European journal 2016 vol 13 no 2 by Singidunum University

Vol. 13 No. 2

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Vol. 13 No. 2 Publisher: Singidunum University

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

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

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

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

Copy Editor: Ana Milosavljević Prepress: Novak Njeguš Design: Aleksandar Mihajlović

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

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CONTENTS

1-9 10 - 20 21 - 29

30 - 44

Contemporary forms of international movement of capital Sanja Šovran, Miroljub Hadžić

Economic openness and economic growth: A cointegration analysis for ASEAN-5 countries Klimis Vogiatzoglou, Phuong Nhung Thi Nguyen

Aspect of fiscal consolidation: Evidence from Serbia Branimir Kalaš, Jelena Andrašić, Miloš Pjanić

Information support model and its impact on utility, satisfaction and loyalty of users Sead Šadić, Adis Puška, Admir Beganović

III

45 - 56 57 - 69

70 - 77 78 - 85 86 - 92

Forensic accounting in the fraud auditing case Nataša Simeunović, Gojko Grubor, Nenad Ristić

Restaurant innovativeness: A case study of Vojvodina Snježana Gagić

Leveraging process data from BPM cloud-based workflows

Deasún Ó Conchúir, Lazar Dražeta

Accessibility to nodes of interest: Dislocation of the industrial districts of Tuscany

Gioacchino de Candia

Instructions for authors

EJAE 2016, 13(2): 1-9 ISSN 2406-2588 UDK: 339,727.2 658.152 DOI: 10.5937/ejae13-10617 Original paper/Originalni naučni rad

CONTEMPORARY FORMS OF INTERNATIONAL MOVEMENT OF CAPITAL Sanja Šovran*, Miroljub Hadžić Singidunum University, 32 Danijelova Street, Belgrade, Serbia

Abstract: International movement of capital is one of the most important forms of international economic cooperation and achievement of strategic goals of enterprises. It leads to international diversification of business activities, strengthening of competitive advantage, changes in economic structures, employment rates and economic stability of participating countries. The present research addresses the contemporary forms of international movement of capital, with an emphasis on the publicprivate partnerships and concessions. The creation of different forms of public-private partnerships (PPPs) in Serbia gained in importance in the early ‘90s of the 20th century. PPP implies joint activities within the framework of which the public and private sector pool resources, especially financial capital and expertise in order to meet the public needs of local, regional or national significance for adequate resource allocation. This type of partnership between the public and private sector has become an effective way towards a more rational use of limited resources and development of business entities from different sectors. The partnership of the public and private sector is particularly important in the construction and maintenance of transportation and other infrastructure facilities. Concessions represent a special form of public-private partnerships.

INTRODUCTION The relevance of certain forms of international movement of capital has changed over time. The second half of the 80s brought about significant changes leading to stagnation of loan capital, followed by the period of expansion of foreign direct investments. In the early 90s of the 20th century, a growing importance of interconnection between the public and private sector and emergence of dif* E-mail: sovransanja@yahoo.com

Key words: international movement of capital, public-private partnership, concessions.

ferent forms of public-private partnerships could be observed. The role and importance of PPP was on the rise, as it proved to be an eﬃcient way towards a more rational use of limited resources and development of business entities with diﬀerent forms of ownership. Pursuant to the Serbian Law on Public-Private Partnership and Concessions (Službeni glasnik RS, 2011, Article 4), public-private partnerships can be contractual, where their mutual relationships are regulated by a public-private partnership contract 1

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or institutionalized, when the relationship is based on the founder’s or ownership shares or undertaking capital increase. Public-private partnerships are the novelty in the Serbian normative and economic practice, with the increase in demand for private funding, with the aim to build public infrastructure and investment in publicly-owned goods, goods in general use, as well as to provide high- quality services of general interest in the conditions of insuﬃcient budget. A concession is a special form of contractual public-private partnerships. Engaging the private sector in construction and maintenance of transport infrastructure in the form of concessions allows the release of budgetary funds and their use for diverse purposes. In addition, it brings the influx of capital, greater employment rates and transfer of new technologies. This paper shall present contemporary forms of international movement of capital, their importance and development tendencies. Special emphasis shall be placed on capital investments through public-private partnerships and concessions. The paper shall give an overview of PPP and concession laws and legal regulations in the European Union and the Republic of Serbia, as well as development perspectives.

INTERNATIONAL MOVEMENT OF CAPITAL International movement of capital means the transfer of real and financial assets between entities from one country to another one, without the counter-transference or counter-transference for a certain period of time, with the purpose of achieving certain economic and political interests of transfer participants (Unković, 2010, p. 127). International movement of capital causes diversification of business activities, altering the economic structure, economic growth, balance of payments, employability, economic stability of certain countries, and strengthening of competitiveness 2

and creation of global competitive products. To that end, the international movement of capital is one of the main generators and accelerators of globalization (Perović, 2005, p. 370). The entities from developed countries have the greatest impact on the international movement of capital, as the main providers and users of capital. Entities from the developing countries generally appear as users of capital. Since the introduction of international movement of capital in the early 20th century, many countries have based their economic development on the inflow of foreign capital. Unlike other countries, those with higher efficiency in the national economy usually appear as investors. Surpluses are exported to other countries with the lower eﬃciency in the form of materialized capital supply. International movements of capital are driven by various motives which are intertwined by certain factors, both in terms of supply and demand. Some motives for the international movement of capital are: market expansion and realization of greater profit, cheap labour, lower prices of raw materials and energy abroad, the desire for completion of the production process i.e. vertical integration of all or major phases of the final product, the psychological motive of prestige etc.

Forms of international movement of capital The capital between the countries circulates in five basic forms (Stakić et al., 2015, p. 48), namely: ◆ Foreign direct investments (FDI); ◆ Foreign portfolio investments (capital market); ◆ Loans and credits; ◆ Investment and business operations in free zones; ◆ Investment of capital in the form of publicprivate partnerships. The importance of certain forms of the international movement of capital has changed over time.

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The growing role of foreign direct investments, as a form of global economy financing, started to emerge in the period after World War II, to become particularly intensified in the last decade of the 20th century (Stojadinović Janković, 2013, p. 40). In the period from the Second World War up to the 80s of the 20th century, loans had the primary role in the overall international movement of capital and financing of the world economy, particularly in developing countries. Changes were to start in the second half of the 80s, when after the culmination of debt crisis, stagnation was recored in the movement of the loan capital. Private capital ceased to flow into the developing countries in the form of loans, as the private sector refrained from any new crediting of the developing countries, except in the form of direct investments. Actually, it was the period from the 80s and especially from the 90s that turned out to be a period of expansion of the foreign direct investments (Stojadinović Janković, 2013, p. 36). It is noteworthy that at the beginning of the 20th century, in addition to the non-banking sector, foreign investments were particularly important in the era of transition and privatization (Hadžić, 2013, p. 14). Foreign direct investment is a form of investment in the company i.e. any form of financing of a certain company, in which the investor (the financier) acquires the ownership control over it (minimum 10% of the capital). Direct investments or foreign investments exist when a resident from one country (the exporting country, local government) invests in an entity of the resident from another country (the host country, receptive country or receiving country) with the aim to provide a longterm interest in that company (enterprise invested by the invested company (OECD, 1999, pp. 7-8). Direct investments provide the investor a lasting interest and certain degree of control over the company he/she invests in (Stanković, 2013, p. 287). There are diﬀerent forms of funding through foreign direct investments, namely: through Greenfield or Brownfield investments, joint ventures and international mergers and acquisitions (Petrović, 2002, p. 14)

The development of financial markets and financial instruments carries certain risk that the investors would attempt to diversify in portfolio investments. Portfolio investments are treated as a purchase of securities to a level that does not give the right of control over the entities in which the investment was made. They are in high demand by health insurance funds, pension funds and mutual funds. In case of portfolio investments, there is no control over the operations of a company in which the investment is made, but the owner of securities gains profit in the amount of interest on the capital invested in securities. These investments imply international diversification, carrying a high level of currency risk i.e. foreign exchange risk (Perović, 2005, p. 371). Purchase of foreign securities allows the presence on various financial markets and creates greater opportunity for risk diversification. Thus, this type of investment has become attractive for the investors who want a safe investment by achieving relatively high profits. The international movement of loan capital is financial intermediation in the realization of financial surpluses of one sector towards financing of deficit in other sectors. Development of financial market and economy of developed countries contributed to diversification of methods and instruments of financial intermediation. At the beginning, it was in the form of classical loans, and later on, in the form of borrowing long-term capital through the issuance of bonds. Thus, the corporate sector, using a variety of financial instruments, relocates financial surpluses and deficits directly or through minimum intervention of the banking sector (Kovač, 2002). Over the last twenty years, there has been a large expansion of the free zone concept, which uses a number of diﬀerent models of a specific instrument of foreign trade operations, free of various charges imposed by the economic policy of the country. Despite the fact that there are many definitions of the free zone, the common aspect is 3

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that it is part of the territory of the country, specially fenced and marked areas in which economic and other activities are carried out under the guaranteed conditions and exemptions (Stakić et al., 2015, p. 127). The World Bank defines export-processing zones as enclosed industrial areas, specializing in the production intended for export, providing for companies and user environment free of charge (World Bank, 1992). The modern concept of free zones as specific development projects opened the possibility for countries and economies to create the most suitable form of free zones, i.e. the forms that suit best their specific characteristics and comparative advantages related to the political system, location, business and political environment, natural wealth etc. There are currently approximately 5000 diﬀerent models of business operations worldwide under preferential conditions (Stakić et al., 2015, p. 128). The investment of capital through public-private partnerships and concessions, as one of the contemporary forms of international movement of capital, shall be discussed in more detail in the following sections.

CAPITA L INVESTMENT THROUGH PUBLIC-PRIVATE PARTNERSHIPS AND CONCESSIONS Linking the public and private sectors and the creation of different forms of public-private partnerships in Serbia is gaining in importance in the early 90s of the 20th century. Public-private partnership has become an effective way towards more rational use of limited resources and growth potentials. Public-private partnerships are intended for the improvement of business among entities with different property ownership forms-sectors. There is no single, agreed definition of the concept of public-private partnerships, but in practice, in a broader sense, PPP involves the implementation of all known types of cooperation between public and private partners which, in many cases, 4

leads to the establishment of joint ventures (Akitoby et al., 2007). In the narrow sense, PPP involves joint activities within the framework of which the public and private sectors pool resources and expertise in order to meet the public need through adequate allocation of resources, risks and rewards. Thus, the private sector, using different methods, can employ its resources and expertise in the provision of goods and services, traditionally provided by the public, i.e. state services (Skupština Republike Srbije, 2011, p. 4). While establishing PPP, the public sector is expected to establish an adequate balance, i.e. the protection of rights and interests of citizens, and also to create conditions in which the private partners will be able to function effectively and efficiently (Vignjević Đorđević et al., 2011, p. 384).

Types of public-private partnerships and concessions According to the European Commission Green Paper (EUR-lex, 2004), public-private partnerships can take the following forms: ◆ Contractual form of public-private partnerships involves a partnership based purely on contractual relations. Contractual form can have two basic models, namely: concession model of PPP in which the private partner charges the services to the end user, at the same time being under the control of the public partner and PFI (Private Finance Institute); model in which the private partner charges the delivered public services to the public partner in the form of a lease, which may be either fixed or vary over time, or possibly reduced, depending on the quality of delivered services. ◆ Institutional form of public-private partnership involves cooperation between the public and private partners achieved through a special business system which includes the establishment of a separate entity. This entity is owned jointly by private and public partners and the task of the partner is to en-

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sure the delivery of certain work or service for the benefit of the public interest. Such an entity can be established by taking over the existing public entity or by establishing a new joint entity, called Special Purpose Vehicle (SPV). There is a whole spectrum of contractual forms of public-private partnerships, except for the two basic models, starting from the traditional state funding to traditional privatization. In international practice, there are approximately 20 models of PPPs, which diﬀer in degree of involvement of the public and private sector in design, construction, maintenance, financing, operationalization, management and risk allocation in the provision of public services and/or construction of public infrastructure. Some of them are (Kačer et al., 2008) BOT (Build, Operate, Transfer); BTO (Build, Transfer, Operate); BOO (Build, Own, Operate); BBO (Buy, Build, Operate); PFI (Private Finance Initiative). According to the Serbian Law on Public-Private Partnership and Concessions, (Službeni glasnik RS, 2011, Article 10), a concession is a legal relationship between the state, as a concession grantor, and national or foreign persons, as concessionaries, in which the state gives such persons the right to use natural resources or assets for general purposes determined by the law to be owned by the Republic of Serbia or to perform certain activities of general interest for a certain period of time and for a certain concession fee. The main function of the concession, as a form of investment in a particular area of the economy, is to encourage faster development and thus boost the overall national development. Concessions are particularly significant when the investor is a foreign person, and such concession is treated as a form of foreign investment. The most general model of concession is B.O.T. system (build-operate-transfer). Serbian legislation in this area is focused on opening the market for the entry of foreign capital to our country. Concessions may not be granted to a foreign person for the areas in which, according to the law governing foreign investments, a foreign person cannot be the founder of the entity (for example, the area of production and sales of arms), nor the area that is

determined as the prohibited zone in accordance with the law.

PPP A ND CONCESSIONS - LEGAL REGULATION IN THE EUROPEAN UNION The concept of concessions dates back to the Roman Empire. Public-private partnership, as a concept of privatization of public infrastructure, dates back to the 18th century. Governments of underdeveloped countries made concession arrangements with large companies, which was the most common form of concessions at that time. The creation of the European Union urged the legal regulation of areas which include concessions, free movement of goods and services, public procurement etc. These regulations shall become the corner stone for the development of new forms of public-private partnerships (Skupština Republike Srbije, 2011, p. 5). During the 20s of the 20th century, the countries of Central and Eastern Europe had developed a complex legal framework of PPP. The basic laws (such as laws on local self-government or concessions) were necessary, but in order to create favourable legal and administrative environment, more was required. The technical aspects of engagement of private sector needed to be regulated: industrial laws and strategies, public procurement procedures, diﬀerent forms of management over services, public assets, and particularly regulations governing local autonomy in the management of municipal property (Osborne, 2000). Until 2014, there were no regulations directly specifying the implementation of PPP projects in Member States, but there were some guidelines and directives, and they constituted the basic legal framework that guided and encouraged the improvement of the legislation of the EU Member States, aiming at better regulation in the area of public-private partnership. The existing EU legal regulation in the area of public-private partnership includes important chapters of the European law (Skupština Republike Srbije, 2011, p. 5), namely: free movement of capital, the right of establishment and freedom to provide services, public 5

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procurement, intellectual property rights, company rights, competition rights, financial services, finance and accounting etc. Previous legislation focused more on public procurement and concessions, but the development of public-private partnership required more complete legislation. In 2000, Commission interpretative communication on concessions under community law, regulating concessions in Member States, regulated the area of PPPs. More complex relations between the public and the private sector urged the institutions to continuously adopt new rules to meet the market demands (EUR-lex, 2000). The further regulation of the European legislation was not made until 2014. The Oﬃcial Journal of the European Union from February 2014 published three new directives in the area of public procurement (Stakić et al., 2015, p. 18), namely: ◆ Directive 2014/23/EU of the European Parliament and Council on the award of concession contracts; ◆ Directive 2014/24/EU of the European Parliament and Council on public procurement (Utilities Directive) and repealing Directive 2004/18/EC; and ◆ Directive 2014/25/EU of the European Parliament and Council on procurement by entities operating in water, energy, transport and postal services sectors and repealing Directive 2004/17/EC.

PPP AND CONCESSIONS-LEGAL REGULATION IN SERBIA Not until the adoption of the Law on Publicprivate Partnership and Concessions, this area was regulated at the national level by the Law on Concessions (2003), while at the local level, private sector investments in the infrastructure were carried out in accordance with the Law on Public Utilities (1997), providing the opportunity to entrust another entity the performance of communal activities. Unlike concessions which are not a novelty in the Serbian economy and normative practice, it was the Law on Public-Private Partnership and 6

Concessions (2011) that introduced the publicprivate partnership in the legal system. The aforementioned law states that the publicprivate partnership project is a project prepared, proposed, approved and implemented based on one of the public-private partnership models. It consists of a series of interconnected activities taking place in a specific sequence for the purpose of achieving the identified objectives within the specified time period and the financial framework which, in compliance with this law, has been approved as a public-private partnership project, with or without concession elements (Službeni glasnik RS, 2011, Article 4). Mutual relationship is regulated by a publicprivate partnership contract, where a public body may be a state body or an institution or other direct and indirect users of budgetary funds, then a public company and legal entity performing the activity of general interest (mainly state-owned). In addition to the Law on Public-Private Partnerships and Concessions, realization of PPPs also largely relies on the provision of the following acts (Stakić et al., 2015, p. 18), namely: Law on Public Procurement (2015), Law on Communal Activities (2011), Law on Public Enterprises (2016), Law on Public Property (2014), Law on Local self-Government (2014), Law on Local-Self Government Financing (2013), Law on Regional Development (2010), Law on Foreign Investments (2014) and Law on Energy (2014). In addition to these laws, regulations of systematic character also remain valid, such as the Law on Companies (2015), Law on Profit Tax (2015), Law on Labour (2014), environmental legislation etc.

THE IMPORTANCE OF FOREIGN INVESTMENTS THROUGH PPP AND CONCESSIONS Public-private partnership model results in the creation of added value for the public and private partner. Private partner gains the planned profit margin, reduces business risk and costs of

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sub-investment, while the public partner achieves higher quality of public services, reduces public spending and has the possibility to provide more public services within a shorter period of time and overcome debt restrictions more easily (McCreevy, 2005, p. 2). Gaining additional value is the result of competition in the process of production of public goods or provision of public services. The ultimate goal of public-private partnerships is to provide better, more efficient and effective public services and to increase the prosperity of the population (Bojović, 2006, p. 311). The partnership of public and private sector is particularly important in the construction and maintenance of transport infrastructure and for other types of infrastructure (water supply, communications). Engaging the private sector in the construction and maintenance of transport infrastructure in the form of concessions allows the release of budgetary funds and their use for other purposes (Vukmir et al., 1999). In addition, the positive effects of concessions are the influx of capital, higher employment and transfers of new technologies. The Law on Public-Private Partnership and Concessions allowed the participation of new concessionaires in bidding and opened the door for the inflow of foreign capital in activities which may be the subject of the concession. Accordingly, the legal and conceptual notion frame of concession provides legal security to the investor, which is of great importance for development of the Republic of Serbia, especially as regards the use of forests and forest land, construction of energy facilities and transport infrastructure, and other areas regulated by the law. Serbia’s economic development requires taking serious actions towards the improvement of transport infrastructure. It is necessary to put in the function the existing road network and to build new highways to ensure safe, quality and fast traffic. The lack of funds can be compensated, among other things, by granting concessions for public utilities (Knežević, 2010, p. 91).

Granting concessions may also cause certain issues, as shown in practice in our country and globally (Dimitrijević, 2008, p. 317). One of many issues related to concessions in the area of road infrastructure is the issue of their privatization. In the public road construction funded by the Government, tolls generally do not depend on the cost of construction. However, in the case of concessions, the concession grantor has the right to collect tolls and other revenues for its duration (Knežević, 2010, p. 100).

PERSPECTIVES AND POTENTIALS OF PPPS AND CONCESSIONS IN SERBIA Public-private partnership in Serbia is mostly exercised in the form of institutionalized (mixed) PPP for utility services or in the form of contractual PPP, where the private investor performs the utility services. Establishment of PPP in Serbia was driven by a combination of factors (Ilić et al., 2011, p. 510), as follows: ◆ search for private funding to complement public budgets; ◆ desire to use know-how and operational skills of the private sector; ◆ structural changes in the role of local government, which is increasingly becoming an organizer, regulator and controller and less direct operator. In recent years, the result of cooperation between the public and the private sector has been characterized by development of infrastructure and infrastructure management, intended to carry out a series of economic activities. Public-private partnerships oﬀer a wide range of options, from those in which the private sector is minimally involved to those in which the private sector significantly participates in project management, such as reconstruction of infrastructure, investments in infrastructure, concessions and B.O.T. contracts (Gulija, 2004). 7

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CONCLUSIONS The international movement of capital is driven by various motives that are intertwined by certain factors both in terms of supply and demand. In practice, public-private partnership involves implementation of all well-known types of cooperation between public and private partners which, in many cases, leads to the establishment of joint ventures. Thus, the private sector employs its resources and expertise in the provision of goods and services, traditionally provided by public, i.e. state services. While establishing PPP, the public sector is expected to establish the appropriate balance, i.e. the protection of rights and interests of citizens, and also to create conditions in which the private partners will be able to function effectively and efficiently. Besides the tow basic forms, contractual and institutionalized, there are approximately twenty different models in PPP international practice, differing in the degree of involvement of the public and private sector in all stages of provision of public services and/or construction of public infrastructure. The main function of concession, as a form of investment in a particular area of the economy, is to encourage faster development, and boost the overall national income. Concessions are particularly significant when the investor is a foreign person, and such concessions are treated as foreign investments. Until 2014, there were no regulations that could directly control the implementation of PPP projects in the EU Member States, but there were some guidelines and directives, and they constituted the basic legal framework that guided and encouraged the improvement of the legislation of the EU Member States, aiming at better regulation in the area of public-private partnerships. Until the adoption of the Law on Public-Private Partnership and Concessions in Serbia, this area was regulated at the national level by the Law on Concessions (the first law was adopted in 1990), while the governing law at the local level was the Law on Public Utilities. 8

The public-private partnership model results in the creation of added value both for the public and private partner. Private partner gains the planned profit margin, reduces business risk and costs of sub-investment, while the public partner achieves higher quality of public services, reduces public spending and has the possibility to provide more public services within a shorter period of time and overcome debt restrictions more easily. The result of cooperation between the public and private sector is characterized by development of infrastructure and infrastructure management, intended to carry out a number of economic activities.

REFERENCES Akitoby, B., Hemming, R., & Schwartz, G. (2007). Public Investment and Public-private partnerships. Washington, DC: International Monetary Fund. Bojović, V. (2006). Public Private Partnerships as a Last Resort for Traditional Public Procurement. Panoeconomicus, 3, 299-311. Dimitrijević, D. (2008). Koncesiona prava u međunarodnoj i domaćoj praksi. Pravni život, 522(12), 317-332. In Serbian. EUR-lex. (2000). Official Journal of the European Communities, C 121. Retrieved October 30, 2015, from http://eur-lex.europa.eu/legal-content/EN/TXT/?u ri=OJ%3AC%3A2016%3A121%3ATOC EUR-lex. (2004). Green Paper on public-private partnerships and Community law on public contracts and concessions. Retrieved October 30, 2015, from http://eur-lex.europa.eu/legal-content/EN/ TXT/?uri=URISERV:l22012 Gulija, B. (2004). Javno-privatno partnerstvo. Euroscope, 13(73), 1-4. Retrieved October 30, 2015, from http://www.javno-privatno-partnerstvo.eu/JPP/JPP. pdf. In Croatian. Hadžić, M. (2013). Bankarstvo. Beograd: Univerzitet Singidunum. In Serbian. Ilić, S., & Pašić, V. (2011). Perspektiva javno privatnog partnerstva u Srbiji. Operacioni menadžment u funkciji održivog ekonomskog rasta i razvoja Srbije 2011-2020: zbornik radova / VIII skup privrednika i naučnika - SPIN’11, Beograd, 01-02. novembar 2011, 505-511. In Serbian. Kačer, H., Kružić, D., & Perković, A. (2008). Javnoprivatno partnerstvo: Atraktivnost dbfoot modela. Zbornik radova Pravnog fakulteta u Splitu, god. 45, 3/2008, 603-640. In Croatian.

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Šovran, S., Hadžić M.  Contemporary forms of international movement of capital

Knežević, M. (2010). Značaj koncesija za strana ulaganja u Republici Srbiji. Ekonomski horizonti, 12(1), 89-102. In Serbian. Kovač, O. (2002). Međunarodne finansije. Beograd: Ekonomski fakultet. McCreevy, C. (2005). Public-Private Partnerships-Options to ensure eﬀective competition, PPP Global Summit. Copenhagen: Forum on Public-Private Partnership, p. 1-5. OECD. (1999). OECD benchmark definition of foreign direct investment. Paris: Organisation for Economic Co-operation and Development. Osborne, S.P. (2000). Public-Private Partnerships: Theory and practice in international perspective. New York: Routledge. Perović, J. (2005). Međunarodno kretanje kapitala kao generator i akcelerator globalizacije. Ekonomija/ Economics, 12(2), 369-383. In Serbian. Petrović, J. (2002). Pravni aspekti stranih ulaganja, Pravo i privreda, 1-4/2002. Skupština Republike Srbije. (2011). Javno-privatno partnerstvo i koncesije, Z-26/10. Beograd: Skupština Republike Srbije. Službeni glasnik RS. (2011). Zakon o javno-privatnom partnerstvu i koncesijama. Službeni glasnik RS br. 88/2011. In Serbian.

Stakić, B., Vasić, D., & Ćurković, V. (2015). Ulaganje kapitala putem javno-privatnog partnerstva i koncesija. Beograd: Fakultet za polovne studije i pravo. In Serbian. Stanković, B. (2013). Javno-privatno partnerstvo I koncesije, kao posebni oblici stranih ulaganja u Srbiji. Economy and Market Communication Review, 3(2), 285-298. doi:10.7251/EMC1302285S Stojadinović Jovanović, S. (2013). Foreign Direct Investments as a Form of Financing Global Economy. Bankarstvo, 1/2013, 34-57. Retrieved October 30, 2015, from http://www.ubs-asb.com/Portals/0/Casopis/2013/1/UBS-Bankarstvo-1-2013-StojadinovicJovanovic.pdf. In Serbian. Unković, M. (2010). Međunarodna ekonomija. Beograd: Univerzitet Singidunum. In Serbian. Vignjević Đorđević, N., & Radević, B. (2011). Public management and quality of corporate governance: international and domestic experiences. Proceedings. Vol. 3/ 2nd International Conference Law, Economy and management in Modern Ambience - Lemima 2011, Belgrade, Serbia, 12-15. April 2011, pp. 383-389. Vukmir, B., & Skendrović, V. (1999). Koncesije i ugovaranje BOT projekata. Zagreb: Hrvatski savez građevinskih inženjera. In Croatian. World Bank. (1992). Export Processing Zones, Policy and Research Series Paper 20. Washington, DC: Industry and Energy Department.

SAVREMENI OBLICI MEĐUNARODNOG KRETANJA KAPITALA Rezime: Međunarodno kretanje kapitala predstavlja jedan od najznačajnijih oblika međunarodne ekonomske saradnje i ostvarivanja strateških ciljeva privrednih društava. Na taj način dolazi do međunarodne diversifikacije poslovnih aktivnosti, jačanja konkurentske prednosti, promene privrednih struktura, stopa zaposlenosti i privredne stabilnosti zemalja-učesnica. Savremeni oblici međunarodnog kretanja kapitala predstavljaju predmet istraživanja ovog rada, sa posebnim osvrtom na javno-privatna partnerstva i koncesije. Stvaranje različitih oblika javno-privatnog partnerstva (JPP) u Srbiji dobija na značaju tek početkom 90-tih godina prošlog veka. JPP podrazumeva zajedničke poslove u sklopu kojih javni i privatni sektori udružuju resurse, posebno finansijski kapital i stručna znanja kako bi, kroz adekvatnu raspodelu sredstava, rizika i nagrada, zadovoljili potrebe od lokalnog, regionalnog ili nacionalnog značaja. Ovakav vid partnerstva javnog i privatnog sektora postaje efikasan način za racionalnije korišćenje ograničenih resursa i unapređenje poslovanja subjekata iz različitih sektora. Partnerstvo javnog i privatnog sektora ima posebnu ulogu u procesu izgradnje i održavanja saobraćajne, ali i drugih objekata infrastrukture. Koncesija predstavlja poseban vid javno-privatnog partnerstva.

