European journal 2016 vol 13 no 1 by Singidunum University

Vol. 13 No. 1

w w w. j ou r na l.sing idunum.a c .rs

Vol. 13 No. 1 Publisher: Singidunum University

E d i t o r i a l Bo a r d

Professor Milovan Stanišić, Singidunum University mstanisic@singidunum.ac.rs Emeritus Slobodan Unković, Singidunum University sunkovic@singidunum.ac.rs Professor Francesco Frangialli, UNWTO frangialli@gmail.com Professor Gunther Friedl, Technische Universität München gunther.friedl@wi.tu-muenchen.de Professor Karl Ennsfellner, IMC University of Applied Sciences, Krems karl.ennsfellner@fh-krems.ac.at Professor Gyorgy Komaromi, International Business School, Budapest gyorgy@komaromi.net Professor Vasile Dinu, University of Economic Studies, Bucharest dinu_cbz@yahoo.com Professor Ada Mirela Tomescu, University of Oradea, Oradea ada.mirela.tomescu@gmail.com Professor Radojko Lukić, University of Belgrade rlukic@ekof.bg.ac.rs Professor Alexandar Angelus, Lincoln University angelus@lincolnuca.edu Professor Nemanja Stanišić, Singidunum University nstanisic@singidunum.ac.rs Professor Verka Jovanović, Singidunum University vjovanovic@singidunum.ac.rs Professor Milan Milosavljević, Singidunum University mmilosavljevic@singidunum.ac.rs Professor Olivera Nikolić, Singidunum University onikolic@singidunum.ac.rs Professor Goranka Knežević, Singidunum University gknezevic@singidunum.ac.rs Professor Mladen Veinović, Singidunum University mveinovic@singidunum.a.crs Professor Jovan Popesku, Singidunum University jpopesku@singidunum.ac.rs Professor Zoran Jeremić, Singidunum University zjeremic@singidunum.ac.rs Associate Professor Christine Juen, Austrian Agency for International christine.juen@oead.at Mobility and Cooperation in Education, Science and Research, Wien Associate Professor Anders Steene, Södertörn University, Stockholm/Hudinge anders.steene@sh.se Associate Professor Ing. Miriam Jankalová, University of Žilina miriam.jankalova@fpedas.uniza.sk Associate Professor Bálint Molnár, Corvinus University of Budapest molnarba@inf.elte.hu Associate Professor Vesna Spasić, Singidunum University vspasic@singiduunm.ac.rs Associate Professor Michael Bukohwo Esiefarienrhe, University of Agriculture, esiefabukohwo@gmail.com Dept. of Maths/Statistics, Markurdi Assistant Professor Patrick Ulrich, University of Bamberg patrick.ulrich@uni-bamberg.de Assistant Professor Konstadinos Kutsikos, University of the Aegean, Chios kutsikos@aegean.gr Assistant Professor Theodoros Stavrinoudis, University of the Aegean, Chios tsta@aegean.gr Assistant Professor Marcin Staniewski, University of Finance and Management, Warsaw staniewski@vizja.pl Assistant Professor Gresi Sanje, İstanbul Bilgi Üniversitesi, Istanbul gresi.sanje@bilgi.edu.tr Dr. Aleksandar Lebl, Research and Development Institute for Telecommunications and Electronics, Belgrade lebl@iritel.com Editorial Office

Editor-in-Chief: Deputy Editor: Managing Editor: Production Editor:

Professor Milovan Stanišić, Singidunum University Professor Verka Jovanović, Singidunum University Professor Svetlana Stanišić Stojić, Singidunum University Professor Gordana Dobrijević, Singidunum University

Copy Editor: Ana Petrović Prepress: Novak Njeguš Design: Aleksandar Mihajlović ISSN: 2406-2588 The European Journal of Applied Economics is published biannually. Contact us: The European Journal of Applied Economics 32 Danijelova Street, 11010 Belgrade, Serbia Phone No. +381 11 3093236, +381 11 3093219, Fax. +381 11 3093294 E-mail: journal@singidunum.ac.rs Web: www.journal.singidunum.ac.rs Printed by: Mobid, Loznica

sstanisic@singidunum.ac.rs gdobrijevic@singidunuma.c.rs Access to full text articles: Singipedia (www.singipedia.com), SCindeks (www.scindeks.ceon.rs), EBSCO (www.ebscohost.com).

This is an open access journal which means that all content is freely available without charge to the user or his/her institution. Users are allowed to read, download, copy, distribute, print, search, or link to the full texts of the articles in this journal without asking for prior permission from the publisher or the author. This is pursuant to the BOAI definition of open access.

CONTENTS

1 - 12

13 - 23 24 - 35 36 - 46

Adverse effects of the automotive industry on carbon dioxide emissions Mpho Bosupeng

The model for successful development of NGA infrastructure in the Balkans Matej Požarnik, Lea Robič Mohar, Tea Taras

Financial analysis of Serbian companies undergoing privatization Nino Vesković

Assessing labour strength in Serbia, Croatia and Slovenia: How to explain the differences? Nikola Kosović, Daria Copîl

III

47 - 59 60 - 71

72 - 83

84 - 90

Organizational factors, organizational culture, job satisfaction and entrepreneurial orientation in public administration Konstantinos M. Karyotakis, Vassilis S. Moustakis

The importance of entrepreneurial learning on the example of the South East European Center for entrepreneurial learning in Croatia Sanja MalekoviÄ&#x2021;, Sanja TiĹĄma, Ivana Keser

Conspicuous consumption, luxury products and counterfeit market in the UK Trang Huyen My Pham, Muhammad Ali Nasir

Instructions for authors

EJAE 2016, 13(1): 1-12 ISSN 2406-2588 UDK: 502.3:504.5:621.43.068”1997/2010” DOI: 10.5937/ejae13-9345 Original paper/Originalni naučni rad

ADVERSE EFFECTS OF THE AUTOMOTIVE INDUSTRY ON CARBON DIOXIDE EMISSIONS Mpho Bosupeng* University of Botswana, Finance Graduate P O Box 20151 Bontleng, Gaborone, Botswana

Abstract: This study aims to determine the effects of the automotive industry on carbon dioxide emissions for the period from 1997 to 2010 for diverse economies, as well as the relationships between carbon dioxide discharges and output. The study applies cointegration and causality tests to validate these associations. The results of the Johansen cointegration test depict long-run associations between the quantity of passenger cars and carbon dioxide emissions in France, Sweden, Spain, Hungary and Japan. In addition, significant relations were observed between output and carbon dioxide discharges in Spain, Canada, India and Japan. Changes in output had substantial impact on emissions in Germany, Canada and India. The results also show that the number of passenger cars influences the magnitude of emissions in multiple economies. In conclusion, the automotive industry has to be considered in policies that aim to reduce carbon dioxide emissions.

INTRODUCTION The relationship between carbon dioxide emissions and economic growth has been an issue of concern for decades. Today, as the impact of excess carbon dioxide becomes more apparent, countries are inclined to reduce their emissions. An important task would be to alleviate carbon dioxide emissions regardless of whether the economy is advanced or not. China stepped forward by proposing a 40-45% reduction in carbon dioxide emissions. The pressure of reducing carbon dioxide discharges is putting more pressure on China being the largest carbon dioxide emitter. However, that should not mean that the reduction of * E-mail: bosupengmpho@hotmail.com

Key words: carbon dioxide emissions, economic growth, automotive industry.

carbon dioxide emissions is China’s burden. It is necessary that every country invests considerable effort since carbon dioxide effects are global rather than country-specific. Chinese carbon dioxide emissions are fuelled by the automotive industry. According to Xu and Lin (2015), during the period 1980-2012, carbon dioxide emissions produced by the Chinese transport sector recorded a tenfold increase with an annual growth rate of 7.4%. The authors highlighted that the number of passenger cars in China increased nearly eight times between 2000 and 2012. Comparatively, few studies have been conducted to determine the effects of carbon dioxide emissions from the automotive industry. 1

EJAE 2016  13 (1)  1-12

Bosupeng, M.  Adverse effects of the automotive industry

The automotive industry produces carbon dioxide in two main ways. Firstly, during the vehicle manufacturing stage, industries produce carbon dioxide. Secondly, automobiles release carbon dioxide during the internal combustion of fuel. It is conceivable that the quantity of carbon dioxide emissions intensifies along with the increase in the number of cars manufactured. Previous studies generally focused on determining associations between carbon dioxide emissions and economic growth. The effects of automotive industry on carbon dioxide discharges have not been addressed by the extant literature. The present study has several objectives. Firstly, it intends to investigate the relationships between carbon dioxide emissions and the quantity of passenger cars manufactured over the period from 1997 to 2010. Secondly, it aims to determine statistical affiliations between carbon dioxide discharges and economic growth. The investigation aims to fulfil these objectives by applying cointegration and causality tests. The remaining part of the paper is structured as follows. The first section presents an overview of previous studies. It is followed by a section elaborating on the methodology and empirical results, whereas the final part of the paper is dedicated to the analysis of research results and provision of relevant conclusions.

LITERATURE REVIEW Multiple studies on economic growth and carbon dioxide emissions focused on China. This is because the Chinese economy is the largest emitter of carbon dioxide (Gregg et al., 2008). Logically, as an economy grows, the diversity of export multiplies, which further results in high carbon dioxide emissions. Alshehry and Belloumi (2015) investigated the dynamic relationships between energy consumption, energy price and economic activity in Saudi Arabia. The results indicate longterm associations between energy consumption, energy price, carbon dioxide emissions and economic growth. The authors have noted that energy 2

consumption has significant effects on economic growth and carbon dioxide discharges. The study highlighted that strategies aimed at diminishing carbon dioxide discharges may not hinder Saudi Arabia’s economic growth adversely. In addition, Lee and Brahmasrene (2013) investigated the influence of tourism on economic growth and carbon dioxide emissions in Europe from 1988 to 2009. The study showed that economic growth had significant impact on carbon dioxide emissions. Additionally, Wang (2013a) noted that output growth in China and the US is the mainstay of rising carbon dioxide emissions. The author highlighted that carbon dioxide discharges can be controlled by reducing energy intensity. This is conceivable especially if an economy uses fossil fuels such as coal as the main energy source. Omri (2013) used simultaneous-equations models to examine fourteen MENA countries over the period from 1990 to 2011. The results showed that energy consumption induces carbon dioxide emissions over the material period. Similarly, Zhang and Cheng (2009) proved that changes in carbon dioxide emissions depend on energy consumption. Soytas and Sari (2009) explored causality between economic growth, carbon dioxide emissions and energy consumption in Turkey. The study proved that energy consumption was reliant on carbon dioxide emissions.The authors suggested that the lack of causation between income and emissions could mean that controls on carbon dioxide emissions may not impinge negatively on the economic growth. Most economies use green taxation as a measure against rising carbon dioxide discharges. Loganathan et al. (2014) examined the extent to which carbon taxation and economic growth affected the environment in Malaysia during the period from 1974 to 2010. Empirical evidence showed that carbon taxation and economic growth moved together in the long-run.The study registered causality effect from carbon taxes to carbon emissions with feedback. The effects of carbon taxes were further examined by Zhixin and Ya (2011). The study revealed that a carbon tax is a determinant factor of economic growth in the eastern part of China.

EJAE 2016  13 (1)  1-12

Bosupeng, M.  Adverse effects of the automotive industry

In summary of the reviewed literature, the interactions between carbon dioxide discharges, energy consumption and economic growth have been thoroughly examined. Previous studies generally document a positive relationship between the trio (Alshehry & Belloumi, 2015; Lee & Brahmasrene, 2013; Wang, 2013a; Zhang & Cheng, 2009; Soytas & Sari 2009; Wang, 2012b). Numerous countries, including Malaysia and China, employ carbon taxation as the common measure to combat carbon dioxide emissions. In China, taxation was found to stimulate economic growth in some provinces (Zhixin & Ya, 2011). This paper contributes to the literature by analysing twenty economies and determines the relationships between passenger cars manufactured, carbon dioxide emissions and GDP.

(1) The definition of terms is as follows. The term εt is a pure white noise error term and Δyt-1 is equivalent to yt-1-yt-2. The data was tested for unit roots in first difference and the test equation included an intercept and trend. The results show that the data is non-stationary and suitable for further empirical analysis. Eviews 7 programme was used to compute the stationarity test. Based on the computed ADF test statistics, it is concluded that the data has unit roots at different levels (1%, 5% and 10% levels). The results of the unit root test are presented in Table 1.

The Johansen Cointegration Test MATERIALS AND METHODS This study examines the relationships between carbon dioxide emissions, GDP and the number of passenger cars. The data was obtained from The Global Economy (http://www.theglobaleconomy. com), which is a website committed to monitoring and disseminating macroeconomic data to researchers. National output was in US dollars ($) while carbon dioxide emitted was measured in tonnes. The actual data was converted to natural logarithm values before proceeding with the investigation. Technically, it is easier to monitor the volatility of logarithmic values over time than actual data.This study covers the period from 1997 to 2010 with a majority of surveyed countries from Europe. Other continents, in particular America and Asia, were included to perform a more detailed comparative analysis. Due to data availability challenges, this study was restricted to data over the period from 1997 to 2010. Before proceeding with the investigation, it is imperative to carry out unit root tests. The Augmented Dickey-Fuller (ADF) test is the most applied statistical test for determining the order of integration of macroeconomic time series. The model applied is:

The long-run affiliations between variables are usually determined by means of a cointegration test. For the purpose of this study, the Johansen cointegration test and the Saikkonen and Lütkepohl (2000) test will be applied to test for cointegrating vectors between GDP, carbon dioxide emissions and passenger cars. The advantage of cointegration tests is that they provide the longrun equilibrium relationships among the variables. The idea is that cointegrated variables would be attracted to each other, hence resulting in the longrun association following Johansen (1988). The use of cointegrated vectors was pioneered by Granger (1981), Granger and Weiss (1983), and Engle and Granger (1987). If there is cointegration between any two selected series, the Vector Error Correction (VECM) model may be represented as:

(2)

Define the terms as follows. Allow Π to be a m×m matrix with long-run implications, Γ a lag parameter matrix and et and m-vector of residuals (Mallory & Lence, 2012). Following Mallory and 3

EJAE 2016  13 (1)  1-12

Bosupeng, M.  Adverse effects of the automotive industry

Augmented Dickey-Fuller (ADF) test statistics Country

CO2

GDP

CARS

Belgium

-3.041318

-3.249210

Germany

-2.2065771,2,3

-3.2347341,2,3

-4.5376553

France

-2.7813341,2,3

-3.2923121,2,3

-1.7982641,2,3

-1.9345081,2,3

-2.8031611,2,3

-3.0817981,2,3

Finland

-2.5437511,2,3

-3.0648961,2,3

-3.5603693

Italy

-0.5813481,2,3

-3.1591211,2,3

-3.1995861,2,3

Sweden

-2.5187991,2,3

-2.7852871,2,3

-2.3016381,2,3

Spain

1.1045771,2,3

-2.7160761,2,3

-1.7225501,2,3

Canada

-0.9594651,2,3

-2.0738491,2,3

-2.4253671,2,3

China

-2.5936341,2,3

-0.4589771,2,3

-3.1318041,2,3

India

-1.9995461,2,3

-1.8737361,2,3

-4.8463293

Brazil

-2.4476261,2,3

-1.6464601,2,3

5.7401461,2,3

Netherlands

-2.3076681,2,3

-3.0802691,2,3

-2.8302361,2,3

Poland

-3.0285981,2,3

-1.9267001,2,3

-2.6197391,2,3

Russia

-0.3747351,2,3

-3.8145543

-3.6306211,2,3

Austria

-1.4301441,2,3

-2.9104861,2,3

-1.2709171,2,3

Czech Republic

-2.5127941,2,3

-3.0638451,2,3

-2.7386401,2,3

Hungary

-2.0009611,2,3

-2.2045261,2,3

-3.3329641,2,3

USA

-1.3466141,2,3

-3.6364072,3

-2.7240391,2,3

Japan

-1.9238771,2,3

-0.0061641,2,3

-2.3957001,2,3

1,2,3

-1.2151401,2,3

The ADF test statistics are reported above. The critical values for cars and CO2 are as follows: -[4.8864266] is the critical value at 1% level; -[3.828975] is the critical value at 5% level and -[3.362984] is the critical value at 10% level. Superscripts 1, 2, 3 indicate statistical significance at 1%, 5%, and 10% critical levels. The critical values for GDP are as follows: - [4.992279] is the critical value at 1% level; -[3.875302] is the critical value at 5% level and -[3.388330] is the critical value at 10% level. The results are based on the model: Eviews 7 was used to compute the ADF unit root test. The null hypothesis for the test is “series x, has a unit root”.

Table 1. Augmented Dickey-Fuller (ADF) Test Results

Lence (2012), the trace statistics and the maximum eigenvalue statistics will be used to test for cointegration. The null hypothesis for the trace test is that there are at most r cointegrating vectors and will be computed as , where the term T is the number of dates in the sample (Mallory & Lence, 2012). The maximum-eigen value test will also be used to validate the null hypothesis that there are r cointegrating vectors against the alternative of r+1. The model is 4

Saikkonen and Lütkepohl Cointegration Approach Previous studies considered the Johansen methodology in the evaluation of the long-run relations. This paper further uses recent methodology proposed by Saikkonen and Lütkepohl (2000). The major difference between the Saikkonen and Lütkepohl (2000) test and the Johansen procedure is that under the Saikkonen and Lütkepohl (2000) approach, the estimation of the deterministic term

EJAE 2016  13 (1)  1-12

Bosupeng, M.  Adverse effects of the automotive industry

is carried out first and then subtracted from the time series observations. Saikkonen and Lütkepohl (2000) considered a VAR(p) process of the form: (3)

The pioneers allowed ν to be an unknown n×1 intercept vector. The term Aj is a n×n coefficient matrix while εt was assigned to be a n×1 stochastic error term assumed to be a martingale difference sequence with The non-stochastic positive definite conditional covariance matrix was defined as By subtracting yt-1 on both sides of the above vector autoregressive process and rearranging the terms, the resulting error correction model will be as follows: (4)

The definition of terms is while (j=1,...,p-1). The test validates if

Toda and Yamamoto Approach to Granger Causality The Granger causality test has been applied several times to validate causal relationships in

economics. However, Granger causality is often based on the assumption that the variables are cointegrated. The Granger causality test has certain limitations. Firstly, if the variables under consideration are driven by the common third process with different lags, there is a possibility of failing to reject the alternative hypothesis of Granger causality. Additionally, Granger causality is more reliable if one is considering data with a wide span. Therefore, this study uses Toda and Yamamoto (1995) approach to Granger causality. Wolde-Rufael (2005) observed that the Toda and Yamamoto (1995) approach fits the standard vector autoregressive model in the levels of the variables. Consequently, this minimizes the risks associated with the likelihood of wrongly identifying the order of integration of the series (Mavrotas & Kelly, 2001). This paper applies the Toda and Yamamoto (1995) approach as discussed by Wolde-Rufael (2005). The tests commenced by augmenting the correct VAR order k, by the maximal order of integration, dmax (Wolde-Rufael, 2005). Following Toda and Yamamoto (1995), once this operation is done, a (k+dmax)th order of VAR is estimated and the coefficients of dmax vector are ignored (Caporale & Pittis, 1999; Rambaldi & Doran, 1996; Rambaldi, 1997; Zapata & Rambaldi, 1997). In order to implement the Toda and Yamamoto (1995) approach to Granger causality, the models are represented by the following VAR systems:

For Carbon dioxide and Passenger Cars

For Carbon dioxide and GDP

EJAE 2016  13 (1)  1-12

Bosupeng, M.  Adverse effects of the automotive industry

EMPIRICAL RESULTS The Johansen cointegration test was carried out to determine long-term relations between the quantity of passenger cars and carbon dioxide emissions. Eviews 7 was used to compute the test at 5% significance level. The results of the test show that there is a long-run relationship between the number of passenger cars and carbon dioxide emissions in France, Sweden, Spain, Hungary and Japan. These economies registered ρ-values less than the critical level of 5% (ρ<0.05), thus implying co-integration between variables. The Johansen cointegration test was further applied to validate statistical relations between carbon dioxide emissions and GDP.The test showed that carbon dioxide discharges and GDP move together in the long-run in Spain, Canada, India and Japan. The ρ-values for these economies were less than the 5% significant level, thus implying long-term significant relationships between carbon dioxide emissions and GDP. Table 2 and Table 3 show the results of the Johansen cointegration test. The Saikkonen and Lütkepohl (2000) cointegration test was carried out at 90%, 95% and 99% critical levels using JMulti (4) statistical package. The results prove that there is a long-run relationship between dioxide emissions and the number of passenger cars manufactured in all of the countries. Note that ρ-values less than the critical levels of 90%, 95% and 99% represent cointegration. The Saikkonen and Lütkepohl (2000) test was further applied to verify long-term affiliations between GDP and carbon dioxide emissions. Similarly, the results prove that there are long-term relationships between carbon dioxide emissions and GDP for the surveyed economies. Table 4 and Table 5 present the results of the Saikkonen and Lütkepohl (2000) cointegration test. Eviews 7 was used to carry out the Toda and Yamamoto (1995) approach to Granger causality. The Toda and Yamamoto (1995) technique for testing causality demonstrated that an increase in the number of passenger cars induces an up6

surge in carbon dioxide emissions for the following economies: Belgium, France, India, China and Hungary. The reverse causality proved that the intensification of carbon dioxide emissions creates an increase in the quantity of cars manufactures in Belgium. Namely, it is the only country which exhibited causal relations with feedback between carbon dioxide emissions and cars manufactured (bidirectional causality). Note well that ρ-values less than the critical level of 5% represent causation from one variable to the other. The Toda and Yamamoto (1995) approach was further carried out to verify causal links between carbon dioxide emissions and GDP. The test affirmed that an escalation in carbon dioxide emissions induces economic growth in Belgium, China and Japan. Nonetheless, the reverse causality proved that economic growth is the leading indicator of carbon dioxide emissions in Germany, Canada and India. Table 6 and Table 7 present the results of the Toda and Yamamoto (1995) approach to Granger causality.

DISCUSSION AND CONCLUSION This paper aimed to determine long-run relationships between carbon dioxide emissions, passenger cars and national output for twenty countries between 1997 and 2010. The study differs from other studies because it focused on the automotive industry as a contributor to the Greenhouse effect. Comparatively, most European economies are reputable automotive manufacturers, including Germany, France, Italy and Belgium. This study intended to find out how the automotive industry affects the production of carbon dioxide in multiple economies. The results of the Johansen cointegration test demonstrated that the number of passenger cars and carbon dioxide emissions move together in the long-run in France, Sweden, Spain, Hungary and Japan. Additionally, economic growth was associated with carbon dioxide emissions in Spain, Canada, India, Hungary and Japan. Furthermore, Spain and Japan revealed long-term

EJAE 2016  13 (1)  1-12

Bosupeng, M.  Adverse effects of the automotive industry

Country

Eigenv.

Tr. St

ρ-value

TRACE TEST Belgium Germany France UK Finland Italy Sweden Spain Canada China India Brazil

Eigenv.

MES

ρ-value

MAXIMUM EIGENVALUE TEST

0.520659

9.269670

15.49470

0.34100

0.520659

8.824106

14.26460

0.30110

0.036449

0.445564

3.84140

0.50440

0.036449

0.445564

3.84140

0.50440

0.626510

14.974710 15.49470

0.05980

0.626510

11.8183800 14.26460

0.11770

0.231279

3.156326

0.07560

0.231279

3.156326

3.84140

0.07560

0.889659

31.354220 15.49470

0.00010***

0.889659

26.45017

14.26460

0.00040***

0.335467

4.904051

0.02680***

0.335467

4.904051

3.84140

0.02680***

0.537209

13.051010 15.49470

0.11300

0.537209

9.245768

14.26460

0.26630

0.271744

3.805240

3.84140

0.05110

0.271744

3.805240

3.84140

0.05110

0.391294

6.828784

15.49470

0.59760

0.391294

5.957045

14.26460

0.61870

0.070069

0.871740

3.84140

0.35050

0.070069

0.871740

3.84140

0.35050

0.182812

2.425771

15.49470

0.98690

0.182812

2.4222638 14.26460

0.97760

0.000261

0.003133

3.84140

0.95370

0.000261

0.003133

3.84140

0.95370

0.592585

16.708450 15.49470

0.03270***

0.592585

10.77509

14.26460

0.16580

0.390092

5.933364

0.01490***

0.390092

5.933364

3.84140

0.01490***

0.486303

12.063050 15.49470

0.15930

0.486303

7.993462

14.26460

0.37940

0.287612

4.069583

3.84140

0.04370***

0.287612

4.069583

3.84140

0.04370***

0.592021

12.50506

15.49470

0.13430

0.592021

10.75849

14.26460

0.16670

0.135451

1.746571

3.84140

0.18630

0.135451

1.7465751 3.84140

0.18830

0.559551

10.000230 15.49470

0.28070

0.559551

9.839533

14.26460

0.22270

0.013302

0.160701

3.84140

0.68850

0.013302

0.160701

3.84140

0.68850

0.489424

9.098862

15.49470

0.35630

0.489424

8.066581

14.26460

0.37200

0.082427

1.032282

3.84140

0.30960

0.082427

1.032282

3.84140

0.30960

0.314521

5.175994

15.49470

0.78990

0.314521

4.531645

14.26460

0.79940

3.84140

0.42210

3.84140 3.84140

3.84140

0.052280

0.644349

3.84140

0.42210

0.052280

0.644349

Netherlands 0

0.344930

5.401876

15.49470

0.76480

0.354930

5.2607650 14.26460

0.70860

0.011690

0.141110

3.84140

0.70720

0.011690

0.141110

3.84140

0.70720

0.669084

14.52290

15.49470

0.06970

0.669084

13.27068

14.26460

0.07130

0.099091

1.252217

3.84140

0.26310

0.099091

1.2522170 3.84140

0.26310

0.625557

11.796800 15.49470

0.16690

0.625557

11.787780 14.26460

0.11890

0.000752

0.009029

0.92390

0.000752

0.009029

3.84140

0.92390

0.514502

10.781930 15.49470

0.22530

0.514502

8.670966

14.26460

0.31460

0.161301

2.110960

0.14620

0.161309

2.110960

3.84140

0.14620

0.582923

10.502668 15.49470

0.21400

0.582923

10.49380

14.26460

0.18150

0.000739

0.008875

0.92460

0.000739

0.008875

3.84140

0.92460

0.716404

16.337870 15.49470

0.03730***

0.716404

15.12247

14.26460

0.03650***

0.096323

1.215399

3.84140

0.27030

0.096323

1.215399

3.84140

0.27030

0.368734

5.957053

15.49470

0.70060

0.368734

5.520236

14.26460

0.67520

0.035740

0.436727

3.84140

0.50870

0.035740

0.436727

3.84140

0.50870

0.630308

16.664980 15.49470

0.03320***

0.630308

11.94102

14.26460

0.11290

0.225419

4.723961

0.02970***

0.325449

4.723961

3.84140

0.02970***

Poland Russia Austria Czech Hungary USA Japan

3.84140 3.84140 3.84140

3.84140

Note: asterisks (***) indicate statistical significance at 5% critical level. Note that ρ-values less than critical level of 5% (ρ < 0.005) represent cointegration. The test was carried out using Eviews 7.

Table 2. Results of the Johansen Cointegration Test (Cars and Carbon dioxide emissions) 7

EJAE 2016  13 (1)  1-12

Bosupeng, M.  Adverse effects of the automotive industry

Country

Eigenv.

Tr. St

ρ-value

TRACE TEST Belgium

Eigenv.

MES

ρ-value

MAXIMUM EIGENVALUE TEST

0.601038

13.39120

15.49470

0.10120

0.601038

11.02666

14.26460

0.15290

0.178846

2.364542

3.84140

0.12410

0.178846

2.364542

3.84140

0.12410

0.504522

8.69121

15.49470

0.39630

0.504522

8.426796

14.26460

0.33700

0.02112

0.268324

3.84140

0.60450

0.022112

0.268324

3.84140

0.60450

0.561641

10.45165

15.49470

0.24760

0.561641

9.896602

14.26460

0.21880

0.045200

0.555046

3.84140

0.45630

0.045200

0.555046

3.84140

0.45630

0.422238

6.691162

15.49470

0.61380

0.422280

6.583111

14.26460

0.53960

0.008964

0.108050

3.84140

0.74240

0.008964

0.108050

3.84140

0.74240

0.420909

6.568960

15.49470

0.61780

0.420909

6.555556

14.26460

0.54300

0.008409

0.101339

3.84140

0.75020

0.008409

0.101339

3.84140

0.75020

0.486039

9.498669

15.49470

0.32130

0.486039

7.987288

14.26460

0.38000

0.118340

1.511381

3.84140

0.21890

0.118340

1.511381

3.84140

0.21890

0.439083

7.700004

15.49470

0.49800

0.439083

6.938198

14.26460

0.49650

0.061511

0.761806

3.84140

0.38280

0.061511

0.761806

3.84140

0.38280

0.500937

14.82328

15.49470

0.06290

0.500937

8.346272

14.26460

0.34520

0.417398

6.483011

3.84140

0.01090***

0.417398

6.483011

3.84140

0.01020***

0.753951

16.85353

15.49470

0.03100***

0.753951

16.82670

14.26460

0.01920***

0.002233

0.026827

3.84140

0.86980

0.002233

0.026827

3.84140

0.86980

0.454334

7.817842

15.49470

0.48510

0.454334

7.268975

14.26460

0.45780

0.044709

0.548867

3.84140

0.45880

0.044709

0.548867

3.84140

0.45880

0.779370

21.20512

15.49470

0.00620***

0.779370

18.135240

14.26460

0.01160***

0.225722

3.069884

3.84140

0.07980

0.225722

3.069884

3.84140

0.07980

0.644840

13.46020

15.49470

0.09900

0.644840

12.42225

14.26460

0.09580

0.082861

1.037951

3.84140

0.30830

0.082861

1.037951

3.84140

0.30830

Netherlands 0

0.306479

4.732486

15.49470

0.83650

0.306479

4.391688

14.26460

0.81590

0.028000

0.340798

3.84140

0.55940

0.028008

0.340798

3.84140

0.55940

0.637393

12.80174

15.49470

0.12230

0.639393

12.173230

14.26460

0.10430

0.051028

0.628509

3.84140

0.42790

0.051028

0.628509

3.84140

0.42790

0.508096

9.373235

15.49470

0.33200

0.508096

8.513669

14.26460

0.32890

0.069125

0.859566

3.84140

0.35390

0.069125

0.859660

3.84140

0.35390

0.336218

7.395344

15.49470

0.53210

0.336218

4.917612

14.26460

0.75220

0.186556

2.477732

3.84140

0.11550

0.186556

2.477732

3.84140

0.11550

0.649598

12.65943

15.49470

0.12790

0.649559

12.584090

14.26460

0.09060

0.006258

0.075335

3.84140

0.78370

0.006258

0.075335

3.84140

0.78370

0.267015

4.029748

15.49470

0.90110

0.267015

3.725570

14.26460

0.88690

0.024880

0.302191

3.84140

0.58250

0.024868

0.302191

3.84140

0.58250

0.441410

7.263345

15.49470

0.54720

0.441410

6.988065

14.26460

0.40960

0.022679

0.275279

3.84140

0.59880

0.022629

0.275279

3.84140

0.59880

0.647598

19.42928

15.49470

0.01210***

0.647598

12.51580

14.26460

0.09280

0.437927

6.913480

3.84140

0.00860***

0.437927

6.913480

3.84140

0.00860***

Germany France UK Finland Italy Sweden Spain Canada China India Brazil

Poland Russia Austria Czech Hungary USA Japan

Table 3. Results of the Johansen Cointegration Test (GDP and Carbon dioxide emissions) 8

EJAE 2016  13 (1)  1-12

Bosupeng, M.  Adverse effects of the automotive industry

Country

90%

95%

99%

ρ-value

90%

95%

99%

ρ-value

Belgium Germany France UK Finland Italy Sweden Spain Canada China India Brazil Netherl. Poland Russia Austria Czech. Hungary USA Japan

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

12.8500 8.30000 15.0200 13.4200 6.2300 13.8600 12.2500 6.8300 3.1300 12.4900 8.0600 8.7600 5.7300 11.4700 3.9300 7.1600 13.6300 8.3200 7.4400 6.3400

13.880 13.880 13.880 13.880 13.880 13.880 13.880 13.880 13.880 13.880 13.880 13.880 13.880 13.880 13.880 13.880 13.880 13.880 13.880 13.880

15.760 15.760 15.760 15.760 15.760 15.760 15.760 15.760 15.760 15.760 15.760 15.760 15.760 15.760 15.760 15.760 15.760 15.760 15.760 15.760

19.710 19.710 19.710 19.710 19.710 19.710 19.710 19.710 19.710 19.710 19.710 19.710 19.710 19.710 19.710 19.710 19.710 19.710 19.710 19.710

0.142201,2,3 0.512801,2,3 0.066201,2,3 0.117201,2,3 0.749901,2,3 0.100801,2,3 0.173501,2,3 0.682501,2,3 0.977403 0.160401,2,3 0.540401,2,3 0.461901,2,3 0.802001,2,3 0.221501,2,3 0.944602,3 0.644801,2,3 0.109101,2,3 0.510301,2,3 0.612001,2,3 0.738301,2,3

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

1.4000 1.0900 2.7000 0.7800 5.5500 3.3400 5.8200 0.8100 1.9900 2.5500 2.5800 3.4500 2.1500 0.8600 2.1400 1.8600 2.2800 3.7600 1.1800 1.0400

5.470 5.470 5.470 5.470 5.470 5.470 5.470 5.470 5.470 5.470 5.470 5.470 5.470 5.470 5.470 5.470 5.470 5.470 5.470 5.470

6.790 6.790 6.790 6.790 6.790 6.790 6.790 6.790 6.790 6.790 6.790 6.790 6.790 6.790 6.790 6.790 6.790 6.790 6.790 6.790

9.730 9.730 9.730 9.730 9.730 9.730 9.730 9.730 9.730 9.730 9.730 9.730 9.730 9.730 9.730 9.730 9.730 9.730 9.730 9.730

0.685601,2,3 0.768801,2,3 0.395301,2,3 0.851101,2,3 0.096101,2,3 0.292401,2,3 0.083601,2,3 0.842001,2,3 0.541001,2,3 0.423201,2,3 0.416701,2,3 0.276801,2,3 0.505101,2,3 0.830201,2,3 0.505801,2,3 0.571101,2,3 0.475801,2,3 0.238101,2,3 0.744201,2,3 0.781601,2,3

Note: 1 shows statistical significance at 90% critical level; 2 shows statistical significance at 95% critical level; 3shows statistical significance at 99% critical level. Note that ρ-values less than critical levels of 90%, 95% and 99% represent cointegration. The test was carried out using JMulti 4 statistical package. The deterministic term of the VECM was defined as Dt=uo+u1t. Abbreviations Nether and Czech stand for Netherlands and Czechoslovakia. LR is the likelihood ratio.

