
purposes of the public sector.
Pressures for the “minimal” role of the state to reduce public spending and
taxes, uttering that taxes and public spending hinder the economic and social
development of the country, and public spending and public debt as a source of
financial, economic and political crises, come from the social group of the capi-
tal owners. Namely, dividends, interest, salaries, taxes, subsidies and such are
paid out of the “gross value added”, which is to a large extent the gross domestic
product. Thus, it is about the distribution of the gross domestic product (GDP)
583
between labour, capital, and state (public interest). In the struggle for the larg-
est share of GDP, capitalists are organized into (business) associations and give
support to “theoreticians-scientists”, lobbyists, journalists and other people with
the potential of public appearance and influence on “general opinion”. Those
should promote the idea of “minimal state” as a magical solution to economic,
social, and all-inclusive social progress, in the interests of all members of society.
The minimum state, according to their ideology, means that the state must
withdraw from health, education, social activities, and infrastructure. The result
of such withdrawal of the state from these activities would be lower taxes and
contributions, which are paid from the gross value added. Reducing taxes and
contributions leaves a bigger part of the gross value added for capital. The final
goal is to create opportunities for higher profits, dividends and other capital
gains. The second direction of capitalist activity, in promoting the policy of de-
velopment and realization of national interests, is the reduction of wages and
salaries. Every worker should deal with the costs of healthcare, education, pen-
sion investments, etc. Such a policy, a policy of complete privatization, which
often has no economic justification, fits in with the narrow interest, the acquisi-
tion of a monopoly or renting position, or an additional profit without a great
deal of work or development. The same policy of privatization, in their politics,
has been transformed into orthodox ideology, practically the religion, where its
invincible and undisputable positive effects cannot be questioned.
A minimum state policy would, in the medium term, lead to the collapse of
the economy and the repression of society, with unforeseeable consequences.
In the chaos that would arise, ultimately, capitalists would not earn, but would
completely disappear. The development of the modern state cannot be based on
the principles of “minimal state”. The modern state can only develop as a state
of well-being, which ensures and improves the conditions for the functioning
of a fair market economy, producing public goods without which the economy
and society cannot function or develop. Technological progress, climate change,
social structure changes, and the change of geopolitical relations are the roles
and functions of the state, but they do not minimize it.
The state is not only efficient in performing its service. Its efficiency depends
on the knowledge and abilities of people who are organizing and managing it.
As mentioned earlier, there is no standard, or model, which would be equally
effective for all states. The organization and policies of an efficient state are sys-
584
tematized and confirmed by history. The experience of different states in dif-
ferent circumstances, a good knowledge of the specifics of their own society
arising from geography, climate, tradition, religion, culture, customs, economic
and social structure, the levels of economic and social development, the geo-
political environment, the system of international institutions and rules, etc.
With a good knowledge of all aforementioned and other unobserved factors,
with clearly defined long-term and short-term social goals, political leaders can
organize the process of state building and development.
Social needs, economic and demographic structure, determine the size and
structure of public spending. Today, it is far clearer than a few decades ago, that
social and economic functions should be left to the market and to the state.
Again, it is important to realize that this distribution between the market and
the state is not the same for all countries. Science, confirmed by experience, has
many recommendations for this.
So it is not the real question how big the state should be, but what kind of
the state do we actually need?
3. ECONOMIC EFFECTS OF THE SIZE OF THE

PUBLIC SECTOR: FISCAL MULTIPLICATOR VS
AUTOMATIC STABILIZATION
The increase in final consumption is positive for production if its capacity
is not fully exploited, i.e. in conditions where not all production factors are em-
ployed. The economic crisis is manifested by the reduction of all components of
final consumption. Depending on the structure of the economy and different con-
sumption components, a general multiplier of final consumption can be derived.
Fiscal multiplier shows the ratio of change in domestic product (ΔY) be-
cause of changes in public spending (ΔG) or changes in fiscal deficit (ΔT) in
relation to domestic income that would result in no change in budget revenues
and expenditures. Depending on the period for which it is estimated, there are
different forms of the fiscal multiplier. Namely, the static multiplier, the multi-
plier for a given period, the peak multiplier in a given period, the total cumula-
tive multiplier at a specific time pointing to the ratio of total public spending
and the overall change in the domestic product due to the change in public
consumption.
585
If one begins with the equation of the domestic product:
Y = C + I + G + (E –M),
Where: C denotes personal consumption, I is investment spending, G de-
notes budget spending, E is export and M is imported, and if:
C = α+ β (Y – T),
Where: β is the marginal propensity to consume, T is tax and T = tY, is
the limited tax rate, and M = mY, where the m is marginal propensity to im-
port, then the final consumption multiplier or any of its components can be
expressed by:
ΔY/ ΔG=1/(1-β)+βt+m.
Many researches deal with a fiscal multiplier and its value in these analyses
ranges from less than zero to plus four, depending on the assumptions set, the
type of fiscal policy, the economic structure, the country’s expenditure structure,
and the country size. The main challenges in assessing the size of a multiplier
arise from the problem that discretionary fiscal policy is usually used during
the recession with many other instruments, so the impacts of the stimulants are
easily confused with the influence of other factors.
Another challenge is the fact that the fiscal multiplier produces effects over
several quarters. Measuring these dynamic effects is an additional problem. The
fiscal multiplier is most often estimated if the instruments of other policies are
kept constant, which is almost never the case.
In the economic crisis, fiscal policy has a key role in stabilizing demand and
production. The strongest response to the crisis is expected from discretionary
fiscal policy measures in the form of fiscal stimulus, more specifically fiscal aid
to help various parts of the economy and society. In addition, there is another
source of fiscal expansion in the economic crisis, which is the function of an
automatic stabilizer. The automatic stabilizer is usually defined as such an ele-
ment of the fiscal policy that reduces fluctuations in output without govern-
ment discretionary measures. When economic growth is achieved, revenues are
high, and in the period of recession and crisis, they are smaller. The same is true
for imports, which are increasing in times of economic growth, and in periods
of recession, they are decreasing. Such a shift in taxes and imports through the
multiplier slows down the growth of the economy in the wake of the slump but
also slows down the downturn in the recession and crisis.
586
Transfers also have a stabilizing effect. Expenses for unemployment benefits
increase during the recession, which is why there is no reduction in income and
the demand for a proportional reduction in employment. State expenditures,
such as government spending in that section, are automatically increasing in
the recession phase and are automatically diminishing in the economic growth
stage. If income reductions are understood as transitory, and current consump-
tion is based on fixed income, and consumers have the option of borrowing,
their spending will not be reduced. In this case, the influence of the automatic
stabilizer on the current consumption will be zero. The situation is different
if households have limits on borrowing. In this case, current consumption de-
pends on disposable income and the automatic stabilizer begins to play its role.
4. STRUCTURE OF GOVERNMENT SPENDING IN

SELECTED COUNTRIES
The size of the state is measured by the share of public consumption in the
gross domestic product and by the number of employees in public sector rela-
tive to total employment. This share is most often analysed through history and
compared with the share of public spending in similar countries.
After the Second World War, the state became an increasingly important
economic factor with its own consumption, which has an increasing share of the
gross domestic product. Smart countries quickly realized that this was not just
consumption, but that consumption is the initiator of the domestic production.

Table 1 shows that public consumption in OECD member states since 1910
has been growing steadily to the present. There are certain differences between
countries, which are the result of differences in political organization, tradition
and so on.
587
Table 1. Government expenditure in selected OECD countries (% of GDP)
Country 1910 1920 1940 1960 1980 1990 2000 2010 2016
Austria 17,0 14,7 20,6 35,7 48,1 38,6 52,2 53,0 51,0
France 17,0 27,6 29,0 34,6 46,1 49,8 51,6 56,4 56,5
Germany 14,8 25,0 34,1 32,4 47,9 45,1 45,1 47,3 44,3
Italy 17,1 30,1 31,1 30,1 42,1 53,4 46,1 49,9 49,6
Japan 8,3 14,7 25,4 17,5 32,0 31,3 39,0 38,0 36,8
Netherlands 9,0 13,5 19,0 33,7 55,8 54,1 44,2 48,1 44,3
Norway 9,3 16,0 11,8 29,9 43,8 54,9 42,3 44,1 50,2
Spain 11,0 8,3 13,2 18,8 32,2 42,0 39,1 45,6 42,7
Sweden 10,4 10,9 16,5 31,0 60,1 59,1 55,1 50,2 49,1
Great Britain 12,7 26,2 30,0 32,2 43,0 39,9 36,6 44,9 39,4
SAD 7,5 12,1 19,7 27,0 31,4 33,3 33,9 40,0 35,2
Average 12,9 18,3 22,4 28,0 43,1 44,7 43,0 47,0 45,4
Source: Tanzi, V., Schuknecht, L., (2000), Public Spending in the 20th Century: A Global
Perspective, OECD Factbooks, IMF Fiscal Monitor (April 2017).
There is a noticeable increase in the share of public consumption in the gross

domestic product over the period from 1910 to 2016. The reason for this in-
crease is not just raising the state’s “general costs”, but also extending state activi-
ties to new functions.
There is a similar situation with public spending in the European Union,
(as shown in Figure 1). The largest number of Member states have a public
consumption of over 40% of the gross domestic product, and old, developed,
EU members account for about 45%. Croatia is within the EU average. In the
pre-crisis period by 2007, the average share of public spending in GDP for EU
member states was below 46%. Already in 2008, the consequences of the emerg-
ing crisis are beginning to be felt through the decline in private consumption,
exports, but also through problems in the financial sector. With the aim of pre-
serving the stability of the economy, domestic production, employment and the
stability of the financial sector, states are intensely intervening in the economy.
588
This is maintained through the increase in public spending in absolute terms,
but also by an increase in gross domestic product (Figure 2)
Figure 1. Share of government expenditures in % of GDP for the EU countries

in 2016.
Source: Eurostat (http://ec.europa.eu/eurostat/statistics-explained/index.

php?title=File:Total_general_government_expenditure,_%25of_GDP;_2016.png )
Figure 2. Public expenditures in % of GDP for the EU countries (2006-2016)
Source: Eurostat Government finance statistics (database).
The functions of the modern state are perhaps best described by the struc-
ture of public spending. Table 2 shows the structure of public consumption in
OECD countries.
589
Table 2. Structure of government expenditure in OECD countries (% of GDP)
in 2015.
+RXVLQJDQG 5HFUHDWLRQ
*HQHUDOSXEOLF 3XEOLFRUGHU (FRQRPLF (QYLURQPHQWDO 6RFLDO
'HIHQFH FRPPXQLW\ +HDOWK FXOWXUHDQG (GXFDWLRQ
VHUYLFHV DQGVDIHW\ DIIDLUV SURWHFWLRQ SURWHFWLRQ
DPHQLWLHV UHOLJLRQ
$XVWUDOLD
$XVWULD
%HOJLXP
&]HFK5HSXEOLF
'HQPDUN
(VWRQLD
)LQODQG
)UDQFH
*HUPDQ\
*UHHFH
+XQJDU\
,FHODQG
,UHODQG
,VUDHO
,WDO\
-DSDQ
.RUHD
/DWYLD
/X[HPERXUJ
1HWKHUODQGV
1RUZD\
3RODQG
3RUWXJDO
6ORYDN5HSXEOLF
6ORYHQLD
6SDLQ
6ZHGHQ
6ZLW]HUODQG
8QLWHG.LQJGRP
8QLWHG6WDWHV
2(&'
Sources: OECD National Accounts Statistics (database); Eurostat Government finance sta-
tistics (database).
According to table 2, in 2015, social protection represented the largest share of govern-
ment expenditure across OECD countries, averaging 32.6%, ranging from 44.9% in Fin-
land to 19.4% in Korea. Health care represented the second highest share reaching 18.7%
of government expenditures on average for the same year, ranging from 24.2% in the United
States to 6.5% in Switzerland. Public services –which include debt servicing– accounted for
13.2% of government expenditure, while education represented 12.6%. In addition, defence,
together with public order and safety, represented an average 9.4% of government expendi-
ture among OECD countries.
5. CONCLUSION
The role of the state in history has spread and increased. Measured by its share in GDP,
its size has grown from about 12% at the beginning of the last century to an average of 45%
today, in most developed European countries. Its role has expanded from the classic func-
tions: administration, external and internal security to economic and social development.
590
For (sustainable) development in the long- run, the roles of the state extended to nature pro-
tection, climate change, demographic development, new technology development and new
manufacturing sectors. Ultimately, the state remains in this 21st century the most dominant
political institution.
Finally, it is no longer the question how big state do we need, despite all the pressures to
minimize its role, but the real question that imposes is what kind of the state do we need?
REFERENCES
Baletić, Z. (2005). Ekonomski liberalizam i ekonomska znanost, Hrvatska akademija
znanosti i umjetnosti.
Baletić, Z. (2009.). Kriza i antikrizna politika, in the book: Kriza i okviri ekonomske poli-
tike, Zbornik radova, Razred za društvene znanosti, Hrvatska akademija znanosti i
umjetnosti Hrvatske i Hrvatski institut za financije i računovodstvo, Zagreb, srpanj
2009.
Barr, N. (2004). Economics of the Welfare State, Fifth ed., Oxford University Press.
Beck, U. (2005), Power in Global Age, Polity Press, Cambridge.
Jurčić, Lj. (2010).Financijska kriza i fiskalna politika. Ekonomski pregled, no. 5-6.
Jurčić, Lj. (2011).Država blagostanja., Made-In, ožujak, 2011.
Jurčić, Lj. & Teodorović, I. (2011). Global Crisis, recovery and the Changing World. Eko-
nomski pregled, no. 5-6.
Jurčić, Lj. & Vojnić, D. (2011).Latentna kriza kapitalizma, Zbornik radova, Ekonomska
politika Hrvatske u 2012. godini, Hrvatsko društvo ekonomista.
Perko-Šeparović, I. (2006). Izazovi javnog menadžmenta - Dileme javne uprave, Gold-
en marketing - tehnička knjiga, Zagreb.

Smith, A., (1776). An Inquiry into the Nature and Causes of the Wealth of Nations, University
Of Chicago Press.
Tanzi, V. (2011). Government versus Markets, The Changing Economic Role of the State, Cam-
bidge University Press.
Tanzi, V., Schuknecht, L. (2000). Public Spending in the 20th Century: A Global Perspective,
Cambridge University Pres.
Internet sources:
Eurostat (http://ec.europa.eu/eurostat/data/database)
Eurostat Government finance statistics (database)
IMF (2017), Fiscal Monitor (April 2017), (http://www.imf.org/en/Publications/FM/
Issues/2017/04/06/fiscal-monitor-april-2017)
591
OECD (2017). Government at a glance (https://www.oecd.org/gov/government-at-a-
glance-2017-highlights-en.pdf )
OECD Factbooks (2017) (http://www.oecd.org/daf/ca/corporate-governance-factbook.
htm)
OECD National Accounts Statistics (database)
592
Microeconomics,
Macroeconomics
and Monetary
Economics
NEW ECONOMIC POLICY 
MACROECONOMIC REFORMS
FOR ACCELERATED ECONOMIC
GROWTH OF BOSNIA AND
HERZEGOVINA
Faruk HADŽIĆ
Independent bloc
E-mail: farukhadzic27@gmail.com
Dino HADŽIALIĆ
Indirect Taxation Authority of Bosnia and Herzegowina
E-mail: hadzialic_dino@yahoo.de
Abstract
Unemployment is one of the main macroeconomic problems in Bosnia and
Herzegovina, whose solving can lead to accelerating economic growth.
The neoclassical economic concept, whose influence is still significant in B&H,
has not delivered expected results in the period since the end of the war (1992-

1995), at least when it comes to this economic problem.
Privatisation together with deregulation of the economy, which were conceived
as an instrument for stimulating economic activity, only provided the benefit
for a narrow circle of people, leaving behind a large number of failed companies
whose workers are now mainly unemployed.
Deregulation of the market from the influence of the state, under the free trade
and non-market interference, given enough power to certain interest groups,
which were driven by personal interests, again regulated the market as it suited
themself.
The result of these activities is that even after 20 years, B&H has over 40%
registered unemployment rate, low average wage, a GDP pc, which is among
595
the lowest in Europe, an unattractive real sector burdened with high tax fees,
and low level of investment activity.
Faruk Hadžić Dino Hadžialić: NEW ECONOMIC POLICY – MACROECONOMIC REFORMS FOR ACCELERATED ECONOMIC GROWTH OF BOSNIA...
The situation in B&H has its similarities with the economic situation in the
United States after the coming of the Great Depression in 1929, which was
heavily influenced by classical economic thought at that time, where unemploy-
ment was at a record level for the US, over 25% of the working population.
Through paper, we will focus on the comparison of today situation of B&H
with the situation of the United States in time around and after the Great
Economic crisis, analysing some of the economic indicators, and offering pos-
sible solutions for B&H, which would be similar with solutions that the United
States implemented to stimulate its economic activities.
Key words: Economy of B&H, GDP, Unemployment, Economic Growth,
Macroeconomic Reforms.
JEL Classification: E24, E60
1. INTRODUCTION
Unemployment is one of the major macroeconomic problems in B&H,
whose resolution can lead to accelerated economic growth. The depth of this
problem is so great that according to the latest reports, B&H is among the
countries with the highest rate of the unemployment in the world.
The situation in the labor market is very similar to the situation in the Unit-
ed States during the Great economic crisis (1929) when at the top, the regis-
tered unemployment rate was around 25%.
Through this paper, we will explore the situation in the United States during
the Great economic crisis, show economic indicators, and see what measures
have been done with US economic policy to reduce unemployment and increase
its economic activity.
Although there are a lot of differences between the economies of B&H and
the US and the reasons that lead to such macroeconomic indicators, we have
found similarities in terms of implementation of measures in the domain of
economic policy.
In the second part of the paper, we will investigate how the economy of
B&H currently is functioning, and propose macroeconomic reforms similar to
596
those that have been done by the United States to reduce unemployment and
increase economic activity but respecting the special conditions of the B&H
economy today.
In preparing this paper, we found a significant number of papers and re-
searches, mostly by American and European authors who were researching the
effects of fiscal policy on reducing unemployment.
On the other hand, from domestic authors from the territory of the former
Yugoslavia, very few of them (Stojanov & Drašković, 2010, 248-256), (Hodžić,
2012, 5-19) treated this matter, which is also a limiting factor, if we want to
compare our results, that were colected from secondary data. One of the objec-
tives of this paper is to contribute to our research to areas that have not been
significantly investigated so far.
2. THE SITUATION IN THE USA DURING THE

GREAT ECONOMIC CRISIS
The Great economic crisis, also called the Great Depression, was the worst
economic contraction in the history of the United States (Abel & Bernake,
1998, p. 291). It lasted from 1929 until 1939. Its strength was so strong that it
felt all over the world.
With the beginning of the crisis in the summer of 1929, economic activity
began to decline until 1933. GDP has fallen by more than 50%, wiping the eco-
nomic growth that has been achieved in the past 25 years! Industrial production
was particularly vulnerable to the crisis and was fallen by nearly 50% (Berstein, INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
1987, p. 52-55). Data for US GDP figures can be seen in the following table.
Table 1. GDP during the Great economic crisis in the USA

Year GDP ($) billions
1929 103.6
1930 91.2
1931 75.5
1932 58.7
1933 56.4
Source: https://www.economics-charts.com/gdp/gdp-1929-2004.html
597
In the absence of official statistics, researchers estimated unemployment
rates in the United States during the 1930s (Margo, 1993, p. 41-59). According
to these estimates, unemployment reached the highest level in 1933, accounting

for 25%. In 1940 it was reduced to about 14%. The available data is shown in
the following table.
Table 2. The unemployment rate during the Great economic crisis in the USA
Year Unemployment rate
1929 3.2%
1930 8.9%
1931 16.3%
1932 24.1%
1933 24.9%
1934 21.7%
1935 20.1%
1936 16.9%
1937 14.3%
1938 19.0%
1939 17.2%
1940 14.0%
Source: https://www.shmoop.com/great-depression/statistics.html
The banking system witnessed a number of “panics” during which deposi-

tors rushed to take their money out of banks rumored to be in trouble. Many
banks failed under this pressure, while others were forced to merge: the number
of banks in the United States fell 35 percent between 1929 and 1933 (Bernake,
2000, p. 27).
Although Great Depression hit some sectors of the economy more than oth-
ers, however, all sectors have experienced a serious drop in output and sharp
growth in unemployment.
Before the Great Depression, the United States was in a decade of spec-
tacular economic growth. Unemployment and inflation were very low. The only
worrying fact of the 1920s was the uneven distribution of income.
Progress in production process technology, primarily in electrification, pro-
duction lines, and chemicals, was the main cause of labor productivity growth
during the 1920s. This led to a large number of companies investing financial
resources in new plants and equipment (Szostak, 1995, p. 106-113).
598
3. CAUSES OF THE GREAT DEPRESSION
In 1929, the classical economic theory suggested that situations such as the
Great Depression could not happen - the economy possesses balancing mecha-
nisms that would quickly lead to full employment (Froyen, 1990, p. 51). For
example, a high level of unemployment should lead to pressure on wages, en-
couraging firms to increase their employment. Prior to Great Depression, most
economists urged governments to focus on running a balanced budget. Since
tax revenues have inevitably fallen during the recessions, governments have
often increased tax rates and thus reduced spending. Taking money from the
economy, such policies have accelatered the fall, although the impact is likely to
be small.
As depression went on, many economists advised federal governments to in-
crease their spending and to increase employment. Economists have also sought
theoretical justifications for such policies. One group of them thought that de-
pression was due to overproduction and consumers simply did not want to buy
everything that was produced. Others were again worried about the drop in the
number of investment opportunities. Often, these arguments were expressed in
apocalyptic terms: Great Depression was seen as the ultimate crisis of capital-
ism, a crisis that required significant institutional restructuring. Others pointed
to technology and suggested that Great Depression reflected the entrepreneur’s
failure to create new products. He felt that depression was only temporary and
that recovery would eventually happen (Schumpeter, 1939, p. 355).
John Maynard Keynes in 1936 put forward his theory claiming that the
amount that individuals want to save can exceed the amount they would like
to invest (Keynes, 1973, p. 59 - 64). In such a case, they would necessarily con-
sume less than they had produced (since, if we neglect foreign trade, the total
income must be spent or saved, while total production represents the sum of
consumer goods and investment goods). Keynes was skeptical with the power
impact of market-based balancing mechanism (Keynes, 1973, p. 32.), shocking
many economists who believed in the ability of the market system to automati-
cally manage itself. Nevertheless, within ten years, economists have largely ac-
cepted its approach because it has enabled them to analyze the shortage of con-
sumption and demand for investment without directing the crisis of capitalism.
Keynes has even argued that governments could correct the state of insufficient
599
demand by spending more than tax revenue, as part of the revenue was used for
taxes and production, including government services (Keynes, 1933, p. 5).
In the early postwar period, Keynes’ theory dominated economic thinking.

Economists have advised governments to spend more than they tax during the
recession and to tax more than they spend during the economic boom. Yet, in
this period, very little attention was directed to the cause of the Great Depres-
sion and how it came to it at all.
In 1963, Milton Friedman and Anna Schwartz proposed a different view of
depression. They argued that, contrary to Keynes’ theory, the deflator measures
of the Federal Reserve were the main culprits (Friedman & Schwartz, 1963, p.
299-308). In the coming decades, the “Keynesians” and “Monetarists” competed
for the supremacy of their own theory. The result was actually recognizing that
both explanations have limitations (Monacelli et al, 2010, p. 531-553). The
Keynesians were trying to understand why spending or investment demand fell
so much to boost depression, although saturation in housing and automotive
markets, among other things, was important (Ekelund & Hebert, 1997, p. 528-
531). Monetarians have been trying to explain that a small decline in money
supply could cause such a massive decline, especially as the price level fell as
fast as the money supply, and hence the actual (adjusted for inflation) aggregate
demand should not have fallen (Ekelund & Hebert, 1997, p. 544-545).
In the 1980s and 1990s, some economists argued that Federal Reserve mea-
sures caused banks to reduce their willingness to lend money, leading to a sig-
nificant reduction in spending, and in particular investment. Others argued that
Federal Reserves and Central Banks in other countries are constrained by the
gold standard, according to which the value of a particular currency is fixed at
the price of gold (Temin, 1976, p. 32-35).
Most economists have analyzed depression from a macroeconomic perspec-
tive. This perspective, triggered by depression and Keynes’ theories, focuses on
the interaction of aggregate economic variables, including consumption, invest-
ment, and money supply (Delong & Summers, 2012, p. 233-297). Recently,
some macroeconomists have begun to explore how other indicators, such as
technological innovation, could affect the level of economic activity.
600
4. THE RESULTS OF TAKEN MEASURES DURING
GREAT DEPRESSION
Consumption of the federal government in 1929 amounted to 1.5 percent of
GDP, but 7.5 percent in 1939. Not only has the government taking on new re-
sponsibilities, such as providing public works, but has established mechanisms
of presence in segments such as social security (pensions and unemployment
insurance), social protection, financial regulation and deposit insurance as well
as a number of other areas. Some researchers (Bordo, 1998, p. 155-181) argue
that there are such effects, where state expenditures increased during the crisis,
but they do not return to their original level. The result of this measures based
on Keynes’s thinking that fiscal policy and interventionism stimulate consump-
tion led to the recovery of the US economy, as can be seen in the table below.
Table 3. GDP after the Great economic crisis in the USA

Year GDP ($) Billions
1934 66.0
1935 73.3
1936 83.8
Year GDP ($) Billions
1937 91.9
1938 86.1
1939 92.2
Source: https://www.shmoop.com/great-depression/statistics.html

Introduction of regulation in the securities market in the 1930s certainly did
much to improve efficiency, fairness and therefore the stability of US stock mar-
kets. Improved bank supervision, and in particular the introduction of deposit
insurance in 1934, ended the causes of a bank panic. Roosevelt’s administration
also tried to stop the decline in wage and price levels by setting up an “industrial
code”, whereby companies and trade unions in the industry agreed to maintain
agreed prices and tariffs. Firms took advantage of the opportunity to conclude
the agreement and agreed in many cases to limit production to bring prices up.
Similar attempts to increase agricultural prices were more successful, at least
in order to increase the incomes of agricultural producers (but hence increased
food prices to others).
601
5. ECONOMY OF B&H TODAY
In recent years, Bosnia and Herzegovina have encountered a number of eco-
nomic problems that can treat macroeconomic stability in the long term. Al-
though economic indicators in recent years show GDP growth of few percents
yearly, as well as a decline in unemployment, on the other hand, indicators such
as the growth of the number of pensioners, annual debt repayments and the
outflow of the population are the tendencies that worry many economists in
B&H (Hadžić, Džafić, Hadžialić, Hodžić, Čavalić).
GDP growth, as an indicator, alone is not enough. Growth rates, related to
the previous accounting periods, from the quantitative aspect, can show a sig-
nificant GDP growth rate with small changes in economic activity if the base
is low.
In addition to the economic indicator of GDP, it is important for each coun-
try to know its potential GDP as well. Under potential GDP, this is the degree
of economic activity, ie GDP, when all available resources such as the labor force
are engaged. This indicator can also show when the economy is “overheated” and
thus signals the economic policy makers to apply the appropriate measures and
policies (Samuelson, 2000, p. 7-12).
For the simplicity of presentation, the following table shows results for Fed-
eration of B&H only, one of the state entities, period 2009-2016.
The Table 4. above shows indicators such as GDP, potential GDP, the differ-
ence (GAP) between potential and real GDP, unemployment, total labor force,
and the percentage of unemployment.
What can be noticed is that the registered unemployment rate, despite the
attempts to show controversial growth, still remains above 45%. If we include
the share of the black market economy, then we would have unemployment of
about 30%, which is still a very high unemployment rate. One of the reasons
that we still have high unemploymet rate is connected with our state monetary
policy. The central bank of B&H, that operates as Currency board, has targeted
long term goal of the low inflation rate, close to zero. We have made from statis-
tical data graph that is shown below.
602
Table 4. Macroeconomic indicators through a period
Unem- Total
Potential GDP GDP GAP Unemployment
Year GDP (KM) ploy- labour
(KM) (KM) rate (%)
ment force
2009 15.277.726.000 26.276.724.218 10.998.998.218 354.577 792.078 40.1
2010 15.712.296.000 27.336.275.125 11.623.979.125 364.929 803.878 42.5
2011 16.401.821.000 28.700.875.780 12.299.054.780 371.090 811.837 43.0
2012 16.554.140.000 29.565.719.931 13.011.579.931 384.852 822.183 44.0
2013 17.012.874.000 30.720.877.981 13.708.003.981 391.942 827.055 46.1
2014 17.374.572.000 31.101.998.520 13.727.426.520 392.265 835.852 44.8
2015 17.813.292.000 31.579.548.156 13.766.256.156 389.856 839.977 43.9
2016 19.537.092.000 33.873.464.663 14.336.372.663 377.854 835.828 43.0
Source: Creation of authors from available official statistical data
Our contribution consists on the basis of the data of the Agency for Statis-
tics of BiH, on period 2007. – 2017., on a monthly basis. We observed price
changes, i.e. inflation/deflation, compared to the registered unemployment rate.
Tendencies are in line with the Phillips curve (Figure 1.), where you can see a
direct link between registered unemployment versus the price level (Blanchard,
2006, p. 167-172).
What can be noticed is that as a state, we have high registered unemploy-
ment rates, targeting low inflation rates, which in recent years often went into
deflation.
The collected data show that when we had a monthly increase in prices dur-

ing 2007. and 2008., we achieved a fall in unemployment.
The question arises, is it justified that as a state have low inflation, at the
expense of the employment?
This indicator is directly related to the GDP growth because according to
economic law, the growth of 1% of GDP would have to reduce unemployment
by 0.5% (Mankiw, 2003, p. 35-37). Employment growth is also important be-
cause new job creation creates new jobs at the level of the economy, thus in-
creasing consumption, and ultimately generating GDP growth, as consumption
represents the highest category when calculating GDP for a certain time period.
603
Figure 1. The unemployment rate in B&H through a period
Source: Creation of authors from statistical data
Based on the above mentioned data presented for Federation of B&H, in

order to obtain relative numbers similar to the data for the RS (second entity in
B&H), it can be concluded that by unemployment we are very close to the state
of the United States in 1933, when the economic crisis was at its peak.
Figure 2. The unemployment rate in B&H through a period
Source: https://tradingeconomics.com/bosnia-and-herzegovina/unemployment-rate
Although we have experienced an economic crisis as a country in 2009, it

has not left the consequences for our economy as it has left for the US economy
604
in 1929. The main reason is that the US economy at that time was on a level of
full employment and close to its limits of production potential, unlike B&H,
which is deep within its borders. The consequence of the economic crisis in
B&H after these years is that, in relation to 2008, indebtedness increased by up
to 10 times, which did not follow economic growth and recovery.
The neoclassical concept of economic activity, which primarily reflected in
privatisation and deregulation, as part of Washington Consensus, did not pro-
vide expected results for the economy of the B&H, in fact, it increased the prob-
lems in the B&H economy (Stojanov, 2010, p. 250).
In order to reduce unemployment, which is the main macroeconomic prob-
lem of B&H, macroeconomic policies need to stimulate market consumption,
which would lead to an increase in aggregate demand through effects of the
multiplier, and again to the growth of production (Gordon, 1993, p. 67-71). In
the US example, stimulating government spending, through fiscal policy mea-
sures, led to an economic recovery. Some authors support this thesis in times
of crisis (Rendahl, 2016, p. 1189-1224). It can be shown schematically in the
following Figure 3.
Given that in B&H entities are active in fiscal policy, except in the area of
collecting indirect taxes and because B&H does not have an active monetary
policy as an instrument of economic policy, the focus should be on the activities
through fiscal policy measures and income policy.
In B&H, the active fiscal policy is led by entities and cantons, and the focus
will be on presenting the situation in the Federation of B&H as one and the
more developed part of B&H. Particularly concerning is the fact that the unem- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
ployment rate is always more or around 40%, as previously mentioned, and the
government’s current measures did not produce the expected economic results.
Reasons should primarily be sought in the Pension - Disability Insurance
Law and in the Health Insurance Law, where high contribution rates are im-
posed, which significantly burdens the business and economic subjects. The
valid contribution rates in the Federation of B&H amount to 41.5% in wages.
605
Figure 3. A schematic way for economic growth
Source: Creation of authors
In order to change the situation in a positive way, series of measures in the

domain of fiscal policy should be made, which will really help the recovery of
the economy.
The focus of economic activities should be at key points:
1. Labor legislation reforms by reducing the contribution rate and adjusting
the income tax rate
2. Reducing and/or abolishing parafiscal charges that burden the economy
3. Facilitate the procedure for registration of legal persons
4. Reprogram debt
5. Launch a new investment cycle
6. REFORM OF LABOR LEGISLATION BY

REDUCING CONTRIBUTIONS AND INCOME
TAX RATES
The problem of the economy of B&H is a high unemployment rate, mainly
of the older labor force and lower qualification. A large number of these people
work in the black market and are not a part of legal economic flows.
Although a high unemployment rate of the labor force is the main problem
for the functioning of our economy, it also can be the potential for accelerate
economic development, by achieving higher rates of economic growth.
The main reason, if you are asking employers and workers, why we have a
high unemployment rate and why a part of a worker decides to work on black
606
market, is a high labor burden (contributions), which greatly jeopardizes the
financial position of the companies, draws resources, and can not, because of
these rates, employ new workers.
If we look at the aspect of the state, due to the high unemployment rate, a
large number of beneficiaries of budget and out of the budget funds, the state
has introduced high labor contributions so that existing employees take a sig-
nificant part of the income to finance various budget expenses. If we take a look
at all the burdens, employers prefer to provide a minimum wage for employees
as well as the maximum non-taxable amount of other incomes to lower its li-
abilities to the state on the one hand but also maintain their business on the
other. Part of the employers also employs workers on the black market and they
give part of the pay for workers in an envelope.
Although many of the entity’s authorities announced that reform of the la-
bor legislation would be part of the Reform Agenda, whereby the contributions
would be reduced, where all the actors would benefit, employers through lower
contributions, workers through an increase in wages and the state through the
introduction of more users in the system. Unfortunately so far there have been
no reforms in this sector.
A measure that was most and often used by entity governments for financ-
ing employments is co-financing for companies to hire workers for a certain
period of time, which in most cases results in employee returning to the bureau
after the expiration of the agreed time. This results in short-term effects raise in
employment, while there are no long-term effects on employment growth due
to the structural problems facing employers.
Amendments to the Federation of B&H legal regulations, which would have
to come into force, would reduce the burdens of the contribution to income,
but the tax base will be expanded, by other non-taxed income. Ultimately, this
will cause that workers who have lower income, will pay more to the state in the
name of the contribution, thereby reducing the available income, that will shift
spending from the individual to the state. Most of the minimum incomes (up
to 800.00 KM – 400 EUR), including the non-taxable part, are significantly
involved in total income, and by extending the base with the contributions (even
they will be now 33%) will lead to a higher tax burden than it is currently.
If we want to achieve the goal of accelerated economic growth, it is necessary
to introduce a stimulating contribution rate that would not exceed 25% of the
607
gross wages. In the opinion of many economists, the reduction of contributions
and income tax would have long-term positive effects.
Our proposal, for stimulation of economy in B&H, can be shown in few

measures:
1. Reducing the contribution rate to 25% of gross income (14.5% for PIO /
MIO and 9.5% for health and 1% for unemployment).
2. 0% personal income tax for incomes under 500 EUR, with the introduc-
tion of progressive taxation for incomes above 500 EUR.
3. Moving to the Treasury method of payment for contributions
By reducing contributions state can lift financial burdens of employed per-
sons, which would further increase the disposable income and personal con-
sumption. On the other hand, this would lead to a certain drop in revenue in
the budget funds at the start, which should be offset by additional revenue from
indirect taxes, primarly VAT, but also by introducing into the system people
that work in the black market. It is estimated that around 15% of registered un-
employed people work on the black market. With this suggestion, the synergy
effect would be positive for all stake holders - workers who would have more
money for consumption (higher salaries), employers with less burdened busi-
ness, with options for new employment and employment within the system and
for the state that would that would have higher growth of tax revenues and rev-
enues from the collected contributions, through introduction into the system
people that work on black market and through new employed persons.
Reducing the contribution rate would result in savings in budgets rather
than increase in public sector employment. The released funds could be used
initially (the first two years) for direct supplementation of the pension and
health fund from the budget, if the PIO had shifted into a treasury mode of
financing, as it would not increase the income for 160,000 public sector employ-
ees, at the same time, it was necessary to increase the income of private sector
employees by increasing the minimum wage.
By lifting some burdens, primarly by reducing the rate of contributions, and
by increasing minimum income for just 10 EUR, it would have great and posi-
tive effects for the economy.
If an increase in the minimum income for 230.000 employees in the real sec-
tor of the Federation of B&H for the amount of 10 EUR per month would lead
608
to an increase in annual consumption of up to 276 million EUR, which would
lead to the additional collected VAT only for Federation of B&H close to 47
million EUR1. Indirect effects will be far greater. Growth in spending of work-
ers, which now have higher disposable income, will also lead to rising demand
in the market itself (Blanchard, 2006, p. 144). Increased demand, with lower
operating costs, will lead to new businesses being opened up, but also recruiting
new workforce in existing companies, but introducing people into the system
currently working black market. Only to this extent, through the growth of con-
sumption, the economy can grow by almost 2% per year.
When it comes to income tax, it is necessary to make a modification of the
existing model of taxation, by specifying a minimum monthly net income of
500 EUR.
Income tax would be taxed monthly at a rate as shown in the following table.
Table 5. Proposal for income tax rates

No Monthly income Tax rate
1 Up to 500,00 EUR 0.00%
2 501,00 EUR – 1.000,00 EUR 10.00%
3 1.001,00 EUR – 1.500,00 EUR 15.00%
4 1.501,00 EUR - 2.000,00 EUR 20.00%
5 2.001,00 EUR – 2.500,00 EUR 25.00%
6 2.501,00 EUR – 3.000,00 EUR 30.00%
7 3.001,00 EUR and above 35.00%

In this case, the personal deduction would be 6.000,00 EUR per year, and all
income above this level should be taxed. Thus a person with an annual income
of 12,000 EUR will pay an income tax of 50,00 EUR per month and a person
1
When a worker with low income gets an increase, in this case 10 EUR, he is forced to spend the
entire additional income because he can not afford to save because of low income and high living
expenses. At the stage, the consumption multiplier is calculated according to the formula 1/1-mpc
(Blanchard, 2006, p. 52), where the mpc means marginal propensity to consume. In our case, we
will consider that “mpc” for additional income is 0.9, and that means that he will spend 9 out of 10
EUR of his increase (90%). When we enter the data in the formula, we get the spending multiplier
in this case 10. This means that 10 EUR that the worker gets extra as increase in wage, and con-
sumes, this amount is multiplied in the market by spending growth 10 times! So we get the amount
of 276 million EUR (10 EUR x 12 months x 230,000 workers x 10 (multiplier)). By taxing this
state get the amount of approximately 47 million EUR of additional VAT collected through this
additional growth of consumption.
609
with a 24,000.00 EUR, income tax of 225,00 EUR per month. In this way,
most of the workers would receive additional disposable income, while a smaller
part (citizens with a wage over 1,000.00 EUR pm) would have to pay a higher
income tax. This proposal is also in line with many thinkings that the incomes
should not be taxed to the amount of consumer basket for a four-member fam-
ily, because they include basic living expenses in a month, such as food, clothing,
running cost. Any way of taking money below this amount leads to even more
difficult living of the population. This type of taxation in the short run has a
positive effect on the economy (negative for the budget), but in the long run, it
is also positive for the budget.
It can be concluded that the increase in disposable income, in addition to
the growth of consumption, also leads to the reduction of unemployment, but
also the reduction of the budget deficit, as well as the reduction of total debt,
thus solving fundamental economic problems: unemployment, population de-
parture, and debt reduction.
Figure 4. Income tax rates (authors proposal) on the graph
610
7. REDUCTION AND ELIMINATION OF
PARAFISCAL CHARGES
When we take a look at this segment, the ultimate goal should be to reduce
parafiscal charges and this can be done through:
• Systematization of parafiscal charges
• Introduction of order by topping maximum amounts for certain charges
• The abolition of the federal and cantonal levies, and the introduction of
maximum conversion rates on annual and three-year terms
The exact number of various parafiscal charges has been recently determined
and amounts to over 3,400 in B&H. Unlike other neighboring countries, B&H
has up to 20 times more parafiscal charges than Croatia and 10 times more
than Serbia. The parafiscal charges include various fees and charges that burden
employers. They make up to 5% of the financial allocation of employers from
their business.
Employers are burdened with various parafiscal charges, which burden the
business by transferring funds to the municipal budgets, instead of helping to
improve the company’s business. Knowing that companies in B&iH operate
with many difficulties, abolishing or reducing unnecessary fees, such as fees
for a prominent firm, would contribute to business and improve the business
environment.
One of the measures that would help to improve the business of companies

and crafts, as well as the new establishment of business entities, is precisely the
harmonisation of the legislation in the part relating to the level of fees for the
establishment of companies as well as fees for the prominent companies. Each
municipality has the freedom to prescribe the amount of tax, which ultimately
leads to a municipality being more accessible to business than another. First of
all, it is necessary to equalize the fees for the level of the FB&H, thus providing
an opportunity for equal development of entrepreneurship from the aspect of
registration and work.
611
8. DEVELOPMENT OF ENTREPRENEURSHIP
WITH THE IMPROVEMENT OF THE
PROCEDURE FOR THE ESTABLISHMENT OF

COMPANIES
The development of the entrepreneurship is the backbone of the future eco-
nomic development of B&H. The complex, long-lasting and financially expen-
sive procedures for the establishment of companies have a disincentive effect
on the entrepreneurial climate, and the main reasons why we have a high un-
employment rate, as well as the departure of the population in search of better
business and living conditions, should be sought. According to World Bank’s
“Doing Business 2017” Report, B&H further downgraded to the ranking list,
and according to the procedure for starting a business, we are in the bottom-
175th place. According to the same report, we are 165th in obtaining a building
permit.
There are many ways to improve the entrepreneurial climate, first through
harmonization of legislation, reducing and eliminating of parafiscal charges, in-
cluding various fees for establishing companies, verification of documentation,
implementing procedure where all tasks for opening company will be complet-
ed in one place, then shortening of the deadline for obtaining building permits
for 30-60 days, establishment of new industrial zones where the land will be
allocated free of charge, etc.
When it comes to establishing a company, primarily crafts, we have the situ-
ation that, due to legal solutions, where the state first takes it all, and to the em-
ployee what remains, many individuals and firms work black market, because
they are not stimulated to any way to be part of the economic system.
An alternative possibility for registration of companies is that the state facili-
tates current procedure by eliminating or reducing all taxes and costs needed for
establishing the company. Also, the fiscal device should be financed completely
by the tax authority. A significant number of workers are registered at the bu-
reau for unemployment, but they perform various services, such as for example,
painters, electricians, and plumbers. Its work should be legally recognized and
these workers can work from home. Our opinion is that they do not need to
register a company, because they should then pay high contributions, which
would lead them again to the black market. It is much better to determine a cer-
612
tain annual, or monthly sum, as part of its contributions, and they would have
like that social and healt insurance and be part of the legal system.
The aim is to register a larger number of small companies and crafts through
this measure, where older workers with lower vocational education will be em-
ployed. A lot of these workers are working black market and through registra-
tion and a certain annual or monthly sum, more money will be collected in
the budgets, registered unemployment will be reduced, consumption would in-
crease, and this would give the stimulus to the economy. A lot of people can not
register because of strict inspection controls, high legal obligations for paying
contributions and allocating most of the money earned to meet their obligations.
The time for establishment of legal entities should be significantly reduced,
and for this purpose the One Procedure for New Economy should be initiated,
where the official will receive a request for establishment of a legal entity and
through the linked system will complete the complete registration, which in-
cludes obtaining a court order, tax and statistical numbers, and opening a bank
account for several days, as well as obtaining various permits such as a building
permit, whose time for issuing should be significantly reduced up to 30 days.
In this way, in addition to time savings, the time spent visiting the institutions
is also being saved, and facilitating establishing the company, which is very im-
portant for domestic as well as for foreign investors, which significantly avoid
B&H, precisely because of the rigid procedures of establishing companies and a
long period obtaining building permits.
9. DEBT REPROGRAM INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
By analyzing the budget of Federation of B&H, it can be noticed that the

debt repayments since 2008 have increased from 65,5 million EUR to 575,5
milion EUR in 2017. On the other hand, total revenues increased in the same
period by about 150 million EUR. Debt repayment is such a serious problem
that it threatens the stability of the budget, so it is now necessary to repay al-
most 50% of the total budget. Another indicator, which can be seen from the
following Table 5, is that in the last three years, as the Federation of B&H, we
have a rather unfavorable debt repayment ratio in relation to tax revenues, as
one of the indicators of the growth of the economy. We can see that the ten-
dencies are such that the debt ratio in Federation of B&H increased from 66%
(2015) to 73% of tax revenues in 2017. In 2018, the annual situation will be
613
even more difficult, because it will need to return 650 milion EUR, with tax
revenue growth being lower than the growth of debts.
In order to reduce the deficit, and to do additional debt stabilization, it is

necessary to execute the reprogram, in order to short term debt reprogram to
long term, which would reduce the annual amount of the budgetary repayment,
thus saving more money or financing other needs, or to reduce the deficit.
Table 6. Economic indicators (2015.-2017.)

ECONOMIC INDICATORS FOR FEDERATION OF B&H (2015.-2017.)
INDICATOR 2015. 2016. 2017.
1 2 3 4
Tax income in the budget of Federation of B&H* (EUR) 658.108.328 720.302.051 785.430.561
Repayment of debts from budget Federation of B&H* (EUR) 439.023.787 496.996.849 574.021.487
RATIO debt / tax income (%) 66,71% 69,00% 73,08%
*Data collected from Ministry of Finance Federation of B&H
Source: Creation of authors from available statistical data
10. BEGINNING OF NEW INVESTMENT CYCLE

Starting a new investment cycle in road construction and electro-energy fa-
cilities is crucial for achieving rates of accelerated economic growth.
The delay in road construction at the end of the previous investment cycle
has also led to a slowdown in economic growth, as can be seen from the latest
adjustments to the World Bank’s growth rates, which are only around 2.7%.
The potential for the new investment cycle in road construction is about 300
million EUR per year and can last for the next 8 years, considering the possibil-
ity of obtaining financial resources from international financial institutions.
If every year this money would be directed to road construction, it would
lead to additional revenues from a VAT in the amount of 51 million EUR,
which would be allocated by entity companies for the construction and mainte-
nance of the motorway.
According to the model, this measure itself, through growth in investment
and new employment, as well as consumption growth, would lead to a growth
rate of between 2.5% and 3%. The indirect effects are far greater.
614
11. CONCLUSION
If we look at economic indicators such as GDP growth, unemployment, ag-
gregate consumption, it can be concluded that B&H is in a similar position
where the US was during the Great Depression of 1929-1933. Of course, the
main reasons that led to the Great Depression are different than the problems
in the B&H economy.
An economic system based on the thoughts and ideas of classical economists
has led the market position not to be able to respond to the effects of the Great
Depression, which economically destroyed the United States, and today similar
neoclassical thoughts are destroying the B&H economy. The emergence of state
interventionism, as a way to stimulate economic activity in an economically de-
stroyed country, mainly by stimulating aggregate consumption and launching
investment, leads to economic recovery.
Looking at the current economic situation in B&H, we can notice a low level
of economic activity, a low base for GDP, a high level of unemployment and lim-
ited economic growth rates that are insufficient for the progress of the economy
in order to convergence with neighbour and EU countries.
Unemployment in B&H should be tackled by fiscal policy measures, as well
as by various procedures for facilitating establishments of business, thus creat-
ing a business environment for simpler and more favorable job creation for both
domestic and foreign investors.
As a country, we should target annual growth of 5-6% which is very achiev-

able, by implementing right fiscal policies.
The growth of a minimum income of 10 EUR per month can lead to a
growth of consumption up to about 2%. Launching a new investment cycle in
road construction can also lead to investment and jobs by up to 2.5-3% of eco-
nomic growth.
We propose further research that would focus on the effects of neoclassi-
cal and state-intervening measures within economic policy, on the economic
growth and development of B&H.
615
REFERENCES
Abel, A. & Bernake, B. (1998): Macroeconomics. Addison-Wesley Publishing Company, Inc.
Barnard, R. (1995): The Great Depression and the Culture of Abundance: Kenneth Fearing, Na-
thanael West, and Mass Culture in the 1930s. New York: Cambridge University Press.
Bernanke, S. (2000): Essays on the Great Depression. Princeton, N.J.: Princeton University
Press.
Bernstein, M. (1987): The Great Depression: Delayed Recovery and Economic Change in Amer-
ica, 1929–1939. New York: Cambridge University Press.
Blanchard, O. (2006): Macroeconomics. Pearson Prentice Hall.
Bordo, M., Claudia G., & Eugene W., (1998): The Defining Moment: The Great Depression
and the American Economy in the Twentieth Century. Chicago: University of Chicago
Press.
Delong, B. J. & Summers, H. L. (2012). Fiscal Policy in a Depressed Economy, Brookings
Papers on Economic Activity: Spring 2012, p. 233-297.
Ekelund, R. & Hebert, R. (1997): Povijest ekonomske teorije i metode. Zagreb: MATE.
Froyen, R. (1990): Macroeconomics, Theories and Policies. New York: Macmillan Publishing
Company.
Friedman, M. & Schwartz A. (1963): A Monetary History of the United States, 1867–1960.
Princeton, N.J.: Princeton University Press.
Gordon, R. (1993): Macroeconomics. New York: HarperCollins College Publisher.
Hall, T. & Ferguson, D. (1998): The Great Depression: An International Disaster of Perverse
Economic Policies. Ann Arbor: University of Michigan Press.
Keynes, J. (1933): An Open Letter to President Roosevelt. Oxford: New Deal Documents.
Keynes, J. (1973): The General Theory Of Employment, Interest, and Money. (Translate by Ivo
Bićanić) Zagreb: Cekade.
Margo, R. (1993):”Employment and Unemployment in the 1930s.” Journal of Economic Per-
spectives 7, no. 2, p. 41–59.
Mankiw, G. (2003): Macroeconomics. New York: Worth Publisher.
Monacelli, T., et al (2010). Unemployment fiscal multipliers, Journal of Monetary Econom-
ics, Volume 57, Issue 5, July 2010, p. 531–553.
Roll, E. (1956): Povijest ekonomske misli. (Translated by Slobodan Štampar), Zagreb: Ogn-
jen Prica.
Rosenbloom, J. & Sundstrom, W. (1999): “The Sources of Regional Variation in the Severity
of the Great Depression: Evidence from U.S. Manufacturing 1919–1937.” Journal of
Economic History 59, p. 714–747.
Rosenof, T. (1997): Economics in the Long Run: New Deal Theorists and Their Legacies, 1933–
1993. Chapel Hill: University of North Carolina Press.
Samuelson, P. A., & Nordhaus, W.D. (2000): Ekonomija. Zagreb: MATE.
Schumpeter, J. (1939): Business Cycles: A Theoretical, Historical, and Statistical Analysis of the
Capitalist Process. New York: McGraw-Hill.
616
Stojanov, D. (2014): Makroekonomske teorije i politike u globalnoj ekonomiji: Dometi i izazovi,
Sarajevo.
Szostak, R. (1995): Technological Innovation and the Great Depression. Boulder, Colo.: West-
view Press.
Rendahl, P. (2016). Fiscal Policy in an Unemployment Crisis, The Review of Economic Studies,
Volume 83, Issue 3, 1 July 2016, p. 1189–1224
Temin, P. (1976): Did Monetary Forces Cause the Great Depression? New York: Norton.
617
CONSUMER ENTNOCENTRISM ON
GLOBAL FOOD MARKET
Ružica LONČARIĆ
University of J. J. Strossmayer in Osijek,
Faculty of Agriculture, Osijek, Croatia
E-mail: rloncaric@pfos.hr
Tihana SUDARIĆ
Ružica Lončarić  Tihana Sudarić  Jadranka Deže: CONSUMER ENTNOCENTRISM ON GLOBAL FOOD MARKET

E-mail: tsudaric@pfos.hr
Jadranka DEŽE
E-mail: jdeze@pfos.hr
Abstract
The aim of paper is to give review of scientific researches about consumer eth-
nocentrism as highly exploited theme in current situation of globalization and
loss of ethnic identity. Consumer food ethnocentrism is kind of aversion that
consumers feel towards all food products from export. There is strong correla-
tion between economic development and consumer ethnocentrism with con-
sequence of GDP increase, unemployment decrease and balancing of foreign
trade deficit. Several factors have been identified that determine or are closely
related to consumer ethnocentrism and can be divided into four categories:
socio-psychological (cultural openness, patriotism, animosity, dogmatism),
economic (consumers´ income, economy development, price and income elas-
ticity), political (political propaganda, political history etc.) and demographic
(age, gender, education). The research results confirm that the level of consumer
ethnocentrism differs from country to country, but also between country´s re-
gions and that level changes over time, as the factors that determine ethnocen-
618
trism changes. Consumer ethnocentrism can be one of the drivers of agriculture
and food processing industry development in Croatia, but it is not enough,
especially in conditions of low purchasing power and unemployment. In such
circumstances, consumers pay more attention to the price than to the country
of origin. Therefore, the price competitiveness of Croatian food products should
be increased in relation to prices of foreign food products.
Key words: consumer ethnocentrism (CET), food, globalization, Republic of
Croatia, price competitiveness
JEL Classification: F01, L66
1. INTRODUCTION
As a result of the world market globalization, there is a need to preserve
its own economy and the aspiration towards ethnocentrism increases. Con-
sumers with strong ethnocentrism are confident in the rightness and morality
of buying domestic products, but at the same time, they refuse to buy foreign
products because they consider it will harm the national economy and cause
unemployment. Modern market practice goes in favor of the existence of mar-
keting information management on the country of origin. The fact is that large
retail chains in Croatia aspiring to get the most out of it and they have nothing
against the sale of cheap import products and, consequently, we are exposed to
a large number of imported products that are equally competing for the cus-
tomers´ preferences with domestic products. Domestic products, however, are
more represented in domestic trade chains.
The aim of paper is to give a review of scientific results about consumer
ethnocentrism concept, measuring of CET, factors that affect CET as well as
Croatian situation in global context of high import and weak economic status,
what certainly affects level of CET in Croatia.
.. General concept of ethnocentrism
The term consumer ethnocentrism comes from the terms “ethnic” meaning
group and “centrism” which means directed, focused (Usunier & Lee, 2005).
Consumer ethnocentrism refers to the consumer’s focus on purchasing products
619
from their own group. The main goal of introducing consumer ethnocentrism is
the analysis of emotional reactions in consumers when purchasing products of
foreign origin, especially in countries where economy is underdeveloped.
Ethnocentrism was the primary sociological concept in which Sumner de-
scribed the conflicts of individuals “in the group” and “out of group” (Shimp &
Sharma, 1987). In marketing literature from the seventies of the 20th century,
consumer ethnocentrism is a concept that embraces consumer beliefs about
the superiority of products of domestic origin over products of foreign origin
( Jacoby, 1978). In the early eighties of the 20th century, Crawford & Lamb
(1981) found that buying foreign products can cause high emotional involve-
ment, especially when it comes to national security or job loss. An ethnocentric

consumer has a negative opinion regarding the out-group products with which
he/she fails to identify. In a similar manner, the ethnocentric consumer exhibits
an unreasonable determination to avoid out-group products and considers it
incorrect to buy them. The above assertions call for deeper analysis into the
dynamics of consumer’s preferences for products.
Similarly, Herche (1992) found that consumer ethnocentrism can predict
consumers’ preferences to buy domestically produced goods instead of foreign
and that the ethnocentric tendencies are better predictors of purchase behavior
than demographic or marketing mix variables.
In the first phases of the transition, the multinational market brands were
preferred because of their high quality as well as the new ones on the market
(Batra et al., 2000), but intense competition on the domestic market woke up
national motives when deciding on buying and consuming products (Shan-
karmahesh, 2006).
Ethnocentrism is associated with other concepts such as patriotism (Chesler
and Schmuck, 1964; Murdock, 1931) or nationalism (Levinson, 1957).
The influence of patriotism ( Jordan, 1904) on consumer ethnocentrism has
been suggested since Adorno et al. (1969) due to its closely linkage with the
more general construct of ethnocentrism. Based on the research by Han (1988),
Shimp & Sharma (1987), Klein & Ettenson (1999) among others who found a
positive relationship between patriotism and CET.
Wise (2017, p. 21) researched perceived vulnerability in consumer ethno-
centrism and establishes that the consumer’s perceived vulnerability to a threat
620
is a relevant variable that modifies the preference for domestic origin products.
Many times, consumers balance their personal well-being with their sense of in-
group identity, particularly when their preference for domestic products above
foreign ones is expected. His study demonstrates that perceived vulnerability
to a threat such as damaging one’s personal well-being is a relevant factor when
consumers express their preference for domestic products (Figure 1).
Figure 1. Expected links of patriotism and perceived vulnerability with ethno-
centric tendencies
SDWULRWLVP
DEVROXWH
FRPSDUDWLYH
SHUFLHYHG
YXOQHUDELOLW\ &RQVXPHU
(WKQRFHQWULVP

6FRUH
DJH
JHQGHU LQFRPH
HGXFDWLRQ


Source: ibidem, p. 25
Consumer ethnocentrism and lifestyles are among major influences in buy-

ing behavior. Acikdili et al. (2017, p. 1). updates consumer ethnocentric behav-
ior following some changes in Turkey that occurred in 2016. Findings indicate
that Turkish consumers are basically rational buyers and do not discriminate
against imported products but have a preference for local goods that are of
equal quality to the imports because buying them assists the economy and em-
ployment in the nation.
Investigates the relationship between consumer ethnocentrism and con-
sumer attitudes toward foreign manufactured products in product categories
in which domestic alternatives are not available. Such decision situations (i.e.
product choice in categories with no domestic alternative) are common for con-
621
sumers in many smaller countries throughout Europe, and thus important for
marketing managers to understand (Watson & Wright, 2000, p. 1149).
Balabanis & Diamantopoulos (2004, p. 80) used a multidimensional un-
folding approach to examine the preference patterns of U.K. consumers for do-
mestic products and those originating from specific foreign countries for eight
product categories. Results indicate that the observed variability in preferences
is linked to consumer ethnocentrism. However, the latter’s capability in explain-
ing consumer bias in favor of domestic products is dependent both on the spe-
cific country of origin and the particular product category.
As new vistas emerge for furthering international trade in goods and servic-
es, Shankarmahesh (2006) provides a timely review and an integrative frame-

work of existing research on CET, its antecedents and consequences. He also
contributes to the marketing discipline both by integrating a wide body of re-
search on an important international marketing topic and by offering broad
avenues for further research.
According to Hudleston et al. (2001, p. 236), Poland appears to be an attrac-
tive consumer market, based on strong demand for consumer products during
the past several years. However, this may not be the case for Western market-
ers, because of the influence of strong feelings of national pride on behavior of
Polish consumers. Measures of consumer ethnocentrism may provide Western
marketers with the information necessary to target consumers who do not al-
low nationalistic feelings to influence product quality evaluation and purchase
behavior. Also, the necessity of the product to consumers may provide market-
ers with clues on which products will be accepted in the Polish marketplace.
The purpose of this study is to learn, for various consumer products, whether
Polish consumers’ perceptions of product quality differ based on consumer eth-
nocentric tendency, product necessity, and country of origin. A repeated mea-
sures ANOVA test provides empirical evidence that perceived quality differs
by necessity, by product, by country, and consumer ethnocentrism influences
quality perceptions of Polish consumers.
Wanninayake & Chovancová (2012, p. 3) claim that consumer ethnocen-
trism has become an important strategic tool used by domestic firms in the
face of global competition. However, the ability to use this phenomenon and
its practical validity can vary in different industrial and cultural contexts. Re-
searchers address this issue by investigating the relationship between consum-
622
er ethnocentrism and the attitudes of Czech customers towards foreign beer
brands while paying special attention to whether demographic variables alter
the ethnocentric tendencies of the Czech customers. The results revealed that
the ethnocentric tendency of consumers is negatively correlated with the favor-
able attitudes of customers towards foreign beer brands in Czech Republic and
also that highly ethnocentric customers hold less favorable attitudes towards
foreign brands.
Similarly, Kreckova et al. (2012, p. 271) examine consumer tendencies
within the economic crisis, to examine consumer ethnocentrism (CE) among
CEE consumers and its character and influence on buying domestic and for-
eign products. The analyzed sample consisted of 199 Czech respondents. The
results confirm effect of CE on buying behavior as well as national identity in-
fluence on CE. In the Czech context, CE significantly and positively influenced
domestic purchase behavior. Alternatively, there was only a marginal influence
of CE supported its negative effect on foreign purchase behavior. Cosmopoli-
tanism did not affect CE in the Czech context. Therefore, the research findings
suggest a prevalent influence of CE on buying behavior under conditions of
economic crisis. The paper concentrates on ignored area that was very hard hit
by economic crisis in Central and Eastern Europe. The findings provide useful
information to marketing specialists in designing their marketing strategies for
local “made-in” communication campaigns.
.. Measuring consumer ethnocentrism - CETSCALE

To measure consumer ethnocentrism, the literature has extensively used the INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
consumer ethnocentrism tendencies scale (CETSCALE). The CETSCALE
was developed by Shimp & Sharma (1987) in the context of U.S. consumers;
there are many international studies validating this scale.
623
Table 1. Standard 17-item CETSCALE version
No Item
1 American people should always buy American-made products instead of imports
2 Only those products that are unavailable in USA should be imported
3 Buy American-made products. Keep American working
4 American products, first, last, and foremost
5 Purchasing foreign-made products is un-American
6 It is not right to purchase foreign products
7 A real American should buy American-made products
8 We should purchase products manufactured in America instead of letting other countries get rich off us
9 It is always best to purchase American products
10 There should be very little trading or purchasing of goods from other countries unless out of necessity.
Americans should not buy foreign products, because this hurts American business and causes
11
unemployment
12 Curbs should be put on all imports
13 It may cost me in the long-run but I prefer to support American products
14 Foreigners should not be allowed to put their products on our markets
15 Foreign products should be taxed heavily to reduce their entry into the USA
16 We should buy from foreign countries only those products that we cannot obtain within our own country.
American consumers who purchase products made in other countries are responsible for putting their
17
fellow Americans out of work
Souce: Shimp & Sharma (1987)
However, as previous studies over the last 20 years have used adapted ver-
sions of the original CETSCALE, which differ in terms of how many and what
items are included, the results have varied substantially, thereby questioning the
unidimensional of the scale. The CETSCALE is a 17-item scale (Table 1) de-
veloped by Shimp & Sharma in 1987. It was initially designed to represent the
beliefs of American consumers about the appropriateness of purchasing for-
eign products. In Shimp and Sharma’s original work, the CETSCALE explains
consumers’ beliefs, attitudes, purchase intention and consumer choice. Never-
theless, as Shimp & Sharma (1987, p. 281) point out, the scale is “a measure
of ‘tendency’ rather than ‘attitude’, because the latter term suggests more object
specificity than the CETSCALE is intended to capture. ‘Attitude’ is used most
appropriately in reference to the consumer’s feeling towards a specific object”.
Since 1987, the CETSCALE has been used widely by numerous studies
analysing aspects related to the individual’s ethnocentric tendencies in different
countries and for many different product categories ( Jiménez-Guerrero et al.,
2014). In many of the works using CETSCALE (Netemeyer et al., 1991; Good
and Huddleston, 1995; Durvasula et al., 1997; Luque-Martínez et al., 2000;
624
Orth and Firbasova, 2003; Saffu and Walker, 2005; Nadiri and Tümer, 2010),
the CETSCALE exhibits a high degree of reliability.
.. Determination factors of consumer ethnocentrism

Several factors have been identified that determine or are closely related to
consumer ethnocentrism and can, as such, be categorized into four categories;
socio-psychological, economic, political and demographic.
Socio-psychological factors
Some of the socio-psychological factors are cultural openness that is deter-
mined by the readiness to interact with people from other countries and cul-
tures (Altintaş & Tokol, 2007). Group members who spend several years in
contact with other cultures, according to some studies, show high ethnocentric
or even nationalistic tendencies. This can be explained by the fact that person
who is in contact with other cultures trying to preserve his own identity, em-
phasizing cultural differences.
Patriotism is one of the direct drivers of actual purchase behavior. The con-
cept of patriotism had been demonstrated in political science, literature and in-
ternational business (Rezvani, et.al., 2012). This concept concluded that patrio-
tism is an emotional feeling that people have about their own country, and that
it does not mean that they ignore other countries. Research has shown both a
positive relationship varying from culture to culture (Vassella, et.al., 2010) and
there is a straight relationship with consumer’s insight about purchase intention INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
(Rezvani, et.al., 2012).
Conservative people (conservatism) tend to nurture the tradition and social
institutions that are held through time and accept changes only occasionally.
In its extreme form, conservatism can be manifested through religious intoler-
ance, insistence on strict rules and punishments, and an anti-hedonistic view
of the world. Research finds a positive correlation between conservatism and
consumer ethnocentrism. Che et al. (2015) gave guides to marketers as well
as policy makers on the current state of ethnocentrism and patriotism among
Malaysian consumers. They said that promotional campaign should be empha-
sis to increase ethnocentrism and patriotism among Malaysian as it will effect
consumer buying intention of homemade products and services.
625
Animosity or antipathy associated with previous or current military, politi-
cal or economic events is also one of the socio-psychological factors responsible
for consumer ethnocentrisms affecting consumer behavior on the international
market. Animosity, as opposed to consumer ethnocentrism, does not concern
all foreign countries, but only the individual countries we are feeling repulsive
(Klein & Ettenson (1999), Klein et al. (1987), Ishii (2009). These are often
neighboring countries (for example, Croatia-Slovenia, Croatia-Serbia, etc.).
Dogmatism is defined as a feature of a person by which a person around the
world is watching black and white. Shimp & Sharma (1987) in their research
finds a positive relationship between dogmatism and consumer ethnocentrism.
Economic factors
Economic factors affect consumer ethnocentrism as well. Different econo-
mies create different consumer preferences for imported products. In transi-
tional countries, western products will be assumed as desirable for quality and
innovation. However, as the country’s economy develops, nationalist motives be-
come more dominant and consumers adopt a form of ethnocentric purchasing.
According to Shoham & Brenčič (2003), more wealthy consumers tend to
be less ethnocentric in their consumption than less wealthy consumers. Several
other studies have reported that consumers with higher levels of income exhibit
significantly fewer ethnocentric tendencies than consumers with lower levels of
income in various countries (Sharma et al. 1994; Keillor et al. 2001).
Political factors
Rosenblatt (1964) posited political propaganda as one of the antecedents
of ethnocentrism. He argued that leaders can increase group ethnocentrism
by raising the bogey of threat by out-groups. To what extent such propaganda
influences CET in a society is an empirical question. It might be fruitful to
look into the moderating role of “political freedom” or “democracy” in the re-
lationship between political propaganda and CET. In other words, the issue
is whether consumers belonging to democratic countries are less likely to be
swayed by political propaganda than those living in authoritarian environments.
Besides government propaganda, political histories of different countries also
determine the level of CET in a society. In line with that, Good & Huddleston
626
(1995) explained higher CET scores in Poland compared to Russia by arguing
that consumers belonging to countries with a long history of oppression (such
as Poland) tend to be more ethnocentric than those belonging to countries that
were conquerors (such as Russia). However, it can be argued that consumers of
conquering nations will tend to view the “in-group” products as more superior
and preferable compared to those of conquered nations that will crave for “out-
group” products. Two other political variables worth exploring empirically are
perceived proximity, size and power of “out-groups” and leader manipulation
(due to Rosenblatt, 1964).
Demographic factors
According to Shimp (1984), consumer demographics determine consumer
ethnocentrism. In this regard, previous studies have investigated the influence
on consumer ethnocentric tendencies of such demographic characteristics as
age, gender, education level, and income (Sharma et al., 1994; Keillor et al.,
2001; Nadiri & Tümer, 2010).
The ethnocentric tendencies of consumers depending of their gender. Fe-
males, in general, according to Han (1988) and Sharma et al. (1994) tend to
be more conservative, more conformist, more patriotic, less individualistic, and
more concerned about preserving social harmony and promoting positive feel-
ings among group members, or domestic products. On this basis, Sharma et al.
(1994) suggested that females would be more likely to exhibit greater ethnocen-
tric tendencies than males. Also, Balabanis et al. (2001) reported that gender
had an effect on ethnocentricity in a Turkish sample of consumers, but not in INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
a Czech sample. As a result of these studies, Bawa (2004) contended that the
dominant view is that females are more consumer ethnocentric than males.
Although the evidence between relationship of age and ethnocentrism is
mixed, there does seem to be more support for the contention that older people
have more ethnocentric tendencies than younger people. That was confirmed
by Sharma (1984), Bawa (2004) and Imbert et al. (2003). At the other hand,
some researches gave us a variable of mixed results. For example, Sharma et
al., 1994. denied positive relations between age and ethnocentric tendencies,
whereas Balabanis et al. (2001) found that age did have an effect in a Turkish
sample of consumers (but not in a Czech sample).
627
When speaking regarding effect of education on level of ethnocentrism, Ray
(1990), stated that people with a higher level of education tend to be less con-
servative. This suggestion confirmed Sharma et al. (1994) as well, who found
that consumers with higher levels of education exhibited significantly fewer
ethnocentric tendencies than consumers with lower levels of education. How-
ever, Keillor et al. (2001) did not find any differences in ethnocentric tendencies
among consumers who had different levels of education. Nevertheless, accord-
ing to Bawa (2004), there is something of a consensus that a higher level of
education is associated with a lower level of consumer ethnocentrism.
At the other hand, Wanninayake & Chovancová (2012, p. 15) revealed that
there are no significant differences between consumer ethnocentrism and all the
demographic variables of Czech customers.
.. Consumer ethnocentrism in Croatia

Croatia is the last member of the EU entered in July 1st, 2013. Croatia is net
importer, especially concerning food products (Table 2).
Croatian agricultural foreign trade negative balance is increasing, although
the export-import ratio improves in the last period (2011-2013), probably as
an effect of EU pre-accession benefits. Export/import ratio in the last observed
period is improved comparing to previous two periods (57 compared to 51 and
52%, respectively). Cereals and livestock import and export is increasing, too.
Table 2. Croatia foreign trade of agricultural products (000 USD) in different

periods (average)
period 2000-2004 2005-2009 2010-2013
export 523.431 1.009.578 1.371.972
import 994.024 1.964.672 2392.065
FT balance -470.593 -955.094 -1.020.093
Source: FAOSTAT
Croatian accession to the European Union has significantly affected the

terms of trade with other trade groups, especially the countries of CEFTA. The
most important CEFTA countries regarding trade with Croatia are CEFTA
members - Bosnia and Herzegovina and Serbia. Trade with Bosnia and Her-
zegovina was mostly liberalized, while in Serbia case, Croatia had decreased
628
tariff rates. So, the changed terms of trade after Croatian joining EU, expect-
edly changed trade level with CEFTA because Croatia must adopt EU trade
regulation. Croatia faced the worsening sale conditions with CEFTA countries.
Considering Bosnia & Herzegovina and Serbia have signed Stabilization and
Association Agreements with the EU, their agricultural products are more pro-
tected by the EU, including Croatian products as well (Loncaric et al., 2017).
Export to the EU countries rise from 41 to 50% of total food export, while the
export to the CEFTA group decreased from 45 to 39%. Speaking about import,
situation is even more pronounced because import to EU rise from 68% (2011)
to 835 (2015). At the same time import from CEFTA decreased to 7% (2011)
compared to 11% in 2015.
Such exposure to foreign products certainly affects consumers and their feel-
ing about foreign products, especially because Croatia is transitional country at
the bottom of the EU development.
Some Croatian marketing scientists researched impact of country of origin
and consumer ethnocentrism to Croatian food consumers.
Anić (2010) examine the differences in consumers’ attitudes towards domes-
tic and foreign retailers in Croatia. It segments the consumers based on their
attitudes and examines the differences among the attitude segments relative to
their retail patronage behavior, consumer spending and consumer attitudes to-
wards buying Croatian-made products. The results show that consumers per-
ceive domestic retailers as being similar to foreign retailers on three out of four
store attribute factors. Cluster analysis produced three consumer segments: (1)
consumers who prefer domestic retailers (28%); (2) consumers who prefer for-
eign retailers (17%); and (3) indifferent consumers (55%). The significant dif-
ferences across segments exist in retail patronage, but not in consumer spend-
ing behavior and the attitudes towards buying Croatian-made products. It may
be concluded that consumers’ attitudes towards domestic and foreign retailers
might predict retail patronage behavior.
Dmitrovic & Vida (2007) wanted to contribute to the existing body of
knowledge on the role of country of origin (COO) information in consump-
tion behavior, the link between perceived saliency of product origin information
and consumer ethnocentrism, the role of product specificity in this relationship.
Analysis of data collected on a sample of adult consumers suggests that saliency
of country-of-origin information is a function of consumer ethnocentrism, and
629
that the strength of this relationship is indeed mediated by a product/service
type. Moreover, age and income were significant discriminators of consumers
characterized by ethnocentric and polycentric purchase orientation. At the
other hand, Kesic et al. (2002) found that there is no relation between gender
or education to the ethnocentricity levels of their urban sample of Croatian
consumers.
Vida et al. (2008) intended to research the effects of ethnic affiliation on eth-
nocentrism and domestic purchase bias, and to test a model of consumer eth-
nocentrism antecedents and outcomes in a multi‐ethnic transitional economy
in the increasingly dynamic ethnic composition of nation states in Europe and
elsewhere.
Vida et al. (2015, p. 49) investigate consumer ethnocentric tendencies and
brand name familiarity as potential antecedents of actual purchase behav-
ior of domestic vs. foreign goods within product categories recently subjected
to foreign competition. Empirical results confirmed most of the postulated
relationships.
In very comprehensive paper, Renko et al. (2012) examine the effects of
consumer ethnocentrism on purchase intentions towards domestic and foreign
products, and also provides useful information on marketing implications de-
rived from the obtained results. The purpose of this study was to determine the
impact of consumers’ ethnocentric tendencies on purchase intentions towards
domestically produced goods and products from former Yugoslavia and Euro-
pean Union in a developing country such as Croatia. The first part of ques-
tionnaire consisted of Cetscale with a total of 17 statements that will define
the degree or intensity of ethnocentric tendencies of Croatian consumers. In
the second part of the questionnaire, a total of nine statements were used to
determine the purchase intention of Croatian consumers towards domestical-
ly produced goods and products from the countries of former Yugoslavia and
from the European Union. The third part of the questionnaire summarized
basic demographic characteristics, including age, gender, education and house-
hold monthly income that will be presented in the paper as the sample char-
acteristics. The researchers obtained their results on random sample of 1000
Croatian respondents. In general, it can be concluded that Croatian consumers
showed a weak but significant preference towards domestically produced goods,
on the other hand, it was evident that there are moderately strong ethnocentric
630
tendencies towards products from countries of former Yugoslavia and EU. The
study reveals that consumer ethnocentrism generally plays an important role
in determining the purchase intentions of Croatian consumers towards foreign
products. Although consumer ethnocentrism is generally a result in developed
countries, according to survey results of this paper, the presence of that concept
is clearly shown in Croatia. The findings of this research have implications for
marketers who want to preserve domestically produced goods against foreign
competition as well as marketers who want to introduce foreign products into
Croatian market.
Matić et al. (2013) aims to determine the difference in animosity and ethno-
centric tendencies with regard to a particular region, county, and type and size
of settlements in Croatia. Moreover, the objective of the paper was to assess the
direction and size of the impact of consumer animosity towards the countries
of former Yugoslavia on consumer ethnocentric tendencies. The research was
conducted on a sample of 1000 respondent in the Republic of Croatia. Analysis
of variance has showed that there are significant differences in the consumer
animosity and ethnocentric tendencies between counties and different types
of settlements, but not between individual regions. The results also confirmed
the correlation between consumer animosity towards the countries of former
Yugoslavia and consumer ethnocentric tendencies in Croatia. Examining the
influence of consumer animosity on the ethnocentrism tendency there was find
significant connection in positive direction.
Tomić (2016) researched consumer ethnocentrism at the level of specific

food products that differ in degree of consumer inclusion. For the purpose of
this research, two food products were selected; wine (high-inclusion product)
and chips (low-inclusion product). The results of the conducted survey indicate
the intermediate level of consumer ethnocentrism among Croatian consumers
of food products. Consumer ethnocentrism has a higher impact on the attitude
of purchasing a food product with a higher degree of consumer inclusion than
about buying a food product with a lower degree of inclusion. The experiment
also found that respondents at the same price of product prefer to purchase food
products of Croatian origin in relation to food products of foreign origin. How-
ever, with the rise of the price of Croatian food products in relation to the prices
of foreign food products, the readiness of the respondents to buy home-made
food products has declined. Respondents with more consumer ethnocentrism
are more willing to pay a higher price for a food product of Croatian origin.
631
3. CONCLUSION
Consumer ethnocentrism is highly exploited and current theme in mod-
ern marketing researches as a result of globalization and loss of ethnic identity.
Several factors have been identified that determine level of CET and can be
divided into four categories: socio-psychological, economic, political and demo-
graphic. The research results confirm that the level of consumer ethnocentrism
differs from country to country, but also between country´s regions and that
level changes over time, as the factors that determine ethnocentrism changes.
As a small EU country, Croatia is very exposed to EU and other foreign prod-
ucts and it certainly affects consumer and their feeling about foreign products,
especially because Croatia is transitional country at the bottom of the EU de-

velopment. Research of CET in Croatia (Renko et al, 2012) showed a weak but
significant preference towards domestically produced goods, on the other hand,
it was evident that there are moderately strong ethnocentric tendencies towards
products from countries of former Yugoslavia and EU.
According to Tomić (2016) consumer ethnocentrism has a higher impact
on the attitude of purchasing a food product with a higher degree of consumer
inclusion than about buying a food product with a lower degree of inclusion.
Consumer ethnocentrism can be one of the drivers of agriculture and food
processing industry development in Croatia, but it is not enough, especially in
conditions of low purchasing power and unemployment. In such circumstances,
consumers pay more attention to the price than to the country of origin. There-
fore, the price competitiveness of Croatian food products should be increased
in relation to prices of foreign food products. Evidently, we should build and
exploit CET on buying behaviour of domestic products versus foreign, espe-
cially preference for freshness and quality of goods by promoting locally “made
in” food. Accordingly, we should influence the local job creation and employ-
ment by encourage of local producers, self-employment and development of
local agriculture.
REFERENCES
Acikdilli, G., Ziemnowicz C. & Bahhouth V. (2017). Consumer Ethnocentrism in Turkey:
Ours are Better than Theirs, Journal of International Consumer Marketing, p. 1-12.
Adorno, T. W., Frenkel-Brunswik, E., Levinson, D. J., & Nevitt Sanford, N. (1969). The
Authoritarian Personality. New York: W. W. Norton & Company.
632
Altintaş M. H. & Tokol T. (2007). Cultural openness and consumer ethnocentrism: an
empirical analysis of Turkish consumers. Marketing Intelligence & Planning, 25(4), p.
308-325.
Balabanis, G. & Diamantopoulos, A. (2004). Domestic country bias, country-of-origin ef-
fects, and consumer ethnocentrism: A multidimensional unfolding approach, Journal
of the Academy of Marketing Science, 32, p. 80.
Balabanis, G., Diamantopoulos, A., Mueller, R. D. & Melewar, T. C. (2001). The impact
of nationalism, patriotism and internationalism on consumer ethnocentric tendencies,
Journal of International Business Studies 32(1), p. 157–175.
Batra, R., Ramaswamy, V., Alden D. L., Steenkamp, J. E. & Ramach, S. (2000). Effect of
brand locan and nonlocal origin on consumer attitudes in developing countries. Jornal
of Consumer Psychology, 9(2), p. 83-95.
Bawa, A. 2004. Consumer Ethnocentrism: CETSCALE validation and measurement of ex-
tent. VIKALPA 29(3), p. 43–57.
Che A., Che W., Syed S. A. & Nor A. O. (2015). The Effect of Ethnocentrism and Pa-
triotism on Consumer Buying Intention. Proceedings of Int’l Conference on Business,
Marketing & Information System Management (BMISM’15), Nov. 25-26, 2015, Paris
(France), p. 1-5.
Chesler, M. & Schmuck, R. (1964). Student reactions to the Cuban missile crisis and
public dissent. Public Opinion Quarterly 28, p. 467-482.
Crawford J. & Lamb C. (1981). Source preferences for imported products. Journal of Pur-
chasing and Materials Management 17, p. 28-33.
Dmitrović, T. & Vida, I. (2007). Saliency of product origin information in consumer choices.
Management, 12(2), p. 1-23
Durvasula, S., Andrews, J.C. & Netemeyer, R.G. (1997). A cross-cultural comparison of
consumer ethnocentrism in the United States and Russia. Journal of International Con-
sumer Marketing, 9, p. 73-79
Good, L.K. & Huddleston, P. (1995). Ethnocentrism of Polish and Russian consumers: are
feelings and intentions related? International Marketing Review, 12 (5), pp. 35-48. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
FaoStat (2017): http://faostat.fao.org/ (15.3.2018.).
Han, C. M. (1988). The Role of Consumer Patriotism in the Choice Domestic versus For-
eign Products. Journal of Advertising Research, 28, p. 25-32.
Herche J. (1992). A note on the predictive validity of the CETSCALE, Journal of the Acad-
emy of Marketing Science 20 (3), p. 261-264.
Huddleston P., Good L. K. & Stoel L. (2001). Consumer ethnocentrism, product necessity
and Polish consumers’ perceptions of quality, International Journal of Retail & Distribu-
tion Management, 29(5), p. 236-246.
Imbert, G., Jiddou, K., Kumar, S., Murillo, A. & Zhao, P. (2003). Analysis of Russian val-
ues. a directed study at Wayne State Univerity [available at: http://www.gerardimbert.
com/files/mkt7995_research.pdf, access March 13, 2018.
633
Ishii K. (2009). Nationalistic Sentiments of Chinese Consumers: The Effects and Determi-
nants of Animosity and Consumer Ethnocentrism. Journal of International Consumer
Marketing, 21(4), p. 299-308.
Jacoby, J. (1978). Consumer Research: A State of the Art Review, Journal of Marketing 42,
p. 87-96.
Jiménez-Guerrero, J. F., Gázquez-Abad J. C. & Linares-Agüera E. C. (2014). Using standard
CETSCALE and other adapted versions of the scale for measuring consumers’ eth-
nocentric tendencies: An analysis of dimensionality. BRQ Business Research Quaterly,
17(3), p. 174-190.
Jordan, A., (1904). The Bias of Patriotism. International Journal of Ethics, 15, p. 1-27.
Keillor, B D., D’ Amico, M. & Horton, V. (2001). Global consumer tendencies. Psychology
and Marketing 18(1), p. 1–19.
Kesic, T., Ljubic F., Pavlovic, I. & Markic, B. (2002). Ethnocentric tendencies in purchasing
behavior in the Republic of Croatia and Bosnia and Herzegovina. In Bigne
& Johar (Eds) Proceedings of 2002 Multicultural Marketing Conference. Valencia,
Spain: Academy of Marketing Science.
Klein, J. G. & Ettenson, R., (1999). Consumer Animosity and Consumer Ethnocentrism:
An Analysis of Unique Antecedents. Journal of International Consumer Marketing, 11,
p. 5-24.
Klein, J. G., Ettenson R. & Morris M. D. (1998). The Animosity Model of Foreign Product
Purchase: An Empirical Test in the People’s Republic of China. Journal of Marketing,
62(1), p. 89-100.
Levinson, D. J. (1957). Authoritarian personality and foreign policy. Journal of Conflict Reso-
lution 1, p. 37-47.
Loncaric, R., Jelic, S. & Tolusic, Z. (2017). Joining EU: Reflections on Croatian food foreign
trade relations. European Scientific Journal, May 2017, p. 1-12.
Luque-Martínez, T., Ibáñezz-Zapata, J.A. & del Barrio-García, S. (2000). Consumer etho-
centrism measurement. An assessment of the reliability and validity of the CETSCALE
in Spain. European Journal of Marketing, 34, p. 1353-1373.
Matić, M. (2013). Intenzitet i utjecaj potrošačkog animoziteta i etnocentrizma u Hrvatskoj.
Ekonomski vijesnik, 26(1), p. 39-56.
Murdock, G. P. (1931). Ethnocentrism. Encyclopaedia of the Social Sciences. Macmillan,
New York.
Nadiri, H. & Tümer, M. (2010). Influence of ethnocentrism on consumers’ intention to buy
domestically produced goods: An empirical study in North Cyprus. Journal of Business
Economics and Management, 11(3), p. 444-461.
Netemeyer, R.G., Durvasula, S. & Lichtenstein, D.R. (1991). A cross-national assessment
of the reliability and validity of the CETSCALE. Journal of Marketing Research, 28,
pp. 320-327.
Orth, U. & Firbasova, Z. (2003). The role of consumer ethnocentrism in food product
evaluation. Agribusiness, 19, p. 137-153.
634
Renko, N., Crnjak Karanović, B. & Matić, M. (2012). Influence of Consumer Ethnocentrism
on Purchase Intentions: Case of Croatia. Ekonomska misao i praksa 21(2), p. 529-544.
Rezvani, S., Dehkordi G. J., Rahman M. S., Fouladivanda F., Habibi M. & Eghtebasi S.
(2012). A Conceptual Study on the Country of Origin Effect on Consumer Purchase
Intention. Asian Social Science, 8(12), p. 205-215.
Saffu, K., Walker, J. & Mazurek, M. (2010). The role of consumer ethnocentrism in a buy
national campaign in a transitioning country. International Journal of Emerging Markets,
5, p. 203-226.
Shankarmahesh, M. N. (2006). Consumer ethnocentrism: an integrative review of its ante-
cedents and consequences, International Marketing Review, 23(2), p.146-172.
Sharma, S., Shimp, T. & Shin, J. (1994). Consumer ethnocentrism, a test of antecedents and
moderators. Journal of the Academy of Marketing Science 23(1), p. 26–37.
Shimp, T. A. 1984. Consumer ethnocentrism: the concept and a preliminary empirical test,
in T. C. Kinnear. Advances in Consumer Research, Provo, UT, Association for Con-
sumer Research, 11, p. 285–290
Shimp, T. A. & Sharma S. (1987). Consumer Ethnocentrism: Construction and Validation
of the CETSCALE, Journal of Marketing Research, 24(3), p. 280-289.
Tomic, M. (2016). Application of theory of planned behaviour in ethnocentric buying be-
haviour. Doctoral thesis. University of Zagreb, Faculty of agriculture, Zagreb, pp. 164.
Usunier, J. C. & Lee, J. A. (2005). Marketing across cultures. Prentice Hall.
Vassella, M. C., Fountain P. D. & Fountain U. K. (2010). Consumer Ethnocentrism, Patrio-
tism, Global Openness And Country Of Origin Effect: A Literature Review.” Proceed-
ings of American Society of Business and Behavioral Science (ASBBS), 17 (1), p. 362-363.
Vida, I., Dmitrović, T. & Obadia, C. (2008). The role of ethnic affiliation in consumer eth-
nocentrism. European Journal of Marketing, 42(3/4), p.327-343.
Wanninayake W.M.C.B. & Chovancová M. (2012). Consumer Ethnocentrism and Atti-
tudes Towards Foreign Beer Brands: With Evidence from Zlin Region in the Czech
Republic. Journal of Competitiveness, 4(2), p. 3-19.
Watson J. J. & Wright, K. (2000). Consumer ethnocentrism and attitudes toward domestic INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
and foreign products, European Journal of Marketing, 34(9/10), p.1149-1166.
Wise, J. A. (2017). Perceived Vulnerability in Consumer Ethnocentrism. International Jour-
nal of Business and Social Research, 7(11), p. 21.-30.
635
ARCHITECTURE OF
Zvonimir Savić: ARCHITECTURE OF INSTITUTIONAL FRAMEWORK FOR EU COHESION (REGIONAL) POLICY IMPLEMENTATION IN SLOVENIA, HUNGARY...
INSTITUTIONAL FRAMEWORK
FOR EU COHESION REGIONAL
POLICY IMPLEMENTATION
IN SLOVENIA, HUNGARY AND
SLOVAKIA  ROLE MODELS FOR
CROATIA?
Zvonimir SAVIĆ, M.Sc., Ph.D. Candidate,

Croatian Chamber of Economy
Managing Director, Financial Institutions,
Business Information and Economic Analyses Sector
E-mail: zsavic@hgk.hr
Abstract
The purpose of this paper is to observe some examples of the institutional setup
for the EU Cohesion (Regional) Policy that could serve the Croatian govern-
ment as a base for the comparison of institutional frameworks (systems) for the
programming and implementing of EU Cohesion Policy funds. Thus, the insti-
tutional frameworks of countries comparable to Croatia can be used/consulted
in the case of remodelling or adjusting the national institutional framework.
Namely, national systems, which enable a smooth management and an effi-
cient implementation of EU Cohesion Policy funds, are crucial for a successful
use of the EU Cohesion Policy in different countries. However, various institu-
tional frameworks for the EU Cohesion Policy exist in practice. Therefore, the
experiences of countries differ due to a number of factors, such as the intensity
and the type of EU financing, the coherence of priorities for EU financing, the
relative strength of national and regional administrations, national economic
and regional traditions… Due to that, implementation systems can vary sig-
nificantly between countries and the institutional framework existing in one
country does not have to be fully applicable to another country. Thus, the gath-
ering and processing of information related to the national implementation
systems across the EU is troublesome. In order to have a clear overview of the
636
implementation systems in the selected countries, within the scope of this paper
the same approach has been used for each selected country. Namely, the same
elements of the implementation and management systems have been analysed:
the number of programmes and EU funds allocation, the architecture of the
programme, the funds allocated to the operational programmes, the overview of
the operational programmes, management authorities and intermediate bod-
ies. Such a structured approach makes comparison between countries much
more transparent. For the analysis of the institutional frameworks (systems) of
the EU Cohesion Policy implementation, several countries have been chosen:
Slovenia, Slovakia and Hungary, due to their relative similarities with Croa-
tia: size, the level of development, the number of regions, economic strength and
the allocation of EU funds.
Key words: Cohesion policy, institutional setup, institutional system, EU
funds
JEL Classification: F55, F59
1. INTRODUCTION INSTITUTIONS IN
THE EU FUNDS MANAGEMENT AND
IMPLEMENTATION SYSTEM
The purpose of this paper is to look at the various models of the institutional
setup for the Cohesion Policy that could serve the Croatian government as a
base when deciding on which institutional framework could be the role model
regarding the Structural and Cohesion funds management. In the paper, the
examples of the institutional setups of Slovakia, Slovenia and Hungary are pre- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
sented for the 2014 – 2020 programming period.

Following the European Commission requirements for the 2014 – 2020
programming period, the following institutions should be nominated for the
management of the Cohesion Policy programmes:
• Managing Authority/ies (MA) – bears the main responsibility for the
effective and efficient implementation of the Funds (one or more opera-
tional programmes) and thus fulfils a substantial number of functions re-
lated to programme management and monitoring, financial management
and controls as well as project selection.
637
• Certifying Authority (CA, functions may be carried out by MA) – should
draw up and submit payment applications to the Commission. It should

draw up the annual accounts, certifying the completeness, accuracy and
veracity of the annual accounts and that the expenditure entered in the
accounts complies with the applicable Union and national rules.
• Auditing Authority (AA, functionally independent, for each OP) – should
ensure that audits are carried out on the management and control systems,
on an appropriate sample of operations and on the annual accounts.
• Intermediate Body (IB, as an option, to carry out MA or CA functions,
if the Member State so decides) – can be used to implement all or part of
the functions of the Managing Authority (in general, these will be project-
level tasks).
As to the distribution of responsibilities between the MA and the IB, newly
acceded member states tended to attach high importance to the regularity of
programme management (being “afraid” of financial corrections). This usually
led to overly centralised programme management systems, or at least to exces-
sively vigorous controls of IB’s actions by the Managing Authority. The logi-
cal consequence is a slowdown in the programme implementation, increased
bureaucracy (red tape), and a shortage of resources (as controls drained away
much human and material capacity). The solution to the problem is, on the one
hand, to concentrate controls on the risky elements of the programme imple-
mentation. On the other hand, intermediate bodies can be empowered to take
on more responsibility, with the managing authority reserving itself to strategic
and programme-level management tasks. This was the general direction of in-
stitutional developments in newly acceded countries upon accession.
With regard to the question of which ministry or agency should finally have
the overall responsibility – the answer is open-ended, except that the agency
chosen should have a strong coordination capacity. Coordination units can be
a logical choice, provided they also have – or are in a position to gather – some
experience with regard to the economic development. A joint development of
programmes, institutional and procedural frameworks under the national and
EU development policy instruments is, in any case, a good idea.
638
2. INSTITUTIONAL FRAMEWORK FOR THE
IMPLEMENTATION OF OPERATIONAL
PROGRAMMES IN CROATIA
After the accession to the European Union, the following EU Cohesion pol-
icy instruments are available to the Republic of Croatia:
• European Regional Development Fund (ERDF);
• European Social Fund (ESF);
• Cohesion Fund (CF).
For the Cohesion Policy funding to be targeted at priority areas, each mem-
ber state shall have programming documents that identify investment priorities,
i.e. Operational Programmes. In the Republic of Croatia, for the 2014 – 2020
period, two Operational Programmes have been determined:
1. Operational Programme Competitiveness and Cohesion – OP “Com-
petitiveness and Cohesion” (OPCC);
2. Operational Programme Efficient Human Resources – OP “Efficient
Human Resources” (OPEHR).
The European Commission adopted the OPCC on 12 December 2014, un-
der which the Republic of Croatia has at disposal EUR 6.881 billion, of which
EUR 4.321 billion from EFRD and EUR 2.559 billion from CF. In addition
to the mandatory co-financing of the Operational Programme implementation
from the state budget of the Republic of Croatia, its total worth rises to EUR
8.095 billion. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
In 2014 and 2015, preparatory activities were conducted to set up the

national institutional framework for the implementation of operational pro-
grammes funded from ERDF, CF and ESF in the 2014 – 2020 programming
period.
The management and control system for the utilisation of EU structural
instruments within the OPCC consists of the following (see: Picture 1):
• MRDEF (Ministry of Regional Development and EU Funds) acting as
Managing Authority (which also maintained the responsibility for the im-
plementation of Priority Axes 8, 9 and 10 and Specific Objectives 2c1, 6c1
and 6e2, also performing the functions of the Coordinating Authority);
639
• Intermediate Bodies first level: MEC (Ministry of Entrepreneurship and
Crafts), MSES (Ministry of Science, Education and Sports), ME (Min-

istry of Economy), MMTI (Ministry of Maritime Affairs, Transport and
Infrastructure), MCPP (Ministry of Construction and Physical Plan-
ning), MENP (Ministry of Environmental and Nature Protection), Min-
istry of Agriculture (MA);
• Intermediate Bodies second level: CFCA (Central Financing and Con-
tracting Agency), MSTI, EPEF (Environmental Protection and Efficien-
cy Fund), Croatian Waters, AVETAE (Agency for Vocational Education
and Training and Adult Education), Croatian Agency for SMEs, Innova-
tion and Investment (HAMAG – BICRO);
• MFIN (Ministry of Finance) carries out the function of the Certifying
Authority (CA), while ARPA (Agency for the Audit of European Union
Programmes Implementation System) carries out the function of the Au-
dit Authority (AA).
The Operational Programme Efficient Human Resources is a program-
ming document for the absorption of ESF funds, with MLPS (Ministry of
Labour and Pension System) as its Managing Authority. The allocation under
the OPEHR totals EUR 1,849,745,469.00, of which EU funds accounting for
EUR 1,582,210,217.00.
640
Picture 1: Scheme - EU funds management and control system
Source: Ministry of Regional Development and EU Funds
3. ANALYSIS: ARCHITECTURE OF OPERATIONAL

PROGRAMMES AND OVERVIEW OF EU FUNDS
MANAGEMENT SYSTEM IN INDIVIDUAL
COUNTRIES INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
The national systems that ensure a smooth management and an efficient im-
plementation of the Cohesion Policy funding are crucial for a successful use of
the Cohesion policy in a country. However, there is room for a variety of differ-
ences to exist in the implementation and management of the Cohesion Policy.
National experiences differ due to numerous factors, such as the intensity and
the type of EU funding, the coherence of the areas targeted by EU funding, the
relative strength of the national and regional administration and the national
economy and regional tradition. For the above reasons, implementation systems
may vary significantly between countries.
641
In order to give a comprehensive overview of the implementation systems in
the selected countries (Slovakia, Slovenia and Hungary), in this paper, an iden-
tical approach is applied for each of these countries to achieve transparency and
facilitate comparison. The same thematic areas are addressed, which, as a rule,
include the introductory information, the number of operational programmes
in the country, the system architecture (i.e. the management system for Cohe-
sion policy funds in the country – managing authorities and intermediate bod-
ies and their functions), the resources allocated to operational programmes, the
main priorities and the status of absorption of EU funding.
Such a structural approach facilitates comparison between the countries and
drawing conclusions.
The overview of the implementation system in this paper covers three coun-
tries, with the following selection criteria (See: Table 1):
• Countries from the latest wave of EU enlargement;
• Countries of the size comparable to Croatia (surface and population);
• Countries with the number of NUTS 2 regions comparable to Croatia;
• Countries of Cohesion Policy funding allocation comparable to Croatia
(2014 – 2020, in total amount);
• Countries of Cohesion Policy funding allocation comparable to Croatia
(2014 – 2020, per capita – PC);
• Countries beneficiaries of the Cohesion Fund;
• Countries of the development level comparable to Croatia (in pre-crisis
2008 and in 2016)
642
Table 1: Criteria for country comparison in a view of EU funds implementation
system12
Criteria HR SK SI HU
Countries from the latest wave of EU enlargement (year of enlargement) 2013 2004 2004 2004
Countries of the size comparable to Croatia (000 km2) 57 49 20 93
Countries of the size comparable to Croatia (population in millions, 2015) 4.2 5.5 2.0 9.8
Countries with the number of NUTS 2 regions comparable to Croatia 2 4 2 7
Countries of Cohesion Policy funding allocation comparable to Croatia
8.6 14.0 3.1 21.9
(for 2014 – 2020, billion EUR)
Countries of Cohesion Policy funding allocation comparable to Croatia
2.5 2.8 1.9 2.5
(for 2014 – 2020, per capita, 000 EUR)
Countries beneficiaries of the Cohesion Fund1 DA DA DA DA
Countries of the development level comparable to Croatia (GDP PC,
63 / 59 71 / 77 90 / 83 62 / 67
2008/2016)2
Criteria met/total number of criteria 8/8 8/8 7/8
Source: Eurostat regional yearbook, 2016 edition; Eurostat, European commission; author’s
calculation.
In the table showing the criteria for the selection of countries for the purpose
of comparison of EU funds implementation systems it is important to note
that the countries listed in the table do not differ significantly from Croatia.
This primarily refers to the similar allocation of the Cohesion Policy funds per
capita, the level of development and the similar number of NUTS 2 regions.
This is the basis for assumptions for the preparation and implementation of the
analysis that covers the essential elements of the EU funds management and
implementation system for each country.
Therefore, an analysis was conducted for each country with the aim to ob- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
tain the following data for the 2014 – 2020 budget period:
• Number of (operational) programmes in each country (national and
regional);
• Cohesion Policy funding available by funds;
• Programme architecture, i.e. titles and thematic areas of the operational
programmes;
1
For the 2014 – 2020 period, the countries beneficiaries of the Cohesion Fund include Bulgaria, Croa-
tia, Cyprus, Czech Republic, Estonia, Greece, Hungary, Latvia, Lithuania, Malta, Poland, Portugal,
Romania, Slovakia and Slovenia. http://ec.europa.eu/regional_policy/en/funding/cohesion-fund/
2
http://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&language=en&pcode=tec00114
&plugin=1
643
• Funds allocated to the operational programmes;
• Main priorities and expected results of the use of ESI Funds3;

• Management system, i.e. managing authorities and intermediate bodies by
operational programmes;
• Functions of managing authorities, intermediate bodies and coordinating
authorities.
The data collected by countries according to the above items provide a very
solid basis for the comparison of complexity of the individual management
systems and programme priorities. In addition, based on the overview of the
situation in other countries, comparable with Croatia, drawing conclusions and
guidelines to confirm or contradict the hypotheses presented in this paper is
expected to be easier. Namely, from the comparison of countries, it is possible to
conclude whether a specific EU funds management system and the architecture
of the programmes themselves in the individual country correlate with the ef-
ficiency of EU funds management and absorption (See: Table 2).
For the purpose of providing a clearer picture of the situation in the above
countries, each country is elaborated individually below.
Table 2: Cohesion policy absorption 2014.-2020.

Country
Absorption per fund*
HR SK HU
CF (Cohesion Fund)
Planned, mn. EUR 2,560 4,168 6,025
Paid, mn. EUR 135 458 319
Paid in % 5.3% 11.0% 5.3%
ERDF (European Fund for Regional Development)
Planned, mn. EUR 4,321 7,360 10,757
Paid, mn. EUR 283 542 1.099
Paid in % 6.6% 7.4% 10.2%
ESF (European Social Fund)
Planned, mn. EUR 1,450 2,045 4,662
Paid, mn. EUR 76 231 249
Paid in % 5,.2% 11.3% 5.3%
*Financial data shown with the cut-off date 16. June 2017.
Source: https://cohesiondata.ec.europa.eu/countries/
3
The European structural and investment funds are: European regional development fund (ERDF),
European social fund (ESF), Cohesion fund (CF), European agricultural fund for rural develop-
ment (EAFRD), European maritime and fisheries fund (EMFF).
644
4. SLOVAKIA4
For the 2014 – 2020 financing period, the Slovak Republic has at disposal EUR
13.7 billion for the implementation of the EU Cohesion Policy (See: Table 3).
An additional EUR 1.5 billion is allocated for the development of the agri-
cultural sector and rural areas from the European Agricultural Fund for Rural
Development (EAFRD). The allocation for the European Maritime and Fish-
eries Fund (EMFF) amounts to EUR 15.8 million (See: Table 3, Table 4).
The whole territory of Slovakia, except the area of the capital, Bratislava,
belongs to the less developed NUTS 2 regions, i.e. the regions below 75% of the
average development of the EU. Having in mind the significant interregional
differences in the area of Bratislava and its importance in the country (particu-
larly in R&D), Slovakia decided to increase the allocation for Bratislava to EUR
329 million, through the transfer of a maximum of 3% than the less developed
regions.5
With regard to NUTS regions, it is worth noting that the examples of the
division into NUTS 2 regions in the countries of central and eastern Europe
show that their regions with the capital are mostly separated and much more
developed than the other regions in the country. For example, in the Czech Re-
public (standing at 88% of the EU 28 average development according to the
Eurostat data for 2016) the Prague region stands at 182% of the EU 28 average
development and is among the 10 (of the total of 276) most developed NUTS
2 regions in the EU 28. Hungary is at 67%, the region with Budapest (NUTS
2 region of Central Hungary) at 102%, and Budapest itself at 136% of the aver-
age development of the EU 28. Poland is at 68%, the region of Mazowieckie at INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
109%, and Warsaw, which is in that region, at 196%. Romania is at 58%, the
region of Bucuresti-Ilfov at 139%, and the city of Bucharest at 151%. Slovakia
is at 77%, and the Bratislava area (that belongs among the 10 most developed
NUTS 2 regions in the EU 28) is at 184%.
4
“Management System of the European Structural and Investment Funds for the 2014 – 2020 Pro-
gramming Period”, prepared by the Government Office of the Slovak Republic, which carries out
the function of the Central Coordinating Committee. The document was adopted in November
2014.
The central online portal for ESI funds in Slovakia: http://www.partnerskadohoda.gov.sk/
domov/. ITMS2014 website in the Republic of Slovakia: https://www.itms2014.sk/.
5
EUROPEAN COMMISSION, Brussels, 20 June 2014; Summary of the Partnership Agreement
for Slovakia, 2014 – 2020.
645
Table 3: Number of programmes and EU funds allocation
Cohesion policy (ESF, ERDF,

EAFRD EMFF ETC
CF, YEI)
Number of programmes 7 (6 national, 1 regional) 1 1 7
Allocation (EUR) 13,768,317,148 1,559,691,844 15,785,000 1,019,287,563*
* Total amount of EU sources for the programme European territorial cooperation in which
country participates.
Source: Brussels, 14.12.2015 COM(2015) 639 final, COMMUNICATION FROM THE
COMMISSION, Investing in jobs and growth - maximising the contribution of
European Structural and Investment Funds.
Table 4: EU budget 2014.-2020.

EU budget per capita National part
Rank Total (EUR) Rank EU part (EUR) Rank
(EUR) (EUR)
12/28 20,078,231,718 12/28 15,343,793,992 3/28 2,830 4,734,437,726
Source: https://cohesiondata.ec.europa.eu/countries/SK ; author’s calculation
.. Programme architecture

In the 2014 – 2020 period, the Slovak Republic has seven operational pro-
grammes (OPs) for Cohesion Policy funding (See: Table 5):
• five operational programmes will be financed through the European Re-
gional Development Fund (ERDF) and the Cohesion Fund (CF);
• one operational programme financed through the European Social Fund
(ESF) and ERDF;
• one operational programme from the ESF, including the Youth Employ-
ment Initiative (YEI).
Each of these OPs has a specifically defined management and control struc-
ture. On the top of the structure there is the Central Coordinating Authority
(CCA), whose function is carried out by the Government Office of the Slovak
Republic. The Cohesion Policy in Slovakia is implemented through seven op-
erational programmes (OPs), i.e. four OPs less than in the 2007 – 2013 pro-
gramming period6:
6
EUROPEAN COMMISSION, Brussels, 20 June 2014; Summary of the Partnership Agreement
for Slovakia, 2014-2020
646
• three national OPs co-funded by the ERDF (OP Research and Innova-
tion, Integrated Regional OP, OP Technical Assistance);
• two national OPs co-funded by the ERDF and CF (OP Integrated Infra-
structure, OP Quality of Environment);
• one national OP co-funded by ESF and ERDF (OP Human Resources);
• one national OP co-funded by the ESF (OP Effective Public
Administration).
In addition, there is a Rural Development Programme (funded by EAFRD) and a Fish-
eries Programme.
Table 5: Allocation by operational programme

Operational programme ESI fund Allocation, EUR
OP Research and Innovation ERDF 2,266,776,537
OP Integrated Infrastructure ERDF, CF 3,966,645,373
OP Human Resources ESF, ERDF, YEI 2,204,983,517
OP Quality of Environment ERDF, CF 3,137,900,110
Integrated Regional OP ERDF 1,754,490,415
OP Effcient Public Administration ESF 278,449,284
OP TA ERDF 159,071,912
Rural Development Programme EAFRD 1,545,272,844
OP Fisheries EMFF 15,785,000
Source: EUROPEAN COMMISSION, Brussels, 20 June 2014; Summary of the Partner-
ship Agreement for Slovakia, 2014-2020
647
.. Management system
Table 6: Operational programmes, management authorities and intermediate

bodies7
Operational programme Management authority Intermediate body7
OP Research and Innovation Ministerstvo školstva, vedy, výskumu a
športu Slovenskej republiky
OP Integrated Infrastructure Ministry of Transport, Construction and
Regional Development of SR
OP Human Resources Ministry of Labour, Social Affairs and
Family
OP Quality of Environment Ministry of Environment of the Slovak 3 intermediate bodies (Agency for
Republic environmental protection
Ageny for innovation and
energetics
Ministry of interior)
Integrated Regional OP Ministry of Agriculture and Rural 18 intermediate bodies
Development of the Slovak Republic
OP Effcient Public Administration Ministry of interior
OP TA Government Office of the Slovak Republic
Rural Development Programme
OP Fisheries
Source: http://ec.europa.eu/regional_policy/en/atlas/managing-authorities//?search=1&
keywords=&periodId=3&countryCode=SK&typeId=NAT++
The Central Coordinating Authority of the Government Office is respon-

sible for the coordination of the European Structural and Investment Funds.
The number of bodies involved in the implementation has been reduced with
the aim of harmonising the implementation. The analysis of the administrative
capacities has identified the areas (particularly public procurement, legislation
in the area of environmental protection and the activities of combating fraud)
for a further development and improvement of quality and efficiency.
The Ministry of Finance performs the function of the Certifying Authority,
except for the European Agricultural Fund for Rural Development.
The Ministry of Finance, the Audit and Control Section, carries out the
function of the Audit Authority, except for the European Agricultural Fund for
Rural Development.
7
Comparative analysis of ESI funds management and implementation systems, Plavi partner, June
2016.
648
It carries out the tasks prescribed by the General EC Regulation, and in
more detail, the national Financial Management System.
A notable difference compared with the ESI funds management and imple-
mentation system set up in Croatia is in the fact that in Slovakia the Intermedi-
ate Body (IB 2) level is not defined, and most of the OPs (five out of seven) do
not have the Intermediate Body first level (IB 1) defined.
5. SLOVENIA
For the 2014 – 2020 budget period, Slovenia has at disposal a total of EUR
3,011,899,768 of the EU Cohesion Policy funding (See: Table 7), of which
EUR 895,370,363 from the Cohesion Fund, EUR 1,390,392,899 from the
European Regional Development Fund and EUR 707,713,434 from the Eu-
ropean Social Fund.8
The above funds are programmed through a single operational programme
“Operational Programme for the Implementation of the EU Cohesion Policy
in the period 2014 – 2020”.
An additional amount of EUR 837.8 million is allocated for the develop-
ment of the agricultural sector and rural areas from the European Agricultural
Fund for Rural Development. The allocation for the European Maritime and
Fisheries Fund amounts to EUR 24.8 million (See: Table 7).
Slovenia is divided into two NUTS 2 regions: the more developed Western

Slovenia region and the less developed Eastern Slovenia region. Western Slove-
nia has at disposal EUR 847 million from the Cohesion Policy funding, while
Eastern Slovenia has at disposal EUR 1.26 billion. It is worth noting that the
Cohesion Fund is available for the whole territory of Slovenia, with the alloca-
tion amounting to EUR 1.055 billion.9
8
http://ec.europa.eu/regional_policy/sl/atlas/programmes/2014-2020/slovenia/2014si16maop001
9
EUROPEAN COMMISSION, Brussels, 30 October 2014, Summary of the Partnership Agree-
ment for Slovenia, 2014-2020
649
Cohesion policy (ESF, ERDF, CF,

EAFRD EMFF ETC
YEI)
Number of
1 (national, funded from various funds) 1 1 9
programmes
Allocation (EUR) 3,011,899,768 837,849,803 24,809,114 1,104,803,616*
Source: Brussels, 14.12.2015 COM(2015) 639 final, COMMUNICATION FROM
THE COMMISSION, Investing in jobs and growth - maximising the contribu-
tion of European Structural and Investment Funds.

EU budget per
Rank Total (EUR) Rank EU part (EUR) Rank National part (EUR)
capita (EUR)
23/28 4,896,096,691 19/28 3,874,558,685 11/28 1,880 1,021,538,006
.. Programme architecture

The Cohesion Policy in Slovenia is implemented through a single opera-
tional programme co-funded from ERDF, ESF and CF, relative to the three
programmes that existed in the 2007 – 2013 budget period. One Rural Devel-
opment Programme is financed from the European Agricultural Fund for Rural
Development, and there is an operational programme for the implementation
of the European Maritime and Fisheries Programme (See: Table 9). Also, thir-
teen territorial cooperation programmes participate in Slovenia.10

OP Implementation of EU Cohesion Policy (OP ECP) ERDF, ESF, CF 3,002,688,232
Rural Development Programme (RDP) EAFRD 837,849,803
OP Implementation of EMFF EMFF 24,809,114
Source: EUROPEAN COMMISSION, Brussels, 30 October 2014, Summary of the Part-
nership Agreement for Slovenia, 2014-2020
10
EUROPEAN COMMISSION, Brussels, 30 October 2014, Summary of the Partnership Agree-
ment for Slovenia, 2014-2020
650
.. Management system

bodies11
Operational Management authority Intermediate body
programme
OP Implementation of EU Republic of Slovenia Ministries responsible for the following areas:
Cohesion Policy (OP ECP) Government Office for labour, family, social affairs and equal opportunities,
Development and European economic development and technology,
Cohesion Policy11 culture,
public administration,
justice,
infrastructure,
environment and physical planning,
education, science and sports and
health care.
Source: http://ec.europa.eu/regional_policy/en/atlas/managing-authorities//?search=1
&keywords=&periodId=3&countryCode=SI&typeId=NAT++
Table 11: Organizational structure of the management authority
Source: http://www.svrk.gov.si/en/about_the_office/
11
http://www.svrk.gov.si/en/
651
Leadership Organizational units
Minister Minister’s Office

State Secretary
Deputy director
Development Policies Division
Smart Specialisation Coordination Service
Legal Affairs Service
Cohesion Policy Office
European Territorial Cooperation and Financial Mechanism Office

General Affairs and IT Support Office
Public relations and Promotion Office
Source: http://www.svrk.gov.si/en/about_the_office/organisation/
In the 2014 – 2020 period, there is only one programme financed from the
resources of several funds for the implementation of the Cohesion Policy in
Slovenia, reflecting on the decision on the appropriate management structure.
The latest adjustment of the management system came into force in mid-2016.
Namely, the Decree on Use of European Cohesion Policy in Slovenia in the 2014
– 2020 programming period for the Investment for Growth and Jobs (Uredba
o porabi sredstev evropske kohezijske politike v Republiki Sloveniji v programskem
obdobju 2014–2020 za cilj naložbe za rast in delovna mesta, 1. sprememba12) came
into force on 21 May 2016 in Slovenia. This document regulates the manage-
ment and control system and the bodies in the system as well as their rights and
obligations in the programming period from 2014 to 2020.
In the case of Slovenia, the institution carrying out the task of the Managing
Authority is the Republic of Slovenia Government Office for Development and
European Cohesion Policy (Služba Vlade RS za razvoj in evropsko kohezijsko
politiko13), headed by the minister.
12
http://www.eu-skladi.si/sl/ekp/zakonodaja
http://www.pisrs.si/Pis.web/pregledPredpisa?id=URED6816
13
http://www.svrk.gov.si/si/ i Operativni program za izvajanje Evropske kohezijske politike v ob-
dobju 2014-2020, Str. 438.
652
The Certifying Authority is the Ministry of Finance, Department for Man-
agement of EU Funds/CA (Ministarstvo za finance, Sektor za upravljanje s sred-
stvi EU/PO14) headed by the head of sector.
The function of the Audit Authority in Slovenia is carried out by the Minis-
try of Finance, Budget Supervision Office (Ministarstvo za finance, Urad RS za
nadzor proračuna (UNP))15, headed by the Director.
The above Decree also defines the Intermediate Bodies, i.e. ministries re-
sponsible for the following areas16:
- labour, family, social affairs and equal opportunities,
- economic development and technology,
- culture,
- public administration,
- justice,
- infrastructure,
- environment and physical planning,
- education, science and sports and
- health care.
The Decree precisely defines the role of intermediate bodies, referring to
Regulation 1303/2013/EU, which essentially defines the core tasks of manag-
ing authorities, and each country, beneficiary of EU funds, can define which of
the tasks it can delegate to intermediate bodies.
6. HUNGARY
In the 2014 – 2020 budget period, Hungary was allocated about EUR 21.9
billion for the Cohesion Policy (ERDF, ESF and CF), which includes EUR
49.8 million for the Youth Employment Initiative and EUR 361.8 million for
territorial cooperation. An additional EUR 3.45 billion from the European Ag-
14
dobju 2014-2020, Str. 438.
15
dobju 2014-2020, Str. 438.
16
http://www.pisrs.si/Pis.web/pregledPredpisa?id=URED6816
653
ricultural Fund for Rural Development is allocated for the development of the
agricultural sector and rural areas (See: Table 13). The allocation for the Euro-
pean Maritime and Fisheries Fund amounts to EUR 39 million (See: Table 12).
It is worth mentioning that the whole territory of Hungary, except the region
with the capital, Budapest, belongs to less developed regions.17

Cohesion policy EAFRD EMFF ETC
(ESF, ERDF, CF, YEI)
Number of 7 (5 national, 2 regional) 1 1 9
programmes
Allocation (EUR) 21,544,112,983 3,430,664,493 39,096,293 1,106,996,669*
Source: Brussels, 14.12.2015 COM(2015) 639 final, COMMUNICATION FROM THE
COMMISSION, Investing in jobs and growth - maximising the contribution of
European Structural and Investment Funds.

EU budget per capita National part
Ran Total (EUR) Rank EU part (EUR) Rank
(EUR) (EUR)
9/28 29,646,675,436 8/28 25,013,873,769 5/28 2,532 4,632,801,667
.. Programme architecture

The Cohesion Policy in Hungary for the 2001 – 2020 budget period is
implemented through seven operational programmes (a simplified programme
architecture relative to the 2007 – 2013 budget period, when there were 15
operational programmes) (See: Table 14):18
• two national operational programmes co-funded by ERDF and ESF
(Economic Development and Innovation OP, Human Resources Devel-
opment OP);
17
EUROPEAN COMMISSION, Brussels, 26 August 2014, Summary of the Partnership Agree-
ment for Hungary, 2014-2020
18
EUROPEAN COMMISSION, Brussels, 26 August 2014, Summary of the Partnership Agree-
ment for Hungary, 2014-2020
654
• two national operational programmes co-funded by ERDF and CF (Inte-
grated Transport OP, Environment and Energy Efficiency OP);
• one national OP co-funded by ESF and CF (Public Administration and
Services OP);
• two territorial OPs co-funded by ERDF and ESF: one covering all of
the less developed regions, and the other covering more developed regions of
central Hungary.
In addition, there is a Rural Development Programme (funded by EAFRD)
and a Fisheries Programme (financed from the EMFF).

Human Resources Development OP ERDF, ESF 2,612,789,000
Economic Development and Innovation OP ERDF, ESF, YEI 7,684,204,174
Public Administration and Services OP ESF, CF 794,773,905
Environmental and Energy Efficiency OP ERDF, CF 3,217,105,883
Integrated Transport OP ERDF, CF 3,331,808,225
Territorial OP ERDF, ESF 3,389,963,001
Competitive Central Hungary OP ERDF, ESF 463,703,439
Rural Development Programme EAFRD 3,455,336,493
OP Fisheries EMFF 39,096,293
Source: EUROPEAN COMMISSION, Brussels, 26 August 2014, Summary of the Part-

nership Agreement for Hungary, 2014-2020
655
.. Management system

bodies
Operational programme Management Authority Intermediate
Bodies
Economic Development and Ministry of National Economy, Managing Authority for n/a
Innovation OP Regional Development Programmes
Territorial OP Ministry of National Economy, Managing Authority for
Competitive Central Hungary OP Regional Development Programmes
Ministry of National Economy, Managing Authority for
Regional Development Programmes
Environmental and Energy Efficiency Ministry of National Development /
OP Ministry of National Development (Deputy State
Integrated Transport OP Secretariat for Environment and Energy Efficiency
Operational Programmes)
Public Administration and Services Miniszterelnökség - Közigazgatási Programok Irányító
OP Hatóságának vezetője
(Prime Minister’s Office - Administrative Programs
Managing Authority)
Human Resources Development OP Ministry of Human Capacities
Source: http://ec.europa.eu/regional_policy/en/atlas/managing-authorities//?search=1&
keywords=&periodId=3&countryCode=HU&typeId=NAT++
Hungary has a larger number of operational programmes and a slightly

more complex management system (See: Table 15)19. Namely, it has a total of
seven programmes, of which five national and two regional programmes:
The Ministry for National Development is the Managing Authority for the
following:
• “Environmental and Energy Efficiency OP”
• “Integrated Transport OP”
The Ministry for National Economy, as the Managing Authority for region-
al development programmes:
• “Territorial and settlement development OP”
• “Competitive Central-Hungary OP”
19
http://ec.europa.eu/regional_policy/en/atlas/programmes ; http://ec.europa.eu/regional_poli-
cy/en/atlas/managing-authorities//?search=1&keywords=&periodId=3&countryCode=HU&
typeId=NAT++
656
• “Economic Development and Innovation Operational Programme”
The Ministry of Human Resources is the Managing Authority for the
following:
• “Human Resources Development Operational Programme”
The Prime Minister’s Office (PMO) is the Managing Authority for the
following:
• “Public Administration and Civil Service Development OP”.
In the 2014 – 2020 period, the coordination of the use of resources from
the European Structural and Investment Funds is centralised to a large extent.
Five Cohesion Policy programmes are financed from several funds in which the
use of ERDF, CF and ESF is combined. In order to facilitate coordination and
ensure consistency among programmes, in addition to individual programme
monitoring committees, a monitoring committee at the level of the Partnership
Agreement will be set up.
It is worth noting for Hungary that the absorption capacity of the reformed
management system for the 2007 – 2013 period has been considered consider-
ably higher than the system that functioned in the 2004 – 2006 period, and the
transparency of the system has also improved.
Nevertheless, after the change of government in 2010, the centralised struc-
tures were under pressure from sectoral ministries, and the National Devel-
opment Agency (NDA) faced conflicting situations. In addition, the political
importance of development with regard to other economic policies (e.g. tax re-
form, fiscal stabilisation, etc.) weakened gradually. Consequently, the National INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Development Agency also weakened. The management system did not change
at the time, but subsequently it was decided to carry out the management sys-
tem reform for the 2014 – 2020 budget period, which implied, as follows:
• The National Development Agency was disbanded from 1 January 2014;
• The competences for coordination were incorporated in the Prime Min-
ister’s Office20;
20
Also confirmed in: Hungarian Partnership Agreement for the 2014 – 2020 programme period,
2nd July 2013, Budapest, p. 169.
657
• Managing Authorities were reallocated to relevant sectoral ministries with
the aim of establishing a unified responsibility for the development of sec-

toral and development policies. The new bodies would keep the responsi-
bility for the OPs from the 2007 – 2013 budget period.
The government believed that a strong centralised coordination would be
maintained because of such changes. For instance, the Prime Minister’s Office
would keep the right to veto in the case of granting new aid/measures. It was
believed that by closing down the National Development Agency conflicts be-
tween the Coordinating Authority and ministries would be reduced (or less
obvious). On the other hand, risk of fragmentation appeared. Finally, the new
system in Hungary was set up in accordance with the requirements resulting
from the Decrees, but it was very similar to the system that had functioned in
the period from 2004 to 2006.
7. CONCLUSION
The examples of the institutional setups of Slovakia, Slovenia and Hungary
could serve the Croatian government as a base when deciding on which institu-
tional framework could be the role model regarding the Structural and Cohe-
sion funds management in the future.
The debate about the basic institutional setup for the Cohesion policy – for
political reasons – tends to be about which ministry should be in charge of co-
ordination, including programming and the elaboration of the legal framework.
This question is indeed unavoidable. However, it is far from being the most
important one.
What counts more is the answer to the following two questions:
• Whether the overall setup of institutions is a rather centralised or a decen-
tralised system (or a mix between the two);
• How the responsibilities between managing authorities (MAs) and inter-
mediate bodies (IBs) are shared.
As regards the first question, looking at the examples of the recently acceded
member states – the basic institutional options are, as follows:
658
• A centralised structure, as practised in the Baltic States, where a single
managing authority is established, with the implementation delegated to
line ministries and their agencies, which has been the case of Slovenia.
• A decentralised structure, where managing authorities are situated in line
ministries, with a relatively weak coordination function – such as the sys-
tems in Bulgaria, or in the Czech Republic.
• A mixed structure, where all or most of the managing authorities are – al-
though separate administrative units – part of one and the same ministry
or agency, such as in the case of Hungary 2007 – 2013.
The first solution definitely fits rather small countries, with relatively small
administrations and could be stressed as the one which could bring most ben-
efits to Croatia as well. Strong coordination system of the European Structural
and Investment Funds, like in Slovakia, also serves as a potential role model.
However, its overall philosophy of a strong coordination function can also be
applicable to larger member states. These are the Hungarian and Polish cases.
The theoretical advantage of a decentralised system could be a strong synergy
between sector policies and the use of EU funds. However, the good coopera-
tion of EU funds management units and sector policy units in line ministries
should not be taken for granted.
REFERENCES
Act on the Establishment of an Institutional Framework for the Implementation of Euro-

pean and Investment Funds in the Republic of Croatia in the Financial Period 2014
– 2020, adopted by the Croatian Parliament at the session on 15 July 2014.
Budget 2014-2020 for Slovakia (available at https://cohesiondata.ec.europa.eu/countries/
SK access March 30, 2018)
Central web page for ESI funds in Slovakia (available at: http://www.partnerskadohoda.
gov.sk/domov/ access March 30, 2018)
Comparative analysis of ESI funds management and implementation systems, Plavi partner,
June 2016.
Decision Promulgating the Act on the Establishment of an Institutional Framework for the
Implementation of European and Investment Funds in the Republic of Croatia in the
Financial Period 2014 – 2020, Official Gazette 94 /2014, 18 July 2014.
Eurostat regional yearbook, 2016 edition, Brussels, 14.12.2015 COM(2015) 639 final,
COMMUNICATION FROM THE COMMISSION, Investing in jobs and growth
– maximising the contribution of European Structural and Investment Funds
659
Development levels of countries (available at: http://ec.europa.eu/eurostat/tgm/table.do?ta
b=table&init=1&language=en&pcode=tec00114&plugin=1 access March 30, 2018)

EU funds absorption (available at https://cohesiondata.ec.europa.eu/countries/ access June
16, 2017)
EU programmes for Slovenia (available at http://ec.europa.eu/regional_policy/sl/atlas/
programmes/2014-2020/slovenia/2014si16maop001 access March 30, 2018)
EUROPEAN COMMISSION, Brussels, 20 June 2014; Summary of the Partnership
Agreement for Slovakia, 2014 – 2020.
EUROPEAN COMMISSION, Brussels, 26 August 2014, Summary of the Partnership
Agreement for Hungary, 2014-2020 (available at http://ec.europa.eu/regional_poli-
cy/en/atlas/programmes access March 30, 2018)
EUROPEAN COMMISSION, Brussels, 30 October 2014, Summary of the Partnership
Agreement for Slovenia, 2014-2020
Hungarian Partnership Agreement for the 2014-2020 programme period, 2nd July 2013,
Budapest.
Management authorities of EU funds implementation system in EU countries (available at
http://ec.europa.eu/regional_policy/en/atlas/managing-authorities//?search=1&ke
ywords=&periodId=3&countryCode=LV&typeId=ALL
http://ec.europa.eu/regional_policy/en/atlas/managing-authorities//?search=1&keyword
s=&periodId=3&countryCode=SK&typeId=NAT++
http://ec.europa.eu/regional_policy/en/atlas/managing-authorities//?search=1&keyword
s=&periodId=3&countryCode=SI&typeId=NAT++
http://ec.europa.eu/regional_policy/en/atlas/managing-authorities//?search=1&keywo
rds=&periodId=3&countryCode=HU&typeId=NAT++ available at March 30,
2018)
Office for national economic planning in Hungary (available at https://www.nth.gov.hu/en/
the-office/introduction-of-the-office
https://www.nth.gov.hu/en/the-office/supervisory-authority/the-supervisory-authority-
of-the-office acces March 30, 2018)
Operational programmes for Slovenia (available at http://www.svrk.gov.si/si/ access March
30, 2018)
Organizational structure of management authority in Slovenia and legislation (available at
http://www.svrk.gov.si/en/about_the_office/
http://www.svrk.gov.si/en/about_the_office/organisation/
http://www.pisrs.si/Pis.web/pregledPredpisa?id=URED6816 access March 30, 2018)
Savić, Z. (2015): “EU fondovi i Junckerov program kao poticajni alati investicija i ukupnog gospo-
darskog razvoja”, 22nd International Scientific Conference “Croatian Economic Crisis
and Shift from Recession to Economic Development“, Zagreb, RIFIN.
660
Savić, Z. et al. (2015) “Kohezijska politika Europske unije i Hrvatska 2014. – 2020. – Vodič
kroz strateški okvir i pregled mogućnosti financiranja“, Zagreb, Croatian Chamber of
Economy.
Savić, Z. et al. (2014) “Institutional framework for Cohesion Policy – Options for Montenegro”,
Podgorica, UNDP.
Savić, Z., S. Bukovac and R. Gelo (2013): “Ususret fondovima kohezijske politike u Hrvatskoj
– Kohezijska politika, Strukturni fondovi, Kohezijski fond i primjeri”, second edition, Za-
greb, Croatian Chamber of Economy.
Savić, Z., S. Bukovac and R. Gelo (2013): “Ususret fondovima kohezijske politike u Hrvatskoj –
Kohezijska politika, Strukturni fondovi, Kohezijski fond i primjeri”, first edition, Zagreb,
Croatian Chamber of Economy.
661
UNEMPLOYMENT DYNAMICS:
THE CASE OF THE SEE5
COUNTRIES
Amir FEJZIĆ, Ph. D.

School of Economics and Business, Sarajevo,
Bosnia and Herzegovina
E-mail: amir.fejzic@efsa.unsa.ba
Jasmina OSMANKOVIĆ, Ph. D.