Ključne reči: međunarodno kretanje kapitala, javno-privatna partnerstva, koncesije. Received: March 30, 2016 Correction: April 20, 2016 Accepted: May 5, 2016

EJAE 2016, 13(2): 10-20 ISSN 2406-2588 UDK: 330.341(5)”1980/2014” 339.56 DOI: 10.5937/ejae13-11311 Original paper/Originalni naučni rad

ECONOMIC OPENNESS AND ECONOMIC GROWTH: A COINTEGRATION ANALYSIS FOR ASEAN-5 COUNTRIES Klimis Vogiatzoglou*, Phuong Nhung Thi Nguyen Hoa Sen University, Faculty of Economics and Commerce, Ho Chi Minh City, Vietnam

Abstract: The paper considers three channels of economic openness, namely FDI, imports, and exports, and examines their short-run and long-run effects on the economic growth in the five founding member countries of the Association of Southeast Asian Nations (ASEAN) over the period from 1980 to 2014. Besides the impact on the economic growth, the authors analyze all possible causal interrelationships to discern patterns and directions of causality among FDI, imports, exports, and GDP. The quantitative analysis, which is based on the vector error correction co-integration framework, is conducted separately for each country in order to assess their individual experiences and allow for a comparative view. Although the precise details differ across countries, the findings indicate that there is a long-run equilibrium relationship between economic openness and GDP in all ASEAN-5 economies. FDI, imports and exports have a significantly positive short-run and long-run impact on the economic growth. Our results also show that export-led growth is the most important economic growth factor in most countries, followed by FDI-led growth. Another crucial finding is the bi-directional causality between exports and FDI across the ASEAN-5 countries. This indicates the presence of direct and indirect effects on GDP and a self-reinforcing process of causality between those two variables, which strengthens their impact on the economic growth.

INTRODUCTION From the theoretical as well as empirical point of view, it has been long suggested that international economic integration promotes eﬃcient reallocation of resources leading to the increased 10

* E-mail: klimis.vogiatzoglou@hoasen.edu.vn

Key words: import, export, economic growth.

economic growth and sustainable development. Economic openness in developing countries can provide numerous opportunities for attracting foreign capital and undergoing structural transformations, which is vital for economic modernization and sustainable growth.

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Vogiatzoglou, K., Nguyen, P. N. T.  Economic openness and economic growth

Notably, the member countries of the Association of Southeast Asian Nations (ASEAN) are regarded as particularly open economies, embracing international integration as a national development strategy. ASEAN, which has undergone several steps of regional integration since 1967, is indeed a very dynamic region with regard to intra-regional and global economic integration. More specifically, the five founding ASEAN members have been subject to integration over a long period. International trade as well as foreign direct investments (FDI) play a significant role in the national economies of those countries. Consequently, it may be argued that the experiences of the ASEAN countries offer empirical evidence and insights into the effects of various channels of economic openness and growth as well as on all relevant interrelationships. As FDI, imports, and exports represent the most important dimensions of international economic integration, information on those aspects of openness is particularly important. Besides country and regionalspecific information, the ASEAN case might also provide relevant lessons and policy implications for other developing and emerging economies opening up and following a similar path. In an increasingly globalized world economy, knowledge on the long-run links and effects among different dimensions of economic openness and economic growth is valuable for economic policy purposes. Thus, our paper primarily aims to trace the long-run trends in FDI, international trade, and economic growth in five founding ASEAN member countries, for which a comprehensive dataset can be constructed over the period 1980-2014. Secondly and most importantly, it aims to identify, analyse, and assess relevant long-run and shortrun causal economic relationships among FDI, imports, exports, and GDP. Our quantitative analysis pays particular attention to the economic growth effects of each of the aforementioned channels of economic openness. The rest of the paper is structured as follows. The next section provides an overview of relevant

theoretical and empirical literature. The third section discusses the data and examines the long-run trends. The fourth section presents the methodology and modelling framework of the quantitative analysis. The fifth section reports and discusses the empirical results. The final section summarizes the key findings and provides concluding remarks.

THEORETICAL AND EMPIRICAL BACKGROUND Long-standing and extensive theoretical literature on international trade advocates that trade contributes positively to the long-term growth prospects of a country (e.g. Van den Berg & Lewer, 2015). Integration and cross-border trade promote economic eﬃciency through resource reallocation, increased productivity, production specialization, scale economies and increased market opportunities. There is also accumulated empirical evidence suggesting that international trade has led to the increased eﬃciency, productivity, technology, and growth in both developed and developing countries (The World Bank, 2015; Feenstra, 2015; UNCTAD, 2015; Markusen et al., 1995). Similarly, the literature considers inward FDI to be particularly important for developing countries as it provides productive capital necessary for performing economic activities (e.g. UNCTAD, 2016). Thus, it adds to the domestic capital stock and enhances the production capabilities of the national economy in the long-run. Moreover, it is suggested that FDI may lead to the transfer of technology, economic transformation and technological progress. Other possible positive spillovers include the creation of linkages between multinational enterprises (MNEs) and local firms, resulting in increased domestic entrepreneurship. Lastly, besides the above channels, FDI can also contribute to economic growth through increased exports, if MNEs locate in the host-country for export activity. 11

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There are many empirical studies investigating the long-run relationships among economic openness, trade and growth. Generally, those studies, which are usually based on a time-series framework and co-integration analysis, find evidence of a significant growth effect of international integration related factors. For instance, Gries and Redlin (2012), using a large sample of 158 countries over the period 1970-2009, conclude that there is a significant positive causal long-term effect running from trade openness to economic growth and vice versa. Using various trade liberalization indices for 120 countries over the period 1970-1999, Yanikkaya (2003) finds that trade has a positive impact on real GDP per capita. For Southeast Asian economies, where trade liberalization has been on the rise for many decades, international trade has been a contributing factor of economic growth and development. Several studies have found empirical evidence of a long-run link between exports and GDP (Ridzuan et al., 2016; Tan & Tang, 2016; Hsiao & Hsiao, 2006; Ahmad & Harnhirun, 1996). However, depending on the given countries and time period concerned, the evidence sometimes gives clear support to the export-led growth hypothesis. In other instances, it is revealed that there is a more complex structure indicating GDP causing exports or the existence of a bi-directional causal relationship. Besides trade openness, there are studies that also examine explicitly the long run causal relationship between FDI and growth. More specifically, the empirical evidence points out that in Southeast Asian countries FDI contributes significantly to GDP growth (Bhatt, 2014; Moudatsou & Kyrkilis, 2011; Choong & Liew, 2009). Additionally, studies in which trade-related measures and FDI are included simultaneously to investigate long-run growth effects, reveal the presence of intricate interrelationships (Sothan, 2016; Tan & Tang, 2016; Bhatt, 2014). It is found that different patterns and causality relations can arise. 12

For instance, FDI might cause trade (exports and imports), which causes economic growth without a direct growth eﬀect of FDI, or FDI and exports both having only direct eﬀects on growth, or other interdependencies. The literature shows that as international integration issues and growth can be interrelated in various ways, the establishment of relevant patterns and long-run relationships is essentially country specific. This also represents additional motivation for our empirical modelling approach on the underlying interdependent relationships and causalities to be based on an individual country case investigation for all ASEAN member states in our dataset.

DATA, VARIABLES AND LONG-RUN TRENDS For each of the 5 ASEAN countries (Indonesia, Malaysia, the Philippines, Singapore, and Thailand), the data cover the period 1980-2014. There are four key variables expressed in US dollars: ◆ Real GDP (GDP) ◆ Real FDI stock (FDI) ◆ Real exports (EXP) ◆ Real imports (IMP) All variables are expressed in real terms, by deflating the nominal values using the country’s GDP deflator. The base year is 2005. The data sources are as follows: GDP from UN national accounts database; FDI stock from UN FDI database; exports, imports, and GDP deflators from the IMF international financial statistics database. Prior to our main analysis, we proceed with a brief descriptive analysis and discussion on the long-term trends of the observed variables for each ASEAN-5 country. As evident from Figure 1, there is clearly a strong upward trend in real GDP, real exports, real imports, and real FDI over the period 1980-2014 in all of the ASEAN member states in our dataset. Macroeconomic variables related to economic openness increase along with GDP growth.

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Vogiatzoglou, K., Nguyen, P. N. T.  Economic openness and economic growth

Figure 1. Long-run trends, 1980-2014

In terms of value, real exports and real imports are the most important international integration related measures, followed by real FDI. The exception is Singapore where foreign direct investment has become more important and has surpassed exports and imports in the last nine years of the observed period. In summary, we can see that economic openness is important and is rapidly increasing over time in ASEAN-5 countries.

METHODOLOGY AND MODELLING FRAMEWORK As shown in the descriptive analysis, there are significant long-term trends in the three interna-

tional openness related measures as well as in economic growth. Most importantly, though, based on the theoretical grounds, certain long-run relationships among those variables should exist. In general, as already discussed and suggested by the relevant literature, exports, imports, and FDI, play an important role in encouraging and contributing to the economic growth. However, the importance, strength, and direction of the causal relationships among those variables may vary significantly in diﬀerent economies. Essentially, the interrelationships are dependent on the underlying structural relationships and dynamics of a given economy. For instance, 13

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Vogiatzoglou, K., Nguyen, P. N. T.  Economic openness and economic growth

in some countries exports might be particularly influential with a clear unidirectional effect on GDP, suggesting an export-led growth hypothesis. Similarly, there might be a strong FDI-led growth scenario. In other cases, more intricate interrelationships might be at work, such as, direct and indirect effects among exports, imports, and FDI on growth, or bi-directional effects between openness and GDP growth. Thus, the underlying long-run relationships have to be discerned and established through the appropriate empirical time-series modelling. The paper applies a three-step methodological approach within a vector error correction co-integration framework to analyse the causal relationships and effects among real GDP, real FDI, real imports and real exports in the observed ASEAN countries. This analytical framework is particularly appropriate when investigating the issue of long-run causal equilibrium relationship(s) among several time-series variables. It allows the efficient estimation of long-run and short-run effects. It also takes explicitly into account and analyses the short-run adjustments to the empirically established long-run equilibrium relationship that exists among the covariates. First, we examine the statistical stationary properties of the data set by applying the Augmented Dickey Fuller (Dickey & Fuller, 1981), ADF, and the Phillips and Perron (1988), PP, unit root tests.

It has to be noted that a non-stationary time series data set produces spurious results. Therefore, stationarity is an important issue. If the data are not stationary, we take the first differences and test again for stationary properties. In case the firstdifferenced data are stationary, we can proceed with our co-integration and Granger causality analyses. In the second step, we test for co-integration and in case the variables are found to be co-integrated, estimate the long-run equilibrium relationship. Notably, if the time series covariates under study are not co-integrated, an equilibrium relationship cannot be assumed and Granger causality tests are spurious (Granger, 1988). When two time series are I(1), integrated of order one [stationary first-differenced series], and there exists a linear combination between those series that is I(0) [stationary series], then those two time series variables are co-integrated (Engle & Granger, 1987). In the third stage, we analyse the short-run (Granger) causalities among all of the four variables. The co-integrating equilibrium relationship among GDP, FDI, IMP, and EXP, as well as the Granger causality tests, are based on the appropriate vector error correction model (VECM) specified and estimated for each of the five ASEAN countries. Our VECM for a single country can be represented as follows:

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Vogiatzoglou, K., Nguyen, P. N. T.  Economic openness and economic growth

where t=1,2,…T refers to the time periods (annual observations); ∆ denotes the first diﬀerence operator; q is the number of lags; the δ’s are the parameters to be estimated; εt-1 is the error correction term, indicating the long-run causal eﬀect (of the right-hand side variables on the left-hand side variable) and the speed of adjustment towards the long-run equilibrium, which is derived from the co-integration relationship; u is the serially uncorrected error terms; i, j, k and l denote the appropriate lag lengths for the VECM, based on Akaike’s information criterion. In the real GDP equation (1a), the Granger short-run causalities from real FDI, real imports, and real exports to real GDP are tested. The relevant three null hypotheses in (1a) can be expressed compactly as:

(All short-run parameters are equal to zero)

Each of the above represents Wald tests of the null joint hypothesis that the estimated short-run coeﬃcients associated with either FDI, IMP, or EXP are (not statistically diﬀerent from) zero, and hence there is no Granger short-run causality between those variables and GDP. Similarly, in the real FDI equation (1b), the tests for short-run causality running from GDP, IMP, and EXP to FDI are based on the following joint hypotheses:

If a joint null hypothesis cannot be rejected, it is concluded that the variable associated with the given Wald test (here GDP, IMP, or EXP) does not Granger cause FDI. In the real imports equation (1c), Granger shortrun causality tests are based on the following hypotheses:

Finally, with respect to real exports, equation (1d), the relevant tests for Granger causality are represented as follows:

EMPIRICAL RESULTS Table 1 reports the results of the unit root tests for four variables in five observed ASEAN countries. The ADF and PP tests indicate that the four series are I(1) processes at the 5% significance level except for the data about FDI in the Philippines but in the PP test, the data is I(1) at 1% level. Thus, we accept the results of the PP test for FDI variable in the Philippines. Therefore, we may reasonably conclude that all variables appear to be I(1) series in all of the five countries. Next, using the Johansen’s maximum likelihood approach, a co-integration analysis is conducted to investigate whether there is a long-run relationship among real GDP, real FDI, real exports, and real imports. Table 2 presents the results of the co-integration analysis. We find evidence of co-integration in all five countries, as revealed by both the maximum eigenvalue and trace statistics at the 5% and 1% statistical significance levels. These findings support the view that GDP, FDI, IMP, and EXP all move together in the long run in each of the five ASEAN countries observed herein. Table 3 reports the results of the co-integrating regression equation, with GDP as the dependent variable. These findings indicate the underlying equilibrium relationship and long-run effects of FDI, EXP, and IMP on GDP. It is evident that in all countries the three variables, which are associated with different channels of economic openness, have a statistically significant long-run impact on GDP in all countries. Since all variables are measured in the same units (namely US dollars), the estimated regression coefficients reveal the magnitude of the effect, as well as relative importance of each variable. Exports, followed by inward FDI, are found to exert the 15

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Vogiatzoglou, K., Nguyen, P. N. T.  Economic openness and economic growth

Country Indonesia

Malaysia

The Philippines

Singapore

Thailand

Variable GDP FDI EXP IMP GDP FDI EXP IMP GDP FDI EXP IMP GDP FDI EXP IMP GDP FDI EXP IMP

ADF Level -0.70 -1.35 -2.05 -1.65 -1.11 -2.29 -2.91 -2.61 2.49 -3.43* -2.81 -2.89 -0.75 0.88 -1.70 -1.90 -2.09 3.56 -2.28 -2.65

1st Diﬀerence -4.02** -3.95** -7.20*** -5.61*** -5.92*** -5.49*** -6.06*** -5.60*** -4.98*** -6.33*** -7.96*** -6.63*** -4.2** -6.99*** -6.01** -7.33*** -4.45*** -5.22*** -4.64*** -3.87**

PP Level -0.20 -1.11 -1.94 -1.65 -1.00 -0.57 -2.74 -2.61 2.77 -2.09 -2.56 -2.63 -0.47 1.09 -1.67 -1.84 -1.77 2.78 -2.35 -2.65

1st Diﬀerence -4.04** -3.94** -7.49*** -5.66*** -5.96*** -5.49*** -7.95*** -5.61*** -6.41*** -6.53*** -11.02*** -6.76*** -6.59*** -6.97*** -6.01*** -7.33*** -4.45*** -5.86*** -11.45*** -7.62***

Note: ***, **, and * indicate that the null of the unit root in the ADF and PP tests is rejected at the 1%, 5%, and 10% levels, respectively. Lag lengths are chosen using Akaike’s information criterion.

Table 1. Results for unit roots tests Country

Null hypothesis

Indonesia

r=0 r≤1 r=0 r≤1 r=0 r≤1 r≤2 r=0 r≤1 r≤2 r≤3 r=0 r≤1 r≤2 r≤3

Malaysia The Philippines Singapore

Thailand

Test statistic Max eigenvalue 22.494** 0.032 23.509** 0.023 16.12 0.025**

Trace 35.701*** 0.009 15.616** 0.048 17.873** 0.022

7.711*** 0.006

5.4155** 0.02

Note: *** and ** denote statistical significance at the 1% and 5% levels, respectively.

Table 2. Results for co-integration tests

strongest eﬀect in several countries. More specifically, in the Philippines, Singapore, and Thailand, exports exhibit the highest coeﬃcient, and FDI the second highest in two of those countries. In Malaysia, FDI is associated with the highest im16

pact on GDP followed by imports. These findings give support to the export-led and FDI-led growth hypothesis. Interestingly, imports are found to be the most important international integration related factor of economic growth in Indonesia.

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Vogiatzoglou, K., Nguyen, P. N. T.  Economic openness and economic growth

Additionally, in this country exports show the second highest impact, whilst FDI has the smallest long-run eﬀect on GDP. Having established and examined the long-run equilibrium relationship, we turn to short-run ef FDI IMP EXP constant

Indonesia 0.38956 (4.3)*** 0.54521 (2.9)*** 0.46610 (2.3)** -4.8E+10 (-1.9)*

Malaysia 0.45409 (4.7)*** 0.39567 (4.0)*** 0.30735 (3.1)*** 2.2E+10 (8.8)***

fects and Granger causality tests among all considered variables, as shown in Table 4. First, it is found that FDI, imports, and exports significantly Granger cause GDP in the short-run [equation (1a)] in all ASEAN-5 members. An exception is Philippines 0.56420 (7.9)*** 0.33532 (4.0)*** 1.75633 (17.6)*** 2.7E+10 (37.0)***

Singapore 0.29407 (13.2)*** 0.37584 (7.5)*** 0.89648 (18.4)*** 2.5E+10 (43.9)***

Thailand 0.35320 (3.4)*** 0.28839 (2.2)** 0.39937 (2.7)*** 5.7E+10 (8.0)***

Note: GDP is the dependent variable in the co-integrating regression equation in each country. ***, **, and * denote statistical significance at the 1%, 5%, and 10% levels, respectively.

Table 3. Long-run equilibrium relationship between GDP, FDI, Imports, and Exports ∆GDP

∆FDI ∆IMP (short-run Granger causality)

∆EXP

ECT (long-run)

Indonesia

∆GDP (1a) ∆FDI (1b) ∆IMP (1c) ∆EXP (1d)

0.83 0.50 0.57

4.52** 21.73*** 17.48***

2.75* 1.79 4.56**

2.29 2.80* 6.46*** -

9.06*** 2.89* 12.63*** 4.35**

Malaysia

∆GDP (1a) ∆FDI (1b) ∆IMP (1c) ∆EXP (1d)

14.86*** 18.09*** 1.86

15.84*** 19.98*** 6.65**

8.08** 3.64 6.78**

7.85** 13.97*** 9.64** -

8.39*** 15.94*** 4.85** 7.97***

The Philippines

∆GDP (1a) ∆FDI (1b) ∆IMP (1c) ∆EXP (1d)

6.91** 1.05 1.68

6.13** 1.40 5.32*

4.27 1.82 4.95*

6.70** 4.77* 5.08* -

7.02*** 4.98** 3.30* 4.54**

Singapore

∆GDP (1a) ∆FDI (1b) ∆IMP (1c) ∆EXP (1d)

1.36 14.90*** 18.58***

24.99*** 7.61* 16.30***

21.18*** 10.34*** 26.19***

16.36*** 10.51*** 10.25*** -

13.41*** 11.05*** 5.90** 5.62**

Thailand

∆GDP (1a) ∆FDI (1b) ∆IMP (1c) ∆EXP (1d)

11.49*** 1.99 0.74

5.35* 14.20*** 12.17***

6.80** 10.05*** 4.89*

5.03* 15.49*** 5.75* -

12.68*** 3.86** 4.12** 3.11*

Notes: The figures refer to Wald tests for the short-run causality eﬀect of each variable on other variables. For each country, those tests are chi-square test statistic values with the given number of degrees of freedom according to each country’s estimated VECM. ECT denotes error correction term, and indicates the long-run causal eﬀect (long-run equilibrium relationship) between the “explanatory” and the “dependent” variables in each equation. ***, **, and * denote statistical significance at the 1%, 5%, and 10% levels, respectively.

Table 4. Results for Granger causality tests 17

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Vogiatzoglou, K., Nguyen, P. N. T.  Economic openness and economic growth

Indonesia and the Philippines, where exports in the former and imports in the latter do not have a short-run impact. As the error correction term is highly statistically significant, it is confirmed that those variables cause GDP in the long-run across all countries in our sample.

and GDP. An underlying long-run equilibrium relationship among the three aspects of economic openness and growth is found in all of the observed countries. In general, FDI, imports and exports significantly aﬀect and lead to the economic growth both in the short and the long-run.

By examining all causality directions among the variables (across all equations of the system, VECM), certain interesting patterns of short-run causality interrelationships can be observed.

However, our analysis indicates that there are some substantial differences across countries with respect to both the relative importance of the longrun effects on GDP and the patterns of short-run causalities. This finding justifies our modelling approach of conducting a co-integration analysis for each ASEAN country separately (instead of panel co-integration). This highlights that international integration affects different ASEAN countries to some extent through different channels of economic openness.

FDI is Granger caused by GDP (in Malaysia, the Philippines, and Thailand), by imports (in Singapore and Thailand), and exports (in all ASEAN-5). With respect to imports, there is short-run causality from GDP (in Malaysia and Singapore), from FDI (in Indonesia, Malaysia, Singapore and Thailand), and from exports (in all ASEAN-5). Exports are Granger caused by GDP (in Singapore), by imports (in all ASEAN-5), and by FDI (in all ASEAN-5). Thus, besides the impact of the economic openness variables to GDP, there is the evidence that in certain countries GDP causes some of those variables. However, this result is rather case specific and less generalizable. A much more universal pattern across the ASEAN-5 is the bidirectional causality between exports and imports and between FDI and exports.

CONCLUSIONS

Most importantly, a bi-directional causality between FDI and exports is evidenced in all ASEAN-5 members. It points to the existence of direct and indirect eﬀects on GDP associated with those variables. Economic growth is, thus, caused via a direct path by exports (or FDI) as well as through an indirect path, in which exports cause FDI (or FDI causes exports), which in turn cause GDP. Moreover, because of this circular (bi-directional) self-reinforcing causal process among FDI and exports, their growth impact is strengthened. Attracting inward FDI will lead to GDP growth and increased exporting activity, which shall result in GDP growth and increased inward FDI.

By applying the vector error correction cointegration framework for five ASEAN countries over the period 1980-2014, this study observes the causal relationships among FDI, imports, exports

This finding might also suggest a scenario whereby the MNEs have to a large extent an export-platform FDI motive and are attracted to ASEAN countries due to their trade openness and export-oriented economies. In such a case, a country achieving an

Coupled with the finding that FDI and exports cause GDP in the long run and short-run, the bidirectional causality between FDI and exports implies that those two variables have a direct as well as indirect eﬀect associated with their long-run impact on GDP. This is due to their close interrelationship, suggesting that FDI and exports cause growth directly and indirectly through their mutual impact which reinforces their eﬀect on GDP.

Though certain dissimilarities are present, the overall pattern still emerges. More specifically, both export-led growth and FDI-led growth are found to be the two most important growth factors across the ASEAN-5. Furthermore, there is a strong interrelationship between imports and exports, suggesting that a country’s overall trade openness has a favourable impact on exports.

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increasing export activity becomes increasingly the target of export-oriented MNEs, which contributes to a country’s further openness. Hence, on their own as well as through their bi-directional interrelationship and interaction, FDI and exports are found to play a particularly important role as factors of economic growth in ASEAN countries. Overall, our findings imply that policies which enhance economic openness on all fronts, namely trade integration within and outside ASEAN, liberalization of foreign investments in all sectors of the economy, and international financial and capital market integration, would enhance significantly the long-run growth prospects of the ASEAN member economies. Furthermore, extrapolating from our results, a number of policy measures, such as upgrading international trade related facilities, infrastructure, regulations, and procedures; improving domestic market environment and regulations relevant to foreign firms; facilitating the setting up and operations of export-oriented MNEs; implementing structural reforms to foster further economic restructuring and export specialization in comparative advantage sectors; and promoting increased export activity of domestic firms through various incentives and facilitation schemes (e.g. export credit, overseas markets information, international marketing services, export processing zones etc.), would be expected to contribute considerably to the increased FDI and exports, which in turn would lead to the long-run economic growth and development.

REFERENCES Ahmad, J., & Harnhirun, S. (1996). Cointegration and Causality between Exports and Economic Growth: Evidence from the ASEAN Countries. The Canadian Journal of Economics, 29(2), 413-416.

Dickey, D.A., & Fuller, W.A. (1981). Likelihood ratio statistics for autoregressive processes. Econometrica, 49(4), 1057-1072. doi:10.2307/1912517 Engle, R.F., & Granger, C.W.J. (1987). Cointegration and error correction: representation, estimation, and testing. Econometrica, 55(2), 251-276. Feenstra, R.C. (2015). Advanced International Trade: Theory and Evidence. New Jersey: Princeton University Press. Granger, C.W.J. (1988). Some recent developments in the concept of causality. Journal of Econometrics, 39(1), 199-211. doi:10.1016/0304-4076(88)90045-0 Gries, T., & Redlin, M. (2012). Trade Openness and Economic Growth: A Panel Causality Analysis. CIE Working Papers, No. 52. Center for International Economics, University of Paderborn. Hsiao, F.S., & Hsiao, M.C. (2006). FDI, exports, and GDP in East and Southeast Asia-Panel data versus timeseries causality analyses. Journal of Asian Economics, 17(6), 1082-1106. doi:10.1016/j.asieco.2006.09.011 Markusen, J.R., Melvin, J.R., Kaempfer, W., & Maskus, K. (1995). International trade: theory and evidence. New York: McGraw-Hill Publishing. Moudatsou, A., & Kyrkilis, D. (2011). FDI and Economic Growth: Causality for the EU and ASEAN. Journal of Economic Integration, 26(3), 554-577. Phillips, P.C., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75(2), 335-346. Ridzuan, A.R., Mohd Noor, A.H., & Ahmed, E.M. (2016). ASEAN4 prospective of export-led economic growth. E3 Journal of Business Management and Economics, 7(1), 1-12. doi:10.18685/EJBME(7)1_EJBME-15-018 Sothan, S. (2016). Foreign Direct Investment, Exports, and Long-Run Economic Growth in Asia: Panel Cointegration and Causality Analysis. International Journal of Economics and Finance, 8(1), 26-37. doi:10.5539/ijef.v8n1p26 Tan, B.W., & Tang, C.F. (2016). Examining the Causal Linkages among Domestic Investment, FDI, Trade, Interest Rate and Economic Growth in ASEAN-5 Countries. International Journal of Economics and Financial Issues, 6(1), 214-220.