Table 4. Saikkonen and Lütkepohl Cointegration Test Results (Cars and Carbon Dioxide emissions)

Country

90%

95%

99%

ρ-value

90%

95%

99%

ρ-value

Belgium Germany France UK Finland Italy Sweden Spain Canada China India Brazil Nether. Poland Russia Austria Czech Hungary USA Japan

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

7.9800 8.4200 10.0300 9.2700 11.2900 8.2400 10.7400 8.5900 9.4400 7.8100 17.3400 13.6700 6.0700 5.3300 6.7400 10.2800 13.1600 7.4100 7.7800 25.9300

13.880 13.880 13.880 13.880 13.880 13.880 13.880 13.880 13.880 13.880 13.880 13.880 13.880 13.880 13.880 13.880 13.880 13.880 13.880 13.880

15.760 15.760 15.760 15.760 15.760 15.760 15.760 15.760 15.760 15.760 15.760 15.760 15.760 15.760 15.760 15.760 15.760 15.760 15.760 15.760

19.710 19.710 19.710 19.710 19.710 19.710 19.710 19.710 19.710 19.710 19.710 19.710 19.710 19.710 19.710 19.710 19.710 19.710 19.710 19.710

0.549001,2,3 0.500101,2,3 0.355401,2,3 0.408901,2,3 0.234101,2,3 0.519701,2,3 0.275501,2,3 0.481101,2,3 0.329101,2,3 0.569401,2,3 0.026801,2,3 0.107401,2,3 0.766601,2,3 0.084141,2,3 0.692601,2,3 0.313001,2,3 0.128401,2,3 0.615801,2,3 0.572701,2,3 0.000601,2,3

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

3.6400 2.2600 3.6900 2.0200 3.1400 5.2200 1.2300 3.0300 1.0800 0.0000 0.3100 5.4700 1.9600 0.6400 2.1300 0.1600 2.6100 0.0400 0.4700 0.9500

5.470 5.470 5.470 5.470 5.470 5.470 5.470 5.470 5.470 5.470 5.470 5.470 5.470 5.470 5.470 5.470 5.470 5.470 5.470 5.470

6.790 6.790 6.790 6.790 6.790 6.790 6.790 6.790 6.790 6.790 6.790 6.790 6.790 6.790 6.790 6.790 6.790 6.790 6.790 6.790

9.730 9.730 9.730 9.730 9.730 9.730 9.730 9.730 9.730 9.730 9.730 9.730 9.730 9.730 9.730 9.730 9.730 9.730 9.730 9.730

0.253501,2,3 0.480701,2,3 0.246301,2,3 0.533501,2,3 0.321801,2,3 0.113901,2,3 0.731701,2,3 0.338101,2,3 0.771201,2,3 1.0000 0.961803 0.090401,2,3 0.546501,2,3 0.887201,2,3 0.508301,2,3 0.986803 0.410901,2,3 0.99860 0.928302,3 0.806001,2,3

Table 5. Saikkonen and Lütkepohl Cointegration Test Results (GDP and Carbon Dioxide emissions) 9

EJAE 2016  13 (1)  1-12

Bosupeng, M.  Adverse effects of the automotive industry

Country Belgium Germany France UK Finland Italy Sweden Spain Canada China India Brazil Netherlands Poland Russia Austria Czech Rep. Hungary USA Japan

CARSt ⇒ CO2 t

Chi-sqr.

59.104717 2.286682 28.47141 2.376341 1.657083 1.889531 3.611615 0.612189 5.383014 13.06314 7.145049 1.732384 2.562627 0.599871 1.909065 1.230388 3.930151 21.48232 0.398679 3.792453

ρ-value 0.00000*** 0.31880 0.00000*** 0.30480 0.43670 0.38880 0.16430 0.73630 0.06780 0.00150*** 0.02810*** 0.42050 0.27770 0.74090 0.38500 0.54050 0.14010 0.00000*** 0.81930 0.15010

CO2 t ⇒ CARSt

Chi-sqr.

8.154584 4.311314 2.125093 4.154422 0.887466 0.080626 4.703694 2.582503 2.763328 1.673646 1.466626 0.766385 1.062775 1.137335 2.764507 3.980084 1.309898 2.007782 1.248914 1.958584

ρ-value 0.01700*** 0.11580 0.34560 0.12530 0.64160 0.96050 0.09520 0.24020 0.25120 0.43310 0.48030 0.68170 0.58780 0.56630 0.25100 0.13670 0.51950 0.36650 0.53560 0.37560

Direction of Causality CARS ⇔ CO2 CARS ⇎ CO2 CARS ⇒ CO2 CARS ⇎ CO2 CARS ⇎ CO2 CARS ⇎ CO2 CARS ⇎ CO2 CARS ⇎ CO2 CARS ⇎ CO2 CARS ⇒ CO2 CARS ⇒ CO2 CARS ⇎ CO2 CARS ⇎ CO2 CARS ⇎ CO2 CARS ⇎ CO2 CARS ⇎ CO2 CARS ⇎ CO2 CARS ⇒ CO2 CARS ⇎ CO2 CARS ⇎ CO2

Note: ⇒ implies causality in a given direction; ⇔ implies a bidirectional causal relationship; ⇎ implies that there is no causality between the variables. The test was carried out at 5% significant level. The null hypothesis (Ho) is that a given variable does not Granger cause the other (non-causality). Note that ρ-values less than the 5% critical level (ρ < 0.05) represent causality in a given direction. The null hypothesis is therefore rejected for ρ-values less than the significant level. Asterisks (***) represent a causal relationship at the 5% significant level. Eviews (7) was used to carry out the Toda-Yamamoto approach to Granger causality.

Table 6. Carbon Dioxide Emissions and Passenger Cars Causality Test Results

Country Belgium Germany France UK Finland Italy Sweden Spain Canada India China Brazil Netherlands Poland Russia Austria Czech Rep. Hungary USA Japan

CO2 t ⇒ GDPt

Chi-sqr.

5.997179 1.574460 0.339628 0.569202 5.071794 1.564736 0.319497 5.273626 0.079894 1.226891 6.021857 4.706173 0.364179 1.7954444 0.991433 1.220388 3.158509 1.267756 1.425651 9.956343

ρ-value 0.04990*** 0.45510 0.84380 0.75230 0.07920 0.45730 0.85240 0.07160 0.96080 0.54150 0.04920*** 0.09510 0.83350 0.40750 0.60910 0.54050 0.20610 0.53050 0.49030 0.00690***

GDPt ⇒ CO2 t ρ-value Chi-sqr. 1.381841 8.216851 3.728085 5.540013 0.0943402 5.655870 5.006456 2.167275 8.409318 30.289190 2.518846 5.269573 2.061637 1.298403 2.854952 3.980004 4.514860 2.220213 2.020224 2.257205

0.50110 0.016440*** 0.15500 0.06270 0.95440 0.05910 0.08180 0.33840 0.01490*** 0.00000*** 0.28380 0.07170 0.35670 0.52250 0.23990 0.13670 0.10320 0.32950 0.36420 0.32350

Direction of Causality CO2 ⇒ GDP GDP ⇒ CO2 CO2 ⇎ GDP CO2 ⇎ GDP CO2 ⇎ GDP CO2 ⇎ GDP CO2 ⇎ GDP CO2 ⇎ GDP GDP ⇒ CO2 GDP ⇒ CO2 CO2 ⇒ GDP CO2 ⇎ GDP CO2 ⇎ GDP CO2 ⇎ GDP CO2 ⇎ GDP CO2 ⇎ GDP CO2 ⇎ GDP CO2 ⇎ GDP CO2 ⇎ GDP CO2 ⇒ GDP

Table 7. Carbon Dioxide Emissions and GDP Causality Test Results 10

EJAE 2016  13 (1)  1-12

Bosupeng, M.  Adverse effects of the automotive industry

relationships between the number of passenger cars and carbon dioxide discharges, as well as economic growth and carbon dioxide emissions. However, the Saikkonen and Lütkepohl (2000) test showed that changes in carbon dioxide emissions were associated with variations in the number of passenger cars for all of the surveyed economies. This was the same for the relationship between economic growth and carbon dioxide emissions. The Toda and Yamamoto (1995) causality test showed causality effect running from carbon dioxide emissions to GDP in Belgium, China and Japan. The reverse causality, however, revealed that variations in carbon dioxide emissions were brought by changes in national output in the case of Germany, Canada and India. The causality results also revealed that alterations in carbon dioxide emissions were influenced by the number of passenger cars in Belgium, France, India, China and Hungary. Carbon dioxide emissions seemed to be the leading indicator of the number of passenger cars in Belgium.The long-run relationship between carbon dioxide discharges and economic growth has been affirmed by previous studies such as Alshehry and Belloumi (2015), Lee and Brahmasrene (2013), and Omri (2013). The results of this study carry some implications. The long-run relationship between carbon dioxide emissions and the number of cars is not ideal if we are heading towards low carbon emissions. For instance, if the number of cars is associated with carbon dioxide emissions in France, Belgium, India, China and Hungary, it may imply that such economies need to produce cars that are more environment-friendly. In China, the numbers of passenger cars proved to have significant effects on carbon dioxide emissions. The results are conceivable since Xu and Lin (2015) stated that the number of passenger cars in China increased nearly eight times between 2000 and 2012. This escalated carbon dioxide emissions in China. Catalytic converters are obsolete because their function is to convert poisonous gases from the combustion process into those more friendly such as carbon

dioxide. In this way, more carbon dioxide will still be produced. Most countries aim to reduce carbon dioxide emissions to a reasonable extent. China set a target of 40-45% reduction in emissions by 2025. Deng et al. (2015) recommended that countries should reuse carbon dioxide with absorption and desorption technology. The captured gas can be used to manufacture other exportable products such as calcium carbonate (CaCO3). Some economies including China and Malaysia use green taxation in their attempts to alleviate carbon dioxide emissions. In conclusion to this study, the automotive industry has substantial impact on carbon dioxide emissions and national output. Economies need to reduce carbon dioxide emissions and find alternative ways that do not impinge negatively on the overall economic growth.

REFERENCES Alshehry, A.S., & Belloumi, M. (2015). Energy consumption, carbon dioxide emissions and economic growth: The case of Saudi Arabia. Renewable and Sustainable Energy Reviews, 41, 237-247. doi:10.1016/j.rser.2014.08.004. Deng, W., Chen, D.C., Huang, M., Hu, J., & Chen, L. (2015). Carbon dioxide deliming in leather production: A literature review. Journal of Cleaner Production, 87, 26-38. Engle, R.F., & Granger, C.W.J. (1987). Co-Integration and Error Correction: Representation, Estimation, and Testing. Econometrica, 55(2), 251-276. doi:10.2307/1913236. Granger, C.W.J., Huang, B.N., & Yang, C.W. (2000). A bivariate causality between stock prices and exchange rates: evidence from recent Asian flu. The Quarterly Review of Economics and Finance, 40, 337-354. Granger, C.J. (1981). Some properties of time series data and their use in econometric model specification. Journal of Econometrics, 55, 251-276. doi:10.1016/0304-4076(81)90079-8. Granger, C.W.J. (1969). Investigating Causal Relations by Econometric Models and Cross-spectral Methods. Econometrica, 37(3), 424-438. doi:10.2307/1912791. 11

EJAE 2016  13 (1)  1-12

Bosupeng, M.  Adverse effects of the automotive industry

Granger, C.W.J., & Weiss, A.A. (1983). Time series analysis of error correction models. In S. Karlim, T. Amemiya, & L.A. Goodman (Eds.), Studies in Economic Time Series and Multivariate Statistics. New York: Academic Press. doi:10.1016/b978-012-398750-1.50018-8. Gregg, J.S., Andre, R.J., & Marland, G. (2008). China: Emissions pattern of the world leader in CO2 emissions from fossil fuels consumption and cement production. Geophysical Research Letters 04/2008; 35(8). doi:10.1029/2007GL032887. Huang, G., Xialing, O., & Yao, X. (2015). Dynamics of China’s regional carbon emission under gradient economic development trade. Ecological Indicators, 51, 197-204. Jafari, Y., Othman, J., & Nor Abu, H.S.M. (2012). Energy consumption, economic growth and environmental pollutants in Indonesia. Journal of Policy Modeling, 34, 879-889. Johansen, S. (1988). Statistical analysis of cointegration vectors. Journal of Economic Dynamics and Control, 12, 231-254. doi:10.1016/0165-1889(88)90041-3. Lee, J.W., & Brahmasrene, T. (2013). Investigating the influence of tourism on economic growth and carbon emissions: evidence from panel analysis of the European Union. Tourism Management, 38, 69-76. Loganathan, N., Shabaz, M., & Taha, R. (2014). The link between green taxation and economic growth on CO2 emissions: fresh evidence from Malaysia. Renewable and Sustainable Energy Review, 38, 1083-1091. Mallory, M., & Lence, S.H. (2012). Testing for cointegration in the presence of moving average errors. Journal of Time Series Econometrics, 4, 1-66. doi:10.1515/1941-1928.1124.

Omri, A. (2013). CO2 emissions, energy consumption and economic growth in MENA countries: Evidence from simultaneous equation models. Energy Economics, 40, 657-664. Saikkonen, P., & Lütkepohl, H. (2000). Testing for the cointegrating rank of a VAR process with an intercept. Economic Theory, 16, 373-406. Soytas, U., & Sari, R. (2009). Energy consumption, economic growth, and carbon emissions: challenges faced by an EU candidate member. Ecological Economics, 68, 1667-1675. Wang, C. (2013). Differential output growth across regions and carbon dioxide emissions: Evidence from U. S. and China. Energy, 53(C), 230-236. Wang, K.M. (2012). Modelling the nonlinear relationship between CO2 emissions from oil and economic growth. Economic Modelling, 29(5), 1537-1547. doi:10.1016/j.econmod.2012.05.001. Wang, Y., & Liang, S. (2013). Carbon dioxide mitigation target of China in 2020 and key economic sectors. Energy Policy, 58, 90-96. Zhang, X.P., & Cheng, X.M. (2009). Energy consumption, carbon emissions and economic growth in China. Ecological Economics, 68, 2706-2712. doi:10.1016/j.ecolecon.2009.05.011. Zhixin, Z., & Ya, L. (2011). The impact of carbon dioxide on economic growth in China. Energy Procedia, 5, 1757-1761.

NEGATIVNI EFEKTI AUTOMOBILSKE INDUSTRIJE NA EMISIJE UGLJEN-DIOKSIDA Rezime: Ovaj rad ima za cilj da ispita uticaj automobilske industrije na emisije ugljen-dioksida u nekoliko zemalja u periodu od 1997-2010., kao i odnose između emisija ugljen-dioksida i ekonomskog razvoja pomenutih zemalja. U tu svrhu korišćeni su testovi uzročnosti i kointegracione analize. Rezultati Johansenove kointegracione analize ukazuju na dugoročnu vezu između broja putničkih automobila i emisija ugljen-dioksida u Francuskoj, Španiji, Švedskoj, Mađarskoj i Japanu. Takođe, primetna je i veza između ekonomskog rasta (proizvodnje) i emisija ugljen-dioksida u Španiji, Kanadi, Indiji i Japanu. Promene u ekonomskom razvoju su u velikoj meri uticale na emisije u Nemačkoj, Kanadi i Indiji. Rezultati takođe pokazuju da broj putničkih automobila utiče na obim emisija u brojnim zemljama. Stoga je neophodno pozabaviti se pitanjem automobilske industrije u okvirima politika koje imaju za cilj smanjenje emisija ugljen-dioskida. 12

Ključne reči: emisije ugljen-dioksida, ekonomski razvoj, automobilska industrija. Received: November 1, 2015 Correction: November 24, 2015 Accepted: December 19, 2015

EJAE 2016, 13(1): 13-23 ISSN 2406-2588 UDK: 330.341.1(4-773) 005.591.3:621.39(4-773) 004.738.5 657.471.1:624(612) DOI: 10.5937/ejae13-10126 Original paper/Originalni naučni rad

THE MODEL FOR SUCCESSFUL DEVELOPMENT OF NGA INFRASTRUCTURE IN THE BALKANS Matej Požarnik, Lea Robič Mohar*, Tea Taras ProFUTURUS d.o.o., 11 Črtomirova St., Maribor, Slovenia

Abstract: Unavailability of fast broadband internet access, primarily due to the lack of commercial interest of telecommunication operators, is the key reason for economic underdevelopment in rural areas in the Balkans. The process of developing broadband access in rural areas is multifaceted, complex and time-consuming. This paper analyses the current state of availability of broadband access in the Balkan countries, and investigates the algorithm with specific project phases and benefits of stakeholders at the national and local level. The purpose of the paper is to develop the model that rationalizes the implementation process of the broadband internet access projects, and to define the method of selecting an investment model for construction of broadband infrastructure. The results show that the Balkan countries have to start with preparatory activities and studies needed for successful implementation of the given model. This research contributes to stopping demographic and socio-economic degradation in less-developed areas, at the same time encouraging their development.

INTRODUCTION The crucial reason for slow progression of the Balkan rural areas is unavailability of modern information and communication technology (ICT) solutions. Undoubtedly, the implementation of broadband access development (BBAD) project is complex and time-consuming. The decisionmakers are therefore confronted with the issue of accelerating the project preparation procedures and making them less demanding and more effective. The Balkan countries must be e-ready in terms of infrastructure development. As defined by * E-mail: lea.mohar@profuturus.eu

Key words: cohesion policy, broadband infrastructure, financing model, EUBB model.

Osmanbegović and Rožajac (2013), it would enable the use of ICT for enhancement of demographic and socio-economic state, and consequently the quality of life. Cooperation of national, regional and local institutions is therefore of vital importance in the process. As outlined by Kramer et al. (2006), this type of projects is co-financed by the European Union’s (EU) financial instruments due to the benefits of broadband access. Tolušić et al. (2013) proposed that high-quality and efficient project management, as well as high-quality project documentation are the key elements for successful project funding by the EU. 13

EJAE 2016  13 (1)  13-23

Požarnik, M., Robič Mohar, L., Taras, T.  The model for successful development of NGA infrastructure

This paper analyses state-of-the-art broadband access. On the other hand, it also introduces the implementation procedure for BBAD projects beyond the state-of-the-art. A SWOT analysis for the project of developing broadband access is demonstrated in the results, providing explanation for the extended duration of the BBAD project in rural areas. The paper identifies the challenges stakeholders encountered during the project implementation and proposes guidelines for process optimization. Moreover, it defines a model for selection of an investment model for BBAD projects, the aim of it being facilitation and acceleration of the BBAD project preparation process. Adequately defined legislative and strategic foundations and database, as well as properly prepared project documentation and application of the optimal investment model are the preconditions for successful BBAD implementation. Roetter (2013) outlined that the abovementioned projects improve the quality of life in less-developed or rural areas. In accordance with non-profitability of solely private investments in broadband infrastructure, the EUBB model represents a sustainable model for BBAD projects, using the European cohesion policy as a stimulus for projects in rural Balkan areas.

THESIS The investment costs of developing the next generation access (NGA) broadband infrastructure outside the urban centers in the Balkans are rather high. Operators’ revenue in defined are as is insufficient to make the investments pay off over a period of 20 years. Therefore, operators have no commercial interest to develop NGA broadband infrastructure in the given areas. Despite the above mentioned situation, the European Broadband (EUBB) model enables efficient development of NGA broadband infrastructure in the areas without commercial interests of operators. Efficient development is a crucial factor in achieving the objectives of the European cohesion policy in the 14

Balkan countries as future members of the EU. By utilizing the EU funds, the EUBB model constitutionalizes the process of BBAD, incorporating the best practices in prospective projects.

METHODOLOGY The survey collected all relevant documents, while the descriptive method provided the strategic-legislative basis of the European cohesion policy. The inductive method provided general conclusions about the current state of the economy and broadband internet access in Slovenia, Croatia and the Balkan countries. Over the last seven years of preparing concrete ICT projects in Slovenia and Croatia, explicated phases and certain challenges of BBAD projects implementation have been investigated. After a thorough analysis, a model for project preparation and implementation in the Balkans was proposed.

STRATEGIC-LEGISLATIVE BASIS Europe 2020 strategy is the master strategy of the European Union whose main goal is to transform the EU into a smart, sustainable and inclusive economy that will boost employment possibilities, productivity and social cohesion (Lundvall & Lorenz, 2012). The priority Smart growth includes investments into education and research, and research and innovation. It is supported by the following leading initiatives (European Commission, 2010b): ◆◆ Digital Agenda for Europe (DAE), ◆◆ Innovation Union, ◆◆ Youth on the move. Each member state is recommended to include the strategic goals into its national goals, depending on the national priorities (Grgurić, 2010). Europe 2020 strategy aims to capitalize the effects of innovation and ICT growth through one of its flagship initiatives and DAE (Veugelers, 2012). The aim of DAE is to maximize the social and economic potential of ICT, especially the Internet, as the most important

EJAE 2016  13 (1)  13-23

Požarnik, M., Robič Mohar, L., Taras, T.  The model for successful development of NGA infrastructure

medium of social and economic activity (Marcus & Elixmann, 2012), with the following goals: 1. Presence of full broadband coverage of minimum speed of ≥ 30 Mbit/s, 2. Subscription by at least 50% of households with a broadband minimum speed of ≥ 100 Mbit/s (European Commission, 2010a). In order to achieve the above-specified goals, the existing network infrastructure has to be extended by a mix of technologies (Gruber et al., 2014). In order not to deteriorate competitiveness by allocating state aid for the construction of broadband infrastructure, certain rules were made regarding the financing of its construction (Briglauer, 2013). “EU Guidelines for the application of State aid rules in relation to rapid deployment of broadband networks” defines the policy of neutrality principles: obligation to openness and neutrality of the network, and the obligation

to technological neutrality of projects.The results of the particular study encourage regulated open access to the broad band infrastructure (Kongaut & Bohlin, 2014).

ECONOMIC INDICATORS AND AVAILABILITY OF BROADBAND ACCESS Densely populated urban areas show satisfactory coverage of NGA (Briglauer, 2015), while the majority of population cannot access the fast-speed broadband (Ministry of Regional Development and EU funds, 2014). Preceding data involves areas where demographic and socio-economic indicators as well as the quality of life lay behind the rest of the country (National Statistics Bureau, 2015) and the EU. Table 1 and Table 2 show the selected economic and ICT indicators, related to the development of broadband infrastructure in the selected areas.

Area Average EU28 (EU=100)

GDP (PPS) per capita 100

Unemployment level 10.2%

Slovenia

9.7%

Croatia

17.3%

Serbia

16.7%

Montenegro

16.5%

Macedonia

28.0%

Bosnia and Herzegovina (B&H)

27.5%

Table 1. Values of selected indicators of the state of economy (2014 or the last available year) Source: Eurostat 2015, Statistical Bureau of Serbia, Montenegro, Macedonia and B&H

Area

Households that own a personal computer

Households with internet access

Subscription to stationary broadband access

Average EU28

82.0%

83.0%

69.9%

Slovenia

76.4%

75.6%

25.0%

Croatia

66.3%

64.6%

21.5%

Serbia

62.7%

48.0%

14.2%

Montenegro

53.8%

55.0%

12.8%

Macedonia

68.3%

61.9%

15.1%

Table 2. Values of selected indicators of ICT readiness (2013 or the last available year) Source: Eurostat 2015, The Global Information Technology Report 2015, ICTs for Inclusive Growth, 2015

EJAE 2016  13 (1)  13-23

Požarnik, M., Robič Mohar, L., Taras, T.  The model for successful development of NGA infrastructure

BENEFITS OF BROADBAND INFRASTRUCTURE According to the analysis of the World Bank, investing 1,000,000 Kuna into broadband access will provide 5 to 15 new work places; while a 10% increase of investments into broadband access will result in increasing the gross national product from 1.21% in developed countries to 1.38% in underdeveloped countries (Qiang et al., 2009). The impact of investments in broadband access is shown in Figure 1. Affirmative influence of the availability of broadband access at the local level is reflected as defined: ◆◆ Digital standard of living is becoming the same as in the rest of the state; this results in preventing reduction of population, or even emigration, ◆◆ Creating potential for development of independent economic activities or various aspects of distance work and work from home, which will contribute to retaining and attracting younger and working population (Van der Wee et al., 2015), ◆◆ Reducing the costs of health services, especially for an ageing population due to the potential introduction of e-health services (Currie et al., 2015).

◆◆ Increase the availability of educational services, especially in the context of lifelong learning for the elderly population, or part of the population with unsatisfactory highest achieved level of education, by means of e-education and distance learning (Rampersad & Troshani, 2013), ◆◆ Increase the share of the population with the highest level of attained education by 4.5% on average; all this stems from longterm availability of advanced broadband services, related to education (Ministry of Maritime Affairs, Transport and Infrastructure, 2014). Long-term benefits (Briglauer & Gugler, 2013), brought by broadband access are seen through increase of the analysed key indicators: ◆◆ Gross domestic product (GDP) growth: estimates of the GDP growth rate vary from 0.47% to 1.38% over a period of several years in which there was a significant increase of broadband access users, ◆◆ Creating new jobs, related to the construction of broadband infrastructure: estimates for Croatia foresee 40,000 new work places in the period of achieving DAE objectives by the end of 2020 (Ministry of Maritime Affairs, Transport and Infrastructure, 2014).

Figure 1. The impact of 10% increase of investments on GDP increase Source: HAKOM, 2013

EJAE 2016  13 (1)  13-23

Požarnik, M., Robič Mohar, L., Taras, T.  The model for successful development of NGA infrastructure

RESULTS THE NEED FOR EU CO-FINANCING Profitability analysis was produced upon exploring the operator’s commercial interest for development of the NGA broadband infrastructure in less populated rural Balkan areas. The following assumptions were considered: 1. Area: less populated, rural (average distance between houses is 6.5 km). 2. Number of ports to be built: 15,000. 3. Average price per portFiber to the cabinet/ Fiber to the house (FTTC/FTTH): 1,060 EUR. 4. Expected network utilization: 54%. 5. Active equipment amortization: 10%. 6. Passive network segment amortization: 5%. 7. Economic period: 20 years. The profitability analysis relates to 87% of households in the Balkan countries. The results of the analysis are shown in Table 3. Indicator Investment costs Financial Net Present Value

Value 15.900.000 EUR -8.900 EUR

Financial Rate of Return of the Investment

-3.35 %

Relative net present value

-0,5633

The payback period Financial Rate of Return on National Capital

< 20 years 2.25 %

Table 3. Profitability analysis

Financial Net Present Value at the end of the referring period shows financial non-profitability of the project, and thus the need for co-financing with the EU funds. Moreover, because of the high investments and low net revenues to cover those investments during the economic period, all dynamic financial indicators are negative, thus showing financial non-profitability of the project. As Katz (2008) concludes, the state-of-the-art BBAD

project investing models, considering the absence of positive returns, “could be at serious risk”. On the other hand, financial internal rate of return after EU co-financing shows cost-effectiveness of the national equity. Values below the discount rate suggest that EU support is not over-proportionate. It can be concluded that EU funds are essential.

SWOT ANALYSIS OF THE PROJECT SWOT analysis of the project for development of broadband internet access defines the internal strengths and weaknesses of the project, as well as positive and negative external factors; i.e. opportunities and risks in terms of external project threats. The SWOT analysis of BBAD projects is shown in Figure 2. Internal strength of the BBAD project is a know-how of contractors, performers of preparatory project phases and their high professional capacities. In the Balkan area, there are segments of infrastructure that can be used in BBAD projects, which would result in a decrease of investment costs. Projects have very positive effects on demographic and socio-economic situation in the implemented area. Project weaknesses mostly reflect in their complexity and length. However, because of the EU’s co-financing approach to such projects through EU funds (85% + 15% national share), projects have great support of the public authorities, which presents a huge opportunity. Due to the financial crisis and lack of information technology (IT) awareness among older residents, there is a significant digital gap between the urban and rural areas in which the projects are planned. Considering the risk of too low revenue, low utilization of the new network is recognized as the biggest threat to the overall project success.

EUBB MODEL FOR EFFECTIVE DEVELOPMENT OF RURAL AREAS According to Zhen-Wei Qiang (2010), six key considerations for public interventions should 17

EJAE 2016  13 (1)  13-23

Požarnik, M., Robič Mohar, L., Taras, T.  The model for successful development of NGA infrastructure

Strengths ◆◆ High professional capacities and experience of stakeholders. ◆◆ Existing infrastructure of operators. ◆◆ Positive effects of broadband access.

Weaknesses ◆◆ Project complexity. ◆◆ Long duration of the project. ◆◆ Financial non-profitability.

Opportunities ◆◆ Public administration support. ◆◆ Possibility of co-financing through EU funds. ◆◆ Increasing demand for broadband internet access. ◆◆ Interest of the EU and home countries to expand broadband access. ◆◆ Further development of e-government services.

Threats ◆◆ Inaccessibility and poor data updates. ◆◆ Restricting funding possibilities. ◆◆ Lack of information awareness and computer literacy in rural areas. ◆◆ Financial crisis. ◆◆ Low rate of households owning a computer in rural areas.

Figure 2. SWOT analysis of broadband access projects development

be taken into account in BBAD project financing models. Considering that and the current conditions in the Balkans, the EUBB model is a powerful model for implementation of broadband infra-

structure projects, co-financed by the EU. Figure 3 shows a graphic demonstration of project phases with the implementation of the EUBB model. Below are given the specific project phases.

Figure 3. Project phases of broadband infrastructure construction 18

EJAE 2016  13 (1)  13-23

Požarnik, M., Robič Mohar, L., Taras, T.  The model for successful development of NGA infrastructure

Phase 1: Preparatory activities The project starts with preparatory activities that include a feasibility study for the target area, and drafting of the development plan of broadband infrastructure (PBDI) in the target area. The PDBI draft initiates the process of public debate. The final version of PDBI includes all relevant comments of the interested public. In the project preparatory phase, it is crucial to accurately determine the number of private households, companies and public institutions for determining the newly built access ports. Considering the abovegiven, the governments must prepare a register and geolocation of those in advance, all in cooperation with the national geodetic administration, ministries of the interior, public authorities, as well as the chambers of crafts and commerce. As Maguire and Longley (2005) defined, geoportals connect geo-data providers and geo-data users via the Internet. According to the above-stated, geoportals are a powerful tool for the mapping process,which is essential to for preparing the geolocation of the broadband access coverage area (broadband atlas). The mapping process1must be implemented by defining the following: ◆◆ Presenting the quality of Internet access, ◆◆ The quality level of approach and access conditions of the newly built network. National geodetic administrations and other specified public data is merged with the telecommunication agencies data. Software processing provides the final results and exact locations with the specified access availability. In addition, the list of the existing infrastructure must be established to reduce project investment costs and accelerate project implementation.

different investment models. The following three models are most frequently used: ◆◆ Private DBO (Design - Build - Operate), ◆◆ Public DBO, ◆◆ Public-private partnership (PPP). Private DBO-private operator accepts the responsibility for designing the project, its construction and operations. Broadband network access remains in the ownership of the private operator. The private operator is herewith faced with an additional risk in terms of demand and the need to pre-finance the whole project (Palmer, 2000). Public DBO-project leader or the local or regional governments (thus public authorities) take over the responsibility for designing, constructing and managing the network, while the newly constructed broadband access network remains in permanent public ownership. Public authorities also take over the project risks (Cave & Martin, 2010). PPP combines advantages of the previously mentioned investment models (Nucciarelli et al., 2010). EUBB model defines criteria for selection of the investment model and the scheme for defining the impact of positive and negative criteria from the point of view of public authorities. Table 4 shows the framework of selection criteria of investment models, as defined through research. Table 4 shows the optimal investment model (OIM) where:

is the particular one which results in variable P as the most frequent variable in the sequence :

Phase 2: Financing Research conducted during the project implementation has shown that the construction of broadband infrastructure can be realized through 1

The mapping process is a process that determinates the quality (which is measured by speed) of the existing internet access on individual locations in a particular area.