School of Economics and Business, Sarajevo,
Amir Fejzić Jasmina Osmanković: UNEMPLOYMENT DYNAMICS: THE CASE OF THE SEE5 COUNTRIES
Bosnia and Herzegovina

E-mail: jasmina.osmanković@efsa.unsa.ba
Abstract
The countries of the SEE5 or the Western Balkans countries, Bosnia and Her-
zegovina, Albania, Macedonia FYR, Montenegro and Serbia, are less devel-
oped European countries. Per capita GDP of the EU economies is a few times
higher than in the Western Balkans. Furthermore, the most challenging issues
in the SEE5 countries is still high unemployment rate which may be a reflec-
tion of the ongoing transition process. This article investigates the direct effect
of the real GDP, productivity and population growth on unemployment by
using of time series cross-section (TSCS) regressions with 5 countries for the
time period 2000-2016. Feasible generalized least squares (FGLS) and panel-
corrected standard error (PCSE) techniques are used to analyze the panel data
for measuring group effects and time effects while exploring the relationship
between unemployment rates, economic, productivity and population growth.
The regression coefficients demonstrate inverse but the weak impact of GDP,
positively impact of productivity and the negative impact of population growth
on unemployment. Therefore, it could be concluded that current levels of eco-
nomic growth can’t create enough new jobs to support employment and popula-
tion growth.
662
Key words: Unemployment, Okun’s Law, SEE5 Countries, Productivity, Economic
Growth
JEL Classification: E24, J68
1. INTRODUCTION
Economic growth and unemployment remain important problems of every
SEE5 country. Labour markets in the SEE5 countries are characterized by high
unemployment rates, which are either reaction to ongoing transition processes,
or reflection of labor market rigidities, or consequence of weak economic growth.
Enduring unemployment and substantial informal sector activities have become
a basic feature of the region’s labor market. The higher levels of unemployment
in the SEE5 countries should result in higher labor supply elasticities and one
would expect an intense growth-employment relationship. However, analyzed
data show no such relation for the SEE5 countries. Although countries direct
their economic policies towards establishing the economic growth and reduced
unemployment, almost the entire region is facing with an aging and shrinking
population due to low birth rates and high emigration. That is, the discouraging
labor market performance and political instability of the region cause low GDP
growth, excessive emigration and threats the economic and political integration
of the region in the EU. Bearing in mind that the transition to modern market
economies is not yet complete in the SEE5 countries, this suggests that these
countries are not yet in a position to create enough number of jobs to decrease
the current level of unemployment. According to WB (2017), the jobs chal-
lenge in the SEE5 countries is also structural, and growth alone will not be INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
sufficient to create the number and types of jobs needed in the labor market.
The overall performance of the economy is closely related to the productivity
growth. The productivity, as the amount of output generated by a unit of labor,
varied across the SEE5 countries. Although the relationship between produc-
tivity and unemployment is complex, economists mostly agree on the long run
positive effects of labor productivity, but the debate on the relationship between
productivity and unemployment in the short run.
The objective of this paper is to provide a new challenging theoretical frame-
work, new empirical results as well as policy implications evidence on the na-
ture of the timescale relationship between GDP, productivity and population
growth in the SEE5 and the unemployment rate during the 2000-2016 period.
663
This paper analyses the specific area of Europe, which despite many positive
developments during the last two decades, may still face an image problem. The
analysis of unemployment trends before and after the financial crisis shows that
the impact of growth on unemployment was low before as well as after the fi-
nancial crisis. The relationship between unemployment and output changes in
the SEE5 countries depends on the growth rate of the economy, as well as on
the achieved degree of functioning of the market economy and labor market.
We find the inverse relationship between labor unemployment and real output
which means that any percentage increase in GDP will be percentage decrease
in unemployment. Furthermore, we find the analyzed time horizon that labor
productivity and population are increasing unemployment.
The paper is structured as follows: literature review in section II, model
specification, data description and estimation method in section III, empirical

results are presented in section IV and section V ends with the conclusion.
The thesis that real GDP growth can have the important positive effects on
employment is a well-studied subject in the economics literature. Low level of
unemployment and stable economic growth are main objectives of every econ-
omy. That is, a persistently high unemployment rate decreases the economic
well-being of individuals and the SEE5 countries’ budget. One thing that con-
cerns economists for a reduction in the unemployment rate is how close current
output growth is to an economy’s potential output growth? According to a rule
of thumb known as Okun’s law, the growth rate in real output determines the
speed of improvement in the unemployment rate. That is, if output gap rises 2
percent of potential output, unemployment rises 1 percent. Okun’s law is an im-
portant macroeconomic concept from a theoretical and an empirical viewpoint.
From a theoretical point of view, Okun’s law connects the curve of the aggregate
supply and the Phillips’s curve. Empirically, Okun’s law could be used in predic-
tion and in the formulation of the economic policies. Studies that investigating
Okun’s law could be grouped into two. First group of studies, that recognizes
the importance of economic growth itself as an important determinant of un-
employment, establishes a symmetrical tie between these two variable (Hamada
and Kurosaka, 1984; Sögner and Stiassny (2002) Christopoulos, 2004; Ga-
brisch and Buscher, 2006; Villaverde ve Maza, 2009; Huang and Yeh, 2013;
664
Podgórska and Leśniowska-Gontarz, 2016, among others), generally supports
the inverse relationship between economic growth and unemployment, but
when it comes to the strength of this relationship, the opinions are quite het-
erogeneous. Another group of studies proposes an asymmetrical relationship
between economic growth and unemployment (Harris and Silverstone, 2000;
Vougas, 2003; Cuaresma, 2003, Marinkov and Geldenhuys, 2007; Tang and
Bethencourt, 2017, among others).
However, the estimates of Okun’s coefficient vary substantially across coun-
tries and regions. Following the crises in Turkey, Tiryaki and Özkan (2011)
investigate the asymmetric case for the Okun’s law for Turkey and conclude
that, although there is a strong and quick recovery in economic activity, the same
recovery is not seen in employment and in the reduction of the unemployment
rate. Stadtmann and Ruelke (2009) using yearly data from 1989 to 2007 for G7
countries find a significant negative relationship between the expected change in
the unemployment rate and the expected growth rate of real output. This result
may reflect in that, while empirical evidence in support of the classic linear ver-
sion of Okun’s law is robust, empirical evidence of asymmetries in Okun’s law
over the business cycle is less clear-cut and often involves difficult economet-
ric issues concerning the appropriate specification and testing of an empirical
model (Stadtmann and Ruelke, 2009). Using quarterly data for 16 European
countries from 1984 to 2009, Jardin and Stephan (2011) strongly support that
effect of growth on unemployment is higher when the economy is contracting
than when the economy is expanding. Ibragimov et al. (2013) using quarterly
data and rolling regressions for 2003-2009 in Russia, and for 2003-2011 in
Kazakhstan, find that Okun’s coefficients for these countries at different time INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
periods are statistically indistinguishable. Sadiku et al., (2015) estimate the re-
lationship between economic growth and unemployment rate in FYR of Mace-
donia covering the period 2000-2012 and conclude that the empirical results
from all models do not indicate robust evidence and do not confirm an inverse
linkage between the unemployment rate and economic growth.
In contrast to these results, Moosa (1996) tested Okun’s law for G7 coun-
tries and conclude that the estimated coefficient seems to be the highest for
North America and the lowest for Japan. Malley and Molana (2008) use quar-
terly data for G7 countries between the years of 1960 to 2001 and they find
evidence of Okun’s law across a wide range of countries and time and they also
conclude that relationship between economic growth and unemployment is
665
more significant in the case of Germany. Özel et al. (2013) also agree that job-
less growth implementations are not valid for G7 countries both in economic
expansion and economic crisis period. Kargi (2014) for 34 OECD countries
and for a period of time from 1987 up to 2012 concluded that a long-term
relationship between unemployment and growth exist suggesting the validity
of Okun’s Law. Ball et al. (2017) examine how well Okun’s Law fits with the
short-run unemployment movements in the United States since 1948 and in
20 advanced economies since 1980 and conclude that Okun’s Law has a strong
relationship in most countries. Izyumov and Vahaly (2002) divided 25 of the 27
transition economies members of the European Bank for Reconstruction and
Development (EBRD), into groups of “reform leaders” and “reform laggards” on
the basis of their candidacy status with the European Union (EU). For each
group, they tested the presence of Okun’s Law for an early 1991–94 period and
a later 1995–2000 stage of transition and conclude that Okun’s Law is stronger
in reform leaders than in reform laggards.
These variations of Okun’s coefficient across countries and regions may raise
a question are there common factors that determine the magnitude of Okun’s
coefficients? Okun’s law is more accurately called “Okun’s rule of thumb” due
to the fact that this rule is more an empirical observation than a result derived
from a theory. That is, Okun’s law is approximate because there are common
factors that determine the magnitude of Okun’s coefficients other than unem-
ployment, such as productivity. According to Lee (2000) due to the difference
in the type of unemployment and output growth, the values of coefficient vary
from country to country. Owyang et al. (2013) for the US analyze whether the
size of the coefficient was related to industrial factors, labor market composi-
tion (demographics) and/or state policies, and conclude that Okun’s coefficient
may vary depending on a region’s industrial composition. Savulea (2008) also
pointed out that the Okun’s Law is only valid to a small extent due to the fact
that the growth rate of the GDP only partly explains the evolution of the un-
employment rate. Gabrisch and Buscher (2006) for transition economies sug-
gest that the transition of labor markets can be regarded as completed since
unemployment responds to output changes and not to a changing institutional
environment that destroys jobs in the state sector. Due to the high trend rate of
productivity and a high unemployment intensity of output growth, they con-
clude that labor market rigidities do not play an important role in explaining
high unemployment rates. However, GDP growth is dominated by productiv-
666
ity progress and the employment-relevant component of aggregate demand is
too low to reduce the high level of unemployment substantially (Gabrisch and
Buscher, 2006). Gallegati et al. (2014) decompose the US time series post-war
data in different time scale components and consider co-movements of pro-
ductivity and unemployment over different time horizons and conclude that
productivity creates unemployment in the short and medium terms, but em-
ployment in the long run.
3. THE MODEL, DATA, METHODOLOGY AND

RESULTS
.. Model Specification
Following Owyang et al. (2013), Ball et al. (2013), Dixon et al. (2017), and
others, we will focus on the direct effect of the real GDP, productivity and pop-
ulation growth on unemployment by using of time series cross-section (TSCS)
regressions with the SEE5 countries for the time period 2000-2016. However,
this approach differs from previous literature in that we incorporate a set of ad-
ditional variables and use more quality data. Data are measured at regular yearly
time intervals, well arranged by both cross-sectional and time series variables
and organized as a balanced panel. The impact of GDP, productivity and popu-
lation growth on unemployment growth is calculated by use of the following
equation:
ܷܰ‫ܶܰܧܯܻܱܮܲܯܧ‬௜௧ ൌ ߚ଴ ൅ ߚଵ ܻ௜௧ ൅ ߚଶ ܺ௜௧ ൅ ߚଷ ‫ܫ‬௜௧ ൅ ‫ݑ‬௜௧ Ǥ
(1)
In equation (1) UNEMPLOYMENTit above is unemployment, total (% of INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
total labour force) and Yit is real GDP (annual %). Xit is PRODUCTIVITY
(annual growth of labour productivity per person employed, %) as an output
per employed person growth and lit represents POPULATION as population
growth (annual %). uit represents error and coefficients β0, β1, β2 and β3 refer to
the intercept and to the slope parameters respectively.
.. Data Description

In order to explore the role of GDP, labor productivity and population on
unemployment the dataset of a real data panel has been constructed for the pe-
riod 2000-2016, for 5 observed SEE5 countries. The unemployment as a core
667
variable in the model will be traded as a dependent variable together with a
matrix of the control variables. This variable is presented as the log (total la-
bor force, %). The real GDP growth represents annual percentage growth rate
of GDP converted to international dollars using the purchasing power parity
rates. The GDP variable is log (GDP growth annual, %). The labor productivity
variable is log (growth of labor productivity per person employed, %). The total
population is based on the counts of all residents regardless the legal status or
citizenship. The values shown are midyear estimates as the log (annual popula-
tion growth, %).
There is a considerable cross-country variation in data. For instance, un-
employment in SEE5 countries grew by about 294,500 unemployed, from an
estimated 1.2 million in 2000 to 1.5 million in 2010. However, after 2010 up
to 2016, the number of unemployed fell by 160.000 individuals. It is interest-

ing that a total number of unemployed in SEE5 countries from 2000 to 2016
grew by 134.500 unemployed people. Unfavorable trends in SEE5 countries,
over the given period of time, can also be found in the movement of population,
labor force, and employment. That is, population size fell by 587.500, labor
force fell by 260.000 and employment fell by 393.700 individuals. As shown in
Figure 1, in Macedonia, FYR, the decline of unemployed had already started at
the beginning of 2005, continuing throughout the entire period under review,
but was still high at 26.7 percent in 2016. In Albania, the unemployment rates
started to fall from 17.49 percent in 2015 to 16.33 percent, while Montenegro
observed an even development from a maximum unemployment rate of 20.26
percent in 2003 to a minimum unemployment rate of 16.8 in 2008. After 2008,
the continuous unemployment growth in Bosnia and Herzegovina and Serbia
reached its maximum value of 28.1 and 23.9 percent in 2012 respectively.
Table 1. List of variables
NAME UNIT SOURCE
country code state_id
year year
log(unemployment) log_unemp percent WDI
log(GDP) log_gdp percent own estimation based on WDI database
log(labour productivity) log_prodctvy percent WDI
log(population) log_pop percent WDI
Source: author’s interpretation
668
The relationship between economic growth and unemployment dynamics is
among the most challenging issues in the SEE5 countries. The GDP in SEE5
countries between 2000 and 2008 continuously grew from 124 to 190 billion
US$. The international financial crisis in 2008 hit these economies. The GDP of
the SEE5 contracted between 2008 and 2010 by 0.46 percent. The post-reces-
sion period, 2011-2016, was shaped by GDP growth that recovered slowly and
strengthened slightly from 2012 by 1.8 percent on average. As shown in Figure
1, in Albania the GDP started to grow continuously from 17 billion US$ in
2000 to 33 billion US$ in 2016. The maximum GDP growth rate in Albania of
7.94 percentage was in 2001 and the minimum of 1.11 was in 2013. The GDP
of Bosnia and Herzegovina grew from 2000 to 2008 by the average growth rate
of 5.6 percent. The decline of GDP had already started in 2009 with a nega-
tive growth rate of -2.8 in 2009 and -0.9 in 2012. Following a decline in 2009
and 2012, as a consequence of the financial and economic crisis, thereafter GDP
growth started to recover. Serbia recorded a decline of GDP in 2009, 2012 and
2014. The GDP of Montenegro also grew from 2000 to 2008 and declined in
2009 and 2012. The post-recession period in the SEE5 countries was shaped by
GDP growth that recovered slowly and strengthened slightly from 2013.
Figure 1. Relations between variables in the model from 2000 up to 2016
Source: World Bank’s Development Indicators
669
Labor productivity developments varied across the SEE5 countries. The pro-
ductivity in the SEE5 countries between 2000 and 2016 varied across the coun-
tries with the highest average productivity growth rate at 5.4 percent recorded
in Albania over given period of time. A significant increase in labor productiv-
ity after 2012 took place in Bosnia and Herzegovina and after 2013 in Mace-
donia, FYR, though at a lower rate. Serbia’s continuing productivity growth
between 2000 and 2011 was interrupted in 2012. Negative productivity rates
were recorded between 2012 and 2015 with an average rate of -1.63 percent-
age. Productivity growth in Montenegro declined in 2009 and 2012, thereafter
productivity growth started to recover. The driving force of those productivity
trends differs among countries. Labor productivity growth in Albania, Bosnia
and Herzegovina and Serbia has been driven by shrinking employment com-
bined with a higher GDP growth, while in FYR Macedonia and Montenegro it
has been driven by higher GDP than employment growth.
The region of the SEE5 countries is facing either a demographic contraction
or stagnation, driven by high outward migration and declining birth rates. Since
2000, the population of the SEE5 countries has declined by about 857,500
persons, standing at 16.15 million in 2016. The population growth in the SEE5
countries between 2000 and 2016 varied across countries with the highest pop-
ulation growth rate at 0.51 percent recorded in Macedonia, FYR and lowest
population growth rate at -1.18 percent in Bosnia and Herzegovina.
.. Estimation Method

A panel dataset contains 5 entities, and each entity includes 16 observations
measured at 1 through t year time period. Hence, the temporal units are more
numerous (T>N), the pool is called “temporal dominant” (Stimson, 1985).
Data are measured at regular year time intervals, well arranged by both cross-
sectional and time-series variables and organized as a balanced panel. Panel da-
taset is a fixed panel, hence the same individuals are observed for each period
(Greene, 2008). The methodological approach is Pooled TSCS analysis. This
methodology solves many problems of traditional methods of the comparative
research. First, concerns about “small N” problem is relaxed because pooled
TSCS cases are “country-year”. Second, the regression analysis of pooled data
combining space and time may depend on the higher variability of data. Third,
pooled TSCS analysis deal with the possibility to capture not only the varia-
670
tion of what emerges through time or space but the variation of these two di-
mensions simultaneously (Podestà, 2002). However, the use of OLS procedure
and pooled data tend to generate several econometric problems. First, the GDP
growth variable is assumed to be endogenous. Because causality may run in
both directions, from unemployment to growth and vice versa, these regressors
may be correlated with the error term. Second, time-invariant country charac-
teristics (fixed effects), such as geography and demographics, may be correlated
with the explanatory variables. The fixed effects are contained in the error term,
which consists of the unobserved country-specific effects and the observation-
specific errors. Third, because the serial correlation in linear panel-data models
biases the standard errors and causes the less efficient results, it is necessary to
examine the serial correlation in the idiosyncratic error term in a panel-data
model. Fourth, the problem of heteroscedasticity where the variance of the er-
ror term is different across observations, the model uncertainty varies from ob-
servation to observation.
While pooled OLS based methods adequately deal with violations of as-
sumptions of homoscedasticity, non-autocorrelation and cross-sectional in-
dependence, they have two shortcomings (Hoehn at al., 2014). First, pooled
OLS treats the data set as a pure cross-section where each N-T observation is
effectively seen as a separate observation. Second, pooled OLS based estima-
tion critically depends on the assumption of strict exogeneity. The most widely
used models for addressing these shortcomings are random effect(s) model, also
called a variance components model (RE) and a fixed effects model (FE). The
main difference between these two models is their treatment of the unobserved
N-specific effect. Before any econometric estimation technique is applied, we INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
tested whether to use FE or RE. In the panel model data, we found both signifi-
cant fixed and random effects. To decide between fixed or random effects, we
ran a Hausman test where the null hypothesis is that the preferred model is ran-
dom effects vs. the alternative the fixed effects (see Green, 2008). The null hy-
pothesis of the Hausman test is that unique errors (uit) are not correlated with
regressors. We do not reject the null hypothesis (Prob>chi2 =0.3171), and we
may conclude that individual effects (uit) are not correlated with regressors in
the model and thus the random effect model is preferred. The Breusch and Pa-
gan Lagrangian (LM) multiplier test for random effects helps to decide between
a random effects regression and a simple OLS regression. The null hypothesis
in the LM test is that variances across entities are zero. This means, no signifi-
671
cant difference across units (i.e. no panel effect). Here we failed to reject the null
hypothesis (chibar2=334,67 andProb>chibar2 =0.0000) cand concluded that
random effects are appropriate. This is, the evidence of significant differences
across countries, and therefore we can run a random effects regression. Using
the Pesaran CD test, we tested model for cross-sectional contemporaneous cor-
relation. The Pesaran CD test is used to test whether the residuals are correlat-
ed across entities, which can lead to so called contemporaneous correlation. The
null hypothesis is that residuals are not correlated. The Pesaran’s test of cross
sectional independence yield results= 0.243,Pr = 0.8084, which means there
is no cross-sectional dependence. The Wooldridge test in panel-data models
implements a test for serial correlation in the idiosyncratic errors of a linear
panel-data model discussed by Wooldridge (2002). The Wooldridge test for
autocorrelation in panel data yields results p value of 0.0136. Hence, the in in

test rejects the null hypothesis of no serial correlation. The Modified Wald test
for group-wise heteroskedasticity rejects the null hypothesis of homoskedastic-
ity, Prob>chi2 = 0.000. That is, the panel data set has problems with heterosce-
dasticity and autocorrelation.
The tests for unit roots or stationarity in panel datasets have been accom-
plished by use of the Levin, Lin, and Chu (2002), Im, Pesaran and Shin (2003),
Fisher-type (Choi, 2001) and Hadri (2000) tests.
Table 2. The results of the unit roots or stationarity tests in panel datasets
\ S
ܸܽ‫݈ܾ݁ܽ݅ݎ‬ ̴‫݌݉݁݊ݑ‬ ̴݃݀‫݌‬ ̴‫ݕݒݐܿ݀݋ݎ݌‬ ̴‫݌݋݌‬
‫݀݋݄ݐ݁ܯ‬
‫ݐ݀݁ݐݏݑ݆݀ܣ‬ ܲ‫݁ݑ݈ܽݒ‬ ‫ݐ ݀݁ݐݏݑ݆݀ܣ‬ ܲ ‫݁ݑ݈ܽݒ‬ ‫ݐ ݀݁ݐݏݑ݆݀ܣ‬ ܲ ‫݁ݑ݈ܽݒ‬ ‫ݐ݀݁ݐݏݑ݆݀ܣ‬ ܲ ‫݁ݑ݈ܽݒ‬
/HYLQ /HYHO
/LQ
)LUVW
&KX 'LIIHUHQFH
ܹെ‫ݐ‬
ܹെ‫ݐ‬ ܲ‫݁ݑ݈ܽݒ‬ ܹെ‫ݐ‬ ܲ ‫݁ݑ݈ܽݒ‬ ܹെ‫ݐ‬ ܲ ‫݁ݑ݈ܽݒ‬ ܲ ‫݁ݑ݈ܽݒ‬
,P െ ܾܽ‫ݎ‬ െ ܾܽ‫ݎ‬ െ ܾܽ‫ݎ‬ െ ܾܽ‫ݎ‬
3HVDUDQ /HYHO
6KLQ
)LUVW
'LIIHUHQFH
‫݄݅ܿ݁ݏݎ݁ݒ݊ܫ‬ ܲ‫݁ݑ݈ܽݒ‬ ‫݄݅ܿ ݁ݏݎ݁ݒ݊ܫ‬ ܲ ‫݁ݑ݈ܽݒ‬ ‫݄݅ܿ ݁ݏݎ݁ݒ݊ܫ‬ ܲ ‫݁ݑ݈ܽݒ‬ ‫݁ݑ݈ܽݒ ܲ ݄݅ܿ݁ݏݎ݁ݒ݊ܫ‬
‫݀݁ݎܽݑݍݏ‬ሺͳͲሻ ‫݀݁ݎܽݑݍݏ‬ሺͳͲሻ ‫݀݁ݎܽݑݍݏ‬ሺͳͲሻ ‫݀݁ݎܽݑݍݏ‬ሺͳͲሻ
)LVKHU
/HYHO
W\SH
)LUVW
'LIIHUHQFH
Source: author’s calculation
672
The common unit root processes have been carried out using the panel unit
root test of Levin, Lin and Chu’s (2002). Using the Im, Pesaran and Shin’s
(2003) test, the unit root process for each unit (country) has been tested. Dick-
ey-Fuller unit root test method (ADF) performs the test that a variable follows
a unit-root process. The analysis indicates that almost all of the variables are
stationary in levels. However, once differenced, they all became stationary.
The panel cointegration techniques to test the presence of long-run rela-
tionships among integrated variables with both a time-series dimension, T, and
a cross-sectional have received much attention recently. One of the most im-
portant reasons for this attention is the increased power that may be gained
by accounting not only the time-series dimension but also the cross-sectional
dimension (Persyn and Westerlund, 2008, p.232). Westerlund (2007) devel-
oped four new panel cointegration tests with the idea to test the null hypothesis
of no cointegration. That is, to indicate whether the error-correction term in
a conditional panel error-correction model is equal to zero. When testing for
cointegration between the unemployment and individual explanatory variables,
we fail to reject the null hypothesis of no cointegration.
‫ݐܩ‬ǡ ‫ܽܩ‬ǡ ܲ‫݈݀݁݅ݕܽܲ݀݊ܽݐ‬ǣ‫ ݁ݑ݈ܽݒ‬െ ͲǤͷͲͺǡ െͲǤʹʹͶǡ െʹǤͺ͹Ͳǡ െͲǤ͹ͺ͹Ǣ ‫ ݖ‬െ ‫ʹ݁ݑ݈ܽݒ‬Ǥ͸ʹ͵ǡ ʹǤ͹ͳ͸ǡ ͲǤͲͷ͹ǡ
ͳǤʹ͵͵Ǣ ‫ ݌‬െ ‫Ͳ݁ݑ݈ܽݒ‬Ǥͻͻ͸ǡ ͲǤͻͻ͹ǡ ͲǤͷʹ͵ǡ ͲǤͺͻͳǡ ‫ݕ݈݁ݒ݅ݐܿ݁݌ݏ݁ݎ‬ሻ
Since all the variables in the models change among countries and periods the
basic question is whether or not the data can be pooled together. Chow test is
used in order to identify whether the coefficients estimated over one group of
the data are equal to the coefficients estimated over another. The null hypothesis

is no break. The value of F(1,79)=0,35 andProb>0,5568 suggest that we can’t
reject the null hypothesis in favour of the alternative that there is a break. That
is, we fail to reject the null hypothesis and conclude that the year 2009 does
not cause a break in the regression coefficients. In the equation’s specification,
it might be a possibility of reverse causality between unemployment and eco-
nomic growth. Higher unemployment cause lower economic growth, but it is
also possible that lower economic growth may lead to greater unemployment. If
this holds true, then coefficient estimates may be higher. The null hypothesis of
the Durbin and Wu-Hausman tests is that the variable under consideration can
be treated as exogenous. Here both statistics test are highly significant, Durbin
(score) chi2 (1) = 0.11531 (p = 0.73418); Wu-Hausman F (1,80) = 0.10867
(p = 0.74252), so the results of the endogeneity test rules out reverse causality
between economic growth and unemployment.
673
To solve possible problems of contemporaneous correlations, heteroscedas-
ticity, and serial correlation, several models have been developed to deal with
these complications. Parks (1967) proposes a feasible generalized least squares
(FGLS) based algorithm developed to account for heteroscedasticity, as well as
for temporal and spatial dependence in the residuals of TSCS models method
that Kmenta (1986) made popular. However, the Parks-Kmenta method could
be inappropriate for use because of at least two reasons. First, this method is
infeasible if the panel’s time dimension, T, is smaller than its cross-sectional
dimension, N, and second, Beck and Katz (1995) show that the FGLS produc-
es coefficient standard errors that are underestimated. They report on Monte
Carlo experiments in which the panel-corrected standard error (PCSE) estima-
tor produces an accurate standard error or little loss in efficiency compared to
the FGLS. On the other hand, Reed and Webb (2010) were able to reproduce
Beck and Katz’s results when they used the same experimental parameters that
Beck and Katz employ and they found that the PCSE estimator fell short of
the claims made by Beck and Katz. According to Reed and Webb (2010), the
PCSE estimator could be less efficient than FGLS.
4. ESTIMATION RESULTS
Tables 3 and 4 show two different regression results, which are carried out
on TSCS data by use of two regression analysis techniques: FGLS and PCSE
regression.
The estimation of the relationship between the unemployment, GDP, pro-
ductivity, and population has been shown in Table 3. The results show that all
the variables have a significant impact on the unemployment for SEE5 coun-
tries. GDP showed the significant negative impact on unemployment. The
inverse relationship between the GDP and the unemployment indicated an
interesting relationship. That is, when the economy grows, employment oppor-
tunities are enhanced and the unemployment rate falls and vice versa. In Table
3, the FGLS and PCSE report negative GDP coefficient -0.0601 and -0.0720
respectively. Considering that both the outcome variable and predictor variables
are log transformed, this means that any percentage increase in GDP, the ex-
pected ratio of the two-geometric means for unemployment will be percentage
increase to the power of regression coefficient. In other words, we expect about
0.12 and 0.14 percentage increase in unemployment when GDP decreases by 2
674
percent respectively. Although the impact is weak, it can be concluded that eco-
nomic growth rate in SEE5 countries influences indirectly the unemployment
rate evolution. First difference regression, as FGLS and PCSE level regression,
reports fast the same negative GDP coefficient -0.063 and -0.0742 respectively.
Izyumov and Vahaly (2002) concluded that countries with inflexible labor mar-
kets and high average unemployment levels the trade-off between unemploy-
ment and output is relatively weak. That is if the labor market is characterized
as rigid, Okun’s ratio is low to moderate and unstable.
The two other variables (labor productivity and population growth) show
the interesting results. Productivity has a complex relationship with unemploy-
ment. Depending on circumstances the productivity can either support the cre-
ation of new jobs or act to reduce the current employment. These changes are
often associated with changes in the market conditions of the modern world
realities. In the medium run, new technology is likely to be labor reducing, and
thus adding to unemployment, in the long run, however, new technology re-
placing labor (process innovation) increase productivity and makes firms and
the economy more competitive and may reduce unemployment (Gallegati et
al., 2014). The parameter estimates of productivity have a positive and signifi-
cant effect on unemployment in the context of SEE5 countries across different
specifications. The coefficient of productivity estimated by FGLS and PCSE
amounts to a value of 0.0665 and 0.0883 respectively. That is, we expect about
0.064 and 0.085 percent increase in unemployment, whereas the productiv-
ity increase by 1 percent. A positive correlation between unemployment and
labor productivity is also found in the study of Gallegati et al. (2015). For the
US post-war data, they concluded that productivity creates unemployment in INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
the short and medium terms, but employment in the long run. Nikulin (2015)
estimated relative wage changes with regard to relative productivity and unem-
ployment changes for Poland and other 5 new EU members: Estonia, Hungary,
Slovak, Czech Republic and Slovenia and concluded that the trajectory of wage,
productivity, and the unemployment rate in new EU member countries is di-
versified. Population growth is significant and has a negative sign. A negative
and statistically significant coefficient estimate -0.236 and -0.262 of the popu-
lation growth in FGLS and PCSE regressions, implies that population-level
decrease of 1 percent causes unemployment growth of 0.22 and 0.25 percentage
respectively. First difference regression, as FGLS and PCSE level regression,
reports also negative population growth coefficient -0.301 and -0.331 respec-
675
tively. Given that SEE5 countries are characterized by the continuous decline of
population, while on the other hand are characterized by rising of unemploy-
ment, it can be concluded that we are dealing with a serious phenomenon to
the labor market. World Bank (2017) for Western Balkan countries concluded
that no significant impact of economic growth on employment growth is cur-
rently observed in the Western Balkans, and the impact of growth on unem-
ployment is small. Therefore, the Western Balkan countries are not yet in a
situation whereby the current levels of economic growth guarantee a return to
job growth; the transition to modern market economies is not yet complete, and
many structural issues remain to be addressed (World Bank, 2017). That is, the
inability of SEE5 countries to create new jobs result in rising unemployment
and shrinking of the population.
Table 3. Empirical results of FGLS and PCSE level regression

Dependent Variable: Annual unemployed individuals (2000-2016)
(1) (2)
VARIABLES FGLS PCSE
log_gdp -0.0601*** -0.0720***

(0.0164) (0.0266)
log_prodctvy 0.0665*** 0.0885***
(0.0151) (0.0198)
log_pop -0.236** -0.262**
(0.106) (0.131)
Constant 3.216*** 3.018***
(0.117) (0.118)
Observations 85 85
R-squared 0.903
Standard errors in parentheses; *** p<0.01, ** p<0.05, * p<0.1
676
Table 4. Empirical results of FGLS and PCSE first difference regression
Dependent Variable: First difference of annual unemployed individuals (2000-2016)
(1) (2)
VARIABLES FGLS PCSE
D.log_gdp -0.0630*** -0.0742***

(0.0164) (0.0221)
D.log_prodctvy 0.0658*** 0.0958***
(0.0123) (0.0165)
D.log_pop -0.301*** -0.331***
(0.109) (0.116)
Constant -0.00672 -0.000967
(0.0133) (0.0121)
Observations 80 80
R-squared 0.434
Standard errors in parentheses; *** p<0.01, ** p<0.05, * p<0.10
5. CONCLUSION
This paper has provided additional evidence for the explanation of the rela-
tionship between unemployment GDP, labor productivity and population and
their impact on the SEE5 countries labor market. This has been carried out
on the basis of the real panel data set for the period 2000-2016, for 5 observed

SEE5 countries, whose log-log transformation was employed and discussed
from both a theoretical and empirical point of view. Stable and well-developed
government policies of SEE5 countries, supportive GDP, productivity and pop-
ulation growth rates are important factors for a well-functioning labor market.
The political history of the SEE5 countries, with conflicts, economic uncer-
tainty, and low growth, has sharply limited the development of the labor mar-
ket and still give the impression to have a negative effect on employment. That
is, economic and political stabilization of SEE5 countries, together with the
implementation of a common market in the SEE5 countries, could increase the
attractiveness of this region and lead to an improvement of investment condi-
tions and subsequently improving the conditions for employment. Therefore,
SEE5 countries should support the business climate and positive institutional
677
changes, which will, in turn, promote the urgently needed increase of produc-
tion, productivity, population and employment in the SEE5 countries.
For the SEE5 economies as a whole, this paper finds that there is a statisti-
cally significant connection between GDP growth and unemployment. Long-
term co-integration is valid for the SEE5 countries and variables are long-term
related. Although the impact is weak, the inverse relationship between the GDP
and the unemployment indicated that economic growth rate in SEE5 countries
influences indirectly the unemployment rate evolution. Despite the fact that the
significance of the inverse correlation between real output and unemployment
is widely accepted, there is no consensus on exact intensity rate of this correla-
tion. That is, different countries and country groups have different institutional,
industry, labor, capital structure and policy implemented which consecutively
change the intensity of correlation between real output and unemployment.

Aside from real economic output, labor productivity also has strong effects on
unemployment in the context of SEE5 countries. Even though scholars mostly
be of the same opinion about the long run positive correlation between labor
productivity and employment, there is still much disagreement over the short
run correlation. The estimated coefficient of productivity for SEE5 countries
indicated that, for analyzed time horizon, the increase in productivity positive-
ly affects the unemployment. Strong and negative coefficient estimate of the
population growth implies that population decrease causes the unemployment
growth. That is, current levels of economic growth and market rigidness can’t
create enough new jobs to support employment and population growth in the
SEE5 countries.
The policy implications of the results obtained are that economic and politi-
cal stabilization of SEE5 countries matter and that increase of the attractive-
ness of this region is urgently needed in order to improve investment conditions
and subsequently to improve the conditions for structural changes and reform
in labor market. Future research may focus on more countries and years, as well
as on the analysis of the importance of labor market institutions/regulations,
their interactions and their impact on different economic and labor market
outcomes.
678
REFERENCES
Green, W. H. (2008). Econometric Analysis, 6th ed., Upper Saddle River, N.J.: Prentice Hall.
Kmenta, J. (1986). Elements of Econometrics, 2nd ed., New York, Macmillan Publishing
Company.
Wooldridge, J.M. (2002). Econometric Analysis of Cross-Section and Panel Data, 2nd ed.,
Cambridge, Massachusetts, London, England, MIT Press.
Ball, L., Leigh, D. and Loungani, P. (2017). Okun’s Law: Fit at 50?, Journal of Money, Credit
and Banking, 49: 1413–1441.
Beck, N. and Katz, J. (1995). What to Do (and Not to Do) with Time-Series-Cross-Section
Data, American Political Science Review 89: 634-47.
Choi, I. (2001). Unit Root Tests for Panel Data, Journal of International Money and Finance
20, 249–272.
Christopoulos, D. (2004). The Relationship between Output and Unemployment: Evidence from
Greek Regions, Review of Economic Design. 83.
Cuaresma, J. C. (2003). Okun’s Law Revisited, Oxford Bulletin of Economics and Statistics,
65: 439-451.
Gabrisch, H. and Buscher, H. (2006). The Relationship between Unemployment and Output in
Post-Communist Countries, Post-Communist Economies 18 (3), 261–276.
Gallegati, M., Gallegati, M. Ramsey, J. B. and Semmler, W. (2015). Productivity and Unem-
ployment: a Scale-by-Scale Panel Data Analysis for the G7 Countries, Studies in Nonlin-
ear Dynamics & Econometrics.
Hadri, K. (2000). Testing for Stationarity in Heterogeneous Panel Data, Econometrics Journal
3, 148–161.
Hamada, K. and Kurosaka, Y. (1984). The Relationship between Production and Unemploy-
ment in Japan: Okun’s Law in Comparative Perspective, European Economic Review 25
(1), 71–94.
Harris, R. and Silverstone, B. (2000). Asymmetric Adjustment of Unemployment and Output
in New Zealand: Rediscovering Okun’s Law, Department of Economics Working Paper
Series, Number 2/00, Hamilton, New Zealand: University of Waikato.
Hoehn, B., Schuberth, F. and Steiner, M. (2014). Dealing with Heteroskedasticity, Autocorrela-
tion and Endogeneity in German Audit Fee Panel Data - Comparing Approaches, Social
Science Electronic Publishing, Inc.
Huang, H. and Yeh, C. (2013). Okun’s Law in Panels of Countries and States, Applied Eco-
nomics, Taylor & Francis Journals, vol. 45(2), pages 191-199.
Ibragimov, M., Karimov, J. and Permyakova, E. (2013). Unemployment and Output Dynam-
ics in CIS Countries: Okun’s Law Revisited, EERC, Working Paper Series, No.13/04.
Im, K.S., Pesaran, M.H. and Shin, Y. (2003). Testing for Unit Roots in Heterogeneous Panels,
Journal of Econometrics 115, 53–74.
Izyumov, A. and Vahaly, J. (2002). The Unemployment-Output Tradeoff in Transition Econo-
mies: Does Okun’s Law Apply?, Economics of Planning 35, no. 4(2002): 317-31.
679
Jardin, M. and Stephan, G. (2011). How Okun’s Law is Non-Linear in Europe: A Semipa-
rametric Approach, Working Paper, CREM, Université de Rennes 1, Rennes, France.
Kargi, B. (2014). Okun’s Law and Long-Term Co-Integration Analysis for OECD Countries
(1987-2012), International Research Journal of Finance and Economics, ISSN 1450-
2887, Vol. 119, pp. 77-85.
Lee, J. (2000). The Robustness of Okun’s Law: Evidence from OECD Countries, Journal of
Macroeconomics. 22: 331-356.
Levin, A., Lin, C.F. and Chu, C. (2002). Unit Root Test in Panel Data: Asymptotic and Finite
Sample Properties, Journal of Econometrics 108, 1–25.
Malley, J. and Molana, H. (2008). Output, Unemployment and Okun’s Law: Some Evidence
from the G7, Economics Letters, Volume 101, Issue 2, pp. 113-115.
Marinkov, M. and Geldenhuys, J. (2007). Cyclical Unemployment and Cyclical Output: An
Estimation of Okun’s Coefficient for South Africa, South African Journal of Economics
75 (3), 373–390.
Moosa, I., (1996). A Cross-Country Comparison of Okun’s Coefficient, Journal of Comparative

Economics, Vol.24, 335-356.
Nikulin, D. (2015). Relationship between Wages, Labour Productivity and Unemployment Rate
in New EU Member Countries, Journal of International Studies, Vol. 8, No 1.
Owyang, M. T., Vermann, E. K. and Sekhposyan, T. (2013). Output and Unemployment: How
do they Relate Today?, The Regional Economist.
Özel, H. Sezgin, A., Funda H. and Özgür, T. (2013). Investigation of Economic Growth And
Unemployment Relationship For G7 Countries Using Panel Regression Analysis, Interna-
tional Journal Of Business And Social Science, Vol. 4 No. 6.
Parks, R. (1967). Efficient Estimation of a System of Regression Equations When Disturbances
Are Both Serially and Contemporaneously Correlated, Journal of the American Statistical
Association Vol. 62, 500-509.
Persyn, D. and Westerlund, J. (2008). Error-Correction–Based Cointegration Tests for Panel
Data, The Stata Journal, 8, Number 2, pp. 232–241.
Podestà F. (2002). Recent Developments in Quantitative Comparative Methodology. The Case of
Pooled Time-Series Cross-Section Analysis, Universität Brescia: Discussion Paper.
Podgórska, J. and Leśniowska-Gontarz, M. (2016). Analysis of the Relationship between Un-
employment and GDP in Poland and Spain in the Years 2002–2015, Barometer Region-
alny, Tom 14, nr 3, p.59-67.
Reed, W.R. and Webb, R. (2010). The PCSE Estimator is Good – Just Not as Good as You
Think, Journal of Time Series Econometrics 2, Article 8.
Robert Dixon, G. C. Lim and van Ours, J. C. (2017). Revisiting the Okun Relationship, Ap-
plied Economics, 49:28, 2749-2765.
Sadikua, M., Ibraimib, A. And Sadikuc, L. (2015). Econometric Estimation of the Relation-
ship between Unemployment Rate and Economic Growth of FYR of Macedonia, Procedia
Economics and Finance 19; 69–81.
680
Savulea, D. (2008). Particularities of the Correlation Between the Unemployment Rate and the
GDP in the Dynamics of the Romanian Economy, European Research Studies, Volume
XI, Issue (4).
Sögner, L. and Stiassny, A. (2002). An Analysis on the Structural Stability of Okun’s Law-A
Cross-Country Study, Applied Economics, No.14, pp. 1775-1785.
Stadtmann, G. Ruelke, J. and Pierdzioch, C. (2009). Do Professional Economists’ Forecasts
Reflect Okun’s Law? Some Evidence for the G7 Countries, Applied Economics, Taylor &
Francis (Routledge).
Stimson, J.A. (1985). Regression in Space and Time: A Statistical Essay, American Journal of
Political Sciences, 29(4).
Tang, B. and Bethencourt, C. (2017). Asymmetric Unemployment-Output Tradeoff in the Eu-
rozone, Journal of Policy Modeling.
Tirkayi, A. and Özkan, H. N. (2011). Economic Activity and Unemployment Dynamics in
Turkey, Eskisehir Osmangazi Universitesi IIBF Dergisi, 6, pp. 173184.
Villaverde, J. and Maza, A. (2009). The Robustness of Okun’s Law in Spain, 1980-2004 Re-
gional Evidence, Journal of Policy Modeling, Volume 31, Issue 2, March-April 2009,
pp. 289-297.
Vougas, D. V. (2003). Unemployment in Greece, Journal of Policy Modeling 25 (2), 107–112.
Westerlund, J. (2007). Testing for Error Correction in Panel Data, Oxford Bulletin of Econom-
ics and Statistics 69 (6): 709–48.
World Bank (2017). Western Balkans Labor Market Trends 2017, The Vienna Institute for
Internationale Economic Studies, Report Number: 113922.
Gallegati, M., Ramsey, J. and Semmler, W. (2014). Does Productivity affect Unemployment?
a Time-Frequency Analysis for the US. In M. Gallegati & W. Semmler (Ed.). Wavelet
Applications in Economics and Finance. Springer International Publishing, pp. 23-46.
681
International
Economics
ECONOMIC DIPLOMACY IN TIMES
OF GLOBALIZATION
Dražen HOLMIK, PH. D.

Croatian Chamber of Economy (CCE)
E-mail: dholmik@gmail.com
Abstract
Technological progress has changed the geopolitical image of the world, but
the fundamental relations between countries remain unchanged and are still
based on diplomacy and trade. Diplomacy represents negotiation and persua-
sion skills, and primarily focus is on relations with other states. Trade, on the
other hand, has always been a driving force that has crossed the barriers by
its action. Diplomacy and trade have always been mutually complementing
and enhancing each other. Over the last few decades, especially after the end
of the Cold War, the political diplomacy has been giving more and more place
to economic diplomacy. Under the conditions of globalization, economic diplo-
macy has become more propulsive, intensive and multifunctional. Therefore,
the states are increasingly using economic diplomacy to maintain or further
strengthen their economic position in a globalized world. The aim of this paper
is to present the elements and mechanisms of diplomacy under the conditions
of globalization with a special emphasis on economic diplomacy and Republic
of Croatia’s economic diplomacy activities.
Key words: diplomacy, economic diplomacy, globalization
JEL Classification: F60, F69
1. INTRODUCTION
Over the last few decades, under the influence of globalization, there has been
a significant change in the global economic prospects. Economic changes have
exerted a strong influence on the social-political relations between countries by
increasing the complexity of mutual relations. The borders between states have
become more permeable, enabling a greater flow of capital, goods, and services,
685
leading to the emergence of new global market participants. Throughout merg-
ers and acqvisitions, multinational companies have become significant players
on international markets, striving to strengthen their position further by adding
a political course of action to their strong economic impact.
Classical diplomacy, which had played a particularly important role in the
recent history during the Cold War, relies increasingly on economic diplomacy
in the globalized world. Although the concept of diplomacy was introduced for
the first time in the 15th century, both the classical and economic diplomacy, are
inseparable elements of the human society’s development. The beginnings of
using diplomacy in interpersonal relationships can be found at the very begin-
ning of the human interpersonal interaction, long before the written history
and the emergence of states traditionally associated with the idea of diplomacy.
Diplomacy represents an art of communicating, negotiating and informing
aimed at reducing the possibility of intolerance or conflict’s occurrence. Ber-
ridge (2015: 1) argues that diplomacy is a fundamental political activity and,
together with resources and skills, is the main ingredient of power. Bull (2012:
156) states that several levels of diplomacy should be differentiated between.
In the broadest sense, diplomacy represents the relations that a state creates
with other states or other subjects in world politics by utilizing official agents
and peaceful means. In the narrow sense, diplomacy means the relationships
Dražen Holmik: ECONOMIC DIPLOMACY IN TIMES OF GLOBALIZATION
established by official diplomats on the basis of their subjective traits and skills
of finding the right moment.
In the context of modern states, diplomacy seeks to establish communica-
tion between state leaders and other global politics players. Without commu-
nication, international cooperation would not be possible and a whole set of
international institutions and systems based on international communication
would not exist. Diplomacy is also in charge of negotiating within the frame-
work of various agreements. Negotiations seek to find points of common inter-
est in order to reduce the number of controversial points. At the same time, the
function of diplomacy is to assign its diplomats to gather intelligence about the
country in which they are serving. States behave rationally, just as individuals,
trying to present themselves in the best possible light, and the purpose of diplo-
macy is to collect inofficial information in order to compare it with the official
information. At the same time, diplomats allow to other countries an access to
the selected data and information that a certain state wants to share.
686
Diplomacy is considered to be an activity that helps to reduce intolerance
and to avoid conflicts, but even during a conflict, diplomacy activities are very
important. Truces, exchanges of prisoners and armistices are achieved by dip-
lomatic activities. It is therefore difficult to set a limit and indicate when a
diplomatic activity is of greatest importance – in times of peace, in times of
intensified intolerance or during conflicts. In each of these phases, the role of
diplomacy is of strategic importance.
2. AREAS OF DIPLOMATIC ACTIVITIES

Through the development of international relations over the last couple of
decades in diplomatic activities, there has been a transformation of the inclu-
sion of diplomacy. Due to the increasing complexity of international relations,
diplomacy has branched out, defining a greater number of different diplomatic
activities. Along with the traditional elements, new elements of diplomatic ac-
tivities have emerged. It is thus possible to distinguish between different types
of diplomacy: public, silent, secret, crisis, coercive, urban, digital, economic,
military, environmental, sports, science and other.
.. Public Diplomacy

Public diplomacy is the oldest and the most basic form of diplomatic activ-
ity. The focus of its activities is placed on the communication between major
political entities such as states, governments and people, mostly abroad, but not
exclusively. The concept of public diplomacy was born in 1965 in the USA and
it soon became widely used above all because the notion of public diplomacy
represents a substitute for the concepts of propaganda and psychological war-
fare. Public diplomacy continues to include the mentioned elements, but the
connotation of the term is more lenient. At the same time, the term represents
a unique concept of a government’s access to public opinion, which allowed for
the centralization of certain public diplomacy mechanisms (Cull, 2009: 17).
The concept of public diplomacy does not include its impact on wider social
masses, but rather it is often directed at one or more persons that may either
influence public opinion or change an approach or policies. The influence of
globalization and social changes, such as democratization, the collapse of the
Eastern Bloc and the emergence of new states, have also influenced the public
687
diplomacy to adapt. Interests are mostly promoted through international com-
panies and non-governmental organizations that communicate with the target
audience in real-time by using different technological solutions which enabled
the disappearance the once solid borders between domestic and international
news and information. A very harsh term such as “propaganda” was replaced
by a softer marketing concept such as “branding”, and concepts like “soft power”
were introduced. Communication between the participants became more di-
rect, reaching a larger number of people.
Table 1. The Impact of Globalization on Public Diplomacy
Basic Characteristics Public Diplomacy Then Public Diplomacy Now
Participant in international
State/country Country, companies, institutions
relations
Radio and TV, daily newspapers and Satellites, Internet, real-time news, mobile
Technological environment
magazines, fixed telephony telephony
A clear border between international No clear border between domestic and
Media environment
and domestic news international news
Political advocacy and propaganda
Type of approach Branding and network theory
theory
One participant and up, one-way Multiple participants to multiple participants,
Level of approach
approach multidirectional approach
Scope of approach Less information with more attention More information with less attention
Terminology “international image”, “prestige” “soft power”, “branding of nations”
Top-down access of participants to
Type of performance Horizontally, participants approach directly

foreigners
Elements of performance Targeted messages Relationship building
Response Passive audience, indirect participation, Active audience, direct participation
Overall goal Managing the international environment Managing the international environment
Source: Calleya (2016: 439), author’s analysis
The new way of public diplomacy’s functioning of entails a vague and hazy
background when it comes to the state’s involvement. A large number of non-
governmental organizations, international offices or multinational companies
operate in different countries around the world, and their connectedness and
the source of influence generating the information outputs in the time of glo-
balization is much less clear and unambiguous.
.. Types of Diplomatic Activities

The influence of globalization and social phenomena has created new social
relations that have consequently caused the emergence of a narrow specializa-
688
tion of certain diplomatic activities. Elements that did not exist or were mar-
ginal became the carriers of essential activities over time. Some of the elements
of diplomatic activities will be shown below.
2.2.1. Silent and Secret Diplomacy

Despite its very intriguing name, the silent and secret diplomacy are a set
of diplomatic activities that need to remain unnoticed by the wider commu-
nity up to a certain point in time. Secret diplomacy should not be mistaken for
“closed-door meetings” which for some reason take place away from the public
eye. Reasons for this can be diverse, some of which is the trust that parties in
the negotiations strive to gain or protection of the negotiation parties’ interests.
However, due to the non-inclusion of the wider community, there is a possibil-
ity that the subject of the agreement is not in line with the interests of the wider
community, and in this case, the wider community remains deprived of the ac-
cumulated experience and knowledge.
2.2.2. Crisis Diplomacy

Crises represent an element that is continually emerging in human interac-
tion, and the role of the crisis diplomacy is to prevent the emergence of cata-
strophic consequences that may arise from crisis situations. Globalization has
reduced the effects of solid state borders, but it has also facilitated the easy
spreading of crisis situations of varying character, which in turn cease to be the

concern of a single country. We can differentiate between local and international
crisis situations. Williams (1976: 22) states that the local crisis situation is an
urgent problem faced by the government of a single country while the interna-
tional one involves a certain kind of stress and tensions in the relations between
governments of two or more countries. Crisis situations requiring a crisis diplo-
macy action cover a broad spectrum, they involve not only political problems or
military actions but also different epidemics or pandemics of illnesses, weather-
related hazards or other natural disasters that require joint action.
2.2.3. Conference Diplomacy

The “conference diplomacy” term may lead to the false conclusion about what
type of diplomacy it is all about. However, it can be defined as multi-party dip-
689
lomatic negotiations or as defined by Meerts (2015: 11) as “the concession and
compensation exchange within the international order accepted by sovereign
entities”. The presence of more than one party increases the complexity, how-
ever, the resulting outcomes outweigh the particular interests and guarantee a
greater probability of implementation. Conferences are places where important
elements related to long-term goals are expressed and often serve as a platform
for making common resolutions, decisions or recommendations.
2.2.4. Digital Diplomacy

Information and communication technologies are one of the fundamental
implementers of globalization. New technologies have enabled global network-
ing and simultaneous access to data and information anywhere in the world, but
at the same time, they pose new challenges to diplomacy. Networking has facili-
tated establishing feedback connections between all participants in diplomatic
activities. Setting up and adapting of governments to digital diplomacy was a
long-lasting but inevitable process. The founders of digital diplomacy were the
USA which is still actively using the digital diplomacy in a large number of
communication channels while, for example, President Trump uses Twitter as
his primary channel of communication with citizens. Digital diplomacy has
long been considered a new instrument for achieving the old goal, but never-
theless, the digital diplomacy has significantly influenced the change of work
modalities and the role of diplomats and diplomacy in general.
3. ECONOMY OF CROATIA IN THE

GLOBALIZATION ERA
Globalization represents a narrow space-time interaction network that has
begun at many different places on Earth at different times under different cul-
tural and environmental conditions and that has developed into a unique, high-
ly connected structure with many interactive networks (Cioffi-Revila in Gills &
Thompson, 2006: 72). The economic and political worldview in the globaliza-
tion era has changed rapidly, many new states and alliances had emerged. Since
proclaiming its independence, Croatia has been recognized relatively quickly by
a large number of countries, thanks to the Croatian diplomats who played a key
role in this process.
690
The war, wartime destruction, inflation, numerous displaced persons, and
refugees have marked the first few years of Croatia’s independence. Unlike
Croatia, other European transition countries that have emerged at the same
time did not face a similar problem. Instead, they sought to strengthen the in-
stitutional framework to make the transition from the planned to the market
economy as swiftly as possible. The Croatian economy sought to move away
from the socialist, planned economy as soon as possible, and the privatization
of the state-owned property was imposed as a logical solution for this departure
from the old system. Žitko (2011) states that the process of privatization did
not have a sole function of reducing the state’s share in business enterprises,
but it had also simultaneously attempted to create market players. With the
collapse of Yugoslavia, the market of nearly 22 million people has plummeted.
Companies unadjusted to market conditions, privatization that was carried out
without any high-quality studies, along with a number of exogenous factors,
have led the economy to an unenviable position, the consequences of which are
still felt.
Table 2. Comparative Economic Indicators of European Countries in Transi-

tion in the Year 2002
Unem-
Current GDP per Exchange
GDP Inflation ploy-
GIP 1990=100 Account capita Rate
1990=100 Rate ment
in GDP EU15=100 Index
Rate
1 2 3 4 5 6 7 8

Czech Republic 107,2 94,0 1,8 7,3 -4,7 63 2,1
Hungary 115,6 160,9 5,3 5,3 -5,4 53 1,9
Poland 146,4 174,0 1,9 20,0 -3,6 42 1,9
Slovakia 111,6 105,8 3,3 19,0 -8,2 53 2,7
Slovenia 127,4 94,5 7,5 6,4 1,7 73 1,5
Bulgaria 87,9 62,2 5,8 17,8 -4,1 32 3,6
Romania 92,3 70,3 22,5 9,0 -4,0 25 2,8
Croatia 92,9 71,7 2,2 22,0 -6,7 39 1,7
Russia 72,4 62,2 16,0 7,8 9,1 30 2,8
Ukraine 49,1 70,1 0,8 9,8 5,7 19 5,1
Source: Družić (2004: 44)
691
It is visible from the data in the above table that the economies of some
countries have experienced a significant growth in the observed period, while
some countries have attained a much less favourable economic position than
at the beginning of the observed period. Croatia and other transition countries
have recorded a continuous growth up to 2008 and the global economic crisis.
Table 3. Main Economic Indicators for the Central European and EU Countries
Unem-
ploy-
GDP per capita Growth rate 1995-2001
ment
Inhabitants GDP 2001
rate
2001 (mil.) (bil.) EUR)
Percentage
Realistic
USD of the EU Productive Employed
GDP
average
1 2 3 4 5 6 7 8 9
Croatia 4,4 22,6 4.605 24 4,0 5,4 -1,3 16,3
Czech
10,3 62,1 5.530 29 2,0 2,5 -0,5 8,9
Republic
Hungary 10,0 57,4 4.660 24 3,6 3,3 0,4 8,4
Poland 38,7 197,8 4.560 24 4,8 4,5 0,4 17,3
Slovakia 5,4 22,7 3.700 19 4,4 3,8 0,6 18,2
Slovenia 2,0 20,9 10.605 56 4,1 3,1 1,0 5,9
EU Members
Greece 10,9 30,4 5.700 63 3,3 2,5 0,8 10,4

Ireland 3,9 96,7 2.420 57 9,2 4,0 5,1 3,8
Portugal 10,3 122,6 2.240 24 3,3 0,8 2,7 10,6
Spain 41,1 651,6 4.420 47 3,5 3,1 0,3 4,1
EU 377,5 8.812,0 19.060 100 2,6 1,5 1,1 8,0
Source: Ott (2003: 33)
Technological and economic changes in the context of globalization have

led to the internationalization of business operations. This process was led by
multinational companies, followed by smaller companies that have perceived
the advantages of the international market. According to Babić et. al. (2001:
5), the large growth of international financial flows occurred in the period from
1990 to 2000. Limitations introduced into the banking sector have influenced
the development of institutional investors, and excess capital had to find new
markets. An additional reason is risk dispersion and portfolio optimization on
the international market as a result of globalization and better networking of
692
financial markets. The collapse of socialist-planning economies and the transi-
tion of most of the former socialist states to the market economy has addition-
ally strengthened the growth of financial flows.
The first significant foreign direct investments in Croatia were recorded only
after the declaration of independence because up to that point economic rela-
tions were under the state control and free access to foreign capital was dis-
abled. Economic growth and development were financed by international loans
while private investments were very rare. After the dissolution of Yugoslavia,
the inflow of foreign capital was enabled, but the capital inflow was weak due
to market instability, war operations, and investor uncertainty. The first signifi-
cant foreign direct investments occurred after the end of war operations and
restraint of inflation.
Table 4. Overview of Foreign Direct Investment in Transition Countries (mil

USD)
sum
1995 2006 2007 2008 2009 2010 2011 2012 2013 2014
-2005
Bulgaria 14.600 7.805 12.389 9.855 3.385 1.549 2.945 1.697 1.837 1.733
Czech
53.177 5.463 10.444 6.451 2.927 6.141 2.318 7.984 3.639 5.909
Republic
Croatia 11.346 3.286 4.590 5.297 3.077 1.133 1.682 1.451 955 3.451
Hungary 43.023 6.818 3.951 6.327 1.995 2.193 6.300 14.375 3.097 4.039
Poland 71.932 18.381 21.643 13.862 11.889 12.796 18.258 7.120 120 13.883
Romania 23.095 10.858 9.733 13.492 4.665 3.041 2.363 3.199 3.602 3.234
Slovakia 25.715 5.803 4.017 4.868 -6 1.770 3.491 2.982 591 479
Slovenia 4.557 706 757 1.218 -476 105 1.087 339 -144 1.564
Source: UNCTAD, author’s analysis
In the period from 1995 to 2014, Poland, the Czech Republic, and Hunga-
ry had achieved the highest inflow of foreign direct investments, almost 63% of
the total sum refers to these three countries (Poland 31%, Czech Republic 17%
and Hungary 15%). According to Babić et. al. (2001: 10), attracting foreign
direct investments is an international activity of governments and states that
requires observing the trends on international capital markets and the capacity
to accept investments in recipient countries, as well as the factors determining
the level and structure of foreign direct investment. The fundamental factor in
693
attracting foreign direct investments and internationalization of domestic busi-
nesses represents the institutional framework, in which the state and economic
diplomacy also play an important role.
4. ECONOMIC DIPLOMACY
The impact of globalization can be noticed in a large number of social and
economic elements that have undergone significant changes. Capital and trade
have perceived new emerging markets’ opportunities and under the influence of
globalization, there has been a shift of power centers from the West towards the
Asian-Pacific states. Technological progress was the catalyst for change, while
on the other hand, presenting new challenges for governments. Economic di-
plomacy is an integral part of diplomatic activities, but the changes that global-
ization has brought with it have required the further expansion of diplomatic
activities and apart from other types of diplomatic activities, economic diplo-
macy has been set out as an essential element.
Economic diplomacy is an umbrella element that facilitates the economic
and political goals of the state. Activities that are available range from trade
and investment promotion, economic and financial agreement negotiations and
development aid to measures such as economic sanctions.
Economic diplomacy has a rich history and tradition, it can be traced from
the times of the Roman and the Ottoman Empire. Economic diplomacy has
often used elements of commercial diplomacy to protect the interests of mer-
chants from 1500 to 1200 BC. Due to intense trade with the Far East, the first
intergovernmental agreements between ancient civilizations were created.
Okano-Heijmans has defined economic diplomacy as “the use of political
means as leverage in international negotiations to improve national economic
progress and the use of economic leverage to achieve political stability of a state”
(2013: 29). Radić (2015: 77) defines economic diplomacy as “a platform for
cooperation with the business community and institutions involved in the de-
velopment of international economic relations. The ultimate goal of economic
diplomacy as diplomacy of the future for each country is to achieve a competi-
tive, productive and export-oriented economy”.
694
Economic diplomacy can be viewed as a constituent of three elements that
can achieve the goals of economic diplomacy, consisting of (Okano-Heijmans in
Constantionuo et. al., 2016: 555):
- Trade diplomacy - the most frequently used tool that had been often mis-
identified with economic diplomacy, consisting of market analysis and en-
vironmental analysis, providing assistance in entering certain markets and
finding potential partners,
- Commercial diplomacy - became a particularly used diplomatic tool in
the early 1990s when, due to frequent crisis situations, countries had used
commercial diplomacy jointly to protect common interests,
- Development cooperation - is a tool for promoting political interests of
individual countries and also for promoting economic interests through
various forms of cooperation.
Different types and combinations of tools used by the states are available
depending on the set goals. In terms of mutual understanding and cooperation,
the tones are milder and the tools are more refined, however, in extreme situa-
tions, it is possible to use economic sanctions or military actions against certain
countries. Economic diplomacy is used by governments seeking to resolve the
tensions between politics and economy, foreign and domestic pressures, and
between government and other stakeholders such as private companies or non-
governmental organizations.
Figure 1. The Conceptual Framework: Strands of Economic Diplomacy

SULPDU\JRDOSROLWLFDO SRZHUSOD\HQG
VWDELOLW\
QHJDWLYHVDQFWLRQV
LQGXFPHQWV
ILQDQFLDOGLSORPDF\
WRROSROLWLFDO WRROHFRQRPLF
WUDGHGLSORPDF\
FRPPHUFLDOGLSORPDF\
EXVLQHVVHQG
SURVSHULW\
SULPDU\JRDOHFRQRPLF
Source: Okano-Heijmans, 2013: 30
695
Satow (1979: 3) defined modern diplomacy as “the use of intelligence
data and tactfulness necessary to conduct official relations between the govern-
ments of independent states”. The modern diplomacy defined by Satow does
not include globalization and multinational corporations in itself because it was
created prior to that era, but it can be considered timeless because the first part
of the definition represents the foundation of mutual relationships.
Table 5. Items included in Tools and Expressions

Financial
Commercial diplomacy Trade diplomacy Inducements Sanctions
diplomacy
Currency swap Bilateral assistance: Embargo (exports;
Trade promotion Bilateral FTAs, EPAs
agreements grants, loans state)
Exchange rate Boycott (imports;
Investment promotion Multilateral: WTO Debt relief
policy individuals)
Buying/selling of Suspension of
Business advocacy (antidumping) tariffs Humanitarian aid
government bonds assistance and aid
Export or import Granting access to
Tourism promotion Freezing assets Capital controls
licences technology
Granting
Import or export
Promotion of socially Withholding dues or membership of
quotas, trade, and Blacklist
responsible investing payments the international
investment barriers
organization
Source: Okano-Heijmans, 2013: 32
Saner and Yiu (2001: 19) defined the following participants in the economic
diplomacy of a particular country:
- Governmental stakeholders/implementers - The task of economic diplo-
mats is to influence multilateral economic co-operation by coordinating
specialized ministries, directing negotiating processes in various organiza-
tions, and involving non-governmental stakeholders when appropriate or
necessary. The task of commercial diplomats is to open foreign markets to
domestic companies and to remove entry barriers,
- Business enterprises - the task of business and corporate diplomats is to
recognize business opportunities in foreign markets. By influencing the
economic and political decision-makers and by informing different do-
mestic, foreign and transnational NGOs and other civil society organiza-
tions and co-ordinating them, they influence the sustainable development
of domestic companies in the foreign market.
696
- Civil society organizations - non-governmental organizations involved in
the creation of economic policies must understand and participate proac-
tively in the policy-making process at the level of ministries and the state.
One of their tasks is to analyze international agreements and to under-
stand their impact on the local government, and in cooperation with the
economy, they should promote employment and participate in solving so-
cial and environmental problems.
Under the influence of globalization, the field of diplomacy, that used to be
closely related to career diplomats who were raised/cultivated in ministries of
foreign affairs of different countries, became an area of interest of various inter-
ested parties. However, the changes have not only occurred in the field of diplo-
macy, but modern business models have led to frequent and significant changes
in the careers of businesspeople. It used to be strange that the former university
professor becames an ambassador and afterwards assumes a leadership or coun-
seling position in a multinational corporation, but this is not a case any more.
Economic diplomacy requires people with a wide scope of knowledge and
experience within the real sector who are also experienced in the functioning of
governments, universities and non-governmental organizations. Fields covered
by economic diplomacy are diverse and people with the general know-how are
needed. Economic diplomacy under the conditions of globalization is a propul-
sion tool which should serve the entire economy and can not be viewed as an
exclusively entrepreneurial or diplomatic tool (see Radošević, 2002).
697
Table 6. Key competencies necessary for economic diplomacy
Business Education at
Competencies Particular Competencies for post-modern
Education Diplomatic
relevance for diplomatic environment
School Academies
Business Diplomats
Knowledge of diplomatic instruments
General History of Transnational NGO Diplomats
Management Diplomacy Business Diplomats Capacities in influencing the diplomatic
Transnational NGO Diplomats process
Knowledge of key international business
Business Diplomats
related legal standards
Transnational NGO Diplomats
Strategic
Treaty Making Economic and Commercial
Management Capacities in influencing standard setting at
Diplomats
key international organisations (WTO, ILO,
Business Diplomats
UNEP, WIPO, OECD).
Knowledge of the functioning of international
Business Diplomats
law & arbitration
Managerial International
Accounting Law Economic and Commercial
Diplomats Knowledge of the impact of “Corporate
Reporting to Stakeholders”
Business Diplomats
Economic and Commercial Knowledge of the history & logic of non-US
Diplomats economic theories and practices
Financial International Business Diplomats
Management Economics Knowledge of the influence of international

Business Diplomats
financial institutions(IMF, WB, Paris Club,
Transnational NGO Diplomats London Club, US FRB, BIS)
Business Diplomats Knowledge of the structure and decision
making the process of supranational
International Transnational NGO Diplomats organizations (UN EU, NAFTA, ASEAN etc
Human
and Economic and Commercial
Resource
Supranational Diplomats
Management Capacity to influence these supranational
Organisations
Business Diplomats organizations through direct or indirect means
Knowledge of the interplay between
Business Diplomats economics, politics & culture by region or
Regional & Transnational NGO Diplomats country
Marketing
Country Studies
Capacity to promote a proactive perspective
Business Diplomats
in the region regarding business diplomacy
698
Economic and Commercial
Diplomats Knowledge of the decision making process of
Theory of key countries (domestic and foreign)
International Business Diplomats
International
Relations & Transnational NGO Diplomats
Management
Contemporary Economic and Commercial Capacity in conducting political risk analysis
History Diplomats regarding key stakeholders of the investment
Transnational NGO Diplomats project
Knowledge of the mechanisms of
Business Diplomats international crisis management and
Managing Transnational NGO Diplomats corresponding role of diplomacy and
Operations Delegations, government
Management Embassies & Economic and Commercial
Consulates Diplomats Capacity to intervene on behalf of the
Business Diplomats company
Economic and Commercial
Diplomats Mastering public speaking and media
(key note speeches, TV interviews, press
Business Diplomats
Information Interaction with conferences etc.)
Management Media Transnational NGO Diplomats
Managing a Business Diplomacy Information
Business Diplomats System which supports strategic planning
regarding stakeholder management
Negotiation Economic and Commercial
Organizational Diplomats
skills (bilateral, Managing & influencing international
Behaviour &
multilateral, Business Diplomats negotiations(bilateral, multilateral, plurilateral)
Change
plurilateral) Transnational NGO Diplomats
Diplomatic Business Diplomats Mastering diplomatic practices & protocol
Behaviour Transnational NGO Diplomats
Quantitative
& Protocol Economic and Commercial Mastering analytic tools, e.g., stakeholder
Methods
Contemporary Diplomats analysis, the scorecard on stakeholder
History Transnational NGO Diplomats satisfaction, scenario planning, etc.
Source: Saner i Yiu (2001: 19)
The benefits ensuing of economic diplomacy are multifold, and numerous

states are further strengthening their economic diplomacy. Excellent examples
of such endeavours are the Republic of Austria where the Chamber of Com-
merce started a strong exportation front and created a network of representa-
tive offices, along with a very visible and recognizable brand called Advantage
Austria. In France, in 2012, the then new Foreign Minister, Mr. Laurent Fabius
has made economic diplomacy a priority by shifting the department from the
Ministry of the Economy to the Ministry of Foreign Affairs (Badel, 2014: 432).
699
However, economic diplomacy is not exclusively an activity of diplomatic mis-
sions, it is the overall course taken by the state and all its participants.
5. CONCLUSION
Economic diplomacy does not only represent a narrower area of economic
and trade interests abroad, but it also promotes the broader interests of the
state and its multi-dimensional activities include a political, strategic and eco-
nomic dimension. Governments of countries are involved in shaping economic
diplomacy together with other stakeholders such as companies and civil society
organizations with a view to creating security and national wealth. Economic
diplomacy is an instrument of international politics, which have a large number
of different activities available to achieve their goals. The success of economic
diplomacy depends largely on the number of activities being used, and not all
activities are equally effective. Expertise is needed to assess the outcome of cer-
tain activities and to select the best set of activities that need to be redefined
following the evaluation.
The Croatian economy has gone through a rough patch since the procla-
mation of independence, with a sharp market decline along with the wartime
destruction and a large number of displaced persons and refugees. The priva-
tization which followed was aimed at the formation of market players, how-
ever, a large number of new owners was incapable of leading a market-oriented
business and it came to an additional weakening of the economy and a decline
of economic activities. Growth and development of the Croatian economy at
the beginning of the 21st century was based on Croatia’s optimism and orienta-
tion/vision towards becoming a full member of the EU. This was stopped in its
tracks as soon as the world economic crisis broke out, during which the econ-
omy entered a deep recession with far-reaching consequences. Only recently,
there have been signs of economic recovery, but indicators are still not sufficient
to catch up with the neighbouring transition countries which have made a sig-
nificant progress in the meantime and whose economy is often compared to the
domestic economy.
An economic diplomacy is an excellent tool that can open up new oppor-
tunities for businesses and the whole economy, but lack of strategy and focus
towards a specific goal places all economic diplomacy stakeholders/operators
in an unenviable position. A clearly defined vision and mission are not just ele-
700
ments on which companies have to build their competitive advantages, but they
are equally important for the state. The use of tools available to economic diplo-
macy with the evaluation and redefinition are elements that can boost the coun-
try’s competitiveness and thus lead to the strengthening of the overall economy
and the welfare of the nation.
In order to additionally strenghthen its economic diplomacy over the last
few years, the Croatian Ministry of Foreign and European Affairs has employed
professionals in charge of economic issues in its foreign representative offices.
In addition to the state institutions, the Croatian Chamber of Economy (CCE)
has also been helping businesses to enter new markets for a number of years.
In order to gain momentum, the CCE will be opening a network of economic
representative offices next to the already existing ones in Brussels, Moscow,
Shanghai, Sarajevo, Mostar, and Belgrade. As a suggestion for a future research,
the representative office’s activities’ could be measured/monitored, as well as an
increase in the foreign exchange volumes with the countries in which the repre-
sentative offices operate.
LITERATURE
Babić A., Pufnik A., & Stučka T. (2001). Teorija i stvarnost inozemnih izravnih ulaganja u
svijetu i u tranzicijskim zemljama s posebnim osvrtom na Hrvatsku, Hrvatska narodna
banka, Zagreb
Badel, L. (2014). Conflicting Identities - French Economic Diplomacy between the State
and Companies in the Twenthie Century. Diplomacy & Statecraft, 25 (3), p. 432-452
Berridge G. R. (2015). Diplomac: Theory and Practice, UK: Pelgrave Macmillan.
Bull, H. (2102). The Anarchical Society: A Study of Order in World Politics, 4th ed. Hound- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
mills, UK: Pelgrave Macmillan
Calleya S. (2016), Developing states diplomacy, In the Sage handbook of diplomacy, SAGE
Publications Ltd, 55 City Road, London, pp. 423-433,
Constantinou M. C., Kerr P. & Sharp P. (2016). The Sage handbook of diplomacy, SAGE
Publications Ltd, London
Cull N. J. (2009). Public Diplomacy: Lessons from the Past, Figueroa Press, USA: California
Družić G. (2004). Hrvatska obratnica: Stanje i perspektive hrvatskog gospodarstva. Golden
marketing – Tehnička knjiga. Zagreb
Gills B. K. & Thompson W. R. (2006). Globalization and Global History, New York
Meerts, P.W. (2015). Diplomatic Negotiation: Essence and Evolution. The Hague: Clingendael
Institute.
701
Okano-Heijmans, M. (2013). Economic diplomacy; Japan and the balance of national interests,
Martinus Nijhoff Publishers, Portland OR
Ott K. (2003). Pridruživanje Hrvatske Europskoj uniji: izazovi ekonomske i pravne prilagodbe.
Institut za javne Financije. Zagreb
Porter M. E. (1985), Competitive advantage Creating and Sustaining Superior Performance,
The Free Press, New York
Potočan, V. (2013). How to More Holistically Understand Supply Chain Management?,
13th international scientific conference Business Logistics in Modern Management,
Segetlija, Z., Mesarić, J., Karić, M., Potočan, V., Rosi, B., Jereb, B., Trauzettel, V. (ed.)
Faculty of Economics in Osijek, Osijek, 7 October 2013, p. 13-21.
Radić. G. (2014). Gospodarska diplomacija, dipolomacija budućnosti. Svarog, p. 75-81
Radošević. D. (2002). Hrvatska gospodarska diplomacija u globaliziranom svijetu. Ekonom-
ski pregled, 53 (11-12). p. 1070-1086
Saner R. & Yiu, L. (2001). International Economic Diplomacy: Mutationin Post-modern Times.
Discussion Paper in Diplomacy. Netherlands Institute for International Relations
Clingandael
Satow, E. M., Gore-Booth, P. H. G.-B., & Pakenham, D. (1979). Satow’s Guide to diplomatic
practice, Longman, London
Williams, Phil (1976) Crisis Management: Confrontation and Diplomacy in the Nuclear Age.
Bath: Pitman Press.
Žitko M.; Tranzicija financijskog sektora u Hrvatskoj i Sloveniji, 2011., http://www.slobod-
nifilozofski.com/2011/07/mislav-zitko-tranzicija-financijskog.html, [access March
11. 2018.]
702
HOW BREAKING THE INTEGRITY
OF THE COLD SUPPLY CHAINS
MAY CONTRIBUTE TO GLOBAL
WARMING?
Magdalena KLOPOTT
Gdynia Maritime University,
Department of Logistics and Transport Systems, Poland
E-mail: m.klopott@wpit.am.gdynia.pl
Abstract
The demand for perishable, temperature-sensitive goods, especially food, has
significantly grown in recent years. Global distribution of these products is sup-
ported by cold chain services (e.g. transport, warehousing) that allow main-
taining specific freight conditions such as temperature and atmosphere during
the whole journey from the point of origin to the final customer. Relying on a
desk study research, this paper aims to elaborate the relationship between the
integrity of the cold chain and food losses, which can be directly correlated with
the carbon footprint. The paper starts with an analysis of the global perishable
goods trade and the reefer transportation markets. It also explains the key
drivers, challenges, and trends in those aspects that lag behind the impressive

development of these markets. Next, the specific requirements of perishables
are briefly described, which directly translate to the technological and organi-
zational complexity of the cold chains. Maintaining the freshness and condi-
tion of perishable goods and preventing spoilage are the most challenging and
critical activities vital to the success of the logistic chain. Every interruption in
the cold chain (not maintaining defined temperature and/or atmosphere) may
result in cargo losses or damages, and this issue is subject to further consider-
ation. Finally, the paper shows that food cargo losses cannot be treated only as
a financial loss suffered by any actor of the supply chain. Instead, they should
be viewed in a wider context also as a contribution to GHG emissions and loss
of resources used up during production, transport, and utilization. A properly
functioning cold chain may considerably reduce food losses due to transport and
warehousing.
703
Key words: cold supply chain, food losses, cold chain integrity, perishables
trade, reefer transport, carbon footprint
JEL Classification: Q54, Q59
. INTRODUCTION
Magdalena Klopott : HOW BREAKING THE INTEGRITY OF THE COLD SUPPLY CHAINS MAY CONTRIBUTE TO GLOBAL WARMING?
The demand for perishable goods, especially food, has significantly grown in
recent years. Perishable goods are those which may rapidly deteriorate and lose
quality in ambient atmosphere and therefore become unsafe for human con-
sumption or simply useless. They need to be transported and stored at precisely
defined conditions such as temperature, barometric pressure, moisture as well
as air composition, and are very sensitive to every deviation from them (Rong et
al., 2011, p. 421; Aung & Chang, 2014, p. 198; Haas et al. 2015, p. 400). This
group of commodities is comprised of a wide range of products of different
characteristics, fresh or processed, mainly horticulture and agriculture products
like fruit and vegetables, animal products (fresh or frozen meat or fish, dairy
and eggs), flowers and plants. Sensitive medical products (pharmaceuticals, vac-
cines), live organs, fresh blood samples, and some chemicals also belong to the
category of perishables, however, they are out of the scope of this paper.
Global distribution of perishable goods would not be possible without
the development of refrigeration technology and the support of cold logistics
systems. Owing to refrigeration, microbiological, physiological, and physical
changes of food in postharvest processes may be completely prevented or sig-
nificantly reduced (Haas et al., 2015, p. 400).
However, despite the advances in reefer technology, breaking of the cold
chain integrity, i.e. not maintaining recommended conditions (temperature,
ventilation, air composition) throughout the whole supply chain, still occurs
and leads to food losses. Therefore, the purpose of the paper is twofold:
1) to elaborate the relationship between the integrity of the cold chain and
food losses, and
2) to highlight the correlation between food losses and the global warming.
704
2. GLOBAL TRADE AND TRANSPORT OF
PERISHABLE GOODS
.. Development of global trade of refrigerated
commodities
There are several drivers and trends underpinning the rising interest in the
perishable refrigerated goods.
The first is the increase in the world’s population and demand for food, in-
cluding perishables. The current world population of 7.6 billion is expected to
reach 8.6 billion in 2030, and 9.8 billion in 2050 (UN, 2017, p. 15).
The second is the growing affluence, especially in developing economies such
as China and India (the growth of the middle-class population), which results
in burgeoning demand for resource-intensive products such as meat and dairy.
(Orbis Research, 2018, p. 98) It is known that the increase in the disposable
income worldwide correlates with a growing demand for top-quality products,
including food (e.g. Rodrigue et al., 2017, p. 234; Coyle et al., 2001, p. 17; Ser-
rano & Pinilla, 2010, p. 3503) The relation between income and food imports
is visualized in Figure 1.
Figure 1. Income per capita and perishable share of food imports.
Source: Rodrigue J.-P., Comtois C. & Slack B. (2017). The Geography of Transport Systems
4th edition, New York: Routledge.
705
The growing level of prosperity is often accompanied by dietary changes and
willingness to enjoy fresh food, diverse fruits and vegetables coming from dif-
ferent regions of the world, regardless of the season and geographical location.
Another factor that has fostered the global flow of perishable goods in recent
years are free to trade agreements between countries (e.g. between Peru and
China, or Australia and China) (Serrano & Pinilla, 2014, p. 165). Moreover,
the proliferation of supermarket retail chains and their expansion facilitates the
year-round supply of fresh products, thus stimulates international trade of per-
ishable commodities.
Evaluating the state and development of the global trade of perishable re-
frigerated goods poses a serious challenge, as no single reliable database exists
to provide accurate data, and gathering data from different sources may not give
a comprehensive picture.
The WTO estimates that only in the ten-year period between 2006 and
2016 the world exports of agricultural products have increased by 70%.
(WTO, 2017, p.10) Food, fresh as well as processed, are increasingly traded
in the global marketplace. Analysing data derived from WTO databases, the
global exports of food products have increased from 224,000 million USD in
1980 to 1590 million USD in 2016. However, it is difficult to ascertain precise
volumes and the respective share of temperature sensitive food trade within the
food category.
As Drewry Maritime Research stipulates, the worldwide perishable reefer
trade increased by 54.7 million tonnes between 2003 and 2013, when it reached
185 million tonnes, which represents a CAGR of 3.6% (Drewry, 2016, p. 2).
Perishable food accounts for the majority of this volume, as pharmaceuticals
and flowers represent less than 3%. It is forecasted that cargo volumes will con-
tinue to grow, albeit at a lower rate, as a consequence of the predicted popula-
tion and GDP growth, reaching 216 million tonnes in 2018 (CAGR of 3.1%)
(Drewry, 2016, p. 5).
Figure 2 summarises the total worldwide trade of perishable reefer cargo.
706
Figure 2. Worldwide trade of perishable reefer cargoes by commodity (million
tonnes)
Source: Reefer Shipping Review & Market Forecast, Annual Report 2016/17, Drewry
Maritime Research, 2018, London.
EU perishables trade has been following the global developments, increasing

from 2013 to 2015 at a CAGR 13.8%. (Figure 3)
Figure 3. Total EU perishables trade with countries outside EU 28 (in tonnes)
Source: de Wit G. (2016). Perishables Markets – Modal Shift – Trends, WorldACD Mar-
ket Data, IATA World Cargo Symposium, Berlin, (presentation).
707
.. Global transport market of perishable reefer cargoes
Perishable food is mainly transported between continents, hence maritime
and air transportation dominate as they are well suited to covering long distanc-
es. Road transport is utilized as well, but rather for short distances, to secure
domestic or regional trade flows and distribution, and to provide feeder services
to and from seaports or airports. According to Billiard (2005, p. 4), there are
over 1.2 million refrigerated road vehicles used to distribute refrigerated foods.
Considering the prediction of growth of the perishable goods trade, it is
also forecasted that the global perishable goods transportation market will fol-
low this trend and grow at a CAGR of 6.76% during the period 2016–2020.
(Technavio, 2015, p. 7)
The main global transportation routes mirror perishables trade patterns,
hence the biggest volumes are transported from South to North America, from
North America to Asia/Pacific and from Europe to Asia/Pacific.
The transportation market of reefer goods is noteworthy because of fierce
competition between maritime and air transport. Additionally, solely within
the shipping market, specialized reefer fleet competes with container shipping
(reefer containers) for the same cargo, a phenomenon that is unique and not
observed in case of other types of cargo.
Seaborne perishable reefer trade in 2016 approached 117 million tonnes,
whereas in 2006 comprised almost 85 million tonnes (CAGR 3.3%). Drewry
(2018, p. 14) forecasts this trade to increase at a CAGR of 2,8% over the five-
year forecast period (2016–2021) to 134 million tonnes in 2021. The share
of specialized reefer fleet in perishable transportation market has been declin-
ing gradually in favor of reefer container shipping. In 2016 reefer ships carried
almost 21% of total perishable cargo, the remaining part was carried in reefer
containers. (Drewry, 2018, p. 7) The shrinking of the specialized reefer fleet is
inevitable. Consequently, the increased cargo volumes will have to be shipped
by container vessels and the market share between the two models of shipping
will continue to move in favor of containers.
Short shelf-life and high value of goods are often the key drivers for choos-
ing airfreight instead of maritime transport. However, the share of air transport
in the transport of goods is inconsiderable, representing less than 1% of world
trade by volume, but over 35% by value (IATA, 2018, p. 2). In 2015 the share of
708
air transport in the total perishable goods trade comprised 2.1% of export and
3.4% of import volumes. (de Wit, 2016, p. nd).
As far as the competition for perishable products between air and maritime
transport is concerned, there are no general trends and air and maritime shares
vary for particular markets and commodities. For example, when we take into
account vegetables, in 2015 40% of vegetables from Europe to Japan were trans-
ported by air, whereas from India to Europe 77% were carried on ship boards.
(de Wit, 2016, p. nd).
Currently, rail transport has little significance in servicing the global trade of
refrigerated goods; however, recently DB Schenker has launched a new block-
chain service for perishable exports from Asia to Europe. (www.lloydsloading-
list.com, information from 13 Feb 2018).
In addition to increasing volumes of perishables being transported world-
wide, it is worth to mention that even more favorable forecasts are predicted
with regard to global cool chain markets. Development of the modern, commer-
cial warehouse spaces (Miklińska, 2017, p. 880), including those for refriger-
ated goods is an additional factor supporting this growth. TechNavio’s analysts
forecast that over the period 2014-2019 this market will grow at a CAGR of
15.75% and 10.53% in terms of revenue and volume, respectively. (Technavio,
2015, p. 10).
3. COLD SUPPLY CHAINS

.. Perishable goods’ special requirements
Perishable, temperature sensitive goods are a wide range of products with
different characteristics, such as shelf-life, temperature regime and demand
variability. It comprises both fresh agricultural products and processed foods.
They may rapidly lose quality at ambient temperatures and atmosphere. Over-
ripeness, shriveling, mold, rot, loss of aroma and vitamins, rancidity and forma-
tion of toxic substances are the typical changes which may impair the enjoyment
of foodstuffs or render them inedible. (Klopott, 2008, p. 3)
Perishable foods need to be carried in precisely defined conditions, especially
temperature, and usually have minimal tolerance for variation when it comes to
correct packaging, storage, and transportation environment. For example, toma-
toes should be carried in the temperature range from +7 to +15°C; peaches and
709
nectarines in –0.5°C to 0°C, making sure that the freezing point of only –0.9°C
is not reached, which would immediately result in a loss of quality. The same ap-
plies to kiwi fruits, which are additionally extremely ethylene sensitive (ethylene
concentration exceeding 0.1 ppm causes kiwi ripening already at a 0°C). Minus
35°C is particularly suited to achieving a longer shelf life for fatty fish products,
seafood, and ice cream. (Klopott, 2008, p. 3)
These specific requirements of perishables directly translate to the techno-

logical and organizational complexity of the supply chains. Maintaining the
freshness and condition of perishable food and preventing spoilage are chal-
lenges of vital importance to the performance of the supply chain, referred to as
cold or cool chains. Food quality is also directly related to other food attributes
such as integrity, safety, and shelf life. (Rong et al., 2011, p. 421)
.. Cold supply chains and food losses

The cold supply chain can be defined as a network of participants and se-
ries of processes and activities (e.g. warehousing, packaging, distribution) that
is designed to ensure the uninterrupted control and maintenance of particular
pre-defined requirements of the perishable goods (with regard to temperature,
humidity, ventilation, air composition etc.) along the entire way from the place
of origin to final consumers. It utilizes refrigeration to ensure food safety and
prolong the shelf life of perishable food, as it is the best technology with no as-
sociated risks (Coulomb, 2008, p. 414).
The development of the cold supply chains had a variety of benefits to the
global economy and society:
- It provided access to a selection of products that were formerly unavailable
locally, enhancing the quality of life thanks to fresher and safer food, at the
same time opening up the opportunity for the retail market to grow.
- It gave small- and medium-sized farmers and businesses, especially in de-
veloping markets, the opportunity to enter the supply chains of interna-
tional markets, allowing them to export their temperature-sensitive prod-
ucts to customers worldwide.
- It improved the quality of life of people around the world, particularly to
those in less developed economies afflicted by malnutrition, food spoilage,
and chronic diseases. (Miller, 2016, p. 7)
710
Compared to most product supply chains, food supply chains are often more
complex and more difficult to manage (Aung and Chang, 2014, p. 200). The
networks of participants start from an individual or collective agriculture pro-
duction, fisheries, animal breeding, etc., and ends at retailers and final consum-
ers in different parts of the world. The exact structure of each cold chain varies
significantly depending for example on the product characteristic and unique
requirements, places of origin and destination, model of distribution and may
also involve, among others, exporters/importers, food processing companies,
warehousing, transportation services, wholesalers, auctions.
Regardless of the degree of cold chain complexity, compliance with special
requirements of perishable cargo needs to ensure at all stages of the cold chain.
Every negligence in this aspect may result in foodborne diseases and series of
deaths, even in the most developed countries (Coulomb, 2008, p. 415). It also
leads to food losses, as every interruption of the cold chain reduces the quality
or results in complete spoilage (total loss) of the product. Hence close coop-
eration and integration of all parties involved in the cold chain as well as di-
verse risk control techniques are essential to maintaining cold chain continuity
(Klopott, 2008, p. 6).
.. Food losses and damages in the cold supply chains

“Food loss and waste refer to the edible parts of plants and animals that
are produced or harvested for human consumption but that are not ultimately
consumed by people” (Lipinski et al., 2013, p.1). However, there is a difference
between food losses and food wastage. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Food loss refers to the decrease in food quantity or quality, which makes it
unfit for human consumption (Grolleaud, 2002, p. 43). Food losses and dam-
ages are those which may be attributed to a variety of risks during transit, han-
dling and storage as well as value added operation (e.g. packaging, labeling), and
can usually be considered random and unintended events, often beyond human
control (e.g. force majeure). This category may be extended to losses resulting
from agricultural processes. (Lipinski et al., 2013, p.1).
Food waste refers to food appropriate for human consumption being dis-
carded because of diverse reasons, either before or after it spoils. Food waste is
the result of negligence or a conscious decision on the consumer or retailer level
711
(HLPE, 2014, p. 12; Lipinski et al., 2013, p.1), and therefore are not directly
related to (but may be correlated with) cold chain integrity issues.
There are plenty of risks in supply chain processes that may result in cargo
loss or damage, regardless of the nature of the commodity (e.g. Acts of Gods,
piracy, general average, fire, the collision of conveyances, vessel capsizing etc.).
With regard to perishable goods, a particular attention should be given to fac-
tors that could lead to breaking the continuity in satisfying the defined cargo
requirements (especially temperature), which may result in complete spoilage
(total loss) of the cargo or lower its quality.
As mentioned above, cold chains are usually very complex ones, with many
intermediate steps before the product reaches the consumer. The global nature
of perishable goods trade—long distances and transit times, a lot of transship-
ment points and many parties involved in arranging and performing trans-
port—increases the likelihood of breaking the cold chain.
Practical experience with cold chains allows indicating the main, often inter-
connected factors that underpin the breaking the cold chain. The major events
include:
- refrigerated equipment failure,
- human failure (lack of knowledge, insufficient training for the personnel
working in the cold chain, negligence of the persons involved in arranging
and performing transport and other processes along the cold chain),
- errors & omissions in shipping documents (e.g. confusion in Celsius with
Fahrenheit degrees, minus with plus when setting the temperature),
- unsuitable preparation for the carriage, especially lack pre-cooling,
- careless handling.
These factors contribute to loss and damages to the cargo, such as:
- mechanical damages during handling and transport (e.g. damaged skin,
which can lead to mold or rot);
- microbiological damages (e.g. infestation with micro-organisms like mold
or rot),
- thermal damages (e.g. chilling and frost damages, tomatoes or bananas
may lose their ability to ripen; storage scald in apples, plums, and citrus
fruit; brown heart in apples; wooliness in peaches; shriveling; premature
ripening),
712
- physiological damages (e.g. ripening, and respiration),
- biochemical damages (e.g. browning reactions, lipid oxidation, and pig-
ment degradation),
- physical damages (e.g. moisture loss). (Klopott, 2008, p. 4)
Changes in condition and quality of perishable cargo may also lead to ship-
ment rejection. According to Lupien et al. (2005, p. 119), about 33% of perish-
able food shipments (by maritime transport) from Central America, intended
to enter the U.S. was rejected. A similar phenomenon has been observed in the
context of EU, and the number of rejections has increased more than six-fold
between 1998 and 2002 (1,520 cases). The underlying reasons are, among oth-
ers, related to tightening standards as well as rising enforcement ability. ( Jaffee
& Henson, 2005, p. 91)
It is worth noting that for many products, especially those which are packed,
freshness or spoilage may not be directly noticeable by the retailer or the con-
sumer. Visual and olfactory inspection may be insufficient to reveal commenc-
ing spoilage. Thereby, some damages occurring during pre-consumer stages
of the cold chain may influence consumer or retailer behavior, leading to food
waste. The consumer expects the product to remain edible for a reasonable pe-
riod of time. Thus, the issue is not only whether the product is of bad quality at
the time of sale, but whether it is bad before consumption at a reasonable time
before expiry. (Ketzenberga et al., 2018, p. 569) The same applies to retailers.
For example, research of Mena et al. (2011, p. 654) revealed that most main-
stream retailers have policies of only accepting product with a high (usually over
70%) proportion of remaining shelf-life.
Notwithstanding the above-mentioned variety of factors leading to food
losses or waste, a distinction can be made between developed and developing
countries with regard to the major causes.
In low income countries the major causes include: poor harvesting practices
(e.g. harvesting at the incorrect maturity stage); lack of access to cold chains
and reliable energy sources required to refrigeration; inadequate infrastructure
(roads, storage facilities), lack of knowledge on proper storage and food han-
dling (Kitnoja, 2013, p. 3; Winkworth-Smith et al., 2015, p. 10) All these com-
bined with unfavourable climatic condition (usually high ambient temperature
and humidity) favour food losses. Losses of perishable foodstuff due to lack of
713
refrigeration amount to 23% in developing countries (compared to 9% in devel-
oped ones). (Kitnoja, 2013, p. 2)
In higher income countries, thanks to the maturity of logistics markets and
well developed cold chain practices, the level of food losses is generally much
lower. Factors influencing food losses are mainly associated with consumers’ or
retailers’ behavior leading not only to food losses but also to food wastage. The
rejection of food that does not meet the required specification (out-grading)
due to aesthetic preferences of consumers and retailers as well as arbitrary sell-
by dates is one of the major causes of food loss in developed countries. (Kitnoja,
2013, p. 4.; Winkworth-Smith et al., 2015, p. 21; FAO, 2015, p. 1) reported
that during the consumption stage losses accounts for 40% of the total food
waste in the supply chain.
Figures describing global food losses and waste are disconcerting. In many
developing countries, fruit and vegetable losses are between 20–50%. Meat, sea-
food, and dairy have similar levels of loss, but considering their much lower
levels of production, the overall loss is much lower than fruit and vegetables.
(Winkworth-Smith et al., 2015, p. 10) By weight, fruit and vegetables have the
highest levels of loss and waste globally at 44% of the total, followed by roots
and tubers (20%) (Lipinski et al., 2013, p. 6), as depicted in figure 5.
Figure 5. The share of global food loss and waste by commodity in 2009.
Source: Lipinski et al., 2013, p. 6
714
More than 50% of global food loss and waste is comprised of commodities
that can benefit from refrigeration (Winkworth-Smith et al., 2015, p. 10) How-
ever, only about 10% of perishable foods are refrigerated worldwide (Coulomb,
2008, p. 414). Underperforming cold chains translate directly into economic
losses that, according to the 2016 Cold Chain Top Markets Report, total more
than $750 billion annually. (Miller, 2017, p. 8) In the same report, the author
argues that “globally, billions of USD are spent on improving agricultural pro-
cesses to create higher food yields, but the fact that nearly half of all food never
makes it to a consumer’s plate is largely ignored”.
4. FOOD LOSSES AND ATTRIBUTABLE CARBON

FOOTPRINT
The 2011 FAO assessment of global food losses and waste (FAO, 2011, p.
1) estimated that each year 32% of all food produced worldwide for human
consumption never reaches the consumer’s table. It is not only a missed op-
portunity for the economy and global food security but can be also associated
with a waste of all the natural resources used for growing and processing as well
as during food supply chain processes, including those requiring refrigeration.
Moreover, given the projected growth of the global population, if current levels
of food loss and waste are maintained, food production will need to increase by
as much as 70% in developing countries alone, requiring an investment of USD
83 billion a year (Winkworth-Smith et al., 2015, p. 33). It will result in further
exploitation of natural resources across the globe and rising impact on global
warming.
Food losses and waste contribute to GHG emissions by both the decom-
position of wasted food in a landfill and, even more importantly, the embedded
emissions associated with its production, processing, transport and retailing
(Vencat, 2012, p. 431; Winkworth-Smith et al., 2015, p. 34).
There are many uncertainties and limitations with regard to calculation of
carbon footprint of food losses, especially considering that they are usually tak-
en into account jointly with food waste. A very limited range of available studies
use disparate terminologies, methodologies, data, and are often limited to one
particular area (which is understandable given the complexity of the issue). The
most troublesome to evaluate seem to be food losses during transport and ware-
housing stages of the cold supply chains, especially due to the lack of available
715
data. Moreover, the quantities of food losses in these stages are often bundled
with other stages such as transport and harvest losses, which may be mutually
interconnected. This is additionally complicated by the lack of data regarding
the proportion of food losses arising from breaking the cold chain integrity.
As FAO states (FAO, 2013, p. 16), a product’s carbon footprint is the total
amount of greenhouse gases (GHGs) it emits throughout its life cycle, expressed
in kilograms of CO2 equivalents. This also includes the GHG emissions during
the agricultural phase, including those from on-farm energy use and non-ener-
gy-related emissions (such as CH4 and N2O) from soils and livestock, as well as
carbon footprint from manufacturing, distribution, households, and end-of-life
treatment (waste recovery, landfill, etc.).
FAO estimated that the total carbon footprint of food wastage, including
land use change, is around 4.4 GtCO2 eq per year, what is equivalent to about
8% of total anthropogenic GHG emissions. It means that if the category “food
wastage” was treated like a country, it would be the third largest emitter of
greenhouse gases after China and the US (FAO, 2014, p. 22). Figure 6 presents
the share of each commodity in food wastage and the carbon footprint. It clearly
shows that goods requiring refrigeration constitute the majority of those being
wasted. One can assume that improper maintenance of the cold chain could be
the likely cause of food losses or waste.
Figure 6. The contribution of a particular commodity to carbon footprint and

food wastage.
Source: FAO (2013, p. 2)
716
At the European level, according to the “Preparatory study on food waste
across EU 27” (BIOIS, 2011, pgs. 87, 113-118) the total emission from each
wasted tonne of food equal 1.9 tonnes CO2 eq/t. On this basis, it was calculated
that the overall environmental impact is at least equivalent to 170 Mt of CO2
emitted per year. This constitutes approximately 3% of the total EU27 emis-
sions in 2008. The Authors of the report also forecast that due to the rising
amount of food waste across the EU27 the associated GHG emissions will
more than double by 2020. These figures include all steps of the life cycle of
food waste; however, as far as food waste at the distribution level is concerned,
only limited sources of information have been identified (BIOIS, 2010, p. 38).
As FAO calculated (2013, p. 4), the distribution processes contribute to
about 15% of the carbon footprint associated with food wastage; however, it is
not clear whether the estimate involves international maritime or air transpor-
tation. Post-harvest handling and storage comprise about 17% of the footprint.
(see figure 7).
Figure 7. The contribution of each phase of the food supply chain to carbon
footprint and food wastage.
Source: FAO (2013, p. 4)
It should be noted that the process of refrigeration alone entails many en-
vironmental issues, as energy is required to maintain the temperature in the
whole cold chain (it is unclear whether it was taken into account in the above-
mentioned calculations). Energy consumption in cold chains has been predict-
ed to rise significantly in the view of the increasing world population as well
as world trade and transport volumes of perishable food. The little data that is
717
available suggests that currently, the cold chains accounts for approximately 1%
of CO2 world emission; however, this is likely to increase if global temperatures
increase significantly ( James and James, 2010, p. 1944).
Additionally, most existing refrigerating equipment is based on the compres-
sion and expansion of a refrigerant, which has the potential of contributing to
global warming. CFCs have been gradually replaced by hydrochlorofluorocar-
bons (HCFCs) that have less impact on the depletion of the ozone layer and
climate change. CFCs and HCFCs will be phased out within the framework of
the 1987 Montreal Protocol and 2016 Kigali Amendment (Coulomb, 2008, p.
415; Ciconkov, 2018, p. 448).
Continuous improvements and progress in refrigeration technologies will
lower the energy consumption and GHG emissions associated with the cold
chain. One of promising technology is the recovery of thermal energy from en-
gine exhausts, which will be used to drive the refrigerating systems. (Tassou et
al., 2010, p. 263)
5. CONCLUSIONS
The increasing demand for food amplified the global food industry brings
about rising volumes of food products being transported worldwide and ag-
gravates the exploitation of natural resources. Cold supply chains, powered by
refrigeration technologies, support the global distribution of food, including
perishables. Refrigeration provides the best conditions for slowing down or pre-
venting food spoilage along the whole logistics chain. Nevertheless, all failures
in maintaining the prescribed product transport and handling requirements,
especially temperature, result in breaking the cold chain and food losses, which
can be considerable. Although human failure is one of the common causes lead-
ing to food losses, the variety of factors that contribute to breaking the cold
chain differs between high- and low-income countries. The environmental im-
pact of food losses is more and more recognized and there is an urgent demand
for action in order to minimize global food losses.
Despite the significant limitations posed by the lack of publicly or commer-
cially available data, the topic demands further, in-depth research to identify
the main risk and failures that underlie the losses of integrity of the cold supply
chains. Mitigating food losses demands a thorough understanding of the risks
718
and their sources as well as proper risk management. Substantive solutions and
strategies to avoid failures need to be coordinated on a global scale.
REFERENCES
Aung, M. & Chang, Y. (2014). Temperature management for the quality assurance of a per-
ishable food supply chain, Food Control, 40, pgs. 198-207.
Billiard, F. (2005). Refrigerating equipment, energy efficiency and refrigerants. Bulletin Inter-
national Institute of Refrigeration, 85(1), pgs. 12–25.
BIOIS (2011). Preparatory study on food waste across EU 27. Final Report, European
Commission (DG-ENV).
Ciconkov, R. (2018). Refrigerants: There is still no vision for sustainable solutions Interna-
tional Journal of Refrigeration, 86, pgs. 441–448.
Coulomb, D. (2008). Refrigeration and cold chain serving the global food industry and cre-
ating a better future: two key IIR challenges for improved health and environment,
Trends in Food Science & Technology ,19, pgs. 413-417.
Coyle, W., Hall, W. & Ballenger, N. (2001). Transportation technology and the rising share
of US perishable food trade, In The Changing Structure of Global Food Consumption and
Trade, Agriculture and Trade Report, WRS-01-1 Washington: Economic Research
Service/US Department of Agriculture.
Drewry Maritime Research (2014). Reefer Shipping Review & Market Forecast, Annual
Report 2014/15, London.
Drewry Maritime Research (2016). Reefer Shipping Review & Market Forecast, Annual
Report 2016/17, London.
FAO (2011). Global food losses and food waste - extent, causes and prevention. Report.
Rome: UN FAO.
FAO (2013). Food Wastage Footprint: Impacts on Natural Resources. Summary Report,
Rome: UN FAO.
FAO (2014). Food Wastage Footprint: Full-Cost Accounting, Final Report.
FAO (2015). Food Wastage Footprint & Climate Change. [available at www.fao.org, access
15 March 2018]
Grolleaud, M. (2002). Post-harvest losses: discovering the full story. Overview of the phe-
nomenon of losses during the post-harvest system. Rome, Italy: FAO, Agro-Industries
and Post-Harvest Management Service.
Haass, R., Dittmer, P., Veigt, M. & Lutjen, M. (2015). Reducing food losses and carbon
emission by using autonomous control – a simulation study of the intelligent con-
tainer, International Journal of Production Economics, 164, pgs. 400–408.
HLPE (2014). Food losses and waste in the context of sustainable food systems. A report
by the High Level Panel of Experts on Food Security and Nutrition of the Committee
on World Food Security, Rome.
IATA (2018). IATA Cargo Strategy. [available at www.iata.org, access March 22, 2018)
719
Jaffee, S. M., & Henson, S. (2005). Agro-food exports from developing countries: the challenges
posed by standards. In Aksoy, M. A. & Beghin, J. C. (ed.), Global agricultural trade and
developing countries, The World Bank, Washington, pgs. 91-114.
James, S.J. & James, C. (2010). The food cold-chain and climate change, Food Research Inter-
national, 43, pgs. 1944–1956.
Ketzenberga M., Gauklerb G. & Salin V. (2018). Expiration dates and order quantities for
perishables, European Journal of Operational Research, 266, pgs. 569–584.
Kitinoja, L. (2013). Use of cold chains for reducing food losses in developing countries. PEF
White Paper No. 13-03, The Postharvest Education Foundation.
Klopott M. (2008). Risk control in the maritime transport of perishable goods, Proceedings
of the International Conference of Transport Science ICTS 2008, Portoroż, Slovenia.
Lipinski, B. et al. (2013). Reducing Food Loss and Waste. Working Paper, Instalment 2 of
Creating a Sustainable Food Future. Washington, DC: World Resources Institute.
[available at http://www.worldresourcesreport.org, access March 20, 2018)
Lupien, J. R. (2005). Food quality and safety: traceability and labelling. Critical reviews in food
science and nutrition, 45(2), pgs. 119-123.
Mena, C., Adenzo-Diaz, B., Yurt, O. (2011). The causes of food waste in the supplier–retail-
er interface: Evidences from the UK and Spain, Resources, Conservation and Recycling
55, pgs. 648–658.
Miklińska, J. (2017). Development Of The Market For Modern, Commercial
Warehouse Spaces As The Logistics Infrastructure Facilities Of The Region;
Experiences From Poland, 6th International Scientific Symposium
ECONOMYof EASTERN CROATIA;VISION and GROWTH,Osijek 2017,ISSN
1848-9559, s. 880-890
Miller, J. (2016) Top Markets Report Cold Supply Chain A Market Assessment Tool for
U.S. Exporters, U.S. Department of Commerce | International Trade Administration
| Industry & Analysis.
Orbis Research (2018). Refrigerated Warehousing Market 2018 Global Trends, Market
Share, Industry Size, Growth, Opportunities, and Market Forecast to 2025. Parfitt, J.,
Barthel, M. & Macnaughton, S. (2010). Food waste within food supply chains: quanti-
fication and potential for change to 2050. Philosophical Transactions of the Royal Society
B: Biological Sciences 365, pgs. 3065-3081.
Rodrigue J.-P., Comtois C. & Slack B. (2017). The Geography of Transport Systems 4th
edition, New York: Routledge.
Rong, A., Akkerman R. & Grunow M. (2011). An optimization approach for managing
fresh food quality throughout the supply chain, International Journal of Production Eco-
nomics, 131, pgs. 421-429.
Serrano, R., Pinilla, V. (2010), Causes of world trade growth in agricultural and food prod-
ucts, 1951–2000: a demand function approach, Journal of Applied Economics, Volume
42, Issue 27, pgs. 3503-3518.
720
Serrano, R., Pinilla, V. (2014), Changes in the Structure of World Trade in the Agri‐Food
Industry: The Impact of the Home Market Effect and Regional Liberalization from a
Long‐Term Perspective, 1963–2010, Agribusiness, Volume 30, Issue, 2, pgs. 165-183.
Tassou, S., Lewis, J., Ge, Y., Hadawey, A. & Chaer, I. (2010). A review of emerging technolo-
gies for food refrigeration applications. Applied Thermal Engineering 30, pgs. 263-276.
Technavio (2015). Global Cold Chain Market 2015-2019.
UN (2017). World Population Prospects: The 2017 Revision, UN Department of Econom-
ic and Social Affairs.
WTO (2017). World Trade Statistical Review 2017.
Winkworth-Smith, C. G., Foster T. J. & Morgan W. (2015). The impact of reducing food
loss in the global cold chain. University of Nottingham.
de Wit, G. (2016). Perishables Markets – Modal Shift – Trends, WorldACD Mar-
ket Data, IATA World Cargo Symposium, Berlin, March 2016. (presentation).
Venkat, K. (2012). The climate change and economic impacts of food waste in the
United States. International Journal on Food System Dynamics, 2, pgs. 431-446.
721
Financial
Economics
HARMONIZATION OF THE
CROATIAN PENSION SYSTEM
WITH A EUROPEAN SOCIAL
MODEL  PERSPECTIVES AND
CHALLENGES
Branko MATIĆ, Ph.D.

matic@efos.hr
Maja VRETENAR COBOVIĆ, Ph.D.

College of Slavonski Brod
mvretenar@vusb.hr
Mirko COBOVIĆ, Ph.D. Student

mcobovic@vusb.hr
Abstract

The stability of the pension insurance system today is one of the fundamental
problems, both for the Republic of Croatia and other EU member states.
The first forms of pension insurance in Croatia were based on the so-called:
old-age insurance, while the formal forms were developed in the 19th century.
The crisis of the pension system, which was present at the end of the period of
socialism, deepened even after Croatian independence. Therefore, at the end
of the nineties began the reform of pension insurance, which was completed in
2002. The structure of this system has remained unchanged to date.
The authors investigate the compatibility of Croatian pension insurance with
the European social model, with the biggest challenges being related to the
alignment of the second and third pillars of pension insurance related to the
so-called vocational and voluntary insurance and their characteristics. In ad-
725
dition, there is important compliance with the distribution of pension income
Branko Matić  Maja Vretenar Cobović  Mirko Cobović: HARMONIZATION OF THE CROATIAN PENSION SYSTEM WITH A EUROPEAN SOCIAL MODEL...
within the three pillars of insurance and the investment of individual pension
fund portfolios. Such harmonization would contribute to the harmonization of
the Croatian pension system with the European social model and ultimately
the sustainability of pension insurance in the future.
Key words: Pension System, Sustainability, Compliance, Croatia, European
Union
1. INTRODUCTION
The pension system is a set of specific standards that regulate different risks
(age risk insurance, disability, etc.). The first forms of pension insurance in Cro-
atia were based on informal forms of so called old-age insurance whose owners
were agricultural household cooperatives. The development of the formal forms
of the pension system in our area is evident in the pensions of soldiers and civil
servants and in the lockers dating back to the 19th century. The legal arrange-
ment of this system was introduced in 1922 in the Kingdom of Serbs of Croats
and Slovenes when the Workers’ Insurance Act regulating employee retirement
provision was adopted. The crisis of the pension system, at the end of the period
of socialism was deepened even after the acquittal of Croatia’s independence,
and it sought to be resolved by pension reforms.
2. DEVELOPMENT OF CROATIAN PENSION

INSURANCE
Caring for the elderly and the infirm and caring for the children, in the
traditional society, is solely the responsibility of the family and is an informal
form of old-age insurance. In many parts of the pre-industrial age, the care func-
tion of the elderly and the disabled was performed by a large number of home
co-operatives and highly developed solidarity (Puljiz & et al., 2008, 73). The
foundation for the creation of family home co-operatives started with the estab-
lishment of the Posavina Landscape in 1702 in Slavonia. The then government
granted the land to cooperatives with the obligation to perform military service.
The influence of agriculture within these cooperatives was significant and its
basic function was the production of herbal and livestock products to meet the
726
needs of the cooperatives, and also the daily financial assistance based on real-
ized sales revenues (Matić & Vretenar, 2009, 286). Further development of old
age insurance in Croatia was based on its formal forms and the development of
industrial society.
.. Pension insurance development until 

The first pensions in our region belonged to certain categories of civil ser-
vants and soldiers, or members of their families. Further development of pen-
sion insurance was based on the insurance of workers and the establishment
of mutual assistance organizations, so called brothers registers, organized by
miners because of their high exposure to the risk of doing their job. Brothers
registers were a form of mutual associations, which in the European countries
preceded the emergence of pension, disability and other forms of social security
(Puljiz, 2007, 166). Further development of the bothers registers soon spread
to construction, but in addition to these cash registers and Croatian banks,
primarily those based in Zagreb, they organized their own foundations from
which they provided their retirees and other forms of social benefits (eg. various
forms of rents).
Based on the above, it is possible to conclude that the characteristics of the
then retirement insurance in our area (whether it is informal or formal forms of
care for old and helpless people), is similar to the forms of retirement insurance
organized in other parts of the world, which are based on sporadic, inequal-
ity and partial and unorganized organization. Consequently, further develop-
ment of the pension system in Croatia has been marked by slightly different INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
characteristics.
.. The Croatian pension system in the period between the

two world wars
After the First World War, a new era of Croatian pension insurance is emerg-
ing. The most important event of this period was the adoption of the Workers
Insurance Act (ZOR) in 1922. This Act contained the underlying principles of
social security based on the contributions of workers and employers, pension
funds and state administration. It provided for a single mandatoryory insur-
ance of workers from major social risks (illness, age, job accidents), apart from
727
unemployment risk and mandatory retirement insurance for workers across the
country, covering the risks of age, disability and death (Puljiz & et al., 2008,
79). Pension funds were financed by the contributions of workers and employ-
ers, while work accident insurance was funded exclusively by contributions paid
by the employer. In addition to the 1922 Employee Pension Insurance, at that
time, employee retirement insurance was established as a mandatory insurance,
followed by the development of other professional forms of retirement insur-
ance for certain categories of employees (eg. employees in traffic, military, mu-
nicipal officers, journalists, traders, craftsmen, etc.).
.. The development of retirement insurance during the

Second World War
During the Second World War, the 1922 Employee Pensions Act was con-
tinued, and in May 1941, the first international social security agreement with
Germany was concluded with the aim of protecting Croatian employees in the
area.
In line with the foregoing, it is possible to conclude that the basic features
of pension insurance between the two world wars and during World War II in
Croatia are based on the different coverage of individual groups of insured per-
sons within pension insurance and the ways of financing this insurance within
a particular group of insured persons. Furthermore, the retirement conditions
for each group of insured persons are regulated by the Act as opposed to earlier
ways of operating retirement insurance that were based on sporadicity and were
unorganized.
.. Pension Insurance in the Age of Socialism

(from  to )
After 1945, many changes were made in Croatia in connection with the fur-
ther development of the pension system, in particular in the organization of a
central institution (the then State Social Insurance Institute), whose responsi-
bility was pension insurance. This institution came under direct state control
in 1947, and the contributions of employees and enterprises were paid into the
state budget from which the pensions were financed and other social benefits.
During this period centralization of the collection and distribution of social
728
funds was expressed, while in the 1950s there was gradual decentralization
and the introduction of self-managing elements in the management of pension
funds. Further development of pension insurance in our area is related to the
separation of health insurance, and in 1964 the Act allowed voluntary pension
insurance for those citizens who were not covered by mandatory retirement
insurance until then.
With the increasing decentralization of pension insurance in our area, it can
be noticed that in the 1970s this insurance was introduced and implemented
as a model for pension insurance in European countries. This is indicated by
the favorable number of insured persons and pensioners in this period, espe-
cially in the 1950s and 1960s (in the fifties 8:1, in the sixties 6:1). A favorable
proportion of insured and retired people in the 1950s and 1960s has shown a
downward trend in the seventies and eighties and was 4:1. At the beginning of
1990, this ratio was very unfavorable in contrast to the ratio in other European
countries and amounted to 3:1.
Based on the historical analysis of pension insurance in Croatia between
1945 and 1990, it is possible to conclude that the underlying characteristics of
this system at the beginning of the observed period were accompanied by highly
centralized central government management, while in the fifties and sixties the
pension system gradually decentralized. Decentralization manifested itself in
the ways of managing pension funds, involving craftsmen and farmers in the
system, and financing pensions through employee contributions, while state in-
centives were enabled for the various categories of insured. Initially, the pension

system, based on current distribution had a relatively small number of retirees,
while the number of insured persons increased year by year. But with the fur-
ther development of this system, the number of pensioners has increased, and
in the 1980s, the ratio of insured and retired persons recorded a negative trend.
The reason for that is possible to perceive in ineffective management of funds
in the pension funds accounts, ie. insufficient or improper further placement, ie.
by investing the collected contributions, which considerably hampered the sus-
tainability of the old pension insurance system. In addition, the economic crisis
caused by the fall in employment, which at that time affected Yugoslavia, and
thus Croatia, caused the financial crisis of the pension system, whose impact
was particularly pronounced after 1990.
729
.. Pension insurance system after acquiring the
independence of the Republic of Croatia

The development of the pension insurance system in the Republic of Croatia
is conditioned by the circumstances of acquiring its autonomy and indepen-
dence, and it has been implemented through legal regulation. The first actions
concerned the adoption of the Amendment to the Constitution of the Socialist
Republic of Croatia in early 1990 when socialist social organization and self-
management were formally and legally abolished. The new situation has led to
the need for amending the pension insurance regulations and instead of the
former self-managing interest groups, established pension and disability insur-
ance funds as legal followers who take over the rights and obligations towards
the insured and the pension beneficiaries (Bagarić & Marušić, 2004, 40).
After independence, the Croatian retirement system of intergenerational
solidarity, based on current funding and predetermined contributions, came to
a crisis. Unfavorable movements in the pension insurance system caused by war,
transition from socialist to market economy, negative trends inherited from the
former pension system, unfavorable demographic trends and mild conditions
for exercising rights (low age boundaries, broad definition of disability, various
benefits for particular groups and other).
Consequently, the pension system crisis was particularly pronounced by the
unfavorable ratio of insured and retired people in the post-war period. Unlike
in 1990 when the ratio of the number of insured and retired persons was 3:1, in
1996 it decreased to as much as 1.66:1, which created a major problem for fur-
ther functioning of the entire system. This disadvantage was the consequence of
the decline in the number of employees and pension system insurers, while in-
creasing the number of people in crisis induced by war, finding unemployment
in the pension system (disability and early retirement pensions). The analysis
of negative trends in the pension system after Croatia’s independence and the
incompatibility of this system with the 1990 Constitution led to the need for its
reformation in 1999 (the first pension reform in Croatia) and then in 2002 (the
second pension reform in Croatia).
730
3. THE REFORM OF THE CROATIAN PENSION
SYSTEM AFTER GAINING INDEPENDENCE
Due to the crisis of public pension systems based on inter-generational soli-
darity, most European countries, including Croatia, have undergone significant
reforms of this system, striving to adapt to changed economic and social condi-
tions. As already described, the causes of the pension system crisis were multi-
faceted, but its most common cause was an increase of the share of older people
in the total population and decrease in the birth rate, resulting in generational
imbalances.
After the independence, the demographic structure of the population count-
ed for less younger and more and more elderly people, which ultimately caused
the deterioration of the age structure of the population and at the same time
caused a crisis of the pension system. In addition to demographic changes in
Croatia, the increase in unemployment and changes in the structure of labor
contributed significantly to the pension system crisis. As a consequence, the
inflow of funds reduced from the contribution of the insured and increased
the deficit in the pension funds financed by the state. Due to the difficult situ-
ation of the Croatian pension system, in the mid-nineties, the preparation of
the Croatian pension reform began, with the World Bank playing a key role,
proposing a pension system in which the burden of pension funding tends to be
passed on to insured persons and at the same time reducing the cost of pension
funds to public finances.
.. The first pension reform in  INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
In the first pension reform that began in 1999, the goal was to rationalize
and to make sustainable the existing pension system of intergenerational soli-
darity. The so-called parameter pension reform was carried out, in accordance
with the 1998 Pension Insurance Act, by which Croatia sought to reduce pen-
sion costs and adapt them to economic opportunities.
In accordance with the parametric reform it was necessary to do the following:
1) starting from 1999, raising the retirement age each year for six months;
2) the increase of the employment period based on which pension is calculated
(retirement age);
731
3) a new way of indexing (matching) pensions;
4) new pension calculation formula based on the pension system points (Pen-
sion Insurance Act, Official Gazette, 102/98).
The changes in the Croatian pension system had influenced the financial
sustainability of the pension system (stabilizing the number of pensioners, an
improved ratio of pensioners to the number of insured persons, decreasing the
share of pension costs in GDP). However, despite positive trends, parametric
pension reform did not achieve the targets set and the retirement of retired
insured retirees fell after 1999, which required additional reforms of the entire
retirement pension system in our country.
.. Second Pension Reform in 

A much larger and more significant reform of the pension insurance sys-
tem in Croatia has started to apply since 2002 and has brought about a major
change in the structure of the pension system, and which it is still being applied
today. In the second phase of the pension reform, in addition to the first pillar
of intergenerational solidarity, which requires three quarters of contributions, a
second pillar of capitalized pension savings is introduced in which a quarter of
the pension contribution is introduced. In accordance with the reform imple-
mented, the second pillar includes all insured persons who were under 40 years
of age (mandatory insurance) in 2002, and those who were insured at the time
of the introduction of the second pillar, and were between 40 and 50 years of
age.
Unlike the first pillar of intergenerational solidarity governed by public law
entities, the second pillar of capitalized individual savings are the holders of
private law subjects. These are mandatory pension companies, which operate
under the Mandatory and Voluntary Pension Funds Act. The mandatory pen-
sion funds collect a part of the insured contribution of the second pillar in pen-
sion insurance, and insured persons are free to choose a pension fund that invest
their contributions (Puljiz, 2007, 183). The contributions of the insured, accu-
mulated in personal accounts, are capitalized on the capital market, and the goal
of each fund is to achieve the highest profit, increase the stake and ultimately
increase the pensioner’s pension. The important advantage of the second pillar
of pension insurance is that there is no redistribution of resources from the
rich to the poorer categories of pensioners (as in the intergenerational solidarity
732
system), but at the moment of retirement the future pension of the insured is
determined on the basis of the personal account balance which depends on the
contribution of the insured and the profits in funds.
The pension reform implemented in 2002 also introduced a third pillar of
pension insurance for those persons who wish to be additionally insured in the
event of age, disability or death. This kind of pension insurance is voluntary,
carried out by voluntary pension funds and financially supported by the state.
All three pillars of pension insurance were supposed to provide greater so-
cial security and the overall level of pensions, or in a better way to reduce the
risks of age, disability and death. By creating three pillars of pension insurance,
its risks are transferred to more insurance holders, which for pensioners and
overall economic developments should be preferable to pension insurance based
solely on generational solidarity. Ultimately, pension reform was supposed to
contribute to the modernization of the economy, especially its financial sector.
In line with reforms in the pension system, Croatia has created a mixed fi-
nancing model in which instead of one there is a system with more pension pil-
lars. In this way, it sought to strengthen the financial sustainability of the whole
system and move closer to the European social model.
4. STRUCTURE OF PENSION INSURANCE IN THE

EUROPEAN UNION
The European Union is trying to build up a European pension model that
should serve as a landmark for pension reforms of other countries, especially INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
those that will soon become its new members. Although there are significant
differences between national states, all member states of the Union provide in-
come payments to cover the classic risks: age and retirement, death of family
carers, disability, illness, unprovided children and unemployment. Based on the
above, the European social model is based on the Muniment of Fundamen-
tal Social Rights of the European Economic Community (EEC) 1989 and the
Muniment of Fundamental Rights of the European Union from 2007, which
became part of the Lisbon Treaty. Within these documents, obligations are
mandatory for EU member states, and the European social model is character-
ized by the following characteristics:
733
1) prohibition of any form of discrimination based on age, gender, race, lan-
guage, religion or personal beliefs;

2) the right of the elderly to a worthy and independent life;
3) the right of persons with disabilities to use measures that ensure their inde-
pendence and social and professional inclusion for the life in a community;
4) the right to assistance from social services providing protection in the event
of illness, motherhood, work injury and unemployment;
5) pension system, established as mandatory and public pension insurance,
supplementary or professional pension insurance and individually voluntary
pension insurance (EEC Muniment 1989: Muniment on Basic Social Rights
of Workers, Journal officiel C 325; Muniment of Fundamental Rights of the
European Union 2007, Journal officiel C 303/1).
.. State pensions in the European Union (I pillar)

The first pillar of pension insurance in the European Union is based on man-
datory state insurance, where the funding is based on the payment of contribu-
tions from the salaried employees who are required to receive these pensions.
Pension payments are guaranteed by the state, and the management of these
funds is entrusted to a public-law organization. The regulation of this pillar was
established by Directive 79/7/EEC of 19 December 1978. The subject matter
of this Directive is the development of public social security systems, including
public pension insurance. In the part related to pension insurance, this equality
is ensured through the application of the principle of non-discrimination based
on sex, in particular:
1) access to the system and application of the system;
2) payment obligation and calculation of contributions;
3) calculation of the allowance;
4) provisions on the possibility of determining different age limits for men and
women within achieving the right for pension (Directive 79/7/EEC on the
gradual achievement of the principle of equality of men and women in mat-
ters of social security, Journal officiel L 6, Article 3, 4, 7).
In accordance with the Directive in Europe it is possible to distinguish four
broad groups of pension systems of the first pillar:
734
1) Scandinavian countries (Sweden, Finland, Denmark and Norway) where
there are generally relatively low pensions for all residents, but there is a
strict link between the contributions paid and the amount of pension that
are financed from taxes and they are a guarantee of existential security for
all citizens;
2) continental Europe (Germany, France, Austria, Belgium, the Netherlands,
Switzerland and Luxembourg) where state pension systems are significant
in terms of high contributions and high-income levels;
3) The countries of southern Europe (Italy, Greece, Spain and Portugal) have
systems similar to those in continental Europe. The retirement age, which
was often low, is increasing, and the criteria for obtaining retirement rights
are more demanding;
4) Anglo-Saxon countries (Great Britain and Ireland) are characterized by
equal, low general pensions, which are by no means sufficient for all retirees.
Therefore, in these countries the position of pensioners that are not covered
by the second pillar is particularly uncertain (Bijelić, 2005, 92).
Looking at the total pension income within the three pillars of pension in-
surance in some European countries, it is possible to see different trends in the
distribution of pension income (Table 1).
Table 1. Revenues from pension contributions paid into three pillars of insur-
ance in some European countries (in %)
I II III

Country pension pension pension Total
insurance pillar insurance pillar insurance pillar
Denmark 53% 31% 16% 100%
Germany 61% 22% 17% 100%
Spain 83% 10% 7% 100%
United Kingdom 25% 47% 28% 100%
Croatia 82% 12% 6% 100%
Source: CEA - Insurers of Europe, Statistical Report, 2016, authors
The largest income in the first pillar of pension insurance is by Spain and
Germany, while the dominance of the second pillar of insurance is most rep-
resented in the United Kingdom and Denmark. Such revenue distribution de-
pends on the very structure of pension insurance of a particular country, its
735
reforms, demographic trends and the historical tradition of a particular area of
Europe.
.. Supplementary pensions in the European Union (II pillar)

The second pillar pension systems in the European Union represent institu-
tions whose primary objective is to address the problems that arise in the state
pension systems caused by demographic and economic fluctuations. Such sys-
tems may be established as voluntary or mandatory, depending on the organi-
zational form and degree of coverage of employees in each Member State of the
Union. The regulation of the second pillar is governed by the three Directives.
Directive 86/378/EEC of 24 July 1986 applies to all forms of supplemen-
tary (professional) pension insurance, including capitalized pension insurance.
It regulates:
1) the principle of gender equality;
2) the application of professional retirement schemes and conditions for ac-
quiring the characteristics of insured persons in them;
3) prescribing the retirement age limit;
4) mandatory or voluntary membership in a professional system;
5) calculation and obligation to pay contributions;
6) determination of the conditions for the refund of contributions at exit from
the system (Directive 86/378/EEC on the implementation of the princi-
ple of equal treatment for men and women in occupational social security
schemes, Journal officiel L 225, Article 5, 6).
Directive 98/49/EC of 24 June 1998 regulates the maintenance of the right
to an additional (professional) pension for workers moving within the Euro-
pean Union. This Directive provides for:
1) workers who by moving from a State of origin to another Member State,
under equal conditions, use or lose their rights to professional pension in-
surance as well as workers who have remained in the country of origin;
2) that the holders of occupational retirement pension insurance that were
made in one country are paid to the other Union Member States (Directive
98/49/EC on the protection of the supplementary pension rights of em-
736
ployed persons and self-employed persons moving within the Community,
Journal officiel L 209, Article 4, 5, 6, 7).
The Third Directive within the Second Pillar of Pension Insurance in the
European Union is Directive 2003/41/EZ of 3 June 2003, which is regulat-
ing the activities and supervision of professional pension insurance providers,
whether they are legal persons or not, and which are funded and operated on
the principle of capitalization (Directive 2003/41/EC on the activities and
supervision of professional pension schemes, Journal officiel L 235, Article 2).
Here, the importance of improving the computerization of these institutions
is particularly emphasized, which would contribute to a better comparison of
paid pension contributions of insured persons through time and control of in-
dividual processes in the second pillar of insurance.
Based on the analyzed Directives, the main characteristics of the second pil-
lar of the pension insurance are related to the existence of employment relations
or dealing with a particular occupation (so-called occupational or professional
insurance). Access to these care systems is only provided to employees in cer-
tain societies, industries or sectors and is based on agreements between social
partners or compliance with standards applicable in a certain field of activity.
The second pillar pension systems are managed by private institutions, and un-
like the first pillar, the state does not guarantee their payments. Contributions
are determined on an earnings basis and are equally paid by the employer and
the employee. Financing of these systems is mostly carried out within pension
funds, so current contribution income is invested to pay off future, but not cur-

rent, commitments to retirees. Based on the main features of the second pillar
of pension insurance in the European Union, the table presents the characteris-
tics of this pillar in individual countries of the Union (Table 2).
Table 2. Characteristics of the second pillar of pension insurance in individual

European Union countries
Country Characteristics
Denmark Voluntary pension funds, with capital investment
Germany Voluntary pension funds, with capital investment, group insurance
Spain Voluntary pension funds, mostly for managers with capital investment
United Kingdom Voluntary pension funds, with capital investment
Croatia Mandatory pension funds based on individual capitalized savings
Source: EFRP - European Federation for Retirement Provision, Annual Report, 2016,
authors
737
In the member states of the Union there are different characteristics of the
second pillar of pension insurance based on additional (professional) insurance.

However, in most countries, according to the EU Directives, funding is financed
under pension funds and is mostly voluntary, as opposed to Croatia, where the
second pillar is implemented through mandatory pension funds.
In accordance with the pension funds available to them, EU member states
have different forms of investment in that capital market, but the level of these
investments is certainly in line with the regulations and restrictions imposed by
each member state. Anglo-Saxon countries invest more in stocks and other risk-
ier forms, while continental Europe countries are considerably more cautious
and more frequently invest their assets in government bonds. Britain’s assets are
invested mostly in Union shares, and therefore expect higher returns from such
investments, while Germany and Spain are inclined to invest in government
bonds. Differences are also noticed in investment relations in their own country
and abroad. In this form of investment United Kingdom it is represented by
30% of investment abroad, followed by Denmark with 25%, while most other
countries do not exceed 10% (EFRP - European Federation for Retirement
Provision, annual report 2016). In Croatia, pension funds invest mostly in state
bonds (up to 65% of the investment), and less in shares from the Republic of
Croatia or other European Union countries.
.. Voluntary pensions in the European Union (III pillar)

Third pillar pension systems are social welfare systems that complement the
first and second pillars, and represent voluntary life and pension insurance. The
regulation of this pillar was established by Directive 2004/113/EC from 13
December, 2004. This Directive is applied to private pension insurance, sepa-
rated from the employment relationship, corresponding to voluntary pension
insurance at the third pillar, which is carried out under open voluntary pension
funds (Directive 2004/113/EC on the principle of equal treatment for men
and women in access to and procurement of capital goods or services, Journal
officiel L 373/37, Article 5).
Based on the analyzed Directive, it is possible to conclude that the charac-
teristics of the third pillar of pension insurance are similar to those within the
second pillar of pension insurance, but membership in this pillar is not related to
the status of employment, but the individual conclusion of the contract with that
738
institution that offers such financial products, and these are the most common
in life insurances. Contributions or payments of an individual are accumulated
and invested, so the funds are collected, including all the benefits of invested
capital, which will later fund retirement payments to the insured. Contribution
payments under the third pillar of pension insurance can eliminate the problems
of job loss for users of this system. Such forms of social security are relatively
well-resourced to demographic changes as opposed to the state pension system,
which is under pressure from the aging process of the population. Like in the
second pillar, in the third pillar of pension insurance it is, also, possible the inad-
equate return of capital and the absence of a mechanism to protect against the
effects of inflation. However, in spite of the disadvantages, life insurance has long
traditions in the market economy in some economies and a great economic im-
portance, especially for the third-year population, which, by participating in the
third pillar of pension insurance, ensures greater social and economic security.
5. COMPATIBILITY OF THE CROATIAN PENSION

INSURANCE SYSTEM WITH AN EUROPEAN
SOCIAL MODEL
Since Croatia is a full member of the European Union, it is obliged to align
its pension insurance legislation with the acquis communautaire of the Union.
In this context, it is necessary to analyze the formal alignment of Croatian leg-
islation with the obligations that Croatia derives from Union legislation and
the adjustment of the pension insurance system to the European social model.
Within the framework of the formal compatibility of legislation, it is essential to INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
fulfil obligations derived from the EU Directive. In the other case, it is so-called
cognitive alignment of the Croatian pension system with the European social
model, whose notions are not only contained in the Union’s legislation but also
in other parts of its acquis, which is actually a “Europeanization”, defined as the
process of building, disseminating and introducing formal and informal rules
established in the European political process of the Union and included in the
Union’s public policies (Rismondo, 2010, 101).
By analyzing the structure of pension insurance in the European Union, it
is concluded that it is based on the general and public pension system of gen-
erational solidarity (the first pillar of pension insurance); an additional pension
system (mandatory or voluntary) based on professional elements (enterprise, en-
739
terprise group, economic sector, branch etc.) is funded by the application of capi-
talization (the second pillar of pension insurance) and the individual voluntary
pension insurance in which the insured person independently chooses the hold-
er, and the insurance terms and conditions (third pillar of pension insurance).
Unlike the European pension system, the Croatian pension system, which is
also based on three pillars of insurance, in the second pillar has a mandatory and
private pension insurance funded by the application of capitalization of contri-
butions to the insured’s personal accounts, while the third pillar has the so-
called additional voluntary insurance (voluntary closed-end pension funds) and
exclusively voluntary pension insurance (voluntary open-end pension funds).
According to the analysis conducted, it is possible to conclude that the leg-
islation of the Croatian pension system is formally aligned with the obligations
deriving from the EU Directive in the field of pension insurance but the Croa-
tian pension system is not in line with the European social model, in the part
of mandatory pension insurance based on individual capitalized savings (the
second pillar of pension insurance). The basic differences between the pension
system of Croatia and the European model within the second pillar of pension
insurance are seen in the following characteristics:
1) there is no guarantee of the lowest retirement income, but only the agreed
pension is guaranteed;
2) the consistency of the principle of reciprocity is applied, and the granting
depends in full on the amount in the personal account of the mandatory
pension funder;
3) there is no social dialogue and there is no provision for the participation of
pension funders in the management of their funds, although these funds are
their property;
4) in Croatia, the second pillar of pension insurance has the sole characteristic
of the obligation, unlike other Member States, and is not based on profes-
sional insurance;
5) the investment of the second pillar pension fund portfolio in Croatia is sig-
nificantly different from other member states;
6) there is no improvement in the computerization of pension funds which
would contribute to the easier comparison of paid pension contributions
of insured persons through time and control of individual processes in the
second pillar of insurance.
740
By analyzing these characteristics, one finds the non-conformance in a part
of the Croatian pension system with the European social model at its second
pillar. According to the definition of so-called cognitive alignment of the Croa-
tian pension system with the European social model, it is possible to conclude
that the pension system of Croatia lacks the so-called “Europeization”, ie. the
expansion and introduction of formal and informal rules in order to achieve the
social and economic security of current and future insurers of the second and
third pillars based on capitalized mandatory and voluntary pension insurance
in the most efficient way.
6. CONCLUSION
The stability of the pension system is one of the fundamental problems, both
for Croatia and for other EU member states, and its co-ordination between
countries is of particular importance. According to the analysis conducted, it
is possible to conclude that the legislation of the Croatian Pension System is
formally aligned with the obligations arising from the EU Directive in the field
of pension insurance, but the Croatian pension system is not in line with the
European social model within the second pillar of pension insurance. The pen-
sion system of the Republic of Croatia, based on three pillars of insurance, has
the second pillar of mandatory pension insurance funded by the contribution of
capitalization to the personal accounts of insured persons, as opposed to Euro-
pean based on professional insurance and certain professional elements and in
most EU, countries is a voluntary type. In accordance with the aforementioned,
Croatia will have to do a series of procedures related to the so-called cognitive
compatibility that would contribute to the compatibility of the Croatian pen-
sion system with the European social model and ultimately the sustainability of
pension insurance in the future.
REFERENCES
Bijelić, M. (2005). Osiguranje i reosiguranje, Tectus, Zagreb
Puljiz, V. & et al. (2008). Socijalna politika Hrvatske, Pravni fakultet Sveučilišta u Zagrebu,
Zagreb
Bagarić, N. & Marušić, LJ. (2004). Pristup socijalnim pravima u Hrvatskoj: mirovinsko osig-
uranje, Revija za socijalnu politiku, broj 1, Zagreb, p. 39-61.
741
Matić, B. & Vretenar, M. (2009). Gospodarstvo i financijske institucije Brodsko-posavske
županije (od sredine 18. do sredine 20. stoljeća), Ekonomski vjesnik, br. 2/2009., Ekonomski
fakultet u Osijeku, Osijek, p. 284-295.

Puljiz, V. (2007). Hrvatski mirovinski sustav: korijeni, evolucija i perspektive, Revija za soci-
jalnu politiku, broj 2, Zagreb, p. 163-192.
Rismondo, M. (2010). Hrvatski sustav mirovinskog osiguranja i europski socijalni model,
Revija za socijalnu politiku, broj 1, Zagreb, p. 89-112.
Direktiva 79/7/EEZ o postupnom ostvarivanju načela ravnopravnosti muškaraca i žena u
području socijalne sigurnosti, Journal officiel L 6 [available at:
http://eur-lex.europa.eu/legal-content/HR/TXT/?uri=CELEX%3A31979L0007 ,
access February 19, 2018]
Direktiva 86/378/EEZ o provedbi načela jednakog postupanja prema muškarcima i ženama
u sustavima strukovnih socijalnih osiguranja, Journal officiel L 225 [available at: http://eur-
lex.europa.eu/legal-content/HR/TXT/?uri=CELEX%3A32006L0054,
Direktiva 98/49/EZ o zaštiti prava na dodatnu mirovinu zaposlenih i samozaposlenih oso-
ba koje se kreću unutar Zajednice, Journal officiel L 209 [available at: http://eur-lex.europa.
eu/legal-content/HR/ALL/?uri=CELEX%3A32014L0050,
Direktiva 2003/41/EZ o djelatnosti i nadzoru ustanova strukovne mirovine, Journal officiel L 235
[available at: http://eur-lex.europa.eu/legal content/HR/TXT/?uri=CELEX:52014AP0155 ,
Direktiva 2004/113/EZ o načelu ravnopravnosti muškaraca i žena u mogućnosti dobivanja i
nabave roba, odnosno pružanja usluga, Journal officiel L 373/37 [available at: http://eur-lex.
europa.eu/legal-content/HR/TXT/?uri=CELEX%3A32004L0113,
Povelja EEZ 1989: Povelja o osnovnim socijalnim pravima radnika, Journal officiel C 325 [avail-
able at: http://eur-lex.europa.eu/legal-content/HR/TXT/?uri=celex%3A31992L0085 ,
Povelja osnovnih prava Europske unije, Journal officiel C 303/1 [available at: http://eur-lex.
europa.eu/legal-content/HR/TXT/?uri=celex%3A12007P,
Zakon o mirovinskom osiguranju, Narodne novine, 102/98 [available at: https://www.
morh.hr/images/stories/morh_sadrzaj/pdf/zakon%20o%20mirovinskom%20osiguran-
ju%20nn102-98.pdf ,
CEA - Insurers of Europe (2016), Statistical Report, Brussels [available at: https://www.
insuranceeurope.eu/ ,
EFRP – European Federation for Retirement Provision (2016), Annual Report, Brussels
[available at: http://www.pensionfundsonline.co.uk/(X(1)S(iuev2gujremijgeprykph3zv))/
dir/entry.aspx?id=16171&type=adviser&name=efrp-european-federation-for-retirement-
provision&AspxAutoDetectCookieSupport=1 ,
742
STOCK MARKETS REACTIONS
TO NEGATIVE DECISIONS OF
STANDARD&POOR’S RATING
AGENCY  EIGHT CASE STUDIES
Izabela PRUCHNICKAGRABIAS
Warsaw School of Economics
E-mail: ipruch@sgh.waw.pl
Abstract
The literature research say that the influence of credit rating agencies decisions
to stock markets is often noticeable. Using the variance analysis, the author
presents eight case studies from chosen European countries analyzing the influ-
ence of negative announcements of the Standard&Poors’ agency to stock mar-
kets volatility fluctuations. It is assumed that the studied influence can appear
not only during the day of the announcement, but also some time before and
sometime after the event. The study period was from January 2004 to June
2016 and European countries with the highest amounts of credit rating nega-
tive announcements were chosen. The author suggests that negative decisions
of Standard and Poor’s impact stock markets behaviour, however differently in
various countries.
Key words: credit rating agencies, negative ratings, stock markets, volatility INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
1. THEORETICAL BACKGROUND
Stock market prices depend on many factors. There are plenty of research
suggesting the influence of such factors as for example inflation, GDP, industrial
production, consumption, currency rates, interest rates, money supply, crude oil
prices (Buyuksalvarei, 2010; Hsing, 2011a; Hsing, 2011b; Hsanzade and Kian-
vand, 2012; Wisniewski, 2014). However, apart from macroeconomic variables,
these are decisions of credit rating agencies which are supposed to impact stock
prices (Bayar, 2013; Christopher, Kim and Wu, 2012; Fatnassi, Ftiti and Has-
743
naoui, 2014). Some theoretical research suggests that there is some influence
Izabela Pruchnicka-Grabias: STOCK MARKETS REACTIONS TO NEGATIVE DECISIONS OF STANDARD&POOR’S RATING AGENCY - EIGHT CASE STUDIES
of credit rating agencies announcements to stock markets (Treepongkaruna,

2012), whereas others prove that such a relation doesn’t exist (Brooks, Hillier
and Faff, 2004). The literature shows that these are rather negative decisions of
credit rating agencies which influence stock markets (Wang and Chen, 2015).
2. THE AIM OF THE STUDY

The author presents eight case studies from chosen European countries ana-
lyzing the influence of negative announcements of the Standard&Poors’ agency
to stock markets volatility fluctuations. The analysis of variance is applied. It is
assumed that the studied influence can appear not only during the day of the
announcement as in the previous study (Pruchnicka-Grabias, 2017) devoted
to the same field, but also some time before and sometime after the event. The
study period was from January 2004 to June 2016 and countries with the high-
est amounts of credit rating negative announcements were chosen.
3. RESEARCH RESULTS
The conducted research shows that credit rating announcements influence
stock markets behaviour, however differently in various countries. The effect
can be present both before the day of the announcement (Hungary) or later
(Italy) or exactly during the day of the announcement (Island) or both before
and after (the rest of examined countries).
4. CASE STUDIES OF GREECE, HUNGARY, ITALY,

ICELAND, PORTUGAL, SPAIN, LATVIA AND
RUSSIA
.. Greece
The null hypothesis is defined in the following way: there is no relation be-
tween the rating category decrease by Standard&Poor’s for Greece and the vola-
tility of rates of return on the ATHEC Composite index.
744
Table 1. Breakdown table of descriptive statistics1
Standard & Poor’s1 ATHEX Composite ATHEX Composite ATHEX Composite
Ratings Averages N valid Standard deviations
0 -0,000332 3026 0,020366
1 -0,007087 63 0,024003
Total -0,000470 3089 0,020464
Source: author’s calculations.
Chart 1. Categorized Box & Whisker Plot for the ATHEX Composite index.
Source: author’s study.
1
0 means that there was no decision of the rating agency on the decrease of the rating category, 1
means the opposite situation, that is the rating decrease.
745
Chart 2. Categorized histogram of rates of return on the ATHEX Composite
index.
Source: author’s study
Table 2. Results of the variance analysis

SS df MS df
Variable SS Error MS Error F p
Effect Effect Effect Error
ATHEX Composite 0,002816 1 0,002816 1,290398 3087 0,000418 6,737404 0,009486
In Table 2 please find the results of the variance analysis of rates of return
on ATHEX Composite index. According to F-Snedecor distribution tables, for
the declared significance level α= 0,05, the beneath described findings are true:
F0,05;1;3087 = 3,8,
which lets create the critical range as < 3,8; +∞ >. The value 6,74 is in the range
of rejections of the null hypothesis. It means that the hypothesis on the lack of
relations between the negative announcement of the credit rating agency and
746
the volatility of rates of return on the ATHEX Composite index should be
rejected. The decision is statistically unambiguous.
Lavene homogenity test (Table 3) shows that at the assumed significance
level of α = 0,05 the hypothesis on the variance homogeneity cannot be re-
jected. The same conclusions can be drawn from the Brown-Forsythe test.
Table 3. Results of the variance homogeneity test by Lavene.

SS df MS df
ATHEX
0,000557 1 0,000557 0,666069 3087 0,000216 2,582853 0,108129
Composite
.. Spain
The null hypothesis is defined in the following way: there is no relation be-
tween the rating category decrease by Standard&Poor’s for Spain and the vola-
tility of rates of return on the IBEX35 index.
Table 4. Breakdown table of descriptive statistics.

Standar & Poor’s IBEX35 IBEX35 IBEX35
0 0,000126 3038 0,014510
1 -0,002405 145 0,023032
Ogółem 0,000011 3183 0,015008
Source: author’s calculations. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
747
Chart 3. Categorized Box & Whisker Plot for the IBEX35 index.
Chart 4. Categorized histogram of rates of return on the IBEX35 index.

Wykres 4. Skategoryzowany histogram stóp zwrotu z indeksu IBEX35.
748
Table 5. Results of the variance analysis.
SS df MS
Variable SS Error df Error MS Error F p
Effect Effect Effect
IBEX35 0,000887 1 0,000887 0,715806 3181 0,000225 3,939695 0,047245
Table 5 presents results of the variance analysis. According to F-Snedecor

tables, for the declared significance level α = 0,05 the following is true:
F0,05;1;3181 = 3,8,
Which lets create the critical range < 3,8; +∞ >. 3,93 is in this range which
means that the hypothesis on the lack of relations between the decision of the
rating agency on the volatility of rates of return on IBEX35 index should be
rejected.
Results of variance homogeneity test by Lavene (Table 6) prove that at the
declared significance level α = 0,05 the hypothesis on the homogeneity of vari-
ances should be rejected. The decision is fully statistically unambiguous. Identi-
cal conclusions can be drawn with the Brown-Forsythe test.

SS df MS
IBEX35 0,005794 1 0,005794 0,368837 3181 0,000116 49,97201 0,000000

.. Island
As the null hypothesis the following statement is made: there is no relations
between the rating decrease for Island by Standard&Poor’s and the volatility of
rates of return on the ICEX index.

Standard & Poor’s ICEX ICEX ICEX
0 -0,000116 3101 0,022498
1 -0,029571 5 0,069198
Ogółem -0,000163 3106 0,022648
749
Chart 5. Categorized Box & Whisker Plot for the PSI20 index.
Source: author’s study.
Chart 6. Categorized histogram of rates of return on the PSI20 index.
750
SS df MS df
ICEX 0,004331 1 0,004331 1,588297 3104 0,000512 8,464234 0,003648
Table 8 shows the results of the variance analysis. F-Snedecor tables for α =
0,05 show that:
F0,05;1;3104 = 3,8,
which lets define the critical range < 3,8; +∞ >. 8,46 is placed in it. The hypoth-
esis on the lack of relations between the negative decision of the rating agency
and the volatility of rates of return on ICEX index should be rejected at each
important significance level. The decision is fully statistically unambiguous.

Variable SS df MS SS Error df Error MS Error F p
ICEX 0,008635 1 0,008635 1,411408 3104 0,000455 18,99126 0,000014

.. Latvia
between the rating decrease for Latvia by Standard&Poor’s and the volatility of
rates of return on the OMX index.
Standar & Poor’s OMX OMX OMX
0 0,000309 3072 0,012382
1 -0,004037 45 0,018143
Ogółem 0,000246 3117 0,012491
751
Chart 7. Categorized Box & Whisker Plot for the OMX index.
Chart 8. Categorized histogram of rates of return on the OMX index.
752
SS df MS df
OMX 0,000838 1 0,000838 0,485303 3115 0,000156 5,375974 0,020480
Table 11 shows the results of the variance analysis. F-Snedecor tables for α
= 0,05 show that:
F0,05;1;3115 = 3,8,
and the volatility of rates of return on OMX index should be rejected at each

SS df MS df
OMX 0,001064 1 0,001064 0,272462 3115 0,000087 12,16709 0,000493

.. Portugal
between the rating decrease for Portugal by Standard&Poor’s and the volatility
of rates of return on the PSI20 index.
Standar & Poor’s PSI20 PSI20 PSI20
Ratings Averages N valid Standard deviation
0 -0,000051 3099 0,012426
1 -0,002683 100 0,017940
Ogółem -0,000133 3199 0,012639
753
Chart 9. Categorized Box & Whisker Plot for the BUX index.
Chart 10. Categorized histogram of rates of return on the BUX index.
754
SS df MS
PSI20 0,000671 1 0,000671 0,510189 3197 0,000160 4,206373 0,040354
= 0,05 show that:
F0,05;1;3197 = 3,8,
and the volatility of rates of return on PSI20 index should be rejected at each
Results of variance homogeneity test by Lavene (Table 15) prove that at
the declared significance level α = 0,05 the hypothesis on the homogeneity of
variances should be rejected at each important significance level. The decision
is fully statistically unambiguous. Identical conclusions can be drawn with the
Brown-Forsythe test

SS df MS df
PSI20 0,000721 1 0,000721 0,262886 3197 0,000082 8,771407 0,003082
.. Russia
between the rating decrease for Russia by Standard&Poor’s and the volatility of
rates of return on the MICEX index.
Table 16. Breakdown table of descriptive statistics
Standar & Poor’s MICEX MICEX MICEX
0 0,000660 4568 0,026213
1 0,006184 119 0,072482
Ogółem 0,000668 4449 0,026325
755
Chart 11. Categorized Box & Whisker Plot for the MICEX index
Chart 12. Categorized histogram of rates of return on the MICEX index.
756
SS df MS df
MICEX 0,005434 1 0,005434 3,160325 4572 0,000691 7,861508 0,005071
= 0,05 show that:
F0,05;1;4572 = 3,8,
and the volatility of rates of return on MICEX index should be rejected at each
cal conclusions can be drawn with the Brown-Forsythe test

SS df MS df
MICEX 0,035659 1 0,035659 1,847362 4572 0,000404 88,25284 0,000000

.. Hungary
between the rating decrease for Hungary by Standard&Poor’s and the volatility
of rates of return on the BUX index.
Standar & Poor’s BUX BUX BUX
0 0,000324 4077 0,015480
1 -0,005150 42 0,023155
Ogółem 0,000269 4119 0,015583
757
Chart 13. Categorized Box & Whisker Plot for the ICEX index.
Chart 14. Categorized histogram of rates of return on the ICEX index.
758
SS df MS df
BUX 0,001246 1 0,001246 0,998722 4117 0,000243 5,135172 0,023497
= 0,05 show that:
F0,05;1;4117 = 3,8,
and the volatility of rates of return on BUX index should be rejected at each im-
portant significance level. The decision is fully statistically unambiguous.
Table 21. Results of the variance homogeneity test by Lavene

SS df MS df
BUX 0,001539 1 0,001539 0,481981 4117 0,000117 13,14826 0,000291

.. Italy
between the rating decrease for Italy by Standard&Poor’s and the volatility of
rates of return on the FTSE MIB index.
Table 22. Breakdown table of descriptive statistics
Standar & Poor’s FTSE MIB FTSE MIB FTSE MIB
0 -0,000118 3153 0,015861
1 -0,007004 22 0,015062
Ogółem -0,000165 3175 0,015863
759
Chart 15. Categorized Box & Whisker Plot for the FTSE MIB index.
Chart 16. Categorized histogram of rates of return on the FTSE MIB index.
760
SS df MS df
FTSE MIB 0,001036 1 0,001036 0,797671 3173 0,000251 4,121529 0,042424
= 0,05 show that:
F0,05;1;3173 = 3,8,
and the volatility of rates of return on FTSE MIB index should be rejected. The
decision is fully statistically unambiguous.
Results of variance homogeneity test by Lavene (Table 24) clearly suggest
that at the declared significance level α = 0,05 there are no fundamentals to
reject the hypothesis on variance homogeneity. Identical conclusions can be
drawn with the Brown-Forsythe test.
Table 24. Results of the variance homogeneity test by Lavene

SS df MS df
FTSE MIB 0,000006 1 0,000006 0,415014 3173 0,000131 0,048964 0,824890
5. FINAL CONCLUSION
As it was shown, negative decisions of Standard and Poor’s influence stock
markets behaviour, however differently in various countries. The effect can be
present both before the day of the announcement (Hungary) or later (Italy) or
exactly during the day of the announcement (Island) or both before and after
(the rest of examined countries).
761
REFERENCES:
Bayar Y., C. Kilic, B. Kilic Savrul, Effects of Sovereign Credit Ratings on the Eurozone Stock
Markets During the Recent Financial Crises, International Journal of Business and
Social Science, Vol. 4 No. 12, 2013, p. 1 – 13.
Brooks R., D. Hillier, R. W. Faff, The National Market Impact of Sovereign Rating Changes,
Journal of Banking and Finance, Vol. 28, No. 1, 2004, p. 233 – 250.
Buyuksalvarei A., Effect of Macroeconomic variables on Stock Returns: Evidence from Tur-
key, European Journal of Social Sciences, Vol. 14, No. 3, 2010, p. 404-416.
Christopher R., S. Kim, E. Wu, Do sovereign ratings influence regional stock and bond mar-
kets interdependences in emerging markets, Journal of International Financial Mar-
kets, Institutions and Money, Vol. 22, No. 4, 2012, p. 1070 – 1089.
Fatnassi I., Z. Ftiti, H. Hasnaoui, Stock Market Reactions To Sovereign Credit Rating
Changes: Evidence From Four European Countries, The Journal of Applied Business
Research, Vol. 30, No. 3, 2014, p. 953 – 958.
Hasanzadeh A., M. Kianvand, The Impact of Macroeconomic Variables on Stock Prices:
The Case of Teheran Stock Exchange, Money and Economy, Vol.6, No. 2, 2012, p.
171-189.
Hsing Y., Effects of Macroeconomic Variables on the Stock Market: The Case of the Czech
Republic, Theoretical and Applied Economics, Vol. 18, No. 7, 2011, p. 53-64.
Hsing Y., Macroeconomic Determinants of the Stock Market Index and Policy Implica-
tions: The Case of a Central European Country, Eurasian Journal of Business and
Economics,Vol.4, No.7, 2011, p. 1-11.
Pruchnicka-Grabias I., The empirical study of the impact of credit rating agencies announce-
ments on the behavior of stock markets in European countries, in: D. Barkovic, B.
Runzheimer (red.), Interdisciplinary Management Research XIII, The J.J. Stross-
mayer University of Osijek and Hochschule Pforzheim University Opatija 2017, p.
758 – 780.
Treepongkaruna S., E. Wu, Realizing the volatility impacts of sovereign credit ratings in-
formation on equity and currency markets: Evidence from the Asian Financial Crisis,
Research in International Business and Finance, Vol. 26, No. 3, 2012, p. 335 – 352.
Wang Y., X. Chen, An Empirical Study of the Relationship between the Listed Company
Stock Returns and the Credit Rating, SHS Web of Conferences , 17, 01021, 2015, p.
1 – 4.
Wiśniewski H., Wpływ zmiennych makroekonomicznych na indeksy giełdowe, Praca dok-
torska, 2014, available at: https://depotuw.ceon.pl/bitstream/handle/item/918/Pra-
ca_dr_Hubert_Wisniewski.pdf?sequence=1.
762
PROJECT FINANCING OF
CULTURAL AND CREATIVE
INDUSTRIES IN CROATIA 
ANALYSIS OF THE CREATIVE
EUROPE PROGRAMME 20142020
RESULTS
Ivana BESTVINA BUKVIĆ, Ph. D., Asst. Prof.

Department of Cultural studies
E-mail: ibbukvic@unios.hr
Marija ŠAIN, Ph. D., Asst. Prof.

Department of Cultural studies
E-mail: mmihalje1@unios.hr
Maja HARŠANJI, PhD student

Department of Cultural Studies

E-mail: majam@unios.hr
Abstract
The cultural and creative industries (CCI) today have an increasing impor-
tance at the local, regional and European level. Project cooperation in financing
and conducting the projects between partners from different European coun-
tries and linking to their common resources explores encourages and strength-
ens the European cultural and creative sector. Thus, the European Union,
within the framework of the Creative co-financing programs enables the appli-
cant countries transnational mobility, audience and capacity development, all
within innovative CCI. The aim of this paper is to determine the success and
763
capacities of Croatian CCI organizations in applying for co-financing of their
projects from the Creative Europe Programme (2014-2020), sub-programme
Culture. In this paper, the authors analysed the co-financed projects from the
Ivana Bestvina Bukvić Marija Šain Maja Haršanji: PROJECT FINANCING OF CULTURAL AND CREATIVE INDUSTRIES IN CROATIA – ANALYSIS ...
Creative Europe Programme, Culture sub-programme, through a three-year

period, beginning with 2014, and available information of the previous financ-
ing period on the Culture Programme (2013-2017) i.e. covering all available
periods. Also, according to specific criteria, the paper analyses and compares
characteristics of the public institutions and non-profit and private profit orga-
nizations projects. It was found that the Croatian partners are mainly involved
in Small scale projects, rarely in the function of coordinator, but mainly in the
function of one of the project partners. At the same time, there are only rare
examples of funded projects with Croatian cultural institutions included as a
partner or coordinator in their consortium. The paper provided conclusions
that can be the basis of defining recommendations for policy-makers with the
aim of increasing the success of project application in the field of cultural and
creative industries financed by the EU funding programs.
Key words: project application success, Creative Europe Programme, CCI
project financing, EU programmes
JEL Classification: Z19, O22
1. INTRODUCTION
Today, the ever-increasing influence of information and communication
technology (ICT) is heightened at the higher level of art and culture where
cultural and creative industries (CCI) are becoming more recognizable. The
conceptual definition of CCI’s even nowadays still is not unambiguously de-
fined. The CCI “...definitions are diverse and non-standardized, followed by the
rapid development of these industries and their impact on the globalization
of cultural and creative production and consumption.” (Švob-Đokić, 2008, 55)
UNESCO defines the CCI as a sector of organized activities whose main pur-
pose is production or reproduction, distribution and /or commercialization of
goods, services, and activities of cultural, artistic or natural nature. (UNESCO,
n.d.), where “in recent years, cultural theorists have concluded that the creative
industries sector is fuelling not only economic growth but also social and cul-
tural development.” (Matheson, 2006, 55) “The creative industry (CI) contrib-
utes to economic development in general, has an export potential and is based
764
on knowledge, science, technological and art innovation, development of talents
and preservation of national cultural heritage through its implementation into
contemporary products and services.” (Horvat et. al, 2018, pp. 18) Generally
speaking, the CCI contribution gives creative professionals through their rec-
ognizable and free creative expression, which can contribute to achieving eco-
nomic value. (Rocks, 2017; Borić)
CCI consists of 12 sub-sectors: museums, libraries, and heritage; art; music
and performing arts; design; movie; photography; crafts (craft trades); architec-
ture; computer programs, games, and new media; electronic media; publishing
and advertising and market communication. (Mihaljević, Stanković, 2016) In
Croatia, CCI has been accurately identified several years ago using the National
Classification of Occupations, which, for comparison of the CCI of other coun-
tries, is aligned with the ISCO1. Namely, for the achievement of good business
results, according to Croatian cluster of competitiveness of creative and cultural
industries (HKKKKI), the supportive and flexible legislative and institutional
system, through which it is possible to carry out the activities of business and
cultural sector is certainly very important. (Ekonomski institut Zagreb, 2015;
Bestvina Bukvić et. al 2015) In this framework, it has been identified that “there
is a lack of economic and investment framework of a wider scope” (Bestvina
Bukvić & Karačić, 2015, p 443) which is, as well, significant for the development
of all business sectors, including CCI. The aim of this paper is to determine
the success of Croatian CCI including public and non-profit organizations in
co-financing projects from the Creative Europe Programme (2014-2020), sub-
programme Culture. Here, the research question was: do Croatian public and
non-profit CCI organizations use the EU programmes to finance their activities INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
and improve their performance, ie. are they ready to network on the level of the
EU and exploit common capacities to increase their recognition, business, and
financing models available through EU programmes?
For that purpose the authors conducted the research including analysis of
the co-financed projects from the Creative Europe Programme, Culture sub-
programme, through a three-year period beginning 2014, and available infor-
mation from the previous financing period of the Culture Programme (2013-
2017) i.e. covering all available periods for the purpose of defining the charac-
1
ISCO- International Standard Classification of Occupations
765
teristics of the project funded from these resources that are having Croatian
participants included as partners or project coordinators.
The following chapters are giving the relevant literature review and showing
the funding opportunities for projects from the Creative Europe Programme
(2014-2020). Furthermore, chapter three gives an explanation of the applied re-
search methodology and research limitations while the following chapter gives
the interpretation of the research results. At the end, the concluding remarks
are given with the suggestion for following research activities.
2. FINANCING OPPORTUNITIES OF THE

CREATIVE EUROPE PROGRAMME 20142020
To explain the state of the CCI investments in Croatia today, the econom-
ic processes of the past period have to be presented. The period of long-term
structural transition of the country, apart from political and economic changes,
has affected the cultural changes of society. In this sense, according to Švob-
Đokić (2008, pp 37), cultural transition encompasses processes of social change
in the field of culture resulting in the restructuring of cultural values: radical
changes in cultural creation and cultural production; in the organization and
finance of cultural activities and general cultural infrastructure, in changes of
cultural institutions and in the stimulation of changes of cultural values and
cultural identities. Some authors mention that this has led to a cultural dualism
(Krzystofek, 1996, 67), which implies the parallelism of two value systems-one
arguing for an establishment of a cultural market and the other demanding the
government’s support of the financing of culture. According to Dragićević-Šešić
and Dragojević (2005, 26-27), such a time has put into question the cultural
“subsystem” and the causes of the crises of public policy and sector itself, the
underdevelopment of relations between public, private and civil the crisis of
positions of institutions and their role in society, the crises of participation in
the cultural market etc. Also, in Croatia, these periods have led to the deteriora-
tion of cultural heritage, cultural infrastructure, and cultural life. That is why,
in Croatia, more and more recognition is given for the revival of art and culture
and the growing importance of “individual cultural practices and participation
in the creation and consumption of cultural content” (Primorac, 2014, 50)
Given the fact that in Croatia in the last decade, although with some volatil-
ity, a gradual decrease of total public allocations for culture and art is occurring,
766
the private and public organizations in culture have been forced to collect funds
from different sources to carry out planned activities, or to improve their ac-
tivity. Thus, in addition to the possibility of funding through public programs
available in Croatia (“Program of public needs in culture”, “New Culture Foun-
dation”, “Entrepreneurship in culture”, etc.), private and public organizations
in the CCI area, it is possible to co-finance projects through various EU pro-
grammes. The support of the European Union to member states, as well as to
other countries outside its territory, through various programs of co-financing
projects, enables economic integration and cooperation, brings competitive ad-
vantage, but also contributes to the overall economy of the countries. (European
Commission, 2011)
This paper analyses co-financed projects through the seven-year Creative
Europe Programme (2014-2020), ie Culture sub-programme and in one-part
MEDIA sub-programme, intended primarily for the development of the cul-
tural and audio-visual sector of the countries. Within this programme, projects
can be submitted to all legal entities, but also to bodies of national, regional
and local authorities whose core business belong to the sphere of culture and
are in one of the 28 EU member states and overseas countries and EU ter-
ritories. Also, under special conditions, participation by the Member States of
the European Economic Area, the Swiss Confederation, accession countries,
candidates and potential candidates and the European Neighbourhood Policy
Member States is also possible. Participation opportunities in the Culture sub-
programmes are manifested through four types of competitions: Support to
European Cooperation Projects, Support to Literature Translation Projects,
European Network Support and Support to European Platforms. The entire INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Culture sub-programme is coordinated by the Croatian Ministry of Culture
and their Creative Europe Desk (Republic of Croatia, Ministry of Culture, n.d.,
Directorate-General for Education, Youth, Sport and Culture (European Com-
mission, 2014) In addition, the European Union recognizes the needs of young,
talented artists and non-professionals and their innovations in the various seg-
ments of CCS-Creative Writing, Craftwork, Design, Painting, Music etc. en-
abling their mobility and networking through cross-sectoral cooperation that
contributes to sustainable development.
As far as the MEDIA sub-programme is concerned, which is aimed at cre-
ative industries with an emphasis on the audio-visual sector, the European
Union supports European filmmakers in the development of new film produc-
767
tions, seeking partners and finding a non-national audience. Namely, by co-
funding projects, smaller production companies have been able to distribute
different kinds of films - feature films, documentaries, television drama series
and new media types. In addition to co-financing of films, young filmmakers

are offered the opportunity to receive training support through various work-
shops and attending ICT-focused education and the creation of platforms for
the delivery of audio-visual content to increase competitiveness. Of course, the
EU through these sub-programmes encourages cultural diversity and the ac-
ceptance and understanding of other cultural identities of partner countries.
Coordination of the MEDIA sub-programme is entrusted to the Creative Eu-
rope Desk, which operates within the Croatian Audiovisual Centre - HAVC.
(Kreativna Europa, Media, 2018)
3. METHODOLOGY AND LIMITATIONS OF THE

RESEARCH
In the frame of this work, the authors analysed the structure of the approved
projects for financing from the EU funded Creative Europe Programme for the
purpose of identifying the successfulness of the Croatian cultural institutions in
applying and running the international projects financed from EU funds.
Data collection and analysis. For the purpose of this research the authors
analysed the 737 projects financed from the Culture Programme (2007-2013)
and 1,815 projects financed from the Creative Europe Programme (2014-2020)
- including Culture sub-programme, and in one-part MEDIA sub-programme
and Cross-sectorial). The source of the data was the databases published on
the official web page of the European Commission, the Creative Europe Pro-
gramme (source: http://ec.europa.eu/programmes/creative-europe/projects/
ce-projects-compendium/). The aim of this analysis was to define if and in
which scope are the financed projects including Croatian partners especially
cultural public institutions. For that purpose, with the usual methods of synthe-
sis, generalization, analysis, abstraction and the statistical methods were used
by using the SPSS/PC+ software.
Research limitations. There are several methodological limitations that
should be considered. The information of the approved value of grants for an
earlier phase of the Culture Programme (2013-2017) is not available and there-
fore the research cannot be comprehensive. Nevertheless, except the informa-
768
tion on the value of the total grant, all other information is accessible, and there-
fore the projects with lacking information about the value were also, included
in the analysis. As well, the information about the Media programme (2007-
2013) is not published by the European Commission, and therefore could not
be included in the research. Here lies the space for further research, whereby
analysing all three conducted programs in the last two programming periods,
the exact and more comprehensive results could be found.