Bhatt, P.R. (2014). Foreign Direct Investment in ASEAN Countries 1990-2012. Revista Galega de Economía, 23(4), 133-144.

UNCTAD. (2015). Trade and Development Report 2015: Making the international financial architecture work for development. New York: United Nations Conference on Trade and Development, United Nations.

Choong, C.K., & Liew, V. (2009). Impact of foreign direct investment volatility on economic growth of ASEAN-5 countries. Economics Bulletin, 29(3), 1829-1841.

UNCTAD. (2016). World Investment Report 2016: Investor Nationality: Policy Challenges. New York: United Nations Conference on Trade and Development, United Nations. 19

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Van den Berg, H., & Lewer, J.J. (2015). International trade and economic growth. New York: Routledge Publishing. World Bank. (2015). The Role of Trade in Ending Poverty. Washington, DC: World Bank Publications. Yanikkaya, H. (2003). Trade Openness and Economic Growth: A Cross Country Empirical Investigation. Journal of Development Economics, 72(1), 57-89.

OTVORENOST PRIVREDE I EKONOMSKI RAST: KOINTEGRACIONA ANALIZA NA PRIMERU PET DRŽAVA ČLANICA SAVEZA ZEMALJA JUGOISTOČNE AZIJE (ASEAN) Rezime: U radu se razmatraju tri kanala otvorenosti privrede, tačnije kanali stranih direktnih ulaganja, kanali uvoza i kanali izvoza, kao i njihov kratkoročni i dugoročni uticaj na ekonomski rast posmatranih pet zemalja članica Saveza država jugoistočne Azije (ASEAN) u periodu od 1980. do 2014. godine. Pored toga, ispituju se i uzročno-posledični odnosi između stranih direktnih investicija, uvoza, izvoza i BDP-a. Kvantitativna analiza koja se zasniva na vektorskom kointegracionom modelu korekcije greške vrši se posebno za svaku zemlju u cilju procene individualnih iskustava i davanja uporednog prikaza. Iako se detaljni podaci razlikuju za svaku zemlju, rezultati istraživanja ukazuju na postojanje dugoročnog uravnoteženog odnosa između otvorenosti privrede i BDP-a u svih pet zemalja članica Saveza država jugoistočne Azije. Strana direktna ulaganja, uvoz i izvoz imaju izrazito pozitivan kratkoročan i dugoročan uticaj na ekonomski razvoj. Rezultati pokazuju da je u većini zemalja rast vođen izvozom najvažniji činilac ekonomskog razvoja, kao i rast uslovljen stranim direktnim ulaganjima. U radu se ukazuje i na dvosmernu uzorčnoposledičnu vezu između izvoza i stranih direktnih ulaganja u posmatranim zemljama članicama Saveza država jugoistočne Azije (ASEAN). Rezultati ukazuju na postojanje direktnog i indirektnog uticaja na BDP i uzročne veze između ove dve promenljive, što se odražava na njihov uticaj na sveukupan ekonomski rast.

Ključne reči: uvoz, izvoz, ekonomski rast. Received: Jun 5, 2016 Correction: July 15, 2016 Accepted: July 21, 2016

EJAE 2016, 13(2): 21-29 ISSN 2406-2588 UDK: 336.1/.2(497.11) DOI: 10.5937/ejae13-10653 Review paper/Pregledni naučni rad

ASPECT OF FISCAL CONSOLIDATION: EVIDENCE FROM SERBIA Branimir Kalaš*, Jelena Andrašić, Miloš Pjanić University of Novi Sad, Faculty of Economics, Segedinski put 9-11, Subotica, Serbia

Abstract: In contemporary market conditions facing continuous debt crisis, the notion of fiscal consolidation is one of potential solutions for solving the main economic issues in any country. As regards fiscal consolidation, it necessary to point out to the importance of developing strategies aimed at minimizing deficit and debt level. Serbia is among those countries in which irrational spending is widely present with unfavourable tendency regarding the aspect of production and consumption. Over the past 25 years, Serbia has spent much more than it has produced, which has led to large budget deficits and debt level. The aim is to point out to the concept of fiscal consolidation and its implementation in Serbia, while the subject of this paper is to present the package of measures and strategies defined by the government of the Republic of Serbia and the Fiscal Council Program.

INTRODUCTION If we observe the transition period of 2001, Serbian economy had a long-run episode of intensive and slow growth. The first transition years included post-conflict reconstruction, structural reforms and foreign direct investments which led to rapid economic growth with an average rate of 5.9% and a better state of public finances. Fiscal deficit and public debt were moderate and lower until 2008, but the global economic and financial crisis led to deterioration of these indicators. Fiscal instruments that were available to the government in 2009 were limited, and thus it was necessary to restrain from consumption to ensure investment. The government had a nominal pension freeze in * E-mail: branimir.kalas@ef.uns.ac.rs

Key words: fiscal consolidation, strategy, measures, balance.

2009 and 2010 and salaries in the real sector were frozen. In order to achieve infrastructure improvement, capital expenditures were held at the level of previous two years or 4% of GDP (IMF, 2009). In October 2011, Parliament adopted amendments to the Law on Budget systems, introducing a two-tier structure of fiscal rules. The first rule is designed to limit future fiscal deficit and public debt while the second rule should limit the consumption of essential items, particularly public sector wages and pensions (IMF, 2011). Serbia has struggled with weak and slow growth. The stagnation of economic activity has resulted in falling revenues and increasing expenditures. Also, structural fiscal problems, such as continued support to state-owned companies and ineﬃcient tax administration have been a 21

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drag on growth. As a result of these pressures, general government fiscal deficits averaged 5.6 percent of GDP a year between 2008 and 2014. This paper reflects the main measures of fiscal consolidation program in Serbia with special emphasis on the key macroeconomic and fiscal indicators within a ten-year period. The authors will try to present the situation before and after taking measures and point out to the relevance of fiscal consolidation. Moreover, the authors wanted to highlight the situation in Serbia from the economic aspect using tables and graphic views which manifest trends in Serbia and provide little contribution to this part of public finance. This contribution is determining facts in Serbian economy and results of the fiscal consolidation program.

their economy (Botman & Honjo, 2006; Leigh, 2010; Berkmen, 2011; Clinton et al., 2011; Taylor et al., 2013, Tapsoba, 2013). Berkmen (2011) induced that fiscal consolidation can’t give positive results without structural reforms. Furthermore, fiscal consolidation provides the opportunity to rationalize and enhance the tax systems as well as to get rid of distortion damaging the economy (Princen & Moure, 2013). Bakker and Christiansen (2014) emphasize that it’s notable that fiscal consolidation leads to the genuine improvement in government solvency, while Kataryniuk and Valles (2015) noticed that significant fiscal consolidation may reduce the need for future fiscal operations, raising the current confidence of households and enterprises.

LITERATURE REVIEW

MACROECONOMIC STABILITY AND FISCAL POLICY

The financial crisis has led to an increase in public debt in developed countries where the average rate of gross government debt exceeds 100 percent of GDP for the first time since World War II (IMF, 2011). Also, it has revealed that there is a need for fiscal consolidation that is more likely to improve the global competitiveness and ensure growth (Rodrik, 2012; Spence, 2012). Numerous studies have dealt with the issue of fiscal consolidation (Giavazzi & Pagano, 1990; Alesina & Perotti, 1995; Ardagna, 2004; Hallergerg et al., 2007; Mulas-Granados, 2006; Avellaneda & Hardiman, 2012). The economist Mulas-Granados (2006) added a political variable as a fact that there is the diﬀerence as to whether the government is left or right-oriented. Alesina and Perotti (1995) analyzed the role of coalition government and concluded that substantial fiscal adjustments are less likely than other forms of government. Fiscal consolidation is determined as the specific policy that should lead to the reduction of government deficits and debt accumulation (OECD, 2011). The creation and implementation of the consolidation plan vary from country to country due to the specific and various circumstances of 22

Samuelson and Nordhaus (2001) define fiscal policy as the use of taxation and government spending to influence the economy. The core problems arose from declining revenues despite tax rates increase, continued rise of unsustainably high compulsory spending, with public wages and pension bills being the most relevant components. Also, the costs of resolving the status of public banks and guarantees for loss-making public enterprises represent serious state budget expenditures. Figure 1 shows that the country should achieve macroeconomic stability using adequate policies and strategies with an emphasis on the implementation of structural reforms. On the other hand, the economy has to stabilize the financial system so that banks and other financial institutions could operate smoothly. Economic growth, financial sector resilience and fiscal sustainability are the key principles that should be present in any country. The strong budget institutional framework is needed to sustain the entire process with the institutional aspects playing a major role in making of fiscal policy (IMF, 2010):

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Figure 1. Macroeconomic stability and sustained growth Source: www.imf.org

◆ understanding the scale of fiscal challenge to planning necessary adjustments; ◆ creating a respectable consolidation strategy with transparent fiscal rules; ◆ implementing this strategy through budget. Indicators (%)

Country

Table 1 shows the basic economic indicators of foreign trade partners of Serbia in 2015 with the projections for 2016 and 2017. As can be seen, macroeconomic indicators will be better in the next two years. Disinflationary trend in the EU continues during 2015 due to low energy and food 2015 0.9 1.7 -3.7 1.6 0.2 0.2 15.6 0.8 12.6 5.1 5.6 11.3 133.8 72.4 16.8 94.8 -2.7 0.9 -2.2 -2.4

Italy Germany Real GDP growth Russia Eurozone Italy Germany Inflation Russia Eurozone Italy Germany Unemployment Russia Eurozone Italy Germany Gross government debt of Russia GDP Eurozone Italy Germany Consolidated fiscal balance Russia of GDP Eurozone Table 1. Basic economic indicators - foreign trade partners of Serbia

2016* 1.5 1.9 -0.5 1.8 1.0 1.0 8.0 1.5 12.4 4.8 5.7 10.8 132.7 69.6 17.0 93.8 -2.2 0.5 -2.0 -2.2

2017* 1.4 1.9 1.0 1.9 1.9 1.7 6.0 1.6 11.6 5.2 5.5 10.3 130.0 65.6 22.2 92.3 -1.6 0.4 -0.8 -1.5

Source: European Commission (2015)

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prices and inflation is expected to grow by 0.1% in 2015. In future, stronger growth in domestic demand and narrowing of the output gap as well as the expected growth in energy prices will contribute to accelerating inflation to 1.5% in 2016 and 1.6% in 2017. On the other hand, unemployment rates should be lower in 2016 and 2017, but the rates will still double in Eurozone (10.8% and 10.3%). Petrović et al. (2016) emphasize that high unemployment is one of the biggest structural problems in Serbia where the rate within the population aged 15-64 years was 17.3%, which is among the highest unemployment rates in Europe. Italy has a huge gross government debt exceeding 130%, which is far greater than the defined convergence criteria. Furthermore, Germany doesn’t have this problem and its debt is around 70% with a decreasing tendency in 2016 and 2017, which is quite encouraging data given the fact that the German economy is the strongest in the Eurozone. Finally, consolidated fiscal balance of GDP records a declining trend in the entire observed group of countries where the level of this indicator will be in plus in Germany (expected surplus of 0.4% of GDP). Thus, it is necessary to precisely define the concept of fiscal balance and consolidation and list their favourable and adverse eﬀects. Labus and Labus (2016) defined the standard expectations of the fiscal consolidation program and noticed that it squeezes aggregate demand

Figure 2. Key macroeconomic indicators in Serbia Source: www.nbs.rs

by depressing public and private consumption. Vujović (2016) determined three related thematic areas of fiscal consolidation in Serbia: a) macromonetary and macro-fiscal public debt block, b) financial sector block and growth enabling micro structural block. The first one is focused on price and exchange rate stability, reducing fiscal deficit and public debt, the second one places special emphasis on providing adequate business and consumer financing at competitive interest rates, whereas the third one is directed towards improving the legal and institutional aspects of business environment climate. In the next chapter, the authors shall analyze in detail the theoretical basis of fiscal consolidation and its practical implementation.

FISCAL CONSOLIDATION: THEORY AND INDICATORS Guichard et al. (2007) and Barrios et al. (2010), Hagen et al. (2002), Afonso and Jalles (2011) believe that fiscal consolidation is likely to be launched when the government is weak i.e. when there is huge indebtedness. Lowering of high deficit and public debt is the main task for the Serbian government (Labus & Labus, 2015). Yartey et al. (2012) have presented several options for debt decrease including the following: growth, fiscal consolidation, inflation, privatization, debt restructuring and defaults (Yartey et al., 2012).

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Figure 2 manifests the trend of key macroeconomic indicators in Serbia during the period from 2008 to 2015. After opening the economy, Serbia recorded GDP growth rates over 5%, as a result of an intensive foreign capital inflow and privatization of public enterprises. However, the global crisis and lack of institutional reforms in public administration and enterprises as well as unfavourable business environment lead to lower economic growth in Serbia. During the last two years, there have been negative rates of the observed indicator, i.e. real GDP decrease at the end of 2014 was 1.8% (Kalaš & Milošević, 2015). The growth of industrial production is continuous and permanent except in 2009 when there was headlong decline of 12.6%, as a result of the financial crisis. Furthermore, unemployment presents the chronic problem of our economy and the rate has doubled for years and has a growing trend. This indicators grew by 10.3% only in the period 2008-

2012 due to deterioration of the world economy, but also because of the structural problems and rigid legislation and unreformed labor markets. Gligorov (2015) noticed that Serbia entered the recession process in 2014 because of fiscal consolidation and export stagnation. Figure 3 shows the trend of public debt and budget deficit, as two main fiscal indicators in every economy for the period from 2008 to 2015 in Serbia. As we can see, public debt has recorded a growing tendency, especially in the period from 2009 to 2012, when this parameter increased. In October 2015, debt reached a record degree of 72.9%, which is 44.9 percent higher compared to the beginning of the period. On the other hand, the budget deficit is growing from year to year exceeding 6% of GDP in 2012 and 2014. However, the deficit was reduced as a result of adjustments to public finances within the fiscal consolidation package and arrangements with the IMF.

Figure 3. Key ﬁscal indicators in Serbia Source: www.nbs.rs

Figure 4. Budget deﬁcit - structural expenses Source: Ministry of Finance (2015)

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Kalaš, B., Andrašić, J., Pjanić, M.  Aspect of fiscal consolidation

Figure 4 reflects the trend of wages and pensions as structural expenses in the Serbian budget where the level of wages increased by 0.4%, i.e. from 23.4% to 23.8%, while the share of pension funds reduced by 0.5%, i.e. from 28.9% to 28.4% although in 2013 this category accounted for one third of the budget, i.e. 30.2%. Figure 5 shows the structure of budget deficit in terms of monetary expenditures for wages and pensions as the prevalent components in the public finance system of Serbia. They make more than 50% of the entire budget, which confirms the

relevance of these expenditures. The share of wages and pensions at the end of 2015 was 52.20%, which is by 0.7% higher compared to 2014. Important fiscal consolidation measures were adopted with the budget rebalances in 2012 and their implementation continued in 2013. This policy has primarily been to the revenue side and is related to tax rate changes as well as elimination of significant number of parafiscal levies. On the expenditure side, the most important measure was limiting the growth of public sector wages and pensions where these components are reduced for

Figure 5. Wages and pensions shares of budget 2015 Source: www.mﬁn.gov.rs

2012-2014 2 years: from 6.5% to 8.5% of GDP

3 years: from 8.5% to below 3% of GDP

Public sector wages

Reduced indexation; solidarity tax

Reduction for 15% (10%)

Public sector employment

Limit employment

Rationalization employment

Pensions

Reduced indexation; introducing 13th pension

Reduction for 15% (12%)

Public investments, subsidies and other expenditures

Expenditure’s growth for banks, public companies, subsidies; non-execution of investments

Expenditure’s decrease for public companies, a former social companies, public investment increase

Value Added Tax

Standard rate 18% to 20% Lower rate 8% to 10%

Standard rate 20% to 22% Lower rate 10% to 11%

Income tax

Corporate income tax from 10% to 15%

Excise

Increase

Structural reforms

Without reforms

Pension, labor laws and privatization, restructuring of public companies and public administration

Table 2. Fiscal Council proposal Source: Fiscal Council (2014)

2015-2017

Consolidation duration and deficit trend

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employees with earnings exceeding 60.000 RSD and a hiring freeze. The measures of fiscal consolidation significantly determine the trend of macroeconomic aggregates in the future, especially the trend of GDP and private consumption. Moreover, measures relating to salaries and pension cuts will have double impact on the overall level of general government revenues (Fiscal Council, 2014): ◆ Nominal decrease of salaries and pensions in the public sector will have adverse effects on the real level of personal consumption, which will be partially compensated by the trend of salaries into the private sector; ◆ Projected level of inflation with the trend of the real level of private consumption leads to stagnation of a nominal level of consumption as a determinant of indirect taxes collection in 2015. ◆ Reduction of salaries in the public sector directly affects the trend of the level of direct taxes. Also, decrease of salaries in parts of the public sector that aren’t financed directly from the budget of Serbia will affect the revenue side, by showing the anticipated savings on the revenue side as part of nontax revenues; ◆ The assumption is that the consumption of excise goods is inelastic and that quantitatively expressed trend of consumption is autonomous in relation to the overall level of spending. The trend of prices of these products directly and largely affects the volume of grey economy; ◆ Efficiency of parts of the public sector will cause a higher payment received from public companies in the future and together with the introduction of a new category of dedicated revenues in the forms of fees for mandatory strategic oil reserves will affect the amount of total tax revenues. The economic restructuring of the Serbian economy will be notably supported by the decline of irrational public expenditures and adequate

model of investing funding, which would boost the economic growth. Therefore, fiscal policy has the key role in defining the optimum relationship between expenditures and revenues in the budget and if there is a deficit, the government should enable long-term financing. Also, public debt management represents one of the primary goals in every country and the economy lacking the appropriate strategy would face serious issues.

CONCLUSION The economic crisis has had a considerable bearing on the Serbian economy through a sudden inflow of capital due to the global trend of decreased economic activity and aggregate demand. In 2009 and 2010, there was a nominal freeze of pensions and wages in the real sector, given that these two components represent the largest budget expenditures. Furthermore, in the period 20112012, the rules were designed to limit fiscal deficit and debt while still maintaining the wages level in the public sector. With solidarity tax or reduction in net income and temporary suspension of employment until 2015, there was also an increase in VAT rate from 8% to 10% with determination of measures to repression of shadow economy. If we observe the year 2016, the data show halved fiscal deficit and it’s encouraging in terms of public finances of Serbia. However, the public debt growth is a serious issue in our economy. Over the last two decades, irrational spending of funds on the basis of borrowing has been the common tendency in terms of dealing with public finances. Fiscal consolidation must be set and be even more comprehensive with special emphasis on public enterprises with huge loss. Also, giving guarantees and subsidies for their existence on the market leads to spending large funds in the budget and contributes to the deficit growth. Finally, fiscal consolidation needs to be underpinned by structural reforms as only in this way it is possible to achieve measures and goals of successful adjustment of public finance. 27

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Ardagna, S. (2004). Fiscal Stabilizations: When Do They Work and Why? European Economic Review, 48(5), 1047-1074. doi:10.1016/j.euroecorev.2003.09.010

International Monetary Fund. (2009). The state of public finances cross-country fiscal monitor. Washington DC: International Monetary Fund.

Avellaneda, S., & Hardiman, N. (2012). Fiscal politics in time: Pathways to fiscal consolidation, 1980-2012. Dublin: UCD Geary Institute.

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Kalaš, B., Andrašić, J., Pjanić, M.  Aspect of fiscal consolidation

Chapter 3. Washington, DC: International Monetary Fund. Ministarstvo finansija Republike Srbije. (2015). Bilten javnih finansija. Retrieved March 30, 2016, from http:// www.mfin.gov.rs/UserFiles/File/bilten%20javne%20 finansije/bilten-136%2018032016.pdf. In Serbian.

Rodrik, D. (2012). No More Growth Miracles. Retrieved March 30, 2016, from http://www.project-syndicate. org/commentary/no-more-growth-miracles-bydani-rodrik Samuelson, P.A., & Nordhaus, W.D. (2001). Economics. Boston: McGraw-Hill.

Mulas-Granados, C. (2006). Economics, Politics and Budgets: The Political Economy of Fiscal Consolidations in Europe. London: Palgrave Macmillan.

Spence, M. (2011). The next convergence: The future of economic growth in a multispeed world. New York: Farrar, Straus and Giroux.

National Bank of Serbia. (2013). Statistics. Retrieved March 30, 2016, from http://www.nbs.rs/internet/ english/80/index.html

Tapsoba, S.J.A. (2013). Options and strategies for fiscal consolidation in India. Washington, DC: International Monetary Fund.

OECD. (2011). Fiscal consolidation: Targets, plans and measures. OECD Journal on Budgeting, 11(2), 1567. doi:10.1787/16812336

Taylor, J., Cogan, J., Wieland, V., & Wolters, M. (2013). Fiscal Consolidation Strategy. Journal of Economic Dynamics and Control, 37(2), 404-421.

Petrović, P., Brčerević, D., & Milić, S. (2016). Economic recovery, employment and fiscal consolidation: Lessons from 2015 and Prospects for 2016 and 2017. Retrieved March 30, 2016, from http://www.fiskalnisavet.rs/doc/istrazivacki-radovi/FC%20working%20paper%20-%20KBF%202016%20ENG.pdf

Von Hagen, J., Hallett, A.H., & Strauch, R. (2002). Budgetary consolidation in Europe: Quality, economic conditions and persistence. Journal of the Japanese and International Economies, 16(4), 512535. doi:10.1006/jjie.2002.0516

Princen, S., & Mourre, G. (2013). The role of tax policy in times of fiscal consolidation: Proceedings of the workshop organised by the Directorate General for Economic and Financial Affairs held in Brussels on 18 October 2012. Retrieved March 30, 2016, from http://ec.europa.eu/economy_finance/publications/ economic_paper/2013/pdf/ecp502_en.pdf

Vujović, D. (2016). Serbia: Fiscal Consolidation – Program Design and Political Economy Issues. Ekonomika preduzeća, 2016, 1-13. Retrieved March 30, 2016, from http://ses.org.rs/upload/Ekonomika%20preduzeca%201-2-2016.pdf

ASPEKT FISKALNE KONSOLIDACIJE U SRBIJI Rezime: U savremenim tržišnim uslovima gde je dužnička kriza veoma zastupljena, pojam fiskalne konsolidacije predstavlja jedan od mogućih rešenja za prevazilaženje glavnih problema u privredi jedne zemlje. Kada govorimo o fiskalnoj konsolidaciji, neophodno je da se ukaže na značaj izrade strategija koje imaju za cilj smanjenje deficita i nivoa duga. Srbija se ubraja u zemalje u kojima je neracionalna potrošnja široko rasprostranjena sa nepovoljnom tendencijom sa stanovišta proizvodnje i potrošnje. U proteklih dvadeset pet godina, Srbija je trošila mnogo više nego što je proizvodila, što je dovelo do ogromnog budžetskog deficita i visokog nivoa duga. Cilj ovog rada jeste da prikaže značaj koncepta fiskalne konsolidacije i njegove primene u Srbiji, dok se predmet rada ogleda u predstavljanju paketa mera i strategija definisanih od strane Vlade Republike Srbije, kao i programa predloženog od strane Fiskalnog saveta.

Ključne reči: fiskalna konsolidacija, strategija, mere, ravnoteža. Received: April 4, 2016 Correction: Jun 25, 2016 Accepted: July 14, 2016

EJAE 2016, 13(2): 30-44 ISSN 2406-2588 UDK: 005.311.6:004 DOI: 10.5937/ejae13-10675 Original paper/Originalni naučni rad

INFORMATION SUPPORT MODEL AND ITS IMPACT ON UTILITY, SATISFACTION AND LOYALTY OF USERS Sead Šadić1,*, Adis Puška2, Admir Beganović3 1 Government of Brčko District B&H, Bulevar mira 1, Brčko, Bosnia and Herzegovina 2 College of Computer Science and Business Communications eMPIRICA, Bulevar mira 10, Brčko, Bosnia and Herzegovina 3 The University of Business Studies Jovana Dučića 23a, Banja Luka, Bosnia and Herzegovina

Abstract: In today’s modern age, information systems are of vital importance for successful performance of any organization. The most important role of any information system is its information support. This paper develops an information support model and presents the results of the survey examining the effects of such model. The survey was performed among the employees of Brčko Distric Government and comprised three phases. The first phase assesses the influence of the quality of information support and information on information support when making decisions. The second phase examines the impact of information support when making decisions on the perceived availability and user satisfaction with information support. The third phase examines the effects of perceived usefulness as well as information support satisfaction on user loyalty. The model is presented using six hypotheses, which were tested by means of a multivariate regression analysis. The demonstrated model shows that the quality of information support and information is of vital importance in the decision-making process. The perceived usefulness and customer satisfaction are of vital importance for continuous usage of information support. The model is universal, and if slightly modified, it can be used in any sphere of life where satisfaction is measured for clients and users of some service.

INTRODUCTION Information technologies play an important role in modern business. The rapid growth of the Internet as communication media represents the crucial element of support and success in everyday business. The information technology develop30

* E-mail: sead23@gmail.com

Key words: information system, information support, information support model, satisfaction, loyalty.

ment did not bypass the public sector. Information technology is nowadays seen as a mechanism for business advancement and improvement. The most important section of information system is information support itself. The use of information support in public sector contributes to making everyday decisions, resolution of business pro-

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cesses and enables eﬃcient communication and all other processes up to final data archiving. Information system eases the accomplishment of everyday activities and all other requests. It should enable the user to obtain quick and adequate information. Today’s decision makers are faced with the problem of excessive information. In the decision-making process, it is necessary to receive useful information at the right moment with it being complete and consistent. Information in today’s business environment is the most valid resource that facilitates the decision-making process and decreases the level of uncertainty and risk. The following research topic arises from the present research: how does the organization of local government enhance its functioning by introducing information technologies. The other topic refers to the way in which the information support quality aﬀects the decision making process with regards to the perceived client utility, satisfaction and loyalty.

34). The task of information systems is to provide adequate information support to the user/client. In order to make the right decision, every manager is required to have “the real database of information for decision making and determining each type of information needed to make the proper decision” (Mahmutović et al., 2012, p. 42). Therefore, it is required that each information system user knows how to obtain the required information in order to make a decision and resolve the problem. Information systems should provide information support based on which decisions will be made and everyday activities successfully performed. The use of information systems results in adequate information support provided to the client/user. Therefore, this paper will observe how information systems used in Brcko District Government aﬀect the decision-making process and problem solving and whether the users would continue to use them, i.e. remain loyal. The paper develops the model that will serve as the basis for this research.

In order to examine the research subject, it is necessary to examine the impact of information system quality and information in general on information support when making decisions and its influence on the perceived usage and satisfaction of information support, which further results in information support system loyalty.

The following assumptions were taken into consideration when creating the research model:

To that end, it is necessary to set up an information support model and determine the indicators used to measure the research varieties. In order to prove this research model, multi-variation regression analysis shall be utilized.

◆ decision-making process is connected with usage perception and client satisfaction by using information support,

THEORETICAL FRAMEWORK OF RESEARCH MODEL Modern eﬃcient business decision making cannot be imagined without information systems. Information systems and technologies are used as support to all aspects of organizational functions and activities (Marković Blagojević et al. 2014, p.