Based on the demonstrated algorithm, we can conclude that: Appendix 2 shows a model for multi-criteria analysis. The model helps defining the most ap19

EJAE 2016  13 (1)  13-23

Požarnik, M., Robič Mohar, L., Taras, T.  The model for successful development of NGA infrastructure

Table 4. Selection criteria of investment model for public administration bodies

propriate investment model for the specific area. The results of the multi criteria analysis are defined using the following algorithm:

where:

The model with the highest X is revealed as the optimal investment model for an area. Both criteria analysed throughout the research indicated that Private DBO is the optimal investment model for such projects. According to this model, the risk of project implementation is entirely coopted by the private operator, who also invests certain amount of his own financial funds into the project. As stated by Kalhagen and Elnegaard (2002), the key risk in broadband investments lays in low subscriber density, which is proportional to subscriber demand. Taking that into account, the private operator accepts the risk of demand and revenue generation in the EUBB model. The following steps shall include public procurement (selecting the private partner/operator), closing of the financial construction and submitting the project to the national call for proposals. 20

Phase 3: Implementation Phase 3 begins with the network construction, as well as verification of state-aid before the new network becomes operational. Regarding the verification of state aid, in case that the reported investment costs are higher than initially anticipated, the highest acceptable amount of aid is limited to the value of the amount of state aid, specified in the public procurement process. Likewise, in case the reported amounts of state aid are lower than specified in public procurement, the eligible amount of support is limited to the precisely specified share of state aid in the reported investment costs. As explained by Papadias et al., (2009), the network operator has to ensure effective wholesale network access for a seven-year period of time. Proper monitoring and reporting has to be adequately fulfilled during the entire process.

CONCLUSIONS Based on the research conducted, it can be concluded that despite relatively good preparation of documents that regulate the construction of broadband infrastructure in the areas without commercial interest of the operators, there are still certain challenges in BBAD project implementation. Therefore, public stakeholders need to assume a pragmatic approach, i.e. to collect and obtain essential data

EJAE 2016  13 (1)  13-23

Požarnik, M., Robič Mohar, L., Taras, T.  The model for successful development of NGA infrastructure

and information in an operable manner during the preparatory activities (feasibility study and PDBI). Private DBO model is considered the most eligible investment model in the optimal project areas of the Balkan countries. By selecting the private DBO model, the private operator as a private partner in the project accepts the total risk of pre-financing and the interest of end-users for network services (i.e. the risk of revenue demand and generation), while having sufficient technical capacity to implement the project within the optimal timeframe. Balkan countries or local and regional governments should therefore initiate these activities early, in order to carry out preparatory activities and to realize and implement their own PDBI. PDBI is the key document needed if the construction of broadband infrastructure is co-financed by the EU funds. If the PBDI as the key document for the project implementation is not adequately prepared, the preparatory process becomes more complex and challenging. If so, one cannot precisely define the project outputs needed for planning investment and operative costs, as well as estimated revenues of the newly constructed NGA network. Finally, it would be interesting to conduct further research on selecting stakeholders from public authorities that will control individual project phases.

REFERENCES Briglauer, W., & Gugler, K. (2013). The deployment and penetration of high-speed fiber networks and services: Why are EU member states lagging behind? Telecommunications Policy, 37(10), 819-835. doi:10.1016/j.telpol.2013.05.003. Briglauer, W., & Briglauer, W. (2014). The impact of regulation and competition on the adoption of fiber-based broadband services: Recent evidence from the European union member states. Journal of Regulatory Economics, 46(1), 51-79. doi:10.1007/ s11149-013-9237-4. Briglauer, W., Cambini, C., & Grajek, M. (2015). Why is Europe lagging on next generation access networks? Brussels: Bruegel. Retrieved December 12, 2015, from http://bruegel.org/wp-content/uploads/2015/10/pc_2015_14.pdf.

Cave, M., & Martin, I. (2010). Motives and means for public investment in nationwide next generation networks. Telecommunications Policy, 34(9), 505512. doi:10.1016/j.telpol.2010.07.003. Currie, M., Philip, L.J., & Roberts, A. (2015). Attitudes towards the use and acceptance of eHealth technologies: a case study of older adults living with chronic pain and implications for rural healthcare. BMC health services research, 15(1), 1. doi:10.1186/ s12913-015-0825-0. European Commission. (2010b). Europe 2020: A strategy for smart, sustainable and inclusive growth. COM (2010) 2020 final. Retrieved November 10, 2015, from http://eur-lex.europa.eu/legal-content/EN/ TXT/PDF/?uri=CELEX:52010DC2020&from=EN. European Commission. (2010a). A Digital Agenda for Europe. COM (2010) 245 final. Retrieved December 12, 2015, from http://eur-lex.europa.eu/legalcontent/EN/TXT/PDF/?uri=CELEX:52010DC024 5R(01)&from=EN. Grgurić, I. (2010). Europe 2020 - europska strategija za pametan, održiv i uključiv razvoj. Revija za socijalnu politiku, 8(1), 119-124. doi:10.3935/rsp.v18i1.963. In Croatian. Gruber, H., Hätönen, J., & Koutroumpis, P. (2014). Broadband access in the EU: An assessment of future economic benefits. Telecommunications Policy, 38(11), 1046-1058. doi:10.1016/j.telpol.2014.06.007. Kalhagen, K.O., & Elnegaard, N.K. (2002). Assessing broadband investment risk through option theory. Telektronikk, 98(2/3), 51-62. Retrieved November, 25, 2015, from http://www.telenor.com/wp-content/uploads/2012/05/T02_2-3.pdf#page=53. Katz, R.L. (2008). Ultrabroadband investment models. Communications and Strategies, 72, 99-116. Retrieved November 13, 2015, from https://www0. gsb.columbia.edu/mygsb/faculty/research/pubfiles/3275/UBB_kATZ.pdf. Kongaut, C., & Bohlin, E. (2014). Unbundling and infrastructure competition for broadband adoption: Implications for NGA regulation. Telecommunications Policy, 38(8), 760-770. doi:10.1016/j. telpol.2014.06.003. Kramer, R.D.J., Lopez, A., & Koonen, A.M.J. (2006). Municipal broadband access networks in the Netherlands-three successful cases, and how New Europe may benefit. In: 1st international conference on Access networks: ACM. doi:10.1145/1189355.1189367. Lundvall, B.Å., & Lorenz, E. (2012). From the Lisbon strategy to Europe 2020. In: N. Morel, B. Palier, J. Palme (Eds.), Towards a Social Investment Welfare State: Ideas, 21

EJAE 2016  13 (1)  13-23

Požarnik, M., Robič Mohar, L., Taras, T.  The model for successful development of NGA infrastructure

Policies and Challenges (pp. 333-352). Hamburg: Kovac. doi:10.1332/policypress/9781847429247.003.0013.

September 4, 2015, from http://www.axrg05.dsl. pipex.com/docs/final_contract_issues.pdf.

Maguire, D.J., & Longley, P.A. (2005). The emergence of geoportals and their role in spatial data infrastructures. Computers, environment and urban systems, 29(1), 3-14. doi:10.1016/j.compenvurbsys.2004.05.012.

Papadias, L., Chirico, F., & Gaál, N. (2009). The new State aid broadband guidelines: not all black and white. Competition Policy Newsletter, 2009(3), 17-25. Retrieved November 28, 2015, from http:// broadband.cti.gr/el/download/broadband_guidelines.pdf.

Marcus, J.S., & Elixmann, D. (2012). Re-thinking the Digital Agenda for Europe (DAE): A richer choice of technologies. Studie für Liberty Global, September. Retrieved November 12, 2015, from http://www. wik-consult.de/uploads/media/Re-thinking_the_ Digital_Agenda_for_Europe.pdf. Ministarstvo pomorstva, prometa i infrastrukture. (2014). Okvirni nacionalni program za razvoj infrastrukture širokopojasnog pristupa u područjima u kojima ne postoji dostatan komercijalni interes za ulaganja. Retrieved July 23, 2015, from http:// www.mppi.hr/UserDocsImages/MPPI_Okvirni_ program_NGA_BB%2020-3_14%20FINAL.pdf. In Croatian. Ministarstvo regionalnog razvoja i fondova Europske unije. (2014). Operativni program “Konkurentnost i kohezija”. Retrieved November 14, 2015, from http:// www.mrrfeu.hr/UserDocsImages/01%20OPKK%20 2014-2020%20hrv%2027112014.docx. In Croatian.

Rampersad, G., & Troshani, I. (2013). High-speed broadband: assessing its social impact. Industrial Management & Data Systems, 113(4), 541-557. doi:10.1108/02635571311322784. Roetter, M.F. (2013). Global broadband benchmarking 2013: best practice lessons for governments. Journal of Information Policy, 3, 619-666. doi:10.5325/ jinfopoli.3.2013.0619. Tolušić, M, Koporčić, N., & Tolušić, Z. (2013). Uloga i važnost EU fondova za Republiku Hrvatsku. Ekonomski Vjesnik, 26(1), 215-221. In Croatian.

Nucciarelli, A., Sadowski, B.M., & Achard, P.O. (2010). Emerging models of public–private interplay for European broadband access: Evidence from the Netherlands and Italy. Telecommunications Policy, 34(9), 513-527. doi:10.1016/j.telpol.2010.07.004.

Van der Wee, M., Verbrugge, S., Sadowski, B., Driesse, M., & Pickavet, M. (2015). Identifying and quantifying the indirect benefits of broadband networks for e-government and e-business: A bottom-up approach. Telecommunications Policy, 39(3), 176-191. doi:10.1016/j.telpol.2013.12.006.

Osmanbegović, E., & Rožajac, A. (2013). E-spremnost kao mjera razvijenosti informacionog društvapokazatelji e-spremnosti u zemljama zapadnog Balkana. Tranzicija, 15(31), 40-55. In Croatian.

Veugelers, R. (2012). New ICT sectors: Platforms for European growth? Bruegel Policy Contribution, No. 2012/14. Retrieved December, 10, from https://www.econstor. eu/dspace/bitstream/10419/72131/1/722471483.pdf.

Palmer, K. (2000). Contract issues and Financing in PPP/PFI (Do we need the ‘F’in DBFO projects). UK: Institute For Public Policy Research (IPPR) Commission of Public Private Partnerships. Retrieved

Zhen-Wei Qiang, C. (2010). Broadband infrastructure investment in stimulus packages: Relevance for developing countries. Info, 12(2), 41-56. doi:10.1108/14636691011027175.

APPENDIX 1

FTTH Fiber to the house GDP Gross Domestic Product ICT Information and Communication Technologies IT Information Technology NGA Next Generation Access OIM Optimal investment model PDBI Development plan of broadband infrastructure PPP Public Private Partnership

Abbreviations DAE Digital Agenda for Europe BBAD Broadband access development DBO Design - Build - Operate EU European Union EUBB European Broadband FTTC Fiber to the cabinet 22

Qiang, C.Z., Carlo M.R., & Kaoru K. (2009). Economic impacts of broadband. Retrieved November 28, 2015, from http://siteresources.worldbank.org/ EXTIC4D/Resources/IC4D_Broadband_35_50.pdf.

EJAE 2016  13 (1)  13-23

Požarnik, M., Robič Mohar, L., Taras, T.  The model for successful development of NGA infrastructure

APPENDIX 2 The model for multi criteria analysis Private DBO Criteria

Public DBO

PPP

Ponder

Value

Total

Ponder

Value

Total

Ponder

Value

Total

The value of investments Operating costs and revenues The necessary public funds The optimal geographic coverage The engagement of the public sector The transfer of risk to the private sector Ownership / control over infrastructure Using existing infrastructure Speed of network construction The combination of different technologies Introducing innovations The amount of public benefits

TOTAL

MODEL ZA USPEŠAN RAZVOJ INFRASTRUKTURE MREŽA ZA PRISTUP SLEDEĆE GENERACIJE U ZEMLJAMA NA PODRUČJU BALKANA Rezime: Nedostupnost brzog širokopojasnog pristupa internetu, prvenstveno usled izostanka komercijalnog interesa telekomunikacionih operatora, glavni je uzročnik ekonomske nerazvijenosti ruralnih područja na Balkanu. Razvoj širokopojasnog pristupa u ruralnim područjima predstavlja višestruk, složen i dugotrajan proces. U radu se ispituje trenutna dostupnost širokopojasnog pristupa u zemljama Balkana, analizira se algoritam sa konkretnim fazama razvoja širokopojasnog pristupa, kao i koristi koje donosi zainteresovanim stranama na nacionalnom i lokalnom nivou. Cilj ovog rada jeste da se razvije model koji racionalizuje razvoj širokopojasnog pristupa internetu. Autori nastoje da definišu način odabira investicionog modela za izgradnju širokopojasne infrastrukture. Dobijeni rezultati ukazuju na to da države Balkana moraju u što kraćem roku početi s pripremnim aktivnostima i analizama neophodnim za uspešnu primenu datog modela. Sprovedeno istraživanje u velikoj meri doprinosi smanjenju i zaustavljanju demografske i socio-ekonomske degradacije u manje razvijenim područjima i podsticanju njihovog razvoja.

Ključne reči: koheziona politika, širokopojasna infrastruktura, model financiranja, EUBB model. Received: March 5, 2016 Correction: March 29, 2016 Accepted: April 18, 2016

EJAE 2016, 13(1): 24-35 ISSN 2406-2588 UDK: 658.14/.17(497.11) 338.246.025.88(497.11) DOI: 10.5937/ejae13-9688 Original paper/Originalni nauÄ?ni rad

FINANCIAL ANALYSIS OF SERBIAN COMPANIES UNDERGOING PRIVATIZATION Nino VeskoviÄ&#x2021;* Singidunum University 32 Danijelova St., Belgrade, Serbia

Abstract: This study presents a financial analysis of companies undergoing the process of privatization in the Republic of Serbia (RS). A total of 182 of such companies were examined and compared to an equal number of randomly chosen companies of comparable size. The results revealed a significant gap between the financial performances of the two samples. For that reason, the companies undergoing privatization need to undergo radical changes for the purpose of achieving a higher level of profitability and preventing further losses. Given that these companies pose a significant challenge for the Serbian economy, the author believes that this study will serve as a reference for further research. In addition, this manuscript shall present the comparative analysis of the total net loss of the observed companies and the gross domestic product of the RS, as well as between the corresponding number of employees for the year 2013.

Pursuant to the Law on Social Capital (The Official Gazette of the Socialist Federal Republic of Yugoslavia, 1989), the privatization process was launched in Serbia in 1989 as the first step in the attempt to transform the state-owned companies into private entities. Table 1 provides a list of relevant legislation and rules related to the privatization process in the Republic of Serbia (RS) for the period from 1989 to 2001.

1994, which placed an obligation upon all (partially) privatized firms to revalue their outstanding payments for shares previously purchased by employees. The purpose of that was partly to annul the windfall gains acquired by buying shares during the peak of hyperinflation that took place in 1992, and especially in the latter half of 1993. Privatization came to a standstill in the following two years, whereas 436 previously privatized companies restored their socially-owned status in 1995 and 1996. Many cases were subject to long court procedures, which failed to result in a swift verdict.

According to the Privatization Agency of the Republic of Serbia (2005), the Serbian Parliament adopted the so-called Revaluation Law by mid-

October 2000 was undoubtedly a milestone, both in regard to politics and the renewal of society, and as such it brought about a new privatiza-

INTRODUCTION

Key words: privatization, profitability, debt, liquidity, Z-score model, financial statement analysis.

* E-mail: nino.veskovic@gmail.com

EJAE 2016  13 (1)  24-35

Vesković, N.  Financial analysis of Serbian companies

1989 Law on Social Capital (The Official Gazette of the Socialist Federal Republic of Yugoslavia, 1989) 1990 Law on Conditions and Procedure of Transformation of Social Property into Other Forms of Ownership (The Official Gazette of the Republic of Serbia, 1990) 1994 Law on Amendments and Supplements to the Law on Conditions and Procedure of Transforming Social Property into Other Forms of Ownership 1996 Law on the Basis of Change of Ownership of Social Capital FRY 1997 Law on Ownership Transformation (The Official Gazette of the Republic of Serbia, 1997) Table 1. Relevant laws on privatization in the RS 1989-2001

tion methodology in the RS. The central institution responsible for implementation of the privatization process in Serbia has been the Privatization Agency (PA), founded in 2001 in line with the Law on Privatization (The Official Gazette of the Republic of Serbia, 2001). The privatization process is structured through the following key tasks performed by the Privatization Agency: 1) promotion; 2) implementation; 3) control and 4) capital representation. However, due to an overwhelming number of state-owned companies, privatization still poses a pressing issue in Serbia. The case study on privatization in Serbia, carried out by the National Alliance for Local Economic Development (2014), implies that during the period from 2002 until 2013, local governments received 90.3 million euros, i.e. an average of 7.5 million per year. However, when calculating the number of local councils, it becomes apparent that such an amount is symbolic per local council. Apart from this, the aforementioned distribution of income was quite uneven, given that the number of privatizations, the size of the companies and revenues per local governments differed drastically.

According to the Privatization Agency of the Republic of Serbia (2015), 537 state-owned companies undergoing the privatization process, whose debt in 2010 exceeded 4.9 billion euros, have been incurring constant losses, but still had the largest assets in the amount of 4.7 billion euros. Moreover, the total net loss (TNL) of sampled companies undergoing privatisation in 2013 was about 650,038 million euros. At the same time, the gross domestic product (GDP) of the RS for the same year was 34,263 billion euros. The ratio between these values suggests that TNL poses 2% of GDP. Even though this percentage might appear as low, it is not conclusive given that it comprises only 182 companies out of more than 500 companies subject to the privatization process in the RS. Furthermore, the number of employees in these companies is also well worth observing. Our sample encompasses 89,187 employees in 182 companies undergoing privatization in 2013, which is 5.20% of the total (1,715,164) of all employed persons in the RS during that year, according to the Statistical Office of the Republic of Serbia, (2015). Although the labour force tends to claim that there has been an overwhelming potential for further development, it apparently has not existed for decades. 25

EJAE 2016  13 (1)  24-35

Vesković, N.  Financial analysis of Serbian companies

The main impediments are the absence of: 1) adequate strategy; 2) developed product; 3) market competitiveness and 4) rational spending of funds. Nevertheless, the author assumes that political influence is present as well, due to the increasing unemployment rates in the country, which is a direct consequence of these companies being shut down. Therefore, we have conducted this research in order to show how, at this stage, the companies undergoing privatization pose a considerable issue for the Serbian economy. In order to determine this, the principal aim of this paper – and hence its key potential contribution – is to analyse companies undergoing privatization, by measuring their business performances from the financial point of view. Moreover, the study intends to present how attractive they are for those rational, potential investors, who shall most certainly pay attention to similar things. We aim to accomplish this by performing a financial statement analysis of 182 companies presented by PA, as well as 182 other companies in the RS (which have not been made part of the privatization process), which will be used as a market benchmark. The following section shall discuss the literature background of this study, together with the research methodology and calculations. Upon presenting the research results, the author shall conclude with a short discussion and provide recommendations for future research.

LITERATURE REVIEW The literature abounds in studies based on the positive and negative effects of privatization. Mueller (1989), and Vining & Boardman (1992) have performed numerous surveys while preparing the studies on public and private enterprises around the world. Most of them reveal that public enterprises are less efficient than those in the private sector. Furthermore, Megginson, Nash, & Van Randenborgh (1994) compared the pre- and post-privatization periods within the financial and operating performance of 61 companies from 18 26

countries and 32 industries that had undergone either full or partial privatization through public share offerings during the period from 1961 to 1990. The results reveal significant improvements in performance, achieved, though surprisingly, without having to sacrifice employment security. According to the World Bank study carried out by Kikeri, Nellis, & Shirley (1994), thousands of state companies all over the world have gone private, due to the fact that more than 80 countries have launched ambitious efforts to privatize their state-owned companies. Another good example of privatization benefits was provided by Porta & Lopez-de-Silanes (1997), who collected data on all 218 non-financial enterprises privatized in Mexico in the period from 1983 until 1991. They found that the privatized companies quickly bridged the pre-privatization performance gap with industrymatched control groups. This was proven by the fact that privatization was accompanied by a 24 percentage point increase in the operating income to sales ratio. However, according to numerous authors, the problem of state-owned companies is not ownership, but rather the lack of explicit goals and objectives, as well as the absence of organizational culture and systems that would support and encourage it. In that sense, Čerović, Stanišić, Radojević, & Radović (2015) explored the relationship between the ownership structure and corporate performance, referring to the example of the Republic of Serbia. They were able to prove that both state and socially-owned enterprises were significantly less profitable during the observed periods in comparison to the privately-owned entities. However, they assumed that the problem was actually that they intensified the agency problem and impeded the entrepreneurial spirit. Therefore, negative correlations were expected to exist between them and profitability. Under certain circumstances, privatization could aid the fulfilment of a company’s goals and objectives because of the culture and systems it fosters; though in other cases this does not apply (Vernon-Wortzel

EJAE 2016  13 (1)  24-35

Vesković, N.  Financial analysis of Serbian companies

& Wortzel, 1989). Many studies confirm that a change to private ownership, especially where state regulation remains, may produce fewer economic benefits (Bishop & Thompson, 1992; Boussofiane, Dyson, & Thanassoulis, 1991; Burns & WeymannJones, 1994; Parker & Martin, 1995; Price & Weyman-Jones, 1996; Vickers & Yarrow, 1988). Both positive and negative effects of privatization and ownership in transition economies were presented in the Journal of Economic Literature by Estrin, Hanousek, Kocenda, & Svejnar (2009), which might be relevant for further discussion in this paper. Although almost all of the previously mentioned countries have successfully finalized the process of privatization, this is not the case in the RS. The authors in RS have mostly written about the privatization process in general (Đuričin, Zec, & Mijatović, 1995; Dugaljić, 2013; Hadžić, 2002; Nikolić & Kovačević, 2014; Vujačić & PetrovićVujačić, 2011), whereas some of them have written particularly about the corporate restructuring process of state-owned companies (Dondur, Rodojević, & Veljković, 2007; Stošić, 2014). The analysis of state-owned companies carried out by Ranković & Ilić (2001) has indicated the actual issues of that period. They concluded that there would have been little hope for genuine recovery in case responsible authorities had not been aware of those issues. Ostojić (2002) advocated that state-owned companies had a clear role in every economy. According to him, Serbian state-owned companies required very careful reorganization of the public sector rather than urgent privatization. Eleven years later, Dugaljić (2013), wrote: “Nobody questions the necessity of a sound and comprehensive reform of the public sector enterprises, but what has to be taken into account is their objectively large significance for the entire Serbian economy”. Dedeić (2013) attempted to point out to the possible solution through comparing the results and effects of the opposing concepts of privatization and nationalization. Such solution would lead to economic growth and overcoming

the crisis. Despite the above-stated, the authors in the RS have not paid sufficient attention to measuring business performances of state-owned companies undergoing the process of privatization. So why do the potential investors show so little interest in them? We shall therefore attempt to find answers to these questions by performing a financial statement analysis, focusing on indicators of measuring profitability, liquidity, debt, etc., such as current ratio, return on assets, and Altman’s Z score model. We believe that by presenting the real image of companies undergoing privatization, from a financial perspective, other researchers might be encouraged to go further with the analysis.

METHODOLOGY For the purpose of the analysis, we have collected financial statements for 182 out of more than 500 companies undergoing privatization. Financial reports of the sample entities have been collected from the official online data service maintained by the Serbian Business Registers Agency, whose basic function is the registration of business entities and tracking of their activity. Financial statements for the accounting periods 2010, 2011, 2012 and 2013 have been acquired and analysed for each and every company. Although there are about 500 companies presented by the Privatization Agency, we were limited due to the publicly accessible financial statements needed for the analysis. On the other hand, in order to accomplish previously defined research goals and make a comparison, we have collected 182 financial statements of the companies that have not been subject to the privatization process. The activities of the companies presented by the Privatization Agency are diverse, encompassing almost all industrial sectors. Therefore, we have applied the random sampling method to the companies in order to make a reliable comparison. The comparable companies encompass mostly medium and large entities in the RS, belonging to various industrial 27

EJAE 2016  13 (1)  24-35

Vesković, N.  Financial analysis of Serbian companies

sectors. In 2013, both types of the sample companies, namely those undergoing the privatization process and the comparable ones, had the average values of assets in the amount of 34,668 million euros and 18,826 million euros, respectively. Furthermore, comparable companies had the average operating revenue of 11,873 million euros, whereas companies undergoing privatization had 18,826 million euros during the same year. However, it should be noted that the random sampling technique is the most relevant one, primarily due to a wide range of sectors encompassed within both samples. Despite the fact that the financial statement analysis was conducted for the four-year period, we shall present only the indicators for the year 2013, as the most relevant for further analysis. The reason for this is that all changes from the previous years are generally reflected in 2013, as the last year of the observation period. As for the research methodology, we will mostly use calculation methods presented by Knežević, Stanišić, & Mizdraković (2013). The analysis intends to cover: 1) debt; 2) liquidity; 3) profitability; 4) Altman Z-score model and 5) the sustainable growth rate. The debt ratio will be used to assess the impact of debt on business activity. In order to determine liquidity, the relationship between current assets and current liabilities will be used, better known as The Current ratio. Return on Assets, The Net Margin and The Operating Margin shall be used to explain profitability. For the purpose of bankruptcy prediction and credit risk measurements, the Altman Z-score model (Altman, 1968) shall be used, calculated by the following equation: Z’=0.717xT1+0.847xT2+3.107xT3+0.420xT4+0.998xT5

In order to determine the typical values of indicators, we will use the median values of our samples, and all the indicators will be graphically presented by means of the Kernel Density Plot. Given that only certain companies have extreme values of some indicators, they will be excluded 28

only from the graphical visualisation. Therefore, in order to visualize our sample data, we will perform outlier exclusion procedures with cut points established at specific values. However, these companies will be retained within the analysis for the purpose of determining typical indicator’s values.

RESULTS AND DISCUSSION The debt ratio is the share of external sources to total assets. As shown in Figure 1, in the majority of comparable companies, between 0% and up to 20% of assets is financed from borrowed sources, whereas the companies undergoing privatization tend to reflect much higher values. This is undoubtedly the main reason for the lack of interests of potential investors for companies. Most of the companies subjected to the privatization process have been credited by the government so as to remain operative. Nonetheless, they have continued to record constant losses, year by year. Figure 2 shows that the control group companies, which have been used as a benchmark in this analysis, have a much better ability to pay shortterm obligations, which makes them competitive and places them in a better market position. On the other hand, low liquidity stems from the inability of companies undergoing privatization to settle their obligations and debts in a timely manner, thus making themselves even less attractive. Moreover, instead of seeking new business strategies and setting new plans for future development, they have been constantly using new loans as the only possible solution. Profitability is definitely one of the most important items in the decision-making process of an investor. As Michael Porter said: “If your goal is anything but profitability - if it is to be big, or to grow fast, or to become a technology leader -you will face problems”. The greatest difference in business performances of the surveyed entities is reflected by the profitability indicators. Based solely on these values, a rational investor could

EJAE 2016  13 (1)  24-35

Vesković, N.  Financial analysis of Serbian companies

Figure 1. The Debt ratio

Figure 2. The Current ratio 29

EJAE 2016  13 (1)  24-35

Vesković, N.  Financial analysis of Serbian companies

Figure 3. The Net Margin

Figure 4. The Operating Margin 30

EJAE 2016  13 (1)  24-35

Vesković, N.  Financial analysis of Serbian companies

Figure 5. Return on Assets

Figure 6. Altman Z-Score 31

EJAE 2016  13 (1)  24-35

Vesković, N.  Financial analysis of Serbian companies

Figure 7. The Sustainable Growth Rate

decide not to invest in a company undergoing privatization, but to choose the company belonging to the control group, if possible. For instance, 126 out of 182 companies undergoing privatization have negative net income, whereas only 39 out of 182 control group companies have negative net income. All of the aforementioned can be seen within The Net Margin histogram, Figure 3. The similar situation could be observed in The Operating Margin histogram (Figure 4), where the comparable companies also display higher values. Nevertheless, companies undergoing privatization appear to manifest a slightly better performance than in the previous indicator due to the operating income, which does not depend on the method of funding and is not under the influence of extraordinary items. The paper shall not present the Return on Equity, given that nearly 50% of companies undergoing privatization have a negative equity. Return on Assets (ROA) is an indicator of how profitable a company is relative to its total assets. It is basically a reflection of the operating income in this instance, which can be seen in the ROA histogram (Figure 5), where almost 70% of 32

the companies undergoing privatization are in the negative zone, together with 21% of comparable companies. Clearly, the quasi-probability values of corporate bankruptcy, calculated by the Altman ZScore model are relevant for interpretation. The percentage of corporate bankruptcy prediction can be seen in Figure 6. The values display an implicated bankruptcy prediction within a two-year period. Based on the values of our two samples, a large disparity could be observed between them. Figure 6 displays a high bankruptcy probability of companies undergoing the privatization process. Furthermore, the Altman Z-Score model has been indicative of the same issue for many years, which puts a strain on the government in its attempt to keep these companies alive. The sustainable growth rate is defined as the maximum annual rate at which a firm expects to grow without increasing its financial leverage. However, it seems (Figure 7) that for most companies in privatization, future growth is hardly achievable, unless there is certain improvement in profitability, due to the fact that the financial

EJAE 2016  13 (1)  24-35

Vesković, N.  Financial analysis of Serbian companies

Companies in Privatization Process

Other Companies

average

median

average

median

The Debt ratio

1.48

0.92

0.67

0.57

The Current ratio

0.99

0.43

3.19

1.23

The Net Margin

-160.17

-0.33

-1.19

0.02

The Operating Margin

-119.88

-0.26

-1.04

0.04

Return on Assets

-0.11

-0.05

0.02

0.05

Altman Z-Score

0.69

0.02

3.30

2.31

Sustainable Growth Rate

1.03

0.01

0.06

0.07

Table 2. All indicators previously presented in this paper

leverage has already peaked. Consequently, the only reasonable conclusion might be that the issue is rather a lack of explicit goals and objectives, as well as the absence of organizational culture in these companies.

ing these companies in business is not advisable, we can hardly expect for our advice to be directly translated into the best possible solution. It should only serve as a suggestion for further analysis and better understanding of their current situation.

Table 2 displays median and average values of all indicators used herein. The purpose of it is to summarize all necessary data stemming from this study, which might be useful for further research.

Finally, the authors suggests that closing these companies and selling their assets might be a more effective way towards resolving this rather challenging issue. Moreover, employees should be motivated to launch themselves into entrepreneurial activities using the funds from their severance pays, instead of waiting for a relevant agency to find them a new placement. By encouraging employees to start their own business, the government might be able to solve the problem of the growing unemployment rates that inevitably ensues upon closing of a company undergoing privatization. Nevertheless, in the case of keeping these companies in business, our suggestion is to focus on development of new strategies, competitive products, erosion of the manufacturing base, excess production capacity and redundancy scheme.

CONCLUSIONS We consider the companies undergoing privatisation a significant, but not the only issue affecting the Serbian economy. This research impartially supports this fact from the financial perspective. The comparative analysis of our two samples indicates several reasons as to why there is such low interest in purchasing these companies. Not only does waiting for these companies to be sold incur significant expenses to the citizens of the RS, but it also makes these companies less attractive to potential investors and at the same time reduces their prices. Although we strongly believe that keep-

A proposal for future research might be setting a time series analysis within the period from 2000 33

EJAE 2016  13 (1)  24-35

Vesković, N.  Financial analysis of Serbian companies

until 2013, for which the values of net capital of privatization companies will be used. We suppose that the values of net capital have been constantly dropping, year by year. We believe that such hypothesis may strongly support the idea of shutting down these companies as soon as possible and that selling their assets would be the appropriate solution. Acknowledgements: I would like to take this opportunity to express my profound gratitude and deep regards to my professor Nemanja Stanišić, PhD, for his exemplary guidance, valuable feedback and constant encouragement throughout the duration of the research. His valuable suggestions were of immense help. His perceptive criticism kept me working to make this paper the best possible one. Having him as a mentor has been extremely knowledgeable experience for me.

REFERENCES Altman, E.I. (1968). Financial Ratios, Discriminant Analysis and The Prediction of Corporate Bankruptcy. The Journal of Finance, 23(4), 589-609. doi:10.1111/j.1540-6261.1968.tb00843.x. Bishop, M., & Thompson, D. (1992). Regulatory reform and productivity growth in the UK’s public utilities. Applied Economics, 24(11), 1181-1190. doi:10.1080/00036849200000127. Boussofiane, A., Dyson, R., & Thanassoulis, E. (1991). Applied data envelopment analysis. European Journal of Operational Research, 52(1), 1-15. doi:10.1016/037722179190331O. Burns, P., & Weymann-Jones, T. (1994). Productive Efficiency and the Regulatory Review of Regional Electricity Companies in the UK. Retrieved November 6, 2015, from http://www.opengrey.eu/item/ display/10068/626911.