Today, support to the cultural and creative sector has been recognized as
a combination of creative arts with cultural industries in the context of new
media technologies within the new knowledge economy, which can be used by
new interactive citizens and the consumers. (Hartley, 2007; Florida, 2007). The
projects under the Creative Europe Programme (2014-2020) are mainly aimed
at fostering cooperation, mobility and intercultural dialogue in cultural, creative
and artistic activities to overcome the cultural barriers, but also to accept new
opportunities for new cultural practices and using new media and ICT models.
According to the published information on the European Commission of-
ficial web page for the Creative Europe Programme, on 10th of April 2018 there
were in total:
• 737 projects financed from the Culture Programme (2007-2013),
• 1,815 projects financed from the Creative Europe Programme (2014-
2020) including Culture and MEDIA sub-programmes and Cross-sec- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
torial in the period of 2014 to 2017. From a total number of approved
projects (1,815) in the frame of the Creative Europe Programme (2014-
2020), 57% (1,028) are finalized, while 43% (787) is still ongoing. The
distribution of the sample is following (Table 1).
The following table gives the distribution of the sample of the Creative Eu-
rope Programme (2014-2020) that consists of three named sub-programmes.
769
Table 1 The structure of the approved projects by sub-programmes of the Cre-
ative Europe Programme for the calls published in the period 2014 to
2017.
Projects No. of Share in EU grants Share Average grant by

approved Sub-programme approved the total approved in in total sub-programme
2014-2017 projects number EUR value in EUR
Creative Cross-sectorial 12 1% 2,352,965 1% 196,080
Europe Culture 643 35% 198,841,100 53% 309,240
(2014-
2020) MEDIA 1,160 64% 172,908,895 46% 149,059
Total 1,815 100% 374,102,960 100% 206,117
Source: (author’s calculations according to European Commission, 2018a and European
Commission 2018b)
It can be seen that by the number of approved projects the sub-programme

MEDIA has the largest contribution with 64% (1,160) approved projects, but
by observing the total value of the grants approved, the Culture sub-programme
had larger funds approved, where the average grant of the projects in sub-pro-
gramme Culture is twice the value (309 thousand EUR) of the average grant
on the MEDIA sub-programme. This confirms the former strategy of the EU
for financing fewer but financially larger (quality) projects in Culture sub-pro-
gramme. Cross-sectorial sub-programme was aimed to be opened only twice
in the programming period of 2014-2020, and therefore by the number of ap-
proved projects nor the grant approved value, it is not significant as other two
sub-programmes that are being opened on the annual basis.
As for the cultural and creative industries, especially public owned cultural
institutions the Creative Europe programme, the Culture sub-program is most
important; the analysis will be focused on its results.
Table 2 gives an overview of the structure of approved grants by an action
for the projects that from the first programme period 2007-2013 (according
to official information of European Commission) and 2014-2017 (programme
period 2014-2020) in which Croatian partners were involved. In named pro-
grammes, 6,35% (168) of total 2.550 approved projects in both programmes
were including Croatian partners.
770
Table 2 Overview of the structure of approved grants by action in the period
2007-2017 where Croatian partners were involved
EU grants Number
Programme/ Total EU of
Action Min per Max per Share
Sub-programme grants by Share approved
project project projects
programme
Cooperation
Culture 30,529,367 68.2% 22,152 2,000,000 51 30.4%
projects
Cooperation
Culture (2007-2013) 5,812,622 13.0% 52,500 1,607,185 65 38.7%
measures
Multi-annual
Culture (2007-2013) Cooperation 4,182,808 9.3% 651,500 1,541,035 10 6.0%
Projects
Audience
Media 1,101,843 2.5% 200,000 51,909 9 5.4%
Development
Literary
Culture translation 927,751 2.1% 14,457 99,411 9 5.4%
projects
TV
Media Programming 603,769 1.3% 103,769 500,000 2 1.2%
Support
Culture Platforms 499,696 1.1% 499,696 499,696 1 0.6%
Festivals
MEDIA 301,000 0.7% 20,000 41,000 9 5.4%
Support
Capacity
Building/
MEDIA 286,500 0.6% 24,000 95,250 6 3.6%
Training
Support
On-line
MEDIA 268,289 0.6% 36,200 89,339 4 2.4%
distribution
Refugee
Cross-sectorial Integration 199,989 0.4% 199,989 199,989 1 0.6%
Projects
Film
MEDIA 60,000 0.1% 60,000 60,000 1 0.6%
Education
The total value of the EU grants 44,773,633 168 1
By the information provided in Table 2, more than 30% of the approved

projects that included Croatian partners (regardless of the importance of their
role in the project) were applied to the Culture sub-programme, action Co-
operation projects, on which they got more than 68% (30.5 million EUR) of
total approved grants. All other actions are far behind this value, while in some
771
actions, ie. action Networks, the projects with Croatian partners were not in-
volved and Platforms where only one project was accepted by the EU.
Table 3 gives the statistical analysis of the grants approved to the projects
that are including Croatian partners. The analysis showed that in the structure
of the financial grants approved there are high differences in the amounts of
approved grants value that is depending on the characteristics of the sub-pro-
grammes and the planned project activities.
Table 3 Statistical analysis of the grants approved to projects including Croa-
tian partners
Action Call year Project Status EU Grant in EUR
N Valid 1,815 1,815 1,815 1324

Missing 0 0 0 1,683
Mean 339,194.19
Median 195,016.00
Mode 200,000.00
Std. Deviation 528,925.31
Range 1,985,542.87
Minimum 14,457.13
Maximum 2,000,000.00
Sum 44,773,632.66
Source: author’s calculations according European Commission1, 2018a and European
Commission2, 2018b
The minimum level of approved grant is 14 thousand EUR for the Literary
translation projects action, while the highest grant was approved in Coopera-
tion projects, that by terms of this action allowed the larger, financially more
demanding projects. The median was found the level of 195,016, where half of
the respondents got approved a grant in the amount less than 195,016 EUR
and the other half more than named amount, with a rather high level of stan-
dard deviation (σ = 528,925). It should be taken into consideration the fact
that the maximum level of possible financing in the Large-scale projects is 2
million EUR.
Table 4 presents the structure of the approved projects including the Croa-
tian partners by the sub-programme, the action and by the level of approved
grant.
772
As shown below and according to the official European commission infor-
mation, the 68,2% of the approved projects were financed with 200 thousand
EUR or fewer funds, while 83,3% were financed with 300 thousand or less,
of maximum possible grant of 2 million EUR. Only 6.8% of the projects are
placed in the upper quartile (1,500-2,000 million EUR) of the distribution.
The reason lies in the fact that the aforementioned call European Culture, Cul-
ture sub-programme, involves selecting between applications for small scale or
large-scale cooperation projects. Thus, the application of smaller co-operation
projects enables at least three organizations from different countries to receive a
grant of up to 60% of the total project value (ie. 200 thousand EUR). Contrary
to this, the financing of major, large scale EU projects by the European Union
implies up to 50% of co-financing of the value of the project, ie. maximum of 2
million EUR, and has to be submitted by at least six organizations from differ-
ent eligible countries.
773
Table 4 Structure of the approved projects that are including the Croatian partners by the sub-programme, action and by the
774
value of the approved grant
Culture
Creative Europe Programme Creative Europe Programme
(2007-2013)\
EU grant (Culture sub-programme) (MEDIA sub-programme)
(in ‘000) Capacity Total Share
distribution Multi-annual On-line
Cooper. Cooperation Literary translation Audience Building/ Festivals
Cooper. Platforms distri-bution Other2
measures projects projects Development Training Support
projects
Support
-100 3 1 17 3 6 9 3 2 44 33,3%
101-200 19 20 5 2 46 34,8%
201-300 4 15 1 20 15,2%
401-500 1 1 2 1,5%
501-600 1 1 2 1,5%
601-700 1 1 0,8%
701-800 1 1 0,8%
901-1000 1 1 0,8%
1101-1200 1 1 2 1,5%
1401-1500 1 3 4 3,0%
1501-1600 1 1 0,8%
1601-1700 1 1 0,8%
1801-1900 3 3 2,3%
1901-2000 4 4 3,0%
Sum 27 4 51 17 1 9 6 9 3 5 1323 100,0%
Distribution 20,5% 3,0% 38,6% 12,9% 0,8% 6,8% 4,5% 6,8% 2,3% 3,8% 100,0%
Source: author’s calculations according European Commission, 2018a and European Commission, 2018b
2
Chategory „Other“ includesfollowingactivities: On-line Distribution Support, Refugee Integration Projects, TV Programming Support, Film Education.
3
Note: as the information about value of the grant for all Culture programme (2007-2013) are not available, there is a difference in the information presented by
Table 2 and tables 3and 4 that are including only 132 projects with published amount of the grant awarded.
Table 5 gives the structure of the Croatian partners’ role in the approved
projects in the most significant action Cooperation-projects (as it includes
30.4% of the number and the 68% of total funds approved to the projects with
the Croatian partners).
From the table shown, Croatia is mostly involved in small scale Cooperation
projects, where it is taking a role of leading partner in only 7 cases (13.73% of all
approved projects, where the financially largest project was approved with the
grant at the level of 198 thousand EUR).
The proponents of these projects are mainly associations and non-govern-
mental organizations where one project is being led by Croatian national the-
atre. This implies the possibility of existing the general reluctance or lack of
motivation as well as the capacity of national public organisations to apply their
project:
a) under Large-scale projects and
b) them as project coordinators (leading partners)
Table 5 Distribution of the project according to the role of Croatian partner

in the project
Cooperation Participating country Coordinator Total
projects Number Share Number Share Number Share
Small scale 65.9% 100.0%
29 7 36 70.6%
projects (86.1%) (19.4%)

Large scale 34.1% 0.0%
15 0 15 29.4%
projects (100.0%) (0.0%)
Total 44 (86.3%) 7 (13.7%) 51
Source: author’s calculations according European Commission, 2018a and European Com-
mission, 2018b
It has to be noted that in public institutions there are rare measures by which
institutions could motivate their employees to work on development of the new
projects (ie. free working days, less working obligations on their regular position
during the project lasting etc.), if their position is not directly linked to the proj-
ect development and project management position. This, together with lack of
financial strength can be one of the obstacles for the larger interest of the CCI
for the available alternative funding.
775
Table 6 presents the structure of all approved projects on the level of sub-
programme Culture by action and the projects where Croatia was participating
country by its role in the project.
Table 6 Approved projects in Culture sub-programme

Number of Croatia as a
Sub-programme Culture/ approved participating country Share
Action: (on EU level) Participating Coordinator Total
Cooperation projects 292 44 7 51 17.5%
Literary translation projects 226 0 17 17 7.5%
Networks 88 0 0 0 0.0%
Platforms 36 0 1 1 2.8%
Total 642 44 25 69 10.7%
mission, 2018b
By observing the value of the grants approved through the activity Coopera-
tion projects, it was found that total value of the 51 projects including Croatian
partners was 30.5 million EUR, from which 7 projects with total value of the
grants approved in amount of 1.39 million EUR were coordinating by Croatian
partners, ie. 4.5% all in category of the Small-scale projects. Neither one project
from the category of the Large-scale projects is being led by the Croatian part-
ner as a coordinator.
By official information, only 7 projects in Culture sub-programme, coopera-
tion projects included cultural institutions in public ownership: Croatian Na-
tional Theatre Zagreb, Croatian National Theatre Split, The Croatian National
Theatre Ivan pl. Zajc in Rijeka, Croatian state Archive, and Museum of fine
Arts, Zagreb. From named 7 projects, 6 projects are small scale cooperation
projects and one project, in which Croatian National Theatre Zagreb that is
included into the project together with 27 other partners from 16 countries, got
a grant in the amount of 2 million EUR.
Table 7 is showing the structure of approved Literacy translation projects.
776
Table 7. Approved Literacy translation projects
Application Number of approved
Share
Country Name projects
Bulgaria 29 12.8%
Serbia 23 10.2%
Slovenia 20 8.8%
Hungary 19 8.4%
Macedonia 19 8.4%
Spain 18 8.0%
Italy 18 8.0%
Croatia 17 7.5%
Other 63 27.9%
Total 226
mission, 2018b
As shown in table 7, Croatia has about 8% of the total number of approved

projects in the frame of the Literacy translation projects. Such projects are in-
tended for publishing houses and include translations of literary works from
one European language to another. These projects can be run independently,
with one participating country, in this case, the leading partner. These are, in the
observed sample, the small-scale projects approved in the range of 11 thousand
EUR to 100 thousand EUR with one participating country. Average grant per
project amounts 54 thousand EUR with the acceptable standard deviation (σ
= 22.6 thousand EUR).
It is interesting to mention that Croatia is not participating in any projects
on the level of action Networks, while has one approved project on the level
of action Platforms, approved to the music school. The reason for rather low
participation in this action lies in the fact that these projects are mainly highly
financial demanding and generally less represented in the European Culture
programme.
If observing the Croatian applicants, the largest number of projects were
approved to the non-profit organizations, ie. cultural and artistic associations.
The reason for this is possible higher activity and efforts of non-public organ-
isations conducted to collect funds from different sources for carrying out their
activities since their own resources are insufficient. On the other hand, the state
777
owned cultural institutions are manly state funded, and thus less forced to seek
alternative funding.
5. CONCLUSION
The key division on the policy instruments level that can be deciphered is
between those who receive support from the state (such as film, book and - to
some extent - music industry) and those creative industries which are at the
marketplace operating their businesses on the market/profit principles (such as
design, advertising, architecture, multimedia and electronic publishing). (Pri-
morac, 2008). However, the role of the state regarding cultural industries, in the
region of the SEE remains crucial, as it remains the key player (i.e. funder) of
these fragile industries. Nevertheless, the cultural institutions, as well as entire
creative industry, should seek alternative sources of funding, especially regard-
ing the project funding.
EU program, Creative Europe Programme, is one of the most significant
programs regarding the encouraging development culture and creative in-
dustries and financing of its projects especially since such projects foster the
development of the market, possibility of increasing (production) capacities,
self-employment and youth employment, cross-sector cooperation, networking,
internationalization of the CCI ventures and projects, etc.
The aim of this paper was to assess the utilization of the possibilities of
Creative Europe Programme by the Croatian institutions, organisations, firms,
and associations and define their capacities for development of the EU Creative
Europe funded projects. For that reason, the authors were analysing the pres-
ence of the Croatian partners in the projects financed by the Creative Europe
Programme regardless of their role - as a partner or as a coordinator (lead-
ing partner). The research was conducted in 2018 on the 737 projects financed
from the Culture Programme (2007-2013) and 1,815 projects financed from
the Creative Europe Programme (2014-2020), including Culture and MEDIA
sub-programmes and Cross-sectorial). It was found that 168 projects that in-
cluded Croatian partners were approved through named programs that are
6.58% on the level of both programs. The most significant sub-programme and
activity for the Croatian participants is Culture sub-programme, action Coop-
eration projects, from which 68.2% of total funds were approved to the projects
778
including Croatian partners (by officially published information by European
Commission).
If observing the value of the grants approved through the most significant
activity Cooperation projects, it was found that total value of the 51 projects in
which Croatian partners were included was 30.5 million EUR, from which 7
projects with total value of the grants approved in amount of 1.39 million EUR
were coordinated by Croatian participants, ie. 4,5% of total value of the grants,
all in category of the Small-scale projects. By analysing the participation of the
public owned cultural institutions, it was found that they were included in sev-
en projects, where theatres, museum and state archive had a role of a partner,
mainly in the small-scale projects (with a grant of up to 200 thousand EUR).
Only one project previously named was led by the Croatian partner.
By observing the Culture sub-programme, activity Literacy translation proj-
ects it was found that Croatia is among eight most successful countries with
7.5% of the total number of the projects approved, ie. 928 thousand EUR,
where all grants amounted up to 100 thousand EUR.
According to the above, it can be stated that although Croatian partners are
active and were involved in 168 projects (6.58%), of a total number of 2,552
those projects are mainly Small-scale projects, up to 200 thousand EUR, with
limited range. As well, the number of projects where Croatia is coordinating,
or even public owned cultural institutions participating is very low, thus it can
be concluded that the capacities, motivation or the strength of Croatian appli-
cants is still not developed enough so the interstate activities supported by the
administration should be directed towards strengthening these characteristics
and skills.
As of above, future, more comprehensive research on this topic should in-
clude a greater number of EU programmes so the situation and the reasons for
lower utilization of the EU funds from the cultural institutions and the CCI in
Croatia could be determined.
REFERENCES
Bestvina Bukvić I., Mihaljević, M. & Tokić, I. (2015). Kulturna politika i utjecaj zakonskog
okvira na financiranje kazališta, Pravni vjesnik, 31(3-4), p. 147-164.
Bestvina Bukvić, I. & Karačić, D. (2014). Competitiveness as a function of local and regional
growth and development, Ekonomski vjesnik, 27(2), p. 437-445.
779
Borić, M. (2016): Utjecaj kreativnih industrija na gospodarski razvoj s posebnim naglaskom
na zaposlenost, izvoz i bruto dodanu vrijednost, Scientific Conference: Globalizacija i
regionalni identitet: Sociokulturno nasljeđe i gospodarski razvoj, Faculty of Agriculture in
Osijek, J. J.Strossmayer University of Osijek, Department of Cultural studies, Faculty
of Economics in Osijek, 2016, p.120-140

Directorate-General for Education, Youth, Sport and Culture (European Commission)
(2014). Creative Europe - The European Union programme for the cultural and cre-
ative sectors, 2014-2020 [available at: https://publications.europa.eu/en/publica-
tion-detail/-/publication/18d8dc3c-e9ea-487c-a5aa-87579748131e, access March
15, 2018]
Dragićević-Šešić, M. & Dragojević, S. (2005). Arts management in turbulent times. Adaptable
Quality Management. Amsterdam: European Cultural Foundation&Boekmanstudies.
Ekonomski institut Zagreb (2015). Mapiranje kulturnih i kreativnih industrija u Repub-
lici Hrvatskoj, [available at http://hkkkki.eu/dokumenti/mapiranje.pdf, p. 64, access
March 15, 2018]
European commission (2011). Commission Staff working paper impact assessment accompany-
ing the Document regulation of the European Parliament and of the Council establishing A
Creative Europe Framework Programme. [available at http://ec.europa.eu/programmes/
creative-europe/projects/ce-projects-compendium/, accessed April 10, 2018]
European Commission (2018a). Culture 2007-2013 Projects Overview (2018-04-10)
[available at: https://ec.europa.eu/programmes/creative-europe/sites/creative-eu-
rope/files/library/2011-impact-assessment_en.pdf, access April 10, 2018]
European commission (2018b). Creative Europe Projects Overview (2018-04-10) [available
at http://ec.europa.eu/programmes/creative-europe/projects/ce-projects-compendi-
um/, accessed April 10, 2018]
Florida, R. (2007) The Flight of the Creative Class: The New Global Competition for Talent.
New York: Harper Collins Publishers, USA
Hartley, J. (2007). Kreativne industrije, Beograd: Clio, Srbija
Horvat, J., Mijoč, J. & Zrnić, A. (2018): Ars Andizetum. Katavić-Čaušić, S. & Radl Ćućić,
D. (Ed.). Andizet – Institute for Science and Art Research in the Creative Industry:
Osijek.
Kreativna Europa, Media (2018). Financiranje [available at http://mediadesk.hr/hr/finan-
ciranje, accessed April 10, 2018]
Krzysztofek, K. (1996). The New Role of the Cultural Factor in the European Processes, In.
Cvjetičanin, B. (Ed.). Dynamics of Communication and CulturalChange: The Role of Net-
works. Zagreb: Institute for International Relations, pp. 65-69.
Matheson, B. (2006). A culture of creativity: design education and the creative industries,
The Journal of Management Development, 25(1), p. 55-64.
Mihaljević, M.; Stanković, B. (2016). Gospodarske koristi od kulturnih aktivnosti. Scientific
Conference: Globalizacija i regionalni identitet: Sociokulturno nasljeđe i gospodarski azvoj,
Faculty of Agriculture in Osijek, J. J. Strossmayer University of Osijek, Department of
Cultural studies, Faculty of Economics in Osijek, pp. 104-119
780
Primorac, J. (2014). The Position and Perspectives of Cultural and Creative Industries in
Southeastern Europe, Medijskaistraživanja, 20(1), p. 45-64.
Rocks, C. (2017): London’s creative industries - 2017 update, 2017, Greater London Authority,
[available at:
https://www.london.gov.uk/sites/default/files/working_paper_89-creative-indus-
tries-2017.pdf, access March 21, 2018]
Republic of Croatia, Ministry of Culture (n.d.), Potprogram Kultura – tko, što, kako i zašto?
[available at: http://www.min-kulture.hr/default.aspx?id=9821, access April 15,
2018]
Švob-Đokić, N. (2008). Što su kulturne/kreativneindustrije, In Švob-Đokić, N., Primorac, J.
and Jurlin, K. (Ed.). Kultura zaborava-Industrijalizacija kulturnih djelatnosti. Zagreb:
Naklada Jesenski i Turk, pp. 55-68.
UNESCO, Regional Bureau for Education in Latin America and the Caribbean (n.d.).
Creative Industries [available at http://www.unesco.org/new/en/santiago/culture/
creative-industries/, access March 15, 2018]
781
DOING BUSINES WB REPORT AND
Mustafë Hasani Sakip Imeri Ramadan Kryeziu: DOING BUSINES WB REPORT AND IMPACT ON FDI IN WESTERN BALKAN CONTRIES WITH FOCUS...
IMPACT ON FDI IN WESTERN

BALKAN COUNTRIES WITH FOCUS
IN KOSOVO
Mustafë HASANI, Ph. D. student

E-mail: mustafehasani@gmail.com
Sakip IMERI, Ph. D. student

E-mail: sakipimeri@gmail.com
Ramadan KRYEZIU, Ph. D. student

E-mail: ramadan_kryeziu@hotmail.com
Abstract
This study aims at learning the trend and reasons for the decline of FDIs in
Western Balkans countries with focus in Kosovo which has occurred in the
last five years, especially when taking into account the fact that some positive
changes where marked in the last years in the context of a reasonable improve-
ment of some indicators in the ranking in the World Bank report “Doing Busi-
ness” which have not been followed by an increase of FDIs’. Nowadays, it is
rather difficult to attract FDIs’, especially in the Western Balkans region, be-
cause their (countries’) interests and policies for favouring foreign investors are
tremendously significant and they are applying an active competition to attract
FDIs’ which is increasingly becoming more tough. These countries are almost
competing in setting policies, strategies and various financial and non-financial
incentives as well as in creating a better business environment.
Studies and research on finding a proper Strategy to attract foreign inves-
tors based on natural and human resources, on competitive advantages and
782
on identifying countries with potential investors, sectors and specific foreign
companies in order for them to invest in our country will definitely be the key
to economic growth, creation of new jobs, attraction of new technologies and
know-how, as well as the increase of the living standard in general.
Key words: FDI, WBR “Doing Business”, WB countries, Kosovo, decline of
FDIs
JEL Classification: D25, F21
1. INTRODUCTION
Western Balkan countries have made a major advance in improving the
business environment and are very committed to attracting foreign direct in-
vestment. Significant progress is also noted in the world Bank Doing Business
Report, where they are almost every year ranked better, some of them ranked in
the top 20, but such an increase has not been followed in the growth of foreign
investment Therefore, a broader analysis will be about the improvement of busi-
ness environment indicators and FDI in the Western Balkan countries with a
special focus on the Kosovo case.
After Kosovo declared its independence in February 2008 and became a
member of the World Bank in June 2009, a member of the International Mon-
etary Fund in July 2010 and a member of EBRD in 2012 it has a potential to
become a regional competitor in providing a suitable environment and a favour-
able investment climate for foreign investors. In this context, the government
of Kosovo in the years 2010 -2017 in all its statements regarding the increase
of foreign direct investments has referred to the improvement of indicators of
doing business as an important and necessary step for the improvement of the
investment climate and the attraction of foreign investors which was also fol-
lowed by an increased engagement in improving some regulations which did
mark a significant progress in improving the business enabling environment.
When Kosovo was for the first time included in the WB report “Doing Busi-
ness” in 2009 it was ranked in the 119th position, in the 2016 64th position,
whilst in the last report from 2018 it was ranked in the 40th position. This
significant improvement for 79 positions was not also followed with an increase
of foreign investments. On the contrary during these years foreign investments
783
have declined for over 50%. A similar situation with little or more difference is
also with the Western Balkan countries.
Based on this fact and on the comparative analysis of other countries it is

necessary to learn whether it is sufficient to improve the indicators of doing
business to enable a better climate for investments and which of the 10 indica-
tors affect more the FDI and which other adequate policies are necessary to
attract FDI.
The macroeconomic overview of Kosovo shows that the increase of the gross
domestic product is insufficient and varies between 2-3%, the trade deficit is
high; unemployment is constantly increasing and the GDP per capita the low-
est in the region (CBK 2017). This deems necessary and urgent the need for
drafting a national economic strategy with impact on economic growth, cre-
ation of new jobs, increase of exports and a better living standard for citizens.
Within this strategy a special emphasis should be put on attracting FDI.
Kosovo needs FDI as well as a proper strategy to attract FDI. Thus, this is one
of the topics of great importance for our country. FDI are considered as one of
the pillars of economic development of a country and undoubtedly they bring
significant positive effects to the economy.
2. METHODOLOGY
The methodology is based on secondary data that is provided by the UNC-
TAD, WB “Doing Business Report” and the Central Bank of Kosovo for the
period 2010 – 2017 followed by a good quality comparative analysis with the
countries in the region and a questionnaire and interviews with investors and
business associations mainly through:
- Global, FDI Trend, Regional and FDI inflow in Kosovo.
- World Bank Doing Business reports 2010- 2017.
- Kosovo government policies in support of FDI.
- The questionnaire with 20 foreign investors in Kosovo and interview with
business associations.
The purpose of this study is to show the theoretical link between the busi-
ness environments, respectively 10 indicators of the Doing Business report and
FDI in Balkan countries with focus in Kosovo and an analysis of the govern-
784
ment policies to attract foreign direct investments. This link between Doing
Business and FDI has become even more relevant because of the fact that im-
provements especially in 2015 and 2016 are visible whilst FDI are declining
each year. The comparative analysis of the data will issue the findings which
show which indicators have an impact on FDIs’ and which indicators with an
impact are not included in the reformation of regulations for a better business
environment.
Interviews were held with business associations, with consulting compa-
nies which represent a high number of domestic and foreign companies as well
as with experts from respective fields. Questionnaires were filled with 20 for-
eign companies, opinions were given and compared. The data analysis which
have served to draw up conclusions that the business environment partially
improved, only in a number of indicators of doing business does not have an
immediate impact on the increase of foreign investments and furthermore all
indicators do not have the same effect on FDI whilst in the case of Kosovo sig-
nificant improvements are not made exactly on those indicators which based on
the analysis of different authors have a higher impact on attracting investments.
( Jovanović and B. Jovanović 2014).
The research questionnaire with 20 foreign companies in Kosovo and the
interview with business associations such as the European Investors Council
in Kosovo, American Chamber of Commerce, Kosovo Chamber of Commerce,
Businesses Alliance of Kosovo, were focused in particular in the case of FDI
in Kosovo, therefore the findings mainly correspond with the case of Kosovo.

However, the same in combination with statistical comparisons and the find-
ings may help in expanding the studies and the analysis also for other countries
of the Western Balkans especially when taking into account the numerous simi-
larities between these countries.
3. TRENDS IN FDI
According to the UN Conference on Trade and Development (UNCTAD/
WIR/2017), global inflows of FDI in 2016 were equal to US$ 1.74 trillion
which are lower for 2% compared to the previous year but it may be considered
that FDI inflows in all the years after the recession have decreased and increased
and they remain at this level and have never been close to the historical value of
pre-recession in 2007 (1.9 trillion).
785
Another important element is that in 2016 FDI flows to developing coun-
tries dropped by 14% and increased in developed economies for 5%, thus reach-
ing a global share of 59%. This is a bad news for developing economies because
the trend of FDI movement is increasingly directed to developed countries.
But the god news is a fact that in the top host economies developing econo-
mies are leading i.e. 5 out of 10 top host economies are developing economies
(China, Hong Kong China, Singapore, Brazil, and India) this gives hope for
the development of developing economies because the trend of FDI movement
gradually is directed from developed countries to the developing ones (Bayrak-
tar 2013).
Such an assertion is also supported by the publication of (UNCTAD 2017)
document where top prospective destinations in line with the IPA-S survey
findings for 2017 - 2019 are developing countries such as China, India, Indone-
sia, Thailand, the Philippines, Viet Nam and Singapore.
Figure 1. FDI top 10 host Economies vs DB Ranking
Source: (UNKTAD. WIR 2017 and Doing Business Report 2017)
Figure 1. presents FDI inflows in top 10 host economies compared to the

ranking in WB Doing Business report in order to preserve the continuity of
this study of the link between FDI inflow and the WB Doing Business ranking.
What can be concluded from the analysis of these data is that the developed
countries which have a higher share of attracting FDI are ranked high in the DB
ranking except some developing countries, in this case China, Brazil and India.
Nevertheless, it is true that high ranking in the DB report has an influence on
attracting FDI but it is not the only determining factor for FDI inflows. If we
refer to many studies on FDI direction there are also some possible determi-
nants of FDI such as labour cost, level of human capital, returns to investment,
trade openness, the size of countries, natural resources, macroeconomic and po-
786
litical determinants. (Blonigen and J Piger 2011) Also, the studies by (David
et al. 2001) and (Bergstrand and Eggar 2007) have developed the theoretical
model of multinational enterprises foreign investment decision that suggests
additional possible factors like ‘Vertical” motivation for FDI where firms look
for low-cost location for labour intensive production.
An important element related to the link of FDI and DB ranking is also
the fact that Luxembourg, which is ranked every year in the top 15 of the host
economies, is ranked in an average position in the DB report or exactly in 2017
was ranked 59th position The government has established some measures to
make the country more attractive to FDI such as fiscal benefits, equipment and
construction land. This is a reason to believe that in addition to the impact of
doing business indicators, other ways should be found to make the better in-
vestment climate and to attract foreign investment.
4. FDI TREND IN EUROPE

FDI in Europe after a steady decline in years after the recession, begin to rise
from 2015. FDI in 2016 was 532 billion however lower than in 2015 by 9%.
Such a trend of decline and growth but mainly decline of foreign investments it
is also reflected by the FDI decline in countries that have had the highest share
of FDI in Europe. Statistics show that the top FDI host countries in Europe
(UK, Netherlands, Belgium, Germany, France, Spain, Italy and Switzerland) in
2007 have participated with over 80% of total FDI inflows while in 2017 the
participation is 50%. A significant decline in FDI in these countries is reflected
in the decline of European FDI Inflow. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
An increase of the FDI flow compared to the previous year was marked in
United Kingdom Luxembourg, Ireland, Finland, Netherlands, Sweden, Aus-
tria and the Czech Republic. A trend with low oscillations was maintained in
Switzerland, Spain and Norway. In general, movements of the FDI trend in
Europe during 2010-2017 have been high mainly followed by a decline of for-
eign investments whilst in the Doing Business report for the same years in these
countries of the European Union, Norway and Switzerland, the changes have
been very small, because of the fact that all these countries have improved their
regulations for better business environments and have been ranked in high po-
sitions in the WB’s Doing Business report.
787
Significant changes were marked in Spain which in 2010 was ranked in the
nd
62 position. In the report from 2017 it was improved for 30 positions and was
ranked in the 32d position. The same was the case of Italy which in 2010 was
ranked in the 78th position, whilst in 2017 was ranked in the 50th position even
though both two countries, despite of the improvements of the position in the
DB report have faced a decline of foreign investments.
Thus, when comparing the data from these developed countries which have
high ranking in the DB report it can be said that they have reached a point
which may be called “Neutral” in relation to the impact of foreign investment
attraction and that the FDI attraction should be followed by other political
actions like in the case of Luxembourg where the government has undertaken
some measures to attract FDI or policies for certain sectors where there is po-
tential and interest. The next figure shows the ranking of these countries in the
DB report and the small changes in position during 2010-2017.
Figure 2. DB 2010 -2017
Source: (WB Doing Business Report 2017 & 2010)
FDI inflows in the Western Balkan countries (Albania, Bosnia & Herzegov-
ina, Montenegro, Serbia, FYR Macedonia, Croatia and Kosovo) are followed
almost with the same scenario such as FDI in Europe, however from 2011 oscil-
lations with an increasing tendency were observed, but FDI flow has a tremen-
dously low share in the total foreign investments from Europe, with only 1.2%.
788
Figure 3. FDI inflows 2017
Source: (UNKTAD / WIR/ 2017)
FDI flows have been higher in Serbia, Croatia and Albania and the lowest in
the Republic of Kosovo. A common characteristic of all countries in the South-
east Europe is that especially in the recent years they have paid a lot of attention
to the improvement of business environments by improving the regulations
which have had an impact on easing the doing business and the same were re-
flected in the improvement of the position in the DB ranking almost every year.
All countries have improved, but Macedonia has had a rapid progress. In the
DB report 2017. Macedonia was ranked in the 69th position, in DB 2015 was
ranked in the 30th position and in the last DB report for 2017 was ranked 10th.
Similarly, Montenegro in DB 2009 was ranked 77th whilst on DB for 2015 was
ranked in the 36th position. Significant improvements were made by Albania,
Serbia, Bosnia & Herzegovina, Croatia and Kosovo. Doing Business (2017).
All countries have focused on improving the business environment to ease the
doing of business for domestic companies and at the same time attract FDI. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Prior to discussing the link between FDI and the DB report in the Bal-
kan Countries let us explain what is the purpose of DB and which indicators
are used in this document. Doing Business focuses on regulations and regula-
tory processes involved in setting up and operating a business. The objective is
to encourage the government and policy makers to improve regulations, to be
more efficient and simplify the implementation. The groups of indicators in
the doing business database are: Starting a business, dealing with construction
permits, ease of getting electricity, registering property, getting credit, protecting
investors, paying taxes, trading across borders, enforcing contracts and resolving
insolvency. Each group consists of several variables mainly the number of proce-
dures, time and cost (compared to % of income per capita).
789
Even though all these indicators and a high number of variables within in-
dicators have a great importance in measuring the business environment, im-
proving them makes doing business easier for domestic firms and they have an
impact on attracting foreign investments. Many studies have shown that there
is a positive link between improving the indicators of doing business and at-
tracting foreign investments. It is more likely that a country with a high ranking
will attract foreign investors more than a country which has a lot more to do in
reforming legal rules for the improvement of business environment. However,
the study of data shows that there are cases when ranking is good but there are
no foreign investments or the ranking is low and foreign investments are high.
In such cases other indicators should be taken into account such as the mac-
roeconomic stability, trade openness, the size of countries, natural resources,
infrastructure quality, skills of workforce, judicial independence, legal system
efficiency, fight against corruption, political stability, government effectiveness
or other specifics relevant to the respective country in which FDI and DB are
not in the same direction.
The comparison of data in Western Balkan Countries shows that FDI in-
flow is tremendously low and the share is very low in the total FDI Inflow in
Europe. During 2010-2017 no increasing tendency is observed in FDI and
there are no significant oscillations from year to year. Nevertheless, what char-
acterizes more these countries is that all of them have made a rapid and visible
progress in the DB report. Improvements are seen in the ranking positions. In
the following figure, apart from DB ranking an overview of improvement may
be seen also through the measures of Distance to Frontier Score (DTF) where
0 represents the lowest performance and 100 the frontier. Distance to frontier
score illustrates the distance of an economy to the “frontier,” which represents
the best performance observed on each Doing Business indicator.
Macedonia 81.18, Kosovo 73.49 , Montenegro 73.18, Serbia 73.13, and
Croatia 71.70 are above the average DTF for Europe & CA 71.13 while Al-
bania 68.70, and Bosnia & Herzegovina, 64.2 are very close to the average
which represents good performance on improving the business environment of
Western Balkans countries. However FDI inflow is in low amounts, therefore
what we can get out of this data is that only the large scale reform is not enough
to attract FDI. ( Jayasuriya 2011).
790
Consequently doing business reforms should also be followed by the iden-
tification of other determinants of FDI or by a proper investment policy which
suits the respective country. Some of the Western Balkans countries such as
Serbia and Macedonia apart from the reform are also trying to attract FDI
through different investment incentives (State Grants, Free Economic Zones,
National Employment Service Grants, Tax and Social Insurance Exemptions)
5. FDI TREND IN KOSOVO AND DB REPORT

RANKING
FD inflow in Kosovo is at an extraordinary low level. Since 2007 when they
had reached the highest amount ($484 mil.), they have declined every following
year. In 2016 FDI inflow in an amount of $266 mil is 30% less than the previ-
ous year. FDI in Kosovo is the lowest in the region which can be seen in the
following Figure.
Figure 4. FDI in Western Balkan Countries 2016

Source: (UNKTAD / WIR/ 2017)
Based on the data extracted for the FDI economic structure in Kosovo it
can be seen that the highest FDI are mainly in the financial sector, immovable
properties and construction whilst in sectors such as energy, mines and miner-
als, agriculture and tourism are rather low.
If we compare the FDI data in the economic sectors and the government
policies it can be concluded that the sectors considered of priority from these
policies and that are promoted regularly have not had investments in significant
amounts or they are very low e.g. a priority policy was to attract investments
in the energy sector whilst investments in this sector in the last decade do not
791
exceed $100 mil. The same situation is with mines and minerals and the agricul-
tural sector which are demanding a high number of permits, licences and other
procedures which require a lot of time to be issued and have a high cost instead
of being followed by incentives and other favouring policies.
FDI in Kosovo mainly originate from Germany, Great Britain, Turkey and
Slovenia. An important role in attracting investors from Western Europe was
played by the Kosovar Diaspora which through mediating, co-financing or di-
rect investments covers a share of FDI in Kosovo. The reason for mentioning
this is that Kosovo has a huge diaspora scattered all over Western Europe and
further which is comprised of many successful entrepreneurs in the countries
where they operate. Thus, it can be said that they represent an important po-
tential to be attracted to invest in certain sectors in Kosovo through favourable
promotional policies and the offering of concrete projects.
Another issue to be taken into account is that in these low FDI the share
from the privatisation is significant, whilst this process may end very soon
which is another reason to draft a strategy for attracting foreign investments
based on the country’s advantages through the identification of key sectors as
well as support with concrete actions and favouring policies.
FDI inflow is low whilst a significant progress in creating a favourable busi-
ness environment. Through the reforms in doing business Kosovo moved from
the 119th position in DB 2010 for 79 positions until 2018 when it was ranked
in 40th position as shown in the next table.
Table 1. Kosovo DB ranking & Distance to Frontier Score
Source: (DBR 2018)
792
If we compare the ranking for each indicator individually it turns out that
Kosovo despite of improving its position in the Doing Business report and
reaching the 40th position, in some indicators it does not have a good ranking
such as e.g. in dealing with construction permits ranking 129, ease of getting
electricity 114, resolving insolvency 163, protecting investors 63 and trading
across borders 51.
This ranking in 5 indicators with not a good position and in other 5 with
significant improvement again may be considered a partial reform rather than
a complete one. A moderate improvement for several positions in all indicators
is worth more than a large scale reforms in only a limited number of indicators.
Based on different studies and analyses not all indicators have the same im-
pact on FDI inflow, some of them have a higher impact on foreign investments
See for example, ( Jovanović and Jovanović 2014) show that a country where 9
documents are required to export is likely to have around 37% less investment
inflows than countries where 7 such documents are required.
In the ranking in Doing Business 2017 and in the previous years as well,
especially in terms of reforms Kosovo has done better than all Balkan countries
except Macedonia. DTF with a score of 73.49 is upper than the European aver-
age and makes a significant improvement. However, all this achievement is not
also followed by foreign investments. The promotion of Kosovo in attracting
foreign investors has been more focused on general FDI promotion through
conferences, seminars, publication of brochures and leaflets where the promo-
tion was based on presenting only the positive side for investment opportunities

without a proper and complete strategy after analysing all the data, priority sec-
tors, concrete projects and other support measures for attracting FDI.
6. THE RESEARCH QUESTIONNAIRE AND

INTERVIEW FEEDBACK
The research questionnaire with 20 foreign companies in Kosovo and the
interviews with business associations such as the European Investors Council
in Kosovo, American Chamber of Commerce, Kosovo Chamber of Commerce,
Businesses Alliance of Kosovo, interview with consulting companies which rep-
resent a high number of domestic and foreign companies as well as with experts
from respective fields where focused in particular on the case of FDI in Kosovo.
793
In the question: Has the improvement of indicators of doing business had
an impact and have these been noticed in practice? 78% of respondents gave a
negative answer and claimed that no difference was noticed compared to previ-
ous years. The questionnaire and the interviews emphasize, as general conclu-
sion that the main problems for foreign investors in Kosovo are: corruption,
informal economy, slow and inefficient administration, lack of law enforcement,
negative image of the country and the lack of various incentives for investors.
7. CONCLUSION AND FUTURE WORK

The findings of this paper indicate that Kosovo has marked a progress in the
World Bank’s report “Doing business” by improving its ranking position from
119 in 2009 to 60 in 2017 and 40 in 2018 mainly thanks to the improvement of
5 out of the 10 indicators taken from the World Bank for assessment. This im-
provement in the ranking of Kosovo in the business environment is important,
however, it did not follow up with an increase of foreign direct investments. On
the contrary, FDIs’ declined even more despite of this progress. FDIs’ in Kosovo
have declined up to 50% compared to previous years.
This paper emphasizes that the partial improvement of indicators in doing
business is not necessarily followed by an increase of FDIs’ and that the country
should continue to improve the other five indicators. At the same time is should
complement these reforms with others FDI indicators through research and
analysis in order to identify comparative advantages, sector priorities, incentive
impacts on FDI, identify countries and companies with potential of FDI out-
flow, draft the FDI Strategy. The country should also improve the country im-
age, legal issues by fighting corruption, informal economy and law enforcement.
Of special and immediate importance is the drafting of a national strategy
for increasing private investments, domestic and foreign, in order to alleviate
unemployment which among the youth exceeds 60%. Only a serious and pro-
active approach with concrete actions may impact on the increase of FDIs’ in
Kosovo, which are so important, and for the time being, the main indicator
for improvement and influence on economic development, strengthening of the
private sector, transfer of know-how and technology, creation of new jobs and
improvement of living and standards for the citizens
A proactive strategy with detailed actions, with a priority sector, concrete
projects, similar or even better incentives than those provided in the regional
794
countries by overcoming the common practice of promotion with meetings and
general events such as international conferences for foreign investors, and at-
tracting investors with brochures showing only the good side, generalised op-
portunities, counting all possible sectors for investments without offering a sin-
gle alternative, without concrete projects, and not dividing the priority sectors.
REFERENCES
Asiedu, E. (2006): Foreign direct investment in Africa: The role of natural resources, market
size, government policy, institutions and political instability, World Economy, 29(1),
p.63-77.
Bayraktar, N. (2013).Foreign Direct Investment and Investment Climate. International Con-
ference on Applied Economics (ICOAE), Procedia Economics and Finance, 5, p.83–92.
Bergstrand, J. H. and Egger, P. (2007) A knowledge-and-physical-capital model of interna-
tional trade flows, foreign direct investment, and multinational enterprises, Journal of
International Economics, Elsevier, 73(2), p. 278-308.
Biljana Jovanović and B. Jovanović.(2014). Ease of Doing Business and FDI in the Ex-So-
cialist Countries, International Economics and Economic Policy, (2017),p. 1-41, DOI:
10.1007/s10368-017-0377-3.
Blonigen, B. A., and J. Piger (2011). Determinants of Foreign Direct Investment, NBER
working paper 16704, National Bureau of Economic Research
Cass, F. (2007): Attracting FDI to transition countries: the use of incentives and promotion
agencies, Transnational Corporations, 16(2), 77122.
David L. Carr, James R. Markusen, Keith E. Maskus (2001) Estimating The Knowledge-
Capital Model Of The Multinational Enterprise, NBER Working Paper No. 6773
American Economic Review, 91, p. 693-708.
Hornberger, K., Joseph,B. and Peter,K. (2011). Attractive FDI: How Much Does Invest-
ment Climate Matter? Viewpoint: Public Policy for the Private Sector; Note No. 327. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
World Bank, Washington, DC.
Jayasuriya, D. (2011). Improvements in the World Bank’s Ease of Doing Business Rankings; Do
they translate into greater foreign direct investment inflows. Development Policy Centre
Discussion Paper No 8, Crawford School of Public Policy, The Australian National
University, Canberra
Central Bank of Kosovo (2017).Annual Report 2016 [available at:
https://bqk-kos.org/repository/docs/2017/CBK-17-08-2017_eng_AR_2016.pdf access
February 10, 2018]
Doing Business (2017). [available at: http://www.doingbusiness.org/reports/global-re-
ports/doing-business-2017, access March 21,2018]
UNCTAD /WIR (2017). [available at: http://unctad.org/en/Pages/DIAE/World%20In-
vestment%20Report/Annex-Tables.aspx, access March 13 , 2018]
795
COMPARATIVE FINANCIAL
ANALYSIS OF RAILWAY
WORKSHOP
Marina STANIĆ ŠULENTIĆ, Ph.D. Candidate

University of Applied Sciences of Slavonski Brod, Croatia
E-mail: marina.stani0@gmail.com
Marina Stanić Šulentić Tin Horvatin Milan Stanić: COMPARATIVE FINANCIAL ANALYSIS OF RAILWAY WORKSHOP
Tin HORVATIN, M.Sc.

Otprema d.o.o., Slavonski Brod, Croatia
E-mail: horvatin.tin@gmail.com
Milan STANIĆ, Ph.D.

University of Applied Sciences of Slavonski Brod, Croatia
E-mail: milan.stanic@vusb.hr
Abstract
Financial analysis is the process of collecting, introducing, verifying and inter-
preting financial data. Financial analysis is actually a synthesis of financial
data with which we try to identify economic trends, determine financial poli-
cies and guidelines, create financial plans for the future and identify potential
projects and investments. Such analysis are mostly performed for companies,
yet other organizations, states or projects can also be covered – everything that
involves financial flows in their activities. The aim of the financial analysis
is to check whether the company which is the subject of the analysis is sol-
vent, liquid or profitable (viable). For that purpose, the analyst performing the
analysis checks various financial data. However, the core focus of analysis are
three basic financial statements - income statement, balance sheet and cash flow
statement. Most common subject of financial analysis is the business result, the
financial position and the cash flow of the company. All reports present busi-
ness operations in their own way, yet they complement each other, so they need
to be studied as a whole. The basic purpose of the analysis is to gain a clear pic-
796
ture of the company’s financial situation. The results of financial analysis can be
the basis for making economic decisions of a wider circle of useful information.
As a state-owned enterprise Croatian Railways (HŽ) are often referred to as
media topics. Croatian Railway (HŽ) operations and its components are in
the public focus as a synonym for public good that should be in the benefit of
all taxpayers of the Republic of Croatia. The aim of this paper is to illustrate
conducted financial analysis and make a comparative presentation for three
years of business on example of two companies: Radinice željezničkih vozila
Čakovec d.o.o. and Remont željezničkih vozila Slavonski Brod (RPV d.o.o.).
Key words: financial analysis, income statement, balance sheet, cash flow,
Croatian Railways (HŽ)
JEL Classification: G17, G19
1. INTRODUCTION
The analysis of the financial statements is part of a business analysis whose
purpose is to acquaint the economic and financial strength of the company, but
also the prospects that company can achieve during the business operations.
The analysis is an essential tool for a better understanding of the company’s
business, contribution to overall business performance, and making relevant
business decisions. This paper analyzes the operations of two limited liability
companies, and their business is closely related to Croatian Railways (HŽ).
Paper consists of two parts. The first part analyzes the operations of the

Radinice željezničkih vozila Čakovec d.o.o. and Remont željezničkih vozila Sla-
vonski Brod d.o.o. through the financial statements for the past three years. The
second part offers a critical review and comparison of these two companies. The
aim of this paper is to thoroughly evaluate and critically evaluate the organiza-
tion of the Croatian Railways (HŽ) system, apropos to determine if the advan-
tages are greater than the disadvantages. The balance sheet and profit and loss
account information will be the basis for processing horizontal and vertical ana-
lyzes. After the analysis, a conclusion will be drawn that will propose guidelines
for sustainable growth and successful business. Analysis and synthesis methods
were used in this paper.
797
2. ANALYSIS OF BUSINESS OPERATIONS
OF RADIONICE ŽELJEZNIČKIH VOZILA
ČAKOVEC D.O.O RŽV D.O.O.
The Radionica was founded in 1945 with headquarters in Čakovec. In today’s
form, Radionica operates since 1993 and is state-owned. The main activities of
Radionica željezničkih vozila are: manufacturing, maintenance and repairation
of freight wagons. This paper presents a horizontal and vertical financial analy-
sis of the company’s business. With the help of horizontal financial analysis of
the company, changes in the position values of financial statements are observed
over multiple accounting periods. The key variable used in the horizontal analy-
sis is time, since by comparing the elements of the financial statements that are
expressed in cash units between two or more periods, the conclusion is reached
on the occurrence of the observed period over which the problematic areas of
business can be identified. Horizontal analysis compared 2015 and 2016 with
2014 as base year. Vertical analysis of a particular position in the balance sheet
is presented as a percentage of the total value of asset or passive. While in the
vertical analysis of the profit and loss account the value of total revenue, ie total
expenditures, becomes the basis for comparison.
798
.. Analysis of Assets
Table 1. Analysis of assets of RŽV Čakovec
Absolute Absolute
Name of the change Relative change Relative
2014 2015 2016
position change change
2015-2014 2016-2015
Non-current Assets 38 733 700 40 156 000 40 866 800 1 422300 3,67% 710 800 1,77
I Intangible assets 0 0 0 0 0 0
II Tangible assets 38 720 100 40 142 500 39 710 000 1 422 400 3,67% -432 500 -1,08
1. Lot 12 128 500 12 128 500 12 128 500 0 0% 0 0%
2. Buildings 11 690 400 11 902 400 11 986 200 212 000 1,81% 83 800 0,70%
3. Plant and
9 524 900 13 101 300 12 818 200 3 576 400 37,55% -283 100 -2 16
equipment
4. Tools and trans
1 389 900 1 147 600 2 642 100 -243 300 -17,43% 1 494 500 130,23%
assets
5. Prepaid expenses
0 671 100 0 671 100 100% 0 0
for tangible assets
6. Assets under
4 037 400 1 191 600 135 000 -2 845 800 -70,49% -1 056 600 -88,67
construction
III Long-term
0 0 1 142 600 0 0 1 142 600 100
financial
IV Receivables 13 600 13 500 14 300 -100 -0,74 800 5,93%
Current assets 37 833 200 40 369 700 32 462 100 2 536 500 6,70% -7 907 600 -19,59%
I Stocks 13 287 000 10 477 000 15 707 000 -2 810 000 -21,15% 5 230 000 49,92%
II Receivable 21 734 500 25 830 600 12 859 400 4 096 100 18,85% -13 241 200 -50,22
III Short-term
726 600 2 301 200 3 636 400 1 574 600 216,70% 1 335 200 58,02%
financial assets
IV Cash in bank and
2 085 200 1 761 000 259 300 -324 200 -15,54 -1 501 700 -85,28
cash registers
Paid costs of future
2 380 100 829 700 1 443 800 -1 550 400 -65,14 614 100 74,01%
period
TOTAL ASSETS 78 947 000 81 355 500 74 772 700 2 408 500 3,05% -6 582 800 -8,09

Source: Financial data [available at: https://boniteti.bisnode.hr/BoniteteCE/Pages/Com-
pany.aspx?Lang=en-US&Mode=HR&App=HR&CompanyDetailType=Financi
alData&CompanyId=430879&CompanyDetailSubType=FinancniPodatki; access
March 13, 2018]
Non-current assets were 3,67% higher in 2015 than in 2014, and 1,77%
higher in 2016 than in same period in 2015. Short-term assets were 6.70%
higher in 2015 than in 2014, and 19,59% lower in 2016 than in same period in
2015. Total assets were 3,05% higher in 2015 then 2014, and 8,09% lower in
2016 then observed period in 2015.
799
.. Analysis of Passive
Table 2. Analysis of passive of RŽV Čakovec
Absolute Relative Absolute Relative
Name of the position 2014 2015 2016 change change change change
2015/2014 % 2016/2015 %
Capital and reserves 55 069 600 61 808 900 61 597 800 6 739 300 12,23 -211 100 -0,34
Long-term obligations 10 700 9 100 7 500 -1 600 -14,95 - 1 600 -17,58
Short-term obligations 20 918 300 17 038 000 11 763 800 -3 880 300 -18,55 -5 274 200 -30,96
Deferred payment of costs 2 948 500 2 499 500 1 403 600 -449 000 -15,23 -1 095 900 -43,84
TOTAL PASSIVE 78 947 000 81 355 500 74 772 700 2 408 500 3,05% -6 582 800 -8,09%

March 13, 2018]
Capital and reserves had increased in 2015 by 12,23% in regard to 2014

and decreased in 2016 by 0,34% in regard to 2015. Long-term obligations had
decreased in 2015 by 14,95% in regard to 2014, and continued to decrease in
2016 by 17,58% in regard to 2015. Short-term obligations had also decreased
in 2015. by 18,55% in regard to 2014, and decreased in 2016 by 30,96% in
regard to 2015.
.. Analysis Of The Profit And Loss Account

Table 3. Profit and loss account
Profit and Loss change change change change
2014 2015 2016
Account
2015/2014 % 2016/2015 %
Revenues 61 671 400 85 168 700 62 688 300 23 497 300 38,10 -22 480 400 -26,40
Expenses 60 959 800 83 452 000 61 931 200 22 492 200 36,90 -21 520 800 -25,79
Financial revenues 162 400 15 000 20 900 -147 400 -90,76 5 900 39,33
Financial expenses 468 600 136 800 33 300 -331 800 -70,81 -103 500 75,66
TOTAL REVENUES 61 833 800 85 183 700 62 709 300 23 349 900 37,76 -22 474 400 -26,38
TOTAL EXPENSES 61 428 400 83 588 800 61 964 500 22 160 400 39,33 -21 624 300 -25,87
Profit before tax 405 400 1 594 900 744 700 1 189 500 293,41 -850 200 -53,31
Profit tax 0 0 0 0 0 0 0

March 13, 2018]
800
It is evident that revenues had increased in 2015 by 38,10% in regard to
2014, and had keep on increasing in 2016 by 26,40% in regard to 2015. Ex-
penses had accordingly increased in 2015 by 36,90% in regard to 2014, and in
2016 decreased by 25,79% in regard to 2015.
.. Calculation Of Liquidity Indicators

Table 4. Calculation of liquidity indicators
Indicator 2014 2015 2016 standard
Current liquidity coefficient 0,10 0,11 0,03
1. Cash 2 085 200 1 761 000 259 300 1,00
Short-term obligations 20 918 300 17 038 000 11 763 800
Accelerated liquidity coefficient 1,14 1,11 1,12
2. Cash and short-term receivables 23 819 700 18 799 000 13 118 700 >1,00
Short-term liabilities 20 918 300 17 038 000 11 763 800
Current ratio 1,81 2,37 2,76
3. Current assets 37 833 200 40 369 700 32 462 100 >2,00
Sort-term liabilities 20 918 300 17 038 000 11 763 800
Financial stability coefficient 0,71 0,65 0,67
4 Non-current assets 38 733 700 40 156 000 40 866 800 <1,00
Capital and long-term liabilities 55 080 300 61 818 000 61 605 300
Current liquidity coefficient shouldn’t be lower then 1,00 point. Based on

collected data, it can be seen that the coefficient in all observed years is less then
1,00 which indicates that the company has no abitlity to settle its obligations.

3. BUSINESS ANALYSIS OF REMONT I
PROIZVODNJA ŽELJEZNIČKIH VOZILA D.O.O.
SLAVONSKI BROD RPV D.O.O.
Remont i proizvodnja željezničkih vozila d.o.o. Slavonski Brod is one of 16
subsidary companies fully owned by Croatian Railways (HŽ). Its production
and service activities are largely related to Croatian Railways (HŽ).
801
.. Analysis of Assets
Table 5. Analysis of assets of RPV d.o.o
Name of the position 2014 2015 2016 Absolute Relative Absolute Relative
change change change change
2015/2014 % 2016/2015 %
Non-current Assets 16 519 000 16 008 000 15 408 700 -511 000 -3,09 -599 300 -3,00
1. Lot 3 809 800 3 809 000 3 809 000 0 0 0 0
2. Buildings 7 684 300 7 098 500 6 989 500 -585 800 -7,00 -109 000 -1,00
3. Plant and equipment 2 955 900 3 250 100 2 718 900 294 200 10,00 -531 200 -16,00
4. Tools and trans assets 2 069 000 1 849 700 1 850 700 -219 300 -10,00 1 000 0
Short-term assets 19 826 000 22 896 300 18 875 000 3 070 300 16,00 -4 021 300 -17,00
1. Stocks 3 522 700 4 085 300 4 250 900 562 600 16,00 165 600 4,00
2. Receivables 14 968 000 18 091 100 14 267 900 3 123 100 21,00 -3 823 200 -21,00
3. Cash in bank 1 335 300 720 000 356 200 -615 300 -46,00 -363 800 -50,00
TOTAL ASSETS 36 345 000 38 904 300 34 283 700 2 559 300 7,00 -4 620 600 -11,00

pany.aspx?Lang=en-US&Mode=HR&App=HR&CompanyId=470438&Compa
nyDetailType=FinancialData&CompanyDetailSubType=FinancniPodatki; access
March 14, 2018]
Non-current assets is lower in 2015 by 3,09% in regard to 2014. It’s also

lower in 2016 by 3,00% in regard to 2015. Short-term assets is higher in 2015
by 16,00% in regard to 2014, and lower by 17,00% in 2016 in regard to 2015.
Total assets is 7,00% higher in 2015 in regard to 2014, and lower in 2016 by
11% in regard to 2015.
.. Analysis Of Passive

Table 6. Analysis of passive of RPV d.o.o.
Name of the position 2014 2015 2016 change change change change
2015/2014 % 2016/2015 %
Capital and reserves 27 566 100 28 064 500 28 191 200 498 400 2,00 126 700 1,00
Long-term provisions 535 700 1 043 300 617 900 507 600 95,00 -425 400 -40,00
Long-term obligations 0 0 109 800 0 0 109 800 0
Short-term obligations 7 879 800 9 431 900 5 203 300 1 552 100 20,00 -4 228 600 -44,00
Deferred payment of
363 400 364 600 161 500 1 200 1,00 -203 100 -55,00
costs
TOTAL PASSIVE 36 345 000 38 904 300 34 283 700 2 559 300 7,00 -4 620 600 -11,00

March 14, 2018]
802
Capital and reserves had increased in 2015 by 2,00% in regard to 2014, and
continued to increase in 2016 by 1,00% in regard to 2015. Long-term obli-
gations had not been recorded in 2014 and 2015, but had increased in 2016.
Short-term obligations had increased in 2015 by 20,00% in regard to 2014, and
decreased in 2016 by 44% in regard to 2015.
.. Analysis Of The Profit And Loss Account

Table 7. Profit and loss account of RPV d.o.o.
Apsolutna Relativna Apsolutna Relativna
Name of the
2014 2015 2016 Promjena promjena promjena promjena
position
2015/2014 % 2016/2015 %
Revenues 35 594 100 41 068 800 30 993 500 5 474 700 16,00 -10 075 300 -24,00
Expenses 35 190 500 40 287 400 30 993 500 5 096 900 15,00 -9 293 900 -23,00
Financial revenues 39 800 11 200 1 500 -28 600 -71,00 -9 700 -86,00
Financial expenses 241 900 181 100 101 900 -60 800 -25,00 -79 200 -43,00
Total revenues 35 633 800 41 080 100 30 995 000 5 446 300 16,00 -10 085 100 -24,00
Total expenses 35 432 400 40 468 500 30 832 100 5 036 100 15,00 -9 636 400 -23,00
Profit before tax 201 400 611 600 162 900 410 200 204,00 -448 700 -73,00
Profit tax 41 100 113 200 36 200 72 100 176,00 -77 000 -68,00

March 14, 2018]
Revenues had increased in 2015 by 16,00% in regard to 2014, and de-

creased in 2016 by 24,00% in regard to 2015. Expenses had increased in 2015

by 15,00% in regard to 2014, and accordingly decreased in 2016 by 23,00% in
regard to 2015. Total revenues had increased in 2015 by 16,00%, while they had
decresed by 24,00% in 2016 in regard to 2015. Total expenses had increase in
2015 by 15,00%, and decreased in 2016 by 23,00% in regard to 2015.
803
.. Calculation Of Liquidity Indicators
Table 8. Calculation of liquidity indicators
Indicator 2014 2015 2016 standard
Current liquidity coefficient 0,17 0,08 0,07
1 Cash 1 335 300 720 000 356 200 1,00
Short-term obligations 7 879 800 9 431 900 5 203 300
Accelerated liquidity coefficient 2,07 2,00 2,81
2 Cash and short-term receivables 16 303 300 18 811 100 14 624 100 > 1,00
Short-term liabilities 7 879 800 9 431 900 5 203 300
Current ratio 2,52 2,43 3,63
>2,00
3 Current assets 19 826 000 22 896 300 18 875 000

Sort-term liabilities 7 879 800 9 431 900 5 203 300
Financial stability coefficient 0,60 0,57 0,54
4 Non-current assets 16 519 000 16 008 000 15 408 700 < 1,00
Capital and long-term liabilities 27 566 100 28 064 500 28 809 100
Current liquidity coefficient shouldn’t be lower then 1,00 points. Accord-

ingly to data from Table 8. it’s evident that company currently doesn’t have abil-
ity to settle its obligations.
4. CONCLUSION
Financial statements are business documents that provide company’s busi-
ness financial result activities to persons, organizations and institutions outside
the company, and users within the company. Financial statements are publicly
available and are published on the pages of the Trade Register and on FINA
pages as a publication. The analysis of financial statements is part of the busi-
ness analysis that is being conducted to acquaint the economic and financial
strength of the company and possible directions in the further development of
the company. The aim of the research in this paper is to study the business of
two state-owned companies through a horizontal and vertical analysis. Hori-
zontal analysis is an analysis of financial statements that allows comparing data
over a longer period of time to detect the tendencies and dynamics of changes in
absolute and relative amounts of key positions in the Balance Sheet in the cur-
rent period related to the previous year/s. Vertical analysis compares financial
data in one year. Paper analyzes two companies whose business depends on the
operations of the Croatian Railways (HŽ), as they deal with the maintenance
and overhaul of the business infrastructure of the Croatian Railways (HŽ).
804
Horizontal and vertical analysis of the Radionica željezničkih vozila Čakovec
d.o.o and Remont željezničkih vozila Slavonski Brod d.o.o. came to a conclu-
sion. These two companies are deeply tied and dependent to the total business
of Croatian Railways (HŽ). Liquidity of these companies and their future busi-
ness development is uncertain. Companies have not developed independence
and distinctiveness in the market, their business is deeply dependent on the
budget of the Republic of Croatia. Positive results are only maintained thanks
to the assets inherited from the former social enterprises, with constant reduc-
tion in the number of employees working on the positive and minimum profit
margins. It is noticeable that companies should turn to new technologies and
new projects because decrease in their gross products will quickly cause decline
in in their revenue, which will result in negative financial results and losses.
Privatization of Croatian Railways will create the prerequisites for the inde-
pendent development of the observed companies and necessarily adaptation to
global market conditions.
REFERENCES
Abramović, K., Tominac Broz, S., Cutvarić, M., Čevizović, I., (2008). Primjena hrvatskih
standarda financijskih izvještaja, RRiF plus d.o.o., Zagreb
Brekalo, F., (2007). Revizija financijskih izvještaja, Zgombić i Partneri d.o.o., Zagreb
Čuveljak, J., (2012). O predstečajnoj nagodbi prema Zakonu o financijskom poslovanju i
predstečajnoj nagodbi, Pravo i porezi, br. 10
Garofulić, A., (2013). Plan financijskog i poslovnog restrukturiranja, Financije pravo i porezi,
br. 6
Rakijašić, J., (2012). HSFI, TEB, Zagreb INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Zakon o financijskom poslovanju i predstečajnoj nagodbi, Narodne novine 108/12, 144/12,
81/13, 112/13, [available at: http://www.fina.hr/Default.aspx?sec=1550 access
March 13, 2018]
Žagar, K., Mamić Sačer, I., Sever, S., Žager, L., (2008). Analiza financijskih izvještaja MAS-
MEDIA d.o.o. Zagreb
805
DIE BEHANDLUNG VON
KONZERNUMLAGEN  PROBLEME
IN DER PRAXIS
Markus HÄFELE, WP/ StB Prof. Dr. jur.

Fakultät für Wirtschaft und Recht
Hochschule Pforzheim
E-mail: markus.haefele@hs-pforzheim.de
Markus Häfele Sarah Katharina Stiegeler: DIE BEHANDLUNG VON KONZERNUMLAGEN – PROBLEME IN DER PRAXIS
Sarah Katharina STIEGELER

Fakultät für Wirtschaft und Recht
E-mail: stiegele@hs-pforzheim.de
Abstract
With the latest modification of the German commercial law (ger. “Bilanzrich-
tlinie-Umsetzungsgesetz; BilRUG) the redefinition of „sales revenues“ came
up. This means, that sales revenues no longer only result out of “ordinary busi-
ness” and “typical products or services”. These changes have a huge impact
in practice, because they could have some implications on the income state-
ments of companies. One special issue with different opinions of experts is the
accounting treatment of group-contributions. It depends on the consideration
of every individual case to get an opinion on how the group-contribution is
treated. Generally, there exist different opinions on the treatment of group-
contributions – the literature and the HFA, which are discussed critically in
the following.
Key words: products, services, problems, practice
JEL Classification: L17, H27
806
1. DIE BEHANDLUNG VON KONZERNUMLAGEN
IM RAHMEN VON KONZERNINTERNEN
DIENSTLEISTUNGEN NACH BILRUG
.. Problemstellung
Bei Konzernumlagen handelt es sich um „ein vereinfachtes Verfahren zur
pauschalen Abrechnung von Dienstleistungen im Konzern“ (Engler, 2011:
281). Durch den Wegfall der Begrenzung der gewöhnlichen Geschäftstätigkeit
innerhalb der Umsatzdefinition des § 277 Abs. 1 HGB können künftig Er-
träge aus Konzernumlageverträgen als Umsatzerlöse ausgewiesen werden, so-
fern eine Gegenleistung für die Erbringung konzerninterner Dienstleistungen
vorliegt. Reine Umverteilungen, welche sich aus dem Außenverhältnis ergeben,
oder aus einem Gesellschafterverhältnis, sind hingegen auch künftig unter den
sonstigen betrieblichen Erträgen zu subsumieren. Die Voraussetzung ergibt
sich auch aus dem Gesetzeswortlaut, wonach der Ertrag aus der Erbringung
einer Dienstleistung hervorgehen muss und nicht durch einen anderen Zusam-
menhang veranlasst wurde (Hartgarten und Schieler, 2017: 299). Die Behand-
lung von Konzernumlagen gilt aufgrund der Neudefinition des § 277 Abs.1
HGB durch das BilRUG als umstritten. Sie können oftmals nicht pauschal den
Umsatzerlösen bzw. den sonstigen betrieblichen Erträgen zugeordnet werden,
weshalb eine genaue Analyse des Sachverhalts und der zugrunde liegenden Ver-
träge notwendig ist (Richter, 2015: 387).
.. Behandlung von Konzernumlagen im Rahmen von INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
konzernnahen Dienstleistungen in der Literatur
Bei Erlösen aus der Erbringung von Dienstleistungen muss bei einer sol-
chen Umlage ein konkreter Leistungsaustausch stattfinden, um sie unter die
Umsatzerlöse zu subsumieren (Richter, 2015: 387). Konzernumlagen gehören
jedoch meist nicht zum typischen Leistungsangebot des bilanzierenden Unter-
nehmens. Aufgrund dessen wurden die Erlöse daraus bisher unter den sonsti-
gen betrieblichen Erträgen erfasst. Dies wird künftig nur noch so sein, wenn
kein konkreter Leistungsaustausch vorliegt, wie bei Managementumlagen für
Konzernführungsaufgaben (Wulf und Roß, 2015: 741). Somit gilt auch hier
das allgemeine Kriterium für Erlöse aus Dienstleistungen, dass die Leistung (in
diesem Fall die Konzernumlage) um der Gegenleistung Willen bewirkt werden
807
muss („do ut des“) und umgekehrt (Russ, Jansen and Götze, 2015: 121). Die
nötige Abgrenzung bringt jedoch das Problem mit sich, dass bestimmte Kon-
zernumlagen nicht direkt kategorisiert werden können. Als typisches Beispiel
kann für ein solches Abgrenzungsproblem eine Umlage für den beim Mutter-
unternehmen angestellten Geschäftsführer, welcher beim Tochterunternehmen
eingesetzt wird, genannt werden. Inhalt dieser Umlage kann die komplette Ge-
schäftsführervergütung oder auch zusätzliche Vergütungen, wie beispielsweise
Pensionszusagen, sein. Hierbei stellt die Überlassung des Geschäftsführers eine
Mitarbeiterüberlassung dar, welcher ein Leistungsaustausch zugrunde liegt.
Dies wird jedoch kombiniert mit den Interessen des Gesellschafters, was eine
eindeutige Zuordnung somit nicht mehr ermöglicht und einen Graubereich
darstellt (Richter, 2015: 387).
Außer Frage steht, dass ohne konkreten Leistungsaustausch eine Zuord-
nung zu den Umsatzerlösen ausscheidet. Dies ist beispielsweise der Fall bei in-
nerkonzernlichen kalkulatorischen Verrechnungen und reinen Verrechnungen
von Umlagen, wie bei einer Versicherungsdeckung (Zwirner, 2015: 543). Auch
Erlöse für
• Die Übernahme von Buchhaltungstätigkeiten und Beratungsleistungen,
• die Mitarbeiterüberlassung und
• Nutzungsrechte an Patenten oder auch Lizenzen und Marken
stellen nach BilRUG Umsatzerlöse dar, wenn diese nicht in erster Linie in der
Funktion als Gesellschafter erbracht und auch von Dritten am Markt (Oser,
Philippsen und Sultana, 2017: 1099) angeboten werden (Richter, 2015: 387).
Als Übersicht, welche Konzernumlagen zu Umsatzerlösen führen, dient Ta-
belle 1.
808
Tabelle. 1: Einordnung der Konzernumlagen, Eigendarstellung
Konzernumlagen
Konzernumlage mit Umsatzcharakter Konzernumlage ohne Umsatzcharakter
Merkmal: Konkreter Leistungsaustausch vorhanden. Merkmal: Kein konkreter Leistungsaustausch vorhanden.
Beispiele Beispiele
Beratung Fehlender konkreter Leistungsaustausch
Buchführungstätigkeiten Verbrauchsunabhängige Beträge mit Ausnahme des
Forkschung und Entwicklung (F&E) Take-or-Pay
Personalgestellung Reine Kostenumlagen ohne eigene Dienstleistung
Nutzungsrechte Sanierungszuschüsse
Marktforschung Haftungsvergütungen
Quelle: Richter (2016: 22)
.. Behandlung von Konzernumlagen nach Meinung des HFA

Mit der Problematik der Konzernumlagen im weiteren Sinne (i.w.S.) hat
sich auch der Hauptfachausschuss des IDW (HFA) beschäftigt, welcher einer
differenzierter Meinung folgt. So ist der Anspruch aus der Umlage und die da-
ran knüpfenden Erlöse als maßgeblich anzusehen. Die Meinung des HFA stim-
mt mit der h.M. in der Literatur überein, wobei für die Klassifizierung als Um-
satzerlöse ein konkreter Leistungsaustausch vorliegen muss. Dieser entsteht
im vom HFA genannten Beispiel bei Erbringungen von Dienstleistungen einer
Konzerngesellschaft für eine andere in den Konzern eingebundene Gesell-
schaft. Diese Dienstleitungen können beispielsweise die Buchführung als auch
die Marktforschung durch ein Shared Service Center darstellen. Der HFA er-
wähnt hierbei auch die Bedeutungslosigkeit der Tatsache, ob die Leistungen ge-
bündelt über eine Umlage vergütet werden, oder einzeln. Werden hingegen die
im Konzernaußenverhältnis sich ergebenen Aufwendungen einer reinen Um-
verteilung, von einer Konzerngesellschaft an eine andere Konzerngesellschaft
weiterbelastet, ohne dass die entlastete Konzerngesellschaft eine selbstständige
Dienstleistung erbringt, werden hierdurch bei eben dieser Gesellschaft keine
Umsatzerlöse i.S.d. § 277 Abs.1 HGB realisiert (IDW, 2016: 9).
809
2. PRAXISBEISPIELE ZUR
UMSATZERLÖSABGRENZUNG
.. Praxisfall  – IT-Leistungen mit Vergütung unter

Verwendung des konzerninternen CashPooling-Systems
Sachverhalt:
Die A-GmbH1 (A) als auch die B-GmbH (B) sind Gesellschaften eines Konzerns.
Da die A eine auf IT spezialisierte Gesellschaft ist, erbringt sie die von B angeforder-
ten Leistungen für eine Reparatur der Server an sie. Der konzerninterne Dienstleis-
tungsvertrag sieht eine Abrechnung dieser Dienstleistung in Höhe von (i.H.v.) EUR
10.000 von der Muttergesellschaft des Konzerns (M) auf Rechnung der A vor. Für
die Abrechnungstätigkeit erhält die Mutter 5 %, somit EUR 500, des vereinbarten
Entgelts. Die M hat auf den Betrag keinerlei Einfluss, da dieser zwischen A und B
festgelegt wird. Er wird der B auch zusätzlich zum Betrag für die IT-Leistung der
Serverreparatur in Rechnung gestellt und eine Zahlung über EUR 10.500 erfolgt
über das konzerninterne Cash-Pooling-System, wodurch innerhalb des Konzerns für
alle Gesellschaften eine langfristige Liquidität sichergestellt wird (Hargarten und
Schieler, 2017: 301).
Durchführung der Abrechnung
Die M erbringt durch die Abrechnungstätigkeit eine Dienstleistung gegen-
über der B. Dies stellt eine Dienstleistung dar, welche zweifelsfrei i.H.v. EUR
500 nach § 277 Abs.1 HGB unter den Umsatzerlösen auszuweisen ist.
IT basierte Dienstleistung (Serverreparatur)
Fraglich ist nun, ob die von der M an die B in Rechnung gestellten IT-
Dienstleistungen als eigene Dienstleistungen (und somit ebenfalls als Um-
satzerlöse) anzusehen sind, mit A als Unterauftragnehmer (Schmidt und Peun,
2018; HGB § 275).
Voraussetzung hierfür wäre die Übernahme der Chancen und Risiken hin-
sichtlich der Dienstleistung seitens der M. Somit ist nachfolgend zu klären,
inwieweit für die M durch die IT-Dienstleistung sowohl Chancen als auch Ri-
siken existieren. Die M führt die Abrechnungstätigkeit als Dienstleistung aus
und erhält hierfür eine vorab festgelegte Vergütung i.H.v. 5 %, abhängig vom
1
Abk.: Gesellschaft mit beschränkter Haftung
810
jeweiligen Entgelt. Dieser Betrag wird jedoch zwischen A und B festgelegt und
die M hat keinerlei Einfluss auf ihn und somit auch nicht auf die Marge. Aus der
Dienstleitung der M resultieren somit keine Chancen. Hinsichtlich der Risiken
ergibt sich für die M ebenfalls eine Beschränkung, da ihre Tätigkeit lediglich in
der Ausführung der Abrechnung liegt. Liquiditätsrisiken bestehen für die M
ebenfalls nicht, da die B Teil des Cash-Pooling-Systems im Konzern ist. Primä-
re vertragsbedingte Leistungspflichten und eventuelle Nacherfüllungspflichten
betreffen ausschließlich die A. Somit ist die M durch ihre Leistung weder we-
sentlichen Chancen noch Risiken ausgesetzt, da die Tätigkeit vielmehr treu-
handähnlichen Charakter besitzt (Hargarten und Schieler, 2017: 301). Eine
Erfassung der Leistung als Umsatzerlös ist somit mangels Voraussetzungen zu
verneinen (Schmidt und Peun, 2018; HGB § 275).
Zusammenfassend ist demnach das Entgelt für die Abrechnungsleistung im
Jahresabschluss der M als Umsatzerlös auszuweisen, während die IT-Leistung
einen durchlaufenden Posten darstellt, welcher die Gewinn- und Verlustrech-
nung im Jahresabschluss der M nicht tangiert (Isele und Pfafftrath, 2011; HGB
§ 277, IDW; 2017).
.. Praxisfall  – Lagerwesen durch konzernexterne

Dienstleistungsgesellschaft
Sachverhalt:
Hinsichtlich der überall gewünschten Kostensenkung einerseits und Rentabil-

itätssteigerung andererseits hat sich die Muttergesellschaft (M) gegenüber den Toch-
tergesellschaften (T) vertraglich verpflichtet, ausnahmslos alle Lagerleistungen zu
erbringen. Hierfür wurde von der M die externe Dienstleistungsgesellschaft (D)
beauftragt. Verwaltungsaufwendungen der M hierfür sind vereinfachungsgemäß zu
vernachlässigen. Die D leitet alle Lager für ein Entgelt i.H.v. EUR 30.000 per an-
num (p.a.). Die Kosten hierfür werden von der M direkt an die T, ohne weitere
Aufschläge, weiterbelastet. Die entsprechenden Verträge mit der M sind dergestalt
formuliert, dass sie sowohl seitens der T bzw. D als auch seitens der M jederzeit
kündbar sind. Bei auftretenden Problemen hinsichtlich der Lager setzen sich die T
direkt in Verbindung mit der D (Hargarten und Schieler, 2017: 300).
Erbringung der Lagerleistungen gegenüber der T
811
Die Erbringung der Lagerleistungen von D gegenüber den T könnten Um-
satzerlöse nach § 277 Abs.1 HGB als Erlöse aus der Erbringung einer Dienst-
leitung darstellen.
Voraussetzung hierfür wäre die Erfüllung der dafür nötigen Tatbestands-
merkmale der Umsatzerlöse, sowie der Dienstleistungscharakter der Leistung.
Um als Umsatzerlöse ausgewiesen zu werden, müsste ein gegenseitiger Leis-
tungsaustausch vorliegen. Zudem dürfte die Erbringung der Leistung nicht als
Gesellschafterleistung erbracht werden (Richter, 2015: 387).
Bei einer Gesellschafterleistung kann die Leistung nicht anderweitig am

Markt von Dritten bezogen werden und wird zusätzlich, wie der Begriff be-
schreibt, in der Eigenschaft als Gesellschafter erbracht. Ein gegenseitiger Leis-
tungsaustausch liegt regelmäßig nicht bei reinen Umverteilungen von Kosten
vor (Richter, 2015: 387). Im ersten Augenblick scheint es so, als würde es sich
im Sachverhalt um eine reine Umverteilung der M auf die T handeln und die
Leistung aus der Gesellschafterstellung erbracht wird. Demnach würden bei-
de Tatbestandsmerkmale für einen gerechtfertigten Ausweis als Umsatzerlöse
nicht zutreffen. Für ein endgültiges Ergebnis, ist jedoch genauer zu prüfen, ob
es sich tatsächlich um eine reine Kostenumverteilung der M auf die T handelt.
Diese würde vorliegen, wenn im Außenverhältnis entstandene Kosten aus-
schließlich umverteilt werden, da die Leistung von einer, oder auch mehrerer, in
einen Konzern eingebundenen Gesellschaften bezahlt wurde und die Leistung
für die anderen in den Konzern eingebundenen Gesellschaften erbracht wird.
Im vorliegenden Sachverhalt ist davon auszugehen, dass auch ohne vorliegende
explizite Willenserklärung zur Beauftragung der D, das mehrstufige Dienstleis-
tungsverhältnis der Vorstellung aller Konzerngesellschaften entspricht, um das
gemeinsame Ziel der angestrebten Kostenersparnis zu erreichen.
Hinsichtlich der Chancen und Risiken der M durch die Beauftragung der
D kommt man zum Ergebnis, dass sich für die M weder Chancen hinsichtlich
eines Gewinnaufschlags mangels Vereinbarung ergeben, noch dass die M we-
sentlichen Risiken dadurch ausgesetzt ist. Diese Annahme resultiert aus dem
Sachverhalt, welcher beschreibt, dass die T sich unmittelbar an die D bei Pro-
blemen wenden. Bei der M wird somit hinsichtlich der Beauftragung der D
lediglich eine Stellung eines „Verteilungsprinzipals“ (Hargarten und Schieler,
2017) eingenommen, so Hargarten/Schieler.
812
Eine reine Kostenumlage ist somit nach Prüfung der Merkmale zu beja-
hen, weshalb die Erträge aus der Weiterbelastung sonstige betriebliche Erträge
darstellen.
Ein Ausweis als durchlaufender Posten im Jahresabschluss wäre aufgrund
der Tatsache, dass die Rechnung der D nicht an die T fakturiert wurden, als
nicht korrekt zu beurteilen.
.. Praxisfall  – Konzerninterner Vertrieb

Sachverhalt:
Zwischen der Muttergesellschaft (M) und der Tochtergesellschaft (T) besteht
ein Dienstleistungsvertrag über den Vertrieb aller Produkte eines Teilgeschäftsbe-
reichs der M. Um diese Betriebsführungsaufgaben zu erfüllen, wurde von der T aus-
schließlich dafür Personal beschäftigt, welches fast alle Aufwendungen konstituiert.
Aufwendungen wie Spesen (Reisekosten) sind vertragsgemäß von der M zu tragen.
Für die Tätigkeit erhält die T von der M ein Fixentgelt i.H.v. EUR 100.000 p.a.
Für die T als auch für die M besteht jeden Monat die Möglichkeit den Vertrag zu
kündigen (Hargarten und Schieler, 2017: 300).
Vertriebstätigkeit der T
Fraglich ist, ob die Vertriebstätigkeit der T die Tatbestandsmerkmale für
einen Ausweis unter den Umsatzerlösen gem. § 277 Abs.1 HGB rechtfertigt.
Um als Umsatzerlöse qualifiziert zu werden, müsste es sich bei dem

Fixentgelt für die Vertriebstätigkeit der T um eine Dienstleistung handeln und
zusätzlich bei dem Aufwendungsersatz, welcher von der M zu tragen ist, um
ein korrespondierendes Dienstleistungsentgelt (Hargarten und Schieler, 2017;
IDW HFA, 2015).
Für eine Umsatzerlösqualifikation dürfte es sich zusätzlich nicht um Auf-
wendungen im Außenverhältnis des Konzerns von der M an die T handeln,
ohne dass die T in diesem Zusammenhang eine eigene Dienstleistung ergibt.
Es könnte sogar auch unter Inanspruchnahme eines Unterauftraggebers er-
folgen (IDW Life, 2015: 671). Dies ist beispielsweise der Fall, wenn im Au-
ßenverhältnis entstandene Kosten nur umverteilt werden, da die Leistung
im Auftrag einer (oder mehrerer) anderer Konzerngesellschaft(en) erwor-
ben wurde und die Leistung direkt vom Leistungserbringer an die andere(n)
813
Konzerngesellschaft(en) erbracht wird. In diesem Beispiel würden die Kosten
somit „für Rechnung des anderen Unternehmens anfallen“ (Schmidt und Peun,
2018; HGB § 275) ohne dabei die Funktion eines durchlaufenden Postens zu
erfüllen und eben nicht Kosten darstellen, welche im Zusammenhang mit der
Leistungserstellung stehen (Schmidt und Peun, 2018; HGB § 275 ).
Im vorliegenden Sachverhalt entstehen die externen Aufwendungen direkt
gegenüber der T. Aus diesem Grund werden sie eine Komponente der Gesamt-
leistung der T, in Beziehung zum Dienstleistungsvertrag gegenüber der M. So-
mit liegt für die Leistung ein Gesamtleistungsentgelt der M gegenüber der T
vor, welches aus den beiden Komponenten Fixvergütung und Aufwendungs-

ersatz besteht. Aufgrund des Sachverhalts gehen Hargarten/Schieler von einer
vertretbaren Qualifikation der Fixvergütung und des Aufwendungsersatzes als
Umsatzerlöse i.S.d. § 277 Abs.1 HGB aus. Die Erhebung eines Gewinnauf-
schlags hat nach deren Ansicht lediglich eine „indikative Wirkung“ für einen
Leistungsaustausch und somit würde der Verzicht des Gewinnaufschlags zu
keinem anderen Ergebnis führen (Hargarten und Schieler, 2017: 301).
Oser, Philippsen und Sultana (2017: 1099) erwähnen in diesem Zusam-
menhang zusätzlich, dass ein einheitliches, marktgerechtes Entgelt die Gesell-
schaft zu einer wie am externen Markt agierenden Dienstleisterin werden lässt,
da die Eigenschaft der Gesellschafterin in den Hintergrund tritt. Somit wäre an
dieser Stelle noch eine Beurteilung des Entgelts notwendig, ob dies die Eigen-
schaften eines marktgerechten Entgelts erfüllt. Marktgerecht kann nach deren
Ansicht jedoch nur ein Entgelt sein, welches zusätzlich zu den Mietaufwend-
ungen auch einen Gewinnzuschlag und gegebenenfalls Kosten für den Ver-
tragsabschluss beinhaltet. Liegt im vorliegenden Sachverhalt die marktübliche
Vergütung bei EUR 200.000 und eine 1:1 Weiterbelastung bei EUR 99.900,
wäre das Entgelt insgesamt (EUR 100.000) unter den sonstigen betrieblichen
Erträgen auszuweisen. Eine Aufteilung eines einheitlichen Entgelts in sonstige
betriebliche Erträge und Umsatzerlöse ist nicht zulässig. Bei einem einheitli-
chen Entgelt, welches (unwesentlich) über einer 1:1 Weiterbelastung ohne
jeglichen Aufschlag liegt, ist dieses nach Oser, Philippsen und Sultana (2017:
1099) insgesamt unter den sonsti-gen betrieblichen Erträgen auszuweisen.
Dem gegenüber steht die Meinung Hargarten/Schieler, wonach der Ausweis
der Fixvergütung und des Aufwendungsersatzes unter den Umsatzerlösen als
vertretbar erscheint. Die Merkmale, dass es sich um einen Leistungsaustausch
814
durch die Erbringung der Dienstleistung und ein dafür anfallendes Entgelt han-
delt, rechtfertigt hier die Qualifikation. Zusätzlich wird nach dieser Ansicht die
Leistung nicht in der Eigenschaft als Gesellschafter erbracht, da sie anderweitig
am Markt beziehbar ist, wie auch von Richter (2015: 387) als Voraussetzung
zu einer Umsatzqualifizierung genannt. Oser, Philippsen und Sultana betonen
im Zusammenhang mit dieser Begründung, dass nicht nur darauf abzustellen
ist, ob die empfangene Leistung vom Tochterunternehmen auch am Markt be-
ziehbar gewesen wäre, sondern ob zusätzlich das Entgelt einem Drittvergleich
entsprechen würde. Dieser Aspekt wurde von Hargarten und Schieler nicht the-
matisiert. Oser, Philippsen und Sultana führen bei der Begründung ihrer Mei-
nung auf, dass in diesem Fall die Personalbereitstellung zwar eine Dienstleis-
tung erbracht wird und somit keine „reine Durchleitungsstelle extern bezogener
Leistungen vorliegt“, im Drittvergleich jedoch zusätzlich Kosten für Lohn- oder
Gehaltsabrechnungen in Rechnung gestellt werden und keine reine Weiterbe-
lastung ohne Aufschlag (Oser, Philippsen und Sultana; 2017: 1098). Folglich
ist für sie die Leistung nicht „um der Gegenleistung Willen“ (Russ, Jansse und
Götze, 2015: 121) erbracht worden und somit durch das Gesellschaftsverhält-
nis veranlasst (Oser, Philippsen und Sultana; 2017: 1098).
Somit herrscht in der Literatur hinsichtlich des korrekten Ausweises Mei-
nungsverschiedenheit. Der Auffassung von Oser, Philippsen und Sultana ist zu
folgen. Ein Drittvergleich für die Höhe des Entgelts ist bei der Beurteilung mit
einzubeziehen, da Dritte üblicherweise ein marktgerechtes Entgelt verlangen
würden. Eine Weiterbelastung, welche nahezu einer 1:1 Weiterbelastung ent-
spricht, schafft so die Vermutung einer Veranlassung durch das Gesellschafts-
verhältnis. Als alleiniger Indikator ist der Drittvergleich allerdings abzulehnen INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
(Schmidt und Peun, 2018; HGB § 275).
3. KONZERNUMLAGEN AN
TOCHTERUNTERNEHMEN BEI EINER
HOLDINGGESELLSCHAFT
Der Unterschied zu den oben genannten Praxisfällen liegt bei einer Hold-
ing-Gesellschaft darin, dass ihre typische Geschäftstätigkeit im Halten und
Verwalten von Beteiligungen liegt. Es ist nicht unüblich, dass Holding-Gesell-
schaften für ihre Tochtergesellschaften Leistungen erbringen, wie beispiels-
weise Rechts- oder Beratungsleistungen. Vor Inkrafttreten des BilRUG konnte
815
die Holding-Gesellschaft auch aus den Dienstleistungen Umsatzerlöse erziel-
en, sofern diese zu ihrer gewöhnlichen Geschäftstätigkeit zählten. Typischer-
weise wurde das Kriterium jedoch nicht erfüllt, weshalb die Weiterbelastung
hauptsächlich zur Erzielung von sonstigen betrieblichen Erträgen führte Oser,
Philippsen und Sultana, 2017: 1097).
Bei den Holding-Gesellschaften werden oftmals die im Konzern benötigten
Leistungen zentralisiert. Die daraus resultierenden internen oder externen Auf-
wendungen werden anschließend über Konzernumlagen an die Tochtergesell-
schaften, welche sich an den Dienstleistungen bedienen, weiterbelastet.
Nach § 277 Abs.1 HGB in der Fassung des BilRUG sind auch bei Konzern-
en mit einer Holding-Gesellschaft die bereits dargelegten Kriterien des Leis-
tungsaustausches und der Gegenleistung von Bedeutung. Nicht mehr jedoch
die betriebstypische Eigenschaft der Erbringung von eben diesen Dienstleis-
tungen Oser, Philippsen und Sultana, 2017: 1098).
Dass die Behandlung von Konzernumlagen bei Holding-Gesellschaften,
wie bei den oben genannten Praxisfällen zu beurteilen ist, soll das nachfolgende
Beispiel verdeutlichen:
Sachverhalt:
Die Holding-Gesellschaft (H) schließt mit dem Eigentümer (E) eines neu er-
richteten Gebäudekomplexes einen Mietvertrag ab, welcher die Untervermietung
einzelner Stockwerke des Gebäudes an drei Tochtergesellschaften (T) vorsieht. Es
wurde sich darauf geeinigt, dass der Mietvertrag nicht direkt über die T’s läuft,
sondern über die H, da der Eigentümer somit einen festen Vertragspartner hat
und die T’s aus der starken Verhandlungsposition der H im Rahmen von geringen
Mietpreisen von EUR 120.000 statt EUR 200.000 profitieren. Die von der H an
den E vertragsgemäß zu entrichtende Miete wird von der H direkt an die T’s, ohne
weiteren Gewinnaufschlag, weiterbelastet.
Vor Inkrafttreten des BilRUG hat die H die Mieterträge in der Buchhaltung als
sonstige betriebliche Erträge erfasst (Beispiel in Anlehnung Oser, Philippsen und
Sultana, 2017: 1097).
Fraglich ist nun, ob die Mietaufwendungen die Voraussetzungen für einen
Ausweis unter den Umsatzerlösen bei der H durch die Neudefinition der Um-
satzerlöse erfüllen.
816
Um die Voraussetzung eines Leistungsaustauschs zwischen der H und
den Tochtergesellschaften zu erfüllen, nennen Oser/Philippsen/Sultana die
nachfolgenden Voraussetzungen auch im Falle einer involvierten Holding als
unabdingbar:
• Eine aktive Tätigkeit durch das bilanzierende Unternehmen,
• ein am Markt erzieltes Leistungsentgelt (auch konzerninterner Markt
möglich),
• das Fehlen einer primären Veranlassung des Entgelts durch das
Gesellschaftsverhältnis.
So muss ein Verursachungszusammenhang zwischen der Leistung und ih-
rer Gegenleistung gewährleistet sein, was als Voraussetzung für einen Ausweis
unter den Umsatzerlösen gilt. Dies ist erfüllt, wenn die H ein Entgelt erhält
und selbst wertschöpfend tätig ist. Es trifft nach Meinung von Oser/Philippsen/
Sultana ebenfalls zu, wenn das von der Tochtergesellschaft gezahlte Entgelt ei-
nem Drittvergleich standhält, was eine negative Abgrenzung zum Punkt „Ver-
anlassung durch das Gesellschaftsverhältnis“ darstellt (Hargarten und Schieler,
2017: 301). Auch in diesem Beispiel agiert die Holding als reines „Verteilungs-
prinzipal“ (Hargarten und Schieler, 2017: 301), da die H weder an einer eige-
nen Nutzung des gemieteten Gebäudes interessiert ist, noch im Rahmen der
Miete anfallende weitere Kosten oder gar einen Gewinnaufschlag den Tochter-
gesellschaften in Rechnung setzt (Oser, Philippsen und Sultana, 2017: 1098).
Hinsichtlich der o.g. Voraussetzungen trifft das erste Merkmal der aktiven

Tätigkeit durch die Vermietung nicht zu, da die H keine Leistung „um der Ge-
genleistung Willen“ (Russ, Jansen and Götze, 2015: 121) erbringt. Zusätzlich
dazu, ist das zweite Merkmal des am Markt erzielten Entgelts ebenfalls zu
verneinen, da es sich wie im Sachverhalt dargestellt um eine reine Kostener-
stattung handelt. Somit stellen die Mietaufwendungen auch weiterhin mangels
Voraussetzungen sonstige betriebliche Erträge dar (Schmidt und Peun, 2018;
HGB § 275).
4. FAZIT
Kostenumlagen aus konzerninternen Dienstleistungen bedürfen einer be-
sonderen Prüfung. Die genaue Abgrenzung zwischen einem Ausweis als son-
817
stigen betrieblichen Erträgen bzw. Umsatzerlösen ist von großer Bedeutung, da
sie oftmals einen Graubereich darstellt (Richter, 2015: 387).
Für eine Klassifizierung als Umsatzerlöse i.S.d. § 277 Abs. HGB n.F. muss
mit der konzerninternen Dienstleistung ein Leistungsaustausch stattfinden.
Reine Umverteilungen oder Umlagen auf Basis des Gesellschaftsverhältnisses
sind folglich den sonstigen betrieblichen Erträgen zu subsumieren. Bei einer
treuhänderischen bzw. agentenähnlichen Stellung der Konzerngesellschaft sind
die Erträge aus der konzerninternen Dienstleitung als durchlaufender Posten
zu behandeln, welcher die Gewinn-und Verlustrechnung der Gesellschaft nicht
tangiert.
Tabelle 2. Tabellarische Darstellung der Einordnung von Erlösen bei Konzer-

numlagecharakter, Eigendarstellung
Sonstige Durchlaufender
Umsatzerlöse
betriebliche Erträge Posten
Leistungsaustausch   
Reine Umverteilung   
Umlagen auf Basis des Gesellschaftsverhältnisses   
Treuhänderische bzw. agentenähnliche Stellung   
Ob ein o.g. Leistungsaustausch vorliegt, oder die Leistung aus der Gesell-
schafterstellung erbracht wurde, ist auf Grundlage der Tatsache zu beurteilen,
ob die Leistung auch am Markt durch Dritte angeboten wird und somit die
Möglichkeit für die zahlende Konzerngesellschaft bestehen würde, die Leis-
tung am Markt zu beziehen.
Weiter kann der Leistungsaustausch auch, wie in Tabelle 8 zu sehen, von ein-
er reinen Umverteilung abgegrenzt werden. Hierbei dient zur Einordnung das
Kriterium, ob die Aufwendungen aus dem Außenverhältnis sowohl chancen-
als auch risikoneutral weiterbelastet wurden (Hargarten und Schieler, 2017:
302). Nicht zu vernachlässigen ist nach Oser/Philippsen/Sultana ebenfalls die
Höhe des Entgelts im Drittvergleich, was eine Abgrenzung zu einer durch das
Gesellschaftsverhältnis erbrachten Leistung ermöglicht (Oser, Philippsen und
Sultana, 2017: 1098).
Die einzelnen Komponenten, welche das Entgelt ergeben, sind in die Gesa-
mtbeurteilung mit einzubeziehen. Ebenfalls ist der Drittvergleich eines Entgelts
in der Würdigung des Sachverhalts zu berücksichtigen, d. h. ob eine Leistung
818
aus dem Gesellschaftsverhältnis erbracht wurde, da die Gesellschaft im Nor-
malfall allein aus ertragsteuerlichen Gründen (verdeckte Gewinnausschüttung)
ein angemessenes Entgelt verlangen würde.
LITERATURVERZEICHNIS
Engler, G. (2011) Verrechnungspreise, in: Herausgeber (Hrsg.) Vöge-le/Borstell/Engler, 3.
Auflage, C.H.Beck Verlag, München.
Hargarten, S. und Schieler, F. (2017) Bilanzierung von Erträgen aus konzerninternen Di-
enstleistungen nach BilRUG – Lösungsvorschläge zur Umsatzerlösabgrenzung, in:
Betriebsberater (BB) 2017, Heft 06, S.297-306.
IDW (2016) IDW Info Paket – Zusammenstellung der HFA-Sitzungsergebnisse zu
einzelnen Anwendungsfragen im Zusammenhang mit dem HGB i.d.F. des Bilanz-
richtlinie-Umsetzungsgesetz (BilRUG), S. 1-21, IDW Verlag, Düsseldorf.
IDW (2017) WP-Handbuch – Wirtschaftsprüfung und Rech-nungslgeung (Hauptband),
15. Auflage 2017, IDW Verlag, Düsseldorf.
Oser, P.; Philippsen, K. und Sul-tana, A. (2017) Konzernumlagen an Tochterunternehmen
in der GuV einer Holding-Gesellschaft nach BilRUG, in: Der Betrieb, Heft 20 vom
19.05.2017, S. 1097-1100.
Richter, F. (2015) Anpassung der Umsatzerlösdefinition durch das BilRUG, in: Der Betrieb,
Heft 08 vom 20.02.2015, S. 385-389.
Russ, W.; Janssen, C. und Götze, T. (2015) BilRUG – Auswirkungen auf das deutsche Bi-
lanz-recht, 1.Auflage, IDW Verlag, Düsseldorf.
Wulf, I. (2015) Änderungen der GuV-Struktur und Neudefinition der Umsatzerlöse durch
das BilRUG, in: Deutsche Steuer- Zeitung (DStZ) 2015, Nr. 19, S. 736-746.
Zwirner, C. (2015) Neudefinition der Umsatzerlöse nach BilRUG: Aus-wirkungen der neu-
en Abgrenzung für die Praxis, in: BC 2015, Heft 12, S.525-580.
HGB a.F. In: Wichtige Wirtschaftsgesetze, 27. Auflage, nwb Verlag, Herne. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
HGB n.F. In: Wichtige Wirtschaftsgesetze, 30. Auflage, nwb Verlag, Herne.
Isele, H. und Pfaffrath, E. In: Handbuch der Rechnungslegung Einzelabschluss, (Hrsg.)
Küting /Weber, Stand: Februar 2011, HGB § 277 Rn. 47, Schäffer-Poeschel Verlag,
Stuttgart.,
Schmidt, S. und Peun, M. (2016) In: Beck‘scher Bilanz-Kommentar § 275 HGB, 11. Auflage
2018, Rn. 47-55, sowie 90-112.
819
Public
Economics
PUBLIC PROCUREMENT STRATEGY
 POLICY REMARKS AND
CHALLENGES FOR THE REPUBLIC
OF CROATIA
Mladen VEDRIŠ, PhD, Full Professor

University of Zagreb, Faculty of Law
E-mail: mladen.vedris@pravo.hr
Nataša DRVENKAR, PhD, Assistant Professor

E-mail: natasa.drvenkar@efos.hr
Damir BUTKOVIĆ, PhD Student

E-mail: butkovic.db@gmail.com
Abstract
Public procurement is a mechanism that allows governments to secure the pro-
curement of goods, works and services they need to function, while at the same
time observing principles like transparency and equal opportunities. As well
as being a necessary function and part of the public sector, public procurement
can also be a generator of economic activities in its own right. If we consider
the fact that public procurement makes up 14% of GDP at European Union
level (European Commission, 2017a), it is evident that it represents a huge
market which is, as a rule, predictable and generates enough advance informa-
tion for efficient planning and management. It is beyond doubt that public
procurement is recognised as a tool that governments use to guide and develop
certain sectors within the economic policies that they implement. Also, it is no
wonder that a number of strategic goals of the European Union are targeted
823
at strengthening administrative capacities within the public sector that can use
Mladen Vedriš  Nataša Drvenkar  Damir Butković: PUBLIC PROCUREMENT STRATEGY – POLICY REMARKS AND CHALLENGES FOR THE REPUBLIC...
public procurement to boost employment, economic growth, investments and

to stimulate the development of an economy that is innovative, energy-efficient
and socially inclusive in the long run.
The aim of this paper is to use recent domestic and foreign literature, docu-
ments and legal rules and regulations to analyse 1) the position of the Republic
of Croatia in respect to the fulfilment of the strategic goals of the European
Union; 2) the capacities it possesses to reach those goals and 3) make recom-
mendations for the improvement and upgrading of the existing system.
Key words: public procurement, public management, strategic planning, influ-
ence of public procurement on economy, administrative capacities
1. INTRODUCTION
The financial and economic crisis “has wiped out years of economic and so-
cial progress and exposed structural weaknesses in Europe’s economy” (Euro-
pean Commission, 2010a) as well as worldwide and intensified global strategic
challenges. With the launch of the Europe 2020 Strategy for Smart, Sustain-
able and Inclusive Growth, sustainable and inclusive economic development
have been recognised as key elements for Europe’s long-term competitiveness
(more on Strategy: European Commission, 2010a; Marlier and Natali, 2010).
As governments are expected “to do more with less”, public procurement has
witnessed considerable reform activity towards the pursuit of various socio-eco-
nomic goals. It has been recognised that demand coming from the public purse
can significantly affect and strengthen markets for innovative, environmentally
and socially responsible goods, services and works (European Commission,
2015a). As Defra (2006 in: Yeow, Uyarra and Gee, 2011b) notes, “the sheer size
of public sector demand, particularly in environmentally sensitive areas such
as transport, energy, food and paper confers obvious potential for impact.” The
introduction of new EU-wide public procurement rules aims at strategic use of
public procurement in achieving common societal goals, in particular in terms
of increasing public resource efficiency, promoting innovation, employment and
environmental responsibility (Čusek-Slunjski, 2016; Grandia and Meehan,
2017). Grandia and Meehan (2017) also highlight the importance of reducing
long-term unemployment, improving the working conditions across the (inter-
824
national) supply chain, fostering innovation, creating opportunities for small
and medium-sized enterprises and local businesses, and stimulating sustainable
goods and services markets, thereby making public procurement an important
public sector management tool. To achieve the goals of generating a single pro-
curement market, public procurement legislation in the EU is governed by the
basic principles of equal treatment and non-discrimination, transparency, pro-
portionality and mutual recognition (European Commission, 2015a). In early
2014, three new directives on public procurement were adopted, two revising
existing directives on general procurement and procurement in the utilities sec-
tor and one new directive on concession contracts. While the tenets of public
procurement regulation have remained mostly unchanged, the 2014 directives
have had important implications for the strategic use of public procurement,
and the introduction of strategic objectives has promoted proactive approaches
in various areas of the legal framework. The changes are aimed at: 1) Simplify-
ing the procedures and reducing the administrative burden for all public pro-
curement participants, 2) Increased use of the most economically advantageous
tender (MEAT) criteria, 3) Greater involvement of small and medium-sized
enterprises, 4) Innovation in procurement, 5) Consideration of environmental
and social aspects; and 6) Requirements in terms of monitoring of public pro-
curement procedures (European Commission, 2015a). Public procurement is
therefore an important tool of the European Single Market (representing 14%
of the EU GDP), which makes it a fundamental element of the Investment
Ecosystem (European Commission, 2017a). The single market strategy has fa-
cilitated the development of more transparent, efficient and accountable public

procurement systems of EU Member States. This requires a shift from a pre-
dominantly administrative approach to a strategic approach driven by real (cru-
cial) needs (European Commission, 2017a; European Commission, 2015b).
Smaller more transparent administrations may be more flexible and network
governance may make it easier to bundle demand to a scale that makes it worth-
while for suppliers to innovate, so it is a really good opportunity for small coun-
tries (see: Georghiou et al., 2010). The mentioned share of the EU GDP in
expenditure each year clearly indicates that public procurement can contribute
to address many of Europe’s major challenges, especially in creating sustainable
growth and jobs (thereby supporting the transition to a circular economy).
A comprehensive review of the field and (international) comparative studies
into the effectiveness of public procurement as a policy tool are critical gaps in
825
the research landscape and key to understanding the full potential and effective-
ness of public procurement as a policy tool. The field has not been sufficiently
explored and represented in academic (or professional) circles, and, as pointed
out by Grandia and Meehan (2017), public procurement lacks strategic “matu-
rity”, and its impact on economic growth has not been sufficiently explored/is
underexplored. Given the fact that public procurement is a specific area that is
directly dependent on the policies of the countries in which they are carried out
and because of the significant differences between the institutional framework
and actual activities, they also emphasise the need for further research on public
procurement and its potential. The methodology adopted in this paper involved
a review of public procurement literature to provide a background for this study
which allowed us to recognise the issues in public management, in particular in
the Republic of Croatia, and identify areas requiring further research.
2. STRATEGIC APPROACH OF THE EUROPEAN

UNION TO PUBLIC PROCUREMENT
“Public procurement of innovative products and services is vital for improving
the quality and efficiency of public services at a time of budget constraints. Yet little
public procurement in Europe is aimed at innovation, despite the opportunities
under the EU procurement directives” (Europe 2020, Innovation Union Flagship
Initiative in: Georghiou, Li, Uyarra, and Edler, 2010)
Public procurement aims at ensuring that public funds are spent in an eco-
nomically efficient way and at guaranteeing the best value for money for the
public buyer. According to Bovis (2007 in: Haugbølle, Pihl and Gottlieb, 2015),
“the expectation has been that the regulation of public procurement could pro-
vide substantial savings through three effects: 1) a direct trade effects as a result
of lower prices, 2) a competition effect through improving the competitiveness
of enterprises, and 3) a restructuring effect due to changes in the business struc-
ture”. The high purchasing power in the EU Member States and the importance
of public procurement procedures for any market have raised awareness of the
use of public procurement in achieving social and environmental objectives,
in addition to the economic ones (Šikić and Turudić, 2017; Luttenberger and
Runko Luttenberger, 2015; Brammer and Walker, 2011; Carter and Jennings,
2002; Grandia, 2015) and its role as a strategic instrument in the public sector
management toolbox. Man et al. (2014) argue that effectiveness is the main
826
objective of the institute of public procurement, and that it should be managed
by providing better services to the public at a lower price than it is possible
to achieve by the public sector. According to Georghiou et al. (2014), public
procurement is increasingly seen as an attractive and feasible instrument for
furthering the goals of innovation policy. The EU public procurement rules seek
to promote transparency and competition in procurement markets (European
Commission, 2017c). Sustainable public procurement aims at striking a balance
between the economic, social and environmental dimensions when making a
procurement choice. A smart use of public procurement can help address global
challenges such as climate change and resource scarcity or aging society. It sup-
ports social policies and accelerates the transition to more sustainable supply
chains and business models, which can improve competitiveness of small and
medium-sized enterprises and facilitate their access to public procurement op-
portunities (European Commission, 2017a). “Sustainable procurement offers
the Government the opportunity to lead by example and to use its purchasing
power to influence suppliers and the products they develop and design, for the
wider benefit of others in the economy” (NAO, 2009 in: Yeow, Uyarra and Gee,
2011b). As Abernathy and Clark (1985 in: Yeow, Uyarra and Gee, 2011b) note,
such effects are not restricted to high-tech sectors, but may apply to mature
sectors and even kick-start a process of reversal or renewal of industry develop-
ment or “dematurity”. Yeow, Uyarra and Gee (2011a), see sustainable procure-
ment as capable of delivering significant environmental benefits while achieving
better value for money in public services, and find that it has gained interest
among practitioners, policy-makers and academics in recent years. Transaction

costs in public sector are connected with organization and administration of
public, competitions, compensation of independent experts, legal knowhow
of contracts, public tender re-establishing, costs arising from the delay in the
implementation of public contracts, and lawsuit (see more in: Man et al., 2014
according to: Pavel, 2004). In the private sector, we can define processing appli-
cations, obtaining a qualification requirement, security deposit, and lawsuit. It is
important to note that a strategic approach to public procurement is also used
by other international organizations that actively pursue broader policy goals
through green procurement (the public sector needs to act as an “ecological cli-
ent”, see more in: Yeow, Uyarra and Gee, 2011b), procurement of innovation,
and support to small and medium-sized enterprises in the public procurement
processes (OECD, 2013; UNDP, 2015). However, as Walker and Brammer
(2009, in: Yeow, Uyarra and Gee, 2011a) note, “organisationally, the financial
827
viability of ‘green’ solutions, which are often perceived as being expensive (or
requiring a big capital investment), internal attitudes, incentives and pressures

for sustainable procurement are potential barriers”.
The key forms of strategic public procurement are green public procure-
ment, socially responsible public procurement and public procurement of inno-
vation (European Commission, 2015a). Green public procurement is defined
as a process whereby public authority seek to procure goods, services and works
with a reduced environmental impact throughout their life cycle when com-
pared to goods, services and works with the same primary function that would
otherwise be procured (European Commission, 2008). Socially responsible
public procurement includes social aspects, so a list of social considerations
that could be included in tender processes was developed in 2010 (European
Commission, 2010b). This included employment opportunities, decent work,
compliance with social and labour rights, social inclusion (including persons
with disabilities), equal opportunities, accessibility and design for all, consider-
ing sustainability criteria, ethical trade issues, and wider voluntary compliance
with corporate social responsibility. Public Procurement of Innovation (PPI) or
Public Procurement of Innovative Solutions refers to the contracting authority
procuring innovative goods and services that are not yet commercially available
to create demand and facilitate economic growth and competitiveness. In late
2015, the European Commission (2015a) published a study whose goal was to
take stock of 10 Member State (Austria, France, Latvia, the Netherlands, Po-
land, Portugal, Slovakia, Spain, Sweden and the United Kingdom) experiences
in integrating green, social and innovative considerations in public procurement
policy, process and practice. An additional goal was to estimate the level of up-
take and to propose measures for stronger uptake of strategic public procure-
ment. Conclusions of the study suggest that the main challenges in implement-
ing strategic public procurement are related to the following elements:
1. “Too expensive” - Strategic public procurement requires greater up-front
expenditure as opposed to conventional procurement. Even though the
overall long-term costs of strategic public procurement are often lower,
short-term decision-making and annual nature of public budgets prevail.
2. “Too risky” - A crucial challenge for the uptake of strategic public pro-
curement is related to the greater risks it involves. Risks can be related to
greater exposure to lawsuits, which are costly and time-consuming.
828
3. “What’s the value-added/benefit” - Beyond the potentially greater up-
front costs of strategic public procurement, resistance from practitioners
stems from the perceived lack of clear benefits.
4. “More work” - Strategic public procurement represents a greater work-
load for public procurers, as it requires a strong assessment of needs be-
fore the initiation of the tender processes as well as the use of either more
complex procedures or the application of sophisticated technical criteria.
In addition, the study highlights the importance of: 1) skills and know-how
because the implementation of strategic public procurement requires a rela-
tively sophisticated level of know-how and competency. For instance, GPP and
PPI may require the use of Total Cost of Ownership / Life Cycle Costs (TCO/
LCC) costing, which are relatively complex to implement (for more informa-
tion see also: Edler and Yeow, 2016); 2) monitoring and evaluating (a com-
mon weak point in similar systems), the framework conditions (the legislative
background, the degree of centralisation, autonomy or devolution that applies
in public bodies for particular types or sizes of purchase, for more informa-
tion, see: Georghiou et al., 2014) and “rigid application of tendering procedures
for low-value items regardless of non-costs” (Erridge and Nodi, 1994 in: Yeow,
Uyarra and Gee, 2011b); 3) maturity of the market. There is a possibility that,
even if public buyers are willing to introduce strategic criteria, the supply side
is not ready to provide the corresponding products, services or works; in less
developed Member States, there a risk that strategic public procurement could
restrict requirements too much) but also “too many suppliers”; 4) knowledge of

the market from public buyers (greater engagement with market as well as al-
lowing more flexibility would ensure that full benefits are reaped from the pro-
curement process). We could add here “building in the requirements of innova-
tion alters both the practice and the mindset of procurers and those they work
with” (Georghiou et al., 2014); “lack of commitment and ownership of pro-
curement strategies by senior management and political leaders” (Yeow, Uyarra
and Gee, 2011a); or “public sector culture which is risk averse and resistant to
change” (Erridge and Greer, 2002 in: Yeow, Uyarra and Gee, 2011b). Through
a survey of enterprises covering all EU28 Member States and qualitative case
studies (European Commission, 2017c) experts investigated the factors which
influence the propensity for procurement to take place across borders and came
to the following conclusions:
829
1. ‘High competition from national bidders’ (40%);
2. ‘Perceived preference among contracting authorities for local bidders’

(39%);
3. ‘Unfamiliar legal context or formal requirements (e.g. contract, labour law,
certificates to provide such as special permits necessary for offering ser-
vices abroad etc.) leading to market entry barriers in the awarding coun-
try’ (32%);
4. ‘Additional costs due to geographic distance (i.e. implementation of con-
tract is more expensive compared to delivery of contract close to own lo-
cation)’ (30%);
5. ‘Language barriers’ (23%).
The European Commission (2017a) underlines that implementing smart
public procurement systems which are fit for the 21st century requires commit-
ment and determination to modernise, digitalise and professionalise. It there-
fore encourages and invites all stakeholders (the Commission, national, regional
and local authorities, companies, industries, professional associations, and other
interested parties) to improve the functioning of public procurement practice.
In view of the above, the implementation of public procurement strategy will be
a considerable challenge for many Member States in terms of goal achievement.
3. PUBLIC PROCUREMENT IN THEORY AND

PRACTICE WITH KEY CHALLENGES FOR THE
REPUBLIC OF CROATIA
Numerous projects and individual initiatives show that a balanced, sustain-
able and integrated approach to addressing various challenges is both possible
and feasible. Since, in the context of the European Structural and Investment
Funds (ESIF), Member States have to meet the preconditions on procurement,
which should guarantee that the basic framework conditions for efficient and
effective investments co-financed by the funds are in place, public procurement
plays a key role in achieving these goals, as it includes innovative, green and
socially responsible procurement practices (European Commission, 2017a).
However, the study notes that these positive developments often remain isolat-
ed good practices and need to be embedded in a wider movement, encouraging
830
others to join and to learn from these experiences. Several indicators show that
strategic opportunities of procurement are still underused. 55% of procurement
procedures at the EU level still use the lowest price as the only award criterion.
The public procurement directives leave public buyers entirely free to opt for
purchases based on cost-effectiveness or quality-based criteria. Yet, most eco-
nomically advantageous tenders based on a cost-effectiveness approach which
may include social, environmental, innovative, accessibility or other qualitative
criteria are still underused (European Commission, 2016a). When used, the
contracting authority exercises considerable discretion in designing the scoring
rules and selecting quality criteria, although the principles of supplier selection
are prescribed by law (Lundberg and Bergman, 2017).
In 2011, with yearly purchasing valued at 3.5% of the GDP of EU, economic
significance of public procurement in EU is considerable (Man et al., 2014).
The main results of Public Procurement Indicators from 2015 show that al-
most all EU Member States increased their government expenditures on works,
goods and services, excluding utilities, except Cyprus and Croatia (-5%) (for
more information see: European Commission, 2016b). Herz and Varela-Irmia
(2017) use a data set of 1.8 million contract awards that have been matched to
geo-locations to estimate a gravity model of procurement flows between Euro-
pean NUTS3 region pairs and then documented evidence of very substantial
intra- and international border effects in European public procurement. For
example, they concluded that a firm located in the same NUTS3 region as the
contracting authority, is more than 900 times more likely to be awarded a con-
tract compared to a foreign firm and the results are similar for goods, services
and construction procurement and for different types of public procurement INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
procedures and award criteria. The new Public Procurement Act of the Re-
public of Croatia (hereinafter: the RoC) (Official Gazzette, 2016), which was
adopted in 2016, does not allow the contracting authority to use the price or
cost as a sole criterion in tender selection. Under the previous act, the contract-
ing authorities could mainly use the lowest price criterion in the procurement of
goods, works and services. A review of statistical annual reports on public pro-
curement for the period 2012-2016 reveals that, in comparison to the lowest
price criterion, the MEAT criteria were used the most in 2016 (in 2.5% of pro-
curement procedures), which, according to the European Commission study
(2016a), is significantly below the average percentage recorded in EU Member
States (44.52% in the same period). This is confirmed by the public procure-
831
ment policy performance indicator for 2016 reported in the latest European
Commission’s report (2017b), which puts the RoC among few Member States
in terms of the percentage of contracts awarded based on the lowest price crite-
rion. In addition, it shows that, at least according to data covering the last three
years, the trend has not changed. The studies conducted by Čusek-Slunjski et
al. in 2016 examine the level of awareness and understanding of the legislative
framework established in the new directives, the provisions related to the appli-
cation of the MEAT criteria, and the possibilities for applying green, social, in-
novative and sustainable procurement. Although the results show solid or very
good knowledge of the provisions, the data from the statistical reports suggest
the lack of experience and competences in the public procurement system in
terms of application of the MEAT criteria. In addition, the National Action
Plan (NAP), adopted by the Government of the RoC in 2015, highlights the
inclusion of some of the measures for green public procurement in 50% of pub-
lic procurement procedures as one of the goals for the period 2015 - 2017, with
a 2020 horizon (Čusek-Slunjski et al., 2016). According to the annual statistical
reports on public procurement, the green criterion was used in 24 contracts in
2015, and in 2016, it was used in 57 contracts. All of this indicates inadequate
administrative capacity, which coincides with the results of the study conducted
in 2016 (European Commission, 2016a), whose conclusion includes a recom-
mendation for improvements in knowledge. The conclusion is that Croatian
procurement experts are faced with administrative capacity issues, partly be-
cause new employees are needed, and partly because it is challenging to retain
the existing ones, but mostly due to the lack of adequate staff training. In their
research on preferential treatment in the award of public procurement contracts
in the construction sector in the Republic of Croatia, Podumljak and Dávid-
Barrett (2015) found that there is a paucity of qualified individuals (typically
only one accredited certified procurement officer (CPO) in many contracting
authorities). This means that there is nobody else in the organisation qualified
to check or oversee the CPO’s work. This increases the risk of corruption. In
its Report on Croatia (European Semester 2018), the European Commission
(2018) highlights the need for effective risk control in public procurement, es-
pecially by contracting authorities with weaker control mechanisms. Podumljak
and Dávid-Barrett (2015) also emphasise the need to increase accountability
in the public procurement process by improving the monitoring of contract
implementation. This would help to ensure that contracts achieve good value
832
for money and deliver the works, goods or services intended to an appropriate
quality standard.
When it comes to the construction sector, i.e. the procurement of works, it is
particularly interesting that the criteria of the most economically advantageous
tender, according to publicly available data (Electronic Public Procurement
Classifieds, on-line), were practically not used. It should be noted that the value
of works in the period 2012-2016 ranged from 30 to 38 percent of the total
value of published contracts, which represents a significant share in total public
spending. This piece of information demonstrates the importance of develop-
ing a system of criteria for procurement of works, which will meet increasingly
stringent requirements in terms of environmental and social responsibility in
the future. This is also supported by some of the main recommendations put
forward in the study conducted by Čusek-Slunjski and others (2016), focus-
ing on the use of the selection criteria (i.e. the condition of qualification of the
bidder) and strengthening of the practice and the use of the MEAT criteria
(including whole life costs of the procured goods, quality criteria, functionality,
availability, environmental and sustainability criteria, social characteristics, and
the like) in a more effective way. One of the ways to improve the situation can be
through wider use of the Innovation Partnership procedure. This tool, whereby
market players are invited to bring innovative solutions, has been set-up by the
2014 directives to meet the specificities of innovation procurement, as well as
to increase the legal certainty and reduce the innovation inherent risks (Euro-
pean Commission, 2017a). When it comes to public procurement of innova-
tion (PPI), analyses show that their application is hampered by various barriers,
as is evident in the European Commission’s (2015a) study conclusions, some INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
of which have already been outlined in this paper. As Georghiou et al. (2014)
note, the use of public procurement as an instrument of innovation policy has
posed fresh challenges to policymakers. Edler and Yeow (2016), according to
many scientific researchers, noted that public procurement of innovation has
climbed up the ladder of policy and academic attention considerably in the last
5–10 years. Public procurement is a “tool for innovation policy” (Geroski, 1990
in: Edler and Yeow, 2016) and a “fundamental driver for the uptake of crucial
technologies” (Ghisetti, 2017); it also makes public services more efficient and
effective. Public procurement of innovation, according to Edquist and Zabala-
Iturriagagoita (2012, in: Edler and Yeow, 2016) “is not primarily done to en-
hance the development of a new product, but to target functions that satisfy a
833
human need or societal problems”. Geroski (1990 in: Ghisetti, 2017) concludes
that “there is very little question that procurement policy can stimulate indus-
trial innovativeness, and more than a vague suspicion that it can be a far more
potent stimulus than a policy of generalised R&D subsidies”. Public procure-
ment of innovation needs an intermediation structure (better known as design
principles: impartiality and neutrality, accessibility and trustworthiness but also
access to the sources of expertise and knowledge) that is appropriate to support
public bodies across the various procurement situations and their correspond-
ing challenges (Edler and Yeow, 2016; see also: Georghiou et al., 2014).
4. INSTEAD OF A CONCLUSION  LIMITATIONS

AND PERSPECTIVES FOR THE REPUBLIC OF
CROATIA
An innovation champion is a “charismatic individual who throws his or her
weight behind an innovation, thus overcoming indifference or resistance that the
new idea may provoke in an organization”
(Rogers, 1995, p.414 in: Yeow, Uyarra and Gee, 2011a)
Public procurement is recognised as a strategic instrument within economic

policies across the European Union. Given the overall procurement spend-
ing, there is a significant interest in continuous development and improve-
ments, which ultimately is the reason for transposing strategic goals set in the
directives into national legislation to ensure a uniform system across the EU
(nevertheless, a “small country syndrome” should be considered, see more in:
Georghiou et al., 2010). The European Commission’s public procurement strat-
egy focuses on six strategic policy priorities defining the objectives that Member
States need to incorporate in their policies and practice. Clearly, some Member
States have achieved greater progress in the implementation of the defined ob-
jectives because of the higher degree of expertise and greater experience. How-
ever, there is still room for improvement. On the other hand, some countries
lack the capacity or there are no preconditions there for the implementation
of these objectives. There are numerous problems in public procurement and
public-sector management. Often, public procurement is still considered as a
mere administrative procedure by which public authorities purchase the basic
products, services or works required for their operations, rather than as a pow-
834
erful instrument that can foster a country’s economic development. Clear and
consolidated procurement data are often not available. There is no EU-wide
consensus on which data need to be collected and for what purpose. In many
Member States, central authorities are unable to indicate the exact size of pub-
lic procurement spending in their country, despite the huge amounts of money
involved. In such cases, public scrutiny is largely absent, there is no possibility
for a data-driven policy-making and even budgetary control is hampered. In the
same way, the digital transformation of public procurement is slow. This is con-
firmed by the results of the 2016 European Commission (2017a) survey that
reveal that only four Member States rely on digital technologies for all major
steps of the procurement process (e-notification, e-access to tender documents,
e-submission, e-evaluation, e-award, e-ordering, e-invoicing, e-payment). Based
on their research, Čusek-Slunjski et al. (2016) conclude that there is a growing
need to enhance training for practitioners and the use of the European Single
Procurement Document (ESPD) and e-Certis database in the Republic of
Croatia. Furthermore, contracting authorities are rarely buying together, as only
11% of procedures are carried out by cooperative procurement. Joint procure-
ment often leads to lower prices and provides contracting authorities with an
opportunity to exchange experiences and obtain higher quality (more in: Mitea,
D. et al., 2017). Although not all types of procurement are suitable for aggrega-
tion, the low overall aggregation rate points to the missed opportunities. There-
fore, the contracting authorities are encouraged to engage in joint procurement
arrangements. According to this indicator (European Commission, 2017b),
there is a positive trend that puts the RoC among the top-ranking Member

States in terms of performance. Procurement procedures are still too complex
and suffer from an excessive administrative burden, even after the major reform
and simplification of EU rules undertaken in 2014. This is exemplified by an
increasing number of transnational infrastructure projects which, by their very
nature, are not standard as they involve various actions to be implemented in
different Member States. The real degree of complexity depends also on how
the rules are applied in practice and the extent to which the new tools are used.
Procurement can be further streamlined by standardising processes, sharing
best practices among authorities and through the professionalization of public
procurement. However, reducing administrative barriers and facilitating access
to bidding cannot produce results if the key public procurement stakeholders
do not keep abreast of changes in the public procurement system and do not
invest in their knowledge (Čusek-Slunjski et al., 2016; Edler and Yeow, 2016).
835
The European Commission’s public procurement strategy (European Com-
mission, 2017a), adopted in October 2017, aims to improve EU public procure-

ment practices in a collaborative manner by working with public authorities and
other stakeholders. Six priority areas were identified where clear and concrete
action can transform public procurement into a powerful instrument in each
Member State’s economic policy toolbox, leading to substantial benefits in pro-
curement outcomes. These include:
1. Ensuring wider uptake of strategic public procurement in central and
local governments and, consequently, a more extensive use of the most
economically advantageous tender mechanism as well as procurement of
innovative solutions, requires not only a highly competent pool of public
procurers but, above all, policy vision and political ownership;
2. Professionalising public buyers because the changing culture and the in-
creased use of strategic public procurement require a wider use of flexible
practices, knowledge of markets and innovative tools;
3. Increasing access to procurement markets, in particular for small and
medium-sized enterprises;
4. Increasing transparency, integrity and standardization and reliability of
data, which should enable the dialogue with civil society and hold govern-
ments more accountable;
5. Boosting the digital transformation of procurement; and
6. Cooperating to procure together.
In view of the fact that, in terms of the size of the public sector, the Republic
of Croatia is comparable to Greece, Denmark, France, Sweden, Portugal and
the UK (!) (16,2% share of sector’s demand in total use in 2010, for more in-
formation see: European Commission, 2017c), one of the biggest challenges for
Croatia will be establishing the MEAT instrument that can be implemented in
practice considering the existing legislation on public procurement and habitual
practices of both contracting authorities on the demand side and bidders on the
supply side. In doing so, the attention of interested parties will be focused on
defining the evaluation criteria and their applicability in procedures. Research
shows that there is insufficient capacity to implement the MEAT criteria (al-
though the reports state otherwise). More precisely, despite the good level of
knowledge and information, there is serious lack of practical experience and
836
viable solutions. On the other hand, changes in public procurement entailed
some new practices whose implementation in day-to-day procedures is ham-
pered by the lack of knowledge. Terms such as “whole life costs” and “innovation
in public procurement” are still relatively new to contracting authorities and
require a substantial level of knowledge and skills for full operational applica-
tion. For example, the “value for money” philosophy referred to in the new act
has acquired a completely new meaning in the procurement of works because
whole life costs do not only relate to individual works but rather comprise sev-
eral connected entities of a much larger enterprise in which works are only one
of the phases. If you consider any of the aspects of sustainability and their ap-
plication in practice, procurement of works becomes quite challenging in terms
of the results that need to be achieved and will most likely become a focus of
attention in the coming period. Given the complexity of the requirement as well
as the experience of other countries, the key risks to the implementation of the
strategic goals are administrative capacity for implementation. There is still a
shortage of competent experts and other participants in the system and this
represents a major obstacle to achieving the desired outcome. Summarizing the
conclusions from the literature and the research carried out as well as the rele-
vant documents and equally important practical experience, it can be concluded
that the EU is still seeking the right path to achieving sustainable and efficient
public procurement policies. The RoC follows the agreed rules and strategies;
however, one should bear in mind that it is necessary to create the conditions
for the effective implementation of strategic requirements. The data presented
in the research referred to in this paper raise new questions and suggest that the

new Public Procurement Act has largely tackled the issue of the lowest price
(for more information see research conducted by Georghiou et al. (2014)) be-
cause of the challenge, which is the efficient public procurement. The real rea-
son for this is the lack of capacity for implementation, and the solution can be
found in capacity building across the public procurement system. This implies
much wider systematic training, whose scope and topics covered extend beyond
the basic familiarisation with the rules in the field of public procurement, and
definitely includes a wider range of participants, in addition to those special-
ised in public procurement procedures, such as bidders, beneficiaries, engineers
and other interested parties, as well as middle- and top-level management as
key stakeholders in the process as they are the ones that plan the operation at
strategic and operational levels, manage it and make strategic (development)
decisions.
837
Apart from the questions of education and administrative capacities, this
paper emphasises the opportunity of upgrade of the processes of public pro-

curement within national borders. In the case of the Republic of Croatia the
mentioned example of public procurement of works shows that public pro-
curement has to offer several applicative solutions in procedures and not one
universal solution for all public procurement types. In regulatory sense one
should consider the option of developing public procurement as a tool of public
management, not only in the framework of law and transposition of universal
rules within the EU, but also in the framework of separate subject-matters of
procurement (goods, works and services) according to their specificities in or-
der to ensure continuous implementation of good practices, and what is more
important exchange of bad practices. Also in organisational sense, apart from
dissemination of good practices, it is necessary to find a way for faster and more
flexible interaction with the market and to encourage contracting authorities to
a strategic approach in planning of public procurement (even to the level of sep-
arate transactions) in order to successfully achieve the strategic goals or com-
mitments on the national level. The mentioned remarks target at stimulation of
innovative solutions within the mechanism of public procurement. In this sense
it is an open call for the academic community to act proactively in their research
and development of public procurement. This is also a call for policy makers to
provide support and finance projects in this field as well as for all stakeholders
to take part in a constructive dialogue so that public procurement could in the
end be of better quality and more complex but at the same time more effective
in realization of public policies.
REFERENCES:
Brammer, S. & Walker, H. (2011), Sustainable procurement in the public sector: An inter-
national comparative study. International Journal of Operations and Production Man-
agement, 31(4): 452-476
Carter, C.R., Jennings, M.M. (2002), Social responsibility and supply chain relationships.
Transportation Research Part E: Logistics and Transportation Review, 38(1), 37-52.
Čusek-Slunjski, M., Fresl, A., Gruica Devčić, I., Serdarušić, I. (2016) Rezultati istraživanja:
Spremnost organizacija za primjenu novih direktiva u javnoj nabavi, Projekt jednako
razvoj d.o.o., Zagreb
Edler, J., Yeow, J. (2016), Connecting demand and supply: The role of intermediation in pub-
lic procurement of innovation, Research Policy, 45(2), pp. 414-426, doi: https://doi.
org/10.1016/j.respol.2015.10.010
838
Electronic Public Procurement Classifieds (2018), Elektronski oglasnik javne nabave, on-
line, available at: https://eojn.nn.hr/Oglasnik/, accessed on March 18, 2018
European Commission (2008), Communication from the Commission, Public procurement
for a better environment , COM (2008) 400, on-line, available at: http://eur-lex.eu-
ropa.eu/LexUriServ/LexUriServ.do?uri=COM:2008:0400:FIN:EN:PDF, accessed
on March 22, 2018
European Commission (2010a), Communication from the Commission, EUROPE 2020 , A
strategy for smart, sustainable and inclusive growth, COM (2010) 2020, on-line, avail-
able at: http://ec.europa.eu/eu2020/pdf/COMPLET%20EN%20BARROSO%20
%20%20007%20-%20Europe%202020%20-%20EN%20version.pdf, accessed on
March 16, 2018
European Commission (2010b), Buying Social - A Guide to Taking Account of Social Con-
siderations in Public Procurement, available at: http://ec.europa.eu/social/BlobServl
et?docId=6457&langId=en, accessed on March 20, 2018
European Commission (2015a), Study on strategic use of public procurement in promoting
green, social and innovation policies, PwC study for European Commission, available
at: https://publications.europa.eu/en/publication-detail/-/publication/6a5a4873-
b542-11e7-837e-01aa75ed71a1/language-en, accessed on March 16, 2018
European Commission (2015b), Communication from the Commission, Upgrading the
Single Market: more opportunities for people and business, COM(2015) 550 final,
available at: https://ec.europa.eu/transparency/regdoc/rep/1/2015/EN/1-2015-
550-EN-F1-1.PDF, accessed on March 16, 2018
European Commission (2016a), Stock-taking of administrative capacity, systems and prac-
tices across the EU to ensure the compliance and quality of public procurement involv-
ing European Structural and Investment (ESI) Funds – Croatia country profile; PwC
study for European Commission, available at: https://ec.europa.eu/fisheries/sites/
fisheries/files/docs/body/2016-06-27-public-procurement-report-summary_en.pdf,
accessed on March 16, 2018

European Commission (2016b), Public Procurement Indicators 2015, DG GROW G4
– Innovative and e-Procurement, no. 7128361, 22/12/2016, available at: http://
ec.europa.eu/DocsRoom/documents/20679, accessed on March 22, 2018
European Commission (2017a). Communication from the Commission to the Institutions:
Making Public Procurement work in and for Europe, COM (2017) 572, available at:
http://ec.europa.eu/docsroom/documents/25612, accessed on March 16, 2018
European Commission (2017b). Single Market Scoreboard, Performance per Policy Area,
Public Procurement, Reporting period 01/2016-12/2016, available at: http://
ec.europa.eu/internal_market/scoreboard/_docs/2017/public-procurement/2017-
scoreboard-public-procurement_en.pdf, accessed on March 22, 2018
European Commission (2017c), Mesurment of impact of corss-border penetration in public
procurement, Final Report, available at: https://publications.europa.eu/en/publica-
tion-detail/-/publication/5c148423-39e2-11e7-a08e-01aa75ed71a1/language-en,
accessed on March 22, 2018
839
European Commission (2018). Komunikacija komisije europskom parlamentu, vijeću,
europskoj središnjoj banci i euroskupini: Europski semestar 2018.: ocjena napre-

tka u provedbi strukturnih reformi te sprječavanju i ispravljanju makroekonom-
skih neravnoteža i rezultati detaljnih preispitivanja u skladu s Uredbom (EU) br.
1176/2011, COM (2018) 120, available at: https://ec.europa.eu/info/sites/info/
files/2018-european-semester-country-report-croatia-hr.pdf, accessed on March 22,
2018
Georghiou, L., Li, Y., Uyarra, E. and Edler, J. (2010), Public Procurement for Innovation
in Small European Countries, A report from the ERAPRISM, OMC-Net Project,
available at: https://www.research.manchester.ac.uk/portal/files/50894884/FULL_
TEXT.PDF, accessed on April 4, 2018
Georghiou, L., Edler, J., Uyarra, E., Yeow, J. (2014), Policy instruments for public procure-
ment of innovation: Choice, design and assessment, Technological Forecasting & So-
cial Change No. 86, pp. 1-12, doi: 10.1016/j.techfore.2013.09.018
Ghisetti, C. (2017), Demand-pull and environmental innovations: Estimating the effects of
innovative public procurement, Technological Forecasting & Social Change, No. 125,
pp. 178-187, doi: 10.1016/j.techfore.2017.07.020
Grandia, J. (2015), Implementing Sustainable Public Procurement, An Organisational
Change Perspective, Erasmus University, Rotterdam, available at: https://repub.eur.
nl/pub/78947/j-grandia.pdf, accessed on March 22, 2018
Grandia, J., Meehan, J. (2017) “Public procurement as a policy tool: using procure-
ment to reach desired outcomes in society”, International Journal of Public Sector,
Management, Vol. 30 Issue: 4, pp.302-309, available at: https://doi.org/10.1108/
IJPSM-03-2017-0066, accessed on March 22, 2018
Herz, B., Varela-Irmia, X.L. (2017), Border Effects in European Public Procurement, Pub-
lic Procurement Studies of European Commission, available at: https://mpra.ub.uni-
muenchen.de/80138/1/MPRA_paper_80138.pdf, accessed on April 4, 2018
Haugbølle, K., Pihl, D., and Gottlieb, S. C. (2015), Competitive dialogue: Driving innova-
tion through procurement? Procedia Economics and Finance, No. 21, pp. 555-562,
doi: 10.1016/S2212-5671(15)00212-9
Lundberg, S,. Bergman, M.A. (2017) “Tendering design when price and quality is
uncertain”,International Journal of Public Sector Management, Vol. 30 Issue: 4, pp.
310-327
Luttenberger, A., Runko Luttenberger, L. (2015), Environmental aspects of public procure-
ment in transport sector, CTS 2015, 17th International Congress on Transport Sci-
ence, Maritime Transport and Logistics Science Conference Proceecings / Zanne,
Marina ; Bajec, Patricija ; Vidan, Pero (ur.), pp. 261-274, ISBN:978-961-6044-98-1
Man, P., Matejková, J., Jurčik, R., Heidu, R. (2014), The key factors of transparency of the
public procurement in the Czech Republic, Procedia Economics and Finance 12, pp.
379-386, doi: 10.1016/S2212-5671(14)00358-X
Marlier, E., Natali, D., with Van Dam, R., Vanhercke, B. (2010), Europe 2020: Towards a
More Social EU?, Edition: 2010, Publisher: P.I.E. Peter Lang, pp.15-44
840
Ministry of Economy, Entrepreneurship and Crafts, Directorate for Public Procurement
System, Statistical Annual Reports on Public Procurement; on-line, Dostupno na:
http://www.javnanabava.hr/default.aspx?id=3425, accessed on March 22, 2018
Mitea, D. et al. (2017), Support of the internal market policy for growth: Feasibility study
concerning the actual implementation of a joint crossborder procurement procedure
by public buyers from different Member States, European Union, 2017, ISBN: 978-
92-79-64806-9, doi: 10.2873/10021
OECD (2013), “Strategic public procurement”, in Government at a Glance 2013, OECD
Publishing, Paris.
Podumljak, M. i Dávid-Barrett, E. (2015), Javna nabava građevinskih radova: slučaj Hrvatske,
Projekt Anticorrp, Partnerstvo za socijalni razvoj, Zagreb, available at: https://www.
vkontrole.lt/tf/files/files/The%20Public%20Procurement%20of%20Construc-
tion%20Work-The%20Case%20of%20Croatia.pdf, accessed on March 22, 2018
Šikić, M., Turudić, M. (2017) Održiva javna nabava, Zbornik pravnog fakulteta Sveučilišta
u Rijeci (1991) v. 38, br. 1, 419-448
UNDP (2015), Procurement Starategy, United Nations Development Programme, avail-
able at: http://www.undp.org/content/dam/sweden/Procurement%20Strategy%20
Final%20July%201%202015.pdf, accessed on March 22, 2018
Yeow, J., Uyarra, E., Gee, S. (2011a), Sustainable Innovation through Public Procurement,
The Proceedings of the XXII ISPIM Conference, Hamburg, Germany - 12-15 June
2011, ISBN 978-952-265-092-4
Yeow, J., Uyarra, E., Gee, S. (2011b), Sustainable Innovation through Public Procurement:
The case of ‘closed loop’ recycled paper, Manchester Business School Working Paper,
No. 615, ISSN: 0954-7401, available at: https://www.mbs.ac.uk/cgi/apps/research/
working-papers/
841
SHOULD EXCISE DUTIES ON
SOFT DRINKS IN BOSNIA AND
HERZEGOVINA BE INCREASED?
Velma PIJALOVIĆ, PhD

University of Sarajevo,
Velma Pijalović Lejla Lazović-Pita: SHOULD EXCISE DUTIES ON SOFT DRINKS IN BOSNIA AND HERZEGOVINA BE INCREASED?
Department of economic theory and policy, BiH

E-mail: velma.tahmaz@efsa.unsa.ba
Lejla LAZOVIĆPITA, PhD

University of Sarajevo, Department of finance, BiH
E-mail: lejla.lazovic@efsa.unsa.ba
Abstract
Faced with several fiscal pressures on one side and concern for health of the
population on the other, some European countries have proposed the introduc-
tion or an increase of excise duties on soft drinks. In fact, European countries
mostly evaluate the effects of an introduction of sugar tax rather than excise
duties on soft drinks, but in the last few years the latter gained prominence in
the academic literature. By using a holistic approach, the aim of this paper is to
show the possible effects of an increase in excise duties on soft drinks in Bosnia
and Herzegovina (BiH). After a brief analysis of the status of taxation of soft
drinks in the European countries, we focus on the case of BiH. We conduct
a comprehensive economic analysis of the possible effects of an increase in the
existing excise duties on soft drinks in BiH in three simulation scenarios: a
simulation where the additional tax burden is fully absorbed by the producers;
a simulation where the additional tax burden is fully levied on consumers and
a simulation where the additional burden is shared between the producers and
consumers. In all three simulation scenarios, our results show that an increase
in the excise duty on soft drinks in BiH increases inefficiency for both producers
and consumers and is therefore discriminatory and harmful.
Key words: excise duties, soft drinks, Bosnia and Herzegovina
842
1. INTRODUCTION
As a consequence of an increasing budget deficits in the EU member states
(Eurostat, 2017), European Commission (hereafter: EC) has, on several occa-
sions published a set of suggestions and recommendations for a successful tax
reforms (Garnier et al., 2013), which primarily focuses on a shift away from
income taxation towards consumption and property taxation. These facts to-
gether with increasing health expenditures and obesity have resulted that some
EU members have been considering an introduction of ‘sugar tax’ and/or excise
duty on soft drinks within consumption taxes.
The idea to impose additional excise duties (150% higher than the existing
excise duties) on soft drinks in BiH was not mentioned in the strategic docu-
ment regarding fiscal reforms in BiH as defined by the Reform Agenda 2015-
2018 (FBiH Government, 2015). It emerged later in the process of drafting
implementation documents aimed at settling the healthcare sector deficits.
The main goal and purpose of any taxation system should be to increase rev-
enues necessary for financing of public, general needs in the most efficient way
(lowest possible expenditures and highest possible revenues, Bratić, 2011, p 37).
Hence, we attempt to answer the question whether additional excise duties in
BiH would be efficient, i.e. what the effects of a such possible increase on both
producers and consumers might be.

