Singidunum Journal of Applied Science 2013 Vol 10 No 1 by Singidunum University

Vol. 10 No. 1

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Vol. 10 No. 1 P��: Singidunum University

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Professor Milovan Stanišić, Singidunum University Emeritus Slobodan Unković, Singidunum University Professor Alexandar Angelus, Lincoln University Professor Krunoslav Čačić, Singidunum University Professor Francesco Frangialli, UNWTO Professor Gunther Friedl, Technische Universität München Professor Karl Ennsfellner, IMC University of Applied Sciences, Krems Professor Gyorgy Komaromi, International Business School, Budapest Professor Vasile Dinu, University of Economic Studies, Bucharest Professor Ada Mirela Tomescu, University of Oradea, Oradea Professor Verka Jovanović, Singidunum University Professor Milan Milosavljević, Singidunum University Professor Olivera Nikolić, Singidunum University Professor Budimir Stakić, Singidunum University Professor Mladen Veinović, Singidunum University Professor Jovan Popesku, Singidunum University Professor Zoran Jeremić, Singidunum University Associate Professor Christine Juen, Austrian agency for international mobility and cooperation in education, science and research, Wien Associate Professor Anders Steene, Södertörn University, Stockholm/Hudinge Associate Professor Miriam Jankalová, University of Žilina Associate Professor Bálint Molnár, Corvinus University of Budapest Associate Professor Vesna Spasić, Singidunum University Associate Professor Goranka Knežević, Singidunum University Assistant Professor Konstadinos Kutsikos, University of the Aegean, Chios Assistant Professor Theodoros Stavrinoudis, University of the Aegean, Chios Assistant Professor Patrick Ulrich, University of Bamberg Assistant Professor Marcin Staniewski, University of Finance and Management, Warsaw Assistant Professor Gresi Sanje, İstanbul Bilgi Üniversitesi, Istanbul Assistant Professor Nemanja Stanišić, Singidunum University E�� O��

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

Novak Njeguš Aleksandar Mihajlović

ISSN: 2217-8090 Singidunum Journal of Applied Sciences is published biannually. Contact us: Singidunum Journal of Applied Sciences 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: Mladost Grup, Loznica

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CONTENTS

1-10

Analysis of the Application of the Concept of Corporate Social Responsibility in Local Businesses Analiza primene koncepta korporativne društvene odgovornosti u domaćim poslovnim organizacijama Milenko Ćeha

11-17

The Legal Effects of EU Directive Through its Interpretation Pravno dejstvo direktive Evropske unije kroz njeno tumačenje Ivan Nikčević, Jovana Parlić

18-27

Directions and Guidelines for Resolving the Crisis (in Bosnia and Herzegovina and its Entities) Uputstva i smernice za rešavanje krize (u Bosni i Hercegovini i njenim entitetima) Zoran Mastilo

28-38

The Role and Potential of Global Distribution System Amadeus for Tourism Development at the Global Level Uloga i potencijal globalnog distribucionog sistema Amadeus za razvoj turizma na globalnom nivou Ljiljana Radulović

39-45

The Pricing and Valuation of Swaps Određivanje cene i vrednovanje svopova Jelena Paunović III

46-53

Contemporary Approach to Education in Organizations Savremeni pristup obrazovanju u organizacijama Lepa Babić, Jelena Đorđević Boljanović

54-60

Software Package Transp in the Function of Automatisation of Transport Management System Softverski paket Transp u funkciji automatizacije sistema menadžmenta transportom Marija Matotek, Dušan Regodić

61-64

Instructions for authors

SINGIDUNUM JOURNAL 2013, 10 (1): 1-10 ISSN 2217-8090 UDK: 005.336.3:005.35; 005.336.1:334.72 DOI: 10.5937/sjas1301001C Original paper/Originalni naučni rad

ANALYSIS OF THE APPLICATION OF THE CONCEPT OF CORPORATE SOCIAL RESPONSIBILITY IN LOCAL BUSINESSES Milenko Ćeha* Ministry of Interior of the Republic of Serbia Blvd. Mihajla Pupina 2, Belgrade, Serbia

Abstract: Modern society demands responsibility and contribution from its members. Social responsibility in business is related to the obligation of companies and other business organizations to increase their positive influence and reduce their negative influence on society. Corporate social responsibility represents a voluntary commitment on the part of an organization and its decision to choose and apply the appropriate business practices that contribute to the community. Nowadays, the concept of corporate social responsibility is standardized and represents an integral part of integrated management systems. The concept of corporate social responsibility in the domestic market has been applied in practice since the beginning of the process of economic transition, mostly in companies that are privatized by foreign capital. This study presents a model for the improvement of corporate social responsibility (CSR) in local business organizations, as a result of investigations related to the attitudes of managers in domestic companies regarding the question of corporate social responsibility.

INTRODUCTION Modern society is placing increasing demands on companies to take over full moral and legal responsibility for their actions, especially when it comes to the protection of consumers’ interests and environmental protection. Modern business philosophy assumes that an organization must be responsible for its actions and deeds that affect all active members of the community. Companies that want to be competitive should satisfy the interests of a large number of interest groups operating within a particular business environment. Corporate ethics has become an important requirement in every business, from the management boards of the world’s largest corporations to classrooms in business schools and universities world * E-mail: milenko.ceha@mup.gov.rs

Key words: corporate social responsibility, business excellence, competitiveness, quality, business.

wide. Nowadays, a large number of huge corporations are faced with having to meet the increasing requirements for the protection of the environment. Therefore, they should incorporate thinking based on those requirements when managing their business. In terms of changing attitudes of the modern businessman towards the principle of social responsibility, sir Richard Branson (2010, p.7), British entrepreneur and innovator and the owner of The Virgin Group best said: “As a capitalist I was confronted with an unpleasant and difficult question: ‘Do I cause damage?’ After some careful research and investigation, I discovered that it is in fact possible to be a capitalist and still maintain the philosophy of environmental protection I have already been practicing for some time. I created the expression Geja Capitalism as a principle, slogan, and directive for progress.” 1

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Ćeha M.  Corporate social responsibility in local business

Today we hear more and more about corporate social responsibility (CSR). It represents the commitment to advancing the well being of society through discretion business practices and contributions at the expense of company resources (Kotler and Li, 2007, p.3). The keyword of this definition is discretion. It represents a willful commitment of the organization to choose and apply business practices that contribute to the community. The concept of corporate social responsibility is now standardized and represents an integral part of integrated management systems. One of the most significant issues in domestic economy, which contributes greatly to the bad market performance of our companies on the international market, is the inadequate use of modern methods and techniques of management. This refers in the first place to knowledge necessary for the efficient business management. One possible variant for progress in business is the process of implementation of foreign experience and the expansion of knowledge with the aim of improving the quality of business and achieving competitiveness. Factors such as the insufficient experience of a company regarding the application of modern management concepts and techniques, lack of respect towards foreign experience, inadequate approaches to marketing, as well as little or no knowledge of marketing technology, lead to the fact that domestic companies cannot keep up with the international competitors. Acquiring knowledge in line with the world experience represents a significant factor for business advancement of the domestic companies. The question regarding the need for a strategic shift in the attitudes of local managers towards accepting the necessity for continuous improvement of labor productivity and business, based on the application of knowledge, is not a matter of daily politics but of business philosophy changes. The purpose of education in the field of management skills and techniques is to acquire knowledge necessary for the successful management of a company and/or its operations with the aim of increasing the productivity of both labor and knowledge. One of a series of problems of the local business organizations, which is distinguished by its importance, is raising the level of social responsibility in everyday business practices. The problem of applying the concept of corporate social responsibility (CSR) in domestic business organizations has not still been understood in an adequate manner, thus 2

making the question of CSR a matter of management standards set by the International Organization for Standardization.

ANALYSIS OF MAJOR FACTORS AFFECTING THE OPERATIONS OF A MODERN ORGANIZATION New economic conditions require new approaches to the study of organizational management, in addition to business practices. Changes in the market area most directly affect the way of thinking related to the company management. Also, the changes in science and technology are quickly evolving – for instance, a product’s lifetime in microelectronics is shortened to only 18 months. According to Kotler (2004, p.156), any new technology is a force of creative destruction – the greatest danger for any company is not its competition, but the use of new technological solutions. An organization striving to be successful and to maintain and develop a competitive advantage in the market must be willing to learn. This means that a company must keep up with changes not only on the market, but also in science, in order to achieve business excellence. The companies must monitor not only the direct competitors, but also those who are the best in their fields, even if they are not direct competitors. Business excellence means that companies should constantly work on the implementation of the quality of business of the organization, which is based on the increase of labor productivity and knowledge of every employee. Japanese companies were among the first to accept the need for action in order to build a successful future for themselves. The current activities of an organization result in effects that are visible not only in the present, but that can significantly affect the sequence of future events. One of the basic postulates of Japanese companies is proactivity. Namely, responsibility for one’s own task is the imperative for every individual, the entire organization, as well as for all businesses and other organizations in an economy. In information society, knowledge becomes the basic resource of business, which makes it possible for the remaining three resources, consisting of manpower, capital, and natural resources, to be productive. Knowledge becomes a tool, a means for accomplishing results in social and economic development. It is understood in terms of economic knowledge,

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that the management will confront usual prejudices – reorganization, reengineering, new stylization, redefinition of own goals, searching for new purpose, refocusing, revitalization, and revision (Tiesen et al. 2006, p.159). Today’s business can be observed as enterprising economy. This expression dates from the early 1990’s, and it is concerned with the reality of modern economy in which dominates enterprise management. The existence of an enterprising economy makes way for new applications in the field of management – in new companies, small companies, non-economic activities, small businesses, and in the domain of system innovations. In an enterprising economy, all organizations, regardless of the type of the task, also have to act enterprisingly and implement the basic postulates of enterprising in their organizational structure. According to Adizes (2006, p.56), enterprising is a function of creativity and taking risks. According to some modern opinions, an entrepreneur no longer has to be defined as an individual who is the owner of a business. The entrepreneur can be a single person who is employed by an employer, but who must possess skills characteristic of entrepreneurial conduct. According to Drucker (2003, p.173), jobs in an organization have to run in an enterprising manner, in order for a company to become an enterprising organization. In that sense, a model is developed for corporate enterprise, which gives team work potential, and in turn its members are motivated to work on achieving success and accepting risks. Modern society is based on the production and distribution of information, which in turn demands a high level of awareness, education, and the use of information pertaining to all interest groups in an area (participants). Information technology makes it possible for the communication development process to reach a global level in real time, and at the same time reduces the floating information. That means that business organizations have to become aware of the demands of all segments of the public. Furthermore, it means that business organizations have to establish an adequate level of understanding with all segments of social and business areas. As can be observed, the level of understanding must be further developed and raised to a higher standard for every subsequent plan-cycle in order to maintain a successful business organization. Every business organization has significant influence on the environment in which it operates. An

Ćeha M.  Corporate social responsibility in local business

organization affects the environment economically, technically-technologically, ecologically, culturally, and in a social sense. Moreover, the organization has to carry out substantial actions for increasing the positive influence on its environment for each of these fields. According to Miljević (2008a, p.173), modern nature of working in post capitalistic organizations in the world of business, which is based on scientific and technical knowledge and their results, has been accumulated and created a new world – a world of things. This new world of things demands new business ethics – far-reaching responsibility ethics – no matter if it is influenced by non-human or human nature.

CORPORATE SOCIAL RESPONSIBILITY AND MODERN BUSINESS Social responsibility permeates modern business. Trends in the development of the concept of business ethics and the implementation of this practice to the organizational structure of a company have been occurring for over three decades. During the time-frame of the twentieth century, between the two world wars, the International Chamber of Commerce made a certain code of conduct for this specific field of business (e.g. International Code of Conduct in the field of economic advertising was passed for the first time in 1937 by International Chamber of Commerce in Paris). Japanese managers have made a significant contribution to the development and application of business ethics. Namely, during the fifties, they actively started developing concepts for quality management based on a range of American management systems and Japanese philosophical principles, such as kaizena. In this way, Japanese companies developed a permanently evolving system for business productivity, concern for human resources and partners, and, on an international level, they managed to avoid competition between domestic companies – compete, yes, but exclusively in their domestic market. The Japanese model for developing business quality, in addition to managing to be perceived in a broader perspective, was copied in the USA and in Europe at the end of the eighties. Since then, it has become one of the most dominant management models and has, at the same time, become a base for the wider acceptance of corporate ethics. According to Drucker (2003, p.53), the main responsibility of one professional was clearly defined 3

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in Hippocrates’s oath, in an ancient Greece two and a half thousand years ago: “Primum non nocere” – above all, do not harm anyone consciously. A professional is a private person, but also a public person, in the sense that the well being of the client sets limits to his actions and words – the principle “do not cause damage consciously” is in fact the basic rule of professional ethics, but also a basic rule of ethics for public responsibility. Fayol (2006, p.45) listed fairness (11th principle) as one of the 14 principles of administration, “Business ethics is defined as a set of principles, norms and standards of behaviour used for guiding an individual or a group in business, or as a group of principles and standards leading to the acceptable conduct in the business world. In the most general sense of the word, it is understood as moral behavior and actions” (Miljević, 2008, p.27). Corporate social responsibility (CSR) is a concept framework, in which companies integrate social interests and challenges concerning the environment and their business in integration with all stakeholders by freewill. State administration in the most developed countries around the world has, for the last three decades, been developing legislations in order to prevent the degradation of the environment and natural resources, improve and protect the environment, and define specific guidelines for sustainable development on a global level. Business entities have to satisfy the goals of a greater number of interest groups in their environment. Modern society is increasingly signifying the demand for companies to define their social responsibility. Social responsibility (SR) in business is related to the obligation of the company and other business organizations to increase their positive influence and reduce their negative acting on society. According to Eric Reinert (2010, p.200), a Norwegian economist, capitalism is based on own interests, due to the fact that private vices can be converted to public benefits. Conclusion of debt debate during the time of enlightenment was that the best warranty for public sector was to ensure that own interests matched with social interests. Successful capitalists earn money through imperfect competition. When this imperfect competition is realized through new technology, as is often the case, it is possible to observe the relation between one`s own interests and social interests. According to the World Council for Sustainable Development, corporate social responsibility 4

represents a company’s commitment to contribute to sustainable economic development through cooperating with the unemployed, their families, the local community, and society in general in order to improve the quality of their lives. In the Green Book, the European Union states that being socially responsible is not only to respect legal obligations, but to go further than the mere compliance with the law and to invest even more in human capital, the environment, and relations with stakeholders. Thus, to be socially responsible means to look after the needs of individuals as well as of the community – invest in health-care, human resources, culture, and healthy environment. Simply put, it means to develop human relations with different social subjects. Generally speaking, CSR assumes that for the profit they have made, companies are responsible not only to their shareholders, but also to the individuals and groups that are in any way affected by that profit. Corporate social responsibility represents determination for the development of the well-being of a community through discretion business practices and contributions at the expense of company resources (Kotler and Li, 2007, p.3). The keyword of that definition is discretion. It refers to the goodwill of the organization and its decision to choose and use business practices that contribute to the community. Some reasons for using and developing corporate social responsibility are as follows: increasing market participation, strengthening the position of brands, strengthening corporate image, improving the ability to attract and motivate employees, reducing operating costs, and increasing attractiveness for investors. According to some opinions, we can today observe six social initiatives that act upon the domain of corporate social responsibility: 1. Promoting social goals, 2. Marketing associated with social goals, 3. Corporate social marketing, 4. Corporate philanthropy, 5. Volunteer work for the community, 6. Socially responsible business practices (Kotler and Li, 2007, p.3). Promoting social goals implies that a company provides funding, in-kind contributions, or other resources, to develop awareness of social order, or to collect certain funds for the benefit of this social

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goal. Marketing associated with social goals means that a company is obliged to associate a certain percentage of income, realized by selling products or services, with a certain social goal. Corporate social marketing means that a company facilitates the development and/or implementation of a campaign for a change in conduct towards the progression of health, security, environment, or well being of the community. Corporate philanthropy is a practice in which a company directly contributes to a charity or social action; this is mostly given in the form of grants as cash or through in-kind donations. Volunteer work for the community means that a company upholds and encourages its employees, just as employees at partnership organizations volunteer to help local social organizations and projects. Socially responsible business practices can be understood as situations in which a company, in its sole discretion, adopts and implements business practices that support a cause, which should improve the quality of life in the community and the protection of the environment.

THE ROLE OF CORPORATE SOCIAL RESPONSIBILITY IN ACHIEVING BUSINESS EXCELLENCE The latest trend in the development of quality management is the integration of management standards and the process of organizational management. One of the practical ways to implement corporate ethics and corporate social responsibility is the implementation of integrated management systems (IMS). The International Management Standards that are published by ISO (such as ISO 9000, ISO 14000, ISO 18000) incorporate elements related to social responsibility. In addition, the standard ISO 26000, which is directly related to the question of corporate social responsibility, is being developed. The implementation of an integrated management system allows for a reduction in the time necessary to create a concept of total quality of management – TQM, which creates conditions for companies in less developed countries, in response to the demands of the international standards, to build a business system that allows the formulation of world-class products and the implementation of business excellence. Applying the concept of IMS may be of great importance for companies coming from countries undergoing transition. Instead of the lengthy creation process of TQM, it is possible to achieve business excellence in a shorter period of

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time through the application of modules, one by one, into integrated management systems in compliance with the requirements of international standards ISO 9001, ISO 14001, ISO 18002 and SA 8000. Each of these standards incorporates some of the assumptions of the concept of corporate social responsibility, and standard SA 8000 is directly related to the development of this principle. Social Accountability 8000 (SA 8000) represents an international standard for social responsibility created by CEPAA (Council on Economic Priority Accreditation Agency) and is intended to provide an ethical source for products and services. This standard is voluntary in nature and can be applied to any company regardless of its size or activity. Also, this standard can replace or be a supplement to companies or industries with a specific code for social responsibility. International standard SA 8000 was created in 1997 and revised in 2001. The Standard SA 8000 is based on ISO 9000, but its goal is to improve working conditions in factories all over the world. The difference between these standards lies in the fact that SA 8000 includes characteristics required in addition to the system. Namely, requirements in SA 8000 require from the employer not to exploit his employees but to provide a safe working environment, not to employ children or force anyone to work, and not to demand from employees to work more than 48 hours per week. SA 8000 is based on nine elements, as follows: 1. Child labour, 2. Forced labour, 3. Health and safety, 4. Freedom of association and right to a collective agreement, 5. Discrimination, 6. Discipline, 7. Working hours, 8. Compensation, 9. Management system. The elements of these standards demand from the employer not to hire children under 14 (according to the criteria in the UN, children under 14 should not be employed), not to apply forced labor (for example, worker has to work overtime, otherwise he will be fired), and to organize in such a way so that the processes are in accordance with the need to protect the worker’s health. The employer must ensure the employee the freedom to join trade union organizations and prevent various forms of discrimination against workers (gender, religion, 5

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race, age). The employer must establish an adequate level of labor discipline that does not violate the dignity of the individual worker, and working hours that are in accordance with International Labor Organization (ILO) and the conference of the Free Labor Union. The employees should be adequately rewarded for their work and their employer must provide such a management system that complies with the standards of the International Management Standard. In the policy document “ISO Horizon 2010 – standards for sustainable world”, Central Secretariat ISO identified as key elements: urgent approximation towards development of social responsibility, covering aspects of the economy, society, and environment, in which all participants in society have their role, and in addition, companies and other organizations create new commitments. The International Organization for Standardization defined a series of standards ISO 26000 and provided guidelines for social responsibility (SR) at the international level. Standard ISO 26000 is directed towards all kinds of companies, in public and private sectors, in both developed and transitioning countries. Standard ISO 26000 has added value to the existing initiatives for SR by providing harmonization and global guidelines based on an international consensus by the leading representatives of professional groups of stakeholders, thus promoting the application of the best practices of SR around the world.