Dondur, N., Rodojević, S., & Veljković, Z. (2007). Efekti privatizacije i restrukturiranja u industrijskim preduzećima u Srbiji. Industrija, 35(3), 13-25. In Serbian. Dugaljić, V. (2013). Privatization of Public Enterprises. Bankarstvo, 42(4), 6-11. Đuričin, D.N., Zec, M.R., & Mijatović, B. (1995). Privatization in Serbia. Industrija, 22(1-2), 71-96. Estrin, S., Hanousek, J., Kocenda, E., & Svejnar, J. (2009). The effects of privatization and ownership in transition economies. Journal of Economic Literature, 7(402), 699-728. doi:10.1257/jel.47.3.699. Hadžić, M. (2002). Rethinking Privatization in Serbia. Eastern European Economics, 40(6), 6-23. doi:10. 1080/00128775.2002.11041034. Kikeri, S., Nellis, J., & Shirley, M. (1994). Privatization: Lessons from market economies. World Bank Research Observer, 9(2), 241-272. doi:10.1093/ wbro/9.2.241. Knežević, G., Stanišić, N., & Mizdraković, V. (2013). Analiza finansijskih izveštaja: namenjeno tržištu Republike Srbije. Beograd: Univerzitet Singidunum. In Serbian. Megginson, W.L., Nash, R.C., & Van Randenborgh, M. (1994). The Financial and Operating Performance of Newly Privatized Firms: An International Empirical Analysis. Journal of Finance, 49(2), 403-452. doi:10.2307/2329158. Mueller, D.C. (1989). Public Choice. Cambridge: Cambridge University Press. National Alliance for Local Economic Development. (2014). Studija slučaja: Privatizacija u Srbiji. Retrieved from http://www.naled-serbia.org/upload/Document/File/2014_11/Studija_slucaja_ Privatizacija_u_Srbiji.pdf. In Serbian. Nikolić, I., & Kovačević, M. (2014). Efekti privatizacije - empirijska analiza i rezultati na srpsku industriju. Industrija, 42(1), 63-86. doi:10.5937/ industrija42-4846. In Serbian. Ostojić, S. (2002). Državna preduzeća - pro et contra. Ekonomika preduzeća, 50(1-2), 20-28. In Serbian.

Čerović, S., Stanišić, N., Radojević, T., & Radović, N. (2015). The Impact of Ownership Structure on Corporate Performance in Transitional Economies. Amfiteatru Economic, 17(38), 441-454.

Parker, D., & Martin, S. (1995). The impact of UK privatisation on labour and total factor productivity. Scottish Journal of Political Economy, 40(2), 201220. doi:10.1111/j.1467-9485.1995.tb01154.x.

Dedeić, D. (2013). Nastavak privatizacije ili podržavljenje preduzeća u Srbiji. Poslovna ekonomija, 7(2), 175-195. In Serbian.

Porta, R. La, & Lopez-de-Silanes, F. (1997). The Benefits of Privatization: Evidence from Mexico. Retrieved from http://www.nber.org/papers/w6215.

EJAE 2016  13 (1)  24-35

Vesković, N.  Financial analysis of Serbian companies

Price, C., & Weyman-Jones, T. (1996). Malmquist indices of productivity change in the UK gas industry before and after privatization. Applied Economics, 28(1), 29-39. doi:10.1080/00036849600000004. Privatization Agency of the Republic of Serbia. (2015). The Analysis of the Privatization Process. Retrieved November 6, 2015, from http://www.priv.rs/. Privatization Agency the Republic of Serbia. (2005). Impact Assessment of Privatisation in Serbia. Retrieved from http://www.priv.rs/upload/document/ Impact_Assessment_of_Privatisation_Final.pdf. Ranković, J. M., & Ilić, G. (2001). Analiza rentabilitetnog i finansijskog položaja javnih preduzeća Srbije. Ekonomika preduzeća, 49(7-12), 207-213. In Serbian. Statistical Office of the Republic of Serbia. (2015). Number of employed – total, annual average. Retrieved November 6, 2015, from http://webrzs.stat.gov.rs/ WebSite/public/ReportView.aspx. Stošić, I. (2014). Korporativno restrukturiranje preduzeća u svetu i Srbiji. Poslovna Ekonomija, 8(1), 157-176. doi:10.5937/PosEko1401157S. In Serbian. The Official Gazette of the Republic of Serbia.(1990). Law on Conditions and Procedure of Transformation

Social Property into Other Forms of Ownership, No. 48/91, 75/91, 48/94 and 51/94. The Official Gazette of the Republic of Serbia.(1997). Law on Ownership Transformation, No. 32/97 and 10/01. The Official Gazette of the Republic of Serbia. (2001). Law on Privatization, No. 38/2001, 18/2003 i 45/2005. The Official Gazette of the Socialist Federal Republic of Yugoslavia.(1989). Low on Social Capital, No. 84/89 and 46/90. Vernon-Wortzel, H., & Wortzel, L.H. (1989). Privatization: Not the only answer. World Development, 17(5), 633-641. doi:10.1016/0305-750X(89)90064-8. Vickers, J., & Yarrow, G.K. (1988). Privatization: An economic analysis. Cambridge, Mass: MIT Press. Vining, A.R., & Boardman, A.E. (1992). Ownership versus competition: Efficiency in public enterprise. Public Choice, 73(2), 205-239. doi:10.1007/ BF00145092. Vujačić, I., & Petrović-Vujačić, J. (2011). Privatization in Serbia: Results and institutional failures. Economic Annals, 56(191), 89-105. doi:10.2298/ EKA1191089V.

FINANSIJSKA ANALIZA SRPSKIH PREDUZEĆA U PROCESU PRIVATIZACIJE Rezime: Ova studija prikazuje finansijsku analizu privrednih društava na teritoriji Republike Srbije u procesu privatizacije. Istraživanje je obuhvatilo ukupno 182 takvih privrednih društava koja su posmatrana u odnosu na isti broj nasumice izabranih privrednih društava približne veličine. Rezultati upućuju na značajan raskorak između njihovih finansijskih performansi. Stoga je neophodno podvrgnuti privredna društva u procesu privatizacije radikalnim promenama kako bi se ostvario visok nivo profitabilnosti i zaustavili dalji gubici. S obzirom da ova društva predstavljaju značajan izazov za srpsku ekonomiju, verujemo da će ova studija poslužiti kao polazna tačka za dalja istraživanja. Takođe, u radu je prikazano i poređenje ukupnog neto gubitka ispitanih društava u odnosu na bruto domaći proizvod Republike Srbije, kao i odgovarajućeg broja zaposlenih za 2013. godinu.

Ključne reči: privatizacija, profitabilnost, zaduženost, likvidnost, Z-skor model, analiza finansijskih izveštaja. Received: December 1, 2015 Correction: December 21, 2015 Accepted: December 30, 2015

EJAE 2016, 13(1): 36-46 ISSN 2406-2588 UDK: 323.23:331.105.44(497.11/.13) DOI: 10.5937/ejae13-9329 Original paper/Originalni naučni rad

ASSESSING LABOUR STRENGTH IN SERBIA, CROATIA AND SLOVENIA: HOW TO EXPLAIN THE DIFFERENCES? Nikola Kosović1,*, Daria Copîl2 Central European University, Department of Political Science 9 Nador Street, Budapest, Hungary 2 Central European University, Department of Economics, 9 Nador Street, Budapest, Hungary 1

Abstract: This paper assesses the current strength of labour unions in Serbia, Croatia and Slovenia and elaborates on the main factors that have led to the current situation. The first part of the paper includes an in-depth literature review of the current state-of-the-art in assessing the labour strength across Europe, with special emphasis on post-communist countries. The second part of the paper provides the assessment of labour union strength in the surveyed countries. The authors argue that there are significant differences in the roles of labour movements. Serbia and Slovenia quite differ, with extremely weak and extremely strong labour movements, respectively, while Croatia is located in between. Kosović and Copîl also elaborate on the causes of such weaknesses. They identify four main factors: communist legacy, nationalistic elites, economic crisis and foreign influence, and the lack of trust among citizens, and conclude that it is impossible to explain such a complex issue as labour strength by observing any of these factors separately. However, taken together, they all provide a quality explanation of the current union strength in the observed countries.

INTRODUCTION AND METHODOLOGICAL ISSUES The issue of labour strength or weakness has been one of the most frequently discussed topics in contemporary works concerning industrial relations. This is especially the case in post-communist countries, where there is no agreement among scholars even on some of the most important issues. First of all, there are different opinions on whether 36

* E-mail: nikola.kosovic.37@gmail.com

Key words: Yugoslavia, labour unions, industrial relations, union strength, trust, Serbia, Croatia, Slovenia.

the labour in post-communist countries is weak or strong. Secondly, there are various answers to the question what the point of reference is, to which labour power in post-communist countries should be compared. Finally, there are different explanations of the causes of labour union strength or weakness. All these questions will be addressed in this paper. We shall assess the strength of labour unions in Serbia, Croatia and Slovenia (SCS) and give convincing arguments on what caused their – as we argue – different strengths.

EJAE 2016  13 (1)  36-46

Kosović, N., Copîl, D.  Assessing labour strength in Serbia, Croatia and Slovenia

The first point that needs to be addressed is the general assessment of labour strength in postcommunist countries. This issue is quite hard to tackle because, as Graeme Robertson puts in, “the hallmark of labour mobilization after democratization is variation, not uniformity” (Robertson, 2004, p. 254). Therefore, there are various approaches that give different conclusions on labour power. Thus, although some authors might argue that labour unions were and still are strong in some cases (in Poland: Przeworski, 1991; Ekiert & Kubik, 1998; Kubicek, 1999; in Slovenia: Bohle & Greskovits, 2007; Grdešić, 2008; Šarić, 2014), there is abundance of literature that claims these countries to be merely exceptions from the general weakness (Greskovits, 1998; Meardi, 2000; Ost, 2000; Crowley & Ost, 2001; Crowley, 2002, 2004; Stanojević et al., 2003; Bohle & Greskovits, 2007; Crowley & Stanojević, 2011). The key point here is the issue of how to measure labour strength. Indeed, if we observe the two most widely accepted measures of union strength – union density and collective bargaining coverage – we will see fairly low numbers in both terms in cases of almost all European post-communist countries (Table 1). However, since these numbers might be misleading in assessing the true power of labour unions in individual countries, there is a necessity for caseby-case studies. Since there is insufficient number of studies dealing with recent developments in SCS labour unions’ power, this manuscript contributes to the literature in this filed. Secondly, it is important to select the proper point of reference for assessing the union strength. We propose four possible approaches to assessing this issue in post-communist countries (we do this mostly for explanatory purposes and this idea does not exhaust all possibilities). First, as showed by Crowley (2004), it is possible to examine labour strength by comparing it to “the West”, meaning to what would today be the EU members with no communist past, namely 17 countries in Northern, Southern and Western Europe. The second approach, which might be of biggest use for the cur-

rent non-EU post-communist countries (Western Balkans and Eastern Europe), would be to select all 28 EU members as a reference point. The third approach and the one that Bohle and Greskovits (2007) used in their work, is the interregional one. Thus, for instance, these authors used the sample of Visegrad countries, Baltic countries and Slovenia to show the differences among their labour unions. Finally, the approach used by several authors is the one that compares countries either on the basis of the common feature (accession to the EU in 2004: Aidukaite, 2011) or on an intraregional basis (Baltic states: Aidukaite, 2004, 2006; Post-Yugoslav area: Arandarenko, 2001; Stanojević, 2003; Grdešić, 2007, 2008, 2015; Crowley & Stanojević, 2011). The latter approach will be used herein. We will refer to SCS labour unions’ power in comparison to the post-Yugoslav area, mostly comparing them one to another. Finally and most importantly for this study, there are various opinions on what influences labour strength in one country. Thus, Crowley (2004) has emphasized five possible explanations of strong labour unions in industrial relations literature: the strength of a country’s corporatist institutions (Iankova, 2002), union competition (Ekiert & Kubik, 1998), low levels of unemployment, existence of “exit” options (Greskovits, 1998), and – the factor that he considers most important and most influential – institutional and ideological legacies of communist times. He goes even further and argues that “nowhere is the impact of the communist legacy greater than on labour and trade unions” (Crowley, 2004, p. 420). Moreover, while writing about SCS, Stanojević (2003), Arandarenko (2001) and Grdešić (2008) add several more factors: elites’ answers to workers’ demands (Stanojević), ideologies (all authors), and economic crisis (Arandarenko). Finally, Bohle and Greskovits (2007) convincingly argue that not only did the initial political choices as a reaction to “both legacies of the past and their perception as either threats or assets from the viewpoint of national sovereignty and economic independence” matter, but also the “formative role of transnational and international influences as well 37

EJAE 2016  13 (1)  36-46

Kosović, N., Copîl, D.  Assessing labour strength in Serbia, Croatia and Slovenia

Country

Union density*

Change in union density

Collective bargaining coverage

1990s

2010s

1990-2010

2010s

Belarus

96.1

90.5

-5.6

Bulgaria

51.4

-31.4

Bosnia and Herzegovina

100

Croatia

Czech Republic

36.3

17.3

-19

40.9

Estonia

62.1

6.9

-55.2

Hungary

62.5

-48.5

33.5

Latvia

28.3

11.6

-16.7

Lithuania

32.7

-22.7

Macedonia

100

Moldova

26.8

Montenegro

100

Poland

-14

28.9

Romania

40.7

21.4

-19.3

Russia

74.8

-37.8

Serbia

Slovakia

52.3

13.6

-38.7

Slovenia

66.5

-43.5

Ukraine

Intraregional average values Post-Yugoslav area

27.6

84.5

Visegrad countries

14.5

34.6

Post-Soviet countries**

54.3

Baltic countries

9.5

Post-communist countries

26.4

49.4

EU-28

EU-17***

35.7

72.4

* Union density as the percentage of employees who are members of unions. ** Excluding the Baltic region. *** Excluding post-communist EU countries.

Table 1. Union density and collective bargaining coverage in post-communist countries Sources: Eurofound, International Labour Organization, ICTWSS database, worker-participation.eu, Federation of International Employers, national statistical units. Exact years of data vary in some cases. Some data in the table is missing.

EJAE 2016  13 (1)  36-46

Kosović, N., Copîl, D.  Assessing labour strength in Serbia, Croatia and Slovenia

as their diversity” (p. 444). In the main part of our paper, we will use several of the above-mentioned factors. We argue that communist legacy, as proposed by several authors, is far from being enough to independently of other factors explain the cases of SCS. Instead, we provide arguments that apart from communist legacy, elites led by nationalistic ideologies, economic crisis and foreign influence also matter. Moreover, we argue that, to the best of our knowledge, most authors have neglected one important feature of labour unions that influences their strength – public trust or confidence. Finally, we also add to the current literature by going back further in the past and providing arguments that more objective causes led to the discrepancy in labour strengths. The main line of argumentation goes that the development of the three Yugoslav republics after the Second World War and, especially, during the 1990s, led to contemporary differences.

coming from the side of governmental elites in Serbia (Kojčić, 2014). This influence has resulted in fragmentation of trade unions and fake union pluralism (Ibid). Mihailović (2014) would add that labour unions themselves also bear a partial responsibility for their weakness. According to him, they lack strategies of development and union revival. Instead, the only strategy they have is “strategy of despair”. Therefore, even if we employ Mihai Varga’s (2013) ideas about observing labour unions’ significance on a case-by-case basis and using “worker interest representation” as an indicator of labour strength, we would probably not get any good results. None of the three key elements of this concept – political autonomy of management’s interests and influence, effectiveness in reaching workers’ goals, and legitimacy of labour unions (p. 112-113) – would be satisfied in contemporary Serbian politics, as can be derived from previously mentioned sources.

ASSESSING THE STRENGTH OF SCS LABOUR UNIONS

The present labour unions in Croatia are often perceived as lacking both institutional and political influence. As is the case with the Serbian ones, they are often described as politicized, fragmented and powerless (Gabrić, 2014). The main consequence of such situation is an exclusive orientation of labour unions towards the state to solve their problems, even those that could be and should be solved on a bilateral basis between employees and the employer (Bagić, 2013). As stated by Krešimir Sever, the Head of the Independent Croatian Unions (NHS), the members of the unions are “frustrated by the lack of understanding in Croatia, and the common response of the workers and their families to a whole range of issues that concern them” (Gabrić, 2014). Moreover, he notices that this has been an ongoing trend for more than 15 years. Therefore, several other authors also convincingly argue that Croatian labour unions have more things in common with Serbian rather than with Slovenian unions. The main difference is that, like Serbian, “Croatian labour unions failed to secure a neocorporatist system of industrial relations as was the case in Slovenia” (Šarić, 2014, p. 34).

Although post-Yugoslav countries shared very similar paths of development during the second half of the twentieth century, their contemporary industrial relations differ significantly. Since many authors have already provided evidence that Serbian labour unions have played a minor role during the transition process (Upchurch, 2006b; Kohl, 2009; Mesman, 2012), we hereby focus more on their role in contemporary politics. Maybe this issue has been most concisely summarized in an interview with Branislav Čanak, the head of the second largest labour union in Serbia, United Branch Union “Independence” (UGS Nezavisnost). When asked about the union’s influence on the government’s economic policies, he stated: “No union has had any influence on the creation and implementation of economic policies of any government in Serbia over the last 20 years” (Novaković, 2011). One of the main reasons for this situation, at least according to Bernadette Segol from the European Trade Union Confederation, is political influence

EJAE 2016  13 (1)  36-46

Kosović, N., Copîl, D.  Assessing labour strength in Serbia, Croatia and Slovenia

Finally, Slovenian “(t)rade unions enjoy considerable public support, more than in Croatia or Serbia” (Grdešić, 2008, p. 139). Therefore, they have far more influence on political, economic and social situation in the society than the unions in the latter two countries. Although the membership in the main Slovenian labour unions has been diminishing (Stanojević, 2000), “strong union presence was successfully maintained” (Kohl, 2008, p. 3). Thus, one cannot be wrong to conclude that contemporary industrial relations in Slovenia are most highly developed unlike in Croatia and especially Serbia. Its labour unions are more capable of acting, they are more likely to obtain the desired outcomes, and, as such, have more labour strength than those in other two countries.

CAUSES OF DIFFERENCES IN UNION POWER The question that arises from the previous discussion is related to possible causes of such differences. Many explanations have been suggested, but we do not consider any of them to be comprehensive enough. Some authors, like Stanojević (2003), ascribe these differences to discrepancy in elites’ answers to workers’ demands in the late 1980s. He argues that, while Slovenia chose “gradual market reform, conditioned by a strong respect for workers’ interests” (p. 298), Serbia rejected all market reforms, which resulted in its transitional failure. On the other hand, Arandarenko (2001) stresses three key elements of the Serbian abortive transition: nationalism, the legacy of self-management, and economic crisis. Partly agreeing with both Stanojević and Arandarenko, Grdešić (2008) claims that the main reason for such serious differences between Slovenia, Croatia and Serbia could be different ideologies and practices of governing parties in these countries. We hereby discuss four key factors that contributed to this occurrence: communist legacy, nationalistic elites, economic crisis and foreign influence, and the lack of trust among the citizenships. 40

Probably the most widely spread argument about the weakness of labour unions not only in Serbia, but also across the whole Central and Eastern Europe (CEE) is the communist legacy argument. The roots of labour unions’ weakness in SCS can be found in the legacy of Socialist Yugoslavia. While one can agree that this legacy was qualitatively different (i.e. better) from the Soviet one, it is hard to argue – although some authors do so (Stanojević, 2003; Grdešić, 2008) – that this legacy in any way played a positive role in development of contemporary labour unions in SCS. The two key elements of the Yugoslav legacy are self-management and social ownership. The first one can be observed as the labour unions’ or workers’ “direct influence over political decision-making in labour-relevant areas and as the capacity to extract material rewards for workers” (Varga, 2013, p. 110), while the latter was intended to overcome the flaws of both private and state ownership – as seen by the communist elite – and bring about a more just, classless, society. Both key elements of Yugoslav legacy, self-management and social ownership, in our view, had merely and exclusively negative influence on workers representation organizations. First of all, self-management was only implemented on paper. Although the Workers Self-management Act, which prescribed significant independence of workers from the state (entitling the workers to even “make their own economic plans and determine their own salaries” (Zukin, 1975, p. 49), was adopted in 1950, it was never actually carried out (Liotta, 2001). Arandarenko (2001) confirms that, “(a)s in other socialist countries, the League of Communists (Yugoslav communist party) remained the ultimate and unchallenged arbiter in all important matters of social and economic life, including industrial relations” (p. 165). Finally, some authors argue that “in spite of the high claims for the selfmanagement system, the workers were not to be trusted to manage their own affairs. They were to be kept strictly under the control of the local party bureaucracy” (Gray, 2013, pp. 85-86). Moreover,

EJAE 2016  13 (1)  36-46

Kosović, N., Copîl, D.  Assessing labour strength in Serbia, Croatia and Slovenia

many testimonies can be found such as those in Upchurch (2006a, pp. 5-6), in which people from contemporary perspective see self-management as negative for development of both Yugoslav economy and its democracy. Finally, we tend to agree with Arandarenko’s views on the influence of selfmanagement on workers organizations. He argues that Yugoslav self-management system resulted in huge wage differentials, which prevented the emergence of class solidarity, as could be observed in Poland (Arandarenko, 2001). Moreover, it also led to fragmentation of labour unions, bringing the level of bargaining down to companies. Finally, as previously mentioned, “workers in the self-management system exercised no actual power even within their enterprises” (Ibid, p. 162). One could also add that self-management in combination with social ownership negatively influenced the transition and privatization processes after the fall of communist regimes across former Yugoslav countries. An important thing to notice is that, in fact, there was never true, full social ownership in Yugoslavia. As testified by Hadžić (2002), “(o)fficially, social ownership has been defined as that belonging to the whole society – to everyone and to no one in particular. In practice, however, when an enterprise was profitable, profits were distributed to employees through wages, i.e. collective-type ownership, and when an enterprise was unprofitable, it asked the government for help, that is, state-type ownership” (p. 22). Due to personal attachments to the company and unwillingness to give away the power they had, no matter how small it was in reality, most workers preferred employee buyouts not only in Serbia, but also in Croatia, Bosnia and Herzegovina and Macedonia. Moreover, Hadžić (2002) argues that both of these factors significantly slowed down the privatization process in Serbia, since many worker councils were against privatization of their companies (p. 18), most probably due to uncertainty about their future. The only exception in this regard was Slovenia, which nowadays has the strongest labour unions in this part of Europe. However, as noted

by Bohle and Greskovits (2007), “the Slovenian economy was not only the most liberalized but also the most developed and western-oriented economy of former Yugoslavia and the whole Soviet bloc” (p. 452). This, among other factors, contributed to the success of its labour unions. On the other hand, apart from Slovenia to some extent, we conclude that the legacy of Socialist Yugoslavia had a negative influence on development of Serbian and Croatian industrial relations. This way, the legacies of former Yugoslavia to some extent help us to understand the differences among these three countries, but that is not sufficient to grasp the whole picture. The second factor that, in our view, had a strong influence on contemporary differences in SCS labour union strengths were the ideologies that played the key role in the period from disintegration of Yugoslavia up to the end of the twentieth century. Since this argument has been discussed extensively (Arandarenko, 2001; Grdešić, 2006, 2008; Mesman, 2012; Tomičić, 2014), only the main points will be summarized herein. Grdešić rightly noticed that nationalism was the key ideological part of all parties during the early 1990s in Serbia, Croatia and Slovenia (Grdešić, 2008). However, since the democratic changes occurred in Slovenia much sooner than in Croatia or Serbia (1992 as compared to 2000), and pragmatic centrist elites in this country were more “willing to (…) accommodate workers’ interests” (Ibid, p. 142), labour unions were given the opportunity to develop “cooperation and compromise on various sensitive issues” (Grdešić, 2006, p. 122). On the other hand, ideologies in Serbia and Croatia had a negative effect on development of industrial relations in these countries. A more direct influence of the Serbian elites on labour unions is thoroughly discussed in Mesman (2012), but the conclusion also applies to Croatia – the crucial element, which prevented internal organization reform of the unions and the establishment of new unionist practices, was authoritarian elite domination (p. 114). This dominance resulted in long-lasting conflicts 41

EJAE 2016  13 (1)  36-46

Kosović, N., Copîl, D.  Assessing labour strength in Serbia, Croatia and Slovenia

between the elites and major labour unions and prevented wider membership in the workers movements, thus negatively influencing the strength of labour unions. This again testifies in favour of Slovenian labour unions having a far better starting position than their counterparts in Croatia and Serbia, which to a great extent enables providing explanation for the currently existing differences. Thirdly, what cannot be neglected as one of the most important factors that contributed to differences among contemporary labour unions in SCS were different levels of economic development in these countries. Even during the Yugoslav period, Slovenia was by far the most developed republic, with a GDP per capita almost twice as big as the Serbian (179 to 94 index points with overall Yugoslavia = 100), while Croatia was in-between the two with 117 index points (Lydall, 1989, p. 188). Moreover, when the disintegration of Yugoslavia began, Slovenia was strongly supported by the international community (the United States of America, International Monetary Fund, the World Bank and the European Community). Moreover, it did not have to develop war economy, as was the case with Croatia and especially Serbia, so it could focus more on raising the living standard of its citizens. Finally, as confirmed by Grdešić (2008), Slovenia was not a latecomer to financial reforms, as was the case with Serbia and Croatia, where in 2000 there was very little space “for the new centre-left and democratic governments to negotiate with the trade unions” (p. 143). All this implies that Slovenian government had enough space to manoeuvre in order to fulfil most of the Slovenian labour unions’ demands, which resulted in their stability and more significant role than in any other postYugoslav country. The situation in Serbia was completely different, because it was perceived as the troublemaker in the Balkans. Namely, it had no economic support from abroad (on the contrary, the sanctions imposed by the UN devastated the economy), and was at war during most of the 1990s. Since then, 42

it is often said among the Serbian people that this country has been in permanent economic crisis. Starting from the sanctions imposed by the United Nations in 1992, followed by one of the most severe hyperinflations in world history (in December 1993, inflation amounted to the monthly level of 178.822% (Lovrić & Palić, 2014)), to the NATO bombing in 1999, which devastated the Serbian infrastructure and economy, accompanied by transition and privatization failures, Serbia has become one of the least developed countries in Europe. Therefore, one of the causes of labour union weakness in Serbia comes from a more objective issue – inability of both government and private entrepreneurs to fulfil the demands of labour unions. Therefore, different governments’ wishes to control the labour unions even nowadays – as they indeed mostly do – represent their mean of remaining in power. On the other hand, because of the high job insecurity and high unemployment rates, people and labour unions tend to put up with wage reductions and austerity measures more than expected. Therefore, apart from some smaller teacher unions, there was no serious reaction to the recent decision of the Serbian government to reduce pensions and wages in the public sector by 10%. Ever since the fall of Milošević’s regime till present days, the international financial institutions, mostly the World Bank and International Monetary Fund, have played a huge role in imposing these measures (Deacon & Stubbs, 2007). However, these austerity measures have not shown much result. Serbian foreign debt and unemployment have been constantly rising, while inflation rates have been among the highest in the region (World Bank, 2015). Therefore, it seems reasonable to expect labour unions not to gain power in the near future, at least until the economic situation improves. Lastly, the situation in Croatia was, as previously mentioned, somewhere between that in Serbia and Slovenia. As the latter country, Croatia was extensively supported by the international

EJAE 2016  13 (1)  36-46

Kosović, N., Copîl, D.  Assessing labour strength in Serbia, Croatia and Slovenia

community both during and after the war, with the World Bank, International Monetary Fund and Germany playing the main role. Nevertheless, the civil war from 1991 to 1995 had a lot bigger negative influence on the Croatian economy than the ten-day one on the Slovenian. Thus, the level of development of Croatia was defined by these two key elements (the war and foreign financial aid), resulting in fairly good possibilities for the government to cooperate with labour unions, which eventually led to them having bigger strength than those in Serbia and less strength than the Slovenian ones. Finally, the factor that many authors unjustifiably neglect when assessing the strength of workers representation organizations is the trust of general citizenship in the existing unions. Apart from Crowley (2004), who dedicated a few lines to this issue in general, to the best of our knowledge, no author has discussed this factor in terms of comparative labour strength. As Mihailović argues, “trust is, as well as reputation, the other side of social and political strength of labour unions. There is no trust in powerless unions, in unions that cannot do what they are supposed to do and what they had written in their programs, unions that are not what they present themselves to be, in unions that cannot do what they promise” (Stojiljković & Mihailović, 2010). Therefore, we believe that public trust in labour unions in SCS is yet another factor that is contributing to differences in contemporary labour union strengths. As Table 2 shows, trust in labour unions in all three countries was practically the same right after the break-up of Yugoslavia. The numbers in it are the mean values, calculated based on the answers of people in the World Values Survey in 1995 and European Values Study in 2008 (the questions and methodology of the two studies were the same, which allows this kind of comparison). The answers were grouped into two categories, where 1 meant high trust in labour unions and 2 – low confidence in them.

Trust in labour unions 1995

2008

Serbia

1.76

1.87

Croatia

1.76

1.82

Slovenia

1.74

1.47

Table 2. Trust in labour unions in Serbia, Croatia and Slovenia in 1995 and 2008 Source: World Values Survey (2015)

As can be seen, the confidence in labour unions in all three countries in 1995 was practically the same. However, in 2008, the difference between the countries was more than obvious. The trust of Serbian citizens has deteriorated from 1.76 to 1.87, while the same trend could be observed in Croatia. Nevertheless, the change in the latter country is 0.05 points less than in the first one. On the other hand, Slovenian labour unions had a slightly better starting position, but its results in 2008 were more than impressive. The confidence in labour unions in this country grew over time, and reached the mean value of 1.47. This implies that Slovenia is practicaly the only of the three countries in which more people tend to trust labour unions than to have a negative attitude towards them. The lack of trust in Croatia and Serbia has serious implications on the ability of labour unions in these countries to act. Low trust is in correlation with the negative perception that ordinary people have towards labour unions. Therefore, it is rather unlikely that general population will support any action conducted by labour unions, which would eventually lead to more satisfactory employers. This issue seems to be a vicious circle: while, on one hand, people do not trust labour unions, the latter are unable to act. On the other hand, without the popular support arising from the trust, labour unions cannot prove that they are to be trusted. Therefore, the question of trust needs to be perceived seriously. The unions in Serbia and Croatia need to come up with a strategy to regain people’s trust, since only this will enable them to claim more institutional and political power. 43

EJAE 2016  13 (1)  36-46

Kosović, N., Copîl, D.  Assessing labour strength in Serbia, Croatia and Slovenia

CONCLUSION

REFERENCES

The main purpose of this paper was to assess the current strength of labour unions in SCS, as well as to explain the main factors that contributed to contemporary situation. The authors claim that labour unions in Serbia and Croatia are weak, while Slovenian unions assume significantly better positions in the society. We also provided several ideas on how to elaborate on the causes of such weakness. Although we tend to agree with Crowley that the communist legacy is an important factor, we argue that such an important question, as differences in labour strengths, cannot be explained relying solely on one point of view. If we accepted this argument, we would not be able to understand differences between labour unions’ strength in SCS, since these countries all share the common past and similar development paths. Therefore, we argued that at least three more factors play significant roles: following Grdešić’s (2008) and Arandarenko’s (2001) ideas, we also considered worth mentioning different ideologies of the ruling elites in these countries during the 1990s. Moreover, by combining Arandarenko’s (2001) views with part of the arguments provided by Bohle and Greskovits (2007), we suggested that the economic situation and different types of influences of international financial organizations and other countries also played an important role in the formation of contemporary differences. Finally, we contributed to the literature by providing an argument that public trust in Serbian and Croatian labour unions is indeed too low for them to have more serious institutional and political influence, while the Slovenian unions are more capable of doing so. The latter idea can be further developed by elaborating on the ways to overcome this lack of trust, but that might be the subject of some future research. Nevertheless, this paper has succeeded in its initial purpose, i.e. to comprehensively observe the issue of labour strength in SCS. It remains to be seen as to whether there will be any change in overcoming the flaws in labour unions’ functioning in the future.

Aidukaite, J. (2004). The emergence of the post-socialist welfare state: the case of the Baltic states: Estonia, Latvia and Lithuania. Huddinge: Södertörns högskola. Aidukaite, J. (2006). The formation of social insurance institutions of the Baltic States in the post-socialist era. Journal of European Social Policy, 16(3), 259270. doi:10.1177/0958928706065597. Aidukaite, J. (2011). Welfare reforms and socio-economic trends in the 10 new EU member states of Central and Eastern Europe. Communist and PostCommunist Studies, 44(3), 211-219. doi:10.1016/j. postcomstud.2011.07.005. Arandarenko, M. (2001). Waiting for the workers: Explaining labor quiescence in Serbia. In: S. Crowley & D. Ost (Eds.), Workers after Workers’ States: Labor and Politics in Postcommunist Eastern Europe (pp. 159-180). Lanham, MD: Rowman and Littlefield. Bagić, D. (2013). Neproduktivna ravnoteža moći: zašto nema kompromisa “socijalnih partnera” u Hrvatskoj i zašto je malo vjerojatno da će ga uskoro biti. In: N. Vokić Pološki & A. Obadić (Eds.), Zbornik radova okrugloga stola Uloga sindikata u suvremenome društvu (pp. 15-35). Zagreb: Ekonomski fakultet Sveučilišta u Zagrebu. In Croatian. Bohle, D., & Greskovits, B. (2007). Neoliberalism, embedded neoliberalism and neocorporatism: Towards transnational capitalism in Central-Eastern Europe. West European Politics, 30(3), 443-466. doi:10.1080/01402380701276287. Crowley, S. (2002). Explaining Labor Quiescence in Post-Communist Europe: Historical Legacies and Comparative Perspective. Cambridge: Minda de Gunzburg Center for European Studies, Harvard University. Retrieved June 12, 2015, from http:// core.ac.uk/download/pdf/5081848.pdf. Crowley, S. (2004). Explaining labor weakness in post-communist Europe: Historical legacies and comparative perspective. East European Politics & Societies, 18(3), 394-429. Crowley, S., & Ost, D. (2001). Workers after workers’ states: Labor and politics in postcommunist Eastern Europe. Lanham, MD: Rowman & Littlefield. Crowley, S., & Stanojević, M. (2011). Varieties of capitalism, power resources, and historical legacies: explaining the Slovenian exception. Politics & Society, 39(2), 268-295. doi:10.1177/0032329211405440.