After we provide an overview of basic fiscal and non-fiscal reasons for in-
troduction of excise duties, as well as most recent developments in the Euro-
pean countries, we analyse BiH’s soft drinks market. By using three simulations,
we provide a projection of sales and production volumes for the industry, as
well as consequent changes in amounts of collected excise duties and VAT and
employment.
The first simulation assumes that producers decide to keep the retail prices
– i.e. to carry the burden of additional taxation themselves. The second simula-
tion is carried out under the assumption that producers will increase the retail
prices by 14% - as they indicated when the increase was announced. In the third
simulation, we assume that the burden of additional taxation will be split be-
tween producers and consumers, and that prices will grow by 7%.
843
2. FISCAL AND NONFISCAL REASONS TO
INTRODUCE EXCISE DUTIES
Throughout the history, excise duties were treated as ‘the gold mine’ due to
their exhaustiveness. European countries have been imposing excise duties on
different groups of products such as salt, tobacco, matches, alcohol, coffee, wine
and lamps ( Jelčić & Jelčić, 1998). Excise duties have been playing an impor-
tant role in Europe for many years, and today, EU members impose excise du-
ties on three standard product groups: energy, alcohol and tobacco. The basic
characteristics of excise duties are similar to most consumption taxes – such as
financial stability of revenues, low cost of collection and limited application on a
certain number of products just to name a few. Excise duties are levied together
with sales tax (VAT in BiH), which means that the amount of the paid excise
duty is included in the VAT tax base (Šimović & Šimović, 2006, p. 200). Al-
ternatively, characteristics of excise duties can be grouped in the following way
(McCarten & Stotsky, 1995, p. 100):
1. Production and sale of excise products is supervised by the state;
2. Demand for these products has no price elasticity;
3. Income elasticity is higher than one, so excise duties are sometimes con-
sidered as a levy on luxury products;
4. They are imposed because consumption of excise products leads to nega-
tive externalities.
Theoretically, reasons for introduction of excise duties can be divided to fis-
cal and non-fiscal reasons. (Šimović & Šimović, 2006, p. 201). The fiscal reason
of imposing excise duties is the most obvious one – the need to collect public
revenues. Since excise duties, along with VAT, income tax and profit tax, rep-
resent the most stable and predictive tax revenues today, the share of revenues
from excise duties to total tax revenues in EU15 countries amounts to, on av-
erage 9.7% and on average to 3.3% to GDP (1965-2017, OECD, 2018). In
the past fifty years, their share to both total tax revenues and GDP has been
decreasing especially in the United Kingdom and Ireland (OECD, 2018).
Šimović and Šimović (2006, p. 203) list several non-fiscal reasons why mod-
ern states are trying to justify the introduction or an increase of excise duties to
844
get the approval of public and voters, whereas fiscal reasons are usually left be-
hind in such cases. Some non-fiscal reasons are social reasons which are usually
justified by the equity principle. Health reasons are linked to health protection
and discouraging of excessive use of some products which are detrimental to
health. The fact that excise duty is levied on those products whose consump-
tion leads to negative externalities in terms of higher air and water pollution,
etc. justifies the environmental reasons. One of key principles of tax policy
is tax neutrality1, or the idea that taxes should not have a significant impact
on investments, production or consumption. However, under certain circum-
stances, tax policy can include the need to levy ‘special’ taxes – excise duties – as
a response to existing negative externalities linked to consumption of some
products and services. Products for which levying excise duties is justified by
existence of externalities are usually alcohol, tobacco, motor vehicles and gam-
bling (Cnossen, 2005). Economic reasons are related to discouraging domestic
consumption of excise products, especially nowadays, when there is no differ-
ence between domestic and imported excise products. These can also be linked
to the government intention to improve the position of domestic producers
(for example lower excise duties on beer in Germany compared to excise duties
on wine, and vice versa in the Southern Europe). The intention is to influence
consumer habits within some groups of excise products, especially those with
lowest income. Other reasons for excise duties could include protective mea-
sures of some states so excise duties could serve as a replacement for import
duties. Excise policy of lower tariffs for domestically produced goods compared
to imported goods (for example excise duties on wine and beer in France) can

act as a protective measure of domestic production – which is directly linked
to economic reasons and preserving domestic consumer habits ( Jelčić & Jelčić,
1998, p. 340). In that sense, such excise policy can additionally (positively) in-
fluence cross-border trade, especially for tobacco and alcohol products. Since it
is levied on several standard groups of products, excise, like other taxes, distorts
supply and demand ( Jelčić & Jelčić, 1998, p. 339). Taxes in theory and practice
(except lump-sum taxes) lead to the so-called deadweight losses, i.e. loss of con-
sumers or producers surplus (Rosen & Gayer, 2009), creating distortion in the
market, which leads to inefficiency. Excise duties, especially those justified by
environmental and health reasons, represent examples of the so-called Pigov-
ian tax which attempts to internalise (negative) negative externalities (Rosen &
1
Tax neutrality can also have other meanings, for example revenue neutrality in tax reforms.
845
Gayer, 2009). In theory, introduction of this type of tax reduces production to
the ‘socially efficient’ level.
3. JUSTIFICATION FOR LEVYING EXCISE DUTIES

ON SOFT DRINKS
The first economic question related to excise duty on soft drinks mentioned
in the literature is related to non-fiscal reasons and a possible justification of

imposing such excise duties. Possible non-fiscal reasons could be related to
economic and health reasons. Health-related externalities linked to soft drinks
appear only when a large portion of population consumes the products in an
unhealthy way – simply eating a cake or dinking a glass of soda does not gener-
ate externalities (Oxford Economics, 2013). Pratt (2012) argues that it is much
more difficult to use the externalities argument to explain introduction of taxes
aimed at reducing obesity for a small group of products, because such justifica-
tion would require calculation of external cost related to consumption of that
specific type of product.
The next very important question relates to evaluation whether soft drinks
are considered luxury goods. Luxury goods have income elasticity higher than
one (>1), which means that under the assumption of increased revenues, con-
sumers are going to spend larger portion of their disposable income on purchase
of these products. However, food and soft drinks are widespread products with
income elasticity lower than one, so their share in disposable income is higher
for consumers with low or medium income (Leicester and Windmeijer, 2004).
UK Office for National Statistics, dividing population into quintiles, calcu-
lated that in years 2012-2013, the poorest population groups (lowest quintile)
spend around 30.5% of their available income on indirect taxes (VAT, excise,
customs), while the wealthiest (upper quintile) pay around 14.4% (UK Office
for National Statistics, 2012–2013). This clearly shows the regressive effects of
indirect taxes, as well as the necessity to pay special attention when introducing
additional levies within indirect taxes.
In order to efficiently generate tax revenues, it is necessary to levy taxes on
price inelastic goods. Although there is a consensus in academic papers that ma-
jority of food and soft drinks are price inelastic when different markets and dif-
ferent product categories are observed, there are certain differences in elasticity
846
levels. Research shows that such demand is less elastic in developed countries
compared to developing countries (Searle et al., 2003). Furthermore, the prin-
ciple of measures of different types of elasticity in some groups of excise prod-
ucts is possible in developed countries, but virtually non-existent transition and
developing countries due to lack of reliable data (McCarten & Stotsky, 1995).
Table 1. Recent international studies: income and price elasticities by non-
alcoholic beverage category
Studies Product Income elasticity Compensated own price elasticity
Regular soft drinks 1.506 -1.903
Diet soft drinks 1.276 -0.957
Bottled water 0.364 -0.07
Fruit drinks 1.259 -0.082
Dharmasena & Capps Fruit juices 0.649 -0.822
(2009) Isotonics (energy drinks) 2.604 -5.937
Coffee 0.628 -0.464
Tea 0.752 -0.509
High-fat milk 0.798 -0.733
Low-fat milk 1.059 -0.761
Soft drinks 0.997 -0.151
Milk 0.614 -0.154
Zheng & Kaiser
Juice 0.656 -0.172
(2008a)
Bottled water 0.029 -0.498
Coffee/Tea 3.144 -0.083

Milk 0.243 -0.102
Zheng & Kaiser
Juice 2.891 -0.458
(2008b)
Bottled water 0.062 0.044
Coffee/Tea 3.049 -0.26
Kinnucan, Miao, Xiao Milk 0.406 -0.169
& Kaiser (2001) Juice 0.698 -0.361
Coffee/Tea 1.876 -0.249
Yen, Lin, Smallwood & Milk 0.8 -0.59
Andrews (2004) Juice 0.9 -0.35
Coffee/Tea 1.13 -0.47
Source: Preece, 2013, p. 30.
847
Results represented in table 1 summarise research regarding different mea-
sures of elasticity for developed countries. Hence, table 1 indicates that con-
sumers’ price sensitivity is very different in different markets, and that different
types of soft drinks have different price and income elasticity. Thus, when intro-
ducing or increasing excise on soft drinks, it is crucially important to correctly
understand the availability of products, pricing and consumers’ reaction to price
changes. Even when demand for soft drinks has no price or income elasticity,
efficiency of collection of excise duties on soft drinks is questionable due to fol-

lowing reasons:
a) Introduction of excise duty can reduce other sources of revenues (for ex-
ample reduction in collected revenues due to reduced number of workers)
b) Consumers avoid paying higher excise duties through engaging into
cross-border trade or organising own production of goods which are
usually with higher sugar content (syrups), which in turn increases pro-
duction in shadow economy;
c) Introduction of excise causes additional administrative costs to producers
and government.
Furthermore, most academic research deals only with health reasons related
to consumption of soft drinks. Hence, research mostly tries to establish the link
between calorie intake, especially high fats and carbohydrates intake (including
sugar) and numerous diseases.
Without denying the significance of controlled sugar intake, it is noteworthy
that papers which examined links between soft drinks consumption and body
weight and health issues did not produce equal results. Vartanian et al. (2007)
carried out a systematic review of existing papers on links between soft drinks
consumption, diet and health, conducting a meta-analysis of 88 studies carried
out theretofore (Vartanian et al, 2007). They concluded that two studies ana-
lysing links between soft drinks consumption and BMI proved existence of sig-
nificantly positive links, and nine studies found no significant links. Two studies
showed significant links between soft drinks consumption and body fat per-
centage, and one study failed to prove this link. Four studies showed that risk
of being overweight or obese is positively linked to consumption of soft drinks.
An analysis of longitudinal and experimental studies also indicates different re-
sults of studies attempting to assess links between soft drinks consumption and
BMI, body fat percentage, obesity, etc.
848
So, an increasing number of studies show that obesity is not linked to intake
of sweet drinks only, and that this health problem requires a holistic approach
which respects the fact that in some countries, despite reduced sugar consump-
tion, per capita obesity level remained the same or even increased (Preece, 2013).
Also, while soft drinks represent a source of calorie and sugar intake, they are
surely not the only source, and that other sources should also be considered
(Howard & Wylie-Rosett, 2002). Hence, a few arguments justify these facts:
1. It is estimated that sweet soft drinks contribute to 1.4% to 7% of total
daily energy intake;
2. Argument for introduction and/or increase of excise in order to reduce
consumption and achieve health benefits stands only if there are no easily
available substitutes;
3. When designing anti-obesity measures, we need to focus on quantity and
balance of calorie intake from all sources;
4. Since obesity is also linked to lifestyle changes, anti-obesity measures
encourage physical activity too (Preece, 2013).
International experience shows that introducing or maintaining high excise
can have a negative impact on economic activity and investment opportunities,
thus limiting fiscal revenues. For instance, Hungary introduced taxes on salt,
sugar and different sweets on 1 September 2011. A study on sales and revenues
of Hungarian Biscuit Association (HBA) members showed that the industry
had following results in period of December 2011-May 2012:
a) Sale of confectionery products dropped by 10%, revenues from sale of
savoury snacks dropped by 15%;
b) Reduced sales resulted in reduced revenues from VAT by $ 4.5 million;
c) Introduction of so-called health taxes resulted in layoffs and cancelled
investments (Oxford Economics, 2013).
4. PRACTICE OF EUROPEAN AND

NEIGHBOURING COUNTRIES
Excise on soft drinks is not standard practice of the European countries.
Despite harmonisation with EU directives, rates, structure and shares of basic
types of excise products are different in every country. Official data in devel-
oped countries (EU15) show smaller share of revenues from excise to total tax
849
revenues compared to (post)transition countries (EU13). If we compare shares
of revenues from excise to total tax revenues in 2000-2012 in the two groups
of countries – EU15 and EU13, we see that the average in EU15 was 6.8% to
8.0%, and in EU13 it was 9.9% to 11.6% of total tax revenues (European Com-
mission, 2017).
Finland was the first EU member to introduce tax on sweets and soft drinks
in 1929. However, after abolishing the sweets tax in 1999 (it was to be replaced
with sugar tax, but this idea was rejected), Finland is actively considering abol-
ishing tax on soft drinks as well. Denmark introduced tax on soft drinks in
1930, and it was abolished in 2013 (The Economist, 2015). The reason was a
combination of fiscal issues (low revenue collection rates) and economic issues
related to cross-border trade (Danish citizens shopping in other countries like
Sweden and Germany, as well as stimulation of domestic producers to boost
local economy). Some countries introduced this type of tax, (Hungary in 2011,
France in 2012, UK in 2016 with planned implementation as of 2018). Other
EU countries rejected it, such as Slovenia in 2014 (The Economist, 2015) or
Bulgaria in 2016. According to Germany’s Ministry of Food, sugar tax will
not be considered (Die Welt, 2016). Instead, Germany will focus on educa-
tion of children to encourage ‘healthy food habits’. Scientific debates and studies
in countries like Belgium and Estonia deem tax on soft drinks unjustified and
leading to additional economic distortions (although it was considered along
with tax on sugar, salt, fats, Institute for Market Economics, 2015).
850
Table 2. Share of revenues from excise duties to total revenues in selected Eu-
ropean countries
Types of revenues/Years 1995 2000 2005 2010 2011 2012 2013 2014 2015 2016
France
Share of revenues from
‘sugar’ excise to total
revenues from excise duties 2.3% 2.0% 0.3% 2.0% 2.1% 1.9% 2.4% 2.4% 2.2% 2.1%
revenues 0.5% 0.4% 0.1% 0.4% 0.4% 0.4% 0.4% 0.5% 0.4% 0.4%
Finland
revenues 0.1% 0.1% 0.1% 0.0% 0.2% 0.2% 0.2% 0.3% 0.3% 0.3%
Norway
revenues 0.4% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3%
N.B. ‘Sugar’ excise in Finland is a sum of: sugar levy, Excise duty on confectionery and Ex-
cise duties on sweets, ice cream and soft drinks. Sugar excise in Norway is a sum of: Tax on
non-alcoholic beverages, Chocolate and candy tax and Sugar tax. Even though Croatia is a
EU member since 2013, it will be analysed with other countries in the region. Hungary is
excluded from the analysis since „sugar levy“ is not classified under excise duties but rather

other taxes n.e.c.
Source: European Commission. 2017.
Table 2 shows low share of revenues from ‘sugar’ excise to total excise reve-
nues in France, Finland and Norway. Denmark was not included due to unclear
implementation of tax on sugar, ice cream, chocolate, confectioneries, sweets,
etc. (introduction, abolition and possible reintroduction of this tax type). In
France, a few papers have been published that deal with the effects of soda tax
on consumer prices, purchases and tastes (Cappaci et al., 2016; Berardi et al.,
2016; Etile et al, 2017). The results show that additional soda tax was gradually
levied to final consumers (Etile et al, 2017) whereas Cappaci et al. (2016) by
using a difference in difference method showed a relatively small impact of the
tax on prices with an uneven pass - through across the various drink categories.
851
In Hungary, as a post-transition country, revenues from sugar excise took less
than 1% of total excise revenues in period 2005 to 2012 and since 2012 was
abolished so it is not included in the table. In most developed economies such as
Norway, this share is higher (5.9% on average for 2010-2016), but unlike other
countries considering introduction of tax on soft drinks, Norway consistently
taxes all products containing sugar (including chocolates and sweets).
Data for neighbouring countries in period 2009-2016 provided in Table
3 shows that revenues from excise on soft drinks in BiH and Croatia take a
relatively small percentage of total revenues from excise (on average 1.0% in
Croatia and 1.6% in BiH), with a declining trend, so they can be considered
the so-called nuisance taxes or negligible taxes which complicate the tax mecha-
nism (leading to so-called tax jungle or tax labyrinth), where cost of collection is
higher than generated revenues. Serbia does not levy excise on soft drinks. If we
speak about fiscal reasons for introduction of additional excise on soft drinks
in BiH, they remain questionable due to low share of this type of excise in total
revenues from excise. This share is negligible to total revenues and GDP of all
countries.
Since growing economic pressures on healthcare sector are often argued for
the introduction of excise on soft drinks, it is noteworthy that EU countries are
implementing a number of other measures aimed at resolving financial prob-
lems in healthcare sector as well, including changes in (I) level of revenues; (II)
quantity and quality of public financing of healthcare; (III) expenses of publicly
financed healthcare (Pijalović, 2011). If we take obesity as one of risks leading
to non-contagious diseases as an argument in favour of introduction of excise
on soft drinks, we must emphasise that BiH has the lowest percentage of over-
weight population in Europe. Only 17.6% of population have BMI > 30 (WHO,
2016), and only Moldavia has less obese population. Countries which decided
to introduce excise (like Hungary, Finland, France, UK), as well as the country
which decided to abolish it (Denmark) have higher percentage of obese popula-
tion than BiH. Also, the Reform Agenda in BiH did not mention an increase of
excise on soft drinks as a reform proposal. Instead of increasing tax and excise
revenues, BiH should decrease public expenditures significantly which could be
done by the implementation of the Strategy of Fiscal Discipline and Sustain-
ability (Kreso and Lazović-Pita, 2016). Bearing this in mind, the justifications
to increase excise duties on soft drinks by 150% in BiH is difficult to find, except
for possible fiscal reasons and even these reasons remain questionable.
852
Table 3. Share of revenues from excise duties to total revenues in Croatia, Ser-
bia and BiH, 2009-2016
Revenues/Year 2009 2010 2011 2012 2013 2014 2015 2016
Croatia
Share of revenues from excise duties to
9,2% 10,3% 9,7% 9,5% 10,3% 11,0% 11,7% 11,7%
total revenues
Share of revenues from excise duties on
soft drinks to total revenues from excise 1,1% 1,0% 1,1% 1,1% 0,9% 0,9% 0,8% 0,8%
duties
share of revenues from excise duties on
0,1% 0,1% 0,1% 0,1% 0,1% 0,1% 0,1% 0,1%
soft drinks to total revenues
Serbia
11,2% 11,9% 12,5% 12,3% 13,3% 13,1% 13,9% 19,3%
total revenues
BiH
19,2% 20,5% 21,5% 21,3% 21,3% 20,9% 22,0% ...
total revenues
Share of revenues from excise duties on
soft drinks to total revenues from excise 2,1% 1,3% 1,2% 1,7% 1,2% 1,8% 1,7% ...
duties
share of revenues from excise duties on
0,2% 0,2% 0,2% 0,2% 0,2% 0,2% ... ...
soft drinks to total revenues
N.B. in BH, no aggregate data is available since 2015.

Source: Ministarstvo finansija R. Hrvatske, 2018, Ministarstvo finansija R. Srbije, 2018.
UINO, 2018.
5. ANALYSIS OF SOCIOECONOMIC EFFECTS OF

INTRODUCTION OF ADDITIONAL EXCISE ON INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
SOFT DRINKS IN BIH

.. Overview of the Soft Drinks Industry in BiH
According to results of the Survey on Consumption in BiH Households,
soft drinks take on average 10% of average monthly spending on food and bev-
erages (BiH Statistics Agency, 2004, 2007 and 2011). Table 4 presents data on
quantities and value of soft drinks sold in BiH. The data indicate a decline in
sales value but an increase in quantities produced by BiH soft drinks industry,
which resulted in a trend of decreasing unit producer prices for locally produced
soft drinks. The producer price in 2014 was only 79.87% of price from 2011.
Also, unit price of local excise products has been dropping (table 6), although
853
it is higher than unit price of total soft drinks production. This divergent trend
indicates a strong influence of competition, as well as increasing productivity of
local soft drinks industry, since local producers had to significantly increase the
production volume, while at the same time their experienced a decline in total
sales value.
According to last available data, total number of employees in this indus-
try was 1,154. Negative economic trends in the industry in a three-year period
resulted in reduced number of companies - from 76 to 67 (56 micro, 7 small,

2 medium and 2 large businesses), reduced revenues and reduced number of
largest producers which employ the highest number of workers in the industry
(AFIP Sarajevo and APIF Banja Luka, 2015).
Table 4. Summary of main indicators of BiH soft market industry, 2011-2015
BiH soft drinks market 2011 2012 2013 2014 2015
The value of sold soft drinks
215.169.428 222.531.772 210.199.996 203.252.672 210.055.356
(in BAM)
The quantity of sold drinks 264.334.999 278.482.754 278.135.596 312.624.992 323.088.269
Share of domestic soft
drinks to total number of 63,74 63,77 65,29 66,14 66,47
sold soft drinks, in % (1/3)
Share of imported soft
drinks to total number of 36,26 36,23 34,71 33,86 33,53
sold soft drinks, in %
Price per liter of sold
0,814 0,799 0,756 0,65 0,65
domestic soft drinks (BAM)
Price per liter of sold
0,855 0,855 0,878 0,851 0,868
imported soft drinks (BAM)
Source: Federalni zavod za statistiku, 2015, Institut za statistiku RS 2015. & BHAS, 2015,
own calculation.
854
Table 5. Summary of soft drinks subject to excise duties in BiH, BAM/l
Output Total for

Product type
2011-2015
2011. 2012. 2013. 2014. 2015.
Domestic soft drinks
149.491.150 156.669.420 159.974.762 161.802.511 164.771.270 792.709.113
subject to excise (1)
Imported soft drinks
60.165.152. 65.487.791 64.681.215. 69.178.149 75.356.448. 334.868.755
subject to excise (2)
Total (1+2)=(3) 209.656.302 222.157.211 224.655.977 230.980.660 240.127.718 1.127.577.868
Share of domestic soft
71,3 70,52 71,21 70,05 68,62 70,3
drinks (1/3)
Share of imported soft
28,7 29,48 28,79 29,95 31,38 29,7
drinks (2/3)
Excise duties on soft

drinks, BAM (5)
Excise duties on
14.949.115 15.397.476 15.397.476 16.180.251 16.477.127 78.401.445
domestic soft drinks (6)
Excise duties on
6.016.515 6.548.729 6.468.121 6.917.814 7.535.644 33.486.823
imported soft drinks
Total (5+6)= (7) 20.965.630 21.946.205 21.865.597 23.098.065 24.012.771 111.888.268
Share of domestic
71,3 70,16 70,42 70,05 68,62 70,07
excise duties (5/7)
Share of imported
28,7 29,84 29,58 29,95 31,38 29,93
excise duties (6/7)
own calculation.
Table 6. Comparison between a price per liter of sold domestic versus im-
ported soft drinks subject to excise duty

2011 2012 2013 2014 2015
Price per liter of sold domestic soft drinks subject to excise duty 0,98 0,96 0,87 0,78 0,78*
Price per liter of sold imported soft drinks subject to excise duty 0,83 0,82 0,84 0,81 0,83
own calculation.
.. Simulation of Effects of an Additional Excise

If efficient taxation should serve the purpose of maximising social welfare,
we simulated the effects of the proposed 150% increase of excise on soft drinks
(from the existing excise of BAM 0.10/l to proposed BAM 0.25/l). Starting
with the nominal and real growth of BiH’s GDP in 2011-2014 period (CBBH,
2015), as well as estimates for 2015 and projections for 2016-2018 period
855
(DEP, 2016), we used appropriate chain indexes calculated basing on trends of
value and quantity variables of BiH’s soft drinks industry, sectoral export and
import in order to create projections of quantities and values of produced and
sold soft drinks. The first simulation assumes that there will be no price spikes.
In order to do the second and third simulation based on data on price changes
and quantities in 2014, we calculated that the price elasticity of demand is -1.14.
On the other hand, the elasticity calculated by soft drinks producers in BiH is
slightly higher at -1.50. Since it is realistic to expect some cross elasticity (since
more people will make homemade fruit syrups -which is a regional tradition),
we used the elasticity of -1.5 for our analysis.
5.2.1 Simulation 1: Effects of Increased Excise on Soft Drinks in BiH –

Without Increase of Sales Price
The first simulation is made under the assumption that producers decide
to carry the burden of additional taxes by themselves – without increasing the
sales price. We calculated the ‘tax burden’ (TB) which might ensue in case of
special (additional/purpose-specific) excise (SE) in amount of BAM 0.15/l by
calculating the ratio of the sum of newly imposed excise burden (SE) and ac-
companying additional VAT and the sum of the new total tax burden (sum of
current excise of BAM 0.10/l and accompanying VAT + SE + additional ac-
companied VAT based on levied SE), and the result was TB= 0.3795 (37.95%).
By applying this to the unit price of local industry’s product of BAM 0.65/l, we
calculated the new unit price of product of BAM 0.58/l. This shows that any
additional taxes reduce efficiency and disturb the earlier achieved optimisation
in use of (scarce) resources, i.e. reduced economic performance of companies
exposed to the new, increased tax burden.
Based on the described values and these two-unit prices, we created projec-
tions and simulation of sales and production trends of BIH soft drinks industry
(Table 7).
856
Table 7. Simulation of the effects and an estimate of total sales revenues and
volumes in BiH soft drinks industry after addtional excise duty
2015 2016 2017 2018
Sold quanitites of BiH soft drinks industry, in liters
Price per liter 0.65 BAM/l 323.088.269 331.100.858 341.030.573 352.438.045
Price per liter after additional excise duty of
0.15 BAM/l; Tax burden: New price 0.584 368.860.046 379.922.158 392.630.554
BAM/l
Difference in quantities due to additional tax
37.759.188 38.891.586 40.192.509
burden (11.4% for each year)
Sales revenues of BiH soft drinks industry, in BAM
Per unit price of 0.650 BAM/l 210.055.356 215.264.729 221.720.518 229.137.069
Per unit price after additional excise duty
193.228.671 199.023.599 205.680.938
0.584 BAM/l
Difference in sales revenues- loss of
22.036.058 22.696.919 23.456.131
revenues of BiH soft drinks industry, in BAM
Source: own calculation.
Based on the projection of quantities and sales value of BiH soft drinks in-
dustry after imposing the ‘tax burden’, we can conclude the following:
- The amount of additionally collected excise in a three-year period would
be BAM 118,883,756
- The effect of shifting additional tax burden on business results of the indus-
try, or its revenues, due to inability to shift new indirect taxes on consum-
ers because of pressure on a highly competitive market would mean that

in the three-year period, BiH soft drinks industry would have to increase
produced quantities by 18.58% (392,630,554 l2018(PC=0.584)/331,100,858
l2016(PC=0.650)). In order words, they would have to produce additional
116,843,282 litres in course of three years to maintain the projected
growth of sales value of 9.08%. Surely, this would imply the imperative
of paying new amounts of increased excise in the market along with pay-
ment increased accompanying VAT. Conversely, BiH soft drinks industry
would not be capable of coping with this development, and it would have
to remain at the projected production quantities, i.e. according to projec-
tions, because of levying special (additional/purpose-specific) excise, BiH
soft drinks industry would lose BAM 68,189,108 in a three-year period
because producer prices being reduced under pressure of new tax burden.
857
5.2.2. Simulation 2- Effects of 14% Increase of Excise on Soft Drinks in BiH
Since producers would be exposed to a great financial burden which would
probably jeopardise their survival (especially in case of small producers) if they
do not increase the prices, it is more likely that producers would decide to shift
the burden of new taxes to end consumers, and to increase prices by 14%.
Based on this assumption, we calculated that the sales volumes would
decrease by 62,589,760 litres in 2016, i.e. sales value would drop by BAM
61,602,736. Sales volume in 2017 would drop by 69,354,321 litres, i.e. sales
value would drop by BAM 67,976,999. In 2018, sales volume would decrease
by 77,534,239 litres, and sales value would decrease by BAM 77,198,530.
As for the effects on excise collection, for excise of BAM 0.10/l in case of
excise increase by BAM 0.15/l, additional BAM 28,455,135, BAM 29,194,968
KM and BAM 29,811,905 would be collected in 2016, 2017 and 2018
respectively.
Based on data in average production quantity per worker, we can calculate
that reduced sales and consequent reduction in local production by 40,284,928
litres in 2016, a total of 143 workers would be redundant. Since the multiplier
in soft drinks industry is 2.23 (projection of Sarajevo Institute of Economics,
2015), another 177 workers would be laid off, totalling 320 workers.
Table 8. Simulation of possible economic effects of addtional excise duty in
BiH for 2016-2018
Soft drinks industry Total (multiplier 2.23)
Fall in number of workers (-143) (-320)
Wages (net) (-4.272.840) (-9.561.600)
Pension contributions (-1.525.352) (-3.413.376)
Health contributions (-1.094.259) (-2.448.691)
Unemployment contributions (-132.613) (-296.755.2)
PIT (-303.166) (-678.413)
Total (-7.328.230) (-16.398.835)
Because of expected redundancies in BiH soft drinks industry, there would

be a reduction in net salaries, contributions and income taxes in total amount of
BAM 30,044,675 in 2016-2018 period (table 8).
858
Table 9. An increase/ a fall of additional VAT revenues* for 2016-2018
BiH 2016 2017 2018 Total
Excise duty of 0.10 BAM/l; Growth under
DEP procjections without additional excise 1.391.979 1.591.760 1.866.432 2.983.739
duties
Excise duty 0.25 BAM/l (-8.950.8159) (-9.876.990) (-11.216.869) (-30.044.675)
* In comparison to previous year when excise duty of 0.10 BAM/l
The first version of projection of collected VAT (in case that excise remains
BAM 0.10/l) reflects the fact that sales of drinks (based on chain indexes) is
expected to grow, and consequently amounts of collected VAT are expected
to grow too. On the other hand, the version assuming introduction of excise
of BAM 0.25/l reflects the fact that there would be a decrease in value of sold
products caused by growing prices, whereby the amount of collected VAT (in
all three years) is expected to drop by BAM 30,044,675 (table 9).
5.2.3. Simulation 3: Effects of Increased Excise on Soft Drinks in BIH with

7% Price Increase
Simulation 3 assumes that producers decide to share the burden of new tax-
es with consumers, increasing prices by 7%. All other assumptions are the same
as in Simulation 2. Based on these assumptions, we calculated that the effect of
such change would be collection of additional BAM 99,086,705 revenues from
excise. On the other hand, 80 workers from the industry would be redundant,
or 178 workers in total. VAT collection in the three-year period would be re-
duced by BAM 19,828,461. Net salaries, contributions and income taxes would
drop by BAM 9,121,851.
Apart from these presented calculations and the effects on a fall in quanti-
ties produced and sold in the domestic market, additional excise could have
other effects on producers, consumers and society. We could anticipate a fall in
exports of soft drinks, negative effects on suppliers of soft drinks industry (for
example, in agriculture – fruit suppliers), on one side, and an increase in con-
sumption of cheaper, lower quality substitutes on the other. From the perspec-
tive of society, apart from possible positive effects on health due to lower sugar
intake in societies where excessive sugar consumption appears to be a problem,
additional excise can lead to higher unemployment, worsening of foreign trade
859
balance (import substitution), a fall in consumption multiplier and GDP and
growing shadow economy.
6. CONCLUSION
Apart from the analysis of the justification for an increase of excise duty on
soft drinks based on comparative analysis with EU members and an overview
of fiscal and non-fiscal aspects of introduction of excise on soft drinks, this pa-
per also provided a projection of economic effects of the proposed increase of
excise on soft drinks in BIH. Within the contextual framework which includes
a holistic analysis of wider economic effects, we established that: (I) production
in soft drinks industry and all related industries would decrease; (II) revenues
from excise would grow, but tax and non-tax revenues (contributions) might
fall; (III) employment in soft drinks industry and several related industries
(suppliers of soft drinks industry) would decrease. Besides the explicitly cal-
culated consequences, it is possible to expect additional consequences reflected
growing shadow economy, worsening of foreign trade balance, etc.
Due to all listed reasons, we conclude that levying additional excise on soft
drinks in BiH would be inefficient and harmful. Furthermore, in this paper we
attempted to perform a comprehensive economic analysis of the possible effects
of an introduction of additional excise duty on soft drinks. Further research
would include, based upon available micro data (age, sex, income, consump-
tion), a calculation of different elasticities for BiH. By using a comparative risk
assessment model, we would then be able to estimate the effects of taxes which
are linked to health protection and discouraging of excessive use of some prod-
ucts which are detrimental to health.
LITERATURE
Agencija za finansijske i posredinčke usluge (AFIP) Sarajevo & Agencija za finansijske i
posredničke usluge Banja Luka, 2015. Company database (available at request).
Berardi, N., Sevestre, P., Tepaut, M. & Vigneron, A. 2016. The impact of a ‘soda tax’ on
prices: evidence from French micro data. Jounral of applied economics. Vol 48. Issue 41.
BHAS, 2004, 2007 & 2011. Anketa o potrošnji domaćinstva. Available at: www.bhas.ba
(accessed:04/2017)
BHAS, 2015. Statistika vanjske trgovine. Available at: www.bhas.ba (Accessed: 17.04.2016.)
860
Bratić, V. 2011. Skrivena javna potrošnja – porezni izdaci: potreba ili udvaranje biračima?
Zagreb, Institut za javne finansije.
Capacci, S., Allais, O., Bonnet, C & Mazzocchi, M. 2016. The impact of the French soda tax
on prices, purchases and tastes: an ex post evaluation. Available at: https://www.tse-
fr.eu/seminars/2017-impact-french-soda-tax-prices-purchases-and-tastes-ex-post-
evaluation (accessed: 03/2018).
Central bank of BiH - CBBH, 2015. Bilten 4., 2015. Available at: www.cbbh.ba
(Accessed:04/2017)
Cnossen, S. 2005. Theory and practice of excise taxation: smoking, drinking, gambling, pol-
luting, and driving, Oxford University Press, New York.
Die Welt, 2016. Ernährungsminister gegen Steuer auf zuckerhaltige Getränke. Avail-
able at:http://www.welt.de/newsticker/dpa_nt/infoline_nt/brennpunkte_nt/ar-
ticle153795586/Ernaehrungsminister-gegen-Steuer-auf-zuckerhaltige-Getraenke.
html (Accessed: 04/2017)
Direkcija za ekonomsko planiranje - DEP, 2016. Program ekonomskih reformi za BiH
2016.-2018. Available at: www.dep.gov.ba (Accessed 06/2017)
Etile, F, Lecocq, S. & Boizot-Szantai, Ch. 2017. The Incidence of Soft-drink Taxes on Con-
sumer Prices: Evidence from the French Soda Tax. Available at: https://jma2017.sci-
encesconf.org/136124/document (Accessed: 03/2018)
European Commission, 2017. Taxation trends in the EU. Available at: http://ec.europa.
eu/taxation_customs/taxation/gen_info/economic_analysis/tax_structures/index_
en.htm (20.04.2016.)
EUROSTAT, 2017. Government deficit and surplus, annual data. Available at: http://
ec.europa.eu/eurostat/tgm/table.do?tab=table&plugin=1&language=en&pcode=tei
na200 (Accessed: 03/2018)
Federalni zavod za statistiku, 2015. Godišnji bilteni industrijske proizvodnje. Available at:
www.fzs.ba (Accessed:7/2017.)
Garnier, G., Gburzynska, A., György E., Mathé, M., Prammer, D., Ruà, S., & Skonieczna, A.
(2013). Recent Reforms of Tax Systems in the EU: Good and Bad News (European
Commission, Taxation papers, Working Paper no. 39). Available at: http://ec.europa.
eu/taxation_customs/resources/documents/taxation/gen_info /economic_analysis/
tax_papers/taxation_paper_39.pdf (Accessed:12/2017).
Howard & Wylie-Rosett. 2002. Sugar and cardiovascular disease’, AHA Journal, vol. 106,
pp. 523-7, viewed 28 November 2012, Available at: http://circ.ahajournals.org/conte
nt/106/4/523(Accessed:12/2017)
Institut za statistiku RS, 2015. Godišnji bilteni industrijske proizvodnje. Available at: http://
www.rzs.rs.ba/ (Accessed: 5/2017)
Institute for Market Economics, 2015. Social and Economic Impacts of the Proposed New
Taxes on Some Foods. Available at: http://ime.bg/en/articles/social-and-economic-
impacts-of-the-proposed-new-taxes-on-some-foods/ (Accessed: 04/2017)
Jelčić, B. & Jelčić, B. 1998. Porezni sustav i porezna politika. Informator. Zagreb.
861
Kreso, S. & Lazović-Pita, L. 2016. The Western Balkans after the fall of Yugoslavia – the sta-
tus and possible strategies of future fiscal reforms. U. Meyer, D. & Stübben, F. (Eds.).
Wirtschaftswissenschaft und Wissenschaftsdiplomatie, BERG Public Economic Se-
ries, Volume 28. Bamberg. Pp.91-114.
Leicester, A. and Windmeijer, F. 2004. The ‘Fat Tax’: Economic Incentives to Reduce Obesity.
Institute of Fiscal Studies. Briefing Note No. 49
McCarten, W.J & Stotsky, J. 1995. Excise taxes. in: Shome, P. (Ed.). Tax Policy Handbook.
Fiscal Affairs Department. Washington: IMF.
Ministarstvo finansija R Hrvatske, 2018. Konsolidirana opća država 2015 Available at:
http://www.mfin.hr/hr/vremenske-serije-podataka (Accessed: 03/2018)
Ministarstvo finansija R. Srbije, 2018. Makroekonomski i fiskalni podaci 2015. Available at:
http://www.mfin.gov.rs/pages/article.php?id=11950 (Accessed: 03/2018)
Musgrave, R.A. & Musgrave, P. 1993. Javne financije u teoriji i praksi, IJF, Zagreb.
OECD, 2018. Revenue statistics 1965-2015. Available at: http://stats.oecd.org/Index.
aspx?DataSetCode=REV (Accessed: 03/2018)
Oxford economics, 2013. The Impact of Selective Food and Non-Alcoholic. International
Tax and Investment Center. Available at: http://www.delo.si/assets/media/oth-
er/20130508/ITIC%20Oxford%20Economics%20-%20The%20Impacts%20of%20
Selective%20Food%20and%20Non-Alcoholic%20Beverages%20Taxes.pdf (Accessed
03/2018)
Pijalović, V. 2011.Mogući pravci reforme zdravstvenog sektora, Međunarodni simpozij: U
susret promjenama. Udruženje računovođa i revizora FBiH.
Pratt, 2012. A constructive Critique of Public Health Arguments for Anti-Obesity Soda
Taxes. Tulane Law Review Vol.87, No. 73
Preece, R. 2013. The effective contribution of excise taxation on non-alcoholic beverages to
government revenues and social objectives: a review of the literature, World Customs
Journal, Volume 7, Number 1, March 2013. Available at: http://worldcustomsjournal.
org/archive/volume-7-number-1-march-2013/ (Accessed: 04/2017)
Rosen, H.S. & Gayer, T. 2009. Javne finansije. Beograd: Ekonomski fakultet Beograd.
Searle, J., Regmi, A. & Bernstein, J. 2003. International evidence on food consumption pat-
terns. United States Department of agriculture. Available at: https://ageconsearch.
umn.edu/bitstream/33580/1/tb031904.pdf (Accessed: 03/2018)
Šimović, J. & Šimović, H. 2006. Fiskalni sustav i fiskalna politika Europske Unije. Pravni
fakultet, Zagreb.
The Economist, 2015. Taxing sugary drinks, Stop slurping. Available at: http://www.
economist.com/news/finance-and-economics/21679259-taxes-fizzy-drinks-seem-
work-intended-stopping-slurping (Accessed: 04/2016)
The Economist, 2016. A tax on sugar. Pricier pop. Available at: http://www.economist.com/
news/britain/21694993-levy-drinks-may-change-recipes-not-waistlines-britain-
gets-new-tax-sugary-drinks (Accessed:.04/2017)
UINO, 2018. Izvještaj o naplaćenim prihodima na Jedinstveni račun UINO BiH. Avaiable
at: http://www.oma.uino.gov.ba/04_izvjestaji.asp?l=b (accessed: 03/2018)
862
UK Office for National Statistics, 2012-2013. The Effects of Taxes and Benefits on House-
hold Income, 2012/13. Available at: www.ons.gov.uk. (Accessed:04/2017)
Vartanian, LR, Schwartz, MB and Brownell, KD. 2007. Effects of soft drink consumption
on nutrition and health: a systematic review and meta-analysis. American Journal of
Public Health. 97(4)
FBiH Government. 2015. Reformska agenda za Bosnu I Hercegovinu za period 2015-2018.
Avaiable at: http://www.fBiHvlada.gov.ba/pdf/Reformska%20agenda.pdf (Accessed:
03/2018)
World Health Organisation. 2016. Global Health Observatory indicator views, Available at:
http://www.who.int/gho/database/en/ (Accessed:04/2017)
863
Health,
Education
and
Welfare
CONCEPT OF EDUCATIONAL
INSTITUTIONS AS SUSTAINABLE
ORGANIZATIONS
Tena ČAČIĆ, Ph.D.

SiT Libenter
tenacacic@sitlibenter.hr
Abstract
Changes in the system usually occur when the system for some reason ceases to
be functional. The problem of the system is primarily question of development;
the crisis is a product of the system. One cannot expect the system to display a
higher idealism or stage of development than that to which the average human
consciousness has reached because the system is the product of that conscious-
ness. Purpose of this paper is to present a concept of educational institutions
as sustainable organizations. The general objective is to show connectedness
between energy sources, communication and paradigm shifts with an emphasis
on conformist - amber organizations, since most public educational institutions,
in general, carry conformist template. Specific objectives are to present Wilber’s
comprehensive Integral Theory that incorporate vast number of scientific truths
learned about human nature in one coherent whole, to show conscious business
model based on empowerment through learning, growth and adding value and
to explore digital information and educational products as possible products of INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
educational institutions that could contribute to the sustainability of the educa-
tion system. The aim is to encourage reflection on the possibilities of transform-
ing educational institutions based on conformist paradigm into organizations
inspired by emerging stage of human consciousness.
Key words: sustainable organizations, educational institutions, Integral Theo-
ry, digital information products, conscious business
JEL Classification: H52, I21
867
1. UNDERSTANDING THE CHANGE
What is difficult or impossible in one paradigm is easy even trivial in another
Joel Barker
What seemed like dreams a century ago, now are things we take for grant-
ed: smartphones, virtual reality sets, MP3 players, digital musical instruments,
home robots just to mention some. The scale of the change Harrari remarkably
described by comparing Spanish peasants falling asleep AD 100 and waking up
500 years later in the world quite familiar to him and one of Columbus’ sailors
fallen into a similar slumber and woken up to the ringtone of a twenty-first-cen-
tury iPhone, finding himself in a world strange beyond comprehension asking
is this a heaven or perhaps a hell (Harari, 2014:247). Just as Columbus’ sailor
could not even imagine a phone, especially not an iPhone, so it is for many peo-
ple hard to believe how could look like a world built upon abundance mentality.
Significant developments in physics, the emergence of Integral theory, a the-
Tena Čačić: CONCEPT OF EDUCATIONAL INSTITUTIONS AS SUSTAINABLE ORGANIZATIONS
ory that can be applied on every aspect of reality, (re)discovery of sacred geom-
etry/cosmometry/vortex mathematics which explains principles upon which
nature works, created a solid foundation for rewriting the conceptions of hu-
man nature and the structure of the world. As Einstein once said, “We cannot
solve our problems within the same thinking we used when we created them,”
new millennium brought us entirely new solutions for old problems. To get a
glimpse of a part of the solution, we will introduce Wilber’s Integral theory and
present the patterns of changing paradigm throughout history.
.. Integral Theory - a single framework of diversity

Integral theory is a metatheory brought by Ken Wilber, American philoso-
pher, author of more than twenty books translated into more than 24 languages.
It connects into coherent whole significant insights from eastern traditions and
major western scientific disciplines including the natural and social sciences
as well as the arts and humanities. Comprehensive nature of Integral theory
has made it being used in professional and academic fields such as psychology,
healthcare, ecology, education, organizational management, art, economics, law,
feminism and its use is extending to other disciplines at a fast pace. The word
“integral” refers to radically inclusive framework also called AQAL map, AQAL
model where abbreviation AQAL stands for five elements of Integral theory
868
(AQAL model, AQAL map or AQAL framework): all quadrants, all levels, all
lines, all states, and all types. These five elements signify some of the most basic
repeating patterns of reality and can be used to “look at” reality and at the same
time they represent the essential aspects of persons own awareness in every mo-
ment (Esbjörn-Hargens, 2009:2-7).
Quadrants, the first element of Integral theory or AQAL indicates that there
are four irreducible perspectives (subjective, intersubjective, objective, and in-
tersubjective) that must be considered to fully understand any aspect of reality.
According to their position they are called: upper left (UL), upper right (UR),
lower left (LL) and lower right (LR). These perspectives are actual aspects of
the world that are always present in each moment. For example, all individuals
(including plants and animals) have some form of inner, subjective experience
or interiors (thoughts, feelings, sensations – UL quadrant), and outer, objec-
tive behaviors and physiological factors (heart rate, eye color, face expressions
– UR quadrant…), or exteriors. Furthermore, individuals are usually members
of groups or collectives. The interior aspects of collective are known as intersub-
jective cultural realities (shared meanings, values, group atmosphere – LL quad-
rant) while exteriors are known as interobjective ecological and social systems
(social systems, ecosystems, networks of communication – LR quadrant). For
example, a teacher that feels overwhelmed (UL) who has high blood pressure
(UR) can be found in ethnocentric culture (LL) working in public school (LR).
Levels of development is the second element of AQAL model. It refers to
higher and lower structures of consciousness present in each quadrant: within

the interior, there are levels of depth and within the exterior, levels of complex-
ity. Some examples include egocentric, ethnocentric, worldcentric, planetocen-
tric, and Kosmocentric (Rentschler, 2006:19).
Developmental lines are areas through which growth occurs. Just as levels
are like fluid waves, lines are like sinuous streams. Some of the dozens of dis-
covered developmental lines are cognition, needs, self-identity, values, emotions,
aesthetics, morals, kinesthetic, spirituality, interpersonal relating, music, etc.
“Each line is unique in that it can develop relatively independently of the others
“(Wilber et al.; 2008:81). For example, a person can have high cognition but
low moral development – like a smart scientist who cheats on research results.
States are fleeting, temporary and changing aspects of phenomena found in
all four quadrants (Rentschler, 2006:29): emotional, meditative, creative, flow
869
states (UL); brain states, biological states like health, sickness (UR); states of
shared meaning, shared emotions, communication states, relationship states
(LL); economic states, political states, weather states, states of war (LR) (Wil-
ber et al.; 2008:101).
Types is AQAL element that describes horizontal differences between with-
in the quadrants. Here are some examples: personality types (e.g., Myers-Briggs,
Enneagram), gender types (e.g., masculine and feminine) (UL); body types (e.g.,
endomorph, ectomorph, mesomorph), blood types (e.g., B-, A-) (UR); cultural
types (e.g., Croatian, German), communication types (e.g., verbal, non-verbal)
(LL); types of democracy (e.g., parliamentary, two-party), transportation types
(e.g., plane, car) (LR).
To understand the process of replacing old with new and to put educational
institutions into a context of the 21st century, we will present patterns of para-
digm shifts through history.
.. Patterns of paradigm shifts – communication, energy,

consciousness
New ideas are hard to accept because preconceived notions, which dictate
what we think we see, are very strongly and deeply rooted in the collective con-
sciousness: “certain worldview is successful insofar as it is adopted in childhood
onwards, so nobody questions it” (Rifkin, 2002, p. 15 in Čačić, 2012:6). Ac-
cording to Radin, acceptance of new ideas goes through four stages: in the first
stage skeptics confidently proclaim that the idea is impossible because it violates
the Laws of Science, in the second skeptics reluctantly concede that the idea
is possible, but it is not very interesting, and the claimed effects are extremely
weak, in the third mainstream begins to realize that the idea is not only im-
portant, but its results are much stronger and more pervasive than previously
imagined and in the last stage those who were initially skeptical, proclaim that
they thought of it first. Eventually, no one remembers that the idea was once
considered a dangerous heresy (Radin, 1997: 1).
History showed that the changes of the paradigm are intimately connected
with the appearance of new modes of communication and new sources of en-
ergy (Rifkin, 2002 in Čačić, 2012:7-10).
870
In this paper, the term paradigm and the term worldview will be used as a
synonym for the meaning of how the world is viewed by people at the certain
developmental level of consciousness. It will refer to features of an individual’s
consciousness, such as cognition (what one is aware of ), values (what one con-
siders most important) and self-identity (what one identifies with). These fea-
tures of consciousness develop through recognizable stages, each stage revealing
a markedly different understanding of the world (Brown, 2006:1). Level, an ele-
ment of an individual’s consciousness, has an actual structure. It tends to unfold
in a sequence and thus progress through stages. “Levels are not rigidly separated
from each other but are rather fluid and overlapping waves. In short, levels are
abstract measures that represent fluid yet qualitatively distinct classes of recur-
rent patterns within developmental lines.” (Rentschler, 2006:19).
Before presenting the evolution of a Western cultural worldview, it should
be noted that the structure of nature is fractal, what means that developmental
levels through which the culture passes are visible in the development of human
being from birth onwards. In this paper levels will be named upon research
by Ken Wilber in Integral theory, Clare Graves, Don Beck, and Chris Cowan
in the development of values and Jane Loevinger and Susanne Cook-Greuter
in the development of self-identity (Brown, 2006:1). Levels are identified with
color and divided into egocentric (Infrared, Magenta, and Red), ethnocentric
(Amber), worldcentric (Orange and Green), and Kosmocentric levels (Teal,
Turquoise, and Indigo) (Brown, 2006:1).
At the beginning of humankind, people operated from the archaic world-

view (infrared): cognitively at a sensorimotor level, could not distinguish them-
selves from the others, their self-identity was symbiotic. Gathered in the micro-
social system of the family clans, they supplied energy by hunting and gather-
ing. While being focused mainly on survival, people communicated exclusively
orally. Adults at this stage are usually nonverbal and often institutionalized or
utterly dependent on the protection and care of others.
Animistic – magical worldview (magenta) began to emerge around 50.000
years ago when clans started to gather into tribes, supply energy by cultivat-
ing gardens with a handled hoe in addition to foraging and communicate by
drawing in addition to oral communication. Cognition of tribal societies was
preoperational with values focused on obeying the desires of spirit beings and
allegiance to a chief, elders, ancestors, and the clan. Safety and gratification of
871
basic needs and following one’s impulses was the primary focus of self – iden-
tity. Today, animistic – magical worldview can be seen in children of around
three to 24 months of age, in the belief in voodoo-like curses; family rituals,
in some less developed countries, gangs, athletic teams, and corporate “tribes”
(Brown, 2006:3).
Ten thousand years ago in the history of Western Europe heavy plow started
to replace handled a hoe. Horticultural oral – drawing society began to evolve
into the agrarian, and the new way of communication occurred, early literacy.
The economy based on agriculture required the creation of a system for stor-
ing surplus and their distribution, so it also required a more efficient organiza-
tion which is not possible without a change in the method of communication
and power – gods worldview began to emerge. Central values of power – gods
worldview (red) are power, spontaneity, heroism, immediate gratification, re-
ceiving respect, getting attention, being daring, impulsive, and enjoying oneself
without regret; conquering, outsmarting, dominating. Self-identifies around
own immediate needs, opportunities, and self-protection (Brown, 2006:4). To-

day, power – gods worldview can be seen in ‘terrible twos’ children, rebellious
youth, frontier mentalities, epic heroes; wild rock stars and mafia and street
gang organizations.
The next significant milestone in the history of Western Europe appeared
when mythic order worldview (amber) emerged. Literacy was in its mature
stage contributing humankind to leap from a tribal world subsisting mostly on
horticulture to the ripe age of agriculture, states and civilizations, institutions,
bureaucracies, and organized religions. Mythic order worldview is also known
as conformist, ethnocentric, amber (Wilber), blue (Graves) stage of conscious-
ness. According to developmental psychologists, a large number of today’s adult
population in developed societies operates from this worldview. Self – identity is
focused on socially expected behavior, approval and it is defined by relationship
to the group. It values stability, meaningful life with predetermined outcomes,
(secular or religious) Truth, Mission, future reward, laws, regulations, and rules,
discipline, character, duty, honor, justice, controlling impulsivity through guilt,
following absolutistic principles of right and wrong, being faithful, maintaining
order and harmony and one right way (Brown, 2006:5). Since the public edu-
cational institutions are an embodiment of mythic – order worldview, it will be
described later in more detail.
872
The invention of the printing machine in the 15th century and transition
from energy base on wood to coal, which lasted several hundred years, prepared
the ground for a groundbreaking invention of the steam machine and scientific
– rational (orange) worldview to emerge. The self becomes interested in causes,
reasons, consequences, efficient use of time, future-oriented, proactive and ca-
pable of self-criticism, and a broader sense of responsibility. Values are focused
around progress, prosperity, optimism, and self-reliance, strategy, risk-taking,
and competitiveness, goals, leverage, professional development, and mastery,
rationality, objectivism, results, technology, and the power of science (Brown,
2006:6). Corporate and scientific organizations are one of the embodiments of
scientific – rational worldview.
The discovery of oil and electricity paved the way for the electronic commu-
nications (telephone, radio, film, later TV, video, cassette) and the emergence
of pluralistic (green) worldview. The self operating from this perspective strives
to belong, to foster close and harmonious bonds with everyone. It is aware of
Orange’s materialistic obsession, the social inequality and the loss of commu-
nity and its values are centered around harmony, fairness, equality, community,
cooperation, peace and consensus. Pluralistic point of view respects all perspec-
tives as equally essential and intend to break free from “the prison of conven-
tional roles, social classes, patriarchy, institutional religion, and other structures”
(Laloux, 2014:30).
The shift in communication technology from mechanical and analog to digi-
tal electronics (from the late 1950s to the late 1970s) encouraged environmen-

talist to promote the development of renewable energy. Alongside the digital
communication, the first electricity generating wind turbines appeared and in-
tegral (teal) worldview emerged. Teal worldview brought in focus “the magnifi-
cence of existence (over material possessions), flexibility, spontaneity, and func-
tionality; knowledge and competency (over rank, power, status); the integration
of differences into interdependent, natural flows; complementing egalitarianism
with natural degrees of ranking and excellence; recognition of overlapping dy-
namic systems and natural hierarchies in any context” (Brown, 2006:8). Self
identifies around “linking theory and principles with practice, recognizes higher
principles, social construction of reality, complexity, and interrelationships; it
is aware of paradox and contradiction in system and self, seeks feedback from
others and environment as vital for growth and making sense of world” (Brown,
2006:8).
873
Humanity is currently standing at the edge of a technological revolution that
is fundamentally changing the way people think, communicate, live, work, and
perceive reality. When compared with previous significant changes in Western
Europe, a transformation that started thirty years ago is evolving at an exponen-
tial pace. Holistic (turquoise) worldview supported by exponential technology
is disrupting industries in almost every country. Although Tesla’s idea of free
energy has not yet come to mainstream, it is assumed that it will be realized
in the near future as history has shown that evolution in communication and
consciousness inevitably follows the progression in energy supply: we are now
able to gather renewable energy from new grid systems called “microgrids”. Mi-
crogrids allow people who own solar panels to sell their leftover energy to other
people and renewable energy retailers without a third party within the system
of blockchain technology (decentralized technology that allows fast, secure and
transparent peer-to-peer transactions of digital values such as currency and
data).
The bottom line of holistic (turquoise) worldview is global order and re-
newal. It values the embodiment of mind and spirit, the detection of harmonics,
mystical forces, sensing waves of integrative energies and uniting feelings with
knowledge. The self sees itself as both distinct and a blended part of a larger,
compassionate whole; it recognizes that everything connects to everything else
in ecological alignments. Its primary focus is “interplay of awareness, thought,
action, and effects; transforming self and others.” Qualities of holistic self are
“high awareness of the complexity of meaning-making, systemic interactions,
and dynamic processes; seeking personal and spiritual transformation and sup-
porting others in their life quests; creating events that become mythical and
reframe the meaning of situations” (Brown, 2006:9).
.. Educational institutions like conformist - amber

organizations
The most public educational institutions present today in the world are
run based on conformist (amber) principles and practices. In short, conform-
ist organizations are well-suited for stable contexts, where the future can be
planned based on what worked in the past. It is hard for conformist organiza-
tions to accept the change because of the hidden assumption that there is only
one right way of doing things. Historically, they have striven for dominance and
874
monopoly (e.g., The Catholic Church), so today still tend to view competition
with suspicion. The overall structure settles into a rigid pyramid from bosses to
subordinates (Laloux, 2014: 20-23). Below the Minister of Education there are
senior advisors, below senior advisors there are advisors, below advisors there
are school principals, below principals there are teachers. Hierarchical stratifica-
tion in organizations often followed social stratification: priests were recruited
from peasantry; bishops and cardinals, from the aristocracy, so for a man (par-
ticularly a woman) born into the working class it was almost impossible to be-
come a chief.
The underlying worldview is that workers are mostly lazy, and they must be
controlled to achieve results. Jobs are narrow and routine-based. Innovation,
critical thinking, and self-expression are not asked for (and often discouraged).
People are replaceable; individual talent is neither discerned nor developed. Size
and stability of conformist organizations are possible because people operating
from conformist worldview are “content to stay in their box and not vie for a
higher prize” (Laloux, 2014:22).
Historically, since social belonging is crucial in the conformist – amber
worldview, to avert internal conflict within a group, problems and mistakes are
routinely blamed on others, what is often seen in Croatian society of today.
2. CONSCIOUS CAPITALISM  NEW ECONOMY

Integral (teal) and holistic (turquoise) worldviews have brought an entirely

new view of capitalism and the economy in general. Since consciousness at ho-
listic level recognizes that everything connects to everything else, its primary
motivation is to create a better world and a sustainable future on this plan-
et. Leaders are seen as catalysts for different possibilities in life and the world
(Bowman et al.; 2015:95). The main difference between the “old” and the “new”
economy is that the “new” economy is based on exponential technology that fol-
lows natural laws and abundance is a direct consequence of natural laws in ac-
tion. Just as nature continuously generate different expressions just because the
energy of being a catalyst for change is embodied in its core, so “new” economy
leaders embody harmonic coherence frequency, which strongly affects others
and allows change to occur. The main difference from an “old” economy, where
the emphasis was on what is being done and the actions that are being taken,
is that in the “new” economy it is important who is doing, how it is done and
875
from which level of consciousness work is done. “New” economy is built around
consciousness. It requires leaders to continuously expandan awareness and to
develop clarity of vision to see beyond the constraint of this reality. Conscious
awareness or creativity is the way to navigate the change. It is responsible for all
of the incredible inventions and innovations in history and today.
So, to follow the steps of successful inventors, authors, pioneers, designers,
discoverers, entrepreneurs and to continuously expand awareness or creativity,
it is necessary to continually question the existing reality, to become aware of
mental concepts that are no longer functional and to replace it with functional
ones. To keep up with the exponential technology is required to go beyond the
surface and rules-based routines into transforming, creative mindsets at deep
and unconscious levels.
.. Understanding exponential technology

Fractal structure of the nature that is visible in the development of cultural

worldviews and human being from birth onwards is also visible in exponential
technology. Thanks to the digital revolution that offered effective and fast data
analyzing, sharing methods and cheap digital storage, understanding natural
and social networks become possible. The critical discovery of network science
is that the architecture of different natural, social and technological networks is
similar and governed by the same organizing principles.That discovery enabled
us to understand principles of the exponential technology. Exponential growth
is a result of a power law, a signature of hierarchy and robustness of fractal,
scale-free networks like the Internet and other natural complex systems. As the
philosopher, Seneca noted, “true wisdom consists in not departing from nature
and in molding our conduct according to her laws and model,” to understand
exponential technology is to appreciate nature and the way it shapes the society
in general.
According to Kotler, “the growth cycles of exponentially advancing technolo-
gies are broken up into Six D’s: digitalization, deception, disruption, demoneti-
zation, dematerialization, and democratization” (Haupt, 2016). Digitalization
refers to information/data based technology, represented in ones and zeros,
while means that after the initial introduction, some technologies are dismissed
by people as irrelevant. During deception phase, technologies advance quickly,
often below the radar. Once refined, these technologies disrupt established in-
876
dustries. Demonetization appears when technology becomes cheaper, often to
the point of being free. The most common example is how digital photogra-
phy removed the need to buy film. Dematerialization, a process of transform-
ing physical things into digital, is intimately connected with demonetization
and democratization, it decreases costs and provides access to technology to
everyone.
Some examples of exponential technology are voice recognition, robotics,
3D printing, virtual reality, synthetic biology collaboration platforms, mobile
education platforms, online course platforms, blockchain platforms for different
purposes, etc.
.. Information and education digital products

Exponential technology allowed democratization of knowledge and the rise
of individuals who become successful entrepreneurs by solving world’s prob-
lems of today and delivering solutions in the form of digital information and
education products.
Although the market for digital info products is saturated, it is still grow-
ing at exponential pace. It is because the most successful authors apply living-
systems logic and proven business model that is based on providing more value
of the actual cost, empowering and collaborating with others while contribut-
ing to the whole. The central premise of digital info products business is that
anyone who has knowledge, expertise, or talent that can be valuable to someone

somewhere, and who seeks to leverage the online world to reach those people
and make their lives better can become an entrepreneur.
Succesful info products entrepreneurs teach others their proven steps that
lead them to the creation of successful businesses what shortens learning pro-
cess for new entrepreneurs. Authenticity, transparency, and the proof that
knowledge solves the particular problem are drivers of success. The core insight
that drives the business behind information and education products is that the
most significant impact creates the greatest success by putting the audience first:
product creation is based on real-world demand from people who entrepreneur
serves, and selling is realized from a position of trusted authority.
Several main categories of businesses that rely on the knowledge, expertise,
and passion are directly related to information and education digital products:
877
selling products (e-books, membership sites, online training course, physical
goods, telesummits, webinars, software, music etc.), services (coaching, consult-
ing, freelancing, writing, , design, esoteric offers etc.) writing and publishing.
Since the purpose of educational institutions is to teach, consult and to dis-
seminate knowledge, they can become pillars of the new economy by using an
exponential technology in the democratization of knowledge and at the same
time becoming sustainable.
3. EDUCATIONAL INSTITUTIONS AS PILLARS

OF THE NEW ECONOMY
Educational institutions like conformist - amber organizations do not tend
to become sustainable and profitable because it’s just not in their value system.
Since there is no skipping evolutionary stages, the next evolutionary stage of
conformist – amber educational institutions is to become rational – orange
organizations with value set focused around competitiveness, leverage, prog-

ress, prosperity, optimism, risk-taking, and self-reliance directed toward holistic
worldview and sustainability. The overarching vision of educational institutions
of the future could be to work with the grain of nature, creating and monetiz-
ing value for itself and students while leaving the place more vibrant for future
generations.
The first step for bringing the vision into reality would be shifting thinking
frame of all subjects involved in the process of transformation from a linear, re-
ductive and siloed perspective to relational multi-stakeholder systems-thinking
that seeks collaboration, shared value, and coproduction.
Since models and management approaches that served well in the “old”
economy are no longer fit for “new” economy based on exponential technology,
we will explore emerging model that could help educational institutions to get
directed toward sustainability with a vision to become an exponential organi-
zation. Considering that new ideas are hard to accept, it is recommended that
process of reinvention begin with questioning and clearing outdated beliefs and
mental concepts. As students learn to question culture space, they also learn
how to transform their inner world, to „be in a flow” and to create a vision for
their future that is decidedly their own and free from expectations of the culture
878
space and focused on end goals that strike a direct chord with their happiness
(Lakhiani, 2016:15).
The Bitdegree platform is an example of exponential technology disrupting
higher education institutions. It fills the gap between the needs of employers
and student’s tech knowledge (Bitdegree, 2018) by offering students the best
online courses with a clear and transparent blockchain based reward system
and achievement tracking. At the same time, it helps businesses to recruit tech
talents and shape global education to their needs. It revolutionizes education
by creating a new blockchain token (value exchange currency) that can be ex-
changed among the users of the platform: students, companies as sponsors, and
third parties. Educational institutions can consider using Bitdegree’s emerg-
ing model to fill gaps within different industries as well. The model has three
components:
1. Companies as sponsors are the primary fuel for a sustainable educational
economy. The economic incentive for companies as sponsors to buy to-
kens is to build an audience, recruite talents, solve their own problems
within emerging worldview, enhance company’s branding and advertising
2. students - tokens can be used for creating smart-incentives as payment for
scholarships for students’ educational accomplishments (learning accom-
plishments, working on solving company’s problems, branding, advertis-
ing etc.) which can be used for getting various digital services offered by
third parties on their platforms in exchange for tokens
3. third parties - sponsors as well as students will be able to exchange and re-

deem their tokens in a broad network of industry partners or swap them
for digital goods and services.
Some of the possible roles of educational institution could be to provide
functional knowledge in forms of free and paid online courses, libraries, in-
structions, e-books, audio books, webinars, telesummits etc. in local languages
crafted according to people’s level of development in order to fill the gap of low
IT and English literate individuals.
Educational institutions as pillars of the new economy become centers for
discovering, upgrading, and measuring new systems for living applied to work,
heart, and soul. They are in perpetual state of growth and self – innovation.
879
References
Bitdegree. (2018). Bitdegree.org, Available at: www.bitdegree.org Access: (11-03-2018)
Bowman, C. Douglas, G.& Bowman, S. (2015). Benevolent Leadership For A Better World:
Unlocking Benevolent Capitalism, Lifemastery Pty Ltd., Kindle Edition.
Brown, B. C. (2006). An Overview of Developmental Stages of Consciousness, Integral In-
stitute, Available at: https://integralwithoutborders.net/sites/default/files/resources/Over-
view%20of%20Developmental%20Levels.pdf Access: (08-03-2018)
Čačić, T. (2012). Stranice društvenih mreža i kultura net – generacije, doktorska disert-
acija, Available at: https://www.academia.edu/1963857/Stranice_dru%C5%A1tvenih_
mre%C5%BEa_i_kultura_net_-_generacije Access: (08-03-2018)
Esbjörn-Hargens, S. (2009). An overview of integral theory: an all inclusive framework
for the 21st century [resource paper no. 1], Integral Institute. Available at: http://www.
cybertech-engineering.ch/research/references/Esbjorn_2009/Integral%20Theory_
AQAL%20By%20K.%20Wilber%203-2-2009.pdf Access: (10.03.2018)
Harari, Y. N. (2014). Sapiens: A Brief History of Humankind, Harvill Secker, ISBN 978-
0-06-231609-7, London
Haupt, M. (30. 3 2016). Exponential Technology Defined. Available at: https://michael-
haupt.com/exponential-technology-defined-374e2db882b0 Access: (10.03.2018)

Ismail, S., Malone, M. S., & Geets, Y. v. (2014). Exponential Organizations: Why new or-
ganizations are ten times better, faster, and cheaper than yours (and what to do about it),
Diversion Books, ISBN: 978-1-62681-358-8, New York
Lakhiani, V. (2016). The code of the extraordinary mind, Rodale Inc., ISBN 978-1-62336-
758-9, New York
Laloux, F. (2014). Reinventing Organizations, Nelson Parker, Kindle Edition
Radin, D. (1997). The Conscious Universe: The Scientific Truth of Psychic Phenomena,
HarperCollins Publisher, ISBN 978-0-06-177899-5, New York
Rentschler, M. (2006). AQAL Glossary, Journal of Integral Theory and Practice, 1(3),
1-39, available at: http://iniciativaintegral.es/Documentos%20P%C3%BAblicos/1.-%20
Teor%C3%ADa/AQAL_Glossary_01-27-07.pdf Pristup: (10.03.2018)
Seneca. (1884). Izquotes. Great thoughts from Latin authors. Available at: http://izquotes.
com/quote/318435 Access: (10.03.2018)
Wilber, K., Patten, T., Leonard, A., & Morelli, M. (2008). Integral Life Practice, Shambala
Publications, ISBN 978-1-59030-467-9, Boston&London
880
THE ECHOES OF GLOBALIZATION
AT THE UNIVERSITIES IN
CROATIA: THE ANALYSIS OF
WEBSITES AND TRENDS IN THE
STUDENT EXCHANGE
Suzana OBROVAC LIPAR, BA

Ph.D. candidate, Doctoral School Josip Juraj Strossmayer
University of Osijek, Communication Studies
Catholic University of Croatia, Zagreb
E-mail: pr@unicath.hr
Abstract
The prerequisite for the positioning of Croatian higher education on the global
map is availability, which should be manifested in the selection of original cur-
ricula, subjects and lectures in one of the world languages, as well as the promotion
of Croatian universities in general and promotion of excellence and success of the
students who built a successful career after studying at a particular university. A
definition of term “globalization” is given in the theoretical part of this paper, as
well as the significance of globalization in different areas of its influence, with a
stress on higher education. By means of the research of the websites of Croatian
universities in the period 2015 – 2017, presented herein are the response of the
Croatian higher education to the challenges brought by globalization, how it man-
ages and what should be done in order for the Croatian higher education to present
itself actively, thus attracting a larger number of foreign students, scientists and
researchers and availing itself of the existing resources, creating new resources for
growth and development for its academic community, as well as for the commu-
nity in which it exists and functions. The results of the research indicated that the
Croatian universities were open to new globalization challenges, but that also sig-
nificant efforts are needed in order to make universities accessible and recognizable.
Keywords: Globalization, higher education, university, websites, student
exchange
JEL Classification: F69
881
1. INTRODUCTION
Globalization has become an inevitable part of human life. It spares no-one,
and everyone is affected by it. It has brought a lot of benefits to some in the
Suzana Obrovac Lipar: THE ECHOES OF GLOBALIZATION AT THE UNIVERSITIES IN CROATIA: THE ANALYSIS OF WEBSITES AND TRENDS IN...
sense of capital and profit; on the other side, it had a direct adverse impact on
life due to, for example, unplanned and ill-considered use of natural resources.
The 20th century was the most turbulent period of human civilization. From
the historical point of view, there were many changes in the society (two world
wars, the rise of communism, the fall of communism), in economy (creation of
capitalist societies, market liberalization), in technology (electric energy inven-
tion, automobile industry, all the way to advanced IT technologies). The world
is interconnected by fast connections, fast means of transport. The information
is circulating and makes the world accessible in real time. The markets are gov-
erned by multinational companies, supranational international organizations;
powerful financial institutions manage the national economies. The knowledge
is no longer a prisoner of the level of development of a society, social relation-
ships and a handful of the privileged, but it has become available to a greater
number of people than it had been at the beginning of the 20th century, thanks
to modern, global changes.
Observing the world being changed by globalization processes, sociology
stresses the significance of changes in the very basis of modern society, hav-
ing in mind the capitalist organization of economy and distribution of goods,
political power and reputation as well as knowledge “arising from scientific and
expert education, and which is being implemented in almost every sphere of
life” (Katunarić in Castells, 2000:10). From the aspect of communications, the
globalization processes unite the world into a single whole or one system, which
is possible because of permanent development in information and communica-
tions technologies. The world is becoming integrated, and all events that take
place locally may reflect globally. (Lončar, 2005.).
The theory of globalization was proposed in the 1980s and 1990s by Ronald
Robertson, who perceives globalization as “the compression of the world and
the intensification of the consciousness of the world as a whole” (Robertson,
1993:8). He considers that globalization to be a process which has been taking
place for centuries, yet the main focus in a discussion on globalization is placed
at the end of the 20th century.
882
When looking at the events on the world level in the 20th century, it can be
seen that major changes took place in the areas of economy, politics, and knowl-
edge. Globalization as a process encompasses all these areas interconnecting the
world, compressing it, but making the differences even bigger. Stiglitz defines
globalization as “the closer integration of the countries and peoples of the world
brought about by the enormous reduction of costs of transportation and com-
munication, and the breaking down of artificial barriers to the flows of goods,
services, capital, knowledge, and (to some lesser extent) people across borders.”
(Stiglitz, 2004:29). The formation of the economic policy of the world is to a
significant extent under influence of International Monetary Fund, the World
Bank, and the World Trade Organization, UN organization, a whole series of
regional banks and major sister organizations of the World Bank. The impor-
tant role in the shaping of economic policy is played by multinational companies
which interconnect the world into a network not only by capital and goods but
also technology, thus enabling the development of economies which wouldn’t be
able to generate such development on their own. Although the aforementioned
globalization key players often came under public criticism and were the cause
of protests, Stiglitz states that globalization also has positive consequences like
for example interconnecting of organizations such as International Red Cross
or Jubilee movement for debt relief to the poorest countries. (Stiglitz, 2004:29),
but also “better health, as well as an active global civil society fighting for more
democracy and greater social justice” (Stiglitz, 2004:239). However, the same
author also criticizes globalization, stating that many poor people in the world
do not have any direct benefit from it, as well as that the economic situation

in the world economy is rather unstable due to bad management by the key
stakeholders which work in the interest of the advanced, developed industrial
states, and not in the interest of the citizens of developing counties. Although
there are some opinions that we should give up on globalization, Stiglitz states
that the problem is not in globalization itself, but in the manner in which it is
being managed; the solution he proposes is the establishment of global public
institutions which would set up the set of straightforward rules, and he gives
as an example the change in voting rules in IMF and the World Bank, so that
besides the voices of the ministers, the voices of some other relevant economic
institutions might be heard (Stiglitz, 2004:251).
Insofar the political aspect of globalization is concerned, Beck sees in global-
ization the processes the consequence of which is that the transnational actors,
883
their chances to gain power, their orientations, identities, and networks under-
mine national states and their sovereignty as they interconnect. (Beck, 2003:273).
In other words, the power of national states diminishes; political relations and
decision-making rise to the level of international integrations, and new alliances
are created such as European Union and North Atlantic Treaty Organization
(NATO). They guarantee the strengthening of democracy and creation of a civil
society with the rule of human rights and the rule of law. This is also confirmed
by Jagić and Vučetić, whose opinion is that the task of globalization is to keep the
peace, to bond nations and their cultures and civilizations, thus making global-
ization fulfill its cosmopolitan significance ( Jagić, Vučetić, 2012:9).
The important prerequisite for globalization from the cultural point of view
was the colonization of the world by means of which the Europeans created the
first global culture. (Spybey, quoted in Milardović, 1999). The acceptance of the
European culture was perceived as advanced, a sign of modernization, indus-
trialization, and urbanization. (Lončar, 2005.) Along with the new technical
inventions (steamboat, railway, managing the states, political culture), the Eu-
ropeans brought some parts of their culture, such as the language, science, and
education, which they tried to integrate. Thus the cultural aspect of globaliza-
tion is being reflected in the contact of various cultures influencing one another,
permeating the national culture and changing it, depending on to what extent it
is allowed by the stakeholders in the national culture. The most vulnerable are
the small nations, specific cultures and regions which are not able to fight off the
influences of dominant culture, like for example American culture, unless they
have the representatives who are versed in culture, language, a way of living and
lifestyle of their particular nation. Jagetić and Vučetić think that the creation
of a global culture would have the adverse effects on cultural varieties, and they
stress that the means of mass communication contribute to the popularization
of so-called popular culture which thus becomes global culture ( Jagić, Vučetić,
2012:20)
The aim of the research was to present how the Croatian higher education
responded to the challenges brought by globalization, how it currently manages
and what should be done so that the Croatian higher education presents itself
actively, thus attracting a larger number of foreign students, scientists and re-
searchers and availing itself of the existing resources, creating new resources for
growth and development for its academic community, as well as for the com-
munity in which it exists and functions.
884
2. INFLUENCE OF GLOBALIZATION ON HIGHER
EDUCATION
The globalization influenced the dissemination of knowledge. It had a direct
impact on the education system, a part of which is the higher education. The
knowledge today is no longer a prisoner of libraries and archives, but it has be-
come available to general public, thanks to the Internet and mass media in the
first place. In case of the Internet we are talking about a medium which has no
restrictions in the sense of space and time, it is available to general public and
thus has a global impact. The global trends of networking the world contributed
to the fact that globalization ” has reduced the sense of isolation felt in much
of the developing world and has given many people in the developing world ac-
cess to knowledge well beyond the reach of even the wealthiest in any country a
century ago” . (Stiglitz, 2004:24).
The United Nations Educational, Scientific and Cultural Organization
(UNESCO), the Organisation for Economic Co-operation and Development
(OECD), the European Commission as well as many others are permanently
working on modeling the education policies which are of importance to the devel-
opment of education system, not only on national but also on global level. “Their
common characteristic is that education represents a fundamental resource be-
cause every national economy and its long-term development depend only on the
quality of its human resources.” (Filijović, Đorđević, Čukanović-Kravidić, 2011).
There can be no quality, educated persons without quality education, especially
higher education, therefore, as Dolenec put it, the knowledge is becoming the

foundation of competitiveness in global economy.” (Dolenc, 2007).
When we talk of globalization in higher education as a successful business,
the OECD experts consider that this is a real global sector which has its own
rules and represents a challenge to educators, students, and policymakers (Yel-
land, 2011). The numbers stated by Yelland show that these are the amounts
which can be compared to revenue earned by the printing and publishing indus-
try, as well as the pharmaceutical industry: according to a report by Universities
UK, the total revenue earned by universities in the UK in 2007/2008 amounted
to Ł23.4 billion (Yelland, 2011). The aforementioned article also mentions the
OECD report which shows that 30% of adults in OECD countries now gradu-
ate from higher education and the revenue of the higher education institutions
are increasing since more people decide to study in order to earn more, to have
885
satisfying jobs and live longer than those who don’t graduate from higher educa-
tion. It also states that the number of persons from OECD countries studying
outside their country of origin tripled in the period 1985 - 2008 (Yelland, 2011)
According to Wildawsky, the globalization in higher education is reflected
in the search for the most talented, but also in the creation of universities which
shall contribute to the creation of such persons, giving them the knowledge they
cannot obtain in the countries of their origin. The fact that the students want to
study abroad and to find new knowledge away from their homes is a fact which is
dates back some nine hundred years ago, claims Wildawsky, when the Europeans
of that period went to the first universities in Bologna, Paris, and Oxford (which
are nowadays also very famous) in their search for new knowledge. (Wildavsky,
2010:3). The true scientific mobility started after the Second World War when
the European students started going to the US universities. The US universi-
ties underwent a real expansion in the 1970s and 1980s when lecturers were
being offered very good conditions for their work and research, while the stu-
dents were offered scholarships and excellent studying conditions (Wildavsky,
2010:15) Although we used to talk about “brain drain” since the best students
would leave their countries in their search for knowledge, the terminology has
changed and today we talk about “brain circulation” since many states send their
students to the universities abroad so that they could come back and help the
development of their countries like for example in China and India (Wildavsky,
2010:8). Wildawsky states that there is a so-called brain race going on among the
student population in the world, the consequence of which was the opening of
faculties and universities wanting to render the best service to their beneficiaries.
The competition among the universities, which one is better and has better
results, can be seen in the place of the universities on a ranking list which is an
indicator of their efficiency and popularity. The ranking lists are useful in vari-
ous ways: to the students so that they can find a university which shall enable
them someday to have a well-paid job; to higher education policymakers to in-
dicate the development of the higher education market
The effects of globalization are reflected also in employing the administra-
tors from various parts of the world in order to refresh the management struc-
ture of the universities. Wildawsky mentions the examples of Oxford and Cam-
bridge which hired their vice chancellors from other parts of the world for the
above-stated reason Wildavsky, 2010:26).
886
In accordance with the aforementioned, the universities act as multinational
companies: they open their representative offices around the world and employ
persons recruiting the best high school and university students, inviting them
to study at their universities. Thus the policy creators dealing with the develop-
ment of the university provide for the ranking of their institution in advance;
by recruiting and attracting the best students they have the opportunity to turn
the best “material” into excellent employees whose income will be rather high,
who will serve as a great advertisement for the university as well as the example
of success to the future generations.
3. CROATIAN HIGHER EDUCATION AND

UNIVERSITY GLOBALIZATION COMPETITION
According to the Agency for Science and Higher Education, “… higher edu-
cation institutions in Croatia are universities (and their constituents - facul-
ties and academies of arts), polytechnics and colleges. A university is an insti-
tution organizing and delivering university study programs, and professional
study programs. Polytechnics and colleges organize and deliver professional
study programs. Currently, there are 119 higher education institutions in Cro-
atia, namely: 8 public universities, 2 private universities, 68 faculties and art
academies and 1 university center at public universities, 4 private polytechnics,
11 public polytechnics, 22 private colleges, and 3 public colleges.” (Agencija za
znanost i visoko obrazovanje, 2016)

Since globalization makes an influence on all national education institutions,
it is necessary to analyze whether Croatian higher education and the universi-
ties, as the education stakeholders are ready to join in, i.e. Whether and how
they have already joined the globalization processes.
The prerequisite for the positioning of Croatian higher education on global
map is the availability, which should be manifested in the selection of original cur-
ricula, subjects and lectures in one of the world languages, as well as the promo-
tion of Croatian universities in general and promotion of excellence and success of
the students who built a successful career after studying at a particular university.
To the current generation of students, the Internet is one of the most impor-
tant sources of information. The EU statistical DG, EUROSTAT, presented the
following data: 96% of European internet users aged 16 to 24 use internet regu-
887
larly, and 88% participated in social networking; 54% of users in that age group
were making telephone calls and video calls through internet-based applications,
while 80% search for the information on internet. (EUROSTAT, 2016). It is
clear from these statistical data that social networks are also very important. Ac-
cording to the statistical data available on statistics portal Statista.com, currently,

there are 2.34 billions of social network users in the world, while the forecast for
2020 indicates that by that year there might be 2.95 billion users. (Statista, 2016).
It can be presumed on the basis of these data that the interested students
from all around the world will look for the information related to Croatian uni-
versities and their study programs primarily on the websites of these universi-
ties as well as on social networks on which they are present.
By searching through the available web content of the Croatian universities, it
is established that all 10 universities in the Republic of Croatia have their websites
(see Table 1: The analysis of home pages of the websites of public and private universi-
ties in the Republic of Croatia, p. 10). All universities have bilingual websites in
Croatian and English, except for Juraj Dobrila University in Pula, which besides
Croatian and English also has the Italian version of the website. A conclusion
can be made that the translation of websites of the universities as necessary for
the positioning of the university on the international market. This is how foreign
students interested in studying, mobility programs, traineeships at a university
may familiarize themselves with the Croatian universities, and the foreign lectur-
ers may meet potential partners for international research and scientific projects,
partners for the organization of international scientific and expert conferences etc.
Table 1 shows the analysis of websites of Croatian universities, which indi-
cates that 50% of public universities on their home pages don’t communicate
of their presence on social networks, 50% of public universities communicate
of their presence on social networks, just like 100% of private universities. The
universities communicating of their presence on social networks, regardless of
whether they are private or public, did so by social network buttons and/or by
showing the full name of the social network. The following social networks can
be found on the homepages: Facebook, Twitter, YouTube, LinkedIn, Google+,
Instagram. It is clear from Table 1 that the universities with the greatest number
of links to their social network pages are Libertas International University (6
social networks), Catholic University of Croatia and University North (each
with five social networks). All of the aforementioned universities communicate
two social networks, Facebook and YouTube.
888
Table 1 The analysis of home pages of the websites of public and private univer-
sities in the Republic of Croatia1
Source: Author’s own research, September 2016
When searching through the websites of the Croatia universities, the foreign
students will be faced with the lack of clear information as regards which study
programs may be enrolled and on what language. Namely, it is almost impossible
to find such information, and it is probable that even the most interested students
would give up on a further search for the information. Ministry of Science and

Education published in 2016 the brochure “Study in Croatia” in English, aimed
at presentation of the Croatian higher education institutions (Study in Croatia,
2016). All study programs of all universities in the Republic of Croatia are pre-
sented in this brochure, while studies in English and Italian are presented sepa-
rately. The analysis of the data (as shown in Table 2: Studies i English language
at the Croatian universities) shows that 10 universities in Croatia offer 22 differ-
ent study programs in English, out of which three are undergraduate university
study programs, seven graduate university study programs, three integrated un-
dergraduate and university study programs, two interdisciplinary postgraduate
university study programs, one interdisciplinary doctoral study program, one
doctoral study program, two joint graduate study programs and three joint in-
1
Note: The information contained in Table 1 were checked on August 7, 2016
889
terdisciplinary doctoral study programs. The only university offering studying
in Italian is Juraj Dobrila University in Pula, for undergraduate specialist study
as well as for integrated university study. Three out of ten universities in Croatia
do not offer any studies in foreign languages while the majority of programs and
types of studies is offered by the University of Zagreb.

Table 2 Studies in English at the Croatian universities
Source: The author’s own analysis of the information stated in the brochure “Study in Croa-
tia”, Ministry of Education and Science, of the Republic of Croatia, 2016 (Study in Croatia,
2016)
890
It can be concluded from the above-stated information that the Croatian uni-
versities fulfilled the basic requirements in order to attract the foreign students,
foreign lecturers and administration employees (translation of universities’ web-
sites, presence on social networks); however, this is not sufficient for more intense
cooperation on the international higher education market, which can be seen in
the UNESCO’s report for 2015 and 2015. Namely, the UNESCO Institute for Sta-
tistics states in its report for 2014 and 2015 that there were 639 foreign students
from 204 countries studying in the Republic of Croatia (UNESCO Institut for
Statistics, 2016.). Out of 204 countries, there were only 20 countries with more
than 5 students studying in Croatia (UNESCO Institut for Statistics, 2016).
Figure 1: Foreign students studying in Croatia
Source: UNESCO Institute for Statistics, September 2016
According to this report, most of the foreign students are from Bosnia and
Herzegovina (127), Slovenia (89) Germany (69), the USA (48), Sweden (45),
France (32), Israel (23), Montenegro (21), Canada (16), United Kingdom (15)
etc. Although once could suppose that there would be more students from the
neighboring states because of the knowledge of the language, the number of
students from neighboring countries is rather small, except for students from
891
Bosnia and Herzegovina. It can also be supposed that the students from Bosnia
and Herzegovina and other states may have dual citizenship, which is not shown
in these data. It would be worth to research the reasons why the students from
neighboring countries do not decide to study in Croatia, i.e. why they decide to
study in Croatia like for example students from Germany, the USA, Sweden
or Israel who opt for studying in Croatia on English. Such research would be
useful to Croatian universities, which might, on the basis of the results of such
research, design and adjust their study programs, come up with promotion for a
particular university, prepare actively for inclusion of foreign students by means
of provision of accommodation, courses of Croatian language, connecting with
local community etc. The final result of such approach would be the financial
income for the university, the building reputation in the local community as well
as an academic community from which the students originate.
In contrast to a small number of foreign students in Croatia, the UNESCO
Institute for Statistics states in its report for 2014 and 2015 that 8.672 Croa-
tian nationals studied abroad (UNESCO Institut for Statistics,2016.). If you
compare this number with the number of foreign students in Croatia, one can
see that the number of Croatian nationals studying abroad is 14-fold bigger.
Figure 2: Students - Croatian nationals studying abroad
Source: UNESCO Institute for Statistics, September 2016
892
It can be seen from the Figure 2 above that Croatian nationals study mostly
in Bosnia and Herzegovina (3 179), Italy (996), Austria (891), Slovenia (769),
the USA (534), Serbia (489), Germany (470), United Kingdom (247) etc. The
neighboring states are among the first 10 states, and Bosnia and Herzegovina
take the first place beyond any competition as a state with the most students
from Croatia. The questions worth research is why Croatian students decide
to study abroad, what are the study programs offered by the foreign and not by
Croatian universities, what is the basic reason for studying abroad etc. If there
were such a research and its results, then probably the Croatian universities
might adjust the range of their study programs, thus attracting the best stu-
dents or those students who are ready to pay more for better, more specialized
and more specific programs. The usefulness of such adjustment for universities
would contribute to the general reputation of Croatian universities and, finally,
to the better international ranking of Croatian universities:
What should be done so that the Croatian students obtain foreign diplo-
mas by studying in Croatia, and to have the foreign students studying the same
study programs on the Croatian universities?
In the acknowledgments of his book “Globalization and its Discontents”, Sti-
glitz stressed that when writing this book he was helped by a “global network
of colleagues-scientists, one of the healthiest forms of globalization”. (Stiglitz,
2004:19). The creation of the network of colleagues-students, colleagues-scien-
tists/lecturers would be the first step towards the market in the broadest sense
of this word: it would encourage the Croatian students to study in Croatia and

to study those programs verified by foreign universities, and it would also en-
courage the arrival of foreign students to the Croatian universities. Some of the
Croatian universities have already made the first step in this direction by net-
working with some European universities and designing joint programs, mostly
on the postgraduate level. For example, the Faculty of Civil Engineering, Uni-
versity of Zagreb established the Joint Doctoral Program “Geo-Engineering
and Water Management” on the basis of the interuniversity consortium agree-
ment signed by the rectors of the Graz University of Technology, Budapest Uni-
versity of Technology and Economics, University of Zagreb and the University
of Maribor. The following faculties of the University of Zagreb participate in
the realization of that project: Faculty of Mining, Geology and Petroleum Engi-
neering, Faculty of Civil Engineering and Faculty of Geotechnical Engineering.
(Građevinski fakultet Sveučilišta u Zagrebu, 2016.). The University of Zadar
893
has developed similar cooperation in the study of Cultural Sociology, with the
participation of the Karl-Franzens University in Graz, Austria, University of
Zadar, University of Trento, Italy and Masaryk University in Brno, the Czech
Republic.
It would be useful to conduct a research into the satisfaction of students

with this type of studies, but also to ask the organizers of these studies what
were the benefits for their particular universities and what new perspectives
were provided for new projects and programs.
4. CONCLUSION
Although when we speak of globalization it is mostly in the context of econ-
omy, politics, and culture, the contemporary higher education is taking on the
characteristics of big corporations competing on the international market for
its portion of the profit. The international universities are fighting for the best
“brains”, the most talented students, researchers, scientists. While doing so, they
don’t shrink from excellent scholarships, good fees, and big funds for projects.
Thanks to the most talented members of its academic community, they are
placed high on ranking lists, thus building up their reputation and becoming a
desirable place for studying. Those countries which don’t have the opportunity
to offer top education should use the privileges of the best universities in the
world and enable their most talented students and scientists to study at these
universities, at the same time obliging them to return to their home countries
and pass the knowledge to the new generations of students and colleagues sci-
entists. The examples from Asian countries such as China and India show that
this model is possible and cost-effective, and its effects can be recognized in the
successful economies of these countries.
Croatian higher education has lately intensified the activities on websites in
the sense of presenting the universities, thus joining the global market by means
of the Internet and search engines. Some universities have accepted the fact that
they can position themselves in global level by the use of English language as one
of the world’s most-spoken languages and they introduced courses and studies in
English, especially on the postgraduate doctoral level, thus becoming attractive
to foreign students and scientists. The data of the UNESCO Institute for Statis-
tics for 2014 and 2015 show that there are interested foreign students studying
in Croatia, as well as a multifold number of Croatian students studying abroad.
894
Such statistical data should be the basis for future research among the foreign
students in Croatia as well as Croatian students studying abroad in order to
define the reasons behind their decision to study in Croatia or abroad, and what
should be introduced, changed, designed in order to attract more foreign students
to Croatia, i.e. to make the most talented students and scientists stay in Croatia.
The answers to the aforementioned questions do not necessarily relate only to
higher education but also to development of local community which would
profit from the stay of foreign nationals, and to the development of the higher
education since the money spent abroad for tuition fees and living expenses
might be invested in the higher education system in Croatia. Some of the Croa-
tian universities found a way how to prevent the “brain drain” and made a step
forward by making joint university programs, mostly on doctoral level, thus
enabling Croatian students to obtain foreign diplomas but in Croatia.
Croatian higher education might significantly contribute to the Croatian
economy and place Croatia not only on the list of the best countries for vacation
but also for studying and scientific activities, by means of introduction of study
programs in foreign languages, with Croatian scientists in the country as well
as those living and working abroad, with quality strategy for the promotion of
Croatian universities, using the resources of its country.
Bibliography
Agencija za znanost i visoko obrazovanje - Higher education institutions in the Republic of
Croatia (2016). Retrieved from https://www.azvo.hr/hr/visoko-obrazovanje/visoka-

ucilista Accessed on: 12.5.2016
Beck, Ulrich. (2003.). Što je globalizacija? zablude globalizma - odgovori na globalizaciju. Za-
greb: Vizura.
Castells, M. (2000.). Uspon umreženog društva. Zagreb: Golden marketing.
Dolenc, D. (2007.). Društveno odgovorno sveučilište: a što Bolonja ima s tim? Političko ob-
razovanje, 142-147.
EUROSTAT - Internet access and use statistics - households and individuals (2016). Re-
trieved from http://ec.europa.eu/eurostat/statistics- explained/index.php/Internet_
access_and_use_statistics_-_households_and_individuals Accessed on: 12.5.2016
Filijović M., Đorđević I., Čukanović-Kravidić M. . (2011.). Utjecaj globalizacije na razvoj
visokog obrazovanja. Androgoške studije, 43-64.
Građevinski fakultet Sveučilišta u Zagrebu. (2016.). Retrieved from https://www.grad.unizg.
hr/programi/poslijediplomski/geo-water
Accessed on: 12.5.2016
Jagić S., Vučetić M. (9(2012)). Globalizacijski procesi i kultura. Acta Iadertina, 15-24.
895
Lončar, J. (2005.). Globalizacija - pojam, nastanak i trendovi razvoja. Geoadria, Vol.10 (No.
1), 91-104.
Milardović, A. (1999.). Globalizacija . Osijek-Zagreb-Split: Pan Liber.
Roland, Robertson. (1993.). Globalization: Social Theory and Global Culture (Published in as-
sociation with Theory, Culture & Society). London, Thousand Oaks, New Delhi: Sage
Publications Ltd.
Statista. (2016). Retrieved from https://www.statista.com/statistics/278414/number-of-
worldwide-social-network-users/ Accessed on: 12.5.2016
Stiglitz, J. E. (2004). Globalizacija i dvojbe koje izaziva. Zagreb: Algoritam.
Study in Croatia. (2016). Retrieved from http://www.studyincroatia.hr/download/files/
study_in_croatia_brochure.pdf
The University of Zagreb, School of Medicine. (2016). Retrieved from http://mse.mef.unizg.
hr/medical-studies-in-english
UNESCO Institut for Statistics - Global Flow of Tertiary-Level Students (s.d.).
Retrieved from http://uis.unesco.org/en/uis-student-flow
University of Split, School of Medicine. (2016). Retrieved from http://www.mefst.unist.hr/
studies/medical-studies-in-english/83
University of Zagreb, Faculty of Economics and Business. (2016). Retrieved from http://www.
efzg.unizg.hr/default.aspx?id=10661
Wildavsky, B. (2010.). The Great Brain Race: How Global Universities Are Reshaping the
World. Princeton: Princeton University Press.
Yelland, R. (2011). Observer Society Education. Tratto il giorno March 17, 2017 da OECD
Observer No 287 Q4.
896
THE LEADS’ OF ART ENSEMBLES
PERCEPTION OF NECESSARY
COMPETENCES
Tihana ŠKOJO, Ph.D.,

Academy of Arts in Osijek
J.J. Strossmayer University of Osijek, Croatia
E-mail: tihana.skojo@skojo.hr
Renata JUKIĆ, Ph.D.,

Faculty of Humanities and Social Sciences
J.J. Strossmayer University of Osijek, Croatia
E-mail: rjukic@ffos.hr
Abstract
Changes in the modern society reflect on the need to reorganize the way of
thinking and determining which knowledge, skills, abilities, values, and other
characteristics of individuals are relevant to a particular profession in accor-
dance with the requirements of the new age. Together with professional com-
petences regarding the selection of a harmonized and attractive art repertoire,
preparation and rehearsing of the interpretation of the work, and the musical
performance, the leads of art ensembles must possess pedagogical-psychological- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
didactic-methodical competences. Those include communication, social, ana-
lytical, and developmental competences, as well as a whole range of desirable
personality traits: enthusiasm, patience, empathy, understanding, calmness,
patience, etc. Apart from the aforementioned competences, special emphasis
is placed on the importance and numerous other competences that enable the
leads of art ensembles to successfully deal with administrative duties, build in-
terpersonal relationships, motivate and guide the group, plan and organize
concerts, and to ensure the recognisability of the ensemble.
In order to determine the importance of the competences of art ensembles’
leads, a semi-structured interview with fifteen leads of award-winning choirs
897
was conducted to examine the possibility of implementing certain knowledge
and skills in art studies programmes.
The research results have shown that the leads are aware of the complexity of
competences important for their successful work with choirs. In addition to pro-
fessional and pedagogic competences, the leads emphasize the need to create a
good social climate in the choir as well as good communication, and emphasize
the importance of building a common vision for the ensemble’s future and creat-
ing conditions for choir’s good reputation. They point to the need for developing
organizational skills for arranging performances and competitions. As a sig-
nificant competence, they emphasize the ability to find opportunities to try out
the quality of the choir and further affirm it. The leads also emphasize the need
Tihana Škojo  Renata Jukić: THE LEADS’ OF ART ENSEMBLES PERCEPTION OF NECESSARY COMPETENCES
to implement different knowledge related to solving numerous administrative

duties related to budget planning and control. The conducted research actual-
ized the need for implementation of managerial competences in professional
development programmes for music pedagogues and the curricula of art study
programmes, so that the leads of different art ensembles are strengthened with
additional competences and can more successfully respond to the challenges and
needs of the new era.
Key words: competences, art ensembles’ leads, art studies programmes
1. INTRODUCTION
Lifelong learning represents learning activities throughout life with the aim
of improving knowledge, skills, and competences within the personal, civic, so-
cial, or professional activity of an individual. It includes learning in all life pe-
riods and in all forms – formal, non-formal, and informal (Commission of the
European Communities; 2001). It is one of the most important conditions for
dealing with contemporary (post)postmodern world. Globalization processes
are rapidly putting before the countries of the European Union new challenges
in which the imperative of survival in the business world is a wide range of
knowledge, skills, abilities, and attitudes so that each individual can easily and
quickly adapt to society and the world in which he or she lives. The concept of
lifelong learning is usually connected to the goals of economic nature (achiev-
ing greater competitiveness and sustainable employability), as well as those that
contribute to a more active role of an individual within society (Fischer; 2000).
898
As Coombs points out (according to Pastuović; 2008), the development of the
concept of lifelong education, or learning, has been crucially influenced by the
global education crisis, which manifested itself in a growing gap between mate-
rial and human inputs in education and outcomes as well as effects of education
on the economic and social development. According to Coombs (Pastuović;
2008), the cause of the crisis is a rigid organization of the costly and labour
intensive school system that is unsuitable for meeting the new educational and
social needs that arise in the rapidly changing economic, political, and socio-
cultural education environment. Nowadays, more than ever, there is a need for
lifelong learning, but also for a constant re-examination of its goals and out-
comes. The curriculum approach to education puts an emphasis on learning
outcomes, i.e. on acquiring the necessary competences. The reconsideration,
identification, and selection of key competences of particular professions is in-
evitably connected to the constant re-examination of the curriculum, i.e. the
curricula of individual study programmes. The term key competences belong to
the domain of management and denotes individual and organizational features
that are directly related to effective behaviour and performance in the context of
competitiveness among companies (Wester; 2001).
One of the key issues in defining, contemplating, and examining educational
reforms and lifelong learning strategies is the question of competences that are
expected of each individual performing a certain work role. Changes in teaching
occur due to changes done through research and development, the growth of
interdisciplinary and multidisciplinary activities, the cross-curricular approach
to education, and the needs of the globalized world and the global market. The
education system must re-examine educational programmes, monitor labour INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
market needs, and develop in a direction that will contribute to the develop-
ment of economy, that is, of society. In this light, it is necessary to re-examine
and identify the competences needed in the field of art, the programmes they
are acquired through, and align them with the labour market needs. A large
number of music pedagogues, in addition to teaching, also work as art ensem-
bles’ leads. The question is whether the professional and pedagogical-psycho-
logical-didactic-methodical competences they acquire during their studies are
sufficient for the job.
899
2. COMPETENCES AND COMPETENCE
APPROACH TO EDUCATION
The ever-growing imperative of today’s time is the need to determine which
knowledge, skills, abilities, values, and other characteristics of individuals are
relevant to a particular profession. The central term of the Croatian Qualifica-
tions Framework (which is based on the European Qualifications Framework)
refers to those competences that a person has acquired through education and
proved upon completing a particular education cycle. The CQF endeavours to
ensure the connection between the competences required in the workplace and
learning outcomes in educational programmes.
In defining competences, one encounters many disagreements (Shippmann;

2000) that hinder the understanding of the concept. Boyatzis (1982; Kurtz and
Bartram; 2002, 229) defines competence as a fundamental characteristic of a
person resulting in an effective and / or superior performance of a job that may
be a trait, motif, skill, self-image, or the view of one’s social role, or the corpus
of knowledge that he or she uses. Next, competences represent a dynamic com-
bination of cognitive and metacognitive skills, knowledge, and understanding,
interpersonal, intellectual, and practical skills as well as ethical values (Tun-
ing; 2008). The term competence does only denote not knowledge and skills. It
also includes the ability to respond to complex demands by using and mobiliz-
ing psychological resources (including skills and attitudes) in a given context
(OECD / PISA: 2005).
“Job Competency is a set of behaviours, knowledge, processes of thinking
and / or attitudes that are likely to reflect on the performance of a work that
reaches the defined elementary, basic, and high-level standards” (Warr & Con-
ner, 1992, 99)
There are three basic contemporary theoretical approaches to competence –
the behaviourist, constructivist, and holistic (Babić; 2007, according to Čatić;
2012). The behavioural approach (functional or action) is primarily oriented
towards the fulfilment of external requirements. Domović (2009; according to
Čatić; 2012) points out that the access to education based on competences (or
learning outcomes) has roots in the behavioural approach to the curriculum,
i.e. to defining education goals as measurable learning outcomes. According
to this approach, competences are perceived as individual characteristics of an
person manifested in action, i.e. in the activities that a person undertakes to
900
solve certain external requirements. The constructivist approach to competence
emphasizes the social nature of competence. The holistic view of competence
represents a kind of compromise between the first two approaches, implying the
connection between an individual’s personality traits, external requirements,
and context as prerequisites for effective performance, and is characterized by
a holistic perspective, openness, and development (Babić; 2007, according to
Čatić; 2012). Within this aspect, competence is defined as a complex combina-
tion of knowledge, attitudes, skills, and values that is manifested in the context
of carrying out a particular task (Hager; 1995, Kerka; 1998, Babić; 2007, ac-
cording to Čatić, 2012).
Depending on the starting assumptions, expectations, and theoretical ap-
proach to competence one supports, at the academic level of education the cur-
riculum creation is approached differently (Toohey; 2000):
1. The field approach emphasizes the transfer of theoretical knowledge and
introduction into the scientific methodology of a particular field, i.e. it is
oriented on the content.
2. The system approach is oriented towards the functional aspect in ac-
cordance with learning outcomes as measurable “products” of the educa-
tional programme.
3. The cognitive approach focuses on the development of the students’ cog-
nitive potential.
4. The experiential approach emphasizes the importance of connecting life
experiences with the content that is being taught and the establishment
of personal sense of learning.
5. The social awareness approach tends to build a value system in students
that will enhance their motivation for an active participation in social life.
No matter which approach is advocated, one cannot ignore the fact that the
changes in modern society lead to the need for organizational structures and
processes in the workplace, and consequently the need to reorganize the way
of thinking about university education. Labour organizations and universities
are becoming more flexible and prone to change, and they should follow social
changes on the labour market and adapt themselves.
Competence approach to education is primarily seen in the field of manage-
ment (Stof et al; 2002, Stoff; 2005, according to Babić; 2007, 26), it advocates
the efficiency of labour force / human capital, and the education policy in many
901
countries accepts and support it (although there are many criticisms of such an
approach as well) (Palekčić; 2005, Sachs; 2001...). Such an approach becomes
the basis for planning the educational process and creating educational pro-
grammes. It allows for an assessment of advantages and disadvantages of each
individual as well as the assessment of the entire human potential of an organi-
zation and areas of further development (Sparrow; 1997).
3. COMPETENCES IN ART EDUCATION

According to Spajić-Vrkaš, Kukoč, and Bašić (2001, 251), there are three
dimensions of teacher competences that must be possessed by the leads of art
ensembles. Those are: a) the content competence – the knowledge of a certain

field; b) pedagogical-didactic-methodical competence – knowledge and skills
of mediating scientific knowledge in teaching a particular subject; c) psycho-
logical competence – the teacher’s personality traits. In the Republic of Croatia,
the acquiring of pedagogical-didactic, teaching competences (a minimum of 55
ECTS) within education study programmes last for five years (ending in the
acquisition of a master’s degree) through a series of university courses. They
include general and specific knowledge, abilities, and skills in the field of peda-
gogy, general psychology, education psychology, didactics, and methodology.
Guermat and Saad (2015) emphasize the need for a permanent connection
between universities and labour markets, and the improvement of society at the
local and national level. According to their model (“application driven model”),
knowledge is created and developed for practical purposes. Such knowledge is
usually interdisciplinary and is initiated by practical, i.e. social problems. The
Triple Helix concept promotes the communication between universities, gov-
ernment, economics, and working in an open space characterized by circulation
of aspirations, knowledge, and innovation. This open space characterized by cir-
culation is a novelty that requires deep understanding and its internalization as
a personal and collective value whereby collaboration is a source of sustainable
success (Dzisah & Etzkowitz; 2008, according to Singer and Oberman Petrka;
2012). The Triple Helix model represents an increasingly developed and ac-
cepted conceptual framework that links knowledge, consensus, and innovation
of three (or four) major social actors: university-government-industry (and so-
ciety) (Etzkowitz; 2006) and can provide guidance during the creation of curric-
ulum in the field of art. Namely, the competences that the society requires from
902
the leads and organizers of various artistic and cultural events largely exceed
those offered by curricula in artistic education. The premise of the Triple Helix
Circulation model is that the global movement of people encourages creativity,
ideas, and skills. Universities as traditional providers of human resources and
knowledge are now key factors for the socio-economic development (Dzisah &
Etzkowitz; 2008). Today, management in the field of art represents a developed
a scientific branch with a steady growth trend. Universities in developed coun-
tries are conducting graduate and postgraduate study programmes in the field
of management in artistic areas.
Music pedagogues and leads of art ensembles must possess not only the
theoretical knowledge and pedagogical-psychological-didactic-methodical
competences, but also the competences for leading a group of people / a choir.
They must be able to bring music closer to their students, motivate them, be
creative and stimulate creativity, and adjust the music to the wishes and needs
of the ensemble members. They must employ a comprehensive approach and
“touch upon” the cognitive, psychomotor, and affective aspects of the members’
personality. Successful music pedagogues and leads of art ensembles need the
theoretical didactic-methodical knowledge and skills as well as knowledge of
socio-humanistic sciences, which make up the foundation of the educational
process (pedagogy, psychology, sociology). Yet, they also need managerial com-
petences or a set of different individual qualities of managers that, in both their
interaction with one another and specific interaction with their working envi-
ronment, i.e. objective factors, result in specific work behaviour and successful-
ness (Kulović et al.; 2012).
The main management factors in relation to the work of ensemble leads are INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
the ability to organize rehearsals and performances, motivate, organize, and

promote teamwork, ensure adequate communication and development of com-
munication skills, build fair interpersonal relationships and a common vision,
introduce changes and innovations, create and encourage conditions for per-
sonal and professional development of the ensemble members, create condi-
tions for a good reputation of the choir, make decisions, organize, and deter-
mine goals, achieve results, identify new business opportunities, form a team
and create the development plans for individual people and organizations as a
whole, create common goals, flexibility, innovation and creativity. The ensemble
lead is a formal authority, and according to Kotter (1990), all such individuals
must combine the two essential roles. That is, the role of the lead, i.e. the ability
903
to guide and mobilize people and / or their ideas; and the role of the manager,
i.e. the ability to secure the right things at a right time and in a consistent and
adequate manner. The document Cultural Human Resources Council, Chart of
Competencies, Cultural Managers, defines and elaborates the following things.
Two main roles of managers within the culture: the role of lead and the role
of manager. Four key responsibilities: planning, developing the organizational
network for the implementation of the plan and the generation of expected out-
comes. And eight general areas of competence: determining the direction of
activities, drafting the strategic plan and budget, building interpersonal rela-
tionships, organizing activities and people, motivation and inspiration, solving
problems, administrative duties, “on-the-go” changes, and ensuring predictabil-
ity. Nierensberg (2009) defines the following four core competences of the en-
semble lead: a clear vision on success; listening to “your people;” clear and unam-
biguous instructions; focusing on the team that creates music, not on oneself.
It is apparent that the aforementioned competences do not correspond with
those gained within the professional field, nor within pedagogical-didactic-me-
thodical education of music pedagogues. They belong to managerial compe-
tences that are usually not acquired through programmes of art education at the
undergraduate / graduate level.
This paper describes the research conducted with the aim of identifying im-
portant competences of art ensembles’ leads in order to better adapt the cur-
ricula of art study programmes and lifelong learning curricula to the current
needs of the profession. In line with the formulated goal, the following tasks
were set:
• Determine which tasks are performed by art ensembles’ leads
• Examine the problems teachers encounter while working with the ensemble
• Explore opinions on the desirable competence profile of art ensembles’
leads
• Examine participation in professional development programmes
• Identify competences that are not sufficiently developed during the studies
and incorporate them as a recommendation in the guidelines for a more
successful curriculum in art studies.
904
Fifteen respondents, six male and nine female leads, participated in the re-
search on the competences of art ensembles leads. The age range of participants
was between 30 and 51 years. All respondents are the leads of multiple award-
winning art ensembles. According to the type of art ensemble, the leads of sing-
ing choirs, tamburitza orchestras, vocal-instrumental groups, and dance groups
were selected to participate. All leads have high qualifications with a diploma
in music (art) academies in the Republic of Croatia. The range of length on
the job is between 6 and 28 years. The research is based on the interpretative
paradigm and focuses on qualitative aspects. A semi-structured interview was
used, which was conducted individually. The string questions were used and the
answers were recorded by a voice recorder for further processing. The research
was conducted during February and March 2018. Research participation was
voluntary and confidential with the intention of using the answers solely for
scientific purposes.
Based on the set objectives and tasks, the following research questions were
posed:
• Which tasks are done by the art ensembles’ leads?
• What problems do they encounter while conducting the ensemble?
• What competences are needed to successfully lead the ensemble?
• Are the competences acquired during studies sufficient for the challenges
faced by the art ensembles’ leads?
• What knowledge and skills do art ensembles’ leads feel inadequately com-
petent about after completing their studies?
• Which programs of professional development are they involved in order to
acquire additional competences?
• Which future competences would they like strengthen in order to respond
more effectively to the challenges they face when conducting the ensemble?
• Which contents, within the framework of professional development pro-
gramme, would be most useful for their further work and progress?
905
5. RESEARCH RESULTS
In the qualitative data analysis, interpretable categories were obtained
through the coding procedure, which were then interpreted in accordance with
the research tasks.
In the data analysis data, the reduction was used through the “cut and paste”
method applied to similar statements (Krueger, 1994). Due to contextual sig-
nificance, certain comments were quoted in their entirety.
It should be noted that all the leads commented openly on all the set top-
ics and thus made it possible for the researchers to note the true status of the
profession.
In order to obtain a complete picture on the requirements of the ensembles’

leads’ job, the interview began with specific tasks performed by the art ensemble
leads. Based on their answers, it is clear that the leads are responsible for the
overall work of the ensemble and that the job of the art ensemble lead is extremely
demanding because it involves numerous tasks. Namely, creating and selecting the
repertoire, meeting the work requirements (from the rehearsal space and instruments
to musical scores for each performer, folders, clothes, etc.), organizing and conducting
rehearsals, arranging and conducting public performances, annual financial plan-
ning of the overall work of the ensemble, organizing all the required elements for
concerts, collecting the necessary financial means for performances and competitions,
organizing transport and promo materials, communicating with the media, publi-
cally promoting performances, conducting the ensemble profile on social networks
and so on.
Since the art ensembles’ leads have stated an extremely large range of work,
the next question meant to identify the problems that they encounter while
working with the ensemble. The most frequent answers are related to financial
problems. The leads point out that by means of the membership income it is dif-
ficult to secure the funds needed for the ensemble’s planned guest performances. The
second are administrative problems, followed by issues related to inadequate tech-
nical conditions, problems in organizing rehearsals due a challenging combination of
school and work obligations of the ensemble members, communication problems that
lead to disagreements among the ensemble members, and issues related to motivating
the ensemble members.
906
Connected to the aforementioned tasks that the leads have successfully done
for a number of years, as well as to difficulties they encounter in leading the en-
semble, is the question of identifying those competences that the leads consider
important for the successful leading of the ensemble. The respondents divided
the competences in several categories. As the first and most important, the leads
cite professional competences: professional knowledge, achieving a recognizable
artistic expression, and the ability to choose an appropriate repertoire. They point
to the necessary, permanent development of their professional competences
through monitoring world-renowned ensembles and art trends and incorporating
new ideas in order to maintain interest and freshness.
Next to the professional competences, the leads point out the importance
of didactic-methodical competences, which relate to abilities in planning, orga-
nizing, and conducting quality rehearsals, and shaping a working but at the same
time friendly atmosphere. As extremely important, leads emphasize the need for
well-developed communication skills that help them in encouraging the ensemble
members and creating good interpersonal relationships, as well as in arranging per-
formances and the overall popularization of the ensemble’s work. They point to
the importance of personal competences such as calmness, patience, flexibility,
tolerance, willingness to cooperate, consistency in decision-making, speed in decision-
making, and good self-organization. The leads also refer to those competences
they need to successfully address different administrative tasks, therefore they
emphasize the importance of knowledge related to management and financial
management, and consider various practical knowledge required from marketing.

Given the above-mentioned number of competences, the researchers were
interested in whether the leads felt that they acquired sufficient competence
at the faculty to meet the challenges in leading an art ensemble. All the inter-
viewed leads agree that they were only partly ready for the activities performed
by the ensemble lead. They point out that academic programmes are directed
towards music and pedagogical-methodical-didactic competences. They state that
during their studies, they acquired certain competences required for successful leading
of the ensemble and almost exclusively those that concern the narrow professional /
artistic part of the lead’s job.
While reflecting on the knowledge and skills in which they feel under-quali-
fied, the leads point out financial management, knowledge on solving administrative
affairs, communicating with the public, managerial competences, and marketing skills.
907
The leads further explained the answers:
• After completing my studies, I felt a lack of knowledge and skills in the field of
organization of the global activity of the ensemble, recording of audio material
and its placement on the market, the selection of repertoire (in accordance with
copyright), the overall production of concerts, management, acquisition of ma-
terial and immaterial work resources, marketing, and production.
• Through this job, I entered a completely different, unknown world. Next to the
artistic, professional part, and the spell that is happening during rehearsals, it
is necessary to perform a whole range of administrative tasks related to renting
of a location, procurement of material and immaterial working resources, PR,
managerial tasks, writing project applications to competent bodies and many,

many other seemingly simple things that are not negligible when done by a
single person.
The highlighted knowledge and skills, indicated by the respondents, opened
up opportunities to discuss their participation in lifelong learning programmes.
Since all of them are employed as teachers in elementary, secondary, or tertiary
education system, they have access to information on the development pro-
grammes available in the country as well as around the world. The respondents
are actively participating in professional and artistic development programmes
from national programmes for music teachers and teachers of music art to interna-
tional conferences across Europe, Australia, Asia, and the United States.
Based on the need to further strengthen their competences, which the leads
consider essential and necessary in further work and progress of their ensemble,
they point out the contents they would like to participate in in the future. They
emphasize marketing and management programmes in culture and art, organiza-
tional and self-organization programmes, writing and applying to cultural projects,
and workshops for learning different leadership skills for motivation and successful
leadership.
• It would be useful to get more acquainted with the contents related to modern
music and stage trends, coupled with modern technology.
• I think it would be good to approach contents related to the area of audio-visual
recording and production, scenes, dramaturgy and directorship, specific areas
of psychology, modern techniques of the stage and musical expression...
908
Based on these answers, a clear interest is notable concerning a wide range of
different contents that the lifelong learning programme offers.
• Each form of additional development is useful and applicable in future work
with the ensemble. This refers to the acquisition of new knowledge and skills re-
lated to pedagogical-psychological-didactic-methodical competences, as well as
to those that are not closely related to the work of the choir in the vocal-artistic
sense, but concerning the organization of public performances and concerts,
participation at festivals, competitions, or in music production.
The leads face and accept all the demands put before them with great en-
thusiasm and courage, and continue to find ways to overcome them success-
fully. Regardless of the length of work experience in leading the ensemble, their
age, or the number of awards, the art ensemble leads agree that their job is an
extremely challenging one since it requires a variety of different knowledge and
skills. However, these new situations and challenges as well as indispensable
optimism are precisely that which motivates them on a daily basis to be even
better.
6. CONCLUSION
The relationship between education, knowledge, and learning outcomes and
acquired competences is a current theoretical and practical problem of educa-
tional systems. The importance of lifelong learning, flexibility, and adaptability
in the modern, globalized world and the information society is the main topic

of re-examining competences of the existing occupations and educational pro-
grammes. Today’s educated individual has to fulfil different roles throughout
life, participate in different contexts, and meet the job challenges at different
levels.
Based on the results of this research, it is obvious that the art ensembles’
leads are aware of the changes present in the modern society and that they
clearly recognize the competences needed for a successful response to these new
demands. The leads point out that they are fulfilling all their tasks, from select-
ing and practicing art programmes, to arranging and organizing performances,
to the promotion of the ensemble and providing financial resources. In line with
such extensive requirements, they conclude that the required competences ex-
ceed the strictly professional knowledge and skills and the didactic-methodical
909
competences, through which the acquired expert knowledge becomes user-
friendly and effective, and that they expand in the direction of knowledge and
skills that enable successful leadership and management of the “organization.”
Planning, organizing, and fulfilling daily activities of the ensemble as well as
leading the ensemble toward high-set goals, managing the budget, and solving
administrative tasks are just some among the new competences that the art en-
sembles’ leads have to possess.
Guided by new situations and needs, we point to the need for an interdisci-
plinary expansion of competences, acquisition of knowledge, and skills develop-
ment in the field of management. We also point to the possibilities of enhanc-
ing the curricula and lifelong learning programmes through additional contents
focused on the competences of managers and contemporary leaders.
REFERENCES
Babić, N. (2007). Kompetencije i obrazovanje učitelja. In Babić, N. (Ed.), Zbornik rado-
va znanstvenog skupa Kompetencije i kompetentnost učitelja. Učiteljski fakultet
Sveučilišta J. J. Strossmayera u Osijeku i Kherson State University, Ukraine, 23-66.
Commission of the European Communities (2001). Making a European Area of Lifelong
Learning a Reality - COM final.
Cultural Human Resources Council, Chart of competencies. Cultural managers [available
at: https://www.culturalhrc.ca/mm/CHRC_Cultural_Manager-Chart-en.pdf ,
Acess (March 8, 2018)
Čatić, I. (2012). Kompetencije i kompetencijski pristup obrazovanju. Pedagogijska istraživanja,
9 (1–2), 175 – 189.
Dzisah, J., Etzkowitz, H. (2008). Triple Helix Circulation: The Heart of Innovation and
Development. International Journal of Technology Management & Sustainable Develop-
ment, (7) 2, 101-115.
Etzkowitz, H. (2006). The new visible hand: an assisted linear model of science and innova-
tion policy. Science and Public Policy, 33 (5), 310-320.
Fischer, G. (2000). Lifelong Learning - More than Training. Journal of Interactive Learning
Research, 11 (3/4), 265-294.
John P. Kotter (1990). A Force For Change. How Leadership Differs From Management.
The Free Press.
Kulović, Dž., Đogić, R., Kuzman, S. & Milunović, D.(2012). Kompetencije menadžera i
uspješnost preduzeća, Sarajevo: Jordan Studio.
Kurz, R. & Bartram, D. (2002). Competency and Individual Performance : Modelling the
World of Work. In I. T. Robertson, M. Callinan and D. Bartram (Eds), Organizational
Effectiveness : The Role of Psychology (pp. 225-255). Chichester : John Wiley.
910
Nierenberg, R. (2009). A Surprising Story About Leading by Listening Hardcover. USA: Pen-
guin Group.
OECD (2005). Definiranje i odabir ključnih kompetencija. Zagreb: Nacionalni centar za van-
jsko vrednovanje obrazovanja – PISA centar.
Palekčić, M. (2005). Utjecaj kvalitete nastave na postignuća učenika. Pedagogijska istraživanja,
2 (2), 209-233.
Pastuović, N. (2008). Cjeloživotno učenje i promjene u školovanju. Odgojne znanosti,10 (2),
253-267.
Sachs, J. (2001). Teacher professional identity: Competing discourses, competing outcomes.
Journal of Education Policy, 16 (2), 149-161.
Saad, M., Guermat, C. & Brodie, L. (2015). National innovation and knowledge perfor-
mance: The role of higher education teaching and training. Studies in Higher Education,
40 (7), 1194-1209.
Shippmann, J. S., Ash, R. A., Battista, M., Carr, L., Eyde, L. D., Hesketh, B., Kehoe, J., Pearl-
man, K., Prien, E. P. & Sanchez, J. I. (2000). The practice of competency modelling.
Personnel Psychology, 53, 703-740.
Singer, S., Oberman Peterka, S. (2012). Ocjena koncepta Triple helix: Kako testirati novi
concept sa starim pokazateljima. Ekonomski pregled, 63(11), 606-626.
Spajić-Vrkaš, V., Kukoč, V.. & Bašić, S. (2001). Interdisciplinarni rječnik. Zagreb: Hrvatsko
povjerenstvo za UNESCO.
Sparrow, P. R. (1997). Organizational Competencies : Creating a Strategic Behavioural Frame-
work for Selection and Assessment. In Adnerson, N. & Herriot, P. (Ed.), International
Handbook of Selection and Assessment. Chichester: John Wiley, 343-368.
Toohey, S. (2000). Designing courses for higher education, Buckingham: Open University
Press.
Tuning (2008). Universities’ contribution to the Bologna process – an introduction. [avail-
able at: http://www.unideusto.org/tuningeu/images/stories/Publications/ENG-
LISH_BROCHURE_FOR_WEBSITE.pdf , Acess: (March 8, 2018)
Warr, P. & Conner, M. (1992). Job Competence and Cognition. Research in Organizational INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Behavior, 14, 91-127.
Westera, W. (2001). Competences in education: a confusion of tongues. Journal of Curricu-
lum studies, 33 (1), 75-88.
911
SILVER ECONOMY AND AGING
POPULATION:
MYTHS, REALITIES AND
Ivana Barković Bojanić Dajana Džeba Mate Perišić: SILVER ECONOMY AND AGING POPULATION: MYTHS, REALITIES AND OPPORTUNITIES
OPPORTUNITIES
Ivana BARKOVIĆ BOJANIĆ, Ph.D., Full Professor

E-mail: ibarkovic@efos.hr
Dajana DŽEBA, Ph.D. Candidate

E-mail: dajana.dzeba@vusb.hr
Mate PERIŠIĆ, Ph. D.

Plovput d.o.o. Split
E-mail: mate.perisic@plovput.hr
Abstract
According to the demographic statistics worldwide, the number of population
aged 65 and over is growing at around twice the rate of the overall population
(Economic Intelligent Unit, 2011).
An aging population is becoming a reality that is surrounded by various myths
when it comes to older people as workers or as consumers. The fact is that
people today live longer and healthier lives, which requires a shift in perception
of age when it comes to supply and demand side of economics. The economy
that recognizes aging population as new source of economic and business op-
portunities is called „Silver Economy“ and is already attracting significant
policy attention worldwide. It is focused on opening a new frontier in practical
and policy thinking about and considering aged people not a fiscal threat but a
business opportunity.
912
The purpose of this paper is to define the notion of silver economy, discusses
the myths and realities related to this particular segment of the economy as well
as to present selected good practices that show the age friendly products and
services that capitalize on the unstoppable demographic shift.
Key words: silver economy, aging population, good practices
JEL Classification: D69, J11
1. INTRODUCTION
The age structure of world population is changing. According to date from
UN World Population Aging 2015 the number of older persons, and those are
all that are aged 60 years or over, has increased substantially in recent years in
most countries and regions and it seems the such a trend will continue at accel-
erating pace. Further statistics from the same UN source reveal following (UN
2015: 1-2): between 2015 and 2030, the number of people in the world aged
60+ is projected to grow by 56%, from 901 million to 1.4 billion, and by 2050,
the global population of older persons is projected to more than double its size
in 2015, reaching nearly 2.1 billion. At the global level, the number of people
aged 80+, or symbolically called the “oldest-old” persons, is growing even faster
than the number of older persons overall. According to the projections, in 2050
the oldest-old will number 434 million, having more than tripled in number
since 2015, when there were 125 million people over age 80. As far as regional
distribution of older persons is concerned, in the next 15 years the number of

older persons is expected to grow fastest in Latin America and the Caribbean
with a projected 71 % increase in the population aged 60 years or over, followed
by Asia (66 %), Africa (64 %), Oceania (47 %), Northern America (41 %) and
Europe (23 %).
Changes in age structure of population are driven by numerous factors such
as changes in life expectancy, fertility, mortality, health as well as numerous ad-
vancement made in economic and social development such as improved access
to education and employment, gender equality, reproductive health and the like
(Christensen et al. 2009.) Moreover, the (cultural) paradigm of aging has been
changing both in the eyes of older themselves as well as in the eyes of public.
The research by Max Planck Institute for Human Development suggests that,
for example in Berlin, the people who turn 75 nowadays will be, on the whole,
more intelligent, physically fit, and happier than the people who turned 75
913
roughly two decades ago (Gerstorf et al. 2015). Changing perception of getting
older is reflected in their wish to work longer, continue with an active lifestyle
and remain independent as long as possible. According to Bank of America
Merrill Lynch data1 pre-retired people that were surveyed revealed that they
want to work in retirement because they want to stay mentally active (51%) and
physically active (46%), earn money (51%), maintain social connections (32%)
and have new challenges (28%) (OECD, 2014).
This demographic transition has been symbolically called Silver Tsunami
as well as two notions have been increasingly appearing when talking about
universal phenomenon of aging population – Silver Economy and Longevity
Economy, both challenging the conventional wisdom that older population is
a burden to the economic growth. Namely, the Silver Economy is defined as the
economic opportunities arising from the public and consumer expenditure re-
lated to population ageing and the specific needs of the population over 50.
The ageing population can be divided in 3 groups, each with their own need-
patterns: active, fragile and dependent. Thus, the Silver Economy comprises a
large part of the general consumer economy, but with significant differences in
spending priorities and patterns (European Commission, 2015: 2) According
to Bank of America Merrill Lynch (2014) the Longevity economy “is becoming
an increasingly powerful economic force – encompassing both the economic
activity serving the needs and wants of the 50+ global population, as well as
directly purchased products and services and the knock-on economic activity
that this generates (jobs, wages, productivity, taxes, charitable giving et. al.)”.
In another words, consumer that are 50 years and older represent untapped
potential for the economy. They spend more than any other group, as well as
they are becoming challenges for business to win them as clients. Following
statistics additionally support this claim:
• The size of the U.S. longevity economy alone is estimated at US$7.1tn,
making it the world’s number 3 economy – and it is expected to grow to
account for over 50% of U.S. and Japanese GDP by the 2030s (Bank of
Amerika Merril Lynch, 2014);
1
Additional reports results and findings by the Bank of America Merril Lynch for New York Times:
“We are living longer. Are you ready?” https://paidpost.nytimes.com/merrill-lynch/were-living-
longer-are-you-ready.html (Accessed on 22.03.2018.); „The Silver Dollar – Longevity Revolution
Primer“, 06 June 2014 available at https://ec.europa.eu/research/innovation-union/pdf/active-
healthy-ageing/merrill.pdf (Accessed n 22.03.2018.)
914
• Europeans over 65 have a spending capacity of over 3,000 billion EUR
and at 420 billion EUR market for the Silver Economy is the beginning of
an important development (European Parliament, 2015)
• Public spending on ageing in the EU accounts for 25% of GDP and 50%
of general government expenditure and is projected to grow by 4% of
GDP until 2060 (AAL Program, 2016).
• In France a study has estimated that 53% of economic demand in 2015
was from the aged; in Germany a study estimates purchasing power of
316 billion EUR and possible 900,000 jobs in the next 20 years related to
Silver Economy. (Silver Sudoe, 2018)
Considering this unprecedent and unstoppable demographic shift that is
creating a substantial market, a concept of Silver Economy should be taken se-
riously when making strategic plans on a business and policy level. Implications
for business opportunities are numerous and across all segments of economy –
manufacturing and retail wise (see, for example Zsarnocky and Gyorgy, 2016,
Barković Bojanić and Erceg, 2017). In addition, innovative disciplines such as
nanoscience, biotechnology, robotics and the like play an important role in de-
veloping products and services to better serve silver economy consumers.
The purpose of this paper is to discuss the notion of silver economy in
terms of myths and realities related to this particular segment of the economy
as well as to present selected good practices showing the age friendly products
and services that capitalize on the unstoppable demographic shift worldwide.
The paper is structured into five sections. After introduction, the section two
presents the silver economy in terms of myths and realities that are shaping the INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
policy dialogue when it comes to aging population and its impact on overall
economy. The section three identifies sectors that are most likely to benefit from
the demographic development related to age. The section four offers selected
examples of business opportunities stemming from the ageing marketplace. The
paper ends with section five offering concluding remarks. The list of references
stated in the literature section completes the paper.
2. SILVER ECONOMY: MYTHS AND REALITIES

Silver Economy as a part of economy recognizes aging population as new
source of economic and business opportunities. It is driven both by the emer-
915
gence of new consumer markets and by the need to improve the sustainability
of public expenditure linked to ageing. As such, it is attracting a policy attention
across the globe, particularly in the EU due to the fact that Europe is aging. By
2060 one in three Europeans will be over 65 and the ratio of working people
to the ‘inactive’ others is shifting: from 4 to 1 today to 2 to 1 by 2060 (AAL

Programme, 2016).
Several important documents and papers have outline the silver economy
starting by the Bonn declaration of 2005 in which it was stated following: “el-
der people expect new and innovative products and services for greater quality
of life in their old age (Silver Economy) while an appropriate innovative drive
results in growth and new jobs, and in a global context increases Europe’s com-
petitiveness and that of the companies operating here” (European Parliament,
2015). Other documents include, for example, the European Commission’s
2006 communication ‘The demographic future of Europe – from challenge to
opportunity’; European Parliament resolution of 21 February 2008 on the de-
mographic future of Europe (2007/2156(INI)); decision No 940/2011/EU
of the European Parliament and of the Council of 14 September 2011 on the
European Year for Active Ageing and Solidarity between Generations (2012).2
In another words, the challenge of silver economy is to focus on opening a
new frontier in practical and policy thinking about and considering aged people
important for both supply and demand side of economics.
For some time, research studies in the mainstream economics has been fo-
cused on the macroeconomic consequences of aging (see for example Bos and
Von Weizsacker, 1989, Gruber and Wise, 2001, Nagajaran et al. 2006). Con-
cerns have been mainly related to the slower economic growth, poverty among
the elderly, generational equity, inadequate investment in physical and human
capital, inefficiency in labor markets, sub-optimal consumption profiles, unsus-
tainable public transfer systems (Lee et al., 2010: 7). The population aging may
lead or may not lead to these outcomes depending on the economic system and
the institutions (e.g. government policies) that are channeling intergenerational
flows.
Contrary to this conventional treatment of aging as a burden to the econ-
omy and society, a newer perspective on demography “invites” both academic
2
For more details see European Parliament (2015).
916
scholars and policymakers to consider aging population as drivers of economic
growth and innovation. This shift in perception of older population contributes
to flourishing of silver economy and its benefits as well as it calls to dispel the
myths commonly related to aging population. In another words, one should not
underestimate the power of generation 50+.
There are several myths around the aging population. They stem from the
conventional wisdom, outdate assumptions and perception as well as policy in-
action and bias towards elderly. Erfurt et al. (2012) identified seven myths of
population aging that should be dismissed in order to see the silver econo-
my as an advantage for businesses leaders and policy makers not solely as
cost and limitation:
Myth #1: Emerging economies will balance out ‘silver tsunami’ of developed
economies.
Myth #2: Countries with aging populations face decades of low growth.
Myth #3: Employment is a zero-sum game, so retaining older workers will
only worsen the crisis of youth employment.
Myth #4: Older workers tend to be less productive.
Myth #5 Entrepreneurial spirit tends to decline with age.
Myth #6 Older consumers are unattractive demographic for marketers.
Myth #7 Older consumers are less likely to adopt new technology.

While all myths can be demystified (see for more details Erfurt et al. 2012)
by using theoretical and statistical arguments, let us focus on three most cit-
ied myths that are significantly shaping policy dialogue when it comes to aged
population and their impact on economics and business.
As unemployment is one of the most fearful macroeconomic problem, it is
widely believed that retaining older workers reduces the chance for young work-
ers to be employed (myth #3). This consideration is based on so-called “the
lump of labor fallacy”, i.e. the assumption that the quantity of labor required in an
overall economy is fixed. This, however, is not true, since it has been proven that
the employment of labor increases the overall size of economy leading to more
job creations. Contrary to that, reducing the amount of labor employees would
917
decrease overall economic activity and further decrease the demand for labor.
Various researches have showed that greater participation of older people has
no adverse effect on youth employment, i.e. retaining older people leads to bet-
ter outcomes for the young – reduced unemployment, increased employment
and even higher wages (Cheng et al. 2007, Kalwij et al. 2010, Munell and Wu,
2012, Eichhorst et al. 2014).
The most common stereotypical attitude towards older workers consider
people aged 50 and over to be competent and knowledgeable yet reluctant to
changes and new ideas, less motivated and with lack of physical strength to
perform on a job. Thus, workplace dominated by older workers is less produc-
tive (myth #4). Recently numerous economic and empirical studies have been
examining the relationship between age and productivity (e.g. the surveys by
Börsch-Supan et al., 2005, Skirbekk, 2004) and have contributed to dispel this
myth, For example, research results of a major international study called the
COGITO Study by Schmiedek et al. (2010) showed that older employees have
been showing better performance results at the workplace than younger ones.
The study compared 101 young adults (20–31) and 103 older adults (65–80)
on 12 different tasks dealing with cognitive abilities, perceptual speed, episodic
memory and working memory over 100 days. The data have showed that the
workers age 65-80 had performance more stable, less variable from day to day
than that of the younger group. Further, the older adults’ cognitive performance
was more consistent over time than that of the younger workers; older people
tend to be more focused, less distracted as well as the experience helps older
workers to compensate for the physical and mental changes that accompany
aging. Older workers have been shown to perform well when it comes to orga-
nization, writing and problem solving. In the line with this finding, researches
from Avery et al. (2007) and Van Veldhoven and Dorenbosch (2008) have also
shown that older workers can learn faster at workplace and in training situa-
tions than younger workers. It is important to notice that the stereotypes in the
workplace reflect the stereotypes in the society when it comes to older people
(see for example McCann and Giles, 2002, Rožman et al., 2016).
Many companies are skeptic when it comes to older consumers believing that
they have less disposable income, tend to save more and are not willing to try
new products and services (myth #6). As already mentioned, Europeans over 65
have a spending capacity of over 3,000 billion EUR. In the United Kingdom,
baby boomers hold around 80 % of all financial assets and in the USA consum-
918
er over 50 years old outspent younger adults by approximately 1 trillion USD
(Erfurt et al. 2012). These sums represent significant purchasing power of older
generations. Academic scholars have been active in researching the characteris-
tics of older customers, i.d. considering the influence of demographic process
on customer behavior (see, for example, Leventhal, 1997, Lambert-Pandraud
et al., 2005, Bałandynowicz-Panfil, 2012). Unfortunately, these untapped
opportunities for marketers have not yet translated into more active focus of
the majority on older consumers related to, for example, product development
strategies and marketing approaches. However, there are companies that have
recognized the potential in the change of age structure among consumers. For
example, Danone, General Electric, Philips, Marks and Spencer are some of
examples of companies that have been conducting research and development
related to gaining market group (ActiveAge, 2012). These researches are fo-
cused to better understand older consumers – from nutrition point of view up
to the retirement plans. Since aging consumers have specific characteristics due
to the age, they represent a challenge for service and product developers. To
better understand these complications, the M.I.T. AgeLab was created in 1999
to invent new ideas and develop new technology to improve the quality life of
older people. It applies consumer-centered systems thinking to understand the
challenges and opportunities of longevity and emerging generational lifestyles
to catalyze innovation across business markets.3 AgeLab has developed an age-
sympathy suit called AGNES that is worn by product developers, designers,
engineers and all others who are associated with challenges of producing goods
and services for aged people. Agnes is designed to approximate the motor, vi-

sual, flexibility, dexterity and strength of a person in their mid-70s and has been
used in daily activities – retail, public transportation, automobile, workplace etc.
3. RECOGNIZING SILVER BUSINESS

OPPORTUNITY
The needs and wants of increasing number of older people open new op-
portunities for various sectors of national economy to address them. Accord-
ing to various sources (e.g. Bank of America Merril Lynch, 2014, Economic
Intelligence Unit, 2011, OECD, 2014) the key sectors that will most likely
benefit from the aging population are following:
3
For more details visit the official website of AgeLab at http://agelab.mit.edu (accessed on 2.04.2018.)
919
• Pharmaceutical and Healthcare sector: focusing on areas such as cancer,
cardiovascular disease, hypertension, stroke, dementia and Alzheimer’s,
diabetes, osteoporosis, arthritis, medical devices and technology, hearing
loss and aids, dental care, and incontinence, among other areas;
• Financial sector: involvement in areas such as insurance, reinsurance, as-

set management and wealth management;
• Consumer sector: involvement in areas such as senior living, care, man-
aged care, healthcare REITs, ageing in place, death care, pharmacies and
drug stores, travel and leisure, beauty and cosmetics, fashion, retail, and
technology, among other areas.
According to the report called “How 21st – Century Longevity Can Create
Markets and Drive Economic Growth” (World Economic Forum, 2015), compa-
nies – large and small – have started to realize diverse range of activities related
to age that can be introduced in their strategic plans thus considering aging as a
commercial opportunity and source of changes in the workplace that can drive
productivity and provide a vehicle to support shared value and partnership with
government and civil society.
4. AGING MARKETPLACE: SELECTED EXAMPLES

While the most common approach to aging population is less focused on
the opportunities, it is important to demonstrate that there are companies that
are successfully taking advantage of it in business terms. There are numerous
examples of service and product innovations for older that are result of “market
pull” and “technology push” intersection. In this paper, we provide only a few se-
lected examples of international (well-known) companies from various sectors
which are innovating their products and services in order to capitalize on the
potential that aging consumer market is offering.
Intel Corporation and General Electric went in 1999 in joint venture and
formed the enterprise worth 250 million USD that is serving the needs of older
people with health challenges. By using ICT technology, they have focused on
remote care management by providing the tele-health and home-monitoring
for older people (Intel, 2018). Intel has recognized that the seniors can and will
learn about new technologies in order to take care of their own health.
920
Saga is UK company that offers insurances and financial services. Guided
by the idea that older drivers tend to have more experience behind the wheel
and are statistically less likely to have an accident, SAGA provide very low car
insurance premiums for drivers over 50 years old.4 Many insurance companies
started to follow this trend and offering cheaper insurances claiming the same -
older drivers are likely to own a more reliable car, and drive fewer miles (SAGA,
2018).
Harley-Davidson, a famous US producer of motorcycles recognized the po-
tential in older people as well as shifting the focus from the age to the values.
Namely, the baby boomers (people who are approaching the age of 65) have
been the most loyal buyers’ age of Harley’s and as they are getting old they still
want to hold on the feel by driving Harley motorcycle. That is why the Harley-
Davidson offered an innovation in motorcycle – the Three Glide. The innovation
included three-wheeled motorcycle that has additional stability and the triangle
wheel-based that has become very popular among older riders.
The Intelligent Systems Research Institute (ISRI) of the National Institute
of Advanced Industrial Science and Technology (AIST), an independent ad-
ministrative institution, has developed a new version (8th generation) of seal-
mimetic mental-committed robot PARO. The intellectual property right for
this product is licensed by the AIST to a venture enterprise, Intelligent System
Co., Ltd. to commercialize it. The PARO looks like baby harp seal and offers all
the benefits of animal therapy, but it is not a living creature; it is a robot. This
“camouflage” has been made because the researchers have found out that people

do not bond well with robotic cats and dogs because they are too familiar with
the real thing. PARO is designed to respond to user’s voice and touch and it
make an authentic seal sound (PARO; 2018).
MyUPMC AnywhereCare is Pennsylvania, USA, based on-line provider of
health care for patients that have non-emergency symptoms but want a quick
response from the medical staff. They can talk to a health care professional us-
ing a streaming video (MyUPMC, 2018).
Mobile phone technology is well-known for its product modification for
olders. For example, Japanese company Kyrocera (2018) has been one of first
companies that have produced a relatively simple mobile phone without any
4
For more details see Saga at https://www.saga.co.uk/insurance/car-insurance.aspx (accessed on
4.04.2018.)
921
display at all that served as a telephone. This product did not even have SMS
option, yet it was favored by Japanese customers. This mobile phone has been
based on the idea that young people like fancy technology including camera,
Internet, colorful displays, games etc. while older people feel such products are
superfluous and want something simpler.
5. CONCLUDING REMARKS
Demographic changes, i.e. increasingly aging population, are creating a new
market segment – silver customers - who have respectable purchasing power on
the one hand and the will to live longer quality and independent life on the
other hand. While many companies are still not fully aware of this change and
their impact on economy and society, there are companies that are not inert to it
and investing in product/service development to serve this specific age-defined
marketplace.
Both policymaker and business leaders must realize that it is time to address
the challenges of aging population. While many of these challenges may repre-
sent opportunities and a push factor for innovative thinking, there are still those
which represent barriers to market including:
• less marketing activities oriented toward older people;
• adjusting communication to older consumer, which is different from com-
munication with younger consumers not only in terms of communication
channels but in communication style as well;
• perception of older population known as ageism;
• stigma related to older people in workplace as well as in society.
Addressing the challenges of aging population in terms of business (econo-
my) and society calls for cooperation between business leaders, policymakers,
academia and media. One could say that the issue of silver economy calls for
Quadruple Helix approach to future research how economies can benefit from
demographic changes. The concept of Quadruple Helix, often applied to innova-
tion issues, in this case means the interaction of academia (university), industry
922
(business), government and civil society (media- and culture-based public)5 in
order to make aging successful on individual and society level.
One possible interpretation of Quadruple Helix concept is following: uni-
versities (academia) can provide empirical evidences on aging population and
its characteristics, preferences etc., which will reduce the existing information
asymmetry among firms and governments when it comes to older people/older
consumers. Namely, it is crucial to recognize and accept the fact that older peo-
ple are not homogenous group and they have great diversity in their potentials,
interests and needs as older consumers, workers or citizens. University research
(both theoretical, empirical or technical) can contribute to industry’s efforts, i.e.
business efforts to develop and/or innovate product to better serve the needs of
older consumers.
Government role is to provide the regulatory framework and financial sup-
port to both academia and industry in order for companies to invest more time
and money in new age-benefiting products and services. This can be in terms of
creating various policies regarding subsidies, technology promotion, sponsoring
research etc.
The Civil society also plays an important role since it uses and applies
knowledge obtained from the academia and firms, but it can be also very ac-
tive in providing ideas for innovation. Also, civil society, particularly media, has
an important role in fighting stereotypes and developing awareness that older
people are not liabilities but assets to the economy and society if understood
and treated properly.
One important aspect of silver economy is promoting social entrepreneur- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
ship which offers, among else, great opportunity for public and private sector to
unite in finding solutions to increase the quality of life for senior citizens that in
turn has positive social impact. Many social entrepreneurs may find a window
of opportunity in this demographic trend and develop products and services
that will contribute to mitigation of many social problems. Certainly, this is an
issue that requires proper policy framework in order to translate potentials into
concrete results.
5
For more detailed explanation of Quadruple Helix and its potential as analytical tool see EU Com-
mittee of Regions (2016).
923
This paper has tried to demonstrate that aging population - a trend that is
unstoppable on global level - should not be treated as a threat to economy in
terms of national social security or pension systems and the like. Many compa-
nies and governments have become less inert and more aware that recognizing
the age- citizens and consumers and their potential in various terms contributes
to business and public welfare. If one finds the way to use the new technology
and develop the right economic, science and technology policies than gaining
will no longer be considered a looming demographic crisis but a silver lining.
LITERATURE:
Avery, D. R., McKay, P. F., Wilson, D. C. (2007): Engaging the aging workforce: the rela-
tionship between perceived age similarity, satisfaction with coworkers, and employee
engagement. Journal of Applied Psychology, 92 (6), 1542-1556
Bałandynowicz-Panfil, K. (2012): The Role of Older People as Consumers – the Compara-
tive Analysis of Old and New Member States of European Union, Comparative Eco-
nomic Research, Volume 15, Issue 1, published online: 2012-07-04 | DOI: https://
doi.org/10.2478/v10103-012-0005-y (Accessed on 18.3.2108.)
Barković Bojanić, I., Erceg, A., (2017): Silver economy: demographic change and economic
opportunity, Conference Proceedings of 13th Interdisciplinary Management Research,
Faculty of Economics Osijek and Hochschule Pforzheim University, pp. 1005 – 1020
Bos, D., Von Weizsacker, R.K. (1989): Economic consequences of an aging population, Eur
Econ Rev, 33 (2-3), pp. 35-354
Börsch -Supan, A., Düzgün, I., Weiss, M. (2005): Altern und Produktivität: Zum Stand der
Forschung, Discussion Paper 73-05, MEA
Cheng, ST., Chan, A.C.M., Phillips, D.R. (2006): The Aging Situation in Asia and the Pa-
cific: Trends and Priorities. For inclusion in the World Ageing Situation Report 2007,
United Nations
Christensen, K., Doblhammer, G., Rau, R., Vaupel, J.V. (2009): Ageing populations: the
challenges ahead, The Lancet, Volume 374, October, Issue 9696, pp. 1196-1208
Eichhorst, W., Boeri, T., Coen, A.D., Galasso, V., Kendzia, M., Steiber, N. (2014): How to
Combine Entery of Young People in the Labour Market with the Retention of Older
Workers, IZA Journal of European Labor Studies, December, 3.
Fougère, M., Mérette, M. (1999): Population aging and economic growth in seven OECD
countries, Economic Modelling, Volume 16, Issue 3, 3 August, pp. 411-427
Gruber, J., Wise, D.: An International Perspective on Policies for an Aging Society, NBER
Paper No. 8103, January 2001, NBER Program(s): Aging, Labor Studies, Public
Economics.
Kalwij, A., Kapteyn, A. de Vos, K. (2010): Retirement of Older Workers and Emplyoment
of Young, De Economics, November, Volume 158, Issue 4, pp. 341-359
924
Lambert-Pandraud, R., Laurent, G., Lapersonne, E. (2005): Repeat Purchasing of New Au-
tomobiles by Older Consumers: Empirical Evidence and Interpretations. Journal of
Marketing, April, Vol. 69, No. 2, pp. 97-113
Lee, R., Mason, A., Cotlear, D. (2010): Some Economic Consequences of Global Aging, A
Discussion Note for the World Bank, HNP Discussion Paper, available at: https://
www.ntaccounts.org/doc/repository/LMC2010.pdf (Accessed on 23.03.2018.)
McCann, R., Giles, H. (2002): Ageism in the workplace: a communication perspective. In
Nelson, T. (2002): Ageism: Stereotyping and Prejudice against Older Persons, MIT
Press, Cambridge, MA, 163- 99.
Nagarajan, R., Teixeira, A.A.C., Silva, S. (2013.) The Impact of Population Ageing on Eco-
nomic Growth: An In-depth Bibliometric Analysis, FEP Working papers, ISSN:
0870-8541, School of Economics and Management Porto
Rožman, M., Treven, S., Čančer, V. (2016): Stereotypes of Older Employees Compared to
Younger Employees in Slovenian Companies, Management, Vol. 21, 1, pp. 165-179
Schmiedek, F., Lövdén, M., Lindernberger, U. (2010): Hundred Days of Cognitive Traninng
Enhance Broad Cognitive Abilities in Adulthood; Findings from the COGITO Study,
Front Aging Neuroscience, v.2, published online 2010 Jul 13; prepublished online
2010 May 20. doi: 10.3389/fnagi.2010.00027
Skirbekk, V. (2004): Age and individual productivity: A literature survey, in Feichtinger, G.
(ed.), Vienna Yearbook of Population Research, Vienna.
Van Veldhoven, M., Dorenbosch, L. (2008): Age, proactivity and career development. Career
Development International, 13 (2), 112-131
Zsarnocky, M., Gyorgy, E., (2016): The New Hope for the EU – Silver Economy, avail-
able at http://www.regionalstudies.org/uploads/Martin_Zsarnoczky_-_The_New_
Hope_for_the_EU_eng.pdf (Accessed on 10.2.2018.)
Web sources:
ActiveAge (2012): The ageing marketpalce: how some companies are successfully addressing
the needs of the older consumer, whilst others are struggling to access this expanding
market available at file:///C:/Users/Students/Downloads/AGEINGMARKETFF.
pdf (Accessed on 4.04.3018.)
AAL Programme (2016): Silver Economy available at http://www.aal-europe.eu/silver-
economy/ (Accessed on 23.03.2018.)
AgeLab at http://agelab.mit.edu (Accessed on 2.4.2018.)
Bank of America Merril Lynch for New York Times: “We are living longer. Are you ready?”
https://paidpost.nytimes.com/merrill-lynch/were-living-longer-are-you-ready.html
(Accessed on 22.03.2018.);
Bank of America Merril Lynch (2014): The Silver Dollar – Longevity Revolution Prim-
er“, 06 June 2014 available at https://ec.europa.eu/research/innovation-union/pdf/
active-healthy-ageing/merrill.pdf (Accessed on 22.03.2018.)
925
Economic Intelligent Unit (2011): A Silver Opportunity? Rising Longevity and its Implica-
tions for Business, A Report from the Economics Intelligence Unit Sponsored by AXA,
available at http://viewswire.eiu.com/report_dl.asp?mode=fi&fi=1877919572.PDF
(4.04.2018.)
EU Committee of Regions (2016): Using the Quadruple Helix Approach to Accelerate

the Transfer of Research and Innovation Results to Regional Growth, available at
https://cor.europa.eu/en/documentation/studies/Documents/quadruple-helix.pdf
(Accessed 9.04.2018.)
European Commission (2015): Growing the European Silver Economy – Background pa-
per, available at http://ec.europa.eu/research/innovation-union/pdf/active-healthy-
ageing/silvereco.pdf (Accessed on 18.3.2018.)
European Parliament (2015): The silver Economy, Opportunities from Aging, Briefing, July
available at http://www.europarl.europa.eu/EPRS/EPRS-Briefing-565872-The-sil-
ver-economy-FINAL.pdf (Accessed on 24.03.2018.)
Intel (2018): https://www.intel.com/pressroom/archive/releases/2010/20100802corp_
sm.htm#story (Accessed on 4.04.2018.)
Kyroecera (2018): http://www.kyoceramobilephone.com/en/(Accessed on 4.04.2018.)
MyUPMC (2018): https://myupmc.upmc.com/anywhere-care/(Accessed on 4.04.2018.)
OECD (2014): The Silver Economy as a Pathway for Growth – Insights from the OECD-
GCOA Expert Consultation, 26 June; available at https://www.oecd.org/sti/the-sil-
ver-economy-as-a-pathway-to-growth.pdf (Accessed on 22.03.2018.)
PARO (2018): http://www.parorobots.com/ (Accessed on 4.04.2018.)
Saga (2018): https://www.saga.co.uk/insurance/car-insurance.aspx (Accessed on 4. 04.
2018.)
Silver Suedo (2018): The Silver Economy in Souuthwest Europe, available at http://4.inter-
reg-sudoe.eu/contenido-dinamico/libreria-ficheros/310619FB-AFB6-AA98-B00D-
5D03559BB329.pdf (Accessed 23.03.2018.)
United Nations, World Population Aging 1950-2020, available at http://www.un.org/esa/
population/publications/worldageing19502050/pdf/62executivesummary_english.
pdf (Accessed on 17.03.2018.)
World Economic Forum (2015): http://www3.weforum.org/docs/WEF_GAC_Ageing_
White_Paper.pdf (Accessed on 2.04.2018.)
926
PUBLIC PERCEPTION OF
QUALITY OF PRIMARY HEALTH
PROTECTION IN THE REPUBLIC OF
CROATIA
Agneza ALEKSIJEVIC, Ph. D.