CORPORATE SOCIAL RESPONSIBILITY AND COUNTRIES IN TRANSITION The question of the establishment and development of corporate social responsibility is concerned with achieving competitiveness in all developed countries around the world. Nowadays, CSR is a ubiquitous concept which allows companies from developing countries to maintain and develop a competitive position on the global market, to develop understanding with stakeholders in the region. Companies from the countries in transition still have problems with the establishment of CSR. The problems that economy undergoing the process of transition faces represent the consequences of incompleteness of the socialist economic system. Transition represents the transformation of a national economy, from a centrally planned economy (or socialist economy), to a market economy. Transition represents ownership, a structural and institutional change in the manner of doing business, 6

and improvement of the efficiency of business in accordance with the requirements of the international market and global market trends. The transition from planned to market economy requires time. A generally accepted theory is that a “general model” of transition does not exist - every national economy has its own particular way of determining the pace of economic change and the hierarchy of priorities that guides the process of transition. Improving competitiveness of one national economy in the global economy is closely related to the economic development, the increase of employment, and effective earning which is based on the imperative to increase productivity. On the other hand, the global economy is reality, and the business imperative in the global economy is permanently increasing productivity for all keybusiness resources (primarily labor and knowledge). The inadequate use of knowledge represents the biggest problem for most companies coming from countries in transition and with a capital of domestic origin. Namely, habits inherited from the past influence the inappropriate treatment of education; especially knowledge – not enough attention is paid to the fact that knowledge represents the basic business resource that should be constantly improved. Specifically, this means that companies from transitioning countries still do not apply all foreign business experience and modern management techniques in order to constantly improve their business. When it comes to the implementation of CSR, the situation is particularly unfavourable. Ethical principles in business are still developing. Very few companies apply the concept of CSR. Companies usually choose corporate responsibility only declaratively, while their business is solely based on personal interests. The public interest is only a declarative category. A particular problem for countries in transition are branches of multinational and transnational corporations that behave inappropriately in relation to the developing market and that generally avoid applying the integrated model of business ethics in markets in transitioning countries. As a result, multinational and transnational corporations make higher profits on the one hand and delay the development of local markets on the other. When it comes to competitive relationships, free competition is only declaratively understood, while in most countries in transition the state monopolies still prevail (public companies). There are companies in transition countries that rely on close ties

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with state administration when achieving their own interests. The issue of corruption is certainly the one of the most important issues concerning the development of market mechanisms in countries in transition. Corruption is more obvious and present in countries in transition, due to the underdevelopment of market mechanisms, the degree of economic freedom, as well as the underdeveloped democratic system. The democratic system of government, market mechanisms and legal infrastructure which is adequate to economic and social development, are the basic requirements for minimizing corruption. The field of corporate philanthropy is particularly suitable for corruptive actions in countries in transition. Namely, undeveloped market mechanisms and the lack of an adequate tax system that clearly distinguish philanthropy from other benefits, make it possible for certain companies from transition countries to use this form of CSR in order to achieve their personal profit interests (the financing of a certain group with the aim to achieve profit). Particularly interesting is the case of lobbying, done by companies coming from the most developed countries of the world, which finance certain foundations that are turned to political education (politicians, offspring of political parties, young experts, etc.). By financing certain foundations, multinational and transnational corporations attempt to achieve their own economic interest by using individuals, or groups, who have been officially financed by foundations (training, scholarship abroad, study visit abroad, etc.). Competition from abroad is looking for a way to avoid the mechanism of free competition in cooperation with quasigovernment companies or public companies, to enlarge profit and develop the market. In most countries in transition, consumers are inadequately protected, from both domestic and foreign producers. It is well-known that some large multinational and transnational corporations have a higher quality products for developed markets and lower quality products for markets in the transition countries. The issue of the protection of the environment is still insufficient even though there is a legal infrastructure. The reason for that is that there is not enough experience in its application, and in some cases it is deliberately avoided. Companies from developed markets buy companies from the so-called “dirty technology” sectors in transition countries to take advantage of the existing resources and quali-

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fied workforce, but also slight legislations in this field. The situation is even more critical for the same companies that were purchased by local entrepreneurs, who are doing their best to avoid legal norms in the field of environmental protection. Workers are particularly targeted in countries in transition. Undeveloped social infrastructure, the absence of social dialogue institutions, and atrophied unions affect the domestic and foreign entrepreneurs’ behavior very inappropriately regarding the globally accepted standards in the field of worker’s right. In all developed economies, unions represent the crucial factor for employment and problem solving in the domain of employment. On the other hand, in transition countries, the underdevelopment of union organizations is evident, which in turn has negative impact on the protection of worker’s rights, especially in the early stage of the transition process. It has also been observed in the first phases of the transition process that some union organizations look much more like political organizations than like organizations that should represent worker’s interests. Unions must have a significant role in the process of privatization in order to protect workers and their rights. The chamber system includes almost 2/3 ownership (state property), and with its members (mostly comprised of social companies) is currently exempt from acting in tripartism. The near future already points out the need to include the elements of CSR in business practices in companies from transition countries. These companies are expected to take part in fair competition, the protection of consumers’ interests, the protection of workers’ rights etc. When speaking about competition and elements of business ethics, all developed markets require of companies from countries in transition to have at least one, and often multiple, certificates of the standards applied in management (quality management system, environmental management, management of health and safety, etc.). All exporters and food producers from countries in transition, wishing to export to the EU, must have food safety certification (HACCP), while products incurred as a result of certain treatments that may be harmful to the environment require certification of environmental management (ISO 14000). The question here is not whether companies from transition countries need to deal with the implementations of business ethics, but how fast they can keep pace with the developed world. 7

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ANALYSIS OF APPLICATION OF THE CONCEPT OF CORPORATE SOCIAL RESPONSIBILITY IN LOCAL BUSINESS

The concept of CSR has been applied and developed in local business organizations from the beginning of the transition process. The corporate social responsibility awareness is present in Serbia, but on the level of concept in formation, which is just beginning to be recognized as important and socially desirable, rather than on the level of realized behavior with which we have experience. There are significant barriers when it comes to promoting the idea: many companies still do not understand the long-term benefits that bring forth socially responsible access. Namely, many businessmen and entrepreneurs believe that they do not have enough of the required resources or knowledge at their disposal to engage in various strategies. The concept of CSR is developing in our country, and the major carriers have so far been NGOs (e.g. Smart Collective). In the Serbian Chamber of Commerce (which adopted the codex of corporate behavior and business ethics and participates in awards for CSR), the media (B92, an economist magazine group), and scientific institutions (universities and social institutes), have been adopting CSR, but in practical sense, CSR has been widely applied in companies with foreign capital. Certain elements of the CSR concept had been applied, both in the time before the transition process began and several decades before that. One of the most significant forms of CSR applied in Serbia was corporate philanthropy. Although certain forms of actions existed before transition, the concept of CSR has actually been applied only for the last ten years and primarily by large local government systems, such as EPS and Telecom Serbia etc., and in corporations where the foreign capital prevails. The reason for this is the fact that many local companies belong to the group of small- and middle-sized companies, which by definition have no funds for investment in this area, and no knowledge. Foreign Corporations have the funds and the human resources necessary for the implementation of activities in the domain of CSR, and they also realize CSR for their own goals related to market development. On the other hand, it is observed, in theoretical and methodological terms, that the concept of CSR is still under study – it is mainly studied in the thematic areas of management and corporate ethics, or 8

possibly integrated management systems. The selfstudy of CSR concept has not yet reached the local scientific community. Regarding this, there is a need for a more comprehensive study of this important area that touches both management and business ethics and quality management. Research on the application of the concept of corporate social responsibility in companies operating in the domestic market was undertaken from June to October 2010 on the territory of Serbia, in order to obtain the opinion of managers of the companies regarding the implementation of the concept of corporate social responsibility. Some of the most important results of the research are as follows: ◆ The managers emphasize the following factors as the basic one for business advancement: upgrading employees’ skills – 27.6%, improvement of the quality of business –17.3%, applying modern methods and techniques of management – 11.2%, development and application of information technology – 10.2%, increasing business productivity – 8.2%, ◆ The essential elements for the development of competitiveness of local companies are as follows: continuous improvement of skills and knowledge of the management and employees – 22.2%, applying modern methods and techniques in management – 21.2%, standardization of the quality of business – 15.1%, purchasing modern technological solutions and equipment – 12.1%, the importance of investment in marketing – 9.1%, ◆ Major obstacles in development of competitiveness for local companies are: shortage of financial capital – 24.7%, lack of knowledge – 21.6%, obsolete equipment and technology – 15.7%, lack of resources – 8.8%, insufficient stimulation of the business environment – 8.8%, ◆ The most frequent activities within the domain of CSR in the analyzed business organizations are as follows: socially responsible business practices – 37.7%, promoting social goals – 26.4%, corporate social marketing – 15.1%, corporate philanthropy – 9.4%, marketing connected to social goals – 5.6%. Most of the respondents or more precisely 81.25% of them believe that there are local companies that can be characterized as business executive organizations. Taking into consideration all the limitations this model reveals, factors for the improvement of business and elements for the development of com-

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petitiveness as well as social initiatives in the field of CSR which are to be applied, local companies can achieve certain level of business excellence. Based on the research results, a model has been developed for the improvement of CSR in local business organizations and it includes the following elements: satisfying interest groups, basic factors to improve business, necessary elements for the development of competitiveness in local companies, major obstacles in developing competitive local companies, process of organizational management, implementation of CSR activities with the aim to satisfy interests groups, analysis of the fulfillment of the requirements of interests groups, and permanent improvement of business. This model points out the need to build strong relations between the application of integrated management systems, the continuous improvement of the knowledge of employees and managers, productivity, and business excellence. Quality and CSR are closely connected – the concept of integrated management systems contains essential elements of corporate social responsibility, the quality education and application of the concept of quality directly develops the concept of CSR in local companies. The implementation of social initiatives in the field of CSR by a feedback system, and continuous improvement of business, increases satisfaction of interests groups in the environment, and thus contributes to the success of the business.

CONCLUSION Modern business requires new approaches to the management of an organization. Social responsibility is the supreme principle in modern business. All the corporations that are successful in global proportions are socially responsible organizations. Business practices of the world’s most successful corporations show that there is a high degree of correlation between the positive opinions of interest groups within the company and the quality of business. Companies that actively and continually apply modern methods and management techniques have a much better chance of strengthening their competitiveness on the global market and acquiring a stable market position with perspectives for further market growth. Nowadays, the concept of social responsibility represents one of the most important principles of modern business, which has a direct influence on the developing market position of a company and

Ćeha M.  Corporate social responsibility in local business

on strengthening the competitiveness of an organization. Making a profit today is closely related to social responsibility and socially responsible business practices. A recent analysis of the local market shows that all socially responsible companies are at the same time leaders in the field of quality. The improvement of competitiveness of local companies is under direct influence of the development of the concept of quality management and corporate social responsibility. Local companies need to clearly design their own development strategy in accordance with the European and global integration trends, and the application of modern methods and techniques of management, as integrated management systems, which represents the basic assumption of successful market development. Applying the concept of corporate social responsibility may be of great importance for the companies coming from transition countries. CSR allows for improvement and competitiveness in the global market. The most important trends in the development of competitiveness of local business organizations are the adequate use of knowledge in organizations, the development of institutions in a business environment, and the development of legislation. Operation of domestic companies must be based on the application of management techniques that support competitiveness, innovations and flexibility, and the fact that CSR concept occupies a very important place.

REFERENCES Adižes, I. (2006) Upravljanje promenama: moć uzajamnog poštovanja i poverenja u privatnom i porodičnom životu, poslu i društvu. Novi Sad: Adizes. (in Serbian) Brenson, R. (2010) Ništa nije nemoguće. Belgrade: Plato. (in Serbian) Draker, P. (2003) Moj pogled na menadžment. Novi Sad: Adizes. (in Serbian) Fajol, A. (2006) Opšti industrijski Menadžement. Novi Sad: Adizes. (in Serbian) Kotler, F. (2004) Marketing od A do Z. Novi Sad: Adizes. (in Serbian) Kotler, F., Li, N. (2007) Korporativna društvena odgovornost: učiniti najviše za svoju kompaniju i za izabrani društveni cilj: najbolje prakse vodećih kompanija. Belgrade: Hesperia: Faculty of Economics, University of Belgrade. (in Serbian) 9

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Miljević, M. (2008) Poslovna etika i komuniciranje. Belgrade: Singidunum University. (in Serbian) Reinert, E. (2010) Spontani haos: ekonomija u doba vukova. Belgrade: Čigoja štampa. (in Serbian) Tisen, R., Andriesen, D., Depre, F.L. (2006) Dividenda znanja. Novi Sad: Adizes. (in Serbian)

ANALIZA PRIMENE KONCEPTA KORPORATIVNE DRUŠTVENE ODGOVORNOSTI U DOMAĆIM POSLOVNIM ORGANIZACIJAMA Rezime: Moderno društvo zahteva veliku odgovornost i doprinos svih svojih članova. Društvena odgovornost u poslovanju se odnosi na obavezu kompanija i drugih poslovnih organizacija da povećaju pozitivni uticaj a smanje negativni uticaj na društvo. Korporativna društvena odgovornost podrazumeva dobrovoljno opredeljenje kompanije i njenu odluku da izabere i primenjuje odgovarajuće poslovne prakse koje doprinose zajednici. Koncept korporativne društvene odgovornosti je danas standardizovan i predstavlja sastavni deo integrisanih sistema menadžmenta. On se primenjuje na domaćem tržištu od početka procesa ekonomske tranzicije, uglavnom u kompanijama koje su privatizovane stranim kapitalom. Ovaj rad prikazuje model za poboljšanje korporativne društvene odgovornosti (CSR) u domaćim poslovnim organizacijama, kao rezultat ispitivanja stavova menadžera u domaćim kompanijama o pitanjima koja se tiču korporativne društvene odgovornosti.

Ključne reči: korporativna društvena odgovornost, poslovna izvrsnost, konkurentnost, kvalitet, poslovanje. Received: May 21st, 2012 Correction: June 22nd, 2012 Accepted: July 3rd, 2012

SINGIDUNUM JOURNAL 2013, 10 (1): 11-17 ISSN 2217-8090 UDK: 340.132(4-672EU); 341.6(4-672EU) DOI: 10.5937/sjas1301011N Review paper/Pregledni naučni rad

THE LEGAL EFFECTS OF EU DIRECTIVE THROUGH ITS INTERPRETATION Ivan Nikčević1,*, Jovana Parlić2 Singidunum University, Department of Informatics and Computing 32 Danijelova Street, Belgrade, Serbia 2 University of Belgrade, Faculty of Law 67 Kralja Aleksandra Boulevard, Belgrade, Serbia 1

Abstract: Based on the interpretation of the European Court of Justice regarding the Treaty provisions, the EU Directive creates only a vertical direct effect. However, through judicial interpretation, the Directive achieves diverse and far-reaching effects. Interpretation of national laws by Member State’s courts, in accordance with the purpose and wording of the directive, can directly affect private individuals and lead to horizontal direct effect. The European Court of Justice’s interpretation of the case based on non- implementation of the directive has created one of the general principles of Community law, in order to mitigate disadvantages and limitations of the doctrine of horizontal direct effect. The interpretation of the directive is gradually expanding the scope of its effects.

INTRODUCTION The specificity of the European Union that stands out most is the one regarding the judiciary. It had a decisive role in the formation of this political arrangement and it still affects this process. By addressing the ECJ1, and through its judgments and rulings, the courts of the Member State undoubtedly had and still have a crucial influence on the construction of a uniform European legal system. As a form of secondary legislation2, Directive requires Member State of European Union to attain a particular goal. They require implementing measures, but at the same time, they do not impose a means for achieving those results. Once directives are adopted, a Member State has a period of time for the implementation. In order to achieve that aim correctly, the state is commonly required to innovate laws. Trough transposition, the state has to bring domestic law in line with the objectives of the directive. When Member State has transposed a directive only in theory and failed to abide by the di* E-mail: inikcevic@singidunum.ac.rs

Key words: effects of directives, interpretation, horizontal direct effect.

rective in practice, legal action against the state may be initiated in the European Court of Justice. Likewise, the legal action may initiate if the state failed to pass the required national legislation or failed to pass it adequately. The EC Treaty3 does not provide for legislative measures to be directly effective. Following a teleological interpretation, the European Court of Justice created this principle and the criteria4 that were more clearly articulated in later cases5. In Van Gend and Loos v. Nederlandse6, the Court gave a broad and purposive interpretation of the Treaty of Rome7, concluding that TEEC8 has the features of a constitutional charter of an autonomous community, although concluded between sovereign states by way of international agreement. “The Community constitutes a new legal order of international law for the benefit of which the states have limited their sovereign rights, albeit within limited fields and the subjects of which comprise not only member states but also their nationals. Independently of the legislation of member states, community law… is also 11

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intended to confer upon them rights… These rights arise not only where they are expressly granted by the treaty, but also by reason of obligations which the treaty imposes in a clearly defined way…9” Taking into consideration the wording, purpose and the general spirit of the Treaty, provisions could have a direct effect on individuals, for which benefit they are primarily established. For the purpose of this paper, direct effect will be considered only in relation to the directive. According to Article 288 TFEU: “A directive shall be binding, as to the result to be achieved, upon each Member State to which it is addressed, but shall leave to the national authorities the choice of form and methods”. The European Court of Justice interpreted this article emphasizing the result to be achieved, thus extending the direct effect of directives. The binding effect attributed to directive demands the possibility that the obligation it imposes may be invoked by those concerned. Another reason for direct effect is that the “useful effect” of a directive would be weakened if individuals were prevented from relying on it before their national courts. The effectiveness of EU law is stressed, as such, by the doctrine of direct effect. Likewise, the Member state that failed to adopt the implementing measures required by the directive within the prescribed period may not plead, as against individuals, its own failure to fulfill the obligations that directive entails. The doctrine of direct effect refers to liability of the Member State and emanations of the state for non-implementation of directives by other organs of the State. Regardless of whether the State has introduced national laws to implement provisions, state citizens are able to enforce them by making claims before domestic courts. The three conditions that have to be satisfied in order to make it possible for an individual to rely on direct effect are as follows: a) the relevant provisions of the directive must be unconditional10 and sufficiently clear and precise11; b) the deadline for implementing the Directive must have expired without the directive, or the relevant part of it, having been correctly and completely implemented into the law of the Member State in question; c) the action must be against the State or an emanation of the State. However, the European Court of Justice kept limited the impact of directives on vertical direct effect. This effect was hinted in Van Duyn v. Home

Office12, where the public policy limitations have not prevented the provision of the Directive that provided the freedom of movement to be directly effective. Provision was sufficiently precise and conditional on exercise of independent body discretions which are subject to judicial control. Preventing enforcement of directives against individuals remains the sole responsibility of the state. Directives are binding exclusively on the Member States to whom they are addressed and require a positive action by the national authorities, not imposing obligations on individuals. In contrast, horizontal direct effect implies that individual may claim its rights deriving from EU law in a dispute against another individual.

THE HORIZONTAL DIRECT EFFECT THROUGH INDIRECT METHODS The European Court of Justice has been the main actuator of the European integration process since its establishment. Interpretation rules are not to be found in primary or secondary law. The ECJ13 has exclusive jurisdiction over the interpretation, as a supranational court. Member State court is obliged to guarantee full effectiveness of European law within its jurisdiction. The primacy of an interpretation in accordance with EU law is reflected in obligation of the Member State to interpret law in compatibility with primary law and the conformity with secondary law. More precisely, upon expiry of the deadline for implementation, national court is required to interpret its law in accordance with the directive. Establishing the principle that the courts of the Member States should interpret their national law “in the light of the wording and purpose of the Directive“14, the European Court of Justice circumvented the limitation of the direct effect. Otherwise excluded, horizontal direct effect may appear through the doctrine of indirect effect. Notwithstanding that in the Von Colson15 Case Directive did not meet the requiremets for direct effect, set in Van Gend and Loos, the ECJ held that there was a duty of achieving the result prescribed by the Directive and the duty of ensuring the compliance with this obligation by all concerned authorities, including the courts. This way of interpretation can directly affect and, therefore, disadvantage individuals. When the party against whom the directive is sought to be enforced is a private individual, and therefore direct effect is not applicable, national courts are obliged to construe provisions to comply with directives,

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and thus indirectly apply provisions to individual. The European Court of Justice acknowledged such duty by formulation: “[T]he Member States’ obligation arising from a Directive to achieve the result envisaged by the Directive and their duty under Article [4(3) TEU] to take all appropriate measures, whether general or particular, to ensure the fulfillment of that obligation, is binding on all the authorities of Member States including, for matters within their jurisdiction, the courts. It follows that, in applying the national law and in particular the provisions of a national law specifically introduced in order to implement [a Directive], national courts are required to interpret their national law in the light of the wording and the purpose of the directive in order to achieve the result referred to in the third paragraph of Article [288].16 In Marleasing17 case, that was litigated among private individuals, the Court held that national courts should decide in a way as to give effect to its obligations under the Community law, so that the question in a dispute is viewed through EU law. This duty is limited by separation of powers by judiciary and legislature, and the consistent interpretation must not lead to the interpretation contrary to the national norm. However, if the national courts cannot interpret provisions in conformity with directives, then the state faces the possibility of compensation by the principle of State Liability.

THE PRINCIPLE OF STATE LIABILITY AS A WAY TO CIRCUMVENT THE LACK OF HORIZONTAL DIRECT EFFECT The Member State authorities are primarily responsible for the creation and above all, for the implementation and enforcement of EU law. They are obliged to take all measures necessary to ensure the implementation and adjustment. Article 4(3) of the Treaty contains a legal principle under which national courts are obliged to protect the individual rights conferred by Community law. According to Article 5 of the Treaty, the state is required to take all appropriate, whether general or particular measures, to ensure the implementation of Community law and to nullify the unlawful consequences of its breach. As a result of the failure to enforce EU law, an individual can suffer damage. A general principle of State responsibility, for non-compliance with EU law, was developed by European Court of Justice in order to mitigate disadvantages and limitations of the doctrine of horizontal direct effect. The Eu-

Nikčević I., Parlić J.  The legal effects of EU directive

ropean Court of Justice created a doctrine of state responsibility for the individual’s loss caused by non implementation of the directive. The full effectiveness of EU law would be weakened if individuals were unable to obtain reparation when the rights granted to them are infringed by a breach of EU law for which the State can be held responsible. Before the national courts, an individual may invoke the obligation of the state to compensate for damages caused by its failure to implement a directive. The principle of State Liability and its elements were created by a case in the field of employment rights, due to the fact that directives provide most of the employment and industrial relations law. In Andrea Francovich and Others v. Italian Republic18, ECJ19 based its decision primarily on the effective judicial protection and the effect utile doctrines, as a consequence of elementary values underlying the EU legal order. In this sense, the obligation of restitution of damage by Member State is inherent in the system of the Treaty. “The full effectiveness of Community law would be impaired and the protection of the rights that they grant would be weakened…”, and the more so as „such a possibility of reparation by the Member State is particularly indispensable where the full effectiveness of Community rules is subject to prior action on the part of the State and where, consequently, in the absence of such action, individuals cannot enforce before the national courts the rights conferred upon them by Community law.”20 Non-compliance with directive may result from partial, incorrect or inadequate implementation, as well as from failure to implement the directive as was the case in Francovich and Bonifaci v. Italy. Italian Republic’s failure to implement the directive 80/987/EEC on the protection of employees in the event of their employers’ insolvency had previously been recorded by the European Court of Justice in enforcement proceedings brought by the Commission against the Italy. In Francovich case, a group of employees- Mr. Francovich, Mrs. Bonifaci and 33 more applicants, in the main proceedings were owed wages by their employers, who had become insolvent. Forasmuch as Italy failed to implement the directive 80/987/EEC that aimed to create a mechanism that would guarantee the payment of the wages owed to them, the applicants brought proceedings against the Italian Republic and argued that the Italian state should compensate them their arrears of wages. The European Court of Justice decided that the 80/987/EEC Directive’s provisions 13

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are not fully unconditional, clear and sufficiently precise to create a direct effect. Thus, the ECJ21 considered the question of State Liability without being brought into direct link with the doctrine of direct effect. Moreover, the Court22 introduced the principle indicating that the conditions of the principle depend on the nature of the breach of EU law, giving rise to loss and damage. Three substantive conditions are required: a) the result prescribed by the directive should entail the grant of rights to individuals. b) The content of those rights must be capable of being identified on the basis of the provisions of the directive. c) There must be a causal link between Member State’s breach of the obligation and the loss and damage suffered by individuals. As to the procedural requirements, the European Court of Justice noted that in the absence of EU legislation on this matter, it is on the national law to determine the competent courts and lay down the procedural rules that will provide complete protection of the rights that individuals derive from EU law, in accordance with the principles of equivalence and effectiveness. Therefore, national courts should ensure suitability of domestic tort remedies in such cases, so that they are not less favorable than those governing similar domestic actions. Likewise, national procedural rules shall not render virtually impossible or excessively difficult the exercise of individual’s rights in damages. In the cases that followed the case of Francovich, such as Brasserie23, British Telecommunications24 and Dillenkofer25, the European Court of Justice repeated its recognition of principle, recalling that is on Member State courts to assess the amount of damage, thus ensuring that national law makes possible for individuals to obtain reparation. In Brasserie du Pêcheur and Factortame, clearer conditions were set out: a) rule of law infringed must be intended to confer rights on individuals, b) the breach is sufficiently serious and the question is whether the Member State has manifestly and gravely disregarded the limits on its discretion, c) there is a causal link between breach and damage. The Court held that the principle of State Liability was not confined to a failure to implement a

Directive but to all acts and omissions (legislative, executive and judicial) infringing Community law, which means breaching all EU laws, irrespective of direct effect. In British Telecommunications, a requirement that the breach must be sufficiently serious had a decisive influence. To ascertain that this condition is present, clarity and precision of the infringed provision has a decisive role. This condition, as the Court held in Dillenkofer, is applied regardless of the degree of discretion enjoyed by Member States. In later cases26 the ECJ elaborated the principle more fully, and eventually spread its implementation.