EJAE 2016  13 (1)  36-46

Kosović, N., Copîl, D.  Assessing labour strength in Serbia, Croatia and Slovenia

Deacon, B., & Stubbs, P. (2007). Social Policy and International Interventions in South East Europe. Cheltenham: Edward Elgar Publishing. Ekiert, G., & Kubik, J. (1998). Contentious Politics in New Democracies: East Germany, Hungary, Poland, and Slovakia, 1989-1993. World Politics, 50(04), 547-581. doi:10.1017/S004388710000736X. EVS. (2010). European Values Study 2008: Serbia (EVS 2008). GESIS Data Archive, Cologne. ZA4796 Data file Version 1.1.0, doi:10.4232/1.10186. Gabrić, L. (2014). Što su nama danas sindikati: Subjektivan osjećaj nemoći mogao bi postati stvaran. Retrieved June 3, 2015, from http://www.lupiga.com/vijesti/ sto-su-nama-danas-sindikati-subjektivan-osjecajnemoci-mogao-bi-postati-stvaran. In Croatian. Gray, C. (2013). What Caused the Yugoslav Economic Disaster? Vlaams Marxistisch Tijdschrift, 47(3), 84-89. Grdešić, M. (2007). Tranzicija, Sindikati i Političke Elite u Sloveniji i Hrvatskoj. Politička Misao, 43(4), 121141. In Croatian. Grdešić, M. (2008). Mapping the paths of the Yugoslav model: Labour strength and weakness in Slovenia, Croatia and Serbia. European Journal of Industrial Relations, 14(2), 133-151. doi:10.1177/0959680108089187. Grdešić, M. (2015). Exceptionalism and its limits: The legacy of self-management in the former Yugoslavia. Retrieved September 15, 2015, from http://www. markogrdesic.com/uploads/3/1/8/0/31809299/exceptionalism.pdf. Greskovits, B. (1998). The political economy of protest and patience: East European and Latin American transformations compared. Budapest: Central European University Press. Hadžić, M. (2002). Rethinking Privatization in Serbia. Eastern European Economics, 40(6), 6-23. doi:10.1 080/00128775.2002.11041034. Iankova, E.A. (2002). Eastern European capitalism in the making. Cambridge: Cambridge University Press. Kohl, H. (2008). Where do Trade Unions stand today in Eastern Europe? Stock-taking after EU enlargement. Briefing Paper No. 5, 1-20. Kohl, H. (2009). Social dialogue, workers’ rights and freedom of association in the western Balkans–a survey after a first round of empirical research. SEER-South-East Europe Review for Labour and Social Affairs, (02), 151-173.

Kojčić, M. (2014). U Srbiji postoji lažni sindikalni pluralizam. Retrieved April 12, 2015, from http://www. danas.rs/danasrs/svet/globus/u_srbiji_postoji_lazni_sindikalni_pluralizam.12.html?news_id=293414. In Serbian. Kubicek, P. (1999). Organized labor in postcommunist states: will the Western sun set on it, too? Comparative Politics, 83-102. doi:10.2307/422434. Liotta, P.H. (2001). Dismembering the State: The Death of Yugoslavia and Why It Matters. Lanham, MD: Lexington Books. Lovrić, I., & Palić, A. (2014). Avramovićev dinar kao spas. Retrieved April 12, 2015, from http://www.novosti.rs/ vesti/naslovna/ekonomija/aktuelno.239.html:475107Avramovicev-dinar-kao-spas. In Serbian. Lydall, H. (1989). Yugoslavia in Crisis. Oxford: Clarendon Press. Meardi, G. (2000). Trade union activists, east and west: comparisons in multinational companies. Aldershot/ Burlington: Ashgate. Mesman, T. (2012). Strategic Choices during System Change: Peak Level Unions and Their Struggles for Political Relevance In Post-Socialist Slovenia, Serbia and Poland. Unpublished doctoral dissertation, Central European University, Budapest, Hungary. Mihailović, S. (2014). Moć i nemoć sindikata. Retrieved April 12, 2015, from http://sindikalizam. org/2014/10/19/moc-i-nemoc-sindikata/. In Serbian. Novaković, G. (2011). Preživeli smo sa ogrebotinama. Retrieved April 12, 2015, from http://www.politika. rs/rubrike/Tema-nedelje/Moc-i-nemoc-sindikata/ Preziveli-smo-sa-ogrebotinama.lt.html. In Serbian. Ost, D. (2000). Illusory corporatism in Eastern Europe: Neoliberal tripartism and postcommunist class identities. Politics & Society, 28(4), 503-530. doi:10 .1177/0032329200028004004. Przeworski, A. (1991). Democracy and the market: Political and economic reforms in Eastern Europe and Latin America. Cambridge: Cambridge University Press. Robertson, G.B. (2004). Leading Labor: Unions, Politics, and Protest in New Democracies. Comparative Politics, 36(3), 253-272. doi:10.2307/4150130. Šarić, I. (2014). Contemporary Theories of Political Economy and the Welfare State. Unpublished master thesis, Central European University, Budapest, Hungary. Stanojević, M. (2000) Slovenian trade unions-the birth of labor organizations in post-communism. Družboslovne razprave, 16(32-33), 39-52. 45

EJAE 2016  13 (1)  36-46

Kosović, N., Copîl, D.  Assessing labour strength in Serbia, Croatia and Slovenia

Stanojević, M. (2003). Workers’ power in transition economies: the cases of Serbia and Slovenia. European Journal of Industrial Relations, 9(3), 283-301. doi:10.1177/0959680108089187. Stojiljković, Z., & Mihailović, S. (2010). Stanje socijalnog dijaloga u Srbiji posle dvadeset godina tranzicije. Beograd: SLA. In Serbian. Tomičić, L. (2014). Sindikati devedesetih - strah, kalkuliranje i neiskorištene prilke. Retrieved 4 June, 2015, from http://stav.cenzura.hr/sindikati-devedesetihstrah-kalkuliranje-i-neiskoristene-prilike/. In Croatian. Upchurch, M. (2006a). State, labour and market in post-revolution Serbia. Capital & Class, 30(2), 1-30. doi:10.1177/030981680608900101.

Varga, M. (2013). Refocusing Studies of Post-Communist Trade Unions. European Journal of Industrial Relations, 19(2), 109-25. doi:10.1177/0959680113481735. World Bank. (2015). Database on Serbia. Retrieved April 12, 2015, from http://data.worldbank.org/ country/serbia. WVS. (2015). World Values Survey 1981-2014: Longitudinal Aggregate v.20150418. Retrieved 4 June, 2015, from http://www.worldvaluessurvey.org/ WVSDocumentationWVL.jsp Zukin, S. (1975). Beyond Marx and Tito: Theory and Practice in Yugoslav Socialism. Cambridge: CUP Archive.

Upchurch, M. (2006b). Strategic dilemmas for trade unions in transformation: the experience of Serbia. SEER-South-East Europe Review for Labour and Social Affairs, (04), 43-64.

PROCENA SNAGE RADNIČKIH SINDIKATA U SRBIJI, HRVATSKOJ I SLOVENIJI: KAKO OBJASNITI RAZLIKE IZMEĐU NJIH? Rezime: U radu se ispituje uticaj radničkih sindikata u Srbiji, Sloveniji i Hrvatskoj, i ukazuje na glavne činioce koji su doveli do takve suituacije. Prvi deo rada obuhvata detaljan pregled literature o trenutnom stanju kada je reč o proceni snage radničkih sindikata širom Evrope, sa posebnim osvrtom na postkomunističke zemlje. U radu se vrši i procena uticaja radničkih sindikata u pomenute tri zemlje. Autori tvrde da postoje velike razlike u ulogama koji ovi sindikati imaju u tim zemljama. Naime, situacija u Srbiji i Sloveniji se drastično razlikuje, s obzirom da Srbija ima izrazito slabe, a Slovenija izrazito jake radničke pokrete, dok se Hrvatska nalazi negde između njih. Kosović i Copil nastoje da detaljnije obrazlože uzročnike slabog uticaja sindikata. Oni izdvajaju četiru glavna faktora: komunističko nasleđe, nacionalistički elitizam, ekonomsku krizu i strane uticaje, nedostatak poverenja među građanima, i na osnovu toga dolaze do zaključka da je nemoguće odgovoriti na tako složeno pitanje kao što je uticaj radničkih sindikata posmatrajući svaki činilac ponaosob. Međutim, gledano sve skupa, možemo doći do validnog objašnjenja o trenutnom stanju u radničkim sindikatima u posmatranim zemljama.

Ključne reči: Jugoslavija, radnički sindikati, industrijski odnosi, snaga sindikata, poverenje, Srbija, Hrvatska, Slovenija. Received: October 22, 2015 Correction: November 16, 2015 Accepted: November 23, 2015

EJAE 2016, 13(1): 47-59 ISSN 2406-2588 UDK: 005.7 331.101.32:35.07 DOI: 10.5937/ejae13-10781 Original paper/Originalni nauÄ?ni rad

ORGANIZATIONAL FACTORS, ORGANIZATIONAL CULTURE, JOB SATISFACTION AND ENTREPRENEURIAL ORIENTATION IN PUBLIC ADMINISTRATION Konstantinos M. Karyotakis, Vassilis S. Moustakis Technical University of Crete Management Systems Laboratory (ManLab) School of Production Engineering and Management Chania 73100, Greece

Abstract: The present paper outlines the critical role and influence of organizational culture and job satisfaction on the relationship between organizational factors and entrepreneurial orientation (EO) in the public sector through generating the theoretical framework. Upon examining these terms, a model that reflects their mutual relationships has been suggested. The amalgam of internal work environment, work discretion and rewards/ recognition in combination with the appropriate degree of organizational boundaries, such as formalization, centralization, technology routines and connectedness, are crucial for fostering organizational culture and job satisfaction that lead to EO through innovativeness, proactiveness and risk taking.

INTRODUCTION Todayâ&#x20AC;&#x2122;s organizations are bigger and more complex than ever. In order to successfully respond to the newly emerging conditions and constantly increasing needs of citizens, public administration should be more oriented towards the use of efficient methods, practices and procedures (Karyotakis & Moustakis, 2014). It is generally thought that there are notable malfunctions in the public sector, not only in terms of efficiency and efficacy, but also in terms of legitimacy. Nonetheless, a wide range of innovations take place in this sector, from technologi* E-mail: karyotakisk@gmail.com

Key words: organizational culture, learning organization, job satisfaction, entrepreneurial orientation (EO), public sector.

cal and reengineering processes to organizational and conceptual innovations (Bekkers et al., 2009). Daily examples of administrative innovations constitute the usage of indicators that measure the results and various efficiency evaluation mechanisms of public services. Attitudes, behavior and practices containing the elements of innovation and entrepreneurship are encountered as strategies that advocate for change (Karyotakis et al., 2015). Indeed, considerable endeavors have been initiated in the public sector, especially in the last 15 years, in order to evolve into a more flexible, efficient and effective form (Zampetakis & Moustakis, 2010). 47

EJAE 2016  13 (1)  47-59

Karyotakis, K., Moustakis, V.  Organizational factors, organizational culture, job satisfaction and entrepreneurial orientation

Changes accomplished at all levels worldwide meet the expectations of citizens and competition authorities through benchmarking and adoption of best practices of private and public services. The role of the state is redefined on a day-to-day basis with the aim to coordinate and meliorate its management, organization, operations and functions via reform policies, reinvention, restructuring, reengineering and redefining appropriate adjustment of methods and practices to the local peculiarities. Innovation and its diffusion, as well as the entrepreneurial orientation (EO), are of vital importance in the change process. Last but not least, administrative accountability and executive functioning of public organizations should be amplified by appropriate strategic programs. The simplification of procedures in the public sector is more imperative than ever in order to have faster, more friendly, efficient, effective, productive, qualitative and flexible services. Moreover, costs and administrative burdens should be reduced, using computerization, digital services and e-government more widely, tracking simultaneously administrative actions. Transparency, trust and meritocracy must be strengthened, and the war against corruption must be fought. Economic growth must be supported, as well as entrepreneurship and innovation (Karyotakis & Moustakis, 2014).

NECESSARY COMPONENTS FOR SURVIVAL AND EVOLUTION Creativity, innovation, strategic thinking and entrepreneurship in terms of products and services are essential for the survival, growth, evolution and profitability of organizations. However, there is no doubt that entrepreneurial attitudes and behavior must be adjusted to the dynamic and changing conditions. Innovative and entrepreneurial behavior is necessary in all human actions, regardless of their nature (Shockley et al., 2002). However, the terms “entrepreneur” and “entrepreneurship” are 48

inextricably linked with uncertainty, ambiguity and the unknown (Hamilton & Harper, 1994). Tolerated behavior inclines to be more innovative, risky and proactive. Successful entrepreneurs take manageable risks in order to schedule their potential rewards. New behavioral archetypes and EO can increase the prosperity of the community through appropriate resource management, providing high-quality public services (Karyotakis et al., 2015). Due mainly to the size and heterogeneity of these organizations, innovative and entrepreneurial solutions are imposed. Zampetakis and Moustakis (2007) claim that the social welfare attained has more than personal or economic objectives. Likewise, Benz (2009) claims that the benefits of entrepreneurial behavior are primarily non-profit. Entrepreneurship drives to social, economic, and political innovation. This innovation is “creatively destructive” (Schumpeter, 1934). Nevertheless, before each innovation process, some factors should be taken into account: ◆◆ the import, the adoption or the mining cost of innovation, ◆◆ the potential benefits for the community, ◆◆ the potential negative reverberations and ◆◆ the required time availability. Innovations may be useful for some citizens, for the whole community and/or for the employees themselves. Innovation Innovation can influence the long-term viability of a business, as well as social and economic change (Wu, 2011). However, factors such as goal clarity, time availability, resources, equipment, services and autonomous work environment are required for adoption of innovative ideas (Yuan & Woodman, 2010). An innovative organizational environment encourages creativity, risk-taking, autonomy, freedom, teamwork, trust, respect, communication,

EJAE 2016  13 (1)  47-59

Karyotakis, K., Moustakis, V.  Organizational factors, organizational culture, job satisfaction and entrepreneurial orientation

flexible and relatively instant solutions (Dobni, 2008). Furthermore, innovation prospers in environments where appropriate conditions thrive, and focuses on factors such as mission, vision, customer, management processes, support mechanisms, leadership and employee constituency (Martins & Terblanche, 2003). Innovation in the public sector contributes to open government, and can be stimulated through continuous training and learning orientation in combination with continuous evaluation, financial and administrative incentives, adding value to the outcome. Nevertheless, there is no integrated framework for comprehending and measuring innovation in this sector (Koch & Hauknes, 2005). In the public sector, value can be created by social outcome, services or trust. Increased efficiency, improved quality, user satisfaction, greater usage of services, greater equity (fairness) in service provision or greater choice or variety, constitute facets of value creation in services. Entrepreneurship Currie et al. (2008) define entrepreneurship as the process of recognizing and pursuing opportunities by individuals and/or organizations. Entrepreneurship can be viewed as “the process of creating value by bringing together a unique package of resources to exploit an opportunity” (Drucker, 1985; Kao, 1989). Entrepreneurship takes place in any organization of any size or form (private sector, public sector, non-profit sector). Indeed, large traditional organizations are encouraged to adopt entrepreneurial behavior in order to ameliorate their performance. Entrepreneurial behavior adds value to an organization as it affects the way in which bureaucracy is confronted and strategic vision is envisaged, forming a more energetic environment characterized by a change of orientation (Wu, 2011). Leadbeater and Goss (1998) espouse the opinion that there is much more entrepreneurship in the public sector than it is actually believed.

Indeed, appropriate organizational changes and administrative practices and processes can energize entrepreneurship forms (Zampetakis, 2007). Schumpeter (1934) conjectures that EO is the most effective strategy that should be followed in order to survive a deep economic downturn. The organizational reform of the public sector from a traditional and bureaucratic form to a more entrepreneurial form is inevitable for economic development and prosperity. In more heterogeneous and turbulent environments, more systemic public entrepreneurship is highly needed taking into account a wide range of people, institutionalizing and affecting a notable portion of organizational functions and operations (Scott, 2001).

CULTURE AND CHANGE PROCESS It is essential to develop and nurture an entrepreneurial organizational culture that will encourage flexibility, undertaking of initiatives, autonomy, freedom and finding direct and innovative solutions that will focus on human resources, creation and knowledge management, as well as on development of a partner-like relationship among public servants, state, society, private sector and non-profit organizations. Such culture should go beyond legalism, formalism, inertia and overspending, serving the society and the economy without oppressing the citizens. In this way, red-tape is minimized and both processes and procedures are optimized. The ultimate goal of previous actions is to have effective and efficient citizen’s services that will satisfy the needs of both employees and citizens. It will be characterized by quality, transparency, accountability, extroversion, value, rules and result orientation. Another important aspect is the fact that maturity, justice and objectivity are the points to social and political level that focus on the creation and evolvement of the successful change process. This culture should be espoused by every employee, improving his/her readiness to change and limiting the phenomena of resistance to change. 49

EJAE 2016  13 (1)  47-59

Karyotakis, K., Moustakis, V.  Organizational factors, organizational culture, job satisfaction and entrepreneurial orientation

Based on the above-stated, it is more than obvious that human resources constitute public administration. Therefore, employees who have to actively participate in the change process are the lever for the public sector modernization, constituting part of this and embodying it in their daily practices, attitudes and behavior. When someone refers to modernization, he/she usually relates to the change process. It is recommended to advocate organizational culture that will support readiness to change and will not be close-minded and resistant to change (Karyotakis & Moustakis, 2014). Moustakis (2012) supports the claim that the change process in an organization is the outcome of the following factors:

K x C x W (1)

where: K = Know. Organization members should clearly know what they should do. C = Can. Organization members should have the ability or the opportunity to perform the task. W = Want. Organization members should have the willingness to perform the task. If any factor of (1) is zero, or tends to zero, the total outcome will be zero or will tend to zero, too. Bowen (1986) emphasizes the willingness of human resources to accept or reject any change. Their willingness greatly determines the success of an organization. Bowen (1986) assigns more relevance to the factor W of (1). However, not all the people are considered equally important assets in an organization, but only the right people (Collins, 2001). The term right people refers to their technical knowledge, academic qualifications, skills, etc. Additionally, diversity among employees may encourage the exchange of ideas, thus facilitating the learning process (Kearney & Gebert, 2009). The mapping and evaluation of knowledge and skills (qualifications) of civil servants, which will 50

be well described through properly position outlines (mobility), will redistribute them in the appropriate workstation and can lead to the rational use of human resources. Learning Organizations Last but not least, public organizations should evolve into learning organizations through continuous learning, attitudes, practices and behavior, appropriate staffing, administrative ethos and interactive communication within and outside the organization in order to survive and adapt to dynamic and constantly changing environment. Benchmarking policies lead to identification of best management practices and organizational learning via knowledge diffusion and transfer policy.

PROPOSED MODEL The present article attempts to formalize the relationships among the key constructs that connect organizational and structural factors that drive to EO through organizational culture and job satisfaction (mediators). Based on the literature research, this contribution concludes with four specific organizational dimensions (internal work environment, work discretion, rewards/recognition and organizational boundaries), which in combination with four structural dimensions (formalization, centralization, technology routines and connectedness) constitute the crucial elements of an internal work environment that lead to EO, as shown in Figure 1. Each determinant is briefly examined below from the employee perspective. Organizational factors Internal work environment Management and coworker support are considered an organization’s internal work environment. The term management support implies the extent to which an employee perceives and the

EJAE 2016  13 (1)  47-59

Karyotakis, K., Moustakis, V.  Organizational factors, organizational culture, job satisfaction and entrepreneurial orientation

Figure 1. Conceptual model shows the effects of organizational factors on job satisfaction through organizational culture (mediator) and the effects of organizational culture on Entrepreneurial Orientation through job satisfaction (mediator). Moderating effects suggest that resource availability and ability to overcome barriers strengthen the job satisfaction to Entrepreneurial Orientation relationship.

ways in which the upper managers’ countenance facilitates and boosts entrepreneurial behavior (Kuratko et al., 2014). When top management supports entrepreneurial behavior (such as innovative, proactive and risk-taking behavior), middle managers are more likely to behave in this way and vice versa (Meynhardt & Diefenbach, 2012). The perception of management support encourages creative ideas and explores new opportunities, promoting their implementation through the sense of participation and contribution that is spread among employees (Calantone et al., 2002). Management support is the cornerstone for creative and discretionary behavior. This support undoubtedly constitutes the vehicle of each organization through which an employee can innovate (Ma Prieto & Perez-Santana, 2014). Furthermore, colleagues’ trust is positively related to proactive behavior (Parker et al., 2006). Cooperation encourages knowledge sharing, adoption and creation, forging a friendly to innovation work environment (Hsu et al., 2007).

Additionally, Parker et al. (2006) claim that management and coworker support are the elements of supportive internal work environment which significantly influences innovative work behavior, inciting proactively and expanding employee’s self-perception. Assuredly, support is of vital importance in such innovative and unpredictable work environments. Work discretion The perception that an organization encourages testing and experimentation, recognizing the possibility of failure through adoption of fewer strict rules and procedures, allows for decisionmaking and provides relative flexibility to lowerlevel managers and employees (Kuratko et al., 2014). Work discretion provides middle management with the opportunity to innovate and behave more entrepreneurially (Meynhardt & Diefenbach, 2012). 51

EJAE 2016  13 (1)  47-59

Karyotakis, K., Moustakis, V.  Organizational factors, organizational culture, job satisfaction and entrepreneurial orientation

Rewards/recognition/reinforcement

The perception that rewards systems based on EO, performance and success are encountered in the organization (Kuratko et al., 2014). Hornsby et al. (2002) support the claim that the appropriate reward system must encourage the entrepreneurial activity, focusing on goals, individual responsibility, results and feedback.

It mainly refers to the extent to which formal rules, standard policies and procedures define decisions and working relationships (Holsapple & Joshi, 2001). More flexibility and less formal work rules can increase creativity, openness, communication, variation, knowledge mining and creation (Jarvenpaa & Staples, 2000).

Monetary incentives, recognition through distinguishing marks or ceremonies, job design, increased responsibility, evaluation and sharing of people’s innovative ideas constitute the examples of rewards and reinforcement of human resource practices which act independently or in combination (Hornsby et al., 1993; Perry-Smith, 2006). Flexible job design, which is characterized by job enrichment and teamwork, impels employees to act in a more proactive problem solving manner, pursuing more open-minded improvements (Ma Prieto & Perez-Santana, 2014).

There are indications that higher levels of alienation among public and private sector employees (Zeffane, 1994), welfare agency workers (Aiken & Hage, 1966) and engineers (Greene, 1978) have been connected to formalization. Furthermore, there is a view point that accepts that formalization reduces stress through decrease of conflict and ambiguity role, providing guidance and clarifying job responsibility (Adler & Borys, 1996).

More entrepreneurial firms reward individual performance, with an emphasis on long-term effects, emboldening entrepreneurial behavior. Moreover, empirical research detects a positive correlation between the appropriate use of rewards and corporate entrepreneurship (Wood et al., 2008). However, it is well known that entrepreneurial and innovative behaviour is often connected with risk-taking (Hornsby et al., 2002), while it was not being undertaken in cases of nonreward systems (Meynhardt & Diefenbach, 2012). Organizational boundaries Flexible organizational boundaries expedite information flow and sharing, boosting entrepreneurial behavior and ensuring productive and effective use of innovative available resources. Nevertheless, relatively structured processes are preferred over the chaotic ones, as uncertainty is maintained at manageable levels (Kuratko et al., 2014). Organizational boundaries contain the subcategories of formalization, centralization, technology routines and connectedness, as given below. 52

Formalization

Last but not least, there is the standpoint that increasing the level of organizational bureaucracy with more formalization may corroborate organizational commitment and constrain employees to comply with the organizational bureaucratic requirements (DeHart-Davis & Pandey, 2005). Centralization Empirical evidence demonstrates that in an effort of achieving organizational control, centralized decision making is implemented and this action results in employee alienation (Zeffane, 1994). Higher levels of alienation between the public and the private welfare agencies (Aiken & Hage, 1966) and public sector telecommunication workers (Zeffane, 1993) are connected with centralization. Seeman (1959) supports the fact that the lack of workplace autonomy increases alienation. Technology routines This factor may alienate public managers, although it does not constitute a direct form of organizational control. Indeed, there seems to be a positive correlation between technology routines and alienation (DeHart-Davis & Pandey, 2005).

EJAE 2016  13 (1)  47-59

Karyotakis, K., Moustakis, V.  Organizational factors, organizational culture, job satisfaction and entrepreneurial orientation

Connectedness

Connectedness is mainly related to the decision-making process which is connected with communication channels in the organization. Organizational culture Organizational culture includes traits, values and beliefs of employees at all levels, where many of them are subconscious, and can be expressed through attitudes, behavior, feelings, relationships, language, physical settings, symbolisms and artifacts (Dobni, 2008; Zeffane, 1993). Shared values, beliefs and expected behavior, which are the basic components of organizational culture, can have a bearing on innovation either through the process of socialization (Seeman, 1959) or through basic values, assumptions and beliefs (Chatman & Jehn, 1994). Culture is of vital importance for organizational innovation, as it affects creativity and innovation through policies, structures, procedures and processes. Organizational culture is the cornerstone in the process of organizational learning. An organization is characterized as a learning one if (Tesluk et al., 1997): ◆◆ its members are empowered, ◆◆ its members participate in the decisionmaking process and ◆◆ there is discretion in the administrative roles. The existing literature concludes that there is a strong bond between innovativeness and culture (Dobni, 2008). Argyris and Schön (1996) reckon that the level of organizational innovativeness is linked with the culture that focuses on learning evolution and participative decision-making. Organizational learning Hurley and Hult (1998) consider organizational learning initially as knowledge acquisition which leads to value acquisition. It takes place when individuals act as learning agents for the organization and they are adapted to the internal

and external environmental changes. Organizational learning, which constitutes a continuous and dynamic process, is the key to the firm’s success (Sinkula et al., 1997). Commitment to learning is defined as the extent to which an organization considers learning an important value (Sackmann, 1991). Commitment to learning is of vital importance for the intensity of organizational learning (Wang, 2008). Indeed, every experience is a learning opportunity. However, it is well-known that learning is a more effective continuous process when shared. In general, learning orientation can be considered a system that generates and shares information. Learning orientation is a crucial perspective of organizational strategies and can optimize the outcome of the EO on the firm’s performance (Covin et al., 2006). A learning organization focuses on the attainment of erudition that could bring benefits to the organization, while Wang (2008) infers that the maximization of enterprise’s performance can be achieved through cultivation of organizational learning. Within this frame, public policy should be learning-oriented. Public organizations are familiar with the learning process, they easily adjust to changes, improve their performances and evolve through knowledge management. Certainly, the organization’s learning ability is acquired by their members (Simon, 1969), and thus considerable attention should be devoted to this aspect. Learning ability of public organizations can be increased by adoption and implementation of feedback mechanisms and knowledge management systems. Thus, the appropriate conditions should be shaped in the internal and external working environment of each organization in order to foster organizational learning. Organizational commitment Porter (1974) defines it as deep beliefs which accept the goals and values of an organization. It highlights the quality of bonds between employees 53

EJAE 2016  13 (1)  47-59

Karyotakis, K., Moustakis, V.  Organizational factors, organizational culture, job satisfaction and entrepreneurial orientation

and organizations, and it stimulates public service motivation (Oliver, 1990). Organizational commitment is vital for quality assurance in the public sector (Romzek, 1990). Shared vision Shared vision implies the extent to which organizational goals are widely understood (Day, 1994). The vision affects the direction of learning (Wang, 2008). Shared vision guides individuals who are open-minded, committed to learning and motivated to learn in the right direction (Hurley & Hult, 1998). Senge (1990) considers organizations as learning entities that share the organizational vision and approach to problem solving with openmindedness. Open-mindedness It refers to the degree to which an organization proactively disputes well established procedures, methods, assumptions, beliefs and convictions (Hurley & Hult, 1998) which are related to the concept of “unlearning” (Nystrom & Starbuck, 1984). The cultural openness to innovation is a cornerstone for innovativeness and can detect needs or opportunities for innovation. Job satisfaction This variable refers to the overall employee satisfaction with their job, supervisors, co-workers, payments, promotion opportunities, traders, occupational safety and conflict management. Job satisfaction forecasts entrepreneurial intentions (Eisenhauer, 1995; Watson et al., 1998). Furthermore, the theories on job satisfaction hypothesize that organizational climate determines job satisfaction (Agho et al., 1993) and employees are driven into entrepreneurship by low job satisfaction (Watson et al., 1998). Entrepreneurial Orientation (EO) According to Lumpkin and Dess (1996), it refers to an organization’s or department’s degree 54

of entrepreneurship, namely processes, practices and decision-making activities which lead to a new entry. It can be measured through innovativeness, risk-taking and proactiveness (Currie et al., 2008; Miller, 1983). Sharma and Chrisman (1999) define corporate entrepreneurship as the process which takes place at an organization where an individual or a group of individuals create a new organization or incite renewal or innovation within this specific organization. According to Kuratko et al. (2005), entrepreneurial behavior is the attitude and practice of corporate entrepreneurship which takes place at an individual level. Added value is created through EO. In the public sector, EO is often measured by the “entrescale” (Miller, 1983; Covin & Slevin, 1989). The findings of several empirical studies show that the firms with more EO perform better (Kuratko et al., 2005). Moreover, an afterwards meta-analysis of 37 studies reveals that firms benefit from (Sharma & Chrisman, 1999). The more entrepreneurial the organization is, the more learning-oriented it becomes and it has more chances to endorse values that boost commitment to learning, open-mindedness and shared vision (Wang, 2008). Innovativeness It is defined as an organization’s “tendency to engage in and support new ideas, novelty, experimentation and creative processes that may result in new products, services, or technological processes” (Lumpkin & Dess, 1996, p. 142). Innovative behavior characterizes innovative organizations. Dobni (2008) supports the claim that organizational innovativeness is a broad notion which can take a form from the intention to be innovative to the ability to introduce a new product, service or idea via the input of procedures, processes and systems, increasing potentially the organizational performance. Innovativeness is a dynamic organizational trait that appears overtime.

EJAE 2016  13 (1)  47-59

Karyotakis, K., Moustakis, V.  Organizational factors, organizational culture, job satisfaction and entrepreneurial orientation

Proactiveness

It refers to the extent to which an organization prevents, foresees, anticipates and acts towards future needs (Lumpkin & Dess, 1996) and detecting new opportunities. Risk-taking It mainly refers to the extent to which “managers are willing to make large and risky resource commitments, i.e. those which have a reasonable chance of costly failures” (Covin & Slevin, 1989, p. 923). Entrepreneurship carries certain amount of risk and uncertainty. The importance of risk-taking EO dimension is obvious given the fact that the level of external and internal organizational uncertainty is growing on a day-to-day basis. However, in the public sector, it follows a political process which is subject to the public law and requires legitimacy (Meynhardt & Diefenbach, 2012). Resource availability Resource availability is prescribed as the accessibility and “availability of resources for innovative activities” (Hornsby et al., 2002, p. 253), such as financial resources (budget flexibility), human resources and time availability. The availability of these resources boosts experimentation, risk-taking attitudes and behavior. Indeed, there are several studies that focus on time availability among managers, as a component of vital importance for taking entrepreneurial initiatives (Kuratko et al., 2014). Ability to overcome barriers There are enough barriers to organizational innovation which may impede or lag an organization’s efforts to evolve or induct novel or remarkably improved services, communication or organizational methods, procedures or processes. The examples of the above-stated could include: ◆◆ the absence of flexibility in statutes and bylaws (political factor),

◆◆ the lack of motivation and incentives for an organization as a whole to be innovative and/or ◆◆ the absence of budgetary funding (human or financial support). Obstacles, such as the lack of collaboration, lack of management support, employee resistance to change, risk of failure and/or risk-averse culture, could be part of the organization and its culture. Barriers may be related to other internal conditions, such as scant time availability or lack of incentives for human resources to innovate. Finally, hurdles can constitute external junctures, such as user resistance to change or regulatory requisitions (Bloch & Bugge, 2013).

CONCLUSIONS Public administration places particular emphasis on the utilization of citizens’ social welfare through services rendering within transparency framework, effectiveness of control and implementation of public policies. In order to be successful, structural changes must be accompanied by specific attitudes, behavior and efforts. Slater and Narver (1995) have noticed that entrepreneurial organizations are innovative and risk-tolerant. Such behavior results in exploration and experimentation, thriving the organizational learning. In order to take advantage of entrepreneurial activities, an organization must be governed by the principles that are in compliance with learning commitment, open-mindedness towards change and shared vision. The present article outlines the theoretical framework, describing how this leads organizational factors to EO through organizational culture and job satisfaction (moderators), under the influence of resources availability and the ability to overcome different barriers. In the society and the economy, as in biology, the phenomena of renewal and change are conditioned sine qua non of life and evolution. As in the private sector, the EO in public sector can be a useful means for achieving that. 55

EJAE 2016  13 (1)  47-59

Karyotakis, K., Moustakis, V.  Organizational factors, organizational culture, job satisfaction and entrepreneurial orientation

Through behavioral changes of obsolete bureaucratic procedures, the public sector can boost flexibility and EO, conserving simultaneously practices, processes and procedures that are essential for ensuring the quality of citizens’ services. Contemporary dynamic and changeable conditions advocate work environment that would encourage new ideas, innovation, pro-active behavior, risk-taking and rational management, reward experimentation and nurture maturity, readiness to change and open-mindedness. All this is crucial for an organization not only for adaptation and development, but also for viability reasons (Karyotakis & Moustakis, 2015). Acknowledgment K. M. Karyotakis feels obliged to express his appreciation to the “George and Victoria Karelias Foundation” for the Karelia Foundation Scholarship grant.