County General Hospital Vukovar hospital and Croatian
Veterans Hospital
Republic of Croatia
E-mail: aaleksijevic@gmail.com
Abstract
Thanks to the intense development of science in the last thirty years, an enor-
mous and rapid progress has been made in the sphere of medical activity and
the success of disease treatment. The improvements are so fast and significant
that they are permanently producing the growth of expectations of the popu-
lation regarding more successful, better and more comprehensive activities of
health system.
The aim of the survey is to get subjective insights into the quality of health care
in the Republic of Croatia by interviewing citizens.

The survey was conducted on a sample of 980 respondents from the entire
Republic of Croatia. A written questionnaire was used for collecting the data.
The data analysis used the methods of descriptive statistics. Descriptive statisti-
cal indicators were determined for all survey variables, based on respondents’
responses that were measured on a 5-degree scale. Differences at a scale of p <
0.05 were considered as statistically significant differences.
There are more women in the sample than men. Slightly more than half of the
respondents belong to the younger group, while elderly are the least presented
in the sample. If we consider non-grouped data, the average age of respondents
was 39.32 years with a standard deviation of 15.9 years. Most respondents
said they did not suffer from acute and chronic illness. The largest number of
respondents said they use primary health care services, and approximately a
third of them stated they use them rarely. More than 95% of respondents said
927
they have compulsory health insurance. There is also a very large percentage of
respondents who have supplementary health insurance, with more respondents
paying for the insurance policy themselves. Unlike compulsory and supplemen-
tary health insurance, additional insurance is reported by less than 15% of
respondents.
Respondents mostly neutrally assessed the claim that healthcare quality in the
Republic of Croatia, as well as in their place of residence, is at a high level, but
the number of those who agreed with this claim is also significant.
Agneza Aleksijevic: PUBLIC PERCEPTION OF QUALITY OF PRIMARY HEALTH PROTECTION IN THE REPUBLIC OF CROATIA
There is evidently a problem of public perception of the quality of health care

system in the Republic of Croatia by its users. It should be noted that this is
not an ideal system, but on the other hand it should be noted that it is a sys-
tem which, considering all the circumstances, generally achieves positive results
when it comes to its fundamental goals.
Key words: health, primary health care, quality, citizens
JEL Classification: I14,I10
1. INTRODUCTION
Public health is the institutional framework of health care that works accord-
ing to the needs of a man at the primary, secondary and tertiary level. Everyone
is responsible for his or her own health, but society bears the responsibility for
individual’s health. Society in this sense should ensure living conditions that
do not endanger human health, and on the other hand, in the event of a loss
of health society should provide conditions for the treatment of everyone. In
addition, in today’s living conditions, society should also ensure the promotion
of healthy life and promotion of disease prevention as well as the promotion
of health care systems. However, the society not only should do it, but it also
should do it efficiently. Since society is in constant change, and lately very in-
tense, especially because of the expansion of information and communication
technology, models of the health system and its promotion have to be constantly
evolving. In relation to this, rational society reacts in a way that brings about
the appropriate, scientifically based behavioural models and applies the same
to maintain the pace with constant technological and social changes. Thus, the
modelling of social processes, therefore, and those processes related to the pub-
lic health system, should be carried out on a rational and / or scientific basis.
928
With all the burdens and problems that are objectively present in the health
care system of the Republic of Croatia, the system today fulfils its social tasks
in global, and in terms of material conditions, it is in many ways more efficient
than what one should expect from it. First, they are responsible for the human
resources of the health care system which often, regardless of their own mate-
rial condition, go beyond the framework in which the health care system of the
Republic of Croatia functions. Considering, on the one hand, the quality of hu-
man resources of the Croatian health care system and the services they provide,
which are the product of both the education system and the way of working
and lifelong education of employees through work in the health care system of
the Republic of Croatia and taking into account the cost of work in the health
care system of the Republic of Croatia, the health care system of the Republic
of Croatia can be considered a globally competitive health care system. In many
scientific circles, the health care system of the Republic of Croatia is often seen
as a potential, not only in terms of preserving the health and longevity of the in-
habitants of the Republic of Croatia, but also as an export potential, especially
in the field of health tourism, which is almost unused at this time.
2. ANALYSIS OF PRIMARY HEALTH PROTECTION

The Health Care Act states in paragraph 24: “Healthcare is an activity of
interest to the Republic of Croatia which is performed as a public service and
which, by professional medical practice and using medical technology, is carried
out by healthcare workers in the provision of health care, the way prescribed
by this Act. By way of derogation from paragraph 1 of this Article, healthcare
activities in the field of health promotion, disease prevention and mental health
protection may also be performed by non-health workers under the conditions
and in the manner prescribed by the Ordinance, with the previously obtained
opinion of the competent chambers, prescribed by the Minister (Health Care
Act, 2015). The following section of the said Act also defines the level of health
care: “Healthcare is performed at the primary, secondary and tertiary levels and
on the level of health care institutions (Health Care Act, 2015).
Primary health care includes (Croatian Health Insurance Institute, 2013):
• monitoring the health status of the population and proposing measures to
protect and improve the health of the population,
929
• prevention and detection of illness as well as treatment and rehabilitation
of patients,
• specific preventive health care for children and youth, especially in primary
and secondary schools and higher education institutions in their area,
• health care of persons over the age of 65,
• health care for women,
• health care for persons with disabilities,
• preventive health care of risk groups and other residents in accordance

with preventive health care programs and the organization of mandatory
preventive examinations,
• counselling, health education and promotion of health for the sake of
preservation and improvement,
• hygienic-epidemiological protection,
• prevention, detection and treatment of teeth and mouth diseases with
rehabilitation,
• health rehabilitation of children and adolescents with physical and mental
disorders,
• patronage visits, health care in a patient’s home,
• occupational medicine,
• emergency medicine,
• palliative care,
• mental health protection,
• supply and manufacture of medicines and supply of medical products,
• Ambulance transport.
Finally, according to Article 33 of the Health Care Act: “The activity of
health care services is part of the healthcare activity performed at the primary,
secondary and tertiary level of health care, and includes public health, transfu-
sion medicine, work medicine, mental health care, toxicology and emergency
medicine. Healthcare activities at the level of state health care institutes in-
clude public health, transfusion medicine, work medicine, mental health care,
toxicology and emergency medicine. Healthcare at the level of health care units
of regional self-government includes public health and emergency medicine
activities.”(Croatian Health Insurance Institute, 2013).
930
Pursuant to the Health Care Act, the Croatian Institute for Health Insur-
ance cited the emerging forms of institutions, i.e. organizations providing health
care at the primary, secondary and tertiary level. Primary health care is provided
through the following activities (Croatian Health Insurance Institute):
• general / family medicine
• health care for preschool children
• health care for women
• patronage health care
• healthcare in a patient’s home
• dental health care (polyvalent)
• hygienic-epidemiological health care
• preventive-educational measures for the health care of school children and
students
• laboratory diagnostics
• pharmacy
• Emergency medical help.
The Croatian Health Insurance Institute regarding rights at different lev-
els of health care states the following: “The health protection from compulsory
health insurance at the primary level of the insured persons of the Institute is
realized on the basis of free choice of a doctor of medicine and dental practitio-
ner, as a rule, according to the place of residence and according to the provisions
of the general acts of the Institute. The health care coverage of the compul-
sory health insurance at the secondary and tertiary level of the insured persons INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
is provided by the basis of the referral of the selected contractor of primary
health care. Health protection from compulsory health insurance at the level
of health care institutions is carried out at the primary, secondary and tertiary
level of health care, and through special programs” (Croatian Health Insurance
Institute).
When it comes to ownership relationships, then health care services units
can be organized as public and private health care institutions. “Private health
institutions usually rent space in state-owned health facilities. Similarly, private
practices must meet certain criteria set by the Croatian Ministry of Health,
which includes the minimum number of enrolled patients and must offer a
minimum range of health services. Hospitals in the Republic of Croatia are
931
categorized into four categories: national hospitals, county hospitals of regional
significance, county hospitals and local hospitals”(Croatian Health Insurance
Institute).
Although it is common for health care providers to focus on health care
providers, one must not lose sight of the fact that preventive health promotion
activities give significantly better results in terms of the health status of a popu-
lation, but all activities that are targeted to restore lost health. Therefore, it is
extremely important to consider prevention features as factors of the health care
system of the population. In this sense, primary prevention is the best form of
“preservation” of health and includes all procedures to prevent disease (Public
Health Institute of Lika-Senj County). “Secondary prevention involves the de-
tection of illness at its very beginning when there is a large possibility of treat-
ment. Tertiary prevention is concerned with preventing “complications” of the
disease through proper treatment and appropriate rehabilitation. By preventing
complications, we increase the quality of life and progression of the disease”
(Public Health Institute of Lika-Senj County).
Everyone should know how to manage their health or illness and thus pre-
vent the occurrence of many chronic diseases or complications. Caring for your
health is primarily the responsibility of the individual then the community and
ultimately the society. It is necessary to realize the importance of the individual’s
influence on his/her health and behaviour to preserve and improve health. The
survey on health literacy in Europe (2009-2011) showed that 46.3% of respon-
dents were poor in health literacy. It is particularly concerned that vulnerable
groups are particularly illiterate. Thus, of 80% of unqualified or poorly educated
respondents, more than 75% are very ill and more than 70% are considered
members of lower social layers. Furthermore, 60% of respondents are over 75
years of age and over 50% are unemployed or retired. There are also great differ-
ences in the Member States of the European Union ( Janssen, 2011). Figure 1
shows the differences in health literacy among the population in the European
Union.
932
Figure 1. Differences in health literacy in eight EU countries measured by the
general HL index
* The general HL index is based on the meaning of all 47 elements of the HLS-EU instru-
ment. It is standardized between 0 and 50, where 0 is the minimum possible health literacy,
and 50 is the maximum health literacy.
Source: Janssen, 2011
“Health literacy is based on general literacy and includes the knowledge,

motivation and ability of people to access, understand, evaluate, and use health
information, which can be used to assess and make decisions about health care,
disease prevention and health promotion, and your life maintain and improve
the quality of life” ( Janssen, 2011). Practice unfortunately shows that patients
are increasingly directed towards the secondary and tertiary level of health care,
while prevention at the primary level is minor. This shows the need for better INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
communication between the part of the healthcare that is involved in the pre-
vention and the population to which it provides health care services.
Finally, when it comes to the level of quality of health care in the Republic
of Croatia, it should be borne in mind that significant differences are noticed in
health care institutions regarding professional work, equipment and stationary
conditions. Categorization and accreditation are key solutions to standardize
working conditions and the quality of services in the health care system. Stan-
dardization is also the key to appropriate budgets and the fair distribution of
budget funds intended for the work of health care institutions. Namely, catego-
rization of health care institutions determines the level of standards of a health
933
institution, and accreditation of health institutions ensures the quality of health
care of a population.
.. Research design and questionnaires
For data analysis, we used the methods of descriptive statistics. Respon-
dents’ distribution was also established according to the presence of acute and
chronic diseases and the possession of compulsory, supplementary and addi-

tional health insurance. To obtain a more complete picture of the sample, by
combining certain characteristics, the combined tables were also created, and
the divisions of the examinees were visualized via graphically simple, double
and multiple columns for visualization purposes. Box-plot diagram helped to
examine the presence of outrageous and extreme values. In addition, basic de-
scriptive statistical indicators are calculated based on age data.
Descriptive statistics were also determined for all variables of the survey, and
on the respondents’ responses that were measured on a 5-degree scale. Statisti-
cally significant differences were significant at p < 0.05. It should be noted that
the responses of respondents, arithmetic meanings, and average rankings are
shown graphically using simple, double and multiple columns.
The aim of the survey was to get subjective information on the quality of
health care in the Republic of Croatia by interviewing citizens.
.. Questionnaire Design

For data collection, a written questionnaire was designed for this purpose,
consisting of two parts. The first mentioned socio-demographic issues were
mentioned. In the second part, respondents are asked to evaluate how often
they use individual health care services and to show their agreement with claims
related to health care quality.
.. Data Collection and Sampling

The survey was conducted on a sample of 980 respondents living in the Re-
public of Croatia. Table 1 shows their distribution by gender, age, marital status,
work status and degree of education.
934
Table 1. Distribution of respondents by gender, age, marital status, work status
and level of education
Characteristics Number of respondents Percentage
Gender
male 478 48,8
fenale 502 51,2
Age group
18 – 39 491 50,1
40 – 60 380 38,8
61 – 82 109 11,1
Age group
married 515 52,6
unmarried 353 36,0
partnership 30 3,1
divorced 36 3,7
widowed 46 4,7
Working status
student 237 24,2
employed 466 47,6
unemployed 102 10,4
retired 157 16,0
dependent person 18 1,8
Level of education
Lower than secondary school 154 15,7
Secondary school 617 63,0

Higher than secondary school 209 21,3
There are more women in the sample than men. Regarding age, respondents
were classified into three groups. The first consists of people aged between 18
and 39, the other respondents who are between the ages of 40 and 60 and the
third of those aged 61 and over. More than half of the respondents are mem-
bers of the same group, while the sample is least represented by older people. If
non-grouped data is considered, the average age of respondents was 39.32 years
with a standard deviation of 15.9 years. According to the median, half of the
respondents were 39 years of age or less, and the other half were 39 years old
or more. Half of the respondents were between 24 and 51 years old. The coef-
ficient of variation, which is 40.45%, indicates significant data variability in the
distribution of respondents by age. It should be noted that the youngest person
935
in the sample was 18 years old and the oldest was 82 years. Age data is shown in
box-plot diagrams (Figure 2).
Figure 2. Box-plot of distribution of respondents by age
Range without outliers
Based on a box-plot diagram it can be concluded that the distribution of the

respondents by age has no outliers, as well as no extreme values. The distribu-
tion of respondents by gender, age group, marital status, working status and
education level is also shown in Figure 2. Most of the respondents are married.
They are followed by a group of unmarried. Such were more than a third of
the respondents. The sample approximately equally represents the people liv-
ing in domestic partnership, divorced people and widowed people. Neverthe-
less, among these persons the number of widowers was somewhat higher than
in the sample, i.e. approximately 5%. In terms of working status, the sample
936
contains mostly employed persons. This group is followed by respondents who
have indicated that they are students, which is slightly less than a quarter. The
unemployed are represented in the sample by approximately 10%, and retirees
with approximately 16%. Only 18 respondents, which make less than 2% of all
respondents, said that they were dependent individuals. According to the level
of education, respondents were grouped into three groups. The first is made up
of persons with lower than secondary education. Classified there are respon-
dents who stated that they did not have completed elementary school or that
the highest level of education they have completed was elementary school. Ap-
proximately 16% of the respondents made up this group. Most respondents had
completed secondary school education and they make almost two thirds of all
respondents. Approximately 21% of respondents stated that they have a higher
education degree (upper secondary school (undergraduate study)), completed
high education (graduate study), completed postgraduate specialist studies or
a master’s degree). Only one respondent stated that he had a master’s degree in
science, and no person selected in the sample had indicated that he/she was a
Doctor of Science.
The distribution of respondents by gender, age group, marital status, work-
ing status and education level is also shown in Figure 3.
937
938
of education
Figure 3. Respondents by gender, age, marital status, working status, and level
Table 2. Distribution of respondents by gender of age, marital status, working
status and level of education, with line percentages
Sex
Characteristic Total
Male Female
Age group
18 - 39 212 279 491
(43.2%) (56.8%)
40 - 60 203 177 380
(53.4%) (46.6%)
61 - 82 63 46 109
(57.8%) (42.2%)
Marital status
Married 281 234 515
(54.6%) (45, 4%)
Unmarried 151 202 353
(42.8%) (57.2%)
Domestic partnership 16 14 30
(53.3%) (46.7%)
Divorced 14 22 36
(38.9%) (61.1%)
Widower 16 30 46
(34.8%) (65.2%)
Working status
Student 81 156 237
(34.2%) 65.8%)
Employed 261 205 466
(56.0%) (44.0%)

Unemployed 36 66 102
(35.3%) (64.7%)
Retired 92 65 157
(58.6%) (41.4%)
Dependent person 8 10 18
(44.4%) (55.6%)
Education degree
Lower than secondary education 75 79 154
(48.7%) (51.3%)
Secondary education 303 314 617
(49.1%) (50.9%)
Higher than secondary education 100 109 209
(47.8%) (52.2%)
939
To obtain a complete picture of the respondents, they were asked whether
suffered from some acute or chronic illness. Most respondents said they did
not suffer from acute and chronic illness. However, there are many respondents
who have reported to suffer from chronic illness.
Table 3. Distribution of respondents considering the presence of acute and
chronic diseases
Characteristic Number of respondents Percentage
Acute illness
No 877 89.5
Yes 103 10.5
Chronic illness
No 722 78.8
Yes 208 21.2
Most respondents said they did not suffer from acute and chronic illness.
However, there are many respondents who have reported to suffer from chronic
illness. The distribution of subjects regarding the presence of acute and chronic
diseases is also shown in Figure 4.
Figure 4. Respondents regarding the presence of acute and chronic diseases
In the introductory part of the survey, the respondents were also asked ques-
tions related to their status regarding compulsory, supplementary and addition-
al health insurance. Table 4 shows the distribution of their responses.
940
Table 4. Distribution of respondents regarding possession of compulsory, sup-
plementary and additional health insurance
Number of
Characteristic Percentage
respondents
Mandatory health insurance
No 43 4.4
Yes 937 95.6
Supplementary health insurance
No 81 8.3
Yes (CHII covers all costs) 367 37.4
Yes (the respondent covers all costs) 532 54.3
Additional health insurance
No 839 85.6
Yes 141 14.4
More than 95% of respondents said they had compulsory health insurance.
There is also a very large percentage of respondents who have supplementary
health insurance, with more ones paying the bill themselves. Unlike compulsory
and supplementary health insurance, less than 15% of respondents have addi-
tional health insurance.
Figure 5. Distribution of respondents regarding possession of compulsory, sup-
plementary and additional health insurance
.. Research Findings

Respondents were asked to assess on a 5-degree scale (1 - never, 2 - rarely,
3 - occasionally, 4 - often, and 5 - constantly) how often they use health care
services. Their responses are presented in Table 5.
941
Table 5. Distribution of respondents according to the frequency of use of cer-
tain health care services
Frequencies of use
Health Care Service 1 2 3 4 5
(never) (rarely) (occasionally) (often) (constantly)
112 319 410 110 29
Primary protection
(11.4%) (32.6%) (41.8%) (11.2%) (3.0%)
197 408 278 83 14
Specialist examinations
(20.1%) (41.6%) (28.4%) (8.5%) (1.4%)

265 357 263 82 13
Outpatient hospital treatment
(27.0%) (36.4%) (26.8%) (8.4%) (1.3%)
554 269 119 31 7
Therapeutic reasons
(56.5%) (27.4%) (12.1%) (3.2%) (0.7%)
Hospital accommodation for 603 255 82 31 9
treatment (61.5%) (26.0%) (8.4%) (3.2%) (0.9%)
583 233 124 32 8
Physical therapy
(59.5%) (23.8%) (12.7%) (3.3%) (0.8%)
174 224 419 132 31
Dental medicine
(17.8%) (22.9%) (42.8%) (13.5%) (3.2%)

The largest number of respondents noted that they occasionally use primary
health care services, and about a third of them do so rarely. More than 11% of
respondents said they did not use primary health care services at all, and 3%
used them constantly. Most of the respondents said they rarely use specialist
examination services, and more than 20% never use them. Only slightly more
than 1% of the respondents stated that they were constantly using them. Most
of the respondents stated that they rarely used outpatient hospital treatment,
while approximately the same number of people stated they do not use these
services at all or use them occasionally. More than half of the respondents do
not stay in the hospital for therapeutic reasons, and less than 1% said they did it
all the time. The highest percentage is of those who do not use hospital services
for treatment. About a quarter of the respondents stated that they rarely do so,
and less than 1% are constantly using such services. There is also a very large
percentage of those who do not even use physical therapy services at all. More
than a quarter of the respondents use such services rarely, and less than 1% of
them constantly. Regarding dental medicine services, the most prominent are
those who use them occasionally, and that group is followed by those who rarely
942
use them. Almost 18% of respondents stated that they never use dental care
services, and just over 3% do it constantly.
Figure 6. Distribution of respondents according to the frequency of use of cer-

tain health care services
The following table contains descriptive statistical indicators of frequency of

using certain health care services.
943
Table 6. Descriptive statistical indicators of the use of certain health care
services
Health Care Service Arithmetic environment median mod Standard deviation
Primary protection 2.62 3.00 3.00 0.93
Specialist examinations 2.29 2.00 2.00 0.93
Outpatient hospital treatment 2.21 2.00 2.00 0.98
Therapeutic reasons 1.64 1.00 1.00 0.87
Hospital accommodation for
1.56 1.00 1.00 0.85
treatment
Physical therapy 1.62 1.00 1.00 0.88
Dental medicine 2.61 3.00 3.00 1.03

On a scale of 1 to 5, respondents on average use primary health care services

the most, and only a small arithmetic mean is calculated for the variable defined
as the frequency of dental medicine use. The highest rates of median and mode
were calculated for the frequency of primary health care and dental medicine
services. Based on calculated arithmetic means it can be concluded that the spe-
cialist examination services are the second leading service by frequency of use.
Following it is an outpatient hospital service. For these two variables, the me-
dian and mode have the value of 2. With respect to the aforementioned services,
sample-selected persons are less likely to stay in the hospital for therapeutic
reasons and physical therapy, and hospital accommodation for treatment is the
service that is used the least. Median and mode for these three services have a
value of 1. In these cases, the mode indicates that the largest number of respon-
dents stated that they did not use the services at all. The standard deviation,
which represents the average deviation from the arithmetic mean, indicates that
the greatest scattering is characterized by respondents’ responses related to the
use of dental care services and the least their estimation of the use of hospital
accommodation for treatment.
944
Figure 7. Arithmetic mean of frequency of use of certain health care services
In the questionnaire below, respondents were asked to use a 5-degree scale

(1 – I completely disagree, 2 – I mostly disagree, 3 – I neither disagree nor
agree, 4 – I mostly agree and 5 – I completely agree) to show their degree of
agreement with the claims related to the quality of health care. Respondents’
responses are presented in Table 7 and Figure 8.
Respondents mostly neutrally assessed the claim that healthcare in the Re-
public of Croatia, as well as in their place of residence, is high, but the num-
ber of those who agreed with this finding is also significant. Most respondents
confirmed that health services are provided in adequate premises, but a large
number has neutrally assessed the claim that Croatian health care institutions
provide a fast service. With respect to all the questions, the least of the respon-
dents fully agree with this statement. Respondents are neutral regarding re-
specting appointment schedule, although many respondents did not agree with
that. Most respondents confirmed that healthcare institutions and employees
leave a sense of reliability, that healthcare professionals gain their trust and
health professionals respect their privacy, while they are more neutral regard-
945
ing the claim that health care professionals pay attention to them. Although
most of the respondents do not agree or disagree with the statement that they
are familiar with the Patient Rights Act, in the case of this claim it is noticed
that none of the responses offered is particularly distinct from the others. It is
encouraging that the largest number of respondents agree that health care is
more accessible today than before but is largely neutral regarding the claim that
the patient is now in the “centre” of the system. It is also interesting that many
respondents believe that residents are “sicker” today and are more likely to go
to the doctor. It also prevails that health care is better today than before the
Croatian War of Independence. However, most of them do not agree or dis-
agree with the conclusion that health services in other countries of the former
Yugoslavia are worse than in Croatia. Regarding this issue, however, somehow
the answers of those who agree with this statement are more prominent that
answers of those who disagree that health services in other countries of the
former Yugoslavia are worse than in Croatia. It is quite like that of distributing
the respondents’ response to the claim that our health care is significantly worse
than in Western European countries. The prevailing attitude of the respondents
is that campaigning for preventive examinations raises the level of population
health. More than two-thirds of respondents generally or completely agree that
healthcare should be free for everyone. By contrast, although they are mostly
neutral in terms of healthcare efficiency, when privatized, none of the respon-
dents’ responses specifically stands out.
946
Table 7. Distribution of respondents according to degree of cure related to
quality of health care
Degree of agreement
1
(I completely disagree)
2
(I mostly disagree)
3
(I neither agree nor
disagree)
4
(I mostly agree)
5
(I completely agree)
Claim
81 191 366 305 37

Healthcare in the Republic of Croatia is at a high level
(8.3%) (19.5%) (37.4%) (31.1%) (3.8%)
72 212 356 300 40
Health care in my place of residence is at a high level
(7.4%) (21.6%) (36.3%) (30.6%) (4.1%)
71 184 291 331 103
The healthcare service is provided in adequate premises
(7.2%) (18.8%) (29.7%) (33.8%) (10.5%)
181 241 319 211 28
Croatian health institutions provide fast service
(18.5%) (24.6%) (32.6%) (21.5%) (2.9%)
181 232 282 220 65
Health institutions respect appointment schedule
(18.5%) (23.7%) (28.8%) (22.5%) (6.6%)
Health institutions and employees leave an impression of 75 142 325 374 64
reliability (7.7%) (14.5%) (33.2%) (38.2%) (6.5%)
Healthcare professionals obtain my trust due to their 57 118 306 398 101
knowledge (5.8%) (12.0%) (31.2%) (40.6%) (10.3%)
53 126 309 361 131
Healthcare professionals obtain my trust due to their courtesy
(5.4%) (12.9%) (31.5%) (36.8%) (13.4%)
39 75 284 391 191
Health professionals respect my privacy
(4.0%) (7.7%) (29.0%) (39.9%) (19.5%)

53 115 392 343 77
Healthcare professionals pay attention to me
(5.4%) (11.7%) (40.0%) (35.0%) (7.9%)
247 187 280 199 67
I am familiar with the Patient Rights Act
(25.2%) (19.1%) (28.6%) (20.3%) (6.8%)
70 82 268 398 162
Today health care is more accessible to citizens than before
(7.1%) (8.4%) (27.4%) (40.6%) (16.5%)
110 158 414 243 55
The patient is in the “centre” of the health system
(11.2%) (16.1%) (42.2%) (24.8%) (5.6%)
I have the impression that residents today are “sicker” and are 26 43 211 391 309
more likely to go to the doctor (2.7%) (4.4%) (21.5%) (39.9%) (31.5%)
Healthcare today is better than before the Croatian War of 56 53 319 357 195
Independence (5.7%) (5.4%) (32.6%) (36.4%) (19.9%)
Health care services in former Yugoslavia countries are worse 64 86 381 313 136
than in (6.5%) (8.8%) (38.9%) (31.9%) (13.9%)
947
Our health care is significantly worse than in Western 51 101 353 318 157
European countries (5.2%) (10.3%) (36.0%) (32.5%) (16.0%)
Campaigns related to preventive examinations raise the level 44 74 327 358 177
of population health (4.5%) (7.6%) (33.4%) (36.5%) (18.1%)
42 48 138 255 497
Healthcare should be free for everyone
(4.3%) (4.9%) (14.1%) (26.0%) (50.7%)
204 117 298 195 166
When privatized, healthcare would become more effective
(20.8%) (11.9%) (30.4%) (19.9%) (16.9%)
The following table lists descriptive statistical indicators (arithmetic mean,

median, mode and standard deviation) of the quality of health care quality.
Table 8. Descriptive statistical indicators of health care quality assessment

Arithmetic Standard
Claim Median Mode
environment deviation
Healthcare in the Republic of Croatia is at a high level 3.03 3.00 3.00 0.99
Health care in my place of residence is at a high level 3.02 3.00 3.00 0.99
The healthcare service is provided in adequate premises 3.22 3.00 4.00 1.09
Croatian health institutions provide fast service 2.66 3.00 3.00 1.09
Health institutions respect appointment schedule 2.75 3.00 3.00 1.19
Health institutions and employees leave an impression of reliability 3.21 3.00 4.00 1.02
Healthcare professionals obtain my trust due to their knowledge 3.38 4.00 4.00 1.02
Healthcare professionals obtain my trust due to their courtesy 3.40 4.00 4.00 1.04
Health professionals respect my privacy 3.63 4.00 4.00 1.01
Healthcare professionals pay attention to me 3.28 3.00 3.00 0.96
I am familiar with the Patients’ Rights Act 2.64 3.00 3.00 1.25
Today, healthcare is more accessible than before 3.51 4.00 4.00 1.09
The patient is in the “centre” of the health system 2.97 3.00 3.00 1.04
I have the impression that residents today are “sicker” and are 3.93 4.00 4.00 0.97
more likely to go to the doctor
Healthcare today is better than before the Croatian War of 3.59 4.00 4.00 1.04
Independence
Health care services in former Yugoslavia countries are worse than 3.38 3.00 3.00 1.04
in Croatia
Health care in Croatia is significantly worse than in Western 3.44 3.00 3.00 1.04
European countries
Campaigns related to preventive examinations raise the level of 3.56 4.00 4.00 1.01
population health
Healthcare should be free for everyone 4.14 5.00 5.00 1.10
When privatized, healthcare would become more effective 3.00 3.00 3.00 1.35

948
Based on the calculated arithmetic means, as shown in Figure 8, it can be
concluded that the respondents, on average, mostly agree that healthcare should
be free of charge for everyone. Only in this case the arithmetic mean has a value
greater than 4, while the median and mode have the value of 5. Respondents also
showed a relatively high level of agreement with the statement that the residents
are “sicker” and are more likely to go to the doctor today. They are somewhat less
consistent with the statement that health professionals respect their privacy.
Respondents with an average rating of 3.59 rated the claim that health care is
better today than before the Croatian War of Independence, suggesting that,
despite the criticisms of the health care system, they perceived some progress.
In addition, they generally agree that campaigning related to preventive exami-
nations raises the level of population health and that health care is now more
accessible than before. To a lesser extent, but still positive, they evaluate that
health care professionals gain their trust with their courtesy and knowledge. In
the case of these two, as well as previous findings, the median and mode have
the value of 4. Approximately similar, the respondents stated that they agreed
that health care was significantly worse than in Western European countries,
and that health services in other countries of the former Yugoslavia were worse
than in our country. However, in the case of these claims, the medium and mode
have the value of 3.
Compared to the previous assessments, there is a somewhat weaker assess-
ment that healthcare professionals pay attention to the respondents, provide
healthcare services in adequate premises, and that healthcare institutions and
employees are perceived as reliable. Respondents were fairly neutral, with an
average rating of just over 3, in evaluating the claims that health care protection INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
was high in the Republic of Croatia and in their place of residence. For a claim
that healthcare would be more effective if privatized, the calculated average rat-
ing was 3, with median and mode having the same value. In this case, the stan-
dard deviation has the highest value, indicating the highest degree of scattering
of responses.
Four findings were evaluated with an average rating of less than 3. The clos-
est to the value of 3 was the claim that the patient is now in the “centre” of the
system. A lower average rating was calculated in case of a claim that healthcare
institutions respect appointment schedule and that Croatian health institutions
provide a fast service. The smallest average rating was calculated for the claim
949
regarding the Patient Rights Act, which indicates that much greater attention
should be paid to this issue than it has been the case so far.
Figure 7. Arithmetic mean of frequency of use of certain health care services

There are several more claims for which the male respondents showed on
average higher degree of agreement than female respondents. Thus, men rated
with a higher average rating the claims that the level of health protection in
their place of residence is high, that Croatian health institutions provide fast
service, that healthcare institutions respect the appointment schedule, health
950
institutions and employees leave an impression of reliability, that health care
employees gain their trust due to their knowledge, that the health profession-
als gain their trust with their courtesy, health care professionals pay attention,
familiarity with the Patient Rights act, that the patient is today in the “centre”
of the system, that the health services in the other countries of the former Yu-
goslavia are worse than in Croatia, that health care should be free for everyone
and that healthcare would become more effective if privatized. Almost the same
value of the arithmetic mean for men and women was calculated for the claim
regarding high level of health care in the Republic of Croatia.
4. CONCLUSION
There is evidently a problem of public perception of the quality of the health
care system in the Republic of Croatia by its users. It should be borne in mind
that this is not an ideal system, but on the other hand it should be borne in mind
that it is a system that, considering all the circumstances, generally achieves pos-
itive results when it comes to its fundamental goals. Developed countries have
higher quality health care because of their greater economic potential, but the
shortage of money in the health care system of the Republic of Croatia is often
compensated by the knowledge and willingness of health care workers who of-
ten get the most out of the available resources.
Considering evolving social processes and changes introduced by a new in-
formation age, and based on the conducted research, it can be concluded that
direct marketing communication has the biggest potentials for improving
healthcare system perception. In that sense, it is necessary to reorganize at the INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
level of overall health approach to monitoring and considering patients. Today’s

systems for patient registration are primarily linked to technological dimen-
sion since patient data is in fact data that has a primary function of monitoring
treatment process, i.e. the so-called anamnesis monitoring, medical records and
therapy and therapeutic efficiency. To this dimension of patient consideration,
in a data base sense, should be added marketing dimension and monitor con-
sumer behavior, i.e. patient behavior, to learn their habits and to generate an
optimal combination of circumstances and information for each patient within
the frame of integral marketing communication. That means that in addition
to physical characteristics of a patient, it is useful to know whether he/she uses
the internet, E-mail communication system, social networks and which ones
951
and whether he/she tends to share information. For example, if a patient uses
a social network, then he/she can periodically receive in his/her inbox invita-
tions for check-ups, prevention measures and this type of communication can
be used for surveying patient satisfaction with services, obtaining patients’ sub-
jective attitudes regarding their treatment and its outcomes, as well as for in-
forming patients on their rights and obligations that have changed. In that way,
healthcare system stops being isolated from its patients and enters specific and
direct relations with a patient.
REFERENCES
Croatian Health Insurance Institute, (2013) Law on Health Care, http://cdn.hzzo.hr/wp-
content/uploads/2013/10/Interni_procisceni_tekst_ Zakon_o_zdravstvenoj_zasti-
tiv21.pdf [6.1.2018]
Health Care Act, (2015), https://www.zakon.hr/z/190/Zakon-o-zdravstvenoj-za%C5%A1ti-
ti [6.1.2018]
Croatian Health Insurance Institute .: Description of the Health System, http://www.hzzo.
hr/zdravstveni-sustav-rh/opis-zdravstvenog-sustava/ [6.1.2018]
Health Care Act, (2015), https://www.zakon.hr/z/190/Zakon-o-zdravstvenoj-za%C5%-
A1titi [6.1.2018]
Janssen, Health Writing v Europe, (2011), http://www.janssen.com/slovenia/novice/
zdravstvena-pismenost-v-Evropi [15.11.2015]
Public Health Institute of Lika - Senj County, http://www.zzjzlsz.hr/izaberimo-zdravlje
[15.11.2015]
952
EDUCATION FOR HANDLING
CONFLICT IN THE ORGANIZATION
Sanja ŠPANJA, PH. D.

University J. J. Strossmayer, Osijek,
Faculty of Humanities and Social Science
Department of Pedagogy
E-mail: sspanja@ffos.hr
Sara PEJAKOVIĆ
University J. J. Strossmayer, Osijek,
Faculty of Humanities and Social Science
Department of Pedagogy
E-mail: skakuk@ffos.hr
Abstract
The aim of this paper was to contribute to the body of the existing literature,
find out the causes, types, effects, and strategies on how to manage conflicts in
organisations effectively to enhance organisational performance. Every organi-
zation is a society in microcosm. Each lives their own culture and are tempted
to focus on solutions and resolution of the conflicted issues when a solution of
the conflict where either be suggested or imposed from the authorities in the
organisation. Often there is no time to think that maybe will be more helpful,
instead, to think in terms of a process that will enable those involved in the
conflict to arrive at their own solution or find ways of living with the differences
within the organizational culture. In addition, it is not possible to imagine
organizational communication without conflict. Conflicts are something in-
evitable in any organization because people have different opinions between
them. At first, where believed that conflicts were something that might destroy
manager’s authority but studies in the 1970s showed that conflicts could have
a positive, as well as a negative side (Spaho, at all, 2013). There is a common
agreement that it is very dangerous for an organization to have both too many
conflicts, as well as not to have any conflicts at all. Therefore, it is the prime
responsibility of education and curriculum in the formal school system to edu-
953
cate students how to put in place appropriate strategies on how to minimize
conflicts, focused on the process rather than product and develop necessaries
social and communication skills.
Key words: conflict, education, process, organizational communication
1. INTRODUCTION
Contemporary society is undergoing rapid changes due to forces of global-
ization, the mobility of people, and technical growth in all aspects of life. Being
aware of those changings with paradoxes in which we have, from one side, signif-
icant evolution of informational technologies and from the other side more and
more poorly developed communicational and conflict resolution skills, within
the work population, necessary to successfully resolve conflict, rise a question
Sanja Španja Sara Pejaković: EDUCATION FOR HANDLING CONFLICT IN THE ORGANIZATION
of education for handling the conflict in the organization. The purpose of this
paper is to identify different educational approaches to conflict resolution.
It is not possible to avoid conflict in an organizational communication. Con-
flicts occur normally in any organization as people have different views and
thoughts, among them, there are people who cannot admit other people’s dif-
ferent perceptions (Spaho et al. 2013). Every organization is a society in micro-
cosm. When we think about organization usually, we connect with a society that
values its special qualities of homogeneity and harmony. According to Morgan
(1997) “Organizations are mini-societies that have their own distinctive pat-
terns of culture and subculture” (p. 129). Yet a closer examination reveals the
myth of an organization society that was never neither truly homogenous nor
simply harmonious which may contain an interaction of people from different
kinds of organizational cultures. Few interactions of this kind are without con-
flict, which can be at the same time eider a creative force, or a place for the fight.
There are no two or more individuals with identical attitudes, values, beliefs,
and skills. Small irritating events such as negative attitudes occur repeatedly
over time and can cause people to strike out at each other. However, people
are intelligent, dynamic, self-organizing and creative beings able to distinguish
thoughts and innovative reactions to conflicts. (Andrade, 2008). In many cases,
conflict occurs at the senior level of the organization. We could have perceived
conflict, as a normal and natural part of our workplace. This type of conflict can
954
be helpful in making necessary changes within the home or work environment.
However, unresolved conflict can result in feelings of dissatisfaction, unhappi-
ness, hopelessness, depression, and other negative emotions. It can result in be-
haviours such as physical or emotional withdrawal, resignation from jobs, dis-
solution of personal relations, poor work-related performance, aggression, and
even violence. In these situations, intervention is needed. (Zafar at all 2014).
2. CONFLICT AND ORGANIZATION

Global markets require flexibility, change, and innovation of social as well
as business organizations. For the members of an organization, this means de-
veloping abilities and competencies, constantly reorienting regarding new fields
of action and new tasks, as well as redefining self-images and scopes of action.
Often change does not take into consideration the needs of the employees, their
emotions, or their skills and personal needs for appreciation and security. Con-
sequently, conflicts arise. At the same time, scholars verify that without a basic
understanding of strategies for handling a traditional conflict, are not sufficient
(Schäfer 2006: 325). Traditional conflict means that conflict must be avoided
as it reflects malefaction within the group. Conflict is viewed negatively and is
associated with violence and destruction.
Conflict may be defined as a condition involving at least two parties, who
have a mutual problem of position or resource shortage, in which there is a
behaviour (or threat) designed through the exercise of the power to control or
gain at the other’s expense. In this process of conflict, the established patterns of
behaviour among the involved parties are disrupted (Sttele, 1976). INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Another definition of conflict “A process of social interaction involving a

struggle over claims to resources, power and status, beliefs, and other prefer-
ences and desires. The aims of the parties in conflict may extend from simply
attempting to gain acceptance of a preference, or securing a resource advan-
tage, to the extremes of injuring or eliminating opponents” (Zafara at all, 2014).
Conflict is the perception of differences of interests among people (Thomp-
son, 1995). It is important to emphasize that conflict management skills can be
learned, and effectively employed for institutional and individual benefit within
the organization.
955
Different theoreticians have tried to classify conflict into various forms. One
of the classifications is the relationship, task and process conflict. There is, how-
ever, the considerable conceptual overlap between these different forms of con-
flict (Dirks and Parks, 2003).
• Relationship Conflict: This exists when there are interpersonal differences
between group members, including personality clashes, tension, animos-
ity and annoyance ( Jehn, 1995). This type of conflict produces negative
individual emotions, such as anxiety, mistrust, or resentment frustration,
tension, and fear of being rejected by other team members (Murmnigham
and Conlon, 1991).
• Task Conflicts: These are disagreements about the content of a task and
work goals, such as the distribution of resources, procedures, and inter-
pretation of facts. Task conflicts include differences in viewpoints, ideas,
and opinions, and may coincide with animated discussions and personal
excitement. In addition, studies have shown that task conflict can also be
associated with several harmful effects, such as job dissatisfaction, lack of
team work, and increased anxiety (Kabanoff, 1991).
• Process Conflicts: This refers to disagreement about how a task should be
accomplished, individuals’ responsibilities and delegation ( Jehn & Man-
nix, 2001), e.g. when group members disagree about whose responsibility
it is to complete a specific duty. Process conflict has been associated with
lower morale, decreased productivity and poor team performance ( Jehn,
1999).
Conflict is a social phenomenon that could be found in personal, group or
organizational interactions.
In short, organizational conflict can be intrapersonal, interpersonal, intra-
group, and intergroup. The strategies for managing the last three structural
types, each revealing different levels of concern for self and others are integrating.
Resolving problems to reach an effective solution acceptable to all disputants:
• Obliging-satisfying the concerns of the other party to preserve a relation-
ship and perhaps obtain something in exchange;
• Dominating-achieving a win-lose resolution that is in the best interest of
one group and at the expense of the other;
• Avoiding-deviance situations;
956
• Compromising- seeking a resolution that satisfies at least part of each
party’s demands (Serrat, 2017).
• According to Hener (2010), below are the types of organizational conflicts:
• Vertical conflicts that happen when the supervisor is always informing an
employee what to do and tries to “micro-manage”, while at the same time
allowing the employee to execute his job.
• Horizontal conflicts that happen among employees, on the same hierar-
chical level because of the different interests in relation to allocation of
resources.
• Line staff conflicts that occur between support staff and line employees.
• Role conflicts resulting from a mistaken understanding of the task given
to an employee at a particular period.
Despite the various definition and classification of conflict outlined above,
it is quite evident that to say that conflict is all good or bad is inappropriate
and naïve. Whether a conflict is good or bad depends on the type of conflict.
Specifically, its necessary to differentiate between functional and dysfunctional
conflict. Sometimes, conflicts can be useful, and help manager or employees to
make the correct decision, although conflict might represent a huge obstacle to
an organization and its business. However, the fact is that people are intelligent,
dynamic, self-organizing and creative beings able to distinguish thoughts and
innovative reactions to conflicts. (Andrade, 2008).

.. Conflict and organization in postmodern society
Bauman (2000), explains contexts of time that we are living in today and
conflict within the organization, emphasizing the importance of feeling free and
independent but simultaneously responsible for others, applying personal value
system and set of personal rules. Today, postmodern society has changed from
“solid society” in which loyalty, strong bonds between people, predictability and
security in interpersonal relationship in the working environment were valued,
to the “liquid society” in which it is too hard to maintain and keep certain shape
or structure, and where even small changes could affect majority and reshape
work in the organization.
957
In “liquid society” concepts like permanence and long term, lose their signifi-
cance, leading to the fragility of human relationships, short-term expectations
of joint action, increased sense of insecurity, and vagueness and unpredictability
in professional and social life. All this derives from the enormous influence of
nomadic capital and globalization processes. Big capital, today, with great ease
and promptness, moves from one part to another part of the Earth. As results
of this rapid change in society and business world, we have today, changes in the
responsibilities of managers who are no longer interested in investing in staff or
fellow worker and team stability. Because of these risks in the workplace, just a
few managers are ready to invest in interpersonal relationships and education
for handling a conflict in the organizations. The individual is worth as much as
his last project is worth (Bauman, 2000).
The messages that such a value system sends to employees are: do not com-
mit yourself beyond what is necessary, loyalty is ridiculous, establish superficial
relationships with other colleagues at work. Following these ideas, we could

ask ourselves the question: What are the consequences of these changes in
management?
In the contemporary postmodern world, the labour market is such that it
does not invest in employees but presumes that they know how and can do it all.
The need to develop knowledge, skills, and attitudes of employees to success-
fully resolve conflicts in the organization is becoming less important to manag-
ers. However, it also makes the conflict an inevitable and normal part of the
modern world. The uncertainty of the working environment and job position
has become, in fact, crucial for checking people and their performance at work
(Poljak, Šehić-Reljić, 2006).
The anxiety and alienation that Bauman (2000) describes in his theory of
“liquid societies” emphasizes that this construct slowly becomes our reality. Per-
sonal responsibility is a key to meet our own needs, to develop values, specific
personalities and potentials and achieve a sense of satisfaction in life and work.
Every individual has the right and duty to take care of their own life according
to one’s own beliefs, opinions and responsibilities to meet their own needs.
Our personal goals are personal wealth, prosperity, and pleasure; all impor-
tant in life, and if everyone has the right to their own values, needs, interests,
and goals, it is necessary to engage in open conflict as the way to achieve our
own goals as opposed to others who have different goals, needs, and values. It is
958
not only necessary but also normal and healthy because only when we meet dif-
ferent needs and strategies can we begin negotiation and developing new con-
flict resolution skills.
If we do not enter conflict openly, if the differences do not show clearly and
publicly, we are unable to negotiate or find solutions that are good for all par-
ticipants. Such open confrontation requires courage to recognise and address
differences. Also, it takes a lot of energy, time, effort and creativity to find a solu-
tion that will satisfy everyone involved in the conflict. To do that, a basic edu-
cational knowledge needs to be implemented in school curriculum at all levels
of education. In addition, after formal education, it will be useful to educate (at
the very least) managers to be competent to face challenges in the organization
which include conflicts.
3. ORGANIZATIONAL COMMUNICATION
Communication (lat. communicare: to share) is the process of exchanging
information between people. All forms of communications have in common
at least one transmitter and receiver in (successful) communication processes
between whom the exchange of data or information happens. In a special case,
the transmitter can also be the receiver at the same time (Radermacher, 2010).
Communication is a transfer of information from a sender to receiver, imply-
ing that the receiver understands the message. Communication is also sending
and receiving messages by means of symbols. In this context, organizational

communication is a key element of organizational climate (Drenth et al, 1998).
In the business world, communication is necessary for conducting business
in an efficient manner. Any business involves two types of communication: ex-
ternal communication that is directed to the actors in the business environment,
and internal communication or organizational communication that is directed
to employees. No mistakes will be made by saying that without good internal
communication there is no good external communication, which will then re-
sult in the inadequate performance of employees in the organization (Spaho,
2013). It is not possible to have good human relations without communication.
An effective communication is required, not only for maintaining human rela-
tions but also for achieving good business performance. In addition, practical
experience shows that there is no communication without conflicts.
959
Successful organizations with high standard in professional performance,
one who cares for employees and relationships within the organization, are
based on the values of democracy (solidarity, responsibility, participation in con-
sensus-based decision-making, equal opportunities for all). This organizations
continuously invest in their employees, their social knowledge and skills, cher-
ished communication and opens possibilities for good and quality cooperation
at all levels of the organization. The style of communication in the organization
depends on the rules and norms of communication defined by the structure and
on the application of certain procedures and ways of acting in the operation of
the organization. Furthermore, organizational communication depends on the
culture and values of the organization, but also on the capacity of people to ap-
ply assertive communication strategies and dialogue. As the organization grows
and develops, communication is changing (improving or becoming worse) ac-
cording to the other manifestations and processes. Dialogue-based, successful
communication needs to be cherished, and the skills of dialogue must be con-
tinually developed and constantly working on their improvement. It is not easy

to change established ways of communication with the people or organization.
The first reaction to change is almost always resistance, even where employees
are having benefits from a change. Every change requires employee maturity,
willingness to accept new knowledge, communication skills and conflict resolu-
tion skills, and readiness to accept new challenges. (Poljak, Šehić-Reljić, 2006).
4. EDUCATION FOR DEVELOPING PROCESSES

FOR HANDLING CONFLICT
The main role of the education for conflict management is to minimize the
negative consequences of conflicts and endorse its positive outcomes. (Rahim,
2002).
Processes of conflict management are described as follows:
• Diagnosis-The most important part of conflict management is the prob-
lem identification. Once the right problem is identified, an efficient inter-
vention may take place. In this phase, it is mandatory to find out the num-
ber of conflicts in the business and to discover the relationship between
affective and fundamental conflicts and formulate strategies adopted by
managers and employees in resolving these conflicts.
960
• Intervention-The intervention is especially required in a case where there
are too many affective conflicts and too few substantive conflicts. There
are two types of intervention: the process approach and the structural ap-
proach. The process approach is where managers tend to match the styles
of handling conflicts to different situations, while the structural approach
is where conflict is managed by changing the perceptions of the intensity
of conflict at different levels.
• Conflict-Conflicts have two extents: One consists of disagreements in
relation to task issues, and the other involves emotional and interpersonal
issues that contribute to conflict.
• Learning and effectiveness: One of the main purposes of controlling con-
flict in a contemporary organization is to improve organizational learn-
ing which includes knowledge acquisition and dissemination, information
analysis, and maintenance of organizational memory. Individual learning
is obligatory, but it does not constitute an appropriate condition for orga-
nizational learning.
Educational strategies should involve several different social and communi-
cation skills that will help move the conflict toward a healthy resolution, rather
than allowing the relationships to deteriorate further or issues to fester. A pro-
cess – in contrast to a quick fix is likely to take time and recognise that there
are certain things that need to happen before moving on others (Fahed-Sreih,
2018). Acknowledging the importance of education in transforming conflict
with process-oriented approach; a few pointers need to be considered:
• It is important that all the parties be helped to acknowledge that there is INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
a conflict.
• It is important that all the parties be assisted in surfacing, recognising and
defining those issues. (Initially, this may require working with the party’s
separately).
• Once the issue has been defined, try to create a proper forum for dis-
cussing and hopefully, dealing with them. (A proper forum, among other
things. Implies that all those with perspectives on the issues are included
and that the group exploring the issues also has the power to make deci-
sions about them.)
• Get representation from all viewpoints.
961
• Seek balanced input or debate.
• Try to think as creatively as possible about a range of different opinions
for addressing the issues and moving conflict forward. Then, begin to ex-
plore which might best meet the needs of all those involved. (Remember
that what at first appears to be the issue may not be the most important
issue. Focusing too much on the presenting issue may not move the thing
forward at all. It may help, instead, to broaden out from a point of con-
flict and try to establish a broad understanding of an agreement about the
larger issue.)
• Make sure that any agreements reached are clear and communicated to all
of those with a stake in the conflict.
• Build in a time and way to review any agreements reached. (McAllister,
1997).
5. PROPOSED EDUCATIONAL APPROACHES

FOR HANDLING CONFLICT IN THE
ORGANIZATION
Negotiation is a direct conversation between conflicting parties whose pur-
pose is to find solutions. We negotiate our whole life, exchanging obligations
and promises. Each time two people need to reach an agreement, they negotiate
(Cornellius & Faire, 1989). Negotiation is an integral part of everyday work,
but also the personal relationships and relationships that employees build and
maintain. Many employees look to negotiation as a life skill they can apply in
a lot of life situations, while others look at negotiation as a formal process they
apply in critical conflict situations. Negotiation presents principles, skills, and
processes which are consist of few steps that help people to make decisions and
resolve a conflict. Negotiations are used in the decision-making process, which
is to prevent a conflict. At the same time, negotiation is also used as a method of
solving conflicts in the organization.
The aim of the negotiation is to reach an agreement by fair and effective use
of the skills and talents of all the participants in the conflict; Achieve the desired
and lasting result by meeting the interests of all sides; Develop a shared sense of
satisfaction from a successful negotiation process (Poljak, Šehić-Reljić, 2006).
962
The following process is useful for effectively managing conflict in the work-
place, in relationships, or in other situations where employees and manager in
the organization have an interest in seeking a negotiated solution. These steps
won’t guarantee an agreement, but they greatly improve the likelihood that the
problems can be understood, solutions explored, and consideration of the ad-
vantages of a negotiated agreement can occur within a relatively constructive
environment. They provide useful strategies to consider that reduce the impacts
of stress, fears, negative emotions and “surprise” factors involved in dealing with
conflict.
. . Eight steps for conflict resolution

1. “Know Thyself ” and Take Care of Self
• Understand your “perceptual filters,” biases, triggers
• Create a personally affirming environment (eat, sleep, exercise)
2. Clarify Personal Needs Threatened by the Dispute
• Substantive, Procedural, and Psychological Needs
• Identify “Desired Outcomes” from a Negotiated Process
• Look at BATNA, WATNA, and MLATNA
Alternatives to negotiating are commonly divided into three categories:
• BATNA - Best Alternative to a Negotiated Agreement. What is

the best we can expect if we don’t come to a negotiated agreement?
BATNA is the best possible outcome a party has in mind. Con-
sidering a BATNA means that each party thinks about what their
winning scenario looks like.
• WATNA - Worst Alternative to a Negotiated Agreement. What is
the worst I can expect if we don’t come to a negotiated agreement?
Considering a WATNA means that each party thinks about what
their losing scenario looks like.
• MLATNA - Most Likely Alternative to a Negotiated Agreement.
What is the most likely alternative if we don’t come to a negotiated
agreement? Considering a MLATNA means that each party thinks
963
about what a neutral decision maker will most likely decide. This
can be difficult for people entrenched in their own views.
• By thinking these through, we can understand how a negotiated
solution can meet our needs better than the alternatives and can
clarify our desired outcomes. When considering the BATNA,
MLATNA, and WATNAs, each party should consider what al-
ternative paths exist if a party walks away from mediation. There
may be more than one path – going to court, walking away from a
particular situation, seeking a new job, etc
3. Identify a Safe Place for Negotiation
• Appropriate Space for Discussion/ Private and Neutral
• Mutual Consent to Negotiate/ Appropriate Time
• Role of Support People (Facilitators, Mediators, Advocates), as
needed
• Agreement to Ground rules
4. Take a Listening Stance into the Interaction
• “Seek first to understand, then to be understood” (Covey)
• Use Active Listening skills
5. Assert Your Needs Clearly and Specifically
• Use “I-messages” as tools for clarification
• Build from what you have heard - continue to listen well
6. Approach Problem-Solving with Flexibility
• Identify Issues Clearly and Concisely
• Generate Options (Brainstorm), While Deferring Judgment
• Be open to “tangents” and other problem definitions
• Clarify Criteria for Decision-Making
7. Manage Impasse with Calm, Patience, and Respect
• Clarify Feelings
• Focus on Underlying Needs, Interests, and Concerns
964
• Take a structured break, as needed
8. Build an Agreement that Works
• Review “Hallmarks” of a Good Agreement
• Implement and Evaluate - Live and Learn
It is impossible to negotiate solutions to all organizational problems in one
session, or even in one series of meetings. Therefore, it is important to clarify de-
sired outcomes from the process of negotiation and focus all energies on two or
three priority issues among the dozen that those involved in conflict feel are im-
portant. By doing so, it is more likely to negotiate agreements that are meaning-
ful to all, and less likely to get diverted with trivial or small and not important
issues. Taking into consideration all above, understanding that there is a range
of outcomes which sometimes can push parties to consider the consequences if
they choose to walk away from a negotiation to take their chances with some-
one else or something else (like an arbitrator, agency, or court). It can also make
parties reflect on the power they have at the negotiation table that will be relin-
quished if the matter proceeds to a hearing of some kind (Law, 2015).
6. CONCLUSION
Being aware of the postmodern “liquid” societies that we are living in, emerge
new requirements for education for handling conflict in the organisation. From
the discussion thus far, it is quite evident that it is impossible to eliminate con-

flict in the organisation totally. Mangers who try to eliminate conflict will not
last long, while those who manage it well will typically experience both institu-
tional benefits and personal satisfaction.
Using eight steps analysis for handling conflict can be highly influential in
case of conflict in the organization. Managers need to consider intelligently
whether is a possibility to analyse and negotiate between parties involved in
conflict or whether they would prefer to pursue some other conflict handling
approach. In order to do that they need to be educated as well as their employ-
ees. Managers who can walk their employees through a carefully detailed and
organized eight steps analysis are providing a valuable service and raise con-
structive and effective organizational culture. The aim of handling conflict in
the organisation is to achieve optimal levels of conflict with the highest level
of organizational effectiveness. This paper also explored key elements of con-
965
flict analysis and strategies and core competence of the communication in the
organization. Handling conflict has a strategic advantage for the organization
that results in improved productivity, clear communication and successful de-
cision making. Use of a format like the one presented here, along with clear
understanding of the concept of conflict in the organisations, underline the im-
portance of developing new knowledge and skills for handling a conflict using
education as a tool for further personal and professional development.
REFERENCES
Academic leadership support, Office of quality improvement & Office of human resource
development. Eight steps [available at https://www.talent.wisc.edu/onlinetraining/
resolution/stepsoverview.htm access March 22, 2018]
Andrade L, Plowman D. & Duchon D. (2008). Getting past conflict resolution: a complexity
view of conflict. Emergence: Complexity and Organization 10 (1), p. 23–38.
Bauman, Z. (2006). Liquid Modernity, 6th Edition. Cambridge: Polity Press.

Bercovitch, J. (1997). Mediation in International Conflict: An Overview of Theory, A Review
of Practice Peace-making in International Conflict: Methods and Techniques, eds. Zart-
man, W. & Rasmussen, J., L. Washington DC: United States Institute of Peace Press,
p. 125-154.
Blake, R. & Mouton, J. (1964). The Managerial Grid: The Key to Leadership Excellence.
Houston: Gulf Publishing Co.
Cornellius, H. & Faire, S. (1989). Everyone Can Win – How to Resolve Conflict. Australia:
Simon & Schulster.
Dirks, K.T. & Parks, J.M. (2003). Conflicting Stories: The State of the Science of Conflict: In
J. Greenberg (Ed.), Organizational Behaviour: The State of Science. Hillsdate, NJ:
Lawrence Earbanm Associates.
Drenth, P. J .D., Thierry, H. & De Wolff, C. J., (1998). Handbook of Work and Organizational
Psychology 2nd Edition. East Sussex: Psychology Press Ltd.
Fink, C.F. (1968). Some Conceptual Difficulties in the Theory of Social Conflict. Journal of
Conflict Resolution, 12 (4), p. 412-460.
Fink, C.F. (1968). Some Conceptual Difficulties in the Theory of Social Conflict. Journal of
Conflict Resolution, 12 (4) p. 412-460.
Hener, G. (2010). Communication and conflict management in local public organizations.
Transylvanian Review of Administrative Sciences, 6 (30), p. 132– 141.
Jehn, K.A. & Mannix, E. (2001). The Dynamic Nature of Conflict: A Longitudinal Study
of Intragroup Conflict and Performance. Academy of Management Journal, 44(1), p.
238-251.
Jehn, K.A. (1995). A Multimethod Examination of the Benefits of Intragroup Conflict. Ad-
ministration Science Quarterly, 40 (1), p. 256-282.
966
Jehn, K.A., et al, (1999). Why some Differences Make a Difference: A Field Study of Di-
versity, Conflict and Performance in Workgroups. Administrative Science Quarterly, 44
(1), p. 741-763.
Kabanoff, B. (1991). Equity, Equality, Power and Conflict. Academy of Management Review,
16 (2), p. 416-441.
Law, H. (2015). Weighing Your Options: BATNA, MLATNA, and WATNA [available
at http://www.houghlawfirm.com/weighing-your-options-batna-mlatna-and-watna/
access March 3, 2018]
Mc Allister, B. (1997). From Assertion of Identity to Political Violence - Mediation Within the
Northern Ireland Conflict. Belfast: The Mediation Network for Northern Ireland.
Murnigham, J.K. & Conlon, D.E. (1991). The Dynamics of Intense Workgroups: A study of
British Sting Qualets. Administrative Science Quarterly, 36 (1), p. 165-186.
Poljak, N. & Šehić-Relić, L. (2006). Sukob org. Upravljanje sukobom u organizaciji. Osijek:
Centar za mir i ljudska prava.
Pondy, R.L. (1967). Organizational Conflict: Concepts and Models. Administrative Science
Quarterly, 12 (2), p. 296-320.
Radermacher, F. J. (2010). Die Zukunft unserer Welt. Edition Stifterverband: Navigieren in
schwierigem Gelaende. Berlin: EDITION STIFTERVERBAND.
Rahim, A., & Bonoma, T. V. (1979). Managing organizational conflict: A model for diagno-
sis and intervention. Psychological Reports. 44 (3), p. 1023–1027
Serrat, O. (2017). Knowledge solutions Tools, Methods, and Approaches to Drive Organiza-
tional Performance. London: SPRINGER Open.
Spaho, K. (2013). Organizational communication and conflict management. Management:
journal of contemporary management issues, 18 (1), p. 103–118.
Zafara, F., Ashfaqb, H., Alic, A. & Imrand, M. (2014). Conflict Resolution in Organization
through Strategic Management. International Journal of Sciences: Basic and Applied Re-
search (IJSBAR) 14 (1), p. 1-15.
967
FREE MOVEMENT OF WORKERS:
THE CASE OF HEALTH CARE
WORKERS MIGRATING WITHIN
THE EU
Mirko PEŠIĆ, Ph.D.

Josip Juraj Strossmayer University of Osijek,
Faculty of Medicine
E-mail: mpesic@mefos.hr
Sanja PEŠIĆ, univ.spec.oec.

University Hospital Osijek, Financial Department
E-mail: pesic.sanja@kbco.hr
Marija BABAN BULAT, Ph.D. student

E-mail: marija.babanbulat@gmail.com
Abstract

Freedom of movement of workers as a narrower area of freedom of movement
of persons is one of the four fundamental rights of the internal market of the
European Union. Entering the European Union is a chance for workers enter-
ing the country to migrate and find better working conditions. Special attention
is given to the migration of healthcare workers which for years have been a
major problem for the development of health system and disorders within the
same in counties from which workers are migrating. After the big enlargement
of European Union in 2004 when ten new members joined and another two
members in 2007, the greatest progress was made in the migration of health
workers, but not as much as expected. The main problem that arises as a result
of migration is increased differences in the development of the health system
between Western and Eastern Europe and the lack of workforce. There are still
differences in the development of the health system and sufficient levels of the
969
workforce are still not reached. Both mentioned things are needed to develop
high quality of health system in terms of quality of health service and quality of
Mirko Pešić  Sanja Pešić  Marija Baban Bulat: FREE MOVEMENT OF WORKERS: THE CASE OF HEALTH CARE WORKERS MIGRATING WITHIN THE EU
cash flow. Health management is currently one of the major topics at the level
of the Republic of Croatia, but at the European level the same problem also
exists, and solving models need to be found.
Key words: European Union, migrations, health, management
JEL Classification: F22, I10
1. INTRODUCTION
Freedom of movement for workers, as a narrower area of freedom of individ-
ual movement, is one of the four fundamental European freedoms, respectively
freedom of the Internal Market of the European Union, which consists of the
free movement of people, services, capital, and goods. Rights of free movement
for workers are defined in Articles 46 to 48 of the Treaty on the Functioning of
the European Union. The stated articles of the Treaty are based on the non-dis-
crimination principle on grounds of citizenship for workers from the Member
States with regard to their employment, wage and other conditions of labor and
employment (Treaty of the Functioning of the European Union, 2016). Each
Member State gains the right to these four freedoms by joining the European
Union. By signing the Stabilization and Association Agreement, Croatia has
taken over the rights and obligations when she gained full membership status
of European Union Member State (The Stabilization and Association Agree-
ment between the Republic of Croatia and the European Communities and
their Member States, 2007). With this Agreement, rights of freedom of move-
ment for workers has been acquired, including:
• the right to work without a work permit (after passing of the transition
period if the same is acquired)
• equality of treatment in employment as with citizens of Member State in
which work is performed
• the right to equal social benefits as the citizens of Member State have
• the right of family members to join the worker and receive family benefits
• full coordination of the social security system (pension rights and
contributions)
970
• mutual recognition of qualifications (The Stabilization and Association
Agreement between the Republic of Croatia and the European Commu-
nities and their Member States, 2007, pp 20-21).
When a country joins the European Union, it provides a chance for work-
ers to migrate and find better working conditions in other countries of the EU.
The migration route is most often from rural to urban areas, from poor to rich
countries and from countries where healthcare progress is slower to the coun-
tries where is that progress faster (International Organization for Migration ,
2014, pp 21). Mobility of workers is inevitable for the successful functioning of
the European Union Internal market, especially for increasing employment rate
and economic growth. Therefore, free movement for workers is an important
area for the European Union. However, it also contains some self-negative as-
pects like the sudden or even long-term weakening of the branch to which mi-
grant workers belong. To avoid such a disorder and the potential for a migration
wave within the EU during the enlargement process, the EU can set restrictions
on the free movement of workers. One of these restrictions is the transitional
period. The transition period usually lasts seven years and it can be introduced
individually by an „old Member State” to the “new Member State”. During this
period, workers from the new Member State have an obligation to obtain work
and residence permits, same as citizens from non-EU countries. Migration
largely depends on the unemployment rate of the Member State from which
workers migrate and the work conditions in other, often older Member State,
such as wages and better living conditions. The healthcare workers migration
is not only a problem that affects the European Union but almost the whole
world. Special attention is given to the migration of healthcare workers who INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
for years represent a great deal of a problems for the development of healthcare
systems and disorders within the same in countries from which workers are
leaving. After the 2004 and 2007 enlargement rounds, there has been the big-
gest shift in migration of healthcare workers. Nevertheless, it was not as big as
it was expected. There are many European studies and papers on this subject
which seek to regulate the health labor market to reach the same level of qual-
ity of healthcare services throughout the European Union. However, the right
solution is not found or it is not applied yet. The main problem is the increase of
differences in the development of the healthcare systems between Western and
Eastern Europe and lack of labor power. Namely, differences in healthcare de-
velopment are still noticeable and we still have not reached a sufficient amount
971
of labor to enable further development in this area. This also raises the question
of the purpose of the EU’s Internal market that was primarily established for
reducing the differences between the EU Member States.
2. LEGAL BASIS OF THE FREE MOVEMENT OF

WORKERS
Rights of workers that are stated in the introduction are guaranteed by Art.
45. of the Treaty on the Functioning of the European Union. They are also
guaranteed by the secondary legal sources, primarily by the Regulation 1612/68
of the free movement of workers within the Community. This Regulation was
the main source for secondary legislation that elaborated the rights guaranteed
by the Treaties. On April 5th, 2011 it was replaced by Regulation 492/2011
on Free movement of workers in the EU. Likewise, the rights of workers and of
their family members are also guaranteed by Directive 2004/38 which permits
EU citizens and family members to move and reside freely in the EU Mem-
ber States. This Directive has been incorporated into the secondary legislation
of the concept of a European citizenship. Regulation 492/11 on Freedom of
Movement of Workers within the EU in its provisions, more specifically in Art.
7, maintains the principle of equal treatment and it determines that a worker
from an EU Member State cannot be treated differently than a native worker
in all conditions of employment (Regulation (EU) No. 492/11, 2011). Article
9 of Statue guarantees to workers from EU Member State all the rights and
benefits in matters of housing, not distinguishing from native/local workers.
Directive 2004/38 on the rights of citizens of the Union and their family members
to move and reside freely within the territory of the Member States considers the
new legal and political circumstances established by EU citizenship. It relies
on the citizenship of the Union as a legal basis for the right to free movement
and residence citizens and their family members (Goldner Lang, 2007). EU
citizens and their family members have the basic right to enter and stay up to
three months, without any special conditions, expect possession of a valid ID or
passport, which is provided by Art. 6. Directive 2004/38. This Directive is also
determined that after staying five years in the host Member State, the worker
and its family member can acquire the right of permanent residence (Directive
2004/38/EC).
972
3. HEALTHCARE SYSTEM OF THE EUROPEAN
UNION
The European Union faces disproportionate qualities of the healthcare
system within the Member States, which is the result of the free movement
of healthcare workers. Because of this are, already mentioned, migrations of
healthcare workers and the lack of new healthcare workers. The European
Commission has adopted in 2008 the Green Paper on the European Workforce
for Health, in which is stated that the main problems that the health systems
of EU Member States are faced, is demographic- aging healthcare workers and
lack of newly educated young workers, diversity of healthcare labor force, lack
of public health attractiveness as potential jobs to younger generations, migra-
tions of healthcare workers from and to the European Union, uneven mobil-
ity within the EU, in particular the mobility from the poorest to richer Mem-
ber States of European Union and brain drain (Green Paper on the European
Workforce for Health, 2008). Healthcare worker’s migration has caused global
health problems reflecting on all aspects of society- structural, political, social
and economic (Novakova, 2015). Why does it come to the migration? Main
reasons for leaving the country are inadequate jobs, low income, poor working
conditions, poor infrastructure, and technology, but also poor social awareness
and repressive state apparatus (Novakova, 2015, pp 781). On the other hand,
the reasons for moving into other countries are higher quality education, higher
living standard, better business opportunities and a more sophisticated system
of scientific research (Novakova, 2015, pp 781). Attracting foreign doctors and
nurses presents the lack of will by the host country to predict the need for medi-
cal staff in the future, and that is particularly concerning for short-term cost INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
planning without determining long-term cost of investment in the education of

the needed personnel. Faced with this problem, the EU needs to increase educa-
tion and employment of citizens in the healthcare sector (Novakova, 2015, pp
782). Healthcare sector of the European Union is one of the largest sectors that
is employing more than 17 million people (Eurostat, 2011). It is also the fastest
growing sector. This is the case, for example, during the economic crisis at its
highest level between 2008 and 2010, when the number of jobs decreased, the
number of jobs in healthcare sector grew by 770.000 (Eurostat, 2011).
Given the demographic changes in the European Union area, it is estimated
that by 2020 there will be missing a million health professionals, and if you
take into account the help medical staff, that number is climbing to 2 million
973
(Eurostat, 2011). What is the reason for this? Namely, the health system re-
quires high qualifications, working conditions are harder, and health wages are
lower than in some other branches of the economy. The European Union, to
prevent the decline in the quality of health care services, should take measures
to encourage education and employment in the healthcare system. Firstly, that
includes investment in healthcare that will provide new technologies that will
enable improving skills for easier personal progress and ultimately the attrac-
tiveness of public health work for younger generations. Furthermore, investing
in new healthcare models will enable complete care for the patient, from hos-
pital care through primary health care and after completion of hospitalization.
We can conclude that the European Union at this level is struggling to deal with
the health system in the same way as the individual Member States, primarily
Croatia. However, for Croatian labor force obviously, there are better opportu-
nities within the European Union because several migrating Croatian health-
care workers are getting bigger. To facilitate the settlement of Member States
with the health problem, the European Commission has adopted guidelines for
joint planning and health prediction related to the following:
• Forecasting workforce needs and improving the methodology for planning
health care workers,
• anticipating the need for specific skills in the health profession,
• sharing experiences on effective attraction and retention of healthcare staff
(European Commission, 2012).
In the first guidelines, the idea is to get on the base of gender, age, knowledge,
and the necessary competencies to make an impression of supply and demand
and make a plan of investing in the education of existing and future healthcare
professionals. Considering other guidelines, the idea is to plan to avoid accumu-
lating unnecessary skills in health workforce that cannot be used in healthcare
because they are either unnecessary or there are too many employees with the
same skills. The third guidelines refer to raising awareness of the healthcare sec-
tor as a sector with a high employment rate.
The guidelines also apply to the countries that receive and to the countries
that deploy the healthcare workforce. How many countries are successful in im-
plementing these guidelines demonstrates the project research that is developed
under the patronage of the European Union - MoHProf (Mobility of Health
974
Professionals) I PROMETHEUS (Health Professional Mobility and Health
Systems) are shown below.
4. DIRECTION OF MIGRATION WITHIN

EUROPEAN UNION
The largest wave of migration has been expected when the 12 new Mem-
ber States (10 new members in 2004 and 2 new members in 2007) gained full
membership of European Union (EU12) - Cyprus, Czech Republic, Estonia,
Hungary, Lithuania, Latvia, Poland, Malta, Slovakia and Slovenia and Romania
and Bulgaria (after referred to as EU12). Although the wave of migration was
large, it was expected that it will be bigger. However, the information avail-
able to get accurate information about realistic migrations is relative. Namely,
most studies consider the required certificates on recognition of diplomas in
the home countries. This does not necessarily mean that migration really oc-
curred. On the other hand, many nurses leave their home states without any
diploma recognition certificates as they often go to the private healthcare system
institutions or even households where documentation is not needed. Generally,
it is considered that the old Member States (EU15) get far more profits from
the enlargement than the new Member States. Namely, migration started from
EU12 countries to EU15 countries with a health system somehow more orga-
nized than the EU12 countries. Hospitals are more equipped, salaries are larger,
the option of further advancement and improvement of personal qualifications
and skills is greater. As for migration in the EU12 countries, mostly from third
countries, they are negligible. So, I can conclude that there is an even greater gap
in the quality of the health system between the EU15 and the EU12 countries
because the shortage of staff in EU12 countries can hardly be offset by staff
from third countries. The most affected countries within the EU12 are Estonia,
Lithuania, Poland and Hungary (Eurofound, 2013, pp 291). Governments of
these countries have taken measures to increase salaries to prevent further mi-
gration, however, the measures did not help in the amount it was expected (Eu-
rofound, 2013, pp 291). For this reason, the European Commission has passed
an Action Plan for Health Workforce in the EU whose mission is to cooper-
ate in Europe supporting national efforts to address the problem of healthcare
workforce in the EU and consultation between the Commission and Member
States to exchange experience in solving the problem (Eurofound, 2013, pp
975
291). Analysis of healthcare worker’s movements has been put into order on
sending countries, countries that receive doctors, nurses, and dentists. Within
the European Union, countries that are almost not depending on foreign doc-
tors are Estonia, Slovakia, and Poland; countries that are slightly depending on
foreign doctors are Hungary, Italy, and France (less than 5%); countries that
depend on average rate on foreign doctors are Germany and Finland (6.2%);
Belgium, Portugal, Spain, Austria, and Sweden has high dependence on for-
eign doctors (11.1% - 18.4%); Slovenia, Ireland, Great Britain, and here we can
include Switzerland, have a strong dependence on foreigners doctors (36.8%)
(Health Professional Mobility and Health System, 2011, pp 26). It is particu-
larly interesting to point out that it in the UK and Ireland each third doctor is
a foreigner (Health Professional Mobility and Health System, 2011, pp 26). As
for the dependence on foreign nurses, it is insignificant in Slovakia, low in Spain,
Hungary, France, Finland, Sweden, Germany, Portugal and Belgium, middle
dependent on nurses is Italy, and the biggest dependence shows Great Britain,
Austria and Ireland (between 10% and 47.1%) (Health Professional Mobility
and Health System, 2011, pp 27). Italy, Germany, Spain, Austria, and Portugal,
within the EU15 countries, receive nurses in the largest amount for the home
care services. Here, there is a situation where nurses are working illegally. In that
case, they receive a wage in a foreign country that is many times higher than
those they earned in their home country. This encourages further migrations
from the “east to west” of Europe. Great Britain, first London, is largely ahead of
attracting health care workers across the EU15. It is because Britain has not in-
troduced a transitional period for the freedom of movement of workers for new
Member States (together with Ireland and Sweden). Countries, where there is
a growing number of doctors, are Austria, Sweden, Germany and already men-
tioned, United Kingdom (International Organization for Migration , 2014, pp
29). Western Europe, respectively EU15 countries have far more dependence
on foreign medical labor than EU12 countries.
Among the countries that recorded the biggest entrance of doctors are listed
in absolute numbers Spain, Great Britain and Germany, and when we look at
the total share of the party the healthcare workforce in a given country was then
in the United Kingdom (the share of foreigners among the native 42.6%), Aus-
tria (13.5%), Hungary (4.7%) and Poland (2.7%) (Health Professional Mobil-
ity and Health System, 2011, pp 31). The biggest entry od nurses have reported
976
Italy, followed by the United Kingdom, Italy in totally recorded 28% and UK
14.7% (Health Professional Mobility and Health System, 2011, pp 32).
The largest departure within the European Union is recorded by Estonia,
Hungary, Poland, Romania, Slovakia and Slovenia with a tendency of growth
in Estonia, Hungary, and Romania (Health Professional Mobility and Health
System, 2011, pp 35). On the other side, the EU15 countries also report de-
parture, to a large measure Germany, Austria, Italy and the United Kingdom
(Health Professional Mobility and Health System, 2011, pp 35).
Among the medical staff, medical doctors get far better positions compared
to other medical staff. Regarding the return migration, the most common ones
are those with middle professional qualifications. In other words, these are
those related to nurses, however, for example, there have been records returns
of Spanish doctors from Portugal back to Spain afterward recovery of the Span-
ish economy (International Organization for Migration , 2014, pp 26). Further-
more, Ireland, France, the United Kingdom and Germany are the countries that
receive the most registered healthcare professionals with experience from the
EU12. On the other hand, Italy, Portugal, Spain, Austria, and partly Germany,
are countries that receive unregistered healthcare employees. France and Great
Britain are facing a large number of migration their healthcare workers in the
United States, Canada, and Australia. This is the reason they accept the most
healthcare workers from other countries.
.. Recognition of professional qualifications

Recognition of qualifications is one of the key conditions for the possibility INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
of migration. The European Commission has adopted Directive 2005/36 / EC

on the recognition of professional qualifications at the basis for which are recognized
health care diplomas (doctors, nurses, dentists, midwives, and pharmacists) ac-
quired within the European Union (International Organization for Migration
, 2014, pp 40). The Directive recognizes acquired knowledge based on working
hours, not considering the acquired skills or the content of training (Interna-
tional Organization for Migration , 2014, pp 40). The fact is that education
system and the quality of the same are distinct from country to country and that
it is better in Western European countries. France is faced with the problem of
recognition of diplomas of health professionals from Romania, given that is the
largest wave of migration of health professionals to France is from Romania.
977
Such cases are causing frustrations in countries that receive labor force. On the
other side, they also incur additional costs since such labor power needs to be
further educated to acquire the knowledge and skills needed to work in more
advanced countries. Further, another problem which is occurring is knowledge
of the language. This is a crucial issue when it comes to healthcare. Ireland, for
example, opposed the arrival of nurses from Eastern Europe because of their
insufficient knowledge of English. Member States strive to tackle this prob-
lem by improving communication between the country which sends the labor
force and those who receive it. Namely, the problem is mutual and affects the
health care system of both countries. In one country it comes to the outflow
of labor power and disturbance of function the healthcare system while in the
other country is an increase in the workforce that cannot meet the needs of
the healthcare system. Also, this problem raises the costs within the healthcare
system of both countries. For that reason, an “Internet-based Internal Market
Instrument” was established to facilitate communication between the states.
.. Situation in Croatia

Croatia is facing a large outflow of healthcare labor power. Unfortunately,
official, there is no official data, but according to public information, in 2015
only 1000 doctors and 800 medical nurses requested a certificate to go overseas.
Of course, as already mentioned, it is hard to get the real number of migrating
health care workers, as far as some of them never officially never leave their
domestic address or do that later after moving to another country. Croatian
health system is already facing with the problems of lack of financial resources,
outdated equipment and space, long waiting lists, and if we add the departure
of the healthcare workers to all that, the question is who will earn to improve
health care in Croatia. The Government of the Republic of Croatia tried to pro-
tect Croatian healthcare by adopting the Ordinance on the specialist training of
medical doctors who were prescribed high fees that physicians individuals must
pay to a public institution in which they are and do specialization if they want
to leave the institution. It was about high and unrealistic amounts (sometimes
up to 200,000 HRK). During the year 2017, a new Rulebook was passed which
prescribes not so harsh fines (in practice it can be said not to exceed 50,000
HRK) which accelerated the departure of doctors from Croatian hospitals.
Given the lack of data, we can only guess what the number is doing. Also, there
are no official data nor about the arrival of foreign doctors in Croatia although
978
the practice has shown that if there are comings, there are mostly from Bosnia
and Herzegovina, rarely Serbia.
5. CONCLUSION
The health sector of the European Union faces almost the same problem in
all Member States. The difference is just how much a Member State has the po-
tential to attract healthcare workers to reduce the shortage of their own health
labor power and thus solve its own problem of lack of healthcare workers. In
other words, while richer Member States like Great Britain and Germany, lose
their own health care workers who are moving to the United States or Canada,
newer or poorer Member States lose their health labor power that goes to coun-
tries like the UK or Germany. Considering that detailed migration data is miss-
ing, we can only speculate what is the actual scale of movement of medical staff.
It can be clearly concluded that the Member States must take measures in order
to tackle this problem affecting the healthcare system of individual countries
as well as on economy ultimately. One of the measures to solve the problem
is certainly an increased income in the healthcare sector. Another investment
is in improving the quality of healthcare services which automatically leads to
the opening of professional training opportunities for medical staff in carrying
out their work. The European Union is pushing for active policy measures to
solve this an issue. However, the problem is obviously only one, which is either
a lack of financial resources in less developed countries or insufficient willing-
ness of the state to address this problem. In Croatia, there is a problem of the
lack of financial resources in the healthcare sector that causes inability to attract
new healthcare labor power in the process of education, and on the other hand,
also causes brain drain with the departure of the healthcare labor power with
existing work experience. Unfortunately, due to the economic crisis that hit Eu-
rope, therefore, Croatia, we are faced with the problem of excessive labor power
migration in general which sometimes does not depend on objective reasons
why individuals would never leave their home country - family, housing, and
likewise. Therefore, if the European Union wants to solve this problem, it has
to put more resources to improve the health system of the newer and more less
wealthy Member States through financing in improving medical equipment and
services and the capacity of hospitals and other health institutions. This will
result in an increase of quality healthcare service that will generate the financial
979
resources with which the state will be able to increase salaries in the healthcare
sector and could result in a way to retain the labor power. In this way, the over-
flow and movement of workers from one member to the other, mostly from
the poorest to the rich, the differences in the quality of the healthcare system
are becoming bigger and it leads to the question of the purpose of the internal
market of the European Union, which was established with the aim of reducing
the differences between the Member States.
REFERENCES
Commission to the European Parliament, the Council, the European Economic and Com-
mission of the European Communities: Green Paper on the European Workforce for
Health, Brussels, 10.12.2008., COM (2008) 725 final. Countries, 2011.
Directive 2004/38 / EC of the European Parliament and of the Council of 29 April 2004.
About the law of citizens of the Union and members of their families on freedom
of movement and residence on the territory of the State Member States amending
Regulation (EEC) No 1612/68 and repealing73 / EEC, 75/34 / EEC, 75/35 / EEC,
72/194 / EEC, 90/364 / EEC, 90/365 / EEC and 93/96 / EEC, Official Journal 158,
30.04.2004.
Eurofound (2013.) Mobility and migration of healthcare workers in central and eastern
Europe European Commission (2012.) Commission staff working document on an
Action Plan for the EU Health Workforce Accompanying the document Communica-
tion from the Eurostat (2011) NACE Rev. 2 Categories 86&87
Garcia Perez, M., Amaya, C., Otero, A. (2007.) Physicians’ migration in Europe: an overview
of the current situation [available at https://bmchealthservres.biomedcentral.com/ar-
ticles/10.1186/1472-6963-7-201, access February 22, 2018]
Goldner Lang, I. (2007.) Freedom of Movement of People in the EU, Školska knjiga, Za-
greb, 2007.
Health Professional Mobility and Health Systems, Evidence from 17 European Internation-
al Organization for Migration (2014.) Mobility of Health Professionals to, from and
within the European Union, Geneva, 2014.
Novakova, M. (2015.) Migration of Health Workers in the EU, ISBN 978-80-87927-08-3,
IISES, 15th International Academic Conference, 15 April 2015, Rome
Regulation (EU) No. 492/11 of the European Parliament and of the Council of 05.04.2011.
free up movement of workers within the EU, Official Journal L 141, 27.05.2011.
Social Committee and the Committee of the Regions Towards a Job Rich Recovery, Stabili-
zation and Association Agreement between the Republic of Croatia and the European
Union the Community and their Member States, 2007.
SWD (2012) 93 final, Strasbourg, 18.04.2012.
Treaty on the Functioning of the European Union (consolidated version), Official Journal of
the European Union, 2016, C 202/1
980
Law and
Economics
REDUCING THE TAX COMPLIANCE
GAP BY IMPROVING TAX
ADMINISTRATION
Emina JERKOVIĆ Ph. D., Assistant Professor

Faculty of Law Osijek
Josip Juraj Strossmayer University in Osijek
Chair of Financial Science
E-mail: ekonjic@pravos.hr
Abstract
In light of the fact that the state puts upon taxpayers (natural persons and legal
persons) obligation to pay taxes and subsequently intervenes in their personal
life by diminishing their economic strength and in that way affects tax compli-
ance, there has been a need to apply certain measures of fiscal policy by deter-
mining particular principles of taxation. These principles of taxation represent
guidelines for the state, for the bodies of public administration, especially Tax
Department. Also the principles that are incorporated in tax system depend
on the state in question, but once incorporated they should be properly executed
through the implementation of particular tax, where the crucial role belongs
to Tax Department. The administrative aspect of taxation must always be
considered when analyzing tax policy, alongside the design of taxes. Tax au-
thorities (i.e. Tax Department) are the bodies responsible for administering the INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
tax laws of a particular country or regional or local authority. They perform
various tasks, often referred to as ‘core functions’, including: identification and
registration of taxpayers, filing and payment of taxes, collection and recovery
of taxes, audit and investigation, and dispute resolution. The paper is going to
show the organization scheme of tax authorities in the Republic of Croatia and
the effect that the work of the Tax Department has on tax compliance.
Key words: Tax Department, Tax Compliance, Republic of Croatia, prin-
ciples of taxation
JEL Classification: : H20, H26
983
1. INTRODUCTION
The administrative aspect of taxation must always be considered when ana-
lysing tax policy, alongside the design of taxes. Tax authorities are the bodies
responsible for administering the tax laws of a particular country or regional
or local authority. They perform various tasks, often referred to as ‘core func-
tions’, including: identification and registration of taxpayers, filing and payment
of taxes, collection and recovery of taxes, audit and investigation, and dispute
resolution. Tax administration refers to the set of measures, procedures and sys-
tems that a tax authority uses to collect the taxes due under national legislation
in the most effective way and at the lowest administrative and compliance costs.
Tax authorities are not, however, the only body with a role to play in tax col-
lection, but are part of a larger network. In many countries, tax intermediaries
and professionals help businesses and individuals with the preparation of their
tax returns. IT providers also play a role, by developing the tools and systems
Emina Jerković: REDUCING THE TAX COMPLIANCE GAP BY IMPROVING TAX ADMINISTRATION
needed for the tax collection process itself. The paper analyses Tax Administra-
tion in the Republic of Croatia with its advantages and disadvantages and how
the problem of compliance gap can be reduced by improving the work of Tax
Administration of not just the Republic of Croatia, but the EU aswell.
2. INTRODUCTION TO TAXATION PRINCIPLES
By the fact that the state imposes the payment of taxes as an obligation to
both physical and legal persons and in this way enters into their private life by
reducing their economic strength, there is a need for applying certain tax poli-
cy measures through the task of identifying certain principles that will govern
the state at the time of the very act of taxation. Often, these principles are not
harmonized and there may be situations when they even exclude each other.
However, the principles once included in the tax system should, to the greatest
extent possible, be tried and accomplished. It is impossible to view and analyze
only one tax form at a time to see the whole picture but the tax system should
be viewed as a whole.
Taxation principles are closely related to tax goals that can be numerous and
are very often in collision. Also, the principles need not be rigid and narrowly
observed, but through the development of society, the development of the state,
the development of public needs. Requirements set before the tax system de-
pend on a large number of factors (such as time and territory eg), and also on
the goals that taxation seeks to achieve. The principles that a particular country
984
will incorporate into your tax system will also depend on the state itself. We
thus differentiate the tax systems of federated states and unitary states, socialist
states and capitalist states, developed states and developing countries, or transi-
tion countries that are particularly interesting to us to observe.
Much attention has been paid throughout history to the creation of prin-
ciples that must be observed in taxation. Opinion on this issue was manifested
by many excellent philosophers such as Turgot, Vauban, Montesquieu, Law,
Hume, Mill. However, as most important, we can name Adam Smith and
Adolph Wagner.
.. Adam Smith’s canons of taxation

As the most significant work of Smith, we can state his “Wealth of Nations”
from 1776, in which he formulated his principles of taxation, which are nowa-
days called the classic maxims or Smith canons of taxation.
Adam Smith advocated for such a tax system based on these principles:
1. Canon of Equity. It implies that tax should be Levied on citizens on the
basis of equality. The sacrifice of all citizens must be equal. In the words of
Adam Smith “The subjects of every state ought to contribute towards the sup-
port of the Government, as nearly as possible, in proportion to their respective
abilities, that is, in proportion to their revenue which they respectively enjoy un-
der the protection of the State“. In other words, this canon of taxation maintains
that every person should pay to the State as tax according to Liability to pay. It
implies taxing the people on the rate of taxation.
2. Canon of Certainty: This canon of taxation suggests that the tax which an
individual has to pay, should be certain and not arbitrary. It should be certain to
the lax payer how much tax he has to pay, to whom and by what time the tax is
to be paid. The place and other procedural information should also be clear. It
would protect the tax payer from the exploitation of tax authorities in any way.
It will enable the tax payer to manage his income and expenditure. The Govern-
ment will also be benefited by this principle.
3. Canon of Convenience or Ease: According to this canon of taxation, every
tax should be levied in such a manner and at such a time that it affords to the
maximum of convenience to the tax payer. According to Adam Smith, a good
taxation policy must be convenient for the tax payer. The reason is that the tax
985
payer for goes his purchasing power and makes a sacrifice at the time of pay-
ment of tax hence the Government should see that the tax payer suffers no
inconvenience.
4. Canon of Economy. This principle suggests that the cost of collecting tax
should be the minimum so that a major part of collections may bring to the
Government treasury. If the administration expenses in the collection of taxes
consume a major portion of tax revenue collected; it cannot be said to be a good
tax system.1
In the words of Adam Smith-“Every tax ought to be contrived as both to take
out and keep out of pockets of the people as little as possible over and above what
it brings, into the public treasury of the State”. ( Jelcic et al., 2008: 177)
The fourth canon sets a justified requirement for the administration to pay
taxes as efficient as possible to make the inflow of money as big as possible. As
far as the tax system of Croatia is concerned, we are talking about the omis-
sion of the satisfaction of the fourth canon. The fact that taxing an extremely
complex job is not facilitated by the power of laws and regulations and subor-
dinate acts that fully cover the entire taxation matter. The implementation of
the taxation process itself is extremely complex and complicated, and frequent
occurrences such as tax evasion or more specifically fraud, both full and partial.
.. Wagner’s principles of taxation

At the end of the 19th century, Adolf Wagner (1835-1917) presented his
vision of the principles that should lead to taxation. Today these principles are
the most widespread. Wagner grouped its principles into four groups: financial-
political principles, economic-political principles, social-political principles, and
tax-technical principles (which are essentially described through the canons of
Adam Smith).
2.2.1. The principle of cheap tax collection

The principle of cheap tax collection is a tax-technical principle. The main pur-
pose of the collection of taxes is to meet public needs. For this very reason, the
tax collection procedure should be cheaper than the greater the amount of taxed
1
http://www.knowledgiate.com/canons-of-taxation/
986
funds entering the state treasury so that the state can meet its obligations. If the
procedure for collecting a certain tax is expensive in the amount that exceeds the
amount of taxed funds, it is definitely a problem or justification for introducing
this tax form into the tax system or we may look for a problem in the functioning
of the tax administration itself. It may happen that the tax revenue is low or that
the costs of collecting it are high, but the fact that a particular tax form has been
introduced into a tax system for some purpose other than a fiscal (eg pedagogical
goal, ecological goal) compensates for its low fiscal impact and abundance.
There are several ways to realize the principle of cheap tax collection. The
first way is to reduce the costs of redeeming through the restructuring of the tax
administration itself (employee structure, better organization of work, techni-
cal conditions etc.), whereby this principle does not collide with other taxation
principles.
The other way involves changes within the tax system itself, where collapse
may arise with other taxation principles. This way, there is a reduction in the
difference between gross and net collected taxes so that a) reduces the number
of tax forms; b) reduces the number of tax reliefs and exemptions; c) organizes
a division, collection and tax collection service; d) tax. ( Jelcic et al., 2008: 201)
When it comes to taxation in the Republic of Croatia, it should be empha-
sized that the very fact of the existence of a large number of tax forms, and
consequently the higher tax rates, as well as a great deal of relief and exemption,
does not favor the principle of collection.

3. THE TAX ADMINISTRATION OF THE
REPUBLIC OF CROATIA
The Tax Administration is the administrative organization within the Min-
istry of Finance whose basic task is to implement tax regulations and regula-
tions concerning the payment of obligatory contributions.
.. Organisation of Tax administration in the Republic of

Croatia
Tax administration is the part of the Ministry of finance. At the top of the
pyramid is the Central Office in Zagreb. Then the Tax Administration is di-
vided in seven District Offices with head offices in county centers:
987
1. District office of City of Zagreb
2. District office of Central Croatia with head office in city of Karlovac
3. District office of Northern Croatia with head office in city of Varaždin
4. District office of Slavonia and Baranja region with head office in city of
Osijek
5. District office of Istra, Hrvatsko primorje, Gorski kotar and Lika region
with head office in city of Rijeka
6. District office of Dalmatia region with head office in city of Split
7. District office for big taxpayers for the whole territory of Croatia (Na-
tional District Office).2
At the bottom of the pyramid there are 57 branch offices located in the cities
or municipalities.
.. Tasks of Tax Administration in the Republic of Croatia

Article 3 of Law on Tax administration (Law on Tax Administration, Of-
ficial Gazette, 115/16) states that Tax Administration:
- regulates, records, processes and verifies the data relevant to determining
the tax base and collection of taxes, contributions and other public grants;
- establishes and develops the service system and informs and educates tax-
payers for easier realization of rights and fulfillment of obligations; makes
binding opinions;
- makes transfer pricing agreements and agreements on voluntary fulfill-
ment of tax liabilities;
- regulates tax liabilities, contributions and other public grants;
- organizes, monitors and controls the collection of taxes, contributions and
other public grants;
- supervise the taxpayer’s business activities in applying the regulations un-
der the jurisdiction of the Tax Administration;
- fights tax fraud;
- leads misdemeanor procedures;
2
http://www.porezna-uprava.hr/HR_o_nama/Stranice/TeritorUstroj.aspx
988
- analyzes data on accrued and charged taxes, contributions and other public
benefits and plans tax revenue;
- provides the collection and enforcement of taxes, contributions and other
public grants; monitors and analyzes the application of tax regulations and
tax systems in the EU member states and participates in the work of the
institutions of the European Union;
- profiles and processes data through a unitary information system;
- advocates the improvement of the tax system and tax policy;
- cooperates extensively with the public law bodies carrying official records;
- can perform the tasks of recording, determining, controlling, collecting and
enforcing revenue from local and regional self-government units as well as
other public grants;
- enforces execution for the collection of budget revenues whose determina-
tion and collection within the scope of other organizational units of the
Ministry is forfeited for the payment of other public grants on the request
of public bodies and courts in accordance with special regulations;
- follows other duties assigned to it under special regulations.
The Tax Administration in the performance of its business activities coop-
erates with the Financial Police. The Croatian National Institute for Health
Insurance, the Croatian Pension Insurance Institute, the State Attorney’s Of-
fice, other judiciary bodies, local and regional self-government bodies and other
bodies with public authority and work on determining, collecting and control-
ling public revenues.
With most tax authorities facing significant reductions in human resources
and operational budgets, there is a clear need to improve efficiency. Further-
more, in both the EU and global markets, Member States’ tax authorities have
become increasingly dependent on each other in the area of tax collection. In
particular, they have shared responsibility for ensuring correct tax collection in
all Member States. In view of this, improving the effectiveness of the tax admin-
istration system has become more important than ever.
4. ePOREZNA
The unique portal of the Tax Administration (ePorezna-JPPU) is the cen-
tral place where taxpayers can access the electronic services of the Tax Admin-
989
istration. The one-stop-shop principle has been fulfilled with establishing this
unique portal of the Tax Administration. Through this system, Tax Admin-
istration will improve business processes using information technology and
reduce compliance costs.(Strategy of the Tax Administration for the period
2016-2020, Ministry of finance, Tax Administration, Zagreb 2016) Available
services include the management of taxpayers’ information, receipt of docu-
ments, submission of forms and requests and many other services.
Through the ePorezna-JPPU system, citizens (taxpayers, contribution pay-
ers etc.) can quickly and easily use Electronic Tax Administration services at
any time and from anywhere. The use of the application is safe, and the confi-
dentiality and inviolability of the data is guaranteed.
Through the ePorezna-JPPU system taxpayers and authorized taxpayers
can efficiently:
- manage the taxpayer’s data,

- review tax and other information in the Tax Administration Register,
- bear the patterns,
- to bear the demands,
- seek refund of taxes,
- to request connection of unrelated payments to the JOPPD form,
- realize electronic communication with the Tax Administration in order to
meet the tax obligations,
- to receive acts electronically,
- receive notifications and information,
and other.
The advantages of ePorezna are as follows:
1. Monitoring of standards and development of information / information
society
2. Improve business processes by using information technology
3. Facilitate, simplify and speed up the fulfillment of the obligations towards
the Tax Department
4. Ensure better information on rights and obligations.3
3
https://e-porezna.porezna-uprava.hr/Pages/Ousluzi.aspx
990
Through ePorezna-JPPU users can fill in, sign and send electronic forms.
Likewise, by adapting its accounting programs, it is possible for the user to open
previously generated files from the accounting software into the ePorezna-JP-
PU application, signing and sending the same.
5. TAX ADMINISTRATION IN THE EU

REDUCING THE TAX COMPLIANCE GAP BY
IMPROVING TAX ADMINISTRATION
The European Commission has further deepened its expertise on tax ad-
ministration over recent years. The objective of the analysis presented in the
report has been to identify which Member States need to improve their tax
administration. A number of different indicators have been used to assess the
performance of Member States’ tax authorities, and the criteria for assessment
updated each year, as necessary.
.. Multidimensional tax administration

The economic and financial environment has changed considerably in recent
decades, evolving from a series of national markets into European and global
markets – a change which brings particular challenges for tax administration.
The difficulties currently faced in the EU single market specifically have arisen
as a result of a fragmented and changing tax landscape. Twenty-eight sets of na-
tional tax legislation co-exist alongside EU tax legislation, making cooperation
and coordination essential. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
The increasing trade flows, greater capital mobility and changing trade pat-
terns within the EU and with non-EU countries mean that both tax authorities
and business need to take a different approach to tax management and admin-
istration. Moreover, globalisation has highlighted the importance of preventing
fraud and tax evasion. The existence of different tax systems and procedures
in different countries create an opportunity for tax fraud and non-compliance,
especially where there is a lack of cooperation and communication between tax
authorities.
Tax evasion is process of attempting to avoid paying taxes, which occurs
before or at the time of billing. It can be legal when avoidance of tax payment
991
does not bring the taxpayer in conflict with the law, e.g. changing the place of
residence or doing business in order to reduce the tax (tax oasis and haven);
reducing consumption; by finding gaps in the law, in some countries by estab-
lishing a foundation (indirect and immediate benefit). In many developed coun-
tries, through the concept of legal tax evasion, a whole new profession has been
developed that deals with tax planning or planning to settle a tax liability in a
way that the legal tax evasion- tax avoidance does not pass into illegal tax eva-
sion. Tax lawyers, accountants who worry about tax related issues and sellers
of tax-advantaged investments make tax planning a major industry. (Hall &
Rabushka, 2007, 27)
Tax evasion can be illegal when a taxpayer comes into conflict with the law,
and there are two basic forms:
1. defraudation - a conscious act or omission of a taxpayer’s action with the
aim of avoiding the payment of direct taxes (tax evasion). It can be full
or partial.
2. contraband - illegal acts to avoid indirect taxes. The sanctions are related
to the amount, and the penalties are very high. The forms are:
- inadmissible acts in internal traffic (eg, keeping inaccurate records, issuing
incorrect invoices),
- illegal activities in the movement of goods abroad (eg avoidance of customs
duties),
- smuggling of prohibited or restricted traffic (eg traffic of various kinds
of drugs). (Srb & Perić, 2004, 55-56) Both types represent a violation of
legal regulations, are a criminal offense and punishable by money and /or
imprisonment. Insufficient expertise, conscientiousness and objectivity of
the tax administration as well as its relationship with taxpayers (arrogance,
vexation, inscrutability, etc.) have an impact on the tax evasion. ( Jelcic et
al., 2008)
Businesses are under pressure to cut costs, in order to be able to compete on
internal and global markets. At the same time, pressure on tax revenue, mean-
while, has obliged tax authorities to improve the administration of the tax sys-
tem, in order to encourage compliant behaviour by taxpayers. These consider-
ations apply to both direct and indirect taxes, and particularly to VAT, which
is a major source of revenue for Member States. Furthermore, the pressure on
992
government budgets, resulting in particular from the financial crisis and its af-
termath, is unlikely to ease in the near future. Tax authorities are therefore likely
to come under significant pressure in the coming years.
.. Tax compliance strategy

Tax authorities operate in a society in which the public, businesses, organ-
isations and public bodies all react to each other’s actions. In order to influence
taxpayer behaviour, a tax authority needs to be aware of its own behaviour and
the effect this can have, but also of the behaviour of other actors in society.
The resistance to paying and the effort to eliminate (mitigate) the effects are
present in tax systems all over the world. The intensity of payment resistance
is greater as the taxpayer’s burden is greater. Resistance is greater if there is the
greater deviation from the principle of fairness. Resistance also depends on the
purpose of spending the funds collected from taxes. Resistance also depends
on the taxpayer’s morale. Resistance depends on the applied tax form and the
applied taxation technique. Insufficient expertise, conscientiousness and objec-
tivity of tax administration, and relationship with the taxpayer are also reasons
why the resistance increases. These days taxpayers are less and less passive to
connect, obtain information, etc. The willingness to pay taxes depends on:
- personal view of the taxpayer on the payment of taxes;
- the amount of tax liabilities;
- distribution of tax burden;

- the social climate in which taxation is performed;
- the purpose of spending the funds collected from taxes;
- additional taxpayer costs.
It is important for tax authorities to understand what causes non-compliance
among individuals and businesses. Making mistakes because of ignorance of tax
rules is very different from aggressive tax planning and tax fraud. Behavioural
science has shown that criminal sanctions are not the appropriate response (and
may have an adverse effect) when non-compliance is caused by the complexity
of the legislation or a taxpayer’s lack of awareness or understanding of tax rules.
Tax authorities should therefore match their compliance strategy to the tax-
payer’s attitude and motives. Their systems and structures should ensure that
non-compliance with tax law and tax fraud are kept at the lowest possible levels.
993
Tax authorities are responsible for managing a range of different risks, such
as the risk of noncompliance, including of tax fraud, and the risk of insolvency
on the part of the taxpayer. Compliance risk management strategies involve
finding ways to address these risks by analysing the behaviour of taxpayers, and,
in particular, how their behaviour gives rise to these risks. An effective tax com-
pliance policy should include a balanced mix of preventive and corrective mea-
sures, ranging from information and advisory services to law enforcement mea-
sures. The measures should be chosen on the basis of a risk assessment. Equally
importantly, tax compliance policies should aim to build confidence in the tax
administration system and trust between the taxpayer and the tax authority.
(Tax Reforms in EU Member States 2015, Tax policy challenges for economic
growth and fiscal sustainability, European Commission, 75)
Whereas in the past, tax authorities relied heavily on enforcement and pun-
ishment, a balanced tax compliance approach is now becoming more and more
popular worldwide. One of the main problems of the taxpayers is the lack of
uniformity in the treatment of tax bodies and arbitrary interpretation of the
law and taxation principle, which is the consequence of mistrust in the tax au-
thorities and the feeling of unfairness, which is especially evident in the tax su-
pervision procedure experienced by the “collector of taxes and penalties”. (Rogić
Lugarić, 2012: 517) so the elements of the tax law instead of the financial law
are classified as part of the criminal law, whereby a sense of trust between the
tax authorities and the taxpayers is disturbed. A number of seminars and work-
shops organised by the Commission have helped to raise awareness of new de-
velopments in this field. The core principle emphasised is that a tax compliance
strategy should balance preventive and corrective measures, in such a way as to
ensure that taxpayers fulfil their tax obligations.
One of the essential features of preventive measures is that they facilitate
tax compliance by providing services to taxpayers. The aim of these measures
is to promote voluntary compliance and prevent tax avoidance and evasion by
making it as simple as possible to pay taxes. This type of measure is generally
thought to be effective in ensuring correct tax payment by taxpayers who are
willing to be compliant, but struggle with the practicalities of paying their taxes.
For taxpayers who purposefully try to avoid paying taxes, however, enforcement
measures are needed. These measures are designed to force taxpayers to pay
the taxes they owe, and involve checking whether the taxpayer has properly re-
ported his tax obligations and paid the tax due.
994
Of particular interest are recent improvements seen in the level of trust be-
ing developed between taxpayers and the tax authorities. Social norms can help
to increase compliance among taxpayers and to build trust between taxpayers
and tax authorities. The quality of tax administration and of the provision of
public goods can help to increase voluntary compliance, reduce tax evasion and
ultimately increase tax revenue. In its latest report on the issue, the OECD finds
that that the importance attached to cooperative compliance has increased in re-
cent years and it has now become established practice in a number of countries
to take steps to improve cooperative compliance as part of tax policy. The suc-
cess of cooperative compliance programmes depends very much on staff having
the commitment and level of training necessary for the programmes to be suc-
cessfully implemented. There is also evidence that transparency and disclosure
on the part of businesses is increasingly considered to be an important part of
tax compliance systems, as it can reduce uncertainties for both tax authorities
and taxpayers. (Tax Reforms in EU Member States 2015, Tax policy challenges
for economic growth and fiscal sustainability, European Commission, 76)
It is difficult to assess how well EU tax authorities are performing. This is
not due to lack of data on the results achieved by Member States’ tax authori-
ties per se: in most cases, tax authorities report extensively on the results of
their activities, e.g. in annual reports and through press releases. Comparative
data, however, remain scarce: ‘the absence of comparable data across countries
on tax administration has made the comparative analysis of tax agencies (al-
most — author’ note) impossible’ This gap has been filled, to some extent, by
a comparative report on tax administration published by the OECD Forum
on Tax Administration.4 It provides reference data on the main aspects of tax INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
administration, including organisation, strategic and human resources manage-
ment, resources, operational performance, services, the relationship between tax
authorities and intermediaries, and the overall legal framework within which
tax authorities operate.5 The OECD compiles the report largely on the basis of
data gathered during its own survey of tax authorities. Other sources used in-
clude annual reports produced by tax authorities and the Commission’s report
on VAT collection and inspection.(Tax Reforms in EU Member States 2015,
4
This report is now in its sixth edition.
5
Although the report is primarily designed to assess the tax authorities of OECD member coun-
tries, the 2015 edition nonetheless covers all EU Member States, including those that are not
OECD members.
995
Tax policy challenges for economic growth and fiscal sustainability, European
Commission, 76)
Data on the cost of collecting taxes may be considered as a rough proxy
indicator of the institutional performance of a tax authority. The assumption
is that taxpayers tend to have greater trust in an organisation that is perceived
to be efficient and effective in performing its duties. The cost of tax collection
is generally calculated as the ratio of the annual administrative costs of the tax
authority to the total tax revenue collected, net of refunds, in one fiscal year. For
example, in the United States of America estimation is that the total costs of the
federal tax system make 65% of actual collections. (Hall & Rabushka, 2007, 10)
Almost all Member States’ tax authorities calculate and publish this ratio
in their annual reports. The OECD regularly records these data and publishes
them as part of its report on tax administration.
The data published in the 2015 OECD report show the average cost of tax
collection in the EU to be EUR 0.97 (or other national currency) per 100 units
of revenue in 2013. On the basis of this information, the tax authorities in Po-
land and Slovakia, Germany, the Czech Republic, Bulgaria and Romania stand
out as having relatively high costs of revenue collection. (Tax Reforms in EU
Member States 2015, Tax policy challenges for economic growth and fiscal sus-
tainability, European Commission, 76)
Given that tax authorities are being required to ‘do more with less’, it is im-
portant that governments invest in making the tax administration system more
efficient and effective. All tax authorities will need to be ready to face this chal-
lenge, and to adapt to their changing environment. New technologies, for ex-
ample, will allow them to develop more sophisticated systems for online tax ad-
ministration, which will offer taxpayers more online services and make it easier
to spot and avoid mistakes. The Republic of Croatia has made this big step by
introducing portla ePorezna to the public.
Five criteria are used to identify which Member States have a particular need
and scope to make tax collection more efficient and effective. The five crite-
ria considered to indicate a possible weakness in tax collection systems are as
follows:
996
1. undisputed tax debt as a proportion of net revenue, with a level signifi-
cantly above the EU average signalling a possible weakness in enforce-
ment of tax policy;
2. the proportion of tax returns filed online, with a level significantly below
the EU average signalling a possible weakness in the services provided by
tax authorities;
3. use of pre-filled tax returns, with, again, a low level of use being indicative
of poor service;
4. the administrative burden placed on an SME by the tax system, a high
burden suggesting weaknesses in the services provided by the tax authori-
ties; and
5. the cost of tax collection, used as a proxy of tax administration efficiency,
high costs thus potentially indicating inefficiency. (Tax Reforms in EU
Member States 2015, Tax policy challenges for economic growth and fis-
cal sustainability, European Commission, 77)
It should be noted that some Member States have introduced reforms since
the period to which these indicators refer.
A Member State may need to improve its overall performance in tax ad-
ministration if it is found to have scope for improvement in at least four of the
five areas, or in the last three — the level of undisputed tax debt, the burden of
paying taxes and the cost of revenue collection – this indicating a weakness in
all three aspects of tax administration (enforcement of tax policy, the services
provided by the tax authorities and efficiency of tax administration). The Mem-
ber States identified as potentially needing to improve their overall performance
in tax administration are thus Bulgaria, Czech Republic, Germany, Poland and
Slovakia. As stated in previous years’ reports, it is important to emphasise that
this initial screening may not identify all the countries that have particular
scope for improving their tax administration. Weaknesses in some countries’ tax
administration may only be able to be identified using country-specific informa-
tion, often of a qualitative nature. (Tax Reforms in EU Member States 2015,
Tax policy challenges for economic growth and fiscal sustainability, European
Commission, 78)
997
6. CONCLUSION
Every county strives to ideal (ie rational) tax system, but it is not possible.
Each and every tax system is sort of chaos or anarchy. And these sorts of cha-
otic tax systems should be adequately accompanied with further education and
perfection of knowledge of tax administrators. Practice shows that successful
application of tax regulations largely depends on the appropriate degree of edu-
cation and the adequate motivation of tax officials and their responsible relation
to the performance of work obligations, while neither the working conditions
nor the equipment needed and above all with modern office equipment are not
negligible. Tax administrators should perfect their knowledge not just about
taxation, tax forms and procedures and tax law as a whole. Tax Administration
is an interdisciplinary organization which deals with other revenue, like social
contributions as well. Also when the Republic of Croatia joined EU and even
before, there was a need for tax harmonization. Croatian tax system is and was
complicated before membership in the EU so we need educated Tax Adminis-

tration to navigate through this sort of tax chaos.
Taxation is not one of the measures of criminal law. Taxpayers perceive taxa-
tion as sort of punishment or sanction, which are the measures of criminal law.
One of the main problems of the taxpayers is the lack of uniformity in the treat-
ment of tax bodies and arbitrary interpretation of the law and taxation prin-
ciple, which is the consequence of mistrust in the tax authorities and the feeling
of unfairness. The truth is that taxes are paid all the time, with no exception,
but we do not have to encounter criminal law if ever. Just the fact that taxation
is mandatory and without consideration or equivalence and also taxes are as a
rule of general characteristic (ie taxpayers do not know what will happen with
the funds collected from taxes, what is their purpose, their destination, how
are they going to be spent) is enough to create resistance and non-compliance.
Every interference in taxpayers personal life and property rights via obligatory
decrease of economic strength of the said taxpayer results in non-compliance
and even evasion. That is precisely why Tax Administration can and should
through its work influence and annul non-compliance and resistance.
Tax Administration should be independent organization, but with every
change of government there comes a change in leadership within Tax Admin-
istration as well. This change is usually politically dictated and consequently
results in mistrust of taxpayers to objectivity and work of Tax Administration.
998
This makes the work of Tax Administration inconsistent. It is also important to
note the objectivity and the relationship of tax officials to taxpayers is affected
by the fact that tax officials work for the same time with the same taxpayers
or their services are performed in smaller environments, therefore due to the
unavoidable close personal interrelations, familiarity and kinship, execution of
the taxpayer’s obligation to pay taxes. There is an open question how to avoid
informal relations in formal legal issues in tax procedures. It is the task of the
Tax Administration to harmonize the practice of binding tax decisions, rather
than to obtain the different taxation decisions for one taxation problem in the
different branch offices of Tax Administration. This is also contributed by the
inadequate organization of the tax service as well as the lack of a number of tax
officials combined with potential defective expertise which can result in unsuc-
cessful execution of tasks and entrusted tasks.
Tax Administration is of great importance when it comes to any and every
tax reforms which are very common and frequent. At the same time Tax Ad-
ministration should have advisory function and help taxpayers with its advice
related to taxation and social contributions.
One of the biggest problems is the working hours of Tax Administration
which was partially annulled with portal ePorezna. The one-stop-shop prin-
ciple has been fulfilled with establishing this unique portal of the Tax Adminis-
tration ePorezna-JPPU. Through this system, Tax Administration will improve
business processes using information technology and reduce compliance costs.
Also, voluntary compliance must be recognized as a value and appreciated as
responsible behaviour. The more taxpayers voluntarily meet their tax liability,
costs are getting lower because Tax Administration won’t have to perform costly
procedures of audit or enforced collection. To achieve this goal Tax Administra-
tion has to work continually to raise awareness in society as a whole that paying
taxes benefits the whole society and not just the individuals.
REFERENCES
Hall, R. E. & Rabushka, A.(2007). The Flat Tax, Second Edition, Hoover Institution Press,
Stanford University, Stanford, California ISBN-10 0-8179-9312-6
Jelčić, B.; Lončarić-Horvat, O.; Šimović, J.; Arbutina, H; Mijatović, N. (2008). Financijsko
pravo i financijska znanost, Narodne novine d.d., Zagreb ISBN 978-953-234-107-2
999
Rogić Lugarić, T. (2012), O odnosu između poreznih tijela i poreznih obveznika-hrvatska
i usporedna iskustva, Zbornik radova 2. Međunarodne konferencije Razvoj javne up-
rave, Veleučilište Lavoslav Ružička u Vukovaru, Vukovar ISBN 978-953-7734-05-3
Srb, V. & Perić, R. (2004). Javne financije, Grafika, Osijek UDK 336.1/.5(075.8)
Tax Reforms in EU Member States 2015, Tax policy challenges for economic growth and
fiscal sustainability X/2015, European Commission, Luxembourg: Office for Official
Publications of the European Communities, ISBN 978-92-79-51181-3
Law on Tax Administration Narodne novine 115/16
STRATEGY OF THE TAX ADMINISTRATION FOR THE PERIOD 2016 – 2020,
Ministry of finance, Tax Administration, Zagreb 2016 [available at: http://www.
porezna-uprava.hr/en/Documents/Strategy%202016-2020%20final.pdf ] Access:
(20-3-2018)
http://www.knowledgiate.com/canons-of-taxation/ Access: (27-3-2018)
http://www.porezna-uprava.hr/HR_o_nama/Stranice/TeritorUstroj.aspx Access: (23-3-2018)
https://e-porezna.porezna-uprava.hr/Pages/Ousluzi.aspx Access: (23-3-2018)
1000
ECONOMIC ANALYSIS OF ECJ
JUDGEMENT IN JOINED CASES
C503/13 & C504/13: PRODUCT
RECALLS REGARDING MEDICAL
DEVICES
Winona WENNING, M. A. IUR.

Rheinische Friedrich-Wilhelms-Universität Bonn, Germany
E-mail: winona.wenning@uni-bonn.de
Nenad RANČIĆ, Ph.D.

Faculty of Law, University of Zagreb,
Croatia/Chair of economics,
E-mail: nrancic@pravo.hr
Ozren PILIPOVIĆ, Ph.D.

Faculty of Law, University of Zagreb,
Croatia/Chair of economics,
E-mail: opilipovic@pravo.hr

Abstract
The risk of damage is necessarily part of many socially beneficial activities and
can only be fully eliminated by adequately discontinuing these activities. As an
alternative, the social costs of risky activities can be minimized by a reasonable
investment in precautionary measures in accordance with the precautionary
principle. In its essence, it contains the requirement to act preventively in the
case of danger of the occurrence of serious and/or irreparable damage, even
in the case where there is no scientifically confirmed certainty of occurrence of
harmful consequences. Due to their „inciting power“.
liability rules can influence individuals’ behavior. Altering liability rules also
alters their control effect. Such decisions of legislature or judicature can be eval-
1001
uated by the economic outcomes of the altered control effect. In this paper, the
efficiency effects of liability rules regarding product liability are analyzed. The
Winona Wenning  Nenad Rančić  Ozren Pilipović: ECONOMIC ANALYSIS OF ECJ JUDGEMENT IN JOINED CASES C-503/13 & C-504/13: PRODUCT...
product recall of implanted medical devices as in the ECJ Judgement from 5th
March 2015 in the joined cases C-503/13 and C-504/13 is examined in
detail. Contrary to the economic considerations, health protection is pursued
with the Product Liability Directive. Though the ECJ extended the liability
only to recalls, necessary due to the devices’ particular danger. A general recall
obligation was explicitly not implemented, but the judgment introduced the
opportunity to stipulate a recall obligation on a case-by-case basis. The ad-
ditional incentives set by contractual liability and tortious producer liability
were not within the scope of the analysis. A multi-level precaution model could
include precautionary measures while development, production, and monitor-
ing of products. Other measures as a producers’ obligation were not examined.
The liability for a defect-free device, influencing the level of harm and the recall
costs in the model, was excluded too. A need for further research in that subject
remains.
Key words: EU Product Liability Directive, EJC judgment C-503/13 &
C-504/13, precautionary principle, unilateral precaution model
JEL Classification: K15, K22
1. INTRODUCTION
The risk of adverse consequences is an indispensable part of performing
every socially beneficial activity, and it can be eliminated completely only by
discontinuing these activities. As an alternative, the social cost of risky activi-
ties can be minimized by a reasonable investment in precautionary measures
(Miceli, p. 16.), as required by the precautionary principle. Development of the
precautionary principle began its path explicitly within the framework of Ger-
man social and legal thought associated with environmental protection in the
1970s. Initially, it appeared as a guideline in the “background”, i.e. the general
guideline for the implementation of an environmental protection policy, but
over time it has been transformed into a binding legal norm, extending to the
area of human health and safety. However, since it is a relatively new concept,
certain issues remain undefined, especially regarding the various formulations
and the practical application of the precautionary principle. The precautionary
principle in the last four decades has been incorporated into the legal system of
1002
many countries, as well as the legal system of the European Union, especially in
the field of human and environmental health and safety protection as well as in
the risk analysis and liability rules for damages in that area. By observing dif-
ferent examples of precautionary principles we can note that there is not yet a
generally accepted model of incorporating precautionary principles into already
existing plans and programs of health and environment protection, nor its role
is fully specified and interpretation in making new. Instead, they are regularly
ad-hoc defined, or seek, more precisely in the relevant documents that refer to
the principle of precaution only. This fact, arising from its generality, on the one
hand, contributes to universal acceptance as well as the scope of the precaution-
ary principle ( Jordan & O’Riordan, 1999, p. 16-33), but on the other hand it
opens a wide space for potential abuse and arbitrary decision-making motivated
by various political and economic interests. Due to their „inciting power (Ad-
ams, p. 149) liability rules are able to influence individuals’ behavior. Altering
liability rules also alters their control effect. Such decisions of legislature or judi-
cature can be evaluated by the outcomes of the altered control effect. This paper
shall analyze the efficiency effects of liability rules regarding product liability.
The product recall of implanted medical devices as in the ECJ Judgment from
5th March 2015 in the joined cases C-503/13 and C-504/13 (ECJ C-503/13
and C-504/13 – Boston Scientific Medizintechnik ./. AOK Sachsen-Anhalt/Be-
triebskrankenkasse RWE (ECJ Boston Scientific ./. AOK)1 will be examined.
2. THE CASE: ECJ BOSTON SCIENTIFIC./. AOK

Within the preliminary ruling ECJ Boston Scientific./. AOK, the ECJ had to
decide questions aroused about the producer’s liability for potentially defective
medical devices. The request regarding the definitions of defect and damage
in the Council Directive 85/374/EEC of 25 July 1985 on the approximation
of the laws, regulations and administrative provisions of the Member States
concerning liability for defective products (Product Liability Directive) is based
1
European Court of Justice (2015). Judgment of the Court (Fourth Chamber) of 5 March 2015.
Boston Scientific Medizintechnik GmbH v AOK Sachsen-Anhalt – Die Gesundheitskasse and
Betriebskrankenkasse RWE. Requests for a preliminary ruling from the Bundesgerichtshof. Refer-
ence for a preliminary ruling — Consumer protection — Liability for damage caused by defective
products — Directive 85/374/EEC — Articles 1, 6(1) and section (a) of the first paragraph of
Article 9 — Pacemakers and implantable cardioverter defibrillators — Risk of product failure
— Personal injury — Removal of the allegedly defective product and replacement with another
product — Reimbursement of the costs of the operation. Joined Cases C-503/13 and C-504/13.
1003
on two similar proceedings of German national courts: A pacemaker and im-
plantable cardioverter defibrillators (ICD) producer’s quality control system
each established that certain product types were manufactured with a deficient
component. This deficient component may lead to full or partial functional in-
capacity of the pacemaker or ICD. (ECJ Boston Scientific./. AOK, m.n. 13-
14, 19.) Consequently, the producer recommended replacing them with free
replacement devices. (ECJ Boston Scientific./. AOK, m.n. 14-15.) For ICDs
it was recommended to deactivate a particular feature, what restricts the func-
tionality without constituting a danger to the patient’s life or physical well-being
(ECJ Boston Scientific./. AOK, m.n. 19, 27.) The statutory health insurance,
based on the patient’s devolved rights, sought compensation for the costs of the
necessary surgery replacing the potentially defective devices (ECJ Boston Sci-
entific ./. AOK, m.n. 17, 23.).
It was uncertain if the definition of a defect in Article 6 of Product Liability
Directive can be extended to solely potentially defective products. Furthermore,
it was to decide if the producer is liable for the costs of the reimplantation2 con-
stituting damage caused by personal injury under Article 1 and Article 9 (1a) of
Product Liability Directive. In principle, the preliminary ruling provides the op-
portunity to treat solely potentially defective products as defective (equalization
thesis) (Wagner, 2016, p. 292, 294) covered by product liability, thus holding
the producer liable for a potential defect that is not realized yet (ECJ Boston
Scientific./. AOK, m.n. 41, 43, 54-55.)
It remains uncertain which risk threshold the potential defect must exceed
to equate an actual defect (Wagner, 2016, p. 292). Also, it is criticized that the
costs of a voluntary reimplantation surgery are qualified as the damage caused
by personal injury due to a product defect.3 Producers, who acquire new infor-
mation regarding the danger of their products after placing them on the market,
might recall them to avoid damages and accompanying damage claims. Within
the recall, producers can inspect individual products and replace or repair de-
fective ones. Considering implanted medical devices several difficulties arise:
To execute an equivalent recall, reimplantation and an immediate replacement
2
The costs of a reimplantation include the cost of the surgery composed by explantation and an-
other implantation. The costs of a new product are not included. The submitted question explicitly
refers to the costs caused by surgery, while the costs of a new device are not thematized.
3
For more details see: Wagner, 2016, p. 292, 299; reviewing the different approaches in the critical
literature.
1004
are necessary. A previous inspection of individual devices regarding the possible
defect is not possible. It equals voluntary or obligatory recalls by civil law, when
the producer decides to bear the reimplantation costs or the product liability
imposes the costs on him.
.. Leading Question – Approach – Structure

What are the legal consequences of the equalization thesis and the exceeded defi-
nition of damage and how to evaluate them from an economic perspective?
Evaluating the special situation of active implanted medical devices using a
welfare economics approach shall show how the judgment ECJ Boston Scien-
tific./. AOK influences the efficiency of product liability. Moreover, the impact
of courts differing from the efficient interpretation will be analyzed. In the eco-
nomic analysis, the unilateral precaution model will be applied. The concept of
wealth maximization will serve as the efficiency criterion.
3. LEGAL FRAMEWORK
Since this paper is based on the preliminary ruling ECJ Boston Scientific ./.
AOK the liability based on the Product Liability Directive and its national
transposition – the Product Liability Act (German Product Liability Act: Act
on Liability for Defective Products (ProdHaftG) – will be examined. Further
civil claims, criminal law, and public law are excluded.

The term product liability4 refers to the obligation of a producer or manufac-
turer to bear liability for damages the use of its product caused (Lenz, 2014, §
3, m.n. 1). According to Article 1, 9 Product Liability Directive and § 1 Prod-
HaftG producers shall be liable for damages caused by defects in their products.
This includes damage caused by death or personal injuries as well as the damage
or destruction of any item of property other than the defective product itself.5
Under the Article 1, 6 I Product Liability Rule and § 1 ProdHaftG a product
4
The terms manufacturer or producer liability are used synonymy since they are the liable parties.
However, sometimes non-producing parties are also liable. Therefore, the term product liability
will be used in line with the Product Liability Directive and the ProdHaftG.
5
The customer’s contractual entitlement for a defect-free product is regulated by sales law. Compen-
sation for damage to the product itself is regulated in § 823 I BGB. However, we will not examine
whether the producer is liable for a defect-free product outside the framework of product liability.
1005
is defective when it does not provide the safety which one is entitled to expect,
considering all circumstances. The first question submitted by the German Fed-
eral Court of Justice (BGH) refers to the definition of defect: Is a product, that
cannot be examined, deemed to have a defect is suspected to be defective? In
accordance with the equalization thesis, this is the case. Therefore, producers
of implantable devices shall be liable, when the suspected defect cannot be veri-
fied prior to a reimplantation. But, in the first place, there must be any dam-
age the producer can be held responsible for. Regarding the case, the potential
defect did not yet cause the device’s failure the definition of damage is crucial:
Answering the second question submitted the ECJ ruled, that the costs of reim-
plantation necessary to replace a device adjudged defect are damage caused by
personal injury as per Article 9 (a) Product Liability Directive, § 1 ProdHaftG.
Thus, producers can be liable to pay compensation for reimplantation.
The use of the term recall in the German everyday language is as inconsis-
tent as in the legal literature. It can be broadly defined as all “possible measures
avoiding, eliminate or reduce the threats originating from dangerous products”
(Bodewig, 1999, p. 13.). The German Federal Court of Justice and the prevail-
ing theory in literature do not qualify mere warnings or information messages
as a recall (BGHZ 179, 157, m.n. 11; Kreidt, 2006, p. 135; Foerste & v. West-
phalen, 2012, § 24, m.n. 326; Rettenbeck, p. 1994, 15; Rolland, 1990, Teil II
m.n. 49; Sack,1985, p. 813, 817). Based on this we can define the recall as the
request to return a defective product to the producer to prevent damages (Foer-
ste & v. Westphalen, 2012, § 24, m.n. 326; Rettenbeck, 1994, p. 15). The per-
formance provided by the producer (Rettenbeck, 1994, p. 15) shall not include
a defect-free device as the product liability does not (see footnote 4).
Considering the Product Liability Directive and its implementation, the
Product Liability Act, a categorical obligation to monitor products which then
could result in mandatory warnings or recalls, cannot be found (Bodewig, 1999,
p. 111; Brüggemeyer & Reich, 1986, p. 149, 155; Taschner & Frietsch, 1990,
RL Art. 1, m.n. 8; Wagner, 2016, p. 292, 293). The producer is liable for the
costs of debugging only if – due to special circumstances - they qualify as a
damage caused by a defect (ECJ Boston Scientific./. AOK, m.n. 57). Recall
costs certainly fall in the category debugging costs as well, so that reversely we
can presume the ECJ neither adopts a categorical obligation to recall within
the civil law. National legislation such as the recall obligation by civil law with
the tortious producer liability under the terms of § 823 I BGB are not affect-
1006
ed (Bodewig, p. 112-113.) Producers of a defective product are not generally
obliged to recall these within the scope of the Product Liability. However, ac-
cording to the ECJ, the producer has “to restore the level of safety which a per-
son is entitled to expect, in accordance with Article 6(1) of Directive 85/374.”
(ECJ Boston Scientific./. AOK, m.n. 49). The producer must bear the costs
of reimplementing mere potentially defective devices in ECJ Boston Scientific./.
AOK. Based on the previously defined term recall, this equals an obligation to
recall. By including reimplantation costs in the definition of damage along with
the equalization thesis, the judgment paves the way to obligatory recalls for pro-
ducers of pacemakers and ICDs. A producer might execute a voluntary recall if
he fears the court to declare this obligation.
4. ECONOMIC ANALYSIS OF PRODUCT RECALL

REGARDING IMPLANTED MEDICAL DEVICES
The possible liability rules are analyzed below regarding their different in-
centives and the resulting impact on the social welfare. First, the unilateral pre-
caution model will be briefly explained. Based on the model the situation of
recalling active implanted medical devices, exemplified by pacemakers, will be
modeled and analyzed. Finally, the results will be summarized.
The optimal social welfare after efficiently deciding upon a recall is the evalu-
ation’s benchmark. Efficiency is defined as maximizing the social welfare in line
with the concept of wealth maximization (Schäfer & Ott, 2012, p. 21-22). Ac-

cordingly, the liability rule, which maximizes the aggregate of all caused changes
in wealth due to its incentives, is favorable (Miceli, 2009, p. 5-6; Polinsky &
Shavell, 2007, p. 505-506; Schäfer & Ott, 2012, p. 22.).
.. The role of precaution

The affirmation and application of the principle of precaution within con-
temporary German legal system started during the 1970s and 1980s. The pre-
cautionary principle as defined in the 1974 and later explained in more detail
in 1985 in Germany’s national legislation contained, inter alia, the following
essential determinants (Harremoes, 2002, p. 4.) which until today remain a
standard of meticulous and effective approach to this issue:
1007
- research and monitoring for early detection of potential risks,
- reduction of environmental pollution,

- promising “clean production” and innovation,
- the scale, according to which the cost of actions taken to prevent damage
must be proportionate to the expected benefits,
- co-operation of all interested parties in solving common policy-driven
problems with a goal to improve competitiveness, employment, and envi-
ronmental state
- reducing the degree of risk even before it reaches the level of action re-
quired, that is before there is complete evidence of adverse consequences if
there is a possibility of serious and irreparable effects.
Subsequently, it reached the EU level during 1992. in the Treaty of Maas-
tricht In the legal system of the European Union, the precautionary principle
first appears in the 1992 Maastricht Treaty (Article 174 (2)), in which, amongst
other things, it states that the Community’s environmental policy “Will be
based on the precautionary principle and the principles of undertaking pre-
ventive actions”6. As further details of the Treaty do not clarify these terms,
this work is left to the institutions of the European Union. In February 2000,
the European Commission issued a Communication from the Commission on
the precautionary principle (EC, 2000), which, apart from trying to establish a
clearer principle (although we do not find a precise definition of the precaution-
ary principle itself, so the impression is that the Communication is defective
in that segment) represents the most detailed description of the precautionary
principle by a body of executive authority (Marchant & Mossman, 2004, p. 24.)
According to the European Commission, the precautionary principle applies
in cases where scientific evidence is insufficient or uncertain, and preliminary
scientific research suggests that there is a reasonable basis for concern for the
environment, human health, animals and plants due to possible dangerous ef-
fects despite the high degree of protection already existing in the EU. The Eu-
ropean Commission emphasizes its view that the precautionary principle seeks
to preserve the independence of scientific research and that the so-called „the
policy of zero risks” is unacceptable. Furthermore, determining the degree of ac-
ceptable risk within the EU is in the domain of political and judicial decisions.
6
See: Treaty on European Union – consolidated form, https://europa.eu/european union/sites/
europaeu/files/docs/body/treaty_on_european_union_en.pdf, 22.07.2017.
1008
So, the question remains in which cases the precautionary principle is applied in
the manner envisaged by the Communication since there are no parameters to
decide on the risks and to what extent it is acceptable. Although the Maastricht
Treaty places it directly in the context of environmental protection, the scope
of the precautionary principle has been extended to the area of human, ani-
mal, and plant health protection. Like the Treaty, the Communication does not
provide a clear and unambiguous definition of the precautionary principle, but
only provides a framework for its application by placing it within a structured
approach to risk analysis that consists of three basic elements: risk assessment,
risk management, and risk reporting
At first glance it was an affirmation of the principle of precaution in EU
law, but it was introduced only as an integral part of one of the elements of risk
analysis, in a relatively narrow range, in particular, that does not pay attention
to the prevention of risks and adverse consequences, but is mentioned in the
context of risk management. There was no mention of necessity to find alterna-
tives to potentially risky activities; instead, the degree of risk acceptance is left
to the current policy leaders to decide. Such an approach is not consistent with
the original German concept of the precautionary principle contained in its very
name Vorsorgeprinzip, which should be used as an inspiration for its definition
and application since it is already a part of the legal system of one of the EU
member states.7 By referring to the precautionary principle in a specific case,
it is possible to consider a given product dangerous until its manufacturer or
importer provides the appropriate evidence to the contrary, whereby the burden
of proof is transferred from the state organs to the business sector, financially
stronger side in that relationship. In principle, it is prohibited to adopt arbi- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
trarily (Marchant & Mossman, p. 23, 2004) and protectionist decisions in the
context of the application of the precautionary principle, but no mechanism for
prevention of such practice was devised.
7
It is also interesting to look at the economic background of German efforts to incorporate the pre-
cautionary principle into the EU legal system. After the application of the precautionary principle
in the economic and legal practice of the Federal Republic of Germany, the efforts of German poli-
ticians and businessmen to adopt it at the level of the then European Economic Community were
intensified, especially since this new, ultimately costly approach put additional financial burden
on the German industry that began to lead to its competitiveness decline. See also: Jordan, A. &
O’Riordan, 1999, p. 21.
1009
.. Unilateral Precaution Model
The unilateral precaution model assumes that the rules of tort law serve one
purpose: all parties engaging in risky activities shall be incited to take all reason-
able measures minimizing the activity’s costs (Miceli, 2009, p. 15). The costs
of a harmful accident include the loss of the damaged party, the costs of pre-
cautionary measures taken and the costs of law enforcement (Miceli, 2009, p.
15). However, the unilateral precaution model does not consider administrative
costs. In the unilateral model only the injuring party I can take precautionary
measures to prevent damages certain risky activities cause (Polinsky & Shavell,
2007, p. 143). The injured party cannot influence the probability of the occur-
rence of damage (Shavell, 2004, p. 178).
The probability of an accident 𝑝 (𝑥) declines with increasing expenditures
on precaution 𝑥, while the level of harm h is constant. (Cooter & Ulen, 2012,
p. 200; Polinsky & Shavell, 2007, p. 143). The probability of an accident 𝑝 (𝑥)
is declining and convex in 𝑥, (Cooter & Ulen, 2012, p. 200; Polinsky & Shavell,
2007, p. 143) consequently the expected damage is 𝐷 (𝑥) =𝑝 (𝑥) h with 𝐷′(𝑥) =
𝑝(𝑥) h < 0 and 𝐷” (𝑥) = 𝑝 (𝑥) h < 0. (Cooter & Ulen, 2012, p. 200). In line with
the concept of wealth maximization the precaution taken by 𝐼 shall minimize
the total costs of the activity:
ܵ‫ܥ‬ሺ‫ݔ‬ሻ ൌ ‫ ݔ‬൅ ‫ܦ‬ሺ‫ݔ‬ሻ
௫
The social costs 𝑆𝐶 (𝑥) include the expenditures on precaution 𝑥 and the
expected damage 𝐷 (𝑥) (Cooter & Ulen, 2012, p. 200). The ideal level of pre-
caution 𝑥* minimizes the social cost: The marginal cost of precaution equals the
marginal reduction of the expected damage. (Cooter & Ulen, 2012, p. 200-201;
Miceli, 2009, p. 20; Polinsky & Shavell, 2007, pp. 143-144; Shavell, 2004, pp.
178-179). An optimal liability rule incites the injurer to invest 𝑥* in precaution-
ary measures and thereby minimizes the social cost SC (𝑥*).
4.2.1. ECJ Boston Scientific./. AOK in the Unilateral Precaution Model

The following assumptions are necessary to apply the model to the situation
described in the Judgment ECJ Boston Scientific./. AOK regarding the pace-
maker. The producer of the pacemaker, Boston Scientific, is the injuring party
I. The victim V is a patient, who has a pacemaker-type X implanted. After the
implantation, I detect that the pacemakers type X may be defective. With a cer-
1010
tain probability, a particular pacemaker contains the defect, which then leads to
premature battery depletion and functional incapacity without warning. (ECJ
Boston Scientific./. AOK, m.n. 14.) The default probability of the pacemakers
type X equals the probability of an accident 𝑝.
The level of harm h includes all damage 𝑉 suffers and I is liable for according
to the Product Liability Directive: In the case of damage I would be liable for
the re-implantation cost 𝑅, since the surgery is necessary to replace the defec-
tive device. (ECJ Boston Scientific./. AOK, m.n. 14.). Furthermore, medical
expenses will arise between failure and re-implantation, which are eligible for
compensation as damage caused by personal injury (Article 9 (1a) Product Li-
ability Directive). (Wieckhorst, 1994, p. 74.). Thus it holds h > 𝑅. Generally, a
pacemaker’s failure holds a death risk.8. However, damages caused by death shall
be excluded here, due to the controversy over adequate monetary assessment of
life. (Brox & Walker, 2016, p. 529, 608; Looschelders, 2016, m.n. 1201; Miceli,
2009, p. 53-54; Posner, 2014, p. 228-232; Schäfer & Ott, 2012, p. 395-400,
402-404; Wieckhorst, 1994, p. 74) I can reduce the probability of an accident
𝑝 (𝑥) with several measures from merely informing and warning the patients to
the recall of potentially defective devices. I must bear the re-implantation costs
R when recalling the devices9. The level of care 𝑥R = 𝑅 reduces the probability of
an accident to (𝑥R) = 0. The product recall is assumed to cause no more costs.10
Given 𝐼 decides to recall the devices he chooses the level of care 𝑥R and (𝑥R)
= 0, one finds for the expected damage:
‫݌‬ሺ‫ݔ‬ሻ݄‫ ݔ‬൏ ‫ ݔ‬ோ
ሺ‫ݔ‬ሻ ൌ ൜
Ͳ‫ ݔ‬൒ ‫ ݔ‬ோ
Consequently, we have for minimizing the social costs:

‫ܦ‬ሺ‫ݔ‬ሻ ൅ ‫ ݔݔ‬൏ ‫ ݔ‬ோ
ܵ‫ܥ‬ሺ‫ݔ‬ሻ ൌ ൜
௫ ‫ ݔ‬ோ ‫ ݔ‬൒ ‫ ݔ‬ோ
From the society’s perspective exists an optimal 𝑥*, which minimizes the
social costs SC(𝑥). If 𝑥* < 𝑥R or 𝑥* = 𝑥R is optimal depends on the respective
8
Opinion of Advocate General Bot in Boston Scientific./. AOK, m.n. 54.
9
For more details about whether the reimplantation qualifies as a precautionary measure from a
legal perspective see: Wagner, 2016, p. 292, 299.
10
This assumption is appropriate for pacemakers as it is only necessary to inform surgeons who de
facto implant the producers’ products.
1011
pacemakers’ default probability 𝑝 (𝑥) and the damage costs h in proportion to
the recall respectively re-implantation costs 𝑥R = 𝑅.
A recall shall be undertaken, if 𝑥* = 𝑥R: Recalling minimizes 𝑆𝐶 (𝑥), pro-

vided that 𝑥R < 𝐷 (𝑥) + 𝑥 applies for 0 ≤ 𝑥 ≤ 𝑥R. Other precautionary measures
shall be taken, if 𝑥R > 𝐷 (𝑥) + 𝑥 applies for 0 ≤ 𝑥 ≤ 𝑥R.
.. Analysis of the Liability Rules

It is disputed whether the product liability establishes strict or fault-based
liability. Historically it was intended to establish strict liability by means of the
Product Liability Directive (ProdHaftRL 85/374/EWG, Erwägungsgrund
2.). But including safety expectations in the concept of damage allows estab-
lishing a standard of care (Wieckhorst, 1994, p. 60-61). It shall be assumed
that without the equalization thesis and the exceeded definition of damage no
recall obligation exists. Thus, strict liability is in force. Provided the possibility
to mandate a product recall it equates simple negligence.
4.3.1. No Mandatory Recall: Strict Liability

With strict liability, the producer is not obliged to recall, but he can be in-
cited to voluntarily undertake a product recall. 𝐼 must bear the precautionary
expenses 𝑥 and he is liable for the damage h.
𝐼 faces the optimization
S S
problem
‫ܦ‬ሺ‫ݔ‬ሻ ൅ ‫ ݔݔ‬൏ ‫ ݔ‬ோ
‫ ܥ‬ଵ ሺ‫ݔ‬ሻ ൌ ൜
௫ ‫ ݔ‬ோ ‫ ݔ‬൒ ‫ ݔ‬ோ
which equals the social optimization problem.