◆ information support quality is important for the decision-making process, ◆ quality of information obtained from information systems is important for the decision- making process,

◆ Information support perceived level of usage and satisfaction determines the loyalty level and readiness for continuation of service usage. The given assumptions indicate three relations based on which the following varieties would be used: ◆ quality of information support on decision making ◆ eﬃciency and satisfaction and ◆ eﬃciency and satisfaction on loyalty. 31

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Image 1. Research model

The first relation sees the information support quality and quality of information obtained by using information support as independent varieties. In the first relation, information support in the decision-making process is seen as a dependent variety. The second model relation sees information support in the decision-making process as an independent variety, whereas the perceived efficiency of information support and satisfaction with information support is seen as a dependent variety. The third model relation has the perceived eﬃciency of information support and satisfaction with information support as independent varieties, whereas the loyalty of information system support is marked as a dependent variable. Based on this research model, the following hypotheses are established: H1 – Information support quality influences decision making in everyday business activities of the user, H2 – Information quality influences decision making in everyday business activities of the user, H3 – Information support in the decision making influences the user’s perceived eﬃciency of this support, H4 – Information support in decision making influences the user’s satisfaction with this support, 32

H5 – There is a significant influence of the perceived eﬃciency on loyalty when using the information support system, H6 – There is a significant influence of satisfaction on loyalty when using the information support system.

INFORMATION SUPPORT QUALITY Quality is a multidimensional term which can be observed from various aspects. The term quality will be used to show its conveniences for usage, considering that the information system users have diﬀerent needs, requests, wishes, and diverse interpretations of its quality Petter et al. (2008, pp. 238-239). The users define quality of information system through its desired characteristics such as intuitiveness, sophistication, flexibility and response time. The aim of the information system is to be simple for usage by providing information support. It needs to be in compliance with the requirements and client wishes. Information needs to be accessible quickly at all times. “High quality of information system management means high information quality through eﬃciency and satisfaction or decision maker and increases the manager’s decision quality” (Al-Mamary et al., 2013, p. 11).

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The thing that each information system needs to provide is quality information support. That means that the information system user will receive accurate information at the right time and will be satisfied because he/she received the requested information. In that way, information support increases the quality in problem solving and decision making. The more satisfied the user is with information support, the more he/she will use it in his/her work. This paper explains that the information support quality means that the information system is easy to use, has great reliability in work and information is easily accessible and adaptable to the needs of the user.

INFORMATION QUALITY Quality information needs to enable easier accomplishment of user’s business. Information quality has become a critical concern of organizations and an active area of Management Information Systems research (Lee et al., 2002, p. 133). Quality information is the desired output of each information system. “Information quality measures the output of information system and does not measure the quality of that system (DeLone & McLean, 1992, p. 64). Information quality provided by information system as an output can be measured in various ways and using various approaches. DeLone and McLean (2003) used the following characteristics which are required for the information to be of good quality: precise, timely, complete, relevant and coherent. Al-Mamary et al. (2013, p.12) outline the following desired features required for quality information: accurate, complete, brief, coherent, relevant, timely, suﬃcient amount, available and understandable. The most important quality of information is for them to enhance the decision making performance, increase work eﬃciency and improve the quality of information system users. The mission of each piece of information is to contain all re-

quired data relevant for problem solving, decision making and everyday business activities.

INFORMATION SUPPORT IN DECISION MAKING Each user is required to receive timely and accurate information needed for the decision making process. The basic information technology support is in decision making. Managing any type of organization includes decision making and resolution of daily as well as specific problems. Therefore, it is necessary to possess certain knowledge and information (Stanišić, 2014, p. 73). Information systems with their information support are needed for the user to obtain information required for decision making and problem solving. In order to increase eﬃciency in the decision making process, it is required to possess real information at the right time. Decision making is the process of problem identification and its resolution (Mašić et al., 2010, p. 195). “Information system needs to be reliable, comprehensive and operational, established to enable simple data and information approach in a way to please the user needs and also needs to support the processes of rational strategic and operational decision making” (Imamović & Redžić, 2012, p. 197). Information systems assist managers in resolving two types of problems: optimizing the business process and process of manager information supply. The most important section of information system in decision making is to help the managers by using all relevant information.

PERCEPTION OF INFORMATION SUPPORT USAGE Perception of information support usage is defined by Davis (1989, p. 320) as the degree of user’s eﬃciency and validity to improve his/her business eﬃciency. It is related to the user’s satisfaction with information support obtained in everyday business activities, decision making, problem solving, all of 33

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which they encounter at work. The perceived usage of information system cannot be seen as something that is used for decision making but rather to assist in user’s everyday business. The definition was given by Mathwick et al. who define the perceived usage as the degree by which a person thinks that a certain system improves business conducting. In order for the information system to improve the perceived usage of users, it is required to enable rapid decision making, increase work eﬃciency and problem solving, and improve productivity and performance of user information system. This could lead to the increased awareness of the usage of information systems, information support in everyday business. The perceived usage of users rises along with the increase of awareness. Each information system needs to secure easier business activities for the users/clients. The better support, the higher the perception of its usage by the user. If the information system provides necessary information support to the user, he/she will be dissatisfied with the system and the perceived eﬃciency will reduce and its use will record a growing tendency in everyday business.

SATISFACTION WITH INFORMATION SUPPORT Customer satisfaction refers to how satisfied a customer is with the supplied product/service (Eid, 2011, p. 88). When you mention the term “satisfaction with information support”, it means positive experience with information system in the past. Primary satisfaction is created when all information for everyday business is obtained and easily accessible. The user measures his/her satisfaction with the output data of information system, which is shown as information support. By using the output approach to the information system, Halawi et al. (2008, p. 126) define satisfaction with information system through user requests that are shown as the available information on information support. If the user thinks that the information system is 34

useful for providing information support, he/she will try to use it in all aspects of his/her work. But, otherwise, he/she will not use it even in the places where it is the most effective at work. In order to increase user satisfaction, it is necessary to apply different enforcement strategies for the user to be actively involved in the creation of these systems. By doing so, the user will become more familiar with the entire process. If the user understands how the system functions and if he/ she knows how to use it, he/she will be meeting his/her needs better than the users who were not involved in the creation of such systems. This will greatly affect the loyalty and readiness to use such systems in future (Halilović, 2015, p. 71). Doll et al. (1994, p. 461) state that the most important measuring tool of client satisfaction with information system is the information support to the end user, as well as information on user satisfaction.

LOYALTY TOWARDS INFORMATION SUPPORT This paper assumes that the loyalty is the intention of continuous usage of certain information support. Customer loyalty is customer intention to reuse something based on his experience and expectancy in the past (Hadi et al., 2012). Of course, loyalty can also be defined in other ways. Oliver (1997, p. 392) views loyalty as deep dedication to the repeated purchase of the preferred product or service, despite the situational influences and marketing eﬀorts of the opposition which have the potential to create the supplier change. In the environmental context, customer loyalty is measured based on the number of customers performing transactions (Kim et al., 2003). When defining loyalty, it is necessary to include user perception. Based on that perception, the user satisfaction or dissatisfaction is created. In case of satisfaction, the loyalty is created whereas in case of dissatisfaction the user will use diﬀerent methods in the future, which is not the case with

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physical products (Babić-Hodović & Činjarević, 2009, p. 738). In order to increase loyalty of the information system user, the quality of the system itself needs to be improved and the user needs to be satisfied with that system. Without the satisfied user, there is no loyal user, and satisfaction is connected with quality.

RESEARCH METHODOLOGY The basis of this research is the employer of Brcko District, Bosnia with access to one of information systems. Questionnaires are given to those users for the primary research to be conducted. The research itself was conducted in the following way: ◆ questionnaire formation, ◆ defining the main target, ◆ forwarding questionnaires, ◆ gathering completed questionnaires, ◆ processing research results, ◆ research result presentation. The questionnaire comprises two parts: characteristics of examinees and claims connected to research varieties. For the purpose of questionnaire examination, the following characteristics have been considered: age, sex, workplace, school, work experience and weekly system usage. For variety questioning, Likert scale method with five intensity levels was used, with 1 meaning I disagree and 5 meaning I agree. Two-approach level was used for conducting this research and included the following: sending the electronic version of the questionnaire to Brcko District, Bosnia and Herzegovina, Government employees and forwarding the paper version to the employees, which gave better eﬀects. That is also confirmed by the research conducted by Kwak and Radler (2002), which shows that there is a smaller responsiveness rate with online research performed by the examinees. Based on this research, 141 completed questionnaires were received. The return rate was 47% since the survey was forwarded to 300 users of

information system. The user selection was conducted using the non-random sample method. “This sample is used with population for which we assume to be homogenous towards the observed characteristics” (Fazlović, 2013, p. 151). In this case, we had homogenous observed users and therefore, the non-random sample was used. As regards the data analysis, statistical packets SPSS 20 and Stastica 12.5 were used. During the hypothesis analysis, inferential statistics was used for the importance level of 5 per cent or p<0, 05. For hypothesis connection, factor analysis was used, while Crombach alpha method was implemented for reliability examination.

RESULTS The purpose of this research is to determine whether the varieties in the set exploration model are mutually connected. Table 1 shows the basic characteristics of examinees. Based on all basic examinee characteristics, no specific diﬀerences could be observed between the selected groups. Accordingly, the results obtained can be accepted and marked as relevant. Prior to examining the set hypotheses, it is necessary to inquire the collected data. The reliability of data received is measured on the basis of Crobach’s alpha coeﬃcient value. While performing the factor analysis, data reliability was inquired based on Kaiser-Meyer-Olkinov (KMO) and Bartlett tests. The mutual connection of varieties was measured by means of correlation analysis. The task of Cronbach’s alpha index is to examine the internal consistency of received data (Carlbring et al., 2007, p. 1427). Cronbach’s alpha value is from theoretical zero to one. If the index value is close to zero, it can be said that data is unreliable. If the values are close to one, it can be said that data is very reliable (Kozarević & Puška, 2015, p. 589).The value of this index needs to be higher than 0.75 for the data to be considered reliable. Factor analysis is used herein to explore inter35

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Examinee characteristics Sex

Work place/position

Examinee age

School qualification

Work experience

Weekly use of the system

Male Female assistant; clerk expert assistant senior expert assistant consultant assistant; manager do 30 years 30-40 years 41-50 years 51 years and more Secondary Academy MA degree; doctorate up to 5 years 6-10 years 11-15 years 16-20 years 20 years and more up to 5 hours 6-10 hours 11-15 hours 16-20 hours over 20 hours

Frequency 83 58 45 21 33 8 33 23 48 33 37 33 77 19 31 34 24 23 21 20 25 31 28 27

Percentage 58,87% 41,13% 32,14% 15,00% 23,57% 5,71% 23,57% 16,31% 34,04% 23,40% 26,24% 25,58% 59,69% 14,73% 23,31% 25,56% 18,05% 17,29% 15,79% 15,27% 19,08% 23,66% 21,37% 20,61%

Table 1. Basic examinee characteristics

nal connection of claims inside one variety. The main component analysis and varimax rotation with Kasiser normalization were used during the factor analysis. In order to examine factor analysis data reliability, Kaiser-Meyer-Olkin (KMO) indicator of sample adequacy is used as well as Bartlet spherical test. KMO indicator varies from zero to 1. If the result is smaller than 0.6, correlation matrix is not suitable for this analysis. Bartlett’s test finds the significance value to be smaller than 0.05 (p<0.05) desirable (Puška et al., 2015, p. 108). The results of internal connection of claims within research varieties indicate strong correlation between them. The smallest value of factor analysis was established with the variety of information support usage where the numbers varied between 0.837 and 0.935. 36

Other index values obtained from this analysis were bigger and were close to 1, which represents an excellent value for internal connection. As can be seen from the factor analysis, all varieties have one factor. Therefore, it can be said that one-factor analysis of internal connection of research was conducted. All values are bigger than 0.6, and thus it can be said that the correlation matrix is needed for the analysis. The Bartlett’s test value is smaller than 0.05 for all factor analyses. The value of this test for all analyses is p<0.000. Based on this research, it can be concluded that there is not even the slightest possibility for statistical error occurrence since the zero has three decimals. Based on the above-stated, it can be concluded that the collected exploration data is mutually internally coherent and that there is only one factor that explains the research varieties.

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Mark

Claim

Factor connection

Data reliability

0,970 0,977 0,971 0,955

0,978

Quality of information support system KSIP 01 KSIP 02 KSIP 03 KSIP 04

Simple for use Has great confidence at work Information is easy to get Easily adapts to user’s needs

KMO = 0,849; Bartlet test p < 0,000; Explained varieties 93,75% Quality of information obtained through information support KIIP 01 KIIP 02 KIIP 03 KIIP 04 KIIP 05

It is possible to get reliable information It is possible to get all significant information It is possible to get accurate information It is possible to get clear information It is possible to get coherent information

0,961 0,958 0,975 0,974 0,970

0,983

KMO = 0,862; Bartlet test p < 0,000; Explained varieties 93,63% Information support with decision making IPDO 01 IPDO 02 IPDO 03 IPDO 04 IPDO 05

Information support helps me in daily decision making 0,954 Information support makes everyday work much easier 0,970 Information required for decision making is obtained through 0,946 information support By using information support, work eﬃciency is increased 0,970 By using information support, work performance is increased 0,961 KMO = 0,855; Bartlet test p < 0,000; Explained varieties 92,21%

0,979

Perceived use of information support PKIP 01 PKIP 02 PKIP 03 PKIP 04

Information support is exceptional It fulfills user’s needs Functional possibilities of information support are great Information support is very useful for my work

0,978 0,976 0,967 0,941

0,976

KMO = 0,866; Bartlet test p < 0,000; Explained varieties 93,28% Satisfacion with information support ZIPS 01 ZIPS 02 ZIPS 03 ZIPS 04

I am satisfied with the overall information support Information support satisfies all my needs and expectations Information support is eﬃcient and eﬀective Information support performance is exceptional

0,974 0,977 0,983 0,975

0,984

KMO = 0,856; Bartlet test p < 0,000; Explained varieties 95,50% Loyalty of information support usage LKIN 01 LKIN 02 LKIN 03 LKIN 04

If I was oﬀerred other information support, I would not accept it I intend to continuously use this support I try to include information support in my activity I would gladly use newer systems of information support

0,880 0,935 0,925 0,837

0,916

KMO = 0,738; Bartlet test p < 0,000; Explained varieties 80,11% Table 2. Examination of connection and data reliability

In addition, the values of factor analysis are high, and none of the claims is rejected from further analysis. The result value obtained through Cronbach’s alpha is shown as being bigger than 0.91 and closer to 1. Thus, it can be concluded that all collected data is relevant and reliable.

This section will explore the research set hypotheses using the multi-variation regression analysis. The aim of multiple regressions is the inclusion of multiple factors in the analysis both individually and separately, where the estimation of factor influence from independent to dependent variable is 37

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done. Multiple regressions are quite flexible and can be suitable when analyzing the dependent variety in relation to more independent varieties (Božić, et al. 2013, p. 43). The thing that needs to be mentioned with multiple regression is that this analysis provides evaluation of all research factors as well as individual factor influence of independent variety on the dependent one where the F-test value and the relevance of this test is given. Multiple regressions make it possible to make an equation of independent factor influence on dependent ones, where the independent factor value is determined using “B” coefficient, which represents the items for minimizing the mathematical method mistakes. The implementation of multiple regressions will be done using the programming tool Statistica 12.5. As previously mentioned, the research model in the first hypothesis uses information support quality as an independent variety, whereas information support is used as a dependent variety in the decision making process. The mission of this hypothesis is to examine the influence of information support quality on the user’s decision making. The total model assessment is being used for examining the first hypothesis. The results of multiple regression show that there is a slight and almost significant link between the observed varieties of research and multiple correlation coefficient (R) which is 0.7822, whereas the determination coefficient value is R2 = 0.6118. This coefficient shows the proportion of criterion that can be explained on the basis of variety aggregate. Based on the value of determination coefficient, it can be said that with this model of multiple regression 61.18 per cent of dependent varieties are explained based on the variety aggregate. The value of the standard error rate is 0.70639, which is considered to be relatively small. With this model, the F-test value is 48.468, which is bigger than the table value. Therefore, it can be said that this research hypothesis is accepted. This also proves the p-value or the level of model significance. Based on these tests, it can be concluded that information 38

support quality influences the decision making in everyday life of users, which proves the first hypothesis. After the total aggregate value of the model was explained, the results of individual indicators of independent variety on dependent variety factors shall be evaluated. The multiple regression results reveal that only one indicator plays a significant role in dependent variety explanation, thus indicating that information support easily adapts to the user’s requests where the T-test value for this indicator is 3.5690, while the significance level is 0.0005. Coefficients of regression in this model are presented as “B” values. Based on that, it can be said that the value of regression coefficient for the mentioned indicator is 0.5398. This value is positive and in line with regression direction. The thing that is still valuable is constant value and its importance level is 0.0040, while for the remaining indicator values this level is significantly bigger. It is also important to mention the KSIP 02 indicator. The quality of information support has more reliability in business where regression coefficient is negative and is -0.0317, while the significance level value is bigger and is 0.8930. The results of multiple regression usage for the second established hypothesis show that there is a large connection between the observed varieties. Information quality was used as an independent variety and information support as dependent one in decision making. The value of multiple correlation analysis is 0.7680 while the determination coefficient is valued at 0.5898 based on which it can be said that with independent variety, 58.98 per cent of dependent variety was explained. The standard error estimate rate is labeled as 0.73256, which is slightly less than the previous multiple models. The T-test value in this case is valued at 35.365, which is bigger than the table value. The T-test value is used for hypothesis verification. The second backing hypothesis is accepted. It states that the quality of information influences decision making

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in everyday user’s business activities. Besides that, the p-value result is smaller than 0.05, which also proves the second research hypothesis. By observing individual claims and their influence on the independent variety, it can be noticed that none of the stated claims individually is significantly important i.e. it does not influence the dependent variety. Two claims have negative values of regression, the KIIP 01 and KIIP 03, whose T-test

values are -0.7476 and -0.5766, respectively. These two claims have the biggest level of significance ranging from 0.4561 and 0.5652. Other indicators have positive regression coeﬃcient value, so the smallest significance level is at KIIP 02 claim and is 0.0855, which is close to the border value of 0.05. However, it cannot be said that this claim has a significant influence on the dependent variety of information support in decision making.

Total model assessment R = 0,7822; R = 0,6118; Addapted R = 0,5992; F(test) = 48,468; p<0,0000; standard error estimate rate: 0,70639 2

Model (Constant) KSIP 01 KSIP 02 KSIP 03 KSIP 04

Ungraded coeﬃcients B Standard Error 0,7002 0,2388 0,2546 0,2167 -0,0317 0,2354 0,0599 0,1848 0,5398 0,1512

T-test

Significance

2,9326 1,1747 -0,1348 0,3240 3,5690

0,0040 0,2424 0,8930 0,7465 0,0005

Table 3. Results of multiple regression for hypothesis 1 examination

Total model assessment R = 0,7680; R2 = 0,5898; Adapted R2 = 0,5731; F(test) = 35,365; p<0,0000; standard error estimate rate: 0,73256

Model (Constant) KIIP 01 KIIP 02 KIIP 03 KIIP 04 KIIP 05

Unstandard coeﬃcients B Standard error 0,7144 0,2493 -0,1556 0,2081 0,3510 0,2025 -0,1347 0,2336 0,3975 0,2536 0,3409 0,2570

T-test

Significance

2,8654 -0,7476 1,7337 -0,5766 1,5674 1,3264

0,0049 0,4561 0,0855 0,5652 0,1196 0,1872

Table 4. Results of multiple regressions for hypothesis 2 examination

Total model assessment R = 0,7556; R2 = 0,5710; Adapted R2 = 0,5534; F(test) = 32,470; p<0,0000; standard error estimate rate: 0,71525

Model (Constant) IPDO 01 IPDO 02 IPDO 03 IPDO 04 IPDO 05

Unstandard coeﬃcients B Standard error 0,8518 0,2466 0,3431 0,1951 0,0088 0,2310 -0,0739 0,1550 0,1384 0,2503 0,3584 0,2204

T-test

Significance

3,4541 1,7584 0,0379 -0,4765 0,5529 1,6266

0,0008 0,0812 0,9698 0,6346 0,5813 0,1064

Table 5. Results of multiple regressions for hypothesis 3 examination 39

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The results of multiple regression implementations in hypothesis 3 show that the two varieties, dependent and independent one, are connected and that the value of multiple correlations is 0.7556, which is slightly less than with previously established multiple regression models. This model, with the help of independent variety, explained 57.10 per cent of dependent variety, which shows the value of determination coefficient. The standard error estimate rate for this model is 0.71525, which is almost equal to the values in previous models. As with the previous model, the established hypothesis is accepted because the F-test value is bigger than the table value while the p-value is smaller than 0.05, which confirms that information support in decision making influences the user’s perceived usage of this support. As for the individual influence of indicators of information support in decision making, we can say that there is no significant influence of individual indicators on the variety of the perceived usage of information support. The only important value is the constant value. The regression coefficient is 0.8518 while the significance value is 0.0008. As for the indicators, we can see that IPDO 02 (Information support facilitates my everyday work) indicator does not influence the dependent variety and its regression value is 0.0088, while the significance value is at 0.9698. It has already been emphasized that the closer the p-value is to zero, the bigger the influence, and vice versa. For the value of 1 we can say that there is no influence. Since this value is close to 1, we can say that there is no influence of this indicator on dependent variety. The value of correlation coefficient is negative for IPDO 03 indicator and is -0.0739, while the significance value for this indicator is 0.6346. The remaining indicators have positive value with regressive function. The results of multiple regressions showed that these two varieties are nicely connected and that the value of multiple correlation coefficients is 0.7755. This model of multiple regressions encompasses 60.14 per cent of influence that independent varie40

ty has on the dependent one which shows the value of determination coefficient. As for the statistical error, it is less than with previous models. The Ftest value, which is 36.509, and p-value, which is 0.000, shows a significant statistical influence of independent value on the dependent one with this model of multiple regressions. Based on these results, we can conclude that information support in decision making has influence on user’s satisfaction with this support. That is why the fourth hypothesis has been accepted. There is no significant influence of information support indicators in decision making on the variety of satisfaction with information support. The multiple regression results show that there is only a great level of significance with the constant value in regression function, while other indicators do not have the importance level required to show that there is a significant statistical importance of the influence of these indicators on the dependent variety. The IPDO 04 variety has the smallest influence, with the value of 0.9656. This is the only indicator with a negative regression coefficient. With the remaining regression coefficients, there is a positive influence on the dependent variety. During the research of influence that the perceived usage of information support has on information system loyalty, the results of multiple regressions were obtained, and they reveal a slight connection between these varieties. The value of multiple correlation analysis is the smallest in regards to other models of multiple regressions and is 0.4733. This analysis encompassed only 22.4 per cent of influence that independent variety has on the dependent one, which is shown by the determination coefficient. The standard error estimate rate is the highest of all other models of multiple regressions and is 1.2328. However, besides all other F-test (98.8768) and p-values (0.000), the fifth hypothesis is accepted and it shows that there is a significant influence of the perceived usage on loyalty in usage of information support system.

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During the research of individual influence of independent variety on dependent one, the results obtained show that only the constant has the suﬃcient value of significance for this statistical index to be considered important with p-value being 0.0007. It is important to state that PKIP 04 indicator has the biggest influence on the dependent variety and its significance level is 0.0564. Meanwhile, this level is higher than the set level with used inferential statistics. This indicator also has the highest regression coeﬃcient in regards

to other indicators, which is 0.4385. PKIP 02 indicator has the smallest influence with p-value being the highest (0.9939), which is very close to 1, meaning there is not even the slightest significant statistical influence of this indicator on the dependent variety. The results of multiple regression show that the value of multiple correlation for this model of multiple regression is 0.5840, and that there is a significant connection of research varieties. This model encompassed 31.98 per cent of influence

Total model assessment R = 0,7755; R = 0,6014; Adapted R = 0,5849; F(test) = 36,509; p<0,0000; standard error estimate rate: 0,69544 2

Unstandard coeﬃcients B Standard error 0,8571 0,2406 0,3104 0,1864 0,1477 0,2251 0,0456 0,1578 -0,0128 0,2962 0,3078 0,2851

Model (Constant) IPDO 01 IPDO 02 IPDO 03 IPDO 04 IPDO 05

T-test

Significance

3,5627 1,6655 0,6559 0,2889 -0,0432 1,0798

0,0005 0,0984 0,5132 0,7732 0,9656 0,2824

Table 6. Results of multiple regressions for hypothesis 4 examination Total model assessment R = 0,4733; R = 0,2240; Adapted R = 0,1987; F(test) = 8,8758; p<0,0000; standard error estimate rate: 1,2328 2

Model (Constant) PKIP 01 PKIP 02 PKIP 03 PKIP 04

Unstandard coeﬃcients B Standard error 1,4576 0,4215 0,2411 0,4201 0,0031 0,3998 -0,0740 0,3149 0,4385 0,2277

T-test

Significance

3,4582 0,5739 0,0076 -0,2350 1,9258

0,0007 0,5671 0,9939 0,8145 0,0564

Table 7. Results of multiple regressions for hypothesis 5 examination Total model assessment R = 0,5840; R2 = 0,3411; Adapted R2 = 0,3198; F(test) = 16,047; p<0,0000; standard error estimate rate: 1,1234

Model (Constant) ZIPS 01 ZIPS 02 ZIPS 03 ZIPS 04

Unstandard coeﬃcients B Standard error 1,1663 0,3831 -0,3019 0,3239 0,8779 0,3473 -0,6010 0,4094 0,7259 0,3520

T-test

Significance

3,0443 -0,9322 2,5279 -1,4681 2,0622

0,0028 0,3530 0,0127 0,1446 0,0413

Table 8. Results of multiple regressions for hypothesis 6 examination 41

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that the independent variety has on the dependent one, which shows the value of determination coefficient. The value of standard error estimate rate is less than with the previous model of multiple regressions, but higher than the first four models and is 1.1234. With previous models, the sixth hypothesis can be accepted based on the F-test value (16.047) and p-value (0.0000), which represents significance level. The partial analysis of indicator influence shows that there is a significant influence with two indicators. Those indicators are ZIPS 02 and ZIPS 04 and their p-values are 0.0127 and 0.0413, respectively. It can be seen that ZIPS 02 has the higher T-test (2.5279) value than ZIPS 04 indicator (2.0622). Based on that and the p-value, it is possible to determine that ZIPS 02 has the higher influence in relation to ZIPS 04 on depending variety of this model of multiple regressions. It is also important to mention that the significant value of the constant is 0.0028. The remaining two indicators have a negative value of regression coeﬃcient and adverse eﬀects on the regression function.