CONCLUSION According to Article 288 TFEU, directives are binding only on the Member States to whom they are addressed and merely with regard to the result to be achieved, leaving the choice of form and method to state authorities. This would mean that the effects of the directive can affect individuals only due to the implementation. The above-mentioned article also emphasizes the difference between directives and regulations, through the wording that only the latter have direct applicability, both vertically and horizontally. However, the European Court of Justice circumvented its own prohibition of horizontal direct effect of directives or at least reduced its significance. Gradually and by the back stairs, the scope of the directive (effect) is expanding. Upon expiry of the deadline for implementation, national court is required to interpret its law in conformity with the directive. The Member State’s duty of consistent interpretation can directly affect individuals, and thus lead to horizontal direct effect. Through the case law, the European Court of Justice gave effect to directives in various ways. When considering the issue of state responsibility in Francovich case, the European Court of Justice has not brought it into direct link with the doctrine of direct effect. However, the principle of State Liability was developed in order to mitigate disadvantages and limitations of the doctrine of horizontal direct effect. This case established substantive and procedural conditions of the principle, thus ensuring suitability of domestic tort remedies for its enforcement in such cases. A number of subsequent, post-Francovich cases27, were followed by finer and further development of the principle. It is the interpretation of EU law institutes, in case of their violation, that gives them the fuller meaning and contributes to their development.

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REFERENCES

ENDNOTES

Albors-Llorens, A. (2010) Keeping up appearances: the Court of Justice and the effects of EU directives. The Cambridge Law Journal. 69 (3), 455-458. Evangelos, N. (2005) From Francovich to Köbler and beyond: The evolution of a State liability regime for the European Community. Thesis, (LL.M.). University of Helsinki. Kaeding, M. (2007) Active transposition of EU law legislation. EIPAScope [online]. Available from: http://www. eipa.eu/files/repository/eipascope/20080313162050_ MKA_SCOPE2007-3_Internet-4.pdf [accessed 6 July 2012]. Klamert, M. (2006) Judicial implementation of directives and anticipatory indirect effect: connecting the dots. Common Market Law Rewiev. 43 (5), 1251-1275. Post-Francovich judgement by the ECJ [online]. Avaliable from: http://www.asser.nl/upload/eel-webroot/www/ documents/cms_eel_id178_1_Post.pdf [accessed 6 July 2012]. Rösler, H. (2007) Interpretation of EU law [online]. Avaliable from: http://fds.oup.com/pdf/13/9780199578955. pdf [accessed 9 July 2012].

1 2

Relevant case law: Case 26/62, NV Algemene Transporten Expeditie Ondememing van Gend and Loos v. Nederlandse Administratis der Belastingen (1963) ECR 1 Case C 2/74, Jean Rayners v. Belgian State (1974) ECR 631 Case 41/74 Yvonne van Duyn Home Office (1974) ECR 1337 Case 14/83, Von Colson and Elisabeth Kamann v. Land Nordrhein-Westfalen (1984) ECR 1891 Case C 106/89, Marleasing SA v. Comercial International de Alimentacion SA (1989) ECR I-4135 Joined cases C-6/90 and C-9/90, Andrea Francovich and Danila Bonifaci and others v. Italian Republic (1991) ECR I-05357 Case C 334/92, Wagner Miret v. Fondo de Garantia Salarial (1993) ECR I-6911 Case C 91/92 Faccini Dori v. Recreb (1994) ECR I-3325 (1995) 1 C.M.L.R. 665 Joined Cases C-46/93 and C-48/93 Brasserie du Pêcheur and Factortame III (1996) ECR I1029 Case C 392/93 R v. HM Treasury, ex parte British Telecommunications (1996) ECR I-1631 Joined Cases C-178, 179 and 188-190/94 Dillenkofer and Others v. Germany (1996) ECR I-4845 Joined cases C-397/ 01 to C-403/01, Berhard Pfeiffer and Others v. Deutches Rotes Kreuz, Kreisverband Waldshut ev. (2004) ECR I-8835

The European Court of Justice Article 288 TFEU (Treaty on the Functioning of the European Union) defines a types of legal acts (Regulations, Directives, Decisions, Recommendations and Opinions) European Community institutions can adopt and explains their nature. Treaty establishing the European Economic Community, EEC Treaty, signed in Rome in 1957, came into force in 1958. The Treaty was replaced by the Treaty of the functioning of the European Union, TFEU, on the entry into force of the Treaty of Lisbon in 2009, which establish the constitutional basis of EU. The European Court of Justice opinion in Case 26/62, NV Algemene Transporten Expeditie Ondermeming van Gend and Loos v. Nederlandse Administratis der Belastingen, (1963) ECR 1, is considered to be one of the most important decision which has resulted the development of Community law. A private firm for transportation, named Van Gend and Loos, had imported chemical (urea-formaldehyde) from Germany to Netherlands for which they were billed tariffs on import, higher by 5%, by the Dutch customs authorities. Complaint that the company sent was based on the fact that such a measure of the customs authorities was not in accordance with Article 12 of the Treaty of Rome, TEEC, (current Article 30 TFEU) which stated that: “Member States shall refrain from introducing between themselves any new customs duties on imports and exports or any charges having equivalent effect, and from increasing those which they already apply in their trade with each other.” Customs have increased by 5%, by Dutch custom tariff which came into force in 1960. year, compared with the year 1958. when the Treaty of Rome previously came into force. European Court of Justice preliminary ruling under Article 177 TEEC (current Article 267 TFEU), was about the question of whether”... nationals of a Member State can, on the basis of the Article in question (Art.12 EEC), lay claim to individual rights which the courts must protect.” Advocate General’s opinion, different from the judgment of the ECJ, was that some Treaty provisions could have “direct effect” but that Article 12 was not one of them. On contrary, ECJ adhered that abovementioned article could create a personal rights for Van Gend en Loos and so, that private individuals could rely on it. The ECJ decided that Dutch authorities could not impose a higher tariff that the one that was in force the time TEEC came into force so that Van Gend and Loos did not have to pay higher tariffs and this right could be enforced before the domestic courts. Treaty provision would be directly effective if, among other, it were unconditional and did not leave any further implementation to the member states. In Case C 2/74, Jean Rayners v. Belgian State (1974) ECR 631, European Court of Justice established more precise criteria for vertical dirrect effect. On the grounds that he did not have Belgian nationality M. Reyners, a Dutch national, was prohibited his law practice. Such discrimina-

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11 12

13 14

tion on the grounds of nationality was forbbiden by the Treaty Article 43. The ECJ opinion was that the princile under this article was clear despite the lack of spesific directives. For a TEEC provision to have a direct effect it is necessary that the three conditions are fulfi lled cumulatively: a) the provision must be sufficiently clear and precise b) unconditional c) independent of further action by the national authorities. Op.cit., The European Court of Justice judgement of 5. February 1963. Treaty establishing the European Economic Community, EEC Treaty, signed in Rome in 1957, came into force in 1958. The Treaty was replaced by the Treaty of the functioning of the European Union, TFEU, on the entry into force of the Treaty of Lisbon in 2009, which establish the constitutional basis of EU. Ibid. The European Court of Justice judgement of 5. February 1963. The relevant provision is not a subject of any measure, either by the institutions of the European Community or by the Member States, in its implementation or its effects. The relevant provision has an unambiguous meaning and provides feasible indications to the national court. Case 41/74 Yvonne van Duyn v. Home Office (1974), ECR 1337, Ministry of Internal Affairs of the United Kingdom has barred access to the country to Ms. Van Duyn, a Dutch citizen, intended to be employed in the Scientology church. United Kingdom discouraged the Scientology Chirch for the reason of the public intrest. The EC Treaties guaranted the feedom of movement for workes but at the same time allowed restriction of this freedom in the public interest. The conditions under which the State may invoke the public intrest to limit the freedom of movement were prescribed in the relevant Directive. Issue that has raised in this case was whether an individual coluld invoke the Directive before a national court in case against the State. The ECJ held that the limitations of this freedom themselves do not prevent conferning rights on individuals, contained in Article 39(48)(para. 1 and 2.), which are envorceable by them and which the national corts must protect. The European Court of Justice. Joined cases C-397/ 01 to C-403/01, Berhard Pfeiffer and Others v. Deutches Rotes Kreuz, Kreisverband Waldshut ev., (2004) ECR I-8835 Case 14/83, Von Colson and Elisabeth Kamann v. Land Nordrhein-Westfalen, (1984) ECR 1891. Two female social workers applied for a job in German prison. Both of them were denied although they were placed at the top of the list of applicants. The main reason was that it was considered to be incovinient that women do with mail inmates. They were dicriminated against by the apointment of less well qualified males. Article 6 of the 76/207 Directive on the equal treatment of men and women as regards access to employment, vocational training, promotion and working conditions was infringed, as they claimed. The compensation that could be awarded to them was in-

16 17

19 20 21 22 23

significant. The ECJ held that the failure of German law to provide appropriate compensation was the result of incomplete implementation of the 76/207 Directive. Although this Directive did not meet the requiremets for dirrect effect, the duty of achieving the result prescribed by Directive and the duty of enshuring compliance with this obligation by all concerned authorities, including the Member State courts, was present. Ibid. Case C-106/89, Marleasing SA v. Comercial International de Alimentacion SA (1989), ECR I-4135, The company that has been in the role of claimant sought removal from the register of companies under Spanish law. They claimed that the sole purpose of those companies was about fraud. The deffendant invoked the Directive 68/151, which established the grounds under which a company could be annulled. The European Court of Justice held that defendant could rely on abovementioned Directive for the reason it creates an obligation of implementation. Joined cases C-6/90 and C-9/90, Andrea Francovich and Danila Bonifaci and others v. Italian Republic, (1991) ECR I-05357 The European Court of Justice. Op.cit., third paragraph. Op.cit. Ibid. Joined Cases C-46/93 and C-48/93 Brasserie du Pêcheur and Factortame III (1996) ECR I1029, The ECJ stressed that in a case the breach of Community law can be attributed to a Member State legislature, in the field in which it has a wide discretion, individuals suffering loss or damage are entitled to reparation when the rule that had been violated for the had purpose of ensuring their rights, the breach is sufficiently serious and there is a direct causal link. Case C-392/93 R v. HM Treasury, ex parte British Telecommunications (1996) ECR I-1631, The Court decided the interpretation of Directive was given by United Kingdom in good faith, and this is way it is not considered to be contrary to the wording of the Directive or to the objective pursued by it. Imprecisely wording by the national courts was not considered as sufficiently serious, add-in the fact no guidance was available to the Member State from case-law of the ECJ as to the interpretation of the provision at issue. Joined Cases C-178, 179 and 188-190/94 Dillenkofer and Others v. Germany (1996) ECR I-4845, The European Court of Justice held that failure to take any measure to transpose a directive within the prescribed period constitutes itself a serious breach and allows a right for reparation for individuals suffering injury, in case the goal of directive entails the right for individuals whose content is identifiable and there is a causal link. The requirement of sufficiently serious breach was evident from its facts, although it was not expressly mentioned in Francovich. With the omission of previously mentioned cases such as Brasserie du Pêcheur and Factortame, British Telecommunications, Dillenkofer and Others, the rest cases which develop further the principle of State Liability include:

SINGIDUNUM J 2013  10 (1)  11-17

Case C-334/92, Wagner Miret v. Fondo de Garantia Salarial, (1993) ECR I-6911, The European Court of Justice confirms the principles established in Francovich in an obiter dictum; Case C-91/92 Faccini Dori v. Recreb (1994) ECR I-3325, (1995) 1 C.M.L.R. 665, Member State courts are reminded on duty to interpret national law in conformity with EU law. The ECJ reformulated a requirement for rights in restrictive way, from “the result prescribed by the directive should entail the grant of rights to individuals” into: “the purpose of the directive must be to grant rights to individuals”; The Queen v. Secretary of State for Social Security, ex parte Eunice Sutton (1997) ECR I-2163; Joined Cases C-94/95 and 95/95, Danila Bonifaci and others v. INPS (1997) ECR I-3969; Joined Cases C-192-218/95, Comateb and Others v. Directeur Général des Douanes et Droits Indirects (1997) ECR I-165; Case C-261/95, Rosalba PalmisaniINPS (1997) ECR I-4025; Case C-373/95, Federica Maso and others INPS and the Italian Republic (1997) ECR I-4051; Case C-127/95, Norbrook Laboratories Ltd v. Ministry of Agriculture, Fisheries and Food (1998) ECR I-1531; Case C-319/96, Brinkman Tabakfabriken GmbH v. Skatteministeriet (1998) ECR I-5255; Case C-131/97, Annalisa Carbonari and others v. Universita degli studi di Bologna, Ministero della Sanita, Ministero dell’Universita e della Ricerca Scientifica and Ministero del Tesoro (1999) ECR I-1103; Case C-140/97, Rechberger and Greindl v. Austria (1999) ECR I-3499; C-302/97, Konle v. Austria (1999)ECR I-3099; Case C-321/97, Ulla-Brith Andersson and Susanne Wakeras-Andersson v. Swedish State (1999) ECR I-3551;

Nikčević I., Parlić J.  The legal effects of EU directive

Case C-424/97, Salomone Haim v. Kassenzahnartztliche Vereinigung Nordrheim (2000) ECR I-5123; Joined Cases C-387/98 and C-410/98, Metallgesellschaft Ltd and Others, HoechstAG and Hoechst (UK) Ltd v. Commissioners of Inland Revenue and HM Attorney General (2001) ECRI-1727; Case C-150/99, Stockholm Lindöpark Aktiebolag v. Sweden (2001) ECR I-493; Case C-118/00, LarsyINASTI (2001) ECR I-5063; C-63/01, Samuel Sidney Evans v. Secretary of State for Environment, Transport and the Regions and the Motor Insurer’s Bureau (2003) ECR I-4447; Case C-224/01,, Gerhard Köbler v. Austria (2003) ECR I-10239; Case C-129/00 Commission v. Italy (2003) ECR 14637; Case C-63/01,, Evans v. Secretary of State for the Environment, Transport and Regions, Motor Insurers Bureau(2003) ECR I-4447; Case C-201/02, Wells (2004) ECR I-723; Case C 222/02 Paul and Others Case C-470/04, N v. Inspecteur van de Belastingdienst Oost/kantoor Almelo(2006) Germany (2004) ECR I-9425; Case C-173/03, Traghetti del Mediterraneo SpA v. Republica Italiana (2006) ECR I-5177; Case C 470/04, N v. Inspecteur van de Belastingdienst Oost/kantoor Almelo (2006) ECR I-7409; Case C-300/04 Eman and Sevinger (2006) ECR I-8055; Case C-446/04, Test Claimants in the Fill Group Littigation (2006) ECR nyr; Case C 278/05 Carol Marilyn Robins and Others v. Secretary of State for Work and Pensions (2007) ECR nyr; Case C-524/04 Test Claimants in the Thin Cap Group Litigation (2007), ECR nyr; Case C-555/ 07 Seda Kücükdeveci v. Swedex GmbH and Co. KG, judgment from the 19th January 2010. 27 Ibid.

PRAVNO DEJSTVO DIREKTIVE EVROPSKE UNIJE KROZ NJENO TUMAČENJE Rezime: Na osnovu tumačenja Evropskog suda pravde u vezi sa odredbama sporazuma, direktiva Evropske Unije ima samo vertikalno direktno dejstvo. Međutim, kroz tumačenje suda, Direktiva dostiže različita i dalekosežna dejstva. Tumačenje državnih zakona od strane sudova zemlje članice, a koji su u skladu sa svrhom i formulacijom direktive, može direktno da utiče na pojedince i dovede do horizontalnog direktnog dejstva. Tumačenje slučaja od strane Evropskog suda pravde, a koji se zasniva na neprimenjivanju direktive, stvorilo je jedno od opštih principa Komunitarnog prava kako bi se ublažili nedostaci i ograničenja doktrine horizontalnog direktnog dejstva. Tumačenje direktive postepeno utiče na širenje obima njenog dejstva.

Ključne reči: dejstva direktiva, tumačenje, horizontalno direktno dejstvo. Received: July 20th, 2012 Correction: September 27th, 2012 Accepted: November 5th, 2012

SINGIDUNUM JOURNAL 2013, 10 (1): 18-27 ISSN 2217-8090 UDK: 330.341.4(497.6)"2006/2010" ; 005.332:338.124.2(100); 330.101.54 DOI: 10.5937/sjas1301018M Review paper/Pregledni naučni rad

DIRECTIONS AND GUIDELINES FOR RESOLVING THE CRISIS (IN BOSNIA AND HERZEGOVINA AND ITS ENTITIES) Zoran Mastilo* University of East Sarajevo, Faculty of Business and Economics 133 Račanska Street, Bijeljina, Republic of Srpska, Bosnia and Herzegovina

Abstract: This is a global financial and economic crisis, which can be considered the largest since the World War II. It has become a frequently discussed topic by various analysts, numerous governments, and in particular, a favourite topic of the media. We can rightly say that this is a crisis of the neoliberal system, which has greatly increased the wealth of the rich and impoverished the poor. Such crisis can be overcome by changing the system. Therefore, the directions and guidelines are necessary in order to determine the goals for resolving the crisis. The defined key objectives must be accompanied by specific sub-objectives, followed by establishing certain policies, which will contribute to the realization of these goals. We need to advocate and implement policies that will assist in accomplishing the defined goals. Some of those policies include the following: industrial policy, fiscal policy, monetary policy, regional development policy, public administration policy, and social policy.

INTRODUCTION The crisis has influenced the whole world. Therefore, it has the dimension of a large global financial and economic crisis, and it can be considered the greatest crisis since the Second World War. The fear of further development of the crisis affects everyone, especially the employees as it contributes to higher unemployment rates. The global crisis has been discussed and written about more than any other natural or social disaster that could affect the world, such as global warming, solar flare that could hit the Earth at the end of 2012 and revert our way of living back to the XIX century. Likewise, frequent alleged outbreaks of epidemics: mad cow disease, bird flu and swine flu1, terrorism and similar occurrences, 1

It is said that the financial crisis and the swine flu virus H1N1 were deliberately caused. Pharmaceutical lobby is associated with the induction of all these outbreaks. It wo-

* E-mail: zoran.mastilo@fpe.unssa.rs.ba

Key words: global crisis, macroeconomic indicators, neo-liberalism, general well-being of a country, fiscal policy, industrial policy, resolution, directions and guidelines.

as well as numerous neuralgic points in the world today - Iraq, Afghanistan, Iran, Middle East, North Korea, the Balkans and others. It represents both an opportunity and a challenge, when the economic theories and policies are put to the test. The question that could be rightly asked is “What is required from the economic system?” If the goal is only to make profit and not the well-being of the society, then such direction leads to the crisis and unsustainable economic growth. It is necessary to govern and adjust the market in order to successfully manage the economy. The characteristics of the existing systems are the lack of regulation of market defiuld be interesting to analyze the possible intent of provoking a financial crisis. It would lead to some key managers of financial institutions. For instance, one of the two largest U.S. mortgage companies, Freddie Mac, was warned about the crisis in 2004. However, the general manager of that company resigned, alongside with a large financial bonus before the crisis outbreak.

SINGIDUNUM J 2013  10 (1)  18-27

ciencies, externalities and social inequalities. Still, there is no complete and clear answer on how to deal with, and how to combat the crisis. It started after a long period of rapid credit growth, low risk premiums, high liquidity, asset price growth and “pumping” of the actual estate prices. During 2007 and the first half of 2008, a shocking increase in food and energy prices occurred, which further accelerated the global crisis. It resulted in a rapid deterioration of the economic situation. Over 100 million people in developing countries have been pushed into poverty. Due to different levels of development and different economic structure, consumption and globalisation, such substantial increase in food and oil prices had a greater impact on poverty increase than the economic crisis during the 2008-2009 period, which (by 2010) pushed 64 million people into poverty (World Bank, 2010). Since 1970 until 2008, the world has been through 124 banking crises, 208 currency exchange crises, 63 debt crises, 42 double and 10 triple crises (Pollin, 2009). Charles Kindleberger states that since 1725 up to date, financial crises have been occurring in the Western capitalist economies every eight and a half years, on average (Jurčić, 2011). We can rightly say that this is a crisis of a neoliberal system, and the resolution of the crisis should be sought in the alternative economic - political systems.

How well are we informed about the political-economic crisis? Previous information about the crisis has not been sufficient to reach a resolution. This has been an attempt to analyse the crisis and overview the environment in which it occurs. We wonder whether the current neo-liberal political and economic system is appropriate or not. Namely, as the basic cause of the crisis, it must have some disadvantages. Opinions are divided when it comes to the causes of the crisis. The fact that is even worse is that there are various proposals regarding directions and guidelines for resolving the crisis. It is certain that the mortgage loans have triggered the crisis on financial markets of the United States. This does not exclusively refer to the loans in general, but to the loans colloquially called “sub-prime” loans (Puljić, 2009). We translate such loans as the second class loans, while, in fact, they represent the high risk loans, as they are granted to customers with no loan repayment capability and adequate coverage (Puljić, 2009).

Mastilo Z.  Directions and guidelines for resolving the crisis

With the fall of socialism in the early 90-ies of the last century, history seems to be definitely sided with liberal capitalism, marking it as the undisputed winner and the universal model for the future organisation of the world.