𝐼 is incited to take the optimal level of care 𝑥L = 𝑥*, because 𝑆𝐶(𝑥) = 𝐶1=(𝑥)
(Miceli, 2009, p. 21). The optimal precautionary measure can be a voluntary
product recall or not.
4.3.2. Recall Obligation: Simple Negligence

Given the re-implantation is not qualified as a damage but as a precaution-
ary measure, a court sets a standard of care when mandating a recall obligation.
1012
The injuring party is de facto relieved from liability since the recall inhibits the
occurrence of damage. With this, the situation equals simple negligence.11
Given a standard of care x = 𝑥R, 𝐼 faces the optimization problem
‫ܦ‬ሺ‫ݔ‬ሻ ൅ ‫ ݔݔ‬൏ x
‫ ܥ‬ଵ ሺ‫ݔ‬ሻ ൌ ቐ
௫
‫ ݔݔ‬൒ x

(Miceli, 2009, p. 21)
The incentives of a simple negligence rule differ depending on whether the

court sets the optimal level of care 𝑥* as the required standard of care;
a) The standard of Care x = 𝑥*
If the given standard of care equals the socially optimal level of precaution, 𝐼
takes the optimal precaution 𝑥N = 𝑥* (Miceli, p. 21-22).
b) The standard of Care x > 𝑥∗
It must be distinguished whether the product recall is optimal or other mea-
sures should be taken. Given 𝑥R = x* the court’s standard of care cannot be too
high, since further reaching measures lowering the probability of an accident
more than a re-implantation are inconceivable.
Given 𝑥R > x*, no product recall but less extensive measures are optimal. In
this case, the court’s standard of care can be too high and statue x = xR. 𝐼 will
choose 𝑥N = x = xR> 𝑥* (Polinsky & Shavell, 2007, p. 161) and conduct a man-
datory, but socially undesired product recall. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
If x = xR and 𝑥* differ a lot, 𝐼 will fall below the standard of care and choose
the optimal precaution 𝑥N = 𝑥*. (Polinsky & Shavell, p. 161). If the court would
decide on a mandatory recall for pacemaker with a very low default probability,
although merely informing the patients is necessary, then 𝐼 would still choose
the optimal precaution measure.
c) Standard of Care x < 𝑥*
11
It is not necessary to discuss whether there can be a relief from liability, when the required pre-
caution only consisted in an obligatory warning. We only examine the stipulation of a mandatory
recall: After executing a recall no damage is possible anymore, therefore the producer is de facto
relieved from liability.
1013
As a general rule: With an inefficiently low standard of care 𝐼 will not choose
the optimal precaution but fall short to 𝑥N = x < 𝑥*. (Polinsky & Shavell, p.
161.) However, no standard of care lower than x = 𝑥R can be set for pacemak-
ers, as there won’t be the de facto relieve from liability without a re-implanta-
tion.
These can be summarized: If the mandatory recall is efficient (xR = x = x*
∗
), then I am incited to execute a socially desired recall, xN =x* =xR. In con-
trast, if the recall is not the optimal measure (xR > x*) but made mandatory by
the court’s decision, they will carry out a socially undesired recall ( xN = xR >
x*) or fall below the inefficiently high standard of care and choose the optimal
measure ( xN = x * <xR). Socially undesired product recalls will be executed due
to mistakes of the courts, but no desired recall will be left undone. I am never
incited to not carry out an efficient recall.
.. The result of the Economic Analysis
Table 1: Effect of different Liability Rules in the Unilateral Precaution Model

Recall Rule I’s Precaution Decision
No Mandatory Recall 𝑥L = 𝑥* (1)
Efficient Mandatory Recall 𝑥N = 𝑥* = 𝑥R (2)
Inefficient Mandatory Recall 𝑥N = 𝑥R > 𝑥∗ (3a) or 𝑥N = 𝑥* (3b)
Source: Own table
The economic analysis based on Unilateral Precaution Model shows that

producers will not refrain from executing a socially desired recall of their im-
planted medical devices. This applies to the cases without a mandatory recall
(1). If the court stipulates an efficient mandatory recall, the producer will meet
this obligation (2). Courts requiring inefficient recalls either lead to socially un-
necessary – and therefore undesired – recalls (3a) or producers will fail to com-
ply and reduce the precautionary measures to the efficient extent (3b).
Without the opportunity to stipulate a recall obligation there will be only
efficient precautionary measures including recalls (1).
Granted that courts do not fail to require anything but the optimal pre-
cautionary measures, the possibility for mandatory recalls are do not affect the
outcome: Still, the producers only make efficient recall decisions (1, 2). With
1014
expectable mistakes of the courts, eventually, an excessive number of recalls will
be executed (3b).
Provided that the courts’ decisions are sufficiently right, there is no differ-
ence between the situation without or with the possibility for recall obligations
from an economic perspective. Expecting a certain failure rate, recall obligations
should not be possible.
5. CONCLUSION
What are the legal consequences of the equalization thesis and the exceeded
definition of damage and how to evaluate them from an economic perspective?
First, it is to note that the equalization thesis and the exceeded definition of
damage provide the courts with the opportunity to stipulate a product recall
under the Product Liability Directive. Depending on extent and number of the
courts’ mistakes an excessive number of product recalls are to expect. Inefficient
few recalls and consequently not enough reimplantation of potentially defec-
tive devices are not to expect. If the judgments quality is totally uncertain, it is
preferable not to oblige the producer to recall the products in question. Exces-
sive precaution measures, like the product, recalls Wagner fears for the case that
courts excessively increase the producers’ liability (Wagner, 2016, p. 292, 296).
Anyways he concludes the producer shall be liable for the costs of eliminating
the high health risk his products caused (Wagner, 2016, p. 292, 303). Thus, the
producer of an active implanted medical device that exceeds a certain risk is li-

able for the reimplantation costs. In accordance with the results of the economic
analysis Wagner points out, that the recall obligation must not be generalized
(Wagner, p. 2016, 292, 303). Indeed, the expected damages arising from the
implants in particular cases matter, (Wagner, 2016, p. 292, 296-297) as shown
in the unilateral precaution model. The economic evaluation does not indicate
strong impacts of the equalization thesis and the exceeded definition of dam-
age. The scope limited to active implanted devices also limits the consequences
(Wagner, 2016, p. 292, 303).
Contrary to the economic considerations, health protection is pursued with
the Product Liability Directive (ProdHaftRL 85/374/EWG, Erwägungsgr-
und 1, 6). This would favor to accept economically undesired reimplantation
and eventually establish a general recall obligation. Though the ECJ extended
1015
the liability only to recalls, necessary due to the devices’ danger (ECJ Boston
Scientific./. AOK, m.n. 47.). A general recall obligation was explicitly not im-
plemented, but the judgment introduced the opportunity to stipulate a recall

obligation on a case-by-case basis. The additional incentives set by contractual
liability and tortious producer liability were not within the scope of the analy-
sis. Furthermore, the producer does not only choose a certain precaution when
deciding upon a recall. A multi-level precaution model could include precau-
tionary measures while development, production, and monitoring of products.
Other measures as a producers’ obligation were not examined. The liability for
a defect-free device, influencing the level of harm and the recall costs in the
model, was excluded too. A need for further research in that area remains.
REFERENCES
Adams, M. (2004). Ökonomische Theorie des Rechts Konzepte und Anwendungen 2nd Edi-
tion, Frankfurt am Main.
Bodewig, T. (1999). Der Rückruf fehlerhafter Produkte - Eine Untersuchung der Rückrufpflich-
ten und Rückrufansprüche nach dem Recht Deutschlands, der Europäischen Union und der
USA, Tübingen.
Brox, H. & Walker, W.-D. (2016). Besonderes Schuldrecht, 40th Edition, München.
Brüggemeier, G. & Reich, N. (1986). Die EG-Produkthaftungs-Richtlinie 1985 und ihr Ver-
hältnis zur Produzentenhaftung nach § 823 I BGB, Wertpapier-Mitteilungen.
Communication from the Commission on the precautionary principle (Brussels, 2.2.2000
COM(2000) 1 final, [available at http://eur-lex.europa.eu/legal-content/EN/TXT/
PDF/?uri=CELEX:52000DC0001&from=EN access June 22, 2017]
Cooter, R. & Ulen, T. (2012). Law & Economics, 6th Edition, Boston.
European Court of Justice (2015). Judgment of the Court (Fourth Chamber) of 5 March 2015.
Boston Scientific Medizintechnik GmbH v AOK Sachsen-Anhalt – Die Gesundheitskasse
and Betriebskrankenkasse RWE. Requests for a preliminary ruling from the Bundesgeri-
chtshof. Reference for a preliminary ruling — Consumer protection — Liability for
damage caused by defective products — Directive 85/374/EEC — Articles 1, 6(1)
and section (a) of the first paragraph of Article 9 — Pacemakers and implantable car-
dioverter defibrillators — Risk of product failure — Personal injury — Removal of
the allegedly defective product and replacement with another product — Reimburse-
ment of the costs of the operation. Joined Cases C-503/13 and C-504/13. [available
at http://curia.europa.eu/juris/liste.jsf?pro=&lgrec=en&nat=or&oqp=&dates=&l
g=&language=en&jur=C%2CT%2CF&cit=none%252CC%252CCJ%252CR%252
C2008E%252C%252C%252C%252C%252C%252C%252C%252C%252C%252Ct
rue%252Cfalse%252Cfalse&num=C503%252F13&td=%3BALL&pcs=Oor&avg=
&page=1&mat=or&jge=&for=&cid=536469 access February 22, 2018]
Foerste, U. & von Westphalen, F. (2012). Produkthaftungshandbuch, 3rd Edition, München.
1016
Harremoes, P. et al. (Eds.). (2002). The Precautionary Principle in the 20th Century – Late Les-
sons from Early Warnings, London/Sterling, European Environment Agency/Earths-
can Publications Ltd.
Jordan, A. & O’Riordan, T. (1999). The Precautionary Principle in Contemporary Environmen-
tal Policy and Politics; in Raffensperger, C. & Tickner, A., J., (Eds): Protecting Public
Health & the Environment – Implementing the Precautionary Principle, Washington,
D.C./Colvelo, California, Island Press.
Kreidt, M. (2006). Die Haftung des Zulieferers für Produktionsschäden und Rückrufkosten,
Bonn.
Lenz, T. (2014) Produkthaftung, München.
Looschelders, D. (2016). Schuldrecht, Besonderer Teil, 11th Edition, München.
Marchant, G., E. & Mossman, K., L. (2004). Arbitrary and Capricious – The Precautionary
Principle in The European Union, Washington, The AEI Press.
Miceli, T. J. (2009). The Economic Approach to Law, 2nd Edition, Stanford.
Palandt, O. (2016). Bürgerliches Gesetzbuch mit Nebengesetzen, 75th Edition, München.
Polinsky, A. M. & Shavell, S. (2007). Handbook of Law and Economics, Volume 1, Oxford.
Posner, R. A. (2014). Economic Analysis of Law, 9th Edition, New York.
Rettenbeck, S. (1994). Die Rückrufpflicht in der Produkthaftung Zugleich ein Beitrag zur EG-
Richtlinie über die allgemeine Produktsicherheit vom 29. Juni 1992., Baden-Baden.
Rolland, W. (1990). Produkthaftungsrecht, Kommentar, Köln.
Sack, R. (1985). Produzentenhaftung und Produktbeobachtungspflicht in: Betriebsberater (BB).
Säcker, F. J. (2013). Münchener Kommentar zum Bürgerlichen Gesetzbuch, Band 5, § 705-853
BGB, PartGG, ProdHaftG, 6th Edition, München.
Schäfer, H.-B. & Ott, C. (2012). Lehrbuch der ökonomischen Analyse des Zivilrechts, 5th
Edition, Berlin.
Shavell, S. (2004). Foundations of Economic Analysis of Law, Cambridge.

von Staudinger, J. (Ed.): Kommentar zum Bürgerlichen Gesetzbuch mit Einführungsge-
setz und Nebengesetzen Buch 2 Recht der Schuldverhältnisse, §§ 823 E-I, 824, 825,
(Unerlaubte Handlungen 1 – Teilband 2), Neubearbeitung Berlin 2009.; §§ 826-829;
ProdHaftG, (Unerlaubte Handlungen 2, Produkthaftung), Neubearbeitung Berlin
2014.
Treaty on European Union – consolidated form, [available at: https://europa.eu/europe-
anunion/sites/europaeu/files/docs/body/treaty_on_european_union_en.pdf access
June 22, 2017]
Taschner, H. C. & Frietsch, E. (1990). Produkthaftungsgesetz und EG-Produkthaftungsrichtli-
nie, Kommentar, 2nd Edition, München.
Wagner, G. (2016). Der Fehlerverdacht als Produktfehler, Juristen Zeitung.
Wieckhorst, T. (1994). Recht und Ökonomie des Produkthaftungsgesetzes, Eine an den rechtli-
chen Zielvorgaben und am Effizienzkriterium orientierte Analyse, Baden-Baden.
1017
EFFICIENCY OF THE
CRIMINAL PROCEDURE AND
THE POSSIBILITIES OF ITS
IMPROVEMENT
Vesna ŠKARE OŽBOLT, Ph. D.

Vesna Škare Ožbolt Igor Bojanić: EFFICIENCY OF THE CRIMINAL PROCEDURE AND THE POSSIBILITIES OF ITS IMPROVEMENT
Attorney at Law
E-mail: vesna.skareozbolt@gmail.com
Igor BOJANIĆ, Ph. D.

E-mail: bojanic165@gmail.com
Abstract
This paper starts from the assumption that an efficient criminal procedure does
not imply just a speedy and inexpensive trial. The concept of the criminal pro-
ceedings efficiency also includes the principle of fair trial, which provides, inter
alia, an adequate level of protection of the rights of the defendant in criminal
proceedings and a correct decision of the court on his guilt or innocence. For
such a decision, the principle of substantive truth finding is also important.
Special attention is paid to the duration of the criminal proceedings and to
the measures that can be taken against its stalling. In the context of the protec-
tion of the victim’s right to an effective investigation and the defendant’s right
to a trial within a reasonable time, effective remedies against excessively long
criminal proceedings are being discussed. The need to strengthen the role of the
president of the court and its impact on increasing efficiency is emphasized,
taking into account the basic management functions.
Key words: criminal procedure, efficiency, excessive length of criminal pro-
ceedings, measures againsts talling
JEL Classification: K14, K41
1018
1. INTRODUCTION
Despite numerous reforms of Croatian criminal (law) legislation over the
past ten years, including changes to the Criminal Procedure Act (further in the
text: CPA), the efficiency of criminal proceedings is still considered to be an
unresolved issue (Đurđević, 2017, 265). In this regard, the latest literature also
presents concrete proposals for further reforms aimed at shaping the mecha-
nism to accelerate proceedings that would remove the causes of incentives to
delay the proceedings and ultimately lead to a violation of the accused’s right to
a trial within the reasonable time and violation of the victim’s right to efficient
investigation (Novokmet & Sršen, 2017, 326-329). Within such proposals, spe-
cial attention is devoted to effective remedies against delaying the proceedings,
strengthening the personal responsibility of the president of the court and the
disciplinary responsibility of the judges. The efforts of the legislator to improve
the efficiency of criminal proceedings, especially those realized in the fifth recital
of the CPA, have been assessed as insufficient or improper. They were encour-
aged by the practice of the European Court of Human Rights (further in the
text: ECtHR), which in several verdicts against the Republic of Croatia found
a violation of the Convention’s right to an effective investigation, and by the fa-
mous Constitutional Court decision of 19 July 2012, which obliged the legisla-
tor to impose a positive obligation to remove structural shortcomings in norma-
tive arrangement of the preliminary criminal proceedings. The discussion on the
possibilities of improving the efficiency of the Croatian criminal procedure pre-
supposes first the definition of the concept of efficient criminal proceedings, and
then a more detailed view and analysis of all relevant issues regarding measures
that could contribute to the urgency of proceedings in criminal cases pro futuro. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
These questions relate to the right of victims to an efficient investigation and the
right of the accused to trial within a reasonable time and to effective remedies
against the delay of the proceedings, for which the Croatian criminal proce-
dural law is an important complaint due to the failure of the court to comply
with legal time limits in preliminary criminal proceedings and legal remedies to
protect the right to trial within a reasonable time. The paper further outlines
the main shortcomings of current criminal procedure arrangements from the
standpoint of its efficiency and discusses the merits for the latest proposals to
improve the efficiency of the Croatian criminal procedure de lege ferenda. Spe-
cial attention is also paid to the role of court presidents in the efforts to improve
the efficiency of criminal proceedings.
1019
2. THE CONCEPT OF AN EFFICIENT CRIMINAL
PROCEDURE
An efficient criminal procedure (trial) can be considered as a procedure
which is fair and whose duration was appropriate to the circumstances of the
case, and in which the competent court correctly decided about the innocence
or guilt of the defendant and in the latter case pronounced a lawful criminal
sanction (Krapac, 2013, 10). Such a definition takes into account the principle
of fairness as the cardinal principle of modern criminal proceedings (Krapac,
2014, 86), the right of the accused to trial within a reasonable time and the
purpose of the criminal proceedings consisting in the determination of guilt
or innocence and imposing a punishemnt or other cirminal sanction on the
perpetrator who is guilty pronouncing a perpetrator who is guilty (Krapac,
2014, 4). The aforementioned objective is also borne out by the legislator who
already emphasizes in the first article of the CPA that the law defines the rules
to ensure that no one is innocent being convicted and to impose a punishment
or other measure on the perpetrator of a criminal offense under the conditions
laid down by law and on the basis of a lawful procedure before the competent
court (Article 1 § 1 of the CPA). Within the principle of fairness of the crimi-
nal procedure, the guarantees of the fundamental rights of the accused and the
rights of defense are especially apparent. The views on the realization of these
aspects of the right to a fair trial under Article 6 of the European Convention
on Human Rights and Fundamental Freedoms (further in the text: ECHR) are
contained in numerous ECtHR judgments. A correct decision on the guilt or
innocence of the defendant implies acceptance of the principle of seeking mate-
rial truth. The ECHR and the ECtHR do not, however, establish the principle
of seeking material truth (substantive truth finding) as part of a fair trial, but it
can still be related to the convention law because the obligation of the courts to
establish the truth in the criminal proceedings is closely linked to the right to an
effective investigation (Đurđević, 2013, 340).
In defining the notion of judicial efficiency, the literature states its ability to
produce results that meet its goals (Ambos, 2015, 46). This view begins with
the distinction between efficiency and effectiveness in economics (Peter Druck-
er, The Effective Executive, 1967). Effectiveness raises the question of whether
the right things are done, while the effectiveness examines whether things are
done right. Thus, when it comes to the efficiency of criminal proceedings, the
question arises as to whether the court’s decision on the guilt or innocence of
1020
the defendant was realized in a fair trial and in a reasonable time, and with re-
spect for the principle of material truth.
In the mid-90s of the last century, in the reform of the legislation in the field
of criminal procedural law in many European countries, the desire to speed up
the criminal procedure was expressed. The aim of the reform was primarily to
improve the efficiency of criminal proceedings, but also better human rights
protection (Eser, 1996, 342). These goals can often be in mutual conflict. There-
fore, for every reform of the criminal procedure aimed at improving efficiency,
it is necessary to find the optimal balance in their realization. Every reform has
a greater chances of success if its guiding principle is not to insist on extremes,
but to look for a reasonably happy medium (Eser, 1996, 369).
Understanding the efficiency of criminal proceedings is fundamentally dif-
ferent in the Anglo-American legal tradition. The concept of efficiency is deter-
mined by the constant increase in the number of cases and the limited resources
intended for the judiciary. In such a context, there is a need for plea bargaining,
which is dominated by the criminal justice system, particularly in the United
States, whereby it solves more than 90% of criminal cases. The triumph of plea
bargaining is supported by the views of the Supreme Court in the case of San-
tobello v. New York, 404 U.S. 257, 260 (1971), in which the Court states that
plea bargaining is an essential component of the administration of justice since
the conduct of the full-scale trial for each criminal charge would often required
multiplication of the number of judges and court staff (Brown, 2014, 187).
The importance of trial costs is even more visible in civil litigation, where the

term efficiency is reduced to the cost of any litigation or action taken at any
time. Such an approach is criticized by a simple statement that efficiency is not
synonymous with cheapness and that the assessment of the efficiency of the
procedure requires a complete analysis of all costs and benefits. In that sense,
efficiency is achieved when net benefits exceeds costs (Coleman, 2015, 1777,
1796-1797). With the plea bargaining the criminal procedure undoubtedly be-
comes faster and cheaper, which can also contribute to the greater use of crimi-
nal law and punishment, but to evaluate the efficiency of criminal proceedings
should take into account all its effects, including negative ones. Hence, there
is no reason to assume that lower trial costs necessarily lead to better criminal
justice results, or high costs are inevitably linked to poor results (Brown, 2014,
219-222). Despite popularity, plea bargaining remains controversial even in the
countries of its origin. That is why criminal law literature suggests reforming or
1021
even completely abolishing plea bargaining in practice. Of the arguments used,
it is particularly important to point out that unjustifiably large concessions that
are rendered unfair to victims, undermine the deterrent effect of sanctions and
hinder the court’s ability to detect the truth (Turner, 2017, 222). It is further
assumed that the plea bargaining has semi-privatized public justice, which ex-
plains why the parties prefer such a quick, inexpensive and discreet consensual
solution to the dispute that suits not only prosecutors and defenders but also
judges (Bibas, 2012, 173-174). It is also contended that the US plea bargaining
practice in key points is unregulated, and the main reason for this is the mar-
ginal role of judges. The allegations that legal restrictions on plea bargaining
fatally worsen the trial’s effectiveness are unfounded, as changes are needed to
bring plea bargaining practices into line with the requirements of the rule of law
(Brown, 2016, 1225-1226, 1276). The whole situation regarding plea bargain-
ing may perhaps best illustrate the following statement: “There is no glory in
plea bargaining. In the place of noble clash for truth, plea bargaining gives us
a skulking truce” (Fisher, 2000, 859). Fair proceedings and protection of the
accused’s rights and defense rights are important components of US criminal
proceedings, but in the literature it is also stated that the creation of such coun-
tervailing rights against the powers of state bodies in criminal prosecution (e.g.
the right to exclude unlawfully obtained evidence, the right to effective assis-
tance the defense lawyer in all criminal cases, the right to complain about po-
lice brutality and inhumane prison terms) has made the criminal justice system
cumbersome, expensive and most likely less effective in deterring crime (Posner,
1996, 7).
3. THE RIGHT OF THE VICTIM TO AN

EFFECTIVE INVESTIGATION AND THE
RIGHT OF THE ACCUSED TO TRIAL WITHIN A
REASONABLE TIME
Within the scope of the efficiency of the criminal procedure special attention
is paid to the urgency of the proceedings or the problem of delaying the pro-
ceedings. This is an important aspect of the victim’s right to an effective inves-
tigation and the main issue of the accused’s right to a trial within a reasonable
time (Đurđević, 2013, 331). Sudden court proceedings are considered essential
from the point of view of human rights. There is often used maxim that reads:
1022
justice delayed is justice denied. The length of the proceedings is particularly
important because of the trust of citizens in the functioning of the judiciary
and the effectiveness of the prevention provided by criminal law (Kuijer, 2013,
777-778).
.. The right to an effective investigation

The concept of an effective investigation is clearly defined in the ECtHR
practice: it does not only cover the pre-trial proceedings but also the entire
proceedings before the domestic court, including the stage of trial and the
court’s treatment of alleged legal remedies (Novokmet & Sršen, 2017, 296-297,
Đurđević, 106-111; Batistić Kos, 2012, 123-124). Thus, for example, the EC-
tHR in the case of Oneryildiz v. Turkey (judgment of 30 November 2004, No.
48939/99, § 95) states: “... the requirements of Article 2 go beyond the stage of
the official investigation, where this has led to the institution of proceedings in
the national courts: the proceedings as a whole, including the trial stage, must
satisfy the requirements of the positive obligation to protect lives through the
law“. The Court reiterates that view in the case of Ali and Ayşe Duran v. Turkey
(judgment of 8 April 2008, No. 42492/02, §§ 61-63), but adds to the assertion
that the domestic courts expect a careful assessment of the case as not would be
jeopardized by deterring the impact of the judicial system and the importance
of the role it should have in preventing violations of the right to life and the
ill-treatment. In such a context, the requirement of promptness and reasonable
expedition is implied. A prompt response from the authorities may generally
be regarded as essential in maintaining public confidence in their adherence to
the rule of law and in preventing any appearance of collusion or tolerance of
unlawful acts.
The practice of the ECtHR clearly sets out the standards of an effective in-
vestigation, i.e. requirements that must be met by any investigation to be con-
sidered effective: adequacy, comprehensiveness, independence of the investiga-
tor, urgency, transparency, victim involvement and the obligation to undertake
criminal prosecution when indicate the results of the investigation. The stan-
dard of urgency, i.e. the request for an investigation to be initiated promptly and
carried out with reasonable expedition in order to achieve the best quantity and
quality of available evidence, is also highlighted in the case of Jularić v. Croatia
(judgment of 20 January 2011 and final judgment of 20 April 2011 20106/06,
1023
§§ 43, 47-50), but in this case (§ 49) particular emphasis has been placed on
the delay of the proceedings as a cause of a negative effect on the determina-
tion of the truth: “These delays along with the overall length of the investiga-
tion compromised the effectiveness of the investigation and could not but have
had a negative impact on the prospects of establishing the truth.” This reflects
the standard of comprehensiveness from which the request is made that the
investigation must be detailed and careful, that it must cover all relevant cir-
cumstances and that all reasonable steps must be taken to secure the relevant
evidence (Đurđević, 2014, 107). From this point of view, it can be concluded
that the principle of seeking material truth and the right to an effective investi-
gation are connected.
It is important to point out that the task of conducting an effective inves-
tigation is related to the way the investigation was conducted and not to its
result (Novokmet & Sršen, 2017, 311, note 78; Chevalier-Watts, 2010, 712,
720-721). Such a position is quite simply expressed in the case of Hugh Jordan
v. The United Kingdom (judgment of 4 May 2001, No. 24746/94, § 7): “This is
not an obligation of a result, but of means”.
.. The right to a trial within a reasonable time

The right to a trial within a reasonable time is contained in Article 6 § 1
of the ECHR, Article 29 § 1 of the Constitution of the Republic of Croatia
and Article 11 § 1 of the CPA. The CPA also stipulates that the proceedings
must be conducted without delay, and in proceedings where the defendant is
temporarily deprived of liberty, the court and state bodies must act particu-
larly urgently (Article 11, § 2). Every abuse of rights belonging to the parties to
the proceedings is prohibited and the court’s conduct in such cases is regulated
(Article 11, paragraphs 3 to 5). The criminal procedure could not last too long,
because it limits the rights of the defendant to an unacceptable extent, stigma-
tizes him in the eyes of the citizen, weakens the strength of the evidence and the
punishment loses its meaning. Due to accurate and complete investigation and
determination of the factual situation, the procedure must not be too fast. For
this reason, an approach that provides an optimal balance is advocated for the
formulation of a criminal procedure: on the one hand it is necessary to provide
guarantees against the wrong charges, and on the other hand, the complexity
of the regulations protecting the defendant from the wrong conviction is re-
1024
duced to an acceptable measure because otherwise the procedure is prolonged
and becomes more expensive (Krapac, 2014, 26). The criminal proceedings will
not be efficient if the correct outcome has come too late, despite the respect of
the principle of fair trial and the principle of seeking material truth, or if the
proceedings lasted for an inappropriate amount of time. Thus, for example, it
is right to ask whether an efficient criminal procedure was conducted based on
all the criteria of fairness and in which the accused’s guilt was established based
on a fully established factual situation, but this occurred 20 years or more after
the offense was committed. The punishment of the accused in such cases gener-
ally lost all meaning. The request to end the proceedings within the appropriate
time frame is found in all criminal prosecution models (Krapac, 2013, 7-8). The
length of proceedings, the number of unresolved cases and the ability of courts
to deal with the number of cases are essential parameters of an efficient judicial
system regardless of the model of the national judicial system or the legal tradi-
tion on which such a system is based (CEPEJ, 2016, 184).
It is clear from the practice of the ECtHR that the reasonableness of the
length of the proceedings must be assessed in the light of all the circumstances
of the case, considering the criteria laid down in the case law of the Court, and
in particular: the complexity of the case, the behavior of the applicant and the
conduct of relevant authorities. The cases of excessive duration of proceedings
have become commonplace in the 90s of the last century. Since the earlier cas-
es in which ECtHR has begun to establish the criteria of reasonable duration
of the proceedings, it is worth pointing out the case of Neumeister v. Austria
(judgment of 27 June 1968, No. 1936/63, § 21, pp. 37-38), Ringeiesen v. Aus-
tria judgment of 16 July 1971, No. 2614/65, § 110), case of König v. Germany INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
(judgment of 28 June 1978, No. 6232/73, § 99) and case of Eckle v. Germany
(judgment of 15 July 1971, July 1982, No. 8130/78, § 80). In some cases, re-
lated to the conduct of judicial bodies, the ECtHR has determined whether
there was any reason to deal with due dilligence (Kuijer, 2013, 781-783). Thus,
in the case of X v. France (judgment of 31 March 1992, No. 18020/91, § 47),
the ECtHR was of the view that the applicant’s illness and his limited life span
were of crucial importance for determining the reasonable duration of the pro-
ceedings. The Court also considers the nature and gravity of the sanctions that
may be imposed on an individual at the end of the trial (Krapac, 2014, 27)
and the type of proceedings, which may include issues of particular relevance
to the applicant (CEPEJ, 2016, 184) for example, in criminal cases, depriva-
1025
tion of liberty. The reasons for the lengthy duration of the criminal proceedings
may be objective, subjective and mixed. For objective reasons, there are usually
organizational shortcomings (e.g. insufficient number of judges or court staff )
or functional nature (complex access to certain evidence, trials for numerous
criminal offenses committed by multiple defendants, interruption of trials for
decision-making on the exemption of judges or for the exclusion of unlawful
evidence). The subjective reasons are most often manifested in the lack of pre-
paredness or inadequacy of the judge to handle the trial, the delay in writing
the published verdict or the submission of unfounded party proposals on which
the court must make special decisions. Concerning mixed (objective-subjective)
reasons, the most important thing is the multiple abolition of the first-instance
verdict and the reinstatement of the case for reconsideration before the lower
court (Krapac, 2013, 17-18). In relation to the latter, the case of Jeans v. Croa-
tia (judgment of 13 January 2011, No. 45190/07, § 39) should be mentioned,
in which ECtHR states: “Although the Court is not in a position to analyze
the juridical quality of it is considered that, since the remittal of cases for re-
examination is often ordered as a result of errors committed by lower courts,
the repetition of such orders within one set of proceedings may reveal a serious
deficiency in the judicial system”.
Considering the diversity of cases and circumstances that may be considered
crucial for the final assessment, it is difficult to determine in advance the reason-
able duration of the criminal procedure. Based on the practice of the ECtHR
in some years, the literature still accepts scheme 3-5-7 and concludes that the
duration of the proceedings for up to 3 years is considered reasonable, the du-
ration of the proceedings over 7 years in most cases is unreasonable and the
threshold between reasonable and unreasonable is about 5 years (Henzelin &
Rordorf, 2014, 96).
4. EFFECTIVE REMEDIES AGAINST DELAYS IN

PROCEEDINGS
The right to an effective remedy is one of the most important instruments
for effective protection of human rights and fundamental freedoms (Thiele,
2015, 512). Up to the case of Kudla v. Poland (judgment of 26 October 2000,
No. 30210/96, §§ 149, 152), the ECtHR found violation of the right to an ef-
fective remedy under Article 13 of the ECHR only through the violation of the
1026
right to a trial within a reasonable time, considering that Article 6 § 1 ECHR
was lex specialis in relation to Article 13. From that case, the ECtHR began to
separately examine and determine the violations of Article 6 § 1 and Article
13 of the ECHR. The change in practice was caused by a significant increase
in the number of applications due to a violation of the right to a trial within a
reasonable time. According to the Court’s view, the effective remedy referred to
in Article 13 should be understood as a means of enforcing the claims referred
to in Article 6 § 1 and preventing a violation of the right to a trial within a rea-
sonable time: „From this perspective, the right of the individual to trial within a
reasonable time will be less effective if there exists no opportunity to submit the
Convention claim to a national authority; and the requirements of Article 13
are to be seen as reinforcing those of Article 6 § 1, rather than being absorbed
by the general obligation imposed by the Article not to subject individuals to
inordinate delays in criminal proceedings“.
In the case of McFarlane v. Ireland (judgment of 10 September 2010, No.
31333/06, § 108), the ECtHR clearly distinguishes between preventive and
compensatory remedies: “Article 13 also allows a State to choose between a
remedy which may expedit pending proceedings a remedy post factum in dam-
ages for delay that has already occurred. While the former is preferred as it is
preventative of delay, a compensatory remedy may be considered effective when
the proceedings have already been excessively long and a preventative remedy
did not exist.“
From the point of view of ECtHR in the case of Scordino v. Italy (judgment

of 29 March 2006, No. 36813/97, §§ 183, 186-187), it results that the Court
favors prevention (legal means that speed up the proceedings), i.e. supports the
implementation both means. The Court considers that the remedy designed to
expedite the proceedings in order to prevent them from becoming excessively
lengthy is the most effective solution. „Such a remedy offers an undeniable ad-
vantage over a remedy affording only compensation since it also prevents a find-
ing of successive violations in respect of the same set of proceedings and does
not merely repair the breach a posteriori, as does a compensatory remedy of
the type provided for under Italian law for example“ (§ 183). „Some States,
such as Austria, Croatia, Spain, Poland and Slovakia, have understood the
situation perfectly by choosing to combine two types of remedy, one designed
to expedite the proceedings and the other to afford compensation“ (§ 186).
„However, States can also choose to introduce only a compensatory remedy,
1027
as Italy has done, without that remedy being regarded as ineffective“ (§ 187).
The same reasoning was also repeated in the Sürmeli v. Germany case (Applica-
tion No. 75529/01), Judgment of 8 June 2006 (§ 100). Despite this, Germany
changed its legislation following that decision and decided only for a compensa-
tory remedy (Braasch, 2010, 1009; Krapac, 2013, 56). Accepting the views of
the ECtHR, the prevailing opinion in the literature is that accelerating (preven-
tive) remedies are the best solution (Uzelac, 2012, 392; Kijer, 2013, 787).
In the case of Riccardi Pizzati v. Italy (judgment of 29 March 2006, No.

62361/00, § 39), the ECtHR emphasized that the legal means prescribed by
national legislation must be sufficiently certain not only in the theory but also in
the practice, otherwise they lack the required availability and efficiency.
In the case of Horvat v. Croatia (judgment of 26 July 2001, No. 51585/99,
§§ 47-48), the ECtHR expresses the view that the hierarchical appeal addressed
to the President of the Court or the Minister of Justice seeking to expedite
the proceedings is not considered to be an effective remedy: „It is also to be
noted that the other remedies cited by the Government, that is a request to the
President of the Zagreb Municipal Court or the Ministry of Justice to speed
up the proceedings, represent a hierarchical appeal that is, in fact, no more than
information submitted to the supervisory organ with the suggestion to make
use of its powers if it sees fit to do so. If such an appeal is made, the supervisory
organ might or might not take up the matter with the official against whom the
hierarchical appeal is directed if it considers that the appeal is not manifestly ill-
founded. Otherwise, it will take no action whatsoever. If proceedings are taken,
they take place exclusively between the supervisory organ and the officials con-
cerned. The applicant would not be a party to such proceedings and might be
informed only of the way in which the supervisory organ has dealt with her
appeal (...) In the above circumstances, the Court therefore notes that there
does not exist a true legal remedy enabling a person to complain of the excessive
length of proceedings in Croatia“.
Competent bodies that decide on a legal remedy must also act in a reason-
ably short time. Thus, in the case of Vidas v. Croatia (judgment of 3 July 2008,
No. 40383/04, §§ 36 and 37), the ECtHR states that otherwise the adequate
nature of the legal remedies that may expedite the proceedings may be under-
mined if the treatment in connection with that instrument takes too long (§
36). „The Court recalls that it has already found that a constitutional complaint
1028
under section 63 of the Constitutional Court Act represents an effective remedy
about the length of proceedings that are pending (see Slaviček v. Croatia (dec.),
no. 20862/02, ECHR 2002-VII). As to the present case the Court notes that
the proceedings before the Constitutional Court upon the applicant’s complaint
about the length of the civil proceedings lasted three years and fifteen days. The
Court considers that a remedy designed to address the length of proceedings
may be considered effective only if it provides adequate redress speedily. In the
circumstances of the present case it considers that the effectiveness of the con-
stitutional complaint as a remedy for the length of the pending civil proceedings
was undermined by its excessive duration. It follows that there has been a viola-
tion of Article 13 of the Convention“ (§ 37).
.. Complaint about failure of the court to act within the

legal deadlines in the pre-trial proceedings
The CPA in Article 347 regulates the complaint about failure of the court to
act within legal deadlines in pre-trial proceedings (further in the text: complaint
from Article 347 of CPA). The complaint is referred to the president of the
court and can be filed by the parties and the injured party. When it comes to the
conduct of the president of the court, two situations need to be distinguished.
The parties and the injured party during the pre-trial proceedings may, first,
submit a complaint to the president of the court for failure of the court to act
within the time limits prescribed by law. In such a situation, the president of the
court must set a new deadline for acting. The new deadline may not be longer

than the legal one (Article 347, § 1). In the second situation, the party and the
injured party may file a complaint to the court president because of failure of
the investigation judge to take action, which leads to delays in proceedings, and
if the investigation is conducted by the investigative judge, the defendant and
the injured party as a prosecutor may also address a complaint to the president
of the court due to other irregularities during the course of the judicial investi-
gation (Article 347, §§ 2 and 3). In these cases, the president of the court, upon
receipt of a complaint, shall without delay request a statement on the allegation
of the complaint (Article 347, § 4). After reviewing the file, the president of the
court is required to assess the merits of the complaint, considering the state-
ment of the judge, the length of the proceedings and the complexity of the case.
If it finds that the complaint is established, the president of the court shall de-
termine an appropriate period within which the investigating judge must decide
1029
or determine the conduct of the action (Article 347, § 5). The president of the
court shall notify the applicant within 15 days of the receipt of the complaint of
a new deadline for acting which, due to the failure to act, was not taken within
the legal time limit or on the determination of an appropriate period for the in-
vestigation judge (Article 347, § 6). Due to the possible failure of the president
of the court to act upon a complaint, the applicant may refer the matter to the
president of the higher court (Article 347, § 7).
The main objection to this legal solution is that according to the practice
of the ECtHR the term “effective investigation” does not only refer to the pre-
trial proceedings but to the effectiveness of the proceedings as a whole, which
ultimately should lead to a correct distinction between the guilty and the inno-
cent and imposing a punishment on the perpetrator Novokmet & Sršen, 2017,
311; Đurđević, 2014, 136-137). In the case of Počuča v. Croatia (judgment of
29 June 2006, No. 38550/02, § 35), the ECtHR states that the complaint of
length of proceedings is effective only if it can cover all stages of the proceedings
complained of: “In this connection the Court reiterates that a remedy available
to a party at a domestic level in order to raise a complaint about the length of
proceedings is ‘effective’ within the meaning of Article 13 and Article 35 § 1 of
the Convention only if it is capable of covering all stages of the proceedings
complained of and thus, in the same way as a decision given by the Court, of
taking into account their overall length”.
In addition to this objection, which may be considered justified, it should be
noted that the legislator has not specified what is considered to be an appropri-
ate deadline in the event that the president of the court, after finding that the
parties’ complaint or the defendant is founded, set a time limit within which the
investigating judge must make a decision or to determine carrying out the ac-
tion. In addition, regarding the eventual failure of the president of the court to
act upon a complaint, the question arises as to whether such conduct is covered
by the disorderly performance of the judicial function or should be explicitly
prescribed as a disciplinary offense related to the performance of court admin-
istration. From studies that have been carried out so far, it is not possible to find
out whether such cases of failure to act are generally occurring in practice.
1030
.. Legal remedies to protect the right to trial within a
reasonable time
The Courts Act (further in the text: CA) regulates in detail the legal rem-
edies for the protection of the right to a trial within a reasonable time by several
provisions (Articles 63 to 70). The CA first points out that a party in a court
proceeding has the right to judicial protection if the competent court has not
decided within a reasonable time on his/her right or obligation or on suspicion
or charge of a criminal offense (Article 63 of CA). Legal remedies for the pro-
tection of the right to a trial within a reasonable time are a request for protec-
tion of the right to a trial within a reasonable time and a request for payment
of an appropriate compensation for violation of the right to a trial within a
reasonable time (Article 64, § 1). It follows from the aforementioned provision
that the Croatian legislator has prescribed an accelerated (preventive) and com-
pensatory remedies in respect of the exercise of the right to trial within a rea-
sonable time. The decision-making process on such requests shall be conducted
in accordance with the proper application of the rules on non-contentious pro-
ceedings, as a rule without holding a hearing (Article 64, § 2). Provisions on the
request for protection of right to trial within a reasonable time and the request
for the payment of appropriate compensation for violation of the right to a trial
within a reasonable time shall regulate all relevant issues regarding the persons
who may submit the requests, the bodies which decide on them, the deadlines
for taking certain actions and possible appeals procedure.
When deciding on a request for the protection of the right to a trial within

a reasonable time, the president of the court before which the proceedings are
to be conducted shall in particular consider the type of case, its factual and legal
complexity, the conduct of the parties and the conduct of the court (Article 65
§ 5 of CA). This provision is in accordance with the practice of ECtHR. In
the part related to the decision of the president of the court that the request
is founded, the legislator prescribes that the president of the court will deter-
mine the deadline in which the judge must resolve the case. A more appropriate
solution would be that the deadline set by the president of the court relates to
the taking of a procedural act, including a decision on the defendant’s guilt. An
objection may also be made by the provision which provides that a decision
finding the merits of the request must not be explained (Article 66, § 1), since
the applicant for the protection of the right to a trial within a reasonable time
has the right to a reasoned decision. An application for the payment of an ap-
1031
propriate compensation for a violation of the right to a trial within a reasonable
time may be filed within a further period of six months if the court to which the
request for protection of the right to trial within the reasonable time has been
addressed has not resolved the case within the time limit set by the president of
the court. The legislator has also regulated all relevant issues with this legal in-
strument. Regarding the request for payment of the appropriate compensation,
it should be emphasized that it is not only a compensatory remedy but also an
accelerating one, because if it has been decided upon while the proceedings have
not yet been completed, this circumstance will probably have an impact on the
prevention of further delays.
The aforementioned accelerating and compensatory remedies related to the
protection of the right to a trial within a reasonable time represent mainly suc-
cessful continuation of the appropriate regulation of this matter initiated by the
Law on Amendments to the Constitutional Act on the Constitutional Court
of 2002. By the aforementioned act, the Croatian model of constitutional com-
plaint was formulated as a combined legal remedy which can at the same time
provide monetary satisfaction and speed up the proceedings. Already in the first
case that appeared after the introduction of a new remedy, in case of Slaviček
v. Croatia, the assessment of the ECtHR was positive: “Although the Consti-
tutional Court has not yet adopted any decision following the introduction of
the new remedy, the wording of Section 63 of the 2002 Constitutional Act on
the Constitutional Court is clear and indicates that it is specifically designed
to address the issue of the excessive length of proceedings before the domestic
authorities“. Such a model is often referred to in the ECtHR’s further practice in
a positive context (Uzelac, 2012, 366-367). Later developments have led to the
design of a legal remedies for the protection of the right to a trial within a rea-
sonable time within the Courts Act, that is, no longer in the form of a constitu-
tional complaint to be decided by the Constitutional Court, but in the form of a
request to be decided by the regular courts. Such a legal remedy was rated as “a
welcome maintenance tool perhaps the most important component of a system
of protection of the right to trial within a reasonable time - its effectiveness”
(Uzelac, 2012, 384). Regarding possible changes to the law de lege ferenda, the
protection of the right to a trial within a reasonable time should allow at least
the victim or the injured party. The right to file a legal remedy in order to pro-
tect the right to a trial within a reasonable time could also have every participant
in the proceedings, following the ruling from the German Courts Law, as the
1032
right to a trial within a reasonable time is a fundamental human right which can
not be restricted to parties (Krapac, 2013, 58).
In addition to cases where long-lasting criminal proceedings are attempted
to be prevented by effective remedies for the protection of the right to a trial
within a reasonable time, it should be pointed out that cases of excessive du-
ration of the proceedings are also discussed in foreign practice as an obstacle
to the continuation of the proceedings for which is exceptionally possible to
make a decision to suspend the proceedings. Only a brief summary of the main
points of the ruling of the Higher Regional Court in Koblenz (Germany) has
been summarized below, which abolished the first-instance decision suspending
the criminal proceedings due to excessive duration and making a decision on
the continuation of the process. The criminal proceedings of excessive duration,
particularly when it is caused by the conduct of judicial bodies, may expose
the defendant to additional burdens comparable to the sanctions which must
be proportionate to the degree of the perpetrator’s guilt. Significant delays in
criminal proceedings for which the judicial authorities are responsible violate
the accused in his right to a fair trial in accordance with the requirements of
the rule of law. They are also incompatible with the constitutional requirement
of functional criminal law protection because unnecessary delays in crimi-
nal proceedings call into question the purpose of punishment and violate the
constitutionally guaranteed public interest in determining the truth as much
as possible. The excessive duration of criminal proceedings that is in conflict
with the requirements of the rule of law will nevertheless rarely be the cause of
the suspension of proceedings. Suspension will only be considered if adequate
compensation for breach of prohibition of delays can no longer be achieved in INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
the determination of the sentence. If the right of a defendant to a trial within a
reasonable time has been violated in an intolerable manner, such an offense may
be equated with a denial of rights, and in such cases the interest in further pros-
ecution no longer exist, and the continuation of the process is not acceptable
either from the standpoint of the rule of law (OLG Koblenz, 2017, §§ 24-28).
1033
5. SHORTCOMINGS OF CURRENT CRIMINAL
PROCEDURE ARRANGEMENT FROM THE
STANDPOINT OF ITS EFFICIENCY
According to recent Croatian literature in the filed of criminal procedure
law, the main shortcomings of current arrangement for criminal proceedings
from the standpoint of its efficiency are manifested in the unequal treatment of
state attorneys and judges in terms of their work and responsibilities, reflected
in the provisions of the CPA and subsidiary legislation (laws relating to the or-
ganization and functioning of state bodies participate in criminal proceedings)
and a limited range of already mentioned complaint from Article 347 of CPA.
The legislator has set strict deadlines for the activity of the state attorney in the
pre-trial proceedings (decision on criminal report, investigation, filing an indict-
ment) and procedural sanctions for their violation, including the presumption
of withdrawal from criminal prosecution, which are supplemented by the pro-
visions of the Law on State Attorney on responsibility for disciplinary offense
of unjustified non-fulfillment of the state attorney’s duty. On the other hand,
it is emphasized that the legislator did not prescribe the deadline for judges to
determine the trial if a preparatory hearing was held, the time limit for trial and
the passing of the first instance verdict if the defendant was not in the custody
(investigative jail), and did not prescribe the time for the second-instance ver-
dict. The legislator also did not prescribe disciplinary offenses for judges in the
event of delays in the proceedings (in brief: deadlines and disciplinary offenses
are not prescribed for the work of judges in case of delays in proceedings). Since
not only public prosecutors, but also courts are required to ensure the right to
an effective investigation and the right to a trial within a reasonable time, it is
considered that it is unjustifiable to limit the provisions on procedural time
limits and the procedural and disciplinary sanctions for their violation only to
state attorneys, and at the same time not regulate the responsibility of judges
to delay the proceedings. Based on the aforementioned, a conclusion is made
about the absence of a mechanism for efficient criminal proceedings before the
courts. In a complaint under Article 347 of the CPA, it is questionable whether
it is at all an effective remedy which can prevent the court from being delayed
by proceedings because it relates only to the pre-trial proceedings and does not
cover the stages of the trial and appeals. In addition, the complaint would make
more sense that the failure to comply with the deadline or failure to take action
leading to the delay of the proceedings is prescribed as a disciplinary offense of
1034
disorderly performance of judicial function (Đurđević, 2013, 348, 2014, 136-
137, Novokmet & Sršen, 2017, 295- 296, 312). The failure to regulate effective
remedies against irresponsible or unlawful work of judges is considered as a
consequence of reluctance or weakness of the system to solve one of the fun-
damental problems of the Croatian judiciary regarding the determination of
civil servants’ responsibility for their work on the prevention and prosecution of
criminal offenses (Đurđevic, 2014, 148-149). This assessment is accompanied
by the latest views that give rise to an alarming situation in the criminal justice
system. They emphasize everyday media writings related to decisions of crimi-
nal courts, corruption cases that are far from verdict, thorough investigation
of citizens’ mistrust into the work of the judiciary, the inadequacy of the so-
called normative optimism (the belief that legal reforms will solve all problems
while at the same time neglecting the problem of implementing the law), as well
as the lack of education of judges and state attorney, who educate themselves,
persecute and judge themselves for disciplinary acts and elect each other. Real
changes are possible only through proper education and the accountability of all
the relevant factors. It is necessary, inter alia, to introduce disciplinary responsi-
bility for judges due to unlawful decisions or actions, as well as negligence and
delay of proceedings (Đurđević, 2017, 265-267).
The perceived shortcomings regarding the efficiency of the criminal pro-
cedure are proposed to remove de lege ferenda by substantially changing the
complaint referred to in Article 347 of the CPA by extending this remedy at all
stages of criminal proceedings before the court, by strengthening the personal
responsibility of the president of the court by prescribing the duty to institute
disciplinary proceedings against a judge who did not remove the omissions that INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
lead to delays in the proceedings within appropriate time and by prescribing a
provision on the unjustified non-performing of the judicial function as a disci-
plinary act, which would include, inter alia, Article 347 of the CPA.
Since the concept of solving the case in the practical application of the re-
quest for protection of the right to a trial within a reasonable time is usually
reduced to the taking of a particular act and the usefulness of that remedy only
becomes apparent if it accelerates the proceedings as a whole, an approach is ad-
vocated in which the complaint from Article 347 of the CPA has advantage over
the request that should only be applied as the last ratio. The above-mentioned
proposals are based, inter alia, on the analysis of ways of regulating procedural
measures aimed at preventing the violation of the right to trial within a reason-
1035
able time in comparative law (Austria, Portugal and Poland). Such measures
are aimed at preventing, but also sanctioning inefficient proceedings before the
courts (Novokmet & Sršen, 2017, 327-328, 304-309).
There is, however, the view that the request for protection of the right to a
trial within a reasonable time is a remedy that can eliminate unnecessary delays
in the proceedings before the courts and that, with regard to the personal re-
sponsibility of judges who do not act within the legal deadlines and thus lead to
delays in proceedings there is a disciplinary offense of disorderly performance

of judicial duty (Kos, 2013, 686). In the proposals that appeared earlier in the
literature regarding the introduction of a general instrument against an inef-
ficient judge (supervisory appeal or complaint) it was stated that the possible
adoption of such an instrument could also initiate the conduct of disciplin-
ary proceedings against a judge who improperly carries out his work (Maganić,
2009, 546-547).
As an argument in favor of the proposed changes, the practice of the State Ju-
dicial Council is also emphasized, indicating that no judge in criminal cases was
responsible for the disciplinary offense of improper (disorderly) performance
of judicial duty over a period of four years. Based on the small number of disci-
plinary proceedings conducted against judges in criminal cases, the conclusion
is that “the system is not functional” and asks whether the court presidents or
legislators are guilty of it (Novokmet & Sršen, 2017, 319-320). For the purpose
of strengthening the efficiency of the criminal procedure, it is proposed to con-
sider the possibility of returning and extending the powers of second instance
courts to conduct hearings with the aim of abolishing the multiple abolition of
first-instance verdicts and returning to retrial (Đurđević, 2017, 266). Within
the problem of the responsibility of the judges, the problem of their regressive
liability for the compensation of damages paid by the Republic of Croatia on
ECtHR judgment is discussed, and emphasizes the necessity of prescribing a
special procedure in which the causal link between the established violations of
the convention’s right and intent or the ultimate negligence of the judge as the
basis of his regressive responsibilities (Novokmet & Sršen, 2017, 326-329).
1036
6. THE MERITS OF THE PROPOSALS TO
IMPROVE THE EFFICIENCY OF THE
CROATIAN CRIMINAL PROCEDURE
The allegations of unequal treatment of judges and state attorneys in terms
of their work and responsibilities are based, as already stated above, on the al-
leged lack of time limits or disciplinary responsibility for delay of proceedings
for the work of judges (as opposed to state attorneys). Regarding the deadlines
for the work of judges, it should first be emphasized that the CPA does not set
a deadline for holding the hearing if a preparatory hearing is held, but it still
clearly prescribes that the presiding judge determines the time and place for
the trial before the completion of the preparatory hearing (Article 381 § 1 of
the CPA). The determination of the (instructional) time limits for the trial and
the passing of the first instance and second instance verdict may be considered
acceptable. In this regard, the highest (maximum) prescribed punishment for
the criminal offense that is the subject of the charge should be considered as the
primary criterion. On the other hand, when it comes to the unequal treatment
of judges and state attorneys, it is necessary to take into account the fact that the
state attorney is dominis litis (master) of the pre-trial proceedings and that in
this stage of the proceedings it is particularly important to protect the accused
from unjustified criminal prosecution, the court’s influence over the duration of
the trial in a disputed stage where adversary elements prevail and with the best
possible management of the process, however, is limited. The length of the trial
stage also determines the quality of the indictment, the conduct of the parties,

the number of defendants and criminal offenses and the scope of the evidence.
It is incorrect to argue that no disciplinary liability for delay in proceedings
is prescribed for judges because the State Judicial Council Act (further in the
text: SJCA), in Article 62, § 1, points 1 and 2, prescribes disciplinary acts as
disorderly performance of judicial duty and failure to act upon decision taken
in the procedure for protection the right to a trial within a reasonable time.
It is therefore only possible to discuss whether any future forms of disorderly
performance of a judicial duty need to be more closely defined in future changes
to the SJCA.
The proposal to prescribe the duty of the president of the court to initiate
disciplinary proceedings against a judge who failed to remove the omissions
leading to the delay in proceedings within the appropriate deadline, which seeks
1037
to strengthen the personal responsibility of the president of the court, ignores
the fact that the CA (Article 95, § 3) already contains the duty of the president
of the court to institute disciplinary proceedings against a judge for whom he
has established that he has performed his duties disorderly.
As regards the limited scope of the complaint referred to in Article 347 of
the CPA and the proposal to extend it to all stages of criminal proceedings,
which is otherwise consistent with the practice of the ECtHR with regard to
the concept of an effective investigation, it should be noted that the acceleration

of the proceedings at all its stages can already be obtained through a request
for protection of the right to a trial within the reasonable time referred to in
Articles 65 to 67 of the CA. This remedy should be given precedence over the
complaint referred to in Article 347 of the CPA because, even after any exten-
sion at all stages of the proceedings, it remains closer to the hierarchical appeal
that the ECtHR does not consider to be an effective remedy. The president of
the court before which the proceedings is conducted decides on the request for
the protection of the right to a trial within a reasonable time, as well as on the
complaint, but the CA clearly stipulates that the decision on the application
applies the rules on non-contentious proceedings, sets relatively short deadlines
for deciding on the request and regulates handling instantiating bodies by ap-
peal. A proposal suggesting the use of a legal remedy from the CA as the last
ratio is not sufficiently clear because it can be interpreted as a condition that
in criminal cases the request must be preceded by the complaint and that the
request is possible only if the complaint does not yield the desired effects. The
provision on the right of parties to submit a request for protection of the right
to a trial within a reasonable time in the CA should be extended to at least the
victim or the injured party.
The conclusion of a system malfunctioning stemming from a small number
of disciplinary proceedings conducted in four years against judges who decide
on criminal cases, of which only three were related to disorderly performance
of judicial duty and in which no disciplinary responsibility was established, is
not a convincing argument for changes of the CPA and subsidiary legislation
in order to strengthen the efficiency of criminal proceedings. For such a small
number of disciplinary proceedings, neither the presidents nor the legislator
can be held accountable because the disciplinary responsibility of the judges
for disorderly performance of judicial duty depends solely on whether there
is any request for speeding up the proceedings or legal remedies against delay
1038
and whether it has been established in the concrete case the behavior of a judge
who has delayed the proceedings. There is, however, the possibility that even
the presidents of the courts by adjudicating on the complaints referred to in
Article 347 of the CPA have contributed to the delay in the proceedings, but no
evidence has been produced from previous investigations to confirm that such
cases appear in practice. That is why there is no reason for any distrust of the
work of the presidents of the courts, who would be guided by their policy of
non-confrontation in relation to their colleagues.
Neither media reports about individual court decisions that have scandal-
ized the public or endless trials in corruption cases are insufficient to generalize
the conclusion on the inefficiency of the criminal justice system, and in particu-
lar about the contribution of judges to the procrastination of proceedings. The
results of (thorough) investigations that testify to the distrust of many citizens
in the functioning of the criminal justice system are certainly to be respected,
but caution is also needed because the allegations of inefficient criminal pro-
ceedings must be based on clearly identified causes in each particular case. The
complexity of determining ineffectiveness in a particular case corresponds to
the complexity of the notion of efficiency of criminal proceedings. The asser-
tion of unjustified so-called normative optimism is generally acceptable when it
comes to legislative changes that are practically difficult to implement, but not
in cases where legislative changes are based on negative practical experiences.
From normative optimism, it is perhaps more dangerous to believe that more
frequent disciplinary proceedings against judges can solve the problem of inef-
ficient criminal proceedings. It is more important to turn to serious (extensive
and thorough) investigations of the causes of the inefficiency of the procedure INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
to shape the appropriate measures that will affect their elimination. In this re-
gard, it is worth supporting the view that the „most efficient way of dealing with
the ineffectiveness of the judicial system is to systematically investigate causes
and to discover reasons for lack of efficiency and constant struggle with it“ (Uz-
elac, 2012, 393).
The demands for changes in the system of training judges and state attor-
neys have to be more concrete because it is not entirely clear what the problem
is really when judges are being formed by judges and state attorneys from state
attorneys. Can a state attorney teach a judge about the trial management skills
better than an older and more experienced judge? Mutual exchange of experi-
ence in education between state attorneys and judges is not questionable. It is,
1039
however, a worrying fact that only 0.4% of the total annual budget for the courts
is set aside for education (CEPEJ, 2016, 37).
The views on disciplinary responsibility of judges due to illegal decisions
are also not sufficiently clear because the decisions of the courts against which
they may be pronounced (regular and extraordinary) remedies should in any
case be excluded from disciplinary responsibility. Additionally, when it comes to
the responsibility for the disciplinary offense of disorderly performance of judi-
cial duty, it is important to warn that intentional (especially multiple) delay of

criminal proceedings by a judge may also constitute a criminal offense of abuse
of position and authority. On the other hand, for the existence of a disciplinary
offense of disorderly performance of a judicial duty, it is certainly not a sufficient
one-time breach of the instructional deadline for taking a particular action in
the proceedings or the same (one-time) acceptance of the actions that unneces-
sarily prolong the proceedings (e.g. proposal for the presentation of evidence
that has nothing to do with the subject of proceedings).
The proposal to consider the possibility of returning and extending the au-
thority of second instance courts to conduct hearings with the aim of abolish-
ing multiple abolition and return cases to the court of first instance certainly
deserves support given the fact that it is a cause that can considerably extend
the duration of the criminal proceedings. As a model for possible changes in the
aforementioned direction, recent changes in the area of civil procedural law can
be used.
It is worth pointing out that the latest assessments of the inefficiency of
the criminal procedure in the Croatian literature do not take into account the
statistical data based on the efficiency indicators that are common in the evalu-
ations and reports of the European Commission for the Efficiency of Justice
(further in the text: CEPEJ). Significant indicators of court work efficiency are
Clearence Rate (CR) and Disposition Time (DT). The CR refers to the rate of
case resolution and measures how efficiently the courts go hand in hand with
the number of the received cases. DT measures the expected number of days
that are required for (final) resolution of the subject. These indicators provide
an initial general picture of the efficiency of courts in a particular country; the
analysis of trends over time allows for a better understanding of the efforts be-
ing made to maintain or improve the efficiency of the judiciary. The CR or rate
of case resolution is obtained by dividing the number of resolved cases with
1040
the number of received cases and is expressed in percentage because the result
of the division is multiplied by 100. CR close to 100% indicates the ability of
a court or judicial system to handle approximately as many cases as the num-
ber of cases received in a given period. CR over 100% indicates the ability of
the system to handle multiple cases than received, thus reducing the existing
number of unresolved items. Finally, CR under 100% occurs when the number
of incoming cases is higher than the number of settled cases. In this case, the
total number of unresolved cases will increase. The CR essentially shows how
the court or the judicial system carries with the total number of cases to be ad-
dressed (in-flow cases).
DT provides further insight into how much time it takes to resolve a par-
ticular type of case in a particular jurisdiction. The DT (case resolution time)
indicator is obtained by dividing the number of unresolved cases at the end of
the observed period with the number of resolved cases within the same time,
and the resulting number is multiplied by 365. The calculation of DT allows
comparisons within the same jurisdiction over time as well as the comparison
between judicial systems in different countries. It is also relevant to determine
the efficiency of courts in the light of adopted standards for the duration of
proceedings (CEPEJ, 2016, 184-185).
The CEPEJ report of 2016 shows that the efficiency of the courts is not a
major problem in the field of criminal justice in 26 European countries, includ-
ing Croatia, as CR and DT can be considered as positive, which means that the
number of unresolved cases decreases and that At the same time, cases before

the court can be resolved within a reasonable time (CEPEJ, 2016, 225). The
report cites a significant increase in CR (130%) in 2014 in first-degree criminal
cases (CEPEJ, 2016, 229). This raises the issue of compliance with national
level data that can show different results. Positive trends are reflected in the
reduction in the number of days needed to deal with cases (from 221 in 2010
to 144 in 2014) and a reduction in the number of unresolved criminal cases
(CEPEJ, 2016, 231). However, reducing the number of unresolved cases could
not be explained solely on the basis of increased efficiency of the courts, as the
number of new cases (CEPEJ, 2016, 233) should be taken into account.
In the 2017 Statistics Review of the Ministry of Justice, it is stated that in
2016 a negative trend of increasing the number of unresolved cases since 2014
continued (Statistical Review, 2017, 21). In relation to the type of case, fewer
1041
cases than received were solved only in the criminal law branch of adjudication
(Statistical Review, 2017, 22-23). After 2012, when the crime rate (CR) was
105.2%, from 2013 to 2016 CR was below 100%. The average CR in these four
years is 96.9%.
However, it should be noted that the CR in the period 2009-2012 is always
above 100%. The average for these four years was 104.3% (Statistical Review,
2017, 22). The data from that period confirm the assessment that the general
statistical picture of the duration of the criminal proceedings in the Republic of

Croatia does not give rise to a bad assessment which is “paste” to the Croatian
judiciary as a whole and that Croatian criminal justice, despite the public per-
ception that judges are not doing enough, works well at the average time level
for completing the first instance process (Krapac, 2013, 17). DT data in 2016
show that municipal courts need the most time to deal with criminal cases:
530 days (Statistical Review, 2017, 24). The above mentioned statistics point
to the almost unbelievable conclusion that the Croatian criminal justice system
was more efficient before changes to the CPA in 2013, which were significantly
motivated by improving the efficiency of criminal proceedings.
Based on what has been said about effective remedy for the exercise of the
right to a trial within a reasonable time and the possibility of disciplinary sanc-
tioning of judges due to the delay of the proceedings, it can be concluded that
the thesis on the absence of a mechanism for effective proceedings before the
courts is unconvincing because such a mechanism exists and mainly deserves a
positive assessment.
7. THE ROLE OF THE COURT PRESIDENT IN

THE POSSIBLE IMPROVEMENT OF THE
EFFICIENCY OF CRIMINAL PROCEEDINGS
In previous proceedings on effective legal remedies against delay in proceed-
ings, it was emphasized that the president of the court before which proceed-
ings are being conducted decides on complaints about the failure of the criminal
court to comply with the legal deadlines in the pre-trial procedure and on legal
remedies for the protection of the right to a trial within a reasonable time. The
president of the court is a judge who, in addition to his/her judicial duties, also
performs judicial affairs pursuant to the CA (Article 30, § 1 of CA) and the
1042
Rules of Courts Procedure (further in the text: RCP), and in courts with more
than 20 judges the court president may only perform judicial affairs (Article
30, § 2 of the CA). Judicial affairs (court administration affairs), inter alia, in-
clude: care of neat and timely conduct of court affairs, handling of a request for
protection of the right to a trial within a reasonable time, affairs concerning the
applications of the parties to the proceedings, tasks related to the functioning of
the IT system, financial affairs of the court, the professional training of judges,
court counselors, court trainees and other officials and employees in court (Ar-
ticle 29, § 1, points 2, 6, 9, 10, 11, 14 of the CA). Except in the CA, the powers
and duties of the court president are determined by the RCP. The president of
the court manages the court, is responsible for the proper and lawful perfor-
mance of the judicial administration in the court, carries out supervision over
the orderly and timely conduct of all the proceedings in the court, and takes care
of the efficiency of the court in resolving the cases and especially of the cases
where the proceedings last for more than three years (Article 5, § 1 of the RCP).
In the literature (Gažić Ferenčina, 2017, 73), however, it is rightly emphasized
that the issue of autonomy of the court president is disputable as the Ministry
of Justice (Article 7, § 1 of the CA) has the authority of the supreme body to
perform judicial affairs. The President of the Court is obliged to report to the
higher court and the Ministry of Justice on all matters of importance for the
work of the court (Article 32, § 2 of the CA), and except the president of the
Supreme Court of the Republic of Croatia, shall, by 31 January to the president
of the higher court, to the State Judicial Council and to the Ministry of Justice
to submit a report on the judicial administration performed in the previous

year and a plan of judicial administration affairs, in particular measures and
activities to improve the work and efficiency of the court in dealing with the
cases as well as expected work results for the current year (Article 33, § 2 of
the CA). Practically, perhaps the most important thing is that the president of
the court has no influence on the design and allocation of funds from the state
budget. Regarding the relationship between the court president (judiciary) and
the Ministry of Justice (executive), it is important to point out that the judicial
administration affairs serve the performance of the judiciary (Article 72 of the
ZS) and that, based on such a legal provision, it is correct to conclude that the
Ministry of Justice should be a court service (Gažić Ferenčina, 2017, 77).
Regarding the role of the president of the court, it is important to highlight
the recommendations and conclusions contained in Opinion no. 19 (2016) of
1043
the Consultative Council of European Judges (CCEJ) on the role of the presi-
dent of the court of 10 November 2016.
Among other things, it states: “Any managerial model in courts must facili-
tate the better administration of justice and not be an objective in itself. The
court presidents should never engage in any actions or activities that may un-
dermine judicial independence and impartiality “(§ 5). In addition, the role of
the president of the court “should be significant, if not decisive” in the distribu-
tion of budget funds to the court (§ 6). In the section referring to the relations
within the court (§ 15), the CCEJ considers it very important that the court
presidents after having been elected to perform the duty of a judge in terms of
work on the case not only enable them to continue their profession and main-
tain relations with to other judges in accordance with the principle of primus
inter pares, but also to best fulfill their organizational role through information
and knowledge of current issues that arise in judicial practice.
The management and managerial role of the president of the court is em-
phasized also in comparative research studies (Exploratory study, 2013, 33).
Judicial managers in the true sense of the word exist only in the Netherlands
where the autonomy of courts requires a budget-based professional and all oth-
er managerial aspects that have been moved from the ministry of justice and
the judiciary. The key issue is the budget and how it is allocated to the courts,
which brings fewer or more managerial responsibilities to a court manager or
court president. Comparative research also shows that court presidents have
very limited disciplinary powers over judges, limited ability to influence on the
assignment of cases and prioritization in case management (Exploratory study,
2013, 35).
Despite limited autonomy, court presidents are still key figures in court
management. Given the organizational complexity of the courts, the challenges
facing the criminal justice system on a daily basis and the expected public confi-
dence in its functioning, the court presidents should, to the greatest extent pos-
sible, pay attention to the main management functions: planning, organizing,
leading, and controlling (popularly known as the P-O-L-C framework).
Finally, when it comes to the possible omission of the presiding judge to deal
with complaints under Article 347 of the CPC or on the legal remedy for the
protection of the right to a trial within a reasonable time, or to initiate disciplin-
ary proceedings against a judge for misconduct or for failure to act upon a deci-
1044
sion in the procedure for the protection of the right to a trial within a reasonable
time, such omission should be regulated as a separate disciplinary act because it
is the behavior of the presiding judge which in such a case is not a violation of
the judicial function but the duty of the presiding judge in the performance of
court administration.
8. CONCLUSION
There is no doubt that the purpose of the criminal proceedings is the cor-
rect decision on the guilt or innocence of the defendant and the imposition of
lawful sanctions on the perpetrator of a criminal offense. To define the notion
of efficient criminal procedure are not only significant elements of its reason-
able duration and acceptable costs, but also the principles of fair trial and the
search for material truth. Implementation of these principles does not speed
up the proceedings but improves its quality. When it comes to the efficiency of
criminal proceedings, the most attention is devoted to the urgency of the pro-
ceedings, which is quite understandable because of the important aspect of the
victim’s right to an effective investigation and the main issue of the defendant’s
right to a trial within a reasonable time.
At the legislative level, in the Republic of Croatia, the prerequisites for ef-
ficient criminal proceedings are mainly ensured, as there are effective remedies
for the protection of the right to trial within a reasonable time, as well as the
possibility of disciplinary sanctioning of state attorneys and judges due to acts
or omissions that contribute to the delay in proceedings. While respecting the
EctHR practice, the Croatian legislator made the right decision when choos- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
ing a combination of preventive / accelerating and compensatory remedies for

the protection of the right to trial within a reasonable time. Legal remedies for
the protection of the right to a trial within a reasonable time prescribed by the
CA should be given priority over the complaint referred to in Article 347 of
the CPA because that complaint is closer to a hierarchical appeal which is not
considered to be an effective remedy.
When it comes to possible objections to unequal treatment of judges and
state attorneys in terms of their work and responsibilities, it is necessary to take
into account the fact that the state attorney is dominis litis (master) of the pre-
trial proceedings and that in this stage of proceedings it is particularly impor-
tant to protect the defendant from the unjustified criminal persecution, while
1045
the influence of the court on the duration of the proceedings at a trial stage in
which adversary elements prevail is still limited.
Disciplinary sanctioning of judges due to the disorderly performance of the
duties of a judge is not contrary to judicial independence but must be based on
the unambiguous finding that the delay in the particular case is the result of
personal conduct of the judge and not of other causes which generally contrib-
ute to the length of the proceedings.
Statistical indicators of the efficiency of criminal justice warn against the

negative trend of increasing the number of unresolved cases stemming from the
fact that the rate of case resolution in the last four years is below 100%. How-
ever, such indicators do not call into question a generally positive assessment of
current legislation, since in the period from 2009 to 2013 the clearence rate was
over 100%, and the normative mechanism for efficient proceedings was much
less developed.
Regarding the normative framework guaranteeing the efficiency of the crimi-
nal procedure, some improvements should be expected from the legislator in the
future. This is primarily concerned with solving the problem of unlimited possi-
bilities of abolishing first-instance verdicts and setting instructive deadlines for
trial (when the defendant is not in custody) and passing the first-instance and
second-instance verdicts. In addition, the circle of authorized persons to submit
legal remedies for the protection of the right to a trial within a reasonable time
should be extended at least to the victim or injured party. There is also a need
for an exhaustive analysis of procedural rules that can contribute to unnecessary
delay of the procedure or make it excessively complex. Any further legislative
reform aimed at strengthening the efficiency of criminal proceedings should in
any case be based on comprehensive and thorough investigations into the juris-
prudence and determining the causes of inefficiency.
Regarding the court presidents, key figures in the management of courts and
ensuring the efficiency of the proceedings, it is primarily advisable to improve
their knowledge of the main management functions in relation to their work,
and in order to strengthen their responsibility, it is necessary to specifically pre-
scribe the disciplinary offense of failure to perform judicial affairs, including
those that are directly related to the problem of delays in the proceedings.
1046
LITERATURE
Ambos, K. (2015) Assessing the Efficiency of Transitional Justice, Yonsei Law Review, 6,
45-53
Batistić Kos, V. (2012) Pozitivne obveze prema Konvenciji za zaštitu ljudskih prava i
temeljnih sloboda, Narodne novine, Zagreb
Bibas, Stephanos (2012) Incompetent Plea Bargaining and Extrajudical Reforms, Harvard
Law Review, 126, 1, 150-174
Braasch, P. (2010) Follow-Up: The European Court of Human Rights’ Pilot Judgement on
Excessive Length of Proceedings Before the German Courts, German Yearbook of In-
ternational Law, 53, 1007-1012
Brown, D. K. (2014) The Perverse Effects of Efficiency in Criminal Process, Virginia Law
Review, 100, 183-223
Brown, D. K. (2016) Judicial Power to Regulate Plea Bargaining, William & Marry Law
Review, 57, 4, 1225-1276
Chevalier-Watts, J. (2010) Effective Investigations under Article 2 of the European Conven-
tion on Human Rights: Securing the Right to Life or an Onerous Burden on a State?,
The European Journal of International Law, 21, 3, 701-721
Coleman, B. D. (2015) The Efficiency norm, Boston College Law Review, 56, 1777-1827
Đurđević, Z. (2013) Rekonstrukcija, judicijalizacija, konstitucionalizacija, europeizacija
hrvatskog kaznenog postupka V. novelom ZKP/08: prvi dio?, Hrvatski ljetopis za ka-
zneno pravo i praksu, 20, 2, 315-362
Đurđević, Z. (2014) Pravo na učinkovitu istragu u kaznenim predmetima: analiza hrvatske
prakse i prava. Profili hrvatskog kaznenog zakonodavstva, Krapac, D. (ur.), Hrvatska
akademija znanosti i umjetnosti, Zagreb, 105-149
Đurđević, Z. (2017) Uvodna riječ, Hrvatski ljetopis za kazneno pravo i praksu, 24, 2,
265-268
Eser, A. (1996) The Acceleration of Criminal Proceedings and the Rights of Accused: Com-
parative Observations as to the Reform of Criminal Procedure in Europe, Maastricht
Journal of European and Comparative Law, 3, 4, 341-369
European Commission for the Efficiency of Justice (2016) European judicial systems. Ef-
ficiency and quality of justice, CEPEJ STUDIES No. 23, Edition 2016 (data 2014)
Exploratory study on the position of: Court President, Court Manager, Judicial Assistant,
and Media Spokespersons in Selected Council of Europe Member States (2013), Joint
Project on „Strengthening the Court Management in Turkey“ ( JP COMASYT), Re-
port by Marco Fabri, European Union, Council of Europe
Fisher, G. (2000) Plea Bargaining’s Triumph, The Yale Law Journal, 109, 5, 857-1086
Gažić Ferenčina, Jasna (2017) Uloga i položaj predsjednika sudova: mišljenje Savjetodavnog
vijeća europskih sudaca, komparativna iskustva i stanje u Republici Hrvatskoj, Sveske
za javno pravo, 8, 30, 69-77
1047
Henzelin, M. & Rordorf, H. (2014) When Does the Length of Criminal Proceedings Be-
come Unreasonable According to the EctHR?, New Journal of European Criminal
Law, 5, 1, 78-109
Kos, Damir (2014) Djelotvorno pravno sredstvo protiv odugovlačenja postupka i drugih
nepravilnosti u radu državnih odvjetnika i sudaca prema noveli Zakona o kaznenom
postupku, HLJKPP, 20, 2, 679-689
Krapac, D. (2013) Trajanje kaznenog postupka i pravo na kazneno suđenje u razumnom
roku, Zbornik Pravnog fakulteta u Zagrebu, 63, 1, 5-70
Krapac, D. (2014) Kazneno procesno pravo, Narodne novine, Zagreb

Kuijer, M. (2013) The Right to a Fair Trial and the Council of Europe’s Efforts to Ensure
Effective Remedies on a Domestic Level for Excessively Lengthy Proceedings, Human
Rights Law Review, 13, 4, 777-794
Maganić, A. (2009) Pravna sredstva protiv neučinkovitog suca, Zbornik Pravnog fakulteta
Sveučilišta u Rijeci, 30, 1, 515-550
Novokmet, A. & Sršen, Z. (2017) Neučinkoviti kazneni postupak pred sudovima – im-
plementacija presuda Europskog suda za ljudska prava, Hrvatski ljetopis za kazneno
pravo i praksu, 24, 2, 293-334
Posner, R. A. (1996) The Cost of Rights: Implications for Central and Eastern Europe – and
for United States, Tulsa Law Journal, 32, 1, 1-19
Statistički pregled za 2016. (2017), Ministarstvo pravosuđa Republike Hrvatske, Zagreb
Thiele, C. (2015) Das Recht auf einen wirksamen Rechtsbehelf in vergleichender europäi-
scher Perspektive (Art. 47 GRC, Artt. 6 und 13 EMRK), ERA Forum, 16, 4, 511-527
Turner, J. I. (2017) Plea Bargaining and International Criminal Justice, The University of the
Pacific Law Review, 48, 2, 219-246
Uzelac, A. (2012) O razvoju pravnih sredstava za zaštitu prava na suđenje u razumnom
roku - Afirmacija ili kapitualacija u borbi za djelotvorno pravosuđe?, Zbornik Pravnog
fakulteta u Zagrebu, 62, 1-2, 359-396
Laws, Rules of Procedure:
Sudski poslovnik, Narodne novine 37/14, 49/14, 08/15, 35/15, 123/15, 45/16, 29/17,
33/17, 34/17, 57/17
Zakono o državnom sudbenom vijeću, Narodne novine 116/10, 57/11, 130/11, 13/13,
28/13, 82/15
Zakon o kaznenom postupku, Narodne novine, 152/08, 76/09, 80/11, 121/11, 91/12,
143/12, 56/13, 145/13, 152/14, 70/17
Zakon o sudovima, Narodne novine 28/13, 33/15, 82/15, 82/16
Decisions of the European Court of Human Rights, and other courts:
Ali i Ayşe Duran protiv Turske, zahtjev br. 42492/02, presuda od 8. travnja 2008.
Eckle protiv Njemačke, zahtjev br. 8130/78, presuda od 15. srpnja 1982.
Horvat protiv Hrvatske, zahtjev br. 51585/99, presuda od 26. srpnja 2001.
Jeans protiv Hrvatske (presuda od 13. siječnja 2011., br. 45190/07
Jordan protiv Ujedinjenog Kraljevstva, zahtjev br. 24746/94, presuda od 4. svibnja 2001.
1048
Jularić protiv Hrvatske, zahtjev br. 20106/06, presuda od 20. siječnja 2011.
König protiv Njemačke, zahtjev br. 6232/73, presuda od 28. lipnja 1978.
Kudla protiv Poljske, zahtjev br. 30210/96, presuda od 26. listopada 2000.
McFarlane protiv Irske, zahtjev br. br. 31333/06, presuda od 10. rujna 2010.
Neumeister protiv Austrije, zahtjev br. 1936/63, presuda od 27. lipnja 1968.
Nikolić protiv Hrvatske (presuda od 29. siječnja 2015., br. 5096/12
Oneryildiz protiv Turske, zahtjev br. 48939/99, presuda od 30. studenog 2004.
Pizzati protiv Italije, zahtjev br. 62361/00, presuda od 29. ožujka 2006.
Počuča protiv Hrvatske, zahtjev br. 38550/02, presuda od 29. lipnja 2006.
Ringeiesen protiv Austrije, zahtjev br. 2614/65, presuda od 16. srpnja 1971.
Scordino protiv Italije, zahtjev br. 36813/97, presuda od 29. ožujka 2006.
Slaviček protiv Hrvatske, zahtjev br. 20862/02, odluka o dopuštenosti od 4. srpnja 2002.
Sürmeli protiv Njemačke, zahtjev br. 75529/01, presuda od 8. lipnja 2006.
Vidas protiv Hrvatske, zahtjev br. 40383/04, presuda od 3. srpnja 2008.
X protiv Francuske, zahtjev br. 18020/91, presuda od 31. ožujka 1992.
Odluka Ustavnog suda Republike Hrvatske (broj: U-I-448/2009) od 19. srpnja 2012., NN
91/12
OLG Koblenz 2. Strafsenat, Enstscheidung (Beschluss) vom 4.12. 2017, 2 Ws 406 – 419/17
1049
DIGITAL INHERITANCE
Dubravka KLASIČEK, Ph. D., Assistant Professor,

Faculty of Law, University J. J. Strossmayer Osijek,
Email: dklasicek@gmail.com
Abstract
In the past, photos, documents, receipts, bills, music, movies etc. were tangible
or were fixed on a tangible media such as CDs or DVD’s. After a person
died, it was usually enough to go to his/her house or office and find all these
items. Some of them were valuable, others were not, but all of them constituted
inheritance.
Today, for the most part, these items are digitized and stored on computers,
smartphones, flash drives, email accounts, clouds, social media etc. Most of us
have a lot of these digital assets, but almost none of us think about what will
happen to them after we die.
There are several issues concerning digital inheritance: digital assets are intan-
gible and for the most part, their holder’s heirs will not be aware of them; many
of them are password protected and heirs will not know log–in information;
they tend to be numerous and a lot of them hold no financial or emotional
value.
These problems could be solved if individuals made plans for what is to hap-
pen to their digital assets post mortem like they do for their tangible property.
The obvious choice is to include digital assets in a will. However, there are
Dubravka Klasiček: DIGITAL INHERITANCE
certain particularities which have to be kept in mind when planning for digital
inheritance.
For example, wills are publicly pronounced after a person dies, so many people
might be privy to sensitive and private information concerning deceased’s digi-
tal assets. When it comes to digital assets stored in internet service providers’
(ISP) accounts, making plans will not mean much, since ISP have rules pro-
hibiting anyone, other than the original user, from accessing these accounts.
This paper will deal with these challenges of digital inheritance and possible
ways on how to best prepare for it.
1050
Key words: digital assets, digital inheritance, tangible, intangible, will, heir,
ISP
JEL Classification: E22, E24
1. INTRODUCTION
Death was always a legally significant fact – it signifies termination of a legal
personality, ends the marriage, certain contractual obligations, some personal
rights and it initiates property transfer post mortem (Klarić/Vedriš, 2014). Suc-
cession rules have always determined who will, in what way, inherit decedent’s
property. When there are only tangible items to inherit, there are no significant
problems and if there were any in the past, they were settled a long time ago.
However, a new type of assets – digital assets – have emerged and neither their
owners nor legislators know what to do with them in terms of succession. A lot
of these assets are stored on on-line accounts, so, after one considers internet
service providers (ISPs), who decide what rights a person has over his/her ac-
count and its content, the situation becomes even more complicated.
Humans have accumulated more information in the past two years than in
all prior human civilization (Shaw, 2014, p. 30) and a clear majority of that
information is in a digital form. Also, utility providers, phone and internet com-
panies, banks and credit cards have nowadays moved into a digital domain and
most of them even offer incentives if their customers go paperless, both be-
cause it is cheaper and better for the environment. Most newspapers are now

being published online, shopping is done on the Internet, people communicate
through e-mails or social media. Today, photos, music, and videos are predomi-
nantly in a digital form. So, the majority of what was once tangible is now digi-
tized (Arnold, 2013; Moncur/Waller, 2014).
Digital assets are new, they constantly change, and nobody exactly knows
what this term encompasses since there are a lot of different definitions of these
assets (Beyer/Cahn, 2013). At a minimum, these assets are information stored
in an intangible medium on computers and other computer related technology.
They can be accessed in various ways – through a computer, hard drive, smart
phone or third party (ISP) server (Hopkins, 2013; Sherry, 2012). They include
e-mail accounts, blogs, social networking sites, personal webpages, documents,
videos or photo storage sites and it is likely that this list will be expanded soon
1051
(Banta, 2014, p. 801; Beyer, 2015; Blachly, 2015 et al.). However, not many
people think about what will happen to these items after they die, let alone
make plans for it.
These assets, their ownership, and succession should be legally regulated be-
cause today most of us cannot even imagine what other types of digital assets
will be created soon. Nevertheless, the current law dealing with the inheritance
of digital assets is sparse and this problem is aggravated if a person who owns
digital assets dies intestate (Cahn, 2011). Likewise, since a lot of very important
digital assets are controlled solely by various ISPs, their relationship with ac-
count holders also needs to be considered. (Banta, 2017).
The first part of this paper will deal with advantages to digital inheritance
– it will list various reasons that are supporting the need to pass those assets to
heirs. The second part will deal with inheritability of digital assets and possible
obstacles to it. The third part will concentrate on advantages of planning for
digital inheritance and ways to do it.
2. ADVANTAGES OF DIGITAL INHERITANCE

It might seem that thinking about what happens to someone’s digital assets
post mortem is a trivial matter, but, as this paper will try to show, it is becoming
more important as time goes by. There are numerous reasons why digital assets
should pass on to decedent’s heirs. First of all, many digital assets have real eco-
nomic value. Contents on a blog may be valuable to heirs even after blog owner
dies; manuscripts or musical compositions uploaded on social media sites may
have real-world monetary value; characters for on-line computer games also
might be worth a considerable amount of money (Borden, 2014a; Harbinja,
2014 a/b). Domain names have economic value too, eBay accounts generate
money, photos, videos or messages shared on a celebrity’s social profile can be
valuable after a celebrity dies (Edwards/Harbinja, 2016).
If artists upload their art to various sites (Amazon, iTunes etc.), another
problem arises if these accounts are un-inheritable – heirs will inherit copyright
but will not be able to control account content distribution, because they would
need to access the account to control its content. So, if heirs are not permitted to
access manuscripts posted on Amazon or music posted on iTunes, they are un-
able to publish decedent’s unpublished work. (Borden, 2014a, p. 431). Digital
1052
inheritance is also promoting individuals’ creation and labor; encourages pro-
ductiveness and exploration, but it also builds upon existing virtual economy
(Truong, 2009)
Furthermore, social media is often used as a coping mechanism for decedent’s
family and friends. Nowadays it is common, after a person dies, for his/her fam-
ily and friends to post their sentiments of Facebook which has become a central
point for persons coping with the loss of loved ones (Borden, 2014a). Dece-
dent’s friends and family sometimes even set up new online venues, like memo-
rial Web sites or Facebook pages that serve as an emotional outlet (Brubaker/
Callison-Burch, 2016; Arnold, 2013). Likewise, after a sudden death of a loved
one, family members might find answers and reach closure by having access to
decedent’s e-mail and social media profiles. There are fewer and fewer tangible
items, written or otherwise recorded, which contain information about our day-
to-day lives. Today they are mostly in a digital form. (Banta, 2014; McCarthy,
2015).
Most of these digital assets do not have monetary value, but they could be
extremely emotionally valuable to heirs, especially family members. Otherwise,
great parts of people’s lives might be lost forever after they die (Calem, 2010).
This might be very hard for surviving family members, but in some cases, it
might impact others as well – fans, historians, public in general, because, some
digital assets that belong to ordinary people might be of no financial value, but
when it comes to celebrities, scientists, presidents etc., even their mundane digi-
tal assets might be worth a lot of money (Beyer, 2015; Banta, 2014).

An additional benefit of digital inheritance is the fact that information stored
on e-mail and social media may provide valuable estate and other information
about decedent’s property, bank and utility accounts, social media accounts,
subscriptions, business etc., both known and unknown. If heirs cannot inherit
and access them, that might lead to serious obstacles to inheritance in general
(Cahn, 2014; McCarthy, 2015). However, there are some (Cummings, 2014)
that disagree, claiming that access to an account is not at all crucial for easing
the burden of estate administration in most cases, since there is no concrete
evidence to support claims that access to deceased’s online accounts (especially
e-mail accounts) makes any significant difference in estate administration.
Another reason for these accounts to be inheritable is if a decedent had an
Internet business. Unless heirs can access these accounts post mortem, the busi-
1053
ness might suffer severely – heirs will not know who the customers are and
how to contact them (Banta, 2014; Tarney, 2016). Digital assets also present
archives for correspondence which has always offered an insight into various,
sometimes historically important, events (Borden, 2014a; McCarthy, 2015).
Since today correspondence is, often, carried out via e-mails, if nobody inherits
those e-mails, some important facts could be lost forever.
Many commentators agree that digital inheritance can help prevent identity
theft, as well (Banta, 2016; Beyer/Griffin, 2011; Blachly, 2015; Cahn, 2014;
Varnado, 2014; Wilkens, 2011). Until authorities’ databases are updated re-
garding someone’s death, his/her identity can be stolen. Unless heirs have ac-
cess to decedent’s on-line accounts, they will have a hard time protecting his/
her identity (Todorova, 2009). Inheritance of digital assets is also important
in order to prevent content theft, since, if heirs are unable to access decedent’s
blog, for example, either because they are unaware of its existence or do not have
instructions or ways to access it, they might be unable to prevent blog contents
to be stolen (Beyer/Griffin, 2011).
Another advantage of inheriting digital assets is the prevention of losses to
the estate. Some digital assets may lose their value if they are not accessed and
managed for too long. For example, a decedent might have had website gener-
ating income, but in case nobody knows about it or cannot access it, its value
can diminish quickly. Also, electronic bills might keep coming and unless heirs
know about them or have access to them, they will stay unpaid and penalties
will accumulate (Beyer, 2015).
3. INHERITABILITY OF DIGITAL ASSETS

In Croatian legal system, there are no rules that explicitly regulate the in-
heritance of digital assets. However, upon analyzing general rules on inheri-
tance laid down in Inheritance Act (IA), one cannot find reasons why digital
assets should not be inheritable under the same conditions as tangible assets.
In most countries, after a person dies, what is left is either inheritable property
or property that does not pass on to decedent’s heirs for various reasons. For
example, a specific item might not belong to the decedent at the time of death;
it might have to cease to exist after decedent dies, because of its legal nature
(like the right of personal easement according to the Law on property and other
property rights, Art. 202) or it might have to be transferred to somebody other
1054
than decedent’s heirs (for example through donation mortis causa or contract on
lifelong support, Gavella/Belaj, 2008). Under general rules of succession law,
such items are not inheritable. Most commentators believe that the same rules
should apply to digital assets (Banta, 2014, 2016, 2017; Borden, 2014a, Cahn,
2014; Darrow/Ferrera, 2007, Varnado, 2014; Watkins, 2014 et al.)
However, most commentators agree there are a few issues that make digital
assets inheritability distinct, when compared to other property: 1. digital assets
are intangible; 2. some are password protected; 3. a lot is stored on ISPs’ servers
that have varying rules concerning account transferability and 4. some digital
content is in fact merely licensed from an ISP, with the license expiring at death
(Banta, 2014, 2016, 2017; Cahn, 2014; Darrow/Ferrera, 2007; Lopez, 2016,
Ronderos, 2017; Varnado, 2014; Watkins, 2014 et al.).
.. The intangibility of digital assets

Intangibility is probably the least of problems concerning the inheritance
of digital assets, since over the years, in most legal systems, many intangible
items have been equalized with the tangible ones in terms of ownership and
succession (Cahn, 2014; Varnado, 2014). The same applies to Croatian legal
system where, for example, dematerialized shares are considered property and
are treated as such (Gavella, et al., 2007). This is also applied to proportional
share of a co-owner and the right to build (Law on Property, Art. 37/3 and
280/2) and copyright, which is also intangible, but can be inherited, at least
some of its components (Copyright and Related Rights Act, Art. 41, Art. 13 –
40). Therefore, commentators agree that digital assets should not be considered INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
uninheritable just because they are intangible (Darrow/Ferrera, 2007)
.. Log-in information

Lacking log-in information is especially troublesome when it comes to digi-
tal accounts opened with various ISP. Whoever wants to access those accounts,
has to have log-in information. When it comes to e-mail accounts, some com-
mentators explain that one of the main issues with their inheritability is the fact
that they are in a possession of a third party, an ISP, who is neither the sender
nor the recipient of an e-mail and without having log-in information heirs lack
the proverbial key to unlock these accounts (Darrow/Ferrera, 2007).
1055
One of the most cited explanations of why decedent’s e-mail accounts should
be inheritable is a comparison of ISPs to warehouses (Darrow/Ferrera, 2007;
Watkins, 2014). One of the most important obligations of a warehouse is the
return of stored goods to the person that has the receipt. However, if a person
died and did not leave the receipt, that would not mean that stored goods would
not be inheritable, since heirs could prove in court that the decedent did indeed
leave those items at the warehouse and, since they are his/her heirs, they should
be able to inherit them. Similarly, if an owner of items stored in a safe deposit
box or other storage facility died, his heirs would inherit those items, although
they lack keys to a safe deposit box or storage facility. The same should apply to
e-mails – just because heirs do not have log-in information, does not mean they
should be banned from inheriting decedent’s e-mails (Darrow/Ferrera, 2007).
Problems of not knowing passwords are not exclusive only to digital ac-
counts. Some digital assets stored on decedent’s computer can also be password
protected. However, unlike digital accounts which can be accessed even without
log-in information, with ISP’s permission, password protected files on some-
one’s computer, flash drive or smartphone can never be accessed without a pass-
word, even if heirs inherited those devices unless someone manages to brake
the encryption. One of the often-cited examples of this happening is a famous
conductor Leonard Bernstein, who died in 1990. He left a manuscript for his
memoir titled “Blue Ink” on his computer in a password protected file. To this
day, nobody has been able to break the password and access the document. (Mc-
Carthy, 2015; Varnado, 2014; Blachly, 2015)
.. ISPs’ terms of service agreement (ToSA)

ISPs’ ToS is a much bigger and more complicated problem for inheritability
of digital assets than their intangibility or not knowing log-in information. This
is because, even if heirs knew log-in information while accessing an account they
would probably be violating ISPs’ ToS (Eichler, 2016). Most of these agree-
ments state that neither heirs nor anyone else is permitted to access decedent’s
account, even if they had log-in information (Banta, 2014; Lopez, 2016). This
is because most ToSA state that, while content remains owned by an account
holder, the account itself cannot be transferred to or accessed by decedent’s heirs
(or anyone else, for that matter) since most of them contain a non-transferabil-
ity clause (Yahoo, 2018; Google, 2018; Microsoft, 2018).
1056
Account holders might have control over their account content during life.
However, ToSA will later be the main authority in governing the transfer of
digital assets at death. (Banta, 2014; Ronderos, 2017). So, regardless of the fact
that it would make sense for heirs to inherit digital assets, because they were
owned by the decedent and it was in accordance with his/her wishes, they will
not be able to, since in order to get to those assets, they first have to access dece-
dent’s account and ISPs will not let them because of their rules.
It has to be emphasized that some heirs have been able to attain access to
decedent’s account, but only after a legal battle. This happened in several cases;
non-more recognized than the highly publicized Ellsworth case: After Yahoo!
refused family members access to an e-mail account belonging to late U.S. ma-
rine Justin Ellsworth, his father sued Yahoo!. The reason for Yahoo!’s refusal was
that their ToS prohibit third parties from accessing someone’s account, even if
that someone is dead, and it is his/her family members demanding access. In
the end, the judge ordered Yahoo! to enable access to the deceased’s account
without ordering the transfer of log-in and password information. That way,
Yahoo! could still abide by its privacy policy, but family members could and did
gain access to deceased e-mails. It was done because the judge ordered Yahoo!
to provide a family with a CD containing copies of the e-mails in the account
(Edwards/Harbinja, 2016; Truong, 2009). However, they did not gain access to
deceased’s e-mail account or log-in information.
Because most ISP’s fear bad publicity and public backlash, this and many
other cases, show that if family members try to gain access and try hard enough,

especially if they obtain a court order, ISPs might give heirs some insight into
account content, mostly without giving them account access. However, ISPs
will not change their policies and next time other decedent’s heirs try to gain
access to his/her account, they will have to go through the same ordeal. This
seems like the worst way to deal with this since people have no idea how ISPs
will react in a specific case (Banta, 2014).
The influence ToSA have on succession law, according to most commenta-
tors (Banta, 2014, 2016, 2017; Borden, 2014a; Darrow/Ferrera, 2007; Ronde-
ros, 2017; Truong, 2009; Watkins, 2014 et al), is unacceptable because these
agreements severely limit freedom of testation. However, unlike some other
contracts that might limit this freedom to a certain extent, but are, nevertheless,
aimed at the transmission of property to someone, ToSA expressly forbid any
1057
type of transfer. ISPs will either destroy account and its content or leave it on
their servers indefinitely.
There are certain ISPs that have allowed their clients to choose what they
would want concerning their accounts post mortem, like Google (Inactive Ac-
count Manager) and Facebook (Legacy Contact) (Google, 2018, Facebook,
2018, Amazon, 2018). According to some commentators, these types of solu-
tions seem like the preferred option, since account holders themselves tell an
ISP their wishes (Banta, 2014, 2016; Hopkins, 2013; Tarney, 2012)
.. Digital assets licensed from ISPs

Many digital assets are in fact not owned by their users and users are, more
often than not, unaware of this fact. For example, many ToSA drafted by ISPs
that “sell” music, videos and books, state that the purchaser is, in fact, buying
a non-transferable license to access and use digital content, with the license
expiring upon user’s death (Borden, 2014b; Eichler, 2016). Therefore, items
purchased on Amazon and iTunes are not owned by their user. Furthermore,
they can usually only be accessed through a device by signing into an account
and cannot be easily transferred and stored to an external storage device (Ban-
ta, 2017, p. 1125). Because they do not transfer ownership, these ISPs’ ToSA
expressly forbid selling, leasing, distributing, renting, broadcasting, licensing,
transferring or conveying the interest to a third party (Ronderos, 2017).
When it comes to inheriting these assets, ToS is not clear, so like many other
cases concerning digital assets, it appears that this content’s inheritability is de-
cided on a case-by-case basis and if heirs are persistent enough, they will obtain
favorable results from ISPs (Banta, 2017, p. 1130). However, commentators
agree that by not giving users ownership over digital content, ISPs are certainly
preventing and avoiding inheritability of digital assets (Sherry, 2012; Banta,
2014, 2017; Ronderos, 2017).
Regardless of what rights account holders have over purchased digital con-
tent, it would be preferable for ISPs to clearly outline a policy that considers
digital assets in their ToS (so the users would be aware of those rules). The
policy should explicitly state what rights if any, heirs have in the account and its
digital content (Borden, 2014b).
1058
4. PLANNING FOR DIGITAL INHERITANCE
Under rules of succession, heirs can either be testate or intestate. If a dece-
dent leaves a will, he/she will be inherited by persons named in a will (Inheri-
tance Act, Art. 43). Otherwise, intestate heirs will be the ones to inherit his/her
property (IA, Art. 8).
While making a will, usually the first thing a person does is make an inven-
tory of property (Blachly/Walker, 2011). This helps a lot with the distribution
of the estate, but it is not crucial since even if the decedent did not leave a will
or failed to specify what his inheritance consists of, there are simple ways of
finding out.
Tangible assets exist in the physical world, they can be comprehended, and
they are usually not left undiscovered. They have been owned and inherited
since the beginning of time, so there are rules, presumably in every legal system,
which help establish who owns a certain item. For example, under Croatian law,
it is presumed that movables are owned by the person who has possession of
them until proven otherwise (Law on Property…, Art. 11). The ownership of
immovable is even easier to prove: it is registered in land registry (Law on Land
Registry, Art. 23). Therefore, when it comes to tangible property, it is usually
not too hard to find out what the inheritance consists of. Of course, even with
tangibles, there is a possibility that certain parts of estate remain unknown at
the time of probate proceedings. However, there are rules that govern that situ-
ation, too (IA, Art. 234).
When it comes to intangible property like digital assets, things can get a
little more complicated. Since those assets are not tangible and many are stored INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
on different decedent’s devices or accounts, it can be very hard to be aware of

their existence, unless somebody explicitly points them out. Unquestionably,
the existence of some digital assets is known to a large group of people (Face-
book profiles, some e-mail accounts, blogs...). However, there are digital assets
that might be unknown to decedent’s friends and family (financial records, pro-
files on certain sites, assets stored in a cloud, assets stored on decedent’s devices,
online games characters).
Because of this, it seems it is even more important to make plans for digital
assets than for tangible property, since locating digital property can be much
harder – people are less likely to stumble upon an unknown digital asset, than
upon an undiscovered tangible property (Watkins, 2014).
1059
Most people still do not think about the fact that these days, after most of
us die, not only physical assets are left behind, but a lot of digital ones as well.
This was understandable in the recent past because not many of us had digital
assets. And, maybe, that is the reason why most people do not think about digi-
tal assets in the terms of inheritance: digital assets have existed for only a short
period of time and it probably has not yet sunken into our collective conscious-
ness that they too are our property, albeit intangible one, and that they too will
be left behind after we die.
.. Why are plans important?

If a person dies intestate, as is the case with most decedents in Croatia, he/
she will be inherited by intestate heirs. Rules on intestate succession in Croatia,
like in all other legal systems, try to reflect what most people would want and
what a typical decedent usually puts in a will (McCarthy, 2015).
However, nobody knows what the decedent wanted concerning his/her
property if he/she died intestate. The same applies to digital assets: nobody
knows whether the decedent wanted digital assets treated as any other property
and distributed among heirs as such or if he/she never intended for heirs (or
anybody else) to have access to those sets (Lopez, 2016). When it comes to this
type of assets, commentators disagree whether the lack of explicitly expressed
wishes in a will should be replaced with the presumed ones.
Most commentators agree that it cannot be denied that digital assets, es-
pecially those that are password protected, are somewhat different from other
types of property. Log-ins and passwords exist for a reason – they are there to
stop anybody, other than those who know them, from accessing digital assets.
So, what does the fact that the decedent did not share that information really
mean: Did he/she want those assets to remain where they were, undiscovered
by heirs, forgotten and possibly deleted by service providers? Did the decedent
mean to share log-in information with heirs, but death beat him/her to it? Does
the fact that log-in information was not shared mean anything at all?
Some commentators (Horton, 2017) mention that digital accounts should
probably not be treated like other property and should especially not be trans-
missible by intestacy, because most account holders may not want their digital
assets to be inherited, and inheriting digital assets might harm third parties
1060
(i.e. recipients or senders of e-mails). Therefore, according to Horton, if the
decedent did not leave clear instructions in a will, intestate heirs should not
inherit their digital assets. Lopez (2016) agrees and states that the most impor-
tant thing to do, when it comes to digital inheritance, is to establish decedent’s
intent regarding the distribution of his/her digital assets. Cummings (2014)
also stresses that it is of the utmost importance to concentrate on decedent’s
intentions rather than heirs’ interests and wishes concerning decedent’s digi-
tal assets. Unlike Darrow/Ferrera (2007), who agree that heirs must not have
access to an account only in case an account holder gave such explicit instruc-
tions, Cummings (2014) proposes that in absence of account holder’s explicit
instructions that permit access to his/her heirs, access to an account must be
prohibited to anyone and its content must be destroyed after its holder dies.
These authors believe that, without explicit instructions stating otherwise, it
must be presumed that an account holder did not want anyone accessing his/
her account, which is completely opposite from what today applies to the rest of
decedent’s property if he/she dies intestate.
As an example, Cummings (2014) also mentioned late Justin Ellsworth
and stressed that, since he opened an account with Yahoo!, agreed to their ToS
knowing they state that an account is terminated upon its holder’s death and
kept his passwords a secret – it must be presumed that he did not want any-
body, including his father, to access his account, both during his live and after
death.
Other commentators disagree and state that people have always had vari-

ous private items that they did not want anybody to see – letters, diaries, and
photos. If they did not want their heirs to inherit them, they needed to take
appropriate steps to dispose of them. The same should apply to digital assets
– if their owner does not want anybody to have access to them, he/she needs
to destroy them while he/she is still alive, as was always done with such items.
There is no reason that digital assets should receive greater protection in this, in
comparison to tangible assets (Banta, 2014, p. 839; 2016).
Some even state that in case a decedent died without leaving instructions
concerning digital assets, a legal system should consider the interests of heirs
(Darrow/Ferrera, 2007; Banta, 2014). Although succession law usually does
not look to heirs’ wishes and desires, heirs will definitely benefit more from
inheriting digital assets of their loved ones, than ISPs will benefit from keeping
1061
or deleting them. Therefore, heirs desire to preserve should trump ISPs’ desire
to destroy (Banta, 2014, p. 843; 2016, p. 848-853).
However, when it comes to intestate inheritance, it has to be emphasized
that there are no set rules on how digital assets will be inherited for testate
decedents, let alone for intestate ones (McCarthy, 2015). Nonetheless, a person
can at least try to alleviate some of these problems by making plans and stating
his/her intentions concerning digital assets (Truong, 2009). That way, heirs will
at least have a clear picture about what the decedent wanted, regardless of the
fact that, when it comes to digital accounts, under today’s ISPs rules, most wills
would not have much effect concerning access and inheritability. Likewise, wills
will also not influence what happens post mortem to digital content that was
licensed from an ISP.
So why do most people ignore planning for digital inheritance, even if there
are so many advantages to it? Apparently, some people do not want to share
their log-in information, others do not think their digital assets are worth plan-
ning for, some might be overwhelmed by the magnitude of their digital assets
and some just do not want to think about their death (Varnado, 2014).
.. How to plan for digital assets?

Planning for digital inheritance should, at least, include an inventory of
digital assets; information on how to access them (log-ins, passwords, PINs)
and instructions on what is to be done with those assets etc. (Borden, 2014b;
Wilkens, 2011).
By doing an inventory of existing digital assets, a person might be faced with
thousands of accumulated items he/she was not even aware existed. While
making an inventory, a person will likely delete a lot of digital assets that have
no emotional, monetary or any other value (Watkins, 2014). Furthermore,
some assets might surface that their holder does not want anyone (or some per-
sons) to find out about. Therefore, he/she can delete them or take appropriate
measures to hide them.
After an inventory is made, digital assets’ holder has to make sure his/
her heirs can access those assets. As the late Leonard Bernstein’s manuscript
showed, it is important for owners of encrypted digital assets stored on various
devices, to leave heirs their passwords. Otherwise, it is possible that even the
1062
best experts will not be able to break encryptions and those assets will be lost
forever. Of course, when it comes to digital accounts, this is where the issue with
ISPs’ ToS comes to haunt anybody who ever opened such an account and would
want it inherited by his/her heirs. These ToSA forbid any type of account trans-
fer and therefore severely affect freedom of testation and ownership. One of the
ways to tackle this issue is for ISPs to let account holders choose what will hap-
pen to their account and its content, as was done by Google and Facebook who
both provided their clients with such possibilities (Inactive Account Manager
for Gmail and Legacy Contact for Facebook – Brubaker/Callison-Burch, 2016;
Cummings, 2014).
After heirs have been notified about the existence of digital assets, passwords
provided (if needed), there is one more thing left to do: make one’s instructions
about digital assets clear, just like one would do with tangible assets.
.. Making plans in a will

Drafting a will seems like the most obvious choice when planning for what
is to happen to one’s property post mortem. However, many commentators claim
that when it comes to digital assets, wills might not be the most suitable way
(Beyer, 2015; Beyer/Griffin, 2011; Cahn/Beyer, 2013; Eichler, 2016; Hopkins,
2013; Watkins, 2014). The biggest obstacle to wills being convenient for ad-
ministering digital assets is the fact that digital assets constantly change – in
a matter of a couple of days, a person can open and close numerous accounts.
Each time this happened, a will would have to be changed. Our log-in informa-
tion also changes often – we are constantly reminded and encouraged to regu- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
larly change our passwords. On the other hand, wills are strictly formal legal
documents, not suitable to be frequently changed. They have to be composed in
a certain form in order to have legal consequences. Only if a document is made
in a proscribed way, can it be considered a will (Gavella/Belaj, 2008; IA, Art.
30-40). Therefore, since a lot of formalities need to be respected, it is not always
easy and convenient to change a will (Cummings, 2014).
Also, there is another inconvenience when it comes to digital assets and
information pertaining to it put in a will: after a person dies, his/her will is
pronounced publicly during probate proceeding (IA, Art. 204). Therefore, ev-
erything, including log-in information, types of digital assets and instructions
on what is to be done with them, become known to everybody present at the
1063
reading of a will (heirs, judge or public notary, court clerks etc.). For obvious
reasons, most people would not want that. Regardless, wills are still probably
the simplest of ways to manage any property, including digital one. This is espe-
cially the case if a person is making a will anyway, in order to administer his/her
tangibles. Maybe the best solution to bypass above mentioned shortcomings
is, as some commentators suggest, to reference in a will a separate document,
stored elsewhere, containing a list of digital assets, testators wishes on what is
to happen to them with log-in and password information (Bayer/Griffin, 2011;
Watkins, 2014).
The most important reason why a testator would want to plan for his/her
digital inheritance in a separate document is the fact that said document does
not have to meet all of the formalities necessary for a will to be valid. Therefore,
it is much easier to change it. This document would not have to be attached
to a will, it would only need to be referenced in it. It could be stored in a per-
son’s house, safe deposit box, on a computer, flash drive or given to an attorney
(Bayer/Griffin, 2011; Watkins, 2014). Wherever it is stored, it is important for
a person to have constant access to it, in order to update it regularly (Eichler,
2016). While it might be a hindrance to update it on a regular basis, a document
containing a list of digital assets and instructions is easily done and requires no
assistance or special knowledge.
Another possible solution, as some commentators mention, is using an on-
line company. These services list every account, password, security question and
a person can specify what is to happen with each digital asset (Beyer, 2015;
Calem, 2010; Watkins, 2014). However, they are costly and information stored
on their servers are not 100% safe since they could get hacked any time (they
must very tempting to hackers looking for valuable information to sell). One
other problem with these companies is that there are no guarantees on how long
they would exist – they could go bankrupt at any time or be sold to new owners
and as a consequence, information stored there could be lost. They could also
become subject to different terms of services that no longer suit their clients
(Watkins, 2014).
5. CONCLUSION
As this paper has tried to show, types of digital assets vary greatly and most
of their owners and ISPs that control many of them, are not sure where to go
1064
next in terms of their devisability. Owners, at best, want to treat them as tan-
gible property and apply the same rules to them that are applied to the rest of
their assets. At worst, their owners do not even think about them as assets hold-
ing any value that should be passed on to their heirs.
First of all, it seems like the most important thing to do is to make people
aware of the fact that most of us have a lot of these assets and a lot of them have
great emotional and monetary value.
Secondly, is very hard to presume the wishes of the decedent about his/her
digital assets, if he/she died intestate. In that sense, it seems password protected
digital assets should maybe be treated differently than, say, decedent’s clothes,
car or real estate. Therefore, it is crucial to try to awaken the public to how
important stating their intentions on what is to happen to their digital assets
is. The easiest way to plan for any type of inheritance is in a will. However,
because of certain peculiarities of digital assets, it is advisable not to put all the
information about them in a will, but rather in a separate document that is only
referenced in a will.
When it comes to digital assets purchased from an ISP, their “owners” must
be aware that a lot of times they have not purchased digital content, but a li-
cense to access and use it, which expires upon death. Digital assets stored on
ISPs’ servers are an altogether different story: they are subject to their ToS and
most of them do not let account holders transfer their accounts, inter vivios or
mortis causa. ISPs state that their ToSA has to prohibit transferability in order
for them to abide by the law governing the relationship between an ISP and
an account holder. Also, those ISPs are private companies and they have the
right to operate under any rules the law lets them operate under. So, until the
law changes, some other solutions have to be made. Stating directly to an ISP
what an account holder wants to be done with his/her account post mortem
is, as some commentators agree, the best way to resolve this issue. Google and
Facebook have already offered their clients that possibility with much success.
REFERENCES
Arnold, C., Managing Your Digital Afterlife, Scientific American, 9-1-2013;
http://www.scientificamerican.com/article/how-to-manage-your-digital-afterlife/
Banta, N.: Death and Privacy in the Digital Age; North Carolina Law Review, Vol. 94/ 2016
1065
Banta, N., Inherit the Cloud: The Role of Private Contracts in Distributing or Deleting
Digital Assets at Death; Fordham Law Review, Vol. 83/2014
Banta, N.: Property Interests in Digital Assets: The Rise of Digital Feudalism; Cardozo Law
Review, Vol. 38/2017
Beyer, G.W.: Estate planning for digital assets; Estate Planning Studies, January 2015,
https://static.montecito.bank/PDFs/201501051633_Montecito%20Bank%20%20
Trust%20Estate%20Planning%20Studies%20-%20Jan%202015.pdf
Beyer, G.W., Cahn, N.R.: When You Pass on, Don’t Leave the Passwords Behind: Planning
for Digital Assets; Probate & Property, Vol. 26, No. 1/2012
Beyer, G.W.; Griffin, K.M.: Estate Planning for Digital Assets; Estate Planning Develop-
ments For Texas Professionals, April 2011
https://www.researchgate.net/publication/228143280_Estate_Planning_for_Digital_As-
sets
Blachly, V.D.: Uniform Fiduciary Access to Digital Assets Act: What UFADAA Know; Pro-
bate & Property Magazine: Vol. 29, No. 04, 2015
Borden, M.: Covering Your Digital Assets: Why Stored Communications Act Stands in the
Way of Digital Inheritance; Ohio State Law Journal, Vol. 75/2014(a)
Borden, M.: The Day the Music Died: Digital Inheritance and the Music Industry; Enter-
tainment and Sports Lawyer, Vol. 31, No. 2/2014(b)
Brubaker, J.R; Callison-Burch, V: Legacy Contact: Designing and Implementing Post-Mor-
tem Stewardship at Facebook;
http://www.jedbrubaker.com/wp-content/uploads/2008/05/Brubaker-Callison-Burch-
Legacy-CHI2016.pdf
Cahn, N.: Postmortem Life On-line; Probate & Property, Vol. 25, No. 4/2011
Cahn, N.: Probate Law Meets the Digital Age; Vanderbilt Law Review, Vol. 67/2014
Calem, R.E.: What Happens to Your Online Accounts When You Die, Techlicious,
6-29-2010
https://www.techlicious.com/how-to/what-happens-to-your-online-accounts-when-you-
die/
Cummings, R.G.: The Case Against Access to Decedent’ E-mail: Password Protection as an
Exercise of the Right to Destroy; Minnesota Journal of Law, Science and Technology,
Vol. 15, no.2/2014
Darrow J.J.; Ferrera, G.R.: Who Owns a Decedent’s E-mails: Inheritable Probate Assets or
Property of the Network?; Legislation and Public Policy, Vol. 10/2007
Edwards, L., Harbinja, E., Protecting Post-mortem Privacy: Reconsidering the Privacy In-
terests of the Deceased in a Digital World; Cardozo Arts and Entertainment, Vol. 32,
No. 1/2013
Eichler, A.C.: Owning What You Buy: How iTunes Uses Federal Copyright Law to Limit
Inheritability of Content, and the Need to Expand the First Sale Doctrine to Include
Digital Assets; Houston Business and Tax Law Journal, Vol. 16/2016
Gavella, N., Belaj, V., Nasljedno pravo, Narodne novine, Zagreb, 2008
1066
Gavella, N. et al., Stvarno pravo (vol. I), Narodne novine, Zagreb, 2007
Harbinja, E.: Virtual Worlds – a Legal Post-Mortem Account; A Journal of Law; Technol-
ogy & Society, Vol. 11, No. 3/2014(a)
Harbinja, E.: Virtual Worlds Players – Consumers or Citizens; Internet Policy Review, Vol.
3, No. 4/2014(b)
Horton; D.: Tomorrow’s Inheritance: The Frontiers of Estate Planning Formalism; Boston
College Law Review, Vol. 58/2017
Hopkins, J.P.: Afterlife in the Cloud: Managing a Digital Estate; Hastings Science and Tech-
nology Law Journal, Vol. 5, No. 2, 2013
Lopez, A.B.: Death and the Digital Age: The Disposition of Digital Assets; Savannah Law
Review, Vol. 3, No. 1/2016
Klarić, P.; Vedriš, M.: Građansko pravo, Narodne novine, 2014
McCarthy, L.: Digital Assets and Intestacy; Boston University Journal of Science & Technol-
ogy Law, Vol. 21, No. 2/2015
Moncur, W; Waller, A.: Digital Inheritance, 2014, (https://www.researchgate.net/
publication/260301931)
Ronderos, J.: Is Access Enough: Addressing Inheritability of Digital Assets Using the Three-
Tier System Under the Revised Uniform Fiduciary Access to Digital Assets Act;
Transactions: The Tennessee Journal of Business Law, 18/2017
Shaw, J.: Why Big Data is a Big Deal; Harvard Magazine, March-April. 2014
Sherry, K.: What Happens to Our Facebook Accounts When We Die?: Probate Versus
Policy and the Fate of Social-Media Assets Postmortem; Pepperdine Law Review, Vol.
40, No. 1/2012
Tarney, T.G.: A Call for Legislation to Permit the Transfer of Digital Assets at Death; Capi-
tal University Law Review, Vol. 40/2012
Todorova, A.: Identity Theft Can Happen After You Die Too; Fair Credit Reporting Act,
8-6-2009

http://fcralawyer.blogspot.hr/2009/08/identity-theft-can-happen-after-you-die.html
Truong, O.Y.: Virtual Inheritance: Assigning More Virtual Property Rights; Syracuse Sci-
ence & Technology Law Reporter, Vol. 21/2009
Varnado, S.S.: Your Digital Footprint Left Behind at Death: An Illustration of Technology
Leaving the Law Behind; Louisiana Law Review, Vol. 74. No. 3/2014
Walker, M.; Blachly, V.D.: Virtual Assets, 2011;
http://www.nwpgrt.org/wp-content/uploads/2015/10/BlachlyWalker_Article.pdf
Watkins, A.F.: Digital Properties and Death: What Will Your Heirs Have Access to After
You Die?; Buffalo Law Review, Vol. 62/2014
Wilkens, M.: Privacy and Security During Life, Access After Death: Are They Mutually
Exclusive?; Hastings Law Journal, Vol. 62/2011
1067
Legislation
Copyright and Related Rights Act, National Gazette 167/03, 79/07, 80/11, 125/11,
141/13, 127/14, 62/17
Inheritance Act, National Gazette 48/03, 163/03, 35/05, 127/13, 33/15.
Law on Land registry, National gazette, 91/96, 68/98, 137/99, 114/01, 100/04,
107/07,52/08, 126/10, 55/13, 60/13.
Law on Property and Other Property Rights, National Gazette 91/96, 68/98, 137/99,
22/00, 73/00, 129/00, 114/01, 79/06, 141/06, 146/08, 38/09, 153/09, 143/12,
152/14
Internet sources
https://www.amazon.com/gp/help/customer/display.html?nodeId=201380010
&pop-up=1
https://www.apple.com/legal/internet-services/itunes/us/terms.html
https://www.facebook.com/help/1568013990080948
https://support.google.com/accounts/answer/3036546?hl=en
http://www.google.com/intl/en/policies/terms/
https://www.microsoft.com/en-us/servicesagreement/
https://policies.yahoo.com/us/en/yahoo/terms/utos/index.htm
1068
DATA MANAGEMENT AND
KNOWLEDGE MANAGEMENT IN
NOTARY PUBLIC SERVICE
Pavao GAGRO, Ph.D. candidate

Public Notary Ružica Gagro, Notary associate
E-mail: pavao.gagro@gmail.com
Duško LJUŠTINA, Ph.D. candidate

Satiričko kazalište Kerempuh
E-mail: dusko.ljustina@kazalistekerempuh.hr
Ante BARAN, Ph.D. student

Municipality of Lećevica, Mayor
E-mail: ante.baran01@gmail.com
Abstract
The purpose and reason of this paper is to illustrate how the data and knowl-
edge management in the public notary service contributes to its development
and future, as well as to the development of the economy and legal security.
The data on the financial expenses of the Croatian Notaries Chamber for the INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
professional development of public notaries and the computerization of the no-
tary public service clearly shows a constant investment in the development of
knowledge with the aim of ensuring the future of the service and its moderniza-
tion. The statistical data of the Central Bureau of Statistics, over the five years
period, clearly indicate the permanent presence of establishment and deletion
of companies where public notaries play a significant role in the preparation
and drafting of documents that are the basis of the registration and deletion
of companies in the court register, and are also a legal guarantee of the safety
of procedure. This constant, experience, and legal safety assurance argue that
public notaries continue to participate even more in the procedures of found-
ing and all changes taking place in companies. Continuing investments in the
1069
computerization of the notary public service provide a niche for keeping, in
addition to the existing one, and new electronic registers whose keeping requires
data security to be guaranteed. By investing in knowledge and computeriza-
tion, preconditions are ensured for the creation of invaluable capital that would
provide the notary public with competitive advantage over other existing or
future services in terms of retaining the general tasks defined by law, future
Pavao Gagro Duško Ljuština Ante Baran: DATA MANAGEMENT AND KNOWLEDGE MANAGEMENT IN NOTARY PUBLIC SERVICE
entrusted tasks and keeping the registers.

Key words: public notary service, data management, knowledge management,
computerization
JEL Classification: I80, M15
1. INTRODUCTION
In performing their activities, public notaries collect various types of infor-
mation about clients and their legal affairs. Public notaries draw up and issue
public documents on legal transactions, statements, facts, certify private doc-
uments, and, at the clients’ request, safekeeping documents, money and vari-
ous values for their submission to other persons or public bodies, and, when
demanded by courts or other public bodies, other procedures defined by law
(Public Notaries Act, Official Gazette 78/1993, 29/1994, 162/1998, 16/2007
and 75/2009, Article 2). Public notaries maintain the Register of Wills (Croa-
tian Register of Wills), the Register of Debentures and Blank Debentures, the
Register of Advance Directions and Powers of Attorney, and prepare and draft
documents required for the foundation of companies and the making of chang-
es in companies.
Through their extensive service experience (almost 24 years) public nota-
ries have gained a lot of knowledge and they are today in position to use this
knowledge to contribute to the entire social and economic community and to
strengthen the legal certainty. Public notaries (the Croatian Notaries Chamber)
have transformed their knowledge and experience into innovations and they
also transfer their knowledge to each other and to new generations through
the Croatian Notaries Academy. Their knowledge and experience is also in-
volved in building and creating the European Judicial Area. European public
notaries are committed to bring new solutions for everyday life of citizens by
2020, to support the development of business in Europe, to contribute to the
strengthening of cross-border cooperation among public notaries, to contribute
1070
to the efficiency of justice through the notary public act and to support national
administrations. (http://www.hjk.hr/portals/0/Plan_2020_small.pdf, access:
12-03-2018).
When looking at ancient history of the public notary service, it can be con-
cluded that public notaries throughout history have so far played an important
role in maintaining and managing the data contained in their archives. Today,
the public notary service, through modern information technology and its con-
stant development, has unlimited capability for data storage and data manage-
ment. Already in 1996, the public notaries in the Republic of Croatia recognized
the unlimited capabilities of information technology and for the purpose of its
official implementation, made amendments to the Notaries Rules of Procedure
(Amendments to the Notaries Rules of Procedure, Official Gazette 37/1996,
Article 3) that allow the public notaries to keep registers and directories in elec-
tronic form in a unique way for all public notaries. By this a new era of public
notary services in Croatia commenced, i.e. the electronic era.
Owing to the electronization, the ever-growing link between the public no-
taries services within the European Union and the possibility of exchanging
data among public notaries is gradually evolving, for example, ENRWA (The
European Network of Registers of Wills Association) which consists of cross-
national network of national registers of wills of member states.
2. DATA MANAGEMENT

.. New Central Web Application
In doing their job, public notaries in the Republic of Croatia have access to
various types of data pertaining to the personal information about their clients,
legal transactions where their clients are involved, whether or not they are regu-
lated by private or public documents. By 2018, public notaries in the Republic
of Croatia used two certified Notaio and Notar AB software in their work. Both
of these programs functioned as a clients’ server application that was physically
installed at all public notary offices on a server computer to which workstations
were connected. Each public notary office had a contract on the maintenance of
software and infrastructure with the companies that created the programmes.
Since 1 January 2018 all public notary offices have been connected to the central
information system of the Croatian Notaries Chamber through the new central
1071
web application e-Notar. The properties of the new e-Notar application include
the following:
• It is a central application
• e-archive module is envisaged
• Link with external databases of other state bodies
• Data and application security is based on their location on two data centres
• Central backup
• Safe access through VPN, HTTPS, and double authentication through
the username, password and Google Authenticator (TOTP).
The system itself is characterized by the security of stored data, protection
against unauthorized access to the application itself and registers, lower mainte-
nance costs, unified application, data availability and information from its own
database or external databases with the ability to link to additional external
databases, simple upgrade options and automated collecting statistical data.
In order to prove the security of the new central application, in 2018 the
Croatian Notaries Chamber will launch the certification process of the applica-
tion in accordance with the international standard ISO 27001, which describes
how to manage the information security and is the most popular information
security standard.
.. Link of Public Notaries with the State Administration

Bodies
Through the central application - e-Notar public notaries have the possibil-
ity, and based on the signed Protocol between the Croatian Notaries Cham-
ber and the Ministry of Finance - Tax Administration, they are authorized to
download information from the OIB (PIN) Records kept by the Ministry of
Finance - Tax Administration.
In cooperation of the Ministry of Justice and the Ministry of the Interior,
the Croatian Notaries Chamber of Commerce has conducted a procedure for
connecting the public notary offices with the database of the Ministry of the
Interior, and consequently, public the notaries have access to data on residence
and address of citizens, records of ID cards and travel documents. Access to
the above mentioned records is provided for the purpose of implementing the
1072
Amendments to the Execution Act, which entered into force on 1 September
2014. For this purpose, public notary offices are connected to the court e-no-
ticeboards to enable the delivery of written communications.
By the new application, public notary offices are linked with tax administra-
tions and the Ministry of Construction and Physical Planning for the purpose
of delivering scanned documents.
Public notary is obliged, upon verification of the signatures on documents
of the sale or other means of disposal of a real estate or upon drafting a notarial
act, and not later than 30 days, to submit one copy of the document, as well as
any other documents concerning the real estate transaction (contract on the
partnership, contract of establishing the right to build etc.), with information
on the personal identification numbers of the participants in the procedure, to
the Tax Administration Office in the area where the property is located, by elec-
tronic means (the Real Estate Transfer Tax Act, Official Gazette 115/2016, Ar-
ticle 18, paragraph 1). The quoted provision of the Real Property Transfer Tax
Act came into force on the same date as the Act itself, i.e. on 1 January 2017 and
since then any of the submitted documents by the public notary to the Tax Of-
fice under which the real estate transfer is made represents a tax return for the
real estate transfer (e-tax declaration). Inclusion of the public notary service in
such a process of automation of filing of real estate sale tax, requires to consider
the most stringent (notarial deed) of contractual form related to disposal of the
real estate (purchase/sale, lease, rent, pledge ...), all to ensure legal certainty and
protect the interests of the parties.