REFERENCES Adler, P.S., & Borys, B. (1996). Two types of bureaucracy: Enabling and coercive. Administrative science quarterly, 41(1), 61-89. doi:10.2307/2393986. Agho, A.O., Mueller, C.W., & Price, J.L. (1993). Determinants of employee job satisfaction: An empirical test of a causal model. Human relations, 46(8), 10071027. doi:10.1177/001872679304600806. Aiken, M., & Hage, J. (1966). Organizational alienation: A comparative analysis. American Sociological Review, 31(4), 497-507. Argyris, C., & Schön, D.A. (1996). Organisational learning II: Theory, method and practice. Reading, MA: Addison-Wesley. Bekkers, V.J.J.M., Hartley, J., & Dawes, S.S. (2009). Innovation and the Public Sector. In Meijer, A., Boersma, K., and Wagenaar, P. (Eds.), ICTs, Citizens and Governance: After the Hype! Amsterdam, The Netherlands: IOS Press. Benz, M. (2009). Entrepreneurship as a non-profitseeking activity. International Entrepreneurship and Management Journal, 5(1), 23-44. doi:10.1007/ s11365-006-0031-y. 56

Bloch, C., & Bugge, M.M. (2013). Public sector innovation - From theory to measurement. Structural Change and Economic Dynamics, 27, 133-145. doi:10.1016/j.strueco.2013.06.008. Bowen, D.E. (1986). Managing customers as human resources in service organizations. Human Resource Management, 25(3), 371. doi:10.1002/ hrm.3930250304. Calantone, R.J., Cavusgil, S.T., & Zhao, Y. (2002). Learning orientation, firm innovation capability, and firm performance. Industrial marketing management, 31(6), 515-524. doi:10.1016/S0019-8501(01)00203-6. Chatman, J.A., & Jehn, K.A. (1994). Assessing the relationship between industry characteristics and organizational culture: how different can you be? Academy of management journal, 37(3), 522-553. doi:10.2307/256699. Collins, J.C. (2001). Good to great: Why some companies make the leap - and others don’t. New York: Harper Business. Covin, J.G., & Slevin, D.P. (1989). Strategic management of small firms in hostile and benign environments. Strategic management journal, 10(1), 75-87. doi:10.1002/smj.4250100107. Covin, J.G., Green, K.M., & Slevin, D.P. (2006). Strategic process effects on the entrepreneurial orientation– sales growth rate relationship. Entrepreneurship Theory and Practice, 30(1), 57-81. doi:10.1111/j.15406520.2006.00110.x. Currie, G., Humphreys, M., Ucbasaran, D., & McManus, S. (2008). Entrepreneurial leadership in the English public sector: paradox or possibility? Public Administration, 86(4), 987-1008. doi:10.1111/j.14679299.2008.00736.x. Day, G.S. (1994). The capabilities of market-driven organizations. Journal of Marketing, 58(4), 37-52. doi:10.2307/1251915. DeHart-Davis, L., & Pandey, S.K. (2005). Red tape and public employees: Does perceived rule dysfunction alienate managers? Journal of Public Administration Research and Theory, 15(1), 133-148. doi:10.1093/ jopart/mui007. Dobni, C.B. (2008). Measuring innovation culture in organizations: The development of a generalized innovation culture construct using exploratory factor analysis. European Journal of Innovation Management, 11(4), 539-559. doi:10.1108/14601060810911156. Drucker, P. (1985). Entrepreneurship and innovation: Practice and principles. NY: Harper Business.

EJAE 2016  13 (1)  47-59

Karyotakis, K., Moustakis, V.  Organizational factors, organizational culture, job satisfaction and entrepreneurial orientation

Eisenhauer, J.G. (1995). The entrepreneurial decision: Economic theory and empirical evidence. Entrepreneurship: Theory and Practice, 19(4), 67-80. Greene, C.N. (1978). Identification modes of professionals: Relationship with formalization, role strain, and alienation. Academy of Management Journal, 21(3), 486-492. doi:10.2307/255729. Hamilton, R.T., & Harper, D.A. (1994). The entrepreneur in theory and practice. Journal of Economic Studies, 21(6), 3-18. doi:10.1108/01443589410071391. Holsapple, C.W., & Joshi, K.D. (2001). Organizational knowledge resources. Decision support systems, 31(1), 39-54. doi:10.1016/S0167-9236(00)00118-4. Hornsby, J.S., Kuratko, D.F., & Zahra, S.A. (2002). Middle managers’ perception of the internal environment for corporate entrepreneurship: assessing a measurement scale. Journal of Business Venturing, 17(3), 253-273. doi:10.1016/S08839026(00)00059-8. Hornsby, J.S., Naffziger, D.W., Kuratko, D.F., & Montagno, R.V. (1993). An interactive model of the corporate entrepreneurship process. Entrepreneurship: Theory and practice, 17(2), 29-38. Hsu, I.C., Yeh-Yun Lin, C., Lawler, J.J., & Wu, S.H. (2007). Toward a model of organizational human capital development: Preliminary evidence from Taiwan. Asia Pacific Business Review, 13(2), 251275. doi:10.1080/13602380701233547.

Karyotakis, K.M., Bakatsaki, M., & Moustakis, V.S. (2015). The Entrepreneurial Facets Of Public Administration. Paper presented at the Synthesis International Scientific Conference of IT and BusinessRelated Research, Singidunum University, Belgrade, 16-17 April (pp. 327-331). doi:10.15308/Synthesis-2015-327-331. Kearney, E., & Gebert, D. (2009). Managing diversity and enhancing team outcomes: the promise of transformational leadership. Journal of Applied Psychology, 94(1), 77. doi:10.1037/a0013077. Koch, P., & Hauknes, J. (2005). On innovation in the public sector. Oslo: NIFU STEP. Kuratko, D.F., Hornsby, J.S., & Covin, J.G. (2014). Diagnosing a firm’s internal environment for corporate entrepreneurship. Business Horizons, 57(1), 37-47. doi:10.1016/j.bushor.2013.08.009. Kuratko, D.F., Ireland, R.D., Covin, J.G., & Hornsby, J.S. (2005). A Model of Middle‐Level Managers’ Entrepreneurial Behavior. Entrepreneurship theory and practice, 29(6), 699-716. doi:10.1111/j.15406520.2005.00104.x. Leadbeater, C., & Goss, S. (1998). Civic entrepreneurship. London: Demos Publication. Lumpkin, G.T., & Dess, G.G. (1996). Clarifying the entrepreneurial orientation construct and linking it to performance. Academy of management Review, 21(1), 135-172.

Hurley, R.F., & Hult, G.T.M. (1998). Innovation, market orientation, and organizational learning: an integration and empirical examination. The Journal of Marketing, 62(3), 42-54. doi:10.2307/1251742.

Ma Prieto, I., & Pilar Perez-Santana, M. (2014). Managing innovative work behavior: the role of human resource practices. Personnel Review, 43(2), 184-208. doi:10.1108/PR-11-2012-0199.

Jarvenpaa, S.L., & Staples, D.S. (2000). The use of collaborative electronic media for information sharing: an exploratory study of determinants. The Journal of Strategic Information Systems, 9(2), 129-154. doi:10.1016/S0963-8687(00)00042-1.

Martins, E.C., & Terblanche, F. (2003). Building organisational culture that stimulates creativity and innovation. European journal of innovation management, 6(1), 64-74. doi:10.1108/14601060310456337.

Kao, J.J. (1989). Entrepreneurship, creativity and organization. Eaglewood Cliffs, New Jersey: Prentice Hall. Karyotakis, K.M., & Moustakis, V.S. (2014). Reinvention of the public sector: Total quality management and change management. Singidunum Journal of Applied Sciences, 11(2), 30-44. doi:10.5937/ejae11-6751. Karyotakis, K.M., & Moustakis, V.S. (2015). Innovating in Public Administration. Paper presented at the 12th Student Conference of Science and Technology, Athens University of Economics and Business & Hellenic Management Association, Athens, 14 May (pp. 114-124). In Greek.

Meynhardt, T., & Diefenbach, F.E. (2012). What Drives Entrepreneurial Orientation in the Public Sector? Evidence from Germany’s Federal Labor Agency. Journal of Public Administration Research and Theory, 22(4), 761-792. doi:10.1093/jopart/mus013. Miller, D. (1983). The correlates of entrepreneurship in three types of firms. Management science, 29(7), 770-791. Moustakis, V. (2012). Administrative technology. Greece, Chania: Disigma. In Greek. Nystrom, P.C., & Starbuck, W.H. (1984). To avoid organizational crises, unlearn. Organizational dynamics, 12(4), 53-65. 57

EJAE 2016  13 (1)  47-59

Karyotakis, K., Moustakis, V.  Organizational factors, organizational culture, job satisfaction and entrepreneurial orientation

Oliver, N. (1990). Rewards, investments, alternatives and organizational commitment: Empirical evidence and theoretical development. Journal of Occupational Psychology, 63(1), 19-31. doi:10.1111/j.2044-8325.1990.tb00507.x. Parker, S.K., Williams, H.M., & Turner, N. (2006). Modeling the antecedents of proactive behavior at work. Journal of Applied Psychology, 91(3), 636. doi:10.1037/0021-9010.91.3.636. Perry-Smith, J.E. (2006). Social yet creative: The role of social relationships in facilitating individual creativity. Academy of Management Journal, 49(1), 85-101. doi:10.5465/AMJ.2006.20785503. Porter, L.W., Steers, R.M., Mowday, R.T., & Boulian, P.V. (1974). Organizational commitment, job satisfaction, and turnover among psychiatric technicians. Journal of Applied Psychology, 59(5), 603. doi:10.1037/h0037335. Romzek, B.S. (1990). Employee investment and commitment: The ties that bind. Public Administration Review, 50(3), 374-382. Sackmann, S.A. (1991). Cultural knowledge in organizations: Exploring the collective mind. Newbury Park, CA: Sage. Schumpeter, J.A. (1934). The Theory of Economic Development. Boston, MA: Harvard University Press. Scott, R.D. (2001). Organizations and Institutions. Stanford, CA: Stanford University Press. Seeman, M. (1959). On the meaning of alienation. American sociological review, 783-791. Senge, P.M. (1990). The ﬁfth discipline: The art and practice of the learning organization. US: Currency Doubleday. Sharma, P., & Chrisman, S.J.J. (1999). Toward a reconciliation of the definitional issues in the field of corporate entrepreneurship. Entrepreneurship Theory and Practice, 23(3), 11-27. doi:10.1007/978-3-54048543-8_4. Shockley, G.E., Frank, P.M., & Stough, R.R. (2002). Toward a theory of public sector entrepreneurship. Paper presented at the NCIIA 7th Annual Meeting: Big Ideas in a Small World, Boston, MA, 20-22 March. Simon, H.A. (1969). The architecture of complexity. In The Sciences of the Artificial (pp. 192-229). Cambridge, MA: MIT Press. Sinkula, J.M., Baker, W.E., & Noordewier, T. (1997). A framework for market-based organizational learning: Linking values, knowledge, and behavior. Journal of the academy of Marketing Science, 25(4), 305-318. 58

Slater, S.F. & Narver, J.C. (1995). Market orientation and the learning organization. Journal of Marketing, 59(3), 63-74. doi:10.2307/1252120. Tesluk, P.E., Farr, J.L., & Klein, S.R. (1997). Influences of organizational culture and climate on individual creativity. The Journal of Creative Behavior, 31(1), 27-41. doi:10.1002/j.2162-6057.1997.tb00779.x. Wang, C.L. (2008). Entrepreneurial orientation, learning orientation, and firm performance. Entrepreneurship theory and practice, 32(4), 635-657. doi:10.1111/ j.1540-6520.2008.00246.x. Watson, R.T., Zinyowera, M.C., & Moss, R.H. (1998). The regional impacts of climate change: an assessment of vulnerability. UK: Cambridge University Press. Wood, C.C., Holt, D.T., Reed, T.S., & Hudgens, B.J. (2008). Perceptions of corporate entrepreneurship in air force organizations: antecedents and outcomes. Journal of Small Business and Entrepreneurship, 21(1), 117-131. doi:10.1080/08276331.2008.1 0593416. Wu, J. (2011). Asymmetric roles of business ties and political ties in product innovation. Journal of Business Research, 64(11), 1151-1156. doi:10.1016/j.jbusres.2011.06.014. Yuan, F., & Woodman, R.W. (2010). Innovative behavior in the workplace: The role of performance and image outcome expectations. Academy of Management Journal, 53(2), 323-342. doi:10.5465/ AMJ.2010.49388995. Zampetakis, L.A. (2007). Methodology for the development of entrepreneurship in public sector (Doctoral dissertation). Technical University of Crete, Greece. In Greek. Zampetakis, L.A., & Moustakis, V. (2007). Entrepreneurial behaviour in the Greek public sector. International Journal of Entrepreneurial Behavior and Research, 13(1), 19-38. doi:10.1108/13552550710725165. Zampetakis, L.A., & Moustakis, V.S. (2010). An exploratory research on the factors stimulating corporate entrepreneurship in the Greek public sector. International Journal of Manpower, 31(8), 871-887. doi:10.1108/01437721011088557. Zeffane, R. (1993). Uncertainty, participation and alienation: Lessons for workplace restructuring. International Journal of Sociology and Social Policy, 13(5/6), 22-52. doi:10.1108/eb013174. Zeffane, R. (1994). Patterns of organizational commitment and perceived management style: A comparison of public and private sector employees. Human Relations, 47(8), 977-1010. doi:10.1177/001872679404700806.

EJAE 2016  13 (1)  47-59

Karyotakis, K., Moustakis, V.  Organizational factors, organizational culture, job satisfaction and entrepreneurial orientation

ORGANIZACIONI FAKTORI, ORGANIZACIONA KULTURA, ZADOVOLJSTVO POSLOM I PREDUZETNIČKA ORIJENTACIJA U DRŽAVNOJ ADMINISTRACIJI Rezime: U radu se ispituje značaj i uticaj organizacione kulture i zadovoljstva poslom na odnos između organizacionih faktora i preduzetničke orijentacije u državnom sektoru kreiranjem i razmatranjem teorijskog okvira. Nakon temeljne analize pomenutih pojmova, autori prikazuju model koji najbolje ukazuje na njihove međusobne odnose. Amalgam internog radnog okruženja, poslovna diskrecija i nagrade/priznanja, uz pojedina ograničenja unutar same organizacije, poput formalizacije, centralizacije, rutine u primeni tehnologije i povezanosti, od presudnog su značaja za negovanje organizacione kulture i zadovoljstva poslom koji razvijaju preduzetničku orijentaciju kroz inovativnost, proaktivnost i spremnost za preuzimanje rizika.

Ključne reči: organizaciona kultura, organizacija koja uči, zadovoljstvo poslom, preduzetnička orijentacija, javni sektor. Received: March 12, 2016 Correction: April 15, 2016 Accepted: April 20, 2016

EJAE 2016, 13(1): 60-71 ISSN 2406-2588 UDK: 005.332:005.941(497.13) DOI: 10.5937/ejae13-8885 Original paper/Originalni naučni rad

THE IMPORTANCE OF ENTREPRENEURIAL LEARNING ON THE EXAMPLE OF THE SOUTH EAST EUROPEAN CENTER FOR ENTREPRENEURIAL LEARNING IN CROATIA Sanja Maleković, Sanja Tišma, Ivana Keser* IRMO, 2 Farkaša-Vukotinovića St., Zagreb, Croatia

Abstract: The paper focuses on the experience in development of entrepreneurial learning (EL) policy in South and East Europe (SEE), as a result of activities implemented by the South East European Center for Entrepreneurial Learning (SEECEL) in Croatia. It aims to explore whether the EL concept, as promoted and developed by SEECEL, can also contribute to development of an entrepreneurial mindset and behaviour, creative thinking, as well as enhancing the development of individual’s entrepreneurial characteristics regardless of their ambition to start/conduct some business. The authors also seek to explore the relevance of the exchange of experience, effective partnership and cooperation of all involved education and other institutions and actors engaged in policy support for further development of the EL approach in SEE. The authors address different perspectives and understandings of the EL concept, point out to the existence of different schools of thought on EL, and consider the interaction between learning and entrepreneurship, which asks for novel and rigorous theorizing.

INTRODUCTION Besides its serious adverse effects, the ongoing economic crisis, which emerged in 2008, has also severely affected the growth potential and youth employment, and has resulted in an increasing interest in education and training issues aimed at triggering growth and jobs. The search for possible solutions has also fostered the promotion of entrepreneurial education as a means of satisfying competitiveness and social (employment) agenda. Even though reference 60

* E-mail: ivana@irmo.hr

Key words: education and training, entrepreneurial learning concept, life-long learning.

is basically made to entrepreneurial education in the current academic and policy literature, our attention shall be placed on the two basic principles of entrepreneurial learning (EL). According to Gribben (2013), the first principle stems from the notion that all individuals should be encouraged to be more entrepreneurial, regradless of their ambition to start some business. The rationale is that entrepreneurial employees will be innovative and adaptable in the fast-changing economies, and should become more efficient and effective resource managers. The second notion is that EL includes all

EJAE 2016  13 (1)  60-71 Maleković, S., Tišma, S., Keser, I.  The importance of entrepreneurial learning

forms of education and training – formal, non-formal (not covered through the standard education curricula), as well as informal and incidental learning, relevant from the point of view of contributing to a more entrepreneurial mindset and behaviour.

a policy facilitator for its member countries, thus ensuring high-quality outputs through its regional activities in policy guidance, advice and assistance to key stakeholders in the field of entrepreneurial learning (Van’t Rood & Maleković, 2012).

The European Commission’s (EC) policy considers EL from a wider perspective, based on the considerations of entrepreneurship as a key competence, with education and training having a prominent role in cultivating the entrepreneurial mindset of young people, their intentions toward entrepreneurship, employability, as well as their role in society and the economy (EC, 2012). The need to embed creativity, innovation and entrepreneurship into education to unleash entrepreneurial and innovative capabilities are also highlighted in the European Union’s (EU) 2020 strategy. Furthermore, the European reference framework, “Entrepreneurship and Sense of initiative” is highlighted as one of the key eight life-long learning competencies that citizens need to possess for their personal fulfillment, social inclusion, active citizenship and employability in the knowledge-based society (EC, 2012).

During the research period, the following four pillars of SEECEL came to the forefront:

As Politis (2005) and Rae (2000) remark, EL is not solely conditioned by a commercial or profit objective. EL equally contributes to more entrepreneurial employees, which is relevant for the overall business performance. Pursuant to the renewed Lisbon Strategy, the promotion of entrepreneurial culture is of vital importance for generating jobs and economic growth in Europe. As regards South East Europe (SEE), efforts are currently underway at the national level to integrate EL as the key element of promoting sustainable economic growth and fostering competitiveness. Following these national efforts, the South East European Centre for Entrepreneurial Learning (SEECEL) was established as a regional institution in Croatia in 2009 with the aim to promote inclusion of entrepreneurial learning in eight countries of SEE (Albania, Bosnia and Herzegovina, Croatia, Kosovo, Macedonia, Montenegro, Serbia and Turkey). The Center primarily functions as

◆◆ Development of the entrepreneurship key competence (ISCED 2 level) ◆◆ Promotion of entrepreneurship/entrepreneurial learning at the third level education (ISCED 5/6 level) within non-business disciplines ◆◆ Enterprise-driven training needs analysis ◆◆ Dissemination and promotion of good policy and good practice. SEECEL’s main activities relate to the promotion and development of entrepreneurial culture and entrepreneurial learning as a key competence in both formal and informal education in SEE with the aim of strengthening the competitiveness of small and medium-sized enterprises in line with the previously mentioned EC policy. SEECEL demonstrates how these countries are cooperating and initiating joint activities with the aim of sharing ideas and experience, while creating added value and establishing the “Life-Long Entrepreneurial Learning System” in the region (Van’t Rood & Maleković, 2012).

THE AIM OF RESEARCH On the basis of the scholarly inquiry, review of the current academic literature on EL and evaluation results of the first three years of SEECEL’s programme, the principal aim of this paper is to explore whether the EL concept, as promoted and developed through SEECEL’s programme in SEE, can contribute to development of an entrepreneurial mindset and behaviour, problem solving, creative thinking, identifying opportunities, and enhancing the development of an individual’s entrepreneurial character regardless of their ambition to start a 61

EJAE 2016  13 (1)  60-71 Maleković, S., Tišma, S., Keser, I.  The importance of entrepreneurial learning

business. It also aims to measure the relevance of exchange of experiences, effective partnership and cooperation of all involved institutions and actors engaged in policy support for achieving effectiveness as well as to examine the impact of initiatives aiming at further strengthening the EL approach in SEE. The main point of our examination is not the creation of new successful entrepreneurs, but EL’s contribution to the improvement of entrepreneurial mindset of young people, assisting them in becoming more creative and self-confident in whatever they undertake, along with facilitating them in finding attractive jobs, and contributing to their improved role in society and the economy.

METHODOLOGY AND APPROACH In order to fulfill the main objectives of this paper, our research builds on the previous scholarly research findings on the EL concept. In addition, the empirical part of the research draws on the results of the evaluation process of SEECEL programme, based on the evaluation criteria of relevance, effectiveness, efficiency, impact and sustainability. The evaluation process, which gave us a profound insight into the problems and needs related to the introduction of the EL concept in the SEE region, was also focused on recommending changes of the strategy with the aim to further strengthen the SEECEL’s concept and approach, thus contributing to future development of the EL concept in SEE. During the research period, SEECEL’s programme covered 32 schools (ISCED level 1), 64 schools (ISCED level 2), 32 general education high schools, 16 high schools (ISCED LEVEL 5/6) and 8 institutions in charge of the teaching staff life-long learning. A multiple case study was utilized herein as the major research strategy. Furthermore, we used the principle of multiple data sources (triangulation), with data being collected through a number of research sources: documents, interviews and focus groups. In-depth interviews 62

were chosen as the method of data collection in all eight countries. Interviews were held with 16 stakeholders, including mainly those from the Ministries of Education and Economy (four from Serbia, one from Bosnia and Herzegovina, two from Turkey, two from Albania, two from Macedonia, three from Croatia, one from the European Commission – DG Enterprise and one from the European Training Foundation). Interviews were also held with 8 teachers/professors (teachers from elementary schools in Montenegro and Bosnia and Herzegovina, as well as university professors from Bosnia and Herzegovina and Croatia). Furthermore, interviews were held with SEECEL staff. Three focus groups were held, one in Montenegro (including the main stakeholders as well as teachers from 4 schools and professors from 2 faculties), while the remaining two were held with teachers and principals in elementary schools in Serbia and Bosnia and Herzegovina. When it comes to the tools utilized, a thorough literature survey was carried out, along with indepth interviews, focus groups, interviews, discussions and debates with school managment, teachers and pupils in schools participating in the project. Three types of specific questionnaires were developed for stakeholders and pilot institutions involved in the implementation of SEECEL’s programme. Responses were provided by 14 respondent questionnaires, including the main stakeholders and pilot schools and faculties in all SEECEL member countries. Our conslusions and recommendations were based on the profound analysis of available research findings and documentation, the analysis of the interview outcomes, as well as the questionnaire responses, which mutually complement the initial research findings. Among the interviewed entities were the stakeholders from the countries participating in the project, business associations, pilot schools and faculties, professors, teachers, students, pupils and others. Stakeholders in Bosnia and Herzegovina, Serbia, Croatia, and Montenegro were visited and interviewed in their countries. The applied meth-

EJAE 2016  13 (1)  60-71 Maleković, S., Tišma, S., Keser, I.  The importance of entrepreneurial learning

odology was particularly participatory at all stages. It was result-oriented and focused primarily on the issue of achieving ownership and committment related to project results.

ENTREPRENEURIAL LEARNING CONCEPT

and productively shared (Rae, 2009). In his further work, Rae purports EL, among other, as: learning and acting in an innovative and opportunistic way; applied creativity, recognising, creating and acting on opportunities; social interactions for self and social learning; creating multiple forms of values; and transformative, social, imaginal, emotional and experiential learning (Rae, 2011).

The EL concept has attracted considerable attention of part of the academic community over the past decade. Despite significant development in the research domain, a number of authors deem that the understanding and knowledge of interaction between learning and entrepreneurship is still limited, asking for novel and rigorous theorizing in order to develop a more complete and accurate understanding of how knowledge evolves (Holcomb et al., 2009; Corbett, 2005), with Cope (2005) the comments that a better grasp of EL is of crucial importance, as learning is the prerequisite for further development and growth of entrepreneurs. Even though recent scholarly research has concentrated more on EL in higher education, the common view is that EL concerns the development of entrepreneurial capabilities through life and work (Kakkonen, 2010; Rae & Carswell, 2001; Gibb, 2005). Entrepreneurship and entrepreneurial activities are often identified with economic activities. However, a person can be entrepreneurial (creative, innovative, prone to team work, accountable, independent), without being involved in entrepreneurial activities. The authors present different ways of doing things (Tkalec, 2011).

Other authors refer to EL as the process by which people acquire, assimilate and organize newly formed knowledge with the pre-existing structures, and refers to the ways in which learning affects entrepreneurial action (i.e., Cope, 2005; Corbett, 2005; Harrison & Leitch, 2005; Minniti & Bygrave, 2001). Gibb and Sogunro argue that traditional teaching methods, lectures and examinations do not activate entrepreneurship (Gibb, 2002; Sogunro, 2004). Apparently, along with knowledge, traditional teaching methods ask for new ways of thinking, new skills and new modes of behaviour, as well as entrepreneurial approaches. This requires students’ active participation in class, co-learning between teachers and students, with the student having ownership of her or his learning and the teacher supporting them and facilitating the overall process (Heinonen & Poikkijoki, 2006; Gibb, 2002; Fiet, 2001). A further immanent characteristic of the EL teaching approach is learning through experience, with Kolb (1984, p. 41) defining it as “the process whereby knowledge is created through transformation of experience”.

Different ways of understanding and EL perspectives have resulted in numerous definitions. Rae (2006) understands EL as an integral part of the entrepreneurial process in which human and social aspects are as important as the economic ones. The same author also defines it as learning to recognize and act on opportunities, and interacting socially to initiate, organize and manage business ventures. His observation is that this process had the double connotation of both learning to behave in, as well as learning through entrepreneurial ways. Furthermore, he observes that learning should be relational, authentic, relevant, useful

The presented observations indicate the existence of different schools of thought on EL (Kakkonen, 2010). Such observations apparently trigger scholarly inquiry and additionally emphasise the need for further, intensive academic research on the EL concept. Whilst we are witnessing academic debates on the main contributions of the EL approach and learning through experience, Pittaway et al. (2012) refer to some of the common features, from opportunities being created for individuals to learn from mistakes and grow personally, experiences allowing social learning as well as individual learning (McLaughlin & Thorpe, 1993; Mumford, 63

EJAE 2016  13 (1)  60-71 Maleković, S., Tišma, S., Keser, I.  The importance of entrepreneurial learning

1994), to reflection following experience which occurs when learning happens (Burgoyne & Hodgson, 1983; Daudelin, 1996). Such education is also a means of increasing social inclusion, and as referred to in the EC (2012) Report, it can be a gateway for greater integration of the framework for the key life-long learning competencies. In this regard, we are referring to a learner-centred approach or participatory approach. Simultaneously, the approach also contributes to more efficient and effective teaching, making it more enjoyable for both learners and teachers. It requires from the teacher to develop students’ abilities in order to reflect on their own experiences, putting them in a wider context, (Gibb, 2002). It is a quite different approach demanding more effective cooperation and interaction between the learner and the teacher. Moreover, Heinnonen and Poikkijoki (2006) remark that if you are able to get the students moving, you are likely to gain more access to their thoughts as well. Intuitive and innovative thinking is thus activated as well as experimenting with creativity and individuality (Carayannis et al., 2003). Based on the previously mentioned, introduction of EL concept at all levels can, in a longer term perspective, evidently contribute to higher growth and employment rates, more effective social security systems. It can also represent the basis for sustainable economic growth (Tafra, 2011). On the basis of Tafra’s (2011) reference to the main goals on the example of the Croatian EL strategy, it is reasonable to expect that EL simultaneously contributes to employability, the start-up of new small and medium-sized enterprises, higher rates of young people starting their business, higher rates of women’s entrepreneurship, creativity, innovation and competitiveness. In line with its entrepreneurship drive and the aforementioned, the EC’s aim is to encourage neighbouring countries undergoing significant institutional and policy reforms to adopt more strategic approaches to EL in the framework of 64

their education and training systems (EC, 2006). EC perceives a major challenge in ensuring full engagement and ownership of the EL agenda from the part of all stakeholders, particularly education authorities, supported through their leadership in the process of reform implementation. Since the EL concept is relatively new, a number of institutions, with the European Training Foundation being in the forefront, are pointing to the key role of teachers and the needs and benefits of sharing best practices among the involved institutions and relevant actors in different countries. As Gribben (2013) observes, cooperation between strategic partners from the public and private sectors, including the civil society and interest groups, is of vital importance and adds value to an evolving policy. These observations indicate the relevance of introducing the EL concept in SEE countries, which are considerably lagging behind in introducing such innovative approaches in the education system. Projects encompassing a wide array of institutions, pupils and students, as was the case with SEECEL’s programme, can trigger what Baker et al. (2005) refer to as “experiential learning, where learners construct new knowledge and/or meaning through collective experiences”. Experience with project based approaches is common and is used proactively to encourage learning (Raelin, 1997). SEECEL’s project, covering eight SEE countries, being itself an example of best practice, is amongst those which enable learning from experience based on the concrete achievements and successful results in all of the included pilot institutions in the SEECEL member countries (schools, universities), as well as learning based on the mainstreaming of the EL concept in education and entrepreneurship policies of the member states. In essence, SEECEL’s objectives and observed achievements are very complementary to Rae’s observations as to why EL actually matters. He also advocated EL’s contribution to creative thinking (stimulates vision, ambition and action), development of students’ confidence to act

EJAE 2016  13 (1)  60-71 Maleković, S., Tišma, S., Keser, I.  The importance of entrepreneurial learning

in uncertainty; its contribution to enabling lifelong learning – learning how to survive and grow; and finally, its contribution to finding and enacting opportunities which create value from latent resources (Rae, 2011).

FINDINGS SEECEL Programme Contribution to Development of Entrepreneurial Learning Concept in South East Europe The findings presented in this chapter follow the main evaluation criteria. The review of literature and response obtained from the stakeholders in the SEECEL member countries confirmed that the strengthened cooperation between policymakers and pilot schools in the implementation of entrepreneurial learning is from their perspective among the most meaningful achievements so far. The results of this project are multi-fold. The development of models and methodologies triggering entrepreneurial development in the involved partner institutions are some of the most relevant benefits. Stakeholders from Albania pointed to additional contributions in development of education systems, aligned with the EC educational policy. In Macedonia, EL became a government priority as a result of the project, with possibilities for including EL as a subject in primary schools. On the other hand, involved institutions, as was the case with the Chamber of Commerce in Serbia, whose main value in the project was development of new services and more developed cooperation with other partners in the SEE region. As regards Montenegro, Bosnia and Herzegovina and Croatia, teachers indicated the benefits of the new working experience for both students and teachers, and particularly the new visible entrepreneurial atmosphere developed as a result of implementing entrepreneurial ideas. Furthermore, involved schools and faculties observed that they were able to create additional value in their work by using the Community of Practice (CoP) which facilitated the sharing of knowledge and expertise throughout the SEE region, enabling

simultaneously further cooperation on other related projects of mutual interest. Along with other instruments and documentation developed by SEECEL, the faculties in Montenegro and Bosnia and Herzegovina consider it a useful way of being informed and learning on the basis of implemented activities and results of other pilot institutions, as well as a means of learning from the experience of other partners involved in the project. Along with CoP, close cooperation among partners was mentioned as the factor which contributed to the effectiveness of the implemented project. Furthermore, the respondents in pilot institutions indicated that the programme enabled them to animate pupils/students, to include them into project’s activities, empowering them to make decisions individually and within a group, as well as to develop entrepreneurial ideas. The responses obtained through questionnaires confirmed that the project triggered a creative and enthusiastic response from part of pupils and teachers, with the latter being visibly motivated to develop ideas for new activities. Such an approach in the implementation of project’s activities resulted in strengthened professional and personal relationships among teachers participating in the project. Additional value is seen in schools having developed cooperation with local entrepreneurs. On the whole, pupils and students demonstrated a more enthusiastic and by all means, different perception and attitude towards learning. The evaluation results have confirmed that the effectiveness of promoted measures and initiatives will be strengthened once teachers, along with related authorities, are more involved in the planning, design as well as direct implementation of strategies and action plans being developed. This will simultaneously be reflected in the sustainability of results and long term impact of projects and activities targeting EL development. Gribben (2013) furthermore elaborates on the possibilities for teachers evolving into a recognised advocacy group, thus presenting an important policy force both at national and EU level. 65

EJAE 2016  13 (1)  60-71 Maleković, S., Tišma, S., Keser, I.  The importance of entrepreneurial learning

From the achieved impact point of view, SEECEL’s programme has undoubtedly contributed to improvements related to fostering EL in SEE. Observations made during interviews indicate that SEECEL’s activities have triggered positive changes in national developments and achievements in the EL segment. For example, in Macedonia, Montenegro and Serbia, national partnerships for EL were developed, while in Albania, Croatia, Kosovo and Montenegro, national strategies on EL development were elaborated. The impacts could also be observed in raised beneficiary awareness of the usefulness of project results, as well as in the growing ownership of the key stakeholders and beneficiaries related to the achieved results and their sustainability.