THE NEGATIVE EFFECTS OF THE GLOBAL CRISIS IN BOSNIA AND HERZEGOVINA AND ITS ENTITIES COMPARED TO THE INTERNATIONAL ENVIRONMENT Macroeconomic indicators of the environment What remains a problem is that the unemployment rates have increased, and adversely affected the GDP of each country; the fiscal position has worsened, while the public debt has increased. Croatia, Montenegro and Romania have recorded a decline in GDP in the past year, while in other countries, the growth of real GDP was ranging from 0.4% in Bulgaria to 3% in Albania. The global crisis has not yet finished, but compared to 2009, the situation is slightly better. The inflation in most countries of Southeast Europe increased significantly, so that at the end of 2010, the inflation rate in Bosnia and Herzegovina was 2%, while the highest inflation was recorded in Romania amounting up to 7.9%. The most positive growth trend in the European Union was recorded in Germany, mostly due to the increased export and financial stabilization. During 2010, the real GDP rose by 1.7% in the euro zone and by 1.8% in EU27. The recession in 2009 led to the drop in real GDP by 4.1% in the euro area and by 4.2% in the EU27. The annual inflation in the euro zone was 2.2% and 2.6% in the EU27. The whole world is eagerly waiting for the global economic recovery. The most expectations were present in 2010, but the recovery took place at a different pace. According to estimates from the International Monetary Fund, the global economic growth was at 4.6%. The recovery of the economy in 2010 was more noticeable in the U.S. than in Europe and Japan. With respect to the U.S. and their economy, the second half of 2010 can be considered the period in which the recovery took place at a slower pace than in the first half of the year. The largest problem that remains is the high unemployment rate, amounting to 9.1% in 2010 with the average inflation rate of 1.7%. 19

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Mastilo Z.  Directions and guidelines for resolving the crisis

Chart No. 1: Main economic indicators for the countries of Southeast Europe in 2010. Source: www.imf.org

Table 1: Real GDP growth rate 2009

2010

2011

2012

World

-0.5

5.0

4.4

4.5

USA

-2.6

2.8

2.9

Euro zone

-4.1

1.7

1.6

1.8

Japan

-6.3

3.9

1.4

2.1

Central and Eastern Europe

-3.6

4.2

3.7

4.0

Bosnia and Herzegovina

-3.1

0.8

2.2

4.0

Source: www.imf.org

Macroeconomic indicators in Bosnia and Herzegovina (B&H) and its entities Bosnia and Herzegovina and its entities are faced with the strong negative effects of the global crisis. Such adverse effects of the crisis are manifested in a decline of GDP, rise of unemployment, reduced industrial production, reduced foreign direct investments and public budget deficit. Bosnia and Herzegovina and its entities need a rapid economic recovery and development, the macroeconomic stability. The crisis and the recession have shaken the whole world (the EU countries, countries in the region). Thus, B&H and its entities are faced with strong negative effects of the global crisis. Even before the recession, the prominent structural disorders and “slower progress of structural reforms” (the euphemistic term that the World Bank uses to describe unsuccessful structural reforms) would make the cyclical recovery of B&H much more difficult, and much painful and longer than in other countries, due to external and internal failures (Hodžić, 2010). 20

The Governments and government measures in the entire B&H could have and must have done much more. We can freely say that the Government productive measures were missing, which could mitigate the negative effects of the global economic crisis. We cannot say that the governments have not done anything, but the effects of their acts have been inefficient in all segments of the society. This graph shows the progress of nominal GDP and the growth rate of real GDP in B&H for the period 2006-2010. It is clear from the graph that the global crisis has negatively affected GDP of Bosnia and Herzegovina. The largest negative effects and the disturbances were visible in the labour market, which has remained undeveloped, and which has suffered severe “shocks”, but was not completely devastated. Rising unemployment is changing from month to month with the largest number of the unemployed (522.052 people) recorded in December 2010. When it comes to the employment, the number of employees in 2010 had a decreasing trend. According to the Agency for Statistics in B&H, the

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average number of employees in Bosnia and Herzegovina in 2010 was 681.656 people. As far as the fiscal sector is concerned, we can say that it is an unstable zone, as public budgets have become unsustainable and are faced with very large deficits. The current governments do not contemplate on the public spending and its reduction and do not work on bringing it in line with the international standards. The reduction of public spending in such conditions can be considered as an essential precondition for macroeconomic stability in B&H and its entities. The public budgets had become unsustainable even before the crisis hit, especially taking into consideration a set of ambitious welfare legislations and appropriations for these categories, which was used for obtaining the political support for the current government at the expense of taxpayers. This has led to a financial imbalance and triggered the instability in B&H, as well as numerous job losses.

Mastilo Z. ď&#x201A;˛ Directions and guidelines for resolving the crisis

The global crisis in B&H and its entities affected the industrial production as well, its effects were negative. Thus, in 2009 the industrial production decreased by 3.3% compared to 2008, while in 2010, a slight increase in industrial production of 1.6% was recorded compared to 2009. Industrial production, as an important macroeconomic aggregate of GDP in B&H, occupies the central position, since it accounts for about 21% of the total GDP. The situation was not ideal at the beginning. Namely, in the circumstances of the global economic crisis, the industry showed signs of serious, hopeless deterioration. However, it still managed to improve and record a positive trend. Entities in B&H (FB&H and RS) in the last few years have achieved an average growth rate of industrial production of 2.9% in FB&H and 12% in the Republic of Srpska. When it comes to foreign direct investment (FDI), Bosnia and Herzegovina does not excel in

Chart No 2: Nominal GDP and the growth rates of real GDP Source: www.cbbh.ba

Chart No. 3: Progress of registered unemployment in B&H in 2010 Source: www.arz.gov.ba

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Mastilo Z.  Directions and guidelines for resolving the crisis

Chart No. 4: Progress of registered employment in B&H in 2010 Source: www.arz.gov.ba

C-Mining D-Manufacturing E-Electricity, gas and water TOTAL INDUSTRY Table no. 2: Industrial Production Indices (2009 = 100) 3

B&H 96.2 101.9 103.7 101.6

FB&H 95.7 106.9 102.4 104.2

RS 109.1 105.1 103.0 105.0

Source: www.cbbh.ba

this macroeconomic indicator. The global crisis has produced profound negative effects and foreign investors tend to avoid investing in Bosnian market. Generally speaking, the negative effects of macroeconomic aggregates have influenced adversely other macroeconomic aggregates, mostly the GDP and the labour market. By comparing the investments in the fourth quarter of 2011 in the amount of 130 million KM and the

FDI in the fourth quarter of 2010, it is clear that the former was about 2.7 times higher compared to the actual values in the fourth quarter of 2009 when the recorded values decreased by 29.5%. The total foreign investment in 2011 (392 million KM) decreased by 17.2% compared to data in 2009 (473 million KM). The above analysis clearly shows that the level of total foreign investments in B&H in recent years has been in decline, which is badly assessed. Research

Chart No. 5: Annual growth rates of industrial production, 2006-2010. Source: www.cbbh.ba

SINGIDUNUM J 2013  10 (1) 18-27

shows that the investments in Albania were higher in relation to Bosnia and Herzegovina (Albania-827 million). The main barrier to the arrival of foreign investors in B&H should be the political reason, since the country has not got the political stability, which is essential for economic development. When it comes to competitiveness, B&H cannot boast about that indicator, as it belongs to the least competitive economies. The Economy of Montenegro, Romania, Latvia, Greece, Croatia, Bulgaria, Ukraine, Macedonia, Serbia, and Albania is more competitive than that of Bosnia and Herzegovina, thus leaving Bosnia and Herzegovina in the last place. This is not surprising as B&H does not have sufficient political stability. It took a year after the elections held in October 2010 to form the Council of Ministers (in February 2012) that needs to initiate economic reforms in terms of economic recovery that is essential for B&H. Now it is up to B&H and its Council of Ministers and their actions to make the economy of B&H more competitive. It is very interesting to observe the GDP of Bosnia and Herzegovina per capita. When expressed in purchasing power standards, it was only 30% of the average EU 27=100 in 2010. The situation in 2010 was worse than in 2009, when it was 31%. The fig-

Mastilo Z.  Directions and guidelines for resolving the crisis

ures for Albania were 27% in 2009 and 29% in 2010, which shows a better, increasing trend with respect to Bosnia. The situation is much better in other countries of former Yugoslavia (Slovenia amounting up to 88% in 2009 and 87% in 2010, while in Macedonia it was 36% in 2009). The most prominent example is Luxembourg, whose GDP per capita was 283% above the EU average in 2010, which is the highest level of development. These analyses indicate that the crisis and its negative effects are deeply rooted in a small economy such as the economy of B&H. Therefore, we believe that it represents a great test of politics and economy on the global level, and likewise in Bosnia and Herzegovina and its entities.

Macroeconomic indicators of the Republic of Srpska These indicators show the macroeconomic situation in the Republic of Srpska (RS). The macroeconomic indicators of the Republic of Srpska are presented here, for the period 2007-2011, which is the period when the crisis produced adverse effects on B&H and its entities. The macroeconomic indicators of the Republic of Srpska say much, and it is

Investment (FDI) per quarter in 2009, 2010 and 2011 amount to: Millions of KM 2009 2010 2011

K1 -6.4 57.9 93

K2 160.8 23.3 61

K3 134.2 6.2 108

K4 184.4 48 130

Ukupno 473.00 135.00 392.00

Table no. 3: Investments by quarter (in millions) in 2009, 2010 and 2011. Source: www.dep.gov.ba

Chart No.6: WEF 2009-10:11 The least competitive European economies Source: www.weforum.org

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Mastilo Z.  Directions and guidelines for resolving the crisis

Chart No.7: Gross domestic product per capita.-Purchasing power standard; -EU27-100 Source: www.bhas.ba

necessary to do some further work, by searching for directions and guidelines for resolving the crisis. As obvious from this review, the largest problem in the Republic of Srpska is the high unemployment rate, which increased for 13.710 people during the period (2007-2011), which is a lot for such a small economy as the economy of the Republic of Srpska. If we look at a nominal value of the GDP in 2010, we can see that it was 8.31 billion KM, while the GDP per capita (GDP per capita) was 5797 KM, which is something we cannot boast about. The rates of real GDP growth (%) for the period (2006-2010) have variable trends. Fluctuations of the rate of real GDP growth are dictated by the global economic crisis, which is present to a great extent in the Republic of Srpska, taking into consideration its economy, which is not that potent. Indicators The population of the RS (estimate) Nominal GDP (000 KM) Real growth rate (in %) Number of employees Number of unemployed The average net wage (in KM) Industrial production growth rate (in %) Export (000 KM) Imports (000 KM) Balance of trade (000 KM) The coverage of imports by exports Inﬂation rate (consumer prices, %) Foreign direct investments (000 KM)

Solutions for overcoming the crisis Macroeconomic indicators, primarily observed in B&H and its entities, and secondarily in the international environment, indicate that the crisis has produced profound negative effects. The same situation occurs when the negative effects of the crisis are perceived globally. Thus, we believe that we should seek

2007

2008

Period 2009

1.439.673

1.435.179

1.433.038

7.350.985

8.489.287

8.243.265

8.308.120

2010

2011

6.7%

6.2%

-2.8%

0.8%

258.209

259.205

253.665

247.388

237.923

139.825

135.102

139.536

145.343

153.535

585

755

788

784

809

1.4%

16.8%

19.0%

5.0%

4.7%

1.671.601

1.921.837

1.672.915

2.177.809

2.561.928

3.347.925

4.146.519

3.567.104

4.053.076

4.584.193

-1.676.324

-2.224.682

-1.894.189

-1.875.267

-2.022.265

49.9%

46.3%

46.9%

53.7%

55.9%

2.5%

3.9%

1.1%

7.2%

-0.4%

1.946.688

165.675

104.500

Table no. 4: Basic macroeconomic indicators RS (2007-2011) Source: www.komorars.ba

It is evident that the most difficult and the most risky year was 2009, as it was the year when the economic crisis left negative consequences in the Republic of Srpska, the most negative effects of the global crisis were felt in 2009, so that the GDP had a negative growth rate at the time. The effects of the negative growth rates from 2009 can still be felt.

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Mastilo Z.  Directions and guidelines for resolving the crisis

Chart No.8: GDP (in 000 KM) and GDP per capita (KM) 2006-2010 Source: www.komorars.ba

Chart No. 9: Real GDP growth rate (in %) for the period 2006-2010 Source: www.komorars.ba

the best possible solutions for resolving the crisis. Such resolutions should contain clearly defined objectives necessary to be achieved. In order to achieve such goals, the best policies and the best possible solutions should be put into practice. The current economic model is a typical one, mainly because it is based on high public spending, incurring into debt, creating deficit, all of which lead to a “debt bondage”. Therefore, we believe that the appointment of the best possible solutions should be sought via the best possible solutions. The well-being of the society is everyone’s goal, particularly if perceived through the political and economic prism. This goal can be achieved only in the long run through the long-term development and the equitable distribution of national income. Our first goal, which, in our opinion, might be a good direction to the best solutions possible, is to raise the rate of economic growth that will lead to the increase of employment

rate, up to its full capacities, thus further improving the standard of living. Our subsequent goals would be to increase the investments, production capacities, exports and reduce imports, which would lead to overcoming the current situation, that is to say - the crisis. The desirable policies in pursuing these goals that could lead to overcoming the crisis on the global level and the level of B&H and its entities, include the following: ◆ Industrial policy (as the most important policy, in particular the increase of domestic production with the yet unused resources), ◆ Regional development policy, ◆ Fiscal policy, ◆ Monetary policy, ◆ Social policy, ◆ Policy of the state administration. 25

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All these policies require serious analysis and extensive research in order to produce better solutions that will serve as guidelines for resolving the global crisis.

CONCLUSION The previous macroeconomic analysis of Bosnia and Herzegovina and the international environment clearly shows that the global crisis has had profound negative effects on those economies. The responsibility for such a poor macroeconomic situation could be assigned to everyone: politics, economies, governments, academies and media. It is clear that the neoliberal system is in the profound crisis and that a complete transformation of the system is necessary in order to overcome the crisis. Such system has become a typical one, since it has made the rich - richer and the poor - poorer. It is not our opinion that the solution would be to pursue certain repairs or changes within such system. The main reason lies in the fact that the system has faced a decline or stagnation of GDP, high indebtedness, production decrease, unemployment increase, great deficits and progress towards debt bondage. Stabilisation of the economy within the current model is only possible through decreasing the living standards of already impoverished citizens. Such a policy would burden the people, and the badly designed policy would be continued via the current neoliberal model (Juričić, 2011). Directions and guidelines for resolving the crisis are not simple and are difficult to define, as ad hoc solutions, especially in the short term. It is necessary to define the goals first, and then the policy, which could help to achieve such goals. The key objective should be the prosperity of society. Achieving this goal entails sub-goals to be defined in order to achieve the final goal. High, sustainable rates of economic growth, full employment rate with a uniform distribution of national income are the objectives and the conditions for achieving prosperous society. In order to reach the key goals and sub-goals, it is necessary to promote and implement policies that will contribute to accomplishing those goals. (Juričić, 2011). Namely, the following policies should be implemented: ◆ Industrial policy, ◆ Fiscal policy, ◆ Monetary policy, ◆ Regional policy, 26

◆ Social policy, ◆ Public administration policy. The implementation of these policies should start immediately. They represent the guarantee for achieving the goals, but not in the short term. Therefore, it is necessary to provide willingness, commitment and time. These would be the key objectives and policies, which should serve as directions and guidelines for overcoming the crisis in B&H.

REFERENCES Acocella, N. (1998) Fundations of economic policy: values and techniques. Cambridge: Cambridge University Press. Agencija za rad i zapošljavanje Bosne i Hercegovne. Bilten br. 6 [online]. Available from: http://arz.gov.ba/publikacije/bilteni/?id=279 [accessed 5 July 2012]. (in Serbian) Auerbach, A., Feenberg, D. (2000) The Significance of Federal Taxes as Automatic Stabilizers. The Journal of Economic Perspectives. 14 (3), 37-56. Babić, M. (2007) Makroekonomija. 15. izd. Zagreb: Mate. (in Croatian) Communication from the commission to the European council: A European Economic Recovery Plan. Commission of the European Communities [online]. Available from: http://ec.europa.eu/economy_finance/publications/publication13504_en.pdf [accessed 15 September 2012]. Čaušević, F. (2009) Globalna recesija i njene refleksije na Bosnu i Hercegovinu. Forum Bosnae. 47 (2009), 61-81. (in Serbian) Dolls, M., Fuest, C., Peichhi, A. (2009) Automatic Stabilizers and Economic Crisis: US vs. Europe. Discussion Paper No. 4310 [online]. Available from: http://ftp.iza. org/dp4310.pdf [accessed 15 August 2012]. Freedman, C., Kumhof, M., Laxton, D., Lee, J. (2009) The Case for Global Fiscal Stimulans. International Monetary Fond [online]. Available from: http://www.imf. org/external/pubs/ft/spn/2009/spn0903.pdf [accessed 8 September 2012]. Global Economic Prospects: Crisis, Finance and Growth. World Bank [online]. Available from: http://siteresources.worldbank.org/INTGEP2010/Resources/ GEP2010-Full-Report.pdf [accessed 5 July 2012]. Global Wage Report 2008/09. Geneva: International Labour Office [online]. Available from: http://www.ilo. org/wcmsp5/groups/public/---dgreports/---dcomm/ documents/publication/wcms_100786.pdf [accessed 15 September 2012]. Godišnji izveštaj 2010. Centralna banka Bosne i Hercegovine [online]. Available from: http://www.cbbh. ba/files/godisnji_izvjestaji/2010/GI_2010_bs.pdf [accessed 2 September 2012].

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Hodžić, K. (2010) Stanje privrede i mjere anticiklične ekonomske politike Bosne i Hercegovine [online]. Available from: http://unvi.edu.ba/Files/zbornici/ ZBORNIK%20RADOVAnet.pdf [accessed 1 September 2012]. (in Serbian) Initial lessons of the Crisis. IMF [online]. Available from: http://www.imf.org/external/np/pp/eng/2009/020609. pdf [accessed 19 October 2012]. Jurčić, Lj. (2011) Velika transformacija za izlaz iz krize. Acta Economica. 9 (14), 79-95. (in Serbian) Jurković, P. (2002) Javne financije. Zagreb: Masmedia. (in Croatian) Kozarić, K. (2009) Uticaj globalne finansijske krize na Bosnu i Hercegovinu [online]. Available from: http://www. cbbh.ba/files/specijalne_teme_istrazivanja/sti_01_09_ bs.pdf [accessed 15 August 2012]. Kozarić, K., Salihović, A (2010) Krizno komuniciranje u finansijskim institucijama [online]. Available from: http://www.cbbh.ba/files/specijalne_teme_istrazivanja/sti_01_10_bs.pdf [accessed 15 August 2012]. Pollin, R. (2009) Tools for a New Economy: Proposals for a Financial Regulatory System. Boston Review. [online]. Available from: http://www.bostonreview.net/ BR34.1/pollin.php [accessed 10 September 2012]. Pommier, S. (2006) Fiscal Shocks and Automatic Stabilizers at Work in European Countries. Rennes: University of Rennes 1 [online]. Available from: http://virgo. unive.it/cide/conf/papers/p11.pdf [accessed 7 October 2012]. Puljić, M. (2009) Globalna kriza i Bosna i Hercegovina. Acta Economica. 7 (10), 89-107. (in Serbian) Puljić, M. (2010) Mjere vlade za prevazilaženje ekonomske krize. Acta Economica. 8 (12), 125-142. (in Serbian)

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Spilimbergo, A., et al. (2008) Fiscal Policy for the Crisis. IMF [online]. Available from: http://www.imf.org/external/pubs/ft/spn/2008/spn0801.pdf [accessed 18 October 2012]. Spilimbergo, A., Symansky, S., Schindler, M. (2009) Fiscal Multiplieres. IMF [online]. Available from: http:// www.imf.org/external/pubs/ft/spn/2009/spn0911.pdf [accessed 1 October 2012]. The Effects of Automatic Stabilizers on the Federal Budget. Congressional Budget Office [online]. Available from: http://www.cbo.gov/sites/default/files/cbofiles/ ftpdocs/121xx/doc12129/04_21_automaticstabilizers. pdf [accessed 10 October 2012]. The long climb. The Economist [online]. Available from: http://www.economist.com/node/14530093 [accessed August 2012]. Tilman, L.M. (2009) Financial Darwinism: create value or self-destruct in a world of risk. Hoboken, N.J.: Wiley ; Chichester: John Wiley. Van den Noord, P. (2000) The Size and Role of Automatic Fiscal Stabilisers in the 1990s and Beyond. OECD [online]. Available from: http://www.oecd.org/eco/ economicoutlookanalysisandforecasts/1880834.pdf [ accessed 10 September 2012]. World Bank (2003) 2003 world development indicators. Washington, D.C.: World Bank World Economic Outlook: Rebalancing Growth. IMF [online]. Available from: http://www.imf.org/external/ pubs/ft/weo/2010/01/pdf/text.pdf [accessed 1 October 2012].

UPUTSTVA I SMERNICE ZA REŠAVANJE KRIZE (U BOSNI I HERCEGOVINI I NJENIM ENTITETIMA) Rezime: Ovaj rad se bavi globalnom finansijskom i ekonomskom krizom koja se može smatrati najvećom krizom nakon Drugog svetskog rata. To pitanje je čest predmet rasprave među brojnim analitičarima, predstavnicima vlasti, a naročito je omiljena tema medija. S pravom možemo reći da je reč o krizi neoliberalnog sistema, koja je u velikoj meri uticala na porast imovine bogatih a koja je još više osiromašila siromašne.Takva kriza može se prevazići promenom samog sistema. Stoga je neophodno da postoje uputstva i smernice kako bi se definisali ciljevi za prevazilaženje krize. Pored tih ključnih ciljeva, neophodno je definisati podciljeve, koji će doprineti realizaciji primarnih ciljeva. Neophodno je zagovarati i primenjivati politike koje će olakšati realizaciju jasno definisanih ciljeva i podciljeva. Neke od tih politika su sledeće: industrijska politika, fiskalna politika, monetarna politika, politika regionalnog razvoja, politika javne administracije i socijalna politika.

Ključne reči: globalna kriza, makroekonomski indikatori, neoliberalizam, opšte stanje u zemlji, fiskalna politika, industrijska politika, rezolucija, uputstva i smernice. Received: January 15th, 2012 Correction: March 7th, 2012 Accepted: April 29th, 2012

SINGIDUNUM JOURNAL 2013, 10 (1): 28-38 ISSN 2217-8090 UDK: 004.7:338.48; 007:004 DOI: 10.5937/sjas1301028R Review paper/Pregledni naučni rad

THE ROLE AND POTENTIAL OF GLOBAL DISTRIBUTION SYSTEM AMADEUS FOR TOURISM DEVELOPMENT AT THE GLOBAL LEVEL Ljiljana Radulović* A PhD student at Mediterranean University, MTS - Montenegro Tourism School Maršala Tita Street, Bar, Montenegro

Abstract: Globalization, development and implementation of new technologies, new consumer trends, concern for the natural environment and other factors, have emphasized the diversity and complexity of the tourism industry. For these reasons, the tourism industry in recent years has focused its activities towards the information and technological infrastructure and global electronic connection in order to overcome border barriers and establish relationships with providers and tourists as well as with travel agencies and tour-operators. The development of information technology and evolution of airline reservation systems of individual airlines have led to the development of the Global Distribution Systems (GDS), recognized as a worldwide computerized reservation network that electronically connects the tourist offer with the tourist demand. As a result of the recognized challenge tourism has been facing in recent years, the main goal of this review would be to emphasize the role and importance of the leading GDS Amadeus in order to highlight its potential for the tourism development at the global level. The research and methodology of this review are based on the analysis of data collected from primary and secondary sources, through which we shall, by using deductive approach to theoretical assumptions and analytical approach to quantitative indicators, reach significant individual findings. At the end of the review through summary conclusions, we shall attempt to give a scientific justification of the research, and draw attention to the importance of continuous monitoring and adjustment to changes in the tourism market, in order to highlight the main potential of information technology applications for tourism development.

INTRODUCTION Tourism can be characterized as a complex system whose development is conditioned by constant changes in the tourism market, which is especially prominent due to recent changes in the technological environment that have emphasized the application of global distribution systems, which provide a quick and adequate exchange of full, meaningful and timely information to the tourism sector. 28

* E-mail: ljiljanaradulovic.pg@gmail.com

Key words: globalization, tourism, information technology, GDS Amadeus.