CONCLUSIONS The use of information systems is important for the eﬃcient decision making process. The application of information systems results in providing information support to the user. Because of that, this paper completed system modeling through information support to the user. When forming the model, considerable attention was devoted to how information support influences decision making through quality. All this influences the perceived usage, satisfaction and user loyalty. The main aim of this model was to show the impact of information system. The information system itself, through information support, provides all required information for daily business activities and decision making. The model was projected into three phases: the first phase shows the influence that the quality of information support has on the decision making process itself and conducting of daily business 42

activities. The second phase shows the influence of information support on decision making on the perceived usage and user’s satisfaction with information support. The third phase examines the influence that the perceived usage and information support satisfaction has on user’s loyalty to this support. The research was conducted in Brcko District, Bosnia and Herzegovina, among government employees. Accordingly, 141 completed questionnaires were collected. All categories of information system user’s characteristics have been included. Upon data collection, the relevance and research varieties connection was performed using factor analysis and Cronbach’s alpha coeﬃcient. The results of this method’s show that the collected information is reliable and coherent and suitable for the application of multiple regression method. To that end, six hypotheses were established and verified by means of multiple regression methods. The results show that all hypotheses have been accepted. The detailed analysis of the F-test shows that the quality of information support had the biggest impact on the decision making process. The test value was 48.468. The smallest influence was with the perceived information support usage on user loyalty, with value being 8.8758. The multiple regression results showed that the set hypotheses are accepted as well as the research model. Based on the aforementioned, the future research should consider using this model in other spheres and sections. Moreover, it is also needed to examine mutual influence of certain categories used herein, which has not been encompassed by the present research. It is also of vital importance to compare this model with other models and identify its advantages and disadvantages.

REFERENCES Al-Mamary, Y.H., Shamsuddin, A., & Aziati, N. (2013). The Impact of Management Information Systems Adoption in Managerial Decision Making: A Review. The International Scientific Journal of Management Information Systems, 8(4), 10-17.

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Babić-Hodović, V., & Činjarević, M. (2009). Uticaj percepcije kvaliteta usluga edukacije na lojalnost klijenata. VI Naučno-stručni skup sa međunarodnim učešćem KVALITET 2009, (pp. 737-744). Retrieved April 6, 2016, from http://www.quality.unze.ba/ zbornici/QUALITY%202009/123-Q09-024.pdf. In Bosnian. Božić, B., Milićević, D., Pejić, M., & Marošan, S. (2013). The use of multiple linear regression in property valuation. Geonauka, 1(1), 41-45. Carlbring, P., Brunt, S., Bohman, S., Austin, D., Richards, J., Öst, L.G., & Andersson, G. (2007). Internet vs. paper and pencil administration of questionnaires commonly used in panic/agoraphobia research. Computers in Human Behavior, 23(3), 14211434. doi:10.1016/j.chb.2005.05.002 Davis, F.D. (1989). Perceived usefulness, perceived ease of use, and user acceptance of information technology. MIS Quarterly, 13(3), 319-340. doi:10.2307/249008 DeLone, W.H., & McLean, E.R. (2003). The DeLone and McLean Model of Information Systems Success: A Ten-Year Update. Journal of Management Information Systems, 19(4), 9-30. DeLone, W.H., & McLean, E.R. (1992). Information Systems Success: The Quest for the Dependent Variable. Information Systems Research, 3(1), 60-95. Doll, W.J., Xia, W., & Torkzadeh, G. (1994). A confirmatory factor analysis of the end-user computing satisfaction instrument. MIS Quarterly, 18(4), 453461. doi:10.2307/249524 Fazlović, S. (2013). Primijenjena statistika. Tuzla: Oﬀset. In Bosnian. Hadi, S.P., Purwanto, E., & Khrisna, D. (2012). Antecedents of trust and its impact on loyalty: An empirical study on e-commerce’s customer in Surabaya. International Journal of Information and Communication Technology Research, 2(2), 112-128. Halawi, А., Mccarthy, Р.L., & Aronson, E.J. (2008). An Empirical Investigation of Knowledge Management System’s Success. Journal of Computer Information Systems, 48(2), 121-135. doi:10.1080/08874417.2008.11646014 Halilović, S. (2015). Utjecaj kvalitete usluge na zadovoljstvo i namjeru nastavka korištenja informacijskih sustava. Tržište, 27(1), 57-74. In Croatian. Imamović, A., & Redžić, S. (2012). Razvoj ekološkog informacionog sistema u funkciji održivog upravljanja vodenim ekosistemima. Međunarodni naučni skup Struktura i dinamika ekosistema Dinarida - stanje, mogućnosti i perspektive : posvećen životu i naučnom djelu profesora emeritusa dr. Muse Dizdarevića:

zbornik radova (pp. 185-199). Sarajevo: Akademija nauka i umjetnosti Bosne i Hercegovine. In Bosnian. Kim, D.J., Ferrin, D.L., & Rao, H.R. (2003). Antecedents of consumer trust in B-to-C electronic commerce. Americas Conference on Information Systems, Paper 21. Retrieved April 6, 2016, from http://aisel. aisnet.org/amcis2003/21 Kozarević, S., & Puška, A. (2015). Povezanost primjene lanca opskrbe, partnerskih odnosa i konkurentnosti. Ekonomska misao i praksa, 10(2), 579-596. In Croatian. Kwak, N., & Radler, B. (2002). A Comparison Between Mail and Web Surveys: Response Pattern, Respondent Profile, and Data Quality. Journal of Official Statistics, 18(2), 257-273. Lee, Y.W., Strong, D.M., Kahn, B.K., & Wang, R.Y. (2002). AIMQ: a methodology for information quality assessment. Information & Management, 40(2), 133-146. doi:10.1016/S0378-7206(02)00043-5 Mahmutović, H., Kulović, Dž., Jurešić, S., & Šabić, A. (2012). Konvergencija rasta malih i srednjih preduzeća u BiH i razine primjene informacijskih sistema za podršku u procesu odlučivanja. Tranzicija, 14(30), 39-53. In Bosnian. Marković Blagojević, M., Mikarić, B., & Trajković, D. (2014). Kompjuterski sistemi kao podrška odlučivanju. Trendovi u poslovanju, 2(4), 33-42. In Serbian. Mašić, B., Đorđević-Boljanović, J., Babić, L., Dobrijević, G., & Veselinović, S. (2010). Menadžment: principi, koncepti i procesi. Beograd: Univerzitet Singidunum. In Serbian. Mathwick, C., Malhotra, N.K., & Rigdon, E. (2002). The eﬀect of dynamic retail experiences on experiential perceptions of value: an Internet and catalog comparison. Journal of Retailing, 78(1), 51-60. doi:10.1016/S0022-4359(01)00066-5 Mustafa Eid, I. (2011). Determinants of e-commerce customer satisfaction, trust, and loyalty in Saudi Arabia. Journal of Electronic Commerce Research, 12(1), 78-93. Oliver, R.L. (1997). Satisfaction: A Behavioral Perspective on the Consumer. Hoboken: Taylor and Francis. Petter, S., DeLone, W., & McLean, E. (2008). Measuring information systems success: models, dimensions, measures, and interrelationships. European Journal of Information Systems, 17(3), 236-263. doi:10.1057/ ejis.2008.15 Puška, A., Maksimović, A., & Fazlić, S. (2015). Utjecaj kvalitete na zadovoljstvo i lojalnost studenata. Poslovna izvrsnost, 9(2), 101-119. In Croatian. 43

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Stanišić, S. (2014). Važnost primjene finansijskog izvještavanja za razvoj korporativnog upravljanja. Zbornik radova: Međunarodna naučna konferencija Univerziteta Singidunum Finansijsko izveštavanje u funkciji korporativnog upravljanja, Beograd, 5. decembar 2014 (pp. 73-75). doi:10.15308/ finiz-2014-73-75. In Serbian.

MODEL INFORMACIONIH SISTEMA ZA PODRŠKU ODLUČIVANJU I NJEGOV UTICAJ NA IZGRADNJU ZADOVOLJSTVA, LOJALNOSTI I VREDNOSTI ZA KORISNIKE Rezime: U savremenom dobu, informacioni sistemi predstavljaju važan činilac za uspešno poslovanje bilo koje organizacije. Jedna od ključnih uloga informacionih sistema jeste informaciona podrška. U radu se prikazuje model informacionih sistema za podršku u procesu odlučivanja i rezultati ankete o uticaju ovog modela. Istraživanje je sprovedeno u tri faze i obuhvatilo je zaposlene u Vladi Brčko distrikta. Prva faza ispituje uticaj kvaliteta informacione podrške i informacija na informacionu podršku prilikom donošenja odluka. Druga faza ispituje uticaj informacionih sistema za podršku prilikom donošenja odluke o dostupnosti i zadovoljstvu korisnika pruženom podrškom. Treća faza ispituje uticaj percipirane vrednosti i zadovoljstva pruženom informacionom podrškom na lojalnost korisnika sistema. Ovaj model prikazan je pomoću šest hipoteza, koje su dokazane korišćenjem višestruke regresione analize. Posmatrani model pokazuje da je kvalitet informacionih sistema i informacija od presudnog značaja prilikom donošenja odluka. Percipirana korisnost i zadovoljstvo korisnika veoma su važni za kontinuiranu upotrebu informacionih sistema za podršku u procesu odlučivanja. Prikazani model je univerzalan i uz sitne izmene, može se primeniti u bilo kojoj sferi života gde se meri zadovoljstvo klijenata i korisnika usluga.

Ključne reči: informacioni sistem, informaciona podrška, model informacionih sistema za podršku odlučivanju, zadovoljstvo, lojalnost. Received: April 7, 2016 Correction: Jun 14, 2016 Accepted: Jun 23, 2016

EJAE 2016, 13(2): 45-56 ISSN 2406-2588 UDK: 343.53:657.92 657.632 DOI: 10.5937/ejae13-10509 Review paper/Pregledni naučni rad

FORENSIC ACCOUNTING IN THE FRAUD AUDITING CASE Nataša Simeunović1,*, Gojko Grubor2, Nenad Ristić1 University Sinergija, Str. Raje Baničića bb, Bijeljina, Bosnia and Herzegovina 1

Singidunum University, 32 Danijelova Street, Belgrade, Serbia

Abstract: This paper presents a real case of digital forensic analysis in organizational fraud auditing process investigated using two different forensic tools, namely Tableau TD3 Touch Screen Forensic Imager and Access Data FTK Imager. Fraud auditing is more of a mindset than a methodology and has different approaches from financial auditing. Fraud auditors are mostly focused on exceptions, accounting irregularities, and patterns of their conduct. Financial auditors place special emphasis on the audit trail and material misstatements. A fraud case investigation of non-cash misappropriations committed by an employee, the warehouseman, will be presented herein in order to highlight the usefulness of fraud auditing, which can reveal many forms of financial crime and can be used in both private and public sector companies. Due to the computerized accounting environment, fraud investigation requires a combination of auditing, computer crime and digital forensic investigation skills, which can be achieved through joint efforts and cooperation of both digital investigator and fraud auditor as proposed herein.

INTRODUCTION Auditing is a process that enables determining reliability of recorded, classified and summarized financial data. It is necessary due to huge volume of business transactions (IBM, 2013) and complex accounting standards. Accounting diﬀers from auditing, as a process of recording, classification and summarizing of economic events to help the management make informed decisions based on the sound financial data (Nigrini, 2011). * E-mail: nsimeunovic@sinergija.edu.ba

Key words: auditing, accounting, fraud, forensic evidence, digital forensic analysis.

Fraud, as a criminal oﬀence, is a generic term that includes surprising, tricking, cunning, and unfair behaviour by which someone else is cheated. The only boundaries defining it are those that limit human ingenuity to get an advantage through false means or representations. Corporate fraud is any fraud perpetrated by, for, or against some business corporation (Singleton & Singleton, 2010). An occupational fraud and abuse, or employee fraud is: “the use of one’s occupation for personal gain through deliberate misuse or theft of the employing 45

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Simeunović, N., Grubor, G., Ristić, N.  Forensic accounting in the fraud auditing case

organization’s resources or assets” (Nigrini, 2011). Occupational fraud includes corruption, asset misappropriation and financial statement fraud. The typical organization’s loses due to occupational fraud are estimated up to 5% of its annual revenues (ACFE, 2016). In this paper, a fraud case of noncash misappropriations is presented. An employee steals inventory from the warehouse in order to sell it and earn extra money. Economic motives are the most common reason for committing despite the presence of other reasons such as egocentric, ideological, emotional etc. Essentially, every fraud includes motivation, opportunity and rationalization (the “fraud triangle”) (Nigrini, 2011). Many researchers have demonstrated that the fraud triangle can be of great help in profiling employees committing fraud (Seward, 2011). In the computerized accounting environment, fraud could be committed at the input, throughput or output processing phases. However, entering fraudulent data at the input state is the most usual fraudulent behaviour by ordinary employees, including account payables, benefits, or expense claims. Frauds within organizations are mainly associated with the absence of internal controls rather than their weaknesses (Singleton & Singleton, 2010). The lack of internal control starts from the strength of access control mechanism to computers in the business information system. It is well-known that many passwords selected by users can be easily cracked by the so called dictionary attack, even with a laptop and Windows XP operative system within a few seconds. As the password remains the first and the most important authentication method, companies have to devote particular attention to this field. Some international standard recommendations are to select a password with eight or more combined characters (lower and upper case letters, digits and punctuation marks, or other special characters). The length of the userselected password seems to be a more important parameter. User-selected passwords can provide strong protection if some simple rules are applied and the password encoding hash algorithm of the operating system is strong. The simple rules for 46

a “good” password could be as follows: easy-toremember, hard-to-guess, in unusual language, rather long, regularly changed, not shared with anybody, and without excessively complex structure (Keszthelyi, 2013). However, some sophisticated attacks such as Trojan horse key logger installed into a computer can easily steal any user-selected password online. Therefore, accounting frauds can rather be discovered by reactive than proactive measures. Some statistical data show that out of the overall 65% of detected frauds, only 10% are detected by financial auditors, while 23% of frauds are identified by means of proactive internal control measures. Proactive fraud prevention depends mainly on adequate controls and the appropriate workplace culture including a high level of personal honesty and fair behaviour (Nigrini, 2011). All kinds of fraud such as theft, irregularities, white-collar crime, and embezzlement are almost synonymous, but are not identical in terms of criminal law. In a legal fraud investigation, the intent is the most diﬃcult aspect to be proved, because it occurs in one’s mind and the proof is becoming circumstantial. In the private sector, auditing fraud can be useful for most cases of financial crime such as: embezzlement; misrepresentations of financial facts; arson-for-profit; bankruptcy fraud; investment frauds of all manner and deception; bank fraud; kickbacks and commercial bribery; computer frauds; frauds of electronic funds transfer (EFT) systems; credit card frauds; and scams and schemes by vendors, suppliers, contractors and customers. In any and all cases, fraud must be considered an economic, social and organizational phenomenon (Singleton & Singleton, 2010). Therefore, modern organizations need to have a forensically ready cloud environment to respond adequately to forensic events and demonstrate compliance with the applicable laws and regulations (Elyas et al., 2014). In this fraud case, the internal auditor could not detect any irregularities, but remained suspicious due to his business experience and previous

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Simeunović, N., Grubor, G., Ristić, N.  Forensic accounting in the fraud auditing case

knowledge that the related item was not needed in such quantity. Therefore, he took the case over to digital forensic examiner. In this paper, the aspects of the digital forensic investigation and analysis of the case are described.

(Panigrahi, 2006). However, the growth of big data and belonging technology (IBM, 2013), and the complexity of financial transactions and fraudsters’ skilfulness are the main problems in forensic accounting and fraud investigation processes.

REVIEW OF SOME PREVIOUS WORK

DIGITAL FORENSIC INVESTIGATION IN FRAUD AUDITING PROCESS

Numerous authors have already elaborated on the methods and techniques of forensic accounting investigations. According to Nigrini, forensic accounting investigation process is described in detail. Some advanced techniques such as data mining (Panigrahi, 2006) and mathematical models (Panigrahi, 2006; Nigrini, 2009) have also been suggested for the forensic accounting investigations process. As regards financial statement audits, the most frequently used tools for examination of client data are Excel, CaseWare IDEA and ACL Software. Traditionally, these and similar tools have been called Computer Assisted Audit Tools and Techniques - CAATTs (Coderre, 2009). Some specific data mining tools can disclose patterns of fraudulent data transactions such as unusual entries of transactions, excessively high or low value of a variable, and various files of accounting transactions or unexplained values of records. Gray & Debreceny (2014) identified specific fraud and evidence combinations in which the use of data mining would be the most or least effective. By taking into consideration fraud scheme components defined by Gao and Srivastava (2011) and data mining functionality, they proposed a taxonomy that identifies the most effective combinations of those components. Although there isn’t much information in the literature on the application of data mining techniques to auditing in general and fraud detection in particular, some sources need to be mentioned (Jans et al., 2010; Ravisankar et al., 2011; Perols, 2011; Alden et al., 2012). The first mathematical model (The Benford’s Law) suggested that fraudulent figures have a different pattern than the valid ones, while the second model (The Relative Size Factor) detects unusual figures and data that could be made by errors or frauds

Digital forensic investigation, by its nature, is a dichotomy phenomenon; it is as much an art as it is a science. At the same time, it represents both an intuitive process and the formal analytical and scientific methodology (Milosavljević & Grubor, 2010). Therefore, it is difficult to be taught and learned. Similarly, fraud auditing process depends more on intuition and thinking as a thief would, than on various formally learnt subjects. A digital forensic examiner, like a fraud auditor, looks for relevant information without presumption, organizes it and tries to discover relevant data and make a pattern they create in order to reconstruct what may have occurred (Singleton & Singleton, 2010; Milosavljević & Grubor, 2010). Event reconstruction is one of the most important steps in digital investigation. It allows investigators to understand the timeline of a criminal case (Chabot et al., 2014). Also, in the computerized environment, fraud auditors should be familiar with relevant legislation, applicable standards and other requirements within the organization. However, investigating fraud related to computers or networks as well as the Internet requires a combination of auditing, computer crime and digital forensic investigation skills. In the current reporting environment, forensic accountants are undoubtedly in great demand for their accounting, auditing, legal, and investigative skills. They can play a vital role in coordinating the company‘s efforts to achieve a cohesive policy of ethical behaviour within an organization (Bhasin, 2015; Arežina et al., 2014; Gbegi & Adebisi, 2014). Unfortunately, it is quite difficult to encounter all these skills in one person. A digital forensic investigator applies forensic rules, principles, techniques and tools to 47

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investigate the computer related fraud (Harlan, 2009; Jones et al., 2005). On the other hand, auditors could provide forensic investigators with the knowledge of accounting and auditing rules, principles, techniques, and methods. Since generic fraud involves many variables such as fraud types, victim types, crime methods, techniques and tools, it seems almost impossible to create a unified and comprehensive theory or solution. Hence, a model of combined approach and team work of both digital investigator and fraud auditor is proposed herein. However, a digital forensic examiner should be familiar with the main principles of fraud audit to be eﬀective in fraud investigation (Table 1) (Singleton & Singleton, 2010). No.

Fraud auditing principle

Being at the same time an art and a science, fraud auditing is diﬀerent from financial auditing.

Fraud auditors place emphasis on the exceptions, irregularities, and oddities of accounting conduct patterns.

Essentially, any fraud is an intentional change of financial or material facts in order to gain some benefits.

Despite some fraud theories, fraud auditing is learned primarily from experience.

There are many reasons for committing fraud such as economic, emotional, egocentric, psychotics etc.

Places where fraud could be committed in digital environment are at input, transition or output of transaction.

Some financial gains are the most usual among internal frauds made by employees.

The lack of or poor control is most often the cause of accounting frauds.

Accounting frauds are more often discovered by reactive than proactive actions.

Proactive fraud measures mainly depend on adequate internal controls, personal honesty and fair business.

Table 1. The main principles of fraud auditing 48

The inventory oversize is the most common type of organisational fraud. The number of purchased items is more or less susceptible to fraud, and is therefore necessary to check and correct the data in the orders and on the invoices. This is a rather simple process as it does not require illegal transactions (Kwok, 2008). However, stealing material items from the company is almost always a result of false data disclosed in financial reports and can be easily hidden in the computer system. In the case of organisational fraud, the main objective is to determine whether a fraud has occurred, or is occurring, and identify the fraudster. The first step is to make a hypothesis in order to initiate fraud investigation. According to digital forensic science, the forensic hypothesis must have at least six elements (Milosavljević & Grubor, 2010), but eliminating all of the obvious facts is the very first one. Forensic investigator should prove whether the fraud has already happened or is happening, or will happen. Afterwards, the forensic investigator should generate most likely fraud scheme and propose it to the fraud auditor. Fraud investigation plan in digital environment should include data collection, acquisition, analysis and digital evidence presentation, as well as the choice of the appropriate forensic tools and techniques. Forensic investigator and fraud accountant must maintain a chain of custody of forensic evidence and preserve evidence integrity until the end of the legal process (Jones et al., 2005; Kwok, 2008). At the end of fraud reconstruction, the forensic investigator and fraud accountant write up their findings for hiring party and courtroom. Upon gathering accounting evidence from the computer system and network, the forensic accountant (or fraud accountant) will attempt to gather evidence from other sources such as the crime investigator, video monitoring system and eyewitnesses, in order to reconstruct the fraud event. In the next step, the forensic accountant mounts a forensic image of the suspected computer and other relevant data from the investigation process onto the virtual forensic machine

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to prevent the so-called “Trojan Horse Defence” (Milosavljević & Grubor, 2010), and prove the suspect’s knowledge or unawareness. Immediately upon that, a forensic analyst or forensic accountant analyses the traces of the acquired corroborative digital data and the data from other sources, such as video monitoring system or law enforcement information, using the appropriate forensic tools and techniques (Harlan, 2009; Milosavljević & Grubor, 2010). The digital evidence can be a key to reconstruct any fraud in digital environment and to create report and perform courtroom testimony (Winch, 2007). In this fraud case, the Integrated Forensic Accounting Process Model (Grubor et al., 2013) is applied by two digital forensic analysts (DFAs) using two diﬀerent forensic tools. However, a professional accountant had to interpret the content of the digital evidence findings (AFTWIT).

FRAUD CASE - FORENSIC ANALYSIS In this fraud case, the senior accountant from the inventory team, getting suspicious about the unusual excess of the subject item, made the first step in the investigation process. He collected the data from video monitoring system and acquired the suspected computer as electronic evidence. However, he couldn’t prove his suspicions due to the lack of digital forensic knowledge. Thereafter, he hired a DFA who took forensic image of the suspected computer’s hard disk. In order to verify the digital evidence, two forensic analysts from the Association (AFTWIT) performed an independent analysis using two diﬀerent forensic tools (Figure 1). The forensic analysts worked separately but interactively with the senior accountant on the main decision points. Finally, the DFAs and the

Figure 1. Integrated forensic accounting investigative process model Source: Grubor et al. (2013) 49

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accountant jointly reconstructed the fraud case and reported findings to the company’s owner who was supposed to give over the case to the law enforcement (Grubor et al., 2013). The senior accountant, as an internal auditor, described fraud event in his investigation requirement (Table 2). The DFA, hired by the Association (AFTWIT), received the compromised computer with user accounts and passwords.

Warehouseman was informed on Friday afternoon that part-time inventory started on Monday morning. On Friday afternoon, the accountant printed the list of inventory to the internal auditors team. On Monday morning, the accountant gave the list of inventory to the internal auditors’ team. Auditors identified that there were 134 pieces of article under code number 1034. A member of auditing team from purchasing department got suspicious regarding the quantity of item 1034. A leading internal auditor required printing of item 1034 card and identified only 74 pieces. An accountant printed again the inventory report from the ledger and there were 74 pieces of the article 1034 in it. Table 2. Requirements for forensic investigation

5. There was no cryptography in the computer. 6. Hard disk (HD) was 120 GB, Operative system was XP Professional SP3. 7. Accountant, warehouseman, seller, system administrator, accounting application administrator, owner and internal auditor were familiar with the user account and password to log in OS and accounting application. Afterwards, the forensic analyst took forensic image of HD 120 GB (Table 3) locally by Tableau TD3 Touch Screen Forensic Imager in order to investigate the accounting application in a virtual machine. Physical Evidentiary Item (Source) Information [Drive Geometry] Cylinders: Tracks per Cylinder: Sectors per Track: Bytes per Sector: Sector Count:

14,593 255 63 512 234,441,648

[Physical Drive Information] Drive Model: Drive Serial Number: Drive Interface Type: Source data size: Sector count:

TOSHIBA MK1252GSX 948TLO2TC IDE 114473 MB 234441648

[Computed Hashes]

As the first step, the forensic analysts identified the following facts: 1. Compromised computer was turned oﬀ and the printer was not logged in the history of usage. 2. The computer was neither networked nor the member of any domain. 3. Controversial reports had been printed via the USB device. 4. Computer had wireless Internet access, antivirus program and firewall. 50

MD5 checksum:

e1533bfc695ae563fc9302a37e4d8786

SHA1 checksum:

2ce5cadc0ca54d82ce21924e0498448536b23505

Table 3. Forensic image data

In the next step, a virtual machine is created by Live View 07b forensic open source tool. Then, Windows OS (Harlan, 2009) event log, recent programs, recent items and hidden data (Keman, 2004), as well as the accounting application metadata (Jones, 2006; Microsoft KB, 2007; Microsoft

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KB, 2013) are analysed. The RegScanner program is installed to identify changes in Registry key from Friday (June 21, 2013) to Monday (June 24, 2013). The image analysis results on the forensic virtual machine from June 24, 2013 at 08:19:45 AM up to June 24, 2013 at 08:37:13AM are summarized in Table 4.

1. In Registry base are identified: a. use of accounting application Prvi2005.exe b. access to .pdf document - report “inventory report 2013.pdf”, created at Friday c. access to .pdf document - report “part-time inventory report 2013.pdf”, created at Sunday 2. Comparison of the two reports (from Friday and Sunday) shows: a. State of item 1034 in ledger list was increased for 60 pieces in report “part-time inventory report 2013.pdf”. Table 4. The results of image analysis on the forensic virtual machine

The digital evidence retrieved by the RegScanner analysis of the events from June 24, 2013 at 08:19:45AM up to June 24, 2013 at 08:37:13AM, in Microsoft (MS) Access data base, use of Adobe. pdf file and accountant application are shown in Tables 5, 6 and 7, respectively.

The evidence from the use of Adobe .pdf document is shown in Table 6. HKEY_CURRENT_USER\Software\Microsoft\Windows\CurrentVersion\Explorer\RecentDocs\.pdf HKEY_CURRENT_USER\Software\Microsoft\Windows\CurrentVersion\Explorer\RecentDocs\Folder HKU \S-1-5-21-3847162342-2421605019-2411098501-1006\ Software\Adobe\AcrobatReader\8.0\AVGeneral\cRecentFiles\c2 HKU \S-1-5-21-3847162342-2421605019-2411098501-1006\ Software\Microsoft\Windows\CurrentVersion\Explorer\ComDlg32\OpenSaveMRU

Table 6. The evidence from the Adobe .pdf document

The evidence for the use of accountant application is presented in Table 7. HKEY_CURRENT_USER\Software\Microsoft\ Windows\CurrentVersion\Explorer\RunMRU Table 7. The evidence for the use of accountant application

The results of the system log file analysis are shown in Tables 8 and 9, respectively. Log Name:

System

Source:

Microsoft-Windows-KernelGeneral

HKEY_CURRENT_USER\Software\Microsoft\Office\15.0\Access\Place MRU

Date:

24.6.2013 8:19:45

HKEY_USERS\S-1-5-21-527500354-35167075474227690221-1000\Software\Microsoft\Oﬃce\15.0\Access\Place MRU

Event ID:

Task Category:

None

Level:

Information

HKEY_CURRENT_USER\Software\Microsoft\Office\15.0\Access\File MRU HKEY_USERS \S-1-5-21-527500354-3516707547-4227690221-1000\ Software\Microsoft\Oﬃce\15.0\ Access\File MRU HKU \S-1-5-21-527500354-3516707547-4227690221-1000\ Software\Microsoft\Windows\CurrentVersion\Explorer\RecentDocs\.mdb

Table 5. The evidence from MS Access data base

Keywords: User:

kosa

Computer:

Toshiba

Description:

The operating system started at system time 2013-0624,08:19:45.375199800.