SEECEL’s programme has undoubtedly enabled national stakeholders to strengthen national coordination targeting EL in all SEECEL member states. Along with the aforementioned, it raised the capacity of institutions in SEE to further EL development, coherent in regard to the relevant strategic national as well as EU policy priorities. Based on the received responses, it is confirmed that the SEECEL instrument, along with being recognised by 5 member states and the Eastern Partnership has also been recognized by the EC, countries as well as the broader international community involved in entrepreneurial learning. The above-mentioned confirms the overall impact of SEECEL’s programme.

The respondents themselves see impact in SEECEL contributing to development of a life-long learning culture from an early stage. They perceive it as a key condition for building a knowledge-based society and recognizing its role in promoting participation of all country stakeholders in this process. Furthermore, the created network of key institutions and firms on the local level, including primary schools, which jointly implemented different initiatives, was also a relevant contribution. In Zenica, the faculty indicated the importance of developing the entrepreneurial spirit in elementary schools, even though this is a long-term process, whose results will be visible over a long-term period.

As to the evaluation criteria sustainability and on the basis of the implemented methodological approach, it can be observed that SEECEL actively promotes ownership of lifelong EL development from the part of all key stakeholders in the participating countries with the aim of ensuring sustainability of the results. Based on the knowledge acquired over a few years period, due importance from the part of all stakeholders and pilot institutions is given to possible transferability of activities in other similar institutions in the region. For example, a number of schools involved in the project, including the school Alas in Belgrade, as well as in Grude (Bosnia and Herzegovina), but also faculties (Bijeljina in Bosnia and Herzegovina) confirmed they were eager to support other institutions with similar initiatives. Their willingness to foster knowledge dissemination and replication of successfully implemented activities is a relevant project outcome.

As to the most relevant benefits of the project during the three-year period, the project partners pointed to the established cooperation among the institutions on the central government level, aiming at developing EL, design of teacher training standards and promotion of the entrepreneurial teacher, entrepreneurial student and entrepreneurial schools. Further achievements are also visible in terms of development of self-initiatives in the pilot schools and universities, as well as in promotion of the learner-centred approach, relevant from the point of view of introducing significant changes in several countries of the region in which the traditional and conservative teacher-centred approach prevails (Van’t Rood & Maleković, 2012). 66

OVERALL ASSESSMENT AND RECOMMENDATIONS Based on the scholarly research conducted on the EL concept, review of available policy documentation and evaluation results following the main evaluation criteria, this chapter comprises an overall assessment of SEECEL’s programme in SEE

EJAE 2016  13 (1)  60-71 Maleković, S., Tišma, S., Keser, I.  The importance of entrepreneurial learning

and provides several key recommendations aiming at sustaining the most relevant achievements and further developing the EL concept in the region. As regards the effectiveness of SEECEL’s programme, it is of pivotal importance for EL to be embedded in the learner-centred/competence based approaches. Currently, such approaches have still not been introduced in the education systems in all of the SEE countries. Teachers/coordinators in the pilot schools in SEE countries are in need of further training. Furthermore, the concurrent evaluation results confirmed the need for bridging the gap between EL theory and classroom practice in pilot institutions. The implementation of EL as a key competence evidently requires a systematic approach and targeted educational institutions as units of change. Implementation is only possible if it encompasses three key elements: curriculum through learning outcomes definition, teacher training and school management for an entrepreneurial environment. A profound insight into the current circumstances related to ownership and commitment to the EL approach from part of all relevant national institutions in SEE countries allow us to assess that sustainability of the programme’s results. However, there are grounds for more effective EL coordination and leadership in most of the countries involved in the project, particularly related to better cooperation and coordination of the Ministries of Education and Economy, as well as the business sector. The CoP platform – that has led to developed modalities of peer learning, and generated momentum for structured cooperation in the development of LLEL – forms a solid basis for further SEECEL activities in targeting EL development. These achievements have contributed to the SEECEL recognition from the part of national education institutions as a think tank for development of entrepreneurial literacy, as well as recognition from the part of EU member states and Eastern Partnership countries of SEECEL as a reference point for EL.

RECOMMENDATIONS The academic inquiry on different perspectives and current challenges related to the EL concept, followed by an in-depth evaluation, allow us to indicate several recommendations for further development of the EL approach in SEE, the first of which adheres to the applied evaluation criteria. The EL concept needs to be implemented at all levels of education in the region, including VET, secondary education and higher education, as well as teacher training. Karajić, Dabić and Cingula are among those whose research results point to the need of including entrepreneurship as a key competence in curricula at all levels of formal education (Karajić et al., 2012). More emphasis should also be placed on promoting innovation and strengthening cooperation and linkages between the academic community and the private sector, including spin-off companies. Further human resource development in the SEECEL member states is also necessary. Having in mind the strengthening of the effectiveness and mainstreaming of the EL approach, a suggestion is placed forward to use current initiatives on introducing learner centred/competence based concepts in education systems of the involved countries. The sharing of experience and looking at why things work elsewhere can be very useful. Furthermore, it is suggested that training should be organized at school level for teachers in schools introducing/implementing the EL approach on how to develop EL within the existing curriculum and teaching approach, including content related matters (with more focus on economic issues). More effective cooperation and linkages among government agencies, the private sector and civil society within the member states also deserve due attention. Finally, support needs to be provided to EL development in non-formal adult training. In order to ensure sustainability of the EL approach, it needs to be included in the second67

EJAE 2016  13 (1)  60-71 Maleković, S., Tišma, S., Keser, I.  The importance of entrepreneurial learning

ary education, vocational education and training (VET) and in pre- and in-service teacher education (higher education) in each member country. The capacity of teachers and trainers of trainers also needs to be built. Gribben (2013), also explicitly points out to the need of ensuring all new teachers entering the profession leave teacher training college with a solid basis to be built upon. School principals also need to be trained in providing leadership, at school level, of EL activities, and the system of rewarding pilot school teachers should be introduced. Their motivation is very meaningful. While discussing the international assistance programmes and the reform of the vocational education in the Western Balkans, Bartlett (2013, p. 346) observes that the effective implementation of reforms is likely to depend on the motivation and attitudes of an individual school director, as well as enthusiastic teaching staff members, as value added provided by international assistance itself. In order to ensure further impact, more emphasis needs to be placed on the methodological and content related matters at all education levels by utilizing current initiatives to introduce competence-based learning as a means for introducing EL. Furthermore, efforts should be made to enable pupils and students to “connect” to “real” entrepreneurs and their lives. The findings related to ensuring long-term impact relate to Rae’s observation on the richness and authenticity when accessing the “real lived experience” of entrepreneurs. The possibility of talking to entrepreneurs, learning about their experience, listening to and making sense of their stories can produce a tremendous added value and learning experience (Rae, 2000). Finally, the achievement of relevant impact asks for continuous monitoring and evaluation of the EL policy. A more systemic approach to evaluation, as the key driver of change and improvement, is of strategic importance (for more on needs and benefits of evaluation policies see: Maleković & Tišma, 2011). 68

CONCLUDING REMARKS The analysis of the current academic and policy literature related to the EL concept, as well as the results of the implemented evaluation allow us to conclude that the EL approach is undoubtedly a relevant factor for equipping young people with the knowledge, skills and attributes necessary not only for those pursuing careers as entrepreneurs. This approach is of pivotal importance for preparing them to be responsible, accountable, proactive, enterprising, creative, motivated and adaptable individuals, those with strong attitude and a sense of initiative and readiness to take risks. The assessment of achievements and interviews with the youth in the pilot institutions engaged in SEECEL’s programme demonstrated that the programme contributed to development of an entrepreneurial mindset and behaviour, problem solving and innovative thinking. The approach evidently encouraged a positive response from part of pupils and students who openly expressed their wish towards their further enrolment within the project. Rather than perceiving EL as bridge-building infrastructure, we should regard it as support infrastructure that needs to be developed over a longer time span, requiring effective coordination, knowledge, consensus, ownership and sustained commitment from the part of education and other authorities in close cooperation with experts, private and civil interest groups at all governmental levels. The engagement of teachers is particularly important and will be more effective if they have full understanding of the concept, understanding that it is a policy affecting sustainable economic growth and employment, particularly for young people. The results of the evaluation lead us to the conclusion that there is still certain potential and scope for their more effective involvement, which will be possible once they are empowered, as well as once the key education stakeholders at the national level demonstrate adequate accountability. It is not possible to achieve ownership without

EJAE 2016  13 (1)  60-71 Maleković, S., Tišma, S., Keser, I.  The importance of entrepreneurial learning

empoverment, which is possible once people have acquired life skills of care, responsibility and safety in a comprehensive manner: they understand what to do, the purpose of their task(s), and how to implement their activities (Van’t Rood & Maleković, 2012). The ownership, accountability as well as commitment towards further development of the EL approach will not be feasible in the SEECEL member states without dedicated support, cooperation and coordination of all key stakeholders, public, private sectors as well as, the civil society and interest groups. In order to embed the EL concept in the national policy planning of the involved countries, the effective partnership of all involved key actors appears to be one of the most relevant preconditions. In SEECEL member countries, where cooperation and coordination of all involved key actors was more intense and effective, achievements were significant and their impact more pronounced. The observations presented in questionnaires and interviews indicated that developed cooperation and coordination of all involved actors and stakeholders facilitated the reaching of consensus and effective policy implementation. Evaluation results confirmed that SEECEL’s programme was the main trigger for developing such cooperation and coordination, establishing effective partnerships aiming at the exchange of best practices and mutual learning. On the whole, our research and evaluation results indicate that SEECEL had a very relevant and far reaching role in developing and further strengthening of the EL approach in SEE member countries. SEECEL has demonstrated that its role was meaningful in supporting the most successful pilot institutions and achieved results in SEE, as well as in pushing the less successful ones, which have started with piloting at a later stage. Finally, its role is recognized in speeding up the learning process, as well as fostering meaningful cooperation and transfer of knowledge and experience between the SEE region and more developed EU member states.

REFERENCES Baker A.C., Jensen P.J., & Kolb D.A. (2005). Conversation as experiential learning. Management Learning, 36(4), 411-427. doi:10.1177/1350507605058130. Bartlett, W. (2013). International Assistance Programmes and the Reform of Vocational Education in the Western Balkans: Sources of Policy Failure. Southeastern Europe, 37, 330-348. doi:10.1163/18763332-03703005. Burgoyne, J.G., & Hodgson, V.E. (1983). Natural learning and managerial action: A phenomenological study in the field setting. Journal of Management Studies, 20(3), 387-399. doi:10.1111/j.1467-6486.1983. tb00214.x. Carayannis, E.G., Evans, D., & Hanson, M. (2003). A cross-cultural learning strategy for entrepreneurship education: outline of key concepts and lessons learned from a comparative study of entrepreneurship students in France and the US. Technovation, 23(9), 757-771. doi:10.1016/S0166-4972(02)00030-5. Cope, J. (2005). Toward a dynamic learning perspective of entrepreneurship. Entrepreneurship Theory and Practice, 29(4), 373-397. doi:10.1111/j.15406520.2005.00090.x. Corbett, A.C. (2005). Experiential learning within the process of opportunity identification and exploitation. Entrepreneurship Theory and Practice, 29(4), 473-491. doi:10.1111/j.1540-6520.2005.00094.x. Daudelin, M.W. (1996). Learning from experience through reflection. Organizational Dynamics, 24(3), 36-48. doi:10.1016/S0090-2616(96)90004-2. European Commission. (2012). Effects and impact of entrepreneurship programmes in higher education. Retrieved August 6, 2015, from http://ec.europa. eu/enterprise/newsroom/cf/itemdetail.cfm?item_ type=254&lang=en&item_id=5894. Fiet, J.O. (2001). The pedagogical side of entrepreneurship theory. Journal of Business Venturing, 16(2), 101-117. doi:10.1016/S0883-9026(99)00042-7. Gibb, A.A. (2002). In pursuit of a new ‘enterprise’ and ‘entrepreneurship’ paradigm for learning: creative destruction, new values of doing things and new combinations of knowledge. International Journal of Management Review, 4(3), 233-269. doi:10.1111/1468-2370.00086. Gibb, A.A. (2005). Towards the Entrepreneurial University: Entrepreneurship Education as a lever for change. Retrieved August 6, 2015, from http:// irandanesh.febpco.com/FileEssay/karafarin-c1386-10-30-m21.pdf. 69

EJAE 2016  13 (1)  60-71 Maleković, S., Tišma, S., Keser, I.  The importance of entrepreneurial learning

Gribben, A.A. (2013). Entrepreneurial learning: Keystone to an entrepreneurial culture. INFORM, 16, 1-4. Harrison, R.T., & Leitch. C.M. (2005). Entrepreneurial learning: Researching the interface between learning and the entrepreneurial context. Entrepreneurship Theory and Practice, 29(4), 351-371. doi:10.1111/ j.1540-6520.2005.00089.x. Heinonen, J., & Poikkijoki, S.A. (2006). An entrepreneurial-directed approach to entrepreneurship education: mission impossible? Journal of Management Development, 25(1), 80-94. doi:10.1108/02621710610637981. Holcomb, T.R., Ireland, R.D., Holmes Jr., R.M., & Hitt, M.A. (2009). Architecture of Entrepreneurial Learning: Exploring the Link Among Heuristics, Knowledge, and Action. Entrepreneurship Theory and Practice: Special Issue on Strategic Entrepreneurship, 33(1), 173-198. doi:10.1111/j.1540-6520.2008.00285.x. Kakkonen, M.L. (2010). Entrepreneurial Learning and Learning Strategies of the First Year Business Students in Higher Education. International Journal of Euro-Mediterranean Studies, 3(1), 85-102. Karajić, D., Dabić, M., & Cingula, M. (2012). Interaction among national experts for the entrepreneurial learning, within pan-European network. Procedia-Social and Behavioral Sciences, 37, 247256. doi:10.1016/j.sbspro.2012.03.291. Kolb, D.A. (1984). Experiential learning: Experience as the source of learning and development. Englewood Cliffs, NJ: Prentice Hall. Maleković, S., & Tišma, S. (2011). Evaluating Pre Accession Assistance – Rethinking its Effectiveness in Promoting Developmental Change. In: 9th International Conference on Enterprise in Transition: proceedings. Split: Faculty of Economics. McLaughlin, R., & Thorpe, R. (1993). Action learning – a paradigm in emergence: The problems facing a challenge to traditional management education and development. British Journal of Management, 4(1), 19-27. doi:10.1111/j.1467-8551.1993.tb00158.x. Minniti, M., & Bygrave W. (2001). A dynamic model of entrepreneurial learning. Entrepreneurship Theory and Practice, 23(4), 41-52.

education. Center for Entrepreneurial Learning and Leadership. Retrieved August 6, 2015, from http:// eagleentrepreneur.files.wordpress.com/2012/01/ entrepreneurial_learning_through_experience_v13111.pdf. Politis, D. (2005). The process of entrepreneurial learning: A conceptual framework. Entrepreneurship Theory and Practice, 29(4), 399-424. doi:10.1111/ j.1540-6520.2005.00091.x. Rae, D. (2000). Understanding entrepreneurial learning: a question of how? International Journal of Entrepreneurial Behaviour & Research, 6(3), 145-159. doi:10.1108/13552550010346497. Rae, D., & Carswell, M. (2001). Towards a conceptual understanding of entrepreneurial learning. Journal of Small Business and Enterprise Development, 8(2), 150-158. doi:10.1108/EUM0000000006816. Rae, D. (2006). Entrepreneurial learning: A conceptual framework for technology-based enterprise. Technology Analysis & Strategic Management, 18(1), 39-56. doi:10.1080=09537320500520494. Rae, D. (2009). Connecting entrepreneurial learning and action learning in student-initiated new business ventures: The case of speed. Action Learning: Research and Practice, 6(3), 289-303. doi:10.1080/14767330903301799. Rae, D. (2011). Inspiring Entrepreneurial Learning in the New Era, The Inspiring Enterprise Conference, Glyndwr University. Retrieved August 6, 2015, from http://vimeo.com/25400146. Raelin J.A. (1997). A model of work-based learning. Organization Science, 8(6), 563-578. doi:10.1287/ orsc.8.6.563. Sogunro, O.A. (2004). Efficacy of role-playing pedagogy in training leaders: some reflections. Journal of Management Development, 23(4), 355-371. doi:10.1108/02621710410529802. Tafra, V. (2011). Nacionalna strategija učenja za poduzetništvo. In: V. Tafra & I. Tafra (Eds.), Učenje za poduzetništvo (pp. 17- 33). Zagreb. In Croatian.

Mumford, A. (1994). A Review of Action Learning Literature. Management Bibliographies and Reviews, 20(6/7), 2-16.

Tkalec, Z. (2011). Definicija i karakteristike poduzetništva kao ključne kompetencije cjeloživotnog učenja. In: V. Tafra & I. Tafra (Eds.), Učenje za poduzetništvo (pp. 35- 43). Zagreb. In Croatian.

Pittaway, L., Gazzard, J., Shore, A., & Williamson, T. (2012). Entrepreneurial learning through experience: The hidden role of student clubs in management

Van’t Rood, R., & Maleković, S. (2012). Independent external evaluation, evaluation report of the SEECEL activities 2009-2012. Zagreb: SEECEL.

EJAE 2016  13 (1)  60-71 Maleković, S., Tišma, S., Keser, I.  The importance of entrepreneurial learning

ZNAČAJ PREDUZETNIČKOG UČENJA ZA UKUPAN SOCIO-EKONOMSKI RAZVOJ NA PRIMERU CENTRA ZA PREDUZETNIČKO UČENJE JUGOISTOČNE EVROPE U HRVATSKOJ Rezime: Ovaj rad bavi se pitanjem politike preduzetničkog učenja u južnoj i istočnoj Evropi, kao rezultatom aktivnosti Centra za preduzetničko učenje jugoistočne Evrope koji je osnovan u Hrvatskoj. Autori nastoje da ispitaju kako koncept preduzetničkog učenja može da doprinese i razvoju preduzetničkog načina razmišljanja i ponašanja, razvoju kreativnog mišljenja i preduzetničkog duha pojedinca bez obzira na to da li ima želju da započne privatni biznis ili ne. U radu se takođe razmatra u kojoj meri razmena iskustava, partnerstvo i saradnja svih obrazovnih i drugih institucija i pojedinaca uključenih u razvoj politike utiče na dalji razvoj preduzetničkog učenja u zemljama jugoistočne Evrope. Autori razmatraju različite perspektive i načine razumevanja i sagledavanja koncepta preduzetničkog učenja, ukazuju na postojanje različitih škola preduzetničkog učenja i ispituju odnos između učenja i preduzetništva.

Ključne reči: obrazovanje i obuka, preduzetničko učenje, doživotno učenje. Received: September 12, 2015 Correction: October 14, 2015 Accepted: November 2, 2015

EJAE 2016, 13(1): 72-83 ISSN 2406-2588 UDK: 339.192(410) 658.62.018.2 DOI: 10.5937/ejae13-10012 Original paper/Originalni naučni rad

CONSPICUOUS CONSUMPTION, LUXURY PRODUCTS AND COUNTERFEIT MARKET IN THE UK Trang Huyen My Pham, Muhammad Ali Nasir Leeds Beckett University, Faculty of Business and Law, Leeds, United Kingdom

Abstract: The fast growth of fashion brands and the popularity of counterfeit goods has posed certain challenges to the existing and new luxury fashion brand players. This study elaborates on the factors driving the market for counterfeit products in the UK. The data collected by means of survey questionnaires from 306 respondents and empirical techniques including descriptive and inferential statistics (correlation and multiple regression analysis), have shown that the consumers have a negative attitude towards counterfeit luxury products. However, they showed fewer tendencies to seek for a brand whose counterfeit cannot easily be found and preferred to buy a genuine rather than a counterfeit. In terms of frequency of purchase, reversion to counterfeit has negative impact, unlike the tendency to seek a brand whose counterfeit is hard to find. The overall results show that the attitude and acceptance of counterfeit do not greatly prevail in the market. However, about 27% of respondents demonstrated either a positive or a neutral tendency towards counterfeit products, which could have serious implications for the luxury goods market.

INTRODUCTION Luxury1 fashion brands are no longer the privilege of the upper class. The emerging middle class is being more open-minded, their demand for luxury fashion brands is increasing along with their income, as they are becoming potential consumers of luxury fashion brands (Kauppinen-Räisänen et al., 2014). The retail sector is a major contributor to the UK economy, employing a total of 4.3 million people in 2012, which is 15.9% of the overall population 1 “Luxury is derived from the Latin word Luxus, which translates to “excess”, thus luxury products in general refer to products that lead to condition of abundance, things that provide pleasure or comfort but are not absolutely necessary” (Fuchs et al., 2013).

* E-mail: m.a.nasir@leedsbeckett.ac.uk

Key words: luxury fashion brands, consumer choice, counterfeit products, conspicuous consumption.

(Chris, 2014), and luxury fashion constitutes an important component of this sector. However, luxury brand companies are threatened by the counterfeit products market. In this regard, the Global Financial Crisis in 2008 is marked as the historical key point. Timberlake et al. (2014) argued that in the post-crisis period and recession world, luxury customers have sought products with an affordable price. Concomitantly, with luxury fashion brands, differentiating and adding extra value is important to improve their competitive advantages. To that end, it is fundamental to understand the implications of counterfeit luxury products and the attitude of consumers towards them.

EJAE 2016  13 (1)  72-83

Pham, T.H.M., Nasir, M.A.  Conspicuous consumtion, luxury products and counterfeit market

There is a growing presence of counterfeit goods in the UK, which may pose serious problems for the company, consumers and the overall economy (Okonkwo, 2007). Sonmez et al. (2012) argue that it destroys the rarity of luxury fashion products that impact customers’ decision-making. In the current climate, luxury fashion brands do not only compete with other luxury fashion brands, but also with counterfeit manufacturers. Although certain efforts have been made to search for manufacturers of counterfeit goods and prevent their activities, this situation has not improved and even seems to be deteriorating (David, 2011). From the customer’s perspective, it might be that counterfeiting influences customers’ views about genuine luxury fashion items. Therefore, it is necessary to be able to understand customers’ opinions about counterfeit. The aim of this study is to become conversant and gain better understanding of the current counterfeit luxury brand market in the UK and to identify the key factors that customers believe have the greatest bearing on the purchase of counterfeit luxury fashion brands. There are numerous studies that seek to identify the main dimensions of luxury, such as Fionda et al. (2008), Berthon et al. (2009), Christodoulides et al. (2009), and Hudders, et al. (2013). More specifically, in the context of luxury fashion products, Walley et al. (2013) observed the key dimensions of luxury from a UK consumers’ perspective. Various studies have been conducted in terms of particular factors affecting customers’ choice, such as price (Hwang et al., 2013), quality (Husic et al., 2009) and brand reputation, quality and appropriateness (Derry et al., 2014). A vast majority of research is focused on defining reasons for purchasing luxury fashion brands (status promotion, self-image, gifting its owners). We have some evidence on the counterfeit luxury products, such as the study by Doss and Robinson (2013) which compared and contrasted the attitude of young US females towards luxury fashion brands and their counterfeits2. However, 2 Doss and Robinson (2013) found that the perceptions of the luxury brand were significantly higher than those for the counterfeits of that brand. Moreover, the luxury perceptions

this study is not gender specific, nor it compares the perception of luxury fashion brands with their counterfeits, but it is rather investigating the attitude of British consumers towards the counterfeits of luxury products, and not the counterfeits of the products they have used. There isn’t sufficient evidence on the attitude of British consumers towards counterfeit luxury products. The UK luxury fashion market makes a considerable contribution to the global market and national economy, while previously cited figures give some idea about its size. Having that in mind, the study attempts to find out the reasons that customers take into consideration when buying a counterfeit luxury fashion product. Specifically, it explores the most important factors that affect customer’s choice of luxury fashion brands in the UK by posing three statements to the respondents of survey questionnaires: a) Do they mind if the product is counterfeit (no effect on decision)? b) Do they seek the brand whose fake version is hard to find in the market? c) Would they buy the fake rather than the genuine product? The answers to these three questions on a fivepoint Likert scale range from strongly agree to strongly disagree and will help us to understand the consumers’ attitude towards counterfeit products. Moreover, we would also observe the impact of these attitudes on the frequency of purchase of luxury products. Nevertheless, this treatise is an effort to understand customers’ attitudes to luxury fashion brands in terms of their current counterfeits in the UK market. In the next section, the authors will examine the existing evidence on the subject and discuss research methodology to provide an insight into the methods being employed, prior to reporting the findings and concluding remarks. The novelty of the research should be emphasized and the subject is well-documented in the up-to-date literature. of those whose last handbag acquisition was a luxury brand significantly differed from the luxury perceptions of those whose last handbag acquisition was a counterfeit brand.

EJAE 2016  13 (1)  72-83

Pham, T.H.M., Nasir, M.A.  Conspicuous consumtion, luxury products and counterfeit market

LUXURY BRAND & COUNTERFEIT People purchase luxury fashion brands for a number of reasons. Firstly, they need clear hierarchy to define their high position in society (Kapferer, 2014). Secondly, luxury items link to psychological values, as people in the upper-class desire to distinguish themselves from others, while people belonging to the lower class attempt to be perceived as in a higher status, and they consider luxury consumption as a means of achieving that (Veblen, 2009). Thirdly, purchasing luxury fashion products also nurtures owner’s identity and selfimage (Hudders et al., 2013). Furthermore, people buy luxury items for self-gifting purposes, as a way leading to personal reward, compliance (Lourreiro & Araujo, 2014), relieving stress and cheering up (Kauppinen-Räisänen et al., 2014). Moreover, premium and reliable quality is a reason for consuming luxury items, as mentioned by Hudders et al., (2013). Fashion consciousness was also stated as a reason for luxury fashion brands consumption (Maden et al., 2015). However, if we look at these reasons for buying luxury products, the question imposes as to the number of those that could be served by counterfeit luxury products whose prices are not that exorbitant. By highlighting the main role of the brand’s name, identity, awareness and loyalty, Okonkwo (2007) claims that the first thing that comes to a luxury customer’s mind is “brand”, which probably describes its history, language and total offerings. Similarly, Palmer (2009) suggested that customers seek their own perceived personality through brand image. Moreover, brands are chosen when the image they create matches the needs, values and lifestyles of customers. Now, the question imposes as to the number of needs and values that could be achieved using a counterfeit product. However, the study by Han et al. (2010) showed that there are two groups of luxury consumers. The first group prefers less prominent luxury brands, while the second one opts for those more prominent. In the former group, customers focus on the real quality 74

and function of luxury products rather than on the brands with conspicuous signs; the latter one might lack any deep knowledge of luxury brands and might be keen on purchasing prominent products to show off. If that division holds, the latter should be more prone to accepting the counterfeit, as it serves the purpose of conspicuous consumption. There is a growing number of counterfeit products in today’s marketplace. Counterfeit luxury goods are known as illegal, low-priced, and often low-quality replicas of genuine luxury products (David, 2011). The study by Sophie (2010) considered counterfeit as a big issue which might put the genuine luxury brand market at risk. Although intellectual property laws are set up to protect the genuine market of luxury products, the legal system for combating counterfeit products is low in many countries (David, 2011). It affects the genuine brand performance, which could be contingent on the customers’ behavior towards counterfeit and its acceptability. So, why should a customer choose a counterfeit? Sonmez et al. (2012) show that there might be two situations when consumers purchase counterfeit luxury products. Firstly, customers are cheated to buy fake products, and secondly, customers are supposed to buy them. The former situation might lead customers to underestimate the quality of the genuine one and look for other brands. The latter situation can be seen as customers’ natural desire to possess the product with physical characteristics similar to the genuine luxury brand, which might destroy the rarity of luxury goods. Previously discussed issues may decrease customers’ demand of luxury goods. However, in order to warrant the rarity of the product and avoid the fake product, many fans of luxury fashion brands look for another way to avoid these situations. Namely, instead of buying the prominent luxury brand, the cheeper one will be chosen. For instance, Han et al. (2010) mentioned that one of the reason for emerging brands is that customers might choose the less prominent brand rather than the well-known one as the safe alternative method. In the second group of customers including those

EJAE 2016  13 (1)  72-83

Pham, T.H.M., Nasir, M.A.  Conspicuous consumtion, luxury products and counterfeit market

who are keen on showing off their status, counterfeit does not only have a negative status. Namely, once the customers purchase a fake product, they may not buy it again due to its poor quality, and would opt for the genuine one (Ritson, 2010). For instance, despite having the largest share of counterfeit products in the handbag market, the Louis Vuitton sample is considered, even it is well-known to be in the most favourable position. This might be the result of customers’ loyalty (Newman & Dhar, 2014). Overall, counterfeit is identified as the reason for a decreasing demand for luxury products, but somehow it may or may not persuade customers into choosing genuine luxury products. When analyzing US young female consumers, Doss and Robinson (2013) found that the perceptions of the luxury brands were significantly higher than those for the counterfeits of the same brands. Moreover, the luxury perceptions of those whose last handbag acquisition was a luxury brand significantly differed from luxury perceptions of those whose last handbag acquisition was a counterfeit brand. That implies that the counterfeit may repel the consumer from the future purchase of the genuine product. Customers mainly choose to be loyal to genuine luxury brands due to their quality, as an important feature of any product, which is rather hard to define. A product is normally evaluated as poor quality when it fails to meet the buyer’s expectations (Palmer, 2009). Accordingly, if the counterfeit product meets the customer expectations, it should be considered a quality product. However, along with tangible there are intangible aspects of quality, such as experience and feeling (Yuen & Chan, 2010). Hence, if a counterfeit is doing well on both aspects, a rational consumer should drive the same amount of utility from a counterfeit as from an authentic luxury product. Nevertheless, the net utility should be great as there is less expenditure involved, which may cause some disutility3. 3 Net utility of counterfeit = total utility from consumption – disutility of regret and guilt Net utility of authentic = total utility from consumption – disutility of paying the high prices On the decision matrix if the utility of counterfeit is > than utility of authentic one should use counterfeit and other way round.

Pricing is an important factor which could influence the customer’s decision to purchase certain product (Palmer, 2009). In fact, a luxury fashion brand differentiates itself from the mass market fashion brand by setting up premium price strategies. The luxury customers may use limited access products, regardless of their price, in order to stand out from the mass (Husic & Cicic, 2009). Concomitantly, in the case of luxury brands, customers generally accept the premium pricing strategy (Doss & Robinson, 2013). In the luxury market, higher price can be more attractive than the lower one, although their tangible function might not differ significantly. However, when the price reaches a certain limited point, the demand will fall down completely (Olorenshaw, 2011). On the other hand, when the products’ price is reduced below a certain limit, consumers may no longer consider it a status symbol. Accordingly, when the price of a luxury product becomes too low and easily accessible and affordable to the middle class, it immediately loses its rarity (Kuksov & Xie, 2012). That is in line with the argument put forward by Eaton and Eswaran (2009) who claimed that customers prefer that the prices of luxury products remain high or keep rising. Han et al. (2010) analyzed different behavioural patterns among various social classes including patricians, parvenus and poseurs who have purchased luxury products. They found that patricians are willing to pay a premium for luxury products which have inconspicuous brand names with high function and quality, while parvenus and poseurs prefer conspicuous brand names in order to show off. Their behavior differentiates them from the upper class they tend to reach. However, contrary to what the economic theory of price suggests, the inclusion of counterfeit may shift the paradigm. Perhaps, the perception and attitude of consumers is dynamic and the attitude of society changes over time. Timberlake (2014) argued that the 2008 crisis has blown a new trend into the fashion luxury market, customers have become more open-minded and they have chosen the style mixing high and low-end brand. They are looking 75

EJAE 2016  13 (1)  72-83

Pham, T.H.M., Nasir, M.A.  Conspicuous consumtion, luxury products and counterfeit market

for a high-quality brand that is not too expensive. Could it be a counterfeit? One might suggest that the increase in income may discourage the price and could lead to an increased demand for luxury goods (Shilling, 2007). In the Maslow’s hierarchy model, the esteem dimension can be seen as the respect from other people, which can be deserved by buying a luxury brand to show their status, as well as their high income (Carlin et al., 2013). Moreover, the demand for luxury goods will be higher in societies with larger income disparity where a need to confirm one’s social status is more pronounced (Ray et al., 2013). If that is the case, the question imposes at to whether counterfeit products meet that purpose, particularly when the price is low and income high but limited. Place or delivery of products is also an important factor in terms of convenience and availability, customer’s value, speed and availability (Dennis et al., 2004). Luxury fashion brand stores are usually located in city centers or busy traffic areas in order to attract customers’ attention. However, as counterfeits are considered illegal, such market cannot operate freely like authentic luxury brand stores. Although it may bring some advantages, such as cost of selling associated with physical presence, it deprives the customer of the pleasure and satisfaction of purchsing luxury goods in retail stores. Nevertheless, the related aspect is the promotion of counterfeit products and communication with the customer. The promotion tools such as advertising, personal selling, public relations, sale promotion, sponsorship and direct marketing methods may not be used by the counterfeit product makers and sellers in the same way as by authentic producers of luxury products and brands. As suggested by Khan (2014) with development of technology, promotion is considered the key aspect for promoting brand image in the contemporary market, and counterfeit brand makers could be metaphorically described as parasites who earn their living from the promotion of authentic brand makers. 76

METHODOLOGY & DATA In the case of counterfeit luxury fashion brands and consumers’ attitude towards them, quantitative method can be used to acquire certain findings. We collected the primary data by survey questionnaires using self-administered questionnaires due to the big sample size and limited time. This survey included four statements. The first three statements were under the main question: To what degree does the fact that a product is counterfeit affects your choice when you make a decision to purchase a luxury fashion brand product? The respondents are given three specific statements: a) I do not mind that the product is counterfeit (no effect on decision) b) I seek the brand whose fake version is hard to find in the market and c) I would buy the fake rather than the genuine product. The respondents were asked to choose the answer they consider most relevant and their responses ranged from strongly agree to strongly disagree. In the fourth statement, they were asked about the frequency of purchase of luxury fashion brands. The whole questionnaire was divided into 2 sections including the demographic and the main part. The data collection process was kept confidential and anonymous. All participants gave their consent and were guaranteed confidentiality and anonymity and were not given any financial or other incentives. Subsequently, participants volunteered by answering questionnaires in person. Around 306 responses were included in this study. We performed four different methods of analysis, including reliability analysis, descriptive analysis, correlation and multiple linear regression analysis.