The aim of this paper is to emphasize the role of the GDS Amadeus, as a new technology, whose distribution and IT solutions enable interconnection of all elements of tourism, thus providing an efficient business system users and unique tourist services to end users - tourists. The first part of the review points out the global nature of tourism and predictions concerning the future tourism development at world level, as an introduction to highlight the global distribution systems

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as a product of modern information technologies that can be seen as an important development factor of international tourism. The second part of the review will cover the basic tasks and GDS Amadeus products, which is recognized as the leader of the established and extensive network of users. It points out the basic structure and operating results of GDS Amadeus in order to highlight the importance of this system for the development of world tourism industry. Finally, we hope that the application of theoretical and practical approaches to research has resulted in conclusions that will emphasize the importance of implementing the product of modern information technology as an adequate response to the dynamic and complex nature of the tourism industry that requires new forms of organization and business approach that will provide the long-term development of tourism on a global scale.

from relative anonymity into one of the world’s largest industries. According to WTTC, it contributes almost U.S. $6 trillion to the global economy, with the participation of 9% of global GDP and it provides about 260 million jobs worldwide (100 million jobs directly in the tourism industry). Regular monitoring of data on international tourist arrivals in certain years and regions of the world represents the basis for conducting a thorough analysis of the numerous changes that characterize the international tourist market, and that will enable us to reach conclusions regarding the flexibility and adaptability as well as the level of resistance of tourism to world events. Looking at the data from Table 1, we can see the evident growth of international tourism trends with the exception of data in 2009. In 2000, the growth rate was 25.06% compared to the previous five-year period; the growth rate of 18.64% was recorded in 2005 compared to 2000, while in 2010, the growth rate amounted to 15.74% compared to 2005. The suspended long growth rate of international movement in 2009 was certainly the result of the global economic crisis reflected in the tourism industry. However, in 2010, there were over 22.5 million of international tourist arrivals compared to 2008 and 58.5 million or an increase of 6.67% compared to 2009. These data certainly indicate very rapid recovery of the tourism as the consequence of financial crisis that can be viewed as a challenge in an effort to maintain the growth of international trends for the year, if we assume that the consequences of the financial crisis are still present in many countries. As can be seen from the data in Table 1, the growth was recorded in 2010 compared to 2009 and it amounted to 3.20% for Europe, 12.53% for Asia and Pacific, 7.6% for America, 6.33% for Africa and 5.88% for the Middle East. Also, taken from the regions, we can conclude that the greatest growth of

GLOBAL NATURE OF TOURISM The expansion of tourism is reflected in the realized tourist turnover that defines tourism as a dynamic category and in constant evolution. Modification of the old and creation of new demands of tourists for another “unseen” indicates the global nature of tourism destinations. The development of information technology has particularly influenced the definition of the world as the global space, since moving to the farthest destinations today represents almost no problem. Relevant information about tourism trends indicates that the expansion of tourism started in the second half of the 20th century. The first international tourism statistics from 1950 show about 25 million tourists who participated in the international tourism trends worldwide and the realized tourist consumption amounting to 2 million dollars. This means that tourism has grown

Table 1: International tourist arrivals by region of the world (in millions) Year

1995

2000

2005

2006

2007

2008

2009

2010

WORLD

540.9

681.3

808.3

841.9

908.3

913.0

877.0

935.5

Europe

315.0

392.4

443.9

456.9

488.0

480.8

456.9

471.5

Asia & Paciﬁc

82.8

109.3

156.2

167.4

185.4

184.1

181.1

203.8

America

109.0

128.2

133.1

136.0

142.5

147.8

140.5

151.2

Africa

20.4

27.0

36.7

40.9

44.9

44.4

45.8

48.7

Middle East

13.7

24.4

38.4

40.7

47.5

55.9

52.7

60.3 29

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international tourism trends recorded in the Middle East is as follows: 78.10% in 2000, 57.37% in 2005 and 57.03% in 2010 compared to the previous five-year period. These data confirm the predictions that the Middle East is recognized as the fastest growing tourism market, followed by Asia and the Pacific with an average growth rate of 35% for a period of twenty years, Africa with an average growth rate of 33.66%, Europe with an average growth rate of 13.63%, while the average growth rate of America is 11.67%. We can conclude that during the last decade the tourism expansion has been recorded at the international level, and according to all indicators, these trends will continue in the upcoming years. In fact, international tourism has become a significant area of economic development and the major factor in world economic trade. All this indicates that tourism is a phenomenon whose impact could be felt in all spheres of economic and social life, which is why the issue of tourism development should be approached cautiously and deliberately.

A brief overview of trends and predictions Travel industry today is the largest industrial branch with over 101 million people worldwide and gross sales of over U.S. $2 trillion, accounting for 5.5% of world GDP. It should be noted that until 2008 in almost all regions of the world the pattern was one of a steady growth with the exception of a plateau between 2000 - 2003, as a result of events such as September 11, SARS and global economic stagnation. In 2008, slightly below the predictions of the WTO, the number of tourists increased by 4%, while the tourism industry accounted for 3.4% of the world GDP with the participation of 8.4% of those employed in tourism. In 2009, tourism industry accounted for 3.2% of world GDP with the participation of 7.6% of employees.

Global tourism arrivals decreased by 4.2% in 2009 due to recession. Tourism receipts were 5.7% below the 2008 level. The WTO forecasts generated U.S. $ 4.235.5 billion from tourism, which coincides with the prediction of the actual U.S. $4.3 trillion according to the WTTC. Also, it is necessary to point out the forecasts of the expected WTO U.S. $1.56 billion by 2020. The forecasts put an emphasis on tourism as the major increasing factor in the world, with the real growth rate of 5% per year and possible 50 million of new jobs in the tourism industry. The data on the total international arrivals shown in Table 2, speak in favor of the recorded growth to a ten-year period in all regions of the world. Regarding the average ten-year growth expressed as a percentage, we can conclude that the Middle East region particularly stands out in relation to other regions, followed by Asia and the Pacific, Africa, Europe and America. If you carry out the analysis of the ten-year average growth of international tourist arrivals to the forecasts for 2020, we can conclude that the Middle East is also emphasized in relation to other regions, but with a significantly lower rate of 105.24%, followed by Asia and the Pacific with 101.72%, Africa with 70.66%, Europe with 39.97%, and the America with 47.97%. Ten-year average growth rate in relation to the envisaged international tourist arrivals at the world level would amount to 54.52%. We can conclude that predictions about tourism trends unfolding in the future are in favor of further development of tourism in the region and the growth of tourism indicators at the global level, putting special emphasis on Asia and the Pacific region and America. However, it is also necessary to emphasize prediction as a warning to factors such as climate change that can result in disaster, the terrorist attacks and diseases such as the “new” virus, which can negatively affect the flow of tourism.

Table 2: International tourism prospects: world and regional (in millions)

World total Europe Asia & Paciﬁc America Africa Middle East 30

1990 439.5 265.7 56.2 92.8 15.2 9.6

Tourist arrivals 2000 681.3 392.4 109.3 128.2 27.0 24.4

2010 935.5 471.5 203.8 151.2 48.7 60.3

Ten-year average growth rate (%)

Forecast 2020

46.16 33.92 90.47 28.04 79.00 150.64

1602 717 457 284 75 69

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In addition, the predictions point out the possible occurrence of the “shock of poverty” with which the world mega centers can be confronted. This can further lead to the occurrence zones of instability and the interest of a larger number of tourists in the national parks and protected areas, such as Bolivia and Madagascar. We can conclude that such forecasts are the result of numerous changes, new requirements, ways of thinking and the need for new global markets, that are caused by human behavior, but that will certainly affect their future behavior and consumption, which stems from the need to constantly evaluate all the factors to maintain harmony with the tourism market that is constantly subject to change.

Modern information technology as a factor in tourism development Information technology is a complex system that includes computers and communications technology. The emergence and development of computers have enabled fast, today almost simultaneous exchange of information as a final product of information technology, which represents knowledge, power and money in order to achieve adequate communication. It has always represented the basis through which people are able to exchange and share information, and thus understand and acquire new knowledge. Modern information technology is a complex communication system that provides its customers a wide range of diverse services and products, in particular the Internet. The Internet is a global computer network that connects computers around the world and enables direct communication between the users. The beginning of the so-called era of modern information technology as well as the creation and implementation of automated electronic reservation systems during the 60’s of last century by major European companies (Lufthansa, British Airways, Air France) was marked by establishing strong links between modern information technology and tourism. Since then, the tourism industry has become one of the largest users of modern information technology. For tourism as a service activity, information is one of the most important factors. The Internet, as

a product of information technology, also represents one of the most important instruments through which we can meet the increasingly diversified needs of tourists. The need to attract visitors, satisfy their curiosity and persuade tourists to buy a product, that is, the need to produce the conditions for creation and implementation of tourism product as well as to provide conditions for re-return of the tourists who adequately meet their needs, is one of the basic tasks concerning the implementation of modern information systems in tourism. The interdependence of modern information technology and tourism Knowledge, last minute bookings, shorter but content - “rich” travel, the emphasis of quality service, good tourist product advertising on the tourist market - are the characteristics of today’s “modern” tourists who have had great influence on the change of tourism strategies in the last ten years. We can conclude that the contribution of modern information technology to the development of tourism and travel industry on a global scale has been enormous. The interdependence of modern information technology and tourism can be viewed as: ◆ The aspects of modern information technology on tourism - which provides for the promotion, marketing and product differentiation through rapid, open and unrestricted access to any information anywhere in the world. This has led to the changed relationship with the traditional service providers and has caused the emergence of new destinations, thus increasing the competitiveness of the tourism market. ◆ The aspect of tourism on the development of modern information technology - tourism is today one of the most dominant economic sectors primarily owning to the growing tourism economy in the last 50 years. “In order to build and maintain a comprehensive database of tourism products and the competitiveness of the tourism market, and create conditions for further facilitation of international tourism trends and avoid unnecessary administrative or fiscal constraints, it is necessary to support the financial investment in further 31

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development of information technologies and to encourage a series of measures related to education and training in information technology.” (Millennium Declaration, 2001)

When it comes to applying the modern information technology innovations, the best indicator of the implementation of new system software in the tourist industry is Global Distribution Systems Figure 1: The function of global distribution systems in tourism (GDS), which is based on the applicacontinued profits for all tourism operators. GDS and tion of modern information and communication the Internet today represent electronic markets that technologies. connect travelers, travel agencies, airlines, hotels and Application of global distribution systems in tourism

car rental companies, with a share of U.S. $63 billion in 2005 out of the total travel bookings compared to U.S. $23 billion in 2001. There are many distribution systems on the world tourism market. According to the travel agency air bookings in 2009, GDS Worldspan had a share of 11%, GDS Sabre participated with 25%, GDS Galileo participated with 28% and GDS Amadeus participated with 33% of the global market share The Figure 2 presents information on participation of GDS Amadeus on the global tourism market. Based on the presented data, we can conclude that the continued growth of participation highlights the leading position of GDS Amadeus in the world tourism market. The global distribution systems are extremely important for the development of tourism, which can be best shown through the detailed presentation of the predominant GDS Amadeus. With the presentation of tasks, products and results of operations, we will attempt to give GDS Amadeus representation on the tourism market and its contribution to the tourism development in the world.

The first computerized reservation system (CRS) was created in the 60s of the last century by the leading airline company. It is the predecessor of today’s distribution system through which the work of agents is facilitated and their productivity increased. Namely, this system provides basic information concerning the schedule, prices and availability of seats. Until the appearance of distribution systems, all tourist information and data on hotels, flights, renta-car companies were monthly printed in the form of thick brochures, which made the process of information exchange between airlines, travel agents and passengers much more difficult. The return information process from the travel agency to passengers lasted more than 24 hours, which had a negative impact on service quality, passenger satisfaction and the revenue of travel agencies and airlines. Thus, one of the essential characteristics the timely information, was not achieved. In the mid 70’s of the last century, due to the development of information technology, airlines allowed travel agencies to access their databases when the first reservation system emerged. GDS represents a link which further connects the main factors of tourism with the intention to recognize the needs of tourists and to offer its customers modern information solutions that will create an integrated tourism product. This will further lead to the realization of the com- Figure 2: Global tourism market share of GDS Amadeus in the last four mon goal - the pleasure of tourists and years 32

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GDS AMADEUS

Radulović Lj.  The role and potential of global distribution system AMADEUS

GDS Amadeus was founded in 1987 by European airlines Air France (23.36%), Lufthansa (18.28%) and Iberia (18.28%), which means that 59.92% of the company is owned by the three founder airlines, while the remaining 40.08% of shares are held publicly. Network and database Amadeus system is among the largest civilian computer systems in the world and serves over 99.000 travel agencies in 195 countries, over 500 airlines and 34.000 airline sales offices, over 86.000 hotels, with 100 million overnight stays per year, 36.000 rent-a-car businesses (over 42 car rental companies), many tour operators and railway companies. The headquaters of the Amadeus system are located in Madrid, Spain, while the center of the operational functioning of the company is situated in Erding, Germany and it is now one of the largest commercial computer centers in the world with the network AMANET and 15 computer centers which divert the data flow and control the traffic. GDS Amadeus distributes identical software packages to all its providers in 217 markets with 76 local or regional offices. Functionality and modern solutions of GDS Amadeus have contributed greatly to it assuming the leading position with respect to the number of users, reservations and passengers. The data from 2009, presented in Figure 3, highlight the leading position that GDS Amadeus assumes in almost all regions of the world, with the exception of North America (8.20%). Asia and the Pacific region recorded prevalence with 71.30%, followed by Western Europe with 67.50%, Africa with 61.30% and Latin America with 42.50%. We can conclude that the implementation of the GDS Amadeus leading information technology and creation of modern products are greatly responsible

Figure3: GDS Amadeus - global market share leader

for the existence of extensive networks of its users, as well as for developing a competitive advantage over other systems.

Main activities and GDS Amadeus products The main tasks of GDS Amadeus present it as the leading information technology service provider for all industries that are directly or indirectly associated with tourism and travel. The principal tasks of GDS Amadeus are as follows: ◆ Liaising with the travel agency through which they allow a quick and efficient reservation and services sales; ◆ Liaising with the airlines with the aim of effective occupancy of its capacity; ◆ Including Hotel Amadeus system to facilitate increased sales of hotels; ◆ The inclusion of rent-a-car company with the aim of expanding the network services; ◆ Providing information center related to innovation and training; ◆ Providing commercial and technical support to all customers. GDS Amadeus products have multiple significance since they enable travel agencies to improve the range of services to their passengers, increase productivity through the use of fully automated processes, improve business efficiency and become more flexible in order to adapt to the specifics of the tourism market. GDS Amadeus products, such as Pro Web, Vista, Check my trip, Central Ticketing Solution or Automatic MCO have been widely applied by Amadeus system users. Moreover, the choice of the particular product depends on the commitment and users’ needs for everyday work with passengers. The latest in a series of GDS products that encountered a wide acceptance by the users of the system is E-ticketing. It represents a new way of publishing documents, where the passenger does not receive a paper document, but is electronically registered as a buyer. Provision and payment take place as usual at the travel agency or on the Amadeus Web site. The passenger is obliged to report his identification number, which will be used during the check-up. Benefits of Eticketing are numerous: 33

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Figure 4: The range of products of GDS Amadeus

◆ compared to the passengers in a simple and practical procedure for the purchase; ◆ compared to the travel agency in reducing the time needed for paper tickets; ◆ compared to the airlines in reducing the costs of producing and distributing tickets.

The basic structure of the GDS Amadeus Providers Over the last twenty years, GDS Amadeus has enjoyed significant year-on-year growth and produced wealth for providers and the communities it cooperates with. It is extremely important to point out that only in 2009, GDS Amadeus achieved approximately U.S. $87 billion from the sale of tickets through all sales channels, out of which 71% came through travel agency channel which accounted for U.S. $62 billion. Regarding the Figure 5, GDS Amadeus business structure consists of the distribution of services and IT solutions that are available to many users “on line” 24 hours a day, seven days a week. Thus, the system users are able to present the updated information and services to the entire world market.

Figure 5: GDS Amadeus business structure 34

Starting from the fact that the development of tourism in the third millennium demands access to fast, open technology supported by specialist expertise, we can conclude that the GDS Amadeus has made an important contribution to the achievements of the global tourism and travel industries as a whole by using the intelligent application of technology and innovations. The benefits are numerous and are reflected in a significant number of system users, who by using these products, can make a considerable savings in operating costs, income generation, etc. According to data from the Figure 6, we can see that the intensive growth, intense competition and pressure to make profit are the things that characterize today’s tourist market, which means that only new technologies and innovative business models may be well placed to respond to the challenges. For this purpose, a wide range of advanced technological solutions are offered by GDS Amadeus with the aim of allowing all its users to have equal share of the tourism industry market. We would like to point out that IT solutions to individual providers are the result of the modular technology that is specifically tailored to meet the needs and characteristics of the products that are on offer to the users of the system, with a view of achieving effective business environment that will be characterized by efficient business processes and competitive position in the tourism market.

GDS Amadeus business results The unique community approach to the development of IT solutions highlights the position of

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Radulović Lj.  The role and potential of global distribution system AMADEUS

Figure 6: Available Amadeus providers in 2010

GDS Amadeus as a true partner to the customers. Benefits that users gain by applying the latest IT solutions are numerous and are mostly reflected in the global availability and higher value sales with the efficiency, target marketing and brand differentiation. According to data presented in Figure 7, we can see that the largest number of GDS Amadeus offices is located in the region of Europe - a total of 55, followed by the region of America with 42 offices and Asia & Pacific region with the total of 22 offices. We can conclude that the established broad network of GDS Amadeus is the result of the vision focused on both the commitment and results to ensure the future success of customers. Cross-section of results achieved for the last four years can be best presented as the total number of reservations for all Amadeus providers, with the profit expressed in millions of €. Table 3 contains data on the number of total reservations and adjusted profits for the last four years. Namely, there has been a decline of total reservations from 4.35% in 2009. However, in the same year, a growth of 8.05% was recorded for adjusted profit over the previous year. In 2010, an increase of 2.66% of total reservations was recorded and the growth of 22.35% for adjusted profit compared to 2009. These figures are the result of the GDS Amadeus commitment to new product and solution development, which recorded a growth of almost 60% for the last four years.

Figure 7: Number of Amadeus oﬃces by region in 2010

Table 4 shows the full particulars of the registered growth of financial performance in 2010 compared to the previous year and to an increase of 8.50% for distribution services and an increase of 17.70% for Amadeus IT solutions. Based on the financial performance of GDS Amadeus, it should be noted that Amadeus allocates significant funds to research and development technologies used in the travel sector. Only in 2009, GDS Amadeus set aside 250 million €, and in 2010, the European Commission ranked the investment of Amadeus as the largest in Europe by total research and development investment in both computer service category and the travel and tourism sectors. Today, GDS Amadeus has one of the best fare search engines in the world powered by unique algorithms that can process more than 50 million transactions per day. The fact that the GDS Amadeus was the first to receive the quality certification ISO9001:2000 stands in support of the continuous and systematic initiatives towards improving products and solutions.

GDS AMADEUS STAFF Outstanding achievements are based on the contribution of every member of staff. Therefore, GDS Amadeus aims to improve the position of every employee through incentives that would make it a great place to work, a place where success is recognized, where innovation is encouraged and where employees are empowered to achieve their professional goals. Looking at the data presented in Table 5 and 6, we can conclude that the GDS Amadeus allocates great attention to providing continuous training to its employees in order to achieve efficient operations as well as personal development goals, with the aim to further their careers in the organization. It should be noted that 77% of employees in GDS Amadeus hold a university degree or higher, while 85% of the employees speak two or more languages. Also, every year, a large number of young graduates are to be engaged in the GDS Amadeus, where 35

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Radulović Lj.  The role and potential of global distribution system AMADEUS

Table 3: The intersection of the total bookings and adjusted proﬁt by age (in millions) Total bookings

Adjusted proﬁt

2007

428

281

2008

431

323

2009

413

349

2010

442

427

Table 4: Cross section of the ﬁnancial performance of GDS Amadeus (in million EUR) Distribution ﬁnancial performances

IT ﬁnancial performances

2009

1,836

511

2010

1,992

601

Table 5: Total Amadeus workforce

Table 6: Total hours of training

2008

2009

2010

2008

2009

2010

Permanent staﬀ

7,422

7,521

7,852

134,868

142,574

151,812

Temporary staﬀ

119

108

External manpower

1,338

1,759

2,31

Total staﬀ

8,880

9,388

10,270

they are given a chance to achieve long-term career. GDS Amadeus also offers over 450 e-learning courses; annual performance and development interviews are the part of the ongoing performance management process.

CONCLUSION Today’s dynamic environment, which can be characterized as unstable and unpredictable, significantly affects the development of the tourism industry by setting the problem of “placement” of tourism products to the tourism market due to increased competitive pressure caused by the globalization of the services sector. The trend of globalization is a result of the omnipresence of the worldwide product development and information technology. Moreover, it increases the complexity of the tourism industry and enforces understanding of the management of tourism development as a process that is based on constant research and ongoing analysis of the positions on the tourism market. The tourism sector is undergoing constant development and progression, and thus requires a comprehensive approach to all its com36

ponents. After conducting research, we have come to the following conclusions: ◆ Numerous changes in the demographic, economic, psychographic, and other characteristics of tourists have been recorded in recent years, thus leading to major changes in the tourist demand. Quick and frequent changes that characterize the tourism market require the appropriate action. In our opinion, the only feasible strategy should involve the following: adequate preparation, identifying changes in the environment, flexibility in relation to the emerging changes and accepting changes as the challenge in order to provide a competitive advantage. ◆ Changes in technologies enable the development of information technology and the Internet as a distribution channel, through which the connection between tourism supply and demand is electronically created. The products of modern information technology provide for the efficient reception, efficient data processing and rapid data transmission, which further results in improving business

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Radulović Lj.  The role and potential of global distribution system AMADEUS

processes in numerous areas, especially in the field of transport and travel industry ◆ As products of modern information technology, Global Distribution Systems are particularly important for tourism development because they allow users to access information anywhere in the world and offer them the opportunity to create better and more complete service through the timely launching of products on the tourist market. ◆ GDS Amadeus assumes the leading position in relation to other distribution systems, primarily due to the development of software that is tailored specifically to meet the needs of individual users, allowing the availability and exchange of quality information to a large number of users, thus linking tourism related companies in the global networks. Amadeus GDS has a wide range of products, distribution and IT solutions. Their quality and rapid transmission have enabled the presentation of tourist services in the tourist market, and thus have made the tourism products available to various groups of customers in a simple and efficient way. The total research and development investment of GDS Amadeus in both computer services category and the travel and tourism sector is very important, which is why its contribution is reflected in the field of tourism industry. Finally, we would like to emphasize that the development and implementation of modern information technology products, in our opinion, represent a response to constant and rapid changes that characterize the tourist market and the chance to gain competitiveness and foster further development of tourism at the global level.

REFERENCES Amadeus Annual Report 2010 [online]. Available from: http://www.cinven.com/lib/docs/092640-amadeusannualreport2010.pdf [accessed 22 May 2011]. Amadeus Customer IT Solutions [online]. Available from: http://www.amadeus.com/amadeus/x5140.html [accessed 22 May 2011]. Babu, S., Mishra, S., Parida, B. (2008) Tourism Development Revisited: concepts, issues and paradigms. London: Sage Publications. Boniface, B., Cooper, C. (2005) Worldwide destination: the geography of travel and tourism. 4th ed. Oxford: Elsevier.