Table 8. Event log “12”evidence for computer turning on (June 24, 2013 at 08:19:45AM) 51

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Log Name:

System

Source:

Microsoft-Windows-KernelGeneral

Date:

24.6.2013 08:37:13

Event ID:

Task Category:

None

Level:

Information

Keywords:

N/A

User:

N/A

Computer:

Toshiba

Description:

The operating system was shutting down at system time 201306-24,08:37:13.673632100.

Table 9. Event log “13” evidence for computer turning oﬀ (June 24, 2013 at 08:37:13AM)

The results of the file system forensic analysis are obtained by opening HD image in Access Data FTK Imager forensic tool (Table 10). In MS Access base file “GSD2013.mdb” is modified on June 24, 2013 at 08:23:14h .pdf part-time inventory report (“izvestajzapopisvanredni 2013.pdf ”) is on created June 24, 2013 at 08:23:14h .pdf part-time inventory report (“izvestajzapopisvanredni2013.pdf ”) is accessed on June 24, 2013 at 08:24:51h Accountant application “Prvi2005.exe” is used on June 24, 2013 at 08:26:33h Table 10. The results of RegScanner analysis by Access Data FTK Imager

RESULTS OF FORENSIC ANALYSIS Forensic analysts produce a forensic report (King, 2009), including their opinions and recommendations. In this fraud case, somebody under the user name “Kosa” used the computer with accounting application and financial data of the company between June 24, 2013 at 08:19:45AM and June 24, 2013 at 08:37:13AM. The MS Access data base “GSD2013.mdb” was changed and accounting application “Prvi2005.exe” was used. 52

It was proved that there were two versions of the inventory report from the ledger list – one from Friday and the other one from Sunday. In the report from Sunday, there were 60 pieces of the item No. 1034, which is more than in the previous one. It was necessary to identify who visited the office on Sunday 24, June 2013, and whether he/she knew the credentials for the access to the computer and accounting application, and to investigate his/ her motives for such manipulation.

FRAUD CASE RECONSTRUCTION According to the results of the digital forensic analysis and evidence from other sources such as records of video monitoring system and internal accounting auditor’s investigation, the fraud case was reconstructed by team work comprising an internal accounting auditor and two digital forensic analysts. The warehouseman N.M. made a secret deal with the supplier in order to make and share some extra money. Thus, alongside the regular order, he received some extra items from the supplier which he later on traded on the black market for cash. He was supposed to share all extra money earned with the supplier. He never made a record of those extra items in the financial documents and books, nor presented them as the company’s trade business. The suspected item is stored under the code No. 1034 in the inventory and financial database. In the warehouse, there were 60 pieces of that item unrecorded in the company’s oﬃcial documents and item cards. However, the general manager of the company suddenly ordered an internal control of inventories due to some other operational reasons. Therefore, the warehouseman did not have suﬃcient time or the opportunity to remove the extra stocked items. In order to deceive the internal auditing team by claiming that there was no higher number of the item No. 1034 recorded in books, the warehouseman committed the following deception. He had already known that the company’s accountant printed out the inventory list with the registered amount of 74

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pieces of the item No. 1034 instead of 134, and left it on his table on Friday afternoon with the intention of giving it over to the internal auditing team after finishing inventory of the stored items on Monday morning. Hence, the warehouseman came to the company on Sunday, with an excuse that he was preparing the warehouse for inventory registration. However, he quietly slipped into the oﬃce of an accountant and printed out a new, false inventory list with the amount of 134 pieces of the item No. 1034, and replaced it with the correct list that had already been on the table. He also accessed the database and changed the amount of the same item in the entering documents. Instead of 74 pieces of the ordered item No. 1034 and its value of 11,680 RSD, he changed them to 134 pieces with the value of 29,200 RSD. Since he knew the password, he opened the accounting software and changed the same values. He printed out a false report and replaced already completed report on the table made by the accountant of the company on Friday afternoon. Thereafter, warehouseman accessed the database and returned the replaced data back to correct values (74 and 11,680 RSD). On Monday morning, the accountant of a company took the report from his table, unaware that it was a false one, and gave it to the internal auditing team. Hence, the auditors were able to discover “the right state” in the stored items, and the warehouseman still had extra items to sell for profit. However, a member of the inventory team became suspicious about such high number of item No. 1034, since he had experience with that item from his previous job in the same company. Therefore, he decided to check it with the commercial department and ask them why they purchased so many pieces of item No. 1034. In fact, that was the red flag for the main accountant to start his investigation. Having certain diﬃculties to understand changes in commercial documents and compare database, he decided to hire the forensic investigator from the Association of Forensic Testimony Witnesses for Information Technology in the Republic of Serbia (AFTWIT).The hired

forensic investigator employed another forensic analyst from the Association, just to confirm the digital evidence through two independent analyses and different forensic tools. It could be observed from the video monitoring system that only one person visited the office of the chief accountant during the weekend. This reduced the number of suspects to one person. In spite of the completed fraud investigation, there was not sufficient evidence to confirm that a particular person committed fraud. However, using digital evidence from the digital forensic analysis process, it was confirmed that the suspected warehouseman committed the fraud. Generally, four kinds of evidence are commonly used for fraud prosecution: physical evidence, evidence based on witness testimony, documentary evidence and demonstrative evidence (Kwok, 2008). In this fraud case, the documentary evidence supported by demonstrative digital forensic evidence was prepared for a likely legal procedure. Fraudsters sometimes use false documents to cover up the fraud. Obviously, this fraud could be unlikely discovered only based on the false financial documents. In this case, besides false documents, the digital traces made by the company’s computer and video monitoring systems were more decisive for fraud reconstruction. From the digital forensic point of view, in order to prevent such kind of fraud through computer misuse and change of the accounting application, the option Track Changes in reporting Excel file must have been enabled and another application implemented to prevent its disabling (Microsoft KB, 2007). In this way, all changes would be recorded in Excel metadata and forensic investigation would be easier. The need for quite a new approach to security of the company’s information asset (information, physical and human) (ISO, 2013) can be the first lesson learnt from this fraud case. Obviously, to prevent internal fraud in digital environment, a comprehensive micro-risk assessment must be performed more often than recommended by nu53

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merous international standards and recommendations (once or twice per year). A complex, holistic business enterprise security model suggested by the authors in the reference (Michelberger & Lábodi, 2012), including risk-adopted access control mechanism that can deal with real-time threats and layered managing, operational and technical security controls (ISO, 2013; National Institute for Standards and Technology, 2013), should be applied to any business information system to prevent or eﬃciently reduce internal fraud in digital environment. To reduce possible fraudulent activities, the companies can also employ continuous auditing techniques (Chan & Vasarhelyi, 2011; Vasarhelyi et al., 2012) in order to manage risk as well as to provide continuous assurance (Vasarhelyi et al., 2004).

analysis in digital environment. As a proactive anti-fraud profession has grown significantly over the last decade (National Institute for Standards and Technology, 2013), anti-forensic activities are also becoming more and more sophisticated in order to hide or destroy digital data traces and potential digital evidence.

CONCLUSIONS

One of the ways to fight fraud is to provide forensic readiness of companies in order to ensure a healthy business environment for development of national economies.

Taking into consideration previously explained case study and available literature, it is blatantly obvious that ICTs (Information and communications technologies) play an increasing role in capturing accounting and overall business processes in an organization. It could be observed from the available fraud statistics and relevant history that fraud can occur anywhere and it continues to grow, especially in terms of losses and frequency. Therefore, in order to successfully investigate fraud, joint efforts of both digital investigator and fraud auditor is required by combining their auditing, computer crime and digital forensic investigation skills, which can be hardly encountered in a single person. Both of these two roles, fraud auditing and digital forensics, require skills, knowledge and abilities exceeding the traditional financial auditing. There are some key aspects of the fraud investigation and many of them can be revealed in digital forensic examination process. In order to effectively and efficiently detect fraud within a short period of time, it is crucial to provide strategic direction of the investigation prior to initiating the fraud 54

In this paper, the authors applied the proposed fraud investigation model in the real fraud case and emphasized the importance of team work of an accounting auditor and digital forensic examiner to efficiently resolve any financial fraud in digital environment. However, continuous monitoring of development and usage of ICTs in capturing business processes in the company is necessary in order to effectively and efficiently adopt and implement the upcoming changes in the fraud investigation process.

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FORENZIČKO RAČUNOVODSTVO NA PRIMERU SLUČAJA ISTRAŽIVANJA PREVARE Rezime: Ovaj rad prikazuje slučaj digitalne forenzičke analize u okviru koje se ispituju prevare izvšene unutar organizacije korišćenjem dva različita alata za forenzičku analizu, Tableau TD3 Touch Screen Forensic Imager i Access Data FTK Imager. Istraživanje prevara je više odraz mentalnog stava, a ne metodologije i ima drugačiji pristup u odnosu na finansijsku reviziju. Revizori se prevashodno bave izuzecima, računovodstvenim nepravilnostima i utvrđivanjem obrazaca njihovog ponašanja. Finansijski revizori obraćaju posebnu pažnju na revizorski trag i materijalno značajne greške. Revizija slučaja bezgotovinskih pronevera izvršenih od strane zaposlenog, magacionera, biće predstavljena u ovom radu kako bi se se istakao značaj procesa ispitivanja prevare koji može ukazati na različite oblike finansijskog kriminala, a može se koristiti u privatnim i državnim preduzećima. Kako bi se utvrdilo prisustvo prevara u kompjuterizovanom računovodstvenom okruženju, neophodno je posedovati znanja i veštine od značaja za proces revizije, kompjuterski kriminal i digitalnu forenzičku istragu, a koja se mogu steći kroz timski rad i saradnju digitalnih istražitelja i finansijskih revizora.

Ključne reči: revizija, računovodstvo, prevara, forenzički dokaz, digitalna forenzička analiza. Received: March 16, 2016 Correction: May 19, 2016 Accepted: May 26, 2016

EJAE 2016, 13(2): 57-69 ISSN 2406-2588 UDK: 005.342:640.43(497.113) DOI: 10.5937/ejae13-10503 Original paper/Originalni naučni rad

RESTAURANT INNOVATIVENESS: A CASE STUDY OF VOJVODINA Snježana Gagić* University of Business Studies, Faculty of Tourism and Hotel Management, 23a Jovana Dučića Street, Banja Luka, Bosnia and Herzegovina

Abstract: It is of vital importance to continuously work on the improvement and identification of significant factors to ensure and sustain the desired level of quality. The paper aims to analyze the innovativeness level of restaurants in Vojvodina in view of the fact that it keeps their portfolio competitive and thereby achieves a long-term competitive advantage. The innovativeness level was defined on the basis of the instrument designed for measuring innovation in the field of products and services, marketing, processes and socially responsible behavior. In order to determine the level of innovativeness, it was necessary to first determine the percentage of innovativeness based on the number of innovations introduced by the restaurants in all of the four study areas. The results show that a significant number of restaurants pays attention to innovations in order to become more appealing to guests and increase their profitability. On the other hand, more than half of the observed restaurants have a very low or low degree of innovation, which indicates that we still do not pay enough attention to innovations and advancement of their business implementation.

Key words: restaurant innovation, gastronomic trends, restaurant marketing innovations, service innovations.

INTRODUCTION

create an innovative atmosphere, and make full use of their employee creativity (Cox et al., 2011).

The main characteristics of everyday life, work and earnings are reflected in increasingly rapid and frequent changes. Accordingly, innovations appear as a source of change which is necessary for successful business activities. Those who are not innovative shall lose their market position and deteriorate. Should restaurateurs consider innovations a competitive weapon, they will have to become more innovative than the competition, make changes and accelerate their implementation,

Innovations simplify all changes introduced by restaurateurs, regardless of the fact that they are absolute novelties, reproduced by the competitors or adapted products or services (Linton, 2009).

* E-mail: gagicsnjeza@yahoo.com

Nowadays, it can be said that innovating, i.e. introduction and implementation of new ideas in the restaurant business, represents the basis for creating and sustaining the competitive advantage (Nicolau & Santa-María, 2013). Innovations appear as the main success factor as they improve the 57

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quality of products, increase the overall efficiency, reduce costs, meet the needs of customers, increase sales and profit, and contribute to increasing the market share and differentiating from competition (Su, 2011). The paper aims to show innovation in terms of offer, marketing, processes and socially responsible behavior. The majority of dishes becomes less attractive over time and gets removed from the menu, so the restaurateurs are forced to replace them with the new ones. In such circumstances, innovations appear as an obligatory managerial task, crucial for the restaurants’ prosperity (Ottenbacher and Harrington, 2009), despite high risk in terms of new dish placement (Manning et al., 1995). Information on the old craftsmen’s service quality was transmitted orally once, while nowadays this kind of information is transferred faster due to modern information technologies. In order to retain the present guests and attract new ones, restaurateurs use new media, promotion techniques, and latest methods of distribution and sales channels. The Internet has become a necessary means for following the global trends in almost every business domain and has proven to be the most efficient media in communicating with target groups in the catering business. Today, guests create a kind of marketing that cannot be completely controlled, by posting their impressions publicly, either positive or negative. With their presence on social media, restaurateurs have market access, learn about the consumers’ trends and communicate with guests (SeongSeop, KuoChing & TaeHong, 2013). Adopting new processes is important for those restaurateurs who want to stay competitive by raising the quality level of products and services and hire professional staff (sommeliers,flambers, butchers, barmen) or home delivering and making online food ordering possible (Gagić, 2014). An innovative attitude in modern business cannot disregard the issue of corporate social responsibility (Chan, 2011). Introducing such innovations into the organizational culture contributes not only to guest loyalty (Martínez and Rodríguez 58

del Bosque, 2013), but also to the restaurant’s image and costs saving (Schubert et al., 2010). That being said, the paper attempts to examine the innovativeness level of restaurants in Vojvodina with the aim to identify business segments that need to be improved in order to provide optimum quality of hospitality products and services and achieve most favorable business results. The manuscript aims to determine whether and to what extent restaurateurs follow the activity trends, as well as to give suggestions for enhancing the overall business performances through implementation of such innovative strategies.

LITERATURE REVIEW INNOVATION IN RESTAURANT BUSINESS Innovation is an important aspect of contemporary business. Rapid changes in guests’ preferences and expectations significantly aﬀect the restaurant industry. Within the catering context, innovations are referred to as “an idea, practice, process or product which puts into practice ideas that solve problems and are perceived as new by the consumers” (Ottenbacher & Gnoth, 2005). Innovations are also defined as all those novelties that restaurateurs introduce regardless of whether they are absolute novelties, reproduced by the competitors or adapted products or services (Linton, 2009). The surveys that placed special emphasis on innovation in the catering industry have shown that upon implementing innovations, restaurants have become more appealing to guests, which has a considerable bearing on the overall profitability (Ottenbacher & Gnoth, 2005).

Menu innovation Catering managers should make their menus more innovative so as to be able to respond properly to modern gastronomic trends and create the oﬀer that is in accordance with the guests’ cur-

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rent demands. Restaurateurs should broaden the offer of dishes made with ingredients perceived by guests as healthy, such as whole grain cereals, organically grown food, low-energy and low-fat and gluten-free food. The healthy diet trend and consumers’ knowledge about the connections between nutrition and health have led to an increase in consumption of reduced-fat content products, the so-called light products (Cerjak et al., 2007). One of the trends is also the organic food offer served in modern restaurants with the aim of making profit and offering new gastronomic experiences (Poulston & Yiu, 2011). Although the Restaurant Hospitality magazine has published that there has been an increasing need for vegetarian dishes (Rowe, 2010), it is still difficult to find an adequate selection of such dishes on the menu in numerous restaurants. Despite the fact that this is the leading trend in the catering business, a vast number of restaurateurs still do not follow it (Lanou, 2007). The majority of chefs have been reluctant to vegetarian dishes considering them uninspiring and difficult to prepare. Over the past few years, whole grain cereals have been a really high demand aliment. 64, 8% of respondents in the Republic of Serbia believe that fast food restaurants should consider upgrading their offer by introducing wholegrain food, which suggests an increase of guests’ awareness about the importance of a healthy diet, but also the impact of trends that give priority to whole grain cereals over refined grains (Gagić et al., 2012). Gluten, the storage protein found in wheat, rye and oat seed as in their hybrid varieties, represents a diet disturbance for certain percentage of guests. In this business segment, an innovative offer means gluten-free gastronomic offer. Gluten intolerance is often a limiting factor for those who want to dine out. In a Canadian survey, out of 2681 participants with gluten intolerance, 54% have stated that they avoid eating at restaurants. When asked about the factor they believe would improve the quality of life, almost half of them (49%) said

that it would be the gluten-free choice of dishes oﬀered by the restaurants (Rashid et al., 2005). A selection of sweets for diabetics and dieters is the next step in the creation of an innovative choice of desserts. Sorbitol, mannitol and xylitol can be used as a substitute for fructose (Gagić et al., 2011).

Marketing innovations In order to achieve favourable business results, current business conditions require not only a quality gastronomic oﬀer and professional service, but also the constant and targeted promotion with the aim of making the potential guests conversant with the oﬀer, while reminding the regular ones of the provided quality and informing them of new events related to restaurants’ activity and offer (Kotler et al., 2003). As regards meeting the guests’ needs and wishes, the marketing concept has undergone significant evolutionary changes over the last few years, from traditional marketing to the one based on the relationship with clients (Salai et al., 2007). Logo design and the overall visual identity is a very important item for image building and brand positioning in the consumers’ mindset. The brand must motivate, move to action, evoke emotions and associations and create trust (Abimbola & Vallaster, 2007). A well-designed web page can help restaurateurs to develop brands and attract new clients (Hwang et al., 2011). A lot of restaurateurs have started using social media with the purpose of communicating with guests and creating unique brand pages (e.g. fan pages) used to connect with potential customers and establish contacts with the current ones (Lee et al., 2012). In May 2012, McDonalds had 19.5 million likes on its Facebook fan page, Chick-fil-A had 5 million, Wendy’s had 2.3 million and Outback Steakhouse had 2 million likes (Preece et al., 2004). SMS texting and electronic mail services are the most popular ways for establishing direct communication with clients. The customers will decide to leave their personal data and give permission 59

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Gagić, S.  Restaurant innovativeness: a case study of Vojvodina

to be contacted in case they can somehow benefit from that. That’s why the most eﬃcient way of customers’ data collection is through forming a loyalty club that would provide its members with certain discounts (Jang & Mattila, 2005).

Process innovations Process innovations mean professional staﬀ engagement (sommeliers, flambers, barmen etc.), home delivery and other activities that contribute to the improvement of restaurant’s performances. Sommeliers increase the sales of wine thanks to their knowledge of food and wine pairing combined with suggestive selling techniques (Manske & Cordua, 2005). Researchers have shown that hiring a sommelier can increase beverage revenue by 15-25% (Robinson et al., 2005). Since dining at home is becoming more and more popular and modern technologies are improving the delivery process, it is expected that the profit made by restaurateurs from the food delivery system will increasingly grow in the next period. According to the NPD market analysis, a group in the survey A Look into the Future of Eating, it is foreseen that the number of restaurant meals eaten at home will increase by 20% in the next 10 years.

Innovations related to socially responsible behavior Corporate Social Responsibility represents a concept according to which commercial entities that adopt it consciously and voluntarily transcend their making and distribution profit primary function and create positive effects on their work, social and natural environment (Kramo & Babić-Hodović, 2007). Investing in staff training and improvement is seen as an effective practice of corporate social responsibility, thanks to which the existing results in the workplace are maintained or enhanced. Socially responsible activities intended for employees 60

consist of monitoring and improving their satisfaction with everyday work conditions, position and interpersonal relations on both horizontal and vertical level (Čerović, 2013). Offering financial support to employees for the preferred sports activities (co-financing or a total coverage of the costs), organizing socialization activities among the staff such as trips, providing scholarships to support employee education or their children’s education, babysitting service at the workplace, bonus payments, granting the thirteenth month pay to all employees or the annual bonus, are just some of the activities that can demonstrate respect to an employee and contribute to his loyalty (Vlahović, 2007). Social responsibility also implies responsible behavior towards guests. The existence of work regulations for employees, who are in direct contact with the guests for a good standardized treatment, shows responsibility towards them. By applying standards in providing services, there is an increase of process efficiency and effectiveness and improvement of product and service quality. This kind of attitude, at the same time, meets the needs of service customers and contributes to increasing their satisfaction (Pirija, 2003). An indolent and careless approach to complaints will result in the loss of clients and switch to the competition. Complaints and formal appeals must be solved fast and efficiently (Hsu, 2013). The Corporate Social Responsibility concept encompasses and extends to the integration of the company into its business environment. Companies contribute to local communities not only by securing jobs and paying taxes, but also by supporting employee prequalification and additional qualifications, sponsoring local sports clubs, cultural and other events, donating goods, money or old equipment, providing scholarships for talented students, organizing voluntary blood donation activities etc. (Atanacković, 2011). Socially responsible behavior also implies adopting an ecological approach towards conducting business (Gagić et al., 2013). There are a lot of

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Gagić, S.  Restaurant innovativeness: a case study of Vojvodina

“green” practices that can be implemented in restaurants, including energy eﬃciency, water savings, recycling, use of local groceries and pollution prevention (DiPietro et al., 2013).

METODOLOGY Sampling The sample included thirty fine dining and casual dining restaurants selected in 19 towns in Vojvodina. The information was obtained through an interview with restaurant managers. Restaurants were chosen based on the following criteria: ◆ business duration (minimum three years) and ◆ restaurant capacity (minimum 50 seats).

Research period Research was conducted during the period from February 10 to May 18, 2014.

Survey sampling method A voluntary sample is made up of people who visited the observed restaurants.

Questionnaire design The innovation level was defined on the basis of the instrument designed for measuring innovation in the field of products and services, marketing, processes and socially responsible behavior. Products and services innovativeness involved: oﬀer of vegetarian dishes, gluten-free dishes, wholewheat bakery products, dishes for diabetics, children’s menu, organically grown food, marking allergens, menu changes (more than twice a year), diﬀerent portion sizes, energy value of menu items, menu translation, wines from autochthonous grapes, free wireless network, as well as marking local and national dishes on the menu. Marketing innovativeness involved: marketing plan, data-

base, logo, web page, social networks pages and QR code. Process innovativeness involved: engagement of sommeliers, flambers, food delivery and the possibility of online ordering. Corporate social responsibility innovativeness involved: implementing some quality standards or systems (ISO, HACCP), participation in humanitarian actions, financing of cultural or sports event, young people training, use of local products, waste separation, waste recycling, energy eﬃcient appliances and equipment, financing employee training and stimulating employee motivation.

Data analysis In order to determine the level of innovativeness, the percentage of innovativeness was first determined based on the number of innovations that restaurants have introduced in all of the four study areas. Subsequently, the calculation of innovativeness has been made using proportion. After the obtained data on the innovativeness percentage, the classification of restaurants was made and the level of innovativeness was determined according to Table 1. Innovativeness percentage

Innovativeness level

0-30%

Very low

30- 50%

Low

50-70%

Medium

70-90%

High

90-100%

Very high

Table 1. Classiﬁcation of restaurants according to innovativeness level

Upon receiving the listed data, the statistical analysis was done by calculating certain statistical features and conducting statistical tests. 61

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Hypothesis and assumption H1:

None of the restaurants has the maximum number of innovations.

H2:

There will be more restaurants that are not innovative.

RESULTS AND DISCUSSION The innovativeness of the restaurants in Vojvodina has been determined based on the number of implemented innovations in relation to the total number of innovative activities being oﬀered. Chart 1 clearly shows that innovativeness of the restaurants in Vojvodina is very various. It can also be seen that none of the observed restaurants has the maximum number of innovations (34), whereas there are some restaurants with less than ten innovations. Those are the restaurants that implemented up to 30% of innovative activities given and were listed among those restaurants with a very low innovativeness level.

Out of the total number of considered restaurants (30 restaurants), only two of them have a very low level of innovativeness (Table 2) and are represented by 7% of the analyzed group of restaurants (Chart 1). Chart 2 shows that only a few restaurants have labeled allergens in the menu (1 of 30), offer dishes made from organically grown food (3 of 30), have dishes for diabetics (5 of 30 restaurants), while there is no restaurant that has the energy value of menu items. It is well-known that the whole-wheat bakery products have become part of the restaurant offer in Vojvodina- only five restaurants don’t have it. Products and services innovations implemented in many restaurants are menu changes (more than twice a year) (24 restaurants), different portion size offer (27 restaurants), menu translation (25 restaurants), wine offer from autochthonous grapes (29 restaurants), as well as free wireless network (26 restaurants).

Chart 1. Presentation of the number of implemented innovations per restaurant 62

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Gagić, S.  Restaurant innovativeness: a case study of Vojvodina

Chart 2. Innovation in the ﬁeld of products and services

Chart 3. Marketing innovations

Chart 4. Processes innovations 63

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Gagić, S.  Restaurant innovativeness: a case study of Vojvodina

Although planning of restaurant marketing is the key for booming business, less than half of restaurants have a marketing plan (14 restaurants). Almost half of restaurants don’t have the database (14). Majority of them has a company logo (21 restaurant), web page (20) and social network pages (24). There are a lot of places to incorporate QR codes into restaurant menu (daily specials, nutritional information, ingredient, chef recommendation etc.), but that fact is not recognized among Vojvodina’s restaurateurs. Only one of them has a QR code. Engagement of high profile professional staﬀ such as sommeliers and flambers is a business strategy which can be observed in only one third of the observed restaurants. Majority of restaurants have food delivery option (24 restaurants), while just nine of them have the possibility of online ordering. Somewhat more than half of restaurants (16) have implemented some quality standards or systems (ISO, HACCP). Majority of restaurants have participated in humanitarian actions (24), youth training (26), use of local products (28), recycling of some kind of waste (30), employee motivation (28) as well as funding of cultural or sports events (21).