ANALYSIS AND FINDINGS Out of the total number of responses (i.e. 306), 58.2% were provided by female and 41.8% by male participants. The sample was randomly composed, including the respondents from various age, income and education groups, which provided us with a random sample. Table 1 gives an inclusive depiction of respondents’ demographic characteristics.

EJAE 2016  13 (1)  72-83

Pham, T.H.M., Nasir, M.A.  Conspicuous consumtion, luxury products and counterfeit market

Demographic Gender

Age

Income

Highest educational qualification

Frequency

Percentage (%)

Male Female

128 178

41.8 58.2

Total

306

100

<18 18-25 26-35 36-45 >45

12 109 84 41 60

3.9 35.6 27.5 13.4 19.6

Total

306

100

Less than £10,000 £10,000 to £14,999 £15,000 to £24,999 £25,000 to £34,999 £35,000 to £44,999 £45,000 to £54,999 £55,000 above

107 37 70 38 21 12 21

35.0 12.1 22.9 12.4 6.9 3.9 6.9

Total

306

100

Primary School High School College diploma Bachelor’s degree Master’s degree Doctorate degree

1 41 52 101 86 25

0.30 13.4 17.0 33.0 28.1 8.2

Total

306

100

Table 1. Demographic Characteristics of Participants Source: Authors’ calculations using the questionnaire data

RELIABILITY ANALYSIS We first need to perform the reliability test to see whether our data was reliable or not. To that end, we performed the Cronbach’s alpha to test reliability of our data. As a benchmark, we relied on the statement of Nunnally (1978) who suggested that if alpha values are 0.70 or higher, the scale should be considered acceptable, while values below the benchmark make it unreliable. The results are shown in Table 2.

Cronbach’s alpha

Number of items

0.71

Table 2. Reliability analysis

As shown, the Cronbach’s alpha is 0.710 > 0.7, which implied that the collected data is reliable and that it makes sense to carry on with it.

EJAE 2016  13 (1)  72-83

Pham, T.H.M., Nasir, M.A.  Conspicuous consumtion, luxury products and counterfeit market

DESCRIPTIVE ANALYSIS Descriptive statistics is an important way of learning about the features of availabe data and its implications for our study. Customers were asked about counterfeit luxury fashion products and their answers ranged from strongly agree to strongly disagree (reponses were coded from 1 to 5). Figures 1-3 present visual depictions of consumers’ responses.

disagree with the statement, thus suggesting that consumers do care if the product is counterfeit.

In response to our first statement that “I do not mind that the product is counterfeit (no effect on decision), most of the respondents strongly

In response to the second statement that if they seek the brand whose fake version is hard to find in the market, most of the customers provided neutral answers, suggesting that the consumers are not putting enough effort into ensuring that the product is not fake. This could be related to the trust associated with shopping from designated places. The second largest group included those who agreed that they seek the brand whose fake is hard to find. The last statement put forward to re-

Figure 1. I do not mind that the product is counterfeit (no effect on decision)

Figure 2. I seek the brand whose fake version is hard to find in the market

Figure 3. I would buy the fake rather than the genuine product

EJAE 2016  13 (1)  72-83

Pham, T.H.M., Nasir, M.A.  Conspicuous consumtion, luxury products and counterfeit market

spondents was that they would buy the fake rather than the genuine one. Figure 3 depicts the responses obtained. It showed that most of the consumers strongly disagree or disagree with the statement. It showed that the consumer has disgust towards the counterfeit products. Hence, if the demand of luxury products would be for the purpose of conspicuous consumption, the counterfeit could be considred appropriate. Even though there is still a substantial number of respondents that either strongly agreed or agreed with the idea that they would prefer counterfeits. When putting them together with neutral, it makes over 27% of respondents which is still a considerable number. Therefore, we come to the descriptive statistics and look at the measures of central tendency (mean, median & mode) and dispersions (standard deviation). The responses were coded from 1 to 5 in order, equal to strongly agree, agree, neutral, disagree and strongly disagree, respectively for the first statement. The rationale was to gauge the degree of aversion as respondents chose from strongly agree 1 to strongly disagree 5. The results of descriptive statistical analysis are summarized in Table 3 below.

Counterfeit Aversion

Seek brand which hard to find fake

Buy fake rather than genuine

N Valid

306

Mean

3.483

3.098

2.006

Median

3.500

3.000

2.000

Mode

Std. Deviation

1.257

1.135

1.049

Minimum

1.00

Maximum

5.00

Table 3. Descriptive Statistics: Opinions about counterfeit goods Source: Authors’ calculations using questionnaire data

In response to the first statement i.e. Do not mind that the product is counterfeit (no effect on decision), it showed that with mode of 5 (strongly disagree) most respondents strongly disagree with purchasing counterfeit. Moreover, the values of the mean and median are about 3.5, which shows that the average opinion is between neutral and disagree. Hence, the consumers’ response to the measures of central tendency was negative towards counterfeit. The answers to the second statement were designed to range from strongly disagree (1) to strongly agree (5). The statement was “I seek the brand whose fake version is hard to find in the market”. It can be seen that mean, mode and median have a similar score i.e. 3. That means that most people have neutral opinion, which implies that although the attitude towards the counterfeit might be negative, there is still an element of neutrality or less effort when it comes to a luxury brand whose counterfeit is hard to find, which implies trust in what they are getting. The third statement was “I would buy the fake rather than the genuine” and the answers were designed to range from strongly disagree (1) to strongly agree (5). In this case, the value of mode was 1 showing that the most frequently occurring response was strongly disagree. Moreover, the mean and median showed value 2 (disagree), thus implying that although the consumer showed a negative attitude towards counterfeit, they would not prefer to buy a counterfeit rather than a genuine product. This implies that customers generally have strong aversion towards counterfeits and most of them mind if the product is fake and not genuine, but do not consider the practice of looking for a brand whose counterfeit is hard to find. Nevertheless, they would prefer to buy a genuine rather than a counterfeit product, thus implying that buying luxury products is not only the matter of conspicuousness. Yet, as given in Figure 3, there is still a considerable number of those who may prefer counterfeits, which could have serious implications for businesses. 79

EJAE 2016  13 (1)  72-83

Pham, T.H.M., Nasir, M.A.  Conspicuous consumtion, luxury products and counterfeit market

CORRELATION ANALYSIS In order to examine the association between the observed variables, an inferential statistical analysis was performed. We started with analyzing correlation between the frequency of purchase and attitude towards counterfeits (Table 4). As can be seen, when asked if they mind that the product is counterfeit, customers’ answers provided significant negative correlation with the frequency of purchase at 5% significance level (sig value- 0.04<0.05), thus implying that there is a negative correlation between the frequency of purchase of luxury products and counterfeit aversion. Hence, those who have greater tendency to mind the counterfeit seem to less frequently purchase luxury products. Moreover, the statement “Seeking the brand whose fake version is hard to find in the market” has significant positive correlation with the frequency of purchase at 1% significance level

Frequency of purchase Pearson Correlation Sig. (2-tailed) N Counterfeit mind Pearson Correlation Sig. (2-tailed) N Seek brand whose fake is hard to find Pearson Correlation

Sig. (2-tailed) N Buy fake rather than genuine Pearson Correlation

Sig. (2-tailed) N

(sig value 0.000 < 0.001), thus implying that those who agree with seeking a luxury brand whose fake is hard to find in the market were more frequent purchasers of luxury brands. The last statement of buying a fake rather than a genuine product showed a negative though insignificant correlation with the frequency of purchase, thus implying that those who agree with the purchase of the fake rather than the genuine products are less frequent buyers. However, the results were not highly significant (sig value 0.148 > 0.05).

REGRESSION ANALYSIS The correlation analysis does not imply causation. Therefore, in order to analyze the cause and effect relationship among the variables, the regression analysis was performed. The impact of perception about counterfeit was analyzed based on the purchase frequency. The model took the following form:

Frequency of purchase

Counterfeit Mind

Seek brand which hard to find fake

-0.113

0.124**

-0.076

0.048

0.000

0.184

306

-0.113*

-0.229**

-0.430**

0.000

0.048

Buy fake rather than genuine

306

-0.240**

-0.229**

-0.058

0.000

0.309

306

-0.076

-0.430**

-0.058

0.184

0.000

0.309

306

* Correlation is significant at the 0.05 level (2-tailed). ** Correlation is significant at the 0.01 level (2-tailed).

Table 4. Correlation between frequency of purchase & opinions about counterfeit 80

EJAE 2016  13 (1)  72-83

Pham, T.H.M., Nasir, M.A.  Conspicuous consumtion, luxury products and counterfeit market

Y (PurchaseFrequancy ) = a + b ( X1) + b ( X 2) + b ( X 3) + et

Where a is the constant, Y is the response variable (frequency of purchase) and X1 – X3 are explanatory variables, βt are the (n x n) coefficient matrixes and εt is the (n x 1) white noise or unobservable vector process with the assumptions of no autocorrelation and independent distribution, i.e. et ˜ N (0, σ2).

Dep. Variable

Constant Counterfeit Mind/ Reversion Seeking hard to find counterfeit Buy fake rather than genuine

Frequency of Purchase

3.562 (7.469) -0.128 (-1.788) 0.257 (3.585) -0.151 (-1.814)

Sig

0.000 0.075 0.000 0.071

F test

7.744

0.000

R squared

0.071

306

Note: absolute ‘t’ ratio IN BRACKETS

Table 5. Regression analysis, opinions about counterfeit & frequency of purchase

The results of our regression analysis show that for our first statement, “Do not mind counterfeit”, which we call the counterfeit reversion showed a negative impact (- 0.128) on the frequency of purchase, at 10% significance level (sig value 0.075 > 0.05). It implied that the counterfeit reversion has adverse effects on the frequency of purchase of luxury products. Hence, a consumer with more tendency of counterfeit reversion will buy a luxury brand less frequently. On the other hand, agreement with seeking hard to find the fake one demonstrated a positive impact (0.257) on the frequency of purchase, which was at 1% significance level (0.00 < 0.01). It implied that the consumer

with the tendency of seeking hard to find counterfeit of luxury brands would buy luxury brands more frequently. It can be said that those who are more careful about the choice of luxury fashion products will buy more frequently. It to some extent reduces the fears of Sonmez et al. (2012) that counterfeit might put genuine brands at risk. The last statement Buy the fake instead of the genuine product showed a negative coefficient (- 0.151) on frequency of purchase, which was at 10% level of significance (0.07 < 0.10), thus implying that those who have a tendency to agree with the idea of buying the fake instead of the genuine product actually buy the luxury brand less frequently. These results can be explained by saying that if customers purchase fake products they would not buy the genuine and the other way round. It is quite opposite from Ritson’s (2010) idea that customers will return to luxury fashion brands after experiencing fake products. Additionally, customers just show positive opinion on the idea of seeking a brand whose fake version is hard to find, but people who agree with this statement tend to purchase luxury fashion brands more frequently. Overall, in terms of all explanatory variables and their relationship with the response variable (frequency of purchase), we have the F-statistics value of 7.744, which was greater than the critical value for the F-test (2.083), the results were also significant (0.000 < 0.01) at 1% significance level. In terms of the goodness of fit, our results show a modest explanatory power of the model (7.1%) in explaining the level of frequency of purchase. However, it does explain how these tendencies and attitudes towards counterfeit products prevail and influence the consumer behaviour in their own capacity.

CONCLUSION In the light of the above cited findings and discussion, we can hereby conclude that there is an element of dislike among the British consumers towards counterfeit products, mainly due to the fact that they are counterfeit. It also showed that the consumers’ attitude towards hard to find 81

EJAE 2016  13 (1)  72-83

Pham, T.H.M., Nasir, M.A.  Conspicuous consumtion, luxury products and counterfeit market

counterfeits was rather neutral. However, those with greater tendency of seeking brand whose fake is hard to find would buy luxury brands more frequently. Our findings also imply that although comparatively most of the consumers will prefer to buy genuine luxury products, it is not only the matter of conspicuous consumption. Namely, a significant number of consumers would prefer to buy counterfeit rather than authentic and genuine luxury products. In terms of frequency of purchase of luxury product, those who agree with the idea of buying fake rather than genuine products, buy luxury products less frequently. Nevertheless, this study has certain limitations. For instance, we are yet to discover why these tendencies exist among the consumers and to identify the drivers of such consumer behavior. The authors shall more thoroughly address these issues in some future research.

REFERENCES Carlin, A., Verel, S., & Collard, P. (2013). Modeling luxury Consumption: An Inter-Income Classes Study of Demand Dynamics and Social Behaviors. Retrieved November 20, 2014, from http://ofce-skema.org/ wp-content/uploads/2013/0 6/carlin.pdf. Chris, R. (2014). The retail industry: statistics and policy. Retrieved November 20, 2014, from http://democracy.middlesbrough.gov.uk/aksmiddlesbrough/ images/att1005416.pdf. Christodoulides, G., Michaelidou, N., & Li, C.H. (2009). Measuring perceived brand luxury: An evaluation of the BLI scale. Journal of Brand Management, 16, 395-405. doi:10.1057/bm.2008.49. David, F. (2011). Intellectual Property No Credit for Fake Brands! Business Law Review, 32(3), 56-58. Dennis, C., Fenech, T., & Merrilees, B. (2004). E-retailing. London: Routledge. Doss, F., & Robinson, T. (2013). Luxury perceptions: luxury brand vs counterfeit for young US female consumers. Journal of Fashion Marketing and Management: An International Journal, 17(4), 424-439. doi:10.1108/JFMM-03-2013-0028. Eaton, B.C., & Eswaran, M. (2009). Well-being and affluence in the presence of a Veblen Good. The Economic Journal, 119(539), 1088-1104. doi:10.1111/j.14680297.2009.02255.x. 82

Fionda, A.M., & Moore, C.M. (2008). The anatomy of the luxury fashion brand. Journal of Brand Management, 16, 347-363. doi:10.1057/bm.2008.45. Fuchs, C., Prandelli, E., Schreier, M., & Dahl, D.W. (2013). All that is users might not be gold: How labeling products as user designed backfires in the context of luxury fashion brands. Journal of Marketing, 77(5), 75-91. doi:10.1509/jm.11.0330. Han, Y.L., Nunes, J.C., & Dreze, X. (2010). Signaling status with luxury goods: The role of brand prominence. Journal of Marketing, 74(4), 15-30. doi:10.1509/ jmkg.74.4.15. Hudders, L., Pandelaere, M., & Vyncke, P. (2013). Consumer meaning making: The meaning of luxury brands in a democratised luxury world. International Journal of Market Research, 55(3), 69-90. doi: 10.2501/IJMR2013-000. Husic, M., & Cicic, M. (2009). Luxury consumption factors. Journal of Fashion Marketing and Management: An International Journal, 13(2), 231-245. doi:10.1108/13612020910957734. Hwang, Y., Ko, E., & Megehee, C.M. (2013). When higher prices increase sales: How chronic and manipulated desires for conspicuousness and rarity moderate price’s impact on choice of luxury brands. Journal of Business Research, 67, 1912-1920. doi:10.1016/j.jbusres.2013.11.021. Kapferer, J.N. (2014). The artification of luxury: From artisans to artists. Business Horizons, 57(3), 371-380. doi:10.1016/j.bushor.2013.12.007. Kauppinen-Räisänen, H., Gummerus, J., von Koskull, C., Finne, A., Helkkula, A., Kowalkowski, C., & Rindell, A. (2014). Am I worth it? Gifting myself with luxury. Journal of Fashion Marketing and Management: An International Journal, 18(2), 112-132. doi:10.1108/ JFMM-04-2013-0062. Khan, M.T. (2014). The Concept of ‘Marketing Mix’ and its Elements (A Conceptual Review Paper). International Journal of Information, Business and Management, 6(2), 95-107. Kuksov, D., & Xie, Y. (2012). Competition in s status goods market. Journal of Marketing Research, 49(5), 609-623. Lourreiro, S.M.C., & Araujo, C.M.B.D. (2014). Luxury values and experience as drivers for consumers to recommend and pay more. Journal of Retailing and Consumer Services, 21(3), 394-400. doi:10.1016/j.jretconser.2013.11.007. Maden, D., Goztas, A., & Topsumer, F. (2015). Effects of brand origin, fashion consciousness and pricequality perception on luxury consumption motivations: an empirical analysis directed to Turkish consumers. Advances in Business Scientific Research Journal, 6(1), 15-29.

EJAE 2016  13 (1)  72-83

Pham, T.H.M., Nasir, M.A.  Conspicuous consumtion, luxury products and counterfeit market

Newman, G.E., & Dhar, R. (2014). Authenticity is contagious: Brand Essence and the original source of production. Journal of Marketing Research, 51(3), 371-386. doi:10.1509/jmr.11.0022. Nunnally, J.C. (1978). Psychometric theory. New York: McGraw-Hill. Okonkwo, U. (2007). Luxury fashion branding: Trends, tactics, techniques. Basingstoke: Palgrave Macmillan. Olorenshaw, R. (2011). Luxury and the recent economic crisis. Vie & Sciences Économiques, 188(2), 73-90. doi:10.3917/vse.188.0072. Palmer, A. (2009). Introduction to marketing: Theory and practice. Oxford: Oxford University Press. Ray, A., & Vatan, A. (2013). Demand for Luxury Goods in a World of Income Disparities. Retrieved November 20, 2014, from https://hal-pse.archives-ouvertes.fr/ hal-00959398/document. Ritson, M. (2010). The sham surrounding fake luxury brands. Retrieved November 12, 2014, from https:// www.marketingweek.com/2010/09/08/the-shamsurrounding-fake-luxury-brands/. Shilling, A.G. (2007). Small luxuries. Retrieved November 28, 2014, from http://eds.a.ebscohost.com. ezproxy.leedsbeckett.ac.uk.

Sonmez, M., Yang. D., & Fryxell. G. (2012). Interactive role of Consumer Discrimination and Branding against Counterfeiting: A study of Multinational Managers’ Perception of Global Brands in China. Journal of Business Ethnics, 115(1), 195-211. Sophie, H. (2010). Effect of counterfeits on the image of luxury brands: An empirical study from the customer perspective. Journal of Brand Management, 18(2), 159-173. doi:10.1057/bm.2010.28. Timberlake, C. (2014). Michael Kors wins over Europe’s fashionistas. Bloomberg Businessweek, 4377, 27-28. Veblen, T. (2009). The Theory of the Leisure Class: An Economic Study of Institutions. Oxford: Oxford University Press. Walley, K., Custance, P., Paul, C., & Perry, S. (2013). The key dimensions of luxury from a UK consumers’ perspective. Marketing Intelligence & Planning, 31(7), 823-837. doi:10.1108/MIP-09-2012-0092. Yuen, E.F.T., & Chan, S.S.L. (2010). The effect of retail service quality and product quality on customer loyalty. Journal of Database Marketing & Customer Strategy Management, 17, 222-240. doi:10.1057/ dbm.2010.13.

UPADLJIVA POTROŠNJA, LUKSUZNA ROBA I TRŽIŠTE FALSIFIKATA U VELIKOJ BRITANIJI Rezime: Brz razvoj modnih brendova i popularnost falsifikovane robe predstavlja veliki izazov za postojeće i nove proizvođače i korisnike luksuznih modnih brendova. Ovaj rad ispituje faktore koji podstiču tržište falsifikovane robe u Velikoj Britaniji. Na osnovu podataka prikupljenih iz upitnika u kojem je učestvovalo 306 ispitanika i korišćenjem empirijskih tehnika, poput deskriptivne i inferencijalne statistike (korelaciona i višestruka regresiona analiza), može se zaključiti da potrošači imaju negativan stav prema falsifikatima luksuznih brendova. Međutim, oni pokazuju slabiju tendenciju prema kupovini brendova čije je falsifikate teško naći i u tom slučaju radije kupuju original. Kada je reč o učestalosti kupovine, ispitanici imaju averziju prema falsifikovanoj robi i nastoje da kupuju brendove za koje je teško naći falsifikat. Generalno posmatrano, rezultati pokazuju da zagovaranje i prihvatanje falsifikovane robe nije toliko prisutno na tržištu. Međutim, oko 27% ispitanika ima pozitivan ili neutralan stav prema falsifikovanoj robi, što u velikoj meri utiče na tržište luksuzne firmirane robe.

Ključne reči: luksuzni modni brendovi, izbor potrošača, falsifikati, upadljiva potrošnja. Received: March 9, 2016 Correction: April 18, 2016 Accepted: April 27, 2016

INSTRUCTIONS FOR AUTHORS

The European Journal of Applied Economics is a biannual, peer-reviewed journal which publishes significant original scientific research and reviews. The Journal is devoted to the publication of research results in the following areas: economy, management, tourism and hospitality. It is essential that authors write and prepare their manuscripts according to the instructions and specifications listed below. The length and effectiveness of the peer review process will largely depend upon the care used by authors in preparing their manuscripts. Therefore, contributors are strongly encouraged to read these instructions carefully before preparing a manuscript for submission, and to check the manuscript for conformance before submitting it for publication. The manuscripts must be written in English using Microsoft Word (*.doc or *.docx). Make sure that your manuscripts are clearly and grammatically written. Please note that authors who are not native-speakers of English can, to a certain amount, be provided with help in rewriting their contribution in correct English. The Editorial Board expects the editors, reviewers and authors to respect the well-known standard of professional ethics. Types of contributions: ◆◆ Original papers - (about 10 typewritten pages) report original research which must not have been previously published. ◆◆ Preliminary communications - (up to 3 pages) report unpublished preliminary results of sufficient importance to demand rapid publication. ◆◆ Subject reviews - (about 15-20 pages) present an overview of the author’s current research with comparison to data of other scientists working in the field. Manuscripts should be submitted using the Online Submission System. The manuscript must be uploaded as a *.doc or *.docx file (tables and figures should follow the text, each on a separate page). No articles will be published without first undergoing an anonymous refereeing procedure (please read carefully Editorial policy). To facilitate the reviewing process, authors are encouraged to suggest up to three persons competent to review their manuscript. Such suggestions will be taken into consideration but not always accepted. The editor reserves the right to make the final decision with respect to publication. If you have any questions, do not hesitate to contact the Managing Editor at sstanisic@singidunum.ac.rs. 84

EJAE 2016

Instructions for authors

Manuscripts should be typed in English (standard British English) with 1.15 spacing in A4 format leaving 2.5 cm for margins. Manuscript elements: 1. Title page with: 1. title (and short title) 2. name(s) of author(s) 3. name and address of workplace(s) â&#x20AC;&#x201C; affiliation(s) 4. personal e-mail address(es) 2. Abstract 3. Keywords 4. Introduction 5. Methodology 6. Results and Discussion 7. Reference lists 8. Tables (each on a separate page) 9. Figures (each on a separate page). Each of these elements is detailed below.

1. TITLE PAGE 1.1. Title (and short title) We suggest the title should be relatively short but informative. If a long title is necessary, please prepare an optional short title. 1.2. Name(s) of author(s) A list of all authors of the paper should be prepared. We need full first name and full last name. Initial(s) for middle name(s) is optional. 1.3. Name and address of workplace(s)- affiliation(s) Authors' affiliations should be indicated in this section. Either endnote or footnote are not recommended. 1.4. Corresponding authorâ&#x20AC;&#x2122;s e-mail address One e-mail address is needed. It will be used as the corresponding author's email address in all contacts with the authors.

2. ABSTRACT An abstract must accompany every article. It should be a brief summary of the significant items of the main paper. The abstract should give concise information about the content of the core idea of your paper. It should be informative and not only present the general scope of the paper but also indicate the main results and conclusions. The abstract should not normally exceed 200 words. It should not contain literature citations or allusions to the tables or illustrations. All non-standard symbols and abbreviations should be defined. In combination with the title and keywords, the abstract is an indicator of the content of the paper. Authors should remember that online systems rely heavily on the content of titles and abstracts to identify articles in electronic bibliographic databases and search engines. They are therefore requested to take great care in preparing these elements. 85

EJAE 2016

Instructions for authors

3. KEYWORDS List of keywords proposed by the authors, separated by commas. Up to 5 key terms can be selected. We would suggest to avoid repeating the title.

4. TEXT General rules for writing: ◆◆ use simple and declarative sentences, avoid long sentences, in which the meaning may be lost by complicated construction;

◆◆ be concise, avoid idle words; ◆◆ make your argumentation complete; use commonly understood terms; define all nonstandard symbols and abbreviations when you introduce them; ◆◆ Latin words, as well as the names of species, should be in italic, as for example: i.e. or e.g. ◆◆ explain all acronyms and abbreviations when they first appear in the text. Generally a standard scientific paper is divided into: ◆◆ introduction,

◆◆ main text, ◆◆ conclusion. Footnotes/Endnotes/Acknowledgements: We encourage authors to restrict the use of footnotes. If necessary, please make endnotes rather than footnotes. Information concerning research grant support or the assistance of colleagues should appear in a separate Acknowledgements section at the end of the paper, not in a footnote.

5. REFERENCE LIST A complete reference should give the reader enough information to find the relevant article. Please pay particular attention to spelling, capitalization and punctuation. The article should contain no fewer than 25 references, preferably published recently. Completeness of references is the responsibility of the authors. Please avoid references to unpublished materials, private communication and web pages. The surname of the author and the year of publication appear in parentheses after the citation, for example (Fisher, 2010). If more than one publication by the same author appear in one year, they must be distinguished by an a, b, etc., for example 2001a, 2001b. In case of quoting the actual words of another author, the page number should be provided, e.g. (Hollard, 2010, p. 23). If the name naturally occurs in the sentence, only the year is given in parentheses, e.g. “Benoliel (1999) thinks…” If there are two authors, the surnames of both should be given (Fisher and Hollard, 2009). If there are more than two authors, the surname of the first author only should be given, followed by et al. (Wilson et al., 2008). However, full names of all authors should be given in the list of references. The original journal title is to be retained in the case of publications published in any language other than English (please denote the language in parenthesis after the reference in the Reference list).

EJAE 2016

Instructions for authors

1. Book a. Book (one author) Format: Author. (Year of publication). Book title. Place of publication: Publisher. Example: Baxter, R. (1982). Exactly solvable models in statistical mechanics. New York: Academic Press. b. Book (two or more authors) Format: Author1, Author2, & Author3. (Year of publication). Book title. Place of publication: Publisher. Example: Kleiner, F.S., Mamiya C.J., & Tansey R.G. (2001). Gardnerâ&#x20AC;&#x2122;s art through the ages (11th ed.). Fort Worth, USA: Harcourt College Publishers. c. Book chapter or article in an edited book Format: Author(s) of chapter. (Year of publication). Chapter title. In Editors of the book (Ed.), Book title (Chapter page range). Place of publication: Publisher. Example: Roll, W.P. (1976). ESP and memory. In J.M.O. Wheatley & H.L. Edge (Ed.), Philosophical dimensions of parapsychology (pp. 154-184). Springfield, IL: American Psychiatric Press. d. Proceedings from a conference Format: Author(s). (Year of publication). Title. In Conference name, Date (Page range). Place of publication: Publisher. Example: Field, G. (2001). Rethinking reference rethought. In Revelling in Reference: Reference and Information Services Section Symposium, 12-14 October 2001 (pp. 59-64). Melbourne, Victoria, Australia: Australian Library and Information Association. e. E-book Format: Author(s). (Year of publication). Title. Publisher. Retrieving date, http address. doi. Example: Johnson, A. (2000). Abstract Computing Machines. Springer Berlin Heidelberg. Retrieved March 30, 2006, from SpringerLink http://springerlink.com/content/w25154. doi: 10.1007/ b138965. f. Thesis Format: Author(s). (Year of publication). Title. Information, Place of publication. Example: Begg, M.M. (2001). Dairy farm women in the Waikato 1946-1996: Fifty years of social and structural change. Unpublished doctoral dissertation, University of Waikato, Hamilton, New Zealand.

EJAE 2016

Instructions for authors

g. Government publication Format: Institution name. (Year of publication). Title. Place of publication: Publisher. Example: Ministerial Council on Drug Strategy. (1997). The national drug strategy: Mapping the future. Canberra: Australian Government Publishing Service. 2. Article a. Journal Article (one author) Format: Author. (Year of publication). Article title. Journal Title. Volume (issue), range of pages. doi. Example: Nikora, V. (2006). Hydrodynamics of aquatic ecosystems: Spatial-averaging perspective. Acta Geophysica, 55(1), 3-10. doi: 10.2478/s11600-006-0043-6. b. Journal Article (two or more authors) Format: Author1, Author2, & Author3. (Year of publication). Article title. Journal Title. Volume (issue), range of pages. doi. Example: Cudak, M., & Karcz, J. (2006). Momentum transfer in an agitated vessel with off-centred impellers. Chem. Pap. 60(5), 375-380. doi: 10.2478/s11696-006-0068-y. c. Journal article from an online database Format: Author(s). (Year of publication). Article title [Electronic version]. Journal Title. Volume (issue), range of pages. Retrieved date of access, from name of database. doi. Example: Czajgucki Z., Zimecki, M., & Andruszkiewicz, R. (2006, December). The immunoregulatory effects of edeine analogues in mice [Abstract]. Cell. Mol. Biol. Lett. 12(3), 149-161. Retrieved December 6, 2006, from PubMed database on the World Wide Web: http://www.pubmed.gov. doi: 10.2478/s11658-006-0061-z. d. Newspaper article (no author) Format: Article title. (Publication date). Journal Title. page. Example: Amazing Amazon region. (1989, January 12). New York Times, p. D11. 3. Other formats a. Web page Format: Author/Sponsor. (last update or copyright date). Title. Retrieved date of access, from URL. Example: Walker, J. (1996, August). APA-style citations of electronic resources. Retrieved November 21, 2001, from http://www.cas.usf.edu/english/walker/apa.html.

EJAE 2015

Instructions for authors

b. Lecture note Format: Author(s). (Date of presentation). Lecture title. Lecture notes distributed in the unit, at the name of the teaching organisation, the location. Example: Liffers, M. (2006, August 30). Finding information in the library. Lecture notes distributed in the unit Functional Anatomy and Sports Performance 1102, University of Western Australia, Crawley, Western Australia. c. Patent Format: Author. (Year). Patent number. The location. Issue body. Example: Smith, I. M. (1988). U.S. Patent No. 123,445. Washington, D.C: U.S. Patent and Trademark Office. d. Standard Format: Issue body. (Year). Standard name. Standard number. The location. Example: Standards Association of Australia. (1997). Australian standard: Pressure equipment manufacture. AS4458-1997. North Sydney. e. Computer software Format: Author(s). (Year). Title [computer software]. The location: Company. Example: Ludwig, T. (2002). PsychInquiry [computer software]. New York: Worth. Tables and figures and/or schemes should not be embedded in the manuscript but their position in the text indicated. In manuscript tables and figures should follow the text, each on a separate page.

6. TABLES Authors should use tables to achieve concise presentation or where the information cannot be given satisfactorily in other ways. Tables should be prepared with the aid of the Word table function, without vertical lines. The minimum size of the font in the tables should be 10 pt. Tables should not be incorporated as graphical objects. Styles and fonts should match those in the main body of the article. Tables should follow the text on the end of the manuscript and should be numbered consecutively using Arabic numbers and their position in the text should be indicated. Each table should have an explanatory caption which should be as concise as possible.

7. FIGURES Authors may use line diagrams to illustrate theses from their text. The figures should be clear, easy to read and of good quality. Styles and fonts should match those in the main body of the article. Lettering and lines should be of uniform density and the lines unbroken. Axis labels should be in bold face. 89

Units should be placed next to variables in parentheses. Figures should follow the text on the end of the manuscript and should be numbered consecutively using Arabic numbers and their position in the text should be indicated. Mathematical equations should be embedded in the text. Complex equations should be prepared with the aid of the Word Equation editor. All equations must be numbered, Arabic numbers, consecutively in parenthesis at the end of the line, as presented:

= NSV

â&#x2C6;&#x2018; NP k =0

â&#x2039;&#x2026; ak

(1)

CIP - Каталогизација у публикацији Народна библиотека Србије, Београд 33 The EUROPEAN Journal of Applied Economics / editor-in-chief Milovan Stanišić. - Vol. 12, No. 1 (2015). - Belgrade : Singidunum University, 2015- (Loznica : Mobid). - 28 cm Dva puta godišnje. - Је наставак: Singidunum Journal of Applied Sciences = ISSN 2217-8090 ISSN 2406-2588 = The European Journal of Applied Economics COBISS.SR-ID 214758924