Buhalis, D., Costa, C. (2006) Tourism Business Frontiers: consumers, products and industry. Oxford: Elsevier, Butterworth Heinemann. Buhalis, D., Costa, C. (2006) Tourism Management Dynamics: trends, management and tools. Oxford: Elsevier, Butterworth Heinemann. Evans, N., Campbell, D., Stonehouse, G. (2002) Strategic Management for Travel and Tourism. Oxford: Butterworth Heinemann. Goeldner, C., Brent, R. (2009) Tourism: Principles, Practices and Philosophies. 11th ed. Hoboken, N.J.: John Wiley. Krstić, B., Stepanović, Lj. (2004) Avio saobraćaj u turbulencijama. Beograd: Goregraf. (in Serbian). Lickorish, L., Jenkins, C. (2001) An introduction to Tourism. Oxford: Butterworth-Heinemann. Millennium Declaration. 14th session of the General Assembly of the WTO, 2001 Osaka. Available from: http:// www.traveldailynews.com/pages/show_page/1318WTO's-Osaka-Millennium-Declaration [accessed 20 May 2011]. Page, S. (2009) Tourism Management: Managing for Change. 3rd ed. Oxford: Elsevier. Pender, L., Sharpley, R. (2005) The Management of Tourism. London: Sage Publications. Samipatra Das HVS International (2001) Global Distribution Systems in Present Times [online]. Available from: http://www.hospitalitynet.org/news/4013406.html [accessed 22 May 2011]. Tourism and World Economy. UNWTO [online]. Available from: http://www.unwto.org/facts/eng/economy. htm [accessed 01 June 2011]. Tourism Economic Research. World Travel and Tourism Council [online]. Available from: http://www.wttc.org/ eng/Tourism_Research/Tourism_Economic_Research [accessed 24 May 2011]. Tourism Facts and Figures. UNWTO [online]. Available from: http://media.unwto.org/en [accessed 24 May 2011]. Tourism Market Trends. UNWTO [online]. Available from: http://www.unwto.org/facts/eng/tmt.htm [accessed 01 June 2011]. Tribe, J. (2004) The Economics of Recreation, Leisure & Tourism. 3rd ed. Oxford: Elsevier Ltd. Unković, S., Čačić, K., Bakić, O. (2002) Savremena kretanja na turističkom tržištu. Beograd: Ekonomski fakultet. (in Serbian). World Tourism Barometer. UNWTO [online]. Available from: http://mkt.unwto.org/en/barometer/september2011-interim-update [accessed 04 June 2011].

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Radulović Lj.  The role and potential of global distribution system AMADEUS

ULOGA I POTENCIJAL GLOBALNOG DISTRIBUCIONOG SISTEMA AMADEUS ZA RAZVOJ TURIZMA NA GLOBALNOM NIVOU

Rezime: Globalizacija, razvoj i primena novih tehnologija, novi potrošački trendovi, briga za prirodno okruženje i mnogi drugi faktori, doprineli su raznolikosti i složenosti turističke industrije. Iz navedenih razloga, turistička industrija u proteklih nekoliko godina nastoji da usmeri svoje aktivnosti ka razvoju informacione i tehnološke infrastrukture, odnosno globalne elektronske povezanosti sa ciljem prevazilaženja graničnih barijera i uspostavljanja odnosa kako sa pružaocima usluga i turistima, tako i sa turističkim agencijama i organizatorima putovanja. Razvoj informacionih tehnologija i evolucija rezervacionih sistema pojedinih avio kompanija doveli su do nastanka Globalnih Distribucionih Sistema (GDS), poznatijih širom sveta kao kompjuterski rezervacioni sistemi koji elektronskim putem povezuju turističku ponudu sa turističkom potražnjom. Cilj ovog ovog rada je da se prikaže uloga i značaj vodećeg distribucionog sistema (GDS Amadeus), kako bi se istakla njegova uloga u razvoju turizma na globalnom nivou. Istraživanje i metodologija ovog rada zasnovani su na analizi podataka dobijenih iz primarnih i sekundarnih izvora, putem kojih ćemo koristeći deduktivni pristup teorijskih postavki i analitički pristup kvantitativnih pokazatelja doći do značajnih saznanja. Na kraju ovog rada kroz zaključno razmatranje, nastojaćemo da pokažemo naučnu opravdanost sprovedenog istraživanja, tako što ćemo ukazati na značaj kontinuiranog nadzora i prilagođavanja promenama na turističkom tržištu, kako bismo ukazali na važnost primene informacionih tehnologija za razvoj turizma.

Ključne reči: globalizacija, turizam, informacione tehnologije, GDS Amadeus. Received: October 6th, 2012 Correction: December 18th, 2012 Accepted: January 10th, 2013

SINGIDUNUM JOURNAL 2013, 10 (1): 39-45 ISSN 2217-8090 UDK: 005.334:336.764.1 DOI: 10.5937/sjas1301039P Review paper/Pregledni naučni rad

THE PRICING AND VALUATION OF SWAPS Jelena Paunović* Wiener Städtische osiguranje a.d.o. Belgrade 1 Trešnjinog cveta Street, Belgrade, Serbia

Abstract: Swaps are financial agreements between two parties to exchange period cash flows and are mostly used as a tool for hedging risk and speculation. They are derivative contracts that derive their value from an underlying asset (the most common underlying assets are the interest rates in the plain vanilla case, but it can be almost anything). These OTC products (over the counter) are traded directly between the two parties or with a financial institution acting as an intermediary. Some banks in Serbia already offer these derivative instruments, but the markets are still in an emerging phase. The private sector is severely affected by credit and interest rate risk which currently lacks sufficient knowledge and understanding of such products and their importance. This paper aims to present and demystify the structure of these financial derivatives by presenting their valuation methods and by showing how they are used in practice. Ultimately, we shall discuss the credit risk the counterparties are facing in developed financial markets nowadays.

INTRODUCTION Swaps (Flavell, 2010) are private contracts in which two counterparties agree to exchange cash flows over a period of time according to previously defined procedures. The two sides of the swap are referred to as “legs”, and the underlying security on which these leg payments are based can include a wide variety of instruments such as interest rates, equity index, commodity, credit rating, credit default etc. As the swap is a security that involves the exchange of cash flows of one or more underlying variables, there is no limit to the number of different types of swaps that can be structured. They are widely used by portfolio managers to manipulate duration of their investments, regulate interest rate exposure and offset risk. Fixed-income traders have * E-mail: jelena.paunovic80@gmail.com

Key words: swaps, financial derivatives, OTC market, hedging, risk, speculation, financial markets.

the possibility to avoid the cost of long/short positions in bonds while speculating on interest rates as it costs zero to enter a swap and does not require significant capital. Corporations that have floating liabilities can jump into swaps in order to start paying fixed or protect themselves against falling interest rates by paying floating and receiving fixed. Bond issuers usually use rate-lock when they issue fixed bonds by locking at the current rates by entering a swap which gives them time to sell the bonds to investors. The first swap contracts were introduced in 1981 when the World Bank and IBM entered into a swap agreement. Today, they are one of the most traded financial derivatives worldwide with a total notional value exceeding 300 trillion $, which is more than 10 times the size of the U.S. public equities market. 39

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Paunović J.  The pricing and valuation of swaps

INTEREST RATE SWAPS IN PRACTICE

A practical example

Interest rate swaps are the most common type of a swap contract. They are also referred to as “plain vanilla interest rate swaps”. In this type of swap contract, one company pays to the other cash flows that are equal to the interest at a prearranged fixed rate on a notional principal N for a certain period of time (Price and Henderson, 2012). It is important to note that the notional principal N of an interest rate swap is never exchanged because the contract is based on the same notional denoted in the same currency throughout the entire life of the swap. At the same time, the second company agrees to pay to the first one, in the same currency, cash flows that are equal to the interest at the current floating rate (usually the LIBOR rate) on the same notional principal for the same period of time. The reason for the existence of such instrument is usually associated with the comparative advantage argument, which means that some companies have a comparative advantage in floating rate markets and others have it in fixed rate markets. Companies usually borrow money from the market where they have a comparative advantage. However, this can sometimes oblige them to borrow floating when they want to borrow fixed and vice versa, which can cause trouble if they have an opposite exposure. This is where the interest-rate swap is useful with the consequence of transforming the floating rate loan into a fixed rate loan. It is an instrument that allows removing interest rate risk over a given period in the future on a regular basis.

Let us imagine an interest rate swap between the World Bank and IBM where company wishes to borrow $1 million for 2 years. We will assume for now that there is no intermediary (bank)  there are no commissions. The two companies have been offered the following rates:

The LIBOR rate As mentioned earlier, the floating rate is usually the London Interbank Offer Rate (LIBOR) which is the rate at which major banks are willing to offer $ deposits to each other. LIBOR is determined on the inter-banking market and is changing along with the business cycles. The BBA (British Bankers Association) polls panel banks asking them at what rate they would loan money to other panel banks. One reason why the LIBOR is mostly used is because it is the easiest defaultable rate and because a vast majority of interest rate derivatives and many bond issuances are linked to it. As the LIBOR contains default risk, it is compensated by an interest rate spread above the Treasuries. 40

Borrowing rates

Fixed

Floating

World Bank

6,00%

6 month LIBOR + 0.4%

IBM

7.30%

6 month LIBOR + 0.9%

Assumptions: ◆ World Bank would prefer borrowing at a floating rate linked to LIBOR. ◆ IBM would prefer borrowing at a fixed rate. We can see that the difference between the two floating rates is 0.5% and that the difference between the fixed rates is 1.3%. The fixed rate difference is bigger than the difference of the floating rates. IBM pays less interest on the floating markets than on the fixed markets compared to World Bank, which means that IBM has a comparative advantage on the floating market and that World Bank has a comparative advantage on the fixed markets. Both companies can now arrange a swap to guarantee that the World Bank finishes with floating rate payments (as desired) and IBM finishes with fixed rate payments. The process goes as follows: The World Bank borrows money at 6% fixed rate (comparative advantage), IBM borrows at the 6 month Libor + 0.9% rate. They can now agree to enter in a swap contract to ensure that World Bank ends up with a floating rate and IBM ends up with a fixed one. This swap contract looks as follows: 5.9% ﬁxed rate

World Bank

IBM

6 month LIBOR rate

◆ World Bank pays IBM interest at 6-month LIBOR on $1 million notional. ◆ IBM pays World Bank interest at a fixed rate of 5.9% per annum on $1 million notional.

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Total cash-flows: ◆ World Bank receives 5.9% fixed from IBM, pays 6% fixed to the lenders and pays 6 month LIBOR rate to IBM which is equal to a total net of Libor + 0.1% per year, which is 0.3% less than it would have to pay if it borrowed money directly from the floating market at the rate of LIBOR + 0.4%. ◆ IBM receives 6 month LIBOR from World Bank, pays 5.9% to World Bank, and pays LIBOR + 0.9% to the lenders. This sums up to a total net of 6.8% fixed, which is 0.5% less per year than if the company went directly to the fixed markets and borrowed at the rate of 7.3%.

5.9% ﬁxed rate

6% ﬁxed rate

Lenders

World Bank

Paunović J.  The pricing and valuation of swaps

The swap improves the positions (McDougall, 1999) for World Bank and IBM by 0.3% and 0.5% per year, respectively. In an interest rate swap, the total gain is always the difference between the interest rates that the two companies have in fixed markets and the difference between the interest rates they have in floating markets. In this case, the total gain is 1.3% - 0.5% = 0.8%. In practice, the two companies usually never get in touch directly in order to make a swap agreement. There is almost always a bank that stands in between as an intermediary, which means the swap could look as follows:

6% ﬁxed rate

BANK

6 month LIBOR rate

In this case, the net payment for the World Bank is: ◆ It receives 5.9% fixed from the Bank, It pays 6% to lenders and it pays 6 month LIBOR to BANK which equals to a total net of LIBOR +0.1% left to pay per annum which is 0.3% less than it would have to pay if it borrowed money directly from the floating market at the rate of LIBOR + 0.4%. The net payment of IBM in this case is: ◆ It receives 6 month LIBOR rate from the Bank, it pays 6 month LIBOR + 0.9% to lenders and it pays 6% fixed to the bank which equals to a total net of 6.9% fixed left to pay which is 0.4% less than if the company went directly to the fixed markets and borrowed at the rate of 7.3%. In that case, the net payment of the bank is: ◆ It receives 6% fixed from IBM, it pays 5.9% fixed to World Bank, it receives 6 month LIBOR from World Bank and it pays 6 month LIBOR to IBM which equals to a total of 0.1% fixed for the BANK.

6% month LIBOR rate + 0,9%

IBM

Lenders

6 month LIBOR rate

The total gain of all parties is the same as in the last example, 0.8%, except that here the bank takes a commission of 0.1% by taking a higher fixed rate from IBM (6%) compared to the one it pays to World Bank (5.9%). One of the two companies pays for the difference between the fixed and the floating interest every 6 months (cause 6 month LIBOR rate is used in the example, with semi-annual compounding). The first cash flow exchange would take place 6 months after the swap agreement. The second cash flow exchange would happen 12 months after the swap agreement, based on the forward LIBOR rate in 6 months for 6 months etc. (see Table 1). If the 6 month LIBOR was 7%, the first exchange of cash flows would look as follows: ◆ World Bank would pay to the BANK 0.5 x (7-5.9)% * 1000000 = 5500$. ◆ The BANK would keep 0.1% commission which is 500$. 41

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Paunović J.  The pricing and valuation of swaps

Table 1: Swap cash flows (6% fixed swap rate, period 5 years, floating LIBOR rate, notional $10M, semi-annual compounding) Swap rate: 6% Contract date: 1/15/2009 Date

Notional amount: $10M

Fixed Payment

6-month LIBOR

Floating Payment

Net Payment (ﬁxed payer)

300000 300000 300000 300000 300000 300000 300000 300000 300000 300000

4% 5% 6% 7% 8% 7% 6% 5% 4% 3% 2%

200000 250000 300000 350000 400000 350000 300000 250000 200000 150000

100000 50000 50000 100000 50000 50000 100000 150000

1/15/2009 7/15/2009 1/15/2010 7/15/2010 1/15/2011 7/15/2011 1/15/2012 7/15/2012 1/15/2013 7/15/2013 1/15/2014

Table 2: Pricing a two-year swap with forward rates ($10M notional, semi-annual compounding). Fixed payment

6-month LIBOR ﬂoating rate

Floating payment

Expected Floating Payment

Net Payment (ﬁxed payer)

6 months

s/2*$10mil

r0.5

(r0.5)/2*$10mil

(r0.5)/2*$10M

(s/2-r0.5/2)*$10mil

1/15/2010

1 year

s/2*$10mil

r0.5 in 6 months

(0.5f0.5)/2*$10M

(s/2-0.5f0.5/2)*$10mil

7/15/2010

1.5 years

s/2*$10mil

r0.5 in 1 yr

(1f0.5)/2*$10M

(s/2-1f0.5/2)*$10mil

1/15/2011

2 years

s/2*$10mil

r0.5 in 1.5 yrs

(1.5f.5)/2*$10M

(s/2-1.5f0.5/2)*$10mil

Date

Time

1/15/2009

7/15/2009

VALUATION METHODS In order to value an interest rate swap, the first option would be to consider the swap as the sum of a long position and a short position of a bond. We can assume that our swap in the last example is the same as if IBM was lending to the financial institution $1M at 6 Month LIBOR and the financial institution lending to IBM $1M at a fixed rate of 6% in return. This is the same as selling a floating rate bond on $1M notional and buying a $1M notional bond on fixed rate. The value of the swap is then the difference between the values of the two bonds. We denote by S the value of the swap, N the notional of the swap, and P1 and P2 the values of the the two bonds  S = P1 – P2. The fundamental concept lying behind bond valuation is the net present value (NPV) of cash flows, which simply means that money received in the future is worth less than that same amount received now. The longer we wait for the payment, the higher the compensation needs to be. 42

In order to price the bonds, we need to understand forward rates (Howard, 2012). Suppose we want to borrow or lend $50 million in 18 months for a period of 18 months. We can use a forward rate to lock in the rate now: ◆ The “in 18month for 18 month” forward rate from now is the rate at which we can borrow or lend in 18 months for a period of 18 months, there is no option. We are obliged to borrow or to lend at the forward rate.We will write that forward rate as: 1.5f1.5, where 1.5 refers to a 18 month period. Generally, mfnwill denote the forward in m years for n years.

Example:

By no-arbitrage:

(1 + r1 / 2 )

= (1 + r.5 / 2 )(1 +.5 f.5 / 2 )

with r the interest rate for year 1, semi-annualy compounded.

SINGIDUNUM J 2013  10 (1)  39-45

Solving for the forward rate, we see that:

 (1 + r1 / 2 )  = − 1 2 .5 f.5  (1 + r.5 / 2 )  2

The general formula for the forward rate in m years for 0.5 years is:

 (1 + rm +.5 / 2 )2 m +1  = − 1 2 m f.5 2m  (1 + rm / 2 ) 

Paunović J.  The pricing and valuation of swaps

NPV fixed = =

s/2

n =1

n /2

∑= (1 + r / 2)

f 0.5 / 2

∑= (1 + r / 2) n /2 − 0.5

n =1

n /2

NPV floating

Simplifying, it turns out to be a simple general formula for a N year swap:

What we just did is called “bootstrapping the (1 − δ ) yield curve” using the spot rates to find the forward s = 2 2N N rates (see Table 2). δ n /2 In order to be able to price the swap, we have to n =1 understand the following: ◆ in the absence of default risk, a swap is just a With: δn the discount rate at period n (considersequence of forward contracts. ing semi-annual compounding) which is equal to: ◆ it costs zero to enter a swap agreement. with rn: the interest rate during the period n. ◆ the swap price refers to the fixed rate that is exchanged with the floating rate which is also 1 called the swap spread. δn = (1 + rn /2 / 2) 2 n ◆ In practice, LIBOR zeros which are needed exist only out to 1-year. and Two ways of getting LIBOR zeros are:  (1 + rn /2 / 2) n  1) By going to the LIBOR forward market which = f.5 2  − 1 /2 0.5 − n n −1 is very liquid and by getting forward rates on  (1 + rn /2−0.5 / 2)  Bloomberg, and then bootstrapping the forward curve to get LIBOR spot rates. LIBOR forward rates can be found in Bloomberg terminal the forward rate for n/2 -0.5 years for 0.5 years as “IMM Eurodollar Synthetic forward rates”. Proof and example for a 1 year swap: 2) By bootstrapping the swap curve to get LI2 BOR zero prices and then get spot rates from 1 s NPV = = ∑ fixed these. The question that arises is concerned n n =1 (1 + rn /2 / 2) 2 with the spread we have to pay over the treas2 1 n /2 − 0.5 f 0.5 ury rate to get a fixed rate. = ∑ = NPV floating n 2 n =1 (1 + rn /2 / 2) The net present value of fixed cash flows should equal the net present value of floating cash flows Where: which is the same as saying that the net present NPV(floating) = value of the swap should equal zero. 2 2 Putting this into a formula (Marshall and Kap (1 + rn /2 / 2) n  1 1 n /2 − 0.5 f 0.5 = − 1 ∑ ∑ n n  n −1 ner, 1993): (1 + rn /2 / 2) 2 n 1= n 1 (1 + rn /2 / 2)  (1 + rn /2 − 0.5 / 2) =  1 2     (1 / 2) r + (1 / 2) r + 1 1 The expected net NPV of an N-year pay floating/ 0.5 1 = − 1 + − 1  2  1 (1 + r0.5 / 2)1  (1 + r0 / 2)0 receive fixed swap is 0:  (1 + r1 / 2)  (1 + r0.5 / 2) 

∑

s 0 ∑ − n  n =1 (1 + rn /2 / 2)  2 2N

This is the same as saying:

n /2 − 0.5 f 0.5   2) 

    1 1 1 1 = − + − 1 2 0 1 r / 2) (1 / 2) + + + + (1 / 2) (1 / 2) (1 r r r 1 0 0.5 0.5     1 1 1 1 = − + − (1 + r0 / 2)0 (1 + r0.5 / 2)1 (1 + r0.5 / 2)1 (1 + r1 / 2) 2 1 1− 1− δ = = (1 + r1 / 2) 2

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Paunović J.  The pricing and valuation of swaps

NPV(fixed)=

 s s s 1 1 = − = (δ 0.5 + δ1 )  ∑ n 1 2  2  (1 + r0.5 / 2) (1 + r1 / 2)  2 n =1 (1 + rn /2 / 2) 2 2

NPV(floating) = NPV(fixed) 

s 2 ∑ δ n/2 = 1 − δ1 2 n =1



s=2

(1 − δ1 ) 2

∑δ n =1

n /2

Example: If we have a 6 month rate r0.5= 4% and 1 year rate r1= 5% then the swap rate s is:

s =

(1 − δ ) 2= ∑ δ 1

n =1 n /2

4,988%

Risks associated with interest rate swaps It is important to know that the discount rates we use in valuing the swap should reflect the riskiness of the cash flows. Since we are using the LIBOR (denoted with L) as a representation of the floating rates, the risk is then associated with loans in the interbank market.On the other hand, the use of interest rate swaps exposes the trader to two types of primary risk: interest rate risk and credit risk (counter-party risk)

Interest rate risk: As the interest rate movements do not usually go with investors hope, swaps involve an interest rate risk. The counterparty that is receiving fixed profits Chart 1: Swap interest rate risk

Source: http://www.pimpco.com 44

if the rates fall and loses if they rise. On the other hand, the fixed payer profits if rates rise and loses if they fall (see Chart 1 below).When the swap is put “at the money”, this means the total value of fixed interest-rate during the life of the swap is the same as the anticipated value of the floating rate cash flows, which is why the price to enter a swap is zero as mentioned earlier. At the inception of the swap, the NPV of the anticipated profits and losses should add up to zero.

Credit risk: Financial institutions which are highly accredited usually market-make the swaps by offering either fixed and floating rate cash flows to their customers. It is important to notice that when they enter a swap, they have two independent contracts (Marshall and Kapner, 1993). This means they have to honor the agreement with the other company if one defaults (credit risk). Generally, the company entering the swap would not even know that the bank has hedged the position with another company. Because of this, most of the large banks are prepared to store the swaps, which means entering into a swap while hedging the interest rate risk until a counterparty wanting to take opposite position is found (mostly done with rate-locking). If a swap transaction is massive, the market maker may organize to sell it to a number of counterparties so that the risk of the swap becomes additionally spread and thus, the market makers decrease their risk exposure. The credit risk is very small as the swap market makers are generally highly accredited financial institutions but it is still above U.S. treasury bonds.