Chart 5. Socially responsible behavior innovation 64

They are inactive in waste sorting (only 12 of them separate it). These results also support the claim that financing employee training is not that popular in Serbia, as only 10 out of 30 restaurants pay for such trainings. Innovativeness level

Cumulative Cumulative Number of number of structure restaurants restaurants (%)

0 - 30

30 - 50

50 - 70

70 - 90

90 - 100

100

Total

Table 2. The structure of restaurants based on the innovativeness level

A low level of innovativeness is reflected by those restaurateurs who implemented 30% to 50% of innovative activities oﬀered. That is the case with fourteen restaurants out of the total number and they are represented by 47%, which is the

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Gagić, S.  Restaurant innovativeness: a case study of Vojvodina

highest value among the observed restaurants. The restaurants that implemented 50%-70% of the given innovative activities are considered to have a medium level of innovativeness. Only one restaurant among those analyzed has a medium level of innovativeness and is represented by 3%. A high innovativeness level is considered to be 70% to 90% of the innovative activities oﬀered. It is the case of 12 observed restaurants, i.e. 40% of the total number of the observed restaurants. The implementation of 90%-100% of the given innovative activities is considered a very high level of innovativeness. Among the analyzed restaurants, only one has a very high level of innovativeness, i.e. it represents 3% of the structure. Based on the considered structure of innovativeness level, it is noticeable that more than half of the observed restaurants have a very low and low level of innovativeness, i.e. are represented by 54% (Table 2). Thirteen restaurants have a high or very high level of innovativeness (43%) among the group of restaurants considered in the analysis. All of this indicates that one significant part of restaurants pays attention to innovations in the catering industry, with the purpose of becoming more appealing to guests and increasing their profitability. On the other hand, more than half of the analyzed restaurants have a very low or low level of innovative-

ness, which indicates that they are still not paying enough attention to innovations and improvement of their business through implementation. Statistic indicators

Indicators’ value (%)

Average value

56.67

Median value

47.06

Minimal value

26.47

Maximum value

91.18

Variation coeﬃcient

34.51

Table 3. Main statistical indicators of innovativeness level

The average value of the analyzed group is 56, i.e. 67%, which represents a medium level of innovativeness. The defined median value of 47.06% indicates that fifteen out of thirty restaurants have a lower level of innovativeness, while the remaining fifteen exceed the median value. As regards the innovativeness level, it can be said that the observed group of restaurants is rather polarized, i.e. both low and high levels of innovativeness are equally represented. The evaluation of the expected level of innovativeness within the catering sector in

Chart 6. The structure of restaurants based on the innovativeness level 65

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Gagić, S.  Restaurant innovativeness: a case study of Vojvodina

Vojvodina, obtained on the basis of the observed sample of thirty restaurants, may be in favor of this deduction. There is a rather strong possibility (95%) that the level of innovativeness related to the catering in Vojvodina should be expected to range between 49.36% and 63.97%, which indicates a medium level of innovativeness.

CONCLUSION None of the observed restaurants has the maximum number of innovations as assumed (H1), whereas there are some restaurants that have less than ten innovations. More than half of the observed restaurants have a very low or low level of innovativeness, which indicates that they are still not paying enough attention to innovations and business enhancement by implementing them. As regards the level of innovativeness, it could be said that the analyzed group of restaurants is polarized i.e., both low and high levels of innovativeness are equally represented, which confirms that H2 that there will be more restaurants that are not innovative cannot be considered valid. Restaurateurs should work on changing the oﬀer, creating new gastronomic products that will replace the old ones once the guests stop ordering them. Innovations related to this business segment are considered essential for the prosperity and business enhancement, evolving from a strategic option to a mandatory management task. The implementation of incremental innovations such as the oﬀer of vegetarian dishes, gluten-free dishes, whole grain bread and dough, sweets for diabetics, organically grown groceries will please those guests whose dietary habits have been changed and determined by the current gastronomic trends. It is well-known that restaurants enhance their image as innovative organizations that follow guests’ requests by introducing such innovations. Since restaurateurs are not confined by regulations related to the prescribed standards, the size of the portions may vary from one restaurant to 66

another. Different-sized portions are seen as a good way to please the customers who are not willing to pay for what they do not manage to eat, but also to avoid food wasting. Creating a special menu for children is considered a useful way to attract families with children. If restaurants are focused on such kind of customers as their target group, they must pay attention not only to the creation and design of the offer intended for the children, but also to the ways of animating children. Dishes of interesting shapes and colours, cutlery with children’s favourite cartoon characters’ stickers, a corner specially equipped with picture books and drawing tables are just some of the ways to win over this type of guests. Highlighting local and national dishes on the menu is considered to be a novelty that will please those guests that are searching for an authentic national cultural experience, and, at the same time, it will promote and popularize the national gastronomy. The same effect will be achieved through the offer of autochthonous wines, while the gastronomic offer will be enhanced by an adequate selection of this beverage. Considering the fact that more and more people use the Internet on a daily basis and the growing need to be online, it is necessary to provide wireless internet access. There is an increasing number of guests who possess smart phones or carry their laptops with them. Hence, the presence of wireless internet access represents an important factor in choosing the place to eat at. The restaurateurs who do not recognize this need may risk losing the guests who wish to be online. In order to achieve satisfactory business results, quality food and beverages are no longer sufficient, as it is also necessary that the restaurateurs use new forms of media, promotional techniques, and new distribution methods and sales channels to retain the present quests and attract new ones. In order to perform that successfully, it is necessary to have a well-defined action plan and web site, working on brand making and gaining visibility on social networks. The Internet has proved to be the most

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efficient media for communicating with clients. What is typical nowadays is the possibility for every guest to participate in the restaurant marketing activities: by leaning comments on online portals and social networks, the guest creates the restaurant image and influences potential guests. The presence on social networks enables restaurateurs to learn about consumer trends and communicate with clients, which allows them to determine what is that they want and driven by that they are able to create their own business policy. In order to provide a successful service delivery, it is necessary to engage high profile professional staff such as sommeliers and flambers. It has been demonstrated that hiring a sommelier leads to greater profit, staff training should be considered as an investment, not an expense. Flambéed dishes are more expensive than those cooked regularly, so that even in this case the income is clear. There are also other effects achieved by such innovation process, e.g. creating attraction for the guests, improving the flavor of the dish, highlighting the staff capability and competence etc. Selling mixed drinks can also be listed as a successful business activity since mixed drinks are much more expensive than regular drinks. Home delivery is a way for the restaurant to sell its products outside the workplace, which is considered a good way of using the existing resources. In this process, it is important to establish a quality delivery system, i.e. the restaurateur should provide an adequate packaging that will maintain the quality of the dish until it reaches the client. In order to successfully complete this process, it is essential to pay attention to reliability, accuracy, taste, texture and temperature of the final product. Nowadays, companies are expected to go beyond their personal interests and consider themselves, first of all, as part of the society they belong to. Socially responsible behaviour such as providing financial support to employees for the preferred sports activities (co-financing or total costs coverage), participating in charity actions, financing cultural events, hiring young staff for

practice training, using local products for business purposes, separating and recycling waste, using energy-eﬃcient devices and equipment, financing employee training and applying various employee motivation principles, helps the restaurateurs to demonstrate their ethics and responsibility towards their business environment, clients and employees.

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Manning, K.C., Bearden, W.O., & Madden, T.J. (1995). Consumer innovativeness and the adoption process. Journal of Consumer Psychology, 4(4), 329-345. doi:10.1207/s15327663jcp0404_02 Manske, M., & Cordua, G. (2005). Understanding the sommelier effect. International Journal of Contemporary Hospitality Management, 17(7), 569-676. doi:10.1108/09596110510620645 Martínez, P., & Rodríguez del Bosque, I. (2013). CSR and customer loyalty: The roles of trust, customer identification with the company and satisfaction. International Journal of Hospitality Management, 35, 89-99. doi:10.1016/j.ijhm.2013.05.009 Nicolau, J.L., & Santa-María, M.J. (2013). The effect of innovation on hotel market value. International Journal of Hospitality Management, 32, 71-79. doi:10.1016/j.ijhm.2012.04.005 Ottenbacher, M., & Gnoth, J. (2005). How to develop successful hospitality innovation. Cornell Hotel and Restaurant Administration Quarterly, 46(2), 205222. doi:10.1177/0010880404271097 Ottenbacher, M., & Harrington, R. (2009). The product innovation process of quick-service restaurant chains. International Journal of Contemporary Hospitality Management, 21(5), 523-541. doi:10.1108/09596110910967782 Pirija, D. (2003). Standardi u turističkom ugostiteljstvu. Šibenik: Visoka škola za turizam. In Croatian. Poulston, J., & Yiu, A.Y.K. (2011). Profit or principles: Why do restaurants serve organic food? International Journal of Hospitality Management, 30(1), 184-191. doi:10.1016/j.ijhm.2010.04.004 Preece, J., Nonnecke, B., & Andrews, D. (2004). The top five reasons for lurking: Improving community experiences for everyone. Computers in Human Behavior, 20(2), 201-223. Rashid, M., Cranney, A., Zarkadas, M., Graham, I.D., Switzer, C., Case, S., & Butzner, J.D. (2005). Celiac disease: evaluation of the diagnosis and dietary compliance in Canadian children. Pediatrics, 116(6), 754-759. doi:10.1542/peds.2005-0904 Robinson, C., Abbott, J.A., & Shoemaker, S. (2005). Recreating cheers: an analysis of relationship marketing as an effective marketing technique for quickservice restaurants. International Journal of Contemporary Hospitality Management, 17(7), 590-599. doi:10.1108/09596110510620663 Rowe, M. (2010). Five trends you can’t ignore. Restaurant Hospitality, 94(7), 22-28.

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Salai, S., Hegediš, I., & Grubor, A. (2007). Marketing komuniciranje. Subotica: Ekonomski fakultet. In Serbian.

Su, C.S. (2011). The role of service innovation and customer experience in ethnic restaurants. The Service Industries Journal, 31(3), 425-440. doi:10.1080/02642060902829302

Schubert, F., Kandampully, J., Solnet, D., & Kralj, A. (2010). Exploring consumer perceptions of green restaurants in the US. Tourism and Hospitality Research, 10(4), 286-300. doi:10.1057/thr.2010.17

Vlahović, S. (2007). Upravljanje ljudskim resursima i njegova primena u turizmu i hotelijerstvu. Hotelsko poslovanje: materijal za seminar (pp. 85-105). Beograd: Univerzitet Singidunum. In Serbian.

Seongseop, K., Kuo-Ching, W., & Tae Hong, A. (2013). Which endorser and content are most influential in Korean restaurant promotions? International Journal of Hospitality Management, 33, 208-218. doi:10.1016/j.ijhm.2012.08.005

INOVACIJE U RESTORATERSTVU: STUDIJA SLUČAJA ZA VOJVODINU Rezime: Kontinuiran rad na prepoznavanju i unapređenju relevantnih faktora od presudnog je značaja za dostizanje i očuvanje željenog nivoa kvaliteta. Ovaj rad ima za cilj da ispita nivo inovativnosti restorana u Vojvodini s obzirom da imaju konkurentnu ponudu i na taj način ostvaruju povoljne dugoročne rezultate. Nivo inovacija određuje se na osnovu instrumenta za merenje inovacija u oblasti proizvoda i usluga, marketinga, procesa i društveno odgovornog ponašanja. Da bi se utvrdio stepen inovativnosti, potrebno je da se prvo utvrdi procenat inovativnosti na osnovu broja inovacija koje su uveli restorani u sve četiri posmatrane oblasti. Rezultati istraživanja pokazuju da veliki broj restorana obraća pažnju na inovacije sa ciljem da privuku što veći broj gostiju i unaprede sveukupni učinak. S druge strane, više od polovine posmatranih restorana ima veoma nizak ili nizak stepen inovativnosti, što ukazuje na to da još uvek ne posvećuju dovoljno pažnje inovacijama i unapređenju njihove primene u svakodnevnom poslovanju.

Ključne reči: inovacije u restoraterstvu, gastronomski trendovi, marketinške inovacije u restoraterstvu, inovacije usluga. Received: March 15, 2016 Correction: Jun 8, 2016 Accepted: Jun 14, 2016

EJAE 2016, 13(2): 70-77 ISSN 2406-2588 UDK: 005.71-021.131:005.64 005.8:004 DOI: 10.5937/ejae13-11663 Original paper/Originalni naučni rad

LEVERAGING PROCESS DATA FROM BPM CLOUD-BASED WORKFLOWS Deasún Ó Conchúir1, Lazar Dražeta2,* 1 Scatterwork Gmbh, 8593 Kesswil, Switzerland 2 Singidunum University, 32 Danijelova St., Belgrade, Serbia

Abstract: This paper shares the experience of a virtual team of knowledge workers which coordinates its repetitive production work across 12 time zones using cloud-based workflows. A sample of process data and the utility that can be obtained from it are discussed, and recommendations are provided for the management of virtual teams using cloud-based workflows. In addition, possible directions for future research relating to virtual knowledge work teams using cloud workflows are suggested. Some references to related experience for further reading are also given.

BACKGROUND As the nature of work changes, labour requirements also change. External forces that shape the global economy facilitate the shift in contemporary market value. S&P 500 companies have diverged significantly since 1975 from their book value in favour of intangible asset value, currently reaching 84% of their true market value (Ocean Tomo, 2015). Consequently, today’s “knowledge workers” diﬀer greatly from the traditional profile, being primarily information-based with intangible results of work process (Nickols, 2012) while having a high degree of flexibility regarding tenure, hours and contractual terms (Rudman, 2002). Knowledge workers are used to working alone based on their own competence. However, in to70

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

Key words: work, workflow, time, process, cloud-based.

day’s global economy, it is a costly luxury to withhold status information except at reporting milestones. By using workflows to share and manage status information, the work capacity, speed and quality of manufacturing and administrative processes can be optimised. Workflows have been used in business environments well before cloud computing existed. For example, BPMN (Business Process Model and Notation) dates back to 2004 (White, 2006). The combination of workflows with cloud computing (a term coined in 2007) is more recent and was seen in 2008 as a possible future development (Wang et al., 2008). By using the cloud as their infrastructure, virtual teams can benefit from many features including cost eﬃciency, scalability, flexibility, agility etc. (Carroll et al., 2011).

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Literature related to virtual teams provides a number of definitions stating major attributes within its functional context. Amongst the variety of definitions, it is widely accepted that: “we define virtual teams as groups of geographically, organizationally and/or time dispersed workers brought together by information technologies to accomplish one or more organization tasks” (Powel et al., 2004). In addition, modern organizations are staﬀed by an ever growing number of knowledge workers, who are also the most expensive labour and critical to realizing the business strategies of the organization (GSA Enterprise Transformation, 2011). In an industrial era, communications were far less pervasive and immediate than today. This meant that workers, whether manual or knowledge-based did their work independently from colleagues at other locations. When a particular item of work was finished, it was sent to the colleagues, who received it after some time, and only then they started their own value-added work, e.g. “Flawed coordination among teams, systems, and data incompatibility, and complex approval processes are common” (Ming et al., 2005). By treating the information sharing as an integral part of work, rather than an unrecorded item of information, the work capacity, speed and quality of business processes can be improved. Hence, virtual teams epitomize a growing response to the need for accelerating time-to-market as well as providing cost-eﬀective solutions to ever-growing organizational problems (Ebrahim et al., 2009).

PROCESSES AND WORKFLOWS A process is a sequence of steps whose implementation can be clearly defined and documented. This means that it is carried out in the same way each time, unless the process itself is adjusted. The concept of workflows builds on this and includes complete processes, which are used to drive an item of work from start to finish (BPM Center of Excellence, 2009).

Factory production lines have been defining processes and documenting them as the basis for control, process improvement and training for many decades. Usually, the status of the work is visible or tracked, to support teamwork coordination. This stems from the fact that a manual work process, regardless of the level of competence required, consists of converting materials from one form to another in order to create a tangible outcome (Nickols, 2012). Knowledge workers, however, do not always share the detailed status of their work, with the exception of some process-oriented environments. The advent of global virtual teams means that work status information must be shared to optimize the capacity of knowledge working processes. Furthermore, the diversity of contemporary work generations enhances this issue, particularly when considering the nature of tools in current use (Dimensional Research, 2015) and the key interpersonal competencies for the knowledge economy such as team work and the ability to collaborate (OECD, 2001).

BUSINESS PROCESS MANAGEMENT Business Process Management (BPM) is concerned with processes and workflows. In some industries, such as pharmaceutical manufacture, this approach is very thoroughly implemented in SOPs (standard operating procedures). BPM workflows are similar to typical flowcharts, with the addition of “swimlanes” which convey visually who (or which department) carries out a particular task, in addition to showing the sequence of tasks, e.g. processing insurance claims (BearBuy, 2012). Once a workflow has been prototyped and tested, it can be launched by the manager whenever the corresponding business process needs to be carried out. By the end of the 20th century, BPM was typically managed using either paper documents or a dedicated workflow engine and database, accessed via a client on the user’s computer. This access was expanded to include browsers, particularly 71

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for those responsible for carrying out the productive work according to the workflows. It is argued that BPM is a means that provides more eﬀective approach to organizational change while being the second fastest growing integrative software market segment that attracts a lot of attention worldwide (Ryan, 2009). With service-oriented architecture based on cloud computing technology, the BPM can be progressively adjusted to suit ever-changing business requirements for the knowledge economy (Fang & Yin, 2010). Some applications include a workflow engine and also manage the implementation of the workflow cycle, by telling the user what step to carry out and then messaging the next person in the chain by email. This lends itself immediately to cloudworkflows for use globally. A standard notation called BPMN (Business Process Model and Notation) is maintained by the Object Management Group, updated as BPMN Version 2.0 in 2011 (Object Management Group, 2011). A standard notation simplifies sharing workflows between processes and organisations. There is also scope for greater eﬃciencies by developing reusable BPMN models (Lu et al., 2010)

CLOUD WORKFLOW TOOLS The availability of workflow tools which work entirely in the cloud, both for workflow modelling and management of repeated work cycles using the workflows, has opened the door to entirely new opportunities (Wu et al., 2013) The Software as a service (SAAS) nature of many of these tools permits globally distributed virtual teams to do the following: ◆ Manage workflow design and usage. ◆ Use the workflows to control the detailed value-add work of the organisation. ◆ Introduce workflow practice at much lower cost levels than would be required by a server based approach. This extends the scope to many processes where it would 72

not be viable by other methods, e.g. bedside data collection in the health service, using mobile phone apps for data entry. ◆ Accumulate and use workflow data. The ability to use globally distributed virtual teams brings the usual well known benefits of virtual teams including: ◆ Abundant choice of experts, their location, time zones, languages, cultures, availability and costs. This can result in a much better match between the requirements and selection of experts. ◆ Management does not need to arrange office accommodation for virtual team members. This reduces costs compared with colocation and can also accelerate kick-oﬀ.

SAMPLE PROCESS DATA FROM A CLOUD-BASED WORKFLOW ENVIRONMENT To illustrate the type of data available from a cloud-based workflow and how it can be interpreted, the publication cycle at Scatterwork GmbH is portrayed. This consulting company, where one of the authors works, trains online for Project Management and Team Building, as well and provides Could BPM support. The publication consists of production of a weekly video, which is also published as a blog and incorporated in a newsletter mailing. The work is carried out by a virtual team who have never met each other and are spread out over approximately 12 time zones (Eastern USA - Europe - India) - that is half way around the world. It is driven by a cloud-based workflow using the KissFlow WfMS (Wikipedia, 2016), a cloud based automation software for Google Apps developed by OrangeScape (Ha, 2012), which is triggered once per week. The weekly workflow is in turn triggered by a monthly workflow, which initiates work up to two months in advance, so that several cycles can

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be managed concurrently. Summary data is presented from operations over a four month period from December 2015 to March 2016, following approximately eight months of process prototyping, commissioning and stabilisation. This process was ported and revised from an earlier system using a diﬀerent cloud workflow application, for which about two years’ experience had been accumulated. The reported process comprises 73 steps, implemented by a team which possesses has business, marketing, IT and English Language skills.

WORKFLOW REPORTS FROM KISSFLOW

This report shows how many “items” (cycles) were started in a given month and whether they have been completed. For example, in February, four cycles were started, of which three were still in progress, and one was completed. This is as expected, because the weekly publication is rolled forward monthly, usually by four weekly cycles (but this depends on how long the month is). None of the items opened in March had been completed at the time of the report, when eight cycles were still open: one from January, three from February and four from March.

Task Report

Blog & Newsletter This is simply an extract of the task database filtered to show only active process cycles (“items”) and sorted by date. This enables the users to see how many cycles are open and their status.

App Metrics A (KissFlow) “App” captures the description of a workflow, so the frequency of its use reflects the level of on-the-ground business activity. For example, by opening one workflow cycle for each order in factory, information becomes available about the current status of each order in the production cycle (Image 1).

The task report lists every process step (of which there are 73 for the reported workflow) and captures the minimum, average and maximum completion time in hours for each task over all “items” (=cycles). It also reports the number of cycle data collected for each step. This may diﬀer from the total number of cycles as some operations are conditional and not always carried out. There is also a feature where the deadline for each task can be set, e.g. for use where completion times must meet some requirement, such as a contract condition. Data is also collected to show how many tasks overran the deadline or required clarification by the task operator.

Image 1. App Metrics Report 73

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In this study, this functionality has not been utilised.

◆ Clusters 1 & 2 represent tasks implemented on time (58% of all tasks)

Depending on the availability of the task operator when a task notification is sent, task implementation time may vary based on the sum:

◆ Cluster 3 shows tasks where there is an implementation delay due to time zones (19% of all tasks).

Task completion time = time zone synchronisation delay + wait time + implementation time

◆ Clusters 4 & 5 indicate workflow issues of varying severity (23% of all tasks).

For this workflow, implementation times are usually of the order of a few minutes, so if the completion time is significantly longer than expected allowing for time zone delays, this can signal that: ◆ there is a workflow fault ◆ the operator is not sure what to do, e.g. due to insuﬃcient clarity or training ◆ the operator is not available, e.g. due to absence that has not been managed. Examination of the data according to the average duration (or “task completion time”) reveals 5 groupings or data clusters: Cluster (hrs)

In summary, there is considerable scope for improvement of task completion time, and eﬀorts should be invested in 11 tasks where the average delay is over 120 hours.

CONCLUSIONS AND RECOMMENDATIONS Our research demonstrates that it is possible to work across multiple time zones using cloud workflows. However, in order to be successful, the management needs to obtain relevant data to

Average Duration (hrs)

σ (S.D.)

No. of data items

Summary Situation

0.04

0.05

No issue.

Small tasks that are carried out in minutes without any great diﬃculty. Small tasks that are carried out in minutes, where there may be some waiting time because the operator is typically working on something else when the notification for this work is delivered by the preceding task.

Interpretation

1-5

1.75

0.96

Task flow passes from one operator to the next one.

6 - 24

17.7

7.29

Time zone delay between workflow steps.

Tasks where the preceding task is carried out in another time zone. This may result in the task being implemented the next calendar day.

25 - 120

63.3

19.4

Significant delays.

These tasks are: • either being slowed down by some diﬃculty which should be investigated. • or the work capacity is inadequate. This is typical for management involvement in the workflow. This could be avoided by workflow redesign, delegation, supported by training.

>120

288

277

Serious problems.

The long delays indicate some serious problem, which should be investigated in depth.

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identify and address problem areas for action with pinpoint accuracy. Contemporary technology provides a “Virtual Teamwork Environment” that makes it easier for employees to work from home (or any remote location, such as an oﬃce) while significantly reducing workforce operating expenses. Although contemporary technologies seem to evolve quicker than people (The Economist Intelligence Unit Ltd, 2009), it is not by chance that the number of telecommuters in the USA alone has increased by 800% in the past five years and will keep growing (Black, 2014). As with all quality eﬀorts, the benefit should be compared with the payback before an implementation decision is taken. Since the cloud implementation of BPM, e-mail notifications and simple graphical interface for process design cost much less than traditional BPMN implementations, the potential use of cloud workflows is constantly increasing (Chen & Ranjan, 2010).

RECOMMENDATIONS FOR VIRTUAL TEAM WORK Based on experience, it is necessary to focus on the participants themselves and the dynamics of the virtual team, in addition to processes and tools. This is particularly visible when a task is considerably delayed, because inaction is usually a big contributing factor. Because personal engagement and collaboration can be very low where there is no pre-existing strong reason for working together, it is recommended wherever possible to work initially with a core team with some significant shared interest e.g.: ◆ Most or all of the team already know each other from previous shared work, events etc., particularly if it involved face-to-face meetings; ◆ All of them work for the same company, so thay can be “instructed” to work together; ◆ They all share a passionate interest and join an existing strong program which aligns with their personal or career interests.

Based on the experience reported herein, the benefits of using cloud-based BPM workflows include inter alia: Features

Benefits

• Processes are captured and added to the organiza-

• Knowledge Management is now a required element

tion’s know-how capital.

•

The capture of business processes requires both subject matter experts (e.g. in the company which uses the workflows) and a process expert (e.g. consultant) working together.

•

Generates objective data, both of the process throughputs and bottlenecks.

•

Processes can be standardized and optimized continually.

•

Automation of the messaging between operators of sequential tasks, using email. Operators are presented with instructions for the next task.

•

Process users can be at any location with network connectivity, even across time zones and continents globally.

in ISO 9001 (ISO 9001:2015).

•

The process of documentation identifies improvements which can be implemented immediately, even if workflows are not used.

•

Optimisation of the workflows across time zones can be targeted to obtain the biggest benefit.

•

All business departments using a particular workflow benefit from improvements, bringing everybody up to “best practice” instead of bringing them down to a “lowest common denominator”.

• •

New application areas open up. The enforcement of detailed processes takes less effort than it would be necessary to implement using document-based BPM. This also reduces training and organizational overhead.

•

Improved eﬃciency, cycle times and work capacity arising from better selection of personnel.

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If these conditions are not met, then the initiation should include specific, scheduled, online managed team building activities. The authors experienced more success by working with remote companies, rather than homebased individuals. This supports a local build up of know-how and reduces service interruptions, e.g. due to illness and holidays. As the experience in this domain increases, it would also be useful to carry out an up-to-date literature search.

SUGGESTED DEVELOPMENT AREAS In combination with the Internet of Things (IoT), the viability of application in many domains could be usefully evaluated, e.g. ◆ Healthcare ◆ SME (Small and Medium Enterprises) ◆ Public Administration ◆ Agriculture etc. The authors recommend identification of further real-world situations where the payback for cloud-based workflows would seem particularly to merit an evaluation, in order to implement and gain experience with BPM in Cloud-Based Workflows. For example, it includes the partitioning of BPM implementations between on-premises installations and cloud to match the business priorities regarding privacy, security, legal constraints and control (Duipmans et al., 2012).