By using the Organized Land (Uređena zemlja) programme, public notaries
can submit electronic proposals for entry in land registers and issue excerpts
from land registers. The possibility of filing electronic proposals for registration
and the above-mentioned e-tax returns is another additional reason for the legal
regulation of the most stringent form (notarial act) of contracts relating to the
disposal of real estate (purchase, lease, rent, pledge ...) and even consideration
of the possibility of granting public notaries the direct entry in the land register,
which would further speed up the registration process without filing an elec-
tronic proposal for entry in the land register.
Based on the Agreement signed with the Ministry of Entrepreneurship and
Crafts, public notaries have access to the data in the Craft Register.
1073
Public notaries may submit in electronic form the applications for regis-
tration of the establishment of companies (only simple private limited liabil-
ity company (j.d.o.o.) and limited liability company (d.o.o). By adopting the
Companies Act, which entered into force on 1 January 1995, the security of
the founding of companies (legal security) was also to be ensured. The assur-
ance of such security has been recognized in the newly established public notary
service, and since that time until now, it has played an important role in har-
monisation of earlier forms of legal entities with the new Companies Act, and
in foundation and changes in existing companies. In 2008, a pilot project for
electronic foundations of companies was launched, enabling (E-tvrtka) today
to provide a much faster way to establish a simple limited liability company and
limited liability company within 24 hours. Despite the fact that the public no-
tary service has given a huge contribution to the harmonization, establishment
and implementation of changes in the companies, the upcoming legal changes
from the very beginning of the application of the new Companies Act announce
the exclusion of public notaries from the process of establishing companies
from remote location. Statistical data of the Central Bureau of Statistics, over
a period of five years, clearly indicate the permanent presence of establishment
and deletion of companies where public notaries play a significant role in the
preparation and drafting acts that are the basis of registration and deletion of
companies in the court register and they also were guarantors of legal security
of the procedure. The obvious continuity of the cycle of founding and delet-
ing companies, the experience and the legal security assurance are arguments
that public notaries participate even more in the procedures of founding and all
changes taking place in companies. As public notaries are connected through
this programme with of the Ministry of the Interior’s database and the records
ID cards and travel documents, they can play a significant role in preventing
identity theft and thus the theft of companies and abusing them, which is not
a rare case.
1074
Table 1 Number of established and deleted companies in the period 2013
– 2017
Year 2013 2014 2015 2016 2017
Number of established companies 14,177 13,852 12,429 13,450 14,882
Number of deleted companies 29,276 317 285 345 16,820
Source: Author’s calculation based on the information of the Central Bureau of Statistics
the about the number and structure of business entities in December 2014 – 2017
(https://www.dzs.hr/)
Graph 1 B Number of established and deleted companies in the period 2013

– 2017
ϯϱϬϬϬ
ϯϬϬϬϬ
ϮϱϬϬϬ
ϮϬϬϬϬ
ϭϱϬϬϬ
ϭϬϬϬϬ
ϱϬϬϬ
Ϭ
ϮϬϭϯ ϮϬϭϰ ϮϬϭϱ ϮϬϭϲ ϮϬϭϳ
KƐŶŽǀĂŶĂƚƌŐŽǀĂēŬĂĚƌƵƓƚǀĂ ƌŝƐĂŶĂƚƌŐŽǀĂēŬĂĚƌƵƓƚǀĂ
Source: Author based on the information of the Central Bureau of Statistics the about the
number and structure of business entities in December 2014 – 2017 (https://www.dzs.hr/)
Table 1 and Graph 1 show the number of established and deleted companies
in the period 2013 – 2017. The continuity in the number of established and

deleted companies in the Republic of Croatia over the five year period is shown.
Significant deviations in the deletion of companies compared to other years are
noticed in 2013 and 2017, as a result of the deletion of companies ex officio by
the competent commercial courts. The court of registration performs ex officio
the procedure of deleting the subject of registration: if it has no assets or if it is
of insignificant value; if it fails to comply with the regulations to be harmonized
with in the defined time; if does not submit the annual financial statements
with prescribed documentation for three years in a row and if it is also not done
by a foreign founder of the subsidiary, (Court Register Act, Official Gazette
1/1995, 57/1996, 1/1998, 30/1999, 45 / 1999, 54/2005, 40/2007, 91/2010,
90/2011, 148/2013, 93/2014 and 110/2015, Article 70)
1075
With regard to the presented possibilities of linking public notaries to ex-
ternal databases (public registers), it can be said that notaries have different
functions in relation to these registers. First, their editorial-certification func-
tion is reflected in all those cases where such documents are the basis for the
registration of any right or fact (for example, registration of a pledge as agreed in
the notarial act, entry of changes in share capital on the basis of the decision of
the General Assembly of limited liability company/ d.d.). Their commissioner’s

function comes to light in those cases in which a notary directly communicates
with the register, initiates change or changes data in the register (e.g. HUO,
court register, insurance register). Finally, the notarial protocol-certification
and conciliatory function becomes apparent when inspecting, possible issuing
excerpts or verifying the facts recorded in the register (e.g. validating the autho-
rization to represent, issuing the excerpt from the EOP land register) (Ernst &
Josipović, 2009, 1118).
.. Central Information System of the Croatian Notaries

Chamber
The central information system of the Croatian Notaries Chamber consists
of the Central application for notaries business (e-Notar), the Central records
system, the Central system for the management of notarial documents and the
Central electronic data exchange system with the state administration bodies.
2.3.1. The Central Application for Notaries Business (e-Notar)

The central application (e-Notar) is intended for the business of notaries
and by using it notaries conduct make entries in various types of registers (OV
register, OU register, OVR register, deposit book, UPP register, IR register),
consists of directories, client databases and finance. The central application is
linked to the Central records system, the Central system for the management of
notarial documents and the Central electronic data exchange system with the
state administration bodies.
2.3.2. The Central Records System

The Central records system consists of the Croatian will register (HUO),
the Croatian debenture register (HRZ), the Register of advance directives and
1076
powers of attorney, and the Execution register, which is currently in the prepa-
ratory stage.
2.3.2.1. The Croatian Will Register (HUO)

The Croatian will register is kept in electronic form by the Croatian Nota-
ries Chamber and the Ordinance on the Croatian will register (Official Gazette
135/2003, 164/2004) defines the contents of the Croatian will register and
the manner in which it is maintained. The Croatian will register serves to re-
cord private and public wills and giving information for the needs of inheritance
procedures whether the deceased has left the will and where the will is kept,
thus recording the fact of the existence of the will, storage and its proclamation.
Information about a will in HUO is provided by notaries, attorneys, municipal
courts, diplomatic and consular missions and persons who made the will. Data
in HUO cannot be accessed by anyone until the testator’s death, except the
testator himself/herself or by a person specially authorized by the testator. As
stated, only the fact of the existence of a will and where the will is kept (safe-
guarded) is entered in in the HUO; however, the very content of the will cannot
be stored. Based on the Report on work of the Croatian Notaries Chamber in
the period from 2013 to 2017, Table 2 shows the annual number of entries in
the Croatian will register, the number of proclaimed wills and the number of
queries. From the above data it can be concluded that there is a trend of increas-
ing the number of entries and continuity in the number of proclaimed wills and
the number of queries in the register.
Table 2. Information on number of entries in HUO, proclaimed wills, number INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
of inquiries in HUO for the period from 2013 to 2015
Year 2013 2014 2015 2016 2017
Number of entries HUO in 2254 2536 2732 2816 2864
Number of proclaimed wills 2397 2523 3030 2593 2616
Queries in HUO 45254 53575 54408 51595 53795
Source: Author, based on work of the Croatian Notaries Chamber in the period 2013 to
2017, http://www.hjk.hr/Interne-stranice-HjkHr.
1077
Diagram 2. Linear overview of the number of entries into HOU and the num-
ber of proclaimed wills in the period 2013 – 2017
ϯϱϬϬ
ϯϬϬϬ
ϮϱϬϬ
ϮϬϬϬ
ϭϱϬϬ
ϭϬϬϬ
ϱϬϬ
Ϭ
ϮϬϭϯ͘ ϮϬϭϰ͘ ϮϬϭϱ͘ ϮϬϭϲ͘ ϮϬϭϳ͘
Entries into HUO

hƉŝƐŝƵ,hK Proclaimed wills
WƌŽŐůĂƓĞŶĞŽƉŽƌƵŬĞ Linear (Entries into HUO)
>ŝŶĞĂƌ;hƉŝƐŝƵ,hKͿ
Since the notaries service plans to create e-Arhiv (Archive) in foreseeable fu-
ture, there is no reason that the Croatian will register is not upgraded in such a
way as to allow the electronic deposition of the will itself. The advantage of such
electronic storage is the protection of the testator’s last will against its physical
destruction due to external unpredictable impacts at the place where the will
is “kept” (flood, fire ...). In addition to public wills, personal wills could be also
converted into electronic form, of course, provided they retain their meaning
and essence also in electronic form. The private wills are those wills written and
signed personally by the testator and the wills written in the presence of wit-
nesses, whereby the testator declared in front of two witnesses simultaneously
present that was his/her will and signed it jointly with the witnesses.
Data to the HUO are submitted electronically, and persons submitting them
are required to provide technical conditions for data transfer.
The European Network of Registers of Wills Association (ENRWA) is
gradually linking the national will registers where the Croatian Notaries Cham-
ber has the role of observer for now. (http://www.arert.eu/Members.html, ac-
cessed on: 15 March 2018).
2.3.2.2. The Croatian Register of Debentures (HRZ)

The Croatian register of debentures and blank debentures is kept by the
Croatian notaries Chamber and it is an electronic database of persons who is-
sued a debenture or a blank debenture, information on the type of debenture,
1078
in favour of whom it has been issued, whether the security for obligation from a
debenture or a blank debenture has been taken over and who did it, the amount
of the claim for which it was issued, i.e. the highest amount that can be entered
in it, the data about the public notary who certified the debenture, business
number of the certificate and the date (Ordinance on the Register of debentures
and blank debentures, Official Gazette 115/2012 , 125/2014, Article 1).
After solemnization of a debenture or a blank debenture, the public notary
shall be obliged to enter the debenture data electronically without any delay,
in the Croatian register of debentures. The Register is intended for preventing
misuse and forgery of debentures aimed to obtain unlawful material gain. A
creditor who was not been able to collect debt from a debtor after the due date
of the debenture, submits the debenture to the Financial Agency that collects
the debenture only if it is registered in the Croatian debenture register and if it
corresponds to the data provided in the HRZ.
Based on the Report on work of the Croatian Notaries Chamber in the pe-
riod from 2015 to 2017, Table 3 shows the total annual number of entered
debentures, the number of entered blank debentures and the total number of
entered debentures. The table shows the continuity of the number of entries
in the HRZ, and it is also obvious that debenture is used more often than the
blank debenture as a means of security of claims in the Republic of Croatia.
Table 3. Information about the number of entered debentures and blank de-
bentures in the period 2015 – 2017

Year 2015 2016 2017
Debentures 312004 341024 324036
Blank debentures 202862 191990 183501
Total: 514866 533014 507537
2.3.2.3. Register of Advance Directives and Powers of Attorney

Each subject may authorize only one person who accepts it as a confiden-
tial person (lasting powers of attorney, to give or refuse instead of the subject,
and after all legal requirements have been met, the consent to certain medical
procedures, prescribed by this Act (the Act on the Protection of Persons with
1079
Mental Disorders, Official Gazette, 76/2014, Article 68). The Ordinance on
the manner of keeping records on binding statements, the manner of storing,
safeguarding and exercising the right of access to the data from binding state-
ments (Official Gazette 16/2015) prescribes the manner of keeping records of
binding statements, how they are stored, preserved and how the right to access
the information from the register is exercised. Pursuant to Article 2 of this Or-
dinance, the Register of binding statements is kept by the Croatian Notaries

Chamber through the entry in the Register of advance directives and powers
of attorney in electronic form. Binding statements are stored and kept so that
notaries submit notarial act with binding statements or their revocation in elec-
tronic form is delivered to the Register Archives (scanned documents) while the
original remains in the notarial archive. Only the Croatian Notaries Chamber
and notaries are allowed to enter data in the Register of anticipate directions
and power of attorneys, whereas the right of access to the Register is granted to
municipal courts, social welfare centres, doctors and legal representatives.
Ordinance on the manner of keeping records on binding statements, the
manner of storing, retaining and exercising the right of access to data from
binding statements, on 18 February 2017, the Governing Board of the Croatian
Notaries Chamber, with the approval of the Minister of Justice, issued Decision
on the Establishment of the Register of Advance directives and Powers of At-
torney in Electronic Format (Official Gazette 20/2017). Article 1, paragraph 3
of the said Decision states that the Register is managed by means of informa-
tion technology that provides the access protection and data loss protection,
whereby personal data protection is guaranteed.
.... Execution Register (e-ovrha)

Electronic execution on the basis of a credible document or an e-payment
order is a project advocated by the Croatian Notaries Chamber in accordance
with the procedures being implemented in Hungary. Since 2006 public notaries
have been responsible for issuing execution order on a credible basis, and over
a period of almost 12 years the Public Notaries Service has gained a broad of
experience in conducting such enforcement proceedings. It is this experience on
which the Croatian Notaries Chamber builds its innovative solution of elec-
tronic execution presented herein and advocates before the competent authori-
ties, primarily the Ministry of Justice. The advantages of electronic execution
1080
compared to the current solution are reflected in the reduction of the proceed-
ings costs, better communication between the parties (creditor and debtor) and
the notary public responsible to conduct proceedings, access to the file, creation
of a register of final and enforceable decisions and faster enforcement of the
procedure itself.
The new HJK central information system has been created in such a way as
to provide an easy way to upgrading the application for operation and creating
the Register of final and enforceable decisions.
2.3.3. Central system for the Management of Notaries Document

The Central System for the Management of Notarial Documents would be
the central place for storing the notarial documents (e-Arhiv). Documents in
the default format would be exported into it, with the possibility of electronic
searching signed archived documents. With the introduction of e-Arhiv, the
notaries would be largely relieved of the obligation to maintain archives and
care about archival materials, facilitate and speed up the keeping and searching
the archives (files), and to simplify and speed up the overall activity of public
notaries to a large extent.
2.3.4. The Central Electronic Data Exchange System with the State
Administration Bodies
The idea is to connect the central system with state administration bodies
through the central electronic data exchange system. At present, the system is
linked through the central application with the tax administration for the pur-
pose of sending e-tax tax declaration for real estate transactions. In the future,
it is planned to link the system to the Court Register of Commercial courts
for sending e-registrations of founding and changes in companies and to the
Land Register tribunals for sending e-proposals for registration of real property
rights.
Currently, notaries submit e-applications on foundation of companies (lim-
ited liability companies/ d.o.o. and public limited liability companies/j.d.o.o.)
through the application of e-Tvrtka HITRO.HR, and registration of owner-
ship rights and issuance of land registry excerpts is done through an application
within the Joint information system of land registers and cadastre (ZIS). With
1081
respect to companies and land registers, notaries can, through the new informa-
tion system, simplify and speed up the process of registration of real property
rights, foundations and changes in companies through obtaining authorization
for direct registration in land registers and court registers.
.. Information Systems of the Public Notary Services of

the European Union
In general, Austria is the leading member of the European Union in terms
of electronic communications owing to abundant experience in use of electronic
communications. Electronic communication of citizens with courts through a
closed network started in 1989 (Maganić, 2013, 389).
Since 2000 the electronic archive cyberDOC has replaced the public nota-
ries’ archives. By means of cyberDOC, public notaries have become partners
with the state because it has also created a platform for e-government. In this
way, with the help of innovation and knowledge, public notaries promoted their
service and strengthened their position and importance in the Austrian econ-
omy. The goal was to establish a central electronic archive of all documents,
quick access to data, their permanent retention and security. Each prepared
notarial act is forwarded to cyberDOC, ensuring its confidentiality and data
protection, enabling the transfer of acts through a direct link with the public
administration, thus simplifying the procedures for establishing companies and
transferring real estate (Hrvatska javnobilježnička komora /Croatian Chamber
of Notaries, Notaries of Europe, 10)
Since 1997 the Hungarian Chamber of National Public Notaries has main-
tained an electronic register of movable property and securities, under which
loans are granted, the reliability of clients is verified and legal certainty to credi-
tors is provided. Since 1 July 2007 Hungarian public notaries have forwarded
notarial documents to the Digital Notaries Archive. Documents from the
Digital Notaries Archive have the status of an electronic notarial public signed
by a verified electronic signature of a public notary (Hrvatska javnobilježnička
komora /Croatian Chamber of Notaries, Notaries of Europe, 10, 24). The
Hungarian Chamber of Notaries is responsible for issuance of e-enforcements
for payment orders. All legal entities are legally obliged to submit requests for
issuance of an e-payment order in the value up to EUR 3,000.00 to the central
Chamber’s system using electronic signature. Such submitted requests are ran-
1082
domly assigned to public notaries to ensure the keeping up-to-date of the proce-
dure and the equitable distribution of tasks. (https://pravosudje.gov.hr/vijesti/
posjet-madarskoj-javnobiljeznickoj-komori/13646, accessed on: 06-04-2018).
In Germany, the Federal Chamber of Notaries built in 1992 the foundations
of electronic transactions by the Electronic Legal Transactions project. In 2000
the Federal Chamber of Commerce was granted an approval for issuance of
certificates of qualified (verified) electronic signature. The Chamber also estab-
lished a closed notaries’ network (Notarnetz) that secures Internet communica-
tion between participants (notaries) and thus promotes notaries business. The
Central Registry of Custody was established in 2003 to simplify the procedure
of appointing guardians by appointing trustees in advance according to their
own choice. (Maganić, 2013, 386-389).
Throughout Europe, public notaries are testing the computerized exchange
of sales contracts with the competent administration. In Italy, public notaries
carry out a unique procedure - owing to the UNIMOD software – for registra-
tion of sales contracts in the public register and payments of taxes to the state.
In France, the Télé @ ctes computer software connects public notaries with the
mortgage register department, which manages the public property catalogue
of land and collects taxes related to the real estate transactions. Public nota-
ries must therefore enter the sales contracts they made and pay the appropriate
fees. They also inspect the catalogue when preparing sales contracts. By Télé@
ctes these formalities and insight are computerized. The main advantage of this
programme is considerable time savings. A similar system was adopted in the

Netherlands. In Spain and Estonia, public notaries have a common telematic
platform that allows them to exchange online electronic copies of notarial acts
and complete almost the whole process of buying and selling real estate via the
Internet (Hrvatska javnobilježnička komora /Croatian Chamber of Notaries,
Notaries of Europe, 32).
Based on good practice applied in the public notary service within the Euro-
pean Union, the Croatian Chamber of Notaries acquires knowledge of informa-
tion solutions and ideas, supplements and adjusts them to local opportunities.
1083
3. KNOWLEDGE MANAGEMENT
Knowledge is defined in various ways:
• Facts, information and skills acquired by a person through experience or
education; theoretical or practical understanding of a subject,
• Totality of everything known in any field; facts and information,
• Awareness or familiarity gained by the experience of a particular fact or

situation (https://hr.wikipedia.org/wiki/Learning, accessed on: 19-03-
2018). (https://hr.wikipedia.org/wiki/Znanje, accessed on: 19-03-2018).
Today, when all forms of technology are easily accessible and more afford-
able, market competition depends only on the knowledge and investments in
knowledge. Public notaries in its service use computer technology almost from
the very beginning, but the first certified electronic (computer) software ap-
peared only in 2006. Until then each public notary had its unofficial database
and the organization of electronic storage of templates and drawn up notarial
acts. Activities are underway on the creation of a more contemporary single
(unified) application for public notaries, which is certainly a result of knowl-
edge management, i.e. through interdisciplinary management of knowledge in
the field of law, economics and information. In the age of globalization, knowl-
edge is above capital and labour and we are in a new era of economics based
on intangible assets. The new e-Notar application represents the non-tangible
capital and intellectual property of the Croatian Notaries Chamber, to which
the Chamber has copyright from now on. The Croatian Notaries Chamber did
not hold copyright on earlier applications Notaio and NotarAB and was de-
pendent on IT companies. By investing in knowledge (technology), the existing
server-client application has been replaced by a new central web application that
requires less maintenance costs and a simpler maintenance at the level of the
Chamber and backups located at the Chamber. Data security is additionally
enhanced by VPN and dual authentication. The e-Notar application is based
on the European and national strategic context. The e-Croatia 2020 Strategy
has determined the development of computerization and e-services in the pub-
lic sector and development goals, all in line with the Digital Agenda for Europe
(DAE). The e-Notary application allows easy linking to the systems of govern-
ment bodies, and one of the main goals of the e-Croatia 2020 Strategy and the
Digital Agenda for Europe is the interconnection of information systems of
public administration bodies for the purpose of providing e-services and ac-
1084
celerating all procedures and general citizens’ satisfaction. The e-Notary appli-
cation was developed in accordance with the General Data Protection Regu-
lation (EU Regulation 2016/679, EU Directive 2016/1148 of the European
Parliament and Council of 6 July 2016 on measures to establish a high level of
network and information security throughout the Union). Through the new
application, the Croatian Notaries Chamber provided a basis for information
upgrade and the future of the notary service business, which will inevitably be
dependent on digital communication and the digital market.
In the new central application for public notaries work contains knowledge
based on experience and long-standing practice of collecting data from all pub-
lic notaries. The new application is “alive” and new acquired knowledge of the
service is constantly being embedded in it so that it is changed and improved on
the initiative of public notaries and their needs arising from the practice.
The knowledge management of good quality requires continuous learning
and innovation, and integration and synergy between human and social capital,
organizational culture, business processes and information technology tools.
Knowledge management does not mean just creating, sharing and applying
knowledge, but above all creating the conditions for it to happen, i.e. changing
the overall organizational structure, culture and strategy (Bahtijarević-Šiber,
2014, page 231).
The knowledge management process consists of acquisition, preservation,
transfer and use of knowledge.
The knowledge management process itself is defined in the literature in vari-
ous ways, such as: INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
• The process of utilizing the power of collective knowledge in an organiza-

tion that has the purpose of supporting the organization’s efforts in carry-
ing out its activities and meeting the set goals.
• The process that involves linking already existing knowledge in an organi-
zation with newly discovered knowledge.
• The collection of processes of gathering, sharing, organizing, finding and
using knowledge independently the form it occurs.
• Problem-solving process using knowledge base, knowledge sharing, col-
laboration, and multiple use of knowledge (Panian, 2013, page 44-45).
1085
.. Knowledge Acquisition
When it comes to knowledge, it should be said that in order to maintain
the competitiveness of an individual, company or institution must be subject to
constant quality upgrade. Knowledge is gained through education of employees
(lifelong training and learning), buying a share in a company or whole company
(acquisition), creating special research development teams characterized by cre-

ativity and inventiveness, bringing together people with different knowledge and
rich experiences results in creative solutions, adaptation focused on the infra-
structure ability to perform a job in other way and the readiness to continuing
changes, networking knowledge within organization and among organizations
for the purpose to exchange data, information, knowledge and problem solv-
ing. (http://www.skladistenje.com/wp-content/uploads/2013/06/KM.pdf,
accessed on: 19March 2018).
An example of networking knowledge is the European Network of Regis-
ters of Wills Association (ENRWA), which consists of cross-linked national
will registers for the purpose of contributing to cross-border inheritance. The
Council of Notaries of the European Union (CNUE) is an organization found-
ed in 1993 which is a notary office of the Latin type of notary, and the role of
the Council is to promote the interests of the public notary services in the Eu-
ropean Union bodies when adopting legislative acts.
The projects on which the Council of Notaries of the European Union
(CNUE) is focused on is the management of databases and their networking,
such as an internet platform that enables notaries to connect with the aim of fa-
cilitating the provision of services in cross-border European Notarial Network
(ENN), project Successions in Europe provides information on the competent
bodies for the enforcement of the inheritance procedure, the applicable law in
inheritance cases with a cross-border element, national arrangements for legal
inheritance, and the disposition by will. The project Vulnerable Adults in Eu-
rope provides answers to questions about the design of advance powers of attor-
ney, the choice of a lawyer in case of loss of ability to work and the public bodies
responsible for determining a guardian. The EUFides platform allows linking
and contacting notaries in cross-border cases related to real estate transactions.
The project Couples in Europe is intended to determine the applicable law in
family law cases with an international character, the possibility of choosing the
applicable law, contractual arrangement of property rights relations between
1086
spouses and related subjects. The European Directory of Notaries allows the
search of notaries in countries whose notaries service is a member of the CNUE.
The project Buying property in Europe gives answers to questions about the law
in real estate business and formalities when transferring real property rights.
Since 1998, the initiative of the notaries of six countries (Austria, the Czech
Republic, Hungary, the Republic of Croatia, Slovakia and Slovenia) there has
been an informal initiative of the Hexagonale since 1998 within CNUE, where
public notaries through cooperation analyze and take common positions on rel-
evant topics within CNUE (http://www.hjk.hr/O-Komori/Mediculturalism,
accessed on: 19 March 2018).
.. Knowledge Storage

The media for storage included human memory, lectures - documents,
books, portals, multimedia-USB, CD and human memory - experience. The
knowledge transfer media are body language, reading, listening, speaking, print-
ing, networking, and collaboration (Bahtijarević-Šiber, 2014, p. 250). Regard-
less of the advances in technology that enabled huge amounts of knowledge to
be stored through a variety of media, the human brain is still the most sophis-
ticated storage media, because it does not need assistance in the previous pro-
cessing of knowledge, classification, and no additional search engines for stored
knowledge, it itself works perfectly and stores explicit and tacit knowledge.
Public notary archive material is a precious source of knowledge and histori-

cal material in the area of his/her competence, as well as onomastics.
Establishing the E-Notary Archive would create a new source of knowledge
whose information would be available only to persons having authorized access
rights (access could be limited only to public notaries or extended to other state
institutions). Documents stored in electronic form can be important historical
written sources in the future that will not be influenced by the course of time in the
form of damage due to paper deterioration due to exposure to climatic conditions.
.. Knowledge Transfer

Transferring knowledge is the most important segment of knowledge man-
agement, because by transferring knowledge new knowledge is gained and
1087
existing knowledge is extended. The three most common obstacles to knowl-
edge sharing are time distances, physical and spatial distances and social one
(Bahtijarević-Šiber, 2014, p. 263). For transferring knowledge, the skill how to
convey it is also needed beside the knowledge. Conversion from tacit to explic-
it knowledge means finding ways to express what is beyond words (Nonaka,
1991, p. 99).
The most important element of knowledge transfer is a willing element,

there should be the willingness of the knowledge provider to transfer the same
knowledge to the acquirer of knowledge (knowledge sharing culture). The most
efficient way of transferring knowledge is the direct transfer of knowledge from
the transferor to the acquirer, but if the transferor and the acquirer are in differ-
ent ways distant from each other (mostly geographically), then the knowledge
collecting - and - sharing based systems are used for the transfer of knowledge).
The transfer of knowledge among members of the Croatian Notaries Chamber
(public notaries) is a key factor for the future of the service because the service
(Chamber) is not made of an individual but it is made up of all notaries in the
Republic of Croatia.
For the purpose of transferring the knowledge and training of its members,
the Croatian Notaries Chamber on 17 May 2008 issued a Decision on the Es-
tablishment of the Croatian Notaries Academy (HJA). According to the Rule-
book on the work of the Croatian Notaries Academy, its tasks include: care of
professional training of Chamber members; development of scientific concepts
for professional and educational conferences and seminars; monitoring legal
policy and development of law, especially in the traditional areas of notaries’
work at national and European level; participation in drafting expert opinions
and guidelines in relation to legal proposals and preparation of circular propos-
als; organization of seminars for the taking the judicial and notarial exam; pro-
fessional training of other employees in the public notary offices; cooperation
with universities, colleges and other professional organizations in the country
and abroad; encouraging foreign language learning and development; care of
permanent professional enhancement of public notaries, notaries’ associates,
counsellors, trainees and other employees in the notaries’ offices; organizing and
developing various forms of professional and scientific training, independently
or in cooperation with the courts, administrative bodies, faculties, lawyers’ asso-
ciations and foreign notaries associations and chambers; publishing; organizing
various forms of IT education (Ruždjak (ur.), 2016, page 265).
1088
Article 20 of the Rulebook on the work of the Croatian Notarial Academy
defines the competence of the Academy to organize and supervise the imple-
mentation of e-public notarial practice. One of the projects of the Croatian No-
taries Academy is creation of the notarial practice that can be posted on a closed
site of the Croatian Notaries Chamber and available through the new e-Notar
application. This collection would, in addition to the notaries practice, contain
all the conclusions and minutes of the Chamber’s decisions. As shown in Table
4 and Graph 3, the Croatian Notaries Chamber continuously allocates funds
for the work of the Croatian Notaries Academy and computerization through
the four-year period, which is a clear sign of awareness of the importance of
investing in knowledge and technology.
Table 4. Budget funds of the Croatian Notaries Chamber allocated for the
Croatian Notaries Academy and computerization for the period 2015
– 2018
Year 2015 2016 2017 2018
HJA kn 650,000.00 kn 600,000.00 kn 600,000.00 kn 720,000.00
Computerization kn 400,000.00 kn 540.000.00 kn 700,000.00 kn 275,000.00
Source: Author based on information from the Minutes of the 20, 21 and 22 regular general
meetings of the Croatian Notaries Chamber, http://www.hjk.hr/Interne-stranice-
HjkHr .
Graph 3. Budget funds of the Croatian Notaries Chamber allocated for the
Croatian Notaries Academy and computerization for the period
2015 – 2018
ϴϬϬϬϬϬ INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
ϲϬϬϬϬϬ
<ƵŶĂ
ϰϬϬϬϬϬ
ϮϬϬϬϬϬ
Ϭ
ϮϬϭϱ ϮϬϭϲ ϮϬϭϳ ϮϬϭϴ
,: /ŶĨŽƌŵĂƚŝǌĂĐŝũĂ
Source: Author based on information from the Minutes of the 20, 21 and 22 regular general
meetings of the Croatian Notaries Chamber, http://www.hjk.hr/Interne-stranice-
HjkHr .
1089
.. Knowledge Use
The use and application of knowledge in the notarial service plays a major
role in self-promotion, development, maintenance of service and expansion of
its activities. Each notary should be a knowledge worker, because the future of
the service is ensured in this way.
Knowledge workers use their intellect to transform new ideas into new prod-
ucts, services, processes, and solutions and enhancements. Their greatest value
relates to their ability to collect and analyze relevant information and to make
decisions for the benefit of the organization they work in. Knowledge workers
are often defined as a group of different professions or professions that are most
often related to information technology or some other high technology, however,
it does not have to be a condition. The professions that are mentioned in the lit-
erature in the context of knowledge workers are: scientists, engineers, computer
scientists, professors, psychologists, lawyers, doctors, bankers, accountants and
physicists ... they secure their position through their formal education. They
daily use knowledge in their work to create new knowledge and thus become
the generators of improvement and development. They become the foundation
of society, and the society in which they operate is called the knowledge society
(Bakotić, 2012, pp. 145-147). Knowledge workers represent human capital that
is inspired by the individual through his innovations, creativity, ambition, en-
thusiasm, focus on achieving goals, responsibility, rationality and self-initiative.
Public notaries in the Republic of Croatia are people with great legal experience
and potential, and based on acquired knowledge, improvement and acquisition
of new knowledge, are able to improve the notaries service, strengthen its posi-
tion and contribute to the general public interest.
Users of notarial services can recognize the notarial service as a resource of
knowledge used for the purposes of legal security of all transactions they make
either privately or for business purposes. This is meant to recognize the advan-
tages provided by notarial documents and notarial securities, which are public
and enforceable documents that permit immediate execution.
Basic shortcomings refer to insufficient promotion of the public notary ser-
vice and lack of recognition of its potentials. By investments in informatiza-
tion and through possessing vast knowledge and experience, the public notary
service has the opportunity to make even greater contribution to legal certainty
and public interest. In cooperation with the Ministry of Justice and through the
1090
long-awaited amendments to the Public Notary Act, the public notary service
has the opportunity to demonstrate its full potential through the extension of
its powers. Regarding the companies, the current solution covers the establish-
ment of companies (limited liability company/ d.o.o. and a simple limited li-
ability company j.d.o.o.) through the application e-Company HITRO.HR -
service of the Government of the Republic of Croatia (http://www.hitro.hr/
Default.aspx?sec= 72, accessed on: 06-04-2018). The problem of such a solu-
tion is that it allows public notaries only to establish a limited liability company
and a simple limited liability company with no possibility to make changes in
an already existing company through the application. Furthermore, there is a
problem in the speed of establishment. Even though it is an electronic proce-
dure, the registration of the company in the court registry is not immediate
but the registration is done within 24 hours, and all documents sent electroni-
cally to the court must be delivered to the court in paper form, and notaries
are now only intermediaries between the parties and the court, while the reg-
istration is done by the competent commercial court. In order for a registered
company to start doing business, another few days are needed to enter it in
the court register (delivery of a decision on registration in the court register,
stamp making, obtaining a statistical number, opening an account with a bank
...). Connecting the central information system of the Croatian Chamber of
Notaries (the central electronic data exchange system) with the court register
and other state administration bodies, would allow direct registration of newly
established companies into the court register and entry of any future changes
in existing companies. The advantages of such connecting are instant entry into

the court register of newly established companies and the changes to existing
companies made by public notaries, the beginning of the doing business im-
mediately after entering in the court register and relief of commercial courts.
Unfortunately, public notaries have been omitted as the holders of establishing
companies and the guarantors of legal security from the current proposal of the
Law on Establishing Companies at a distance (https://esavjetovanja.gov.hr/
ECon/MainScreen?entityId=5126, accessed on: 06-04-2018). For the purpose
of preserving the legal security and promptness of establishing companies, the
public notary service, due to its knowledge, experience and information tech-
nologies, should be recognized as the foundation for development of the Law
on Establishing Companies at a distance and all future changes that would lead
to the simplification of the procedure of establishing companies and making
changes in them. By such a decision, notaries would no longer be intermediaries
1091
between parties and commercial courts, but would also conduct the procedure
of registration of companies into the court register and the process of register-
ing changes in the companies.
With regard to the transfer of real property ownership rights, citizens can
now, after signing a sales contract and it notarized it by a public notary, who will
submit an e-proposal to enter it into the land register by a lawyer and public
notary for execution in the land registry. After receipt of the appropriate pro-
posal for registration, the registration of the ownership right of the real estate is
carried out by the land registry department. A much better and simpler solution
for the transfer of real property ownership rights would be to define the format
of a notarial act for contracts relating to the transfer of property ownership
rights and direct entry of changes in property ownership rights on real estate by
public notaries.
In this way, legal security would be guaranteed, and the notary public office
would be the place where the parties conclude a contract, enter the ownership
right, and send an e-registration of real estate sales tax, all at the same time. As
traditional keepers of archival records, public notaries have the opportunity to
contribute to the physical safety of archival material through the development
of an electronic document in a way that protects it from decay and converts it
into electronic form. In this case, special attention should be paid to the protec-
tion of data protection, which is planned by the introduction of ISO interna-
tional standards of information security.
4. CONCLUSION
Information communication technology, data management and knowledge
management play an important role in the notarial service, because they great-
ly affect the effectiveness of the notarial service in a positive sense. Data and
knowledge management in good quality enhances the efficiency of the notarial
service and makes it recognizable to its contribution to increasing the efficiency
of other government services and to improving legal and economic security,
transparency and cost reduction. By constant investing in computerisation and
improving the application solutions, the Croatian Notaries Chamber techno-
logically has been improving the service and ensures its future. The qualities of
the new central information system of the Croatian Notaries Chamber are that
it can respond to all the challenges of linking through the web service and the
1092
possibility of participating in the realization of future IT projects of the Minis-
try of Justice. The central information system of the Chamber has the ability to
take over the management of new registers (e.g. registers of marriage contracts,
register of final and enforceable registers, power of attorney register, register of
lifelong support contracts and contracts for support until death), and experi-
ence in the current register management is a guarantee of data security (record
of the Governing Board of the Croatian Notaries Chamber).
The Notaries Service is still not sufficiently recognized, a huge role in pre-
venting disputes and reducing the burden on the judiciary system and has the
potential to further contribute to legal and economic security. The notarial ser-
vice now has technology and knowledge that enable it to become a leader in
bringing new solutions (innovations) in the area of legal security and data secu-
rity. The new application for public notaries opens up the possibility of data ex-
change among public notaries and notaries and other institutions and registers,
and there is also the possibility of exchanging data with other institutions and
registers within the European Union.
By inspecting the data presented on the number of entries in the registers
currently kept by the Croatian Notaries Chamber shows the continuity of the
entry numbers, and considering the Croatian will register, it can be said that
there is a trend of increasing the number of entries over the observed period. It
is the experience and the tradition of keeping registers on the side of the nota-
ries regarding the potentials that notaries maintain all future registers.
The Notaries Service played an important role in harmonisation of earlier
forms of legal entities with the new Companies Act and currently plays an im-
portant role in the process of establishing and making changes to existing com-
panies. This tradition and the experience of the notarial service must be taken
into account when introducing a new electronic establishment of companies
so that, as so far, the establishment is under supervision and in order to ensure
legal certainty.
Through the establishment of the Croatian Notaries Academy and the
adoption of the Rulebook on the work of the Croatian Notaries Academy, the
Croatian Notaries Chamber recognized the important role of knowledge man-
agement for the future of the service, in particular by acquiring new knowledge,
collaboration with universities and other professional organizations, training
and publishing (publishing of journals, collections, manuals).
1093
LITERATURE
Bahtijarević-Šiber, F. (2014). Strateški menadžment ljudskih potencijala - Suvremeni tren-
dovi i izazovi, Školska knjiga, ISBN: 978-953-0-30281-5, Zagreb
Bakotić, D. (2012.). Menadžerski izazovi u funkciji vođenja radnika znanja u suvremenim
poduzećima. Ekonomski fakultet Split Sveučilište u Splitu UDC: 65.012.4 J24, O47
str. 145-156. Available at: https://hrcak.srce.hr/83766. (Accessed on: 20-03-2018)
Ernst, H. & Josipović, T. (2009). Javni bilježnici i javni registri. Zbornik Pravnog fakulteta
u Zagrebu, Vol.59 No.6, str. 1117-1152. Dostupno na: https://hrcak.srce.hr/45425
(Accessed on: 20-03-2018)
Hrvatska javnobilježnička komora & Notaries of europe. Javni bilježnici u Europi. Javno
bilježništvo u službi Europe
Izvješće o radu Hrvatske javnobilježničke komore u periodu od 2013. do 2017. godine. Avail-
able at: http://www.hjk.hr/Interne-stranice-HjkHr (Accessed on: 20-03-2018)
Maganić, A. (2013). Javni bilježnik u elektroničkom pravnom prometu. Zbornik Pravnog
fakulteta u Zagrebu, Vol.63 No.2, str. 383-431. Dostupno na: https://hrcak.srce.
hr/109711 (Pristup: 06-04-2018)
Nonaka, I. (1991.), The knowledge-creating company, Harvard Business Review, 69 (6)
Panian, Ž. (2013.), Elektroničko poslovanje druge generacije, Ekonomski fakultet Zagreb,
ISBN: 978-953-6025-70-1, Zagreb
Upravni odbor Hrvatske javnobilježničke komore (2016), Pravilnik o radu Hrvatske
javnobilježničke akademije,
Zapisnik sa 194. sjednice Upravnog odbora Hrvatske javnobilježničke komore. Available at:
http://www.hjk.hr/Interne-stranice-HjkHr (Accessed on: 20-03-2018)
Zapisnik sa 195. sjednice Upravnog odbora Hrvatske javnobilježničke komore. Available at:
Zapisnici sa 20., 21., 22. redovne skupštine Hrvatske javnobilježničke komore. Available at:
Zbirka propisa o javnom bilježništvu Republike Hrvatske, Ruždjak, J. M. (ur), str. 265-274,
ISBN: 978-953-98839-5-7, Zagreb, studeni 2016., Hrvatska javnobilježnička aka-
demija, Hrvatska javnobilježnička komora, Zagreb.
https://www.dzs.hr/Hrv_Eng/publication/2014/11-01-01_04_2014.htm (Accessed on:
20-03-2018)
30-03-2018)
20-03-2018)
20-03-2018)
https://www.dzs.hr/ (Accessed on: 20-03-2018)
http://www.hjk.hr/portals/0/Plan_2020_small.pdf (Accessed on: 12-03-2018)
1094
http://www.arert.eu/Members.html (Accessed on: 15-03-2018)
https://hr.wikipedia.org/wiki/Znanje (Accessed on: 19-03-2018)
http://www.skladistenje.com/wp-content/uploads/2013/06/KM.pdf (Accessed on:
19-03-2018)
http://www.hjk.hr/O-Komori/Medunarodna-suradnja (Accessed on: 19-03-2018)
https://pravosudje.gov.hr/vijesti/posjet-madarskoj-javnobiljeznickoj-komori/13646 (Ac-
cessed on: 06-04-2018)
http://www.hitro.hr/Default.aspx?sec=72 (Accessed on: 06-04-2018)
https://esavjetovanja.gov.hr/ECon/MainScreen?entityId=5126 (Accessed on: 06-04-2018)
Izmjene i dopune Javnobilježničkog poslovnika, Narodne novine 37/1996
Odluka o ustroju registra anticipiranih naredbi i punomoći u elektroničkom obliku, Narodne
novine 20/2017
Pravilnik o Hrvatskom upisniku oporuka, Narodne novine 135/2003, 164/2004
Pravilnik o načinu vođenja evidencije o obvezujućim izjavama, načinu pohranjivanja, čuvanja
i ostvarivanja prava pristupa podacima iz obvezujućih izjava, Narodne novine 16/2015
Pravilnik o registru zadužnica i bjanko zadužnica, Narodne novine 115/2012, 125/2014
Zakon o javnom bilježništvu, Narodne novine 78/1993, 29/1994, 162/1998, 16/2007 i
75/2009
Zakon o porezu na promet nekretnina, Narodne novine 115/2016
Zakon o sudskom registru, Narodne novine 1/1995, 57/1996, 1/1998, 30/1999, 45/1999,
54/2005, 40/2007, 91/2010, 90/2011, 148/2013, 93/2014 i 110/2015
Zakon o zaštiti osoba s duševnim smetnjama, Narodne novine 76/2014
1095
Business
Administration and
Business Economics
INTERCULTURAL BUSINESS
MANAGEMENT DEVELOPMENT
AND EDUCATION PROGRAMS IN
BUSINESS SCHOOLS
José G. VARGASHERNÁNDEZ, M.B.A.; PhD.

University Center for economic and Managerial Sciences
University of Guadalajara
México
E-mail: jvargas2006@gmail.com
Abstract
This paper aims to reflect on the management of organizational intercultural
relations under the analysis of trends in the evolutionary development of orga-
nizations. It is questioned whether business schools are doing the right approach
to teach, research, train and consulting on multiculturalism to harmonize the
principles of cultural diversity that are more than an ethnocentric orienta-
tion, monocultural or multiculturalism with universal ethical principles. The
method used to analyze the phenomenon of organizational multiculturalism
is based on the understanding of the interrelationships in the cultural diversity
of individuals interacting in concert to achieve common goals. The work also
underpins some analysis principles of the creation, development and manage-
ment of organizational intercultural capital, and they are characterized to raise
some assumptions of organizational multiculturalism. Finally, the emergence
of a model of strategic management of organizational interculturalism focused
on learning and training for proper operationalization and implementation is
proposed, and some challenges and proposals are formulated.
Key words: Intercultural organizational, strategic, cultural, organizational in-
tercultural capital.
JEL Classification: B490, B590, L290
1099
1. INTRODUCTION
In recent years, the institutional and organizational evolution as a result of
José G. Vargas-Hernández: INTERCULTURAL BUSINESS MANAGEMENT DEVELOPMENT AND EDUCATION PROGRAMS IN BUSINESS SCHOOLS
the processes of economic globalization, complexity and high levels of uncer-

tainty in the context of which contribute to the formation and development
of organizations, these are more diverse and multicultural (Cox 1991, 1993,
2001). The internationalization of enterprises to improve their ability to com-
pete in an environment of market globalization (Gardenswartz and Rowe, 1998
cit. Susaeta and Navas, 2005) has necessitated a greater focus on organizational
multiculturalism, with a higher sensitivity to cultural diversity.
People in organizations that are perceived as belonging to two groups can
develop intercultural sensitivity if they perceive that it is not unfair be identified
in the two cultures. The development of organizational intercultural sensitiv-
ity designed to experience the cultural differences provides an understanding
of how people construct and live. Intercultural sensitivity in organizations is a
relevant competition to complement the development of the mindset and the
set of required skills.
Among the topics of global economic integration there are religious and im-
migration issues and how evolves the firm responses to the challenges of orga-
nizational multiculturalism to offer new prospects for development in society.
Corporations seeking to operate in global markets assume that should work in
intercultural environments with their employees, customers, consumers, sup-
pliers, governments, etc., to whom corporations have to meet their needs, de-
sires and fears in very different ways in where each of the agents try to accom-
modate to others.
Integrating intercultural organizations establishes processes of different cul-
tural systems that co-inhabit an organization through the use of contacts bal-
ances and individual interactions linking the various cultural components and
processes connectivity between economic, social, political and cultural contexts
of organizations with the same internal processes.
The rise of electronic media has become to be easier, faster and economic
contacts and cultural interactions in organizations. Individuals in organizations
establish contacts, meetings and cultural interactions, facilitated by organiza-
tional mechanisms not only of groups and teams, but as in other gatherings,
joint projects, negotiations, etc. Interactions in social structures are defined by
1100
values such as justice, freedom, equality, mutuality, diversity, respect, under-
standing, acceptance, peace building, etc.
Intercultural interactions contrast with other types from each other by dif-
ferences and intercultural interactions, which are a source of confusion and mis-
understanding. One of the most widely used frameworks to analyze the cultural
differences of values in organizations that relate to the group’s tendency to as-
sign approval to abstract concepts of certain ways of being of a people. Some
of these cultural values are analyzed in terms of individualism / collectivism,
tolerance for ambiguity, social roles, time orientation, etc.
The cultural differences between people of different cultural backgrounds
working in the same team or project are an opportunity for synergy. Each of
these individuals has a responsibility to adapt and get to model behaviors
that are competitive across cultures creating a third culture throughout the
organization.
Contacts and cultural interactions in organizations take place on the job,
social and educational institutions contexts, regardless of the interests of in-
dividuals from different cultures to meet other people with different cultural
backgrounds (Allwood, Lindström, Börjesson, Edebäck, Myhre, Voionmaa
2007, p.18). In intercultural interactions of organizations there are comprehen-
sive mutuality, reciprocity and equality.
Intercultural contact is as much a condition as a result of the functionality
of intercultural relations in organizations that support and strengthen environ-
ments where members maintain equitable cooperation relations socially accept-
ed with rejection to negative stereotypes (Aneas, 2015). In intercultural orga- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
nizational business objectives and universality of ideas intersect leaving room
for further cooperation between organizations in the private and public sectors.
2. THE ROLE OF BUSINESS SCHOOLS IN

INTERCULTURAL BUSINESS MANAGEMENT
Global business and economic activities are increasingly impacted by inter-
cultural business management competences of managers and businessmen and
women, which may be broaden by intercultural business education and develop-
ment programs taught at business schools. The study of intercultural business
management as a global relationship process model has an impact on the global
1101
market, the influence of national and organizational culture and intercultural
communications decision process. To participate and promote business with a
global marketplace perspective is require training in intercultural motivation,
communication and leadership skills. An intercultural leadership transforms

the increasing international environment of a multicultural organization.
The main objective of intercultural business education and development
programs is to provide an intercultural background awareness and competenc-
es development based on the understanding of foreign cultures. Intercultural
competences become more sophisticated for cross-cultural management. Inter-
cultural competence in international business is defined by Johnson, Lenarto-
wickz and Apud (2006) as “an individual’s effectiveness in drawing upon a set
of knowledge, skills, and personal attributes in order to work successfully with
people from different national cultural backgrounds at home or abroad”.
To internalize the concept of intercultural business management is required
to have assignments designed as the outcome of mixing theory with practice.
Intercultural business management is a hybrid concept that requires the study
of sociocultural, business and management subjects. The essence of intercul-
tural business management is the intercultural communication competence.
Intercultural communication competence has been defined by Hall (1990) as a
unique manner possessed by an individual who wants to realize his character,
goals, and expectations in a specific environment. Several models dealing with
intercultural business communication have value-orientations to comprehend
the impact on intercultural business management.
Intercultural communication competence includes affective competence,
cognitive competence, and behavior competence (Gudykunst and Kim,1997).
Until now, intercultural communication in international business relies on the
theoretical model based on the five dimensions of Hofstede and used as a soft
skill to explain intercultural relationships, and to conduct negotiations.
Business management professionals and students need to improve their cul-
tural awareness and cultural adaptations to international and global exchanges.
Intercultural business management is concerned with learning and appreciat-
ing reciprocal business values between the involved persons to understand each
other´s culture and values. Intercultural management of organizations is de-
fined by Burggraaf (2017) as the combination of knowledge, insights and skills
which are necessary for adequately dealing with national and regional cultures
1102
and differences between cultures, at the several management levels within and
between organizations.
Global business management is critical competence that requires intercul-
tural learning and training (Bi, 2014). Intercultural management in organiza-
tions deals with different models at national, business and ethnic diversity levels
to recognize some similarities and differences. People meet in intercultural set-
tings with a specific situations and environments to make decisions and solve
problems.
The intercultural perspective of business management curriculum to be
taught at business schools must be student-focused. Individuals involved in
organizations, business and institutions in international situations and envi-
ronments tend to acquire and perform more intercultural sensitivity and capa-
bilities. Intercultural management practices both within and among cultures
benefit the reliability and the trustworthiness of the organization, processes of
cooperation where the interests of economic factors play a relevant role as a
result of human actions. Intercultural management by projecting morals gives
form to relationships between cultures and organizations.
Intercultural business management requires adequate study and research
programs to promote intercultural awareness and to improve culture learning at
the core of instructional and linking with business practices. Intercultural busi-
ness management learning and teaching theories with practical implications in
global business and economic activities must be aimed to improve professionals
and student’s capabilities. The learning activities are placing emphasis on inter-
cultural business management at the organizational level (Cao 2012).
However, some scholars argue that these skills, such as intercultural com-
munication cannot be learned from a course and from a body of knowledge, but
only from communicating across cultures. To achieve these goals, business stu-
dents are encouraged to have overseas living, studying and working experiences
to have opportunities on interactions in intercultural business management.
3. CULTURAL DIVERSITY
The intercultural organization is located in two-way interactions between
the reality of society and organizations. It is in this space where the roots of
cultural diversity are. The intercultural organization is a resource that consists
1103
of cultural diversity in terms of racial and ethnic heritage, gender and sexual
orientation, age, physical ability, sexual orientation, professional group, etc.
The background and cultural features that shape the identities of the or-
ganizations, behaviors, values, attitudes, perceptions, etc., influence the devel-
opment of organizations. The cultural capital is defined as the stock of values
upon which the structure of each society is characterized it as different from
others (Throsby, 2005). Among the main values that are considered practices
are integrity, power levels, the purely cultural aspects and respect (Himmel-
stern, 2007).
The diversity of cultures can be explained from perspectives such as philoso-
phy, emerging systems of complex interactions between cultures and human
habitat and in terms of intercultural contacts. Cultural diversity is viewed as
dynamic interactions between ethnic-racial, social, religious and cultural dif-
ferences, etc., they are essential to the promotion of intercultural organizations.
Religious expression is an important component of intercultural organization
is pushed as an issue for firms and organizations for several demographic trends
and public sector.
Intercultural organizations ensure the mix of individuals with diverse ethnic
and racial origin, gender, religion, beliefs, values, etc., with ability to influence
its internal work environment in accordance with the society in which it is im-
mersed. Organizations with a wider range of the population are more sensitive
to understand from the nature of intercultural organizational needs, desires and
fears of prospects and customers and therefore provide satisfactions, services
and products of superior quality (Adler, 1983; Griggs, 1991; Gasorek, 1998;
Gardenswartz and Rowe, 1998, 1994: Susaeta and Navas, 2005).
In this atmosphere of cultural diversity, the meetings of individuals to imple-
ment policies and corporate and business strategies, develop new satisfactions,
implement joint projects and solve problems that require long periods of time,
also require resources and technical expertise, resources and intercultural com-
petencies that provide the interaction of different national cultures
4. MULTICULTURALISM
Multiculturalism as a dynamic and dialectical process recognizes the exis-
tence and convergence of various cultures as a space between the local and glob-
1104
al processes that intersects social and cultural networks articulating personal
and collective identities (Hall, 1973). In organizational multiculturalism are al-
lowed and included a diversity of individuals in cultural groups with equal sta-
tus but remain one’s side by side of others, many times isolated from each other.
Tolerance is valued and differences are celebrated in cultural expressions but
the differentials of power untreated and exchange among the different groups
are not allowed, only focuses on the representation, i.e. it is required only a su-
perficial and friendly social interaction (The United Church of Canada (2011).
5. INTERCULTURAL ORGANIZATION CONCEPT

The intercultural organization is defined in this analysis as a set of contacts
and interactions that often occur among the various members of an organiza-
tion having different backgrounds and cultural identities, in terms of a common
understanding of the meanings of language, values, attitudes, thoughts, emo-
tions, actions, etc., defining the ways of being, thinking and acting, and under-
standing of different lifestyles.
To understand the notion of intercultural organization is essential to un-
derstand the concept of subjective culture rather than objective culture. Subjec-
tive culture is understood as a pattern of beliefs, behaviors and values that are
maintained by groups of people interacting. This subjective culture allows ana-
lyzing the interactions between the expressions of differences existing between
the complexity in epistemological diversity of the local and international culture

beyond the historical, economic and political environment (Bennett, 2001a).
Intercultural interactions in organizations are mutually reciprocal between
and within cultures.
Intercultural organization move in a different direction that the moderniza-
tion process aimed at homogenization and standardization on the imposition
of behaviors, attitudes, ways of being, and to assess resulting prejudicial stereo-
types and mental structures, etc. This is exactly the opposite of intercultural
organization.
1105
6. CREATION, ORGANIZATIONAL
DEVELOPMENT AND MANAGEMENT OF
INTERCULTURAL CAPITAL
The intercultural capital consists of the stock of forms and types of symbolic
capital to represent the thoughts, emotions, values, experiences, skills and com-
petencies, etc., in ways of being, acting, thinking, etc. Intercultural experiences
from the action of the skills are internalized in individuals with common mean-
ings to generate organizational synergy and empathy influencing performance
of intercultural groups. Organizational diversity and intercultural organization
have an impact on competitiveness and organizational performance (Cox and
Blake 1991; Cox 1991, 2001; Milliken and Martins 1996; Thomas and Ely
1996; Williams and O’Reilly 1998; Pelled et al 1999; Kochan Bezrukova, Ely,
Jackson, Joshi and Jehn et al. 2003; Jackson, Joshi & Erhardt 2003; Joshi and
Roh 2009).
Intercultural and cultural diversity in organizational settings influence the
dynamics of the groups and the organization of work (Milliken and Martins
1996; Williams and O’Reilly 1998, Ely and Thomas 2001; van Knippenberg
and Schippers 2007). Intercultural capacities of organizations compounded by
international experiences increase levels of intercultural organization capital
and cultural levels of cosmopolitanism, both at the individuals and the organi-
zations themselves.
The development of intercultural competences is the result of complex pro-
cesses that require time and abundant resources. Organizations and corpora-
tions that will dominate the 21st century global market are those who are able
to realize their full potential of intercultural capital in human resources and
group teams. The development of intercultural competencies has implications
for people and organizations that have to work in intercultural environments
and global contexts
Distefano and Maznevski (2000) typify the intercultural teams as leveling
where members were successfully integrated to meet the objectives without nec-
essarily generating the added value resulting from the synergy of a team that has
cultural homogeneity. The ethnocentric approach contrasts with the acquisi-
tion of intercultural organizational capital because it is based on prejudices and
stereotypes rather than cultural generalizations based on serious research on
culture.
1106
The processes of creation, capture, development, integration, retention
and administration of this intercultural capital that go across the geographical
frontiers. It is in this sense that for -Alcázar, Romero Fernandez, Sanchez &
Gardey, (2012) diversity of human capital is a concept formed by demographic
attributes such as age, gender, nationality, education, type of training, status in
employment, and functional expertise. Aswell human capital attributes include
knowledge, experiences, cognitive styles and values
The policy-oriented companies by intercultural organization provide inter-
cultural training programs and human resource development to strengthen this
area through a process of integration of diversity and inclusion in their daily
activities.
7. METHOD OF ANALYSIS OF ORGANIZATIONAL

INTERCULTURAL
The analysis of the intercultural organization phenomenon is based on the
understanding of the interrelationships in the cultural diversity of individuals
interacting in concert to achieve common goals. Intercultural relationships in
organizations start with the first contacts and intercultural encounters with
people who have a variety of ethnic and racial attributes of gender, religion, etc.
The analysis of intercultural organization meant when offers tools for strategic
management of ethnic-racial, religious, gender and sexual, differences of indi-
viduals who are members of organizations.

Intercultural organization strengthens when reference frameworks of most
universal cultures under trans disciplinary approaches of sociological research,
communication, anthropological, economic, etc. are analyzed, because they pro-
vide knowledge and methodological tools for analyzing cultural differences and
contrasts. The analysis of the behavior of people with intercultural relationships
between local management processes with multiple considerations of global or-
ganizations simplifies the processes of intercultural management.
Moreover, the complexity of the analysis of cultural differences in cultural
diversity is a limiting factor for intercultural management organizational groups
and teams without having the tools that the precise situations call for specific
cases.
1107
The analysis of cultural interactions are erroneously supported on general-
izations that do not always have specific applications to culture groups, such as
cognitive style that can be concrete or abstract, communication style that can
be high and low context, the use of language in the rituals of verbal greetings,
nonverbal behaviors in visual contact, etc.
The multidimensional construct metacognitive CQ (Earley and Ang, 2003)
is defined as the ability of consciousness and alertness that individuals have
for intercultural interactions through mental, motivational and behavioral com-
ponents. Therefore, intercultural organization reflects the mental capacities of
the individual members to acquire and understand culturally diverse situations
through the processes of knowledge and control over individual thinking (Fla-
vell 1979).
Monoculturalism and little intercultural organization are phenomena cou-
pled with prejudice made by the method of analysis that can lead to a variety
of dysfunctions and organizational deficiencies. All organizations, including
companies, to reach the level of intercultural organization require moving from
an exclusionary monocultural organization of minorities to a intercultural or-
ganization inclusive of all groups and minorities around values-centered in the
diversity and intercultural relationships between members.
The various dimensions and components of the national culture are factors
that influence decisively in the interactions, relationships and behaviors among
individuals and organizations. These relational factors affecting strategy and
management (Trompenaars, 1993), and therefore organizational performance,
can become more important than the technical factors (Whiple and Frankle,
2000).
Differences of culture in organizations have an influence on the contacts
and interactions of intercultural organization (Hamada, 1989; Garsten, 1993).
Organizations seeking to reach diverse consumers and markets (Gomez-Mejia,
Balkin and Cardy, 2001) require the creation and development of an organiza-
tional culture focused on diversity and plurality that is based on the promotion
of values, behaviors, attitudes, activities, ceremonies and rituals that encourage
intercultural organizational processes. The organizational culture, or corporate
culture is rooted in the values of the founders converted into common practices
and rules for members of the organization, where differences are understood
values (Hofstede, 1999, p. 19).
1108
8. CHARACTERIZATION OF INTERCULTURAL
ORGANIZATION
The intercultural organization is characterized in that the organization of-
fers conditions of support and help to its members to adapt socially, culturally
integrate and improve their psychological health and their professional compe-
tence involve in high level of acceptance. The intercultural organization facili-
tates creating inclusive work environments, to respect and promote its vision,
cultural values and sustainability of local communities where they operate, to
establish more effective cooperation relations with investors and suppliers, to
promote investment social programs, to meet and satisfy the needs, desires and
specific fears of the different segments of prospects and customers, etc.
The intercultural organizational characteristics has as mainstreaming, in-
dividual subjectivity, tasks and labor relations, contextual influence, learning
processes, data analysis and complex decision-making and the integration of
cognitive, emotional, attitudinal and behavioral components. However, in the
intercultural organizational processes are common that cognitive and emotion-
al elements overlap. Intercultural processes all benefit from the changes through
interaction with others (The United Church of Canada (2011).
The sociocultural characteristics of the members of an organization are cru-
cial to the diversity of relationships and interactions of intercultural organi-
zation, which can identify differences in membership and group memberships
that are significantly different in their culture, their characteristics and personal
attributes (Cox, 1994; Harrison, Price and Bell, 1998; Milliken and Martins,
1996). The interactions between people of different cultural groups learn and INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
grow together, develop interactions, share knowledge and experiences with each
other, they are transformed and molded shape.
9. ASSUMPTIONS OF INTERCULTURAL
ORGANIZATIONAL MODEL
The assumptions of intercultural organization are interdisciplinary informed
by paradigms or ways of thinking that emphasize cultural diversity or differenc-
es, the interpretive approach that emphasizes the context in which manifest the
interactions and critical theory approach that analyzes the interactions under
historical contexts if power. Considering the assumption that cultures develop
1109
their own structures of thought, therefore develop an “unconscious cultural”
showing the deep cultural codes and ways of thinking, establishing the differ-
ences between one culture and another (Rapaille, 2006).
The intercultural organization is reflected in the diversity of the cultures

represented in the dynamics of organizations that include the cultural back-
ground of individuals to their ethnic, racial, and religious belief structures,
gender, age, perceptions, expectations, assumptions and priorities, processing
information (Cox and Blake, 1991; Ely and Thomas 2001; Maznevski 1994;
Tsui and O’Reilly 1989).
The intercultural organization is expressed in contacts and interactions
between people with different cultural backgrounds. The use of intercultural
empathy generates an appropriate temporal behavior to the cultural objective.
Intercultural empathy is related to the change of frameworks which involves
temporarily removing their own assumptions about global views and temporar-
ily replaces them with a different set of values and beliefs. These intercultural
organizational capabilities that emphasize intercultural interactions and ex-
changes of information among team members working from different cultures,
allow questioning the cultural assumptions and make adjustments in mental
models (Nelson 1996) with a high impact on organizational performance.
Intercultural organizational paradigm (García Alvarado, 1999) in an envi-
ronment of economic globalization processes raises the need for cultural in-
tegration that is in contradiction with the model of intercultural organization
based on the diversity of cultures and not of multiculturalism. Intercultural in-
teractions of organizations deepen more than multicultural and cross-cultural
models. Cross-cultural connections express in complex processes of interaction
between multiple identities that are potentially powerful facilitators of intercul-
tural. The organizational model of intercultural is inclusive of all cultures and
are not segregated as multiculturalism intended as exclusive model of cultural
integration.
The method of the Intercultural Development Inventory supports the con-
ceptual, theoretical and methodological framework of Development Model of
Intercultural Sensitivity to evaluate the intercultural sensitivity of people in or-
ganizations. Intercultural organizations occur because the structures and be-
haviors that facilitates their members to act without prejudice or cultural bias
(Dubrin, 2003).
1110
10. MANAGING ORGANIZATIONAL DIVERSITY
AND MULTICULTURALISM
Organizational management of intercultural is manifested in the very nature
of intercultural relations in organizations operating in environments of global-
ization processes and seek to reach the stage of globalization. This evolutionary
process of managing intercultural organization is expressed in developing ad-
aptation sensitivities of a global culture of organizational behaviors, processes,
products and services in tune with the communities they seek to serve.
Organizational management is an imperative of intercultural organizations,
especially companies that are the ones at the forefront of dealing with global
intercultural issues have already begun work on intercultural management and
potential experience in tools to try to get common goals, growing economies
and to work in a global environment in organizational cultural construction.
The entrepreneurial attitude can an attribute of the intercultural organiza-
tional management.
Entrepreneurial collaboration targeted deliberately encourages intercultural
organizational foundations for peace.
The psychological, social, cultural and economic welfare of the members of
an organization are ends of the management system diversity and intercultural.
Stephan, Stephan and Gudykunst (1999: 62) developed the theory of threat
that treats of the psychological-emotional processes of intercultural and dis-
tinguishes consciously perceived real threats to economic, social and political
system symbolic or different perceptions of moral, religious and other values
derived from the interpersonal and intergroup relations and negative stereo-
types. In managing organizational intercultural relations, psychological health
harmoniously integrates cognitive, emotional and behavioral components (Cat-
tails Alvarez, 2015).
The role of intercultural management that play businesses in the economy
by encouraging intercultural organizational position from below the line to un-
derstand and share the values of identity and purpose with stakeholders. Firms
and other organizations have initiatives to promote intercultural organization
through business.
There are numerous initiatives to promote intercultural organizations best
practices that are dealing with different aspects of the business environment.
1111
Business organizations have a very important role in promoting intercultural
organizational environment to emerge from the operating levels of the organi-
zational pyramid base and connect to the management level for achieving the
objectives. Intercultural organizational exchange can be promoted by business

organizations in broader communities through investments in social programs,
philanthropic support, etc.
The management of intercultural organization has to use available resources
to develop the capacities to promote behaviors, attitudes, skills and abilities to
facilitate the interrelations between individuals beyond their personal differ-
ences of gender, race, religion, lifestyles and social attitudes (Dubrin A., 2003).
These social programs are aimed at the intercultural organization through man-
aging the impact of their business sensitivity to local cultures and defend their
strategic and political decisions that encourage social relationships in intercul-
tural organization.
The management of intercultural organization can be oriented instrumen-
tally to create a competitive advantage, but its scope would be very limited be-
cause of its pragmatism. Managing intercultural diversity in organizations can
benefit by offering advantages in marketing, cost reduction by reducing staff
turnover and absenteeism and increased job satisfaction. Thus, in this way it is
achieved greater cultural diversity with the participation of workers from mi-
nority groups (Cox and Blake, 1991 Orlando, 2000) is achieved.
Therefore, intercultural management organizational moves away from stan-
dardization processes of organizational behavior to develop the knowledge of
individuals to be full integration with the rationale of the organization. It is in
the connection between the different levels of the organizational structure that
processes intercultural organizations have an important role because they elimi-
nate discrimination and stereotypes, demystify privileges through intercultural
dialogue processes to build confidence and a sense of common purpose
11. STRATEGIC MANAGEMENT OF

INTERCULTURAL ORGANIZATION
Few business organizations take the intercultural organization approach as
strategic vision of sustainability and philanthropy to support the development
of their communities by addressing their critical needs, make social investments
1112
that encourage sustainability working in partnership with government and civil
society. Organizations, especially business firms that have greater clarity in their
view, have an interest in supporting the efforts of communities to promote the
principles of intercultural, cooperative relations, sustainability, tolerance, etc.
It is in this sense that the promotion of the principles and values of inter-
cultural as part of the organizational approach to sustainability is reflected in
its programs to promote sustainable business practices such as human rights,
rights in the workplace, business peace, diversity, etc. This can be checked with
the innovative actions that firms made to achieve intercultural which can be
identified more as diversity issues in the workplace, in the marketplace and in
the communities.
The intercultural organization is the source of all creativity and innovation.
Among the findings of research conducted in intercultural organization it has
been found that the most creative and innovative organizations have diversified
groups and teams and greater results in reducing racism, classism and sexism
(Kanter, 1983).
The intercultural organization is assumed through knowledge management
and experience of unity and oneness of humanity recognizing its cultural diver-
sity based on respect. These capabilities of mental consciousness experiences
and standards for cross-cultural interactions include planning processes, moni-
toring and review of mental models
Under this assumption, intercultural organization is an organizational phi-
losophy that influences the contacts and interactions of individuals in organiza-
tions, societies and cultures. In intercultural organizations diversity and plu- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
rality of individuals and groups contribute to comply with the organizational
mission under the support of an organizational philosophy. The organizational
values of equal opportunities, open communication, gender equality, fraternity
group, labor justice, etc., have their sustenance not only in organizational phi-
losophy but in individual conviction that engenders an atmosphere of diverse
intercultural. An organizational environment where these values are always
present, results in rampant non barriers.
Inclusive policies and citizen participation guarantee social cohesion of civil
society. The intercultural organization powers participation of the various ac-
tors and stakeholders’ involvement in the organizational structures with behav-
iors and attitudes that create an organizational climate and a favorable working
1113
environment for carrying out the processes of strategic management, produc-
tion, distribution and consumption of goods and services. In addition, inter-
cultural organization ensures integration of organizational structures so that
all members have the same opportunities of access to the benefits offered by
various positions without any benefits due to religious, ethnic, racial, gender,
etc., (Foster, Jackson, Cross, Jackson, Hardiman, 1991).
The strategic management of organizations is facing challenges related to
the formulation and implementation of policies and practices of intercultur-
al organizations. The strategic management of intercultural organization is a
challenge for the integration of individuals in organizations considering the in-
dividuality of people that have their own paradigms rooted on values, norms,
beliefs, attitudes, emotions, feelings, etc. This diversity of deeply held individual
paradigms difficult organizational integration processes where collective contri-
bution is more important.
The intercultural organizational environments affect strategic management
due to the different ways of running induced by different cultures. Conflicts
caused by dysfunctional management of diversity and intercultural organization
generate high levels of stress that lead to attitudes of intolerance, aggression and
understanding of others in the organization. In the processes of intra and inter
intercultural conflicts arising from cultural differences and diversity are common,
constantly threatening the local and global organizations (Bendick & Egan, 2008).
Organizational diversity and intercultural has an impact on the management of
intra- and inter-organizational conflicts (Pelled, Eisenhardt & Xin, 1999).
Innovative business practices promote intercultural relations of cooperation
in conflict or post-conflict situations. Risky investments in conflict situations
can provide an interface for contacts and interactions between the communities
involved, as a result of business activities by profits.
12. ORGANIZATIONAL LEARNING AND

INTERCULTURAL TRAINING
Intercultural organizations systems have as characteristics that are learned
transmitted and facilitated through the development of social skills that focus
their action on communication patterns to members of different cultures. The
most advanced stage of intercultural organization communication is developing
1114
the inter-linkages and establishing permanent ties in a solid organizational rep-
utation. The media and intercultural organizational communication processes
are essential in identifying the collective identities for both the institutional and
organizational changes
The phenomenon of intercultural organizational communication is complex
because it involves many individuals who have cultural background not very ho-
mogeneous and is likely to be very different. In intercultural communication, lan-
guage and symbols and representations as not discursive they are affected if they
do not have common codes for representing thought forms, emotions, feelings,
ideas, values, etc., and which are common to a community, village or nation.
There is an increasing need for organizations to manage processes to lead
intercultural learning value differences in a diverse world but globally connect-
ed and form the inclusive mindsets and attitudes among investors, suppliers,
employees, customers, prospects, levels of government and other stakeholders
in local communities in general. For contacts and inter relationships between
cultures to be more effective are required recognition of cultural differences un-
der the conditions of having an intercultural mentality, intercultural sensitivity
and intercultural skills (Hammer, Bennett, & Wiseman 2003: Bennett, 2001ª,
2001b, 2001c; Bennett, 1993).
The discussion on intercultural competition has developed for some time now.
In recent years the field of organizational multiculturalism is starting with the
development of a theoretical framework and some methods of intercultural com-
petence that help global leaders to learn how to learn in intercultural situations.
It is in the cultural interfaces where intercultural organizational processes are
developed and results in the generation of intercultural skills such as mediation
empathic abilities and distinctions from strong cultures and underlying cultures.
The intercultural organization is geared more to the creative development
of competencies rather than to consider the limitations of traditional academic
programs. Intercultural organizational mentality has to be established before
the skills and competencies acquired by individuals.
The intercultural organization is a valuable skill in organizations that is the
result of integrating exercise of intercultural competence, which according to
Aneas (2009) emerges when symmetry conditions are presented in intercultural
relations, psychological, social and cultural integration of all members working
in legal, fair, equitable and cooperative status in achieving common goals form.
1115
The intercultural organization encourages development of administrators in
their mentality and their skill set for the development of intercultural skills to
adapt to situations that require intercultural competence. The leader with inter-
cultural organizational mentality recognizes global corporations that gave ori-

gin and administer third cultures that become dominant cultures in the work-
ing lives of those organizations (Bennett, 2001a).
The intercultural organization for intercultural competence is integrated in
the development of cognitive, emotional, attitudinal and behavioral components
of all members of the organization and the design of structures, processes and
technologies, culture and organizational strategies that interact with the envi-
ronment and that despite an increasingly complex and uncertain environment,
facilitate the fulfillment of their duties through intercultural relationships.
The development of intercultural competences is essential for the develop-
ment of intercultural dialogue in organizations. These skills are defined as the
complex skills necessary for effective and appropriate performance when inter-
acting with those who are linguistically and culturally different (Fantini, 2007).
These skills are added to the curriculum of learning organizations to learn con-
tinuously in global environments to think globally and act locally. For example,
racial and cultural imbalances of power are treated in such a way that people
learn from each other and change.
Organizations promoting intercultural structures focus on building contacts
and relationships between people, deep contacts, and interactions with mutual
benefits, respect and learning from each other. Managers of organizations recog-
nize the crucial role that education programs supported by governments and aca-
demics for organizational learning and intercultural training. The BMW Group,
for example, annually awards the prize rewards the intercultural learning for new
ideas and projects that are exemplary and deal with issues that make innovative
contributions to the global intercultural and to international understanding.
Intercultural organizational learning is an element of social activities. It has
been understood the importance of learning and training in intercultural or-
ganization not only in relations between people of different ethnic groups that
depend on the ability to handle differences in a positive way for both individuals
and for organizations. Learning processes of intercultural organizational enable
the capacity of awareness contact and interaction between individuals and their
1116
internal and external reality to create ways of thinking through the experiences,
values training, emotions, attitudes, behaviors, etc.
The intercultural organization is an ethical imperative for respect for the
dignity, respect and tolerance for cultural diversity. The formation and mainte-
nance of organizational values is central to the philosophy of the organization,
which serves as a guide to ethical behavior and pluralistic conduct, which influ-
ence the formulation and implementation of strategies and policies that govern
the action. Experience and positive attitudes of people who exercise an intercul-
tural ethics contribute to the development of intercultural mediator activities in
organizations.
As a strategy, intercultural organization requires committed leadership with
the formation of behaviors and structures centered on the assessment of orga-
nizational culture focused on prioritizing the plurality resulting from diversity.
The organizations involved in the exchange of training programs to create orga-
nizational intercultural knowledge, build the necessary structures and develop
the competencies and skills.
The intercultural organization has been considered as part of the intercul-
tural problematic by Steizel, Dumas & As (2006) when organizations con-
sciously focus expatriation policies of executives and employees of long dura-
tion in situations where people come together from different national cultures.
Employees, who are expatriates to work in international projects in a subsidiary
of the same corporation in a host country with a different culture and diversity,
need to adapt to the new culture through support programs of training, includ-
ing intercultural organizational diversity management and provide them with
the plurality of actions in structured experiences (Rubio, 1999).
13. OPERATIONALIZATION AND

IMPLEMENTATION OF ORGANIZATIONAL
PROGRAMS MULTICULTURALISM
The diversity in intercultural organization can materialize into a competi-
tive advantage for organizations (Dubrin, 2003) with the implementation of
strategies and organizational structures that facilitate behavioral processes,
communication and attitudinal change among members. The implementation
of core competencies of firms to promote intercultural organizational processes
1117
through dialogue, practical and culturally sensitive activities, contributes to im-
proved relations with all internal and external groups of the company stake-
holders in the local community.
With the operationalization in scale and scope of intercultural organizational

programs come geographical and cultural differences and challenges. HSBC, for
example, promotes exchange programs in the context of intercultural organiza-
tion where the core of the brand is the cultural heritage. This is essential in inno-
vative marketing initiatives aimed at different customers, and culturally sensitive
to the principles of sustainability with various suppliers’ promotional programs.
Business organizations can play an important role in the promotion of in-
tercultural organizational values in area such as corporate social responsibility
and organizational sustainability to include intercultural issues such as human
rights, labor rights, ethical principles business, love and business, tolerance, etc.,
responsible marketing approaches, support for community projects and toler-
ance in society. Tourism activities contribute to local economic growth and co-
operation between countries, facilitating organizational intercultural coopera-
tion for developing joint projects and joint marketing activities.
Representatives of international business organizations such as the Alliance
of Civilizations of the United Nations and the Global Compact of the United
Nations recommends the implementation of intercultural organization and in-
tercultural understanding policies and intercultural dialogue in the global sus-
tainability agenda to expand collaboration between business, governments and
civil society. These driven by United Nations programs were inspired by the
interests of the business communities’ organizations and affinity with NGOs
and civil society to provide a platform for discussion of concerns about aspects
of intercultural organization.
The implementation of intercultural and diversity organization affects ac-
tivities because it assumes the moral responsibility to eradicate labor discrimi-
nation and support equal opportunities for all members. The company BMW
Group offers the LIFE program in theoretical and practical ideas and materials
on multiculturalism. Furthermore, in collaboration with governments, BMW
Group for example, manages the impact of its core business as sensitive to lo-
cal cultures aimed at reducing the challenges that businesses face in society for
cultural bias in collaboration.
1118
The implementation of strategies for the development of intercultural com-
petences of individuals in organizations is based on the intercultural sensitivity
to particular issues that need to be resolved. To achieve intercultural sensitivity
in organizations, people require intercultural skills training to recognize and
experience cultural differences so that they can adapt their organizations.
Intercultural sensitivity in organizations reaches greater sophistication if
construction of cultural differences is more complex. Once that is achieved and
experienced sensitivity to intercultural organization is acquired the competence
to differentiate cultures against generalizations, so that it is maintained a gen-
eral approach to cultural differences regardless of culture remains concerned.
People who achieve the level of sensitivity of the intercultural organization is
able to adapt in a dual perception to another culture without degrading itself.
14. DYSFUNCTIONAL GOVERNANCE OF

ORGANIZATIONAL INTERCULTURAL
Organizations that are diversified across cultures tend to facilitate the devel-
opment of the potential of the individuals involved in the various activities and
functions, without the cultural, social, ethnic, gender, religion, etc., differences
represent serious obstacles that occur in conflicts and intra organizational dys-
functions. In part these dysfunctional organizational diversity and intercultural
organization are due to the lack of a management system that relies on policies
and strategies that support governance processes focusing on intercultural orga-

nization and organizational diversity.
The interactions and relationships between individuals within organizations
have their support in the complexities of communications with their dysfunc-
tions from the diversity of languages, technicalities, verbal language, idiosyncra-
sies, etc. which lends itself to misinterpretation, distortion of meanings, mis-
understandings, etc. The oil company Shell has established a set of principles
relating to cultural practices through diversity, leaving out those local consider-
ations that are considered dysfunctional as corruption (Shell General Business
Principles, Shell 2015).
It is questioned whether intercultural organization can harmonize the prin-
ciples of cultural diversity that are more than an ethnocentric orientation with
universal ethical principles. The firm Deloitte emphasizes its shared corporate
1119
values underlying the harmonization of both approaches from cultural diversity
(Deloitte 2011, p. 12 and Sandyford and Molenkamp 2015).
Some of the barriers to achieving intercultural diversity in organizations

(Triantis, 1994) as well as prejudice and individuals own assessments, so are
the processes and intra-cultural and intercultural such as ethnocentrism or the
consideration that the own culture is the best in the world. Other barriers are
generated by disorientation, anxiety and tension when the interaction is intend-
ed in times of intercultural organization (Ramirez & León, 2008). Contacts
and intercultural encounters between individuals in organizations always in-
volve cultural tensions depending on the value system and the context in which
such organizational intercultural interactions occur.
15. AUDITS OF ORGANIZATIONAL DIVERSITY

Make a correct diagnosis of the causes of organizational problems in the
absence of intercultural organization is fundamental to identify associated vari-
ables. There are a number of methods and tools to perform these organizational
diagnoses among which audits of organizational diversity that determines the
main causes of the low presence of intercultural organization to intervene with
techniques of organizational development to improve the situations. The inter-
cultural organization is one of the roots of organizational development.
The identification of best practices to foster understanding and intercultural
dialogue on organizational is necessary in order to share the progress with a
wide range of organizations.
The positive assessment of intercultural relations benefits and maintains the
permanence of diversity and intercultural contacts. Responsiveness, compliance
and value of the results (Aneas, 2015) are components that promote a climate
of contacts of intercultural relationships in organizations.
16. CHALLENGES
The intercultural organization challenges today are present in the inter-
nationalization processes where staff employed have different cultural back-
grounds, belief systems and values, languages, customs, etc. This diversity in
the cultural background of the people is the cause of continuous clashes and
1120
conflicts with local markets from any of the cultural perspectives approached,
either from the cultural universalism or at the other extreme cultural relativism
(Donaldson 1996).
Among the challenges facing today’s organizations to promote intercultural
organizational platform supported by a diverse subcultures of members, can be
discussed processes of cohesion and group integration that encourage develop-
ment opportunities and meeting the needs of those involved.
The diversity and intercultural organizational challenges facing the emer-
gence of intercultural conflicts arising from the absence of human rights prac-
tices in relations between different actors and stakeholders both within and
outside organizations. This lack of exercise of human rights is manifested in
actions of unequal access to resources, employment opportunities, promotions,
incentives, etc., and expressions of attitudes of intolerance based on ethnic ori-
gin, gender, religion, age, functional ability, etc.
Concerns about the sustainability involve economic, social and environmen-
tal challenges. The vision of sustainable development is relevant to any form
of organization that considers what is important and the role to help achieve
the organizational challenge of intercultural. To meet these challenges, business
organizations develop concrete and innovative responses that are intercultural
organizational orientation to promote intercultural cooperation relations in the
business environment. Organizations and companies take the discipline of in-
tercultural organization as a management perspective of diversity, to respond to
challenges and opportunities, business needs evolve and develop new practices
and principles.
Diversity and intercultural in organizations tend to retain talented minori-
ties (Thomas and Gabarro 1999). Pless and Maak (2004, p. 130) recommend
that organizations embrace diversity and encourage mankind for attaining
some of the organizational benefits of intercultural as reducing the rotation of
talent from minority groups, inclusion and improving quality of life (das Neves
& Scrum, 2013).
1121
17. INTERCULTURAL BUSINESS MANAGEMENT
DEVELOPMENT AND EDUCATION PROGRAMS
IN BUSINESS SCHOOLS
The ultimate goal of cultural education is to cultivate intercultural commu-
nication and business management competences which should be emphasized
in learning activities at business schools. University plans and programs of
study at business schools must create and develop a curriculum in the intercul-
tural business, management and culture to provide students with better under-
standing, skills and capabilities. Business management programs are to culti-
vate multi-talented students mastering economics, and management, and who
possess high level of intercultural communication competence (Chen & Wang,
2009). Qualified intercultural business managerial talents are required to learn
and practice intercultural communication and understanding in their contents.
The overall academic program in intercultural business management must
promote intercultural awareness, leadership and communication skills. Under-
standing, gaining awareness and learning intercultural business management
based on relationships of cultural and social values exchanges can be achieved
through the acknowledge of diversity, analyzing perceptions, organizing cultural
and social values information and posing the challenges to behave in “other cul-
tures”. To get cultural awareness of differences and acquire cultural understand-
ing for intercultural business management is crucial capability to foster correct
behaviors and attitudes will intercultural abilities and skills of well-rounded
professionals.
Expertise in intercultural business management is gained through culture
learning based on lectures and discussion of cases in such a way that students
are involved with practices closely with doing global intercultural business man-
agement. Practices involving student and expatriate returns from their overseas
assignments can give presentations on their intercultural experiences which will
provide valuable insights to others. Business contacts within the global corpo-
rations can provide good intercultural business management experiences and
expertise.
Learning materials must state clearly to the students the important func-
tions of intercultural knowledge in business management as the core to improve
intercultural education (Zhao, 2013). Intercultural relationships are the cause
and the consequence of the need to learning and teaching techniques nowa-
1122
days. The research findings on intercultural business management should be
learned by professionals and students in the global business and economics
environment.
Improvement of intercultural learning must develop knowledge and skills on
cross-cultural business management in different cultural context, clearly stating
the intercultural elements and theoretical and methodological frameworks. To
set the goal with an emphasis in intercultural learning, business schools must be
more specific on aspects of business management, such as how the development
of intercultural skills improves the understanding between people of different
cultural backgrounds.
Business schools must prioritize cultivating intercultural business manage-
ment competences and skills through learning experiences to foster develop-
ment of global and international businessmen and women, as well as global
managers. Global management courses need to be taught in an intercultural
method. Intercultural business management capability cannot be realized by
taking courses but through the learning elements, methodology, teaching ma-
terials and activities of the entire program of intercultural studies and training.
Training in intercultural awareness promote meeting of individuals with differ-
ent backgrounds to practice their cultural traits and values followed by a discus-
sion on the basis and principles of intercultural interaction. Also the techniques
of role playing and script analysis can be employed to enhance practices on in-
tercultural business management.
18. PROPOSALS INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Finally, some concrete proposals for implementing the strategy of intercul-

tural management in organizations are suggested:
A. Organizations must create a climate of respect for diversity and intercul-
tural that generates organizational conditions to attract and retain orga-
nizational intercultural capital.
B. The management of intercultural organization should be more oriented
to achieve competitive advantage as a means of strategic nature rather
than an end in itself.
1123
C. The management of intercultural organization should use available re-
sources to develop the capacities to promote behaviors, attitudes, skills
and abilities to facilitate relationships between individuals.
D. Organizations should develop programs that promote intercultural or-

ganizational integration that celebrates diversity as a reflection, accord-
ing to Triandis (2003) of variables of behaviors, attitudes, norms and
social, cultural, demographics, etc. Organizations that compete in global
environments need to invest in development intercultural competence
programs of their staff
E. These training programs should create intercultural organization and
developing values, attitudes and skills in communication processes, moti-
vation and intercultural leadership that discourages violence and employ-
ment discrimination.
F. The leader of the global corporation should develop intercultural orga-
nizational skills to achieve better results with teams that are more multi-
cultural teams than the monocultural to work considering that corporate
values must be respected.
G. Organizational leadership should promote codes of intercultural com-
munication and organizational motivation from the sensitivity of the
values of a new, more universal and objective organizational culture,
free of subjectivity and discrimination, able to strengthen the inter-open
spaces for communication free of conflicts and cooperation between dif-
ferent people.
H. Therefore, authentic intercultural organizational processes must be based
on humanistic and critical direction; policies and strategies focused on
organizational core values of intercultural and also promote the creation
of an environment of formation and development of all members of the
intercultural diversity.
References
Adler, N. J. (1983). A Typology of Management Studies Involving Culture. Journal of Inter-
national Business Studies, 14(2), 29-47.
Allwood, J., Lindström, N. B., Börjesson M., Edebäck C., Myhre R. Voionmaa K. et al.
(2007). European Intercultural Workplace: SVERIGE, Projektpartnerskapet European
1124
Intercultural Workplace (EIW), Leonardo Da Vinci, Kollegium SSKKII, Göteborg
University, Sweden.
Aneas Álvarez, M. A. (2015). Relaciones interculturales en la empresa: claves teóricas de los pro-
cesos y resultados interculturales. Recuperado el 22 de octubre de 2015 de http://diposit.
ub.edu/dspace/handle/2445/65235
Aneas Álvarez, M.A. (2009) Competencia intercultural: competencia clave en las orga-
nizaciones actuales. Vivir entre culturas: una nueva sociedad. Madrid, ES: La Muralla,
151-175.
Bennett, M. J. (2001a). Intercultural competence for global leadership. The intercultural De-
velopment Research Institute. www.idrinstitute.org
Bennett, M. J. (2001b). Developing Intercultural Competence for Global Managers in
Reineke, Rolf-Dieter (Editor) ( June, 2001) Interkulturelles Managment. Wiesbaden:
Gabler Verlag.
Bennett, M. J. (2001c). An Intercultural Mindset and Skillset for Global Leadership from
Conference Proceedings of Leadership Without Borders: Developing Global Leaders. Adel-
phi, MD: National leadership Institute and the Center for Creative Leadership, Uni-
versity of Maryland University College, 2001.
Bennett, M. (1993) Towards Ethnorelativism: A Developmental Model of Intercultural
Sensitivity. In M. Paige (Ed.), Education for the Intercultural Experience. Yarmouth,
Maine: Intercultural Press.
Bi, J. W. (2014). Cross-Cultural Communication and Second Language Teaching (p. 6). Beijing:
Language and Culture University Press.
Burggraaf, W. (2017). Intercultural management. On cultures and the multicultural organ-
isation. Delivered on the occasion of the assumption of duties as Professor of Inter-
cultural Management at Nyenrode University,the Netherlands Business School on
Thursday, June 11, 1998. Download from http://www.nyenrode.nl/bio/Documents/
Intercultural%20management%20%20On%20cultures%20and%20the%20multicul-
tural%20organisation.pdf
Business of Peace. (2000). The Prince of Wales Business Leaders Forum, International Alert,

Council on Economic Priorities. Disponible en http://www.international-alert.org/
sites/default/files/publications/The%20Business%20of%20Peace.pdf
Cao, D. C. (2012). A Theoretical Framework for China’s Business English Based on Interna-
tional Business Communication. Foreign Language in China, 9(3), 10-15.
Chen, Z. M., & Wang, L. F. (2009). Developing National Curriculum for BA Programs in
Business English in China. Foreign Language in China, 6(4), 4-11, 21.
Cox, T. (1991). The multicultural organization, The executive, Vol.5, No.2, pp.34-47.
Cox, T., Jr. 1991. The multicultural organization. Academy of Management Executive, 5(2):
34–47.
Cox, T., Jr. 1993. Cultural diversity in organizations: Theory, research & practice. San Francisco,
CA: Berrett-Koehler.
Cox T. (1994). Cultural Diversity in Organizations, San Francisco. Berret-Koehler.
Cox, T., Jr. 2001. Creating the multicultural organization: A strategy for capturing the power of
diversity. San Francisco, CA: Jossey-Bass.
1125
Cox T.; Blake S. (1991). “Managing Cultural Diversity: Implications for Organizational
Competitiveness”. Academy of Management Executive. Vol. 5, No. 3.
das Neves, J. C., & Melé, D. (2013). Managing ethically cultural diversity: learning from
Thomas Aquinas. Journal of business ethics, 116(4), 769-780.

Deloitte (2011). Consulting-assesstment centre Guide. Obtenido en https://www.wikijob.co.uk/
forum/consultancy-consulting-firms/deloitte-2011-consulting-assessment-centre-guide
DiStefano, J. J. and Maznevski, M. L. (2000). Creating Value with Diverse Teams in Global
Management. Organizational Dynamics, Volume 29, Issue 1, 2000, pp. 45 – 63.
Donalson, T. (1996). Values in tension: Ethics away from home. Harvard Business Review,
September–October 1996 Issue. 48-62.
Dubrin, A. J. (2003). Poder, Política e Influencia, en Fundamentos de Comportamiento Orga-
nizacional. Thomson, México, Pp. 242-248.
Earley, P. C., and Ang, S. (2003). Cultural Intelligence: Individual Interactions Across Cultures.
Palo Alto: Stanford University Press.
Egan, M. L., & Bendick, M. (2008). Combining multicultural management and diversity
into one course on cultural competence. Academy of Management Learning & Educa-
tion, 7(3), 387-393.
Ely, R. J. & Thomas, D. A. 2001. Cultural diversity at work: The effects of diversity perspec-
tives on work group processes and outcomes. Administrative Science Quarterly, 46(2):
229-273.
Fantini, A. 2007. Exploring Intercultural Competence: Developing, Measuring, and Monitor-
ing. Research Report 07-01. St. Louis, Center for Social Development, Washington
University. http://csd.wustl.edu/Publications/ Documents/RP07-01.pdf and http://
proposals.nafsa.org/Abstract_Uploads/118.61212.GS049.pdf
Flavell, J.H. (1979). ‘Metacognition and Cognitive Monitoring: A New Area of Cognitive
Inquiry.’ American Psychologist, 34/10: 906-11.
Foster B., Jackson G., Cross W., Jackson B., Hardiman R. (1991), Workforce Diversity and
Business. Training and Development Journal (1988, April). pp. 1-4.
García, R. A. E., & Alvarado, G. S. M. (1999). Hacia nuevos paradigmas organizacionales
interculturales. J. Flores S. Y F. Novelo (Comps.), Innovación Tecnológica y Gestión de las
Organizaciones, 103-112. Memoria 12º Congreso Investigación, pp.103-112, Depto.
Producción Económica, DCSH, UAM-X, México, 1999.
Gardenswartz, L., & Rowe, A. (1998). Managing diversity: A complete desk reference &
planning guide (Rev. ed.). New York, NY: McGraw-Hill.
Gardenswartz, L., & Rowe, A. (1994). Diverse teams at work: Capitalizing on the power of
diversity. Chicago: Irwin Professional Publishing.
Garsten, C. (1993). Apple world: Core and periphery in a transnational organizational cul-
ture. Stockham: Stockham Studies in Social Anthropology.
Gasorek, D. (1998). Inclusion opportunity: Leveraging diversity for bottom-line results in
today’s global marketplace: Don’t ignore differences in the workplace. Business Credit,
June, 70-71.
Gómez-Mejía, L.; Balkin, D.; Cardy, R. (2001) Dirección y Gestión de Recursos Humanos.
Pearson, España.
1126
Griggs, S. A. (1991). Learning Styles Counseling. ERIC Digest. ERIC Clearinghouse on
Counseling and Personnel Services. Ann Arbor, MI: 3.
Gudykunst, W., & Kim, Y. (1997). Communicating with Strangers: An Approach to Intercul-
tural Communication (3rd ed., pp. 83-104). New York City, New York: McGraw –Hill.
Hall, E. (1990). The Hidden Dimension (2nd ed., p. 13). New York, New York: Anchor. www.
ccsenet.org/elt English Language Teaching Vol. 9, No. 2; 2016
Hall, S. (1973). Encoding and Decoding in the Television Discourse. Birmingham: Centre for
Contemporary Cultural Studies.
Hamada, T. (1989). American enterprise in Japan. Albany, NY: State University of New
YorkmPress.
Hammer, M. R., Bennett, M. J., & Wiseman, R. (2003). Measuring intercultural sensitivity:
The Intercultural Development Inventory. In R. M. Paige (Guest Ed.). Special issue:
Research on Intercultural Development. International Journal of Intercultural Relations,
27(4), 421–443.
Harrison, D.; Price, K.; Bell, M. (1998). Beyond relational demography: Time and the effects
of surface-and deep-level diversity on work group cohesion. Academy of Management
Journal, vol. 41, nº 1, 96-108.
Himmelstern, F. (2007). Today’s Organizations are Multicultural. Signo y Pensamiento, (51),
68-79.
Hofstede, G. (1999). The Universal and the Specific in 21st-Century Global Management,
Organizational Dynamics, Vol. 28 no. 1, Summer 1999, 34-43.
Jackson, S. E., Joshi, A., & Erhardt, N. L. 2003. Recent research on team and organizational
diversity: SWOT analysis and implications. Journal of Management, 29: 801–830.
Johnson, J., Lenartowicz, T., & Apud, S. (2006). Cross-cultural competence in international
business: Toward a definition and a model. Journal of International Business Studies,
2(37), 525-543-37, 525-543. http://dx.doi.org/10.1057/palgrave.jibs.8400205
Joshi, A., & Roh, H. (2009). The role of context in work team diversity research: A meta-
analytic review. Academy of Management Journal, 52(3), 599-627.
Kanter R. M. (1983). The Change Masters. Editorial Simon and Schuster. NY, USA.
Kochan, T., Bezrukova, K., Ely, R., Jackson, S., Joshi, A., Jehn, K., et al. (2003). The effects INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
of diversity on business performance: report of the diversity research network. Human
Resource Management, 42(1), 3−21.
Martín Alcázar, F., Romero Fernández, P. M., & Sánchez Gardey, G. (2012). Transforming
human resource management systems to cope with diversity”. Journal of business ethics,
Vol 107(4): 511-531.
Maznevski, M. L. (1994), Synergy and Performance in Multicultural Teams, unpublished
Ph.D. dissertation, The University of Western Ontario.
Milliken. F. y Martins, L. (1996). Dearching for common threads: Understanding the mul-
tiple effects of diversity in organizational groups- Academy of Management Review,
vol. 21, 402-433.
Multinacional (2005). XV Congreso de la Asociación Científica Economía y Dirección de la
Empresa (ACEDE), Las Palmas de Gran Canaria, La Laguna, Septiembre, 2005.
Nelson, T.O. (1996). Consciousness and Metacognition. American Psychologist, 51/2:
102-116.
1127
Orlando C. R. (2000). Racial Diversity, Bussiness Strategy, and Firm Performance: A Re-
source- Based View. Academy of Management Journal. Abril del 2000, Págs. 164-177.
Pelled, L. H., Eisenhardt, K. M., & Xin, K. R. (1999). Exploring the black box: An analysis
of work group diversity, conflict and performance. Administrative Science Quarterly,

44:1–28.
Pless, N. M., & Maak, T. (2004). Building an inclusive diversity culture: Principles, pro-
cesses, and practices. Journal of Business Ethics, 54(2), 129–147.
Ramírez, L. M., & León, A. D. R. (2008). Gestión estratégica de la diversidad culural en las
organizaciones. Ciencias Sociales Online, 5(1), 53-70.
Rapaille, C. (2006). The culture code An ingenious way to understand why people around the
world live and buy as they do. New York, New York: Random House.
Rubio, I. M. (1999). La formación intercultural en la gestión de expatriados. La gestión de la
diversidad: XIII Congreso Nacional, IX Congreso Hispano-Francés, Logroño (La Rioja),
16, 17 y 18 de junio, 1999. Universidad de La Rioja, 879-886.
Sandford, N. and Mohlemkamp, M. ( 2015). Building world-class ethics and compliance
programs: Making a good program great. Disponible en http://www2.deloitte.com/
us/en/pages/risk/articles/building-world-class-ethics-and-compliance-programs-
making-a-good-program-great.html
Shell (2015) Shell general business principles, available at: http://www.shell.com/global/
aboutshell/who-we-are/our-values/sgbp.html
Shell General Business Principles (2015). http://www.shell.com/content/dam/shell-new/
local/global-content-packages/corporate/sgbp-english-2014.pdf
Steizel, S., Dumas, V., & As, V. P. B. (2006). El trabajo en equipos multiculturales: par-
ticularidades y mecanismos organizacionales para facilitarlos. Asociación Argentina de
Especialistas en Estudios del trabajo, 2-31.
Stephan, W. G., Stephan, C. W., & Gudykunst, W. B. (1999). Anxiety in intergroup rela-
tions: A comparison of anxiety/uncertainty management theory and integrated threat
theory. International Journal of Intercultural Relations,23,613-628.
Susaeta, L. y Navas J.E. (2005): “Diversidad Cultural y su Impacto en Resultados Empresari-
ales desde la Teoría de Recursos y Capacidades: Una Aplicación a la Empresa.
The United Church of Canada (2011). Defining Multicultural, Cross-cultural, and Inter-
cultural. © 2011 The United Church of Canada/L’Église Unie du Canada. Licensed
under Creative Commons Attribution Non-commercial No Derivatives (by-nc-nd)
Licence. To view a copy of this licence, visit http://creativecommons.org/licenses/
by-nc-nd/2.5/ca.
Thomas, D. A. & Gabarro, J. (1999). Breaking Through: How People of Color and the Com-
panies They Work for Can Overcome Barriers. Boston, MA: Harvard Business School
Press.
Throsby, D. (1999). Cultural capital. Journal of Cultural Economics 23: 3–12, 1999. Kluwer
Academic Publishers. Printed in the Netherlands
Triandis, H. C. (2003). The future of workforce diversity in international organizations: A
commentary, Applied psychology: An international review (53:3), 2003, pp. 486-495.
Trompenaars, F. (1993). Riding the waves of culture: understanding cultural diversity in
business. Economist Books, 1993 - Business & Economics.
1128
Tsui, A., & O’Reilly, C. (1989). Beyond simple demographic effects: The importance of rela-
tional demography in superior-subordinate dyads. Academy of Management Journal,
32, 402–423.
van Knippenberg, D., & Schippers, M. C. (2007). Work group diversity. Annual Reviewof
Psychology, 58, 515–541.
Whipple, J. M. & Frankel, R. (2000). Strategic alliance success factors. The Journal of Sup-
ply Chain Management, LEV-PART art 007 pp. 1-13.
Williams, K., O’Reilly, C., 1998. Forty years of diversity research: A review [in:] Staw, B.M.,
Cummings, L.L., (Eds.), Research in organizational behavior. CT: JAI Press, Greenwich.
Zhao, X. L. (2013). The Study of Business English Intercultural Education from the Per-
spective of Intercultural Communication. Journal of Langfang Nornal College, 29(1),
111-114.
1129
AMAZON  GESCHÄFTSMODELL
UND SWOTANALYSE
Prof. Dr. Urban BACHER

E-Mail: urban.bacher@hs-pforzheim.de
Torsten WINKLER B. Sc.

E-Mail: winklert@hs-pforzheim.de
Abstrakt
Amazon ist ein börsennotiertes Online-Versandunternehmen, das weltweit zu
Urban Bacher Torsten Winkler: AMAZON – GESCHÄFTSMODELL UND SWOT-ANALYSE
den TOP 10 der wertvollsten Unternehmen zählt, sein Gründer Jeffrey Bezos
gilt als reichster Mensch der Welt. Anhand einer SWOT-Analyse beschreibt
der Beitrag das Geschäftsmodell des dynamischen weltweit agierenden Unter-
nehmens. Dabei werden differenziert die Stärken, Schwächen, Chancen und
Risiken von Amazon dargestellt. Der Beitrag zeigt, dass Amazon ein integ-
riertes Full-Service-Konzept verfolgt.
Schlüsselwörter: Amazon, Alibaba, SWOT-Analyse, Trends im Einzelhan-
del, Onlinehandel, Internetplattform, Warenlogistik, Cloud-
Infrastruktur, Datenmanagement, Full-Service-Anbieter
JEL Classification: F19, M20
1. AMAZON
.. Firmenporträt
Die Amazon.com Inc. ist das weltweit führende Online-Versandhandelsun-
ternehmen. Das Unternehmen wurde 1994 in Seattle im US-Bundesstaat Wa-
shington von Jeffrey P. Bezos gegründet. Bei Amazon finden Käufer Waren aus
beinahe allen Bereichen der Konsumgüterindustrie. Bücher, Musik, Elektronik-
produkte, Digitale Downloads, Software, PC- und Videospiele werden ebenso
1130
angeboten wie Geräte für Küche, Haus und Garten, Spielwaren, Sport- und
Freizeitartikel, Schuhe und Schmuck, Gesundheits- und Kosmetikprodukte,
Kleidung, Autos, Lebensmittel und Zeitschriften. Dabei werden nicht alle Pro-
dukte von Amazon selbst verkauft. Auch private und gewerbliche Verkäufer
können ihre Produkte über das Onlineversandhaus auf einer Plattform anbie-
ten. Das Angebot des Online-Händlers umfasst noch weitere Leistungen. Dazu
gehört unter anderem der portable Reader „Kindle“, auf dem Bücher, Maga-
zine, Zeitschriften oder persönliche Dokumente heruntergeladen und gelesen
werden können, sowie das Video-on-Demand-Angebot über „Amazon Prime
Video“ oder der Streaming-Service „Fire TV“. Außerdem führt das Unterneh-
men die Cloud-Plattform „Amazon Web Services“, das Spracherkennungssys-
tem „Echo“ oder die Tablet-Reihe „Fire“. Über „Amazon Fresh“ können Kunden
frische Lebensmittel online bestellen. Eine ganz andere Art der Dienstleistung
von Amazon ist das Zahlungssystem Amazon Pay. Auf diesem Zahlungssys-
tem können Kunden ihre Einkäufe zuverlässig mit Informationen abwickeln,
die bereits auf ihrem Amazon-Kundenkonto gespeichert sind. Externe Händ-
ler können sich diesem Zahlungssystem anschließen und vom Vertrauen in das
eingeführte System und der Marke profitieren.
.. Amazon Aktie

Die Amazon-Aktie legte in den vergangenen Jahren eine rekordverdächtige
Kursentwicklung zurück. Der Emissionskurs lag am 1. Mai 1997 bei 18 US-
Dollar. Auch die mittelfristige Kursentwicklung ist beachtlich. Zum Jahresbe-
ginn 2014 lag die Aktie bei 396 US-Dollar, zum Jahreswechsel 2017/18 lag der
Kurs bei 1170 US-Dollar, also fast dem Dreifachen (vgl. nachfolgender Chart).
1131
Chart 1: Amazon Aktie in USD
Abb.: 10-Jahres-Chart von Amazon (Quelle Bloomberg)
.. Problemstellung
Im folgenden Beitrag wird das Geschäftsmodell von Amazon anhand einer

SWOT-Analyse einer kritischen Würdigung unterzogen. Dabei werden Chan-
cen und Risiken sowie Stärken und Schwächen des Unternehmens analysiert.
2. SWOTANALYSE VON AMAZON

.. SWOT-Analyse als Hilfsmittel für strategische
Entscheidungen
Die Aufgabe einer SWOT-Analyse liegt darin, ein aktuelles Bild des Unter-
nehmens mit seinen Stärken (Strengths) und Schwächen (Weaknesses) sowie
mit Entwicklungsmöglichkeiten/Chancen (Opportunities) und Entwicklungs-
hemmnissen/Risiken (Threats) zu erhalten. (Bacher, 2015) Das gewonnene
„strategische Bild“ wird sowohl von internen Gegebenheiten als auch von exter-
nen Einflüssen bestimmt. Stärken sind Unternehmensmerkmale, die gewöhn-
lich zu Wettbewerbsvorteilen führen, Schwächen können zu Wettbewerbs-
nachteilen gereichen. Risiken und Chancen sind grundsätzlich vom Unterneh-
men nicht beeinflussbar. Ihre Ursachen liegen gewöhnlich bei externen Fakto-
ren, hervorgerufen beispielsweise durch den Markt, die Konjunktur oder den
Wettbewerb, während unter Stärken und Schwächen unternehmensspezifische
Faktoren zu verstehen sind. (Schmidlin, 2017) Aufgabe des Managements ist
1132
es, die strategischen Möglichkeiten des Unternehmens und der Konkurrenz
aufzuzeigen und geeignete Maßnahmen abzuleiten. Für das Unternehmen und
für dessen Investoren wäre es optimal, wenn die Chancen eines Unternehmens
in Verbindung mit den eigenen Stärken optimal genutzt werden!
.. Grosses externes Chancenpotenzial für Amazon

2.2.1. Vielzahl an Firmenakquisitionen
Amazon wächst auch durch Übernahmen. So wurde im Jahr 2009 der E-
Commerce Schuh- sowie Schuhzubehörhändlers Zappos übernommen, im
Jahr 2011 sowie Anfang 2017 die E-Commerce Plattformen Quidsi sowie
Souq, 2012 das Lagerhaussystem Kiva Systems und 2014 die Streaming-
Plattform Twitch Interactive. Von 2008 bis 2017 hat Amazon Firmen im Wert
von insgesamt 19,2 Mrd. US-Dollar gekauft. (Kaufmann, 2017) Aktuell hat
Amazon die Whole Foods Market Inc. für 13,7 Mrd. US-Dollar übernom-
men. Whole Foods Market ist ein Spezialist für hochwertige (Bio-)Lebensmittel.
(Clausen, 2017) Bisher hatte der Online-Versandhändler wenig Know-how
mit verderblichen Waren. Daher wird Amazon Whole-Foods-Know-how für das
Geschäftssegment Amazon Fresh nutzen und umgekehrt Technologien und Online-
konzepte in den stationären Handel einbringen. (Wilhelm, 2017: 80-83) Amazon
beabsichtigt neben dem Onlinehandel nun auch eine starke Marktposition im
stationären Handel zu erschließen. (Deka Investments, 2017)

2.2.2. Expansive Firmenpolitik zur Erschließung neuer Absatzmärkte
Der wichtigste Absatzmarkt für Amazon ist der US-Markt. Dort werden
rund 60% aller Umsätze generiert. Die nächstwichtigsten Absatzmärkte sind
der deutsche (Anteil etwa 10 %), der britische sowie der japanische (je 7 %).
(Amazon, 2017) Strategisches Ziel von Amazon ist es seine Stellung in Europa
weiter auszubauen. Dabei fließen Investitionen insbesondere in die Logistik-
sowie Cloud-Infrastruktur. So wurden beispielsweise für die Erschließung des
zweitgrößten Absatzmarktes, Deutschland, seit 2010 etwa 8 Mrd. Euro in die
Infrastruktur investiert. (Kaufmann, 2017d) Potenzial sieht der Vorstands-
vorsitzende und Gründer Bezos insbesondere im stetig wachsenden indischen
Markt, da dieser nach China das bevölkerungsreichste Land der Erde ist. Daher
wurden seit der Erschließung des indischen Markts im Jahr 2013 fünf Mrd.
1133
US-Dollar (Amazon, 2017b) in die Logistik- und Cloud-Infrastruktur sowie
das größte Software-Entwicklungszentrum außerhalb der USA investiert. (O.
Verf, 2016) Zur Erschließung des Mittleren Ostens wurde Anfang 2017 das in
Dubai ansässige E-Commerce Unternehmen Souq.com übernommen.
2.2.3. Positive Entwicklung der Weltwirtschaft

Die Aussichten für die Weltwirtschaft sind positiv. Die OECD sieht die
positive Entwicklung der Beschäftigungs- und Erwerbsquoten sowie die Ent-
stehung neuer Märkte und die Erhöhung der Produktivität als Indikatoren für
einen anhaltenden Trend. (OECD, 2017: 2) Der US-amerikanische Markt,
so das schweizerische Staatssekretariat für Wirtschaft, erlebe seit der Amts-
übernahme Donald Trumps einen erheblichen wirtschaftlichen Aufschwung.
(OECD, 2017: 2) Ebenso gibt die EZB einen positiven weltweiten Ausblick
und stützt sich dabei auf die steigenden Konsumausgaben der Privathaushalte
sowie das zunehmende Verbrauchervertrauen in die Weltwirtschaft. (OECD,
2017: 5) Der Sachverständigenrat zur Begutachtung der gesamtwirtschaftli-

chen Entwicklung sieht überdies eine weltweite BIP-Wachstumsrate von jeweils
drei Prozent für die Jahre 2017 und 2018 vor. (Sachverständigenrat, 2017: 2)
Diese Prognosen waren eher zu vorsichtig, so dass die Wachstumsraten derzeit
nach oben korrigiert werden.
2.2.4. Handel immer mehr Online

In den letzten Jahren ist ein Umschwung im Einzelhandel zu beobachten.
Während der Online-Handel pro Jahr zweistellig wächst, verharrt der statio-
näre Handel auf dem Status Quo: Kostenlose Lieferungen, die Verfügbarkeit rund
um die Uhr (..) die riesige Produktauswahl, (Bovensiepen, Rumpff und Bender,
2015: 7-11) die Vielzahl an Einkaufskanälen sowie der leichte Zugang zu Test-
berichten und Kundenbewertungen sind die Ursachen für diese Entwicklung.
(Bovensiepen, Rumpff und Bender, 2015: 7-11) Eine Studie der PwC bestätigt
dieses Konsumverhalten: Dort heißt es, dass 15 Prozent der 25- bis 34-Jährigen
einmal täglich einen Einkauf im Internet tätigen würden, und, dass 85 Prozent
der 18- bis 34-Jährigen mindestens einmal im Monat Waren im Internet ein-
kaufen. (Bovensiepen und Rumpff, 2015: 9)
1134
.. Externe Risiken für Amazon
2.3.1. Branchen- und Wettbewerbsrisiko
Amazons Geschäftstätigkeit ist von einer Vielzahl an Wettbewerbern unter-
schiedlicher Branchen umgeben. Den Käufern steht eine Vielzahl an Vertriebs-
wegen offen. Beispielsweise könnten die angebotenen Waren Amazons online
bei anderen E-Commerce-Händlern oder offline im stationären Handel bezo-
gen werden. (Amazon, 2017: 4) Größter Konkurrent auf dem internationalen
Absatzmarkt ist die chinesische Alibaba Group. Wie Amazon steht Alibaba
ebenfalls für enorme Expansion und für Wachstum. Für Amazon kann der neue
Wettbewerber aus China eine Bedrohung darstellen. (Kaufmann, 2017c) Ali-
baba hat mehr als eine halbe Milliarde aktive Nutzer, die jedes Quartal um über
20 Millionen ansteigen. Aus diesem Kundenwachstum generiert Alibaba jedes
Quartal deutliche Umsatz- und Gewinnsprünge. Die Chancen für Alibaba sind
größer als die für Amazon, zumal das chinesische Online-Handelsvolumen
deutlich größer ist als das amerikanische. So generiert der Internethandel in
den USA ein Volumen von insgesamt 625 Mrd. US-Dollar, das Handelsvolu-
men in China ist noch deutlich größer und beläuft sich auf etwa 970 Mrd. US-
Dollar. (Kaufmann, 2017b) Wie Amazon wächst Alibaba besonders stark im
Cloudgeschäft und mit Hilfe von Zukäufen. So hat Alibaba im Februar 2018
ein 33-Prozent-Paket am Zahlungsabwickler Ant Financial erworben. Alibaba
hat ehrgeizige Ziele: Bis 2020 soll der Umsatz die Billionen-US-Dollargrenze
überspringen, zugleich sollen zwei Billionen Nutzer aktiv sein und den Unter-
nehmenswert von derzeit 470 Mrd. US-Dollar sich mehr als verdoppeln.

Eine weitere Bedrohung stellen Unternehmensallianzen dar, welche sich ge-
gen Amazons Expansionskurs stellen. Beispielsweise werden seit Ende Septem-
ber 2017 Konsumgüter sowie (Bio-)Lebensmittel der weltweit größten Einzel-
handelskette Walmart über den Sprachassistenten der weltweit meistaufgerufe-
nen Webseite, google.com, vertrieben. (Sorge, 2017) Ein anderes Beispiel stellt
die Kooperation des weltweit größten Softwareherstellers Microsoft mit dem
Softwarehersteller Adobe Systems zur Unterstützung der Cloud-Computing-
Plattform Microsoft Azure dar. Microsoft Azure gilt als größter Konkurrent
der Cloud-Computing-Plattform Amazon Web Services. (Kaufmann, 2017f )
1135
2.3.2. Gefahren der gegenwärtigen Marktentwicklung
Wenngleich die Konjunkturaussichten gegenwärtig sehr gut aussehen, sind
diese eher zyklischer und nicht etwa politischer bzw. struktureller Natur. (Ste-
phan, 2017: 2) So sind Risiken, welche aufgrund von „geopolitische(n) Schocks
und Handelsprotektionismus“ bestehen, nicht von der Hand zu weisen.
(OECD, 2017: 7) Gerade die bestehende Nordkoreakrise könnte den Handel
mit China und den gegenwärtigen Konjunkturtrend abschwächen. (Stephan,
2017: 2) Eine weitere Gefahr besteht im zunehmenden Protektionismus der
USA, dem China Gegenmaßnahmen entgegensetzen wird. Insgesamt schwächt
dieses prohibitive Verhalten den Welthandel und das Wirtschaftswachstum.
Die expansive Geldpolitik der FED sowie der EZB generiert zwar zusätz-
liches Wachstum, allerdings ist dieses bestenfalls von mittelfristiger, aber nicht
von langfristiger Natur. Viele Reformen gegen strukturelle Probleme, wie die
weltweit weiter anwachsende Verschuldung, bleiben ungelöst. Dadurch wird
das nachhaltige Wachstum langfristig gebremst. Die Politik des billigen Geldes
könnte im Extremfall sogar die Finanzmarktstabilität gefährden. (Sachverstän-

digenrat, 2016: 1)
2.3.3. Währungsrisiko
Durch die internationale Ausrichtung ist Amazon dem Wechselkursri-
siko vom US-Dollar zum Euro, zum britischen Pfund, zum japanischen Yen
ausgesetzt. (Amazon, 2017: 10) Laut eigenen Unternehmensangaben haben
sich die Nettoumsätze im Geschäftsjahr 2016 im Vergleich zum Vorjahr we-
gen Wechselkursrisiken um 490 Millionen US-Dollar verringert. (Kaufmann,
2017f ) Auf der anderen Seite fallen hohe Kostenanteile für Warenverteilung
und Lagerung, z.B. in Deutschland, auch in Fremdwährung an, so dass sich die
Wechselkursschwankungen ausgleichen können. Langfristig gleichen sich die
Chancen und Risiken von Fremdwährungen oft aus.
2.3.4. Weitere unternehmerische Risiken des Geschäftsmodell Amazon

Mit seinem Geschäftsmodell ist Amazon weiteren Risiken ausgesetzt. Im
Folgenden werden die Saisonalitätsrisiken, Steuer- und Rechtsrisiken, Wachs-
tumsrisiken und Investitionsrisiken kurz skizziert.
1136
• Wie im Einzelhandel generell fallen die Umsatzerlöse von Amazon nicht
gleichmäßig über das Jahr verteilt an, sondern werden quartalsabhängig
generiert („Saisonalitätsrisiko“). So bildet das vierte Quartal den umsatz-
stärksten Zeitraum („Drittel des Jahresumsatzes“) und stellt an die Mitar-
beiter und Logistik besondere Anforderungen. (Amazon, 2017: 4)
• Amazon gilt als ein notorischer Steuervermeider. Die Behörden in Europa
haben dies erkannt, stellen den Konzern an den Pranger und pochen auf
angemessene nationale Steuerzahlungen. Insgesamt kann die Strategie ei-
ner weltweiten Steuervermeidung zu enormen Straf- und Steuernachzah-
lungen verbunden mit hohen Rechts- und Reputationsrisiken für Ama-
zon führen.
• China wäre ein Riesenmarkt für Amazon. Doch durch Abschottungsmaß-
nahmen wird auf absehbare Zeit Alibaba dort der Platzhirsch bleiben.
Für das Geschäftsmodell von Amazon erwachsen sich auch gravierende
Probleme, wenn das Internet stark reguliert wird oder nicht die notwendi-
ge Geschwindigkeit bzw. Verfügbarkeit hat. Im Endeffekt können derar-
tige Maßnahmen das weltweite Wachstum von Amazon enorm dämpfen.
• Der Aufbau eigener stationärer Läden (z. B. im Bereich Food) sowie neu-
artige Logistik- und Verteilsysteme (eigene Fahrzeug- und Flugzeugflot-
ten, Drohnensysteme etc.) verändern das bisherige Geschäftsmodell und
verursachen neben immensen Investitionen auch neue laufende Kosten.
Insgesamt sind damit hohe unternehmerische Risiken verbunden.
.. Unternehmensspezifische Stärken Amazons INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
2.4.1. Umfangreiches Produktangebot

Bei Amazon finden Verbraucher sowohl neue als auch gebrauchte Waren
der Konsumgüterindustrie. Dazu zählen beispielsweise Bücher, Elektronikpro-
dukte, Geräte für Haus und Garten, Sport- und Freizeitartikel, Spielwaren, Ge-
sundheits- und Kosmetikprodukte, Kleidung und Schuhe, Schmuck, Amazon-
Eigenmarken (z. B. Kindle, Fire-Tablet, Fire-TV, Amazon Echo) oder frische
Lebensmittel. Dabei werden nicht alle Produkte durch Amazon selbst veräu-
ßert. Rund 40 Prozent aller Waren werden weltweit durch private oder gewerb-
liche Verkäufer über die Verkaufsplattform Amazon Marketplace margenstark
vertrieben. Neben dem Online-Versandhandel wird eine Reihe weiterer Leis-
1137
tungen durch Amazon angeboten. Über Amazon Web Services (AWS) wird die
Nutzung einer Technologieinfrastruktur, welche ihren Kunden Speicherplatz,
Datenbanken sowie Anwendungen innerhalb einer Cloud zur Verfügung stellt,
ermöglicht. Über das Mitgliedschaftsprogramm Amazon Prime, über welches
vier von fünf aller Amazon-Konten ausgestattet sind, werden Leistungen wie
Prime Video, Prime Music und Amazon Cloud Drive vertrieben.
2.4.2. Marktstellung und Wettbewerbssituation

Mit Hilfe der expansiven Firmenpolitik sowie der Vielzahl an Firmenakqui-
sitionen wurde Amazon zum unangefochtenen Weltmarktführer im Online-Han-
del. (Zschaber, 2017) Insbesondere die globale Positionierung des Unterneh-
mens sowie die gegenwärtige Konsumneigung der Verbraucher führten zum
starken Wachstum des Online-Versandhauses. (Zschaber, 2017)
2.4.3. Der Visionär Bezos

Der Gründer und CEO von Amazon Jeff Bezos ist die Schlüsselfigur des
Unternehmens, stellvertretend steht er für das Geschäftsmodell, für die Innova-
tionen und für das Wachstum. Er implementierte eine Vielzahl an innovativen
Alleinstellungsmerkmalen (USP), welche Amazon von der übrigen Konkur-
renz abgrenzt: das umfangreiches Produktsortiment, ein umfassendes Fulfill-
ment (Distribution/Logistik) sowie diverse Zusatzleistungen. Diese Vielzahl
an Vorteilen werden von der Konkurrenz nicht oder zumindest nur teilweise
geboten. (Oenning, 2016)
Im Geschäftsbericht 2016 des Online-Versandhauses wird der Verlust sei-
ner Person als überaus negativ für die weitere Geschäftstätigkeit seines Un-
ternehmens dargestellt. (Amazon, 2017a: 10) Das liegt daran, dass Bezos der
Visionär der Marke Amazon ist, ähnlich wie es Steve Jobs für die Marke Apple
war. Sein Wirken hat maßgeblich dafür gesorgt, dass sich das Kaufverhalten
der Leute im Laufe der vergangenen 20 Jahre verändert hat. Bezos persönlicher
Antrieb ist dabei stets der Spaß, Traditionen infrage zu stellen. (Scholz, 2012)
2.4.4. Wachsende Geschäftssegmente

Amazon hat jährlich enorm wachsende Nettoumsatzerlöse zu verzeichnen.
Während diese zum 31.12.2014 insgesamt noch etwa 89 Mrd. US-Dollar be-
1138
trugen, sind diese bis zum Geschäftsjahr 2017 auf insgesamt 178 Mrd. US-
Dollar angestiegen. Diese Zunahme entspricht einer Verdoppelung innerhalb
von drei Jahren. Dabei ist zu beobachten, dass das Geschäftssegment Amazon
Web Services am schnellsten und stärksten wächst. Im Vergleich zum Vorjahr
ist AWS seit 2014 um zunächst 49 Prozent, im darauffolgenden Jahr um 70
Prozent sowie um 55 Prozent im Geschäftsjahr 2016 gewachsen. In absolu-
ten Werten ausgedrückt, macht dieser mit 10% den kleinsten Anteil mit etwa
17,5 Mrd. US-Dollar aus. Im Vergleich hierzu generierte Amazon ohne die
Cloud-Services des Geschäftssegments AWS auf dem nordamerikanischen
Markt etwa 106 Mrd. US-Dollar und auf dem Internationalen (ohne die USA)
etwa 54 Mrd. US-Dollar. Im Geschäftssegment E-Commerce betrugen die
Wachstumsraten zuletzt etwa 30 Prozent im Vergleich zum Vorjahr. (Amazon,
2017a: 23) Bei der Betrachtung des EBIT wird allerdings die Profitabilität des
Geschäftssegments AWS deutlich. Zum 31.12.2017 betrug dieser 4,3 Mrd.
US-Dollar. Im Gegensatz dazu wurde durch den Internethandel in den USA
lediglich ein EBIT i. H. v. 2,8 Mrd. US-Dollar und auf dem internationalen
Markt sogar ein Verlust i. H. v. 3,1 Mrd. US-Dollar ausgewiesen. Die geringe
Profitabilität des E-Commerce-Handels Amazons liegt allerdings in der Ziel-
setzung des Managements: Wachstum. (Amazon, 2017a: 24) Die Cashflows
des Online-Versandhändlers verdeutlichen dies ebenfalls. Die Investitionstä-
tigkeit Amazons wächst von Jahr zu Jahr und betrug zuletzt zum 31.12.2017
etwa 12 Mrd. US-Dollar. Dem werden auch jährlich steigende positive opera-
tive Cashflow Einnahmen gegenübergestellt: Während diese zum Jahresende
2014 noch etwa 6,8 Mrd. US-Dollar betrugen, hat Amazon zum Jahresende

2017 bereits 18,4 Mrd. US-Dollar vorzuweisen. (Amazon, 2017a)
.. Unternehmensspezifische Schwächen Amazons

2.5.1. Ausschüttungspolitik
Amazon hat seit der Gründung keine Dividendenzahlungen getätigt.
(Amazon, 2017a) Vor dem Hintergrund der expansiven Firmenpolitik sowie
der Vielzahl an Firmenakquisitionen ist dieser Umstand nicht verwunderlich,
da Amazon seine erwirtschafteten Überschüsse zur Finanzierung des weiteren
Wachstums benötigt. (Schmidlin, 2017: 103)
1139
2.5.2. Geringe Profitabilität, hohe Investitionsausgaben, hohe Verschuldung
Durch die expansive Disposition des Managements wird Amazon zu ho-
hen Investitionsausgaben gezwungen. Dieses Vorgehen zugunsten des Firmen-
wachstums und zulasten der Profitabilität führt zu Verunsicherung bei den
Investoren. (Kaufmann, 2017e) Das Schwanken der operativen Margen sorgt
hin und wieder für ein Fallen des Amazon-Aktienkurses. (Kaufmann, 2017d)
Negativ auszulegen ist auch die niedrige Eigenkapitalquote von lediglich 21
Prozent zum 31.12.2017. Bei Abzug des aufgrund der teuren Whole Foods
Übernahme auf 13,4 Mrd. US-Dollar angeschwollenen Goodwill liegt sie so-
gar nur bei 11,3%. Damit korrespondiert zwar eine entsprechend hohe Fremd-
kapitalquote, die aber vorwiegend aus Verbindlichkeiten für Lieferungen und
Leistungen besteht. (Amazon, 2017a) Die tatsächlich zinstragende Verschul-
dung liegt mit knapp 25 Mrd. US-Dollar unter den liquiden Mitteln von 31
Mrd. US-Dollar, die in den zurückliegenden Jahren mit Hilfe der steigenden
Cashflow-Überschüsse angesammelt werden konnten. Weitere Besonderheit:
Im Fiskaljahr 2017 wurden erhebliche Finanzierungsmittel für die Whole-
Foods-Übernahme benötigt.
Eine wichtige Substanzkennzahl, das Kurs-Buchwert-Verhältnis KBV liegt
mit 19 sehr hoch. Diese Kennzahl sagt aus, welchen Aufschlag der Markt auf
das Reinvermögen, also den Buchwert eines Unternehmens bezahlt. (Schmid-
lin, 2017: 119-120) Somit wird Amazon eine viel höhere Bewertung zuge-
sprochen, als dass Eigenkapital der Aktionäre bei einer Liquidation wert wäre.
(Schmidlin, 2017: 119-120) Auch die Ertragskennzahlen sind extrem hoch. So
liegt das Kurs-Gewinn-Ver-hältnis KGV für 2018 von Amazon bei 175. Ein
derart hohes KGV ist „teuer“ und mit viel Hoffnungen verbunden. Denn bei
gleichbleibenden Gewinnen würde sich das Investment erst nach 175 Jahren
amortisieren. (Schmidlin, 2017: 112-113) In die gleiche Richtung zeigen die
Ertragskennzahlen KCV sowie KUV (Kurs-Cashflow-Verhältnis bzw. Kurs-
Umsatz-Verhältnis). Das KCV liegt bei über 20, das KUV bei etwa 3,1. (Ama-
zon, 2017a) Historisch liegen die Marktdurchschnitte beim KGV bei etwas
über 15, beim KCV bei ca. 10 und beim KUV bei etwa 1,5. (Bacher, 2015: 284)
3. UNTERNEHMEN MIT GROSSEM POTENZIAL

Amazon ist ein höchst dynamisches Unternehmen, dessen immenses
Wachstum sich über den weltweiten Konsumhunger der Verbraucher fortset-
1140
zen wird. Die Marke und die Marktstellung als das in der westlichen Welt größ-
te Online-Versandhaus werden weiter strahlen und diese Strahlkraft wird der
Visionär Jeffrey P. Bezos weiter befeuern. Die Marschrichtung ist dabei klar:
Amazon wird sich noch breiter aufstellen und weiterwachsen. Erfolgsfaktoren
waren bisher die Marke, das breite Sortimentsprogramm, die Internetplattform
und die Logistik. Diese Erfolgsfaktoren werden systemisch ergänzt um weitere
moderne Technologien und Algorithmen. Die Strategie verfolgt eine Festigung
und weiteren Ausbau des weltweiten Kundenstammes und um die Verwertung
der dahinterliegenden Daten. Die Warenversorgung wird dabei immer mehr
um Online-, Service- und Finanzdienste überlagert werden. Alphabet (Goog-
le), Facebook, Apple und andere Technologieunternehmen gehen einen ähn-
lichen digitalen Weg und versuchen jeweils ihr digitales Infrastruktursystem
weltweit durchzusetzen. Alibaba und Amazon setzen hier noch eins drauf: Das
Nebeneinander von realen Waren- und Versorgungsdiensten einerseits und
Datendiensten und virtuellen Technologien andererseits werden diese Unter-
nehmen zu modernen Full-Service-Anbietern eigener Art, deren Zenit noch
lange nicht erreicht ist.
LITERATURVERZEICHNIS
Amazon (2017a). Amazon Annual Report [available at: http://phx.corporate-ir.net/
phoenix.zhtml?c=97664&p=irol-reportsannual access September 10, 2017]
Amazon (2017b). Economic Impact on India [available at: https://www.amazon.in/
b?ie=UTF8&node=12088418031 access September 5, 2017]
Bacher, U. (2015). Bankmanagement kompakt, 5. Auflage, Konstanz
Bovensiepen, G., Rumpff, S., Bender, S. (2015) Store 4.0 – Zukunft des stationären Han- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
dels, in: Studie der PricewaterhouseCoopers AG Wirtschaftsprüfungsgesellschaft,
Frankfurt am Main
Bovensiepen, G., Rumpff, S. (2015). Handel und Konsumgüter: die Zukunft im digitalen
Wandel gestalten, in: Studie der PricewaterhouseCoopers AG Wirtschaftsprüfungs-
gesellschaft, Frankfurt am Main 2015
Clausen, S. (2017). Firmenakquisition Whole Foods Marketin: Manager Magazin, [availab-
le at: http://www.manager-magazin.de/unternehmen/handel/amazon-kauft-lebens-
mittelhaendler-whole-foods-fuer-13-7-milliarden-dollar-a-1152508.html access Sep-
tember 5, 2017]
Deka Investments (2017). Amazon – 20 Jahre nach dem Börsengang, in: Fonds Magazin,
Ausgabe 2, Frankfurt am Main.
EZB (2017). Wirtschaftsbericht, in: Wirtschaftsbericht der EZB, Ausgabe 2017/5, Frank-
furt am Main.
1141
Kaufmann, B. (2017a). Wachstum um jeden Preis, in Der Aktionär [available at: access Sep-
tember 7, 2017]
Kaufmann, B. (2017b). Der große Unterschied zwischen Alibaba und Amazon, in: Der
Aktionär [available at: http://www.deraktionaer.de/aktie/der-grosse-unterschied-
zwischen-alibaba-und-amazon-332670.htm access September 5, 2017]
Kaufmann, B. (2017c). 3 Gründe, warum Amazon in China keine Chance hat, in: Der Akti-
onär [available at: http://www.deraktionaer.de/aktie/3-gruende--warum-amazon-in-
china-keine-chance-hat-333870.htm access September 5, 2017]
Kaufmann, B. (2017d). Amazon Investiert international – das drückt mittelfristig die Ge-
winne, in: Der Aktionär [available at: http://www.deraktionaer.de/aktie/amazons-
investiert-international---das-drueckt-mittelfristig-die-gewinne-334330.htm access
September 5, 2017]
Kaufmann, B. (2017e). Amazon im Kaufrausch, in: Der Aktionär, 07.09.2017. http://
www.deraktionaer.de/aktie/amazon-im-kaufrausch-335060.htm access September 7,
2017]
Kaufmann, B. (2017f ). Microsoft stärkt gemeinsam mit Adobe seinen Cloud-Dienst, in:
Der Aktionär [available at: http://www.deraktionaer.de/aktie/microsoft-staerkt-
gemeinsam-mit-adobe-seinen-cloud-dienst-335170.htm access September 8, 2017]
OECD (2017). Die weltweiten Konjunkturaussichten sind zwar besser, aber noch nicht gut
genug, in: OECD-Wirtschaftsausblick, Ausgabe 2017/1, OECD Publishing, Paris.

Oenning, L. (2016). Warum jedes Unternehmens einen Jeff Bezos braucht, in: Handelsblatt
[available at: http://www.handelsblatt.com/unternehmen/management/langzeit-
chefs-warum-jedes-unternehmen-einen-jeff-bezos-raucht/15001618.html access Oc-
tober 7, 2017]
O. Verf. (2016). Bezos schraubt Investitionen auf fünf Milliarden Dollar hoch, in: Handels-
blatt [available at: http://www.handelsblatt.com/unternehmen/handel-konsumgue-
ter/amazon-in-indien-bezos-schraubt-investitionen-auf-fuenf-milliarden-dollar-
hoch/13703732.html access September 5, 2017]
Sachverständigenrat (2016). Zeit für Reformen, in: Jahresgutachten 16/ 17 des Sachver-
ständigenrats zur Begutachtung der gesamtwirtschaftlichen Entwicklung, Wiesbaden
Sachverständigenrat (2017). Internationale Konjunktur, in: Konjunkturprognose 2017 und
2018 des Sachverständigenrats zur Begutachtung der gesamtwirtschaftlichen Ent-
wicklung, Wiesbaden
SECO (2017). Wirtschaftsbericht USA Juli 2017, in: Wirtschaftsbericht USA, Bern
Schmidlin, N. (2017). Unternehmensbewertung und Kennzahlenanalyse, 2. Auflage,
München
Scholz, M. (2012) Gedruckte Zeitungen lese ich nicht mehr, in: Frankfurter Rundschau,
[available at: http://www.fr.de/panorama/amazon-gruender-jeff-bezos-gedruckte-
zeitungen-lese-ich-nicht-mehr-a-777710 access October 7, 2017]
Sorge, N. (2017). Google verkauft künftig Walmarts Produkte, in: Manager-Magazin,
[available at: http://www.manager-magazin.de/unternehmen/handel/google-und-
1142
walmart-schliessen-sich-gegen-amazon-zusammen-a-1164125.html access Septem-
ber 8, 2017]
Stephan, U. (2017). Wechsel der globalen Wachstumstreiber, in: Perspektiven, Deutsche
Bank, Ausgabe 09/2017, Frankfurt am Main
Stone, B. (2009). Amazons’s Expanding With Deal for Zappos, in: The New York
Times, [available at: http://www.nytimes.com/2009/07/23/technology/
companies/23amazon.html?mcubz=0 access August 29, 2017]
Wilhelm, S. (2017). Das Amazon-Universum, in: Digital Commerce 2017, Berlin
Zschaber, M. (2017). Mit 1500 Dollar zum Millionär – ist Amazon noch ein Kauf?, in:
Manager Magazin [available at: http://www.manager-magazin.de/finanzen/artikel/
amazon-experte-markus-zschaber-raet-weiter-zum-aktienkauf-a-1150400.html access
September 14, 2017]
1143
Marketing
NATIONAL POSITION OF THE
REPUBLIC OF CROATIA ON
COHESION POLICY POST 2020
Gabrijela ŽALAC, mag. oec. Ph. D. Candidate

Minister, Ministry of Regional Development and EU Funds
E-mail: gabrijela.zalac@mrrfeu.hr
Ana ODAK, Mr. Sc.

Assistant Minister,
Ministry of Regional Development and EU Funds
E-mail: ana.odak@mrrfeu.hr
Mario BANOŽIĆ, Ph. D.

Head of office, State administration for
Vukovar-Srijem County
E-mail: mario.banozic@gmail.com
Abstract
Cohesion policy is the key investment instrument of the European Union aimed
at stimulating balanced development in the Member States and regions, which INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
is why, in the context of the European Union’s budget after 2020, it is extremely
important to maintain its continuity. The new challenges that Europe is facing,
first of all the decision of the United Kingdom of Great Britain and Northern
Ireland to exit the European Union, as well as the need to finance new priorities,
point to the fact that the budget of the European Union will be the main focus
of conversations regarding the future of European Union consisted of twenty
seven Member States after the finalization of the Brexit process. As part of plan-
ning the new Multiannual Financial Framework (MFF), it is of importance
for Croatia to maintain the status of traditional policies such as cohesion and
common agricultural policy. The Ministry of Regional Development and EU
funds has drafted the National Position of the Republic of Croatia in relation
1147
to the future of cohesion policy after 2020, where national standpoints and pri-
orities are presented. Given the importance of the topic, this paper will address
the weaknesses and elements needed for reaching a higher level of synergy and
complementarity between European Structural and Investment Funds (ESIF)
and other EU funds. Furthermore, we shall also address the elements which are
necessary for the improvement of the effectiveness of cohesion policy implemen-
Gabrijela Žalac Ana Odak Mario Banožić: NATIONAL POSITION OF THE REPUBLIC OF CROATIA ON COHESION POLICY POST 2020
tation and for a simpler transition between program periods and a faster start of
the new financial period to ensure the continuity of investments. In conclusion,
this paper demonstrates the need for stronger efforts in keeping the cohesion
policy as one of the key priorities of the European Union’s budget after 2020,
taking into consideration its effects across all European regions in terms of reduc-
ing disparities and investment for growth and new jobs.
Key words: cohesion policy, Multiannual Financial Framework (MFF), Eu-
ropean Structural and Investment Funds (ESIF), national co-
financing, grants
JEL Classification: E60
1. INTRODUCTION
The double recession wave in 2008 and 2011 significantly halted the growth
of the European Union’s economy, which today shows signs of recovery and
prosperity. The impact of the crisis was felt in almost all Member States, and the
long-term reduction in differences between gross domestic products (GDP) per
capita between the Member States has been halted. What is positive is the fact
that the situation is improving, the differences are declining again, and growth
is registered in all segments, while higher progress rates have been recorded
in countries with a lower GDP per capita. Employment is also experiencing
recovery, but unemployment rates still remain higher than they were before the
crisis. In general, the European Union’s economy is gradually recovering from
the long-term stagnation that has been characterized by a significant invest-
ment reduction in several Member States and regions (Commission Report to
the European Parliament; 2017).
Cohesion policy is a driving force for the aforementioned positive trends
and is also the main investment policy of the European Union ensuring1 finan-
1
This investment adds value on the European level by contributing to: the goal of reducing
the differences stipulated in the Treaty (particularly with respect to per capita income and
1148
cial means amounting up to 8.5% of state capital investments in the European
Union (EU), reaching up to 41% in the EU-132 Member States and more than
50% for a number of states (Commission Report to the European Parliament;
2017). Cohesion policy is presented through the Single European Act3 and de-
fined as European Union’s investment policy that promotes and supports the
overall balanced development of the Member States and their regions. Creation
of new jobs, competitiveness, economic growth and the improvement of the
quality of life, as well as sustainable development, are the subject of its action
while supporting each of these areas. It is at the same time a testimony of the
European Union’s solidarity with less developed countries and regions because
the funds are allocated and concentrated to those most in need. Through con-
crete measures, it acts in a way to reduce significant economic, social and ter-
ritorial differences across Europe’s regions. It should be noted that a large part
of the European Union’s budget, almost one third4, focuses on cohesion policy
which also acts as a support for investments during the implementation of the
Europe 2020 strategy. The strategy itself is defined as the European Union’s
program for growth and job creation with a special emphasis on smart, sustain-
able and inclusive growth, the way to overcome the structural weaknesses of
the European economy, improving competitiveness and productivity, and sup-
porting a sustainable social market. However, for a balanced development of all
European countries and regions, including the Republic of Croatia, it is impor-
tant to respect those policies that through their long-term positive impact on
society’s general well-being have a traditional understanding.

living standards as well as social inclusion and employment opportunities) and European
public goods such as innovation and digital infrastructure, skills , tackling climate change,
reducing disaster risk, energy and environmental transition, health care and social invest-
ment, public and smart transport, and benefits from the overflow of increased trade volume
as well as cross-border, transnational and interregional programs in countries not covered by
cohesion policy.
2
The term EU-13 refers to Member States that joined the European Union in 2004 or later:
Bulgaria, Cyprus, the Czech Republic, Estonia, Croatia, Latvia, Lithuania, Hungary, Malta,
Poland, Romania, Slovakia and Slovenia.
3
The Single European Act was signed in 1986. With this document, for the first time, the
Treaty of Rome, officially the Treaty establishing the European Economic Community was
significantly modified and the legal ground was set for creating a single market by 1 January
1993. Also, the Act defined new Community competences such as social policy, economic
and social cohesion, research, technological development and environmental protection.
4
In the budget period 2014 to 2020, this is about 351.8 billion euros. For the Republic of
Croatia, € 8.4 billion foreseen for the cohesion policy goals are channeled through three
funds: Cohesion Fund, European Regional Development Fund and European Social Fund.
1149
The paper presents the results of research and analysis of the absorption
capacity for the preparation and implementation of EU projects at a regional
and local level in the Republic of Croatia, also Administrative capacities of the
bodies in the Management and control system for the implementation of the
ESI funds.
Additionally, the Republic of Croatia as the youngest European Union

Member State has a strong interest in retaining traditional EU policies such
as cohesion policy and Common Agricultural Policy. It is a national interest
to continue to implement activities that lead to strengthening economic, social
and territorial cohesion as stipulated in Article 1745 of the Treaty on the Func-
tioning of the European Union (Treaty on European Union and Treaty on the
Functioning of the European Union, 2010). Of course, the changing lifestyles
and the emerging dangers typical for the modern society condition a new order
that is in many ways different and brings significant changes across all segments
of society.
The European Union faces many new challenges and priorities, which will
surely be reflected in the new proposal for the Multiannual Financial Frame-
work for the period after 2020, which the European Commission plans to pub-
lish in May 2018 (Multiannual Financing Framework; 2018). Aware of the
context of the time in which we live as well as the importance of cohesion policy
for investments and consequently for citizens’ lives, the Republic of Croatia
has over time intensified its participation in discussions regarding the future of
cohesion policy and concretized its views, interests and relevant questions re-
garding the future implementation. Apart from active participation in the work
of the European Union’s institutions, both at the technical and political level,
the Republic of Croatia also participates in the extended form of the Visegrád
Group6, by actively participating in discussions regarding the future of cohesion
5
Article 174 of the TFEU: To promote its overall harmonious development, the Union shall
develop and pursue its actions leading to the strengthening of its economic, social and ter-
ritorial cohesion. The Union shall aim at reducing disparities between the levels of develop-
ment of the various regions and the backwardness of the least favored regions. Among the
regions concerned, attention shall be paid to rural areas, areas affected by industrial transi-
tion, and regions which suffer from severe and permanent natural or demographic handicaps
such as the northernmost regions with very low population density and island, cross border
and mountain regions.
6
The Visegrád Group (The Visegrád Four), abbreviated V4, is the name of the association
of four Central European countries – the Czech Republic, Hungary, Poland and Slovakia.
The group was established at the summit meetings of leaders of Czechoslovakia, Hungary
1150
policy. To further strengthen the position and to articulate national interests,
the Ministry of Regional Development and EU Funds has developed a national
position on the future of cohesion policy, which, after its adoption in February
2018 by the Coordination for European and Foreign Affairs of the Govern-
ment of the Republic of Croatia, was sent to the European Commission and the
European Union Member States for their reference. Through this action, the
Republic of Croatia further pointed out its view that cohesion policy, tailored in
a way to consider actual implementation indicators from previous periods, must
maintain an appropriate continuity in the post-2020 period.
2. MULTIANNUAL FINANCIAL FRAMEWORK

AND EXPECTATIONS FROM THE PERIOD
POST2020
The Multiannual Financial Framework is a consumption plan that trans-
lates the European Union’s financial priorities in financial terms and sets the
maximum annual amounts (“upper limits”) that can be used for different policy
areas over a period of at least five years. Multiannual Financial Framework as
such is not a multiannual budget but it provides the framework for financial
programming and budgetary discipline and ensures the predictability of Eu-
ropean Union’s spending. Since the Multiannual Financial Framework defines
how much the European Union should invest in seven years, the focus is on
expressing political priorities, as well as a budget planning instrument.

There are many new challenges and priorities ahead of the European Union.
Migrations, security issues and consolidation of the future composition consist-
ing of 27 Member States are just some of the issues that require further discus-
sion and exchange of views. Ahead of the European Union is an interesting pe-
and Poland, held on 15 February 1991 and was then called the Visegrád Triangle because
of the dissolution of Czechoslovakia in 1992. V4 has been established with a goal to foster
European integration of the group’s members, common economic interests, promoting free
trade, development of transport infrastructure and energy-related cooperation. During pre-
vious meetings, all of the Visegrád Group member states and the associated member states
(Croatia, Slovenia, Romania and Bulgaria) have confirmed the position on cohesion policy
as the main source of financing development, which, with some minor reforms aimed at
simplification and more focus on investments, should be kept in the post 2020 period. This
fact points to the importance of issues relating to cohesion policy as well as their presence in
other member states, most of those in the Central European region with which the Republic
of Croatia closely cooperates and shares majority of views regarding future.
1151
riod preceded by a number of concerned discussions and published documents
on the subject of considerations and possible directions. During 2017, the Pres-
ident of the European Commission Jean-Claude Juncker launched a general
debate on the future of Europe with a document of the European Commission
called White Paper which listed possible directions and developments regard-
ing the future of the European Union (White Paper; 2017), social dimension
of Europe, overcoming globalization, deepening the Economic and Monetary

Union and the future of European defence and finance. Specific guidelines for
the future are expected in May 2018 when the European Commission is plan-
ning to publish a proposal for the new Multiannual Financial Framework for
the period post-2020 and a draft of a legislative framework for European invest-
ment funds, which is of great importance for Republic of Croatia in the context
of future implementation of cohesion policy. To actively contribute to discus-
sions regarding the new EU budget, in February 2018 the European Commis-
sion published a document called „Communication from the Commission - A
new, modern Multiannual Financial Framework for a European Union that de-
livers efficiently on its priorities post-2020”, giving indications about the next
period. The strong emphasis is on the European Commission’s commitment
to modernization and simplification wherever possible, is extremely important
given the United Kingdom of Great Britain and Northern Ireland’s forthcom-
ing exit from the European Union, as well as new challenges mentioned above.
Furthermore, according to the announcements, in the process of preparation
is a proposal that must be justified, balanced and focused on efficient delivery
(Communication from the Commission to the European Parliament, the Eu-
ropean Council and the Council; 2018). There is a growing effort to make the
budget more efficient in order to be able to respond adequately to new chal-
lenges and address new priorities while continuing to promote long-term com-
petitiveness, economic development, and sustainability. Also, the EU institu-
tions suggest that the Union’s budget, with the function of convergence and
reducing developmental differences between the Member States, should also
contain the stabilization function. Thus, within the package for deepening the
Economic and Monetary Union (published in December 2017) the European
Commission presented the idea of establishing stabilization instruments within
the EU budget which contains a vision of how certain budgetary functions are
necessary for the euro area and the Union, in the context of current and future
financial framework of the European Union (Reflection Paper on the deepen-
ing of the Economic and Monetary Union; 2017). These functions are meant
1152
to support the Member States in implementing structural reforms through the
instrument for reform implementation and technical support on their request,
also a special instrument for convergence for the Member States which are in
the process of introducing euro and stabilization function for maintaining the
investment level in the case of asymmetric shocks.
3. IMPORTANCE OF PRESERVING COHESION

POLICY WITHIN THE UPCOMING
MULTIANNUAL FINANCIAL FRAMEWORK
Now, a very important issue in the context of the forthcoming Multiannual
Financial Framework is a reflection on the final appearance regarding the ab-
solute amount. Will the Member States agree to reduce the total amount of
Multiannual Financial Framework (as well as the EU budget) after the United
Kingdom’s exit, or will the possibility of increasing Member State’s payments
to keep the absolute total of Multiannual Financial Framework be considered?
Current proposals of the European Commission indicate that the share of gross
national income entering the EU budget is between 1.1% and 1.2% of gross
national income (currently about 1% of gross national income). Considering
Brexit, as well as new priorities the Union is facing, the Republic of Croatia has
expressed willingness to consider increasing the payments into the budget if
adequate levels of funding for cohesion policy and common agricultural policy
are ensured.

Based on conducted research during the implementation of the project: IPA
2012 „Support in improvement and further development of the training system
on ESI funds established at the regional and local level carried out in April 2017
- Analysis of the absorption capacity for the preparation and implementation of
EU projects at regional and local level in the Republic of Croatia. Target group,
namely stakeholders were included in the research population according to two
criteria: First Type of institution: 21 regional coordinators, 20 units of regional
self-government – namely counties and the City of Zagreb, 555 units of local
self-government - 127 cities and 428 municipalities, and second Type Grant
beneficiaries: 932 grant beneficiaries - enterprises, NGO’s and public authorities.
Several written correspondence, e-mail was sent by post to 1528 subjects. Total
488 completed questionnaires - a sample of 31.93%. The questionnaire was cre-
ated based on interviews with 20 regional coordinators and Intermediate Bodies.
1153
According to conducted research Administrative capacities of the bodies in
the Management and control system for the implementation of the ESI funds
its presented in Table 1.
Table 1 Administrative capacities of the bodies in the Management and control

system for the implementation of the ESI funds
OP
Rural Fisheries
OP Competitiveness Efficient
Activity Development Operational
and Cohesion human Programme Programme
resources
Total number of people employed in
the bodies in the management and
779 324 182 25
control system (31st of December
2017)
Total number of employees necessary
according to work load analysis for 1109 441 309 63
2018
Total number of people employed in
the bodies in the management and
control system (31st of March 2018) 884 358 226 42
_________________________ _______ ______ ______ _____

% of the total amount of people 79,71 % 81,18 % 73,14 % 66,66 %
employees regarding the needs in
2018
Increase in the number of employees
in the bodies in the management and
+105 +34 +44 +17
control system (since 1st of January
st
until 31 of March 2018)
The existing gap for 2018 (31st of
March 2018); the need for additional -225 -83 -83 -21
employment
Source: research during the implementation of the project: IPA 2012 „Support for improve-
ment and further development of the training system on ESI funds established at the re-
gional and local level carried out”, April 2017
The conclusion of the research was that the number of employees work-
ing with EU projects at the local/regional level should be increased (about 900
new employees are necessary among the survey participants who completed the
questionnaire). Also, there is a lack of financial capacity, human resources and
capacity for strategic planning and 79.92% of participants stated that human
resources are the area that needs to be improved to ensure better performance
of project preparation and implementation in organizations.
1154
Having this in mind, it is extremely important that economic, social and ter-
ritorial cohesion remains the priority for the European Union. The importance
of the Union’s budget has been highlighted throughout all current discussions
as well as published guidelines and possible scenarios as the key instrument for
public investment, long-term competitiveness, sustainable growth and econom-
ic growth. At the same time, it represents the framework that will define which
policies and priorities will be funded and implemented and will also concretize
the direction of the European Union’s development in the next period. When
we talk about the future of cohesion policy in the context of the next Multian-
nual Financial Framework, it will surely remain one of the policies that will
continue to survive but what is of great importance for the Republic of Croatia
is for the funding to be kept at an appropriate level. Therefore, the Republic
of Croatia actively participates in discussions, both at the EU level and in the
extended form of the Visegrád Group, where it actively exchanges opinions and
views with other member states on the subject regarding the implementation of
cohesion policy in the post-2020 period.
4. ABOUT THE ROLE OF CROATIA WITHIN THE

EXTENDED FORM OF THE VISEGRÁD GROUP
The Visegrád Group is recognized as a symbol of successful political and
economic transformation, and in many areas as a model for regional coopera-
tion. Permanent confirmation of the determination to continue developing co-
operation aimed at a stronger and more stable, democratic Europe, the Visegrád
Group seeks to promote and implement projects which are focused on stimu-
lating cohesion and strengthening the competitiveness of the countries of the
Visegrád Group and the European Union Member States.
In the context of cohesion policy, the countries of the Visegrád Group and
Bulgaria, Croatia, Romania and Slovenia constitute a group of countries that
can be characterized as the largest net beneficiaries within the European Union
- countries that are accountable for 50% of the total financial envelope of co-
hesion policy for the period 2014-2020 (European Structural and Investment
Funds: Country factsheet by countries;2018). Hence, the bulk of the debate
regarding the future of cohesion policy is taking place within this forum of the
extended Visegrád Group. By participating in the extended form of the group,
the Republic of Croatia aims to strengthen its position within the European
1155
Union and, through cooperation within that political platform alongside with
the pro-cohesion countries, point to the importance of this policy for the future
financial period after 2020.
During previous meetings, all countries have agreed that cohesion policy is
the main source of financing development which should be maintained, with
minor reforms aimed at simplifying and better targeting of investments. The

Republic of Croatia has so far achieved a successful co-operation in the ex-
tended form of the Visegrád Group and signed three Joint Statements7, which
confirmed the position of the member states that the cohesion policy is the
European Union’s main investment policy which supports the efficient imple-
mentation of investments needed to achieve convergence and cohesion between
the Member States and their regions and therefore should remain one of the
main priorities of the future Multiannual Financial Framework. At the Min-
isterial Meeting held in February 2018 in Budapest, attended by distinguished
representatives of the European Commission, a strong attitude in the context
of maintaining the existing minimum of national co-financing rate was pre-
sented and it was pointed out that grants should remain the main instrument
for implementing the European Structural and Investment Funds. The need to
preserve the current thematic areas has been emphasized to provide flexibility
in addressing regional and local socio-economic challenges. Also, it was empha-
sized that the principle of joint model management is the best way to increase
ownership with the purpose of efficient results on the national and regional
level. When we speak about the extent of the availability of cohesion policy,
the unique attitude represented by the states co-operating within the extended
form of the Visegrád group is that cohesion policy should remain the policy for
all regions of the European Union, with less developed regions in focus.
7
The first Ministerial Meeting within the V4 + 4 platform was held during the Czech Presi-
dency of the Visegrád Group in January 2016 in Prague, when the Joint Statement was
signed by the V4 + 4 states, which clearly expressed their view that cohesion policy must
persist in the post-2020 period. These positions were also confirmed at the V4 + 4 meeting
in Ostrava in June 2016 when the chairmanship of the Visegrád Group was taken over by
Poland, while the Joint Statement was adopted in March 2017 in Warsaw. The third Joint
Statement on the Future of Cohesion Policy was adopted at Ministerial Meeting in Buda-
pest in February 2018. One of the main messages adopted by the Statement is the retention
of cohesion policy as the main investment policy of the European Union, which supports the
effective implementation of the investments needed to reduce the existing economic, social
and territorial differences between the Member States and their regions.
1156
5. PRELIMINARY POSITION OF THE REPUBLIC
OF CROATIA ON COHESION POLICY POST
2020
Discussions on the future Multiannual Financial Framework and cohesion
policy are currently very up to date and substantive and Member States are
most often divided into two groups: Member States that are net payers to the
EU budget and Member States that are net beneficiaries. Within the discus-
sions, the net payers advocate an increase of national co-financing rates, return
to n + 2 rules for decommitment, greater use of financial instruments, linkage
between cohesion policy implementation and the rule of law, stronger linkage
between cohesion policy and European Semester and the possibility of transfer-
ring part of national allocations into centralized EU instruments (instruments
and funds directly implemented by the EU). The net beneficiaries, including
the Republic of Croatia, advocate opposing views from the net payers, namely:
keeping minimum national co-financing rates, retaining n + 3 rules for decom-
mitment, maintaining grants as the main instrument for the implementation of
the Cohesion Policy, advocating precautionary measures regarding the further
strengthening of Cohesion Policy and structural reforms and non-transfer of
resources within the shared management (national envelopes) into direct EU
management (centralized EU instruments and funds). At the same time, all
Member States are committed to simplifying the rules of implementation of the
cohesion policy, with the net payers promoting the principle of proportionality,
with the possibility of obtaining simplification only in some countries, while

the net beneficiaries advocate the implementation of simplification at the level
of the entire European Union.
Although formal negotiations over the upcoming Multiannual Financial
Framework and the legislative framework for European Structural and Invest-
ment Funds have not yet started, a large number of Member States have pre-
pared clear preliminary positions, thus defining the framework of views and
providing the European Commission with specific guidelines for preparation.
Additionally, the Republic of Croatia has drafted and presented, in early Sep-
tember 2017, an official position on the future financial framework of the EU
after 2020, which has been accompanied in February 2018 by a position exclu-
sively focused on the future of cohesion policy. The documents clearly state that
for the Republic of Croatia, cohesion policy is the key investment instrument of
1157
the EU, and therefore it is of utmost importance that adequate funding of cohe-
sion policy is maintained in the EU budget after 2020 (National Position of the
Republic of Croatia on Cohesion Policy post 2020; 2018).
Numerous Member States supported the Commission during the informal
discussions in increasing the conditionality of using EU funds in the forthcom-
ing period through their further linkage with the implementation of economic
reforms through the European Semester. For the Republic of Croatia, the op-
tion of setting up reserves for the implementation of structural reforms at the
level of cohesion policy envelope or within the framework of a special European
Structural and Investment Fund is not an option that would currently like to
support. At the same time, a stronger link between the European Semester pro-
cess and country-specific recommendations for the Member States with Eu-
ropean Structural and Investment Funds is a possibility that the Republic of
Croatia would be willing to consider.
According to the interpretations of the net payers, national co-financing
contributes to the feeling of ownership of all involved stakeholders, however,
given the significant differences between different countries and regions, its in-
crease would not contribute to the added value nor do net beneficiaries consider
it would increase ownership. The Republic of Croatia, together with all mem-
ber states of the extended Visegrád Group, strongly advocates maintaining the
current minimum national co-financing rates in national ESIF envelopes and
national budget contributions at the level of 15%. The actual rate of national
co-financing is considerably higher than the rate laid down in regulations and
operational programs, as well as the potential for increasing national co-financ-
ing of cohesion policy, varies significantly between the EU Member States. The
statistical data on the estimated share of cohesion policy on public investment
per Member State in relation to the EU average show that increasing the co-
financing rate is not only a good will of countries or a sign of the ownership
of the cohesion policy, but an objective obstacle if we want to maintain fiscal
sustainability and respect the rules and objectives of the Stability and Growth
Pact (Stability and Growth Pact, 2015).
Currently, the European Commission is working intensively on the design
of a single financial mechanism, in which all financial instruments would be
centralized within the Multiannual Financial Framework and reducing the use
of grants while increasing the use of financial instruments. The Republic of
1158
Croatia considers that financial instruments can play an important role in in-
vestment policies and have a leverage effect, especially at the time of budgetary
constraints, but they are not applicable for all interventions that the cohesion
Policy should back up after 2020. The appropriateness and effectiveness of us-
ing financial instruments should depend on ex-ante evaluation for a program
area that will confirm the need for the implementation of financial instruments,
their type, and scope. Therefore, the Republic of Croatia supports the position
that grants should remain the main instrument for the implementation of the
cohesion policy, and the Member States should be free to decide on the use of
financial instruments in relation to grants and offer customized public interven-
tions to the specific development needs of regions.
Given the absence of a new EU strategic document which would replace
the Europe 2020 strategy, the Republic of Croatia supports the retention of all
investment priorities (11 thematic objectives) within the current programming
period 2014-2020 and after 2020. Establishing clear goals at the EU, national
and regional level is the first step towards achieving stronger focus on results.
At the same time, thematic concentration contributes to the effectiveness of
the allocated EU funds and is a key tool for guiding cohesion policy to the EU
priorities and strategic coherence of investments. In the period after 2020, it is
necessary to adapt it to the specifics of Member States and regions.
Within the current discussions in the context of a decommitment proce-
dure, the net payers strongly advocate for the so-called n + 2 rule. The Republic
of Croatia supports the current period for absorption of funds n + 3 rule be-

cause it considers that it will not improve budget discipline or contribute to the
quality of program implementation by reducing it. Current n + 3 rule is appro-
priate and additional three years for the absorption of resources after allocation
of resources is optimal, especially considering the time needed to implement
more complex and ambitious operations.
The Republic of Croatia is dedicated to maintaining the duration of the sev-
en-year financial perspective after 2020, considering the time needed to reach
agreement on sectoral legislation and operational programs. A shorter pro-
gramming period could have a negative impact on programming and policy ef-
fectiveness and will inevitably limit the types of interventions that are financed
in accordance with policies on those types of intervention /operations that can
1159
only be delivered in a short time frame. (National Position of the Republic of
Croatia on Cohesion Policy post 2020; 2018).
6. CONCLUSION
Regional policy is not an equally meaningful concept of cohesion policy. Re-
duction of regional economic, social and developmental differences in a geo-

graphically restricted space is explicitly under the influence of the same, while
cohesion policy is considered complementary to regional policy, not in its sub-
stitution. Given that cohesion policy has been created to reduce regional devel-
opment differences, both within the European Union and within the member
states itself, it is often called a solidarity instrument, which simply makes it clear
how important it is for international relations and development processes. The
Republic of Croatia, as the youngest member states, absorbs significant benefits
from cohesion policy, primarily in terms of economic development, investment
incentives, and job creation.
The cohesion policy with its rules defined for the seven-year period and fi-
nancial allocations per member state is of utmost importance for the national
perspective. The Republic of Croatia is constantly actively advocating the main-
tenance of the adequate financial envelope for Cohesion policy, which, with the
successful withdrawal of funds from European structural and investment funds,
is the main priority of economic policy.
To prepare for the new financial perspective and based on the research of
administrative capacities that have been conducted and which showed a lack
of 900 employees working on the preparation and implementation of EU proj-
ects at the local and regional level and 412 employees in the management and
control system of the ESI Funds, action plan for employment and education of
employees has been prepared which will result in a more efficient use of funds
in the new financial period.
Challenges of the contemporary world are extremely complex, and as the ba-
sis of all current and future negotiations with competent supranational institu-
tions, the exclusive protection of national interests is imposed. An agreement in
the form of common European values, solidarity, and cooperation with a clear
goal of securing economic development and better living conditions for citizens
is an absolute priority.
1160
The views of the Republic of Croatia are fully in line with the values that the
European Union has nurtured since the beginning of its existence. A protected
and secure Europe that respects the freedoms of its citizens with a secure ex-
ternal border and effective migration policy, a prosperous and sustainable com-
munity who promote sustainable development through a single market and a
society that combats unemployment, discrimination, social exclusion, and pov-
erty - all is what makes the merit of the decision to become a full member.
REFERENCES
Commission sets out Roadmap for deepening Europe’s Economic and Monetary Union,
http://europa.eu/rapid/press-release_IP-17-5005_hr.htm (Accessed 27 March 2018)
Communication From The Commission To The European Parliament, The European Coun-
cil And The Council - A new, modern Multiannual Financial Framework for a Euro-
pean Union that delivers efficiently on its priorities post-2020 http://eur-lex.europa.
eu/legal-content/HR/TXT/?uri=COM:2018:0098:FIN (Accessed 27 March 2018)
European Structural and Investment Funds: Country factsheet by countries, http://
ec.europa.eu/regional_policy/en/information/publications/factsheets/2016/eu-
ropean-structural-and-investment-funds-country-factsheet-croatia, (Accessed 27
March 2018)
National Position of the Republic of Croatia on Cohesion Policy post 2020, https://razvoj.
gov.hr/vijesti/usvojeno-stajaliste-republike-hrvatske-o-kohezijskoj-politici-nakon-
2020-godine/3763 (Accessed 9 March 2018)
The opinion of the European Committee of the Regions - Mid-term revision of the Mul-
tiannual Financial Framework (MFF), http://eur-lex.europa.eu/legal-content/HR/
TXT/?uri=CELEX:52016IR0009, (Accessed 27 March 2018)
Report from the Commission to the European Parliament, the Council, the European Eco-

nomic and Social Committee and the Committee of the Regions, My Region, My Eu-
rope, Our Future: The Seventh Economic, Social and Territorial Cohesion Report,
Brussels, 2017, page 11. http://eur-lex.europa.eu/legal-content/HR/TXT/PDF/?ur
i=COM:2017:583:FIN&from=EN (Accessed 8 March 2018)
Stability and Growth Pact, http://europa.eu/rapid/press-release_IP-15-3220_hr.htm (Ac-
cessed 27 March 2018)
The consolidated versions of the EU Treaty and the Treaty on the Functioning of the Eu-
ropean Union (2010/C 83/01) http://www.mvep.hr/custompages/static/hrv/files/
pregovori/111221-lisabonski-prociscena.pdf (Accessed 8 March 2018)
White paper on the future of Europe and the way forward, https://ec.europa.eu/commis-
sion/white-paper-future-europe-reflections-and-scenarios-eu27_hr, (Accessed 27
March 2018)
1161
THE MARKETING ACTIVITIES AND
BARRIERS OF THE AGROTOURISM
Dejan Tubić  Rikard Bakan  Juraj Randelj: THE MARKETING ACTIVITIES AND BARRIERS OF THE AGROTOURISM ECONOMIES OF CONTINENTAL...
ECONOMIES OF CONTINENTAL
REGION OF THE REPUBLIC
OF CROATIA: TFF OWNERS
PERCEPTION
Dejan TUBIĆ, Ph.D.