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CONCLUSION

REFERENCES

The interest rate swap markets have been present for decades in the developped world as a way for companies to deal with their debt and they have grown into one of the most liquid OTC markets world-wide. They enable indirect access to fixed or floating capital markets and allow the counterparties to manage their asset/liability structure. Interest rate swaps are commonly used by companies in order to receive a marginally lower interest rate than they would have been able to get without them. However, swap markets are still at an inception phase in Serbia. We presented in this paper swap valuation methods that rely on the net present value of cash flows (NPC) along with practical examples. We also introduced two types of risk that companies and market makers face, the interest-rate risk and credit risk, in order to emphasize the importance of swaps for the private sector, which currently requires more understanding of these derivative products.

Buetow, G.W., Fabozzi, F. J. (2001) Valuation of interest rate swaps and swaptions. New Hope, Pa.: Frank J. Fabozzi. Howard, C. (2012) Interest Rate Swaps and Other Derivatives. New York: Columbia Business School. Marshall, J. F., Kapner, K.R. (1993) Understanding Swaps. New York; Chichester: Wiley. McDougall, A. (1999) Mastering Swaps Markets: a stepby-step guide to the products, applications and risks. London: Financial Times. Price, J., Henderson, S. (2012) Currency and interest rate Swaps. London: Butterworths. Flavell, R. (2010) Swaps and other derivatives. San Francisco: John Wiley and Sons.

ODREĐIVANJE CENE I VREDNOVANJE SVOPOVA Rezime: Svopovi su finansijski ugovori između dve strane za razmenu tokova novca različitog porekla i koriste se uglavnom kao sredstvo za upravljanje rizikom (hedžing) i spekulacije.To su derivatni instrumenti čija se vrednost izvodi iz osnovne aktive (najčešći tip je generički svop ili ‘vanila kamatni svop’, ali to može biti skoro bilo šta). Ovim OTC (vanberzanskim) proizvodima se trguje nesposredno između dve strane ili sa finansijskom institucijom koja nastupa kao posrednik. Pojedine banke u Srbiji već nude ove derivatne instrumente, ali je njihovo korišćenje na tržištu još uvek u začetku. Kreditni rizik i rizik kamatne stope u velikoj meri utiču na privatni sektor koji trenutno ne poseduje dovoljno znanja o takvim proizvodima i njihovom značaju. Cilj ovog rada je da pokuša da prikaže i razjasni strukturu ovih finansijskih derivata tako što predstavlja metode za njihovo vrednovanje i pokazuje kako se one primenjuju u praksi. Na samom kraju ovog rada ćemo se pozabaviti pitanjem kreditnog rizika sa kojim se ugovorne strane danas suočavaju na razvijenim finansijskim tržištima.

Ključne reči: svopovi, finansijski derivati, OTC (vanberzansko) tržište, hedžing, rizik, spekulacije, finansijska tržišta. Received: January 23rd, 2013 Correction: February 25th, 2013 Accepted: March 8th, 2013

SINGIDUNUM JOURNAL 2013, 10 (1): 46-53 ISSN 2217-8090 UDK: 005.94; 005.96 DOI: 10.5937/sjas1301046B Review paper/Pregledni naučni rad

CONTEMPORARY APPROACH TO EDUCATION IN ORGANIZATIONS1 Lepa Babić1,*, Jelena Đorđević Boljanović1 Singidunum University, Department of Business 32 Danijelova Street, Belgrade, Serbia

Abstract: In order to successfully meet the requirements of the knowledge-based economy, organizations turn more and more to the knowledge they possess, its application at the right time and in the right way, and all that with the aim to improve their business processes, achieve efficiency and quality in business and customer satisfaction. The topic of this research are organizations that strive for change and that rely on their knowledge and skills in order to become competitive, fast, and innovative, to create efficient knowledge to maximize their success, respond to the challenges of the knowledge-based economy and transform into a knowledge- based organization.

INTRODUCTION

The modern world is facing an ongoing progress of education requirements from the standpoint of work. If we start from the fact that an organization is a social system with a structure, consisting of groups and individuals who work together to achieve a certain goal, it is obvious that an organization consists of structured social units, such as individuals and groups that are trying to achieve a common goal that is unreachable without additional education, trend monitoring. Generations of adults are inferior to generations of upcoming young people with different, and more customized education. The demand for specialization, that is, for a specialist as 1

This scientific work has resulted from the cooperation of two projects: “Improving the competitiveness of Serbia’ s EU accession process”, Ministry of Science of the Republic of Serbia, No. 47028, for the period 2011-2014., and “Security and protection of the organization and functioning of the educational system in the Republic of Serbia (basic principles, protocols, procedures and resources)”, The Ministry of Science of the Republic of Serbia, No. 47017, for the period 2011-2014.

* E-mail: lbabic@singidunum.ac.rs

Key words: knowledge, knowledge- based organizations, knowledge sharing, education.

a carrier of certain work, is growing ever more. We may speak of a transition from mandatory education to mandatory learning. Mandatory learning as an intellectual need and stimulus implies a certain level of education and competencies in the technology of individual learning and intellectual work in general. According to Peter Drucker (2004), knowledge is becoming the only significant resource and the traditional factors of production – natural resources, workforce and capital – have not disappeared but have become secondary as they can be easily obtained when there is knowledge. Excellent organizations are those that are constantly learning and they are very interested in education and invest enormous funds in order to provide education and training to as many employees as possible. Education is no longer a privilege of those in higher positions and professionals, but it is gradually becoming a responsibility for everyone. Radical changes demand generative learning, which means abandoning old and introducing new competences. If we want to be ready for the future, we must build a partnership between education and economy, be-

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tween education and market economy. Due to international competition, organizations must be very efficient and aware of quality issues. The lesson for the future is: merely good quality is not the same as good enough (Grinberg and Baron, 1998). The question is how to train the employees to enable them to successfully respond to the challenges they face, and how to motivate them to produce or offer high quality goods and services. Constant education is becoming one of the most important ways to manage and develop human resources. It is noted that it is necessary to constantly improve knowledge and competencies as an organization builds its capacities through active and continuous learning. All members of an organization must improve and develop themselves, for it is a rule that the organization advances together with the development of its employees (Babić, 2009). Learning increases knowledge as a prerequisite for effective and efficient actions. It is important and necessary that the organizations and individuals in those organizations develop mechanisms for storing and retrieving information on what they have learned for the well- being of the organization. The aim of this paper is to examine the relations between education and success of modern organizations. Therefore, we shall start from the strategic significance of education for organizations; then we shall attempt to describe knowledge-based organizations, how to manage the flow of knowledge, and which methods of knowledge sharing are in use. Finally, we shall present a model of education management in an organization and the results of research that imply the significance of education and knowledge sharing in an organization.

EDUCATION AS A STRATEGIC GOAL Continuous learning is becoming the only path to change, innovation and development. Education in an organization should be based on a systematic way of acquisition and development of knowledge, skills and attitudes that employees should have so that they could do their job in the working environment in an adequate or in an improved manner. (Latham, 1988). Education has a greater impact when it is related to the business strategy of an organization (Tharenou et al. 2007). This indicates that an organization should function as an integral organism in which every process makes sense only as a part of a whole. A demand for an organization

Babić L., Boljanović Đ. J.  Contemporary approach to education

to function as a unified whole is also confirmed by the results of the research that the effect of education is more pronounced when it is paired with the overall human resource management policy (Guerrero and Barraud-Didier, 2004). Scientific organization of work is increasingly more accepted in both science and practice. The traditional organization of work, which emerged under the wings of the industrial revolution, is exceeded and a flexible organization which influences flexible education is being made. Modern European society is exposed to technological, demographic and political pressures that require changes, which creates potential learning situations for everyone. In order for an organization to be focused on learning, it must implement the following recommendations: ◆ learning is an integral part of the work; ◆ skills of executors in other work activities are also learned, in order to achieve the flexibility of work; ◆ communication between employees is empowered as a prerequisite for learning from each other; ◆ learning becomes an integral part of communication between employees, and managers are increasingly assuming the role of a coach

KNOWLEDGE-BASED ORGANIZATIONS An organization can be described as successful if it is competitive, ready to change, flexible, global by its very nature and future-oriented. Creating a strategic advantage in the field of knowledge-based economy requires a new organization that is able to create knowledge in order to maximize organizational competitiveness and strategic success. Modern organizations view knowledge as a key resource for organizational existence and success in the global market (Gupta and Sharma, 2004). Experience has shown that a knowledge-based organization must have four basic characteristics that are related to process, position, purpose and perspective (Zack, 2003). Process is related to all business activities that take place within the organization, some of which are directly included in production or service providing, while the others are ancillary activities. In this sense, the organization pays special attention to the efficient application of knowledge that already exists in the organization and the creation of new knowledge. Position refers to organizational boundaries which, in order to share and create knowledge, often 47

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exceed traditional boundaries of the organization. Organizations are becoming more and more aware of the fact that knowledge is created and shared in daily interactions with clients, sellers, partners and even competitors. Organizational boundaries are today vague, flexible and dynamic. Organizations are seeking knowledge, wherever it may be. The purpose includes the mission and the strategy of an organization, or the way in which an organization will successfully and profitably serve its clients. Perspective refers to social and cultural impact that influences decisions and activities of an organization and relies on knowledge as a standpoint. In order for an organization to be successful in the knowledge economy and obtain its competitive advantage, it must constantly increase its value using the knowledge it possesses. The potential of an organization to create additional value, so called KnoVa – knowledge value factor, in the economy of knowledge depends on two crucial elements: level of service an organization provides and the intensity of knowledge usage; and the level in which an organization uses knowledge to produce a product or provide service. In that sense, for an organization to be characterized as an KnoVa organization, it must have six main abilities (Tisen et al. 2006): ability to produce, ability to respond, ability to predict, ability to create, ability to learn and the ability to last. Tho KnoVa factor is important because it shows that an organization is directed towards service level improvement as well as the improvement of current knowledge regarding the activities it offers. The success will depend on the bidirectional activity in which service level as well as the level and content of knowledge are increased in order to enable the organization to achieve higher quality of services. Based on the foregoing, we can reach the conclusion that the basic skills of knowledge-based organization are: ◆ innovation; ◆ the ability to adapt to new surroundings by adopting feedback from its clients and partners, ie. responding fast to the wishes of a client by transferring information into knowledge that will be used in a way to bring new value to the client; ◆ applying best practices and implementing ideas of employees which may improve the decision- making process and contribute to organizational efficiency; 48

◆ adopting team work as a main way of doing business and a way of learning and knowledge sharing; ◆ reducing time cycles, if and when possible, ie. eliminating unnecessary processes, and maximizing those that may contribute to the improvement of their efficiency; ◆ using technology that will improve efficiency and knowledge sharing, along with the improvement of service quality; ◆ establishing balance between management and team work, but also the autonomy and control.

MANAGING THE FLOW OF KNOWLEDGE In order to understand the significance of knowledge for doing business in a modern organization, one must start from understanding the flow of knowledge inside the organization and regularities of such movements. This also implies greater possibilities for successful knowledge management within the organization in order to improve its efficiency. The concept of knowledge chain (Koulopoulous et al. 2006) is crucial for understanding the movement and development of knowledge within an organization. According to that concept, there are four links in the knowledge chain that affect the uniqueness, specificity and efficiency of an organization. Those are: internal awareness, internal responsibilities, external responsibilities and external awareness. Internal awareness is the ability of an organization to assess skills and competences it has in a short period of time. This includes being familiar with the talents organization has, know-how, processes, and common practice. The strong internal awareness is focused not only on the challenges of what has been done, but also on what is possible to do in the future. Internal responsibilities include the ability of an organization to use its internal awareness. An organization may be aware of its strengths and the requirements of the market, but if it is not able to make adequate changes within itself in order to meet the ever changing market requirements, its competences are disputable. Internal responsibilities discuss how quick an organization can turn its competences into action in order to respond to the demands of the market and customers. External responsibilities represent the ability of an organization to meet the market requirements in the best possible way. External responsibilities are measured

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by the ability to respond to external chances and threats efficiently and on time. External awareness is the reflection of internal awareness and it represents the ability of an organization to understand how the market perceives the value of its products and services, to become conversant with the customers and service users, consider their demands, determine the market trends, government regulations and other market forces that exist beyond the organization The chain of knowledge in an organization is always a blend of positive and negative attributes. In those organizations that are guided by knowledge management, all of the listed links are flexible and allow knowledge transfer among each other. Actually, the importance of a knowledge chain is that through its interactions it leads to series of innovations in an organization. The greater the permeability between the links, the greater the speed of innovations within an organization. Also, the success of an organization is measured by the speed of knowledge flow through all four links of knowledge chain within the organization.

KNOWLEDGE SHARING METHODS But what happens in practice? What is the knowledge flow within an organization like and what problems may occur if the links in the knowledge chain are not permeable enough? There are numerous situations. For instance, a greater number of employees, groups or departments can deal with same problems, but none of them is aware of the actions of the other. As a result, they face the issue of duplication of work, or it may happen that one team has developed a highly effective system for handling the certain issue, but the employees in other parts of the same organization are not familiar with this method because there is no official knowledge transfer policy. As a consequence, the knowledge cannot be used and is quickly forgotten. Another example is the situation when the employees failed in negotiations with a potential client, but the reason for such failure has not been documented. As a result, other employees cannot learn from this experience. A very frequent situation is that the customer has some complaints about services quality, but at the same time he gives suggestions for their improvement. This kind of information is neither stored nor accessible in an adequate way, and thus, there is no way for it to be transferred to appropriate departments within the organization.

Babić L., Boljanović Đ. J.  Contemporary approach to education

As a result, information obtained in this way cannot be used to improve the business processes. Situation that most often concerns the employers and managers is certainly the one in which an employee leaves the organization. His knowledge has not been saved, nor transferred to other employees, and thus, it becomes permanently lost. In order to avoid the above mentioned situations, it is necessary to apply some of the numerous methods of knowledge management which are being more and more used in practice. Namely, knowledge management is the concept that puts special emphasis on the knowledge within an organization and it consists of phases of creating, acquiring, saving, sharing and applying the knowledge (Sydänmaanlakka, 2002). This paper puts special emphasis on the phase of sharing and the methods we believe can provide formal implementation of knowledge management programme, or at least, inspire the listed participants of this process to share their knowledge and improve business in their work fields using their creative ideas. We highlight the following methods: ◆ Communities of Practice (CoP) is a network of people who share common interests or problems in a specific area of competences and who are ready to work together for a certain period of time, and to learn, develop and share that knowledge. Briefly, communities of practice represent a group of people who share the same passion for their field of business and cooperate in order to learn to do their job in the best possible way. In the field of public administration, this form of connecting and sharing is very useful if certain conditions are met: active members who are actively interested in CoP and their topics; the existence of a specific thematic orientation that should be relevant and important for the members; connection to members’ own practice; personal motivation and informal structure. Even though this method of knowledge sharing usually implies using the Internet, it sometimes appears in practice in a form of direct meetings of participants. ◆ After Action Reviw (AAR) is a very simple process used in teams to enable them to learn from some previous experience or project, with the aim to improve the overall results. Most commonly, it is a discussion about the project or activities conducted in the appropriate area. This method gives team members an opportunity to review a 49

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project, activities that have been conducted, tasks that have been done, so that they could be more efficient in their future projects. This method enables the participants involved in a project to learn from their own experience and discuss what happened and why something happened, what they can learn from that and what should be improved. The main characteristics of this method are openness and learning, rather than problem solving and determining the guilt. ◆ Yellow Pages is a method of knowledge sharing that is supposed to provide an answer to the following question: Who is the person that has the knowledge I need? This method helps the employees to find other employees in their own or some other institution, in this case public administration that have the knowledge and skills needed for a certain task or project. Experience has shown that the electronic form is far more better that the written form. It enables the organizations to “know what they know”. Along with the data on employees, such as their name and surname, position in the company, contact information, this database should also include information on their knowledge, skills, experiences, interests, and even social and professional associations they belong to. This method provides clear, concise and simple communication between employees, which is the foundation of knowledge-based organizations. ◆ Exit Interviews. Employee’s departure represents the common way of losing knowledge in an institution. This method implies an interview with the “departing employee” as a way of keeping his knowledge. If well-planned, this interview can be a win-win situation for the organization and the former employee – the organization keeps the knowledge of the departing employee and makes it available to others, and the former employee manages to define his unique contribution to the organization and leave “his signature”. This is a relatively fast and not so expensive method. The recommended form is “face to face”. ◆ Mentoring. A mentor is a person with experience who is willing, capable and in the mood to teach and train a person with less knowledge in a certain area – due to the age, experience in another irrelevant area, etc. The purpose of this method is to develop skills, improve the organization and its culture and enable career development. The sole presence of mentorship in practice, not only in organizations but in the whole society, thro50

ughout the history, confirms its good sides as a very efficient method of knowledge sharing. ◆ Wikis. More and more organizations use the so called “wikis” as a means of knowledge sharing. Wikis are on-line databases that can be complemented and changed easily by using any of the existing web browsers. The most famous wiki today is, certainly, the on-line encyclopedia Wikipedia. However, a large number of organizations, from Microsoft to FBI, use wikis to collect the knowledge of their employees and create a space where they can meet and cooperate on various issues, from planning the meetings, documenting the best practice, to brainstorming new products and processes. The strength of this method is in the simplicity of its use and the fact that it allows everyone to make their contribution to upgrading this database (Krabina, 2011).

EDUCATION MANAGEMENT IN AN ORGANIZATION Education management in an organization should be guided by objective data that could be gathered only by using the appropriate scientific techniques (Babić et al. 2010). All relevant phenomena that are being examined should be clearly defined, well-operationalized and instruments to measure them should be found. When doing research on education in an organization, it is necessary to prepare a model that management would use to collect the necessary data in the most objective way. This paper presents a proposed model that emerged based on the research results (Babić, 2009) and that can be used in practice to manage education by resolving the following issues: 1) Specify the position that education assumes within an organization – compatibility with the strategy, relations with the human resource management policy. 2) Adjust the education programme to the needs of employees. 3) Prepare the educators to meet the expectations of managers, as well as the expectations of the employees. 4) Monitor the effects of education on the employees, in particular on their: a) knowledge and skills, b) attitudes, values and beliefs, c) behaviour (roles).

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5) Monitor the effects of education on: a) organizational climate, b) organizational behaviour, c) organizational performance. Through applying this model, the management would have access to measurable data on different aspects of the education process in different periods of time and could monitor the relation between certain forms and contents of education and its effects. For instance, it could happen that education has excellent results in terms of expanding knowledge and mastering skills, but that it has no impact on the attitudes and behaviour of employees regarding the use of new knowledge and skills, which is the main goal of education. Without changes in the behaviour, there are no effects on the organizational level. Therefore, one must take care of three traits that best reflect the effects of education on the human resources level (Ostroff and Bowen, 2000), and those are: a) attitudes and motivation of employees, b) behaviour, and c) human capital expressed through their knowledge, skills and competences. It is assumed that the effects on the individual level, which are relevant for the organizations’ business, will also have impact on the organizational level in terms of improving organizational performance (Becker and Huselid, 1998). Owning to the quantitative monitoring, one can clearly determine the efficiency of additional education of employees in certain aspects of the overall operations of the organization. That includes the effects on the work itself (quality and efficiency), business ethics (employee’s behaviour), team work (greater cohesiveness in the collective), education management (better choice of educators, contents and methods), and management (greater security in managing and making strategic decisions). Quantification enables the comparison of current results with prior measurements. Thus, it is possible to monitor the human resource development, development of organizational behaviour and the effects on the overall operations of the organization.

RESEARCH ON EDUCATION AND KNOWLEDGE SHARING IN ORGANIZATIONS Research has been conducted on the sample of employees in two public organizations in order to examine education management in organizations

Babić L., Boljanović Đ. J.  Contemporary approach to education

(Babić, 2009). Out of 488 subjects examined, 39.8% were not trained for their current position, while 47.1% did not attend any of educational trainings for professional development. When asked about the usefulness of those trainings they attended, 33, 6% give no answer or are not able to estimate them, obviously because they did not attend any of such trainings, while the majority of the remaining subjects think it was very useful to participate in such programmes. These data alone indicate a significant lack of continuous education at workplace, as well as the positive outcome regarding the participation of employees in educational programmes. These initial findings are supported by the results obtained from the questionnaire on education in an organization. Majority of employees would like to join programmes of professional development and they believe that such programmes truly enable the participants to do their work more efficiently. Education is considered to be the best way to get ahead at work. We assume that the main reasons for employees to perceive education as the path to advancement lie in the possibilities to use education to meet other various needs, such as the need for improvement, curiosity, socialization, exchange of experiences, affirmation etc. Along with the positive attitudes that employees have about education, we list the negative attitudes that employees have about education discovered in this research. Namely, a significant number of employees are not satisfied with educational programmes they are being offered. They consider them low quality, they perceive the lecturers as not sufficiently conversant with the organization problems, and they do not awake their curiosity. The results show that the way of implementing education does not increase the motivation of employees to learn, because it does not increase their curiosity. This is relevant information for managers, as it is well-known that managing the motivation of employees represents the key to managing human resources. The attitudes regarding the effects of education in an organization have also been examined. Most of the subjects think that the education is directed towards practical problem solving, and thus, it can be used in practice and it shows its effects in work. However, it is interesting that, along with the positive perspective of additional education, most of the subjects believe that they have merely wasted their time participating in its various forms. This information is also connected with the issue of motivation as well as the conclusion that motivating participants 51

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Babić L., Boljanović Đ. J.  Contemporary approach to education

in seminars is crucial for obtaining knowledge and skills and their implementation in practice. Surely, it is assumed that the content of the seminars is well-planned regarding the needs and usability of knowledge and skills in the professional practice of employees in an organization. The second research, conducted on a sample of 131 subjects, examined the issue of knowledge exchange among employees in organizations (Đorđević Boljanović, 2009). The participants included the members of top management, middle- level management and operative management from ten organizations on the territory of the Republic of Serbia. Organizations are highly technology oriented and operate in the field of telecommunications, postal traffic, information technology and software. If we start from the ascertainment that successful knowledge sharing among employees should lead to forming additional values for the organization itself, then the crucial results for this paper are the ones concerning the way in which employees share knowledge with their colleagues and other employees within or outside the organization, the level of knowledge exchange in their organizations, the formal ways of rewarding knowledge sharing, and also the types of problems they encounter while sharing knowledge at their workplace. When asked about the measures they use to update their knowledge, most subjects decided to choose informal way of knowledge sharing with colleagues (31%) and knowledge sharing within the organization with the experts in the same field (31%), which confirms in theory the frequently mentioned attitude about social nature of knowledge. Visiting seminars, conferences and etc, was the choice of 16% of the subjects, while 15% of the subjects preferred formal ways of learning. The most common situation in practice in which there is a need for implementing management programme is the departure of an employee (retirement, transfer to another company etc.), and the loss of information that should stay within the organization. It is particularly interesting to determine whether organizations in Serbia are aware of this problem and if they have been in similar situations. A large number of subjects (47%) rarely encounter themselves in such situations, 20% often find themselves in such situations, while the same number of subjects have not been in similar situation. As far as the level of knowledge-sharing in organizations in Serbia is concerned, 56% of the subjects say that knowledge sharing in their organization is at a very high level, while 42% consider it very low. However, when asked about formal rewards 52

for knowledge sharing, 46% of the subjects said that there is no such reward system in their organizations. The fact that the implementation of knowledge management programmes is necessary in organizations in Serbia is also confirmed by the results of the research that shows that there are situations in practice in our companies that make the process of knowledge sharing difficult or impossible, which considerably slows down the daily work performance. The problems of this kind that the subjects recognized include as follows: ◆ The issue of duplicating work (44% of subjects rarely encounter this kind of a problem, but 29% have them often). ◆ Situations in which knowledge cannot be used and is forgotten in a short period of time (41% of subjects rarely encounter this kind of problems, while 27% of subjects deal with them often). ◆ The inability of employees to learn from the experience of others is rare in practice according to 47% of subjects, but is quite often with 33%. ◆ According to 44% of the subjects, the situations in which the information and knowledge obtained from the customers cannot be used to improve the business process are rare; while 33% consider these situations quite frequent. ◆ Situations in which important conclusions and knowledge from completed projects cannot be transferred to other projects are rare according to 40% of subjects, 24 % consider them frequent; while 31% have never encountered them. Lost knowledge is a rare phenomenon for the 53% of subjects, very frequent for 17%, while 25% of subjects have never encountered such problem.