REFERENCES BearBuy. (2012). Insurance Workflow Process. Retrieved June 05, 2016, from http://supplychain.berkeley. edu/sites/default/files/Map10l-InsuranceProcessPOSTEDfinal-6-15-2012.pdf Black, J. (2014). Collaborating in the Cloud: Connecting Your Virtual team. Retrieved June 05, 2016, from https://www.salesforce.com/blog/2014/08/collaborating-cloud-connecting-your-virtual-team-gp.html BPM Center of Excellence. (2009). BPM CoE Glossary. Retrieved June 05, 2016, from https://www.ftb. ca.gov/aboutFTB/Projects/ITSP/BPM_Glossary.pdf 76

Carroll, M., van der Merwe, A., & Kotzé, P. (2011). Secure Cloud Computing: Benefits, Risks and Controls. Retrieved June 05, 2016, from http://citeseerx.ist.psu. edu/viewdoc/download?doi=10.1.1.232.2868&rep= rep1&type=pdf. doi:10.1.1.232.2868& Chen, J., & Ranjan, R. (2010). Special issue: Practice and experience, Second international workshop on workflow management in service and cloud computing. Concurrency and Computation, 25(13), 1813-1815. doi:10.1002/cpe.2994 Dimensional Research. (2015). Collaboration trends and technology: A survey of knowledge workers. Retrieved June 05, 2016, from https://www.alfresco.com/sites/ www.alfresco.com/files/dimesional-research-collabsurvey-findings-report-082415.pdf Duipmans, E.F., Ferreira Pires, L., & Bonino da Silva Santos, L.O. (2012). Towards a BPM Cloud Architecture with Data and Activity Distribution. Retrieved June 05, 2016, from http://doc.utwente. nl/84253/1/06406222.pdf Ebrahim, N., Shamsuddin, A., & Zahari, T. (2009). Virtual teams: A literature review. Australian Journal of Basic and Applied Sciences, 3(3), 2653-2669. Fang, Z., & Yin, C. (2010). BPM Architecture Design Based on Cloud Computing. Intelligent Information Management, 2(5), 329-333. doi:10.4236/ iim.2010.25039. GSA Enterprise Transformation. (2011). Knowledge Worker Productivity: Challenges, Issues, Solutions. Retrieved June 05, 2016, from http://www.gsa.gov/ graphics/admin/KnowledgeWorkerProductivity_Final6811.pdf Ha, A. (2012). OrangeScape Launches Kissflow, A Workflow-Builder For Google Apps. Retrieved June 05, 2016, from http://techcrunch.com/2012/06/27/ orangescape-kissflow-launch/ International Organization for Standardization. (2015). ISO 9001:2015. Retrieved June 05, 2016, from http://www.iso.org/iso/home/store/catalogue_ics/ catalogue_detail_ics.htm?csnumber=6208 Lu, Y., Cai, H., & Jiang, L. (2010). Construction of BPMN-based Business Process Model Base. International Journal of Intelligent Information Processing, 1(2), 32-38. doi:10.4156/ijiip.vol1. issue2.3 Ming, X.G., Yan, J.Q., Lu, W.F., & Ma, D.Z. (2005). Technology Solutions for Collaborative Product Lifecycle Management – Status Review and Future Trend. Concurrent Engineering, 13(4), 311-319. doi:10.1177/1063293X05060135

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Conchúir, D., Dražeta, L.  Leveraging process data

Nickols, F. (2012). The Shift from Manual Work to Knowledge Work. Retrieved June 05, 2016, from http://www.nickols.us/shift_to_KW.htm Object Management Group (2011). Documents Associated With Business Process Model And Notation (BPMN) Version 2.0. Retrieved June 05, 2016, from http://www.omg.org/spec/BPMN/2.0/ Ocean Tomo. (2015). Components of S&P 500 Market Value. Retrieved June 05, 2016, from http://www.oceantomo.com/blog/2015/03-05-ocean-tomo-2015-intangible-asset-market-value/ OECD. (2001). Competencies for the Knowledge Economy. Chapter 4: 99-118. Retrieved June 05, 2016, from http://www.oecd.org/innovation/research/1842070. pdf Powel, A., Piccoli, G., & Ives, B. (2004). Virtual Teams: a Review of Current Literature and Directions for Future Research. The ACM SIGMIS Database, 35(1), 6-36. doi:10.1145/968464.968467 Rudman, R.S. (2002). Human resources management in New Zealand. Auckland, NZ: Prentice Hall.

The Economist Intelligence Unit Ltd. (2009). Managing Virtual Teams: Taking a More Strategic Approach. Retrieved June 05, 2016, from http://graphics.eiu. com/upload/eb/NEC_Managing_virtual_teams_ WEB.pdf Wang, L., von Laszewski, G., M Kunze, M., Tao, J. (2008). Cloud computing: A Perspective study. Retrieved June 05, 2016, from http://scholarworks.rit.edu/ cgi/viewcontent.cgi?article=1748&context=other White, S.A. (2006). Introduction to BPMN. Retrieved June 05, 2016, from http://www.omg.org/news/meetings/workshops/soa-bpm-mda-2006/00-T4_White. pdf Wikipedia. (2016). Workflow Management System (WfMS). Retrieved June 05, 2016, from https://en.wikipedia.org/ wiki/Workflow_management_system Wu, Z., Liu, X., Ni, Z. Yuan, D., & Yang, Y. (2013). A market-oriented hierarchical scheduling strategy in cloud workflow systems. The Journal of Supercomputing, 63(1), 256-293. doi:10.1007/s11227-011-0578-4

Ryan, K. (2009). A Computer Scientist’s Introductory Guide to Business Process Management (BPM). Crossroads, 15(4), 11-18. doi:10.1145/1558897.1558901

KORIŠĆENJE PROCESNIH PODATAKA NA OSNOVU BPM SISTEMA ZASNOVANIH NA “KLAUD” TEHNOLOGIJI Rezime: U radu se prikazuje iskustvo virtuelnog tima radnika znanja koji koordinira repetitivnom proizvodnjom u 12 vremenskih zona korišćenjem poslovnih tokova zasnovanih na “klaud” tehnologiji. Autori analiziraju uzorak procesnih podataka i vrednost koji ti podaci mogu doneti, i nude preporuke za menadžment virtuelnih timova koji koriste poslovne tokove zasnovane na “klaud” tehnologiji. Pored toga, ukazuje se na moguće pravce za dalje istraživanje vezano za virtuelne timove korišćenjem “klaud” tehnologije. Date su reference i izvori za dalje čitanje i obrađivanje pomenute teme.

Ključne reči: rad, tok rada/posla, vreme, proces, “klaud” tehnologija. Received: August 31, 2016 Correction: September 08, 2016 Accepted: September 12, 2016

EJAE 2016, 13(2): 78-85 ISSN 2406-2588 UDK: 332.122:338.45(450) 332.146.3 DOI: 10.5937/ejae13-11642 Original paper/Originalni nauÄ?ni rad

ACCESSIBILITY TO NODES OF INTEREST: DISLOCATION OF THE INDUSTRIAL DISTRICTS OF TUSCANY Gioacchino de Candia Studio de Candia, via Salgari, 6, Terlizzi, Italy

Abstract: The present research starts by a series of experiences gained by the author on the theme of attractiveness/accessibility of territories, in light of the most recent dynamics for the analysis. The equation model used is of gravitational type. Specifically, the impedance function is used in the form of logistics, which has so far provided the best results in the analysis of territories. The research is conducted at the municipal level. The paper aims to analyze the connection between these works and the map of industrial districts, recently produced by ISTAT. The analyzed region, as in other publications, is Tuscany, which provides the details on the municipal map of accessibility in relation to the location of industrial clusters. The metropolitan city of Florence is treated separately. The aim is to provide policy makers with the best socio-economic information for the economic and financial administration of territories.

INTRODUCTION Industrial districts are a typical production model of the Italian economy. Starting from the notion of industrial districts theory, which has its roots in the works of Marshall (1890), further studies have found fertile ground in Italy. Following the theoretical and empirical contribution of Giacomo Becattini (1979), further analysis on industrial districts has been conducted, producing a substantial empirical study on the subject. The National Institute of Statistics (ISTAT) has developed 78

* E-mail: gioacchinodecandia@inwind.it

Key words: regional development, impedance curves, territorial statistics, infrastructure, industrial districts, municipality.

a list of industrial clusters identified from local labor systems, the latter identified to commuting between municipalities for work, collected during the 15th General Census of Population, which altered the map of the local labor systems (ISTAT, 2014). The criteria for identifying districts used by ISTAT refer to the classic concept of industrial district, the source of Marshall and Becattini in Italy (Marshall, 1890; Becattini, 2000) and are to identify the local systems characterized by the presence of small or medium-sized enterprises,

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with a high spatial concentration of manufacturing employment focused in the major industry, while other companies present in the local system are complementary or auxiliary. The ISTAT procedure in 2011 led to identification of 141 industrial districts from 611 local systems on the Italian territory. In this report, we analyze the distribution of districts in the region of Tuscany, in the light of the map of the territorial attractiveness/ accessibility analyzed in the previous work of the author.

MATERIALS AND METHODS The starting point are the publications produced by the author on the issue of accessibility to nodes of interest (de Candia et al., 2014; de Candia, 2015) and the map of industrial districts recently developed by ISTAT (2015). The map of industrial districts is overlaid with figures relative to the “summary of impedance function in the form of logistics, by arithmetic average” and pie charts relating to the synthesis, the impedance functions in the form of logistics, weighted by the resident population. The reference territory are the municipalities in Tuscany.

with

where cmin is the minimum cost and cmax the maximum observed cost and

The impedance functions are synthesized using the simple average between indices. An additional summary of results shows the weighted arithmetic mean, using the resident population as calculated based on the 15th Italian Population and Housing Census (ISTAT, 2011). According to the experience gained by the author, two diﬀerent approaches emerge, namely the one called “weighted average” (WA), and the other one “average weighted index” (AWI), with the following formulations: (weighted average - WA)

(average weighted index - AWI)

As regards the processing of accessibility/attractiveness, reference is made to the model defined “gravitational”, according to the known equation:

where xij is the impedance function developed for the municipalities i and infrastructure j, and pi is the population of the municipality j, while μi is the weighted arithmetic mean for each municipality i.

where Ai is the accessibility of a resident of the area i compared to the nodes j in the region D, Wjβ is a measure of activities or services (mass opportunities) in the area j, β is a calibration parameter (used to account for the eﬀects of agglomeration) and f(ci,j) is a function of impedance generally decreasing with the cost ci,j (or the distance or travel time).

The infrastructure considered at the municipal level is as follows: ◆ hospitals (public and private); ◆ grade schools (upper secondary level); ◆ railway stations (platinum, gold and silver); ◆ airports. As for the methodology for development of industrial clusters by ISTAT, the procedure was adopted for 2011 using the criteria introduced for identification of industrial districts in 2001 based on the use of the territorial concentration coefficient.

The impedance f(ci,j, α) function takes the form of logistics, already used successfully by the author:

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The procedure is hierarchical and comprises four steps aimed at:

ITAadd, tot indicates the total employees (industry and services) in Italy.

1. identification of local systems, mainly manufacturing;

For local systems that have index values above the national average in manufacturing or in services to companies or consumer services sector, the prevalence is calculated, in order to verify which of the three groupings of economic activity prevails at the level of the local system:

2. identification of local systems, mainly manufacturing of small to medium-sized enterprises; 3. identifying the main industry of local systems, mainly manufacturing of small to medium-sized enterprises; 4. identification of industrial districts. For each of the local labour markets, territorial concentration ratios were calculated, using the data for employees in local economic units recorded in the IX General Census of Industry and Services (ISTAT, 2011). Next, they used the employment data for local units of enterprises, public institutions and non-profit institutions to compare the proportion of the local system in a particular productive sector with the national share of the same sector. Following the order of the above-given list, we get the following procedure, comprising four phases: Step 1: Identification of local systems mainly manufacturing. For each of the local labour systems on the national territory (SLL) is calculated by a coeﬃcient of territorial concentration in each of its businesses, which make up the productive sectors of industry and services, by making the following report, based on Ateco classification (ISTAT, 2009): (SLLadd, ateco / ITAadd, ateco) / (SLLadd, tot / ITAadd, tot)

The highest value (employment base) in one of the economic activities (manufacturing, business services and consumer) indicates the prevalence. When in a local system, this value corresponds to the manufacturing industry, where the local labor market is considered to be mainly manufacturing. Employment areas, mainly manufacturing, are identified at the end of this step. Step 2: Identification of local systems mainly manufacturing of small to medium enterprises For each local system and for each size class of the local unit - or micro (up to 9 employees), small (10 to 49 employees), medium (50 to 249 employees) and large (250 or more employees) - is calculated by the following coeﬃcient of territorial concentration: (SLLadd (clad), manif / ITAadd (clad), manif) / (SLLadd, manif / ITAadd, manif) where SLLadd (clad), manif indicates the employees of each size class production units of manufacturing in a local system;

SLLadd, ateco indicates the employees of a single economic activity in a local system;

ITAadd (clad), manif indicates the employees of each size class production units of manufacturing in Italy;

ITAadd, ateco indicates the employees of a single economic activity in Italy;

SLLadd, manif indicates the manufacturing industry workers in a local system;

SLLadd, tot indicates the total number of employees in the local system;

ITAadd, manif indicates the workers in the manufacturing industry in Italy.

where

[(SLLadd, ateco / ITAadd, ateco) - (SLLadd, tot / ITAadd, tot)] * ITAadd, ateco

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After the procedure, you get the local manufacturing systems of small and medium-sized enterprises (MSME). The local labor systems of large enterprises are treated separately to determine how many of them have “District”. Step 3: Identify the main industry of local systems mainly manufacturing of small to medium-sized enterprises The local systems mainly for manufacturing MSMEs are now examined in order to identify the main industry that characterizes the local economy. The first step is to calculate, for each local manifacturing system of MSMEs, a coeﬃcient of territorial concentration relative to each of the types of industry in which manufacturing was distributed. The formula used is as follows: (SLLadd, ind / ITAadd, ind) / (SLLadd, man / ITAadd, man) where SLLadd, ind indicates the employees of a single type of industrial system, mainly local manufacturing; ITAadd, ind indicates the employees of a single range of industries in Italy; SLLadd, man indicates the manufacturing industry workers in the predominantly local manufacturing; ITAadd, man indicates the workers in the manufacturing industry in Italy. The next step implies comparing the local systems which have a coeﬃcient of spatial concentration in the types of industries greater than the national average to determine the prevailing type. To determine this prevalence, the second formula applies, as follows: [(SLLadd, ind / ITAadd, ind) - (SLLadd, man / ITAadd, man)] * ITAadd, ind The highest value (employment base) in one of the types of industries indicates the prevalence and corresponds to the industry’s main local system.

Step 4: Identification of industrial districts A local system mainly manufacturing of MSMEs is identified as industrial district when its main industry consists mostly of small and medium-sized production units, if they occur in conjunction with the following two conditions: a) (SLLadd (mpmi), ind_p / SLLadd (tot), ind_p) > 50,0% where SLLadd (mpmi), ind_p indicates the main industry workers employed in SMEs in a local system, mainly manufacturing of MSMEs; SLLadd (tot), ind_p indicates the total employees in the main industry, mainly a local manufacturing of MSMEs. b) (SLLadd (m_imp), ind_p / SLLadd (m_imp), ind_p) > 50,0% (SLLadd (p_imp), ind_p / SLLadd (m_imp), ind_p) > 50,0% where SLLadd (m_imp), ind_p indicates the main industry workers employed in production units of micro size in a predominantly local manufacturing of MSMEs; SLLadd (p_imp), ind_p indicates the main industry workers employed in production units of small size in a predominantly local manufacturing of MSMEs; SLLadd (m_imp), ind_p indicates the main industry workers employed in production units of medium size, when there is only one production unit, in a predominantly local manufacturing of MSMEs. At the end of this procedure, you will get the clusters of MSMEs. For identification of the local labor systems of large companies with district characteristics, given that the first two steps are common to all types of employment areas, it comes to adapting the steps 3 and 4 to enterprises, mainly manufacturing, with a number of employees of 250 and beyond. For more details, please see the relevant volume recently published by ISTAT. 81

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RESULTS AND DISCUSSION Industrial districts in Tuscany (17) are almost all included in the provinces of Pisa-Lucca-PistoiaPrato-Florence-Arezzo. Three districts are in the province of Siena. Two out of seventeen industrial clusters were the characteristic of large enterprises and are located in the area of Barga (LU) and Montevarchi (AR). There is no area of this district in the provinces of Massa-Carrara, Livorno and Grosseto.

As regards the type of districts, Table 1 provides an overview of main activities, which are the typical centuries-old tradition of the region. Mainly, those include textiles - clothing, leather processing and leather for making of shoes and bags, jewelry and paper and paperboard processing. Prato district is particularly interesting, which started from artisan businesses in the textile - apparel and has built a solid reality in the industrial sector, as highlighted by other authors (Dei Ottati, 2015).

In total, 117 municipalities are included in the industrial districts, of which 21 large enterprises. The districts have a population of 1,489,303 inhabitants, i.e., 146,663 units and 551,226 local employees, according to its Census of 2011. In figures, districts are marked with a black stroke. Figure 11 clearly shows that as many as 12 districts are distributed along the ridge-shaped arc that connects the provinces of Pisa, Lucca, Pistoia, Prato, Florence and Arezzo. In fact, according to the summary of impedance functions, using the arithmetic mean, these areas are the most attractive/accessible in the region, with three districts of the province of Siena, which are wedged near the Arezzo area.

Figure 1. Based on “simple average”

Also Figures 2 and 3 clearly show the distribution of districts; these cartograms, based on the “population served”, show how the industrial districts of Tuscany can be distributed precisely in the areas where infrastructure is more easily accessible. In fact, the main area of settlement of industrial districts follows the director of the A1 motorway, which crosses it entirely, to connect to the A11 at A12 towards Florence and Pisa. 1

Missing data in the figures refer to the municipality of Florence, which is treated separately, and the towns of Figline e Incisa Valdarno, Scarperia e San Piero, Crespina Lorenzana, Castelfranco Piandiscò, Pratovecchio Stia, Silano Giuncugnano, Casciana Terme Lari e Fabbriche di Vergemoli, which were established during the period 2014-2015.

Figure 2. Based on WA

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THE CASE STUDY OF FLORENCE The main city of the region was deliberately isolated from the map, to be analyzed separately. As for accessibility, extensive dissertation on this subject was conducted by the author in earlier studies (de Candia et al., 2014; de Candia, 2015) analyzing the location of the infrastructure present for each constituency/district2. The capital also lies outside the district areas, as part of a non-manufacturing local system, of less interest for the current analysis.

Figure 3. Based on AWI Table 1. Distribution of industrial districts of Tuscany 2011 Industrial Districts LUCCA MONTECATINI TERME PISTOIA

Specialization Papermaking industries and polygraphic industry Skins, leather and footwear Textiles and clothing

BORGO SAN LORENZO Skins, leather and footwear

Florence deserves to be further researched, as regards the urban strategies of development of the transportation plan TOD (Transit-Oriented Development) highlighted by other authors (Papa et al., 2015). Considering the importance of the town and the central role in the administrative region, the further increase of analysis and research could address the role of the capital in an attempt to increase investments in R & D by companies, encourage the process of internationalization, as well as investments associated with the supply chain (Colovic, 2007). Another aspect to be carefully analyzed is the possibility of building a model of multi-modal transportation network (Djurhuus, 2015), which would facilitate commuting - work of the people not only of the capital, but the entire region.

CASTELFIORENTINO

Skins, leather and footwear

EMPOLI

Textiles and clothing

FIRENZUOLA

Mechanic industry

SAN MINIATO

Skins, leather and footwear

AREZZO

Jewelry, musical instruments etc.

BIBBIENA

Household goods

SANSEPOLCRO

Textiles and clothing

PIANCASTAGNAIO

Skins, leather and footwear

POGGIBONSI

Household goods

SINALUNGA

Household goods

PRATO

Textiles and clothing

BARGA (large company) MONTEVARCHI (large company)

Papermaking industries and polygraphic industry

This not only demonstrates the eﬀectiveness of the model used and delivers more than gratifying results, but it also shows that the distribution of districts slavishly follows those territories, municipalities, which are most supplied with the basic infrastructure, as well as the improved accessibility.

Skins, leather and footwear

Source: based on ISTAT data

CONCLUSIONS The map clearly shows the accessibility/territorial attractiveness traced using the logistic function as impedance fits perfectly with the distribution of industrial districts.

The town of Florence is divided into 5 districts/neighborhoods: Centro storico, Campo di Marte, Gavinana-Galluzzo, Isolotto-Legnaia e Rifredi.

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Therefore, the company chooses to locate where the territory has the best features to facilitate trade in goods and services, as described in detail in the case of Tuscany. In addition, the company itself tends to change the territory onto which it settles, depending on the operation mode it has within the same territory. In the case of Tuscany, farms and related districts have found fertile ground, as the region is suitable for the establishment of manufacturing enterprises, able to “create a system”. In fact, most of the Tuscan industrial districts activities have been present for centuries on the territory. A further boost to this type of study lies in the possibility to expand to all Italian municipalities. Furthermore, in order to provide a detailed map of the territorial accessibility and their possibility of establishment at the municipal level, this type of research may involve not only Italy but the entire Europe. Especially, in the light of the recent and terrible killings involving the city of Paris and other European cities, it seems necessary to be better conversant with the territory and involve all local stakeholders, in order to successfully manage and prevent all criminal acts. Tuscany is a good example of how to create the paths of business development together with the local governance in order to improve the socio-economic performances of the region (Porter, 2003). Further research may relate to the assessment of the concept of proximity and location of activities of the population (Torre et al., 2005) in the light of the distribution of industrial districts and, more generally, production activities.

REFERENCES Becattini, G. (2000). Il distretto industriale. Un nuovo modo di interpretare il cambiamento economico. Torino: Rosenberg & Sellier. In Italian. Colovic, A. (2007). Appropriability, Proximity, Routines and Innovation. In: DRUID Summer Conference, 2007-06-18, Copenhagen. de Candia, G. (2015). Accessibility to Nodes of Interest: Demographic Weighting the Logistic Model. Expert Journal of Economics, 3(3), 155-160. 84

de Candia, G., & Chiocchini, R. (2014). Accessibility to nodes of interest: A practical application of the various forms of the impedance curves. Romanian Review Of Regional Studies, 10(1), 47-56. Djurhuus, S., Hansen, H. S., Aadahl, M., & Glümer, C. (2015). Building a multimodal network and determining individual accessibility by public transportation. Environment and Planning B, 43(1), 210-227. doi:10.1177/0265813515602594. ISTAT. (2009). Classificazione delle attività economiche Ateco 2007, Istat, Metodi e norme n. 40 Anno 2009. Retrieved March 30, 2016, from http://www3.istat. it/dati/catalogo/20090615_00/. In Italian. ISTAT. (2011). 15° Censimento generale della popolazione e delle abitazioni. Retrieved March 30, 2016, from http://www.istat.it/it/files/2012/12/volume_ popolazione-legale_XV_censimento_popolazione. pdf. In Italian. ISTAT. (2011). 9° Censimento dell’industria e dei servizi e Censimento delle istituzioni non profit. Retrieved March 30, 2016, from http://www.istat.it/it/censimento-industria-e-servizi/industria-e-servizi-2011. In Italian. ISTAT. (2014). I sistemi locali del lavoro 2011, Nota metodologica. Retrieved March 30, 2016, from http:// www.istat.it/it/archivio/142676. In Italian. ISTAT. (2015). I distretti industriali 2011. Retrieved March 30, 2016, from http://www.istat.it/it/files/2015/10/Idistretti-industriali-2011.pdf. In Italian. Marshall, A. (1890). Principles of economics. London: Macmillan. Ottati, D.G. (2015). Global competition and entrepreneurial behaviour in industrial districts: Trust relations in an italian industrial district. Retrieved March 30, 2016, from https://www.researchgate.net/ publication/241202242_Global_competition_and_ entrepreneurial_behaviour_in_industrial_districts_ Trust_relations_in_an_Italian_industrial_district Papa, E., & Bertolini, L. (2015). Accessibility and Transit-Oriented Development in European metropolitan areas. Journal of Transport Geography, 47, 70-83. doi:10.1016/j.jtrangeo.2015.07.003 Porter, M. (2003). The Economic Performance of Regions. Regional Studies, 37(6/7), 549-578. doi:10.1080/0034340032000108688 Torre, A., & Rallet, A. (2005). Proximity and Localization. Regional Studies, 39(1), 47-59. doi:10.1080/0034340052000320842

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PRISTUP ČVORNIM TAČKAMA: DISLOKACIJA INDUSTRIJSKIH OBLASTI U TOSKANI Rezime: U radu je dat prikaz različitih iskustava autora na temu atraktivnosti/dostupnosti teritorija. Za potrebe analize korišćen je gravitacioni model. Tačnije, logistika je korišćena kao funkcija impedanse, koja je do sada pružila najbolje rezultate prilikom sprovođenja analize teritorija. Celokupan postupak se sprovodi na opštinskom nivou. Rad ima za cilj da ispita vezu između ovih radova i mape indusrijskih oblasti koju je nedavno objavio Nacionalni institut za statistiku (ISTAT). Kao i u drugim publikacijama, analizom je obuhvaćena italijanska regija Toskana, koja daje detaljne podatke o dostupnosti na opštinskom nivou u odnosu na lokaciju industrijskih klastera. Grad Firenca je zasebno posmatran. Cilj rada jeste da se tvorcima politike pruže najbolje i najpreciznije informacije za potrebe upravljanja teritorijama u ekonomskom i finansijskom smislu.

Ključne reči: regionalni razvoj, kriva impedanse, teritorijalni statistički podaci, infrastruktura, industrijske oblasti, opština. Received: August 19, 2016 Correction: September 12, 2016 Accepted: September 19, 2016

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EJAE 2016

Instructions for authors

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

EJAE 2016

Instructions for authors

g. Government publication Format: Institution name. (Year of publication). Title. Place of publication: Publisher. Example: Ministerial Council on Drug Strategy. (1997). The national drug strategy: Mapping the future. Canberra: Australian Government Publishing Service. 2. Article a. Journal Article (one author) Format: Author. (Year of publication). Article title. Journal Title. Volume (issue), range of pages. doi. Example: Nikora, V. (2006). Hydrodynamics of aquatic ecosystems: Spatial-averaging perspective. Acta Geophysica, 55(1), 3-10. doi: 10.2478/s11600-006-0043-6. b. Journal Article (two or more authors) Format: Author1, Author2, & Author3. (Year of publication). Article title. Journal Title. Volume (issue), range of pages. doi. Example: Cudak, M., & Karcz, J. (2006). Momentum transfer in an agitated vessel with oďŹ&#x20AC;-centred impellers. Chem. Pap. 60(5), 375-380. doi: 10.2478/s11696-006-0068-y. c. Journal article from an online database Format: Author(s). (Year of publication). Article title [Electronic version]. Journal Title. Volume (issue), range of pages. Retrieved date of access, from name of database. doi. Example: Czajgucki Z., Zimecki, M., & Andruszkiewicz, R. (2006, December). The immunoregulatory eďŹ&#x20AC;ects of edeine analogues in mice [Abstract]. Cell. Mol. Biol. Lett. 12(3), 149-161. Retrieved December 6, 2006, from PubMed database on the World Wide Web: http://www.pubmed.gov. doi: 10.2478/s11658-006-0061-z. d. Newspaper article (no author) Format: Article title. (Publication date). Journal Title. page. Example: Amazing Amazon region. (1989, January 12). New York Times, p. D11. 3. Other formats a. Web page Format: Author/Sponsor. (last update or copyright date). Title. Retrieved date of access, from URL. Example: Walker, J. (1996, August). APA-style citations of electronic resources. Retrieved November 21, 2001, from http://www.cas.usf.edu/english/walker/apa.html.

EJAE 2016

Instructions for authors

b. Lecture note Format: Author(s). (Date of presentation). Lecture title. Lecture notes distributed in the unit, at the name of the teaching organisation, the location. Example: LiďŹ&#x20AC;ers, M. (2006, August 30). Finding information in the library. Lecture notes distributed in the unit Functional Anatomy and Sports Performance 1102, University of Western Australia, Crawley, Western Australia. c. Patent Format: Author. (Year). Patent number. The location. Issue body. Example: Smith, I. M. (1988). U.S. Patent No. 123,445. Washington, D.C: U.S. Patent and Trademark OďŹ&#x192;ce. d. Standard Format: Issue body. (Year). Standard name. Standard number. The location. Example: Standards Association of Australia. (1997). Australian standard: Pressure equipment manufacture. AS4458-1997. North Sydney. e. Computer software Format: Author(s). (Year). Title [computer software]. The location: Company. Example: Ludwig, T. (2002). PsychInquiry [computer software]. New York: Worth. Tables and figures and/or schemes should not be embedded in the manuscript but their position in the text indicated. In manuscript tables and figures should follow the text, each on a separate page.

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

7. FIGURES Authors may use line diagrams to illustrate theses from their text. The figures should be clear, easy to read and of good quality. Styles and fonts should match those in the main body of the article. Lettering and lines should be of uniform density and the lines unbroken. Axis labels should be in bold face. 91

EJAE 2016

Instructions for authors

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

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