College for Management in Tourism
and Informatics in Virovitica
E-mail address: dejan.tubic@vsmti.hr
Rikard BAKAN, MB Econ.

College for Management in Tourism
and Informatics in Virovitica
E-mail: rikard.bakan@vsmti.hr
Juraj RANDELJ, MB Econ.

College for Management in Tourism and
Informatics in Virovitica
E-mail: juraj.randelj@vsmti.hr
Abstract
Implementation of marketing principles in tourism business differs from the
implementation of marketing principles in other industries, primarily because
of the specificity and particularity of the tourism market. In tourism, even
something that does not have the characteristics of goods and services can be
sold and that significantly affects the distribution and points to the importance
of marketing knowledge and activities for the development of any form of tour-
ism. As the fastest growing form of rural tourism, especially in the interna-
tional context, agritourism gains more and more importance both from the
1162
academic, as well as the tourism public. In the academic sense, there is a mod-
est base of theoretical and empirical notions. Therefore, the aim of this paper is
to terminologically define the key terms at the theoretical level that will surely
contribute to a clearer and more accurate understanding of this highly confus-
ing terminology. The modern tourism market is characterized by a more di-
versified tourism offer of products and services. The lack of market placement
as well as market communication, especially market advertising, certainly has
a negative indication for the further development of rural activities in such
market conditions. In order to identify and analyze the general characteristics
of the current marketing activities and advertising means and channels, to
evaluate the quality levels of advertising activities arising from the cooperation
with other stakeholders and to analyze the websites of the economies at the em-
pirical level, a research will be conducted on a suitable sample. The survey will
include 13 counties of the Continental region of the Republic of Croatia, and
the respondents will be TFF owners. The research instrument will be a survey
questionnaire and the collected data will be analyzed according to standard
scientific methods.
Key words: rural tourism, agritourism, marketing, TFF owners, Continental
region of the Republic of Croatia
1. INTRODUCTION
Tourism has become one of the greatest industries where the concept of
borders lost the significance since the number of international tourist visits has
been growing rapidly (Tubić et al., 2017: 1231). In accordance with that, there
are also many changes in the market competition. Modern tourist consumers
can no longer be satisfied with the offer of tourism products that are based on
the hard3 platform (sun, sea, and sand), but they need to be offered a tourism
product that will satisfy their physical, emotional, intellectual and all the other
needs of an emancipated consumer of the 21st century. In a concrete sense, that
refers to the product based on the soft 6E platform (experience, excitement,
escape, education, entertainment, ecology). Precisely this approach will result
in the development of the 4M soft tourism (moderate growth, multidiversifica-
tion, multitasking, mobile), the part of which is surely made of the rural forms
of tourism with agritourism as its fastest-growing form in Croatia and world-
1163
wide. The holders of agritourist offer, which consists mostly of small economic
units, need to have a high level of marketing knowledge and reasoning in order
to place the product of rural tourism in the ever more saturated market and to
insure its recognition and competitiveness. In accordance with that and as an
addition to the terminological definition of the key terms of rural tourism, the
main goal is to identify and analyze previous marketing activities, as well as the
barriers faced by TFF owners in the area of 13 counties of Continental Croatia
on an empirical level.
2. RURAL TOURISM: TERMINOLOGY

It is exceptionally hard to write about the terminological definition of rural
tourism in the academic jargon, especially due to the great number of contro-
versies among the authors, as well as the perplexities of a terminological nature.
Numerous different terms for this type of tourism can be found in the literature
(rural tourism, village tourism, agritourism, green tourism, etc.) and they are
unjustifiably identified as the same term. Differing criteria for defining rural
areas, the differing perception of rural tourism in developed and undeveloped
countries, diversity and a great number of phenomena alike are only some of the
elements with a confusing defining nature. The following controversial reasons
have been mentioned and taken into consideration by the OECD (1994: 8-9)
in its publication under the name of Tourism strategies and Rural Development:
• urban tourism is not limited only to urban areas – it also includes rural
areas;
• rural areas are hard to define since the defining criteria differ from country
to country;
• tourism that takes place in rural areas is not strictly “rural” – it can also be
“urban” by form when it takes place in a rural area;
• historically, tourism is an urban concept – most of the tourists live in urban
areas. In accordance with that, tourism can have an urban impact on a ru-
ral area by causing cultural and economic changes and new construction;
• different forms of rural tourism have developed in different regions;
• rural areas by default are found in a complex process of changes. The im-
pact of global markets, of communication and telecommunication, leads
to market condition changes, as well as to orientation towards traditional
1164
products. Although some rural areas are still facing depopulation, other
rural areas are experiencing the influx of people or the development of
“untraditional” jobs. A previously clear difference between the urban and
the rural has been annulled by suburbanization, better communication
and the growing number of weekend-houses in the countryside;
• rural tourism is not only tourism on the agricultural farm but a complex ac-
tivity. It includes stays on agricultural farms but also special vacation forms
such as holidays in nature and eco-tourism, hiking, climbing, and horse-
back-riding, adventure, sports and health tourism, hunting and fishing,
educational travels, art, and culture tourism. All of the mentioned forms
imply a growing market interest in less-specialized forms of rural tourism.
Due to all of the mentioned facts, there is still does not exist a single com-
monly-accepted definition in the international academic scene nor in the praxis,
which was co rroborated in the work of Tchetchnik, Fleischer and Finkelshtain
(2006), Polo and Frías (2010), Mili (2012) and Tubić (2015). Many inter-
national and domestic authors such as Lane (1994; 2009), Rátz and Puczkó
(1998), Roberts and Hall (2001), Thompson (2004), Brščić (2005), Jelinčić
(2007), Kušen, (2007), San Martín and Herrero (2007), Ružić (2009), Szna-
jdera et al. (2009), Irshad (2010), Krajnović, Čičin-Šain and Predovan (2011),
Pesonen et al. (2011), Pröbstl Haider et al. (2014) and many others have tack-
led the topic of rural tourism in their scientific and professional works. The
resolution of terminological perplexities beings with defining the rural area ac-
cording to the most commonly-implemented criteria which are based on the
population density that defines a rural area through two basic approaches:
• the first – local units (e.g. boroughs) – can be identified as rural if the
population density stands below 150 inhabitants per square kilometer.
• the second criterion classifies the regions according to three categories:
• Predominantly Rural Region – PR: if more than 50 percent of the
region’s inhabitants live in rural units (with less than 150 inhabit-
ants per square kilometer);
• Intermediate Region – IC: if 15 to 50 percent of the region’s inhabit-
ants live in rural local units;
• Predominantly Urban Region – PU: if less than 15 percent of the
region’s inhabitants live in rural local units (European Commission,
2006: 3).
1165
This approach was implemented by Tubić et al. (2017) in their works “Ag-
ritourism: a new power of Croatian tourism”. In a broad specter of definitions
of rural tourism1, the key definition will be the one created by the OECD for
two fundamental reasons. The first reason is that it is the only definition that
follows the methodology of defining a rural area and the second reason is that
it the most comprehensive in terms of content. The definition by the OECD
(1994: 34-35) reads as follows: ‘‘Rural tourism fundamentally takes place in rural
areas and is primarily in the function of agriculture. It is based firmly on the agricul-
tural world with special features of the open space, the contact with nature, the rural
heritage and the society. Rural tourism must be in an agreement with the environ-
ment and the social community in which it takes place. The community includes less
than 10,000 people and it includes the farms inside that area of work. The focus of
rural tourism is oriented towards a whole line of sustainable business subjects and the
community inside the rural area. The goal of rural tourism is insuring a long-time
sustainability of the life in the region where it takes place; it must be a force for the
preservation of the rurality and not a force of urbanization.’’
With the fundamental purpose of minimizing the unjustified mixing of the
three key terms (rural tourism, village tourism and agritourism), Tubić (2015:
68-69) proposes that rural tourism should be terminologically equalized with
village tourism since all three forms of tourism are defined by the rural area
and, unlike agritourism, they can be primary and/or secondary sources of in-
come without depending on the agricultural activity. In conclusion, rural tour-
ism stands as a synonym for village tourism and conversely, while agritourism
stands as a manifestation of rural, i.e. village tourism.
Due to the subject matter of this work, it is necessary to define the term agri-
tourism in more detail. Although agritourism is not a new phenomenon, a unique
consensus in academic circles in terms of the terminological definition of agri-
tourism has still not been reached, which has been confirmed by Hajdaš Dončić
et al. (2007), Chesky (2009) and Flanigan et al. (2014). Due to a broad specter of
different interpretations by foreign, as well as Croatian authors, this work defines
agritourism as a visit to a farm or any other agricultural, horticultural or economic
goods with the purpose of pleasure, education or active participation in the activ-
ity of the agricultural economy (Lobo, 2001). In terms of the provided services,
Demonja and Ružić (2010) divide tourism into following forms:
1
See more in Tubić (2015)
1166
• forms of agritourism that provide only catering services. These forms are
intended for tourists who want to try or who like homemade authentic
foods and beverages. A characteristic feature of this form of tourism is
serving foods and beverages in a specialized facility which is located on
the family farm which is decorated and equipped according to the original
architecture;
• forms of agritourism that provide only accommodation services. A char-
acteristic feature of this form of agritourism is a great number of facilities
that provide accommodation services, some of which are: rural houses of
traditional architecture, rural rooms, rural family hotels, traditional and
new architecture suites;
• forms of agritourism that provide catering and accommodation services.
What is specific for this form of agritourism is the possibility of providing
the complete service of accommodation and catering, as well as the full ad-
ditional vacation program with excursions, farm tours and other contents
that are organized in the area and its proximity. Precisely this form pres-
ents a complete family farm service package and is considered extremely
attractive and thus economically viable.
In term of facilities, there are different forms of vacation agritourism (Ružić
2009: 20).
• rural houses of traditional architecture;
• rural family hotels;
• rural rooms and traditional architecture suites;
• rural rooms and new architecture suites; INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
• agricultural farms with an eco-offer.
.. Rural tourism in Croatia

Rural tourism, in this case, agritourism in Croatia is developing below its
real potential both in the academic as well as in the institutional sense and in the
practical sense accordingly.Taking into consideration its academic development,
there is a need to proclaim that the interest in agritourism is unjustifiably ab-
sent, although there exists a small group of academic enthusiasts (Kušen, 2006;
Brščić, 2005; Franić and Cunj, 2007; Ružić, 2009; Demonja and Ružić, 2010;
Grgić et al., 2011; Tubić, 2012, 2015; Kantar, 2016) that study rural tourism
1167
continuously. So far (2018) only one official research has been conducted in the
whole area of the Republic of Croatia by the Croatian Chamber of Economy in
2007 – the research under the name Current state of tourism in Croatian rural ar-
eas in 2008. As is known to the authors of this work, only three doctoral theses have
been written on that subject matter (Brščić, 2005; Tubić, 2015; Kantar, 2016).
The existing research in most cases encompasses only one county as a territo-
rial unit. It is important to mention here that Tubić (2015) includes the area of
13 continental counties in his empirical research for the purpose of writing his
doctoral thesis The model of the development of rural tourism in Continental Croa-
tia and that for the first time his research took into consideration the creators
and co-creators of the national tourist policy as well as TFF owners.
3. EMPIRICAL RESEARCH
.. Research methodology
While defining the sample and due to the fact that the only official data
about the number of registered family tourist farms in Croatia are the ones
from 2007, the authors will use the data collected in 2013 (Tubić 2015) to show
the most real image of the current state in Continental Croatia. Upon analyzing
the data from that database, there has been an increase by 60,6 percent of the
number of registered family farms, i.e. the number of the registered farms grew
from 125 up to 317 registered farms. The research2 was conducted in the time
span from December 8, 2013, until April 12, 2014, on a coincidental, conve-
nient sample of 107 respondents, i.e. on 33,7 percent of the total sample. While
analyzing the data, the authors have used different techniques of descriptive and
inferential statistics; for the presentation of the data, they used the calculated
frequencies, while the data gained through the questionnaire, that was made in
the form of the Likert type scale, were presented by the implementation of the
arithmetic mean and standard deviation.
.. Research results

At the beginning of the research, the respondents were asked to evaluate the
statements connected to the condition of rural tourism in Croatia by means of
2
The research was conducted with the purpose of writing a doctoral thesis by the author Dejan
Tubić (2015) and this work will show the mentioned results but with a different interpretation
1168
a 5-degree Likert type scale (1 – I completely disagree, 2 – I do not agree, 3 – I
have no opinion, 4 – I agree, 5 – I completely agree). From the collected answers
and upon summing the results (I agree and I completely agree), it can be con-
cluded that the greatest percentage of the respondents, 81,11 percent (90) agree
or completely agree that marketing is extremely important for the survival and
the development of agricultural family farms (middle grade 4,39). In contrast
to the mentioned facts and upon summing the results of “completely disagree”
and “disagree”, it can be concluded that more than half of the respondents, more
precisely 66 of the respondents (61,68 percent) mostly disagree that there is a
practice of a common promotion of rural tourism on the national level in the
Republic of Croatia (middle grade 2,13).
Upon determining the limiting business factors, 75 (75 percent) of respon-
dents consider the unadequate marketing activities in local and national level
as the most crucial factors that hinder the business development (middle grade
1,99). With the goal of determining the accuracy of this claim more precisely,
the authors constructed the intervals of accuracy around the values of certain
claims in order to examine whether the differences between the arithmetic
means are high enough so that they cannot be considered accidental. Tubić
(2015) states here that out of 17 offered factors, the restrictive factors are stron-
ger than the factors of excessive tax rates, the lack of stakeholder co-operation,
lack of motivation and tradition in tourism and education programs, and other
factors at the confidence level of 95%. Modern tourism market is character-
ized by the growing diversity of tourism product and service offering, and the
lack of market placement, as well as the lack of market communication, espe-
cially the lack of market advertising, certainly has a negative connotation for INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
the further development of rural businesses in such market conditions (Tubić,
2015: 266). Upon determining the basic features of market advertising, the re-
spondents were asked to state their views on the methods of advertising of the
existing tourist products and services that are offered within their own rural-
tourism offer to different consumer categories. The results show that most of
the respondents (48,60 percent) promote their tourism products and services
on their own, but also that a high percentage (42,99 percent) is promoted in
cooperation with other stakeholders. If the results given in table 1 are taken into
consideration, we can see that the respondents rated the cooperation with other
rural economies with the average grade of 2,45, while the lowest average grade
of 1,77 was attributed to the cooperation with amenable Ministries and other
1169
state institutions. Based on the data gained through the empirical research con-
nected to the use of advertising channels in the business, Tubić (2015:269-270)
highlihts the following conclusions:

• the greatest percentage of respondents, 87,85 percent (94) often or very
often use the channel of oral advertising with the primary goal of estab-
lishing the market communication, as well as the Internet due to its avail-
ability and interactivity;
• according to the statemets of most of the respondents, 83 (77,77 percent)
do not use or rarely use the traditional media such as TV, radio or newspa-
pers in order to upgrade their tourist business (average grade higher than
1,80). According to the creators and co-creators of the national tourism
policy, the key issue for not using the traditional media channels in their
tourism bussiness lies in the focus of the media space exclusivelly on tradi-
tional Croatian tourism products of “sun, sea, and sand”.
Table 1 Assessment of quality levels of advertising activities that generated

from cooperation with other tourist stakeholders
Very favorable
Not favorable
favorable nor
Considerably
Not entirely
Arithmetic
favorable
favorable
Advertising activity
Neither
mean
poor
Partnership with other rural economies in 36 18 30 15 8

2,45
the area 33,64% 16,82% 28,04% 14,02% 7,48%
41 19 22 18 7
Cooperation with tourist agencies 2,36
38,32% 17,76% 20,56% 16,82% 6,54%
50 14 23 11 9
Cooperation with local self-government units 2,21
46,73% 13,08% 21,50% 10,28% 8,41%
47 21 24 12 3
Cooperation with travel agencies 2,09
43,93% 19,63% 22,43% 11,21% 2,80%
Cooperation with regional associations and 48 22 27 10 0
1,99
organizations 44,86% 20,56% 25,23% 9,35% 0,00%
Cooperation with amenable Ministries and 61 14 28 4 0
1,77
other state institutions 57,01% 13,08% 26,17% 3,74% 0,00%
Source: Tubić, D. 2015: 268
71,03 percent of the respondents answerded confirmingly to the question of

whether they run a web page of the rural economy. For further analysis, Tubić
1170
(2015) evaluated the quality of web pages based on four defined criteria: general
information, contact information for the visitors, information about the tourist
offer and web 2.0 technology. The evaluation form and the results can be seen in
Table 2. The poorest results were recorded in the fourth evaluated criterion and it
is important to insensify the use of the Internet as the promotional and commu-
nicational medium, exclusively due to the many advantages of the web 2.0 tech-
nology (global reach, low activity costs, the possibility of a quick reaction to new
market trends and alike). These advantages certainly result in an increased num-
ber of Internet visitors, a higher rank in the Internet search engines, the obtaining
of feedback from the consumers and in the creation of loyalty (Tubić, 274-275).
Table 2 Evaluation form of the quality of web sites of tourist economies

Presence in Presence in
Evaluating criteria
numbers percentage
Basic information
Information about the rural economy 65 95,6
Working hours of the rural economy 18 26,5
Information about the tourist area/destination 20 29,4
Video content (short movies about the rural economy) 16 23,5
Photo content (photo gallery) 52 76,5
Virtual reality (virtual walks through the economy) 6 8,8
Multilingual content on the web site 39 57,4
Contact information for the visitors
Address 62 91,2
Telephone 62 91,2
Fax 26 38,2

E-mail 58 85,3
(“How to reach us”) 56 82,4
Information about the tourist offer
Service pricelist 28 41,2
Payment methods (cash, credit cards or online payment) 9 13,2
Online booking system 4 5,9
Booking inquiries by electronic mail 17 25,0
Announcement of tourist events in the destination 15 22,1
Additional content 21 30,9
Web 2.0 technologies
Links to social media (Facebook, Twitter, Youtube and alike) 30 44,1
Web site compatibility with other mobile devices 8 11,8
Web shops 2 2,9
Mobile apps for visitors 4 5,9
Source: Tubić, D. 2015: 274
1171
4. CONCLUSION
In the Republic of Croatia, rural tourism in the academic sense is still in its
developmental phase, but we have to note that it goes uphill. It is important to

note that over the past ten years rural tourism has become the research subject
of young scientists in the highest academic level, i.e. in writing their doctoral
theses for the purpose of obtaining the title of doctors of science. In formal edu-
cation, the College for Management in Tourism and Informatics in Virovitica
stands as the only institution of high education that deals with the content on
the rural matter throughout the whole study program, and this matter was ad-
justed according to the principles of the Croatian Qualifications Fraemwork.
What is the importance of mentioning that fact in this work? The answer lies in
the fact that the respondents lack the desired level of marketing knowledge and
are thus limited to the independent use of marketing tools and activities, which
was also corroborated in the research. Marketing is not a mere advertising activ-
ity, but a combination of different tools for placing the products and services on
the market, which can be seen from all the marketing elements that were exam-
ined in the work. What is more, it is necessary to advance and develop a model
of marketing networking on the local level, as well on the level of counties and
the national level under the prerequisite that the development incentives stem
from the epicenter of tourist resources, i.e. from the local level. To conclude as
Tubić (2015: 298), states, the promotion of rural tourism should be directed more
agresively towards the Croatian guests, but also towards the foreign tourist markets
such as France, Austria, the United Kingdom, Denmark, Holland, and Germany
that appreciate and prefere these tourism products.
LITERATURE
Brščić, K. (2005). Marketinške pretpostavke uspješnosti subjekata agroturističkog gos-
podarstva u Istarskoj županiji, Doktorska disertacija, Osijek: Ekonomski fakultet
Sveučilišta u Osijeku.
Chesky, A. (2009). Can Agritourism Save the Family Farm in Appalachia? A Study of Two
Historic Family Farms in Valle Crucis, North Carolina. Journal of Appalachian Stud-
ies, 15 (1/2), p. 87-98.
Demonja, D., Ružić, P. (2010). Ruralni turizam u Hrvatskoj s hrvatskim primjerima dobre
prakse i europskim iskustvima, Zagreb: Meridijani.
European Commission (2006). Directorate - General for Agriculture and Rural Develop-
ment: RURAL DEVELOPMENT IN THE EUROPEAN UNION - STATISTI-
CAL AND ECONOMIC INFORMATION - Report 2006.
1172
Flanigan, S., Blackstock, K., Hunter, C. (2014). Agritourism from the perspective of provid-
ers and visitors: a typology-based study, Tourism Management, 40, p. 394-405.
Franić, R., Cunj, L. (2007). Društveno-gospodarski preduvjeti razvitka agroturizma u
Zagrebačkoj županiji, Agronomski glasnik, 69 (5), p. 381-400.
Grgić, I., Zrakić, M., Cerjak, M. (2011). Agroturistička ponuda Zagrebačke županije:
ograničenja i mogućnosti, Agronomski glasnik, 73 (1-2), p. 41-58.
Hajdaš Dončić, S., Horvat, Đ., Šmid, I. (2007). Klaster - model za interregionalno povezivan-
je kontinentalnih agroturističkih odredišta, Acta Turistica Nova, 1 (1), p. 99-116.
Irshad, H. (2010). Rural tourism – an overview. Alberta: Government of Alberta, Rural
Development Division.
Jelinčić, D.A. (2007). Agroturizam u europskom kontekstu, Studia ethnologica Croatica, 19
(1), p. 269-291.
Krajnović, A., Čičin-Šain, D., Predovan, M. (2011). Strateško upravljanje razvojem ruralnog
turizma - problemi i smjernice, Oeconomia Jadertina, 1 (1), p. 30-45.
Kušen, E. (2006). Ruralni turizam, p. 167-190., u Čorak, S., Mikačić, V. (Eds) (2006).
Hrvatski turizam - plavo bijelo zeleno, Zagreb: Institut za turizam.
Kušen, E. (2007). Terminologija ruralnog turizma. U: Baćac, R. (Ed.) Zbornik radova 1.
Hrvatskoga kongresa o ruralnom turizmu s međunarodnim sudjelovanjem „Perspe-
ktive razvoja ruralnog turizma“, Hvar, 17. - 21. listopada 2007., Zagreb: Hrvatski
farmer d.d., p. 273-280.
Lane, B. (1994). What is rural tourism? Journal of Sustainable Tourism, 2, p. 7-21.
Mili, N. (2012). Rural Tourism Development: An Overview of Tourism in the Tipam
Phakey Village of Naharkatia in Dibrugarh District, Assam (India). International
Journal of Scientific and Research Publications, 2 (12), p. 710-712.
Mišćin, L. Mađer, B. (2008). Aktualno stanje turizma u ruralnom prostoru Hrvatske 2008.
godine, Zagreb: Sektor za turizam HGK.
Organisation for Economic Cooperation and Development (1994). Tourism Strategies and
Rural Development Organisation - General Distribution. Paris
Pesonen, J., Komppula, R., Kronenberg, C., Peters, M. (2011). Understanding the relation-
ship between push and pull motivations in rural tourism, Tourism Review, 66 (3), p. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
32-49.
Polo, A.I., Frías, D. (2010). Collective Strategies for Rural Tourism: The experience of net-
works in Spain, Journal of Tourism Consumption and Practice. 2 (1), p. 25-45.
Pröbstl-Haider, U., Melzer, V., Jiricka, A. (2014). Rural tourism opportunities, strategies
and requirements for destination leadership in peripheral areas, Tourism Review. 69
(3), p. 216-228.
Rátz, T., Puczkó, L. (1998). Rural Tourism and Sustainable Development in Hungary, p.
450.-464., u Hall, D., O’Hanlon, L. (Eds.) (1998).”Rural Tourism Management: Sus-
tainable Options” International Conference, Conference Proceedings; Scottish Agri-
cultural College, Auchincruive, Ayr, Scotland, UK.
Roberts, L., Hall, D. (Eds.) (2001). Rural Tourism and Recreation: Principles to Practice,
Oxon and New York: CABI Publishing.
Ružić, P. (2009). Ruralni turizam, Pula: Institut za poljoprivredu i turizam Poreč.
1173
San Martín, H., Herrero, Á. (2012). Influence of the user’s psychological factors on the on-
line purchase intention in rural tourism: Integrating innovativeness to the UTAUT
framework, Tourism Management, 33, p. 341-350.
Sznajder, M., Przezbórska, L., Scrimgeour, F. (2009). Agritourism, Wallingford: CABI.

Tchetchik, A., Fleischer, A., Finkelshtain, I. (2006). Rural Tourism: Development, Public
Intervention and Lessons from the Israeli Experience. Discussion Paper No. 12.06.
The Hebrew University of Jerusalem, The Center for Agricultural Economic Research,
The Department of Agricultural Economics and Management.
Thompson, C.S. (2004). Host produced rural tourism: Towa’s Tokyo Antenna Shop, Annals
of Tourism Research, 31 (3), p. 580-600.
Tubić, D. (2012). Osobitosti agroturizma na području Slavonije i Baranje, Završni rad.
Osijek: Ekonomski fakultet u Osijeku.
Tubić, D. (2015). Model razvoja ruralnog turizma Kontinentalne Hrvatske, Doktorska dis-
ertacija, Osijek: Ekonomski fakultet u Osijeku.
Tubić, D., Bakan, R., Jaković, B. (2017): Agritourism: A new power of Croatian tourism, In
Jautz, U., Cini, V. (Eds.), Interdisciplinary management research XIII. (ISSN 1847-
0408) (pp 1230-1241) (p. 1230-1241), Opatija: Josip Juraj Strossmayer University of
Osijek, Faculty of Economics in Osijek.
1174
THE ISLAND OF RAB  TOURISM
POSITIONING AND DESTINATION
BRANDING
Dominik PAPARIĆ, mag. oec.

Municipality of Lopar, Deputy Mayor
Faculty of Economics in Osijek, Ph.D. Student
Email: paparicdominik@gmail.com
Jesenka RICL, mag.art./univ.spec.oec.

RICL Counseling and Services
Email: obrt.ricl@gmail.com
Dražen ĆUĆIĆ, Ph.D. Assistant professor

Department of National and International Economics
Email: dcucic@efos.hr
Abstract
The process of defining a tourist destination in terms of positioning on the tour-
ist market has to serve the purpose of creation an identity and quality, which INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
depends on the megatrends in tourism. Depending on the economic power of
a destination and the aims of the management body in positioning process it is
necessary to create a product development action plan, while one of the steps
also includes destination branding.
This paper presents the results of the revision on the research and activities car-
ried out in the period from 2014 to 2017 by the Croatian Tourist Board offices
on the island of Rab. Measuring brand impact is necessary in understanding
the success of destination management plan. The results of measuring brand
impact will reveal how travelers perceive the destination regarding brand dif-
ferentiation and the brand esteem. The paper will present the results of the sur-
1175
vey conducted in March 2018 in relation to “Brand Development Rab - The
Happy Island”.
Key words: positioning, destination branding, competitive advantage, tourist
destination of the island of Rab, brand tracking survey
JEL Classification: L83, M39
Dominik Paparić Jesenka Ricl Dražen Ćućić: THE ISLAND OF RAB – TOURISM POSITIONING AND DESTINATION BRANDING
1. INTRODUCTION
This paper attempts to determine if the process of positioning and branding
of the island of Rab in terms of the “Rab The Happy Island” slogan was success-
ful. In 2014 a suggestion was put forward as to position the destination of the
island of Rab on the tourist market. The suggestion was an answer to an invest-
ment swing and a qualitative bounce in terms of the tourist product and service
offer. This advanced development prompted the creation of a new brand. The
primary goal of the positioning and branding of the island of Rab was to pro-
long tourist season and to increase the efficiency of tourism economics, which
results in income growth, new workplace opportunities and their diversifica-
tion and the overall growth of the life standard of the inhabitants of the island.
The branding process is very complex and long-lasting if it aims to achieve the
competitive strength of the destination. A brand is the feeling that a tourist has
towards tourist destination, a brand relates to the specificity, originality and
authenticity of the features owned by the destination. Marketing activity is the
process of tourism product development. Product marketing does not solely
mean product promotion. Nevertheless, it has to do with its development and
improvement. In order to be able to develop a product, it is necessary to explore
the tourist market regularly, conduct promotional campaigns and study behav-
ior of the consumers as well as their preferences.
This paper explores how recognizable the brand of “Rab The Happy Island”
is. It made use of the survey method among the current and the potential trav-
elers, i.e. tourists as well as the analysis of the secondary records given by the
employees of the Tourist Boards of the Town of Rab and the Municipality of
Lopar. The research aims to determine how and to what extent brand influences
the positioning of the island of Rab on the tourist market.
1176
2. TOURIST DESTINATION POSITIONING
.. Tourist motivation and customers ‘wishes
Trends show that today’s tourists are often called travelers, who want to
explore the destination and become a part of the local community. Globaliza-
tion process influences the change of a contemporary tourist’s needs, i.e. of the
traveler. Today, traveler demands more than a usual beach vacation. Contem-
porary traveler seeks a “getaway” from the everyday routine, authenticity and
is in continuous need of the new life and educational experience. Destinations
change, not just because of the pressure made by tourism but also because of the
outdated offer (Magaš; 1997, 8).
In modern tourist development the destination is treated as tourist product
that will successfully compete on the market duo to its attractive and high-qual-
ity issues (Magaš; 2003, 30).
Today’s travelers can be divided into two categories (ETC/UNWTO,
2009):
a) the ones who travel to their destinations frequently and who are moti-
vated to materialize what they acquired and enjoy its hedonic magic, and
b) the ones in search of the personal and emotional fulfillment, but in those
destinations, which enable the transformation of travelers through the
new life experience
Understanding of tourist motivation helps workers in tourism industry

and destination management organizations in designing tourist products and
services. Understanding of the travelers’ wishes and needs helps for three main
reasons (Andrades, Dimanche and Ilkevich, 2015):
1. Understanding of tourist motivation and behavior helps to plan and de-
velop the decisions related to destination and on the organizational level,
2. Understanding of tourist motivation and behavior helps all the providers
of tourist services and products to increase the satisfaction of travelers
and to generate unforgettable experience,
3. Understanding of tourist motivation and behavior influences the econ-
omy of destination, as well as the professional success of all the partici-
pants in tourism.
1177
Traveler’s motivation is a consequence of a consumer’s wish to travel. Com-
mercial or non-commercial information can stimulate the consumer’s wish.
That information triggers the consumer’s attention and convinces him that the
temporary situation can be changed if he buys or consumes a product or ser-
vice. During the purchase the value of the brand plays a significant role. Con-
sequently, the image and brands of the destination become important stimuli
which affect the consumer’s behavior as well as consumer’s motivation during
the selection of the destination.
Picture 1. The process of selection and “usage” of tourist product or service by

tourists
Source: Andrades, Dimanche and Ilkevich, 2015
Picture 1. shows the process of researching and selecting a travel destination.

The process begins by examining a potential travel destination while the deci-
sions and purchase are based on the attitude, wishes and the needs of buyers.
Expectation and preparations for the travel are also a part of traveler’s experi-
ence, which additionally increase the “travel fever” and motivation for travelling.
During the travel and stay in the travel destination tourist undergoes different
experiences, which help him to reach decisions related to purchase and to do
further destination research on the spot. In that phase tourist can evaluate the
quality of travel destination and justify the selection of his decision, i.e. purchase.
In the final phase, having returned from the travel destination to their residence,
buyer shares his experiences and memories, creates the personal system of val-
ues and simultaneously builds the loyalty or dislike for travel destination.
1178
.. Competitive surroundings
Each year new tourist destinations emerge with diverse offer of selective
tourism. Each of them develops different experience for potential travelers.
Managerial tourist destination units try to use tourist activities in order to re-
cover economy, which means an ongoing search for better tourist destination
positioning in highly competitive surroundings. It is of utmost importance in
these cases to determine who the rivals are and what motivates a traveler, i.e. a
tourist to go to that destination. Competitive analysis is important in the pro-
cess of destination branding and in conducting optimal marketing activities.
Understanding other destinations has become important for the develop-
ment of a quality destination brand. The analysis of competitors can clarify
their current position and activities; it can identify the weaknesses and actions
that can be taken in that regard (Oliva & Paliaga; 2015, 30).
Normally, tourist offer includes cultural, natural, heritage or adventure of-
fer, which is actually not enough. It is necessary to move away from the “generic”
offer and find particulars and authenticities which will influence stronger tour-
ist destination positioning in relation to a competitive destination. Destination
positioning, branding and the creation of a suitable image of a destination are a
key motivational means for tourists.
.. Differentiation and branding

Tourist destination consists of resources and attractions, which are also ex-
trinsic motivational factors effecting the selection of a destination. Because a
destination has to justify the expectations of a traveler, marketing professionals
try to understand the intrinsic motivation of tourists. In competitive surround-
ings destinations and companies, and particularly workers in tourism industry,
can stay competitive with each other in terms of the level of unforgettable expe-
rience they offer that tourists can enjoy in. Tourist management has to use the
strategies of market segmentation in order to identify the needs and wishes of
potential travelers.
A brand can indicate one product or service, a group of products or services
or all the products or services of a single producer. It helps in reaching a decision
regarding the purchase and guarantees a certain level of quality of products or
services. Primarily, it indicates the identification, practicality, safeguard, optimi-
1179
zation, characterization, continuity, hedonism and ethics of the products or the
combination of these different factors which give identity to the product or ser-
vice and make it different from the other products or services. This is a way to
distinguish a product or a service among the others, which consequently leads
to its growing consumers’ appeal (Paliaga; 2008, 7).
Branding is a marketing and managerial process which gives a unique iden-
tity and image to a certain product or service and makes it typical and more
different from the one of a competitor (Cetinski et al; 2006, 103).

Differentiation is a marketing strategy which is directed towards a target
market by using all the available marketing means to differentiate an offer from
the offer of a competitive market. Based on a rational decision tourist choose
the travel destination regardless of their limited knowledge about the travel
destination. To differentiate one tourist destination from another, tourist man-
agement needs to discuss experiences as a crucial segment of tourist offer to
potential travelers.
Another important part of tourist destination differentiation process is the
creation of brand awareness and its positioning in the minds of consumers, i.e.
travelers, ( Jakovljević; 2000, 26) because even though a destination can be very
alluring at first, it will not be chosen by travelers exactly because of the lack of
information and the lack of belief in the quality of offer. Brand is a competi-
tive identity of a tourist destination. It represents a sum of all the tangible and
intangible characteristics of a product (Paliaga; 2008, 13). It is important to
understand the trends which speak in favor of travelers, i.e. tourists being the
ones who “define” a brand. Consequently, competitive analysis and market seg-
mentation are the keys to destination branding.
3. “RAB THE HAPPY ISLAND” BRAND

.. The island of Rab in general
In a broad sense, Kvarner is a relatively wide bay between the Istrian penin-
sula and the mountain range of Velebit. There are 2 (two) lines of islands there.
The external one consists of two larger islands: Cres (405.8 km²) and Lošinj
(74.7 km²) while the inner line consists of larger islands: Krk (405.8 km²), Rab
(90.8 km²) and Pag (284.6 km²). Both lines of islands have their own smaller
islands and islets around them (Turk & Turk Šarić; 2010, 13).
1180
The island of Rab is the fourth island of the Kvarner Gulf. It also includes
the neighboring islands, among which it is noteworthy to mention somewhat
larger islets such as Sv. Grgur (6.7 km²), Goli otok (4.7 km²) and the island
of Dolin (4.3 km²). There are some more islands around Rab which are even
smaller and together they form the island archipelago of Rab, also known as the
Dalmatian type of coast.
Being a part of Kvarner, the island of Rab has a convenient location in terms
of transport and tourism oriented towards the inland of Europe. The Kvarner
Gulf, which is deeply indented into the European territory, is where economi-
cally significant areas of central and western Europe gravitate towards in respect
of transport and particularly tourism. The areas in question are mainly parts
of Italy, Slovenia, Austria and Germany but also parts of the Czech Republic,
Slovakia, Hungary and Poland, which have had an increasingly important role
regarding the European trends in tourism (Turk & Turk Šarić; 2010, 14).
.. The brand strategy of the island of Rab

The creation of identity will assert the image of a destination on the tourist
market. This is optimally shown by the notion of an “umbrella brand”, which
includes all the holders of offer in a destination and enables the promotion on
the market (Cetinski et al; 2006, 103).
The purpose of a brand, including a destination brand, lies in the recogniz-
ability it generates representing a shortcut for determining the characteristics

of a destination and reaching faster and safer decisions in terms of purchase,
i.e. travelling for a buyer (a tourist). Consequently, brand is much more than a
verbal or a visual symbol. In essence, it represents a promise to a buyer, i.e. tour-
ist. Successful destination brand builds recognizability of a region or place and
carries on a promise to the potential visitors in terms of certain experiences and
purpose which the destination will be able to offer. On one hand, it is founded
on the unique characteristics of a destination, which makes the promise truth-
ful. On the other hand, it needs to communicate with the needs of visitors in
order to make the promise it gives to the buyer, i.e. potential tourist relevant
and inspiring. Regarding its key role in generating recognizability in the today’s
highly competitive surroundings on the tourist market, a brand can be consid-
ered one of the most valuable segments of the assets of a destination. Although
some of the destinations have turned into global brands accidentally through
1181
the course of its historical development, the majority of them try to take a clear
and recognizable place in the minds of potential target segments of buyers by
means of strategic management of the process of destination branding.
The development of the brand of the island of Rab, which will enable the
desired tourist market recognizability in the region, has been one of the key
questions of the marketing strategy of Rab for the past 10 years because it is
clear that Rab is insufficiently recognizable on the market as a tourist destina-
tion and that there is no clear image of the island and the perception of buyers,
i.e tourists.
The brand strategy of Rab has the following aims (Tourist Boards of the
island of Rab, 2014):
• Define the key elements of competitive positioning of Rab (it is related
to the selection of key characteristics that make Rab unique and differ-
ent from its competition and represent the foundations for a destination
brand)
• Derive the brand concept of Rab (relying on the characteristics that make
Rab unique; it has to do with the formulation of a single and clear promise
valid for the entire island of Rab and which having the connecting power)
The purpose of the brand strategy of Rab is the creation of preconditions
that can assure taking a clear position on a “mental map” of potential buyers in
the region. Key “leading thoughts” of tourist development of the destination
become “umbrella” brand of Rab, interpreted and maintained in terms of tourist
products and services, as well as in the entire communication with buyers, i.e.
tourists.
It is possible to identify the following characteristics of singularity of the
destination of the island of Rab (Tourist Boards of the island of Rab, 2014):
• Island with a long-lasting tradition of medical tourism in the Adriatic; the
beginnings of tourism on Rab, dating back to 1889, are related precisely to
the specific climatic and sanitarium conditions, i.e. proclaiming the island
a climatic health resort. By continuing and modernizing the medical tour-
ism tradition, it was on Rab that the programs of “healthy life” used to be
and still are active.
• The island of varied and unique activities offering an all-year-round active
and fulfilled stay: various available activities, some of which are unique
1182
in terms of location, climate and culture, with the possibility of an all-
year-round, fulfilled and active tourist stay. From the abundance of forests
of the island (one of the greenest islands in Croatia), unique climate and
numerous bays, beaches for all the generations (sandy, pebbly, stone) and
the clean sea, to the exceptional historical and cultural sights, unique Rab
Geopark as well as the rest of the tourist offer implemented in the full
tourist product
• The island of exceptional areal diversity: embraced and protected by its
highest peak (the Kamenjak hill – 408 meters of altitude) which defends
the island from strong northern winds and the influence of cold air; ow-
ing to that the island emanates the Mediterranean in the true sense of the
word.
• The island confronted the developmental challenges and dedicated itself
to the implementation of the principles of sustainability: the conflicting
developmental options of Rab as an island of the exceptional preserved
natural beauty and cultural heritage and simultaneously oriented towards
tourism and, traditionally, to agriculture and fishing contribute also to an
increasingly distinctive inclination towards sustainability as an assump-
tion of the contemporary development.
• The proximity of the island to the regions of the big markets of Central
Europe: owing to the significantly improved transport infrastructure Rab
is today, along with the other destinations in Kvarner and Istria, the easi-
est Adriatic region to reach, even for the more distant markets.
As one of the easiest islands to reach in the Croatian Adriatic, with excep- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
tional diversity and unique activities offering numerous possibilities for a ful-
filled and active holiday, Rab stands out as a happy and healthy island with rich
cultural and historical heritage, with over 200 interesting events throughout the
year and consistently oriented towards the holiday motivated by health, physical
fitness, beauty and enjoyment. These are the key elements which the Rab Brand
is based on.
3.2.1. The Rab Brand concept

Based on the identified unique characteristics that can differentiate Rab
from its competition, the destination brand needs to insure a clear position of
1183
the island in the perception of buyers and is the key assumption for the creation
of market recognizability of Rab as a tourist destination. Below are the concepts
that will place the destination of the island of Rab on the “mental” map of buy-
ers, i.e. tourists.
3.2.1.1. The value of the Rab Brand

The value of the brand implies the identification of a specific idea behind
which there is the destination of the island of Rab and which gives its market
strength. It is a promise to a buyer, i.e. a tourist about the relevant benefits that
Rab can offer.
Table 1. The Rab Brand concept

CHARACTERISTICS OF
PROMISE / GAIN RELEVANCE FOR A BUYER / GUEST
SINGULARITY
- a long-lasting medical tourism
- the island of Rab is a specialist for the vacation
tradition
- a good feeling dedicated not only to health; it is the best place “to
- exceptional diversity and unique feel good”
activities - pleasure
- the island of Rab offers numerous activities
- exceptional areal indentation in - comfort
- the island of Rab has the connotation of a
the small area
protected and pleasant place
- developmental challenges and
- Rab puts in effort to manage its development
dedication to the principles of
respecting the sustainability principles
sustainability
- the island of Rab is easily accessible
- proximity and accessibility
Source: created by the authors
Resulting from the specific characteristics of the identity of the island of Rab
and communicating with the value system of a modern buyer (“the new tourist”),
the value of the brand, i.e. the essence or the very core of the promise of Rab is a
clear benefit to the tourists: the Happy Island. This concept comprises the mes-
sage of a “good feeling” while staying on Rab in terms of pleasure and fulfillment,
resulting from the possibility of doing a huge variety of activities, staying in the
preserved area and the region dedicated to the assumption of sustainability.
3.2.1.2. The personality of the Rab Brand

The personality of a brand is related to the characteristics of a brand as a
personality. It answers the question of what the island of Rab is like and how
1184
a visitor/tourist feels during his vacation. Island of Rab can be described as
moderate, generous, vital, amusing and open. It is impressive in many ways. Its
rich historical heritage and distinctive nature impress, its rich culture of living
delight, its vitality inspires, the complexity of developmental options is worth of
respect. In its diversity Rab is the place where a visitor/tourist has a great free-
dom of choice, positive energy and the place which sets free. However, island of
Rab appeals mostly by its moderate, fine temper, ranging from the mild climate,
peaceful and protected sea to the gentle scents of the island vegetation, refined
architecture and subtle tastes.
The study of the positioning and branding of the island of Rab for a creative
solution for the visual identity of the “Rab” brand was conducted in 2014 for the
Tourist Boards of the island. The study showed that the level of self-catering
vacation rentals is extremely low, that the increased competitiveness between
those who rent their accommodation leads to lowering accommodation prices
and that there is a lack of the guests of higher purchasing power. Since then
various activities have been conducted to increase the overall tourism indus-
try revenue, to prolong tourist season, preserve natural and cultural heritage
and develop the destination in accordance with the attitudes and values of the
inhabitants.
The study shows that the overall cultural and natural heritage of the island,
the development of autochthonous products as well as good traffic connections
are all fine resources which can increase seasonal income and prolong its dura-
tion. The authors propose a way of improving the offer, which is based on de-

fining a few target segments and shaping a specific offer for each of them. The
study of the island positioning detected a problem and that is an insufficient
flow of information in the local community, which can also result in an insuf-
ficient communication of tourist offer to tourists.
The slogan “Rab The Happy Island” has been used for the promotion of the
tourist offer of the destination of Rab, together with its visual identity. The ex-
isting visual identity of the town of Rab is based on carefully selected elements
of color, sound and smell which are typical of the cultural and natural scenery
of the island. The study set forth key visual elements: 4 bell towers (immovable
cultural and sacral heritage), the colors of the island which reflect the natural
geological wealth and the sounds of the nature and the historic core of the town
of Rab.
1185
Picture 2. Visual identity of the island of Rab
Source: http://www.rab-visit.com/hr (access 22.03.2018.)
4. RESEARCHING THE ATTITUDES OF THE

CONSUMERS
For this study a research was conducted among the consumers, i.e. the cur-
rent and the potential tourists. Normally, continuous research into the attitudes
of tourists is the key part of the process of positioning and branding of a tourist
destination. The research helps to understand how a destination is perceived
among the tourists who had visited it, and how it is perceived by those who had
not. The research process consists of a logical order of actions which need to be
implemented to get reliable and valid information (Marušić & Prebežac; 2004,
65).
The primary goal of this study is to determine the successfulness of the pro-
cess of positing and branding of the island of Rab under the slogan “Rab the
Happy Island”. The secondary goal is to determine the strengths and weakness-
es of the destination development, i.e. in improving the quality of tourist offer
by understanding the needs and wishes of current and potential guests.
.. The methods of data collection

In this study the authors used the sources of primary and secondary data
(available at: http://www.rab-visit.com and http://www.lopar.com, access on
22.03.2018.), which describe the state of positioning and branding of the island
of Rab in the last 4 years.
1186
4.1.1. Research based on the secondary data
The authors did a research into the documents handed in by the employees
of the Tourist Board offices on the island of Rab. The following data has been
researched
• The study of the branding of “Rab the Happy Island”
• Tourism flow per country in the period from 1.1.2014. to 31.12.2017.
• Tourism flow per accommodation type in the period from 1.1.2014. to
31.12.2017.
Table 2. Tourism flow on the island of Rab in the period from 1.1.2014. to
31.12.2017.
ARRIVALS
INDEX INDEX INDEX
2014 2015 2016 2017
15/14 16/15 17/16
DOMESTIC 16,339 17,571 19,218 20,072 108 109 104
FOREIGN 224,914 238,062 246,620 263,052 106 104 107
Σ 241,253 255,633 265,838 283,124 106 104 107
OVERNIGHT STAYS
DOMESTIC 129,925 130,667 197,433 101 141 107
184,562
FOREIGN 1,696,858 1,779,818 1,898,778 2,011,093 105 107 106
Σ 1,826,783 1,910,485 2,083,340 2,208,526 105 109 106
LENGTH OF
STAY (DAYS) 7.57 7.47 7.83 7.80
Σ

The analysis of the statistical data showed the increase in the tourism flow
(the number of arrivals and overnight stays of domestic and foreign tourists) in
the period from 1 January 2014 to 31 December 2017 in the destination of the
island of Rab.
There were 8% more domestic tourists in 2015 as compared to 2014 and the
same period showed a rise of 1% in overnight stays. There were 6% more foreign
tourists in 2015 as compared to 2014 and the same period showed a rise of 5%
in overnight stays. The overall tourism flow in 2015 showed a rise of 6% in ar-
rivals and 5% in overnight stays as compared to 2014.
1187
There were 9% more domestic tourists in 2016 compared to 2015 and the
same period showed a rise of 41% in overnight stays. There were 4% more for-
eign tourists in 2016 compared to 2015 and the same period showed a rise of
7% in overnight stays. The overall tourism flow in 2016 showed a rise of 4% in
arrivals and 9% in overnight stays compared to 2015.
There were 4% more domestic tourists in 2017 compared to 2016 and the
same period showed a rise of 7% in overnight stays. There were 7% more foreign
tourists in 2017 compared to 2016 and the same period showed a rise of 6% in
overnight stays. The overall tourism flow in 2017 showed a rise of 7% in arrivals
and 6% in overnight stays compared to 2016.
The highest number of arrivals (around 44%) and overnight stays (46%) in
the inspected period (2014 – 2017) was achieved in private accommodation
while the lowest number of arrivals (around 20%) and overnight stays (around
17%) was achieved in hotels. Considering the structure of guests, one third came
from Germany followed by Austrian tourists (10 – 15%), Hungarian (9-13%),
Slovenian (7-10%), Czech, Slovakian, Polish, Italian and Croatian (5-8%).
The length of stay in 2014 was 7.57 day, 7.47 in 2015, 7.83 in 2016 and 7.80
in 2017.
Chart 1. Graphic representation of statistical data regarding the achieved over-
night stays of domestic and foreign tourists on the island of Rab in
the period from 1 January 2014 to 31 December 2017 (in thousands)
1188
Chart 2. Graphic representation of statistical data regarding the achieved
overnight stays of domestic and foreign tourists on the island of
Rab in the period from 1 January 2014 to 31 December 2017 (in
thousands)
4.1.2 Survey research method

The method implies collecting the data regarding perceptions, habits, wishes
and attitudes of the examinees. It is the most widespread technique of data col-
lection in social research, particularly convenient for descriptive and causative
research (Tkalac Verčić et al.; 2011, 103). The questionnaire consisted of a list
of questions prepared in advance, arranged order. The examinees filled it in in-
dividually over the Internet. The questions were divided into three categories: INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
the first, oriented towards finding out general attitude and travelers’ preferences,
the second, oriented towards finding out the examinees’ attitudes in relation to
the tourist offer of the island of Rab and the recognizability of the marketing
campaign “Rab The Happy Island”, and the third, questions oriented towards
finding out the main characteristics of the examinees. The questionnaire con-
sisted of closed-ended questions. It made use of the Likert scale with categories.
The survey was conducted during March and the results are descriptively de-
scribed hereafter.
1189
.. The results of the survey research
A total of 201 examinees took part in the survey research, 115 of whom
were women (57%) and 86 men (43%). Out of the total number of the examin-
ees 194 of them (97%) state the Republic of Croatia is their residence while 7
of them (3%) live abroad.
The number of examinees across the counties is as follows: Primorje – Gor-
ski kotar County – 54 examinees (28%), the City of Zagreb – 36 examinees
(19%), Zagreb County – 30 examinees (15%), Osijek – Baranja County – 22

examinees (11%), Brod – Posavina County - 9 examinees (5%), Istra and Lika
– Senj County – 8 examinees (4%), Krapina – Zagorje County – 5 examin-
ees (3%), Karlovac and Međimurje County – 4 examinees (2%), Koprivnica –
Križevci and Split – Dalmatia County – 3 examinees (2%), Požega – Slavonia
and Sisak – Moslavina County – 2 examinees (1%) and Bjelovar – Bilogora,
Varaždin, Virovitica – Podravina and Zadar County – 1 examinee (1%).
In terms of the finished level of education 110 examinees (53%) have a uni-
versity degree, 35 of them (17%) have advanced specialist’s training and 56 of
them (28%) completed their secondary education.
In terms of the employment status the results of the survey research are as
follows: 133 of the examinees (66%) work for an employer, 37 of them (18%)
are self-employed, 13 (6%) of them are unemployed, 10 examinees are retired
(5%) and 8 examinees (4%) claim to be students.
In terms of income, 75 of the examinees (37%) earn between 5,000 and
8,000 HRK, 40 examinees (20%) between 3,000 and 5,000 HRK, 37 examin-
ees (18%) earn between 8,000 and 12,000 HRK, 26 of them (13%) up to 3,000
HRK while 23 of them (11%) earn more than 12,000 HRK.
The analysis of the aforementioned data shows that travelers with a univer-
sity degree travel the most. They have average income and work for an employer.
The examinees with the under-average income travel almost as much as the
ones with above-average income.
The questionnaire included questions oriented towards determining the
general attitude and preferences of the travelers, i.e. tourists, and the results are
shown hereafter.
When asked which sources of information travelers consider the most im-
portant for making decisions and planning their journey 130 of the examinees
1190
(65%) make decisions based on their friends’ or colleagues’ recommendations
or the recommendations of their relatives, 102 of them (51%) make decisions
based on their personal experience, 77 of them (38%) search the web sites
which gather and publish comments, reviews and ratings of travelers/tourists,
41 of them (20%) search online social networking sites (for accommodation,
restaurants, transport services etc.), 39 of them (19%) the web sites owned by
the service providers or the destination, 18 of them (9%) make decisions based
on the information published in newspapers, on the radio or television pro-
grams, while no more than 13 examinees (6%) make decisions in travel agen-
cies or tourist offices and 10 of them (5%) with the help of tourist guides and
magazines that are sold.
The examinees usually travel with partner or spouse, which is claimed by
67 examinees (33%), 65 of them (32%) travel with their family including the
children younger than 18, 40 of them (20%) travel alone while 13 of them (6%)
travel in organized groups.
The main reason for taking their vacation in 2017 were the sun and beach
for 103 of the examinees (51%), 77 of them (38%) decided to stay in the nature
(mountains, lakes, scenery). Sightseeing was the main reason for travelling for
61 of the examinees (30%), for 40 of them (20%) the reason was a visit to fam-
ily, friends or relatives, 38 of them (19%) chose sports activities as the reason
for taking a vacation, 37 of them (18%) chose culture and 28 of them (14%) en-
joyed in the possibilities of health tourism. 24 of the examinees (12%) indicate
special events such as sports events, festivals and the like as the main reason for

travelling.
The examinees organize their journey according to the following possibili-
ties: 86 of them (43%) organize the journey via one of the commercial services
on the Internet which offer private accommodation organized by natural per-
sons, 72 of them (36%) via somebody they know, 45 of them (22%) use other
commercial services on the Internet such as travel organizers, airline carriers,
etc., 41 of them (20%) via telephone conversation, 36 of them (18%) directly at
the tourist agency, 19 of them (9%) organize their vacation when they arrive at
the destination and 3 of them (1%) via trade unions.
When asked about the offer/experience they consider important when
choosing the place to spend their vacation at, the examinees answered through
the Likert scale of attitude (1 – not important at all, 2 – of little importance, 3
1191
– of average importance, 4 – important, 5 – absolutely essential) and the results
are presented hereafter.
Chart 3. The rating in prices in general, natural characteristics and the quality
of the accommodation of the destination of the island of Rab
Chart 4. The rating of the availability of activities and facilities for the people
with special needs and the rating of cultural and natural landmarks
1192
Chart 5. The rating of preferences about staying in the intact nature, meeting
the local inhabitants and hospitality, the rating of authenticity of ex-
perience and satisfaction of the local inhabitants

When asked what type of accommodation the examinees prefer on vaca-
tion, they answered: 137 of them (68%) choose apartments, 63 of them (31%)
choose family-run accommodation, 53 of them (26%) opt for a four or five star
hotel while 40 of them (20%) choose a two or three star hotel, 17 of them (8%)
choose a campsite and 4 of them (2%) other accommodation types.
In the category of questions related to the offer of the island of Rab and the
destination recognizability, the examinees reply in accordance with their experi-
ence. Out of 201 examinees 139 of them (69%) visited Rab to take vacation.
When asked which feature they perceive as recognizable to the island as a tour-
ist destination, they gave their opinion through the Likert scale.
1193
Chart 6. The rating of preferences regarding the offer of typical dishes and bev-
erages, souvenir pastries, nautical destination, cultural offer, natural
richness and beauty, authenticity and consistency in the lives of the
local inhabitants
A total of 129 (64%) of the examinees saw the slogan “Rab The Happy Is-
land” out of 201 of them. Out of 129, 79 (62%) recognized the slogan or logo
on the Tourist Board web sites and 47 (36%) on the promotional brochures
published by the Tourist Board. 39 of them (30%) saw the slogan or the logo on
the web sites owned by service providers or the destination, 38 of them (29%)
saw the slogan or the logo on the social networking web sites (offering accom-
modation, restaurants, transport services providers, etc.) 16 of them (12%) rec-
1194
ognized the slogan or the logo during a specialized show as presented on a stall,
15 of them (12%) recognized it on television shows or commercials. No more
than 11 examinees (9%) recognized the slogan or the logo in guides and maga-
zines that are sold. More than half of the examinees, 105 of them (52%) think
that the tourist offer of the island is not recognizable enough. The examinees
gave their opinion about the major drawback in terms of the recognizability of
the tourist offer of the island of Rab. As the major drawback to the recogniz-
ability of the offer of the island 47 of them (44.8%) say services and products
are not sufficiently differentiated, 45 of them (42.9%) say there is an insuffi-
cient number of branded products and services, 38 of them (36.2%) mention
the static system of the local marketing, 34.3% of them the lack of cooperation
in the field of joint marketing between the tourist offer providers, 24 of them
(22.9%) the attractions of the neighboring islands and competitive advantage of
other destinations.
When asked what effects the recognizability of the tourist offer of the island
of Rab 201 of the examinees answered in the following way: 142 of them (71%)
think that brands such as souvenir pastries (Rapska torta) or thematic events
(Rapska fjera) have an influence on the recognizability of the destination. 85 of
the examinees (42%) see the natural richness, cultural and heritage attractions
in relation to the competitive neighboring islands of Mali Lošinj, Cres and Krk
as a part of the recognizable offer. 36 of them (18%) think that differentiation
of products and services effects the recognizability of offer, while 33 of them
(16%) think this is the merit of cooperation in joint marketing and 28 of them
(14%) believe that a recognizable system of the local marketing made the island
of Rab a recognizable tourist destination. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
5. CONCLUSION
Tourists choose the products they consider attractive and for which they
think that will offer them the best value for money. From the results of this
survey research one can reach the conclusion that:
• The aforementioned results show that the most frequent travelers have a
university degree, average income and work for an employer. The examin-
ees with the under-average income travel almost as much as the ones with
above-average income.
1195
• A contemporary traveler chooses a future tourist destination based on a
recommendation and former experience and searches the Internet for the
web sites with the published comments and experiences of other travelers.
• The trend of booking vacation packages (accommodation) is still present.
• Tourists find the accommodation quality important and usually choose
apartments in terms of accommodation, natural and cultural characteris-
tics of a destination, overall price range, access to additional services and
activities and the satisfaction of the local inhabitants.

• The recognizability of the island of Rab as a tourist destination is specific
natural scenery, natural and geological landmarks.
• The logo and the slogan “Rab The Happy Island” has been recognized
as a visual identity of the island of Rab and its main promotors are still
the Tourist Board offices. However, the providers of tourist services use
the logo and the slogan to promote their products and services via digital
marketing.
• In the future it is necessary to undertake the marketing activities which
will enable better differentiation of tourist products and services, to
strengthen the marketing activities and to improve the cooperation in the
field of joint marketing promotion, particularly among the providers of
tourist products and services.
• The resources such as brand products of the island of Rab and rich natu-
ral, cultural heritage have influence on the recognizability of tourist des-
tination and enable the development of additional lines of differentiated
products.
The tourist brand of the island is a kind of essence of the destination it
represents. Based on the analysis of the secondary data available and primary
data obtained by means of survey research, it is possible to speak about certain
strategic potential and factors for a long-term development and to get as better
tourist success on the island of Rab as possible.
Undoubtedly, the Tourist Boards of the island of Rab have been success-
fully conducting marketing activities thorough the campaign “Rab The Happy
Island”. However, survey research data reveal that the slogan and the logo are
used to a lesser extent by entrepreneurs in tourism. Considering that tourists
organize their journey by booking the accommodation via Internet commer-
1196
cial services that offer private accommodation organized by natural persons,
the recommendation is that the employees of the Tourist Boards additionally
inform the entrepreneurs and point to the benefits of joint marketing.
REFERENCES
Jakovljević, R. (2000). Grad kao proizvod, IDC, ISBN 953-98144-5-6, Zagreb
Magaš, D. (1997). Turistička destinacija, Tipograf, ISBN 953-6198-14-2, Rijeka
Magaš, D. (2003). Management turističke organizacije i destinacije, Fakultet za turistički i
hotelski menadžment, ISBN 953-6198-39-8, Opatija
Marušić, M. & Prebežac, D. (2004). Istraživanje turističkih tržišta, Adeco, ISBN 9789-953-
97228-5-3, Zagreb
Oliva, E. & Paliaga, M. (2015). Regionalni autohtoni proizvodi hrane u funkciji izgradnje
regije, MPS d.o.o., ISBN 978-953-99569-2-7, Rovinj
Paliaga, M. (2008). Branding i konkurentnost gradova, MPS d.o.o., ISBN 978-953-99569-
1-0, Pula
Tkalac Verčić A., Sinčić Ćorić D. & Pološki Vokić N., (2011). Priručnik za metodologiju
istraživačkog rada u društvenim istraživanjima II. Izdanje, MEP d.o.o., ISBN 978-
953-6807-53-6, Zagreb
Turk, H. & Turk Šarić, H. (2010). Lopar- turistička prošlosti i sadašnjost, Općina Lopar i
Turistička zajednica Općine Lopar, ISBN 978-953-56247-0-7, Lopar
Andrades, L., Dimanche, F. & Ilkevich, S. (2015). Tourist Behavior and Trends, p. 108
(available at:
https://www.researchgate.net/publication/302139612_Tourist_Behavior_and_Trends ac-
cess 20.03.2018.)
Buncle, T. & Keup, M. (2009). Handbook on Tourism Destination Branding, p.35-36 (avail-

able at:
http://www.imagian.com/kuvat/etc_unwto_handbook_tourism_destination_branding.
pdf, access 17.03.2018.)
Cetinski V., Perić J. & Smolčić Jurdana D. (2006). The “umbrella” brand and branding process
in the Kvarner destination, Tourism and Hospitality Management, 12 (2), p. 103-110
Tourist Boards on the island of Rab (2014). The study of the positioning and branding of the
island of Rab (available at Tourist Board offices, access 19.03.2018.)
http://www.lopar.com, (access 22.03.2018.)
http://www.rab-visit.com, (access 22.03.2018.)
1197
THE QUANTIFIED SELF  A
THEORETICAL FRAMEWORK
AND EMPIRICAL STUDY ON
Thomas Cleff Laura Marie Hansmann Nadine Walter: THE QUANTIFIED SELF – A THEORETICAL FRAMEWORK AND EMPIRICAL STUDY ...
MARKETING OPPORTUNITIES
WITHIN THE SELFTRACKING
ENVIRONMENT
Thomas CLEFF, Ph. D.

Business School at Pforzheim University, Germany
E-Mail: thomas.cleff@hs-pforzheim.de
Laura Marie HANSMANN, B.Sc.,

International Management Master student
Goethe University, Frankfurt, Germany
E-mail: lauramariehansmann@gmail.com
Nadine WALTER, Ph. D.

Business School at Pforzheim University, Germany
E-mail: nadine.walter@hs-pforzheim.de
Abstract
Self-tracking – the practice of systematically recording information about one’s
diet, health, or activities – is becoming increasingly popular. A large variety
of data is being collected and analyzed by the users with the aim of improving
their physical well-being. The article analyses motives and habits of self-trackers
and investigates to which extend this individually-gathered data can be used
for (personalized) marketing purposes. An empirical study was conducted in
April 2017 with a sample size of 197 participants of which 106 were using
self-tracking. The results identified the key motives of self-tracking (getting fit),
their willingness to purchase additional products (mainly dietary supplements
and to a lesser extent sports accessories), their preferred frequency of observ-
1198
ing advertisements (2-4 times a month), their preferred type of advertisement
(coupons) and their preferred preference of marketing channels (social media).
The study also confirmed the negative impact of intrusiveness on the purchase
intention (meaning unclear) – but also the possibility to use opt-ins to restore it.
Overall, the findings give essential insights how self-tracking data can be used
successfully for marketing purposes.
Key words: self-tracking, personalized marketing, marketing opportunities
1. INTRODUCTION
“The digital world is present in every part of the real world, in our phones and
glasses, smartwatches and wearables, televisions, coffee machines, and cars, soon in
our food, our clothing, our floors, walls, water, air, in our bodies. The digital world
has long turned into reality.”
(Marc Elsberg 2014: 339)
As humans increasingly become nodes in the Internet of Things by generat-

ing and exchanging digital data with other sensor-equipped objects, self-track-
ing practices are increasing. Self-tracking, as defined by the Oxford Dictionary,
is “the practice of systematically recording information about one’s diet, health,
or activities, typically by means of a smartphone, so as to discover behavioral
patterns that may then be adjusted to help improve one’s physical or mental
well-being” (Self-tracking 2017, para. 1). The Quantified Self, a movement sub-
ordinate to self-tracking, features a growing community of people interconnect- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
ed worldwide through a passion and the uniting credo “self-knowledge through
numbers” (Wolf 2009, para. 2).
With a larger variety of data being collected by an increasing number of peo-
ple on a daily basis, the question arises if this big data can be used for more than
just an individual purpose. So, what if we go beyond the self? What if we could
use this vast amount of data to optimize procedures, personalize suggestions,
and reduce the redundant marketing efforts that do not apply to the individual?
This article aims to answer fundamental questions about the possible use of this
data generated by self-trackers for marketing purposes.
1199
2. WHAT IS THE QUANTIFIED SELF?
.. Definition
In 2007, when Gary Wolf and Kevin Kelly, journalists and publicists of The
Wired Magazine, founded the Blog Quantifiedself.com, the term Quantified Self
was first established. Ever since it has been used to encompass a worldwide
community of users and suppliers of self-tracking methods and technologies.
The members of the community unite to support new discoveries about them-
selves with the solemn promise of accurate observation (Quantified Self 2015,
para. 1). By monitoring themselves, Quantified Selfers liberate themselves from
unwanted habits to pursue their goals with the deep belief of increased chances
of personal success (Beato 2012, para. 8).
Today the term Quantified Self interconnects two aspects of the movement,
first the general act of quantifying or tracking one’s personal data followed by
processing this through programs that give a precise analysis of desired aspects,
and secondly the community itself. The thought of the community for the big-
gest part comprises sharing personal data with each other or learning from oth-
ers’ self-tracking or data visualization to continuously optimize the personal
tracking project (Lupton 2014).
.. Related Forms: Self-tracking, Lifelogging and

Lifehacking
The simplification of capturing, storing and analysing big data sets has made
self-tracking available to a wider group of people. It is being applied across a
large range of life areas including time management, social communications,
and travel, as well as fitness, health and wellness dimension (Hesse 2008, para.2;
Brophy-Warren 2008, para.5-8). Different tracking types exist: firstly, the most
basic form, self-tracking, refers to the action of regular, voluntary elicitation and
collection of all kinds of metrics that can be related to a person. These metrics
may include biological, psychological as well as physical variables, with some
examples being body weight, nutrition habits, moods and sleep quality (Swan
2009, p.509). This activity is usually supported by the use of sensors, applica-
tions, smartwatches or fitness trackers (Swan 2012, pp. 219). Secondly, Lifelog-
ging means literally using technology to create a journal of one’s life through
pictures, videos, voice tapes etc., leading to the formation of vast archives of life
1200
data (Selke 2014, p. 129). Lifeloggers usually do not intend to use the gath-
ered data to support future decisions but intend to keep data purely stored and
unanalysed on a server. Thirdly, there is one other tracking type: Lifehacking.
It relates more closely to the idea of Quantified Self in a way that users analyse
and interpret results of their tracking efforts, concluding possible actions for
further improvement (Wexler 2017, pp.3). In this sense, lifehackers purposely
conduct numerous self-experiments with the ultimate goal to optimize as many
aspects of their lives as possible.
Throughout this article, the term self-tracker is used when generally ad-
dressing people who track certain aspects of their lives, unrelated to data usage
habits.
.. Technological Devices used for Self-Tracking

One of the biggest drivers of the Internet of Things is the constantly de-
creasing size and price of sensors (Atzori et al. 2010, p. 2787). These sensors are
incorporated into various wearable technology and mobile phones. The three
most important ones include smartphones equipped with tracking applications,
activity trackers (including other wearables) and smartwatches (Swan 2012,
p.217-219; Swan 2013, p.87).
Most smartphones released in the past two years incorporate sensors that
enable tracking of certain aspects without the need to purchase additional equip-
ment. For example, the GPS sensor and accelerometer are the most widespread

add-ins (Swan 2013, p.87). Devices usually have such applications preinstalled
for the basic measurements, such as Samsung Health or Apple Health. Many
other applications are available for various tracking intentions. ‘Curetogether’
is very popular amongst people aiming to follow up on symptoms and sick-
nesses, hereby categorized in the medical tracking segment. Patients around the
world share the program quantitative information to over 500 medical diseases
(Quantified Self 2017, para.1). Moodpanda, Zeo Sleep Coach, and Morning-
Coach.com are good examples to show the great variety available in the ‘pro-
ductivity and work’ section. Tracking one’s mood, recording one’s sleep cycles or
finding the best ways to get motivated for the day ahead are just a few examples.
In the ‘health and fitness’ category, apps such as Runtastic or Runkeeper, which
have specialized in certain sports such as running, enjoy great popularity. Also,
big sports brands have launched their own application in order to track po-
1201
tential customers’ activity levels and to support them in reaching their goals.
However, the disadvantage of only using a smartphone without an additional
wearable is the fact that one has to manually enter all the necessary information
such as the sports activity, or actively measure the pulse with the mobile device.
Activity trackers (including other wearables) have the sole purpose of

monitoring fitness and health aspects such as steps taken, heart rate, overall
activity rate and sometimes even temperature and location information (Fritz
et al. 2014, p. 487; Zhao, Etemad and Arya 2016, p. 4). They are mostly con-
nected to a smartphone or computer on a regular basis in order to transfer the
large amounts of data generated as well as to allow a more detailed analysis.
In addition, transferring the data allows long-term statistical assessment and
better visualizations through the availability of larger screens, higher processor
capacity and more storage. The most common appearance of an activity tracker
is a wristband. (Chuah et al. 2016, p.277)
In the activity tracker and wearables segment, Fitbit, a USA based company,
is the leading provider (Schreiber 2016, p. 11) closely followed by a competitor
from China, Xiaomi, producing cheaper alternatives. The third place is taken
by Samsung, incorporating a health application into their mobile phones, which
is then easily linked to the so-called ‘Gear’ smartwatch (Samsung Health 2017,
para.1-2). In the last two years, lots of sports and technology companies origi-
nally specializing in pulse trackers, pedometers or GPS support have seized the
opportunity to enter the market. As a result, Garmin takes the fourth place mov-
ing Jawbone, a company solely founded for activity trackers, to the fifth place.
Smartwatches are in most cases the more sophisticated version of activity
trackers, including on-device call transfer, message viewing and calendar notifi-
cations. Chuah et al. (2016, pp. 277), define a smartwatch as a mini device that
is worn like a traditional watch and allows the installation and use of applica-
tions. At the rise of the smartwatch, primarily smartphone producers were serv-
ing the market. Now many designer labels have started to penetrate the market
making the smartwatch not only useful but highly fashionable.
.. Self-tracking Modes and underlying Psychological

Reasons
Different psychological reasons exist as to why people use self-tracking. The
primary category –self-optimization – is probably the most dominant amongst
1202
trackers. Self-optimization is driven by an underlying personal goal the con-
sumer wants to achieve. The assumption that the collection and analysis of daily
life activities help to reach a personal target is widespread. As Beato (2012, para.
4-5) states, it helps to increase the control over one’s life with maximum insights,
implicitly improving one’s chance of success. As a second motivation category,
Wolf (2010, p. 3) states the pure inherent curiosity of humans to reflect on one-
self. Self-tracking thereby serves to overcome guessing and improvising of given
states of our body and mind by directly understanding the underlying condi-
tions. Self-knowledge, as the third motivation category, is a distinct factor that
is needed for self-individualization as well as potential maximization in today’s
meritocracy (Langwieser and Kirig 2010, pp. 38). This category can also be seen
as the antecedent to self-optimization. By increasing the amount of information
an individual has about him- or herself, the feasibility to precisely target the
areas that need improvement to become a better ‘self ’ significantly rises.
.. Users and Providers

To identify usage of wearables, GfK (2016) conducted a survey in 2016. On
average, 33% people reported to “monitor their health or fitness via an online or
mobile application, fitness band, clip or smartwatch” (GfK 2016, pp. 7). China
clearly leads the way with an average of 45% who currently monitor, whereas
the USA and Germany score lower with 29% and 28% respectively. In terms of
age, the age group of 20-29, namely the millennials, are leading in tracking ex-
perience with a total of 62% (GfK 2016, p. 18). A study by Bothun and Lieber-
man (2016) confirms the previous study’s results that millennials are the lead-
ing overall group in wearable adoption. Predominant reasons amongst trackers
are to maintain or improve fitness and to improve energy level. These factors
see the highest percentages of consent amongst millennials. To determine the
predominant preferences amongst users the following hypothesis is postulated:
H1: Users of self-tracking devices primarily aim is to improve their fitness
The assumed underlying intention to increase fitness levels, as previously
hypothesized, suggests that self-trackers act goal driven. The question arises
whether they are prone to respond positively to cross-selling marketing activi-
ties which could increase the market scope drastically. The most likely category
for cross-selling is sports accessories because these products directly support the
self-trackers in reaching their fitness goals with 86% of Germans doing sports
1203
having purchased sports accessories during the past year. (Statista 2016b,
para.1). This leads to the presumption that self-trackers exhibit a willingness to
pay in order to reach their goals, thus hypothesizing:
H2: Self-trackers have a high willingness to purchase sports accessories that
support them in reaching their fitness goal
3. MARKETING OPPORTUNITIES WITHIN SELF

TRACKING
Data-tracking is used more and more to support personalized advertising.
It has become well-known that search engines and multiple shopping websites
use electronic cookies to track individual browsing histories. Companies can
use this gathered information in order to track user activities and show person-
alized advertisement relevant to the user’s interests (Negri and Vigolo 2016,
438). But how can the new type of data collected by wearables be used in con-
textual marketing applications? This will be analysed in the next chapter.
.. Mobile Marketing Campaigns

Users can use multiple channels to target consumers with varieties of com-
munication styles, methods, and frequencies. One example is the mobile chan-
nel. Mobile is defined as any centrally connected, portable device, ranging from
a smartphone to tablet. It supports consumers in performing multiple activities
using apps and surfing the web. (Shankar et al. 2016: 38)
With respect to the high increase in mobile app usage (98%) and in direct
messaging services (111%) from 2015 to 2016 (Salesforce research 2016, p. 30),
mobile as a marketing platform and as a channel is becoming more and more
important. Smartwatches, as well as self-tracking applications, are all embedded
in the mobile channel. Therefore, self-trackers have direct mobile access. Since
self-trackers are – to a large extent – millennials, we expect their usage pattern
to be similar to all millennials (also non-self-trackers), so we expect:
H3: The preferred media channels of self-trackers are mobile and social media
Advertising repetition influences the perception of the manufacturer’s ef-
fort and credibility (Kirmani 1997,). Initially, the effectiveness of an advertise-
ment increases with repetition, however, once a certain point is exceeded, the
1204
effect is saturated and decreases thereafter. This is also described as an inverted
U-shaped relationship (Park, Shenoy and Salvendy 2008, 362). Multiple au-
thors (Rau et al. 2014, p. 464; Raaijmakers and Shiffrin 2002, p. 7; Barwise and
Strong 2002, p.18) have discussed the optimal frequency of exposing a con-
sumer to one specific advertisement in order to pass the attention threshold as
described by Atkinson and Shiffrin (1968). Research that identifies the optimal
repetition or frequency for mobile advertising is fairly contradicting and ranges
from less than once a week (Carlton 2015) to three messages a day (Barwise
and Strong 2002, p.18). However, all agree that high exposure is likely to trigger
‘delete on receipt’ reactions amongst consumers. Additionally, a high frequency
of exposure decreases the perceived advertising value (Haghirian, Madlberger
and Tanuskova 2005, p. 7). We believe that self-trackers are used to a high fre-
quency usage of their device for monitoring purposes, meaning that steady push
notifications will easily lead to annoyance. Therefore, we postulate a rather con-
servative hypothesis:
H4: Self-trackers prefer weekly marketing messages
.. Customer Innovativeness

Concentrating on possible marketing opportunities within the segment of
self-trackers, this research lays its focus on the acceptance of certain methods of
approach. The level of acceptance by the consumer is driven by various factors,
one being the customer’s innovativeness.

Consumer innovativeness can be divided into two definitions, either a do-
main specific construct, describing the predisposition to buy new products in a
certain category (Goldsmith and Hofacker 1991, p. 219), or as the predisposi-
tion toward the overall market across product categories according to Tellis,
Yin and Bell (2009). The latter orientation is adopted in the current study to
be associated to mobile marketing since we believe that self-trackers have per
se an affinity towards technical innovation – just because of the fact that they
use self-tracking devices. In this case, the purchasing behaviour is assumed to
be interconnected with the attitude towards innovative forms of marketing for
certain products of interest, thus hypothesising:
H5: Consumer innovativeness has a significant positive influence on the at-
titude towards mobile- and social media marketing
1205
.. Personalized Marketing Possibilities
Successful personalization of services mainly depends on the businesses
abilities to acquire and process information about consumers and their will-
ingness to share information, in order to enable usage of personalized services
(Chelappa and Sin 2005, p.184; Lee and Rha 2016, p. 454). As defined by Rim-
er and Kreuter (2006, pp. 187), tailoring is the process of creating individual-
ized communication by collecting and analysing personal data, in order to de-
termine the most appropriate information or strategies to meet the consumer’s
unique needs. The willingness increases if there are benefits in return, such as
discounts, personalized information or services. However, fear of privacy inva-
sion was and still is a very prominent topic (Sheng, Nah, and Siau 2008, pp.
350). Overall, there are multiple possibilities of personalizing the entire cus-
tomer journey or specific marketing aspects. We believe that self-trackers, due
to their specific profiles can be targeted effectively with personalized advertising
– better than average consumers that do not have as specific profiles. In general,
it can be said that the more specific and targeted the information is, the higher
the acceptance. Therefore, the following hypothesis is proposed:
H6: Personalized advertisements are more favoured among self-trackers
.. Perceived Intrusiveness

Personalized, tailored mobile advertising can enhance in formativeness,
credibility, and pleasure (Kim and Han 2014, p.257). In addition to that, it may
even reduce irritation due to well customized messages meeting the consum-
er’s preference and not causing a disturbance. However, according to Sutanto
et al. (2013, p. 183), personalization simultaneously increases privacy risks of
personal data, placing consumers in the dilemma between seeking the advan-
tages of the service and avoiding disclosing personal information. Research has
proven an overall discomfort with personalized marketing. A study focusing on
USA mobile users found that 49% of the respondents were concerned of com-
panies knowing about how, when and how often their products were used and
applying this information to increase sales (eMarketer 2016, p. 4). A factor ex-
plaining the negative attitudes of consumers towards behaviorally targeted ads
is perceived intrusiveness. ‘Perceived intrusiveness’ can be defined as the degree
to which an unwanted marketing communication interferes with an individual’s
cognitive process and tasks, as well as the interference with media contents in-
1206
cluding offensive materials (Morimoto and Chang 2006, p. 10). Therefore, the
following hypothesis is presented:
H7: Advertisements tailored using behavioural information will result in
high perceived intrusiveness
Intrusiveness is highest when combining data, collected through wearables
and from location-based browsing (using precise GPS data) (Gazley, Hunt and
McLaren 2015, p. 1698). Therefore, an additional hypothesis is postulated:
H8: Tailored advertisements using very precise location-based information
increase perceived intrusiveness
As explained above, personalized advertising can lead to perceived intrusive-
ness. This may result in negative reactions from the consumer such as ad irrita-
tion, avoidance, message rejection or even source derogation (White et al. 2008,
p. 42; Barnard 2014, p. 35). Additionally, this can lead to a decreased willing-
ness to purchase (Truong and Simmons 2015, p. 241).
H9: Perceived intrusiveness decreases the willingness to purchase
Resistance in intrusively perceived ads serves as a potential explanation for
addressing privacy controls on Social Media sites and applications likewise. Em-
pirical analysis suggests that following a policy change on Facebook has positive
effects. By allowing users to define the availability of their data to third parties,
the acceptance of personalized advertising content increased greatly with users
twice as likely to react positively to the content. This analysis suggests, that by
handing back the control over users’ personal information, the consumer can
benefit from advertising-supported media. (Tucker 2014, p.557). This result
raises the question, whether the same concept may also apply to the data col-
lected with wearables. Permission-based advertising differs from traditional ad-
vertising because messages about specific products, services, or content are sent
only to individuals who have explicitly indicated their willingness to receive the
message (Tsang, Ho and Liang 2004, p. 68). By relying on the permission of the
target audience, permission-based advertising focuses on reducing this unwant-
ed irritation. The hypothesis includes an opt-in option as a privacy restriction
possibility for users to be clearly informed and in control of the data collected
and shared. Therefore, we propose the following hypothesis:
H10: Opt-in options for sharing data with third parties decrease the per-
ceived intrusiveness
1207
4. DATA COLLECTION AND SAMPLING
For data collection purposes an online questionnaire been developed, and
convenience sampling (Brick 2011, pp.881) was chosen as a sampling approach.
The survey was distributed via the online survey tool Unipark to an online sur-
vey panel including 670 students and alumni of Pforzheim Business School,
using the Germany language. Following a pre-test, the panel members were sent
an email invitation on the 4th of April 2017. This survey was then closed on the
15th of April 2017 containing a sample size of 210 participants. Out of these,
thirteen participants did not fully complete the survey, leading to an exclusion
and an effective sample size of n=197 participants (completion rate = 93.8%).
The survey itself consists of 11 parts addressing eight overarching topics as
presented in Table 1. The first part comprises general information about the
background of the research study. Besides the general questions on self-tracking
experiences in part #2, questions about the reasons for self-tracking were ad-
dressed in part #3 of the questionnaire. The used items were retrieved from
previous research studies (Nißen 2013, p.57; Lupton 2015, pp.6; Choe et al.
2014, p.1146; research2guidance 2016, p.26). The vital component of willing-
ness to spend on further accessories was asked in part #4 using a 5-point Likert
scale with two statements adapted from previous research studies (Wu, Yeh and
Hsiao 2011, p.37; Hong and Cho 2011, p.474; Kim and Han 2014, pp.256;
Robinson, Faris and Wind 1967, p.14; Naumann, McWilliams and Lincoln
2015, p.187).
Table 1: Overview of Survey Topics

Topics Underlying Question
1. Introduction to the survey Introduction to the background of the research study (Part #1)
2. Self-tracking experience Experience in self-tracking (Part #2)
3. Basic information on tracking behaviour Underlying reason and frequency of self-tracking (Part #3)
4. Product interest and willingness to spend Areas of interest for additional spending (Part #4)
5. Advertisement method and frequency Optimal user approach (Part #5)
6. Self-assessment innovation Consumers interest in new products (Part #6)
7. Preferred media type The ideal marketing channel (Part #7)
Two advertising concepts using different
8.-10. Intrusiveness and purchase decision (Parts # 8, #9, #10)
types of tracking data
11. Data sharing via opt-in option The possibility of reducing intrusiveness (Part #11)
Source: Own representation of survey topics
1208
The preferences of different marketing channels have been measured in part
#5. To avoid high intrusiveness of marketing activities, participants were asked
to rate the frequency they would like to receive advertisements.
Based on Goldsmith, Flynn and Korzenny (2015, p.48) the self-assessment
of a consumer regarding his or her innovativeness and shopping behaviour has
been formulated in part #6 on a 5-point Likert scale. In part #7 the respondents
had to evaluate the degree of interest in different marketing activities within
a given marketing channel. The scale has been adapted from Barnard (2014,
pp.48) and White et al. (2008, p.43), previously adapted from Edwards, Li and
Lee (2002).
Part #8 conveyed an advertisement in a neutral format. The marketing chan-
nel was not given to avoid biased reaction of consumers based on channel pref-
erences. The first advertisement was designed in the light of presumed high
interest in sports and fitness relying on previous research in this area. As shown
on the left-hand side of Figure 1, a sports shoe is recommended based on the
step count and tracked sports activity of the individual over a specified period.
The weight of the shoes and the availability of data to third party companies
were also advertised.
Figure 1: Different Types of Advertising
Source: Own representation of possible advertising based on self-tracking data
In part #9 of the questionnaire, the advertisement as seen on the right-hand

side of Figure 1 incorporates GPS data tracking as a main aspect. It does not
give a general recommendation based on the whereabouts of a consumer, but
precisely analyses past and present GPS data suggesting entering a store that
the user has passed by multiple times before. Additionally, a 10% coupon is of-
1209
fered within the ad, incentivising the person to enter the store. The participants
are expected to rate different aspects of both advertisements on given scales.
In part #10, a third advertisement has been presented. It uses highly sensi-
tive and personal data about individual sleeping habits. In this case, a sleeping
pill company is addressing the user based on his/her tracking results to reveal
the correlation of the (bad) quality of sleep and personal online-calendar. With
the additional personal touch of approaching the consumer by using the first
name and an empathetic tone, the impression of a friend giving advice is simu-
lated. The participants are expected to project their thoughts according to the
scales in part #9 and #10. Part #11 finally asked for their willingness to buy the
products when the option to share data with third parties is given.
5. RESULTS
A total of 106 participants confirmed the success of the self-tracking sub-
sample. The other 91 participants, not having experienced self-tracking yet, had
to consider the question if they would use self-tracking. The gender distribu-
tion amongst self-trackers was 25 men (24%) and 80 women (75%) with one
participant not indicating the gender. In terms of age, from the 106 self-trackers
20 are below 20 years (19%), 60 are between 20-25 years (56%), 22 are between
25-30 years (21%) and 4 are between 30-35 years. This reveals that over 80% of
the respondents are Millenials (i.e. born between 1980 to 1995, being between
22 and 37 years old).
.. Hypothesis  – Underlying Cause and Motivation of Self-

Tracking
Understanding the underlying cause and motivation for self-tracking is
of initial interest. The respective frequency distribution is shown in Figure 2.
Thereby, hypothesis 1 can be partly accepted, stating that the main aim of self-
tracking is to improve fitness (43.4% of the respondents). Health oriented as-
pects (38.7%) and fun (42.5%) are slightly less important.
1210
Figure 2: Distribution of Motivation for Self-tracking
Source: Own representation based on survey results
.. Hypothesis  – Self-Trackers Willingness to Purchase

Sports Accessories
To discover whether self-trackers have a certain willingness to spend money
on additional products or services to support them achieve their goals, the scale
adapted from Wu et al. (2011) was subjected to a factor analysis. According
to the eigenvalue criteria, the scale has been reduced to one factor. The linear
relationship between interest in sports accessories and willingness to purchase
can be confirmed. The Pearson correlation is positive and statistically significant
(r=.331; p=.001). Nonetheless, results show the highest correlation between
dietary supplements and willingness to purchase (r =.407; p<.0005). Sports-
wear exhibit a slightly smaller association with the willingness to purchase
(r=.223; p=.022). Concluding that hypothesis 2 can be accepted.
Table 2: Pearson Correlation of Willingness to Spend with Fields of Interest

of Self-trackers
Source: Own SPSS calculation based on data from the survey
1211
.. Hypotheses  and  – Preferred Frequency and Type of
Advertisement
Figure 3 shows that 32% of the respondents prefer advertisement once a
week, and 32% two or three times per month. Results do not differ significantly
between self-trackers and non-self-trackers, concluding that hypothesis 4 can

be accepted.
Figure 3: Frequency of Advertisement
Determining the favoured advertisement is especially important for mana-

gerial decisions. Figure 4 gives a clear indication that coupon advertisements are
most favoured with 84.3% claiming very high or high interest (top two boxes),
followed by locations-based updates (59.4%), personalized suggestions (56.9%)
and updates about product innovation (34.0%).
1212
Figure 4: Advertisements with high or very high interest
The most noticeable difference between self-trackers and non-self-trackers

is seen in personalized advertising (see Figure 5). However, the Mann-Whitney
U test does not show a significant difference (p=.455). It is interesting to see
that self-trackers are willing to share the data with companies, but do not show
significant higher interest in any of the advertisements. Concluding this, hy-
pothesis 6 cannot be accepted.
Figure 5: Advertisements with high/very high interest for self-trackers and

non-self-trackers
1213
.. Hypotheses  and  – Marketing Channel and Consumer
Innovativeness
As shown in Table 3, the social media channel exhibits the highest preference
with a mean of Mean=2.98 followed by print advertising (Mean=3.09) which
seems surprising due to its lack of audio compared to the other channels. The
mobile media channel exhibits an even less important preference (Mean=3.44).
Table 3: Descriptive Statistics of overall Preference of Marketing Channels
The intention of hypothesis 5 was to investigate if consumer innovative-

ness has a significant positive influence on attitude towards mobile- and social
media marketing. The shopping innovativeness (innovator yes/no) was corre-
lated with the preference towards the seven different marketing channels. Al-
though print (r=(-.027)), radio (r=(-.107)), television (r=.083) and social me-
dia (r=.071) did not lead to any significant Pearson correlations, the variables
E-Mail (r=.302; p=.000), Mobile (r=.490; p=.000) and In-App Marketing
efforts (r=.399; p=.000) correlate with a high significance. Based on these re-
sults, the model explaining the highest amount of variation in the combination
of consumer shopping innovativeness and preference of marketing actions is the
mobile channel. When comparing the two groups of self-trackers and non-self-
trackers, the size of the correlation shows slightly reduced, but still significant
Pearson correlations for the group of self-trackers. Altogether, the hypotheses
3 and 5 are verified.
1214
.. Hypotheses - – Tailored Advertisements and
Intrusiveness
Intrusiveness was measured for each advertisement with three items (dis-
turbing, forced and invasive) on a 5-point Likert scale anchored from ‘strongly
agree’ to ‘strongly disagree’. Comparing the means of the three intrusiveness
items for each advertisement, one can clearly see a large gap between the run-
ning shoe (Mean=2.95) and the store (Mean=2.2) accounting for much lower
ratings. Principal components analysis has been used to condense the three in-
trusiveness items to one intrusiveness factor for each advertisement (shoes and
store) separately.
The willingness to purchase is measured on a 5-point Likert scale with 1
representing highest willingness to purchase and 5 no willingness to purchase.
The running shoe shows a higher willingness to purchase (Mean=3.58) than
the store (Mean=3.69) but neither the parametric t-test (p=.156) nor the non-
parametric Wilcoxon test (p=.172) shows significant differences.
Spearman’s rank correlation shows a negative and significant (p<.0005) cor-
relation (r=(-.564)) between the intrusiveness and the purchase decision for the
sports shoe. The negative monotonic correlation indicates that an increased feel-
ing of intrusiveness has a significant negative influence on consumer’s purchase
intention. For the store advertisement, there is an even stronger negative and sig-
nificant correlation (r=(-.648), p<.0005). Therefore, the hypotheses 7, 8 and 9
confirm that intrusiveness decreases the willingness to purchase certain products.
.. Hypothesis  – Opt-in Influence on the Willingness to INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Purchase
Since a negative correlation between the willingness to purchase and the
perceived intrusiveness has been found, it is to be tested if an opt-in may in-
crease the willingness to purchase. The non-parametric Wilcoxon test was ap-
plied to test if the willingness to purchase is significantly higher with or with-
out the opt-in. For the shoe, test results depict a statistically highly significant
(p<.0005) change in acceptance, reflecting a much higher willingness to opt-in.
Only eleven out of 125 participants reacted negatively as seen in Table 4. Simi-
lar results were seen in the analysis for the opt-in of the store advertising, as
presented in Table 5. Altogether, it can be said, that hypotheses 10 is verified.
1215
Table 4: Ranks of Purchase Willingness before and after Opt-in – Running
Shoe
Table 5: Wilcoxon Signed-Rank Test Before and After Opt-in – Store
1216
6. CONCLUSION
.. Discussion
It was discovered that many participants of the given target group were self-
tracking, in order to improve their fitness. Despite this, there was a rather low
willingness to spend money on additional products. Interesting to mention is
that the willingness to purchase dietary supplements is the highest. This indi-
cates that – against our prediction of the highest interest in purchasing sports
accessories – the most appealing products for cross-selling are nutritional sup-
plements. This corresponds with the fact of a worldwide growing market for
dietary supplement products (Statista 2017c). Specifically, the sports nutrition
in Europe is showing positive sales forecasts for the upcoming years (Statis-
ta 2017a). The segment of self-trackers with interest in dietary supplements
seems to have a high potential.
The research has also found that the optimal frequency for targeting users
with marketing efforts lies between once a week and two or 3 times per month.
Possible low interest in marketing efforts due to prior negative experiences or
advertising overload on multiple channels might explain the lower end of the
scale (Geraci and Nagy 2004, p.18). Nevertheless, consumers are still interested
in being addressed by companies, since very few outliers claimed the wish to
receive no further advertisements.
For Marketing purposes, it is vital to know what information is most ap-
pealing and increases the probability of a purchase. As seen from the results,
the coupon advertisement was favoured across all participants. Surprisingly, the
interest in product innovations seems to be rather low. An explanation for this INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
might be the fact that self-tracking is no longer considered an innovative tech-

nique (Swan 2012, p.227).
Self-trackers are specifically interested in personalized, as well as in location-
based advertisements. In the attempt to uncover peculiarities about millennials
in self-tracking, results show social media was clearly favoured. However, all
mean values of the channels are rather low. Backed by other studies (Statista
2016a, p.24; Nielsen 2017, p.11), the very low rating of radio shows, that this
form of media channel is not favoured by self-tracking millennials. Besides
radio ads, in-app advertising was also considered low. Reasons for this could
be the imposed nature (e.g., pop-ups), which tend to interrupt the user in his
or her deed. A study by Hubspot shows that online pop-ups are highly dis-
1217
liked among users (73%), thereby supporting the given results (Adblock 2016,
para.1). In-app advertising, although featuring a very negative disposition, is,
however, growing steadily.
Social media has the highest level of favourability for self-trackers. A key
reason could be that this channel enables very high personalization and, as dis-
covered previously specifically self-trackers have an inclination towards such
personalized marketing efforts. A further interesting outcome was the medium
to the high correlation between predisposition of in-app and mobile as well as
radio and television. The explanation for radio and television could be that both
are categorized under the traditional media section (Dewan and Ramaprasad
2014, pp.101). A reason for the correlation between mobile and in-app may
well be consumers tending to see these two forms as one channel.
This study shows that perceived intrusiveness decreases the willingness to
purchase. Information displayed with the running shoe advertisement made the
users feel least intruded. The reason for this could be that although using be-
havioural information, the ad uses data that is actively tracked during workouts
with full awareness of the consumer. The reason for the remaining intrusive
perception might be due to the company specifically approaching the individual
with a purchase recommendation based on collected data despite he or she not
be aware that such data is readily available to third parties.
The second advertisement, mainly targeting the topic of precise GPS infor-
mation availability, shows the highest amount of intrusiveness. Although it does
provide a coupon, which is clearly favoured by consumers, the willingness to
follow the call to action is rather low. Attempting to reduce perceived intrusive-
ness, the opt-in version increased interest to purchase. This clearly reflects the
interest of users to have power over their own data (Eastlick, Lotz and War-
rington 2006, p.880). Correspondingly, it also shows a positive correlation be-
tween the consumer’s attitude towards the advertisement, if he or she is clearly
informed about the data sharing. Concluding this, it might be said, that the opt-
in can have a very positive influence on the way an advertisement is perceived.
Nevertheless, it should anticipate reactions depending on data and the tonality,
marketing vehicle and frequency used.
1218
.. Limitations and Recommendations for Future Research
It is important to note the few inherent limitations to this study. Since the
history of the Quantified-Self-movement and the overall self-tracking is still
young, only a few secondary resources and scientific literature are available. Spe-
cifically, research elaborating on the implications for marketing is highly rare,
leaving the authors with the necessity of transferring and adapting assumptions
of marketing implementations from other modern fields of research.
Noteworthy is also the fact that only 106 millennial self-trackers participat-
ed in this study. Due to convenience sampling, all respondents are benefitting
from a high educational level. The generalization of search results is limited due
to the origin of participants.
It is also clear that further research into marketing in the wearable technol-
ogy era is needed in order to find out more about what key drivers constitute to
success in this area. Key areas for such research might include:
1. An assessment of the profitability of the various segments using self-
tracking technology. Hardly any research exists that evaluates the eco-
nomical background and thereby also the attractiveness of the self-track-
ers for companies.
2. An in-depth analysis of the presentation, tonality, and context in which
the data that might cause intrusiveness is used. Situational factors, the
correct media vehicle, and representation, as presented by Edwards et al.
(2002, pp.86), could be influential factors to be further analysed.

3. A further analysis of the effect of handing back the control of the data
to the consumers on marketing acceptance. The opt-in option showed
a positive influence on purchase. Discovering, whether the intrusiveness
can be further decreased, if the user is given the complete freedom of
choosing whom to share data with, could be investigated further.
Clearly, big data generated through self-tracking has the potential to impact
most areas of marketing. This paper provides initial evidence, that addressing
consumers’ concerns is a vital step in optimizing marketing strategies. Firms
that do not develop the resources and capabilities to effectively use this data
will be challenged to develop sustainable competitive advantage, thus the field
appears to be a fruitful area of research far into the future.
1219
REFERENCES
An, M. (2016). Why people block ads. Retrieved from https://research.hubspot.com/reports/
why-people-block-ads-and-what-it-means-for-marketers-and-advertisers#LINK8
Atkinson, R. C., Shiffrin, R. M. (1968). Human memory: A proposed system and its control
processes. Psychology of learning and motivation, 2, 89-195.

Atzori, L., Iera, A., Morabito, G. (2010). The internet of things: A survey. Computer net-
works, 54(15), 2787-2805.
Barnard, L. (2014). The cost of creepiness: How online behavioral advertising affects consumer
purchase intention: The University of North Carolina at Chapel Hill, USA.
Barwise, P., Strong, C. (2002). Permission-based mobile advertising. Journal of Interactive
Marketing, 16(1), 14-24.
Beato, G. (2012). The Quantified Self. Retrieved from http://reason.com/archives/2011/12/16/
the-quantified-self
Bothun, D., Lieberman, M. (2016). The Wearable Life 2.0, Connected living in a wearable
world. Retrieved from https://www.pwc.com/us/en/industry/entertainment-media/
assets/pwc-cis-wearables.pdf
Brick, J. M. (2011). The future of survey sampling. Public opinion quarterly, 75(5), 872-888.
Brophy-Warren, J. (2008). The New Examined Life: Why more people are spilling the sta-
tistics of their lives on the Web. The Wall Street Journal. Retrieved from https://www.
wsj.com/articles/SB122852285532784401
Carlton, G. (2015). What’s the best email frequency and how to find it? Retrieved from https://
www.clickz.com/whats-the-best-email-frequency-and-how-do-you-find-it/24027/
Chelappa, R., Sin, R. (2005). Personalization versus Privacy: An Empirical Examination
of the Online Consumer Dilemma. Information Technology and Management, 6(2-3),
181-202.
Choe, E. K., Lee, N. B., Lee, B., Pratt, W., and Kientz, J. A. (2014). Understanding quantified-
selfers’ practices in collecting and exploring personal data. Paper presented at the Proceed-
ings of the 32nd annual ACM conference on Human factors in computing systems.
Chuah, S. H.-W., Rauschnabel, P. A., Krey, N., Nguyen, B., Ramayah, T., and Lade, S.
(2016). Wearable technologies: The role of usefulness and visibility in smartwatch
adoption. Computers in Human Behavior, 65, 276-284.
Dewan, S., and Ramaprasad, J. (2014). Social media, traditional media, and music sales. MIS
Quarterly, 38(1), 101-121.
Eastlick, M. A., Lotz, S. L., and Warrington, P. (2006). Understanding online B-to-C rela-
tionships: An integrated model of privacy concerns, trust, and commitment. Journal of
Business Research, 59(8), 877-886.
Edwards, S. M., Li, H., and Lee, J.-H. (2002). Forced exposure and psychological reactance:
Antecedents and consequences of the perceived intrusiveness of pop-up ads. Journal of
Advertising, 31(3), 83-95.
Elsberg, M. (2014). ZERO - Sie wissen, was du tust: Blanvalet Verlag.
1220
eMarketer (2016a). Are Consumers Warming to Personalized Marketing Services? Retrieved
from http://www.richrelevance.com/wp-content/uploads/2016/08/eMarketer_
Are_Consumers_Warming_to_Personalized_Marketing_Services.pdf
Fritz, T., Huang, E. M., Murphy, G. C., and Zimmermann, T. (2014). Persuasive technology
in the real world: a study of the long-term use of activity sensing devices for fitness. Paper
presented at the Proceedings of the SIGCHI Conference on Human Factors in Com-
puting Systems.
Gazley, G., Hunt, A., McLaren, L. (2015). The effects of location-based-services on con-
sumer purchase intention at the point of purchase. European Journal of Marketing, 49
(9/10), 1686-1708.
Geraci, J. C., Nagy, J. (2004). Millennials-the new media generation. Young Consumers, 5(2),
17-24.
GfK (2016). Health and fitness tracking. Retrieved from http://www.gfk.com/fileadmin/
user_upload/website_content/Images/Global_Study/Fitness_tracking/Docu-
ments/Global-GfK-survey_Health-Fitness-Monitoring_2016_final.pdf
Goldsmith, R. E., Flynn, L. R., and Korzenny, F. (2015). Brand engagement and consumer
innovativeness. Journal of Applied Marketing Theory, 6(1), 44-53.
Goldsmith, R. E., Hofacker, C. F. (1991). Measuring consumer innovativeness. Journal of the
Academy of Marketing Science, 19(3), 209-221.
Haghirian, P., Madlberger, M., and Tanuskova, A. (2005). Increasing advertising value of the
mobile marketing-an empirical study of antecedents. Paper presented at the System Sci-
ences, 2005. HICSS’05. Proceedings of the 38th Annual Hawaii International Con-
ference On.
Hesse, M. (2008). Bytes of Life: for every move, mood, and bodily function, there’sa web site
to help you keep track. The Washington Post.
Hong, I. B., Cho, H. (2011). The impact of consumer trust on attitudinal loyalty and pur-
chase intentions in B2C e-marketplaces: Intermediary trust vs. seller trust. Interna-
tional Journal of Information Management, 31(5), 469-479.

Kim, Y. J., Han, J. (2014). Why smartphone advertising attracts customers: A model of Web
advertising, flow, and personalization. Computers in Human Behavior, 33, 256-269.
Kirmani, A. (1997). Advertising repetition as a signal of quality: If it’s advertised so much,
something must be wrong. Journal of Advertising, 26(3), 77-86.
Langwieser, C., Kirig, A. (2010). Konsument 2020: die wichtigsten Konsumtrends im Wandel
der Zeit: Zukunftsinstitut.
Lee, J.-M., Rha, J.-Y. (2016). Personalization–privacy paradox and consumer conflict with the
use of location-based mobile commerce. Computers in Human Behavior, 63, 453-462.
Lupton, D. (2014). Self-tracking cultures: towards a sociology of personal informatics. Paper pre-
sented at the Proceedings of the 26th Australian Computer-human interaction confer-
ence on designing futures: The future of design.
Lupton, D. (2015). Lively data, social fitness and biovalue: The intersections of health self-
tracking and social media.
1221
Morimoto, M., Chang, S. (2006). Consumers’ attitudes toward unsolicited commercial e-
mail and postal direct mail marketing methods: intrusiveness, perceived loss of control,
and irritation. Journal of Interactive Advertising, 7(1), 1-11.
Naumann, E., McWilliams, R., and Lincoln, D. J. (2015). How Different Buying Center Mem-
bers Influence Different Purchasing Phases. Paper presented at the Proceedings of the
1982 Academy of Marketing Science (AMS) Annual Conference.

Negri, F., Vigolo, V. (2016). An exploratory analysis on firms’ satisfaction about social me-
dia performance. Management in a Digital World. Decisions, Production, Communica-
tion. Presented at the XXVIII Sinergie Annual Conference (Management in a Digi-
tal World. Decisions, Production, Communication), 9-10 June 2016 at University of
Udine, Italy.
Nißen, M. (2013). Quantified Self-An Exploratory Study on the Profiles and Motivations
of Self-Tracking. Bachelor Thesis. Karlsruhe: Karlsruhe Institute of Technology (KIT).
Park, T., Shenoy, R., and Salvendy, G. (2008). Effective advertising on mobile phones: a lit-
erature review and presentation of results from 53 case studies. Behaviour and Informa-
tion Technology, 27(5), 355-373.
Quantified Self. (2015). About the quantified self. Retrieved from http://quantifiedself.
com/about/
Quantified Self (2017). Retrieved from http://quantifiedself.com/guide/tag/medicine
Raaijmakers, J. G., and Shiffrin, R. M. (2002). Models of memory. In: D. Medin & H. Pashler
(Eds.), Stevens’ handbook of experimental psychology, 3rd edition. Vol. 2: Memory
and cognitive processes, 43-76, Wiley, New York, NY.
Rau, P.-L. P., Zhou, J., Chen, D., and Lu, T.-P. (2014). The influence of repetition and time
pressure on the effectiveness of mobile advertising messages. Telematics and Informat-
ics, 31(3), 463-476.
research2guidance (2016). mHealth App Developer - The current status and trends of the
mHealth app market. Retrieved from http://research2guidance.com/r2g/r2g-
mHealth-App-Developer-Economics-2016.pdf
Rimer, B. K., Kreuter, M. W. (2006). Advancing tailored health communication: A persua-
sion and message effects perspective. Journal of Communication, 56(s1).
Robinson, P. J., Faris, C. W., and Wind, Y. (1967). Industrial buying and creative marketing
(Vol. 184): Allyn & Bacon, Boston, MA.
Salesforce research (2016). State of Marketing 2016. Retrieved from https://secure.sfdcstat-
ic.com/assets/pdf/misc/state-of-marketing-report-2016.pdf
Samsung Health. (2017). Retrieved from https://health.apps.samsung.com/
Schreiber, K. (2016). EServices: Fitness. Retrieved from https://www.statista.com/down-
load/outlook/whiterpaper/Fitness_Outlook_1116.pdf
Self-tracking. (2017). Oxford Dictionaries, Retrieved from https://en.oxforddictionaries.
com/definition/us/self-tracking
Selke, S. (2014). Lifelogging. Wie die digitale Selbstvermessung unsere Gesellschaft verändert.
Econ, Berlin.
1222
Shankar, V., Kleijnen, M., Ramanathan, S., Rizley, R., Holland, S., and Morrissey, S. (2016).
Mobile shopper marketing: Key issues, current insights, and future research avenues.
Journal of Interactive Marketing, 34, 37-48.
Sheng, H., Nah, F. F.-H., and Siau, K. (2008). An experimental study on ubiquitous com-
merce adoption: Impact of personalization and privacy concerns. Journal of the Associa-
tion for Information Systems, 9(6), 344.
Statista. (2016a). Advertising in Europe. Retrieved from https://www.statista.com/
study/28333/advertising-in-europe-statista-dossier/
Statista. (2016b). Welches Sport- und Fitnesszubehör haben Sie innerhalb der letz-
ten 12 Monate gekauft? Retrieved from https://de.statista.com/statistik/daten/
studie/597402/umfrage/kauf-von-sport-und-fitnesszubehoer/
Statista (2017a): Retail sales forecast of sports nutrition in Europe from 2010 to 2020*
(in billion USD). Retrieved from https://www.statista.com/statistics/646785/
retail-sales-forecast-of-sport-nutrition-european-union-eu/
Statista (2017b). Year-on-year change of gross advertising spendings in Germany from
January to March 2017. Retrieved from https://www.statista.com/statistics/433111/
gross-advertising-expenditure-by-types-of-media-germany/
Statista (2017c). Value of the dietary supplements market in Europe in 2015 and
2020, by country (in million euros). Retrieved from: https://www.statista.com/
statistics/589452/value-dietary-supplements-markets-europe-by-country/
Sutanto, J., Palme, E., Tan, C.-H., and Phang, C. W. (2013). Addressing the Personalization-
Privacy Paradox: An Empirical Assessment from a Field Experiment on Smartphone
Users. MIS Quarterly, 37(4), 1141-1164.
Swan, M. (2009). Emerging patient-driven health care models: an examination of health
social networks, consumer personalized medicine and quantified self-tracking. Interna-
tional journal of environmental research and public health, 6(2), 492-525.
Swan, M. (2012). Sensor mania! the internet of things, wearable computing, objective met-
rics, and the quantified self 2.0. Journal of Sensor and Actuator Networks, 1(3), 217-253.

Swan, M. (2013). The quantified self: Fundamental disruption in big data science and bio-
logical discovery. Big Data, 1(2), 85-99.
Tellis, G. J., Yin, E., and Bell, S. (2009). Global consumer innovativeness: Cross-country
differences and demographic commonalities. Journal of International Marketing, 17(2),
1-22.
Truong, Y. and Simmons, G. (2010). Perceived intrusiveness in digital advertising: strategic
marketing implications. Journal of Strategic Marketing, 18 (3), 239-256.
Tsang, M. M., Ho, S.-C., and Liang, T.-P. (2004). Consumer attitudes toward mobile ad-
vertising: An empirical study. International journal of electronic commerce, 8(3), 65-78.
Tucker, C. E. (2014). Social networks, personalized advertising, and privacy controls. Journal
of Marketing Research, 51(5), 546-562.
Wexler, A. (2017). The Social Context of “Do-It-Yourself ” Brain Stimulation: Neurohack-
ers, Biohackers, and Lifehackers. Frontiers in Human Neuroscience. Retrieved from
https://www.frontiersin.org/articles/10.3389/fnhum.2017.00224/full
1223
Wolf, G. (2009). Know thyself: Tracking every facet of life, from sleep to mood to pain. Re-
trieved from https://www.wired.com/2009/06/lbnp-knowthyself/
Wolf, G. (2010). The data-driven life. The New York Times, 28.
White, T. B., Zahay, D. L., Thorbjørnsen, H., and Shavitt, S. (2008). Getting too personal:
Reactance to highly personalized email solicitations. Marketing Letters, 19(1), 39-50.
Wu, P. C., Yeh, G. Y.-Y., and Hsiao, C.-R. (2011). The effect of store image and service
quality on brand image and purchase intention for private label brands. Australasian
Marketing Journal (AMJ), 19(1), 30-39.
Zhao, Z., Etemad, S. A., and Arya, A. (2016). Gamification of exercise and fitness using wear-
able activity trackers. Paper presented at the Proceedings of the 10th International
Symposium on Computer Science in Sports (ISCSS).
1224
SOCIAL MEDIA AND IT`S IMPACT
ON TRADITIONAL MARKETING
CHANNELS OF COMMUNICATION
Željko TURKALJ, Ph. D.

J.J. Strossmayer University of Osijek, Faculty of Economics,
Department of Management,
Organisation and Entrepreneurship
E-mail: zturkalj@efos.hr
Tihomir VRANEŠEVIĆ, Ph. D.

University of Zagreb, Faculty of Economics and Business,
Department of Marketing
E-mail: tvranes@efzg.hr
Tajana MARUŠIĆ, lecturer

University North, Department of Media Design
E-mail: tmarusic@unin.hr
Abstract
It is remarkable how fast technology is developing in the last ten to fifteen years. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Smartphones, tablets, smart TVs, smart houses, smart appliances, etc. It was
almost unimaginable 15 years ago that we wouldn`t be able to live without
mobile phones. The world as we know it completely changed when smartphones
were invented, not to mention the Internet. What completely changed the way
we interact is the development of social media, and how they became the most
popular way of communicating privately and professionally. This article will
try to determine how important social media really is today for companies and
its brands. Is it making communication with consumers easier or harder, and
is it making brands and consumers grow closer or pulling them apart? With
social media also came the phenomenon of influencers. This article will also
try to determine what is the “buzz” among marketing professionals about this
1225
topics, and what are their thoughts and recommendations how to successfully
go digital as a brand.
Željko Turkalj Tihomir Vranešević Tajana Marušić: SOCIAL MEDIA AND IT`S IMPACT ON TRADITIONAL MARKETING CHANNELS OF COMMUNICATION
Key words: social media, advertising, influencers

1. INTRODUCTION
We are witnessing the most drastic change in marketing in the last twenty
years. Internet, but mostly social media came and changed everything. What
was once a benchmark how to communicate to the market and consumers in
terms of TV, advertising in papers and magazines, radio, PR, billboards, leaflets,
are now considered traditional channels of communication. Just the fact that we
have traditional and modern communication channels is a segmentation that
was practically non-existing until 10 to 15 years ago, especially in Croatia.
The main objective of this article is to determine the impact of social media
on how brands communicate with its consumer. How much does social media
have an influence on consumer decisions and their attitudes, and what is user-
generated content and influencers as a direct “side effect” of social media. Also,
to determine whether is better to use traditional or modern channels of com-
munication, or both. Are modern communication channels appropriate for all
target groups?
2. TRADITIONAL MARKETING CHANNELS OF

COMMUNICATION
There were no traditional marketing channels of communication 15 years
ago, they were THE marketing channels, only channels. If you were in market-
ing the way you could communicate (advertise) to your consumers was through
TV commercials, advertisements in newspapers and magazines, billboards, leaf-
lets, city lights, all of this could also be called as one-way communication. Al-
though brands and companies are the ones who use communication channels,
it can also be used by government agencies to raise awareness, museums, etc.
Before social media became so popular, brands and companies had a message
for consumers but they couldn`t find out what was their opinion in a very short
time, which is now possible through social media. The way consumer opinion
1226
was known was through market research conducted by market research agen-
cies, and of course through sales of products and services.
Since television was invented in the 1950s, it became and still is one the most
popular way people spend their free time. Television is a powerful communica-
tion tool for brands because of its reach to consumers, and because it allows for
sound, motion, and sight (Keller, 2013, 222). Of course, that is also the reason
why it is interesting to advertisers, and why it is still the most expensive channel
of communication. For example, in America, billions of dollars are still spent
every year on TV advertising culminating with Super bowl where according
to American Marketing Association (www.ama.org), in 2017 advertisers spent
little over 5 million dollars for a 30-second spot.
On the other hand, the radio was invented before television and remains
a popular way of communication. It is a pervasive way to communicate with
consumers (Keller, 2013, 225), especially in the mornings when everybody is
driving to work.
Although it has a disadvantage of not having visual stimulation, it can be a
very creative way for a brand to express themselves using music, humor, etc. In
addition, it is a less expensive way of communication for companies and brand,
although it has a smaller reach than TV, it is a very effective way to target the
local market.
The print is definitely a communication channel that was most affected by
the popularisation of online editions and social media and is declining rapidly.
The biggest disadvantage of print advertising is that a large number of potential
consumers can miss the add by turning pages. Still, some companies had a huge INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
success and increase in brand image and sales using print advertisements like
Absolut vodka, which was a small Swedish brand in 1980 selling 100.000 nine-
liter cases a year. In 2006 it became third premium spirits brand in the world
selling 9,8 million nine-liter cases a year (Keller, 2013, 227). The success was
achieved by a very memorable print ad with a slogan “Absolut perfection” and a
bottle crowned by a halo, which is most associated with angels.
Billboards and posters have changed over the years and now have full digital-
ly produced graphics, backlighting, movement, 3D images to attract attention.
They are a very effective way to draw attention; they also have parts that now go
beyond the frame of billboards. Today there are almost limitless opportunities
1227
where companies can advertise: in elevators, pump stations, public transporta-
tion (trains, subway, and buses), toilet stalls, airports, cinema theatres, etc.
Sales promotion is also a traditional communication channel, especially in
stores where a host offers a product to consumers to try. This is called sampling.
It is a good way to introduce a new product directly to consumers and get first-
hand information about the product or service. It is also a good way to start
positive word –of - mouth between consumers.
Trade promotions include financial incentives or discounts to distributors or
retailers to better display and enhance the visibility of the product in the store
(Keller, 2013, 231). This is very costly for producers, especially when retailers
ask for large sums of money every year when new contracts of cooperation are
made between producers, distributors, and large and medium retailers. Because
of this increasing cost, many companies are trying to decrease them because
many of them do not see brand building value in trade promotions.
Another traditional way to communicate as a brand is sponsorships of differ-
ent events. Companies choose to sponsor events such as sports or social events
that correlate to their vision as a company, and that can positively relate to their
image with consumers. Publicity along with public relations is an important
way of communication and is a nonperson way, which includes interviews, press
conferences, sponsored articles etc. Public relations can include fundraising, an-
nual reports, lobbying, etc.
The last but often the most effective way of promoting and communication
is the word – of - mouth (WOM). Its biggest influence is the relevance that it
brings or better to say from whom it brings. Most often, it is friends and family
members whom we trust the most. Almost everybody had a situation where
they are not sure to try a product or not and they turn for advice for somebody
they know uses or tried that product or service. What that person experienced
using them will most often be the key to our own decision to try that product
or not.
Word of mouth especially became important when we look at the impact of
social media because now the reach is more significant than when 10 people are
talking.
Traditional marketing channels remained practically unchanged until social
media became so popular. Television, printed media, radio, billboards, promo-
1228
tions in store, PR and WoM where what made the “backbone” of every success-
ful marketing campaign. (Figure 1.)
Figure 1. Traditional marketing channels
Source: Authors
With social media, everything became much faster, especially communica-

tion between consumers, brands. Thousands of people sharing their experience
in a very short time.

3. WHAT IS SOCIAL MEDIA?
Social media is the environment in which social networking takes place and
has altered the way in which consumers gather information and make buying
decisions. Kaplan and Haenlein (2010) say that key to defining social media
is to first understand what the perception of World Wide Web by users is and
what they use it for. The content that is available on the World Wide Web is
constantly changed by the interaction of users.
Social media besides being a place where one can interact with their fam-
ily and friends has become a place where brands can interact with its consum-
ers and vice versa. Brands and companies use social media as a way to reach
consumers and to offer a new way to buy products or services. (Shankar et al.
1229
2011). Consumers can share images, text, videos with each other through social
media and if they choose with brands on their pages. We can focus on six forms
social media comes in: message boards and forums, chat rooms, blogs Facebook,
Twitter and YouTube (Keller, 2013, 230).
By using social media, users can create their profiles and share them with
friends, family, colleagues. (Kaplan and Haenlein 2010). For companies, it is
vital to use social media in accordance with their predefined business strategy
(Mangold & Faulds 2009). What perhaps changed the most with the devel-
opment of social media is that it made communication between brands and
consumers a two-way street instead of a one way. Consumers gained the power
to influence a reputation of a company or a brand through electronic word of
mouth (eWoM) or user-generated content (UGC).
.. The development of social media

Tim Berners – Lee invented the World Wide Web in 1991 which became
crucial for the development of the Internet. The Web (www) is a part of the In-
ternet and is also a way to access information. The Internet is a massive network
of networks connecting millions of computers globally where they can com-
municate with any other computer if they are connected to the Internet (www.
webopedia.com). It is important to distinguish that terms World Wide Web
and Internet are not synonyms but are two different terms. The global popular-
ization of the Internet then led to the development of social media.
Media of communication changed historically together with the audience
that uses them (van Dijk & Poell, 2013). For example, 1, 2 billion worldwide
users logged on to one of the social media sites in 2012, which was an increase
of 6 percent in 2007 (van Dijk & Poel 2013). We as a society moved the activi-
ties that we do every day to the online environment. For us, the “new normal” is
to be online all the time.
In one of his last interviews, Zygmunt Bauman one of most influential Eu-
ropean sociologists said that we don`t develop technology to do what we want,
but what is made possible by technology (www.elpais.com).
He also pointed out that people use social media not to open their horizons
wider but to lock themselves in a comfort zone. Whether we agree with his
opinion or not the reality is that today we share our thoughts, views, happiness
1230
and sadness, private pictures and videos. Everything that was once private is
now public, and for many, it became easier to “connect” when you do not have to
interact face to face.
From 1991 became the „explosion” of platforms used for communication
such as Blogger in 1999, Wikipedia in 2001, Myspace in 2003, Facebook and
Flickr in 2004, Youtube in 2005, Twitter in 2006, some of them became so
popular that using them invented new verbs for example „tweeting” is now a
commonly used verb and describes writing on Twitter.
The numbers concerning social media are staggering. Research report of
global media study made by InSites Consulting. in 2011, covering 35 coun-
tries states that Facebook has recognition of almost 100% and that more than
1 billion people which make more than 70% of internet population use social
networks.
More than 400 million people use Facebook daily and an average Facebook
session lasts 37 minutes. Facebook is by far the most popular social network
in the US, Canada, and Europe, but has strong competition in Russia (Vkon-
takte) and China (Qzone) which result in lower penetration rate.
What is also interesting is that 50% of social network users are connected
to brands, and what is more interesting is that offline brand experiences are the
main online conversation starters. In addition, positive experiences are bigger
conversation starters then the negative one. People with smartphones are more
intensive users of social media than the ones without smartphones. Most used
applications on smartphones are social network applications.
According to Curran, Graham, and Temple (2011), a social network can
be used to reach new customers, keep in touch with current customers and
promote new products, sales/offers, and events. Many companies were unsure
whether to engage on social media or not but came to realize that online conver-
sation will happen in any case and perhaps they should find a way to participate.
The result is that many companies now have official Twitter, Instagram and
Facebook pages for their brands (Keller, 2013, 238).
.. Consumer attitudes

Before social media, maintaining brand image was much simpler for compa-
nies and brands because it was solely under their control. Today content con-
1231
cerning brands is written mainly by users, which then affect other users, directly
influencing their brand perception. Using social media as a communication tool

for consumers and companies should be done very carefully (Heinonen, 2011).
Consumer’s attitudes towards communication with brands via social media
are very firm. Users on social media have a more positive perception of a brand
when given a choice if they like to watch the advertisement or not. However,
they very much dislike aggressive communication such as pop up or floating
ads (Cox, 2010). Consumers also feel more ‘irritated’ towards email advertis-
ing (Cheng at al., 2015).
They follow brands on social media to get information and updates on
products and services, but they mostly do it because friends invited them, not
brands. They also like to engage in an already existing discussion rather than
starting them themselves. This is visible from the global social media study from
2011 by InSites Consulting. There is a large number of consumers who use
social platforms but think that they are the least trustworthy media compared
to traditional channels like television and newspapers (Kelly, Kerr & Drennan,
2010).
Considering all stated what consumers attitude is towards a platform often
indicates their attitude towards its content. Users rely on the information they
see on a platform or a website they prefer (Chu, 2011).
According to a study called Consumers’ attitude towards brands on So-
cial Networking Sites published in 2015 through Slideshare, social media has
a strong impact on public relations, brand involvement, buying behavior and
brand commitment. (Figure 2.)
1232
Figure 2. Why consumers follow a brand on social media?
Source: Authors, adapted from a study „Consumers attitude towards brands on social me-
dia” shared on www.slideshare.com in 2015, by Jitendra Raichandani
When active users on social media were asked why they follow a brand on-
line, the main reason for them was the information about the brand itself. What
was new, are there any new products or an upgrade of the ones that already
exist. After that, main reasons why they follow a brand was information about
discounts and promotions. They also follow brands online because friends or
family members recommended it, and last but not least because they find it
entertaining.
.. User-generated content
Kaplan and Haenlein (2010) describe user-generated content as all the ways
people use social media or to be more exact the various forms of content that are
available or is created by end users of social media. For brands, it means when
users share their feedback of an experience of a product linked to the brand.
This can also be described through a term called social currency. (Zinnbauer
and Honer 2011).
1233
Paquette (2013) explains how Zinnbauer and Honer also concluded
through empirical study in 2011 that a brand will be successful on social media
only if they are integrated into the everyday life of users. When it is impor-
tant to users they share, comment with like-minded brand users and generate
consumer generated advertising. Two sorts of user-generated advertising can
be distinguished; consumer-generated advertising (CGA) and firm generated
advertising (FGA)
Consumer-generated advertising (CGA) is when consumers use online
communication to inform other users about their experience concerning a
brand (Campbell et al. 2011). Today it is considered that CGA originated from
consumers who wrote their opinions on brand through reviews, blogs, videos
(Pehlivan et al 2011). It is important to emphasize that CGA can complement
traditional marketing but can also have a negative impact. For example, a user
can write a comment on a profile on social media of a mobile phone operator
saying they are not satisfied with their service. They signed for one thing and
what they received is not what was promised. Very soon other users also join in
on the discussion on social media. Depending on the reply representative of the
mobile phone operator has on the issue it will become a user-generated content
with positive or negative effect.
The firm generated content (FGA) is content generated by the company for
informing users about new products or services. However, a study conducted
by Cheong and Morrison about the influence of CGA and FGA in 2008 and
concluded that consumers trust more information about a product created by
another user then the producer of the product. Social media makes communi-
cation between consumers much easier but as a direct result of that, companies
have to ensure more resources to control the content that is shared between us-
ers (Mangold and Faulds 2009). Social media allows a greater insight into con-
sumer preferences, but it also makes brands very vulnerable. For example, one
of the largest brands in the world Apple uses the only firm generated advertising
(FGA). On their profiles on social media, consumers cannot leave comments,
obviously, it is a chosen strategy, so Apple has full control and that possibility
of negative comments that can jeopardize brand image does not occur.). In the
case of social media, electronic word of mouth (eWOM) can be very powerful.
In 2002 Gladwell detected three groups of people that spread word of mouth
through social media: connectors, mavens, and salesman.
1234
Connectors are users that have a significant number of contacts and can
spread a message in a very short time to a large group of people. Mavens rate
and evaluate all the information concerning the area of their expertise before
deciding if they will share the information further. Salesman, they usually do
not have the expertise of mavens but are charismatic and because of that people
spread their message.
A term word – of – mouse also emerged as a type of eWOM. It is a term
that describes the power of a mouse click in terms of spreading information’s
between users and companies or users with other users (www.themarketing-
sage.com), Vranešević et al. 2018, 41, 216.).
With available social platforms, UGA became very easy to create in a very
short time. YouTube and Facebook are often mentioned as the biggest UGA
platforms.
Consumers are empowered through the freedom that social media provide
and like the fact that their voice can be heard (Pehlivan et al 2011).
According to Nielsen report from 2012 that the world spends over 110 bil-
lion minutes on social networks and blog sites. It also reports that three of the
world’s most popular brands are social media related: Facebook, YouTube, and
Wikipedia.
.. Influencers
Influencer marketing as a product of social media is a new phenomenon
within the industry. Due to the constantly evolving and changing market, this INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
topic has been widely discussed by contemporary media, but what we noticed
by searching for relevant literature, not enough by the academic community.
Actually, most of the literature about influencers is available only on market-
ing themed platforms and portals such as Influencer Marketing hub. It is an
agency from Denmark, which specializes in Influencer marketing (www.influ-
encermarketinghub.com). They also organize an annual Influencer marketing
conference in London and New York.
According to Influencer Marketing hub, an influencer is an individual who
has the power to affect purchase decisions of others because of his authority,
knowledge, position or relationship with his audience. Influencers in social
1235
media are people who have authority, knowledge, position and/or a special
relationship with their audience. Influencers have built a reputation for their
knowledge and expertise of social media channels and generate large followings
of people who pay close attention to their views.
Three types of influencers are being mentioned online: celebrity influencers,
macro and micro influencers (www.influencermarketinghub.com).
Celebrity influencers have a large reach because of the number of followers
that they have on social media. They can have a positive impact on a brand they
are promoting but because of their popularity, they can be very costly for com-
panies and are usually avoided by the ones that do not have a limited budget.
Macro influencers are popular online tenders, most often who started
as bloggers with a large population following them. However, this also often
means they have a much lower engagement with consumers.
Micro influencers are ordinary people who have managed to build up a so-
cial media following. According to Influencer Marketing hub, micro influencers
perform 90% of successful influencer marketing.
Researching available literature what can also be concluded that the phe-
nomenon of influencers is not older than five years and people who are using
influencer marketing for that period are calling themselves pioneers of the field.
What sites like Forbes and Influencer marketing are also claiming is that that
influencer marketing is the next big thing in marketing strategies for successful
brands and are already using the term such as Influencer Relationship Man-
agement, Influencer platforms, agencies specialized in influencer marketing are
emerging etc.
Most of the information about Influencer marketing is actually coming from
marketing agencies and marketing-oriented portals. In 2015 a study was re-
leased by a French marketing agency Augure called the State of Influencer en-
gagement (www.launchmetrics.com ).
The study was carried out in cooperation with the market research firm
called Schlesinger Associate through an online panel of marketing and com-
munication professionals. 967 people participated. One of the information in
the study is that 84% of brands will launch campaigns with influencers in 2015.
It also states that the US is much more progressive than Europe in using in-
fluencer marketing and adapting their marketing budgets. There are actually a
1236
large number of different statistical data available online about Influencers and
Influencer marketing and why to use them.
Influencers are mainly people who became very popular through media plat-
forms such as YouTube, Twitter, Instagram or Facebook. They are mainly regu-
lar people turning celebrity rather than celebrities turning influencers. This is
mostly because of the costs it represents for brands. According to Forbes (www.
forbes.com), in 2017 there were top 10 influencers in several categories: pets,
parenting, fashion, entertainment, travel, gaming, fitness, beauty, home, food,
tech & business, kids. These top 10 influencers together through Twitter, Ins-
tagram, YouTube and Facebook reached 247 million people (www.forbes.com).
One such influencer in the entertainment segment is Lilly Singh. She is
a 28-year-old Canadian vlogger and comedian also known as “Superwoman”
online. Forbes reports that she has a YouTube audience of almost 12 million
people, completed a 27-city tour and has written a New York Times bestseller
(www.forbes.com). She started vlogging (video blogging) in her final year of
university studying psychology. In her first year of vlogging on YouTube, she
was approached by its executives and asked to join their Partner program. In
2016 she partnered with cosmetics giant Smashbox to launch a signature red
lipstick shade called Bawse. The lipstick is named after her preferred spelling of
the word boss. The lipstick soon became number one selling lipstick in Smash-
boxes range and the company stated that it was because with Lilly Singh also
came almost 12 million of her followers as new customers (www.forbes.com).
The other is celebrity influencers. There are many celebrities that have a
large number of followers, one of them is pop music superstar Justin Bieber.
It is estimated that he earns somewhere between 134.000$ and 222.925$ per
post. He has around 90 millions of followers. It obvious that he has a large base
of followers, but also that it will cost a lot of money for companies to hire him
(www.influencermarketinghub.com).
In Croatia, the most popular influencer is Ella Dvornik. She is a daughter
of a famous deceased Croatian singer Dino Dvornik. She first became a travel
blogger and then started collaborating with other companies. In 2017 she stated
that she has 400.000 followers and can earn around 500.000kn (ca 70.000$)
per year which is a lot for Croatian standards. This is her career and sole source
of income (www.net.hr).
1237
4. TRADITIONAL AND NEW CHANNELS OF
COMMUNICATION. IS IT BETTER TO USE

THEM TOGETHER OR APART?
This is a question that most companies are asking themselves when it is time
to decide how to make a budget split. But before answering that question it is
important for companies and brands to know what their main goal is they are
trying to achieve with their communication and who is the communication tar-
geting. Who is their target audience?
Advantages of traditional marketing are that it can be used to easily target
local audience for example with radio campaigns; materials can be kept (maga-
zines, newspapers, leaflets). In 2015 newspapers Canada post teamed up with
Canadian neuro-marketing firm TrueImpact and compared the effect printed
communication (hard copy) have over digital communication on the human
brain (www.canadapost.ca)
According to that report, direct mail requires 21% less cognitive effort to
process than digital media (5.15 vs. 6.37), suggesting that it is both easier to
understand and more memorable. Post-exposure memory tests validated what
the cognitive load test revealed about direct mail’s memory encoding capabili-
ties. When asked to cite the brand (company name) of an advertisement they
had just seen, the recall was 70% higher among participants who were exposed
to a direct mail piece (75%) than a digital ad (44%). In this study, a term neuro-
marketing is used and explained as using neuroscience to explain how market-
ing stimuli affect the brain. It uses EEG, MRI, and eye –tracking methods to
measure blood flow to the brain responsible for decision making.
Again, this is something that is used by emerging agencies specializing in
neuromarketing without a response from the scientific community.
Taking into consideration more conventional methods of comparing advan-
tages and disadvantages of traditional marketing, one of the most obvious is
that is a one-way direction in terms of communication between brands and
consumers. This is probably why so many companies, especially smaller ones
are switching to social media, digital marketing, and the fact that is much more
cost efficient to advertise online than on television.
New channels of communication like social media offer more active, im-
mediate communication with consumers. They are active co-creators of brands
1238
success and image. New channels are also enabling a more global reach of con-
sumers and are more cost-efficient than traditional channels.
There are practically no articles backed up by scientific research that com-
pares this two channels, but all of it is again generated by marketing agencies
and marketing web platforms leaving potential advertisers feeling that to be suc-
cessful as a brand you have to be online.
Global brands such as Coca-Cola, Guinness, and Starbucks have already
completely integrated social media into their marketing strategy (Schivinski,
Dabrowski, 2013). Integrating traditional and new channels of communica-
tion, especially social media allows a more global reach of consumers and cost-
effective advertising. (Figure 4.)
Figure 4. New integrated marketing communication
Source: Authors
Whether there is enough scientifically relevant data available on the internet,

the communication mix that companies use have changed, making social media
one the most popular channels of communication with consumers, and a part
of every marketing campaign suggested by marketing agencies.
1239
5. CONCLUSION
What is now considered traditional marketing is becoming an insufficient

way how brands communicate with their consumer. Although television is still
actual as a way of communication for brands, radio on the other hand and espe-
cially printed media are becoming a less attractive way of reaching target audi-
ence because of a smaller reach. It seems that everything and everybody is going
online. Whether we are aware of it or not.
When writing this article, the main goal was to better understand how much
marketing communication between brands and consumers has changed with
the development of social media and technological advancement in general.
What soon became clear when researching for relevant information about
influencers is that there is a lack of scientifically based information in this area.
It is an area that yet has to be more examined by marketing experts that do
not include only marketing agencies and the enormous number of marketing
web platforms where it is hard to determine are they really a reliable source of
information or not?
There are so many information, numbers, and recommendations on what
you need as a company or how to approach your consumer that it also raises a
question of ethical practice.
In addition, there is practically no control of the information that is pub-
lished, and it is very visible that term like influencers, neuromarketing are so
new as marketing topics that they yet need to be addressed by the academic
community. On the other hand, everything online is happening so fast and mar-
keting agencies and web platforms obviously saw an opportunity and recog-
nized a new way of communication, mainly through social media and that their
global reach is setting the tone of modern marketing. It seems that perhaps we
can also say that there is sizable “gap” between marketing practice and the mar-
keting academic community.
It is not visible so much in the area of social media since they exist for more
than ten years but it is more noticeable in the area of influencers and influencer
marketing where there is practically no academic articles or research. Available
data is “created” by marketing agencies which already use them as an important
marketing strategy.
1240
There is a definite need for academic research on these subjects, so compa-
nies and brands can have a broader perspective of this already important mar-
keting trend.
LITERATURE
Campbell, C., Pitt L., Parent M & Berthon P.R. (2011). Understanding Consumer Conver-
sations around Ads in a Web 2.0 World, Journal of Advertising, 40, p. 87-102.
Cheng J., Blankson C., Wang E. & Chen S. (2015) Consumer attitudes and interactive digi-
tal advertising, International Journal of Advertising, 28, p. 501-525.
Cheong, H. & Morrison M. (2008). Consumers’ Reliance on Product Information and Rec-
ommendations Found in UGC. Journal of Interactive Advertising 8, p. 38-49.
Chu, S. (2011). Viral advertising in social media: Participation in Facebook groups and re-
sponses among college-aged users. Journal of Interactive Advertising 12, p. 30-43.
Cox, S., Online social network member attitude toward online advertising formats (2010).
Doctoral dissertation. Rochester Institute of Technology, accessed from http://schol-
arworks.rit.edu/cgi/viewcontent.cgi?article=5596&context=theses
Curran, K., Graham S. & Temple, S. (2011). Advertising on Facebook. International Journal
of E-Business Development 1, p. 26-33.
Gladwell, M. (2002). The tipping point. How little things can make a big difference, Little,
Brown & Company, Boston
Heinonen, K. (2011). Consumer activity in social media: Managerial approaches to consum-
ers’ social media behavior, Journal of Consumer Behavior 10, p. 356-364.
Kaplan, A. & Haenlein, M. (2010), Users of the World, Unite! The Challenges and Oppor-
tunities of Social Media.” Business Horizons 53, p. 59-68.
Keller, K. (2013). Strategic Brand Management. Building, Measuring, and Managing Brand
Equity, Pearson, Essex, p. 222, 225, 227, 230, 231, 238
Kelly, L., Kerr G. & Drennan J. (2010). Avoidance of Advertising on Social Networking INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Sites: The Teenage Perspective, Journal of Interacting Advertising 10, p. 16-27.
Mangold, G. & Faulds D. (2009). Social Media: The New Hybrid Element of the Promotion
Mix, Business Horizons 52, p. 357-365.
Paquette, Holly, “Social Media as a Marketing Tool: A Literature Review” (2013). Major
Papers by Master of Science Students. Paper 2, accessed from http://digitalcommons.
uri.edu/tmd_major_papers/2
Pehlivan, E., Sarican F. & Berthon P. (2011). Mining Messages: Exploring Consumer Re-
sponse to Consumer vs. Firm Generated Ads.” Journal of Consumer Behavior 10, p.
313-321.
Shankar, V., Inman, J., Mantrala, M., Kelley, E. & Rizley, R. (2011). Innovations in Shop-
per Marketing: Current Insights and Future Research Issues.” Journal of Retailing 1,
p.29-42.
1241
Schivinski B. & Dabrowski D. (2016). The Effect of Social Media Communication on Con-
sumer Perceptions of Brands, Journal of Marketing Communications, Vol 22 (2), p. 189
-214.
Van Dijck, J. & Poell, T. (2013). Understanding Social Media Logic. Media and Communica-
tion, 1(1), p. 2-14.
Vranešević, T., Pandža Bajs, I. & Mandić, M. (2018). Upravljanje zadovoljstvom klijenata,
Accent, Zagreb
Zinnbauer, M. & Honer, T. (2011). How Brands Can Create Social Currency- a Framework
for Managing Brands in a New Era. Marketing Review St. Gallen 28, p. 50-55.
Arnaud R.(2015), State of influencer engagement [available at: https://www.launchmetrics.
com/resources/blog/state-influencer-engagement, accessed February 22, 2018]
Beal, V. (2017), Do you know the difference between the Internet and the World Wide Web
[available at
https://www.webopedia.com/DidYouKnow/Internet/Web_vs_Internet.asp,
accessed March 13, 2018]
Canada post corporation (2015), A Bias for action, the neuroscience behind the response
driving power of direct mail [available at https://www.canadapost.ca/assets/pdf/
blogs/CPC_Neuroscience_EN_150717.pdf, accessed February 22, 2018]
FDe Qeurol, R. (2016), Interview: Zygmunt Baumann: Social media are a trap [available at
https://elpais.com/elpais/2016/01/19/inenglish/1453208692_424660.html,
accessed February 25, 2018]
hot.hr (2017), Otkrila iznos koji sve zanima: Evo koliko Ella Dvornik zarađuje na
društvenim mrežama [available at https://net.hr/hot/zvijezde/otkrila-cifru-koja-sve-
zanima-evo-koliko-ella-dvornik-zaraduje-na-drustvenim-mrezama/, accessed March
13, 2018]
InSites Consulting (2011), Social media around the world [available at: http://www.insites-
consulting.com/report/social-media-around-the-world-2011/ accessed February 25,
2018]
Instagram Influencer Earnings Calculator [available at: https://influencermarketinghub.
com/instagram-money-calculator /accessed February 22, 2018]

Interdisciplinary Management Research - IMR XIV

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Interdisciplinary Management Research - IMR XIV

Uploaded by

Copyright:

Available Formats

ISSN 1847-0408

FACULTY OF ECONOMICS IN OSIJEK

INTERDISCIPLINARY MANAGEMENT RESEARCH XIV

Under the auspices of the President of the

For the Publisher:

Damir Ribić and Nikolina Pleša Puljić

Faruk Hadžić and Dino Hadžialić

Branko Matić, Maja Vretenar Cobović and Mirko Cobović

Mladen Vedriš, Nataša Drvenkar and Damir Butković

Health, Education and Welfare

Business Administration and Bussines Economics

Gabrijela Žalac, Ana Odak and Mario Banožić

Radul Milutinović, Slađana Benković and Biljana Stošić

ECONOMY CONTEXT................................................................................................... 1526

Urban, Rural, and Regional Economics

Dražen Vitez, Marko Prpić and Marin Pucar

Es ist uns ein Vergnügen, das Konferenzband “Interdisciplinary Management Re-

Die neueste Ausgabe von “Interdisciplinary Management Research XIV/ Interdis-

Dražen Barković, professor emeritus

It is our pleasure to introduce the book “Interdisciplinary Management Research

The latest edition, i.e. ““Interdisciplinary Management Research XIV/ Inter-

Dražen Barković, professor emeritus

Dino BRUŽA, mag.oec., Ph.D. student

Andreja RUDANČIĆ, Ph.D. assistant professor

INTERDISCIPLINARY MANAGEMENT RESEARCH XIV

communication, it will be presented how the information-communication tools

Figure 1. Information system in a hotel company

Source: Z. Cerović: Hotel management, FTHM, Opatija, 2003., p. 716

2. THEORETICAL BACKGROUND OF BUSINESS

INTERDISCIPLINARY MANAGEMENT RESEARCH XIV

.. Impact of business psychology on manager

INTERDISCIPLINARY MANAGEMENT RESEARCH XIV

INTERDISCIPLINARY MANAGEMENT RESEARCH XIV

Šimunić, 2006, p. 98):

.. Relation between business communication,

INTERDISCIPLINARY MANAGEMENT RESEARCH XIV

4. RESEARCH RESULTS AND ANALYSIS

INTERDISCIPLINARY MANAGEMENT RESEARCH XIV

INTERDISCIPLINARY MANAGEMENT RESEARCH XIV

Source: Authors’ analysis according to research

Graph 2. Social network (chat, video calling, combined) in %

Source: Authors’ analysis according to research

Graph 3. Directly face to face (live or via video link) in %

Source: Authors’ analysis according to research

Source: Authors’ analysis according to research

INTERDISCIPLINARY MANAGEMENT RESEARCH XIV

INTERDISCIPLINARY MANAGEMENT RESEARCH XIV

Nemanja MILANOVIĆ, M.A.

Lena ĐORĐEVIĆ, PH. D.

Nela MILOŠEVIĆ, M.A.

INTERDISCIPLINARY MANAGEMENT RESEARCH XIV

INTERDISCIPLINARY MANAGEMENT RESEARCH XIV

Although education institutions use MS Oﬃce, the application of practical

INTERDISCIPLINARY MANAGEMENT RESEARCH XIV

.. Case Study : Cash Budget Spreadsheet Modelling

• Interest payments of $40,000 on long-term debt should be made in June

Table 1. Mark&Co’s actual and expected sales for 2012

A simple diagram of factors which inﬂuence ending cash balance is shown

The broad body of management accounting literature suggests that ending

cash – unadjusted cash will be borrowed. Otherwise, current borrow-

UCB, UCB  min RCB*

Scenario analysis allows students to try diﬀerent things by simple varying

Figure 3. Scenario manager dialog box