CONCLUSION Organizations should be perceived as knowledgebased organizations. This implies that we should take into consideration two issues; the first issue refers to knowledge sharing as a necessity in modern business, and in this sense, using methods and techniques that could lead to creating more liberate flows of knowledge within an organization; the second issue is related to managing employees’ education within an organization as a strategic issue. With respect to knowledge sharing, a necessary prerequisite for the efficient business of modern organizations is certainly the assessment of skills and competencies of an organization, as well as the ability of an organization to use its knowledge in a proper way. We put special emphasis on the importance of

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assessing the knowledge and skills of employees, recognition of the necessity to improve the efficiency of business processes, the use of best practices, implementation of innovations, etc. In order to avoid duplication of knowledge, insufficient use of the existing knowledge within the organization, obsolescence or permanent loss of knowledge, it is necessary to introduce knowledge sharing as one of the core values in an organization. The second issue of great importance for improving public administration is employees’ education management as a strategic issue. When education is connected to business strategy, it has a greater influence and can be monitored on the level of organizational climate, organizational behaviour and organizational performance. The contemporary approach to management is based on the use of scientific methods that guarantee precise monitoring of certain processes, including the education, and their outcomes. It is important to provide the connection between education and human resource management policy, which can be monitored through the influence of education on an individual. Namely, education shows its effects on the employees through changes in their knowledge and skills, their attitudes, values and beliefs and their behaviour and performance within their work roles. Through measuring the effects of education, one can monitor the development of human potentials and plan additional training as the basic method for human capital formation, which is finally shown through the effects on the overall business of an organization.

LITERATURE Babić, L. (2009) Upravljanje edukacijom u organizaciji. Belgrade: Singidunum University. (in Serbian) Babić, L., Kordić, B., Barjaktarović, L. (2010) Istraživanje i merenje u kontekstu upravljanja edukacijom u organizaciji [online]. Available from: http://www.singipedia.com/ content/548-Istraživanje-i-merenje-u-kontekstu-upravlja-

Babić L., Boljanović Đ. J.  Contemporary approach to education

nja-edukacijom-u-organizaciji [accessed 15 January 2012]. (in Serbian) Becker, B.E., Huselid, M.A. (1998) High performance work systems and firm performance. Research in Personnel and Human Resources Management. 16, 53−101. Đorđević Boljanović, J. (2009) Menadžment znanja. Beograd: Data status. (in Serbian) Drucker, P. (2004) Moj pogled na menadžment. Novi Sad: Adizes. (in Serbian) Grinberg, Dž., Baron, R.A. (1998) Ponašanje u organizacijama. Beograd: Želnid. (in Serbian) Guerrero, S., Barraud-Didier, V. (2004) High-involvement practices and performance of French firms. International Journal of Human Resource Management. 15 (8), 1408−1423. Gupta, J.N.D., Sharma, S.K. (2004) Creating Knowledge Based Organizations. London: Idea Group Publishing. Koulopoulous, T., Spinello, R., Toms, W. (2006) Corporate Instinct, Building a Knowing Enterprise for the 21st Century. New York: International Thomson Publishing Company. Krabina, B. (2011) Semantic Wiki on Cooperation in Public Administration in Europe [online]. Available from: http://www.iisci.org/journal/cv$/sci/pdfs/GP524EF.pdf. [accessed 15 January 2012]. Latham, G.P. (1988) Human resource training and development. Annual Review of Psychology. 39, 545−582. Ostroff, C., Bowen, D.E. (2000) Moving HR to a higher level: HR practices and organizational effectiveness in K. J. Klein, S. W. Kozlowski (Eds.) Multilevel theory, research, and methods in organizations (pp. 211−266). San Francisco, CA: Jossey-Bass. Sydänmaanlakka, P. (2002) An Intelligent Organization: Performance, Competence and Knowledge Management. Oxford: Capstone. Tharenou, P., Saks, A.M., Moore, C. (2007) A review and critique of research on training and organizational-level outcomes. Human Resource Management Review. 17 (3), 251–273. Tisen, R., Andriessen, D., Depre, F.L. (2006) Dividenda znanja. Novi Sad: Adizes. (in Serbian) Zack, M.H. (2003) Rethinking the Knowledge Based Organization. MIT Sloan Management Review. 44 (4), 67–71.

SAVREMENI PRISTUP OBRAZOVANJU U ORGANIZACIJAMA Rezime: U cilju uspešnog suočavanja sa izazovima koje nameće ekonomija znanja savremene organizacije se sve više okreću znanju koje poseduju, njegovoj adekvatnoj primeni, a sa željom da unaprede svoje poslovne procese, postignu što veću efikasnost i kvalitet u poslovanju, kao i da izađu u susret svojim klijentima. Predmet ovog rada su organizacije koje teže promenama oslanjajući se na sopstvena znanja i veštine kako bi postale konkurentne, brze i inovativne. One nastoje da razviju delotvorno znanje pomoću kojeg će uvećati sopstveni uspeh i uspešno odgovoriti na izazove koje postavlja ekonomija znanja.

Ključne reči: znanje, organizacije zasnovane na znanju, razmena znanja, obrazovanje. Received: February 2nd, 2013 Correction: March 15th, 2013 Accepted: April 10th, 2013

SINGIDUNUM JOURNAL 2013, 10 (1): 54-60 ISSN 2217-8090 UDK: 005.31:658.286.4; 005:007]:004.4 DOI: 10.5937/sjas1301054M Original paper/Originalni naučni rad

SOFTWARE PACKAGE TRANSP IN THE FUNCTION OF AUTOMATISATION OF TRANSPORT MANAGEMENT SYSTEM Marija Matotek1,*, Dušan Regodić2 Singidunum University, Department of Postgraduate studies and Inernational Cooperation 32 Danijelova Street, Belgrade, Serbia 2 Singidunum University, Department of management 32 Danijelova Street, Belgrade, Serbia 1

Abstract: This paper analyses the possibility of Transp software package for practical application in transport management. Thus, the solution for classic transport problem has been demonstrated, which can be defined from the aspect of operational research as follows: Transport problem is a type of problem that requires determining the number of homogenous units, which should be allocated from multiple starting points to multiple destinations in order to reduce transport costs and increase the overall income. The main goal of this research is to demonstrate the usability of applications in companies where it is necessary to pay special attention to the reduction of transport costs.

INTRODUCTION Transport management is one of the most dominant logistics processes in business today. That is mostly the case because these kinds of services are often recommended, while their costs are significant and notable. Transport costs are included in logistics costs in most systems. Transport management includes planning, application and control of transport services in order to achieve organizational goals (Regodić, 2011). Changes in global business have forced many organizations to strategically manage their business processes. One of such processes is, of course, transport management process. In order to survive in the market and do business successfully, an organization has to find the way to offer products of higher value, or services at lower price than the competi54

* E-mail: matotek@gmail.com

Key words: transport problems, resource optimization, software modeling.

tion. One solution could be to improve business processes related to delivering goods or services. At the same time, fast IT development enables implementation of business strategy. The aim of this paper is to use software package to solve minor theoretical transport problems, thus presenting the advantages of computer data processing in transport management. The model includes all the factors that affect processes and performances and that will be used to respond to the demands of users and enable the modern transport manager to make functional decisions related to transport management system. Transport problems are the part of every economy, especially if we bear in mind the importance of market in modern economy. As the transport connects production and consumption, transport costs represent a significant part of product price.

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Transport task is a special case of a general task related to linear programming. Nowadays, this field of IT belongs to operational research, and it has been developing rapidly in the last five decades. Development trends and application of transport methods will continue in future decades with more applications related to computer programs with algorithms of the most efficient methods, which emerged in the above mentioned period. If there is a linear relationship between transport costs and transported quantities, we can talk about linear transport tasks. Transport methods used for solving these tasks represent a special case of linear programming method. Furthermore, the development of nonlinear, network and dynamic programming has led to development of various nonlinear transport methods. The subject of this paper is the application of Transp software package, which is used for presenting the automatization of calculation processes used for the model of transport problem. Theoretical example (a minor problem that can easily be solved by iterative handy of software data processing) has also been shown. Things are slightly different in the real world. There are usually a lot of parameters, which affect the task and its solution due to their complexity The given optimal solution is not always the best one in practical application. Psychological, social, environmental and other issues are not usually taken into consideration, which can affect the variations of the outcome of the problem. Based on the defined research goals, and in accordance with the problem, subject and the object of the research, we can emphasize the following assumptions: 1) Profitability and economic efficiency of a company greatly depends on the transport management methods. 2) IT model used for managing transport system enables clear and precise generating vehicle trajectories. 3) Application of such model enables saving resources and improving benefits. This kind of problem requires a lot of calculations as well expertise and a relatively long period of time required for all necessary iterations in order to reach optimal solution. Software package Transp has a wide range of functions used for manipulations. Thus, depending on the applied method, the

Matotek M., Regodić D.  Software package Transp

starting solution will approximate the final solution in a better or worse way.

MATHEMATICAL MODEL OF TRANSPORT PROBLEM The most frequent issue of transport problem is minimization of overall transport costs: resources, passengers, energy, information, etc. In real conditions, these issues may represent a huge expenditure for a certain economic system. Transport task can be defined as a problem related to defining an optimal transport plan from m starting points (dispatch station) Ai, i=1,2,...,m to n destinations (receiving stations) Bj, j=1,2,...,n. Starting points could include production plants, warehouses from which goods are transported, etc., while destinations could include warehouses to which goods are transported, consumer centres, etc. The optimal criteria defined by the function of the goal is usually minimization of transport costs. Mathematical model of transport task includes the following data: - Number of starting points m and quantity of goods available at each starting point Ai, i = 1,2,...,m; - Number of destinations n and quantity of goods required at each destination point Bj, j=1,2,...,n; Transport costs per commodity unit from starting point Ai, i=1,2,...,m to destination Bj, j=1,2,...,n, which are marked as follows cij, i=1,2,...,m, j=1,2,...,n. These values can not be negative, i.e: ai > 0, bj > 0, cij ≥ 0 i = 1,2,..., m j = 1,2,..., n

Upon the assumption that it is the transport of homogenous goods all available and necessary quantities are related to one kind of commodity. Transport problem could be formulated as follows: It is necessary to define the quantities of commodity xij, i = 1,2,...,m, j = 1,2,...,n that should be transported from starting points Ai, i = 1,2,...,m to destinations Bj, j = 1,2,...,n in such a way so that available quantities of goods ai, i = 1,2,...,m are transported from starting points while required 55

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Matotek M., Regodić D.  Software package Transp

quantities of goods bj, j = 1,2,...,n are transported to destinations. The total transport costs should be minimal. The scheme for transport problem is given in Figure 1. Thus, total transport costs represent the function of the goal and can be expressed as: m

f ( X ) = ∑ ∑ cij xij

(1)

=i 1 =j 1

Limitation system can be expressed as: 1. The total amount of goods transported from one starting point Ai, i=1,2,...,m to all destinations has to be equal to the availabe amount of goods at that starting point ai, i = 1,2,...,m. n

= xij a= i 1,2,..., m ∑ i, j =1

(2)

2. The total amount of goods delivered at one destination point Bj, j=1,2,...,n from all starting points has to be equal to the amount of goods necessary for that destination point bj, j=1,2,...,n. m

= j 1,2,..., n ∑ xij b= j, i =1

(3)

3. The quantities of transported goods have to be non-negative: xij ≥= 0, i 1,2,..., = m, j 1,2,..., n (4) Figure 1: Transport problem

at limitations: n

= xij a= 1,2,..., m ∑ i, i j =1 m

= j 1,2,..., n ∑ xij b= j, i =1

xij ≥= 0, i 1,2,..., = m j 1,2,..., n By comparing the total scope of offer in all starting points Ai, i = 1,2,...,m to the scope of demand in all destination points Bj, j = 1,2,...,n, two cases can be mentioned: a) If the total supply equals to total demand and if: m

∑ ai = ∑ bj

=i 1 =j 1

(5)

Then, we can talk about a closed transport model (described in this paper). This model is also known as standard or balanced model. b) If the total supply and demand are different and if: m

∑ ai ≠ ∑ bj

=i 1 =j 1

(6)

Then, we can talk about an open transport model, also known as nonstandard or unbalanced model. Transport costs per commodity unit are usually defined by price matrix, also known as standard transport matrix:  c11 c12 ... c1n  c c22 ... c2n  (7) C =  21  ... ... ... ...    cm1 cm2 ... cmn  Price matrix can also be marked as follows:

C = cij 

(7.1)

Variables xij, which form the solution, can also be expressed by matrix:  x11 x X =  21  ...   x m1

Thus, mathematical model of transport task is: Find: m

min f ( X ) = min ∑ ∑ cij xij =i 1 =j 1

x12 x22 ... xm2

... ...

x1n  x2 n  ... ...   ... xmn 

(8)

This matrix can also be marked as follows:

X =  xij 

(8.1)

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The data used in the model of the transport task can be presented in the table: Table 1: Data used in the model of transport task

I A1

c11

III

c12

c21

x12 c22 x22

...

x2n

...

cm1

...

cm2 xm2 b2

...

cmn

xm1 b1

x1n c2n

x21

of Belgrade in 1997. The project was led by Assistant Professor Milan Stanojevic. This freeware software is awarded to the students of the Technical Faculty “Mihajlo Pupin” in Zrenjanin as a teaching tool in the Operations Research.

Example:

c1n

x11

...

Matotek M., Regodić D.  Software package Transp

xmn

Limitation system includes mutually dependent linear equations. The system matrix range is m+n-1. Every possible solution to transport problem has mn components

= xij , i 1,2,..., = m, j 1,2,..., n .

In that case, the solution is called non-degenerated solution, if the number of positive components xij equals to m+n-1. If the number of positive components xij is less than m+n-1, the solution is called degenerated. The data given in the transport task are shown in the table. The process of task solving is carried out using series of tables. Each table represents a solution for one task. Every following table represents a new and improved solution. This procedure stops when we come to the table showing the best, optimal solution.

Find an optimal transport plan of goods from the storehouses A1, A2, A3 i A4 to stores B1, B2, B3 i B4. Storehouses dispose of the following quantities of goods: A1 disposes of 200 commodity units, A2 disposes of 150 commodity units, A3 disposes of 280 commodity units, A4 disposes of 120 commodity units, The stores demand the following quantities of goods: B1 demands 300 commodity units, B2 demands 170 commodity units, B3 demands 50 commodity units, B4 demands 230 commodity units, Transport costs per commodity unit, given in monetary units, are expressed by the following matrix:

2 5 C= 2  3

3 5 1 1

1 2 2 3

7 3  6  9

The optimality criterion includes minimal transport costs. The data given in the task are written in the table: Table 2. Data given in the task

THE SOLUTION OF TRANSPORT PROBLEM USING TRANSP SOFTWARE

This example illustrates the usage of Transp software tool in solving transport problem to minimize transport costs, relying on parameters given beforehand. TRANSP software has emerged as a result of the project at the Laboratory of Operations Research at the Faculty of Organizational Sciences, University

300

170

200 150 280 120

230 57

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Matotek M., Regodić D.  Software package Transp

Transp software package enables us to enter the data given in the table in the starting application in the same way as shown in Figures 2 and 3.

Figure 5. Choosing an option for calculating the optimal solution

Figure 2. Screen display while starting Transp.exe program

Figure 6. Choosing a method for deﬁning the starting solution

Figure 3. Initial entering of number of sources and number of gaps

Figure 7. Choosing iterative method

Figure 4. Initial entering of price matrix parameters and available resources

Figure 8. Choosing goal function

As mentioned before, this tool offers numerous possibilities. Thus, before starting, it gives us the opportunity to calculate the starting or optimal transport solution, iterative methods and goal functions. 58

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Figure 9. Starting program

Figure 10. Table after ﬁrst iteration

Figure 11. Table after second iteration

Matotek M., Regodić D.  Software package Transp

CONCLUSION

The basic request in economizing on transport costs is to achieve an optimal relationship in transportation between storehouses and end users, which can cause financial problems and lead to undesirable effects regarding the stability of the process itself. Thus, optimal transport policy includes cost minimization with the continuous work of business systems and meeting market demands. The optimal solution (the most ideal calculation) represents a compromise between the desired goal and given limitations that affect the opportunities for achieving extreme solutions. There are numerous cases used for solving the given problem as it is a time consuming process that demands considerable practical knowledge and skills. With the development of computer technology, the methods for problem solving have become software oriented and extremely efficient, thus contributing to the development of optimization. This paper provides an overview of software solution used for the optimization of transport process. Application of IT in this field makes the planning process much easier, and contributes significantly to achieving the primary goals of the company: increasing benefits and minimizing costs.

REFERENCES Dundović, Č., Hess, S. (2007) Unutarnji transport i skladištenje. Rijeka: Pomorski fakultet. (in Croatian) Ferišak, V., Stihović, L. (1989) Nabava i materijalno poslovanje. Zagreb: Informator. (in Croatian)

Figure 12. Optimal solution and arrangement that realizes minimization of transport costs

Frazelle, H.E. (2002) Supply Chain Strategy: The Logistics of Supply Chain Management. New York: McGrawHill. Ghiani, G., Laporte, G., Musmanno, R. (2004) Introduction to Logistics Systems Planning and Control. Chichester: John Wiley and Sons. Heleta, M. (2008) Menadžment kvaliteta. Belgrade: Singidunum University. (in Serbian) Hitchcock, F.L. (1941) The Distribution of a Product from Several Sources to Numerous Localities. Journal of Mathematics and Physics. 20 (1), 224-230. Letić, D., Jevtić, V. (2001) Operaciona istraživanja: algoritmi i metode. Zrenjanin: Tehnički fakultet „Mihajlo Pupin“. (in Serbian) 59

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Matotek M., Regodić D.  Software package Transp

Marković, N. (2006) Poslovna logistika. Novi Sad: Cekom books. (in Serbian)

Segetlija, Z. (2008) Uvod u poslovnu logistiku. Osijek: Ekonomski fakultet. (in Croatian)

Pantelić, T. (2005) Industrijska logistika. Kruševac: Fakultet za industrijski menadžment, ICIM plus. (in Serbian)

Tadić, D., Suknović, M., Radojević, G. (2005) Operaciona istraživanja. Kruševac: Fakultet za industrijski menadžment, ICIM plus. (in Serbian)

Regodić, D. (2011) Logistika. Belgrade: Singidunum University. (in Serbian)

Zelenika, R. (2005) Logistički sustavi. Rijeka: Ekonomski fakultet. (in Croatian)

SOFTVERSKI PAKET TRANSP U FUNKCIJI AUTOMATIZACIJE SISTEMA MENADZMENTA TRANSPORTOM Rezime: Ovaj rad ispituje mogućnost praktične primene softverskog paketa Transp u menadžementu transportom. On prikazuje rešenje klasičnog transportnog problema koji je sa aspekta operacionih istraživanja definisan na sledeći način: Transportni problem je takva vrsta problema za koji je potrebno odrediti broj homogenih jedinica koje treba rasporediti iz više ishodišta na više odredišta s ciljem da se umanje troškovi prevoza odnosno da se poveća ukupan prihod. Istraživanje ima za cilj da pokaže primenljivost aplikacija u preduzećima gde je neophodno voditi računa o smanjenju troškova transporta.

Ključne reči: transportni problem, optimizacija resursa, softversko modelovanje. Received: February 18th,2013 Correction: March 29th, 2013 Accepted: April 7th, 2013

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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: 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. The article should contain no fewer than 25 references, preferably published recently. Please pay particular attention to spelling, capitalization and punctuation here. 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). A complete reference should comprise the following: ◆ Reference to a book: Mercer, P.A., Smith, G. (1993) Private viewdata in the UK. 2nd ed. London: Longman. ◆ Reference to a contribution in an edited book: Jones, J.L. (2006) Software development. In: Lawson, F., ed. Annual review of software development. New York, NJ: Sage, 400-430. ◆ Article in a journal: Stein, D. (2007) The Bottom Line. Sales & Marketing Management. 159 (9), 11-26. ◆ Online sources - a book: Mercer, P.A., Smith, G. (1993) Private viewdata in the UK. 2nd ed. London: Longman. Available

SINGIDUNUM J 2013

Instructions for authors

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from: http://site.ebrary.com [accessed 29 June 2011]. Online journal article: Stein, D. (2007) The Bottom Line. Sales & Marketing Management. 159 (9), 11-26 [online]. Available from: http://emarketing.com [accessed 10 February 2010]. Web page: Cross, P., Towle, K. (1996) A guide to citing internet sources. Poole: Bournemouth University [online]. Available from: http:/www.bournemouth.ac.uk/servicedepts/lis/LIS_Pub/harvardsystint. html [accessed 10 March 2009]. Web page (no author): Tourism in Serbia. Wikipedia [online]. Available from: http://sr.wikipedia.org/wikiTurizam_u_ Srbiji [accessed 8 July 2010]. Conference paper: Stone, J. (2001) Electronic spyware. 7th International online information meeting, 2-4 January 2001 Manchester. Oxford: New Information, 200-220. If applicable, write the name of the editor of proceedings: Stone, J. (2001) Electronic spyware. In: Gosselin, J.H., ed. 7th International online information meeting, 2-4 January 2001 Manchester. Oxford: New Information, 200-220. PhD thesis: Silver,(2008) Internal Communication. Thesis, (PhD). Singidunum University.

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. 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, n as presented:

= NSV

∑ NP k =0

⋅ ak

CIP - Каталогизација у публикацији Народна библиотека Србије, Београд 33

SINGIDUNUM Journal of Applied Sciences: economics, management, tourism, information technology and law / editor-in-chief Milovan Stanišić. - Vol. 9, No. 1 (2012)- . Belgrade (Danijelova 32): Singidunum University, 2012- (Loznica: Mladost grup). 28 cm Dva puta godišnje. - Je nastavak: Singidunum revija = ISSN 1820-8819 ISSN 2217-8090 = Singidunum Journal of Applied Sciences COBISS.SR-ID 188621836